友联国际教育租赁(01563) - 2019 - 年度财报

Company Information This section provides essential details about the company's registration, listing, and key personnel - International Union Financial Leasing Co Ltd is a limited company registered in the Cayman Islands, listed on the Main Board of the Hong Kong Stock Exchange with stock code 1563[1][3] Key Company Information | Role | Institution/Individual | | :--- | :--- | | Chief Executive Officer | Mr Li Luqiang | | Independent Non-Executive Directors | Mr Liu Changxiang, Mr Liu Xuewei, Mr Jiao Jian | | Auditor | Shinewing (HK) CPA Limited | | Principal Bankers | Industrial Bank Longkou Branch, Shanghai Pudong Development Bank Co Ltd Tianjin Branch | CEO's Statement The CEO reviews the company's challenging first year post-listing, marked by economic headwinds and internal issues, while outlining future strategies for stable, long-term growth amidst new industry opportunities - CEO Mr Li Luqiang reviewed the company's challenging first year post-listing (2019), citing macroeconomic changes, tightening financing, and internal incidents that significantly impacted group performance[7] - Despite a complex macroeconomic outlook, national initiatives in new infrastructure and technology, alongside upcoming finance lease regulations, present new industry opportunities for the company to overcome difficulties, improve performance, and implement a fintech strategy for stable long-term development[7][8] Management Discussion and Analysis This section provides a comprehensive review of the group's business operations, financial performance, liquidity, and risk management strategies for the reporting period Business Review In 2019, the finance lease industry experienced significant slowdown due to economic pressures and deleveraging policies, leading to increased impairment provisions for the Group's receivables and a strategic shift towards risk control - China's GDP growth rate narrowed to 6.1% in 2019, with the finance lease industry's contract balance growing by only 0.1% year-on-year, indicating a sustained slowdown in sector development[11] - Tightening financing due to national financial deleveraging policies led to rent arrears from some lessees, particularly in the healthcare sector, forcing the Group to make substantial impairment provisions that significantly impacted performance[12] Financial Review The Group's financial performance significantly declined in fiscal year 2019, shifting from profit to loss due to reduced new finance lease business and a substantial increase in impairment provisions for finance lease receivables Key Financial Indicators for Fiscal Year 2019 | Indicator | 2019 (RMB million) | 2018 (RMB million) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Revenue | 260.9 | 358.1 | -27.1% | | Finance Costs | 186.7 | 241.6 | -22.7% | | (Loss)/Profit for the Year | (84.7) | 40.6 | From Profit to Loss | | Net Profit Margin | -32.5% | 11.3% | -43.8 percentage points | - Revenue decreased primarily due to fewer new finance lease businesses initiated during the year, with finance lease income at RMB260.9 million and zero advisory fee income[15] - Finance costs decreased mainly due to the maturity of three bonds payable, reducing bond costs from RMB70.9 million to RMB37.9 million[22] - The annual performance shifted from profit to loss, primarily due to significant impairment provisions for finance lease receivables and reduced finance lease income[23] Liquidity, Financial Resources and Capital Structure At the end of 2019, the Group's cash and cash equivalents decreased, but working capital improved from net liabilities to net assets, while total equity increased due to listing proceeds and the debt-to-asset ratio decreased to 58.6% Financial Position and Capital Structure (as at 31 December 2019) | Indicator | 2019 (RMB million) | 2018 (RMB million) | | :--- | :--- | :--- | | Cash and Cash Equivalents | 257.6 | 391.3 | | Working Capital | 1,107.6 (Net Assets) | (316.6) (Net Liabilities) | | Total Equity | 1,183.1 | 942.0 | | Debt-to-Asset Ratio | 58.6% | 76.5% | Finance Lease Receivables The quality of the Group's finance lease receivables was under pressure in 2019, with total receivables decreasing by 27.7% and accumulated impairment provisions significantly increasing by 207.1% to RMB209 million - Finance lease receivables decreased from RMB3.71 billion to RMB2.69 billion, a year-on-year reduction of 27.7%[27] - Accumulated impairment provisions surged by 207.1% from RMB68 million to RMB209 million, primarily due to some clients' inability to make timely repayments, leading the Group to make provisions based on prudence[27][28] Risk