国际精密(00929) - 2020 - 中期财报

Company Information Board of Directors and Committees The company's Board of Directors comprises executive, non-executive, and independent non-executive directors, supported by Remuneration, Nomination, Audit, and Environmental, Social and Governance Committees to ensure robust corporate governance - The Board members include Executive Directors Mr. Zeng Guang Sheng (Chairman and CEO) and Mr. Wu Kai Ping, Non-executive Directors Ms. Zeng Jing and Mr. Chen Kuang Guo, and Independent Non-executive Directors Mr. Yang Ru Sheng, Mr. Zhang Zhen Yu, Mr. Mei Wai Yick, and Mr. Xu Bing[7] - The company has a Remuneration Committee, Nomination Committee, Audit Committee, and Environmental, Social and Governance Committee, each chaired by an independent non-executive director[7] Registered Office and Principal Places of Business The company is registered in the Cayman Islands with principal places of business in Hong Kong, mainland China, and Thailand, and its Hong Kong share registrar is Hong Kong Central Share Registrar Services Limited - The registered office is located in the Cayman Islands, and the Hong Kong share registrar is Hong Kong Central Share Registrar Services Limited[10][13] - Principal places of business are located in Kowloon, Hong Kong, Zengcheng District, Guangzhou City, Guangdong Province, China, and Ayutthaya Province, Thailand[14][15][16][17][19][20][21][23][24][25] Company Profile Principal Business Activities International Precision Group Limited primarily engages in the manufacturing and sale of precision metal parts, widely used in automotive, hydraulic equipment, hard disk drives (HDD), electronics, and other instruments, serving top-tier multinational clients - The company is an investment holding company, with its subsidiaries primarily engaged in the manufacturing and sale of precision metal parts[27] - The Group manufactures precision metal parts and assembled parts for automotive components, hydraulic equipment, hard disk drives (HDD), electronics, and other instruments[27] - Clients are mainly top-tier multinational enterprises in the information technology, hydraulic power, automotive, and electrical appliance industries, demanding extremely high precision for metal parts[27] Company Milestones Development History Since commencing precision parts business in Singapore in 1990, the Group has expanded to Thailand, Hong Kong, and mainland China, listed on the Hong Kong Stock Exchange Main Board in 2004, and achieved recent milestones in the robotics industry, high-tech enterprise certification, and university-industry collaboration - Precision parts business commenced in Singapore in 1990, followed by operations in Thailand (1997), Guangdong Province, China (1994, 2002, 2011), and Hong Kong (1994)[30] - Listed on the Main Board of The Stock Exchange of Hong Kong Limited on November 1, 2004[30] - Recent key milestones include: appointed as a council member of the China Robot Industry Alliance in 2019, signed a strategic cooperation agreement with Zhejiang University South China Industrial Technology Research Institute in 2018, established a joint postgraduate training base with Tsinghua University Shenzhen Graduate School in 2017, and successfully developed proprietary robotic arms in 2015[30] Group Structure Principal Subsidiaries and Associates As of June 30, 2020, International Precision Group's structure reveals numerous wholly-owned or controlled subsidiaries and associates globally, primarily in China, Hong Kong, Thailand, and the British Virgin Islands, with operations spanning manufacturing, sales offices, investment holding, and technology development - The Group owns manufacturing and sales offices in China, including Dongguan Keda, Jiangsu Keda, Guangzhou Xinhao Precision Technology, and Integrated Precision Engineering (Thailand) Company Limited[33] - Investment holding companies include International Precision Engineering Limited (Hong Kong), Anglo Dynamic Limited (British Virgin Islands), and Shenzhen Zhizao Investment Co., Ltd. and Shenzhen Intelligent Manufacturing Technology Co., Ltd. in China[33] - The Group is also involved in surface treatment (Kaige Surface Treatment (Taicang) Co., Ltd., Zhenjiang Huishi Surface Treatment Co., Ltd.) and robot manufacturing (International Precision Robot Manufacturing Co., Ltd., Jiangsu Kezhi Robot Manufacturing Co., Ltd.)[36] Financial Highlights Ratio Analysis As of June 30, 2020, the company maintained a high current ratio, saw an increase in net cash to equity ratio, but experienced significant declines in both gross and net profit margins, alongside an increase in average trade receivables and inventory turnover days Key Statistics (2015-H1 2020) | Indicator | June 30, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Current Ratio | 7.23 | 7.93 | 2.59 | 3.30 | 3.48 | 2.02 | | Net Cash to Equity Ratio | 0.38 | 0.34 | 0.24 | 0.24 | 0.29 | 0.15 | | Dividend Payout Ratio | Not Applicable | 13.1% | 11.2% | 34.9% | 43.0% | 40.6% | | Gross Profit Margin | 20.7% | 22.3% | 30.8% | 34.4% | 30.8% | 27.9% | | Net Profit Margin | 0.6% | 5.1% | 9.0% | 12.2% | 12.9% | 9.8% | | Average Trade Receivables Turnover Days | 114 days | 110 days | 103 days | 94 days | 93 days | 101 days | | Average Inventory Turnover Days | 164 days | 153 days | 143 days | 122 days | 126 days | 135 days | | Net Asset Value Per Share (HKD) | 1.57 | 1.63 | 1.61 | 1.62 | 