[Report on Review of Interim Financial Information](index=3&type=section&id=Report%20on%20Review%20of%20Interim%20Financial%20Information) [Introduction](index=3&type=section&id=Introduction) Independent auditor Shinewing (HK) CPA Limited has reviewed the condensed consolidated financial statements of China Starch Holdings Limited and its subsidiaries for the six months ended June 30, 2019, prepared in accordance with Hong Kong Accounting Standard 34 - Auditor: Shinewing (HK) CPA Limited[5](index=5&type=chunk)[10](index=10&type=chunk) - Review Period: Six months ended June 30, 2019[6](index=6&type=chunk) - Preparation Standard: Hong Kong Accounting Standard 34 'Interim Financial Reporting'[6](index=6&type=chunk) [Scope of Review](index=3&type=section&id=Scope%20of%20Review) The review was conducted in accordance with Hong Kong Standard on Review Engagements 2410, primarily involving inquiries of financial and accounting personnel and analytical procedures, with a scope significantly narrower than an audit, thus no audit opinion is expressed - The review was conducted in accordance with Hong Kong Standard on Review Engagements 2410 issued by the HKICPA[6](index=6&type=chunk) - The scope of review is narrower than an audit, and no audit opinion is expressed[6](index=6&type=chunk) [Conclusion](index=4&type=section&id=Conclusion) Based on the review, the auditor found no matters that would lead them to believe the condensed consolidated financial statements are not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34 - The auditor found no matters that would lead them to believe the condensed consolidated financial statements are not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34[9](index=9&type=chunk) [Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) The Group's profitability significantly declined in H1 2019, with revenue growing 19.4% year-on-year, but gross profit falling 20.3%, leading to a 65.5% decrease in profit and total comprehensive income for the period | Metric | 2019年H1 (RMB thousand) | 2018年H1 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 2,872,208 | 2,405,631 | +19.4% | | Cost of Sales | (2,717,941) | (2,212,155) | +22.9% | | Gross Profit | 154,267 | 193,476 | -20.3% | | Operating Profit | 35,498 | 115,673 | -69.3% | | Profit Before Income Tax | 46,656 | 134,231 | -65.2% | | Profit and Total Comprehensive Income for the Period | 36,749 | 106,635 | -65.5% | | Basic and Diluted EPS (RMB) | 0.0064 | 0.0175 | -63.4% | [Condensed Consolidated Statement of Financial Position](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2019, the Group's total assets slightly increased, primarily due to increases in property, plant and equipment, right-of-use assets, and significant growth in inventories and trade and other receivables; however, cash and cash equivalents significantly decreased, and total equity slightly declined | Metric | 2019年6月30日 (RMB thousand) | 2018年12月31日 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Property, Plant and Equipment | 1,918,150 | 1,781,270 | +7.7% | | Right-of-Use Assets | 403,347 | 201,132 | +100.5% | | Total Non-current Assets | 2,512,543 | 2,210,876 | +13.6% | | Inventories | 609,166 | 409,822 | +48.6% | | Trade and Other Receivables | 740,503 | 462,391 | +60.1% | | Cash and Cash Equivalents | 168,931 | 782,904 | -78.4% | | Total Current Assets | 1,734,412 | 2,001,179 | -13.4% | | Total Assets | 4,246,955 | 4,212,055 | +0.8% | | Total Equity | 2,899,800 | 2,926,343 | -0.9% | | Total Liabilities | 1,347,155 | 1,285,712 | +4.8% | [Condensed Consolidated Statement of Changes in Equity](index=8&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) As of June 30, 2019, the Group's total equity slightly decreased from RMB 2,926,343 thousand on January 1, 2019, to RMB 2,899,800 thousand, primarily due to the payment of 2018 final dividends, partially offset by profit for the period | Metric | 2019年1月1日 (RMB thousand) | 2019年6月30日 (RMB thousand) | Change (RMB thousand) | | :--- | :--- | :--- | :--- | | Equity Attributable to Owners of the Company | 2,787,685 | 2,762,686 | -24,999 | | Non-controlling Interests | 138,658 | 137,114 | -1,544 | | Total Equity | 2,926,343 | 2,899,800 | -26,543 | | Profit and Total Comprehensive Income for the Period | - | 36,749 | +36,749 | | 2018 Final Dividend | - | (63,292) | -63,292 | [Condensed Consolidated Statement of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) The Group's net cash and cash equivalents decreased by RMB 613,973 thousand in H1 2019, primarily due to a significant increase in net cash outflows from operating and investing activities, contrasting sharply with a net cash increase in the same period of 2018 | Metric | 2019年H1 (RMB thousand) | 2018年H1 (RMB thousand) | Change (RMB thousand) | | :--- | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (318,866) | (47,884) | -270,982 | | Net Cash (Used in) / Generated from Investing Activities | (322,086) | 195,689 | -517,775 | | Net Cash Generated from / (Used in) Financing Activities | 26,979 | (271) | +27,250 | | Net (Decrease) / Increase in Cash and Cash Equivalents | (613,973) | 147,534 | -761,507 | | Cash and Cash Equivalents at June 30 | 168,931 | 1,250,694 | -1,081,763 | [Notes to the Condensed Consolidated Interim Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Interim%20Financial%20Statements) [1. Basis of preparation](index=10&type=section&id=1.