权识国际(00381) - 2019 - 年度财报

Company Information This section provides core company details including basic registration information, principal office address, board of directors, share registrar, auditor, and principal bankers - This section provides core company details including basic registration information, principal office address, board of directors, share registrar, auditor, and principal bankers[5][6] Financial Highlights The company experienced a 7% revenue decline and a 43% increase in net loss for the year, alongside decreases in total assets and equity FY2019 Financial Performance Summary | Indicator | 2019 (HKD Thousands) | 2018 (HKD Thousands) | Change | | :--- | :--- | :--- | :--- | | Revenue | 199,952 | 214,605 | (7%) | | Gross Profit | 41,686 | 65,271 | (36%) | | Loss for the Year | (302,325) | (211,570) | (43%) | | Loss Attributable to Shareholders | (301,937) | (208,066) | (45%) | | Basic Loss Per Share (HK Cents) | (3.11) | (2.70) | 15% | | Total Assets | 827,873 | 913,547 | (9%) | | Total Equity | 331,707 | 455,778 | (27%) | Chairman's Statement The Group reported a 6.8% revenue decrease and a 45% increase in loss attributable to shareholders, primarily due to write-offs and associate losses, while actively pursuing business diversification - For FY2019, the Group's turnover was approximately HKD 200 million, a 6.8% year-on-year decrease, with loss attributable to shareholders expanding to approximately HKD 302 million, a 45% year-on-year increase[10] - The expanded loss was primarily due to a write-off of approximately HKD 107 million in prepayments and other receivables, and a share of loss from associates of approximately HKD 68.3 million[10] - The Group's core business remains the manufacturing and trading of toys and gifts, but its gross profit margin decreased from 30.4% to 20.8%[11] - The Group is actively seeking business diversification, having entered into memoranda of understanding for the acquisition of a 51% equity interest in Hubei Jincaotang Pharmaceutical Co., Ltd. and certain equity interests in Shanghai Zhongjun HIT Enterprise Development Co., Ltd[12] Management Discussion and Analysis This section reviews the Group's business operations across five segments and its financial position, highlighting challenges in core businesses and auditor's qualified opinions Business and Operations Review The Group's five business segments, including toys and gifts, natural resources, fruit planting, leisure, and culture, experienced varied performance, with the main revenue driver facing declining turnover and gross margin Manufacturing and Sales of Toys and Gifts The primary revenue source, toys and gifts, saw a 6.8% decline in turnover to approximately HKD 200 million and a significant drop in gross margin to 20.8% due to customer loss and market competition Toys and Gifts Business Performance | Indicator | 2019 | 2018 | | :--- | :--- | :--- | | Turnover (HKD) | Approx. 200,000,000 | 214,600,000 | | Gross Profit Margin | 20.8% | 30.4% | Natural Resources Exploration The Group completed the sale of an 80% equity interest in two Inner Mongolia coal exploration projects, retaining a 20% interest classified as a financial asset at fair value through other comprehensive income - The Group completed the disposal of an 80% equity interest in Inner Mongolia Mingrunfeng Energy Co., Ltd. and Inner Mongolia Runheng Mining Co., Ltd. on January 15, 2019[19] Fruit Planting Investments in Zhongle Group (40% stake) yielded a profit of approximately HKD 4.5 million, while USO (47% stake) resulted in a HKD 46 million loss due to intangible asset amortization - The Group's investment in Zhongle Group (40% stake) recorded a share of profit of approximately HKD 4.5 million for the year[20] - The Group's investment in USO (47% stake) recorded a share of loss of HKD 46 million due to intangible asset amortization[23] Leisure The leisure segment, including tea, wine, and overseas travel, saw significant losses from tea (HKD 24.9 million) and wine (HKD 1.9 million) investments, with the overseas travel investment fully impaired and subject to legal action - The tea business (Fujian Yuguo) recorded a Group's share of loss of HKD 24.9 million due to intangible asset impairment[24] - The wine business (Anhui Fulao) recorded a Group's share of loss of HKD 1.9 million[26] - The overseas travel business (Yingyang Group) investment has been fully impaired, and legal actions are being taken regarding the termination of agreements and promissory notes[27] Culture The Group recognized a write-down of approximately HKD 25 million on Jingdezhen contemporary ceramic works acquired in 2015, resulting in a year-end carrying value of approximately HKD 10.3 million - A write-down of approximately HKD 25 million was recognized for ceramic works during the year, with a year-end carrying value of approximately HKD 10.3 million[29] Review of Financial Position Administrative expenses decreased by 21.1% due to reduced consulting fees, but finance costs increased due to overdue interest on promissory notes, leading to a sharp rise in the gearing ratio from 92.4% to 139.5% - Administrative expenses decreased by 21.1% year-on-year to HKD 89.3 million, primarily due to reduced consulting expenses[34] - Finance costs increased by approximately HKD 9.1 million year-on-year to HKD 34.9 million, mainly due to increased overdue interest on promissory notes[35] Liquidity and Financial Resources | Indicator | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Bank and Cash Balances (HKD) | Approx. 