Annual report
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(Incorporated in Hong Kong with limited liability) Stock code: 6055 China Tobacco International (HK) Company Limited ʮ̡ ʮ̡ ΅˾j 6055 China Tobacco International (HK) Company Limited ʮ̡ ANNUAL REPORTజѓ ʮ̡China Tobacco International (HK) Company LimitedAnnual Report 2024జѓ
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CONTENTS Definitions 2 Company Information 5 Financial Highlights 7 Group Structure 8 Chairman’s Statement 9 Management Discussion and Analysis 13 Review of Continuing Connected Transactions 19 Directors and Senior Management 48 Report of the Directors 54 Corporate Governance Report 66 Independent Auditor’s Report 85 Consolidated Statement of Profit or Loss and Other Comprehensive Income 90 Consolidated Statement of Financial Position 91 Consolidated Statement of Changes in Equity 93 Consolidated Statement of Cash Flows 94 Notes to the Financial Statements 95 Financial Summary 150
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China Tobacco International (HK) Company Limited 2 Definitions In this annual report, unless the context otherwise requires, the following terms shall have the meanings set forth below. “2021-2024 Offshore Supply Framework Agreements” the 2021-2024 offshore tobacco leaf products long-term supply framework agreements entered into between the Company, on one hand, and each of the relevant counterparties in the procurement transactions in the Tobacco Leaf Products Import Business, on the other hand, on 17 November 2021; “2021-2024 Tobacco Leaf Products Export Agency Agreements” the 2021-2024 tobacco leaf products export agency agreements entered into between the Company, on one hand, and each of the relevant counterparties in the Agency Business in the Sales of Tobacco Leaf Products, on the other hand, on 17 November 2021; “Acquisition” an acquisition by the Company of the entire issued and outstanding quotas of CTIB from CTIG pursuant to the terms and conditions of the Quota Purchase Agreement dated 23 September 2021 entered into by the Company and CTIG; “Agency Business in the Sale of Tobacco Leaf Products” the Group’s agency business whereby the Group acts as an agent in certain sale transactions of tobacco leaf products as part of the Tobacco Leaf Products Export Business; “AGM” annual general meeting of the Company; “Alliance One Brazil” Alliance One Brasil Exportadora de Tabacos Ltda., a company incorporated in Brazil on 28 October 1971 with limited liability; “Alliance One Group” Alliance One International and its subsidiaries, including Alliance One Brazil; “Alliance One International” Alliance One International, LLC, a company organised under the laws of North Carolina, United States in August 2018; “Audit Committee” the audit committee of the Board; “Board” or “Board of Directors” the board of Directors of the Company; “CBT” China Brasil Tabacos Exportadora S.A., a company incorporated in Brazil on 15 September 2011 with limited liability; “China” or “PRC” the People’s Republic of China; “China Tobacco” or “CNTC Group” CNTC and its subsidiaries; “Chinese Mainland” PRC excluding Hong Kong SAR, Macau SAR and Taiwan; “CNTC” China National Tobacco Corporation*ʕণᐼʮ̡, an enterprise incorporated in the PRC and the ultimate controlling shareholder of the Company; * for identification only
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Annual Report 2024 3 Definitions (Continued) “Company” China Tobacco International (HK) Company Limitedʮ̡, stock code: 6055, a company incorporated in Hong Kong with limited liability; “Connected Transactions Control Committee” the connected transactions control committee of the Board; “Corporate Governance Code” Corporate Governance Code as set out in Appendix C1 to the Listing Rules; “CTI” China Tobacco International Inc.*ʮ̡ , a company incorporated with limited liability in the PRC on 6 November 1984 and a wholly-owned subsidiary of CNTC; “CTIB” China Tabaco Internacional do Brasil Ltda.ʮ̡, a company incorporated in Brazil on 6 June 2002 with limited liability; “CTIB Group” CTIB and its subsidiaries, including CBT; “CTIG” China Tobacco International Group Limitedʮ̡, a company incorporated in Hong Kong with limited liability and the controlling shareholder of the Company; “Directors” the directors of the Company; “EGM” an extraordinary general meeting of the Company; “ESG” Environmental, Social and Governance; “Exclusive Operating Regions for Cigarettes” duty-free outlets of the Kingdom of Thailand, the Republic of Singapore, Hong Kong, Macau, as well as duty-free outlets within the borders, but outside the customs areas, of the Chinese Mainland; “Group”, “we” or “our” the Company and its subsidiaries; “HK$” or “Hong Kong dollars” Hong Kong dollars, the lawful currency of Hong Kong; “Hong Kong” or “HK” the Hong Kong Special Administrative Region of the PRC; “Latest Practicable Date” 15 April 2025; “Listing Date” 12 June 2019, the date on which the Shares were listed on the Main Board of the Stock Exchange; “Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented, or otherwise modified from time to time; “Macau” the Macau Special Administrative Region of the PRC; “Model Code” the Model Code for Securities Transactions by Directors of Listed Issuers contained in Appendix C3 to the Listing Rules; * for identification only
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China Tobacco International (HK) Company Limited 4 Definitions (Continued) “New Designated Regions for Cigarettes” areas other than (i) Exclusive Operating Regions for Cigarettes; and (ii) the Chinese Mainland; “No. 250 Notice” The Notices of Issuing Interim Measures on Strengthening the Planning and Pricing Management of Duty-free Cigarettes Export by STMA (Guoyanji [2017] No. 250) ࠇ [2017]250) issued by STMA on 15 September 2017; “Nomination Committee” the nomination committee of the Board; “Non-exclusive Operating Regions for Tobacco Leaf Products” areas other than (i) Southeast Asia, Hong Kong, Macau and Taiwan; and (ii) the Chinese Mainland; “Offshore Supply Framework Agreements” the Offshore Tobacco Leaf Products Long-Term Supply Framework Agreements entered into between the Company, on one hand, and each of CBT, CTI North America and China Tobacco International Argentina S.A., on the other hand, as of 28 November 2018; “Prospectus” the prospectus dated 28 May 2019 issued by the Company; “Pyxus” Pyxus International, Inc. (formerly known as and successor of Alliance One International Inc.), a company incorporated under the laws of Virginia, United States in August 2020 and trading on the New York OTC Market (OTC: PYYX); “R$” or “Real” Brazilian real, the lawful currency of Brazil; “Remuneration Committee” the remuneration committee of the Board; “Reporting Period” the year ended 31 December 2024; “RMB” Renminbi, the lawful currency of the PRC; “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time; “Share(s)” ordinary share(s) of the Company; “Shareholder(s)” holder(s) of the Share(s); “STMA” the State Tobacco Monopoly Administration of the PRCণਖ਼ር҅; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Strategic Development Committee” the strategic development committee of the Board; “Tobacco Leaf Products Export Agency Agreements” the tobacco leaf products export agency agreements entered into between the Company and each of certain entities under CNTC in the transactions where the Company acted as an agent as of 21 December 2018; “U.S. dollars” United States dollars, the lawful currency of the United States of America; “United States” the United States of America; and “%” percent.
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Annual Report 2024 5 Company Information (as of the Latest Practicable Date) Name in Chinese:ʮ̡ Name in English: China Tobacco International (HK) Company Limited Chairman of the Board and Non-Executive Director: SHAO Yan Executive Directors: DAI Jiahui WANG Chengrui XU Zengyun MAO Zilu Independent Non-Executive Directors: CHOW Siu Lui WANG Xinhua QIAN Yi HE Junhua General Manager: DAI Jiahui Company Secretary: WANG Chengrui Authorized Representatives: DAI Jiahui WANG Chengrui Audit Committee: CHOW Siu Lui (Chairman) WANG Xinhua HE Junhua Remuneration Committee: CHOW Siu Lui (Chairman) SHAO Yan WANG Xinhua Nomination Committee: SHAO Yan (Chairman) CHOW Siu Lui WANG Xinhua Connected Transactions Control Committee: WANG Xinhua (Chairman) QIAN Yi HE Junhua DAI Jiahui Strategic Development Committee: SHAO Yan (Chairman) DAI Jiahui XU Zengyun CHOW Siu Lui
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China Tobacco International (HK) Company Limited 6 (as of the Latest Practicable Date) Company Information (Continued) Stock Abbreviation Name: CTIHK Stock Code: 6055 Headquarters, Registered Office and Principal Place of Business: Room 1002, 10/F, Tower A, China Life Center, One Harbour Gate, 18 Hung Luen Road, Hung Hom, Kowloon, Hong Kong Legal Adviser: Linklaters Auditor: KPMG (Public Interest Entity Auditor registered in accordance with the Accounting and Financial Reporting Council Ordinance) Hong Kong Share Registrar: Computershare Hong Kong Investor Services Limited Principal Bankers: Bank of China (Hong Kong) Limited Company’s Website: www.ctihk.com.hk
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Annual Report 2024 7 Financial Highlights 2024 13,074,243 2023 11,836,221 Revenue HK$’000 HK$’000 HK$ Gross profit 2024 1,377,642 2023 1,088,324 2024 1.23 2023 0.87 Earnings per Share Basic and diluted 2024 2023 Year-on-year HK$’000 HK$’000 change (%) Operating Results Revenue 13,074,243 11,836,221 10.5% Gross profit 1,377,642 1,088,324 26.6% Profit for the year attributable to equity shareholders of the Company 853,735 598,773 42.6% Earnings per Share Basic and diluted (HK$) 1.23 0.87 41.4% Dividend per Share (HK$) 0.46 0.32 43.8% Financial Position Cash and cash equivalents and short-term bank deposits 2,857,574 2,331,956 22.5% Net assets 3,187,270 2,695,292 18.3% Financial Ratios Return of equity 28.3% 25.7% 2.6pp Current ratio 1.43 1.55 (12pp) To create higher returns for our Shareholders and share the results of our operating gains, after giving full consideration to the Group’s sound profitability and sufficient cash flow, the Board recommended a final dividend of HK$0.31 per Share for the year ended 31 December 2024. Together with the interim dividend of HK$0.15 per Share already distributed, the total dividend for the year amounted to HK$0.46 per Share, reflecting a year-on-year growth of 43.8%. The Company will strive to create more value for its Shareholders.
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China Tobacco International (HK) Company Limited 8 Group Structure CNTC Tobacco Leaf Products Import From regions around the world (other than from sanctioned countries and regions) Tobacco Leaf Products Export To Southeast Asia, Hong Kong, Macau, Taiwan and Non-exclusive Operating Regions for Tobacco Leaf Products Cigarettes Export To Exclusive Operating Regions for Cigarettes and New Designated Regions for Cigarettes New Tobacco Products Export To Global market (except Chinese Mainland) Brazil Operation* To Global market (except Chinese Mainland) 100% 72.29% 49% 27.71% CTIG CTIHKPublic Shareholders CTIB Alliance One Brazil CBT 51% 100% * This business segment is operated by CBT. * The section in blue represents all the businesses of the Group.
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Annual Report 2024 9 Chairman’s Statement Dear Shareholders, I am pleased to present our annual report for the year ended 31 December 2024 (the “Reporting Period”) for your review. In 2024, the Group adhered to the development philosophy of “respecting the market, respecting rules, and respecting investors”. We focused on international market expansion, enhancing corporate governance standards, and we committed to the realization of social value. By deepening our existing business advantages and promoting the development of innovative businesses, we achieved significant year-on-year growth in overall performance. Specifically, we realized a cumulative operating revenue of HK$13.07 billion, representing a year-on-year increase of 10.5%; and realized the profit for the year attributable to equity shareholders of the Company of HK$854 million, up by 42.6% year-on-year. The main operational achievements of the Group for the year are as follows: – In terms of Tobacco Leaf Products Import Business, we have strengthened our capability in matching the supply and demand sides of tobacco leaf resources and continued to refine our system for ensuring a supply of high-quality tobacco leaf raw materials. We have enhanced our participation in the raw tobacco leaves market to proactively address fluctuations in production caused by extreme weather; deepened the synergistic collaboration between supply and demand sides to stabilize the upstream and downstream supply chains, enhanced product matching, to ensure a stable supply of high-quality tobacco leaf raw materials. – In terms of Tobacco Leaf Products Export Business, we have actively expanded market channels to continuously improve business profitability. Effective measures have been taken to optimize market layout and continuously expand business in non-exclusive operating regions; signed long-term supply agreements with key customers and suppliers to stabilize relationships with both supply and demand sides; proactively seized the trend of market demand growth, continuously optimized pricing mechanisms to improve our profitability. Revenue Reached HK$13.07 Billion a year-on-year increase of 10.5% Realized the profit for the year attributable to equity shareholders of the Company of HK$854 million up by 42.6% year-on-year
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China Tobacco International (HK) Company Limited 10 Chairman’s Statement (Continued) – In terms of Cigarettes Export Business, our proprietary business has shown significant improvement, and initial results have been achieved in the development of duty-paid market business. Focused on brand cultivation and market expansion, we continuously optimized product specification portfolio, and deeply explored incremental potential in existing channels. We effectively promoted the duty-paid market business, and sales of new cigarettes and cigar products and advanced comprehensive improvement of business profitability, and strengthened the lean management of the supply chain. These efforts have collectively driven efficient and sustainable business development. – In terms of New Tobacco Products Export Business, we have focused on key markets to expand brand influence. We have actively promoted new growth drivers for the Group’s development, optimizing the efficiency of the supply chain at both production and sales ends, and improving product innovation and craftsmanship. By fully leveraging the advantages of our business platform, we have continuously refined our business strategies, optimized market layout and product specification portfolio to enhance brand competitiveness and steadily increase profitability levels. – In terms of Brazil Operations Business, we have focused on controlling core resources and broadening sales channels. We have actively expanded the regions and scale of raw tobacco acquisition, introduced new categories of cigar tobacco leaf supply to enhance our capability in tobacco raw material allocation. By actively broadening sales channels, we have established a more extensive and robust customer network, thereby improving business profitability. Additionally, we have provided precise services to core customers, effectively enhancing product traceability and comprehensive ESG performance. – In terms of operational management, we have continuously implemented “Lean Management” to comprehensively enhance the Company’s governance capabilities. We have strengthened our strategic planning, optimized our resource allocation, focused on business planning, reinforced risk prevention, emphasized our budget management, improved asset management levels, enhanced the level of our internal control management, reduced financing and operating costs. Additionally, we have implemented ERP system upgrades to achieve digital reconstruction of business processes, thereby enhancing the level of intelligent corporate management. Furthermore, we have comprehensively revitalized our official website to create an information interaction platform to strengthen investor relations interactions and improve the Group’s external image. – In terms of human resource management, we have have focused on core business development needs, continuously enriched our talent pool and improved our human resources management system. We have implemented the “Nine-Year Career Development Plan” for employees, and provided clear career paths for our staff. Additionally, we have established a mentorship program, matching new employees with “one-on-one” mentors to enhance their business skills and professional ethics education. Furthermore, we have conducted regular employee satisfaction surveys, continuously optimize human resource management policies to enhance employees’ sense of accomplishment and happiness. – In terms of ESG management, we have continued to increase our investments in ESG, aiming for a concerted effort between ESG initiatives and corporate development. We have consistently improved our ESG institutional framework and developed our ESG development pathway, effectively enhancing the Group’s ESG governance level. We have actively explored green and low-carbon innovative practices, progressively building a sustainable supply chain to foster climate-resilient “competitiveness”. Furthermore, we have engaged in social welfare initiatives, providing community support and creating employment and internship opportunities for local youth. We have continually enhanced our ESG performance, consistently receiving recognition from authoritative international institutions.
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Annual Report 2024 11 Chairman’s Statement (Continued) 2025 OUTLOOK Looking ahead to 2025, in light of the evolving landscape and emerging dynamics, as a Chinese saying goes, “A man of wisdom adapts to changes, a man of knowledge acts by circumstances”, the Group will remain committed to its strategic positioning as a “Capital Market Operations and International Business Expansion Platform”. Embracing the ethos of “Aspiring Beyond Limits”, we will prioritize progress in the following key areas: – Committed to continuously enhancing our profitability and delivering long-term value to our Shareholders. The Group will focus on sustainable development, steadily increase business scale, operational quality and profitability. We ensure stable increases in dividend per Share, thereby bring long-term sustainable returns to Shareholders. – Adhere to the synergy and development of “organic and inorganic growth”, continuously focus on capital operation platform construction. We proactively seek out, screen, and track high-quality targets that align with the Group’s development strategy, and timely conduct investments and acquisitions, striving for leapfrog development. – Dynamically analyse international tobacco leaf market trends, and systematically improve business profitability. We will strengthen supply chain resilience, and enhance the capability to respond to supply and demand fluctuations in the international tobacco leaf market, to ensure stable supply of high-quality, cost-effective imported tobacco leaves; strengthen synergies with subsidiaries to expand the supply channel of tobacco leaves; leverage core competitive advantages, deepen cooperation with key customers in key markets, cultivate growth points in emerging markets, and accelerate the global layout of customer networks. – Continuously focus on the development of our cigarettes brand, optimisation of product structure and portfolio to enhance business profitability. We will deepen strategic cooperation with Chinese cigar enterprises, gradually expand cigar business market coverage; steadily advance the expansion of the duty-paid market to boost product competitiveness, while actively exploring new markets to expand our operational regions. – Coordinate the innovative development of new tobacco products, enhancing international brand recognition. We will continue to deepen cooperation across both production and sale sides, drive technological innovation and product iteration upgrades in the new tobacco products, and enhance product competitiveness; continuously optimize the business expansion model and pricing strategies for key markets, with a focus on cultivating international brand influence in these key markets. – Adhere to the “three enhancements and one control” development approach, continuously strengthen CBT core competitiveness. We are committed to integrating the concepts of “enhancing quality control, elevating ESG level, improving brand image, and managing costs and expenses” into the production and sales processes of tobacco leaves; comprehensively strengthen CBT sales team construction to continuously broaden our sales regions and enriching our customer base, enhance the resilience of our business development. – Focus on corporate governance and continuously improve the Group’s governance system. We will strengthen our forward-looking and predictive capabilities, enhance operational cost control, and elevate the level of meticulous management in financial resources. We will optimize operational management processes and continually improve the level of information system construction to improve corporate governance efficiency. Additionally, we will persist in refining the compliance risk system to boost our risk prevention and control capabilities. We will also continue to maintain efficient communication with domestic and foreign investors to comprehensively enhance the Group’s influence in the global capital markets.
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China Tobacco International (HK) Company Limited 12 Chairman’s Statement (Continued) – Dynamically optimize our human resource strategies, focusing on building a market-oriented, international, and professional talent pool. We will optimize and continue to implement the “Nine-Year Career Development Plan” and mentorship programs to strengthen employee growth guidance. We will also maintain our internship program to build a future talent reserve team. Additionally, we will improve our internal training system, organizing high-quality training courses to provide comprehensive support for employees’ career development. Furthermore, we will optimize employee relationship management to enhance employee satisfaction and foster a cohesive and motivated work atmosphere. – Focus on social value, drive high-quality sustainable development across multiple dimensions. We continue to refine our integrated ESG framework, embedding the principles of “Greener and More Sustainable” practices into all operational aspects to ensure the Group’s long-term sustainability. Last but not least, on behalf of the Board of Directors, I would like to extend my sincere gratitude to our Shareholders, investors, customers, partners for their long-standing support for the Group. I also wish to express heartfelt thanks to the management team and all employees for their tireless efforts over the past year. With your collective support and dedication, we are confident that the Group will unite and strive forward, focusing on enhancing our core competitiveness and actively fulfilling our corporate social responsibilities. As we achieve high-quality development in our international business, we are committed to continuously improving profitability, creating more value for our Shareholders, and making greater contributions to society. SHAO Yan Chairman of the Board and Non-Executive Director Hong Kong, 6 March 2025
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Annual Report 2024 13 Management Discussion and Analysis BUSINESS OPERATION REVIEW Core Businesses Tobacco Leaf Products Import Business For the year ended 31 December 2024, the import volume of tobacco leaf products of the Group reached 111,980 tons, representing a decrease of 5,236 tons or 4.5% on a year-on-year basis. The operating revenue reached HK$8,254.2 million, representing an increase of HK$175.2 million or 2.2% on a year-on-year basis. The gross profit reached HK$825.6 million, representing an increase of HK$93.2 million or 12.7% on a year-on-year basis. The increase in the results was mainly attributable to: (1) the increase in the proportion of Brazil tobacco leaf products with higher gross profit margin that arrived at the ports during the year; and (2) an increase in the overall unit sale prices of imported tobacco leaf products during the year as compared to last year. Import Volume 111,980 tons 4.5% Operating Revenue HK$8,254.2 million 2.2% Tobacco Leaf Products Export Business For the year ended 31 December 2024, the export volume of tobacco leaf products of the Group reached 83,468 tons, representing an increase of 12,959 tons or 18.4% on a year-on-year basis. The operating revenue reached HK$2,061.5 million, representing an increase of HK$409.3 million or 24.8% on a year-on-year basis. The gross profit reached HK$83.9 million, representing an increase of HK$38.7 million or 85.8% on a year-on-year basis. The substantial increase in the results was mainly attributable to: (1) the proactive efforts of the Group in organising marketable sources of tobacco leaves to seize the increasing demand for tobacco leaves in international markets, resulting in a recorded growth in the export volume of tobacco leaf products on a year-on-year basis; and (2) optimisation of pricing strategies, enhancement of the bargaining power on both supply and demand sides, leading to the substantial growth in revenue and gross profit of Tobacco Leaf Products Export Business. Export Volume 83,468 tons 18.4% Operating Revenue HK$2,061.5 million 24.8%
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China Tobacco International (HK) Company Limited 14 Management Discussion and Analysis (Continued) Cigarettes Export Business For the year ended 31 December 2024, the export volume of cigarettes of the Group reached 3,339,700 thousand sticks, representing an increase of 535,833 thousand sticks or 19.1% on a year-on-year basis. The operating revenue reached HK$1,573.6 million, representing an increase of HK$364.9 million or 30.2% on a year-on-year basis. The gross profit reached HK$277.4 million, representing an increase of HK$113.4 million or 69.1% on a year-on-year basis. The significant growth in results was mainly due to: (1) the Group’s active expansion of its operating regions, promotion of the duty-paid business, and expansion of market coverage, and proactive introduction of new cigarette products, enhancing the momentum of business development; and (2) continuous optimization of cigarette business structure and product portfolio and expansion of the scale and proportion of our proprietary business, driving for the substantial growth in gross profit. Export Volume 3,339,700 thousand sticks 19.1% Operating Revenue HK$1,573.6 million 30.2% New Tobacco Products Export Business For the year ended 31 December 2024, the export volume of new tobacco products of the Group reached 761,910 thousand sticks, representing an increase of 84,600 thousand sticks or 12.5% on a year-on-year basis. The operating revenue reached HK$135.2 million, representing an increase of HK$5.2 million or 4.0% on a year-on-year basis. The gross profit reached HK$7.0 million, representing an increase of HK$1.3 million or 22.9% on a year-on-year basis. The growth in results was mainly due to: (1) the increase in demand for orders in key markets and key channels resulting from focusing on the cultivation and development of key brands, exploring the incremental potential for expansion of market channels; and (2) continuous optimisation of its business model, enriching the product portfolio, and improving the pricing strategy, so as to continuously bolstering profitability. Export Volume 761,910 thousand sticks 12.5% Operating Revenue HK$135.2 million 4.0%
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Annual Report 2024 15 Management Discussion and Analysis (Continued) Brazil Operation Business For the year ended 31 December 2024, the export volume of tobacco leaf products to areas outside China from CBT, a non-wholly-owned subsidiary of CTIB, reached 31,627 tons, representing a decrease of 769 tons or 2.4% on a year-on-year basis. The operating revenue reached HK$1,049.6 million, representing an increase of HK$283.3 million or 37.0% on a year-on-year basis. The gross profit was HK$183.8 million, representing an increase of HK$42.7 million or 30.3% on a year-on-year basis. The substantial increase in the results was mainly due to: (1) a relatively significant increase in the proportion of sales volume of finished tobacco strips with higher unit sale prices during this year; and (2) an increase in the overall unit sale prices of Brazilian tobacco leaf products during this year as compared to last year. Export Volume 31,627 tons 2.4% Operating Revenue HK$1,049.6 million 37.0% The overview of the Group’s performance, trends and significant events during the financial year and outlook for 2025 are set out in the Chairman’s Statement of this annual report. FINANCIAL REVIEW Revenue, Cost of Sales and Gross Profit Gross Profit HK$1,377.6 million 26.6% For the year ended 31 December 2024, the Group’s revenue increased by 10.5% to HK$13,074.2 million (2023: HK$11,836.2 million) as compared with the same period in 2023, cost increased by 8.8% to HK$11,696.6 million (2023: HK$10,747.9 million) as compared with the same period in 2023, and gross profit increased by 26.6% to HK$1,377.6 million (2023: HK$1,088.3 million) as compared with the same period in 2023. The increase in the overall financial performance of the Group was mainly driven by the growth in the Cigarettes Export Business, the Tobacco Leaf Products Import Business and the Brazil Operation Business. Other Income, Net For the year ended 31 December 2024, the Group’s other income, net increased by 32.1% to HK$120.4 million (2023: HK$91.1 million other income, net) as compared with the same period in 2023, which was mainly due to the significant increase in interest income driven by a higher average deposit interest rate and an increase in short-term bank deposits.
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China Tobacco International (HK) Company Limited 16 Management Discussion and Analysis (Continued) Administrative and Other Operating Expenses For the year ended 31 December 2024, the Group’s administrative and other operating expenses increased by 3.5% to HK$158.4 million (2023: HK$153.0 million) as compared with the same period in 2023. The year-on-year growth in administrative and other operating expenses remained relatively stable, while the Group’s revenue and profit for the year experienced a substantial increase, which was primarily attributed to the Group’s effective cost management and optimisation of expenditure structure. Finance Costs Finance Costs HK$224.1 million 33.9% For the year ended 31 December 2024, the Group’s finance costs increased by 33.9% to HK$224.1 million (2023: HK$167.4 million) as compared with the same period in 2023. The expenses were primarily interest on bank borrowings and other finance costs. The significant increase in finance costs was mainly due to the increase of CBT bank borrowings balance and bank borrowings interest rates. Profit and Profit Attributable to Equity Shareholders of the Company for the Year Profit Attributable to Equity Shareholders of the Company for the Year HK$853.7 million 42.6% For the year ended 31 December 2024, profit for the year attributable to equity shareholders of the Company increased by 42.6% to HK$853.7 million (2023: HK$598.8 million) as compared with the same period in 2023. The Group’s profit for the year increased by 30.4% to HK$902.8 million (2023: HK$692.4 million) as compared to the same period in 2023. The year-on-year increase in profit for the year attributable to equity shareholders of the Company and the Group’s profit for the year was mainly driven by the growth in the Cigarettes Export Business, the Tobacco Leaf Products Import Business, the Brazil Operation Business and interest income. Earnings per Share Earnings per Share Basic and diluted HK$1.23 41.4% The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the Group of HK$853.7 million (2023: HK$598.8 million) and the weighted average of 691,680,000 ordinary shares (2023: 691,680,000 shares) in issue during the year ended 31 December 2024. For the year ended 31 December 2024, the Group’s earnings per Share were HK$1.23 (for the year ended 31 December 2023: HK$0.87). Diluted earnings per Share presented is the same as the basic earnings per Share as there were no potentially dilutive ordinary shares issued.
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Annual Report 2024 17 Management Discussion and Analysis (Continued) Net Current Assets As at 31 December 2024, net current assets of the Group amounted to HK$2,837.8 million (as at 31 December 2023: HK$2,216.0 million). Significant Investments During the year ended 31 December 2024, the Group did not have any significant investments. Material Acquisition and Disposal The Group did not conduct any material acquisition or disposal of any subsidiary, associate or joint venture during the year ended 31 December 2024. Capital Expenditures Save as disclosed in this annual report, at 31 December 2024, the Group had no plan relating to material investments and capital assets. INDEBTEDNESS Borrowings As at 31 December 2024, all of the bank borrowings were unsecured, carried at amortised cost and expected to be settled within one year. All of the bank borrowings borne fixed interest and the weighted average interest rates were 7.76% per annum (as at 31 December 2023: 7.58%). Exposure to Fluctuations in Exchange Rates The Group is exposed to currency risk primarily through sales and purchases which give rise to receivables, payables and cash balances that are denominated in Real. The Group did not enter into any hedging arrangements to hedge against our exposure to foreign exchange risk but will closely monitor such risk on an ongoing basis. Contingent Liabilities As at 31 December 2024, the Group had no significant contingent liabilities (as at 31 December 2023: nil). Pledge of Assets As at 31 December 2024, the Group did not pledge any assets (as at 31 December 2023: nil).
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China Tobacco International (HK) Company Limited 18 Management Discussion and Analysis (Continued) Liquidity, Financial Resources and Gearing Ratio As at 31 December 2024, total assets of the Group amounted to HK$9,816.7 million (as at 31 December 2023: HK$6,740.4 million) and cash and cash equivalents and short-term bank deposits of HK$2,857.6 million (as at 31 December 2023: HK$2,332.0 million). The Board is of the opinion that the Group has sufficient resources to support its operations and meet its foreseeable capital expenditures. As at 31 December 2024, total liabilities of the Group amounted to HK$6,629.4 million (as at 31 December 2023: HK$4,045.1 million). As at 31 December 2024, the Group had a gearing ratio (being borrowings and lease liabilities divided by total equity) of 0.94 (as at 31 December 2023: 0.92). As at 31 December 2024, the Group had a current ratio (being current assets divided by the current liabilities) of 1.43 (as at 31 December 2023: 1.55). EMPLOYEES As at 31 December 2024, the Group had 53 (as at 31 December 2023: 42) employees in Hong Kong and 265 (as at 31 December 2023: 239) employees (excluding seasonal workers) in Brazil. For the year ended 31 December 2024, the staff cost incurred by the Group amounted to HK$107.3 million (2023: HK$102.8 million). The Group strives to remunerate our employees on a market-competitive basis and has established internal policies. The remuneration package of all employees comprises basic salary, performance-related bonus and certain other employee benefits. The Group reviews the remuneration package of its employees annually in reference to the pay trend of the Hong Kong and Brazil markets with consideration of factors such as years of service, relevant professional experience, and performance evaluations. The Group is committed to building a learning organization. In terms of training and development, we have established a comprehensive training system that covers business knowledge, skills training, and compliance with listing requirements, among other aspects, to enhance employees’ overall quality and professional capabilities. Additionally, the Company has introduced a “nine-year plan” for employee development and a mentorship program, providing personalized career path planning and coaching to help employees achieve their personal career goals. The company’s general manager personally delivers “The First Lesson for New Employees”, while the management team and department heads conduct training sessions on relevant business areas. Various departments organize training programs based on their functions and actual needs. Throughout the year, we have conducted a diverse range of training sessions, including new employee onboarding, introduction to core business operations, analysis of macroeconomic trends, industry dynamics and trend analysis, compliance with listing requirements, internal rules and procedures, use of professional tools and systems, information security, ESG, and human resource management.
