Review on Management of Sanyuan Bio’s 2022 Annual Board of Directors
() The business review of the Board of Directors in 2022 is as follows:
I. The industry in which the company is located during the reporting period.
According to the "Guidelines for Self-regulation of Listed Companies of Shenzhen Stock Exchange No.3-Industry Information Disclosure" issued by Shenzhen Stock Exchange, companies are required to comply with the disclosure requirements of "food and wine manufacturing related businesses".
(1) Industry
The company is mainly engaged in the production, research and development and sales of functional sugar-erythritol and compound sugar products. According to the Guidelines for Industry Classification of Listed Companies (revised in 2012) issued by the CSRC, the company’s industry is "C14, food manufacturing".
(B) the stage of industry development
1. Development of functional sugar industry
Functional sugar is a kind of carbohydrate with special efficacy, and its efficacy is mainly reflected in the regulation of human microecology. Functional sugars are generally indigestible or indigestible components of human body, which have the functional characteristics of low calorie, low energy, regulating and improving intestinal flora, preventing dental caries, reducing blood fat and so on. They can play a role in low-energy foods and can be eaten by diabetics, obese patients and hyperglycemia patients. Due to the particularity of functional sugar, adding functional sugar into food to make functional food beneficial to human health has become one of the important trends in the development of health food industry. At present, functional sugar has formed a complete system with functional oligosaccharides, functional dietary fiber, functional sugar alcohols and functional monosaccharides as the main components, and its application scope is becoming wider and wider. In developed countries such as Europe and America, functional sugar has become an essential sweetener in people’s daily life and is widely used in various fields including food, beverage, dairy products, baking, wine, health care products, medicine, feed, daily chemicals, etc.
2. Policy support for functional sugar industry
In recent years, with the healthy consumption concept of controlling sugar and reducing sugar, it has gradually become a social consensus. Many countries levy sugar taxes to curb consumers’ excessive intake of added sugar. China has also issued a series of policies and regulations to encourage and support the functional sugar industry, providing a good macro-market environment for the development of the functional sugar industry. In 2016, the Guiding Catalogue of Key Products and Services of Strategic Emerging Industries (2016 Edition) included emerging fermented products such as sugar alcohol, automatic fermentor and automatic control system, and fermentation process optimization technology and equipment in the key products and services of strategic emerging industries cultivated by the state. The Central Committee of the Communist Party of China and the State Council jointly issued the "Healthy China 2030" Planning Outline, which pointed out that the next 15 years will be an important period of strategic opportunities to promote the construction of a healthy China. It is necessary to give priority to health, put prevention first, and promote a healthy lifestyle. Guide reasonable diet and carry out in-depth evaluation and research on food nutritional function; Develop new health service formats, implement comprehensive prevention and control strategies for chronic diseases, strengthen the prevention and treatment of common diseases such as hypertension, diabetes and obesity, strengthen oral hygiene, and promote healthy aging. In 2017, the National Nutrition Plan (2017-2030) issued by the General Office of the State Council proposed to actively promote the healthy lifestyle of the whole people and carry out the special action of "three reductions and three health". In 2019, the Action Plan for Healthy Stomatology (2019-2025) published by the National Health and Wellness Committee pointed out that a special action of "reducing sugar" will be launched.Primary and secondary schools and kindergartens restrict the sale of high-sugar drinks and snacks, and canteens should also reduce the supply of high-sugar drinks and high-sugar foods to improve consumers’ ability to confirm the addition of sugar to food nutrition labels. "Healthy China Action (2019-2030)" advocates that the per capita daily intake of added sugar should not exceed 25g, so as to study and formulate the limited intake of added sucrose for children in China as soon as possible, and advocate the substitution of natural sweetening substances and sweetening drinks.
3. Erythritol Industry in 2022
With the rise of the wave of sugar reduction, the demand for functional sugar has increased, especially the rapid development of functional sugar alcohols represented by erythritol. In 2022, due to the increasing downward pressure on the macro economy and the continued weakness of the consumer industry, the demand at the downstream consumer side slowed down. At the same time, with the early upsurge of domestic functional sugar industry, a large number of new erythritol enterprises gradually put into the market in 2022, which further intensified the competition in the industry. In the case of shrinking demand in the downstream market, the new overcapacity could not be digested by the market, the relationship between supply and demand gradually changed, and the market showed a situation of oversupply, and the price of erythritol was greatly reduced by the impact, which greatly reduced the profit space of industry enterprises.
