老恒和酿造(02226) - 2025 - 中期业绩

Financial Highlights Lao Heng He Brewing Co., Ltd. announced its interim results for the six months ended June 30, 2025, with revenue flat year-on-year, gross profit down 10.7%, and loss attributable to owners of the Company increasing by 1.6%; the Board does not recommend an interim dividend Financial Highlights for H1 2025 | Metric | H1 2025 (RMB millions) | H1 2024 (RMB millions) | Year-on-year change (%) | | :--- | :--- | :--- | :--- | | Revenue | 144.4 | 144.4 | 0.0 | | Gross Profit | 42.1 | 47.1 | -10.7 | | Loss attributable to owners of the Company | 251.7 | 247.6 | 1.6 | | Interim Dividend | N/A | N/A | - | Financial Statements and Notes This section provides the condensed consolidated interim financial statements for the six months ended June 30, 2025, including the income statement, statement of comprehensive income, statement of financial position, and related notes detailing company information, accounting policies, going concern assumptions, operating segments, revenue, expenses, borrowings, inventories, receivables, payables, and share capital Condensed Consolidated Interim Income Statement For the six months ended June 30, 2025, the company's revenue remained largely flat year-on-year, but increased cost of sales led to a decrease in gross profit; administrative expenses decreased, but other expenses and finance costs remained high, resulting in a slight increase in loss for the period Key Data from Condensed Consolidated Interim Income Statement | Metric | H1 2025 (RMB thousands) | H1 2024 (RMB thousands) | | :--- | :--- | :--- | | Revenue | 144,422 | 144,277 | | Cost of sales | (102,367) | (97,169) | | Gross profit | 42,055 | 47,108 | | Other income and gains | 275 | 1,417 | | Selling and distribution expenses | (44,762) | (44,168) | | Administrative expenses | (12,586) | (19,053) | | Impairment losses, net | (1,750) | (393) | | Other expenses | (135,915) | (132,253) | | Finance costs | (98,994) | (100,262) | | Loss before income tax | (251,677) | (247,604) | | Income tax expense | – | – | | Loss for the period | (251,677) | (247,604) | | Basic and diluted loss per share (RMB) | (0.43) | (0.43) | Condensed Consolidated Interim Statement of Comprehensive Income For the six months ended June 30, 2025, the company's loss for the period was RMB 251,677 thousand, a slight increase from the prior year, with other comprehensive income primarily affected by exchange differences on overseas operations, leading to a small rise in total comprehensive expense for the period Key Data from Condensed Consolidated Interim Statement of Comprehensive Income | Metric | H1 2025 (RMB thousands) | H1 2024 (RMB thousands) | | :--- | :--- | :--- | | Loss for the period | (251,677) | (247,604) | | Items that may be reclassified subsequently to profit or loss: | | | | — Exchange differences on translation of overseas operations | 777 | (3,055) | | Total comprehensive expense for the period | (250,900) | (250,659) | Condensed Consolidated Interim Statement of Financial Position As of June 30, 2025, the company's total non-current assets and total current assets both slightly decreased, while total current liabilities significantly increased, further expanding net current liabilities and net liabilities, and continuing to increase the total deficit Key Data from Condensed Consolidated Interim Statement of Financial Position | Metric | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Total non-current assets | 290,053 | 298,155 | | Total current assets | 734,444 | 752,212 | | Total current liabilities | 4,107,063 | 3,894,099 | | Net current liabilities | (3,372,619) | (3,141,887) | | Total assets less current liabilities | (3,082,566) | (2,843,732) | | Non-current liabilities | 19,878 | 7,812 | | Net liabilities | (3,102,444) | (2,851,544) | | Share capital | 1,767 | 1,767 | | Reserves | (3,104,211) | (2,853,311) | | Total deficit | (3,102,444) | (2,851,544) | Company Information Lao Heng He Brewing Co., Ltd. was incorporated in the Cayman Islands and primarily engages in the production and sale of "Lao Heng He" branded seasonings in China, listed on the Main Board of the Hong Kong Stock Exchange since January 28, 2014 - The company was incorporated in the Cayman Islands and primarily engages in the production and sale of "Lao Heng He" branded seasonings in China[9] - The company's shares have been listed on the Main Board of the Hong Kong Stock Exchange since January 28, 2014[10] Basis of Preparation, Accounting Policies and Changes in Disclosures The interim financial information is prepared in accordance with IAS 34 and the HKEX Listing Rules, based on a going concern assumption; however, the company faces severe liquidity challenges, including net cash outflow from operating activities, net loss, net current liabilities, and a capital deficit, indicating significant uncertainty about its ability to continue as a going concern, but