%20Basis%20of%20preparation) These interim financial statements are prepared in accordance with HKAS 34 and the Listing Rules, adopting the accounting policies from the 2018 annual report, with no significant financial impact from policy changes; despite net cash outflow from operating activities, the Board believes the Group has sufficient working capital, thus prepared on a going concern basis - Financial statements are prepared in accordance with Hong Kong Accounting Standard 34 and the Listing Rules[22](index=22&type=chunk) - Changes in accounting policies have no significant financial impact on the Group's results and financial position for the current or prior periods[22](index=22&type=chunk) - The directors believe the Group has sufficient working capital to meet its financial obligations for the next twelve months, thus prepared on a going concern basis[22](index=22&type=chunk) [2. Segment information](index=11&type=section&id=2.%20Segment%20information) The Group is primarily divided into Upstream Products and Fermented and Downstream Products segments; in H1 2019, Upstream Products saw significant growth in both revenue and segment results, while Fermented and Downstream Products experienced declines | Metric | Upstream Products (RMB thousand) | Fermented and Downstream Products (RMB thousand) | Total (RMB thousand) | | :--- | :--- | :--- | :--- | | **2019年H1** | | | | | Sales to External Customers | 2,227,610 | 644,598 | 2,872,208 | | Reportable Segment Results | 114,121 | 27,545 | 141,666 | | **2018年H1** | | | | | Sales to External Customers | 1,672,371 | 733,260 | 2,405,631 | | Reportable Segment Results | 105,019 | 90,162 | 195,181 | [3. Other gains and losses](index=12&type=section&id=3.%20Other%20gains%20and%20losses) Other gains and losses increased to RMB 37,035 thousand in H1 2019 (H1 2018: RMB 32,309 thousand), primarily due to increased amortization of government grants and gains on asset disposals, partially offset by foreign exchange losses and reduced government grants | Metric | 2019年H1 (RMB thousand) | 2018年H1 (RMB thousand) | | :--- | :--- | :--- | | Government Grants | 2,343 | 4,585 | | Amortization of Government Grants | 28,206 | 24,333 | | Gain on Sale of Scrap Materials | 5,892 | 4,974 | | Gain / (Loss) on Disposal of Property, Plant and Equipment | 4,195 | (439) | | Net Foreign Exchange (Loss) / Gain | (1,322) | 462 | | Others | (2,279) | (1,606) | | **Total** | **37,035** | **32,309** | - Government grants primarily refer to subsidies provided by local governments to support business development[29](index=29&type=chunk) [4. Profit before income tax](index=12&type=section&id=4.%20Profit%20before%20income%20tax) In H1 2019, the Group's main expenses included employee benefit expenses, depreciation of property, plant and equipment, transport expenses, and research and development expenses, with transport and R&D expenses showing significant year-on-year growth | Metric | 2019年H1 (RMB thousand) | 2018年H1 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Employee Benefit Expenses | 96,789 | 86,147 | +12.4% | | Depreciation of Property, Plant and Equipment | 78,861 | 79,750 | -1.1% | | Depreciation of Right-of-Use Assets | 2,763 | 2,744 | +0.7% | | Transport Expenses | 59,730 | 34,246 | +74.4% | | Research and Development Expenses | 19,101 | 13,951 | +36.9% | - Research and development expenses include staff costs of R&D employees, which are included in employee benefit expenses[33](index=33&type=chunk) [5. Income tax expenses](index=13&type=section&id=5.%20Income%20tax%20expenses) Income tax expenses significantly decreased to RMB 9,907 thousand in H1 2019 (H1 2018: RMB 27,596 thousand), primarily due to a substantial reduction in PRC corporate income tax, with one PRC subsidiary enjoying a preferential 15% tax rate as a high-tech enterprise | Metric | 2019年H1 (RMB thousand) | 2018年H1 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Current Income Tax – PRC Corporate Income Tax | 507 | 62,743 | -99.2% | | Deferred Tax | 9,400 | (30,697) | N/A | | **Total** | **9,907** | **27,596** | **-64.1%** | - One PRC subsidiary is recognized as a high-tech enterprise, enjoying a preferential corporate income tax rate of **15%**[36](index=36&type=chunk) - No provision for Hong Kong profits tax was made as the Group entities did not generate or earn profits in Hong Kong during both periods[36](index=36&type=chunk) [6. Earnings per share](index=13&type=section&id=6.