现代健康科技(00919) - 2022 - 中期财报

Management Discussion and Analysis This section outlines the company's business performance, financial position, corporate social responsibility practices, future outlook, and subsequent events during the 2021/22 interim period Business Review The Group's beauty and spa service centers in Hong Kong, mainland China, and Singapore were continuously affected by the COVID-19 pandemic during the review period, leading to varied revenue impacts and a significant increase in skincare and health product sales Hong Kong Hong Kong's business faced persistent COVID-19 challenges, resulting in low consumer confidence, fewer service centers, decreased service revenue, but a significant increase in prepaid beauty package income - Hong Kong's consumer confidence index remained low at 65.70 in Q2 2021, significantly below the 2006-2021 average of 82.07[3] - The Group operates 30 beauty and spa service centers in Hong Kong, with a total floor area of approximately 175,000 sq ft, a 6.9% decrease from the previous year[4] Hong Kong Business Revenue (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Service Revenue | 167,863 | 185,500 (Estimated) | | Prepaid Beauty Package Revenue | 198,204 | 127,626 (Estimated) | Mainland China Mainland China's business operates three service centers via two wholly foreign-owned enterprises in Shanghai and Guangzhou, experiencing a decline in both service and prepaid beauty package revenue during the review period - The Group operates 3 service centers in mainland China, located in Shanghai and Guangzhou[6] Mainland China Business Revenue (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Service Revenue | 3,772 | 6,020 (Estimated) | | Prepaid Beauty Package Revenue | 5,077 | 6,274 (Estimated) | Singapore Singapore's business operates nine beauty and wellness service centers, one fewer than last year, with total revenue and service revenue declining due to COVID-19 restrictions, yet prepaid beauty package income saw significant growth - The Group operates 9 beauty and wellness service centers in Singapore, a decrease of 1 from the previous year[7] Singapore Business Revenue (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Total Revenue | 19,477 | N/A | | Prepaid Beauty Package Revenue | 17,774 | 12,091 (Estimated) | | Revenue from Services Provided | 15,922 | 17,910 (Estimated) | - The revenue decrease was primarily due to reduced revenue recognized from deferred income, resulting from store closures in compliance with Singapore's COVID-19 circuit breaker measures last year[7] Financial Review The Group's total revenue decreased by 5.9% to HK$205,396 thousand during the review period, primarily due to the pandemic, resulting in a net loss of HK$4.63 cents per share despite increased employee benefits, while capital expenditure significantly rose for network expansion and renovations, maintaining a robust financial position with no bank borrowings Revenue The Group's total revenue decreased by 5.9% year-on-year to HK$205,396 thousand, primarily due to economic downturns across multiple business segments, with beauty and wellness service revenue declining while skincare and health product sales surged by 103.2% Revenue Breakdown (Six Months Ended September 30) | Sales Mix | 2021 (HK$ '000) | Percentage of Revenue | 2020 (HK$ '000) | Percentage of Revenue | Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Beauty and Facial Treatments | 139,057 | 67.7% | 156,469 | 71.7% | –11.1% | | Slimming | 38,986 | 19.0% | 41,374 | 19.0% | –5.8% | | Spa Baths and Massages | 9,513 | 4.6% | 11,604 | 5.3% | –18.0% | | Beauty and Wellness Services | 187,556 | 91.3% | 209,447 | 96.0% | –10.5% | | Sales of Skincare and Health Products | 17,840 | 8.7% | 8,781 | 4.0% | +103.2% | | Total | 205,396 | 100% | 218,228 | 100% | –5.9% | - Product revenue significantly increased by 103.2% to HK$17,840 thousand, primarily due to adjusting the product portfolio to meet customer demand[10] Employee Benefit Expenses Employee benefit expenses significantly increased by 67.8% to HK$148,561 thousand, despite a 23.8% reduction in total staff, reflecting the Group's investment in talent attraction and retention, and the implementation of a merit-based system to enhance service skills Employee Benefit Expenses and Headcount (Six Months Ended September 30) | Indicator | 2021 (HK$ '000 / Headcount) | 2020 (HK$ '000 / Headcount) | Change | | :--- | :--- | :--- | :--- | | Employee Benefit Expenses | 148,561 | 88,540 | +67.8% | | Total Headcount | 801 | 1,051 | -23.8% | - The Group has implemented a merit-based system since 2010, providing comprehensive training to enhance employee customer service skills and awarding discretionary bonuses to outstanding staff[11] Lease Costs and Depreciation Expenses for Leased Properties Lease costs and depreciation expenses slightly decreased, while their proportion of revenue marginally increased, as the Group reduced its number of service centers and total floor area in Hong Kong and mainland China Lease Costs and Depreciation Expenses (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Lease Costs and Depreciation Expenses | 40,116 | 40,856 | -1.8% | | Percentage of Revenue | 19.5% | 18.7% | +0.8%p.p. | - As of September 30, 2021, the Group operated 33 service centers in mainland China and Hong Kong, with a total floor area of 175,000 sq ft, a 6.9% decrease year-on-year, and 9 centers in Singapore with approximately 19,000 sq ft, a decrease of 1 from the previous year[13] Bank Charges, Advertising Expenses, and Building Management Fees Bank charges increased with prepaid beauty package sales, advertising expenses decreased while maintaining cost advantages, and building management fees slightly declined Bank Charges, Advertising Expenses, and Building Management Fees (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Bank Charges | 11,277 | 7,337 | +53.7% | | Advertising Expenses | 1,377 | 1,658 | -17.0% | | Building Management Fees | 5,720 | 5,931 | -3.6% | - Advertising expenses remained stable at 0.7% of revenue, reflecting the Group's cost advantage after expanding its service center network[14] Other Operating Expenses Total other operating expenses decreased from HK$24,671 thousand to HK$22,056 thousand, with significant increases in cleaning, hygiene, and laundry expenses and utilities, offset by a substantial