天虹国际集团(02678) - 2019 - 年度财报

Financial Highlights The company's 2019 financial performance saw revenue growth but a decline in profit attributable to shareholders, alongside an increase in total assets and equity | Indicator | 2019 (thousands of RMB) | 2018 (thousands of RMB) | YoY Change | | :--- | :--- | :--- | :--- | | Operating Performance | | | | | Revenue | 22,002,943 | 19,155,709 | 14.9% | | Gross Profit | 2,993,437 | 3,145,825 | -4.8% | | Profit for the Year | 922,749 | 1,167,943 | -21.0% | | Profit Attributable to Shareholders | 883,726 | 1,163,092 | -24.0% | | Basic Earnings Per Share (RMB) | 0.97 | 1.27 | -23.6% | | Financial Position (Year-end) | | | | | Total Assets | 21,174,661 | 18,770,015 | 12.8% | | Total Liabilities | 13,075,286 | 11,933,193 | 9.6% | | Equity Attributable to Shareholders | 7,473,456 | 6,738,637 | 10.9% | | Financial Ratios | | | | | Net Debt to Equity Ratio | 0.86 | 0.88 | - | | Return on Equity | 12% | 18% | - | Corporate Profile and Structure The group is a leading cotton textile manufacturer specializing in high-value-added core-spun products with global operations Corporate Profile Tianhong Textile Group is one of China's largest cotton textile manufacturers, focusing on high-value-added core-spun products with global sales and production facilities - The group is a leading cotton textile manufacturer specializing in high-value-added core-spun yarns, with operations across China, Vietnam, North America, Europe, and other regions[6][7] - As of December 31, 2019, the group's main production facilities included approximately 4 million spindles and 1,819 shuttle and knitting looms[6][7] Chairman's Statement The Chairman's statement reviews the 2019 performance, highlighting revenue growth despite trade friction, and outlines strategic priorities for 2020 Results Despite US-China trade friction, the group achieved nearly 15% revenue growth in 2019, but profit attributable to shareholders declined due to a significant drop in yarn business gross margin 2019 Performance Highlights | Indicator | 2019 | 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 22 billion RMB | - | Nearly 15% growth | | Yarn Sales Volume | Nearly 750,000 tons | - | Exceeded original target of 720,000 tons | | Yarn Gross Margin | 13.5% | 17.9% | Down 4.4 percentage points | | Profit Attributable to Shareholders | 884 million RMB | - | Down 24% | | Basic Earnings Per Share | 0.97 RMB | - | Down 24% | - Woven dyed fabric business benefited from the integration of Qingye Group, with sales revenue reaching 1.86 billion RMB, a twofold increase year-on-year[16] Outlook Facing trade friction and global pandemic uncertainties, the group will pursue internationalization and vertical integration strategies, focusing on overseas production and reduced capital expenditure - To counter trade friction, the group will adhere to internationalization and vertical integration strategies, establishing yarn and fabric production bases outside China to mitigate impacts and enhance profit stability[19][23] - The group completed the reorganization of its knit fabric management team and denim apparel business in 2019, with a future focus on developing Vietnam production bases to enhance profitability[20] - Capital expenditure for 2020 is expected to significantly decrease, with the group focusing on utilizing existing capacity to improve profitability and reduce debt ratios, strengthening financial stability[21][23] Management Discussion and Analysis This section provides a detailed review of the group's 2019 performance, industry trends, business segment analysis, future prospects, and financial position Overview In 2019, the group's revenue increased by 15% to 22 billion RMB, but profit attributable to shareholders decreased by 24% to 884 million RMB 2019 Performance Overview | Indicator | 2019 | YoY Change | | :--- | :--- | :--- | | Revenue | 22 billion RMB | +15% | | Profit Attributable to Shareholders | 884 million RMB | -24% | | Basic Earnings Per Share | 0.97 RMB | -23.6% | Industry Review The Chinese textile and apparel industry faced pressure in 2019, while Vietnam's textile sector demonstrated strong growth in exports - The Chinese textile and apparel industry faced challenges, with major enterprises experiencing year-on-year declines in both operating revenue and total profit[26][30] - Vietnam's textile industry performed strongly, with year-on-year growth in both yarn and apparel exports[27][30] Business Review The group achieved