%20Earnings%20per%20share) Basic earnings per share significantly decreased to RMB 0.0064 in H1 2019 (H1 2018: RMB 0.0175), reflecting a substantial reduction in profit attributable to owners of the company; diluted earnings per share are not presented due to the absence of potential dilutive ordinary shares | Metric | 2019年H1 | 2018年H1 | Change (%) | | :--- | :--- | :--- | :--- | | Basic EPS (RMB) | 0.0064 | 0.0175 | -63.4% | | Profit (RMB thousand) | 38,293 | 104,906 | -63.5% | | Weighted Average Number of Shares | 5,995,892,000 | 5,995,892,000 | 0% | - No diluted earnings per share are presented as there were no potentially dilutive ordinary shares for the six months ended June 30, 2019 and 2018[36](index=36&type=chunk) [7. Dividends](index=13&type=section&id=7.%20Dividends) The Board does not recommend an interim dividend for H1 2019 (H1 2018: nil); the final dividend of HK 1.20 cents per share for FY2018 was approved at the AGM on May 21, 2019 - The Board does not recommend an interim dividend for the six months ended June 30, 2019 (2018: nil)[36](index=36&type=chunk) - The final dividend of **HK 1.20 cents per share** for the year ended December 31, 2018, was approved at the Annual General Meeting held on May 21, 2019[36](index=36&type=chunk) [8. Property, plant and equipment](index=14&type=section&id=8.%20Property,%20plant%20and%20equipment) As of June 30, 2019, the net book value of property, plant and equipment increased to RMB 1,918,150 thousand, primarily due to additions of RMB 246,730 thousand | Metric | 2019年1月1日 (RMB thousand) | 2019年6月30日 (RMB thousand) | Change (RMB thousand) | | :--- | :--- | :--- | :--- | | Net Book Value | 1,781,270 | 1,918,150 | +136,880 | | Additions | - | 246,730 | N/A | | Disposals | - | (30,989) | N/A | | Depreciation | - | (78,861) | N/A | [9. Right-of-use assets](index=14&type=section&id=9.%20Right-of-use%20assets) As of June 30, 2019, the net book value of right-of-use assets significantly increased to RMB 403,347 thousand, primarily due to additions of RMB 204,978 thousand | Metric | 2019年1月1日 (RMB thousand) | 2019年6月30日 (RMB thousand) | Change (RMB thousand) | | :--- | :--- | :--- | :--- | | Net Book Value | 201,132 | 403,347 | +202,215 | | Additions | - | 204,978 | N/A | | Depreciation | - | (2,763) | N/A | [10. Trade and other receivables](index=14&type=section&id=10.%20Trade%20and%20other%20receivables) As of June 30, 2019, trade and other receivables significantly increased to RMB 740,503 thousand, driven by increases in trade receivables, bills receivable, and prepayments; impairment losses of RMB 5,807 thousand were recognized during the period | Metric | 2019年6月30日 (RMB thousand) | 2018年12月31日 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Trade Receivables (net of impairment) | 229,948 | 76,867 | +199.2% | | Bills Receivable | 270,807 | 246,316 | +9.9% | | Prepayments and Other Tax Receivables | 223,577 | 137,868 | +62.2% | | **Total** | **740,503** | **462,391** | **+60.1%** | - For the six months ended June 30, 2019, an impairment loss of **RMB 5,807 thousand** was recognized as an expense under the expected credit loss model[44](index=44&type=chunk) - The credit period for trade receivables is generally **0 to 150 days**[47](index=47&type=chunk) - Bills receivable generally have a maturity period of **180 days**, with no recent default records[50](index=50&type=chunk) [11. Share capital](index=16&type=section&id=11.%20Share%20capital) As of June 30, 2019, and December 31, 2018, the total number of ordinary shares issued by the Company remained unchanged at 5,995,892,043 shares - As of June 30, 2019, and December 31, 2018, the total number of ordinary shares issued by the Company was **5,995,892,043 shares**[54](index=54&type=chunk) [12. Trade and other payables](index=16&type=section&id=12.%20Trade%20and%20other%20payables) As of June 30, 2019, trade and other payables decreased to RMB 609,535 thousand, primarily due to reductions in payables for construction and equipment and trade payables, partially offset by increases in customer advances and accrued expenses | Metric | 2019年6月30日 (RMB thousand) | 2018年12月31日 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total Trade and Bills Payable | 108,653 | 126,713 | -14.3% | | Payables for Construction and Equipment | 330,683 | 446,737 | -26.0% | | Customer Advances | 191,285 | 113,294 | +68.8% | | Accrued Expenses | 71,127 | 21,643 | +228.6% | | **Total** | **609,535** | **694,036** | **-12.1%** | - Bills payable are secured by bills receivable (**RMB 2,615 thousand**) and pledged bank deposits (**RMB 5,812 thousand**)[57](index=57&type=chunk) - The average credit period for purchases is **80 days**[61](index=61&type=chunk) [13. Borrowings](index=17&type=section&id=13.