18,500,000 | 21,800,000 | | Borrowings (HKD) | Approx. 55,500,000 | 101,900,000 | | Promissory Notes (HKD) | Approx. 270,500,000 | 153,600,000 | | Gearing Ratio | 139.5% | 92.4% | Auditor's Qualified Opinion The auditor issued a qualified opinion on the 2019 financial statements due to insufficient audit evidence for three opening balances: net realizable value of inventory (ceramic works), recoverability of prepayments, and recoverable amount of investment in an associate (Fujian Yuguo) - The auditor issued a qualified opinion on the opening balance of inventory (ceramic works) due to an inability to confirm its net realizable value; the company has written down approximately HKD 25 million during the year, and this qualification is expected to be removed in the 2021 report[44][45][49] - The auditor issued a qualified opinion on the opening balance of prepayments, deposits, and other receivables due to an inability to confirm their recoverability; the company has written off approximately HKD 107 million during the year, and this qualification is expected to be removed in the 2021 report[50][51][54] - The auditor issued a qualified opinion on the opening balance and corresponding figures for the investment in associate Fujian Yuguo, stemming from the previous auditor's qualification; the company expects this qualification to be removed in the 2020 report[56][57][60] Biographical Details of Directors and Senior Management This section provides personal biographies of executive directors, independent non-executive directors, and senior management, including their age, position, appointment date, and relevant industry experience - This section provides personal biographies of executive directors, independent non-executive directors, and senior management, including their age, position, appointment date, and relevant industry experience[62][63][66][67] Directors' Report The Directors' Report covers the Group's business and financial performance, changes in the board and shareholding structure, and its environmental, social, and governance initiatives Business and Financial Review The company's main business is investment holding with diversified subsidiaries; no final dividend is recommended, and customer concentration is high, with the top five customers accounting for 80.6% of total revenue - The company's principal business is investment holding, with diversified subsidiary operations[70] - The Board does not recommend the payment of any final dividend for the year ended December 31, 2019[72] - Customer concentration is high: sales to the top five customers accounted for 80.6% of total revenue, with the largest customer accounting for 53.7%; supplier concentration is relatively lower, with the top five suppliers accounting for 43.3% of total purchases[85] Directors and Shareholding Structure The report details significant changes in board members, discloses directors' interests in company shares, confirms the cancellation of all 69 million outstanding share options, and affirms compliance with public float requirements - There were significant changes in the Board of Directors during the reporting period, with several executive and independent non-executive directors retiring or resigning, and new directors being appointed[86] - As of December 31, 2019, Executive Director Mr. Zhang Qijun held 670,000 shares of the company, representing approximately 0.01% of the equity[95] - All 69,000,000 outstanding share options at the beginning of the year were cancelled during the year[103] - The company confirmed that as of the report date, the public float exceeded 25% of the issued shares, complying with listing rule requirements[107] Environmental, Social and Governance The company prioritizes environmental protection through measures like double-sided printing and energy saving, maintains good relationships with stakeholders, and complied with relevant laws and regulations without major violations or labor disputes during the reporting period - The Group implemented various environmental protection measures, such as default double-sided printing, waste paper recycling, and zoned control of air conditioning and lighting, to reduce its carbon footprint[110][111] - During the reporting period, the Board was not aware of any material non-compliance with relevant laws and regulations that had a significant impact on the Group[112] Corporate Governance Report The Corporate Governance Report details the company's adherence to governance