Core Viewpoint - Macquarie has downgraded the net profit forecasts for Hengan International (01044) for the fiscal years 2024 and 2025 by 12% and 9% respectively, reflecting the anticipated need for higher advertising and promotional expenses in a competitive market [1] Business Performance - Hengan's sales in the second half of last year increased by 1.3% year-on-year, which was below Macquarie's expectations [1] - Sales of tissue and diapers grew by 2.7% and 3.5% respectively, a slowdown compared to the first half of the year where growth was 22.7% and 5% [1] - Sanitary napkin sales declined by 2.3% year-on-year, contrasting with a 3% increase in the first half, attributed to intensified price competition due to falling wood pulp prices [1] Retail Channel Insights - Sales from new retail channels increased by 7%, contributing 31% to total sales, compared to 29.5% in the same period of 2022 [1] - The tissue business gained further market share last year, while the sanitary napkin segment has shown good growth momentum since the beginning of 2024 [1] - The tissue segment is facing intense competition, leading the company to potentially enhance promotions to stimulate growth [1]

Investment Rating - The report maintains a "Buy" rating for the company with a target price adjusted to HKD 33.85, indicating a potential upside of 30.2% from the current price of HKD 26.00 [1][2][8]. Core Insights - The company's performance in 2023 met expectations, with a notable recovery in profit margins driven by a high-end product mix and easing cost pressures. Sales increased by 5.1% year-on-year to RMB 23.768 billion, while net profit rose by 45.5% to RMB 2.801 billion [1][2]. - The report highlights that the sales growth rate slowed in the second half of 2023 due to intensified competition and promotional expense management, dropping from 9% in the first half to 1.3% in the second half. However, the gross margin improved significantly to 36.5% in the second half, up from 32.8% in the same period of 2022 [1][2][6]. - The high-end product lines, particularly in tissue and sanitary products, received positive feedback, contributing to the overall sales growth. The wet wipes segment saw a 10.5% increase, while the "Cloud Soft" series achieved a remarkable 26.6% growth [1][2][7]. Financial Performance Summary - For 2023, the company reported a revenue of RMB 23.768 billion, a 5.1% increase from 2022, with core business sales (tissues, sanitary napkins, diapers) growing by 8.0% to RMB 21.18 billion. The net profit for the year was RMB 2.801 billion, reflecting a 45.5% year-on-year increase [3][6]. - The gross margin for the year was stable, with a significant improvement in the second half, where the gross margin reached 36.5%, up 5.5 percentage points from the previous year [1][6]. - The company plans to increase marketing expenditures in the first half of 2024 to support sales growth, particularly in the tissue segment, which is expected to achieve low single-digit growth [2][3]. Future Outlook - The report anticipates low single-digit growth for core business in 2024, driven by the high-end product mix. Despite favorable raw material cost trends, increased market competition may pressure average selling prices [2][3]. - The company is expected to maintain a stable dividend payout, with a total dividend of RMB 1.4 per share for 2023, maintaining a payout ratio of 58% [1][3].

Financial Performance - Revenue for the year ended December 31, 2023, was RMB 23,767,936 thousand, representing a 5.1% increase from RMB 22,615,878 thousand in 2022[3] - Operating profit increased by 38.6% to RMB 3,977,931 thousand compared to RMB 2,869,154 thousand in the previous year[3] - Profit attributable to equity holders of the company rose by 45.5% to RMB 2,800,533 thousand from RMB 1,925,249 thousand in 2022[3] - Basic and diluted earnings per share increased by 45.8% to RMB 2.415 from RMB 1.657 in the previous year[3] - Group operating profit for 2023 was RMB 3,977,931 thousand, compared to RMB 2,869,154 thousand in 2022, reflecting a significant increase of approximately 38.7%[21] - Net profit attributable to equity holders of the company for 2023 was RMB 2,800,533 thousand, up from RMB 1,925,249 thousand in 2022, indicating a growth of around 45.5%[21] - The group reported a profit before tax of RMB 3,605,404 thousand for 2023, compared to RMB 2,833,286 thousand in 2022, marking an increase of approximately 27.2%[21] - The overall gross profit for 2023 rose by approximately 4.2% to about RMB 8,010,688,000, compared to RMB 7,689,499,000 in 2022[47] - The overall gross margin for 2023 was approximately 33.7%, with a significant improvement to 36.5% in the second half of the year[47] Assets and Liabilities - Total assets decreased to RMB 40,215,901 thousand from RMB 42,337,242 thousand in 2022[9] - Total liabilities decreased to RMB 19,586,050 thousand from RMB 22,561,505 thousand in the previous year[11] - The total assets of the group as of December 31, 2023, amounted to RMB 40,215,901 thousand, with total liabilities of RMB 19,586,050 thousand[23] - The company maintained a current ratio of 1.4, consistent with the previous year[3] - The company has a deferred tax asset of RMB 532,204,000 as of December 31, 2022[27] Dividends and Shareholder Returns - The company proposed a final dividend of RMB 0.70 per share, consistent with the previous year[3] - The company has committed to a final dividend of RMB 0.70 per share for the fiscal year ending December 31, 2023, pending approval at the 2024 Annual General Meeting[101] - The company maintained a stable dividend payout of RMB 1.40 per share for the year, consistent with the previous year[48] Revenue Breakdown - The revenue breakdown includes RMB 6,178,438 thousand from sanitary napkin products, RMB 1,254,070 thousand from diaper products, and RMB 13,748,172 thousand from tissue products[21] - Sales revenue from the sanitary napkin business increased by approximately 0.4% to about RMB 6,178,438,000 (2022: RMB 6,156,060,000), accounting for about 26.0% of the group's total revenue (2022: 27.2%) [51] - Sales revenue from the tissue paper business surged by approximately 12.2% to about RMB 13,748,172,000 (2022: RMB 12,248,011,000), representing about 57.8% of the group's total revenue (2022: 54.2%) [58] - The three core business segments (tissue, sanitary napkins, and diapers) achieved a revenue growth of approximately 8.0% year-on-year[45] Operational Efficiency - The inventory turnover period improved to 42 days from 43 days in the previous year[3] - Accounts receivable and notes receivable decreased from RMB 2,993,134,000 in 2022 to RMB 2,718,998,000 in 2023, with a net amount of RMB 2,553,357,000 after impairment provisions[40] - Accounts payable and notes payable decreased from RMB 2,920,685,000 in 2022 to RMB 2,750,069,000 in 2023[42] - Sales and administrative expenses increased by approximately 3.7% to about RMB 5,068,887,000, while the expense ratio slightly decreased to about 21.3% of total revenue[74] Market and Sales Strategy - E-commerce and new retail sales accounted for approximately 30.1% of total sales, up from 26.9% in 2022, representing a year-on-year growth of about 17.7%[46] - The company plans to continue focusing on high-end product development and optimizing its product mix to meet consumer demand for high-quality diversified products[46] - The company plans to continue expanding the proportion of new retail channels in total sales and develop higher quality products [57] - The company aims to enhance its sales channels, focusing on e-commerce and new retail strategies, while also strengthening partnerships with maternal and infant stores, nursing homes, and hospitals[68] Sustainability and Corporate Responsibility - The company is committed to sustainable development and aims to enhance its competitive edge while expanding its market presence both domestically and internationally[100] - The company has been recognized