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Half Year Financial Statements And Dividend Announcement for the Six Months Ended 31 December 2020

Financials Archive

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HALF YEAR FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 2020

Group Income Statement and Statement of Comprehensive Income for the six months ended 31 December 2020

BALANCE SHEET

REVIEW OF PERFORMANCE

PROFIT AND LOSS

Revenue

Consolidated revenue of the Group for the six months ended 31 December 2020 decreased by HK$82.6 million or 7.7% to HK$984.6 million from HK$1,067.2 million for the corresponding period last year.

Revenue from our Components Distribution ("CD") segment decreased by HK$46.2 million or 13.4%, from HK$346.0 million for the six months ended 31 December 2019 to HK$299.8 million for the six months ended 31 December 2020. The decrease was due to the lower demand for certain electronic components mainly as a result of the global outbreak of COVID-19 pandemic during the period under review.

Revenue from our Information Technology Infrastructure ("IT Infrastructure") segment increased by HK$31.0 million or 5.4%, from HK$570.5 million for the six months ended 31 December 2019 to HK$601.5 million for the six months ended 31 December 2020. The increase in demand for electronic communication was mostly due to travel or movement restrictions engendered by the global outbreak of the COVID-19 pandemic which in turn led to a stronger demand for network security products, cloud solution services and data visualization tools during the period under review.

Revenue from our Consumer Electronics Products ("CEP") segment decreased by HK$67.4 million or 44.7%, from HK$150.7 million for the six months ended 31 December 2019 to HK$83.3 million for the six months ended 31 December 2020. The decrease was mainly due to the persistent effect of the global COVID-19 pandemic outbreak which has adversely affected the Hong Kong economy and hence reduced in the demand for CEP during the period under review.

Gross profit

Gross profit decreased by HK$14.8 million or 18.3%, from HK$81.0 million for the six months ended 31 December 2019 to HK$66.2 million for the six months ended 31 December 2020. The decrease in gross profit was largely due to (1) lower revenue recorded for the period under review as explained above; (2) intensified competitions in all 3 business segments during the global COVID-19 pandemic outbreak; and (3) increase in write-down of inventories of HK$5.5 million as a result of delay in delivery of inventories due to the COVID-19 effect.

Other income and gains, net

The net other income and gains increased by approximately HK$6.6 million or 170.5%, from HK$3.9 million for the six months ended 31 December 2019 to HK$10.5 million for the six months ended 31 December 2020. The increase was mainly due to HK$8.6 million subsidies received from the Government of the Hong Kong Special Administrative Region as part of the "Employment Support Scheme" under the "Anti-epidemic Fund"; and partially offset by a decrease in rental income of HK$1.1 million. Decrease in rental income was due to (1) the deployment of a previously let premises in HK for the Group's own use in early 2020; and (2) the disposal of 3 leased out office units in Shanghai in late 2019. For details of the disposals, please refer to the Company's announcements dated 19 and 27 November 2019 respectively.

Selling and distribution costs

Selling and distribution costs were maintained at similar level at HK$34.2 million for the six months ended 31 December 2019 compared to HK$34.2 million for the six months ended 31 December 2020.

Administrative expenses

Administrative expenses decreased by approximately HK$3.6 million or 9.9%, from HK$36.5 million for the six months ended 31 December 2019 to HK$32.9 million for the six months ended 31 December 2020. The decrease was mainly due to the decrease in travelling and entertainment expenses as a result of travel restrictions during the COVID-19 pandemic. Depreciation of property, plant and equipment and depreciation of right-of-use assets for the six months ended 31 December 2020 were very much the same as those for the six months ended 31 December 2019.

Other expenses, net

Net other expenses decreased by approximately HK$5.1 million or 80.5%, from HK$6.3 million for the six months ended 31 December 2019 to HK$1.2 million for the six months ended 31 December 2020. The decrease was mainly due to (1) a decrease in allowance for impairment loss on trade receivables of HK$4.1 million; and (2) a decrease in exchange loss of HK$1.0 million during the period under review.

