国际精密(00929) - 2021 - 中期财报

Company Information Company Information Overview This section outlines the company's board composition, committee structures, registered office, key operating locations, principal bankers, auditor, and stock exchange listing details - The Board of Directors comprises executive, non-executive, and independent non-executive directors, supported by audit, remuneration, nomination, and environmental, social, and governance committees[7] - The company's registered office is in the Cayman Islands, with primary operating locations in Hong Kong, Guangzhou, China, and Thailand[9][10][11] - Principal bankers include Nanyang Commercial Bank Limited and The Hongkong and Shanghai Banking Corporation Limited, with KPMG as the auditor[12] - The company's shares, stock code 929, are listed on the Main Board of The Stock Exchange of Hong Kong Limited[12] Company Profile Company Profile and Business Overview International Precision Group Limited, established in 2002 as an investment holding company, primarily manufactures and sells high-precision metal and assembly parts for top-tier multinational corporations in the IT, hydraulic power, automotive, and electrical industries - International Precision Group Limited was incorporated in the Cayman Islands on July 10, 2002, as an investment holding company[14] - The Group primarily engages in the manufacturing and sale of precision metal parts for automotive, hydraulic, electronic, and other equipment[14] - Its clientele includes top-tier multinational corporations in the IT, hydraulic power, automotive, and electrical industries, demanding extremely high precision for metal parts[14] - The Group supplies precision parts according to customer specifications and offers solutions involving various metals, plastic parts, and electronic circuit development for global partners, possessing expertise in final assembly and testing equipment[14] Company Milestones Company Development History This section outlines the company's significant milestones since 1990, including subsidiary establishments, public listing, various industry certifications, university collaborations, proprietary robotic arm development, and numerous industry awards, demonstrating continuous growth in precision manufacturing and technological innovation - Commenced precision parts business in Singapore in 1990, subsequently establishing subsidiaries in Hong Kong, Guangdong Province, China (Dongguan Keda, Guangzhou Xinhao), and Thailand[30][31][32][33] - Listed on the Main Board of The Stock Exchange of Hong Kong Limited on November 1, 2004[29] - Successfully developed proprietary robotic arms in 2015, and in 2017-2018, signed strategic cooperation agreements with Tsinghua University Shenzhen Graduate School and Zhejiang University South China Institute of Industrial Technology to establish joint postgraduate training bases[23][24][25] - Multiple subsidiaries obtained IATF16949 and TS16949 automotive certifications, with Guangzhou Xinhao recognized as a high-tech enterprise and one of Guangdong's Top 500 Manufacturing Enterprises[17][23][24][28] - Appointed as a council member of the China Robot Industry Alliance in 2019 and nominated as a quality supplier by Schaeffler and Continental; in 2020, Guangzhou Xinhao received a long-service award from Bosch Rexroth (China) Co, Ltd[19][20][21][22] Group Structure Principal Subsidiaries and Associates This section illustrates the Group's principal subsidiary and associate structure as of June 30, 2021, encompassing investment holding, manufacturing, sales offices, and technology development across the Cayman Islands, British Virgin Islands, Hong Kong, Thailand, China, and Macau - The Group holds numerous investment holding companies, such as Anglo Dynamic Limited, Tai Situpa Group Limited, Keda Precision Engineering Limited, primarily located in the British Virgin Islands and Hong Kong[35][38][39] - Manufacturing and sales offices are spread across Thailand (Integrated Precision Engineering (Thailand) Company Limited), China (Guangzhou Xinhao Precision Technology Co, Ltd, Dongguan Keda Hardware Products Co, Ltd, Jiangsu Keda Precision Machinery Equipment Co, Ltd, etc), and Macau (IPE Macau Offshore Commercial Services Limited)[35][38] - The Group also maintains technology development offices, such as Shenzhen Xuetai Technology Co, Ltd, to support technological innovation[35] Financial Highlights Ratio Analysis This section presents key financial ratios as of June 30, 2021, and prior years, including current ratio, net cash to equity ratio, gross profit margin, net profit margin, and average days of receivables and inventory turnover, reflecting changes in liquidity, profitability, and operational efficiency Key Financial Ratios (As of June 30, 2021) | Indicator | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Current Ratio | 3.84 | 6.42 | | Net Cash to Equity Ratio | 0.34 | 0.38 | | Dividend Payout Ratio | Not Applicable | Not Applicable | | Gross Profit Margin | 25.0% | 23.0% | | Net Profit Margin | 6.2% | 4.0% | | Average Days of Receivables | 97 Days | 115 Days | | Average Days of Inventory Turnover | 116 Days | 138 Days | Per Share Data (HKD, As of June 30, 2021) | Indicator | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Net Asset Value Per Share | 1.84 | 1.79 | | Cash Per Share | 0.79 | 0.88 | Business Segment and Geographical Classification Ratios This section presents the company's sales breakdown by business segment and geography, along with the trend of net cash to equity ratio, reflecting contributions from different markets and product lines and changes in the company's financial leverage Sales by Business Segment (HKD thousands, First Half) | Business Segment | First Half 2021 | First Half 2020 | | :--- | :--- | :--- | | Automotive | 