Business Performance and Growth - In 2021, Zhou Hei Ya achieved substantial growth despite the challenges posed by the COVID-19 pandemic, with a focus on strengthening core capabilities and operational efficiency[15]. - The company accelerated the integration of online and offline operations to stabilize the market and sustain development[15]. - Zhou Hei Ya aims to enhance product appeal and operational efficiency to adapt to the new market environment[15]. - The Group's efforts resulted in win-win outcomes, demonstrating resilience in a challenging market[15]. - Zhou Hei Ya achieved steady growth in 2021 despite economic downturn and weak consumer spending, demonstrating strong anti-risk capability and resilience[17]. - The company plans to continue expanding the integration of franchise and self-operation businesses while accelerating product innovation in 2022[21]. - The Group's franchise business developed beyond expectations, contributing significantly to the overall growth despite the pandemic's challenges[39][42]. - The Group's revenue from Southern China was RMB 403,319,000, accounting for 18.0% of total revenue, a decrease from 19.5% in 2020[37]. - The Group's Internet O&O business revenue grew approximately 23.5% year-on-year, accounting for about 32.0% of total revenue in 2021[51][54]. Financial Highlights - The total revenue for 2021 was RMB 2,234,859,000, representing a 37.9% increase from RMB 1,620,792,000 in 2020[37]. - The Group's total revenue increased by 31.6% from RMB2,181.5 million in 2020 to RMB2,870.0 million in 2021, driven by improved operations and a recovery in consumer demand[72]. - Profit before tax reached RMB450.99 million, a significant increase of 125.4% compared to RMB200.06 million in 2020[74]. - The total comprehensive income for the year was RMB319.71 million, representing a 253.5% increase from RMB90.44 million in 2020[74]. - Basic and diluted earnings per share increased to RMB0.15, up 114.3% from RMB0.07 in the previous year[74]. - Net profit increased by 126.5% from RMB151.2 million in 2020 to RMB342.4 million in 2021, with net profit margin rising from 6.9% to 11.9%[93]. Operational Strategies - Zhou Hei Ya implemented a "self-operation + franchise" business model, enhancing its organizational capacity to support transformation and sustainable growth[20]. - The company established the OCM cost control tower to refine management on production procurement and warehousing logistics, ensuring speed and quality of omnichannel supply[17]. - The Group's refined operations strategy for online ordering and delivery led to rapid growth by tailoring approaches based on region, city, scenario, and time[48]. - The Group established an "end-to-end" full-link supply chain system to improve quality, ensure supply, reduce costs, and increase efficiency[56]. - The Group's processing facility in Eastern China commenced operation in January 2021, shortening the distribution radius by approximately 500 to 600 kilometers and improving delivery efficiency[60]. Market Challenges and Consumer Behavior - The pandemic's impact on consumer confidence and spending has posed long-term challenges for retail enterprises, affecting consumption growth momentum[14]. - The resurgence of COVID-19 variants in the second half of 2021 led to intensified pandemic control measures, impacting offline consumption[14]. - The company recognizes the need to enhance consumers' purchase intention as a key challenge in the post-pandemic era[14]. - The pandemic led to tightened supply chains and a sharp rise in raw material prices, significantly increasing operating costs for enterprises[30]. - The lack of consumer confidence and social isolation resulted in continuous fluctuations in passenger traffic, leading to a recovery lower than expected[30]. Product Development and Innovation - In product development, Zhou Hei Ya optimized its product structure and cultivated a new generation of "key products matrix" to strengthen product appeal and brand power[18]. - The launch of the new small and beautiful Zhou Hei Ya Little Yellow Store aimed to adapt to changing consumption scenarios and habits under the pandemic[18]. - The introduction of new product flavors, including "Treasure Lindera Glauca," has expanded the product range to meet diverse consumer needs[52]. - Monthly gross sales of duck necks in the "Multi-spiced" flavor exceeded RMB 10 million, showcasing successful product innovation[52]. Human Resources and Organizational Development - The company is committed to building a dynamic talent team and providing targeted capability solutions to empower its ecological competitiveness[20]. - The organization is committed to developing internal talent and enhancing employee engagement through various training and development programs[22]. - The Group has implemented diversified incentive plans to enhance employee motivation and organizational cohesion[64]. - The Group continues to optimize its human resource management system and launched a talent development project to improve employee performance and retention[181]. Corporate Governance and Compliance - The Group has not experienced any material impact due to violations of relevant laws and regulations as of December 31, 2021[178]. - The Group's decision-making process is in compliance with applicable laws and regulations, ensuring legal validity[178]. - The Group has obtained all major licenses and permits required by regulatory agencies as of December 31, 2021[178]. Future Outlook and Strategic Goals - Zhou Hei Ya's strategic goals include building a more valuable, responsible, and international enterprise[15]. - The Group plans to accelerate the expansion of high-quality stores and enhance its omni-channel strategy to drive future growth[69]. - The Group aims to rejuvenate its brand and develop a new generation of popular products to attract consumers[69]. - The Group intends to finance its expansion through internal resources and sustainable growth, alongside the net proceeds from its IPO[101][103].

