水发兴业新材料(08073) - 2020 - 中期财报

CORPORATE INFORMATION Board and Management The report lists the company's board members, committee members (Audit, Remuneration, Nomination), and key management personnel, with Mr. Liu Hongwei serving as Non-executive Director and Chairman - The company's board of directors comprises three executive directors, one non-executive director, and three independent non-executive directors, with Mr. Liu Hongwei serving as the Non-executive Director and Chairman[12][13] - The company has established an Audit Committee, Remuneration Committee, and Nomination Committee, all with independent non-executive director participation, chaired by Ms. Pan Jianli, Mr. Pan Jianguo, and Mr. Liu Hongwei, respectively[12][13] Corporate Structure and Advisors The report details the company's legal advisors, auditor (Ernst & Young), principal bankers, registered office, and principal place of business, noting its GEM listing with stock code 8073 - The company's auditor is Ernst & Young[15] - The company is listed on the GEM of The Stock Exchange of Hong Kong Limited, with stock code 8073[18] CORPORATE GOVERNANCE Governance Compliance The company confirms compliance with GEM Listing Rules' Corporate Governance Code during the reporting period, with all directors adhering to the securities dealing code and no listed securities transactions - The company believes it has applied and complied with all applicable code provisions of Appendix 15 to the GEM Listing Rules, the Corporate Governance Code, for the six months ended June 30, 2020[20][23] - During the reporting period, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities[22][25] Audit Committee The Audit Committee, comprising three independent non-executive directors, oversees financial reporting and internal controls, having reviewed and approved the interim condensed consolidated financial statements for the six months ended June 30, 2020 - The Audit Committee comprises three independent non-executive directors: Ms. Pan Jianli (Chairperson), Mr. Pan Jianguo, and Dr. Li Ling[29][31] - The Audit Committee has reviewed the interim financial report and believes it has been prepared in accordance with applicable accounting principles and practices and has made adequate disclosures[30][31] OTHER INFORMATION Share Option Scheme The company's 2017 share option scheme has granted 9.44 million options, representing 1.815% of issued shares, with 5.56 million forfeited and 0.7 million lapsed in H1 2020 due to resignations - As of the reporting date, 9.44 million share options have been granted under the Share Option Scheme, representing 1.815% of the company's issued shares[39][42] - For the period ended June 30, 2020, a total of 5.56 million share options were forfeited due to the resignation of grantees, and 0.7 million share options were lapsed by one grantee[39][42] Substantial Shareholders' Interests As of June 30, 2020, Top Access Management Limited holds 62.37% of the company, wholly owned by Shuifa Singyes and ultimately controlled by Shuifa Group, with other major shareholders including AMATA Limited (7.69%) and Kunlun Holdings Group Co., Ltd. (5.00%) Substantial Shareholders' Interests as of June 30, 2020 | Shareholder Name | Number of Shares Held | Approximate Shareholding Percentage | | :--- | :--- | :--- | | Top Access Management Limited | 324,324,325 | 62.37% | | China Shuifa Singyes Energy Group Co., Ltd. | 324,324,325 | 62.37% | | AMATA Limited | 40,000,000 | 7.69% | | Kunlun Holdings Group Co., Ltd. | 26,021,206 | 5.00% | - The entire issued share capital of Top Access is legally and beneficially owned by Shuifa Singyes, approximately 66.92% equity interest of which is held by Shuifa Group (Hong Kong), which is ultimately wholly owned by Shuifa Group, thus Shuifa Group is deemed the ultimate controlling shareholder of the company[63] Directors' and Chief Executive's Interests As of June 30, 2020, Mr. Liu Hongwei, Non-executive Director and Chairman, is deemed to have an 8.08% interest in Shuifa Singyes, an associate of the company, through his controlled entity Strong Eagle Holdings Ltd - Mr. Liu Hongwei, Non-executive Director and Chairman, through holding 53% of the equity interest in Strong Eagle Holdings Ltd., is deemed to have an interest in 203.80 million shares of Shuifa Singyes, representing 8.08% of Shuifa Singyes' issued share capital[68][73] Competing Businesses The controlling shareholder, Shuifa Singyes, has confirmed