(formerly known as Bisu Technology Group International Limited 比速科技集團國際有限公司) (Incorporated in the Cayman Islands with limited liability) （於開曼群島註冊成立之有限公司） Stock Code 股份代號：1372 2020 Annual Report 年報 CONTENTS 目錄 2 Corporate Information 公司資料 4 Director's Statement 董事報告 9 Summary of Significant Contracts on Hand 重大手頭合約概要 11 Management Discussion and Analysis 管理層討論及分析 32 Biographical Details of Directors and Senior Management 董事及高級管理層履歷 39 Corporate Governance Report 企業管治報告 68 Report of the Directors 董事會報告 86 Env ...

[Financial Statements](index=3&type=section&id=Financial%20Statements) [Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) The company achieved a net profit of **HKD 499 million** in H1 2020, a turnaround from a **HKD 264 million** loss, primarily due to one-off debt restructuring gains, with revenue down **12.3%** and gross profit turning positive 2020 H1 Key Profit or Loss Indicators (HKD Thousand) | Indicator | 2020 H1 (Unaudited) | 2019 H1 (Unaudited) | Y-o-Y Change | | :--- | :--- | :--- | :--- | | **Revenue** | 215,823 | 246,196 | -12.3% | | **Gross profit/(loss)** | 5,998 | (24,680) | Turnaround to profit | | **Net gain on derecognition of convertible bonds** | 293,712 | — | Not applicable | | **Gain on modification of promissory notes** | 294,577 | — | Not applicable | | **Profit/(loss) for the period** | 499,053 | (264,268) | Turnaround to profit | | **Profit/(loss) attributable to owners of the parent** | 499,053 | (263,446) | Turnaround to profit | | **Basic earnings/(loss) per share (HK Cents)** | 249.5 | (131.7) | Turnaround to profit | | **Diluted earnings/(loss) per share (HK Cents)** | 129.9 | (131.7) | Turnaround to profit | - The key driver for the turnaround was one-off gains from debt restructuring, including approximately **HKD 294 million** from the derecognition of convertible bonds and approximately **HKD 295 million** from the modification of promissory notes, totaling approximately **HKD 588 million**[5](index=5&type=chunk)[219](index=219&type=chunk) [Condensed Consolidated Statement of Financial Position](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2020, the company's net debt improved to **HKD 466 million** from **HKD 975 million**, with total liabilities decreasing to **HKD 830 million**, mainly due to debt restructuring reclassifying current to non-current liabilities Key Balance Sheet Indicators as of June 30, 2020 (HKD Thousand) | Indicator | June 30, 2020 (Unaudited) | Dec 31, 2019 (Audited) | Change | | :--- | :--- | :--- | :--- | | **Total non-current assets** | 4,119 | 51,929 | -92.1% | | **Total current assets** | 364,425 | 387,166 | -5.9% | | **Total current liabilities** | 403,489 | 1,367,928 | -70.5% | | **Total non-current liabilities** | 429,076 | 45,922 | +834.4% | | **Net current liabilities** | (41,064) | (980,762) | Significant improvement | | **Net debt** | (466,021) | (974,755) | Significant improvement | - The significant decrease in current liabilities was primarily due to the reclassification of convertible bonds (originally **HKD 386 million**) and promissory notes (originally **HKD 554 million**) to non-current liabilities after terms were revised, greatly improving the company's short-term solvency[12](index=12&type=chunk)[15](index=15&type=chunk) [Condensed Consolidated Statement of Changes in Equity](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) As of June 30, 2020, the company's total equity deficit narrowed from **HKD 975 million** to **HKD 466 million**, primarily due to the **HKD 499 million** profit recorded, partially offsetting accumulated losses - The **HKD 499 million** profit recorded during the period was the main reason for the improvement in the equity deficit, reducing accumulated losses from **HKD 1.37 billion** to **HKD 870 million**[38](index=38&type=chunk) [Condensed Consolidated Statement of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) In H1 2020, operating cash flow turned negative with a net outflow of **HKD 8.8 million**, indicating weakened core business cash generation, and period-end cash decreased to **HKD 55.9 million** 2020 H1 Cash Flow Statement Summary (HKD Thousand) | Item | 2020 H1 | 2019 H1 | | :--- | :--- | :--- | | **Net cash flow from operating activities** | (8,802) | 31,459 | | **Net cash flow used in investing activities** | (106) | (16,184) | | **Net cash flow from financing activities** | (1,844) | 13,058 | | **Net decrease in cash and cash equivalents** | (10,751) | 28,333 | | **Cash and cash equivalents at period-end** | 55,876 | 51,689 | [Notes to the Condensed Consolidated Interim Financial Information](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Interim%20Financial%20Information) [1. Corporate Information & 2. Basis of Preparation](index=9&type=section&id=1.%20Corporate%20Information%20%26%202.%20Basis%20of%20Preparation) The company operates in civil engineering and automotive engines, facing 'going concern' uncertainty due to **HKD 466 million** net debt and **HKD 41.06 million** net current liabilities, though management expects sufficient working capital via debt revisions, shareholder support, and cost control - The Group primarily operates in two main businesses: civil engineering and construction, and automotive engines[45](index=45&type=chunk) - Despite recording a profit during the reporting period, the company still had net current liabilities of **HKD 41.06 million** and net debt of **HKD 466 million** as of June 30, 2020, raising significant doubts about its ability to continue as a going concern[51](index=51&type=chunk) - Management's confidence in the company's going concern is primarily based on: (i) alleviated repayment pressure from convertible bonds and promissory notes through revised terms; (ii) a commitment from the major shareholder to provide additional financial support of no less than **HKD 58.6 million**; and (iii) the implementation of strict cost control measures[51](index=51&type=chunk)[53](index=53&type=chunk) [4. Segment Information](index=13&type=section&id=4.%20Segment%20Information) The civil engineering segment is the Group's pillar, with revenue up **21.1%** and contributing **98.9%** of total revenue, while the automotive engine business saw a **96.5%** revenue decline and **HKD 52.96 million** segment loss, severely impacting overall performance Segment Performance by Business Segment (HKD Thousand) | Business Segment | 2020 H1 Revenue | 2019 H1 Revenue | 2020 H1 Segment Result | 2019 H1 Segment Result | | :--- | :--- | :--- | :--- | :--- | | **Civil Engineering and Construction** | 213,397 | 176,244 | 401 | (7,480) | | **Automotive Engines** | 2,426 | 69,952 | (52,955) | (194,436) | | **Total** | 215,823 | 246,196 | (52,554) | (201,916) | [12. Goodwill](index=22&type=section&id=12.%20Goodwill) Significant impairment losses of **HKD 16.34 million** on goodwill and **HKD 28.9 million** on property, plant, and equipment were recognized for the automotive engine business due to stalled customer restructuring, dim production prospects, and COVID-19 impacts - The primary reasons for impairment are the ongoing and uncertain restructuring of automotive engine business customers (especially BAIC Yinxiang) and unsatisfactory progress in resuming production, coupled with the impact of the pandemic, resulting in minimal operations for this business[111](index=111&type=chunk)[112](index=112&type=chunk) - Based on pessimistic forecasts for future cash flows, the company conducted an impairment assessment for the automotive engine cash-generating unit (CGU), recognizing impairment losses on related assets[113](index=113&type=chunk)[115](index=115&type=chunk) [14. Accounts Receivables](index=30&type=section&id=14.%20Accounts%20Receivables) Impairment provisions for accounts receivable reached **HKD 485 million**, mostly from the automotive engine business, due to high collection risk from customer restructuring delays and financial distress, prompting aggressive debt recovery efforts Accounts Receivable and Impairment by Business Segment (HKD Thousand) | Business Segment | Gross | Impairment | Net | | :--- | :--- | :--- | :--- | | **Civil Engineering and Construction** | 37,465 | (63) | 37,402 | | **Automotive Engines** | 655,056 | (484,879) | 170,177 | | **Total** | 692,521 | (484,942) | 207,579 | - The default rate for automotive engine business customers was assessed at **100%**, with the company accruing impairment based on estimated recovery rates ranging from **12.5%** to **38.1%** for different customers[162](index=162&type=chunk)[163](index=163&type=chunk) [17. Convertible Bonds & 18. Promissory Notes](index=38&type=section&id=17.%20Convertible%20Bonds%20%26%2018.