4. Future development trend of functional sugar industry
With the sustained economic growth and the continuous improvement of income level, the realistic demand brought by aging and sub-health, and people’s in-depth understanding of nutrition and health, China is becoming one of the most important health and nutrition markets in the world. Due to the concern for health and the change and upgrading of consumption concept, consumers’ demand for functional and diversified consumption has spawned new application markets, promoted the development of health food field, and enlarged the growth space of functional health ingredients at the same time. Functional food additives have met the market upgrading demand of traditional food to functional food, and gradually showed the development trend of "big health" consumption direction in the market. At present, low-calorie healthy diet has become the development direction of people’s dietary consumption all over the world, especially low-calorie and sugar-free foods are growing faster and faster all over the world, which will provide a broad development space for erythritol. As an enterprise producing functional sugar alcohol-erythritol by biological fermentation technology, the company just caters to this consumption trend. Opportunities and challenges coexist in the future erythritol industry.
(B) cyclical characteristics of the industry
The production process of erythritol, the company’s main product, is fermentation production, and its main application fields are food and beverage addition. The product market is distributed all over the world, and the consumption level is less affected by the national macroeconomic fluctuations. Generally speaking, the erythritol production industry is not cyclical and seasonal, and the supply of starch and glucose required for production is relatively stable throughout the year, and there is no obvious seasonal feature. However, due to the limitation of fermentation process, some enterprises in the industry cannot continuously and stably produce in the hot and muggy environment in summer, and there are periodic shutdown and maintenance situations.
The raw material for erythritol production is glucose after starch saccharification, while the main raw material for starch production is corn. Corn planting is mainly distributed in North China, Northeast China and other regions. Shandong Province, where the company is located, is located in the corn deep processing zone, and the starch market is abundant, which has natural advantages in raw material procurement and processing. Regionally, China’s functional sugar alcohol manufacturing industry presents a certain geographical concentration distribution characteristics, mainly distributed in East China, North China, Northeast China and other regions.
(III) The position of the company in the industry
The company’s main product erythritol production capacity is 135,000 tons, and it is the largest erythritol production enterprise in the world at present. It has a good reputation and a strong brand advantage in the erythritol industry. The company’s Tianluyuan brand erythritol is rated as "Shandong Quality Brand" and "Shandong Famous Brand". The company’s erythritol production technology is outstanding, and the product quality has reached the international advanced level. With the advantages of erythritol production capacity and leading market share, the company has won the honorary titles of "Little Giant" enterprise specializing in specialty and innovation, and Shandong Technological Innovation Demonstration Enterprise. During the reporting period, the sales revenue of erythritol and its compound sugar accounted for 97.07% of the total revenue. As one of the important manufacturers of erythritol in the world, the company serves global customers with strong technical advantages, cost advantages, quality and service advantages.
II. Main businesses of the Company during the reporting period
The company shall comply with the disclosure requirements of "food and wine manufacturing related business" in the Guidelines for Self-regulatory Supervision of Listed Companies of Shenzhen Stock Exchange No.3-Industry Information Disclosure.
(1) Main business
The company is a biological high-tech enterprise focusing on the production of erythritol by biological fermentation, which integrates research and development, production and sales, and is committed to the production of functional sugar alcohol-erythritol and its compound products and the research and development of new sweeteners. The company is an enterprise that started industrial production of erythritol earlier in China. Since its establishment, it has devoted itself to cultivating erythritol products for more than ten years, and has successively overcome many technological problems such as strain breeding, formula optimization, fermentation control, crystal extraction and so on. It has a good reputation and a strong brand advantage in the erythritol industry, and has gradually developed into a leading enterprise with the largest production capacity and leading product quality in the world.
(2) Main products and their uses
The company’s main products are erythritol and compound sugar. Erythritol is a natural, low calorific value, high tolerance, no dental caries and safe for diabetics. Erythritol products can be divided into different specifications according to the mesh size, and compound sugar products can be divided into different types according to the high-power sweeteners used.
(III) Business model of the company
1. Purchasing mode
The raw material procurement of erythritol can be divided into two parts: the main material and the auxiliary material. The company adopts the raw material stocking mode of "ordering by production" and formulates the procurement plan according to the order situation and production plan. For the main raw materials, the company adopts the purchasing mode of inquiry and price comparison. As for the procurement of main materials, after signing the bulk supply contract with suppliers, the company prepays the payment in batches and arranges the suppliers to deliver the goods to the factory continuously according to the production demand. The company keeps a small amount of inventory and the lead time is short. In the procurement of auxiliary materials, the company buys them in batches according to the production demand, keeps proper inventory, and the stocking cycle is longer than that of the main materials. The selection mechanism and standards of the company’s suppliers are as follows: the purchasing department initially selects suppliers through market research, inquiry and price comparison, and then comprehensively examines the supplier’s production and operation qualifications, product quality, corporate reputation and credit, production and operation stability and other standards to determine the partners.
