力丰(集团)(00387) - 2024 - 中期财报

Management Discussion and Analysis Financial Performance The Group's H1 2024 revenue decreased 37.7% to HKD 255 million due to a business model shift, yet gross profit remained stable at HKD 67.25 million with margin rising to 26.3%, and profit attributable to owners increased 53.4% to HKD 8.43 million Financial Performance Summary | Metric | H1 2024 (HKD) | H1 2023 (HKD) | Y-o-Y Change | | :--- | :--- | :--- | :--- | | Revenue | 255,249,000 | 409,610,000 | -37.7% | | Gross Profit | 67,246,000 | 67,887,000 | -0.9% | | Gross Profit Margin | 26.3% | 16.6% | +9.7pp | | Profit Attributable to Owners | 8,430,000 | 5,496,000 | +53.4% | | Basic Earnings Per Share | 3.66 HK cents | 2.39 HK cents | +53.1% | - The inverse trend between revenue and gross profit margin is primarily due to a shift in most new businesses to a commission-based revenue model, where only net income is recognized as revenue, thereby boosting the overall gross profit margin[3] - Other income and gains surged by 272.1% year-on-year to HKD 8.95 million, primarily driven by a HKD 6.4 million fair value gain on a financial asset[4] - Both sales and distribution costs and finance costs recorded a year-on-year decrease of over 11%, indicating the Group's effective cost control[5] - Share of profits from associates turned from a HKD 0.95 million profit in the prior period to a HKD 5.51 million loss, mainly due to losses recorded by OPS-Ingersoll and Prima Power Suzhou[6] Dividend Policy The Board declared an interim dividend of HKD 3 cents per share for H1 2024, a 200% increase from HKD 1 cent in the prior period Interim Dividend | Item | 2024 Interim | 2023 Interim | | :--- | :--- | :--- | | Interim Dividend | HKD 3 cents per share | HKD 1 cent per share | Business Review Despite challenging macroeconomic conditions and weak Chinese manufacturing, the Group's business benefited from the new energy vehicle sector, with improved machine tool and electronic equipment businesses, significant service revenue growth, and increased total order volume, though associate companies recorded losses - Chinese manufacturing faces challenges, with customers cautious about investing in new equipment; in H1 2024, the import value of both metal-cutting and sheet metal machine tools decreased year-on-year[10][11] - The Group's business benefited from the new energy vehicle manufacturing sector, with improvements in machine tool business, electronic equipment business, and service income compared to the prior period[11] Total Order Volume | Item | H1 2024 (HKD) | H1 2023 (HKD) | | :--- | :--- | :--- | | Total Order Volume | 480,038,000 | 407,502,000 | - Invested associate companies faced difficulties, with OPS-Ingersoll Funkenerosion GmbH continuing to record significant losses, and Prima Power Sheet Metal Equipment (Suzhou) Co Ltd also incurring losses due to reduced orders[12] Liquidity and Financial Resources The Group's financial position is robust, successfully reducing its net gearing ratio from 28.7% at end-2023 to 19.5% by lowering borrowings; cash balance slightly increased, but inventory and trade receivables turnover days rose, with ample bank facilities available for operations Key Financial Metrics | Metric | June 30, 2024 (HKD) | December 31, 2023 (HKD) | | :--- | :--- | :--- | | Cash and Cash Equivalents | 32,516,000 | 29,795,000 | | Inventories | 72,418,000 | 80,209,000 | | Trade and Bills Receivables | 169,870,000 | 209,795,000 | | Short-term Borrowings | 130,314,000 | 172,146,000 | | Net Gearing Ratio | 19.5% | 28.7% | - Inventory turnover days increased from 54 to 70 days, and trade receivables turnover days increased from 109 to 121 days, primarily due to changes in the trade portfolio[13] - As of June 30, 2024, the Group had total bank facilities of approximately HKD 302 million, of which approximately HKD 143 million was utilized[14] Future Plans and Prospects The Group maintains a cautiously optimistic outlook for H2 2024, focusing on high-end manufacturing and seizing opportunities from China's 'new quality productive forces' and 'new three' industries (EVs, lithium batteries, PV products), while planning to introduce new products and invest in service teams to drive growth - The Group's business strategy will focus on high-end manufacturing, particularly aligning with China's new economic growth drivers: 'new quality productive forces' and the 'new three' industries[15] - Growth in the smartphone and electronic equipment manufacturing industries will also present business opportunities for the Group[16] - Plans include upgrading value-added services by expanding the engineering team, enhancing