进腾集团(02011) - 2020 - 中期财报

Company Information This section provides essential corporate details, including board composition, committee structures, and key registration and operational information Board of Directors and Committees The Company's Board of Directors comprises executive, non-executive, and independent non-executive directors, supported by Audit, Nomination, and Remuneration Committees to ensure effective corporate governance - Executive Directors include Mr. Zhuang Weidong (Chairman), Mr. Qiu Chuanzhi (President), Mr. Wu Hangzheng (Vice Chairman), and Mr. Mai Rongbin (Vice President)[3] - Independent Non-executive Directors include Mr. Leung Ka Tin, Mr. Cheng Hong Ki, and Mr. Lau Wai King[3] - Mr. Cheng Hong Ki chairs the Audit and Remuneration Committees, while Mr. Zhuang Weidong chairs the Nomination Committee[3] Registration and Operational Information The Company is registered in the Cayman Islands with its principal place of business in Central, Hong Kong, detailing key information such as share registrars, auditor, principal bankers, and website - The registered office is in the Cayman Islands, with the principal place of business in Hong Kong at Room 510, Chater House, 8 Connaught Road Central, Hong Kong[3] - Tricor Investor Services Limited serves as the Hong Kong Share Registrar, and BDO Limited is the auditor[5] - Principal bankers include The Bank of East Asia, The Hongkong and Shanghai Banking Corporation, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of Guangzhou[5] Financial Highlights For the six months ended June 30, 2020, the Company's revenue significantly decreased by 32.5% year-on-year, gross profit fell by 52.2%, resulting in a loss for the period, with total assets, cash and cash equivalents, and equity attributable to owners of the Company all showing substantial declines Financial Performance for the Six Months Ended June 30, 2020 | Indicator | 2020 June 30 (HK$'000) | 2019 June 30 (HK$'000) | Change (+/-) | | :--- | :--- | :--- | :--- | | Revenue | 79,255 | 117,469 | (32.5%) | | Gross Profit | 18,635 | 38,957 | (52.2%) | | Gross Margin | 23.5% | 33.2% | (29.2%) | | (Loss) / Profit for the Period | (8,563) | 6,346 | Not Applicable | | (Loss) / Profit for the Period Attributable to Owners of the Company | (8,928) | 4,913 | Not Applicable | | Basic and Diluted (Loss) / Earnings Per Share (HK cents) | (1.9) | 1.1 | Not Applicable | Key Balance Sheet Data | Indicator | 2020 June 30 (HK$'000) | 2019 December 31 (HK$'000) | Change (+/-) | | :--- | :--- | :--- | :--- | | Total Assets | 289,434 | 338,348 | (14.5%) | | Cash and Cash Equivalents | 54,264 | 91,174 | (40.5%) | | Total Equity Attributable to Owners of the Company | 168,990 | 216,657 | (22.0%) | Management Discussion and Analysis This section provides a comprehensive review of the Group's business operations, financial performance, future outlook, and key financial metrics for the reporting period Business Review The Group primarily engages in zipper manufacturing in China, serving OEM clients for Chinese and international apparel brands, with the COVID-19 pandemic leading to reduced customer orders and a shift from profit to loss for the period - The Group's principal business is the manufacturing of zippers, with customers being OEMs for Chinese and international apparel brands[9] - The Group is actively seeking new investment and business opportunities for diversification, having entered into a memorandum of understanding on June 5, 2020, for the potential acquisition of Mosaic Capital Limited, a licensed corporation[10] - For the six months ended June 30, 2020, the Group recorded a loss attributable to owners of the Company of approximately HK$8,930 thousand, primarily due to reduced sales orders in the zipper business and a sharp decline in revenue and gross profit caused by the COVID-19 pandemic[11] Outlook Facing challenges from the COVID-19 pandemic and the US-China trade war, the apparel industry's domestic and export markets remain weak, prompting the Company to adapt to market changes, enhance production, optimize processes, strengthen financial and talent management, and accelerate digital transformation to capitalize on industry consolidation opportunities - The COVID-19 pandemic and the US-China trade war have hindered terminal consumption and exports in the apparel industry, leading to a weak domestic and foreign trade market[12] - The Company will implement measures including exploring e-commerce markets, enhancing product quality, shortening delivery times, integrating production capacity, optimizing processes, strengthening cost and capital management, and accelerating digital transformation and talent management[14] - The pandemic is expected to accelerate industry consolidation in the zipper sector, creating potential market expansion opportunities for the Company, which will review its business strategies and explore other investment opportunities[14] Financial Review For the six months ended June 30, 2020, the Group's revenue decreased by 32.5% year-on-year to approximately HK$79,260 thousand, shifting from a profit in the prior period to a loss of approximately HK$8,930 thousand, primarily due to reduced customer orders in the zipper business caused by the COVID-19 pandemic - For the six months ended June 30, 2020, the Group's revenue was approximately HK$79,260 thousand, representing a year-on-year decrease of 32.5%[15][17] - The Group