2. Production mode
The company is oriented by customer orders and adopts the production mode of "fixing production by sales". According to the delivery time and product model of the customer’s order, the production plan is comprehensively arranged, and the production activities are organized to ensure the timely delivery of the order. Except for the special needs of customers’ orders and holidays, the company’s inventory of finished products remains at an appropriate level.
3. Sales model
The company adopts the sales model of "distribution-oriented, supplemented by direct sales". The sales department is specifically responsible for product sales, market development, customer order tracking and service. After establishing a cooperative relationship with customers, downstream customers sign contracts or place orders with the company by face-to-face, email, telephone or other means, and the products sold are directly sent to customers by the company, or to end customers by dealers after being sent to dealers, or directly sent to the receiving place designated by dealers by the company. The company’s sales staff make follow-up visits to customers to understand the changes in market demand.
In the development of new customers, the company expands new customer resources by participating in domestic and foreign food ingredients professional exhibitions organized by China Food Additives and Ingredients Association, industry-related forums, taking the initiative to visit, introducing existing customers, and attracting customers by relying on industry status and word of mouth. Among them, participating in industry professional exhibitions is an important way for companies to promote brands and products and obtain customer resources. At the same time, the company actively expands its online business and helps brand communication and sales through e-commerce platforms such as Taobao. During the reporting period, there was no significant change in the company’s business model.
(IV) Brand operation
At present, the company has major brands such as Tianluyuan and Yuanshengtian. As the core brand of the company for many years, Tianluyuan has been synonymous with stable quality and excellent quality in the erythritol market, and has accumulated profound customer resources and good market reputation in the industry, and has been rated as a well-known brand in Shandong and a high-quality brand in Shandong. According to the judgment of the future market, the company plans to launch a new generation brand of "Yuan Sheng Tian" with small packaging, realize the strategic layout of the company’s products from B-end to C-end, and further enhance the brand awareness and market influence of the company’s products.
(5) License and qualification certificate
(1) Operating income, cost and gross profit rate of sub-products.
(2) Operating income, cost and gross profit rate by mode.
(III) Changes of dealers by region
(four) the top five distribution customers
The company gives the dealer a certain account period and settles the account according to the agreed credit policy.
Reasons for price change and its impact on the company
Reasons for price change: The market price of erythritol products dropped sharply in a short period of time due to the sluggish terminal demand of erythritol products and the expansion of the industry.
Impact on the company: the company’s operating income has fallen sharply, and the net profit attributable to shareholders of listed companies and the net profit after deducting non-recurring gains and losses have fallen sharply.
Third, the core competitiveness analysis
(A) the core technological advantages
1. Advantages of fermentation strains
In the process of erythritol fermentation, the fermentation strains used play an important role in the conversion rate of products. The fermentation strain used by the company is Yarrowia Lipolytica (Candida lipolytica), which holds the invention patent jointly with Shanghai Jiaotong University. The fermentation strain is cultivated by screening and mutating Candida lipolytica, which has the advantages of high erythritol conversion efficiency, energy saving and consumption reduction. The laboratory conversion rate of erythritol synthesized by the fermentation strains used by the company can reach more than 54.5%, which is significantly higher than the conversion rate of Candida lipolytica (32.9%-47%). In addition, the suitable fermentation temperature of erythritol fermentation strains is usually around 30℃, and the temperature of fermentation environment in some high-temperature months in summer sometimes exceeds the suitable temperature range of fermentation strains. When the cooling capacity of auxiliary refrigeration equipment is exceeded or the cooling is not economical, erythritol production enterprises have to stop production and repair, which seriously affects the output of erythritol. Through its own technology, the company continuously improved the fermentation strains used to improve the high-temperature resistance of the strains, ensured the continuity of erythritol production, and significantly reduced the comprehensive production cost.
2. Advantages of fermentation medium formula
The fermentation production of erythritol is a process of inoculating fermentation strains into fermentation medium for culture and fermentation, and then purifying and extracting. Fermentation medium plays an important role in the ability of fermentation strains to synthesize erythritol. In the long-term production practice of erythritol, the company constantly explores and optimizes the formula of fermentation medium. The company’s patent application document "A method to improve the conversion efficiency of erythritol production and its application" shows that the comparative experimental data show that under the premise of using the same fermentation strain and the same fermentation process, the conversion rate of erythritol in the optimized formula can reach up to 61.2%, while the conversion rate of erythritol in the traditional formula is usually 44.4%-46.3%. Thereby greatly improving the yield of erythritol.