[Corporate Information](index=2&type=section&id=Corporate%20Information) This section provides essential corporate details, including board composition, key executives, auditors, stock code, and principal place of business [BOARD OF DIRECTORS AND COMMITTEES](index=3&type=section&id=BOARD%20OF%20DIRECTORS) This chapter lists the company's board members and the composition and chairpersons of its specialized committees, including audit, nomination, remuneration, and strategic development - The company's executive directors include Chairman **Mr. Zhou Fuyu**, Chief Executive Officer **Mr. Zhang Yuchen**, and **Mr. Wen Yong**[3](index=3&type=chunk) - The company has established Audit, Nomination, Remuneration, and Strategic Development Committees, with clearly defined chairpersons and members for each[3](index=3&type=chunk)[4](index=4&type=chunk) [Other Corporate Information](index=4&type=section&id=Corporate%20Information%20%28Continued%29) This chapter provides details on the company's company secretary, authorized representatives, auditor (Ernst & Young), website, stock code (1458), principal place of business, and major banks - The company's auditor is **Ernst & Young**[4](index=4&type=chunk) - The company's stock code is **1458**, with its headquarters located in Wuhan, Hubei Province, China[4](index=4&type=chunk)[5](index=5&type=chunk) [Business Review and Outlook](index=5&type=section&id=Business%20Overview%20and%20Outlook) This section reviews the company's operational performance, market conditions, and strategic initiatives, along with future business prospects [MARKET OVERVIEW](index=6&type=section&id=MARKET%20OVERVIEW) In the first half of 2021, China's macro economy experienced a slow K-shaped recovery amid normalized pandemic conditions, impacting offline consumption and accelerating online-offline integration - The macro economy showed a **slow K-shaped recovery**, with passenger traffic at transportation hubs under pressure, adversely affecting the offline consumer sector, especially during the Spring Festival[7](index=7&type=chunk)[10](index=10&type=chunk) - The pandemic accelerated the integration of online and offline consumption, with **online consumption scale and stickiness continuously growing**, blurring the lines between traditional and online retail[8](index=8&type=chunk)[9](index=9&type=chunk) - Consumer differentiation and demand stratification continue to create **structural growth opportunities**, requiring companies to adapt to changing consumer habits and preferences to enhance core competitiveness[9](index=9&type=chunk) [OVERALL BUSINESS AND FINANCIAL PERFORMANCE](index=7&type=section&id=OVERALL%20BUSINESS%20AND%20FINANCIAL%20PERFORMANCE) The company significantly expanded its store network by 66.1% to 2,270 stores by June 30, 2021, with Central China being the largest contributor to both store count and revenue Store Count by Region | Region | June 30, 2021 Store Count | Proportion | June 30, 2020 Store Count | Proportion | | :--- | :--- | :--- | :--- | :--- | | Central China | 1,062 | 46.8% | 583 | 42.6% | | South China | 417 | 18.4% | 272 | 19.9% | | East China | 327 | 14.4% | 221 | 16.2% | | North China | 266 | 11.7% | 178 | 13.0% | | West China | 198 | 8.7% | 113 | 8.3% | | **Total** | **2,270** | **100.0%** | **1,367** | **100.0%** | Revenue by Region (RMB in thousands) | Region | H1 2021 Revenue (RMB in thousands) | Proportion | H1 2020 Revenue (RMB in thousands) | Proportion | | :--- | :--- | :--- | :--- | :--- | | Central China | 664,850 | 58.5% | 315,225 | 50.5% | | South China | 183,648 | 16.2% | 127,479 | 20.4% | | East China | 118,618 | 10.4% | 79,083 | 12.6% | | North China | 99,271 | 8.7% | 73,763 | 11.8% | | West China | 69,758 | 6.2% | 29,629 | 4.7% | | **Total** | **1,136,145** | **100.0%** | **625,179** | **100.0%** | [Continuous Implementation of Upgraded Six Development Strategies](index=8&type=section&id=Continuous%20Implementation%20of%20Upgraded%20Six%20Development%20Strategies) The company steadfastly advanced its six development strategies, achieving strong franchise business growth, synchronized online-offline channel efforts, significant new product launches, and supply chain optimization - Despite the adverse impact of significantly reduced traffic during the Spring Festival, the company achieved **quarter-over-quarter operational improvement** and **enhanced profitability** by steadfastly advancing its six development strategies[19](index=19&type=chunk)[21](index=21&type=chunk) [Upgrade of Business Model](index=9&type=section&id=Upgrade%20of%20Business%20Model) The company focused on developing its franchise business, establishing a retail development platform and refining recruitment and incentive mechanisms, leading to 511 new franchise stores in H1 - The company established a retail business development platform to **centrally manage six major regions nationwide**, empowering franchise capability building[22](index=22&type=chunk)[23](index=23&type=chunk) - In the first half of 2021, **511 new franchise stores** were opened, entering **45 new cities**[25](index=25&type=chunk) - As of June 30, 2021, over **38,000 franchise applications** were received, reflecting strong market recognition for the brand[25](index=25&type=chunk) [Omni-channel Coverage](index=10&type=section&id=Omni-channel%20Coverage) The company accelerated online and offline omni-channel coverage, with internet O&O business revenue growing by 29.5%, and actively expanded into live-streaming e-commerce and community fresh retail - For the six months ended June 30, 2021, revenue from internet O&O business (online and self-operated delivery) increased