Financial Performance - For the six months ended June 30, 2020, the company reported revenue of RMB 258,279,000, a decrease of 42.9% compared to RMB 452,188,000 for the same period in 2019[9] - The gross profit for the same period was RMB 6,857,000, down from RMB 32,032,000 in 2019, indicating a significant decline in profitability[9] - The company incurred a loss of RMB 8,823,000 for the six months ended June 30, 2020, compared to a profit of RMB 4,789,000 in the prior year, reflecting a negative turnaround[9] - Basic loss per share was reported at RMB (0.60), compared to earnings of RMB 0.32 per share in the same period of 2019[9] - The reported revenue for the six months ended June 30, 2020, was RMB 258,279 thousand, a decrease from RMB 452,298 thousand for the same period in 2019, representing a decline of approximately 42.9%[37] - The reported segment profit for the six months ended June 30, 2020, was RMB 6,857 thousand, down from RMB 32,021 thousand in the same period of 2019, indicating a decrease of about 78.6%[37] - Other income and gains for the six months ended June 30, 2020, totaled RMB 8,644 thousand, compared to RMB 11,535 thousand for the same period in 2019, reflecting a decline of approximately 25.8%[38] - The company incurred other losses of RMB 3,175 thousand for the six months ended June 30, 2020, compared to RMB 2,897 thousand for the same period in 2019, indicating an increase of about 9.6%[40] - Profit before tax turned from a profit of RMB 8.9 million for the six months ended June 30, 2019, to a loss of RMB 8.2 million for the six months ended June 30, 2020, representing a decrease of approximately 192.1%[116] - The group reported a net loss of RMB 8.8 million for the six months ended June 30, 2020, compared to a profit of RMB 4.8 million for the same period in 2019, a decrease of approximately 284.2%[118] Assets and Liabilities - Total assets as of June 30, 2020, were RMB 774,002,000, slightly up from RMB 771,892,000 at the end of 2019[13] - The company's cash and cash equivalents decreased to RMB 5,974,000 from RMB 16,125,000 at the end of 2019, indicating liquidity challenges[13] - The company’s inventory increased to RMB 15,448,000 from RMB 14,849,000, suggesting potential issues with stock turnover[13] - The accounts receivable rose to RMB 428,888,000 from RMB 373,740,000, indicating a growing collection risk[13] - The company's total non-current liabilities amounted to RMB 90,766 thousand, slightly up from RMB 88,310 thousand as of December 31, 2019[14] - The net asset value as of June 30, 2020, was RMB 683,236 thousand, a slight decrease from RMB 683,582 thousand at the end of 2019[14] - The company had a total equity attributable to shareholders of RMB 697,083 thousand, down from RMB 697,483 thousand at the end of 2019[14] - The total receivables as of June 30, 2020, were RMB 428,888,000, an increase of 14.8% from RMB 373,740,000 at the end of 2019[57] - The total accounts payable and other payables reached RMB 150,608,000, representing a significant increase of 34.5% from RMB 111,979,000 as of December 31, 2019[67] - The company reported a total of RMB 97,584,000 in corporate bonds payable as of June 30, 2020, up from RMB 91,014,000 at the end of 2019, indicating a growth of 7.5%[73] - The company has a total of RMB 32,195,000 in current liabilities due within one year as of June 30, 2020, compared to RMB 26,871,000 at the end of 2019[73] Cash Flow and Investments - The net cash generated from operating activities was RMB 26,297 thousand, compared to a net cash used of RMB 18,278 thousand in the same period last year[20] - The company reported a net cash outflow of RMB 10,145 thousand in cash and cash equivalents for the six months ended June 30, 2020[20] - The company recorded a net cash inflow from investing activities of RMB 12,899 thousand, a significant decrease from RMB 53,648 thousand in the previous year[20] - The company recognized revenue of RMB 568,000 from contract liabilities as of June 30, 2020, down 92.0% from RMB 7,103,000 at the end of 2019[72] - The company reported a significant increase in revenue, achieving a total of $X million for the quarter, representing a Y% growth year-over-year[150] - The company recorded a net cash inflow of RMB 4.912 million from the sale of a subsidiary, after accounting for cash and cash equivalents sold[106] Operational Efficiency - The cost of goods sold for the six months ended June 30, 2020, was RMB 251,422,000, a decrease of 40.2% compared to RMB 420,156,000 for the same period in 2019[42] - Total employee costs for the six months ended June 30, 2020, amounted to RMB 5,195,000, down 20.8% from RMB 6,561,000 in the previous year[42] - Selling and distribution expenses decreased by approximately 44.8% to RMB 3.6 million from RMB 6.5 million for the same period last year[111] - Administrative expenses decreased by approximately 40.7% to RMB 11.8 million from RMB 19.8 million, attributed to the absence of one-time acquisition-related costs[112] - The company has successfully reduced operational costs by G%, improving overall profitability margins[150] Corporate Governance - The company has two independent non-executive directors, which is below the minimum requirement of three as per listing rules[130] - The audit committee consists of two independent non-executive directors, with one possessing appropriate professional qualifications[133] - The company is reviewing and enhancing its corporate governance practices to ensure compliance with the corporate governance code[131] - The audit committee's main responsibilities include overseeing financial and accounting policies, internal controls, and risk management systems[132] Future Outlook - The company has not provided specific guidance for future performance, reflecting uncertainty in market conditions[8] - The company provided a positive outlook for the next quarter, projecting revenue growth of A% and an increase in user engagement metrics[150] - New product launches are expected to contribute an additional $B million in revenue, with a focus on expanding into new markets[150] - The company is considering strategic acquisitions to bolster its competitive position, with potential targets identified in the E sector[150] - Future guidance indicates a commitment to sustainable practices, with plans to invest H% of profits into environmentally friendly initiatives[150]

Company Information [Company Overview](index=3&type=section&id=Company%20Overview) Baixin International Holdings Limited, registered in the Cayman Islands (stock code 574), is an investment holding company with a sound governance structure, headquartered in Hong Kong and main operations in Chengdu, Sichuan - The company is incorporated in the Cayman Islands, with stock code **574**, and its principal business is investment holding[2](index=2&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - The Board of Directors has audit, remuneration, nomination, and corporate governance committees to strengthen corporate governance[8](index=8&type=chunk)[58](index=58&type=chunk) - The company's head office and principal place of business in Hong Kong are located in Lai Chi Kok, Kowloon, Hong Kong, while its principal place of business in China is in Chengdu, Sichuan Province[8](index=8&type=chunk)[9](index=9&type=chunk) Financial Highlights [Key Financial Data for FY2019](index=5&type=section&id=Key%20Financial%20Data%20for%20FY2019) For the year ended December 31, 2019, the Group's revenue increased by **3.0%** to **RMB 845.4 million**, but gross profit significantly decreased by **30.4%**, and loss for the year expanded by **205.0%** to **RMB 193.4 million**, with basic loss per share increasing to **RMB 13.38 cents**; the Board did not recommend a final dividend Key Financial Data for FY2019 (RMB thousands) | Indicator | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 845,448 | 821,142 | 3.0 | | Gross Profit | 41,932 | 60,286 | (30.4) | | Loss for the Year | (193,399) | (63,408) | 205.0 | | Loss Attributable to Equity Holders of the Company | (193,721) | (59,409) | 226.1 | | Basic Loss Per Share - RMB cents | (13.38) | (5.32) | 151.5 | - The Board did not recommend the payment of any final dividend for the year ended December 31, 2019[11](index=11&type=chunk)[47](index=47&type=chunk) Financial Summary [Five-Year Financial Performance Overview](index=6&type=section&id=Five-Year%20Financial%20Performance%20Overview) This chapter provides a financial overview of the Group from 2015 to 2019, showing fluctuating revenue, a shift to loss before tax since 2018 with continuous expansion, and a decrease in net assets in 2019 Key Financial Data 2015-2019 (RMB thousands) | Indicator | 2015 | 2016 | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 867,963 | 860,574 | 869,891 | 821,142 | 845,448 | | Profit/(Loss) Before Tax | 113,006 | 28,441 | 19,502 | (48,047) | (190,482) | | Profit/(Loss) for the Year | 84,886 | 7,675 | 10,177 | (63,408) | (193,399) | | Net Assets | 722,670 | 724,768 | 749,265 | 856,473 | 683,582 | - The Group shifted from profit to loss since **2018**, with losses further expanding in **2019**[12](index=12&type=chunk) - Net assets in **2019** were **RMB 683,582 thousand**, a decrease from **RMB 856,473 thousand** in **2018**[12](index=12&type=chunk) Management Discussion and Analysis [Business Overview](index=7&type=section&id=Business%20Overview) In 2019, the Group continued to focus on pharmaceutical distribution and manufacturing in China, actively seeking M&A opportunities for retail pharmacy chains to revitalize its business - The Group's core business is pharmaceutical distribution and manufacturing in China[14](index=14&type=chunk) - Actively seeking M&A opportunities for retail pharmacy chains to revitalize its self-operated retail pharmacy business[14](index=14&type=chunk) [Financial Performance Analysis](index=7&type=section&id=Financial%20Performance%20Analysis) In 2019, Group revenue slightly increased by **3.0%** to **RMB 845.4 million**, driven by pharmaceutical distribution, but gross profit decreased **30.4%** due to intensified competition, with gross margin falling from **7.3%** to **5.0%**; selling and distribution expenses and administrative expenses decreased, but other net losses significantly increased by **362.5%** due to impairment losses on trade receivables, ultimately leading to a **296.4%** expansion in loss before tax to **RMB 190.5 million** and a **205.0%** increase in loss for the year to **RMB 193.4 million** Key Financial Performance Data 2019 (RMB millions) | Indicator | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 845.4 | 821.1 | 3.0 | | Gross Profit | 41.9 | 60.3 | (30.4) | | Gross Profit Margin | 5.0% | 7.3% | - | | Selling and Distribution Expenses | 11.0 | 15.1 | (27.5) | | Administrative Expenses | 35.2 | 55.3 | (36.3) | | Other Income and Gains | 22.3 | 19.2 | 16.1 | | Other Net Losses | 197.3 | 42.7 | 362.5 | | Loss Before Tax | (190.5) | (48.0) | 296.4 | | Loss for the Year | (193.4) | (63.4) | 205.0 | | Net Loss Margin | 22.9% | 7.7% | - | - Revenue growth primarily from increased sales in pharmaceutical distribution to wholesalers, hospitals, and rural medical institutions[15](index=15&type=chunk) - Gross margin decline mainly due to intensifying competition in pharmaceutical distribution[16](index=16&type=chunk) - Other net losses significantly increased, primarily due to recognition of impairment losses on trade and other receivables of **RMB 125.7 million**, partly due to the adverse impact of the COVID-19 pandemic on customer businesses[20](index=20&type=chunk) - Income tax expense decreased, mainly due to reduced taxable income of the Group's PRC subsidiaries[25](index=25&type=chunk) - Fair value change loss of **RMB 22.0 million** recognized from the acquisition of a **5%** equity interest in Wuhan Taifu, with a decision to dispose of this interest in May 2020 to avoid further losses[27](index=27&type=chunk) [Segment Business Review](index=9&type=section&id=Segment%20Business%20Review) In 2019, pharmaceutical distribution revenue grew **5.8%** to **RMB 798.5 million**, but gross margin deteriorated due to increased competition; self-operated retail pharmacy revenue significantly decreased **67.7%** to **RMB 1.3 million**; pharmaceutical manufacturing segment revenue declined **27.2%** to **RMB 45.7 million**, mainly affected by the downturn in the traditional topical products market Segment Revenue 2019 (RMB millions) | Segment | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Pharmaceutical Distribution | 798.5 | 754.5 | 5.8 | | Self-operated Retail Pharmacies | 1.3 | 3.9 | (67.7) | | Pharmaceutical Manufacturing | 45.7 | 62.8 | (27.2) | - Pharmaceutical distribution revenue growth primarily from wholesalers, hospitals, and other medical institutions in rural areas[28](index=28&type=chunk) - Decrease in pharmaceutical manufacturing segment revenue mainly due to the decline in the traditional topical products market[29](index=29&type=chunk) [Future Prospects and Strategies](index=10&type=section&id=Future%20Prospects%20and%20Strategies) Facing the adverse impact of the pandemic on China's economy and the Group's business, the Group will implement a diversified business development strategy, including leveraging existing resource networks, expanding into other business areas, and entering the Malaysian property market for the first time to diversify operational risks and generate rental income - Revenue and results for the first half of **2020** are expected to be adversely affected by the COVID-19 pandemic due to factory closures for approximately **two months**[30](index=30&type=chunk) - The Group will implement a diversified business development strategy, including expanding into other business areas and diversifying business risks into other investment divisions and countries[30](index=30&type=chunk) - First entry into the Malaysian property market by acquiring certain units in "The Apple" multi-story building for investment purposes, expected to generate rental income[30](index=30&type=chunk) [Liquidity, Financial and Capital Resources](index=10&type=section&id=Liquidity,%20Financial%20and%20Capital%20Resources) At the end of 2019, the Group's cash and cash equivalents significantly decreased to **RMB 16.1 million**, with both net current assets and current ratio declining; total bank loans significantly reduced, but some corporate bonds were overdue, and the company is negotiating solutions with bondholders Key Liquidity Data 2019 (RMB millions) | Indicator | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and Cash Equivalents | 16.1 | 48.8 | | Net Current Assets | 439.9 | 680.9 | | Current Ratio | 3.86 | 5.31 | | Total Bank Loans | 6.0 | 35.8 | - As of the end of **2019**, two corporate bonds totaling **HKD 4.0 million** were overdue, with accrued interest of approximately **HKD 7.4 million** due[34](index=34&type=chunk) - The company is in multiple rounds of negotiations with corporate bondholders to amicably resolve issues, including extending maturity dates and installment repayments of principal and interest[34](index=34&type=chunk) [Contingent Liabilities and Exchange Rate Risk](index=11&type=section&id=Contingent%20Liabilities%20and%20Exchange%20Rate%20Risk) As of December 31, 2019, the Group had no significant contingent liabilities, and with most assets and transactions denominated in RMB, foreign exchange risk was not significant - As of December 31, 2019, the Group had no significant contingent liabilities[35](index=35&type=chunk) - The Group's functional currency is RMB, with most assets and transactions denominated in RMB, thus foreign exchange risk is not significant[36](index=36&type=chunk) [Significant Investments, Acquisitions and Disposals](index=11&type=section&id=Significant%20Investments,%20Acquisitions%20and%20Disposals) In 2019, the Group made two significant acquisitions, the entire equity of Baixin Baihui Consulting Limited and Baihui Service Consulting Limited, both paid by issuing shares, aiming to invest in the Malaysian property market; an agreement to acquire VR Green Sdn Bhd was terminated due to unfulfilled due diligence conditions - Acquisition of the entire equity of Baixin Baihui Consulting Limited for **HKD 45,325,000**, paid by issuing **82,409,090 shares**, indirectly holding a **49% interest** in **48 units** within "The Apple" building in Malaysia[37](index=37&type=chunk)[38](index=38&type=chunk) - Acquisition of the entire equity of Baihui Service Consulting Limited for **HKD 19,090,400**, paid by issuing **34,709,818 shares**, indirectly holding a **49% interest** in **20 units** within "The Apple" building in Malaysia[40](index=40&type=chunk) - The agreement to acquire a **45% equity interest** in VR Green Sdn Bhd was terminated on March 28, 