as a "Green Factory" by the Ministry of Industry and Information Technology, marking its third national-level green factory[87] - The greenhouse gas emission intensity for 2023 was 0.66 tons of CO2 equivalent per 10,000 yuan in sales, significantly lower than the industry standard[86] - The company has implemented a comprehensive safety management strategy and conducted regular safety training, resulting in a workplace injury rate of 0[90] - The company has been actively involved in social responsibility initiatives, including donations of RMB 2 million worth of supplies to earthquake-affected areas in Syria and Turkey[93] Governance and Compliance - The audit committee is chaired by an independent non-executive director, with three other independent non-executive directors as members, ensuring compliance with the highest standards of corporate governance[105] - The company confirmed full compliance with the Listing Rules, except for a minor breach by a director who inadvertently purchased 100,000 shares during a trading blackout period[109] - The board of directors includes eight executive directors and four independent non-executive directors, reflecting a diverse governance structure[112] - The company has maintained high standards of corporate governance, which aids in managing business risks and enhancing transparency[108] Employee and Human Resources - The group employed approximately 23,000 employees as of December 31, 2023, with a focus on improving human resource efficiency and employee compensation[79] - The total training hours for employees exceeded 240,000 hours in 2023, with 173 individuals promoted to management positions[89] - The company employed approximately 23,000 people by the end of 2023, with a female employee ratio of 56%[89] Future Outlook - The company plans to expand production capacity and upgrade technology, including establishing a new base for upgraded sanitary napkins, diapers, and wet wipes in Fujian, with some new capacity expected to be operational in 2024[100] - The company is closely monitoring geopolitical tensions and global monetary policy tightening, which may impact economic growth and consumer confidence, but remains optimistic about China's economic fundamentals[95] - The company aims to enhance its brand image and attract younger consumers through various promotional activities and partnerships [54]

[Financial Highlights](index=5&type=section&id=Financial%20Highlights) Key financial indicators for H1 2023 show revenue growth, but declining profitability and improved asset turnover Key Financial Indicators for H1 2023 | Indicator | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | Change | | :--- | :--- | :--- | :--- | | **Revenue** | 12,204,605 | 11,200,021 | +9.0% | | **Core Business Revenue** | 11,054,709 | 9,604,649 | +15.1% | | **Gross Margin** | 31.0% | 35.2% | -4.2pp | | **Operating Profit** | 1,701,681 | 1,885,753 | -9.8% | | **Profit Attributable to Equity Holders** | 1,225,768 | 1,276,191 | -4.0% | | **Basic Earnings Per Share** | RMB 1.055 | RMB 1.098 | -3.9% | | **Finished Goods Turnover Days** | 33 days | 39 days | -6 days | | **Accounts Receivable Turnover Days** | 43 days | 51 days | -8 days | [Interim Condensed Consolidated Financial Statements](index=6&type=section&id=Interim%20Condensed%20Consolidated%20Financial%20Statements) [Interim Condensed Consolidated Statement of Profit or Loss](index=6&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss) In H1 2023, total revenue grew 9.0% to RMB 12.205 billion, but rising costs and expenses led to a 4.1% decline in gross profit and a 9.8% drop in operating profit Key Profit or Loss Data (For the Six Months Ended June 30) | Item | 2023 (RMB thousands) | 2022 (RMB thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 12,204,605 | 11,200,021 | +9.0% | | Cost of Sales | (8,416,055) | (7,257,830) | +16.0% | | **Gross Profit** | **3,788,550** | **3,942,191** | **-3.9%** | | Operating Profit | 1,701,681 | 1,885,753 | -9.8% | | Profit Before Income Tax | 1,541,482 | 1,795,900 | -14.2% | | **Profit for the Period** | **1,226,901** | **1,291,618** | **-5.0%** | | **Profit Attributable to Equity Holders of the Company** | **1,225,768** | **1,276,191** | **-4.0%** | | **Basic Earnings Per Share** | **RMB 1.055** | **RMB 1.098** | **-3.9%** | [Interim Condensed Consolidated Balance Sheet](index=9&type=section&id=Interim%20Condensed%20Consolidated%20Balance%20Sheet) As of June 30, 2023, total assets increased 14.3% to RMB 48.397 billion, while total liabilities rose 24.6% to RMB 28.117 billion, primarily due to a significant increase in current borrowings Balance Sheet Summary | Item | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **48,397,012** | **42,337,242** | **+14.3%** | | Non-current Assets | 13,598,908 | 14,228,720 | -4.4% | | Current Assets | 34,798,104 | 28,108,522 | +23.8% | | **Total Liabilities** | **28,116,975** | **22,561,505** | **+24.6%** | | Non-current Liabilities | 406,019 | 2,167,403 | -81.3% | | Current Liabilities | 27,710,956 | 20,394,102 | +35.9% | | **Total Equity** | **20,280,037** | **19,775,737** | **+2.6%** | - Significant increase in current assets was primarily driven by cash and bank balances, rising from **RMB 18.667 billion** at year-end to **RMB 26.750 billion**[12](index=12&type=chunk) - Increase in current liabilities mainly resulted from short-term borrowings growing from **RMB 15.029 billion** to **RMB 23.659 billion**[13](index=13&type=chunk) [Interim Condensed Consolidated Statement of Cash Flows](index=12&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) In H1 2023, net cash from operating activities was RMB 1.939 billion, while investing activities resulted in a net outflow of RMB 2.709 billion, and financing activities generated RMB 5.431 billion, leading to a net increase in cash and cash equivalents of RMB 4.661 billion Cash Flow Statement Summary (For the Six Months Ended June 30) | Item | 2023 (RMB thousands) | 2022 (RMB thousands) | | :--- | :--- | :--- | | **Net Cash Generated from Operating Activities** | **1,938,954** | **2,124,023** | | **Net Cash (Used in)/Generated from Investing Activities** | **(2,709,232)** | **3,182,282** | | **Net Cash Generated from Financing Activities** | **5,431,320** | **3,169,399** | | Net Increase in Cash and Cash Equivalents | 4,661,042 | 8,475,704 | | Cash and Cash Equivalents at Beginning of Period | 6,088,603 | 12,339,816 | | **Cash and Cash Equivalents at End of Period** | **10,793,612** | **20,888,836** | [Notes to the Interim Condensed Consolidated Financial Information](index=14&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Information) [6. Segment Information](index=24&type=section&id=6.%20SEGMENT%20INFORMATION) In H1 2023, tissue paper revenue grew 22.7% to become the largest segment, but all major business segments experienced profit declines, with tissue paper profit significantly down 98.3% due to raw material costs Revenue by Business Segment (For the Six Months Ended June 30) | Business Segment | 2023 (RMB thousands) | 2022 (RMB thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Sanitary Napkin Products | 3,219,295 | 3,128,524 | +2.9% | | Disposable Diaper Products | 665,304 | 633,512 | +5.0% | | Tissue Paper Products | 7,170,110 | 5,842,613 | +22.7% | | Others | 1,149,896 | 1,595,372 | -27.9% | | **Group Total Revenue** | **12,204,605** | **11,200,021** | **+9.0%** | Profit by Business Segment (For the Six Months Ended June 30) | Business Segment | 2023 (RMB thousands) | 2022 (RMB thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Sanitary Napkin Products | 1,149,778 | 1,330,726 | -13.6% | | Disposable Diaper Products | 30,152 | 101,566 | -70.3% | | Tissue Paper Products | 5,180 | 305,995 | -98.3% | | Others | 40,350 | 42,106 | -4.2% | [10. Dividends](index=33&type=section&id=10.