On March 25, Haitian Flavoring & Food Co., Ltd., a leading Chinese condiment company, released its 2019 performance report. In 2019, Haitian's revenue reached 19.797 billion yuan, a year-on-year increase of 16.22% from 17.034 billion yuan in the previous year. Net profit reached 5.35 billion yuan, up 22.64% from 2018. However, gross margin declined by 0.83 percentage points year-on-year to 47.23%. In response, Haitian stated in the annual report that the decline in gross margin was mainly due to rising procurement costs and an increased proportion of oyster sauce sales. The company will subsequently intensify efforts to control procurement costs, leverage smart manufacturing to add value to the core business chain of production, supply, and sales, strengthen lean production and cost management, and drive overall operational efficiency improvements and a healthy decline in costs. -01- Significant Increase in Product Production Capacity During the reporting period, the company's main business remained unchanged, adhering to its core operations. Products cover soy sauce, oyster sauce, sauces, vinegar, chicken essence, MSG, cooking wine, and other condiments. The production and sales volume and revenue of condiments have ranked first in the industry for many consecutive years, with soy sauce, seasoning sauce, and oyster sauce being Haitian's main businesses. By product category, in 2019, soy sauce business achieved revenue of 11.629 billion yuan, a year-on-year increase of 13.60%; sales volume increased by 16% year-on-year; sales volume reached 2.1713 million tons, up 15.62% year-on-year; inventory was 177,000 tons, up 66.09% year-on-year. Maintaining stable growth under a high base is truly rare. The seasoning sauce business achieved revenue of 2.291 billion yuan, a year-on-year increase of 9.52%; sales volume reached 267,700 tons, up 12.34% year-on-year; inventory reached 18,300 tons, up 17.25% year-on-year. The growth of the seasoning sauce business is mainly attributed to effective development in the B2B channel. The oyster sauce business achieved revenue of 3.490 billion yuan, a year-on-year increase of 22.21%; sales volume reached 751,700 tons, up 24.39% year-on-year; inventory was 58,700 tons, up 22.54% year-on-year. The significant volume increase strongly supported performance growth, and the revenue growth of all three main businesses is directly related to sales volume growth. The financial report specifically noted that Haitian soy sauce has ranked first in the country in production and sales volume for 23 consecutive years. With a wide variety of products covering all levels, it has achieved good results in both high-end and low-end markets. In Haitian's product system, there are products like Golden Label Light Soy Sauce and Caogu Dark Soy Sauce that have been bestsellers for decades and still maintain growth vitality. There are also rising stars like Weijixian and Soybean Paste that cater to consumers' pursuit of new flavors, maintaining development momentum. -02- Net Increase of Over a Thousand Distributors As the only condiment company to achieve nationwide distribution, Haitian has a sales network covering the entire country. Currently, Haitian's network covers 100% of prefecture-level and above cities in China, and in inland provinces, 90% of provinces have sales exceeding 100 million yuan. According to Haitian's financial report, in terms of the number of distributors, as of the end of 2019, Haitian had a total of 5,806 distributors, a net increase of 999 compared to the end of 2018. The northern region, which has the largest sales scale and the slowest growth rate, saw the largest net increase in distributors, with an increase of 436 compared to 2019. Industry insiders believe this is mainly due to the region becoming more mature and channel differentiation becoming more detailed. The central and western regions, with the smallest scale, saw net increases in distributors second only to the northern region (central +172; western +223), mainly due to the expansion of channels in existing blank areas. In addition to the surge in offline distributors, Haitian's online business is also actively expanding, with online revenue increasing by 42.51% year-on-year, achieving an effective combination of e-commerce platforms and traditional channels. -03- 2020 Outlook The financial report not only disclosed Haitian's impressive 2019 performance but also mentioned the company's 2020 plan to achieve a revenue target of 22.78 billion yuan and a profit target of 6.32 billion yuan, maintaining a relatively high growth rate. In this regard, Haitian stated that even though the impact of the epidemic on catering and distribution channels is inevitable, and performance in January-February is under pressure, the timely launch of discount promotions for catering channels, KA/BC, and distribution channels after the Spring Festival will help stimulate channels to actively increase inventory. Coupled with the digestion of demand after the recovery of the catering industry, the negative impact of the epidemic on revenue will be well offset. Furthermore, Haitian pointed out that the condiment industry is a basic rigid demand in people's daily lives. With the development of the catering industry, the food processing industry, and consumption upgrades, these will become important factors driving industry development. Tips will be paid 400-2000 yuan once adopted.