279,552 | 180,773 | | Hydraulic | 164,142 | 88,833 | | Electronic Equipment | 52,151 | 49,439 | | Other | 22,427 | 19,241 | | Total | 518,272 | 338,286 | Geographical Classification Ratios (First Half) | Region | First Half 2021 | First Half 2020 | | :--- | :--- | :--- | | China, Macau & Hong Kong | 44% | 49% | | Europe | 24% | 20% | | North America | 19% | 14% | | Malaysia | 9% | 12% | | Thailand | 3% | 3% | | Other | 1% | 2% | - The net cash to equity ratio was 0.34 as of June 30, 2021, consistent with December 2019, but lower than 0.38 in December 2020[40][43] Cash and Cash Equivalents, Total Debt, and Equity This section graphically illustrates the trends in cash and cash equivalents, total debt, and equity as of June 30, 2021, and prior years, reflecting changes in the company's asset structure and financial health Cash and Cash Equivalents, Total Debt, and Equity (HKD thousands) | Indicator | June 30, 2021 | December 31, 2020 | December 31, 2019 | December 31, 2018 | December 31, 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | 833,781 | 924,246 | 840,181 | 924,246 | 833,781 | | Total Debt | 177,613 | 204,631 | 436,775 | 504,504 | 258,466 | | Equity | 1,939,318 | 1,880,294 | 1,701,275 | 1,692,865 | 1,715,997 | - As of June 2021, cash and cash equivalents amounted to HKD 833,781 thousand, total debt was HKD 177,613 thousand, and equity stood at HKD 1,939,318 thousand[46] Management Discussion and Analysis Business Review In the first half of 2021, with global pandemic control and manufacturing recovery, the company's sales orders significantly rebounded, particularly in automotive and hydraulic businesses, which returned to pre-pandemic levels, while the company actively developed domestic hydraulic clients, strengthened its hydraulic business through acquisition, optimized operations, and introduced carbon neutrality solutions - In the first half of 2021, global manufacturing recovered, and overseas customer orders gradually resumed, with automotive and hydraulic customer order volumes returning to pre-pandemic levels[48] Sales and Changes by Business Type (HKD thousands, First Half 2021) | Business | First Half 2021 | First Half 2020 | Change % | | :--- | :--- | :--- | :--- | | Automotive Parts | 279,552 | 180,773 | +54.7 | | Hydraulic Equipment Parts | 164,142 | 88,833 | +84.8 | | Electronic Equipment Parts | 52,151 | 49,439 | +5.5 | | Other | 22,427 | 19,241 | +16.6 | | Total | 518,272 | 338,286 | +53.2 | - The company actively developed domestic hydraulic clients and completed the acquisition of Jiangsu Komei Hydraulic Control System Co, Ltd in May, a company engaged in load-sensing proportional multi-way directional valve business, highly synergistic with the company's hydraulic operations[48][52] - Continued to explore operational management potential, enhance management efficiency with a focus on lean production, and responded to government calls by introducing comprehensive carbon neutrality solutions and investing in photovoltaic new energy projects[49][52] Financial Review In the first half of 2021, the Group's sales significantly grew by 53.2% to HKD 518,272 thousand, with gross profit margin increasing to 25.0%, while other income rose due to government grants, and administrative and selling expenses increased due to environmental investments, employee incentives, talent acquisition, domestic surcharges, and exchange losses from RMB appreciation, leading to a decrease in finance costs and a significant increase in net profit to HKD 32,038 thousand - For the six months ended June 30, 2021, sales recorded HKD 518,272 thousand, a year-on-year increase of 53.2%[53] - Gross profit recorded HKD 129,675 thousand, with a gross profit margin of 25.0%, up 4.3% year-on-year[53] - Other income amounted to HKD 21,748 thousand, primarily due to increased government grants[54] - Administrative and other expenses increased by HKD 26,417 thousand, mainly due to domestic environmental investments, increased employee salaries and allowances, recruitment of professional talent, higher domestic surcharges, and exchange losses from RMB appreciation[54] - Finance costs decreased by HKD 1,449 thousand to HKD 2,938 thousand, primarily due to a reduction in overall loan amounts[56] - Unaudited net profit for the period was HKD 32,038 thousand, a year-on-year increase of HKD 29,852 thousand[56] Liquidity, Financial Resources, and Financial Ratios The Group's working capital primarily stems from its own cash flow and bank financing; despite increased sales, net cash inflow from operating activities decreased due to raw material purchases and credit sales, while net cash outflow from investing activities significantly rose, mainly for automated machinery and the acquisition of Jiangsu Komei, and net cash outflow from financing activities was primarily for bank loan repayments, resulting in an overall decrease in net cash - Cash attributable per share was HKD 0.79 (December 31, 2020: HKD 0.88), and net asset value per share was HKD 1.84 (December 31, 2020: HKD 1.79), representing a 2.8% increase[58] - Net cash inflow from operating activities was HKD 72,168 thousand, a year-on-year decrease of HKD 39,254 thousand, mainly due to raw material purchases and credit sales where some sales proceeds were not yet collected amidst increased sales orders[58] - Net cash outflow from investing activities was HKD 132,240 thousand, a year-on-year increase of HKD 115,228 thousand, primarily for purchasing automated machinery and equipment (HKD 51,822 thousand) and the acquisition of Jiangsu Komei (HKD 80,989 thousand)[59] - Net cash outflow from financing activities was HKD 14,631 thousand, including investor capital injection of HKD 13,183 thousand and bank loan repayments of HKD 27,018 thousand[61] - As of June 30, 2021, total bank