%20DIVIDENDS) The Board proposed an interim dividend of RMB 0.70 per share for 2023, consistent with the prior year, totaling approximately RMB 0.813 billion, which is not yet recognized as a liability - The Board proposed an interim dividend of **RMB 0.70** per share on August 24, 2023, consistent with the same period in 2022[78](index=78&type=chunk)[79](index=79&type=chunk) - The total interim dividend amounts to approximately **RMB 813,485,000**, payable in HKD[79](index=79&type=chunk) [16. Borrowings](index=42&type=section&id=16.%20BORROWINGS) As of June 30, 2023, total borrowings increased 40.1% to RMB 23.860 billion, driven by new ultra-short-term commercial papers and increased short-term bank loans, with the average effective annual interest rate rising to 3.31% Borrowings Composition | Item | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :--- | :--- | :--- | | Non-current Borrowings | 201,251 | 2,001,334 | | Current Borrowings | 23,658,741 | 15,028,618 | | **Total** | **23,859,992** | **17,029,952** | - During H1 2023, the company issued four tranches of ultra-short-term commercial papers totaling **RMB 5.0 billion**, with coupon rates ranging from **2.39%** to **2.40%**[100](index=100&type=chunk)[101](index=101&type=chunk) - As of June 30, 2023, the Group's average effective annual interest rate on borrowings was approximately **3.31%**, an increase from **2.10%** at the end of 2022[98](index=98&type=chunk)[99](index=99&type=chunk) [Management Discussion and Analysis](index=53&type=section&id=Management%20Discussion%20and%20Analysis) [Business Review](index=53&type=section&id=BUSINESS%20REVIEW) In H1 2023, despite raw material price pressure, overall revenue grew 9.0% to RMB 12.205 billion driven by effective omnichannel sales, though high-cost wood pulp inventory led to a decline in gross margin and operating profit - Overall revenue increased by **9.0%** to approximately **RMB 12.205 billion**, with the three core business segments' revenue growing by approximately **15.1%**[131](index=131&type=chunk)[133](index=133&type=chunk) - E-commerce sales (including Retail Link and New Channels) increased by approximately **30.0%**, raising their contribution to nearly **29.0%**[134](index=134&type=chunk)[136](index=136&type=chunk) - Affected by raw material prices, the overall gross margin decreased to **31.0%** (from 35.2% in the prior period), but is expected to improve in H2[135](index=135&type=chunk)[137](index=137&type=chunk) - Profit attributable to equity holders decreased by approximately **4.0%** to **RMB 1.226 billion**, primarily due to high-cost wood pulp inventory; the Board declared an interim dividend of **RMB 0.70** per share, consistent with the prior year[138](index=138&type=chunk)[139](index=139&type=chunk)[141](index=141&type=chunk) [Segment Performance](index=55&type=section&id=Segment%20Performance) In H1 2023, all core businesses achieved revenue growth, with tissue paper leading at 22.7%, though its gross margin was pressured by high wood pulp prices, while sanitary napkins and disposable diapers also saw steady growth [Sanitary Napkin Business](index=55&type=section&id=Sanitary%20Napkin) Sanitary napkin revenue grew 2.9% to RMB 3.219 billion, driven by product upgrades and new retail channels, despite a gross margin decline to 61.8% due to rising raw material costs Sanitary Napkin Business Performance | Indicator | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Revenue | RMB 3.219 billion | RMB 3.129 billion | | Revenue Growth Rate | +2.9% | - | | Revenue Contribution | 26.4% | 27.9% | | Gross Margin | 61.8% | 65.3% | - Sales of 'Pants-style' series products increased by over **76.0%** year-over-year, serving as a key growth driver for the business[149](index=149&type=chunk) [Tissue Paper Business](index=58&type=section&id=Tissue%20Paper) Tissue paper revenue surged 22.7% to RMB 7.170 billion, accounting for 58.7% of total revenue, though gross margin declined to 17.7% due to high wood pulp costs, with improvement expected in H2 Tissue Paper Business Performance | Indicator | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Revenue | RMB 7.170 billion | RMB 5.843 billion | | Revenue Growth Rate | +22.7% | - | | Revenue Contribution | 58.7% | 52.2% | | Gross Margin | 17.7% | 23.1% | - Sales of the high-end 'Cloud Soft' series grew by over **40.0%**, accounting for more than **12.0%** of total tissue sales[158](index=158&type=chunk) - E-commerce channel sales increased by over **40.0%**, representing nearly **33.3%** of tissue sales[158](index=158&type=chunk) [Disposable Diapers Business](index=59&type=section&id=Disposable%20Diapers) Disposable diaper sales rebounded with a 5.0% increase to RMB 0.665 billion, driven by adult and high-end infant diapers, leading to a slight gross margin improvement to 36.0% Disposable Diapers Business Performance | Indicator | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Revenue | RMB 0.665 billion | RMB 0.634 billion | | Revenue Growth Rate | +5.0% | - | | Revenue Contribution | 5.5% | 5.7% | | Gross Margin | 36.0% | 35.3% | - Adult disposable diaper business recorded approximately **45.1%** growth, accounting for **29.2%** of overall disposable diaper sales[164](index=164&type=chunk) - Sales of high-end product 'Q • MO' increased by nearly **19.1%** year-over-year, representing over **35.0%** of the disposable diaper business[164](index=164&type=chunk) [E-commerce and New Retail Channel Strategies](index=63&type=section&id=E-commerce%20and%20New%20Retail%20Channel%20Strategies) In H1 2023, e-commerce channel sales grew over 30% to RMB 3.5 billion, increasing their contribution to 29.0% of total revenue, with significant impact across all core product categories - E-commerce channel sales increased by over **30.0%**, reaching approximately **RMB 3.5 billion**[184](index=184&type=chunk) - E-commerce channel sales as a percentage of the Group's total revenue increased from **24.2%** in the prior period to approximately **29.0%**[184](index=184&type=chunk) [Financial Review](index=64&type=section&id=Financial%20Review) Sales and administrative expenses rose 19.8% to 21.0% of total revenue due to increased online marketing, while operating exchange losses significantly narrowed, and the Group maintained a strong net cash position with a -23.9% net gearing ratio - Sales and administrative expenses increased by **19.8%** to **RMB 2.565 billion**, representing **21.0%** of total revenue[189](index=189&type=chunk) - The Group recorded an operating exchange loss of approximately **RMB 0.182 billion**, a significant **50.4%** reduction from **RMB 0.368 billion** in the prior period[190](index=190&type=chunk) Liquidity and Gearing Position (As of June 30, 2023) | Indicator | Amount/Ratio | | :--- | :--- | | Cash and Bank Balances | RMB 28.646 billion | | Bank and Other Borrowings | RMB 18.860 billion | | Ultra-short-term Commercial Papers | RMB 5.0 billion | | Gearing Ratio | 119.1% | | Net Gearing Ratio | -23.9% (Net Cash) | [Outlook](index=71&type=section&id=Outlook) For H2 2023, the Group anticipates improved tissue paper gross margin as high-cost wood pulp inventory is consumed, while continuing to execute core strategies of focusing on main businesses, enhancing brands, and pursuing long-term growth, alongside planned capacity expansion and diversification into health industries - The positive impact of declining wood pulp prices is expected to materialize in H2, leading to an improvement in the tissue paper business's gross margin[232](index=232&type=chunk) - The Group will adhere to three core strategies: 'Focus on Core Businesses' (tissue paper, sanitary napkins, disposable diapers), 'Brand Enhancement', and 'Long-Termism'[234](index=234&type=chunk) - Plans are in place to expand production capacity in Fujian, Xiaogan, Hunan, and Guangdong, with new capacities expected to commence operation sequentially in H2 2023[239](index=239&type=chunk)[241](index=241&type=chunk) - Long-term development goals include expanding into women's health, infant and child health, and elderly health industries, while gradually