PURAPHARM CORPORATION LIMITED 2020
INTERIM REPORT
中期報告
Contents
PuraPharm Corporation Limited 2020 Interim Report
2 Corporate Information
4 Chairman's Statement
6 Management Discussion and Analysis
16 Disclosure of Interests
20 Corporate Governance and Other Information
22 Independent Review Report
23 Interim Condensed Consolidated Statement of Profit or Loss and Comprehensive Income
24 Interim Condensed Consolidated Statement of Financial Position
26 Interim Condensed Consolidated Statement of Changes in Equity
28 Interim Condensed Consolidated Statement of Cash Flows
30 Notes to Interim Condensed Consolidated Financial Statements
Corporate Information
EXECUTIVE DIRECTORS | SCIENTIFIC ADVISORY COMMITTEE |
Mr. Chan Yu Ling, Abraham (Chairman) | Prof. Rudolf Bauer |
Dr. Tsoi Kam Biu, Alvin (Vice-Chairman) | Prof. Piu Chan |
Mr. Chan Kin Man, Eddie | Prof. Liang Song Ming |
Ms. Man Yee Wai, Viola | Prof. Bruce Robinson |
NON-EXECUTIVE DIRECTORS | COMPANY SECRETARY |
Mr. Chow, Stanley | Mr. Lau Ka Kuen |
Mr. Cheong Shin Keong (appointed on 24 March 2020) |
INDEPENDENT NON-EXECUTIVE DIRECTORS
Dr. Chan Kin Keung, Eugene
Mr. Ho Kwok Wah, George
Dr. Leung Lim Kin, Simon
Prof. Tsui Lap Chee
AUDIT COMMITTEE
Mr. Ho Kwok Wah, George (Chairman) Dr. Chan Kin Keung, Eugene
Dr. Leung Lim Kin, Simon
NOMINATION COMMITTEE
Mr. Chan Yu Ling, Abraham (Chairman)
Dr. Leung Lim Kin, Simon
Prof. Tsui Lap Chee
REMUNERATION COMMITTEE
Dr. Chan Kin Keung, Eugene (Chairman)
Dr. Tsoi Kam Biu, Alvin
Prof. Tsui Lap Chee
AUTHORIZED REPRESENTATIVES
Mr. Chan Yu Ling, Abraham
Mr. Lau Ka Kuen
INVESTOR RELATIONS
Mr. Lau Ka Kuen
AUDITOR
Ernst & Young
Certified Public Accountants
LEGAL ADVISORS
ONC Lawyers (As to Hong Kong law)
Appleby (As to Cayman Islands law)
REGISTERED OFFICE
Offshore Incorporations (Cayman) Limited
P.O. Box 31119, Grand Pavilion
Hibiscus Way, 802 West Bay Road
Grand Cayman KY1-1205, Cayman Islands
E002 PuraPharm Corporation Limited 2020 Interim Report
Corporate Information
HEADQUARTER AND PRINCIPAL
PLACE OF BUSINESS IN HONG
KONG
Suite 4002, Jardine House
1 Connaught Place, Central
Hong Kong
HONG KONG SHARE REGISTRAR
Computershare Hong Kong Investor Services Limited
Shops 1712-1716, 17th Floor, Hopewell Centre
183 Queen's Road East,
Wan Chai, Hong Kong
CAYMAN ISLANDS SHARE
REGISTRAR
Ocorian Trust (Cayman) Limited
Clifton House, 75 Fort Street
P.O. Box 1350
Grand Cayman, KY1-1108
Cayman Islands
SHARE INFORMATION
Date of listing: 8 July 2015
Place of incorporation: Cayman Islands
Place of listing: Main Board of The Stock Exchange of
- Hong Kong Limited Stock Code: 1498 Board lot: 500 shares Financial year end: 31 December
COMPANY'S WEBSITE
www.purapharm.com
PuraPharm Corporation Limited 2020 Interim Report E003
Chairman's Statement
DEAR SHAREHOLDERS,
The outbreak of the COVID-19 pandemic since the beginning of 2020 is a challenging situation faced by the society on a global basis. Since the beginning of 2020, the PRC Government has adopted a series of stringent measures to prevent and control the COVID-19 pandemic, including travel restriction, regional lockdown, and temporary shutdowns of certain Chinese medicine clinics and hospitals. All those measures have adversely affected the Group's China CCMG business, especially in first quarter of 2020. However, the PRC economy began to show a sign of recovery from the impact of COVID-19 pandemic since the second quarter of 2020 and the Group's China CCMG business has gradually improved.
In Hong Kong, the overall business environment is extremely difficult due to the outbreak of the COVID-19 pandemic. The Group's overall business in Hong Kong including CCMG, healthcare products and clinic business segment, were negatively affected attributable to the sluggish consumers' sentiment and decrease in demand for Chinese medicine services.
Under this challenging economic situation, the Group's revenue during the 2020 Interim Period was HK$280.4 million, declined by HK$53.1 million or 15.9% compared to the corresponding period of last year.
The Group reported a net profit of HK$11.4 million for the 2020 Interim Period as compared with the net loss of HK$45.2 million in the corresponding period of last year. Such net profit was mainly attributable to the significant non-recurring Government subsidies received in the PRC and Hong Kong. If excluding such non-recurring Government subsidies, the Group would record an operating loss for the 2020 Interim Period but such operating loss is materially less than the corresponding period in 2019, due to stringent control on the operating costs.
Subsequent to the outbreak of COVID-19 pandemic, the Group believed that consumer health awareness will increase and the growth in demand for quality healthcare products will render further opportunities for the Group's Chinese healthcare products segment. The Group will continue to proactively develop new and innovative healthcare products to enrich the products portfolio and devote more focus to market the Group's healthcare products through online platform in order to counteract the weakened retail market.
The Group anticipates that volatility and uncertainty will continue in 2020, we will closely monitor the business environment and proactively adjust the business strategy to cope with the challenge and seek for opportunities.
PROSPECTS
Looking forward, the Group believes that the recovery momentum in China CCMG business will continue in second half of 2020 and the financial performance will gradually improve.
E004 PuraPharm Corporation Limited 2020 Interim Report
Chairman's Statement
The Group is pleased that the Rights Issue was successfully completed in March 2020, which further strengthened the financial position of the Group and allowed the Group to maintain its competitiveness under this challenging environment. We appreciate the continuous support from our shareholders and their confidence in our business. We will endeavor to achieve sustainability and stability of our business so as to secure the best interests of our shareholders, and continue to be the pioneer in modernizing Chinese medicine through our innovation and conviction.
APPRECIATION
I wish to express my sincere appreciation to our shareholders, customers and business partners for their unwavering support and trust over the years. I would also like to extend my heartful gratitude to my fellow directors and our employees for their dedication.
By Order of the Board
Chan Yu Ling, Abraham
Chairman
Hong Kong, 25 August 2020
PuraPharm Corporation Limited 2020 Interim Report E005
Management Discussion
and Analysis
The Group's revenue for the six months ended 30 June 2020 ("2020 Interim Period") was HK$280.4 million, representing a decrease of HK$53.1 million or 15.9%, compared to HK$333.6 million for the corresponding period in last year. The sales decrease was attributable to the adverse impact brought by the widespread outbreak of the COVID-19 pandemic in the People's Republic of China (the "PRC") and Hong Kong since early 2020, which negatively affected consumers' sentiment and the demand for Chinese medicine services.
FINANCIAL HIGHLIGHT
Six months ended 30 June | ||||||||
2020 | 2019 | |||||||
Revenue | % of | Revenue | % of | Change | ||||
HK$'000 | total | HK$'000 | total | HK$'000 | % | |||
China CCMG | 121,498 | 43.3% | 133,982 | 40.2% | (12,484) | (9.3) | ||
Hong Kong CCMG | 68,311 | 24.4% | 83,851 | 25.1% | (15,540) | (18.5) | ||
Chinese healthcare products | 45,097 | 16.1% | 48,508 | 14.5% | (3,411) | (7.0) | ||
Nong's® (農本方®) Chinese medicine | ||||||||
clinics | 23,989 | 8.5% | 51,664 | 15.5% | (27,675) | (53.6) | ||
Plantation | 21,537 | 7.7% | 15,553 | 4.7% | 5,984 | 38.5 | ||
Total | 280,432 | 100.0% | 333,558 | 100.0% | (53,126) | (15.9) | ||
Profit/(Loss) for the period | 11,437 | (45,180) | 56,617 | N/A | ||||
The Group recorded a net profit for the 2020 Interim Period of HK$11.4 million as compared with the net loss of HK$45.2 million during the corresponding period in 2019. Such net profit is mainly attributable to a significant increase in non-recurring PRC Government subsidies income received by the Group in the 2020 Interim Period compared to the six months ended 30 June 2019. The increase in Government subsidies mainly consisted of the amounts received from relevant PRC authorities to reward the Group's industrial investment in Guizhou province, and tax rebates subsidy. If excluding such non-recurring Government subsidies income, the Group would record an operating loss for 2020 Interim Period but such operating loss during the 2020 Interim Period is materially less than the corresponding period in 2019, due to stringent control on the operating costs.
E006 PuraPharm Corporation Limited 2020 Interim Report
Management Discussion
and Analysis
China CCMG
During the 2020 Interim Period, the sales of CCMG in China was HK$121.5 million, representing a decrease of HK$12.5 million or 9.3% compared to HK$134.0 million for the corresponding period in last year. Due to the outbreak of the COVID-19 pandemic since the beginning of 2020, the PRC Government has adopted a series of stringent measures to prevent and control the COVID-19, including travel restrictions, regional lockdowns, and temporary business shutdowns of certain Chinese medicine clinics and hospitals. As a result, the China CCMG sales business was negatively affected, especially in first quarter of 2020. But the China CCMG sales in China was gradually improved in second quarter due to the control of the COVID-19 pandemic.
Hong Kong CCMG
The Group continued to maintain its leading market position in Hong Kong and sell its CCMG products directly to customers comprising hospitals, Chinese medicine clinics, non-profit organisations and private Chinese medicine practitioners. During the 2020 Interim Period, the direct sales of CCMG products in Hong Kong was HK$68.3 million, representing a decrease of 18.5% compared with the corresponding period in last year. The outbreak of COVID-19 pandemic affected the overall business environment in Hong Kong, which negatively affecting consumers' sentiment and the demand for Chinese medicine services.
During the 2020 Interim Period, the Group still remained as a leading CCMG supplier to the major non-profit organisations in Hong Kong, and continued to expand its customer base in private Chinese medicine practitioners sector.
PuraPharm Corporation Limited 2020 Interim Report E007
Management Discussion
and Analysis
Nong's® (農本方®) Chinese medicine clinics
During the 2020 Interim Period, the sales of CCMG products and provision of Chinese medical diagnostic services from the Group's Nong's® (農本方®) Chinese medicine clinics generated revenue of HK$24.0 million in aggregate, representing a decrease of HK$27.7 million or 53.6% compared to HK$51.7 million for the corresponding period in last year. The decrease in revenue was mainly attributable to the downsize of the clinic network in Hong Kong by closing the loss- making clinics. The number of clinics in operation in Hong Kong decreased from 57 clinics as at 31 December 2019 to 26 clinics as at 30 June 2020.
Although the revenue of Nong's clinics segment decreased by more than 50%, the loss attributed by Nong's clinics segment has substantially decreased during the 2020 Interim Period as the loss-making clinics were closed and the relevant assets of those clinics were fully impaired for the year ended 31 December 2019.
The Group will continue to improve the performance of the existing clinic portfolio and proactively negotiate with the landlords on rental reduction in order to achieve clinic profitability as early as possible.
Chinese healthcare products
Six months ended 30 June | ||||||
2020 | 2019 | |||||
Revenue | % of | Revenue | % of | Change | ||
HK$000 | total | HK$000 | total | HK$'000 | % | |
U.S. | 20,745 | 46.0% | 17,999 | 37.1% | 2,746 | 15.3 |
Japan | 5,739 | 12.7% | 5,100 | 10.5% | 639 | 12.5 |
Hong Kong | 18,613 | 41.3% | 25,409 | 52.4% | (6,796) | (26.7) |
45,097 | 100.0% | 48,508 | 100.0% | (3,411) | (7.0) | |
During the 2020 Interim Period, revenue from sales of Chinese healthcare products in U.S., Japan and Hong Kong markets was HK$45.1 million in aggregate, representing a decrease of HK$3.4 million or 7% as compared to HK$48.5 million in last corresponding period.
