凯知乐国际(02122) - 2019 - 年度财报

Company Information This section provides an overview of the company's fundamental corporate details, including its board of directors, key personnel, and operational addresses Board of Directors The company's Board of Directors comprises executive, non-executive, and independent non-executive directors, with established audit, remuneration, and nomination committees to ensure robust corporate governance - The Board members include Executive Directors Mr. Li Ching Yiu (Chairman and CEO), Mr. Hung Shing Ming, Ms. Zhong Mei; Non-executive Directors Mr. Du Ping, Ms. Duan Lanchun; and Independent Non-executive Directors Mr. Cheng Yuk Wo, Mr. Wong Ka Chun, Dr. Lam Ka Lai[2] - Mr. Cheng Yuk Wo chairs the Audit Committee, Mr. Wong Ka Chun chairs the Remuneration Committee, and Dr. Lam Ka Lai chairs the Nomination Committee[2] Company Secretary and Authorized Representatives Mr. Chan Chun Yeung serves as the Company Secretary and one of the Authorized Representatives, sharing responsibilities with Chairman Mr. Li Ching Yiu - The Company Secretary is Mr. Chan Chun Yeung, and the Authorized Representatives are Mr. Li Ching Yiu and Mr. Chan Chun Yeung[2] Independent Auditor PricewaterhouseCoopers serves as the company's independent auditor - The independent auditor is PricewaterhouseCoopers[2] Registered Office and Principal Places of Business The company maintains its registered office in the Cayman Islands, with its China headquarters in Beijing and principal place of business in Hong Kong located in Wan Chai - The registered office is in the Cayman Islands, the China headquarters and principal place of business are in Chaoyang District, Beijing, and the principal place of business in Hong Kong is in Wan Chai, Hong Kong[2][3] Principal Banks The company maintains banking relationships with several major banks in both Hong Kong and mainland China - Principal banks in Hong Kong include Bank of China (Hong Kong) Limited and OCBC Wing Hang Bank Limited[3] - Principal banks in mainland China include China Construction Bank, China Minsheng Bank, DBS Bank, and Industrial and Commercial Bank of China[3] Legal Advisor and Company Website Sidley Austin serves as the company's legal advisor in Hong Kong, and the company maintains an official website - The legal advisor (Hong Kong law) is Sidley Austin[3] - The company website is www.kidslandholdings.com[3](index=3&type=chunk) Chairman's Statement This report summarizes the company's performance, strategic initiatives, and financial outlook for the past year 2019 Operating Environment and Performance Review In 2019, the company faced multiple challenges including the US-China trade war, social unrest in Hong Kong, and the COVID-19 pandemic, yet achieved a 3.6% revenue growth and turned adjusted EBITDA positive through its turnaround plan - The 2019 operating environment was challenging, impacted by the US-China trade war, social unrest in Hong Kong, and the COVID-19 pandemic[5] 2019 Key Financial Performance | Indicator | 2019 (RMB million) | 2018 (RMB million) | Change Rate | | :--- | :--- | :--- | :--- | | Revenue | 1,710.0 | 1,650.1 | +3.6% | | Total Selling, Distribution and General Administrative Expenses | 739.0 | 779.3 | -5.2% | | Adjusted EBITDA | 17.7 | (3.8) | Turned from loss to profit | Future Strategic Direction Facing market changes, the company will transform into a data-driven, customer-centric digital platform organization, focusing on internal digitalization, external consumer and business partner management, and enhancing competitiveness through a new brand image and omnichannel shopping experience - The company will transform into a data-driven, customer-centric, and digital platform organization, building relationships with suppliers, business partners, and end customers[7] - Internally, a lean, agile, and fully digitalized organization will be built to connect frontline staff with back-office support, enhancing communication and operational efficiency[8] - Externally, the focus will be on managing end consumers and business partners, establishing stronger relationships through online and offline interactions, providing unique value, and sharing market insights[8][10] - A new company logo will be launched to broaden age, gender, and cultural appeal, and virtual stores will open in mainland China to offer a seamless omnichannel shopping experience[11] Financial Management and Risk Response The company will continue prudent financial management, focusing on cash flow, inventory, and profit management, and will apply lessons from the COVID-19 pandemic to strengthen channel and product diversification, stakeholder relations, and supply chain management - Financial management will remain prudent, focusing on cash flow, inventory, and profit management, emphasizing quality growth[11] - Lessons from the COVID-19 pandemic will be incorporated into daily management, including channel and product diversification, key stakeholder relationship management, supply chain, and logistics[11] Directors and Senior Management This section details the profiles, experience, and responsibilities of the company's board members and key senior management personnel Directors This section provides detailed backgrounds, experience, and key responsibilities of the company's executive, non-executive, and independent non-executive directors, showcasing the diverse professional expertise of the Board members - Executive Director Mr. Li Ching Yiu, the Group's founder, is responsible for overall management, strategy, and operations, with 28 years of experience in the toy industry[14] - Mr. Hung Shing Ming was appointed Executive Director on January 1, 2019, responsible for strategic development and corporate financial management, with over 18 years of experience in investment and corporate banking[14] - Ms. Zhong Mei, an Executive Director, is responsible for managing the Group's mainland China operations, possessing extensive experience in sales and marketing[15] - Independent Non-executive Directors Mr. Cheng Yuk Wo, Mr. Wong Ka Chun, and Dr. Lam Ka Lai all possess extensive professional experience and broad social roles, providing independent oversight and expert advice to the company[18][19][23] Senior Management This section introduces the company's senior management team, including directors and managers responsible for retail, wholesale, consignment, marketing, finance, and Hong Kong retail operations in mainland China, all possessing extensive industry experience - Ms. Zhang Ying is the National Director, managing sales and operations for retail stores across mainland China and overseeing LCS (LEGO Certified Store) business in mainland China[27] - Mr. Yang Kewei is the National Director, overseeing wholesale distribution in mainland China[28] - Mr. Chan