保发集团(03326) - 2018 - 年度财报

Corporate Information Corporate Information This chapter provides essential company details, including board members, committee structures, principal bankers, legal advisors, auditors, and registered office contact information - The company's executive directors include Chairman and Chief Executive Officer Mr. Kan Kin Kwong, Ms. Shek Mei Chun, and Mr. Chung Chi Keung[8] - The company has established an Audit Committee, Remuneration Committee, Nomination Committee, and Risk Management Committee, comprising both executive and independent non-executive directors[9] Chairman's Statement Business Outlook and Future Prospects The Chairman's Statement outlines the performance and prospects of the Group's two core businesses: jewellery and property development, with the latter emerging as a new growth driver - Jewellery Business: Sales in the Dubai region declined by 27.1% in the second half of 2018 due to macroeconomic issues, while Hong Kong sales remained stable, prompting the Group to explore new opportunities in the China market[18][21] - Property Development: The "Profound Jewellery Industrial Centre" project progressed well, with the headquarters building and exhibition hall completed in 2018, most factory units sold and delivered, and initial rental and property management income generated by year-end[23][24][29] Management Discussion and Analysis Financial Review In FY2018, the Group's total revenue increased by 48.3% to HKD 522 million, driven by the new property development business, which offset a decline in the jewellery segment, leading to a 52.5% rise in gross profit and a 48.9% increase in profit for the year | Indicator | 2018 (HKD million) | 2017 (HKD million) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | 522.0 | 352.0 | +48.3% | | Overall Gross Profit | 168.0 | 110.2 | +52.5% | | Profit for the Year | 71.6 | 48.1 | +48.9% | | Business Segment | Revenue (HKD million) | % of Total Revenue | | :--- | :--- | :--- | | Jewellery Business | 314.3 | 60.2% | | Property Development | 207.7 | 39.8% | | Total | 522.0 | 100.0% | Jewellery Business Analysis Jewellery business revenue decreased by 10.7% to HKD 314 million, primarily due to a significant 27.1% drop in Dubai sales, while Hong Kong sales remained stable and the China market showed growth but is still developing Jewellery Business Sales by Region (HKD million) | Region | 2018 | 2017 | YoY Change | | :--- | :--- | :--- | :--- | | Hong Kong | 208.7 | 208.6 | +0.05% | | Dubai | 103.8 | 142.3 | -27.1% | | China | 1.7 | 1.1 | +54.5% | | Total | 314.3 | 352.0 | -10.7% | - The jewellery business generated a gross profit of HKD 80 million, with a gross profit margin of approximately 25.5%, similar to the previous year's 26.7% (excluding staff welfare provision reversal)[45] Property Development Business Analysis As a new segment, property development recognized its first revenue of HKD 208 million in 2018, contributing HKD 88 million in gross profit with a high gross profit margin of 42.4%, becoming a key driver of the Group's performance growth Property Development Business Financial Performance (HKD million) | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Revenue | 207.7 | 0 | | Gross Profit | 88.0 | 0 | | Gross Profit Margin | 42.4% | N/A | Analysis of Other Income, Gains and Losses, and Expenses Other income doubled due to increased bank interest, while other gains and losses recorded a loss mainly from equipment write-offs and trade receivables impairment, and general and administrative expenses rose by 15.6% due to factory relocation-related severance payments - Other income increased from HKD 1.3 million to HKD 2.6 million, primarily due to a rise in bank deposit interest income from HKD 0.3 million to HKD 1.9 million[54] - General and administrative expenses increased by 15.6% to HKD 48.8 million, mainly due to approximately HKD 5.3 million in severance payments related to the relocation of the Dongguan factory to the Profound Jewellery Industrial Centre[63] Financial Position As of the end of 2018, the Group's total assets increased to HKD 1.064 billion, primarily due to significant increases in "properties under development for sale" and "properties held for sale," while current liabilities also sharply rose due to construction payables and customer deposits for property projects - Current assets increased from HKD 537 million to HKD 908 million, mainly due to increases in properties under development for sale (to HKD 257 million) and properties held for sale (HKD 122 million)[72] - Current liabilities significantly increased from HKD 64.6 million to HKD 364 