同仁堂国药(03613) - 2024 - 中期财报

Company Information This section provides fundamental company information, including board composition, professional advisors, and registration details Board of Directors and Committees This section lists the board members, including executive, non-executive, and independent non-executive directors, along with the composition of the Audit, Nomination, and Remuneration Committees - Board members include executive directors such as Gu Haiou (Chairman), Wang Chi, and Chen Fei, non-executive director Feng Li, and independent non-executive directors such as Tsang Yok Sing, Xu Hongxi, and Chen Yichi[4] - The Audit Committee is chaired by Chen Yichi, the Nomination Committee by Tsang Yok Sing, and the Remuneration Committee by Xu Hongxi[4] Legal Advisors, Auditors, and Registration Information This section provides basic registration and professional service information, including the company's legal advisors, auditors, Hong Kong share registrar, registered address, and website - Hong Kong legal advisor is Jingtian & Gongcheng Attorneys at Law, and the auditor is Ernst & Young[4] - The company's stock code is 3613, and its website is cm.tongrentang.com[4] Financial Highlights This section presents key financial performance and position indicators, highlighting significant changes in revenue, profit, assets, and equity Financial Performance for the Six Months Ended June 30, 2024 For the six months ended June 30, 2024, the company experienced significant declines in revenue, gross profit, profit before income tax, profit for the period, and profit attributable to owners, with a corresponding decrease in earnings per share Financial Performance for the Six Months Ended June 30 (HK$ thousand) | Metric | 2024 (HK$ thousand) | 2023 (HK$ thousand) | Change | | :--------------------------- | :------------------ | :------------------ | :-------- | | Revenue | 664,518 | 812,807 | -18.2% | | Gross Profit | 451,770 | 507,049 | -10.9% | | Profit Before Income Tax | 283,642 | 353,968 | -19.9% | | Profit for the Period | 240,344 | 297,871 | -19.3% | | Profit Attributable to Owners| 219,782 | 266,040 | -17.4% | | Earnings Per Share | HK$0.26 | HK$0.32 | -HK$0.06 | Statement of Financial Position as at June 30, 2024 As of June 30, 2024, the company's cash and bank balances, total assets, and total equity all decreased compared to the end of 2023 Statement of Financial Position as at June 30, 2024 (HK$ thousand) | Metric | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | Change | | :--------------------------- | :--------------------------- | :------------------------------- | :-------- | | Cash and Bank Balances | 1,769,747 | 2,378,693 | -25.6% | | Total Assets | 4,277,811 | 4,434,445 | -3.5% | | Total Equity | 3,969,552 | 4,020,690 | -1.3% | Management Discussion and Analysis This section provides an overview of the group's business performance, market strategies, production and R&D efforts, future outlook, human resources, and financial review for the period Business Review In the first half of 2024, global economic uncertainties and high borrowing costs, coupled with a weak retail market in Hong Kong and Macau and changing tourist consumption patterns, led to double-digit declines in the Group's sales revenue and profit attributable to owners - Global economic growth momentum was insufficient, borrowing costs remained high, and the retail markets in Hong Kong and Macau continued to be weak, with the total retail sales value index decreasing by 6.6% year-on-year and the Chinese medicine retail category falling by 15.9%[13] Key Financial Indicators for H1 2024 (HK$ million) | Metric | H1 2024 (HK$ million) | H1 2023 (HK$ million) | YoY Change | | :--------------------------- | :-------------------- | :-------------------- | :--------- | | Sales Revenue | 664.5 | 812.8 | -18.2% | | Profit Attributable to Owners| 219.8 | 266.0 | -17.4% | Market Expansion The Group actively enriched its product lines, expanded its retail network in Hong Kong, and intensified marketing efforts, particularly for "major product" promotions across all media channels, while also participating in international exhibitions and community activities to promote traditional Chinese medicine culture and enhance brand influence - New products launched during the period include Tongrentang Xianling, Baoling Chinese anti-aging NMN series, Guizhi Fuling Pills, and Huoluo Oil[15] - Three new retail outlets were established in North Point, Mong Kok, and West Kowloon, Hong Kong, with the North Point and West Kowloon stores offering traditional Chinese medicine diagnostic services[15] - Promoted "major products" such as Tongrentang Angong Niuhuang Wan, Cracked Ganoderma Lucidum Spore Powder Capsules, and Tongren Niuhuang Qingxin Wan through all media channels[15] - Participated in the 2024 Wuzhen Health Conference, serving as a window for Beijing Tongrentang's international development