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Annual Report 2024 19 Review of Continuing Connected Transactions Connected Persons (a) Connected Persons at Issuer Level CNTC and CTIG are the Company’s substantial shareholders. Under the Listing Rules, CNTC and CTIG and their respective subsidiaries (including CTI which is a wholly-owned subsidiary of CNTC), are the Company’s connected persons at issuer level. (b) Connected Persons at Subsidiary Level On 26 November 2021, the Company completed the Acquisition of the entire issued and outstanding quotas of CTIB from CTIG pursuant to the terms and conditions of the Quota Purchase Agreement dated 23 September 2021 entered into by the Company and CTIG. As at the Latest Practicable Date, CBT is owned as to 51% by CTIB and 49% by Alliance One Brazil. For more information on the Acquisition, please refer to the Company’s announcements dated 23 September 2021, 22 October 2021 and 29 November 2021 and circular dated 29 September 2021. After the completion of the Acquisition on 26 November 2021 and as of the Latest Practicable Date, CTIB has become a wholly-owned subsidiary of the Company and CBT has become an indirect non-wholly owned subsidiary of the Company. As Alliance One International through its wholly owned subsidiary, Alliance One Brazil, holds 49% of the total issued share capital of CBT, Alliance One Group are the Company’s connected persons at the subsidiary level. Continuing Connected Transactions During the Reporting Period, the Group conducted certain transactions with the above connected persons of the Company at the issuer level in the ordinary course of business, and these transactions constituted continuing connected transactions of the Company (the “Continuing Connected Transactions at Issuer Level”) under the Listing Rules. During the Reporting Period, the Group (including the Company and CBT) conducted certain transactions with the above connected persons of the Company at the subsidiary level in the ordinary course of business, and these transactions constituted continuing connected transactions of the Company (the “Continuing Connected Transactions at Subsidiary Level”, together with the Continuing Connected Transactions at Issuer Level, the “Continuing Connected Transactions”) under the Listing Rules. We have followed the pricing policies set forth in the Exclusive Operation and Long-Term Supply Framework Agreements as well as pricing policies in connection with the Continuing Connected Transactions at Issuer Level and the Continuing Connected Transactions at Subsidiary Level as set forth below as well as the guidelines under the Listing Rules in determining the prices and terms of the connected transactions conducted during the Reporting Period. During the Reporting Period, the aggregate revenue amount of the Continuing Connected Transactions at Issuer Level and the Continuing Connected Transactions at Subsidiary Level was HK$8,256.3 million and HK$1,149.7 million, respectively, accounting for approximately 63.2% and 8.8% of our total revenue, respectively, during the Reporting Period. The total procurement of the Continuing Connected Transactions at Issuer Level and the Continuing Connected Transactions at Subsidiary Level was HK$4,043.1 million and HK$2,713.1 million, respectively, accounting for approximately 28.6% and 19.2% of our total purchase, respectively, during the Reporting Period. The details of the Continuing Connected Transactions conducted by the Group during the Reporting Period that are subject to reporting requirement under the Listing Rules are set out in this section. Unless otherwise defined herein, capitalised terms used in this section shall have the same meaning as those defined in the Prospectus.
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China Tobacco International (HK) Company Limited 20 Review of Continuing Connected Transactions (Continued) (A) Sales Transactions in the Tobacco Leaf Products Import Business To facilitate that sales of imported tobacco leaf products to CTI, as of 31 December 2024, the Company and CTI have entered into a Tobacco Leaf Products Import Business Exclusive Operation and Long-Term Supply Framework Agreement (the “Tobacco Leaf Products Import Framework Agreement”), pursuant to which we sell imported tobacco leaf products to CTI as part of the Tobacco Leaf Products Import Business. The term of the Tobacco Leaf Products Import Framework Agreement shall be indefinite, unless terminated by the Company in accordance with the terms and conditions thereunder. Parties The Company and CTI Pricing Policies With respect to the Tobacco Leaf Products Import Business, the currently applicable pricing document is the Approval of Matters Including the Adjustment of Commission Rates Relating to Tobacco Leaves Import by China Tobacco International Company Limited (Zhongyanban (2018) No. 135)ʮ̡ආɹ˾ ҭᔧ ʕ፬[2018]135) issued by CNTC on 17 July 2018 (the “No.135 Notice”), which sets forth that: P = A × 1.06 Where P = Price at which we sell tobacco leaf products to CTI; A = Price at which suppliers sell the tobacco leaf products to us. The price at which we procure tobacco leaf products from overseas suppliers is determined through arm’s length negotiation with (i) independent third party suppliers, or (ii) connected persons, including CTI North America, taking into consideration factors including current international market condition, relationship with the supplier, past procurement prices, product quality and annual production volume. We utilise the same pricing mechanism in transactions with both independent third parties and connected persons. We currently sell tobacco leaf products to CTI after adding a 6% margin to our procurement prices from our suppliers, other than a small portion of tobacco leaf products imported for manufacturing certain cigarette brands, for which we apply a 3% margin. For details of the sales transactions in the Tobacco Leaf Products Import Business, including but not limited to the background of the Tobacco Leaf Products Import Framework Agreement and the respective pricing policy of the relevant products, please refer to the Prospectus. Transaction Amount during the Reporting Period The Company was granted a waiver from strict compliance with the annual cap requirement by the Stock Exchange, which allows us not to set annual caps for the sales transactions under the Tobacco Leaf Products Import Framework Agreement. During the Reporting Period, the amount of the sales transactions which constitute connected transactions in the Tobacco Leaf Products Import Business was HK$8,254.2 million, accounting for 100% of the total revenue of our Tobacco Leaf Products Import Business.
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Annual Report 2024 21 Review of Continuing Connected Transactions (Continued) (B) Procurement Transactions in the Tobacco Leaf Products Export Business We conduct our Tobacco Leaf Products Export Business in our ordinary course of business. Connected transactions contemplated under our Tobacco Leaf Products Export Business include the procurement of tobacco leaf products from certain entities under CNTC, including the import-export companies and industrial companies. To facilitate the above transactions, as of 31 December 2024, the Company and each of the relevant entities under CNTC have entered into the Tobacco Leaf Products Export Exclusive Operation and Long-Term Supply Framework Agreements (the “Tobacco Leaf Products Export Framework Agreements”), pursuant to which we procure tobacco leaf products from such connected persons. The term of each Tobacco Leaf Products Export Framework Agreement shall be indefinite, unless terminated by the Company in accordance with the terms and conditions thereunder. Parties The Company and each of the entities under CNTC below: • Shanghai Tobacco Group Co., Ltd*பʮ̡ ; • China Tobacco Zhejiang Industrial Co., Ltd*பʮ̡ ; • China Tobacco Yunnan Industrial Co., Ltd*பʮ̡ ; • China Tobacco Fujian Industrial Co., Ltd*பʮ̡ ; • China Tobacco Yunnan Import and Export Co., Ltd*ʮ̡ ; • China Tobacco Sichuan Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Shandong Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Guangdong Import and Export Co., Ltd*ʮ̡ ; • China Tobacco Henan Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Hubei Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Hunan Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Fujian Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Guizhou Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Liaoning Import and Export Company*ʕণ፱ྐྵආ̈ɹʮ̡ ; • China Tobacco Heilongjiang Import and Export Co., Ltd*பʮ̡ ; • Xinjiang Tobacco Import and Export Co., Ltd*பʮ̡ ; * For identification only
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China Tobacco International (HK) Company Limited 22 Review of Continuing Connected Transactions (Continued) • Zhejiang Tobacco Import and Export Co., Ltd*ʮ̡ ; • Shenzhen Tobacco Import and Export Co., Ltd*ʮ̡ ; • Shaanxi Tobacco Import and Export Co., Ltd*பʮ̡ ; and • Viniton Group Co., Ltd*ʮ̡ . Pricing Policies With respect to our Tobacco Leaf Products Export Business, the Company first obtains indicative sales terms, which include quantity, specification, quality, acceptable price range and others, from potential independent third party customers. The Company then solicits offer from various suppliers of tobacco leaf products by obtaining samples, price quotes and price floors. The Company compares the terms and samples obtained and selects the supplier that offers the most favourable terms for commercially viable tobacco leaf products. Based on the market condition and its own evaluation of the quality of the samples, the Company provides the customers with price quotes and negotiates with them based on the suppliers’ price floor. Our suppliers may also offer their products to us without any solicitation, and we will take such products into account in our future sales to customers where the products meet the demand of the customers and compare the samples as well as the other terms with those provided by the other suppliers. Procurement by the Company and by third parties from our suppliers are subject to the same pricing formulae in similar transactions and therefore our procurement has been conducted based on normal commercial terms. The pricing formula is shown as below: P = A × (1 – applicable margin) Where P = Procurement price from domestic suppliers of tobacco leaf products; A = Price at which the Company sells the tobacco leaf products to independent third parties. The price at which the Company sells tobacco leaf products to third party customers is determined through arm’s length negotiation between the parties. Specifically, our sales prices comprise: (i) our suppliers’ costs associated with the processing of tobacco leaf products, which include cost of raw material, utility cost, rent of factory premises, storage expenses, staff costs and others; (ii) prevailing market price of shipping costs and insurance costs; (iii) applicable premium or discount in relation to product quality and the corresponding market status of a particular grade of tobacco leaf products (for example, the premium of tobacco leaf products produced in Yunnan Province is usually considered higher due to the different grades of tobacco leaf products); and (iv) other factors, including prevailing supply and demand in the tobacco leaf products market (such as seasonal domestic production volume and demand by overseas manufacturers for tobacco leaf products produced in different regions in China), fluctuation in the exchange rate between Hong Kong dollars and local currency at the export destinations, relationship with trading counterparties, past sales prices, local taxation at export destinations and other factors. Import tariffs charged by export destinations are borne by the buyers. From 1 January 2024, the applicable margins for the exported tobacco leaf products are not less than 1%, not less than 2% and not less than 4%, depending on the types of the exported tobacco leaf products, crop year, unit sale price, customers and suppliers. Factors taken into consideration in setting these margins include relevant operating costs of the Company and reasonable profit margin. These applicable margins may be adjusted in the future based on changing market conditions and relevant costs of the Company in operating such business. * For identification only
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Annual Report 2024 23 Review of Continuing Connected Transactions (Continued) For details of the procurement transactions in the Tobacco Leaf Products Export Business, including but not limited to the background of the Tobacco Leaf Products Export Framework Agreements and the respective pricing policy of the relevant products, please refer to the Prospectus. Transaction Amount during the Reporting Period The Company was granted a waiver from strict compliance with the annual cap requirement by the Stock Exchange, which allows us not to set annual caps for the procurement transactions under the Tobacco Leaf Products Export Framework Agreements. During the Reporting Period, the amount of the procurement transactions which constitute connected transactions in the Tobacco Leaf Products Export Business was HK$1,970.0 million, accounting for 99.6% of the total purchase of our Tobacco Leaf Products Export Business. (C) Procurement Transactions in the Cigarettes Export Business As of 31 December 2024, the Company and each of the relevant entities under CNTC have entered into the Cigarettes Export Business Exclusive Operation and Long-Term Supply Framework Agreements (the “Cigarettes Export Framework Agreements”), pursuant to which we procure duty-free cigarettes from the Company’s connected persons. The term of each Cigarettes Export Framework Agreement shall be indefinite, unless terminated by the Company in accordance with the terms and conditions thereunder. Parties The Company and each of the entities under CNTC below: • China Tobacco Sichuan Industrial Co., Ltd*பʮ̡ ; • China Tobacco Anhui Industrial Co., Ltd*பʮ̡ ; • China Tobacco Jiangsu Industrial Co., Ltd*பʮ̡ ; • Tobacco Henan China Industrial Co., Ltd*பʮ̡ ; • China Tobacco Zhejiang Industrial Co., Ltd*பʮ̡ ; • Shenzhen Tobacco Industrial Co., Ltd*பʮ̡ ; • China Tobacco Hubei Industrial Co., Ltd*பʮ̡ ; * For identification only
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China Tobacco International (HK) Company Limited 24 Review of Continuing Connected Transactions (Continued) • China Tobacco Hunan Industrial Co., Ltd*பʮ̡ ; • China Tobacco Guizhou Industrial Co., Ltd*பʮ̡ ; • China Tobacco Shaanxi Industrial Co., Ltd*பʮ̡ ; • China Tobacco Guangdong Industrial Co., Ltd*பʮ̡ ; • Hongta Liaoning Tobacco Co., Ltd*பʮ̡ ; • Shanghai Tobacco Group Co., Ltd*பʮ̡ ; • China Tobacco Shandong Industrial Co., Ltd*பʮ̡ ; • China Tobacco Chongqing Industrial Co., Ltd*பʮ̡ ; • China Tobacco Yunnan Industrial Co., Ltd*பʮ̡ ; • China Tobacco Jilin Industrial Co., Ltd*பʮ̡ ; • China Tobacco Guangxi Industrial Co., Ltd*பʮ̡ ; • China Tobacco Hebei Industrial Co., Ltd*பʮ̡ ; and • China Tobacco Jiangxi Industrial Co., Ltd*பʮ̡ . Pricing Policies With respect to the Cigarettes Export Business, we apply different pricing policies for different categories of cigarettes, namely, premium and other first tier duty-free cigarettes as well as the other duty-free cigarettes according to the No. 250 Notice effective on 1 January 2018. * For identification only
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Annual Report 2024 25 Review of Continuing Connected Transactions (Continued) (i) Premium and Other First Tier Duty-Free Cigarettes The pricing of our premium and other first tier duty-free cigarette products are determined in compliance with the current pricing regime for the duty-free cigarettes established by STMA, the price at which any operating entity procures premium and other first tier duty-free cigarettes from entities under CNTC must be determined in compliance with the No. 250 Notice issued in September 2017. According to the No. 250 Notice issued by STMA, the export prices of premium cigarettes shall not be lower than 35% of the tax-excluded allocation price of those sold domestically, while the export prices of other first tier duty-free cigarettes shall not be lower than 45% of the tax-excluded allocation price of those sold domestically. Our suppliers must comply with the price floors set by STMA, which are tied to the relevant cigarette allocation prices that are also determined by STMA. On the basis of those price floors, we determine our ultimate procurement prices through arm’s length negotiations with relevant entities under CNTC in procuring premium cigarettes and first tier cigarettes for export sales. Specifically, our procurement prices generally comprise: (i) suppliers’ costs associated with the manufacturing of cigarettes, which include cost of raw material, utility cost, rent of factory premises, storage expenses, staff costs and others; (ii) prevailing market price of shipping costs and insurance costs; (iii) applicable premium in relation to cigarette brand, as industrial companies have greater bargaining power and stronger tendency to add a premium to well-known, influential cigarette brands (e.g., Chunghwa ʕശcigarettes manufactured by Shanghai Tobacco Group Co., Ltd. usually have a higher premium); (iv) applicable discount in relation to factors including historic business relationship with the relevant industrial companies, the Company’s business reputation, financial conditions, scale of sales channels and ability to manage downstream wholesalers and others; and (v) other factors, including the relevant industrial companies’ suggested retail price and reasonable profit margin of the Company and downstream wholesalers. The Company is not required to be responsible for tax payment in our Cigarettes Export Business. We subsequently determine sales price through arm’s length negotiation with our customers in proprietary business, taking into consideration factors including retail prices of the relevant cigarettes in the target markets, expected profit margin of the duty-free outlets, our procurement cost and reasonable profit margin and competitiveness of the relevant cigarettes. With respect to our incremental business, we determine sales prices by adding an applicable margin of 1% to 2%, 2% to 5% or more than 5% to our procurement prices. Such margins were determined taking into consideration factors including reasonable profit margin of the Company, market demand of the relevant cigarettes and services provided by the downstream wholesalers. (ii) Other Duty-Free Cigarettes The prices at which we procure other duty-free cigarettes categories from CNTC Group are determined through arm’s length negotiation, using the same pricing policies and taking into consideration the same factors for premium and other first tier duty-free cigarettes as described above, but the pricing for other duty-free cigarettes is not subject to any government-prescribed price floors. Subsequently, similar as described above for premium and other first tier duty-free cigarettes, we determine sales prices of other duty-free cigarettes through arm’s length negotiation with our customers in our proprietary business. With respect to customers in our incremental business, we currently determine sales prices by adding an applicable margin scale of 1% to 2%, 2% to 5% or more than 5% to our procurement prices. For details of the procurement transactions in the Cigarettes Export Business, including but not limited to the background of the Cigarettes Export Framework Agreements and the respective pricing policy of the relevant products, please refer to the Prospectus.
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China Tobacco International (HK) Company Limited 26 Review of Continuing Connected Transactions (Continued) Transaction Amount during the Reporting Period The Company was granted a waiver from strict compliance with the annual cap requirement by the Stock Exchange, which allows us not to set annual caps for the procurement transactions under the Cigarettes Export Framework Agreements. During the Reporting Period, the amount of the procurement transactions which constitute connected transactions in the Cigarettes Export Business was HK$1,349.8 million, accounting for approximately 98.5% of the total purchase of our Cigarettes Export Business. (D) Procurement Transactions in the New Tobacco Products Export Business As of 31 December 2024, the Company and each of the relevant entities under CNTC have entered into the New Tobacco Products Export Business Exclusive Operation and Long-Term Supply Framework Agreements (the “New Tobacco Products Export Framework Agreements”), pursuant to which we procure new tobacco products from such connected persons as part of our New Tobacco Products Export Business. The term of each New Tobacco Products Export Framework Agreement shall be indefinite, unless terminated by the Company in accordance with the terms and conditions thereunder. On 31 October 2022, the Board announced that: (i) as a result of expansion of the New Tobacco Products Export Business, after its listing on the Stock Exchange and as of 31 October 2022, the Company has entered into New Tobacco Products Export Framework Agreements with certain subsequent parties on the same terms and conditions as those of the New Tobacco Products Export Framework Agreements with the original parties; and (ii) the Company has applied to the Stock Exchange for, and the Stock Exchange has agreed to grant, a modification of the existing waivers to cover the New Tobacco Products Export Framework Agreements with such subsequent parties from strict compliance with the requirements in relation to annual cap and independent shareholders’ approval and the term of such transactions shall be indefinite, subject to the same conditions of the existing waivers. For details, please refer to the announcement of the Company dated 31 October 2022. Parties The Company and each of the entities under CNTC below: • China Tobacco Shandong Industrial Co., Ltd*பʮ̡ ; • China Tobacco Henan Industrial Co., Ltd*பʮ̡ ; • China Tobacco Heilongjiang Industrial Co., Ltd*பʮ̡ ; • China Tobacco Chongqing Industrial Co., Ltd*பʮ̡ ; • Shanghai Tobacco Group Co., Ltd*பʮ̡ ; • China Tobacco Yunnan Industrial Co., Ltd*பʮ̡ ; • China Tobacco Guangdong Industrial Co., Ltd*பʮ̡ ; • China Tobacco Sichuan Industrial Co., Ltd*பʮ̡ ; * For identification only
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Annual Report 2024 27 Review of Continuing Connected Transactions (Continued) • China Tobacco Anhui Industrial Co., Ltd*பʮ̡ ; • China Tobacco Jiangsu Industrial Co., Ltd*பʮ̡ ; • China Tobacco Zhejiang Industrial Co., Ltd*பʮ̡ ; • China Tobacco Hubei Industrial Co., Ltd*பʮ̡ ; • China Tobacco Hunan Industrial Co., Ltd*பʮ̡ ; • Shenzhen Tobacco Industrial Co., Ltd*பʮ̡ ; • China Tobacco Jilin Industrial Co., Ltd*பʮ̡ ; • China Tobacco Hebei Industrial Co., Ltd*பʮ̡ ; • China Tobacco Jiangxi Industrial Co., Ltd*பʮ̡ ; • China Tobacco Guangxi Industrial Co., Ltd*பʮ̡ ; • Inner Mongolia Kunming Cigarette Limited Liability Company*பʮ̡ ; • China Tobacco Guizhou Industrial Co., Ltd*பʮ̡ ; and • China Tobacco Fujian Industrial Co., Ltd*பʮ̡ . Pricing Policies With respect to our New Tobacco Products Export Business, (i) it is an emerging business worldwide; and (ii) since sale of heat-not-burn tobacco products is currently prohibited within the borders of China, there is no reference price on domestic sale of new tobacco products for relevant domestic suppliers. Thus, to ensure fair dealings, the Company contacts potential third party customers in the international markets and gets indication on the terms of sales (including sales price). The Company then negotiates with relevant new tobacco products manufacturing entities under CNTC at arm’s length with respect to the indicative terms of procurement (including procurement prices). Procurement by the Company is subject to the pricing formula as below: P = A × (1 – applicable margin) Where P = Procurement price from domestic suppliers of new tobacco products; A = Price at which the Company sells the new tobacco products to independent third parties. * For identification only
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China Tobacco International (HK) Company Limited 28 Review of Continuing Connected Transactions (Continued) The prices at which the Company sells new tobacco products are determined through arm’s length negotiation with third party customers. Specifically, our sales prices comprise: (i) our suppliers’ costs associated with the manufacturing of new tobacco products, which include cost of raw material, storage expenses, research and development expenses or patent royalties, staff costs, utility cost, rent of factory premises and others; (ii) prevailing market price of shipping costs and insurance costs; (iii) applicable premium or discount in relation to product quality and the corresponding market status of a particular brand of new tobacco products; and (iv) other factors, including sales price of competitors, marketing strategies of the Company (such as offering competitive price to expand market presence), prevailing supply and demand in relevant new tobacco products market, and relationship with the relevant counterparties. New tobacco products are not subject to any export tariff. Currently, the margins utilised in the New Tobacco Products Export Business are at least 1%. Such margins were determined taking into consideration, among others, the relevant operating costs of the Company and the cost of early-stage marketing. These margins may be adjusted by the Company in response to changes in the international market conditions and the Company’s relevant operating costs. For details of the procurement transactions in the New Tobacco Products Export Business, including but not limited to the background of the New Tobacco Products Export Framework Agreements and the respective pricing policy of the relevant products, please refer to the Prospectus. Transaction Amount during the Reporting Period The Company was granted a waiver from strict compliance with the annual cap requirement by the Stock Exchange, which allows us not to set annual caps for the procurement transactions under the New Tobacco Products Export Framework Agreements. During the Reporting Period, the amount of the procurement transactions which constitute connected transactions in the New Tobacco Products Export Business was HK$128.2 million, accounting for 100% of the total purchase of our New Tobacco Products Export Business. (E) Procurement Transactions in the Tobacco Leaf Products Import Business To facilitate the procurement of tobacco leaf products from the relevant counterparties in the procurement transactions in the Tobacco Leaf Products Import Business, the Company previously entered into the Offshore Supply Framework Agreements with each of the relevant counterparties in the procurement transactions in the Tobacco Leaf Products Import Business (as set out below), all being subsidiaries and/or associates of CNTC. The Offshore Supply Framework Agreements have expired as of 28 November 2021. On 17 November 2021, the Company entered into the 2021-2024 Offshore Supply Framework Agreements with each of the relevant counterparties in the procurement transactions in the Tobacco Leaf Products Import Business (as set out below), on substantially the same terms and conditions of the Offshore Supply Framework Agreements. Pursuant to each of the 2021-2024 Offshore Supply Framework Agreements, the relevant counterparties in the procurement transactions in the Tobacco Leaf Products Import Business shall provide long-term supply of tobacco leaf products to us in accordance with the specific terms of procurement separately agreed with us through arm’s length negotiation in good faith. The term of each of the 2021-2024 Offshore Supply Framework Agreements shall be three years from 17 November 2021 to 16 November 2024. Upon expiration, the parties may negotiate to extend the term of such agreement by another three years. Upon the expiration of the extended three-year term, the parties may further extend the term in writing after arm’s length negotiation, subject to compliance with the Listing Rules and other applicable laws. The 2021-2024 Offshore Supply Framework Agreements and the transactions contemplated thereunder were approved by the independent Shareholders of the Company at the EGM held on 30 December 2021.
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Annual Report 2024 29 Review of Continuing Connected Transactions (Continued) The 2021-2024 Offshore Supply Framework Agreements have expired as of 16 November 2024. To continue to facilitate such procurement of tobacco leaf products, on 10 October 2024, the Company entered into the 2024-2026 Offshore Supply Framework Agreement with the relevant counterparty in the procurement transactions in the Tobacco Leaf Products Import Business (as set out below), on the same terms and conditions of the 2021-2024 Offshore Supply Framework Agreements (save for the term and renewal of the agreement). Pursuant to the 2024-2026 Offshore Supply Framework Agreement, the relevant counterparty in the procurement transactions in the Tobacco Leaf Products Import Business shall provide long-term supply of tobacco leaf products to us in accordance with the specific terms of procurement agreed with us through arm’s length negotiation in good faith. The term of the 2024-2026 Offshore Supply Framework Agreement shall be the period from 17 November 2024 to 31 December 2026. Upon expiration, the parties may negotiate to extend the term of such agreement after arm’s length negotiation. The 2024-2026 Offshore Supply Framework Agreement and the transactions contemplated thereunder were approved by the independent Shareholders of the Company at the EGM held on 18 November 2024. Parties • (in relation to the Offshore Supply Framework Agreements) the Company and each of CTI North America, CTI Argentina and CBT • (in relation to the 2021-2024 Offshore Supply Framework Agreements) the Company and each of CTI North America and CBT • (in relation to the 2024-2026 Offshore Supply Framework Agreement) the Company and CTI North America Prior to the completion of the Acquisition on 26 November 2021, CBT was owned as to 51% by CTIB, an indirectly wholly-owned subsidiary of CNTC through CTIG, and 49% by Alliance One Brazil, an indirectly wholly-owned subsidiary of Pyxus (OTC: PYYX). After the completion of the Acquisition on 26 November 2021 and as of the Latest Practicable Date, CBT has become a non-wholly owned subsidiary of the Company and hence ceases to be a connected person of the Company.
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China Tobacco International (HK) Company Limited 30 Review of Continuing Connected Transactions (Continued) Pricing Policies The procurement of tobacco leaf products (including, among others, finished tobacco strips and cigar leaf tobacco) by the Company from the relevant counterparties that are entities under CNTC and thus connected persons of the Company are conducted by the Company as part of the Tobacco Leaf Products Import Business, which consists of (i) procurement of tobacco leaf products by the Company from overseas suppliers; and (ii) sale of such products by the Company to CTI for onward sales to cigarette manufacturers in the PRC. Pursuant to the No. 135 Notice, which remained effective and has not been amended during the period from the date of the Prospectus to the Latest Practicable Date, the margin (the “Margin”) at which the Company shall add to the price at which the Company procures such products from its suppliers (the “Procurement Price”) in its sales of tobacco leaf products to CTI shall be 6% (except for a small portion of tobacco leaf products imported for manufacturing certain cigarette brands which are not relevant to the Offshore Supply Framework Agreements, the 2021-2024 Offshore Supply Framework Agreements, the 2024-2026 Offshore Supply Framework Agreement and the respective transactions contemplated thereunder). As disclosed in the Prospectus, the determination of the Margin under the No. 135 Notice took into account the overall transaction cost associated with the importation process born by the various parties, including the import tariff, value-added tax, our cost of operations and the risk associated with the applicable exchange rate, and the Company may apply with the STMA for adjustment of the Margin based on changing international and domestic market conditions. The Procurement Price is negotiated between the parties on an arm’s length basis, taking into consideration factors including current international market condition, relationship with the relevant suppliers, past procurement prices, product quality and annual production volume. Specifically, the Procurement Price comprises: (i) suppliers’ costs of raw materials; (ii) applicable premium or discount in relation to product quality and the corresponding market status of a particular grade of tobacco leaf products; and (iii) suppliers’ costs associated with exchange rate (since suppliers procure tobacco leaves from local tobacco farmers with local currency but sell processed tobacco leaves to the Company in U.S. dollars). The applicable taxes, for example, export tax imposed by certain countries, are usually borne by the Company. The Company applies the same pricing policies in negotiating and determining the Procurement Prices with independent third parties suppliers and suppliers that are connected persons of the Company. The determination of the Procurement Prices will not affect the margin the Company charges in the Tobacco Leaf Products Import Business (to the extent relevant to the Offshore Supply Framework Agreements, the 2021-2024 Offshore Supply Framework Agreements, the 2024-2026 Offshore Supply Framework Agreement and the respective transactions contemplated thereunder), which is fixed at 6% pursuant to the No. 135 Notice. For further details of the procurement transactions in the Tobacco Leaf Products Import Business, including but not limited to the background of the Offshore Supply Framework Agreements, the 2021-2024 Offshore Supply Framework Agreements, the 2024-2026 Offshore Supply Framework Agreement and the respective pricing policy of the relevant products, please refer to the Prospectus and the Company’s circular dated 14 December 2021 and 1 November 2024. Annual Caps The transaction amount of the continuing connected transactions under the 2021-2024 Offshore Supply Framework Agreements for the year ended 31 December 2022, the year ended 31 December 2023 and for the period from 1 January 2024 to 16 November 2024 is expected not to exceed HK$444.6 million, HK$466.9 million and HK$490.2 million, respectively. The transaction amount of the continuing connected transactions under the 2024-2026 Offshore Supply Framework Agreement for the period from 17 November 2024 to 31 December 2024 and the years ending 31 December 2025 and 2026 is expected not to exceed HK$301.2 million, HK$1,210.9 million and HK$1,332.0 million, respectively.
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Annual Report 2024 31 Review of Continuing Connected Transactions (Continued) Transaction Amount during the Reporting Period During the Reporting Period, the amount of the procurement transactions which constitute connected transactions in the Tobacco Leaf Products Import Business for the period from 1 January 2024 to 16 November 2024 and for the period from 17 November 2024 to 31 December 2024 was HK$329.2 million and HK$248.0 million, respectively, accounting for approximately 5.9% of the total purchase of our Tobacco Leaf Products Import Business. (F) Agency Business in the Sales of Tobacco Leaf Products We act as an agent in certain sale transactions of tobacco leaf products as part of our Tobacco Leaf Products Export Business, from which we record certain commissions. To facilitate our Agency Business in the Sale of Tobacco Leaf Products, the Company and each of the relevant counterparties in the Agency Business in the Sales of Tobacco Leaf Products that are entities under CNTC previously entered into the Tobacco Leaf Products Export Agency Agreements. The Tobacco Leaf Products Export Agency Agreements have expired as of 21 December 2021. On 17 November 2021, the Company and each of the relevant counterparties in the Agency Business in the Sales of Tobacco Leaf Products that are entities under CNTC (as set out below) entered into the 2021-2024 Tobacco Leaf Products Export Agency Agreements on substantially the same terms and conditions of the Tobacco Leaf Products Export Agency Agreements. As part of the Agency Business in the Sale of Tobacco Leaf Products, we act as an agent in the sales of tobacco leaf products in accordance with the specific terms separately agreed between us and each of the relevant counterparties through arm’s length negotiation in good faith, and generate income from commission received in connection with such transactions. The term of each of the 2021-2024 Tobacco Leaf Products Export Agency Agreements shall be three years from 17 November 2021 to 16 November 2024. Upon expiration, the parties may negotiate to extend the term of such agreements by another three years. Upon the expiration of the extended three-year term, the parties may further extend the term in writing after arm’s length negotiation, subject to compliance with the Listing Rules and other applicable laws. The 2021-2024 Tobacco Leaf Products Export Agency Agreements and the transactions contemplated thereunder were approved by the independent Shareholders of the Company at the EGM held on 30 December 2021. The 2021-2024 Tobacco Leaf Products Export Agency Agreements have expired as of 16 November 2024. To continue to facilitate such Agency Business in the Sale of Tobacco Leaf Products, on 10 October 2024, the Company and each of the relevant counterparties in the Agency Business in the Sales of Tobacco Leaf Products that are entities under CNTC (as set out below) entered into the 2024-2026 Tobacco Leaf Products Export Agency Agreements on the same terms and conditions of the 2021-2024 Tobacco Leaf Products Export Agency Agreements (save for the terms and renewal of the agreements). As part of the Agency Business in the Sales of Tobacco Leaf Products, the Company acts as an agent in the sales of tobacco leaf products under the 2024-2026 Tobacco Leaf Products Export Agency Agreements in accordance with the specific terms separately agreed between the Company and each of the relevant counterparties through arm’s length negotiation in good faith, and generates income from commission received in connection with such transactions. The term of each of the 2024-2026 Tobacco Leaf Products Export Agency Agreements shall be the period from 17 November 2024 to 31 December 2026. Upon expiration, the parties may negotiate to extend the term of such agreement after arm’s length negotiation. The 2024-2026 Tobacco Leaf Products Export Agency Agreements and the transactions contemplated thereunder were approved by the independent Shareholders of the Company at the EGM held on 18 November 2024.
