INTERIM REPORT
INTERIM REPORT 2020PAGE 1
CONTENTS
Report on review of interim financial information | 2 |
Condensed consolidated statement of financial position | 3 |
Condensed consolidated statement of profit or loss | 5 |
Condensed consolidated statement of comprehensive income | 6 |
Condensed consolidated statement of changes in equity | 7 |
Condensed consolidated statement of cash flows | 9 |
Notes to the condensed consolidated interim financial information | 10 |
Management discussion and analysis | 36 |
Other Information | 41 |
EXECUTIVE DIRECTORS
QU Zhiming, Chairman (re-designated as the Chairman on 20 May 2020) TAN Siu Lin, Honorary Life Chairman
TAN Cho Lung Raymond, Chief Executive Officer
HUANG Jie
ZHANG Min (elected on 28 May 2020)
SHEN Yaoqing (retired on 28 May 2020)
NON-EXECUTIVE DIRECTOR
MOK Siu Wan, Anne
INDEPENDENT NON-EXECUTIVE DIRECTORS
CHAN Henry
SEING Nea Yie
WANG Ching
CHIEF FINANCIAL OFFICER
KORNBLUM Joerg
COMPANY SECRETARY
CHIU Chi Cheung
PAGE 2 | LUEN THAI HOLDINGS LIMITED |
REPORT ON REVIEW OF INTERIM
FINANCIAL INFORMATION
TO THE BOARD OF DIRECTORS OF LUEN THAI HOLDINGS LIMITED (incorporated in the Cayman Islands with limited liability)
INTRODUCTION
We have reviewed the interim financial information set out on pages 3 to 35, which comprises the interim condensed consolidated statement of financial position of Luen Thai Holdings Limited (the "Company") and its subsidiaries (together, the "Group") as at 30 June 2020 and the interim condensed consolidated statement of profit or loss, the interim condensed consolidated statement of comprehensive income, the interim condensed consolidated statement of changes in equity and the interim condensed consolidated statement of cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
SCOPE OF REVIEW
We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that the interim financial information of the Group is not prepared, in all material aspects, in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting".
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 25 August 2020
INTERIM REPORT 2020 | PAGE 3 |
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
As at | As at | ||
30 June | 31 December | ||
2020 | 2019 | ||
Note | US$'000 | US$'000 | |
(Unaudited) | (Audited) | ||
ASSETS | |||
Non-current assets | |||
Property, plant and equipment | 7 | 135,445 | 121,848 |
Right-of-use assets | 8 | 35,857 | 34,915 |
Intangible assets | 7 | 47,190 | 46,350 |
Interests in joint ventures | 13 | 3,962 | 4,240 |
Deferred income tax assets | 2,343 | 1,995 | |
Deposits, prepayments and other | |||
receivables | 10 | 4,737 | 7,831 |
Total non-current assets | 229,534 | 217,179 | |
Current assets | |||
Inventories | 9 | 100,484 | 99,975 |
Trade and other receivables | 10 | 124,023 | 158,207 |
Prepaid income tax | 5,521 | 4,795 | |
Derivative financial instruments | 3 | - | |
Cash and bank balances | 69,474 | 82,959 | |
Restricted cash | 14 | 14 | |
Total current assets | 299,519 | 345,950 | |
Total assets | 529,053 | 563,129 | |
EQUITY | |||
Equity attributable to owners of the | |||
Company | |||
Share capital | 11 | 10,341 | 10,341 |
Other reserves | 12 | 2,100 | 2,006 |
Retained earnings | 187,659 | 206,346 | |
200,100 | 218,693 | ||
Non-controlling interests | 2,525 | - | |
Total equity | 202,625 | 218,693 |
PAGE 4 | LUEN THAI HOLDINGS LIMITED |
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
AS AT 30 JUNE 2020
As at | As at | ||
30 June | 31 December | ||
2020 | 2019 | ||
Note | US$'000 | US$'000 | |
(Unaudited) | (Audited) | ||
LIABILITIES | |||
Non-current liabilities | |||
Borrowings | 14 | 25,933 | 20,200 |
Lease liabilities | 28,340 | 27,714 | |
Retirement benefit obligations | 12,460 | 12,239 | |
Deferred income tax liabilities | 3,851 | 3,465 | |
Total non-current liabilities | 70,584 | 63,618 | |
Current liabilities | |||
Trade and other payables | 15 | 121,948 | 120,919 |
Borrowings | 14 | 122,823 | 146,927 |
Lease liabilities | 4,446 | 4,653 | |
Derivative financial instruments | - | 19 | |
Current income tax liabilities | 6,627 | 8,300 | |
Total current liabilities | 255,844 | 280,818 | |
Total liabilities | 326,428 | 344,436 | |
Total equity and liabilities | 529,053 | 563,129 | |
The above condensed consolidated statement of financial position should be read in conjunction with the accompanying notes.
INTERIM REPORT 2020 | PAGE 5 |
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE PERIOD ENDED 30 JUNE 2020
Six months ended 30 June | |||
2020 | 2019 | ||
Note | US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | ||
(Restated) | |||
Revenue | 6 | 331,687 | 461,763 |
Cost of sales | (294,213) | (395,959) | |
Gross profit | 37,474 | 65,804 | |
Other (losses)/gains - net | 16 | (610) | 722 |
Selling and distribution expenses | (746) | (2,411) | |
General and administrative expenses | (48,574) | (52,824) | |
Provision for impairment of receivables | 17 | (2,649) | (164) |
Operating (loss)/profit | 17 | (15,105) | 11,127 |
Finance income | 18 | 209 | 342 |
Finance costs | 18 | (3,055) | (3,216) |
Finance costs - net | 18 | (2,846) | (2,874) |
Share of losses of joint ventures | (523) | (54) | |
(Loss)/profit before income tax | (18,474) | 8,199 | |
Income tax expense | 19 | (591) | (1,627) |
(Loss)/profit for the period | (19,065) | 6,572 | |
(Loss)/profit attributable to | |||
Owners of the Company | (18,687) | 6,572 | |
Non-controlling interests | (378) | - | |
(19,065) | 6,572 | ||
(Loss)/earnings per share attributable to | |||
owners of the Company, expressed in US | |||
cents per share | |||
- Basic and diluted | 20 | (1.81) | 0.64 |
The above condensed consolidated statement of profit or loss should be read in conjunction with the accompanying notes.
