兴业合金(00505) - 2019 - 中期财报

Company Information This section details the company's board, key advisors, auditors, registered offices, and principal business locations Board of Directors and Company Secretary This chapter details the company's board members, including executive, non-executive, and independent non-executive directors, and company secretary - The Board of Directors includes Mr. Hu Changyuan (Chairman), Mr. Hu Minglie (CEO) as executive directors, Mr. Dai Jianchun as a non-executive director, and Mr. Chai Chaoming, Ms. Lu Hong, and Dr. Lou Dong as independent non-executive directors[5] - Ms. Mei Yamei serves as the company secretary and one of the authorized representatives, with Mr. Zhu Wenjun as the other authorized representative[5] Principal Legal Advisors, Auditors, and Registered Office This chapter lists the company's principal legal advisors, auditors, and registered office addresses - The principal legal advisor in Hong Kong is Zhong Lun Law Firm[5] - The Cayman Islands legal advisor is Conyers Dill & Pearman, Cayman[5] - The auditor is KPMG[5] Principal Places of Business, Share Registrars, and Principal Bankers This chapter provides the company's principal places of business, share registrars, and principal bankers - The principal place of business in Hong Kong is Unit 11, 11/F, Hung Tai Industrial Building, 37-39 Hung To Road, Kwun Tong, Kowloon[7] - The principal place of business in China (copper business) is No. 68 Jinxi Road, Hangzhou Bay New Area, Ningbo, Zhejiang Province[7] - The principal place of business in China (online game business) is No. 8 Yuehai Road, Shenzhen, Guangdong Province[7] - Principal bankers include Agricultural Bank of China, China Construction Bank, and Bank of China[7] - The company's stock code is 00505[7] Consolidated Statement of Profit or Loss This section presents the company's financial performance, including revenue, gross profit, operating profit, and profit For the Six Months Ended June 30, 2019 (Unaudited) Revenue decreased by 23.8% to RMB 1,948.9 million, yet operating profit and profit for the period increased, with basic EPS rising to RMB 6.39 cents Consolidated Statement of Profit or Loss Key Financial Data (For the Six Months Ended June 30) | Indicator | 2019 (RMB thousands) | 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 1,948,913 | 2,557,297 | -23.8% | | Cost of sales | (1,762,452) | (2,363,505) | -25.4% | | Gross profit | 186,461 | 193,792 | -3.8% | | Other income | 20,930 | 16,247 | +28.8% | | Distribution expenses | (22,813) | (23,685) | -3.7% | | Administrative expenses | (107,667) | (93,306) | +15.4% | | Other expenses | (2,798) | (23,423) | -88.0% | | Operating profit | 74,113 | 69,625 | +6.4% | | Net finance costs | (11,426) | (13,371) | -14.5% | | Profit before tax | 62,687 | 56,254 | +11.4% | | Income tax | (7,754) | (7,616) | +1.8% | | Profit for the period | 54,933 | 48,638 | +12.9% | | Attributable to equity holders of the Company | 54,496 | 47,730 | +14.2% | | Basic earnings per share (RMB cents) | 6.39 | 5.60 | +14.1% | | Diluted earnings per share (RMB cents) | 6.39 | 5.58 | +14.5% | - Operating profit increased by 6.4% year-on-year to RMB 74.1 million, primarily due to an 88.0% significant reduction in other expenses[10] - Profit for the period increased by 12.9% year-on-year to RMB 54.9 million[10] Consolidated Statement of Profit or Loss and Other Comprehensive Income This section details the company's total comprehensive income, reflecting profit for the period and other comprehensive income For the Six Months Ended June 30, 2019 (Unaudited) Total comprehensive income significantly increased, driven by higher profit for the period and positive exchange differences from overseas operations Consolidated Statement of Profit or Loss and Other Comprehensive Income Key Data (For the Six Months Ended June 30) | Indicator | 2019 (RMB thousands) | 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Profit for the period | 54,933 | 48,638 | +12.9% | | Exchange differences on translating financial statements of overseas operations | 46 | (3,876) | N/A | | Total comprehensive income for the period | 54,979 | 44,762 | +22.8% | | Attributable to equity holders of the Company | 54,542 | 43,854 | +24.4% | - Exchange differences on translating financial statements of overseas operations turned from a loss of RMB 3,876 thousand in the same period of 2018 to a gain of RMB 46 thousand in the same period of 2019[12] Consolidated Statement of Financial Position This section provides a snapshot of the company's assets, liabilities, and equity, highlighting changes in key financial positions As at June 30, 2019 (Unaudited) Total assets and net assets increased, with non-current assets rising due to initial recognition of right-of-use assets and increased current interest-bearing borrowings Consolidated Statement of Financial Position Key Data | Indicator | June 30, 2019 (RMB thousands) | December 31, 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Non-current assets | | | | | Property, plant and equipment | 887,798 | 917,315 | -3.2% | | Right-of-use assets | 75,748 | – | N/A | | Prepaid lease payments | – | 11,991 | -100.0% | | Intangible assets | 1,574 | 1,994 | -21.1% | | Goodwill | 28,289 | 28,289 | 0.0% | | Deferred tax assets | 26,774 | 28,016 | -4.4% | | Other non-current assets | 7,490 | – | N/A | | Total non-current assets | 1,036,281 | 997,383 | +3.9% | | Current assets | | | | | Inventories | 640,857 | 670,327 | -4.4% | | Trade and other receivables | 377,931 | 392,167 | -3.7% | | Restricted bank deposits | 174,876 | 140,162 | +24.8% | | Cash and cash equivalents | 185,353 | 175,950 | +5.4% | | Total current assets | 1,421,097 | 1,389,645 | +2.3% | | Current liabilities | | | | | Trade and other payables | 419,823 | 467,301 | -10.2% | | Interest-bearing borrowings | 803,030 | 728,523 | +10.2% | | Lease liabilities | 1,069 | – | N/A | | Income tax payable | 17,003 | 21,926 | -22.5% | | Total current liabilities | 1,240,925 | 1,217,972 | +1.9% | | Net current assets | 180,172 | 171,673 | +5.0% | | Non-current liabilities | | | | | Interest-bearing borrowings | 45,500 | 45,500 | 0.0% | | Lease liabilities | 1,166 | – | N/A | | Deferred income | 40,680 | 43,693 | -6.9% | | Deferred tax liabilities | 1,445 | 5,499 | -73.7% | | Total non-current liabilities | 88,791 | 94,692 | -6.3% | | Net assets | 1,127,662 | 1,074,364 | +4.9% | | Total equity | 1,127,662 | 1,074,364 | +4.9% | - The initial application of IFRS 16 led to the recognition of right-of-use assets of RMB 75,748 thousand