%20Borrowings) As of June 30, 2019, total borrowings significantly increased to RMB 31,701 thousand, primarily due to new bank borrowings of RMB 27,269 thousand; this bank borrowing is secured by the controlling shareholder, bears a fixed annual interest rate of 2.5%, while government loans are unsecured and interest-free | Metric | 2019年6月30日 (RMB thousand) | 2018年12月31日 (RMB thousand) | Change (RMB thousand) | | :--- | :--- | :--- | :--- | | Bank Borrowings | 27,269 | – | +27,269 | | Government Loans | 4,432 | 4,432 | 0 | | **Total** | **31,701** | **4,432** | **+27,269** | - Bank borrowings are secured by pledged bank deposits provided by the controlling shareholder, Yi Xing Group Limited, bear a fixed annual interest rate of **2.5%**, and are repayable within one year[65](index=65&type=chunk) - Government loans are unsecured and interest-free[65](index=65&type=chunk) [14. Related party transactions](index=18&type=section&id=14.%20Related%20party%20transactions) Related party transactions in H1 2019 primarily consisted of key management personnel compensation, totaling RMB 955 thousand, a slight increase from the same period in 2018 | Metric | 2019年H1 (RMB thousand) | 2018年H1 (RMB thousand) | | :--- | :--- | :--- | | Short-term Benefits | 875 | 875 | | Retirement Benefit Scheme Contributions | 80 | 72 | | **Total** | **955** | **947** | [15. Comparative figures](index=18&type=section&id=15.%20Comparative%20figures) Certain comparative figures in the condensed consolidated cash flow statement have been reclassified to conform to the current period's presentation, with no financial impact from this reclassification - Certain comparative figures in the condensed consolidated cash flow statement have been reclassified to conform to the current period's presentation, with no financial impact from the reclassification[74](index=74&type=chunk) [Management Discussion and Analysis](index=19&type=section&id=Management%20Discussion%20and%20Analysis) [Industry Overview and Company Development](index=19&type=section&id=Industry%20Overview%20and%20Company%20Development) In H1 2019, China's economic growth slowed to a 20-year low of 6.3%; the corn starch industry faces a second wave of consolidation characterized by overcapacity, low profit margins, and high working capital demands; African Swine Fever negatively impacted animal feed-related products; the company's strategy involves strengthening cost control, maintaining a robust balance sheet, and seeking niche market opportunities; Jin Yumi Biotechnology's main production facilities have largely completed trial operations, with an expected annual capacity of 800,000 tonnes by year-end, and ERP system upgrade is nearing completion - China's 2019 H1 economic growth was **6.3%**, the slowest in the past two decades[77](index=77&type=chunk) - The corn starch industry faces a second wave of consolidation, characterized by overcapacity, low profit margins, and high working capital demands[77](index=77&type=chunk) - The outbreak of African Swine Fever (ASF) indirectly impacted the business performance of animal feed raw materials such as lysine, corn bran, and corn gluten meal[77](index=77&type=chunk) - The Company's long-term strategy includes strengthening cost control, maintaining a robust balance sheet, and identifying business opportunities to develop niche markets for corn starch[77](index=77&type=chunk) - Shouguang Jin Yumi Biotechnology Co., Ltd.'s main corn starch production facilities have largely completed trial operations, with an expected increase in production scale to a designated annual operating capacity of **800,000 tonnes** by the end of 2019[77](index=77&type=chunk) - The Enterprise Resource Planning (ERP) system upgrade is expected to be completed in the last quarter of the current year to improve work efficiency and management effectiveness[77](index=77&type=chunk) [Business Review](index=19&type=section&id=BUSINESS%20REVIEW) [Upstream products](index=19&type=section&id=Upstream%20products) The Group's upstream products business successfully maintained market position, achieving growth in both sales volume and revenue; due to stagnation in the animal feed market and overall economic conditions, local demand was weak, leading the Group to shift sales focus to overseas markets; rising corn kernel prices resulted in cost pressure - The Group shifted its sales focus to overseas markets to address weak local demand for corn gluten meal, corn bran, and corn starch[77](index=77&type=chunk) - Corn kernel prices (the main raw material for corn starch) continued to rise, with the Group sharing part of the cost pressure with customers[77](index=77&type=chunk) [Fermented and downstream products](index=20&type=section&id=Fermented%20and%20downstream%20products) Both lysine and starch sugar face overcapacity issues; the Group's strategy is to maintain optimal inventory levels and collaborate closely with customers for production planning; lysine sales focus shifted to overseas markets to mitigate African