Click to read the original article for details On the evening of August 4, Golden Arowana disclosed its 2022 interim report, with revenue of 119.483 billion yuan in the first half, up 15.74% year-on-year; net profit attributable to shareholders of the listed company was 1.976 billion yuan, down 33.47% year-on-year. 01 Rising raw material prices lead to lower gross margins According to the financial report, the main factors for Golden Arowana's year-on-year performance changes in the first half include significant increases in raw material prices due to uncontrollable factors such as climate and regional conflicts. Despite increased demand for household consumer goods due to the pandemic, price adjustments still failed to cover cost increases. Specifically, the following three factors: 1. In the first half of 2022, affected by drought in South America affecting soybean production expectations and the Russia-Ukraine conflict, prices of the company's main raw materials such as soybeans, soybean oil, and palm oil experienced unprecedented rapid and substantial increases. Although prices fell somewhat in mid-to-late June, product costs still rose significantly compared to the same period last year. Although the company raised prices for some products, it did not fully cover the increase in raw material costs, and gross margins for main products declined significantly year-on-year. 2. In the first half of 2022, repeated pandemic outbreaks in some domestic regions and strengthened control measures increased demand for retail products mainly for household consumption. As a company ensuring material supply, with a high sense of social responsibility, it overcame difficulties such as logistics disruptions and personnel shortages, fully leveraging its nationwide layout, multi-category, and brand advantages to actively ensure production and supply. Sales volume of kitchen foods increased year-on-year in the first half. However, due to the significant year-on-year increase in raw material costs, the company's price increases for some products still could not cover cost increases, coupled with economic weakness, sluggish consumption, and intensified market competition, profits from kitchen foods declined year-on-year. 3. The effective income tax rate was relatively high during the reporting period, mainly due to tax rate differences among subsidiaries; some high-tax-rate companies were profitable, while some low-tax-rate companies incurred losses. These three reasons, reflected in the financial data, led to a 20.04% year-on-year increase in operating costs for Golden Arowana in the first half of 2022. Russia and Ukraine have long been known as the two "European granaries," major global exporters of grains and oilseeds, with wheat, barley, sunflower seeds, and corn exports ranking among the world's top five. The conflict between the two "oil bottles," coupled with a significant increase in demand, undoubtedly led to soaring vegetable oil prices. Looking at Golden Arowana's 2022 interim report by product: in the first half of 2022, kitchen food revenue was 76.136 billion yuan, up 15.41%; feed raw materials and oil technology products revenue was 42.469 billion yuan, up 16.46%; other products revenue was 878 million yuan, up 10.61%. The revenue growth of various products was not due to the launch of popular single products or new incremental space in distribution channels. Rather, with supply-side tightening, gross margins in the terminal market were compressed, costs increased, and performance came under pressure; the company could only resort to price increases. But even with price increases, profit margins were not stabilized. According to the financial report, in 2022, gross margins for kitchen foods and feed raw materials and oil technology products decreased by 3.56% and 2.76% year-on-year, respectively. 02 Increasing revenue and reducing costs to solidify competitive barriers It is worth noting that Golden Arowana's second-quarter financial indicators improved quarter-on-quarter: total profit reached 2.41 billion yuan, up 266.1% from the first quarter; net profit attributable to shareholders was 1.86 billion yuan, up 1526% from the first quarter. The significant profit increase in the second quarter is related to hedging operations. To reduce risks from raw material price fluctuations, Golden Arowana hedged on commodity futures, incurring significant derivative financial instrument losses in the first quarter, with spot profits realized in the second quarter as sales progressed. Meanwhile, from mid-to-late June, prices of major raw materials such as soybeans and palm oil fell from highs, and derivative financial instruments realized gains. In addition to increasing revenue, this interim report also reveals a "save where possible" approach. The company's selling expense data shows that in the first half of 2022, promotional activities decreased, leading to a 30.17% reduction in promotional expenses, a 24.40% decrease in advertising expenses, and a 43.19% decrease in travel expenses. While increasing revenue and reducing costs, Golden Arowana, known as the "oil Mao," continues to strengthen its competitive barriers, establishing a diversified and three-dimensional marketing network including retail channels, catering channels, food industry channels, e-commerce channels, and baking channels. As of June 30, 2022, Golden Arowana had a total of 6,033 distributors, an increase of 744 from 5,289 in the same period last year, a year-on-year increase of 14.07%. Distributor numbers increased in all five regions: East, South, West, North, and Central. 03 Planning central kitchens: multi-production line integrated operations to reduce risks Another point worth noting in the financial report is that Golden Arowana is leveraging its strong platform advantages to continuously launch new products, gradually expanding its product line to include seasonings, yeast, daily chemical products, plant-based meat, and central kitchens. By relying on competitive advantages across the entire industrial chain, it maintains market leadership. At a video conference on March 24, Golden Arowana discussed central kitchens and other issues, stating that the increased investment in central kitchens at this time was due to the huge market demand, and the company has advantages in developing central kitchen business.

  1. Golden Arowana has numerous comprehensive processing bases across the country, and the government also hopes to introduce large enterprises locally to build central kitchens.
  2. With rising rental and labor costs in the catering industry, increasing demand for cost reduction and efficiency, and growing consumer attention to food safety and quality, the company's central kitchens use raw materials from suppliers within the park and products produced by the company itself, ensuring quality. Additionally, with first-class park construction and equipment investment, it can produce high-quality, stable products to meet consumer demand. Image source: Yihai Kerry official website
  3. Currently, the company's existing business is significantly affected by raw material price fluctuations. In the future, as downstream businesses like central kitchens develop, it is believed that the impact of raw material price fluctuations on overall performance can be further reduced. Through multi-production line integrated operations, the company can reduce operational fluctuations that a single production line might bring. It is also actively laying out new high-growth and complementary businesses, continuously expanding kitchen food categories and effectively reducing production, logistics, and marketing costs. Golden Arowana believes that the central kitchen business and existing business can promote each other. Rice, flour, oil, and seasonings businesses can promote the better development of the central kitchen business. In the future, it plans to lay out central kitchen bases in multiple locations nationwide. -END-