都市丽人(02298) - 2018 - 年度财报

Company Information Company Overview Cosmo Lady (China) Holdings Company Limited's basic corporate information, including board members, listing details, and key professional advisors, is presented - The company is listed on the Main Board of The Stock Exchange of Hong Kong Limited, stock code 2298[3] - The Board of Directors comprises executive, non-executive, and independent non-executive directors, with Mr. Zheng Yaonan serving as Chairman and CEO[3] - PricewaterhouseCoopers is the company's auditor, and major banks include Bank of China (Hong Kong) Limited and Hang Seng Bank Limited[3] Financial Summary Key Financial Data for FY2018 The company achieved significant revenue and profit growth in FY2018, with improved profitability ratios and a proposed special dividend 2018 Key Financial Data | Indicator | 2018 (RMB thousands) | 2017 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 5,096,453 | 4,542,483 | 12.2% | | Operating Profit | 483,978 | 419,565 | 15.4% | | Profit Attributable to Owners of the Company | 378,229 | 317,002 | 19.3% | | Gross Margin (%) | 41.7% | 43.2% | -1.5 pp | | Operating Profit Margin (%) | 9.5% | 9.2% | 0.3 pp | | Profit Attributable to Owners of the Company Margin (%) | 7.4% | 7.0% | 0.4 pp | | Basic Earnings Per Share (RMB cents) | 17.15 | 15.45 | 11.0% | | Diluted Earnings Per Share (RMB cents) | 17.10 | 15.45 | 10.7% | | Final Dividend Per Share (HK cents) | 3.75 | 3.34 | 12.3% | | Special Final Dividend Per Share (HK cents) | 6.20 | – | N/A | Chairman and CEO's Report 2018 Economic and Industry Review The 2018 global and Chinese economic slowdown, coupled with US-China trade tensions, impacted business confidence and led to structural adjustments in China's intimate wear industry - Global economic growth slowed in 2018, with US-China trade tensions impacting global business confidence[9] - China's domestic social consumption, fixed asset investment, and real estate market growth continued to slow, with full-year GDP growth of approximately 6.6%, a 28-year low[9] - China's intimate wear industry, highly fragmented with diversified sales channels, faced significant challenges due to ongoing structural adjustments in product quality and mix[9] Group Transformation and Reform Measures The Group implemented comprehensive transformation strategies, including brand and distribution optimization, product and supply chain reforms, and cost control, to navigate market challenges and capitalize on opportunities - Optimized brand image and distribution management: launched "Cosmo Lady" shopping center 2.0, introduced young brand "O+" into mid-to-high-end shopping malls, renovated pedestrian street stores, partnered with Tencent for smart retail stores, and continued investing in e-commerce channels[9][10] - Improved product design and quality, and reformed supply chain management: appointed Mr. Yuasa Masaru as Chief Technology Officer to enhance technology and quality, hired French designers to improve design, collaborated with US trend expert Vincent Daudin, engaged Roland Berger to optimize supply chain management, and signed strategic investment agreements with eleven suppliers to integrate development capabilities, shorten cycles, and improve quick response capabilities[10] - Strictly controlled expenses to save costs[11] Management Discussion and Analysis Financial Review The 2018 financial review highlights revenue growth driven by franchisees and e-commerce, a decline in gross margin, increased other income, and changes in working capital efficiency - The Group's revenue increased by approximately 12.2% in 2018, primarily due to strong sales performance from franchisee sales and e-commerce channels[16] Revenue by Sales Channel | Sales Channel | 2018 (RMB thousands) | 2018 (%) | 2017 (RMB thousands) | 2017 (%) | | :--- | :--- | :--- | :--- | :--- | | Sales to Franchisees | 2,800,790 | 55.0 | 2,433,468 | 53.6 | | Retail | 1,494,518 | 29.3 | 1,566,039 | 34.5 | | E-commerce | 712,450 | 14.0 | 542,976 | 11.9 | | Raw Material Trading | 88,695 | 1.7 | – | – | - Sales to franchisees increased by approximately 15.1%, e-commerce sales increased by approximately 31.2%, while self-operated store sales decreased by approximately 4.6%[17][18][19] - Sales of sleepwear and homewear grew by approximately 22.3%, mainly due to promotional activities and optimized product design[23] - Gross margin decreased to approximately 41.7% (2017: 43.2%), primarily due to intense e-commerce competition and increased promotions of old inventory[24] - Other income increased by approximately 64.3% to RMB 90.937 million, mainly from financial asset dividends and growth in logistics and warehousing business[27] Key Working Capital Management Indicators | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Average Inventory Turnover Days | 139.8 days | 160.2 days | | Average Accounts Receivable Turnover Days | 49.4 days | 40.4 days | | Average Accounts Payable Turnover Days | 79.5 days | 80.5 days | - Average accounts receivable turnover days increased to approximately 49.4 days, mainly due to granting longer one-off credit terms to certain large franchisee customers[33] Capital Management and Resource Utilization The Group maintained a strong financial position with substantial cash reserves, strategic investments in joint ventures, and unutilized proceeds from share placements - Established a cooperation fund with a wholly-owned subsidiary of JD.com, Inc. and Mr. Li Guocheng, targeting investments in intimate wear and related industries, with the Group contributing RMB 135 million[34] - As of December 31, 2018, the Group's cash and cash equivalents were approximately RMB 1.506 billion, bank loans approximately RMB 184 million, current ratio approximately 3.2 times, and net debt ratio approximately -32.5% (net cash position)[35][37] - Net proceeds from the initial public offering were approximately RMB 1.162 billion, with approximately RMB 624 million utilized for expanding the retail network, constructing logistics centers, and upgrading IT infrastructure[40] - Net proceeds from share placement to Fosun were approximately HKD 600 million, partly used for dividend distribution, share repurchases, and developing Hong Kong and overseas businesses, with the remaining unutilized funds held in banks[41][42] - Net proceeds from share placement to Windcreek were approximately HKD 509 million, remaining unutilized as of December 31, 2018, and held in Hong Kong banks[44] - Capital expenditures during the year were approximately RMB 259 million (2017: RMB 128 million), with the increase primarily due to investments in joint ventures[46] Operational Review and