Caixin
Jun 19, 2020 08:20 PM
FINANCE

Drugmaker Kangmei Reports 4.7 Billion Yuan Net Loss for 2019 After Multiple Downward Revisions

Kangmei headquarters in Beijing, June 7.
Kangmei headquarters in Beijing, June 7.

A Chinese drugmaker marred by a financial fraud scandal has reported a net loss for 2019 that was worse than previously expected, and its new auditor has raised questions about some of the figures in its latest annual report.

Shanghai-listed Kangmei Pharmaceutical Co. Ltd. reported a net loss of 4.7 billion yuan ($656 million) for 2019, a reversal from a net profit for the previous year, according to the company’s annual financial report (link in Chinese) released Thursday. Its 2019 revenue was down 32.9% at 11.4 billion yuan.

The report’s release came after Kangmei revised its 2019 estimated net loss several times. In January, the company estimated (link in Chinese) a 2019 net loss of 1.4 billion yuan to 1.7 billion yuan. But in April (link in Chinese), it said last year’s net loss was 3.6 billion yuan. On June 4, the company announced (link in Chinese) it had corrected its net loss estimate to 4.6 billion yuan.

The local securities regulator later accused the Guangdong-based company of failing to disclose information in an accurate manner. The Guangdong bureau of the China Securities Regulatory Commission (CSRC) demanded that the company publicly explain the reasons for the adjustments, according to Kangmei’s filing to the Shanghai Stock Exchange earlier this month.

In the annual report, Kangmei also revised figures for 2017 and 2018. The company said its 2018 net profit should have been 374.5 million yuan, rather than the 1.1 billion yuan it reported earlier. It also revised down its 2017 net profit to 1.4 billion yuan from 2.1 billion yuan.

Kangmei, one of China’s largest listed pharmaceutical companies, has suffered a credit downgrade and liquidity crunch after the CSRC uncovered fraudulent financial reporting last year. Following a months-long investigation, the CSRC accused Kangmei in August of overstating a category of operating funds by 88.7 billion yuan between 2016 and 2018.

The CSRC punished 22 Kangmei employees. The penalties included fines and lifetime bans from China’s securities markets for some top executives. After the scandal, Kangmei’s longtime accounting firm, GP Certified Public Accountants LLP, lost several big clients.

In a separate filing (link in Chinese) released by Kangmei on Thursday, accounting firm BDO China Shu Lun Pan Certified Public Accountants LLP said Kangmei failed to provide sufficient materials to prove that 110.6 million yuan in accounts payable — money it owed to creditors — last year was authentic. The funds related to seven construction projects including office buildings and health care service centers. The firm also questioned the authenticity of 2.6 billion yuan worth of Kangmei’s medical equipment and devices, and 801.4 million yuan in accounts receivable — money owed by customers — related to its medical equipment and device sales business.

On Thursday, Zhou Xiaochuan, China’s former central bank governor, said the country needs to improve transparency, accounting standards and governance of listed companies and financial markets, as more businesses seek to move their listings home amid growing regulatory pressure abroad. The remark came after U.S.-listed Luckin Coffee Inc.’s financial scandal, in which the Chinese company admitted to inflating last year’s sales by around 2.2 billion yuan.

Denise Jia and Han Wei contributed to this report.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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