中化化肥(00297) - 2019 - 年度财报

Company Overview Sinofert Holdings Limited is a leading integrated fertilizer company in China, listed in Hong Kong, with a comprehensive business model covering production, distribution, and R&D Company Profile Sinofert Holdings Limited is a Hong Kong-listed integrated fertilizer company engaged in production, import/export, distribution, retail, and R&D, recognized as China's leading distributor, major importer, and producer based on 2019 revenue, with core strengths in integrated operations, extensive network, comprehensive product lines, and phosphate rock resources, ultimately controlled by Sinochem Group and with Nutrien Ltd as its second largest shareholder - Based on 2019 revenue, the Group is China's leading fertilizer distribution service provider, a major imported fertilizer product supplier, and a leading fertilizer producer[22] - The company's core competitive advantages include an upstream and downstream integrated operating model led by distribution, a leading agricultural materials distribution network, a comprehensive fertilizer product line, strategic cooperation with international suppliers, a complete agricultural technology service system, and leading phosphate rock resources and feed calcium production capacity[22] - The company's ultimate controlling shareholder is Sinochem Group Co Ltd (ranked 88th in the 2019 Fortune Global 500), and its second largest shareholder is Nutrien Ltd, the world's largest potash producer[22] Corporate Information This section provides the company's core corporate information, including Board members (executive, non-executive, and independent non-executive directors), committee members (Audit, Remuneration, Nomination, Corporate Governance), Chief Financial Officer, Company Secretary, Auditor (KPMG), legal counsel, and major collaborating banks, along with registered office, principal place of business, share registrar, company website, and investor relations contact details - The company's Board of Directors comprises Executive Directors Mr Qin Hengde, Mr Feng Mingwei, Mr Yang Hongwei, Non-executive Director Mr Yang Lin, and Independent Non-executive Directors Mr Gao Mingdong, Mr Lu Xin, and Mr Xie Xiaoyan[23] - The company's auditor is KPMG[23] Financial Highlights In 2019, the company achieved significant profitability improvements with gross profit up 9.03% and profit attributable to shareholders increasing 33.7% to RMB 0.616 billion, alongside enhanced financial health 2019 Financial Highlights | Indicator | 2019 | 2018 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Sales Volume (million tonnes) | 11.51 | 11.61 | -0.86% | | Revenue (RMB thousands) | 22,950,942 | 22,996,328 | -0.20% | | Gross Profit (RMB thousands) | 2,085,648 | 1,912,927 | +9.03% | | Profit Attributable to Shareholders (RMB thousands) | 615,767 | 460,486 | +33.72% | | Basic Earnings Per Share (RMB) | 0.0877 | 0.0656 | +33.69% | | Return on Equity | 8.16% | 6.49% | +1.67 percentage points | | Debt-to-Equity Ratio | 31.48% | 42.61% | -11.13 percentage points | Chairman's Statement Despite challenging market conditions in 2019, the Group achieved strong performance with stable sales and revenue, a 34% increase in profit attributable to shareholders, and significant growth in R&D commercialization, anticipating faster development under the new controlling shareholder Syngenta Group 2019 Key Performance Overview | Indicator | 2019 Data | | :--- | :--- | | Sales Volume | 11.51 million tonnes | | Sales Revenue | RMB 23.0 billion (flat year-on-year) | | Profit Attributable to Shareholders | RMB 0.616 billion (up 34% year-on-year) | - Profitability of each business segment strengthened: Basic fertilizer business pre-tax profit of RMB 0.494 billion (up 6% year-on-year), distribution business pre-tax profit of RMB 0.108 billion (up 57% year-on-year), and manufacturing business pre-tax profit of RMB 0.265 billion, contributing significantly higher[30][32] - R&D commercialization capability significantly improved, generating sales volume of 0.535 million tonnes in 2019, an increase of 106% year-on-year[32] - The company's controlling shareholder will change to Syngenta Group, which is expected to enable faster transformation and development under the new structure, consolidating scale advantages, strengthening supply chain influence, and enhancing profitability[32] Major Events In 2019, the company made significant progress in technological innovation, business expansion, strategic partnerships, and social responsibility, including the launch of new R&D centers and production facilities, the Fytone e-commerce platform, and key international collaborations - Technology and Capacity Enhancement: Linyi R&D Center officially put into operation; Xinjiang 0.1 million tonnes/year water-soluble fertilizer plant commenced production; Phase I of Hubei 0.5 million tonnes/year new fertilizer project commenced trial operation[36][39] - Digital Transformation: Fytone e-commerce platform officially launched and commenced trading, marking a solid step in the company's transformation from a traditional purchasing and sales model to a platform service provider model[37][40] - Strategic Cooperation and Market Expansion: Signed a cooperation framework agreement with the Price Monitoring Center of the National Development and Reform Commission; signed a five-year cooperation memorandum with Uralkali at the China International Import Expo[38] - Environmental Protection and Social Responsibility: Sinochem Fuling Chemical Co Ltd's old plant was safely shut down at the end of October, actively implementing overall environmental relocation[39] Management Discussion and Analysis (MD&A) - Review and Outlook This section reviews the Group's 2019 operating environment, financial performance, R&D, manufacturing, business segments, internal controls, and social responsibility, concluding with a future outlook Operating Environment In 2019, the company faced a dual backdrop of global economic slowdown and domestic agricultural supply-side structural reform, with the fertilizer industry characterized by oversupply and continuous price declines, posing severe operational challenges, while strengthened national safety and environmental regulations accelerated the exit of outdated capacity, bringing opportunities for industry concentration and green