management has formulated several measures to address these issues, and changes in accounting policies have no material impact on the current financial information Basis of Preparation The Group's unaudited condensed consolidated interim financial statements are prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited - Interim financial information is prepared in accordance with IAS 34 and the HKEX Listing Rules[11] Going Concern Assumption The company faces severe liquidity challenges, including net cash outflow from operating activities, net loss, substantial net current liabilities, and a capital deficit; despite significant uncertainties, the Board considers the preparation of financial information on a going concern basis appropriate, based on the direct holding company's commitment to continuous financial support, active negotiations with major lenders for loan renewals and new credit facilities, and internal business plans such as cost control and sales forecasting - For the six months ended June 30, 2025, the Group's net cash used in operating activities was approximately RMB 45.97 million, generating a net loss of approximately RMB 251.68 million[12] - As of June 30, 2025, the Group's net current liabilities were approximately RMB 3,372.62 million, with a capital deficit of approximately RMB 3,102.44 million and accumulated losses of approximately RMB 3,970.10 million[12] - The Group's total borrowings were approximately RMB 3,570.92 million, of which current borrowings were approximately RMB 3,569.95 million, with approximately RMB 1,919.78 million overdue[13] - Wuxing Chengtou (Hong Kong) Co., Ltd., the direct holding company, has committed to continuous financial support, and major lenders (Huzhou Wuxing City, Nan Taihu, Husheng Financing) have expressed active support and committed to providing approximately RMB 450 million in new credit facilities[14] - The directors have formulated business plans to improve liquidity by monitoring production activities, tightening cost control, and seeking feasible financial arrangements[15] Accounting Policies and Changes in Disclosures The accounting policies for the current financial information are consistent with the previous year, with only the adoption of the revised IAS 21 "Lack of Exchangeability" effective January 1, 2025, which has no material impact on the Group's financial information - The adoption of the revised IAS 21 "Lack of Exchangeability" has no material impact on the Group's interim financial information[17][18] Operating Segment Information The Group primarily operates as a single business unit, the food segment, engaged in the production and sale of seasonings; all revenue and non-current assets are derived from China, thus no geographical information is presented, and Customer A is one of the major customers for the period - The Group operates as a single business unit, the food segment, engaged in the production and sale of seasonings[19] - All of the Group's revenue and identifiable non-current assets are located in China[19] Major Customer Revenue Contribution | Customer | H1 2025 (RMB thousands) | H1 2024 (RMB thousands) | | :--- | :--- | :--- | | Customer A | 13,356 | 15,062 | Revenue, Other Income and Gains Current period revenue, primarily from the sale of seasonings, remained flat year-on-year, while other income and gains significantly decreased, mainly due to a reduction in other interest income Revenue Composition | Type of Goods | H1 2025 (RMB thousands) | H1 2024 (RMB thousands) | | :--- | :--- | :--- | | Seasonings | 144,422 | 144,277 | Other Income and Gains | Item | H1 2025 (RMB thousands) | H1 2024 (RMB thousands) | | :--- | :--- | :--- | | Subsidies received | 214 | 47 | | Bank interest income | 3 | 5 | | Exchange gains, net | – | 214 | | Other interest income | – | 1,031 | | Others | 58 | 120 | | Total | 275 | 1,417 | - Performance obligations are satisfied upon delivery of products, with payments generally due within 30 to 90 days after delivery[25] Loss Before Income Tax The loss before income tax for the current period was primarily influenced by employee benefit expenses, depreciation, impairment losses on inventories, cost of inventories recognized as expense, and overdue surtaxes and interest expenses Major Components of Loss Before Income Tax | Item | H1 2025 (RMB thousands) | H1 2024 (RMB thousands) | | :--- | :--- | :--- | | Employee benefit expenses | 21,145 | 22,867 | | Depreciation | 14,448 | 14,794 | | Impairment losses, net (inventories) | 1,750 | – | | Cost of inventories recognized as expense | 102,367 | 97,169 | | Research and development costs | 6,493 | 6,716 | | Overdue surtaxes | 14,672 | 17,585 | | Overdue interest expenses | 121,069 | 114,367 | Finance Costs Finance costs for the current period slightly decreased, primarily comprising interest on bank loans, other borrowings, and lease liabilities Finance Costs Details | Item | H1 2025 (RMB thousands) | H1 2024 (RMB thousands) | | :--- | :--- | :--- | | Interest on bank loans | 1,716 | 1,974 | | Interest on other borrowings | 97,218 | 98,205 | | Interest on lease liabilities | 60 | 83 | | Total | 98,994 | 100,262 | Income Tax Expense Due to the Group's continuous tax losses, no China income tax provision was made for the current period or the prior corresponding period, resulting in zero income tax expense - Due to the Group's tax losses, there was no China income tax expense for the current period or the prior corresponding period[30] Loss Per Share Attributable to Owners of the Company Basic and diluted loss per share for the current period remained at RMB 0.43, consistent with the prior year, calculated based on the loss for the period and the weighted average number of ordinary shares outstanding Loss Per Share Calculation | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Loss attributable to owners of the Company (RMB thousands) | (251,677) | (247,604) | | Weighted average number of ordinary shares (thousands of shares) | 578,750 | 578,750 | | Basic and diluted loss per share (RMB) | (0.43) | (0.43) | - Basic loss per share was not diluted as there were no potentially dilutive ordinary shares outstanding during the period[31] Dividends The Board does not recommend the payment of any interim dividend for the six months ended June 30, 2025, consistent with the prior corresponding period - The company does not propose to pay an interim dividend for the six months ended June 30, 2025[32] Property, Plant and Equipment The total cost of purchases for property, plant and equipment increased in the current period compared to the prior year, while some plant and equipment were disposed of, resulting in a loss - The total cost of purchases for property, plant and equipment in the current period was approximately RMB 7.13 million, an increase from approximately RMB 4.62 million in the prior corresponding period[33] - A loss of approximately RMB 33 thousand was recorded on the disposal of certain plant and equipment[33] Inventories As of June 30, 2025, total inventories slightly decreased, with work in progress accounting for the largest proportion Inventories Composition | Item | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Raw materials | 11,976 | 11,742 | | Work in progress | 540,847 | 562,479 | | Finished goods | 11,581 | 11,865 | | Total | 564,404 | 586,086 | Trade Receivables As of June 30, 2025, net trade receivables slightly increased, with credit terms typically ranging from one to three months; the aging analysis shows that most receivables are within three months Net Trade Receivables | Metric | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Trade receivables, gross | 28,620 | 27,893 | | Less: Provision for credit losses | (2,673) | (2,673) | | Trade receivables, net | 25,947 | 25,220 | - Trade terms between the Group and its customers are primarily on credit, with credit periods typically ranging from one to three months[35] Aging Analysis of Trade Receivables | Aging | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Within 3 months | 20,366 | 20,850 | | 3 to 6 months | 5,296 | 3,876 | | 6 months to 1 year | 285 | 494 | | Total | 25,947 | 25,220 | Prepayments, Other Receivables and Other Assets As of June 30, 2025, the total of prepayments, recoverable VAT, deposits, and other receivables slightly decreased, with recoverable VAT constituting the major portion Composition of Prepayments, Other Receivables and Other Assets | Item | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Prepayments | 2,812 | 2,838 | | Recoverable VAT | 113,370 | 114,121 | | Deposits and other receivables | 20,748 | 20,595 | | Total | 136,803 | 137,681 | | Less: Portion classified as non-current assets | (1,993) | (2,455) | | Current portion | 134,348 | 135,688 | Cash and Cash Equivalents and Pledged Deposits As of June 30, 2025, cash and bank balances slightly decreased, while pledged deposits increased; RMB is the primary currency of denomination Cash and Cash Equivalents and Pledged Deposits | Item | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Cash and bank balances | 6,346 | 5,781 | | Pledged deposits | 708 | 191 | | Total | 6,537 | 6,489 | | Of which: Cash and cash equivalents | 5,781 | 6,346 | | Denominated in: RMB | 4,697 | 4,533 | | HKD | 878 | 1,489 | | USD | 370 | 160 | Trade Payables As of June 30, 2025, total trade payables slightly decreased, with most settled within three months; trade payables are non-interest-bearing and typically due within one to six months Aging Analysis of Trade Payables | Aging | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Within 3 months | 25,912 | 30,858 | | 3 to 6 months | 19,553 | 17,969 | | Over 6 months | 11,676 | 9,211 | | Total | 57,141 | 58,038 | - Trade payables are non-interest-bearing and typically due within one to six months[40] Other Payables and Accrued