Securities code: 002501 securities abbreviation: * ST Liyuan Announcement No.: 2022-009 Jilin Liyuan Precision Manufacturing Co.Ltd(002501)
Announcement on the 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.
Jilin Liyuan Precision Manufacturing Co.Ltd(002501) (hereinafter referred to as “company” or “Liyuan refining”) received the letter of concern on Jilin Liyuan Precision Manufacturing Co.Ltd(002501) issued by the management department of listed companies of Shenzhen Stock Exchange on January 29, 2022 (company department concern letter [2022] No. 89) (hereinafter referred to as “concern letter”). After receiving the letter of concern, the company timely organized relevant personnel to carefully check and implement the relevant issues raised in the letter of concern. Now the answers to the questions raised in the letter of concern are as follows.
1、 Your company is requested to verify the compliance and accuracy of the company’s operating revenue recognition, explain the deduction of the company’s operating revenue and the basis for judgment, and check whether the deduction of operating revenue is complete in detail according to the relevant provisions on “matters related to the deduction of operating revenue” in the guidelines for self discipline supervision of listed companies No. 1 – business handling of the exchange. If not, Please deduct and recalculate the amount of operating income after deduction.
Company reply:
1. Basic information of the company’s main business: the company is mainly engaged in the R & D, production and sales of aluminum profiles and deep-processing products and rail transit equipment. The products can be divided into industrial aluminum profiles, building aluminum profiles and deep-processing products of various aluminum profiles, rail vehicle equipment, etc. Among them, industrial aluminum profiles are customized according to customers’ specifications and quality standards. The products are mainly parts and components of terminal products such as transportation, electronics and appliances, Cecep Solar Energy Co.Ltd(000591) photovoltaic, durable consumer goods, electromechanical power equipment and so on; Building aluminum profiles are mainly used to assemble door and window frames, curtain wall systems and interior decoration materials used in buildings. The company focuses on the production of high-grade building aluminum profiles with complex surface treatment; Aluminum profile deep-processing products are further processed into finished or semi-finished products for customers through cutting, CNC machining center processing, welding, grinding, surface treatment and assembly according to customers’ needs. Rail transit equipment provides large parts of vehicle head and vehicle body according to customers’ requirements. The company’s main business model is independent production and sales. The company’s products are sold by a combination of direct selling (directly sold by the company to end customers) and authorized distribution (sold by the company to dealers themselves). The company’s product sales mainly adopt the pricing principle of “benchmark aluminum price + processing fee”. The company adopts the production mode of “setting production according to sales”. The main raw materials of the company’s products are aluminum ingots, aluminum rods and alloys, which are purchased independently.
2. Revenue recognition of the company: the operating revenue obtained from the company’s independent production, sales and operation meets the definition of revenue in the accounting standards for Business Enterprises No. 14 – revenue. In the daily accounting, the company divides the income into two parts: main business income and other business income. Among them, the main business income is the operating income obtained from the company’s sales of products and the processing fee income obtained from the provision of deep processing business; Other business income of the company includes income from the sale of waste products, mold fees charged for external processing of molds, site rental fees, nitriding processing fees, etc. The company compares the above-mentioned income item by item with the items related to the deduction of operating income in part 4.2 of the guidelines for self discipline supervision of listed companies No. 1 – business handling of Shenzhen Stock Exchange, and makes analysis and judgment in combination with the characteristics of the industry, the company’s own business model, the degree of connection between the business and the main business, and the commercial essence of the transaction. Based on the analysis and judgment of the company and the principle of prudence, the company believes that the income obtained from other businesses of the company belongs to the business income irrelevant to the main business, and the business income obtained from the company’s sales of products and the provision of deep processing business are the main business income, The judgment is based on the statement of 4.2 matters related to the deduction of operating income in part IV of the guidelines for self discipline supervision of listed companies No. 1 – business handling of Shenzhen Stock Exchange.
