Interim report 2024

Microware Group Limited

美高域集團有限公司

(incorporated in the Cayman Islands with limited liability) Stock Code: 1985

INTERIM REPORT

Management Discussion and Analysis

BUSINESS REVIEW

Microware Group Limited (the "Company", together with its subsidiaries, the "Group") is principally engaged in the provision of IT infrastructure solution services and IT managed services in Hong Kong. The Group strives to provide one-stop IT experience which begins with (i) consultation and advice; (ii) hardware and/or software procurement; (iii) implementation; and (iv) management and maintenance of the IT infrastructure solutions.

The Group is a well-established IT infrastructure solutions provider based in Hong Kong. During the six months ended 30 September 2024 (the "Period"), the total revenue of the Group was approximately HK$720.7 million, representing an increase of approximately HK$222.2 million or 44.6% from approximately HK$498.6 million as compared to that for the six months ended 30 September 2023 (the "Previous Period"). Such increase was due to the increase in revenue generated from the IT infrastructure solution services and IT managed services of the Group. Gross profit of the Group for the Period was approximately HK$66.7 million, representing an increase of approximately HK$9.8 million or 17.2% from approximately HK$56.9 million for the Previous Period. Such increase was mainly due to the increase in revenue from sales of IT infrastructure solution services and IT managed services of the Group.

For this Period, the board (the "Board") of directors (the "Directors") of the Company considers that the economy of Hong Kong for the second half of this year is still challenging given the high operating costs and the ongoing tensions between the United States and China. The Group will continue to monitor the development of the aforementioned and react actively to its impact (if any) on the financial position and operating results of the Group.

FINANCIAL REVIEW

Revenue

Total revenue of the Group amounted to approximately HK$720.7 million for the Period, representing an increase of approximately HK$222.2 million or 44.6% as compared to approximately HK$498.6 million for the Previous Period. The increase in total revenue was mainly due to the increase in revenue of the business segment of IT infrastructure solution services which was approximately HK$649.1 million for the Period, representing an increase of approximately HK$223.6 million or 52.6% as compared to approximately HK$425.5 million for the Previous Period. However, the revenue of the business segment of IT managed services which was approximately HK$71.7 million for the Period, representing a decrease of approximately HK$1.4 million or 1.9% as compared to approximately HK$73.1 million for the Previous Period. For the Period, the business segments of IT infrastructure solution services and IT managed services contributed approximately 90.1% and 9.9% to the total revenue of the Group, respectively.

Cost of sales

The cost of sales of the Group for the Period was approximately HK$654.0 million, representing an increase of approximately HK$212.4 million or 48.1% from approximately HK$441.6 million for the Previous Period. Such increase was mainly due to the increase in cost of IT infrastructure solution services for the Period which was approximately HK$595.9 million, representing an increase of approximately HK$211.7 million or 55.1% from approximately HK$384.3 million for the Previous Period. The cost of IT managed services was approximately HK$58.1 million for the Period, representing an increase of approximately HK$0.7 million or 1.3% as compared to approximately HK$57.4 million for the Previous Period.

Gross profit

Gross profit of the Group for the Period was approximately HK$66.7 million, representing an increase of approximately HK$9.8 million or 17.2% from approximately HK$56.9 million for the Previous Period. Such increase was mainly due to the increase in revenue of IT infrastructure solution services.

02 Microware Group Limited

Management Discussion and Analysis

Operating expenses

Total operating expenses of the Group for the Period was approximately HK$57.1 million, representing an increase of approximately HK$12.8 million or 28.8% as compared to approximately HK$44.3 million for the Previous Period. Such increase was due to the increase in selling and distribution expenses and the administrative expenses for the Period.

Profit for the Period

As a result of the foregoing, the profit and total comprehensive income of the Group for the Period was approximately HK$13.5 million, representing an increase of approximately HK$1.9 million or 16.7% from approximately HK$11.5 million for the Previous Period. Such increase was mainly due to the increase in revenue of IT infrastructure solution services.