development - The global economy shifted from "synchronous recovery" to "synchronous slowdown," and domestic agriculture continued to deepen supply-side structural reform, transitioning from a production-oriented to a quality-oriented approach[43] - The fertilizer industry faced severe challenges of oversupply and continuous market price declines, while fertilizer import and export activities increased[43] - Strengthened safety and environmental regulations are conducive to phasing out outdated production capacity, increasing industry concentration, and resolving issues of overcapacity and disorderly market competition[43][45] Financial Performance As of December 31, 2019, the Group achieved revenue of RMB 22.951 billion, largely flat year-on-year, while profit attributable to shareholders reached RMB 0.616 billion, a significant increase of 33.91% year-on-year, demonstrating a notable improvement in operating performance 2019 Financial Performance | Indicator | Amount | Year-on-Year Change | | :--- | :--- | :--- | | Revenue | RMB 22.951 billion | Flat | | Profit Attributable to Shareholders | RMB 0.616 billion | +33.91% | Research and Development In 2019, the company's R&D capabilities significantly improved with the completion and operation of the Linyi R&D Center, achieving notable commercialization results for new crop nutrition products and technologies, with sales volume reaching 0.535 million tonnes, a 106% increase year-on-year, and focusing on innovative products like "Micronutrient + Enhancer" core masterbatch, "Fungi-Power" ecological fertilizer, and "Meilinmei" high-efficiency phosphorus product to improve soil, crop quality, and fertilizer utilization - The Linyi R&D Center was completed and put into operation in May 2019, enhancing R&D level and efficiency[47] - Commercialization sales of new crop nutrition products and technologies reached 0.535 million tonnes, an increase of 106% year-on-year[47] - Key R&D projects include "Micronutrient + Enhancer" core masterbatch, "Fungi-Power" ecological fertilizer, and "Meilinmei" high-efficiency phosphorus product, aiming to address issues such as micronutrient supplementation, soil improvement, and low phosphorus utilization efficiency[47] Manufacturing Operations In 2019, the Group's manufacturing enterprises achieved cost reduction, efficiency improvement, and enhanced operational efficiency through strengthened basic management, technological transformation, and process optimization, with Sinochem Fuling's old plant safely shut down and a new environmental relocation project initiated, Sinochem Changshan turning losses into profits through production optimization and continuous stable operation of its core unit for over 180 days, and Sinochem Yunlong continuing to advance its differentiated product strategy, achieving feed calcium sales of 0.3292 million tonnes and initially establishing a green phosphate mine - Sinochem Fuling's old plant was safely and smoothly shut down at the end of October 2019, and construction of a new project for 0.2 million tonnes/year of refined phosphate and supporting new special fertilizers was initiated[48] - Sinochem Changshan turned losses into profits, with its core aerospace furnace unit operating continuously and stably for over 180 days, achieving internationally advanced technical indicators[48] - Sinochem Yunlong achieved full-year feed calcium sales of 0.3292 million tonnes and actively explored new markets in South Asia and Africa[48] Basic Fertilizer Business In 2019, the basic fertilizer business transitioned from a purchasing and sales model to a platform service provider model by strengthening strategic procurement, deepening channels, and developing the Fytone e-commerce platform, with potash sales decreasing by 24% due to downstream customers reducing inventory, while nitrogen and phosphate fertilizer sales increased by 8% and 7% respectively, consolidating market position and profitability through centralized procurement, direct sales to customers, and promotion of new product "Meilinmei" - Actively developed the Fytone e-commerce platform, with the business model gradually transforming from a purchasing and sales model to a platform service provider model[50] 2019 Basic Fertilizer Category Performance | Category | Sales Volume | Year-on-Year Change | Key Initiatives | | :--- | :--- | :--- | :--- | | Potash Fertilizer | 1.84 million tonnes | -24% | Strengthened cooperation with core suppliers, deepened agricultural potash channel marketing | | Nitrogen Fertilizer | 3.46 million tonnes | +8% | Promoted centralized procurement strategy, implemented direct sales to industrial customers | | Phosphate Fertilizer | 2.32 million tonnes | +7% | Achieved breakthroughs in strategic procurement, launched new product "Meilinmei" | Distribution Business In 2019, the distribution business focused on channel diversification, product structure optimization, and technical service marketing, with total compound fertilizer sales of 2.29 million tonnes, a 5% decrease year-on-year, but differentiated compound fertilizer sales bucked the trend with a 38% increase to 0.54 million tonnes, enhancing channel competitiveness and brand influence through initiatives like the DTS channel improvement plan, construction of smart blending stations, and provision of customized services, while actively fulfilling social responsibility by promoting scientific fertilization techniques - Total compound fertilizer sales volume was 2.29 million tonnes, a decrease of 5% year-on-year; however, differentiated compound fertilizer sales reached 0.54 million tonnes, an increase of 38% year-on-year[53] - Compound fertilizer capacity layout continued to optimize, with Phase I of the Hubei Jiangling 0.5 million tonnes/year new fertilizer project commencing trial operation in August[53] - Accelerated the implementation of water-fertilizer integration and smart blending innovation projects, with a total of 350 smart blending stations built during the year[53] - Provided customized services for large farms and cooperatives, with fertilizer covering an area of 3 million mu, including the promotion of rice side-deep fertilization technology on over 1.7 million mu[57] Internal Control and Management In 2019, against the backdrop of economic downturn and trade wars, the Group continuously strengthened