Store Expansion and Development - In 2022, Zhou Hei Ya had over 3,400 stores, with a focus on expanding community stores and penetrating lower-tier markets to enhance business resilience[14] - As of the end of 2022, the total number of stores exceeded 3,400, with a focus on expanding community stores to enhance business resilience[16] - The total number of retail stores increased from 2,781 in 2021 to 3,429 in 2022, reflecting a growth strategy in both new and mature markets[30] - The Group aims to open around 1,000 new retail stores in 2023, continuing to optimize its retail store structure[39] - As of December 31, 2022, there were 792 community stores covering 109 cities, with a sales amount of approximately RMB 430 million from community store terminals[40] - The Group launched the "National Community Store Project" in early 2022 to expand the community store model throughout China[40] Financial Performance - The Group's total revenue decreased by 18.3% from RMB2,870.0 million in 2021 to RMB2,343.4 million in 2022, primarily due to the ongoing COVID-19 pandemic and reduced customer flow[67] - Profit for the year decreased by 92.6% from RMB342.4 million in 2021 to RMB25.3 million in 2022[72] - The Group's basic and diluted earnings per share dropped to RMB0.01 in 2022 from RMB0.15 in 2021, a decline of 93.3%[72] - The Group's total comprehensive income decreased by 75.6% to RMB78.0 million in 2022 from RMB319.7 million in 2021[90] - As of December 31, 2022, the Group had net assets of approximately RMB4,088.3 million, down from RMB4,210.3 million in 2021[99] - The Group's cash and bank deposits decreased to approximately RMB 1,245.2 million as of December 31, 2022, down from RMB 2,101.3 million as of December 31, 2021[102] Supply Chain and Cost Management - Zhou Hei Ya adapted its supply chain by upgrading the Operating Cost Management (OCM) mechanism and optimizing procurement strategies to manage rising raw material costs[14] - The Group continuously improved its operating cost management (OCM) mechanism to mitigate the impact of rising raw material costs on gross profit margin[53] - The Group's flexible supply chain strategy focuses on quality improvement, supply assurance, and cost reduction[55] - The company upgraded its production cost management system and optimized procurement strategies to mitigate rising raw material costs[16] Marketing and Consumer Engagement - The company emphasized omni-channel development, enhancing access to consumers through diversified channels, including delivery services and live-streaming sales[12] - Zhou Hei Ya's marketing strategies included rejuvenating marketing efforts and promoting new products to increase profitability[12] - The introduction of a national brand spokesperson in the first half of 2022 successfully attracted the attention of the new generation, boosting their purchasing power[16] - The content marketing center established in 2022 effectively reached core consumer groups across platforms like Douyin and Xiaohongshu, enhancing brand exposure[16] - The Group established a unified national marketing system to enhance brand image and consumer awareness[48] Product Innovation and Development - In 2022, the company launched a new product, crayfish balls, which contributed to sustained sales growth through innovative marketing and packaging strategies[16] - The focus on product diversity and innovation is expected to cater to evolving consumer preferences and drive future growth[16] - The Group expanded its product offerings in 2022 to include crayfish balls, vegetarian products, spiced products, and sweet chili products[50] Economic and Market Environment - Despite the challenges posed by the COVID-19 pandemic, Zhou Hei Ya reported a gradual improvement in the consumption environment and consumer willingness by the end of 2022[11] - The overall economic environment in China showed signs of stability and resilience, providing new development opportunities for consumer goods retail enterprises[11] - The Group anticipates a recovery in the consumption market in 2023, driven by improved consumer confidence and willingness to spend[19] - The complex external environment presents both challenges and new opportunities for the consumer goods industry, necessitating a focus on brand image and consumer connection[26] Management and Governance - The company was founded in 2002 and established its holding company in June 2006, focusing on leisure marinated products with approximately 20 years of industry experience[152] - The CEO has over 22 years of operational and management experience in the consumer goods sector, previously holding senior positions in multinational companies[152] - The company has a strong supply chain management led by an executive director with extensive experience in procurement and operations[152] - The leadership team includes members with significant experience in both domestic and international markets, enhancing the company's strategic capabilities[161][165] Employee and Incentive Programs - The organization expanded the scope of equity incentives in 2022, enhancing employee motivation and ensuring sustainable development[17] - The Company adopted a Restricted Share Unit Scheme on July 25, 2018, to incentivize Directors, senior management, and employees[135] - As of March 31, 2023, 208 selected persons had received RSUs representing 26,099,684 shares, which is 1.1% of the Company's issued shares[136] Risks and Compliance - Key risks include uncertainty in opening profitable new retail stores and expansion into new geographical markets[173] - Financial risks faced by the Group include foreign currency risk, credit risk, and liquidity risk[174] - The Group strictly complies with relevant employment laws and provides a safe working environment and competitive remuneration[178] - The Group has established long-term communication mechanisms with stakeholders to manage environmental and social regulatory risks[181]