Swine Fever impacts, while modified starch demand is weak in both domestic and international markets - Both lysine and starch sugar face overcapacity issues[79](index=79&type=chunk) - The strategy is to maintain optimal inventory levels and work closely with customers to plan production and delivery schedules[79](index=79&type=chunk) - The sales focus for lysine products has shifted to overseas markets to mitigate the impact of African Swine Fever[80](index=80&type=chunk) - Demand for modified starch products is weak in both domestic and overseas markets[80](index=80&type=chunk) [Financial Performance](index=20&type=section&id=FINANCIAL%20PERFORMANCE) [Overview](index=20&type=section&id=OVERVIEW) Influenced by Jin Yumi Biotechnology's trial production, the Group's revenue significantly increased to RMB 2,872 million; however, due to industry oversupply and rising corn kernel costs, gross profit sharply declined by 20.3% to RMB 154 million, and profit after tax significantly decreased to RMB 37 million | Metric | 2019年H1 (RMB million) | 2018年H1 (RMB million) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 2,872 | 2,406 | +19.4% | | Gross Profit | 154 | 193 | -20.3% | | Profit After Tax | 37 | 107 | -65.4% | | Basic EPS (RMB) | 0.0064 | 0.0175 | -63.4% | - Jin Yumi Biotechnology is still in its trial operation phase and recorded operating losses, but management believes its business performance will not have a significant impact on the Group's balance sheet[82](index=82&type=chunk) [Segment Performance](index=20&type=section&id=SEGMENT%20PERFORMANCE) [Upstream products](index=20&type=section&id=Upstream%20products_segment) Upstream products segment revenue significantly increased by 33.2% to RMB 2,227,610 thousand, primarily driven by a substantial increase in sales volume (719,823 tonnes, up 28.4%) from Jin Yumi Biotechnology's trial operations; average selling price slightly rose by 3.5%, but gross profit margin decreased by 1.1 percentage points to 4.8% | Metric | 2019年H1 | 2018年H1 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue (RMB thousand) | 2,227,610 | 1,672,371 | +33.2% | | Sales Volume (tonnes) | 719,823 | 560,533 | +28.4% | | Average Selling Price (RMB/tonne) | 2,154 | 2,082 | +3.5% | | Gross Profit (RMB thousand) | 106,392 | 98,488 | +8.0% | | Gross Profit Margin | 4.8% | 5.9% | -1.1pp | [Fermented and downstream products](index=21&type=section&id=Fermented%20and%20downstream%20products_segment) Fermented and downstream products segment revenue decreased to RMB 644,598 thousand; lysine revenue fell due to weak market demand and a significant drop in average selling price (-13.0%); starch sugar revenue increased, but modified starch revenue significantly declined by 19.1%; the segment's gross profit margin decreased from 13.0% to 7.4% | Metric | 2019年H1 (RMB thousand) | 2018年H1 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | 644,598 | 733,260 | -12.1% | | - Lysine Revenue | 335,141 | 401,341 | -16.5% | | - Lysine Average Selling Price (RMB/tonne) | 5,032 | 5,782 | -13.0% | | - Lysine Sales Volume (tonnes) | 66,598 | 69,416 | -4.0% | | - Starch Sugar Revenue | 159,784 | 146,209 | +9.3% | | - Modified Starch Revenue | 130,291 | 161,063 | -19.1% | | Gross Profit | 47,875 | 94,988 | -49.6% | | Gross Profit Margin | 7.4% | 13.0% | -5.6pp | [Cost of sales](index=21&type=section&id=Cost%20of%20sales) In H1 2019, corn kernels and utility expenses remained the primary cost components, accounting for 83.6% and 7.7% of total cost of sales, respectively; the average price of corn kernels in Shandong increased by 7.4% to RMB 1,738 per tonne, while electricity and steam costs remained stable - The main cost components are corn kernels (approximately **83.6%** of total cost of sales) and utility expenses (approximately **7.7%** of total cost of sales)[95](index=95&type=chunk) - The average price of corn kernels in Shandong was **RMB 1,738 per tonne** (2018: RMB 1,618), an increase of **7.4%**[99](index=99&type=chunk) - The average cost of electricity and steam remained stable during the review period[99](index=99&type=chunk) [Review of Other Operations](index=22&type=section&id=REVIEW%20OF%20OTHER%20OPERATIONS) [Other gains and losses](index=22&type=section&id=Other%20gains%20and%20losses_review) Other gains and losses increased to RMB 37,035 thousand in H1 2019, primarily due to increased amortization of government grants and gains on asset disposals, partially offset by foreign exchange losses and reduced government grants - Other gains and losses increased to **RMB 37,035 thousand** (2018: RMB 32,309 thousand)[100](index=100&type=chunk) - The increase was primarily attributable to increased amortization of government grants and gains on disposal of property, plant and machinery, and scrap materials[100](index=100&type=chunk) - The increase was partially offset by exchange losses and a decrease in government grants