瀛晟科学(00209) - 2020 - 年度财报

Chairman's Report Operating Results and Outlook In FY2020, the company's revenue and gross profit declined due to external factors, but administrative expenses were reduced, with a cautious outlook for toys and a focus on diversification - Company revenue and gross profit declined due to COVID-19, US-China trade tensions, and RMB appreciation[9] - Administrative expenses were successfully reduced by HKD 15.6 million, a 21.1% year-on-year decrease[10] - The company is pursuing business diversification into higher-margin areas and sold an investment property in Suzhou for RMB 40 million in March 2021[11] Management Discussion and Analysis Business Overview In FY2020, total revenue fell 43.9% to HKD 364.3 million and gross profit by 75.3% to HKD 18.5 million, mainly due to the toy segment, while net loss expanded to HKD 95.8 million Key Financial Indicators for FY2020 | Metric | FY2020 (HKD Million) | FY2019 (HKD Million) | Y-o-Y Change | | :--- | :--- | :--- | :--- | | Revenue | 364.3 | 649.5 | -43.9% | | Gross Profit | 18.5 | 74.9 | -75.3% | | Net Loss | 95.8 | 42.4 | +125.9% | | Securities Investment Loss | 2.9 | 10.7 | -72.9% | Segment Business Discussion Segment performance varied, with the toy division turning to loss due to reduced orders and rising costs, while securities investment loss narrowed, and the pharmaceutical and healthcare segment divested its R&D project Toy Segment The toy segment's revenue decreased 43.9% to HKD 364.3 million due to reduced orders amid COVID-19, with gross profit falling to HKD 18.5 million, resulting in a HKD 61.6 million loss from a prior year profit - Toy segment revenue decreased 43.9% to HKD 364.3 million, primarily due to reduced orders caused by COVID-19[15] - Gross profit fell to HKD 18.5 million due to increased costs and price competition, resulting in a pre-tax segment loss of HKD 61.6 million (compared to a HKD 13.1 million profit in 2019)[15] Securities Investment Segment Amid volatile Hong Kong stock markets, the Group adopted a conservative investment strategy, reducing securities investment loss by 72.9% to HKD 2.9 million, with portfolio value significantly shrinking to HKD 1.7 million by year-end - Securities investment segment loss decreased 72.9% year-on-year to HKD 2.9 million[16] - Year-end securities portfolio value was HKD 1.7 million, a significant decrease from HKD 6.9 million at end-2019[16] Pharmaceutical and Healthcare Segment The Group sold its pharmaceutical R&D project for HKD 8 million, with net proceeds allocated to working capital and other business investments - The Group sold its pharmaceutical R&D project for HKD 8 million, with proceeds allocated to working capital and other investments[17] Significant Investment Details By end-2020, the Group's significant investment portfolio value shrank to HKD 1.761 million, primarily China P&C Insurance, with fair value change loss narrowing from HKD 10.689 million to HKD 2.929 million Comparison of Significant Investment Portfolios (2020 vs 2019) | Item | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Market Value | 1.761 million HKD | 6.891 million HKD | | Major Holdings | PICC Property and Casualty | Lianhe Medical, Pak Wing Group, China Xinhua News | | Fair Value Change Loss | 2.929 million HKD | 10.689 million HKD | Financial Review At FY2020 end, net current liabilities expanded to HKD 200.2 million, shareholders' equity decreased 68.5% to HKD 37.9 million, and the gearing ratio rose to 90%, yet management deems the financial position sound with liquidity measures in place - Year-end net current liabilities were HKD 200.2 million, a significant increase from HKD 65.6 million in 2019[24] - Shareholders' equity decreased 68.5% to HKD 37.9 million due to operating losses during the year[24] - The gearing ratio increased from 71% in 2019 to 90%[24] Environmental, Social and Governance Report Environmental The Group is committed to sustainability, establishing an environmental management committee and upgrading ISO 14001, achieving a 10.78% reduction in GHG emissions and 10.09% in electricity consumption, and