3. Unique technological advantages of mother liquor recovery.
In the process of erythritol fermentation, a certain amount of by-products such as glycerol, ribitol, mannitol and arabinitol will be produced. The content of the above by-products in the mother liquor after concentrated crystallization for many times is generally higher than that of the residual erythritol, so it is impossible to further extract the residual erythritol in the mother liquor by conventional concentrated crystallization. The company cooperated with Shanghai Jiaotong University to apply for the patent "Method of extracting erythritol from erythritol mother liquor and its special yeast species". A new type of Candida lipolytica was obtained by screening mutation. The yeast strain can decompose other polyols and macromolecules except erythritol in the mother liquor of erythritol, and the purity of residual erythritol in the mother liquor can be improved from less than 50% to more than 70%. Then the company further improved the purity to 80% through continuous experiments, which provided favorable conditions for further crystallization and extraction of residual erythritol in mother liquor.
At the same time, the company innovated the process of erythritol sterilization, decolorization, concentration, crystallization and refining by its own technology, further optimized the extraction process of erythritol, fermented and extracted a certain amount of residual secondary mother liquor of erythritol again, and even extracted it for many times. It is a very effective technical means to improve the yield, save energy and reduce emission, and reduce the production cost, which is green and environmentally friendly. It not only lightens the environmental burden of enterprises, but also reduces the production cost of erythritol, which has remarkable economic and social benefits.
(2) Advantages of control technology and process level
Microbial fermentation process has high requirements for fermentation equipment, temperature control equipment, pressure control equipment, etc. If the corresponding equipment settings are unreasonable or the sensitivity cannot meet the requirements, the production efficiency will be reduced, the production cost will increase, and even the fermentation will fail due to bacterial contamination. Fermentation production needs to control temperature, pressure, ventilation and other conditions, and it needs to be constantly explored and summarized, and then the tank temperature, tank pressure, air flow, inoculation amount, bacterial age and so on which are in line with the growth, metabolism, reproduction and synthesis of bacteria should be formulated. These aspects all need high experience accumulation and electromechanical design ability. Similarly, process parameter control is a proprietary technology summarized by enterprises on the basis of long-term production adjustment experience, and enterprises usually protect it by means of technical secrets. In the process of erythritol fermentation, temperature, PH, dissolved oxygen and other parameters have great influence on the fermentation level. Accurate control of these parameters is of great significance to improve the conversion rate of erythritol. The company continues to improve the automatic control of fermenters, mixers, air compressors and other equipment needed for erythritol fermentation. After the improvement, the accuracy of the controller for temperature control is correspondingly improved, which can reach 0.1℃, which is greatly improved compared with the traditional manual control of 3-5℃. At the same time, instead of manual control, computer control can be controlled in advance according to the temperature change trend, preventing the problem of manual control lag and overcoming the problem of large inertia of temperature change in fermentation tank. In addition, the improvement of automation level reduces the workshop staffing and production costs.
(3) Advantages of information and automation production
Through the deep integration of ERP system and production automation system, the company has realized the effective linkage of procurement, production, storage and sales. The company’s continuous production integrates automation and information means, and several sets of intelligent production devices independently developed have realized one-button start and stop. Real-time visual monitoring, early warning and alarm can be carried out on various indicators and parameters in the production process, and historical parameters can be traced back, which ensures the conformity between production operation and process, provides a basis for process optimization analysis, and ensures the consistency of product quality and the safety of operation. The use of advanced information management system has improved the overall operating efficiency of the company, and the personalized needs of customers have been accurately and timely responded.
(D) R&D advantages
The company always insists on building the core competitiveness of the enterprise with scientific and technological innovation and talent construction as the center. On March 4, 2022, it established Sanyuan Bioengineering Research (Tianjin) Co., Ltd., a wholly-owned R&D subsidiary in Tianjin Free Trade Zone Airport Economic Zone. Relying on the high-quality scientific research resources of Chinese Academy of Sciences, Tianjin University, Tianjin University of Science and Technology, Tianjin Haihe Laboratory and other scientific research institutes, the subsidiary focuses on new resource foods, life and health, bio-based chemicals, key industrial strains and other fields, and is committed to the research and development of high-end applied technologies of synthetic biology. Project establishment and research and development have been carried out in green food, bio-based materials, chassis cell construction and metabolic pathway transformation. In the next step, we will continue to export innovative technologies and industrialized talents for the parent company Sanyuan Bio in terms of key core technologies for the synthesis of low-carbon bio-based products, so as to serve the upgrading of enterprises and the development of green economy. At the same time, the company actively cooperated with universities and research institutes. On September 26, 2022, the company signed an agreement with Shandong University on R&D technology center to jointly build a science and technology R&D center. The R&D center is implemented by the National Sugar Engineering Technology Research Center of Shandong University. It mainly focuses on saccharides such as hyaluronic acid, and based on the research and development accumulation of the research team in sugar science and sugar engineering, it focuses on the special medical food, cosmetics, drug delivery system and other major industrial directions of hyaluronic acid and other saccharides, and is committed to the research and development of key technologies and the transformation of scientific and technological achievements.
