Financial Performance - For the six months ended June 30, 2023, revenue increased by 15.0% to RMB 3,518,957,000 compared to RMB 3,060,981,000 in the same period of 2022[16]. - Gross profit rose by 19.6% to RMB 2,037,148,000, up from RMB 1,703,043,000 year-on-year[16]. - Profit attributable to equity shareholders surged by 202.1% to RMB 1,584,899,000, compared to RMB 524,674,000 in the previous year[16]. - Adjusted net profit increased by 22.0% to RMB 802,519,000 from RMB 657,638,000 in the same period last year[16]. - Net cash generated from operating activities improved significantly to RMB 215,960,000, compared to a cash outflow of RMB 665,341,000 in the prior year[16]. - The net increase in cash and cash equivalents was RMB 4,190,228,000, a rise of 128.3% from RMB 1,835,756,000[16]. - Basic earnings per share rose by 156.5% to RMB 0.59, compared to RMB 0.23 in the same period of 2022[16]. - Net profit margin increased to 45.0%, up from 17.1% in the previous year[19]. - Adjusted net profit margin was 22.8%, compared to 21.5% in the same period last year[19]. Revenue Contribution by Brand - For the six months ended June 30, 2023, Zhen Jiu contributed approximately 65.5% of the company's revenue, while Li Du accounted for about 13.9%[28][33]. - Revenue from the Zhen Jiu brand grew by 14.9% to RMB 2,305.87 million, driven by higher sales in the deluxe and mid-range products, as well as an expanded sales network[96]. - Li Du brand revenue increased by 16.7% to RMB 489.22 million, attributed to growth in premium and mid-range products and nationwide sales network expansion[96]. - Xiang Jiao brand revenue rose by 17.3% to RMB 441.99 million, primarily due to increased sales from high-end products represented by the Long Jiang series[96]. - Kai Kou Xiao brand revenue grew by 6.5% to RMB 221.00 million, resulting from continuous optimization of sales channels[96]. Product Development and Innovation - The company launched three new package-free baijiu products in the first half of 2023, enhancing its product line in the deluxe and premium price ranges[32]. - The launch of the new sub-brand Ying Shan Hong targets the mid-range market through online sales channels[32]. - The company is focused on optimizing its distributor base to improve overall performance and profitability[26]. - The company has accumulated sufficient base liquor inventory to support the rapid growth of its premium and deluxe baijiu products[54]. - The company collaborates with several universities and research institutions to enhance product development capabilities[47]. Production Capacity and Facilities - As of June 30, 2023, the company operated seven production facilities in China, equipped with advanced facilities and automated production lines[53]. - The expansion of the Zhen Jiu (Mao Tai Zhen Shuang Long) production facility is expected to increase annual production capacity by 2,400 tons of sauce aroma base liquor in the second half of 2023[75][83]. - A new production facility, Li Du (Zheng Jia Shan), has been put into operation with a designed production capacity of 5,000 tons of base liquor per year[75][83]. - The company is expanding the existing Xiang Jiao (Jiang Bei) production facility, increasing its designed production capacity by 4,400 tons of base liquor per year[75][83]. Sales and Distribution Strategy - The company aims to optimize its existing distributor network and enhance product turnover to improve sell-through rates[70]. - The number of distribution partners increased from 2,678 as of December 31, 2022, to 2,811 as of June 30, 2023, representing a growth of approximately 4.97%[61]. - The total number of distributors across all channels rose from 6,618 as of December 31, 2022, to 6,898 as of June 30, 2023, indicating an increase of about 4.23%[61]. - Revenue from distributors