PAGE 6 | LUEN THAI HOLDINGS LIMITED |
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 JUNE 2020
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
(Restated) | ||
(Loss)/profit for the period | (19,065) | 6,572 |
Other comprehensive income/(loss) | ||
Item that may be reclassified to profit or loss: | ||
Currency translation differences | 94 | (323) |
Total comprehensive (loss)/income for the period, net | ||
of income tax | (18,971) | 6,249 |
Total comprehensive (loss)/income attributable to | ||
Owners of the Company | (18,593) | 6,249 |
Non-controlling interests | (378) | - |
(18,971) | 6,249 | |
The above condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
INTERIM REPORT 2020 | PAGE 7 |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 JUNE 2020
Unaudited | ||||||
Attributable to owners of the Company | ||||||
Non- | ||||||
Share | Other | Retained | controlling | Total | ||
capital | reserves | earnings | Total | interests | equity | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
Balance at 1 January 2020 | 10,341 | 2,006 | 206,346 | 218,693 | - | 218,693 |
Loss for the period | - | - | (18,687) | (18,687) | (378) | (19,065) |
Other comprehensive income: | ||||||
Currency translation differences | - | 94 | - | 94 | - | 94 |
Total comprehensive loss for the | ||||||
period ended 30 June 2020 | - | 94 | (18,687) | (18,593) | (378) | (18,971) |
Total transactions with owners of | ||||||
the Company, recognized | ||||||
directly in equity | ||||||
Establishment of a new subsidiary | - | - | - | - | 2,900 | 2,900 |
Disposal of partial interest in a | ||||||
subsidiary without losing of | ||||||
control | - | - | - | - | 3 | 3 |
Total transactions with owners of | ||||||
the Company | - | - | - | - | 2,903 | 2,903 |
Balance at 30 June 2020 | 10,341 | 2,100 | 187,659 | 200,100 | 2,525 | 202,625 |
PAGE 8 | LUEN THAI HOLDINGS LIMITED |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)
FOR THE PERIOD ENDED 30 JUNE 2019
Unaudited | ||||
Attributable to owners of the Company | ||||
Share | Other | Retained | Total | |
capital | reserves | earnings | equity | |
US$'000 | US$'000 | US$'000 | US$'000 | |
(Restated) | (Restated) | |||
Balance at 31 December 2018 | 10,341 | 2,028 | 191,618 | 203,987 |
Changes in accounting policy | - | - | (2,520) | (2,520) |
Balance at 1 January 2019 | 10,341 | 2,028 | 189,098 | 201,467 |
Profit for the period | - | - | 6,572 | 6,572 |
Other comprehensive loss: | ||||
Currency translation differences | - | (323) | - | (323) |
Total comprehensive income for the | ||||
period ended 30 June 2019 | - | (323) | 6,572 | 6,249 |
Total transactions with owners of the | ||||
Company, recognized directly in | ||||
equity | ||||
Dividends declared | - | - | (4,281) | (4,281) |
Total transactions with owners of the | ||||
Company | - | - | (4,281) | (4,281) |
Balance at 30 June 2019 | 10,341 | 1,705 | 191,389 | 203,435 |
The above condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
INTERIM REPORT 2020 | PAGE 9 |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 JUNE 2020
Six months ended 30 June | |||
2020 | 2019 | ||
Note | US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | ||
(Restated) | |||
Cash flows from operating activities | 30,261 | ||
Cash generated from/(used in) operations | (10,700) | ||
Interest paid | 18 | (3,055) | (3,216) |
Income tax paid | (3,452) | (3,899) | |
Net cash generated from/(used in) operating | 23,754 | ||
activities | (17,815) | ||
Cash flows from investing activities | |||
Acquisition of subsidiaries, net of cash | (2,755) | ||
acquired | 23(b) | - | |
Proceeds from partial disposal of a | 3 | ||
subsidiary | - | ||
Investment in a joint venture | 13 | (245) | - |
Purchases of property, plant and | (15,701) | ||
equipment | 7 | (11,190) | |
Proceeds from disposals of property, plant | 872 | ||
and equipment | 233 | ||
Dividend received from a joint venture | 13 | - | 267 |
Interest received | 18 | 209 | 342 |
Prepayment of property, plant and | (519) | ||
equipment | (2,451) | ||
Net cash used in investing activities | (18,136) | (12,799) | |
Cash flows from financing activities | (27,887) | ||
Net (decrease)/increase in trade finance | 3,985 | ||
Proceeds from borrowings | 26,629 | 7,983 | |
Repayments of borrowings | (17,113) | (4,200) | |
Principal elements of lease payments | (3,401) | (1,765) | |
Proceeds from capital injection from non- | 2,900 | ||
controlling interests | - | ||
Net cash (used in)/generated from financing | (18,872) | ||
activities | 6,003 | ||
Net decrease in cash and bank balances | (13,254) | (24,611) | |
Cash and bank balances at beginning of the | 82,959 | ||
period | 80,443 | ||
Exchange (losses)/gains on cash and bank | (231) | ||
balances | 115 | ||
Cash and bank balances at end of the | |||
period | 69,474 | 55,947 |
The above condensed consolidated statement of cash flows should be read in conjunction with the accompanying notes.
PAGE 10 | LUEN THAI HOLDINGS LIMITED |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
-
GENERAL INFORMATION
Luen Thai Holdings Limited (the "Company") is principally an investment holding company. The Company and its subsidiaries (together, the "Group") are principally engaged in the manufacturing and trading of apparels and accessories. The Group has manufacturing plants primarily in the People's Republic of China (the "PRC"), Cambodia, the Philippines, Vietnam, India, Indonesia, Thailand and Myanmar.
The Company is a limited liability company incorporated in the Cayman Islands. The address of its registered office and principal place of business of the Company are Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands, and Rooms 1001-1005, 10/F, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong, respectively.
The Company has its primary listing on the Main Board of the Stock Exchange of Hong Kong Limited.
This condensed consolidated interim financial information is presented in United States dollars ("US$"), unless otherwise stated. This condensed consolidated interim financial information has been approved for issue by the Board of Directors on 25 August 2020.
This condensed consolidated interim financial information has been reviewed, not audited. - BASIS OF PREPARATION
This condensed consolidated interim financial information for the six months ended 30 June 2020 has been prepared in accordance with Hong Kong Accounting Standard ("HKAS") 34 "Interim Financial Reporting". The interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2019 and any public announcements made by Luen Thai Holdings Limited during the interim reporting period.
INTERIM REPORT 2020 | PAGE 11 |
3 ACCOUNTING POLICIES
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2019, as described in those annual financial statements, except for the adoption of new and amended standards effective for the financial year ending 31 December 2020 as described below.
-
New and amended standards relevant to and adopted by the Group
The following new and amended standards have been adopted by the Group for the first time for the financial period beginning on or after 1 January 2020: - Conceptual Framework for Financial Reporting 2018,
- HKAS 1 and HKAS 8 (Amendments),
- HKAS 39, HKFRS 7 and HKFRS 9 (Amendments), and
- HKFRS 3 (Amendments)
These standards have no material impact on the Group in the current or future reporting periods and on foreseeable future transactions.
The Group has not adopted any new or amended standards or interpretations that are not yet effective for this interim period.
4 ESTIMATES
The preparation of this condensed consolidated interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing this condensed consolidated interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2019.
PAGE 12 | LUEN THAI HOLDINGS LIMITED |
5 FINANCIAL RISK MANAGEMENT
-
Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk and cash flow interest rate risk), credit risk and liquidity risk.
The condensed consolidated interim financial information does not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2019.
There have been no changes in the risk management policies since year end. - Fair value estimation
The table below analyzes the Group's financial liabilities that are carried at fair value, by valuation method, as at 30 June 2020 and 31 December 2019. The different levels are defined as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)
- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2)
- Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (level 3)
Level 1 | Level 2 | Level 3 | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | |
As at 30 June 2020 | ||||
Assets | ||||
Derivative financial | ||||
instruments | - | 3 | - | 3 |
As at 31 December 2019 | ||||
Liabilities | ||||
Derivative financial | ||||
instruments | - | (19) | - | (19) |
There were no changes in valuation techniques during the period.
INTERIM REPORT 2020 | PAGE 13 |
- FINANCIAL RISK MANAGEMENT (CONTINUED)
-
Valuation technique used to derive fair values
Level 2 trading and hedging derivatives comprise forward foreign exchange contracts. Forward foreign exchange contracts are fair valued using forward exchange rates that are quoted in an active market. The effects of discounting are generally insignificant for level 2 derivatives. - Liquidity risk
Compared to year end, there have been no material changes to the policies and practices for the Group's liquidity and funding risks management as described in the annual financial statements for the year ended 31 December 2019.
-
Valuation technique used to derive fair values
- SEGMENT INFORMATION
The Group is principally engaged in the manufacturing and trading of apparels and accessories. Revenue consists of sales revenue from apparel and accessories.
The executive directors have been identified as the Group's chief operating decision-maker. The executive directors have determined the operating segments based on the information reviewed by them that are used to make strategic decisions. The executive directors exclude certain one-off items that might not occur regularly and which introduce volatility into the results of the segment. Certain comparative figures in segment information have been restated to conform to current period presentation.