and actively implementing the "Belt and Road" initiative[15] - Conducted "Tongrentang Day" traditional Chinese medicine consultation activities at overseas retail outlets and supported Hong Kong social welfare activities to disseminate corporate spirit[16] Production and Research & Development The Group's Tai Po production and R&D base obtained Hong Kong GMP and ISO22000 certifications, enhancing cost competitiveness through production layout improvements, while continuously enriching traditional Chinese medicine resources, securing new product registration certificates and invention patents, and actively exploring new health concepts through international academic collaborations - The Tai Po production and R&D base obtained Hong Kong GMP and ISO22000 certifications, and enhanced its production layout for increased mechanization and automation, aiming to reduce costs and boost production capacity[17] - Production of several newly registered proprietary Chinese medicines and health foods, including Guizhi Fuling Pills and Ganoderma Turmeric Compound Blood-Activating and Calming Capsules, was completed during the period[18] - Danggui Buxue Granules obtained a proprietary Chinese medicine registration certificate (HKC–18604) from the Chinese Medicine Council of Hong Kong[18] - An invention patent for "A freckle-removing and whitening product, its preparation method, and uses" (ZL 2023 1 1206874.8) was successfully granted by the China National Intellectual Property Administration and has been applied to the Tongrentang Baoling Chinese anti-aging NMN series products[18] - Signed a Memorandum of Understanding with the New Zealand Deer Industry Council to collaborate on the development, registration, and sale of new health functional foods derived from deer products[18] - Will continue to strengthen cooperation with internationally renowned universities and research institutions such as the University of Hong Kong, Hong Kong Baptist University, and the University of California, to conduct research on the safety and mechanism of action of key products[18] Outlook Facing an expanding pharmaceutical consumer market and the vast development potential of traditional Chinese medicine, the Group will continue to strengthen R&D innovation, diversify product offerings, enhance new retail layouts, accelerate new product launches, and promote overseas registration of key products to achieve sustained business growth and high-quality development transformation - The pharmaceutical consumer market is expected to continue expanding, and traditional Chinese medicine holds vast development potential in the global market[20] - The Group will continuously strengthen R&D innovation, enrich product categories, and expand its proprietary product matrix, such as the Ganoderma series and anti-aging series products[20] - Focus on business development by strengthening new retail layouts, accelerating new product launches, continuously promoting the registration of key Tongrentang products in Vietnam, and innovating business models to enhance core competitive advantages[20] Human Resources As of June 30, 2024, the Group's employee count slightly decreased, with a corresponding reduction in staff costs, and the company regularly reviews its remuneration policy to attract and retain talent Human Resources Overview | Metric | June 30, 2024 | 2023 (employees) | Change (employees) | | :------------- | :------------ | :--------------- | :----------------- | | Number of Employees | 779 | 789 | -10 | | Staff Costs | HK$104.5 million | HK$107.1 million | -HK$2.6 million | - The Group regularly reviews its remuneration policy and provides discretionary bonuses to eligible employees based on performance and individual contributions to attract and retain outstanding staff[21] Financial Review The Group maintained a sound financial position with sufficient cash and bank balances, a high current ratio, and a stable gearing ratio, while capital expenditure increased for retail outlet renovations and equipment purchases, with no significant foreign currency risks, major investments, acquisitions, disposals, or pledged assets during the period, and no interim dividend recommended - As of June 30, 2024, cash and bank balances decreased to HK$1,769.7 million (December 31, 2023: HK$2,378.7 million), primarily due to increased raw material purchases[22] Financial Position Indicators (HK$ million) | Metric | June 30, 2024 (HK$ million) | December 31, 2023 (HK$ million) | | :--------------------------- | :-------------------------- | :------------------------------ | | Total Non-Current Assets | 565.3 | 590.1 | | Net Current Assets | 3,491.5 | 3,514.4 | | Net Assets | 3,969.6 | 4,020.7 | | Current Ratio | 16.8 | 11.7 | | Gearing Ratio | 3.4% | 3.3% | - Capital expenditure for the period was HK$11.2 million (2023: HK$7.0 million), primarily for retail outlet renovations and the acquisition of machinery and