Baozun Inc. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. Although the request refers to 2019 Q4, this filing is an annual report and does not provide a standalone Q4 income statement or cash-flow statement. Financial statements are prepared under U.S. GAAP; amounts below are RMB unless otherwise stated.
Business context
Baozun provides e-commerce services to brands in China, including store operations, technology, digital marketing, customer service, warehousing and fulfillment. It also sells products under a distribution model. At year-end, it served 231 brand partners. GMV is an operating metric, not revenue.
Key financial metrics
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Net revenue | RMB7,278.2 million | RMB5,393.0 million | +35.0% |
| Product sales revenue | RMB3,422.2 million | RMB2,516.9 million | +36.0% |
| Services revenue | RMB3,856.0 million | RMB2,876.2 million | +34.1% |
| GMV | RMB44,410.3 million | RMB29,426.0 million | +50.9% |
| Operating income | RMB383.7 million | RMB355.8 million | +7.8% |
| Net income | RMB281.9 million | RMB269.8 million | +4.5% |
| Net income attributable to ordinary shareholders | RMB281.3 million | RMB269.7 million | +4.3% |
| Operating cash flow | RMB301.4 million | Negative RMB98.5 million | Turned positive |
Operating margin declined to 5.3% from 6.6%; net margin declined to 3.9% from 5.0%. Services were 53.0% of revenue, versus 53.3% in 2018. Distribution GMV was RMB3,849.5 million, or 8.7% of total GMV. Non-GAAP net income was RMB358.2 million (US$51.5 million); the company excludes share-based compensation and acquisition-related intangible amortization, so this measure should be considered alongside GAAP results.
Operating expenses rose 36.9%, faster than revenue. Product costs were 81.1% of product sales revenue, compared with 80.8% in 2018. Fulfillment costs were 23.1% of revenue, sales and marketing 24.9%, and technology and content 5.4%.
Financial position and liquidity
- At December 31, 2019, cash and cash equivalents were RMB1,144.5 million; restricted cash was RMB382.4 million; short-term investments were RMB844.0 million; and long-term time deposits were RMB209.5 million.
- Current assets were RMB5,690.4 million and current liabilities RMB2,324.0 million. Restricted cash and some deposits are not freely available for general use.
- Accounts receivable increased to RMB1,800.9 million from RMB1,547.6 million; receivable turnover improved to 84 days from 89. Inventory rose to RMB896.8 million from RMB650.3 million; inventory turnover lengthened to 102 days from 93.
- Short-term loans were RMB428.5 million. The company also had US$275 million principal amount of 1.625% convertible senior notes due 2024; their year-end carrying amount was RMB1,859.9 million. Holders may require repurchase in May 2022 or upon a fundamental change.
- Investing activities used RMB1,133.5 million, primarily for short-term investments, time deposits, property and equipment, and software development. Financing activities provided RMB1,776.9 million, mainly from the convertible-note issuance and bank borrowing, partly offset by debt repayments.
Material changes, outlook and risks
- Management attributed revenue growth to stronger sales from existing partners, new brand partners and marketing efforts. The number of brand partners rose from 185 to 231. Revenue as a percentage of GMV fell from 18.3% to 16.4%, which management linked to category mix.
- Operating cash flow improved to positive RMB301.4 million, but working-capital demands remained substantial: inventory and receivables both increased. Management said current cash, operating cash flow and credit facilities should cover anticipated needs for at least 12 months.
- A fire at a third-party Shanghai warehouse on October 29, 2019 caused an estimated RMB45.5 million operating loss in Q4. The filing also records a RMB21.3 million provision for potential compensation and related costs and RMB24.2 million of fire-related inventory write-down in other operating expense. Baozun does not maintain business-interruption insurance.
- Two U.S. securities class actions filed in December 2019 allege misleading statements concerning termination of a Chinese electronics brand relationship. The company disputes the claims; it could not estimate a possible loss or range.
- COVID-19 disrupted operations and demand beginning in early 2020. The company said the impact on 2020 results could not be reasonably estimated. No quantitative 2020 guidance is provided in the filing.
- Risks include reliance on major brands and platforms—top 10 brand partners represented approximately 61.3% of 2019 revenue—and reliance on Tmall; competition and partner non-renewals; working-capital and inventory management; debt service; and PRC regulatory, foreign-exchange and VIE-structure uncertainties. The filing also notes potential limits on U.S. regulatory access to the auditor’s work papers.
- The company reported effective disclosure controls and internal control over financial reporting at year-end; the auditor issued unqualified opinions on the financial statements and internal controls. The company declared no present plan to pay cash dividends.
Important facts for investors to verify
- Review the class-action docket, developments in the electronics-brand relationship and any subsequent estimate or disclosure of litigation exposure.
- Check whether fire losses, inventory write-downs and compensation provisions were fully recorded, and whether recovery from the warehouse operator or other parties is available.
- Track collection of receivables, inventory turnover, operating cash flow and the amount of restricted cash as sales grow.
- Assess debt repayment and conversion terms, available credit facilities, and whether cash is accessible across the company’s PRC and offshore entities.
- Monitor concentration and renewal among key brand partners and the company’s access to Tmall and other e-commerce channels.
- Review subsequent reporting for COVID-19 effects, 2020 outlook, and regulatory or VIE developments that could affect operations or cash transfers.