borrowings were HKD 177,613 thousand, a year-on-year decrease of HKD 27,018 thousand[61] - Overall net cash (cash and bank balances less total bank borrowings) was HKD 658,687 thousand, a year-on-year decrease of HKD 64,600 thousand[61] Currency Risk and Management The Group faces foreign currency exchange rate fluctuation risks, particularly the impact of RMB volatility on profitability, as revenue is primarily settled in USD while most expenses are settled in JPY, RMB, THB, and HKD, which the company mitigates through forward foreign exchange contracts - The Group is exposed to foreign currency exchange rate fluctuation risks, with RMB volatility having a negative impact on profitability[62] - Revenue is primarily settled in USD, while most expenses are settled in JPY, RMB, THB, and HKD[62] - The company has entered into forward foreign exchange contracts to mitigate potential risks from currency exchange rate fluctuations[62] Human Resources The company actively recruits mid-to-high-end talent through various channels, establishes industry-academia partnerships, and implements measures to retain existing employees, including optimizing accommodation, increasing meal subsidies, and offering share option and retirement benefit schemes, with a total of 2,194 employees as of June 30, 2021 - Actively participates in campus recruitment, internal referrals, headhunting, and other channels to attract mid-to-high-end talent, and establishes industry-academia cooperation with relevant professional institutions[63] - Implements measures such as optimizing accommodation and comprehensively increasing employee meal subsidies to enhance employee loyalty and stabilize the talent pipeline[63] - Maintains a share option scheme to reward employees for their contributions and provides a Mandatory Provident Fund Scheme and local retirement benefit schemes for employees[63] - As of June 30, 2021, the Group had a total of 2,194 employees, an increase of 13 from the same period last year[63] Outlook The company will continue to implement its "increase revenue, reduce costs, improve quality, and upgrade" strategy, guided by "technological leadership, product innovation, and quality enhancement," to actively respond to market changes, focusing on new customer development, especially domestic hydraulic clients, improving order delivery rates, accelerating sample progress, and optimizing the procurement supply chain to achieve lean production and maintain industry leadership and sustained profitability - The company continues to implement its "increase revenue, reduce costs, improve quality, and upgrade" strategy, guided by the principles of "technological leadership, product innovation, and quality enhancement"[65] - Actively develops new customers, particularly domestic hydraulic clients, aiming to become a core supplier to leading domestic hydraulic enterprises[65] - Enhances order delivery rates through multiple channels, maintains relationships with existing customers, secures new projects, accelerates sample progress, and resolves technical challenges[65] - Continuously optimizes the procurement supply chain, develops new material suppliers, strengthens procurement bargaining power to achieve cost reduction targets, and improves responsiveness to market changes[65] Condensed Consolidated Statement of Profit or Loss Condensed Consolidated Statement of Profit or Loss: Performance Review For the six months ended June 30, 2021, the Group's revenue significantly increased by 53.2% to HKD 518,272 thousand, gross profit grew by 85.2% to HKD 129,675 thousand, and gross profit margin improved, with operating profit and profit before tax both showing substantial growth, resulting in a profit for the period of HKD 32,038 thousand and basic earnings per share of 2.9 HK cents, with no interim dividend recommended by the Board Condensed Consolidated Statement of Profit or Loss (For the six months ended June 30, HKD thousands) | Indicator | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Revenue | 518,272 | 338,286 | | Cost of sales | (388,597) | (268,257) | | Gross profit | 129,675 | 70,029 | | Other income | 21,748 | 16,434 | | Distribution costs | (10,925) | (9,727) | | Administrative and other expenses | (93,438) | (67,021) | | Operating profit | 47,060 | 9,715 | | Finance costs | (2,938) | (4,387) | | Share of loss of an associate | (896) | (1,806) | | Profit before tax | 43,226 | 3,522 | | Income tax expense | (11,188) | (1,336) | | Profit for the period | 32,038 | 2,186 | | Attributable to equity holders of the Company | 30,201 | 2,645 | | Attributable to non-controlling interests | 1,837 | (459) | - Basic earnings per share was 2.9 HK cents, and diluted earnings per share was 2.9 HK cents, a significant increase from 0.3 HK cents in the same period last year[68] - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2021 (2020: nil)[68] Condensed Consolidated Statement of Comprehensive Income Condensed Consolidated Statement of Comprehensive Income: Comprehensive Income Analysis For the six months ended June 30, 2021, the Group recorded a profit for the period of HKD 32,038 thousand, which, combined with exchange differences on translation of foreign operations of HKD 8,495 thousand, resulted in a total comprehensive income of HKD 40,533 thousand, a stark contrast to the negative comprehensive income in the prior year due to exchange differences Condensed Consolidated Statement of Comprehensive Income (For the six months ended June 30, HKD thousands) | Indicator | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Profit for the period | 32,038 | 2,186 | | Other comprehensive income: | | | | Exchange differences on translation of foreign operations | 8,495 | (61,889) | | Total comprehensive income for the period | 40,533 | (59,703) | | Attributable