Expenses As of June 30, 2025, the total of other payables and accrued expenses decreased, primarily including contract liabilities, other taxes payable, provision for overdue tax surcharges, and payables for equipment and construction costs Composition of Other Payables and Accrued Expenses | Item | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Contract liabilities | 9,242 | 50,729 | | Other taxes payable | 37,011 | 38,822 | | Other payables and accrued expenses | 355,392 | 353,345 | | Amount due to a director | 7 | 7 | | Salaries payable | 5,040 | 9,233 | | Total | 406,692 | 452,136 | - Other taxes payable primarily consist of VAT payable of approximately RMB 26.26 million[41] - Other payables and accrued expenses primarily include a provision for overdue tax surcharges of approximately RMB 262.14 million and payables for equipment and construction costs of approximately RMB 7.38 million[41] Interest-Bearing Bank and Other Borrowings As of June 30, 2025, total interest-bearing bank and other borrowings increased, with most being secured other borrowings; approximately RMB 1,919.78 million of other borrowings were overdue, and related overdue interest expenses were recognized; some borrowings are secured by assets or guaranteed by an intermediate holding company Total Interest-Bearing Bank and Other Borrowings | Item | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Current lease liabilities | 1,358 | 1,638 | | Unsecured bank loans | 49,000 | 49,000 | | Secured bank loans | 20,000 | 10,000 | | Unsecured other borrowings | 229,212 | 217,739 | | Secured other borrowings | 3,270,383 | 3,031,570 | | Non-current lease liabilities | 966 | 1,393 | | Total | 3,570,919 | 3,311,340 | - The Group's total bank loan facilities amount to RMB 69 million, with RMB 69 million utilized[42] - Approximately RMB 1,919.78 million of other borrowings are overdue, with related overdue interest expenses of approximately RMB 121.07 million[45] - The Group pledged certain assets to lenders as security for bank and other borrowings, including property, plant and equipment, right-of-use assets, and inventories[44][45] - Some other borrowings involve sale and leaseback arrangements for machinery and equipment, which management considers the Group to retain control over the assets, thus recognized as other borrowings rather than asset sales[46] Deferred Government Grants As of June 30, 2025, the Group recognized deferred government grants of RMB 12.54 million, intended to subsidize enterprise technological transformation and enhance existing plant facilities and annual production capacity Deferred Government Grants | Item | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Deferred government grants | 12,542 | – | - The grant is used to subsidize the Group in upgrading existing plant facilities, including the purchase of automated filling lines and automated blending production lines, expected to increase the annual production capacity of seasonings[48] Share Capital As of June 30, 2025, the company's authorized and issued and fully paid share capital remained unchanged Share Capital Details | Item | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Authorized share capital (1,000,000,000 shares of US$0.0005 par value each) | 3,050 | 3,050 | | Issued and fully paid share capital (578,750,000 shares of US$0.0005 par value each) | 1,767 | 1,767 | Management Discussion and Analysis Management discussed the company's operating performance, market strategy, product R&D, quality control, and future outlook for H1 2025; despite challenges like slower-than-expected consumption recovery and intensified industry competition, the company enhanced market competitiveness through quality and efficiency improvements, product innovation, and channel reforms, and will continue to focus on consumer demand, expand diversified sales channels, and elevate brand market position Performance Review In H1 2025, the company's revenue was flat year-on-year, but gross profit margin declined due to product mix adjustment (increased sales proportion of mid-to-low-end products); cooking wine products remained the main revenue source, while soy sauce products are being repositioned; the company made progress in product certification, standard revision, market promotion, R&D innovation, and workshop management, but still faces risks such as rising production costs, market expansion costs, new product acceptance, distributor challenges, and economic uncertainty - The company achieved several milestones in H1 2025, including organic product certifications for yellow wine, soy sauce, fermented bean curd, and rose rice vinegar, FSSC22000 system certification for its subsidiary Lao Heng He Winery, and active participation in industry standard revisions[50][52] - In terms of market strategy, the company intensified high-end product packaging, promotional activity planning, online channel layout, and