Securities code: Zhejiang Reclaim Construction Group Co.Ltd(002586) securities abbreviation: ST sea reclamation Announcement No.: 2022054 Zhejiang Reclaim Construction Group Co.Ltd(002586)
Announcement on receiving and replying to the letter of concern from Shenzhen Stock Exchange
The company and all members of the board of directors guarantee that the contents of the announcement are true, accurate and complete without false records, misleading statements or major omissions.
Zhejiang Reclaim Construction Group Co.Ltd(002586) (hereinafter referred to as “the company”, “listed company” or “Waihai shares”) the board of directors received the letter of concern on Zhejiang Reclaim Construction Group Co.Ltd(002586) issued by the management department of listed companies of Shenzhen Stock Exchange on February 8, 2022 (company Department attention letter [2022] No. 129) (hereinafter referred to as “attention letter”). After paying great attention to it, we immediately carefully checked the relevant issues involved in the letter of concern, formed a written statement and disclosed it as follows:
On January 29, 2022, your company disclosed the performance forecast for 2021. Your company expects the net profit attributable to the shareholders of the listed company in 2021 (hereinafter referred to as “net profit”) to be 125 million yuan to 185 million yuan, an increase of 146.00% to 168.08% over the same period of the previous year, The net profit after deducting non recurring profit and loss (hereinafter referred to as “net profit after deducting non recurring profit”) was 32 million yuan to 92 million yuan, an increase of 123.25% to 166.08% over the same period of the previous year. The report of the third quarter of 2021 disclosed by your company shows that the net profit of your company after deducting non-profit in the first three quarters of 2021 is -575499 million yuan, with a year-on-year change of – 101.4%. Your company determines that it will resume control of Shanghai Millennium Urban Planning Engineering Co., Ltd. (hereinafter referred to as “Shanghai Millennium”) on December 31, 2021 and include it in the scope of consolidated statements. As Shanghai Millennium just regained control, your company is unable to obtain the audit and evaluation results of Shanghai millennium for the time being. The impact of Shanghai Millennium goodwill impairment and owner’s equity on the company’s performance in 2021 and the owner’s equity attributable to the shareholders of the listed company has not been considered in this performance forecast. Our department is concerned about this. Please verify and explain the following matters:
1、 On December 31, 2021, your company disclosed the announcement on the company’s restoration of control over Shanghai millennium and related party transactions, and your company signed the agreement on restoration of control with some existing shareholders and original shareholders of Shanghai Millennium (hereinafter referred to as “Shanghai Millennium shareholders”), The shareholders of Shanghai Millennium cooperate with your company to restore control of Shanghai millennium before December 31, 2021. The net assets of Shanghai Millennium disclosed this time are 1.06 billion yuan, and the net assets corresponding to 88.23% equity are 936 million yuan. The relevant financial data of Shanghai millennium have not been audited, and the impact of relevant transactions on the company’s financial data has not been determined. Your company’s 2021 semi annual report shows that your company included 88.23% equity of Shanghai millennium in other non current assets, with a book value of 994 million yuan, which is higher than the corresponding net asset data disclosed in the above announcement. Please explain the main calculation process and basis of the impairment test of long-term equity investment corresponding to Shanghai millennium at the end of 2020, whether the relevant basis is sufficient and reasonable, whether it is in line with the actual situation of Shanghai millennium, and whether the provision for asset impairment is prudent and reasonable, Whether the evaluation and goodwill impairment test of Shanghai Millennium long-term equity investment at the end of 2021 may lead to negative net profit of your company in 2021, and give special risk tips.
reply:
On May 16, 2018, the company completed the acquisition of 8822975% equity of Shanghai Millennium held by 31 counterparties such as Millennium Investment and Zhong Chengrong. In addition, the company also acquired a total of 1.23 million shares of the target company held by investors other than 31 counterparties through Millennium Investment and Wang Yongchun before the termination of the listing of Shanghai Millennium stock transfer system. Through the above transaction, Weihai shares held 8945975% equity of Shanghai millennium in total.
As Shanghai Millennium lost control in 2020, according to the evaluation of the then management, the company managed the equity held by Shanghai millennium and its corresponding impairment provision as a valuable long-term asset, and transferred the net equity investment value of 994556900 yuan of Shanghai millennium in 2019 to “other non current assets”, accounting for 12.23% of the total assets of the company at the end of 2020. According to the sum of the net assets (adjusted according to the accounting policies of listed companies) of Shanghai millennium at the end of 2019 is 9835473 yuan and the net value-added of fixed assets and intangible assets (the value-added of assets at the time of acquisition minus the net value after depreciation and amortization) is 128189400 yuan, which is 1111736700 yuan, Corresponding to 8945975% equity, the net value of Shanghai Millennium equity investment is 994556900 yuan.
