- Incorporated in Bermuda and its members' liability is limited )
- 在百慕達成立為法團，而其成員的法律責任是有限度的 )
Stock Code 股份代號 : 00544
INTERIM REPORT 中 期 報 告 2 0 2 0
CONTENTS
PAGES | |
Corporate Information | 02 |
Management Discussion and Analysis | 03 |
Condensed Consolidated Statement of Profit or Loss and | |
Other Comprehensive Income | 10 |
Condensed Consolidated Statement of Financial Position | 12 |
Condensed Consolidated Statement of Changes in Equity | 14 |
Condensed Consolidated Statement of Cash Flows | 15 |
Notes to the Condensed Consolidated Financial Statements | 16 |
Other Information | 38 |
CORPORATE INFORMATION
BOARD OF DIRECTORS
Executive Directors
Mr. Ho Hon Chung, Ivan
(Acting Chief Executive Officer)
Mr. Fung Pak Kei
Non-executive Directors
Mr. Au Tat Wai
Mr. Fung Wa Ko
Independent Non-executive Directors
Mr. Fung Siu Kit, Ronny
Mr. Leung Chi Hung
Mr. Tse Yuen Ming
COMMITTEES
Audit Committee
Mr. Leung Chi Hung (Chairman)
Mr. Fung Siu Kit, Ronny
Mr. Tse Yuen Ming
Nomination Committee
Mr. Tse Yuen Ming (Chairman)
Mr. Fung Siu Kit, Ronny
Mr. Leung Chi Hung
Remuneration Committee
Mr. Fung Siu Kit, Ronny (Chairman)
Mr. Leung Chi Hung
Mr. Tse Yuen Ming
COMPANY SECRETARY
Mr. Cheung Hoi Kin
(appointed on 5th June, 2020)
Mr. Choy Kai Sing
(resigned on 5th June, 2020)
STOCK CODE
00544
WEBSITE
www.irasia.com/listco/hk/daido/index.htm
www.daidohk.com
REGISTERED OFFICE
Clarendon House, 2 Church Street Hamilton HM 11, Bermuda
HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS
Unit No. 1301, Level 13, Tower 1
Kowloon Commerce Centre
No. 51 Kwai Cheong Road
Kwai Chung, New Territories
Hong Kong
AUDITOR
Deloitte Touche Tohmatsu
Registered Public Interest Entity Auditors
35th Floor, One Pacific Place
88 Queensway Hong Kong
PRINCIPAL BANKERS
Bank of China (Hong Kong) Limited
Bank of Communications Co., Ltd.
China Construction Bank (Asia)
Corporation Limited
The Bank of East Asia, Limited
The Hongkong and Shanghai Banking
Corporation Limited
Nanyang Commercial Bank, Limited
Standard Chartered Bank
(Hong Kong) Limited
HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE
Union Registrars Limited
Suites 3301-04, 33/F.
Two Chinachem Exchange Square
338 King's Road
North Point
Hong Kong
02 | Interim Report 2020 • Daido Group Limited |
MANAGEMENT DISCUSSION AND ANALYSIS
OVERALL RESULTS
For the six months ended 30th June, 2020, the Group's total revenue amounted to approximately HK$135 million, representing a decrease of about 9.3%, compared to approximately HK$149 million from the same period last year.
During the current interim period, the Group recorded a loss of approximately HK$26.4 million compared to a loss of approximately HK$25.6 million for the previous corresponding period.
The Group recorded a steady overall and core business growth in the interim period. The encouraging outcome is due to enhanced operational efficiency of all business units. The management's effort to widen profit margins by sourcing new clients and business opportunities is another reason. While operational expenses continue to be high, particularly the cost of warehouse air-conditioning for the summer months, the Group has put in place an efficient cost-control mechanism.
REVIEW OF OPERATING SEGMENTS
The Group's activities include cold storage and related business in Hong Kong; trading of food and beverage business in Mainland China; provision of money lending services in Hong Kong and investment holding.
Cold storage & logistics
The cold storage business is a core segment and principal revenue source of the Group. Apart from offering temperature-controlled storage space for leasing, it also provides transportation and distribution, container hauling and devanning, packaging and other related logistics services for its warehouse customers.
Against a challenging period of economic uncertainties and social unrest in Hong Kong, exacerbated by the COVID-19 pandemic more recently, the Group reports a steady performance of its existing warehouse facility in Kwai Hei Street. Overall, the performance of its cold storage business during the first half was largely similar to that of the corresponding period last year.
Daido Group Limited • Interim Report 2020 | 03 |
MANAGEMENT DISCUSSION AND ANALYSIS
REVIEW OF OPERATING SEGMENTS (continued)
Cold storage & logistics (continued)
In addition, the Group operates a newer warehouse at Tsing Yi in collaboration with a joint venture ("JV"), in which it holds a 30% stake. So far, this facility has turned in a satisfactory performance from 2019, due to efficient operation and cost control under a professional management team. The Group also runs a bonded warehouse in Tsuen Wan for storage of alcohol and tobacco products. Negatively affected by the COVID-19 pandemic, the sales of these products declined, with a slower inventory turnover that reduced the warehouse's earnings. Still, the bonded warehouse was able to generate an income to sustain business.
The logistics business that the Group engages in to support its cold-storage clients has remained stable.
Money lending
The Group continues to run a money lending business established some years ago to provide credit support for its cold storage and logistics customers. However, the segment will not receive new financial input, as any fresh resources will be used for further development of more promising segments, including cold storage & logistics and trading of food and beverage products.
Trading of food and beverage products
The Group conducts its distribution business of food and beverage products through a growing network of supermarkets and convenience stores in Mainland China. Compared to last year, this trading business recorded a much better performance in the period of review, owing to higher operational efficiency of the Group's distribution network, a more diversified portfolio with new products including Australian-made fresh dairy products and local branded fresh juices; consistent consumer demand and affordable pricing.
Though our trading business turned sluggish upon the COVID-19 outbreak late last year, consumer demand picked up late in the first quarter of 2020 onwards.
04 | Interim Report 2020 • Daido Group Limited |
MANAGEMENT DISCUSSION AND ANALYSIS
PROSPECTS
Entering 2020 amid a slowdown, Hong Kong's economy in the first quarter contracted 8.9% over a year earlier, the largest decline on record since 1974. Months of street protests and the trade dispute between the United States and China had also weighed on the local economy with the onset of COVID-19 pandemic pushing the city deeper into recession. The unemployment rate rose in May of this year to the highest level since September 2005. Retail sales plummeted by over a third in the same month. In mid-July, the Trump administration banned exports of sensitive technologies and Hong Kong will face the same scrutiny as Mainland China, which will likely hamper the external sector and business investments ahead.
During the first half of 2020, domestic demand weakened markedly, echoing the severe disruptions caused by the COVID-19 threat and subdued business sentiment. Considering the sharp economic contraction, the uncertainties surrounding the pandemic and the tough global economic situation, balanced with the cushioning effects of relief measures rolled out by the government, the real GDP growth forecast for 2020 as a whole had been revised downwards to -4% to -7%.
The bleak macroeconomic outlook has prompted the Group to be conservative with its operational and business investment plans. On this cautious note, the management's strategy for growth is centred on the allocation of resources for business activities that are more likely to generate revenues and profit, including cold storage & logistics and the trading of food and beverage products.
Cold storage & logistics
The Group's cold storage & logistics business features a customer mix of catering groups and frozen food distributors, one that is considered healthy in times of growth. But under the adverse impact of COVID-19, Hong Kong's food and beverage industry saw its earnings plummeting by a record of 31.2% as of May 2020, with negative implications for the warehousing sector.
While frozen food sales have surged in the supermarkets, the city's food outlets, especially Chinese restaurants specializing in A La Carte dining and banquet are experiencing financial hardship, as consumers spend less on dining out. This has caused a slower inventory turnover in the Group's warehouses, thereby reducing earnings for the first half of the current year.