offline key channel promotion, employing a multi-level, multi-channel strategy to enhance brand influence[53] - Regarding product R&D and quality, the company engaged external technical experts, collaborated with universities, developed new products, improved production line processes, and acquired equipment to strengthen food safety technical assurance capabilities, establishing a full-process digital food safety traceability system[54] - Sales revenue in H1 2025 was approximately RMB 144.4 million, flat compared to RMB 144.3 million in H1 2024[56] - Cooking wine series products remained the main revenue source, accounting for approximately 66.4% of total revenue; soy sauce product sales revenue was approximately RMB 15.9 million, accounting for approximately 11.0% of total revenue[57] - Gross profit margin decreased from 32.7% in H1 2024 to 29.1% in H1 2025, primarily due to product mix adjustment, with an increased sales proportion of mid-to-low-end products[57] - Loss attributable to owners of the Company was approximately RMB 251.7 million, an increase of approximately 1.6% year-on-year[58] - The company faces multiple risks, including rising production costs, changing consumer perceptions, increased market expansion costs, new product market acceptance, distributor challenges, and economic uncertainty[59] Goals and Strategies Looking ahead to H2 2025, the company will focus on "streamlining, optimizing structure, and increasing efficiency" and the "one core, two wings" strategy, centering on consumer demand, developing cost-effective products, and accelerating the expansion of new retail models and discount retail channels through product innovation, quality improvement, enhanced marketing, and brand promotion to elevate market position and customer loyalty - The company will be consumer-centric, developing high-quality, cost-effective products, and diversifying resources to develop products suitable for different sales channels[60] - H2 operating goals include: expanding high-quality customers, improving customized models, establishing a sound quality control system, increasing R&D investment, introducing new technologies and processes, optimizing procurement procedures, reducing procurement costs, and strictly controlling expenses to achieve revenue growth and cost reduction[61] - The company will focus on product innovation and quality improvement, developing healthy products such as low-sodium, low-fat, low-sugar, low-salt, organic, and additive-free options, and utilizing digital marketing (e.g., social media, content marketing) to enhance online brand exposure[62] - Accelerate the expansion of new retail models and discount retail channels, building a diversified online channel combining "traditional e-commerce + emerging retail platforms," and focusing on promoting social e-commerce and community linkage to develop a community distribution model with all employees as sales guides[63] Financial Review This section provides a detailed review of the Group's financial performance for the six months ended June 30, 2025, including changes in key indicators such as revenue, costs, profits, various expenses, and loss per share, along with their primary reasons; overall, revenue remained flat, but a decline in gross profit margin led to an expanded loss Overview The Group's revenue in H1 2025 remained largely flat year-on-year, but gross profit decreased by 10.7%, leading to a 1.6% increase in loss attributable to owners of the Company; both gross profit margin and net loss margin deteriorated, and the gearing ratio increased Overview of Key Financial Indicators | Metric | H1 2025 (RMB thousands) | H1 2024 (RMB thousands) | Year-on-year change (%) | | :--- | :--- | :--- | :--- | | Revenue | 144,422 | 144,277 | 0.1 | | Gross Profit | 42,055 | 47,108 | (10.7) | | Loss attributable to owners of the Company | (251,677) | (247,604) | 1.6 | | Loss before interest, tax, depreciation and amortization | (138,156) | (132,196) | 4.5 | | Loss per share (RMB) | (0.43) | (0.43) | 0 | | Gross profit margin (%) | 29.1 | 32.7 | (11.0) | | Net loss margin attributable to owners of the Company (%) | (174.3) | (171.6) | 1.6 | | Loss before interest, tax, depreciation and amortization margin (%) | (95.7) | (91.6) | 4.5 | | Gearing ratio (%) (June 30, 2025 vs December 31, 2024) | 427.8 | 393.5 | 8.7 | - Gearing ratio is calculated as net debt divided by total equity and net debt, where net debt includes total debt less cash and cash equivalents[66] Revenue The Group's revenue remained flat year-on-year; cooking wine product revenue grew by 4.0%, driven by new product launches, optimized product mix, and increased promotional efforts, while revenue from soy sauce, rice vinegar, and other products decreased by 6.9% due to product mix adjustments and reduced production of underperforming products - The Group's revenue in H1 2025 was flat compared to H1 2024, at approximately