1.42 | 1.55 | | Cash Per Share (HKD) | 0.81 | 0.81 | 0.80 | 0.87 | 0.91 | 0.75 | Business Segments and Geographical Classification In the first half of 2020, automotive parts remained the primary revenue source, though with a slight decrease in proportion, while HDD parts sales increased; geographically, sales in China, Macau, and Hong Kong accounted for the largest share, with North America and Europe seeing reduced contributions Business Segment Revenue (HKD Thousands) | Business Segment | H1 2020 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | | Automotive | 180,773 | 220,862 | 239,735 | | Hydraulic | 88,833 | 118,329 | 130,523 | | HDD | 49,439 | 46,930 | 49,394 | | Other | 19,241 | 17,710 | 18,340 | Geographical Classification Ratio | Region | H1 2020 | H1 2019 | | :--- | :--- | :--- | | China, Macau & Hong Kong | 44% | 37% | | North America | 19% | 23% | | Europe | 12% | 9% | | Thailand | 20% | 25% | | Malaysia | 3% | 3% | | Other | 2% | 3% | Cash and Equity Position As of June 2020, the company maintained a high level of cash and cash equivalents, but total debt increased, and total equity slightly decreased - As of June 2020, cash and cash equivalents were HKD 855,569 thousand, total debt was HKD 231,448 thousand, and equity was HKD 1,654,142 thousand[46][74][75] Management Discussion and Analysis Business Review In the first half of 2020, the Group experienced significant declines in sales and profit due to the COVID-19 pandemic and US-China trade tensions, particularly impacting European and American markets; the Group actively responded by developing domestic clients, entering the high-end hydraulic parts market, strengthening financial control, promoting automated production, and fostering talent - The COVID-19 pandemic led to overseas client factory closures, order cancellations or postponements, resulting in a significant decline in the Group's sales and profit[48] Business Segment Sales Change for H1 2020 | Business Segment | H1 2020 (HKD Thousands) | H1 2019 (HKD Thousands) | Change % | | :--- | :--- | :--- | :--- | | Automotive Parts | 180,773 | 220,862 | -18.2 | | Hydraulic Equipment Parts | 88,833 | 118,329 | -24.9 | | HDD Parts | 49,439 | 46,930 | +5.3 | | Other | 19,241 | 17,710 | +8.6 | | Total | 338,286 | 403,831 | -16.2 | - The Group actively developed domestic clients and entered the high-end, high-precision hydraulic parts market to reduce reliance on overseas client orders[49] - Facing the pandemic, the Group adopted prudent financial operations, strengthened monitoring of trade receivables and inventory, optimized supplier resources, and utilized idle funds to increase deposit income[52] - After the domestic pandemic eased, the Group improved existing equipment, promoted automated production, refined environmental management systems, and officially launched the IPE Engineer Academy to strengthen talent development and intellectual property protection[52][53] Financial Review In the first half of 2020, the Group's sales decreased by 16.2% year-on-year, gross profit by 19.3%, and gross profit margin by 0.8 percentage points; net profit significantly declined by 86.1% due to lower sales, high fixed costs, increased share-based payment expenses, and pandemic-related shutdown costs, though other income (bank interest, exchange gains) rose and finance costs decreased due to reduced loan amounts Key Financial Data for H1 2020 | Indicator | H1 2020 (HKD Thousands) | H1 2019 (HKD Thousands) | Change (HKD Thousands) | Change % | | :--- | :--- | :--- | :--- | :--- | | Sales | 338,286 | 403,831 | (65,545) | -16.2 | | Gross Profit | 70,029 | 86,743 | (16,714) | -19.3 | | Gross Profit Margin | 20.7% | 21.5% | -0.8% | - | | Other Income | 16,434 | 8,810 | 7,624 | +86.5 | | Distribution Costs | 9,727 | 7,125 | 2,602 | +36.5 | | Administrative and Other Expenses | 67,021 | 62,563 | 4,458 | +7.1 | | Finance Costs | 4,387 | 8,032 | (3,645) | -45.4 | | Profit for the Period | 2,186 | 15,724 | (13,538) | -86.1 | - The increase in other income was primarily due to an increase of HKD 2,955 thousand in bank interest income and HKD 5,516 thousand in exchange gains from USD appreciation[56] - The increase in administrative expenses was mainly due to HKD 3,109 thousand in share-based payment expenses for share options granted and HKD 4,805 thousand in expenses incurred from production base shutdowns during the pandemic in mainland China[57] - Finance costs decreased by 45.4%, primarily due to a reduction in overall loan amounts and lower bank borrowing interest rates[57] Liquidity, Financial Resources and Financial Ratios In the first half of 2020, the Group maintained stable net cash inflow from operating activities but saw increased net cash outflow from investing activities; net cash outflow from financing activities significantly decreased due to bank loan repayments, resulting in an increase in net cash and cash equivalents at period-end and an improved net cash position - As of June 30, 2020, cash attributable per share was HKD 0.81, consistent with the end of last year; net asset value per share was HKD 1.57, a 3.7% year-on-year decrease[61] - Net cash inflow from operating activities was HKD 111,422 thousand, largely stable compared to the same period last year, mainly due to cost control, procurement supervision, and accelerated collection of receivables[61] - Net cash outflow from investing activities was HKD 17,012 