Daido Group Limited • Interim Report 2020 | 05 |
MANAGEMENT DISCUSSION AND ANALYSIS
PROSPECTS (continued)
Cold storage & logistics (continued)
As the Group's warehouse in Kwai Hei Street is due for overhaul, the owner has made plans for its renovation. The makeover project is likely to lead to longer downtimes and fluctuating overall income for the Group. For its cold-storage facility in Tsing Yi, construction work to expand the storage area is underway. When completed, it will increase the warehouse's storage capabilities.
Despite the bleak market outlook, the Group believes that the cold storage and logistics business is more resilient than other sectors and is therefore better positioned to recover from recession.
Trading of food and beverage products
The Group is committed to growing its trading business by diversifying and broadening the portfolio of food and beverage products it distributes via a network of supermarkets and convenience stores in Mainland China. One of the latest initiatives adopted is to strategically evaluate this retail network, with a view of identifying geographical districts, including but not limited to Mainland China, capable of optimising the Group's income. Moving ahead with the digital age, it is turning to e-commerce solutions for reaching out to a larger consumer base.
From the aspect of operation, the Group supplies products to a few retail chains in Mainland China which, under the pressure of intense pricing competition in the market, requested to have their retail prices lowered to enhance saleability. In response, the Group has taken action to ensure the profitability of the products is maintained.
FINANCIAL REVIEW
Liquidity and financial resources
As at 30th June, 2020, the Group had cash and bank balances of approximately HK$59.0 million (31st December, 2019: approximately HK$118.0 million), which was denominated in Hong Kong dollars ("HK$") and Renminbi ("RMB") as to 87.67% and 12.33%, respectively. The decrease in cash and bank balances was mainly due to repayments of bank loan, placement of pledged bank deposits and net cash used in operating activities.
The gearing ratio, measured as non-current borrowings (excluded derivative financial instruments and lease liabilities) over equity attributable to owners of the Company was approximately 114.0% as at 30th June, 2020 (31st December, 2019: approximately 88.1%). The increase of the gearing ratio was because of the drop of the equity attributable to owners of the Company.
06 | Interim Report 2020 • Daido Group Limited |
MANAGEMENT DISCUSSION AND ANALYSIS
FINANCIAL REVIEW (continued)
Liquidity and financial resources (continued)
In 2014, the Group announced for the placement of bonds in an aggregated principal amount of up to HK$500 million within the placing period commencing from 13th November, 2014 and ending on 12th November, 2015. The net proceeds from the issue of the bonds will be utilised as the general working capital of the Group. For further details, please refer to the announcements of the Company dated 13th November, 2014, 26th January and 23rd April, 2015. As at 30th June, 2020, it is noted that the bonds in an aggregate principal amount of HK$100 million have been subscribed by the placees and issued by the Company, which is the same as those as at 31st December, 2019.
As at 30th June, 2020, the Group had a bank loan of HK$35 million (31st December, 2019: HK$65 million) denominated in HK$. The Group's bank borrowing interest rate at 5% per annum and the maturity borrowing is up to April 2021 (31st December, 2019: the Group's bank borrowing interest rate is at 7% per annum and the maturity of borrowing is up to April 2020). As at 30th June, 2020, the banking facility utilised was HK$35 million (31st December, 2019: fully utilised).
During the current interim period, the Group's capital expenditure was mainly financed by internal resources and bank borrowing.
Treasury policies
The Group adopts conservative treasury policies and has tight controls over its cash management. The Group's cash and bank balances are held mainly in HK$.
Exposure to fluctuations in exchange rates and related hedges
Monetary assets and liabilities of the Group are principally denominated in HK$. The directors consider the Group's exposure to exchange rate risks to be low. The Group may have relatively high exposure to exchange rate risk when more trading of food and beverage business to be operated in Mainland China. The directors will review the exchange rate risks faced by the Group periodically.
During the current interim period, the Group did not have any material foreign exchange exposure and had not used any financial instruments for hedging purpose.
Daido Group Limited • Interim Report 2020 | 07 |
MANAGEMENT DISCUSSION AND ANALYSIS
FINANCIAL REVIEW (continued)
Share capital structure
As at 30th June, 2020, the total issued share capital of the Company was HK$24,323,040 divided into 2,432,304,000 ordinary shares with a par value of HK$0.01 each, which is the same as those as at 31st December, 2019.
Material acquisitions and disposals of subsidiaries, associates and joint ventures
During the current interim period, the Group did not have any material acquisitions or disposals of subsidiaries, associates or joint ventures.
Charges on assets
As at 30th June, 2020, banking facilities, for providing guarantees by a bank for the Group's operation of cold storage service, to the extent of HK$3.5 million (31st December, 2019: HK$3.5 million) were secured by bank deposits amounting to HK$3.5 million (31st December, 2019: HK$3.5 million). The amount utilised at 30th June, 2020 was approximately HK$1.4 million (31st December, 2019: approximately HK$3.5 million).
As at 30th June, 2020, bank deposits of approximately HK$64.3 million (31st December, 2019: approximately HK$62.1 million) are pledged to a bank, which provides bank guarantee in favour of one landlord for a sum equivalent to 12 months' rent payable by the Group under tenancy agreements.
In addition, within the Group's lease liabilities of approximately HK$237.2 million (31st December 2019: approximately HK$268.9 million), approximately HK$0.009 million (31st December 2019: approximately HK$0.08 million) were secured by the lessors' charge over the leased assets with carrying value of approximately HK$0.017 million (31st December, 2019: approximately HK$0.3 million).
Future plans for material investments or capital assets
During the current interim period, the Group did not have any concrete future plans for material investments or capital assets save for the JV, which is the same as those as at 31st December, 2019.
Contingent liabilities
As at 30th June, 2020, the Group did not have any contingent liabilities (31st December, 2019: Nil).
08 | Interim Report 2020 • Daido Group Limited |
MANAGEMENT DISCUSSION AND ANALYSIS
EMPLOYMENT AND REMUNERATION POLICY
As at 30th June, 2020, the total number of full time employees of the Group in Hong Kong and Mainland China were approximately 240 and 90 respectively (31st December, 2019: approximately 220 Hong Kong employees; 120 Mainland China employees). Remuneration is reviewed annually and in addition to the basic salaries, the Group also provides staff benefits including discretionary bonuses, Mandatory Provident Fund, lunch box/lunch subsidy and professional tuition/training subsidy for employees' benefit.
Daido Group Limited • Interim Report 2020 | 09 |
CONDENSED CONSOLIDATED STATEMENT OF
PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
The Board of Directors (the "Board") of Daido Group Limited (the "Company") would like to report the unaudited condensed consolidated results of the Company and its subsidiaries (collectively, the "Group") for the six months ended 30th June, 2020, together with the comparative figures for the corresponding period in 2019. The interim financial results have been reviewed by the Audit Committee of the Company but have not been reviewed by the auditor of the Company.