record revenue in 2019, driven by yarn and dyed fabric sales, despite a significant decline in yarn gross margin Performance by Business Segment | Business Segment | 2019 Performance | Key Data/Changes | | :--- | :--- | :--- | | Yarn | Sales volume nearly 750,000 tons, exceeding expectations; but gross margin significantly declined | Revenue 16.7 billion RMB (+7.5%); gross margin from 17.9% to 13.5% | | Grey Fabric | External sales decreased, but gross margin benefited from vertical integration | Sales volume nearly 80 million meters; gross margin from 14.8% to 17.2% | | Woven Dyed Fabric | Benefited from the integration of Qingye Group's business, with significant growth in both sales volume and gross margin | Sales volume 100 million meters (more than doubled); gross margin to 16.6% | | Knit Dyed Fabric | Full-year sales target not met, but Q4 gross margin recovered | Sales volume approximately 17,000 tons | | Denim Apparel | Business reforms impacted sales volume, but operations concentrated in Vietnam base to enhance profitability | Sales volume increased year-on-year | - The group's overall gross margin decreased from 16.4% in 2018 to 13.6%, primarily due to the drag from the yarn business[36][40] Prospects For 2020, the group will focus on maximizing existing capacity, significantly reducing capital expenditure, and improving profitability through optimized product mix and overseas advantages 2020 Sales Targets (Excluding Trading) | Product | Target Sales Volume | | :--- | :--- | | Yarn | 830,000 tons | | Grey Fabric | 60 million meters | | Woven Dyed Fabric | 140 million meters | | Knit Dyed Fabric | 25,000 tons | | Jeans | 14 million pairs | - Capital expenditure for 2020 is expected to significantly decrease to below 800 million RMB, which will help reduce the debt ratio and enhance financial security[38][40] Financial Review In 2019, total sales increased by 14.9% to 22 billion RMB, driven by yarn and fabric, with woven fabric being the fastest-growing segment, while overall gross margin declined 2019 Sales Revenue and Changes by Product | Product Category | 2019 Revenue (thousands of RMB) | 2018 Revenue (thousands of RMB) | Revenue Change | | :--- | :--- | :--- | :--- | | Stretch Core-Spun Yarn | 8,062,776 | 7,993,929 | 0.9% | | Other Yarn | 8,651,516 | 7,560,240 | 14.4% | | Stretch Grey Fabric | 560,477 | 649,110 | -13.7% | | Other Grey Fabric | 150,019 | 208,093 | -27.9% | | Woven Fabric | 2,694,451 | 1,122,412 | 140.1% | | Knit Fabric | 900,225 | 799,864 | 12.5% | | Jeans | 983,479 | 822,061 | 19.6% | | Total | 22,002,943 | 19,155,709 | 14.9% | 2019 Cash Flow Summary (thousands of RMB) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 2,418,356 | 766,684 | | Net Cash Used in Investing Activities | (1,939,288) | (1,821,900) | | Net Cash from Financing Activities | 297,070 | 643,219 | | Cash and Cash Equivalents at Year-end | 1,830,859 | 1,054,721 | Key Financial Ratios at Year-end 2019 | Ratio | 2019 | 2018 | | :--- | :--- | :--- | | Current Ratio | 1.29 | 1.39 | | Debt to Equity Ratio | 1.11 | 1.06 | | Net Debt to Equity Ratio | 0.86 | 0.88 | - The company announced a final dividend of 15 HK cents per share for 2019, maintaining a dividend policy of approximately 30% of net profit when combined with the interim dividend of 18 HK cents[72][75] Material Risks of the Group The group identified increased risks in business concentration, customer credit, product liability, environmental compliance, and taxation due to market changes and business expansion - Business concentration risk increased, primarily due to the potential impact of the global pandemic on the textile retail industry, affecting the entire supply chain, given the group's high concentration in the textile industry[80] - Customer credit management risk increased due to higher total receivables from increased business volume, unfavorable industry operating environment, and potential impact of the pandemic on customer cash flow[94] - Environmental compliance risk increased, mainly due to the addition of dyeing plant projects and stricter environmental regulations from various governments[109] - Financing risk increased, primarily due to significant capital expenditure in 2019 and increased difficulty and cost of obtaining loans amidst international trade disputes[91] Corporate Governance Report The Corporate Governance Report details the company's commitment to high governance standards, board structure, and internal control systems Board and