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China Tobacco International (HK) Company Limited 32 Review of Continuing Connected Transactions (Continued) Parties The Company and each of the entities under CNTC below: • Viniton Group Co., Ltd.; • Bang Kang Cigarette Factory, Myanmar; • Lao-China Hongta Good Luck Tobacco Co., Ltd.; • Golden Leaf (Macau) Tobacco’s Manufacturing Ltd.; and • Hong Kong Hongta International Tobacco Company Limited. Pricing Policies The rate of commission charged by the Company in connection with the transactions under the Tobacco Leaf Products Export Agency Agreements, the 2021-2024 Tobacco Leaf Products Export Agency Agreements and the 2024-2026 Tobacco Leaf Products Export Agency Agreements is determined based on the resources devoted by the Company in connection with such transactions and varies according to the unit price of the relevant tobacco leaf products. The Company generally charges a higher commission rate for the tobacco leaf products carrying lower unit price and vice versa to derive reasonable profit. These transactions are conducted in the ordinary and usual course of business on normal commercial terms (or terms that are better to the Group). The Group currently expects to receive a commission of not less than 1% for tobacco leaf products (excluding cut tobacco) and less than 1% for cut tobacco, respectively, of the contract amount as revenue in such transactions. For cut tobacco, the minimum commission rate that the Group expects to receive is 0.25% of the selling price. The minimum commission rate is determined based on the gross margin that the Group expects to generate from the sale of such products, which is (i) 0.25% for the blended cut tobacco, cut tobacco and expanded cut tobacco with a unit price of USD20,000 per metric ton or above, and (ii) 0.5% for the blended cut tobacco, cut tobacco and expanded cut tobacco with a unit price below USD20,000 per metric ton, respectively. For further details of the Agency Business in the Sale of Tobacco Leaf Products (including the relevant pricing policies), please refer to the Prospectus, the Company’s circular dated 14 December 2021 and 1 November 2024. Annual Caps The transaction amount of the Agency Business in the Sale of Tobacco Leaf Products (in terms of commission) under the 2021-2024 Tobacco Leaf Products Export Agency Agreements for the year ended 31 December 2022, the year ended 31 December 2023 and for the period from 1 January 2024 to 16 November 2024 is expected not to exceed HK$3.0 million, HK$3.3 million and HK$3.6 million, respectively. The transaction amount of the Agency Business in the Sales of Tobacco Leaf Products (in terms of commission) under the 2024-2026 Tobacco Leaf Products Export Agency Agreements for the period from 17 November 2024 to 31 December 2024 and the years ending 31 December 2025 and 2026 is expected not to exceed HK$2.1 million, HK$5.4 million and HK$6.0 million, respectively. Transaction Amount during the Reporting Period During the Reporting Period, the amount of the Agency Business in the Sales of Tobacco Leaf Products which constitute connected transactions (in terms of commission) for the period from 1 January 2024 to 16 November 2024 and for the period from 17 November 2024 to 31 December 2024 was HK$1.7 million and HK$0.3 million, respectively, accounting for approximately 0.1% of the total revenue of our Tobacco Leaf Products Export Business.
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Annual Report 2024 33 Review of Continuing Connected Transactions (Continued) (G) Sale and Purchase Transactions with Alliance One Group CBT historically has entered into transactions with Alliance One Group in relation to (i) the sale of tobacco transactions, and (ii) the purchase of agricultural materials, tobacco and services transactions in the ordinary course of its business. The Group has also historically entered into transactions with Alliance One International in relation to the sale and purchase of tobacco in the ordinary course of its business. After the completion of the Acquisition on 26 November 2021 and as of the Latest Practicable Date, such existing transactions with Alliance One Group carried out in the ordinary course of business of the Group and CBT have constituted continuing connected transactions of the Company under the Listing Rules. Such existing transactions have been contemplated under (i) the Framework Tobacco Sales Agreement, (ii) the Framework Tobacco Purchase Agreement, (iii) the CBT Framework Tobacco Sales Agreement and (iv) the CBT Framework Tobacco and Services Purchase Agreement (collectively, the “Alliance One Connected Transactions Agreements”), the details of which are set out below. For details, please refer to the Company’s circular dated 29 September 2021. Pursuant to the terms of each of the Alliance One Connected Transactions Agreements, the initial term of each of the Alliance One Connected Transactions Agreements commenced upon closing of the Acquisition, being 26 November 2021, and ended on 31 December 2022 and the parties may further extend the term in writing after arm’s length negotiation, subject to compliance with the Listing Rules and other applicable laws. On 29 December 2022, the Group and the Alliance One Group entered into extension agreements to extend the term of each of the Alliance One Connected Transactions Agreements, for a period of one year from 1 January 2023 to 31 December 2023. On 20 December 2023, the Group and Alliance One Group entered into the extension agreements to further extend the term of each of the Framework Tobacco Sales Agreement, the Framework Tobacco Purchase Agreement, the CBT Framework Tobacco Sales Agreement and the CBT Framework Tobacco and Services Purchase Agreement, for a period of one year from 1 January 2024 to 31 December 2024. On 10 October 2024, the Group and Alliance One Group entered into the extension agreements to further extend the term of each of the Framework Tobacco Sales Agreement, the Framework Tobacco Purchase Agreement, the CBT Framework Tobacco Sales Agreement and the CBT Framework Tobacco and Services Purchase Agreement, for a period of one year from 1 January 2025 to 31 December 2025. Save for the extension of term, the transactions under each of the Alliance One Connected Transactions Agreements will be conducted on the same terms and pricing policies during the extended term as those disclosed in the Company’s circular dated 29 September 2021. Given that (i) each of Alliance One International and Alliance One Brazil is a connected person of the Company at the subsidiary level under Chapter 14A of the Listing Rules and transactions carried out in the ordinary course of business of the Group under the Alliance One Connected Transactions Agreements are continuing connected transactions of the Company under Chapter 14A of the Listing Rules; (ii) one or more of the applicable percentage ratios of the annual caps (on an aggregated basis) under the Listing Rules for both (a) the sale of tobacco transactions, and (b) the purchase of agricultural materials, tobacco and services transactions under the Alliance One Connected Transactions Agreements are 5% or more; and (iii) the Board (including all the independent non-executive Directors) has approved the extension agreements and transactions thereunder (including the annual caps) and all the independent non-executive Directors have confirmed that the relevant terms of the extension agreements and the transactions thereunder (including the annual caps) are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole, the extension agreements and the transactions thereunder (including the annual caps) are subject to the reporting and announcement requirements but are exempt from the circular, independent financial advice and shareholders’ approval requirements pursuant to Rule 14A.101 of the Listing Rules. For details, please refer to the announcements of the Company dated 29 December 2022, 20 December 2023 and 10 October 2024.
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China Tobacco International (HK) Company Limited 34 Review of Continuing Connected Transactions (Continued) (i) Framework Tobacco Sales Agreement The Group sells and exports various grades of tobacco leaves to different customers with varying demands in the ordinary course of its business. In particular, Alliance One International procures tobacco leaves from us and sells them to its end customers in Southeast Asia, Hong Kong, Macau and Taiwan as part of its business activities. On 23 September 2021, the Company and Alliance One International entered into the Framework Tobacco Sales Agreement, which has become effective upon the completion of the Acquisition on 26 November 2021, and provides for the principles and terms and conditions upon which the Group is to carry out the sale of tobacco leaves transactions with Alliance One Group. Pursuant to the Framework Tobacco Sales Agreement, the Group will sell to Alliance One Group certain grades of tobacco leaves targeted for its end customers in Southeast Asia, Hong Kong, Macau and Taiwan. The initial term of the Framework Tobacco Sales Agreement commenced on the completion of the Acquisition on 26 November 2021 and ended on 31 December 2022. Upon expiration, the parties may negotiate to extend the agreement by another one-year term, and upon the expiration of the extended one-year term, the parties may further extend the term in writing after arm’s length negotiation, subject to compliance with the Listing Rules and other applicable laws. On 30 May 2022, the Board adjusted upward the existing annual caps for sale of tobacco transactions contemplated (i) under the Framework Tobacco Sales Agreement; (ii) under the CBT Framework Tobacco Sales Agreement; and (iii) on an aggregated basis, each for the year ended 31 December 2022. On 29 December 2022, the term of the Framework Tobacco Sales Agreement was extended for a period of one year from 1 January 2023 to 31 December 2023. On 20 December 2023, the term of the Framework Tobacco Sales Agreement was further extended for a period of one year from 1 January 2024 to 31 December 2024. On 10 October 2024, the term of the Framework Tobacco Sales Agreement was further extended for a period of one year from 1 January 2025 to 31 December 2025. For further details of the Framework Tobacco Sales Agreement (including the relevant pricing policies) and the revised annual cap for the Framework Tobacco Sales Agreement, please refer to the Company’s circular dated 29 September 2021 and announcements dated 30 May 2022, 29 December 2022, 20 December 2023 and 10 October 2024. Parties The Company and Alliance One International Pricing Policies The price and amount of the sale of tobacco leaves transactions contemplated under the Framework Tobacco Sales Agreement are separately negotiated between relevant members of the Group and relevant members of Alliance One Group on an arm’s length basis. In particular, the tobacco leaves are priced with reference to (i) the volume and quality of tobacco leaves sold, including applicable premium or discount in relation to quality and the corresponding market status of a particular grade; (ii) the Group’s procurement costs for such tobacco leaves, including cost of raw material, utility cost, rent of factory premises, shipping costs, storage expenses and staff costs; and (iii) other factors such as seasonal demand and past sales prices. The same pricing mechanism is adopted for sale of tobacco leaves to independent third parties of the Group. Annual Caps The transaction amount of the sale of tobacco transactions under the Framework Tobacco Sales Agreement for the year ended 31 December 2024 and the year ending 31 December 2025 is expected not to exceed US$85.0 million (equivalent to HK$663.2 million) and US$89.9 million (equivalent to HK$701.0 million), respectively.
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Annual Report 2024 35 Review of Continuing Connected Transactions (Continued) Transaction Amount during the Reporting Period During the Reporting Period, the amount of the sale of tobacco transactions under the Framework Tobacco Sales Agreement which constitutes connected transactions was HK$416.6 million. (ii) CBT Framework Tobacco Sales Agreement CBT sells tobacco leaves of various grades to different customers in the ordinary course of its business. Those customers include Alliance One Group, who procures tobacco leaves and sells them to end customers as part of its business activities. In addition, certain end customers maintain internal lists of approved tobacco merchants and would only trade with those approved tobacco merchants on their lists. Certain members of Alliance One Group are such approved tobacco merchants for such end customers, while CBT is not and would need to sell tobacco leaves to Alliance One Group for onward sales to such end customers. On 23 September 2021, CBT and Alliance One International entered into the CBT Framework Tobacco Sales Agreement, which has become effective upon the completion of the Acquisition on 26 November 2021, and provides for the principles and terms and conditions upon which CBT is to carry out the sale of tobacco leaves transactions with Alliance One Group. Pursuant to the CBT Framework Tobacco Sales Agreement, CBT will sell to Alliance One Group: (i) certain grades of tobacco leaves; and (ii) tobacco leaves for onward sales to other end customers through Alliance One Group’s distribution channels. The initial term of the CBT Framework Tobacco Sales Agreement commenced on the completion of the Acquisition on 26 November 2021 and ended on 31 December 2022. Upon expiration, the parties may negotiate to extend the agreement by another one-year term, and upon the expiration of the extended one-year term, the parties may further extend the term in writing after arm’s length negotiation, subject to compliance with the Listing Rules and other applicable laws. On 30 May 2022, the Board adjusted upward the existing annual caps for sale of tobacco transactions contemplated (i) under the Framework Tobacco Sales Agreement, (ii) under the CBT Framework Tobacco Sales Agreement and (iii) on an aggregated basis, each for the year ended 31 December 2022. On 29 December 2022, the term of the CBT Framework Tobacco Sales Agreement was extended for a period of one year from 1 January 2023 to 31 December 2023. On 20 December 2023, the term of the CBT Framework Tobacco Sales Agreement was further extended for a period of one year from 1 January 2024 to 31 December 2024. On 10 October 2024, the term of the CBT Framework Tobacco Sales Agreement was further extended for a period of one year from 1 January 2025 to 31 December 2025. For further details of the CBT Framework Tobacco Sales Agreement (including the relevant pricing policies) and the revised annual cap for the CBT Framework Tobacco Sales Agreement, please refer to the Company’s circular dated 29 September 2021 and announcements dated 30 May 2022, 29 December 2022 ， 20 December 2023 and 10 October 2024. Parties CBT and Alliance One International Pricing Policies The price and amount of the sale of tobacco leaves transactions contemplated under the CBT Framework Tobacco Sales Agreement are separately negotiated between CBT and relevant members of Alliance One Group on an arm’s length basis. In particular, the tobacco leaves are priced with reference to (i) the volume and quality of tobacco leaves sold, including applicable premium or discount in relation to quality and the corresponding market status of a particular grade; (ii) CBT’s procurement costs for such tobacco leaves, including cost of raw material, utility cost, rent of factory premises, shipping costs, storage expenses and staff costs; and (iii) other factors such as seasonal demand, applicable exchange rates and taxation. The same pricing mechanism is adopted for sale of tobacco leaves to independent third parties of CBT.
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China Tobacco International (HK) Company Limited 36 Review of Continuing Connected Transactions (Continued) Annual Caps The transaction amount of the sale of tobacco transactions under the CBT Framework Tobacco Sales Agreement for the year ended 31 December 2024 and the year ending 31 December 2025 is expected not to exceed US$140.5 million (equivalent to HK$1,095.5 million) and US$154.2 million (equivalent to HK$1,203.1 million), respectively. Transaction Amount during the Reporting Period During the Reporting Period, the amount of the sale of tobacco transactions under the CBT Framework Tobacco Sales Agreement which constitutes connected transactions was HK$733.0 million. (iii) Framework Tobacco Purchase Agreement As part of the Group’s import business and in order to meet the demand of its end customers for high quality grades of tobacco leaves, the Company procures tobacco leaves from various suppliers in the ordinary course of its business, including from Alliance One International, who procures and processes tobacco leaves from tobacco farmers and sells such tobacco leaves to its customers, including the Group, as part of its business. Such transactions enable the Group to secure a sufficient amount of high quality tobacco leaf products to meet the demands of its end customers. On 23 September 2021, the Company and Alliance One International entered into the Framework Tobacco Purchase Agreement, which has become effective upon the completion of the Acquisition on 26 November 2021. The Framework Tobacco Purchase Agreement provides for the principles and terms and conditions upon which the Group and Alliance One Group are to carry out the purchase of tobacco leaves transactions. Pursuant to the Framework Tobacco Purchase Agreement, the Group will procure from Alliance One Group certain high quality grades of tobacco leaves. The initial term of the Framework Tobacco Purchase Agreement commenced on the completion of the Acquisition on 26 November 2021 and ended on 31 December 2022. Upon expiration, the parties may negotiate to extend the agreement by another one-year term, and upon the expiration of the extended one-year term, the parties may further extend the term in writing after arm’s length negotiation, subject to compliance with the Listing Rules and other applicable laws. On 29 December 2022, the term of the Framework Tobacco Purchase Agreement was extended for a period of one year from 1 January 2023 to 31 December 2023. On 20 December 2023, the term of the Framework Tobacco Purchase Agreement was further extended for a period of one year from 1 January 2024 to 31 December 2024. On 10 October 2024, the term of the Framework Tobacco Purchase Agreement was further extended for a period of one year from 1 January 2025 to 31 December 2025. For further details of the Framework Tobacco Purchase Agreement (including the relevant pricing policies), please refer to the Company’s circular dated 29 September 2021 and announcement dated 29 December 2022， 20 December 2023 and 10 October 2024. Parties The Company and Alliance One International Pricing Policies The price and amount of the purchase of tobacco leaves transactions contemplated under the Framework Tobacco Sales Agreement are separately negotiated between relevant members of the Group and relevant members of Alliance One Group on an arm’s length basis. In particular, the tobacco leaves are priced with reference to (i) the volume and quality of tobacco leaves offered, including applicable premium or discount in relation to quality and the corresponding market status of a particular grade; (ii) procurement costs for such tobacco leaves, including cost of raw material, utility cost, rent of factory premises, shipping costs, storage expenses and staff costs; and (iii) other factors such as seasonal demand and past procurement prices. The same pricing mechanism is adopted for purchase of tobacco leaves from independent third parties of the Group.
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Annual Report 2024 37 Review of Continuing Connected Transactions (Continued) Annual Caps The transaction amount of the purchase of tobacco and services transactions under the Framework Tobacco Purchase Agreement for the year ended 31 December 2024 and the year ending 31 December 2025 is expected not to exceed US$366.0 million (equivalent to HK$2,854.8 million) and US$331.4 million (equivalent to HK$2,585.1 million), respectively. Transaction Amount during the Reporting Period During the Reporting Period, the amount of the purchase of tobacco and services transactions under the Framework Tobacco Purchase Agreement which constitutes connected transactions was HK$2,558.3 million. (iv) CBT Framework Tobacco and Services Purchase Agreement In order to sell and export tobacco leaf products, CBT procures agricultural materials, tobacco leaves and processing services from various suppliers in the ordinary course of its business. Those suppliers include Alliance One Brazil, who sells agricultural materials and tobacco leaves, as well as operates processing facilities as part of its business activities. The transactions with Alliance One Brazil enable CBT to secure a sufficient amount of high quality tobacco leaf products to meet the demands of its end customers. On 23 September 2021, CBT and Alliance One Brazil entered into the CBT Framework Tobacco and Services Purchase Agreement, which has become effective upon the completion of the Acquisition on 26 November 2021. The CBT Framework Tobacco and Services Purchase Agreement provides for the principles and terms and conditions upon which CBT and Alliance One Brazil are to carry out the purchase of agricultural materials, tobacco leaves and processing services transactions. Pursuant to the CBT Framework Tobacco and Services Purchase Agreement, CBT will procure from Alliance One Brazil: (i) agricultural materials for the production of tobacco leaf products, such as seeds and fertilizers; (ii) high quality tobacco leaves; and (iii) processing services to manufacture tobacco leaves into tobacco leaf products. The initial term of the CBT Framework Tobacco and Services Purchase Agreement commenced on the completion of the Acquisition on 26 November 2021 and ended on 31 December 2022. Upon expiration, the parties may negotiate to extend the agreement by another one-year term, and upon the expiration of the extended one-year term, the parties may further extend the term in writing after arm’s length negotiation, subject to compliance with the Listing Rules and other applicable laws. On 30 May 2022, the Board adjusted upward the existing annual caps (i) for purchase of agricultural materials, tobacco and service transactions contemplated under the CBT Framework Tobacco and Services Purchase Agreement and (ii) accordingly, for purchase of agricultural materials, tobacco and service transactions contemplated under the Framework Tobacco Purchase Agreement and the CBT Framework Tobacco and Services Purchase Agreement on an aggregated basis, each for the year ended 31 December 2022. On 29 December 2022, the term of the CBT Framework Tobacco and Services Purchase Agreement was extended for a period of one year from 1 January 2023 to 31 December 2023. On 20 December 2023, the term of the CBT Framework Tobacco and Services Purchase Agreement was further extended for a period of one year from 1 January 2024 to 31 December 2024. On 10 October 2024, the term of the CBT Framework Tobacco and Services Purchase Agreement was further extended for a period of one year from 1 January 2025 to 31 December 2025. For further details of the CBT Framework Tobacco and Services Purchase Agreement (including the relevant pricing policies) and the revised annual cap for the CBT Framework Tobacco and Services Purchase Agreement, please refer to the Company’s circular dated 29 September 2021 and announcements dated 30 May 2022, 29 December 2022， 20 December 2023 and 10 October 2024.
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China Tobacco International (HK) Company Limited 38 Review of Continuing Connected Transactions (Continued) Parties CBT and Alliance One Brazil Pricing Policies The price and amount of the purchase of agricultural materials, tobacco leaves and processing services transactions contemplated under the CBT Framework Tobacco and Services Purchase Agreement are separately negotiated between CBT and Alliance One Brazil on an arm’s length basis. In particular: (a) In respect of the purchase of agricultural materials, a fixed margin of approximately 2.5% is added to Alliance One Brazil’s procurement price of the agricultural materials, representing Alliance One Brazil’s expenses for the administration, handling, loading, storage and shipping of the agricultural materials. (b) In respect of the purchase of tobacco leaves, price is determined by: (i) the volume and quality of tobacco leaves offered, including applicable premium or discount in relation to quality and the corresponding market status of a particular grade; (ii) the price range for tobacco leaves of the same quality, as compared to prices offered by independent third party suppliers; and (iii) negotiations with CBT’s end customers regarding their retail price and reasonable profit margins. The same pricing mechanism is adopted for the purchase of tobacco leaves from independent third parties of CBT. (c) In respect of the purchase of processing services, for the year ended 31 December 2024, a fixed fee of approximately R$1.192 is charged for each kilogram of tobacco leaves processed, where such fixed fee is mainly comprised of labour costs, utility costs, and storage costs for the processing services. Such fixed fee is determined on a yearly basis taking into account the potential increase in the aforementioned costs. Annual Caps The transaction amount of the purchase of tobacco and services transactions under the CBT Framework Tobacco and Services Agreement for the year ended 31 December 2024 and the year ending 31 December 2025 is expected not to exceed US$48.6 million (equivalent to HK$378.7 million) and US$38.7 million (equivalent to HK$302.2 million), respectively. Transaction Amount during the Reporting Period During the Reporting Period, the amount of the purchase of tobacco and services transactions under the CBT Framework Tobacco and Services Purchase Agreement which constitutes connected transactions was HK$154.8 million.
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Annual Report 2024 39 Review of Continuing Connected Transactions (Continued) (H) Procurement Transactions for the Export of Tobacco Leaf Products to Non-exclusive Operating Regions for Tobacco Leaf Products The Company has been making efforts to expand the scale of its tobacco leaf products export business, including the expansion of the regions to where the Company sells and exports tobacco leaf products procured from the relevant entities under CNTC. As certain potential customers of the tobacco leaf products export business are located in the European region, which does not fall within the exclusive operating regions (Southeast Asia, Hong Kong, Macau and Taiwan) for the procurement transactions of tobacco leaf products export business of the Company which is exempted by the Stock Exchange for an indefinite term, the Company entered into the Tobacco Leaf Products Export Framework Agreement (Non-exclusive Operating Region) (“2023 Tobacco Leaf Products Export Framework Agreement”) with China Tobacco Yunnan Import and Export Co., Ltd*ʮ̡ on 25 August 2023 for a term of three years commencing from 25 August 2023 to 24 August 2026 in relation to the procurement of tobacco leaf products from China Tobacco Yunnan Import and Export Co., Ltd as part of the Company’s tobacco leaf products export business in the European region. To regulate relevant transactions in the Non-exclusive Operating Regions for Tobacco Leaf Products and to comply with relevant requirements under the Listing Rules, on 27 November 2024, the Company entered into the Framework Agreements on Tobacco Leaf Products Export to New Regions with each of the relevant counterparties under the Framework Agreements on Tobacco Leaf Products Export to New Regions (as set out below) for a term of three years commencing from 27 November 2024 to 26 November 2027, to (i) expand the Company’s onward sales and export of tobacco leaf products procured from the relevant entities under CNTC to regions additional to those contemplated under the 2023 Tobacco Leaf Products Export Framework Agreement as part of the Company’s tobacco leaf products export business; and (ii) revise the term and corresponding annual caps for the existing continuing connected transactions under the 2023 Tobacco Leaf Products Export Framework Agreement. Since then, all procurement transactions for the export of tobacco leaf products to Non-exclusive Operating Regions for Tobacco Leaf Products, including those for European regions, are governed by the Framework Agreements on Tobacco Leaf Products Export to New Regions. For further details of the 2023 Tobacco Leaf Products Export Framework Agreement and Framework Agreements on Tobacco Leaf Products Export to New Regions (including the relevant pricing policies), please refer to the Company’s announcement dated 25 August 2023 and 27 November 2024. Parties (in relation to the 2023 Tobacco Leaf Products Export Framework Agreement) The Company and China Tobacco Yunnan Import and Export Co., Ltd*ʮ̡ ; (in relation to the Framework Agreements on Tobacco Leaf Products Export to New Regions) The Company and, for the time being, each of the entities under CNTC below: • China Tobacco Yunnan Import and Export Co., Ltd*ʮ̡ ; • China Tobacco Sichuan Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Shandong Import and Export Co., Ltd*பʮ̡ ; • China Tobacco Hunan Import and Export Co., Ltd*பʮ̡ ; and • China Tobacco Fujian Import and Export Co., Ltd*பʮ̡ .
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China Tobacco International (HK) Company Limited 40 Review of Continuing Connected Transactions (Continued) Pricing Policies The Company first obtains indicative sales terms, which include quantity, specification, product quality, acceptable price range and others, from potential independent third party customers. The Company then solicits offers from various suppliers of tobacco leaf products by obtaining samples, price quotes and price floors. The Company compares the terms and samples obtained and selects the supplier that offers the most favourable terms for commercially viable tobacco leaf products. Based on the market condition and its own evaluation of the quality of the samples, the Company provides the customers with price quotes and negotiates with them based on the suppliers’ price floor. Our suppliers may also offer their products to the Company without any solicitation, and we will take such products into account in our future sales to customers where the products meet the demand of the customers and compare the samples as well as the other terms with those provided by the other suppliers. Procurement by the Company and by third parties from our suppliers are subject to the same pricing formula in similar transactions and therefore our procurement has been conducted based on normal commercial terms. The pricing formula is shown as below: P = A × (1 – applicable margin) where: P = Procurement price from domestic suppliers of tobacco leaf products; A = Price at which the Company sells the tobacco leaf products to independent third parties. The price at which the Company sells tobacco leaf products to third party customers is determined through arm’s length negotiation between the parties. Specifically, our sales prices comprise: (i) our suppliers’ costs associated with the processing of tobacco leaf products, which include cost of raw material, utility cost, rent of factory premises, storage expenses, staff costs and others; (ii) prevailing market price of shipping costs and insurance costs; (iii) applicable premium or discount in relation to product quality and the corresponding market status of a particular grade of tobacco leaf products (for example, the premium of tobacco leaf products produced in Yunnan Province is usually considered higher due to the different grades of tobacco leaf products); and (iv) other factors, including prevailing supply and demand in the tobacco leaf products market (such as seasonal domestic production volume and demand by overseas manufacturers for tobacco leaf products produced in different regions in China), fluctuation in the exchange rate between Hong Kong dollars and local currency at the export destinations, relationship with trading counterparties, past sales prices, local taxation at export destinations and other factors. Import tariffs charged by export destinations are borne by third party customers. For the year ended 31 December 2023, the applicable margin for exported tobacco leaf products is between 1% and 4%. From 1 January 2024, the applicable margins for the exported tobacco leaf products are not less than 1%, not less than 2% and not less than 4%, depending on the types of the exported tobacco leaf products, crop year, unit sale price, customers and suppliers. Factors taken into consideration in setting these margins include relevant operating costs of the Company and reasonable profit margin. These applicable margins may be adjusted in the future based on changing market conditions and relevant costs of the Company in operating such business.
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Annual Report 2024 41 Review of Continuing Connected Transactions (Continued) Annual Caps The transaction amount of the continuing connected transactions under the 2023 Tobacco Leaf Products Export Framework Agreement for the year ended 31 December 2023 and the year ended 31 December 2024 shall not exceed US$1.8 million (equivalent to HK$14.2 million) and US$2.2 million (equivalent to HK$17.0 million), respectively. The revised transaction amount of the continuing connected transactions under the Framework Agreements on Tobacco Leaf Products Export to New Regions for the period from 27 November 2024 to 31 December 2024, the years ending 31 December 2025 and 2026, and the period from 1 January 2027 to 26 November 2027 shall not to exceed HK$50.9 million, HK$60.9 million, HK$73.1 million and HK$87.8 million, respectively. Transaction Amount during the Reporting Period During the Reporting Period, the amount of the procurement of tobacco transactions under the 2023 Tobacco Leaf Products Export Framework Agreement and Framework Agreements on Tobacco Leaf Products Export to New Regions which constitutes connected transactions was US$1.0 million (equivalent to HK$7.7 million), accounting for 100% of the total purchase of the tobacco leaf products export business in non-exclusive operating region. (I) Procurement Transactions for the Export of Cigarettes to New Designated Regions for Cigarettes As the potential customers of Cigarettes Export Business are located in the new regions, including New Designated Regions for Cigarettes, which do not fall within the exclusive operating areas for the procurement transactions under the Cigarettes Export Framework Agreements that have been fully exempted by the Stock Exchange, the Company entered into the Framework Agreements on Cigarettes Export to New Regions with relevant entities under CNTC on 8 April 2024 commencing from 8 April 2024 until 31 December 2026 in relation to the procurement of cigarettes from the relevant entities under CNTC for the Company’s onward sales and export of cigarettes to the New Designated Regions for Cigarettes. For further details of the Framework Agreements on Cigarettes Export to New Regions (including the relevant pricing policies), please refer to the Company’s announcement dated 8 April 2024. Parties The Company and the relevant entities under CNTC, for the time being, including: • China Tobacco Guizhou Industrial Co., Ltd*பʮ̡ ; • China Tobacco Hebei Industrial Co., Ltd*பʮ̡ ; • Tobacco Henan China Industrial Co., Ltd*பʮ̡ ; • China Tobacco Hubei Industrial Co., Ltd*பʮ̡ ; • China Tobacco Jiangsu Industrial Co., Ltd*பʮ̡ ; • Shanghai Tobacco Group Co., Ltd*பʮ̡ ; and • China Tobacco Sichuan Industrial Co., Ltd*பʮ̡ .