Chun Yeung is the Group Financial Controller, responsible for finance, accounting, and company secretarial daily affairs[29] - Mr. Ng Kwok Shek is the Group General Manager, responsible for overseeing Hong Kong retail operations[30] Management Discussion and Analysis This section provides a comprehensive review of the company's operational and financial performance, including key trends, risks, and future strategies Retail and Wholesale Business As of December 31, 2019, the company's distribution network included self-operated retail channels (retail stores, consignment counters, online stores) and wholesale channels (distributors, chain hypermarkets and supermarkets, key online customers), with optimized adjustments to the number of retail stores, consignment counters, and distributors - As of December 31, 2019, the company operated 744 self-operated retail sales points (retail stores and consignment counters) and 20 online stores[36] - Wholesale channels included 697 distributors (2018: 931), 16 chain hypermarkets and supermarkets, and 5 key online customers (2018: 7)[36][40][46] Retail Stores and Consignment Counters Quantity Changes (2018-2019) | Type | 2019 | 2018 | | :--- | :--- | :--- | | Retail Stores (Beginning of Year) | 257 | 245 | | Retail Stores (New) | 22 | 40 | | Retail Stores (Closed) | (40) | (28) | | Retail Stores (End of Year) | 239 | 257 | | Consignment Counters (Beginning of Year) | 519 | 535 | | Consignment Counters (New) | 43 | 56 | | Consignment Counters (Closed) | (57) | (72) | | Consignment Counters (End of Year) | 505 | 519 | - The number of distributors decreased from 931 in 2018 to 697 in 2019, but efficiency and effectiveness improved, with the company focusing on larger distributors[40] Financial Review In 2019, the company's revenue grew by 3.6% year-on-year to RMB 1.71 billion, with significant growth in wholesale channel revenue. Gross profit margin decreased, but adjusted EBITDA turned positive due to cost control. The loss for the year narrowed, but the cash conversion cycle lengthened 2019 Revenue Overview | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | Change Rate | | :--- | :--- | :--- | :--- | | Total Revenue | 1,710,041 | 1,650,108 | +3.6% | | Self-operated Retail Channel Revenue | 1,222,635 | 1,221,456 | +0.1% | | Wholesale Channel Revenue | 487,406 | 428,652 | +13.7% | | Online Store Revenue | 91,167 | 83,734 | +8.9% | | Retail Store Revenue | 656,550 | 618,018 | +6.2% | | Consignment Counter Revenue | 474,918 | 519,704 | -8.6% | | Distributor Revenue | 378,927 | 322,526 | +17.5% | | Key Online Customer Revenue | 83,155 | 72,734 | +14.3% | 2019 Gross Profit and Gross Profit Margin | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | Change Rate | | :--- | :--- | :--- | :--- | | Cost of Sales | 1,031,241 | 947,754 | +8.8% | | Gross Profit | 678,800 | 702,354 | -3.4% | | Gross Profit Margin | 39.7% | 42.6% | -2.9 percentage points | | Mainland China Adjusted Gross Profit Margin | 41.9% | 42.8% | -0.9 percentage points | - Other income primarily consisted of government grants, increasing from RMB 6.3 million in 2018 to RMB 14.6 million in 2019[54] - Net other losses increased to RMB 28.1 million, mainly due to fair value losses of approximately RMB 16.5 million on financial assets at fair value through profit or loss[55] - Selling and distribution expenses decreased by 2.1% to RMB 657.4 million, and general and administrative expenses decreased by 24.3% to RMB 81.6 million, primarily due to cost control and the adoption of HKFRS 16[57][58] 2019 Profitability Indicators | Indicator | 2019 (RMB million) | 2018 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Loss for the Year | (79.5) | (84.6) | Narrowed | | Adjusted EBITDA | 17.7 | (3.8) | Turned from loss to profit | | Adjusted Loss for the Year | (20.5) | (47.5) | Narrowed | - The cash conversion cycle increased from 142 days in 2018 to 148 days in 2019[65] Liquidity and Financial Resources As of the end of 2019, the company's cash and bank balances significantly decreased, both current ratio and quick ratio declined, and it shifted from a net cash to a net debt position, primarily due to the adoption of HKFRS 16 2019 Liquidity and Financial Resources | Indicator | 2019 (RMB million) | 2018 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Cash and Bank Balances | 36.2 | 112.2 | -67.8% | | Current Ratio | 1.9 | 2.9 | Decreased | | Quick Ratio | 0.9 | 1.2 | Decreased | | Bank Loans and Trade Finance | 118.0 | 110.1 | +7.2% | | Loans from Related Companies | 35.8 | 0 | New | - The company shifted from a net cash position of RMB 112.2 million at the end of 2018 to a net debt position of RMB 170.2 million at the end of 2019, with a gearing ratio of approximately 27%[70] - The increase in the net debt to equity ratio was primarily due to the recognition of right-of-use assets and lease liabilities following the adoption of HKFRS 16 "Leases"[70] - The company has no significant contingent liabilities and faces foreign exchange risks from USD, EUR, JPY, and HKD against RMB, but has adopted RMB as its presentation currency to mitigate the impact[72][73] Directors' Report This report outlines the company's principal activities, financial results, corporate governance practices, and other statutory disclosures for the year Principal Activities and Performance Analysis The company primarily engages in toy retail and the retail and wholesale of toys and baby products in Hong Kong and mainland China, with performance analyzed by revenue channel and geographical segment - The company's principal business is investment holding, with its subsidiaries engaged in toy retail in Hong Kong and toy and baby product retail and wholesale in China[76] - The Group's performance analysis by revenue channel (e.g., retail, wholesale) and geographical segment is presented in Note 5 to the consolidated financial statements[77] Business Review and Prospects This section reviews key financial performance indicators for the year ended December 31, 2019, and outlines future business developments - Key financial performance indicators can be found in the Chairman's Statement and Management Discussion and Analysis[78] Events After Reporting Period Since January 2020, the COVID-19 pandemic has significantly impacted the company's operating environment, leading to active negotiations with landlords for rent concessions and consideration of business strategy adjustments, which may affect financial performance in 2020 and beyond - Since January 2020, the COVID-19 pandemic has erupted in China and Hong Kong, affecting the general business environment in the regions where the company operates[81] - The company is actively negotiating rent concessions with landlords and considering adjustments to its overall business strategy, including