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Due to intensified competition in the condiment industry, Jiangsu Hengshun Vinegar-Industry has experienced another decline in revenue and net profit in the first half of this year after a decline in performance last year. In the restrictive stock incentive plan implemented in July, the company has set ambitious performance goals of annual revenue growth of more than 10% and profit growth of more than 9% from 2024 to 2026, but the reality is in stark contrast to the goals.

According to the financial report, in the first half of 2024, Jiangsu Hengshun Vinegar-Industry achieved operating income of 1.004 billion yuan, a year-on-year decrease of 11.83%, mainly due to a decrease in sales revenue. Among them, the operating income of the main condiment business was 0.979 billion yuan, accounting for 97.45%; the operating income of other goods and services was 25.6504 million yuan, accounting for 2.55%.

In addition, the company's attributable net profit was 93.6847 million yuan, a year-on-year decrease of 24.16%; the non-recurring net profit was 81.4743 million yuan, a year-on-year decrease of 30.85%; both of these decreases were mainly due to a decrease in sales revenue. The net cash flow from operating activities was 0.194 billion yuan, a year-on-year increase of 52.75%, mainly due to a decrease in cash paid for the purchase of goods, services, and taxes.

Looking at the quarterly performance, the company achieved total operating revenue of 0.544 billion yuan in the second quarter, a year-on-year increase of 3.36% and a quarter-on-quarter increase of 18.19%; the attributable net profit was 38.4686 million yuan, a year-on-year decrease of 24.06% and a quarter-on-quarter decrease of 30.33%.

Jiangsu Hengshun Vinegar-Industry believes that the condiment industry is still in a slow recovery process, and the company's transformation and development are at a critical stage. The rise in production costs poses challenges to the company's profitability; fragmented channels present new challenges to improving market share; the personalized, convenient, and healthy consumption trends require product iteration and renewal. However, there are still potential and opportunities for future development.

It is worth noting that in order to motivate employees and improve performance, in June of this year, Jiangsu Hengshun Vinegar-Industry disclosed the 2024 Restricted Stock Incentive Plan and Employee Stock Ownership Plan, which was approved in July. 5.9172 million restricted stocks were granted to 367 incentive recipients. In this plan, the company has established strict performance assessment requirements, and the achievement of performance goals is the condition for lifting the restriction on the shares.

The performance targets for assessment are aimed at 2024-2026, including four dimensions that must be achieved simultaneously: firstly, the revenue side based on the 2023 as the base year, the growth rates for 2024-2026 are not less than 10%/21%/33% respectively, corresponding to an annualized growth rate of about 10%; secondly, the profit side based on 2023, the total profit growth rates for 2024-2026 are not less than 9%/18%/29% respectively, corresponding to an annualized growth rate of about 9%; thirdly, each year the above indicators must not be lower than the average level of the industry; fourthly, the proportion of main business revenue to operating revenue shall not be less than 95% each year.

However, looking at the performance of Jiangsu Hengshun Vinegar-Industry this year, there is a significant gap compared to the assessment targets.

While the revenue declined, in the first half of the year, Jiangsu Hengshun Vinegar-Industry's sales and administrative expenses both increased, further increasing the company's operational pressure. Specifically, sales expenses increased by 3.46% year-on-year to 0.167 billion yuan, mainly due to increased promotional expenses; administrative expenses increased by 5.11% year-on-year to 52.8018 million yuan, mainly due to increased personnel costs, etc.

Financial Association reporters also noted that Jiangsu Hengshun Vinegar-Industry incurred losses in the securities investment field. Last October, the company decided to participate in the subscription of Guoquan Food's Hong Kong IPO, with the total subscription amount not exceeding 10 million US dollars. However, in the first half of this year, the company's holdings in Guoquan (02517.HK) stocks incurred an investment loss of -25.1907 million RMB.