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China Tobacco International (HK) Company Limited 42 Review of Continuing Connected Transactions (Continued) Pricing Policies We apply different pricing policies for different categories of cigarettes, namely, premium and other first tier duty-free cigarettes, other duty-free cigarettes, and duty-paid market cigarettes. The procurement price is negotiated with reference to (i) the pricing documents issued by relevant authorities in respect of each particular transaction or product (including the No. 250 Notice); and (ii) if there are no such pricing document, international market practice and industry norms. (i) Premium and Other First Tier Duty-Free Cigarettes The pricing of premium and other first tier duty-free cigarette products is determined in compliance with the current pricing regime for the duty-free cigarettes established by STMA, the price at which any operating entity procures premium and other first tier duty-free cigarettes from entities under CNTC must be determined in compliance with the No. 250 Notice issued in September 2017. According to the No. 250 Notice issued by STMA, the export prices of premium cigarettes shall not be lower than 35% of the tax-excluded allocation price of those sold domestically, while the export prices of other first tier duty-free cigarettes shall not be lower than 45% of the tax-excluded allocation price of those sold domestically. The Company’s suppliers must comply with the price floors set by STMA, which are tied to the relevant cigarette allocation prices that are also determined by STMA. On the basis of those price floors, the Company determines the ultimate procurement prices through arm’s length negotiations with relevant entities under CNTC in procuring premium cigarettes and first tier cigarettes for export sales. Specifically, the procurement prices generally comprise: (i) suppliers’ costs associated with the manufacturing of cigarettes, which include cost of raw material, utility cost, rent of factory premises, storage expenses, staff costs and others; (ii) prevailing market price of shipping costs and insurance costs; (iii) applicable premium in relation to cigarette brand, as industrial companies have greater bargaining power and stronger tendency to add a premium to well-known, influential cigarette brands (e.g., Chunghwaʕ ശcigarettes manufactured by China Tobacco Shanghai usually have a higher premium); (iv) applicable discount in relation to factors including historic business relationship with the relevant industrial companies, the Company’s business reputation, financial conditions, scale of sales channels and ability to manage downstream wholesalers and others; and (v) other factors, including the relevant industrial companies’ suggested retail price and reasonable profit margin of the Company and downstream wholesalers. The Company is not required to be responsible for tax payment in the cigarettes export business. We subsequently determine sales price through arm’s length negotiation with our customers in proprietary business, taking into consideration factors including retail prices of the relevant cigarettes in the target markets, expected profit margin of the duty-free outlets, our procurement cost and reasonable profit margin and competitiveness of the relevant cigarettes. With respect to our incremental business, we determine sales prices by adding an applicable margin of 1% to 2%, 2% to 5% or more than 5% to our procurement prices. Such margins were determined taking into consideration factors including reasonable profit margin of the Company, market demand of the relevant cigarettes and services provided by the downstream wholesalers. (ii) Other Duty-Free Cigarettes The prices at which the Company procures other duty-free cigarettes categories from relevant entities under CNTC are determined through arm’s length negotiation, using the same pricing policies and taking into consideration the same factors for premium and other first tier duty-free cigarettes as described above, but the pricing for other duty-free cigarettes is not subject to any government-prescribed price floors.
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Annual Report 2024 43 Review of Continuing Connected Transactions (Continued) Subsequently, similar as described above for premium and other first tier duty-free cigarettes, the Company determines sales prices of other duty-free cigarettes through arm’s length negotiation with customers in the Company’s proprietary business. With respect to customers in the Company’s incremental business, the Company currently determines sales prices by adding an applicable margin scale of 1% to 2%, 2% to 5% or more than 5% to procurement prices. (iii) Duty-Paid Market Cigarettes The Company determines the ultimate procurement prices through arm’s length negotiations with relevant entities under CNTC in procuring duty-paid market cigarettes for export sales. The procurement prices generally comprise similar factors as considered for the duty-free cigarettes, including: (i) suppliers’ costs associated with the manufacturing of cigarettes, which include cost of raw material, utility cost, rent of factory premises, storage expenses, staff costs and others; (ii) prevailing market price of shipping costs and insurance costs; (iii) applicable premium in relation to cigarette brand, as industrial companies have greater bargaining power and stronger tendency to add a premium to well-known, influential cigarette brands (e.g., Chunghwa ʕശcigarettes manufactured by China Tobacco Shanghai usually have a higher premium); (iv) applicable discount in relation to factors including historic business relationship with the relevant industrial companies, the Company’s business reputation, financial conditions, scale of sales channels and ability to manage downstream wholesalers and others; and (v) other factors, including the relevant industrial companies’ suggested retail price and reasonable profit margin of the Company and downstream wholesalers. Annual Caps The transaction amount of the procurement of cigarettes transactions under the Framework Agreements on Cigarettes Export to New Regions for the years ended 31 December 2024, the years ending 31 December 2025 and 2026, shall not exceed US$7.8 million (equivalent to HK$60.7 million), US$8.5 million (equivalent to HK$66.3 million), US$9.4 million (equivalent to HK$73.3 million), respectively. Transaction Amount during the Reporting Period During the Reporting Period, the amount of the procurement of cigarettes transactions under the Framework Agreements on Cigarettes Export to New Regions which constitutes connected transactions was US$1.3 million (equivalent to HK$10.3 million), accounting for 100% of the total procurement of cigarettes transactions under the Framework Agreements on Cigarettes Export to New Regions. Save as disclosed above, none of the other related party transactions set out in the note 24 of the financial statements constitute connected transactions or continuing connected transactions that are required to be disclosed under Chapter 14A of the Listing Rules. Save as disclosed in this annual report, the Group has no connected transactions which are required to be disclosed under Chapter 14A of the Listing Rules from 1 January 2024 to 31 December 2024. At the time of the initial public offering of the Company, the Company has applied to the Stock Exchange for, and the Stock Exchange has granted the Company, a waiver from strict compliance with: • in respect of the Continuing Connected Transactions of types A, B, C and D above, the requirements for (i) announcement, (ii) independent Shareholders’ approval, (iii) setting a term of no more than three years and (iv) setting annual caps under Chapter 14A of the Listing Rules; and
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China Tobacco International (HK) Company Limited 44 Review of Continuing Connected Transactions (Continued) • in respect of the Continuing Connected Transactions under the Offshore Supply Framework Agreements and the Tobacco Leaf Products Export Agency Agreements of types E and F above, the requirements for (i) announcement and (ii) independent Shareholders’ approval under Chapter 14A of the Listing Rules. The Continuing Connected Transactions under the 2021-2024 Offshore Supply Framework Agreements and 2024-2026 Offshore Supply Framework Agreement of type E, the 2021-2024 Tobacco Leaf Products Export Agency Agreements and 2024-2026 Tobacco Leaf Products Export Agency Agreements of types F above are subject to the reporting, announcement, circular and independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. For details, please refer to the Company’s announcements dated 17 November 2021, 30 December 2021 and 10 October 2024 and circular dated 14 December 2021 and 1 November 2024. The Continuing Connected Transactions at Subsidiary Level of type G above are subject to the requirements for reporting and announcement but are exempt from the circular, independent financial advice and Shareholders’ approval requirements pursuant to Rule 14A.101 of the Listing Rules. For details, please refer to the Company’s announcements dated 23 September 2021, 22 October 2021, 29 November 2021, 30 May 2022, 29 December 2022, 20 December 2023 and 10 October 2024 and circular dated 29 September 2021. The Continuing Connected Transactions of type H above in relation to the 2023 Tobacco Leaf Products Export Framework Agreement and Framework Agreements on Tobacco Leaf Products Export to New Regions are subject to the requirements for reporting and announcement but are exempt from the circular, independent financial advice and Shareholders’ approval requirements pursuant to Rule 14A.76 of the Listing Rules. For details, please refer to the Company’s announcements dated 25 August 2023 and 27 November 2024. The Continuing Connected Transactions of type I above in relation to the Framework Agreements on Cigarettes Export to New Regions are subject to the requirements for reporting and announcement but are exempt from the circular, independent financial advice and Shareholders’ approval requirements pursuant to Rule 14A.76 of the Listing Rules. For details, please refer to the Company’s announcement dated 8 April 2024. On the basis of the above, the Group confirms that it has complied with the requirements of Chapter 14A of the Listing Rules in relation to all connected transactions and continuing connected transactions to which the Group was a party during the Reporting Period. After the Company’s Listing, it has been actively increasing market coverage for its business in the Exclusive Operating Regions for Cigarettes (the “Exclusive Cigarettes Export Business”), including continuous efforts in enriching and optimising the Company’s product portfolio, introducing and promoting new products, expanding the scope for existing sales channels, focusing on brand cultivation and increasing the scale of its proprietary business, among others. As a result of expansion of the Exclusive Cigarettes Export Business, on 3 April 2025, (i) the Company has entered into the Cigarettes Export Business Exclusive Operation and Long-Term Supply Framework Agreement with Inner Mongolia Kunming Cigarette Limited Liability Companyபʮ̡ , being one of the Subsequent Parties (as defined below), on the same terms and conditions as those of the original parties with which the Company had entered into the Cigarettes Export Framework Agreements on or before 10 April 2019 (the “Original Parties”); and (ii) the Company has applied to the Stock Exchange for, and the Stock Exchange has agreed to grant, a modification of the existing waivers in respect of, among others, the transactions under the Cigarettes Export Framework Agreements with the Original Parties (the “Existing Waivers”), to cover the Cigarettes Export Business Exclusive Operation and Long-Term Supply Framework Agreements with Inner Mongolia Kunming Cigarette Limited Liability Companyபʮ̡ , China Heilongjiang Tobacco Industry Co., Ltd.பʮ̡ and China Tobacco Fujian Industrial Co., Ltd. பʮ̡ (the “Subsequent Parties”) from strict compliance with the requirements in relation to annual cap and independent shareholders’ approval and the term of such transactions shall be indefinite, subject to the same conditions of the Existing Waivers. For further details, please refer to the Company’s announcement dated 3 April 2025.
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Annual Report 2024 45 Review of Continuing Connected Transactions (Continued) CONFIRMATION FROM AND REVIEW OPINIONS OF THE INDEPENDENT NON- EXECUTIVE DIRECTORS The independent non-executive Directors of the Company (the “INEDs”) have reviewed the continuing connected transactions (the “Continuing Connected Transactions”) conducted by the Group during the Reporting Period. In particular, to ensure the fairness of the Continuing Connected Transactions, the INEDs have performed the following works, which apply to the Continuing Connected Transactions of types A, B, C and D above (the “CCTs of Indefinite Term”), the Continuing Connected Transactions of types E, F, H and I above (the “CCTs of Fixed Terms”), and the Continuing Connected Transactions of type G (the “CCTs with Alliance One Group”), respectively: (i) reviewed the financial information of the Group to understand the Continuing Connected Transactions entered into during the Reporting Period; (ii) reviewed various transaction documents to consider whether the Continuing Connected Transactions have complied with the agreements governing such transactions, the pricing policies and whether the contract terms are conducted on the normal commercial terms or better to the Group on the sampling basis; (iii) reviewed the reports of the independent financial adviser of the Continuing Connected Transactions during the Reporting Period; (iv) convened the special meetings of the Connected Transactions Control Committee to discuss the review conducted by the Connected Transactions Control Committee of the Continuing Connected Transactions during the Reporting Period (the “Review”), and the review opinions on the Continuing Connected Transactions jointly with the independent financial adviser; (v) reviewed the audited financial statements of the Group for the Reporting Period with disclosure note on related party transactions included therein; and (vi) convened the special meetings of the Connected Transactions Control Committee to enquire the management about its control measures and implementations in relation to the Continuing Connected Transactions. In connection with the CCTs with Alliance One Group, the INEDs have also sampled and reviewed contracts with independent third parties to compare relevant key commercial terms with those in the CCTs with Alliance One Group. The aggregate transaction amount of the CCTs of Indefinite Term which have been covered by the Review are approximately HK$4,956.9 million, HK$1,026.3 million, HK$767.2 million and HK$76.7 million, respectively, representing not less than 50% of the total sales transaction amount of each type of transactions during the Reporting Period. In addition to the above works, the INEDs have confirmed that during the Reporting Period, the Continuing Connected Transactions had been entered into: (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better to the Group; and (iii) according to the agreements governing such transactions on terms that are fair and reasonable and in the interests of the Shareholders as a whole.
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China Tobacco International (HK) Company Limited 46 Review of Continuing Connected Transactions (Continued) CONFIRMATION FROM THE COMPANY’S AUDITORS The Company’s auditors have been engaged to report on the Continuing Connected Transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The Company’s auditors have issued their letter containing their findings and conclusions in respect of the Continuing Connected Transactions disclosed in this annual report in accordance with Rule 14A.56 of the Listing Rules. The Company’s auditors have confirmed in their letter that nothing has come to their attention that cause them to believe that the Continuing Connected Transactions: (i) have not been approved by the Board; (ii) for transactions involving the provision of goods or services by the Group, were not, in all material respects, in accordance with the pricing policies of the Group; (iii) were not entered into, in all material respects, in accordance with the terms of the relevant agreements governing such transactions; and (iv) the aggregate amount of each of the Continuing Connected Transactions has exceeded their respective caps (if any) for the Reporting Period. In addition, the Company’s auditors have also been engaged to, in accordance with Hong Kong Standard on Related Services 4400 “Engagements to Perform Agreed-Upon Procedures Regarding Financial Information”, perform financial ratio analysis (the “Ratio Analysis”) by comparing the Group’s debtors turnover days, creditors turnover days, net profit margin and the rate of return on equity (together, the “Relevant Ratios”) for the Reporting Period to comparable companies selected by the Board of Directors, which include sizeable companies listed on the Stock Exchange with major revenue streams from trading or distribution activities and certain tobacco or trading companies that, in the views of the Directors, are comparable to the Group. By performing the Ratio Analysis, the Company’s auditors found that, among other things and subject to the availability of financial information of the comparable companies, the Relevant Ratios of the Group were within the range of those for the comparable companies for the Reporting Period.
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Annual Report 2024 47 Review of Continuing Connected Transactions (Continued) REVIEW OPINIONS OF THE INDEPENDENT FINANCIAL ADVISER The Company has engaged Somerley Capital Limited (“Somerley”) as the independent financial adviser to review the CCTs of Indefinite Term. The independent financial adviser has performed the following works: 1) obtained and reviewed transaction documents including, among others, price negotiation records, purchase indication records, procurement contracts and sales contracts, and relevant pricing regulatory notices or the Company’s internal pricing policies, in relation to each of the CCTs of Indefinite Term during the Reporting Period, on a sampling basis, representing not less than 50% of the total sales transaction amount of each of the CCTs of Indefinite Term during the Reporting Period. Somerley has noted that the CCTs of Indefinite Term were conducted in accordance with the relevant pricing regulatory notices and the Company’s internal pricing policies; 2) discussed with the management of the Company to understand the background of the CCTs of Indefinite Term, customer and supplier selection criteria, procurement procedures and pricing policies, in particular with respect to the Company’s independence throughout the decision-making process; 3) enquired the management of the Company about the existing internal control measures so as to confirm that the CCTs of Indefinite Term were carried out in accordance with the procedures and criteria set out by the Company in relevant internal policies and procedures; and 4) compared the margins of certain CCTs of Indefinite Term, that are not governed by any pricing policy prescribed by STMA or CNTC, against the margins of other listed companies in Hong Kong engaged in trading consumable goods business. Based on the above, Somerley has confirmed that the CCTs of Indefinite Term for the Reporting Period have been conducted: 1) in the ordinary and usual course of business of the Group; 2) on normal commercial terms or better to the Group; and 3) on terms that are fair and reasonable and in the interests of the Group and the Shareholders as a whole. In addition, the Company has engaged Somerley to review the CCTs of Fixed Terms and the CCTs with Alliance One Group for the Reporting Period. Somerley has confirmed that the CCTs of Fixed Terms and the CCTs with Alliance One Group during the Reporting Period have been entered into: 1) in the ordinary and usual course of business of the Group; 2) on normal commercial terms or better to the Group; and 3) according to the agreement governing them on terms that are fair and reasonable and in the interests of the Group and the Shareholders as a whole.
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China Tobacco International (HK) Company Limited 48 Directors and Senior Management (as of the Latest Practicable Date) * For identification only DIRECTORS Mr. SHAO Yan Chairman and Non-executive Director Aged 60 Joined the Company in August 2016 Chairman and Non-Executive Director since June 2018 Other positions held with CNTC Group Chairman and general manager of CTIG (2021~) Executive director and general manager of CTI (2015~) Education and Qualifications Doctor in tobacco science and technology engineering (Hunan Agricultural University) Master in crop cultivation and planting (Yunnan Agricultural University) Bachelor in biology (Hangzhou Normal University) Primary former positions Deputy general manager of Yunnan Tobacco Monopoly Administration (Company)*ণਖ਼ር҅ ʮ̡ (2009-2015) General manager of Tian Ze Tobacco Company (PVT) Limited (2007-2010) Deputy general manager of Tian Ze Tobacco Company (PVT) Limited (2007) Director chief agronomist of Yunnan Tobacco Monopoly Administration (Company)* (2006-2007) Director of Yunnan Tobacco Science Research Institute* (2003-2007) Deputy director of the tobacco leaves management division of Yunnan Tobacco Monopoly Administration (Company)* (2001-2005) Section chief of the tobacco leaves management of Yunnan Tobacco Monopoly Administration (Company)* (1998-2001) Mr. DAI Jiahui Executive Director and General Manager Aged 51 Joined the Company in July 2023 Executive Director and General Manager since July 2023 Education and Qualifications Senior Accountant (China National Tobacco Corporation) Bachelor of Economics (China Institute of Finance) Primary former positions Director of the human resource department of CTIG (2022-2023) Director of the financial management department of CTIG (2021-2022) Director of the financial management department of CTI (2017-2021) Deputy director of the financial management department of CTI (2012-2017) Manager of the finance department of CTPM International SA (2006-2012) Deputy director of the financial department of China Cigarette Sales Company *ʕજቖਯʮ̡(2005-2012) Principal staff member of the financial management department of China Tobacco Import & Export (Group) Corporation *ʕ䉛ণආ̈ɹ ණྠ ʮ̡(2002-2005)
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Annual Report 2024 49 Directors and Senior Management (Continued) (as of the Latest Practicable Date) Mr. WANG Chengrui Executive Director and Company Secretary Aged 44 Joined the Company in April 2018 Executive Director of the Company since December 2018 Company Secretary of the Company since June 2019 Education and Qualifications MBA (Yunnan University) Dual bachelor in economics and software engineering (Yunnan University) Primary former positions Deputy manager of the strategic development department of CTIG (2017-2018) Principal staff member of the planning and investment department of CTI (2016-2017) Principal staff member of the tobacco economy information centre of STMA (2013-2016) Mr. XU Zengyun Executive Director and Deputy General Manager Aged 41 Joined the Company in September 2022 Executive Director and Deputy General Manager of the Company since September 2022 Education and Qualifications Master in management (Renmin University of China) Bachelor in international economics and trade (Dalian Maritime University) Primary former positions Deputy director of the cigarette business department of CTIG (2021-2022) Associate counselor of the Market Development Department of CTI (2019-2021) Deputy general manager and manager of the marketing department of China Tobacco International Middle East General Trading FZCO (2019-2020) Deputy general manager of Radiant Star Trading Co. (L.L.C) (2017-2019) Principal staff member of the market development department at CTI (2014-2019) Senior brand manager and deputy brand director of CTBAT International Co. Limited (2013-2016)
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China Tobacco International (HK) Company Limited 50 Directors and Senior Management (Continued) (as of the Latest Practicable Date) Ms. MAO Zilu Executive Director and Deputy General Manager Aged 39 Joined the Company in April 2022 Executive Director of the Company since September 2022 Deputy General Manager of the Company since April 2023 Education and Qualifications Intermediate Economics Professional Qualification (the Ministry of Human Resources and Social Security of the PRC) Legal Professional Qualification Certificate of the PRC (the Ministry of Justice of the PRC) Master in international law (Renmin University of China) Bachelor in law (Renmin University of China) Primary former positions Associate counselor of the state trade department of CTI (2022) Principal staff member of the domestic trade department of CTI (2020-2022) Principal staff member of the tobacco leaf operation department of CTI (2014-2020) Mr. CHOW Siu Lui Independent Non-Executive Director Aged 64, with a wealth of experience in fund raising and initial public offering activities in Hong Kong and accounting and financial areas Independent Non-executive Director of the Company since December 2018 Directorships in other listed companies Independent non-executive director of AGTech Holdings Limited (2022~) Independent non-executive director of China Everbright Greentech Limited (2017~) Independent non-executive director of Futong Technology Development Holdings Limited (2016~) Independent non-executive director of Genertec Universal Medical Group Company Limited (2015~) Education and Qualifications Fellow member (Hong Kong Chartered Governance Institute HKCGI, formerly known as Hong Kong Institute of Chartered Secretaries HKICS) Fellow member (Institute of Chartered Secretaries and Administrators) Fellow member (Hong Kong Institute of Certified Public Accountants, HKICPA) Fellow member (Association of Chartered Certified Accountants ACCA) Professional diploma in accountancy (Hong Kong Polytechnic University) Primary former positions Non-executive director of Renrui Human Resources Technology Holdings Limited (2019-2023) Partner of VMS Investment Group (HK) Limited (2012-2023) Independent non-executive director of Global Cord Blood Corporation (2019-2022) Independent Non-Executive Director of Shanghai Dazhong Public Utilities (Group) Co. Ltd. (2016-2022) Independent Non-Executive Director of Fullshare Holdings Limited (2013-2021) Independent Non-Executive Director of Sinco Pharmaceuticals Holdings Limited (2016-2018) Partner of KPMG Hong Kong (1995-2011)
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Annual Report 2024 51 Directors and Senior Management (Continued) (as of the Latest Practicable Date) Mr. WANG Xinhua Independent Non-Executive Director Aged 69, with more than 20 years of experience in the financial management of PRC state-owned enterprises and Hong Kong listed companies and rich experience in listing compliance matters and providing financial advice to listed companies Independent Non-executive Director of the Company since December 2018 Directorships in other listed companies Independent non-executive director of Simcere Pharmaceutical Group Limited (2019~) Education and Qualifications Professor-level senior accountant (Sinopec Group) Bachelor (Northeastern University in the PRC) Primary former positions Independent director of China Petroleum Engineering Company Limited (2017-2024) Independent director of Xinjiang Zhongtai Chemical Company Limited*ʮ̡ (2017-2022) Independent director of Guizhou Yibai Pharmaceutical Company Limited (2016-2019) Independent director of Baoli Lianhe Chemical Engineering Holdings Group Company Limited (previously called Guizhou Jiulian Industrial Explosive Materials Development Company Limited (2016-2019) CFO of China Petroleum & Chemical Corporation (2009-2015) Director of the financial planning department of China Petrochemical Corporation (2004-2009) * For identification only Mr. QIAN Yi Independent Non-Executive Director Aged 71, with 41 years of experience in enterprise management and 15 years of experience in the tobacco industry Independent Non-executive Director of the Company since May 2019 Other primary positions Visiting professor of the University of Shanghai for Science and Technology (2012~) Visiting professor of Shanghai Publishing and Printing College (2012~) Education and Qualifications Senior economist (Shanghai Municipal Qualification Reform Work Leading Team) Graduate program in economics (East China Normal University) Undergraduate program in enterprise management (Fudan University) Post-secondary program in management engineering (Shanghai Jiaotong University) Primary former positions Executive director and general manager of Nanyang Brothers Tobacco Co., Ltd. (2008-2017) Director of Shanghai Industrial Investment (Holdings) Co., Ltd. (2012-2014) Executive director and deputy CEO of Shanghai Industrial Holdings Limited in Hong Kong (2009-2014)
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China Tobacco International (HK) Company Limited 52 Directors and Senior Management (Continued) (as of the Latest Practicable Date) Ms. HE Junhua Independent Non-Executive Director Aged 54, with extensive skills, knowledge and professional experience in providing legal advice to corporations, investment banks and financial institutions Independent Non-executive Director of the Company since May 2024 (She obtained legal advice referred to in rule 3.09D of the Listing Rules on 17 May 2024, and she confirmed that she understood her obligations as a Director.) Other primary positions Partner of Han Kun Law Offices (2025~) Education and Qualifications Solicitor (Hong Kong) Attorney (California, United States) Attorney (New York, United States) Juris Doctor (Rutgers, The State University of New Jersey, United States) Master of Laws (University of California, Berkeley, United States) Bachelor of Laws (Shenzhen University, China) Primary former positions Partner of Ashurst (2020-2024) Partner of DLA Piper (2015-2020) Partner of Morrison & Foerster LLP (2012-2015) Associate and Partner of Herbert Smith Freehills (2006-2012) Mr. YAN Bill Biao Deputy General Manager Aged 56 Joined the Company in July 2022 Deputy General Manager of the Company since February 2023 Education and Qualifications Fellow Chartered Management Accountant (Chartered Institute of Management Accountants) Chartered Global Management Accountant (Association of International Certified Professional Accountants) Bachelor of Business Administration (St. Francis Xavier University in Canada) Primary former positions Regional director strategy and program delivery of Philip Morris Asia Ltd. (2019-2021) Director of the board, and Director finance and business development of Philip Morris (China) Management Co., Ltd. (2014-2019) Director finance, business development, and international joint venture of Philip Morris International Management S.A. (2006-2014) Regional manager treasury of Philip Morris Asia Ltd. (2003-2006) Project controller of Philip Morris Philippines Manufacturing Inc. (1999-2003) Senior corporate auditor of Altria Group, Inc. (1997-1999) Senior auditor of KPMG Canada (1993-1996) SENIOR MANAGEMENT For the biographical details of Mr. DAI Jiahui, Mr. WANG Chengrui, Mr. XU Zengyun, and Ms. MAO Zilu, please see “Directors” of this section.
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Annual Report 2024 53 Directors and Senior Management (Continued) (as of the Latest Practicable Date) COMPANY SECRETARY Mr. WANG Chengrui has been the Company’s Company Secretary since June 2019. Mr. WANG Chengrui has become the Company’s sole Company Secretary following the resignation of Mr. CHEUNG Kai Cheong Willie as a joint company secretary of the Company with effect from 12 June 2022. For his biographical details, please see the section “Directors” above.
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China Tobacco International (HK) Company Limited 54 Report of the Directors The Directors are pleased to present this annual report and the audited consolidated financial statements of the Group for the year ended 31 December 2024. PRINCIPAL ACTIVITIES The Group is the designated offshore platform of CTIG (immediate parent of the Company) for capital markets operation and international business expansion. CTIG is a wholly-owned subsidiary of CNTC (ultimate controlling company of the Company) and is in charge of the management and operation of the international businesses of CNTC by organizing the trade of tobacco products and overseeing the operation of the offshore subsidiaries and foreign investments of CNTC. CNTC Group is the only entity under the state tobacco monopoly regime of the PRC to engage in the production, sale, and import and export businesses of tobacco monopoly commodities in the PRC. In accordance with the authorization by STMA and the relevant laws, regulations and rules, the Group is principally engaged in the following businesses: • export of tobacco leaf products to Southeast Asia, Hong Kong, Macau, Taiwan and Non-exclusive Operating Regions for Tobacco Leaf Products (the “Tobacco Leaf Products Export Business”); • import of tobacco leaf products to the Chinese Mainland from origin countries or regions around the world (other than from sanctioned countries and regions) (the “Tobacco Leaf Products Import Business”); • export of cigarettes to the Exclusive Operating Regions for Cigarettes and New Designated Regions for Cigarettes from CNTC Group directly or through distributors (the “Cigarettes Export Business”); • export of new tobacco products to the global market (except Chinese Mainland) (the “New Tobacco Products Export Business”); and • procurement, processing, sale of tobacco leaves and procurement of agricultural materials inherent to tobacco production in Republic of Brazil (“Brazil”) and from Brazil to the global market (except Chinese Mainland) (the “Brazil Operation Business”). BUSINESS REVIEW A fair review of the business of the Group, as well as a discussion on the Group’s future business development and an analysis of the Group’s performance during the year ended 31 December 2024 using financial key performance indicators, are set out in “Chairman’s Statement” on pages 9 to 12 of this annual report and in “Management Discussion and Analysis” on pages 13 to 18 of this annual report. The financial risk management objectives and policies of the Group are set out in note 23 to the consolidated financial statements. Besides, the potential risks and uncertainties faced by the Group, the Group’s key relationships with its employees, customers and suppliers, the Group’s environmental policies and performance and compliance with the relevant laws and regulations which have significant impact are set out below.
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Annual Report 2024 55 Report of the Directors (Continued) Key Risks and Uncertainties The Group’s results and operations are subject to a variety of risks and other factors and they are summarised as follows: The Group’s results may be subject to global tobacco-control campaigns and increasing consumer concerns on health issues. Global demand and consumption of tobacco products may shrink as a result of global tobacco-control campaigns and increasing consumer awareness of health issues. Therefore, the Group cannot assure that the overall demand for tobacco products will increase or remain the same, and the overall demand decline for tobacco products may adversely affect the results of the Group. The Group’s results may be subject to seasonal fluctuations. Due to the seasonality of the Group’s tobacco leaf products import and export business, the results of operations as well as the cash flow for any period of a given year are not necessarily indicative of the results that may be achieved for the full year. As such, comparing the revenue and operating results in different periods of a financial year may be misleading and should not be relied upon as the sole indicator of the Group’s performance. The Group’s results may be subject to plans periodically approved by relevant authorities. With respect to the Tobacco Leaf Products Import Business, the Industrial Companies, which are the end users of the Group’s imported tobacco leaves, are subject to annual import plans approved by relevant authorities. Similarly, with respect to export business, the Group’s domestic suppliers are also subject to periodic export plans approved by relevant authorities. Therefore, the Group’s procurement or sales activities with these domestic counterparties are in turn subject to such periodic plans. The New Tobacco Products Export Business of the Group may be confronted with challenges. While new tobacco products business developed rapidly in recent years, uncertainties remain with respect to the interpretation and implementation of the regulatory framework for new tobacco products. Any unfavourable regulatory development could impede the growth of new tobacco products business in specific countries or even around the world, thus adversely affecting the performance of Group. Sales of duty-free cigarettes may not return to pre-pandemic levels quickly. After the Covid-19 pandemic, although the continuously increase in the number of people entering and leaving China and related areas will help boost duty-free cigarette sales, the impact of the pandemic and the prevention and control policies on the economy and consumption habits over the past three years may lead to changes in consumption behavior, which may affect the sales of duty-free cigarettes. Key Relationships The Group fully understands that employees, customers and partners are key to its sustainable and stable development. The Group is committed to establishing a close relationship with its employees, enhancing cooperation with its partners and providing high-quality goods and services to its customers so as to ensure the Group’s sustainable development. Employees and Emolument Policy Employees are regarded as the most important resource of the Group. The Group has been endeavouring to provide its employees with competitive compensation packages, attractive promotion opportunities, professional training and a respectful and professional working environment. In order to assist the Group in attracting, retaining and motivating its employees, the Group has adopted an employee remuneration management policy, which includes, among others, a performance-linked bonus mechanism. In addition, the Group provides induction training to all employees to familiarize them with the tobacco industry, the Group’s business operations and additional professional training specific to its employees’ job responsibilities during their course of employment on an ad hoc basis.