Management The Group identifies credit risk as its primary concern, implementing a comprehensive risk management system that includes due diligence, independent reviews, multi-level approvals, and a five-tier asset classification standard for monitoring finance lease receivables - The Group considers credit risk its primary concern, managing it through comprehensive client due diligence, independent data review, and multi-level approval processes[38] - The Group voluntarily adopted a five-tier asset classification method (normal, special mention, substandard, doubtful, loss) to monitor the quality of finance lease receivables, with classification based on the number of days lease payments are overdue[38][39] Use of Proceeds from Global Offering The company raised approximately HKD354 million net from its global offering upon listing on March 15, 2019, with RMB253 million utilized by year-end primarily for expanding finance lease operations - Net proceeds from the global offering amounted to approximately HKD354 million, with approximately RMB252.5 million utilized by year-end for finance lease business expansion[42] Outlook and Plans For 2020, the company anticipates severe international economic conditions and heightened industry competition due to the COVID-19 pandemic, planning to enhance governance, risk control, and asset management while pursuing new client opportunities and strengthening existing relationships - Facing the COVID-19 pandemic outbreak in early 2020 and intense industry competition, the company will prudently advance business development with a focus on risk prevention[44] - Future plans include enhancing risk management, seizing development opportunities, seeking new breakthroughs in industries and regions, and deepening cooperation with high-quality clients[44] Biographical Details of Directors This section provides an overview of the professional backgrounds and expertise of the company's executive and independent non-executive directors Executive Directors The executive director team comprises seasoned professionals with extensive experience in finance and the finance lease industry, covering leadership, asset management, risk control, and financial management - Mr Li Luqiang, CEO, possesses approximately 20 years of experience in the finance lease industry, holds a Master's degree in Finance and Accounting, and is a Certified Practising Accountant in Australia[47][48] - Mr Li Zhixuan, Deputy General Manager, has over 10 years of experience in asset management and risk control, overseeing the Group's operations and risk management[50] - Ms Xu Juan, Executive Director, has over 10 years of experience in finance and accounting, responsible for the Group's financial and accounting management[51][52] Independent Non-Executive Directors The independent non-executive directors, Mr Liu Changxiang, Mr Liu Xuewei, and Mr Jiao Jian, bring extensive expertise in banking, finance leasing, accounting, asset valuation, and law to provide independent professional advice to the Board - Mr Liu Changxiang: Possesses over 20 years of experience in the banking and finance lease industries[55] - Mr Liu Xuewei: A Certified Public Accountant and Registered Asset Valuer in China, with over 10 years of accounting experience[56] - Mr Jiao Jian: A practicing lawyer in China, and a partner at Beijing Zhongzhou Law Firm since 2006[56] Corporate Governance Report This report details the company's corporate governance practices, including board composition, committee functions, auditor changes, risk management, and shareholder rights, ensuring compliance with listing rules Board of Directors During the reporting period, the Board experienced changes in its composition, including the passing of the Chairman and the retirement of two non-executive directors, while maintaining compliance with listing rules regarding independent non-executive directors and holding 17 board meetings - Board composition changes during the reporting period included the passing of Chairman and Non-executive Director Mr Song Jianpeng on October 9, 2019, and the retirement of Mr Chen Zhiyong and Mr Gao Guiwei as Non-executive Directors on June 11, 2019[63][66] - The company complies with listing rules, having three independent non-executive directors, comprising over one-third of the Board members[67] - During the reporting period, the company held 17 Board meetings and 2 general meetings, with generally high director attendance rates[71] Board Committees The company has established Audit, Remuneration, and Nomination Committees, each composed of three independent non-executive directors, which convened meetings