equipment[23] - There were no significant impacts from foreign currency exchange rate fluctuations, nor any derivative activities or financial instruments used to hedge foreign exchange risks during the period[23] - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2024[24] Condensed Consolidated Financial Statements This section presents the condensed consolidated financial statements, including the statement of profit or loss, comprehensive income, financial position, changes in equity, and cash flows, for the interim period Condensed Consolidated Statement of Profit or Loss This section presents the condensed consolidated statement of profit or loss for the six months ended June 30, 2024, showing declines in revenue, gross profit, operating profit, and profit for the period compared to the prior year Condensed Consolidated Statement of Profit or Loss Summary (HK$ thousand) | Metric | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :--------------------------- | :------------------ | :------------------ | | Revenue | 664,518 | 812,807 | | Gross Profit | 451,770 | 507,049 | | Operating Profit | 258,878 | 330,035 | | Profit Before Income Tax | 283,642 | 353,968 | | Profit for the Period | 240,344 | 297,871 | | Profit Attributable to Owners| 219,782 | 266,040 | | Basic and Diluted EPS | HK$0.26 | HK$0.32 | Condensed Consolidated Statement of Comprehensive Income This section presents the condensed consolidated statement of comprehensive income for the six months ended June 30, 2024, showing a decrease in both profit for the period and total comprehensive income, primarily influenced by currency translation differences Condensed Consolidated Statement of Comprehensive Income Summary (HK$ thousand) | Metric | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :----------------------------------- | :------------------ | :------------------ | | Profit for the Period | 240,344 | 297,871 | | Currency Translation Differences | (5,133) | (6,896) | | Fair Value Changes of Financial Assets | 990 | 750 | | Total Comprehensive Income for the Period | 234,812 | 291,871 | Condensed Consolidated Statement of Financial Position This section presents the condensed consolidated statement of financial position as of June 30, 2024, showing decreases in total assets and total equity compared to the end of 2023, with a significant increase in inventories within current assets, while short-term bank deposits and trade receivables decreased Condensed Consolidated Statement of Financial Position Summary (HK$ thousand) | Metric | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------------------- | | Total Assets | 4,277,811 | 4,434,445 | | Total Equity | 3,969,552 | 4,020,690 | | Total Liabilities | 308,259 | 413,755 | | Inventories | 1,601,895 | 1,011,649 | | Short-term Bank Deposits | 48,256 | 1,378,879 | | Cash and Cash Equivalents | 1,721,491 | 999,814 | Condensed Consolidated Statement of Changes in Equity This section presents the condensed consolidated statement of changes in equity for the six months ended June 30, 2024, reflecting the impact of profit for the period, other comprehensive loss, and dividend payments on equity Condensed Consolidated Statement of Changes in Equity Summary (HK$ thousand) | Metric | June 30, 2024 (HK$ thousand) | June 30, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :--------------------------- | | Total Equity at Beginning of Period | 4,020,690 | 3,738,793 | | Total Comprehensive Income | 234,812 | 291,871 | | Dividends Paid | (276,243) | (276,243) | | Total Equity at End of Period| 3,969,552 | 3,739,366 | Condensed Consolidated Statement of Cash Flows This section presents the condensed consolidated statement of cash flows for the six months ended June 30, 2024, showing a shift from positive to negative net cash from operating activities, a change from negative to positive net cash from investing activities, and continued negative net cash from financing activities, resulting in a net increase in cash and cash equivalents Condensed Consolidated Statement of Cash Flows Summary (HK$ thousand) | Metric | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :----------------------------------- | :------------------ | :------------------ | | Net Cash from Operating Activities | (303,857) | 514,542 | | Net Cash from Investing Activities | 1,350,425 | (351,043) | | Net Cash from Financing Activities | (320,226) | (322,997) | | Net Increase/(Decrease) in Cash and Cash Equivalents | 726,342 | (159,498) | | Cash and Cash Equivalents at End of Period | 1,721,491 | 1,826,808 | Notes to the Condensed Consolidated Interim Financial Information This section provides detailed notes to the condensed consolidated interim financial information, covering general information, accounting policies, risk management, segment reporting, and specific financial statement items General Information and Basis of Preparation This section outlines the Group's business