The executive directors assess the performance of each segment based on a measure of segment profit primarily. Assets and liabilities of the Group are regularly reviewed on a consolidated basis. The segment information provided to the executive directors for the reportable segments for the six months ended 30 June 2020 and 2019 is as follows:
Apparel | Accessories | Total Group | |
US$'000 | US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | (Unaudited) | |
Six months ended 30 June 2020 | |||
Revenue (from external customers) | 187,700 | 143,987 | 331,687 |
Timing of revenue recognition | |||
At a point in time | 187,700 | 143,987 | 331,687 |
PAGE 14LUEN THAI HOLDINGS LIMITED
6 | SEGMENT INFORMATION (CONTINUED) | ||||
Apparel | Accessories | Total Group | |||
US$'000 | US$'000 | US$'000 | |||
(Unaudited) | (Unaudited) | (Unaudited) | |||
Segment loss for the period | (5,382) | (5,100) | (10,482) | ||
Loss for the period includes: | |||||
Depreciation and amortization | |||||
(Note 7 and 8) | (6,339) | (5,232) | (11,571) | ||
Share of losses of joint ventures | (523) | - | (523) | ||
Income tax (expense)/credit (Note 19) | (748) | 157 | (591) | ||
Six months ended 30 June 2019 | |||||
Revenue (from external customers) | 238,074 | 223,689 | 461,763 | ||
Timing of revenue recognition | |||||
At a point in time | 238,074 | 222,718 | 460,792 | ||
Over time | - | 971 | 971 | ||
238,074 | 223,689 | 461,763 | |||
Segment profit for the period | 8,185 | 7,019 | 15,204 | ||
Profit for the period includes: | |||||
Depreciation and amortization | |||||
(Note 7 and 8) | (5,398) | (4,955) | (10,353) | ||
Share of losses of joint ventures | (54) | - | (54) | ||
Income tax expense (Note 19) | (1,359) | (268) | (1,627) | ||
Revenues between segments are carried out in accordance with the terms mutually agreed between the respective parties and are equivalent to those that prevail in arm's length transactions. The revenue from external parties is derived from numerous external customers and the revenue reported to management is measured in a manner consistent with that in the condensed consolidated statement of profit or loss. Management assesses the performance of the operating segments based on a measure of profit before corporate expenses for the period.
INTERIM REPORT 2020 | PAGE 15 |
6 SEGMENT INFORMATION (CONTINUED)
A reconciliation of total segment (loss)/profit to the (loss)/profit for the period is provided as follows:
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
(Restated) | ||
Segment (loss)/profit for the period | (10,482) | 15,204 |
Corporate expenses (Note i) | (5,402) | (5,709) |
One-off items (Note ii) | (3,181) | (2,923) |
(Loss)/profit for the period | (19,065) | 6,572 |
Notes:
- Corporate expenses represent general corporate expenses such as executive salaries and other unallocated general and administrative expenses.
- For the six months ended 30 June 2020, one-off item represents termination expenses (2019: termination expenses).
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
Analysis of revenue by category | ||
Sales of garment, textile products and | ||
accessories | 325,980 | 458,666 |
Other service revenue | 5,707 | 3,097 |
Total revenue | 331,687 | 461,763 |
PAGE 16 | LUEN THAI HOLDINGS LIMITED |
7 PROPERTY, PLANT AND EQUIPMENT, INVESTMENT PROPERTIES AND INTANGIBLE ASSETS
Intangible assets | ||||||
Total | Property, | |||||
Customer | intangible | Investment | plant and | |||
Goodwill | relationship | assets | properties | equipment | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |
Six months ended 30 June 2020 | ||||||
Opening net book amount as at | ||||||
1 January 2020 | 42,078 | 4,272 | 46,350 | - | 121,848 | 168,198 |
Additions | - | - | - | - | 20,024 | 20,024 |
Acquisition of subsidiaries (Note 23(a)) | 766 | 400 | 1,166 | - | 2,649 | 3,815 |
Disposals and write-off | - | - | - | - | (988) | (988) |
Depreciation and amortization | ||||||
(Note 17) | - | (326) | (326) | - | (8,377) | (8,703) |
Exchange differences | - | - | - | - | 289 | 289 |
Closing net book amount as at | ||||||
30 June 2020 | 42,844 | 4,346 | 47,190 | - | 135,445 | 182,635 |
Six months ended 30 June 2019 | ||||||
Opening net book amount as at | ||||||
1 January 2019 | 42,078 | 4,988 | 47,066 | 6,510 | 109,297 | 162,873 |
Transfer to investment properties | - | - | - | 556 | (530) | 26 |
Additions | - | - | - | - | 11,555 | 11,555 |
Disposals and write-off | - | - | - | - | (391) | (391) |
Depreciation and amortization | ||||||
(Note 17) | - | (403) | (403) | (350) | (7,688) | (8,441) |
Exchange differences | - | - | - | (519) | 266 | (253) |
Closing net book amount as at | ||||||
30 June 2019 | 42,078 | 4,585 | 46,663 | 6,197 | 112,509 | 165,369 |
INTERIM REPORT 2020 | PAGE 17 |
8 LEASES
This note provides information for leases where the Group is a lessee.
Land and | Land use | Motor | ||
properties | rights | vehicles | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |
Right-of-use assets | ||||
As at 1 January 2020 | 30,048 | 4,864 | 3 | 34,915 |
Additions | 4,604 | 1,092 | - | 5,696 |
Disposals | (1,876) | - | - | (1,876) |
Depreciation (Note 17) | (2,779) | (86) | (3) | (2,868) |
Exchange differences | (7) | (3) | - | (10) |
As at 30 June 2020 | 29,990 | 5,867 | - | 35,857 |
Land and | Land use | Motor | ||
properties | rights | vehicles | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |
(Restated) | (Restated) | |||
Right-of-use assets | ||||
As at 1 January 2019 | ||||
(As originally presented) | - | - | - | - |
Changes in accounting | ||||
policies | 11,640 | 5,628 | 12 | 17,280 |
As at 1 January 2019 | ||||
(Restated) | 11,640 | 5,628 | 12 | 17,280 |
Additions | 16,358 | - | - | 16,358 |
Disposals | (2) | - | - | (2) |
Transfer to investment | - | (26) | - | (26) |
Depreciation (Note 17) | (1,786) | (122) | (4) | (1,912) |
Exchange differences | 51 | 527 | - | 578 |
As at 30 June 2019 | 26,261 | 6,007 | 8 | 32,276 |
PAGE 18LUEN THAI HOLDINGS LIMITED
9 | INVENTORIES | |||
As at | As at | |||
30 June | 31 December | |||
2020 | 2019 | |||
US$'000 | US$'000 | |||
(Unaudited) | (Audited) | |||
Raw materials | 39,737 | 45,531 | ||
Work in progress | 58,407 | 47,822 | ||
Finished goods | 2,340 | 6,622 | ||
100,484 | 99,975 | |||
10 | TRADE AND OTHER RECEIVABLES | |||
As at | As at | |||
30 June | 31 December | |||
2020 | 2019 | |||
US$'000 | US$'000 | |||
(Unaudited) | (Audited) | |||
Current portion | ||||
Trade and bills receivables - net | 84,208 | 128,651 | ||
Deposits, prepayments and other | ||||
receivables | 28,170 | 24,366 | ||
Amounts due from related parties | ||||
(Note 22(c)) | 11,645 | 5,190 | ||
124,023 | 158,207 | |||
Non-current portion | ||||
Prepayments for purchases of property, | ||||
plant and equipment | 1,589 | 285 | ||
Deposits | 2,354 | 2,405 | ||
Prepayment for acquisition of a subsidiary | - | 4,365 | ||
Others | 794 | 776 | ||
4,737 | 7,831 | |||
INTERIM REPORT 2020PAGE 19
10 | TRADE AND OTHER RECEIVABLES (CONTINUED) | ||
As at | As at | ||
30 June | 31 December | ||
2020 | 2019 | ||
US$'000 | US$'000 | ||
(Unaudited) | (Audited) | ||
Trade and bills receivables | 87,255 | 129,049 | |
Less: loss allowances | (3,047) | (398) | |
Trade and bills receivables - net | 84,208 | 128,651 | |
The Group normally grants credit terms to its customers up to 120 days. The ageing analysis of the trade and bills receivables based on invoice date is as follows:
As at | As at | ||
30 June | 31 December | ||
2020 | 2019 | ||
US$'000 | US$'000 | ||
(Unaudited) | (Audited) | ||
0 to 30 days | 47,762 | 102,414 | |
31 | to 60 days | 15,333 | 18,226 |
61 | to 90 days | 13,405 | 6,213 |
91 | to 120 days | 2,769 | 1,202 |
Over 120 days | 7,986 | 994 | |
87,255 | 129,049 | ||
PAGE 20LUEN THAI HOLDINGS LIMITED
11 | SHARE CAPITAL | |||
Number of shares | Nominal value | |||
'000 | US$'000 | |||
Issued and fully paid - ordinary shares of | ||||
US$0.01 each | ||||
As at 31 December 2019 (audited) and | ||||
30 June 2020 (unaudited) | 1,034,113 | 10,341 | ||
Share option
There has been no change in the status of the Group's share option scheme during the period ended 30 June 2020. As at 30 June 2020 and 31 December 2019, there is no outstanding share option under the share option scheme. No share options have been granted or vested during the period ended 30 June 2020.