received[100](index=100&type=chunk) [Distribution and administrative expenses](index=22&type=section&id=Distribution%20and%20administrative%20expenses) Distribution expenses increased by 57.8% to RMB 70,640 thousand due to a significant increase in sales volume and expanded distribution scope; administrative expenses grew by 21.4% to RMB 79,357 thousand due to higher staff costs and R&D expenses | Metric | 2019年H1 (RMB thousand) | 2018年H1 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Distribution Expenses | 70,640 | 44,768 | +57.8% | | Administrative Expenses | 79,357 | 65,344 | +21.4% | - The increase in distribution expenses was mainly due to higher transport expenses, resulting from a significant increase in sales volume and expanded distribution scope[101](index=101&type=chunk) - The increase in administrative expenses was mainly due to higher staff costs and salaries, as well as increased research and development expenses[101](index=101&type=chunk) [Liquidity, Financial Resources and Capital Structure](index=22&type=section&id=Liquidity,%20financial%20resources%20and%20capital%20structure) The directors believe the Group has sufficient working capital, with cash and cash equivalents primarily denominated in RMB; key financial indicators show a decrease in current and quick ratios, while the gearing ratio significantly increased due to new bank borrowings; both the Group's headcount and total staff costs increased | Metric | 2019年6月30日 | 2018年12月31日 | Change | | :--- | :--- | :--- | :--- | | Trade Receivables Turnover (days) | 26 | 22 | +4 | | Trade Payables Turnover (days) | 8 | 11 | -3 | | Inventory Turnover (days) | 34 | 25 | +9 | | Current Ratio (times) | 1.8 | 2.2 | -0.4 | | Quick Ratio (times) | 1.2 | 1.7 | -0.5 | | Gearing Ratio – Borrowings to Total Assets (%) | 0.7 | 0.1 | +0.6pp | - The directors believe that the Group's available working capital is sufficient to meet its current requirements[102](index=102&type=chunk) - The Group's cash and cash equivalents are mostly denominated in RMB[102](index=102&type=chunk) - The Group obtained a bank borrowing of approximately **RMB 27,269 thousand** (denominated in HKD), secured by the controlling shareholder, bearing a fixed annual interest rate of **2.5%**, and repayable within one year[103](index=103&type=chunk) - The Group's government loans of approximately **RMB 4,432 thousand** are unsecured, interest-free, and due within one year[112](index=112&type=chunk) - As of June 30, 2019, the Group employed **2,349 staff** (2018: 2,150), with total staff costs (including directors' emoluments) of approximately **RMB 97 million** (2018: RMB 86 million)[112](index=112&type=chunk) - There have been no significant changes in the Group's financial management, treasury policies, and foreign exchange risks since the disclosure in the 2018 annual report[112](index=112&type=chunk) - As of June 30, 2019, bills payable were secured by bills receivable of **RMB 2,615 thousand** and pledged bank deposits of **RMB 5,812 thousand**, respectively; the Group did not pledge any land use rights and buildings as collateral for bank credit[112](index=112&type=chunk) - As of June 30, 2019, the Group had no significant contingent liabilities[112](index=112&type=chunk) [Disclosure of Additional Information](index=24&type=section&id=Disclosure%20of%20Additional%20Information) [Interim Dividend](index=24&type=section&id=INTERIM%20DIVIDEND) The Board does not recommend an interim dividend for H1 2019 (H1 2018: nil) - The Board does not recommend an interim dividend for the six months ended June 30, 2019 (2018: nil)[114](index=114&type=chunk) [Directors' and Chief Executive's Interests](index=24&type=section&id=DIRECTORS'%20AND%20CHIEF%20EXECUTIVE'S%20INTERESTS) As of June 30, 2019, Mr. Tian Qixiang held a 61.79% equity interest in the Company through Yi Xing Group Limited, in which he holds a 54.58% interest; other directors also hold interests in Yi Xing Group Limited; apart from the above, no other discloseable interests or short positions of directors or chief executives exist | Director Name | Company/Associated Corporation | Capacity/Nature of Interest | Number and Class of Securities Held | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | :--- | | Mr. Tian Qixiang | The Company | Interest in Controlled Corporation | 3,705,385,194 Ordinary Shares (L) | 61.79% | | Mr. Tian Qixiang | Yi Xing Group Limited | Beneficial Owner | 131 Ordinary Shares (L) | 54.58% | | Mr. Gao Shijun | Yi Xing Group Limited | Beneficial Owner | 60 Ordinary Shares (L) | 25.00% | | Mr. Yu Yingquan | Yi Xing Group Limited | Beneficial Owner | 1 Ordinary Shares (L) | 0.42% | - Mr. Tian Qixiang is deemed to be interested in all shares held by Yi Xing Group Limited[115](index=115&type=chunk) [Interests of the Substantial Shareholders and Other Persons](index=25&type=section&id=INTERESTS%20OF%20THE%20SUBSTANTIAL%20SHAREHOLDERS%20AND%20OTHER%20PERSONS) As