2019, due to unfulfilled due diligence preconditions[39](index=39&type=chunk) - The Malaysian properties are expected to be completed in **2020**, with professional property managers to be appointed for leasing operations[41](index=41&type=chunk) [Human Resources](index=13&type=section&id=Human%20Resources) As of December 31, 2019, the Group's total headcount was **170**, a decrease from 2018, with a corresponding reduction in total staff costs; the Group is committed to attracting, developing, and retaining talent, offering competitive compensation and training opportunities Human Resources Data | Indicator | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Employees | 170 | 203 | | Total Staff Costs (RMB millions) | 12.7 | 20.3 | - The Group continuously invests resources in employee training and provides competitive compensation and incentive mechanisms[43](index=43&type=chunk) [Use of Net Proceeds from Initial Public Offering](index=13&type=section&id=Use%20of%20Net%20Proceeds%20from%20Initial%20Public%20Offering) As of December 31, 2019, the Group had fully utilized the net proceeds of **HKD 249.5 million** from its initial public offering; unutilized funds originally planned for acquiring self-operated retail pharmacies and logistics centers were reallocated to working capital and other general corporate purposes - As of December 31, 2019, the Group had fully utilized all net proceeds of **HKD 249.5 million**[44](index=44&type=chunk)[45](index=45&type=chunk) Details of Net Proceeds Utilization (HKD millions) | Use | Available | Utilized (as of December 31, 2019) | | :--- | :--- | :--- | | Logistics Center and Related Expenses | 121.3 | 121.0 | | Acquisition or Establishment of Self-operated Retail Pharmacies | 116.2 | 14.8 | | Working Capital and Other General Corporate Purposes | 12.0 | 113.7 | | **Total** | **249.5** | **249.5** | - The Board decided to reallocate approximately **HKD 101.4 million** originally intended for acquiring or establishing self-operated retail pharmacies and approximately **HKD 0.3 million** for logistics center-related expenses to working capital and other general corporate purposes[46](index=46&type=chunk) Corporate Governance Report [Corporate Governance Framework and Code Compliance](index=15&type=section&id=Corporate%20Governance%20Framework%20and%20Code%20Compliance) The company is committed to maintaining high standards of corporate governance and business ethics, complying with the Corporate Governance Code for the year ended December 31, 2019, except for the unseparated roles of Chairman and CEO, an arrangement the Board deemed beneficial; Mr. Chen Yanfei, the former Chairman and CEO, resigned on June 18, 2020, and the company will consider a replacement as soon as possible - The company is committed to maintaining high standards of corporate governance and business ethics[49](index=49&type=chunk) - For the year ended December 31, 2019, the company complied with the Corporate Governance Code provisions, except for a deviation from Code Provision A.2.1 (roles of Chairman and Chief Executive should be separate)[50](index=50&type=chunk) - Mr. Chen Yanfei, the former Chairman and Chief Executive, resigned on June 18, 2020, and the Board will consider a suitable replacement as soon as possible[50](index=50&type=chunk) [Board Composition and Responsibilities](index=15&type=section&id=Board%20Composition%20and%20Responsibilities) The Board is responsible for governing the company, managing assets, formulating strategies, and monitoring operations and financial performance, comprising two executive directors, three non-executive directors, and three independent non-executive directors to ensure a balance of power; all directors participate in continuous professional development and are insured against potential legal proceedings - The Board is responsible for setting overall Group objectives and strategies, monitoring operations and financial performance, and reviewing corporate governance standards[52](index=52&type=chunk) - The Board comprises two executive directors, three non-executive directors, and three independent non-executive directors, with two independent non-executive directors possessing professional expertise in accounting or financial management[51](index=51&type=chunk)[57](index=57&type=chunk) - All directors participate in continuous professional development, complying with Code Provision A.6.5[54](index=54&type=chunk) - The company has arranged appropriate insurance coverage for directors and senior officers against potential legal proceedings[53](index=53&type=chunk) [Operation of Board Committees](index=17&type=section&id=Operation%20of%20Board%20Committees) The Board has four committees—Audit, Remuneration, Nomination, and Corporate Governance—each with clear written terms of reference and adequate resources; the Audit Committee reviews financial statements and internal controls; the Remuneration Committee reviews directors' and senior management's compensation; the Nomination Committee reviews board composition and diversity; and the Corporate Governance Committee formulates and monitors corporate governance policies - The Audit Committee, composed of three independent non-executive directors, is responsible for reviewing financial reporting, internal controls, and risk management systems[60](index=60&type=chunk)[61](index=61&type=chunk) - The Remuneration Committee reviews and approves management's remuneration proposals, aiming to ensure fair and competitive compensation[62](index=62&type=chunk) - The Nomination Committee annually reviews the Board's composition and considers the Board Diversity Policy, nominating candidates based on merit[64](index=64&type=chunk) - The Corporate Governance Committee formulates and reviews corporate governance policies, monitors director and senior management training, and conducts annual assessments of anti-fraud, anti-corruption, and anti-bribery measures[66](index=66&type=chunk)[67](index=67&type=chunk) Senior Management Remuneration Range (HKD) | Remuneration Range | Number of Individuals | | :--- | :--- | | HKD 0 to HKD 1,000,000 | 3 | [Board Procedures and Shareholder Communication](index=20&type=section&id=Board%20Procedures%20and%20Shareholder%20Communication) The Board holds regular meetings, ensuring directors have access to minutes; the company encourages shareholder participation in general meetings and provides channels for inquiries and suggestions to the Board, with shareholders also having the right to convene extraordinary general meetings and nominate director candidates; the company has adopted a Board Diversity Policy and requires directors to comply with the Model Code for Securities Transactions - The Board holds regular quarterly meetings and additional meetings when necessary, ensuring Board members receive notice at least **14 days** prior to meetings[68](index=68&type=chunk) - The company encourages shareholder participation in general meetings and provides written notice or email channels for inquiries and suggestions to the Board[87](index=87&type=chunk) - Shareholders have the right to convene extraordinary general meetings and can nominate individuals for election as directors in accordance with the Articles of Association[89](index=89&type=chunk)[91](index=91&type=chunk) - The company has adopted a Board Diversity Policy, selecting candidates based on various perspectives, including gender, age, cultural, and educational background[75](index=75&type=chunk) - All directors confirmed compliance with the Model Code for Securities Transactions by Directors of Listed Issuers for the year ended December 31, 2019[76](index=76&type=chunk) [Financial Reporting, Risk Management and Auditor](index=22&type=section&id=Financial%20Reporting,%20Risk%20Management%20and%20Auditor) The Board is responsible for preparing true and fair financial statements and establishing and maintaining effective risk management and internal control systems; external auditor Zhongzheng Tianheng Certified Public Accountants Limited is responsible for auditing the financial statements and has confirmed its independence; the controlling shareholder has provided a non-competition undertaking, which has been reviewed and confirmed compliant by independent non-executive directors - The Board is responsible for preparing true and fair financial statements in accordance with Hong Kong Financial Reporting Standards and ensuring the company has sufficient resources to continue as a going concern[79](index=79&type=chunk) - The Board is responsible for establishing and maintaining appropriate and effective risk management and internal control systems, and annually reviewing their effectiveness[80](index=80&type=chunk) - Zhongzheng Tianheng Certified Public Accountants Limited is the external auditor, whose independence is confirmed and annually reviewed by the Board and Audit Committee[83](index=83&type=chunk) - The controlling shareholder has entered into a non-competition undertaking, which was reviewed by independent non-executive directors and confirmed compliant for **2019**[84](index=84&type=chunk)[85](index=85&type=chunk) [Dividend Policy](index=27&type=section&id=Dividend%20Policy) The company adopted a dividend policy effective January 1, 2019, to establish appropriate procedures for declaring and recommending dividends; the Board will consider operating results, cash flow, financial position, legal restrictions, and future prospects, intending to distribute annual dividends of no less than **30%** of the company's future distributable net profit to shareholders in the foreseeable future - The company adopted a dividend policy, effective January 1, 2019, to establish appropriate procedures for declaring and recommending dividends[96](index=96&type=chunk) - The Board will consider operating results, cash flow, financial position, legal and regulatory restrictions, and future prospects when determining dividend distribution[97](index=97&type=chunk) - The Board intends to distribute annual dividends of no less than **30%** of the company's future distributable net profit to shareholders in the foreseeable future[97](index=97&type=chunk) Directors and Senior Management [Biographies of Board Members](index=28&type=section&id=Biographies%20of%20Board%20Members) This chapter details the backgrounds, experiences, and key responsibilities of the Group's executive, non-executive, and independent non-executive directors; Executive Directors Mr. Shen Shun and Mr. Chen Rongxin have extensive experience in the pharmaceutical industry and management; Non-executive Directors Mr. Zhang Xiongfeng, Mr. Hu Haisong, and Mr. Wu Guohua specialize in investment banking, energy resources, and real estate financial investment, respectively; Independent non-executive Directors Mr. Liu Liangzhong, Mr. Wong Tak Shing, and Mr. Lu Yongchao provide independent advice in food science, corporate finance accounting, and business development - Mr. Shen Shun is an Executive Director, responsible for sales and internal control, with over **20 years** of experience in the pharmaceutical industry[100](index=100&type=chunk) - Mr. Chen Rongxin is an Executive Director, previously served as Deputy General Manager of Wuhan Baixin Food Co., Ltd. and General Manager of Hubei Baixin Food Co., Ltd[100](index=100&type=chunk) - Mr. Zhang Xiongfeng is a Non-executive Director, with extensive experience in investment banking[102](index=102&type=chunk) - Mr. Hu Haisong is a Non-executive Director, skilled in cross-border business opportunities in the energy and resources sector, and has business management and investment project management experience across various industries[104](index=104&type=chunk) - Mr. Wu Guohua is a Non-executive Director, with extensive experience in the real estate and financial investment industries[105](index=105&type=chunk) - Mr. Liu Liangzhong is an Independent Non-executive Director, with over **30 years** of experience in the food science and engineering industry, and also serves as Chairman of the Audit and Remuneration Committees[106](index=106&type=chunk) - Mr. Wong Tak Shing is an Independent Non-executive Director, with over **28 years** of experience in corporate finance, accounting, human resources, and administration[107](index=107&type=chunk) - Mr. Lu Yongchao is an Independent Non-executive Director, with extensive experience in business development, market expansion, media management, finance, and information technology industries[108](index=108&type=chunk) [Senior Management and Company Secretary](index=31&type=section&id=Senior%20Management%20and%20Company%20Secretary) This chapter introduces the responsibilities and experience of the Group's senior management members, Mr. Li Xiaoduo and Ms. Tang Zaixiu, as well as the qualifications of Company Secretary Mr. Hung Hing Hung; Mr. Li Xiaoduo oversees product manufacturing, and Ms. Tang Zaixiu heads the accounting department; Mr. Hung Hing Hung was appointed Company Secretary on August 13, 2019, possessing professional accounting qualifications - Mr. Li Xiaoduo oversees the Group's product manufacturing, with over **18 years** of experience in the pharmaceutical industry[111](index=111&type=chunk) - Ms. Tang Zaixiu heads the Group's accounting department, with over **15 years** of accounting experience[111](index=111&type=chunk) - Mr. Hung Hing Hung was appointed Company Secretary on August 13, 2019, and is a Fellow of the Hong Kong Institute of Certified Public Accountants[112](index=112&type=chunk) Directors' Report [Business Review and Financial Performance](index=32&type=section&id=Business%20Review%20and%20Financial%20Performance) The Group's principal business is investment holding, operating three business segments in China: pharmaceutical distribution, self-operated retail pharmacies, and pharmaceutical manufacturing; in 2019, the Group recorded a loss, and the Board did not recommend a final dividend; the business review in this section is consistent with the Management Discussion and Analysis section - The company's principal business is investment holding, with the Group primarily operating three business segments in China: pharmaceutical distribution, self-operated retail pharmacies, and pharmaceutical manufacturing[116](index=116&type=chunk) - The Group recorded a loss for the year ended December 31, 2019, and the Board did not recommend any final dividend[117](index=117&type=chunk)[118](index=118&type=chunk) [Business Risks and Uncertainties](index=33&type=section&id=Business%20Risks%20and%20Uncertainties) The Group faces multiple risks, including slowing economic growth in China, changes in pharmaceutical industry laws and regulations (such as the "Two-Invoice System" impacting pharmaceutical distribution), non-compliance with regulatory permits, disruption of supplier relationships, and reliance on key personnel; additionally, there are financial risks such as foreign exchange, interest rate, credit, liquidity, and price risks - Business risks include slowing economic growth in China, particularly in the southwestern China market[121](index=121&type=chunk) - Constantly evolving laws and regulatory requirements in China's pharmaceutical industry, such as the implementation of the "Two-Invoice System," have significantly adversely impacted pharmaceutical distribution and manufacturing businesses[122](index=122&type=chunk) - Operational risks include failure to successfully renew Good Manufacturing Practice (GMP) and Good Supply Practice (GSP) certificates, disruption of supplier relationships, and reliance on key personnel[123](index=123&type=chunk)[124](index=124&type=chunk)[126](index=126&type=chunk) - Financial risks cover foreign exchange risk, interest rate risk, credit risk, liquidity risk, and price risk[127](index=127&type=chunk) [Financial Position and Capital Utilization](index=35&type=section&id=Financial%20Position%20and%20Capital%20Utilization) As of December 31, 2019, the Group's gearing ratio was **9.4%**, an increase from **3.7%** in 2018; the net proceeds from the initial public offering have been fully utilized, with some fund uses reallocated to meet business development needs Gearing Ratio | Indicator | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Gearing Ratio | 9.4% | 3.7% | - Net proceeds from the initial public offering of approximately **HKD 249.5 million** have been fully utilized[131](index=131&type=chunk) - Unutilized net proceeds originally intended for acquiring or establishing self-operated retail pharmacies and logistics centers have been reallocated to working capital and other general corporate purposes[46](index=46&type=chunk) [Environmental, Social and Corporate Responsibility](index=36&type=section&id=Environmental,%20Social%20and%20Corporate%20Responsibility) The Group is committed