by **29.5% year-on-year**[26](index=26&type=chunk)[27](index=27&type=chunk) - The company actively expanded into live-streaming platforms like Taobao, Douyin, and Kuaishou, and developed new proximity retail channels, establishing strategic partnerships with platforms such as Pupu Supermarket, Dingdong Maicai, and Hema Fresh[28](index=28&type=chunk)[29](index=29&type=chunk) - Delivery business, as an incremental store business, played a significant role in **enhancing brand exposure, acquiring new customers, and driving revenue**[30](index=30&type=chunk)[31](index=31&type=chunk) [Product Diversification](index=11&type=section&id=Product%20Diversification) The company accelerated product innovation, launching 16 new products in H1, including "Boneless Duck Feet" and "Tiger Skin Chicken Feet," contributing over RMB 250 million to revenue - In the first half of 2021, **16 key product series** were successfully launched, including popular items like 'Boneless Duck Feet' and 'Tiger Skin Chicken Feet,' and new flavors such as 'Five Spice' and 'Treasured Mountain Pepper'[33](index=33&type=chunk)[34](index=34&type=chunk) - New products contributed over **RMB 250 million** in revenue, accounting for nearly **20% of total revenue** in the second quarter of 2021[33](index=33&type=chunk)[34](index=34&type=chunk) [Integrated Branding and Marketing](index=12&type=section&id=Integrated%20Branding%20and%20Marketing) The company maintained its youthful brand positioning, launched a new slogan, increased marketing investments in non-transportation hub markets, and enhanced brand value through platform collaborations and movie sponsorships - Adopted the new slogan 'Tasteless? Eat Zhou Hei Ya' to **strengthen brand image** and extend from physical to psychological scenarios[35](index=35&type=chunk)[36](index=36&type=chunk) - Increased marketing investment across the entire business chain, including non-window markets, key franchise markets, and delivery services, based on the AIPL model, and deepened cooperation with platforms like Xiaohongshu, Douyin, and Bilibili[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - In the first half of 2021, the company was once again selected as one of the 'China's 500 Most Valuable Brands' by World Brand Lab[38](index=38&type=chunk) [Supply Chain Optimization](index=13&type=section&id=Supply%20Chain%20Optimization) The company advanced its integrated supply chain strategy, optimizing costs and efficiency through a dedicated center, completing five production centers, and achieving 24-hour delivery to 80% of stores - The company has **four highly automated production centers** in North, East, South, and Central China, with the West China production center expected to be operational in 2022[40](index=40&type=chunk) - Adopted lean production management and established a monthly OCM (Production Cost Management) review mechanism to **continuously reduce costs and enhance efficiency**[41](index=41&type=chunk)[42](index=42&type=chunk) - Logistics and distribution efficiency improved, achieving **80% of stores delivered within 24 hours** and **100% within 48 hours**, effectively extending product shelf life[42](index=42&type=chunk)[43](index=43&type=chunk) [Organizational Capacity Enhancement](index=14&type=section&id=Organizational%20Capacity%20Enhancement) The company enhanced organizational capabilities by optimizing structure, attracting talent, and implementing diverse incentive plans, including a second restricted share unit scheme for 160 selected individuals - Integrated and established the 'Retail Business Development Center' and 'Integrated Marketing Center,' optimizing R&D and marketing organizational structures[46](index=46&type=chunk)[48](index=48&type=chunk) - In the first half of 2021, the second phase of the equity incentive plan was launched, granting a total of approximately **13,561,382 restricted share units** to **160 selected individuals**[47](index=47&type=chunk)[48](index=48&type=chunk) [INDUSTRY AND BUSINESS OUTLOOK](index=15&type=section&id=INDUSTRY%20AND%20BUSINESS%20OUTLOOK) Despite ongoing challenges in the retail sector, the company remains optimistic about industry prospects and plans to deepen its six development strategies in the second half of 2021, including accelerating franchise expansion and digital transformation - Facing the challenges and opportunities of normalized pandemic conditions, the company will continue to **densify its store network**, expand internet O&O channels, and strategically deploy in community consumption scenarios[50](index=50&type=chunk)[51](index=51&type=chunk) - In the second half of 2021, the company will continue to implement its six development strategies, including: * Accelerating franchise expansion to enhance store coverage * Deepening digital transformation to build a data middle platform * Accelerating product innovation to support diversified channel sales * Increasing marketing investment across the entire business chain to improve brand marketing efficiency * Integrating and upgrading the supply chain management system for cost reduction and efficiency improvement * Continuously strengthening incentives to boost organizational vitality[53](index=53&type=chunk)[54](index=54&type=chunk) [Management Discussion and Analysis](index=16&type=section&id=Management%20Discussion%20and%20Analysis) This section provides a detailed analysis of the company's financial performance, liquidity, capital resources, and operational metrics for the reporting period [Financial Performance Review](index=17&type=section&id=Financial%20Performance%20Review) In H1 2021, the company achieved a strong rebound, with total revenue increasing by 60.8% to RMB 1.453 billion, gross margin improving to 59.0%, and a net profit of RMB 230 million, reversing a prior-year loss Financial Performance