Hengbang Co., Ltd.: Response to issues related to cash flow, inventories, financial expenses, and hedging

Investor Questions:

Secretary to the Board, hello. I saw discussions in the Stock Forum:

① The company’s profit is RMB 638 million, but the cash flow is -RMB 2.01B. Could you please explain the reasons for the difference and the structure of funds occupation? ② Inventory has increased in scale and liabilities have also increased. Could you please explain the inventory structure and the turnover arrangements? ③ Finance expenses have risen and liabilities have expanded. Could you please explain the debt structure and the repayment arrangements? ④ The gains/losses from hedging for risk management are negative. Could you please explain the risk control mechanism and the subsequent arrangements?

We look forward to your reply. Thank you.

Secretary to the Board’s Reply (Hengbang Co., Ltd. SZ002237):

Dear investors, hello! The amount of net cash flow from operating activities for this period is negative mainly because the production and operations cash outflow increased due to the impact of this period’s major product price increases and the commencement of operations of the subsidiary’s project involving the integrated recovery technology upgrade for gold-bearing and other value-containing metals at the gold mine; the increase in inventory is mainly due to this period’s major product price increases, which led to an increase in the inventory amount, as well as the commencement of operations of the integrated recovery technology upgrade project for value-containing elements in the gold-bearing and other value-containing metals at the subsidiary Weihai Hengbang Mining and Metallurgy Development Co., Ltd., resulting in an increase in inventory; please refer to the company’s 2025 Annual Report disclosed on Juchao Information Network (Announcement No.: 2025-012), Section 8 Financial Report VII. Notes to items in the consolidated financial statements 7. Inventories and 51. Finance expenses, for the structure of inventory and finance expenses; the company’s hedging for risk management is carried out strictly in accordance with laws and regulations and the provisions of the company’s 《Hedging Business Management System》, mainly to prevent losses caused by declines in product prices, thereby mitigating operating risks and ensuring the company’s long-term stable and healthy development. Thank you for your attention!

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