%20Promissory%20Notes) Major term revisions to convertible bonds and promissory notes were central to H1 performance, extending bond maturity to 2025 and making notes perpetual, significantly enhancing liquidity and generating **HKD 588 million** in one-off accounting gains, directly leading to the turnaround - The maturity date of convertible bonds was extended by five years to February 4, 2025, with this revision leading to the derecognition of a portion of the liability and generating a gain of **HKD 294 million**[187](index=187&type=chunk)[184](index=184&type=chunk) - The promissory notes' term was modified to perpetual, with a fixed interest rate of **5%**, generating a gain of **HKD 295 million**[198](index=198&type=chunk) - The convertible bonds and promissory notes originally held by Power Expert were transferred to LE Group Holdings Pte. Ltd. on February 3, 2020[191](index=191&type=chunk)[201](index=201&type=chunk) [Management Discussion and Analysis](index=45&type=section&id=Management%20Discussion%20and%20Analysis) [Business and Financial Review](index=45&type=section&id=Business%20and%20Financial%20Review) In H1 2020, Group performance turned profitable due to one-off debt restructuring gains, with civil engineering growing **21.1%** despite challenges, while automotive engine revenue collapsed **96.5%** and operations halted due to stalled customer restructuring and pandemic impacts [Civil Engineering and Construction Business](index=46&type=section&id=Civil%20Engineering%20and%20Construction%20Business) Despite COVID-19 and economic downturns, this business showed robust performance, with revenue growing to **HKD 213.4 million**, accounting for **98.9%** of Group revenue, securing four new contracts, and holding **HKD 609 million** in total contract value for ongoing projects Civil Engineering and Construction Business Financial Performance (HKD Million) | Indicator | 2020 H1 | 2019 H1 | Change | | :--- | :--- | :--- | :--- | | **Revenue** | 213.4 | 176.2 | +21.1% | | **Gross profit** | 6.1 | 1.6 | +281.3% | | **Gross profit margin** | 2.8% | 0.9% | +1.9 ppt | - As of June 30, 2020, the Group secured four new contracts, including two from HKT[228](index=228&type=chunk)[230](index=230&type=chunk) [Automotive Engines Business](index=48&type=section&id=Automotive%20Engines%20Business) This business segment saw revenue plummet **96.5%** to **HKD 2.4 million** due to uncertain major customer restructuring and severe pandemic impacts, leading to minimal operations and significant impairment losses Automotive Engines Business Financial Performance (HKD Million) | Indicator | 2020 H1 | 2019 H1 | Change | | :--- | :--- | :--- | :--- | | **Revenue** | 2.4 | 70.0 | -96.5% | | **Gross loss** | 0.1 | 0.5 | -80.0% | - The core reason for the business's distress is the slow and uncertain restructuring progress of major customers (such as BAIC Yinxiang), with unknown plans for resuming production, directly leading to a depletion of orders[232](index=232&type=chunk) [Prospects](index=49&type=section&id=Prospects) Management is cautious for H2 2020, expecting civil engineering to seek stable development, while the automotive engine business faces a bleak outlook with focus on debt recovery and potential divestment, alongside continued cost control and pursuit of new opportunities - Civil Engineering Business: Despite a challenging operating environment in Hong Kong, the company is confident in securing business opportunities through its extensive experience and will continue to adopt a prudent bidding strategy[235](index=235&type=chunk) - Automotive Engine Business: Customer restructuring delays are expected to continue adversely impacting the business, with dim prospects for recovery, leading the company's strategy to shift towards maximizing debt recovery and considering divestment of the business[236](index=236&type=chunk)[238](index=238&type=chunk)[241](index=241&type=chunk) - Overall Group Strategy: The Group will continue to strictly control costs and seek new business opportunities to improve performance and shareholder value[239](index=239&type=chunk)[240](index=240&type=chunk) [Principal Risks and Uncertainties](index=50&type=section&id=Principal%20Risks%20and%20Uncertainties) The Group faces multiple risks: market demand and raw material price volatility, intense competition, evolving regulatory compliance, significant credit risk from automotive engine receivables, liquidity risk from net debt, and external shocks from events like COVID-19 - Credit Risk: Primarily arises from accounts receivable in the automotive engine business, where customers' financial conditions lead to significant delays and uncertainties in collection[247](index=247&type=chunk)[250](index=250&type=chunk) - Liquidity Risk: As of June 30, 2020, the Group was in a net debt position, and despite mitigation measures, there remains a risk of inability to meet financial obligations as they fall due[248](index=248&type=chunk)[251](index=251&type=chunk) - Event Risk: The COVID-19 pandemic has severely impacted the local economy, increasing operating costs and safety regulation pressures, with its long-term effects remaining uncertain[249](index=249&type=chunk)[252](index=252&type=chunk) [Capital Structure, Financial Resources, Liquidity and Gearing](index=52&type=section&id=Capital%20Structure%2C%20Financial%20Resources%2C%20Liquidity%20and%20Gearing) As of June 30, 2020, the Group held **HKD 55.9 million** in cash, and debt restructuring reclassified most debt to non-current, significantly reducing net current liabilities to **HKD 46.3 million** and improving the current ratio to **0.9**, greatly alleviating short-term liquidity pressure - Debt restructuring was key to improving liquidity: the convertible bond maturity was extended to 2025, and promissory notes became perpetual, significantly easing the company's repayment pressure[255](index=255&type=chunk)[260](index=260&type=chunk) Liquidity Indicator Changes | Indicator | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Cash and cash equivalents (HKD Million)** | 55.9 | 64.8 | | **Net current liabilities (HKD Million)** | 46.3 | 980.8 | | **Current ratio** | 0.9 | 0.3 | [Other Information](index=58&type=section&id=Other%20Information) [Corporate Governance](index=58&type=section&id=Corporate%20Governance) During the reporting period, the company had several deviations from the Corporate Governance Code, including a vacant Chairman position, non-executive directors without specific terms, and an executive director failing to retire by rotation as required - The company's Chairman position remained vacant, violating Code Provision A.2.1 which requires separation of Chairman and Chief Executive roles[284](index=284&type=chunk) - Non-executive directors were not appointed for specific terms, violating Code Provision A.4.1[285](index=285&type=chunk) - Mr. Xing Bin, an executive director, inadvertently failed to retire by rotation at the 2019 Annual General Meeting as required, violating Code Provision A.4.2, with the company subsequently taking steps to rectify this issue[290](index=290&type=chunk) [Directors' and Substantial Shareholders' Interests](index=61&type=section&id=Directors'%20and%20Substantial%20Shareholders'%20Interests) As of June 30, 2020, directors held no interests, while substantial shareholders included Mr. Jiang Jianhui (holding **150 million** shares, **75.0%**) and Mr. Arrab Chalid (holding convertible bonds for **195 million** shares, potential **97.5%**) Substantial Shareholders' Shareholding | Shareholder Name | Nature of Interest | Number of Shares/Underlying Shares Held | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | **Mr. Jiang Jianhui** | Controlled corporation interest | 150,000,000 | 75.0% | | **Youth Force Asia Ltd** | Beneficial owner | 150,000,000 | 75.0% | | **Mr. Arrab Chalid** | Controlled corporation interest | 195,000,000 (Underlying Shares) | 97.5% | | **LE Group Holdings Pte Ltd** | Beneficial owner | 195,000,000 (Underlying Shares) | 97.5% | [Corporate Information](index=64&type=section&id=Corporate%20Information) - The report lists the company's registered office, principal place of business, board members, committee members, company secretary, share registrar, auditor (Cheng Feng CPA Limited), and share listing information (stock code: 1372)[323](index=323&type=chunk)[326](index=326&type=chunk)

[Corporate Information](index=3&type=section&id=Corporate%20Information) The report details the company's fundamental registration information, principal business location, board and committee member rosters, share registrar, auditor, and share listing particulars - The report provides the company's basic registration information, principal place of business, lists of board and committee members, share registrar, auditor, and share listing information[4](index=4&type=chunk)[6](index=6&type=chunk)[8](index=8&type=chunk) [Director's Statement](index=6&type=section&id=Director's%20Statement) [Financial Highlights](index=6&type=section&id=Financial%20Highlights) In FY2019, the company's financial performance significantly deteriorated, marked by a 38.2% revenue decline, a shift to gross loss, and a substantial increase in loss attributable to owners of the parent, resulting in HKD 975 million in net liabilities and severe liquidity pressure FY2019 Financial Performance Summary (HKD '000) | Metric | FY2019 | FY2018 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | **Financial Performance** | | | | | Revenue | 459,109 | 743,414 | -38.2% | | Gross (Loss)/Profit | (52,556) | 11,782 | From profit to loss | | Gross (Loss)/Profit Margin | (11.4%) | 1.6% | -13.0pp | | Loss Attributable to Owners of Parent | (905,423) | (703,767) | +28.7% | | **Financial Position** | | | | | Total Assets | 439,095 | 1,307,390 | -66.4% | | Total Liabilities | 1,413,850 | 1,400,349 | +1.0% | | Net Liabilities | (974,755) | (92,959) | Liabilities expanded | | Current Ratio | 0.3 | 1.3 | -76.9% | [Business Overview](index=8&type=section&id=Business%20Overview) In 2019, the Group's automotive engine business faced severe challenges due to a key customer's financial distress, leading to a sharp revenue decline and significant impairment losses, while the civil engineering and construction business also saw revenue decline and a shift to loss, with plans for industrial hemp cultivation terminated due to financing difficulties - The Group's consolidated revenue for 2019 decreased by **38.2%** year-on-year to **HKD 459 