12 | OTHER RESERVES | ||||||
Other | |||||||
Capital | capital | Employment | |||||
reserve | reserves | benefit | Exchange | ||||
(Note (i)) | (Note (ii)) | reserve | reserve | Total | |||
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||
As at 1 January 2020 | 7,891 | (2,795) | 2,640 | (5,730) | 2,006 | ||
Currency translation | |||||||
differences | - | - | 71 | 23 | 94 | ||
As at 30 June 2020 | 7,891 | (2,795) | 2,711 | (5,707) | 2,100 | ||
As at 1 January 2019 | 7,891 | (4,466) | 4,793 | (6,190) | 2,028 | ||
Currency translation | |||||||
differences | - | - | 19 | (342) | (323) | ||
As at 30 June 2019 | 7,891 | (4,466) | 4,812 | (6,532) | 1,705 | ||
INTERIM REPORT 2020 | PAGE 21 |
- OTHER RESERVES (CONTINUED)
Notes: - The capital reserve of the Group represents the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the Initial Public Offerings ("IPO") reorganization and the nominal value of the Company's shares issued in exchange thereof.
- Other capital reserves primarily represent (i) the initial recognition of the financial liabilities in relation to the put options granted to the non-controlling interests and the subsequent derecognition of such financial liabilities upon the put options are exercised, expired or terminated; and (ii) the difference between the amount by which the non-controlling interests are acquired and the fair value of the consideration paid.
- INTERESTS IN JOINT VENTURES
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
Beginning of the period | 4,240 | 4,551 |
Additions | 245 | - |
Share of post-tax losses of joint ventures | (523) | (54) |
Dividends received | - | (267) |
End of the period | 3,962 | 4,230 |
PAGE 22LUEN THAI HOLDINGS LIMITED
14 | BORROWINGS | |||
As at | As at | |||
30 June | 31 December | |||
2020 | 2019 | |||
US$'000 | US$'000 | |||
(Unaudited) | (Audited) | |||
Non-current | ||||
Bank borrowings | ||||
- Term loans | 25,933 | 20,200 | ||
25,933 | 20,200 | |||
Current | ||||
Bank borrowings | ||||
- Term loans | 86,368 | 82,585 | ||
- Trade finances | 36,455 | 64,342 | ||
122,823 | 146,927 | |||
Total borrowings | 148,756 | 167,127 | ||
INTERIM REPORT 2020PAGE 23
15 | TRADE AND OTHER PAYABLES | ||
As at | As at | ||
30 June | 31 December | ||
2020 | 2019 | ||
US$'000 | US$'000 | ||
(Unaudited) | (Audited) | ||
Trade and bills payables | 63,853 | 60,769 | |
Contract liabilities | 486 | 99 | |
Other payables and accruals | 55,106 | 58,331 | |
Amounts due to related parties (Note 22(c)) | 2,503 | 1,720 | |
Trade and other payables | 121,948 | 120,919 | |
As at 30 June 2020 and 31 December 2019, the ageing analysis of the trade and bills payables based on invoice date is as follows:
As at | As at | |
30 June | 31 December | |
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Audited) | |
0 to 30 days | 47,007 | 48,991 |
31 to 60 days | 8,984 | 7,210 |
61 to 90 days | 5,602 | 2,983 |
Over 90 days | 2,260 | 1,585 |
63,853 | 60,769 | |
PAGE 24LUEN THAI HOLDINGS LIMITED
16 | OTHER (LOSSES)/GAINS - NET | |||
Six months ended 30 June | ||||
2020 | 2019 | |||
US$'000 | US$'000 | |||
(Unaudited) | (Unaudited) | |||
Net unrealized losses on forward foreign | ||||
exchange contracts | - | (26) | ||
Net realized gains on forward foreign exchange | ||||
contracts | 123 | 79 | ||
Net foreign exchange (losses)/gains | (733) | 669 | ||
(610) | 722 | |||
17 OPERATING (LOSS)/PROFIT
The following items have been charged/(credited) to the operating (loss)/profit during the period:
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
(Restated) | ||
Amortization of intangible assets (Note 7) | 326 | 403 |
Depreciation of property, plant and equipment | ||
(Note 7) | 8,377 | 7,688 |
Depreciation of right-of-use assets (Note 8) | 2,868 | 1,912 |
Depreciation and amortization of investment | ||
properties (Note 7) | - | 350 |
Losses on disposals of property, plant and | ||
equipment | 116 | 158 |
Provision for impairment of receivables | 2,649 | 164 |
Provision for inventory obsolescence | 637 | 145 |
Provision for/(reversal of provision for) material | ||
claims | 447 | (1,863) |
Termination expenses | 4,634 | 2,923 |
INTERIM REPORT 2020PAGE 25
18 | FINANCE COSTS - NET | ||
Six months ended 30 June | |||
2020 | 2019 | ||
US$'000 | US$'000 | ||
(Unaudited) | (Unaudited) | ||
(Restated) | |||
Interest expense on lease liabilities | (954) | (229) | |
Interest expense on bank loans and overdrafts | (2,101) | (2,987) | |
Finance costs | (3,055) | (3,216) | |
Interest income from bank deposits | 179 | 224 | |
Other interest income | 30 | 118 | |
Finance income | 209 | 342 | |
Finance costs - net | (2,846) | (2,874) | |
19 INCOME TAX EXPENSE
Hong Kong profits tax has been provided at the rate of 16.5% (2019: 16.5%) on the estimated assessable profit for the period. Taxation on overseas profits has been calculated on the estimated assessable profit for the period at the rates of taxation prevailing in the countries in which the Group operates.
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
Current income tax | 929 | 1,755 |
Deferred income tax | (338) | (128) |
591 | 1,627 | |
PAGE 26 | LUEN THAI HOLDINGS LIMITED |
19 INCOME TAX EXPENSE (CONTINUED)
-
The Inland Revenue Department ("IRD") has been reviewing the eligibility of a Hong Kong incorporated subsidiary's 50% or 100% offshore profits claim for previous years.
In respect of the Hong Kong incorporated subsidiary, the IRD tentatively disallowed the 50% or 100% offshore profits claim for the previous years and issued notices of additional assessments/assessments for the years of assessment 2000/01 to 2013/14 on the basis of no 50:50 apportionment for 2000/01 to 2011/12 and no 100% offshore profit for 2012/13 and 2013/14 with the amount of US$3,810,000 (equivalent to approximately HK$29,718,000). The subsidiary has lodged objections against the above assessments for 2000/01 to 2013/14 by the statutory deadlines. Pending settlement of the objections, it has paid a total sum of US$3,685,000 (equivalent to approximately HK$28,743,000) in the form of tax reserve certificates in respect of the tax in dispute up to and including the year of assessment 2013/14.