to: | | | | Equity holders of the Company | 38,996 | (59,241) | | Non-controlling interests | 1,537 | (462) | - In the first half of 2021, exchange differences on translation of foreign operations were a positive HKD 8,495 thousand, compared to a negative HKD 61,889 thousand in the prior year, positively impacting comprehensive income[70] Condensed Consolidated Statement of Financial Position Condensed Consolidated Statement of Financial Position: Asset and Liability Analysis As of June 30, 2021, the Group's total non-current assets increased to HKD 886,336 thousand, primarily influenced by investment properties, property, plant and equipment, and newly recognized goodwill and intangible assets, while total current assets remained stable, but total current liabilities significantly rose due to increased bank loans and trade payables, with net assets growing to HKD 1,939,318 thousand Condensed Consolidated Statement of Financial Position (As of June 30, 2021, HKD thousands) | Indicator | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | Non-current assets | | | | Investment properties and other property, plant and equipment | 844,842 | 792,729 | | Goodwill | 9,072 | – | | Intangible assets | 9,738 | – | | Current assets | | | | Inventories | 272,899 | 219,173 | | Trade receivables | 280,962 | 272,461 | | Cash and bank balances | 833,781 | 924,246 | | Current liabilities | | | | Trade payables | 120,566 | 91,495 | | Bank loans (current portion) | 177,613 | 53,769 | | Non-current liabilities | | | | Bank loans (non-current portion) | – | 150,862 | | Net assets | 1,939,318 | 1,880,294 | | Total equity | 1,939,318 | 1,880,294 | - Goodwill and intangible assets in non-current assets appeared for the first time in the first half of 2021, likely related to acquisition activities[74] - Total current liabilities increased from HKD 227,565 thousand to HKD 381,255 thousand, primarily due to bank loans reclassified from non-current to current, and an increase in trade payables[74] Condensed Consolidated Statement of Cash Flows Condensed Consolidated Statement of Cash Flows: Cash Flow Analysis For the six months ended June 30, 2021, the Group generated net cash from operating activities of HKD 72,168 thousand, but net cash outflow from investing activities significantly increased to HKD 132,240 thousand, mainly for purchasing subsidiaries and property, plant and equipment, while net cash outflow from financing activities was HKD 14,631 thousand, resulting in a net decrease in cash and cash equivalents of HKD 74,703 thousand for the period Condensed Consolidated Statement of Cash Flows (For the six months ended June 30, HKD thousands) | Indicator | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Net cash generated from operating activities | 72,168 | 111,422 | | Net cash used in investing activities | (132,240) | (17,012) | | Net cash used in financing activities | (14,631) | (27,565) | | Net (decrease) / increase in cash and cash equivalents | (74,703) | 66,845 | | Cash and cash equivalents at beginning of period | 924,246 | 847,093 | | Effect of foreign exchange rate changes | (15,762) | (58,369) | | Cash and cash equivalents at end of period | 833,781 | 855,569 | - Net cash outflow from investing activities significantly increased, primarily including the purchase of subsidiaries (HKD 80,989 thousand) and the purchase of property, plant and equipment (HKD 51,822 thousand)[77] - Net cash outflow from financing activities was mainly affected by repayment of bank loans (HKD 27,018 thousand) and capital injection from non-controlling interests (HKD 13,183 thousand)[77] Condensed Consolidated Statement of Changes in Equity Condensed Consolidated Statement of Changes in Equity: Equity Movement Analysis For the six months ended June 30, 2021, the Group's total equity increased to HKD 1,939,318 thousand, with profit for the period of HKD 32,038 thousand and exchange differences on translation of foreign operations of HKD 8,495 thousand being key contributors, alongside capital injection from non-controlling interests of HKD 13,183 thousand and share-based payment arrangements of HKD 2,166 thousand also impacting the equity structure Condensed Consolidated Statement of Changes in Equity (For the six months ended June 30, HKD thousands) | Indicator | June 30, 2021 (Unaudited) | January 1, 2020 (Audited) | | :--- | :--- | :--- | | Total equity at beginning of period | 1,880,294 | 1,715,997 | | Profit for the period | 32,038 | 2,186 | | Exchange differences on translation of foreign operations | 8,495 | (61,889) | | Capital injection from non-controlling interests | 13,183 | – | | Share-based payment arrangements | 2,166 | 3,109 | | Total equity at end of period | 1,939,318 | 1,654,142 | - Equity attributable to owners of the Company increased from HKD 1,880,945 thousand at the beginning of the period to HKD 1,922,107 thousand, while non-controlling interests increased from (HKD 651 thousand) to HKD 17,211 thousand[79] Notes to the Condensed Financial Statements 1. Company Information This note reiterates that International Precision Group Limited was incorporated in the Cayman Islands in 2002 and listed on the Main Board of the Hong Kong Stock Exchange in 2004, with its principal business being the manufacturing and sale of precision metal parts for automotive, hydraulic, and electronic equipment - The company was incorporated in the Cayman Islands on July 10, 2002, and listed on the Main Board of the Hong Kong Stock Exchange on November 1, 2004[81] - Its principal business involves the manufacturing and sale of precision metal parts for automotive components, hydraulic equipment, and electronic devices[81] 2. Basis of Preparation This note explains that the condensed consolidated financial statements are prepared in