RMB 144.4 million[67] - Cooking wine product revenue increased by 4.0% to RMB 95.9 million, primarily due to new product launches, optimized product mix, and increased promotional efforts[67] - Revenue from soy sauce, rice vinegar, and other products decreased by 6.9% to RMB 48.5 million, mainly due to product mix adjustments and reduced production of underperforming products[68] Cost of Sales The Group's cost of sales increased by 5.3%, primarily due to an increased sales proportion of mid-range products with relatively lower gross profit margins - Cost of sales increased by 5.3% to RMB 102.4 million, primarily due to an increased sales proportion of mid-range products with relatively lower gross profit margins[69] Gross Profit and Gross Profit Margin Gross profit decreased by 10.7% to RMB 42.1 million, and gross profit margin fell from 32.7% to 29.1%; this decline was mainly due to market competition, increased promotional efforts, and a shift in product mix towards lower-margin mid-range products - Gross profit decreased by 10.7% to RMB 42.1 million, with gross profit margin falling from 32.7% to 29.1%[70] - The decline in gross profit margin was primarily attributable to market competition, increased promotional efforts, and a shift in product mix, leading to an increased sales proportion of lower-margin mid-range products[70] Other Income and Gains Other income and gains significantly decreased by 78.6% to RMB 0.3 million, primarily due to a reduction in other interest income - Other income and gains decreased by 78.6% to RMB 0.3 million, primarily due to a reduction in other interest income[71] Selling and Distribution Expenses Selling and distribution expenses increased by 1.4% to RMB 44.8 million, with its percentage of revenue rising from 30.6% to 31.0%, mainly due to increased promotional expenses for existing products and new product development - Selling and distribution expenses increased by 1.4% to RMB 44.8 million, with its percentage of revenue rising from 30.6% to 31.0%[72] - The increase was primarily due to intensified promotional efforts for existing products and increased promotional expenses for new products suitable for online channels[72] Administrative Expenses Administrative expenses decreased by 34.0% to RMB 12.6 million, mainly due to a reduction in service and consulting fees outside of sales and production - Administrative expenses decreased by 34.0% to RMB 12.6 million, primarily due to a reduction in service and consulting fees[73] Finance Costs Finance costs decreased by 1.3% to RMB 99.0 million, primarily attributable to a decrease in interest rates on new borrowings - Finance costs decreased by 1.3% to RMB 99.0 million, primarily attributable to a decrease in interest rates on new borrowings[74] Loss Before Income Tax Loss before income tax increased by 1.6% to RMB 251.7 million, primarily due to the combined impact of flat revenue, decreased gross profit, and changes in expenses - Loss before income tax increased by 1.6% to RMB 251.7 million[75] Income Tax Expense Income tax expense for the current period was zero, consistent with the prior year, mainly due to the Group's continuous tax losses - Income tax expense was zero, primarily attributable to the Group's continuous losses[76] Loss Per Share Attributable to Owners of the Company Basic loss per share remained at RMB 0.43, consistent with the prior year, reflecting the change in loss for the period - Basic loss per share remained at RMB 0.43[77] Net Loss Margin Net loss margin increased by 1.6% to 174.3%, primarily due to an expanded loss resulting from a decrease in gross profit margin - Net loss margin increased by 1.6% to 174.3%, primarily due to a decrease in gross profit margin[78] Financial and Liquidity Position This section analyzes the Group's financial and liquidity position, including prepayments, trade receivables, inventories, borrowings, foreign exchange risk, cash flow, and capital commitments; the company faces liquidity pressure with increased and partially overdue borrowings, but management is actively seeking financing channels and implementing inventory management strategies Prepayments, Deposits and Other Receivables As of June 30, 2025, the total current portion of prepayments, deposits, and other receivables was RMB 26,225 thousand, a slight increase from RMB 25,636 thousand as of December 31, 2024 Prepayments, Deposits and Other Receivables (Current Portion) | Item | June 30, 2025 (RMB thousands) | December 31, 2024 (RMB thousands) | | :--- | :--- | :--- | | Prepayments for fixed assets | 2,455 | 1,993 | | Prepayments for purchase of seasonings | 588 | 175 | | Other prepayments | 2,053 | 2,076 | | Deposits and other receivables | 23,561 | 23,408 | | Total | 28,218 | 28,091 | | Less: Portion classified as non-current assets | (2,455) | (1,993) | | Current portion | 26,225 | 25,636 | Trade Receivables Trade receivables turnover days