internal control and risk management, conducting risk identification, assessment, and response based on the COSO framework and relevant national regulations, providing early warnings for significant risks such as credit risk and market risk, and ensuring standardized and orderly business operations through company-wide risk management training, optimization of business processes, and strengthened performance appraisal, providing reasonable assurance for the Group's strategic transformation and operational quality - The internal control and risk management system is based on the COSO Internal Control Framework, International Organization for Standardization Risk Management Guidelines, and China's Basic Norms for Enterprise Internal Control[55] - The Group strengthened early warnings for significant risks such as credit risk and market risk, and ensured standardized and orderly business operations through training, system streamlining, and process optimization[56] Social Responsibility In 2019, the Group actively fulfilled its social responsibilities, contributing to ensuring agricultural material supply, promoting scientific fertilization, targeted poverty alleviation, and environmental protection, conducting over 40,000 soil testing and fertilizer blending, technology promotion, and other activities, and donating scholarships and fertilizers to impoverished areas, while strictly adhering to national environmental regulations, fully achieving annual energy saving and emission reduction targets, with environmental investments reaching RMB 0.148 billion - Actively promoted free soil testing, field guidance, and farmer lectures nationwide, conducting over 40,000 sessions throughout the year, benefiting tens of thousands of villages and towns[57] - Actively carried out targeted poverty alleviation, conducting charity education activities in Yunnan, Heilongjiang, and other regions, donating a total of approximately RMB 0.3372 million in funds and goods; supported Alukerqin Banner in Inner Mongolia, with consumption-based poverty alleviation and fertilizer donations totaling approximately RMB 0.8421 million[58] - Full-year actual environmental investment in 2019 was RMB 0.14767 billion, and energy saving and emission reduction targets were fully met[216] Future Outlook Looking ahead, despite challenges from the COVID-19 pandemic and global economic slowdown, opportunities arise from China's agricultural modernization and rural revitalization strategies, with the fertilizer industry expected to continue consolidating and high-value-added products gaining more market share, prompting the Group to further optimize its business structure and innovate business models, with the basic fertilizer business transitioning to a service model via the Fytone platform, the distribution business focusing on differentiated products, manufacturing enterprises accelerating transformation and upgrading, and the company anticipating faster development and enhanced profitability after the controlling shareholder changes to Syngenta Group - Facing the challenges of the COVID-19 pandemic in early 2020, the Group actively responded with measures such as online marketing, ensuring logistics, and maintaining production[59] - The fertilizer industry trend is towards controlled usage, improved efficiency, increased R&D, and addressing shortcomings, with high-value-added and high-tech products gaining more market share[62] - Future strategy: Basic fertilizer business to transform into a platform service; distribution business to focus on differentiated products; manufacturing enterprises to accelerate transformation and upgrading; enhance the commercialization capability of Linyi R&D Center[62] - The change of controlling shareholder to Syngenta Group will help the company achieve faster transformation and development, consolidate scale advantages, strengthen supply chain influence, promote differentiated strategies, and enhance profitability[62] Management Discussion and Analysis (MD&A) In 2019, the Group maintained stable sales and revenue while significantly improving profitability, with gross profit up 9.03% and profit attributable to shareholders surging 33.91% to RMB 0.616 billion, as detailed in this comprehensive financial analysis Operating Scale In 2019, the Group's total sales volume was 11.51 million tonnes, a slight decrease of 0.86% year-on-year, and revenue was RMB 22.951 billion, largely flat, but product structure continued to optimize, with differentiated product sales increasing by 31.87% year-on-year, and all segments (basic fertilizer, distribution, and manufacturing) achieving profit growth, particularly the manufacturing segment due to Sinochem Changshan turning losses into profits Sales Volume Total sales volume in 2019 was 11.51 million tonnes, a slight decrease of 0.86% year-on-year, with continuous optimization of product structure, as differentiated product sales reached 0.7639 million tonnes, an increase of 31.87% year-on-year, including significant growth in differentiated compound, nitrogen, and new phosphate fertilizers - Total sales volume was 11.51 million tonnes, a decrease of 0.86% year-on-year[68] Differentiated Product Sales Growth | Product Category | 2019 Sales Volume (million tonnes) | Year-on-Year Growth | | :--- | :--- | :--- | | Total Differentiated Products | 0.7639 | 31.87% | | Differentiated Compound Fertilizer | 0.5380 | 37.70% | | Differentiated Nitrogen Fertilizer | 0.1691 | 9.38% | | New Phosphate Fertilizer | 0.0568 | 67.06% | Revenue In 2019, revenue was RMB 22.951 billion, largely flat compared to the previous year, with the revenue contribution structure of major fertilizer categories (potash, nitrogen, compound, phosphate) remaining stable, and compound and nitrogen fertilizers continuing to be the largest sources of income Revenue by Product | Product | 2019 Revenue (RMB thousands) | % of Total Revenue | 2018 Revenue (RMB thousands) | % of Total Revenue | | :--- | :--- | :--- | :--- | :--- | | Potash Fertilizer | 3,842,063 | 16.74% | 4,501,587 | 19.58% | | Nitrogen Fertilizer | 5,336,601 | 23.25% | 4,873,967 | 21.19% | | Compound Fertilizer | 5,852,289 | 25.50% | 5,891,047 | 25.62% | | Phosphate Fertilizer | 5,004,695 | 21.81% | 4,919,815 | 21.39% | | Feed Calcium | 879,096 | 3.83% | 832,486 | 3.62% | | Others | 2,036,198 | 8.87% | 1,977,426 | 8.60% | | Total | 22,950,942 | 100.00% | 22,996,328 | 100.00% | Segment Revenue and Segment Results Total segment profit in 2019 was RMB 0.866 billion, with the basic fertilizer segment profit at RMB 0.494 billion, up 5.94% year-on-year, the distribution segment profit at RMB 0.108 billion, up 56.60% year-on-year, and the manufacturing segment profit at RMB 0.265 billion, a significant increase year-on-year, primarily due to Sinochem Changshan turning losses into profits 2019 Segment Results | Segment | 2019 Segment Profit (RMB thousands) | 2018 Segment Profit (RMB thousands) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Basic Fertilizer | 493,717 | 466,018 | +5.94% | | Distribution | 107,577 | 68,695 | +56.60% | | Manufacturing | 265,110 | 80,408 | +229.71% | | Total | 866,404 | 615,121 | +40.85% | - The manufacturing segment's performance significantly improved, with Sinochem Jilin Changshan Chemical Co Ltd achieving a pre-tax profit of RMB 0.104 billion, compared to a loss of RMB 0.052 billion in 2018[76] Profitability In 2019, the Group's profitability significantly improved, with profit attributable to shareholders reaching RMB 0.616 billion, a 33.91% increase year-on-year, and a net profit margin of 2.68%, primarily due to improved performance across all business segments, especially manufacturing, although the share of results of joint ventures significantly decreased due to losses at Yunnan Sanhuan Share of Results of Joint Ventures and Associates The share of results of joint ventures shifted from profit to break-even, mainly due to Yunnan Sanhuan turning from profit to loss, while the share of results of associates slightly increased by 11.11% to RMB 0.020 billion - The total share of results of joint ventures was break-even, a significant decrease from a profit of RMB 0.028 billion last year, mainly due to losses incurred by Yunnan Sanhuan Sinochem Fertilizer Co Ltd[77] - The share of results of associates was a profit of RMB 0.020 billion, an increase of 11.11% year-on-year[79] Income Tax Expense Income tax expense in 2019 was RMB 0.006 billion, with an increase in current income tax due to improved operating performance of subsidiaries, while deferred income tax expense was negative due to the recognition of deferred tax assets after Sinochem Changshan turned losses into profits - Full-year income tax expense was RMB 0.006 billion, including current income tax of RMB 0.023 billion and negative deferred income tax expense of RMB 0.017 billion[80] Profit Attributable to Shareholders and Net Profit Margin In 2019, profit attributable to shareholders was RMB 0.616 billion, a significant increase of 33.91% year-on-year, indicating a notable improvement in operating performance, with a net profit margin of 2.68% Profitability Indicators | Indicator Category | Indicator Name | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Profitability | Earnings Per Share (RMB) | 0.0877 | 0.0656 | | | Return on Equity | 8.16% | 6.49% | | Solvency | Current Ratio | 1.21 | 1.17 | | | Debt-to-Equity Ratio | 31.48% | 42.60% | Expenses In 2019, the Group's total three major expenses amounted to RMB 1.634 billion, a decrease of 6.84% year-on-year, with selling and distribution costs decreasing by 9.93% due to increased customer self-pickup, administrative expenses slightly increasing by 2.05% due to higher safety production and R&D costs, and finance costs significantly decreasing by 20.19% due to lower average loan interest rates and reduced bill discount expenses Three Major Expenses Changes | Expense Item | 2019 (RMB billions) | 2018 (RMB billions) | Year-on-Year Change | Main Reason | | :--- | :--- | :--- | :--- | :--- | | Selling and Distribution Costs | 0.816 | 0.906 | -9.93% | Increased customer self-pickup, decreased transportation and handling fees | | Administrative Expenses | 0.648 | 0.635 | +2.05% | Increased safety production expenses and new product R&D expenses | | Finance Costs | 0.170 | 0.213 | -20.19% | Decreased average loan interest rates, reduced bill discount expenses | | Total | 1.634 | 1.754 | -6.84% | | Other Income and Gains In 2019, the Group's other income and gains amounted to RMB 0.236 billion, a decrease of 24.36% year-on-year, primarily due to a reduction in interest income - Other income and gains amounted to RMB 0.236 billion, a decrease of RMB 0.076 billion year-on-year, representing a 24.36% decrease, mainly due to reduced interest income[84] Other Expenses and Losses In 2019, the Group's other expenses and losses amounted to RMB 0.059 billion, a decrease of 10.61% year-on-year, primarily consisting of asset impairment losses and losses from disposal of property, plant and equipment - Other expenses and losses amounted to RMB 0.059 billion, a decrease of RMB 0.007 billion year-on-year, representing a 10.61% decrease[86] Inventories As of the end of 2019, the Group's inventory balance was RMB 5.375 billion, a decrease of 3.22% year-on-year, with inventory levels effectively controlled through continuous optimization of procurement and sales coordination, and inventory turnover days remaining consistent with the previous year at 94 days - Year-end inventory balance was RMB 5.375 billion, a decrease of 3.22% year-on-year[87] - Inventory turnover days remained consistent with the previous year, both at 94 days[87] Trade and Bills Receivables As of the end of 2019, the balance of trade and bills receivables was RMB 0.406 billion, a significant decrease of 24.11% year-on-year, primarily due to the Group tightening the scope of bank acceptance bills received, with turnover days slightly slowing to 7 days from 6 days in the previous year - Year-end trade and bills receivables balance was RMB 0.406 billion, a decrease of 24.11% year-on-year, mainly due to a decrease of RMB 0.122 billion in bills receivable balance[88] - Trade and bills receivables turnover days were 7 days, one day slower than 6 days in 2018[88] Loans to Related Companies As of the end of 2019, the Group's loans to related companies amounted to RMB 0.920 billion, including a entrusted loan of RMB 0.670 billion to Yangmei Pingyuan and RMB 0.250 billion to Sinochem Modern Agriculture Co Ltd - Year-end loans to related companies balance was RMB 0.920 billion[90] Interests in Joint Ventures As of the end of 2019, interests in joint ventures amounted to RMB 0.355 