(E) Advantages of quality control
The company pays attention to the important policy of quality management and has established a complete quality management and control system, covering the whole process of procurement, production and sales. It has successively obtained the three-system certification of quality management (ISO 9001: 2015), environmental management (ISO14001：2015), food safety management (ISO22000：2018), international food safety quality certification (SQF), global food safety standard certification (BRC), KOSHER certification, and HALAL kosher certification (. The company strictly controls the quality of raw materials in the process of purchasing raw materials; In the production process, strict implementation of process standards, relying on production equipment and information system to achieve quality control, to ensure lasting and effective quality control; In the process of customer service, closely track the use of products and get the feedback information of product quality in time. Through strict quality control, the company has established the brand influence of its products, and has successively won honorary awards such as national "Little Giant" enterprise specializing in innovation, Shandong agricultural product processing industry demonstration enterprise, Shandong excellent enterprise, Shandong high-end brand cultivation enterprise, Shandong manufacturing single champion enterprise, Shandong specialized and innovative small and medium-sized enterprise, Shandong famous brand and Shandong high-quality brand.
(VI) Advantages of industrial scale
With a capacity of 135,000 tons of erythritol, the company is the largest erythritol producer in the world at present, with obvious advantages in industrial scale. The advantages of the company in production and operation scale can enhance the company’s ability to resist risks and consolidate and expand its market influence.
(VII) Geographical location advantages
The raw materials for erythritol production of the company’s products are mainly starch or glucose. Shandong Province is an important gathering place for domestic corn deep processing enterprises. Starch and glucose are adequately supplied, and the transportation cost is low. The manufacturers can supply them continuously and stably, which can meet the daily production needs of the company. The company can implement the turnover strategy of a small amount of starch inventory to reduce capital precipitation and storage costs. Moreover, the company’s erythritol products are mainly exported, and the production plant is close to (), which is convenient for export transportation and saves transportation costs. It has obvious location advantages.
Fourth, the main business analysis
1. Overview
In 2022, due to the increasing downward pressure on the economy and the weak consumer industry, the demand in the downstream client market was sluggish, and the release of new production capacity made the market capacity difficult to digest, and the industry competition further intensified. At the same time, affected by the rapid fluctuation of exchange rate, the domestic and international market environment presents a grim situation, and the overall profitability of the company declines. Facing the complicated and severe business situation, in order to reverse the adverse impact of single product category, the board of directors of the company actively faced it, made scientific decisions, and all departments cooperated to overcome difficulties.
(1) Basic operation in 2022
In 2022, the company realized an operating income of 674,905,600 yuan, a decrease of 59.71% compared with the same period of last year; The net profit attributable to shareholders of listed companies was 163,686,600 yuan, down 69.43% compared with the same period of last year, and the net profit attributable to shareholders of listed companies after deducting non-recurring gains and losses was 162,331,500 yuan, down 69.27% compared with the same period of last year.
(II) Key tasks in 2022
1. Save energy consumption and reduce production cost.
In 2022, the company directly purchased starch and extracted glucose as raw material after saccharification, which effectively saved the cost compared with directly purchasing glucose. In terms of energy, the company filed a distributed photovoltaic power generation project, and installed solar power generation components and power transmission and distribution grid-connected devices on the roof of the factory, which can meet the demand for electricity in production and reduce the cost of electricity.
2. Accelerate the construction of investment projects to ensure the company’s future sustainable operation ability.
During the reporting period, the production line with an annual output of 50,000 tons of erythritol was completed and put into production, and the 2,000-ton production line of the 20,000-ton psicose project began trial production. At present, the equipment of the above-mentioned projects is running stably, and the industrial optimization and equipment improvement will continue to be done according to the operation situation, so as to further reduce the consumption in the production process, and at the same time accelerate the construction of the remaining capacity of the psicose project, thus contributing to the future development of the company.