scope, holding structure, listing information, and the basis for preparing the condensed consolidated interim financial information, including adherence to HKAS 34 and Listing Rules disclosure requirements - The Group is primarily engaged in the manufacturing, retail, and wholesale of traditional Chinese medicine products and health supplements, and provides traditional Chinese medicine diagnostic services[38] - The Company's immediate holding company is Beijing Tongrentang Technologies Co, Ltd, and its ultimate holding company is China Beijing Tongrentang (Group) Co, Ltd[38] - The condensed consolidated interim financial information has been prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Listing Rules of the Stock Exchange[39] Significant Accounting Policies and Estimates This section states that the accounting policies used for the interim financial information are consistent with the previous year, lists new amendments to frameworks and standards effective from January 1, 2024, which have no significant financial impact, and confirms that management's judgments, estimates, and assumptions remain consistent with the prior annual financial statements - The accounting policies adopted by the Group are consistent with those applied in the financial statements for the year ended December 31, 2023[41] - The adoption of new and revised frameworks and standards, such as HKFRS 16 (Amendments), had no significant financial impact on this condensed consolidated interim financial information[42] - The key judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty in preparing this condensed consolidated interim financial information were the same as those applied to the 2023 annual financial statements[44] Financial Risk Management The Group's operations are exposed to market risks, including currency and cash flow interest rate risks, credit risk, and liquidity risk, with no significant changes in risk management policies, procedures, or contractual undiscounted cash outflows of financial liabilities since the last year-end - The Group's operations are exposed to market risks (including currency risk and cash flow interest rate risk), credit risk, and liquidity risk[45] - There have been no changes in risk management policies and procedures since the last year-end date[45] - There have been no significant changes in the contractual undiscounted cash outflows of financial liabilities compared to December 31, 2023[46] Revenue and Segment Information The Group's revenue primarily derives from product sales and service income, analyzed across three operating segments: Hong Kong, Mainland China, and overseas, with a decrease in total revenue due to declines in Hong Kong and overseas segments, partially offset by slight growth in Mainland China, and detailed disclosures provided for each segment's assets and liabilities Revenue Composition (HK$ thousand) | Revenue Source | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :--------------------------- | :------------------ | :------------------ | | Sales of Products | 642,311 | 790,029 | | Service Income | 21,996 | 22,731 | | Brand Usage Fee Income | 211 | 47 | | Total Revenue | 664,518 | 812,807 | - The Group has three reportable operating segments: Hong Kong (retail, wholesale, traditional Chinese medicine consultation, brand usage fees), Mainland China (wholesale of health supplements, exclusive distribution of "Tongrentang" brand products), and Overseas (retail, wholesale, traditional Chinese medicine consultation)[51] Revenue from External Customers (HK$ thousand) | Region | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :----------- | :------------------ | :------------------ | | Hong Kong | 333,807 | 439,328 | | Mainland China | 116,342 | 107,867 | | Overseas | 214,369 | 265,612 | | Total | 664,518 | 812,807 | Segment Assets and Liabilities (HK$ thousand) | Metric | Hong Kong (HK$ thousand) | Mainland China (HK$ thousand) | Overseas (HK$ thousand) | Total (HK$ thousand) | | :--------------------------- | :----------------------- | :---------------------------- | :---------------------- | :------------------- | | Total Assets as at June 30, 2024 | 3,300,901 | 458,253 | 518,657 | 4,277,811 | | Total Liabilities as at June 30, 2024 | (131,448) | (72,868) | (103,943) | (308,259) | | Total Assets as at Dec 31, 2023 | 3,472,865 | 469,463 | 492,117 | 4,434,445 | | Total Liabilities as at Dec 31, 2023 | (241,363) | (68,399) | (103,993) | (413,755) | Expenses by Nature This section details the various expenses for the six months ended June 30, 2024, with cost of inventories sold and employee benefit expenses being the primary components, and advertising and promotion expenses also representing a significant portion Expenses by Nature (HK$ thousand) | Expense Item | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :--------------------------- | :------------------ | :------------------ | | Cost of Inventories