Luckin Coffee(LKNCY) - 2019 Q4 - Annual Report

Revenue Growth - Revenue from product sales increased from RMB840.7 million in 2018 to RMB3,009.6 million (US$432.3 million) in 2019, representing a growth of approximately 257$1.8 million) in 2019, compared to nil in the previous periods[522] - Deferred revenues increased from RMB126.5 million in 2018 to RMB144.9 million (US$20.8 million) in 2019, indicating a growth of approximately 14$3.3 million) as of December 31, 2019, compared to nil in 2018[526] - Inventory impairment recognized was RMB2.2 million (US$0.3 million) in 2019, compared to nil in the previous periods[532] - Cash and cash equivalents and restricted cash at the end of 2019 were RMB4,981.43 million (US$715.54 million), up from RMB1,630.98 million at the end of 2018[550] Operating and Investing Activities - Net cash used in operating activities was RMB2,166.97 million (US$311.3 million) in 2019, compared to RMB1,310.69 million in 2018[550] - Net cash used in investing activities increased to RMB1,815.89 million (US$260.8 million) in 2019 from RMB1,283.22 million in 2018[555] - Capital expenditures were RMB1,614.2 million (US$231.9 million) in 2019, compared to RMB1,005.7 million in 2018[557] Financing Activities - Net cash generated from financing activities was RMB7,240.75 million (US$1,040.1 million) in 2019, up from RMB3,988.40 million in 2018[556] - The company intends to fund future capital expenditures with existing cash balance and proceeds from the IPO and follow-on offerings[557] Operating Performance - Operating expenses as a percentage of net revenues decreased from 1,066.2% in Q1 2018 to 208.3% in Q4 2019[550] - Operating loss as a percentage of net revenues decreased from 966.2% in Q1 2018 to 108.3% in Q4 2019[550] Corporate Governance - The company has reformed its board and senior management to enhance corporate governance and foster long-term growth[569] - The board of directors consists of seven members, including four independent directors, ensuring a diverse governance structure[610] Employee Information - The company had 12,007 full-time employees and 18,114 part-time employees as of December 31, 2019, with a significant portion in store operations[620] - Employees receive comprehensive training through Luckin University, which includes both self-developed programs and external courses[623] Share-Based Compensation - Total unrecognized share-based compensation expense was estimated to be RMB0.2 million (US$0.03 million) as of December 31, 2019[546] - The 2021 Equity Incentive Plan allows for the issuance of up to 222,769,232 Ordinary Shares, with 4,291,928 restricted share units granted, entitling 34,335,424 Ordinary Shares[597] Loans and Financial Transactions - The company provided a loan of RMB147.6 million (US$20.6 million) to Haode Group Inc. in 2018, which was settled in February 2019[639] - In 2019, the company transferred RMB306.3 million to Haode Group Inc. and received the same amount back from Haode Investment Inc.[640] Risk Management - The company is exposed to foreign currency exchange rate risk, particularly in converting U.S. Dollars to Renminbi and vice versa, which can impact the amounts available for dividends and debt servicing[743] - The Renminbi is not freely convertible into foreign currencies, and all foreign exchange transactions must be approved by the People's Bank of China (PBOC) or authorized banks[745] - The company has not been exposed to material risks from changes in market interest rates and did not use derivative financial instruments for interest rate risk management in 2018 and 2019[746] Leadership Changes - The company experienced significant changes in executive leadership, including the termination of the former CEO and COO in July 2020[569] - The company operates under the supervision of Joint Provisional Liquidators (JPLs) since July 2020, requiring their approval for key management issues[633]