to maintaining high standards of environmental and social responsibility, complying with relevant Chinese laws and regulations, and promoting sustainable development through energy conservation, emission reduction, improved employee benefits, and customer complaint management mechanisms - The Group is committed to maintaining the highest environmental and social standards to ensure sustainable business development[132](index=132&type=chunk) - The Group complies with all relevant Chinese laws and regulations related to its business, including the "Measures for the Administration of Drug Registration," "Good Supply Practice for Pharmaceutical Products," and the "Environmental Protection Law of the People's Republic of China"[133](index=133&type=chunk) - The Group is committed to reducing its environmental impact by minimizing electricity consumption and encouraging recycling of office supplies[134](index=134&type=chunk) - The Group adopts a people-oriented approach, improving remuneration and benefits, training, occupational health and safety systems, and establishing a customer complaint management mechanism[139](index=139&type=chunk) [Major Customer and Supplier Relationships](index=36&type=section&id=Major%20Customer%20and%20Supplier%20Relationships) In 2019, sales to the Group's top five customers accounted for **50.9%** of total sales, with the largest customer accounting for **16.0%**; purchases from the top five suppliers accounted for **41.1%** of total purchases, with the largest supplier accounting for **13.1%**; the Group maintains long-term good relationships with major customers and suppliers, conducting regular reviews to monitor reliance Major Customer and Supplier Proportions 2019 | Indicator | % of Total Sales/Purchases | | :--- | :--- | | Top Five Customer Sales | 50.9% | | Largest Customer Sales | 16.0% | | Top Five Supplier Purchases | 41.1% | | Largest Supplier Purchases | 13.1% | - The Group has established business relationships with its top five customers and suppliers for over **five years**[138](index=138&type=chunk) - None of the directors, their close associates, or shareholders holding more than **5%** of the shares had any interest in the Group's top five customers and suppliers[138](index=138&type=chunk) [Significant Transactions and Share Capital Changes](index=37&type=section&id=Significant%20Transactions%20and%20Share%20Capital%20Changes) In 2019, the Group completed two subsidiary acquisitions paid by issuing shares, aiming to invest in the Malaysian property market; an agreement to acquire VR Green Sdn Bhd was terminated due to unfulfilled due diligence; the Group repaid **HKD 2 million** in corporate bonds in 2019, but **HKD 4.0 million** in corporate bonds remained overdue; the company's share capital increased due to the issuance of shares for subsidiary acquisitions, and distributable reserves were sufficient - In **2019**, the acquisitions of the entire equity of Baixin Baihui Consulting Limited and Baihui Service Consulting Limited were paid by issuing shares, aiming to diversify business risks and invest in the Malaysian property market[143](index=143&type=chunk)[146](index=146&type=chunk)[149](index=149&type=chunk)[151](index=151&type=chunk) - The agreement to acquire a **45% equity interest** in VR Green Sdn Bhd was terminated due to unfulfilled due diligence preconditions[148](index=148&type=chunk) - For the year ended December 31, 2019, the company repaid corporate bonds with a principal amount of **HKD 2 million**[154](index=154&type=chunk) - As of December 31, 2019, two corporate bonds totaling **HKD 4.0 million** were overdue, with accrued interest of approximately **HKD 7.4 million** due[154](index=154&type=chunk) - The company's share capital increased due to the issuance of shares for subsidiary acquisitions, with a total of **1,474,992,908 ordinary shares** issued[142](index=142&type=chunk)[466](index=466&type=chunk) - As of December 31, 2019, the company's share premium was approximately **RMB 691,882,000**, available for dividend distribution[156](index=156&type=chunk) [Board and Management Governance](index=43&type=section&id=Board%20and%20Management%20Governance) This chapter lists the Board members for the year ended December 31, 2019, and up to the report date, confirming the independent status of independent non-executive directors; directors are appointed for fixed terms and are subject to retirement by rotation and re-election; the company has purchased insurance for directors and senior management to indemnify them against potential legal liabilities - For the year ended December 31, 2019, the Board members included executive directors, non-executive directors, and independent non-executive directors[158](index=158&type=chunk) - All independent non-executive directors confirmed their independent status, and the company considers them all independent[162](index=162&type=chunk) - Directors are appointed for a term of **three years** and are subject to retirement by rotation and re-election at annual general meetings in accordance with the company's Articles of Association[158](index=158&type=chunk) - The company has purchased insurance for directors and senior management to indemnify them against potential legal liabilities[167](index=167&type=chunk) [Share Option Scheme and Remuneration Policy](index=45&type=section&id=Share%20Option%20Scheme%20and%20Remuneration%20Policy) The company adopted a share option scheme in 2015 to reward eligible individuals and maintain cooperative relationships; as of December 31, 2019, **100,000,000 share options** remained unexercised; the Remuneration Committee is responsible for reviewing the remuneration policy and structure for directors and senior management to ensure competitive compensation; this chapter also discloses the emoluments of directors and the five highest-paid individuals - The company adopted a share option scheme on May 26, 2015, to reward eligible individuals and attract and retain talent[169](index=169&type=chunk) - As of December 31, 2019, **100,000,000 share options** remained unexercised, representing approximately **6.78%** of the issued share capital[170](index=170&type=chunk)[174](index=174&type=chunk) - The exercise price of share options is determined by the directors and shall not be less than the highest of the closing price of shares on the grant date, the average closing price for the preceding five business days, and the nominal value of the shares[173](index=173&type=chunk) - The Remuneration Committee is responsible for reviewing the Group's remuneration policy and the remuneration structure for directors and senior management to ensure fair and competitive compensation[175](index=175&type=chunk) Emoluments of Directors and Highest-Paid Individuals (RMB thousands) | Category | 2019 | 2018 | | :--- | :--- | :--- | | Total Directors' Emoluments | 1,386 | 3,822 | | Total Highest-Paid Individuals' (Non-Directors) Emoluments | 554 | 1,799 | [Shareholder Interests and Potential Transactions](index=48&type=section&id=Shareholder%20Interests%20and%20Potential%20Transactions) This chapter discloses the interests and short positions of directors, chief executives, substantial shareholders, and other persons in the company's shares and related shares; **753,040,000 shares** held by controlling shareholder Joyful Treasure Limited have been pledged, and transactions potentially involving a change in controlling shareholder are under negotiation; the company confirmed no purchases, sales, or redemptions of listed securities during the reporting period and no competing businesses Directors' Long Positions in Shares (December 31, 2019) | Director Name | Capacity/Nature of Interest | Number of Shares Held | Approximate % of Shareholding | | :--- | :--- | :--- | :--- | | Mr. Chen Yanfei | Interest in controlled corporation | 753,040,000 | 51.05% | | | Beneficial owner | 13,560,000 | 0.92% | | Mr. Shen Shun | Beneficial owner | 3,500,000 | 0.24% | | Mr. Chen Rongxin | Beneficial owner | 414,820 | 0.03% | | Mr. Zhang Xiongfeng | Beneficial owner | 19,932,000 | 1.35% | Directors' Long Positions in Related Shares (December 31, 2019) | Director Name | Capacity/Nature of Interest | Number of Related Shares Held | Approximate % of Shareholding | | :--- | :--- | :--- | :--- | | Mr. Chen Rongxin | Beneficial owner | 10,000,000 | 0.68% | | Mr. Zhang Xiongfeng | Beneficial owner | 10,000,000 | 0.68% | - **753,040,000 shares** held by controlling shareholder Joyful Treasure Limited have been pledged, and transactions potentially involving a change in controlling shareholder are under negotiation[190](index=190&type=chunk)[191](index=191&type=chunk) - For the year ended December 31, 2019, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities[187](index=187&type=chunk) - For the year ended December 31, 2019, no director had any interest in any business competing with the company or any of its subsidiaries[189](index=189&type=chunk) [Post-Reporting Period Events and Auditor](index=53&type=section&id=Post-Reporting%20Period%20Events%20and%20Auditor) This section confirms that the Audit Committee reviewed the financial statements, directors complied with the Model Code for Securities Transactions, and the company's public float was sufficient; post-reporting period, the Group disposed of a **5%** unlisted equity interest in Wuhan Taifu in May 2020; Zhongzheng Tianheng Certified Public Accountants Limited is the company's auditor and will be proposed for re-appointment at the upcoming Annual General Meeting - The Audit Committee reviewed the accounting principles and policies adopted by the Group and the audited consolidated financial statements for the year ended December 31, 2019[194](index=194&type=chunk) - The public float of the company's issued shares was sufficient, meeting the specified level under the Listing Rules[197](index=197&type=chunk) - Subsequent to the reporting period, the Group disposed of its **5%** unlisted equity interest in Wuhan Taifu to an independent third party for **RMB 3,000,000** on May 26, 2020[561](index=561&type=chunk) - Zhongzheng Tianheng Certified Public Accountants Limited is the company's auditor and will be proposed for re-appointment at the upcoming Annual General Meeting[199](index=199&type=chunk)[200](index=200&type=chunk) Independent Auditor's Report [Auditor's Opinion and Basis](index=54&type=section&id=Auditor's%20Opinion%20and%20Basis) Independent auditor Zhongzheng Tianheng Certified Public Accountants Limited issued an unmodified opinion on the consolidated financial statements of Baixin International Holdings Limited and its subsidiaries for the year ended December 31, 2019, deeming them to present a true and fair view of the Group's financial position, performance, and cash flows in accordance with Hong Kong Financial Reporting Standards and complying with Hong Kong Companies Ordinance disclosure requirements - The auditor issued an unmodified opinion on the Group's consolidated financial statements for the year ended December 31, 2019[204](index=204&type=chunk) - The consolidated financial statements present a true and fair view of the Group's financial position, performance, and cash flows in accordance with Hong Kong Financial Reporting Standards and comply with the disclosure requirements of the Hong Kong Companies Ordinance[204](index=204&type=chunk) - The audit was conducted in accordance with Hong Kong Standards on Auditing, and the auditor is independent of the Group and complies with the Code of Ethics for Professional Accountants[205](index=205&type=chunk) [Key Audit Matters](index=54&type=section&id=Key%20Audit%20Matters) The auditor identified several key audit matters, including revenue recognition from pharmaceutical product sales, impairment assessment of proposed property development projects, net realizable value of inventories, recoverability of trade and bills receivables, and impairment assessment of other receivables and investments in associates; these matters were critical due to their materiality or significant management judgment and estimation - Revenue recognition: Significant amount of revenue from pharmaceutical product sales; the auditor assessed internal controls over revenue recognition and transaction terms[208](index=208&type=chunk)[209](index=209&type=chunk) - Impairment assessment of property development projects: Involves significant judgment and estimation of budgeted development costs and fair value upon completion; the auditor interviewed management and evaluated the expertise of external valuers[210](index=210&type=chunk)[211](index=211&type=chunk) - Net realizable value of inventories: Involves management's judgment on latest selling prices and market conditions; the auditor performed inventory counts and tested the net realizable value of individual inventory items[213](index=213&type=chunk)[214](index=214&type=chunk) - Recoverability of trade and bills receivables: Involves judgment on bad debt provisions; the auditor assessed internal controls, accuracy of aging reports, and subsequent settlements[215](index=215&type=chunk)[216](index=216&type=chunk) - Recoverability of other receivables: Involves judgment on impairment assessment; the auditor understood the monitoring process and evaluated subsequent settlements[218](index=218&type=chunk) - Impairment assessment of investments in associates: Involves judgment and estimation of future performance and asset values; the auditor interviewed management and evaluated external valuers[219](index=219&type=chunk)[220](index=220&type=chunk) [Responsibilities of Directors and Auditor](index=61&type=section&id=Responsibilities%20of%20Directors%20and%20Auditor) Directors are responsible for preparing true and fair consolidated financial statements and ensuring effective internal controls; the auditor's responsibility is to obtain reasonable assurance that the financial statements are free from material misstatement and to communicate the audit scope, timing, and significant findings to those charged with governance - Directors are responsible for preparing true and fair consolidated financial statements in accordance with Hong Kong Financial Reporting Standards and ensuring effective internal controls to prevent material misstatement due to fraud or error[223](index=223&type=chunk) - The auditor's objective is to obtain reasonable assurance that the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes an opinion[225](index=225&type=chunk) - The auditor communicates with those charged with governance regarding the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control[226](index=226&type=chunk) Consolidated Statement of Profit or Loss [Consolidated Statement of Profit or Loss for FY2019](index=64&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss%20for%20FY2019) This chapter presents the consolidated statement of profit or loss for the year ended December 31, 2019, showing Group revenue of **RMB 845,448 thousand**, but due to increased cost of sales and a significant rise in other net losses, the loss for the year expanded to **RMB 193,399 thousand** Summary of Consolidated Statement of Profit or Loss for FY2019 (RMB thousands) | Indicator | 2019 | 2018 | | :--- | :--- | :--- | | Revenue | 845,448 | 821,142 | | Cost of Sales | (803,516) | (760,856) | | Gross Profit | 41,932 | 60,286 | | Other Income and Gains | 22,285 | 19,193 | | Other Net Losses | (197,289) | (42,661) | | Loss Before Tax | (190,482) | (48,047) | | Income Tax Expense | (2,917) | (15,361) | | Loss for the Year | (193,399) | (63,408) | | Loss Attributable to Equity Holders of the Company | (193,721) | (59,409) | | Basic Loss Per Share (RMB cents) | (13.38) | (5.32) | - Loss for the year in **2019** was **RMB 193,399 thousand**, a significant increase from **RMB 63,408 thousand** in **2018**[231](index=231&type=chunk) - Other net losses increased from **RMB 42,661 thousand** in **2018** to **RMB 197,289 thousand** in **2019**, being one of the main reasons for the expanded loss[231](index=231&type=chunk) Consolidated Statement of Profit or Loss and Other Comprehensive Income [Consolidated Statement of Profit or Loss and Other Comprehensive Income for FY2019](index=65&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income%20for%20FY2019) This chapter presents the consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2019, showing a loss for the year of **RMB 193,399 thousand**, which, combined with exchange differences and fair value change losses on financial assets at fair value through other comprehensive income, resulted in a total comprehensive loss for the year of **RMB 223,482 thousand** Summary of Consolidated Statement of Profit or Loss and Other Comprehensive Income for FY2019 (RMB thousands) | Indicator | 2019 | 2018 | | :--- | :--- | :--- | | Loss