Financial Performance - The company's operating revenue for the first half of 2020 was CNY 51.35 billion, an increase of 6.03% compared to CNY 48.43 billion in the same period last year[17]. - The net profit attributable to shareholders for the first half of 2020 was CNY 1.26 billion, representing a significant increase of 69.39% from CNY 743.18 million in the previous year[17]. - The net profit attributable to shareholders after deducting non-recurring gains and losses was CNY 958.95 million, up 55.44% from CNY 616.93 million year-on-year[17]. - The net cash flow from operating activities for the first half of 2020 was -CNY 2.61 billion, an improvement of 12.81% compared to -CNY 2.99 billion in the same period last year[17]. - As of the end of the reporting period, the net assets attributable to shareholders were CNY 19.13 billion, an increase of 1.99% from CNY 18.75 billion at the end of the previous year[17]. - The total assets of the company at the end of the reporting period were CNY 72.85 billion, reflecting a growth of 2.40% from CNY 71.15 billion at the end of the previous year[17]. - The basic earnings per share rose to CNY 0.69, representing a 72.50% increase year-on-year, while diluted earnings per share reached CNY 0.68, up 70.00%[18]. - The weighted average return on equity increased to 6.66%, up by 2.61 percentage points from the previous year[18]. - The gross profit margin for the main business increased to 9.51%, up 1.18 percentage points from the previous year, driven by rapid growth in high-margin distribution and export businesses[71]. Business Operations - The company has a total of 410,945 product specifications in its wholesale business, including pharmaceuticals, medical devices, and health products[25]. - The retail chain business operates 1,074 stores, including franchise locations, enhancing the company's market presence[27]. - The company has obtained 193 national drug approval numbers for its pharmaceutical production and R&D, focusing on antibiotics, diabetes, and cardiovascular drugs[28]. - The company has developed a logistics management information system that provides value-added services to upstream and downstream clients, enhancing business cooperation and stability[30]. - The company's sales network covers various medical institutions, retail pharmacies, and e-commerce platforms, with a focus on integrating modern technologies like AI and blockchain into its operations[31]. - The company operates under a market distribution model, primarily targeting grassroots medical institutions and retail pharmacies, which allows for lower gross margins but faster turnover[32]. - The company manages a diverse product range of 410,945 varieties, meeting the personalized and diverse procurement needs of downstream clients[34]. - The company ensures a delivery radius of 200 kilometers, with the capability to deliver to clients beyond this range within 24 hours[36]. - The average accounts receivable period is generally under one month, with a differentiated credit management system for clients[37]. Market Position and Strategy - 九州通 is the largest private pharmaceutical distribution enterprise in China, leveraging a flexible management structure and market-oriented business model that aligns with the reform direction of the pharmaceutical distribution system[54]. - The company is actively expanding into high-end medical institutions, capitalizing on the ongoing reforms in China's healthcare system, which will enhance its competitive advantage in the pharmaceutical procurement market[55]. - The company has established a structured investment fund to manage investments in the healthcare sector, with a total commitment of CNY 500 million[132]. - The company is actively pursuing market expansion and technological development to enhance its competitive edge in the pharmaceutical industry[132]. - The company is positioned to leverage the "Internet+" initiative, integrating online and offline services to enhance supply chain management in the pharmaceutical industry[45]. Investments and Financial Management - The company secured preferential financing support totaling 9.86 billion yuan, including 8.36 billion yuan in loans with interest rates ranging from 1.65% to 4.20%[67]. - The company completed the issuance of 12 million preferred shares, raising a total of 1.2 billion yuan, with an additional 800 million yuan in fundraising ongoing[68]. - The company has invested in 135 pharmaceutical logistics distribution centers, integrating modern logistics technology to improve