大成糖业(03889) - 2024 - 中期业绩

Financial Highlights Overall Performance Summary In H1 2024, the company achieved a turnaround to profit of HKD 166 million from continuing operations, primarily due to one-off gains from debt restructuring and subsidiary disposal, offsetting gross profit decline from lower selling prices Key Financial Indicators for H1 2024 (Continuing Operations) | Indicator | H1 2024 (HKD Thousands) | H1 2023 (HKD Thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 332,475 | 193,661 | +71.7% | | Gross Profit | 11,371 | 19,980 | -43.1% | | Gain on Debt Restructuring | 167,615 | — | N/A | | Profit/(Loss) for the Period | 165,601 | (65,362) | Turnaround to Profit | | Basic Earnings Per Share | 10.3 HK Cents | (4.3) HK Cents | Turnaround to Profit | - The significant improvement in the company's profitability primarily stemmed from one-off gains of approximately HKD 168 million from debt restructuring and HKD 54.1 million from disposal of a subsidiary, rather than core operational improvements[1][19][57] Key Financial Statements Financial statements indicate significant improvement in the company's debt position through debt restructuring and convertible bond issuance, reducing net debt to HKD 180 million by June 30, 2024, though severe short-term liquidity challenges persist with a current ratio of 0.24 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income During the period, revenue grew 71.7% to HKD 332 million, but gross profit declined significantly, while controlled expenses and reduced finance costs, combined with substantial one-off gains, led to a HKD 166 million profit before tax from continuing operations, reversing last year's loss - Despite significant revenue growth, gross profit declined, indicating that the decrease in product selling prices outpaced the benefits from cost control[1][46] - Discontinued operations contributed a HKD 18.58 million loss in the prior period, with no impact this period, aiding overall profitability improvement[2][3] Condensed Consolidated Statement of Financial Position As of June 30, 2024, total assets were HKD 484 million and total liabilities HKD 664 million, resulting in net liabilities of HKD 180 million, a significant improvement from HKD 382 million at year-end, though severe liquidity challenges persist with HKD 490 million net current liabilities Key Balance Sheet Item Changes | Item (HKD Thousands) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Interest-bearing Bank and Other Borrowings | 228,495 | 440,910 | | Convertible Bonds | 16,812 | — | | Share Capital | 189,037 | 152,759 | | Net Current Liabilities | (490,372) | (734,345) | | Net Liabilities | (179,839) | (381,855) | Management Discussion and Analysis Business Review and Market Outlook Management notes increased global economic uncertainty and challenging Chinese recovery in H1 2024, with declining corn prices offering cost advantages, but falling sugar prices intensifying sweetener market competition and pressuring product selling prices, leading to a cautious H2 outlook and focus on resuming Jinzhou production for cost reduction - Domestic corn prices decreased from RMB 2,760/metric ton to RMB 2,464/metric ton, providing a cost advantage, with plans to resume upstream operations at the Jinzhou production base in Q4 2024 to leverage cost benefits in Northeast China[43] - Domestic sugar prices decreased from RMB 7,044/metric ton to RMB 6,569/metric ton, coupled with lower-than-expected market consumption, pressured the selling prices of the company's sweetener products as substitutes, directly impacting gross profit margin[43] - Management maintains a cautious outlook for the H2 2024 sweetener market due to oversupply in China and slow recovery in end-user demand[44] Financial Performance Analysis During the period, the company experienced revenue growth without corresponding profit, as a 106.3% sales volume increase drove 71.7% revenue growth, but a 16.3% average selling price decline, exceeding the 9.8% unit production cost reduction, slashed gross margin from 10.3% to 3.4%, with ultimate profitability relying on significant one-off gains - The company achieved significant sales volume and revenue growth by increasing production at its Shanghai base, but core profitability deteriorated due to selling price pressure[46] - The company recorded EBITDA of HKD 195 million from continuing operations, a significant improvement from an LBITDA of HKD 21.2 million in the prior period, primarily driven by one-off gains[57] Overall Performance In H1 2024, consolidated revenue increased to HKD 332.5 million and sales volume to 99,000 metric tons, growing 71.7% and 106.3% respectively, yet gross profit halved to HKD 11.4 million, with gross margin falling from 10.3% to 3.4%, reflecting a sacrifice of profit for volume in a challenging market Key Operating Metrics Changes | Indicator | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Consolidated Revenue | HKD 332.5 million | HKD 193.7 million | +71.7% | | Sales Volume | Approx. 99,000 Metric Tons | Approx. 