Securities code: 002567 securities abbreviation: Tangrenshen Group Co.Ltd(002567) Announcement No.: 2021-201 Tangrenshen Group Co.Ltd(002567)
Announcement on carrying out commodity futures hedging business in 2022 the company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions.
Tangrenshen Group Co.Ltd(002567) (hereinafter referred to as “the company”) held the 44th meeting of the 8th board of directors on December 14, 2021, deliberated and adopted the proposal on carrying out commodity futures hedging business in 2022, and agreed that the company should carry out commodity futures hedging business such as corn and soybean meal. The above proposal needs to be submitted to the general meeting of shareholders of the company for deliberation. The specific contents are as follows:
1、 Purpose and necessity
Corn, soybean meal, soybean oil, soybean and rapeseed meal are the company’s main production raw materials, and the procurement cost usually accounts for more than 60% of the company’s overall operating cost. Therefore, the company adopts the strategy of buying more when the price is low and less when the price is high, so as to maintain the annual average procurement price of raw materials at a certain level. However, there are two risks in the operation difficulty, that is, when the price is low, Purchasing a large amount of raw materials will not only occupy the capital, but also occupy the factory warehouse inventory, resulting in a large loss of raw materials; When the price is high, controlling the purchase quantity of raw materials as much as possible will affect the production and may lose a certain market share. Therefore, the effect of controlling the price of raw materials by controlling the purchase quantity of raw materials is limited; The price of live pigs is greatly affected by the price fluctuation of raw materials, market supply and demand, capital and other factors. On the premise of locking the breeding cost and basic profit, we can use the futures market to sell at an opportunity to obtain basic profit or avoid the risk of falling price.
Hedging in the futures market can avoid the risk of price fluctuation such as corn and soybean meal, find the price and control the purchase cost. When the price is low, it can hedge by buying futures and replace the spot inventory with futures purchase; When the price is high, the inventory risk is locked by selling hedging. In this way, the company can not only control the spot inventory of raw materials within the normal production consumption, but also avoid the losses caused by adverse prices, so as to realize the company’s own long-term and steady development, rather than pursuing short-term profits.
2、 Futures varieties
The hedging futures varieties of the company are Shenzhen Agricultural Products Group Co.Ltd(000061) futures varieties and pigs directly related to the production and operation of the company. Among them, Shenzhen Agricultural Products Group Co.Ltd(000061) futures varieties include corn, soybean meal, soybean oil, soybean and other futures varieties listed and traded in Dalian Commodity Futures Exchange, and hard wheat, vegetable oil, rapeseed meal and other products listed and traded in Zhengzhou Commodity Futures Exchange. 3、 Proposed investment and business period
From January 1, 2022 to December 31, 2022, the maximum amount of margin required by the company to carry out commodity hedging business shall not exceed RMB 500 million (excluding physical delivery of futures subject matter), which can be recycled within the validity period.
4、 Risk analysis of hedging
The commodity futures hedging business of the company follows the principle of locking in the price risk of raw materials and hedging, and does not engage in speculative and arbitrage trading operations. Therefore, strict risk control is carried out when signing hedging contracts and closing positions.
Commodity futures hedging operation can reduce the impact of material price fluctuation on the company, make the company focus on business operation, and maintain a stable profit level in case of material price fluctuation, but there will also be some risks:
1. Price fluctuation risk: the futures market changes greatly, which may lead to price fluctuation risk and investment loss.
2. Capital risk: futures trading adopts margin and mark to market system. If the investment amount is too large, it may cause capital liquidity risk, and even be forcibly closed out because it is too late to supplement margin, resulting in actual losses.
3. Internal control risk: futures trading is highly professional and complex, which may cause risks due to imperfect internal control system.
4. Technical risk: technical risk may be caused by incomplete computer system.
5、 Risk control measures taken by the company
1. The company matches the commodity futures hedging business with the company’s production and operation, and strictly controls the futures position.
2. The company has stipulated the design principle of hedging scheme and the specific approval authority of hedging scheme. The company’s hedging business is only for the purpose of avoiding commodity price risk in production and operation, and does not involve speculation and arbitrage transactions. At the same time, it will strictly follow the provisions on floor trading. The varieties of hedging business are limited to the products related to the company’s production and operation or the raw materials required, and the quantity of hedging shall not exceed the actual quantity of spot transactions, The futures position shall not exceed the spot amount of hedging.
3. The company stipulates that futures traders shall operate in strict accordance with the hedging scheme approved and determined, and stipulates the system of preparing futures trading reports on a daily basis and submitting them to relevant reviewers or approvers to ensure the risk control of futures trading.
4. The company establishes a hedging transaction account in its own name, uses its own funds, and will not use the raised funds for hedging directly or indirectly.
5. Set up computer systems and related facilities that meet the requirements to ensure the normal development of transactions. In case of failure, take corresponding treatment measures in time to reduce losses.
6、 Opinions of independent directors
It is necessary for the company to use its own funds to carry out commodity futures hedging business in 2022, which can reduce the impact of price fluctuations of corn, soybean meal and other products as main feed raw materials on the company’s operating performance to a certain extent. At the same time, pig prices are greatly affected by raw material price fluctuations, market supply and demand, capital and other factors, On the premise of locking the breeding cost and basic profit, we can use the futures market to sell at an opportunity to obtain basic profit or avoid the risk of falling price. The company has established the commodity futures hedging business management system in accordance with the requirements of relevant laws and regulations, which regulates the company’s responsible person for futures management, the design principles and approval principles of hedging schemes, the implementation and reporting principles of schemes, the monitoring of fund payment and settlement, the confirmation of investment losses and profits, financial accounting rules and other relevant internal control matters. The company’s commodity futures hedging business is limited to pigs, corn, soybean meal, soybean oil, soybean and other futures varieties listed and traded in Dalian Commodity Futures Exchange, and hard wheat, vegetable oil, rapeseed meal and other futures varieties listed and traded in Zhengzhou Commodity Futures Exchange, which meet the needs of normal production and operation, It does not engage in any kind of futures trading or related derivatives trading in any other place, and does not use the raised funds to hedge directly or indirectly, which meets the requirements of relevant regulatory regulations. In conclusion, we agree with the proposal on carrying out commodity futures hedging business in 2022.
7、 Verification opinions of the recommendation institution
After verification, the sponsor believes that the purpose of the company’s commodity futures hedging business is to use the principle of futures hedging to lock in the risk of significant changes in raw material prices in the future, reduce the impact of raw material price fluctuations on the company in case of significant fluctuations in raw material prices, so that the company can still maintain a stable profit level. According to the requirements of relevant laws and regulations, the company has established the commodity futures hedging business management system to strictly control the business risk of hedging. This transaction of the company has been deliberated and approved by the board of directors and needs to be deliberated and approved by the general meeting of shareholders.
In conclusion, the recommendation institution has no objection to Tangrenshen Group Co.Ltd(002567) 2022 commodity futures hedging business.
8、 Documents for future reference
1. Resolution of Tangrenshen Group Co.Ltd(002567) the 44th meeting of the 8th board of directors;
2. Independent opinions of independent directors on matters related to the 44th meeting of the eighth board of directors of the company. It is hereby announced.
Tangrenshen Group Co.Ltd(002567) board of directors December 14, 2001