efficiency and reduce costs[49]. - The company has received a total of RMB 232 million in land compensation, with the remaining amount to be received in batches[126]. - The company has committed to avoid any actual or potential competition with its major shareholders and actual controllers[159]. Corporate Governance and Compliance - The company has implemented two stock incentive plans in 2014 and 2017, and a new employee stock ownership plan in 2020 to enhance employee engagement and attract top talent[54]. - The company has maintained a good integrity status for itself and its controlling shareholders during the reporting period[163]. - The company reappointed Zhongzheng Zhonghuan Accounting Firm for the 2020 financial report and internal control audit[163]. - The company has fulfilled necessary legal procedures for the employee stock ownership plan and is awaiting shareholder approval[165]. Social Responsibility - The company has actively participated in poverty alleviation efforts, contributing a total of 692.16 million RMB during the reporting period[177]. - The company donated 10 million RMB in cash and 657.91 million RMB worth of epidemic prevention materials to support pandemic response efforts[177]. - The company plans to increase its investment in poverty alleviation funds and continue its various poverty alleviation activities[178]. Environmental Compliance - The company has a robust environmental compliance record, with no instances of exceeding pollution discharge standards reported[197]. - The company has implemented measures to ensure that VOC emissions are within regulatory limits, with total VOC emissions reported at 0.314261 tons[197]. - The company has a wastewater treatment plant with a designed capacity of 600t/d, utilizing a "four-effect evaporation + UASB anaerobic reactor + A/O pool + Fenton oxidation" process[199]. - The company has installed an online monitoring system for wastewater discharge to ensure real-time monitoring of effluent quality[199].

[Important Notice](index=3&type=section&id=Item%20I.%20Important%20Notice) The company's board, supervisors, and senior management guarantee the accuracy and completeness of this quarterly report, which remains unaudited - The company's board of directors, supervisory board, and all senior management ensure the truthfulness, accuracy, and completeness of this quarterly report and bear corresponding legal responsibilities[4](index=4&type=chunk) - Liu Baolin, the company's head, Xu Yingzheng, the person in charge of accounting, and Xia Xiaoyi, the head of the accounting department, guarantee the truthfulness, accuracy, and completeness of the financial statements[4](index=4&type=chunk) - This company's Q3 2019 report is unaudited[4](index=4&type=chunk) [Company Profile](index=4&type=section&id=Item%20II.%20Company%20Profile) This section provides an overview of the company's key financial performance, operational highlights, and shareholder structure for the reporting period [Key Financial Data and Operating Performance](index=4&type=section&id=2.1%20Key%20Financial%20Data%20and%20Operating%20Performance) In Q1-Q3 2019, operating revenue grew **15.11%** to **73.379 billion yuan**, and net profit attributable to shareholders increased **32.05%** to **1.019 billion yuan**, driven by sales growth and government subsidies, with operating cash flow improving **35.84%** Financial Indicators (Q1-Q3 2019) | Indicator (Q1-Q3 2019) | Amount | Y-o-Y Change | | :--- | :--- | :--- | | Operating Revenue | 73.379 billion yuan | +15.11% | | Net Profit Attributable to Listed Company Shareholders | 1.019 billion yuan | +32.05% | | Net Profit Attributable to Parent Company Excluding Non-recurring Items | 0.862 billion yuan | +26.14% | | Net Cash Flow from Operating Activities | -2.711 billion yuan | +35.84% | | Basic Earnings Per Share | 0.55 yuan/share | +30.95% | Business Segment (Q1-Q3 2019) | Business Segment (Q1-Q3 2019) | Operating Revenue (billion yuan) | Y-o-Y Growth | | :--- | :--- | :--- | | Pharmaceutical Wholesale and Related Businesses | 70.7378 | +15.75% | | Pharmaceutical Retail | 0.1357 | -6.41% | | Pharmaceutical Manufacturing | 0.1105 | +4.80% | | **Total** | **73.1995** | **+15.07%** | Product Segment (Q1-Q3 2019) | Product Segment (Q1-Q3 2019) | Operating Revenue (billion yuan) | Y-o-Y Growth | | :--- | :--- | :--- | | Western and Chinese Patent Medicines | 56.8940 | +12.87% | | Chinese Herbal Medicines and Decoction Pieces | 2.5617 | +5.79% | | Medical Devices and Family Planning Products | 11.3314 | +44.40% | | Food, Health