thousand, an increase of HKD 10,996 thousand from the same period last year, reflecting increased capital expenditure[61] - Net cash outflow from financing activities was HKD 27,565 thousand, primarily used for repaying existing bank loans, a significant decrease from the same period last year[62] - Net increase in cash and cash equivalents at period-end was HKD 66,845 thousand, and net cash (cash and bank balances less total bank borrowings) increased by HKD 35,494 thousand to HKD 624,121 thousand[62] Currency Risk and Management The Group faces foreign currency exchange rate fluctuation risks, with primary revenue denominated in USD and most expenses in JPY, RMB, THB, and HKD, making RMB fluctuations particularly impactful on profitability - The Group's revenue is primarily denominated in USD, while major expenses (raw materials, machinery costs, production expenses) are denominated in JPY, RMB, THB, and HKD[63] - Exchange rate fluctuations, particularly in RMB, may negatively impact the Group's profitability[63] Human Resources The Group is committed to talent development, launching the IPE Engineer Lecture Series, deepening university-industry collaboration, and enhancing employee benefits; as of June 30, 2020, the Group had 2,181 employees, a 3.8% decrease from the prior year - Launched the IPE Engineer Lecture Series, cultivating high-quality, professional, and managerial industry elites through lectures, practical training, and engineer forums[65] - Deepened university-industry collaboration, establishing partnerships with Guangzhou Electromechanical Technician College and Xinhua College of Sun Yat-sen University, and recruiting master's and bachelor's fresh graduates from target universities nationwide[65] - Enhanced employee benefits, adjusting salaries for technicians and engineers, and modifying working hours to implement humanized management[65] - As of June 30, 2020, the Group had 2,181 employees, a decrease of 86 employees or 3.8% from the same period last year[66] Outlook For the second half, the Group will continue its 'promote transformation, prevent risks, improve efficiency' strategy, focusing on cost reduction, efficiency, and quality; facing global economic downturn and recurring pandemic challenges, the Group will actively expand into new markets, clients, and products, accelerate high-value hydraulic parts development, and strengthen inventory and cash management - The goal for the second half is to continue implementing the "promote transformation, prevent risks, improve efficiency" operational strategy, with "reduce costs, improve efficiency, enhance quality" as production principles[67] - Global economic downturn and the threat of a second wave of the pandemic are expected to continue impacting consumer confidence, leading to sustained market weakness[67] - The Group will continuously expand into new markets, clients, and products, explore new profit growth points, accelerate new project development, and enhance the supply capacity of high-tech, high-demand, and high-value hydraulic parts[68] - Continue to strengthen inventory control, optimize procurement resources, shorten procurement cycles, reduce costs and expenses, control financial risks, and improve return on capital[68] Condensed Consolidated Statement of Profit or Loss Profit or Loss Performance for H1 2020 For the six months ended June 30, 2020, the Group's revenue decreased by 16.2% year-on-year to HKD 338,286 thousand, gross profit declined by 19.3%, and profit for the period significantly fell by 86.1% to HKD 2,186 thousand, with basic and diluted earnings per share both at HKD 0.3 cents Condensed Consolidated Statement of Profit or Loss Summary (For the six months ended June 30) | Indicator | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Revenue | 338,286 | 403,831 | | Cost of Sales | (268,257) | (317,088) | | Gross Profit | 70,029 | 86,743 | | Other Income | 16,434 | 8,810 | | Distribution Costs | (9,727) | (7,125) | | Administrative and Other Expenses | (67,021) | (62,563) | | Operating Profit | 9,715 | 25,865 | | Finance Costs | (4,387) | (8,032) | | Share of Loss of an Associate | (1,806) | (762) | | Profit Before Tax | 3,522 | 17,071 | | Income Tax | (1,336) | (1,347) | | Profit for the Period | 2,186 | 15,724 | | Profit Attributable to Equity Holders of the Company | 2,645 | 15,870 | | Non-controlling Interests | (459) | (146) | | Earnings Per Share (Basic) | 0.3 HKD cents | 1.5 HKD cents | | Earnings Per Share (Diluted) | 0.3 HKD cents | 1.5 HKD cents | Condensed Consolidated Statement of Comprehensive Income Comprehensive Income Performance for H1 2020 For the six months ended June 30, 2020, the Group's total comprehensive income for the period was negative HKD 59,703 thousand, primarily due to exchange differences on translating foreign operations of negative HKD 61,889 thousand, a stark contrast to the positive HKD 20,526 thousand in the prior year Condensed Consolidated Statement of Comprehensive Income Summary (For the six months ended June 30) | Indicator | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Profit for the Period | 2,186 | 15,724 | | Other Comprehensive Income: Exchange Differences on Translating Foreign Operations | (61,889) | 4,802 | | Total Comprehensive Income for the Period | (59,703) | 20,526 | | Attributable to Equity Holders of the Company | (59,241) | 20,668 | | Non-controlling Interests | (462) | (142) | - Exchange