未来发展控股(01259) - 2018 - 年度财报

Company Information Company Information Overview Provides basic information on China Child Care Corporation Limited, noting multiple board member changes during the period - The Board of Directors underwent several changes during the reporting period, including the resignation of Mr Wong Sun Man and Mr Ma Chi Ming as executive directors, and the appointment of Mr Zhou Ling as an executive director and the Chief Executive Officer[5] - The company's website is www.princefrog.com.cn, with its registered office in the Cayman Islands and principal places of business in Fujian, China, and Hong Kong[5] Chairman's Statement 2018 Performance Review and Outlook The Chairman's statement attributes the decline in personal care product revenue to economic slowdown and business changes, resulting in a wider loss Key Financial Data Comparison for FY2018 | Indicator | 2018 (RMB million) | 2017 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Turnover | 631.2 | 795.6 | -20.7% | | Loss attributable to equity holders of the Company | 431.4 | 170.7 | 152.7% (Loss widened) | | Basic loss per share (RMB cents) | 33.8 | 15.5 | 118.1% (Loss widened) | - The decline in revenue was mainly due to the slowdown in economic growth in the PRC, the cessation of consolidation of Fujian Herun Supply Chain Management Co, Ltd, and a complex and unpredictable international situation[6] - Looking ahead to 2019, the Group will leverage its resources to continue developing diversified businesses to improve profitability and shareholder interests[7] Management Discussion and Analysis Business Review Details the performance of various business segments, highlighting a significant decline in personal care products and mixed results in other areas Revenue and Profit/Loss by Business Segment (2018 vs 2017) | Business Segment | 2018 Revenue (RMB million) | 2017 Revenue (RMB million) | Revenue Change | 2018 Profit/Loss (RMB million) | 2017 Profit/Loss (RMB million) | Profit/Loss Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Personal care products | 396.1 | 570.8 | -30.6% | (338.1) (Loss) | (227.7) (Loss) | 48.4% (Loss widened) | | Money lending business | 35.9 | 31.8 | +12.9% | 4.7 (Profit) | 3.1 (Profit) | +50.6% | | Operation of online platform | 11.5 | 21.1 | -45.3% | 8.1 (Profit) | 16.5 (Profit) | -50.7% | | Trading of goods | 182.9 | 171.4 | +6.7% | (16.6) (Loss) | 4.9 (Profit) | From profit to loss | | Property holding | 4.8 | 0.304 | +1472.7% | (34.3) (Loss) | 13.0 (Profit) | From profit to loss | - The decrease in revenue from personal care products was mainly due to the cessation of consolidation of Fujian Herun Supply Chain Management Co, Ltd, and a decrease in gross profit from the economic slowdown in China, coupled with an impairment provision of RMB170.7 million for property, plant and equipment and RMB60.6 million in product label recall expenses[8] - Outstanding loans in the money lending business included unsecured loans of approximately RMB62.5 million (average effective annual interest rate of approximately 35.5%) and mortgage loans of approximately RMB108.4 million (average effective annual interest rate of approximately 17.5%)[10] - As of December 31, 2018, the securities investment business held approximately RMB50.9 million in Hong Kong-listed equity securities and approximately RMB62.4 million in unlisted investment funds, recording an unrealized loss of approximately RMB74.9 million and a net realized loss of approximately RMB3.5 million during the period[21][22] - Revenue from the property holding business grew significantly, but the segment recorded a loss due to an impairment provision of approximately RMB20.2 million for properties under development and a loss on fair value changes of investment properties of approximately RMB16.4 million[27][28] Financial Review Summarizes the Group's overall financial performance, noting decreased revenue and gross margin alongside a significant reduction in selling expenses Key Financial Indicators Comparison for FY2018 | Indicator | 2018 (RMB million) | 2017 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Turnover | 631.2 | 795.6 | -20.7% | | Gross Profit | 95.1 | 181.8 | -47.7% | | Gross Profit Margin | 15.1% | 22.8% | -7.7 p.p. | | Selling and distribution expenses | 66.7 | 227.1 | -70.6% | | Administrative expenses | 134.6 | 148.5 | -9.4% | | Finance costs | 11.2 | 3.2 | +250% | - The overall gross profit margin decreased mainly due to the lower gross profit margins of the personal care products and trading of goods businesses, with the personal care products' gross margin decreasing by approximately 7.9 percentage points to 14.1% due to a shift from manufacturing to an OEM model[31] - The significant decrease in selling and distribution expenses was primarily due to the shift to an OEM model for the personal care business, leading to lower advertising, marketing, promotion, and freight costs[35] - The decrease in administrative expenses was mainly attributable to exchange differences arising from the depreciation of the Renminbi during the reporting period[36] Acquisitions and Disposals of Subsidiaries Outlines the Group's subsidiary acquisition and disposal activities during the reporting period, including key transactions in the property holding business - In the second quarter of 2017, the Group acquired the entire share capital of Apex Magic International Limited for a consideration of RMB71,192,000, with its principal assets being land and properties in Yuen Long, Hong Kong[38] - In the fourth quarter of 2017, the Group acquired the entire share capital of Tak Fat Property Company Limited for a consideration of RMB83,599,000, with its principal asset being a property in the Hong Kong Industrial Centre, Kowloon[38][39] - On November 2, 2018, the Group disposed of the entire equity interest in Amazing Gear Limited for a total cash consideration of HK$9,000,000, with no gain or loss recognized[40] - On June 30, 2018, the Group disposed of an 80% equity interest in Fujian Aijieli Daily Chemical Co, Ltd for a consideration of RMB12.0 million, recognizing a loss on disposal of RMB9.0 million[40] - In the first half of 2017, the Group disposed of a 45% equity interest in Fujian Herun Supply Chain Management Co, Ltd for a consideration of RMB100.0 million, recognizing a gain on disposal of RMB95.9 million, reducing the Group's interest from 75% to 30%, thereby becoming an associate[42] Net Loss and Net Loss Ratio The loss attributable to equity holders widened significantly to RMB431.4 million in 2018, with the net loss ratio increasing to 68.3% Net Loss and Net Loss Ratio Comparison for FY2018 | Indicator | 2018 (RMB million) | 2017 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Loss