Sold | 169,295 | 267,406 | | Employee Benefit Expenses | 104,467 | 107,100 | | Depreciation of Right-of-Use Assets | 32,569 | 28,894 | | Advertising and Promotion Expenses | 40,371 | 29,000 | | Reversal of Impairment Loss on Trade Receivables | (6,907) | - | Net Finance Income This section presents the net finance income for the six months ended June 30, 2024, primarily comprising interest income from bank deposits, with relatively low finance costs, resulting in an increase in net finance income compared to the prior year Net Finance Income (HK$ thousand) | Item | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :------------------- | :------------------ | :------------------ | | Finance Income | 34,965 | 28,981 | | Finance Expenses | (3,219) | (2,669) | | Net Finance Income | 31,746 | 26,312 | Income Tax Expense This section explains the Group's income tax expense, with Hong Kong profits tax at 16.5%, Mainland China corporate income tax at 25%, and overseas profits taxed at local rates, showing a decrease in income tax expense compared to the prior year - Hong Kong profits tax rate is 16.5%, and Mainland China corporate income tax rate is 25%[64] Income Tax Expense (HK$ thousand) | Item | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :------------------- | :------------------ | :------------------ | | Current Income Tax | 25,684 | 59,199 | | Deferred Income Tax | 17,614 | (3,102) | | Income Tax Expense | 43,298 | 56,097 | Earnings Per Share and Dividends This section provides the calculation and results of basic earnings per share and dividend payment information, with earnings per share at HK$0.26 for the six months ended June 30, 2024, and no interim dividend recommended by the Board Earnings Per Share (HK$) | Metric | 2024 (HK$) | 2023 (HK$) | | :--------------------------- | :--------- | :--------- | | Profit Attributable to Owners (HK$ thousand) | 219,782 | 266,040 | | Weighted Average Number of Ordinary Shares (thousand shares) | 837,100 | 837,100 | | Earnings Per Share | 0.26 | 0.32 | - For the six months ended June 30, 2024, the Board does not recommend the payment of an interim dividend (2023: nil)[68] Property, Plant and Equipment and Intangible Assets This section analyzes the changes in the net book value of property, plant and equipment and intangible assets, showing a slight decrease in both, primarily due to depreciation expenses and currency translation differences Net Book Value of Property, Plant and Equipment (HK$ thousand) | Item | Amount (HK$ thousand) | | :--------------------------- | :-------------------- | | As at January 1, 2024 | 213,816 | | Additions | 6,748 | | Depreciation Expense | (8,655) | | Currency Translation Differences | (2,315) | | As at June 30, 2024 | 209,592 | Net Book Value of Intangible Assets (HK$ thousand) | Item | Amount (HK$ thousand) | | :--------------------------- | :-------------------- | | As at January 1, 2024 | 56,387 | | Amortisation | (1,686) | | As at June 30, 2024 | 54,701 | Inventories This section provides the detailed composition of inventories, including raw materials, work-in-progress, and finished goods and trading merchandise, showing a significant increase in total inventories as of June 30, 2024, compared to the end of 2023, primarily due to an increase in raw materials Inventories Composition (HK$ thousand) | Inventory Category | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------------------- | | Raw Materials | 1,300,283 | 776,294 | | Work-in-Progress | 107,992 | 56,576 | | Finished Goods and Trading Merchandise | 193,620 | 178,779 | | Total Inventories | 1,601,895 | 1,011,649 | Trade and Other Current Assets This section details the composition and aging analysis of trade and other current assets, showing a decrease in both total and net trade receivables as of June 30, 2024, compared to the end of 2023, with a significant reduction in receivables from third parties Trade and Other Current Assets (HK$ thousand) | Item | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------------------- | | Gross Trade Receivables | 319,545 | 436,402 | | Less: Impairment Loss | (34,006) | (41,158) | | Net Trade Receivables | 285,539 | 395,244 | | Bills Receivable | 3,044 | - | | Prepayments | 11,517 | 11,623 | | Other Receivables | 16,423 | 26,774 | | Deposits | 23,391 | 19,369 | | Amounts Due from Joint Ventures | 970 | 970 | | Total | 340,884 | 453,980 | Aging Analysis of Trade Receivables (HK$ thousand) | Aging Period | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------------------- | | Up to 90 days | 124,742 | 188,302 | | 91 to 180 days | 1,625 | 326 | | 181 to 365 days | 3,974 | 3,092 | | Over 365 days | 189,204 | 244,682 | | Total | 319,545 | 436,402 | Share Capital This section details the company's issued and fully paid ordinary share capital, which remained unchanged in both number and amount as of June 30, 2024 Share Capital Information | Item | Number of