earning the 'Guangdong-Hong Kong Cleaner Production Partner' title Greenhouse Gas Emissions (Scope 1 & 2) | Metric | Unit | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total GHG Emissions | tonnes CO2e | 6,345 | 7,112 | Waste Disposal Volume | Waste Type | 2020 Total Disposal Volume (tonnes) | 2019 Total Disposal Volume (tonnes) | | :--- | :--- | :--- | | Non-hazardous Waste | 28.70 tonnes | 32.90 tonnes | | Hazardous Waste | 28.36 tonnes | 27.16 tonnes | Energy Consumption | Energy Type | 2020 Total Consumption | 2019 Total Consumption | Y-o-Y Change | | :--- | :--- | :--- | :--- | | Electricity | 7,480,942 kWh | 8,320,402 kWh | -10.09% | | Unleaded Gasoline | 19,800 liters | 61,350 liters | -67.73% | | Diesel | 15,500 liters | 4,100 liters | +278.05% | - The Group was awarded the 'Guangdong-Hong Kong Cleaner Production Partner (Manufacturing)' title, recognizing its efforts in cleaner production technologies and practices[55] Social The Group prioritizes employees, ensuring a fair and safe work environment with ICTI and OHSAS 18001 certifications, implementing strict COVID-19 measures, providing 27 hours of average annual training per employee, and strictly prohibiting child and forced labor - The Group is ICTI Care Foundation certified and has employment policies aligned with the National Labor Law, with no non-compliance cases reported during the period[59] - The Group is OHSAS 18001 certified, with no work-related fatalities in the past three years and 1,198 lost workdays due to work injuries during the reporting period[67] - All employees participated in training during the reporting period, with an average of 27 training hours per employee[69] - The Group strictly prohibits child and forced labor and avoids excessive overtime through stringent production schedules[76] Operating Practices The Group manages its supplier-dependent operations through strict evaluations, prioritizing ISO-certified and local suppliers, adhering to C-TPAT, and ensuring product quality and safety with IETP and ISO 9001:2015 certifications, with no product recalls or corruption cases reported - The Group conducts annual supplier evaluations, prioritizing ISO 14001 and ISO 9001 certified suppliers, and adheres to C-TPAT security policies[78][79][82] - The Group is IETP and ISO 9001:2015 quality management system certified, ensuring toy products meet international safety standards, with no product recalls reported during the period[83][84][86] - The Group maintains a zero-tolerance stance on corruption, with internal controls and whistleblowing mechanisms in place, and no cases of bribery, extortion, fraud, or money laundering reported during the period[92] Directors' Report Business and Financial Summary This report summarizes the Group's business and financial status for the year ended December 31, 2020, with investment holding as its main business, no final dividend proposed, and top five clients accounting for most sales, with the largest client at 85.6% - The Board does not recommend paying a final dividend for the year ended December 31, 2020[111] - During the year, the top five clients accounted for approximately HKD 352 million of total sales, with the largest client representing 85.6%[118] - During the year, the top five suppliers accounted for approximately HKD 63.6 million of total purchases, with the largest supplier representing 7.4%[118] Shareholders' Equity and Public Float As of December 31, 2020, major shareholders include China Strategic Group (17.80% indirect), Mr. Ji Xiang (13.57% indirect), and Mr. Shen Jia (10.92% beneficial), with the company confirming maintenance of at least 25% public float Major Shareholder Holdings (December 31, 2020) | Shareholder Name | Number of Shares Held | Approx. % of Issued Share Capital | | :--- | :--- | :--- | | China Strategic Group Ltd. | 651,995,472 | 17.80% | | Mr. Ji Xiang | 496,976,000 | 13.57% | | Mr. Shen Jia | 400,000,000 | 10.92% | - The company confirmed maintaining a public float of not less than 25% as of the reporting date[133] Corporate Governance Report Board and Committees The company