Reply on financial accounting issues in Xcmg Construction Machinery Co.Ltd(000425) “Notice of the CSRC on the first feedback on the examination of administrative licensing projects”
Tianheng zhuanzi (20238)
Tianheng Certified Public Accountants (special general partnership)
About Xcmg Construction Machinery Co.Ltd(000425) “China”
The notice of the CSRC’s first feedback on the examination of administrative licensing projects is
Reply to financial and accounting questions
Tianheng zhuanzi (2022) 00338 China Securities Regulatory Commission:
In accordance with the requirements of the notice of the CSRC on the first feedback on the examination of administrative licensing projects (hereinafter referred to as the “first feedback”) issued by your society on December 17, 2021, the audit institution Tianheng Certified Public Accountants (special general partnership) has conducted due diligence and verification on Relevant Issues according to the requirements of the first feedback. The reply is as follows, please review.
Question 1
According to the application documents, 1) according to the audited financial data and pro forma financial data, after the completion of this transaction, the basic earnings per share of the listed company as of December 31, 2020 and June 30, 2021 decreased by 17.88% and 4.77% respectively, the weighted average return on net assets decreased by 2.32% and 0.45% respectively, and the profitability decreased. 2) After the completion of the transaction, the asset liability ratio of listed companies as of December 31, 2020 and June 30, 2021 increased by 5.16% and 3.31% respectively, and the debt pressure increased. Please your company: 1) compare similar transactions and make supplementary disclosure on whether the decline of basic earnings per share and return on net assets of the listed company from January to June 2021 and 2020 after the completion of this transaction will have an adverse impact on the rights and interests of the listed company and minority shareholders, and whether the transaction is conducive to the listed company to enhance its sustainable profitability. 2) In combination with the increase in the asset liability ratio of the financial statements prepared by the listed company for reference, supplement the disclosure of whether this transaction is conducive to the improvement of the financial situation of the listed company, and analyze in detail the financial security of the company after reorganization and its basis. 3) In combination with the above, supplementary disclosure shall be made on whether the transaction complies with the relevant provisions of item 5 of Article 11 and item 1 of paragraph 1 of Article 43 of the measures for the administration of major asset restructuring of listed companies (hereinafter referred to as the restructuring measures). Independent financial advisers and accountants are requested to check and express clear opinions.
reply:
1、 Compared with similar transactions, supplementary disclosure is made on whether the decline of basic earnings per share and return on net assets of listed companies from January to June 2021 and 2020 after the completion of this transaction will have an adverse impact on the rights and interests of listed companies and minority shareholders, and whether the transaction is conducive to the enhancement of sustainable profitability of listed companies
(I) relevant information description
According to the audited financial data of the listed company and the preparation review report (Su Yayue [2021] No. 10) issued by Su yajincheng, the comparison of relevant financial indicators of the listed company before and after the preparation from January to June 2021 is shown in the table below:
Project from January to June 2021
Actual number pro forma number pro forma number actual number
Total operating income (10000 yuan) 515582137713547402197965265
Net profit attributable to the owner of the parent company (RMB 38015765, 54411561, 16395796)
(yuan)
Project from January to June 2021
Actual number pro forma number pro forma number actual number
Net interest rate (parent standard): 7.37%, 7.63%, 0.27%
Weighted average return on net assets 11.23%, 10.78% – 0.45%
Basic earnings per share (yuan / share) 0.48 0.46 -0.02
Note: net interest rate (attributable to the parent) = net profit attributable to the owner of the parent company / total operating income.