recorded a loss attributable to owners of the Company of approximately HK$8,930 thousand, compared to a profit of approximately HK$4,910 thousand in the corresponding period of 2019[15] Revenue Analysis by Product Category | Product Category | 2020 (HK$'000) | % | 2019 (HK$'000) | % | | :--- | :--- | :--- | :--- | :--- | | Sales of goods | | | | | | Zippers and sliders | 78,128 | 98.6 | 115,749 | 98.5 | | Others | 1,127 | 1.4 | 1,720 | 1.5 | | Total | 79,255 | 100.0 | 117,469 | 100.0 | Revenue Analysis by Geographical Location | Geographical Location | 2020 (HK$'000) | % | 2019 (HK$'000) | % | | :--- | :--- | :--- | :--- | :--- | | Mainland China | 69,850 | 88.1 | 103,344 | 88.0 | | Overseas | 9,405 | 11.9 | 14,125 | 12.0 | | Total | 79,255 | 100.0 | 117,469 | 100.0 | Gross Profit Analysis by Product Category | Product Category | 2020 (HK$'000) | % | 2019 (HK$'000) | % | | :--- | :--- | :--- | :--- | :--- | | Zippers and sliders | 18,833 | 101.1 | 38,120 | 97.9 | | Others | (198) | (1.1) | 837 | 2.1 | | Total | 18,635 | 100.0 | 38,957 | 100.0 | - Distribution costs decreased by 26.5% year-on-year to approximately HK$5,420 thousand, primarily due to lower staff and transportation costs resulting from reduced sales[22] - Administrative expenses slightly decreased by 1.5% year-on-year to approximately HK$25,920 thousand, mainly because costs associated with the establishment of the Jingmen branch in 2019 were not incurred in 2020[22] - The Group recorded a loss attributable to owners of the Company of approximately HK$8,930 thousand for the period, with a loss margin of approximately 11.3%, primarily due to reduced revenue and gross profit from the zipper business[24] - The Company redeemed its remaining fund shares on March 25, 2020, receiving net proceeds of approximately HK$24,890 thousand, and recorded a fair value gain on financial assets at fair value through profit or loss of approximately HK$1,530 thousand for the six months ended June 30, 2020[25] - As of June 30, 2020, lease liabilities and right-of-use assets were approximately HK$57,600 thousand and HK$55,930 thousand, respectively, reflecting the impact of adopting HKFRS 16[28] Related Party Transactions and Continuing Connected Transactions The Group entered into multiple land and building lease agreements with related parties, including one-off and continuing connected transactions, involving properties in Hong Kong, a production base in Zhejiang Province, and properties in China, with total rental expenses increasing during the reporting period - The Group renewed the lease for a Hong Kong property with Success Point Limited (owned by Mr. Hui Sik Pang and Mr. Hui Sik Nam) for a monthly rent of HK$60 thousand for two years[30] - The Group renewed the lease for a production base in Zhejiang Province with Foshan Nanhai Jinheming Investment Co., Ltd. (owned by Mr. Hui Sik Pang and Mr. Hui Sik Nam) for a monthly rent of RMB417.3 thousand for two years[31] - The aforementioned lease renewals were identified as one-off connected transactions, involving an additional total right-of-use asset of approximately HK$25,040 thousand[34] - Continuing connected transactions include the renewal of a Hong Kong property lease with Success Point Limited (monthly rent of HK$51 thousand), the renewal of a Zhejiang production base lease with Nanhai Jinheming (monthly rent of RMB275 thousand), and the lease of a China property with Kaiyi (Jingmen) Garment Accessories Co., Ltd. (monthly rent of RMB400 thousand)[35][39] - For the six months ended June 30, 2020, the total rental expense under various lease agreements was approximately HK$5,199 thousand, with an additional rental expense of approximately HK$2,868 thousand from new lease renewals[42] Liquidity and Capital Resources The Group's net cash outflow from operating activities decreased, while investment activities shifted from outflow to inflow, primarily due to fund redemptions; net cash outflow from financing activities significantly increased, mainly for special dividend payments and lease liability settlements, resulting in a decrease in total cash and cash equivalents and a rise in the gearing ratio, which remains robust - For the six months ended June 30, 2020, net cash outflow from operating activities was approximately HK$8,600 thousand, a decrease year-on-year, mainly due to tax refunds and enhanced trade receivables collection[44] - Net cash inflow from investing activities was approximately HK$19,770 thousand, primarily attributable to the redemption of investment funds[44] - Net cash outflow from financing activities was approximately HK$45,780 thousand, mainly used for the payment of special dividends (approximately HK$34,860 thousand) and lease liabilities[44][45] - As of June 30, 2020, cash and cash equivalents amounted to approximately HK$54,260 thousand, a decrease of approximately HK$36,910 thousand from December 31, 2019[45] - As of June 30, 2020, the gearing ratio (total liabilities divided by total assets) was 34.0%, an increase from 29.3% as of December 31, 2019, but still considered robust[45] Net Current Assets The Group's net current assets decreased from approximately HK$135,000 thousand at the end of 2019 to approximately HK$88,980 thousand as of June 30, 2020, primarily due to the payment of a special dividend during the period - As of June 30, 2020, current assets were approximately HK$146,000 thousand, primarily comprising inventories, trade