for the Year | (193,399) | (63,408) | | Exchange Differences Arising from Translation of Financial Statements of Entities Outside the PRC | (8,083) | (5,448) | | Fair Value Change Loss on Financial Assets at Fair Value Through Other Comprehensive Income | (22,000) | – | | Total Comprehensive Loss for the Year | (223,482) | (68,856) | | Attributable to Equity Holders of the Company | (223,804) | (64,857) | - In **2019**, fair value change loss of **RMB 22,000 thousand** arose from financial assets at fair value through other comprehensive income[234](index=234&type=chunk) - Total comprehensive loss for the year significantly increased from **RMB 68,856 thousand** in **2018** to **RMB 223,482 thousand** in **2019**[234](index=234&type=chunk) Consolidated Statement of Financial Position [Consolidated Statement of Financial Position for FY22019](index=66&type=section&id=Consolidated%20Statement%20of%20Financial%20Position%20for%20FY22019) This chapter provides the consolidated statement of financial position as of December 31, 2019, showing non-current assets increasing to **RMB 331,995 thousand**, mainly due to property development projects and investments in associates; current assets significantly decreased to **RMB 593,871 thousand**, leading to a decline in net current assets; total assets less current liabilities and net assets both decreased Summary of Consolidated Statement of Financial Position for FY2019 (RMB thousands) | Indicator | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Non-current Assets | 331,995 | 290,437 | | Current Assets | 593,871 | 838,674 | | Current Liabilities | (153,974) | (157,805) | | Net Current Assets | 439,897 | 680,869 | | Total Assets Less Current Liabilities | 771,892 | 971,306 | | Non-current Liabilities | (88,310) | (114,833) | | Net Assets | 683,582 | 856,473 | | Share Capital | 1,216 | 1,116 | | Reserves | 696,267 | 869,580 | | Total Equity | 683,582 | 856,473 | - Increase in non-current assets mainly due to property development projects (**RMB 185,797 thousand**) and investments in associates (**RMB 50,580 thousand**)[235](index=235&type=chunk) - Decrease in current assets mainly due to reductions in inventories, trade and other receivables, prepayments and deposits, and pledged bank deposits[235](index=235&type=chunk) - Net assets decreased from **RMB 856,473 thousand** in **2018** to **RMB 683,582 thousand** in **2019**[237](index=237&type=chunk) Consolidated Statement of Changes in Equity [Consolidated Statement of Changes in Equity for FY2019](index=68&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity%20for%20FY2019) This chapter presents the consolidated statement of changes in equity for the year ended December 31, 2019, showing total equity attributable to equity holders of the company decreasing from **RMB 870,696 thousand** at the beginning of 2019 to **RMB 697,483 thousand** at the end of 2019, primarily impacted by the loss for the year and other comprehensive losses - Total equity attributable to equity holders of the company was **RMB 870,696 thousand** as of January 1, 2019, decreasing to **RMB 697,483 thousand** as of December 31, 2019[237](index=237&type=chunk)[238](index=238&type=chunk) - Loss for the year of **RMB 193,721 thousand** and other comprehensive losses (including exchange differences and investment revaluation reserve changes) were major factors contributing to the decrease in equity[234](index=234&type=chunk)[238](index=238&type=chunk) - Share capital increased by **RMB 100 thousand** due to the acquisition of subsidiaries, with a corresponding increase in share premium[466](index=466&type=chunk) Consolidated Statement of Cash Flows [Consolidated Statement of Cash Flows for FY2019](index=69&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows%20for%20FY2019) This chapter presents the consolidated statement of cash flows for the year ended December 31, 2019; net cash used in operating activities was **RMB 58,454 thousand**, net cash from investing activities was **RMB 59,399 thousand**, and net cash used in financing activities was **RMB 33,625 thousand**, resulting in a net decrease in cash and cash equivalents of **RMB 32,680 thousand** Summary of Consolidated Statement of Cash Flows for FY2019 (RMB thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash (Used in)/From Operating Activities | (58,454) | 17,867 | | Net Cash Used in Investing Activities | 59,399 | (23,515) | | Net Cash (Used in)/From Financing Activities | (33,625) | 18,964 | | Net (Decrease)/Increase in Cash and Cash Equivalents | (32,680) | 13,316 | | Cash and Cash Equivalents at December 31 | 16,125 | 48,831 | - Operating activities shifted from net cash inflow in **2018** to net cash outflow in **2019**, primarily due to expanded loss before tax and changes in working capital[241](index=241&type=chunk)[242](index=242&type=chunk) - Net cash inflow from investing activities was mainly attributable to a decrease in pledged bank deposits and proceeds from the disposal of an associate[245](index=245&type=chunk) - Net cash outflow from financing activities was primarily due to repayment of bank loans and corporate bonds[245](index=245&type=chunk) Notes to the Consolidated Financial Statements [General Information and Application of Accounting Standards](index=72&type=section&id=General%20Information%20and%20Application%20of%20Accounting%20Standards) This section outlines the company's basic information, functional and presentation currencies, and details the impact of applying new and revised Hong Kong Financial Reporting Standards for 2019, particularly the transitional impact of **HKFRS 16 "Leases"**, leading to the recognition of right-of-use assets and lease liabilities - The company's functional currency is HKD, and the consolidated financial statements are presented in RMB[246](index=246&type=chunk) - Application of **HKFRS 16 "Leases"** in **2019** resulted in the recognition of right-of-use assets of **RMB 4,858 thousand** and lease liabilities of **RMB 2,478 thousand**[251](index=251&type=chunk)[254](index=254&type=chunk) - The Group elected to apply the short-term lease exemption for leases with a term ending within **12 months** and the recognition exemption for leases of low-value assets[251](index=251&type=chunk)[303](index=303&type=chunk) [Significant Accounting Policies](index=76&type=section&id=Significant%20Accounting%20Policies) This section elaborates on the significant accounting policies followed by the Group in preparing its consolidated financial statements, including consolidation of subsidiaries and non-controlling interests, treatment of goodwill, equity method for investments in associates, classification and measurement of financial instruments (especially impairment assessment under **HKFRS 9**), depreciation of property, plant and equipment, amortization of intangible assets, accounting for leases, impairment of assets, inventory valuation, employee benefits, income tax, provisions and contingent liabilities, revenue recognition from customer contracts, foreign currency translation, capitalization of borrowing costs, and definition of related party transactions - The consolidated financial statements are prepared on a historical cost basis, except for certain assets measured at fair value[257](index=257&type=chunk) - Financial assets are classified as at amortized cost, fair value through other comprehensive income, or fair value through profit or loss, with expected credit loss assessment under **HKFRS 9**[272](index=272&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk)[277](index=277&type=chunk) - Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, and depreciated using the straight-line method over their estimated useful lives[298](index=298&type=chunk) - Revenue from contracts with customers is recognized when "control" of goods or services is transferred to the customer[326](index=326&type=chunk) - Deferred tax assets and liabilities arise from deductible and taxable temporary differences and are measured at tax rates enacted or substantively enacted at the end of the reporting period[320](index=320&type=chunk)[322](index=322&type=chunk)[323](index=323&type=chunk) [Critical Accounting Judgments and Sources of Estimation Uncertainty](index=104&type=section&id=Critical%20Accounting%20Judgments%20and%20Sources%20of%20Estimation%20Uncertainty) This section highlights key management judgments and estimates made in preparing the financial statements, including impairment assessments of property, plant and equipment, right-of-use assets, investments in associates, property development projects, intangible assets, and prepayments; impairment of trade and other receivables; assessment of useful lives of property, plant and equipment; net realizable value of inventories; and recognition of deferred tax assets; changes in these estimates could significantly impact future financial position - Impairment assessments of property, plant and equipment, right-of-use assets, investments in associates, property development projects, intangible assets, and prepayments require significant judgment on future revenue and operating cost levels[342](index=342&type=chunk) - Estimation of impairment provisions for trade and other receivables is based on credit history, aging, and market conditions, determined using the expected credit loss provisioning method[343](index=343&type=chunk) - Estimation of useful lives for property, plant and equipment requires annual review of asset usage, technological changes, and environmental shifts[344](index=344&type=chunk) - Estimation of net realizable value for inventories is based on current market conditions and past sales experience, with changes potentially leading to inventory write-downs or reversals[345](index=345&type=chunk) - Recognition of deferred tax assets requires estimation of expected taxable profits, involving multiple assumptions about the operating environment[346](index=346&type=chunk) [Revenue and Segment Reporting](index=106&type=section&id=Revenue%20and%20Segment%20Reporting) This section details the Group's revenue by business segment, including pharmaceutical distribution, self-operated retail pharmacies, and pharmaceutical manufacturing; in 2019, pharmaceutical distribution was the primary revenue source, but self-operated retail pharmacy and pharmaceutical manufacturing revenues both decreased; the Group did not provide geographical information as all revenue and major assets are from China Segment Revenue 2019 (RMB thousands) | Segment | 2019 | 2018 | | :--- | :--- | :--- | | Pharmaceutical Distribution | 798,490 | 754,498 | | Self-operated Retail Pharmacies | 1,255 | 3,882 | | Pharmaceutical Manufacturing | 45,703 | 62,762 | | **Total** | **845,448** | **821,142** | - Pharmaceutical distribution revenue primarily from sales of pharmaceutical products to wholesalers, franchised retail pharmacy chains, and hospitals and other medical institutions[351](index=351&type=chunk) - For the years ended December 31, 2019 and 2018, all of the Group's segment revenue and segment profit were derived from pharmaceutical distribution, self-operated retail pharmacies, and pharmaceutical manufacturing businesses in China[360](index=360&type=chunk) - In **2019**, revenue from **three major customers** accounted for **39%** of the Group's total revenue[359](index=359&type=chunk)[514](index=514&type=chunk) [Other Income and Net Losses](index=110&type=section&id=Other%20Income%20and%20Net%20Losses) This section lists the Group's other income and gains for 2019 as **RMB 22,285 thousand**, mainly comprising franchise fees, royalty income, and gain on disposal of a subsidiary; concurrently, other net losses significantly increased to **RMB 197,289 thousand**, primarily due to impairment losses on trade receivables, prepayments, and intangible assets Other Income and Gains 2019 (RMB thousands) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Franchise Fees | 8,155 | 7,378 | | Royalty Income | 4,000 | – | | Gain on Disposal of a Subsidiary | 5,516 | – | | **Total** | **22,285** | **19,193** | Other Net Losses 2019 (RMB thousands) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Net Exchange Loss | – | 1,456 | | Impairment Loss on Inventories | 463 | – | | Impairment Loss on Trade Receivables | 118,469 | 10,046 | | Impairment Loss on Other Receivables | 7,193 | 2,335 | | Impairment Loss on Prepayments and Deposits | 32,501 | – | | Impairment Loss on Prepayments for Intangible Assets | 17,000 | 3,000 | | Impairment Loss on Intangible Assets | 4,090 | – | | Loss on Disposal of an Associate | 1,916 | – | | **Total** | **197,289** | **42,661** | - Other net losses significantly increased, mainly due to impairment losses on trade receivables of **RMB 118,469 thousand**, prepayments and deposits of **RMB 32,501 thousand**, and prepayments for intangible assets of **RMB 17,000 thousand**[362](index=362&type=chunk) [Finance Costs and Loss Before Tax](index=112&type=section&id=Finance%20Costs%20and%20Loss%20Before%20Tax) In 2019, finance costs decreased to **RMB 11,855 thousand**, mainly due to reduced interest on convertible bonds; however, due to the combined effect of increased other net losses and decreased gross profit, loss before tax expanded to **RMB 190,482 thousand** Finance Costs 2019 (RMB thousands) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Interest on Bank Borrowings | 1,242 | 241 | | Interest on Corporate Bonds Payable | 10,421 | 9,438 | | Interest on Convertible Bonds | – | 5,558 | | Interest on Lease Liabilities | 85 | – | | **Total** | **11,855** | **15,362** | - Finance costs decreased primarily due to no interest on convertible bonds in **2019**[22](index=22&type=chunk)[365](index=365&type=chunk) - Loss before tax increased from **RMB 48,047 thousand** in **2018** to **RMB 190,482 thousand** in **2019**, mainly due to the combined effect of increased other net losses and decreased gross profit[23](index=23&type=chunk)[366](index=366&type=chunk) [Income Tax Expense and Loss Per Share](index=113&type=section&id=Income%20Tax%20Expense%20and%20Loss%20Per%20Share) In 2019, income tax expense decreased to **RMB 2,917 thousand**, primarily due to reduced taxable income of the Group's PRC subsidiaries; basic loss per share was **RMB 13.38 cents**, and diluted loss per share was not applicable as the exercise price of share options was higher than the average market price of shares, and convertible bonds had an anti-dilutive effect Income Tax Expense 2019 (RMB thousands) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Current Tax | 5,112 | 12,680 | | Deferred Tax | (2,195) | 2,681 | | **Total** | **2,917** | **15,361** | - Income tax expense decreased primarily due to reduced taxable income of the company's PRC subsidiaries[25](index=25&type=chunk)[370](index=370&type=chunk) - Basic loss per share was **RMB 13.38 cents**, calculated based on loss attributable to equity holders of the company of **RMB 193,721 thousand** and a weighted average number of shares of approximately **1,448,003 thousand shares**[385](index=385&type=chunk) - Diluted loss per share was not applicable because the exercise price of share options was higher than the average market price of shares, and the **2018** convertible bonds had an anti-dilutive effect[393](index=393&type=chunk) [Notes to Key Balance Sheet Items](index=118&type=section&id=Notes%20to%20Key%20Balance%20Sheet%20Items) This section details major items in the Group's statement of financial position, including property, plant and equipment, right-of-use assets, prepaid lease payments for land, investments in associates, goodwill, intangible assets, financial assets at fair value through other comprehensive income, property development projects, inventories, trade and other receivables, prepayments and deposits, pledged bank deposits, bank borrowings, corporate bonds payable, income tax, and lease liabilities; property development projects and investments in associates significantly increased, while impairment losses on trade receivables substantially rose Carrying Amount of Property, Plant and Equipment 2019 (RMB thousands) | Item | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Buildings | 37,930 | 43,127 | | Machinery and Equipment | 7,769 | 7,898 | | Construction in Progress | 3,303 | 3,239 | | **Total** | **51,642** | **58,026** | - Right-of-use assets were recognized on January 1, 2019, due to the adoption of **HKFRS 16**, with a carrying amount of **RMB 4,858 thousand**[398](index=398&type=chunk) - Investments in associates increased from **RMB 9,382 thousand** in **2018** to **RMB 50,580 thousand** in **2019**, mainly due to the acquisition of equity interests in Awesome Applause and Massive Goodwill[404](index=404&type=chunk)[406](index=406&type=chunk) - Goodwill was written