during the year to review financial reports, internal controls, director remuneration, and board structure - The Audit, Remuneration, and Nomination Committees are all composed of three independent non-executive directors: Mr Liu Xuewei, Mr Jiao Jian, and Mr Liu Changxiang[76][77][80] - The Audit Committee held four meetings during the year, reviewing financial reports, internal control systems, and advising the Board on the change of auditor from Deloitte to Shinewing[76] External Auditor and Auditor's Remuneration During the reporting period, Deloitte Touche Tohmatsu resigned as the company's auditor on December 24, 2019, and Shinewing (HK) CPA Limited was subsequently appointed, with no disagreements noted regarding the change - Deloitte resigned as the company's auditor on December 24, 2019, citing professional risks, fee levels, and internal resources related to the audit[89] - The company subsequently appointed Shinewing as the new external auditor, effective February 10, 2020[89] Auditor's Remuneration for 2019 (RMB thousand) | Auditor | Service Type | Fee Amount | | :--- | :--- | :--- | | Deloitte | Audit Services | 1,170 | | | Non-Audit Services | 825 | | Shinewing | Audit Services | 750 | Risk Management and Internal Control The Board holds ultimate responsibility for the Group's risk management and internal control systems, conducting annual reviews and establishing a comprehensive framework from the Board to management, with no significant deficiencies identified by external consultants in the reporting period - The Board acknowledges its responsibility for the risk management and internal control systems, conducting annual reviews of their adequacy and effectiveness[94] - The Group engaged external internal control consultants to review the internal control system for the year ended December 31, 2019, finding no significant risks or control deficiencies[99] Shareholders' Rights The company has established a shareholder communication policy, utilizing various channels like general meetings, announcements, financial reports, and its website to ensure transparency and facilitate shareholder engagement - Shareholders holding not less than 10% of the company's paid-up capital have the right to request the Board to convene an extraordinary general meeting[116] - Shareholders may submit proposals to the Board in writing not less than 14 days and not less than 10 clear business days before the date of the general meeting[119] Directors' Report This report covers the Group's financial performance, director and major shareholder interests, connected transactions, share option scheme, and significant events after the reporting period, including litigation Financial Results and Dividends The Group recorded a loss for the year ended December 31, 2019, and consequently, the Board does not recommend the payment of any final dividend - The Board does not recommend the payment of any final dividend for the year ended December 31, 2019[124][144] Directors' and Major Shareholders' Interests As of the end of 2019, Executive Director and CEO Mr Li Luqiang held a total of 0.55% interest in the company, while Union Capital Pte Ltd, wholly owned by Ms Sui Yongqing, was the controlling shareholder with 51.23% interest Major Shareholders' Shareholding (as at 31 December 2019) | Shareholder Name | Capacity/Nature of Interest | Percentage of Shareholding | | :--- | :--- | :--- | | Union Capital Pte. Ltd. | Beneficial Owner | 51.23% | | Ms Sui Yongqing | Interest in Controlled Corporation | 51.23% | | Mr Song Jianbo | Spouse's Interest | 51.23% | | PA Investment Funds SPC | Beneficial Owner | 9.87% | - CEO Mr Li Luqiang held a total interest of approximately 0.55% in the company through controlled corporations and personal beneficial ownership[153][154] Connected Transactions During the reporting period, the Group engaged in several connected transactions, including a finance lease agreement with Shandong Nanshan, the early termination of a commercial aircraft finance lease with Union Capital, the expiry of an ABS guarantee from Nanshan Group, and a new three-year finance lease framework agreement with Nanshan Group - A supplemental agreement was entered into on June 10, 2019, with Union Capital for the commercial jet finance lease, agreeing to early termination, with related payments made on July 31[163] - The asset-backed securities guarantee provided by Nanshan Group expired on June 30, 2019[166] - On September 20, 2019, the Group entered into a new three-year finance lease framework agreement with Nanshan Group to provide sale-and-leaseback and direct finance lease services[167] Share Option