百信国际(00574) - 2019 - 年度财报

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