达力环保(01790) - 2024 - 中期财报

Management Discussion and Analysis Business Review and Outlook The Group operates three wastewater treatment plants in Yinchuan, Ningxia, processing approximately 38.0 million cubic meters in the reporting period, a 5.2% year-on-year decrease, yet revenue grew 10.8% to HKD 111.7 million and profit after tax increased 29.9% to HKD 49.9 million due to accounting model adjustments, with future focuses on new water tariffs, expansion, compensation for the closed first plant, and potential M&A opportunities in China Key Performance Indicators for H1 2024 | Indicator | For the six months ended June 30, 2024 | For the six months ended June 30, 2023 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 111.7 million HKD | 100.8 million HKD | +10.8% | | Profit After Tax | 49.9 million HKD | 38.4 million HKD | +29.9% | | Total Wastewater Treated | 38.0 million cubic meters | 40.1 million cubic meters | -5.2% | - Future Development Strategic Priorities: - Finalizing new water tariffs and new basic water volumes with local authorities[15] - Securing compensation agreements for the closed first treatment plant[15] - Continuously optimizing costs and enhancing operational efficiency[15] - Exploring potential merger and acquisition opportunities for wastewater treatment assets in China[15] Financial Review The Group demonstrated strong financial performance with 10.8% revenue growth, driven by a 27.1% increase in wastewater treatment operation services due to accounting model adjustments, alongside a 6.5% reduction in cost of sales and a 14.6% decrease in finance costs, leading to a 29.9% surge in period profit while maintaining a stable debt-to-asset ratio at 44.3% Operating Results The Group's operating results significantly improved during the reporting period, with gross profit increasing 18.5% to HKD 82.7 million and profit before tax rising 33.3% to HKD 62.3 million, primarily attributable to increased revenue and effective cost control Summary of Consolidated Statement of Comprehensive Income (For the six months ended June 30) | Item (thousand HKD) | 2024 (Unaudited) | 2023 (Unaudited) | Change | | :--- | :--- | :--- | :--- | | Revenue | 111,671 | 100,835 | +10.8% | | Gross Profit | 82,707 | 69,838 | +18.5% | | Profit Before Tax | 62,316 | 46,751 | +33.3% | | Profit for the Period | 49,919 | 38,413 | +29.9% | Revenue Analysis Total revenue increased 10.8% year-on-year to HKD 111.7 million, primarily driven by a 27.1% increase in wastewater treatment operation services revenue due to favorable changes in projected cash flows under IFRIC 12, while financial income from concession service arrangements slightly decreased 0.9% due to RMB depreciation - Revenue from wastewater treatment operation services increased by 27.1% (HKD 11.4 million) year-on-year, primarily due to favorable changes in projected cash flows within the accounting model[18] - Financial income from concession service arrangements slightly decreased by 0.9% (HKD 0.5 million) year-on-year, mainly impacted by the depreciation of RMB against HKD[18] Cost and Gross Profit Analysis Cost of sales decreased 6.5% to HKD 29.0 million year-on-year, mainly due to reduced chemical costs and depreciation and amortization expenses, leading to an 18.5% increase in gross profit to HKD 82.7 million and an improved gross margin from 69.3% to 74.1% - Key reasons for the decrease in cost of sales include a reduction of approximately HKD 1.6 million in chemical costs and approximately HKD 1.8 million in depreciation and amortization expenses[19] Changes in Gross Profit and Gross Margin | Indicator | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Gross Profit | 82.7 million HKD | 69.8 million HKD | | Gross Margin | 74.1% | 69.3% | Finance Costs and Taxation Finance costs decreased 14.6% to HKD 14.6 million year-on-year, driven by lower China Loan Prime Rates and repayment of bank borrowings, while income tax expense increased 49.4% to HKD 12.4 million due to higher pre-tax profit, with the company continuing to benefit from a 15% preferential corporate income tax rate - Finance costs decreased by HKD 2.5 million, primarily due to (i) a reduction in the People's Bank of China's 5-year Loan Prime Rate; and (ii) repayment of approximately HKD 45.6 million in bank borrowings during the reporting period[24] - The company continues to benefit from preferential tax policies for the environmental protection industry, with a corporate income tax rate of 15%, extended until 2027[24] Profit and Earnings Per Share As a combined result, profit for the period increased 29.9% to HKD 49.9 million year-on-year, with basic and diluted earnings per share rising from HKD 0.04 to HKD 0.05 compared to the prior year Earnings Per Share | Indicator | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Earnings Per Share (Basic and Diluted) | 0.05 HKD | 0.04 HKD | Financial Position and Liquidity At the end of the reporting period, the Group's net current assets increased