Products, Cosmetics, etc. | 2.4124 | -17.93% | - Total non-recurring gains and losses for the reporting period amounted to **0.156 billion yuan**, primarily from government subsidies of **0.142 billion yuan**[9](index=9&type=chunk)[10](index=10&type=chunk) [Shareholder Information](index=7&type=section&id=2.2%20Shareholder%20Information) As of Q3 2019, the company had **27,217 shareholders**, with the top three being Shanghai Hongkang, Chuchang Investment, and Lion Dragon International, and the controlling shareholder having a high proportion of pledged shares - As of the end of the reporting period, the company had a total of **27,217 shareholders**[11](index=11&type=chunk) Major Shareholder Name | Major Shareholder Name | Number of Shares Held | Percentage of Total Share Capital (%) | | :--- | :--- | :--- | | Shanghai Hongkang Industrial Investment Co., Ltd. | 437,441,118 | 23.30 | | Chuchang Investment Group Co., Ltd. | 221,113,898 | 11.78 | | Lion Dragon International Group (Hong Kong) Co., Ltd. | 213,894,000 | 11.39 | | Zhongshan Guangyin Investment Co., Ltd. | 132,624,583 | 7.06 | | Beijing Dianjin Investment Co., Ltd. | 102,763,876 | 5.47 | - Among the top ten shareholders, Shanghai Hongkang, Chuchang Investment, Beijing Dianjin, Zhongshan Guangyin, and their controlling shareholders have affiliated relationships or constitute concerted parties[12](index=12&type=chunk) [Preferred Shareholder Information](index=8&type=section&id=2.3%20Preferred%20Shareholder%20Information) As of the end of the reporting period, the company had no preferred shareholders - The company had no preferred shareholders at the end of the reporting period[12](index=12&type=chunk) [Significant Events](index=9&type=section&id=Item%20III.%20Significant%20Events) This section details major changes in financial statement items, the progress of significant corporate actions, and the fulfillment of commitments [Major Changes in Key Financial Statement Items and Indicators and Their Reasons](index=9&type=section&id=3.1%20Major%20Changes%20in%20Key%20Financial%20Statement%20Items%20and%20Indicators%20and%20Their%20Reasons) During the reporting period, the company experienced significant changes in financial indicators, including a **159.55%** increase in construction in progress due to reclassification of properties, a **429.41%** surge in long-term borrowings from a World Bank loan, a **51.19%** rise in financial expenses, and a substantial **85.83%** decrease in net cash flow from financing activities due to debt repayment and share repurchases Major Changes and Reasons | Item | Change (%) | Primary Reason | | :--- | :--- | :--- | | Construction in Progress | +159.55 | Part of the properties' use changed from inventory to self-use construction in progress accounting | | Long-term Borrowings | +429.41 | Received World Bank loan | | Treasury Stock | +122.29 | Company repurchased shares | | Financial Expenses | +51.19 | Expanded business scale, increased interest expenses from bank borrowings and asset securitization | | Investment Income | +148.04 | Increased investment income from equity method accounting and disposal of subsidiary investments | | Other Income | +109.09 | Increased government subsidies | | Net Cash Flow from Financing Activities | -85.83 | Significant increase in cash paid for debt repayment and share repurchases | - Changes in several balance sheet items resulted from the company's adoption of the newly revised "Accounting Standard for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments" from January 1, 2019, introducing new accounts like "Financial Assets Held for Trading" and "Receivables Financing," while discontinuing old accounts such as "Available-for-sale Financial Assets"[14](index=14&type=chunk) [Progress of Significant Events, Their Impact, and Solutions Analysis](index=10&type=section&id=3.2%20Progress%20of%20Significant%20Events%2C%20Their%20Impact%2C%20and%20Solutions%20Analysis) During the reporting period, the company advanced a **2 billion yuan** preferred share private placement, repurchased **39.77 million shares** for **550 million yuan**, and secured a **1 billion yuan** IFC loan, while the controlling shareholder issued **1 billion yuan** in exchangeable bonds to reduce share pledges - The company plans to privately issue no more than **20 million preferred shares**, raising a total of no more than **2 billion yuan**, with the application accepted by the China Securities Regulatory Commission on October 11, 2019[16](index=16&type=chunk) - The company implemented