accounted for 87.9% of total revenue, amounting to RMB 3,092.93 million, while direct sales contributed 12.1% with RMB 426.02 million[106]. Cost Management and Profitability - Cost of sales increased by 9.1% to RMB 1,481.8 million for the six months ended June 30, 2023, from RMB 1,357.9 million in the previous year[111]. - Selling and distribution expenses rose by 18.7% from RMB 682.1 million for the six months ended June 30, 2022, to RMB 809.3 million for the six months ended June 30, 2023[134]. - Administrative expenses increased by 40.7% from RMB 167.3 million for the six months ended June 30, 2022, to RMB 235.5 million for the six months ended June 30, 2023[139]. - The company focused on enhancing revenue contribution from products with higher gross profit margins, particularly in the premiumization strategy[132]. Environmental and Social Responsibility - The company achieved a 46% reduction in water usage intensity and a 44% reduction in carbon emission intensity compared to the first half of 2022, demonstrating significant progress in ESG initiatives[189]. - The company plans to implement over 100 ESG enhancement tasks in the coming six months, including baijiu bottle recycling and monitoring of GHG emissions[193]. - A photovoltaic project at Xiang Jiao distillery has been completed, generating an expected annual power output of 3,800 megawatts, which will meet nearly half of its future electricity demand[194]. - In the first half of 2023, the group donated a total of RMB 12.93 million, with RMB 6.42 million allocated to education and RMB 5.95 million for building a fire station[199]. Employee and Workforce Development - As of June 30, 2023, the company had 11,044 full-time employees, an increase from 10,976 employees as of December 31, 2022[184]. - Employee costs for the six months ended June 30, 2023, amounted to approximately RMB 576.5 million, reflecting the company's ongoing investment in workforce training and development[185]. - Training and job rotation opportunities were provided for female employees, specifically for forklift and crane driver positions[200]. - Activities were organized for International Women's Day to promote a female-friendly workplace[200].

```markdown [Financial Highlights](index=1&type=section&id=%E8%B2%A1%E5%8B%99%E6%91%98%E8%A6%81) Presents key financial performance indicators for H1 2023, showing significant growth in profit and operating cash flow, alongside improved margins Key Financial Data for the Six Months Ended June 30, 2023 | Indicator | H1 2023 (RMB Thousands) | H1 2022 (RMB Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 3,518,957 | 3,060,981 | 15.0% | | Gross Profit | 2,037,148 | 1,703,043 | 19.6% | | Profit Attributable to Equity Holders | 1,584,899 | 524,674 | 202.1% | | Adjusted Net Profit (Non-IFRS) | 802,519 | 657,638 | 22.0% | | Net Cash from Operating Activities | 215,960 | (665,341) | 132.5% | | Basic EPS (RMB) | 0.59 | 0.23 | 156.5% | Key Financial Ratios for the Six Months Ended June 30, 2023 | Ratio | H1 2023 (%) | H1 2022 (%) | | :--- | :--- | :--- | | Gross Profit Margin | 57.9 | 55.6 | | Net Profit Margin | 45.0 | 17.1 | | Adjusted Net Profit Margin (Non-IFRS) | 22.8 | 21.5 | [Management Discussion and Analysis](index=3&type=section&id=%E7%AE%A1%E7%90%86%E5%B1%A4%E8%A8%8E%E8%AB%96%E5%8F%8A%E5%88%86%E6%9E%90) [Business Review](index=3&type=section&id=%E6%A5%AD%E5%8B%99%E5%9B%9E%E9%A1%A7) The Group, a leading Baijiu company in China, achieved sustainable and high-quality growth in the first half of 2023. This was driven by the rising popularity of sauce-aroma Baijiu and a strategic focus on product premiumization, channel optimization, and maintaining healthy inventory levels. The company operates four major brands: Zhenjiu, Lidu, Xiangjiao, and Kaikouxiao - The company is the **fourth-largest** private