accordance with Hong Kong Accounting Standard 34 and Appendix 16 of the Listing Rules, using the historical cost convention, presented in HKD, with all values rounded to the nearest thousand - The financial statements are prepared in accordance with Hong Kong Accounting Standard 34 and Appendix 16 of the Listing Rules[82] - Prepared under the historical cost convention, except for derivative financial instruments measured at fair value[82] - The financial statements are presented in HKD, with all values rounded to the nearest thousand[82] 3. Principal Accounting Policies This note states that the accounting policies adopted for this interim period are consistent with those used for the annual financial statements for the year ended December 31, 2020, and that the newly adopted amendments to Hong Kong Financial Reporting Standards had no significant impact on the Group's financial position or performance - Accounting policies are consistent with those adopted for the 2020 annual financial statements[83] - The newly adopted amendments to the Conceptual Framework for Financial Reporting and Hong Kong Financial Reporting Standards had no significant impact on financial position or performance[83] 4. Operating Segment Information This note details the Group's six reportable segments based on customer location, with segment results assessed based on gross profit and external customer revenue data provided for each segment - The Group manages its business by customer location, divided into six reportable segments: Thailand, Malaysia, Mainland China, Macau and Hong Kong, North America, Europe, and other countries[85][86] - Segment results are assessed based on gross profit, with revenue and expenses allocated based on sales generated by each segment and expenses from depreciation or amortization of attributable assets[87] External Customer Revenue and Reportable Segment Gross Profit (For the six months ended June 30, HKD thousands) | Region | 2021 External Customer Revenue | 2021 Gross Profit | 2020 External Customer Revenue | 2020 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | Thailand | 6,035 | 1,510 | 8,970 | 1,857 | | Malaysia | 45,260 | 11,324 | 40,469 | 8,378 | | Mainland China, Macau & Hong Kong | 250,916 | 62,781 | 149,497 | 30,947 | | North America | 74,264 | 18,581 | 63,963 | 13,241 | | Europe | 125,324 | 31,357 | 67,484 | 13,970 | | Other Countries | 16,473 | 4,122 | 7,903 | 1,636 | | Total | 518,272 | 129,675 | 338,286 | 70,029 | 5. Revenue and Other Income and Gains This note provides a detailed analysis of the Group's revenue and other income and gains, with revenue primarily derived from the sale of automotive and hydraulic equipment parts, and other income significantly boosted by increased government grants - Revenue represents the net invoiced value of goods sold during the period, after deducting returns and trade discounts[92] Revenue by Product Type (For the six months ended June 30, HKD thousands) | Product Type | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Sale of automotive parts | 279,552 | 180,773 | | Sale of hydraulic equipment parts | 164,142 | 88,833 | | Sale of electronic equipment parts | 52,151 | 49,439 | | Other | 22,427 | 19,241 | | Total | 518,272 | 338,286 | Other Income (For the six months ended June 30, HKD thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Bank interest income | 7,017 | 6,935 | | Government grants | 9,219 | 120 | | Dividend income | 1,176 | – | | Other | 2,635 | 1,715 | | Total | 20,047 | 9,027 | 6. Finance Costs This note analyzes the Group's finance costs, showing a total of HKD 2,938 thousand for the six months ended June 30, 2021, a decrease from the prior year, primarily due to reduced bank loan interest Finance Costs Analysis (For the six months ended June 30, HKD thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Interest on bank loans | 2,054 | 3,496 | | Finance arrangement fees | 853 | 853 | | Interest on lease liabilities | 31 | 38 | | Total | 2,938 | 4,387 | - Interest on bank loans decreased from HKD 3,496 thousand in 2020 to HKD 2,054 thousand in 2021, which is the main reason for the reduction in finance costs[95] 7. Profit Before Tax This note lists the major expenses and income deducted from or credited to the Group's profit before tax, including cost of inventories sold, depreciation, share-based payment expenses, auditor's remuneration, and net exchange differences Items Deducted From / (Credited To) Profit Before Tax (For the six months ended June 30, HKD thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Cost of inventories sold | 388,597 | 268,257 | | Depreciation of property, plant and equipment | 41,675 | 56,799 | | Equity-settled share option expense | 2,166 | 3,109 | | Auditor's remuneration | 1,292 | 1,266 | | Net exchange differences | 2,637 | (5,516) | | Gain on disposal of items of property, plant and equipment | (131) | (522) | | Reversal of impairment loss on other receivables | – | 257 | - A net exchange difference loss of HKD 2,637 thousand was recorded in the first half of 2021, compared to a gain of HKD 5,516 thousand in the same period last year[96] 8. Income Tax This note explains that Hong Kong profits tax is provided at a rate of 16.5%, with other regions calculated at their respective prevailing tax rates, and the total income tax expense for the six months ended June 30, 2021, significantly increased to HKD 11,188 thousand - Hong Kong profits tax is provided at a rate of 16.5%, with other regions calculated at their respective prevailing tax rates[98] Total Income Tax Expense for the Period (For the six months ended June 30, HKD thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Current | 11,188 | 1,336 | | Deferred | – | – | | Total | 11,188 | 1,336 | 9. Earnings Per Share This note explains the