and lease liabilities of RMB 2,235 thousand (current RMB 1,069 thousand, non-current RMB 1,166 thousand)[15][17] - Net current assets increased to RMB 180.2 million, primarily due to a decrease in short-term bank borrowings[15][173] Consolidated Statement of Changes in Equity This section outlines changes in the company's equity components over the reporting period, including profit and other comprehensive income For the Six Months Ended June 30, 2019 (Unaudited) Total equity increased from RMB 1,074,364 thousand to RMB 1,127,662 thousand, driven by growth in profit for the period and total comprehensive income Consolidated Statement of Changes in Equity Key Data | Indicator | January 1, 2019 (RMB thousands) | June 30, 2019 (RMB thousands) | Change (RMB thousands) | | :--- | :--- | :--- | :--- | | Total equity (beginning of period) | 1,074,364 | N/A | N/A | | Profit for the period | N/A | 54,933 | +54,933 | | Other comprehensive income | N/A | 46 | +46 | | Total comprehensive income for the period | N/A | 54,979 | +54,979 | | Share award scheme related changes | N/A | 97 | +97 | | Total equity (end of period) | N/A | 1,127,662 | +53,298 | - Retained earnings attributable to equity holders of the Company increased from RMB 336,941 thousand at the beginning of the period to RMB 381,937 thousand[20] Condensed Consolidated Statement of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities, and their impact on cash equivalents For the Six Months Ended June 30, 2019 (Unaudited) Net cash from operating activities decreased, investing cash outflow increased, but financing cash turned positive, leading to a notable increase in cash equivalents Condensed Consolidated Statement of Cash Flows Key Data (For the Six Months Ended June 30) | Indicator | 2019 (RMB thousands) | 2018 (RMB thousands) | Change (RMB thousands) | | :--- | :--- | :--- | :--- | | Net cash generated from operating activities | 22,077 | 126,827 | -104,750 | | Net cash used in investing activities | (87,511) | (46,367) | -41,144 | | Net cash generated from/(used in) financing activities | 77,434 | (77,800) | +155,234 | | Net increase in cash and cash equivalents | 12,000 | 2,660 | +9,340 | | Cash and cash equivalents at June 30 | 185,353 | 171,746 | +13,607 | - Net cash generated from operating activities significantly decreased by 82.6% year-on-year to RMB 22.1 million, primarily due to a reduction in cash generated from operations[27] - Net cash generated from financing activities turned from an outflow of RMB 77.8 million in the same period of 2018 to an inflow of RMB 77.4 million in the same period of 2019, mainly due to increased proceeds from interest-bearing borrowings[27] Notes to the Unaudited Interim Financial Report This section provides detailed explanations and disclosures supporting the condensed consolidated interim financial statements 1. Reporting Entity and Background Information Huan Yue Interactive Holdings Limited, incorporated in the Cayman Islands and listed on the HKEX, primarily manufactures and sells high-precision copper strips, trades raw materials, provides processing services, and since August 2016, develops, publishes, and operates online games - The company was incorporated in the Cayman Islands on July 19, 2007, and listed on the Main Board of the Stock Exchange of Hong Kong on December 27, 2007[29] - Principal businesses include manufacturing and selling high-precision copper strips, trading raw materials, and providing processing services[29] - Since the acquisition of the online game business in August 2016, business activities also include developing, publishing, and operating online games[29] 2. Basis of Preparation The interim financial report is prepared in accordance with International Accounting Standard 34 and adopts the same accounting policies as the 2018 annual financial statements, except for changes due to the initial application of IFRS 16 - The interim financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting"[30] - The report was authorized for issue on August 30, 2019[30] 3. Significant Accounting Policies Changes The Group first applied IFRS 16 "Leases" on January 1, 2019, using a modified retrospective approach, leading to the recognition of right-of-use assets and lease liabilities, impacting the statement of financial position and cash flow statement presentation - The initial application of International Financial Reporting Standard 16 "Leases" adopted a modified retrospective approach, effective from January 1, 2019[33][34] - A single accounting model was introduced, requiring lessees to recognize right-of-use assets and lease liabilities for all leases, except for short-term leases and leases of low-value assets[34] - The transition to IFRS 16 resulted in the recognition of lease liabilities of RMB 2,454 thousand and right-of-use assets of RMB 14,445 thousand as of January 1, 2019[46][50] - The adoption of IFRS 16 led to a decrease in net cash from operating activities and an increase in net cash from financing activities, but the total cash flow remained unaffected[56][60] 3. (a) Changes in Accounting Policies This section details the new definition of a lease and changes in lessee accounting introduced by IFRS 16, including the recognition and measurement of right-of-use assets and lease liabilities - The definition of a lease shifted to whether a customer controls the use of an identified asset for a period of time[35] - Lessee accounting eliminated the classification of operating and finance leases, capitalizing all leases (except short-term and low-value assets) as right-of-use assets and lease liabilities[36] - Right-of-use assets are initially measured at cost, including the initial amount of lease liabilities, lease payments, and initial direct costs; lease liabilities are recognized at the present value of lease payments[38] 3. (b) Key Accounting Judgments and Sources of Estimation Uncertainty in Applying the Above Accounting Policies This section highlights that determining the lease term is a key accounting judgment when applying IFRS 16, requiring an assessment of the likelihood of exercising renewal options and their impact on lease liabilities and right-of-use assets - Determining the lease term is a key judgment, requiring assessment of the likelihood of exercising renewal options, considering economic incentives and asset importance[43] 3. (c) Impact of Transition This section explains the specific impacts of transitioning to IFRS 16, including the measurement of lease liabilities, application of practical expedients, and