million**, with loss attributable to owners expanding to **HKD 905 million**[14](index=14&type=chunk) - The annual loss was primarily attributable to a **38.2%** revenue decline resulting in a gross loss of **HKD 52.6 million**, inventory impairment provisions of approximately **HKD 33.1 million** for the automotive engine business, fair value impairment losses of approximately **HKD 88 million** for intangible assets and **HKD 276 million** for goodwill, and additional expected credit losses of approximately **HKD 349 million** on trade receivables and bills from automotive engine business customers[14](index=14&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk) [Automotive Engines Business](index=10&type=section&id=Automotive%20Engines%20Business) The automotive engine business sharply deteriorated in 2019, with revenue plummeting 70.6% to HKD 81.3 million and average monthly production dropping 83.7%, primarily due to a key customer's financial distress and bankruptcy filing, leading to over HKD 700 million in impairment and expected credit losses on related intangible assets, goodwill, and trade receivables Key Metrics for Automotive Engines Business | Metric | FY2019 | FY2018 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Revenue (HKD Mn) | 81.3 | 276.5 | -70.6% | | Average Monthly Production (Units) | 181 | 1,108 | -83.7% | | Gross Margin (Excluding Impairment & Amortization) | 2.5% | 10.9% | -8.4pp | - Due to deteriorating business prospects, the Group recorded significant non-cash impairment losses related to the automotive engine business, including approximately **HKD 88 million** in fair value impairment loss on intangible assets, approximately **HKD 276 million** on goodwill, and approximately **HKD 349 million** in expected credit losses on trade receivables and bills[23](index=23&type=chunk) - A major customer, BAIC Yinxiang Automobile Co., Ltd., faced a bankruptcy petition in September 2019, exacerbating business uncertainties[21](index=21&type=chunk) [Civil Engineering and Construction Business](index=12&type=section&id=Civil%20Engineering%20and%20Construction%20Business) In 2019, civil engineering and construction business revenue decreased by 19.1% to HKD 378 million, shifting from a 2.6% gross margin to a 5.3% gross loss margin due to market conditions, with 12 significant projects under construction by year-end Financial Performance of Civil Engineering and Construction Business | Metric | FY2019 | FY2018 | | :--- | :--- | :--- | | Revenue (HKD Mn) | 377.8 | 466.9 (Estimated) | | Gross (Loss)/Profit Margin | -5.3% | 2.6% | [Withdrawal from Industrial Hemp Business](index=12&type=section&id=Withdrawal%20from%20Industrial%20Hemp%20Business) The Group attempted to enter the industrial hemp cultivation and processing business in mid-2019 via acquisition but decided to divest all related interests due to a worsening global economic outlook and prolonged financing acquisition, with no plans to re-enter this business - The Group decided to withdraw from the industrial hemp business due to decreased optimism regarding the global economic and business environment outlook, which required more time to secure sufficient financing[25](index=25&type=chunk) [Outlook](index=12&type=section&id=Outlook) The Board maintains a cautious outlook for 2020, anticipating continued pressure on the automotive engine business due to customer restructuring delays and the COVID-19 pandemic, while remaining confident in securing new opportunities in the challenging Hong Kong construction sector, with plans to implement cost controls and conduct a strategic portfolio review for diversification - The automotive engine business is expected to continue facing adverse impacts in 2020 due to customer restructuring delays and the COVID-19 pandemic[25](index=25&type=chunk) - The Group plans to conduct a strategic portfolio review of its businesses in February 2020, focusing on new construction-related business opportunities and potential business diversification[30](index=30&type=chunk)[32](index=32&type=chunk) [Summary of Significant Contracts on Hand](index=14&type=section&id=Summary%20of%20Significant%20Contracts%20on%20Hand) [Civil Engineering and Construction Contracts](index=14&type=section&id=Civil%20Engineering%20and%20Construction%20Contracts) As of December 31, 2019, the Group held several significant civil engineering and construction contracts, including road and drainage works, utilities civil engineering, and building construction and maintenance, with specific contract amounts not provided for some due to their nature Selected Significant Contracts on Hand (HKD Mn) | Contract Category | Contract Details | Contract Amount | | :--- | :--- | :--- | | Road and Drainage Works | Provision of barrier-free access facilities for road structures (Contract 8) | 203 | | Road and Drainage Works | Provision of barrier-free access facilities for road structures (Contract 9) | 173 | | Building Construction and Maintenance | Renovation and new entrance works for Tsuen Wan West Station | 80 | | Building Construction and Maintenance | Superstructure works for Tseung Kwan O Depot Phase II Section 4 | 92 | [Management Discussion and Analysis](index=16&type=section&id=Management%20Discussion%20and%20Analysis) [Business and Financial Review](index=16&type=section&id=Business%20and%20Financial%20Review) This section details FY2019 operating results, reiterating a 38.2% revenue decline and expanded losses primarily attributed to sales downturns, inventory impairment, and significant intangible asset, goodwill, and trade receivables impairment in the automotive engine business, with basic and diluted loss per share widening to HKD 4.527 - Due to the deteriorating performance of the automotive engine business, the Group recorded significant impairments, including approximately **HKD 88 million** in fair value impairment of intangible assets, approximately **HKD 276 million** in fair value impairment of goodwill, and approximately **HKD 349 million** in expected credit losses on trade receivables and bills[48](index=48&type=chunk)[51](index=51&type=chunk) - For the year ended December 31, 2019, basic and diluted loss per share was approximately **HKD 4.527**, compared to approximately **HKD 3.519** in 2018[47](index=47&type=chunk) [Business Segment Analysis](index=18&type=section&id=Business%20Segment%20Analysis) This section provides an in-depth analysis of segment performance, highlighting the automotive engine business's sharp revenue and production decline due to key customer issues and significant impairment losses, the civil engineering and construction business's 19.1% revenue decrease and shift to a 5.3% gross loss margin, and the confirmed withdrawal from industrial hemp cultivation Revenue by Business Segment (HKD Mn) | Business Segment | FY2019 | FY2018 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Automotive Engines Business | 81.3 | 276.5 | -70.6% | | Civil Engineering and Construction Business | 377.8 | 466.9 | -19.1% | | **Total** | **459.1** | **743.4** | **-38.2%** | [Prospect](index=22&type=section&id=Prospect) Management maintains a cautious outlook for 2020, citing global economic recession signs, US-China trade conflicts, Hong Kong's political environment, and the COVID-19 pandemic as challenges, anticipating continued negative impacts on the automotive engine business from customer restructuring delays, while remaining confident in the construction sector and planning strategic portfolio reviews for diversification and cost control - Management maintains a cautious and conservative outlook for 2020, primarily influenced by macroeconomic factors such as global economic slowdown, US-China trade conflicts, and the COVID-19 pandemic[64](index=64&type=chunk) - The Group plans to conduct a strategic portfolio review of its businesses in February 2020, evaluating strategic options in Hong Kong and internationally, with a focus on new opportunities and potential diversification in the construction sector[67](index=67&type=chunk)[70](index=70&type=chunk) [Principal Risks and Uncertainties](index=23&type=section&id=Principal%20Risks%20and%20Uncertainties) The Group faces multiple risks, including business risks from market price and demand fluctuations, intense industry competition, policy risks from compliance requirements, credit risk from severe payment delays by automotive engine business customers, and liquidity risk due to net current liabilities and net liabilities, compounded by macroeconomic uncertainties like US-China trade conflicts, Hong Kong's economic downturn, and the COVID-19 pandemic - The Group's principal risks include business risk, industry risk, policy risk, credit risk, liquidity risk, and other macroeconomic risks such as the US-China trade war and the COVID-19 pandemic[71](index=71&type=chunk)[72](index=72&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk)[84](index=84&type=chunk) - As of December 31, 2019, the Group recorded net current liabilities and net liabilities, indicating exposure to liquidity risk[78](index=78&type=chunk)[82](index=82&type=chunk) [Capital Structure, Financial Resources, Liquidity and Gearing](index=25&type=section&id=Capital%20Structure%2C%20Financial%20Resources%2C%20Liquidity%20and%20Gearing) By the end of 2019, the Group's cash and equivalents increased to HKD 64.8 million, yet total assets sharply declined by 66.4% due to significant impairments, resulting in net current liabilities of HKD 981 million (from HKD 131 million net current assets) and a deteriorated current ratio of 0.3, with