Shares | Share Capital (HK$ thousand) | | :--------------------------- | :--------------- | :--------------------------- | | As at January 1, 2024 and June 30, 2024 | 837,100,000 | 938,789 | Trade and Other Payables This section details the composition and aging analysis of trade and other payables, showing a significant decrease in total trade payables as of June 30, 2024, compared to the end of 2023, primarily due to a reduction in amounts owed to third parties Trade and Other Payables (HK$ thousand) | Item | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------------------- | | Trade Payables | 78,121 | 176,977 | | Accruals and Other Payables | 58,720 | 65,220 | | Contract Liabilities | 3,619 | 3,211 | | Total | 140,460 | 245,408 | Aging Analysis of Trade Payables (HK$ thousand) | Aging Period | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------------------- | | Up to 90 days | 61,755 | 157,052 | | 91 to 180 days | 256 | 2,493 | | 181 to 365 days | 3,490 | 6,666 | | Over 365 days | 12,620 | 10,766 | | Total | 78,121 | 176,977 | Commitments This section discloses the Group's capital and lease commitments, showing an increase in contracted but unprovided capital commitments for property, plant and equipment and intangible assets, as well as an increase in undiscounted future lease payments for leases not yet commenced, as of June 30, 2024 Capital Commitments (HK$ thousand) | Item | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------------------- | | Contracted but not provided for | 16,908 | 15,961 | Lease Commitments (HK$ thousand) | Item | June 30, 2024 (HK$ thousand) | December 31, 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------------------- | | Within one year | 1,648 | 4,944 | - As of June 30, 2024, the Group's committed but not yet commenced undiscounted future lease payments amounted to HK$11,987,000 (December 31, 2023: HK$7,400,000)[82] Significant Related Party Transactions This section discloses significant transactions between the Group and its related parties, including sales and purchases of products, brand usage fee income, rental expenses, advertising agency service fees, and key management personnel compensation, all conducted at mutually agreed prices and terms Summary of Related Party Transactions (HK$ thousand) | Transaction Type | Related Party | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :--------------------------- | :--------------------------- | :------------------ | :------------------ | | Sales of Products to | Fellow Subsidiaries | 7,977 | 1,792 | | | Joint Ventures | 685 | 1,114 | | Purchases of Products from | Immediate Holding Company | 30,494 | 19,257 | | | Intermediate Holding Company | 51,924 | 30,832 | | Brand Usage Fee Income from Joint Ventures | Joint Ventures | 214 | 47 | | Rental Expenses to | Immediate Holding Company | 504 | 504 | | | Fellow Subsidiaries | 2,294 | 2,252 | | Advertising Agency Service Fees Paid to Fellow Subsidiaries | Fellow Subsidiaries | 545 | 830 | Key Management Personnel Compensation (HK$ thousand) | Compensation Item | 2024 (HK$ thousand) | 2023 (HK$ thousand) | | :--------------------------- | :------------------ | :------------------ | | Salaries and Other Short-term Employee Benefits | 3,835 | 3,007 | | Pension Costs | 325 | 340 | | Total | 4,160 | 3,347 | - Brand usage fees are collected annually by the Company from joint ventures based on the higher of 1% of their operating revenue or 1.5% of their profit before tax, as per brand usage rights agreements[88] Other Information This section covers additional information including directors' and substantial shareholders' interests in shares, rights to acquire securities, competing business interests, dealings in listed securities, corporate governance, and risk management and internal control Directors' and Chief Executive's Interests in Shares This section discloses the interests of the company's directors and chief executive in the company's shares as of June 30, 2024, with only Ms. Chen Xiu holding 43,000 shares as a beneficial owner Long Position in the Company's Shares | Director's Name | Nature of Interest | Capacity | Number of Shares | Approximate Percentage of Issued Share Capital | | :-------------- | :----------------- | :--------- | :--------------- | :--------------------------------------------- | | Chen Xiu | Beneficial Owner | Personal | 43,000 | 0.005% | Substantial Shareholders This section lists the substantial shareholders with significant interests in the company's shares as of June 30, 2024, including Tongrentang Technologies, Tongrentang Co, and Tongrentang Group Company, detailing their shareholding percentages and relationships Substantial Shareholders' Long Position in Shares | Shareholder Name | Capacity | Number of Shares | Approximate Percentage of Issued Share Capital | | :--------------------------- | :--------------------------- | :--------------- | :--------------------------------------------- | | Tongrentang