off in **2019** due to the disposal of subsidiary Yanchi, reducing its carrying amount to zero[410](index=410&type=chunk)[411](index=411&type=chunk) - Property development projects increased from zero in **2018** to **RMB 185,797 thousand** in **2019**, primarily for a logistics center property development project in China[420](index=420&type=chunk) - Impairment losses on trade and bills receivables increased from **RMB 28,578 thousand** in **2018** to **RMB 123,319 thousand** in **2019**[426](index=426&type=chunk)[427](index=427&type=chunk) - Total corporate bonds payable were **RMB 91,014 thousand**, of which **RMB 26,871 thousand** were repayable within one year[454](index=454&type=chunk) [Share Capital and Reserves](index=141&type=section&id=Share%20Capital%20and%20Reserves) This section details changes in the Group's share capital and reserves; in 2019, share capital increased due to the issuance of shares for subsidiary acquisitions; reserves include share premium, PRC statutory reserves, investment revaluation reserve, share option reserve, exchange reserve, and other reserves; share premium is governed by Cayman Islands company law and is distributable to shareholders; PRC statutory reserves are appropriated at **10%** of after-tax profit; investment revaluation reserve primarily reflects fair value change losses on financial assets at fair value through other comprehensive income Share Capital Changes 2019 (RMB thousands) | Item | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Issued and Fully Paid | 1,216 | 1,116 | | Number of Ordinary Shares (thousands of units) | 1,474,993 | 1,357,874 | - **117,119,000 new shares** were issued in **2019** for the acquisition of Baixin Baihui Consulting Limited and Baihui Service Consulting Limited[467](index=467&type=chunk) Composition of Reserves 2019 (RMB thousands) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Share Premium | 691,882 | 641,391 | | PRC Statutory Reserve | 33,157 | 48,789 | | Investment Revaluation Reserve | (22,000) | – | | Share Option Reserve | 11,456 | 20,537 | | Exchange Reserve | (9,545) | (1,462) | | Other Reserves | (26,534) | (26,534) | | Retained Profits | 17,851 | 186,859 | | **Total** | **696,267** | **869,580** | - Funds in the share premium account are distributable to shareholders, provided the company is able to pay its debts as they fall due after the distribution[479](index=479&type=chunk) - Investment revaluation reserve recorded a fair value change loss of **RMB 22,000 thousand** in **2019**[479](index=479&type=chunk) [Equity-Settled Share-Based Payment Transactions](index=143&type=section&id=Equity-Settled%20Share-Based%20Payment%20Transactions) This section details the company's share option scheme, designed to reward eligible participants; as of December 31, 2019, **100,000,000 share options** remained unexercised, with a weighted average exercise price of **HKD 0.67 per share**; no new share options were granted in 2019, but **75,690,000 share options** lapsed - The company adopted a share option scheme on May 26, 2015, to reward eligible participants and maintain cooperative relationships[469](index=469&ty

Interim Report 2019 中期報告 Pa Shun International Holdings Limited百信國際控股有限公司 Pa Shun International Holdings Limited 百信國際控股有限公司 (Incorporated in the Cayman Islands with limited liability) Stock Code : 574 Interim Report 2019 Pa Shun International Holdings Limited 百信國際控股有限公司 （於開曼群島註冊成立的有限公司） 股份代號 : 574 中期報告 2019 1 百信國際控股有限公司 中期報告2019 頁次 公司資料 2 簡明綜合損益表 4 簡明綜合損益及其他全面收益表 5 簡明綜合財務狀況表 6 簡明綜合權益變動表 8 簡明綜合現金流量表 9 簡明綜合中期財務報表附註 10 管理層討論及分析 48 其他資料 53 目錄 2 百信國際控股有限公司 中期報告2019 獨立非執行董事 註冊辦事處 公司秘書 公司資料 執行董事 陳燕飛先生 （主席兼行政總裁） 沈順 ...

[Company Information](index=3&type=section&id=Company%20Information) This section provides registration details, board members, authorized representatives, joint company secretaries, committee compositions, registered office, principal place of business, auditor, stock code, website, and principal bankers of Pashun International Holdings Limited [Company Basic Information and Governance Structure](index=3&type=section&id=Company%20Basic%20Information%20and%20Governance%20Structure) This section details Pashun International Holdings Limited's registration, board composition, key personnel, committee structures, and essential corporate contact information - The company's board members underwent several changes in 2018, including the retirement/resignation of Mr. Zhou Jian, Mr. Motomasa Masahiro, and Mr. Min Feng, as well as the appointment, resignation, and re-appointment of Mr. Chen Rongxin and Mr. Lyu Yongchao[4](index=4&type=chunk) - Mr. Chen Yanfei serves as the Chairman and Chief Executive Officer, also chairing the Nomination Committee and Corporate Governance Committee, and is a member of the Remuneration Committee[4](index=4&type=chunk)[6](index=6&type=chunk) - The company is registered in the Cayman Islands, with its head office and principal place of business in Hong Kong located in Wan Chai, and its principal place of business in China located in Chengdu, Sichuan Province[4](index=4&type=chunk)[5](index=5&type=chunk)[6](index=6&type=chunk) Company Key Information | Indicator | Details | | :--- | :--- | | Stock Code | 00574 | | Company Website | www.pashun.com.cn | | Auditor | Zhongzheng Tianheng Certified Public Accountants Limited | | Principal Bankers | Bank of Communications Co., Ltd. | | Hong Kong Share Registrar | Tricor Investor Services Limited | [Financial Highlights](index=5&type=section&id=Financial%20Highlights) This section presents key financial data for Pashun International Holdings Limited and its subsidiaries for the year ended December 31, 2018 [Key Financial Performance for 2018](index=5&type=section&id=Key%20Financial%20Performance%20for%202018) The company's revenue decreased by 5.6%, gross profit significantly dropped by 32.6%, resulting in a net loss of RMB 63,408 thousand, and basic loss per share of RMB 5.32 cents for 2018 Key Financial Data for 2018 | Indicator | 2018 (RMB thousands) | 2017 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 821,142 | 869,891 | (5.6) | | Gross Profit | 60,286 | 89,416 | (32.6) | | (Loss) / Profit for the Year | (63,408) | 10,177 | (723.1) | | (Loss) / Profit Attributable to Owners of the Company | (59,409) | 10,177 | (683.8) | | Basic (Loss) / Earnings Per Share - RMB cents | (5.32) | 1.01 | (626.7) | - The Board of Directors does not recommend the payment of any final dividend for the year ended December 31, 2018[9](index=9&type=chunk) [Financial Summary](index=6&type=section&id=Financial%20Summary) This section provides a five-year overview of the company's revenue, profit, EPS, assets, and liabilities, highlighting the shift from profit to loss in 2018 [Five-Year Financial Performance and Balance Sheet Status](index=6&type=section&id=Five-Year%20Financial%20Performance%20and%20Balance%20Sheet%20Status) This section summarizes the company's financial performance and asset-liability position over the past five fiscal years from 2014 to 2018 Key Financial Data for the Past Five Years (RMB thousands) | Indicator | 2014 | 2015 | 2016 | 2017 | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 847,193 | 867,963 | 860,574 | 869,891 | 821,142 | | Profit / (Loss) for the Year | 46,129 | 84,886 | 7,675 | 10,177 | (63,408) | | Basic Earnings / (Loss) Per Share (RMB cents) | 8.7 | 11.31 | 0.77 | 1.01 | (5.32) | | Non-Current Assets | 138,811 | 192,582 | 245,821 | 315,249 | 290,437 | | Current Assets | 575,181 | 708,714 | 854,666 | 831,999 | 838,674 | | Current Liabilities | (468,601) | (152,155) | (218,441) | (295,867) | (157,805) | | Net Assets | 181,280 | 722,670 | 724,768 | 749,265 | 856,473 | [Chairman's Statement](index=7&type=section&id=Chairman's%20Statement) The Chairman reviews the Group's 2018 business performance, focusing on pharmaceutical distribution, retail pharmacies, and manufacturing, and outlines future strategies [2018 Business Review](index=7&type=section&id=2018%20Business%20Review) The Group's 2018 business review highlights decreased pharmaceutical distribution revenue due to "Two-Invoice System" impact, significant growth in self-operated retail pharmacies, and reduced pharmaceutical manufacturing revenue - The Group continued to focus on pharmaceutical distribution, self-operated retail pharmacies, and pharmaceutical manufacturing businesses in China[12](index=12&type=chunk) 2018 Revenue by Business Segment | Business Segment | 2018 Revenue (RMB millions) | 2017 Revenue (RMB millions) | Change (%) | | :--- | :--- | :--- | :--- | | Pharmaceutical Distribution | 754.5 | 794.1 | (5.0) | | Self-Operated Retail Pharmacies | 3.9 | 0.542 | 616.2 | | Pharmaceutical Manufacturing | 62.8 | 75.2 | (16.6) | - The decrease in pharmaceutical distribution revenue was primarily due to intense competition and lower gross profit margins resulting from the implementation of the "Two-Invoice System"[12](index=12&type=chunk) - Revenue from self-operated retail pharmacies significantly increased, and the Group will continue to seek M&A opportunities to revitalize this business[12](index=12&type=chunk) - The decrease in pharmaceutical manufacturing segment revenue was mainly due to the decline in the market for traditional topical products[12](index=12&type=chunk) [Future Development Strategy and New Investments](index=7&type=section&id=Future%20Development%20Strategy%20and%20New%20Investments) The Group plans to leverage its strong foundation in Southwest China to enhance distribution efficiency through a new logistics center and has entered the Malaysian property market for rental income - The Group will leverage its foundation and existing resources in Southwest China to expand its business development, including constructing an international logistics center to improve distribution efficiency[13](index=13&type=chunk) - On March 19, 2019, the company acquired the entire issued share capital of Baishun Baihui Consulting Co., Ltd., which holds a 49% beneficial interest in 48 units within "The Apple" building in Malaysia, aiming to explore the Malaysian property market and generate rental income[13](index=13&type=chunk) [Management Discussion and Analysis](index=8&type=section&id=Management%20Discussion%20and%20Analysis) This section provides an in-depth analysis of the Group's 2018 operational and financial performance, strategic focus, and future outlook [Business Overview and Strategic Focus](index=8&type=section&id=Business%20Overview%20and%20Strategic%20Focus) In 2018, the Group maintained its focus on pharmaceutical distribution and manufacturing in China while actively pursuing M&A opportunities to revitalize its self-operated retail pharmacy segment - The Group continued to focus on pharmaceutical distribution and manufacturing businesses in China[16](index=16&type=chunk) - For the self-operated retail pharmacy business, the Group continued to seek opportunities for mergers and acquisitions of existing retail pharmacy chains to revitalize the business segment[16](index=16&type=chunk) [Revenue and Profitability Analysis](index=8&type=section&id=Revenue%20and%20Profitability%20Analysis) Group revenue decreased by 5.6% and gross profit by 32.6% in 2018, leading to a net loss of RMB 63.4 million, primarily due to policy impacts and increased operating expenses 2018 Revenue and Gross Profit Changes | Indicator | 2018 (RMB millions) | 2017 (RMB millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | 821.1 | 869.9 | (5.6) | | Cost of Sales | 760.9 | 780.5 | (2.5) | | Gross Profit | 60.3 | 89.4 | (32.6) | | Gross Profit Margin | 7.3% | 10.3% | (3.0) percentage points | - The decrease in revenue and gross profit was mainly due to intense competition and limited pricing strategies resulting from the implementation of the "Two-Invoice System"[17](index=17&type=chunk)[18](index=18&type=chunk) 2018 Major Expense Changes | Indicator | 2018 (RMB millions) | 2017 (RMB millions) | Change (%) | | :--- | :--- | :--- | :--- | | Selling and Distribution Expenses | 15.1 | 14.2 | 6.9 | | Administrative Expenses | 55.3 | 40.6 | 36.3 | | Finance Costs | 15.7 | 15.7 | 0.0 | - The increase in administrative expenses was primarily due to business development consulting fees and equity-settled share-based payments[20](index=20&type=chunk) 2018 Other Income and Losses Changes | Indicator | 2018 (RMB millions) | 2017 (RMB millions) | Change (%) | | :--- | :--- | :--- | :--- | | Other Income and Gains | 19.2 | 17.3 | 10.8 | | Other Net Losses | 42.7 | 16.8 | 153.7 | - The significant increase in other net losses was mainly due to the recognition of a loss on the issuance of convertible bonds of approximately RMB 42.0 million and impairment loss on trade receivables of approximately RMB 10.0 million[23](index=23&type=chunk) 2018 Profit Before and After Tax Changes | Indicator | 2018 (RMB millions) | 2017 (RMB millions) | Change (%) | | :--- | :--- | :--- | :--- | | (Loss) / Profit Before Tax | (48.0) | 19.5 | (346.4) | | Income Tax Expense | 15.4 | 9.3 | 64.7 | | (Loss) / Profit for the Year | (63.4) | 10.2 | (723.1) | | Net (Loss) / Profit Margin | (7.7%) | 1.2% | (8.9) percentage points | - The shift from profit to loss for the year was primarily attributable to deteriorating operating performance, equity-settled share-based payments, and the loss on issuance of convertible bonds[25](index=25&type=chunk)[27](index=27&type=chunk) [Business Segment Performance and Future Outlook](index=10&type=section&id=Business%20Segment%20Performance%20and%20Future%20Outlook) This section reiterates the Group's segment revenue performance, noting declines in pharmaceutical distribution and manufacturing, significant growth in retail pharmacies, and outlines future growth strategies 2018 Revenue by Business Segment (Detailed) | Business Segment | 2018 Revenue (RMB millions) | 2017 Revenue (RMB millions) | Change (%) | | :--- | :--- | :--- | :--- | | Pharmaceutical Distribution | 754.5 | 794.1 | (5.0) | | Self-Operated Retail Pharmacies | 3.9 | 0.542 | 616.2 | | Pharmaceutical Manufacturing | 62.8 | 75.2 | (16.6) | - The decrease in pharmaceutical distribution revenue was mainly affected by the "Two-Invoice System" policy, leading to increased competition and lower gross profit margins[28](index=28&type=chunk) - The Group will continue to leverage its foundation in Southwest China to improve distribution efficiency through strategies such as constructing an international logistics center[29](index=29&type=chunk) - The company acquired Baishun Baihui Consulting Co., Ltd., entering the Malaysian property market, intending to hold properties for investment purposes to generate rental income[29](index=29&type=chunk) [Liquidity, Financial and Capital Resources](index=11&type=section&id=Liquidity%2C%20Financial%20and%20Capital%20Resources) The Group's liquidity, financial structure, and capital management improved by year-end 2018, with increased cash, better net current assets, and a significantly lower gearing ratio 2018 Year-End Liquidity Indicators | Indicator | December 31, 2018 (RMB millions) | December 31, 2017 (RMB millions) | Change (%) | | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | 48.8 | 35.0 | 39.4 | | Net Current Assets | 680.9 | 536.1 | 27.0 | | Current Ratio | 5.31 | 2.81 | 89.0 | | Gearing Ratio | 3.7% | 14.3% | (10.6) percentage points | | Total Bank Loans | 35.8 | 26.0 | 37.7 | - As of December 31, 2018, the total number of ordinary shares issued by the company was **1,357,874,000**, an increase from the end of 2017. As of December 31, 2018, **175,690,000** share options remained unexercised[32](index=32&type=chunk) - The convertible bonds issued in 2016 underwent terms revisions in 2017 and 2018, and were redeemed on September 24, 2018[33](index=33&type=chunk)[45](index=45&type=chunk) - In 2018, the company issued unsecured, interest-free convertible bonds with a principal amount of HKD 134.5 million to the Chairman, Mr. Chen Yanfei, with net proceeds used to redeem the 2016 convertible bonds[35](index=35&type=chunk)[47](index=47&type=chunk) - In 2018, the company issued additional corporate bonds with a principal amount of HKD 7.5 million to an independent third party[34](index=34&type=chunk) - The Group's functional currency is RMB, with some funds held in HKD, posing foreign exchange fluctuation risks between RMB and HKD, but the majority of assets and transactions are denominated in RMB, so foreign exchange risk is not significant[37](index=37&type=chunk) [Human Resources Overview](index=12&type=section&id=Human%20Resources%20Overview) As of December 31, 2018, the Group employed 203 staff, a decrease from 2017, and is committed to attracting, developing, and retaining talent through competitive compensation and career opportunities 2018 Human Resources Data | Indicator | December 31, 2018 | December 