and other receivables, and cash and cash equivalents[47] - Current liabilities mainly include trade and other payables and lease liabilities[47] - Net current assets decreased by approximately HK$46,350 thousand to HK$88,980 thousand, mainly due to the payment of a special dividend[47] Pledged Assets and Contingent Liabilities As of June 30, 2020, the Group had no pledged assets or significant contingent liabilities - As of June 30, 2020, the Group had no pledged assets[48] - As of June 30, 2020, the Group had no significant contingent liabilities[49] Foreign Currency Risk The Group's foreign currency risk is limited as most transactions are denominated in their functional currencies, and no hedging against exchange rate fluctuations was undertaken during the reporting period - The foreign currency risk of individual companies within the Group is limited, as most transactions are denominated in their functional currencies[50] - For the six months ended June 30, 2020, the Group did not hedge against risks arising from exchange rate fluctuations[50] Employees and Remuneration As of June 30, 2020, the Group's employee count decreased by 8.3% year-on-year to 758, with a corresponding reduction in staff costs, and two executive directors resumed receiving salaries after waiving remuneration for a specific period - As of June 30, 2020, the Group had 758 employees, a decrease of approximately 8.3% compared to the same period in 2019[51] - For the six months ended June 30, 2020, staff costs were approximately HK$42,650 thousand, a year-on-year decrease, mainly due to reduced headcount resulting from lower production volume[51] - Mr. Zhuang Weidong and Mr. Qiu Chuanzhi waived their executive director's remuneration from April 1 to May 31, 2020, and resumed receiving a monthly salary of HK$10 thousand from June 1, 2020[53] Dividends The Company paid a special dividend of HK$0.075 per share, totaling HK$34,860 thousand, on March 3, 2020, and the Board recommended no interim dividend for the six months ended June 30, 2020 - On February 11, 2020, shareholders approved the payment of a special dividend of HK$0.075 per share from the share premium account, totaling HK$34,860.3 thousand, which was fully paid on March 3, 2020[54] - The Board recommended not to pay any interim dividend for the six months ended June 30, 2020[54] Events After Reporting Period Subsequent to the reporting period, the Group completed the acquisition of all equity and shareholder loans of a Chinese consulting service company on August 11, 2020, for a consideration of RMB2.177 million - On August 11, 2020, subsequent to the reporting period, the Group completed the acquisition of all equity and shareholder loans of a company incorporated in China (the "PRC Company") for a consideration of RMB2,177 thousand (equivalent to approximately HK$2,400 thousand)[161] Disclosure of Interests This section details the interests of directors, chief executives, substantial shareholders, and other relevant parties in the Company's shares, as well as information on directors' competing businesses and the share option scheme Directors' and Chief Executive's Interests in Shares As of June 30, 2020, several directors and chief executives held long positions in the Company's shares through controlled corporations, with Mr. Qiu Chuanzhi and Mr. Zhuang Weidong holding approximately 28.77% and 28.16% interests, respectively Directors' and Chief Executive's Long Positions in the Company's Shares | Director Name | Type of Interest | Number of Shares | Approximate Percentage of Interest | | :--- | :--- | :--- | :--- | | Qiu Chuanzhi | Interest in controlled corporation | 133,706,331 | 28.77% | | Zhuang Weidong | Interest in controlled corporation | 130,897,663 | 28.16% | | Lin Ping | Interest in controlled corporation | 82,342,606 | 17.72% | | Mai Rongbin | Interest in controlled corporation | 82,342,606 | 17.72% | - Mr. Qiu Chuanzhi wholly owns China Sun Corporation, Mr. Zhuang Weidong holds a 90% interest in Central Eagle Limited, and Ms. Lin Ping and Mr. Mai Rongbin hold 60% and 25% interests in Golden Diamond Inc., respectively[59] Substantial Shareholders' and Other Persons' Interests in Shares As of June 30, 2020, apart from the directors, China Huarong Overseas Investment Holding Co., Ltd. and its associated companies, through Noble Wisdom Ever Limited, held approximately 70.16% of the Company's shares, making them the largest substantial shareholders Substantial Shareholders' and Other Persons' Long Positions in the Company's Shares | Shareholder Name | Capacity | Number of Shares | Approximate Percentage of Interest | | :--- | :--- | :--- | :--- | | China Sun | Beneficial owner | 133,706,331 | 28.77% | | Central Eagle | Beneficial owner | 130,897,663 | 28.16% | | Golden Diamond | Beneficial owner | 82,342,606 | 17.72% | | Noble Wisdom Ever Limited | Security interest | 326,089,600 | 70.16% | | China Huarong Overseas Investment Holding Co., Ltd. | Interest in controlled corporation | 326,089,600 | 70.16% | | Huarong Overseas Asset Management Co., Ltd. | Interest in controlled corporation | 326,089,600 | 70.16% | | Huarong Zhiyuan Investment Management Co., Ltd. | Interest in controlled corporation | 326,089,600 | 70.16% | | China Huarong Asset Management Co., Ltd. | Interest in controlled corporation | 326,089,600 | 70.16% | - Noble Wisdom Ever Limited is wholly owned by China Huarong Overseas, which is wholly