Future Outlook The Group expanded its distribution network and achieved environmental certifications, with future strategies focusing on brand, product, supply chain, and digital system enhancements for sustainable growth - As of December 31, 2018, the distribution network included 7,305 stores (2017: 7,181 stores), comprising 1,406 self-operated stores and 5,899 franchisee stores[48] - The number of full-time employees decreased to approximately 4,540 (2017: 7,252), mainly due to new associate arrangements[49] - Obtained ISO14001 "Environmental Management System" certification and was selected as one of the "Top 500 Chinese Brands" in 2018[50][52] - 2019 Outlook and Strategy: continue implementing the shopping center 2.0 plan, launch young brand "O+" and 7th generation image stores, develop smart retail stores, leverage Tencent mini-programs to aggregate online and offline traffic, and increase investment in e-commerce channels[53] - 2019 Outlook and Strategy: continue optimizing product functionality, quality, and design, increase R&D investment, implement Roland Berger's supply chain reform recommendations, and launch new products in four styles (Flirt, Free, Function, Fun)[53] - 2019 Outlook and Strategy: optimize internal organization to improve management efficiency, increase investment in digital information systems, and balance expense investment with new development plans[54] Biographies of Directors and Senior Management Biographies of Board Members The biographies detail the diverse professional backgrounds and extensive industry experience of the executive, non-executive, and independent non-executive directors - Mr. Zheng Yaonan (Chairman and CEO) has over 19 years of experience in intimate wear manufacturing and sales, responsible for the Group's strategic planning, business development, and overall performance[56] - Mr. Zhang Shengfeng (Vice Chairman) is responsible for the Group's design, R&D, and procurement; Mr. Lin Zonghong (Vice Chairman) is responsible for production and logistics; Ms. Wu Xiaoli is responsible for human resources and administrative management[57][59] - Non-executive directors include Mr. Cheng Zuming, Mr. Wen Baoma, Mr. Yang Weiqiang, and Mr. Hu Shengli, providing strategic advice in investment, manufacturing, and e-commerce[61][62][63][65] - Independent non-executive directors Mr. Qiu Zhiming, Dr. Dai Yiyi, Mr. Chen Zhigang, and Dr. Lu Hongde possess extensive experience in finance, accounting, economics, and corporate management[67][68][71][72] Biographies of Senior Management The senior management team comprises experienced professionals with diverse expertise in e-commerce, finance, human resources, product strategy, and technology, including former executives from leading intimate wear brands - Mr. Sha Shuang is Senior Vice President, responsible for the development of e-commerce and Oudianfen brand businesses[74] - Mr. Lu Kangcheng serves as Vice President, Chief Financial Officer, and Company Secretary, with extensive experience in finance and accounting[74] - Ms. Sharen Jester Turney is a part-time Chief Strategy Officer, previously President and CEO of Victoria's Secret, the world's largest intimate apparel retailer[78] - Mr. Yuasa Masaru is Chief Technology Officer, having worked for over 42 years at Wacoal Corp., Japan's largest intimate apparel retailer, responsible for technology research, development, and innovation[78][79] Corporate Governance Report Corporate Governance Practices The company adheres to high corporate governance standards, including a diverse 12-member Board and a board diversity policy, while addressing the combined Chairman and CEO roles with adequate safeguards - The company has adopted the principles of the HKEX Corporate Governance Code and complies with relevant code provisions, except for code provision A.2.1 (separation of Chairman and CEO functions)[82] - The Board currently comprises 12 directors, including 4 executive directors, 4 non-executive directors, and 4 independent non-executive directors[83][84] - The company has adopted a Board Diversity Policy, considering gender, age, cultural and educational background, professional experience, qualifications, ethnicity, skills, knowledge, and length of service when determining Board composition[86] - All independent non-executive directors have confirmed their independence and comply with the Listing Rules requirements[87] Board Committees The Board has established specialized committees—Audit, Nomination, Remuneration, and Risk Management—each with defined responsibilities and regular reporting to ensure effective governance - The Audit Committee, composed entirely of independent non-executive directors, is responsible for reviewing financial information, overseeing financial reporting systems, internal control procedures, risk management systems, and auditor relationships[91] - The Nomination Committee is responsible for advising on director appointments and re-elections, succession planning, and reviewing the Board's structure, size, and composition[93] - The Remuneration Committee is responsible for advising on the remuneration policy and structure for all directors and senior management, and determining executive directors' remuneration policy[95] - The Risk Management Committee is responsible for overseeing the design, implementation, and monitoring of the company's risk management system, and reviewing the Group's strategy[96] 2018 Board Meeting Attendance Record | Director Name | AGM | Board Meetings | Audit Committee | Nomination Committee | Remuneration Committee | Risk Management Committee | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Mr. Zheng Yaonan | 1/1 | 4/4 | N/A | 2/2 | N/A | N/A | | Mr. Zhang Shengfeng | 0/1 | 4/4 | N/A | N/A | 2/2 | N/A | | Mr. Lin Zonghong | 1/1 | 4/4 | N/A | N/A | N/A | N/A | | Ms. Wu Xiaoli | 1/1 | 4/4 | N/A | N/A | N/A | N/A | | Mr. Cheng Zuming | 1/1 | 4/4 | N/A | N/A | N/A | N/A | | Mr. Wen Baoma | 1/1 | 4/4 | N/A | N/A | N/A | N/A | | Mr. Yang Weiqiang | 1/1 | 3/4 | N/A | N/A | N/A | N/A | | Mr. Hu Shengli | N/A | 2/3 | N/A | N/A | N/A | N/A | | Mr. Qiu Zhiming | 1/1 | 4/4 | 3/3 | 2/2 | N/A | 2/2 | | Dr. Dai Yiyi | 1/1 | 4/4 | 3/3 | N/A | 2/2 | 2/2 | | Mr. Chen Zhigang | 0/1 | 4/4 | 3/3 | 2/2 | 2/2 | 2/2 | | Dr. Lu Hongde | 1/1 | 3/4 | 2/3 | 2/2 | 2/2 | 2/2 | Appointment and Development of Directors The company maintains robust procedures for director appointment, re-election, and continuous professional development, guided by a nomination policy emphasizing integrity, diversity, and independence - Board members are required to retire by rotation at annual general meetings and are eligible for