product and geographical mix[81] - The COVID-19 pandemic may impact financial performance in 2020 and subsequent years, as well as impairment tests for cash-generating units and the recoverability of sales returns and trade receivables[81][82] Results The company's results for 2019 are presented in the consolidated statement of profit or loss and other comprehensive income - The Group's results for 2019 are presented in the consolidated statement of profit or loss and other comprehensive income on page 48[86] Final Dividend and Dividend Policy The Board does not recommend a final dividend for 2019. The company's dividend policy aims to provide sustained returns and stable dividend payments to shareholders, considering various financial and market factors - For the year ended December 31, 2019, the Board does not recommend a final dividend (2018: nil)[87] - The primary objective of the dividend policy is to provide sustained returns and stable dividend payments to shareholders, considering factors such as the company's financial performance, retained earnings, working capital needs, liquidity position, economic conditions, and legal restrictions[88][89] Annual General Meeting and Share Register Closure The company will hold its Annual General Meeting on June 10, 2020, and the share register will be closed from June 5 to June 10, 2020 - The company will hold its Annual General Meeting on Wednesday, June 10, 2020[90] - The share register will be closed from Friday, June 5, 2020, to Wednesday, June 10, 2020, to determine eligibility for attendance and voting[91] Environmental Protection and Compliance with Laws and Regulations The company is committed to environmental sustainability, complies with all environmental laws and regulations, and will publish its Environmental, Social and Governance Report within several months after the annual report - The company is committed to supporting environmental sustainability and complies with all environmental laws and regulations enacted by national and provincial governments in China[92] - There were no significant non-compliance or illegal incidents within the company during 2019[80] - The Environmental, Social and Governance Report will be prepared with reference to the guidelines in Appendix 27 of the Listing Rules and published on the company's website within several months after the publication of this annual report[92] Five-Year Financial Summary A summary of the company's results, assets, and liabilities for the most recent five financial years is presented in the report - A summary of the Group's results, assets, and liabilities for the most recent five financial years is presented on page 120[93] Share Capital and Reserves The company's share capital remained unchanged during the year, while distributable reserves decreased. Share premium may be used to pay dividends in accordance with the Cayman Islands Companies Law - Changes in the company's share capital during the year are presented in Note 28 to the consolidated financial statements[94] - As of December 31, 2019, the company's distributable reserves to shareholders amounted to approximately RMB 312.2 million (2018: RMB 328.7 million)[97] - In accordance with the Cayman Islands Companies Law, share premium (subject to the provisions of the company's memorandum and articles of association) may be used to make distributions or pay dividends to shareholders[97] Purchase, Sale or Redemption of the Company's Listed Securities For the year ended December 31, 2019, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities - For the year ended December 31, 2019, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities[95] Major Customers and Suppliers The company's top five suppliers account for 86% of total purchases, with the largest supplier accounting for 60%. The top five customers account for 10% of total sales. No directors, close associates, or major shareholders hold interests in major customers or suppliers - The percentage of purchases attributable to the Group's top five suppliers accounted for approximately 86% of the Group's total purchases; while the largest supplier accounted for approximately 60% of the Group's total purchases[100] - The percentage of sales attributable to the Group's top five customers for the year accounted for approximately 10% of the Group's total sales[100] - No directors, their close associates, or shareholders holding more than 5% of the company's share capital had any interest in any of the Group's top five suppliers or customers[101] Directors and Independence Confirmation The company's Board of Directors includes executive, non-executive, and independent non-executive directors. Some directors will retire by rotation and are eligible for re-election. The company has received independence confirmations from all independent non-executive directors - The Board of Directors comprises Mr. Li Ching Yiu (Chairman and CEO), Mr. Hung Shing Ming, Ms. Zhong Mei (Executive Directors); Mr. Du Ping, Ms. Duan Lanchun (Non-executive Directors); Mr. Cheng Yuk Wo, Mr. Wong Ka Chun, Dr. Lam Ka Lai (Independent Non-executive Directors)[102] - Ms. Duan Lanchun, Mr. Cheng Yuk Wo, and Mr. Wong Ka Chun will retire at the 2020 Annual General Meeting and are eligible for re-election[102] - The company has received annual confirmations of independence from each independent non-executive director in accordance with Rule 3.13 of the Listing Rules and considers all of them to be independent[105] Directors' Shareholdings As of December 31, 2019, certain directors and their associates held shares in the company, with Mr. Li Ching Yiu holding 53.15% of shares through controlled corporations Directors' and Associates' Shareholdings (December 31, 2019) | Director Name | Nature of Interest | Number of Shares | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | | Mr. Li Ching Yiu | Beneficial Owner | 14,000,000 | 1.75% | | | Held by Controlled Corporation | 425,224,523 | 53.15% | | Mr. Hung Shing Ming | Beneficial Owner | 24,100,000 | 3.01% | | Ms. Zhong Mei | Beneficial Owner | 4,000,000 | 0.50% | | | Held by Controlled Corporation | 29,999,100 | 3.75% | | Mr. Du Ping | Beneficial Owner | 1,500,000 | 0.19% | | | Held by Controlled Corporation | 2,999,910 | 0.37% | - Mr. Li Ching Yiu is the sole shareholder of Asian Glory Holdings Ltd. and is deemed to have an interest in the company's shares through it[108] Share Option Schemes The company has a Post-IPO Share Option Scheme and a Pre-IPO Share Option Scheme designed to incentivize eligible participants. In 2019, 3,200,000 shares related to the Pre-IPO Share Option Scheme lapsed - The Post-IPO Share Option Scheme aims to encourage and reward eligible participants, including employees, directors, consultants, suppliers, customers, and distributors[113] - As