owned by Huarong Overseas, which holds a 91% interest in Huarong Zhiyuan, which is wholly owned by China Huarong Asset Management[68] Directors' Interests in Competing Businesses For the six months ended June 30, 2020, and up to the date of this report, no director held any interest in any business that competes with the Group's business - For the six months ended June 30, 2020, and up to the date of this interim report, no director held any direct or indirect interest in any business that competes with the Group's business[71] Share Option Scheme The Company has a share option scheme to reward employees for their contributions to the Group, with a maximum of 40 million shares issuable under the scheme as of June 30, 2020, but no options were granted, exercised, lapsed, or cancelled during the reporting period - The share option scheme aims to grant share options to selected employees as a reward for their contributions to the Group[72] - As of June 30, 2020, the maximum number of shares that may be issued upon exercise of share options under the scheme was 40 million shares, representing approximately 8.6% of the issued shares[72] - For the six months ended June 30, 2020, no outstanding share options existed under the Company's share option scheme, nor were any options granted, exercised, lapsed, or cancelled[74] Corporate Governance and Other Information This section outlines the Company's commitment to maintaining stringent corporate governance practices, compliance with the Model Code, and details regarding transactions involving its listed securities and the Audit Committee's review Corporate Governance Practices The Company is committed to maintaining stringent corporate governance guidelines and procedures and has complied with all provisions of the Corporate Governance Code - The Company has complied with all provisions contained in the Corporate Governance Code and is committed to maintaining stringent corporate governance guidelines and procedures[76] Compliance with Model Code by Directors and Relevant Employees The Company has adopted the Model Code as the code of conduct for directors' securities transactions, with all directors confirming compliance during the reporting period, and has also established a code of conduct for relevant employees no less exacting than the Model Code - The Company has adopted the Model Code as the code of conduct for directors' securities transactions, and all directors confirmed compliance throughout the reporting period[77] - The Company has also adopted a code of conduct for relevant employees who may possess inside information, requiring them to comply when dealing in the Company's securities[77] Purchase, Sale or Redemption of the Company's Listed Securities For the six months ended June 30, 2020, 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, 2020, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities[78] Audit Committee The Group's unaudited interim report for the six months ended June 30, 2020, has been reviewed by the Board's Audit Committee - The Group's unaudited interim report for the six months ended June 30, 2020, has been reviewed by the Board's Audit Committee[79] Condensed Consolidated Statement of Profit or Loss For the six months ended June 30, 2020, the Group shifted from a profit in the prior period to a loss, primarily due to a significant decline in revenue and a sharp reduction in gross profit, recording a loss before tax of HK$8,587 thousand compared to a profit of HK$8,812 thousand in the prior year Condensed Consolidated Statement of Profit or Loss (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Revenue | 79,255 | 117,469 | | Cost of sales | (60,620) | (78,512) | | Gross Profit | 18,635 | 38,957 | | Other income and gains / (losses) – net | 6,079 | 5,543 | | Distribution costs | (5,416) | (7,368) | | Administrative expenses | (25,924) | (26,311) | | Interest on lease liabilities | (1,961) | (2,009) | | (Loss) / Profit before tax | (8,587) | 8,812 | | Income tax credit / (expense) | 24 | (2,466) | | (Loss) / Profit for the period | (8,563) | 6,346 | | (Loss) / Profit for the period attributable to owners of the Company | (8,928) | 4,913 | | (Loss) / Profit for the period attributable to non-controlling interests | 365 | 1,433 | | Basic and diluted (loss) / earnings per share (HK cents) | (1.9) | 1.1 | Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended June 30, 2020, the Group shifted from a profit to a loss for the period, and other comprehensive income was negative due to exchange differences, resulting in a total comprehensive income of negative HK$13,227 thousand compared to positive HK$8,452 thousand in the prior year Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | (Loss) / Profit for the period | (8,563) | 6,346 | | Other comprehensive income for the period | | | | – Exchange differences on translation of financial statements of Mainland China subsidiaries | (4,664) | 2,106 | | Total comprehensive income for the period | (13,227) | 8,452 | | Attributable to owners of the Company | (12,807) | 6,655 | | Attributable to non-controlling interests | (420) | 1,797 | | Total comprehensive income for the period | (13,227) | 8,452 | Condensed Consolidated Statement of Financial Position As of June 30, 2020, the Group's total assets decreased compared to the end of 2019, and net current assets also significantly reduced, while non-current assets remained relatively