About Shenwu Energy Saving Co.Ltd(000820)
Inquiry letter of 2021 Annual Report
Annual report inquiry letter [2022] No. 158 of the company Department Shenwu Energy Saving Co.Ltd(000820) board of directors:
In the process of reviewing your company’s 2021 annual report (hereinafter referred to as “annual report”), our department has paid attention to the following matters:
1. Audit opinion. Your company’s 2021 financial report has been issued with an unqualified opinion with highlighted items by the annual audit accounting firm. The matters involved in the highlighted item paragraph are that your company received the prior notice of administrative punishment (punishment Zi [2021] No. 112) from the CSRC in December 2021, and your company did not carry out accounting treatment for the false records in the financial report involved. According to the audit report, this matter will not affect the company’s opening retained earnings in 2020 and 2021 and its net profit in 2021. The annual auditor of your company is requested to explain the specific reasons and rationality for judging that the above matters do not affect the opening retained earnings in 2020 and 2021 and the net profit in 2021, and whether there is a situation in which unqualified opinions with emphasized items replace non-standard opinions.
2. About operating income and accounts receivable. The annual report shows that your company’s operating income in the first three quarters was only 1.5442 million yuan, and in the fourth quarter was 119 million yuan, accounting for 98.71% of the annual operating income. The business income excluding normal operation and the income difficult to form a stable business model totaled 4.4235 million yuan; At the end of the reporting period, the balance of accounts receivable of your company was 96.882 million yuan, an increase of about 98 times compared with the same period of last year; During the reporting period, accounts receivable accounted for about 80.63% of operating revenue, and the turnover days of accounts receivable were about 855.51 days. The first quarter report of 2022 shows that the balance of accounts receivable of your company is 838142 million yuan. Please explain to your company:
(1) Whether there are seasonal characteristics in the business in the reporting period, the signing time, execution and delivery cycle of orders, the time point of confirming the operating revenue, etc., and explain the reason and rationality of the high proportion of operating revenue in the fourth quarter of the reporting period;
(2) Whether the subsidiary’s main business income in the reporting period does not meet the requirements of the “main business order” and whether it should be deducted from the main business income of the listed company in the reporting period, and whether it does not meet the requirements of the “main business income” in the reporting period;
(3) The payment and settlement cycle, credit policy, account period and collection policy of the company’s sales orders explain the reasons and rationality of the high balance of accounts receivable at the end of 2021 and the end of the first quarter of 2022;
(4) The recovery after the reporting period of 2021, indicating whether the relevant accounts receivable have exceeded the credit accounting period but have not been recovered, and explaining the amount and proportion of uncollected accounts beyond the accounting period, and further explaining whether the provision for bad debts of your company’s accounts receivable in the reporting period is sufficient;
(5) In combination with the answers to questions (1) to (4), explain whether the business income recognition and income deduction in the reporting period are in compliance, and whether there is a situation of avoiding compulsory termination of listing by early or cross period recognition of income, deduction of business income without deduction, no or less provision for bad debts of accounts receivable, etc.
The annual audit accountant of your company is requested to check the above issues, explain the audit procedures performed and the audit evidence obtained on the operating revenue and accounts receivable, and express clear opinions on whether the recognition of operating revenue is compliant, whether the deduction items are complete, and whether the provision for bad debt reserves is sufficient.