reduction in other miscellaneous expenses Other Operating Expenses Breakdown (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Audit Fees | 2,076 | 1,968 | | Administrative Expenses | 3,209 | 2,821 | | Cleaning, Hygiene and Laundry | 2,998 | 1,993 | | Consultancy Fees | 1,052 | 1,160 | | Government Rent and Rates | 1,461 | 1,805 | | Insurance | 1,504 | 1,289 | | Legal and Professional Fees | 1,522 | 1,856 | | Repair and Maintenance Expenses | 2,242 | 1,453 | | Utilities | 3,670 | 2,130 | | Other Expenses | 2,322 | 8,196 | | Total | 22,056 | 24,671 | Net Loss / Profit The Group transitioned from a profit in the prior period to a net loss of approximately HK$41,623 thousand, resulting in a loss per share of HK$4.63 cents Net Loss / Profit and Loss / Earnings Per Share (Six Months Ended September 30) | Indicator | 2021 (HK$ '000 / HK cents) | 2020 (HK$ '000 / HK cents) | | :--- | :--- | :--- | | Net Loss / Profit | (41,623) | 65,938 | | Loss / Earnings Per Share | (4.63) | 7.28 | Capital Expenditure Total capital expenditure significantly increased to HK$57,666 thousand, primarily for leasehold improvements and the acquisition of property, plant, and equipment to support the expansion and integration of service and retail networks Total Capital Expenditure (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Total Capital Expenditure | 57,666 | 325 | +17643.4% | - Capital expenditure was primarily for leasehold improvements and the acquisition of property, plant, and equipment to expand and integrate service and retail networks across various regions[16] Interim Dividend The Board of Directors did not approve the payment of an interim dividend for the six months ended September 30, 2021 - The Board of Directors did not approve the payment of an interim dividend for the six months ended September 30, 2021 (2020: nil)[16] Liquidity, Capital Structure, and Treasury Policy The Group maintains a robust financial position with total equity of HK$250,178 thousand, cash and bank balances of HK$184,468 thousand, and no bank borrowings, with liquidity primarily sourced from prepaid beauty package sales and credit card advances Liquidity Position (As of September 30, 2021) | Indicator | 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Total Equity | 250,178 | 292,892 | -14.6% | | Cash and Bank Balances | 184,468 | 234,341 | -21.3% | | Bank Borrowings | Nil | Nil | N/A | - The Group's liquidity is primarily funded by revenue from prepaid beauty package sales and credit card advances received from banks[16] Contingent Liabilities and Capital Commitments As of September 30, 2021, the Group had capital commitments of HK$19,243 thousand, primarily for property acquisition and leasehold improvements, a significant increase from March 31, with the Board deeming no material contingent liabilities Capital Commitments (As of September 30, 2021) | Indicator | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Capital Commitments | 19,243 | 330 | +5731.2% | - Capital commitments are primarily for the acquisition of properties and leasehold improvements[16] - The Board of Directors believes the Group had no material contingent liabilities as of September 30, 2021[16] Pledge of Assets The Group pledged HK$47,181 thousand in bank deposits to secure bank facilities granted to certain of its subsidiaries Pledged Bank Deposits (As of September 30, 2021) | Indicator | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Pledged Bank Deposits | 47,181 | 54,385 | -13.2% | - Bank deposits are pledged to secure bank facilities granted to certain subsidiaries of the Group[16] Foreign Exchange Risk The Group's transactions are primarily denominated in HKD, but as business expands into mainland China, Southeast Asia, and Australia, foreign currency exchange rates impact operating costs, prompting management to closely assess and hedge foreign exchange risks - The Group's transactions are primarily denominated in HKD, but as business expands into mainland China, Southeast Asia, and Australia, the exchange rates between HKD and foreign currencies impact operating costs[16] - Management will closely assess foreign exchange risks and take necessary measures to hedge them appropriately[16] Human Resources and Training The Group's total employee benefit expenses significantly increased by 67.8% to HK$148,561 thousand, despite a 23.8% reduction in headcount, while regular training is provided to enhance service quality and professional skills, and remuneration policies are reviewed based on market conditions and employee performance Employee Benefit Expenses and Headcount (As of September 30, 2021) | Indicator | 2021 (HK$ '000 / Headcount) | 2020 (HK$ '000 / Headcount) | Change | | :--- | :--- | :--- | :--- | | Total Employee Benefit Expenses | 148,561 | 88,540 | +67.8% | | Total Headcount | 801 | 1,051 | -23.8% | - The Group regularly provides employee training covering safe application of the latest beauty technologies, service skill exchange, and service and product introductions[19] - Remuneration policies are regularly reviewed based on legal frameworks, market conditions, and the performance of the Group and individual employees, with the Remuneration Committee responsible for reviewing the remuneration policies and benefits of executive directors and senior management members[19] Corporate Social Responsibility The Group prioritizes service and product safety, maintaining stringent standards for product quality and advanced instrument safety, cultivates professionals through its International Academy of Beauty Experts, and implements policies to reduce utility consumption in service centers for environmental protection - The Group maintains strict product quality requirements, with internationally recognized product ingredients and packaging hygiene, and advanced instruments used in services passing multiple safety tests to meet international safety standards[20] - The Group established the International Academy of Beauty Experts in 2002 to cultivate skilled professionals and provide training or further education opportunities for employees[20] - The Group has formulated specific policies aimed at minimizing air conditioning usage and water consumption in service centers to support environmental protection[20] Outlook Despite ongoing uncertainties from COVID-19 and consumer confidence, particularly