Summary (RMB in thousands) | Item | H1 2021 (Unaudited) | H1 2020 (Unaudited) | YoY Change | | :--- | :--- | :--- | :--- | | **Revenue** | **1,452,972** | **903,470** | **+60.8%** | | Gross Profit | 857,207 | 492,928 | +73.9% | | Profit/(Loss) Before Tax | 318,638 | (51,531) | Turned profitable | | Profit/(Loss) for the Period | 229,556 | (42,194) | Turned profitable | | Basic Earnings/(Loss) Per Share (RMB) | 0.10 | (0.02) | +600.0% | | Gross Margin | 59.0% | 54.6% | +4.4 p.p. | | Net Profit Margin | 15.8% | -4.7% | +20.5 p.p. | - The increase in total revenue was primarily due to the overall control of the pandemic in China, a gradual recovery in consumer demand, and the company's effective implementation of its six development strategies, leading to increased sales revenue across all channels, particularly a **1,385.0% year-on-year increase** in sales volume from franchising[57](index=57&type=chunk) - The improvement in gross margin was attributable to revenue growth and a series of optimization measures resulting from the integrated supply chain strategy[57](index=57&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) The company funds operations through cash from business activities, IPO proceeds, and convertible bond issuance, with net assets of approximately RMB 4.178 billion and cash and bank balances of RMB 2.416 billion as of June 30, 2021 - In November 2020, the company completed the issuance of **HKD 1.55 billion** in principal amount of 1% convertible bonds due 2025, with net proceeds of approximately **HKD 1.52 billion**[65](index=65&type=chunk)[68](index=68&type=chunk) Capital Structure (RMB in millions) | Capital Structure | June 30, 2021 (RMB in millions) | December 31, 2020 (RMB in millions) | | :--- | :--- | :--- | | Net Assets | 4,178.3 | 4,100.9 | | Cash and Bank Balances | 2,415.8 | 1,583.8 | [Use of Proceeds from the IPO](index=22&type=section&id=Use%20of%20Proceeds%20from%20the%20IPO) This chapter details the use of proceeds from the IPO and 2025 convertible bonds; as of June 30, 2021, RMB 683 million from the IPO and approximately HKD 1.52 billion from the 2025 bonds remained unutilized Use of IPO Proceeds (RMB in millions) | Use of IPO Proceeds | Budget (RMB in millions) | Utilized as of June 30, 2021 (RMB in millions) | Remaining Balance (RMB in millions) | | :--- | :--- | :--- | :--- | | Construction and Improvement of Processing Facilities | 1,258.3 | 1,006.4 | 251.9 | | Store Network Development | 167.8 | 140.0 | 27.8 | | Brand Image Activities | 394.3 | 264.8 | 129.5 | | R&D Improvement | 45.2 | 38.6 | 6.6 | | **Total (Partial Listing)** | **2,452.2** | **1,769.3** | **682.9** | - As of June 30, 2021, the net proceeds of approximately **HKD 1.52 billion** from the issuance of 2025 convertible bonds remained unutilized and were placed in short-term deposits and money market instruments[77](index=77&type=chunk)[79](index=79&type=chunk) [Indebtedness and Turnover Ratios](index=24&type=section&id=Indebtedness) As of June 30, 2021, the group's total bank borrowings were RMB 110 million, with the debt-to-asset ratio increasing to 38.4% due to convertible bond issuance, while operational efficiency indicators improved - Due to the issuance of convertible bonds in November 2020, the Group's **debt-to-asset ratio** (total liabilities/total assets) increased from **25.9%** as of June 30, 2020, to **38.4%** as of June 30, 2021[78](index=78&type=chunk) Turnover Ratios | Turnover Ratios | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Average Inventory Turnover Days | 82.6 Days | 163.7 Days | | Average Trade Receivables Turnover Days | 8.5 Days | 7.0 Days | | Average Trade Payables Turnover Days | 27.5 Days | 41.2 Days | [Employee and Other Operational Data](index=29&type=section&id=Employee%20and%20Labor%20Cost) As of June 30, 2021, the group had 4,111 employees, with total labor costs of RMB 222 million, representing 15.3% of total revenue, and the top five duck suppliers accounted for 20.0% of total procurement costs - As of June 30, 2021, the Group had **4,111 employees**, with total labor costs of **RMB 222.3 million**, accounting for **15.3% of total revenue**[93](index=93&type=chunk)[94](index=94&type=chunk)[97](index=97&type=chunk) - In the first half of the year, procurement from the largest duck supplier accounted for **6.9%** of total procurement costs, while the top five duck suppliers collectively accounted for **20.0%**[95](index=95&type=chunk)[98](index=98&type=chunk) [Other Information](index=29&type=section&id=Other%20Information) This section covers additional disclosures, including interests of directors, chief executives, and major shareholders, the restricted share unit scheme, and corporate governance compliance [DIRECTORS' AND CHIEF EXECUTIVE'S INTERESTS AND MAJOR SHAREHOLDERS' HOLDINGS](index=30&type=section&id=DIRECTORS%27%20AND%20CHIEF%20EXECUTIVE%27S%20INTERESTS) This chapter discloses the shareholdings of directors, chief executives, and major shareholders, with Chairman Mr. Zhou Fuyu holding approximately 56.75% of the company's shares through his spouse and trust - Chairman Mr. Zhou Fuyu is deemed to hold interests in **1,352,417,440 shares**, representing approximately **56.75% of the total share capital**, primarily through his spouse Ms. Tang Jianfang and family trust[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - Major shareholder Ms. Tang Jianfang collectively holds **56.75%** interest in the company through personal holdings, controlled corporations, and family trusts[110](index=110&type=chunk)[111](index=111&type=chunk) [Restricted Share Unit Scheme and Dividends](index=28&type=section&id=Restricted%20Share%20Unit%20Scheme) The company adopted a Restricted Share Unit Scheme in 2018 to incentivize employees, granting 13,561,382 RSUs to 160 selected individuals, and the board resolved not