Baijiu company in China by 2022 revenue, with sauce-aroma Baijiu as its main growth engine[5](index=5&type=chunk) - Strategic focus in H1 2023 included: (i) optimizing product structure towards high-end and higher-margin products, (ii) developing mid-range products, (iii) accelerating channel turnover, (iv) maintaining healthy distributor inventory, and (v) optimizing the distributor network[5](index=5&type=chunk) [Our Brands and Products](index=3&type=section&id=%E6%88%91%E5%80%91%E7%9A%84%E5%93%81%E7%89%8C%E5%8F%8A%E7%94%A2%E5%93%81) - The flagship brand, Zhenjiu, is the **fifth-largest** sauce-aroma Baijiu brand in China by 2022 revenue and contributed approximately **65.5%** of the Group's total revenue in H1 2023[7](index=7&type=chunk) - The Lidu brand, a high-growth potential brand, is the **fifth-largest** mixed-aroma Baijiu brand in China by 2022 revenue and contributed about **13.9%** of total revenue in H1 2023[9](index=9&type=chunk) - The regional leading brands, Xiangjiao and Kaikouxiao, contributed approximately **12.6%** and **6.3%** of total revenue in H1 2023, respectively[10](index=10&type=chunk)[11](index=11&type=chunk) [Product Development](index=5&type=section&id=%E7%94%A2%E5%93%81%E9%96%8B%E7%99%BC) - As of June 30, 2023, the product development team consisted of **210 employees**, led by a technical committee of **28** renowned Baijiu experts[12](index=12&type=chunk) - The company enhances its R&D capabilities through collaborations with universities like Jiangnan University, retaining ownership of jointly developed patents[12](index=12&type=chunk) [Production Facilities](index=6&type=section&id=%E7%94%A2%E7%94%9F%E8%A8%AD%E6%96%BD) - As of 2022 end, Zhenjiu ranked **fourth-largest** in China and **third-largest** in Guizhou for sauce-aroma base liquor annual production capacity[13](index=13&type=chunk) - A large inventory of base liquor is a core competitive advantage, enabling the company to support its high-end product growth and gradually replace third-party procurement, thereby improving gross margins[13](index=13&type=chunk) [Sales Channels](index=6&type=section&id=%E9%8A%B7%E5%94%AE%E6%B8%A0%E9%81%93) Number of Distributors by Channel | Channel Type | As of June 30, 2023 | As of Dec 31, 2022 | | :--- | :--- | :--- | | Distributor Partners | 2,678 | 2,811 | | Experience Stores | 1,074 | 1,071 | | Retailers | 2,866 | 3,016 | | **Total** | **6,618** | **6,898** | [Digital Infrastructure](index=7&type=section&id=%E6%95%B8%E5%AD%97%E5%9F%BA%E7%A4%8E%E8%A8%AD%E6%96%BD) - The company utilizes a proprietary WeChat mini-program, '渠道通' (Channel Connect), to enhance transparency and efficiency in the distribution channel, allowing for real-time management of procurement, inventory, and sales[16](index=16&type=chunk) - A QR code system is implemented on all Baijiu products to track the entire distribution process, enabling better control, identification of improper practices, and verification of inventory levels[16](index=16&type=chunk) [Latest Business Developments](index=7&type=section&id=%E6%A5%AD%E5%8B%99%E6%9C%80%E6%96%B0%E7%99%BC%E5%B1%95) - In H1 2023, the company launched three new high-end and sub-premium 'light bottle' (unpackaged) products, contributing to revenue growth and brand recognition[17](index=17&type=chunk) - Production capacity was expanded: the Lidu Zhengjiashan facility (**5,000 tons/year** design capacity) became operational, and the Xiangjiao (Jiangbei) facility increased its base liquor capacity by **4,400 tons/year**[18](index=18&type=chunk) - The company's shares were successfully listed on the Main Board of the Hong Kong Stock Exchange on April 27, 2023[19](index=19&type=chunk) [Prospects and Outlook](index=9&type=section&id=%E5%89%8D%E6%99%AF%E5%B1%95%E6%9C%9B) The Group is confident in its long-term development and