|FY 2023 1H(for the six months ended June 30, 2023)
|FY 2022 1H(for the six months ended June 30, 2022)
|Sales of the flagship brand, Zhen Jiu||2,305,867||2,007,262||14.9%|
|Gross profit margin||57.9%||55.6%||2.3 percentage points|
|Adjusted net profit (non-IFRS measure)||802,519||657,638||22.0%|
|Adjusted net profit margin (non-IFRS measure)||22.8%||21.5%||1.3 percentage points|
- The flagship brand, Zhen Jiu, targeting sauce-aroma baijiu enthusiasts, contributed around 65.5% of the overall revenue during the Period.
- The gross profit increase was primarily due to the Group’s strategic optimization of the core product mix by increasing the total revenue generated from deluxe baijiu products, improving the revenue contribution of baijiu products with a higher gross profit margin in the same price range, and gradually replacing third-party produced base liquor with in-house production, thereby reducing the unit cost.
Achieving Consistent Growth through Well-defined Strategy and Operational Excellence
The baijiu industry has entered a new phase of adjustments characterized by gradual and rational growth during the Period. The Group strives to capture the growing trend and underlying market opportunities consisting of the increasing popularity of sauce aroma baijiu across China, consumer preferences towards premiumization and market consolidation to achieve sustainable and quality growth, through strategic brand premiumization initiatives to optimize the product mix and increase revenue from deluxe baijiu and that of baijiu products with higher gross profit margins within the same price range. At the same time, the Group is actively developing mid-range baijiu products to meet the diversified market demand for quality baijiu at affordable prices in 2023. It also invested resources to accelerate and promote sell-through and sell-out, maintaining healthy inventory levels at the distributors’ ends and optimizing the distributor base. As a result, the Group’s baijiu sales increased by approximately RMB457.98 million, up 15.0% compared to the same period in 2022, with adjusted net profit margin (non-IFRS measure) increased by 1.3 percentage points.
Expanding Production Capacity and Press Ahead Product Innovation to Enhance Brand Presence
The Group has experienced remarkable growth driven by the increasing popularity of sauce-aroma baijiu in China and the rising consumer preferences towards premiumization. Capitalizing on these favourable market trends, the Group is dedicated to proactively expanding its production capacity to meet the market demand and to support product premiumization. As of June 30, 2023, the Group has completed the construction of a new production facility, Li Du (Zheng Jia Shan), which is now operational with a designed production capacity of 5,000 tons of base liquor per year. This achievement aligns with the Company’s strategic focus on building a substantial and sustainable base liquor production capacity and inventory, which are crucial to its core competitiveness. With the continuous expansion of production capacity, the Company can ensure an adequate and long-term reserve of aged liquor and base liquor to enrich its premium and deluxe product offerings, strengthen competitiveness, and meet the growing market demand for deluxe and above baijiu products. This new production facility, situated in Lidu, Jiangxi, spans an area of 373,570 square meters, providing ample room for further expansion.
Furthermore, the Group’s product development team is spearheaded by a technical committee of 28 renowned baijiu experts with extensive industry experience. With its solid collaboration with several esteemed universities and research institutions, the Group can leverage their technical and academic expertise to identify traceable components during the baijiu brewing process to improve the flavour and functional quality of its baijiu products. In the first half of 2023, the flagship brand Zhen Jiu launched three new package-free baijiu products (光瓶酒) within the deluxe and premium price ranges, which gained significant market acceptance and popularity and impressively contributed to the growth in revenue for the Period.
Embracing Market Trends and Implementing an Integrated Multi-Channel Sales Strategy
The Group has devised a series of strategic plans to respond to the prevailing trends of premiumization and market consolidation within the baijiu industry. It has developed a variety of sales channels nationwide, allowing it to expand its consumer outreach constantly. In addition to broadening its national offline sales channels while simultaneously deploying online marketing strategies, the Group has also adopted digital infrastructure to boost growth and grasp greater efficiency. The established integrated digitalized management system, coupled with a comprehensive inventory management policy, plays a pivotal role in supporting the major aspects of operations, optimizing inventory levels, and enhancing the overall profitability of ZJLD Group. By incorporating sales data analytics, the Group can improve transparency and efficiency in distribution channels. The internally developed QR code system also helped the Group effectively manage distribution channels and monitor the inventory levels of dealers. By leveraging consumer insights to drive informed business decisions, streamline operational costs, and optimize overall efficiency, the Group is confident in applying a multi-channel sales strategy through a combination of online and offline marketing plans.
Mr. Wu Xiangdong, Founder and Chairman of ZJLD Group, commented, “Amidst China’s post-pandemic economic recovery in Q2 2023, our baijiu business has resumed its normal course. After recognizing the tremendous opportunities in the increasing popularity of sauce-aroma baijiu and the growing demand for premiumization, we were committed to implementing a product optimization plan and employing various marketing strategies to strengthen our existing distribution network, improve channel turnover, and promote sell-out. Simultaneously, we focused on enhancing cooperation with retail partners for deluxe and premium products to optimize resource allocation. The Group will continue to expand or construct production facilities to bolster capacity, consolidate and advance our market share in the sauce-aroma as well as deluxe and premium baijiu markets. Being included in the Hang Seng Composite Index marks another significant milestone, underscoring our thriving development. With a strong position for robust growth and enhanced profitability, ZJLD remains committed to delivering long-term returns for our valued investors and sincerely appreciates our board of directors for their unwavering support and dedication.”