Six months ended | Six months ended | ||
30.6.2020 | 30.6.2019 | ||
Notes | HK$'000 | HK$'000 | |
(unaudited) | (unaudited) | ||
Revenue | 3 | ||
- Provision of cold storage and related | 83,885 | ||
services | 104,339 | ||
- Trading of food and beverage | 51,000 | 42,238 | |
- Interest income from money lending | 190 | ||
services | 2,333 | ||
Total revenue | 135,075 | 148,910 | |
Direct costs | (120,157) | (119,993) | |
Gross profit | 14,918 | 28,917 | |
Other income | 4 | 4,386 | 3,151 |
Other gains and losses | 5 | (537) | (716) |
Selling and distribution expenses | (7,687) | (9,300) | |
Administrative expenses | (23,239) | (24,316) | |
Share of loss of an associate | (4,072) | (11,767) | |
Finance costs | 6 | (10,199) | (11,562) |
Loss before tax | (26,430) | (25,593) | |
Taxation | 7 | - | - |
Loss for the period | 8 | (26,430) | (25,593) |
Other comprehensive expense for the period | |||
Item that may be reclassified subsequently | |||
to profit or loss: | |||
Exchange differences arising on translation | 627 | ||
of foreign operations | 117 | ||
Total comprehensive expense for the period | (25,803) | (25,476) |
10 | Interim Report 2020 • Daido Group Limited |
CONDENSED CONSOLIDATED STATEMENT OF
PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
Six months ended | Six months ended | |
30.6.2020 | 30.6.2019 | |
Notes | HK$'000 | HK$'000 |
(unaudited) | (unaudited) | |
Loss for the period attributable to: Owners of the Company Non-controlling interests
Total comprehensive expense for the period attributable to:
Owners of the Company Non-controlling interests
(26,430) | (25,593) |
- | - |
(26,430) | (25,593) |
(25,803) | (25,476) |
- | - |
(25,803) (25,476)
Loss per share - basic | 10 | (HK1.09 cents) | (HK1.05 cents) |
Daido Group Limited • Interim Report 2020 | 11 |
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30TH JUNE, 2020
30.6.2020 | 31.12.2019 | ||
Notes | HK$'000 | HK$'000 | |
(unaudited) | (audited) | ||
Non-current Assets | |||
Property, plant and equipment | 11 | 9,073 | 10,374 |
Right-of-use assets | 12 | 229,318 | 264,329 |
Goodwill | 68 | 68 | |
Interest in an associate | 13 | - | 4,072 |
Loan to an associate | 13 | 40,621 | 39,255 |
Financial assets at fair value through | |||
profit or loss ("FVTPL") | 408 | 686 | |
Equity instrument at fair value through other | |||
comprehensive income ("FVTOCI") | - | - | |
Rental deposits paid | 16,073 | 14,901 | |
Pledged bank deposits | 21 | 67,785 | 65,568 |
363,346 | 399,253 | ||
Current Assets | |||
Inventories | 1,419 | 2,715 | |
Trade and other receivables, deposits and | |||
prepayments | 14 | 64,979 | 55,474 |
Amount due from an associate | 13 | 12,316 | 8,077 |
Loan receivables | 15 | 2,015 | 1,975 |
Bank balances and cash | 59,013 | 117,966 | |
139,742 | 186,207 | ||
12 | Interim Report 2020 • Daido Group Limited |
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30TH JUNE, 2020
30.6.2020 | 31.12.2019 | ||
Notes | HK$'000 | HK$'000 | |
(unaudited) | (audited) | ||
Current Liabilities | |||
Trade and other payables | 16 | 28,000 | 23,209 |
Contract liabilities | 4,971 | 4,894 | |
Bank borrowing | 35,000 | 65,000 | |
Lease liabilities | 17 | 65,487 | 63,475 |
133,458 | 156,578 | ||
Net Current Assets | 6,284 | 29,629 | |
Total Assets Less Current Liabilities | 369,630 | 428,882 | |
Capital and Reserves | |||
Share capital | 18 | 24,323 | 24,323 |
Share premium and reserves | 63,433 | 89,236 | |
Equity attributable to owners of the Company | 87,756 | 113,559 | |
Non-controlling interests | 3,163 | 3,163 | |
90,919 | 116,722 | ||
Non-current Liabilities | |||
Lease liabilities | 17 | 171,727 | 205,435 |
Derivative financial instruments | 19 | 6,984 | 6,725 |
Bonds | 20 | 100,000 | 100,000 |
278,711 | 312,160 | ||
369,630 | 428,882 |
Daido Group Limited • Interim Report 2020 | 13 |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
Attributable to owners of the Company | Non- | ||||||||
Share | Share | Capital | FVTOCI | Translation | Accumulated | ||||
Total | controlling | Total | |||||||
capital | premium | reserve | reserve | reserve | losses | interests | |||
HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
(Note) | |||||||||
At 1st January, 2019 (audited) | 24,323 | 374,226 | 39,984 | (110,078) | (1,475) | (145,326) | 181,654 | 5,163 | 186,817 |
Adjustment from the adoption | |||||||||
of HKFRS 16 | - | - | - | - | 22 | (8,530) | (8,508) | - | (8,508) |
At 1st January, 2019 (restated) | 24,323 | 374,226 | 39,984 | (110,078) | (1,453) | (153,856) | 173,146 | 5,163 | 178,309 |
Loss for the period | - | - | - | - | - | (25,593) | (25,593) | - | (25,593) |
Other comprehensive expense | |||||||||
for the period | - | - | - | - | 117 | - | 117 | - | 117 |
Total comprehensive expense | |||||||||
for the period | - | - | - | - | 117 | (25,593) | (25,476) | - | (25,476) |
Dividend recognised as return | |||||||||
on equity instrument at | |||||||||
FVTOCI | - | - | - | 8,000 | - | - | 8,000 | - | 8,000 |
Distribution to non-controlling | |||||||||
interests | - | - | - | - | - | - | - | (2,000) | (2,000) |
At 30th June, 2019 (unaudited) | 24,323 | 374,226 | 39,984 | (102,078) | (1,336) | (179,449) | 155,670 | 3,163 | 158,833 |
At 1st January, 2020 (audited) | 24,323 | 374,226 | 39,984 | (102,078) | (1,914) | (220,982) | 113,559 | 3,163 | 116,722 |
Loss for the period | - | - | - | - | - | (26,430) | (26,430) | - | (26,430) |
Other comprehensive expense | |||||||||
for the period | - | - | - | - | 627 | - | 627 | - | 627 |
Total comprehensive expense | |||||||||
for the period | - | - | - | - | 627 | (26,430) | (25,803) | - | (25,803) |
At 30th June, 2020 (unaudited) | 24,323 | 374,226 | 39,984 | (102,078) | (1,287) | (247,412) | 87,756 | 3,163 | 90,919 |
Note:
On 24th November, 2009, every five issued and unissued existing shares of HK$0.01 each in share capital of the Company was consolidated into one consolidated share of HK$0.05 (the "Share Consolidation"). After the completion of the Share Consolidation, the par value of each issued consolidated share is reduced from HK$0.05 to HK$0.01 by cancelling the paid up capital to the extent of HK$0.04 on each issued consolidated share (the "Capital Reduction"). The credit arising in the accounts of the Company from the Capital Reduction was credited to capital reserve account of the Company on 18th December, 2009.
14 | Interim Report 2020 • Daido Group Limited |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
Six months ended | Six months ended | |
30.6.2020 | 30.6.2019 | |
HK$'000 | HK$'000 | |
(unaudited) | (unaudited) | |
NET CASH FROM OPERATING ACTIVITIES | 15,247 | 82,454 |
NET CASH (USED IN) FROM INVESTING | ||
ACTIVITIES | 1,057 | |
Interest received | 535 | |
Purchase of property, plant and equipment | (909) | (6,260) |
Purchase of right-of-use assets | - | (325) |
Payments for disposal of right-of-use assets | (17) | - |
Payments for rental deposits of right-of-use assets | (897) | - |
Loan to an associate | - | (10,957) |
Placement of pledged bank deposits | (2,217) | - |
Withdrawal from pledged bank deposits | - | 39,785 |
Dividend income from equity instrument at FVTOCI | - | 8,000 |
Distribution to non-controlling interests | - | (2,000) |
(2,983) | 28,778 | |
NET CASH USED IN FINANCING ACTIVITIES Interest expense on lease liabilities
Interest paid for bank borrowing and bonds Rental deposits paid
Rental deposits received Repayments of bank borrowing Repayments of lease liabilities
(5,904) (6,179)
(4,895) (5,983)
- (2,294)
- 9,946
(30,000) | - |
(31,045) | (42,292) |
(71,844) | (46,802) |
NET (DECREASE)/INCREASE IN CASH AND | ||
CASH EQUIVALENTS | (59,580) | 64,430 |
CASH AND CASH EQUIVALENTS AT | ||
BEGINNING OF THE PERIOD | 117,966 | 55,898 |
Effect of foreign exchange rate changes | 627 | 117 |
CASH AND CASH EQUIVALENTS AT END | ||
OF THE PERIOD, | 59,013 | |
represented by bank balances and cash | 120,445 |
Daido Group Limited • Interim Report 2020 | 15 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
1. BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") as well as with the applicable disclosures requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Stock Exchange").