of December 31, 2019, no share options were granted, exercised, cancelled, or lapsed under the Post-IPO Share Option Scheme[115] Pre-IPO Share Option Scheme Changes (2019) | Category | Outstanding at Beginning of Year | Exercised During Year | Lapsed or Cancelled | Granted During Year | Outstanding at End of Year | | :--- | :--- | :--- | :--- | :--- | :--- | | Directors | 9,500,000 | – | – | – | 9,500,000 | | Employees | 31,700,000 | – | 3,000,000 | – | 28,700,000 | | Total | 41,200,000 | – | 3,000,000 | – | 38,200,000 | - For the year ended December 31, 2019, share options granted under the Pre-IPO Share Option Scheme involving 3,200,000 relevant shares lapsed[118] Major Shareholders' Interests and Short Positions in Shares and Underlying Shares As of December 31, 2019, Ms. Tang Hoi Lun (spouse of Mr. Li Ching Yiu) was deemed to have an interest in 54.90% of the company's shares, with Asian Glory Holdings Ltd. being the largest shareholder, holding 53.15% of the shares Major Shareholders' Shareholdings (December 31, 2019) | Shareholder Name/Entity | Nature of Interest | Number of Shares | Percentage of Shareholding | | :--- | :--- | :--- | :--- | | Ms. Tang Hoi Lun | Spouse's Interest | 439,224,523 | 54.90% | | Asian Glory | Beneficial Owner | 425,206,524 | 53.15% | | FCPR Cathay Capital II | Held by Controlled Corporation | 78,777,637 | 9.85% | | Au Nain Bleu Limited | Beneficial Owner | 78,777,637 | 9.85% | - Ms. Tang Hoi Lun is the spouse of Mr. Li Ching Yiu and is deemed to have an interest in the company's shares in which Mr. Li Ching Yiu has an interest, pursuant to the Securities and Futures Ordinance[126] Connected Transactions The company has several continuing connected transactions, including leasing premises in China and Hong Kong, obtaining loans from a director, and an exclusive distribution agreement with Dongguan Silverlit Toys. Some transactions are fully exempt, while others require reporting, annual review, and announcement - Shanghai Kidsland leases premises in China from Longjun Development Limited, with total rent of approximately RMB 1.44 million in 2019, and Longjun Development is wholly owned by controlling shareholder Asian Glory[130] - Kidsland Hong Kong Limited obtained loan financing of approximately RMB 35.8 million from Libao Products Trading Limited, which is wholly owned by Chairman Mr. Li Ching Yiu[132] - An exclusive distribution agreement was entered into with Dongguan Silverlit Toys Co., Ltd., with purchases of approximately RMB 20.9 million in 2019. This agreement expired on December 31, 2019, and the company does not intend to renew it[135][137][141] - The independent non-executive directors have reviewed the continuing connected transactions and confirmed that they were entered into on normal or better commercial terms and are in the overall interests of the company's shareholders[140] Non-Competition Undertaking Controlling shareholders Mr. Li Ching Yiu and Asian Glory have provided a non-competition undertaking to the company, which was complied with during 2019 - Controlling shareholders Mr. Li Ching Yiu and Asian Glory have entered into a non-competition deed, undertaking not to directly or indirectly engage in any business competing with the Group's business[145] - The independent non-executive directors have reviewed and confirmed that the non-competition undertaking was complied with for the year ended December 31, 2019[145] Use of Proceeds from Initial Public Offering The company's net proceeds from its initial public offering were approximately HKD 288.3 million, primarily used for retail network expansion, product development, experience center construction, and working capital. As of the end of 2019, most funds were utilized as planned, with HKD 13.5 million remaining - Net proceeds from the initial public offering were approximately HKD 288.3 million[147] - The proceeds were used for expanding the retail network in China and Hong Kong, strengthening product development capabilities, developing experience centers, and increasing working capital[147] Use and Application of IPO Proceeds (As of December 31, 2019) | Use | As per Prospectus (HKD million) | Actual Utilized (HKD million) | Unutilized (HKD million) | | :--- | :--- | :--- | :--- | | Expand Retail Network (Mainland China Flagship Stores) | 60.5 | 60.5 | – | | Expand Retail Network (Kidsland and Babyland Stores) | 46.1 | 46.1 | – | | Expand Retail Network (LEGO Certified Stores) | 34.6 | 34.6 | – | | Update IT Systems, Develop E-commerce, and Enhance Store Image | 34.6 | 34.6 | – | | Strengthen Product Development Capabilities | 51.9 | 51.9 | – | | Develop Experience Centers and Related Products | 31.7 | 18.2 | 13.5 | | Working Capital and Other General Corporate Purposes | 28.9 | 28.9 | – | | Total | 288.3 | 274.8 | 13.5 | - As of the date of this annual report, the unutilized proceeds amount to approximately HKD 13.5 million, primarily designated for developing experience centers[150] Employees and Remuneration Policy As of the end of 2019, the company had approximately 2,100 employees, with remuneration packages compliant with laws and based on market conditions, experience, and qualifications. The company has share option schemes and provides training and professional development opportunities for employees - As of December 31, 2019, the Group had approximately 2,100 employees in China and Hong Kong (including self-employed and outsourced employees)[152] - Remuneration packages comply with the laws of the relevant jurisdictions and are determined based on market conditions, employee experience, and qualification levels; bonuses are granted based on employee performance and the Group's financial position[152] - The company adopted two share option schemes on October 20, 2017[152] Auditor PricewaterhouseCoopers served as the company's auditor for the 2019 financial year, and a resolution will be proposed at the Annual General Meeting for their re-appointment - The consolidated financial statements for the year ended December 31, 2019, were audited by PricewaterhouseCoopers[158] - The company will propose a resolution at the Annual General Meeting for the re-appointment of PricewaterhouseCoopers as the company's auditor[158] - Deloitte Touche Tohmatsu resigned as auditor in 2018, and the company currently appoints PricewaterhouseCoopers[159] Corporate Governance Report This report details the company's corporate governance framework, compliance with regulatory codes, and practices to ensure effective oversight and accountability Corporate Governance Practices The company has adopted and applied the Corporate Governance Code set out in Appendix 14 of the Listing Rules. The roles of Chairman and Chief Executive Officer are held by the same person, which deviates from Code Provision A.2.1, but