stable and current liabilities slightly declined Condensed Consolidated Statement of Financial Position (As of June 30) | Indicator | 2020 June 30 (HK$'000) | 2019 December 31 (HK$'000) | | :--- | :--- | :--- | | Non-current assets | | | | Property, plant and equipment | 76,447 | 79,243 | | Right-of-use assets | 55,933 | 52,042 | | Intangible assets | 275 | 885 | | Prepayments for property, plant and equipment | 2,145 | 3,004 | | Lease deposits | 5,334 | 3,986 | | Deferred tax assets | 3,125 | 3,185 | | Total non-current assets | 143,259 | 142,345 | | Current assets | | | | Inventories | 32,515 | 34,425 | | Financial assets at fair value through profit or loss | – | 23,583 | | Trade and other receivables | 58,975 | 44,698 | | Current tax recoverable | 421 | 2,123 | | Cash and cash equivalents | 54,264 | 91,174 | | Total current assets | 146,175 | 196,003 | | Current liabilities | | | | Trade and other payables | 39,498 | 44,344 | | Lease liabilities | 17,699 | 16,327 | | Total current liabilities | 57,197 | 60,671 | | Net current assets | 88,978 | 135,332 | | Total assets less current liabilities | 232,237 | 277,677 | | Non-current liabilities | | | | Lease liabilities | 39,904 | 37,257 | | Deferred tax liabilities | 1,124 | 1,124 | | Total non-current liabilities | 41,028 | 38,381 | | Net assets | 191,209 | 239,296 | | Total equity | 191,209 | 239,296 | Condensed Consolidated Statement of Changes in Equity For the six months ended June 30, 2020, total equity attributable to owners of the Company significantly decreased from HK$216,600 thousand as of January 1, 2020, to HK$169,000 thousand at period-end, primarily due to the loss for the period, a reduction in exchange reserves, and the payment of a special dividend Condensed Consolidated Statement of Changes in Equity (For the Six Months Ended June 30) | Indicator | Share Capital (HK$'000) | Share Premium (HK$'000) | Capital Reserve (HK$'000) | Statutory Reserve (HK$'000) | Exchange Reserve (HK$'000) | Retained Earnings (HK$'000) | Total Attributable to Owners of the Company (HK$'000) | Non-controlling Interests (HK$'000) | Total Equity (HK$'000) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at January 1, 2020 | 4,648 | 180,690 | 18,324 | 25,856 | (1,254) | (11,607) | 216,657 | 22,639 | 239,296 | | Loss for the period | – | – | – | – | – | (8,928) | (8,928) | 365 | (8,563) | | Other comprehensive income | – | – | – | – | (3,879) | – | (3,879) | (785) | (4,664) | | Total comprehensive income | – | – | – | – | (3,879) | (8,928) | (12,807) | (420) | (13,227) | | Special dividend | – | (34,860) | – | – | – | – | (34,860) | – | (34,860) | | Transfer to statutory reserve | – | – | – | 171 | – | (171) | – | – | – | | Balance at June 30, 2020 | 4,648 | 145,830 | 18,324 | 26,027 | (5,133) | (20,706) | 168,990 | 22,219 | 191,209 | Condensed Consolidated Statement of Cash Flows For the six months ended June 30, 2020, the Group's net cash outflow from operating activities decreased, net cash inflow from investing activities significantly increased, while net cash outflow from financing activities substantially rose, primarily due to the payment of a special dividend, resulting in a decrease in cash and cash equivalents to HK$54,264 thousand at period-end Condensed Consolidated Statement of Cash Flows (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Net cash used in operating activities | (8,598) | (13,282) | | Net cash from / (used in) investing activities | 19,771 | (12,136) | | Net cash used in financing activities | (45,783) | (9,161) | | Net decrease in cash and cash equivalents | (34,610) | (34,579) | | Cash and cash equivalents at January 1 | 91,174 | 78,587 | | Effect of foreign exchange rate changes | (2,300) | 279 | | Cash and cash equivalents at June 30 | 54,264 | 44,287 | Notes to the Unaudited Interim Financial Report This section provides detailed notes to the unaudited interim financial report, covering general information, basis of preparation, significant events, accounting policies, use of judgments and estimates, segment reporting, revenue, profit/loss before tax, income tax, earnings per share, property, plant and equipment, financial assets, receivables, cash, payables, capital, reserves, dividends, commitments, related party transactions, and events after the reporting period 1 General Information China Everbright Group Limited is an exempted company incorporated in the Cayman Islands, with its shares listed on The Stock Exchange of Hong Kong Limited - The Company is an exempted company incorporated in the Cayman Islands under the Companies Law of the Cayman Islands, and its shares are listed on The Stock Exchange of Hong Kong Limited[95] 2 Basis of Preparation The interim financial report is prepared in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Hong Kong Accounting Standard 34, utilizing management judgments, estimates, and assumptions, where actual results may differ - The interim financial report is prepared in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Hong Kong Accounting Standard 34 issued by the Hong Kong Institute of Certified Public Accountants[96] - The condensed consolidated interim financial statements require the use of management judgments, estimates, and assumptions, and actual results may differ from these estimates[96] 3 Significant Events The COVID-19 pandemic severely impacted the Group's operations, leading to demand setbacks, supply chain