Liquidity and financial resources

Capital structure

As at 30 September 2024, the Group's total bank borrowings amounted to approximately HK$96.4 million (31 March 2024: HK$11.0 million). The bank borrowings of the Group as at 30 September 2024 were denominated in Hong Kong Dollars, and carried interest rate of 6.06% per annum.

The details of the share capital of the Company during the Period and the Previous Period are set out in note 16 on page 26 of this report (the "Financial Statements").

Cash position

The Group recorded net current assets of approximately HK$130.2 million as at 30 September 2024 (31 March 2024: approximately HK$171.5 million). As at 30 September 2024, the Group had cash and cash equivalents of approximately HK$69.7 million (31 March 2024: approximately HK$159.8 million). Most of the cash and cash equivalents of the Group were denominated in HK$ and US$.

Capital expenditure

During the Period, the Group total capital expenditure amounted to approximately HK$3 million (the Previous Period: Nil), which was mainly incurred for acquisition of Office equipment.

Gearing ratio

The net gearing ratio was 50.42% which is total interest-bearing bank loans divided by the total equity and multiplied by 100% as at 30 September 2024, since the Group did not have any interest bearing liabilities as at 30 September 2024 (31 March 2024: 6.07%).

Performance guarantees

The Group's performance guarantees as at 30 September 2024 are set out in note 19 of page 28 of this report.

Contingent liabilities

As at 30 September 2024, the Group had no material contingent liabilities (as at 31 March 2024: Nil).

Management Discussion and Analysis

Pledge of assets

As at 30 September 2024, certain of the Group's bank deposits totaling HK$56.9 million (31 March 2024: HK$34.7 million) were pledged for securing banking facilities granted to the Group.

Foreign exchange risk

The Group's transactions are mainly denominated and settled in HK$ and the US$. Foreign exchange exposure of the Group to US$ will continue to be minimal as long as the policy of The Government of the Hong Kong Special Administrative Region to link HK$ to US$ remains in effect. During the Period, the Group has entered into HK$/US$ net-settled structured foreign currency forward contracts with banks in Hong Kong in order to mitigate foreign exchange exposure as a result of purchases made from certain suppliers in its regular course of business. The fair value changes of the derivative financial instruments comprised realized gain (loss) and unrealized fair value gain (loss) on the HK$/US$ net-settled structured foreign currency forward contracts entered into by the Group.

HUMAN RESOURCES

As at 30 September 2024, the Group had a total of 273 employees (30 September 2023: 246 employees). For the Period,

the total staff costs including Directors' emoluments amounted to approximately HK$64.8 million (Previous Period: HK$53.6 million). The remuneration policy of the Group is to offer a competitive remuneration package to its employees, including mandatory provident funds in accordance with the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) and medical insurance coverage to employees who are retained after the probation period. The Group will review the performance of its employees and make reference to such performance reviews in its salary and/or promotional reviews according to its remuneration policy in order to attract and retain talented employees.

In order to promote overall efficiency, employee loyalty and retention, employees of the Group are required to attend orientation sessions when they first join the Group and may be required to attend other training courses held onsite or externally. The Group has also implemented (i) an educational subsidy programme to its employees to allow them to enrol courses relating to IT services from external organisations; (ii) an university education subsidy programme for children of its employees; and (iii) a medical check programme for its employees.

The Company adopted a share option scheme (the "Share Option Scheme") on 15 February 2017 and a share award scheme (the "Share Award Scheme") on 16 January 2024. As such, share options or awards may be granted to eligible employees of the Group pursuant to the Share Option Scheme or the Share Award Scheme. Since the adoption of these schemes and up to the date of this report, no share options or share awards have been granted.

INTERIM DIVIDEND

The Board resolved not to declared interim dividend for the Period (six months ended 30 September 2023: HK$0.02 per share).

04 Microware Group Limited

Management Discussion and Analysis

SIGNIFICANT INVESTMENTS HELD

The Group did not hold any significant investments during the Period.

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES, AND FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

The Group had no material acquisitions or disposals of subsidiaries, associates or joint ventures during the Period and no future plans for material investments or capital assets as at 30 September 2024.