re-election in accordance with the company's Articles of Association[101] - The nomination policy aims to identify individuals with integrity, outstanding achievements, relevant qualifications, and skills for Board membership, while also considering diversity factors[102][103] - Newly appointed directors receive comprehensive induction materials and guidance, and all directors are encouraged to participate in continuous professional development to update their knowledge and skills[106] Accountability and Audit The Board oversees the Group's risk management and internal control systems, utilizing the COSO framework and internal audit, with external audit services provided by PricewaterhouseCoopers - The Board is responsible for ensuring the Group maintains appropriate risk management and internal control systems and monitoring their effectiveness[114] - The Group refers to the COSO enterprise risk management framework for risk management and has an internal audit department that regularly reviews business units and internal controls[114] - The Board considers the risk management and internal control systems to be adequate and effective, and has complied with relevant provisions of the Corporate Governance Code[115] Auditor's Remuneration | Services Provided | RMB thousands | | :--- | :--- | | Audit Services (Annual Audit and Interim Review) | 3,549 | | Non-Audit Services (Tax Services, ESG Services) | 780 | | Total | 4,329 | Communication with Shareholders and Investors The company fosters continuous and effective communication with shareholders and investors through a dedicated policy, multiple channels, and regular engagement activities, upholding shareholder rights - The company has adopted a Shareholder Communication Policy aimed at promoting continuous relationships and effective communication with shareholders and investors[118] - Communication channels include shareholder inquiries, plain language bilingual corporate communications, a regularly updated "Investor Relations" section on the company website, and general meetings attended by Board members[118][119][120][122] - Shareholders can request an extraordinary general meeting (holding not less than 10% of paid-up share capital) and nominate directors[124][125] - As of December 31, 2018, there were no significant changes to the company's constitutional documents during the year[127] Environmental, Social and Governance Report ESG Approach This report details Cosmo Lady's 2018 ESG performance, integrating sustainable development into operations across headquarters and retail, and identifying key issues through stakeholder engagement - The company's vision is to be a world-class intimate wear brand, its mission is to care for customers and create a healthy lifestyle, its core values are accountability, innovation, striving, win-win, and efficiency, and its strategic core is to promote the "Refined + Core" strategy[130] - The report's scope covers the overall environmental, social, and governance performance and measures of the Group's headquarters and retail stores in China[133] - Through stakeholder engagement and materiality assessment, significant ESG issues such as employment, health and safety, development and training, labor standards, product responsibility, anti-corruption, environmental protection, and community investment have been identified[134][136] Employment and Labor Practices The Group upholds strict labor compliance, offers competitive compensation, and maintains a robust occupational health and safety system, resulting in industry recognition and no work-related injuries - The Group strictly complies with China's "Labor Contract Law," "Employment Promotion Law," and Hong Kong's "Employment Ordinance," opposing any form of forced labor and child labor[138] - As of December 31, 2018, the Group had a total of 4,539 employees (2017: 7,252), with an average monthly turnover rate of 7.2%[138][142] - The Group provides an above-average compensation package and cares for employee well-being through employment handbooks, performance appraisals, recreational activities, and sports facilities[143][144] - Awarded "Best Employer" by the "China Employer Brand Forum" in 2018[145] - Established an "Occupational Health and Safety Management System" referencing OHSAS 18001:2007, with no work-related injuries or fatalities during the reporting period[146] Average Training Hours Per Employee by Category | Employee Category | 2018 Ratio of Trained Employees | 2018 Average Training Hours | 2017 Average Training Hours | | :--- | :--- | :--- | :--- | | Senior and Middle Management | 100% | 74 | 80 | | Non-Management Employees | 100% | 49 | 45 | | Store Sales Staff | 100% | 27 | 14 | Operating Practices The Group operates with high ethical standards, ensuring product quality through strict supply chain management and ISO certification, while maintaining robust anti-corruption policies and a low customer complaint rate - The Group has an extensive supply chain network in China, with a total of 175 suppliers, mainly located in Guangdong, Jiangsu, Zhejiang, Shanghai, and other regions[151][152] - Implements strict procurement policies and "Qualified Supplier Scoring Standards" for supplier screening, evaluation, and quarterly performance reviews[154][157] - Complies with China's "Product Quality Law," "Advertising Law," and "Consumer Rights Protection Law," implements strict quality inspection processes, and has obtained ISO9001:2015 Quality Management System certification[158][160] - Established internal physical and chemical laboratories, accredited by the China National Accreditation Service for Conformity Assessment (CNAS), complying with ISO 17025 standards[160] - In 2018, product sales or shipping recalls due to quality or other reasons remained at a level not exceeding 0.01%[160] - Formulated anti-corruption policies and regulations, including employee handbooks and anti-fraud management systems, encouraging employees to report illegal activities through hotlines and email[161][162] - The number of corruption lawsuits against the issuer or its employees that were concluded during the reporting period was zero[181] Environmental Protection The Group demonstrates commitment to environmental protection through ISO14001 certification, implementing measures to reduce emissions, conserve resources, and optimize packaging, with detailed KPI reporting - The Group complies with all applicable environmental protection laws and regulations and has obtained ISO14001:2015 "Environmental Management System" certification[163] - Implemented measures to reduce exhaust gas and greenhouse gas emissions, such as providing shuttle buses for