Taking June 30, 2021 as the benchmark date for comparison, the pro forma net interest rate (attributable to the parent) of the listed company has increased after the completion of this transaction. However, due to the increase in the number of share capital and the scale of net assets due to the issuance of new shares involved in this absorption and merger, the pro forma weighted average return on net assets and earnings per share have decreased slightly after the completion of the transaction. According to the audited financial data of the listed company and the preparation review report (Su Yayue [2022] No. 1) issued by Su yajincheng, the comparison of relevant financial indicators of the listed company before and after the preparation from January to September 2021 is shown in the table below:
Project from January to September 2021
Actual number pro forma number pro forma number actual number
Total operating income (10000 yuan) 674708661936738765262030104
Net profit attributable to owners of the parent company (46410616 million, 68091878 million, 21681262 million)
(yuan)
Net interest rate (parent standard): 6.88%, 7.27%, 0.39%
Weighted average return on net assets 13.46% – 0.20%
Basic earnings per share (yuan / share) 0.58 0.57 -0.01
Note: net interest rate (attributable to the parent) = net profit attributable to the owner of the parent company / total operating income
As shown in the above table, with the continuous enhancement of XCMG’s profitability, the decline of pro forma earnings per share and weighted return on net assets of listed companies continues to narrow.
From January to September 2021, the earnings per share of listed companies for reference was 0.57 yuan / share, a decrease of 0.01 yuan / share compared with the actual earnings per share, a decrease of 1.72%; From January to September 2021, the weighted average return on net assets of listed companies for reference was 13.26%, which was 0.20 percentage points lower than the actual weighted average return on net assets.
After searching comparable transactions in the same industry, there are cases of diluted earnings per share in the market Guangxi Liugong Machinery Co.Ltd(000528) ( Guangxi Liugong Machinery Co.Ltd(000528) . SZ) in the case of absorbing and merging Guangxi Guangxi Liugong Machinery Co.Ltd(000528) Group Machinery Co., Ltd., the pro forma earnings per share of Guangxi Liugong Machinery Co.Ltd(000528) 2020 was 0.84 yuan / share, the actual earnings per share was 0.90 yuan / share, the difference was 0.06 yuan / share, a decrease of 6.48%; From January to June 2021, the pro forma earnings per share was 0.51 yuan / share, and the actual earnings per share was 0.52 yuan / share, with a difference of 0.01 yuan / share, a decrease of 1.92%; It is mainly due to the expansion of Guangxi Liugong Machinery Co.Ltd(000528) share capital after the merger Anhui Jianghuai Automobile Group Corp.Ltd(600418) Anhui Jianghuai Automobile Group Corp.Ltd(600418) .SH）
It was 0.67 yuan / share, and the actual earnings per share was 0.71 yuan / share, with a difference of 0.04 yuan / share, a decrease of 5.63%; From January to April 2014, the pro forma earnings per share was 0.26 yuan / share, and the actual earnings per share was 0.27 yuan / share, with a difference of 0.01 yuan / share, a decrease of 3.70%; It is mainly due to the loss of Anhui Ankai Automobile Co.Ltd(000868) 2013 annual performance of the holding subsidiary of Anhui Anhui Jianghuai Automobile Group Corp.Ltd(600418) Group Co., Ltd., the subject of the transaction, and the significant year-on-year decrease in net profit from January to April 2014.
After XCMG introduced funds for the previous mixed ownership reform, relevant investment projects are being implemented in an orderly manner. Adhering to the basic principles and general requirements of XCMG’s mixed ownership reform, this transaction is an important measure for Xcmg Construction Machinery Co.Ltd(000425) improving industrial layout and enhancing core competitiveness. After the completion of this transaction, the listed company will realize the absorption and merger of the controlling shareholder XCMG Co., Ltd., and its asset scale, income scale and profit level will be significantly improved. According to the pro forma review report issued by accountant Su yajincheng, although the return on net assets and earnings per share have decreased to a certain extent in the short term, the decline has narrowed with the continuous enhancement of XCMG’s profitability; After the completion of the transaction, the relevant indicators will be further improved, which is mainly reflected in: (1) with the overall listing of the assets of the construction machinery sector, the listed companies will realize the full product coverage of construction machinery, and the brand advantage and scale effect will be further highlighted, which will help to improve the gross profit margin of products; (2) With the help of the platform of listed companies, the financing channels of XCMG excavator, XCMG tower crane, XCMG Shi Weiying, XCMG mining machinery and other companies will be further widened, and the financing cost is expected to decrease; (3) After the transaction is completed, the management mode and incentive mechanism of the target company after being incorporated into the listed company will be further optimized, the management and operation efficiency will be further improved, and the effect of cost reduction and efficiency increase will be realized.