Scheme The company adopted a share option scheme on February 20, 2019, to incentivize and retain talent, with the total number of shares subject to options not exceeding 10% of issued shares at listing, and no options were granted or exercised during the reporting period - The company adopted a share option scheme on February 20, 2019, with a maximum of 150 million shares available for grant under options[170] - From the listing date to the end of the reporting period, no outstanding share options were under the scheme, nor were any options granted or exercised[172] Events After Reporting Period Subsequent to the reporting period, the Group addressed an overdue lease by agreeing to sell the leased Gulfstream G550 aircraft for approximately USD30 million to settle outstanding debts and terminate the finance lease agreement with Xiexin Real Estate Investment Co Ltd - Due to overdue rent of approximately RMB34.9 million from lessee Xiexin Real Estate Investment Co Ltd, both parties agreed to sell the leased asset (a Gulfstream G550 aircraft) to settle the outstanding amount[179] - On February 26, 2020, the Group entered into an aircraft sale and purchase agreement with a buyer for approximately USD30 million, and a termination agreement with the original lessee[179][180] Litigation The Group initiated lawsuits against two hospital clients; one with Shangqiu Fourth People's Hospital resulted in a civil settlement for phased rent payments, while the case against Nehe People's Hospital secured a favorable court judgment for RMB61.18 million in arrears and penalties, though execution is pending due to the COVID-19 pandemic - The lawsuit against Shangqiu Fourth People's Hospital was settled, requiring the defendant to pay unpaid rent, late fees, and expenses, with remaining rent to be paid quarterly until 2022[183][184] - The lawsuit against Nehe People's Hospital resulted in a favorable judgment, ordering payment of approximately RMB61.18 million in unpaid rent and penalties, but execution is pending due to the COVID-19 outbreak[186][187] Independent Auditor's Report This report presents the independent auditor's opinion on the Group's consolidated financial statements and highlights key audit matters, particularly concerning finance lease receivables Audit Opinion Shinewing (HK) CPA Limited issued an unmodified opinion on the Group's consolidated financial statements for the year ended December 31, 2019, affirming their fair presentation in accordance with IFRS and the Hong Kong Companies Ordinance - The auditor believes the consolidated financial statements fairly present the Group's financial position and operating results in accordance with International Financial Reporting Standards, issuing an unmodified opinion[199] - The report notes that the consolidated financial statements for the year ended December 31, 2018, were audited by another auditor (Deloitte) and also received an unmodified opinion[213] Key Audit Matters The auditor identified 'Expected Credit Loss Provisions for Finance Lease Receivables' as a key audit matter due to the significant judgment required in assessing credit risk, credit impairment, and estimating default probabilities and loss rates for these material receivables - The key audit matter is 'Expected Credit Loss Provisions for Finance Lease Receivables'[201][203] - This matter is critical because finance lease receivables are material, and their impairment provision measurement involves significant management judgment, including assessing the deterioration of credit risk and estimating expected credit losses[204] Financial Statements This section presents the Group's consolidated financial statements, including the statement of profit or loss, financial position, cash flows, and detailed notes on key accounts and risk management Consolidated Statement of Profit or Loss and Other Comprehensive Income In fiscal year 2019, the Group reported total revenue of RMB261 million, a 27.1% year-on-year decrease, resulting in a loss of RMB84.69 million from a prior-year profit of RMB40.6 million, primarily due to RMB148 million in financial asset impairment losses Consolidated Statement of Profit or Loss Summary (RMB thousand) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Revenue | 260,876 | 358,061 | | Finance costs | (186,707) | (241,557) | | Impairment losses on financial assets | (147,610) | (25,349) | | (Loss)/Profit before tax | (101,589) | 62,683 | | (Loss)/Profit for the year | (84,692) | 40,598 | | Basic (loss)/earnings per share (RMB) | (0.0605) | 0.0404 | Consolidated Statement of Financial Position As of the end of 2019, the Group's total assets decreased