million, with trade and other payables rising to HKD 110 million (primarily amounts due to contractors) and new contract liabilities (property pre-sale deposits) reaching HKD 214 million[74][77][79] Liquidity and Financial Resources The Group's current ratio significantly decreased from 8.3 to 2.5 due to a sharp increase in current liabilities, while the gearing ratio rose from 4.9% to 28.1% as a result of increased bank borrowings to support property development projects Key Liquidity and Capital Structure Ratios | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Current Ratio | 2.5 | 8.3 | | Gearing Ratio | 28.1% | 4.9% | Principal Risks and Uncertainties The Group faces key business and financial risks including reliance on major customers, the impact of global economic downturns (especially in the Middle East), and potential adverse changes in Hong Kong tax laws, in addition to interest rate and credit risks - Principal business and financial risks include: - Significant adverse impact on profitability if major customers terminate business relationships - Material adverse impact on business from a global economic downturn, particularly in the Middle East market - Risks from adverse changes or interpretations of Hong Kong tax laws[88] Employee and Remuneration Policy As of the end of 2018, the Group's total number of employees significantly decreased from 267 to 118, primarily due to factory relocation, yet annual salaries and related costs increased from HKD 30 million to HKD 37.1 million Employee and Remuneration Overview | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Total Number of Employees | 118 | 267 | | Total Salaries and Related Costs (HKD million) | 37.1 | 30.0* | - *Note: 2017 data is derived after reversing approximately HKD 16.3 million in staff welfare provisions from prior years[105] Use of Proceeds from Global Offering As of the end of 2018, HKD 73.814 million of the net proceeds of HKD 76.533 million from the global offering had been utilized, primarily for market expansion, brand development, and establishing a headquarters in China, with a balance of HKD 2.719 million remaining for CRM system enhancement Use and Application of Proceeds from Global Offering (HKD thousand) | Purpose | Latest Revised Allocation | Utilized as of December 31, 2018 | Balance | | :--- | :--- | :--- | :--- | | Expansion into Middle East and European high-end markets | 7,700 | 7,700 | – | | Upgrading production facilities and hiring staff | 1,839 | 1,839 | – | | Brand development | 16,837 | 16,837 | – | | Enhancing customer relationship management system | 3,597 | 878 | 2,719 | | Additional working capital and others | 2,220 | 2,220 | – | | Establishing headquarters and developing market in China | 44,340 | 44,340 | – | | Total | 76,533 | 73,814 | 2,719 | Biographical Details of Directors and Senior Management Biographical Details of Directors and Senior Management This chapter provides detailed backgrounds, experiences, and responsibilities of the executive directors, independent non-executive directors, and senior management, highlighting that the core management is led by Group founder Mr. Kan Kin Kwong, who has over 30 years of experience in the jewellery industry - Mr. Kan Kin Kwong, 59, Group founder, Chairman of the Board, and Chief Executive Officer, is responsible for overall operations and strategic planning, with over 30 years of experience in the jewellery industry[123][124] - Ms. Shek Mei Chun, 54, Executive Director and wife of Mr. Kan Kin Kwong, is primarily responsible for the Group's sales operations, possessing over 25 years of industry experience[125][126] - Mr. Chung Chi Keung, 57, Executive Director, joined the Group in 1990 and has over 30 years of experience in the accounting profession[131][132] Report of the Directors Principal Activities and Business Review The Company operates as an investment holding company, with its principal subsidiaries primarily engaged in the design, manufacture, and export of high-end jewellery, as well as property development, with detailed business review cross-referenced to the Management Discussion and Analysis and Chairman's Statement sections - The company's principal business is investment holding, while its subsidiaries' main businesses are jewellery and property development[151][155] Dividends The Board recommends a final dividend of HKD 0.01 per share and a special dividend of HKD 0.02 per share for the year ended December 31, 2018, acknowledging profits from the property development business, bringing the total annual dividend to HKD 0.04 per share including the interim dividend FY2018 Dividend