IMPORTANT EVENTS AFTER THE PERIOD

The Group did not have any other material subsequent events after the Period.

FUTURE OUTLOOK

The Group is pleased to announce that it recorded a substantial increase in the revenue of the Group for the Period because the significant increase in the revenue of IT infrastructure solution services. Despite the Hong Kong's economic environment is uncertain and the ongoing tensions between the United States and China are unpredictable, the Group is confident for the performance in the year.

Despite the challenges, the Group may catch the great opportunities ahead. In line with market trend and demand, the Group actively expands and develops artificial intelligence ("AI") business. The Group believed that AI would bring intelligent and efficient solutions to our customers.

The Group will continue to focus on core business and partnerships with key vendors. To strengthen the competition ability and maintain leadership of industry, the Group will proactively and widen the business opportunities and looking for new market offerings and demands.

Other Information

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

The Company is committed to achieving good corporate governance practices by emphasising its accountability, transparency, independence, responsibility and fairness. The Company's corporate governance practices are based on the principles and code provisions in the Corporate Governance Code (the "CG Code") as set out in Part 2 of Appendix C1 to the Rules Governing the Listing of Securities (the "Listing Rules") on The Stock Exchange of Hong Kong Limited (the "Stock Exchange").

The Company has adopted the CG Code as its own code on corporate governance. Save for the Code Provision C.2.1 of the CG Code as disclosed below, to the best knowledge of the Directors, the Company had complied with all other applicable code provisions set out in the CG Code during the Period.

The chairman of the Board (the "Chairman") is responsible for overseeing the strategic planning and leadership of the Group and for ensuring that the entire Board members are properly briefed on issues at Board meetings and receive adequate and reliable information on a timely basis. The chief executive officer of the Group (the "Chief Executive Officer") is responsible for the strategic development and maintaining the Company's relationship with companies outside of the Group. Senior management is responsible for effective implementation of the Board's decisions and the day-to-day operations of the Group.

Code Provision C.2.1 of the CG Code provides that the roles of the chairman and chief executive officer should be separate and should not be performed by the same individual. The Company does not at present separate the roles of the chairman and Chief Executive Officer. Mr. Wang Guangbo, executive Director and chairman of the Board, together with Mr. Huang Tianlei, executive Director, assumed the duties and responsibilities of the chief executive officer of the Company in the overall management, strategic planning and the day-to-day business operation of the Group. Given their extensive experience and knowledge in the information technology industry, the Board believes that Mr. Wang Guangbo and Mr. Huang Tianlei will provide a broader perspective on strategic matters and enable efficient decision-making to meet the dynamic needs of the Group's business. Therefore, the Directors consider that the deviation from Code Provision C.2.1 of the CG Code is appropriate in such circumstance. Notwithstanding the deviation, the Board is of the view that this management structure is effective for the Group's operations and sufficient checks and balances are in place.

COMPLIANCE WITH THE MODEL CODE

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix C3 to the Listing Rules (the "Model Code") as the securities dealing code for its Directors.

Specific enquiry had been made to all Directors and all of the Directors have confirmed that they have fully complied with the required standards and provisions as set out in the Model Code during the Period. No incident of non-compliance was noted by the Company during the Period. The Company has also established written guidelines on no less exacting terms than the Model Code for relevant employees who are likely to be in possession of unpublished inside information of the Group. No incident of non-compliance of the written guidelines by the employees was noted by the Company during the Period.

06 Microware Group Limited

Other Information

PURCHASE, REDEMPTION OR SALE OF THE LISTED SECURITIES OF THE COMPANY

Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities during the Period.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the articles of association of the Company or the laws of the Cayman Islands, which would oblige the Company to offer new shares on a pro-rata basis to its existing shareholders.

SHARE OPTION SCHEME

The Company adopted the Share Option Scheme on 15 February 2017, which, unless otherwise terminated or amended, will remain in force for a period of 10 years from its adoption date.