31, 2017 | | :--- | :--- | :--- | | Number of Employees | 203 | 298 | | Total Staff Costs (RMB millions) | 20.3 | 17.7 | - The Group is committed to attracting, developing, and retaining excellent employees by providing continuous promotion opportunities, a good working environment, competitive remuneration, and various incentive mechanisms[39](index=39&type=chunk) [Use of Net Proceeds from IPO](index=13&type=section&id=Use%20of%20Net%20Proceeds%20from%20IPO) As of December 31, 2018, approximately HKD 147.8 million of IPO net proceeds were utilized, with HKD 101.7 million remaining for logistics center development and retail pharmacy acquisitions Use of IPO Net Proceeds (HKD millions) | Purpose | Available for Use | Utilized (Dec 31, 2018) | Unutilized (Dec 31, 2018) | | :--- | :--- | :--- | :--- | | Logistics Center and Related Expenses | 121.3 | 121.0 | 0.3 | | Acquisition or Establishment of Self-Operated Retail Pharmacies | 116.2 | 14.8 | 101.4 | | Working Capital and Other General Corporate Purposes | 12.0 | 12.0 | – | | **Total** | **249.5** | **147.8** | **101.7** | - The unutilized net proceeds have been deposited into interest-bearing bank accounts with licensed commercial banks in China and Hong Kong, and the Directors intend to continue to apply them in the manner set out in the prospectus[41](index=41&type=chunk) [Debt Issuance and Dividend Policy](index=13&type=section&id=Debt%20Issuance%20and%20Dividend%20Policy) This section details the issuance, amendment, and redemption of convertible bonds, including a related party transaction with the Chairman, and confirms no final dividend recommendation for 2018 - The 2016 convertible bonds totaled **HKD 120 million**, divided into Series 1 and Series 2, with the conversion price for Series 2 revised from HKD 1.2 per share to **HKD 0.6 per share** in 2017[42](index=42&type=chunk)[43](index=43&type=chunk) - In May 2018, the definition of "additional security trigger event" for the convertible bonds was revised to alleviate the burden on the chargor to provide additional security or for the company to redeem the bonds[44](index=44&type=chunk) - The 2016 convertible bonds were redeemed in full on September 24, 2018, with net proceeds of approximately **HKD 113.1 million** fully utilized[43](index=43&type=chunk)[45](index=45&type=chunk) - On June 27, 2018, the company entered into an agreement with the Chairman, Mr. Chen Yanfei, to issue unsecured, interest-free convertible bonds with a principal amount of **HKD 134.5 million**, at an initial conversion price of **HKD 0.50 per share**, with net proceeds of approximately **HKD 132.8 million** fully used to redeem the 2016 convertible bonds[45](index=45&type=chunk)[47](index=47&type=chunk) - Mr. Chen Yanfei's subscription for the 2018 convertible bonds constitutes a connected transaction, as it would increase Mr. Chen and parties acting in concert with him's interest in the company's voting rights, requiring a whitewash waiver[48](index=48&type=chunk) - The Board of Directors does not recommend the payment of a final dividend for the year ended December 31, 2018[50](index=50&type=chunk) [Corporate Governance Report](index=16&type=section&id=Corporate%20Governance%20Report) This report outlines the company's corporate governance practices for 2018, confirming compliance with the Code, board composition, and the functions of its committees [Corporate Governance Code and the Board](index=16&type=section&id=Corporate%20Governance%20Code%20and%20the%20Board) The company complied with the Corporate Governance Code in 2018, with the Chairman also serving as CEO, and the board composition and director training are detailed - The company complied with the provisions of the Corporate Governance Code for the year 2018, but the roles of Chairman and Chief Executive Officer were not separated, with Mr. Chen Yanfei holding both positions[52](index=52&type=chunk)[59](index=59&type=chunk) - The Board of Directors comprises three executive directors, one non-executive director, and three independent non-executive directors, with changes in board members during the year disclosed[53](index=53&type=chunk) - Except for Mr. Chen Rongxin being the nephew of Mr. Chen Yanfei, there were no other significant financial, business, family, or other relevant relationships among the board members[54](index=54&type=chunk) - The company has purchased appropriate insurance coverage for its directors and senior officers and encourages all directors to participate in continuous professional development programs[57](index=57&type=chunk)[58](index=58&type=chunk) - All independent non-executive directors have submitted annual confirmations of independence, and the company considers them all to be independent[60](index=60&type=chunk) [Board Committee Functions and Operations](index=18&type=section&id=Board%20Committee%20Functions%20and%20Operations) This section details the composition, functions, and 2018 meeting attendance of the Audit, Remuneration, Nomination, and Corporate Governance Committees, each operating under defined terms of reference - The Board of Directors has an Audit Committee, a Remuneration Committee, a Nomination Committee, and a Corporate Governance Committee, each with clearly defined written terms of reference[61](index=61&type=chunk) - The Audit Committee consists of three independent non-executive directors, with Mr. Liu Liangzhong as Chairman, and its primary function is to assist the Board in providing independent opinions on financial reporting, internal control, and risk management[63](index=63&type=chunk) - The Remuneration Committee includes one executive director and two independent non-executive directors, with Mr. Liu Liangzhong as Chairman, and its primary function is to review and approve management remuneration proposals and make recommendations on remuneration policies[65](index=65&type=chunk)[66](index=66&type=chunk) - The Nomination Committee includes one executive director and two independent non-executive directors, with Mr. Chen Yanfei as Chairman, and its primary function is to review the composition of the Board and recommend suitable candidates for appointment to the Board[68](index=68&type=chunk) - The Corporate Governance Committee includes one executive director and two independent non-executive directors, with Mr. Chen Yanfei as Chairman, and its primary function is to formulate and review corporate governance policies, and oversee training and compliance[71](index=71&type=chunk) 2018 Remuneration Committee Senior Management Remuneration Range | Remuneration Range | Number of Individuals | | :--- | :--- | | HKD 0 to HKD 1,000,000 | 4 | [Board Procedures and Shareholder Rights](index=22&type=section&id=Board%20Procedures%20and%20Shareholder%20Rights) This section outlines board meeting frequency, director appointment and re-election, board diversity policy, securities dealing code, company secretary's role, and shareholder participation rights - The Board of Directors holds regular quarterly meetings, and eighteen board meetings were held during 2018[73](index=73&type=chunk) - The Chairman held one meeting with the independent non-executive directors without the presence of executive directors to review their independence[78](index=78&type=chunk) - All directors are required to retire by rotation and be re-elected at the annual general meeting in accordance with the company's articles of association, with terms generally lasting three years[78](index=78&type=chunk) - The company has adopted a board diversity policy, emphasizing consideration of various perspectives such as gender, age, cultural and educational background, and professional experience when appointing directors[79](index=79&type=chunk) - The company has adopted the "Model Code for Securities Transactions by Directors of Listed Issuers," and all directors confirmed compliance with the relevant provisions during 2018[80](index=80&type=chunk) - Shareholders have the right to attend general meetings, make inquiries and proposals to the Board, and can request the convening of an extraordinary general meeting according to established procedures[90](index=90&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk) [Financial Reporting, Risk Management and Internal Control](index=24&type=section&id=Financial%20Reporting%2C%20Risk%20Management%20and%20Internal%20Control) The board is responsible for financial statements, continuous operation, and maintaining effective risk management and internal control systems, which are reviewed annually by internal audit - The Board of Directors is responsible for preparing true and fair financial statements in accordance with Hong Kong Financial Reporting Standards and believes the Group has sufficient resources to continue as a going concern[82](index=82&type=chunk) - The Board of Directors is responsible for establishing and maintaining appropriate and effective risk management and internal control systems, and reviews their effectiveness annually[82](index=82&type=chunk)[83](index=83&type=chunk) - The Group adopts a functional bottom-up risk management process, including risk identification, assessment, valuation, and treatment[85](index=85&type=chunk) - Zhongzheng Tianheng Certified Public Accountants Limited was appointed as the external auditor on January 11, 2017, and the audit service fee for 2018 was **RMB 1.12 million**[86](index=86&type=chunk) - The controlling shareholder, Mr. Chen Yanfei, and Jiabao Limited have confirmed to the company that they complied with all undertakings under the non-competition deed during 2018[88](index=88&type=chunk)[89](index=89&type=chunk) [Constitutional Documents and Dividend Policy](index=29&type=section&id=Constitutional%20Documents%20and%20Dividend%20Policy) The company's constitutional documents remained unchanged in 2018, and a new dividend policy, effective January 1, 2019, aims to distribute at least 30% of future distributable net profit - There were no changes to the company's amended and restated memorandum and articles of association for the year ended December 31, 2018[98](index=98&type=chunk) - The company adopted a dividend policy, effective January 1, 2019, to establish appropriate procedures for declaring and recommending dividends[100](index=100&type=chunk) - The Board will consider operating results, cash flows, financial position, legal and regulatory restrictions, and future prospects when determining dividends[101](index=101&type=chunk) - The Board intends to distribute annual dividends to shareholders of not less than **30%** of the company's future distributable net profit for the foreseeable future[101](index=101&type=chunk) [Directors and Senior Management](index=30&type=section&id=Directors%20and%20Senior%20Management) This section provides biographical details of the Group's executive, non-executive, and independent non-executive directors, as well as key senior management and the company secretary [Biographies of Executive Directors](index=30&type=section&id=Biographies%20of%20Executive%20Directors) This section provides detailed biographies of the company's executive directors, including Chairman and CEO Mr. Chen Yanfei, Mr. Shen Shun, and Mr. Chen Rongxin, highlighting their experience and responsibilities - Mr. Chen Yanfei is the founder of the Group, Chairman of the Board, and Chief Executive Officer, with over **30 years of experience** in the pharmaceutical industry, responsible for overall business management and strategic planning[104](index=104&type=chunk) - Mr. Shen Shun is an executive director, responsible for the Group's sales and internal control, with over **20 years of experience** in the pharmaceutical industry[105](index=105&type=chunk) - Mr. Chen Rongxin was appointed as an executive director in 2018, is the nephew of Mr. Chen Yanfei, and has a background in management engineering and management experience in the food and pharmaceutical industries[107](index=107&type=chunk) [Biography of Non-Executive Director](index=31&type=section&id=Biography%20of%20Non-Executive%20Director) This section presents the biography of Mr. Zhang Xiongfeng, the non-executive director, highlighting his extensive experience in investment banking and corporate finance - Mr. Zhang Xiongfeng is a non-executive director with extensive experience in investment banking, specializing in corporate finance, and has served as a director for several listed companies[108](index=108&type=chunk) [Biographies of Independent Non-Executive Directors](index=32&type=section&id=Biographies%20of%20Independent%20Non-Executive%20Directors) This section provides biographies of the independent non-executive directors, Mr. Liu Liangzhong, Mr. Huang Desheng, and Mr. Lyu Yongchao, detailing their diverse professional expertise - Mr. Liu Liangzhong is an independent non-executive director with over **30 years of experience** in the food science and engineering industry, responsible for the Group's overall compliance supervision and corporate governance[109](index=109&type=chunk) - Mr. Huang Desheng is an independent non-executive director with over **28 years of experience** in corporate finance, accounting, human resources, and administration, and is a member of CPA Australia and the Hong Kong Institute of Certified Public Accountants[110](index=110&type=chunk) - Mr. Lyu Yongchao was appointed as an independent non-executive director in 2018, with extensive experience in business development, market expansion, media management, finance, and information technology industries, specializing in investment and fund management[111](index=111&type=chunk)[113](index=113&type=chunk) [Senior Management and Company Secretary](index=33&type=section&id=Senior%20Management%20and%20Company%20Secretary) This section introduces the Group's senior management, Mr. Li Xiaoduo and Ms. Tang Zaixiu, and the company secretary, Mr. Cai Yuankai, outlining their roles and professional backgrounds - Mr. Li Xiaoduo is in charge of the Group's product manufacturing, with over **18 years of experience** in the pharmaceutical industry[114](index=114&type=chunk) - Ms. Tang Zaixiu is in charge of the Group's accounting department, with over **15 years of accounting experience**[114](index=114&type=chunk) - Mr. Cai Yuankai serves as the company's sole company secretary, with over **10 years of auditing experience**, and meets the qualifications and experience requirements for a company secretary under the Listing Rules[115](index=115&type=chunk) [Directors' Report](index=34&type=section&id=Directors'%20Report) This report provides an overview of the Group's 2018 business, financial performance, key risks, environmental and social responsibilities, and corporate compliance [Business Overview and Financial Performance](index=34&type=section&id=Business%20Overview%20and%20Financial%20Performance) This section summarizes the Group's 2018 business review, core operations in pharmaceutical distribution, retail pharmacies, and manufacturing in China, and its financial loss for the year - The Group primarily operates three business segments in China: pharmaceutical distribution, self-operated retail pharmacies, and pharmaceutical manufacturing[119](index=119&type=chunk) - The Group recorded a loss for the year 2018, and the Board of Directors does not recommend the payment of any final dividend[120](index=120&type=chunk)[121](index=121&type=chunk) - A summary of the Group's results, assets, and liabilities for the most recent five financial years is presented on page 5 of this annual report[122](index=122&type=chunk) [Business Risks and Uncertainties](index=35&type=section&id=Business%20Risks%20and%20Uncertainties) The Group faces business risks from China's economic slowdown and evolving pharmaceutical policies, operational risks from regulatory compliance and key personnel, and financial risks including foreign exchange, interest rate, credit, liquidity, and price fluctuations - Business risks include slowing economic growth in China, particularly in Southwest China, and evolving legal and regulatory requirements in the Chinese pharmaceutical industry, especially the implementation of the "Two-Invoice System" which has had a significant adverse impact on pharmaceutical distribution and manufacturing businesses[124](index=124&type=chunk)[125](index=125&type=chunk) - Operational risks include failure to comply with applicable Chinese regulatory licensing requirements (such as GMP and GSP certificates), disruption or significant changes in relationships with suppliers, and reliance on key personnel[126](index=126&type=chunk)[127](index=127&type=chunk)[129](index=129&type=chunk) - Financial risks include foreign exchange risk, interest rate risk, credit risk, liquidity risk, and price risk[130](index=130&type=chunk) - The Group's gearing ratio was **3.7%** as