a share repurchase program, having cumulatively repurchased **39.7687 million shares** (2.12% of total share capital) for a total of **550 million yuan** as of September 30, 2019[17](index=17&type=chunk) - Controlling shareholder Chuchang Investment plans to issue exchangeable corporate bonds totaling no more than **1 billion yuan** to adjust its debt structure and reduce its share pledge ratio, with the pledge ratio for its concerted parties expected to decrease to **68.11%** upon completion[18](index=18&type=chunk) - The company received a **1 billion yuan** long-term loan from the International Finance Corporation (IFC), a member of the World Bank Group, on July 10, 2019, with an 8-year term and a comprehensive interest rate of **4.55%**[20](index=20&type=chunk) [Overdue Unfulfilled Commitments During the Reporting Period](index=12&type=section&id=3.3%20Overdue%20Unfulfilled%20Commitments%20During%20the%20Reporting%20Period) During the reporting period, the company had no overdue unfulfilled commitments - The company had no overdue unfulfilled commitments[20](index=20&type=chunk) [Performance Forecast Warning](index=12&type=section&id=3.4%20Performance%20Forecast%20Warning) The company has not issued any warning regarding a potential cumulative net loss or significant change in net profit from the beginning of the year to the end of the next reporting period compared to the same period last year - The company has not forecasted a cumulative net loss or significant change in net profit from the beginning of the year to the end of the next reporting period[20](index=20&type=chunk) [Appendix](index=13&type=section&id=Item%20IV.%20Appendix) This section includes the unaudited financial statements for Q3 2019, details on adjustments due to new financial instrument standards, and a statement on the absence of an audit report [Financial Statements](index=13&type=section&id=4.1%20Financial%20Statements) This section presents the company's unaudited Q3 2019 financial statements, including consolidated and parent company balance sheets, income statements, and cash flow statements, reflecting the financial position as of September 30, 2019, and operating results and cash flows for the first three quarters of 2019 [Consolidated Balance Sheet](index=13&type=section&id=Consolidated%20Balance%20Sheet) As of September 30, 2019, the company's total assets were **67.691 billion yuan**, a **1.53%** increase from the end of the previous year, while total liabilities were **47.270 billion yuan**, and net assets attributable to listed company shareholders decreased by **3.32%** to **17.854 billion yuan**, primarily due to perpetual bond payments and share repurchases Consolidated Balance Sheet Summary | Item | September 30, 2019 (yuan) | December 31, 2018 (yuan) | | :--- | :--- | :--- | | Total Assets | 67,691,136,014.12 | 66,674,253,350.59 | | Total Liabilities | 47,269,695,578.56 | 46,292,251,257.71 | | Total Equity Attributable to Parent Company Owners | 17,854,134,941.21 | 18,467,103,509.01 | [Parent Company Balance Sheet](index=15&type=section&id=Parent%20Company%20Balance%20Sheet) As of September 30, 2019, the parent company's total assets were **40.438 billion yuan**, total liabilities were **25.176 billion yuan**, and total owner's equity was **15.261 billion yuan**, showing a decrease from the end of the previous year Parent Company Balance Sheet Summary | Item | September 30, 2019 (yuan) | December 31, 2018 (yuan) | | :--- | :--- | :--- | | Total Assets | 40,437,598,554.62 | 40,628,870,789.93 | | Total Liabilities | 25,176,373,039.95 | 24,461,187,994.99 | | Total Owner's Equity | 15,261,225,514.67 | 16,167,682,794.94 | [Consolidated Income Statement](index=18&type=section&id=Consolidated%20Income%20Statement) In the first three quarters of 2019, the company achieved total operating revenue of **73.379 billion yuan**, a **15.11%** year-on-year increase, with total operating costs of **72.198 billion yuan**, and net profit attributable to parent company shareholders reaching **1.019 billion yuan**, up **32.05%** Consolidated Income Statement Summary | Item | Q1-Q3 2019 (yuan) | Q1-Q3 2018 (yuan) | | :--- | :--- | :--- | | Total Operating Revenue | 73,378,823,740.22 | 63,746,017,068.81 | | Operating Profit | 1,316,832,956.27 | 1,020,201,771.00 | | Total Profit | 1,322,329,393.35 | 1,027,260,015.42 | | Net Profit Attributable to Parent Company Shareholders | 1,018,557,167.44 | 771,365,970.22 | [Parent Company Income Statement](index=21&type=section&id=Parent%20Company%20Income%20Statement) In the