disruptions, and increased future uncertainty; despite reduced sales and cash flows, impairment assessments showed no impairment of non-financial assets, and the Group received government subsidies for employee wages and social security contribution reductions - The COVID-19 pandemic severely impacted the Group's operations, including demand setbacks, disruptions in inventory supply from key suppliers, and increased future uncertainty[98] - Despite reduced sales and cash flows, impairment assessments by independent valuers indicated no impairment of non-financial assets in cash-generating units[99][100] - The Group received government subsidies of approximately HK$598 thousand for Hong Kong employee wages and reduced social security contributions by approximately HK$2,304 thousand due to China's social security relief policies[102] 4 Principal Accounting Policies The condensed consolidated interim financial statements are prepared using the same accounting policies adopted in the 2019 annual financial statements, incorporating several new or revised Hong Kong Financial Reporting Standards effective in 2020, which had no significant impact on the Group's financial statements - The condensed consolidated interim financial statements are prepared in accordance with the same accounting policies adopted in the 2019 annual financial statements[104] - The Group adopted several new or revised Hong Kong Financial Reporting Standards, which had no significant impact on the condensed consolidated interim financial statements[105] 5 Use of Judgements and Estimates Management made significant judgments and estimates in preparing the financial statements, particularly impacted by COVID-19, concerning government subsidy compliance, non-financial asset impairment, inventory net realizable value, customer return probabilities, expected credit losses, and going concern assessment; despite performance decline, directors believe no material uncertainty exists regarding the Group's going concern for the next 18 months - The impact of COVID-19 necessitated significant judgments and estimates regarding government subsidy compliance, recoverable amounts of non-financial assets, net realizable value of inventories, probability of customer returns, and expected credit losses[107][108] - Despite the Group's performance decline during the period, the directors believe there are no material uncertainties that would cast significant doubt upon the Group's ability to continue as a going concern for the next 18 months[109] 6 Segment Reporting The Group is organized into two reportable segments by business line and geography: Zippers (Mainland China) and Zippers (Overseas); the Mainland China segment primarily manufactures and sells zipper products to domestic customers, while the Overseas segment procures from the Mainland China segment and sells to international customers, with the Mainland China segment shifting from profit to loss and the Overseas segment experiencing reduced profit for the six months ended June 30, 2020 - The Group is divided into two reportable segments: Zippers (Mainland China) and Zippers (Overseas)[110] - The Zippers (Mainland China) segment primarily manufactures and sells zipper products to customers in the Mainland China market, while the Zippers (Overseas) segment procures from the Mainland China segment and sells to customers in overseas markets[111] Segment Results (For the Six Months Ended June 30, 2020) | Indicator | Mainland China (HK$'000) | Overseas (HK$'000) | Total (HK$'000) | | :--- | :--- | :--- | :--- | | Revenue from external customers | 69,850 | 9,405 | 79,255 | | Reportable segment profit / (loss) | (563) | 655 | 92 | | Depreciation and amortisation for the period | 13,010 | 510 | 13,520 | | Reportable segment assets | 244,507 | 7,882 | 252,389 | | Reportable segment liabilities | 88,395 | 2,042 | 90,437 | Segment Results (For the Six Months Ended June 30, 2019) | Indicator | Mainland China (HK$'000) | Overseas (HK$'000) | Total (HK$'000) | | :--- | :--- | :--- | :--- | | Revenue from external customers | 103,344 | 14,125 | 117,469 | | Reportable segment profit | 10,182 | 1,002 | 11,184 | | Depreciation and amortisation for the period | 10,980 | 476 | 11,456 | | Reportable segment assets | 263,912 | 16,667 | 280,579 | | Reportable segment liabilities | 95,970 | 2,678 | 98,648 | Reconciliation of Reportable Segment Profit or Loss | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Reportable segment profit | 92 | 11,184 | | Elimination of unrealised gains and losses on inter-segment purchases of inventories, other assets and property, plant and equipment | 43 | 820 | | Reportable segment profit from external customers | 135 | 12,004 | | Other income and gains / (losses) – net | 6,079 | 5,543 | | Interest on lease liabilities | (1,961) | (2,009) | | Unallocated head office and corporate expenses | (12,840) | (6,726) | | (Loss) / Profit before tax | (8,587) | 8,812 | 7 Revenue The Group's primary business involves the manufacturing and sale of zippers, sliders, and related products; for the six months ended June 30, 2020, revenue from sales of goods amounted to HK$79,255 thousand, with zippers and sliders constituting the vast majority - The Group's principal business is the manufacturing and sale of zippers, sliders, and other related products[125] Revenue by Major Category (For the Six Months Ended June 30) | Revenue Category | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Sales of goods | | | | Zippers and sliders | 78,128 | 115,749 | | Others | 1,127 | 1,720 | | Total | 79,255 | 117,469 | - No individual customer's transactions exceeded 10% of the Group's revenue[127] 8 (Loss) / Profit Before Tax This section details the various expenses and income affecting the loss/profit before tax, including a year-on-year decrease in staff costs, an increase in other income and net gains, and changes in depreciation, amortization, and inventory costs Staff Costs (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Salaries, wages and other benefits | 40,641 | 43,624 | | Contributions to defined contribution retirement plans | 2,005 | 3,238 | | Total | 42,646 | 46,862 | Other Income and Gains / (Losses) – Net (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Fair value gain on financial assets at fair value through profit or loss | 1,526 | 5,519 | | Interest income | 137 | 542 | | Loss on disposal of property, plant and equipment | (25) | (19) | | Government grants | 2,300 | 563 | | Others | 2,141 | (1,062) | | Total | 6,079 | 5,543 | Other Items (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Depreciation and amortisation | | | | – Plant and equipment | 6,323 | 4,607 | | – Intangible assets | 601 | 391 | | – Right-of-use assets | 9,454 | 8,933 | | Total depreciation and amortisation | 16,378 | 13,931 | | Inventories written down (net of reversal) | 461 | (90) | | Cost of inventories | 60,620 | 78,512 | 9 Income Tax in Condensed Consolidated Statement of Profit or Loss For the six months ended June 30, 2020, the Group recorded an income tax credit of HK$24 thousand, compared to an income tax expense of HK$2,466 thousand in the prior period; Mainland China subsidiaries are subject to varying income tax rates, and dividends paid to non-PRC resident enterprise investors are subject to withholding income tax Income Tax in Condensed Consolidated Statement of Profit or Loss (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Current tax – PRC Enterprise Income Tax | (30) | 2,328 | | Deferred tax | 6 | 138 | | Total | (24) | 2,466 | - No income tax is payable in the Cayman Islands and British Virgin Islands, while Kaiyi Zipper Company Limited is subject to a 16.5% Hong Kong Profits Tax[133] - Kaiyi (Guangdong) Garment Accessories Co., Ltd., as a high-tech enterprise, enjoys a preferential income tax rate of 15% until 2021, while other Mainland China subsidiaries are subject to a statutory income tax rate of 25%[134] - Dividends paid by PRC resident enterprises to non-PRC resident enterprise investors are subject to a 10% withholding income tax, with eligible Hong Kong tax residents potentially qualifying for a reduced tax rate of 5%[134] 10 (Loss) / Earnings Per Share For the six months ended June 30, 2020, the Company's basic loss per share was 1.9 HK cents, compared to earnings per share of 1.1 HK cents in the prior period; diluted loss/earnings per share were the same as basic loss/earnings per share due to the absence of potential dilutive shares - Basic loss per share was calculated based on the loss attributable to owners of the Company of HK$8,928 thousand and the weighted average number of 464.8 million ordinary shares outstanding for the six months ended June 30, 2020, resulting in 1.9 HK cents[136] - As there were no potential dilutive shares outstanding for the six months ended June 30, 2019 and 2020, diluted (loss) / earnings per share were equal to basic (loss) / earnings per share[137] 11 Property, Plant and Equipment For the six months ended June 30, 2020, the Group's cost of additions to property, plant, and equipment (including payments for construction in progress) was HK$5,027 thousand, a decrease compared to the prior period - For the six months ended June 30, 2020, the Group acquired property, plant, and equipment (including payments for construction in progress) at a cost of HK$5,027 thousand, a decrease from HK$10,002 thousand in the corresponding period of 2019[138] 12 Financial Assets at Fair Value Through Profit or Loss The Group redeemed its remaining shares in an unlisted investment fund during the six months ended June 30, 2020, receiving proceeds of approximately HK$25,109 thousand, thus no longer holding such financial assets at period-end; the fair value of the fund was measured using net asset value and categorized into three levels according to accounting standards - For the six months ended June 30, 2020, the Group redeemed its remaining shares in an unlisted investment fund, receiving proceeds of approximately HK$25,109 thousand[139] Financial Assets at Fair Value Through Profit or Loss | Indicator | 2020 June 30 (HK$'000) | 2019 December 31 (HK$'000) | | :--- | :--- | :--- | | Unlisted investment funds at fair value | – | 23,583 | - The fair value of the fund is calculated based on the net asset value reported by the fund manager and categorized into Level 1, Level 2, and Level 3 according to accounting standards[142] 13 Trade and Other Receivables As of June 30, 2020, the Group's total trade and other receivables amounted to HK$58,975 thousand, an increase from the end of 2019, with receivables within one month constituting the largest portion; all receivables are expected to be recovered within one year Ageing Analysis of Trade and Other Receivables | Ageing | 2020 June 30 (HK$'000) | 2019 December 31 (HK$'000) | | :--- | :--- | :--- | | Within 1 month | 38,173 | 11,379 | | Over 1 month but within 2 months | 6,900 | 14,645 | | Over 2 months but within 3 months | 4,285 | 6,969 | | Over 3 months | 3,697 | 8,697 | | Trade receivables and bills receivable, net of loss allowance | 53,055 | 41,690 | | Other prepayments | 3,963 | 1,490 | | Deposits and other receivables | 1,957 | 1,518 | | Total | 58,975 | 44,698 | - All trade and other receivables are expected to be recovered or recognized as expenses within one year[147] 14 Cash and Cash Equivalents As of June 30, 2020, the Group's cash and cash equivalents amounted to HK$54,264 thousand, a decrease from HK$91,174 thousand at the end of 2019 Cash and Cash Equivalents | Indicator | 2020 June 30 (HK$'000) | 2019 December 31 (HK$'000) | | :--- | :--- | :--- | | Bank and cash in hand | 54,264 | 91,174 | | Cash and cash equivalents in the condensed consolidated statement of cash flows | 54,264 | 91,174 | 15 Trade and Other Payables As of June 30, 2020, the Group's total trade and other payables amounted to HK$39,498 thousand, a decrease from HK$44,344 thousand at the end of 2019, with salaries and staff welfare payable and payables for property, plant, and equipment being the main components Ageing Analysis of Trade and Other Payables | Ageing | 2020 June 30 (HK$'000) | 2019 December 31 (HK$'000) | | :--- | :--- | :--- | | Within 1 month | 9,221 | 8,991 | | Over 1 month but within 3 months | 427 | 555 | | Over 3 months but within 6 months | – | 17 | | Over 6 months | 626 | 414 | | Trade payables | 10,274 | 9,977 | | Salaries and staff welfare payable | 13,588 | 19,449 | | Accrued expenses | 2,552 | 4,302 | | Payables for purchase of property, plant and equipment | 8,368 | 10,019 | | Other tax payables | 1,848 | – | | Contract liabilities | 2,412 | 592 | | Other payables | 456 | 5 | | Total | 39,498 | 44,344 | 16 Capital, Reserves and Dividends The Company paid a special dividend of HK$34,860 thousand in March 2020, but no interim dividend was declared for the six months ended June 30, 2020, while authorized and issued share capital remained unchanged Dividends (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Special dividend: declared: HK$0.075 per ordinary share | 34,860 | – | | Total | 34,860 | – | - No interim dividend was declared for the six months ended June 30, 2020[152] Authorized and Issued Share Capital | Indicator | 2020 June 30 Number of Shares (thousands) | 2020 June 30 Share Capital (HK$'000) | 2019 December 31 Number of Shares (thousands) | 2019 December 31 Share Capital (HK$'000) | | :--- | :--- | :--- | :--- | :--- | | Authorized: Ordinary shares of HK$0.01 par value each | 2,000,000 | 20,000 | 2,000,000 | 20,000 | | Ordinary shares, issued and fully paid: At January 1, June 30 and December 31 | 464,804 | 4,648 | 464,804 | 4,648 | 17 Commitments As of June 30, 2020, the Group's unfulfilled capital commitments not provided for in the consolidated financial statements amounted to HK$2,470 thousand, a decrease from the end of 2019 Unfulfilled Capital Commitments | Indicator | 2020 June 30 (HK$'000) | 2019 December 31 (HK$'000) | | :--- | :--- | :--- | | Contracted for | 2,470 | 4,464 | 18 Significant Related Party Transactions The Group engaged in multiple lease transactions with related parties (Mr. Hui Sik Pang and Mr. Hui Sik Nam and their controlled companies) involving plant, land, and buildings, with total rental expenses for these transactions increasing during the reporting period; this section also discloses key management personnel compensation - The Group renewed lease agreements with Mr. Hui Sik Pang and Mr. Hui Sik Nam for certain leases and buildings, with rent paid amounting to HK$2,381 thousand for the six months ended June 30, 2020[156] - The Group leased back assets from Success Point Limited and Foshan Nanhai Jinheming Investment Co., Ltd., with rents paid amounting to HK$356 thousand and HK$2,684 thousand, respectively, for the six months ended June 30, 2020[157] - The Company entered into lease agreements with Kaiyi (Jingmen) Garment Accessories Co., Ltd. for certain leased land and buildings, with rent paid amounting to HK$2,646 thousand for the six months ended June 30, 2020[159] Key Management Personnel Compensation (For the Six Months Ended June 30) | Indicator | 2020 (HK$'000) | 2019 (HK$'000) | | :--- | :--- | :--- | | Short-term employee benefits | 5,334 | 3,464 | | Contributions to retirement schemes | 95 | 138 | | Total | 5,429 | 3,602 | 19 Events After Reporting Period Subsequent to the reporting period, the Group completed the acquisition of all equity and shareholder loans of a Chinese consulting service company on August 11, 2020, for a consideration of RMB2.177 million - Subsequent to the end of the reporting period, on August 11, 2020, the Group completed the acquisition of all equity and shareholder loans of a company incorporated in China (the "PRC Company") for a consideration of RMB2,177 thousand (equivalent to approximately HK$2,400 thousand)[161] Glossary This section provides definitions for key terms used throughout the interim report, including Board, Corporate Governance Code, Company, Directors, Group, HK$, Hong Kong, Listing Rules, Main Board, Model Code, OEM, PRC, RMB, SFO, Shares, Shareholders, and Stock Exchange - This section defines key terms used in the interim report, such as "Board," "Corporate Governance Code," "Company," "Group," "HK$," "Listing Rules," "OEM," and "PRC"[163][166][167][168][169][170]