MANAGEMENT DISCUSSION AND ANALYSIS Company Profile COFCO Joycome is COFCO Group's meat business platform, listed on the Hong Kong Stock Exchange in 2016, covering the entire industry chain from feed production to meat product distribution - The company's core business is divided into four major segments: hog farming, fresh pork, meat products, and meat import8913 Segments Introduction The company's business is divided into four main segments: hog farming, fresh pork, meat products, and meat import - The company's core business is divided into four major segments: hog farming, fresh pork, meat products, and meat import8913 1. Market Overview China's hog production recovered in H1 2021, leading to a significant price drop, while ASF normalized, raising industry entry barriers, and branded packaged pork gained favor - National hog production continued to recover, with hog inventory increasing by 29.2% year-on-year by the end of June, approaching normal levels14 - Affected by capacity recovery, hog prices continued to fall, with the average price in 22 provinces and cities nationwide dropping 64.0% from the beginning of the year by the end of June17 - African Swine Fever (ASF) has become normalized, demanding higher epidemic prevention and control capabilities from farming enterprises, further raising industry entry barriers18 - The trend of consumption upgrading is evident, with branded, small-packaged boxed pork gaining higher brand premium and loyalty due to its safety, freshness, and convenience19 - In the first half of 2021, China's pork import volume increased by 8.5% year-on-year, and beef import volume increased by 13.7% year-on-year20 2. Results of Operation In H1 2021, the company maintained stable operations, achieving increased efficiency in hog farming, continued growth in fresh pork, channel expansion in meat products, and enhanced risk control in import business Net Profit Before Fair Value Adjustment of Biological Assets | Metric | H1 2021 | Y-o-Y Change | | :--- | :--- | :--- | | Net Profit Before Fair Value Adjustment of Biological Assets | RMB 1.561 billion | +12.8% | Hog Production Business Hog output increased significantly by 108.7% to 1.672 million heads, contributing RMB 1.596 billion in segment performance, while total hog farming capacity reached 6.021 million heads Hog Production Business Performance | Metric | H1 2021 | Y-o-Y Change | | :--- | :--- | :--- | | Hog Output | 1.672 million heads | +108.7% | | Average Selling Price of Commercial Hogs | RMB 23.44/kg | - | | Segment Performance | RMB 1.596 billion | - | - As of June 30, 2021, the company's hog farming capacity reached 6.021 million heads, with breeding and reserve sows reaching designed scale2628 Fresh Pork Business Fresh pork sales increased by 26.8% to 65 thousand tons, with branded business revenue accounting for 35.0%, driven by accelerated slaughtering capacity and increased boxed pork sales Fresh Pork Business Performance | Metric | H1 2021 | Y-o-Y Change | | :--- | :--- | :--- | | Fresh Pork Sales Volume | 65 thousand tons | +26.8% | | Branded Fresh Revenue Share | 35.0% | - | | Boxed Pork Sales Volume | 21.477 million boxes | +37.2% | - The company accelerated the construction of slaughtering capacity in Jilin, Inner Mongolia, and other regions to support the layout of branded fresh business in Northeast, North, and South China27 - The company focused on promoting 'Flaxseed Pork' products, issued relevant group standards, and conducted omni-channel marketing through CCTV, Focus Media, Douyin, and other platforms to enhance brand influence293032 Meat Import Business Meat import sales volume decreased by 57.1% to 75 thousand tons, but the segment achieved a turnaround to profitability, driven by enhanced risk control and a shift towards high-value-added products - In H1 2021, meat import sales volume decreased by 57.1% to 75 thousand tons, but the segment achieved a turnaround to profitability33 - The company strengthened risk control, increasing the revenue share from end-user clients (enterprises, catering, retail) to 75%, and providing full industry chain value-added services33 3. Financial Review In H1 2021, total revenue decreased by 18.2% to RMB 7.503 billion, primarily due to a 58.0% decline in meat import revenue, while net profit before fair value adjustment of biological assets increased by 12.8% to RMB 1.561 billion Overall Performance Group revenue decreased by 18.2% to RMB 7.503 billion, mainly due to reduced meat import revenue, while net profit before fair value adjustment of biological assets increased by 12.8% to RMB 1.561 billion Overall Performance Metrics | Metric | H1 2021 | Y-o-Y Change | | :--- | :--- | :--- | | Operating Revenue | RMB 7.503 billion | -18.2% | | Net Profit Before Fair Value Adjustment of Biological