commuting and using green label transportation[164] - Promoted energy-saving measures (e.g., maintaining indoor temperature at 26°C, installing LED lights, utilizing natural light) and freshwater resource conservation measures (e.g., installing water-saving faucets, water-saving training)[165] - Advocated for efficient use of product packaging materials, including replacing paper receipts with electronic records, improving packaging design, implementing product carton recycling, and repairing and reusing cargo pallets[168][169] 2018 Environmental Key Performance Indicators | Environmental Key Performance Indicator | Unit | 2018 | 2017 | | :--- | :--- | :--- | :--- | | NOx Emissions | tonnes | 0.860 | 1.080 | | SOx Emissions | tonnes | 0.00124 | 0.00109 | | Particulate Matter Emissions | tonnes | 0.0846 | 0.105 | | Total Greenhouse Gas Emissions | tonnes (CO2) | 16,281 | 15,800 | | Total Energy Consumption | gigajoules | 71,918 | 67,234 | | Water Consumption | cubic meters | 193,471 | 170,426 | | Packaging Materials | tonnes | 293 | 317 | Community Investment The Group actively engages in community investment, focusing on youth, vulnerable groups, poverty alleviation, and women's protection, with significant donations and volunteer hours, earning recognition for social responsibility - The Group's corporate charitable activities focus on aiding young people, caring for those in need, poverty alleviation, promoting women's protection, and fostering culture[176] - For the year ended December 31, 2018, the Group donated approximately RMB 4.534 million (2017: RMB 2.035 million)[176][194] - In 2018, 1,500 volunteer hours were contributed across 8 volunteer projects, primarily focused on assisting vulnerable groups, promoting sports, and other areas[176][177] - Chairman Zheng Yaonan was recognized as the "Most Socially Responsible Entrepreneur" for his commitment to social investment[176] Content Index The content index cross-references the ESG report with HKEX ESG Reporting Guide KPIs and general disclosures, enhancing navigability and compliance transparency - The content index maps the report's content to the key performance indicators and general disclosures of the Environmental, Social and Governance Reporting Guide, as set out in Appendix 27 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited[177][179][181] Directors' Report Principal Activities and Business Review The company's principal activity is investment holding, with the Group focusing on intimate wear design, R&D, and sales in China, recognized as the largest brand by 2018 retail sales - The principal business of the Company is investment holding, while the Group is primarily engaged in the design, research, development, and sale of self-owned brand intimate wear products in the People's Republic of China[184] - According to the Frost & Sullivan report, the Group was the largest intimate wear brand enterprise in China by total retail sales in 2018[184] - Discussions on business review, operational performance, future development, and potential risks are included in the "Chairman and CEO's Report" and "Management Discussion and Analysis" sections[186] Results and Appropriations The Board proposed a final and special dividend for 2018, reflecting the company's listing anniversary and a dividend policy considering financial performance, reserves, and strategic needs - The Board recommended a final dividend of HK 3.75 cents per share (2017: 3.34 HK cents) and a special final dividend of HK 6.20 cents per share (2017: nil) for the year ended December 31, 2018, to celebrate the company's fifth anniversary of listing[187] - The dividend policy considers the Group's actual and expected financial performance, retained earnings and distributable reserves, shareholder interests, anticipated working capital requirements and future expansion plans, tax considerations, gearing ratio and financial covenants, lender restrictions, overall business conditions and strategies, economic conditions, and other factors[191] Share Capital and Reserves The Group significantly increased charitable donations in 2018, repurchased and cancelled shares, and maintained substantial distributable reserves - For the year ended December 31, 2018, the Group's total charitable and other donations amounted to approximately RMB 4.534 million (2017: RMB 2.035 million)[194] - In 2018, the company repurchased and cancelled a total of 11,876,000 issued shares on the Stock Exchange for a total consideration of approximately HKD 34.027 million[200] - As of December 31, 2018, the company's distributable reserves were approximately RMB 1.846 billion (2017: RMB 1.497 billion)[201] Major Customers and Suppliers The Group's customer and supplier base is diversified, with no single entity or related party holding significant influence over the top five customers or suppliers - For the year ended December 31, 2018, the Group's largest customer and top five customers accounted for approximately 1.6% and 5.8% of the Group's turnover, respectively (2017: 1.0% and 3.1%)[204] - For the year ended December 31, 2018, the Group's largest supplier and top five suppliers accounted for approximately 4.1% and 14.9% of the Group's purchases, respectively (2017: 4.2% and 16.3%)[204] - No director or any of their associates or any shareholder (to the best knowledge of the directors, holding more than 5% of the company's issued share capital) had an interest in any of the Group's top five customers or suppliers[204] Directors and Management This section outlines the Board composition, directors' emoluments, and significant shareholdings of directors and major shareholders, including long and short positions - The current directors of the company include Mr. Zheng Yaonan, Mr. Zhang Shengfeng, Mr. Lin Zonghong, Ms. Wu Xiaoli (Executive Directors), Mr. Cheng Zuming, Mr. Wen Baoma, Mr. Yang Weiqiang, Mr. Hu Shengli (Non-executive Directors), and Mr. Qiu Zhiming, Dr. Dai Yiyi, Mr. Chen Zhigang, Dr. Lu Hongde (Independent Non-executive Directors)[208] - Details of directors' emoluments are set out in Note 11 to the consolidated financial statements, and no director waived emoluments or received compensation for joining/leaving[209][509] - The company has arranged for appropriate directors' and officers' liability insurance for its directors and senior officers[214] Directors' Interests and Short Positions in Shares (December 31, 2018) | Director Name | Nature of Interest | Number of Shares Held (L) | Approximate Percentage of Equity (L) | | :--- | :--- | :--- | :--- | | Mr. Zheng Yaonan and Parties Acting in Concert | Jointly held interests; interests in controlled corporations; founder