Management has thoroughly revisited the situations and concluded that there are grounds for the Hong Kong incorporated subsidiary to sustain its 50% or 100% offshore tax filing position. - In prior years and during the period, an overseas tax authority performed tax assessments on overseas incorporated subsidiaries' tax position for the years ended/ending 31 December 2016, 2017, 2018, 2019 and 2020, and issued tax assessments/revised tax assessments to demand additional tax payment of US$701,000. The subsidiaries have lodged objection letters to this overseas tax authority. With respect to these tax assessments, management believes that they have grounds to defend their tax position since there are various interpretations of tax rules in that country and a clear calculation basis for the additional tax payment was not provided. Management considers the provision as at 30 June 2020 is adequate.
-
The Group has contingent liabilities regarding potential exposures to import duties, taxes and penalties in various overseas countries with aggregated amounts of approximately US$11,141,000 (31 December 2019: US$11,141,000). Management considers it is not probable that outflows of resources embodying economic benefits would be required to settle these exposures and no provision is considered necessary.
Among the above-mentioned contingent liability, US$5,504,000 was recognized upon business combination of Universal Group. Pursuant to the agreement for sale and purchase of the shares in Universal Elite Holdings Limited (the "Agreement"), such taxation claim in relation to periods prior to October 2018 will be indemnified entirely by the sellers of the Agreement. Accordingly, the Group has also recognized an indemnification asset US$5,504,000.
INTERIM REPORT 2020 | PAGE 27 |
20 (LOSS)/EARNINGS PER SHARE
-
Basic
Basic (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to owners of the Company by the weighted average number of ordinary shares in issue during the period.
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
(Restated) | ||
(Loss)/profit attributable to owners of the | ||
Company | (18,687) | 6,572 |
Weighted average number of ordinary | ||
shares in issue (thousands) | 1,034,113 | 1,034,113 |
Basic (loss)/earnings per share (US$ cents | ||
per share) | (1.81) | 0.64 |
- Diluted
Diluted (loss)/earnings per share for the six months ended 30 June 2020 and 2019 is the same as the basic (loss)/earnings per share as there were no potential dilutive ordinary shares outstanding during the periods.
PAGE 28 | LUEN THAI HOLDINGS LIMITED |
21 DIVIDENDS
- Dividends recognized during the reporting period
Six months ended 30 June
20202019
US$'000 US$'000
(Unaudited) (Unaudited)
Final dividend of US$Nil (2018: US$0.414 | ||
cent) per ordinary share for the year | ||
ended 31 December 2019 | - | 4,281 |
- Dividend not recognized at the end of the reporting period
Six months ended 30 June
20202019
US$'000 US$'000
(Unaudited) (Unaudited)
Interim dividend - US$Nil (2019: | ||
US$0.190 cent) per ordinary share | - | 1,965 |
No interim dividend was declared by the Board for the six months ended 30 June 2020 (2019: US$0.190 cent per share).
22 RELATED-PARTY TRANSACTIONS
-
Significant transactions with related parties
The directors regard the immediate holding company of the Company to be Shangtex (Hong Kong) Limited, a company incorporated in Hong Kong, and the ultimate holding company of the Company to be Shangtex Holding Co., Ltd, a company incorporated in the PRC which indirectly holds 100% interest in Shangtex (Hong Kong) Limited.
During the period, other than the transactions and balances with related parties as disclosed in respective notes in this condensed consolidated interim financial information, the Group had the following transactions with related companies and joint ventures.
INTERIM REPORT 2020 | PAGE 29 |
22 RELATED-PARTY TRANSACTIONS (CONTINUED)
- Significant transactions with related parties (Continued)
- Provision of goods and services
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
Recharge of material costs and | ||
other expenses to | ||
- related companies | 79 | 156 |
- joint ventures | 5,528 | 6,232 |
5,607 | 6,388 | |
Sales of apparels, textile products | ||
and accessories to related | ||
companies | 14,812 | 9,572 |
Management fee income from joint | ||
ventures | 1,791 | 1,447 |
PAGE 30 | LUEN THAI HOLDINGS LIMITED |
22 RELATED-PARTY TRANSACTIONS (CONTINUED)
- Significant transactions with related parties (Continued)
- Purchases of goods and services
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
Rental expenses for occupying | ||
office premises, warehouses and | ||
staff quarters charged by related | ||
companies | 956 | 1,352 |
Professional and technological | ||
support service fees to related | ||
companies | 960 | 960 |
Freight forwarding and logistics | ||
services charged by related | ||
companies | 980 | 1,203 |
INTERIM REPORT 2020 | PAGE 31 |
22 RELATED-PARTY TRANSACTIONS (CONTINUED)
- Significant transactions with related parties (Continued)
- Purchases of goods and services (Continued)
Six months ended 30 June | ||
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Unaudited) | |
Subcontracting fee charged by | ||
- related companies | 179 | 1,143 |
- joint ventures | 13,027 | 1,153 |
13,206 | 2,296 | |
Recharge of material costs and | ||
other expenses by | ||
- related companies | 459 | 427 |
- joint ventures | 214 | 248 |
673 | 675 | |
Purchases of materials from | ||
- related companies | - | 250 |
- joint ventures | 1,257 | 2,591 |
1,257 | 2,841 | |
The above related-party transactions were carried out in accordance with the terms mutually agreed between the respective parties.
PAGE 32 | LUEN THAI HOLDINGS LIMITED |
22 RELATED-PARTY TRANSACTIONS (CONTINUED)
- Key management compensation
Six months ended 30 June
20202019
US$'000 US$'000
(Unaudited) (Unaudited)
Salaries and allowances | 3,110 | 4,517 |
Others | 179 | 187 |
3,289 | 4,704 | |
- Amounts due from/to related companies and joint ventures
As at | As at | |
30 June | 31 December | |
2020 | 2019 | |
US$'000 | US$'000 | |
(Unaudited) | (Audited) | |
Amounts due from related parties | ||
(Note 10) | ||
- joint ventures | 5,467 | 2,274 |
- related companies | 6,178 | 2,916 |
Amounts due to related parties | ||
(Note 15) | ||
- joint ventures | 1,345 | - |
- related companies | 1,158 | 1,720 |
The amounts due from joint ventures and related companies arise mainly from trade transactions. They are unsecured, interest-free and repayable on demand, and the carrying amounts of these balances approximate their fair values and are denominated in US$ except for an amount due from a joint venture of US$2,219,000 as at 30 June 2020. The balance is interest-bearing with an effective interest rate of 1.79% and is of a short-term nature, the carrying amount approximates its fair value and is denominated in US$ (31 December 2019: Nil).
INTERIM REPORT 2020 | PAGE 33 |
- RELATED-PARTYTRANSACTIONS (CONTINUED)
- Amounts due from/to related companies and joint ventures (Continued)
The credit quality of these receivable balances that are neither past due nor impaired can be assessed by reference to historical information about counterparty default rates. None of them have defaults and been renegotiated in the past.
The amounts due to joint ventures and related companies are unsecured, interest-free and repayable on demand, and the carrying amounts of these balances approximate their fair values and are denominated in US$.
- Amounts due from/to related companies and joint ventures (Continued)
- BUSINESS COMBINATION
-
Summary of acquisition
On 1 April 2020, Luen Thai Overseas Limited, a wholly-owned subsidiary of the Company, acquired 100% of the issued share capital of Sachio Investment Limited, an investment holding company with a subsidiary engaged in manufacturing of apparel products in Cambodia. The acquisition is expected to diversify the Group's apparel business, expand and supplement customer base and enhanced market penetration.