liquidity improved by extending convertible bond maturity and converting promissory notes to perpetual status Liquidity Metrics Changes | Metric | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and Cash Equivalents (HKD Mn) | 64.8 | 27.0 | | Total Assets (HKD Mn) | 439.1 | 1,307.4 | | Net Current (Liabilities)/Assets (HKD Mn) | (980.8) | 130.7 | | Current Ratio | 0.3 | 1.3 | - The company reached agreements with convertible bond and promissory note holders to extend the convertible bond maturity by five years to 2025 and convert promissory notes to perpetual status, which helps improve the Group's liquidity position[89](index=89&type=chunk)[91](index=91&type=chunk) [Going Concern](index=28&type=section&id=Going%20Concern) Despite significant net losses, net current liabilities, and net liabilities in FY2019, coupled with COVID-19 impacts, the Directors believe the Group remains a going concern, based on measures including extended convertible bond and promissory note terms, a commitment from a major shareholder for at least HKD 58.6 million in additional funding, ongoing automotive business customer restructuring, and implemented cost control measures - Despite recording a net loss of **HKD 906 million** and net current liabilities of **HKD 981 million**, the Board believes the company remains a going concern[94](index=94&type=chunk) - Key measures supporting going concern include extending repayment terms for convertible bonds and promissory notes, securing a commitment from a major shareholder for at least **HKD 58.6 million** in additional funding, ongoing restructuring of the automotive engine business customer, and implementing stringent cost control measures[94](index=94&type=chunk)[96](index=96&type=chunk) [Employees and Remuneration Policies](index=32&type=section&id=Employees%20and%20Remuneration%20Policies) As of end-2019, the Group had approximately 452 employees in Hong Kong and China, a decrease from 611 in 2018, with remuneration policies regularly reviewed based on market terms, company performance, and individual qualifications - As of December 31, 2019, the Group's employee count was **452**, a **26%** decrease from **611** in 2018[113](index=113&type=chunk) [Biographical Details of Directors and Senior Management](index=34&type=section&id=Biographical%20Details%20of%20Directors%20and%20Senior%20Management) This section provides detailed personal biographies of executive directors, non-executive directors, independent non-executive directors, and senior management, including their age, academic background, professional qualifications, and internal and external appointments - This section provides detailed personal biographies of executive directors, non-executive directors, independent non-executive directors, and senior management, including their age, academic background, professional qualifications, and internal and external appointments[117](index=117&type=chunk)[119](index=119&type=chunk)[121](index=121&type=chunk)[123](index=123&type=chunk)[125](index=125&type=chunk)[128](index=128&type=chunk) [Corporate Governance Report](index=40&type=section&id=Corporate%20Governance%20Report) [Compliance with the CG Code](index=40&type=section&id=Compliance%20with%20the%20CG%20Code) During the reporting period, the company largely complied with the Corporate Governance Code, but noted deviations including the absence of separate Chairman and Chief Executive Officer roles (functions performed by all executive directors), non-executive directors lacking specific terms, the Chairman's absence from the AGM due to the lack of a designated Chairman, and an executive director's oversight in not retiring by rotation as required - The company had several deviations from the Corporate Governance Code during the reporting year, such as the non-separation of Chairman and Chief Executive Officer roles and non-executive directors lacking specific terms[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) [The Board and its Committees](index=42&type=section&id=The%20Board%20and%20its%20Committees) This section details the Board's responsibilities, composition, and changes, noting significant member turnover during the period, with the Board responsible for overall leadership and strategic decisions; the company established Audit, Remuneration, and Nomination Committees, all chaired by independent non-executive directors to oversee specific matters, also outlining director appointment, re-election, meeting attendance, training, nomination, and diversity policies - During the reporting period and up to the report date, there were multiple changes in Board members, including resignations and new appointments of several directors[143](index=143&type=chunk)[148](index=148&type=chunk) - The company has established Audit, Remuneration, and Nomination Committees, all composed of and chaired by independent non-executive directors[186](index=186&type=chunk)[201](index=201&type=chunk)[207](index=207&type=chunk) - The Board has adopted nomination and board diversity policies, acknowledging the current gender imbalance among its members (all male)[212](index=212&type=chunk)[226](index=226&type=chunk)[236](index=236&type=chunk) [Risk Management and Internal Control](index=59&type=section&id=Risk%20Management%20and%20Internal%20Control) The Board is responsible for maintaining sound risk management and internal control systems, conducting annual effectiveness reviews covering financial, operational, and compliance controls, and has reviewed and deemed the systems appropriate for FY2019 - The Board is responsible for maintaining and annually reviewing the effectiveness of the Group's risk management and internal control systems, deeming the 2019 systems appropriate[244](index=244&type=chunk)[248](index=248&type=chunk) [Shareholder Rights](index=61&type=section&id=Shareholder%20Rights) This section clarifies key shareholder rights, including attending and voting at general meetings, requisitioning extraordinary general meetings (requiring at least 10% of paid-up share capital with voting rights), electing and re-electing directors and auditors, and communicating with the company and accessing information, also detailing meeting procedures to ensure effective shareholder communication - Shareholders holding not less than **10%** of the company's paid-up share capital with voting rights are entitled to requisition an extraordinary general meeting[256](index=256&type=chunk) [Report of the Directors](index=66&type=section&id=Report%20of%20the%20Directors) [Principal Activities and Business Review](index=66&type=section&id=Principal%20Activities%20and%20Business%20Review) This report reiterates the Group's principal activities as the development, production, and sale of automotive engines, alongside civil engineering and building construction and maintenance, directing readers to the 'Director's Statement' and 'Management Discussion and Analysis' sections for detailed business reviews, significant events, and future developments - The Group is principally engaged in (i) the development, production, and sale of automotive engines; and (ii) civil engineering and building construction and maintenance businesses[280](index=280&type=chunk) [Major Customers and Suppliers](index=68&type=section&id=Major%20Customers%20and%20Suppliers) The Group exhibits very high customer and supplier concentration, with the largest customer accounting for 42.5% of total revenue and the top five customers for 98.8% in 2019; similarly, the top five suppliers accounted for 71.6% of total cost of sales, and the largest supplier for 38.5%, posing significant operational risks due to this high concentration Customer and Supplier Concentration | Concentration Metric | FY2019 | FY2018 | | :--- | :--- | :--- | | Largest Customer as % of Total Revenue | 42.5% | 22.3% | | Top Five Customers as % of Total Revenue | 98.8% | 74.7% | | Largest Supplier as % of Cost of Sales | 38.5% | 20.7% | | Top Five Suppliers as % of Cost of Sales | 71.6% | 46.6% | [Shareholding Concentration](index=71&type=section&id=Shareholding%20Concentration) The Hong Kong SFC announced on May 10, 2019, that as of April 23, 2019, controlling shareholders and 19 other shareholders collectively held 90.6% of the company's issued shares, leaving only 9.4% held by other shareholders, warning investors to exercise extreme caution due to potential significant share price volatility from limited trading caused by this high concentration - The Hong Kong SFC noted that as of April 23, 2019, controlling shareholders and 19 other shareholders collectively held **90.6%** of the company's shares, with public float at only **9.4%**, indicating a risk of high shareholding concentration[301](index=301&type=chunk) [Share Option Scheme](index=76&type=section&id=Share%20Option%20Scheme) The company adopted a share option scheme in March 2016 to incentivize and reward eligible contributors to the Group, granting 12 million share options on April 26, 2019, at an exercise price of HKD 7.128 per share, including 500,000 options to Director Mr. Lam Wah - On April 26, 2019, the company granted **12,000,000** share options under the share option scheme, with an exercise price of **HKD 7.128** and an expiry date of April 25, 2024[334](index=334&type=chunk)[335](index=335&type=chunk) [Environmental, Social and Governance Report](index=82&type=section&id=Environmental%2C%20Social%20and%20Governance%20Report) [Caring for Environment](index=85&type=section&id=Caring%20for%20Environment) This section outlines the Group's environmental commitments and