parts delivery and technical support, with an expected increase in order volume in the second half of the year[16] Other Corporate Matters This section covers employee status, share option scheme, asset pledges, capital expenditure, exchange rate risk management, and related party transactions; employee count slightly increased to 231, the share option scheme expired in May 2023, and a significant related party transaction involving the sale of a residential property to the Chairman was disclosed, with proceeds used for working capital and special dividends - As of June 30, 2024, the Group had 231 employees, a slight increase from 226 at the end of 2023[17] - The Company's share option scheme expired on May 14, 2023, with no share option activities during the period[18] - The Group pledged assets with a total book value of approximately HKD 149 million to secure bank financing[19] - A significant related party transaction was disclosed: the sale of a residential property to Mr Li Sau Leung, the Chairman and Chief Executive Officer, for HKD 53 million, with net proceeds used for general working capital and special dividend distribution[24] - Regarding corporate governance, the report noted that the roles of Chairman and Chief Executive Officer are held by the same individual (Mr Li Sau Leung), but the Board believes the current structure ensures a balance of power and accountability[30] Condensed Consolidated Interim Financial Statements Condensed Consolidated Interim Statement of Financial Position As of June 30, 2024, the Group's total assets decreased to HKD 773 million from HKD 821 million at end-2023; total liabilities decreased from HKD 343 million to HKD 299 million due to reduced borrowings, while total equity slightly decreased to HKD 474 million, with HKD 53 million in assets classified as held for sale Condensed Consolidated Interim Statement of Financial Position | Item | June 30, 2024 (HKD Thousand) | December 31, 2023 (HKD Thousand) | | :--- | :--- | :--- | | Total Assets | 772,554 | 820,783 | | Non-current Assets | 409,807 | 464,369 | | Current Assets | 362,747 | 356,414 | | Of which: Assets Classified as Held for Sale | 53,000 | – | | Total Liabilities | 298,593 | 342,641 | | Non-current Liabilities | 30,046 | 30,249 | | Current Liabilities | 268,547 | 312,392 | | Total Equity | 473,961 | 478,142 | Condensed Consolidated Interim Statement of Profit or Loss In H1 2024, the Group's revenue was HKD 255 million, a 37.7% year-on-year decrease; however, due to business model changes and cost control, gross profit remained stable at HKD 67.25 million, operating profit increased 86.7% to HKD 19.13 million, and profit for the period reached HKD 8.43 million, up 53.4% year-on-year Condensed Consolidated Interim Statement of Profit or Loss | Metric (HKD Thousand) | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Revenue | 255,249 | 409,610 | | Gross Profit | 67,246 | 67,887 | | Operating Profit | 19,130 | 10,248 | | Profit Before Income Tax | 8,829 | 5,767 | | Profit for the Period | 8,428 | 5,487 | | Profit Attributable to Owners of the Company | 8,430 | 5,496 | | Basic Earnings Per Share (HK cents) | 3.66 | 2.39 | Condensed Consolidated Interim Statement of Comprehensive Income Total comprehensive income for the period was HKD 3.87 million, a significant improvement from HKD 0.77 million in the prior period, primarily due to increased profit for the period, despite expanded other comprehensive losses from currency translation differences Condensed Consolidated Interim Statement of Comprehensive Income | Metric (HKD Thousand) | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Profit for the Period | 8,428 | 5,487 | | Other Comprehensive Loss After Tax | (4,556) | (4,716) | | Of which: Currency Translation Differences | (5,192) | (4,732) | | Total Comprehensive Income for the Period | 3,872 | 771 | Condensed Consolidated Interim Statement of Changes in Equity As of June 30, 2024, total equity slightly decreased from HKD 478 million at the beginning of the year to HKD 474 million, as the HKD 3.87 million total comprehensive income for the period was offset by HKD 8.05 million in dividend payments - The change in total equity was primarily influenced by two factors: the HKD 3.87 million total comprehensive income recorded during the period (positive impact), and HKD 8.05 million in dividends paid to shareholders (negative impact)[38] Condensed Consolidated Interim Statement of Cash Flows In H1 2024, net cash generated from operating activities significantly increased to HKD 46.66 million year-on-year; net cash outflow from financing activities substantially decreased