Luzhou Group (000513) Approved to Conduct 1.42 Billion Yuan Hedging Business to Address Raw Material Price and Exchange Rate Fluctuation Risks

【Business News】Zhizhu Pharmaceutical Group Co., Ltd. (stock codes: 000513, 01513, hereinafter referred to as “Zhizhu Group”) announced on March 24 that its board of directors has approved a proposal to carry out hedging business using futures and foreign exchange derivatives. The company plans to allocate no more than RMB 20 million in margin for hedging raw material futures, and will also arrange foreign exchange derivatives transactions with an额度 of up to RMB 1.4 billion, to address fluctuations in raw material prices and foreign exchange risk, thereby ensuring stable production and business operations.

According to the announcement, this hedging business for Zhizhu Group is divided into two major segments: futures and foreign exchange, with the specific trading details as follows:

It is understood that the business limit for this round is valid for 12 months from the date the board approves the matter. The funds come from the company’s own funds and do not involve fundraising or bank credit funds. The board of directors has authorized the chairman of the board or the person authorized by him/her to exercise approval authority within the above limits and time period; implementation will be handled by the Finance Headquarters.

Zhizhu Group states that carrying out hedging business is based on the company’s actual needs for production and operations. With the expansion of the company’s business scale, the procurement volumes of major raw materials such as corn starch and white sugar continue to increase, and price fluctuations may create uncertainty affecting production costs. At the same time, the year-by-year growth of its international trade business also exposes the company to substantial foreign-exchange fluctuation risk. By carrying out hedging business, the company can effectively lock in procurement costs and exchange-rate levels, reducing the impact of market fluctuations on operating performance.

The announcement particularly emphasizes that the company’s hedging business will strictly follow the “hedging” principle and will not conduct any speculative transactions. To control risks, the company has formulated the “Administrative Measures for Commodity Futures Hedging Business” and the “Administrative System for Financial Derivatives Trading Business,” establishing multiple risk-control mechanisms including limit control, segregation of positions, and authorized approvals, and will select financially strong financial institutions as counterparties.

Nevertheless, the company still reminds investors to pay attention to related risks, including market fluctuation risk, operational risk, and performance/fulfillment risk, among others. Zhizhu Group states that it will reduce business risks to the maximum extent possible through measures such as strengthening market analysis and strictly implementing risk control systems.

This hedging business matter has already been approved at the 33rd meeting of the 11th session of the board of directors and does not require submission to the shareholders’ meeting for deliberation. Regarding financial accounting, the company will conduct accounting treatment in accordance with the relevant provisions of the “Accounting Standards for Enterprises”; the specific outcome will be subject to the annual audit results of the accounting firm.

Analysts point out that Zhizhu Group’s decision to conduct this hedging business reflects the company’s forward-looking strategy for dealing with market risks. It will help stabilize business expectations and provide assurance for long-term development. Against the backdrop of heightened raw material price volatility and increased exchange-rate uncertainty, the reasonable use of financial instruments is of positive significance for cost control by pharmaceutical manufacturing companies.

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