differences on translating foreign operations turned from a positive HKD 4,802 thousand in the prior year to a negative HKD 61,889 thousand, which is the main reason for the significant decrease in total comprehensive income[73] Condensed Consolidated Statement of Financial Position Financial Position for H1 2020 As of June 30, 2020, the Group's total assets less current liabilities amounted to HKD 1,845,035 thousand, with net assets of HKD 1,654,142 thousand; both non-current and current assets decreased, while current liabilities slightly increased and non-current liabilities decreased Condensed Consolidated Statement of Financial Position Summary (As of June 30) | Indicator | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Non-current Assets | | | | Property, Plant and Equipment | 605,820 | 648,445 | | Total Non-current Assets | 697,246 | 742,356 | | Current Assets | | | | Inventories | 238,162 | 243,480 | | Trade Receivables | 192,376 | 229,249 | | Cash and Bank Balances | 855,569 | 847,093 | | Total Current Assets | 1,331,881 | 1,364,196 | | Current Liabilities | | | | Bank Loans | 53,668 | 53,769 | | Total Current Liabilities | 184,092 | 171,935 | | Net Current Assets | 1,147,789 | 1,192,261 | | Non-current Liabilities | | | | Bank Loans | 177,780 | 204,697 | | Total Non-current Liabilities | 190,893 | 218,620 | | Net Assets | 1,654,142 | 1,715,997 | | Total Equity | 1,654,142 | 1,715,997 | - Net book value of property, plant and equipment decreased from HKD 648,445 thousand at the end of 2019 to HKD 605,820 thousand as of June 30, 2020[74] - Trade receivables decreased from HKD 229,249 thousand at the end of 2019 to HKD 192,376 thousand, reflecting an improvement in receivables collection[74] Condensed Consolidated Statement of Cash Flows Cash Flows for H1 2020 For the six months ended June 30, 2020, the Group maintained stable net cash generated from operating activities, experienced increased net cash outflow from investing activities, and significantly reduced net cash outflow from financing activities, leading to an increase in net cash and cash equivalents at period-end Condensed Consolidated Statement of Cash Flows Summary (For the six months ended June 30) | Indicator | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Net Cash Generated from Operating Activities | 111,422 | 111,754 | | Net Cash Used in Investing Activities | (17,012) | (6,016) | | Net Cash Used in Financing Activities | (27,565) | (159,044) | | Net Increase/(Decrease) in Cash and Cash Equivalents | 66,845 | (53,306) | | Cash and Cash Equivalents at End of Period | 855,569 | 790,899 | - Net cash used in investing activities increased from HKD 6,016 thousand in the same period of 2019 to HKD 17,012 thousand, primarily due to increased purchases of property, plant and equipment[76] - Net cash used in financing activities significantly decreased from HKD 159,044 thousand in the same period of 2019 to HKD 27,565 thousand, mainly due to reduced repayment of bank loans[76] Condensed Consolidated Statement of Changes in Equity Changes in Equity for H1 2020 For the six months ended June 30, 2020, the Group's total equity decreased from HKD 1,715,997 thousand at the beginning of the period to HKD 1,654,142 thousand, primarily due to negative total comprehensive income for the period (affected by exchange fluctuation reserve) and declared dividends, though share-based payment arrangements increased equity Condensed Consolidated Statement of Changes in Equity Summary (For the six months ended June 30) | Indicator | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Total Equity at Beginning of Period | 1,715,997 | 1,692,865 | | Profit for the Period | 2,186 | 15,724 | | Exchange Differences on Translating Foreign Operations | (61,889) | 4,802 | | Total Comprehensive Income for the Period | (59,703) | 20,526 | | Final Dividend Declared for 2019 | (5,261) | - | | Share-based Payment Arrangements | 3,109 | - | | Total Equity at End of Period | 1,654,142 | 1,713,391 | - Exchange fluctuation reserve significantly decreased from HKD 80,100 thousand at the beginning of the period to HKD 18,214 thousand at the end of the period, reflecting the negative impact of foreign currency exchange rate changes on equity[77] - Share-based payment arrangements resulted in an expense of HKD 3,109 thousand, increasing the share option reserve[77] Notes to the Condensed Consolidated Financial Statements 1. Company Information This note reiterates the company's incorporation in the Cayman Islands, its listing on the Hong Kong Stock Exchange Main Board, and its principal business of manufacturing and selling precision metal parts - The company was incorporated in the Cayman Islands on July 10, 2002, and listed on the Main Board of The Stock Exchange of Hong Kong Limited on November 1, 2004[79] - The Group's principal business is the manufacturing and sale of precision metal parts for automotive components, hydraulic equipment parts, hard disk drives (HDD), and other purposes[79] 2. Basis of Preparation The condensed consolidated financial statements are prepared in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the HKICPA and the disclosure requirements of Appendix 16 of the Listing Rules, using the historical cost convention and presented in Hong Kong Dollars - The financial statements are prepared in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited[80] - The