48,000 Metric Tons | +106.3% | | Gross Margin | 3.4% | 10.3% | -6.9 Percentage Points | | Average Unit Selling Price | - | - | -16.3% | | Average Unit Production Cost | - | - | -9.8% | Segment Performance All company revenue derived from the corn sweeteners segment, with upstream products suspended; both corn syrup and solid corn syrup segments saw strong revenue growth but significant gross margin declines to 3.2% and 4.3% respectively, indicating widespread price pressure across all product lines - The upstream products (corn starch, etc.) segment had no sales revenue or gross profit in both the current and prior periods, indicating suspended operations[46] Corn Sweetener Segment Performance | Product Segment | Revenue (HKD Millions) | Gross Profit (HKD Millions) | Gross Margin | | :--- | :--- | :--- | :--- | | Corn Syrup | | | | | 2024 H1 | 267 | 8.6 | 3.2% | | 2023 H1 | 176 | 17.9 | 10.2% | | Solid Corn Syrup | | | | | 2024 H1 | 65.5 | 2.8 | 4.3% | | 2023 H1 | 17.8 | 2.1 | 11.8% | Operating Expenses and Other Gains/Losses During the period, the company achieved cost control, with administrative expenses decreasing 12.2% and other expenses falling due to reduced idle capacity, while finance costs significantly dropped due to debt restructuring, and a crucial HKD 54.1 million one-off gain from the disposal of a retail group significantly contributed to current period profit - The disposal of the retail group (Dacheng Retail Investment Limited and its subsidiaries) generated a one-off gain of approximately HKD 54.1 million for the company[20][50] - Administrative expenses decreased 12.2% to HKD 29.5 million, reflecting the company's stringent cost control measures[52] - Finance costs decreased from HKD 21.5 million to HKD 14.8 million, primarily due to a significant reduction in financial liabilities following the completion of the debt restructuring agreement[54] Capital Structure, Liquidity, and Financial Resources The company optimized its capital structure through debt restructuring and convertible bond issuance, reducing the debt-to-capital ratio from 76.6% to 50.7%, yet liquidity remains severe with current and quick ratios at 0.24 and 0.19 respectively, indicating significant short-term solvency risks, which the company is addressing through shareholder support and new financing - The company's debt-to-capital ratio (total debt/total assets) decreased from 76.6% to 50.7%, primarily benefiting from debt restructuring and the disposal of a subsidiary that divested liabilities[65] - As of June 30, 2024, the current ratio and quick ratio were approximately 0.24 and 0.19 respectively, significantly below healthy levels, indicating severe liquidity pressure[65] Capital and Debt Status As of June 30, 2024, total interest-bearing bank and other borrowings significantly decreased from HKD 441 million to HKD 229 million, primarily due to the debt restructuring of the Yuancheng Construction Bank loan, while the issuance of convertible bonds, with the first tranche of RMB 60 million used for loan repayment, collectively reduced the company's net borrowings - Total interest-bearing bank and other borrowings decreased by approximately HKD 212 million to HKD 228.5 million, primarily due to a recognized gain of approximately HKD 207 million from debt restructuring[59] - The company issued convertible bonds with a total principal amount of RMB 120 million; the first tranche of RMB 60 million was issued on May 3, 2024, with proceeds used to repay loans incurred for debt restructuring completion[62][63] Key Financial Ratios During the period, the company improved operational efficiency, with inventory turnover days decreasing from 31 to 20 and trade payables turnover days significantly dropping from 125 to 64, indicating faster cash conversion, while trade receivables turnover remained stable at 57 days; however, extremely low liquidity ratios remain a core financial risk Turnover Days Changes | Turnover Days | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Trade Receivables | Approx. 57 Days | Approx. 56 Days | | Trade Payables | Approx. 64 Days | Approx. 125 Days | | Inventory | Approx. 20 Days | Approx. 31 Days | Risk Management and Compliance The company faces key risks including foreign exchange fluctuations and loan defaults; while RMB exchange risk is deemed manageable without hedging, a significant default on a RMB 212.5 million loan from Jinzhou Bank Tiebei Branch is ongoing, with debt restructuring or renewal negotiations representing a critical uncertainty for the company's going concern - The company has defaulted on a loan from Jinzhou Bank Tiebei Branch, with an outstanding principal amount of RMB 212.5 million, and is currently negotiating debt restructuring or renewal, with uncertain outcomes[67] - Most of the company's business is settled in RMB, and management considers foreign exchange risk not material, thus no hedging measures have been adopted[66] Significant Events and Outlook During and after the reporting period, the company completed a change of control, mandatory general offer, and issued two tranches of convertible bonds totaling RMB 120 million, with funds allocated to debt repayment and Jinzhou production facility resumption; future plans focus on optimizing production, developing high-value-added products, and preparing for Jinzhou plant restart to enhance competitiveness in a challenging market - Post-reporting period event: The company completed the issuance of the second tranche of convertible bonds with a principal amount of RMB 60 million on July 19, 