attributable to equity holders of the Company | 431.4 | 170.7 | 152.7% (Loss widened) | | Net loss ratio | 68.3% | 21.5% | +46.8 p.p. | | Basic loss per share (RMB cents) | 33.8 | 15.5 | 118.1% (Loss widened) | - The widened loss was mainly due to decreased revenue, recall expenses related to personal care product labeling issues, and impairment provisions of RMB170.7 million, RMB31.2 million, and RMB20.2 million for property, plant and equipment, goodwill, and properties under development, respectively[43] - The fair value change of investment properties shifted from a gain of RMB13.2 million in 2017 to a loss of RMB16.4 million in 2018[43] Capital Expenditure The Group's significant capital expenditure decreased substantially to RMB11.0 million in FY2018, mainly for property and office renovations Capital Expenditure Comparison for FY2018 | Indicator | 2018 (RMB million) | 2017 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Significant capital expenditure | 11.0 | 257.3 | -95.7% | - Capital expenditure was mainly used for the renovation of plants and offices, plant reinforcement works, and the acquisition of production machinery[44] Financial Resources and Liquidity As of December 31, 2018, the Group maintained a healthy liquidity position with a current ratio of 1.4 and cash equivalents of RMB218.9 million Financial Resources and Liquidity Indicators Comparison for FY2018 | Indicator | 2018 (RMB million) | 2017 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 218.9 | 222.7 | -1.7% | | Current ratio | 1.4 | 1.8 | -0.4 | | Trade and bills receivables | 82.2 | 113.2 | -27.4% | | Loans and interest receivables | 176.1 | 205.4 | -14.2% | | Inventories | 102.2 | 32.0 | +219.8% | | Gearing ratio | 33.6% | 24.0% | +9.6 p.p. | | Bank borrowings | 55.0 | 115.0 | -52.2% | | Other secured borrowings | 98.8 | None | New | | Other unsecured borrowings | 20.0 | 50.0 | -60.0% | - On June 12, 2018, the Group raised HK$29.6 million through a placing of new shares to develop its money lending business[47] - The significant increase in inventories was mainly due to the Group's sales business of electronic products and other electronic components[52] - In 2018, bank borrowings were guaranteed by a PRC supplier, whereas in 2017 they were secured by bank deposits; new other secured borrowings of RMB98.8 million were secured by investment properties and shares of a subsidiary[54][55][58][59] Capital Structure and Risk Management The Group is committed to maintaining a healthy capital ratio and an efficient capital structure, with no significant foreign currency risk - The Group's primary capital management objective is to ensure its ability to continue as a going concern and maintain a healthy capital ratio to support its business and maximize shareholder value[60] - As most of the Group's transactions are denominated in Renminbi, the Group does not face significant foreign currency risk[62] - As of December 31, 2018, the Group had no significant contingent liabilities[63] Future Prospects The Group will continue to strengthen and develop its diversified business portfolio while prudently managing its personal care business amid China's economic slowdown - The Group will continue to strengthen, develop, and expand its diversified business portfolio, including manufacturing and selling personal care products, money lending, operating an online platform, trading goods, securities investment, property holding, and investment holding[64] - Facing the slowdown in China's economic growth, the Group will enhance its supply chain responsiveness and product development capabilities to prevent further decline in sales revenue[64] - The Group will continue to expand its money lending business and extend its mortgage business to corporate clients, operating and expanding its business in a prudent and risk-balanced manner[64] Employees and Remuneration As of December 31, 2018, the Group employed 921 employees and offered competitive remuneration packages, including a share option scheme Employee Headcount Comparison | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Number of employees | 921 | 999 | - The Group offers year-end bonuses to outstanding employees and participates in social insurance contribution schemes as required by the PRC government[65] - The Company adopted a share option scheme in June 2011 and refreshed its limit in June 2017 to reward employees for their contributions to the Group's success[65] Final Dividend The Board does not recommend the payment of any dividend for the year ended December 31, 2018 - The Directors do not recommend the payment of any dividend to shareholders for the year ended December 31, 2018[66] Biographical Details of Directors, Company Secretary and Senior Management Biographical Details of the Board of Directors Introduces the backgrounds of the Group's executive, non-executive, and independent non-executive directors, noting key leadership changes - Mr Choi Wa Lun resigned as Chief Executive Officer on December 12, 2018, but remains as Chairman, with over 30 years of experience in real estate, investment, and forestry[67] - Mr Zhou Ling was appointed as an executive Director, Chief Executive Officer, and a member of the Remuneration Committee on December 12, 2018, bringing extensive experience in investment products and finance[67] - Mr Li Zhouxin was re-designated as a non-executive Director on June 30, 2017, having previously served as Chief Financial Officer, and holds a bachelor's degree in finance and multiple professional accounting qualifications[68] - Independent non-executive Directors Ms Chan Sze Man, Mr Ma Kwun Yung, and Ms Bu Yanan have professional backgrounds in accounting, energy management, and law, respectively, and serve on various Board committees[70][71] Biographical Details of Company Secretary and Senior Management Introduces the backgrounds of the Company Secretary and two senior management members with extensive experience in the child daily chemical industry - Mr Leung Ho Ming was appointed as the Company Secretary on January 31, 2018, and has over 10 years of experience in accounting and auditing[73] - Ms Han Xinbin serves as the Production Director of Prince Frog (Fujian) Baby & Child Care Products Co, Ltd, with over 16 years of experience in production and supply chain management in China's child daily chemical industry[74] - Mr Wen Wenzhong serves as the R&D and Quality Assurance Center Director of Prince Frog (Fujian) Baby & Child Care Products Co, Ltd, with over 27 years of experience in R&D of children's personal care products[74] Corporate Governance Report Corporate Governance Practices The Company is committed to maintaining good corporate governance practices to enhance