financial statements are prepared on the historical cost basis, except for derivative financial instruments which are measured at fair value, and are presented in Hong Kong Dollars[80] 3. Principal Accounting Policies During this interim period, the Group first adopted amendments to the Conceptual Framework for Financial Reporting and amendments to Hong Kong Financial Reporting Standards, including 'Definition of Material' and 'Definition of a Business,' which had no significant impact on the current period's financial position and performance - During this interim period, the Group first adopted amendments to Hong Kong Accounting Standard 1 and Hong Kong Accounting Standard 8 (Amendments) "Definition of Material" and Hong Kong Financial Reporting Standard 3 (Amendments) "Definition of a Business," among other amendments[81] - The "Definition of Material" amendments provide a new definition for materiality, emphasizing the impact of information on the decisions of primary users of financial statements[82] - The "Definition of a Business" amendments introduce an optional concentration test to simplify the assessment of whether acquired activities and assets constitute a business[84] - These amendments had no significant impact on the Group's condensed consolidated financial statements[81][85] 4. Operating Segment Information The Group's operations are categorized into six reportable segments based on customer location: Thailand, Malaysia, Mainland China/Macau/Hong Kong, North America, Europe, and other countries; in the first half of 2020, Mainland China/Macau/Hong Kong was the largest revenue source, but both revenue and gross profit significantly decreased in North America and Europe - The Group manages its business by customer location, categorizing operations into six reportable segments: Thailand, Malaysia, Mainland China/Macau/Hong Kong, North America, Europe, and other countries[87][88] Reportable Segment Revenue and Gross Profit (For the six months ended June 30) | Region | 2020 Revenue (HKD Thousands) | 2020 Gross Profit (HKD Thousands) | 2019 Revenue (HKD Thousands) | 2019 Gross Profit (HKD Thousands) | | :--- | :--- | :--- | :--- | :--- | | Thailand | 14,472 | 1,857 | 12,615 | 2,449 | | Malaysia | 40,469 | 8,378 | 35,528 | 7,631 | | Mainland China, Macau & Hong Kong | 149,497 | 30,947 | 148,948 | 31,995 | | North America | 63,963 | 13,241 | 94,386 | 20,274 | | Europe | 67,484 | 13,970 | 101,961 | 21,901 | | Other Countries | 7,903 | 1,636 | 11,606 | 2,493 | | Total | 343,788 | 70,029 | 405,044 | 86,743 | - Revenue in North America and Europe decreased by 32.2% and 33.8% year-on-year, respectively, with corresponding reductions in gross profit[91] 5. Revenue and Other Income and Gains In the first half of 2020, the Group's total revenue was HKD 338,286 thousand, with automotive parts remaining the largest contributor; other income and gains significantly increased, primarily driven by higher bank interest income and net exchange differences Revenue and Other Income and Gains Analysis (For the six months ended June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Revenue | | | | Sales of Automotive Parts | 180,773 | 220,862 | | Sales of Hydraulic Equipment Parts | 88,833 | 118,329 | | Sales of HDD Parts | 49,439 | 46,930 | | Other | 19,241 | 17,710 | | Total Revenue | 338,286 | 403,831 | | Other Income | | | | Bank Interest Income | 6,935 | 3,980 | | Government Grants | 120 | 1,708 | | Reversal of Impairment Loss on Trade and Other Receivables | 257 | 2,123 | | Other | 1,715 | 894 | | Gains | | | | Gain on Disposal of Property, Plant and Equipment | 522 | 105 | | Gain on Disposal of Financial Assets | 1,369 | - | | Net Exchange Differences | 5,516 | - | | Total Other Income and Gains | 16,434 | 8,810 | - Bank interest income increased from HKD 3,980 thousand in 2019 to HKD 6,935 thousand in 2020[93] - A net exchange difference gain of HKD 5,516 thousand was recorded in the first half of 2020, with no such gain in the same period of 2019[93] 6. Finance Costs In the first half of 2020, the Group's finance costs significantly decreased by 45.4% year-on-year to HKD 4,387 thousand, primarily due to reduced interest on bank loans Finance Costs Analysis (For the six months ended June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Interest on Bank Loans | 3,496 | 6,937 | | Arrangement Fees | 853 | 1,069 | | Interest on Lease Liabilities | 38 | 26 | | Total Finance Costs | 4,387 | 8,032 | - Interest on bank loans decreased from HKD 6,937 thousand in the same period of 2019 to HKD 3,496 thousand in 2020[94] 7. Profit Before Tax In the first half of 2020, the Group's profit before tax was HKD 3,522 thousand, a significant decrease from the prior year, primarily influenced by cost of inventories sold, depreciation, share-based payment expenses, and net exchange differences Profit Before Tax Deductions/(Additions) (For the six months ended June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Cost of Inventories Sold | 268,257 | 317,088 | | Depreciation of Property, Plant and Equipment | 56,799 | 53,061 | | Depreciation of Right-of-use Assets | 1,234 | 1,494 | | Share-based Payment Expenses | 3,109 | - | | Auditor's Remuneration | 1,266 | 1,445 | | Net Exchange Differences | (5,516) | 3,276 | | Gain on Disposal of Property, Plant and Equipment | (522) | (105) | | Provision for Obsolete Inventories | - | 85 | | Reversal of