As at 1 April 2020, details of the purchase consideration, the fair value of net assets acquired and goodwill are as follows:
-
Summary of acquisition
US$'000
Total purchase consideration paid | 3,900 |
PAGE 34 | LUEN THAI HOLDINGS LIMITED |
23 BUSINESS COMBINATION (CONTINUED)
-
Summary of acquisition (Continued)
The fair value of the assets and liabilities recognized as at 1 April 2020 as a result of the acquisition are as follows:
US$'000 | |
Cash and cash equivalents | 1,145 |
Other receivables and prepayment | 505 |
Property, plant and equipment | 2,649 |
Customer relationship | 400 |
Trade and other payables | (1,065) |
Deferred tax liabilities | (500) |
Net identifiable assets acquired | 3,134 |
Add: Goodwill | 766 |
Net assets acquired | 3,900 |
The fair value of all the acquired assets and liabilities are provisional pending receipt of the final valuation for those assets and liabilities.
The goodwill is attributable to a number of factors, among others, including the expected synergies arisen from the business combination. It will not be deductible for tax purposes.
-
Acquired receivables
The fair value of other receivables is US$342,000. No trade receivables were acquired. - Revenue and profit contribution
The acquired business contributed revenues of US$2,211,000 and net loss of US$220,000 to the Group for the period from 1 April to 30 June 2020. If the acquisition had occurred on 1 January 2020, consolidated pro-forma revenue and net loss for the six months ended 30 June 2020 would have been US$333,898,000 and US$19,285,000, respectively.
INTERIM REPORT 2020PAGE 35
23 | BUSINESS COMBINATION (CONTINUED) | ||
(b) | Purchase consideration - cash outflow | ||
Outflow of cash to acquire subsidiary, net of cash | |||
acquired | US$'000 | ||
Cash consideration paid | 3,900 | ||
Less: Cash and cash equivalents acquired | (1,145) | ||
Net outflow of cash - investing activities | 2,755 | ||
Acquisition-related costs of US$107,000 are included in general and administrative expenses in the condensed consolidated statement of profit or loss and in operating cash flows in the condensed consolidated statement of cash flows for the six months ended 30 June 2020.
PAGE 36 | LUEN THAI HOLDINGS LIMITED |
The board (the "Board") of directors (the "Directors") of Luen Thai Holdings Limited (the "Company") is pleased to present the interim report together with the unaudited condensed consolidated financial information of the Company and its subsidiaries (collectively, the "Group" or "Luen Thai") for the six months ended 30 June 2020.
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND OVERVIEW
Subsequent to over two years of intensifying tensions between the United States of America ("USA") and the People's Republic of China ("PRC"), a first phase of trade deal was signed on 15 January 2020. With the conclusion of the first phase of the trade deal, trade tensions have eased, and global economy was expected to recover in 2020. However, the global economy shrank and the relations between the PRC and the USA plunged into great uncertainty again with the outbreak of the COVID-19 pandemic in early 2020.
The global trade and investment were detrimentally affected by the COVID-19 pandemic, as a result of closure of retail businesses and suspension of business operation of corporations across the world. Under such adverse market conditions and business environment, many corporations suffered a rapid and significant downturn in revenue and consequent decline in net profit. Despite the fact that fiscal stimuli and monetary easing have been in place and the international business operations have been reactivated with the recent relaxation of some lockdown measures in different parts of the world, the business of the Group was inevitably affected negatively and the Group has experienced one of the most difficult periods historically.
During the period under review, as compared to the corresponding period in 2019, the revenue and gross profit of the Group decreased by approximately 28.2% and 43.1% to approximately US$331,687,000 and US$37,474,000 respectively. In line with the decrease in revenue and gross profit, the Group incurred a net loss attributable to owners of the Company ("Net Loss") amounting to approximately US$18,687,000 for the period ended 30 June 2020, as compared to a net profit attributable to owners of the Company of approximately US$6,572,000 for the corresponding period last year.
The significant deterioration of the financial performance of the Group was mainly attributable to the adverse impacts of COVID-19, which resulted in (i) the distortion of the production schedule and the orders allocations of the Group's factories in China and Philippines; (ii) the cancellation of orders and postponement of shipment of products due to the weak consumer sentiment amidst the global outbreak of the pandemic; and (iii) the impairment of certain overdue trade receivables, as some customers of the Group in the USA and the United Kingdom were in financial distress.
INTERIM REPORT 2020 | PAGE 37 |
SEGMENTAL REVIEW
Apparel and Accessories businesses accounted for approximately 56.6% and 43.4% respectively of the Group's total revenue for the period under review.
Apparel
Sales revenue generated from the Apparel Division decreased by approximately 21.2% period-to-period to approximately US$187,700,000 for the period ended 30 June 2020. The decrease of the segment revenue of the Apparel Division was mainly due to the decrease in average selling price, lower sales volume from the majority of its brand customers which was partially offset by the increased sales to our activewear customer. Although the Apparel Division continued to make progress on the sales of activewear, the Apparel Division incurred a segment loss of approximately US$5,382,000, when compared to a segment profit of approximately US$8,185,000 for the corresponding period in 2019.
Accessories
Segment revenue of the Accessories Division declined substantially by approximately US$79,702,000 or 35.6%, from approximately US$223,689,000 for the six months ended 30 June 2019 to approximately US$143,987,000 for the six months ended 30 June 2020. Due to the slump in revenue, the Accessories Division recorded a segment loss of US$5,100,000, as compared to a segment profit of US$7,019,000 for the same period last year.
MARKETS
Geographically, Europe and the USA remained our major export markets for the period under review. The total revenue derived from customers in Europe and the USA collectively accounted for approximately 70.2% of the Group's total revenue in the first half of 2020.
The Group's revenue from the Asia market (mainly the PRC and Japan) was approximately US$52,728,000, which accounted for approximately 15.9% of the Group's total revenue in the first half of 2020.
LIQUIDITY AND FINANCIAL RESOURCE
The financial position of the Group remained healthy. As at 30 June 2020, the total cash and bank deposits of the Group amounted to approximately US$69,488,000, representing a decrease of approximately US$13,485,000 over the balance as at 31 December 2019. The Group's total bank borrowings as at 30 June 2020 was approximately US$148,756,000, representing a decrease of approximately 11.0% as compared to approximately US$167,127,000 as at 31 December 2019.
PAGE 38 | LUEN THAI HOLDINGS LIMITED |
Gearing ratio is defined as net debt (representing bank borrowings net of cash and bank balances) divided by shareholders' equity. As at 30 June 2020, the gearing ratio of the Group was approximately 39.1%.
As at 30 June 2020, based on the scheduled repayments set out in the relevant loan agreements with banks, the maturity profile of the Group's bank borrowings spreads over five years, with approximately US$107,823,000 repayable within one year, approximately US$15,222,000 repayable in the second year and approximately US$25,711,000 repayable in the third to fifth year.
FOREIGN EXCHANGE RISK MANAGEMENT
The Group adopts a prudent policy to hedge against the fluctuations in exchange rates. Most of the Group's operating activities are denominated in US dollar, Euro, Hong Kong dollar, Vietnam Dong, Cambodian Riel, Chinese Yuan, Burmese Kyat, Thailand Baht and Philippine Peso. For those activities denominated in other currencies, the Group may enter into forward contracts to hedge its receivables and payables denominated in foreign currencies against the exchange rate fluctuations.
FUTURE PLANS AND PROSPECT
Looking forward, the impact of the outbreak of COVID 19 pandemic has caused immense disruption to the whole supply chain. More volatility, uncertainties and more intense competition are expected in the manufacturing industry, as COVID 19 has been spreading at an unprecedented speed and scale. Hence, the second half of this year will remain full of challenges. After cautious evaluation of potential business risks involved, it is now a critical time for the Group to develop new business stream and deepen the cooperation with certain strategic customers.