Among the Group's Chinese healthcare products segment, the sales in overseas market showed an increase due to the increase in consumer demand. The sales drop in Hong Kong market is due to difficult retail market and sluggish consumption sentiment, which led to a decline in customer flow in general in pharmacies and key chain stores.
Subsequent to the outbreak of COVID-19 pandemic, the Group believed that consumer health awareness will be increased and the growth in demand for healthcare products will render further opportunities for the Group's Chinese healthcare products segment. The Group will continue to proactively develop new and innovative healthcare products to enrich the products portfolio, devote more focus to market the Group's healthcare products through online platform in order to counteract the weakened retail market.
E008 PuraPharm Corporation Limited 2020 Interim Report
Management Discussion
and Analysis
Plantation
For the 2020 Interim Period, the upstream plantation segment contributed HK$21.5 million to the Group's overall revenue, more than the corresponding period in last year of HK$15.6 million by HK$5.9 million or 38.5%. The revenue from the plantation segment was mainly derived from the plantation and trading of raw Chinese herbs. The increase in revenue from the plantation segment was mainly attributable to increase in the sales of seedling business, resulted from the increase in demand for our products to farming projects driven by the local Government.
Profitability
Six months ended 30 June | |||
2020 | 2019 | Change | |
HK$'000 | HK$'000 | ||
Revenue | 280,432 | 333,558 | (15.9%) |
Cost of sales | (115,598) | (140,112) | (17.5%) |
Gross profit | 164,834 | 193,446 | (14.8%) |
Gross profit margin | 58.8% | 58.0% | |
The Group's gross profit margin for the 2020 Interim Period was 58.8%, representing an increase of 0.8% compared to 58.0% in last corresponding period. The average selling price of CCMG and Chinese healthcare products remained stable during the 2020 Interim Period. The improvement of the gross profit margin was mainly attributable to the decrease in unit cost of CCMG products resulted from the cost control on production. However, the overall margin was partially offset by the decrease in sales from Nong's clinics segment, which has a relatively high gross profit margin.
Other income and gains
The Group's other income and gains mainly comprised of government grants, fair value gain on biological assets, gain from sale of equipment and accessories, financial assets at fair value through profit or loss and interest income. For the 2020 Interim Period, the Group's other income and gain was HK$45.5 million, representing an increase of HK$38.7 million or 573.2% compared to HK$6.8 million for the corresponding period in last year.
The increase was mainly attributable to significant increase in non-recurring government grants by HK$36.2 million for the 2020 Interim Period compared to last corresponding period. The government grant income mainly consisted of the amounts received from relevant PRC authorities to reward the Group's industrial investment in Guizhou province, and tax rebates subsidy. Also, the Group also received subsidies from Hong Kong Government to support enterprise by COVID-19 pandemic.
Also, there is a net fair value gain on biological assets of HK$2.6 million for the 2020 Interim Period, whereas it was a fair value loss on biological asset of HK$0.9 million in last corresponding period.
PuraPharm Corporation Limited 2020 Interim Report E009
Management Discussion
and Analysis
Selling and distribution expenses
The Group's selling and distribution expenses were mainly comprised of advertising and promotion expenses, sales and marketing staff costs, delivery and storage costs, depreciation expense, travel and business development expenses, and sales and marketing departmental expenses. For the 2020 Interim Period, the Group's selling and distribution expenses was HK$96.8 million, representing a decrease of HK$19.1 million or 16.5% compared to HK$115.9 million for the corresponding period in last year. The decrease was mainly attributable to (i) decrease in marketing activities due to the impact of COVID-19 pandemic and (ii) decrease in distribution cost associated with the sales drop.
For the 2020 Interim Period, selling and distribution expenses as a percentage to revenue decreased from 34.7% in last corresponding period to 34.5% for the 2020 Interim Period. Despite the sales dropped for the 2020 Interim Period, the Group maintained a reasonable marketing expenses to maintain the brand competitiveness and the market awareness of the Group's products.
Administrative expenses
Six months ended 30 June | ||||
2020 | 2019 | Change | ||
HK$'000 | HK$'000 | HK$'000 | % | |
Clinics operating expenses | 18,714 | 42,113 | (23,399) | (55.6) |
Research and development costs | 8,044 | 11,856 | (3,812) | (32.2) |
General administrative expenses | 48,919 | 51,738 | (2,819) | (5.4) |
Total administrative expenses | 75,677 | 105,707 | (30,030) | (28.4) |
The Group's administrative expenses included both operating expenses for clinics and general administrative expenses. The expenses were mainly comprised of staff costs, research and development costs, office and clinics rental expenses, legal and professional fees, clinic management fee, depreciation and amortisation, and other general administrative expenses.
For the 2020 Interim Period, the Group's operating expenses for clinics was HK$18.7 million, representing a decrease of HK$23.4 million or 55.6% compared to HK$42.1 million for the corresponding period in last year. The decrease was mainly attributable to the downsizing of clinic network in Hong Kong. The number of clinics in operation in Hong Kong decreased from 57 clinics as at 31 December 2019 to 26 clinics as at 30 June 2020.
The research and development costs for the 2020 Interim Period decreased by HK$3.8 million or 32.2%, mainly due to defer of certain development projects due to the impact of COVID-19 pandemic.
The Group's general administrative expenses for the 2020 Interim Period decreased by HK$2.8 million or 5.4%, due to the control on the operating costs.
E010 PuraPharm Corporation Limited 2020 Interim Report
Management Discussion
and Analysis
Other expenses
The Group's other expenses mainly comprised of loss on disposal of fixed assets, net foreign exchange loss and voluntary charity donation. For the 2020 Interim Period, the Group's other expenses was HK$6.5 million, representing an increase of HK$1.4 million or 26.4% compared to HK$5.2 million for the corresponding period in last year. The increase was primarily attributable to the increase in voluntary charity donation and exchange loss.
Finance costs
For the 2020 Interim Period, the Group's finance costs amounted to HK$11.2 million, representing a decrease of HK$2.4 million or 17.4% as compared to HK$13.5 million for the corresponding period in last year. The decrease was mainly due to the decrease in average outstanding bank and other borrowings during the 2020 Interim Period.
Income tax expense
During the 2020 Interim Period, the Group's income tax expenses increased from HK$2.4 million in last corresponding period to HK$5.0 million for the 2020 Interim Period. The income tax expense was arose from the profitable subsidiaries and the increase was mainly due to the increase in profitability of the Group during the 2020 Interim Period.
CAPITAL EXPENDITURES
The Group's capital expenditures primarily comprised of payments and deposits for purchase of property, plant and equipment, land use rights and intangible assets. During the 2020 Interim Period, the total capital expenditure was HK$23.4 million (six months ended 30 June 2019: HK$39.1 million). The capital expenditures during the 2020 Interim Period was mainly incurred for construction of new warehouses in Nanning to replace the existing outsourcing warehouses for the Group's inventories storage in Nanning.
LIQUIDITY AND FINANCIAL RESOURCES
As at 30 June 2020, the Group had net current assets of HK$43.7 million (31 December 2019: net current liabilities of HK$41.4 million), which included cash and cash equivalent of HK$98.8 million (31 December 2019: HK$68.0 million), interest-bearing bank and other borrowings amounting to HK$273.0 million (31 December 2019: HK$312.3 million) and loan from a director amounting HK$15 million as at 31 December 2019, no such balance as at 30 June 2020. As at 30 June 2020, the Group's unused bank facilities including overdraft amounted to HK$91.5 million (31 December 2019: HK$80.2 million).
PuraPharm Corporation Limited 2020 Interim Report E011
Management Discussion
and Analysis
GEARING RATIO
As at 30 June 2020, the gearing ratio of the Group, which is calculated by dividing total interest-bearing bank and other borrowings, and loan from a director by total equity was 0.83 (31 December 2019: 1.3). The improvement of the gearing ratio was mainly attributable to (i) the decrease in interest-bearing bank and other borrowings and loan from a director was fully repaid, and (ii) increase in the equity base of the Company resulted from the Rights Issue completed in March 2020.
EXCHANGE RISK
The Group conducts business primarily in Hong Kong and China with most of its transactions denominated and settled in Hong Kong dollars and Renminbi. Currently, the Group has not entered into any foreign exchange contracts to hedge against the fluctuations in exchange rate between Renminbi and Hong Kong dollars. However, the Group monitors foreign exchange exposure regularly and considers if there is a need to hedge against significant foreign currency exposure when necessary.
HUMAN RESOURCES
As at 30 June 2020, the Group had a total of 707 employees (31 December 2019: 696 employees). During the six months ended 30 June 2020, total staff costs excluding Directors' remuneration was HK$49.0 million (six months ended 30 June 2019: HK$56.3 million). The Group offers competitive remuneration packages to its employees, including mandatory retirement funds, insurance and medical coverage. In addition, discretionary bonus, share options and share awards may be granted to eligible employees based on the Groups and individuals performance. The Group also allocated resources for continuing education and training for management and employees to improve their skills and knowledge.
PLEDGE OF ASSETS
The following assets were pledged as securities for interest-bearing bank and other borrowings and bills payable:
Carrying value | ||
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
Property, plant and equipment | 68,824 | 182,374 |
Right-of-use assets | 54,400 | 80,099 |
Financial assets at fair value through profit or loss | 18,251 | 18,195 |
Inventories | 38,367 | 39,113 |
Trade and bills receivables | 102,065 | 62,727 |
Pledged bank deposits | 17,656 | 25,115 |
299,563 | 407,623 | |
E012 PuraPharm Corporation Limited 2020 Interim Report
Management Discussion
and Analysis
CAPITAL COMMITMENT
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
Contracted, but not provided for: | ||
Buildings | 26,386 | 26,579 |
Plant and machinery | 3,542 | 8,142 |
29,928 | 34,721 | |
MATERIAL ACQUISITIONS, DISPOSALS AND
MATERIAL INVESTMENT
There were no material acquisitions, disposals and material investment undertaken by the Group during the six months ended 30 June 2020.
CONTINGENT LIABILITIES
For the year ended 31 December 2019, an action was brought in the PRC against a subsidiary of the Group by a party alleging that the subsidiary of the Group breached and repudiated four contracts regarding purchase of Chinese raw herbs (including seedling products) (the "Agreements"). Since the plaintiff of the action had not yet provided the evidence regarding the aforesaid claims, the Directors of the Group have made provision of HK$4.0 million for the probability- weighted outcomes which might arise from the action (including related legal and other costs) according to the advice from the Group's legal counsel and available evidence on hand. Up to the date of this report, such litigation is still in progress, and there was no further provision made by the Group based on the latest available information. The Company would vigorously contest the action and the claims made against the Group. Other than the said legal action brought against the Group in the PRC, the Group did not have other material contingent liabilities for 2020 Interim Period.
THE RIGHTS ISSUE
On 3 January 2020, the Company announced a proposed Rights Issue to raise about HK$105 million before expenses by issuing 131,630,980 Rights Shares, on the basis of one Rights Share for every two existing Shares then held at the Subscription Price of HK$0.80 per Rights Share, representing a discount of approximately 37.5% to the closing price of HK$1.28 per share as quoted on the Stock Exchange on 30 December 2019, being the last full trading day of the share before the release of the announcement in relation to the Rights Issue. The Rights Issue was completed on 2 March 2020, and 131,630,980 Rights Shares were allotted and issued to the shareholders accordingly, which carried the aggregate nominal value of US$13,163,098. The gross proceeds raised from the Rights Issue was approximately HK$105 million and the net proceeds was approximately HK$98.0 million. The net Subscription Price, after deducting expenses and underwriting commission, was approximately HK$0.745 per Right Share.
PuraPharm Corporation Limited 2020 Interim Report E013
Management Discussion
and Analysis
The Board considered that the Rights Issue allowed the Group to strengthen its capital structure without incurring debt financing cost, improve the financial position and provide additional financial resources for capturing suitable business expansion and investment opportunities when they arise.
For further information in relation to the Rights Issue, please refer to the announcement of the Company dated 3 January 2020, prospectus of the Company dated 7 February 2020, and the announcement of the Company dated 28 February 2020. For further information in relation to the use of proceeds from the Rights Issue, please refer to the paragraph headed "Net Proceeds from the Rights Issue" below in this report.