Impairment Loss on Trade and Other Receivables | 257 | 2,123 | - New share-based payment expenses of HKD 3,109 thousand were incurred in the first half of 2020[95] - Net exchange differences turned from a loss of HKD 3,276 thousand in the same period of 2019 to a gain of HKD 5,516 thousand in the same period of 2020[95] 8. Income Tax In the first half of 2020, the Group's income tax expense was HKD 1,336 thousand, largely consistent with the prior year, calculated primarily at Hong Kong profits tax rate of 16.5% and prevailing rates in other operating regions Income Tax Analysis (For the six months ended June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Current | 1,336 | 1,347 | | Deferred | - | - | | Total Tax Expense for the Period | 1,336 | 1,347 | - Hong Kong profits tax is provided at a rate of 16.5%, and other regions are calculated at their respective prevailing tax rates[96] 9. Earnings Per Share For the six months ended June 30, 2020, the Group's basic and diluted earnings per share were both HKD 0.3 cents, a significant decrease from HKD 1.5 cents in the prior year, primarily due to reduced profit attributable to equity holders of the company Earnings Per Share Calculation (For the six months ended June 30) | Indicator | 2020 (HKD Thousands/Thousand Shares) | 2019 (HKD Thousands/Thousand Shares) | | :--- | :--- | :--- | | Profit Attributable to Equity Holders of the Company for Basic EPS Calculation | 2,645 | 15,870 | | Weighted Average Number of Ordinary Shares in Issue for Basic EPS Calculation | 1,052,254 | 1,052,254 | | Basic Earnings Per Share | 0.3 HKD cents | 1.5 HKD cents | | Diluted Earnings Per Share | 0.3 HKD cents | 1.5 HKD cents | 10. Property, Plant and Equipment As of June 30, 2020, the Group's net book value of property, plant and equipment was HKD 605,820 thousand, a decrease from the beginning of the period, with additions of HKD 19,954 thousand, disposals of HKD 34,572 thousand, and impact from exchange adjustments - As of June 30, 2020, the net book value of property, plant and equipment was HKD 605,820 thousand[100] - Additions during the period amounted to HKD 19,954 thousand, disposals to HKD 34,572 thousand, and exchange adjustments resulted in a cost reduction of HKD 55,616 thousand[100] - Depreciation provision for the period was HKD 56,799 thousand[100] 11. Inventories As of June 30, 2020, the Group's total inventories amounted to HKD 238,162 thousand, a slight decrease from the end of 2019, with finished goods and raw materials being the main components Inventory Composition (As of June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Raw Materials | 64,158 | 64,476 | | Consumables | 46,264 | 48,131 | | Work-in-progress | 64,729 | 64,002 | | Finished Goods | 112,415 | 125,945 | | Less: Provision for Obsolete Inventories | (49,404) | (59,074) | | Total Inventories | 238,162 | 243,480 | - Provision for obsolete inventories decreased from HKD 59,074 thousand at the end of 2019 to HKD 49,404 thousand as of June 30, 2020[101] 12. Trade Receivables As of June 30, 2020, the Group's net trade receivables were HKD 192,376 thousand, a decrease from the end of 2019; credit terms generally range from 60 to 120 days, and the Group maintains strict control over overdue balances Trade Receivables Ageing Analysis (As of June 30) | Ageing | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Within 1 month | 63,569 | 90,894 | | 1 to 2 months | 50,126 | 59,098 | | 2 to 3 months | 43,114 | 41,868 | | 3 to 4 months | 28,192 | 24,531 | | 4 to 12 months | 7,645 | 13,216 | | Over 1 year | 298 | 467 | | Less: Impairment | (568) | (825) | | Total Trade Receivables | 192,376 | 229,249 | - Impairment provision for trade receivables decreased from HKD 825 thousand at the end of 2019 to HKD 568 thousand as of June 30, 2020[103] 13. Cash and Bank Balances As of June 30, 2020, the Group's cash and bank balances were HKD 855,569 thousand, a slight increase from the end of 2019, with unpledged time deposits accounting for HKD 141,549 thousand Cash and Bank Balances Analysis (As of June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Cash and Bank Balances | 714,020 | 602,607 | | Unpledged Time Deposits with Original Maturity within Three Months at Acquisition | 141,549 | 244,486 | | Cash and Cash Equivalents | 855,569 | 847,093 | 14. Trade Payables As of December 31, 2019, the Group's total trade payables amounted to HKD 65,848 thousand, primarily comprising amounts due within one month, generally repayable within 30 to 90 days Trade Payables Ageing Analysis (As of December 31, 2019) | Ageing | Amount (HKD Thousands) | | :--- | :--- | | Within 1 month | 38,402 | | 1 to 2 months | 14,142 | | 2 to 3 months | 12,498 | | Over 3 months | 806 | | Total Trade Payables | 65,848 | - Trade payables are non-interest bearing and generally repayable within 30 to 90 days[105] 15. Share Capital As of June 30, 2020, the company's authorized share capital was HKD 200,000 thousand, with issued and fully paid share capital of HKD 105,225 thousand, remaining unchanged during the period Share Capital Composition (As of June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Authorized Share Capital (2,000,000,000 shares of HKD 0.1 each) | 200,000 | 200,000 | | Issued and Fully Paid Share Capital (1,052,254,135 shares of HKD 0.1 each) | 105,225 | 105,225 | - There was no change in the issued and fully paid share capital for the six months ended