billion, a decrease of 14.25% year-on-year, primarily due to the completion of liquidation and asset distribution of Hainan Zhongsheng Agriculture Technology Co Ltd - Year-end interests in joint ventures balance was RMB 0.355 billion, a decrease of RMB 0.059 billion, or 14.25%, year-on-year, mainly due to the completion of liquidation procedures for Hainan Zhongsheng[91] Interests in Associates As of the end of 2019, interests in associates amounted to RMB 0.533 billion, an increase of 3.29% year-on-year, primarily due to the share of current profits from companies such as Yangmei Pingyuan - Year-end interests in associates balance was RMB 0.533 billion, an increase of RMB 0.017 billion, or 3.29%, year-on-year[92] Other Equity Instruments Investments As of the end of 2019, other equity instruments investments amounted to RMB 0.391 billion, a decrease of 21.49% year-on-year, primarily due to a fair value decrease of RMB 0.103 billion in the equity held in Guizhou Kailin Group Co Ltd - Year-end other equity instruments investments balance was RMB 0.391 billion, a decrease of RMB 0.107 billion, or 21.49%, year-on-year, mainly due to a decrease in the fair value of Guizhou Kailin Group equity[94] Other Long-term Assets As of the end of 2019, other long-term assets amounted to RMB 0.615 billion, a significant increase from RMB 0.023 billion at the beginning of the year, primarily because Sinochem Fuling transferred the book value of property, plant and equipment awaiting demolition, amounting to RMB 0.562 billion, to this account after its production halt - Year-end other long-term assets balance was RMB 0.615 billion, an increase of RMB 0.592 billion year-on-year, mainly because Sinochem Fuling transferred RMB 0.562 billion of assets awaiting demolition to this account[95] Interest-bearing Liabilities As of the end of 2019, the Group's total interest-bearing liabilities amounted to RMB 2.424 billion, a significant decrease of 21.43% year-on-year, primarily due to the repayment of maturing three-year medium-term notes and ten-year corporate bonds, and the issuance of four tranches of ultra-short-term commercial papers to supplement working capital, with the year-end balance of ultra-short-term commercial papers at RMB 2.4 billion - Year-end total interest-bearing liabilities were RMB 2.424 billion, a decrease of RMB 0.661 billion, or 21.43%, year-on-year[96] Trade and Bills Payables As of the end of 2019, trade and bills payables amounted to RMB 3.386 billion, an increase of 7.73% year-on-year, primarily due to the Group's full utilization of bank acceptance bills as a settlement tool, leading to an increase in bills payable balance - Year-end trade and bills payables balance was RMB 3.386 billion, an increase of RMB 0.243 billion, or 7.73%, year-on-year[97] Other Financial Indicators In 2019, the Group's profitability and solvency both improved, with earnings per share increasing to RMB 0.0877 and return on equity rising to 8.16%, while the current ratio improved from 1.17 to 1.21 and the debt-to-equity ratio significantly decreased from 42.60% to 31.48%, indicating a more robust financial structure Key Financial Indicators | Indicator Category | Indicator Name | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Profitability | Earnings Per Share (RMB) | 0.0877 | 0.0656 | | | Return on Equity | 8.16% | 6.49% | | Solvency | Current Ratio | 1.21 | 1.17 | | | Debt-to-Equity Ratio | 31.48% | 42.60% | Liquidity and Capital Resources The Group's primary funding sources are operating activities, bank loans, and bond issuance, with cash and cash equivalents amounting to RMB 1.334 billion at the end of 2019, and total interest-bearing liabilities of RMB 2.424 billion, mainly comprising short-term commercial papers, while possessing ample bank credit facilities totaling RMB 26.444 billion, with RMB 22.408 billion unused, ensuring liquidity - Year-end cash and cash equivalents were RMB 1.334 billion[103] - Total interest-bearing liabilities were RMB 2.424 billion, primarily consisting of RMB 2.4 billion in short-term commercial papers[104] - The Group has obtained bank credit facilities totaling RMB 26.444 billion, of which RMB 22.408 billion remains unused, indicating smooth financing channels[107] Operating and Financial Risks The Group faces major operating risks including global economic slowdown, intensified industry competition, environmental and social risks, and cybersecurity risks, as well as key financial risks such as market risk (currency, interest rate), credit risk, and liquidity risk, for which it has established corresponding risk management systems and countermeasures, such as managing currency risk through forward hedging, credit risk through improved credit assessment and collection procedures, and liquidity risk by strengthening cash position management and maintaining sufficient credit facilities - Major operating risks: Global economic slowdown, economic and trade frictions, intense competition in the fertilizer industry, environmental and social risks, cybersecurity risks, and data security risks[109][110][111][113] - Major financial risks: Market risk (currency, interest rate, other price risks), credit risk, and liquidity risk[113] - Risk mitigation measures: Adopting prudent forward hedging to address currency risk; managing credit risk through comprehensive credit limit, payment term approval, and collection procedures; and addressing liquidity risk by strengthening cash position management and maintaining sufficient credit facilities[114][115][117] Capital Commitments As of the end of 2019, the Group's total capital commitments amounted to RMB 1.704 billion, an increase from RMB 1.400 billion in the previous year, with the main project being Sinochem Fuling's new refined phosphate and supporting new special fertilizer project in Chongqing Fuling Baitao Industrial Park, which has a planned investment of RMB 1.053 billion in 2020 Capital Commitments | Category | 2019 (RMB thousands) | 2018 (RMB thousands) | | :--- | :--- | :--- | | Contracted but not provided for | 278,169 | 188,350 | | Authorized but not contracted for | 1,425,975 | 1,211,375 | | Total | 1,704,144 | 1,399,725 | - The main project within capital commitments is Sinochem Fuling's new construction project, with a planned investment of RMB 1.053 billion in 2020[118] Human Resources