to declare an interim dividend for H1 2021 - As of the reporting date, **160 selected individuals** were granted restricted share units representing **13,561,382 shares** under the RSU scheme[89](index=89&type=chunk)[91](index=91&type=chunk) - The Board resolved **not to declare any interim dividend** for the six months ended June 30, 2021[117](index=117&type=chunk)[122](index=122&type=chunk) [COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE](index=33&type=section&id=COMPLIANCE%20WITH%20THE%20CORPORATE%20GOVERNANCE%20CODE) The company complied with the applicable code provisions of the Corporate Governance Code in H1 2021, and the Audit Committee reviewed and discussed the interim results report - During the reporting period, the company **complied with the applicable provisions** of the Corporate Governance Code[114](index=114&type=chunk)[119](index=119&type=chunk) - The Audit Committee, comprising three independent non-executive directors, has **reviewed this interim report**[116](index=116&type=chunk)[121](index=121&type=chunk) [Interim Condensed Consolidated Financial Statements](index=33&type=section&id=Interim%20Condensed%20Consolidated%20Financial%20Statements) This section presents the company's unaudited interim condensed consolidated financial statements, including the statement of profit or loss, financial position, cash flows, and accompanying notes [Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=34&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) This statement presents the company's revenue, costs, expenses, and profit for H1 2021, showing total revenue of RMB 1.453 billion and a net profit of RMB 230 million, reversing a loss Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income (RMB in thousands) | Item (RMB in thousands) | H1 2021 (Unaudited) | H1 2020 (Unaudited) | | :--- | :--- | :--- | | **Revenue** | **1,452,972** | **903,470** | | Cost of Sales | (595,765) | (410,542) | | **Gross Profit** | **857,207** | **492,928** | | Other Income and Gains, Net | 92,745 | 21,600 | | Selling and Distribution Expenses | (500,145) | (461,507) | | Administrative Expenses | (120,302) | (81,310) | | **Profit/(Loss) Before Tax** | **318,638** | **(51,531)** | | Income Tax Expense | (89,082) | 9,337 | | **Profit/(Loss) for the Period** | **229,556** | **(42,194)** | | **Basic Earnings Per Share (RMB)** | **0.10** | **(0.02)** | [Interim Condensed Consolidated Statement of Financial Position](index=35&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Financial%20Position) This statement outlines the company's assets, liabilities, and equity as of June 30, 2021, with total assets of RMB 6.786 billion, total liabilities of RMB 2.608 billion, and net assets of RMB 4.178 billion Interim Condensed Consolidated Statement of Financial Position (RMB in thousands) | Item (RMB in thousands) | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | **Total Non-current Assets** | **2,649,601** | **2,590,676** | | **Total Current Assets** | **4,136,686** | **4,324,215** | | **Total Assets** | **6,786,287** | **6,914,891** | | Total Current Liabilities | 1,024,919 | 1,261,483 | | Total Non-current Liabilities | 1,583,104 | 1,552,555 | | **Total Liabilities** | **2,608,023** | **2,814,038** | | **Net Assets** | **4,178,264** | **4,100,853** | | **Total Equity** | **4,178,264** | **4,100,853** | [Interim Condensed Consolidated Statement of Cash Flows](index=38&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) This statement reflects the company's cash inflows and outflows for H1, with net cash from operating activities of RMB 322 million, net cash from investing activities of RMB 26 million, and net cash used in financing activities of RMB 225 million Interim Condensed Consolidated Statement of Cash Flows (RMB in thousands) | Item (RMB in thousands) | H1 2021 (Unaudited) | H1 2020 (Unaudited) | | :--- | :--- | :--- | | Net Cash Flows from Operating Activities | 322,338 | 60,025 | | Net Cash Flows from Investing Activities | 25,765 | 222,735 | | Net Cash Flows Used in Financing Activities | (224,767) | (129,037) | | **Net Increase in Cash and Cash Equivalents** | **123,336** | **153,723** | | Cash and Cash Equivalents at Beginning of Period | 271,401 | 190,305 | | **Cash and Cash Equivalents at End of Period** | **380,903** | **358,390** | [Notes to the Interim Condensed Consolidated Financial Statements](index=41&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and supplementary information for the financial statements, including accounting policies, segment information, revenue breakdown, asset and liability details, and related party transactions - The company primarily engages in the production, marketing, and retail of **braised duck leisure products**, with all revenue and most non-current assets located in mainland China, resulting in only one reportable segment[141](index=141&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) Revenue Breakdown (RMB in thousands) | Revenue Breakdown (RMB in thousands) | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Modified Atmosphere Packaging Products | 1,267,331 | 781,802 | | Vacuum Packaging Products | 159,891 | 115,630 | | Retail Store Franchise Fees | 11,365 | 1,941 | | Other Products | 14,385 | 4,097 | | **Total** | **1,452,972** | **903,470** | - On November 5, 2020, the company issued **HKD 1.55 billion** in principal amount of 1% convertible bonds due 2025; as of June 30, 2021, the carrying amount of these bonds was **RMB 1.32 billion**[229](index=229&type=chunk)[231](index=231&type=chunk)

Zhou Hei Ya International Holdings Company Limited 周黑鴨國際控股有限公司 (Incorporated in the Cayman Islands with limited liability) ( 於開曼群島註冊成立的有限公司 ) Stock Code 股份代號：1458 Annual Report 2020 年度報告 Zhou Hei Ya International Holdings Company Limited 周黑鴨國際控股有限公司 (Incorporated in the Cayman Islands with limited liability) ( 於開曼群島註冊成立的有限公司 ) Stock Code 股份代號：1458 www.zhouheiya.cn Annual Repo rt 2020 年度報告 Zhou Hei Ya International Holdings Company Limited 周黑鴨國際控股有限公司 Contents 目錄 59 Corporate Governance Report 企業管治報告 73 Inde ...

