积木集团(08187) - 2019 - 中期财报

Financial Statements Auditor's Review Report Deloitte Touche Tohmatsu reviewed the Group's condensed consolidated financial statements for the six months ended June 30, 2019, concluding no material non-compliance with HKAS 34 - Auditor Deloitte issued an unmodified review conclusion on the interim financial statements, confirming compliance with HKAS 34[5][7] Condensed Consolidated Financial Statements For the six months ended June 30, 2019, the Group achieved a turnaround to a profit of HKD 1.038 million from a loss of HKD 14.985 million in the prior period, with improved cash flow and the adoption of HKFRS 16 impacting the balance sheet 2019 H1 Key Financial Data Overview | Metric | For the six months ended June 30, 2019 (HKD thousands) | For the six months ended June 30, 2018 (HKD thousands) | Change | | :--- | :--- | :--- | :--- | | Revenue | 72,798 | 73,972 | -1.6% | | Profit (Loss) before tax | 3,857 | (14,984) | Turnaround to profit | | Profit (Loss) for the period | 1,038 | (14,985) | Turnaround to profit | | Basic earnings per share (HK cents) | 0.22 | (3.12) | Turnaround to profit | | Net cash from operating activities | 11,989 | (22,941) | Turned positive | Key Balance Sheet Items as of June 30, 2019 | Metric | June 30, 2019 (HKD thousands) | December 31, 2018 (HKD thousands) | | :--- | :--- | :--- | | Total Assets | 105,472 | 113,673 | | Total Liabilities | 68,202 | 73,129 | | Net Assets | 37,270 | 40,544 | | Bank Balances and Cash | 51,612 | 42,166 | | Bank Borrowings | 0 | 17,373 | Notes to the Consolidated Financial Statements The notes detail accounting policies, segment information, and financial item specifics, highlighting the adoption of HKFRS 16, the shift to loan intermediary services as the primary revenue and profit driver, and disclosures on related party transactions and debt repayment Note 2.1 Application of HKFRS 16 Leases Effective January 1, 2019, the Group adopted HKFRS 16 Leases, recognizing right-of-use assets and lease liabilities for previously operating leases, with an initial recognition of HKD 14.1 million in lease liabilities and a HKD 4.24 million impairment loss on right-of-use assets impacting opening accumulated losses - Upon initial application of the new leasing standard on January 1, 2019, HKD 9.981 million in right-of-use assets and HKD 14.097 million in lease liabilities were recognized, with an impairment leading to a HKD 4.24 million reduction in opening reserves[40][43][45] Note 4 Segment Information The Group's business is divided into footwear and loan intermediary services, with the latter significantly surpassing the former in revenue and profitability during the period, becoming the core driver as footwear revenue declined and incurred losses Segment Results (For the six months ended June 30, 2019) | Segment | Revenue (HKD thousands) | Segment Results (HKD thousands) | | :--- | :--- | :--- | | Footwear Business | 25,927 | (4,340) | | Loan Intermediary Services | 46,871 | 12,564 | | Total | 72,798 | 8,224 | - Compared to the prior period, footwear business revenue decreased from HKD 62.163 million to HKD 25.927 million, while loan intermediary service revenue surged from HKD 11.809 million to HKD 46.871 million, indicating a successful shift in business focus[50] Note 5 Revenue from goods and services For the six months ended June 30, 2019, total Group revenue was HKD 72.8 million, with footwear contributing HKD 25.93 million and loan intermediary services HKD 46.87 million, primarily from China and overseas markets respectively, with most revenue recognized at a point in time Revenue by Business and Region (For the six months ended June 30, 2019) | Business Segment | Goods/Service Type | Revenue (HKD thousands) | Primary Markets | | :--- | :--- | :--- | :--- | | Footwear Business | Footwear Trading | 25,927 | Australia, UAE, UK | | Loan Intermediary Services | Pre/Post-Loan Services | 46,871 | China | | Total | | 72,798 | | Note 13, 19, 18 Key Asset and Liability Items At the period-end, the Group's balance sheet saw significant changes, including a substantial reduction in trade receivables and contract assets reflecting footwear business contraction, full repayment of bank borrowings, and the addition of an unsecured, interest-free HKD 7 million amount due to a director - Trade receivables significantly decreased