Since its adoption date, no share options have been granted, exercised or cancelled by the Company under the Share Option Scheme. There were no outstanding share options under the Share Option Scheme as at the date of this report.

SHARE AWARD SCHEME

The Company has adopted the Share Award Scheme on 16 January 2024 which involves existing Shares only. The Share Award Scheme is a share incentive scheme prepared in accordance with Chapter 17 of the Listing Rules and is established to recognise and acknowledge the contributions that the eligible participants of the Share Award Scheme had or may have made to the Group. The Share Award Scheme shall terminate on the earlier of (i) the tenth (10th) anniversary date of the effective date of the Share Award Scheme or (ii) such date of early termination as determined by the Board.

As at 10 January 2024 (the adoption date of the Share Award Scheme) and 30 September 2024, the aggregate number of awards available for grant under the Share Award Scheme were 30,000,000 and 30,000,000, respectively.

From the adoption date of the Share Award Scheme to 30 September 2024, pursuant to the terms of the rules and trust deed of the Share Award Scheme, the trustee of the Share Award Scheme (the "Trustee") purchased a total of 29,998,000 issued Shares on the market at a total consideration of approximately HK$33.4 million with the highest and the lowest prices of HK$1.10 and HK$1.09, respectively. As at the date of this report, the Trustee had a total of 29,998,000 Shares and no Shares have been awarded under the Share Award Scheme since its adoption. The selected eligible participants are not required to provide consideration for being granted the award shares under the Share Award Scheme.

Other Information

DIRECTORS' AND CHIEF EXECUTIVE'S INTEREST AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 September 2024, the interests or short positions in the shares, underlying shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO) held by the Directors and chief executive of the Company which have been notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which were taken or deemed to have under such provisions of the SFO) or have been recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or as otherwise have been notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

1. Interest in the Company

Notes:

1. The Letter "L" denotes the person's long position in the Shares. As at 30 September 2024, the Company had 300,000,000 Shares in issue.
2. These 42,500,000 Shares are held by Weiye Holdings Group Limited ("Weiye Holdings") which is beneficially and wholly owned by Mr. Wang. By virtue of the SFO, Mr. Wang is deemed to be interested in the Shares held by Weiye Holdings.

Save as disclosed above, none of the Directors or chief executive of the Company had registered any interests or short positions in any shares, underlying shares and debentures of the Company or any associated corporations as at 30 September 2024, as recorded in the register required to be kept by the Company pursuant to section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

08 Microware Group Limited

Other Information

SUBSTANTIAL SHAREHOLDERS' INTEREST AND SHORT POSITIONS IN SHARES

As at 30 September 2024, the interests or short positions in the Shares or underlying Shares held by the persons (not being a Director or chief executive of the Company) which fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO were as follows:

Notes:

1. The letter "L" denotes the person's long position in the Shares. As at 30 September 2024, the Company had 300,000,000 Shares in issue.
2. Trustee for Share Award Scheme.

Save as disclosed above, as at 30 September 2024, no person, other than the Directors and chief executive of the Company, whose interests are set out in the section headed "Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures" above, had registered an interest or short position in the Shares or underlying Shares that was required to be recorded pursuant to Section 336 of the SFO.

AUDIT COMMITTEE

The audit committee ("Audit Committee") was established on 15 February 2017. The chairlady of the committee is Ms. Lan Jia, an independent non-executive Director with appropriate professional qualifications and the other members include Mr. Xu Jianwen and Mr. Dai Bin, both being independent non-executive Directors.

The main responsibilities of the Audit Committee are to review the Group's financial information and the auditors' reports and monitor the integrity of the financial statements of the Group as well as overseeing the financial reporting process, risk management and internal control system of the Group and assisting the Board to fulfil its responsibility over the audit. Other responsibilities include making recommendations to the Board on the appointment, reappointment and removal of external auditor, approval of the remuneration and terms of the engagement of the external auditor, and any other matters arising from the above. The Audit Committee is also responsible for performing the Company's corporate governance functions and serves as a channel of communication between the Board and the external auditor.