(II) filling measures and arrangements for diluting the immediate return of this transaction
According to the opinions of the general office of the State Council on Further Strengthening the protection of the legitimate rights and interests of small and medium-sized investors in the capital market (Guo Ban Fa [2013] No. 110), several opinions of the State Council on further promoting the healthy development of the capital market (Guo Fa [2014] No. 17) According to the guidance on matters related to initial public offering and refinancing, major asset restructuring and dilution of immediate return (CSRC [2015] No. 31) and other relevant regulations, in order to protect the interests of investors, prevent the risk of dilution of immediate return and improve the ability of return to shareholders of the company, the company plans to take the following specific measures:
1. Consolidate and expand the company’s existing business and improve the company’s sustainable profitability
After the completion of this transaction, XCMG Co., Ltd. will be listed as a whole. With the financial support of the capital market, it can further promote business collaboration and improve operation efficiency. The listed company will realize the full product coverage of construction machinery, which will help to improve the comprehensive competitiveness and risk resistance of the listed company, and help the company accelerate to become a leader in the global construction machinery industry.
2. Strengthen the integration of business management and internal control to improve business efficiency
The company will continue to strengthen internal control, further strengthen grass-roots construction, basic management and basic skill improvement, enhance the ability of value creation and risk control, improve and improve the enterprise operation system of steady operation and steady development, comprehensively and effectively control the company’s operation and control risks, and improve the company’s operation efficiency and profitability.
In addition, the company will continue to strengthen cost control, improve and strengthen investment decision-making procedures, and make rational use of various financing tools and channels; Control the capital cost, improve the efficiency of capital use, reduce the operating cost and comprehensively and effectively control the capital and operation control risks of the company on the premise of meeting the working capital needs of the company’s business development.
3. Implement a positive profit distribution policy and pay attention to the return of investors and the protection of their rights and interests
In order to improve the company’s profit distribution policy, promote the company to establish a more scientific and reasonable profit distribution and decision-making mechanism, and better safeguard the interests of the company’s shareholders and investors, In accordance with the notice on further implementing matters related to cash dividends of listed companies (zjf [2012] No. 37) and the guidelines for the supervision of listed companies No. 3 – cash dividends of listed companies (zjf announcement [2013] No. 43) of the CSRC and in combination with the actual situation of the company, The company has stipulated the decision-making mechanism and procedure of profit distribution policy in the articles of association. The company will continue to strictly implement the aforesaid profit distribution policy, maintain the continuity and stability of the profit distribution policy, pay attention to the reasonable return to investors, and take into account the overall interests of all shareholders and the sustainable development of the company. 4. Commitment of the directors and senior managers of the company to take filling measures for the diluted immediate return of the company’s asset restructuring
In accordance with the relevant provisions of the CSRC, the directors and senior managers of the company make the following commitments that the measures taken by the listed company to fill in the immediate return can be effectively fulfilled:
“(1) I promise not to transfer benefits to other units or individuals free of charge or under unfair conditions, nor to damage the interests of the company in other ways.
(2) I promise to restrict the job consumption behavior.
(3) I promise not to use the company’s assets to engage in investment and consumption activities unrelated to my performance of duties.
(4) I promise that the salary system formulated by the board of directors or the salary and assessment committee will be linked to the implementation of the filling and return measures of the listed company.
(5) If the company subsequently launches the company’s equity incentive plan, I promise that the exercise conditions of equity incentive of listed companies to be announced will be linked to the implementation of the company’s filling return measures.
(6) From the date of issuance of this commitment to the completion of the reorganization of the listed company, if the CSRC makes other new regulatory provisions on filling return measures and commitments, and the above commitments cannot meet the provisions of the CSRC, I promise to make supplementary commitments in accordance with the latest provisions of the CSRC at that time.
(7) I earnestly fulfill the company’s relevant measures for filling returns and any commitments made by me on filling returns. If I violate the above commitments and cause losses to the listed company or investors, I am willing to bear the liability for compensation to the listed company or investors according to law. “
5. Commitment of controlling shareholders to take filling measures for diluting the immediate return in the asset restructuring of listed companies
Holding shares of the company after the completion of this transaction