reclassification and recognition of related assets and liabilities in the consolidated statement of financial position - Adopting the modified retrospective approach, the cumulative effect of initial application was recognized as an adjustment to the opening equity balance on January 1, 2019, with comparative information not restated[34] - On January 1, 2019, the opening balance of lease liabilities was RMB 2,454 thousand, and the opening carrying amount of right-of-use assets was RMB 14,445 thousand[46][50] - The net carrying amount of prepaid lease payments has been reclassified as right-of-use assets[46] 3. (d) Lease Liabilities This section discloses the remaining contractual maturity analysis of lease liabilities as of the reporting period end and transition date, indicating that most lease liabilities are due within one year Lease Liabilities Remaining Contractual Maturity Analysis | Maturity Date | June 30, 2019 Present Value of Minimum Lease Payments (RMB thousands) | June 30, 2019 Total Minimum Lease Payments (RMB thousands) | January 1, 2019 Present Value of Minimum Lease Payments (RMB thousands) | January 1, 2019 Total Minimum Lease Payments (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | | Within one year | 1,069 | 1,096 | 892 | 915 | | More than one year but less than two years | 941 | 1,010 | 894 | 960 | | More than two years | 225 | 249 | 668 | 747 | | Total | 2,235 | 2,355 | 2,454 | 2,622 | 3. (e) Impact on the Group's Financial Performance, Segment Results, and Cash Flows This section assesses the estimated impact of adopting IFRS 16 on financial performance, segment results, and cash flows, primarily noting minor adjustments to operating profit and profit before tax, and significant changes in the classification of operating and financing activities in the cash flow statement Impact of Adopting IFRS 16 on Financial Performance (For the Six Months Ended June 30) | Indicator | 2019 (IFRS 16 Reported) (RMB thousands) | 2019 (IFRS 17 Assumed) (RMB thousands) | 2018 (IFRS 17 Reported) (RMB thousands) | | :--- | :--- | :--- | :--- | | Operating profit | 74,113 | 74,104 | 69,625 | | Finance costs | (18,336) | (18,278) | (29,450) | | Profit before tax | 62,687 | 62,736 | 56,254 | | Profit for the period | 54,933 | 54,982 | 48,638 | Impact of Adopting IFRS 16 on Cash Flows (For the Six Months Ended June 30) | Indicator | 2019 (IFRS 16 Reported) (RMB thousands) | 2019 (IFRS 17 Assumed) (RMB thousands) | 2018 (IFRS 17 Reported) (RMB thousands) | | :--- | :--- | :--- | :--- | | Cash generated from operations | 37,566 | 37,036 | 161,419 | | Net cash generated from operating activities | 22,077 | 21,547 | 126,827 | | Net cash generated from/(used in) financing activities | 77,434 | 77,964 | (77,800) | - Total cash flow is unaffected, but the presentation of the cash flow statement shows significant changes, with the capital and interest portions of lease payments reclassified as financing cash outflows[56] 4. Revenue and Segment Reporting The Group's main businesses are divided into two segments: copper products and online games; total revenue decreased by 23.8%, primarily due to reduced copper products revenue, while online game revenue remained relatively stable - The Group's principal businesses include manufacturing and selling high-precision copper strips, trading raw materials, providing processing services, and developing, publishing, and operating online games[65] By Major Product or Service Line (For the Six Months Ended June 30) | Product/Service Line | 2019 (RMB thousands) | 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Related to Copper Products | | | | | Sales of high-precision copper strips | 1,819,703 | 2,240,406 | -18.8% | | Processing service fees | 90,827 | 89,904 | +1.0% | | Trading of raw materials | 22,445 | 210,611 | -89.3% | | Total Copper Products | 1,932,975 | 2,540,921 | -23.9% | | Related to Online Games | | | | | Technical service income | – | 149 | -100.0% | | Publishing and operating online games | 15,476 | 15,879 | -2.5% | | Others | 462 | 348 | +32.8% | | Total Online Games | 15,938 | 16,376 | -2.7% | | Total Revenue | 1,948,913 | 2,557,297 | -23.8% | 4. (a) Disaggregation of Revenue This section details customer contract revenue disaggregated by major product or service line and customer geographical location, showing a significant decrease in copper product sales and raw material trading income, while online game revenue slightly decreased Customer Contract Revenue by Geographical Location (For the Six Months Ended June 30) | Geographical Location | 2019 (RMB thousands) | 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Mainland China | 1,694,241 | 2,044,930 | -17.2% | | Taiwan | 51,890 | 56,719 | -8.5% | | Thailand | 50,211 | 39,291 | +27.8% | | Other regions | 152,571 | 416,357 | -63.3% | | Total Revenue | 1,948,913 | 2,557,297 | -23.8% | 4. (b) Segment Reporting This section reports the performance, assets, and liabilities of the two reportable segments: copper products and online games, noting a decrease in revenue and profit for the copper products segment, while the online game segment turned profitable - The copper products segment is engaged in the manufacturing and sale of high-precision copper strip products, provision of processing services, and trading of raw materials[68] - The online game segment is engaged in the publishing and operation of online games and provision of technical support services[69] Reportable Segment Results (For the Six Months Ended June 30) | Indicator | Copper Products 2019 (RMB thousands) | Copper Products 2018 (RMB thousands) | Online Games 2019 (RMB thousands) | Online Games 2018 (RMB thousands) | Total 2019 (RMB thousands) | Total 2018 (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue from external customers | 1,932,975 | 2,540,921 | 15,938 | 16,376 | 1,948,913 | 2,557,297 | | Reportable segment profit/(loss) | 51,878 | 64,371 | 8,644 | (15,639) | 60,522 | 48,732 | | Interest income from bank deposits | 3,272 | 1,600 | 356 | 196 | 3,628 | 1,796 | | Net interest expense | (17,577) | (17,934) | (53) | – | (17,630) | (17,934) | | Depreciation and amortization | (53,646) | (48,211) | (917) | (1,594) | (54,563) | (49,805) | | Impairment loss on goodwill | – | – | – | (18,503) | – | (18,503) | Reportable Segment Assets and Liabilities (As at June 30/December 31) | Indicator | Copper Products June 30, 2019 (RMB thousands) | Copper Products December 31, 2018 (RMB thousands) | Online Games June 30, 2019 (RMB thousands) | Online Games December 31, 2018 (RMB thousands) | Total