codes, board composition, and risk management practices, while addressing significant uncertainties related to its going concern status Corporate Governance Practices and the Board The company generally complied with corporate governance codes, though some independent non-executive directors missed the AGM; the Board comprises three executive and five independent non-executive directors, supported by remuneration, nomination, and audit committees - The company deviated from Corporate Governance Code Provision A.6.7, as some independent non-executive directors were unable to attend the Annual General Meeting on June 28, 2019, due to other commitments[119] - The Board comprises three executive directors and five independent non-executive directors, supported by a Remuneration Committee, a Nomination Committee, and an Audit Committee[121][128][131][132] Going Concern Issues The Group's significant loss and net current liabilities in FY2019 raise substantial doubt about its ability to continue as a going concern, prompting management to pursue new borrowings, negotiate repayment extensions, consider fundraising, and secure shareholder financial support - As of December 31, 2019, the Group incurred a loss of approximately HKD 302 million and recorded net current liabilities of approximately HKD 317 million, indicating a material uncertainty that may cast significant doubt on its ability to continue as a going concern[141] - To improve its financial position, the directors have implemented several measures, including: (1) negotiating new borrowings; (2) reaching deferred repayment agreements with certain creditors; (3) actively considering fundraising activities; (4) entering into a conditional bond subscription agreement; and (5) obtaining a financial support commitment from a shareholder[143] Risk Management and Internal Control The Board is fully responsible for the Group's internal control system, having engaged an independent consultant for review, and while currently lacking an internal audit function, it believes existing structures and close management oversight provide adequate risk management, with regular reviews for establishing such a function - The Board has engaged an independent consultant to review the internal control system, covering financial, operational, and compliance controls, and considers it effective[144][145] - The company currently does not have an internal audit function, and the Board will regularly review the need to establish one[144] Independent Auditor's Report The Independent Auditor's Report includes a qualified opinion due to insufficient audit evidence for certain opening balances and highlights a material uncertainty regarding the Group's ability to continue as a going concern Qualified Opinion and Material Uncertainty Related to Going Concern The auditor issued a qualified opinion due to insufficient audit evidence for three opening balances (inventory, prepayments, and investment in an associate) and emphasized a material uncertainty regarding the Group's going concern ability due to significant losses and net current liabilities - The auditor issued a qualified opinion due to insufficient audit evidence regarding the potential impact of the following three opening balances and related figures: 1. Inventory: Inability to confirm the net realizable value of ceramic works, approximately HKD 35.3 million as of year-end 2018 2. Prepayments, deposits, and other receivables: Inability to confirm the recoverability of deposits paid, approximately HKD 102 million as of year-end 2018 3. Investment in an associate: Inability to determine the corresponding impact on current year financial data due to the previous auditor's qualified opinion on the investment in Fujian Yuguo[150][152][153][155] - The auditor's report highlighted a material uncertainty related to going concern, noting that as of year-end 2019, the Group incurred a loss of approximately HKD 302 million and recorded net current liabilities of approximately HKD 317 million, which may cast significant doubt on its ability to continue as a going concern[157] Key Audit Matters Beyond the qualified opinion and going concern issues, key audit matters include the expected credit loss provision for trade receivables and impairment testing of investments in associates, both requiring significant management judgment and estimation - One key audit matter is the expected credit loss provision for trade receivables, as its assessment requires significant management judgment and estimation[160] - Another key audit matter is the impairment testing of investments in associates (Zhongle, Fujian Yuguo, Anhui Fulao, and USO), due to their material amounts and the significant judgment and assumptions involved from management and external experts in the impairment tests[162] Audited Consolidated Financial Statements This section presents the consolidated income statement, statement of financial position, cash flow statement, and selected notes, detailing the Group's financial