[Corporate Information](index=3&type=section&id=Corporate%20Information) [Business Review and Outlook](index=7&type=section&id=Business%20Overview%20and%20Outlook) [Market Overview](index=7&type=section&id=Market%20Overview) In the first half of 2019, China's casual braised food industry faced unprecedented fierce competition, challenged by tight raw material supply, declining brand loyalty among younger consumers, low-price online competitors, new offline regional brands, and intensified competition for prime retail locations - The industry faces unprecedented fierce competition from supply chain issues, evolving consumer habits, and new online and offline competitors[11](index=11&type=chunk)[12](index=12&type=chunk)[13](index=13&type=chunk) - The company will focus on product innovation, integrate online and offline resources, deploy omni-channel retail scenarios, and explore diversified channel strategies to adapt to market changes[14](index=14&type=chunk) [Overall Business and Financial Performance](index=8&type=section&id=Overall%20Business%20and%20Financial%20Performance) In the first half of 2019, the company advanced its store network optimization, production capacity expansion, youth-focused brand marketing, and online channel development, achieving notable revenue growth in South China and strong performance in e-commerce and delivery services [Store Network Expansion and Optimization](index=8&type=section&id=Store%20Network%20Expansion%20and%20Optimization) In H1, the company opened 84 new self-operated stores and closed 117, resulting in a net decrease of 33 stores to 1,255 across 96 cities in 17 provinces, with Central China remaining the primary market and South China showing strong revenue growth of 28.8% - As of June 30, 2019, the company's total self-operated stores numbered **1,255**, with a net decrease of **33** in the first half of the year[16](index=16&type=chunk)[17](index=17&type=chunk) Self-Operated Store Network by Geographical Location (As of June 30) | Region | 2019 Number of Stores | 2019 Share | 2018 Number of Stores | 2018 Share | | :--- | :--- | :--- | :--- | :--- | | Central China | 560 | 44.7% | 520 | 43.4% | | South China | 226 | 18.0% | 207 | 17.3% | | East China | 203 | 16.2% | 228 | 19.1% | | North China | 180 | 14.3% | 178 | 14.9% | | Southwest China | 77 | 6.1% | 63 | 5.3% | | Northwest China | 9 | 0.7% | – | – | | **Total** | **1,255** | **100.0%** | **1,196** | **100.0%** | Self-Operated Store Revenue by Geographical Location (For the Six Months Ended June 30) | Region | 2019 Revenue (RMB '000) | 2019 Share | 2018 Revenue (RMB '000) | 2018 Share | | :--- | :--- | :--- | :--- | :--- | | Central China | 841,575 | 60.0% | 865,030 | 62.8% | | South China | 224,735 | 16.0% | 174,540 | 12.6% | | East China | 153,530 | 10.9% | 167,378 | 12.2% | | North China | 149,573 | 10.7% | 147,065 | 10.7% | | Southwest China | 28,315 | 2.0% | 23,376 | 1.7% | | Northwest China | 5,446 | 0.4% | – | – | | **Total** | **1,403,174** | **100.0%** | **1,377,389** | **100.0%** | [Production Capacity](index=10&type=section&id=Production%20Capacity) To support market expansion and enhance logistics efficiency, the company continues to expand its production capacity, with a new processing plant in Dongguan, Guangdong, commencing operations in H1 2019, and ongoing development of five regional factories across China - The new Dongguan factory in Guangdong commenced operations in the first half of 2019, with production capacity expansion across five major regions (Hebei, Hubei, Guangdong, Jiangsu, Sichuan) currently underway[23](index=23&type=chunk)[26](index=26&type=chunk) [Branding and Marketing](index=10&type=section&id=Branding%20and%20Marketing) The company continuously upgrades its brand image, focusing on youth and trendiness through integrated online and offline marketing, including collaborations with trendy idols, advertising in transport hubs, social media content marketing, and updated brand IP for new product packaging - Marketing strategies primarily target younger consumers born in the 1990s and 2000s, building a youthful and trendy brand image through online social media content marketing and offline idol collaborations and fan engagement events[25](index=25&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - The company engaged a renowned design firm to upgrade its brand IP, creating a more youthful and personalized image applied to product packaging[28](index=28&type=chunk)[30](index=30&type=chunk) [E-Commerce and Online Ordering and Delivering Operation](index=11&type=section&id=E-Commerce%20and%20Online%20Ordering%20and%20Delivering%20Operation) Facing declining online traffic dividends, the company deepened its proprietary platforms and accelerated new online channel development, achieving growth in online channel revenue through product innovation and diverse marketing activities, while significantly increasing delivery service revenue - For the six months ended June 30, 2019, e-commerce channel revenue increased by **9.3%** year-on-year[29](index=29&type=chunk)[31](index=31&type=chunk) - For the six months ended June 30, 2019, delivery channel revenue increased by **47.5%** year-on-year[32](index=32&type=chunk) [Industry and Business Outlook](index=12&type=section&id=Industry%20and%20Business%20Outlook) Despite rising costs and intensified competition, the company anticipates omni-channel multi-scenario retail as the new normal, aiming to enhance core competitiveness and expand market share through strategies including franchise expansion, diversified channels, product innovation, integrated marketing, and