USE OF PROCEEDS FROM THE COMPANY'S INITIAL PUBLIC OFFERING
The net proceeds from the initial public offering in July 2015, after deduction of related issuance expenses, amounted to approximately HK$288.4 million. As at 30 June 2020, the Group had utilised approximately HK$276.3 million of the net proceeds in accordance with the proposed applications set out in the Company's listing prospectus details of which are set out, as follows:
Approximate | |||||
Approximate | Approximate | amount utilized | |||
amount of net | percentage of net | Approximate | during the | Approximate | |
proceeds | proceeds | amount utilized | Reporting Period | amount unutilized | |
Use | (in HK$ million) | (in HK$ million) | (in HK$ million) | (in HK$ million) | |
To expand manufacturing facilities and enhance | |||||
existing production lines | 86.5 | 30.0% | 86.5 | - | - |
To establish new Nong's® Chinese medicine | |||||
clinics in Hong Kong and the PRC | 72.1 | 25.0% | 72.1 | - | - |
To expand distribution network into new target | |||||
cities in the PRC | 57.7 | 20.0% | 57.7 | - | - |
To fund the development and launch of two | |||||
new proprietary Chinese medicine products | 43.3 | 15.0% | 31.2 | 0.7 | 12.1 |
Additional working capital of the Group | 28.8 | 10.0% | 28.8 | - | - |
288.4 | 100.0% | 276.3 | 0.7 | 12.1 | |
The unutilised net proceeds of HK$12.1 million have been placed with licensed banks in Hong Kong and will be applied in the manner consistent with the proposed allocations as set out in the Company's listing prospectus. The unutilised net proceeds of HK$12.1 million for developing and launching two proprietary Chinese medicine products are expected to be fully utilised by 2021.
E014 PuraPharm Corporation Limited 2020 Interim Report
Management Discussion
and Analysis
NET PROCEEDS FROM THE RIGHTS ISSUE
The actual use of the net proceeds from the Rights Issue as at 30 June 2020 are as follows:
Approximate | |||||
Approximate | Approximate | amount utilized | |||
amount of net | percentage of net | Approximate | during the | Approximate | |
proceeds | proceeds | amount utilized | Reporting Period | amount unutilized | |
Use | (in HK$ million) | (in HK$ million) | (in HK$ million) | (in HK$ million) | |
Repayment of bank loan | 41.0 | 41.8% | 41.0 | 41.0 | - |
Marketing expenses of the Group China | |||||
CCMG business | 20.0 | 20.4% | 20.0 | 20.0 | - |
Raw herbs procurement | 20.0 | 20.4% | 16.5 | 16.5 | 3.5 |
General working capital | 17.0 | 17.4% | 15.0 | 15.0 | 2.0 |
98.0 | 100.0% | 92.5 | 92.5 | 5.5 | |
The unutilised net proceeds from the Rights Issue are expected to be used according to the intended use of net proceeds as stated the prospectus of the Company dated 7 February 2020. The unutilised net proceeds of HK$3.5 million and HK$2 million for raw herbs procurement and general working capital are expected to be fully utilised by 2020.
PuraPharm Corporation Limited 2020 Interim Report E015
Disclosure of Interests
DIRECTORS' AND CHIEF EXECUTIVES' INTERESTS OR SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES
As at 30 June 2020, the board of directors of the Company ("Directors") and chief executives of the Company had the following interests in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Future Ordinance ("SFO")), which were required to be 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 they were taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as set out in Appendix 10 of the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") were as follows:
Percentage of | ||||
Number of | the Company's | |||
Capacity/ | Shares held | issued share | ||
Name of Director | Nature of Interest | or interested(1) | capital | |
Mr. Chan Yu Ling, Abraham | Interest of controlled corporation | 190,354,830 | (L)(2)(3)(4) | 48.20% |
("Mr. Abraham Chan") | Beneficial owner | 30,270,811 | (L) | 7.67% |
Interest of spouse | 867,500 | (L)(5) | 0.22% | |
Beneficiary of a trust | 90,000 | (L)(9) | 0.02% | |
Ms. Man Yee Wai, Viola | Interest of controlled corporation | 77,349,750 | (L)(6) | 19.59% |
Beneficial owner | 822,500 | (L) | 0.21% | |
Interest of spouse | 143,365,891 | (L)(7) | 36.31% | |
Beneficiary of a trust | 45,000 | (L)(9) | 0.01% | |
Mr. Chan Kin Man, Eddie | Interest of controlled corporation | 2,343,750 | (L)(8) | 0.59% |
Beneficial owner | 2,102,000 | (L) | 0.53% | |
Beneficiary of a trust | 6,000 | (L)(9) | 0.002% | |
Dr. Tsoi Kam Biu, Alvin | Beneficial owner | 785,000 | (L) | 0.20% |
Beneficiary of a trust | 45,000 | (L)(9) | 0.01% | |
Dr. Chan Kin Keung, Eugene | Beneficial owner | 14,000 | (L) | 0.004% |
Beneficiary of a trust | 6,000 | (L)(9) | 0.002% | |
Mr. Ho Kwok Wah, George | Beneficial owner | 14,000 | (L) | 0.004% |
Beneficiary of a trust | 6,000 | (L)(9) | 0.002% | |
Dr. Leung Lim Kin, Simon | Beneficial owner | 14,000 | (L) | 0.004% |
Beneficiary of a trust | 6,000 | (L)(9) | 0.002% | |
Prof. Tsui Lap Chee | Beneficial owner | 14,000 | (L) | 0.004% |
Beneficiary of a trust | 6,000 | (L)(9) | 0.002% |
Notes:
- The letter "L" denotes the person's long position in such securities.
- Mr. Abraham Chan beneficially owns 50% of the issued share capital of Joint Partners Investments Limited ("Joint Partners"), which in turn wholly owns the entire issued capital of PuraPharm Corporation Limited ("PuraPharm Corp"), a limited liability company incorporated in the British Virgin Islands on 5 May 1998. PuraPharm Corp owns 77,349,750 Shares. By virtue of the SFO, Mr. Abraham Chan is deemed to be interested in the Shares held by PuraPharm Corp.
E016 PuraPharm Corporation Limited 2020 Interim Report
Disclosure of Interests
- Mr. Abraham Chan beneficially owns the entire issued share capital of Fullgold Development Limited ("Fullgold Development"), which in turn owns 93,429,000 Shares. By virtue of the SFO, Mr. Abraham Chan is deemed to be interested in the Shares held by Fullgold Development.
- Mr. Abraham Chan beneficially owns the entire issued share capital of Gold Sparkle Limited ("Gold Sparkle"), which in turn owns 19,576,080 Shares. By virtue of the SFO, Mr. Abraham Chan is deemed to be interested in the Shares held by Gold Sparkle.
- Mr. Abraham Chan is the spouse of Ms. Viola Man. By virtue of the SFO, Mr. Abraham Chan is deemed to be interested in the Shares held by Ms. Viola Man.
- Ms. Viola Man beneficially owns 50% of the issued share capital of Joint Partners, which in turn wholly owns the entire issued capital of PuraPharm Corp. PuraPharm Corp owns 77,349,750 Shares. By virtue of the SFO, Ms. Viola Man is deemed to be interested in the Shares held by PuraPharm Corp.
- Ms. Viola Man is the spouse of Mr. Abraham Chan. By virtue of the SFO, Ms. Viola Man is deemed to be interested in the Shares held by Mr. Abraham Chan.
- Mr. Eddie Chan wholly owns the entire issued share capital of K.M. Chan & Co. Limited ("KM Chan"), which in turn owns 2,343,750 Shares. By virtue of the SFO, Mr. Eddie Chan is deemed to be interested in the Shares held by KM Chan.
- These shares represent shares granted to such directors pursuant to the Award Scheme, which will be held on trust by the Share Award Scheme Trust until the shares are vested. For further detail, please refer to the paragraph headed "Share Award Scheme" below.
Save as disclosed above, as at 30 June 2020, none of the Directors, chief executives of the Company and/or their respective associates had any personal, family, corporate or other interests or short positions in any shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be 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 they were taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register kept by the Company pursuant to Section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.
SUBSTANTIAL SHAREHOLDERS' INTERESTS AND/OR SHORT POSITION IN SHARES AND UNDERLYING SHARES OF THE COMPANY
As at 30 June 2020, so far as was known to the Directors, the following entity (not being the Director or chief executive of the Company) had, or were deemed to have, interests or short positions in the shares or underlying shares of the Company, its group members and/or associated corporations which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which recorded in the register required to be kept by the Company under Section 336 of the SFO:
Percentage of | ||||
Number of | the Company's | |||
Shares held | issued share | |||
Name of entity | Nature of Interest | or interested(1) | capital | |
PuraPharm Corp | Beneficial owner | 77,349,750 | (L) | 19.59% |
Joint Partners | Interest of a controlled corporation | 77,349,750 | (L)(2) | 19.59% |
Fullgold Development | Beneficial owner | 93,429,000 | (L) | 23.66% |
Notes:
- The letter "L" denotes the person's long position in such securities and the letter "S" denotes the person's short position in such securities.
- PuraPharm Corp is wholly owned by Joint Partners. By virtue of the SFO, Joint Partners is deemed to be interested in the Shares held by PuraPharm Corp.
PuraPharm Corporation Limited 2020 Interim Report E017
Disclosure of Interests
Save as disclosed above, as at 30 June 2020, no person, other than a Director or chief executive of the Company, had registered an interest or short position in the Shares, underlying Shares as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO or which would fall to be disclosed to the Company and the Hong Kong Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO.
SHARE OPTION SCHEME
On 12 June 2015, the Share Option Scheme was adopted by the then Shareholders and will remain in force for 10 years after its adoption. The purpose of the Share Option Scheme is to provide incentives and rewards to eligible participants who would contribute to the success of the Group's operations. Under the terms of the Share Option Scheme, the Board may, at its discretion, grant share options to, among others, any full-time employee and any Director of the Company or its subsidiaries, including any executive, non-executive or independent non-executive directors.
The exercise price for shares under the Share Option Scheme may be determined by the Board at its absolute discretion but in any event will not be less than the highest of: (i) the closing price of the shares as stated in the daily quotations sheet of the Stock Exchange on the date of grant, which must be a business day; (ii) the average of the closing prices of the shares as stated in the daily quotations sheets of the Stock Exchange for the five business days immediately preceding the date of grant; and (iii) the nominal value of the share on the date of grant. Any share options granted under the Share Option Scheme shall lapse in any event not later than ten years from the date of grant. A nominal value of HK$1.00 is payable on acceptance of each grant of share options.
On 9 May 2019, 6,376,000 options were granted to four Directors and certain employees of the Company, entitling them to subscribe for a total of 6,376,000 shares at the exercise price of HK$2.4 per share. The outstanding options and the exercise price were adjusted after the completion of the Rights Issue. Details of the options granted under the Share Option Scheme is as follows:
Number of | |||||||||
Shares issuable | |||||||||
under Options | Exercised | Cancelled/ | |||||||
Adjusted | As at | granted during | during the | lapsed during | As at | ||||
Exercise | 1 January | the Reporting | Reporting | the Reporting | Effect of Rights | 30 June | |||
Grantees | Grant date | price (note) | Vesting date | 2020 | Period | Period | Period | Issue (note) | 2020 |
Directors | 9 May 2019 | HK$2.3 | 10 May 2020 | 2,763,000 | - | - | - | 116,006 | 2,879,006 |
10 May 2021 | 2,763,000 | - | - | - | 116,006 | 2,879,006 | |||
5,526,000 | - | - | - | 232,012 | 5,758,012 | ||||
Employees | 9 May 2019 | HK$2.3 | 10 May 2020 | 212,500 | - | - | - | 8,922 | 221,422 |
10 May 2021 | 212,500 | - | - | - | 8,922 | 221,422 | |||
10 May 2022 | 212,500 | - | - | - | 8,922 | 221,422 | |||
10 May 2023 | 212,500 | - | - | - | 8,922 | 221,422 | |||
850,000 | - | - | - | 35,688 | 885,688 | ||||
Total | 6,376,000 | - | - | - | 267,700 | 6,643,700 | |||
Note: As a result of the completion of the Rights Issue, assuming no other adjustment events under the terms and conditions of the Share Option Scheme having been triggered and pursuant to (i) the terms and conditions of Share Option Scheme; and (ii) Chapter 17 of the Listing Rules and the supplementary guidance issued by the Stock Exchange on 5 September 2005 regarding adjustment of share options under Rule 17.03(13) of the Listing Rules, the exercise price of the Share Options and the number of Shares which may fall to be issued upon exercise of the subscription rights attaching to the Share Options has been adjusted.