of discretionary trust | 1,193,529,678 | 52.90% | | Mr. Wen Baoma | Personal interest | 5,000,000 | 0.22% | | Dr. Lu Hongde | Personal interest | 210,000 | 0.01% | Major Shareholders' Interests and Short Positions in Shares (December 31, 2018) | Name | Nature of Interest | Number of Shares Held (L) | Approximate Percentage of Equity (L) | | :--- | :--- | :--- | :--- | | Mr. Zheng Yaonan and Parties Acting in Concert | Jointly held interests; interests in controlled corporations | 1,193,529,678 | 52.90% | | Fosun International Holdings Limited | Interests in controlled corporations | 240,000,000 | 10.64% | | Morgan Stanley | Jointly held interests; interests in controlled corporations | 148,029,923 (L) / 50,758,157 (S) | 6.56% (L) / 2.25% (S) | | Today Capital XVIII (Hong Kong) Limited | Beneficial owner | 133,156,000 | 5.90% | Share Option and Share Award Schemes The company maintains share option and award schemes for employee incentives, with a significant number of unexercised options and shares purchased for the award scheme in 2018 - The share option scheme aims to incentivize and reward directors or employees who have contributed to the Group, with 55,300,000 unexercised share options remaining, representing approximately 2.45% of the total issued shares[236][237] - The exercise price of the share options is HKD 3.288 per share, valid for ten years from the grant date, and vests in five stages[244][248] - The share award scheme aims to recognize and motivate contributions from Group employees and help retain management members; as of December 31, 2018, 8,018,000 shares were purchased, but no awards were granted during the year[249] Non-Competition Undertaking and Connected Transactions Controlling shareholders adhered to non-competition agreements, and continuing connected transactions with related parties were conducted on normal commercial terms and duly reviewed - The controlling shareholders have provided annual confirmations to the company, confirming their compliance with the provisions of the non-competition undertaking[251] - As of December 31, 2018, no director had any interest in any business that directly or indirectly competes or is likely to compete with the Group's business[253] Continuing Connected Transactions: Purchases from Related Parties | Related Party | 2018 Annual Cap (RMB thousands) | 2018 Amount for the Year (RMB thousands) | | :--- | :--- | :--- | | Shantou Shengqiang | 32,000 | 28,348 | | Shantou Maosheng | 25,000 | 8,847 | - Independent non-executive directors and the auditor have reviewed the continuing connected transactions and confirmed that they were entered into in the ordinary course of business on normal or better commercial terms[258] Compliance with Laws and Regulations The Group maintains strict compliance with all applicable laws and regulations, including Listing Rules and local statutes, reporting no material non-compliance incidents - The Group is committed to complying with relevant laws and regulations, including the Listing Rules, the Hong Kong Companies Ordinance, and other local laws and regulations applicable in the different jurisdictions where it operates[260] - For the year ended December 31, 2018, and up to the date of this report, the Group has not identified any incidents of non-compliance with applicable laws and regulations that would have a material impact on its business and operations[260] Retirement Schemes and Public Float The Group provides retirement benefit schemes for employees in China and Hong Kong, while maintaining a public float exceeding 25% of issued shares in compliance with Listing Rules - The Group participates in various retirement benefit schemes in accordance with relevant rules and regulations in China and Hong Kong, including defined contribution retirement benefit schemes in China and the Mandatory Provident Fund Scheme in Hong Kong[261][433] - For the year ended December 31, 2018, and up to the date of this report, over 25% of the company's issued shares were held by the public, complying with the Listing Rules requirements[262] Auditor PricewaterhouseCoopers audited the 2018 consolidated financial statements and is eligible for re-election at the upcoming Annual General Meeting - The consolidated financial statements for the year ended December 31, 2018, have been audited by PricewaterhouseCoopers[263] - PricewaterhouseCoopers will retire at the 2019 Annual General Meeting but is eligible and willing to stand for re-election[263] Independent Auditor's Report Auditor's Opinion PricewaterhouseCoopers issued an unmodified opinion, affirming the consolidated financial statements present a true and fair view in accordance with IFRS and Hong Kong Companies Ordinance - PricewaterhouseCoopers issued an unmodified opinion on the Group's consolidated financial statements[266] - The consolidated financial statements present a true and fair view of the Group's consolidated financial position as of December 31, 2018, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards[266] - The auditor confirmed independence from the Group and fulfilled other ethical responsibilities in accordance with the Code of Ethics for Professional Accountants[268] Key Audit Matters Key audit matters included assessing inventory carrying value and accounts receivable loss allowance, where the auditor evaluated management's assumptions and verified control procedures - Key audit matters include assessing the carrying amount of inventories and assessing the loss allowance for accounts receivable[278] - Assessing the carrying amount of inventories: The auditor evaluated the appropriateness of management's assumptions, examined the accuracy of inventory and slow-moving inventory analysis, and compared the net realizable value from post-year-end sales with inventory cost[273][275][277] - Assessing the loss allowance for accounts receivable: The auditor understood and verified management's credit control procedures, examined the accuracy of the accounts receivable aging analysis, and validated management's assessment of expected credit loss provisions[284][285][287] - The auditor believes that management's estimates and judgments for provisions for obsolete or slow-moving inventories and expected credit loss provisions are supported by available audit evidence[279][288] Responsibilities of Directors and Audit Committee The Board is responsible for preparing true and fair consolidated financial statements and effective internal controls, while the Audit Committee oversees the financial reporting process - Directors are responsible for preparing consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, and for internal