the Board believes this structure is in the company's best interests - The company has adopted and applied the Corporate Governance Code set out in Appendix 14 of the Listing Rules[163] - The roles of Chairman and Chief Executive Officer are held by Mr. Li Ching Yiu, which deviates from Code Provision A.2.1, but the Board believes this structure provides strong and consistent leadership for the Group and is in the overall best interests of the company and its shareholders[163] Standard Code for Securities Transactions The company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Listing Rules as a guide for directors' dealings in company securities, and all directors have confirmed compliance with this code - The company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Listing Rules[167] - All directors have confirmed their compliance with the required standards set out in the Model Code for the entire year ended December 31, 2019[167] Leadership The Board is responsible for leading and overseeing the company, formulating overall strategy, and reviewing operational and financial performance. Comprising eight directors, including three independent non-executive directors, the Board ensures effective leadership and supervision - The Board is responsible for leading and overseeing the company, and for formulating the Group's overall strategy and reviewing its operational and financial performance[168] - The Board comprises eight directors, including three executive directors, two non-executive directors, and three independent non-executive directors[169] - All independent non-executive directors possess extensive experience and professional qualifications, and have provided annual written confirmations to the company confirming their independence[172] Directors' Continuous Professional Development All directors engage in continuous professional development through seminars, briefings, and reading relevant publications, ensuring they are fully informed and possess the necessary capabilities to fulfill their duties - All directors have provided the company with records of their training for the year ended December 31, 2019, through reading materials related to their duties and responsibilities and the latest regulatory developments[176] Directors' Training Categories | Director Name | Training Category | | :--- | :--- | | Mr. Li Ching Yiu | A, B | | Mr. Hung Shing Ming | A, B | | Ms. Zhong Mei | A, B | | Mr. Du Ping | A, B | | Ms. Duan Lanchun | A, B | | Mr. Cheng Yuk Wo | A, B | | Mr. Wong Ka Chun | A, B | | Dr. Lam Ka Lai | A, B | - The company continuously updates directors on the latest developments concerning the Listing Rules and other applicable regulatory requirements[176] Appointment and Re-election of Directors Non-executive directors are appointed for a specified term and are subject to re-election, with all directors retiring by rotation at least once every three years. New directors appointed to fill casual vacancies must stand for election at the first general meeting after their appointment - Each executive director has entered into a service agreement with the company for a term of three years, terminable by three months' written notice[177] - Each non-executive director and independent non-executive director has signed an appointment letter with the company for a term of three years, terminable by three months' written notice[177] - All directors are required to retire by rotation at least once every three years, and any new director appointed to fill a casual vacancy must stand for re-election by shareholders at the first general meeting after their appointment[178] Company Secretary Mr. Chan Chun Yeung serves as the Company Secretary and received over 15 hours of professional training during 2019 - Mr. Chan Chun Yeung, the Company Secretary, received no less than 15 hours of relevant professional training for the year ended December 31, 2019[180] Board Committees The company has an Audit Committee, Remuneration Committee, and Nomination Committee, each with clear terms of reference, and they hold regular meetings to fulfill their duties and enhance corporate governance - The company has an Audit Committee, Remuneration Committee, and Nomination Committee, whose terms of reference comply with the Corporate Governance Code[181] Audit Committee The Audit Committee, composed of three independent non-executive directors, is responsible for recommending the appointment of auditors, reviewing financial statements, and overseeing financial reporting, risk management, and internal control systems. It held three meetings in 2019 and deemed the risk management and internal control systems effective and adequate - The Audit Committee comprises three independent non-executive directors: Mr. Cheng Yuk Wo (Chairman), Mr. Wong Ka Chun, and Dr. Lam Ka Lai[182] - Its primary responsibilities include advising on the appointment of external auditors, reviewing draft financial statements, and overseeing the company's financial reporting, risk management, and internal control systems[182] - Three meetings were held in 2019 to review and discuss annual and interim results, auditor independence, accounting policies, and the effectiveness of internal control systems[183] - The Board believes that the company's risk management and internal control systems have no material deficiencies in terms of integrity, reasonableness, and effectiveness, and considers both the internal audit and internal control systems to be effective and adequate[184] Nomination Committee The Nomination Committee, composed of three independent non-executive directors, is responsible for reviewing Board composition, assessing independence, advising on director nominations, and succession planning. It held one meeting in 2019 to evaluate independence, re-elect directors, and review Board structure - The Nomination Committee comprises three independent non-executive directors: Dr. Lam Ka Lai (Chairman), Mr. Wong Ka Chun, and Mr. Cheng Yuk Wo[187] - Its primary responsibilities include reviewing the Board's composition, assessing the independence of independent non-executive directors, advising on director nominations, appointments or re-appointments, and succession planning[187] - One meeting was held in 2019 to assess the independence of independent non-executive directors, re-elect retiring directors, and review the Board's structure and composition[188] - When recommending director candidates, the committee considers various factors such as character, experience, commitment, background (e.g., gender, age, education, skills, knowledge), and contribution to the company[188] Remuneration Committee The Remuneration Committee, composed of two independent non-executive directors and one executive director, is responsible for advising on the