As disclosed in the announcement dated 5 June 2020, the Group has proactively adjusted its business strategies by exploring opportunities in manufacturing personal protective equipment ("PPE") which includes protective gowns and surgical face masks for customers and the government in the Philippines. In order to fully utilize its production capacity, the Group plans to further expand its PPE production line to other factories owned by the Group located in other parts of Southeast Asia with target customers including but not limited to local governments, hospitals, retail customers and other organisations in need of PPE.
Furthermore, health and environmental consciousness have risen over the past decade and such trend continues regardless of the COVID-19 pandemic. In order to gain more market share from the booming activewear market, the Group has taken active steps by partnering with a leading textile printing technology provider to supply eco-friendly fabric to our customers in Cambodia and Vietnam. The implementation of such disruptive fashion technology will not merely lower the production costs, but also help our strategic customers
INTERIM REPORT 2020 | PAGE 39 |
to meet the increasing demand of environmentally friendly products. The Group believes that the partnership will increase its competitiveness by vertically integrate to the supply chain and enter a groundbreaking stage of its development in the activewear industry.
On the other hand, as described in the section headed "Results of Operations and Overview" above, the Net Loss for the period under review amounted to approximately US$18,687,000. Despite such substantial loss, the Board would like to emphasize that the Group's financial position remains stable and the Group has adequate financial resources to fund its operation. The Board will closely monitor the development of the COVID-19 pandemic and market situation and will focus on stringent cost control and operating efficiency for the rest of the year to enhance the financial stability of the Group.
SIGNIFICANT INVESTMENTS, ACQUISITIONS AND DISPOSAL OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES, AND FUTURE PLAN FOR MATERIAL INVESTMENTS OF CAPITAL ASSETS
Other than as disclosed elsewhere in this management discussion and analysis or in the condensed consolidated financial information for the six months ended 30 June 2020, there were no material acquisitions or disposals of subsidiaries, associates and joint ventures during the period.
Luen Thai will continue to look for value-enhancing acquisition and joint venture opportunities to further expand our product range, production capacity and diversify our geographical risk, it is expected that internal resources and bank borrowings will be adequate to meet the necessary funding requirements.
The Company will make further announcement in accordance with the Listing Rules, where applicable, if any investments and acquisition opportunities materialize.
CONTINGENT LIABILITIES
As at 30 June 2020, the Group has contingent liabilities regarding potential exposure to overseas import duties, taxes and penalties in various overseas countries with aggregated amounts of approximately US$11,141,000 (31 December 2019: US$11,141,000). Management considers it is not probable that outflows of resources embodying economic benefits would be required to settle these exposures and no provision is considered necessary. Among the above-mentioned contingent liability, US$5,504,000 was recognized upon business combination of Universal Group. Pursuant to the agreement for sale and purchase of the shares in Universal Elite Holdings Limited (the "Agreement"), such taxation claim in relation to periods prior to October 2018 will be indemnified entirely by the sellers of the Agreement. Accordingly, the Group has also recognized an indemnification asset US$5,504,000.
PAGE 40 | LUEN THAI HOLDINGS LIMITED |
HUMAN RESOURCES, SOCIAL RESPONSIBILITIES AND CORPORATE CITIZENSHIP
Luen Thai continues to be an employer of choice through focused and strategic human resources strategies and social responsibility programmes that are aligned with the Company's growth and changing needs. Improved governance and strengthened partnership serve as the foundation for all these initiatives as Luen Thai maintains its position as a leader in Corporate Social Responsibility in the apparel and accessories manufacturing industry.
Luen Thai continuously strives to foster open communications with employees through various channels. Under its employee care initiatives, Luen Thai has provided safe and enjoyable work and living environments, equitable compensation and benefit schemes, and opportunities for career growth through a variety of formal and informal learning and development programmes; and a strong corporate culture where employee' contributions are recognized and rewarded.
As a global corporate citizen, Luen Thai is conducting business and developing a sustainable business strategy with a long term view, which creates a positive impact for our worldwide supply chain and the surrounding environment. We not only focus on profit maximization, but we must also understand the needs and concerns of other stakeholders.
INTERIM REPORT 2020 | PAGE 41 |
OTHER INFORMATION
INTERIM DIVIDEND
The Board has resolved not to declare an interim dividend for the six months ended 30 June 2020 (2019: US0.190 cent per share).
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed shares for the period under review.
UPDATE ON DIRECTORS' INFORMATION
The change of directors' information as required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules are set out below:
Mr. Shen Yaoqing ("Mr. Shen") retired as an executive director of the Company with effect from 28 May 2020. Following his retirement, Mr. Shen also ceased to be the chairman of the Board ("Chairman") and the chairman of the nomination committee ("Nomination Committee") of the Company.
Mr. Qu Zhiming ("Mr. Qu"), an executive director of the Company, was succeeded as the Chairman and the chairman of the Nomination Committee with effect from 28 May 2020. On the same date, Mr. Qu also ceased to be a member of the remuneration committee ("Remuneration Committee") and the financing and banking committee ("Financing and Banking Committee) of the Company.
Mr. Huang Jie ("Mr. Huang") was re-designated from a non-executive director to an executive director of the Company with effect from 15 February 2020. Following his re-designation, Mr. Huang ceased to be a member of the audit committee of the Company ("Audit Committee") on the same date. On 28 May 2020, Mr. Huang was appointed as a member of the Remuneration Committee.
Mr. Zhang Min was elected as an executive director of the Company with effect from 28 May 2020. He was also appointed as a member of the Financing and Banking Committee on the same date.
Ms. Mok Siu Wan, Anne was re-designated from an executive director to a non-executive director of the Company with effect from 1 February 2020. She was also appointed as a member of the Audit Committee on 28 May 2020.
PAGE 42 | LUEN THAI HOLDINGS LIMITED |
Save as disclosed above, there is no other information required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules. The biographical details of Directors are available on the company's website.
SHARE OPTIONS
A share option scheme of the Company was approved and adopted by way of an ordinary resolution in the annual general meeting of the Company held on 26 May 2014 (the "Share Option Scheme").
No share options were granted to or exercised by any Directors or Chief Executive of the Company or employees of the Group or other participants, nor were cancelled or lapsed during the six months ended 30 June 2020.
As at 30 June 2020 and 31 December 2019, the Company had no share options outstanding under the Share Option Scheme.
DIRECTORS' AND CHIEF EXECUTIVES' INTERESTS IN SHARES
As at 30 June 2020, the interests of the Directors and chief executives of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the "SFO")), as recorded in the register maintained by the Company under Section 352 of the SFO, or otherwise notified to the Company and Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") were as follows:
INTERIM REPORT 2020 | PAGE 43 |
Long position in the shares of the Company ("Shares")
Approximate | |||
percentage of | |||
Interests in the | |||
Number of | Company | ||
Name of Director | Capacity | Shares | (Note a) |
TAN Siu Lin | Trustee (Note b) | 1,840,757 | 0.18% |
Interest of controlled | 9,752,986 | 0.94% | |
corporation (Note b) | |||
TAN Cho Lung, | Interest of controlled | 15,655,639 | 1.51% |
Raymond | corporation (Note c) | ||
Interest of spouse (Note c) | 2,050,000 | 0.20% | |
MOK Siu Wan, Anne | Beneficial owner (Note d) | 2,000,000 | 0.19% |
Notes:
- The percentage has been compiled based on the total number of shares of the Company in issue (i.e. 1,034,112,666) as at 30 June 2020.
- Dr. Tan Siu Lin as a trustee indirectly controls the entire issued capital of Wincare International Company Limited, which in turn holds directly 1,840,757 Shares. Dr. Tan Siu Lin also controls and is a subscriber and founding member of Tan Siu Lin Foundation Limited, which in turn owns directly 9,752,986 Shares.