controls[294] - The Audit Committee is responsible for overseeing the Group's financial reporting process[295] Auditor's Responsibilities The auditor's responsibility is to provide reasonable assurance on the financial statements' freedom from material misstatement, exercising professional skepticism and communicating key findings to the Audit Committee - 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 an opinion[296] - The auditor exercises professional judgment, maintains professional skepticism, identifies and assesses risks of material misstatement, and understands internal controls relevant to the audit[297][298] - The auditor communicates with the Audit Committee regarding the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control[302] Consolidated Statement of Profit or Loss and Other Comprehensive Income 2018 Consolidated Profit or Loss and Other Comprehensive Income The 2018 consolidated statement shows robust revenue and profit growth, with a significant increase in total comprehensive income driven by positive exchange differences 2018 Consolidated Profit or Loss and Other Comprehensive Income | Indicator | 2018 (RMB thousands) | 2017 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 5,096,453 | 4,542,483 | 12.2% | | Cost of Sales | (2,972,889) | (2,577,960) | 15.3% | | Gross Profit | 2,123,564 | 1,964,523 | 8.1% | | Selling and Marketing Expenses | (1,471,006) | (1,337,868) | 9.9% | | General and Administrative Expenses | (265,081) | (261,525) | 1.4% | | Other Income | 90,937 | 55,354 | 64.3% | | Other Gains/(Losses) - Net | 5,564 | (919) | N/A | | Operating Profit | 483,978 | 419,565 | 15.4% | | Finance Income - Net | 9,921 | 7,199 | 37.8% | | Share of Profits/(Losses) of Equity-Accounted Investments | 8,383 | (1,493) | N/A | | Profit Before Income Tax | 502,282 | 425,271 | 18.1% | | Income Tax Expense | (122,673) | (108,269) | 13.3% | | Profit for the Year | 379,609 | 317,002 | 19.7% | | Other Comprehensive Income for the Year (Exchange Differences) | 34,433 | (18,035) | N/A | | Total Comprehensive Income for the Year | 414,042 | 298,967 | 38.5% | | Profit Attributable to Owners of the Company | 378,229 | 317,002 | 19.3% | | Basic Earnings Per Share (RMB cents) | 17.15 | 15.45 | 11.0% | | Diluted Earnings Per Share (RMB cents) | 17.10 | 15.45 | 10.7% | Consolidated Statement of Financial Position 2018 Consolidated Statement of Financial Position The 2018 consolidated statement reflects a strong balance sheet with significant growth in total assets and equity, driven by joint venture investments, despite increased current liabilities 2018 Consolidated Statement of Financial Position | Indicator | 2018 (RMB thousands) | 2017 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Assets | | | | | Non-current Assets | 1,121,244 | 807,084 | 38.9% | | Current Assets | 4,294,956 | 3,729,410 | 15.2% | | Total Assets | 5,416,200 | 4,536,494 | 19.4% | | Equity | | | | | Share Capital and Reserves Attributable to Owners of the Company | 4,047,549 | 3,356,113 | 20.6% | | Non-controlling Interests | 15,056 | – | N/A | | Total Equity | 4,062,605 | 3,356,113 | 21.0% | | Liabilities | | | | | Current Liabilities | 1,339,861 | 952,252 | 40.7% | | Non-current Liabilities | 13,734 | 228,129 | -94.0% | | Total Liabilities | 1,353,595 | 1,180,381 | 14.7% | Consolidated Statement of Changes in Equity 2018 Consolidated Statement of Changes in Equity The 2018 consolidated statement shows a substantial increase in total equity, influenced by profit, share issuance, dividends, share repurchases, and transfers to statutory reserves 2018 Consolidated Statement of Changes in Equity | Indicator | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Total Equity at Beginning of Year | 3,356,113 | 2,693,829 | | Total Comprehensive Income for the Year | 414,042 | 298,967 | | Proceeds from Issued Shares | 415,119 | 528,450 | | Dividends Paid | (115,725) | (163,517) | | Shares Repurchased from Market | (29,080) | – | | Transactions with Non-controlling Interests | 3,974 | – | | Equity-Settled Compensation | 5,607 | 3,049 | | Shares Purchased for Share Award Scheme | (1,121) | (4,665) | | Capital Contribution from Non-controlling Interests | 13,676 | – | | Transfer to Statutory Reserves | 98,133 | 34,167 | | Total Equity at End of Year | 4,062,605 | 3,356,113 | Consolidated Statement of Cash Flows 2018 Consolidated Statement of Cash Flows The 2018 consolidated statement shows a decrease in operating cash flow, increased investing cash outflow due to joint venture investments, and positive financing cash flow from share issuance 2018 Consolidated Cash Flows | Indicator | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Net Cash Generated from Operating Activities | 50,797 | 346,827 | | Net Cash Used in Investing Activities | (236,968) | (90,492) | | Net Cash Generated from Financing Activities | 235,317 | 371,784 | | Net Increase in Cash and Cash Equivalents | 49,146 | 628,119 | | Cash and Cash Equivalents at Beginning of Year | 1,405,285 | 799,533 | | Effect of Exchange Rate Changes | 41,732 | (22,367) | | Cash and Cash Equivalents at End of Year | 1,496,163 | 1,405,285 | Notes to the Consolidated Financial Statements General Information This note provides foundational information on Cosmo Lady's registration, HKEX listing, principal business in China's intimate wear market, and financial statement presentation - The company was incorporated in the Cayman Islands as an exempted company with limited liability on January 28, 2014, and listed on the Main Board of The Stock Exchange of Hong Kong Limited on June 26, 2014[326] - The Group's principal business is the design, marketing, and sale of intimate wear products in the People's Republic of China[326] - The consolidated financial statements are presented in RMB and were approved for issue by the Board of Directors on March 27, 2019[327] Summary of Significant Accounting Policies This section details the Group's significant accounting policies, including the 2018 adoption of IFRS 9 and 15, and the anticipated material impact of IFRS 16 in 2019 - The Group first adopted IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers) for the annual reporting period beginning January 1, 2018[330] - IFRS 9 resulted in changes to financial asset classification and measurement, reclassifying some available-for-sale financial assets to fair value through other comprehensive income, and adopting an expected credit loss model for impairment provisions[348][349][354] - IFRS 15 updated revenue recognition policies but had no material impact on the Group's revenue sources, primarily affecting the presentation of contract liabilities[363][364][366][367] - The