compliance with its non-competition undertaking during the reporting period, with no competing businesses or conflicts of interest identified for directors, controlling shareholders, or their associates - The controlling shareholder, Shuifa Singyes, has confirmed its compliance with the undertakings in the non-competition deed for the six months ended June 30, 2020[75][77] - During the reporting period, none of the company's directors, controlling shareholders, or their respective close associates held any business or interest that competes or may compete with the Group's business[76][78] MANAGEMENT DISCUSSION AND ANALYSIS Business Review The Group primarily develops, produces, and sells ITO conductive films and smart dimming products, experiencing decreased sales and revenue across all product lines in H1 2020 due to COVID-19 related delays in customer resumption of work - Due to the impact of the COVID-19 pandemic, many customers delayed resuming work, leading to delayed delivery of some sales orders and a year-on-year decrease in sales volume in H1 2020[81][83] H1 2020 Product Revenue | Product | H1 2020 Revenue (RMB) | H1 2019 Revenue (RMB) | YoY Change | | :--- | :--- | :--- | :--- | | ITO Conductive Film | 21,538,000 | 27,007,000 | -20.3% | | Smart Dimming Film | 14,228,000 | 24,808,000 | -42.6% | | Smart Dimming Glass | 4,977,000 | 6,386,000 | -22.1% | | Smart Dimming Projection System | 42,000 | 140,000 | -70.0% | | Others | 4,510,000 | 5,629,000 | -19.9% | Outlook and Prospects Despite Q1 impacts, sales have gradually recovered since Q2 as the pandemic is controlled in China, with management cautiously optimistic about industry recovery and committed to R&D and prudent capacity expansion - The company believes that market participants in the technology industry must invest significant resources in research and development to maintain competitiveness[96][99] - Since the second quarter of 2020, as the COVID-19 pandemic has been brought under control in China, the company's business has gradually recovered, and cash flow remains stable[97][99] Financial Review In H1 2020, revenue decreased by 29.2% to RMB 45.3 million, gross profit fell by 50.5% to RMB 11.7 million with margin declining to 25.8% due to product mix and fixed costs, and administrative expenses rose by 19.4% from increased depreciation and R&D Key Financial Indicators | Financial Metric (RMB thousand) | H1 2020 | H1 2019 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 45,295 | 63,970 | -29.2% | | Cost of Sales | 33,594 | 40,321 | -16.7% | | Gross Profit | 11,701 | 23,649 | -50.5% | | Administrative Expenses | 12,249 | 10,260 | +19.4% | - Gross profit margin decreased from 37.0% in the same period last year to 25.8%, primarily due to: 1) an increased proportion of lower-margin ITO film sales; and 2) higher unit fixed costs resulting from reduced production volume in Q1[104][106] - Administrative expenses increased by 19.4%, mainly due to increased depreciation from the acquisition of production machinery and higher research costs for developing new "smart color-changing glass" materials[110][114] Liquidity and Capital Resources As of June 30, 2020, the Group had no bank borrowings, a stable gearing ratio of 24.5%, and capital expenditure of RMB 17.83 million for ITO conductive film capacity expansion, with RMB 10 million in bank cash frozen due to a product quality dispute - As of June 30, 2020, the Group had no bank borrowings[112][115] Liquidity and Capital Resources Metrics | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Gearing Ratio | 24.5% | 27.7% | | Capital Commitments | 6,200,000 RMB | 13,620,000 RMB | - Capital expenditure for the first half of the year amounted to RMB 17.83 million, primarily for purchasing production machinery and equipment to expand ITO conductive film production capacity[117][121] - Due to a product quality dispute lawsuit, RMB 10 million of the company's bank cash was frozen by the court, but management, based on legal counsel's advice, believes it has strong defenses and has not made any loss provision for this[120][124] Use of Proceeds Of the HKD 93.5 million net proceeds from the 2017 listing, approximately HKD 63.4 million has been used as of June 30, 2020, with slower-than-planned utilization due to delays in production line automation and installation - As of June 30, 2020, approximately HKD 63.4 million of the net proceeds of HKD 93.5 million from the listing has been