Assets | RMB 1.561 billion | +12.8% | | Gross Margin Before Fair Value Adjustment of Biological Assets | 26.0% | +3.0pp | - Finance costs decreased from RMB 129 million in the prior period to RMB 52 million, primarily due to healthy cash flow and significant loan repayments35 Analysis on Capital Resources The company maintained a robust financial position with sufficient liquidity, reducing net debt from RMB 7.986 billion to RMB 5.354 billion, and improving the net debt-to-equity ratio from 83.3% to 62.5% Capital Resources Analysis | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and Bank Balances | RMB 707 million | RMB 417 million | | Current Ratio | 0.95 | 1.05 | | Unutilized Bank Facilities | RMB 18.782 billion | - | | Net Debt | RMB 5.354 billion | RMB 7.986 billion | | Net Debt-to-Equity Ratio | 62.5% | 83.3% | Capital Expenditure | Capital Expenditure (Six Months Ended June 30) | 2021 | 2020 | | :--- | :--- | :--- | | Amount (RMB million) | 593 | 370 | Biological Assets The fair value of biological assets significantly decreased to RMB 2.347 billion from RMB 4.126 billion, resulting in a net loss of RMB 2.001 billion from fair value adjustments, negatively impacting reported profit - As of June 30, 2021, the fair value of biological assets significantly decreased to RMB 2.347 billion from RMB 4.126 billion at the beginning of the year51 - In H1 2021, the net impact of biological asset fair value adjustments on profit was a loss of RMB 2.001 billion, compared to a gain of RMB 669 million in the prior period51 Carrying Value of Biological Assets | Carrying Value of Biological Assets (RMB million) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total | 2,346.6 | 4,125.5 | - The fair value measurement of biological assets is classified as Level 3, with its valuation relying on unobservable inputs such as market prices and rearing costs165173 4. Human Resources As of June 30, 2021, the group employed 8,131 staff in continuing operations, with total remuneration of RMB 467 million in H1 2021, reflecting a 21.6% year-on-year increase Human Resources Metrics | Metric | June 30, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Number of Employees | 8,131 | 6,673 | | Total Remuneration (H1) | RMB 467 million | RMB 384 million | 5. Significant Risks and Uncertainties The group faces key risks including epidemic diseases, price fluctuations of raw materials and finished products, food safety, foreign exchange, and production safety - Key risks include epidemic risks (African Swine Fever, COVID-19), price risks (raw material and finished product price fluctuations), food safety risks, foreign exchange risks (primarily USD), and production safety risks5458616266 6. Outlook For H2 2021, the company will focus on ASF control, optimizing industry chain integration, promoting branded fresh products, strengthening import risk control, and utilizing futures for hedging - Strategic priorities for the second half include strict ASF control, optimizing the industry chain, promoting branded fresh products, strengthening import risk control, and utilizing futures for hedging6970 CORPORATE GOVERNANCE HIGHLIGHTS AND OTHER INFORMATION Directors' and Substantial Shareholders' Interests As of June 30, 2021, Executive Director Mr. Xu Jianong beneficially owned 0.03% of company shares, while COFCO Group held 29.10% through its subsidiaries - Executive Director Mr. Xu Jianong holds 0.03% of the company's shares73 - Major shareholder COFCO Group (COFCO) collectively holds 29.10% of the company's shares through its layered subsidiaries76 Corporate Governance and Other Disclosures The company complied with the Listing Rules' Corporate Governance Code, and the board did not recommend an interim dividend for H1 2021, with board member changes occurring on July 30, 2021 - The Board did not recommend an interim dividend for the six months ended June 30, 2021, whereas an interim dividend of HKD 0.118 per share was distributed in the prior period82 - On July 30, 2021, Ms. Yang Hong, Dr. Cui Guiyong, and Mr. Zhou Qi resigned as non-executive directors; Mr. Ma Dewei and Dr. Zhao Wei were appointed as non-executive directors80 - The company's interim financial information has been reviewed by the Audit Committee and the company's auditor, Tianzhi Hong Kong Certified Public Accountants Limited82 REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Auditor's Review Report Tianzhi Hong Kong Certified Public Accountants Limited reviewed the condensed consolidated financial statements for the six months ended June 30, 2021, issuing an unmodified conclusion - Tianzhi Hong Kong Certified Public Accountants Limited reviewed the interim financial statements and issued an unmodified review report8386 CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended June 30, 2021, the company reported revenue of RMB 7.503 billion, a 18.2% decrease, and a loss of RMB 439 million due to significant fair value changes in biological assets Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income | Item (RMB thousand) | H1 2021 (Unaudited) | H1 2020 (Unaudited) | | :--- | :--- | :--- | | Revenue | 7,502,854 | 9,168,271 | | Gross Profit | 115,844 | 232,627 | | Profit/(Loss) Before Tax | (347,060) | 2,017,322 | | Profit/(Loss) for the Period | (439,149) | 2,053,272 | | Profit/(Loss) Attributable to Owners of the Company | (425,590) | 2,054,888 | | Basic Earnings/(Loss) Per Share | (10.91) cents | 52.66 cents | Condensed Consolidated Statement of Financial Position As of June 30, 2021, total assets were RMB 17.978 billion, total liabilities RMB 9.405 billion, and net assets RMB 8.573 billion, with a net current liability of RMB 461 million Condensed Consolidated Statement of Financial Position | Item (RMB thousand) | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | Non-current Assets | 9,981,107 | 9,921,544 | | Current Assets | 7,996,609 | 10,640,452 | | Total Assets | 17,977,716 | 20,561,996 | | Current Liabilities | 8,457,993 | 10,132,761 | | Non-current Liabilities | 947,076 | 846,955 | | Total Liabilities | 9,405,069 | 10,979,716 | | Net Assets | 8,572,647 | 9,582,280 | Condensed Consolidated Statement of Changes in Equity Total equity decreased from RMB 9.582 billion to RMB 8.573 billion, primarily due to a loss of RMB 439 million for the period and a dividend payment of RMB 669 million - Total equity decreased from RMB 9.582 billion at the end of 2020 to RMB 8.573 billion as of June 30, 2021100 - The decrease in equity was primarily due to a loss of RMB 439 million for the period and a dividend payment of RMB 669 million100 Condensed Consolidated Statement of Cash Flows In H1 2021, net cash from operating activities significantly improved to RMB 1.584 billion, while net cash outflows from investing and financing activities were RMB 614 million and RMB 679 million, respectively Condensed Consolidated Statement of Cash Flows | Item (RMB thousand) | H1 2021 (Unaudited) | H1 2020 (Unaudited) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 1,584,079 | (1,483,609) | | Net Cash Used in Investing Activities | (614,325) | (462,098) | | Net Cash (Used in)/from Financing Activities | (678,883) | 2,067,736 | | Net Increase in Cash and Cash Equivalents | 290,871 | 122,029 | | Cash and Cash Equivalents at End of Period | 707,273 | 763,485 | Notes to the Condensed Consolidated Financial Statements 3 REVENUE FROM CONTRACTS WITH CUSTOMERS Total revenue for H1 2021 was RMB 7.503 billion, with hog farming and sales contributing RMB 3.374 billion, and a significant decrease in imported meat product sales Revenue from Contracts with Customers | Revenue Source (RMB million) | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Hog Farming and Sales | 3,374.3 | 2,369.7 | | Sales of Fresh Pork | 1,830.0 | 1,737.9 | | Sales of Meat Products | 377.6 | 306.1 | | Sales of Imported Meat Products | 1,921.0 | 4,754.5 | | Total | 7,502.9 | 9,168.3 | 4 SEGMENT INFORMATION In H1 2021, the hog farming segment was the primary profit driver with RMB 1.596 billion, while the meat import segment turned profitable, and fresh pork and meat products segments showed improved performance Segment Performance | Segment Performance (RMB million) | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Hog Farming | 1,595.8 | 1,761.4 | | Fresh Pork | (9.3) | (63.8) | | Meat Products | 13.0 | (44.1) | | Meat Import | 132.1 | (100.4) | | Total Segment Performance | 1,731.6 | 1,553.1 | 13 BIOLOGICAL ASSETS The group's biological assets (hogs) are measured at fair value, classified as Level 3, with their carrying value significantly decreasing to RMB 2.347 billion due to market price declines - The fair value measurement of biological assets is classified as Level 3, with its valuation relying on unobservable inputs such as market prices and rearing costs165173 Carrying Value of Biological Assets | Carrying Value of Biological Assets (RMB million) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total | 2,346.6 | 4,125.5 | 22 RELATED PARTY TRANSACTIONS The group engaged in various related party transactions, with the largest being the purchase of goods amounting to RMB 638 million, significantly higher than the prior period Major Related Party Transactions | Major Related Party Transactions (RMB million) | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Sales of Goods | 20.5 | 41.0 | | Purchases of Goods | 637.8 | 140.8 | | Interest Income | 4.2 | 3.1 | | Interest Expense | 3.9 | 8.3 | - As of June 30, 2021, the group's balance deposited with related party COFCO Finance was RMB 171 million208
中粮家佳康(01610) - 2021 - 中期财报