E018 PuraPharm Corporation Limited 2020 Interim Report
Disclosure of Interests
SHARE AWARD SCHEME
The Board of Directors (the "Board") adopted a Share Award Scheme on 22 February 2016 (the "Award Scheme") in which any employee and non-executive Director of the Company and/or any member of the Group who, in the sole opinion of the Board, will contribute or have contributed to the Company and/or any member of the Group (the "Eligible Award Participants") will be entitled to participate. The purposes of the Award Scheme are:
- to recognise and motivate the contributions by certain Eligible Award Participants and to give incentives thereto in order to retain them for the continual operation and development of the Group;
- to attract suitable personnel for further development of the Group; and
- to provide certain Eligible Award Participants with a direct economic interest in attaining a long term relationship between the Group and certain Eligible Award Participants.
The Group has set up a trust (the "Share Award Scheme Trust") for the purpose of administrating the Award Scheme. The Share Award Scheme Trust will acquire the Company's shares from the Stock Exchange, with a maximum amount of funds to be allocated by the Board, and hold such Shares until they are vested. Unless early terminated by the Board, the Share Award Scheme shall be valid and effective for a term of 10 years commencing on the adoption date.
The Board has further resolved in February 2016 that a sum of HK$10,000,000 be provided for the purchase of the Shares to be awarded to the Eligible Award Participants to be selected by the Board.
As at 30 June 2020, the Share Award Scheme Trust held 1,916,000 shares (the "Award Shares") (31 December 2019: 2,206,000 Award Shares). No Award Share was granted during the six months ended 30 June 2020, and a total of 290,000 Award Shares were vested to the Eligible Participants on 16 June 2020.
The Group recognized a net share award expense of HK$354,000 during the six months ended 30 June 2020 (six months ended 30 June 2019: HK$206,000).
PuraPharm Corporation Limited 2020 Interim Report E019
Corporate Governance and
Other Information
CORPORATE GOVERNANCE
The Directors recognise the importance of incorporating elements of good corporate governance in the management structures and internal control procedures of the Group so as to achieve effective accountability.
The Company has adopted the code provisions stated in the Corporate Governance Code (the "Code") as set out in Appendix 14 to the Listing Rules. Throughout the six months ended 30 June 2020, save as disclosed below, the Company has complied with all applicable code provisions set out in the Code.
Pursuant to provision A.2.1 of the Code, the roles of the chairman and the chief executive officer should be separate and should not be performed by the same individual. However, due to the nature and extent of the Group's operations and Mr. Abraham Chan's in-depth knowledge and experience in Chinese medicine and healthcare products and his familiarity with the operations of the Group, the Company considers that it is not preferable to find an alternative candidate to replace Mr. Abraham Chan and serve in either of the positions at this stage. As such, the role of the chairman and chief executive officer of the Company are not being separated pursuant to the requirement under A.2.1 of the Code.
For the six months ended 30 June 2020, the Directors were not aware of any business or interest of the Directors, the controlling shareholders, and their respective close associates (as defined under the Listing Rules) that compete or may compete with the business of the Group and any other conflict of interest which any such person has or may have with the Group.
A deed of non-competition dated 16 June 2015 was entered into by the controlling shareholders in favour of the Company (for itself and as trustee for its subsidiaries), details of which are set out in the section headed "Relationship with our Controlling Shareholders" of the prospectus of the Company dated 25 June 2015.
AUDIT COMMITTEE
The Company established an audit committee (the "Audit Committee") on 12 June 2015 with written terms of reference in compliance with Rule 3.21 of the Listing Rules and paragraph C.3 of the Code. The Audit Committee consists of three independent non-executive Directors, Mr. Ho Kwok Wah, George (being the chairman of the Audit Committee who has a professional qualification in accountancy), Dr. Leung Lim Kin, Simon and Dr. Chan Kin Keung, Eugene. The primary duties of the Audit Committee are to assist the Board by providing an independent view of the effectiveness of the financial reporting process, internal control and risk management system of the Group, to oversee the audit process, to develop and review the Group's policies and to perform other duties and responsibilities as assigned by our Board. The Audit Committee discussed the accounting principles and policies adopted by the Group together with the management and the external auditors. The interim report of the Group for the six months ended 30 June 2020 has also been reviewed and passed by the Audit Committee.
E020 PuraPharm Corporation Limited 2020 Interim Report
Corporate Governance and
Other Information
REVIEW OF THE INTERIM RESULTS BY AUDITOR
The unaudited interim condensed consolidated financial statements of the Group for the six months ended 30 June 2020 has been reviewed by the auditors of the Company, Ernst & Young, 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.
THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted the Model Code set out in Appendix 10 to the Listing Rules as its own code of conduct for securities transactions by Directors. Having made specific enquiries of all Directors, all Directors confirmed that, they have complied with the required standard of dealing as set out in the Model Code throughout the six months ended 30 June 2020.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities throughout the six months ended 30 June 2020.
IMPORTANT EVENTS SINCE THE END OF THE REPORTING PERIOD
On 24 July 2020, the Board resolved to grant share options to five Directors and 13 employees of the Group entitling them to subscribe for a total of 16,124,000 Shares at the exercise price of HK$0.8 per Share under the Share Option Scheme. Other than the above, the Board is not aware any significant event affecting the Company or any of its subsidiaries after the end of the Reporting Period and up to the date of this report requiring disclosure.
INTERIM DIVIDEND
The Board resolved not to recommend any payment of interim dividend for the six months ended 30 June 2020.
PuraPharm Corporation Limited 2020 Interim Report E021
Independent Review Report
To the board of directors of PuraPharm Corporation Limited (Incorporated in Cayman Island with limited liability)
INTRODUCTION
We have reviewed the accompanying interim condensed consolidated financial statements of PuraPharm Corporation Limited (the "Company") and its subsidiaries (hereinafter collectively referred to as the "Group") set out on page 23 to 60, which comprises the interim condensed consolidated statement of financial position as at 30 June 2020 and the related interim condensed consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for the six months then ended (the "Reporting Period"), and 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 provision thereof and the Hong Kong Accounting Standard 34 "Interim Financial Reporting" ("HKAS 34") 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 condensed consolidated financial statements in accordance with HKAS 34. Our responsibility is to express a conclusion on this interim condensed consolidated financial statements based on our review. Our report is made 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 condensed consolidated financial statements are not prepared, in all material respects, in accordance with HKAS 34.
Ernst & Young
Certified Public Accountants
Hong Kong
25 August 2020
E022 PuraPharm Corporation Limited 2020 Interim Report
Interim Condensed Consolidated Statement of Profit or Loss and Comprehensive Income
Six months ended 30 June | |||
2020 | 2019 | ||
Notes | HK$'000 | HK$'000 | |
(Unaudited) | (Unaudited) | ||
REVENUE | 5 | 280,432 | 333,558 |
Cost of sales | (115,598) | (140,112) | |
Gross profit | 164,834 | 193,446 | |
Other income and gains | 5 | 45,452 | 6,752 |
Selling and distribution expenses | (96,778) | (115,856) | |
Administrative expenses | (75,677) | (105,707) | |
Impairment of financial assets, net | (3,734) | (2,690) | |
Other expenses | (6,544) | (5,177) | |
Finance costs | 7 | (11,165) | (13,516) |
PROFIT/(LOSS) BEFORE TAX | 6 | 16,388 | (42,748) |
Income tax expense | 8 | (4,951) | (2,432) |
PROFIT/(LOSS) FOR THE PERIOD | 11,437 | (45,180) | |
Attributable to owners of the parent | 11,437 | (45,180) | |
EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO | |||
THE ORDINARY EQUITY HOLDERS OF THE PARENT | |||
(expressed in HK cents per share) | |||
Basic (Restated for six month ended 30 June 2019) | |||
- For profit/(loss) for the period | 10 | 3.28 | (17.7) |
Diluted (Restated for six month ended 30 June 2019) | |||
- For profit/(loss) for the period | 10 | 3.28 | (17.7) |
PROFIT/(LOSS) FOR THE PERIOD | 11,437 | (45,180) | |
OTHER COMPREHENSIVE LOSS | |||
Exchange differences on translation of foreign operations | (6,849) | (1,991) | |
OTHER COMPREHENSIVE LOSS FOR THE PERIOD, NET OF TAX | (6,849) | (1,991) | |
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE PERIOD | 4,588 | (47,171) | |
Attributable to owners of the parent | 4,588 | (47,171) | |
PuraPharm Corporation Limited 2020 Interim Report E023
Interim Condensed Consolidated Statement of Financial Position
30 June | 31 December | ||
2020 | 2019 | ||
Notes | HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | ||
NON-CURRENT ASSETS | |||
Property, plant and equipment | 11 | 250,676 | 239,356 |
Investment properties | 7,472 | 7,557 | |
Right-of-use assets | 114,753 | 121,117 | |
Goodwill | 12 | 88,339 | 88,339 |
Other intangible assets | 32,929 | 34,275 | |
Financial assets at fair value through profit or loss | 13 | 18,251 | 18,195 |
Biological assets | 15 | 30,883 | 52,436 |
Prepayments for non-current assets | 17 | 43,388 | 50,902 |
Deferred tax assets | 10,590 | 12,363 | |
Total non-current assets | 597,281 | 624,540 | |
CURRENT ASSETS | |||
Inventories | 14 | 185,789 | 200,888 |
Biological assets | 15 | 28,754 | 10,077 |
Trade and bills receivables | 16 | 220,898 | 230,734 |
Prepayments, deposits and other receivables | 17 | 77,876 | 62,879 |
Pledged bank deposits | 18 | 17,656 | 25,115 |
Cash and cash equivalents | 18 | 98,798 | 68,009 |
Total current assets | 629,771 | 597,702 | |
CURRENT LIABILITIES | |||
Trade and bills payables | 19 | 178,200 | 178,985 |
Other payables and accruals | 97,820 | 97,285 | |
Interest-bearing bank and other borrowings | 20 | 272,961 | 312,282 |
Lease liabilities | 30,222 | 28,030 | |
Loans from a director | 21 | - | 15,000 |
Tax payable | 5,282 | 5,850 | |
Government grants | 1,602 | 1,648 | |
Total current liabilities | 586,087 | 639,080 | |
NET CURRENT ASSETS/(LIABILITIES) | 43,684 | (41,378) | |
TOTAL ASSETS LESS CURRENT LIABILITIES | 640,965 | 583,162 | |
E024 PuraPharm Corporation Limited 2020 Interim Report
Interim Condensed Consolidated Statement of Financial Position
30 June | 31 December | ||
2020 | 2019 | ||
Notes | HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | ||
NON-CURRENT LIABILITIES | |||
Other payable | 29,597 | 30,173 | |
Interest-bearing bank and other borrowings | 20 | 113,842 | 143,715 |
Lease liabilities | 26,956 | 42,506 | |
Government grants | 1,351 | 2,038 | |
Deferred tax liabilities | 1,803 | 2,607 | |
Total non-current liabilities | 173,549 | 221,039 | |
Net assets | 467,416 | 362,123 | |
EQUITY | |||
Equity attributable to owners of the parent | |||
Share capital | 22 | 306,042 | 204,028 |
Shares held for share award scheme | 23(b) | (6,258) | (7,200) |
Reserves | 24 | 167,632 | 165,295 |
Total equity | 467,416 | 362,123 | |
Director | Director |
PuraPharm Corporation Limited 2020 Interim Report E025
Interim Condensed Consolidated Statement of Changes in Equity
Attributable to owners of the parent
Shares | Reserve for | |||||||||
held for | share award | Exchange | ||||||||
Share | share award | and share | Merger | Surplus | Capital | fluctuation | Retained | |||
Share capital | premium | scheme | option | reserve | reserves | reserve | reserve | profits | Total equity | |
HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
(note 22) | (note 22) | (note 23(b)) | (note 23) | (note 24) | (note 24) | (note 24) | ||||
At 31 December 2019 (audited) | 204,028 | 224,484 | (7,200) | 5,524 | 1,814 | 28,646 | (7,505) | (16,157) | (71,511) | 362,123 |
Profit for the period | - | - | - | - | - | - | - | - | 11,437 | 11,437 |
Other comprehensive loss for the | ||||||||||
period: | ||||||||||
Exchange differences on | ||||||||||
translation of foreign | ||||||||||
operations | - | - | - | - | - | - | - | (6,849) | - | (6,849) |
Total comprehensive income for | ||||||||||
the period | - | - | - | - | - | - | - | (6,849) | 11,437 | 4,588 |
Issue of shares | 102,014 | 3,291 | - | - | - | - | - | - | - | 105,305 |
Share issue expense | - | (7,257) | - | - | - | - | - | - | - | (7,257) |
Recognition of share option | - | - | - | 2,303 | - | - | - | - | - | 2,303 |
Recognition of equity-settled share | ||||||||||
award | - | - | - | 354 | - | - | - | - | - | 354 |
Vesting of Share Award Scheme | - | 140 | 942 | (1,082) | - | - | - | - | - | - |
At 30 June 2020 (unaudited) | 306,042 | 220,658* | (6,258) | 7,099* | 1,814* | 28,646* | (7,505)* | (23,006)* | (60,074)* | 467,416 |
- These reserve accounts comprise the consolidated reserves of HK$167,632,000 (30 June 2019: HK$331,308,000) in the interim condensed consolidated statement of financial position as at 30 June 2020.