Technologies | Beneficial Owner | 318,540,000 | 38.05% | | Tongrentang Co | Beneficial Owner | 281,460,000 | 33.62% | | | Interest in Controlled Corporation | 318,540,000 | 38.05% | | Tongrentang Group Company | Interest in Controlled Corporation | 600,000,000 | 71.67% | - Tongrentang Co is deemed to be interested in 318,540,000 shares of the Company held by Tongrentang Technologies[94] - Tongrentang Group Company is deemed to be interested in 318,540,000 shares and 281,460,000 shares of the Company held by Tongrentang Technologies and Tongrentang Co respectively[94] Rights to Acquire Shares or Debentures As of June 30, 2024, neither the company, its subsidiaries, nor fellow subsidiaries had entered into any arrangements granting directors, chief executives, or their associates the right to subscribe for securities of the company or any associated corporation - For the six months ended June 30, 2024, neither the Company nor any of its subsidiaries or fellow subsidiaries had entered into any arrangements that would enable the directors or chief executive of the Company or their respective associates to acquire rights to subscribe for securities of the Company or any associated corporation[96] Competing Business Interests This section details the "Non-Competition Deed" signed between the company and its controlling shareholders to define business scopes and avoid potential competition, restricting controlling shareholders from engaging in specific restricted businesses in non-Mainland China markets and establishing monitoring mechanisms, including an Executive Committee and a Supervisory Committee, to ensure compliance and protect shareholder interests - The Company and its controlling shareholders entered into a Non-Competition Deed on April 18, 2013, to delineate their respective business scopes and avoid engaging in restricted businesses in non-Mainland China markets, such as the R&D, manufacturing, and sale of products using Ganoderma or Ganoderma spores as raw materials, any "Tongrentang" brand products (excluding Japan), and Angong Niuhuang Wan[97][98] - The controlling shareholders undertook that if they became aware of any new business opportunities related to the restricted businesses, they would immediately notify the Company and use their best endeavors to procure that such opportunities be offered to the Company on terms no less favorable than those offered to them[98] - An Executive Committee, comprising two non-interested directors, was established to conduct quarterly reviews of the parent group's distribution channels and R&D product portfolio to monitor competing businesses[99] - A Supervisory Committee, comprising three independent non-executive directors, was established to review the Executive Committee's inspection records and report to the Board[99] Dealings in Listed Securities and Corporate Governance This section confirms that the company and its subsidiaries did not purchase, sell, or redeem any listed securities during the period, that the company complied with the Model Code for Securities Transactions by Directors and the Corporate Governance Code, and discloses changes in director information - During the period, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities[100] - All directors confirmed compliance with the Model Code set out in Appendix C3 of the Listing Rules during the period[101] - The Company has complied with the requirements set out in Appendix C1 of the Listing Rules' Corporate Governance Code throughout the period[102] - Mr. Chen Fei served concurrently as the Company's Acting Chief Executive Officer from March 28, 2024, to May 10, 2024; Mr. Wang Chi was appointed as an Executive Director and Chief Executive Officer of the Company on May 10, 2024[103] Risk Management and Internal Control and Audit Committee The Group employs a "three lines of defense" risk management and internal control governance framework to continuously identify, assess, and control operational risks, reporting regularly to the Audit Committee and the Board, and the Audit Committee has reviewed the unaudited condensed consolidated interim financial information for the period with no disagreements with the Board - The Group's risk management and internal control governance framework is based on a "three lines of defense" model, encompassing daily operational management and control, risk and compliance management, and independent oversight assurance[105] - The Group proactively, systematically, and continuously identifies and assesses risks in its operations, integrating risk control concepts into all aspects of its operational and governance processes[105] - The Audit Committee has reviewed the Group's unaudited condensed consolidated interim financial information and interim report for the six months ended June 30, 2024, and there were no disagreements between the Board and the Audit Committee[106]