June 30, 2019 (RMB thousands) | Total December 31, 2018 (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Reportable segment assets | 2,320,903 | 2,258,114 | 106,205 | 99,555 | 2,427,108 | 2,357,669 | | Reportable segment liabilities | (1,304,696) | (1,284,391) | (22,775) | (24,634) | (1,327,471) | (1,309,025) | 5. Profit Before Tax Profit before tax was positively impacted by a decrease in net finance costs and a significant reduction in other expenses, despite a decline in revenue - Profit before tax increased by 11.4% year-on-year to RMB 62.7 million[10] 5. (a) Net Finance Costs Net finance costs decreased by 14.5% year-on-year, primarily due to increased interest income from bank deposits and an improvement in net foreign exchange losses Net Finance Costs (For the Six Months Ended June 30) | Indicator | 2019 (RMB thousands) | 2018 (RMB thousands) | Change (RMB thousands) | | :--- | :--- | :--- | :--- | | Finance income | 6,910 | 16,079 | -9,169 | | Finance costs | (18,336) | (29,450) | +11,114 | | Net finance costs | (11,426) | (13,371) | +1,945 | - Interest income from bank deposits increased from RMB 1,796 thousand in 2018 to RMB 3,628 thousand in 2019[80] - A net foreign exchange gain of RMB 1,117 thousand was recorded in 2019, compared to a net foreign exchange loss of RMB 11,516 thousand in 2018[80] 5. (b) Other Items This section discloses other major items deducted from/credited to profit before tax, including cost of inventories, research and development expenses, depreciation, impairment losses, amortization, and government grants Other Items (For the Six Months Ended June 30) | Indicator | 2019 (RMB thousands) | 2018 (RMB thousands) | Change (RMB thousands) | | :--- | :--- | :--- | :--- | | Cost of inventories | 1,758,936 | 2,359,025 | -600,089 | | Research and development expenses | 61,860 | 46,097 | +15,763 | | Depreciation (property, plant and equipment) | 53,249 | 48,078 | +5,171 | | Depreciation (right-of-use assets) | 894 | – | +894 | | Impairment loss on trade and other receivables | 2,542 | 4,850 | -2,308 | | Impairment loss on goodwill | – | 18,503 | -18,503 | | Amortization of intangible assets | 420 | 1,553 | -1,133 | | Government grants | 9,261 | 4,245 | +5,016 | - Research and development expenses increased by 34.2% year-on-year to RMB 61.9 million[84] - Impairment loss on goodwill decreased from RMB 18.5 million in 2018 to zero in 2019, which was the main reason for the significant reduction in other expenses[84][165] 6. Income Tax Income tax expense slightly increased during the reporting period, but the consolidated effective tax rate decreased to 12%, mainly due to tax refunds received by two major subsidiaries for additional deductions on R&D expenses Income Tax Expense (For the Six Months Ended June 30) | Indicator | 2019 (RMB thousands) | 2018 (RMB thousands) | Change (RMB thousands) | | :--- | :--- | :--- | :--- | | Current tax | 6,617 | 1,606 | +5,011 | | Deferred tax | 1,137 | 6,010 | -4,873 | | Total income tax | 7,754 | 7,616 | +138 | - The consolidated effective tax rate decreased from 14% in the same period of 2018 to 12% in the same period of 2019[88] - The lower effective tax rate was mainly due to two major subsidiaries receiving a tax refund of RMB 8.4 million in May 2019 for an additional 75% deduction on eligible R&D expenses[88] 7. Earnings Per Share Both basic and diluted earnings per share increased, reflecting an improvement in the company's profitability Earnings Per Share (For the Six Months Ended June 30) | Indicator | 2019 (RMB cents) | 2018 (RMB cents) | Change (%) | | :--- | :--- | :--- | :--- | | Basic earnings per share | 6.39 | 5.60 | +14.1% | | Diluted earnings per share | 6.39 | 5.58 | +14.5% | - Basic earnings per share are calculated based on profit attributable to equity holders of the Company of RMB 54,496 thousand and the weighted average of 852,653,449 ordinary shares outstanding[89] - As of June 30, 2019, potentially dilutive ordinary shares were not included in the diluted weighted average number as they had an anti-dilutive effect[90] 8. Property, Plant and Equipment During the reporting period, the Group continued to invest in property, plant and equipment, with an increase in acquisition costs, while the disposal of some assets resulted in a small loss - For the six months ended June 30, 2019, the cost of acquiring property, plant and equipment items totaled RMB 24,001 thousand, a 23.9% year-on-year increase[93] - The disposal of property, plant and equipment items resulted in a loss of RMB 200 thousand[93] 9. Right-of-Use Assets The initial application of IFRS 16 led the Group to recognize right-of-use assets related to leased land and office buildings, adding a significant amount of new right-of-use assets - The initial application of IFRS 16 adjusted the opening balance on January 1, 2019, to recognize right-of-use assets previously classified as operating leases[94] - For the six months ended June 30, 2019, additions to right-of-use assets of RMB 62,197 thousand were recognized[94] 10. Inventories As of June 30, 2019, total inventories slightly decreased, and inventory provisions were reduced accordingly Inventories Composition (As at June 30/December 31) | Inventory Category | June 30, 2019 (RMB thousands) | December 31, 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Raw materials | 68,190 | 117,894 | -42.2% | | Work in progress | 415,489 | 412,895 | +0.6% | | Finished goods | 156,655 | 139,016 | +12.7% | | Others | 523 | 522 | +0.2% | | Total Inventories | 640,857 | 670,327 | -4.4% | - Inventory provisions decreased from RMB 8,157 thousand as of December 31, 2018, to RMB 4,768 thousand as of June 30, 2019[95] 11. Trade and Other Receivables Total trade and other receivables decreased, with a reduction in net trade receivables and bills receivable, but an increase in prepayments; the company's risk from discounted bills significantly decreased Trade and Other Receivables Composition (As at June 30/December 31) | Item | June 30, 2019 (RMB thousands) | December 31, 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net trade receivables and bills receivable | 280,219 | 296,387 | -5.4% | | Deposits for metal futures contracts | 4,297 | 11,080 | -61.2% | | Land deposits | 3,210 | – | N/A | | Other debtors | 6,630 | 5,748 | +15.3% | | Recoverable VAT | 12,766 | 24,386 | -47.7% | | Prepayments | 38,997 | 25,018 | +55.9% | | Contingent consideration receivable | 31,812 | 29,548 | +7.7% | | Total | 377,931 | 392,167 | -3.7% | - As of June 30, 2019, the company's maximum