积木集团(08187) - 2020 - 中期财报

Financial Performance Consolidated Financial Statements In H1 2020, the company's performance shifted from profit to a net loss of HKD 4.886 million, with total revenue significantly decreasing by 51.7% to HKD 35.18 million, and operating cash flow turning negative, indicating substantial operational and financial pressure Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income Key Financial Performance Indicators | Indicator | For the Six Months Ended June 30, 2020 (HKD '000) | For the Six Months Ended June 30, 2019 (HKD '000) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Revenue | 35,181 | 72,798 | -51.7% | | Profit (Loss) Before Tax | (6,124) | 3,857 | Shifted from profit to loss | | Profit (Loss) for the Period | (4,886) | 1,038 | Shifted from profit to loss | | Basic Earnings (Loss) Per Share (HK cents) | (1.02) | 0.22 | Shifted from profit to loss | Condensed Consolidated Statement of Financial Position Condensed Consolidated Statement of Financial Position | Assets/Liabilities/Equity | As at June 30, 2020 (HKD '000) | As at December 31, 2019 (HKD '000) | Change | | :--- | :--- | :--- | :--- | | Total Assets | 42,534 | 58,466 | -27.2% | | Non-current Assets | 630 | 3,819 | -83.5% | | Current Assets | 41,904 | 54,647 | -23.3% | | Total Liabilities | 40,335 | 55,617 | -27.5% | | Current Liabilities | 35,859 | 43,646 | -17.8% | | Non-current Liabilities | 4,476 | 11,971 | -62.6% | | Net Assets | 2,199 | 2,849 | -22.8% | Condensed Consolidated Statement of Changes in Equity - For the six months ended June 30, 2020, the company's total equity decreased from HKD 2.849 million at the beginning of the period to HKD 2.199 million[8] - The primary reason for the equity reduction was a loss of HKD 4.886 million recorded during the period[8] - Notably, a director waived HKD 4.36 million owed to them, which was recognized as a deemed contribution to capital reserve, partially offsetting the impact of the loss on equity[8] Condensed Consolidated Statement of Cash Flows Condensed Consolidated Statement of Cash Flows | Cash Flow Activities | For the Six Months Ended June 30, 2020 (HKD '000) | For the Six Months Ended June 30, 2019 (HKD '000) | | :--- | :--- | :--- | | Net Cash from Operating Activities | (20,170) | 11,989 | | Net Cash from Investing Activities | 98 | 1,373 | | Net Cash Used in Financing Activities | (4,571) | (3,825) | | Net Decrease in Cash and Cash Equivalents | (24,643) | 9,537 | | Cash and Cash Equivalents at Beginning of Period | 33,584 | 42,166 | | Cash and Cash Equivalents at End of Period | 8,684 | 51,612 | Notes to the Financial Statements The notes detail accounting policies, COVID-19 impact, segment performance, revenue composition, and key balance sheet items, notably the functional currency change from USD to RMB effective January 1, 2020, and the footwear business's profitability contrasting with the loan intermediary business's pandemic-induced losses and asset impairments - Due to the COVID-19 pandemic, the Group temporarily closed its loan intermediary business branches from February to March 2020, leading to reduced revenue and impairment of related right-of-use assets[13] - Effective January 1, 2020, the company's functional currency changed from USD to RMB to better reflect its economic substance as an investment holding company primarily operating in China[12] 4. Segment Information During the reporting period, the Group's two main business segments showed significant divergence: the footwear business turned profitable with HKD 5.65 million in segment results, while the loan intermediary services segment shifted from profit to a HKD 7.485 million loss Segment Performance | Operating Segment | Revenue for the Six Months Ended June 30, 2020 (HKD '000) | Segment Results for the Six Months Ended June 30, 2020 (HKD '000) | Segment Results for the Six Months Ended June 30, 2019 (HKD '000) | | :--- | :--- | :--- | :--- | | Footwear Business | 21,546 | 5,650 | (4,340) | | Loan Intermediary Services | 13,635 | (7,485) | 12,564 | 5. Revenue from Goods and Services Total revenue for H1 2020 was HKD 35.181 million, a 51.7% year-on-year decrease, with footwear revenue down 16.9% to HKD 21.546 million and loan intermediary services revenue sharply down 70.9% to HKD 13.635 million, with all revenue now solely from China Revenue by Business Segment | Business Segment | Revenue for the Six Months Ended June 30, 2020 (HKD '000) | Percentage of Total Revenue (%) | Revenue for the Six Months Ended June 30, 2019 (HKD '000) | Percentage of Total Revenue (%) | | :--- | :--- | :--- | :--- | :--- | | Footwear Business | 21,546 | 61.2% | 25,927 | 35.6% | | Loan Intermediary Services | 13,635 | 38.8% | 46,871 | 64.4% | | Total | 35,181 | 100.0% | 72,798 | 100.0% | Assets and Liabilities Due to COVID-19-induced branch closures in the loan intermediary business, the Group recognized an impairment loss of approximately HKD 0.22 million on right-of-use assets, while a director's waiver of HKD 4.36 million owed to them was recognized as a deemed capital contribution, increasing capital reserves - Due to adverse