investor confidence and sustainable development - The Company is committed to strengthening its corporate governance practices to ensure business transparency and accountability and has adopted the Corporate Governance Code contained in Appendix 14 of the Listing Rules[77]78 - During the reporting period, the Company deviated from code provision A.2.1 (separation of Chairman and CEO roles), but has been in strict compliance since December 12, 2018, following the appointment of Mr Zhou Ling as CEO and the resignation of Mr Choi Wa Lun from that role[78][83][84] The Board of Directors The Board is responsible for leading and managing the company, overseeing business strategies, and ensuring compliance and effective governance - The Board is responsible for leading, monitoring, and managing the Company, overseeing its business, strategic decisions, and performance to ensure effective operation and growth, and to enhance investor value[79] - As of December 31, 2018, the Board consisted of three executive Directors, one non-executive Director, and three independent non-executive Directors, in compliance with Rules 3.10 and 3.10A of the Listing Rules[80][81] - All Directors have complied with code provision A.6.5 of the Corporate Governance Code regarding participation in continuous professional development, including regular briefings, seminars, and reading relevant materials[87][88] Board and Committee Meeting Attendance Record for FY2018 | Director's Name | Board of Directors | Audit Committee | Remuneration Committee | Nomination Committee | Annual General Meeting | | :--- | :--- | :--- | :--- | :--- | :--- | | Mr Choi Wa Lun | 17/17 | N/A | N/A | N/A | 1/1 | | Ms Chan Sze Man | 17/17 | 3/3 | 3/3 | 3/3 | 1/1 | | Mr Ma Kwun Yung | 17/17 | 3/3 | 3/3 | 3/3 | 1/1 | | Ms Bu Yanan | 15/17 | 3/3 | N/A | 2/3 | 1/1 | - The Company has adopted the Model Code for Securities Transactions as set out in Appendix 10 of the Listing Rules and, upon specific enquiry, all Directors confirmed their compliance with the code during the reporting period[96] Board Committees The Board has established Remuneration, Nomination, and Audit Committees to oversee specific matters, each with defined terms of reference - The Board has established a Remuneration Committee, a Nomination Committee, and an Audit Committee, all of which have written terms of reference and are provided with sufficient resources to perform their duties[99] - The primary duties of the Remuneration Committee include advising the Board on remuneration policies and structures, ensuring no director or their associate is involved in deciding their own remuneration[102] - The primary duties of the Nomination Committee include reviewing the Board's composition, developing procedures for nominating and appointing directors, and assessing the independence of independent non-executive directors[104] - The primary duties of the Audit Committee are to review the Group's financial information and reports, review the relationship with the external auditor, and review the company's financial reporting system, internal control system, and risk management system[114] Directors' Responsibility for Financial Reporting in respect of the Financial Statements The Board acknowledges its responsibility to prepare true and fair financial statements and ensure all disclosures are balanced and understandable - The Directors acknowledge their responsibility for preparing the Company's financial statements for the year ended December 31, 2018[119] - The Board is responsible for presenting a balanced, clear, and understandable assessment in its annual and interim reports, price-sensitive announcements, and other disclosures required by the Listing Rules and other regulatory requirements[119] Risk Management and Internal Control The Group's risk management and internal control systems are designed to safeguard assets and manage operational risks, with their effectiveness continuously reviewed by the Board - The Group's risk management and internal control systems are designed to protect assets from misuse and unauthorized transactions, as well as to manage operational risks[121] - The Board has overall responsibility for the risk management and internal control systems on an ongoing basis and conducts an annual review, considering them effective and adequate[121][124] - The Group has adopted a functional, bottom-up, and comprehensive risk management process, including risk identification, assessment, valuation, and treatment, with its effectiveness reviewed by the internal audit function[123][124] Company Secretary Mr Leung Ho Ming was appointed as the Company Secretary on January 31, 2018, and undertook relevant professional training during the period - Mr Leung Ho Ming was appointed as the Company Secretary on January 31, 2018, and undertook no less than 15 hours of relevant professional training for the year ended December 31, 2018[126][127] External Auditor and Auditor's Remuneration ZHONGZHENG TIANHENG Certified Public Accountants LLP served as the external auditor, with total remuneration of RMB2,093,000 for FY2018 Auditor's Remuneration for FY2018 | Service Type | Fee (RMB) | | :--- | :--- | | Audit services | 1,751,000 | | Non-audit services | 342,000 | | Total | 2,093,000 | - ZHONGZHENG TIANHENG Certified Public Accountants LLP will retire at the 2019 Annual General Meeting and, being eligible, offers itself for re-appointment[238] Communication with Shareholders and Investors The Company values effective communication with shareholders, providing updated business and financial information through its corporate website - The Company has established a website, www.princefrog.com.cn, as a communication platform with shareholders and investors, providing information on business development, operations, finances, and other matters[130] - General meetings provide an opportunity for communication between the Board and shareholders, where Board members and senior officers answer questions from shareholders[131] Shareholders' Rights To protect shareholder interests, all resolutions at general meetings are voted on by poll, and procedures are in place for convening special meetings - Shareholders may request the Board to convene a special general meeting through a written request from holders of not less than one-tenth of the paid-up capital, in accordance with Article 58 of the Company's Articles of Association[133] - Shareholders wishing to nominate a non-retiring director for election must send a written notice of their intention and the nominee's consent to be elected[133] - In accordance with the Listing Rules, all resolutions proposed at general meetings must be voted on by way of a poll, with the results published on the websites