As of December 31, 2019, the Group employed approximately 5,907 full-time employees, with employee remuneration determined by reference to market levels - As of December 31, 2019, the Group employed approximately 5,907 full-time employees[121] Directors and Senior Management This section provides biographical details of the company's Board of Directors, including executive, non-executive, and independent non-executive members, and the senior management team Directors This section provides detailed resumes of the company's directors, including Executive Directors Mr Qin Hengde (CEO), Mr Feng Mingwei, Mr Yang Hongwei; Non-executive Director Mr Yang Lin; and Independent Non-executive Directors Mr Gao Mingdong, Mr Lu Xin, and Mr Xie Xiaoyan, covering their age, educational background, professional qualifications, tenure at the company, and experience at other listed companies - Executive Director and CEO Mr Qin Hengde possesses extensive experience in strategy, investment and M&A, and financial management, also serving as a director or chairman in several listed companies[123] - The independent non-executive director team comprises seasoned professionals in law (Mr Gao Mingdong), finance, investment and corporate management (Mr Lu Xin), and accounting (Mr Xie Xiaoyan), providing professional and independent opinions to the Board[129][131][132] Senior Management This section introduces the resumes of the company's senior management team members, including Chief Financial Officer Mr Gao Jian, and Deputy General Managers Mr Mao Feng and Mr Ma Yue, covering their educational backgrounds and professional experiences within the company and other enterprises - The company's senior management team includes Chief Financial Officer Mr Gao Jian, and Deputy General Managers Mr Mao Feng and Mr Ma Yue[134][135][136] Corporate Governance Report This report details the company's corporate governance practices in 2019, demonstrating adherence to the Stock Exchange's Corporate Governance Code, covering the Board's structure and operations, committee functions, shareholder communication, internal controls, risk management, and HSE initiatives Board of Directors The Board of Directors is responsible for overseeing, monitoring, and supervising the company's management, business, strategic planning, and financial performance, comprising six members as of the end of 2019, including two executive directors, one non-executive director, and three independent non-executive directors, meeting listing rule requirements, with detailed mechanisms for director appointment and re-election, Board independence, clear division of responsibilities between the Board and management, separation of Chairman and CEO roles, and ongoing professional development for directors, having held four meetings during the year - As of December 31, 2019, the Board of Directors consisted of 6 members, including 2 executive directors, 1 non-executive director, and 3 independent non-executive directors[142] - The Board is responsible for approving the company's strategic management, financial management, and major investments, while management, under the leadership of the CEO, is responsible for daily operations and strategic execution[149] - The company arranged continuous professional development training for directors, covering topics such as listing regulatory rules, risk management, and ESG reporting[153][155][156][157][158] Board Committees The Board has four committees: Audit, Remuneration, Nomination, and Corporate Governance, with the Audit Committee, composed of three independent non-executive directors, overseeing financial reporting, risk management, and internal/external audits; the Remuneration Committee, primarily composed of independent non-executive directors, responsible for director and senior management remuneration policies; the Nomination Committee, primarily composed of independent non-executive directors, reviewing Board structure and nominating directors; and the Corporate Governance Committee, composed of executive directors and management, responsible for formulating and monitoring the company's corporate governance policies - The Audit Committee, composed of three independent non-executive directors, held four meetings during the year,审阅了年度及中期报告, and assessed the internal control system and the independence of external auditors[162][165] - The Remuneration Committee, composed of three independent non-executive directors and one non-executive director, assessed senior management performance and approved annual remuneration and bonus plans during the year[167][170] - The Nomination Committee, composed of three independent non-executive directors and one executive director, reviewed the Board's structure, composition, and director succession plan during the year[174][177] - The Corporate Governance Committee, composed of executive directors and management, reviewed the company's corporate governance policies and compliance during the year[185][188] Internal Control and Risk Management The Board is responsible for ensuring the robustness and effectiveness of the Group's internal control and risk management systems, which in 2019, following the COSO framework and China's Basic Norms for Enterprise Internal Control, underwent a comprehensive annual review and evaluation, with the Audit and Supervision Department formulating and executing the annual audit plan based on risk assessment results, and the Group implementing a risk management mechanism under the Board's leadership with the General Manager responsible, continuously strengthening risk culture promotion, identifying, assessing, and responding to risks in important businesses and processes, and enhancing control over key operational risks such as credit and inventory - The Board is responsible for ensuring the robustness and effectiveness of the internal control and risk management system and conducting regular reviews[205] - The Group's internal control system is based on the US COSO framework and China's Basic Norms for Enterprise Internal Control, with full coverage in its annual review and evaluation[205][206] - The risk management mechanism is a General Manager responsibility system under the Board's leadership, with continuous strengthening of risk culture promotion in 2019 and enhanced awareness of risk ownership among operating