practices, focusing on Hong Kong's civil engineering and construction business, demonstrating compliance with environmental regulations and ISO 14001 certification, detailing measures in green management, water consumption, noise control, construction waste management (3R policy), and energy saving (green office policy), with office greenhouse gas emissions decreasing by 2% and paper consumption by 26% during the period - The Group's environmental management system is ISO 14001 certified, and it strictly adheres to Hong Kong's environmental regulations in its construction business[368](index=368&type=chunk)[370](index=370&type=chunk) - During the reporting period, total Scope 2 greenhouse gas emissions from the Hong Kong headquarters and engineering business headquarters offices decreased by **2%** year-on-year[379](index=379&type=chunk)[380](index=380&type=chunk) [Caring for People](index=93&type=section&id=Caring%20for%20People) This section details the Group's policies and performance in employment and labor practices, health and safety, development and training, and operational practices, emphasizing a non-discriminatory, fair, and harmonious workplace, strict prohibition of child and forced labor, OHSAS 18001 certification for occupational health and safety with zero fatalities, and practices in supply chain management, product quality, anti-corruption, and community investment - As of the end of 2019, the Group's total number of employees was **452**, a decrease from **611** in the same period last year[397](index=397&type=chunk)[404](index=404&type=chunk) Safety Performance (Hong Kong Civil Engineering and Construction Business) | Metric | FY2019 | FY2018 | | :--- | :--- | :--- | | Fatalities | 0 | 0 | | Lost Time Injuries | 5 | 7 | | Lost Time Injury Rate | 2.5 | 3.4 | - The Group's occupational health and safety management system is OHSAS 18001 certified[418](index=418&type=chunk) [Independent Auditor's Report](index=104&type=section&id=Independent%20Auditor's%20Report) [Auditor's Opinion](index=104&type=section&id=Auditor's%20Opinion) Auditor Cheng & Co. Certified Public Accountants Limited believes the consolidated financial statements fairly present the Group's consolidated financial position as of December 31, 2019, and its consolidated financial performance and cash flows for the year then ended, in accordance with Hong Kong Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance - The auditor issued a standard unmodified opinion, stating that the financial statements fairly present the company's financial position[453](index=453&type=chunk) [Material Uncertainty Related to Going Concern](index=105&type=section&id=Material%20Uncertainty%20Related%20to%20Going%20Concern) The auditor draws attention to Note 2 of the financial statements, which highlights the Group's significant losses, net current liabilities, and net liabilities in FY2019, indicating a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern; however, the auditor's opinion is not modified in respect of this matter, implying adequate disclosure by management - The auditor's report includes a 'Material Uncertainty Related to Going Concern' paragraph, emphasizing that the Group's significant losses and net liability position may cast significant doubt on its ability to continue as a going concern[456](index=456&type=chunk)[458](index=458&type=chunk) [Key Audit Matters](index=106&type=section&id=Key%20Audit%20Matters) The auditor identified two key audit matters: the impairment assessment of goodwill and intangible assets, which involves significant management judgment in forecasting future cash flows; and the recoverability of trade receivables and bills, which involves material amounts and significant judgment and assumptions in determining expected credit losses - Key Audit Matter One: Impairment assessment of goodwill and intangible assets, where management's forecasts of future cash flows for the cash-generating unit involve significant judgment due to delayed resumption of production by the automotive engine business customer[463](index=463&type=chunk)[466](index=466&type=chunk) - Key Audit Matter Two: Recoverability of trade receivables and bills, considered a key audit matter due to the material amounts involved (**47%** of total assets) and significant judgment required in the expected credit loss model[468](index=468&type=chunk)[471](index=471&type=chunk) [Consolidated Financial Statements](index=115&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=115&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) In FY2019, the Group's revenue was HKD 459 million, a 38.2% year-on-year decrease, resulting in a gross loss of HKD 52.56 million due to higher cost of sales than revenue; after significant goodwill and intangible asset impairments (totaling HKD 364 million) and high administrative expenses, loss before tax reached HKD 922 million, with a final annual loss of HKD 906 million, of which HKD 905 million was attributable to owners of the parent Consolidated Statement of Profit or Loss Summary (HKD '000) | Item | FY2019 | FY2018 | | :--- | :--- | :--- | | Revenue | 459,109 | 743,414 | | Gross (Loss)/Profit | (52,556) | 11,782 | | Goodwill Impairment | (275,821) | (174,933) | | Intangible Assets Impairment | (88,042) | (430,928) | | Loss Before Tax | (922,494) | (769,826) | | Loss for the Year | (906,245) | (703,767) | | Loss Attributable to Owners of Parent | (905,423) | (703,767) | [Consolidated Statement of Financial Position](index=117&type=section&id=Consolidated%20Statement%20of%20Financial%20Position) As of end-2019, the Group's total assets sharply decreased from HKD 1.307 billion to HKD 439 million, primarily due to significant reductions in goodwill, intangible assets, and trade receivables, while total liabilities remained at HKD 1.414 billion, severely deteriorating the balance sheet from HKD 92.96 million net liabilities to HKD 975 million net liabilities, with net current liabilities reaching HKD 981 million Consolidated Statement of Financial Position Summary (HKD '000) | Item | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Total Non-current Assets | 51,929 | 681,157 | | Total Current Assets | 387,166 | 626,233 | | **Total Assets** | **439,095** | **1,307,390** | | **Liabilities and Equity** | | | | Total Current Liabilities | 1,367,928 | 495,519 | | Total Non-current Liabilities | 45,922 | 904,830 | | **Total Liabilities** | **1,413,850** | **1,400,349** | | **Net Liabilities** | **(974,755)** | **(92,959)** | [Consolidated Statement of Cash Flows](index=120&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) In FY2019, the Group generated net cash flow from operating activities of HKD 42.66 million, a significant improvement from a net outflow of HKD 44.29 million in the prior year, primarily due to reduced contract assets and inventories, with net cash outflow from investing activities of HKD 16.28 million and net cash inflow from financing activities of HKD 16.72 million, resulting in year-end cash and cash equivalents increasing to HKD 64.78 million Consolidated Statement of Cash Flows Summary (HKD '000) | Item | FY2019 | FY2018 | | :--- | :--- | :--- | | Net Cash Flows from/(used in) Operating Activities | 42,655 | (44,292) | | Net Cash Flows used in Investing Activities | (16,279) | (2,486) | | Net Cash Flows from Financing Activities | 16,719 | 18,557 | | Net Increase/(Decrease) in Cash and Cash Equivalents | 43,095 | (28,221) | | Cash and Cash Equivalents at End of Year | 64,777 | 21,706 | [Notes to Financial Statements](index=122&type=section&id=Notes%20to%20Financial%20Statements) The notes to the financial statements provide detailed explanations of accounting policies, key accounting judgments and estimates, and in-depth breakdowns of various financial statement items, with important notes covering the going concern assumption (Note 2), segment information (Note 5), goodwill and intangible asset impairment testing assumptions and processes (Notes 16, 17), expected credit losses on trade receivables (Note 20), and changes in terms of convertible bonds and promissory notes (Notes 26, 27) - Note 2 details management's basis and measures for concluding that the company remains a going concern despite significant losses and net liabilities[513](index=513&type=chunk)[515](index=515&type=chunk) - Notes 16 and 17 disclose key assumptions for goodwill and intangible asset impairment tests, such as cash flow forecasts, growth rates, and discount rates, explaining the reasons for significant impairments[730](index=730&type=chunk)[733](index=733&type=chunk) [Five-Year Financial Summary](index=236&type=section&id=Five-Year%20Financial%20Summary) This section provides summary data on the Group's performance, assets, and liabilities for the past five financial years, facilitating comparative analysis of long-term financial performance trends - This section provides summary data on the Group's performance, assets, and liabilities for the past five financial years, facilitating comparative analysis of long-term financial performance trends[3](index=3&type=chunk)

45 比速科技集團國際有限公司 Bisu Technology Group International Limited (Incorporated in the Cayman Islands with limited liability) (於開曼群島註冊成立之有限公司) Stock Code 股份代號：1372 Interim Report 中 期 報 告 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income 簡明綜合損益及其他全面收入表 Six months ended 30 June 2019 截至二零一九年六月三十日止六個月 The board (the "Board") of directors (the "Directors") of Bisu Technology Group International Limited (the "Company") announce the unaudited condensed consolidated interim results and fin ...