3. Intensify research and development, and broaden product categories.
The company has continuously increased R&D investment and the construction of R&D talent team. During the reporting period, the company invested in the establishment of Sanyuan Bioengineering Research (Tianjin) Co., Ltd., a wholly-owned R&D subsidiary, which will effectively supplement the company’s existing business and improve its core technology competitiveness in developing new products and corresponding technologies, establish an open scientific research platform, innovate cooperation mechanisms, and stimulate the vitality of scientific researchers, so as to better meet the needs of downstream customers. As the front-end R&D base of the company, according to the company’s strategic layout, the subsidiary takes technology as the starting point. On the one hand, it focuses on the optimization and process improvement of the company’s existing products, relies on the advantages and strength of R&D, and combines production with research to continuously improve the process technology, reduce the production cost of products and further consolidate the core competitiveness of the company’s products. On the other hand, around the company’s industrial development direction, in the field of functional sugar, do a good job in the company’s new product technology research and development and project reserve, and accelerate the transformation of scientific and technological achievements to promote the expansion of the company’s new business areas. During the reporting period, the company reserved new products such as stevioside, sodium hyaluronate, tagatose, sialic acid and polyglutamic acid. Up to now, new products such as high-quality stevioside, sodium hyaluronate (food grade), psicose mixed with stevioside and Siraitia grosvenorii (cocrystallization) have completed pilot tests, and will be mass-produced when conditions are ripe. New products, such as sialic acid and tagatose, have been developed and are being piloted, and will be introduced to the market as soon as the technology is mature.
4, strengthen external cooperation, strengthen product technology supply.
The company attaches importance to the mode of combining Industry-University-Research. During the reporting period, the company signed an agreement with Shandong University to jointly build a scientific and technological R&D center, namely, Shandong University-Sanyuan Biotechnology R&D Center. In response to the call of "double innovation" of the country, relying on the talent and technical advantages of Shandong University, it promoted the transformation of scientific and technological achievements and the development of related disciplines, and improved the company’s R&D ability and independent innovation ability. In the way of combining Industry-University-Research, it focused on the special medical food, cosmetics and drug delivery system of saccharides such as hyaluronic acid.
5. Promote the landing of retail products and enrich business development.
In order to realize the development of the company’s products from the B-end to the C-end, during the reporting period, the company subscribed for 20% of the equity of Peixuewu through capital increase, and with the help of Peixuewu’s experience and advantages in the retail market, the sales of the company’s products from the supply end to the retail end were accelerated, and the industry influence was enhanced.
V. Prospect of the Company’s Future Development(A) the company’s development strategy
In 2023, in the face of more arduous tasks and challenges, the company will take market demand as the development direction, scientific and technological innovation as the development driving force, and based on the foundation and advantages of the company’s existing erythritol products, continue to consolidate its leading position in the market and strengthen the single product strategy of erythritol. At the same time, we will actively develop other functional sugar and other sugar products with market competitiveness, expand product categories with the development strategy of deep cultivation and development, promote the company’s business to cut into the development of special medical food, cosmetics, drug delivery system and other industrial tracks in the future, accelerate the products to the retail end, and meet consumers’ demand for green, healthy, safe and economical products. Enhance the company’s value, adhere to the business purposes of safety first, quality first and integrity first, and promote the healthy and stable development of enterprises.
(II) Business Plan for 2023
1. Continue to do a good job in the company’s existing main business, make good use of the company’s brand advantages, and promote the two lines of production and marketing in a coordinated manner. In production, we should persist in promoting technological innovation and technological innovation, focusing on optimizing the technological process of erythritol production, promoting energy saving and consumption reduction, and improving product quality; In sales, we should constantly explore marketing innovation and market innovation, continue to explore new customer groups and application fields, adjust the company’s product structure and sales policy in time according to the changes in production costs, and strengthen the control of the market.
2. Intensify the development of new products, focus on the development of new markets and new fields, focus on the higher-level needs of the people in the fields of medical care and health, food consumption, and vigorously develop bio-economy, and link the innovative needs of domestic and foreign customers with the innovative resources of the company to form an interactive innovation system. The company adopts the product development strategy of "listing generation, R&D generation and reserve generation". The specific business plans of each product in this year are as follows: (1) Erythritol products. On the basis of maintaining the existing production capacity, the company will continue to optimize the production process of erythritol and improve the product quality. (2) psicose products. By the end of 2022, the 2,000-ton/year psicose production line has been completed and put into operation, and the remaining capacity is expected to be completed and put into operation this year. (3) High-quality stevioside, sodium hyaluronate (food grade) and products such as the compound of psicose with stevioside and Siraitia grosvenorii (cocrystallization). These products have been developed in stages and successfully piloted, and the follow-up companies will mass-produce them in due course in combination with market industries. (4) New products such as sialic acid and tagatose. The company will lay out the process development and engineering research of these new products, expand the company’s comprehensive competitiveness in the industry, and make sufficient preparations for cutting into the special medical food, cosmetics and drug delivery system in the future. At present, the company has mastered the preparation technology of tagatose (to be biosynthesized) and sialic acid. The development and layout of the above new products will help the company to innovate in production technology and create new profit growth points for the company.Promote the company to use more advanced and competitive technology to create new products that are more in line with consumers’ health demands. The landing of new products will effectively improve the company’s current product simplification pattern and meet consumers’ differentiated consumption upgrading needs.