to HKD 41.92 million, mainly due to reduced loan repayments, resulting in an increased cash and cash equivalents balance of HKD 32.52 million at period-end Condensed Consolidated Interim Statement of Cash Flows | Metric (HKD Thousand) | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net Cash Generated from Operating Activities | 46,664 | 20,390 | | Net Cash (Used in)/Generated from Investing Activities | (1,374) | 3,677 | | Net Cash Used in Financing Activities | (41,916) | (71,454) | | Net Increase/(Decrease) in Cash and Cash Equivalents | 3,374 | (47,387) | | Cash and Cash Equivalents at End of Period | 32,516 | 13,609 | Notes to the Condensed Consolidated Interim Financial Information Note 6: Segment Information By geographical segment, Mainland China was the Group's primary revenue source, contributing HKD 243 million or 95% of total revenue; by revenue type, sales of goods remained the largest but significantly decreased year-on-year, while the new commission income model contributed HKD 28.68 million, and service income also grew significantly Revenue by Region | Region | H1 2024 Revenue (HKD Thousand) | H1 2023 Revenue (HKD Thousand) | | :--- | :--- | :--- | | Mainland China | 242,606 | 360,188 | | Hong Kong | 6,157 | 33,614 | | Others | 6,486 | 15,808 | | Total | 255,249 | 409,610 | Revenue by Type | Revenue Type | H1 2024 Revenue (HKD Thousand) | H1 2023 Revenue (HKD Thousand) | | :--- | :--- | :--- | | Sales of Goods | 215,160 | 406,608 | | Commission Income | 28,677 | – | | Service Income | 11,412 | 3,002 | | Total | 255,249 | 409,610 | - Commission income is a new revenue model since H2 2023, derived from providing technical support and agency services to business partners[58] Note 9: Trade and Bills Receivables As of June 30, 2024, total trade and bills receivables decreased to HKD 170 million from HKD 210 million at end-2023; receivables aged within three months from invoice date constituted the majority, though the proportion of 7-12 month old receivables increased Aging Analysis of Trade and Bills Receivables | Aging Analysis (by invoice date) | June 30, 2024 (HKD Thousand) | December 31, 2023 (HKD Thousand) | | :--- | :--- | :--- | | Within 3 months | 101,728 | 177,823 | | 4 to 6 months | 4,131 | 7,443 | | 7 to 12 months | 60,576 | 14,564 | | Over 12 months | 7,365 | 15,883 | | Gross amount before impairment allowance | 173,800 | 215,713 | Note 11: Assets Classified as Held for Sale In May 2024, the Group agreed to sell a residential property valued at HKD 53 million to Mr Li Sau Leung, a Company Director; consequently, this right-of-use asset was reclassified as 'assets classified as held for sale' in the June 30, 2024 statement of financial position, with the transaction completed on July 15, 2024 - A residential property and parking space valued at HKD 53 million were classified as assets held for sale due to the signing of a sale agreement[73] Note 13: Borrowings The Group's total borrowings decreased by approximately 24% from HKD 172 million at end-2023 to HKD 130 million, with all borrowings being short-term and due within one year, including trust receipt loans and bank term loans, reflecting the Group's deleveraging efforts Borrowings Breakdown | Borrowing Type | June 30, 2024 (HKD Thousand) | December 31, 2023 (HKD Thousand) | | :--- | :--- | :--- | | Trust Receipt Loans | 68,471 | 80,300 | | Bank Term Loans | 61,843 | 91,846 | | Total Borrowings | 130,314 | 172,146 | Note 17: Dividends The Board resolved to declare an interim dividend of HKD 3 cents per share for H1 2024, significantly higher than HKD 1 cent in H1 2023; this dividend was declared after the reporting period and thus not recognized as a liability in this financial statement - The Board declared an interim dividend of HKD 3 cents per share for 2024, compared to HKD 1 cent per share in the prior period[83] Note 19: Related Party Transactions This section discloses significant related party transactions, including total key management personnel compensation of HKD 4.17 million, purchases of HKD 2.47 million in goods from associate Prima Power (Suzhou), and an unsecured loan of HKD 17.75 million outstanding to associate OPS-Ingersoll Holding GmbH at period-end Key Management Personnel Compensation | Key Management Personnel Compensation (HKD Thousand) | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Salaries and Other Short-term Benefits | 4,133 | 3,278 | | Pension Costs | 36 | 45 | | Total | 4,169 | 3,323 | - The loan provided to associate OPS-Ingersoll Holding GmbH is unsecured, carries an annual interest rate of 6%, and had a carrying amount of HKD 17.75 million at period-end[87]