Securities code: 000525 securities abbreviation: St red sun Announcement No.: 2022-023 Nanjing Red Sun Co.Ltd(000525)
Announcement on reply to the letter of concern of Shenzhen Stock Exchange
The company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions.
Nanjing Red Sun Co.Ltd(000525) (hereinafter referred to as “the company and red sun”) received the letter of concern on Nanjing Red Sun Co.Ltd(000525) issued by the second management department of Shenzhen Stock Exchange on February 7, 2022 (company department concern letter [2022] No. 118) (hereinafter referred to as “concern letter”). After receiving the letter of concern, the company and the board of directors attached great importance to it and actively organized relevant departments to implement and respond to the problems involved in the letter of concern. The replies to relevant questions are hereby announced as follows:
According to the letter of concern, “on January 29, 2022, your company disclosed the performance forecast for 2021 (hereinafter referred to as the” performance forecast “), which is expected to achieve an operating revenue of 4.5 billion yuan to 4.7 billion yuan in 2021 and an expected loss of 3.4 billion yuan to 3.7 billion yuan in net profit attributable to the parent company. The main reason for the large loss of the company’s performance is that the company plans to withdraw a large amount of credit impairment loss. Our department is concerned about this. Please explain the following issues:
1. According to the announcement on the proposed provision for asset impairment disclosed by your company on the same day, in 2021, your company plans to withdraw about 1.9 billion yuan of bad debt provision for relevant receivables occupied by the funds of controlling shareholders and their related parties, and about 1.4 billion yuan of estimated liabilities for related guarantees and litigation.
(1) In June 2021, the court ruled to accept the reorganization application of Nanjing First Pesticide Group Co., Ltd. (hereinafter referred to as “Nanyi agricultural group”), the controlling shareholder of your company. As of January 5, 2022, the balance of non operating funds occupied by Nanyi agricultural group and its related party Red Sun Group Co., Ltd. (hereinafter referred to as “Red Sun Group”) was 2.952 billion yuan. Please explain the adequacy of the company’s provision for bad debts in combination with the above-mentioned settlement of fund occupation, the declaration of the company’s creditor’s rights and the possible repayment ratio.
[reply]
According to the company’s 2020 audit report issued by Lixin Zhonglian Certified Public Accountants (special general partnership)
And red sun group. As of April 28, 2021, the balance of non operating funds occupied by Nanyi agricultural group and red sun group was 2963.9845 million yuan.
During the period from April 29, 2021 to January 5, 2022, Nanyi agricultural group and Red Sun Group repaid the company a total of 11.6836 million yuan of occupied funds; As of January 5, 2022, the fund balance of listed companies occupied by Nanyi agricultural group and red sun group was 2952.3099 million yuan. On September 28, 2021, the company declared the creditor’s rights to the reorganization manager of Nanyi agricultural group in accordance with the procedures. Since Nanyi agricultural group has not yet entered the implementation stage of reorganization, the above declared creditor’s rights of the company have not been paid off. In view of this, based on the principle of prudence and in accordance with the accounting standards for business enterprises, the company calculates the recoverable amount of other receivables according to the reorganization repayment rate of the occupying entity, so as to withdraw the provision for asset impairment. The specific accrual basis is as follows:
1. After the company inquired with the reorganization manager of Nanyi agricultural group, and according to the relevant asset evaluation and creditor’s rights declaration of Nanyi agricultural group, combined with the repayment order and ratio of assets, the recoverable amount of other receivables is calculated according to the repayment rate of ordinary creditor’s rights under the reorganization state. The specific calculation method is combined with the realization rate and value of Nanyi agricultural group’s asset project, At the same time, it is preliminarily estimated on the premise of considering the items such as mutual benefit debt, employee creditor’s rights and taxes to be paid in priority. The specific calculation formula is: the repayment rate of ordinary creditor’s rights under reorganization = (estimation of asset realization value – mutual benefit debt, employee creditor’s rights and taxes to be paid in priority) / the total amount of ordinary creditor’s rights under reorganization. 2. Red Sun Group has not yet entered the reorganization process. The company calculates the recoverable amount of other receivables according to the repayment rate of ordinary creditor’s rights under the simulated reorganization state, and withdraws the corresponding asset impairment provision, The specific calculation formula is: the repayment rate of ordinary creditor’s rights under the simulated reorganization state = (estimated realizable value of assets – expected priority payment of mutual benefit debt, employee creditor’s rights and taxes) / the total amount of expected ordinary creditor’s rights under the simulated reorganization state.
In view of this, according to the above calculation method, the company has made an asset impairment provision of about 1.9 billion yuan for other receivables caused by the occupation of funds by Nanyi agricultural group and red sun group. The calculation basis for the provision of relevant bad debt reserves is reasonable and sufficient.