of the Stock Exchange and the Company[134] Report of the Directors Principal Activities and Financial Summary The Company's principal activity is investment holding, with its subsidiaries engaged in diversified businesses; the Group recorded a loss for the period - The Company's principal activity is investment holding, and its subsidiaries are mainly engaged in the manufacturing and sale of personal care products, money lending, operation of an online platform, trading of goods, securities investment, property holding, and investment holding[136] - The Group recorded a loss for the year ended December 31, 2018, and the Directors do not recommend the payment of any final dividend to shareholders[138][140] Shareholder Registration and Compliance The register of members will be closed from June 25 to June 28, 2019, to determine eligibility for the Annual General Meeting - The Company's register of members will be closed from June 25, 2019, to June 28, 2019, to determine the entitlement to attend and vote at the 2019 Annual General Meeting[143] - To the best of the Board's knowledge, the Group had no material breach of or non-compliance with applicable laws and regulations that have a significant impact on the Group's business and operations during the year ended December 31, 2018[144] Risks, Environmental Matters and Dividend Policy The Group faces economic and regulatory risks, manages environmental compliance, and has a dividend policy considering its financial condition and capital needs - The Group's operations face major risks and uncertainties including domestic and international economic conditions, PRC foreign exchange policies, changes in laws and regulations, and raw material prices and supply[145] - The Group has a dedicated Environmental Safety Department responsible for overseeing comprehensive environmental protection to ensure compliance with applicable environmental laws, regulations, and standards[146] - As of December 31, 2018, the Company's distributable reserves amounted to approximately RMB287,870,000, and the share premium account of RMB519,572,000 was also available for distribution[151] - The dividend policy states that if the Group records a profit and it does not affect normal operations, the Company may consider declaring and paying dividends, taking into account various factors including financial condition, capital and debt levels, future cash needs, and market conditions[152][153] Major Stakeholder Relationships The Group maintains long-term relationships with key customers and suppliers and emphasizes employee development, with significant customer concentration noted Major Customer and Supplier Concentration for FY2018 | Indicator | Percentage | | :--- | :--- | | Sales to top five customers as a percentage of total sales | 63.3% | | Sales to the largest customer as a percentage of total sales | 26.2% | | Purchases from top five suppliers as a percentage of total purchases | 33.3% | | Purchases from the largest supplier as a percentage of total purchases | 11.9% | - The Group places great importance on the personal development of its employees and is committed to providing clear career development paths and skill enhancement opportunities[157] - The Group has established long-term cooperative relationships with numerous customers and suppliers and has strict evaluation standards for its suppliers[158][159] - The Group made charitable donations amounting to approximately RMB632,000 during the year ended December 31, 2018[160] Board and Management This section details Board member changes, service contract terms, and the status of the share option scheme during the reporting period - During the reporting period, Mr Wong Sun Man and Mr Ma Chi Ming resigned as executive Directors, and Mr Zhou Ling was appointed as an executive Director[161] - The service contracts for executive and non-executive Directors are for a term of three years, and the service contracts for independent non-executive Directors are also for a term of three years[165][166] - No contracts concerning the management and administration of the whole or any substantial part of the Group's business were entered into or existed during the year[169] - As of the year ended December 31, 2018, there were 93,654,500 outstanding share options under the share option scheme, which, if fully exercised, would raise approximately HK$117,844,000 for the Company[173][174][211] Directors' and Chief Executive's Interests Discloses the interests of directors and substantial shareholders in the Company's shares and underlying shares Directors' Long Positions in Shares and Underlying Shares (Share Options) | Director's Name | Nature of Interest | Number of Underlying Shares | Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Mr Li Zhouxin | Beneficial owner | 1,480,000 | 0.11% | Substantial Shareholders' Long Positions in Ordinary Shares | Substantial Shareholder's Name | Nature of Interest | Number of Ordinary Shares Held | Percentage of the Company's Issued Share Capital | | :--- | :--- | :--- | :--- | | Golden Sparkle Limited | Beneficial owner | 263,308,500 | 18.94% | | Mr Lai Wai Lam | Interest in a controlled corporation | 263,308,500 | 18.94% | | Mr Dai Zhi Biao | Beneficial owner | 140,382,500 | 10.10% | | Yililuo International Trading (Hong Kong) Co, Limited | Beneficial owner | 80,000,000 | 5.75% | | Mr Li Liang | Interest in a controlled corporation | 80,000,000 | 5.75% | Continuing Connected Transactions and Connected Transactions Independent non-executive directors have reviewed and confirmed that continuing connected transactions were conducted on normal commercial terms - The independent non-executive Directors have confirmed that the continuing connected transactions were entered into in the ordinary and usual course of business of the Group, on normal commercial terms, and are in the overall interests of the Company's shareholders[223] - The main non-exempt continuing connected transaction was the sale of goods to Shuangfei Daily Chemical (USA) Co, Ltd under a renewed product sales agreement, with a total amount of approximately RMB4,877,000 in 2018, against an annual cap of RMB7,000,000[224][225] - The remaining related party transactions for the year ended December 31, 2018, as set out in Note 52 to the financial statements, also constitute connected transactions of the Group but are exempt from reporting, announcement, annual review, and independent shareholders' approval requirements under Chapter 14A of the Listing Rules as the relevant applicable percentage ratios are below 0.1%[227] Other Disclosures Covers director remuneration, public float, audit committee work, and significant post-reporting period events, including a proposed acquisition and