Financial Impairments and Write-offs - For the fiscal year 2021, the group recorded non-trade related financial asset impairment losses and write-offs of approximately RMB 315.3 million, with deposits impairment and write-offs of about RMB 114.1 million and other receivables impairment and write-offs of approximately RMB 201.2 million[5]. - As of December 31, 2021, the group had other receivables totaling RMB 1,771.9 million, with an impairment and write-off of RMB 201.2 million due to the overall downturn in the retail industry affecting the recoverability of these receivables[7]. - The group wrote off inventory amounting to approximately RMB 1,934.0 million and recognized an impairment of about RMB 22.4 million during the fiscal year 2021[8]. - In FY2021, inventory impairment amounted to approximately RMB 22.4 million, primarily due to slow-moving and obsolete inventory[17]. Inventory Management - The inventory write-off was primarily due to store closures during the COVID-19 pandemic, which led to inventory losses and safety risks[9]. - The company faced significant inventory pressure due to COVID-19, leading to increased measures to sell goods to nearby small third-party retailers and franchise stores[13]. - The company implemented a comprehensive physical inventory count and instructed all store managers to return consignment inventory to the company's stores[20]. - The frequency of regular and irregular inventory checks at stores has been increased[26]. Internal Controls and Management - The group has implemented control procedures for goods delivered to downstream customers, ensuring that revenue is recognized upon delivery and that trade receivables are managed under credit control policies[11]. - The management has improved internal control policies, focusing on accounts receivable monitoring and collection, inventory control for self-operated and franchise stores, and management of consignment goods[21]. - The headquarters' operations and supply chain departments review purchasing, sales, inventory levels, and turnover rates of subsidiaries weekly, investigating any anomalies immediately[25]. - The management has taken actions to enhance the company's asset protection and improve internal controls[18]. Challenges and Responses - The company recognized that the closure of many small retailers and franchise stores near its closed locations posed additional challenges during the pandemic[15]. - The management acknowledged that inventory losses were due to safety issues and pandemic-related factors beyond reasonable control[15]. - The company faced challenges in timely action due to lockdowns and travel restrictions during the pandemic[15]. - As of December 31, 2021, the controlling shareholder provided a total of approximately RMB 1.2 billion in pledges and guarantees to ensure the recovery of RMB 2.3 billion in accounts receivable[20]. Consignment Model Changes - The company has ceased the consignment model since the second half of 2021, which does not affect the annual performance announcement and other information in the 2021 annual report[27]. - The group’s policy requires regional managers to be responsible for consignment goods distributed in their areas, with store managers accountable for physical inventory and consignment goods in their stores[12]. - The company plans to halt purchases of low-turnover inventory types and will carefully execute replenishment orders during peak seasons or holidays[23].
迪信通(06188) - 2021 Q4 - 年度财报