potential new circuit breaker measures in Singapore, the Group will leverage its excellent services, brand recognition, and customer base to navigate economic headwinds, while Hong Kong's beauty industry "cooling-off period" policy aims to rebuild consumer trust and foster healthy development, leading the Group to maintain cautious optimism for future performance - The HKSAR Government launched a consumption voucher scheme to stimulate retail spending, but consumer confidence remains significantly below long-term average levels[21] - Singapore's infection rates surged after easing COVID-19 restrictions, potentially leading to new beauty salon circuit breaker measures that could impact second-half business[21] - The Group will continue to navigate economic headwinds by leveraging its excellent services, brand recognition, and solid customer base in Hong Kong, mainland China, and Singapore[21] - Hong Kong beauty salons introduced a "cooling-off period" policy, allowing customers to request refunds for unused services within five business days of purchase, aiming to rebuild consumer confidence and foster long-term healthy development of the beauty industry[21] - The Group successfully controlled operating costs, especially rental expenses, and focused on maintaining a robust cash position, remaining cautiously optimistic about future performance[22] Subsequent Events The emergence of the Omicron variant of COVID-19 at the end of the review period introduced new uncertainties, prompting the Group to closely monitor developments and respond swiftly to challenges - In November 2021, the Omicron variant of COVID-19 suddenly emerged, with its severity, ability to evade immunity, and transmissibility yet unknown[23] - The Group will closely monitor relevant developments and respond swiftly as necessary to address challenges posed by the new COVID-19 variant[23] Company Information This section provides essential company information, including Board members, registered office, principal place of business, auditors, share registrar, principal bankers, stock code, and investor relations contact details - Board members include Chairman Dr. Tsang Yuk, Executive Directors Mr. Yip Kai Wing, Ms. Yeung Sze Man, and Independent Non-executive Directors Ms. Liu Mei Ling, Dr. Wong Man Yin, and Mr. Hong Po Kui[25] - The auditor is KPMG, and the stock code is 919[25] Corporate Governance and Other Information This section details the company's corporate governance practices, including director and substantial shareholder equity disclosures, compliance with the Model Code for Securities Transactions, and the composition and responsibilities of Board committees, noting adherence to the Corporate Governance Code with deviations regarding the Chairman and Chief Executive Officer being the same person and the Chairman's absence from the general meeting Directors' Rights to Acquire Shares or Debentures During the review period, neither the company, its holding company, subsidiaries, nor fellow subsidiaries entered into any arrangements enabling directors, chief executives, or their spouses or minor children to acquire benefits by purchasing shares or debentures of the company or any other body corporate - During the review period, neither the Company, its holding company, subsidiaries, nor fellow subsidiaries entered into any arrangements enabling the Company's directors or chief executives, or their respective spouses or children under 18, to acquire benefits by purchasing shares or debentures of the Company or any other body corporate[30] Directors' and Chief Executives' Interests and Short Positions in Shares, Underlying Shares, and Debentures As of September 30, 2021, Dr. Tsang Yuk held a majority of the company's shares through a discretionary trust and spouse's interests, while Mr. Yip Kai Wing and Ms. Yeung Sze Man also held minor shareholdings Directors' and Chief Executives' Long Positions in Shares (As of September 30, 2021) | Name | Capacity in which interests are held | Number of Shares | Total Interests | Approximate Percentage of the Company's Issued Share Capital | | :--- | :--- | :--- | :--- | :--- | | Dr. Tsang Yuk | Founder of a discretionary trust | 677,247,942 | 677,247,942 | 74.88% | | | Spouse's interests | 650,000 | 650,000 | 0.07% | | Mr. Yip Kai Wing | Beneficial owner | 185,000 | 185,000 | 0.02% | | Ms. Yeung Sze Man | Beneficial owner | 172,000 | 172,000 | 0.02% | - Dr. Tsang Yuk is the spouse of Dr. Lee Sau Yee and is deemed to have an interest in the shares that Dr. Lee Sau Yee is deemed or taken to have an interest in under the Securities and Futures Ordinance[31] Substantial Shareholders' and Other Persons' Interests and Short Positions in Shares and Underlying Shares As of September 30, 2021, Dr. Tsang Yuk and her spouse, Dr. Lee Sau Yee, held a majority of the company's shares through trusts and direct interests, while TMF (Cayman) Ltd., Kelday International Limited, Allied Chance Management Limited, Allied Wealth Limited, Silver Compass Holdings Corp., and Silver Hendon Enterprises Corp., as trustees or controlled corporations, also held substantial shareholdings Substantial Shareholders' and Other Persons' Long Positions in Shares (As of September 30, 2021) | Name / Company Name | Capacity in which interests are held | Number of Shares | Total Interests | Approximate Percentage of the Company's Issued Share Capital | | :--- | :--- | :--- | :--- | :--- | | Dr. Tsang Yuk | Founder of a discretionary trust | 677,247,942 | 677,247,942 | 74.88% | | | Spouse's interests | 650,000 | 650,000 | 0.07% | | Dr. Lee Sau Yee | Beneficial owner | 650,000 | 650,000 | 0.07% | | | Spouse's interests | 677,247,942 | 677,247,942 | 74.88% | | TMF (Cayman) Ltd | Trustee (other than a passive trustee) | 677,247,942 | 677,247,942 | 74.88% | | Kelday International Limited | Nominee of another person (other than a passive trustee) | 677,247,942 | 677,247,942 | 74.88% | | Allied Chance Management Limited | Interest of a controlled corporation | 677,247,942 | 677,247,942 | 74.88% | | Allied Wealth Limited | Beneficial owner | 209,247,942 | 209,247,942 | 23.13% | | Silver Compass Holdings Corp | Beneficial owner | 367,200,000 | 367,200,000 | 40.60% | | Silver Hendon Enterprises Corp | Beneficial owner | 100,800,000 | 100,800,000 | 11.14% | - Dr. Tsang Yuk is the spouse of Dr. Lee