name change - The Remuneration Committee considers and recommends to the Board the remuneration and other benefits payable to the Directors and reviews the remuneration of all Directors periodically[228] - For the year ended December 31, 2018, neither the Company nor any of its subsidiaries purchased, redeemed, or sold any of the Company's listed securities[233] - As at the date of this annual report, at least 25% of the total number of issued shares of the Company was held by the public[234] - The Audit Committee has reviewed the Group's consolidated financial statements for the year ended December 31, 2018, and discussed accounting principles and practices, financial reporting matters, and internal controls with management and the auditor, with no disagreements[237] - After the reporting period, the Company proposed to acquire an 80% equity interest in Li Yu International Group Limited for a consideration of HK$42,000,000 (subject to adjustment) and proposed to change the Company's English name to "Future Development Holdings Limited" and its Chinese name to "未來發展控股有限公司"[239][713][714] Independent Auditor's Report Opinion and Basis for Opinion The independent auditor issued an unqualified opinion, stating the consolidated financial statements give a true and fair view in accordance with IFRSs - The auditor is of the opinion that the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2018, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance[242] - The audit was conducted in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants and complied with the Code of Ethics for Professional Accountants, ensuring independence[243] Key Audit Matters The auditor identified key audit matters including impairment assessments of various assets, valuation of investment properties, and revenue recognition - Impairment assessment of property, plant and equipment and prepaid land lease payments was a key audit matter due to the judgment and assumptions involved in estimating fair value less costs of disposal[245][246] - Valuation of investment properties was a key audit matter due to their material carrying amount and the significant judgment involved in determining fair value, for which the valuer used the income capitalization approach[247][248] - Impairment assessment of goodwill was a key audit matter due to its significant amount and the management judgment and estimates involved in assessing the value in use of cash-generating units[252][253] - Recoverability of loans and interest receivables and trade and bills receivables was a key audit matter due to their significant amounts and the estimation and judgment involved in determining their recoverable amounts[254][255] - Revenue recognition was a key audit matter because sales revenue is significant and a key performance indicator for the Group; the auditor assessed the internal controls and standards for revenue recognition[256][257] Information Other than the Consolidated Financial Statements and Auditor's Report Thereon The directors are responsible for the other information in the annual report, while the auditor does not express an assurance conclusion on it - The directors are responsible for all information contained in the annual report, other than the consolidated financial statements and the auditor's report thereon[258] - The auditor does not express any form of assurance conclusion on the other information but will review it for material inconsistencies with the consolidated financial statements or information obtained during the audit[259] Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements The directors are responsible for preparing true and fair consolidated financial statements and ensuring effective internal controls - The directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as they determine is necessary to enable the preparation of statements that are free from material misstatement, whether due to fraud or error[260] - The directors are responsible for assessing the Group's ability to continue as a going concern and disclosing matters related to it[260] - Those charged with governance are responsible for overseeing the Group's financial reporting process[261] Auditor's Responsibilities for the Audit of the Consolidated Financial Statements The auditor's objective is to obtain reasonable assurance that the consolidated financial statements are free from material misstatement - The auditor's objective is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error[263] - The auditor exercises professional judgment and maintains professional skepticism throughout the audit, identifying and assessing risks of material misstatement and designing and performing audit procedures accordingly[264] - The auditor communicates with those charged with governance regarding the planned scope and timing of the audit, significant audit findings (including any significant deficiencies in internal control), and other matters, and confirms compliance with ethical requirements for independence[267] Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Profit or Loss and Other Comprehensive Income for 2018 For the year ended December 31, 2018, the Group's revenue decreased by 20.7% to RMB631,215 thousand, resulting in a widened loss Key Data from Consolidated Statement of Profit or Loss and Other Comprehensive Income for FY2018 | Indicator | 2018 (RMB'000) | 2017 (RMB'000) | Change | | :--- | :--- | :--- | :--- | | Revenue | 631,215 | 795,580 | -20.7% | | Cost of sales | (536,157) | (613,829) | -12.7% | | Gross profit | 95,058 | 181,751 | -47.7% | | Other income and gains | 6,830 | 130,423 | -94.8% | | (Loss)/gain on fair value changes of investment properties | (16,386) | 13,222 | From gain to loss | | Selling and distribution expenses | (66,718) | (227,146) | -70.6% | | Administrative expenses | (134,594) | (148,506) | -9.4% | | Impairment loss on goodwill | (31,157) | (36,300) | -14.1% | | Other expenses | (274,426) | (65,840) | +316.8% | | Finance costs | (11,248) | (3,215) | +250% | | Loss before tax | (437,407) | (156,538) | +179.4% | | Loss for the year | (438,960) | (163,283) | +168.8% | | Loss attributable to equity holders of the Company | (431,435) | (170,744) | +152.7% | | Basic loss per share (RMB cents) | (33.8) | (15.5) | +118.1% | - In other comprehensive income, the exchange difference on translation of operations outside Mainland China shifted from a loss of RMB28,311 thousand in 2017 to a gain of RMB30,881 thousand in 2018, while a fair value loss of RMB82,360 thousand was recorded for financial assets at fair value through other comprehensive income[271] Consolidated Statement of Financial Position Consolidated Financial Position for 2018 As of December 31, 2018, the Group's