3. Verification of the company: according to the verification of the company, the company achieved an operating income of 366957851.22 yuan in 2021, including 350600643.59 yuan of main business income (342177706.92 yuan of sales income of self-produced products, 8422936.67 yuan of processing fee income of deep processing business) and 16357207.63 yuan of other business income. In the “performance forecast for 2021” disclosed by the company on January 29, 2022, the operating income of the company in 2021 is 350 million yuan to 380 million yuan, the operating income after deduction is 330 million yuan to 360 million yuan, and the company expects to deduct 20 million yuan, The company has fully deducted the relevant matters of operating income deduction in accordance with 4.2 of Part IV of the guidelines for self discipline supervision of listed companies No. 1 – business handling of Shenzhen Stock Exchange.
Accountant’s reply:
(I) verification procedure
Up to now, our audit of the financial statements of Liyuan refined in 2021 has not been completed.
For the compliance and accuracy of the company’s operating revenue recognition and the deduction of operating revenue, we have implemented the following verification procedures:
1. Understand and evaluate the internal control related to revenue recognition in the sales and collection cycle of Liyuan refining, and test the effectiveness of its design and operation;
2. Select some sales contracts, read the contract terms related to the transfer of control of goods, and evaluate whether the revenue recognition method and recognition time point meet the requirements of the accounting standards for business enterprises;
3. Analyze the changes of major customers in the current period compared with the previous period, check the industrial and commercial information and shareholder information of major customers, and judge whether they have a related relationship with the company and whether the transaction with the company has commercial essence;
4. Obtain and check the supporting documents such as sales contracts, delivery records, cargo transportation documents, VAT invoices and collection records of major customers to verify the authenticity of income;
5. Analyze the change trend of monthly and quarterly sales volume, and compare the key financial indicators such as sales gross profit margin, accounts receivable turnover rate and inventory turnover rate with the data of comparable periods and other enterprises in the same industry;
6. Conduct on-site visits to customers with major doubts, obtain the sales contracts and billing information of some customers of Liyuan refining to downstream customers, and check the final sales matters;
7. Combined with the letter confirmation procedure implemented for accounts receivable, confirm the current and previous sales of customers; 8. Implement sales revenue cut-off test;
9. Check the relevant contracts of other business income – scrap aluminum sales income business, check the sales sheet, invoice and other materials, and implement the letter confirmation procedure for the transaction amount of large customers.
(II) verification opinions
Based on the above verification procedures, we did not find any major abnormalities in the compliance and accuracy of the company’s operating revenue recognition, nor did we find any incomplete deduction of the company’s operating revenue.
Since our audit of the financial statements of Liyuan refining in 2021 has not been completed, the deduction of operating income of Liyuan refining in 2021 is subject to the final special assurance report on the deduction of operating income.
2、 The performance forecast shows that during the reporting period, the recovery of the company’s capacity utilization did not meet expectations, and there are signs of impairment of fixed assets. After preliminary judgment, 292 million yuan of provision for impairment of fixed assets is required, resulting in large losses in the reporting period. Please explain the specific conditions of the above fixed assets, the reasons, basis and specific calculation process of the provision for impairment of fixed assets, and whether the provision for impairment in the previous period and the current period is sufficient and reasonable.
Company reply:
1. Details of the company’s fixed assets: as of December 31, 2021, the details of the company’s fixed assets are as follows.
Monetary unit: RMB
Account name book value
Original net value
Total of buildings 1467235863.71 816843282.94
Fixed assets – buildings 1430544150.78 791732728.03
Fixed assets – structures and other auxiliary facilities 36691712.93 25110554.91
Total equipment: 3030823871.95 877497686.36
Fixed assets – machinery and equipment 2804101395.25 837937860.91
Fixed assets – mould 226722476.70 39559825.45
Total fixed assets 4498059735.66 1694340969.30
As of December 31, 2021, all fixed assets of the company have been included in the scope of impairment test, including: (1) a total of 58 buildings and structures, including industrial plants such as melting and casting workshop, sorting plant, extrusion workshop, oxidation workshop and spraying workshop, as well as office buildings such as complex building, office building, dormitory building and guard room, with a total of 51 buildings, The total construction area is 48138.9 square meters; The structures include enclosure, pavement, water well, natural gas station, etc. the building types include brick concrete, concrete, etc., with a total of 7 items. (2) There are 604 items and more than 1600 sets of machinery and equipment, mainly including aluminum profile extruder, aluminum melting furnace, holding furnace, processing center, crane, etc. (3) There are more than 14200 sets of molds in total. Some assets are in use and some are stored in the mold warehouse. They are stacked neatly and sent and received in order.
