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As listed companies begin to prepare their annual reports of 2018, SZSE recently published the Selective Annual Reports of Chinext-listed Companies in 2017 as a guide to help them improve disclosure quality. The Chinext Board is home to innovative businesses, startups and new economy companies, with strategic emerging companies accounting for 74% of total listed companies. It is a collection of new models, businesses and industries. Among the total 718 annual reports of Chinext-listed companies in 2017, SZSE chose and commented on 25 excellent ones in a bid to help listed companies understand annual report disclosure rules and improve the readability and usefulness of annual reports in decision making. Our aim is to push listed companies to become more transparent and present investors with their actual financial conditions.
SZSE has compiled the collection of excellent annual reports of listed companies for four years in a row since 2014. Meanwhile, we have constantly improved the inclusion criteria. This is a beneficial move of SZSE in serving innovative companies and startups. The collection of 2017 covers comprehensive sections in an annual report including "Business Overview", "Business Condition Discussion and Analysis", "Corporate Governance", "Social Responsibility", "Accounting Policy", and "Industry Information Disclosure Guidelines". We attach great importance to the disclosure of both financial and non-financial information. Listed companies are instructed to enhance disclosure of business overview and business condition discussion and analysis so that investors can clearly understand their business models, value realization, business conditions and risks. Also, they are encouraged to disclose their performance of social responsibility and efforts in targeted poverty alleviation.
Go into details rather than talk in generalities
Listed companies should give relevant and detailed information about business overview, core competitiveness, development strategies, industrial landscape and trends, and development prospects in "Business Overview" and "Business Condition Discussion and Analysis" sections. In "Business Overview" section, Lepu Medical describes its development strategies based on the needs of patients with cardiovascular disease, elaborates on its major business segments, and introduces its differentiated development strategies of different business segments. Furthermore, it illustrates each business segment by taking specific products and services as examples, which can help investors clearly and easily understand the company's business conditions. Heren Health discloses the next development strategy based on its business and technical realities and introduces the new services and products to be developed and new projects to invest in. When disclosing the competitive landscape, Wanlima introduces not only the overall competitive climate in China's leather industry, but also the development of four market segments including luxury, high-end, mid-to-high-end and low-end markets. Then it discusses the company's rivals in the four market segments. This annual report is coherent and well organized.
Fully disclose risk factors rather than report only the good news
Listed companies should disclose risk factors that may have negative impact on their future development strategies and prevent them from achieving their business goals in annual reports. When disclosing risk factors, companies should take their own characteristics into account and adhere to the principle of relevance and importance. Also, they should quantitatively analyze the impact of each risk factor on their current and future performance and introduce the actions taken or to be taken to address these risks. In its annual report, Haida Rubber and Plastic lists the risks facing the company including "fluctuated raw material prices", "uncertainty in new project implementation" and "dependence on major customers", and proposes measures to address each risk. Each of these measures is targeted at a risk with the industry characteristics taken into consideration. CTI reveals its risk factors based on industrial characteristics. Its "credibility and brand may be damaged by negative events" amid the current climate of China's inspection industry. "Fast growing capital expenditure may lead to profit decline" as the company sees rapid increase in the total spending for fixed assets, ongoing projects, project materials and devices. CTI proposes feasible measures to cope with these risks, including establishing and enhancing internal quality management systems, assessing whether it is rational and essential to buy a device, and controlling costs within a reasonable range.
Emphasize industrial information disclosure and improve information usefulness
We have made an effort to reveal the distinct characteristics of emerging industries in business model and profit pattern, and improve the readability, comparability and effectiveness of disclosed information. In 2013, we published the information disclosure guidelines for Chinext listed companies in the film and television industry and the pharmaceuticals industry. Later on, we rolled out disclosure guidelines for ten emerging industries including photovoltaic industry, energy conservation and environment protection, Internet gaming, video industry, e-commerce, marketing, LED industry chain and medical equipment. Most of the public companies have followed the guideline requirements, enhancing the effectiveness and usefulness of disclosed information. Enlight Media strictly adheres to the information disclosure guidelines for the film and television industry when disclosing its business plans. It gives detailed information about its production plans for 2018, including work name, release time, progress and major cast members. The information is particularly instructive to investors. Sungrow Power strictly follows the guidelines on disclosure of business information relating to the photovoltaic industry chain in the "Business Condition Discussion and Analysis" section. It fully discloses the meanings and key parameters of indexes including conversion efficiency, levelized cost of energy (LCOE), and unit production cost of its major product, photovoltaic inverter. So investors can intuitively understand the market position and core competitiveness of the company's products.
Take social responsibilities and contribute to targeted poverty alleviation
At the National Cybersecurity and Informatization Work Conference, President Xi Jinping stressed that only wealth that boosts compassion is meaningful and only enterprises with a strong sense of social responsibility are most competitive and viable. Enterprises that actively take their social responsibilities can build a good social image and win public recognition so as to become more competitive. Since its IPO, Aier Eye Hospital has disclosed its efforts in fulfilling social responsibilities regarding medical services, employee growth, public welfare actions, environment protection, stockholders' equity and partnership in its annual reports. In so doing, it wins a good reputation among the public. Wens Foodstuff Group has taken an active part in targeted poverty alleviation. By cooperating with local livestock farmers, it developed several tailor-made poverty alleviation models such as poor household building and operating, joint stock of poor households, poor household contracting and targeted poverty alleviation by governments. The company provided detailed, concrete and coherent description about its targeted poverty alleviation activities in its annual report of 2017, setting a good example of information disclosure.