2. PRINCIPAL ACCOUNTING POLICIES
Except as described below, the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30th June, 2020 are the same as those followed in the preparation of the Group's annual financial statements for the year ended 31st December, 2019.
New and amended Hong Kong Financial Reporting Standards ("HKFRSs") adopted as at 1st January, 2020
In the current interim period, the Group has applied for the first time the new and amended HKFRSs issued by the HKICPA, which are relevant to the Group's operations and effective for the Group's condensed consolidated financial statements for the annual period beginning on 1st January, 2020.
Amendments to HKFRS 3 | Definition of a Business |
Amendments to HKFRS 9, | Interest Rate Benchmark Reform |
HKAS 39 and HKFRS 7 | |
Amendments to HKAS 1 and HKAS 8 | Definition of Material |
The adoption of the new and amend HKFRSs had no material impact on how the results and financial position for the current and prior periods have been prepared and presented.
Issued but not yet effective HKFRSs
The Group has not applied any new and amended HKFRSs that have been published by the HKICPA but are not yet effective for the current accounting period. The Group has commenced an assessment of the impact of these new standards and amendments, but is not yet in a position to state whether they would have a significant impact on its results and financial position. The directors expected that the new and amended HKFRSs issued but not effective are not expected to have a material impact on the Group's condensed consolidated financial statements.
16 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
3. REVENUE AND SEGMENT INFORMATION
Segment information
Information reported to the executive directors of the Company, being the chief operating decision makers, for the purposes of resource allocation and assessment of segment performance focuses on the types of services provided. No operating segments identified by the chief operating decision makers have been aggregated in arriving at the reportable segments of the Group.
Specifically, the Group's reportable and operating segments under HKFRS 8 Operating Segments are as follows:
- Cold storage and related services in Hong Kong ("Cold storage and related services")
- Trading of food and beverage in Mainland China ("Trading of food and beverage")
- Money lending services in Hong Kong ("Money lending services")
Segments revenue and results
The following is an analysis of the Group's revenue and results by reportable and operating segments.
Six months ended 30.6.2020 (unaudited)
Cold storage | Trading of | Money | ||
and related | food and | lending | ||
services | beverage | services | Total | |
HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
Revenue | 83,885 | 51,000 | 190 | 135,075 |
Segment (loss) profit | (13,976) | (2,131) | 89 | (16,018) |
Unallocated income | 939 | |||
Unallocated expenses | (8,122) | |||
Change in fair value of | (278) | |||
financial assets at FVTPL | ||||
Finance costs | (2,951) | |||
Loss before tax | (26,430) |
Daido Group Limited • Interim Report 2020 | 17 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
3. REVENUE AND SEGMENT INFORMATION (continued)
Segments revenue and results (continued) Six months ended 30.6.2019 (unaudited)
Cold storage | Trading of | Money | ||
and related | food and | lending | ||
services | beverage | services | Total | |
HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
Revenue | 104,339 | 42,238 | 2,333 | 148,910 |
Segment (loss) profit | (11,622) | (4,621) | 1,170 | (15,073) |
Unallocated income | 533 | |||
Unallocated expenses | (8,118) | |||
Change in fair value of | ||||
derivative financial instruments | (1,069) | |||
Finance costs | (1,866) | |||
Loss before tax | (25,593) |
Segment (loss) profit represents the (loss incurred) profit earned by each segment without allocation of certain other income, central administration costs that mainly include partly auditor's remuneration, rental expenses and directors' remuneration, change in fair value of derivative financial instruments, change in fair value of financial assets at FVTPL and certain finance costs. This is the measure reported to the chief operating decision makers for the purposes of resource allocation and performance assessment.
18 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
3. REVENUE AND SEGMENT INFORMATION (continued)
Segments assets and liabilities
The following is an analysis of the Group's assets and liabilities by reportable and operating segments:
Assets
Cold storage and related services Trading of food and beverage Money lending services
Total segment assets
Unallocated assets
Consolidated assets
Liabilities
Cold storage and related services Trading of food and beverage Money lending services
Total segment liabilities
Unallocated liabilities
30.6.2020 31.12.2019
HK$'000 HK$'000
(unaudited) (audited)
344,975 366,308
25,69928,346
2,0972,056
372,771 396,710
130,317 188,750
503,088 585,460
292,377 348,602
14,01613,603
5,2303,138
311,623 365,343
100,546 103,395
Consolidated liabilities | 412,169 | 468,738 |
Daido Group Limited • Interim Report 2020 | 19 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
3. REVENUE AND SEGMENT INFORMATION (continued)
Revenue
Disaggregation of revenue from contracts with customers
Six months ended 30.6.2020 | ||
(unaudited) | ||
Trading | ||
Cold storage and | of food | |
related services | and beverage | |
Total | Total | |
HK$'000 | HK$'000 | |
Types of goods or services | ||
Revenue from provision of cold storage and | ||
related services | 54,372 | - |
- Cold storage | ||
- Loading and handling services | 2,179 | - |
- Logistic and packing services | 27,334 | - |
83,885 | - | |
Revenue from trading of food and beverage | - | 51,000 |
Total | 83,885 | 51,000 |
Geographical markets | - | 51,000 |
Mainland China | ||
Hong Kong | 83,885 | - |
Total | 83,885 | 51,000 |
Timing of revenue recognition | - | 51,000 |
A point in time | ||
Over time | 83,885 | - |
Total | 83,885 | 51,000 |
20 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
3. REVENUE AND SEGMENT INFORMATION (continued)
Revenue (continued)
Disaggregation of revenue from contracts with customers (continued)
Six months ended 30.6.2019 | ||
(unaudited) | Trading | |
Cold storage and | of food | |
related services | and beverage | |
Total | Total | |
HK$'000 | HK$'000 | |
Types of goods or services | ||
Revenue from provision of cold storage and | ||
related services | ||
- Cold storage | 76,481 | - |
- Loading and handling services | 2,179 | - |
- Logistic and packing services | 25,679 | - |
104,339 | - | |
Revenue from trading of food and beverage | - | 42,238 |
Total | ||
104,339 | 42,238 | |
Geographical markets | ||
Mainland China | - | 42,238 |
Hong Kong | 104,339 | - |
Total | ||
104,339 | 42,238 | |
Timing of revenue recognition | ||
A point in time | - | 42,238 |
Over time | 104,339 | - |
Total | ||
104,339 | 42,238 |
Daido Group Limited • Interim Report 2020 | 21 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
4. | OTHER INCOME | ||
Six months ended | Six months ended | ||
30.6.2020 | 30.6.2019 | ||
HK$'000 | HK$'000 | ||
(unaudited) | (unaudited) | ||
Government grants | 1,902 | - | |
Imputed interest income on loan to an associate | 1,366 | 1,877 | |
Imputed interest income on rental deposits paid | 367 | 398 | |
Interest income from bank deposits | 604 | 535 | |
Sundry income | 147 | 341 | |
4,386 | 3,151 | ||
5. | OTHER GAINS AND LOSSES | ||
Six months ended | Six months ended | ||
30.6.2020 | 30.6.2019 | ||
HK$'000 | HK$'000 | ||
(unaudited) | (unaudited) | ||
Change in fair value of derivative financial | |||
instruments | (259) | (1,069) | |
Change in fair value of financial assets at | (278) | ||
FVTPL | - | ||
Loss on disposal of property, plant and | |||
equipment | - | (177) | |
Reversal of impairment loss on loan receivables | - | 502 | |
Reversal of impairment loss on trade receivables | - | 28 | |
(537) | (716) |
22 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
6. | FINANCE COSTS | ||
Six months ended | Six months ended | ||
30.6.2020 | 30.6.2019 | ||
HK$'000 | HK$'000 | ||
(unaudited) | (unaudited) | ||
Interest expense on bank borrowing | 1,295 | 2,383 | |
Interest expense on bonds | 3,000 | 3,000 | |
Interest expense on lease liabilities | 5,904 | 6,179 | |
10,199 | 11,562 |
7. TAXATION
On 21st March, 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the "Bill") which introduced the two-tiered profits tax rates regime. The Bill was signed into law on 28th March, 2018 and was gazette on the following day. Under the two-tiered profits tax rates regime, the first HK$2 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million will be taxed at 16.5%. The profits of group entities not qualifying for the two- tiered profits tax rates regime will continue to be taxed at a flat rate of 16.5%.