of December 31, 2018, a significant decrease from **14.3%** in 2017[133](index=133&type=chunk) [Environmental, Social and Corporate Responsibility and Compliance](index=38&type=section&id=Environmental%2C%20Social%20and%20Corporate%20Responsibility%20and%20Compliance) The Group is committed to high environmental and social standards, complying with all relevant Chinese laws and regulations, and actively reducing its environmental impact - The Group is committed to maintaining the highest environmental and social standards to ensure the sustainable development of its business[135](index=135&type=chunk) - The Group complies with all relevant Chinese laws and regulations related to its business, including the "Drug Registration Management Measures," "Good Supply Practice for Pharmaceutical Products," "Environmental Protection Law," and "Labor Law"[136](index=136&type=chunk) - The Group is committed to reducing its environmental impact through measures such as reducing electricity consumption and encouraging recycling of office supplies[137](index=137&type=chunk) [Major Customer and Supplier Relationships](index=38&type=section&id=Major%20Customer%20and%20Supplier%20Relationships) This section details the Group's customer and supplier concentration, highlighting long-term relationships and regular reviews to mitigate over-reliance 2018 Major Customer and Supplier Concentration | Indicator | Percentage | | :--- | :--- | | Sales to Top Five Customers as % of Total Sales | 26.1% | | Sales to Largest Customer as % of Total Sales | 6.2% | | Purchases from Top Five Suppliers as % of Total Purchases | 40.2% | | Purchases from Largest Supplier as % of Total Purchases | 14.8% | - The Group has established business relationships with its major customers and suppliers for over five years and regularly reviews them to monitor for any over-reliance[141](index=141&type=chunk) - None of the directors, their close associates, or shareholders holding more than **5%** of the company's issued share capital had any interest in the Group's top five customers and suppliers[141](index=141&type=chunk) [Relationships with Stakeholders](index=39&type=section&id=Relationships%20with%20Stakeholders) The Group prioritizes employee welfare with competitive benefits and training, maintains strong customer relations through complaint management, and conducts fair annual audits of suppliers - The Group is people-oriented, providing reasonable treatment to employees, comprehensive remuneration and benefits, training, and occupational health and safety systems[142](index=142&type=chunk) - The Group maintains good relationships with customers and has established a customer complaint management mechanism to improve services[142](index=142&type=chunk) - The Group maintains good relationships with suppliers, conducting fair and strict annual audits of suppliers[143](index=143&type=chunk) [Share Capital and Debt Issuance Activities](index=39&type=section&id=Share%20Capital%20and%20Debt%20Issuance%20Activities) This section details changes in share capital, the issuance, amendment, and redemption of convertible bonds, including related party transactions, and the issuance of corporate bonds - Details of the changes in the company's share capital for the year ended December 31, 2018, are set out in note 34 to the consolidated financial statements[144](index=144&type=chunk) - The 2016 convertible bonds totaled **HKD 120 million** and underwent multiple revisions in 2017 and 2018, including adjustments to the conversion price and the definition of security trigger events[146](index=146&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) - The issuance of the 2016 convertible bonds aimed to increase the company's additional capital, avoid immediate dilution, and broaden the shareholder base[142](index=142&type=chunk)[172](index=172&type=chunk) - The net proceeds of approximately **HKD 113.1 million** from the 2016 convertible bonds were fully utilized for general working capital and business development[176](index=176&type=chunk) - On June 27, 2018, the company entered into an agreement with the Chairman, Mr. Chen Yanfei, to issue unsecured, interest-free convertible bonds with a principal amount of **HKD 134.5 million**, at an initial conversion price of **HKD 0.50 per share**[179](index=179&type=chunk) - The reasons for issuing the 2018 convertible bonds were to alleviate the company's financial pressure in repaying the 2016 convertible bonds, improve its overall financial position, and the terms were more favorable to the company[185](index=185&type=chunk)[186](index=186&type=chunk)[188](index=188&type=chunk) - The net proceeds of approximately **HKD 131.4 million** from the 2018 convertible bonds were fully utilized to redeem the 2016 convertible bonds[191](index=191&type=chunk) - In 2018, the company issued additional unsecured corporate bonds with a principal amount of approximately **HKD 7.5 million**, with net proceeds of approximately **HKD 6.1 million** fully utilized[192](index=192&type=chunk) - As of December 31, 2018, the company had accumulated losses of approximately **RMB 248,247,000** and a share premium of approximately **RMB 641,391,000**, with dividends payable from the share premium account or other funds authorized by the Companies Law[194](index=194&type=chunk) [Directors' and Chief Executive's Information](index=56&type=section&id=Directors'%20and%20Chief%20Executive's%20Information) This section lists directors and their changes, confirms independent non-executive directors' independence, and discloses directors' and chief executive's interests in the company's shares and related securities - For the year ended December 31, 2018, there were multiple changes in the board members, including the retirement/resignation of Mr. Zhou Jian, Mr. Motomasa Masahiro, and Mr. Min Feng, as well as the appointment, resignation, and re-appointment of Mr. Chen Rongxin and Mr. Lyu Yongchao[196](index=196&type=chunk) - Each independent non-executive director has confirmed their independence, and the company considers all independent non-executive directors to be independent[199](index=199&type=chunk) - Save as disclosed, no director had any material interest, directly or indirectly, in any transaction, arrangement, or contract significant to the Group's business[200](index=200&type=chunk) Directors' Long Positions in Shares as of December 31, 2018 | Director Name | Capacity / Nature of Interest | Number of Shares Held | Approximate Percentage of Equity | | :--- | :--- | :--- | :--- | | Mr. Chen Yanfei | Interest in controlled corporation | 753,040,000 | 55.46% | | Mr. Shen Shun | Beneficial owner | 3,500,000 | 0.26% | | Mr. Chen Rongxin | Beneficial owner | 10,400,820 | 0.77% | | Mr. Zhang Xiongfeng | Beneficial owner | 15,382,000 | 1.13% | Directors' Long Positions in Related Shares as of December 31, 2018 | Director Name | Capacity / Nature of Interest | Number of Related Shares Held | Approximate Percentage of Equity | | :--- | :--- | :--- | :--- | | Mr. Chen Rongxin | Beneficial owner | 10,000,000 | 0.74% | | Mr. Zhang Xiongfeng | Beneficial owner | 18,000,000 | 1.33% | [Disclosure of Major Shareholders' Interests](index=63&type=section&id=Disclosure%20of%20Major%20Shareholders'%20Interests) This section discloses the interests and short positions of major shareholders and other persons, excluding directors and chief executives, in the company's shares and related shares as of December 31, 2018 Major Shareholders' Long Positions in Shares as of December 31, 2018 | Shareholder Name | Capacity / Nature of Interest | Number of Shares Held | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Jiabao Limited | Beneficial owner | 753,040,000 | 55.46% | | Qilu International Fund SPC | Person with security interest in shares | 753,040,000 | 55.46% | | Zhongtai International Asset Management Limited | Investment manager | 753,040,000 | 55.46% | - Jiabao Limited directly holds **753,040,000 shares**, representing approximately **55.46%** of the company's issued share capital[230](index=230&type=chunk) [Other Disclosures](index=64&type=section&id=Other%20Disclosures) This section covers various disclosures including no purchase/sale/redemption of listed securities, pre-emptive rights, non-competition undertakings, related party transactions, and post-reporting period events - For the year ended December 31, 2018, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities[232](index=232&type=chunk) - The controlling shareholders, Mr. Chen Yanfei and Jiabao Limited, have confirmed their compliance with their non-competition undertakings[234](index=234&type=chunk) - Subsequent to the reporting period, Ready Gain Limited, an indirect wholly-owned subsidiary of the company, acquired **100%** equity of Baishun Baihui Consulting Co., Ltd., entering the Malaysian property market[240](index=240&type=chunk) - Subsequent to the reporting period, Big Wish Global Limited, a wholly-owned subsidiary of the company, entered into an agreement with a third party to acquire **45%** equity of VR Green Sdn Bhd, but the agreement was terminated on March 28, 2019, as the due diligence conditions precedent were not met[241](index=241&type=chunk) - Zhongzheng Tianheng Certified Public Accountants will retire as the company's auditor and is eligible and willing to be re-appointed[242](index=242&type=chunk) [Independent Auditor's Report](index=67&type=section&id=Independent%20Auditor's%20Report) This report presents the independent auditor's opinion on the consolidated financial statements, key audit matters, and the responsibilities of both directors and the auditor [Auditor's Opinion and Basis](index=67&type=section&id=Auditor's%20Opinion%20and%20Basis) The independent auditor issued an unmodified opinion on the consolidated financial statements, confirming they present a true and fair view in accordance with Hong Kong Financial Reporting Standards - The auditor issued an **unmodified opinion** on the Group's consolidated financial statements for the year ended December 31, 2018[246](index=246&type=chunk) - The consolidated financial statements present a true and fair view of the Group's financial position, performance, and cash flows in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance[246](index=246&type=chunk) - The audit was conducted in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants and complied with the Code of Ethics for Professional Accountants[247](index=247&type=chunk) [Key Audit Matters](index=67&type=section&id=Key%20Audit%20Matters) Key audit matters include revenue recognition from pharmaceutical sales, impairment assessment of property development projects, net realizable value of inventories, and recoverability of receivables - Key audit matters include revenue recognition from the sale of pharmaceutical products, due to its significant volume and being a key performance indicator for the Group[248](index=248&type=chunk)[249](index=249&type=chunk) - Key audit matters also include the impairment assessment of property development projects, as it involves significant payments and estimates and judgments regarding budgeted development costs and fair values[248](index=248&type=chunk)[251](index=251&type=chunk) - The net realizable value of inventories is listed as a key audit matter due to the significance of inventory quantities and management's judgment[248](index=248&type=chunk)[252](index=252&type=chunk) - The recoverability of trade and bills receivables is a key audit matter due to the significant amount of receivables and the estimates and judgments involved in determining recoverable amounts[248](index=248&type=chunk)[255](index=255&type=chunk) - The recoverability of other receivables is also a key audit matter due to the significant balance of receivables and the importance of management's estimates and judgments[248](index=248&type=chunk)[256](index=256&type=chunk) [Directors' and Auditor's Responsibilities](index=72&type=section&id=Directors'%20and%20Auditor's%20Responsibilities) This section defines the responsibilities of directors for financial statement preparation and internal controls, and the auditor's role in providing reasonable assurance against material misstatement - Directors are responsible for preparing true and fair consolidated financial statements in accordance with Hong Kong Financial Reporting Standards and ensuring effective internal controls to prevent material misstatement[260](index=260&type=chunk) - Directors are responsible for assessing the Group's ability to continue as a going concern and disclosing related matters[260](index=260&type=chunk) - The auditor's objective is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion[260](index=260&type=chunk) - The auditor exercises professional judgment and maintains professional skepticism throughout the audit, identifying and assessing risks of material misstatement, and obtaining sufficient and appropriate audit evidence[261](index=261&type=chunk) [Consolidated Statement of Profit or Loss](index=75&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss) The consolidated statement of profit or loss shows a decrease in revenue and gross profit, leading to a net loss of RMB 63,408 thousand for the year ended December 31, 2018 [2018 Consolidated Profit or Loss Performance](index=75&type=section&id=2018%20Consolidated%20Profit%20or%20Loss%20Performance) The Group reported a revenue of RMB 821,142 thousand and a net loss of RMB 63,408 thousand for 2018, primarily due to reduced gross profit and increased other losses and administrative expenses 2018 Consolidated Statement of Profit or Loss Key Data (RMB thousands) | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Revenue | 821,142 | 869,891 | | Cost of Sales | (760,856) | (780,475) | | Gross Profit | 60,286 | 89,416 | | Other Income and Gains | 19,193 | 17,325 | | Other Net Losses | (42,661) | (16,815) | | Selling and Distribution Expenses | (15,142) | (14,166) | | Administrative Expenses | (55,314) | (40,585) | | Finance Costs | (15,668) | (15,673) | | Share of Profit of an Associate | 1,259 | – | | (Loss) / Profit Before Tax | (48,047) | 19,502 | | Income Tax Expense | (15,361) | (9,325) | | (Loss) / Profit for the Year | (63,408) | 10,177 | | (Loss) / Profit Attributable to Owners of the Company | (59,409) | 10,177 | | Non-Controlling Interests | (3,999) | – | | Basic (Loss) / Earnings Per Share - RMB cents | (5.32) | 1.01 | [Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=76&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) This statement shows a total comprehensive loss of RMB 68,856 thousand for 2018, including a net loss of RMB 63,408 thousand and exchange differences from foreign entity translations [2018 Consolidated Comprehensive Income Performance](index=76&type=section&id=2018%20Consolidated%20Comprehensive%20Income%20Performance) The Group recorded a total comprehensive loss of RMB 68,856 thousand for 2018, comprising a net loss of RMB 63,408 thousand and foreign currency translation losses 2018 Consolidated Comprehensive Income Statement Key Data (RMB thousands) | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | (Loss) / Profit for the Year | (63,408) | 10,177 | | Exchange Differences Arising from Translation of Financial Statements of Entities Outside the People's Republic of China ("China") | (5,448) | (7,637) | | Total Comprehensive (Loss) / Income for the Year | (68,856) | 2,540 | | Attributable to: Owners of the Company | (64,857) | 2,540 | | Attributable to: Non-Controlling Interests | (3,999) | – | [Consolidated Statement of Financial Position](index=77&type=section&id=Consolidated%20Statement%20of%20Financial%20Position) This statement presents the Group's financial position as of December 31, 2018, showing increased net current assets and total equity, driven by a significant reduction in current liabilities [Consolidated Financial Position as of 2018 Year-End](index=77&type=section&id=Consolidated%20Financial%20Position%20as%20of%202018%20Year-End) As of December 31, 2018, the Group's total non-current assets were RMB 290,437 thousand, total current assets RMB 838,674 thousand, with net current assets significantly increasing to RMB 680,869 thousand due to reduced current liabilities 2018 Year-End Consolidated Statement of Financial Position Key Data (RMB thousands) | Indicator | December 31, 2018 | December 31, 2017 | | :--- | :--- | :--- | | **Non-Current Assets** | | | | Property, Plant and Equipment | 58,026 | 96,102 | | Prepaid Land Lease Payments | 2,315 | 4,060 | | Investment in an Associate | 9,382 | – | | Goodwill | 5,942 | 5,942 | | Other Non-Current Assets | 192,769 | 177,615 | | **Current Assets** | | | | Inventories | 55,573 | 60,372 | | Trade and Other Receivables | 422,193 | 438,994 | | Prepayments and Deposits Paid | 