3. On government subsidies and litigation. The annual report shows that the government subsidy of 50 million yuan included in the current profit and loss in the reporting period is the settlement reward obtained in line with the local government’s investment promotion and other local support policies. The main body of the payment is the Management Committee of the New District Changyue Industrial Park. According to the announcement on litigation disclosed by your company on January 8, 2022, Nanchang Xinjian district government signed the project investment cooperation agreement and supplementary agreement with your company’s controlling shareholder Shenwu Technology Group Co., Ltd. (hereinafter referred to as “Shenwu group”) on November 7, 2018, including the construction of Industrial Park base by Shenwu group in Changyue Industrial Park of Xinjian District The industrial and commercial registration and tax registration of listed companies are settled in the above-mentioned parks within the agreed period, and the commencement, construction and other matters are agreed. The people’s Government of the new district will give some financial support. After the signing of the agreement, the people’s Government of Xinjian District paid a reward fund of 50 million yuan to Shenwu group and transferred the fund to your company’s account. However, Shenwu group only went through the industrial and commercial change registration formalities of your company in December 2018, and other contractual obligations were not fulfilled. Therefore, the government of Xinjian District filed a lawsuit to order Shenwu group to immediately return the supporting fund of 50 million yuan and interest. The annual report disclosed that the above litigation matters have been settled, and the government plans to withdraw the lawsuit after improving the procedures. Please your company:
(1) In combination with the signing subject of the relevant project investment cooperation agreement and supplementary agreement, the subject responsible for the performance of contract obligations, the subject of the lawsuit request of the government of Xinjian district to order the return of support funds, explain whether the subsidy object of the above government subsidy is Shenwu group or a listed company, and explain the reasons and basis;
(2) Judge that the subsidy object is a listed company, explain the specific obligations that your company should perform in the project investment cooperation agreement and its supplementary agreement (such as industrial and commercial change registration procedures, if applicable), and explain whether it meets the recognition conditions of government subsidies in combination with the performance of obligations; If yes, explain the reasons and basis for the recognition of government subsidies as profit and loss in 2021 in combination with the specific time when your company’s relevant obligations are fulfilled (e.g. handling industrial and commercial change procedures in December 2018, if applicable), and the specific payment time of relevant government subsidies in Xinjian District, and whether they comply with the provisions of accounting standards for Business Enterprises No. 16 – government subsidies;
(3) Judge whether the subsidy object is Shenwu group, explain whether the above amount belongs to the current account or equity investment between the controlling shareholder and your company, and explain the reasons and basis. The rationality of your company’s recognition of the above amount as government subsidy and included in non operating income is in line with the provisions of accounting standards for Enterprises No. 16 – government subsidy;
(4) Explain the judgment basis for the settlement of the above litigation matters, provide relevant evidence documents, further explain whether your company has accrued estimated liabilities and whether the accrued amount is sufficient for the above litigation matters, and explain the reasons and basis;
(5) The amount of the above-mentioned government subsidy accounts for 13.77% of the absolute value of your company’s audited net profit of the previous year. Please explain whether your company’s interim reporting information disclosure obligations on the above-mentioned government subsidy comply with the relevant provisions of the stock listing rules;
(6) In combination with the answers to questions (1) to (5) above, explain whether your company has thickened its net assets by improperly recognizing government subsidies or cross period recognition of government subsidies, and not withdrawing or less withdrawing estimated liabilities, so as to avoid the situation of compulsory termination of listing.
The annual audit accountant of your company is requested to check the above issues, explain the audit procedures and audit evidence obtained on the relevant government subsidies, and express clear opinions on whether the confirmation of government subsidies is compliant and whether the provision of estimated liabilities is sufficient.
4. Compensation for performance commitments. According to the disclosure of the annual report, through the communication between your company and the controlling shareholder, Shenwu group has confirmed in writing that it will perform its compensation obligations in accordance with the performance compensation agreement. In view of the current liquidity crisis of Shenwu group, all the company’s shares held by Shenwu group have been pledged, judicial frozen and waiting to be frozen. If the obligation of share compensation cannot be fulfilled objectively, RMB 324602319198 will be compensated in cash. At present, Shenwu group is actively communicating with the creditors and the transferred original pledgee about the debt repayment and performance compensation plan. Please explain to your company:
(1) As for the accounting treatment of the above compensation obligations of the controlling shareholder, the communication progress of the performance compensation plan so far, and the practical measures your company plans to take; (2) Whether the change from share compensation obligation to cash compensation of 324602319198 yuan involves the change of commitment, and whether your company’s review procedures and information disclosure comply with the relevant provisions of the guidelines for the supervision of listed companies No. 4 – the commitment and performance of the actual controllers, shareholders, related parties, acquirers and listed companies of listed companies and the guidelines for the application of regulatory rules – listing class No. 1;
(3) In combination with the reply to question (1) (2), further explain whether the share compensation (or cash compensation) obligation that Shenwu group has not fulfilled so far constitutes the new non operating capital occupation of your company by the controlling shareholder, and explain the reasons and basis for judgment.
The independent directors of your company are requested to check and express clear opinions on the above issues (2) (3); The annual audit accountant of your company is requested to check the above questions (1) (3) and give clear opinions.