remuneration policy and structure for directors and senior management. It held one meeting in 2019 to review remuneration policy and executive directors' performance - The Remuneration Committee comprises Mr. Wong Ka Chun (Chairman), Mr. Cheng Yuk Wo (Independent Non-executive Director), and Mr. Li Ching Yiu (Executive Director)[191] - Its primary responsibility is to advise on the remuneration policy and structure for all directors and senior management of the company[192] - One meeting was held in 2019 to review the company's remuneration policy and structure, as well as the remuneration packages of executive directors and senior management, and to assess the performance of executive directors[193] Directors and Senior Management Remuneration Range (2019) | Remuneration Range (HKD) | Number of Individuals | | :--- | :--- | | Below 1,000,000 | 5 | | 1,000,001 to 1,500,000 | 6 | | 1,500,001 to 2,000,000 | 2 | | 2,500,001 to 3,000,000 | 1 | | 8,500,001 to 9,000,000 | 1 | Board Diversity Policy The company has adopted a Board Diversity Policy, annually discussing and agreeing on measurable diversity objectives, including professional skills, experience, knowledge, gender, age, cultural, and educational background, to ensure optimal Board composition - The company understands and accepts the benefits of a diverse Board in enhancing performance and adopted a Board Diversity Policy on October 20, 2017[195] - The Nomination Committee will annually discuss and agree on measurable objectives for implementing Board diversity, including professional skills, experience, knowledge, expertise, culture, independence, age, and gender[197] - All Board appointments are made on a merit basis, while also considering diversity[197] Board Meetings The Board held four meetings in 2019, with all directors receiving advance notice and opportunities to include discussion items on the agenda, ensuring effective Board operations - The Board held four meetings during the financial year ended December 31, 2019[198] - The company has adopted a practice of holding at least four regular Board meetings annually, approximately quarterly, to discuss the Group's overall strategy and operational and financial performance[198] - All directors are given the opportunity to include any matter on the agenda for regular Board meetings and to review documents and information related to the matters to be discussed[198] Attendance Record This section lists the attendance records of Board members at Board meetings, various committees, and the Annual General Meeting for the 2019 fiscal year, demonstrating high attendance rates Board and Committee Attendance Record (FY2019) | Name | Board | Audit Committee | Nomination Committee | Remuneration Committee | Annual General Meeting | | :--- | :--- | :--- | :--- | :--- | :--- | | Mr. Li Ching Yiu | 4/4 | – | – | 1/1 | 1/1 | | Mr. Hung Shing Ming | 4/4 | – | – | – | 1/1 | | Ms. Zhong Mei | 4/4 | – | – | – | 1/1 | | Mr. Du Ping | 4/4 | – | – | – | 1/1 | | Ms. Duan Lanchun | 4/4 | – | – | – | 1/1 | | Mr. Cheng Yuk Wo | 4/4 | 3/3 | 1/1 | 1/1 | 1/1 | | Mr. Wong Ka Chun | 4/4 | 3/3 | 1/1 | 1/1 | 1/1 | | Dr. Lam Ka Lai | 4/4 | 3/3 | 1/1 | – | 1/1 | Auditor's Remuneration In 2019, the company paid approximately RMB 2.245 million to its auditor, PricewaterhouseCoopers, for audit services Auditor's Remuneration (2019) | Services Provided | Fees Paid/Payable (RMB thousand) | | :--- | :--- | | Audit Services | 2,245 | | Non-Audit Services | 58 | Directors' Responsibilities for Consolidated Financial Statements The Board is responsible for preparing true and fair consolidated financial statements, ensuring appropriate accounting policies, prudent judgments, and estimates are used to safeguard Group assets and prevent fraud - The Board understands its responsibility for preparing the company's consolidated financial statements for each financial year to present a true and fair view of the Group's and the company's affairs[204] - The Board has adopted appropriate accounting policies, made prudent and fair judgments and estimates, and prepared the accounts on the assumption that the company will continue to operate as a going concern in the foreseeable future[204] - Directors are responsible for taking all reasonable and necessary steps to safeguard the Group's assets and to prevent and detect fraud and other irregularities[204] Internal Control and Risk Management The Board, through the Audit Committee, regularly monitors and reviews the effectiveness of risk management and internal control systems, and engages external consultants for review. The company has adopted corporate governance policies and ensures compliance with procedures for handling and disseminating inside information - The Board understands its responsibility to regularly monitor and review the effectiveness of risk management and internal control systems through the Audit Committee to safeguard corporate governance[205] - The company engaged an external consulting firm to review the Group's internal control environment for the year ended December 31, 2019, and to assist the Group in adopting and implementing an enterprise risk management system[208] - The Board believes that the risk management and internal control systems are effective and adequate, with no significant areas of concern[208] - The company has taken measures to prevent breaches of disclosure requirements, including restricting access to information, requiring confidentiality, and complying with the Model Code, and is committed to complying with the disclosure requirements of the Securities and Futures Ordinance and the Listing Rules[208] Internal Audit Function The company has not established an internal audit department, but the Board believes engaging external professionals for independent review is more cost-effective and will review the need for an internal audit department at least annually - The company has not established an internal audit department[209] - The Board believes that engaging external professionals to conduct an independent review of the Group's risk management and internal control systems for adequacy and effectiveness is more cost-effective[209] - The Board will continue to review at least annually whether an internal audit department needs to be established[209] Shareholders' Rights The company facilitates communication with shareholders through general meetings and clarifies procedures for shareholders to convene extraordinary general meetings, raise inquiries, appoint directors, and propose resolutions - General meetings facilitate communication between shareholders and the Board, including Annual General Meetings and Extraordinary General Meetings[212] - Shareholders holding at least 10% of the company's paid-up share capital with voting rights may issue a written