2. The reasons, basis and specific calculation process of the provision for impairment of fixed assets in the reporting period:
During the reporting period, the recovery of the company’s capacity utilization did not meet expectations, and there were signs of impairment of fixed assets. According to the accounting standards for business enterprises and the company’s accounting policies and other relevant provisions, in accordance with the principle of prudence, the company hired an evaluation institution to conduct impairment test. The evaluation institution used fair value minus disposal expenses to evaluate, and the recoverable amount = fair value – disposal expenses.
3. Whether the provision for impairment in the previous period and the current period is sufficient and reasonable:
Since 2018, the company has broken its capital chain, had difficulties in operation and failed to achieve the expected use efficiency of its assets.
(1) In 2018, after the completion of the project of Shenyang Liyuan Rail Transit Equipment Co., Ltd. (hereinafter referred to as “Shenyang Liyuan”), a wholly-owned subsidiary of the company, due to internal and external factors, it did not achieve the expected benefits and showed signs of impairment, The company hired Jilin Tianhua Asset Appraisal Co., Ltd. (hereinafter referred to as “Jilin Tianhua”) to conduct the impairment test of Shenyang Liyuan’s asset portfolio. Jilin Tianhua conducted the test and issued the Shenyang Liyuan asset portfolio impairment test consulting report. According to the report, the company made a provision for impairment of fixed assets of 2.35 billion yuan; (2) On November 14, 2019, Shenyang Liyuan was ordered to enter the bankruptcy reorganization procedure by Shenyang intermediate people’s court. On November 29, 2019, Shenyang Liyuan received the decision of Shenyang intermediate people’s court, which said that Shenyang intermediate people’s court had appointed Beijing Weiheng law firm and Lianda Certified Public Accountants (special general partnership) as the bankruptcy reorganization administrator of Shenyang Liyuan, the administrator had taken over Shenyang Liyuan, and the company no longer controlled Shenyang Liyuan. According to the accounting standards for business enterprises, Shenyang Liyuan is no longer included in the scope of the company’s consolidated financial statements. In 2019, the company’s operation was in trouble. Despite the relief and assistance of the government, its production and operation maintained a low level. The company hired Beijing Zhongkehua Asset Appraisal Co., Ltd. (hereinafter referred to as “Beijing Zhongkehua”) to conduct impairment test on the company’s fixed assets, Beijing Zhongke Huawei issued the asset evaluation report of Jilin Liyuan Precision Manufacturing Co.Ltd(002501) fixed assets impairment test project for the purpose of financial report, according to which the company accrued 857 million yuan of fixed assets impairment reserves;
(3) In 2020, the company accepted the reorganization by the intermediate people’s Court of Liaoyuan City, Jilin Province, and confirmed the completion of the implementation of the reorganization plan on December 31, 2020. During the reorganization, the investors invested 1.15 billion yuan in the company. At the same time, the reorganization investors submitted the business plan to the company’s manager, who formulated the business plan of “based on tradition + optimizing structure + entering the high-end”. According to the reorganization plan formulated by the manager, the company stripped off inefficient assets and paid off debts, and the company’s financial situation has changed significantly, The company expects a comprehensive recovery of production and operation and a significant increase in capacity utilization. Based on this, the company has no large provision for impairment of fixed assets.
(4) In 2021, the recovery of the company’s capacity utilization did not meet expectations, and there were signs of impairment of fixed assets. The company hired Beijing Guorong Xinghua Asset Appraisal Co., Ltd. (hereinafter referred to as “Beijing Guorong Xinghua”) to conduct impairment test on the company’s fixed assets, Beijing guorongxing Huawei Co., Ltd. issued the first draft of the asset evaluation report of the appraisal project of the recoverable amount of fixed assets involved in the Jilin Liyuan Precision Manufacturing Co.Ltd(002501) proposed preparation of financial statements. According to the report, the company accrued 292 million yuan for the impairment of fixed assets.
To sum up, the company believes that the provision for impairment of fixed assets in the previous period and current period is sufficient and reasonable.
3、 The net profit of the company after deducting non recurring profits and losses from 2018 to 2020 has been for three consecutive years