-
Mr. Tan Cho Lung, Raymond wholly owns Flying Base Limited, which directly owns 15,655,639 Shares.
A total of 2,050,000 Shares was held by an associate of Mr. Tan Cho Lung, Raymond. Mr. Tan is therefore deemed under Part XV of the SFO to be interested in all of the 2,050,000 Shares acquired by his associate. - Ms. Mok Siu Wan, Anne owns 2,000,000 Shares through the exercise of share options granted by the Company on 21 April 2008 and none of the 2,000,000 Shares was disposed of up to the date of this report.
PAGE 44 | LUEN THAI HOLDINGS LIMITED |
SUBSTANTIAL SHAREHOLDERS
As at 30 June 2020, the register of substantial shareholders maintained pursuant to Section 336 of the SFO showed that other than the interests disclosed in "Directors' and Chief Executives' Interests in Shares", the following shareholders had notified the Company of their relevant interests in the issued capital of the Company.
Long position in the Shares | ||||
Approximate | ||||
Number of | percentage of | |||
Ordinary shares | interests in the | |||
beneficially | Company | |||
Name of shareholder | Note | Capacity | held | (Note a) |
Shangtex | (b) | Beneficial owner | 730,461,936 | 70.64% |
(Hong Kong) | ||||
Limited | ||||
Shangtex | (b) | Interest of controlled | 730,461,936 | 70.64% |
Investment Co., | corporation | |||
Ltd. | ||||
Shangtex | (b) | Interest of controlled | 730,461,936 | 70.64% |
Holdings Co., Ltd. | corporation | |||
Orient International | (b) | Interest of controlled | 730,461,936 | 70.64% |
(Holding) Co., Ltd. | corporation | |||
Shanghai Guosheng | (b) | Interest of controlled | 730,461,936 | 70.64% |
Group Co., Ltd. | corporation | |||
Double Joy | (c) | Beneficial owner | 71,975,726 | 6.96% |
Investments | ||||
Limited | ||||
Dr. Tan Henry | (d) | Interest of controlled | 89,179,725 | 8.62% |
corporation | ||||
Ms. Tan Chiu Joise | (d) | Interest of controlled | 89,179,725 | 8.62% |
corporation | ||||
Interest of spouse |
INTERIM REPORT 2020 | PAGE 45 |
Notes:
- The percentage has been complied based on the total number of shares of the Company in issue (i.e. 1,034,112,666 Shares) as at 30 June 2020.
- Based on the information recorded in the register required to be kept under section 336 of the SFO, Shangtex (Hong Kong) Limited ("Shangtex HK") directly holds 730,461,936 Shares. Shangtex HK is 100% directly owned by Shangtex Investment Co., Ltd ("Shangtex Investment"). Shangtex Investment is 100% directly owned by Shangtex Holding Co., Ltd ("Shangtex"). Orient International (Holding) Co., Ltd ("Orient International") directly holds 76.33% in Shangtex. Shanghai Guosheng Group Co., Ltd directly holds 34% in Orient International.
- Double Joy Investments Limited ("Double Joy") is a company incorporated in the British Virgin Islands with limited liability and is owned by Ms. Tan Chiu Joise and Dr. Tan Henry in equal shares. Each Ms. Tan Chiu Joise and Dr. Tan Henry is deemed to be interested in the 71,975,726 Shares held by Double Joy.
-
Both Dr. Tan Henry and Ms. Tan Chiu Joise are deemed to be interested in the 71,975,726 Shares held by Double Joy as mentioned in note (c) above; and
Dr. Tan Henry wholly owns Hanium Industries Limited, which directly owns 17,203,999 Shares. Ms. Tan Chiu Joise is the wife of Dr. Tan Henry and is deemed to be interested in the shares which are interested by Dr. Tan Henry under Part XV of the SFO.
Save as disclosed above, so far as is known to the Directors, there was no other person (not being a Director or Chief Executive of the Company) who had interest or a short position in the Shares or underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was directly or indirectly, interested in 5% 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 members of the Group.
PAGE 46 | LUEN THAI HOLDINGS LIMITED |
CORPORATE GOVERNANCE PRACTICES
Throughout the six-month period ended 30 June 2020, the Company had complied with the applicable code provisions of the Corporate Governance Code (the "CG Code") as set out in the Appendix 14 of the Listing Rules. The Board Diversity Policy is published on the website of the Company for public information.
Luen Thai acknowledges the need and importance of corporate governance as one of the key elements in creating shareholders' value. It is committed to ensuring high standards of corporate governance in the interests of shareholders and taking care to identify practices designed to achieve effective oversight, transparency and ethical behavior. As at the date of this interim report, the Company has formed the following committees at the Board level:
Audit Committee: The Audit Committee has been set up to provide advice and recommendations to the Board. Ms. Mok Siu Wan, Anne and the three independent non-executive Directors of the Company, namely, Mr. Chan Henry, Dr. Wang Ching, and Mr. Seing Nea Yie as the Committee Chairman, comprise the Audit Committee. Each committee member possesses appropriate finance and/or industry expertise to advise the Board.
Remuneration Committee: The Remuneration Committee has been set up with the responsibility of recommending to the Board the remuneration policy for all Directors and the senior management. Mr. Huang Jie and the three independent non-executive Directors of the Company, namely, Mr. Chan Henry, Dr. Wang Ching, and Mr. Seing Nea Yie as the Committee Chairman, comprise the Remuneration Committee.
Nomination Committee: The Nomination Committee has been set up with responsibility of making recommendation to the Board on the appointment or re- appointment of Directors. Mr. QU Zhiming as the Committee Chairman and the three independent non-executive Directors of the Company, namely, Mr. Chan Henry, Mr. Seing Nea Yie and Dr. Wang Ching, comprise the Nomination Committee.
INTERIM REPORT 2020 | PAGE 47 |
Financing and Banking Committee: The Financing and Banking Committee has been set up to review and approve any banking facility of the Group, and to ensure that each facility is in the best commercial interest of the Group as a whole. The Financing and Banking Committee comprises two members, namely Mr. Tan Cho Lung, Raymond and Mr. Zhang Min, with Mr. Tan Cho Lung, Raymond as the Committee Chairman.
Corporate governance practices of the Company during the six-month period ended 30 June 2020 were in line with those practices set out in the Corporate Governance Report in the Company's 2019 Annual Report.
REVIEW OF INTERIM FINANCIAL INFORMATION
The Audit Committee has reviewed the accounting principles and practices adopted by the Group and has discussed with the management regarding the auditing, internal control and financial reporting matters. The Audit Committee has discussed and reviewed the unaudited interim financial information and the interim report for the six months ended 30 June 2020. Such unaudited condensed consolidated interim financial information has also been reviewed by the Company's auditor, PricewaterhouseCoopers, in accordance with Hong Kong Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Hong Kong Institute of Certified Public Accountants.
MODEL CODE
The Company has adopted a code of conduct regarding securities transactions by Directors on terms no less exacting than the required standards set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code"). After having made specific enquiry of all Directors, the Directors confirmed that they have complied with the required standards as set out in the Model Code and the code of conduct regarding securities transactions by Directors adopted by the Company during the six months ended 30 June 2020.
PAGE 48 | LUEN THAI HOLDINGS LIMITED |
DISCLOSURE OF INFORMATION ON THE COMPANY AND THE STOCK EXCHANGE'S WEBSITE
This interim report will be published on the websites of the Company (http://www.luenthai.com) and the Stock Exchange (http://www.hkex.com.hk).
By order of the Board
Tan Cho Lung Raymond
Chief Executive Officer and Executive Director
Hong Kong, 25 August 2020
This is an excerpt of the original content. To continue reading it, access the original document here.
Attachments
- Original document
- Permalink
Disclaimer
Luen Thai Holdings Ltd. published this content on 14 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 September 2020 08:19:11 UTC