5. Focus on goodwill. During the reporting period, your company recognized goodwill of 128 million yuan for Wuhan United Liben Energy Technology Co., Ltd. (hereinafter referred to as “United Liben”), and no provision for impairment of the above goodwill was made during the reporting period. United Liben is the assets injected by the restructuring investors of your subsidiary Jiangsu Metallurgical Design Institute Co., Ltd. (hereinafter referred to as “Jiangsu Institute”). Your company said in the announcement on the reply to the letter of concern of Shenzhen Stock Exchange and the relevant information on the asset evaluation of Wuhan United Liben Energy Technology Co., Ltd. disclosed on June 11, 2021 that the expected operating income of United Liben in 2021 is 893805 million yuan The net profit is 158065 million yuan. According to the annual report, Unilever actually realized an operating income of 49514300 yuan and a net profit of 7383900 yuan during the reporting period. Please your company:
(1) Combined with the development status and business environment of the industry, the list compares and explains the various business financial indicators predicted during the income method evaluation and the actually realized business financial indicators, and explains the changes or differences. The specific reason why the actual operating income and net profit of the company in 2021 are far less than expected is rationality;
(2) Explain whether the assumptions have undergone significant adverse changes and whether the selection of relevant parameters is inconsistent with the reality;
(3) In combination with the reply to question (1) (2), explain the reason and rationality that no impairment provision has been made for the relevant goodwill of the joint venture in the reporting period, and supplement and disclose the goodwill impairment test process, key parameters (such as the growth rate in the forecast period, the growth rate in the stable period, the profit rate, the discount rate, the forecast period, etc. when the present value of future cash flow is expected) and the recognition method of goodwill impairment loss.
The annual audit accountant of your company is requested to check the above issues, explain the audit procedures and audit evidence obtained on the goodwill and its impairment, and express clear opinions on whether the provision for goodwill impairment is sufficient.
6. Focus on debt restructuring. The annual report shows that during the reporting period, your company realized a total debt restructuring income of 1.558 billion yuan. Please explain the basis for your company to judge that the current obligations of relevant debts have been discharged in combination with the specific situation of debt restructuring and the relevant provisions of the debt exemption agreement (such as whether the creditors involved have completed the approval and internal resolution procedures, whether the debt exemption is irrevocable, whether the additional conditions for debt exemption have been fully met, and whether the relevant creditors still have the right to claim claims against your company in the future), And the rationality of confirming the income from debt restructuring.
The annual audit accountant of your company is requested to check the above problems and give clear opinions. 7. Scope of consolidated statements. In November 2021, Jiangsu Institute, the holding subsidiary of your company, introduced the investor Nanjing Xuyang Engineering Technology Co., Ltd. (hereinafter referred to as “Nanjing Xuyang”) in the form of capital increase. Nanjing Xuyang increased the capital to Jiangsu Institute with RMB 10 million, and your company gave up the right of preemptive subscription. Before this capital increase, your company held 509996% equity of Jiangsu Institute; After this capital increase, your company holds 48.45% of the equity of Jiangsu Institute and Nanjing Xuyang holds 5% of its equity. According to the annual report, Jiangsu Institute is still a subsidiary within the scope of your company’s consolidated statements during the reporting period. Please explain the reason and basis that the capital increase of Jiangsu Institute in the reporting period did not lead to the change of the scope of the consolidated statements, and whether it complies with the relevant provisions of the accounting standards for Business Enterprises No. 33 – consolidated financial statements. The annual audit accountant of your company is requested to check and give clear opinions.
8. About going concern ability. Your company’s net profit after deducting non recurring profits and losses has been negative for four consecutive years. Please check whether there are significant uncertainties in the company’s ability to continue as a going concern and whether the assumption of going concern in the financial statements is reasonable.
The annual audit accountant of your company is requested to check the above problems and give clear opinions. 9. Contingencies. The notes to the financial statements show that your company and Bank Of China Limited(601988) Nanjing Branch have pending litigation on the dispute over the financial loan contract, which is currently under retrial. Please explain whether your company has accrued estimated liabilities for the above pending litigation, whether the accrual of estimated liabilities is sufficient, and explain the reasons and basis.
The annual audit accountant of your company is requested to check the above problems and give clear opinions. 10. Focus on inventory. According to the annual report, your company’s inventory is mainly products in process. During the reporting period, no provision for falling price has been made for the inventory, and the provision for falling price has been reversed or written off by 2.2919 million yuan. Please explain the reason and rationality of not withdrawing any inventory falling price reserves in the reporting period in combination with the specific product types of inventory, and whether there is a situation in which the falling price reserves are not withdrawn, so as to thicken the net assets and avoid the warning of delisting risk.
The annual audit accountant of your company is requested to check the above problems and give clear opinions. 11. On liquidity risk. During the reporting period, the net cash flow generated by your company’s operating activities was -144 million yuan, the cash ratio was 0.17, and the interest guarantee ratio of cash flow was -13.42. Please explain whether there is liquidity risk in combination with the current operating cash flow, financing capacity, asset liability structure, working capital demand, etc. if so, explain the countermeasures you have taken or plan to take, and make necessary risk tips.
12. Risk warning. As the net profit before and after deducting non recurring profits and losses in 2020 is negative, the annual operating income is less than 100 million yuan, and the audited ending net assets are negative, the company’s shares have been warned of delisting risk; The company deducted non recurring losses for three consecutive fiscal years in 2018, 2019 and 2020