E026 PuraPharm Corporation Limited 2020 Interim Report
Interim Condensed Consolidated Statement of Changes in Equity
Attributable to owners of the parent
Shares | Reserve for | |||||||||
held for | share award | Exchange | ||||||||
Share | share award | and share | Merger | Surplus | Capital | fluctuation | Retained | |||
Share capital | premium | scheme | option | reserve | reserves | reserve | reserve | profits | Total equity | |
HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
(note 22) | (note 22) | (note 23(b)) | (note 23(b)) | (note 24) | (note 24) | (note 24) | ||||
At 31 December 2018 (audited) | 191,981 | 206,811 | (8,200) | 2,382 | 1,814 | 28,646 | (7,505) | (9,457) | 155,747 | 562,219 |
Loss for the period | - | - | - | - | - | - | - | - | (45,180) | (45,180) |
Other comprehensive loss for the | ||||||||||
period: | ||||||||||
Exchange differences on | ||||||||||
translation of foreign | ||||||||||
operations | - | - | - | - | - | - | - | (1,991) | - | (1,991) |
Total comprehensive loss for the | ||||||||||
period | - | - | - | - | - | - | - | (1,991) | (45,180) | (47,171) |
Recognition of share option | - | - | - | 797 | - | - | - | - | - | 797 |
Recognition of equity-settled share | ||||||||||
award | - | - | - | 741 | - | - | - | - | - | 741 |
Forfeiting of Share Award Scheme | - | - | - | (535) | - | - | - | - | - | (535) |
Vesting of Share Award Scheme | - | 81 | 962 | (1,043) | - | - | - | - | - | - |
At 30 June 2019 (unaudited) | 191,981 | 206,892* | (7,238) | 2,342* | 1,814* | 28,646* | (7,505)* | (11,448)* | 110,567* | 516,051 |
PuraPharm Corporation Limited 2020 Interim Report E027
Interim Condensed Consolidated Statement of Cash Flows
Six months ended 30 June | |||
2020 | 2019 | ||
Notes | HK$'000 | HK$'000 | |
(Unaudited) | (Unaudited) | ||
CASH FLOWS FROM OPERATING ACTIVITIES | |||
Profit/(Loss) before tax: | 16,388 | (42,748) | |
Adjustments for: | |||
Finance costs | 7 | 11,165 | 13,516 |
Foreign exchange loss, net | 6 | 1,002 | 610 |
Fair value (gain)/loss on biological assets, net | 6 | (2,579) | 915 |
Loss on disposal of property, plant and equipment | 6 | 1,822 | 1,740 |
Gain on disposal of right-of-use assets | 5 | (699) | - |
Fair value gain on financial assets at fair value through profit or loss | 5 | (56) | (90) |
Share option expense | 23(a) | 2,303 | 797 |
Equity-settled share award expense | 23(b) | 354 | 206 |
Depreciation of property, plant and equipment | 6 | 14,247 | 14,903 |
Depreciation of right-of-use assets | 6 | 8,936 | 14,728 |
Amortisation of other intangible assets | 6 | 1,809 | 1,930 |
Impairment of property, plant and equipment | 6 | 225 | - |
Impairment of trade and bills receivables | 6 | 3,734 | 2,690 |
Write-down of inventories to net realisable value | 6 | 2,435 | 2,632 |
Bank interest income | 5 | (496) | (223) |
60,590 | 11,606 | ||
Decrease in inventories | 25,928 | 29,622 | |
Increase in biological assets | (11,674) | (15,264) | |
Decrease in trade and bills receivables | 2,233 | 43,885 | |
Increase in prepayments, deposits and other receivables | (15,794) | (3,712) | |
Increase in trade and bills payables | 2,556 | 6,201 | |
Decrease in government grants | (501) | (1,387) | |
Increase/(decrease) in other payables and accruals | 4,607 | (10,315) | |
Cash generated from operations | 67,945 | 60,636 | |
Interest received | 496 | 223 | |
Interest element of finance lease rental payments | - | (2,738) | |
Hong Kong income tax paid | (2,640) | (784) | |
Overseas profits tax paid | (467) | (597) | |
PRC corporate income tax paid | (1,567) | (112) | |
Net cash flows generated from operating activities | 63,767 | 56,628 | |
E028 PuraPharm Corporation Limited 2020 Interim Report
Interim Condensed Consolidated Statement of Cash Flows
Six months ended 30 June | |||
2020 | 2019 | ||
Notes | HK$'000 | HK$'000 | |
(Unaudited) | (Unaudited) | ||
CASH FLOWS FROM INVESTING ACTIVITIES | |||
Purchases of property, plant and equipment | (22,854) | (11,828) | |
Purchases of right-of-use assets | - | (26,609) | |
Proceeds from disposal of property, plant and equipment and | |||
other intangible assets | 76 | 128 | |
Addition to intangible assets | (537) | (661) | |
(Increase)/decrease in pledged deposits | 7,459 | (7,957) | |
Net cash flows used in investing activities | (15,856) | (46,927) | |
CASH FLOWS FROM FINANCING ACTIVITIES | |||
New bank loans | 251,297 | 140,276 | |
Repayment of bank loans | (320,437) | (189,205) | |
Loans from a director | 21 | - | 15,000 |
Repayments of loans to a director | 21 | (15,000) | - |
Proceeds from issue of shares | 22 | 105,305 | - |
Share issue expense | 22 | (7,257) | - |
Interest paid | (13,443) | (10,775) | |
Principal portion of lease payment | (16,548) | (17,639) | |
Net cash flows used in financing activities | (16,083) | (62,343) | |
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 31,828 | (52,642) | |
Cash and cash equivalents at beginning of period | 50,429 | 90,516 | |
Effect of foreign exchange rate changes, net | 5,970 | 1,881 | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 88,227 | 39,755 | |
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS | |||
Cash and bank balances | 18 | 98,798 | 57,410 |
Bank overdrafts | 20 | (10,571) | (17,655) |
88,227 | 39,755 | ||
PuraPharm Corporation Limited 2020 Interim Report E029
Notes to Interim Condensed Consolidated Financial Statements
1. CORPORATE INFORMATION AND REORGANISATION
The Company was incorporated as an exempted company with limited liability under the Companies Law, Cap 22 of the Cayman Islands on 2 December 2011. The registered office address is P.O. Box 31119, Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman KY1-1205, Cayman Islands.
The Company is an investment holding company. During the six months ended 30 June 2020 (the "Reporting Period"), the Group were principally engaged in the research, development, production and sale of concentrated Chinese medicine granule ("CCMG") products and Chinese healthcare products, plantation and trading of raw Chinese herbs, and manufacturing and sales of Traditional Chinese Medicine ("TCM") decoction pieces ("中藥飲片"), as well as rendering of Chinese medical diagnostic services.
In the opinion of the Board, the ultimate holding company is Fullgold Development Limited, which was incorporated in BVI and is wholly owned by Mr. Abraham, Chan Yu Ling ("Mr. Abraham Chan"), the founder of the Group.
2. BASIS OF PREPARATION
The interim condensed consolidated financial information for the six months ended 30 June 2020 has been prepared in accordance with HKAS 34 Interim Financial Reporting. The interim condensed consolidated financial information does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2019.
3.1 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Group has adopted the following revised Hong Kong Financial Reporting Standards ("HKFRSs") for the first time for the current period's financial information:
Amendments to HKFRS 3 | Definition of a Business |
Amendments to HKFRS 9, | Interest Rate Benchmark |
HKAS 39 and HKFRS 7 | Reform |
Amendment to HKFRS 16 | Covid-19 Related Rent |
Concessions (early | |
adopted) | |
Amendments to HKAS 1 | Definition of Material |
and HKAS 8 |
Other than as further explained below, the application of these amended and revised HKFRSs in the Reporting Period has had no material impact on the Group's financial performance and positions for the current and prior periods and/or on the disclosures set out in these interim condensed consolidated financial statements.
E030 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
3.1 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
Amendment to HKFRS 16
Amendment to HKFRS 16 provides a practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the covid-19 pandemic. The practical expedient applies only to rent concessions occurring as a direct consequence of the covid-19 pandemic and only if (i) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (ii) any reduction in lease payments affects only payments originally due on or before 30 June 2021; and (iii) there is no substantive change to other terms and conditions of the lease. The amendment is effective retrospectively for annual periods beginning on or after 1 June 2020 with earlier application permitted.
During the six months ended 30 June 2020, certain monthly lease payments for the leases of the Group's office buildings have been reduced or waived by the lessors as a result of the covid-19 pandemic and there are no other changes to the terms of the leases. The Group has early adopted the amendment on 1 January 2020 and elected not to apply lease modification accounting for all rent concessions granted by the lessors as a result of the covid-19 pandemic during the six months ended 30 June 2020. Accordingly, a reduction in the lease payments arising from the rent concessions of HK$1,222,000 has been accounted for as a variable lease payment by derecognising part of the lease liabilities and crediting to profit or loss for the six months ended 30 June 2020.
4. OPERATING SEGMENT INFORMATION
For management purposes, the Group is organised into business units based on their products and services and has five reportable operating segments as follows:
- the China CCMG segment mainly engages in the production and sale of CCMG products in China;
- the Hong Kong CCMG segment mainly engages in the sale of CCMG products excluding the sales through self-operated clinics in Hong Kong;
- the Chinese healthcare products segment mainly engages in the production and sale of Chinese healthcare products in Hong Kong, the USA and Japan;
- the clinics segment mainly engages in the provision of Chinese medical diagnostic services and sale of CCMG products through self-operated clinics; and
- the plantation segment mainly engages in the plantation and trading of raw Chinese herbs, and manufacture and sale of TCM decoction pieces.
As compared with the six months ended 30 June 2019, the interests on lease liabilities were separately accounted for in each of the Group's operating segment during the Reporting Period. Accordingly, certain comparative amounts have been restated to conform with the presentation and disclosure of the Reporting Period.
Management monitors the results of the Group's operating segments respectively for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on reportable segment profit or loss, which is a measure of adjusted profit or loss after tax. The adjusted profit or loss after tax is measured consistently with the Group's profit or loss after tax except interest income, net foreign exchange gain/(loss), equity-settled share option and share award scheme expense, finance cost (other than interest on lease liabilities), corporate and other unallocated expenses and income tax expense.
PuraPharm Corporation Limited 2020 Interim Report E031
Notes to Interim Condensed Consolidated Financial Statements
4. OPERATING SEGMENT INFORMATION (continued)
Intersegment sales are eliminated on consolidation. Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the prevailing market prices.
The following tables present revenue, profit and other segment information for the Group's operating segments for the six months ended 30 June 2020 and 2019.