units[210] Health, Safety and Environment (HSE) In 2019, the Group maintained stability in Health, Safety, and Environment (HSE), achieving four "zero" targets: zero fatalities, zero major environmental incidents, zero new occupational diseases, and zero major negative public opinion, by strengthening HSE system construction and reinforcing corporate responsibility to comprehensively promote risk control, with actual environmental investment reaching RMB 0.14767 billion for the year and all energy saving and emission reduction targets fully met - In 2019, the Group achieved four "zero" targets: zero fatalities, zero general or above environmental incidents, zero new occupational diseases, and zero major negative HSE public opinion[214] - Full-year actual environmental investment in 2019 was RMB 0.14767 billion[216] 2019 Major Pollutant Emissions | Pollutant | Emissions (tonnes) | | :--- | :--- | | SO2 | 1,252.49 | | COD | 39.03 | | Ammonia Nitrogen | 5.90 | | Nitrogen Oxides | 731.73 | Major Customers and Suppliers The Group has established stable cooperative relationships with core suppliers and customers, with the top five customers' revenue not exceeding 20% of total revenue in 2019, and the top five suppliers' procurement accounting for approximately 21% of total procurement, with the largest supplier accounting for 5%, and Qinghai Salt Lake Industry Co Ltd being an important domestic potash supplier, while the Group maintains strict admission and credit risk management procedures for both customers and suppliers - The combined revenue from the top five customers did not exceed 20% of the Group's total revenue for the year[218] - The combined procurement from the five largest suppliers accounted for approximately 21% of the Group's total procurement, with the largest supplier accounting for 5%[220] Directors' Report This report from the Board covers the Group's principal business, performance, dividend distribution, financial summary, director and shareholder information, significant transactions, connected transactions, and compliance for the year ended December 31, 2019 Results and Dividends The Group's performance was strong this year, and the Board recommends a final dividend of HKD 0.0294 per share for the year ended December 31, 2019, payable from the contributed surplus account, an increase from HKD 0.0224 per share last year, with the total dividend expected to be approximately HKD 0.2065 billion - The Board recommends a final dividend of HKD 0.0294 per share (2018: HKD 0.0224 per share), with the total amount expected to be approximately HKD 0.2065 billion[224] Connected Transactions This section details the Group's one-off and continuing connected transactions subject to disclosure in 2019, with one-off transactions primarily involving financial assistance to related parties Modern Agriculture and Sinochem Corporation, and continuing connected transactions covering import/export and sales of sulfur, fertilizers, and pesticides with Sinochem Group and its subsidiaries, financial services with Sinochem Finance, and potash procurement with Canpotex, with the report listing annual caps and actual completed amounts for each transaction, confirmed for compliance by independent non-executive directors and independent auditors - One-off connected transactions: Provision of financial assistance to related parties Sinochem Modern Agriculture Co Ltd and Sinochem Corporation[243] 2019 Key Continuing Connected Transactions Actual Completion | Transaction Name | Counterparty | Annual Cap (thousands) | Actual Completed Amount (thousands) | | :--- | :--- | :--- | :--- | | Fertilizer Cooperation Framework Agreement (Procurement) | Sinochem Group | RMB 7,960,000 | RMB 5,326,976 | | Fertilizer Cooperation Framework Agreement (Sales) | Sinochem Group | USD 1,080,000 | USD 747,436 | | Fertilizer Sales Framework Agreement | Modern Agriculture | RMB 820,000 | RMB 412,278 | | Financial Services Framework Agreement (Deposits) | Sinochem Finance | RMB 1,000,000 (daily maximum) | RMB 840,103 (daily maximum) | | Canadian Potash Procurement | Canpotex | USD 260,000 | USD 101,383 | - All disclosed continuing connected transactions have been confirmed by independent non-executive directors and independent auditors as being conducted in the ordinary course of business on normal commercial terms, fair and reasonable, and in the overall interests of shareholders[273][274] Significant Disclosures In 2019, the Group's significant matters primarily included financing activities and related party loans, with Sinofert issuing four tranches of ultra-short-term commercial papers totaling RMB 3.4 billion during the year to supplement working capital and repay debt, and also renewing a RMB 0.67 billion entrusted loan contract with its associate Yangmei Pingyuan - Sinofert completed the issuance of four tranches of ultra-short-term commercial papers totaling RMB 3.4 billion during the year[277] - Sinofert renewed an entrusted loan contract with its associate Yangmei Pingyuan for a principal amount of RMB 0.67 billion[277] Events After Reporting Period Three significant events occurred after the reporting date: first, Sinochem Fuling underwent a capital increase, introducing Fuling State-owned Investment Company as a new shareholder, which will increase Sinofert's shareholding to 74.56% after the capital increase; second, Sinochem Hong Kong, the company's controlling shareholder, signed a share transfer agreement with Syngenta Group, making Syngenta Group the new controlling shareholder upon completion; and third, the Group is closely monitoring and actively responding to the potential impact of the COVID-19 pandemic that emerged in early 2020 on its operations - Sinochem Fuling Capital Increase: Sinofert converted RMB 0.7 billion of shareholder loans into new registered capital and introduced Fuling State-owned Investment Company for a cash injection of RMB 0.21 billion; upon completion, Sinofert's shareholding will increase from 60% to 74.56%[282][555] - Change of Controlling Shareholder: Sinochem Hong Kong signed an agreement with Syngenta Group on January 5, 2020, to transfer all its shares in the company; upon completion, Syngenta Group will become the new controlling shareholder of the company[237][554] - The Group is closely monitoring and actively implementing emergency measures