Sau Yee and is deemed to have an interest in the shares that Dr. Lee Sau Yee is deemed or taken to have an interest in under the Securities and Futures Ordinance[34] - The aforementioned 677,247,942 shares are the same batch of shares held by a trust established by Dr. Tsang Yuk, with TMF (Cayman) Ltd. serving as the trustee of that trust[34] Purchase, Sale or Redemption of the Company's Listed Securities During the review period, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities - During the review period, the Company did not redeem, nor did the Company or any of its subsidiaries purchase or sell, any of the Company's listed securities[36] Corporate Governance Practices The company adheres to sound corporate governance principles, adopting the Corporate Governance Code in Appendix 14 of the HKEX Listing Rules, and complied with its code provisions during the review period, except for deviations where the Chairman and Chief Executive Officer roles were combined and the Chairman was absent from the general meeting - The company adheres to sound corporate governance principles, emphasizing transparency, accountability, and independence[36] - The company has adopted the Corporate Governance Code set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited[36] - During the review period, the company complied with the code provisions, except for the Chairman and Chief Executive Officer roles being combined and the Chairman's absence from the Annual General Meeting[36] Chairman and Chief Executive Officer Dr. Tsang Yuk served as the company's Chairman and Chief Executive Officer during the review period, a deviation from code provision A.2.1, but the Board believes this structure does not impair the balance of power given collective decision-making and clear management responsibilities - Dr. Tsang Yuk served as the company's Chairman and Chief Executive Officer during the review period, deviating from code provision A.2.1 (which states that the roles of chairman and chief executive should be separate and not performed by the same individual)[36] - The Board believes that Board decisions are made collectively, and the responsibilities of Board management and the company's daily business management are clearly delineated with the support of senior management, ensuring the existing structure does not impair the balance of power and authority[36] Non-compliance with Code Provision E.1.2 Board Chairman Dr. Tsang Yuk was unable to attend the company's Annual General Meeting on August 27, 2021, due to personal reasons, deviating from code provision E.1.2 (which states that the chairman of the board should attend general meetings) - Board Chairman Dr. Tsang Yuk was unable to attend the company's Annual General Meeting held on August 27, 2021, due to personal reasons, deviating from code provision E.1.2[36] Model Code for Securities Transactions by Directors The company adopted the Model Code for Securities Transactions by Directors of Listed Issuers in Appendix 10 of the Listing Rules, and all directors confirmed compliance with the Model Code and the Code of Conduct for Securities Transactions by Directors during the review period, with no instances of non-compliance - The company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules[38] - Following specific enquiries with all directors, all directors confirmed that they complied with the required standards set out in the Model Code and the Code of Conduct for Securities Transactions by Directors during the review period, with no instances of non-compliance[38] Board Committees The Board established Remuneration, Nomination, and Audit Committees with terms of reference no less exacting than those in the Code, all empowered to appoint external advisors, with the Audit Committee comprising solely independent non-executive directors, and the Nomination and Remuneration Committees predominantly composed of independent non-executive directors to enhance independence and effectiveness - The Board has established a Remuneration Committee, a Nomination Committee, and an Audit Committee, with terms of reference no less exacting than those set out in the Code[38] - All committees are empowered to appoint external advisors or experts when necessary[38] - All Audit Committee members are independent non-executive directors, and the Nomination and Remuneration Committees are structured with a majority of independent non-executive directors to enhance independence and effectiveness[38] Remuneration Committee The Remuneration Committee comprises Dr. Wong Man Yin (Chairman), Mr. Hong Po Kui, Ms. Liu Mei Ling (all independent non-executive directors), and Dr. Tsang Yuk (executive director), tasked with reviewing and determining remuneration, bonuses, and other terms for directors and senior management to attract, motivate, and retain key talent through competitive total rewards - The Remuneration Committee comprises Independent Non-executive Directors Dr. Wong Man Yin (Chairman), Mr. Hong Po Kui, Ms. Liu Mei Ling, and Executive Director Dr. Tsang Yuk[38] - The Remuneration Committee's responsibilities include reviewing and determining the terms of remuneration, bonuses, and other benefits payable to directors and senior management in accordance with established policies[38] - The Committee aims to attract, motivate, and retain key executives crucial to the Group's long-term success by offering competitive total rewards to employees who achieve their performance targets[38] Nomination Committee The Nomination Committee comprises Dr. Tsang Yuk (Chairman, Executive Director) and Ms. Liu Mei Ling, Dr. Wong Man Yin, Mr. Hong Po Kui (all independent non-executive directors), tasked with advising the Board on director appointments, Board composition assessment, independent non-executive director independence evaluation, and Board succession planning - The Nomination Committee comprises Executive Director Dr. Tsang Yuk (Chairman) and Independent Non-executive Directors Ms. Liu Mei Ling, Dr. Wong Man Yin, and Mr. Hong Po Kui[38] - The Nomination Committee's responsibilities include making recommendations to the Board on director appointments, assessment of Board composition, evaluation of the independence of independent non-executive directors, and Board succession planning[38] Audit Committee The Audit Committee comprises Ms. Liu Mei Ling (Chairman), Dr. Wong Man Yin, and Mr. Hong Po Kui (all independent non-executive directors), with all members possessing the professional qualifications required by the Listing Rules, and is responsible for reviewing the Group's financial reporting, internal controls, and corporate governance matters, having reviewed and approved the interim report - The Audit Committee comprises Independent Non-executive Directors Ms. Liu Mei Ling (Chairman), Dr. Wong Man Yin, and Mr. Hong Po Kui[39] - The Audit Committee reviews the Group's financial reporting, internal controls, and corporate governance matters, and makes relevant recommendations to the Board[39] - All Audit Committee members possess the appropriate professional qualifications, accounting, or relevant financial management expertise as required by the Listing Rules[39] - The Audit Committee reviewed and approved the interim report for the review period prior to its approval by the Board[39] Review Report KPMG has reviewed this interim financial report in accordance with Hong Kong Standard on Review Engagements 2410, and based on the review, the auditor noted no matters leading them to believe the interim financial report was not prepared in all material respects in accordance with Hong Kong Accounting Standard 34 - KPMG has reviewed this interim financial report in accordance with Hong Kong Standard on Review Engagements 2410[40][42] - The auditor noted no matters that caused them to believe the interim financial report as of September 30, 2021, was not prepared in all material respects in accordance with Hong Kong Accounting Standard 34, Interim Financial Reporting[41] - The scope of a review is substantially less than that of an audit, and accordingly, no audit opinion is expressed[42] Consolidated Financial Statements This section presents the Group's unaudited consolidated financial statements for the six months ended September 30, 2021, including the consolidated statement of profit or loss, statement of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity, and condensed consolidated statement of cash flows, reflecting the Group's financial performance and position during the period Consolidated Statement of Profit or Loss For the six months ended September 30, 2021, the Group's revenue was HK$205,396 thousand, a 5.9% year-on-year decrease, with the period's profit of HK$65,938 thousand turning into a loss of HK$41,623 thousand, resulting in a basic loss per share of HK$4.63 cents Key Data from Consolidated Statement of Profit or Loss (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Revenue | 205,396 | 218,228 | -5.9% | | Other Income | 3,526 | 48,689 | -92.8% | | Employee Benefit Expenses | (148,561) | (88,540) | +67.8% | | Operating (Loss) / Profit | (35,374) | 75,577 | N/A (Turned to loss) | | (Loss) / Profit for the Period | (41,623) | 65,938 | N/A (Turned to loss) | | Basic (Loss) / Earnings Per Share (HK cents) | (4.63) | 7.28 | N/A (Turned to loss) | Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended September 30, 2021, the Group reported a loss for the period of HK$41,623 thousand, with other comprehensive income from exchange differences on translating foreign operations being a negative HK$1,091 thousand, resulting in a total comprehensive loss for the period of HK$42,714 thousand Key Data from Consolidated Statement of Profit or Loss and Other Comprehensive Income (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | (Loss) / Profit for the Period | (41,623) | 65,938 | | Exchange differences on translating foreign operations | (1,091) | 2,036 | | Other comprehensive income for the period | (1,091) | 2,036 | | Total comprehensive income for the period | (42,714) | 67,974 | Consolidated Statement of Financial Position As of September 30, 2021, the Group's total non-current assets were HK$218,166 thousand, total current assets were HK$421,950 thousand, and current liabilities were HK$361,223 thousand, resulting in net current assets of HK$60,727 thousand, total assets less current liabilities of HK$278,893 thousand, and net assets of HK$250,178 thousand Key Data from Consolidated Statement of Financial Position (As of September 30, 2021) | Indicator | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Non-current Assets | 218,166 | 189,737 | +15.0% | | Current Assets | 421,950 | 479,305 | -11.9% | | Current Liabilities | 361,223 | 331,299 | +9.0% | | Net Current Assets | 60,727 | 148,006 | -59.0% | | Total Assets Less Current Liabilities | 278,893 | 337,743 | -17.4% | | Net Assets | 250,178 | 292,892 | -14.6% | | Total Equity | 250,178 | 292,892 | -14.6% | Consolidated Statement of Changes in Equity For the six months ended September 30, 2021, total equity attributable to equity holders of the Company decreased from HK$289,367 thousand at the beginning of the period to HK$246,396 thousand at the end, primarily due to a loss for the period of HK$41,880 thousand and a HK$1,091 thousand decrease in other comprehensive income from exchange differences on foreign operations Key Data from Consolidated Statement of Changes in Equity (Six Months Ended September 30) | Indicator | September 30, 2021 (HK$ '000) | April 1, 2021 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Total Equity Attributable to Equity Holders of the Company | 246,396 | 289,367 | -14.8% | | Loss for the period | (41,880) | N/A | N/A | | Exchange differences on translating foreign operations | (1,091) | N/A | N/A | Condensed Consolidated Statement of Cash Flows For the six months ended September 30, 2021, net cash generated from operating activities was HK$45,342 thousand, net cash used in investing activities was HK$52,035 thousand, and net cash used in financing activities was HK$42,945 thousand, resulting in a net decrease in cash and cash equivalents of HK$49,638 thousand, with cash and cash equivalents at period-end totaling HK$179,031 thousand Key Data from Condensed Consolidated Statement of Cash Flows (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Net cash generated from operating activities | 45,342 | 70,757 | | Net cash used in investing activities | (52,035) | (748) | | Net cash used in financing activities | (42,945) | (35,918) | | Net (decrease) / increase in cash and cash equivalents | (49,638) | 34,091 | | Cash and cash equivalents at end of period | 179,031 | 210,229 | - Expenditure on the purchase of