increased from 33 days at the end of 2024 to 34 days in H1 2025, primarily influenced by overall market volatility - Trade receivables turnover days increased from 33 days for the year ended December 31, 2024, to 34 days for the six months ended June 30, 2025[80] - The increase in turnover days was primarily influenced by overall market volatility[80] Inventories Total inventories decreased from RMB 586.1 million at the end of 2024 to RMB 564.4 million in H1 2025, mainly due to increased sales of mid-range products, higher usage of work in progress, increased sales of finished goods, and impairment losses recognized on some inventories; the company implements strict inventory monitoring and management strategies to ensure products are sold within their shelf life - Inventories decreased from RMB 586.1 million to RMB 564.4 million, primarily due to increased sales of mid-range products, higher usage of work in progress, increased sales of finished goods, and impairment losses recognized on some inventories[81] - The company regularly monitors distributor inventory levels, with sales representatives compiling monthly inventory statistics and regularly visiting warehouses to ensure optimal inventory levels and assist distributors with market promotion to reduce excess inventory[82] Borrowings As of June 30, 2025, the Group's total borrowings were approximately RMB 3,570.9 million, an increase from RMB 3,311.3 million at the end of 2024; primary liquidity sources are cash from operations and bank borrowings, mainly used for working capital and capacity expansion, with no current hedging of interest rate risk - The Group's total borrowings were approximately RMB 3,570.9 million, an increase from RMB 3,311.3 million at the end of 2024[83] - Primary liquidity sources are cash from operations and bank and other borrowings, mainly used for working capital and capacity expansion[83] - The Group does not use any financial instruments to hedge interest rate risk[83] Foreign Exchange Risk The Group primarily operates in China, with most revenue and expenses denominated in RMB; currently, there is no foreign currency hedging policy, but management monitors and considers hedging when necessary - The Group's primary business is in China, with most revenue and expenses denominated in RMB, and currently has no foreign currency hedging policy[84] Liquidity and Financial Resources As of June 30, 2025, cash and cash equivalents were approximately RMB 5.8 million, and interest-bearing bank and other borrowings totaled RMB 3,570.9 million; the company expects cash flow to be sufficient for ongoing operational needs and plans to broaden financing channels to improve its capital structure - As of June 30, 2025, cash and cash equivalents were approximately RMB 5.8 million, and interest-bearing bank and other borrowings totaled RMB 3,570.9 million[85] - The company expects cash flow to be sufficient to meet ongoing operational needs and has decided to further broaden financing channels to improve its capital structure[86] Capital Commitments As of June 30, 2025, capital commitments were approximately RMB 12.4 million, an increase from RMB 6.2 million at the end of 2024, primarily for payments related to equipment and construction in progress - Capital commitments were approximately RMB 12.4 million, an increase from RMB 6.2 million at the end of 2024, primarily for payments related to equipment and construction in progress[87] Contingent Liabilities As of June 30, 2025, the Group had no significant contingent liabilities - The Group had no significant contingent liabilities[88] Pledge of Assets The Group pledged certain assets to lenders as security for bank and other borrowings, as detailed in Note 18 to the interim financial information; the Group has not entered into any off-balance sheet guarantees or other commitments - The Group pledged certain assets to lenders as security for bank and other borrowings obtained by the Group[89] - The Group has not entered into any off-balance sheet guarantees or other commitments[89] Future Outlook Looking ahead to H2 2025, the Chinese economy is expected to continue its stable and positive trend, with the government focusing on boosting consumption; while the seasoning industry faces challenges, healthy, safe, nutritious, and convenient products will find new opportunities; the Group will remain consumer-centric, consolidating its leading position in the cooking wine market through product innovation, technological upgrades, diversified product structure, and market expansion, striving to become a trusted seasoning knowledge consultant for consumers and achieve sustainable development - In H2 2025, the Chinese economy is expected to maintain a stable and positive trend, with the government focusing on boosting consumption and promoting a shift towards high-quality, diversified consumption structures[90] - The seasoning industry will