utilized[139] - The actual use of proceeds was lower than planned, mainly due to delays in the automation and installation of production lines, as finding suitable equipment manufacturers took longer than expected[140][143] Dividends and Employees The Board does not recommend an interim dividend for 2020, and as of June 30, 2020, the Group employed 129 full-time staff - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2020[141][144] - As of June 30, 2020, the Group had a total of 129 full-time employees[142][145] INDEPENDENT REVIEW REPORT Auditor's Conclusion Ernst & Young's independent review found no material non-compliance with IAS 34 in the interim financial information, while noting that the comparative financial statements for H1 2019 were not reviewed - The auditor Ernst & Young's conclusion is that nothing has come to their attention that causes them to believe the interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 "Interim Financial Reporting"[154][157] - The auditor specifically noted that the comparative condensed consolidated financial statements for the six months ended June 30, 2019, were not reviewed[155][158] INTERIM CONDENSED FINANCIAL INFORMATION Consolidated statement of profit or loss and other comprehensive income For H1 2020, the Group reported RMB 45.3 million in revenue, a 29.2% decrease, with profit for the period significantly down by 63.9% to RMB 2.41 million, and basic earnings per share at RMB 0.005 Consolidated Statement of Profit or Loss and Other Comprehensive Income | Metric (RMB thousand) | H1 2020 (Unaudited) | H1 2019 (Unaudited) | | :--- | :--- | :--- | | REVENUE | 45,295 | 63,970 | | Gross profit | 11,701 | 23,649 | | PROFIT BEFORE TAX | 2,514 | 8,032 | | PROFIT FOR THE PERIOD | 2,411 | 6,695 | | Profit attributable to owners of the company | 2,497 | 6,259 | | Basic EPS (RMB) | 0.005 | 0.012 | Consolidated statement of financial position As of June 30, 2020, total assets were RMB 309 million, total liabilities RMB 60.73 million, and net assets RMB 248 million, a slight decrease from year-end 2019, with stable net current assets of RMB 158 million Consolidated Statement of Financial Position | Metric (RMB thousand) | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total non-current assets | 100,831 | 105,000 | | Total current assets | 208,097 | 214,100 | | Total assets | 308,928 | 319,100 | | Total current liabilities | 50,566 | 55,644 | | Total non-current liabilities | 10,165 | 13,525 | | Total liabilities | 60,731 | 69,169 | | Net assets | 248,197 | 249,931 | | Total equity | 248,197 | 249,931 | Consolidated statement of cash flows H1 2020 saw a net cash outflow from operating activities of RMB 12.04 million, contrasting with a net inflow last year, primarily due to inventory increase and trade payables decrease, with net cash inflows from investing and financing activities Consolidated Statement of Cash Flows | Metric (RMB thousand) | H1 2020 (Unaudited) | H1 2019 (Unaudited) | | :--- | :--- | :--- | | Net cash flows from/(used in) operating activities | (12,040) | 10,530 | | Net cash flows from/(used in) investing activities | 3,220 | (30,855) | | Net cash flows from/(used in) financing activities | 1,285 | (3,580) | | Net decrease in cash and cash equivalents | (7,535) | (23,905) | | Cash and cash equivalents at end of period | 19,429 | 44,386 | Notes to interim condensed financial information Financial notes detail accounting policies, segment information, revenue, related party transactions, and contingent liabilities, including RMB 10 million in frozen bank deposits due to a product quality dispute, and disclose the 2019 final dividend and various related party transactions - The Group's business is considered a single reportable segment, primarily generating revenue in Mainland China, which contributed RMB 42.79 million in revenue in H1 2020, accounting for 94.5% of total revenue[192][194] - As of June 30, 2020, total trade and bills receivables amounted to RMB 134 million, of which RMB 96.07 million was overdue for more than three months[233][238] - The company declared a final dividend of HKD 1.0 cent per share for the year ended December 31, 2019, totaling approximately RMB 4.76 million, which was paid in July 2020[214][216] - The notes disclose various related party transactions with the parent company, intermediate holding company, and fellow subsidiaries, including leases, catering services, goods sales, and fund transfers[283][290]