calculation methods for basic and diluted earnings per share and provides the data for the six months ended June 30, 2021, showing both basic and diluted earnings per share at 2.9 HK cents, a substantial increase from the prior year - Basic earnings per share is calculated based on the profit for the period attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding during the period[100] - Diluted earnings per share is calculated by assuming the conversion of all potential dilutive ordinary shares into ordinary shares issued without consideration[100] Earnings Per Share (For the six months ended June 30) | Indicator | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Basic earnings per share | 2.9 HK cents | 0.3 HK cents | | Diluted earnings per share | 2.9 HK cents | 0.3 HK cents | - The weighted average number of ordinary shares outstanding used to calculate basic earnings per share was 1,052,254 thousand shares[102] 10. Dividends This note explicitly states that the Board does not recommend the payment of an interim dividend for the six months ended June 30, 2021, consistent with the same period in 2020 - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2021 (2020: nil)[103] 11. Investment Properties and Other Property, Plant and Equipment This note provides a detailed analysis of the cost, accumulated depreciation, and net book value of investment properties and other property, plant and equipment, showing a total net book value of HKD 844,842 thousand as of June 30, 2021, with new additions and assets from subsidiary acquisitions during the period Net Book Value of Investment Properties and Other Property, Plant and Equipment (As of June 30, 2021, HKD thousands) | Item | Amount | | :--- | :--- | | Ownership interests in leasehold land held for own use at cost | 73,313 | | Other properties held for own use at cost | 1,616 | | Freehold land and buildings | 375,581 | | Leasehold improvements | 1,884 | | Plant and machinery | 221,881 | | Furniture and fixtures | 22,951 | | Motor vehicles | 4,747 | | Construction in progress | 13,598 | | Investment properties | 129,271 | | Total | 844,842 | - Additions to property, plant and equipment during the period amounted to HKD 51,822 thousand, and assets from the acquisition of a subsidiary contributed HKD 38,729 thousand of related assets[105] - Depreciation provision for the period was HKD 41,675 thousand[105] 12. Inventories This note provides a breakdown of inventories, including raw materials, consumables, work-in-progress, and finished goods, net of provision for obsolete inventories, with total inventories amounting to HKD 272,899 thousand as of June 30, 2021, an increase from the end of 2020 Inventory Composition (As of June 30, 2021, HKD thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | Raw materials | 72,113 | 65,649 | | Consumables | 43,777 | 45,866 | | Work-in-progress | 129,540 | 84,659 | | Finished goods | 122,168 | 101,266 | | Less: Provision for obsolete inventories | (94,699) | (78,267) | | Total | 272,899 | 219,173 | - Total inventories increased from HKD 219,173 thousand as of December 31, 2020, to HKD 272,899 thousand as of June 30, 2021, primarily due to an increase in work-in-progress and finished goods[107] 13. Trade Receivables This note describes the Group's trade terms and credit policy, with credit periods generally ranging from 60 to 120 days, and strict controls implemented for uncollected receivables, while also providing an aging analysis of total trade receivables of HKD 280,962 thousand as of June 30, 2021, based on invoice date - The Group grants credit periods to customers generally ranging from 60 to 120 days, implements strict controls over uncollected receivables, and has no significant concentration of credit risk[108] Aging Analysis of Trade Receivables (As of June 30, 2021, HKD thousands) | Aging | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | Within 1 month | 99,076 | 114,421 | | 1 to 2 months | 84,110 | 75,882 | | 2 to 3 months | 72,341 | 54,619 | | 3 to 4 months | 14,424 | 24,851 | | 4 to 12 months | 7,691 | 2,997 | | Over 1 year | 3,887 | 258 | | Total (net of impairment) | 280,962 | 272,461 | 14. Cash and Bank Balances This note presents the Group's cash and bank balances, net of pledged and restricted deposits, with total cash and cash equivalents amounting to HKD 833,781 thousand as of June 30, 2021, a decrease from the end of 2020 Cash and Bank Balances (As of June 30, 2021, HKD thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | Bank deposits and cash | 836,300 | 927,918 | | Less: Pledged and restricted deposits | (2,519) | (3,672) | | Cash and cash equivalents | 833,781 | 924,246 | - Pledged and restricted deposits decreased from HKD 3,672 thousand at the end of 2020 to HKD 2,519 thousand as of June 30, 2021[111] 15. Trade Payables This note provides an aging analysis of trade payables, showing a total of HKD 120,566 thousand as of June 30, 2021, an increase from the end of 2020, with growth observed across all aging categories Aging Analysis of Trade Payables (As of June 30, 2021, HKD thousands) | Aging | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | Within 1 month | 43,689 | 41,127 | | 1 to 2 months | 40,965 | 28,645 | | 2 to 3 months | 25,258 | 15,452 | | Over 3 months | 10,654 | 6,271 | | Total | 120,566 | 91,495 | - Total trade payables increased from HKD 91,495 thousand as of December 31, 2020, to HKD 120,566 thousand as of June 30, 2021[112] 16. Share Capital This note confirms that there were no changes in the issued and fully paid share capital for the six months ended June 30, 2021, and for the year ended December 31, 2020, remaining at 1,052,254,135 shares totaling HKD 105,225 thousand - There were no changes in the issued and fully paid share capital for the six months ended June 