total assets decreased by 26.3% to RMB1,275,296 thousand, with a significant increase in inventories Key Data from Consolidated Statement of Financial Position for FY2018 | Indicator | 2018 (RMB'000) | 2017 (RMB'000) | Change | | :--- | :--- | :--- | :--- | | Non-current assets | | | | | Property, plant and equipment | 171,823 | 402,050 | -57.3% | | Investment properties | 115,768 | 95,272 | +21.5% | | Properties under development | 123,854 | 137,297 | -9.8% | | Goodwill | 22,800 | 63,314 | -64.0% | | Financial assets at fair value through other comprehensive income | 128,361 | – | New | | Available-for-sale investments | – | 202,119 | Discontinued | | Current assets | | | | | Inventories | 102,239 | 31,967 | +219.8% | | Loans and interest receivables | 68,338 | 105,887 | -35.5% | | Trade and bills receivables | 82,164 | 113,164 | -27.4% | | Current liabilities | | | | | Bank and other borrowings | 173,768 | 164,966 | +5.3% | | Amounts due to associates | 92,065 | 79,982 | +15.1% | | Total assets | 1,275,296 | 1,731,628 | -26.3% | | Total liabilities | 428,070 | 416,047 | +2.9% | | Net assets | 847,226 | 1,315,581 | -35.7% | | Equity attributable to equity holders of the Company | 773,974 | 1,229,870 | -37.0% | - Available-for-sale investments under non-current assets have been reclassified as financial assets at fair value through other comprehensive income[273] - Net current assets decreased from RMB305,689 thousand in 2017 to RMB163,654 thousand in 2018[273] Consolidated Statement of Changes in Equity Consolidated Changes in Equity for 2018 Total equity attributable to the Company's equity holders decreased from RMB1,229,870 thousand to RMB773,974 thousand, mainly due to the loss for the year Key Data from Consolidated Statement of Changes in Equity for FY2018 | Indicator | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Equity attributable to equity holders of the Company at beginning of year | 1,229,870 | 1,324,988 | | Loss for the year | (431,435) | (170,744) | | Other comprehensive (expense)/income for the year | (51,479) | 19,753 | | Total comprehensive expense for the year | (490,439) | (143,530) | | Equity attributable to equity holders of the Company at end of year | 773,974 | 1,229,870 | | Non-controlling interests at end of year | 73,252 | 85,711 | | Total equity at end of year | 847,226 | 1,315,581 | - Changes in equity were primarily driven by the loss for the year, fair value changes of financial assets at FVTOCI, and the exchange fluctuation reserve[271][279] - In 2018, non-controlling interests decreased due to the loss and total comprehensive expense for the year[271] Consolidated Statement of Cash Flows Consolidated Cash Flows for 2018 Net cash used in operating activities improved significantly, while net cash from investing activities turned positive due to a decrease in pledged bank deposits Key Data from Consolidated Statement of Cash Flows for FY2018 | Indicator | 2018 (RMB'000) | 2017 (RMB'000) | Change | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (123,978) | (331,593) | Improved | | Net cash from/(used in) investing activities | 95,703 | (118,262) | From outflow to inflow | | Net cash from financing activities | 20,972 | 59,348 | -64.7% | | Net decrease in cash and cash equivalents | (7,303) | (390,507) | Improved | | Cash and cash equivalents at end of year | 218,888 | 222,691 | -1.7% | - The decrease in cash used in operating activities was mainly due to decreases in loans and interest receivables and trade and bills receivables, as well as an increase in trade and bills payables[281] - The net cash inflow from investing activities was primarily due to a significant decrease of RMB113,028 thousand in pledged bank deposits, which offset the outflow for the purchase of financial assets at FVTOCI[282] - The decrease in net cash from financing activities was mainly due to increased repayments of bank and other loans, despite proceeds from the issue of shares[282] Notes to the Financial Statements 1. General Information Provides the Company's registration, listing, and principal business activities, stating that the financial statements are presented in RMB - The Company is incorporated in the Cayman Islands, and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited[285] - The Company's principal activity is investment holding, and its subsidiaries are mainly engaged in manufacturing and selling personal care products, money lending, operating an online platform, trading goods, securities investment, property holding, and investment holding[285] - The Group's consolidated financial statements are presented in Renminbi (RMB), which is also the functional currency of the Company[286] 2. Application of International Financial Reporting Standards ('IFRSs') Details the impact of first-time application of IFRS 15 and IFRS 9, including adjustments to financial asset classification and revenue recognition - In the current year, the Group has applied IFRS 15 "Revenue from Contracts with Customers" for the first time, which supersedes IAS 18 "Revenue", with retrospective application but without restating comparative information[287][288] - The first-time application of IFRS 9 "Financial Instruments" introduced new requirements for the classification and measurement of financial assets and liabilities and the expected credit loss model, leading to the reclassification of available-for-sale investments[287][293][298] Impact of Initial Application of IFRS 9 on Financial Asset Classification (1 January 2018) | Indicator | Available-for-sale investments (RMB'000) | Financial assets at FVTOCI (RMB'000) | Investment revaluation reserve (RMB'000) | FVTOCI revaluation reserve (RMB'000) | | :--- | :--- | :--- | :--- | :--- | | Balance at 31 December 2017 (IAS 39) | 202,119 | – | 45,678 | – | | Impact of IFRS 9 application | (202,119) | 202,119 | (45,678) | 45,678 | | Balance at 1 January 2018 (IFRS 9) | – | 202,119 | – | 45,678 | - IFRS 16 "Leases" will become effective on January 1, 2019, and is expected to result in lessees recognizing right-of-use assets and corresponding liabilities, potentially affecting cash flow classification[303][305][306] 3. Significant Accounting Policies Outlines the significant accounting policies adopted in preparing the consolidated financial statements, covering basis of preparation, consolidation, and asset valuation - The consolidated financial statements have been prepared in accordance with IFRSs, the disclosure requirements of the Hong Kong Companies Ordinance, and the Listing Rules, and are prepared on the historical cost basis, except for certain investment properties and financial instruments measured at fair value[311][312] - The Group accounts for business combinations using the