request to the Company Secretary to convene an Extraordinary General Meeting[213] - Shareholders may submit inquiries to the Company Secretary via mail or email[214] - Shareholders intending to nominate director candidates must submit written notice to the company's share registrar branch, accompanied by the nominee's biographical details and consent letter[215] - Shareholders must submit written notice of their proposals to the company's principal place of business in Hong Kong to propose resolutions at a general meeting[216] - In accordance with Rule 13.39(4) of the Listing Rules, all votes at general meetings must be taken by poll[219] Investor Relations The company is committed to maintaining ongoing dialogue with shareholders through annual general meetings and its website to enhance investor relations and provide information on business operations and financial performance - The company is committed to maintaining ongoing dialogue with shareholders, particularly through Annual General Meetings and other general meetings[221] - The company maintains a website (www.kidslandholdings.com) for public access to updates on its business operations and developments, financial information, corporate governance practices, and other information[222] Independent Auditor's Report This report presents the independent auditor's opinion on the fairness and accuracy of the company's consolidated financial statements Opinion Independent auditor PricewaterhouseCoopers believes that the company's consolidated financial statements truly and fairly reflect the Group's financial position as of December 31, 2019, and its financial performance and cash flows for the year then ended, in accordance with Hong Kong Financial Reporting Standards - The independent auditor believes that the consolidated financial statements truly and fairly reflect the Group's consolidated financial position as of December 31, 2019, and its consolidated financial performance and consolidated cash flows for the year then ended, in accordance with Hong Kong Financial Reporting Standards[226] Basis for Opinion and Independence The auditor conducted the audit in accordance with Hong Kong Standards on Auditing and confirmed independence from the Group, complying with the Code of Ethics for Professional Accountants - The auditor conducted the audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants[227] - The auditor is independent of the Group and has fulfilled other ethical responsibilities in accordance with the Code of Ethics for Professional Accountants[229] Key Audit Matters Key audit matters include assessing the net realizable value of inventory and performing impairment assessments for underperforming retail stores, both involving significant management judgment and estimation - Key audit matters include assessing the net realizable value of inventory and performing impairment assessments for the Group's underperforming retail stores[234] - The assessment of inventory's net realizable value involves management's judgment on historical sales, clearance sale plans, and selling expenses, with an inventory provision of approximately RMB 44.8 million at the end of 2019[232] - Retail store impairment assessment involves identifying loss-making stores, determining the provision amount for leasehold improvements and right-of-use assets, and using key assumptions under the discounted cash flow model[237] Directors' and Audit Committee's Responsibilities for Consolidated Financial Statements The Board is responsible for preparing true and fair consolidated financial statements and implementing necessary internal controls. The Audit Committee is responsible for overseeing the Group's financial reporting process - The company's directors are responsible for preparing true and fair consolidated financial statements in accordance with Hong Kong Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance[243] - Directors are responsible for implementing the internal controls necessary to ensure that the consolidated financial statements are free from material misstatement, whether due to fraud or error[243] - The Audit Committee is responsible for overseeing the Group's financial reporting process[245] Auditor's Responsibilities for Auditing Consolidated Financial Statements 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, and to exercise professional judgment and maintain professional skepticism throughout the audit - 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[246] - 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 to respond to those risks[247] - The auditor communicates with the Audit Committee regarding the planned scope and timing of the audit and significant audit findings, and confirms compliance with independence ethical requirements[249] Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended December 31, 2019, the company's revenue increased to RMB 1,710,041 thousand, but gross profit decreased. Operating loss narrowed, with a loss for the year of RMB 79,482 thousand and basic loss per share of RMB 10.28 cents Consolidated Statement of Profit or Loss and Other Comprehensive Income Summary (2019 vs 2018) | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Revenue | 1,710,041 | 1,650,108 | | Cost of Sales | (1,031,241) | (947,754) | | Gross Profit | 678,800 | 702,354 | | Other Income | 14,564 | 6,260 | | Other Losses, Net | (28,086) | (11,826) | | Operating Loss | (77,578) | (79,440) | | Finance Costs | (13,811) | – | | Loss Before Income Tax | (91,389) | (79,440) | | Income Tax Credit/(Expense) | 11,907 | (5,116) | | Loss for the Year | (79,482) | (84,556) | | Total Comprehensive Loss for the Year | (73,511) | (68,779) | | Loss Per Share, Basic and Diluted (RMB cents) | (10.28) | (10.30) | - Revenue increased by 3.6% year-on-year in 2019, but gross profit decreased by 3.4% year-on-year[252] - Loss for the year narrowed from RMB 84,556 thousand in 2018 to RMB 79,482 thousand in 2019[252] Consolidated Statement of Financial Position As of December 31, 2019, the company's total assets increased to RMB 1,184,858 thousand, but total equity decreased. Non-current assets significantly increased due to the recognition of right-of-use assets, while both current assets and net current assets decreased Consolidated Statement of Financial Position Summary (December 31, 2019 vs December 31, 2018) | Indicator | December 31, 2019 (RMB thousand) | December 31, 2018 (RMB thousand) | | :--- | :--- | :--- | | Non-current Assets | 301,666 | 108,165 | | Current Assets | 883,192 | 923,667 | | Total Assets | 1,184,858 | 1,031,832 | | Total Equity | 632,277 | 700,543 | | Non-current Liabilities | 97,876 | 8,161 | | Current Liabilities | 454,705 | 323,128 | | Net Current Assets | 428,487 | 600,539 | | Net Assets | 632,277 | 700,543 | - Non-current