成志控股(01741) - 2024 - 年度业绩

Annual Results Announcement Summary ChengZhi Holdings announced its FY2024 results, reporting significant declines in continuing operations, an expanded overall loss, and a qualified auditor's opinion on the disposed health management business Financial Highlights For FY2024, the company reported significant declines in continuing operations revenue and gross profit, an expanded annual loss, and no proposed final dividend Key Financial Metrics for FY2024 | Metric | For the year ended Sep 30, 2024 | For the year ended Sep 30, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue from Continuing Operations | Approx. HKD 144.0 Million | Approx. HKD 177.4 Million | -18.8% | | Gross Profit | Approx. HKD 9.9 Million | Approx. HKD 30.4 Million | -67.4% | | Gross Margin | Approx. 6.9% | Approx. 17.2% | -10.3 percentage points | | Annual Loss | Approx. HKD 10.1 Million | Approx. HKD 2.6 Million | +288.5% | | Basic Loss Per Share | Approx. HKD 1.26 Cents | Approx. HKD 0.22 Cents | - | | Proposed Final Dividend | N/A | N/A | - | Consolidated Financial Statements This section presents the group's consolidated statements of profit or loss and other comprehensive income and financial position, detailing financial performance and asset-liability status, showing significant declines in continuing operations revenue and gross profit, an overall loss, and reduced assets and liabilities due to subsidiary disposal Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended September 30, 2024, continuing operations revenue decreased by 18.8% to HKD 144 million, gross profit sharply declined by 67.4% to HKD 9.9 million, resulting in a HKD 23.36 million loss from continuing operations, partially offset by a HKD 13.31 million profit from discontinued operations due to subsidiary disposal, leading to a total annual loss of HKD 10.05 million Key Consolidated Income Statement Data (Thousand HKD) | Item | 2024 | 2023 (Restated) | | :--- | :--- | :--- | | Continuing Operations | | | | Revenue | 143,956 | 177,420 | | Gross Profit | 9,891 | 30,448 | | (Loss)/Profit Before Tax | (23,360) | 129 | | (Loss)/Profit for the Year | (23,360) | 129 | | Discontinued Operations | | | | Profit/(Loss) for the Year | 13,307 | (2,738) | | Total Loss for the Year | (10,053) | (2,609) | | Basic Loss Per Share (HK Cents) | (1.26) | (0.22) | Consolidated Statement of Financial Position As at September 30, 2024, total assets significantly decreased to HKD 64.09 million from HKD 202 million, primarily due to a substantial reduction in current assets following the disposal of a subsidiary, while total liabilities also decreased to HKD 29.39 million from HKD 159 million, and total equity declined to HKD 34.70 million Key Consolidated Financial Position Data (Thousand HKD) | Item | As at Sep 30, 2024 | As at Sep 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Non-current Assets | 819 | 22,644 | | Current Assets | 63,273 | 179,178 | | Total Assets | 64,092 | 201,822 | | Equity and Liabilities | | | | Total Equity | 34,702 | 43,171 | | Non-current Liabilities | 1,026 | 6,443 | | Current Liabilities | 28,364 | 152,208 | | Total Liabilities | 29,390 | 158,651 | | Total Equity and Liabilities | 64,092 | 201,822 | Notes to the Consolidated Financial Statements This section provides detailed explanations and supplementary information to the financial statements, covering company information, accounting policies, segment operations, discontinued operations, and arbitration matters, highlighting the company's primary business in Hong Kong construction and the disposal of its China health management business, alongside an ongoing arbitration case Note 4 Segment Information The group's operating segments include four continuing construction-related businesses and one discontinued health management business, with continuing operations primarily in Hong Kong and the terminated health management business in China, showing foundation and site formation works as the largest revenue contributor this year, albeit significantly reduced from last year, while other construction works revenue increased - The group's reportable operating segments include foundation and site formation works, general building works and related services, other building works, and building-related consultancy services (all continuing operations), as well as the discontinued health management and consultancy business[40][50] Revenue from Continuing Operations by Segment (Thousand HKD) | Segment | 2024 | 2023 (Restated) | | :--- | :--- | :--- | | Foundation and Site Formation Works | 42,310 | 83,859 | | General Building Works and Related Services | 24,945 | 41,419 | | Other Building Works | 67,299 | 43,543 | | Building-related Consultancy Services | 9,402 | 8,599 | | Total | 143,956 | 177,420 | Note 7 Discontinued Operations The group disposed of its entire equity interest in Daywin Group Limited and its subsidiaries, which engaged in health management and consultancy, during the year to mitigate risks from ongoing losses and capital requirements, generating a gain of approximately HKD 39.7 million and resulting in a net profit of HKD 13.31 million from discontinued operations for the year - The group disposed of Daywin Group, which engaged in health management and consultancy, to mitigate risks from ongoing losses and financial commitments[63] Results