Business context and reporting period
111, Inc. filed this annual Form 20-F for the fiscal year ended December 31, 2020; it is not a standalone fourth-quarter report, and the filing does not provide clear Q4-only financial results. The company operates online retail and wholesale pharmacies, an internet hospital and related healthcare services in China. Financial statements are prepared under U.S. GAAP and reported in RMB; U.S. dollar figures are convenience translations.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | RMB 8.20bn (US$1.26bn), up 107.6% | RMB 3.95bn |
| Net loss | RMB 467.1m (US$71.6m); loss margin 5.7% | RMB 501.8m; loss margin 12.7% |
| Operating loss | RMB 473.3m | RMB 493.5m |
| Operating cash flow | Outflow of RMB 116.8m | Outflow of RMB 512.4m |
| Cash and cash equivalents | RMB 1.19bn | RMB 581.3m |
| Short-term investments | RMB 300.2m | Nil |
| Short-term borrowings | RMB 229.3m | RMB 95.1m |
Product revenue was RMB 8.16bn and service revenue RMB 46.5m. B2B product revenue was RMB 7.49bn, or 91.3% of total revenue; B2C product revenue was RMB 666.2m. Cost of products sold was RMB 7.84bn, equal to 95.5% of revenue; reported segment profit before unallocated operating expenses was RMB 365.8m. Fulfillment costs were RMB 226.9m (2.8% of revenue), selling and marketing RMB 399.6m (4.9%), general and administrative RMB 128.2m (1.6%), and technology RMB 92.1m (1.1%).
At year-end, current assets were RMB 2.87bn and current liabilities RMB 1.63bn. Restricted cash of RMB 128.9m was not available for general operations. Total liabilities were RMB 1.70bn, including lease liabilities; operating lease commitments were RMB 109.5m. The company reported RMB 406.4m of total equity and RMB 924.2m of redeemable non-controlling interests. Capital expenditures were RMB 25.8m. No dividends are planned for the foreseeable future.
Changes versus the prior comparable period
- Revenue more than doubled, primarily reflecting expansion of the B2B business; B2B product revenue grew about 127%, while B2C product revenue increased 4.7%.
- Net loss narrowed by RMB 34.7m and net loss margin improved from 12.7% to 5.7%; the company nevertheless remained loss-making.
- Operating cash outflow declined substantially, but remained negative. The improvement included higher accounts payable, which increased RMB 629.0m, alongside a RMB 304.5m increase in inventory.
- Inventory write-downs rose to RMB 24.2m from RMB 0.8m. Short-term borrowings increased to RMB 229.3m.
- The company changed segment presentation to B2B and B2C, reclassifying prior-period figures to conform. It raised RMB 934.8m from investors in its operating subsidiary; those interests are redeemable if the planned STAR Market listing does not proceed by June 30, 2023, subject to the investment agreements.
Outlook, risks and unusual items
Management said cash, short-term investments and anticipated operating cash flows should cover working capital and capital expenditure needs for the next 12 months. It also said additional capital may be needed, including if COVID-19 affects the business or financing markets. No quantified revenue, earnings or margin guidance is provided. Management expects continued investment and expense growth as the business expands.
- COVID-19 disrupted operations, including temporary disruption at the Wuhan fulfillment facility, even as demand for some products increased; future effects remain uncertain.
- Key risks include extensive and evolving Chinese healthcare, pharmaceutical, internet and data-protection regulation; prior administrative penalties concerning prescription-drug sales and online advertising; and potential product, medical-liability, inventory and cybersecurity exposures.
- The company relies on contractual VIE arrangements for significant operations. Their enforceability and regulatory treatment in China remain uncertain.
- The planned STAR Market listing of 1 Pharmacy Technology is not assured. If not completed by the contractual deadline, investors may seek redemption at cost plus 6% annual interest; the parent may not have sufficient funds to meet a redemption.
- The filing identifies PCAOB inspection-access and U.S. delisting risks. It also reports the auditor’s unqualified opinion on the financial statements and effective internal control over financial reporting at year-end.
- Unusual financial items include RMB 75.7m of share-based compensation and RMB 24.2m of inventory write-downs. The company recorded RMB 934.8m of redeemable non-controlling interests related to the subsidiary financing.
Important facts for investors to verify
- Whether B2B growth can be sustained without further deterioration in working capital, inventory quality or supplier-payment dependence.
- Whether cash and available credit remain adequate after considering restricted cash, debt maturities and possible STAR investor redemption obligations.
- Progress and required approvals for the STAR listing, and any changes to the investors’ redemption rights or timing.
- Compliance with changing online prescription, pharmacy, internet-hospital, advertising and personal-data rules, including the status of prior penalties.
- VIE contractual control and the practical ability to transfer cash from PRC operations to the holding company.
- Audit-inspection developments and any effect on the ADS listing; the filing notes uncertainty around PCAOB access despite the auditor’s clean opinions.