exposure to loss from discounted and endorsed bills was RMB 2,998 thousand, a significant decrease from RMB 23,216 thousand as of December 31, 2018[98] - Approximately RMB 81,876 thousand of bills receivable were pledged to banks for bank acceptance bills[101] 12. Restricted Bank Deposits Total restricted bank deposits significantly increased, primarily used as guarantee deposits for issuing commercial bills and bank borrowings Restricted Bank Deposits Composition (As at June 30/December 31) | Item | June 30, 2019 (RMB thousands) | December 31, 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Guarantee deposits for issuing commercial bills | 112,992 | 78,371 | +44.2% | | Guarantee deposits for bank borrowings | 61,872 | 61,778 | +0.2% | | Others | 12 | 13 | -7.7% | | Total | 174,876 | 140,162 | +24.8% | 13. Trade and Other Payables Total trade and other payables decreased, with a reduction in trade payables and bills payable, but contract liabilities and contingent consideration payable remained stable Trade and Other Payables Composition (As at June 30/December 31) | Item | June 30, 2019 (RMB thousands) | December 31, 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Trade payables and bills payable | 334,572 | 358,261 | -6.6% | | Employee benefits payable | 22,445 | 28,668 | -21.7% | | Payables for acquisition of property, plant and equipment | 28,597 | 24,500 | +16.7% | | Accrued expenses and others | 14,611 | 25,451 | -42.6% | | Contract liabilities | 15,811 | 26,593 | -40.5% | | Contingent consideration payable | 3,787 | 3,828 | -1.1% | | Total | 419,823 | 467,301 | -10.2% | - The majority of trade payables and bills payable (RMB 326,946 thousand) were due within three months[103] 14. Interest-Bearing Borrowings Total interest-bearing borrowings increased, with short-term secured bank loans and bank advances under discounted bills being the main components; the company has some borrowings subject to financial covenants and secured by various assets Interest-Bearing Borrowings Composition (As at June 30/December 31) | Item | June 30, 2019 (RMB thousands) | December 31, 2018 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Short-term secured bank loans | 430,148 | 437,360 | -1.7% | | Unsecured bank loans | 51,917 | 48,986 | +6.0% | | Bank advances under discounted bills | 243,965 | 111,177 | +119.4% | | Current portion of non-current secured bank loans | 77,000 | 131,000 | -41.2% | | Total Current | 803,030 | 728,523 | +10.2% | | Non-current secured bank loans | 45,500 | 45,500 | 0.0% | | Total | 848,530 | 774,023 | +9.6% | - Approximately RMB 398,000 thousand of interest-bearing borrowings are subject to compliance with financial covenants, with no defaults during the reporting period[112] - Secured bank loans are pledged against inventories, property, plant and equipment, right-of-use assets, and guarantee deposits for bank borrowings, with a total carrying amount of approximately RMB 874,823 thousand[112] - Secured bank loans bear interest at rates ranging from 2.85% to 4.99% per annum, while unsecured bank loans bear interest at rates from 3.25% to 3.43% per annum[112][113] 15. Capital, Reserves, and Dividends No dividends were declared or paid; share capital remained stable, and the gearing ratio slightly increased due to IFRS 16 adoption, but capital management aims for sustainable operations and shareholder returns - No dividends were declared or paid for the period ended June 30, 2019[116] Gearing Ratio | Indicator | June 30, 2019 | January 1, 2019 | December 31, 2018 | | :--- | :--- | :--- | :--- | | Gearing ratio | 37.55% | 36.34% | 36.25% | - The initial application of IFRS 16 led to an increase in total debt, with the gearing ratio rising from 36.25% as of December 31, 2018, to 36.34% as of January 1, 2019[121] 15. (a) Dividends The Board of Directors decided not to pay any dividends for the interim period ended June 30, 2019 - No dividends were declared or paid for the period ended June 30, 2019[116] 15. (b) Share Capital The company's authorized, issued, and fully paid ordinary share capital remained stable during the reporting period Issued and Fully Paid Ordinary Shares | Indicator | June 30, 2019 Number of Shares (thousands) | June 30, 2019 Amount (RMB thousands) | December 31, 2018 Number of Shares (thousands) | December 31, 2018 Amount (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | | As at January 1 | 855,559 | 77,417 | 831,113 | 75,458 | | As at June 30/December 31 | 855,559 | 77,417 | 855,559 | 77,417 | 15. (c) Capital Management The Group monitors its capital structure through the gearing ratio and actively reviews and manages it to ensure sustainable operations and returns for shareholders - The primary objective of capital management is to ensure the Group's sustainable operation and adjust its capital structure by means such as adjusting dividend payments and issuing new shares[120] - The gearing ratio is calculated as net debt divided by total capital, which was 37.55% as of June 30, 2019[120][122] 16. Fair Value Measurement of Financial Instruments This section discloses the fair value measurement classification of the Group's financial instruments, primarily including derivative financial instruments and contingent consideration, and explains fair value levels and estimation methods Financial Assets and Liabilities Measured at Fair Value (June 30, 2019) | Item | Fair Value (RMB thousands) | Fair Value Measurement Classification (Level 1) (RMB thousands) | Fair Value Measurement Classification (Level 2) (RMB thousands) | Fair Value Measurement Classification (Level 3) (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | | Assets | | | | | | Derivative financial instruments: futures contracts | 2,080 | 2,080 | – | – | | Contingent consideration receivable | 31,812 | – | – | 31,812 | | Liabilities | | | | | | Contingent consideration payable | (3,787) | – | – | (3,787) | - The fair values of contingent consideration receivable and payable are measured using Level 3 inputs (unobservable significant data)[125] - For the six months ended June 30, 2019, there were no transfers between Level 1 and Level 2, nor any transfers into or out of Level 3[127] 16. (a) Financial Assets and Liabilities Measured at Fair Value This section details financial assets and liabilities classified by fair value hierarchy (Level 1, Level 2, Level 3) and explains the fair value estimation method for contingent consideration receivable - The fair value of contingent consideration receivable is estimated as the present value of future cash flows