June 30, 2020, and for the year ended December 31, 2019[106] 16. Bank Loans As of June 30, 2020, the Group's total bank loans were HKD 231,448 thousand, a decrease from the end of 2019; all loans are unsecured and guaranteed by the company and certain subsidiaries, with the Group complying with all financial covenants Bank Loan Repayment Terms (As of June 30) | Term | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Within 1 year or on demand | 53,668 | 53,769 | | After 1 year but within 2 years | 177,780 | 204,697 | | Total Bank Loans | 231,448 | 258,466 | - All bank loans are unsecured and guaranteed by the company and certain of its subsidiaries[107] - As of June 30, 2020, the Group had not breached any covenants related to drawing down financing[107] 17. Commitments As of June 30, 2020, the Group's total contracted but unprovided capital commitments amounted to HKD 4,191 thousand, primarily for buildings, plant, and machinery Capital Commitments (As of June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Buildings | 857 | 992 | | Plant and Machinery | 3,334 | 2,915 | | Total | 4,191 | 3,907 | 18. Related Party Transactions In the first half of 2020, the Group's total remuneration paid to key management personnel was HKD 6,735 thousand, a decrease from the prior year, but with new share-based payment expenses for share options Total Remuneration Paid to Key Management Personnel (For the six months ended June 30) | Item | 2020 (HKD Thousands) | 2019 (HKD Thousands) | | :--- | :--- | :--- | | Short-term Employee Benefits | 4,180 | 6,967 | | Share-based Payment Expenses | 2,519 | - | | Post-employment Benefits | 36 | 30 | | Long Service Payments | - | 390 | | Total Remuneration | 6,735 | 7,387 | - New share-based payment expenses of HKD 2,519 thousand were incurred in the first half of 2020[109] 19. Approval of Financial Statements The condensed financial statements were approved and authorized for issue by the Board of Directors on August 24, 2020 - The condensed financial statements were approved and authorized for issue by the Board of Directors on August 24, 2020[110] Other Information Directors' and Chief Executive's Interests and Short Positions in Shares and Underlying Shares As of June 30, 2020, several directors held share options in the company, with Mr. Zeng Guang Sheng holding 42,000,000 options; additionally, Mr. Zeng Guang Sheng and Ms. Zeng Jing held ordinary shares in China Baoan Group, the company's controlling shareholder Directors' Long Positions in Underlying Shares of the Company (Share Options) | Director Name | Number of Underlying Shares Involved in Share Options Granted | Percentage of Company's Issued Share Capital | | :--- | :--- | :--- | | Mr. Zeng Guang Sheng | 42,000,000 | 3.99% | | Mr. Wu Kai Ping | 20,000,000 | 1.90% | | Ms. Zeng Jing | 13,000,000 | 1.24% | | Mr. Chen Kuang Guo | 5,000,000 | 0.48% | Directors' Long Positions in Ordinary Shares of Associated Corporations (China Baoan Group) | Director Name | Number of Ordinary Shares in China Baoan Group | Percentage of China Baoan Group's Issued Share Capital | | :--- | :--- | :--- | | Mr. Zeng Guang Sheng | 672,906 | 0.03% | | Ms. Zeng Jing | 10,222,583 | 0.40% | Substantial Shareholders' and Other Persons' Interests and Short Positions in Shares and Underlying Shares As of June 30, 2020, Baoan Technology Co., Ltd. (wholly-owned by China Baoan Group) was the company's largest shareholder, holding 53.63% of shares; Tottenhill Limited and its associates, Mr. Cui Shaoan and Ms. Liang Yongyi, collectively held 17.36% of shares Substantial Shareholders' Long Positions in Ordinary Shares of the Company (As of June 30, 2020) | Name of Substantial Shareholder | Number of Ordinary Shares in the Company | Percentage of Company's Issued Share Capital | | :--- | :--- | :--- | | Baoan Technology Co., Ltd. | 564,321,250 | 53.63% | | China Baoan Group Co., Ltd. | 564,321,250 | 53.63% | | Tottenhill Limited | 167,966,975 | 15.96% | | Mr. Cui Shaoan (Total) | 182,668,225 | 17.36% | | Ms. Liang Yongyi (Total) | 182,668,225 | 17.36% | - Baoan Technology Co., Ltd. is wholly-owned by China Baoan Group Co., Ltd., thus China Baoan Group Co., Ltd. is deemed to have the same share interest[116] - Mr. Cui Shaoan holds shares through Tottenhill Limited, which he wholly owns, and through his spouse, Ms. Liang Yongyi[116] Share Option Scheme The company has a share option scheme to reward contributors; as of June 30, 2020, a total of 94,300,000 share options remained unexercised, with 54,300,000 granted on April 3, 2020, at an exercise price of HKD 0.9 per share - The share option scheme aims to provide incentives and rewards to eligible participants who have contributed to the Group's business[119] Changes in Outstanding Share Options During the Period (As of June 30, 2020) | Participant | As of Jan 1, 2020 | Granted During Period | As of June 30, 2020 | Date of Grant | Exercise Price (HKD per share) | | :--- | :--- | :--- | :--- | :--- | :--- | | Directors (Subtotal) | 40,000,000 | 40,000,000 | 80,000,000 | 05/06/2017, 03/04/2020 | 2.0200, 0.9000 | | Employees Total | - | 12,300,000 | 12,300,000 | 03/04/2020 | 0.9000 | | One Supplier | - | 2,000,000 | 2,000,000 | 03/04/2020 | 0.9000 | | Total | 40,000,000 | 54,300,000 | 94,300,000 | | | - The fair value of share options granted on April 3, 2020, was approximately HKD 11,000,000, with an exercise price of HKD 0.9 per