promoting brand internationalization[240](index=240&type=chunk)[242](index=242&type=chunk) [Corporate Governance and Other Information](index=74&type=section&id=Corporate%20Governance%20and%20Other%20Information) [Directors' and Major Shareholders' Interests](index=74&type=section&id=DIRECTORS%27%20INTERESTS) As of June 30, 2023, Chairman Mr. Sze Man Bok and Vice Chairman Mr. Hui Lin Chit held approximately 20.60% and 23.16% equity interests respectively, with An Ping Holdings Limited and Tin Lee Investments Limited also being major shareholders Directors' Shareholdings (As of June 30, 2023) | Director Name | Total Shares | Equity Percentage | | :--- | :--- | :--- | | Mr. Sze Man Bok | 239,399,999 | 20.60% | | Mr. Hui Lin Chit | 269,192,733 | 23.16% | | Mr. Xu Qingliu | 10,500,000 | 0.90% | [Share Option Scheme](index=78&type=section&id=SHARE%20OPTION%20SCHEME) As of June 30, 2023, there were 51,606,000 unexercised share options under the 2021 scheme, with no grants, exercises, or cancellations during the period, and 71,480,742 shares remaining available for grant - As of June 30, 2023, the total number of unexercised share options was **51,606,000**[271](index=271&type=chunk)[272](index=272&type=chunk) - For H1 2023, expenses recognized from the share option scheme amounted to **RMB 22,006,000**, with **RMB 47,178,000** remaining to be amortized in the future[276](index=276&type=chunk)

[Financial Highlights](index=1&type=section&id=Financial%20Highlights) The company reported a 9.0% revenue increase to RMB 12.2 billion in H1 2023, alongside a decline in gross margin and profitability H1 2023 Financial Highlights (Unaudited) | Metric | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | 12,204,605 | 11,200,021 | 9.0% | | Core Business Revenue (Tissue, Feminine Care, Diapers) | 11,054,709 | 9,604,649 | 15.1% | | **Gross Margin** | 31.0% | 35.2% | -4.2 p.p. | | **Operating Profit** | 1,701,681 | 1,885,753 | (9.8%) | | **Profit Attributable to Owners of the Company** | 1,225,768 | 1,276,191 | (4.0%) | | **Basic Earnings Per Share (RMB)** | 1.055 | 1.098 | (4.0%) | [Interim Financial Information](index=2&type=section&id=Interim%20Financial%20Information) This section provides detailed interim consolidated financial statements, including the income statement, balance sheet, cash flow statement, and explanatory notes [Interim Condensed Consolidated Income Statement](index=3&type=section&id=Interim%20Condensed%20Consolidated%20Income%20Statement) For the six months ended June 30, 2023, group revenue grew 9.0% to RMB 12.2 billion, but gross profit declined 3.9% to RMB 3.79 billion due to increased cost of sales, leading to a 9.8% decrease in operating profit and a 4.0% decrease in profit attributable to owners Summary of Interim Condensed Consolidated Income Statement | Item | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | Change | | :--- | :--- | :--- | :--- | | Revenue | 12,204,605 | 11,200,021 | +9.0% | | Gross Profit | 3,788,550 | 3,942,191 | -3.9% | | Operating Profit | 1,701,681 | 1,885,753 | -9.8% | | Profit Before Income Tax | 1,541,482 | 1,795,900 | -14.2% | | Profit Attributable to Owners of the Company | 1,225,768 | 1,276,191 | -4.0% | [Interim Condensed Consolidated Balance Sheet](index=5&type=section&id=Interim%20Condensed%20Consolidated%20Balance%20Sheet) As of June 30, 2023, total assets increased 14.3% to RMB 48.4 billion, total liabilities rose 24.6% to RMB 28.12 billion primarily due to a significant increase in short-term borrowings, and total equity slightly increased 2.6% to RMB 20.28 billion Summary of Balance Sheet | Item | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | 48,397,012 | 42,337,242 | +14.3% | | Current Assets | 34,798,104 | 28,108,522 | +23.8% | | Non-current Assets | 13,598,908 | 14,228,720 | -4.4% | | **Total Liabilities** | 28,116,975 | 22,561,505 | +24.6% | | Current Liabilities | 27,710,956 | 20,394,102 | +35.9% | | Non-current Liabilities | 406,019 | 2,167,403 | -81.3% | | **Total Equity** | 20,280,037 | 19,775,737 | +2.6% | [Interim Condensed Consolidated Cash Flow Statement](index=8&type=section&id=Interim%20Condensed%20Consolidated%20Cash%20Flow%20Statement) In H1 2023, net cash from operating activities decreased 8.7% to RMB 1.94 billion, net cash used in investing activities was RMB 2.71 billion (compared to net inflow last year), and net cash from financing activities was RMB 5.43 billion, resulting in a net increase in cash and cash equivalents of RMB 4.66 billion to RMB 10.79 billion Summary of Cash Flow Statement | Item | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :--- | :--- | :--- | | Net Cash Generated from Operating Activities | 1,938,954 | 2,124,023 | | Net Cash (Used in) / Generated from Investing Activities | (2,709,232) | 3,182,282 | | Net Cash Generated from Financing Activities | 5,431,320 | 3,169,399 | | Net Increase in Cash and Cash Equivalents | 4,661,042 | 8,475,704 | [Notes to the Interim Condensed Consolidated Financial Information](index=9&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Information) These notes detail the basis of preparation, accounting policies, segment information, revenue and expense breakdowns, and balance sheet items, highlighting that tissue products are the primary revenue source (58.7%), short-term borrowings significantly increased, and an interim dividend of RMB 0.70 per share is proposed [Segment Information](index=16&type=section&id=Segment%20Information) The group operates in four segments: feminine care, disposable diapers, tissue, and others; in H1 2023, tissue products were the largest revenue contributor at 58.7% (22.7% growth), feminine care accounted for 26.4% (2.9% growth), and disposable diapers 5.5% (5.0% growth), with feminine care generating the highest segment profit of RMB 1.15 billion H1 2023 Segment Revenue and Profit (RMB thousands) | Segment | Revenue | % of Total | Segment Profit | | :--- | :--- | :--- | :--- | | Feminine Care Products | 3,219,295 | 26.4% | 1,149,778 | | Disposable Diaper Products | 665,304 | 5.5% | 30,152 | | Tissue Products | 7,170,110 | 58.7% | 5,180 | | Others | 1,149,896 | 9.4% | 40,350 | [Dividends](index=21&type=section&id=Dividends) The Board recommends an interim dividend of RMB 0.70 per share for the six months ended June 30, 2023, consistent with the prior year, totaling approximately RMB 813.49 million - The Board recommends an interim dividend of **RMB 0.70 per share**, consistent with H1 2022, with a total dividend amount of approximately **RMB 813 million**[60](index=60&type=chunk) [Borrowings](index=26&type=section&id=Borrowings) As of June 30, 2023, total group borrowings significantly increased to RMB 23.86 billion from RMB 17.03 billion at year-end 2022, with short-term borrowings (including super short-term commercial papers) accounting for the majority at RMB 23.66 billion, and the average annual borrowing interest rate was approximately 3.31% Borrowing Structure (RMB thousands) | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Long-term Borrowings | 201,251 | 2,001,334 | | Short-term Borrowings | 23,658,741 | 15,028,618 | | **Total** | **23,859,992** | **17,029,952** | - In H1 2023, the company issued four tranches of super short-term commercial papers totaling **RMB 5 billion**, with interest rates ranging from **2.39% to 2.40%**[75](index=75&type=chunk) [Business Overview and Management Discussion](index=33&type=section&id=Business%20Overview%20and%20Management%20Discussion) This section provides an overview of the group's business performance, segment-specific results, e-commerce developments, financial position, corporate social responsibility initiatives, and future strategic outlook [Overall Business Review](index=33&type=section&id=Overall%20Business%20Review) In H1 2023, overall group revenue grew 9.0%, with core business revenue (tissue, feminine care, diapers) up 15.1%; however, gross margin declined to 31.0% due to high-cost raw material inventory, while e-commerce