Financial Performance - Total revenue for the year ended December 31, 2022, was RMB 2,343,353, a decrease of 18.3% from RMB 2,869,963 in 2021[2] - Gross profit for the same period was RMB 1,289,484, down 22.2% from RMB 1,658,393 in 2021[2] - Profit before tax decreased significantly by 87.9% to RMB 54,731 from RMB 450,990 in the previous year[2] - Net profit attributable to shareholders was RMB 25,283, a decline of 92.6% compared to RMB 342,424 in 2021[2] - In 2022, the total revenue was approximately RMB 1,848,258 thousand, a decrease of 17.3% compared to RMB 2,234,859 thousand in 2021[13] - The total comprehensive income for the year was RMB 77.99 million in 2022, a decrease of 75.6% from RMB 319.7 million in 2021[28] - The net profit for the year decreased by 92.6% to RMB 25.3 million, down from RMB 342.4 million in the previous year, resulting in a net profit margin drop from 11.9% to 1.0%[39] - Total comprehensive income fell by 75.6% to RMB 78.0 million, compared to RMB 319.7 million for the previous year[41] Revenue Sources - Revenue contribution from duck and duck by-products was RMB 1,812,346, accounting for 77.3% of total revenue[4] - Revenue from self-operated stores was RMB 1,155,446, representing 49.3% of total revenue, down from 57.3% in 2021[6] - Online channel revenue was RMB 417,366, which accounted for 17.8% of total revenue, down from 19.1% in the previous year[6] - Revenue from customer contracts for 2022 was RMB 2,343,353 thousand, a decrease of 18.3% from RMB 2,869,963 thousand in 2021[79] - Revenue from modified atmosphere packaging products was RMB 2,027,998 thousand in 2022, down from RMB 2,498,285 thousand in 2021, representing a decline of 18.8%[79] - Revenue from retail store franchise fees increased to RMB 33,608 thousand in 2022, up from RMB 27,601 thousand in 2021, reflecting a growth of 21.5%[79] Store Expansion and Operations - The total number of retail stores increased to 3,429 from 2,781 in the previous year[3] - The number of community stores reached 792 by the end of 2022, with a total sales revenue of approximately RMB 430 million, and the target is to exceed 1,300 community stores by the end of 2023[18] - The company plans to open around 1,000 new stores in 2023, continuing to optimize the store structure[17] - The community store model is being expanded nationwide, following successful pilot programs in Wuhan and other cities[18] - The company has initiated a project to enhance operational efficiency through a systematic approach to store inspections, employee training, and marketing execution[18] Marketing and Product Development - The group successfully launched a new product, the shrimp ball, which achieved a monthly sales volume exceeding 1 million boxes in 2022, addressing consumer pain points[21] - During the FIFA World Cup in 2022, the group conducted promotional activities that significantly increased consumer attention and purchases, leveraging partnerships with brands like KFC[22] - The group enhanced its marketing strategy by utilizing national brand ambassador Yang Chaoyue, which attracted a large number of followers and increased brand visibility[22] - The group expanded its product line to include new flavors and types, transitioning from promotion-driven to new product-driven growth strategies[21] Financial Position and Cash Flow - Cash and bank deposits amounted to approximately RMB 1,245.2 million, a decrease from RMB 2,101.3 million as of December 31, 2021[45] - The group’s net asset value as of December 31, 2022, was approximately RMB 4,088.3 million, down from RMB 4,210.3 million the previous year[44] - The net cash generated from operating activities decreased from RMB 539.8 million for the year ended December 31, 2021, to approximately RMB 467.6 million for the year ended December 31, 2022[54] - The net cash used in investing activities for the year ended December 31, 2022, was approximately RMB 1,044.4 million, mainly due to the purchase of structured deposits and other financial assets totaling RMB 4,389.3 million[54] - The net cash used in financing activities for the year ended December 31, 2022, was approximately RMB 1,318.3 million, primarily due to dividend payments of RMB 236.3 million and the repurchase of convertible bonds of RMB 886.5 million[55] Cost Management and Efficiency - The company faced significant cost pressure due to rising raw material prices and inflation, prompting continuous improvements in OCM (Operational Cost Management) to mitigate the impact on gross margin[23] - Cost of sales reduced by 13.0% from RMB 1,211.6 million in 2021 to RMB 1,053.9 million in 2022, attributed to decreased customer flow and lower material costs[30] - Selling and distribution expenses decreased by 14.2% from RMB 1,084.9 million in 2021 to RMB 930.5 million in 2022, primarily due to reduced rental costs during the pandemic[34] - The average inventory turnover days increased from 86.9 days for the year ended December 31, 2021, to 104.4 days for 2022, primarily due to production slowdowns caused by the pandemic and rising raw material prices[63] Governance and Compliance - The audit committee reviewed and discussed the annual performance for the year ended December 31, 2022, confirming the financial statements were consistent with the audited figures[128] - The company has complied with the corporate governance code as of December 31, 2022[126] - The company has adopted the standard code for securities trading by directors, ensuring compliance throughout the year[127] - The annual performance announcement is available on the Hong Kong Stock Exchange website and the company's website[129] Future Outlook - The company anticipates that the consumer market will gradually recover in 2023, despite short-term pressures on consumption growth[26] - The company plans to steadily advance high-quality store expansion and accelerate community consumption scene layout in 2023[26] - The company aims to optimize product structure and create a diversified product innovation system in the upcoming year[26] - The company will focus on integrating supply chain management to reduce costs and enhance efficiency against external risks[26]

