百信国际(00574) - 2018 - 年度财报

Company Information 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 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] - 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][6] - 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][5][6] 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 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 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] Financial Summary 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 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 The Chairman reviews the Group's 2018 business performance, focusing on pharmaceutical distribution, retail pharmacies, and manufacturing, and outlines future strategies 2018 Business Review 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] 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] - Revenue from self-operated retail pharmacies significantly increased, and the Group will continue to seek M&A opportunities to revitalize this business[12] - The decrease in pharmaceutical manufacturing segment revenue was mainly due to the decline in the market for traditional topical products[12] Future Development Strategy and New Investments 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] - 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] Management Discussion and Analysis 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 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] - 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] Revenue and Profitability Analysis 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][18] 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] 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] 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][27] Business Segment Performance and Future Outlook 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] - 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] - 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] Liquidity, Financial and Capital Resources 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] - The convertible bonds issued in 2016 underwent terms revisions in 2017 and 2018, and were redeemed on September 24, 2018[33][45] - 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][47] - In 2018, the company issued additional corporate bonds with a principal amount of HKD 7.5 million to an independent third party[34] - 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] Human Resources Overview 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] Use of Net Proceeds from IPO 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] Debt Issuance and Dividend Policy 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][43] - 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] - The 2016 convertible bonds were redeemed in full on September 24, 2018, with net proceeds of approximately HKD 113.1 million fully utilized[43][45] - 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][47] - 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] - The Board of Directors does not recommend the payment of a final dividend for the year ended December 31, 2018[50] Corporate Governance Report 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 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][59] - 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] - 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] - 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][58] - All independent non-executive directors have submitted annual confirmations of independence, and the company considers them all to be independent[60] Board Committee Functions and Operations 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] - 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] - 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][66] - 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] - 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] 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 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] - The Chairman held one meeting with the independent non-executive directors without the presence of executive directors to review their independence[78] - 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] - 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] - 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] - 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][91][93] Financial Reporting, Risk Management and Internal Control 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] - 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][83] - The Group adopts a functional bottom-up risk management process, including risk identification, assessment, valuation, and treatment[85] - 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] - 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][89] Constitutional Documents and Dividend Policy 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] - The company adopted a dividend policy, effective January 1, 2019, to establish appropriate procedures for declaring and recommending dividends[100] - The Board will consider operating results, cash flows, financial position, legal and regulatory restrictions, and future prospects when determining dividends[101] - 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] Directors and Senior Management 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 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] - 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] - 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] Biography of Non-Executive Director 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] Biographies of Independent Non-Executive Directors 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] - 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] - 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][113] Senior Management and Company Secretary 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] - Ms. Tang Zaixiu is in charge of the Group's accounting department, with over 15 years of accounting experience[114] - 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] Directors' Report 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 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] - The Group recorded a loss for the year 2018, and the Board of Directors does not recommend the payment of any final dividend[120][121] - 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] Business Risks and Uncertainties 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][125] - 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][127][129] - Financial risks include foreign exchange risk, interest rate risk, credit risk, liquidity risk, and price risk[130] - The Group's gearing ratio was 3.7% as of December 31, 2018, a significant decrease from 14.3% in 2017[133] Environmental, Social and Corporate Responsibility and Compliance 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] - 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] - The Group is committed to reducing its environmental impact through measures such as reducing electricity consumption and encouraging recycling of office supplies[137] Major Customer and Supplier Relationships 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] - 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] Relationships with Stakeholders 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] - The Group maintains good relationships with customers and has established a customer complaint management mechanism to improve services[142] - The Group maintains good relationships with suppliers, conducting fair and strict annual audits of suppliers[143] Share Capital and Debt Issuance Activities 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] - 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][157][158][159] - The issuance of the 2016 convertible bonds aimed to increase the company's additional capital, avoid immediate dilution, and broaden the shareholder base[142][172] - 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] - 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] - 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][186][188] - The net proceeds of approximately HKD 131.4 million from the 2018 convertible bonds were fully utilized to redeem the 2016 convertible bonds[191] - 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] - 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] Directors' and Chief Executive's Information 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] - Each independent non-executive director has confirmed their independence, and the company considers all independent non-executive directors to be independent[199] - 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] 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 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] Other Disclosures 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] - The controlling shareholders, Mr. Chen Yanfei and Jiabao Limited, have confirmed their compliance with their non-competition undertakings[234] - 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] - 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] - Zhongzheng Tianheng Certified Public Accountants will retire as the company's auditor and is eligible and willing to be re-appointed[242] Independent Auditor's Report 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 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] - 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] - 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] Key Audit Matters 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][249] - 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][251] - 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][252] - 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][255] - 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][256] Directors' and Auditor's Responsibilities 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] - Directors are responsible for assessing the Group's ability to continue as a going concern and disclosing related matters[260] - 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] - 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] Consolidated Statement of Profit or Loss 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 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 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 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 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 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] - Net current assets increased from RMB 536,132 thousand in 2017 to RMB 680,869 thousand in 2018[270] Consolidated Statement of Changes in Equity 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 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 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 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][276] - Cash outflow from investing activities decreased, mainly due to refunded deposits for investment projects and land exchange payments[276] - Cash outflow from financing activities decreased, mainly due to proceeds from the issuance of corporate bonds and exercise of share options[276] Notes to the Consolidated Financial Statements 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 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] - The company's functional currency is HKD, but the consolidated financial statements are presented in RMB for the convenience of international investors[282] - The company's principal business is investment holding, and details of the principal businesses of its subsidiaries are set out in note 48[283] Significant Accounting Policies 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] - 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][289] - 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] - 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][294][295] - 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] - 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] - 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] - Components of convertible bonds are classified separately as financial liabilities and equity instruments based on the substance of the contractual arrangements[336] Critical Accounting Judgments and Key Sources of Estimation Uncertainty 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] - 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] - The estimated useful lives of property, plant and equipment are reviewed annually based on asset usage, technological developments, and other factors[385] - 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] - The recognition of deferred tax assets depends on estimates of future taxable profits, involving multiple assumptions and significant judgments[388] - Goodwill impairment testing requires estimating the value in use of cash-generating units, involving significant judgments regarding future cash flows and discount rates[389] Revenue and Segment Reporting 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] 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] - 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] - 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] Analysis of Other Income and Losses 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] - 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] Finance Costs 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 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] Income Tax Expense 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] - 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] 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 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] - For the two years ended December 31, 2018 and 2017, no amounts were paid or paya