sales increased by approximately 30% to nearly 29.0% of total sales, and profit attributable to owners decreased 4.0% to RMB 1.23 billion - The group's three core businesses (tissue, feminine care, and diapers) maintained strong revenue growth in H1, increasing by approximately **15.1% year-on-year**[97](index=97&type=chunk) - E-commerce sales (including Retail Link and New Channels) further increased to nearly **29.0% of total sales**, growing by approximately **30.0% year-on-year**[97](index=97&type=chunk) - Overall gross margin declined to approximately **31.0%** (35.2% in the prior year) due to high-cost wood pulp inventory, but is expected to improve in H2[98](index=98&type=chunk) [Segment Business Performance](index=35&type=section&id=Segment%20Business%20Performance) All core businesses recorded sales growth, with tissue products revenue significantly up 22.7% but under gross margin pressure, feminine care revenue up 2.9% with declining gross margin due to raw material costs, and diaper products revenue rebounding with 5.0% growth, driven by strong adult diaper sales and improved gross margin [Feminine Care Business](index=35&type=section&id=Feminine%20Care%20Business) Feminine care sales revenue increased 2.9% year-on-year to RMB 3.22 billion, driven by product upgrades and new channel expansion despite intense market competition, with "Pants-style" products growing over 76.0%, though gross margin decreased 3.5 percentage points to 61.8% due to rising raw material prices Feminine Care Business Performance | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Sales Revenue (RMB thousands) | 3,219,295 | 3,128,524 | | Growth Rate | +2.9% | - | | Gross Margin | 61.8% | 65.3% | - "Pants-style" series products showed significant growth potential, increasing by over **76.0% year-on-year** during the period[100](index=100&type=chunk) [Tissue Business](index=37&type=section&id=Tissue%20Business) Tissue business sales revenue significantly increased 22.7% to RMB 7.17 billion, driven by stable pricing and omni-channel sales, with high-end "Cloud Soft" series sales growing over 40%; however, gross margin declined to 17.7% due to high-cost wood pulp inventory but is expected to improve in H2, and e-commerce channel sales grew over 40% Tissue Business Performance | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Sales Revenue (RMB thousands) | 7,170,110 | 5,842,612 | | Growth Rate | +22.7% | - | | Gross Margin | 17.7% | 23.1% | - Sales of the high-end "Cloud Soft" series recorded over **40.0% growth**, accounting for over **12.0% of total tissue sales**[101](index=101&type=chunk) - Tissue business sales through e-commerce channels grew over **40.0%**, representing approximately **33.3% of tissue sales**[101](index=101&type=chunk) [Diaper Business](index=38&type=section&id=Diaper%20Business) Diaper business sales rebounded with a 5.0% year-on-year increase to RMB 665 million, driven by nearly 19.1% growth in high-end "Q • MO" products (over 35% of sales) and strong adult diaper sales (nearly 45.1% increase), leading to an improved gross margin of 36.0% due to a higher proportion of high-margin products Diaper Business Performance | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Sales Revenue (RMB thousands) | 665,304 | 633,513 | | Growth Rate | +5.0% | - | | Gross Margin | 36.0% | 35.3% | - Sales of high-end "Q • MO" products increased by approximately **19.1% year-on-year**, with their proportion rising to over **35.0%**[103](index=103&type=chunk) - Adult diaper business recorded an increase of approximately **45.1%**, accounting for about **29.2%** of the segment[103](index=103&type=chunk) [Other Revenue and Household Products Business](index=40&type=section&id=Other%20Revenue%20and%20Household%20Products%20Business) Other revenue decreased 27.9% year-on-year to RMB 1.15 billion, primarily due to a significant 34.7% decline in raw material trading business revenue, while household products revenue also fell 26.1%, and sales of medical-related products significantly decreased due to reduced demand post-pandemic - Other revenue decreased by approximately **27.9% year-on-year**, primarily due to a significant decline of approximately **34.7%** in raw material trading business revenue to approximately **RMB 580 million**[105](index=105&type=chunk) [E-commerce and New Retail Channels](index=41&type=section&id=E-commerce%20and%20New%20Retail%20Channels) The group's e-commerce and new retail channels maintained strong momentum in H1 2023, with sales revenue growing over 30.0% to more than RMB 3.5 billion, increasing their contribution to overall group sales to approximately 29.0%, and new retail channels now contribute over 30%, 20%, and 50% to tissue, feminine care, and diaper sales, respectively E-commerce Channel Performance | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Sales Revenue (RMB) | Over approximately 3.5 billion | Approximately 2.7 billion | | Growth Rate | Over 30.0% | - | | % of Total Group Sales | Approximately 29.0% | 24.2% | [Financial Position Analysis](index=42&type=section&id=Financial%20Position%20Analysis) The group's financial position remains robust, with sales and administrative expenses increasing 19.8% due to higher online marketing investment, and operating exchange losses from RMB depreciation narrowed significantly to approximately RMB 182 million, maintaining a net cash position with a net debt-to-equity ratio of negative 23.9% [Liquidity, Financial Resources and Bank Borrowings](index=42&type=section&id=Liquidity%2C%20Financial%20Resources%20and%20Bank%20Borrowings) As of June 30, 2023, the group held approximately RMB 28.65 billion in cash and bank deposits, with the debt-to-equity ratio increasing to 119.1% from 87.2% at year-end, and a net debt-to-equity ratio of negative 23.9% indicating a net cash position, while RMB 5 billion in super short-term commercial papers were issued during the period Financial Ratios | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Debt-to-Equity Ratio | 119.1% | 87.2% | | Net Debt-to-Equity Ratio | -23.9% | -23.2% | - From February to May 2023, the group completed the issuance of four tranches of super short-term commercial papers totaling **RMB 5 billion**, with coupon rates ranging from **2.39% to 2.4%**[113](index=113&type=chunk) [Corporate Social Responsibility](index=45&type=section&id=Corporate%20Social%20Responsibility) The group continues to advance sustainable development, improving its FTSE Russell ESG rating to 3.1 and being included in S&P Global's "Sustainability Yearbook 2023 (China Edition)," actively fulfilling social responsibilities across innovation, philanthropy, low-carbon environmental protection, employee development, and health and safety - The group's FTSE Russell ESG rating improved to **3.1 points**, leading to its inclusion in the FTSE4Good Index[117](index=117&type=chunk) - The group joined the Green Recycled Plastic Supply Chain Joint Working Group (GRPG) as Vice Chairman to promote plastic source reduction, and all six of its paper manufacturing companies obtained **FSC/CoC certification**[120](index=120&type=chunk) [Future Outlook](index=48&type=section&id=Future%20Outlook) Looking ahead to H2, the group anticipates improved gross margins for tissue products due to falling wood pulp prices, and will continue its core strategies of "focusing on main business," "enhancing brand," and "long-termism," concentrating on tissue, feminine care, and diaper businesses, while further elevating brand image, accelerating product premiumization, and planning capacity expansion in Fujian, Xiaogan, and Hunan to solidify market leadership - The positive impact of declining wood pulp prices is expected to be reflected in tissue business costs in H2, leading to an improvement in gross margin[125](index=125&type=chunk) - The group will continue to implement three core strategies: "Focusing on Main Business," "Enhancing Brand," and "Long-termism"[125](index=125&type=chunk) - Plans