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China Tobacco International (HK) Company Limited 56 Report of the Directors (Continued) Customers and Suppliers In respect of the Tobacco Leaf Products Import Business, CTI is the Group’s sole customer, as it is the only entity in the PRC with the qualifications to import overseas tobacco leaf products to the PRC; and the Group’s suppliers are generally tobacco leaf products companies. In respect of the Tobacco Leaf Products Export Business, the Group’s customers are (i) cigarette manufacturers, and (ii) authorized purchasing agents of certain cigarette manufacturers, which are generally tobacco trading companies; and the Group’s suppliers are generally the tobacco import and export companies and the cigarettes manufacturing companies in the PRC that are owned and/or controlled by CNTC (other than CTI), from which the Group procures tobacco leaf products. In respect of the Cigarettes Export Business, the Group’s customers are duty-paid retailers, duty-free operators and cigarettes wholesalers; and the Group’s suppliers are generally China Tobacco’s import and export companies and the industrial companies as well as an authorized third party tobacco manufacturer. In respect of the New Tobacco Products Export Business, the Group’s customers are retailers/cigarettes wholesalers and independent third parties; and the Group’s suppliers are generally China Tobacco’s import and export companies and the industrial companies. In respect of the Brazil Operation Business, the Group mainly exports tobacco leaves to other end customers through Alliance One Group’s distribution channels; and the Group’s suppliers are generally local farmers engaged in tobacco cultivation in Brazil. Benefiting from its exclusive operating position, the Group is able to acquire and maintain long-standing relationships with creditworthy customers and suppliers. The Group has maintained business relationships with some of the major customers and suppliers for more than ten years. The Group’s close partnership with the customers and suppliers provides itself with abundant business opportunities and sufficient product supply which has laid a solid foundation for maintaining its current business and further expanding globally. Environmental Policies and Performance The Group recognises the importance of proper adoption of environmental policies which is essential to the attainability of corporate growth. The Group has compiled Sustainable Development Policy and Climate Change Management Measure based on applicable environmental laws, regulations and standards. According to the sustainable development policy, the Group has established a ESG Task Force responsible for collecting and reporting annual ESG data, identifying and evaluating potential ESG-related risks within the Group, and formulating and overseeing ESG targets aligned with our business objectives, ensuring that the Group complies with relevant legal and regulatory requirements and promoting the implementation of relevant policies by various departments of the Group. According to the newly formulated Climate Change Management Measures this year, the Group has systematically formulated multiple management frameworks such as greenhouse gas emissions management, climate risk management, and green operations based on the definition of climate-related risks and opportunities by the Task Force on Climate-Related Financial Disclosures (TCFD) to improve the Group’s climate risk assessment system, and enhance climate resilience. To actively respond to the Stock Exchange’s New Climate Requirements regarding greenhouse gas emissions disclosure requirements and future trends, we have expanded our greenhouse gas emissions collection scope to include Scope 3. This expansion aims to improve environmental transparency, identify potential climate risks and opportunities within the supply chain. For detailed information on the Group’s 2024 environmental policies and performance, please refer to the Group’s 2024 ESG Report.
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Annual Report 2024 57 Report of the Directors (Continued) Compliance with Laws and Regulations The Group’s operations are mainly carried out in Hong Kong and Brazil, and the Company is a company incorporated in Hong Kong with its Shares listed on the Main Board of the Stock Exchange. Accordingly, the establishment and operations of the Group shall comply with relevant laws and regulations in Hong Kong and Brazil, including but not limited to the Companies Ordinance (Cap. 622 of the Laws of Hong Kong) (the “Companies Ordinance”), the SFO and the Listing Rules, as well as relevant laws and regulations in Brazil. During the year ended 31 December 2024, the Group is not aware of any material non-compliance with relevant laws and regulations in Hong Kong or Brazil by the Group that have a significant impact on its businesses and operations. RESULTS The results of the Group for the year ended 31 December 2024 are set out in the section headed “Consolidated statement of profit or loss and other comprehensive income” of this annual report. PROPOSED FINAL DIVIDEND The Board recommends a final dividend of HK$0.31 per Share for the year ended 31 December 2024 (2023: HK$0.32 per Share). SHARE CAPITAL Details of the movements in the share capital of the Company for the year ended 31 December 2024 are set out in note 22 to the consolidated financial statements in this annual report. RESERVES As at 31 December 2024, distributable reserves of the Company, calculated under Part 6 of the Companies Ordinance, amounted to HK$1,731.7 million (31 December 2023: HK$1,208.2 million). Details of the movements in the reserves of the Group for the year ended 31 December 2024 are set out in the section headed “Consolidated Statement of Changes in Equity” of this annual report. PROPERTY, PLANT AND EQUIPMENT Details of the movements during the year in the Group’s property, plant and equipment are set out in note 13 to the consolidated financial statements in this annual report. FINANCIAL SUMMARY A summary of the results and the assets and liabilities of the Group for the past five financial years are set out in the section headed “Financial Summary” of this annual report. LIQUIDITY AND FINANCIAL RESOURCES The Group adopts conservative treasury policies and controls tightly over its cash and risk management. The Group’s cash and cash equivalents are mainly in Hong Kong dollars and U.S. dollars. Surplus cash is generally placed in short term deposits denominated in Hong Kong dollars and U.S. dollars.
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China Tobacco International (HK) Company Limited 58 Report of the Directors (Continued) MAJOR CUSTOMERS AND SUPPLIERS During the year ended 31 December 2024, the Group’s five largest customers contributed to approximately 78.6% of its total revenue (31 December 2023: 84.0%). During the year ended 31 December 2024, the Group’s largest customer contributed 63.2% of its revenue in 2024 (31 December 2023: 68.3%). Purchases from the Group’s five largest suppliers in aggregate accounted for approximately 40.8% (31 December 2023: 47.8%) of the total purchases for the year ended 31 December 2024 and purchases from the largest supplier accounted for approximately 18.1% of its total purchases (31 December 2023: 20.9%). To the best knowledge of the Directors, in respect of the Tobacco Leaf Products Export Business, the Cigarettes Export Business, the New Tobacco Products Export Business and the Brazil Operation Business, none of the Directors or any of their close associates (as defined in the Listing Rules) or Shareholders that owned more than 5% of the issued Shares had any direct or indirect interest in the five largest customers or the five largest suppliers of the Group during the year ended 31 December 2024. In respect of the Tobacco Leaf Products Import Business, the Group’s only customer is CTI, which is the only entity with the qualifications to import tobacco leaf products produced overseas into the PRC. DIRECTORS The Directors during the year ended 31 December 2024 and up to the date of this annual report are as follows: Chairman of the Board and Non-Executive Director: Mr. SHAO Yan Executive Directors: Mr. DAI Jiahui Mr. WANG Chengrui Mr. XU Zengyun Ms. MAO Zilu Independent Non-Executive Directors: Mr. CHOW Siu Lui Mr. WANG Xinhua Mr. QIAN Yi Ms. HE Junhua (appointed with effect from 17 May 2024) Mr. CHAU Kwok Keung (ceased to act as an independent non-executive director of the Company upon his retirement on 17 May 2024)
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Annual Report 2024 59 Report of the Directors (Continued) Below is a list of directors of the subsidiaries of the Company during the year ended 31 December 2024 and up to the date of this annual report: Mr. ZHOU Xinghua Mr. QU Yongsheng Mr. WANG Zhengrong Mr. LIU Xiangyun Mr. FERNANDO Limberger Mr. IRINEU Da Silva Mr. VILSON Dessbesell THE BIOGRAPHY OF THE DIRECTORS AND SENIOR MANAGEMENT The biographical details of the Directors and the senior management of the Company are set out in the section headed “Directors and Senior Management” of this annual report. SERVICE CONTRACTS OF THE DIRECTORS Each of the Directors has entered into a service contract with the Company for a term of three years commencing from the date of the service contract and shall be terminable by either party giving one month’s notice in writing to the other. None of the Directors proposed for re-election at the forthcoming AGM has a service contract with any member of the Group which is not determinable by the employer within one year without payment of compensation (other than statutory compensation).
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China Tobacco International (HK) Company Limited 60 Report of the Directors (Continued) REMUNERATION OF THE DIRECTORS AND FIVE HIGHEST PAID INDIVIDUALS Details of the Directors’ remuneration and the five highest-paid individuals in the Group are set out in notes 8 and 9 to the consolidated financial statements in this annual report. The annual remuneration of the members of the senior management, including those members of senior management who are also executive Directors, by band for the year ended 31 December 2024 is as follow: Remuneration Bands (HK$) Number of Individuals 1,000,001-1,500,000 – 1,500,001-2,000,000 – 2,500,001-3,000,000 1 3,000,001-3,500,000 2 3,500,001-4,000,000 2 Directors and senior management of the Group receive their remuneration from the Group in the form of salaries, allowances, benefits in kind and retirement scheme contributions. There was no arrangement under which a Director or senior management waived or agreed to waive any remuneration during the financial year. There are two key categories of factors to be considered in assessing fair compensation packages for independent non-executive Directors as follows: (1) intangible factors associated with the nature of the Board’s work such as the significance, responsibility and potential risk of the role, industry complexity and risk and the goodwill and reputational value brought to the Company by the independent non-executive Directors; and (2) tangible components related to the workload on Board activities. INDEPENDENCE OF THE INDEPENDENT NON-EXECUTIVE DIRECTORS The Company has received from each of the independent non-executive Directors an annual confirmation of his/her independence. The Company believes that all of the independent non-executive Directors are independent in accordance with the guidelines set out in the Listing Rules.
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Annual Report 2024 61 Report of the Directors (Continued) NON-COMPETE UNDERTAKING CNTC, the Company’s ultimate controlling shareholder, has undertaken to the Company in a non-compete undertaking that CNTC and relevant entities under CNTC (other than the Group) shall not engage in any business exclusively operated by the Company. CNTC shall also procure relevant entities under CNTC (other than the Group) not to engage in the business exclusively operated by the Group. During the year ended 31 December 2024, CNTC and relevant entities under CNTC (other than the Group) complied with the non-compete undertaking described above. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES During the year ended 31 December 2024, Mr. Shao Yan, our Chairman and non-executive Director, served as the executive director and general manager of CTI, a wholly-owned subsidiary of CNTC, and served as chairman and general manager of CTIG, a wholly-owned subsidiary of CNTC and the controlling Shareholder of the Company. Save as disclosed above, as at 31 December 2024, none of the Directors or their respective associates had engaged in or had any interest in any business which competes or may compete with the business of the Group. DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 31 December 2024, none of the Directors nor the chief executive of the Company had any interests or short positions in any of the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) that is recorded in the register required to be kept under section 352 of the SFO or any interests otherwise notified to the Company and the Stock Exchange pursuant to the Model Code. DIRECTORS’, CHIEF EXECUTIVE’S AND EMPLOYEES’ RIGHTS TO ACQUIRE SHARES At no time during the year ended 31 December 2024 was the Company, any of its subsidiaries, any of its holding companies, or any of its holding companies’ subsidiaries a party for any arrangement to enable the Directors or chief executive of the Company or any of their spouses or children under eighteen years of age to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.
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China Tobacco International (HK) Company Limited 62 Report of the Directors (Continued) SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES As at 31 December 2024, the following entities (other than the Directors or the chief executive of the Company) have interests or short positions in the Shares or underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO: Long Positions in the Shares and Underlying Shares of the Company Nature of interest Ordinary shares held Percentage of the total number of issued shares2 (i) CTIG Beneficial owner 500,010,000 72.29% (ii) CNTC1 Interest in a controlled corporation 500,010,000 72.29% Notes: 1. In light of the fact that CNTC directly controls one third or more of the voting rights in the shareholders’ meetings of CTIG, in accordance with the SFO, the interests of CTIG are deemed to be, and have therefore been included in, the interests of CNTC. 2. As at 31 December 2024, the Company had 691,680,000 Shares in issue. Apart from the foregoing, as at 31 December 2024, no other entity or person (other than a Director or the chief executive of the Company) had any interests or short positions in the Shares and underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO, or as otherwise notified to the Company and the Stock Exchange. DIRECTORS’ INTERESTS IN TRANSACTION, ARRANGEMENT OR CONTRACT OF SIGNIFICANCE No transaction, arrangement or contract of significance to which the Company, any of its subsidiaries, any of its holding companies or any of its holding companies’ subsidiaries has been a party and in which a Director or an entity connected with a Director is or was materially interested, whether directly or indirectly, subsisted during or at the end of the year ended 31 December 2024. RELATED PARTY TRANSACTIONS Related party transactions during the year ended 31 December 2024 are disclosed in note 24 to the consolidated financial statements in this annual report. CONTINUING CONNECTED TRANSACTIONS Details of review of continuing connected transactions during the year ended 31 December 2024 are set out in the section headed “Review of Continuing Connected Transactions” of this annual report. MANAGEMENT CONTRACTS The Company did not enter into any contract with any individual, firm or body corporate to manage or administer the whole or any substantial part of any business of the Group during the year ended 31 December 2024.
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Annual Report 2024 63 Report of the Directors (Continued) CONTROLLING SHAREHOLDERS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE Save as disclosed in this annual report, neither contract of significance made between the Company or any of its subsidiaries and a controlling shareholder or any of its subsidiaries, nor contract of significance made for the provision of services to the Company or any of its subsidiaries by a controlling shareholder or any of its subsidiaries was entered into during the year ended 31 December 2024. FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS As at 31 December 2024, the Group had no plan relating to material investments and capital assets. DIRECTORS’ PERMITTED INDEMNITY PROVISION Under the articles of association of the Company (the “Articles of Association”), subject to the provisions of the Companies Ordinance, every Director, company secretary or other officer of the Company shall be entitled to be indemnified out of the assets of the Company against all costs, charges, expenses, losses and liabilities which he may sustain or incur in or about the execution of his office or otherwise in relation thereto. The Company has arranged appropriate directors’ and officers’ liability insurance coverage for the Directors and officers of the Group. EQUITY-LINKED AGREEMENTS No equity-linked agreements were entered into by the Group, or existed during the year ended 31 December 2024. DONATIONS During the year ended 31 December 2024, the Group donated approximately HK$0.7 million to Brazil public welfare funds. EVENTS AFTER THE REPORTING PERIOD There is no major event after 31 December 2024 that is required to be disclosed by the Group. USE OF NET PROCEEDS FROM INITIAL PUBLIC OFFERING On the Listing Date, the Company issued 166,670,000 Shares at a price of HK$4.88 per Share pursuant to the initial public offering of the Shares, the total gross proceeds of which amounted to approximately HK$813 million, and the Shares were listed on the Main Board of the Stock Exchange (the “Listing”). The closing price on the Listing Date was HK$5.35 per Share. On 4 July 2019, the Company issued 25,000,000 Shares at a price of HK$4.88 per Share pursuant to the full exercise of over-allotment option relating to the Listing by China International Capital Corporation Hong Kong Securities Limited and China Merchants Securities (HK) Co., Limited, the total gross proceeds of which amounted to approximately HK$122 million. The net proceeds from the Listing (including the net proceeds from the issue of the 25,000,000 Shares pursuant to the exercise of the over-allotment option and net of underwriting fees and relevant expenses) (the “Net Proceeds”) amounted to approximately HK$904 million. The net price to the Company (which was calculated by dividing the Net Proceeds by the number of Shares issued in connection with the initial public offering of the Shares) was approximately HK$4.72 per Share. The Net Proceeds have been and will continue to be used in a manner consistent with that set out in the section headed “Future Plans and Use of Proceeds” in the Prospectus and the announcement of the Company dated 28 June 2023 in relation to update on expected timeline for use of proceeds.
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China Tobacco International (HK) Company Limited 64 Report of the Directors (Continued) The use of Net Proceeds during the period from the Listing Date up to 31 December 2024 and the expected timeline of the unutilised amount of the Net Proceeds are set out as follows: Use of Net Proceeds Approximate percentage of total amount Actual amount of Net Proceeds Unutilised amount as at 1 January 2024 Amount utilised during the year ended 31 December 2024 Unutilised amount as at 31 December 2024 Expected timeline (HK$ million) (HK$ million) (HK$ million) (HK$ million) Making investments and acquisitions that are complementary to the Group’s business 45% 406.8 81.4 – 81.4 Remainder to be utilised by 30 June 2025. Supporting the ongoing growth of the Group’s business 20% 180.8 171.5 6.4 165.1 Remainder to be utilised by 30 June 2025. Strategic business cooperation with other international tobacco companies, including to jointly explore and develop emerging tobacco markets 20% 180.8 180.1 1.5 178.6 Remainder to be utilised by 30 June 2025. General working capital 10% 90.4 – – – Not Applicable Improving the Group’s management of purchase and sales resources and optimizing the Group’s operational management 5% 45.2 15.9 11.4 4.5 Remainder to be utilised by 30 June 2025. Total 100% 904.0 448.9 19.3 429.6 Note: The expected timeline for utilization of the unutilised Net Proceeds above is based on the Group’s best estimation and is subject to change based on the future development of market conditions. During the year ended 31 December 2024, the Group did not issue any equity securities (including securities convertible into equity securities) or debentures. ANNUAL GENERAL MEETING The AGM will be held on Friday, 20 June 2025. A notice convening the AGM will be published on the Company’s website and the Stock Exchange’s website and dispatched to the Shareholders in accordance with the requirements of the Listing Rules in due course.
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Annual Report 2024 65 Report of the Directors (Continued) CLOSURE OF REGISTER OF MEMBERS For determining the entitlement to attend and vote at the AGM, the register of members of the Company will be closed from Monday, 16 June 2025 to Friday, 20 June 2025, both dates inclusive, during which period no transfer of its Shares will be registered. In order to be eligible to attend and vote at the AGM, non-registered holders of its Shares shall ensure that all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong Share Registrar, Computershare Hong Kong Investor Services Limited, at Room 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m. on Friday, 13 June 2025. For determining the entitlement to the proposed final dividend, the register of members of the Company will be closed from Thursday, 26 June 2025 to Wednesday, 2 July 2025, both days inclusive, during which period no transfer of Shares will be registered. In order to qualify for the proposed final dividend, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong Share Registrar, Computershare Hong Kong Investor Services Limited, at Room 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Wednesday, 25 June 2025. The final dividend is expected to be paid on or about Friday, 18 July 2025 to the Shareholders whose names appear on the register of members of the Company on Wednesday, 2 July 2025. CORPORATE GOVERNANCE The Corporate Governance Report is set out on pages 66 to 84 of this annual report. PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES During the year ended 31 December 2024, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities. AUDITOR The financial statements have been audited by KPMG who shall retire and being eligible, offer themselves for re-appointment at the forthcoming AGM of the Company. The Company has not changed its auditors since the Listing Date. On behalf of the Board SHAO Yan Chairman and Non-Executive Director Hong Kong, 6 March 2025
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China Tobacco International (HK) Company Limited 66 Corporate Governance Report CORPORATE GOVERNANCE PRACTICE The Board of Directors is committed to maintaining high corporate governance standards. The Board believes that good corporate governance standards are essential in providing a framework for the Group to formulate its business strategies and policies, and to enhance its transparency and accountability. For the year ended 31 December 2024, the Company has applied the principles as set out in the Corporate Governance Code which are applicable to the Company. In the opinion of the Directors, for the year ended 31 December 2024, the Company has complied with all applicable code provisions of the Corporate Governance Code as set out in Appendix C1 to the Listing Rules. COMPLIANCE WITH THE MODEL CODE The Company has adopted the Model Code as set out in Appendix C3 to the Listing Rules to regulate the Directors’ securities transactions. The Company has also set guidelines, at least as strict as the Model Code, on transactions of the Company’s securities for relevant employees (as defined in the Listing Rules). All Directors have confirmed, following specific enquiries by the Company, that they had complied with the required standard set out in the Model Code throughout the year ended 31 December 2024. The Company has made specific inquiries of relevant employees about their compliance with the guidelines on transactions of the Company’s securities, without noticing any violation of the guidelines. CORPORATE CULTURE The Board has established the Company’s purpose, values and strategy as follows: Following the development tenet of “respect market, respect rules, respect investors” and practicing the values of “equal emphasis on law-abiding compliance and innovative development”, we actively promote the Company to become an “internationally competitive tobacco operating entity across the industry chain”. The Board believes that the Company’s purpose, values and strategy are essential part of the Company’s corporate culture. CORPORATE GOVERNANCE FUNCTIONS The Board is responsible for performing the functions set out in the code provision A.2.1 of the Corporate Governance Code. The Board reviewed the Company’s corporate governance policies and practices, training and continuous professional development of Directors and senior management, the Company’s policies and practices on compliance with legal and regulatory requirements, the compliance of the Model Code and the guidelines, and the Company’s compliance with the Corporate Governance Code and disclosure in this Corporate Governance Report. All Directors have full and timely access to all the information of the Company as well as the services and advice from the senior management. The Directors may, upon request, seek independent professional advice in appropriate circumstances, at the Company’s expenses for discharging their duties to the Company. The Board regularly reviews (at least annually) the contribution required from each Director to perform his responsibilities to the Company based on Work Rules of the Board of the Company. Therefore, The Board is of the view that the directors devote sufficient time and make contributions to the Company that are commensurate with their role and board responsibilities during the year of 2024.
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Annual Report 2024 67 Corporate Governance Report (Continued) BOARD OF DIRECTORS The Board of the Company currently comprises nine members as follows: Non-Executive Director: Mr. SHAO Yan (Chairman of the Board) Executive Directors: Mr. DAI Jiahui (General Manager) Mr. WANG Chengrui Mr. XU Zengyun Ms. MAO Zilu Independent Non-Executive Directors: Mr. CHOW Siu Lui Mr. WANG Xinhua Mr. QIAN Yi Ms. HE Junhua None of the members of the Board has any relationship (including financial, business, family or other material/relevant relationships) with each other (including between Chairman and General Manager). The biographical information of the Directors are set out in the section headed “Directors and Senior Management” on pages 48 to 53 of this annual report. INDEPENDENT NON-EXECUTIVE DIRECTORS For the year ended 31 December 2024, the Board at all times met the requirements of the Listing Rules relating to the appointment of at least three independent non-executive Directors representing one-third of the Board with one of whom possessing appropriate professional qualifications or accounting or related financial management expertise. The Company has received written annual confirmation from each of the independent non-executive Directors in respect of his independence in accordance with the independence guidelines set out in Rule 3.13 of the Listing Rules. The Company is of the view that all independent non-executive Directors are independent. NON-EXECUTIVE DIRECTORS AND DIRECTORS’ RE-ELECTION Code provision B.2.2 of the Corporate Governance Code states that every director, including those appointed for a specific term, shall be subject to retirement by rotation at least once every three years. Each of the Directors is appointed under a service contract for a term of three years commencing from the date of the service contract which is terminable by either party by giving one month’s written notice to the other party. In accordance with the Articles of Association, all Directors are subject to retirement by rotation and re-election at AGM at least once every three years. Any Director appointed by the Board to fill a casual vacancy or as an addition to the Board shall hold office until the next following AGM after his/her appointment and they will be subject to re-election at such meeting.
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China Tobacco International (HK) Company Limited 68 Corporate Governance Report (Continued) RESPONSIBILITIES, ACCOUNTABILITIES AND CONTRIBUTIONS OF THE BOARD AND MANAGEMENT The Board is responsible for leadership and control of the Company and oversees the Group’s businesses, strategic decisions and performance and is collectively responsible for promoting the success of the Company by directing and supervising its affairs. Directors take decisions objectively in the interests of the Company. All Directors, including non-executive Directors and independent non-executive Directors, have brought a wide spectrum of valuable business experience, knowledge and professionalism to the Board for its efficient and effective functioning. All Directors have full and timely access to all the information of the Company as well as the services and advice from the senior management. The Directors may, upon request, seek independent professional advice in appropriate circumstances, at the Company’s expenses for discharging their duties to the Company. The Directors shall disclose to the Company details of other offices held by them and the Board regularly reviews the contribution required from each Director to perform his responsibilities to the Company and the Board is of the view that the directors devote sufficient time and make contributions to the Company that are commensurate with their role and board responsibilities. Taking into account of the above, the Directors believe that the Company has established mechanisms to ensure independent views and input are available to the Board. The Board has reviewed the implementation and effectiveness of the mechanism on an annual basis. The Board reserves for its decision all major matters relating to policy matters, strategies and budgets, internal control and risk management, material transactions (in particular those that may involve conflict of interests), financial information, appointment of Directors and other significant operational matters of the Company. Responsibilities relating to implementing decisions of the Board, directing and coordinating the daily operation and management of the Company are delegated to the management. BOARD MEETINGS During the Reporting Period, the Board held four regular Board meetings and four other Board meetings, five Audit Committee meetings, one Nomination Committee meeting, one Remuneration Committee meeting, five Connected Transactions Control Committee meetings, one Independent Non-Executive Directors Committee meeting, and one communication meeting between Chairman of the Board and independent non-executive Directors to discuss and approve 71 proposals, including but not limited to the annual results, interim results, declaration of interim and final dividend, continuing connected transactions, re-appointment of external auditors and determination of their remuneration. Except for 3 ongoing items, all items were completed. The attendance records of each Director are set out below in the section “ATTENDANCE RECORD OF DIRECTORS AND COMMITTEE MEMBERS”. Notices of regular Board meetings are served to all Directors at least 14 days before the meetings. For other Board and committee meetings, reasonable notice is generally given. Board papers together with all appropriate, complete and reliable information are sent to all Directors at least three days before each Board meeting or committee meeting (or such other period as agreed) so that the Directors have the time to review the documents. The agenda of each Board meeting is set by the Chairman in consultation with members of the Board such that they are given an opportunity to contemplate agenda items, draft and executed Board minutes were sent in a timely manner to all Directors for their comments and records, and minutes of the Board meetings recorded in sufficient details were kept by the Company Secretary.
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Annual Report 2024 69 Corporate Governance Report (Continued) DIRECTORS AND OFFICERS LIABILITY INSURANCE The Company has arranged appropriate directors and officers liability insurance coverage for the Directors and officers of the Group. The insured clause and scope of coverage of year 2024/2025 have been reviewed and renewed. CONTINUOUS PROFESSIONAL DEVELOPMENT OF DIRECTORS Directors keep abreast of responsibilities as a director of the Company and of the conduct, business activities and development of the Company. Every newly appointed Director will receive formal and comprehensive induction on the first occasion of his/her appointment to ensure appropriate understanding of the business and operations of the Company and full awareness of director’s responsibilities and obligations under the Listing Rules and relevant statutory requirements. Directors should participate in appropriate continuous professional development to develop and refresh their knowledge and skills to ensure that their contribution to the Board remains informed and relevant. All Directors are encouraged to attend relevant training courses at the Company’s expenses. The Company organized a series of training sessions during the Reporting Period in the form of online and offline training programme for Directors including topics of information disclosure of listed companies, rules on connected transactions, development of Hong Kong’s regulatory system, ESG regulation and reporting, sanctions, human resource management, international relations, macroeconomics, and etc. The Company has duly provided reading materials on market information and business update for the Directors to review the performance of the Company and the sales strategy of the industry and discuss the market condition of the industry and the M&A opportunities arise from upstream and downstream of the industry. During the Reporting Period, all Directors have provided records of the trainings they received to the Company, and the average training hours of the Directors are 17 hours. The Board considered the trainings attended by the Directors are sufficient to performs their responsibilities. A summary of the trainings attended by the Directors during the Reporting Period is as follows: Training Scope Name of Directors Legal and Compliance Business Update Corporate Governance Chairman of the Board and Non-Executive Director Mr. SHAO Yan Executive Directors Mr. DAI Jiahui Mr. WANG Chengrui Mr. XU Zengyun Ms. MAO Zilu Independent Non-Executive Directors Mr. CHOW Siu Lui Mr. WANG Xinhua Mr. QIAN Yi Ms. HE Junhua (appointed with effect from 17 May 2024) Mr. CHAU Kwok Keung (ceased to act as an independent non-executive director of the Company upon his retirement on 17 May 2024)
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China Tobacco International (HK) Company Limited 70 Corporate Governance Report (Continued) BOARD COMMITTEES The Board has established five committees, namely, the Audit Committee, the Remuneration Committee, the Nomination Committee, the Connected Transactions Control Committee and the Strategic Development Committee for overseeing particular aspects of the Company’s affairs. All Board committees of the Company are established with defined written terms of reference. The terms of reference of the Audit Committee, the Remuneration Committee and the Nomination Committee are posted on the Company’s website (www.ctihk.com.hk) and the Stock Exchange’s website (www.hkexnews.hk) and are available to Shareholders upon request. The majority of the members of each of the Audit Committee, the Remuneration Committee, the Nomination Committee and the Connected Transactions Control Committee are independent non-executive Directors. The Audit Committee consists of three members, namely Mr. CHOW Siu Lui, Mr. WANG Xinhua and Ms. HE Junhua, all of whom are independent non-executive Directors, with Mr. CHOW Siu Lui being the chairman of the committee possessing the appropriate accounting or related financial management expertise. Mr. CHAU Kwok Keung ceased to be a member of the Audit Committee with effect from 17 May 2024, and Ms. HE Junhua was appointed as a member of the Audit Committee with effect from 17 May 2024. Mr. CHOW Siu Lui (Independent non-executive Director) (Committee Chairman) Mr. WANG Xinhua (Independent non-executive Director) Ms. HE Junhua (Independent non-executive Director) The primary duties of the Audit Committee include: • making recommendations to the Board on the appointment, reappointment and removal of external auditors, approving the remuneration and terms of engagement of external auditors, and dealing with any issues in relation to resignation or dismissal of external auditors; • reviewing and monitoring external auditors’ independence and objectivity and the effectiveness of the audit process in accordance with applicable standards, discussing with auditors on the nature and scope of the audit work and reporting obligations before the audit commences, and ensuring coordination between auditing firms, if more than one auditing firm is involved; • developing and implementing policies with respect to the non-audit work provided by external auditors; • examining the completeness of our consolidated financial statements and our interim and annual reports, and reviewing critical financial reporting judgments contained therein; • overseeing our financial reporting, risk management and internal control systems; and • other matters required by laws, administrative regulations, and departmental rules and authorized by the Board. Audit Committee
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Annual Report 2024 71 Corporate Governance Report (Continued) For the year ended 31 December 2024, the Audit Committee held five meetings to review the Group’s interim and annual financial reports and results announcements to ensure integrity, transparency and consistency of the financial disclosures. The Audit Committee reviewed the accounting principles and practices adopted by the Group and discuss risk management, internal control, ESG and financial report matters during the meetings, and believed that the internal control procedures and risk management of the Company is effective and adequate, and there is no matters that needs to be brought to the attention of the Board. The Audit Committee engaged in discussions with our auditor, KPMG, regarding the Group’s 2024 audit planning and strategies. They reached an agreement to proceed with the proposed 2024 audit work by KPMG. For the year ended 31 December 2024, the Audit Committee had four meetings with the external auditors of the Company. The Remuneration Committee consists of three members, namely Mr. CHOW Siu Lui, Mr. SHAO Yan and Mr. WANG Xinhua, with Mr. CHOW Siu Lui being the chairman of the committee. Mr. CHOW Siu Lui (Independent non-executive Director) (Committee Chairman) Mr. SHAO Yan (Non-executive Director) Mr. WANG Xinhua (Independent non-executive Director) The primary duties of the Remuneration Committee include: • making recommendations to the Board on the compensation remuneration packages of individual executive Directors and senior management and on the compensation of non-executive Director; • making recommendations to the Board on the management’s remuneration proposals; • ensuring that no Director or any of his/her associates is involved in deciding his/her own remuneration; • developing policies and structure for remuneration of all Directors, senior management and employees including salaries, incentive schemes and other share option schemes, and making recommendations to the Board; • making recommendations to the Board on disclosure with respect to Directors’ remuneration included in the annual report; • making recommendations to the Board on whether the Shareholders shall be requested to approve the report on Directors’ remuneration at the AGM; • reporting to the Board on its decisions or recommendations, unless there are legal or regulatory restrictions; and • other matters required by laws, administrative regulations, and departmental rules and authorized by the Board. Remuneration Committee For the year ended 31 December 2024, the Remuneration Committee held one meeting to discuss the remuneration policy for Directors and senior management and remuneration package for the Directors and senior management of the Company, and make recommendations to the Board.