first three quarters of 2019, the parent company achieved operating revenue of **9.795 billion yuan**, a **9.25%** year-on-year increase, with net profit of **782 million yuan**, up **4.86%**, and investment income being a significant component at **1.003 billion yuan** Parent Company Income Statement Summary | Item | Q1-Q3 2019 (yuan) | Q1-Q3 2018 (yuan) | | :--- | :--- | :--- | | Operating Revenue | 9,795,496,081.98 | 8,966,040,178.66 | | Investment Income | 1,002,595,533.25 | 675,291,476.42 | | Net Profit | 781,667,836.22 | 745,456,405.21 | [Consolidated Cash Flow Statement](index=23&type=section&id=Consolidated%20Cash%20Flow%20Statement) In the first three quarters of 2019, net cash flow from operating activities significantly improved to **-2.711 billion yuan** from **-4.226 billion yuan** in the prior year, with net cash outflow from investing activities at **782 million yuan**, net cash inflow from financing activities at **545 million yuan**, and cash and cash equivalents balance at **4.565 billion yuan** at period-end Consolidated Cash Flow Statement Summary | Item | Q1-Q3 2019 (yuan) | Q1-Q3 2018 (yuan) | | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | -2,711,178,582.95 | -4,225,944,026.25 | | Net Cash Flow from Investing Activities | -782,306,123.90 | -1,176,041,252.37 | | Net Cash Flow from Financing Activities | 544,526,104.98 | 3,841,979,507.15 | | Cash and Cash Equivalents at Period End | 4,565,377,468.66 | 3,999,118,553.15 | [Parent Company Cash Flow Statement](index=25&type=section&id=Parent%20Company%20Cash%20Flow%20Statement) In the first three quarters of 2019, the parent company's net cash flow from operating activities significantly improved to **-1.905 billion yuan** from **-3.449 billion yuan** in the prior year, with net cash inflow from investing activities at **208 million yuan**, and net cash outflow from financing activities at **310 million yuan** Parent Company Cash Flow Statement Summary | Item | Q1-Q3 2019 (yuan) | Q1-Q3 2018 (yuan) | | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | -1,905,390,914.13 | -3,449,388,477.50 | | Net Cash Flow from Investing Activities | 208,001,338.72 | -814,591,762.06 | | Net Cash Flow from Financing Activities | -310,069,343.61 | 2,992,324,810.12 | [Adjustments to Opening Financial Statements upon First-time Adoption of New Financial Instruments Standards](index=26&type=section&id=4.2%20Adjustments%20to%20Opening%20Financial%20Statements%20upon%20First-time%20Adoption%20of%20New%20Financial%20Instruments%20Standards) In accordance with the Ministry of Finance's new financial instrument standards, the company retrospectively adjusted its financial statements as of January 1, 2019, primarily reclassifying financial assets and receivables, which impacted opening retained earnings - The company adjusted its opening financial statement items for 2019 in accordance with the new financial instrument accounting standards issued by the Ministry of Finance[45](index=45&type=chunk)[49](index=49&type=chunk) Major Adjustment Items (Consolidated Statement) | Major Adjustment Items (Consolidated Statement) | Before Adjustment (yuan) | After Adjustment (yuan) | Change Amount (yuan) | | :--- | :--- | :--- | :--- | | Financial Assets Measured at Fair Value... | 967,432.61 | 0 | -967,432.61 | | Financial Assets Held for Trading | 0 | 260,815,503.10 | +260,815,503.10 | | Notes Receivable | 1,380,150,886.41 | 146,590,955.44 | -1,233,559,930.97 | | Receivables Financing | 0 | 1,233,559,930.97 | +1,233,559,930.97 | | Available-for-sale Financial Assets | 291,832,213.80 | 0 | -291,832,213.80 | | Investments in Other Equity Instruments | 0 | 76,776,460.00 | +76,776,460.00 | | Undistributed Profits | 5,320,574,225.20 | 5,352,398,117.24 | +31,823,892.04 | [Explanation of Retrospective Adjustment of Prior Period Comparative Data for New Financial Instruments and Lease Standards](index=32&type=section&id=4.3%20Explanation%20of%20Retrospective%20Adjustment%20of%20Prior%20Period%20Comparative%20Data%20for%20New%20Financial%20Instruments%20and%20Lease%20Standards) The company did not retrospectively adjust prior period comparative data for the first-time adoption of new financial instrument and lease standards - The company did not retrospectively adjust prior period comparative data for the first-time adoption of new financial instrument and lease standards[50](index=50&type=chunk) [Audit Report](index=32&type=section&id=4.4%20Audit%20Report) This quarterly report is unaudited - This financial report is unaudited[50](index=50&type=chunk)