are underway to expand production capacity in regions including Fujian, Xiaogan, Hunan, and Yunfu, Guangdong, with some new capacity expected to commence operations in H2 2023[126](index=126&type=chunk) [Other Company Information](index=50&type=section&id=Other%20Company%20Information) This section provides details on the interim dividend declaration and updates regarding the company's corporate governance practices [Interim Dividend and Closure of Register of Members](index=50&type=section&id=Interim%20Dividend%20and%20Closure%20of%20Register%20of%20Members) The Board announced an interim dividend of RMB 0.70 per share, consistent with the prior year, payable on October 12, 2023, to shareholders on record as of September 22, 2023 - An interim dividend of **RMB 0.70 per share** has been declared, consistent with H1 2022[127](index=127&type=chunk) [Corporate Governance](index=51&type=section&id=Corporate%20Governance) The group is committed to high corporate governance standards, complying with all applicable Code on Corporate Governance provisions during the period, except for two independent non-executive directors' absence from the AGM and one executive director's inadvertent purchase of company shares during a blackout period, violating the Model Code - Executive Director Mr. Xu Qingliu inadvertently purchased **100,000 company shares** on March 22, 2023, during a director dealing blackout period, violating the Model Code[130](index=130&type=chunk)

Financial Performance - In 2022, the company's revenue reached RMB 22,615.9 million, an increase from RMB 20,790.1 million in 2021, representing a growth of approximately 8.8%[11] - The net profit attributable to equity holders of the company for 2022 was RMB 1,925.2 million, down from RMB 3,273.6 million in 2021, reflecting a decrease of about 41.2%[11] - The basic earnings per share for 2022 was RMB 1.657, compared to RMB 2.786 in 2021, indicating a decline of approximately 40.5%[11] - The gross profit margin decreased to 8.5% in 2022 from 15.7% in 2021, showing a significant drop of 7.2 percentage points[8] - The overall gross profit decreased by approximately 1.1% to about RMB 7,689,499,000, with the gross profit margin dropping to approximately 34.0% from 37.4% in 2021[36] - Operating profit fell by approximately 36.9% to about RMB 2,869,154,000, influenced by significant foreign exchange losses of approximately RMB 912,865,000[36] - Profit attributable to equity holders decreased by approximately 41.2% to RMB 1,925,249,000, with basic earnings per share at approximately RMB 1.657, down from RMB 2.786 in 2021[36] Revenue Breakdown - The group's revenue for the year ended December 31, 2022, was approximately RMB 22,615,878,000, an increase of 8.8% compared to RMB 20,790,144,000 in 2021[26] - E-commerce sales accounted for approximately 26.9% of total sales, while other new retail channels exceeded 13.0% of total sales[27] - The adult incontinence product sales continued to show strong growth, accounting for about 23.7% of total diaper sales[28] - Sales revenue from the sanitary napkin business increased by approximately 0.7% to about RMB 6,156,060,000, accounting for approximately 27.2% of total revenue[39] - In 2022, tissue sales revenue increased by approximately 24.4% to about RMB 12,248,011,000, accounting for 54.2% of total revenue[43] - The disposable diaper products segment reported revenue of RMB 1,202,347,000, down from RMB 1,219,445,000 in the previous year[1] - Revenue from the China region accounted for 91.8% of total revenue, with RMB 20,785,192,000 in 2022 compared to RMB 19,871,284,000 in 2021[2] Dividends and Reserves - The board proposed a final dividend of RMB 0.70 per share, maintaining the same level as the previous year, resulting in a total annual dividend of RMB 1.40 per share, down from RMB 1.70 in 2021[26] - The group's distributable reserves increased to RMB 8,847,043,000 in 2022 from RMB 7,581,252,000 in 2021[4] - The board declared an interim dividend of RMB 0.70 per share, down from RMB 1.00 per share in the previous year, totaling RMB 813,485,000[3] Debt and Financial Position - The company's debt ratio improved to 87.2% in 2022 from 95.7% in 2021, indicating a reduction in financial leverage[8] - The company's bank loans and other borrowings amounted to approximately RMB 17.03 billion, down from RMB 18.23 billion a year earlier[61] - The net debt ratio was approximately -23.2% as of December 31, 2022, compared to -21.3% a year prior, indicating a net cash position[63] Market Strategy and Product Development - The company plans to focus on expanding its product lines, including new personal care and hygiene products, to enhance market presence[18] - The company aims to strengthen its brand image and corporate culture to align with consumer and market demands[3] - The company is committed to developing high-end products and optimizing its product mix to improve market share and brand reputation[28] - The company plans to maintain stable pricing strategies while enhancing product upgrades and high-end offerings to capture market share[38] - The company aims to enhance its all-channel sales capabilities and strengthen its competitive advantages to capture growth opportunities from domestic consumption upgrades[29] Sustainability and Corporate Social Responsibility - The company is focused on sustainable development and has improved its ESG rating from B to BB, surpassing 78% of its peers in sustainability assessments[67] - The company is committed to innovation, developing eco-friendly products, and has established a comprehensive R&D system to meet consumer demands for green products[70] - In 2022, the company donated RMB 520,000 worth of hygiene products to earthquake-affected areas and invested RMB 1.73 million in women's health and education initiatives[71] - The company achieved a paper water reuse rate of over 99%, with a water consumption of 5.6 tons per ton of paper, well below the national standard limit[72] Management and Governance - The company has a strong focus on risk management and internal auditing, led by the Chief Risk Officer with over 34 years of experience in management and marketing[108] - The board consists of 15 directors, including 10 executive directors and 5 independent non-executive directors, ensuring a balance of expertise and governance[115] - The company has established an ISO 45001 occupational health and safety management system and has not reported any work-related fatalities in 2022, with an occupational disease incidence rate of 0[77] - The company has adopted a board diversity policy, with a current composition of 15 directors, including five independent non-executive directors[126] Employee and Community Engagement - As of the end of 2022, the company had approximately 23,000 employees, with a female employee ratio of 58%, and a total training hours exceeding 260,000[75] - The company is actively involved in charitable activities and community service, reflecting its corporate social responsibility initiatives[93] Future Outlook - The outlook for 2023 anticipates a gradual release of consumer demand and steady economic recovery in China, with a focus on high-end strategies for future development[28] - The company plans to expand production capacity and upgrade technology, including establishing a new base for sanitary napkins, diapers, and wet wipes in Fujian, with new capacity expected to be operational in 2024[81]

香港交易及結算所有限公司及香港聯合交易所有限公司對本公告的內容概不負責，對其準確性或完整性亦 不發表任何聲明，並明確表示，概不對因本公告全部或任何部份內容而產生或因倚賴該等內容而引致的任 何損失承擔任何責任。 （於開曼群島註冊成立的有限公司） （股份代號：1044） 網址： http://www.hengan.com http://www.irasia.com/listco/hk/hengan 二零二二年年度業績公告 『追求健康，你我一起成長』 二零二二年年度業績財務摘要 二零二二年 二零二一年 變動 人民幣千元 人民幣千元 % 收入 22,615,878 20,790,144 8.8% 毛利率(%) 34.0% 37.4% 經營利潤 2,869,154 4,543,591 –36.9% 公司權益持有人應佔利潤 1,925,249 3,273,601 –41.2% 扣除： 營運滙兌（損失）╱收益 — 稅後淨額 (901,210) 113,581 –893.5% 公司權益持有人應佔利潤 （扣除營運滙兌（損失）╱收益 — 稅後淨額） 2,826,459 3,160,020 –10.6% ...