Store Operations - In the first half of 2022, the Group had a total of 3,160 stores, including 1,342 self-operated stores and 1,818 franchised stores, covering 297 cities in 27 provinces, autonomous regions, and municipalities in China[12]. - As of June 30, 2022, the total number of stores reached 3,160, comprising 1,342 self-operated stores and 1,818 franchised stores, covering 297 cities across 27 provinces in China[14]. - The Group contracted with approximately 500 franchisees, with a total of 1,818 franchised stores across the country as of June 30, 2022[21]. - The geographic coverage of offline stores was improved, with balanced development between self-operated and franchised businesses[18]. Financial Performance - Revenue for the first half of 2022 was RMB 915,235,000, a decrease of 19.4% compared to RMB 1,136,145,000 in the same period of 2021[16]. - The Group's total revenue decreased by approximately 18.7% from RMB 1,453.0 million for the six months ended June 30, 2021, to RMB 1,181.1 million for the six months ended June 30, 2022[43]. - Profit for the period decreased to RMB 18.4 million, a decline of 92.0% compared to RMB 229.6 million for the same period in 2021[42]. - The net profit margin for the six months ended June 30, 2022, was 1.6%, down from 15.8% in the previous year[42]. - Total comprehensive income for the period amounted to RMB 37.9 million, compared to RMB 223.2 million for the same period in 2021, reflecting a decline of approximately 83%[49]. Market Trends and Consumer Behavior - The total retail sales of consumer goods in China showed a downward trend period-over-period, reflecting continued depression of consumer sentiment[7]. - The pandemic and global economic fluctuations have significantly impacted the consumer industry, leading to a profound change in consumption structure and preferences[8]. - The young generation has become the main consumer group, pursuing trendy, convenient, and cost-effective products[8]. - The shift in consumption mode and social isolation has caused continuous fluctuations in consumer traffic, resulting in lower-than-expected recovery[8]. Strategic Initiatives - The Group aims to explore new development areas based on consumer demands and optimize consumer experience to achieve sustainable growth[9]. - The Group is focusing on expanding its overall scale of existing channels and exploring more precise and segmented sales channels[9]. - The Group launched the "National Community Store Project" in early 2022, achieving a total of 561 community stores by June 30, 2022[20]. - The Group focused on exploring community store models to seek new market opportunities in the post-pandemic era[20]. Cost Management and Efficiency - The Group optimized its operating cost management system to address rising raw material costs due to the pandemic and global inflation, focusing on cost reduction and efficiency improvement[30][32]. - The Group's supply chain optimization efforts included dynamic management of logistics and warehouse distribution to reduce costs and improve efficiency[31][32]. - The Group's focus on organizational capacity enhancement included innovative training and the release of a "Development Manual for Retail Terminal Personnel" to improve management efficiency[34][36]. Revenue Sources and Contributions - The revenue from Internet O&O business accounted for 32.1% of the total interim revenue in 2022[22]. - Revenue contribution from Central China was RMB 488,835,000, accounting for 53.4% of total revenue[16]. - Sales derived from franchisees increased by approximately 39.9% from the corresponding period in 2021[44]. Economic Outlook - The international situation remains uncertain, contributing to a significant slowdown in global economic growth[7]. - The Group remains confident in long-term economic recovery and healthy domestic growth despite current global economic stagnation risks[37]. - The Group anticipates that the prolonged pandemic will adversely impact its operations and financial performance in the short run, but remains optimistic about long-term industry development[39]. Employee and Incentive Plans - The Group implemented a diversified employee incentive plan, awarding 26,792,953 ordinary shares to 212 selected individuals as of June 30, 2022, based on performance achievements[35][36]. - The Group had a total of 4,185 employees as of June 30, 2022, with approximately 61.4% in retail operations and sales[97]. Cash Flow and Financial Position - As of June 30, 2022, the Group's cash and bank balances were approximately RMB 1,142.5 million, down from RMB 2,101.3 million as of December 31, 2021[56]. - The Group's net assets decreased to RMB 4,030.8 million as of June 30, 2022, from RMB 4,210.3 million as of December 31, 2021, a decline of approximately 4.3%[53]. - For the six months ended June 30, 2022, net cash generated from operating activities was approximately RMB 321.9 million, a slight decrease from RMB 322.3 million in the same period of 2021[74]. Investment and Capital Expenditures - The total amount utilized for the construction and improvement of processing facilities was RMB 1,158.5 million, with a remaining balance of RMB 99.8 million as of June 30, 2022[67]. - The Group's capital expenditures amounted to RMB 111.9 million, primarily for the establishment and improvement of processing facilities[88]. Shareholder Information - The company proposed not to declare any interim dividend for the six months ended June 30, 2022, consistent with the previous year[189]. - The interests of Directors and the chief executive in the Company's shares were disclosed as required under the Securities and Futures Ordinance[111].

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** |