acquisition method, with goodwill stated at cost less accumulated impairment losses and tested for impairment annually[323][324][328] - Investments in associates and joint ventures are accounted for using the equity method and are tested for impairment when necessary[331][334] - Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses; investment properties are measured at fair value; and properties under development are stated at cost less impairment losses[337][338][339] - Financial assets are classified under IFRS 9 as at amortised cost, at fair value through other comprehensive income (FVTOCI), or at fair value through profit or loss (FVTPL), with provisions for expected credit losses recognized[352][353][356] - Under IFRS 15, revenue is recognized when a performance obligation is satisfied, which is when control of the goods or services is transferred to the customer[400] 4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty Details the critical accounting judgements and key sources of estimation uncertainty made in preparing the financial statements - Critical accounting judgements include withholding tax on dividend distributions, deferred tax on investment properties, and control over Jumbo Excel Investment Corporation[436][437][438][439] - Key sources of estimation uncertainty include impairment of property, plant and equipment and prepaid land lease payments (impairment of RMB170,747 thousand recognized in 2018), fair value estimation of investment properties, impairment of properties under development (impairment of RMB20,154 thousand recognized in 2018), and impairment of goodwill (impairment of RMB31,157 thousand recognized in 2018)[441][444][445][453] - The impairment assessment of receivables uses a simplified approach to provide for lifetime expected credit losses for trade receivables and assesses expected credit losses for other receivables[447][452][664] - The fair value measurement of financial instruments relies on observable market data; if unavailable, it refers to valuations from valuers or fund managers, involving key inputs such as long-term growth, profit margins, discount rates, and market liquidity[454][677] 5. Revenue Analyzes the Group's revenue sources, which primarily include sales of goods, interest income from money lending, and rental income Revenue Source Analysis for FY2018 | Revenue Source | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Revenue from sales of goods | 578,983 | 742,178 | | Interest income from money lending business | 35,936 | 31,820 | | Revenue from operation of online platform | 11,515 | 21,070 | | Rental income from leasing of investment properties | 4,781 | 304 | | Consultancy income | – | 208 | | Total | 631,215 | 795,580 | - Revenue from the personal care products business and trading of goods is recognized at a point in time when the Group satisfies a performance obligation by transferring promised goods and services to a customer[456] 6. Operating Segment Information Provides a breakdown of operating results, assets, and liabilities by business segment, along with geographical revenue information Revenue and Profit/Loss by Operating Segment for FY2018 | Business Segment | Revenue (RMB'000) | Segment (Loss)/Profit (RMB'000) | | :--- | :--- | :--- | | Personal care products | 396,093 | (338,070) | | Money lending | 35,936 | 4,736 | | Operation of online platform | 11,515 | 8,116 | | Trading of goods | 182,890 | (16,642) | | Securities investment | – | (96) | | Property holding | 4,781 | (34,312) | | Total | 631,215 | (376,268) | Revenue by Geographical Location for FY2018 | Region | Revenue (RMB'000) | | :--- | :--- | | The PRC (excluding Hong Kong) | 361,112 | | Hong Kong | 65,675 | | The USA | 159,998 | | Overseas (excluding the USA and Indonesia) | 44,430 | | Total | 631,215 | Revenue Contribution from Major Customers for FY2018 | Customer | Revenue Source | Revenue (RMB'000) | | :--- | :--- | :--- | | Customer A | Personal care products | 165,184 | | Customer B | Personal care products | 135,960 | 7. Other Income and Gains Details other income and gains, which decreased significantly to RMB6,830 thousand from RMB130,423 thousand in the prior year Other Income and Gains for FY2018 | Income and Gain Item | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Interest income | 3,234 | 9,527 | | Income generated from other financial assets | 504 | – | | Income generated from available-for-sale investments | – | 1,053 | | Government grants | 1,399 | 2,340 | | Gain on disposal of available-for-sale investments | – | 11,477 | | Gain on disposal of subsidiaries | – | 95,885 | | Gain on disposal of intangible assets | – | 4,505 | | Gain on disposal of property, plant and equipment | 31 | – | | Reversal of impairment loss on trade receivables | – | 4,525 | | Sundry income | 1,662 | 1,111 | | Total | 6,830 | 130,423 | 8. Other Expenses Details other expenses, which increased significantly to RMB274,426 thousand, primarily due to asset impairments and product recall costs Other Expenses for FY2018 | Expense Item | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Loss on disposal of a subsidiary | 9,004 | – | | Loss on early redemption of promissory notes | 104 | – | | Impairment loss on property, plant and equipment | 170,747 | 38,533 | | Impairment loss on properties under development | 20,154 | – | | Impairment loss on interests in associates | 3,217 | 8,372 | | Impairment loss on loans and interest receivables | 4,673 | – | | Impairment loss on trade receivables | 1,660 | – | | Write-off of trade receivables | 4,060 | 8,278 | | Recall expenses on labelling issue | 60,614 | – | | Total | 274,426 | 65,840 | - The recall expenses on the labelling issue, totaling RMB60,614 thousand, were due to a mandatory recall by local authorities of certain products sold with improper labels, including recall prices, selling expenses, and compensation to an associate[468][469] 9. Finance Costs Details finance costs, which increased significantly to RMB11,248 thousand, mainly from interest on bank and other borrowings Finance Costs for FY2018 | Finance Cost Item | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Interest on bank borrowings | 5,589 | 2,368 | | Interest on bank overdrafts | – | 2 | | Interest on bills payable | 1,950 | – | | Interest on other borrowings | 3,573 | 389 | | Imputed interest on promissory notes payable | 136 | 456 | | Total | 11,248 | 3,215 | 10. Loss Before Tax Details the components of the loss before tax, which widened to RMB437,407 thousand in 2018 Components of Loss Before Tax for FY2018 | Item | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Cost of inventories sold | 536,157 | 613,829 | | Depreciation of property, plant and equipment | 28,293 | 32,584 | | Amortisation