from HKD 20.84 million to HKD 6.85 million[67] - Contract assets, primarily related to loan intermediary services, decreased from HKD 35.47 million to HKD 19.16 million[71] - Bank borrowings of HKD 17.37 million have been fully repaid[78][79] - A new amount of HKD 7 million is due to a director, which is unsecured, interest-free, and repayable on demand[76] Note 25 Related Party Disclosures The Group's loan intermediary business is closely linked to related parties, with most business originating from clients obtaining financing through online information intermediary platforms operated by the Company's associates, and as of end-2018, bank borrowings were secured by Executive Director Mr. Ho Kin Wai's investment property - The vast majority of the Group's loan intermediary services rely on online information intermediary platforms operated by related parties to acquire customers and investors[87] Management Discussion and Analysis Business Review and Outlook The Group is strategically transforming from traditional footwear to emerging loan intermediary services, with the footwear business facing challenges and under review, while the loan intermediary business, launched in 2018, shows strong growth in China's lower-tier cities and is a key driver for future investment Footwear Business The footwear business faced negative impacts from macro factors like Brexit, EU economic slowdown, and US-China trade tensions, leading to reduced customer confidence, lower revenue, and profit pressure, resulting in a loss despite cost-cutting measures, prompting management to assess its long-term viability - Due to global economic uncertainties and intense industry competition, the footwear business faces declining revenue and profit pressure, with management assessing its long-term viability[92] Loan Intermediary Business Since its launch in April 2018, the loan intermediary business has rapidly expanded with over 50 branches in China, focusing on serving SMEs, sole proprietors, and farmers in lower-tier cities, leveraging its credit rating system and offline teams for continuous growth, with management optimistic about future expansion - The loan intermediary business focuses on China's third and fourth-tier cities, with over 50 branches established to serve small and micro enterprises, individual businesses, and farmers[93] Loan Intermediary Business Key Operating Data (For the six months ended June 30) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Number of Customers | 3,518 | 1,455 | | Loans Facilitated (RMB thousands) | 292,955 | 101,870 | | Average Loan Facilitated Amount (RMB thousands) | 83.3 | 70.0 | - Management is optimistic about the loan intermediary business outlook and plans to invest more resources, including increasing regional coverage, expanding the target customer base, and developing upstream and downstream opportunities[96] Financial Review In H1 2019, the Group's total revenue slightly decreased by 1.6% year-on-year, but internal structure shifted dramatically with footwear revenue halving while loan intermediary revenue tripled to account for 64.4% of total revenue, leading to adjusted cost structures, increased staff welfare expenses, and an overall turnaround to approximately HKD 1 million net profit due to strong loan business profitability Revenue Analysis For the six months ended June 30, 2019, total revenue was HKD 72.8 million, with footwear business revenue significantly decreasing by 58.3% to HKD 25.9 million due to global economic uncertainties, while loan intermediary business revenue tripled to HKD 46.9 million due to full operation and stable customer growth Segment Revenue Details (For the six months ended June 30) | Segment | 2019 (HKD thousands) | 2018 (HKD thousands) | Y-o-Y Change | | :--- | :--- | :--- | :--- | | Footwear Trading | 25,927 | 62,163 | -58.3% | | Loan Intermediary Services | 46,871 | 11,809 | +296.9% | | Total | 72,798 | 73,972 | -1.6% | Cost and Expense Analysis During the period, inventory purchase costs decreased by 57.4% in line with declining footwear sales, while staff welfare expenses significantly increased to HKD 38.8 million due to the expansion of the loan intermediary business, and finance costs rose primarily due to interest on lease liabilities recognized under the new leasing standard - Cost of purchases and changes in inventories decreased