Financial Performance - Revenue for the six months ended June 30, 2022, was RMB 11,200,021 thousand, representing a 12.3% increase from RMB 9,973,914 thousand in the same period of 2021[10]. - Gross profit margin decreased to 35.2% from 39.4% year-on-year[10]. - Operating profit for the period was RMB 1,885,753 thousand, a decline of 25.8% compared to RMB 2,540,583 thousand in the previous year[10]. - Profit attributable to equity holders of the company was RMB 1,276,191 thousand, down 31.4% from RMB 1,860,292 thousand in 2021[10]. - Basic and diluted earnings per share were both RMB 1.098, compared to RMB 1.574 in the same period last year[15]. - Total comprehensive income for the period was RMB 1,421,524 thousand, compared to RMB 1,851,142 thousand in the same period of 2021[17]. - The company reported a profit of RMB 1,860,292 thousand for the period, contributing to a total comprehensive income of RMB 1,848,610 thousand[20]. - The profit before tax for the six months ended June 30, 2022, was RMB 1,276,191,000, a decrease of 31.3% compared to RMB 1,860,292,000 in 2021[49]. - The net profit for the period was RMB 1,291,618 thousand, down from RMB 1,868,550 thousand in 2021, reflecting a decrease of approximately 30.8%[146]. Assets and Liabilities - Total assets as of June 30, 2022, reached RMB 47,051,156 thousand, an increase from RMB 42,292,748 thousand as of December 31, 2021, representing a growth of approximately 16.5%[18]. - Total liabilities as of June 30, 2022, were RMB 27,139,675 thousand, up from RMB 23,012,298 thousand at the end of 2021, representing an increase of approximately 17.5%[173]. - Total equity as of June 30, 2022, was RMB 19,911,481 thousand, up from RMB 19,280,450 thousand, reflecting an increase of approximately 3.3%[19]. - Non-current liabilities increased to RMB 2,310,543 thousand from RMB 974,818 thousand, showing a significant rise of approximately 136.5%[19]. - Current liabilities totaled RMB 24,829,132 thousand, compared to RMB 22,037,480 thousand, representing an increase of about 12.7%[19]. - The group reported a total liability of RMB 27,139,675 thousand as of June 30, 2022, compared to RMB 23,012,298 thousand as of December 31, 2021[43][44]. Cash Flow and Investments - Operating cash flow for the six months ended June 30, 2022, was RMB 2,684,847 thousand, compared to RMB 2,742,104 thousand in 2021, reflecting a decrease of 2.1%[21]. - Net cash generated from operating activities was RMB 2,124,023 thousand, down from RMB 2,214,898 thousand in the previous year, indicating a decline of 4.1%[21]. - Net cash from investing activities increased significantly to RMB 3,182,282 thousand from RMB 2,727,007 thousand, representing an increase of 16.7%[21]. - Cash and cash equivalents increased by RMB 8,475,704 thousand, compared to an increase of RMB 5,800,881 thousand in the same period last year, showing a growth of 46.1%[21]. - The company reported a net cash inflow from financing activities of RMB 3,169,399 thousand, a significant increase from RMB 858,976 thousand in the previous year[21]. - The total cash and bank deposits as of June 30, 2022, reached RMB 27,693,330,000, compared to RMB 22,282,950,000 as of December 31, 2021, marking an increase of about 24.5%[59]. Market and Business Strategy - The company aims to enhance its brand image and establish itself as a top-tier international fast-moving consumer goods manufacturer and distributor[2]. - The company is focused on expanding its market presence in China and certain overseas markets, particularly in the personal hygiene products sector[23]. - The company plans to continue developing women's health care products beyond sanitary napkins and explore opportunities to sell its products in overseas markets[84]. - The company aims to expand its market share and enhance the proportion of upgraded products in response to consumer demand for high-quality and diversified products[83]. - The company will focus on expanding production capacity and upgrading technology, including establishing a new base for sanitary napkins, diapers, and wet wipes in Fujian[109]. - The company is committed to long-term development strategies, including improving supply chain efficiency and cloud-based SAP system implementation[109]. Employee and Corporate Governance - The remuneration for key management personnel for the six months ended June 30, 2022, was approximately RMB 18,371,000, an increase from RMB 7,349,000 in the previous year[79]. - The group employed approximately 23,000 employees as of June 30, 2022, with a female employee ratio of about 58.84%[101]. - The total training hours for employees exceeded 144,400 hours during the first half of 2022, with 56 individuals promoted to management positions[106]. - The company confirmed compliance with the corporate governance code as per the listing rules[129]. Risk Management - The group continues to face various financial risks, including market risk, credit risk, and liquidity risk, with no changes in risk management policies since the end of last year[30]. - The company’s liquidity risk management showed no significant changes in the cash flows of financial liabilities compared to the end of the previous year[32]. - The estimated financial risks include market risk, credit risk, and liquidity risk, with no changes in risk management policies since the end of last year[159]. Shareholder Information - Major shareholders include Tianli Investment Limited with a 20.52% stake and Anping Holdings Limited with a 23.14% stake[116]. - Credit Suisse Trust Limited holds 47.57% of the company's shares as a trustee for various family trusts[116]. - The company declared an interim dividend of RMB 0.70 per share, a decrease from RMB 1.00 per share in 2021, totaling RMB 813,485,000[51]. Environmental and Social Responsibility - The group received the "Best Environmental, Social and Corporate Governance (ESG)" award from Institutional Investor, reflecting its commitment to ESG management[102]. - The group plans to develop a sustainable plastic platform focusing on reduction, recycling, reuse (3R), and biodegradability (1D) as part of its innovation center's goals[100]. - The group donated essential supplies and cash totaling RMB 35.61 million for charity and pandemic control, including RMB 15 million in supplies and RMB 5 million in cash to the Quanzhou Red Cross[104].

Financial Performance - The company's revenue for 2021 was RMB 20,790,144,000, a decrease of 7.1% from RMB 22,374,001,000 in 2020[47]. - The net profit attributable to equity holders was RMB 3,273,601,000, down 28.7% from RMB 4,594,815,000 in 2020[47]. - The basic earnings per share for 2021 was RMB 2.786, compared to RMB 3.864 in 2020, reflecting a decline of 27.9%[47]. - The company's gross profit margin decreased to 15.7% in 2021 from 20.5% in 2020[43]. - The overall gross profit decreased by about 17.8% to approximately RMB 7,772,318,000, with a gross profit margin dropping to 37.4% from 42.3%[72]. - Operating profit fell by approximately 28.9% to about RMB 4,543,591,000, down from RMB 6,392,388,000 in the previous year[75]. - The group reported a total segment profit of RMB 3,256,440,000 in 2021, down 29.9% from RMB 4,642,160,000 in 2020[152]. Assets and Liabilities - Total assets as of December 31, 2021, were RMB 42,292,748,000, down from RMB 44,440,925,000 in 2020[51]. - The company's total liabilities decreased to RMB 23,012,298,000 in 2021 from RMB 24,779,451,000 in 2020, a reduction of 7.1%[51]. - The current ratio for 2021 was 1.2, down from 1.4 in 2020, indicating a decline in short-term liquidity[43]. - The company reported a net debt ratio of -21.3% in 2021, compared to -16.1% in 2020, indicating a stronger financial position[43]. Revenue Breakdown - The revenue for the personal hygiene products segment in 2021 was RMB 20,790,144,000, a decrease of 7.1% from RMB 22,374,001,000 in 2020[152]. - The revenue from sanitary napkin products was RMB 6,116,530,000 in 2021, down from RMB 6,654,711,000 in 2020, representing a decline of 8.1%[152]. - The revenue from disposable diapers was RMB 1,219,445,000 in 2021, a decrease of 14.5% compared to RMB 1,425,567,000 in 2020[152]. - The revenue from tissue products was RMB 9,842,429,000 in 2021, down 5.2% from RMB 10,382,758,000 in 2020[152]. - The revenue from other products was RMB 3,611,740,000 in 2021, a decrease of 7.7% from RMB 3,910,965,000 in 2020[152]. Dividend and Shareholder Returns - The board proposed a final dividend of RMB 0.70 per share, down from RMB 1.30 in 2020, resulting in a total annual dividend of RMB 1.70 per share compared to RMB 2.50 in the previous year[63]. - The company declared an interim dividend of RMB 1.00 per share, down from RMB 1.20 per share in 2020, totaling RMB 1,175,121,000[154]. - The proposed final dividend is RMB 0.70 per share, down from RMB 1.30 per share in 2020, totaling RMB 813,485,000[154]. - The company aims to maintain a dividend payout ratio of 60% when declaring dividends to shareholders[142]. Strategic Initiatives - The company aims to enhance its brand image and build a high-quality workforce to become a top international household products enterprise[6]. - The company continues to focus on innovation and expanding its product range, including household paper products and cleaning supplies[53]. - The group plans to continue focusing on high-end product strategies, aiming to increase the contribution of high-end products to overall revenue[64]. - The group aims to enhance its brand value and market share both domestically and internationally, with a strategic goal of becoming a top-tier household products company[64]. - The group plans to continue developing high-end products, with the "Space 7" series gaining popularity and contributing to market share growth[77]. Market and Sales Channels - E-commerce sales accounted for approximately 23.1% of total sales, while other new sales channels exceeded 10.0% of total sales[63]. - E-commerce sales accounted for approximately 23.1% of total sales, up from 19.1% in the previous year, with new sales channels exceeding 10% of total sales[72]. - The market penetration rate for adult incontinence products is still significantly lower than in developed countries, indicating substantial growth potential in this segment[63]. - The group aims to expand new retail channels and develop specialized products for these channels to support long-term growth and maintain market leadership[77]. Employee and Corporate Governance - The company employed approximately 23,000 employees as of December 31, 2021, and implemented a performance-linked compensation system to enhance employee motivation and efficiency[98]. - The company has established a management academy to provide comprehensive training and career advancement opportunities for its employees[104]. - The company has a strong commitment to corporate governance, adhering to the guidelines set by the Hong Kong Stock Exchange, which enhances transparency and accountability[114]. - The board consists of 15 members, including 5 independent non-executive directors, ensuring a diverse composition[122]. Sustainability and Social Responsibility - The company is committed to developing green products and sustainable production technologies to meet consumer demands for environmentally friendly products[97]. - The company achieved a greenhouse gas emission intensity of 0.65 tons of CO2 equivalent per 10,000 yuan in sales in 2021, significantly lower than industry standards[103]. - In 2021, the company donated a total of 10 million yuan in response to the severe flooding in Henan, providing sanitary products and other supplies[100]. - The management team emphasized the importance of sustainability initiatives, aiming for a 40% reduction in carbon emissions by 2025[111]. Risk Management - The risk management framework ensures that risks across different business units are effectively controlled within the group's risk appetite[139]. - The internal audit department conducted a review of internal control procedures and provided recommendations for improvement during the year[138]. - The company emphasizes risk management and internal controls, with the board regularly reviewing these processes to align with business objectives[115].