3. Focus on R&D innovation and technological upgrading, make full use of core technologies and accumulated experience, actively promote cooperation with leading domestic food fermentation research institutes and R&D institutions, strengthen product R&D capabilities, and improve the single product pattern of the company. At the same time, based on the existing asset accumulation and management methods, the company will continue to raise awareness of the protection and utilization of intellectual property rights, transform technological innovation into intellectual property assets in time, and provide support for the company’s product line expansion.
4, pays special attention to the implementation of production safety work, improve the level of energy conservation and environmental protection. Focusing on safety production, we will strengthen the safety production training for employees and the ability to deal with emergencies, improve employees’ awareness of safety production and environmental protection, stick to the bottom line of safety and environmental protection, regularly carry out hidden dangers investigation and rectification, ensure safe and stable operation of production, optimize production technology, save energy and reduce consumption, promote low-carbon and clean production in the production process, and create a safe, energy-saving and environmentally-friendly production environment. 5. Improve the standard operation level of the board of directors, actively play the central role of the board of directors in corporate governance, conscientiously implement the resolutions of the shareholders’ meeting in strict accordance with relevant regulations, make scientific and efficient decisions on major issues of the company, strengthen the construction of corporate governance and internal control, conscientiously fulfill the obligation of information disclosure, and improve the quality of information disclosure. Deepen the management of investor relations, earnestly safeguard the legitimate rights and interests of small and medium-sized investors, deepen investors’ understanding and recognition of the company, promote long-term and stable good relations between the company and investors, and jointly promote the steady progress of the company and achieve greater development.
(C) Future risks and countermeasures
1. Risk of intensified industry competition and fluctuation of market demand.
With the improvement of consumers’ health awareness and the upgrading of consumer demand for sugar substitute products, the erythritol industry continues to increase in popularity. Affected by the previous high prosperity of erythritol industry, a large number of new investors are involved and new production capacity will be gradually put on the market in 2022. In addition, the original enterprises in the industry continue to expand their production and the supply of the industry is greatly increased, which makes the market competition pressure of enterprises in the industry increase sharply. On the other hand, most of the company’s downstream customers are beverage enterprises. If the demand of downstream customers changes or the amount of erythritol is reduced, it will have an impact on the company’s sales, which may lead to a decline in the order volume of erythritol and its compound products, a decline in prices and an increase in the proportion of sales expenses. If the company can’t adapt to the competitive development trend of the industry by expanding production capacity and upgrading technology, the company’s industry position and market share will face certain risks, which will adversely affect the company’s operating performance.
The company will constantly improve the enterprise development and the layout of the market network, continuously increase technical input, give play to and maintain the advantages of the company’s brand, technology, quality and efficiency, and improve the company’s core competitiveness. At the same time, the company will rely on the advantages of extensive customer resources to deeply understand customer needs and market dynamics, and by mastering the latest trends of industry technology development and developing products suitable for customer needs, it will greatly enhance customer viscosity and maintain the dominant position in market competition.
2. Risk of single product structure
Since its establishment, the company has been focusing on the research and development, production and sales of erythritol products, gradually accumulating industry-leading product quality, production efficiency and many well-known customers, and gradually growing into a leading enterprise in the global erythritol industry market share. During the reporting period, the company complied with the market demand, gradually introduced compound sugar products and psicose, and actively developed new products such as rebaudioside M, but the company’s product structure was still dominated by erythritol. In 2022, erythritol revenue accounted for 85.16% of operating income. It has a significant impact on the company’s operating performance. If the demand or supply of erythritol industry fluctuates significantly, or the company’s new product research and development cannot meet expectations, it will have an adverse impact on the company’s operating performance, and the company faces the risk of a relatively simple product structure.
The company will continue to pay attention to speeding up the research and development of new products. At the same time, it will start to promote the technological development and transformation of new products such as stevioside, sodium hyaluronate (food grade), tagatose, sialic acid and polyglutamic acid, and actively expand the company’s product categories to meet the rich requirements of the market.