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China Tobacco International (HK) Company Limited 72 Corporate Governance Report (Continued) The Nomination Committee consists of three members, namely Mr. SHAO Yan, Mr. CHOW Siu Lui and Mr. WANG Xinhua, with Mr. SHAO Yan being the chairman of the committee. Mr. SHAO Yan (Non-executive Director) (Committee Chairman) Mr. CHOW Siu Lui (Independent non-executive Director) Mr. WANG Xinhua (Independent non-executive Director) The primary duties of the Nomination Committee include: • reviewing the structure, size and composition of the Board at least annually and making recommendations on any proposed changes to the Board of Directors to complement the Group’s corporate strategy; • identifying individuals suitably qualified to become Board members and making recommendations to the Board; • assessing the independence of independent non-executive Directors; • making recommendations to the Board on the appointment and succession planning of Directors; • reporting to the Board on its decisions or recommendations, unless there are legal or regulatory restrictions; and • other matters required by laws, administrative regulations, and departmental rules and authorized by the Board. Nomination Committee In identifying and selecting suitable candidates for directorships, the Nomination Committee would consider the candidate’s skills, knowledge, experience, independence and other relevant criteria, where appropriate, necessary to complement the corporate strategy before making recommendation to the Board. In assessing the Board composition, various aspects set out in the board diversity policy of the Group (the “Board Diversity Policy”), including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and years of services will be taken into account. The Board would set measurable objectives for achieving the Board Diversity Policy and review the progress of realizing such objectives from time to time. The Nomination Committee would, when appropriate, review the Board Diversity Policy to ensure its effectiveness. When considering succession planning of Directors, the Nomination Committee will also consider the potential successors to the Board with regard to the Board Diversity Policy and the targets and expectations set up for achieving a diverse Board. For the year ended 31 December 2024, the Nomination Committee held one meeting to discuss the structure, size and composition of the Board, review the Board Diversity Policy and the nomination policy, assess the independency of the independent non-executive Directors, discuss the retirement and re-election of Directors, discuss the appointment of independent non-executive Director, and make recommendations to the Board.
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Annual Report 2024 73 Corporate Governance Report (Continued) The Connected Transactions Control Committee consists of four members, namely Mr. WANG Xinhua, Mr. QIAN Yi, Ms. HE Junhua and Mr. DAI Jiahui, with Mr. WANG Xinhua being the chairman of the committee. Mr. CHAU Kwok Keung ceased to be a member of the Connected Transactions Control Committee with effect from 17 May 2024, and Ms. HE Junhua was appointed as a member of the Connected Transactions Control Committee with effect from 17 May 2024. Mr. WANG Xinhua (Independent non-executive Director) (Committee Chairman) Mr. QIAN Yi (Independent non-executive Director) Ms. HE Junhua (Independent non-executive Director) Mr. DAI Jiahui (Executive Director) The primary duties of the Connected Transactions Control Committee include: • managing matters related to connected transactions, reviewing the management system for connected transactions, conducting duties as required by the Administrative Measures for Connected Transactions, supervising its implementation and making recommendations to the Board; • reviewing material connected transactions required to be approved by the Board or Shareholders and submitting recommendations to the Board; • reviewing and approving our connected transactions and other related matters to the extent authorized by the Board; • providing information for the independent non-executive Directors and auditors to perform their periodical review of the connected transactions; • reviewing those factors considered for determining the prices in the non-exempt continuing connected transactions not governed by any pricing policy prescribed by the STMA or the CNTC/ the Non-STMA Pricing Transactions and ensuring that such transactions are conducted on normal commercial terms; and • other matters required by laws, administrative regulations, and departmental rules and authorized by the Board. Connected Transactions Control Committee For the year ended 31 December 2024, the Connected Transactions Control Committee held five meetings to review connected transactions and approve or make recommendations to the Board, review the connected transaction report prepared by independent financial adviser and make recommendations to the Board, and review the management of connected transactions.
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China Tobacco International (HK) Company Limited 74 Corporate Governance Report (Continued) The Strategic Development Committee consists of four members, namely Mr. SHAO Yan, Mr. DAI Jiahui, Mr. Xu Zengyun and Mr. CHOW Siu Lui, with Mr. SHAO Yan being the chairman of the committee. Mr. SHAO Yan (Non-executive Director) (Committee Chairman) Mr. DAI Jiahui (Executive Director) Mr. Xu Zengyun (Executive Director) Mr. CHOW Siu Lui (Independent non-executive Director) The primary functions of the Strategic Development Committee include: • reviewing and making recommendations to the Board on, our general strategic development plan and specific strategic development plans of the Group; • evaluating factors which may affect our strategic development plans and their implementation, in light of domestic and foreign economic and financial conditions and market development trends, and making recommendations to the Board on adjustment to our strategic development plans in a timely manner; • evaluating the general development conditions relating to each of our businesses segment, and making recommendations to the Board on adjustment to our strategic development plans in a timely manner; • reviewing our major investment and financing proposals, and making recommendations to the Board; • supervising and inspecting the implementation of our business plans and investment plans of the Group; • reviewing our plans for establishment of a legal entity or merger and acquisition proposals, and making recommendations to the Board; • reviewing our matters on acquisition of assets, disposal of assets and provision of guarantees, and making recommendations to the Board; and • other matters required by laws, administrative regulations, and departmental rules and authorized by the Board. Strategic Development Committee For the year ended 31 December 2024, the Strategic Development Committee did not hold any meeting.
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Annual Report 2024 75 Corporate Governance Report (Continued) Board Diversity Policy The Company believes that the Board diversity will have a substantial benefit in improving its performance. Therefore, the Company has adopted the Board Diversity Policy to ensure that the diversity of Board members be considered from a number of perspectives. All Board appointments will be based on meritocracy, and candidates will be considered against objective criteria, having due regard for the benefits of diversity on the Board. A summary of the Board Diversity Policy is set out below: The Board recognizes diversity at the Board level as an essential element in supporting the Company to achieve its strategic objectives and realize sustainable development. Hence, the principles and measurable objectives of the Board Diversity Policy are also applicable to all employees of the Group. In designing the Board’s composition, the Board diversity is considered from a number of perspectives, including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and years of services. Board members are required to possess the skills, experience and diversity of perspectives according to the Company’s business model and specific needs. The ultimate decision will be based on merit and contribution that the selected candidates will bring to the Board. The Company also stipulates that the members of the Board shall not be composed of Directors of a single gender at any time. In the event that the members of the Board are composed of persons of a single gender, the Board shall add a director of different gender as soon as reasonably practicable. The Board Diversity Policy aims to establish a board of directors that has shareholders’ support. The Board members shall be able to provide diverse perspectives based on their various backgrounds and experience, safeguard shareholders’ long-term interests and stakeholders’ interests in connection with the Company’s businesses, and help the Board taking the right actions when it makes important and key strategies. As at the end of the Reporting Period, the Board comprises seven male Directors and two female Directors. The Board targets to maintain the current level of female representation in the next few years, and will continue to seek opportunities to increase the proportion of female Board members. The current Board comprises business leaders, industry experts and professionals, with industry, accounting, financial, legal, business, management and academic backgrounds. A majority of the Directors (including one independent non-executive Director) have more than ten years’ experience serving as an officer or a director of a company in the tobacco industry. This composition and diversity of the Board enable the management to benefit from a diverse and objective external perspective on issues raised before the Board. The Company considers that it has achieved gender diversity at the Board level and across the workforce (including the senior management). The diversified status of the members of the Board and the staff (including the senior management) of the Group is summarized as follows:
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China Tobacco International (HK) Company Limited 76 Corporate Governance Report (Continued) 7 Directors (0 company) 1 Director (1 company) 1 Director (4 companies) Board Composition & Diversity Male 7 (77.78%) Female 2 (22.22%) Gender Ratio Directors’ Skills and Experience Independent Non-executive Directors 4 (44.44%) Non-executive Director 1 (11.11%) Executive Directors 4 (44.44%) Over 6 years and below 9 years 4 Directors 6 years or below 5 Directors Length of service Age Below 40 1 Age 40-60 5 International Market Expansion and Brand Planning for Tobacco 2 (22.22%) Accounting professionals, /f_inancial management and internal control expertise 3 (33.33%) Legal Industry Expertise 1 (11.11%) Investment 1 (11.11%) Tobacco Industry expertise 6 (66.67%) Age 60 above 3 Age Group (Number of People) Other Public Company Directorship(s) or Senior Management (Number of Companies)
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Annual Report 2024 77 Corporate Governance Report (Continued) Employees Composition & Diversity of the Group Full-time Junior Employees 267 Male: 215 (80.52%) Female: 52 (19.48%) Full-time Middle Employees 35 Male: 31 (88.57%) Female: 4 (11.43%) Age 50 above 73 (22.96%) Full-time Senior Employees 16 Male: 14 (87.50%) Female: 2 (12.50%) Age 30-50 191 (60.06%) Age below 30 54 (16.98%) Postgraduate or above 61 (19.18%) Undergraduate 110 (34.59%) Number of Employees 318 Type of Employment Age Group Education Background High School/ Associate Degree or below 147 (46.23%)
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China Tobacco International (HK) Company Limited 78 Corporate Governance Report (Continued) ATTENDANCE RECORD OF DIRECTORS AND COMMITTEE MEMBERS The attendance record of each Director at the Board and Board Committee meetings and general meetings of the Company held for the year ended 31 December 2024 is set out in the table below: Attendance/Number of Meetings Name of Directors Board Audit Committee Remuneration Committee Nomination Committee Connected Transactions Control Committee Strategic Development Committee AGM EGM Chairman of the Board and Non-Executive Director Mr. SHAO Yan 8/8 – 1/1 1/1 – – 1/1 1/1 Executive Directors Mr. DAI Jiahui 8/8 – – – 5/5 – 1/1 1/1 Mr. WANG Chengrui 8/8 – – – – – 1/1 1/1 Mr. XU Zengyun 8/8 – – – – – 1/1 1/1 Ms. MAO Zilu 8/8 – – – – – 1/1 1/1 Independent Non-Executive Directors Mr. CHOW Siu Lui 8/8 5/5 1/1 1/1 – – 1/1 1/1 Mr. WANG Xinhua 8/8 5/5 1/1 1/1 5/5 – 1/1 1/1 Mr. QIAN Yi 8/8 – – – 5/5 – 1/1 1/1 Ms. HE Junhua (appointed with effect from 17 May 2024) 5/8 4/5 – – 3/5 – – 1/1 Mr. CHAU Kwok Keung (ceased to act as an independent non-executive director of the Company upon his retirement on 17 May 2024) 3/8 1/5 – – 2/5 – 1/1 –
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Annual Report 2024 79 Corporate Governance Report (Continued) DIRECTORS’ RESPONSIBILITY IN RESPECT OF THE CONSOLIDATED FINANCIAL STATEMENTS The Directors acknowledge their responsibility for preparing the consolidated financial statements of the Group for the year ended 31 December 2024. The Directors are not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the Group’s ability to continue as a going concern. The statement of the independent auditor of the Company about their reporting responsibilities on the consolidated financial statements of the Group is set out in the Independent Auditor’s Report on pages 85 to 89 of this annual report. The basis on which we generate or preserve value over the longer term and the strategy for delivering our objectives are explained in the sections headed “Chairman’s Statement” and “Management Discussion and Analysis” of this annual report. AUDITOR’S REMUNERATION An analysis of the remuneration that should be paid to the external auditor of the Company, KPMG, for the audit of the year ended 31 December 2024 and non-audit services is set out below: Service Category Fees Paid/Payable HK$’000 Audit Service 2,211 Non-audit Services 580 – Interim review service 280 – Other assurance service and agreed upon procedures 300 RISK MANAGEMENT AND INTERNAL CONTROLS The Board is responsible for maintaining an effective risk management and internal control systems to safeguard the Company’s assets and the interests of Shareholders, regularly reviews the effectiveness of the Group’s risk management and internal control systems, including finance, operation, compliance, ESG and other important aspects. The Board regularly discusses and reviews ESG risks, includes them in the Group’s risk assessment scope and risk management system, and advises on those issues that will significantly affect the operation of the Company or the interest of other stakeholders and provides anticipatory and mitigation plans. The Board reviewed the effectiveness of the internal control system of the Group in 2024, including review of the effectiveness of risk management, financial control, operational control and compliance control and the applicability of the company policies and review of sufficiency of resources, employee qualification and experience for accounting, internal control and financial reporting, as well as the adequacy of employee training and its budget.
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China Tobacco International (HK) Company Limited 80 Corporate Governance Report (Continued) The main focus of our risk management and internal control systems is a clear delineation of the duties and terms of reference among Shareholders, the Board and the management, and authorisation of the standardized authorisation and appointment procedure set out in the management rules. The main purpose is to make reasonable (but not absolute) assurance on properly safeguarding of our assets against abuse, transactions being executed in accordance with the management’s authorisation, the accounting records used for the preparation of financial information is reliable and appropriate, and free from material misstatement. The procedure aims to identify, assess and manage risks effectively instead of eliminating all the erroneous risks. The compliance department of the Company assumes the internal audit function, and assists the Audit Committee in carrying out the assessment of effectiveness of the Group’s risk management and internal controls. The Company has set up the inside information policy and procedure for the handling and dissemination of inside information. The inside information policy mainly focuses on the obligations of the Company, external communication guidelines and compliance and reporting procedures. The Company shall take all reasonable measures from time to time to ensure that proper safeguards in existence to prevent any breach of disclosure requirement. The Board is of the view that the internal control procedures and risk management of the Group is effective and adequate. The Board will review the risk management and internal control systems of the Group annually. COMPANY SECRETARY Mr. WANG Chengrui, the Company’s company secretary, is responsible for advising the Board on corporate governance matters and ensuring that Board policy and procedures and applicable laws, rules and regulations are followed. Under Rule 3.28 of the Listing Rules, Mr. WANG Chengrui has been qualified to act as the company secretary of the Company by the Stock Exchange’s confirmation in May 2022. Mr. WANG Chengrui has become the Company’s sole Company Secretary on 12 June 2022 following the resignation of Mr. CHEUNG Kai Cheong Willie as a joint company secretary of the Company with effect from 12 June 2022. In compliance with Rule 3.29 of the Listing Rules, Mr. WANG Chengrui has undertaken no less than 15 hours of relevant professional training for the year ended 31 December 2024, and his biography is set out in the section of “Directors and Senior Management” in this annual report. DIVIDEND POLICY The Company has adopted a dividend policy (the “Dividend Policy”). According to the Dividend Policy, any declaration and payment as well as the amount of the dividends will be subject to the Articles of Association and the Companies Ordinance including the approval of the Shareholders. The Board will continually review the Dividend Policy from time to time and there can be no assurance that dividends will be paid in any particular amount for any given period. SHAREHOLDERS’ RIGHTS According to the Articles of Association and the Companies Ordinance, Shareholders holding the requisite voting rights may: (i) move a requisition to move a resolution at the AGM; (ii) move a requisition to convene an EGM; and (iii) propose a person for election as a Director at a general meeting. Such details and procedures are available in the Company’s website.
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Annual Report 2024 81 Corporate Governance Report (Continued) Requisition to Move a Resolution at an AGM The Company holds a general meeting as its AGM every year. In accordance with section 615 of the Companies Ordinance, a requisition to move a resolution at the AGM may be submitted by any number of Shareholders representing not less than one-fortieth (1/40th) of the total voting rights of all Shareholders having the right to vote on that resolution at the AGM, or not less than 50 Shareholders having the right to vote on that resolution at the AGM. The requisition must identify the resolution and must be signed by all the requisitionists. The requisition must be deposited at the Registered Office (as defined below), for the attention of the company secretary, not later than 6 weeks before the AGM to which the request relates, or if later, when the notice of AGM is dispatched. Requisition to Convene an EGM Shareholders holding not less than one-twentieth (1/20th) of the total voting rights of all the members having a right to vote at general meetings of the Company can deposit a requisition to convene an EGM pursuant to sections 566 to 568 of the Companies Ordinance. The requisition must state the general nature of the business to be dealt with at the meeting, and must be signed by the requisitionists. The requisition must be deposited at the Company’s Registered Office for the attention of the company secretary. Proposing a Person for Election as a Director at a General Meeting If a Shareholder wishes to propose a person for election as a Director at a general meeting, he/she must give a written notice to that effect to the company secretary. The written notice must include the personal information of the person proposed for election as a Director as required by Rule 13.51(2) of the Listing Rules and be signed by such Shareholder and the person proposed for election as a Director indicating his/her willingness to be appointed or re-appointed and consent of publication of his/her personal information. Such notice shall be given within the seven-day period (or a longer period as may be determined by the Directors from time to time) commencing no earlier than the day after the despatch of the notice of such meeting and ending no later than seven days prior to the date appointed for such meeting. For requesting the Company to circulate to Shareholders a statement with respect to a matter mentioned in a proposed resolution or any other business to be dealt with at a general meeting, Shareholders are requested to follow the requirements and procedures as set out in section 580 of the Companies Ordinance. Contact Details Shareholders may send their enquiries or requests as mentioned above to the following: Address: Room 1002, 10/F, Tower A, China Life Center, One Harbour Gate, 18 Hung Luen Road, Hung Hom, Kowloon, Hong Kong (the “Registered Office”) For the attention of the company secretary Fax: +852 27031218 Email: ir@ctihk.com.hk For the avoidance of doubt, Shareholder(s) must deposit and send the original duly signed written requisition, notice or statement, or enquiry (as the case may be) to the above address and provide their full name, contact details and identification in order to give effect thereto. Shareholders’ information may be disclosed as required by law.
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China Tobacco International (HK) Company Limited 82 Corporate Governance Report (Continued) over 98% of votes were cast in favor in all resolutions proposed in 2024 general meetings COMMUNICATION WITH SHAREHOLDERS AND INVESTOR RELATIONS The Company considers that effective communication with Shareholders is essential for enhancing investor relations and investor understanding of the Company’s business performance and strategies. The Company’s Communication Policy stipulates the overall policy, shareholder inquiry, corporate communication, corporate website, shareholders’ meeting, communication with the market and communication with the regulatory authority. The Communication Policy will be regularly review to ensure the effectiveness of these policies. The Company has established a securities affairs department, dedicated to providing necessary information and services to, and communicate with, shareholders and investors and other participants in the capital market, to maintain an active dialogue with them and make sure they are fully informed of the Company’s operation and development. The Company uses a number of formal channels to report to shareholders on the performance and operations of the Company, particularly through our annual and interim reports. Generally, when announcing interim results, annual results or any major transactions in accordance with the relevant regulatory requirements, the Company arranges investment analyst conferences and investor conferences to explain the relevant results or major transactions to the shareholders, investors and the general public, listen to their opinions and address any questions that they may have. Investors and stakeholders can also actively communicate with the Company through investor relations email (ir@ctihk.com.hk) on the results of the Company, ESG topics, etc. The Company maintains close communication with investors through investment conferences, one-on-one meetings, video-conferencing and other forms of exchange interaction to timely deliver information on our operating conditions to the capital markets. In 2024, our management attended 229 conferences, and met with 267 investors and analysts. We will continue our efforts to enhance the investor relations work. The Company also attaches high importance to the general meetings, including AGMs and EGMs, and makes substantial efforts to enhance communications between the Board and the shareholders. At each general meeting, the Board always makes efforts to fully address questions raised by shareholders. In 2024, we held one AGM and one EGM. On 17 May 2024, over 98% of votes were cast in favor of each of the 8 shareholders’ resolutions proposed at the AGM. On 18 November 2024, over 99% of votes were cast in favor of each of the 2 shareholders’ resolutions proposed at the EGM. The Company has reviewed the current Communication Policy and relevant work results during this year, and believes that the Communication Policy is still practical and effective. For the year ended 31 December 2024, the Company did not make any changes to the Articles of Association. An up-to-date version of the Articles of Association is available on the websites of the Company and the Stock Exchange.
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Annual Report 2024 83 Corporate Governance Report (Continued) Key Shareholder Dates March 6 Release of announcements of annual results and final dividend for the year ended 31 December 2024 April 23 Release of annual report for the year ended 31 December 2024 June 20 Annual general meeting July 18 Payment of 2024 final dividend August Mid to late Release of interim results for the six months ending 30 June 2025 September Early to mid Release of interim report for the six months ending 30 June 2025 Late Payment of 2025 interim dividend (if any) Key shareholder dates for 2025 All dates are indicative and may be subject to change. SUFFICIENCY OF PUBLIC FLOAT Based on the information publicly available to the Company and to the best of the Directors’ knowledge, information and belief, the Company has maintained sufficient public float as required under the Listing Rules as at the Latest Practicable Date.
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China Tobacco International (HK) Company Limited 84 Corporate Governance Report (Continued) Shareholder Return Index CTIHK Tracker Fund of Hong Kong (Hang Seng Index) 0 100 200 300 400 500 600 393 103104 91 81 73 87 308 326 246 214 508 2019 2020 2021 2022 2023 2024 Shareholder Return Index Dates CTIHK Tracker Fund of Hong Kong (Hang Seng Index) 2019.6 100 100 2019.12 393 104 2020.12 308 103 2021.12 326 91 2022.12 246 81 2023.12 214 73 2024.12 508 87 Notes: 1. The base date for the Shareholder Return Index is set as the first trading day of CTIHK (12 June 2019), with the index base value fixed at 100. 2. The Shareholder Return Index incorporates share price appreciation and dividend income. 3. The data included in the Shareholder Return Index is sourced from the Hong Kong Stock Exchange and RoyalFlush iFinD, CTIHK has not independently verified the accuracy, validity, timeliness, or completeness of the relevant information or data. 4. Past performance of the Shareholder Return Index is not indicative of future results. The content of the Shareholder Return Index is provided for general informational purposes only and does not constitute any form of investment advice or service. Shareholders and potential investors of the Company should exercise caution when dealing in the securities of the Company. 5. Given that the investment returns of the Tracker Fund of Hong Kong (02800.HK) exhibit a high degree of consistency with those of the Hang Seng Index, and based on comprehensive considerations of data accuracy and availability, the fund's contemporaneous data is adopted as a proxy benchmark for the Hang Seng Index Shareholder Return Index. For details about the Tracker Fund of Hong Kong, please refer to its official website: https://www.trahk.com.hk/en-hk/trahk-fund/. 6. The Shareholder Return Index = (the closing price per share on the last trading day of the year + the cumulative dividend income per share received from 12 June 2019 to the last trading day of the year) ÷ initial investment cost per share × 100. The initial investment cost per share of the Company refers to the initial issue price of the Company. The initial investment cost per share of the Hang Seng Index refers to the opening price per share of the Tracker Fund of Hong Kong (02800.HK) on 12 June 2019. All calculations of the Shareholder Return Index are based on the assumption that the shares of the Company or the shares of the Tracker Fund of Hong Kong are continuously held from 12 June 2019 to the last trading day of the respective year. 7. All share prices are without price adjustment for dividends/splits.
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Independent Auditor’s Report Annual Report 2024 85 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHINA TOBACCO INTERNATIONAL (HK) COMPANY LIMITED (Incorporated in Hong Kong with limited liability) Opinion We have audited the consolidated financial statements of China Tobacco International (HK) Company Limited (“the Company”) and its subsidiaries (“the Group”) set out on pages 90 to 149, which comprise the consolidated statement of financial position as at 31 December 2024, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and notes, comprising material accounting policy information and other explanatory information. In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2024 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the Hong Kong Companies Ordinance. Basis for opinion We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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China Tobacco International (HK) Company Limited 86 Independent Auditor’s Report (Continued) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHINA TOBACCO INTERNATIONAL (HK) COMPANY LIMITED (Continued) (Incorporated in Hong Kong with limited liability) Key audit matters (Continued) Revenue Recognition Refer to note 4 to the financial statements and the accounting policy 3(p) on page 99. The Key Audit Matter How the matter was addressed in our audit The Group’s revenue principally comprises sales of tobacco leaf products, cigarettes and new tobacco products, which are recognised as revenue when the control of the goods is transferred to the Group’s customers according to the terms of the sales and purchase agreements entered into between the Group and its customers. Contracts for different products with different types of customers have different terms. Such terms may affect the timing of the recognition of sales to these customers. Management evaluates the terms of each contract in order to determine the appropriate timing of revenue recognition. In addition, in some of these transactions, judgement is required to determine whether the Group has the control of the goods before delivering to the customers, and accordingly, whether the Group acts as a principal or an agent in such transactions. We identified revenue recognition as a key audit matter because revenue is one of the key performance indicators of the Group and therefore there is an inherent risk of manipulation of the timing and amount of recognition of revenue by management to meet specific targets or expectations and significant judgement is involved in determining whether the Group acts as a principal or an agent in certain transactions. Our audit procedures to assess revenue recognition included the following: • evaluating the design, implementation and operating effectiveness of key internal controls which govern the recognition and measurement of revenue; • inspecting the sale and purchase agreements, on a sample basis, for each major revenue stream, to understand the terms and evaluate the appropriateness of revenue recognition, measurement and presentation with reference to the requirements of the prevailing accounting standards, in particular whether the Group acted as a principal or an agent; • comparing, on a sample basis, revenue transactions recorded during the year with the underlying sale and purchase agreements, bills of lading, invoices, bank-in slips or other relevant supporting documents for settled balance and assessing whether the related revenue had been recognised in accordance with the Group’s revenue recognition policies; • comparing, on a sample basis, specific revenue transactions recorded before and after the financial year end date with the underlying sale and purchase agreements, bills of lading and other relevant supporting documents to determine whether the related revenue had been recognised in the appropriate financial year; • inspecting the sales ledger subsequent to the financial year and making enquiries of management to identify if any significant credit notes had been issued or sales returns had occurred, and inspecting relevant underlying documentation where necessary for the purpose of assessing if the related revenue had been accounted for in the appropriate financial year; and • inspecting post-closing adjustments to revenue during the financial year which met specific risk-based criteria, enquiring of management about the reasons for such adjustments and comparing details of the adjustments to relevant underlying documentation.
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Annual Report 2024 87 Independent Auditor’s Report (Continued) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHINA TOBACCO INTERNATIONAL (HK) COMPANY LIMITED (Continued) (Incorporated in Hong Kong with limited liability) Information other than the consolidated financial statements and auditor’s report thereon The directors are responsible for the other information. The other information comprises all the information included in the annual report, other than the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the consolidated financial statements The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group’s financial reporting process.
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China Tobacco International (HK) Company Limited 88 Independent Auditor’s Report (Continued) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHINA TOBACCO INTERNATIONAL (HK) COMPANY LIMITED (Continued) (Incorporated in Hong Kong with limited liability) Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. This report is made solely to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. – Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. – Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. – Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the group as a basis for forming an opinion on the group financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion.
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Annual Report 2024 89 Independent Auditor’s Report (Continued) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHINA TOBACCO INTERNATIONAL (HK) COMPANY LIMITED (Continued) (Incorporated in Hong Kong with limited liability) Auditor’s responsibilities for the audit of the consolidated financial statements (Continued) We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is GUO Xiaofei. KPMG Certified Public Accountants 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 6 March 2025
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Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2024 (Expressed in Hong Kong dollars) China Tobacco International (HK) Company Limited 90 2024 2023 Note HK$’000 HK$’000 Revenue 4 13,074,243 11,836,221 Cost of sales (11,696,601) (10,747,897) Gross profit 1,377,642 1,088,324 Other income, net 5 120,374 91,117 Administrative and other operating expenses (158,396) (152,986) Profit from operations 1,339,620 1,026,455 Finance costs 6(a) (224,096) (167,396) Profit before taxation 6 1,115,524 859,059 Income tax 7 (212,722) (166,686) Profit for the year 902,802 692,373 Profit for the year attributable to: Equity shareholders of the Company 853,735 598,773 Non-controlling interests 49,067 93,600 902,802 692,373 Earnings per Share Basic and diluted (HK$) 11 1.23 0.87 Other comprehensive income: Items that may be reclassified to profit or loss: Exchange differences on translation of financial statements of overseas subsidiaries (17,142) 10,065 Other comprehensive income for the year (17,142) 10,065 Total comprehensive income for the year 885,660 702,438 Total comprehensive income for the year attributable to: Equity shareholders of the Company 836,593 608,838 Non-controlling interests 49,067 93,600 885,660 702,438 The notes on pages 95 to 149 form part of these financial statements. Details of dividends payable to equity shareholders of the Company attributable to the profit for the year are set out in note 10.
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Consolidated statement of financial position at 31 December 2024 (Expressed in Hong Kong dollars) Annual Report 2024 91 2024 2023 Note HK$’000 HK$’000 Non-current assets Property, plant and equipment 13 78,409 43,465 Intangible assets 14 100,267 131,109 Goodwill 15 212,929 212,929 Trade and other receivables 17 37,012 58,593 Deferred tax assets 7(d) 15,746 80,687 444,363 526,783 Current assets Inventories 16 5,425,745 2,973,650 Current tax recoverable 7(c) 33,380 – Trade and other receivables 17 1,055,593 908,006 Cash and cash equivalents 18 517,466 570,808 Short-term bank deposits 18 2,340,108 1,761,148 9,372,292 6,213,612 Current liabilities Trade and other payables and contract liabilities 19 3,553,458 1,438,098 Lease liabilities 21 9,747 9,131 Bank borrowings 20 2,947,744 2,480,495 Current tax payable 7(c) 23,532 67,002 Provision for reinstatement cost – 2,887 6,534,481 3,997,613 Net current assets 2,837,811 2,215,999 Total assets less current liabilities 3,282,174 2,742,782 Non-current liabilities Lease liabilities 21 22,828 537 Deferred tax liabilities 7(d) 68,384 46,953 Provision for reinstatement costs 3,692 – 94,904 47,490 NET ASSETS 3,187,270 2,695,292
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(Expressed in Hong Kong dollars) China Tobacco International (HK) Company Limited 92 Consolidated statement of financial position at 31 December 2024 (Continued) 2024 2023 Note HK$’000 HK$’000 Capital and reserves 22 Share capital 1,403,721 1,403,721 Reserves 1,601,453 1,089,950 Total equity attributable to equity shareholders of the Company 3,005,174 2,493,671 Non-controlling interests 182,096 201,621 TOTAL EQUITY 3,187,270 2,695,292 Approved and authorised for issue by the board of directors on 6 March 2025. DAI Jiahui WANG Chengrui Director Director The notes on pages 95 to 149 form part of these financial statements.
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Consolidated statement of changes in equity for the year ended 31 December 2024 (Expressed in Hong Kong dollars) Annual Report 2024 93 Attributable to equity shareholders of the Company Share capital Merger reserve Exchange reserve Profit retention reserve Retained earnings Sub-total Non- controlling interests Total Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Balance at 1 January 2023 1,403,721 (365,934) (130,741) 7,611 1,108,512 2,023,169 214,421 2,237,590 Profit for the year – – – – 598,773 598,773 93,600 692,373 Other comprehensive income: – – 10,065 – – 10,065 – 10,065 Total comprehensive income – – 10,065 – 598,773 608,838 93,600 702,438 Dividends approved in respect of prior year 10(b) – – – – (138,336) (138,336) – (138,336) Transfer of profit retention reserve to retained earnings – – – (7,611) 7,611 – – – Dividends to non-controlling interests – – – – – – (106,400) (106,400) Balance at 31 December 2023 1,403,721 (365,934) (120,676) – 1,576,560 2,493,671 201,621 2,695,292 Balance at 1 January 2024 1,403,721 (365,934) (120,676) – 1,576,560 2,493,671 201,621 2,695,292 Profit for the year – – – – 853,735 853,735 49,067 902,802 Other comprehensive income: – – (17,142) – – (17,142) – (17,142) Total comprehensive income – – (17,142) – 853,735 836,593 49,067 885,660 Dividend approved in respect of the prior year 10(b) – – – – (221,338) (221,338) – (221,338) Dividend declared in respect of the current year 10(a) – – – – (103,752) (103,752) – (103,752) Dividends to non-controlling interests – – – – – – (68,592) (68,592) Balance at 31 December 2024 1,403,721 (365,934) (137,818) – 2,105,205 3,005,174 182,096 3,187,270 The notes on pages 95 to 149 form part of these financial statements.