using a risk-adjusted discount rate[128] 16. (b) Fair Value of Financial Assets and Liabilities Not Measured at Fair Value The carrying amounts of financial instruments accounted for at cost or amortized cost do not differ significantly from their fair values - The carrying amounts of the Group's financial instruments accounted for at cost or amortized cost do not differ significantly from their fair values[129] 17. Share Award Scheme The Group adopted a share award scheme to incentivize employees; the trustee has purchased and holds some company shares, and while some award shares have been granted, certain vesting dates have been postponed - The share award scheme was adopted on April 18, 2016, to recognize and reward eligible employees who contribute to the Group's business growth[132] - As of June 30, 2019, the trustee had purchased 9,297,000 shares of the Company at a total cost of RMB 6,884 thousand[132] - The second and third tranches of 10,060,000 ordinary shares granted to 9 directors and 91 employees on December 13, 2017, have been postponed by one year to December 13, 2019, and December 13, 2020, respectively[133][134] 18. Commitments This section discloses the Group's capital commitments at the end of the reporting period, including contracted and authorized but not contracted acquisitions of property, plant and equipment, and right-of-use assets Capital Commitments (As at June 30/December 31) | Item | June 30, 2019 (RMB thousands) | December 31, 2018 (RMB thousands) | | :--- | :--- | :--- | | Contracted | 15,504 | 18,808 | | Authorized but not contracted | 601,360 | – | | Total | 616,864 | 18,808 | - As of December 31, 2018, the total future minimum lease payments under non-cancellable operating leases were RMB 2,786 thousand[141] 19. Key Management Personnel Remuneration This section provides information on key management personnel remuneration during the reporting period - Key management personnel remuneration information is not detailed with specific amounts in the report, only mentioning this section[142] Management Discussion and Analysis This section provides an overview of the Group's operational and financial performance, including business segment reviews, financial highlights, liquidity, and risk factors Copper Processing Business The copper processing business faced challenges in H1 2019 due to global economic slowdown and US-China trade uncertainties, leading to decreased sales revenue and operating profit before tax from falling copper prices, but the company actively responded through market expansion, cost reduction, and technological upgrades - In H1 2019, global economic growth slowed, and US-China trade relations presented uncertainties, posing risks to non-ferrous metal prices[144][145] - In H1 2019, the average prices of LME copper spot and three-month futures decreased by 10.82% and 11.13% year-on-year, respectively[145] Copper Processing Business Key Data (For the Six Months Ended June 30) | Indicator | 2019 (RMB millions) | 2018 (RMB millions) | Change (%) | | :--- | :--- | :--- | :--- | | Copper strip production and sales volume | 58,753 tons / 58,238 tons | N/A | N/A | | Sales revenue | 1,933.0 | 2,540.9 | -23.9% | | Copper product sales revenue | 1,819.7 | 2,240.4 | -18.8% | | Processing income | 90.8 | 89.9 | +1.0% | | Trading income | 22.5 | 210.6 | -89.3% | | Operating profit before tax | 51.9 | 64.371 | -19.4% | 3. Market and Industry Review This section provides an overview of the market environment in H1 2019, including global economic slowdown, US-China trade uncertainties, and falling copper prices, noting limited support for copper prices due to weak demand - In H1 2019, copper prices showed a trend of rising first and then falling, with the main fluctuation range between US$5,700-6,600 per ton[145] - In the second half of the year, copper price trends will be more influenced by macroeconomic performance, the direction of US-China trade, and the US dollar's movement[145] 3. Business Review During the reporting period, copper strip production and sales volumes remained stable, but sales revenue and operating profit before tax decreased due to falling copper prices and sales volumes, while processing income slightly increased - Copper strip production and sales volumes were 58,753 tons and 58,238 tons, respectively[146] - Copper business sales revenue decreased by 23.9% year-on-year, and operating profit before tax decreased by 19.4% year-on-year[146] 3. Business Development The Group focused on five key strategies: market expansion, stable supply, cost reduction, quality improvement, and development, including expanding customer base, increasing recycled raw material procurement, enhancing quality, talent development, comprehensive cost reduction, efficiency management, and new product R&D - In market expansion, over twenty new customers were added, and recycled raw material procurement increased by 12.6% year-on-year, reducing procurement costs[149] - Over twenty product quality improvement projects were launched, along with grassroots management training and recruitment of professional technical personnel[149] - Implemented the "Cost Reduction and Efficiency Improvement Special Award Policy" and launched multiple cost reduction and efficiency improvement projects, such as workshop energy saving and consumption reduction, and raw material procurement optimization[149] - Held the first customer conference to understand customer needs and optimized the compensation and performance system[149] - Proposed three "orientations" for new product R&D, developing multiple new alloy grades, with some products already in batch supply[149] 3. Outlook The Group will continue to focus on innovation and excellence, structural adjustment, quality stability, management innovation, and efficiency improvement, guided by its "home" culture, to seek stable returns for shareholders - In 2019, the focus will be on innovation and excellence as the guide, structural adjustment as the foundation, quality stability as the base, management innovation as the leverage, and efficiency improvement and cost reduction as the direction[151] Online Game Business The online game business achieved significant net profit growth in H1 2019 despite a slight decrease in revenue; the company actively expanded mobile game publishing and overseas markets, and deepened its focus on mini-game R&D - Funnytime Limited (online game business subsidiary) recorded revenue of RMB 15.9 million and net profit of RMB 10.0 million in H1, representing a year-on-year decrease