Under the Enterprise Income Tax Law of the People's Republic of China (the "EIT Law") and the Detailed Rules for the Implementation of the EIT Law, the tax rate of Mainland China subsidiaries is 25% for both periods.
No provision for Hong Kong Profits Tax and Enterprise Income Tax has been made as the individual companies comprising the Group either incurred a loss or had tax losses to offset the assessable profits for both periods presented.
Daido Group Limited • Interim Report 2020 | 23 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
8. | LOSS FOR THE PERIOD | ||
Six months ended | Six months ended | ||
30.6.2020 | 30.6.2019 | ||
HK$'000 | HK$'000 | ||
(unaudited) | (unaudited) | ||
Loss for the period has been arrived at | |||
after charging (crediting): | |||
Depreciation for property, plant and equipment | 1,717 | 1,581 | |
Depreciation for right-of-use assets | 34,470 | 37,943 | |
Net foreign exchange loss (gain) | 36 | (30) |
9. DIVIDEND
No dividends were paid, declared or proposed during the interim period (six months ended 30th June, 2019: Nil). The directors of the Company have determined that no dividend will be paid in respect of the interim period (six months ended 30th June, 2019: Nil).
10. LOSS PER SHARE
The calculation of the basic loss per share attributable to the owners of the Company is based on the following data:
Six months ended | Six months ended | |
30.6.2020 | 30.6.2019 | |
HK$'000 | HK$'000 | |
(unaudited) | (unaudited) | |
Loss for the purpose of basic loss per share | (26,430) | |
attributable to owners of the Company | (25,593) | |
'000 | '000 | |
Weighted average number of ordinary shares | 2,432,304 | |
for the purpose of basic loss per share | 2,432,304 |
No diluted loss per share is presented as there were no potential ordinary shares in issue for the six months ended 30th June, 2020 and 30th June, 2019.
24 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
11. PROPERTY, PLANT AND EQUIPMENT
During the current interim period, the Group purchased approximately HK$909,000 (six months ended 30th June, 2019: HK$6,260,000) on additions of property, plant and equipment, and no disposal of property, plant and equipment (six months ended 30th June, 2019: disposed of certain items of property, plant and equipment with total carrying amount of approximately HK$177,000).
12. RIGHT-OF-USE ASSETS
Cold storage | Motor | |||
warehouses | Offices | vehicles | Total | |
HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
At as 31st December, 2019 | ||||
(audited) | ||||
Carrying amount | 259,565 | 4,622 | 142 | 264,329 |
At as 30th June, 2020 (unaudited) | ||||
Carrying amount | 226,363 | 2,938 | 17 | 229,318 |
For the six months ended | ||||
30th June, 2020 (unaudited) | ||||
Depreciation charge | (33,293) | (1,052) | (125) | (34,470) |
Exchange adjustments | - | (1) | - | (1) |
Total cash outflow for leases | 36,949 | |||
Additions to right-of-use assets | 264 |
Daido Group Limited • Interim Report 2020 | 25 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
12. RIGHT-OF-USE ASSETS (continued)
For both periods, the Group leases certain offices premises and cold storage warehouses for its operations. Lease contracts are entered into for fixed term of 24 months to 8 years, but may have extension and/or termination options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the length of the non-cancellable period, the Group applies the definition of a contract and determines the period for which the contract is enforceable.
13. INTEREST IN AN ASSOCIATE/LOAN TO AN ASSOCIATE/ AMOUNT DUE FORM AN ASSOCIATE
30.6.2020 | 31.12.2019 | |
HK$'000 | HK$'000 | |
(unaudited) | (audited) | |
Interest in an associate (Note a): | ||
Cost of investment in an associate | -* | -* |
Fair value adjustment on non-current | ||
interest-free loan to an associate | 42,079 | 42,079 |
Share of post-acquisition losses and other | ||
comprehensive expense | (34,579) | (29,975) |
Share of post-acquisition losses and other | ||
comprehensive expense arising from | ||
adoption of HKFRS 16 | - | (532) |
Impairment loss recognised | (7,500) | (7,500) |
- | 4,072 | |
Loan to an associate (Note b) | 40,621 | 39,255 |
Amount due from an associate | 12,316 | 8,077 |
- Less than HK$1,000
26 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
13. INTEREST IN AN ASSOCIATE/LOAN TO AN ASSOCIATE/
AMOUNT DUE FORM AN ASSOCIATE (continued)
Notes:
- Details of the associates held by the Group as at 30th June, 2020 and 31st December, 2019 are as follows:
Country of | ||||||
incorporation/ | Proportion of ownership | Proportion of | ||||
principal place | interest | voting rights | ||||
Name of associates | of business | held by the Group | held by the Group | |||
2020 | 2019 | 2020 | 2019 | Principal activities | ||
% | % | % | % | |||
Direct associate | ||||||
Loving Peace International | British Virgin Islands/ | 30 | 30 | 20 | 20 | Investment holding |
Limited ("Loving Peace") | Hong Kong | |||||
Indirect associate | ||||||
Brilliant Cold Chain SolutionsHong Kong | 30 | 30 | 20 | 20 | Provision of cold storage | |
Limited ("BCCS") | and related services |
The Group holds 30% of the issued share capital of Loving Peace. Under the investment agreement, the Group and the other two shareholders has the rights to nominate or appoint one and four directors to the board of directors of Loving Peace, respectively, in which the Group has 20% of the voting right of Loving Peace. The directors of the Company consider that the Group does have significant influence or any power to exercise significant influence over the management and participate in the financial and operating decisions of Loving Peace, accordingly, the investment is classified as associate.
Daido Group Limited • Interim Report 2020 | 27 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
13. INTEREST IN AN ASSOCIATE/LOAN TO AN ASSOCIATE/
AMOUNT DUE FORM AN ASSOCIATE (continued)
Notes: (continued)
- At 30th June, 2020 and 31st December, 2019, loan to an associate is unsecured, interest-free and not expected to be repaid within one year after the reporting period. Fair value of the loan to an associate on initial recognition is determined based on effective interest rate of 7% (31.12.2019: 7%) per annum. The difference between the principal amount of the loan and its fair value determined on initial recognition amounting to HK$23,060,000 (31.12.2019: HK$23,060,000), has been included in the investment cost in an associate as deemed contribution to the associate during the current period. Loan to an associate is considered as long-term interest that, in substance form part of the Group's net investments in the relevant associate.
Summarised financial information of an associate
Summarised financial information in respect of the Group's associate is set out below. The summarised financial information below represents amounts shown in the associate's financial statements prepared in accordance with HKFRSs. The associate is accounted for using the equity method in these condensed consolidated financial statements.