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Consolidated statement of cash flows for the year ended 31 December 2024 (Expressed in Hong Kong dollars) China Tobacco International (HK) Company Limited 94 2024 2023 Note HK$’000 HK$’000 Operating activities Cash generated from operations 18(b) 832,639 733,263 – Hong Kong Profits tax paid (151,268) (49,712) – Overseas tax paid (51,932) (165,642) Net cash generated from operating activities 629,439 517,909 Investing activities Payment for purchase of property, plant and equipment (18,995) (16,134) Placement of short-term bank deposits with maturity more than 3 months (578,960) (1,761,148) Interest received 137,966 78,349 Net cash used in investing activities (459,989) (1,698,933) Financing activities Proceeds from new bank borrowings 18(c) 3,003,000 2,508,480 Repayment of bank borrowings 18(c) (2,577,528) (2,152,059) Interest and other borrowing costs paid 18(c) (165,412) (125,309) Capital element of lease rental paid 18(c) (13,136) (10,965) Interest element of lease rental paid 18(c) (221) (393) Dividends paid to equity shareholders of the Company (325,090) (138,336) Dividends paid to non-controlling interests 18(c) (85,622) (108,469) Net cash used in financing activities (164,009) (27,051) Net increase/(decrease) in cash and cash equivalents 5,441 (1,208,075) Cash and cash equivalents at the beginning of the year 570,808 1,785,139 Effect of foreign exchange rate changes (58,783) (6,256) Cash and cash equivalents at the end of the year 517,466 570,808 The notes on pages 95 to 149 form part of these financial statements.
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Notes to the financial statements (Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 95 1 GENERAL INFORMATION China Tobacco International (HK) Company Limited (the “Company”) is incorporated in Hong Kong as a limited liability company and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) after completion of its initial public offering (“IPO”) on 12 June 2019. China Tobacco International Group Limited (“CTIG”), a company incorporated in Hong Kong with limited liability, is the immediate parent of the Company. China National Tobacco Corporation (“CNTC”), a company registered in the People’s Republic of China (the “PRC”), is the ultimate controlling company of the Company. The Company and its subsidiaries (collectively, the “Group”) are engaged in the following business operations (together, the “Relevant Businesses”): • export of tobacco leaf products to Southeast Asia, Hong Kong, Macau, Taiwan and Non-exclusive Operating Regions for Tobacco Leaf Products (the “Tobacco Leaf Products Export Business”); • import of tobacco leaf products in Chinese Mainland from origin countries or regions around the world (other than from sanctioned countries and regions) (the “Tobacco Leaf Products Import Business”); • export of cigarettes to Exclusive Operating Regions for Cigarettes and New Designated Regions for Cigarettes from CNTC Group directly or through distributors (the “Cigarettes Export Business”); • export of new tobacco products to the global market (except the Chinese Mainland) (the “New Tobacco Products Export Business”); and • procurement, processing, sale of tobacco leaves and procurement of agricultural materials inherent to tobacco production in Republic of Brazil (“Brazil”) and from Brazil to regions around the world (except Chinese Mainland) (the “Brazil Operation Business”).
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China Tobacco International (HK) Company Limited 96 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 2 BASIS OF PREPARATION (a) Statement of compliance These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Material accounting policies adopted by the Group are disclosed in note 3. The HKICPA has issued certain amendments to HKFRSs that are first effective or available for early adoption for the current accounting period of the Group. Note 2(c) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current accounting period reflected in these financial statements. (b) Basis of preparation The consolidated financial statements for the year ended 31 December 2024 comprise the Company and its subsidiaries (together referred to as the “Group”). The measurement basis used in the preparation of the financial statements is the historical cost basis. The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 3(u).
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Annual Report 2024 97 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 2 BASIS OF PREPARATION (Continued) (c) Changes in accounting policies The Group has applied the following amendments to HKFRSs issued by the HKICPA to these financial statements for the current accounting period: • Amendments to HKAS 1, Presentation of financial statements – Classification of liabilities as current or non-current (“2020 amendments”) and amendments to HKAS 1, Presentation of financial statements – Non-current liabilities with covenants (“2022 amendments”) • Amendments to HKFRS 16, Leases – Lease liability in a sale and leaseback • Amendments to HKAS 7, Statement of cash flows and HKFRS 7, Financial instruments: Disclosures – Supplier finance arrangements None of these developments have had a material effect on how the Group’s results and financial position for the current or prior periods have been prepared or presented. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. 3 MATERIAL ACCOUNTING POLICIES (a) Subsidiaries and non-controlling interests Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net identifiable assets. Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statement of profit or loss and the consolidated statement of profit or loss and other comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company.
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China Tobacco International (HK) Company Limited 98 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (a) Subsidiaries and non-controlling interests (Continued) Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions. When the Group loses control of a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in that former subsidiary is measured at fair value when control is lost. In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see note 3(f)), unless it is classified as held for sale (or included in a disposal group classified as held for sale). (b) Goodwill Goodwill arising on acquisition of businesses is measured at cost less accumulated impairment losses and is tested annually for impairment (see note 3(f)(iii)). (c) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 3(f)(iii)). Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. Depreciation is calculated to write-off the cost or valuation of items of property, plant and equipment, less their estimated residual values, if any, using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. The estimated useful lives for the current and comparative periods are as follows: – Leasehold improvements 5 years – Furniture, fixtures and equipment 5 years – Office equipment 3 to 5 years – Hardware 5 years – Motor vehicles 4 years – Right-of-use assets Over the lease terms Depreciation methods, useful lives and residual values are reviewed annually and adjusted if appropriate.
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Annual Report 2024 99 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (d) Intangible assets (other than goodwill) Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses (see note 3(f)(iii)). Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives, if any, and is generally recognised in profit or loss. The estimated useful lives for the current and comparative periods are as follows: – Software 5 years – Portfolio of producers 7 years Amortisation methods, useful lives and residual values are reviewed annually and adjusted if appropriate. (e) Leased assets At inception of a contract, the Group assesses whether the contract is, or contains, a lease. This is the case if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use. As a lessee Where the contract contains lease components and non-lease components, the Group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases. At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for leases that have a short lease term of 12 months or less and leases of low-value items such as laptops and office furniture. When the Group enters into a lease in respect of a low-value item, the Group decides whether to capitalise the lease on a lease-by-lease basis. If not capitalised, the associated lease payments are recognised in profit or loss on a systematic basis over the lease term. Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is recognised using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability, and are charged to profit or loss as incurred.
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China Tobacco International (HK) Company Limited 100 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (e) Leased assets (Continued) As a lessee (Continued) The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see notes 3(c) and 3(f)(iii)). Refundable rental deposits are accounted for separately from the right-of-use assets in accordance with the accounting policy applicable to investments in non-equity securities carried at amortised cost. Any excess of the nominal value over the initial fair value of the deposits is accounted for as additional lease payments made and is included in the cost of right-of-use assets. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The lease liability is also remeasured when there is a lease modification, which means a change in the scope of a lease or the consideration for a lease that is not originally provided for in the lease contract, if such modification is not accounted for as a separate lease. In this case the lease liability is remeasured based on the revised lease payments and lease term using a revised discount rate at the effective date of the modification. In the consolidated statement of financial position, the current portion of long-term lease liabilities is determined as the present value of contractual payments that are due to be settled within twelve months after the reporting period.
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Annual Report 2024 101 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (f) Credit losses and impairment of assets (i) Credit losses from financial instruments The Group recognises a loss allowance for ECLs on the financial assets measured at amortised cost (including cash and cash equivalents, short-term bank deposits, and trade and other receivables). Financial assets measured at fair value are not subject to the ECL assessment. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Generally, credit losses are measured as the present value of all expected cash shortfalls between the contractual and expected amounts. The expected cash shortfalls are discounted using the following rates if the effect is material: – fixed-rate financial assets and trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof; and – variable-rate financial assets: current effective interest rate. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. ECLs are measured on either of the following bases: – 12-month ECLs: these are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months); and – lifetime ECLs: these are the ECLs that result from all possible default events over the expected lives of the items to which the ECL model applies. The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-months ECLs: – financial instruments that are determined to have low credit risk at the reporting date; and – other financial instruments (including loan commitments issued) for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs.
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China Tobacco International (HK) Company Limited 102 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (f) Credit losses and impairment of assets (Continued) (i) Credit losses from financial instruments (Continued) Significant increases in credit risk When determining whether the credit risk of a financial instrument has increased significantly since initial recognition and when measuring ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment, that includes forward-looking information. The Group considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held). ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. Credit-impaired financial assets At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable events: – significant financial difficulties of the debtor; – a breach of contract, such as a default; – the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; – it is probable that the debtor will enter bankruptcy or other financial reorganisation; or – the disappearance of an active market for a security because of financial difficulties of the issuer.
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Annual Report 2024 103 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (f) Credit losses and impairment of assets (Continued) (i) Credit losses from financial instruments (Continued) Write-off policy The gross carrying amount of a financial asset is written off to the extent that there is no realistic prospect of recovery. This is generally the case when the asset becomes 180 days past due when the Group otherwise determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs. (ii) Credit losses from financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantees issued are initially recognised within “trade and other payables” at fair value, which is determined by reference to fees charged in an arm’s length transaction for similar services, when such information is obtainable, or to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss. The amount initially recognised as deferred income is subsequently amortised in profit or loss over the term of the guarantee as income. The Group monitors the risk that the specified debtor will default on the contract and remeasures the above liability at a higher amount when ECLs on the financial guarantees are determined to be higher than the amount carried in “trade and other payables” in respect of the guarantees. A 12-month ECL is measured unless the risk that the specified debtor will default has increased significantly since the guarantee is issued, in which case a lifetime ECL is measured. The same definition of default and the same assessment of significant increase in credit risk as described in note 3(f)(i) apply. As the Group is required to make payments only in the event of a default by the specified debtor in accordance with the terms of the instrument that is guaranteed, an ECL is estimated based on the expected payments to reimburse the holder for a credit loss that it incurs less any amount that the Group expects to receive from the holder of the guarantee, the specified debtor or any other party. The amount is then discounted using the current risk-free rate adjusted for risks specific to the cash flows.
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China Tobacco International (HK) Company Limited 104 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (f) Credit losses and impairment of assets (Continued) (iii) Impairment of other non-current assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating units (“CGU”s). Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs of disposal. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the resulting carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (g) Inventories Inventories are measured at the lower of cost and net realisable value. Cost is calculated using the average cost formula and comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale. (h) Contract liabilities A contract liability is recognised when the customer pays non-refundable consideration before the Group recognises the related revenue (see note 3(p)). A contract liability is also recognised if the Group has an unconditional right to receive non-refundable consideration before the Group recognises the related revenue. In such latter cases, a corresponding receivable is also recognised (see note 3(i)).
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Annual Report 2024 105 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (i) Trade and other receivables A receivable is recognised when the Group has an unconditional right to receive consideration and only the passage of time is required before payment of that consideration is due. Receivables, including short-term advances to producers in cash or agricultural inputs, which are settled through the delivery of tobacco are stated at amortised cost (see note 3(f)(i)). (j) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows. Cash and cash equivalents are assessed for ECL (see note 3(f)(i)). (k) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method. Interest expense is recognised in accordance with the Group’s accounting policy for borrowing costs (see note 3(r)). (l) Trade and other payables (other than refund liabilities) Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance with note 3(f)(ii), trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at invoice amounts. (m) Employee benefits Short term employee benefits and contributions to defined contribution retirement plans Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Obligations for contributions to defined contribution retirement plans are expensed as the related service is provided. (n) Income tax Income tax expense comprises current tax and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax comprises the estimated tax payable or receivable on the taxable income or loss for the year and any adjustments to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects any uncertainty related to income taxes. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
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China Tobacco International (HK) Company Limited 106 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (n) Income tax (Continued) Current tax assets and liabilities are offset only if certain criteria are met. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: – temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss and does not give rise to equal taxable and deductible temporary differences; – temporary differences related to investment in subsidiaries, associates and joint venture to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; – taxable temporary differences arising on the initial recognition of goodwill; and – those related to the income taxes arising from tax laws enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development. The Group recognised deferred tax assets and deferred tax liabilities separately in relation to its lease liabilities and right-of-use assets. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Deferred tax assets and liabilities are offset only if certain criteria are met. (o) Provisions and contingent liabilities Generally provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
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Annual Report 2024 107 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (p) Revenue and other income Income is classified by the Group as revenue when it arises from the sale of goods, the provision of services or the use by others of the Group’s assets under leases in the ordinary course of the Group’s business. Revenue is recognised when control over a product or service is transferred to the customer, or the lessee has the right to use the asset, at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts. Where the contract contains a financing component which provides a significant financing benefit to the customer for more than 12 months, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction with the customer, and interest income is accrued separately under the effective interest method. Where the contract contains a financing component which provides a significant financing benefit to the Group, revenue recognised under that contract includes the interest expense accreted on the contract liability under the effective interest method. The Group takes advantage of the practical expedient in paragraph 63 of HKFRS 15 and does not adjust the consideration for any effects of a significant financing component if the period of financing is 12 months or less. Further details of the Group’s revenue and other income recognition policies are as follows: (i) Sale of goods Revenue is recognised when the customer takes possession of and accepts the products. If the products are a partial fulfilment of a contract covering other goods and/or services, then the amount of revenue recognised is an appropriate proportion of the total transaction price under the contract, allocated between all the goods and services promised under the contract on a relative stand-alone selling price basis. The Group typically offers a right of return to certain customer(s). Such rights of return give rise to variable consideration. The Group uses an expected value approach to estimate variable consideration based on the Group’s current and future performance expectations and all information that is reasonably available. This estimated amount is included in the transaction price to the extent it is highly probable that a significant reversal of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is resolved. At the time of sale of goods, the Group recognises revenue after taking into account adjustment to transaction price arising from returns as mentioned above. A refund liability is recognised for the expected returns, and is included in other payables. A right to recover returned goods and corresponding adjustment to cost of sales are also recognised for the right to recover products from customers.
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China Tobacco International (HK) Company Limited 108 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (p) Revenue and other income (Continued) (ii) Provision of services Revenue is recognised in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. The fee or commission might be the net amount of consideration that the entity retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party and is recognised upon provision of the specified goods or services by the other party. (iii) Interest income Interest income is recognised using the effective interest method. The “effective interest rate” is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the financial asset. In calculating interest income, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired). However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis. (q) Translation of foreign currencies Transactions in foreign currencies are translated into the respective functional currencies of group companies at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary assets and liabilities that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss.
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Annual Report 2024 109 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (q) Translation of foreign currencies (Continued) The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Hong Kong dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Hong Kong dollars at the exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income and accumulated in the exchange reserve, except to the extent that the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the exchange reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. On disposal of a subsidiary that includes a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation that have been attributed to the non-controlling interests shall be derecognised, but shall not be reclassified to profit or loss. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. (r) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred. (s) Related parties (1) A person, or a close member of that person’s family, is related to the Group if that person: (i) has control or joint control over the Group; (ii) has significant influence over the Group; or (iii) is a member of the key management personnel of the Group or the Group’s parent.
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China Tobacco International (HK) Company Limited 110 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 3 MATERIAL ACCOUNTING POLICIES (Continued) (s) Related parties (Continued) (2) An entity is related to the Group if any of the following conditions applies: (i) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group. (vi) The entity is controlled or jointly controlled by a person identified in (1). (vii) A person identified in (1)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group’s parent. Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. (t) Segment reporting Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria. (u) Accounting judgements and estimates Notes 15 and 23 contain information about the assumptions and their risk factors relating to goodwill impairment and financial instruments.
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Annual Report 2024 111 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 4 REVENUE AND SEGMENT REPORTING (a) Revenue The principal activities of the Group are the Tobacco Leaf Products Export Business, the Tobacco Leaf Products Import Business, the Cigarettes Export Business, the New Tobacco Products Export Business and the Brazil Operation Business as further disclosed in note 4(b). Disaggregation of revenue from contracts with customers by major products and service lines is as follows: 2024 2023 HK$’000 HK$’000 Revenue from contracts with customers within the scope of HKFRS15 Disaggregated by major products or service lines – Sales of tobacco leaf products 11,363,153 10,496,971 – Sales of cigarettes 1,573,644 1,208,727 – Sales of new tobacco products 135,184 129,979 – Provision of services 2,262 544 13,074,243 11,836,221 The Group recognises all its revenue point in time. Disaggregation of revenue by geographic markets is further disclosed in note 4(b). During the year ended 31 December 2024, revenue of approximately HK$8,256,471,000 (2023: approximately HK$8,079,031,000) to one customer (2023: one customers) has exceeded 10% of the Group’s revenue. Details of concentration risks arising from these customers are set out in note 23(a).
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China Tobacco International (HK) Company Limited 112 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 4 REVENUE AND SEGMENT REPORTING (Continued) (b) Segment reporting The Group manages its businesses by divisions, which are organised by a mixture of both business lines (products and services) and geography. In a manner consistent with the way in which information is reported internally to the Group’s most senior executive management for the purposes of resource allocation and performance assessment, the Group has presented the following reportable segments. No operating segments have been aggregated to form the following reportable segment. • Tobacco Leaf Products Export Business: export of tobacco leaf products to Southeast Asia, Hong Kong, Macau, Taiwan and Non-exclusive Operating Regions for Tobacco Leaf Products. • Tobacco Leaf Products Import Business: import of tobacco leaf products in Chinese Mainland from origin countries or regions around the world (other than from sanctioned countries and regions). • export of cigarettes to Exclusive Operating Regions for Cigarettes and New Designated Regions for Cigarettes from CNTC Group directly or through distributors. • New Tobacco Products Export Business: export of new tobacco products to the global market (except the Chinese Mainland). • Brazil Operation Business: procurement, processing, sale of tobacco leaves and procurement of agricultural materials inherent to tobacco production in Brazil and from Brazil to regions around the world (except Chinese Mainland). Segment results, assets and liabilities For the purposes of assessing segment performance and allocating resources between segments, the Group’s senior executive management monitors the results, assets and liabilities attributable to each reportable segment on the following bases: Segment assets include primarily trade and other receivables and inventories. Segment liabilities include primarily trade and other payables and contract liabilities. The Group’s all other assets and liabilities such as non-current assets (except for goodwill and non-current trade and other receivables), cash and cash equivalents, short-term bank deposits, lease liabilities, provision for reinstatement costs, other payables not related to business, borrowings and assets/liabilities associated with deferred or current taxes are not considered specifically attributed to individual segments. These assets and liabilities are classified as corporate assets/liabilities and are managed on a central basis.
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Annual Report 2024 113 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 4 REVENUE AND SEGMENT REPORTING (Continued) (b) Segment reporting (Continued) Segment results, assets and liabilities (Continued) Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments. The measure used for reporting segment profit is gross profit, i.e. reportable segment revenue less cost of sales directly associated therewith. In addition to receiving segment information concerning gross profit, management is provided with segment information concerning revenue. There is no inter-segment revenue between the Group’s reportable segments. Other corporate income and expenses, net, mainly refers to net exchange gains/losses, administrative and other operating expenses that are not considered specifically attributed to individual segments. Information regarding the Group’s reportable segments as provided to the Group’s most senior executive management for the purposes of resource allocation and assessment of segment performance for the years ended 31 December 2024 and 2023 is set out below. Tobacco Leaf Products Export Business Tobacco Leaf Products Import Business Cigarettes Export Business New Tobacco Products Export Business Brazil Operation Business Unallocated Total For the year ended 31 December 2024 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Sale of goods 2,059,282 8,254,248 1,573,644 135,184 1,049,623 – 13,071,981 Service income 2,262 – – – – – 2,262 Reportable segment revenue 2,061,544 8,254,248 1,573,644 135,184 1,049,623 – 13,074,243 Reportable segment gross profit 83,859 825,563 277,414 7,026 183,780 – 1,377,642 Interest income 147,537 147,537 Other corporate income 2,965 2,965 Depreciation and amortisation (54,545) (54,545) Finance costs (224,096) (224,096) Other corporate expenses (133,979) (133,979) Profit before taxation 1,115,524 Income tax expense (212,722) Profit for the year 902,802 As at 31 December 2024 Reportable segment assets 146,656 5,338,190 226,496 11,580 956,125 3,137,608 9,816,655 Reportable segment liabilities 229,422 3,184,720 17,054 18,696 55,434 3,124,059 6,629,385
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China Tobacco International (HK) Company Limited 114 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 4 REVENUE AND SEGMENT REPORTING (Continued) (b) Segment reporting (Continued) Segment results, assets and liabilities (Continued) Tobacco Leaf Products Export Business Tobacco Leaf Products Import Business Cigarettes Export Business New Tobacco Products Export Business Brazil Operation Business Unallocated Total For the year ended 31 December 2023 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Sale of goods 1,651,660 8,079,030 1,208,727 129,979 766,281 – 11,835,677 Service income 544 – – – – – 544 Reportable segment revenue 1,652,204 8,079,030 1,208,727 129,979 766,281 – 11,836,221 Reportable segment gross profit 45,139 732,391 164,038 5,715 141,041 – 1,088,324 Interest income 99,181 99,181 Depreciation and amortisation (51,052) (51,052) Finance costs (167,396) (167,396) Other corporate expenses (109,998) (109,998) Profit before taxation 859,059 Income tax expense (166,686) Profit for the year 692,373 As at 31 December 2023 Reportable segment assets 14,981 3,175,370 188,398 5,907 725,252 2,630,487 6,740,395 Reportable segment liabilities 47,691 1,280,791 13,008 15,223 8,348 2,680,042 4,045,103
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Annual Report 2024 115 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 4 REVENUE AND SEGMENT REPORTING (Continued) (b) Segment reporting (Continued) Geographical information The following table sets out information on the geographical locations of the Group’s revenue from external customers based on the location at which the Group’s products are distributed to the customers. 2024 2023 HK$’000 HK$’000 The PRC, excluding the SARs 9,553,618 9,015,260 Republic of Indonesia 1,504,296 1,257,923 Arab Republic of Egypt 356,079 154,265 Socialist Republic of Vietnam 350,748 179,030 Hong Kong 286,720 308,087 Brazil 264,418 276,339 Kingdom of Belgium 162,730 64,866 Republic of the Philippines 124,014 152,469 Others 471,620 427,982 13,074,243 11,836,221 The following table sets out information on the geographical location of the Group’s property, plant and equipment, intangible assets, and goodwill (“specified non-current assets”). The geographical location of the specified non-current assets is based on the physical location of the assets, in the case of property, plant and equipment, and the location of the operation to which they are allocated, in the case of intangible assets and goodwill. 2024 2023 HK$’000 HK$’000 Hong Kong 31,922 8,564 Brazil 359,683 378,939 391,605 387,503
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China Tobacco International (HK) Company Limited 116 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 5 OTHER INCOME, NET 2024 2023 HK$’000 HK$’000 Net exchange losses (30,128) (8,064) Interest income 147,537 99,181 Others 2,965 – 120,374 91,117 6 PROFIT BEFORE TAXATION Profit before taxation is arrived at after charging: (a) Finance costs 2024 2023 HK$’000 HK$’000 Interest on bank borrowings (note 18(c)) 207,189 154,246 Interest on lease liabilities (note 18(c)) 221 393 Interest accrued on provision 153 116 Other finance cost 16,533 12,641 224,096 167,396 (b) Staff costs (including directors’ emoluments) 2024 2023 HK$’000 HK$’000 Salaries, wages and other benefits 104,429 100,216 Contributions to defined contribution retirement plans 2,902 2,591 107,331 102,807
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Annual Report 2024 117 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 6 PROFIT BEFORE TAXATION (Continued) (b) Staff costs (including directors’ emoluments) (Continued) The Group operates a Mandatory Provident Fund Scheme (“the MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$30,000. Contributions to the plan vest immediately, there is no forfeited contribution that may be used by the Group to reduce the existing level of contribution. In addition, as stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by the municipal government of Beijing for its staff. The Group is required to make contributions to such retirement plans. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. Furthermore, the Group’s Brazilian subsidiaries offer a defined contribution pension plan to their employees. They have no legal or constructive obligations to pay further contributions if the fund does not have sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The payments to defined contribution pension plans are recognised as expenses when the services that grant right to these payments are rendered. The Group’s portion may correspond to up to 250% of the contribution made by the employee, according to a scale of age and salary bands that vary from 1% to 6% of the employee’s compensation. Contributions to the plan vest immediately.
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China Tobacco International (HK) Company Limited 118 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 6 PROFIT BEFORE TAXATION (Continued) (c) Other items 2024 2023 HK$’000 HK$’000 Depreciation (note 13) – owned property and equipment 11,875 9,760 – right-of-use assets 11,771 10,229 23,646 19,989 Auditors’ remuneration – audit services 2,211 2,182 – other services 580 604 2,791 2,786 Amortisation of intangible assets (note 14) 30,899 31,063 Expense related to short-term lease (note 13(b)) 2,326 3,314 Impairment losses recognised on trade and other receivables 807 2,896 Cost of inventories# 11,657,430 10,694,104 # Cost of inventories includes approximately HK$54,919,000 (2023: approximately HK$53,998,000) relating to staff costs, depreciation and amortisation expenses, which total amount is also included in the respective total amounts disclosed separately above or in note 6(c) for each of these types of expenses.
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Annual Report 2024 119 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 7 INCOME TAX (a) Income tax in the statement of profit or loss and other comprehensive income represents: 2024 2023 HK$’000 HK$’000 Current tax – Hong Kong Profits Tax Provision for the year 126,350 100,127 Current tax – Overseas Provision for the year – 140,584 Deferred tax Origination and reversal of temporary difference (note 7(d)) 86,372 (74,025) 212,722 166,686 The provision for Hong Kong Profits Tax for 2024 is calculated at 16.5% (2023: 16.5%) of the estimated assessable profits for the year. The Group is not eligible for 8.25% tax band under the two-tiered tax regime introduced by the Hong Kong SAR Government in 2024 and 2023 as this concession has been taken elsewhere in the larger group to which the Group belongs. The provision for Hong Kong Profits Tax for 2024 takes into account a reduction granted by the Hong Kong SAR Government of 100% of the tax payable for the year of assessment 2023/24 subject to a maximum reduction of HK$3,000 for each business (2023: a maximum reduction of HK$6,000). Taxation for overseas subsidiaries includes corporate income tax and social contribution tax in Brazil. The applicable rates for corporate income tax and social contribution tax in Brazil are 25% and 9%, respectively during 2024 and 2023.
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China Tobacco International (HK) Company Limited 120 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 7 INCOME TAX (Continued) (b) Reconciliation between tax expense and accounting profit at an applicable tax rate: 2024 2023 HK$’000 HK$’000 Profit before taxation 1,115,524 859,059 Notional tax on profit before taxation, calculated at the rates applicable to profits in the jurisdictions concerned 214,054 188,912 Tax effect of non-deductible expenses 16,824 4,080 Tax effect of non-taxable income (24,478) (26,214) Tax effect of unused tax loss not recognised 5,568 1,581 Others 754 (1,673) 212,722 166,686 In accordance with the accounting policy set out in note 3(n), the Group has not recognised deferred tax assets in respect of tax loss of approximately HK$51,930,000 (2023: approximately HK$35,553,000) as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax jurisdiction and entity. The tax loss does not expire under current legislation. (c) Current tax payable/(recoverable) in the consolidated statement of financial position represents: 2024 2023 HK$’000 HK$’000 Provision for Hong Kong Profits Tax for the year 126,350 100,127 Provisional Hong Kong Profits Tax paid (101,141) (51,011) 25,209 49,116 Balance of Hong Kong Profit Tax provision relating to prior years (1,677) (666) Balance of profit tax in Hong Kong 23,532 48,450 Balance of tax in Brazil (33,380) 18,552 (9,848) 67,002 Representing Current tax recoverable (33,380) – Current tax payable 23,532 67,002 (9,848) 67,002
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Annual Report 2024 121 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 7 INCOME TAX (Continued) (d) Deferred tax assets and liabilities recognised: (i) Movement of each component of deferred tax assets and liabilities The components of deferred tax (assets)/liabilities recognised in the consolidated statement of financial position and the movements during the year are as follows: Unrealised profits Fair value adjustments in relation to business combination Others Total Deferred tax arising from HK$’000 HK$’000 HK$’000 HK$’000 As at 1 January 2023 (8,481) 57,645 (8,873) 40,291 Credited to profit or loss (note 7(a)) (16,599) (10,692) (46,734) (74,025) As at 31 December 2023 and 1 January 2024 (25,080) 46,953 (55,607) (33,734) Charged/(credited) to profit or loss (note 7(a)) 9,334 (12,093) 89,131 86,372 As at 31 December 2024 (15,746) 34,860 33,524 52,638 (ii) Reconciliation to the consolidated statement of financial position 2024 2023 HK$’000 HK$’000 Net deferred tax assets in the consolidated statement of financial position 15,746 80,687 Net deferred tax liabilities in the consolidated statement of financial position (68,384) (46,953) (52,638) 33,734 (e) Pillar Two income tax The Group has applied the temporary mandatory exception from deferred tax accounting for the top-up tax and accounted for the tax as current tax when incurred.
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China Tobacco International (HK) Company Limited 122 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 8 DIRECTORS’ EMOLUMENTS Directors’ emoluments disclosed pursuant to section 383(1) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows: Directors’ fee Salaries, allowance and benefits in kind Discretionary bonus Retirement scheme contributions 2024 Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Non-executive director Shao Yan – – – – – Executive directors Dai Jiahui – 2,806 558 109 3,473 Wang Chengrui – 2,687 843 109 3,639 Xu Zengyun – 2,434 843 109 3,386 Mao Zilu – 2,693 787 109 3,589 Independent non-executive directors Chow Siu Lui 360 – – – 360 Wang Xinhua 360 – – – 360 Chau Kwok Keung (resigned on 17 May 2024) 136 – – – 136 Qian Yi 360 – – – 360 He Jun Hua (appointed on 17 May 2024) 225 – – – 225 1,441 10,620 3,031 436 15,528
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Annual Report 2024 123 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 8 DIRECTORS’ EMOLUMENTS (Continued) Directors’ fee Salaries, allowance and benefits in kind Discretionary bonus Retirement scheme contributions 2023 Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Non-executive director Shao Yan – – – – – Executive directors Yang Xuemei (resigned on 4 July 2023) – 1,768 978 51 2,797 Wang Chengrui – 2,537 655 104 3,296 Xu Zengyun – 2,336 274 104 2,714 Mao Zilu – 2,246 370 104 2,720 Dai Jiahui (appointed on 4 July 2023) – 1,214 37 71 1,322 Independent non-executive directors Chow Siu Lui 360 – – – 360 Wang Xinhua 360 – – – 360 Chau Kwok Keung 360 – – – 360 Qian Yi 360 – – – 360 1,440 10,101 2,314 434 14,289
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China Tobacco International (HK) Company Limited 124 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 9 INDIVIDUALS WITH HIGHEST EMOLUMENTS Four of the five individuals (2023: four) with the highest emoluments of the Group for the year ended 31 December 2024 are directors whose emoluments are disclosed in note 8. The aggregate of the emoluments in respect of the five individuals are as follows: 2024 2023 HK$’000 HK$’000 Salaries, allowances and benefits in kind 10,960 9,240 Discretionary bonuses 5,309 4,838 Retirement scheme contributions 646 602 16,915 14,680 The emoluments of the above individuals with the highest emoluments other than the directors are within the following band: Remuneration Band (HK$) 2024 2023 3,000,001-3,500,000 – 1 2,500,001-3,000,000 1 –
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Annual Report 2024 125 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 10 DIVIDENDS (a) Dividends payable to equity shareholders of the Company attributable to the year 2024 2023 $’000 $’000 Interim dividend declared and paid of HK15 cents per ordinary share (2023: nil) 103,752 – Final dividend proposed after the end of the reporting period of HK31 cents per ordinary share (2023: HK32 cents per ordinary share) 214,421 221,338 318,173 221,338 The final dividend proposed after the end of the reporting period has not been recognised as a liability at the end of the reporting period. (b) Dividends payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the year 2024 2023 $’000 $’000 Final dividend in respect of the previous financial year, approved and paid during the year, of HK32 cents per share (2023: HK20 cents per share) 221,338 138,336 11 EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the Company of approximately HK$853,735,000 (2023: approximately HK$598,773,000) and the weighted average of 691,680,000 ordinary shares in issue during the year ended 31 December 2024 (2023: 691,680,000 shares). Diluted earnings per share presented is the same as the basic earnings per share as there were no potentially dilutive ordinary shares issued.