property, plant, and equipment significantly increased to HK$57,666 thousand, which was the primary reason for the increase in cash outflow from investing activities[58] Notes to the Unaudited Interim Financial Report This section provides detailed notes to the unaudited interim financial report, covering general company information, basis of financial report preparation, changes in accounting policies, segment information, details of various income and expenses, earnings per share calculation, balance sheet item changes, and related party transactions, offering supplementary explanations for understanding the financial statements General Information Modern Beauty Technology Holdings Limited is incorporated in the Cayman Islands, with its shares listed on the Main Board of the Hong Kong Stock Exchange, primarily engaged in providing beauty and wellness services and selling skincare and health products, with Dr. Tsang Yuk considered the ultimate controlling party - Modern Beauty Technology Holdings Limited is incorporated in the Cayman Islands, and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited[61] - The Group's principal activities are the provision of beauty and wellness services and the sale of skincare and health products[61] - Dr. Tsang Yuk is regarded as the ultimate controlling party of the Company[61] Basis of Preparation This interim financial report is prepared in accordance with the applicable disclosure provisions of the Hong Kong Stock Exchange Listing Rules and Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the HKICPA, authorized for issue on November 29, 2021, and, though unaudited, has been reviewed by KPMG - This interim financial report has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants[62] - The report was authorized for issue on November 29, 2021, is unaudited, but has been reviewed by KPMG in accordance with Hong Kong Standard on Review Engagements 2410[62] - The financial information, presented as comparative data, is extracted from the statutory annual consolidated financial statements for the year ended March 31, 2021, on which the auditor expressed an unmodified opinion[63] Changes in Accounting Policies The Group early adopted the amendments to HKFRS 16, relating to Covid-19-related rent concessions after June 30, 2021, from the year ended March 31, 2021, and did not apply any other new standards or interpretations not yet effective in the current accounting period - The Group early adopted the amendments to HKFRS 16, relating to Covid-19-related rent concessions after June 30, 2021, from the year ended March 31, 2021[66] - The Group has not applied any new standards or interpretations that are not yet effective in the current accounting period[66] Segment Information The Group has two reportable segments: beauty and wellness services, and sales of skincare and health products, with the former recording a loss and the latter a profit during the review period - The Group's reportable segments are the provision of beauty and wellness services and the sale of skincare and health products[66] Reportable Segment Revenue and (Loss) / Profit (Six Months Ended September 30) | Segment | 2021 Revenue (HK$ '000) | 2021 (Loss) / Profit (HK$ '000) | 2020 Revenue (HK$ '000) | 2020 Profit (HK$ '000) | | :--- | :--- | :--- | :--- | :--- | | Beauty and Wellness Services | 187,556 | (36,672) | 209,447 | 70,315 | | Skincare and Health Products | 17,840 | 9,829 | 8,781 | 5,417 | | Total | 205,396 | (26,843) | 218,228 | 75,732 | Segment Information (Resource Allocation and Performance Assessment) This section presents the Group's two reportable segments (beauty and wellness services, skincare and health products) revenue, loss/profit, assets, and liabilities during the review period for top management's resource allocation and performance assessment Reportable Segment Assets and Liabilities (As of September 30, 2021) | Segment | September 30, 2021 Assets (HK$ '000) | September 30, 2021 Liabilities (HK$ '000) | September 30, 2020 Assets (HK$ '000) | September 30, 2020 Liabilities (HK$ '000) | | :--- | :--- | :--- | :--- | :--- | | Beauty and Wellness Services | 582,949 | (367,407) | 628,553 | (439,492) | | Skincare and Health Products | 16,029 | (16,465) | 14,050 | (11,468) | | Total | 598,978 | (383,872) | 642,603 | (450,960) | Reconciliation of Reportable Segment Profit or Loss This section provides a reconciliation of reportable segment loss/profit to consolidated loss/profit for the period, illustrating the impact of other income, interest income, fair value changes of investment properties, unallocated costs, and income tax expenses on the final consolidated loss Reconciliation of Reportable Segment (Loss) / Profit (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Reportable segment (loss) / profit | (26,843) | 75,732 | | Other income | 2,168 | 5,528 | | Interest income | 62 | 554 | | Fair value change of investment properties | (3,537) | (2,413) | | Net loss on disposal of a subsidiary | – | (591) | | Unallocated costs | (11,929) | (8,229) | | Income tax expense | (1,544) | (4,643) | | Consolidated (loss) / profit for the period | (41,623) | 65,938 | Revenue The Group's primary revenue sources are beauty and wellness services and sales of skincare and health products, with total revenue of HK$205,396 thousand for the six months ended September 30, 2021, comprising HK$187,556 thousand from services and HK$17,840 thousand from product sales Revenue Categories (Six Months Ended September 30) | Revenue Category | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Revenue from provision of beauty and wellness services and recognized from expiry of prepaid beauty packages | 187,556 | 209,447 | | Sales of skincare and health products | 17,840 | 8,781 | | Total | 205,396 | 218,228 | Other Income The Group's other income significantly decreased to HK$3,526 thousand, primarily due to a substantial decline in government subsidies and COVID-19-related rent concessions Other Income Breakdown (Six Months Ended September 30) | Category | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Government subsidies | 1,358 | 43,946 | | COVID-19 related rent concessions received | 77 | 3,180 | | Income from provision of domestic helper referral services | 1,054 | 773 | | Rental income | 777 | – | | Others | 260 | 790 | | Total | 3,526 | 48,689 | - The