by 57.4% year-on-year to HKD 23.2 million, consistent with the decline in footwear business revenue[103] - Staff welfare expenses increased by 73.9% year-on-year to HKD 38.8 million, primarily due to an increase in staff for the loan intermediary business[106] Profit for the Period Analysis The Group achieved a significant turnaround to a profit of approximately HKD 1 million in H1 2019, compared to a loss of HKD 15 million in the prior period, primarily driven by the loan intermediary services segment's HKD 12.6 million pre-tax profit, which offset the footwear business segment's HKD 4.3 million pre-tax loss - The Group turned from a loss of HKD 15 million in the prior period to a profit of HKD 1 million in the current period[111] - The loan intermediary services segment contributed HKD 12.6 million in pre-tax profit, while the footwear business segment recorded a pre-tax loss of HKD 4.3 million[111] Liquidity and Capital Resources As of June 30, 2019, the Group's financial position was robust with no outstanding bank borrowings and a zero debt-to-equity ratio, cash and cash equivalents increased to approximately HKD 51.6 million, and a current ratio of about 1.9 times indicated ample working capital, with operations primarily funded by business revenue, cash, and director advances Liquidity Metrics | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and Cash Equivalents | Approx. HKD 51.6 million | Approx. HKD 42.2 million | | Bank Borrowings | 0 | Approx. HKD 17.4 million | | Debt-to-Equity Ratio | Zero | Zero | | Current Ratio | Approx. 1.9 times | Approx. 1.8 times | Use of Proceeds from Prospectus The company's net proceeds from listing were approximately HKD 44.6 million, with HKD 28.8 million utilized and HKD 15.8 million remaining as of June 30, 2019, following multiple reallocations of over HKD 15 million from brand licensing, corporate image, and IT system enhancements to general working capital and other corporate purposes - As of June 30, 2019, of the HKD 44.6 million net proceeds from the listing, HKD 28.8 million has been utilized, with HKD 15.8 million remaining[137] - The company repeatedly changed the use of proceeds, reallocating funds originally designated for brand licensing, corporate image, and IT systems to general working capital[136][140] Corporate Governance and Other Information Corporate Governance The company complied with the GEM Listing Rules' Corporate Governance Code during the period, with one deviation regarding the absence of specific terms for non-executive directors, which the company believes is mitigated by their rotation and re-election at annual general meetings, and all directors confirmed compliance with the adopted code of conduct for securities transactions - The company complied with the Corporate Governance Code, with the sole deviation being the absence of specific terms for non-executive directors, who are subject to retirement by rotation[141] Directors' and Substantial Shareholders' Interests As of June 30, 2019, controlling shareholder Jimu Group Holdings Limited held 73% of the company's shares, while Executive Director Mr. Ho Kin Wai held 2% through his controlled corporation, and Mr. Dong Jun and Mr. Wen Junming held interests in the associated corporation Jimu Holdings - Controlling shareholder Jimu Group Holdings Limited holds 350,400,000 shares, representing 73% of the total share capital[150] - Executive Director Mr. Ho Kin Wai holds 9,600,000 shares, representing 2% of the total share capital, through his controlled corporation[146] Changes in Directors' Information and Audit Committee During the period, the Board experienced several changes, including the retirement/resignation of a non-executive director and an independent non-executive director, along with new appointments, and the Audit Committee, comprising four independent non-executive directors, reviewed the unaudited interim results with assistance from external auditor Deloitte - In May 2019, the company's Board of Directors underwent several personnel changes, including the retirement of Mr. Cheung Chung Yee, the resignation of Mr. Liu Jiangtao, and the appointments of Mr. Lau Kai Pong and Mr. Li Tai Yan[154][155] - The Audit Committee, comprising four independent non-executive directors, reviewed the interim financial statements with the assistance of auditor Deloitte[157]