Details (HKD per share) | Dividend Type | Amount | | :--- | :--- | | Interim Dividend | 0.01 | | Proposed Final Dividend | 0.01 | | Proposed Special Dividend | 0.02 | | Total for the Year | 0.04 | Major Customers and Suppliers The Group's customer base is relatively diversified, with the top five customers accounting for 26.6% of total revenue, but supplier concentration is very high, with the largest supplier representing 69.1% of total purchases and the top five suppliers collectively accounting for 96.5% Customer and Supplier Concentration | Category | Percentage | | :--- | :--- | | Largest Customer as % of Total Revenue | 6.1% | | Top Five Customers as % of Total Revenue | 26.6% | | Largest Supplier as % of Total Purchases | 69.1% | | Top Five Suppliers as % of Total Purchases | 96.5% | Continuing Connected Transactions The Group has a continuing connected transaction involving the lease of its Hong Kong office from Profound Jewellery Limited, an associate of controlling shareholder Mr. Kan Kin Kwong, with a new three-year lease signed in August 2018 increasing the monthly rent from HKD 290,000 to HKD 350,000 - The Group leases its Hong Kong office from connected party Profound Jewellery Limited, renewing a three-year lease in 2018 with monthly rent increasing to HKD 350,000[196][199] Corporate Governance Report Corporate Governance Practices The company has adopted the Corporate Governance Code in Appendix 14 of the Listing Rules and complied with most of its provisions during the reporting period, with the only deviation being the combined roles of Chairman and Chief Executive Officer held by Mr. Kan Kin Kwong, which the Board believes ensures leadership continuity and efficient strategic planning - The company deviates from Corporate Governance Code provision A.2.1, as the roles of Chairman and Chief Executive Officer are combined in founder Mr. Kan Kin Kwong, which the Board believes ensures leadership consistency and strategic efficiency[264][266] Board Committees The Board has four committees: Audit, Nomination, Remuneration, and Risk Management, with their membership, primary responsibilities, and annual meeting attendance detailed to ensure effective oversight and decision-making by both executive and independent non-executive directors - The Board has four committees: Audit Committee, Nomination Committee, Remuneration Committee, and Risk Management Committee[291] 2018 Board and Committee Meeting Attendance | Director Name | Board Meetings | Audit Committee | Remuneration Committee | Nomination Committee | Risk Management Committee | | :--- | :--- | :--- | :--- | :--- | :--- | | Kan Kin Kwong | 4/4 | 0/0 | 0/0 | 1/1 | 1/1 | | Chung Chi Keung | 4/4 | 0/0 | 2/2 | 0/0 | 0/0 | | Shek Mei Chun | 4/4 | 0/0 | 0/0 | 0/0 | 1/1 | | Fan Tso Ho | 4/4 | 2/2 | 0/0 | 1/1 | 0/0 | | Li Cheuk Wai | 4/4 | 2/2 | 2/2 | 1/1 | 1/1 | | Wong Wai Keung | 4/4 | 2/2 | 2/2 | 0/0 | 0/0 | Risk Management and Internal Controls The Board is responsible for maintaining and annually reviewing effective risk management and internal control systems, which were deemed effective and adequate in 2018, following an independent review by an external accounting firm whose improvement recommendations have been implemented - The Board annually reviews the effectiveness of the Group's risk management and internal control systems (covering financial, operational, and compliance aspects) and deemed them effective and adequate in 2018[334] - In 2018, the company engaged independent accounting firm "Juming Risk Advisory Services Limited" to conduct an independent review of its internal control system, and all their improvement recommendations have been fully accepted and implemented[342] Environmental, Social and Governance Report Environmental The Group's environmental impact primarily stems from electricity consumption and vehicle fuel, with significant increases in electricity and water consumption in 2018 due to factory relocation, prompting the implementation of various energy-saving measures like LED lighting and HVAC adjustments Key Resource Consumption | Resource Type | 2018 | 2017 | | :--- | :--- | :--- | | Electricity Consumption (million kWh) | 1.7 | 1.2 | | Gasoline Consumption (liters) | 9,400 | 17,000 | | Water Consumption (cubic meters) | 73,000 | 33,000 | Social On the social front, the report covers employment, health and safety, development and training, and labor standards, noting a significant reduction in employees from 267 to 118 due to factory relocation and streamlined production, while emphasizing talent development with 41.2% of employees receiving formal training