significant decrease in government subsidies and COVID-19-related rent concessions was the primary reason for the substantial reduction in other income[75] Loss / Profit Before Taxation For the six months ended September 30, 2021, the Group reported a loss before taxation of HK$40,079 thousand, compared to a profit of HK$70,581 thousand in the prior period, primarily influenced by increased directors' emoluments, depreciation expenses, and finance costs Components of (Loss) / Profit Before Taxation (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Directors' emoluments | 6,310 | 4,083 | | Depreciation – owned property, plant and equipment | 7,608 | 18,266 | | Depreciation – right-of-use assets | 39,269 | 40,320 | | Foreign exchange (gain) / loss, net | (16) | 115 | | Finance costs – interest on lease liabilities | 1,230 | 2,546 | - The Group transitioned from a profit to a loss before taxation, primarily influenced by factors such as increased directors' emoluments and depreciation expenses[44][76] Income Tax Expense For the six months ended September 30, 2021, the Group's income tax expense was HK$1,544 thousand, a significant reduction from the prior period, with decreases in both Hong Kong profits tax and overseas taxation, as well as deferred tax Income Tax Expense Breakdown (Six Months Ended September 30) | Category | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Current tax – Hong Kong profits tax | 381 | 670 | | Current tax – Overseas | 1,110 | 1,472 | | Deferred tax | 53 | 2,501 | | Income tax expense | 1,544 | 4,643 | - Hong Kong profits tax provision is based on an estimated annual effective tax rate of 16.5%, with qualifying subsidiaries taxed at 8.25% on the first HK$2 million of assessable profits under the two-tiered profits tax regime[77][78] Loss / Earnings Per Share For the six months ended September 30, 2021, basic loss per share was HK$4.63 cents, compared to earnings per share of HK$7.28 cents in the prior period, with diluted loss per share being the same as basic loss per share due to no potentially dilutive ordinary shares outstanding (Loss) / Earnings Per Share (Six Months Ended September 30) | Indicator | 2021 (HK cents) | 2020 (HK cents) | | :--- | :--- | :--- | | Basic (Loss) / Earnings Per Share | (4.63) | 7.28 | | Diluted (Loss) / Earnings Per Share | (4.63) | 7.28 | - Basic (loss) / earnings per share is calculated based on the loss attributable to ordinary equity holders of the Company of HK$41,880 thousand (2020: profit of HK$65,817 thousand) and the weighted average of 904,483,942 ordinary shares in issue during the period[81] Property, Plant and Equipment and Right-of-Use Assets This section details changes in the Group's property, plant and equipment, and right-of-use assets, with HK$18,574 thousand in right-of-use asset additions and HK$57,666 thousand in property, plant, and equipment acquisitions recognized for the six months ended September 30, 2021 Right-of-Use Assets For the six months ended September 30, 2021, the Group recognized additions to right-of-use assets of HK$18,574 thousand, and during the COVID-19 pandemic, received rent concessions, including HK$77 thousand for Singapore service centers Right-of-Use Asset Additions and Rent Concessions (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Additions to right-of-use assets | 18,574 | 97,335 | | COVID-19 related rent concessions (Singapore) | (77) | (2,094) | Acquisitions For the six months ended September 30, 2021, the cost of property, plant, and equipment acquisitions was approximately HK$57,666 thousand, a significant increase from the prior period Cost of Property, Plant and Equipment Acquisitions (Six Months Ended September 30) | Indicator | 2021 (HK$ '000) | 2020 (HK$ '000) | Change | | :--- | :--- | :--- | :--- | | Cost of property, plant and equipment acquisitions | 57,666 | 325 | +17643.4% | Trade and Other Receivables, Deposits and Prepayments As of September 30, 2021, the Group's total trade and other receivables, deposits, and prepayments amounted to HK$195,292 thousand, including trade receivables (net of loss allowance) of HK$17,538 thousand and trade deposits retained by banks/credit card companies of HK$133,959 thousand Trade and Other Receivables (As of September 30, 2021) | Category | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | | :--- | :--- | :--- | | Non-current assets: Deposits and prepayments | 13,332 | 11,460 | | Current assets: Trade receivables, net of loss allowance | 17,538 | 14,394 | | Current assets: Trade deposits retained by banks/credit card companies | 133,959 | 134,040 | | Current assets: Rental and other deposits, prepayments and other receivables | 30,300 | 26,628 | | Current assets: Amounts due from related companies | 163 | 269 | | Total | 195,292 | 186,791 | Ageing Analysis of Trade Receivables (As of September 30, 2021) | Ageing | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | | :--- | :--- | :--- | | 0 to 30 days | 10,123 | 9,665 | | 31 to 60 days | 2,735 | 1,547 | | 61 to 90 days | 1,334 | 134 | | 91 to 180 days | 3,346 | 3,048 | | Total | 17,538 | 14,394 | - Trade deposits refer to receivables retained by banks/credit card companies in reserve accounts to secure the Group's service performance for customers paying with credit cards[86] Cash and Bank Balances As of September 30, 2021, the Group's cash and bank balances were HK$179,031 thousand, a decrease from HK$228,865 thousand as of March 31, 2021 Cash and Bank Balances (As of September 30, 2021) | Category | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | | :--- | :--- | :--- | | Cash at bank and in hand | 179,031 | 165,223 | | Short-term bank deposits with original maturity of less than three months | – | 63,642 | | Total | 179,031 | 228,865 | Trade and Other Payables, Deposits Received and Accrued Charges As of September 30, 2021, the Group's total trade and other payables, deposits received, and accrued charges amounted to HK$74,708 thousand, a slight increase from HK$73,363 thousand as of March 31, 2021 Trade and Other Payables (As of September 30, 2021) | Category | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | | :--- | :--- | :--- | | Trade payables | 546 | 525 | | Other payables, deposits received and accrued charges | 74,035 | 72,711 | | Amounts due to ultimate controlling party | 2 | 2 | | Amounts due to related