of prepaid land lease payments | 270 | 339 | | Amortisation of intangible assets | 36 | 63 | | Minimum lease payments under operating leases in respect of land and buildings | 4,590 | 3,454 | | Total employee benefit expenses | 98,885 | 117,457 | | Auditor's remuneration (Total) | 2,093 | 2,392 | | Research and development costs included in administrative expenses | 20,621 | 8,721 | | Net exchange loss | 6,746 | 13,077 | - Total employee benefit expenses include wages and salaries, equity-settled share-based payments, and contributions to retirement benefit schemes[471] - Research and development costs for the year included an amount of RMB4,564 thousand related to staff costs for R&D activities[472] 11. Income Tax Expense Details the income tax expense, which decreased to RMB1,553 thousand, with a PRC subsidiary benefiting from a preferential tax rate Income Tax Expense for FY2018 | Tax Item | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Hong Kong Profits Tax | 2,389 | 5,470 | | PRC Enterprise Income Tax | 206 | 1,654 | | Current tax expense | 2,595 | 7,124 | | Deferred tax credit | (1,042) | (379) | | Income tax expense recognised in profit or loss | 1,553 | 6,745 | - Prince Frog (China) Daily Chemical Co, Ltd is entitled to a preferential enterprise income tax rate of 15%[474] Reconciliation of Income Tax Expense to Loss Before Tax for FY2018 | Item | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Loss before tax | (437,407) | (156,538) | | Tax at the applicable tax rate | (100,117) | (35,397) | | Effect of tax concession for a PRC subsidiary of the Group | 35,555 | 12,470 | | Income not subject to tax | (303) | (5,081) | | Non-deductible expenses | 7,443 | 20,888 | | Unrecognised tax losses | 59,197 | 13,865 | | Income tax expense | 1,553 | 6,745 | 12. Directors', Chief Executive's and Employees' Emoluments Discloses the remuneration of directors, the chief executive, and the five highest-paid employees, with total director remuneration decreasing in 2018 Directors' and Chief Executive's Emoluments for FY2018 | Emolument Category | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Fees | 2,307 | 3,042 | | Salaries and discretionary bonuses | 240 | 452 | | Equity-settled share-based payments | 84 | 525 | | Contributions to retirement benefit schemes | 38 | 52 | | Total | 2,669 | 4,071 | Emoluments by Individual Director for FY2018 | Director's Name | Fees (RMB'000) | Salaries and discretionary bonuses (RMB'000) | Equity-settled share-based payments (RMB'000) | Contributions to retirement benefit schemes (RMB'000) | Total (RMB'000) | | :--- | :--- | :--- | :--- | :--- | :--- | | Mr Wong Sun Man | 150 | 240 | 24 | 8 | 422 | | Mr Choi Wa Lun | 356 | – | – | 15 | 371 | | Mr Ma Chi Ming | 276 | – | – | 14 | 290 | | Mr Zhou Ling | 105 | – | – | 1 | 106 | | Mr Li Zhouxin | 682 | – | 29 | – | 711 | | Mr Ren Yunan | 153 | – | 31 | – | 184 | | Ms Chan Sze Man | 195 | – | – | – | 195 | | Mr Ma Kwun Yung | 195 | – | – | – | 195 | | Ms Bu Yanan | 195 | – | – | – | 195 | | Total | 2,307 | 240 | 84 | 38 | 2,669 | - For the years ended December 31, 2018 and 2017, no director waived or agreed to waive any emoluments, and no emoluments were paid to directors as an inducement to join or as compensation for loss of office[482] 13. Dividend The directors of the Company do not recommend the payment of any dividend for the year ended December 31, 2018 - The directors of the Company do not recommend the payment of a dividend for the year ended 31 December 2018 (2017: Nil)[496] 14. Loss Per Share Attributable to Equity Holders of the Company Calculates the basic loss per share, which widened to RMB33.8 cents in 2018, with no diluted loss per share presented Loss Per Share Calculation Data for FY2018 | Indicator | 2018 (RMB'000/cents) | 2017 (RMB'000/cents) | | :--- | :--- | :--- | | Loss for the purpose of basic loss per share (RMB'000) | (431,435) | (170,744) | | Weighted average number of ordinary shares for the purpose of basic loss per share ('000 shares) | 1,277,771 | 1,100,474 | | Basic loss per share (RMB cents) | (33.8) | (15.5) | - No exercise of the Company's granted share options was assumed in the calculation of diluted loss per share as the exercise prices of these options were higher than the average market price of the Company's shares for both years ended 31 December 2018 and 2017[497] 15. Property, Plant and Equipment Details the changes in property, plant and equipment, with the net book value decreasing significantly due to a major impairment loss Net Book Value of Property, Plant and Equipment for FY2018 | Indicator | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Net book value | 171,823 | 402,050 | - An impairment loss on property, plant and equipment of RMB170,747 thousand (2017: RMB38,533 thousand) was recognised during the year, mainly due to significant operating losses in the personal care products segment[500][501] - Following the disposal of a subsidiary (Fujian Aijieli) during the year, certain land and buildings with a carrying amount of RMB29,400 thousand were reclassified to investment properties[502] 16. Prepaid Land Lease Payments Details the changes in prepaid land lease payments, which decreased due to amortisation and reclassification to investment properties Changes in Prepaid Land Lease Payments for FY2018 | Indicator | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Balance at beginning of year | 13,969 | 14,308 | | Amortisation during the year | (270) | (339) | | Reclassified to investment properties | (2,920) | – | | Balance at end of year | 10,779 | 13,969 | - Prepaid land lease payments represent medium-term land use rights in the PRC, which are amortised over 50 years[503] 17. Investment Properties Details the fair value changes of investment properties, which increased in value despite a fair value loss recorded during the year Fair Value Changes of Investment Properties for FY2018 | Indicator | 2018 (RMB'000) | 2017 (RMB'000) | | :--- | :--- | :--- | | Fair value at beginning of year | 95,272 | 23,000 | | Reclassified from prepaid land lease payments | 2,920 | – | | Reclassified from property, plant and equipment | 29,400 | – | | (Loss)/gain on fair value changes recognised in profit or loss | (16,386) | 13,222 | | Exchange realignment | 4,562 | (720) | | Fair value at end of year | 115,768 | 95,272 | - The investment properties were stated at fair value as at 31 December 2018 and 2017, based on valuations performed by an independent qualified professional valuer not connected with the Group[506] Valuation Techniques and Key Inputs for Investment Properties (31 December 2018) | Property Type | Valuation Technique | Significant Unobservable Inputs | Estimated Unobservable Inputs | | :--- | :