of 3.0% and an increase of 156.4%, respectively[152] - Net profit growth was mainly due to the exemption from paying RMB 2.6 million in payables and an increase of RMB 1.7 million in government grants[152] - Funnytime did not meet its 2018 performance targets, and the total net profit during the adjusted performance commitment period was lower than expected[153] 3. Market and Industry Review In 2019, China's game market is projected to exceed RMB 230 billion in sales revenue, with mobile games being the main growth driver and web game revenue declining; 5G cloud gaming is expected to be a new growth point in the future - China's game market actual sales revenue is projected to exceed RMB 230 billion in 2019, with the mobile game market expected to exceed RMB 150 billion[157] - Web game market revenue will decline, and 5G cloud gaming is expected to become a new niche market in the future[157] 3. Business Review The operations center maintained stable traditional web game business, successfully expanded into mobile game publishing, and plans to introduce more mini-game products and actively explore overseas markets in H2; the R&D center focused on mini-game development, with self-developed products performing well and cross-industry collaborations being explored - Traditional web game business remained stable, such as "Art of War: Three Kingdoms" and "Three Kingdoms Zhi 2"[158] - Expanded into mobile game publishing, with agency mobile game projects like "Siege Three Kingdoms" achieving good results[158] - Actively explored overseas markets, with the first product launched in Southeast Asia in June 2019, and four more products to be released overseas in H2[158] - Self-developed mini-game "This is Cultivation" performed far better than similar products, with other mini-game titles to be successively launched in H2[159] Financial Review Total revenue decreased, but gross profit margin improved, other expenses significantly declined due to reduced goodwill impairment loss, administrative expenses increased due to higher R&D investment, ultimately leading to growth in profit attributable to equity holders of the Company - Total sales revenue decreased by 23.8% year-on-year to RMB 1,948.9 million, primarily due to lower copper product sales volume and copper prices[161] - The overall gross profit margin for the copper business increased from 7.2% in the same period of 2018 to 9.0%, mainly due to reduced raw material costs[163] - Total other income increased by 29.0% year-on-year to RMB 20.9 million, primarily due to an increase of RMB 5.0 million in government grants[164] - Other expenses significantly decreased by 88.0% to RMB 2.8 million, mainly due to the goodwill impairment loss of RMB 18.5 million incurred in the prior corresponding period[165] - Administrative expenses increased by 15.4% year-on-year to RMB 107.7 million, primarily due to an increase of RMB 15.8 million in R&D expenses to RMB 61.9 million[167] - Net finance costs decreased by RMB 2.0 million year-on-year to RMB 11.4 million, mainly due to increased interest income from bank deposits[170] - Profit attributable to equity holders of the Company increased by RMB 6.8 million year-on-year to RMB 54.5 million[172] Liquidity, Financial Resources, and Capital Structure The Group's net current assets increased, with a high proportion of short-term interest-bearing borrowings, but the company maintains a good credit standing and sufficient bank credit and cash resources, with the Board confident in its solvency - Net current assets were RMB 180.2 million, primarily due to a decrease in short-term bank borrowings[173] - Short-term interest-bearing borrowings accounted for 94.6% of total interest-bearing borrowings[173] - The Group had available unutilized bank credit facilities of RMB 998.8 million and bank cash of RMB 400.2 million[173] - The gearing ratio was 37.6%, an increase from 36.2% as of December 31, 2018[174] Pledged Assets As of June 30, 2019, the Group pledged assets with a total carrying amount of approximately RMB 874.8 million to secure bank loans and credit facilities - As of June 30, 2019, assets with a total carrying amount of approximately RMB 874.8 million were pledged to secure bank loans and the Group's credit facilities[176] Capital Expenditure During the reporting period, the Group incurred approximately RMB 76.8 million in capital expenditure for property, plant and equipment and right-of-use assets, funded by bank borrowings - For the six months ended June 30, 2019, the Group invested approximately RMB 76.8 million in the acquisition of property, plant and equipment and right-of-use assets[177] - As of June 30, 2019, authorized but not contracted future capital expenditure was RMB 601.4 million, and contracted but not provided for was RMB 15.5 million[177] Contingent Liabilities As of June 30, 2019, the Group had no significant contingent liabilities - As of June 30, 2019, the Group had no significant contingent liabilities[178] Market Risks The Group is exposed to price risk, interest rate risk, and foreign exchange risk, and has adopted corresponding hedging or management strategies - The Group is exposed to raw material price fluctuation risk and uses copper futures contracts to hedge against copper price volatility[179][180] - For the six months ended June 30, 2019, a gain of approximately RMB 11.2 million from futures contracts was recorded[180] - The Group is exposed to interest rate fluctuation risk on bank borrowings but has not entered into interest rate swaps for hedging[183] - Export sales and some raw material purchases are denominated in foreign currencies (mainly USD), exposing the Group to exchange rate fluctuation risk; a net foreign exchange gain of RMB 1.1 million was recorded during the reporting period[184] 3. Price Risk The Group is exposed to raw material price fluctuation risk and hedges it through copper futures contracts, recording gains from futures contracts during the reporting period - Cathode copper, alloy scrap, zinc, tin, and nickel are major raw materials, and price fluctuations may adversely affect operating performance[180] 3. Interest Rate Risk The Group's interest rate risk is primarily associated with fluctuations in bank borrowing interest rates, but it has not entered into interest rate swaps for hedging - Bank borrowing interest rates can be adjusted by lenders according to People's Bank of China regulations, and an increase in rates will raise finance costs[183] 3. Foreign Exchange Risk The Group's export sales and some raw material purchases