of Discontinued Operations (Thousand HKD) | Item | For the period from Oct 1, 2023 to disposal date | For the year ended Sep 30, 2023 | | :--- | :--- | :--- | | Period/Annual Loss from Health Management and Consultancy Business | (26,391) | (2,738) | | Gain on Disposal of Subsidiary | 39,698 | – | | Total | 13,307 | (2,738) | Note 13 Arbitration The group's indirect wholly-owned subsidiary, Kwong On Construction Company Limited, is involved in an arbitration dispute over unpaid amounts for a school design and construction project, alleging non-payment and undervaluation of works, with the arbitration ongoing after mediation failed and the final outcome not yet fully assessable - Subsidiary Kwong On Construction initiated arbitration due to unpaid amounts for a school project, alleging non-payment and undervaluation of works by the counterparty[84] - Following failed mediation, arbitration commenced in April 2023 and is currently in the document exchange phase, with the final impact remaining uncertain[85] Management Discussion and Analysis Management reviewed the annual business and financial performance, outlining challenges in the core construction business due to intense competition and rising costs, leading to reduced revenue and gross margin, and discussed the disposal of the loss-making health management business to refocus resources, anticipating a challenging market environment and planning cautious financial management, cost control, and new business opportunities, while noting improved gearing ratio post-asset disposal despite operating cash flow pressure Business Review The group's core business is a Hong Kong construction contractor providing foundation, general building, and other construction engineering services, holding 25 projects with a total contract value of approximately HKD 325 million at year-end, and having disposed of its China health management business during the year due to operational disruption and sharp revenue decline following a former executive director's alleged financial fraud investigation - The group's core business involves construction engineering in Hong Kong, including foundation, general building, and other related works[87] Project Status | Metric | As at Sep 30, 2024 | As at Sep 30, 2023 | | :--- | :--- | :--- | | Number of Construction Projects on Hand | 25 | 23 | | Total Contract Value | Approx. HKD 324.6 Million | Approx. HKD 341.4 Million | | Recognized as Revenue | Approx. HKD 175.3 Million | N/A | - The group disposed of its health management business in China, which was divested after operational disruption and significant revenue decline due to a former executive's fraud investigation[89] Outlook Management maintains a cautious outlook for the construction industry, anticipating continued challenges from slow global economic recovery, geopolitical conflicts, high interest rates, and inflationary pressures, expecting intense market competition, tighter client budgets, and rising material and labor costs, with strategies focusing on prudent financial management, cost control, and seeking suitable business and investment opportunities - The Board anticipates the overall outlook for the construction industry will remain challenging due to geopolitical conflicts, soaring interest rates, and inflationary pressures[91] - The company expects to face intense market competition, tighter client budgets, and rising material and labor costs[91] - Strategies will focus on prudent financial management, cost control, and identifying suitable business opportunities to drive growth[91] Financial Review This section analyzes the group's financial performance, highlighting significant declines in revenue and gross profit from continuing operations primarily due to lower profit margins on new projects after the completion of large-scale projects, increased administrative expenses from asset impairment, and an expanded overall net loss despite a one-time gain from the disposal of the health management business Revenue Revenue from continuing operations decreased by 18.8% from HKD 177 million to HKD 144 million, primarily due to the completion of several large projects last year and lower-value new projects this year, leading to reduced revenue contributions from foundation and general building works Revenue by Segment (Thousand HKD) | Segment | 2024 | Percentage (%) | 2023 | Percentage (%) | | :--- | :--- | :--- | :--- | :--- | | Foundation and Site Formation Works | 42,310 | 29.4 | 83,859 | 47.3 | | General Building Works and Related Services | 24,945 | 17.3 | 41,419 | 23.3 | | Other Building Works | 67,299 | 46.8 | 43,543 | 24.5 | | Building-related Consultancy Services | 9,402 | 6.5 | 8,599 | 4.9 | | Total | 143,956 | 100.0 | 177,420 | 100.0 | Gross Profit and Gross Margin Gross profit significantly decreased by 67.4% from HKD 30.4 million to HKD 9.9 million, with the gross margin declining from 17.2% to 6.9%, primarily due to intense market competition leading to lower profit margins on new projects, while higher-margin projects were largely completed last year - Gross profit decreased by 67.4% year-over-year, with gross margin falling from 17.2% to 6.9%[95] - The decline in gross margin is primarily attributed to a challenging market environment and intense competition, resulting in lower profit margins for new projects[95] Loss for