adoption of IFRS 16 (Leases) in 2019 is expected to result in the recognition of approximately RMB 122 million in right-of-use assets and approximately RMB 116 million in lease liabilities, with an estimated decrease in 2019 net profit after tax of approximately RMB 3.164 million[335][336][337] Financial Risk Management The Group actively manages financial risks, including foreign exchange, interest rate, price, credit, and liquidity, maintaining a robust capital structure and a net cash position - The majority of the Group's transactions are denominated and settled in RMB, so foreign exchange risk does not have a material impact[461] - The Group's borrowings bear interest at fixed rates and are not exposed to cash flow interest rate risk[462] - Credit risk is managed by granting credit periods to franchisee customers with good credit records, regularly assessing customer creditworthiness, and placing bank balances with reputable financial institutions[464][466] - As of December 31, 2018, the Group was in a net cash position, with total bank balances, cash and cash equivalents, and liquid investments exceeding bank loan balances by approximately RMB 1.330 billion[471] - Financial instruments measured at fair value are disclosed by fair value hierarchy levels, including Level 1 (quoted prices in active markets) and Level 3 (unobservable inputs) items[472][473][476] Critical Accounting Estimates and Judgments Key accounting estimates and judgments involve inventory net realizable value, financial asset impairment, income tax determination, and fair value estimation, all based on market conditions and forecasts - Estimation of net realizable value of inventories: based on current market conditions and past sales experience, which may change due to customer preferences and competitor actions[483] - Impairment of financial assets: loss allowance for trade and other receivables is based on assumptions of default risk and expected loss rates, considering historical data, current market conditions, and forward-looking estimates[484] - Current and deferred income tax: determining income tax provisions requires significant judgment, and final tax outcomes may differ from initial recordings[485] - Fair value of certain financial assets: fair value of financial assets not traded in active markets is determined using valuation techniques, requiring management judgment and assumptions[486] Segment Information The Group operates as a single segment, deriving all major revenue from intimate wear product sales in China, with no single customer accounting for over 10% of revenue - The Group operates as a single operating segment, with reporting consistent with internal reports provided to the chief operating decision maker[491] - The Group is primarily engaged in the design, marketing, and sale of intimate wear products, with all major revenue derived from China[492] - For the year ended December 31, 2018, no single external customer generated more than 10% of the Group's revenue[493] Revenue The Group's 2018 revenue of RMB 5.096 billion was primarily driven by franchisee and retail sales, with strong e-commerce growth and new revenue from raw material trading Revenue by Sales Channel | Sales Channel | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Sales to Franchisees | 2,800,790 | 2,433,468 | | Retail | 1,494,518 | 1,566,039 | | E-commerce | 712,450 | 542,976 | | Raw Material Trading | 88,695 | – | | Total Revenue | 5,096,453 | 4,542,483 | Contract Liabilities | Contract Liability Type | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Contract Liabilities Related to Sales to Franchisees | 77,621 | – | | Contract Liabilities Related to Raw Material Trading | 8,142 | – | | Total | 85,763 | – | - The Group adopted IFRS 15 from January 1, 2018, and recognized revenue of approximately RMB 50.703 million from contract liabilities brought forward as of January 1, 2018, in the current reporting year[495] Other Income Other income significantly increased in 2018, primarily due to higher government grants, dividends from financial assets, and growth in logistics and investment income Other Income Details | Income Source | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Government Grants | 41,268 | 40,349 | | Dividends from Financial Assets at FVTOCI | 14,000 | – | | Logistics Warehousing and Delivery Income | 10,564 | 3,100 | | Investment Income from Financial Assets at FVTPL | 8,885 | – | | Software Usage Fees | 2,462 | 1,833 | | Franchisee Fees | 1,489 | 922 | | Other | 12,269 | 9,150 | | Total | 90,937 | 55,354 | - Government grants are primarily received from various local governments in China, with no unfulfilled conditions or contingencies[497] Other Gains/(Losses) – Net The Group reported a net foreign exchange gain in 2018, a notable improvement from the previous year's net loss Other Gains/(Losses) – Net | Indicator | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Net Foreign Exchange Gains/(Losses) | 7,293 | (4,332) | Expenses by Nature Total expenses by nature reached RMB 4.709 billion in 2018, with significant components including inventory costs, employee benefits, and operating expenses for associate stores Expenses by Nature | Expense Item | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Cost of Inventories Recognized | 2,895,327 | 2,511,457 | | Employee Benefit Expenses | 376,097 | 506,845 | | Operating Expenses of Stores Under Associate Arrangements | 677,488 | 479,934 | | Marketing and Promotion Expenses | 160,963 | 133,255 | | Depreciation and Amortization | 87,602 | 81,654 | | E-commerce Platform Service Fees | 80,748 | 74,003 | | Inventory Write-downs | 27,902 | 19,574 | | Total | 4,708,976 | 4,177,353 | - Employee benefit expenses decreased, mainly because employee costs for some stores under new associate arrangements are borne by business partners[501] Employee Benefit Expenses Employee benefit expenses decreased in 2018, primarily comprising wages, salaries, bonuses, retirement costs, and equity-settled share-based payments Employee Benefit Expenses Details | Expense Item | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Wages, Salaries and Bonuses | 316,982 | 448,680 | | Retirement Benefit Costs - Defined Contribution Plans | 38,331 | 42,523 | | Benefits and Allowances | 15,177 | 12,593 | | Equity-Settled Share-Based Payments | 5,607 | 3,049 | | Total | 376,097 | 506,845 | Directors' and Chief Executive's Emoluments and Five Highest Paid Individuals Directors' and chief executive's emoluments decreased in 2018, while the total remuneration for the five highest-paid individuals increased, with detailed salary ranges provided Directors' and Chief