increasingly focus on product innovation and upgrading, with nutrition, health, safety, deliciousness, and convenience becoming the main themes for industry innovation and development[91] - The Group will remain consumer-centric, adhering to a natural, healthy, and nutrition-oriented approach (low-fat, low-sugar, low-salt, organic, additive-free healthy products), and actively promoting the integration of food technology with production practices[92] - The company will consolidate its leading position in the mid-to-high-end cooking wine and grain-brewed cooking wine markets, and implement a diversified product structure strategy, expanding product line breadth horizontally and deepening product layers vertically[94] - Continuous efforts will be made to drive innovation and upgrading across the cooking wine industry, from strain research, intelligent and digital brewing, and online quality control to spice process improvements, leveraging technological innovation for sustainable enterprise development[94] Other Information This section covers other important information, including significant events after the reporting period, employee and remuneration policies, major investments, acquisitions and disposals of subsidiaries, dealings in listed securities, corporate governance, interim dividends, and review of financial information; the company maintains stability or compliance in these areas Significant Events After Reporting Period As of June 30, 2025, neither the Company nor the Group has undertaken any significant post-reporting period events - Neither the Company nor the Group has undertaken any significant post-reporting period events[97] Employees and Remuneration Policies As of June 30, 2025, the Group had 462 full-time employees, a decrease from 509 at the end of 2024; employee costs were RMB 21.1 million, and remuneration policies, bonuses, and training programs remained unchanged from the previous year - As of June 30, 2025, the Group employed 462 full-time employees, a decrease from 509 at the end of 2024[98] - Employee costs were RMB 21.1 million, and remuneration policies, bonuses, and training programs remained unchanged from the previous year[98] Material Investments Held As of June 30, 2025, the Group held no material investments - The Group held no material investments[99] Material Acquisitions and Disposals of Subsidiaries, Associates and Joint Ventures For the six months ended June 30, 2025, there were no material acquisitions or disposals of subsidiaries, associates, or joint ventures - There were no material acquisitions or disposals of subsidiaries, associates, or joint ventures[100] Purchase, Redemption or Sale of the Company's Listed Securities For the six months ended June 30, 2025, neither the Company nor any of its subsidiaries purchased, redeemed, or sold any of the Company's listed securities, and the Company held no treasury shares - Neither the Company nor any of its subsidiaries purchased, redeemed, or sold any of the Company's listed securities[101] - The Company held no treasury shares[101] Corporate Governance The Company has adopted and complied with the Corporate Governance Code in Appendix C1 and the Model Code in Appendix C3 of the HKEX Listing Rules for the six months ended June 30, 2025; the Audit Committee, comprising three directors, is responsible for reviewing financial information, internal controls, and risk management systems - The Company has adopted and complied with the Corporate Governance Code set out in Appendix C1 of the HKEX Listing Rules[102] - The Company has adopted and complied with the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix C3 of the Listing Rules[103] - The Audit Committee, comprising three directors, is primarily responsible for assisting the Board in providing an independent review of the Group's financial information, financial reporting system, internal control, and risk management systems[104] Interim Dividend The Board resolved not to declare any interim dividend for the six months ended June 30, 2025 - The Board resolved not to declare any interim dividend for the six months ended June 30, 2025[105] Review of Financial Information The Audit Committee has discussed, reviewed, and approved the Group's unaudited condensed consolidated interim financial statements for the six months ended June 30, 2025, and recommended their adoption by the Board - The Audit Committee has reviewed and approved the Group's unaudited condensed consolidated interim financial statements for the six months ended June 30, 2025, and recommended their adoption by the Board[106] Publication of Results Announcement and Interim Report The results announcement and interim report will be published on the HKEX website and the company's website, respectively - The results announcement will be published on the HKEX website www.hkexnews.hk and the company's website www.hzlaohenghe.com[107](index=107&type=chunk)