factors such as property closures of loan intermediary business branches caused by the pandemic, the Group conducted impairment tests on right-of-use assets and recognized an impairment loss of approximately HKD 0.22 million[41] - A director, also a substantial shareholder, waived the full amount of HKD 4.36 million owed to them, which was recognized as a deemed contribution and credited to capital reserve[50] 24. Related Party Disclosures Most of the Group's loan intermediary business involves services to end customers whose financing originates from investors registered on an online information intermediary platform operated by a company associate; additionally, a RMB 40 million interest-free loan from the ultimate holding company's subsidiary was repaid during the period - The vast majority of the Group's loan intermediary business comes from end customers whose financing is sourced from investors registered on an online information intermediary service platform operated by a company associate[57] - In April 2020, a subsidiary of the ultimate holding company provided an unsecured, interest-free loan of RMB 40 million, which was repaid early during the interim period[60] Management Discussion and Analysis Business Review and Outlook During the period, the Group's two main businesses diverged: footwear capitalized on China's market recovery to turn profitable despite weak overseas markets, while loan intermediary services suffered severe declines due to COVID-19 impacting demand and funding, prompting management to implement cost controls including branch closures and layoffs Footwear Business Despite global economic uncertainty and declining overseas margins, the footwear business successfully pivoted to the Chinese domestic market, securing initial orders from prominent retailers and achieving profitability during the reporting period, signaling a recovery after years of losses - Despite further deterioration in overseas retail markets due to the pandemic, the Chinese market recovered first, and the Group seized the opportunity to complete initial orders for prominent Chinese retailers[61] - Management believes the footwear business is recovering and has recorded a profit after several years of losses[61] Loan Intermediary Business The loan intermediary business experienced a significant decline in H1 2020 due to sharply reduced demand for services and decreased lending willingness from funders, both exacerbated by the COVID-19 pandemic and lockdown measures; management has responded with cost-cutting measures, including branch closures and layoffs, while actively seeking new funding sources - The loan intermediary business was severely impacted by the COVID-19 pandemic, with lockdown measures leading to a sharp decline in service demand and a corresponding decrease in lending willingness from funding sources[65] - Management has adopted plans to reduce costs and improve efficiency by closing several branches and laying off underperforming employees, while actively seeking other funding sources[65] Financial Review Total revenue for H1 2020 decreased 51.7% to HKD 35.2 million, primarily due to a 70.9% drop in loan intermediary services revenue; despite a 16.9% decline, the footwear business achieved a pre-tax profit of HKD 5.7 million and turned profitable due to higher domestic margins, while the Group overall shifted to a HKD 4.9 million loss, dragged by significant losses in the loan business Financial Review - Revenue Analysis Total revenue decreased 51.7% to HKD 35.2 million from HKD 72.8 million in the prior period, with footwear revenue down 16.9% to HKD 21.5 million due to reduced overseas sales, and loan intermediary business revenue sharply down 70.9% to HKD 13.6 million primarily due to COVID-19 impact Revenue Analysis by Business Segment | Business Segment | Revenue for the Six Months Ended June 30, 2020 (HKD '000) | Percentage of Total Revenue (%) | Revenue for the Six Months Ended June 30, 2019 (HKD '000) | Percentage of Total Revenue (%) | | :--- | :--- | :--- | :--- | :--- | | Footwear Trading | 21,546 | 61.2% | 25,927 | 35.6% | | Loan Intermediary Services | 13,635 | 38.8% | 46,871 | 64.4% | | Total | 35,181 | 100.0% | 72,798 | 100.0% | Costs and Expenses All cost and expense categories saw significant reductions: cost of inventories purchased decreased 36.0%, employee benefit expenses 33.2% due to cost-cutting and restructuring, other operating expenses 43.1% from reduced business activity and cost control, and finance costs 61.0% due to bank loan repayments - Employee benefit expenses decreased from HKD 38.8 million to HKD 25.9 million, primarily due to cost-cutting and restructuring initiatives implemented during the period[73] - The purchase cost to sales ratio decreased from 85.0% in the prior period to 68.9%, mainly due to higher profit margins from domestic sales[70] Profit/Loss for the Period The Group shifted from a HKD 1 million profit in the prior period to a HKD 4.9 million loss, driven by divergent performance: the footwear segment achieved a pre-tax profit of HKD 5.7 million (vs. HKD 4.3 million loss last