Consolidated financial information regarding Loving Peace and its subsidiary is set out below:
30.6.2020 | 31.12.2019 | |
HK$'000 | HK$'000 | |
(unaudited) | (audited) | |
Current assets | 24,510 | 21,249 |
Non-current assets | 272,326 | 314,324 |
Current liabilities | (84,342) | (77,124) |
Non-current liabilities | (226,914) | (246,106) |
(14,420) | 12,343 | |
Revenue | 36,518 | 49,198 |
Loss and other comprehensive expense | (26,858) | |
for the period/year | (73,180) | |
Share of loss of an associate | (4,072) | (21,954) |
28 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
13. INTEREST IN AN ASSOCIATE/LOAN TO AN ASSOCIATE/
AMOUNT DUE FORM AN ASSOCIATE (continued)
Summarised financial information of an associate (continued)
Reconciliation of the above summarised financial information to the carrying amount of the interest in the associate recognised in the condensed consolidated financial statements:
30.06.2020 | 31.12.2019 | |
HK$'000 | HK$'000 | |
(unaudited) | (audited) | |
Net (liabilities) assets of the associate | (14,420) | 12,343 |
Proportion of the Group's ownership interest | 30% | |
in the associate | 30% | |
The Group's share of net (liabilities) assets | (4,326) | |
of the associate | 3,703 | |
Other adjustment | 7,841 | 7,869 |
Unrecognised share of loss of the associate for | 3,985 | |
the period | - | |
Less: Impairment loss recognised | (7,500) | (7,500) |
Carrying amount of the Group's interest | - | |
in the associate | 4,072 |
Daido Group Limited • Interim Report 2020 | 29 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
14. TRADE AND OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS
Except for certain customers who are allowed 30 to 60 days credit period, no credit period is allowed by the Group in respect of provision of cold storage and logistics services. No interest is charged on any outstanding trade receivables.
As at 30th June, 2020, included in trade and other receivables, deposits and prepayments are trade receivables, net of allowance for credit loss, of HK$59,901,000 (31.12.2019: HK$50,337,000).
The following is an aged analysis of trade receivables (net of allowance for credit loss) presented based on the invoice dates at the end of the reporting period, which approximate the respective revenue recognition dates.
30.6.2020 | 31.12.2019 | |
HK$'000 | HK$'000 | |
(unaudited) | (audited) | |
0 to 30 days | 20,829 | 20,897 |
31 to 60 days | 20,694 | 17,413 |
61 to 90 days | 6,375 | 6,468 |
91 to 120 days | 5,071 | 2,477 |
More than 120 days | 6,932 | 3,082 |
59,901 | 50,337 |
30 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
15. LOAN RECEIVABLES
30.6.2020 | 31.12.2019 | |
HK$'000 | HK$'000 | |
(unaudited) | (audited) | |
Loan receivables | 2,880 | 2,840 |
Less: Allowance for credit loss | (865) | (865) |
2,015 | 1,975 |
As at 30th June, 2020, unsecured loan receivables carry fixed-rate interests ranged from 12% to 24% (31.12.2019: 11% to 12%) per annum and with maturity ranged from 3 months to 1 year (31.12.2019: 6 months to 2.5 years). All amounts of principal will be receivable on respective maturity dates.
16. TRADE AND OTHER PAYABLES
As at 30th June, 2020, included in trade and other payables are trade payables of HK$12,510,000 (31.12.2019: HK$10,911,000).
The following is an aged analysis of trade payables presented based on the invoice dates at the end of the reporting period.
30.6.2020 | 31.12.2019 | |
HK$'000 | HK$'000 | |
(unaudited) | (audited) | |
0 to 30 days | 5,940 | 2,271 |
31 to 60 days | 767 | 889 |
61 to 90 days | 5,798 | 6,953 |
91 to 120 days | 5 | 470 |
More than 120 days | - | 328 |
12,510 | 10,911 |
Daido Group Limited • Interim Report 2020 | 31 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
17. | LEASE LIABILITIES | |||||
30.6.2020 | 31.12.2019 | |||||
HK$'000 | HK$'000 | |||||
(unaudited) | (audited) | |||||
Lease liabilities payable: | ||||||
Within one year | 65,487 | 63,475 | ||||
Within a period of more than one year but not | ||||||
more than two years | 65,022 | 67,899 | ||||
Within a period of more than two years but not | ||||||
more than five years | 106,705 | 137,536 | ||||
237,214 | 268,910 | |||||
Less: Amount due for settlement with twelve | ||||||
months shown under current liabilities | (65,487) | (63,475) | ||||
Amount due for settlement after twelve months | ||||||
shown under non-current liabilities | 171,727 | 205,435 | ||||
18. | SHARE CAPITAL | |||||
Authorised | Issued and fully paid | |||||
Number of | Number of | |||||
Shares | Amount | Shares | Amount | |||
'000 | HK$'000 | '000 | HK$'000 | |||
Ordinary shares of HK$0.01 each: | ||||||
At 31st December, 2019 (audited) | ||||||
and 30th June, 2020 (unaudited) | 60,000,000 | 600,000 | 2,432,304 | 24,323 |
32 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
19. DERIVATIVE FINANCIAL INSTRUMENTS
On 6th September, 2018, the Group entered into an agreement (the "JV Agreement") with two independent investors, in which the Group, and the two investors were committed to invest 30%, 60% and 10% of the shareholdings in Loving Peace, an associate of the Group, respectively. In accordance with the agreement, the Group grants two put options to the investor who invests 60% of the shareholding of in Loving Peace ("Investor A") as follow:
1. The Group grants to Investor A an option whereby Investor A has the right to require the Group to purchase from Investor A all or part of its shares in Loving Peace (the "Relevant Shares") and the Investor A's committed loan advanced to Loving Peace and its subsidiaries, amounted to US$5,000,000, and outstanding from time to time (the "Shareholder Loan"), at the exercise price determined in the agreement (the "First Put Option"). The First Put Option shall be exercisable by Investor A (subject to its fulfillment of its obligation under the JV agreement) in the event that the Group, as a manager, fails to meet the key performance indicators (the "KPIs") of BCCS in accordance with a management service agreement, which entered into by BCCS and the Group, for three consecutive quarters within thirty-six months after the date of management service agreement. The First Put Option shall be exercisable by Investor A within thirty-six months after the date of the management service agreement.
Under the First Put Option, the price of the Relevant Shares and Shareholder Loan shall be determined based on the pro-rata share of the valuation of Loving Peace which is the higher of (i) the total investment amount, which is US$33,000,000 in accordance with the agreement, plus any additional investments with an annual return of 15% and (ii) the fair value of the equity in Loving Peace and the Shareholder Loan.
Daido Group Limited • Interim Report 2020 | 33 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
-
DERIVATIVE FINANCIAL INSTRUMENTS (continued)
2. The Group grants to Investor A an option whereby Investor A has the right to require the Group to purchase from Investor A all or part of its Relevant Shares and Shareholder Loan, at the exercise price determined in the agreement (the "Second Put Option"). The Second Put Option shall be exercisable by Investor A after the expiration of thirty-six months after the date of the agreement, irrespective of whether the Group is able to meet the KPIs.
Under the Second Put Option, the price of the Relevant Shares and the Shareholder Loan shall be equal to the summation of the outstanding amount of the Shareholder Loan and US$1,000,000 (or if Investor A subsequently disposed of its shares, US$1,000,000 multiplied by the number of shares held by Investor A at the time when Investor A exercises the Second Put Option divided by the number of shares held by Investor A upon completion of share subscription in accordance with the agreement). - BONDS
The bonds bear interest at 6% per annum and payable annually in arrears, up to the maturity date of the relevant bonds. The maturity dates are the seventh anniversary of the dates of issue of the relevant bonds ranging from November 2021 to May 2022.