Committees The company maintains high corporate governance standards with a board comprising executive and independent non-executive directors, and separate roles for Chairman and CEO, supported by independent committees - The Board of Directors consists of 8 directors, including 3 independent non-executive directors, exceeding one-third, in compliance with governance requirements[114][115] - The company has established a Remuneration Committee, Audit Committee, and Nomination Committee, with their composition and terms of reference complying with the Corporate Governance Code[130][135][142] - The roles of Chairman (Mr. Hong Tianzhu) and Chief Executive Officer (Mr. Zhu Yongxiang) are held by different individuals, complying with Code Provision A.2.1[128][131] Risk Management and Internal Control The group has established a COSO-compliant risk management and internal control system, with the Board overseeing its effectiveness and adequacy - The group's risk management and internal control framework complies with the COSO Committee's Internal Control Framework, covering five key components[179] - The Board reviewed the risk management and internal control systems for the year ended December 31, 2019, deeming them effective and adequate, with no significant control deficiencies identified[191][193] Report of the Directors The Directors' Report outlines the group's principal activities, business review, share option scheme, connected transactions, and major customers and suppliers Principal Activities and Business Review The group's core business involves manufacturing and selling yarn, grey fabric, fabric, and apparel across various regions, with a commitment to clean production and sustainability - The group's principal activities are the manufacturing and sale of yarn, grey fabric, fabric, and apparel[230] - The group primarily operates in China, Vietnam, Cambodia, Turkey, Nicaragua, and North America[232][235] Share Options The company adopted a ten-year share option scheme in 2014 to incentivize contributors, with executive directors holding unexercised options as of year-end 2019 Unexercised Share Options Held by Directors (as of December 31, 2019) | Director Name | Number of Unexercised Share Options | | :--- | :--- | | Mr. Tang Daoping | 2,000,000 | | Mr. Xu Zihui | 4,500,000 | Connected Transactions During the reporting period, the group engaged in significant connected transactions, including service agreements with a related party and a major acquisition - The group entered into various water, electricity, steam supply, and sewage treatment service agreements with Tianhong Industrial Park (Vietnam) Co., Ltd., a related party controlled by the Chairman and CEO, with annual caps set[297][313] - In December 2019, the group acquired land use rights in Vietnam from related party Tianhong Industrial Park for a total consideration of approximately 106 million RMB[315][317] - The group completed the acquisition of Winnitex Group in April 2019 for a total consideration of 1.35 billion HKD, which constituted a discloseable transaction[318][320] Major Customers and Suppliers The group maintains a relatively diversified customer and supplier base, with no single customer or supplier dominating sales or procurement 2019 Customer and Supplier Concentration | Category | Percentage of Total | | :--- | :--- | | Largest Supplier | 13.0% | | Top Five Suppliers Combined | 24.1% | | Largest Customer | 3.5% | | Top Five Customers Combined | 9.2% | Environmental, Social and Governance Report This report details the group's commitment to environmental protection, social responsibility, and sustainable development practices Green Operation The group is committed to green operations and clean production, enhancing resource efficiency and reducing emissions through technological upgrades and improved management 2017-2019 Resource Consumption and Emission Data | Indicator | Unit | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | | Resource Consumption | | | | | | Total Energy Consumption | MWh | 2,057,828 | 1,693,089 | 1,591,916 | | Energy Intensity | MWh/million RMB sales | 93.5 | 88.4 | 97.6 | | Total Water Consumption | tons | 10,280,314 | 12,473,850 | 8,651,940 | | Water Intensity | tons/million RMB sales | 467.2 | 651.2 | 530.6 | | Emissions | | | | | | Total GHG Emissions | tons of CO2e | 1,502,785 | 1,272,418 | 1,219,903 | | GHG Emission Intensity | tons of CO2e/million RMB sales | 68.3 | 66.4 | 74.8 | | Hazardous Waste Emissions | tons | 12,348 | 6,630 | 4,850 | | Non-Hazardous Waste Emissions | tons | 14,808 | 13,035 | 7,722 | - The group's subsidiary, Zhongzhan Textile, received the "Bank of China (Hong Kong) Corporate Environmental Leadership Award" and the "Guangdong-Hong Kong Clean Production Excellent Partner (Manufacturing)" logo, demonstrating its contributions to environmental protection and clean production[434] Joint Development of Harmony The group actively fulfills its social responsibilities, contributing to society through charitable donations, school-enterprise cooperation, and support for vulnerable groups - In early 2020, to combat the COVID-19 pandemic, the group donated 5 million RMB through a charity federation for epidemic prevention and control[481] - In 2019, Tianhong Times donated 4 million RMB to the Nantong University Education Development Foundation[482][484] - The group actively engages in school-enterprise cooperation and provides scholarships and internship opportunities to several universities in Vietnam, supporting local education initiatives[482][488][491] Independent Auditor's Report The Independent Auditor's Report provides the auditor's opinion on the financial statements and highlights key audit matters Auditor's Opinion and Key Audit Matters PricewaterhouseCoopers issued an unmodified opinion on the group's 2019 consolidated financial statements, with key audit matters being revenue recognition and business combinations - The auditor believes that the consolidated financial statements fairly and accurately reflect the group's financial position and performance in accordance with Hong Kong Financial Reporting Standards[493] - Key audit matters include: - Revenue Recognition: Given the significant sales volume and dispersed customer base, the auditor focused on the occurrence, accuracy, and timely recording of revenue - Business Combinations: The acquisition of Winnitex Group resulted in significant negative goodwill, involving substantial judgments and assumptions in valuing intangible and tangible assets and allocating consideration[499][501] Consolidated Financial Statements This section presents the group's comprehensive financial statements, including the income statement, balance sheet, and cash flow statement Consolidated Income Statement In 2019, the group's revenue grew by 14.9% to 22.003 billion RMB, but operating profit and profit for the year declined due to increased cost of sales and expenses 2019 Consolidated Income Statement Summary (thousands of RMB) | Item | 2019 | 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 22,002,943 | 19,155,709 | 14.9% | | Gross Profit | 2,993,437 | 3,145,825 | -4.8% | | Operating Profit | 1,634,461 | 1,895,474 | -13.8% | | Profit Before Income Tax | 1,114,800 | 1,423,900 | -21.7% | | Profit for the Year | 922,749 | 1,167,943 | -21.0% | | Profit Attributable to Owners of the Company | 883,726 | 1,163,092 | -24.0% | Consolidated Balance Sheet As of year-end 2019, total assets increased by 12.8% to 21.175 billion RMB, driven by non-current assets, while total liabilities grew by 9.6% to 13.075 billion RMB, maintaining a stable financial structure 2019 Consolidated Balance Sheet Summary (thousands of RMB) | Item | 2019 | 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Non-current Assets | 11,374,054 | 9,336,032 | 21.8% | | Current Assets | 9,800,607 | 9,433,983 | 3.9% | | Total Assets | 21,174,661 | 18,770,015 | 12.8% | | Equity and Liabilities | | | | | Total Equity | 8,099,375 | 6,836,822 | 18.5% | | Non-current Liabilities | 5,492,066 | 5,159,770 | 6.4% | | Current Liabilities | 7,583,220 | 6,773,423 | 12.0% | | Total Liabilities | 13,075,286 | 11,933,193 | 9.6% | | Total Equity and Liabilities | 21,174,661 | 18,770,015 | 12.8% | Consolidated Cash Flow Statement In 2019, net cash from operating activities significantly increased to 2.418 billion RMB, while investing activities consumed cash for expansion and acquisitions, resulting in higher year-end cash and equivalents 2019 Consolidated Cash Flow Statement Summary (thousands of RMB) | Item | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 2,418,356 | 766,684 | | Net Cash Used in Investing Activities | (1,939,288) | (1,821,900) | | Net Cash from Financing Activities | 297,070 | 643,219 | | Net Increase/(Decrease) in Cash and Cash Equivalents | 776,138 | (411,997) | | Cash and Cash Equivalents at Beginning of Year | 1,054,721 | 1,466,718 | | Cash and Cash Equivalents at End of Year | 1,830,859 | 1,054,721 |