Six months ended 30 June 2020 (Unaudited)
Chinese | |||||||
China | Hong Kong | healthcare | |||||
CCMG | CCMG | products | Clinics | Plantation | Elimination | Total | |
HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
Segment revenue: | |||||||
Revenue from external customers | 121,498 | 68,311 | 45,097 | 23,989 | 21,537 | - | 280,432 |
Intersegment sales | 35,933 | 3,851 | 349 | - | 1,527 | (41,660) | - |
157,431 | 72,162 | 45,446 | 23,989 | 23,064 | (41,660) | 280,432 | |
Segment results | 9,867 | 13,112 | 6,677 | (3,433) | 24,300 | - | 50,523 |
Reconciliations: | |||||||
Interest income | 496 | ||||||
Foreign exchange loss, net | (1,002) | ||||||
Equity-settled share award and Share option | |||||||
expense | (2,657) | ||||||
Finance costs (other than interest on lease | |||||||
liabilities) | (9,236) | ||||||
Corporate and other unallocated expenses | (21,736) | ||||||
Profit before tax | 16,388 | ||||||
Income tax expense | (4,951) | ||||||
Net profit | 11,437 | ||||||
Other segment information: | |||||||
Depreciation and amortisation of property, | |||||||
plant and equipment and other | |||||||
intangible assets | 5,247 | 1,243 | 3,297 | 3,901 | 2,368 | - | 16,056 |
Depreciation of right-of-use assets | 3,054 | 578 | 137 | 3,921 | 1,246 | - | 8,936 |
Loss on disposal of property, plant and | |||||||
equipment | 1,822 | - | - | - | - | - | 1,822 |
Write-down of inventories to net | |||||||
realisable value | 2,156 | - | 279 | - | - | - | 2,435 |
Impairment of property, plant and | |||||||
equipment | 225 | - | - | - | - | - | 225 |
Impairment of trade and bills receivables | 3,734 | - | - | - | - | - | 3,734 |
Capital Expenditure | 25,028 | 85 | 431 | 801 | 3,132 | - | 29,477 |
E032 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
4. OPERATING SEGMENT INFORMATION (continued)
Six months ended 30 June 2019 (Unaudited)
Chinese | |||||||
China | Hong Kong | healthcare | |||||
CCMG | CCMG | products | Clinics | Plantation | Elimination | Total | |
HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
(Restated) | (Restated) | (Restated) | (Restated) | (Restated) | |||
Segment revenue: | |||||||
Revenue from external customers | 133,982 | 83,851 | 48,508 | 51,664 | 15,553 | - | 333,558 |
Intersegment sales | 50,825 | 8,971 | 461 | - | 3,517 | (63,774) | - |
184,807 | 92,822 | 48,969 | 51,664 | 19,070 | (63,774) | 333,558 | |
Segment results | (14,818) | 18,776 | 7,927 | (13,231) | (6,555) | - | (7,901) |
Reconciliations: | |||||||
Interest income | 223 | ||||||
Foreign exchange loss, net | (610) | ||||||
Share Option Scheme | (797) | ||||||
Equity-settled share award and Share option | |||||||
expense | (206) | ||||||
Finance costs (other than interest on lease | |||||||
liabilities) | (10,778) | ||||||
Corporate and other unallocated expenses | (22,679) | ||||||
Loss before tax | (42,748) | ||||||
Income tax expense | (2,432) | ||||||
Net loss | |||||||
(45,180) | |||||||
Other segment information: | |||||||
Depreciation and amortisation of property, | |||||||
plant and equipment, prepaid land lease | |||||||
payments and other intangible assets | 5,780 | 1,350 | 1,925 | 5,536 | 2,242 | - | 16,833 |
Depreciation of right-of-use asset | 3,288 | - | 874 | 9,719 | 847 | - | 14,728 |
Loss on disposal of property, plant and | |||||||
equipment | - | - | - | 1,740 | - | - | 1,740 |
Write-down of inventories to net realisable | |||||||
value | 2,632 | - | - | - | - | - | 2,632 |
Impairment of trade and bills receivables | 2,690 | - | - | - | - | - | 2,690 |
Capital Expenditure | 4,778 | 517 | 991 | 1,734 | 6,569 | - | 14,589 |
PuraPharm Corporation Limited 2020 Interim Report E033
Notes to Interim Condensed
Consolidated Financial Statements
5. REVENUE, OTHER INCOME AND GAINS
Revenue, which is also the Group's turnover, represents the net invoiced value of goods sold, after allowances for returns and trade discounts, and the value of services rendered.
An analysis of revenue, other income and gains is as follows:
Six months ended 30 June | ||||||||||
2020 | 2019 | |||||||||
HK$'000 | HK$'000 | |||||||||
(Unaudited) | (Unaudited) | |||||||||
Revenue from contracts with customers | ||||||||||
Sales of CCMG products | 207,885 | 256,609 | ||||||||
Sales of Chinese healthcare products | 45,097 | 48,508 | ||||||||
Sales of raw Chinese herbs | 21,537 | 15,553 | ||||||||
Rendering of Chinese medical diagnostic services (the "Diagnostic Services") | 5,913 | 12,888 | ||||||||
280,432 | 333,558 | |||||||||
Disaggregated revenue information | ||||||||||
For the six months ended 30 June | ||||||||||
2020 | 2019 | |||||||||
Sale of | Diagnostic | Sale of | Diagnostic | |||||||
Segments | goods | services | Total | goods | services | Total | ||||
HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | |||||
(Unaudited) (Unaudited) (Unaudited) | (Unaudited) (Unaudited) (Unaudited) | |||||||||
Types of goods or services | ||||||||||
Sale of goods | 274,519 | - | 274,519 | 320,670 | - | 320,670 | ||||
Rendering of services | - | 5,913 | 5,913 | - | 12,888 | 12,888 | ||||
Total revenue from contracts | ||||||||||
with customers | 274,519 | 5,913 | 280,432 | 320,670 | 12,888 | 333,558 | ||||
Geographical markets | ||||||||||
Hong Kong | 102,873 | 5,763 | 108,636 | 145,842 | 12,498 | 158,340 | ||||
Mainland China | 27,220 | 150 | 27,370 | 150,978 | 387 | 151,365 | ||||
Other countries/regions | 144,426 | - | 144,426 | 23,850 | 3 | 23,853 | ||||
Total revenue from contracts | ||||||||||
with customers | 274,519 | 5,913 | 280,432 | 320,670 | 12,888 | 333,558 | ||||
Timing of revenue recognition | ||||||||||
Goods transferred at a point in | ||||||||||
time | 274,519 | - | 274,519 | 320,670 | - | 320,670 | ||||
Services transferred over time | - | 5,913 | 5,913 | - | 12,888 | 12,888 | ||||
Total revenue from contracts | ||||||||||
with customers | 274,519 | 5,913 | 280,432 | 320,670 | 12,888 | 333,558 | ||||
E034 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
5. REVENUE, OTHER INCOME AND GAINS (continued)
Six months ended 30 June | ||
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Unaudited) | |
Other income and gains | ||
Government grants* | 40,823 | 4,595 |
Fair value gain on biological assets, net | 2,579 | - |
Gain on disposal of right-of-use assets | 699 | - |
Gain from the sale of equipment and accessories | 509 | 1,271 |
Fair value gain on financial assets at fair value through profit or loss (note 13) | 56 | 90 |
Bank interest income | 496 | 223 |
Others | 290 | 573 |
45,452 | 6,752 | |
- The amount represented government grants from the relevant authorities in the People's Republic of China (the "PRC") and Hong Kong Government, which consist primarily of the PRC subsidies and compensation for operation finance cost, rewarding the Group's industrial investments in poverty area, research and development costs, tax rebates subsidy and grants for improvement of our research facilities in relation to certain research and development projects. Hong Kong subsidies to support enterprise effected by COVID-19 pandemic,
PuraPharm Corporation Limited 2020 Interim Report E035
Notes to Interim Condensed Consolidated Financial Statements
6. PROFIT/(LOSS) BEFORE TAX
The Group's profit/(loss) before tax is arrived at after charging/(crediting): | ||
Six months ended 30 June | ||
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Unaudited) | |
Cost of inventories sold | 109,412 | 130,954 |
Cost of services provided | 3,751 | 6,526 |
Depreciation of property, plant and equipment | 14,247 | 14,903 |
Depreciation of right-of-use assets | 8,936 | 14,728 |
Amortisation of other intangible assets | 1,809 | 1,930 |
Research and development costs* | 8,044 | 11,856 |
Minimum lease payments under operating leases: | ||
Office equipment | 37 | 50 |
Land and buildings | 3,799 | 3,961 |
3,836 | 4,011 | |
Auditors' remuneration | 1,107 | 1,583 |
Employee benefit expenses (excluding directors' remuneration): | ||
Wages and salaries | 44,916 | 50,413 |
Pension scheme contributions | 3,632 | 5,932 |
Share option expenses (note 23(a)) | 238 | 72 |
Equity-settled share award expenses (note 23(b)) | 183 | (90) |
48,969 | 56,327 | |
Foreign exchange loss, net** | 1,002 | 610 |
Fair value (gain)/loss on biological assets, net | (2,579) | 915 |
Loss on disposal of property, plant and equipment | 1,822 | 1,740 |
Impairment of financial asset, net: | ||
Impairment of trade and bill receivables | 3,734 | 2,690 |
Impairment of property, plant and equipment | 225 | - |
Write-down of inventories to net realisable value*** | 2,435 | 2,632 |
- Included in the research and development costs, there are expenditure of HK$629,000 (six months ended 30 June 2019: HK$1,001,000) disclosed in the item of "depreciation" and HK$3,895,000 (six months ended 30 June 2019: HK$4,250,000) disclosed in the item of "employee benefit expenses" for the six months ended 30 June 2020.
- The foreign exchange loss is included in "Other expenses" in the interim condensed consolidated statements of profit or loss.
- The write-down of inventories to net realisable value is included in "Cost of sales" in the interim condensed consolidated statement of profit or loss.
E036 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
7. FINANCE COSTS
An analysis of finance costs is as follows: | ||
Six months ended 30 June | ||
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Unaudited) | |
Interest expense on lease liabilities | 1,929 | 2,738 |
Interest on bank loans and other borrowings and overdrafts | 11,830 | 12,164 |
Less: Interest capitalised | (2,594) | (1,386) |
11,165 | 13,516 | |
8. INCOME TAX EXPENSE
The Group is subject to income tax on an entity basis on profits arising in or derived from the jurisdictions in which subsidiaries of the Group are domiciled and operate. Pursuant to the rules and regulations of the Cayman Islands and BVI, the subsidiaries of the Group which are incorporated in the Cayman Islands and BVI are not subject to any income tax. Hong Kong profits tax has been provided at the rate of 16.5% (Six months ended 30 June 2019: 16.5%) on the estimated assessable profits arising in Hong Kong during the period, except for one subsidiary of the Group which is a qualifying entity under the two-tiered profits tax rates regime. The first HK$2,000,000 (2019: HK$2,000,000) of assessable profits of this subsidiary are taxed at 8.25% and the remaining assessable profits are taxed at 16.5%. U.S. and Japan profits taxes have been provided at the rates of 21% and 23.2% on the estimated assessable profits arising in the respective jurisdictions during the six months ended 30 June 2020 and 2019. The statutory tax rate of the Group in respect of its operation in Mainland China is 25%. The Group's PRC subsidiary, PuraPharm (Nanning) Pharmaceuticals Co., Limited ("PuraPharm Nanning"), is qualified as a High and New Technology Enterprise and was entitled to a preferential income tax rate of 15%.
According to prevailing PRC income tax law, the income obtained from activities in agricultural, forestry, animal husbandry and fishery projects shall be entitled to income tax reduction or exemption, among which, projects of cultivation of Chinese medicine herbs and service projects related to agriculture such as agro-product preliminary processing are exempted from income tax. Gold Sparkle (Guizhou) DZ Plantation Co., Ltd and Gold Sparkle (Guizhou) HZ Plantation Co., Ltd have obtained the documentation acknowledged by the in-charge tax authority for the CIT exemption for the six months ended 30 June 2020 and 2019 and the preferential income tax rate was 0%.
Six months ended 30 June
20202019
HK$'000 HK$'000
(Unaudited) (Unaudited)
Current | 3,982 | 3,934 |
Deferred | 969 | (1,502) |
Total tax charge for the period | 4,951 | 2,432 |
9. DIVIDEND
No interim dividend was proposed for the six months ended 30 June 2020 (six months ended 30 June 2019: nil).