are denominated in foreign currencies, exposing it to exchange rate fluctuation risk, and a net foreign exchange gain was recorded during the reporting period - Export sales and some raw material purchases are denominated in foreign currencies (mainly USD), and exchange rate fluctuations may affect operating performance[184] - A net foreign exchange gain of RMB 1.1 million was recorded during the reporting period, compared to a net loss of RMB 11.5 million in the same period of 2018[184] Employees As of June 30, 2019, the Group had 1,288 employees, with an increase in staff costs; the company values talent development and incentives, offering competitive remuneration, benefits, and training programs - As of June 30, 2019, the Group employed a total of 1,288 employees[185] - Staff costs (including directors' emoluments) were approximately RMB 68.5 million, an increase from RMB 66.2 million in the same period of 2018[185] - Remuneration policies are regularly reviewed, offering competitive terms of employment, including salaries, pensions, and medical insurance[185] - A share option scheme and share award scheme are in place, and an annual training program is established for new employees[185] Other Information This section provides additional disclosures, including directors' and major shareholders' interests, share schemes, and compliance with corporate governance Directors' and Chief Executive's Interests in Shares, Underlying Shares, and Debentures This section discloses the long positions of the company's directors and chief executive in the company's shares and underlying shares as of June 30, 2019, including shares held through trusts, controlled corporations, and personally Directors' and Chief Executive's Long Positions in the Company's Shares and Underlying Shares (June 30, 2019) | Director Name | Capacity/Nature of Interest | Number of Shares Held | Number of Underlying Shares Held | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | :--- | | Hu Changyuan | Founder of discretionary trust/Other interest | 265,200,000 | – | 31.00% | | | Interest in controlled corporation/Corporate interest | 13,213,000 | – | 1.54% | | | Beneficial owner/Personal interest | – | 300,000 | 0.06% | | Hu Minglie | Beneficial owner/Personal interest | – | 2,603,000 | 0.42% | | Ren Hao | Interest in controlled corporation/Corporate interest | 44,442,223 | 33,335,555 | 9.09% | | | Beneficial owner/Personal interest | – | 300,000 | 0.06% | | Chai Chaoming | Beneficial owner/Personal interest | – | 234,000 | 0.04% | | Lu Hong | Beneficial owner/Personal interest | – | 300,000 | 0.05% | | Zhu Wenjun | Beneficial owner/Personal interest | – | 300,000 | 0.06% | | Dai Jianchun | Beneficial owner/Personal interest | – | 100,000 | 0.02% | | Lou Dong | Beneficial owner/Personal interest | – | 100,000 | 0.02% | - Mr. Hu Changyuan holds a significant number of shares through a family trust and controlled corporations, making him one of the largest shareholders[187][189] - Mr. Ren Hao holds shares and underlying shares through his control of Mobilefun Limited[187][190] Arrangements to Purchase Shares or Debentures Except for the share option scheme and share award scheme, the company or its subsidiaries did not participate in any arrangements enabling directors to benefit from purchasing shares or debentures during the review period - Except for the share option scheme and share award scheme, the Company or its subsidiaries did not participate in any arrangements enabling directors to benefit from purchasing shares or debentures[192] Share Option Scheme The 2007 Share Option Scheme has been terminated, and a new 2016 Share Option Scheme has been adopted, but no share options were granted, exercised, lapsed, cancelled, or outstanding during the review period - The 2007 Share Option Scheme was terminated on May 27, 2016, and no further share options have been granted thereafter[193] - The new 2016 Share Option Scheme has been adopted, but no share options were granted, exercised, lapsed, cancelled, or outstanding during the review period[194][196] Share Award Scheme The Share Award Scheme aims to incentivize employees; the trustee has purchased company shares, and while some award shares have been granted, certain vesting dates have been postponed to encourage long-term service - The Share Award Scheme was adopted on April 18, 2016, to encourage employees' contributions and attract talent[198] - As of June 30, 2019, the trustee had acquired a total of 9,297,000 shares of the Company at a total cost of RMB 6,884 thousand[199] - Of the 1,000,000 ordinary shares granted in 2017, the remaining 300,000 award shares did not vest during the review period[200] - The second and third tranches of 10,060,000 ordinary shares granted in 2017 have been postponed by one year to December 13, 2019, and December 13, 2020, respectively[201] Substantial Shareholders This section discloses the long positions of substantial shareholders, other than directors, in the company's shares and underlying shares as of June 30, 2019, including shares held through controlled corporations and trusts Substantial Shareholders' Long Positions in the Company's Shares and Underlying Shares (June 30, 2019) | Shareholder Name/Name | Capacity/Nature of Interest | Number of Shares (L) | Number of Underlying Shares (L) | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | :--- | | Luckie Strike Limited | Beneficial owner | 110,000,000 | – | 12.86% | | Come Fortune International Limited | Beneficial owner | 155,200,000 | – | 18.14% | | Dynamic Empire Holdings Limited | Interest in controlled corporation | 265,200,000 | – | 31.00% | | Nomura Holdings Inc. | Custodian | 239,400,000 | – | 27.98% | | Zedra Trust Company (Singapore) Limited | Trustee | 265,200,000 | – | 31.00% | | Zedra Malta Limited | Interest in controlled corporation | 265,200,000 | – | 31.00% | | Zedra Holding SA | Interest in controlled corporation | 265,200,000 | – | 31.00% | | Zedra SA | Interest in controlled corporation | 265,200,000 | – | 31.00% | | Yu Yuesu | Spouse interest | 278,713,000 | 200,000 | 32.60% | | Bostone Group Limited | Beneficial owner | 128,379,000 | – | 15.01% | | Xie Shicai | Interest in controlled corporation | 128,379,000 | – | 15.01% | | Ma Jiafeng | Interest in controlled corporation | 128,379,000 | – | 15.01% | | Mobilefun Limited | Beneficial owner | 44,442,223 | 33,335,555 | 9.09% | - Ms. Yu Yuesu, spouse of Mr. Hu Changyuan, is deemed to have an interest in 278,713,000 shares and 200,000 underlying shares[205](index=205&type=chun