complied with corporate governance code provisions, with a seven-member board including independent non-executive directors, distinct roles for Chairman and CEO ensuring balanced power, and all three committees chaired by independent non-executive directors holding meetings as required - The roles of Chairman (Mr. Zhao Deyong) and CEO (Mr. Liu Michael Xiao Ming) are separated to ensure a balance of power[150] Board and General Meeting Attendance Record | Director Name | Board Meeting Attendance | AGM Attendance | | :--- | :--- | :--- | | Mr. Zhao Deyong | 3/3 | 1/1 | | Mr. Liu Michael Xiao Ming | 3/3 | 1/1 | | Mr. Luo Lianjun | 3/3 | 1/1 | | Mr. Lin Shaopeng | 3/3 | 1/1 | | Mr. Guo Jianxiong | 3/3 | 1/1 | | Mr. Wu Weixiong | 3/3 | 1/1 | | Ms. Shi Xiaolei | 3/3 | 1/1 | Auditor's Remuneration and Internal Control The consolidated financial statements were audited by UHY CPA Limited for a total fee of HKD 1.43 million, with HKD 1.28 million for audit services, and the Board confirmed its responsibility for fair presentation, with internal controls reviewed by an independent firm and the Audit Committee Auditor's Remuneration | Service Type | Fee (HKD Thousand) | | :--- | :--- | | Audit Services Fee | 1,280 | | Non-audit Services Fee | 150 | | Total | 1,430 | - The Board is responsible for maintaining adequate internal control systems; an independent professional firm reviewed the internal control cycle for the year ended December 31, 2020, and the Audit Committee reviewed its report[163] Shareholder Rights The company outlines shareholder rights, including the right for shareholders holding at least 10% of paid-up capital to call an EGM, or 5% of total voting rights (or 100 shareholders) to propose resolutions at an AGM, and procedures for director nominations and board inquiries - 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[166] - Shareholders holding not less than one-twentieth of the total voting rights or not less than one hundred shareholders may request the company in writing to propose a resolution at an annual general meeting[167][168] - The report details the procedure for shareholders to nominate directors, requiring written notice to the company within a specified timeframe[170] Independent Auditor's Report Audit Opinion and Key Audit Matters UHY CPA Limited issued an unmodified audit opinion on the Group's consolidated financial statements, highlighting key audit matters including inventory impairment, investment property valuation, and the going concern assessment due to net current liabilities and annual loss - The auditor believes the consolidated financial statements fairly and accurately reflect the Group's financial position, performance, and cash flows in accordance with Hong Kong Financial Reporting Standards[175] - Key audit matters include: - Inventory impairment assessment: due to the significant amount of inventory and management judgment involved in the assessment - Investment property valuation: as the valuation involves significant unobservable inputs and assumptions - Going concern assessment: due to the Group's net current liabilities position and annual loss at year-end[180][182][185] Consolidated Financial Statements Consolidated Statement of Profit or Loss For the year ended December 31, 2020, Group revenue decreased 43.9% to HKD 364 million, gross profit fell from HKD 74.94 million to HKD 18.52 million, and annual loss expanded from HKD 42.42 million to HKD 95.78 million, with basic loss per share at 2.62 HK cents Consolidated Statement of Profit or Loss Summary (Year Ended December 31) | Metric (HKD Thousand) | 2020 | 2019 | | :--- | :--- | :--- | | Revenue | 364,311 | 649,490 | | Gross Profit | 18,515 | 74,939 | | Loss Before Tax | (102,120) | (33,474) | | Loss for the Year | (95,779) | (42,422) | | Basic Loss Per Share | (2.62 HK cents) | (1.16 HK cents) | Consolidated Statement of Financial Position As of December 31, 2020, total assets were HKD 485 million, total liabilities HKD 447 million, and net assets HKD 37.9 million, a significant decrease from HKD 120 million last year, with net current liabilities