performance-based talent incentives - The company's five key future business strategies include: - Market penetration and expansion through a franchise model - Exploration of diversified distribution channels - Enhanced product innovation - Optimized integrated marketing resources - Establishment of performance-oriented talent incentive programs[35](index=35&type=chunk) [Management Discussion and Analysis](index=13&type=section&id=Management%20Discussion%20and%20Analysis) [Financial Performance](index=13&type=section&id=Financial%20Performance) In H1 2019, total revenue slightly increased by **1.8%** to **RMB 1.626 billion**, but rising raw material, depreciation, and labor costs led to an **11.9%** increase in cost of sales, reducing gross margin from **59.9%** to **55.9%**, and consequently, profit for the period significantly decreased by **32.4%** to **RMB 224 million**, with net margin falling from **20.8%** to **13.8%** Summary of Consolidated Statement of Profit or Loss for H1 2019 | Indicator | H1 2019 (RMB '000) | H1 2018 (RMB '000) | Y-o-Y Change | | :--- | :--- | :--- | :--- | | Revenue | 1,625,947 | 1,596,582 | +1.8% | | Cost of sales | (717,314) | (640,905) | +11.9% | | **Gross Profit** | **908,633** | **955,677** | **-4.9%** | | Gross Margin | 55.9% | 59.9% | -4.0 p.p. | | Selling and Distribution Expenses | (551,251) | (495,158) | +11.3% | | Administrative Expenses | (101,290) | (86,560) | +17.0% | | **Profit Before Tax** | **294,575** | **439,176** | **-32.9%** | | **Profit for the Period** | **224,055** | **331,511** | **-32.4%** | | Net Margin | 13.8% | 20.8% | -7.0 p.p. | | Basic Earnings Per Share (RMB) | 0.10 | 0.14 | -28.6% | - Total revenue slightly increased by **1.8%** year-on-year to **RMB 1.626 billion**, primarily due to a slight increase in sales from self-operated stores and online channels[38](index=38&type=chunk) - Gross margin decreased from **59.9%** in the prior period to **55.9%**, mainly due to overall increases in raw material costs, higher depreciation from new factory operations, and rising labor costs[39](index=39&type=chunk) - Selling and distribution expenses increased by **11.3%** year-on-year, primarily due to higher rental, staff welfare, advertising, and transportation expenses associated with store network expansion[39](index=39&type=chunk) - Administrative expenses increased by **17.0%** year-on-year, mainly due to increased operating costs for new factories in Hubei and Dongguan, and amortization expenses related to the SAP system[40](index=40&type=chunk)[41](index=41&type=chunk) [Liquidity and Capital Resources](index=16&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a robust financial position, primarily funded by operating cash flow and IPO proceeds, with no bank borrowings as of June 30, 2019, approximately **RMB 1.5 billion** in cash and bank balances, and **RMB 1.124 billion** in unutilized IPO proceeds, while operating cash flow significantly improved to a net inflow of **RMB 469 million**, with capital expenditures mainly directed towards processing facilities and store upgrades - As of June 30, 2019, the Group had no interest-bearing bank borrowings, indicating a sound financial position[43](index=43&type=chunk) - As of June 30, 2019, **RMB 1.124 billion** of net IPO proceeds remained unutilized, primarily allocated for store network development, brand image activities, R&D, and IT system upgrades[46](index=46&type=chunk)[51](index=51&type=chunk) Condensed Cash Flow Statement (For the Six Months Ended June 30) | Item | 2019 (RMB Million) | 2018 (RMB Million) | | :--- | :--- | :--- | | Net Cash Generated from Operating Activities | 469.4 | 207.2 | | Net Cash Generated from/(Used in) Investing Activities | 151.0 | (18.4) | | Net Cash Used in Financing Activities | (434.2) | (235.9) | - Capital expenditure for the first half of the year amounted to **RMB 213 million**, primarily for establishing and improving processing facilities and upgrading self-operated stores[60](index=60&type=chunk)[62](index=62&type=chunk) [Turnover Ratios and Other Metrics](index=21&type=section&id=Turnover%20Ratios%20and%20Other%20Metrics) In H1 2019, the company's turnover ratios remained relatively stable, with average inventory turnover days at **67.0 days**, trade receivables turnover days slightly increasing to **3.6 days**, and trade payables turnover days at **23.7 days**, while the Group had **4,933** employees at period-end, and total labor costs accounted for **15.1%** of total revenue Average Turnover Days (For the Six Months Ended June 30) | Indicator | 2019 | 2018 | | :--- | :--- | :--- | | Inventory Turnover Days | 67.0 Days | 68.0 Days | | Trade Receivables Turnover Days | 3.6 Days | 2.7 Days | | Trade Payables Turnover Days | 23.7 Days | 22.3 Days | [Other Information](index=22&type=section&id=Other%20Information) [Directors' and Shareholders' Interests](index=22&type=section&id=Directors'%20and%20Shareholders'%20Interests) As of June 30, 2019, Mr. Zhou Fuyu, the company's Chairman, indirectly held approximately **61.89%** of the company's shares through his spouse, Ms. Tang Jianfang, who held the interest via personal holdings, controlled corporations, and a family trust, with other major shareholders including Ms. Zhou Ping (**5.73%**) and Tiantu Capital related parties (**7.67%**) - Mr. Zhou Fuyu, the company's Chairman, is deemed to hold an interest in **1,474,936,500** shares, representing approximately **61.89%** of the total share capital, derived from his spouse Ms. Tang Jianfang's holdings[67](index=67&type=chunk)[68](index=68&type=chunk) [Corporate Governance and Other Disclosures](index=25&type=section&id=Corporate%20Governance%20and%20Other%20Disclosures) During the reporting period, the company temporarily deviated from the corporate governance code requiring separation of Chairman and