Securities code: Pengdu Agriculture & Animal Husbandry Co.Ltd(002505) securities abbreviation: Pengdu Agriculture & Animal Husbandry Co.Ltd(002505) Announcement No.: 2022026 Pengdu Agriculture & Animal Husbandry Co.Ltd(002505)
Announcement on carrying out hedging business
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.
Pengdu Agriculture & Animal Husbandry Co.Ltd(002505) (hereinafter referred to as “the company”) held the 22nd Meeting of the 7th board of directors and the 14th meeting of the 7th board of supervisors on April 27, 2022, and considered and adopted the proposal on carrying out hedging business.
1、 Purpose and necessity of hedging business
(I) background and necessity of commodity futures hedging
The New Zealand subsidiary is mainly engaged in the production of raw milk. The main purpose of carrying out the hedging business of raw milk futures is to use hedging tools to avoid the operating risks brought to the company by market price fluctuations and lock in the expected profits of some products.
The Brazilian subsidiary of the company is mainly engaged in the trade of agricultural materials and grain. The main business model is to sell the purchased means of agricultural production (such as seeds, pesticides and chemical fertilizers) to farmers in the form of credit sale. The agricultural materials are settled with the bulk Shenzhen Agricultural Products Group Co.Ltd(000061) or cash produced by farmers in the future. The Brazilian subsidiary will further sell the bulk Shenzhen Agricultural Products Group Co.Ltd(000061) received to four major grain merchants and other enterprises for cash collection. Based on the above business model, due to the time difference between the acquisition of large amount of Shenzhen Agricultural Products Group Co.Ltd(000061) receivables (i.e. when selling means of production) by the Brazilian subsidiary and the delivery of Shenzhen Agricultural Products Group Co.Ltd(000061) to grain merchants, participating in hedging can help enterprises avoid the risk of price fluctuation, earn stable operating profits and ensure the stability and sustainability of the company’s operating performance.
(II) background and necessity of foreign exchange hedging business
The company and its subsidiaries have goods transactions and foreign currency borrowings settled in foreign currencies. When the exchange rate fluctuates greatly, the exchange gains and losses will have a great impact on the company’s operating performance. In order to reduce the impact of exchange rate fluctuations on the exchange gains and losses of the company and its subsidiaries, and avoid and prevent exchange rate risks, the company carries out foreign exchange hedging business based on foreign currency receivables / payables and foreign currency borrowings.
(III) background and necessity of interest rate hedging business
The company and its subsidiaries have foreign currency borrowings with floating interest rate. When the borrowing interest rate fluctuates greatly, it will have a great impact on the interest cost borne by the company, and then affect the performance of the company. In order to reduce the impact of interest rate fluctuation on the company’s interest expenditure, the company plans to carry out interest rate hedging business to lock in the interest cost and avoid the risk of financing cost change caused by interest rate change.
2、 Basic information of hedging business
(I) business types involved
The types of commodity futures hedging business conducted by the company and its subsidiaries are products such as forward, futures and options or financial instruments with mixed characteristics of the above products. The types of foreign exchange and interest rate hedging business conducted by the company and its subsidiaries are products such as options, forward, swaps and swaps or financial instruments with mixed characteristics of the above products.
(II) business scale and investment source
According to the company’s asset scale and business demand, the total accumulated balance of the company’s margin invested in commodity futures hedging business and the funds invested in foreign exchange and interest rate hedging business shall not exceed RMB 1.1 billion or equivalent foreign currency.
The capital invested by the company in carrying out the above hedging business is the company’s own capital.
(III) business term and authorization
Since the hedging business is closely related to the operation of the company, the hedging business to be carried out this time can be recycled from the date of deliberation and approval by the board of directors to the date of the convening of the board of directors in the next year, and authorizes the chairman or his authorized person to implement the above hedging business within the limit, including but not limited to being responsible for the operation and management of the hedging business and signing relevant agreements and documents.
In accordance with the relevant provisions of Shenzhen Stock Exchange Stock Listing Rules, Shenzhen Stock Exchange self regulatory guidelines for listed companies No. 1 – standardized operation of listed companies on the main board, the company’s commodity futures hedging business management system and financial derivatives trading management system, the above foreign exchange hedging transactions will come into force after being deliberated and approved by the company’s board of directors and need not be submitted to the general meeting of shareholders for deliberation.
3、 Accounting principles
In accordance with the accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 24 – hedging, accounting standards for Business Enterprises No. 37 – presentation of financial instruments and other relevant provisions and guidelines, the company conducts corresponding accounting treatment for the commodity futures, exchange rate and interest rate off date business, reflecting the relevant items of the balance sheet and income statement.