expanding to HKD 200 million Consolidated Statement of Financial Position Summary (As of December 31) | Metric (HKD Thousand) | 2020 | 2019 | | :--- | :--- | :--- | | Non-current Assets | 262,305 | 262,388 | | Current Assets | 222,383 | 333,364 | | Total Assets | 484,688 | 595,752 | | Current Liabilities | 422,621 | 399,013 | | Non-current Liabilities | 24,166 | 76,460 | | Total Liabilities | 446,787 | 475,473 | | Net Assets | 37,901 | 120,279 | Consolidated Statement of Cash Flows In FY2020, net cash outflow from operating activities was HKD 49.25 million, primarily due to working capital changes, while investing activities generated HKD 60.29 million net inflow, and financing activities resulted in HKD 46.93 million net outflow, leading to a HKD 35.89 million net decrease in cash and cash equivalents Consolidated Statement of Cash Flows Summary (Year Ended December 31) | Metric (HKD Thousand) | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | (49,254) | 20,780 | | Net Cash from Investing Activities | 60,293 | (85,805) | | Net Cash from Financing Activities | (46,928) | 80,108 | | Net Decrease in Cash and Cash Equivalents | (35,889) | 15,083 | | Cash and Cash Equivalents at Beginning of Year | 89,280 | 75,489 | | Cash and Cash Equivalents at End of Year | 56,142 | 89,280 | Notes to the Consolidated Financial Statements Basis of Preparation and Going Concern Financial statements are prepared on a going concern basis despite a HKD 95.78 million loss and HKD 200 million net current liabilities in FY2020, as management has implemented measures like loan extensions, asset sales, and cost controls to improve liquidity - The Group had net current liabilities of approximately HKD 200 million and an annual loss of approximately HKD 95.78 million as of December 31, 2020, posing a challenge to its going concern ability[220] - Management has implemented several countermeasures, including: - Extending repayment periods for multiple loans to 2022 - Selling a subsidiary holding an investment property for RMB 40 million in March 2021 - Implementing aggressive cost-saving measures - Considering realizing other investments and seeking alternative financing arrangements[220][223] Revenue and Segment Information The Group's HKD 364 million total revenue in 2020 came entirely from the toy segment, which recorded a HKD 61.65 million pre-tax loss, while securities investment and pharmaceutical segments also incurred losses, with the US being the primary revenue source at 88.4% Pre-tax (Loss) Profit by Segment (HKD Thousand) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | Securities Investment | (2,876) | (10,690) | | Toy | (61,646) | 13,065 | | Pharmaceutical and Healthcare | (336) | (2,523) | Revenue by Geographical Region (HKD Thousand) | Region | 2020 | 2019 | | :--- | :--- | :--- | | USA | 322,188 | 621,695 | | Europe | 19,365 | 16,363 | | Hong Kong | 19,084 | 11,432 | | Korea | 3,674 | – | - Revenue from largest client A was HKD 312 million, accounting for the vast majority of toy segment revenue[344] Events After Reporting Period On March 15, 2021, the Group agreed to sell a subsidiary holding an investment property for RMB 40 million (approximately HKD 47.53 million) in cash to improve its liquidity - On March 15, 2021, the Group agreed to sell a subsidiary holding an investment property for RMB 40 million[491] Five-Year Financial Summary Five-Year Financial Summary Over the past five years, Group revenue significantly declined to HKD 364 million in 2020 after relative stability, with continuous annual losses since 2016, and total assets and equity showing a downward trend, with total equity falling to HKD 37.9 million in 2020 Five-Year Financial Data Summary (HKD Thousand) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 364,311 | 649,490 | 636,882 | 589,933 | 236,174 | | Annual Loss | (95,779) | (42,422) | (153,625) | (77,733) | (227,296) | | Total Assets | 484,688 | 595,752 | 524,846 | 752,852 | 512,545 | | Total Liabilities | (446,787) | (475,473) | (360,509) | (419,684) | (256,981) | | Total Equity | 37,901 | 120,279 | 164,337 | 333,168 | 255,564 |