to RMB3.084 billion, mainly due to reduced finance lease receivables, while total liabilities decreased to RMB1.901 billion from debt repayments, and total equity increased to RMB1.183 billion from listing proceeds Consolidated Statement of Financial Position Summary (RMB thousand) | Item | 31 December 2019 | 31 December 2018 | | :--- | :--- | :--- | | Total assets | 3,083,960 | 4,212,270 | | Non-current assets | 1,780,925 | 2,643,744 | | Current assets | 1,303,035 | 1,568,526 | | Total liabilities | 1,900,888 | 3,270,274 | | Current liabilities | 195,410 | 1,251,911 | | Non-current liabilities | 1,705,478 | 2,018,363 | | Total equity | 1,183,072 | 941,996 | Consolidated Statement of Cash Flows In fiscal year 2019, the Group generated RMB1.104 billion in net cash from operating activities, primarily from finance lease receivable collections, while financing activities resulted in a net outflow of RMB1.236 billion due to debt repayments, leading to a year-end cash and cash equivalents balance of RMB258 million Consolidated Statement of Cash Flows Summary (RMB thousand) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Net cash generated from operating activities | 1,104,187 | 781,384 | | Net cash used in investing activities | (3,600) | (26,719) | | Net cash used in financing activities | (1,236,351) | (810,585) | | Net decrease in cash and cash equivalents | (135,764) | (55,920) | | Cash and cash equivalents at end of year | 257,608 | 391,270 | Notes to the Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies, key estimates, and significant financial statement items, highlighting increased impairment provisions for finance lease receivables, reduced borrowings, related party transactions, and credit risk concentration in the healthcare sector Note 17. Finance Lease Receivables As of the end of 2019, the net carrying amount of finance lease receivables significantly decreased to RMB2.687 billion, while impairment loss provisions surged to RMB209 million, with overdue receivables exceeding 90 days increasing substantially, reflecting asset quality pressure Changes in Impairment Provisions for Finance Lease Receivables (RMB thousand) | Item | 1 January 2019 | Provisions during the year | Reversals during the year | 31 December 2019 | | :--- | :--- | :--- | :--- | :--- | | Total | 67,998 | 143,886 | (3,128) | 208,756 | Present Value of Overdue Finance Lease Receivables (RMB thousand) | Days Overdue | 2019 | 2018 | | :--- | :--- | :--- | | Within 30 days | 23,636 | 379,567 | | 31-90 days | 111,280 | 125,946 | | Over 90 days | 724,206 | 257,241 | | Total | 859,122 | 762,754 | Note 24. Borrowings As of the end of 2019, the Group's total borrowings significantly decreased to RMB1.398 billion, with only RMB23.72 million due within one year, indicating reduced short-term liquidity pressure, and borrowings primarily sourced from banks and other institutional trust loans Composition of Borrowings (RMB thousand) | Item | 31 December 2019 | 31 December 2018 | | :--- | :--- | :--- | | Total borrowings | 1,397,699 | 2,292,647 | | Due within one year | 23,723 | 724,377 | | Due after one year | 1,373,976 | 1,568,270 | Note 33. Financial Risk Management The Group's primary financial risks include market, credit, and liquidity risks, with credit risk being paramount, managed through policies like collateral acquisition and continuous credit assessment, and the healthcare sector accounting for the largest proportion of finance lease receivables at 71.52% - Credit risk is the Group's primary risk, managed through measures such as obtaining collateral and guarantees, and conducting continuous credit assessments of lessees[430][431] Finance Lease Receivables by Industry (2019) | Industry | Amount (RMB thousand) | Proportion (%) | | :--- | :--- | :--- | | Public Infrastructure | 267,517 | 9.96 | | Healthcare | 1,921,405 | 71.52 | | Aviation | 325,369 | 12.11 | | Others | 172,289 | 6.41 | | Total | 2,686,580 | 100.00 | Financial Summary This section provides a five-year overview of the Group's key financial data, including revenue, profit/loss, total assets, total equity, and key financial ratios Five-Year Financial Summary (RMB thousand) | Item | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 260,876 | 358,061 | 308,747 | 300,870 | 145,996 | | Profit/(Loss) for the year | (84,692) | 40,598 | 36,576 | 29,279 | 8,572 | | Total assets | 3,083,960 | 4,212,270 | 4,763,490 | 4,205,669 | 3,523,833 | | Total equity | 1,183,072 | 941,996 | 909,496 | 804,724 | 641,507 | Key Ratios | Indicator | 2019 | 2018 | | :--- | :--- | :--- | | Return on total assets | -2.3% | 0.9% | | Return on equity | -8.0% | 4.4% |