PuraPharm Corporation Limited 2020 Interim Report E037
Notes to Interim Condensed Consolidated Financial Statements
10. EARNINGS/(LOSS) PER SHARE
-
Basic
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the parent by the weighted average number of ordinary shares in issue during the six months ended 30 June 2020 excluding ordinary shares purchased by the Group and held for Award Scheme (note 23(b)).
Six months ended 30 June | ||
2020 | 2019 | |
(Unaudited) | (Restated) | |
Profit/(loss) attributable to the owners of the parent (HK$'000) | 11,437 | (45,180) |
Number of issued shares on 1 January | 263,261,961 | 247,717,920 |
Adjustment for vested shares under share award scheme | (2,183,569) | (2,473,569) |
Effect of Right Issue (note 22) | 87,269,158 | 10,038,694 |
Weighted average number of ordinary shares in issue during the | ||
period | 348,347,550 | 255,283,045 |
Basic earnings/(loss) per share (expressed in HK cents per share) | 3.28 | (17.7) |
- Diluted
Diluted earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the parent by the adjusted weighted average number of ordinary shares outstanding assuming conversion of dilutive potential of Award Shares. A calculation is done to determine the number of shares that could have been issued by exercising the right of Award Shares under the Award Schemes.
Six months ended 30 June | ||
2020 | 2019 | |
(Unaudited) | (Restated) | |
Profit/(loss) attributable to the owners of the parent (HK$'000) | 11,437 | (45,180) |
Weighted average number of ordinary shares in issue during the | ||
period | 348,347,550 | 255,283,045 |
Adjustment for Award Shares* | 702,569 | - |
Weighted average number of ordinary shares for diluted earnings per | ||
share calculation | 349,050,119 | 255,283,045 |
Diluted earnings/(loss) per share (expressed in HK cents per share) | 3.28 | (17.7) |
- Because the diluted loss per share amount is increased when taking Award Shares into account, the Award Shares had an anti-dilutive effect on the basic loss per share for six months ended 30 June 2019 and were ignored in the calculation of diluted loss per share during six months ended 30 June 2019.
The Group also had no potentially dilutive ordinary shares in issue for Share Options during six month ended 30 June 2020 as its excise price is higher than market price as at the end of the Reporting Period.
E038 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
11. PROPERTY, PLANT AND EQUIPMENT
During the Reporting Period, the Group purchased property, plant and equipment with an aggregate cost of HK$26,672,000 (six months ended 30 June 2019: HK$12,552,000) and capitalised interest expense of HK$2,594,000 (six months ended 30 June 2019: HK$1,386,000).
During the Reporting Period, property, plant and equipment with an aggregate carrying amount of HK$1,866,000 (six months ended 30 June 2019: HK$1,868,000) were disposed of by the Group and impairment losses of HK$225,000 (six months ended 30 June 2019: nil) was recognised on plant and equipment.
12. GOODWILL
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
At 1 January | 88,339 | 155,685 |
Impairment recognizes during the period/year | - | (67,346) |
At 30 June/31 December | 88,339 | 88,339 |
Impairment testing of goodwill
Goodwill acquired through business combinations is allocated to the following cash-generating units (the "CGU") for impairment testing:
- Plantation CGU;
- Chinese herbal products CGU; and
- SODX Co., Ltd CGU ("SODX CGU").
The carrying amount of goodwill allocated to each of the cash-generating units is as follows:
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Plantation CGU | 67,346 | 67,346 |
Chinese herbal products CGU | 13,705 | 13,705 |
SODX CGU | 7,288 | 7,288 |
88,339 | 88,339 | |
PuraPharm Corporation Limited 2020 Interim Report E039
Notes to Interim Condensed Consolidated Financial Statements
12. GOODWILL (continued)
Impairment testing of goodwill (continued)
The recoverable amount of each CGU has been determined based on a value in use calculation using cash flow projections based on financial budgets or forecasts approved by management covering a period of 5 to 8 years. The growth rates used to extrapolate the cash flows beyond the period are based on the estimated growth rate of each unit taking into account the industry growth rate, past experience and the medium or long term growth target of each CGU.
The pre-tax discount rates applied to cash flow projections and the growth rates used to extrapolate cash flows beyond the 5 to 8 years period are as follows:
30 June 2020 | 31 December 2019 | |||
Pre-tax | Pre-tax | |||
Growth Rate | Discount Rate | Growth Rate | Discount Rate | |
Plantation CGU | 3.0% | 13.3% | 3.0% | 15.0% |
Chinese herbal products CGU | 2.0% | 17.4% | 2.0% | 18.4% |
SODX CGU | 0.8% | 12.1% | 0.8% | 11.7% |
Assumptions were used in the value in use calculation of each CGU as at 30 June 2020. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill of each CGU:
Compound annual growth rate within the Budget Period - The compound annual growth rate within the budget period is estimated based on the historical sales data and market outlook perceived by management.
Growth rates to extrapolate cash flows beyond the budget period - The growth rates used to extrapolate the cash flows beyond the budget period are based on the estimated growth rate of each unit taking into account the industry growth rate, past experience and the medium or long term growth target of each CGU.
Budgeted gross margins - The bases used to determine the values assigned to the budgeted gross margins are the average gross margins achieved in the year immediately before the budget year, adjusted for expected efficiency gains and expected market development.
Budgeted raw materials purchase prices - The bases used to determine the values assigned to budgeted raw materials purchase prices are the forecasted price indices during the budget year for those countries where raw materials are sourced.
Pre-tax discount rates - The discount rates reflect specific risks relating to the relevant CGUs.
The values assigned to above key assumptions are consistent with external information sources. In the opinion of the directors of the Company, any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount of each CGU to exceed its recoverable amount.
In the opinion of the directors of the Company, any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount of each CGU to exceed its recoverable amount.
E040 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
13. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Life insurance policies, at fair value | 18,251 | 18,195 |
The Group's financial assets at fair value through profit or loss represented the three life insurance policies (31 December 2019: three) to insure an executive director. Under the policies, the Group is the beneficiary and the policy holder. The Group paid upfront premiums for the policies and may surrender the insurance policies any time by making a written request and receive cash based on the surrender value of the policies at the date of withdrawal, which is calculated by the insurer. In the opinion of the directors, the surrender value of the policies provided by the insurance company is the best approximation of its fair value, which is categorised within Level 3 of the fair value hierarchy. The life insurance policies were mandatorily classified as financial assets at fair value through profit or loss as their contractual cash flows are not solely payments of principal and interest.
As at 30 June 2020 and 31 December 2019, the Group's life insurance policies were pledged as security for bank facilities granted to the Group. Further details are contained in note 20 to the financial statements.
In the opinion of the directors, the Group's life insurance policies would not be surrendered within the next 12 months and were therefore classified as non-current assets.
14. INVENTORIES
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Raw materials | 59,286 | 73,855 |
Work in progress | 21,398 | 32,599 |
Finished goods | 114,047 | 101,882 |
194,731 | 208,336 | |
Less: provision | (8,942) | (7,448) |
185,789 | 200,888 | |
PuraPharm Corporation Limited 2020 Interim Report E041
Notes to Interim Condensed Consolidated Financial Statements
15. BIOLOGICAL ASSETS
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
As at 1 January | 62,513 | 73,847 |
Addition during the period/year | 11,674 | 41,438 |
Fair value gain/(loss) on biological assets, net | 2,579 | (19,642) |
Harvest during the period/year | (15,947) | (31,057) |
Exchange realignment | (1,182) | (2,073) |
As at 30 June/31 December | 59,637 | 62,513 |
Portion classified as non-current portion | (30,883) | (52,436) |
Current portion | 28,754 | 10,077 |
The biological assets of the Group are raw Chinese herbs. The Group harvested raw Chinese herbs with a fair value less estimated cost to sell of HK$15,947,000 (31 December 2019: HK$31,057,000) during the Reporting Period.
The fair value of the biological assets is estimated using the discounted cash flows of the underlying biological assets. The periodic cash flow is estimated as gross income less production expenses including but not limited to rental expenses, labour costs, utilities and other operating and management expenses (the "Periodic Cash Flow") and discounted at a market-derived discount rate in order to establish the present value of the income stream associated with the biological assets.
Significant assumptions made and key inputs in determining the fair values of the biological assets based on discounted cash flow projections are as follows:
- the raw Chinese herbs will continue to be competently managed and remain free from irremediable diseases in their remaining estimated useful lives;
- the duration of the cash flows and the specific timing of inflows and outflows are determined by events such as life of raw Chinese herbs;
- estimated yields of raw Chinese herbs are estimated based on the amount planted, health condition, expected death rate, and production conversion rate (from the number of plants to Chinese herbs in kg) if necessary;
- the expected prices and price growth rate of raw Chinese herbs are estimated based on the historical average district prices; and
- a market-derived discount rate of 14% is applied to the projection of the Periodic Cash Flow.
E042 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
15. BIOLOGICAL ASSETS (continued)
A significant increase or decrease in the expected prices and price growth rate and the estimated yields would result in a significant increase or decrease in the fair value of the biological assets. A significant increase or decrease in the discount rate in isolation would result in a significant decrease or increase in the fair value of the biological assets. Generally, a change in the assumption made for the estimated price of raw Chinese herbs is accompanied by a directionally similar change in the price growth rate of raw Chinese herbs per annum and the discount rate and an opposite change in the estimated production volume.
16. TRADE AND BILLS RECEIVABLES
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Trade receivables | 215,825 | 230,766 |
Bills receivables | 24,857 | 17,234 |
240,682 | 248,000 | |
Less: impairment of trade and bills receivables | (19,784) | (17,266) |
220,898 | 230,734 | |
The Group's trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is generally one to six months, extending up to longer periods for major customers. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control policy to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group's trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non- interest-bearing.
PuraPharm Corporation Limited 2020 Interim Report E043
Notes to Interim Condensed Consolidated Financial Statements
16. TRADE AND BILLS RECEIVABLES (continued)
An ageing analysis of the trade and bills receivables as at the end of the Reporting Period, based on the invoice date and net of impairment, is as follows:
30 June | 31 December | |||
2020 | 2019 | |||
HK$'000 | HK$'000 | |||
(Unaudited) | (Audited) | |||
Within 1 months | 48,573 | 89,850 | ||
1 to 3 months | 48,206 | 48,215 | ||
3 to 6 months | 51,773 | 37,272 | ||
Over 6 months | 72,346 | 55,397 | ||
220,898 | 230,734 | |||
17. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES | ||||
30 June | 31 December | |||
2020 | 2019 | |||
HK$'000 | HK$'000 | |||
(Unaudited) | (Audited) | |||
Non-current | ||||
Prepayments for non-current assets | 43,388 | 50,902 | ||
Current | ||||
Prepayments | 90,353 | 79,992 | ||
Right of return assets | 1,938 | 2,177 | ||
Deposit and other receivables | 29,205 | 31,848 | ||
121,496 | 114,017 | |||
Less: impairment allowance | (232) | (236) | ||
121,264 | 113,781 | |||
Portion classified as non-current portion | (43,388) | (50,902) | ||
Total | 77,876 | 62,879 | ||
E044 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
18. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Cash and bank balances | 98,798 | 68,009 |
Time deposits | 17,656 | 25,115 |
116,454 | 93,124 | |
Less: Pledged time deposits for bank loans and bills payables | (17,656) | (25,115) |
Cash and cash equivalents | 98,798 | 68,009 |
Cash and cash equivalents are dominated in: | ||
Renminbi ("RMB") | 47,951 | 41,828 |
HK$ | 34,448 | 10,448 |
Japanese yen ("JPY") | 8,188 | 8,715 |
Canadian dollar ("CAD") | 355 | 56 |
Australian dollar ("AUD") | 31 | 12 |
US dollar ("US$") | 7,825 | 6,950 |
Cash and cash equivalents | 98,798 | 68,009 |
19. TRADE AND BILLS PAYABLES
An ageing analysis of the trade and bills payables as at the end of the Reporting Period, based on the invoice date, is as follows:
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Within 1 month | 14,448 | 61,380 |
1 to 2 months | 15,084 | 26,004 |
2 to 3 months | 20,843 | 10,971 |
Over 3 months | 127,825 | 80,630 |
178,200 | 178,985 | |
The trade payables are interest-free and are normally settled on terms of one to three months, extending to longer periods for those long standing suppliers. Include in the pledged bank deposits amounting to HK$14,656,000 was pledged for bills payable.