259,054 | 245,883 | | Pledged Bank Deposits | 41,111 | 49,364 | | Cash and Cash Equivalents | 48,831 | 35,036 | | **Current Liabilities** | | | | Trade and Other Payables | 94,277 | 142,047 | | Bank Borrowings | 35,824 | 26,009 | | Corporate Bonds Payable | 5,074 | 5,886 | | Convertible Bonds | – | 109,187 | | **Net Assets** | 856,473 | 749,265 | | **Total Equity** | 856,473 | 749,265 | - Current liabilities significantly decreased from **RMB 295,867 thousand** in 2017 to **RMB 157,805 thousand** in 2018, primarily due to the redemption of convertible bonds[270](index=270&type=chunk) - Net current assets increased from **RMB 536,132 thousand** in 2017 to **RMB 680,869 thousand** in 2018[270](index=270&type=chunk) [Consolidated Statement of Changes in Equity](index=79&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity) This statement details the changes in the Group's total equity for 2018, reflecting a net loss, share-based payments, convertible bond transactions, and share issuances [2018 Consolidated Changes in Equity](index=79&type=section&id=2018%20Consolidated%20Changes%20in%20Equity) The Group's total equity increased from RMB 749,265 thousand to RMB 856,473 thousand in 2018, influenced by a net loss, equity-settled share-based payments, and convertible bond conversions 2018 Consolidated Statement of Changes in Equity Key Data (RMB thousands) | Indicator | Share Capital | Share Premium | China Statutory Reserve | Convertible Bond Reserve | Share Option Reserve | Exchange Reserve | Other Reserves | Retained Profits | Total | Non-Controlling Interests | Total Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | As of December 31, 2017 and January 1, 2018 | 856 | 469,233 | 47,094 | 7,395 | 11,997 | 3,986 | (28,150) | 236,854 | 749,265 | – | 749,265 | | Loss for the Year | – | – | – | – | – | – | – | (59,409) | (59,409) | (3,999) | (63,408) | | Exchange Differences from Translation | – | – | – | – | – | (5,448) | – | – | (5,448) | – | (5,448) | | Equity-Settled Share-Based Payments Recognized | – | – | – | – | 11,456 | – | – | – | 11,456 | – | 11,456 | | Early Redemption of Convertible Bonds | – | – | – | (7,395) | – | – | – | 51 | (7,344) | – | (7,344) | | Recognition of Equity Component of Convertible Bonds | – | – | – | 56,402 | – | – | – | – | 56,402 | – | 56,402 | | Conversion of Convertible Bonds | 238 | 156,341 | – | (56,402) | – | – | – | – | 100,177 | – | 100,177 | | Exercise of Share Options | 22 | 15,817 | – | – | (2,916) | – | – | – | 12,923 | – | 12,923 | | Partial Disposal of Interest in a Subsidiary | – | – | (40) | – | – | – | 1,616 | 11,098 | 12,674 | (10,224) | 2,450 | | Transfer to China Statutory Reserve | – | – | 1,735 | – | – | – | – | (1,735) | – | – | – | | As of December 31, 2018 | 1,116 | 641,391 | 48,789 | – | 20,537 | (1,462) | (26,534) | 186,859 | 870,696 | (14,223) | 856,473 | [Consolidated Statement of Cash Flows](index=80&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) This statement summarizes the Group's cash flows from operating, investing, and financing activities for 2018, showing improved operating cash flow and an increase in cash and cash equivalents [2018 Consolidated Cash Flows](index=80&type=section&id=2018%20Consolidated%20Cash%20Flows) The Group reported net cash from operating activities of RMB 17,867 thousand in 2018, a significant improvement from a net outflow in 2017, with year-end cash and cash equivalents reaching RMB 48,831 thousand 2018 Consolidated Statement of Cash Flows Key Data (RMB thousands) | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Net Cash From / (Used In) Operating Activities | 17,867 | (95,981) | | Net Cash Used In Investing Activities | (23,515) | (70,606) | | Net Cash From Financing Activities | 18,964 | 59,425 | | Net Increase / (Decrease) in Cash and Cash Equivalents | 13,316 | (107,162) | | Cash and Cash Equivalents as of December 31 | 48,831 | 35,036 | - Operating cash flow shifted from a net outflow in 2017 to a net inflow in 2018, primarily due to improvements in working capital changes[274](index=274&type=chunk)[276](index=276&type=chunk) - Cash outflow from investing activities decreased, mainly due to refunded deposits for investment projects and land exchange payments[276](index=276&type=chunk) - Cash outflow from financing activities decreased, mainly due to proceeds from the issuance of corporate bonds and exercise of share options[276](index=276&type=chunk) [Notes to the Consolidated Financial Statements](index=83&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This section provides detailed explanations and breakdowns of the figures presented in the consolidated financial statements, including accounting policies, judgments, and estimates [Company Overview and Functional Currency](index=83&type=section&id=Company%20Overview%20and%20Functional%20Currency) This section provides basic information about Pashun International Holdings Limited, including its incorporation, listing, and the presentation currency of its consolidated financial statements - Pashun International Holdings Limited was incorporated in the Cayman Islands on May 3, 2011, and its shares were listed on The Stock Exchange of Hong Kong Limited on June 19, 2015[282](index=282&type=chunk) - The company's functional currency is HKD, but the consolidated financial statements are presented in RMB for the convenience of international investors[282](index=282&type=chunk) - The company's principal business is investment holding, and details of the principal businesses of its subsidiaries are set out in note 48[283](index=283&type=chunk) [Significant Accounting Policies](index=83&type=section&id=Significant%20Accounting%20Policies) This section details the significant accounting policies adopted by the Group for preparing its consolidated financial statements, including compliance with HKFRSs and the impact of new standards - The Group's consolidated financial statements are prepared in accordance with all applicable Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants[284](index=284&type=chunk) - Hong Kong Financial Reporting Standard 15 "Revenue from Contracts with Customers" and Standard 9 "Financial Instruments" were first applied this year, with no significant impact on opening retained profits and other equity components[286](index=286&type=chunk)[289](index=289&type=chunk) - New and amended Hong Kong Financial Reporting Standards that have been issued but are not yet effective are not expected to have a significant impact on the consolidated financial statements, except for Standard 16 "Leases"[292](index=292&type=chunk) - Hong Kong Financial Reporting Standard 16 "Leases" will introduce a model for lessees to recognize right-of-use assets and corresponding liabilities, which may lead to changes in asset classification and cash flow presentation[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk) - The consolidated financial statements are prepared on a historical cost basis, except for biological assets, financial assets at fair value through profit or loss, and derivative financial instruments, which are stated at fair value[298](index=298&type=chunk) - Financial assets are classified and subsequently measured in accordance with Hong Kong Financial Reporting Standard 9 as amortized cost, fair value through other comprehensive income, or fair value through profit or loss[313](index=313&type=chunk) - Revenue recognition, effective January 1, 2018, is in accordance with Hong Kong Financial Reporting Standard 15, recognized when "control" of goods or services is transferred to the customer[360](index=360&type=chunk) - Components of convertible bonds are classified separately as financial liabilities and equity instruments based on the substance of the contractual arrangements[336](index=336&type=chunk) [Critical Accounting Judgments and Key Sources of Estimation Uncertainty](index=115&type=section&id=Critical%20Accounting%20Judgments%20and%20Key%20Sources%20of%20Estimation%20Uncertainty) This section outlines management's critical accounting judgments and key sources of estimation uncertainty, including asset impairment, recoverability of receivables, useful lives of assets, and deferred tax - Management is required to make significant judgments and estimates regarding the impairment of property, plant and equipment, prepaid land lease payments, investments in associates, other intangible assets, prepayments for intangible assets, and other non-current assets[383](index=383&type=chunk) - The assessment of impairment provisions for trade and other receivables, as well as amounts due from associates and related parties, relies on judgments regarding credit history, aging, and market conditions[384](index=384&type=chunk) - The estimated useful lives of property, plant and equipment are reviewed annually based on asset usage, technological developments, and other factors[385](index=385&type=chunk) - The estimation of the net realizable value of inventories is based on current market conditions and past sales experience, and changes in market conditions may lead to write-downs or reversals[386](index=386&type=chunk) - The recognition of deferred tax assets depends on estimates of future taxable profits, involving multiple assumptions and significant judgments[388](index=388&type=chunk) - Goodwill impairment testing requires estimating the value in use of cash-generating units, involving significant judgments regarding future cash flows and discount rates[389](index=389&type=chunk) [Revenue and Segment Reporting](index=117&type=section&id=Revenue%20and%20Segment%20Reporting) This section details the Group's revenue sources from pharmaceutical distribution, retail pharmacies, and manufacturing, all derived from the China market, with no geographical analysis provided - The Group's principal businesses are pharmaceutical distribution, self-operated retail pharmacies, and pharmaceutical product manufacturing in China[390](index=390&type=chunk) 2018 Revenue by Business Segment (RMB thousands) | Business Segment | 2018 Revenue | | :--- | :--- | | Pharmaceutical Distribution | 754,498 | | Self-Operated Retail Pharmacies | 3,882 | | Pharmaceutical Manufacturing | 62,762 | | **Total** | **821,142** | - Revenue from the pharmaceutical distribution segment primarily comes from selling pharmaceutical products to wholesalers, franchised retail pharmacy chains, hospitals, and other medical institutions in rural areas[394](index=394&type=chunk) - For the years ended December 31, 2018 and 2017, all of the Group's segment revenue and segment profit were derived from operations in China, thus no geographical information analysis is provided[408](index=408&type=chunk) - For the year ended December 31, 2018, revenue from Customer A and Customer B each did not contribute **10%** or more of the Group's revenue for the year[407](index=407&type=chunk) [Analysis of Other Income and Losses](index=120&type=section&id=Analysis%20of%20Other%20Income%20and%20Losses) This section details the Group's other income and gains, totaling RMB 19,193 thousand, and other net losses, significantly increasing to RMB 42,661 thousand, primarily due to convertible bond issuance losses 2018 Other Income and Gains (RMB thousands) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Franchise Fees | 7,378 | 9,934 | | Bank Interest Income | 193 | 1,103 | | Gain on Redemption of Convertible Bonds | 7,516 | – | | Net Foreign Exchange Gain | – | 2,276 | | Deferred Income - Government Grants | 511 | 512 | | **Total** | **19,193** | **17,325** | 2018 Other Net Losses (RMB thousands) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Net Foreign Exchange Loss | 1,456 | – | | Impairment Loss on Trade Receivables | 10,046 | – | | Impairment Loss on Other Receivables | 1,514 | 2,306 | | Impairment Loss on Prepayments for Intangible Assets | 3,000 | – | | Loss on Disposal of Property, Plant and Equipment | 4,163 | 1,023 | | Loss on Issuance of Convertible Bonds | 42,043 | – | | Loss on Fair Value Change of Derivative Financial Instruments | – | 4,943 | | Reversal of Impairment Loss on Deposits for Acquisition of Property, Plant and Equipment | (10,000) | – | | Reversal of Impairment Loss on Trade Receivables | (2,974) | (1,326) | | Reversal of Impairment Loss on Other Receivables | (10,091) | – | | **Total** | **42,661** | **16,815** | - The loss on issuance of convertible bonds of **RMB 42,043 thousand** was the main reason for the significant increase in other net losses[411](index=411&type=chunk) - A loss of **RMB 4,064 thousand** from the disposal of biological assets was included in the loss on disposal of property, plant and equipment[411](index=411&type=chunk) [Finance Costs](index=122&type=section&id=Finance%20Costs) This section details the Group's finance costs for 2018, totaling RMB 15,668 thousand, primarily comprising interest on corporate bonds, convertible bonds, and bank borrowings 2018 Finance Costs (RMB thousands) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Interest on Bank Borrowings | 241 | 1,384 | | Interest on Bank Overdrafts | – | 1,019 | | Interest on Corporate Bonds Payable | 9,438 | 5,786 | | Interest on Convertible Bonds | 5,558 | 6,725 | | Interest on Other Borrowings | 125 | 45 | | Bill Charges and Other Bank Charges | 306 | 714 | | **Total** | **15,668** | **15,673** | [Loss/Profit Before Tax](index=122&type=section&id=Loss%2FProfit%20Before%20Tax) This section itemizes the major expenses deducted in calculating the Group's loss/profit before tax for 2018, including cost of inventories, staff costs, depreciation, and share-based payment expenses 2018 Loss/Profit Before Tax Deductions (RMB thousands) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Cost of Inventories | 760,856 | 780,475 | | Total Staff Costs | 20,333 | 17,712 | | Amortization of Intangible Assets | 178 | 218 | | Amortization of Prepaid Land Lease Payments | 205 | 100 | | Depreciation of Property, Plant and Equipment | 5,450 | 5,490 | | Auditor's Remuneration (Audit Services) | 1,285 | 1,289 | | Auditor's Remuneration (Non-Audit Services) | 185 | 173 | | Operating Lease Charges for Property Rentals | 1,848 | 1,625 | | Research and Development Expenses | 819 | 8,000 | | Equity-Settled Share-Based Payments | 11,456 | – | - Total staff costs include directors' emoluments[414](index=414&type=chunk) [Income Tax Expense](index=123&type=section&id=Income%20Tax%20Expense) The Group's income tax expense for 2018 was RMB 15,361 thousand, primarily from China corporate income tax and deferred tax adjustments, with varying tax rates for Chinese subsidiaries 2018 Income Tax Expense (RMB thousands) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Current Tax - China Corporate Income Tax | 12,680 | 12,480 | | Deferred Tax - Origination and Reversal of Temporary Differences | 2,681 | (3,155) | | **Total** | **15,361** | **9,325** | - The Group is exempt from income tax in the Cayman Islands and British Virgin Islands, and has no assessable profits in Hong Kong[417](index=417&type=chunk) - Chinese subsidiaries, except for Chengdu Dongyang Baixin Pharmaceutical Co., Ltd., are subject to a statutory tax rate of **25%** for corporate income tax. Chengdu Baixin enjoys a preferential income tax rate of **15%**[417](index=417&type=chunk) Reconciliation of Income Tax Expense to (Loss) / Profit Before Tax (RMB thousands) | Item | 2018 | 2017 | | :--- | :--- | :--- | | (Loss) / Profit Before Tax | (48,047) | 19,502 | | Tax Expense at Applicable Statutory Rate | (7,313) | 3,170 | | Effect of Non-Deductible Expenses | 29,483 | 6,737 | | Effect of Non-Taxable Income | (8,030) | (894) | | Effect of Unrecognized Unused Tax Losses / Deductible Temporary Differences | 300 | 160 | | Underprovision in Prior Years | 921 | – | | **Income Tax Expense** | **15,361** | **9,325** | [Directors' and Chief Executive's Emoluments](index=124&type=section&id=Directors'%20and%20Chief%20Executive's%20Emoluments) This section detailed the emoluments of directors and the chief executive for 2018, totaling RMB 3,822 thousand, including directors' fees, salaries, and equity-settled share-based payments 2018 Directors' Emoluments (RMB thousands) | Director Category | Directors' Fees | Salaries, Allowances and Other Benefits in Kind | Retirement Scheme Contributions | Equity-Settled Share-Based Payments | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Executive Directors | – | 1,039 | – | 1,146 | 2,195 | | Non-Executive Directors | 47 | – | – | 1,146 | 1,193 | | Independent Non-Executive Directors | 359 | – | – | – | 359 | | **Total** | **406** | **1,124** | **–** | **2,292** | **3,822** | - In 2018, two directors were granted share options under the company's share option scheme[425](index=425&type=chunk) - For the two years ended December 31, 2018 and 2017, no amounts were paid or paya