Executive's Emoluments (2018) | Director Category | Fees (RMB thousands) | Wages, Salaries and Bonuses (RMB thousands) | Employer Contributions to Retirement Schemes (RMB thousands) | Total (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | | Executive Directors | – | 2,298 | 280 | 2,578 | | Non-executive Directors | – | 737 | 68 | 805 | | Independent Non-executive Directors | 595 | – | – | 595 | | Total | 595 | 3,035 | 348 | 3,578 | - The total remuneration for the five highest-paid individuals (including one director) in 2018 was RMB 5.857 million (2017: RMB 4.439 million)[514] 2018 Remuneration Ranges for Five Highest Paid Individuals (Excluding Directors) | Remuneration Range (HKD) | 2018 Number of Individuals | 2017 Number of Individuals | | :--- | :--- | :--- | | 500,000 to 1,000,000 | 1 | – | | 1,000,001 to 1,500,000 | 1 | 2 | | 1,500,001 to 2,000,000 | – | 1 | | 2,000,001 to 2,500,000 | 2 | 1 | 2018 Senior Management Remuneration Ranges | Remuneration Range (HKD) | 2018 Number of Individuals | 2017 Number of Individuals | | :--- | :--- | :--- | | 0 to 500,000 | 2 | – | | 500,001 to 1,000,000 | 3 | 3 | | 1,000,001 to 1,500,000 | 1 | 1 | | 1,500,001 to 2,000,000 | – | 1 | | 2,000,001 to 2,500,000 | 2 | 1 | Finance Income and Costs Net finance income increased in 2018, driven by higher interest from short-term bank deposits and reduced finance costs due to lower bank loan amounts Finance Income and Costs Details | Indicator | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Finance Income | 19,977 | 18,763 | | Interest Income from Short-Term Bank Deposits | 16,491 | 4,822 | | Finance Costs (Bank Loan Interest Expense) | (10,056) | (11,564) | | Net Finance Income | 9,921 | 7,199 | - The increase in finance income was mainly due to higher interest income from short-term bank deposits during the year[29] - The decrease in finance costs was mainly due to a reduction in the amount of bank loans[30] Income Tax Expense Income tax expense increased in 2018, primarily due to higher China corporate income tax, with the effective tax rate remaining stable Income Tax Expense Details | Expense Item | 2018 (RMB thousands) | 2017 (RMB thousands) | | :--- | :--- | :--- | | Current Income Tax - China Corporate Income Tax | 147,603 | 124,467 | | Deferred Income Tax | (24,930) | (16,198) | | Income Tax Expense | 122,673 | 108,269 | - For the year ended December 31, 2018, the Group's effective tax rate remained relatively stable at approximately 24.4% (2017: 25.5%)[31][524] - The Group has fulfilled all its tax obligations, and there are no unresolved tax disputes[31] Earnings Per Share Both basic and diluted earnings per share increased in 2018, reflecting adjustments for new share issues, share award purchases, and share repurchases Basic Earnings Per Share | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Profit for the Year Attributable to Owners of the Company (RMB thousands) | 378,229 | 317,002 | | Weighted Average Number of Ordinary Shares (thousands) | 2,205,670 | 2,051,303 | | Basic Earnings Per Share (RMB cents per share) | 17.15 | 15.45 | Diluted Earnings Per Share | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Profit for the Year Attributable to Owners of the Company (RMB thousands) | 378,229 | 317,002 | | Weighted Average Number of Ordinary Shares (thousands) | 2,211,483 | 2,051,303 | | Diluted Earnings Per Share (RMB cents per share) | 17.10 | 15.45 | - The weighted average number of ordinary shares for basic earnings per share has been adjusted for the issuance of new shares on May 25, 2018, and the purchase and repurchase and cancellation of the company's ordinary shares for the share award scheme during the year ended December 31, 2018[527] Dividends The Board proposed a final and special dividend for 2018 totaling approximately RMB 192 million, following interim and prior year final dividend payments - The Board recommended a final dividend of HK 3.75 cents per ordinary share and a special final dividend of HK 6.20 cents per share for the year ended December 31, 2018, totaling approximately RMB 191.683 million[534] - Interim dividends of HK 2.73 cents per share (approximately RMB 54.171 million) and 2017 final dividends of HK 3.34 cents per share (approximately RMB 61.554 million) were paid in 2018[534][535] Disposal of a Subsidiary In 2017, the Group disposed of a 95% equity interest in a subsidiary to a related party for RMB 10.8091 million, realizing a gain of RMB 1.378 million - On June 23, 2017, the Group disposed of 95% equity interest in Guangdong Cosmo Lady Smart Industrial Investment Co., Ltd. to Guangdong Zhengji Innovation Industrial Park Development Co., Ltd. for a consideration of RMB 10.8091 million[536] - The disposal of the subsidiary resulted in a gain of RMB 1.378 million[537] Property, Plant and Equipment The net book value of property, plant, and equipment remained stable in 2018, with additions and depreciation primarily impacting general and administrative expenses - As of December 31, 2018, the net book value of property, plant and equipment was RMB 564.357 million (2017: RMB 565.009 million)[539] - Additions during the year amounted to RMB 79.877 million, and depreciation expense was RMB 78.731 million (2017: RMB 73.712 million)[539][541] - Depreciation expense is primarily recognized in general and administrative expenses (RMB 67.231 million)[541] Land Use Rights The net book value of land use rights slightly decreased in 2018, with amortization expense primarily recognized in general and administrative expenses - As of December 31, 2018, the net book value of land use rights was RMB 85.231 million (2017: RMB 87.311 million)[542] - Amortization expense for the year was RMB 2.08 million (2017: RMB 2.08 million), primarily recognized in general and administrative expenses[542] Intangible Assets Intangible assets, including goodwill and trademarks, had a net book value of RMB 44.972 million in 2018, with annual impairment tests performed on goodwill - As of December 31, 2018, the net book value of intangible assets was RMB 44.972 million (2017: RMB 45.390 million)[547] - Amortization expense for the year was RMB 6.791 million (2017: RMB 5.862 million), primarily recognized in selling and marketing expenses and general and administrative expenses[547][549] - Goodwill is tested for impairment annually, with the recoverable amount calculated based on value-in-use, using a five-year cash flow forecast and a pre-tax discount rate of 19%[549] Investments in Joint Ventures and an Associate Investments in joint ventures and an associate significantly increased in 2018, primarily due to a substantial capital injection into investment man