to address the potential impact of the COVID-19 pandemic that emerged in early 2020 on its operations and financial position[284][558] Independent Auditor's Report KPMG issued an unmodified opinion on the Group's consolidated financial statements for the year ended December 31, 2019, confirming their fair presentation in accordance with Hong Kong Financial Reporting Standards and compliance with the Hong Kong Companies Ordinance, while highlighting goodwill impairment and revenue recognition as key audit matters Opinion KPMG, the auditor, believes that the consolidated financial statements fairly present, in all material respects, the Group's consolidated financial position as of December 31, 2019, and its consolidated financial performance and cash flows for the year then ended, in accordance with Hong Kong Financial Reporting Standards, and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance - The auditor issued a standard unmodified opinion on the consolidated financial statements[287] Key Audit Matters The auditor identified two key audit matters: first, the potential impairment risk related to approximately RMB 0.531 billion in goodwill arising from the acquisition of Sinochem Yunlong, as its assessment involves significant management judgment; and second, revenue recognition, given its status as a key performance indicator for the Group and the inherent risk of being recorded in the wrong period or manipulated by management to achieve financial targets, with the report detailing the audit procedures performed for both matters - Key Audit Matter One: Potential goodwill impairment, primarily involving the impairment assessment of approximately RMB 0.531 billion in goodwill arising from the acquisition of Sinochem Yunlong, where the assessment involves significant management judgment on key assumptions such as future cash flows, sales prices, sales volumes, and discount rates[290] - Key Audit Matter Two: Revenue recognition, as revenue is a key performance indicator for the Group, there is an inherent risk of it being recorded in the wrong accounting period or manipulated by management to achieve financial targets[292] Consolidated Financial Statements This section presents the Group's core consolidated financial statements for the year ended December 31, 2019, including the statement of profit or loss and other comprehensive income, financial position, changes in equity, and cash flows, providing a comprehensive overview of financial performance and position Consolidated Statement of Profit or Loss and Other Comprehensive Income In 2019, the Group's revenue was RMB 22.95 billion, flat year-on-year, with gross profit at RMB 2.086 billion, up 9.03% year-on-year, operating profit at RMB 0.798 billion, up 29.2% year-on-year, profit attributable to shareholders at RMB 0.616 billion, a significant increase of 33.7% year-on-year, and basic earnings per share at RMB 0.0877 2019 Consolidated Statement of Profit or Loss Key Data | Item | 2019 (RMB thousands) | 2018 (RMB thousands) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Revenue | 22,950,942 | 22,996,328 | -0.2% | | Gross Profit | 2,085,648 | 1,912,927 | +9.0% | | Operating Profit | 798,372 | 617,780 | +29.2% | | Profit Before Tax | 650,325 | 451,132 | +44.2% | | Profit for the Year | 644,332 | 488,965 | +31.8% | | Profit Attributable to Shareholders | 615,767 | 460,486 | +33.7% | Consolidated Statement of Financial Position As of December 31, 2019, the Group's total assets were RMB 16.874 billion, total liabilities were RMB 9.172 billion, and net assets were RMB 7.701 billion, with both total assets and total liabilities decreasing compared to the end of 2018, while net assets increased, and net current assets increased from RMB 1.724 billion to RMB 1.873 billion, with equity attributable to shareholders at RMB 7.751 billion 2019 Year-End Consolidated Statement of Financial Position Key Data | Item | December 31, 2019 (RMB thousands) | December 31, 2018 (RMB thousands) | | :--- | :--- | :--- | | Assets | | | | Non-current Assets | 6,235,416 | 5,909,789 | | Current Assets | 10,638,359 | 11,697,640 | | Total Assets | 16,873,775 | 17,607,429 | | Liabilities and Equity | | | | Current Liabilities | 8,765,280 | 9,974,071 | | Non-current Liabilities | 407,095 | 392,379 | | Total Liabilities | 9,172,375 | 10,366,450 | | Net Assets | 7,701,400 | 7,240,979 | | Equity Attributable to Shareholders | 7,750,845 | 7,343,249 | Consolidated Statement of Cash Flows In 2019, the Group's operating cash flow turned positive, with a net inflow of RMB 1.327 billion, primarily due to improvements in working capital, while net cash inflow from investing activities was RMB 0.451 billion, mainly from recovery of related party loans and disposal of financial assets, and net cash outflow from financing activities was RMB 1.036 billion, primarily for repayment of maturing bonds and borrowings, resulting in a net increase in cash and cash equivalents of RMB 0.743 billion for the year 2019 Consolidated Statement of Cash Flows | Item | 2019 (RMB thousands) | 2018 (RMB thousands) | | :--- | :--- | :--- | | Net Cash Inflow from Operating Activities | 1,327,238 | (807,329) | | Net Cash Inflow from Investing Activities | 451,176 | 3,360,795 | | Net Cash Outflow from Financing Activities | (1,035,730) | (2,255,709) | | Net Increase in Cash and Cash Equivalents | 742,684 | 297,757 | | Cash and Cash Equivalents at End of Period | 1,333,998 | 589,130 | Five-Year Financial Summary This summary presents key performance and financial position data for the Group's five consecutive fiscal years from 2015 to 2019, showing a return to profitability in 2018 and 2019 with the highest profit attributable to shareholders in five years, alongside stabilizing net assets after a period of declining total assets and liabilities Five-Year Financial Summary (RMB thousands) | Item | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 22,950,942 | 22,996,328 | 17,643,812 | 14,959,092 | 26,121,488 | | Profit/(Loss) Attributable to Shareholders | 615,767 | 460,486 | (2,207,504) | (4,635,885) | 220,855 | | Total Assets | 16,873,775 | 17,607,429 | 22,317,633 | 22,865,093 | 27,739,029 | | Total Liabilities | (9,172,375) | (10,366,450) | (15,690,521) | (14,595,520) | (14,663,108) | | Net Assets | 7,701,400 | 7,240,979 | 6,627,112 | 8,269,573 | 13,075,921 |