111, Inc. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; separate Q4 financial results are not provided in the supplied filing text. Financial statements are prepared under U.S. GAAP and reported in RMB; USD amounts are convenience translations.
Business context
111 operates online retail and wholesale pharmacies, an internet hospital and related digital healthcare and supply-chain services in China. Its business increasingly depends on B2B pharmacy sales: B2B product revenue represented 95.3% of FY2021 net revenue. In February 2022, after year-end, the company terminated its VIE arrangements and acquired direct equity ownership of the former VIE entities.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | RMB12.43bn | RMB8.20bn | +51.5% |
| B2B product revenue | RMB11.84bn | RMB7.49bn | +58.1% |
| B2C product revenue | RMB491.9m | RMB666.2m | -26.2% |
| Service revenue | RMB94.2m | RMB46.5m | +102.6% |
| Operating loss | RMB642.1m | RMB473.3m | Loss widened |
| Net loss | RMB621.0m | RMB467.1m | Loss widened 33.0% |
| Operating margin | -5.2% | -5.8% | Improved 0.6 percentage points |
| Net margin | -5.0% | -5.7% | Improved 0.7 percentage points |
| Net cash used in operating activities | RMB688.8m | RMB116.8m | Outflow increased |
Cost of products sold rose 50.6% to RMB11.80bn, broadly tracking revenue. Management attributed improved B2B segment profit to product-mix optimization; B2B segment profit increased to RMB511.7m from RMB226.6m. B2C segment profit declined to RMB109.4m from RMB139.3m. These segment profit measures exclude unallocated operating expenses and are not consolidated operating profit.
Liquidity, debt and balance sheet
- At year-end, cash and cash equivalents were RMB661.4m, restricted cash RMB99.3m and short-term investments RMB182.6m. Together these totaled about RMB943.2m, versus RMB1.62bn a year earlier.
- Current assets were RMB2.80bn and current liabilities RMB2.13bn. Short-term borrowings were RMB259.7m; a further RMB46.9m under reverse factoring was included in accrued expenses and other current liabilities.
- Inventories rose to RMB1.12bn from RMB766.5m. The company reported a RMB46.0m inventory write-down in 2021, up from RMB24.2m in 2020. Management linked inventory and payables increases to stocking for higher demand.
- Total liabilities were RMB2.30bn. Redeemable non-controlling interests, presented as mezzanine equity rather than liabilities, were RMB1.00bn. Total equity was negative RMB152.1m.
- Operating cash outflow was RMB688.8m, including a RMB400.6m increase in inventories; accounts payable increased RMB274.0m. Investing activities provided RMB60.1m net, while financing activities provided RMB74.3m net. Cash, cash equivalents and restricted cash declined RMB557.9m during the year.
Outlook, risks and unusual items
- Management stated that cash, short-term investments and anticipated operating cash flows were expected to cover working-capital needs and capital expenditures for the next 12 months. However, the company also reported continuing losses and operating cash outflows and warned that additional capital may be needed. No quantified revenue or earnings guidance is provided.
- Investors in 1 Pharmacy Technology may require its controlling shareholder to redeem some or all of their interests if its proposed STAR Market listing is not completed by June 30, 2023, subject to any agreed extension. The year-end redeemable non-controlling interest was RMB1.00bn; the filing warns that funding for redemption may not be available.
- Share-based compensation increased to RMB145.6m from RMB75.7m, including significant expense associated with employee awards in 1 Pharmacy Technology. This is a non-cash expense but affects reported results and may dilute shareholders.
- China regulatory and data-security requirements are evolving. The filing identifies risks involving licenses, online prescription-drug sales, cybersecurity and privacy rules, and possible PRC approvals or filings for offshore securities offerings. It reported no CAC cybersecurity review or regulatory objection to the listing as of the filing date.
- The PCAOB had determined that it could not inspect or investigate the company’s auditor completely. The filing warned of potential U.S. trading restrictions or delisting under the HFCAA; the stated timing depended on the law then in effect and possible amendments.
- COVID-19 disruptions and renewed restrictions in China could affect operations, customers, suppliers and logistics. The company also cited competitive pricing, inventory, product and medical liability, foreign-exchange and cross-border cash-transfer risks.
- The auditor issued an unqualified opinion on the financial statements and internal controls; management and the auditor reported internal control over financial reporting effective as of December 31, 2021. The auditor identified product-revenue occurrence as a critical audit matter due to the high volume and complexity of system-processed transactions.
- No dividends had been paid, and the company did not expect to pay dividends in the near future. It repurchased 166,500 ordinary shares under a $10m program in October and November 2021.
Important facts for investors to verify
- Review subsequent filings for operating cash flow, inventory turns and write-downs, and whether growth in B2B sales is translating into sustainable consolidated margins.
- Track the STAR Market listing process, the June 30, 2023 redemption trigger and any funding plan for potential investor redemptions.
- Confirm the legal and operational consequences of the February 2022 VIE termination and direct-ownership transition, including the status of required licenses and filings.
- Check current PCAOB inspection and HFCAA status, and any U.S. or PRC regulatory developments that could affect the ADS listing or offshore financing.
- Assess available liquidity after restricted cash, short-term borrowings, reverse factoring, lease commitments and PRC restrictions on moving funds offshore.
- Reconcile revenue-recognition controls and reported marketplace activity; the filing notes that key operating metrics such as GMV rely on internal assumptions and estimates.