share[120] Purchase, Redemption or Sale of the Company's Listed Securities For the six months ended June 30, 2020, neither the company nor any of its subsidiaries purchased, redeemed, or sold any of the company's listed securities - For the six months ended June 30, 2020, neither the company nor any of its subsidiaries purchased, redeemed, or sold any of the company's listed securities[123] Interim Dividend The Board of Directors does not recommend the payment of any interim dividend for the six months ended June 30, 2020 - The Board of Directors does not recommend the payment of any interim dividend for the six months ended June 30, 2020 (for the six months ended June 30, 2019: nil)[124] Corporate Governance The company is committed to maintaining high standards of corporate governance and complies with the Corporate Governance Code in Appendix 14 of the Listing Rules, with the exception that Mr. Zeng Guang Sheng holds both Chairman and Chief Executive Officer roles, an arrangement the Board believes provides strong and consistent leadership for the Group - The company has complied with the code provisions of the Corporate Governance Code set out in Appendix 14 of the Listing Rules during the review period[125] - The roles of Chairman and Chief Executive Officer are held by Mr. Zeng Guang Sheng, an arrangement the Board believes is beneficial to the company's shareholders as a whole, providing strong and consistent leadership[125] Audit Committee The company's Audit Committee, composed of four independent non-executive directors, is responsible for reviewing accounting principles, risk management, internal controls, and financial reporting procedures, and has reviewed the interim results - The Audit Committee comprises four independent non-executive directors: Mr. Yang Ru Sheng (Chairman), Mr. Zhang Zhen Yu, Mr. Mei Wai Yick, and Mr. Xu Bing[126] - The Committee has reviewed the accounting principles and practices adopted by the Group, discussed matters related to risk management, internal controls, and financial reporting procedures, and will review the Group's interim results for the six months ended June 30, 2020[126] Model Code The company has adopted a code of conduct for directors' securities transactions no less exacting than the Model Code set out in Appendix 10 of the Listing Rules, and confirms that directors have complied with this code - The company has adopted its own code of conduct for directors' securities transactions, the terms of which are no less exacting than the Model Code set out in Appendix 10 of the Listing Rules[127] - Following specific enquiries made to all directors, they all confirmed that they have complied with their own code and the Model Code[127] Compliance with Written Guidelines for Securities Transactions by Relevant Employees The company has established written guidelines for securities transactions by employees who may possess inside information, and confirms no instances of non-compliance by relevant employees during the period - The company has established written guidelines for securities transactions by employees who may possess inside information regarding the company or its securities, with terms no less exacting than the Model Code set out in Appendix 10 of the Listing Rules[128] - For the six months ended June 30, 2020, the company was not aware of any instances of non-compliance with the written guidelines by relevant employees[128] Update on Directors' Information under Rule 13.51B(1) of the Listing Rules This note updates the latest appointments of Independent Non-executive Director Mr. Mei Wai Yick, including his resignation as CEO and Executive Committee member of China Shandong Hi-Speed Financial Group Limited, and his appointment as Deputy CEO of China Life Franklin Asset Management Company Limited - Independent Non-executive Director Mr. Mei Wai Yick resigned as Chief Executive Officer and Executive Committee member of China Shandong Hi-Speed Financial Group Limited on January 14, 2020[130] - Effective July 2020, Mr. Mei was appointed as Deputy Chief Executive Officer of China Life Franklin Asset Management Company Limited[130] General Disclosure Made under Rule 13.21 of the Listing Rules The Group disclosed a HKD 275 million term loan facility agreement containing specific performance covenants related to its controlling shareholder, China Baoan Group, requiring it to remain the single largest ultimate beneficial owner and hold no less than 50.1% equity interest or control, non-compliance of which could constitute an event of default - The Group entered into a HKD 275,000,000 term loan facility agreement for refinancing and general corporate purposes; as of June 30, 2020, the outstanding loan facility was HKD 234,000,000[131] - The facility agreement stipulates that if the company fails to ensure that China Baoan Group Co., Ltd. (1) remains the single largest ultimate beneficial owner of the company; (2) directly or indirectly beneficially holds no less than 50.1% equity interest in the company; or (3) controls the company, it may constitute an event of default[132] Acknowledgement The Board of Directors expresses gratitude for the continuous support from shareholders and the contributions of all directors and staff to the Group - The Board of Directors expresses gratitude for the continuous support from shareholders and the contributions of all directors and staff to the Group[133]