its business prospects for the second half of 2023. It plans to continue its product premiumization strategy, enhance marketing to drive channel turnover, optimize its distributor network, and expand production capacity to capture market opportunities arising from the trends of premiumization, the rise of sauce-aroma Baijiu, and market consolidation - The company will continue to expand its product offerings in the sub-premium and above categories to align with its premiumization strategy[20](index=20&type=chunk) - Plans are in place to continue expanding production facilities, including Zhenjiu (Zhaojiagou) and Zhenjiu (Moutai Town Shuanglong). The latter is expected to add **2,400 tons** of annual base liquor capacity in H2 2023[20](index=20&type=chunk) [Financial Review](index=10&type=section&id=%E8%B2%A1%E5%8B%99%E5%9B%9E%E9%A1%A7) [Revenue](index=10&type=section&id=%E6%94%B6%E5%85%A5) Total revenue increased by 15.0% YoY to RMB 3,519.0 million in H1 2023. Growth was observed across all four major brands, driven by product mix optimization towards higher-end products and expansion of sales channels. Notably, revenue from high-end products surged by 32.0% Revenue by Baijiu Brand (H1 2023 vs H1 2022) | Brand | H1 2023 Revenue (RMB Thousands) | H1 2022 Revenue (RMB Thousands) | YoY Growth (%) | | :--- | :--- | :--- | :--- | | Zhenjiu | 2,305,867 | 2,007,262 | 14.9% | | Lidu | 489,224 | 419,102 | 16.7% | | Xiangjiao | 441,990 | 376,652 | 17.3% | | Kaikouxiao | 221,003 | 207,575 | 6.5% | Revenue by Price Range (H1 2023 vs H1 2022) | Price Range | H1 2023 Revenue (RMB Thousands) | H1 2022 Revenue (RMB Thousands) | YoY Growth (%) | | :--- | :--- | :--- | :--- | | High-end | 925,953 | 701,557 | 32.0% | | Sub-premium | 1,267,692 | 1,271,415 | -0.3% | | Mid-end & Below | 1,325,312 | 1,088,009 | 21.8% | Revenue by Sales Channel (H1 2023 vs H1 2022) | Sales Channel | H1 2023 Revenue (RMB Thousands) | H1 2022 Revenue (RMB Thousands) | YoY Growth (%) | | :--- | :--- | :--- | :--- | | Distributors | 3,092,934 | 2,757,464 | 12.2% | | Direct Sales | 426,023 | 303,517 | 40.4% | [Gross Profit and Gross Margin](index=13&type=section&id=%E6%AF%9B%E5%88%A9%E5%8F%8A%E6%AF%9B%E5%88%A9%E7%8E%87) Gross profit increased by 19.6% YoY to RMB 2,037.1 million. The overall gross margin improved to 57.9% from 55.6% in the prior year period. This improvement was primarily due to the optimization of the product portfolio towards higher-margin, high-end products and the increased use of self-produced base liquor, which has a lower unit cost than sourced liquor - Overall gross margin increased from **55.6%** in H1 2022 to **57.9%** in H1 2023[31](index=31&type=chunk) Gross Margin by Baijiu Brand (H1 2023 vs H1 2022) | Brand | H1 2023 Gross Margin (%) | H1 2022 Gross Margin (%) | | :--- | :--- | :--- | | Zhenjiu | 58.0% | 55.0% | | Lidu | 68.8% | 69.1% | | Xiangjiao | 60.2% | 59.7% | | Kaikouxiao | 42.5% | 39.6% | Gross Margin by Price Range (H1 2023 vs H1 2022) | Price Range | H1 2023 Gross Margin (%) | H1 2022 Gross Margin (%) | | :--- | :--- | :--- | | High-end | 70.3% | 65.4% | | Sub-premium | 65.3% | 64.3% | | Mid-end & Below | 42.1% | 39.2% | [Expenses](index=14&type=section&id=%E9%96%8B%E6%94%AF) Operating expenses increased during the period. Selling and distribution expenses rose 18.7% to RMB 809.3 million, mainly due to a 32.5% increase in employee compensation from sales team expansion. Administrative expenses grew 40.7% to RMB 235.5 million, driven by higher staff costs and RMB 19.4 million in IPO-related expenses - Selling and distribution expenses increased by **18.7%** to **RMB 809.3 million**, primarily due to a **32.5%** rise in employee compensation[37](index=37&type=chunk) - Administrative expenses increased by **40.7%** to **RMB 235.5 million**, mainly due to higher staff costs