30, 2021, and for the year ended December 31, 2020[114] - The issued share capital comprises 1,052,254,135 shares, totaling HKD 105,225 thousand[114] 17. Bank Loans This note discloses the Group's total unsecured bank loans and their repayment terms, showing a total of HKD 177,613 thousand as of June 30, 2021, a decrease from the end of 2020, with all loans guaranteed by the Company and its subsidiaries and repayable within one year or on demand - As of June 30, 2021, total unsecured bank loans amounted to HKD 177,613 thousand, a decrease from HKD 204,631 thousand as of December 31, 2020[115] - All bank loans are unsecured and guaranteed by the Company and certain of its subsidiaries[115] - As of June 30, 2021, all bank loans are repayable within one year or on demand[115] - The Group had no breaches of any covenants relating to drawing down financing as of June 30, 2021[115] 18. Capital Commitments This note lists the Group's capital commitments at the end of the reporting period, primarily related to buildings, plant, and machinery, with total contracted but unprovided capital commitments amounting to HKD 9,210 thousand as of June 30, 2021, a significant decrease from the end of 2020 Capital Commitments (As of June 30, 2021, HKD thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | Buildings | 41 | 2,656 | | Plant and machinery | 9,169 | 20,932 | | Total | 9,210 | 23,588 | - Total capital commitments significantly decreased from HKD 23,588 thousand as of December 31, 2020, to HKD 9,210 thousand as of June 30, 2021[117] 19. Related Party Transactions This note discloses the total remuneration paid to key management personnel for the six months ended June 30, 2021, including short-term employee benefits, equity-settled share option expenses, and post-employment benefits, totaling HKD 5,180 thousand Total Remuneration Paid to Key Management Personnel (For the six months ended June 30, HKD thousands) | Item | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Short-term employee benefits | 3,374 | 4,180 | | Equity-settled share option expense | 1,520 | 2,519 | | Post-employment benefits | 286 | 36 | | Total | 5,180 | 6,735 | - Total remuneration paid to key management personnel decreased from HKD 6,735 thousand in the same period of 2020 to HKD 5,180 thousand in the same period of 2021[118] 20. Approval of Financial Statements This note confirms that the condensed financial statements were approved and authorized for issue by the Board of Directors on August 23, 2021 - The condensed financial statements were approved and authorized for issue by the Board of Directors on August 23, 2021[119] Other Information Directors' and Chief Executive's Interests and Short Positions in Shares and Underlying Shares This section discloses the long positions of directors and the chief executive in the company's underlying shares (through share options) and ordinary shares of the controlling company, China Baoan Group Co, Ltd, as of June 30, 2021 Directors' Long Positions in Underlying Shares of the Company — Physically Settled Unlisted Equity Derivatives (As of June 30, 2021) | Director's 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. Chan Kuong Kok | 5,000,000 | 0.48% | - Directors also hold long positions in the ordinary shares of China Baoan Group Co, Ltd, the Company's controlling company[122] Substantial Shareholders' Interests and Short Positions in Shares and Underlying Shares This section lists the long positions of substantial shareholders, other than directors or chief executives, holding over 5% interest in the company's shares and underlying shares as of June 30, 2021, including Baoan Technology Co, Ltd (wholly owned by China Baoan Group) and Tottenhill Limited (wholly owned by Mr. Cui Shaoan) Substantial Shareholders' Long Positions in Ordinary Shares of the Company (As of June 30, 2021) | Name of Substantial Shareholder | Number of Ordinary Shares of the Company | Percentage of Company's Issued Share Capital | | :--- | :--- | :--- | | Baoan Technology Co, Ltd | 565,606,250 | 53.75% | | China Baoan Group Co, Ltd | 565,606,250 | 53.75% | | Tottenhill Limited | 167,966,975 | 15.96% | | Mr. Cui Shaoan (Total) | 182,668,225 | 17.36% | | Ms. Leung Wing Yee (Total) | 182,668,225 | 17.36% | - China Baoan Group Co, Ltd is deemed to have an interest in the shares held by Baoan Technology Co, Ltd[126] - Mr. Cui Shaoan is deemed to have an interest in the shares held by Tottenhill Limited and those held by his wife, Ms. Leung Wing Yee[126] Share Option Scheme This section describes the company's share option scheme, adopted in 2011 to reward eligible participants for their contributions to the Group's business, detailing changes in unexercised share options for the six months ended June 30, 2021, including quantities, grant dates, exercise periods, and exercise prices for directors, employees, and a supplier - The share option scheme was adopted by shareholders on May 17, 2011, to provide incentives and rewards to eligible participants who have contributed to the Group's business[129] Movements in Unexercised Share Options (As of June 30, 2021) | Category of Participant | As at January 1, 2021 | Granted during the period | Exercised during the period | Lapsed/Forfeited during the period | As at June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Directors | 80,000,000 | – | – | – | 80,000,000 | | Employees | 12,300,000 | 2,700,000 | – | (1,300,000) | 11,000,000 | | A supplier | 2,000,000 | – | – | – | 2,000,000 | | Total | 94,300,000 | 2,700,000 | – | (1,300,000) | 95,700,000 | - Share option exercise prices are primarily HKD 2.0200 or HKD 0.9000 per share, with exercise periods typically spanning several years[130] - The fair value of share options granted on May 10, 2021, was approximately HKD 400,000, with a vesting