companies | 125 | 125 | | Total | 74,708 | 73,363 | Ageing Analysis of Trade Payables (As of September 30, 2021) | Ageing | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | | :--- | :--- | :--- | | Within 90 days | 537 | 515 | | Over 90 days | 9 | 10 | | Total | 546 | 525 | Deferred Income As of September 30, 2021, the Group's deferred income was HK$217,138 thousand, primarily derived from revenue from the sale of prepaid beauty packages Ageing Analysis of Deferred Income As of September 30, 2021, all deferred income totaling HK$217,138 thousand is due within one year Ageing Analysis of Deferred Income (As of September 30, 2021) | Ageing | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | | :--- | :--- | :--- | | Within 1 year | 217,138 | 183,446 | Movements in Deferred Income For the six months ended September 30, 2021, the closing balance of deferred income was HK$217,138 thousand, with total revenue from prepaid beauty package sales amounting to HK$221,055 thousand and revenue recognized from beauty and wellness services being HK$187,556 thousand Movements in Deferred Income (Six Months Ended September 30) | Indicator | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | | :--- | :--- | :--- | | At beginning of period / year | 183,446 | 301,822 | | Total revenue from sales of prepaid beauty packages | 221,055 | 292,170 | | Revenue recognized from expiry of prepaid beauty packages | (187,556) | (411,713) | | Exchange differences | 193 | 1,167 | | At end of period / year | 217,138 | 183,446 | Share Capital, Reserves and Dividends This section discloses the Group's share capital structure, reserves, and dividend policy, with authorized share capital of HK$1,000,000 thousand and issued and fully paid share capital of HK$90,448 thousand as of September 30, 2021, and no interim dividend declared by the Board Dividends The Board of Directors resolved not to declare an interim dividend for the six months ended September 30, 2021 - The Board of Directors resolved not to declare an interim dividend for the six months ended September 30, 2021 (2020: nil)[93] Share Capital As of September 30, 2021, the company's authorized share capital was 10,000,000,000 ordinary shares of HK$0.1 each, totaling HK$1,000,000 thousand, with issued and fully paid share capital of 904,483,942 ordinary shares, totaling HK$90,448 thousand Share Capital Structure (As of September 30, 2021) | Category | September 30, 2021 Number of Shares | September 30, 2021 Amount (HK$ '000) | March 31, 2021 Number of Shares | March 31, 2021 Amount (HK$ '000) | | :--- | :--- | :--- | :--- | :--- | | Authorized: Ordinary shares of HK$0.1 each | 10,000,000,000 | 1,000,000 | 10,000,000,000 | 1,000,000 | | Issued and fully paid: Ordinary shares of HK$0.1 each | 904,483,942 | 90,448 | 904,483,942 | 90,448 | - Holders of ordinary shares are entitled to receive dividends declared from time to time and have one vote per ordinary share at the Company's general meetings[94] Commitments As of September 30, 2021, the Group had contracted but unprovided capital commitments of HK$19,243 thousand, primarily for the acquisition of plant and equipment, a significant increase from March 31, 2021 Capital Commitments (As of September 30, 2021) | Category | September 30, 2021 (HK$ '000) | March 31, 2021 (HK$ '000) | | :--- | :--- | :--- | | Contracted but not provided for: Acquisition of plant and equipment | 19,243 | 330 | Contingent Liabilities The Group received complaints and claims related to beauty services during its operations, but the directors believe that the losses or settlements from these complaints and claims do not have a material financial impact on the Group - The Group received complaints and claims in the course of its business relating to the provision of beauty services, involving breach of contract, advertising content, lease disputes, and claims for personal injury caused by services provided[96] - The directors believe that the losses or settlements from these complaints and claims do not have a material financial impact on the Group[96] Significant Related Party Transactions and Balances This section discloses significant related party transactions and balances, including key management personnel emoluments, additions to right-of-use assets from related companies, and salaries and other benefits paid to related parties Key Management Personnel Emoluments For the six months ended September 30, 2021, total key management personnel emoluments were HK$6,736 thousand, an increase from the prior period, primarily due to growth in salaries and allowances Key Management Personnel Emoluments (Six Months Ended September 30) | Category | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Fees | 426 | 426 | | Salaries and allowances | 6,263 | 3,606 | | Contributions to retirement benefit schemes | 47 | 51 | | Total | 6,736 | 4,083 | Significant Related Party Transactions During the review period, the Group engaged in significant related party transactions, including additions to right-of-use assets from related companies (HK$78,017 thousand in 2020, nil in 2021) and salaries and other benefits paid to Related Party A (Dr. Tsang Yuk's spouse), Related Party B (Dr. Tsang Yuk's son), and Related Party C (Mr. Yip Kai Wing's spouse) Significant Related Party Transactions (Six Months Ended September 30) | Category | 2021 (HK$ '000) | 2020 (HK$ '000) | | :--- | :--- | :--- | | Additions to right-of-use assets from related companies | – | 78,017 | | Salaries and other benefits paid to related parties: | | | | – Related Party A (Spouse of Dr. Tsang Yuk) | 925 | 573 | | – Related Party B (Son of Dr. Tsang Yuk) | 1,120 | 878 | | – Related Party C (Spouse of Mr. Yip Kai Wing) | 272 | 134 | | Total | 2,317 | 1,585 | - Dr. Tsang Yuk is a shareholder of the related companies, and the Group entered into three-year lease agreements with these related companies[100] Related Party Balances Amounts due from/to related companies and the ultimate controlling party are unsecured, interest-free, and repayable/recoverable on demand, with Dr. Tsang Yuk being the ultimate controlling party of these related companies - Amounts due from/to related companies and the ultimate controlling party are unsecured, interest-free, and repayable/recoverable on demand[105] - Dr. Tsang Yuk is the ultimate controlling party of these related companies[105]