and an increase of **RMB 19.4 million** in listing expenses[38](index=38&type=chunk) [Profit for the Period](index=15&type=section&id=%E6%9C%9F%E5%85%A7%E5%88%A9%E6%BD%A4) Profit for the period attributable to equity holders of the company saw a substantial increase of 202.1%, rising from RMB 524.7 million in H1 2022 to RMB 1,584.9 million in H1 2023. This was significantly impacted by a non-cash gain on the fair value change of financial instruments issued to an investor - Profit for the period increased by **202.1%** to **RMB 1,584.9 million**[42](index=42&type=chunk) [Non-IFRS Measures](index=16&type=section&id=%E9%9D%9E%E5%9C%8B%E9%9A%9B%E8%B2%A1%E5%8B%99%E5%A0%B1%E5%91%8A%E6%BA%96%E5%89%87%E8%A8%88%E9%87%8F) Adjusted net profit, a non-IFRS measure that excludes items like listing expenses and fair value changes of financial instruments, increased by 22.0% to RMB 802.5 million. The adjusted net margin improved from 21.5% to 22.8%, reflecting stronger underlying operational profitability Reconciliation of Profit to Adjusted Net Profit (Non-IFRS) | Item (RMB Thousands) | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Profit attributable to equity holders | 1,584,899 | 524,674 | | Add: Listing expenses | 32,535 | 13,185 | | Add/Less: Fair value change of financial instruments | (814,915) | 119,779 | | **Adjusted Net Profit (Non-IFRS)** | **802,519** | **657,638** | - Adjusted net profit increased by **22.0%** YoY, and the adjusted net margin rose to **22.8%** from **21.5%**[45](index=45&type=chunk) [Liquidity and Capital Resources](index=17&type=section&id=%E6%B5%81%E5%8B%95%E8%B3%87%E9%87%91%E5%8F%8A%E8%B3%87%E6%9C%AC%E8%B3%87%E6%BA%90) The Group's liquidity position strengthened significantly, with cash and bank balances increasing to approximately RMB 6,090.9 million as of June 30, 2023, from RMB 1,683.4 million at the end of 2022, primarily due to net proceeds from the global offering. The gearing ratio was not applicable due to a net cash surplus position - Cash and bank balances stood at **RMB 6,090.9 million** as of June 30, 2023[46](index=46&type=chunk) - Total capital expenditure for H1 2023 was approximately **RMB 564.5 million**, compared to **RMB 699.2 million** in H1 2022[48](index=48&type=chunk) [Consolidated Financial Statements](index=19&type=section&id=%E7%B6%9C%E5%90%88%E8%B2%A1%E5%8B%99%E5%A0%B1%E8%A1%A8) [Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=19&type=section&id=%E7%B6%9C%E5%90%88%E6%90%8D%E7%9B%8A%E5%8F%8A%E5%85%B6%E4%BB%96%E5%85%A8%E9%9D%A2%E6%94%B6%E7%9B%8A%E8%A1%A8) The statement details the Group's financial performance for the six months ended June 30, 2023, showing a revenue of RMB 3,519.0 million and a profit attributable to equity holders of RMB 1,584.9 million [Consolidated Statement of Financial Position](index=20&type=section&id=%E7%B6%9C%E5%90%88%E8%B2%A1%E5%8B%99%E7%8B%80%E6%B3%81%E8%A1%A8) The statement presents the Group's financial position as of June 30, 2023. Total assets amounted to RMB 16,205.1 million, and total equity attributable to owners of the company was RMB 11,983.3 million, a significant turnaround from a total equity deficit of RMB 3,815.2 million at the end of 2022, mainly due to the conversion of preferred shares to equity upon IPO - Total assets were **RMB 16,205.1 million** (sum of non-current and current assets)[52](index=52&type=chunk) - Inventories increased to **RMB 5,525.3 million** from **RMB 5,138.5 million** at year-end 2022[52](index=52&type=chunk) - Total equity turned positive to **RMB 11,983.3 million** from a deficit of **RMB 3,815.2 million**, primarily because the financial liability for preferred shares (**RMB 10,253.8 million**) was converted to equity upon the IPO[53](index=53&type=chunk) [Notes to the Financial Statements](index=22&type=section&id=%E9%99%84%E8%A8%BB) [Summary