The above amount involving the provision for asset impairment of other receivables caused by capital occupation is a preliminary test based on the preliminary evaluation of Nanyi agricultural group and red sun group to calculate the repayment rate of ordinary creditor’s rights under the state of reorganization (or simulated reorganization). At present, Nanyi agricultural group is still in the process of reorganization. If its solvency changes according to the reorganization progress and the calculation level when the company discloses the performance forecast of 2021, the accrued amount is expected to be 1.452 billion yuan and 552 million yuan respectively. In combination with the solvency of Nanyi agricultural group and red sun group, please explain whether your company has been transferred by the bank again due to undertaking the guarantee liability, and the adequacy of your company’s provision of estimated liabilities for the above guarantee.
[reply]
In the early stage (2020), the company was transferred by the bank because the controlling shareholders Nanyi agricultural group and red sun group provided certificates of deposit and silver note pledge guarantee financing due to default. In addition to the bank transfer of funds due to undertaking the guarantee liability disclosed by the company, as of the reply date of this letter of concern, there are no other situations of bank transfer of funds due to undertaking the guarantee liability.
Through self-examination and verification, as of the reply date of this letter of concern, the company has not provided guarantee financing by deposit certificate or bank note pledge for Nanyi agricultural group, so it is expected that there will be no re transfer of funds by the bank due to undertaking the guarantee liability; As of the reply date of this letter of concern, the company has provided certificates of deposit and bank notes pledge guarantee for red sun group, with a balance of 178 million yuan. At present, the financing business of Red Sun Group is in normal lending and renewal, and the company will actively avoid bank transfer of funds due to undertaking guarantee liability.
As of December 31, 2021, the company’s guarantee balance to the controlling shareholder Nanyi agricultural group was 1.615 billion yuan and the guarantee balance to the related shareholder red sun group was 541 million yuan. In the above guarantee balance, in addition to the form of deposit certificate and pledge guarantee, the company also provides other forms of guarantee for Nanyi agricultural group and red sun group, including but not limited to credit guarantee. If the secured party’s creditor files a lawsuit and requires the company to perform the guarantee obligation, the company may perform the repayment or the executed assets.
In view of this, based on the principle of prudence and in accordance with the accounting standards for business enterprises, the company calculates and withdraws the estimated liabilities of about 1.25 billion yuan according to the repayment rate of ordinary creditor’s rights under the reorganization (or simulated reorganization) of the guaranteed party.
The calculation of the repayment rate of ordinary creditor’s rights under the secured party’s reorganization (or simulated reorganization) is the same as the calculation method of the repayment rate of Nanyi agricultural group and red sun group in the reply to question 1 (1) of this letter of concern. The basis for withdrawing the estimated liabilities this time is reasonable and sufficient.
The above amount of estimated liabilities due to external guarantee is a preliminary test based on the preliminary evaluation of Nanyi agricultural group and red sun group to calculate the repayment rate of ordinary creditor’s rights under reorganization (or simulated reorganization). At present, Nanyi agricultural group is still in the process of reorganization. If its solvency changes with the calculation level when the company discloses the 2021 annual performance forecast according to the reorganization progress, the accrued amount is expected to be adjusted accordingly, and the final data shall be subject to the financial data audited by the annual audit accounting firm.
(3) According to the announcement, during the reporting period, your company was sued by CNR Jinxin (Beijing) culture media Co., Ltd. due to advertising contract disputes, and the company plans to accrue estimated liabilities for the lawsuit based on the principle of prudence. Please explain the details of the advertising contract dispute, including but not limited to litigation matters, relevant amount, early information disclosure, etc., and explain the adequacy of the provision of relevant estimated liabilities of your company.
[reply]
Details of the contract dispute between the company and CNR Jinxin (Beijing) culture media Co., Ltd. (hereinafter referred to as “CNR Jinxin”):
On December 28, 2018, the company and CNR Jinxin signed the exclusive naming cooperation agreement for the “big country brand” project, agreed that both parties would cooperate on the 2019 “big country brand” project, and authorized the company to be the exclusive naming cooperative enterprise of the “big country brand”, with a total contract cost of 180 million yuan. Due to the serious differences between the two sides on the completion and effect of the project during the cooperation process, the company has paid a total of 20.8 million yuan as of December 31, 2021. On April 8, 2021, CNR Jinxin filed a lawsuit with Beijing No. 3 intermediate people’s court, requiring the company to pay all the unpaid amounts to it as agreed and bear the corresponding liquidated damages, lawyer fees and other expenses, totaling 150 million yuan. The company has disclosed the information related to the litigation matters of CNR Jinxin in the 2021 semi annual report on August 31, 2021. See Section VI VIII of the 2021 semi annual report for details Litigation matters. As of the reply date of this letter of concern, Beijing No. 3 intermediate people’s court has not made a first instance judgment on the above litigation matters.