[Director's Statement](index=6&type=section&id=Director's%20Statement) [Financial Highlights](index=6&type=section&id=Financial%20Highlights) The company's FY2018 financial performance sharply deteriorated, shifting from profit to a substantial loss with revenue down 63.3% and gross margin at 1.6%, leading to a net liability position 2018 Financial Highlights (HKD thousands) | Indicator | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | | **Financial Performance** | | | | Revenue | 743,414 | 2,026,599 | | Gross Profit | 11,782 | 188,950 | | Gross Margin | 1.6% | 9.3% | | (Loss)/Profit Attributable to Owners of the Parent | (703,767) | 37,713 | | **Financial Position** | | | | Total Assets | 1,307,390 | 2,509,552 | | Total Liabilities | 1,400,349 | 1,806,938 | | Net (Liabilities)/Assets | (92,959) | 702,614 | | Current Ratio | 1.3 | 1.1 | | Gearing Ratio | Not Applicable | 119.5% | | Return on Equity | Not Applicable | 5.4% | [Business Overview](index=8&type=section&id=Business%20Overview) In 2018, the Group's consolidated revenue fell 63.3% to HK$743 million, resulting in a HK$704 million loss, primarily due to declining automotive engine business, significant asset impairments, and credit loss provisions - The company shifted from profit to loss in 2018, primarily due to a **significant decline in gross profit** from the automotive engine business[16](index=16&type=chunk) - Impairment losses of approximately **HK$606 million** were recognized on goodwill and intangible assets related to the automotive engine business acquired in 2016[16](index=16&type=chunk)[19](index=19&type=chunk) - An expected credit loss provision of approximately **HK$125 million** was recognized for trade receivables and bills from automotive engine business customers[16](index=16&type=chunk)[19](index=19&type=chunk) [Segment Performance](index=8&type=section&id=Segment%20Performance) Automotive engine business revenue sharply declined by 81.3% due to client financial distress, impacting gross margin, while civil engineering and construction revenue decreased by 14.8% with a slight gross margin dip Key Segment Performance Indicators | Business Segment | Indicator | FY2018 | FY2017 | Year-on-Year Change | | :--- | :--- | :--- | :--- | :--- | | **Automotive Engine Business** | Revenue (HKD millions) | 276.5 | 1,478.3 | -81.3% | | | Average Monthly Production (units) | 1,108 | 7,636 | -85.5% | | | Gross Margin (excluding amortization) | 9.4% | 15.8% | -6.4pp | | **Civil Engineering & Construction Business** | Revenue (HKD millions) | 466.9 | 548.3* | -14.8% | | | Gross Margin | 2.6% | 3.1%* | -0.5pp | [Outlook](index=9&type=section&id=Outlook) The automotive engine business expects improved 2019 demand, though below 2017 levels, with the Group cautiously optimistic about mid-term recovery, while the construction business faces challenges, prompting focus on cost control and new growth opportunities - Automotive engine business customers have secured funding agreements with banks and local governments, with demand expected to improve in 2019, though still significantly below 2017 levels[25](index=25&type=chunk)[28](index=28&type=chunk) - Despite short-term challenges, the automotive engine business remains the Group's primary focus for the future, with a cautiously optimistic outlook for its mid-term demand recovery and stability[30](index=30&type=chunk)[33](index=33&type=chunk) - The construction business faces challenges from rising wages, material costs, and labor shortages, but the Group will adopt a prudent bidding strategy and leverage its competitive advantages to capitalize on the increasing trend of civil engineering projects in Hong Kong[32](index=32&type=chunk)[33](index=33&type=chunk) [Summary of Significant Contracts on Hand](index=12&type=section&id=Summary%20of%20Significant%20Contracts%20on%20Hand) [Summary of Significant Contracts on Hand](index=12&type=section&id=Summary%20of%20Significant%20Contracts%20on%20Hand) As of December 31, 2018, the Group held significant civil engineering and construction contracts across various categories, including waterworks and road projects, with some lacking specific contract values Significant Contracts on Hand (as of December 31, 2018) | Contract Category | Contract Details | Contract Value (HKD millions) | | :--- | :--- | :--- | | Waterworks | General water main diversion works for subsidized sale flats development at Ma On Shan Road | 14 | | Road and Drainage Works | Provision of barrier-free access facilities for road structures — Phase 3 Contract 8 | 203 | | Road and Drainage Works | Provision of barrier-free access facilities for road structures — Phase 3 Contract 9 | 173 (Total JV amount 340) | | Building Construction and Maintenance | Renovation and new entrance works for Tsuen Wan West Station | 80 | | Building Construction and Maintenance | Early civil engineering works for public housing development projects | 18 | | Multiple Categories | Term contracts for outdoor cable construction, telecommunications network civil engineering, etc | — (No fixed amount) | [Management Discussion and Analysis](index=14&type=section&id=Management%20Discussion%20and%20Analysis) [Business and Financial Review](index=14&type=section&id=Business%20and%20Financial%20Review) The Group's revenue declined 63.3% to HK$743 million, resulting in a HK$704 million loss, primarily due to an 81.3% sales drop in the automotive engine business and related impairments, while civil engineering revenue also decreased FY2018 Performance Overview (HKD millions) | Indicator | FY2018 | FY2017 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Consolidated Revenue | 743.4 | 2,026.6 | -63.3% | | Gross Profit | 11.8 | 189.0 | -93.8% | | (Loss)/Profit Attributable to Owners | (703.8) | 37.7 | Shift from Profit to Loss | - Automotive engine business revenue plummeted from **HK$1,478 million to HK$277 million**, with average monthly production decreasing by **85.5%**, and gross margin (excluding intangible asset amortization) falling from **15.8% to 9.4%**[57](index=57&type=chunk)[58](index=58&type=chunk)[61](index=61&type=chunk) - Civil engineering and construction business revenue was **HK$467 million**, a **14.8% year-on-year decrease**, comprising HK$390 million from civil engineering and HK$77 million from building construction and maintenance[60](index=60&type=chunk)[62](index=62&type=chunk) - As of year-end, the civil engineering and construction business had **13 significant ongoing projects** with a total value of uncompleted works of approximately **HK$311 million**[65](index=65&type=chunk) [Prospect](index=17&type=section&id=Prospect) The Group maintains a cautious 2019 outlook, expecting automotive engine demand to remain below 2017 levels despite client recovery, while the construction business faces ongoing challenges, prompting focus on cost control and diversification - The China Association of Automobile Manufacturers believes the slowdown in the automotive market may require approximately **three years to recover**, with 2019 passenger vehicle sales expected to be similar to 2018[65](index=65&type=chunk) - The Chinese government has introduced several policies to stimulate automotive consumption, including orderly promotion of old vehicle scrapping and replacement, and encouraging vehicle upgrades in rural areas, which are expected to positively impact the automotive engine business[68](index=68&type=chunk)[71](index=71&type=chunk) - The largest automotive manufacturing client signed a five-party agreement, secured funding support, and resumed production on **December 20, 2018**, with full recovery anticipated in the first half of 2019[69](index=69&type=chunk)[71](index=71&type=chunk) - The Group will continue to strengthen cost control, streamline operations, and actively seek opportunities to develop new product lines and focus on R&D to enhance market penetration and brand recognition[75](index=75&type=chunk)[78](index=78&type=chunk) [Capital Structure, Financial Resources, Liquidity and Gearing](index=20&type=section&id=Capital%20Structure%2C%20Financial%20Resources%2C%20Liquidity%20and%20Gearing) By end-2018, the Group's financial position significantly deteriorated, shifting from HK$703 million net assets to HK$93 million net liabilities, with cash down 60.7% and total assets decreasing 47.9%, rendering the gearing ratio inapplicable Financial Position Overview (HKD millions) | Indicator | December 31, 2018 | December 31, 2017 | Change | | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | 27.0 | 68.6 | -60.7% | | Total Assets | 1,307.4 | 2,509.6 | -47.9% | | Total Liabilities | 1,400.3 | 1,806.9 | -22.5% | | Net Current Assets | 130.7 | 171.3 | -23.7% | | Net (Liabilities)/Assets | (93.0) | 702.6 | Shift from Positive to Negative | | Current Ratio | 1.3 | 1.1 | +0.2 | | Gearing Ratio | Not Applicable | 119.5% | - | - The maturity dates for both convertible bonds and promissory notes have been extended to **February 4, 2020**; as of year-end, the carrying value of convertible bonds was approximately **HK$728 million**, and promissory notes approximately **HK$512 million**[84](index=84&type=chunk) [Convertible Bonds](index=23&type=section&id=Convertible%20Bonds) In 2016, the company issued HK$390 million zero-coupon convertible bonds for an acquisition, with maturity extended to February 2020, and all escrowed bonds released to the vendor after the automotive engine business met its profit guarantee - The zero-coupon convertible bonds, with a principal amount of **HK$390 million**, had their maturity date extended to **February 4, 2020**, with a conversion price of **HK$2.00 per share**[89](index=89&type=chunk)[90](index=90&type=chunk) - All bonds held in escrow were released to the vendor on **August 6, 2018**, as the acquired automotive engine business achieved its guaranteed profit target of **HK$400 million** (actual profit approximately HK$449 million)[93](index=93&type=chunk) [Biographical Details of Directors and Senior Management](index=27&type=section&id=Biographical%20Details%20of%20Directors%20and%20Senior%20Management) [Directors and Senior Management](index=27&type=section&id=Directors%20and%20Senior%20Management) This section details the personal resumes, professional backgrounds, and industry experience of the company's board members and senior management team, comprising seasoned professionals across various fields - Executive Directors Mr. Lam Wah and Mr. Xing