2024, with proceeds earmarked for preparing the Jinzhou production facility for resumption[71] - The core of future plans is to prepare for the resumption of the Jinzhou production facility to strengthen operating cash flow and leverage cost advantages[73] - During the reporting period, a change of control and subsequent mandatory general offer were completed, with the joint offerors and parties acting in concert holding approximately 51.00% of the shares[68] Summary of Notes to Financial Statements Basis of Preparation and Going Concern While financial statements are prepared on a going concern basis, significant uncertainties exist, with HKD 490 million net current liabilities and HKD 180 million net liabilities as of June 30, 2024; management has implemented measures including convertible bond issuance, shareholder financial support, major debt restructuring, and new bank financing, though their ultimate effectiveness remains uncertain, posing challenges to going concern - As of June 30, 2024, the company had approximately HKD 490 million in net current liabilities and HKD 180 million in net liabilities, raising significant doubt about its ability to continue as a going concern[8] - To improve its financial position, the company completed the issuance of convertible bonds totaling RMB 120 million and secured written financial support commitments from controlling shareholders Mr. Kong and Mr. Wang[8][9][11] - The company successfully completed the debt restructuring of the 'Yuancheng Construction Bank loan,' settling approximately RMB 276 million of original debt for RMB 88 million, recognizing a one-off gain of approximately HKD 168 million, significantly improving its financial position[12][35] Operating Segments The company's business is divided into two reportable segments: corn refining products and corn sweeteners; currently, all continuing operations revenue comes from the corn sweeteners segment, which recorded HKD 332 million revenue and a HKD 11.76 million segment loss, while the suspended corn refining products segment recorded a HKD 23.74 million segment loss, with overall profitability entirely dependent on one-off gains in unallocated items Segment Performance Summary (H1 2024, HKD Thousands) | Segment | Revenue | Segment Result (Loss) | | :--- | :--- | :--- | | Corn Refining Products | — | (23,741) | | Corn Sweeteners (Continuing Operations) | 332,475 | (11,755) | | Total | 332,475 | (35,496) | Discontinued Operations On December 21, 2023, the company completed the disposal of Dihao Company (Dihao Food and Dihao Crystalline Sugar), its Jilin-based corn sweetener business, which is now classified as discontinued operations; this segment recorded a HKD 18.58 million loss in the prior period (H1 2023) and no longer impacts the group's financial performance in the current reporting period - The company completed the disposal of Dihao Company on December 21, 2023, with the business classified as discontinued operations[31] - Discontinued operations resulted in a loss of HKD 18,577 thousand in H1 2023[32][56] Convertible Bonds and Share Capital Changes To raise funds, the company issued RMB 120 million in three-year, 5% convertible bonds to controlling shareholders; the first tranche of RMB 60 million was issued in May 2024, with RMB 33 million converted into 363 million shares at HKD 0.1 per share, increasing issued share capital from 1.528 billion to 1.890 billion shares - The company issued convertible bonds with a principal amount of RMB 120 million, with an initial conversion price of HKD 0.1 per share[38] - As of the reporting period end, convertible bonds with a principal amount of RMB 33 million were converted into 362,788,856 new shares, increasing the company's total share capital[38][40] - The convertible bonds were bifurcated on the balance sheet into a liability component of HKD 16.81 million and an equity component of HKD 13.19 million[39][63] Other Information Dividend Policy Considering the company's current financial position and capital requirements, the Board does not recommend an interim dividend for the six months ended June 30, 2024, consistent with no dividend payout in the prior period - The Board does not recommend the payment of any dividend for the current period[30][75] Corporate Governance The company confirms compliance with the Corporate Governance Code in Appendix C1 of the Listing Rules throughout the reporting period; the Audit Committee reviewed the period's results and discussed adopted accounting principles with management, with no disagreements - The company has complied with all code provisions of the Corporate Governance Code[76] - The Audit Committee, comprising three independent non-executive directors, has reviewed these interim results[77] Employees As of June 30, 2024, the Group's total number of employees was approximately 620, a reduction from 840 in the prior period, with employee benefit expenses (including directors' emoluments) for the period approximately HKD 27.9 million, largely consistent with HKD 28.3 million in the prior period Employee and Remuneration Overview | Item | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Number of Employees | Approx. 620 Persons | Approx. 840 Persons | | Employee Benefit Expenses | Approx. HKD 27.9 Million | Approx. HKD 28.3 Million |