Based on the preliminary hearing of this litigation case, the company has fully accrued the estimated liabilities caused by the above pending litigation in accordance with the accounting standards for business enterprises, and the accrual of the estimated liabilities caused by the pending litigation is sufficient.
(4) In 2018, the company acquired 100% equity of Chongqing Zhongbang Technology Co., Ltd. (hereinafter referred to as “Chongqing Zhongbang”) held by Jiangsu red sun Pharmaceutical Group Co., Ltd. (hereinafter referred to as “red sun Pharmaceutical Group”), a related party of Nanyi agricultural group, the controlling shareholder, in cash. In 2019, Chongqing Zhongbang failed to fulfill its performance commitment. In June 2020, both parties made a performance commitment adjustment. Chongqing Zhongbang’s performance commitment period was adjusted to 2018, 2019, 2020 and 2021, and the total audited after tax net profit of each year was no less than 368981200 yuan. Nanyi agricultural group promised to bear the full performance guarantee liability for the commitment made by red sun Pharmaceutical Group. Please check and explain the achievement of the above performance commitments and relevant accounting treatment.
[reply]
Under the influence of force majeure objective factors such as Jiangsu Xiangshui “321” special major explosion accident, production suspension and production restriction of major customers due to safety accidents, increased downward pressure on the global economy and repeated Sino US trade war, in line with the attitude of being responsible to the company and all investors, in June 2020, through consultation between red sun Pharmaceutical Group and the company, Adjust the performance commitment and compensation of Chongqing Zhongbang, and sign the supplementary agreement on performance commitment compensation to adjust the performance commitment and compensation of Chongqing Zhongbang. According to the supplementary agreement, the commitment period of Chongqing Zhongbang will be changed from 2018, 2019 and 2020 to 2018, 2019, 2020 and 2021, and the total audited after tax net profit of Chongqing Zhongbang in 2018, 2019, 2020 and 2021 will not be less than 368981200 yuan.
The completion of Chongqing Zhongbang’s commitment performance from 2018 to 2021 is as follows:
Completion rate of promised annual performance (10000 yuan)
6820.49 in 2018
2232.36 in 2019, 58.25% ~ 60.96% expected, 4438.84 in 2020
In 2021 (Unaudited), it is estimated that 8000 ~ 9000
Chongqing Zhongbang failed to fulfill its total commitment performance, mainly due to the prohibition of new and expanded chemical projects within one kilometer of the Yangtze River, resulting in the failure to obtain the approval of another 3000t capacity of the core product 2,3-dichloropyridine. At the same time, due to the spread of the global epidemic, the “energy consumption” dual control policy, resulting in insufficient operating rate, the continuous rise of raw material prices, the rise of comprehensive operating costs and other reasons.
Relevant accounting treatment: at present, Chongqing Zhongbang is still in the audit stage of 2021, and the annual audit accounting institution of the company will issue a special audit report on performance commitment after the audit. If Chongqing Zhongbang’s performance commitment is not completed and needs compensation, red sun Pharmaceutical Group shall pay the compensation by bank transfer or the way approved by both parties within the current year after the issuance of the special audit report of performance commitment and the receipt of the company’s written notice. According to the supplementary agreement, the compensation amount shall be determined according to the following formula:
Compensation cash amount = (total committed net profit of each year in the performance commitment period – cumulative realized net profit of each year as of the end of the performance commitment period) ÷ total committed net profit of each year in the performance commitment period × Transaction price of the underlying asset – compensated cash amount.
After the special audit report of performance commitment is issued, the company will send a letter to red sun Pharmaceutical Group to inform the compensation items and amount, and will carry out corresponding accounting treatment:
Debit: other receivables – Performance Compensation * *, credit: capital reserve * *.
(5) As of September 30, 2021, the book balance of the company’s goodwill was 613 million yuan, including 198 million yuan of goodwill formed by the acquisition of Nanjing Red Sun biochemistry Co., Ltd. (hereinafter referred to as “Nanjing biochemical”), and the net profits of Nanjing biochemical in 2019, 2020 and the first half of 2021 were – 132 million yuan, – 35 million yuan and 05 million yuan respectively. As of June 30, 2021, The company has not made provision for impairment. Please check whether there are signs of impairment of the above goodwill and the adequacy of the provision for impairment.
[reply]
The company has formed a consolidated goodwill due to the acquisition of the equity of Nanjing biochemical. According to the accounting standards for Business Enterprises No. 8 – asset impairment, when there are signs of impairment of assets or consolidated goodwill, the recoverable amount shall be estimated. The recoverable amount is determined according to the higher one between the net amount of the fair value of the asset minus the disposal expenses and the present value of the expected future cash flow of the asset.