performance, position, and cash movements for the year Consolidated Statement of Profit or Loss For FY2019, the Group's revenue was approximately HKD 200 million, a year-on-year decrease, with the loss for the year expanding from HKD 212 million to HKD 302 million, primarily due to increased cost of sales, write-offs, and share of losses from associates Consolidated Statement of Profit or Loss Summary | Item (HKD Thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Revenue | 199,952 | 214,605 | | Gross Profit | 41,686 | 65,271 | | Loss Before Income Tax | (302,187) | (223,136) | | Loss for the Year | (302,325) | (211,570) | | — Attributable to Owners of the Company | (301,937) | (208,066) | | — Attributable to Non-controlling Interests | (388) | (3,504) | Consolidated Statement of Financial Position As of year-end 2019, the Group's total assets decreased to HKD 828 million, and total equity fell to HKD 332 million, with net current liabilities significantly increasing to HKD 317 million from HKD 98.4 million in 2018, indicating heightened liquidity pressure Consolidated Statement of Financial Position Summary | Item (HKD Thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Total Assets | 827,873 | 913,547 | | Non-current Assets | 667,098 | 576,127 | | Current Assets | 160,775 | 337,420 | | Total Liabilities | 496,166 | 457,769 | | Current Liabilities | 477,789 | 435,839 | | Non-current Liabilities | 18,377 | 21,930 | | Net Current Liabilities | (317,014) | (98,419) | | Total Equity | 331,707 | 455,778 | Consolidated Statement of Cash Flows For FY2019, the Group experienced a net cash outflow from operating activities of HKD 26.13 million, a net inflow from investing activities of HKD 14.34 million due to subsidiary disposal, and a net inflow from financing activities of HKD 9.02 million, resulting in a net decrease in cash and cash equivalents of HKD 2.77 million, with a year-end balance of HKD 18.52 million Consolidated Statement of Cash Flows Summary | Item (HKD Thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (26,130) | (59,122) | | Net Cash From Investing Activities | 14,336 | 9,627 | | Net Cash From Financing Activities | 9,023 | 40,394 | | Net Decrease in Cash and Cash Equivalents | (2,771) | (9,101) | | Cash and Cash Equivalents at Beginning of Year | 21,818 | 31,581 | | Cash and Cash Equivalents at End of Year | 18,519 | 21,818 | Selected Notes to the Consolidated Financial Statements Key notes provide detailed explanations on the going concern basis, operating segment information, investments in associates, and post-reporting period events, including significant capital reorganization and potential acquisition plans - Going Concern Basis (Note 2): Reaffirms the Group's significant losses and net current liabilities, posing a material uncertainty to its ability to continue as a going concern, and outlines five measures implemented by management to address this situation[187][188] - Operating Segment Information (Note 7): The toys and gifts segment recorded a loss of HKD 6.7 million, the fruit planting segment a loss of HKD 81.76 million, and the leisure segment a loss of HKD 146 million; the exploration segment recorded a profit of HKD 24.69 million due to the disposal of a subsidiary[356] - Investments in Associates (Note 21): Investment in USO recorded a loss of HKD 38.64 million due to impairment, and investment in Fujian Yuguo was impaired by HKD 1.5 million; the investment in Yingyang Group was fully written off during the year[405][408][412][422] - Events After the Reporting Period (Note 50): Discloses several significant events, including the completion of issuing consideration shares for the acquisition of USO equity, a proposed capital reorganization, and a proposed acquisition of a 51% equity interest in Hubei Jincaotang Pharmaceutical Co., Ltd[559][561][564] Five Year Financial Summary The five-year financial summary reveals continuous losses since 2015, with significant expansion in 2018 and 2019, and a decline in total assets and net assets over the last two years - The five-year financial summary indicates that the Group has sustained continuous losses since 2015, with losses significantly expanding in 2018 and 2019; total assets peaked in 2018 before declining in 2019, while net assets decreased for two consecutive years[568] Five Year Results Summary (HKD Thousands) | For the Year Ended December 31 | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 199,952 | 214,605 | 219,628 | 235,384 | 223,313 | | Loss for the Year | (302,325) | (211,570) | (95,094) | (147,976) | (87,252) | | Loss Attributable to Owners of the Company | (301,937) | (208,066) | (91,289) | (149,652) | (89,665) | Five Year Assets and Liabilities Summary (HKD Thousands) | As of December 31 | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | 827,873 | 913,547 | 823,891 | 785,933 | 807,433 | | Total Liabilities | (496,166) | (457,769) | (344,404) | (330,843) | (406,405) | | Net Assets | 331,707 | 455,778 | 479,487 | 455,090 | 401,028 |