Bin possess extensive experience in accounting, finance, and financial fields, respectively[110](index=110&type=chunk) - Non-executive Director Mr. Wong Hin Shing has over **24 years of experience** in investment banking and holds positions in several listed companies[112](index=112&type=chunk) - Independent Non-executive Directors Mr. Yip Tai Him, Mr. Leung Tsz Wing, and Mr. Cheung Kwok Cheong possess professional qualifications and deep backgrounds in accounting, asset management, and law, respectively[114](index=114&type=chunk)[116](index=116&type=chunk) - The senior management team comprises Mr. Lai Kon Ting (Contracts Manager), Mr. Wong Kin Sang (Project Manager), and Mr. Wong Kin Yan (Environmental and Quality Manager), all with over **10 years of experience** in the construction and engineering sectors[119](index=119&type=chunk) [Corporate Governance Report](index=32&type=section&id=Corporate%20Governance%20Report) [Corporate Governance Practices and The Board](index=32&type=section&id=Corporate%20Governance%20Practices%20and%20The%20Board) The company adheres to high corporate governance standards, largely complying with the Stock Exchange's Code, though deviations included temporary Chairman/CEO vacancies and non-executive directors without fixed terms, with the six-member board meeting independence and professional qualification requirements - Deviations from the Corporate Governance Code during the reporting period included: - **Code Provision A.2.1**: The positions of Chairman and Chief Executive Officer were vacant for part of the period, with their functions jointly performed by all executive directors[123](index=123&type=chunk)[124](index=124&type=chunk) - **Code Provision A.4.1**: Non-executive directors and independent non-executive directors did not have specific terms of appointment[123](index=123&type=chunk)[124](index=124&type=chunk) - **Code Provision E.1.2**: The then-Chairman of the Board did not attend the 2018 Annual General Meeting[129](index=129&type=chunk) - The Board comprises **2 executive directors, 1 non-executive director, and 3 independent non-executive directors**, meeting the Listing Rules' requirements for the number of independent non-executive directors and their representation of at least one-third of the Board[133](index=133&type=chunk)[141](index=141&type=chunk) [Board Committees](index=40&type=section&id=Board%20Committees) The company established Audit, Remuneration, and Nomination Committees, all composed of independent non-executive directors, to oversee financial reporting, internal controls, compensation policies, and board structure and appointments - The Audit Committee, composed of **three independent non-executive directors**, is responsible for overseeing the integrity of financial reporting, reviewing financial controls, internal controls, and risk management systems, and advising the Board on the appointment of external auditors[175](index=175&type=chunk) - The Remuneration Committee, composed of **three independent non-executive directors**, primarily advises the Board on the remuneration policy and structure for directors and senior management[182](index=182&type=chunk)[183](index=183&type=chunk) - The Nomination Committee, composed of **three independent non-executive directors**, is responsible for reviewing the Board's structure, size, composition, and diversity at least annually, and identifying suitable candidates for directorships[187](index=187&type=chunk)[188](index=188&type=chunk) [Risk Management and Internal Control](index=48&type=section&id=Risk%20Management%20and%20Internal%20Control) The Board is responsible for maintaining sound risk management and internal control systems, conducting annual effectiveness reviews covering all material controls, and deemed the Group's systems effective and adequate after the 2018 review - The Board is responsible for maintaining and reviewing the effectiveness of the Group's risk management and internal control systems at least annually[213](index=213&type=chunk)[217](index=217&type=chunk) - Following the review for the 2018 financial year, the Board concluded that the Group's risk management and internal control systems were effective and adequate, and that the resources, qualifications, and experience of staff in accounting and financial reporting functions were sufficient[214](index=214&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) [Shareholders' Rights and Communication](index=49&type=section&id=Shareholders'%20Rights%20and%20Communication) The company prioritizes effective shareholder communication through various channels, outlining rights including the procedure for calling an EGM by shareholders holding at least 10% of paid-up capital, and has adopted a dividend policy balancing returns with future funding needs - Shareholders holding not less than **one-tenth of the company's paid-up capital** have the right to request the Board to convene an extraordinary general meeting[228](index=228&type=chunk)[232](index=232&type=chunk) - The company has adopted a dividend policy aimed at allowing shareholders to share in the company's profits while ensuring sufficient reserves are retained to support future growth, with dividend declarations considering the Group's financial position, liquidity, and capital needs[236](index=236&type=chunk)[239](index=239&type=chunk) [Report of the Directors](index=52&type=section&id=Report%20of%20the%20Directors) [Principal Activities and Business Review](index=52&type=section&id=Principal%20Activities%20and%20Business%20Review) The company primarily engages in investment holding, with subsidiaries in automotive engine business and civil engineering, adhering to regulations and stakeholder relations, and the Board does not recommend a final dividend for FY2018 - The Group's core businesses are the development, production, and sale of automotive engines, as well as civil engineering and building construction and maintenance[244](index=244&type=chunk) - The Board does not recommend the payment of a final dividend for the 2018 financial year[249](index=249&type=chunk)[254](index=254&type=chunk) [Major Customers and Suppliers](index=54&type=section&id=Major%20Customers%20and%20Suppliers) The Group exhibits high customer and supplier concentration, with the largest customer accounting for 22.3% of total revenue and the top five for 74.4% in 2018, indicating potential risks Customer and Supplier Concentration | Concentration Indicator | FY2018 | FY2017 | | :--- | :--- | :--- | | Largest Customer as % of Total Revenue | 22.3% | 36.2% | | Top Five Customers as % of Total Revenue | 74.4% | 84.8% | | Largest Supplier as % of Total Cost of Sales | 20.7% | 2.8% | | Top Five Suppliers as % of Total Cost of Sales | 46.6% | 9.5% | [Share Capital and Substantial Shareholders](index=56&type=section&id=Share%20Capital%20and%20Substantial%20Shareholders) This section outlines the company's share capital structure, share option scheme, and substantial shareholder holdings, with 200 million issued shares and no outstanding options, and Youth Force holding 75% while Power Expert holds a potential 97.5% via convertible bonds - The company adopted a share option scheme in **March 2016**, valid until **March 2026**; as of the end of 2018, no share options were granted or remained unexercised[292](index=292&type=chunk)[299](index=299&type=chunk)[303](index=303&type=chunk) Substantial Shareholder Holdings (as of December 31, 2018) | Shareholder Name | Nature of Interest | Number of Ordinary Shares/Relevant Shares Held | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Youth Force (controlled by Mr. Jiang Jianhui and Ms. Wu Peici) | Beneficial Owner | 150,000,000 | 75.0% | | Power Expert (controlled by Ms. Weng Guangmin) | Shares related to Convertible Bonds | 195,000,000 | 97.5% | [Environmental, Social and Governance Report](index=65&type=section&id=Environmental%2C%20Social%20and%20Governance%20Report) [Environmental Responsibility](index=68&type=section&id=Environmental%20Responsibility) The Group is committed to environmentally responsible operations, focusing on its Chongqing automotive engine production and Hong Kong civil engineering businesses, complying with regulations and implementing various environmental measures, resulting in reduced GHG emissions and resource consumption - The Group's civil engineering and construction business has established an environmental management system compliant with **ISO 14001 certification**[339](index=339&type=chunk)[342](index=342&type=chunk) - Greenhouse gas emissions (Scope 3) related to business travel from the Hong Kong head office decreased by **56% year-on-year** through measures like encouraging video conferencing and carpooling[351](index=351&type=chunk)[352](index=352&type=chunk)[355](index=355&type=chunk) - Electricity consumption-related greenhouse gas emissions (Scope 2) at the Hong Kong head office and engineering business head office decreased by **8% and 5%**, respectively, through energy-saving measures[364](index=364&type=chunk) - The Group promoted paperless office practices, resulting in a **2% year-on-year reduction** in total paper consumption at the Hong Kong head office and engineering business head office[371](index=371&type=chunk)[372](index=372&type=chunk) [Social Responsibility](index=78&type=section&id=Social%20Responsibility) The Group values employees, providing a fair, non-discriminatory work environment, adhering to labor laws, and prohibiting child/forced labor, with total employees decreasing to 611, and its construction business achieving OHSAS 18001 certification, reporting zero fatalities at Chongqing and reduced injuries in Hong Kong - As of the end of 2018, the Group's total number of employees was **611**, a significant decrease from **896** at the end of 2017[377](index=377&type=chunk)[385](index=385&type=chunk) - The Group's occupational health and safety management system has obtained **OHSAS 18001 certification**, and comprehensive safety training is provided to employees and subcontractor workers[395](index=395&type=chunk)[397](index=397&type=chunk) Safety Performance Summary | Business Location | Indicator | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Chongqing Production Base** | Fatalities | 0 | 0 | | | Lost Time Injury Cases | 0 | 1 | | **Hong Kong Civil Engineering & Construction Business** | Fatalities | 0 | 1 | | | Lost Time Injury Cases | 7 | 10 | - The Group strictly