assets significantly increased from RMB 108,165 thousand in 2018 to RMB 301,666 thousand in 2019, primarily due to the recognition of right-of-use assets following the adoption of HKFRS 16[254] - Current assets decreased from RMB 923,667 thousand in 2018 to RMB 883,192 thousand in 2019[254] - Total equity decreased from RMB 700,543 thousand in 2018 to RMB 632,277 thousand in 2019[254] Consolidated Statement of Changes in Equity For the year ended December 31, 2019, the company's total comprehensive loss was RMB 73,511 thousand, primarily due to the loss for the year. Changes in accounting policies led to a decrease in retained earnings, but share-based payment expenses and share awards contributed by a shareholder increased equity Consolidated Statement of Changes in Equity Summary (2019 vs 2018) | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Balance at Beginning of Year (Restated) | 695,918 | 759,504 | | Loss for the Year | (79,482) | (84,556) | | Other Comprehensive Income/(Loss) for the Year | 5,971 | 15,777 | | Total Comprehensive Loss for the Year | (73,511) | (68,779) | | Change in Accounting Policies | (4,625) | – | | Recognition of Share-based Payment Expense | 6,431 | 20,929 | | Share Award Contributed by a Shareholder | 3,439 | 3,389 | | Balance at End of Year | 632,277 | 700,543 | - The total comprehensive loss for 2019 was RMB 73,511 thousand, primarily driven by the loss for the year of RMB 79,482 thousand[258] - The adoption of HKFRS 16 resulted in a decrease in retained earnings of RMB 4,625 thousand as of January 1, 2019[258] Consolidated Statement of Cash Flows For the year ended December 31, 2019, the company reported net cash inflow from operating activities of RMB 94,544 thousand, net cash outflow from investing activities of RMB 42,761 thousand, and net cash outflow from financing activities of RMB 120,088 thousand, resulting in a net decrease in cash and cash equivalents of RMB 68,305 thousand Consolidated Statement of Cash Flows Summary (2019 vs 2018) | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Net Cash From/(Used in) Operating Activities | 94,544 | (60,341) | | Net Cash Used in Investing Activities | (42,761) | (74,777) | | Net Cash Used in Financing Activities | (120,088) | (14,500) | | Net Decrease in Cash and Cash Equivalents | (68,305) | (149,618) | | Cash and Cash Equivalents at End of Year | 30,685 | 112,246 | - Operating cash flow shifted from a net outflow in 2018 to a net inflow in 2019, indicating improved operating conditions[259] - Net cash outflow from financing activities significantly increased, primarily due to payments for the principal portion of lease liabilities (RMB 113,637 thousand) and interest portion (RMB 13,426 thousand)[259] Notes to the Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the figures presented in the main financial statements 1 General Information The company and its subsidiaries primarily engage in the trading and sale of toys and baby products, operating mainly in mainland China and Hong Kong, and are listed on the Main Board of the Hong Kong Stock Exchange. These consolidated financial statements are presented in RMB - The Group is primarily engaged in the trading and sale of toys and baby products, operating mainly in mainland China and Hong Kong[261] - The company is listed on the Main Board of The Stock Exchange of Hong Kong Limited[262] - These consolidated financial statements are presented in RMB[263] 2 Summary of Significant Accounting Policies This section outlines the main accounting policies adopted by the company in preparing its consolidated financial statements, including changes in presentation currency (from HKD to RMB), the adoption of new and revised standards (particularly the impact of HKFRS 16 "Leases"), and the method of consolidating subsidiaries - The Group's consolidated financial statements are prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance Cap. 622[265] - During the year, the presentation currency for the Group's consolidated financial statements changed from HKD to RMB, applied retrospectively[266] - The Group adopted HKFRS 16 "Leases" from January 1, 2019, recognizing leases as right-of-use assets and corresponding liabilities on the date the leased asset is available for use by the Group[267][272] Impact of Adopting HKFRS 16 on Consolidated Statement of Financial Position as of January 1, 2019 | Item | December 31, 2018 (Restated) (RMB thousand) | Impact of Adopting HKFRS 16 (RMB thousand) | January 1, 2019 (Restated) (RMB thousand) | | :--- | :--- | :--- | :--- | | Property, Plant and Equipment | 61,670 | (5,664) | 56,006 | | Right-of-use Assets | – | 163,244 | 163,244 | | Deferred Tax Assets | 8,743 | 2,002 | 10,745 | | Lease Liabilities (Non-current) | – | 119,235 | 119,235 | | Lease Liabilities (Current) | – | 45,164 | 45,164 | | Retained Earnings | 270,808 | (4,625) | 266,183 | - Subsidiaries are fully consolidated from the date control is transferred to the Group and cease to be consolidated on the date control is lost[283] 3 Financial Risk Management This section describes the market risks (foreign exchange risk, interest rate risk), credit risk, and liquidity risk faced by the company, along with corresponding management strategies. The company shifted from a net cash to a net debt position, primarily due to the adoption of HKFRS 16 - The Group's operations expose it to various financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk, and liquidity risk[344] - The Group is primarily exposed to foreign exchange risk from HKD and USD against RMB, managing risk through regular review of net foreign currency positions, but without hedging[347][348] - Credit risk arises from cash and cash equivalents, bank deposits, and credit risk from wholesale and retail customers, with the company having policies to ensure credit terms for product sales are extended to customers with good credit records[352] - The Group applies the simplified approach under HKFRS 9 to measure expected credit losses for trade receivables, with a RMB 3,850 thousand increase in loss allowance for trade receivables in 2019[353][357] Capital Structure Analysis (December 31, 2019 vs December 31, 2018) | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Bank Balances and Cash | 30,685 | 112,246 | | Restricted Cash | 5,500 | – | | Loans from Related Companies | (13,695) | – | | Lease Liabilities | (192,647) | – | | Net (Debt)/Cash Position | (170,157) | 112,246 | | Total Equity | 632,277 | 700,543 | | Total Capital | 462,120 | 812,789 | - As of December 31, 2019, the Group was in a net debt position of RMB 170,157 thousand (2018: net cash position of RMB 112,246 thousand), with a gearing ratio of approximately 27%[365] 4 Significant Accounting Estimates and Judgments This section discloses the significa