year) due to higher domestic margins and cost reductions, while the loan intermediary services segment recorded a pre-tax loss of HKD 7.5 million (vs. HKD 12.6 million profit last year) due to significant revenue decline from the pandemic - Due to divergent business performance, the Group recorded an overall loss of approximately HKD 4.9 million, compared to a profit of approximately HKD 1 million in the prior period[78] Liquidity and Capital Resources As of June 30, 2020, the Group's financial position showed tightening liquidity, with cash and cash equivalents significantly reduced to HKD 8.7 million (from HKD 33.6 million at year-end); however, the Group had no outstanding bank borrowings and a zero debt-to-equity ratio, with a current ratio slightly decreasing from 1.3x to 1.2x, indicating acceptable short-term solvency Liquidity and Capital Resources Summary | Indicator | As at June 30, 2020 | As at December 31, 2019 | | :--- | :--- | :--- | | Cash and Cash Equivalents | Approx. HKD 8.7 million | Approx. HKD 33.6 million | | Outstanding Borrowings | Zero | Zero | | Debt-to-Equity Ratio | Zero | Zero | | Current Ratio | Approx. 1.2x | Approx. 1.3x | | Net Current Assets | Approx. HKD 6 million | Approx. HKD 11 million | Comparison of Business Plan with Actual Progress Compared to the 2016 prospectus business plan, the Group's actual progress on several expansion and enhancement initiatives significantly deviated from plans, including the departure of 3D technicians, designers, and technicians hired to improve design capabilities, and the termination of brand licensing plans, reflecting difficulties and changes in post-listing long-term strategy execution - 3D technicians, footwear designers, footwear technicians, and quality control inspectors hired to enhance design, development, and production management capabilities all departed between 2018 and 2019[99] - The Group signed a 'B.Duck' brand license agreement in June 2017, but it was terminated in December of the same year[99] Use of Proceeds The HKD 44.6 million net proceeds from the company's listing were fully utilized by June 30, 2020; notably, between 2018 and 2019, the company repeatedly announced changes in the use of proceeds, reallocating over HKD 32 million originally designated for specific development projects like brand licensing, corporate image, IT systems, customer base expansion, and design capabilities, to 'general working capital and other general corporate purposes' - As of June 30, 2020, the net proceeds of HKD 44.6 million from the listing placement have been fully utilized[109] - The Group repeatedly changed the use of proceeds disclosed in the prospectus, reallocating funds originally intended for various projects such as expansion, design enhancement, brand licensing, and IT systems, to 'general working capital and other general corporate purposes'[105][107][109] Corporate Governance and Other Information Corporate Governance The company complied with the GEM Listing Rules' Corporate Governance Code during the reporting period, with one deviation: non-executive and independent non-executive directors were appointed without specific terms, contrary to Code Provision A.4.1, though the company believes sufficient measures for good governance are maintained through rotation and re-election at annual general meetings - The company complied with the Corporate Governance Code, except for a deviation from Code Provision A.4.1, where non-executive directors were appointed without specific terms[110] Directors' and Substantial Shareholders' Interests The report discloses directors' and substantial shareholders' interests, showing that as of June 30, 2020, controlling shareholder Jimu Group Holdings Limited held 350,400,000 shares, representing 73% of the total share capital, with its ownership structure traced through Huawen Industry Group Limited to Jimu Holdings Directors' and Substantial Shareholders' Interests as at June 30, 2020 | Shareholder Name | Capacity | Number of Shares Held | Approximate Percentage of Total Share Capital | | :--- | :--- | :--- | :--- | | Jimu Group Holdings Limited | Beneficial Owner | 350,400,000 | 73% | | Huawen Industry Group Limited | Interest in Controlled Corporation | 350,400,000 | 73% | | Jimu Holdings | Interest in Controlled Corporation | 350,400,000 | 73% | Other Disclosures During the reporting period, neither the company nor its subsidiaries purchased, redeemed, or sold any listed securities; board changes included Mr. Yan Taotao's resignation as executive director and Mr. Wong Chak Hung's appointment on June 5, 2020, and no share options have been granted under the option scheme adopted since 2016 - For the six months ended June 30, 2020, neither the company nor any of its subsidiaries repurchased or sold any shares of the company[121] - Mr. Yan Taotao retired as an executive director on June 5, 2020, and Mr. Wong Chak Hung was appointed as an executive director on the same day[122] - Since the adoption of the share option scheme on May 11, 2016, no share options have been granted under the scheme as of the date of this report[113]