21. PLEDGE OF ASSETS
As at 30th June, 2020, bank facilities for providing guarantees by a bank for the Group's operation of cold storage service, to the extent of HK$3,500,000 (31.12.2019: HK$3,500,000) are secured by bank deposits amounting to HK$3,500,000 (31.12.2019: HK$3,500,000). The amount utilised at 30th June, 2020 was HK$1,410,000 (31.12.2019: HK$3,480,000).
As at 30th June, 2020, bank deposits of HK$64,285,000 (31.12.2019: HK$62,068,000) are pledged to a bank, which provides bank guarantee in favour of one landlord for a sum equivalent to 12 months' rent payable by the Group under tenancy agreements.
34 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
22. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
Some of the Group's financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
Fair value | 30.6.2020 | 31.12.2019 | ||
hierarchy | HK$'000 | HK$'000 | ||
(unaudited) | (audited) | |||
Financial assets at FVTPL | ||||
Held for trading listed equity | Level 1 | |||
securities (Note 1) | 408 | 686 | ||
Equity instrument at FVTOCI | ||||
Unlisted equity instrument | Level 3 | |||
(Note 2) | - | - | ||
Financial liabilities | ||||
Derivative financial liability | Level 3 | |||
(Note 3) | 6,984 | 6,725 |
Daido Group Limited • Interim Report 2020 | 35 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
22. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
(continued)
Notes:
- The fair value of listed equity securities is determined with reference to quoted market bid prices from the Stock Exchange.
- Since the underlining companies in the equity instrument at FVTOCI remains inactive and has insignificant amount of net asset value as at 30th June, 2020 and 31st December, 2019. The management considers that the fair value of the equity instrument is minimal.
- The fair value of derivative financial instrument was calculated using Binomial Model. The significant unobservable input mainly include expected volatility of 35.66% (31.12.2019: 35.78%), taking account into volatility of other comparable listed companies. A slight decrease in the expected volatility used in isolation would result in a decrease in the fair value measurement of the derivative, and vice versa. A 3% increase/decrease in the volatility holding all other variables constant would increase the carrying amount of the derivative by HK$989,000 (31.12.2019: HK$1,010,000)/decrease the carrying amount of the derivative by HK$1,012,000 (31.12.2019: HK$993,000).
There were no transfers between Levels 1 and 3 during the periods.
Reconciliation of Level 3 fair value measurements
Equity | Derivative | ||
instrument | financial | ||
at FVTOCI | instruments | Total | |
HK$'000 | HK$'000 | HK$'000 | |
At 31st December, 2019 (audited) | - | 6,725 | 6,725 |
Change in fair value | - | 259 | 259 |
At 30th June, 2020 (unaudited) | |||
- | 6,984 | 6,984 |
36 | Interim Report 2020 • Daido Group Limited |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30TH JUNE, 2020
23. RELATED PARTY TRANSACTIONS
The Group had the following material transactions with related parties during the period:
- A subsidiary of the Company entered into the management service agreement with the Group's associate in accordance with the terms of the JV Agreement dated 6th September, 2018 to operate the cold storage business of the associate. The subsidiary shall assist the associate for its daily operations of the cold storage business, and the associate shall pay to a subsidiary a monthly management fee for the management services rendered. During the six months ended 30th June, 2020, the management fee income amounted to HK$5,485,000 (six months ended 30th June, 2019: HK$2,254,000) was recognised as revenue in profit or loss.
- Key management compensation (including directors' emoluments)
Six months ended | Six months ended | |
30.6.2020 | 30.6.2019 | |
HK$'000 | HK$'000 | |
Directors' fees | 552 | 421 |
Other emoluments | ||
- Salaries and other benefits | 3,044 | 2,980 |
- Performance related bonuses | - | 410 |
- Contributions to retirement | ||
benefits scheme | 112 | 156 |
Total emoluments | 3,708 | 3,967 |
The Group did not enter into any other transaction with its related parties during the six months ended 30th June, 2020 and 2019.
Daido Group Limited • Interim Report 2020 | 37 |
OTHER INFORMATION
DISCLOSURE OF INTERESTS
Interests of Directors
As at 30th June, 2020, save as disclosed below, none of the Company's Directors or chief executives of the Company nor their respective associates had any interests and short positions in any shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance ("SFO")), which were required to be notified to the Company and The Stock Exchange of Hong Kong Limited (the "Stock Exchange") pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provision of the SFO), or which were required to be entered in the register maintained by the Company pursuant to Section 352 of the SFO, or which were otherwise required to notify the Company and the Stock Exchange pursuant to Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules.
Associated corporation of the Company
Mr. Fung Pak Kei was deemed to be interested in shares of the following associated company of the Company through corporation controlled by him:
Percentage of | ||
No. of | total issued | |
Name of associated corporation | shares held | share capital |
Loving Peace International Limited (Note) | 20 | 10% |
Note:
Loving Peace International Limited ("Loving Peace") is a company incorporated in the British Virgin Islands with limited liability and is owned as to 30% by the Group and as to 10% GIK Business Consulting Limited ("GIK"). The entire issued share capital of GIK is beneficially owned by Mr. Fung Pak Kei, an Executive Director of the Company.
The 10% shareholdings of Loving Peace were held by GIK directly. Loving Peace is the sole shareholder of Brilliant Cold Chain Solutions Limited.
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OTHER INFORMATION
DISCLOSURE OF INTERESTS (continued)
Interests of substantial shareholders
As at 30th June, 2020, save as disclosed below, so far as is known to the Company's Directors and chief executives of the Company, no person (other than the Company's Director or a chief executive of the Company) had an interest or short position in any shares or underlying shares of the Company which will fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which are recorded in the register of interests required to be kept by the Company under Section 336 of the SFO and no person (other than the Company's Director or a chief executive of the Company), had an interest or short position in any shares or underlying shares of the Company, who is expected, directly or indirectly, to be interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or has any options in respect of such capital.
Long positions of the substantial shareholder in the shares of the Company:
Approximate | |||
percentage of | |||
No. of | total issued | ||
Name of shareholder | Capacity | shares held | share capital |
Ever Achieve Enterprises | Beneficial owner | 202,323,133 | 8.32% |
Limited (Note 1) | |||
Yuen Kin Wing (Note 1) | Interest of controlled | 202,323,133 | 8.32% |
corporation | |||
Bingo Chance Limited (Note 2) | Beneficial owner | 140,000,000 | 5.76% |
Elite Plan Investments | Interest of controlled | 140,000,000 | 5.76% |
Limited (Note 2) | corporation | ||
Wulglar Wai Wan (Note 2) | Interest of controlled | 140,000,000 | 5.76% |
corporation |
Notes:
- The entire issued share capital of Ever Achieve Enterprises Limited is beneficially owned as to 50% by Mr. Yuen Kin Wing, as to 25% by Mr. Chung Chiu Pui and as to 25% by Ms. Foo Hang Luen, Monita.
- Ms. Wulglar Wai Wan is an elder sister of Mr. Ho Hon Chung, Ivan, who is an Executive Director of the Company. She is the sole ultimate beneficial owner of Elite Plan Investments Limited ("Elite") and Bingo Chance Limited, a wholly-owned subsidiary of Elite. She is deemed to be interested in the 140,000,000 shares which are held by Bingo Chance Limited under the SFO.
Daido Group Limited • Interim Report 2020 | 39 |
OTHER INFORMATION
DISCLOSURE OF INTERESTS (continued)
Share option scheme
At the annual general meeting of the Company held on 29th May, 2015, the shareholders of the Company approved the adoption of a new share option scheme (the "2015 Scheme") and the termination of the share option scheme which was adopted on 9th January, 2006 (the "2006 Scheme"). The 2015 Scheme became effective on 2nd June, 2015 (the "Adoption Date") and, unless otherwise terminated earlier by shareholders at a general meeting, will remain in force for a period of 10 years from the Adoption Date. Since the Adoption Date, the Board may, at its discretion, grant share options to any eligible participants to subscribe for the shares in the Company subject to the terms and conditions as stipulated in the 2015 Scheme.