Finance costs

Finance costs decreased by approximately HK$1.0 million or 65.6%, from HK$1.5 million for the six months ended 31 December 2019 to HK$0.5 million for the six months ended 31 December 2020. The decrease was mainly due to bank borrowings interest rate decreased by almost 200 basis points from the last period to the current period.

Income tax expense

The effective income tax expense rate for the period under review was 23.0% (31 December 2019: 16.6%).

Net Profit

Net profit attributable to owners of the Company increased by HK$0.7 million or 10.8%, from HK$6.0 million for the six months ended 31 December 2019 to HK$6.7 million for the six months ended 31 December 2020. The increase was mainly attributable to (1) an increase in other income and gains of HK$6.6 million; (2) cost savings in administrative expenses of HK$3.6 million; and (3) decrease in other expenses of HK$5.1 million, as reduced by the decrease in gross profit of HK$14.8 million, as explained above.

Non-controlling interests

Non-controlling interests represented the non-controlling shareholders' share of profit/(loss) in our non-wholly owned subsidiaries.

STATEMENT OF FINANCIAL POSITION

Non-current assets

As at 31 December 2020, non-current assets comprised goodwill of HK$2.1 million; investment properties, office equipment, leasehold land and buildings and motor vehicles totaling HK$145.9 million; right-of-use assets HK$1.4 million; investment in an associate of HK$3.1 million; prepayment of HK$8.5 million and deferred tax assets of HK$8.1 million. Total non-current assets amounted to HK$169.1 million, representing approximately 17.1% of the total assets. There was an increase in non-current assets amounted to approximately HK$0.8 million.

Current assets

As at 31 December 2020, current assets amounted to approximately HK$817.3 million, an increase of HK$90.6 million compared to the immediately preceding financial year end as at 30 June 2020. The increase was mainly due to (1) increase in trade and bill receivables by HK$62.6 million as a result of higher billings towards end of the period under review; (2) increase in inventories by HK$22.5 million in anticipating an increase in demand in January 2021 which was subsequently realised; (3) increase in prepayments, deposits and other receivables by HK$5.1 million; and (4) increase in cash and cash equivalent by HK$0.4 million.

Current liabilities

As at 31 December 2020, current liabilities amounted to approximately HK$538.0 million, an increase of HK$79.0 million compared to the immediately preceding financial year end as at 30 June 2020. The increase was mainly due to (1) increase in interest-bearing bank and other borrowings by HK$74.7 million for stocking up inventories as explained above; (2) increase in trade and bills payables by HK$30.0 million and offset by (3) decrease in other payables and accruals by HK$20.4 million as a result of the reversal of contract liabilities and recognition of the same as revenue during the period under review; (4) decrease in tax payable by HK$5.1 million; and (5) decrease in lease liabilities by HK$0.2 million.

Non-current liabilities

Non-current liabilities amounted to HK$11.8 million, representing 2.1% of our total liabilities as at 31 December 2020. The amount mainly pertains to other payables of HK$8.9 million arising from warranty service income received in advance which was classified as contract liabilities.

Liquidity and cash flow

As at 31 December 2020, cash and cash equivalents amounted to approximately HK$87.1 million. Total interest-bearing bank and other borrowings as at 31 December 2020 were HK$160.2 million. The gearing ratio, which is defined as total interest-bearing bank and other borrowings to shareholders' funds, is 0.37 times (30 June 2020: 0.20 times).

COMMENTARY

The outbreak of the Novel Coronavirus (COVID-19) remains a significant issue across the region and other parts of the world and this will continue to adversely impact on all three of our business segments.

While last year's disruptions in the supply chain in the PRC has largely been contained, we have observed a gradual increase in competition in the electronic components distribution. We are closely monitoring the market and continue to design new modules to target smart devices, commercial and household appliances to maintain and grow our business in the Components Distribution segment.

In the IT Infrastructure segment, business activities in the market remained strong and we have observed normalization in implementation schedules. The market in the IT Distribution business remained competitive and we are adding multiple new product lines and product mix in our portfolio to grow our sales in this segment.

In CEP segment, we have witnessed a drop in shop front sales across the product lines. We expect our sales in this segment will continue to be impacted, but a strong growth in online sales and additional product line to this segment is helping to lessen the impact on overall sales in the second half of this financial year.

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