to HKD 647.6 million and net assets to HKD 1,376.7 million, while the debt-to-asset ratio slightly decreased from 45.8% to 44.3%, though cash and bank balances declined 44.4% to HKD 50.0 million due to bank loan repayments Key Financial Position Indicators (June 30, 2024) | Indicator | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and Bank Balances | 50.0 million HKD | 90.0 million HKD | | Total Borrowings | 660.4 million HKD | 713.2 million HKD | | Net Current Assets | 647.6 million HKD | 609.8 million HKD | | Debt-to-Asset Ratio | 44.3% | 45.8% | Corporate Governance and Other Information Shareholding and Director Information This section discloses the shareholdings of directors and major shareholders, identifying Mr. Lim Chin Sean and Mr. Lim Chee Meng as controlling shareholders with a 75% interest in Sparkle Century Group Limited's 750 million shares, and reports on changes in independent non-executive director appointments - Controlling shareholder Sparkle Century Group Limited holds 750,000,000 shares, representing 75% of the company's total share capital, with Director Mr. Lim Chin Sean deemed to have an interest in these shares due to a concert party deed[44][48] Compliance and Internal Control The company complied with all applicable corporate governance code provisions during the reporting period, with the audit committee reviewing the unaudited interim results, and no purchases, sales, redemptions of listed securities, or share options granted by the company or its subsidiaries - The company has established an audit committee, comprising two independent non-executive directors and one non-executive director, which has reviewed the unaudited interim results for the current reporting period[54] - During the reporting period, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities[52] - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2024[41] Interim Financial Information Review Report PricewaterhouseCoopers, the independent auditor, conducted a review of the interim financial information in accordance with Hong Kong Standard on Review Engagements, concluding that nothing has come to their attention to suggest the information is not prepared in all material respects in accordance with HKAS 34 'Interim Financial Reporting' - Auditor PricewaterhouseCoopers issued an unmodified review conclusion on the interim financial information[62] Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated statement of profit or loss, statement of comprehensive income, statement of financial position, statement of changes in equity, and statement of cash flows for the six months ended June 30, 2024, comprehensively reflecting the Group's financial performance and position Summary of Cash Flow Statement (For the six months ended June 30) | Item (thousand HKD) | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 15,740 | 129,957 | | Net Cash (Used in)/From Investing Activities | (1,936) | 752 | | Net Cash Used in Financing Activities | (51,162) | (63,311) | | Net Decrease in Cash and Cash Equivalents | (37,358) | 67,398 | Notes to Financial Information The notes detail the basis of preparation, accounting policies, and key accounting estimates for the financial statements, highlighting receivables under concession service arrangements, particularly regarding compensation for the closed first treatment plant where management is finalizing the amount with authorities, and providing an aging analysis of trade receivables showing long-outstanding amounts due to pandemic-related settlement delays - Regarding the closed first treatment plant, the Group is entitled to compensation, and management is finalizing the specific compensation amount with Yinchuan Municipal authorities, having updated expected future revenue based on the estimated compensation under the concession agreement[101] - As of June 30, 2024, total trade receivables amounted to HKD 380.2 million, with HKD 176.3 million being long-outstanding (over 365 days), primarily due to settlement procedure delays during the pandemic[103] Financial Summary Historical Financial Data This section provides a summary of the Group's annual and interim results, assets, and liabilities since 2019, showing stable growth in total assets and equity over recent years, while total liabilities have trended downwards, reflecting continuous optimization of the company's financial structure Summary of Historical Performance (thousand HKD) | Period | Revenue | Profit for the Year/Period | | :--- | :--- | :--- | | H1 2024 | 111,671 | 49,919 | | H1 2023 | 100,835 | 38,413 | | FY 2023 | 180,353 | 73,260 | | FY 2022 | 213,351 | 68,127 | | FY 2021 | 248,536 | 115,269 | Summary of Historical Assets and Liabilities (thousand HKD) | Year-end | Total Assets | Total Liabilities | Total Equity | | :--- | :--- | :--- | :--- | | June 30, 2024 | 2,202,275 | 825,584 | 1,376,691 | | December 31, 2023 | 2,241,275 | 882,024 | 1,359,251 | | December 31, 2022 | 2,311,423 | 989,392 | 1,322,031 |