the Year The group's net loss for the year expanded from HKD 2.6 million to HKD 10.1 million, primarily due to a significant decrease in gross profit from continuing operations and increased administrative expenses, despite some gains from the disposal of discontinued operations - Net loss increased from approximately HKD 2.6 million last year to approximately HKD 10.1 million this year[100] Capital Structure, Liquidity and Financial Resources The group's gearing ratio significantly improved from 117.1% to 8.5%, primarily due to a sharp reduction in total debt (including bank borrowings and lease liabilities) from HKD 50.5 million to HKD 2.9 million following the disposal of a subsidiary, with bank balances and cash of approximately HKD 32.6 million and net current assets of approximately HKD 34.9 million at year-end, and the directors believe the group has sufficient financial resources to meet future obligations Liquidity and Capital Structure Metrics | Metric | As at Sep 30, 2024 | As at Sep 30, 2023 | | :--- | :--- | :--- | | Bank Deposits, Balances and Cash | Approx. HKD 32.6 Million | Approx. HKD 41.5 Million | | Net Current Assets | Approx. HKD 34.9 Million | Approx. HKD 27.0 Million | | Total Debt | Approx. HKD 2.9 Million | Approx. HKD 50.5 Million | | Gearing Ratio | Approx. 8.5% | Approx. 117.1% | - The Board does not recommend the payment of any final dividend for the year ended September 30, 2024[109] Use of Proceeds from Share Offer This section reviews the company's use of funds raised since its 2018 listing, indicating that approximately HKD 86.2 million of the HKD 86.6 million net proceeds have been utilized as of September 30, 2024, with the remaining HKD 0.4 million primarily allocated for investment in new information systems and expected to be fully utilized by September 30, 2025, with funds primarily used for license applications, project start-up costs, human resource enhancement, and general working capital - Net proceeds from the listing were approximately HKD 86.6 million, with HKD 86.2 million utilized as of the reporting period end[156] Summary of Net Proceeds Utilization (Million HKD) | Planned Use | Planned Amount | Total Utilized | Unutilized Amount | | :--- | :--- | :--- | :--- | | Application for Additional Licenses | 9.2 | 9.2 | – | | Construction Project Start-up Costs | 21.8 | 21.8 | – | | Enhancement of Human Resources | 13.9 | 13.9 | – | | Investment in New Information Systems | 2.7 | 2.3 | 0.4 | | General Working Capital | 39.0 | 39.0 | – | | Total | 86.6 | 86.2 | 0.4 | - The remaining unutilized net proceeds of approximately HKD 0.4 million are expected to be fully utilized on or before September 30, 2025[156] Corporate Governance and Audit Matters This section details the company's corporate governance practices and significant audit matters, confirming compliance with corporate governance codes, but highlighting a "qualified opinion" in the independent auditor's report due to insufficient audit evidence for the disposed health management business (Daywin Group), which management and the audit committee acknowledge, attributing it to a lack of cooperation from the buyer and expecting no ongoing impact on future financial statements Extract from Independent Auditor's Report The independent auditor, BDO Limited, issued a "qualified opinion" on the group's consolidated financial statements because they could not obtain complete accounting books, records, and supporting documents for the disposed subsidiary, Daywin Group (engaged in health management and consultancy), thus preventing them from obtaining sufficient and appropriate audit evidence regarding the financial performance, gain on disposal, and related disclosures of the discontinued operations - The auditor issued a qualified opinion, stating that, except for the possible effects of the discontinued operations matter, the financial statements present a true and fair view of the group's financial position[169] - The basis for the qualified opinion is the auditor's inability to obtain accounting books and records for the disposed Daywin Group, thus preventing sufficient audit evidence for the financial performance, disposal gain, and related disclosures of the discontinued operations[171] Management and Audit Committee's Stance on Qualified Opinion Management acknowledges the auditor's qualified opinion due to the inability to obtain Daywin Group's accounting records, explaining that despite efforts, the buyer did not cooperate, and since the business has been disposed of, management believes this issue has limited future financial impact on the group and expects the qualified opinion to be removed in the FY2026 consolidated financial statements when comparative figures no longer include Daywin Group's data, a view shared by the Audit Committee - Management explained that the inability to provide audit-required documents was due to the new buyer of the disposed subsidiary failing to cooperate[173] - Management believes that, as the business has been disposed of, the qualified opinion will not have any continuing impact on the group's consolidated financial statements after the year ended September 30, 2025, and is expected to be removed in the FY2026 report[175] - The Audit Committee has reviewed and concurred with management's stance and assessment regarding the qualified opinion[176]