4、 Risk analysis and Countermeasures
By strengthening internal control, implementing risk prevention measures and improving operation and management level, the company is conducive to give full play to its competitive advantages. It is feasible for the company to carry out the above hedging business. The company has established a relatively perfect internal control and risk control system for hedging business, and has its own funds matching the proposed hedging business transactions. The company will strictly comply with the requirements of self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of companies listed on the main board, the company’s commodity futures hedging business management system and financial derivatives trading management system, Implement risk prevention measures and operate prudently. The company still has the following risks in the hedging business:
(I) capital risk
Futures trading adopts the margin and mark to market system. When the futures price changes sharply in the opposite direction to the position held, if the company fails to replenish the margin in time, it may lead to compulsory closing and cause loss risk. The company will reasonably allocate its own funds for hedging business, do not use the raised funds for hedging directly or indirectly, and strengthen the internal control of fund management, which shall not exceed the margin approved by the board of directors of the company.
(II) operation error risk
Futures operators may make human errors in trading varieties, trading contracts and trading directions during trading execution, resulting in risks.
(III) technical risks
The trading instructions are sent by us to the server of the futures company and the server of the futures company to the exchange. In this process, the failure of computer, network and server may lead to the risk of transaction failure.
(IV) commodity futures price fluctuation risk
When the commodity futures market changes greatly, the price fluctuation risk may occur due to the deviation of the price change direction from the company’s prediction and judgment, resulting in the loss of futures trading. The company plans to match the hedging business with the company’s production and operation to hedge the risk of price fluctuation to the greatest extent.
(V) exchange rate risk
When the foreign exchange rate fluctuates greatly, the company will incur losses if the direction of exchange rate fluctuation judged by the company is inconsistent with the direction of foreign exchange hedging contract. The company’s professionals are responsible for the specific operation of foreign exchange hedging business. They choose simple products with low default risk, controllable risk and the purpose of avoiding risk. After the trading operation, they pay attention to the market changes in real time. In case of major changes, they should report in time, respond actively and deal with them properly.
(VI) interest rate risk
The interest rate risk faced by the company mainly comes from bank short-term loans, long-term loans, corporate bonds and financial liabilities. Therefore, the company has established a professional team to lock in the interest cost by means of interest rate swap and avoid the risk of financing cost change caused by interest rate change. At the same time, the company will comprehensively analyze the interest rate, time and other factors of bank loans according to the demand of capital amount and time, and then borrow to reduce the interest rate.
(VII) internal risk control
Commodity futures hedging business is highly professional and complex, which may cause risks due to imperfect internal control system. The company will arrange and use professionals in strict accordance with the management system of commodity futures hedging business and the management system of financial derivatives trading, establish a strict authorization and post system, strengthen the professional ethics education and business training of relevant personnel, and improve the comprehensive quality of relevant personnel. At the same time, establish a timely reporting system for abnormal conditions and form an efficient risk handling procedure.
(VIII) transaction default risk
When the hedging counterparty defaults and fails to pay the company’s hedging profit as agreed, so it is unable to hedge the company’s actual spot trade loss, which will cause the company’s loss.
5、 Risk control measures
(I) the company matches the hedging business with the production and operation, and strictly controls the futures position; (II) the company formulates the hedging plan based on the principle of stable operation and risk aversion, and does not involve speculative transactions;
(III) in accordance with the self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board and other relevant provisions, and in combination with the actual situation of the company, the approval authority of commodity futures hedging business, internal audit process, information isolation measures, internal risk report and handling procedures, information disclosure, etc. have been formulated, and the company will strictly comply with the management system of commodity futures hedging business All links shall be controlled according to the provisions of the financial derivatives trading management system;
(IV) the company’s participating varieties are all on-site transactions and do not involve off-site transactions;
(V) the company shall use its own funds for hedging.
6、 Deliberations of the board of directors
The company held the 22nd Meeting of the 7th board of directors to consider and pass the proposal on hedging business. In order to avoid the risk of product price, exchange rate and interest rate fluctuation and effectively control the operational risk, in accordance with the relevant provisions of laws, regulations and the company’s management system, and in combination with the actual needs of the company’s business development, the company and its subsidiaries agreed to continue to carry out commodity futures, exchange rate and interest rate hedging business in 2022.
7、 Opinions of independent directors
The relevant approval procedures for the company to carry out hedging business comply with relevant national laws and regulations and the relevant provisions of the articles of Association; The company has formulated the management system of commodity futures hedging business and the management system of financial derivatives trading, and formulated specific operating procedures for the company to engage in hedging business by strengthening internal control and implementing risk prevention measures; The company’s hedging business can effectively prevent and resolve the business risks caused by the fluctuation of commodity price, exchange rate and interest rate, make full use of the function of hedging business, and avoid the adverse impact on the company’s operation caused by the sharp fluctuation of commodity price, exchange rate and interest rate. We believe that the company’s hedging business does not harm the interests of the company and all shareholders, and agree to carry out hedging business.
8、 Documents for future reference
1. Resolutions of the 22nd Meeting of the 7th board of directors of the company;
2. Independent opinions of independent directors on matters related to the 22nd Meeting of the seventh board of directors. 3. Resolution of the 14th meeting of the 7th board of supervisors of the company.
It is hereby announced.
Pengdu Agriculture & Animal Husbandry Co.Ltd(002505) board of directors April 28, 2022