CEO roles, with Chairman Mr. Zhou Fuyu serving as interim CEO from May 16, 2019, a situation rectified upon Mr. Zhang Yuchen's appointment as new CEO on August 27, 2019, while the Board resolved not to declare an interim dividend for 2019, and the Audit Committee reviewed this interim report - From May 16 to August 27, 2019, Chairman Mr. Zhou Fuyu concurrently served as CEO, temporarily deviating from Corporate Governance Code Provision A.2.1, which was rectified upon the appointment of Mr. Zhang Yuchen as the new CEO, bringing the company back into compliance[81](index=81&type=chunk)[82](index=82&type=chunk) - The Board resolved not to declare an interim dividend for the six months ended June 30, 2019[87](index=87&type=chunk)[92](index=92&type=chunk) [Interim Condensed Consolidated Financial Statements](index=28&type=section&id=Interim%20Condensed%20Consolidated%20Financial%20Statements) [Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=28&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) This statement presents the company's revenue, costs, expenses, and profit for the first half of 2019, indicating that despite a slight revenue increase, rising costs and expenses led to a **32.4%** year-on-year decrease in profit for the period, from **RMB 332 million** to **RMB 224 million** Key Profit or Loss Statement Data (For the Six Months Ended June 30) | Indicator | 2019 (RMB '000) | 2018 (RMB '000) | | :--- | :--- | :--- | | Revenue | 1,625,947 | 1,596,582 | | Gross Profit | 908,633 | 955,677 | | Profit Before Tax | 294,575 | 439,176 | | Profit for the Period | 224,055 | 331,511 | [Interim Condensed Consolidated Statement of Financial Position](index=29&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Financial%20Position) This statement reflects the company's assets, liabilities, and equity as of June 30, 2019, with total assets of **RMB 4.95 billion**, total liabilities of **RMB 918 million**, and net assets of **RMB 4.033 billion**, notably including **RMB 565 million** in new right-of-use assets and corresponding lease liabilities due to the adoption of HKFRS 16 Key Financial Position Statement Data (As of June 30) | Indicator | 2019 (RMB '000) | 2018 December 31 (RMB '000) | | :--- | :--- | :--- | | Total Non-Current Assets | 2,392,507 | 1,776,078 | | Total Current Assets | 2,557,541 | 2,880,027 | | **Total Assets** | **4,950,048** | **4,656,105** | | Total Current Liabilities | 626,796 | 482,221 | | Total Non-Current Liabilities | 290,679 | 48,177 | | **Total Liabilities** | **917,475** | **530,398** | | **Net Assets** | **4,032,573** | **4,125,707** | [Notes to the Interim Condensed Consolidated Financial Statements](index=34&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Statements) The notes to the financial statements provide detailed explanations and supplementary information, highlighting the significant impact of adopting HKFRS 16 on assets and liabilities from January 1, 2019, and disclosing the company's operation as a single segment, revenue composition, inventory, and related party transactions [Note 2: Changes in Accounting Policies](index=34&type=section&id=Note%202:%20Changes%20in%20Accounting%20Policies) The Group first adopted HKFRS 16 Leases from January 1, 2019, significantly impacting the financial statements by recognizing right-of-use assets and lease liabilities using a modified retrospective approach without restating comparative periods, resulting in a **RMB 418 million** increase in total assets and liabilities as of January 1, 2019, primarily from **RMB 590 million** in right-of-use assets and **RMB 418 million** in interest-bearing bank and other borrowings (including lease liabilities) - Effective January 1, 2019, the Group adopted the new lease accounting standard HKFRS 16, requiring lessees to recognize all leases (except short-term and low-value leases) on the balance sheet[112](index=112&type=chunk)[113](index=113&type=chunk)[117](index=117&type=chunk) Impact of Adopting HKFRS 16 on Opening Balances as of January 1, 2019 | Item | Increase/(Decrease) (RMB '000) | | :--- | :--- | | **Assets** | | | Increase in Right-of-Use Assets | 590,397 | | Decrease in Prepaid Land Lease Payments | (128,898) | | Decrease in Prepayments, Deposits and Other Receivables | (43,930) | | **Total Assets Increase** | **417,569** | | **Liabilities** | | | Increase in Interest-Bearing Bank and Other Borrowings | 417,569 | | **Total Liabilities Increase** | **417,569** | [Note 3: Operating Segment Information](index=44&type=section&id=Note%203:%20Operating%20Segment%20Information) For management purposes, the Group operates as a single segment, encompassing the production, marketing, and retail of casual braised duck-related food products, with all revenue and substantially all non-current assets located in mainland China, thus no geographical segment information is presented, and no single customer accounts for over **10%** of total revenue - The company has only one reportable operating segment, which is the production, marketing, and retail of casual braised duck products[150](index=150&type=chunk)[153](index=153&type=chunk) [Note 4: Revenue Breakdown](index=45&type=section&id=Note%204:%20Revenue%20Breakdown) The company's total revenue primarily derives from modified atmosphere packaging products, which contributed **RMB 1.433 billion** or approximately **88.1%** of total revenue in H1 2019, while vacuum-packed products contributed **RMB 180 million**, accounting for approximately **11.1%** Revenue Breakdown by Product Type (For the Six Months Ended June 30) | Product Type | 2019 (RMB '000) | 2018 (RMB '000) | | :--- | :--- | :--- | | Vacuum-Packed Products | 179,855 | 141,455 | | Modified Atmosphere Packaging Products | 1,433,223 | 1,443,087 | | Other Products | 12,869 | 12,040 | | **Total** | **1,625,947** | **1,596,582** |