of Notes to Financial Statements](index=22&type=section&id=%E8%B2%A1%E5%8B%99%E5%A0%B1%E8%A1%A8%E9%99%84%E8%A8%BB%E6%91%98%E8%A6%81) This section provides detailed explanations for the figures presented in the consolidated financial statements. Key notes include the basis of preparation, changes in accounting policies, detailed revenue and segment reporting, breakdown of expenses, calculation of earnings per share, and details on financial instruments. The interim financial report is unaudited but has been reviewed by KPMG - The interim financial report was prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' and has been reviewed by KPMG[54](index=54&type=chunk)[55](index=55&type=chunk) - Segment reporting is managed by brand (Zhenjiu, Lidu, Xiangjiao, Kaikouxiao, Others), with performance assessed based on gross profit[59](index=59&type=chunk)[61](index=61&type=chunk) - The financial liability related to Series A preferred shares was fully converted into the company's ordinary shares upon the IPO on April 27, 2023[79](index=79&type=chunk) [Other Information](index=31&type=section&id=%E5%85%B6%E4%BB%96%E8%B3%87%E6%96%99) [Dividends, Repurchases, and Post-Period Events](index=31&type=section&id=%E8%82%A1%E6%81%AF%E3%80%81%E5%9B%9E%E8%B3%BC%E5%8F%8A%E6%9C%9F%E5%BE%8C%E4%BA%8B%E9%A0%85) The Board of Directors did not recommend an interim dividend for H1 2023. The company did not purchase, sell, or redeem any of its listed securities during the period. A significant post-period event was the company's inclusion as a constituent stock of the Hang Seng Composite Index, effective September 4, 2023 - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2023[81](index=81&type=chunk) - Post-period, the company was selected for inclusion in the Hang Seng Composite Index, effective September 4, 2023[82](index=82&type=chunk) [Use of Proceeds from Global Offering](index=31&type=section&id=%E5%85%A8%E7%90%83%E7%99%BC%E5%94%AE%E6%89%80%E5%BE%97%E6%AC%BE%E9%A0%85%E7%94%A8%E9%80%94) The net proceeds from the global offering on April 27, 2023, were approximately HK$4,990.0 million. As of June 30, 2023, about HK$762.4 million had been utilized, primarily for the construction and development of production facilities and for brand building. The remaining funds are intended to be used as planned by the end of 2027 Use of Net Proceeds from Global Offering as of June 30, 2023 | Use of Proceeds | Allocation (%) | Net Proceeds (HK$ Million) | Utilized Amount (HK$ Million) | Unutilized Amount (HK$ Million) | | :--- | :--- | :--- | :--- | :--- | | Production facilities construction | 55% | 2,744.5 | 498.8 | 2,245.7 | | Brand building & marketing | 20% | 998.0 | 222.5 | 775.5 | | Expansion of sales channels | 10% | 499.0 | 35.1 | 463.9 | | Business automation & digitalization | 5% | 249.5 | 6.1 | 243.4 | | Working capital & general corporate | 10% | 499.0 | - | 499.0 | | **Total** | **100%** | **4,990.0** | **762.4** | **4,227.6** | [Corporate Governance](index=32&type=section&id=%E4%BC%81%E6%A5%AD%E7%AE%A1%E6%B2%BB) [Compliance and Audit Committee](index=32&type=section&id=%E5%90%88%E8%A6%8F%E5%8F%8A%E5%AF%A9%E8%A8%88%E5%A7%94%E5%93%A1%E6%9C%83) The company has complied with all code provisions of the Corporate Governance Code from its listing date to June 30, 2023. The Board has established an Audit Committee, which has reviewed the unaudited interim financial results and discussed accounting principles, internal controls, and financial reporting matters with management - The company has complied with all code provisions of the Corporate Governance Code since its listing date[86](index=86&type=chunk) - The Audit Committee, comprising two independent non-executive directors and one non-executive director, has reviewed the unaudited financial results for H1 2023[88](index=88&type=chunk) ```