Financial Performance - Revenue for the six months ended June 30, 2021, was RMB 9,973,914 thousand, a decrease of 8.7% compared to RMB 10,927,862 thousand in 2020[8]. - Gross profit margin decreased to 39.4% from 44.1% in the previous year[8]. - Operating profit for the period was RMB 2,540,583 thousand, down 20.2% from RMB 3,185,111 thousand in 2020[8]. - Profit attributable to equity holders of the company was RMB 1,860,292 thousand, a decline of 17.7% compared to RMB 2,259,528 thousand in the same period last year[8]. - Basic and diluted earnings per share were RMB 1.574, down from RMB 1.899 in 2020[11]. - Total comprehensive income for the period was RMB 1,851,142 thousand, compared to RMB 2,259,482 thousand in the previous year[12]. - The company reported a decrease in annualized return on equity to 19.2% from 24.2% in the previous year[128]. - The total revenue for the six months ended June 30, 2021, was RMB 1,860,292 thousand, compared to RMB 2,259,528 thousand for the same period in 2020, representing a decrease of approximately 17.6%[135]. - The overall gross profit dropped by approximately 18.4% to about RMB 3,930,671,000, with a gross profit margin declining to approximately 39.4% from 44.1% in the previous year[197]. - Operating profit fell by approximately 20.2% to about RMB 2,540,583,000, while profit attributable to equity holders decreased by approximately 17.7% to RMB 1,860,292,000[197]. Assets and Liabilities - Total assets as of June 30, 2021, amounted to RMB 46,848,146 thousand, an increase from RMB 44,440,925 thousand at the end of 2020[13]. - The company's total liabilities increased to RMB 27,249,770 thousand from RMB 24,779,451 thousand, indicating a rise of approximately 10%[14]. - The total financial liabilities as of June 30, 2021, were RMB 26,328,339 thousand, compared to RMB 23,753,647 thousand as of December 31, 2020, indicating an increase[27]. - The group’s borrowings as of June 30, 2021, were RMB 23,713,581 thousand, compared to RMB 20,837,362 thousand at the end of 2020, indicating a rise of about 13.5%[147][152]. - The total amount of accounts payable and notes payable aged within 30 days was RMB 769,928,000 as of June 30, 2021, compared to RMB 1,209,694,000 as of December 31, 2020, indicating a decrease of approximately 36%[60]. Cash Flow - Net cash generated from operating activities for the six months ended June 30, 2021, was RMB 2,214,898 thousand, down from RMB 2,915,482 thousand in the same period of 2020, representing a decrease of about 24%[16]. - The net cash used in investing activities was RMB 2,727,007 thousand for the first half of 2021, a significant improvement compared to a net cash outflow of RMB 4,108,873 thousand in the same period of 2020[136]. - Cash and cash equivalents as of June 30, 2021, totaled RMB 17,377,234 thousand, an increase from RMB 13,832,944 thousand at the end of the previous year[16]. - Cash and bank deposits increased to RMB 23,347,392 thousand from RMB 20,483,739 thousand at the end of 2020[13]. - Total cash and bank deposits reached RMB 27,284,746,000 as of June 30, 2021, up from RMB 23,970,698,000 as of December 31, 2020, reflecting a growth of approximately 13.0%[176]. Dividends and Shareholder Returns - The company declared a final dividend of RMB 1,530,799 thousand for the previous year, which was paid during the current period[15]. - The company proposed an interim dividend of RMB 1.00 per share, down from RMB 1.20 per share in the previous year, totaling RMB 1,175,121 thousand[47]. - The company plans to continue its strategy of enhancing shareholder value through share repurchases and dividends[112]. - The company repurchased a total of 8,800,000 ordinary shares at a total cost of approximately HKD 452,354,000 during the six months ended June 30, 2021[112]. Market and Product Performance - The group generated revenue of RMB 3,029,970 thousand from sanitary napkin products, contributing a profit of RMB 1,447,375 thousand[38]. - Disposable diaper products generated revenue of RMB 619,668 thousand, with a profit of RMB 97,856 thousand[38]. - The sales revenue from the sanitary napkin business recorded a decline of about 6.0% to approximately RMB 3,029,970,000, accounting for nearly 30.4% of the group's total revenue[78]. - The group’s revenue from tissue products was RMB 4,696,522 thousand, contributing significantly to overall performance[158]. - The group plans to continue developing high-end products, with the new product "Space 7" expected to become a major growth driver in the sanitary napkin market[199]. Strategic Initiatives - The company aims to enhance its brand image and establish itself as a leading fast-moving consumer goods producer and distributor in China[6]. - The group is actively researching opportunities to expand its sanitary napkin products into overseas markets as part of its growth strategy[79]. - The group plans to continue developing various household products to meet market demand and enhance competitiveness[84]. - The group aims to leverage new retail channels and digital economy trends to increase market share in e-commerce and new retail sectors[86]. - The group plans to increase the proportion of high-end products in its portfolio to maintain its market leadership amid intensified competition from international brands[79]. Risk Management - The group reported a liquidity risk with no significant changes in the contractual undiscounted cash flows of financial liabilities compared to the end of the previous year[25]. - The group has identified various financial risks, including market risk, credit risk, and liquidity risk, which are inherent in its operations[144]. - The financial risk management policies of the group have remained unchanged since the end of last year[144]. Sustainability and Corporate Governance - The group is committed to developing green products and sustainable production technologies to meet consumer demands for environmentally friendly products[92]. - All production facilities have obtained ISO 14001 environmental management system certification, demonstrating the group's commitment to sustainable development[95]. - The company has complied with all applicable provisions of the Corporate Governance Code as per the Stock Exchange's listing rules during the six months ended June 30, 2021[120].