No share option was outstanding as at 1st January, 2020 and 30th June, 2020 and no share option was granted under the 2015 Scheme during the period since adoption.
DIRECTORS' INTERESTS IN COMPETING BUSINESS
Save as disclosed in the paragraph headed "Interests of Directors" above, as far as the Directors are aware of, none of the Directors have any interests in a business apart from the Group's business which competes or is likely to compete, directly or indirectly, with the Group's business during the six months ended 30th June, 2020.
CONNECTED TRANSACTIONS AND DIRECTOR'S INTEREST IN CONTRACTS
Upon the appointment of Mr. Fung Pak Kei ("Mr. Fung") as Executive Director with effective from 4th June, 2019, by virtue of Mr. Fung owning the entire interests in GIK Business Consulting Limited ("GIK"), GIK has become a connected person of the Company under Chapter 14A of the Listing Rules after the appointment of Mr. Fung. The following transaction entered into prior to the appointment of Mr. Fung have become connected transaction of the Company accordingly.
40 | Interim Report 2020 • Daido Group Limited |
OTHER INFORMATION
CONNECTED TRANSACTIONS AND DIRECTOR'S INTEREST IN
CONTRACTS (continued)
Joint venture agreement
On 6th September, 2018, Sky Elegant Development Limited ("Sky Elegant"), an indirect wholly- owned subsidiary of the Company, together with Sub-Zero (HK) Limited ("Sub-Zero (HK)"), GIK and Loving Peace International Limited ("JV Company") entered into a joint venture agreement ("JV Agreement") in relation to the operation and management of the JV Company. Immediately after completion, the issued share capital of the JV Company will be owned as to 30% by Sky Elegant, as to 60% by Sub-Zero (HK) and as to 10% by GIK. The JV Company would be principally engaged in cold storage business in Hong Kong and/or the PRC. Completion of the JV Agreement has taken place during the year ended 31st December, 2018 in accordance with the terms thereof.
Please refer to the announcements of the Company dated 6th September, 2018 and 29th October, 2018, and the circular of Company dated 31st October, 2018 for further details of the JV Agreement and the transactions thereunder.
The Directors (including all Independent Non-executive Directors) have reviewed and confirmed that this transaction was entered into: (1) in the ordinary and usual course of business of the Group; (2) on normal commercial terms or better; and (3) in accordance with the relevant agreement governing them and on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole.
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the six months ended 30th June, 2020.
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OTHER INFORMATION
CORPORATE GOVERNANCE
Code on corporate governance practices
For the first half of 2020, the Board is of the view that the Company has complied with the principles and the code provisions set out in the Corporate Governance Code and Corporate Governance Report in Appendix 14 (the "CG Code") of the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules"), save for the exceptions specified and explained below:
According to the code provision A.2.1 of the CG Code, the roles of chairman and chief executive should be separate and should not be performed by the same individual. During the period, there have been no Chairman in the Company. Mr. Ho Hon Chung, Ivan ("Mr. Ho") and Mr. Choy Kai Sing ("Mr. Choy") acted as Acting Chief Executive Officer and Chief Financial Officer of the Company respectively. Mr. Ho is responsible for all day-to-day corporate management matters and Mr. Choy is responsible for corporate financial matters. In June 2020, Mr. Choy was resigned as the Chief Financial Officer and Mr. Cheung Hoi Kin, currently, is a Director of Strategy and Development Department of the Group, has been appointed as Chief Financial Officer and is responsible for corporate financial matters in place of Mr. Choy.
According to the code provision E.1.2 of the CG Code, the chairman of the Board should attend the annual general meeting and invite for the chairmen of the Audit, Nomination and Remuneration Committees to answer the questions at the general meeting. Since there was no Chairman in the Company during the period, the Company did not comply with code provision E.1.2 of the CG Code.
The Board does not have the intention to fill the position of Chairman at present and believes that the absence of a Chairman will not have adverse effect to the Company, as decisions of the Company will be made collectively by the Board. The Board will keep reviewing the current structure of the Board and the need of appointment of a suitable candidate to perform the role of Chairman. Appointment will be made to fill the post to comply with the CG Code if necessary.
Model code for securities transactions by Directors
The Company has adopted a written securities dealing policy which contains a set of code of conduct regarding securities transactions by Directors, the terms of which are on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers contained in Appendix 10 to the Listing Rules (the "Securities Dealing Policy").
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OTHER INFORMATION
CORPORATE GOVERNANCE (continued)
Model code for securities transactions by Directors (continued)
Having made specific enquiry of all Directors of the Company, all Directors have confirmed that they had complied with the required standard set out in the Securities Dealing Policy during the period under review. No incident of non-compliance was noted by the Company during the period under review.
Audit Committee
The Audit Committee has reviewed with the Management the accounting principles and practices adopted by the Group and discussed risk management, internal control and financial reporting matters including a review of the unaudited condensed consolidated results of the Group for the six months ended 30th June, 2020 with the Directors. The Audit Committee is of the opinion that the unaudited condensed consolidated results of the Group for the six months ended 30th June, 2020 comply with the applicable accounting standards, the Listing Rules and legal requirements and that adequate disclosure has been made.
The Audit Committee comprises all of the three Independent Non-executive Directors, namely Mr. Leung Chi Hung, Mr. Fung Siu Kit, Ronny and Mr. Tse Yuen Ming. Mr. Leung Chi Hung is the chairman of the Audit Committee.
Risk management and internal control
The Board has responsibility for maintaining appropriate and effective risk management and internal control systems (the "RM and IC Systems") of the Group and reviewing its effectiveness through the Audit Committee. The purpose of the RM and IC Systems are designed to manage rather than eliminate risks of failure in operational systems so that the Company's objective can be achieved, and can only provide reasonable but not absolute assurance against material misstatements or losses.
The Group has adopted a series of internal control measures including the strengthening of reporting lines of senior management. As a routine procedure and part of the RM and IC Systems, Executive Directors and the senior management meet regularly to review the financial and operating performance of the key operating subsidiaries. Senior management of each department is also required to keep Executive Directors informed of material developments of the department's business as well as implementation of the strategies and policies set by the Board on a regular basis.
Daido Group Limited • Interim Report 2020 | 43 |
OTHER INFORMATION
CORPORATE GOVERNANCE (continued)
Risk management and internal control (continued)
To further strengthen the RM and IC systems of the Group, the Company has engaged an independent professional adviser (the "Internal Control Adviser") to carry out the internal audit functions by performing independent appraisal of the adequacy and effectiveness of certain subsidiaries' RM and IC systems. The Internal Control Advisor is in the process of carrying out its appraisal for the current fiscal year as of the report date.
During the six months ended 30th June, 2020, the Audit Committee, with the assistance of the Internal Control Adviser, has developed current year's RM and IC systems appraisal plan. The scope of the current fiscal year's RM and IC systems appraisal plan focuses on reviewing
- the operating controls of the trading business and related services segment in Mainland China (expenditure cycle); (ii) design of the written policies and procedures of the trading business and related services segment in Mainland China (revenue and receivable cycle; purchase and payable cycle; expenditure cycle; and human resources cycle); (iii) the compliance risk management control of the Group; (iv) the financial reporting and disclosure control of the Group; and
- follow up on the recommendations in the 2019 report.
During the six months ended 30th June, 2020, the Board was satisfied that the Group's risk management and internal control processes are adequate to meet the needs of the Group in its current business environment and that nothing has come to its attention to cause the Board to believe the Group's RM and IC Systems are inadequate. Moreover, the existing RM and IC Systems are effective and adequate, and will continue to be reviewed, strengthened or updated in response to changes in the operating environment.
By order of the Board
HO HON CHUNG, IVAN
Executive Director
Hong Kong, 28th August, 2020
44 | Interim Report 2020 • Daido Group Limited |
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