and a notable increase in average training hours per person Employee Profile | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Total Number of Employees | 118 | 267 | | By Gender | Male: 67, Female: 51 | Male: 163, Female: 104 | | By Region | Hong Kong: 41, China: 77 | Hong Kong: 39, China: 228 | Employee Training Statistics | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | % of Employees Receiving Formal Training | 41.2% | 18.4% | | Average Training Hours per Person | 23.7 | 13.5 | - The Group strictly adheres to labor standards, prohibiting child and forced labor, and reported no significant violations of relevant labor laws during the reporting period[424][425] Independent Auditor's Report Independent Auditor's Report Deloitte Touche Tohmatsu issued an unmodified opinion on the Group's 2018 consolidated financial statements, affirming they present a true and fair view of the Group's financial position and performance, while highlighting three key audit matters involving significant management judgments in impairment assessments - Auditor's Opinion: Deloitte issued an unmodified opinion on the financial statements[452][454] - Key Audit Matters include: - Impairment assessment of trade receivables - Provision for inventories (finished goods) - Impairment assessment of properties under development for sale and properties held for sale[458][460][466][468] Consolidated Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income In FY2018, the Group achieved revenue of HKD 522 million, a 48.3% increase year-on-year, with gross profit reaching HKD 168 million, up 52.5%, and profit for the year significantly growing by 48.9% to HKD 71.57 million from HKD 48.08 million in the prior year, resulting in basic earnings per share of 4.09 HK cents FY2018 Consolidated Statement of Profit or Loss Summary (HKD thousand) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Revenue | 522,005 | 352,043 | | Gross Profit | 167,985 | 110,184 | | Profit Before Tax | 101,802 | 53,792 | | Profit for the Year | 71,572 | 48,075 | | Profit Attributable to Owners of the Company | 55,270 | 48,843 | | Basic Earnings Per Share | 4.09 HK cents | 3.62 HK cents | Consolidated Statement of Financial Position As of the end of 2018, the Group's total assets increased from HKD 587 million to HKD 1.064 billion, and total liabilities rose from HKD 65.85 million to HKD 506 million, with both significant increases primarily attributable to property development projects, while net assets grew from HKD 521 million to HKD 558 million 2018 Year-End Consolidated Statement of Financial Position Summary (HKD thousand) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Non-Current Assets | 155,828 | 49,995 | | Current Assets | 908,192 | 536,807 | | Total Assets | 1,064,020 | 586,802 | | Current Liabilities | 363,557 | 64,594 | | Non-Current Liabilities | 142,128 | 1,260 | | Total Liabilities | 505,685 | 65,854 | | Net Assets | 558,335 | 520,948 | Consolidated Statement of Cash Flows In FY2018, operating cash flow turned positive with a net inflow of HKD 175 million, mainly from property sales, while investing activities saw a net outflow of HKD 109 million for property project construction, and financing activities generated a net inflow of HKD 98.35 million from new bank loans, increasing cash and cash equivalents to HKD 218 million by year-end FY2018 Consolidated Statement of Cash Flows Summary (HKD thousand) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Net Cash From Operating Activities | 175,173 | (32,078) | | Net Cash Used In Investing Activities | (108,616) | (176,273) | | Net Cash From Financing Activities | 98,353 | 64,997 | | Net Increase (Decrease) in Cash and Cash Equivalents | 164,910 | (143,354) | | Cash and Cash Equivalents at Year-End | 218,114 | 59,476 | Financial Summary Five-Year Financial Summary This chapter provides a summary of the Group's key financial data for the past five fiscal years (2014-2018), illustrating long-term trends in revenue, gross profit, profit for the year, and assets and liabilities, with 2018 marking new five-year highs in revenue and asset size Five-Year Financial Data Summary (HKD thousand) | Year Ended December 31 | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 522,005 | 352,043 | 322,423 | 458,306 | 516,154 | | Gross Profit | 167,985 | 110,184 | 88,944 | 132,077 | 150,505 | | Profit for the Year | 71,572 | 48,075 | 34,699 | 56,460 | 90,439 | | Total Assets | 1,064,020 | 586,802 | 486,654 | 354,588 | 553,822 | | Total Liabilities | 505,685 | 65,854 | 73,714 | 339,913 | 192,535 | | Net Assets | 558,335 | 520,948 | 412,940 | 14,675 | 361,287 |