period until February 28, 2026[130][131] - 2,000,000 share options were granted to a supplier as a reward for providing public relations services to local authorities, with terms identical to those granted to directors and employees[134] Purchase, Redemption or Sale of the Company's Listed Securities This section states that neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities for the six months ended June 30, 2021 - Neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities for the six months ended June 30, 2021[135] Interim Dividend This section reiterates that the Board does not recommend the payment of any interim dividend for the six months ended June 30, 2021, consistent with the same period in 2020 - The Board does not recommend the payment of any interim dividend for the six months ended June 30, 2021 (June 30, 2020: nil)[136] Corporate Governance The company is committed to maintaining high standards of corporate governance and has complied with the Corporate Governance Code provisions in Appendix 14 of the Hong Kong Stock Exchange Listing Rules, except for the combined roles of Chairman and Chief Executive Officer held by Mr. Zeng Guang Sheng, which the Board believes provides strong and consistent leadership for the Group - The company is committed to maintaining high standards of corporate governance and has complied with the code provisions of the Corporate Governance Code set out in Appendix 14 of the Hong Kong Stock Exchange Listing Rules[137] - The roles of Chairman and Chief Executive Officer are combined and held by Mr. Zeng Guang Sheng, which the Board believes provides strong and consistent leadership for the Group, benefiting the overall interests of shareholders[137] Audit Committee This section describes the composition and responsibilities of the Audit Committee, which comprises three independent non-executive directors and is responsible for reviewing the Group's accounting principles, risk management, internal controls, and financial reporting procedures, including the interim results for the six months ended June 30, 2021 - The Audit Committee comprises three independent non-executive directors: Mr. Yeung Yu Sang (Chairman), Mr. Cheung Chun Yu, and Mr. Mui Wai Yi[139] - The Committee has reviewed the accounting principles and practices adopted by the Group and discussed matters related to risk management, internal controls, and financial reporting procedures, including the review of the Company's interim results for the six months ended June 30, 2021[139] Standard Code for Securities Transactions This section states that the company has adopted its own code of conduct for directors' dealings in the company's securities, which is no less stringent than the Model Code set out in Appendix 10 of the Listing Rules, and all directors have confirmed compliance with this code - The company has adopted its own code of conduct to regulate directors' dealings in the company's securities, which is no less stringent than the Model Code set out in Appendix 10 of the Listing Rules[140] - Following specific inquiries to all directors, they all confirmed compliance with the Model Code[140] Compliance with Written Guidelines for Securities Transactions by Relevant Employees This section indicates that the company has established written guidelines for employees who may possess inside information regarding the company or its securities, which are no less stringent than the Model Code, and no non-compliance by relevant employees was identified during the six months ended June 30, 2021 - The company has established written guidelines for employees who may possess inside information regarding the company or its securities, which are no less stringent than the Model Code[141] - During the six months ended June 30, 2021, the company was not aware of any non-compliance by relevant employees with the written guidelines[141] Update on Directors' Information under Listing Rule 13.51B(1) This section updates the information for independent non-executive director Mr. Cheung Chun Yu under Listing Rule 13.51B(1), noting his appointment as Managing Director of ESG at Pegasus Capital Management (Hong Kong) Limited in June 2021 - Independent non-executive director Mr. Cheung Chun Yu joined Pegasus Capital Management (Hong Kong) Limited as Managing Director of ESG in June 2021[143] General Disclosure under Listing Rule 13.21 This section discloses a loan agreement containing specific performance covenants related to the company's controlling shareholder, China Baoan Group Co, Ltd, requiring it to remain the single largest ultimate beneficial owner, directly or indirectly beneficially holding no less than 50.1% equity interest or control over the company, with any breach potentially leading to cancellation or immediate repayment of the loan facility - The Group entered into a HKD 275,000,000 term loan facility agreement containing specific performance covenants involving China Baoan Group Co, Ltd, the Company's controlling shareholder[145][146] - The covenants require China Baoan Group Co, Ltd to remain the single largest ultimate beneficial owner of the Company, directly or indirectly beneficially holding no less than 50.1% equity interest in or control over the Company[146] - Failure by the Company to ensure China Baoan Group Co, Ltd's compliance with these covenants may constitute an event of default under the facility agreement, leading to cancellation or immediate repayment of the loan facility[146] Acknowledgements The Board takes this opportunity to express gratitude to shareholders for their support and to all directors and employees for their contributions to the Group - The Board thanks shareholders for their support of the Group, and all directors and employees for their contributions to the Group[147]