Since Shanghai millennium has been unable to provide the financial statements before the restoration of control after May 2020, the company is unable to know the financial status and operating results of Shanghai millennium, obtain sufficient and reasonable basis for the impairment of Shanghai Millennium equity investment, and conduct quantitative test on the impairment test of Shanghai millennium’s corresponding long-term equity investment. At the same time, through online inquiry of bidding and winning information, the company found that there are still business winning cases in Shanghai millennium. Therefore, it is qualitatively judged that Shanghai Millennium 2020 is still in normal operation. Combined with its audited annual report in 2019, it is considered that the relevant entities still have high value. In view of the above reasons and the related goodwill impairment caused by the asset out of control has been fully accrued in 2019, so no further impairment provision has been made for the remaining entity value of the single asset in 2020.
Special risk warning: on December 31, 2021, the company will resume control over Shanghai millennium, and its statements will be included in the scope of the company’s consolidated statements. As Shanghai millennium has just resumed control, its specific financial status and operating results need to be audited and confirmed, and the specific impact can be determined only after the audit is completed. In view of the fact that the 2019 annual report cannot express opinions, one of the bases for the formation is that “in 2019, the company fully accrued the impairment provision for the goodwill of RMB 700805 million formed by its acquisition of 8945975% equity of Shanghai Millennium urban planning and Engineering Design Co., Ltd. in 2017. The accountant is unable to obtain sufficient and appropriate audit evidence on the rationality of the above impairment provision for business reputation.” The company will hire an intermediary to retest the impairment of the goodwill formed by the acquisition of Shanghai millennium at the end of 2019, evaluate the long-term equity investment value of Shanghai millennium at the end of 2020 and 2021, and test the impairment of the goodwill value at the end of 2021. Based on the fact that the intermediary agency has not issued the audit and evaluation results of Shanghai millennium, the impact of Shanghai Millennium goodwill impairment and owner’s equity on the company’s 2021 performance and owner’s equity attributable to shareholders of listed companies has not been considered in this performance forecast.
Due to the retest of the impairment of Shanghai Millennium goodwill at the end of 2019 and the evaluation results of its long-term equity investment value at the end of 2020, it will directly affect the company’s long-term equity investment value at the end of 2021 and whether the provision for impairment of relevant assets is fully accrued for goodwill, which may eventually have a negative impact on the company’s net profit in 2021. If the impact amount is large, It may even lead to negative net profit. Please invest rationally and pay attention to risks.
2、 On January 12, 2022, your company disclosed the announcement on the rectification report of Ningbo Securities Regulatory Bureau on the administrative supervision measures taken by the company. Your company confirmed that the actual time point of Shanghai Millennium out of control was May 15, 2020, and one of the independent directors abstained from voting on the relevant proposals of the rectification report. The performance forecast shows that your company determines that it will resume control over Shanghai millennium on December 31, 2021, and takes the financial statements of Shanghai millennium from the date of obtaining control to the end of 2021 as the preparation basis. There is no amount in the income statement and cash flow statement of Shanghai millennium from the date of obtaining control to the end of the reporting period. The board of directors of your company is requested to conduct a detailed analysis and demonstration on the adequacy and prudence of confirming the actual time point of Shanghai Millennium out of control in combination with the opinions of relevant independent directors, and explain whether the financial data in the early stage of Shanghai Millennium out of control determined by your company should be included in the scope of your company’s consolidated financial statements, and whether the restoration of control matters involve the retrospective adjustment of the financial data of previous years, Whether the relevant accounting treatment complies with the provisions of the accounting standards for business enterprises. The annual audit accountant shall check and give opinions.
Company reply:
(I) the board of directors made a detailed analysis and demonstration on the adequacy and prudence of confirming the time point when Shanghai actually lost control in the millennium
reply:
The 44th meeting of the sixth board of directors of the company was held on January 10, 2022 in the form of on-site combined communication. With 5 votes in favor and 1 abstention, the proposal on the rectification report on administrative supervision measures taken by Ningbo Securities Regulatory Bureau against the company was deliberated and adopted. Among them, The reasons for relevant independent directors to abstain from voting are: “May 15, 2020 is the starting point of getting out of control, which is controversial. For example, after the acquisition of millennium, there has never been cash income; the listed company’s request for internal audit of subsidiaries, especially the request in January 2020, was rejected; Millennium hired an audit institution alone, and the financial audit lacks independence; the personnel arrangement of listed companies has no influence on subsidiaries; the trust of subsidiaries Lack of understanding of interest and infringement of the right to know, so it was out of control before. The financial consolidation error in the first quarter of 2020 cannot judge the whole out of control node, and the existing board of directors is lack of basis to judge the out of control node at that time “.