of June 30, 2019, Yi Xing Group Limited, as a substantial shareholder, held a 61.79% long position in the Company's shares; Mr. Tian Qixiang, Executive Director and Chairman of the Company, is deemed to be interested in all shares held by Yi Xing Group Limited; other than this, no other substantial shareholder or person interests requiring disclosure under the SFO exist | Shareholder Name | Capacity/Nature of Interest | Number of Shares/Relevant Shares | Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Yi Xing Group Limited | Beneficial Owner | 3,705,385,194 (L) | 61.79% | - Yi Xing Group Limited is approximately **54.58%** owned by Mr. Tian, Executive Director and Chairman of the Company, who is deemed to be interested in all shares held by Yi Xing Group Limited[127](index=127&type=chunk) [Purchase, Sale or Redemption of the Company's Listed Securities](index=26&type=section&id=PURCHASE,%20SALE%20OR%20REDEMPTION%20OF%20THE%20COMPANY'S%20LISTED%20SECURITIES) During the review period, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities - During the review period, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities[130](index=130&type=chunk) [Corporate Governance](index=26&type=section&id=CORPORATE%20GOVERNANCE) The Company has complied with the Corporate Governance Code set out in Appendix 14 of the Listing Rules, except that Mr. Yu Jihua, Chairman of the Audit Committee, did not attend the 2019 Annual General Meeting due to other business activities - The Company has complied with the Corporate Governance Code set out in Appendix 14 of the Listing Rules, except that Mr. Yu Jihua (Chairman of the Audit Committee) did not attend the 2019 Annual General Meeting due to other business activities[130](index=130&type=chunk) [Model Code for Securities Transactions by Directors](index=26&type=section&id=MODEL%20CODE%20FOR%20SECURITIES%20TRANSACTIONS%20BY%20DIRECTORS) The Company has adopted its own code for securities transactions, with terms no less exacting than the Model Code; following specific inquiries, all directors confirmed their compliance with the required standards throughout the review period - The Company has adopted its own code for securities transactions, with terms no less exacting than the Model Code[130](index=130&type=chunk) - All directors confirmed their compliance with the required standards throughout the review period[130](index=130&type=chunk) [Review of Interim Financial Statements](index=27&type=section&id=REVIEW%20OF%20INTERIM%20FINANCIAL%20STATEMENTS) The Audit Committee has reviewed and discussed the unaudited condensed consolidated interim financial statements for the six months ended June 30, 2019, with management and auditor Shinewing (HK) CPA Limited; Shinewing also conducted a review of these statements in accordance with Hong Kong Standard on Review Engagements 2410 - The Audit Committee has reviewed and discussed the unaudited condensed consolidated interim financial statements for the six months ended June 30, 2019, with the Company's management and auditor Shinewing (HK) CPA Limited[132](index=132&type=chunk) - Shinewing has reviewed the Group's unaudited condensed consolidated interim financial statements for the six months ended June 30, 2019, in accordance with Hong Kong Standard on Review Engagements 2410 issued by the HKICPA[132](index=132&type=chunk) [Corporate Information](index=28&type=section&id=Corporate%20Information) This section provides key corporate information for China Starch Holdings Limited, including Board members, company secretary, authorized representatives, registered and principal place of business, auditor, legal advisor, principal bankers, share registrar, and company website - Executive Directors: Mr. Tian Qixiang (Chairman), Mr. Gao Shijun (Chief Executive Officer), Mr. Liu Xianggang, Mr. Yu Yingquan[134](index=134&type=chunk) - Independent Non-executive Directors: Professor Hua Qiang, Mr. Sun Mingdao, Mr. Yu Jihua[134](index=134&type=chunk) - Auditor: Shinewing (HK) CPA Limited[134](index=134&type=chunk) - Principal Bankers: Bank of China, China Construction Bank, Industrial and Commercial Bank of China, Industrial Bank Co., Ltd[136](index=136&type=chunk) - Company Website: www.chinastarch.com.hk[136](index=136&type=chunk)