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China Tobacco International (HK) Company Limited 126 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 12 INVESTMENT IN SUBSIDIARIES The following list contains the particulars of all subsidiaries of the Company. The class of shares held is ordinary unless otherwise stated. Name of company Place of incorporation and business Form of business structure Particulars of issued and paid up capital Proportion of ownership interest and voting right held by the Group Principal activities Held by Company Held by the a subsidiary China Tabaco Internacional do Brasil Ltda. (“CTIB”) Brazil Incorporated 38,561,000 shares 100% – Investment holding China Brasil Tabacos Exportadora S.A. (“CBT”) Brazil Incorporated 39,702,000 shares – 51% Procurement, processing, sale and export of tobacco leaves and the procurement of agricultural materials inherent to tobacco production CBT is considered to have a material non-controlling interest. The summarised financial information presented below represents the amounts before any intra-group elimination and is modified for fair value adjustments to the net assets of CBT as a result of combination.
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Annual Report 2024 127 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 12 INVESTMENT IN SUBSIDIARIES (Continued) 2024 2023 HK$’000 HK$’000 Amount recognised in CBT’s books Current assets 3,460,338 2,820,516 Non-current assets 79,579 144,794 Current liabilities (3,201,523) (2,641,729) Non-current liabilities (34,439) (537) 303,955 323,044 Fair value adjustments recognised as a result of the step acquisition of CBT 67,670 88,426 Net assets of CBT 371,625 411,470 NCI percentage 49% 49% Carrying amount of NCI 182,096 201,621 2024 2023 HK$’000 HK$’000 Revenue 3,465,978 2,832,006 Profit for the year 100,134 191,021 Total comprehensive income 100,134 191,021 Profit allocated to NCI 49,067 93,600 Dividends declared to NCI 68,592 106,400 Cash flows (used in)/generated from operating activities (199,370) 207,897 Cash flows used in investing activities (18,022) (15,993) Cash flows generated from financing activities 82,260 19,727
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China Tobacco International (HK) Company Limited 128 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 13 PROPERTY, PLANT AND EQUIPMENT a. Reconciliation of carrying amount Leasehold improvements Furniture, fixture, machinery and equipment Office equipment Hardware Motors vehicles Construction in progress Right-of-use assets Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Cost: At 1 January 2023 13,211 18,882 4,985 1,263 11,448 798 42,881 93,468 Additions 278 240 205 585 4,636 10,269 – 16,213 Modification (note 18(c)) – – – – – – 4,489 4,489 Disposal – – (74) – – – – (74) Transfer 798 8,532 – – – (9,330) – – Exchange adjustments – – 36 6 18 – – 60 At 31 December 2023 14,287 27,654 5,152 1,854 16,102 1,737 47,370 114,156 At 1 January 2024 14,287 27,654 5,152 1,854 16,102 1,737 47,370 114,156 Additions 43 8 154 500 859 17,374 32,476 51,414 Modification (note 18(c)) – – – – – – 7,184 7,184 Disposal – – (35) (67) – – (35,755) (35,857) Transfer 1,221 15,111 – – – (16,332) – – Exchange adjustments – – (122) (12) (63) – – (197) At 31 December 2024 15,551 42,773 5,149 2,275 16,898 2,779 51,275 136,700 Accumulated depreciation: At 1 January 2023 (7,105) (6,541) (4,321) (730) (4,045) – (27,978) (50,720) Charge for the year (2,933) (3,560) (475) (314) (2,478) – (10,229) (19,989) Disposal – – 74 – – – – 74 Exchange adjustment – – (33) (6) (17) – – (56) At 31 December 2023 (10,038) (10,101) (4,755) (1,050) (6,540) – (38,207) (70,691) At 1 January 2024 (10,038) (10,101) (4,755) (1,050) (6,540) – (38,207) (70,691) Charge for the year (3,524) (4,844) (190) (326) (2,991) – (11,771) (23,646) Disposal – – 35 67 – – 35,755 35,857 Exchange adjustment – – 114 12 63 – – 189 At 31 December 2024 (13,562) (14,945) (4,796) (1,297) (9,468) – (14,223) (58,291) Net book value: At 31 December 2023 4,249 17,553 397 804 9,562 1,737 9,163 43,465 At 31 December 2024 1,989 27,828 353 978 7,430 2,779 37,052 78,409
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Annual Report 2024 129 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 13 PROPERTY, PLANT AND EQUIPMENT (Continued) b. Right-of-use assets The right-of-use assets represented the right to use the properties as its office through tenancy agreements. The lease runs for an initial period of two to five years with fixed lease payments. The analysis of expense items in relation to leases recognised in profit or loss is as follows: 2024 2023 HK$’000 HK$’000 Depreciation charge of right-of-use assets (note 6(c)) 11,771 10,229 Interest on lease liabilities (note 6(a)) 221 393 Expense relating to short-term lease (note 6(c)) 2,326 3,314 Details of total cash outflow for leases and the maturity analysis of lease liabilities are set out in notes 18(d) and 21, respectively.
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China Tobacco International (HK) Company Limited 130 Notes to the financial statements (Continued) (Expressed in Hong Kong dollars unless otherwise indicated) 14 INTANGIBLE ASSETS Software Portfolio of producers Total HK$’000 HK$’000 HK$’000 Cost: At 1 January 2023 760 219,210 219,970 Additions 199 – 199 31 December 2023 959 219,210 220,169 At 1 January 2024 959 219,210 220,169 Additions 57 – 57 31 December 2024 1,016 219,210 220,226 Accumulated amortisation: At 1 January 2023 (270) (57,727) (57,997) Charge for the year (304) (30,759) (31,063) 31 December 2023 (574) (88,486) (89,060) At 1 January 2024 (574) (88,486) (89,060) Charge for the year (141) (30,758) (30,899) 31 December 2024 (715) (119,244) (119,959) Net book value 31 December 2023 385 130,724 131,109 31 December 2024 301 99,966 100,267 The amortisation charge for the year is included in “Administrative and other operating expenses” and “Cost of sales” in the consolidated statement of profit or loss and other comprehensive income.
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 131 Notes to the financial statements (Continued) 15 GOODWILL HK$’000 Cost and carrying amount At 31 December 2023, 1 January 2024 and 31 December 2024 212,929 Goodwill is derived from the step acquisition of CBT and has been allocated to the Group’s CGU identified according to operating segments, namely the Tobacco Leaf Products Import Business of approximately HK$154,373,000 and Brazil Operation Business of approximately HK$58,556,000, respectively, for impairment assessment purposes. The recoverable amount of the CGU is determined based on the value-in-use calculations. The Group engaged an independent professional valuer to assist with the calculation. These calculations use cash flow projections based on financial budgets prepared by management covering a five-year period. The key assumptions used in estimating the recoverable amount are as follows: 2024 2023 Weighted average annual revenue growth rate during the forecast period (note (i)) 6.8% 6.5% Gross profit margin 21.5% 22% Growth rate beyond the forecast period (note (ii)) 3.5% 3.5% Pre-tax discount rate 13.4% 11.9% (i) The increase in weighted average annual revenue growth rate is derived from the projected long-term inflation rate and the expected rate of revenue increase in tobacco products market of Brazil. (ii) Cash flows beyond the five-year period are extrapolated using an estimated weighted average growth rate which is consistent with the forecasts included in industry reports and generally in line with the assumption used in 2023.
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 132 Notes to the financial statements (Continued) 16 INVENTORIES As at the end of each reporting period, inventories in the consolidated statement of financial position comprise the following: 2024 2023 HK$’000 HK$’000 Tobacco leaf products 5,241,829 2,864,771 Cigarettes 183,916 108,879 5,425,745 2,973,650 The analysis of the amounts of inventories recognised as an expense and included in profit or loss is as follows: 2024 2023 HK$’000 HK$’000 Carrying amount of inventories sold 11,657,430 10,694,104
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 133 Notes to the financial statements (Continued) 17 TRADE AND OTHER RECEIVABLES 2024 2023 HK$’000 HK$’000 Trade receivables 610,985 513,257 Bills receivable 127,855 2,496 738,840 515,753 Deposits, prepayments and other receivables 101,912 189,991 Advances to producers 201,438 185,848 VAT recoverable 50,415 75,007 1,092,605 966,599 Represented by: – Current portion 1,055,593 908,006 – Non-current portion 37,012 58,593 1,092,605 966,599 Apart from certain other tax recoverable, advances to producers and rental deposits, all of the remaining trade and other receivables are expected to be recovered or recognised as expenses within one year. The Group grants short-term advances to producers in cash or agricultural inputs which are settled through the delivery of tobacco. Additionally, it grants long-term advances to producers for the financing of the production infrastructure. The recovery of these advances may be renegotiated for future harvests due to specific situations and/or default of the producers in the settlement of their short-term debt. Advances to producers are measured under HKFRS 9 and assessed for ECL in accordance with the policy set out in note 3(f)(i). As at the end of each reporting period, the ageing analysis of trade receivables and bills receivable based on the invoice date and net of loss allowance, is as follows: 2024 2023 HK$’000 HK$’000 Within 30 days 71,136 220,842 31 to 90 days 401,163 77,207 Over 90 days 266,541 217,704 738,840 515,753
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 134 Notes to the financial statements (Continued) 17 TRADE AND OTHER RECEIVABLES (Continued) The following table sets out an ageing analysis of trade receivables and bills receivable based on due date as at the dates indicated: 2024 2023 HK$’000 HK$’000 Not past due 701,531 253,385 Past due 1 to 30 days 2,037 39,808 Past due 31 to 90 days 35,122 125,720 Past due over 90 days 150 96,840 738,840 515,753 Trade receivables are normally due within 30 to 180 days from the date of billing. The Group generally does not hold any collateral over the balances. Further details on the Group’s credit policy are set out in note 23(a). 18 CASH AND CASH EQUIVALENTS AND SHORT-TERM BANK DEPOSITS (a) Cash and cash equivalents and short-term bank deposits comprise: 2024 2023 HK$’000 HK$’000 Cash at bank and on hand 364,268 313,942 Bank certificates of deposits 153,198 256,866 Cash and cash equivalents 517,466 570,808 Short-term bank deposits with original maturity more than 3 months 2,340,108 1,761,148 2,857,574 2,331,956 At 31 December 2024 and 2023, bank certificates of deposits included in cash and cash equivalents had original maturity of 3 months or less and were held for the purpose of meeting short-term cash commitments.
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 135 Notes to the financial statements (Continued) 18 CASH AND CASH EQUIVALENTS AND SHORT-TERM BANK DEPOSITS (Continued) (b) Reconciliation of profit before taxation to cash used in operations: 2024 2023 Note HK$’000 HK$’000 Operating activities Profit before taxation 1,115,524 859,059 Adjustments for: Depreciation and amortisation 6(c) 54,545 51,052 Interest income 5 (147,537) (99,181) Finance costs 6(a) 207,563 154,755 Impairment losses recognised on trade and other receivables 807 2,896 Reversal of inventory provision – (89) Exchange difference (21,235) 2,822 Operating profit before changes in working capital 1,209,667 971,314 (Increase)/decrease in trade and other receivables (117,242) 699,335 Increase in inventories (2,452,095) (464,273) Increase/(decrease) in trade and other payables 2,192,309 (473,113) Cash generated from operations 832,639 733,263
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 136 Notes to the financial statements (Continued) 18 CASH AND CASH EQUIVALENTS AND SHORT-TERM BANK DEPOSITS (Continued) (c) Reconciliation of liabilities arising from financing activities The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the Group’s statement of cash flows as cash flows from financing activities. Dividends payables to non-controlling interests (note 19) Bank borrowings (note 20) Lease liabilities (note 21) Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2023 50,964 2,095,137 16,144 2,162,245 Changes from financing cash flows: Proceeds from new bank borrowings – 2,508,480 – 2,508,480 Repayment of bank borrowings – (2,152,059) – (2,152,059) Interest and other borrowing costs paid – (125,309) – (125,309) Capital element of lease rentals paid – – (10,965) (10,965) Interest element of lease rentals paid – – (393) (393) Dividend distribution (108,469) – – (108,469) Total changes from financing cash flows (108,469) 231,112 (11,358) 111,285 Other changes: Lease modification (note 13(a)) – – 4,489 4,489 Dividend declared 106,400 – – 106,400 Interest expense (note 6(a)) – 154,246 393 154,639 Exchange loss 4,723 – – 4,723 Total other changes 111,123 154,246 4,882 270,251 At 31 December 2023 53,618 2,480,495 9,668 2,543,781 At 1 January 2024 53,618 2,480,495 9,668 2,543,781 Changes from financing cash flows: Proceeds from new bank borrowings – 3,003,000 – 3,003,000 Repayment of bank borrowings – (2,577,528) – (2,577,528) Interest and other borrowing costs paid – (165,412) – (165,412) Capital element of lease rentals paid – – (13,136) (13,136) Interest element of lease rentals paid – – (221) (221) Dividend distribution (85,622) – – (85,622) Total changes from financing cash flows (85,622) 260,060 (13,357) 161,081 Other changes: Lease modification (note 13(a)) – – 7,184 7,184 Dividend declared 68,592 – – 68,592 Initial recognition of lease – – 28,859 28,859 Interest expense (note 6(a)) – 207,189 221 207,410 Exchange gain (12,751) – – (12,751) Total other changes 55,841 207,189 36,264 299,294 At 31 December 2024 23,837 2,947,744 32,575 3,004,156
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 137 Notes to the financial statements (Continued) 18 CASH AND CASH EQUIVALENTS AND SHORT-TERM BANK DEPOSITS (Continued) (d) Total cash outflow for leases Amounts included in the statement of cash flow for leases comprise the following: 2024 2023 HK$’000 HK$’000 Within operating cash flows 2,326 3,314 Within financing cash flows 13,357 11,358 15,683 14,672 19 TRADE AND OTHER PAYABLES 2024 2023 HK$’000 HK$’000 Trade payables 3,419,802 1,232,557 Contract liabilities 28,665 29,262 Dividends payables to non-controlling interests 23,837 53,618 Other payables and accruals 81,154 122,661 Financial liabilities measured at amortised cost 3,553,458 1,438,098 All of the trade and other payables are expected to be settled or recognised as income within one year or are repayable on demand. Included in trade payables were certain amounts due to the non-controlling interests of CBT as set out in further details in note 24(a).
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 138 Notes to the financial statements (Continued) 19 TRADE AND OTHER PAYABLES (Continued) As at the end of each reporting period, the ageing analysis of trade payables based on the invoice date is as follows: 2024 2023 HK$’000 HK$’000 Within 30 days 2,192,797 626,348 31 to 90 days 1,040,799 330,714 Over 90 days 186,206 275,495 3,419,802 1,232,557 The Group requires advance from certain customers when they place the purchase orders which are recognised as contract liabilities until the control over underlying goods has been transferred. For the years ended 31 December 2024 and 2023, all the opening contract liabilities have been recognised as revenue during the year. In the ordinary course of business, the Group may receive quality claims made by the end customers from time to time. As at 31 December 2024 and 2023, management believes such quality claims will not have a material adverse effect on the financial performance of the Group. 20 BANK BORROWINGS 2024 2023 HK$’000 HK$’000 Bank borrowings 2,947,744 2,480,495 At the end of each reporting period, all of the bank borrowings were unsecured, carried at amortised cost and expected to be settled within one year. All of the bank borrowings bore fixed interest and the weighted average interest rates as at 31 December 2024 were 7.76% (2023: 7.58%) per annum.
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 139 Notes to the financial statements (Continued) 21 LEASE LIABILITIES At 31 December 2023, the lease liabilities were repayable as follows: 2024 2023 HK$’000 HK$’000 Within 1 year 9,747 9,131 After 1 year but within 2 years 6,467 537 After 2 years but within 5 years 16,361 – 32,575 9,668 22 CAPITAL AND RESERVES (a) Movements in components of equity of the Company Share capital Retained earnings Total Note HK$’000 HK$’000 HK$’000 Balance at 1 January 2023 1,403,721 653,625 2,057,346 Profit and total comprehensive income for the year – 692,918 692,918 Dividend 10(b) – (138,336) (138,336) Balance at 31 December 2023 1,403,721 1,208,207 2,611,928 Balance at 1 January 2024 1,403,721 1,208,207 2,611,928 Profit and total comprehensive income for the year – 848,567 848,567 Dividend 10 – (325,090) (325,090) Balance at 31 December 2024 1,403,721 1,731,684 3,135,405
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 140 Notes to the financial statements (Continued) 22 CAPITAL AND RESERVES (Continued) (b) Share capital 2024 2023 No. of shares HK$’000 No. of shares HK$’000 Ordinary shares, issued and fully paid: At 1 January and 31 December 691,680,000 1,403,721 691,680,000 1,403,721 In accordance with section 135 of the Hong Kong Companies Ordinance, the ordinary shares of the Company do not have a par value. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets. (c) Nature and purpose of reserves (i) Exchange reserve The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 3(q). (ii) Merger reserve The merger reserve arose from the acquisition of subsidiaries under common control and the acquisition is accounted for by applying principles of merger accounting in accordance with Accounting Guideline 5 “Merger Accounting for Common Control Combinations”.
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 141 Notes to the financial statements (Continued) 22 CAPITAL AND RESERVES (Continued) (d) Capital management The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions affecting the Group. The Group monitors its capital structure on the basis of an adjusted net debt-to capital ratio. For this purpose, adjusted net debt is defined as total debt (which includes interest-bearing loans and borrowings and lease liabilities) less cash and cash equivalents and short-term bank deposits. The Group defines “capital” as including all components of equity. As at 31 December 2024, the Group’s net debt-to-capital ratio was 4% (2023: 6%). The Group is not subject to any externally imposed capital requirements. 23 FINANCIAL RISK MANAGEMENT AND FAIR VALUES Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below. (a) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group’s credit risk is primarily attributable to trade and other receivables, and advances to producers. The Group’s exposure to credit risk arising from cash and cash equivalents, short-term bank deposits and bills receivable is limited because the counterparties are all banks, for which the Group considers to have low credit risk. Trade receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. As at 31 December 2024, 9% (2023: 37%) of the total trade receivables were due from the Group’s largest customer and 77% (2023: 92%) of the total trade receivables were due from the Group’s five largest customers. Prior to the Group’s commencement of substantive operation, the Relevant Businesses were carried out by other entities controlled CNTC, the Group’s ultimate parent. As such, most of the Group’s customers have long established relationships with CNTC Group. Individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customers’ past history of making payments to the CNTC Group when due and current ability to pay, and take into account information specific to the customers as well as pertaining to the economic environment in which the customers operate. Trade receivables are due within 30 to 180 days from the date of billing. Normally, the Group does not obtain collateral from customers.
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 142 Notes to the financial statements (Continued) 23 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) (a) Credit risk (Continued) Trade receivables (Continued) The Group measures loss allowances for trade receivables at an amount equal to lifetime ECLs, which is assessed individually based on actual historical loss experience and taking into account of differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables. As at 31 December 2024 and 2023, the Group assessed the expected loss rates for trade receivables to be immaterial. As such, no loss allowance has been recognised in accordance with HKFRS 9 as at 31 December 2024 and 2023. Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 17. Advances to producers Individual credit risk evaluations are performed on producers to whom the Group grants advances. These evaluations focus on the producer’s past history of supplying tobacco products and current production and financial information in respect of the producer, and take into account information pertaining to the economic environment. The Group measures loss allowances for advances to producers at an amount equal to 12-month ECLs, unless there has been a significant increase in credit risk since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs. 2024 2023 HK$’000 HK$’000 Gross amount 208,940 192,543 ECL (7,502) (6,695) 201,438 185,848 Movement in the loss allowance account in respect of these financial assets during the year is as follows: 2024 2023 HK$’000 HK$’000 Balance at 1 January 6,695 3,799 Impairment losses recognised 807 2,896 Balance at 31 December 7,502 6,695
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 143 Notes to the financial statements (Continued) 23 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) (b) Liquidity risk The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term. The following tables show the remaining contractual maturities at the end of each reporting period of the Group’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows and the earliest date the Group can be required to pay. 2024 Contractual undiscounted cash outflow Within 1 year More than 1 year but within 2 years More than 2 years but with 5 years Total Carrying amount at 31 December HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Trade payables 3,419,802 – – 3,419,802 3,419,802 Dividend payables to non-controlling interests 23,837 – – 23,837 23,837 Bank borrowings 2,991,993 – – 2,991,993 2,947,744 Other payables and accruals 81,154 – – 81,154 81,154 Lease liabilities 11,063 7,490 17,461 36,014 32,575 6,527,849 7,490 17,461 6,552,800 6,505,112
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 144 Notes to the financial statements (Continued) 23 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) (b) Liquidity risk (Continued) 2023 Contractual undiscounted cash outflow Within 1 year More than 1 year but within 2 years Total Carrying amount at 31 December HK$’000 HK$’000 HK$’000 HK$’000 Trade payables 1,232,557 – 1,232,557 1,232,557 Dividend payables to non-controlling interests 53,618 – 53,618 53,618 Bank borrowings 2,533,402 – 2,533,402 2,480,495 Other payables and accruals 122,661 – 122,661 122,661 Lease liabilities 9,612 537 10,149 9,668 3,951,850 537 3,952,387 3,898,999 (c) Interest rate risk The Group’s interest rate risk arises primarily from CBT’s borrowings, which were issued at fixed rates and expose CBT to fair value interest rate risk. At the end of each reporting period, the fair value of CBT’s financial assets and financial liabilities measured at amortised cost, including the bank borrowings, was not considered to be significantly different from their carrying amounts as most of them were short-term in nature.
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 145 Notes to the financial statements (Continued) 23 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) (d) Currency risk The Group is exposed to currency risk primarily through sales and purchases which give rise to receivables, payables and cash balances that are denominated in a foreign currency, i.e. a currency other than the functional currency of the operations to which the transactions relate. The currency giving rise to this risk is primarily Brazilian Reais (“R$”). (i) Exposure to currency risk The following table details the Group’s exposure at the end of each of the reporting period to currency risk arising from recognised assets or liabilities denominated in R$. For presentation purposes, the amounts of the exposure are shown in HK$, translated using the spot rate at the end of each of the reporting period. 2024 2023 HK$’000 HK$’000 Trade and other receivables 270,391 256,233 Cash and cash equivalents 156,179 154,993 Trade and other payables (223,862) (82,172) Current tax recoverable/(payable) 33,380 (18,552) 236,088 310,502 (ii) Sensitivity analysis It is estimated that if R$ had strengthened by 10% against the HK$ with all other variables held constant, this would have increased/decreased the Group’s retained earnings as at 31 December 2024 and 2023 and profit for the year then ended by approximately HK$15,582,000 and HK$20,493,000 respectively. The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the end of the reporting period. The analysis is performed on the same basis for 2023.
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 146 Notes to the financial statements (Continued) 24 MATERIAL RELATED PARTY TRANSACTIONS CNTC, the controlling shareholder of the Company, is a state-controlled enterprise directly controlled by the PRC government. The PRC government is the ultimate controlling party of the Company. Related parties include (i) the CNTC Group and its associates and joint ventures, other state-owned enterprises and their subsidiaries which the PRC government has control, joint control or significant influence over, key management personnel of the Group and the CNTC Group, their close family members and any entity, of any member of a group of which it is a part, provides key management personnel services to the Company’s parent; and (ii) the Pyxus Group, namely Pyxus International, Inc., and its subsidiaries (including Alliance One Brasil Exportadora de Tabacos Ltda., the non-controlling interests of CBT) since the completion of CTIB acquisition. In addition to the related party information shown elsewhere in the financial statements, the following is a summary of material related party transactions entered into in the ordinary course of business between the Group and its related parties during the reporting period and balances arising therefrom. (a) Transactions with the CNTC Group and other related parties 2024 2023 HK$’000 HK$’000 – Sales of tobacco leaf products to China Tobacco International Inc. (“CTI”) 8,254,248 8,079,030 – Sales of tobacco leaf products to Pyxus 1,149,652 965,526 – Sales of new tobacco products to an associate of the CNTC Group 14,011 10,814 – Commission income from fellow subsidiaries 2,222 536 – Procurement of tobacco leaf products from fellow subsidiaries 2,554,924 1,856,194 – Procurement of cigarettes from fellow subsidiaries 1,360,064 1,108,060 – Procurement of new tobacco products from fellow subsidiaries 128,158 124,264 – Procurement of tobacco leaf products and services from Pyxus 2,713,198 2,655,364
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 147 Notes to the financial statements (Continued) 24 MATERIAL RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with the CNTC Group and its associates and joint ventures, and other related parties (Continued) During the year ended 31 December 2024, sales of HK$14,011,000 (2023: HK$10,814,000) in respect of New Tobacco Product Export Business were made to an associate of the CNTC Group that is not considered as a connected person defined under Chapter 14A of the Listing Rules. Except for such sales transactions, all the related party transactions above constituted connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. The disclosures required by Chapter 14A of the Listing Rules are provided in section headed “Continuing Connected Transactions” of the Report of the Directors. As at 31 December 2024 and 2023, balances arising from the above transactions, which are unsecured and interest-free, are included in the following account captions as summarised below: 2024 2023 HK$’000 HK$’000 Trade receivables from: – fellow subsidiaries 70,164 201,057 – Pyxus 470,743 187,003 Prepayments for goods to: – fellow subsidiaries 25,906 14,862 Trade payables to: – fellow subsidiaries 480,971 47,546 – Pyxus 1,108,652 462,631 Other payables and accruals, including contract liabilities and dividends payables – fellow subsidiaries 4,773 3,722 – Pyxus 23,837 53,618 (b) Key management personnel remuneration All members of key management personnel are the directors of the Group and their remuneration is disclosed in note 8. (c) Transactions with other state-controlled entities in the PRC The Group has transactions with other state-controlled entities including but not limited to bank deposits. These transactions are conducted in the ordinary course of the Group’s business.
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(Expressed in Hong Kong dollars unless otherwise indicated) China Tobacco International (HK) Company Limited 148 Notes to the financial statements (Continued) 25 COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION (Expressed in Hong Kong dollars) 2024 2023 Note HK$’000 HK$’000 Non-current assets Interest in a subsidiary 494,634 494,634 Property and equipment 31,922 8,564 Trade and other receivables 1,643 – 528,199 503,198 Current assets Inventories 4,278,329 1,851,575 Trade and other receivables 311,456 414,020 Cash and cash equivalents 358,258 322,621 Short-term bank deposits 2,340,108 1,761,148 7,288,151 4,349,364 Current liabilities Trade and other payables 4,626,552 2,184,634 Lease liabilities 5,257 4,663 Current tax payable 23,532 48,450 Provision for reinstatement cost – 2,887 4,655,341 2,240,634 Net current assets 2,632,810 2,108,730 Total assets less current liabilities 3,161,009 2,611,928 Non-current liabilities Lease liabilities 21,912 – Provision for reinstatement costs 3,692 – 25,604 – NET ASSETS 3,135,405 2,611,928 Capital and reserves Share capital 22(b) 1,403,721 1,403,721 Reserves 1,731,684 1,208,207 TOTAL EQUITY 3,135,405 2,611,928 Approved and authorised for issue by the board of directors on 6 March 2025. DAI Jiahui WANG Chengrui Director Director
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(Expressed in Hong Kong dollars unless otherwise indicated) Annual Report 2024 149 Notes to the financial statements (Continued) 26 IMMEDIATE AND ULTIMATE PARENTS At 31 December 2024 and 2023, the directors consider the immediate parent and ultimate parent of the Company to be CTIG and CNTC, respectively. CTIG is incorporated in Hong Kong and CNTC is established in the PRC. Neither of them produces financial statements available for public use. The PRC government is the ultimate controlling party of the Company. 2 7 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2024 Up to the date of issue of these financial statements, the HKICPA has issued a number of new or amended standards, which are not yet effective for the year ended 31 December 2024 and which have not been adopted in these financial statements. These developments include the following which may be relevant to the group. Effective for accounting periods beginning on or after Amendments to HKAS 21, The effects of changes in foreign exchange rates – Lack of exchangeability 1 January 2025 Amendments to HKFRS 9, Financial instruments and HKFRS 7, Financial instruments: disclosures – Amendments to the classification and measurement of financial instruments 1 January 2026 Annual improvements to HKFRS Accounting Standards – Volume 11 1 January 2026 HKFRS 18, Presentation and disclosure in financial statements 1 January 2027 HKFRS 19, Subsidiaries without public accountability: disclosures 1 January 2027 The Group is in the process of making an assessment of what the impact of these developments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements.
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Financial Summary China Tobacco International (HK) Company Limited 150 As at 31 December 2024 31 December 2023 31 December 2022 31 December 2021 31 December 2020 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Non-current assets 444,363 526,783 470,441 488,533 212,650 Current assets 9,372,292 6,213,612 5,900,080 4,278,038 3,592,153 Total assets 9,816,655 6,740,395 6,370,521 4,766,571 3,804,803 Current liabilities 6,534,481 3,997,613 4,075,995 2,692,693 2,038,310 Non-current liabilities 94,904 47,490 56,936 90,538 20,522 Total liabilities 6,629,385 4,045,103 4,132,931 2,783,231 2,058,832 Net assets 3,187,270 2,695,292 2,237,590 1,983,340 1,745,971 For the year ended 31 December 2024 31 December 2023 31 December 2022 31 December 2021 31 December 2020 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue 13,074,243 11,836,221 8,324,205 8,064,116 3,484,672 Gross profit 1,377,642 1,088,324 806,389 445,229 141,594 Profit before taxation 1,115,524 859,059 615,629 773,736 107,026 Profit for the year attributable to equity shareholders of the Company 853,735 598,773 374,905 702,829 106,121 Earnings per Share Basic and diluted (HK$) 1.23 0.87 0.54 1.02 0.15 Dividend per Share (HK$) 0.46 0.32 0.20 0.17 0.04 Note: The consolidated results of the Group for the year ended 31 December 2020 and the assets and liabilities of the Group as at 31 December 2020 have been restated for the common control transactions in 2021. Also, the consolidated results of the Group for the year ended 31 December 2022 have been restated for the reclassification of freight charge during the year. No retrospective adjustments for reclassification were made on the financial figures for years 2020 and 2021. Dividend per share for the year ended 31 December 2024 includes interim and final dividend of the financial year.