adheres to labor standards, prohibiting child labor and forced labor, with no related violations reported in both 2017 and 2018[408](index=408&type=chunk)[413](index=413&type=chunk)[416](index=416&type=chunk) [Operating Practices](index=87&type=section&id=Operating%20Practices) The Group emphasizes supply chain management, product quality, and anti-corruption, implementing strict supplier screening, rigorous quality control for automotive engines and ISO 9001 for civil engineering, and has an anti-corruption policy with no reported cases - In the automotive engine supply chain, purchases from **7 major suppliers** accounted for **35%** of total procurement in 2018[422](index=422&type=chunk) - The civil engineering and construction business's quality management system complies with **ISO 9001 standards**, ensuring the delivery of high-quality projects to clients[441](index=441&type=chunk)[445](index=445&type=chunk) - The Group is committed to protecting the personal data and intellectual property of its customers and suppliers[443](index=443&type=chunk)[445](index=445&type=chunk) - The Group has implemented an anti-corruption policy and reported no bribery or corruption cases in both 2017 and 2018[444](index=444&type=chunk)[446](index=446&type=chunk) [Independent Auditor's Report](index=94&type=section&id=Independent%20Auditor's%20Report) [Auditor's Opinion and Key Matters](index=94&type=section&id=Auditor's%20Opinion%20and%20Key%20Matters) The auditor issued an unmodified opinion on the Group's 2018 financial statements but highlighted a 'material uncertainty related to going concern' due to substantial loss and net liabilities, with key audit matters including asset impairment, receivables recoverability, and construction revenue recognition - The auditor issued an **unmodified opinion**, stating that the financial statements present a true and fair view of the Group's financial position[456](index=456&type=chunk) - **Material Uncertainty Related to Going Concern**: The report draws attention to the Group's net loss of **HK$704 million** and net liabilities of **HK$93 million** in 2018, which may cast significant doubt on the Group's ability to continue as a going concern, though the auditor's opinion was not modified in respect of this matter[459](index=459&type=chunk)[463](index=463&type=chunk) - Key audit matters included: - **Asset Impairment Assessment**: Evaluation of impairment for goodwill, intangible assets, and property, plant, and equipment related to the automotive engine business, involving significant management judgment[466](index=466&type=chunk)[471](index=471&type=chunk)[476](index=476&type=chunk) - **Recoverability of Receivables**: Assessment of the recoverability of trade and bills receivables, which constitute a significant portion of total assets[466](index=466&type=chunk)[471](index=471&type=chunk)[476](index=476&type=chunk) - **Revenue Recognition for Construction Contracts**: Auditing of construction contract revenue recognized over time using the output method, involving significant estimates of budgeted costs[466](index=466&type=chunk)[471](index=471&type=chunk)[476](index=476&type=chunk) [Consolidated Financial Statements](index=106&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=106&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) In FY2018, the Group's revenue significantly decreased by 63.3% to HK$743 million, with gross profit plummeting, resulting in a pre-tax loss of HK$770 million and a loss attributable to owners of HK$704 million, with basic loss per share at HK$351.9 cents Consolidated Statement of Profit or Loss Summary (HKD thousands) | Item | FY2018 | FY2017 | | :--- | :--- | :--- | | Revenue | 743,414 | 2,026,599 | | Gross Profit | 11,782 | 188,950 | | Impairment of Goodwill | (174,933) | — | | Impairment of Intangible Assets | (430,928) | — | | (Loss)/Profit Before Tax | (769,826) | 69,892 | | (Loss)/Profit Attributable to Owners of the Parent | (703,767) | 37,713 | | Basic (Loss)/Earnings Per Share (HK cents) | (351.9) | 18.9 | [Consolidated Statement of Financial Position](index=108&type=section&id=Consolidated%20Statement%20of%20Financial%20Position) By end-2018, the Group's financial position significantly deteriorated, with total assets shrinking from HK$2,510 million to HK$1,307 million due to impairments, and critically shifting from HK$703 million net assets to HK$92.96 million net liabilities, indicating insolvency Consolidated Statement of Financial Position Summary (HKD thousands) | Item | December 31, 2018 | December 31, 2017 | | :--- | :--- | :--- | | **Assets** | | | | Non-current Assets | 681,157 | 1,099,955 | | Current Assets | 626,233 | 1,409,597 | | **Total Assets** | **1,307,390** | **2,509,552** | | **Liabilities and Equity** | | | | Current Liabilities | 495,519 | 1,238,327 | | Non-current Liabilities | 904,830 | 568,611 | | **Total Liabilities** | **1,400,349** | **1,806,938** | | **Net (Liabilities)/Assets** | **(92,959)** | **702,614** | [Consolidated Statement of Cash Flows](index=111&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) In FY2018, the Group's operating activities resulted in a net cash outflow of HK$44.29 million, contrasting with last year's net inflow, leading to a net decrease in cash and cash equivalents of HK$28.22 million for the year, with an ending balance of HK$21.71 million Consolidated Statement of Cash Flows Summary (HKD thousands) | Item | FY2018 | FY2017 | | :--- | :--- | :--- | | Net Cash Flows (Used in)/Generated from Operating Activities | (44,292) | 15,403 | | Net Cash Flows Used in Investing Activities | (2,486) | (2,132) | | Net Cash Flows Generated from Financing Activities | 18,557 | 26,433 | | Net (Decrease)/Increase in Cash and Cash Equivalents | (28,221) | 39,704 | | Cash and Cash Equivalents at Year-End | 21,706 | 68,623 | [Notes to Financial Statements](index=113&type=section&id=Notes%20to%20Financial%20Statements) The notes to the financial statements detail accounting policies, key estimates, and items, highlighting management's going concern basis despite losses and net liabilities, the impact of HKFRS 9 and 15 adoption, significant impairment of automotive engine-related assets, and disclosure of highly concentrated credit risk [Note 2: Basis of Presentation (Going Concern)](index=115&type=section&id=Note%202%3A%20Basis%20of%20Presentation%20%28Going%20Concern%29) - Despite recording a net loss of **HK$704 million** and having net liabilities of **HK$92.96 million** in 2018, the directors believe the Group can continue as a going concern, based on measures including: - Loan extensions obtained after the reporting period[535](index=535&type=chunk)[537](index=537&type=chunk) - Commitment of continuous financial support from the major shareholder[535](index=535&type=chunk)[537](index=537&type=chunk) - A **5-year procurement plan** signed with a major customer[535](index=535&type=chunk)[537](index=537&type=chunk) - The largest customer of the automotive engine business securing funding to resume normal production[535](index=535&type=chunk)[537](index=537&type=chunk) - Implementation of various cost control measures[535](index=535&type=chunk)[537](index=537&type=chunk) [Note 15 & 16: Impairment of Goodwill and Intangible Assets](index=191&type=section&id=Note%2015%20%26%2016%3A%20Impairment%20of%20Goodwill%20and%20Intangible%20Assets) - The Group conducted impairment tests on the automotive engine business cash-generating unit due to its financial performance being significantly below expectations[836](index=836&type=chunk) Asset Impairment Details (HKD thousands) | Asset Category | Impairment Amount | | :--- | :--- | | Goodwill (Note 15) | 174,933 | | Intangible Assets (Customer Contracts) (Note 16) | 430,928 | [Note 21: Accounts and Bills Receivables](index=199&type=section&id=Note%2021%3A%20Accounts%20and%20Bills%20Receivables) - Total trade and bills receivables (net of impairment) amounted to **HK$517 million**, a significant decrease from **HK$1,193 million** last year, with **HK$256 million** reclassified as non-current assets due to renegotiated repayment plans with customers[864](index=864&type=chunk)[867](index=867&type=chunk) - The Group recognized an impairment provision of **HK$144 million** based on the newly adopted HKFRS 9 expected credit loss model[876](index=876&type=chunk) - Credit risk is highly concentrated, with the largest customer accounting for **46%** of total receivables and the top five customers for **85%**[990](index=990&type=chunk) [Note 41: Financial Risk Management](index=224&type=section&id=Note%2041%3A%20Financial%20Risk%20Management) - The Group's primary financial risks include foreign currency risk, credit risk, and liquidity risk; management considers foreign currency risk not significant, credit risk mainly arises from trade receivables and is highly concentrated, and liquidity risk is managed by monitoring cash flows and maintaining financing facilities[985](index=985&type=chunk)[990](index=990&type=chunk) - The gearing ratio was not applicable as the Group was in a net liability position at the end of 2018, compared to **119%** in 2017[1019](index=1019&type=chunk) [Five-Year Financial Summary](index=233&type=section&id=Five-Year%20Financial%20Summary) [Five-Year Financial Summary](index=233&type=section&id=Five-Year%20Financial%20Summary) The five-year financial summary illustrates the Group's performance and financial position changes since 2015, showing revenue peaks in 2016-2017, a sharp decline and substantial loss in 2018, and the first instance of asset deficiency Five-Year Performance Summary (HKD thousands) | Fiscal Period | Revenue | (Loss)/Profit Before Tax | (Loss)/Profit for the Year/Period | | :--- | :--- | :--- | :--- | | **2018** | 743,414 | (769,826) | (703,767) | | **2017** | 2,026,599 | 69,892 | 37,713 | | **2016 (9 months)** | 2,145,926 | 124,783 | 90,152 | | **2016** | 609,335 | (32,349) | (33,123) | | **2015** | 702,856 | 19,052 | 15,874 | Five-Year Assets, Liabilities and Equity Summary (HKD thousands) | Year-End Date | Total Assets | Total Liabilities | (Asset Deficiency)/Total Equity | | :--- | :--- | :--- | :--- | | **December 31, 2018** | 1,307,390 | (1,400,349) | (92,959) | | **December 31, 2017** | 2,509,552 | (1,806,938) | 702,614 | | **December 31, 2016** | 2,594,815 | (2,043,443) | 551,372 | | **March 31, 2016** | 1,702,936 | (1,169,985) | 532,951 | | **March 31, 2015** | 376,040 | (149,913) | 226,127 |