3. Risk of rising purchase price of raw materials
In 2022, raw materials accounted for 60.18% of the main business cost. The main raw material of erythritol and compound sugar in the company was starch, and the processing raw material of starch was mainly corn. Therefore, the fluctuation of corn price would have an impact on the starch price and the cost of erythritol and compound sugar in the company. The price of corn is influenced by climate, planting area, national grain purchasing and storage policy, and other complex factors such as the corn market in the international market and the performance index of corn itself. If the price of corn increases greatly in the future, which will lead to a sharp increase in the price of starch, it will adversely affect the profitability of the company.
The long-term supply contract between the company and some downstream customers adopts the pricing scheme of "processing fee+raw material cost" or an agreed price negotiation mechanism, so as to stabilize the company’s profits, improve the utilization rate of raw materials through technological innovation and process improvement, reduce the level of material consumption, alleviate the cost pressure caused by the fluctuation of raw material prices, strengthen the management of procurement links, reasonably maintain raw material inventory, and reduce procurement costs.
4. Risk of political, economic, trade and tariff policy changes in export areas.
The company’s export destinations are mainly Europe, America, Southeast Asia, Japan, South Korea, Australia and New Zealand. At present, most of them belong to open developed countries and regions, with stable politics, stable economic development and stable foreign trade policies. Once the political, economic, trade and tariff policies in the export areas change, it will have a certain impact on the company’s exports. The company will focus on industry trends, keep abreast of foreign political, economic and trade policy trends, adjust the company’s strategic planning in time according to market conditions, reduce or pass on some risks caused by changes in political, economic, trade and tariff policies in export areas through measures such as price adjustment and purchase of export credit insurance, focus on team building, improve the ability and level of the company’s management team, and enhance the ability to resist risks.
5. Exchange rate risk
The company’s business is mainly export. In 2022, the company’s export income accounted for 70.20% of the current main business income, and the company’s exchange gains and losses accounted for -23.28% of the current total profit. The company’s export trade is mainly settled in US dollars, and the exchange rate between the settlement currency and RMB may fluctuate with the changes of domestic and international political and economic environment, which has great uncertainty. If the RMB exchange rate fluctuates greatly in the future, it will lead to fluctuations in the amount of exchange gains and losses in financial expenses, which will expose the company to the risk of exchange rate changes.
The company will pay attention to the follow-up study of the foreign exchange market, grasp the trend of exchange rate changes as timely, comprehensively and accurately as possible, and at the same time, make use of the wide distribution of export areas to diversify the settlement currencies as much as possible. The company strives for customers’ understanding, and makes adaptive adjustments to the quotations of export products according to exchange rate changes, and the risk of exchange rate fluctuations is shared by both parties. By gradually increasing the proportion of advance payment for export products, the company shortens the collection period and speeds up the settlement of foreign exchange, so as to reduce the risk of exchange rate changes.
6. Risk of decline in gross profit margin
In 2021, the company’s comprehensive gross profit margin was 41.99%, which remained at a high level. In 2022, erythritol was affected by factors such as macroeconomic downturn and intensified market competition, and its sales volume decreased, its price fell, and its gross profit margin dropped significantly. If the future market competition is further intensified, the sales price of main products continues to decline, the price of raw materials rises, the labor cost rises and other unfavorable factors, the comprehensive gross profit margin will probably continue to decline, which will adversely affect the company’s profitability.
The company will strengthen the management of costs and expenses, reduce production costs by controlling suppliers, improving automation level, strengthening production site management and improving product yield, so as to ensure the stability of product gross profit margin.
7. Risk of declining business performance
In 2022, the company’s operating income was 674,905,600 yuan, a decrease of 59.71% compared with the same period of last year. In 2022, the company achieved a net profit of 163,686,600 yuan, a decrease of 69.43% compared with the same period of last year, and its operating performance declined.
Guided by the market demand, the company will vigorously develop new technologies and products, introduce new products with high added value and meet the market demand, and at the same time tap the potential of existing products to increase efficiency and strive to improve the overall performance level of the company.
8. Risks of possible changes in major customers
During the reporting period, the company’s sales revenue to the top five customers accounted for 35.44% of the total annual sales, with a high concentration of major customers. In 2021, the company’s largest customer, Yuanqi Forest, did not purchase raw materials from the company in 2022 due to intensified competition in the erythritol industry, insufficient demand in the superimposed beverage market and changes in its own operations. If the production, operation and cooperation of other major customers change significantly in the future, or if they reduce their purchase orders to the company, or if the company fails to continuously develop new customers, it will have an adverse impact on the company’s operating performance.
By developing new products to meet the requirements of different market levels, the company actively expands new customers, including small and medium-sized enterprises, cultivates and expands customer groups with the model of "key customer strategy+standard system", enhances the bargaining power of the company in product price negotiation, and implements differentiated product strategies to meet the different needs of customers.