Financial Performance - The Group recorded total revenue of approximately RMB5,073 million, an increase from RMB4,695 million in 2017, representing a growth of 8.1%[58]. - Gross profit decreased significantly by 28.5% to approximately RMB443 million, down from RMB620 million in 2017[58]. - Profit after taxation decreased to RMB238 million, compared to RMB394 million in 2017, reflecting a decline of 39.6%[59]. - Revenue from upstream products increased by 12.0% to RMB3,558.9 million, with a sales volume of cornstarch rising to approximately 1,153,848 tonnes[60][62]. - Revenue from fermented and downstream products slightly decreased to RMB1,514.6 million, down from RMB1,517.2 million in 2017[66]. - Revenue from starch-based sweetener increased by 18.7% to approximately RMB322.7 million, with an average selling price of RMB2,105 per tonne[68][70]. - Revenue from modified starch increased by 17.4% to RMB323.5 million, with export sales percentage rising to about 33.3%[68][71]. Business Operations - The Group's revenue is derived from two business segments: upstream products and fermented and downstream products, with production activities conducted in the People's Republic of China[6]. - The Company’s principal activity is investment holding, with subsidiaries engaged in manufacturing and selling cornstarch, lysine, and starch-based products[8]. - The Group's production activities are primarily located in the PRC, highlighting its operational focus in this region[8]. - The production capacity of cornstarch and lysine is expected to increase to 2,400,000 tonnes and 300,000 tonnes per annum respectively upon the completion of the Golden Corn Biotech production base by the end of 2019[45]. - The construction of the production base for Golden Corn Biotech is slightly behind schedule but is still targeted for operation by the end of 2019[45]. Environmental and Sustainability Practices - The Group is committed to complying with all environmental policies and relevant laws, and has an internal laboratory to ensure product quality meets national standards[6]. - The Group's environmental and sustainability report reviews compliance with laws and regulations impacting the business and relationships with stakeholders[6]. - The environmental and sustainability report complies with the "Environmental, Social and Governance Reporting Guide" of the Hong Kong Stock Exchange[105][114]. - The company has implemented a perpetual monitoring system for sewage disposal, which is reported to local environmental protection authorities[165]. - The company did not produce any hazardous waste in its production plants during the review year, and most non-hazardous waste is sold to third parties[165]. - There were no significant incidents of non-compliance with environmental laws during the review year, reflecting the company's commitment to environmental standards[165]. Corporate Governance and Compliance - The Board recommends a final dividend of HK1.20 cents per share for the year ended 31 December 2018, pending approval at the upcoming annual general meeting[9]. - The related party transactions for the year ended 31 December 2018 did not constitute connected transactions as defined under the Listing Rules[6]. - The company has complied with the Corporate Governance Code during the year under review, except for the absence of the chairman at the annual general meeting[194]. - The company has adopted a Securities Dealing Code that applies to all directors and relevant employees, ensuring compliance throughout the year[195]. - The board considers the internal control system effective and adequate for financial reporting and compliance with listing rules as of December 31, 2018[191]. Risk Management - The Group has implemented a strong balance sheet and sufficient banking facilities to mitigate domestic market risks[186]. - The Group utilizes a risk scorecard to rank and compare identified risks and their impacts, presenting this information to the Board effectively[184]. - The board evaluates the effectiveness of the company's internal control and risk management systems[197]. - The frequency of production output limitations may increase in the future due to regional gas pollutant benchmarks set by local government[186]. Employee and Stakeholder Relations - The Company recognizes the importance of employee health and safety as a priority[116]. - The company provided major training events including fire prevention drills and hazardous chemical leaking drills to enhance employee safety[126]. - The company strictly complies with PRC Labour Law and prohibits child and forced labor, promoting fair treatment in recruitment, compensation, and working conditions[127]. - The Group's sustainability is dependent on relationships with stakeholders, balancing financial performance with social and environmental responsibilities[115][117]. - The company has developed trust with suppliers, utilizing mobile technology for transparent corn kernel pricing and efficient procurement processes[155]. Shareholder Information - As of December 31, 2018, the Company's distributable reserves amounted to approximately RMB 156,291,000, including a share premium of approximately RMB 39,369,000[98][102]. - The Board intends to balance dividend distribution with adequate cash flow and reserves, with no assurance of specific dividend payments in any given period[99][103]. - The Group's public float is maintained at not less than 25% of the total issued shares as required under the Listing Rules[43].