After the opinions of relevant independent directors were released, the board of directors of the company attached great importance to it and checked its concerns. The relevant verification results are as follows:
1. Since the acquisition of Shanghai millennium in 2017, the company has only submitted a proposal for profit distribution to Shanghai millennium as the controlling shareholder on May 6, 2020, which was considered and rejected at the first extraordinary general meeting of shareholders of Shanghai Millennium held in Shanghai on July 25, 2020, However, it was deliberated and adopted at the first extraordinary general meeting of shareholders of Shanghai Millennium held in Ningbo on August 3, 2020. According to the civil judgment of Shanghai Minhang Court (2020) Hu 0112 min Chu No. 23565, (2021) Hu 0112 min Chu No. 9506, and the civil judgment of Shanghai No. 1 Intermediate People’s Court (2021) Hu 01 min Zhong No. 4658, the relevant court ruled 2020
The resolution of the first extraordinary general meeting of shareholders of Shanghai Millennium held in Shanghai on July 25, 2020 is valid, and the resolution of the first extraordinary general meeting of shareholders of Shanghai Millennium held in Ningbo on August 3, 2020 is invalid. Therefore, Shanghai millennium has no effective resolution on profit distribution to all shareholders so far, so the company has not obtained the cash income from investing in Shanghai millennium. However, the board of Directors believes that whether to pay cash dividends cannot be the basis for judging whether the subsidiary is out of control. 2. On January 14, 2020, the internal audit department of the company sent the contact letter on audit of Shanghai Millennium Urban Planning Engineering Design Co., Ltd. (zweihaishen (2020) No. 01) to Shanghai millennium, requiring a comprehensive audit of Shanghai millennium from January 19, 2020. After asking the relevant parties (the head and staff of the company’s internal audit department at that time and the head of Shanghai millennium at that time), the relevant parties said that the request of the listed company to send a letter to audit its subsidiaries in January 2020 was not rejected, and Shanghai Millennium fully cooperated, The then head of the company’s internal audit department confirmed that he led the annual audit accountant team to enter the site as scheduled, and other then staff members of the company’s internal audit department said that there was no case that Shanghai Millennium refused to audit in January 2020. The board of directors also obtained the wechat communication records of relevant parties as evidence. 3. The auditor of 2019 annual report, Lixin certified public accountants, was appointed after being deliberated and approved by the first extraordinary general meeting of shareholders in 2020 held by the company on January 17, 2020. Following the company’s previous operating practices, the relevant business agreement was signed by Shanghai millennium, and the audit fees were borne by Shanghai millennium. The board of Directors believes that in combination with the history and actual situation of the company’s control over each subsidiary, it can not judge the lack of independence of the audit at that time, nor can it judge the time point of losing control.
4. As the controlling shareholder, the company issued the notice on requesting the board of directors of Shanghai Millennium Urban Planning Engineering Co., Ltd. to hold the first extraordinary general meeting of shareholders in 2020 to the board of directors of Shanghai Millennium urban planning and Design Co., Ltd. on May 6, 2020, and submitted relevant proposals, mainly including amending the articles of association, electing the board of directors and the board of supervisors Renew a new seal, business license and other matters. On May 11, 2020, Shanghai Millennium held the seventh meeting of the third board of directors, and deliberated and adopted the proposal on disapproving the holding of the first extraordinary general meeting of shareholders in 2020 proposed by the controlling shareholder with 4 votes in favor and 1 abstention. Among the three Shanghai Millennium directors appointed by the company, two Directors voted in favour of the proposal and one abstained, leading to the adoption of the proposal. On May 15, 2020, the board of directors of Shanghai Millennium rejected the company’s request to convene the first extraordinary general meeting of shareholders in 2020. From this, the listed company learned that the personnel arrangement has no influence on Shanghai for thousands of years. The appointed directors cannot represent the company’s position. At the same time, the board of directors of Shanghai Millennium made a clear resolution contrary to the controlling shareholder, indicating that the company has lost control of the board of directors of Shanghai millennium. After this point, the company has been unable to implement effective management and control activities for Shanghai millennium. This is also the time when the board of directors confirmed that Shanghai millennium is actually out of control
It is one of the important basis for May 15, 2020.
5. The company successfully disclosed the first quarter report of 2020 on April 30, 2020, which did not show any sign of out of control in Shanghai millennium. According to the requirements of the company’s internal management system, the holding subsidiaries are required to timely report their financial status, operating results and other major matters to the listed company in accordance with the previous process. After May 2020, Shanghai millennium has been unable to provide the financial statements before restoring control, and the company is unable to know the financial status and operating results of Shanghai millennium. This shows that the company has begun to lack understanding of the major information of Shanghai millennium