PuraPharm Corporation Limited 2020 Interim Report E045
Notes to Interim Condensed Consolidated Financial Statements
20. INTEREST-BEARING BANK AND OTHER BORROWINGS
30 June 2020 | |||
(Unaudited) | |||
Effective interest | |||
rate | |||
(%) | Maturity | HK$'000 | |
Current | |||
Bank overdraft - unsecured | 5.00 | On demand | 2,914 |
Bank overdraft - secured | 4.25-5.25 | On demand | 7,657 |
Bank loans - secured | 2.00-3.75 | On demand | 42,304 |
Bank loans - secured | 0.85-9.00 | 2020/2021 | 164,416 |
Bank loans - unsecured | 2.10-5.85 | On demand | 27,413 |
Bank loans - unsecured | 4.50-8.50 | 2020/2021 | 28,257 |
272,961 | |||
Non-current | |||
Bank loans and other borrowings - secured | 0.85-5.88 | 2021-2029 | 21,836 |
Bank loans - unsecured | 4.50-8.00 | 2022-2026 | 92,006 |
113,842 | |||
Total | 386,803 | ||
31 December 2019 | |||
(Audited) | |||
Effective interest | |||
rate | |||
(%) | Maturity | HK$'000 | |
Current | |||
Bank overdraft - unsecured | 4.75-5.25 | On demand | 7,988 |
Bank overdraft - secured | 3.75-4.25 | On demand | 9,592 |
Bank loans - secured | 1.75-6.28 | On demand | 94,890 |
Bank loans and other borrowings - secured | 0.85-6.17 | 2020 | 90,984 |
Bank loans - unsecured | 3.10-5.50 | On demand | 55,088 |
Bank loans - unsecured | 4.35-9.00 | 2020 | 53,740 |
312,282 | |||
Non-current | |||
Bank loans and other borrowings - secured | 0.85-8.00 | 2021-2029 | 58,369 |
Bank loans - unsecured | 4.50-6.18 | 2021-2027 | 85,346 |
143,715 | |||
Total | 455,997 | ||
E046 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
20. INTEREST-BEARING BANK AND OTHER BORROWINGS (continued)
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Analysed into: | ||
Bank loans and other borrowings payable: | ||
Within one year or on demand | 272,961 | 312,282 |
In the second year | 32,397 | 60,659 |
In the third to fifth years, inclusive | 47,924 | 37,870 |
Beyond five years | 33,521 | 45,186 |
386,803 | 455,997 | |
Interest-bearing bank and other borrowings are denominated in: | ||
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
HK$ | 81,740 | 163,861 |
RMB | 294,835 | 281,732 |
JPY | 3,096 | 3,272 |
US$ | 7,132 | 7,132 |
386,803 | 455,997 | |
- HK Interpretation 5 "Presentation of Financial Statements - Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause" requires that a loan which includes a clause that gives the lender the unconditional right to call the loan at any time ("repayment on demand clause") shall be classified in total by the borrower as current in the condensed consolidated statements of financial position. As at 31 December 2019, interest-bearing bank loans of the Group in the amount of HK$167,558,000 include a repayment on demand clause under the relevant loan agreements, among which a balance of HK$27,150,000 that is repayable after one year from 31 December 2019 has been classified as a current liability. No such reclassification as at 30 June 2020.
- As at 30 June 2020, the Group's bank loans amounting to approximately HK$61,525,000 were not in compliance with certain financial loan covenants. Since these bank loans were either repayable on demand or within one year and have already been classified as a current liability, no further reclassification is needed.
PuraPharm Corporation Limited 2020 Interim Report E047
Notes to Interim Condensed Consolidated Financial Statements
20. INTEREST - BEARING BANK AND OTHER BORROWINGS (continued)
- As at 30 June 2020, the Group's bank facilities including overdraft amounting to HK$478,335,000 (31 December 2019: HK$536,168,000) of which HK$386,803,000 (31 December 2019: HK$455,997,000) had been utilised.
- The following assets were pledged as securities for interest-bearing bank and other borrowings and bills payables:
Carrying value | ||||
30 June | 31 December | |||
2020 | 2019 | |||
HK$'000 | HK$'000 | |||
(Unaudited) | (Audited) | |||
Property, plant and equipment | 68,824 | 182,374 | ||
Right-of-use assets | 54,400 | 80,099 | ||
Financial assets at fair value through profit or loss | 18,251 | 18,195 | ||
Inventories | 38,367 | 39,113 | ||
Trade and bills receivables | 102,065 | 62,727 | ||
Pledged bank deposits | 17,656 | 25,115 | ||
299,563 | 407,623 | |||
21. LOANS FROM A DIRECTOR | ||||
30 June | 31 December | |||
2020 | 2019 | |||
HK$'000 | HK$'000 | |||
(Unaudited) | (Audited) | |||
Loans from a director | - | 15,000 | ||
On 14 March 2018, the Group entered into a loan agreement with Mr. Abraham Chan, in which Mr. Abraham Chan agreed to make loan facility up to HK$50 million to the Group for financing the general corporate funding requirements. During the Reporting Period, the Group have repaid HK$15 million to the director.
The shareholder loan is unsecured, repayable on demand and bears interest at the rate of 1-month HIBOR plus 2.5% per annum which is determined according to prices and conditions similar to those offered by the banks to the Group.
E048 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
22. SHARE CAPITAL
30 June | 31 December | |||
2020 | 2019 | |||
HK$'000 | HK$'000 | |||
Authorised: | ||||
50,000,000,000 ordinary shares of US$0.1 (HK$0.775) each | 38,750,000 | 38,750,000 | ||
Issued and fully paid: | ||||
394,892,941 (31 December 2019: 263,261,961) | ||||
ordinary shares of US$0.1 (HK$0.775) each | 306,042 | 204,028 | ||
A summary of movements in the Company's share capital is as follows: | ||||
Share | ||||
Number of | Share | premium | ||
shares in issue | capital | account | Total | |
HK$'000 | HK$'000 | HK$'000 | ||
At 31 December 2019 and | ||||
1 January 2020 | 263,261,961 | 204,028 | 224,484 | 428,512 |
Effect of right issue on 2 March 2020 | ||||
(note a) | 131,630,980 | 102,014 | 3,291 | 105,305 |
Share issue expenses | - | - | (7,257) | (7,257) |
Vesting of Share Award Scheme | ||||
(note 23(b)) | - | - | 140 | 140 |
At 30 June 2020 | 394,892,941 | 306,042 | 220,658 | 526,700 |
- On 2 March 2020 (the "Rights Issue Date"), 131,630,980 new right shares of US$0.1 (HK$0.775) each were allotted and issued at a price of HK$0.8 per share on the basis of one new rights share for every two shares held on 6 February 2020 (the "Rights Issue"). The proceeds of HK$102,014,000 representing the par value were credited to the Company's share capital and the remaining proceeds of HK$3,291,000 (before deduction of share issue expenses) were credited to the share premium account. Further details of the Rights Issue are set out in the prospectus dated 7 February 2020 and announcement dated 28 February 2020 issued by the Company.
PuraPharm Corporation Limited 2020 Interim Report E049
Notes to Interim Condensed Consolidated Financial Statements
23. SHARE OPTION SCHEME AND SHARES HELD FOR THE SHARE AWARD SCHEME
-
Share option scheme
The Company operates a share option scheme (the "Share Option Scheme") for the purpose to recognise and acknowledge the contributions that the eligible participants of the Share Option Scheme had or may have made to the Company. Eligible participants of the Share Option Scheme include any full-time or part- time employees, executives or officers of the Company and its subsidiaries, directors (including independent non-executive directors) of the Company and its subsidiaries and advisers, consultants, supplier, customers, distributors and other persons upon the terms set out in the Share Option Scheme (the "Eligible Option Participants"). The Share Option Scheme was adopted pursuant to the resolutions of the Company's shareholders passed on 12 June 2015 (the "Adoption Date") and shall be valid and effective for a period of 10 years commencing on the Adoption Date.
The maximum number of shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and other share option schemes of the Company shall not in aggregate exceed 10% of the total number of shares in issue as at the Listing Date (i.e., 22,500,000 shares) unless the Company obtains approval from its shareholders in general meeting and/or such other requirements prescribe under the Listing Rules and must not exceed 30% of the total number of shares in issue from time to time. The total number of shares issued and to be issued upon exercise of the options granted to each grantee (including both exercised and outstanding options) in any 12-month period shall not exceed 1% of the total number of the Company's shares in issue, unless approval of the Company's shareholders in general meeting and/or such other requirements prescribe under the Listing Rules is obtained.
The amount payable by the grantee on application or acceptance of an option shall be HK$1.00. The period within which the shares must be taken up under an option shall be determined by the Board at its absolute discretion and in any event, such period shall not be longer than 10 years from the date upon which any particular option is granted in accordance with the Share Option Scheme.
The subscription price in respect of each share issued pursuant to the exercise of an option granted under the Share Option Scheme shall be determined by the Board and shall not be less than the highest of: (a) the official closing price of the Company's shares as stated in the Stock Exchange's daily quotation sheet on the date of grant, which must be a day on which the Stock Exchange is open for business of dealing in securities;
(b) the average of the official closing prices of the Company's shares as stated in the Stock Exchange's daily quotation sheets for the five business days immediately preceding the date of grant; and (c) the nominal value of a share. The Share Option Scheme does not contain any provision of minimum period for which an option must be held before it can be exercised unless otherwise determined by the Board and specified in the offer letter at the time of offer.
On 9 May 2019 (the "Date of Grant"), the Board has resolved to grant share options to certain Directors and employees of the Company, entitling them to subscribe for a total of 6,376,000 ordinary shares of the Company.
E050 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
23. SHARE OPTION SCHEME AND SHARES HELD FOR THE SHARE AWARD SCHEME (continued)
-
Share option scheme (continued)
The following share options were outstanding under the Share Option Scheme:
As at 30 June 2020
2020 | ||
Weighted | ||
average exercise | Number of | |
price | options | |
HK$ | '000 | |
(Unaudited) | (Unaudited) | |
At 1 January | 2.4 | 6,376 |
Effect of Right Issue (note) | (0.1) | 267 |
At 30 June | 2.3 | 6,643 |
Vesting schedule |
- 3,100,500 options granted will be vested on 10 May 2020;
- 3,100,500 options granted will be vested on 10 May 2021;
- 221,000 options granted will be vested on 10 May 2022; and
- 221,000 options granted will be vested on 10 May 2023.
Note
As a result of the completion of the Rights Issue (note 22), assuming no other adjustment events under the terms and conditions of the Share Option Scheme having been triggered and pursuant to (i) the terms and conditions of Share Option Scheme; and (ii) Chapter 17 of the Listing Rules and the supplementary guidance issued by the Stock Exchange on 5 September 2005 regarding adjustment of share options under Rule 17.03(13) of the Listing Rules, the exercise price of the Share Options and the number of Shares which may fall to be issued upon exercise of the subscription rights attaching to the Share Options has been adjusted.
PuraPharm Corporation Limited 2020 Interim Report E051
Notes to Interim Condensed Consolidated Financial Statements
23. SHARE OPTION SCHEME AND SHARES HELD FOR THE SHARE AWARD SCHEME (continued)
- Share option scheme (continued) As at 31 December 2019
2019 | ||
Weighted | ||
average exercise | Number of | |
price | options | |
HK$ | '000 | |
(audited) | (audited) | |
At 1 January | - | - |
Granted during the year | 2.4 | 6,376 |
At 31 December | 2.4 | 6,376 |
Vesting schedule |
- 2,975,500 options granted will be vested on 10 May 2020;
- 2,975,500 options granted will be vested on 10 May 2021;
- 212,500 options granted will be vested on 10 May 2022; and
- 212,500 options granted will be vested on 10 May 2023.
The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company's share capital.
Details of the share option expenses of the Group during the six months ended 30 June 2020 and 2019 is listed as below:
Six months ended 30 June
20202019
HK$HK$
(Unaudited) (Audited)
Share option expenses recognised during the period | 2,303 | 797 |
Less: Included in directors' remuneration | (2,065) | (725) |
Employee benefit expenses | 238 | 72 |
E052 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
23. SHARE OPTION SCHEME AND SHARES HELD FOR THE SHARE AWARD SCHEME (continued)
-
Share option scheme (continued)
The fair value of equity-settled share options granted during the year was estimated as at the Date of Grant using a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:
Date of Grant | |
Dividend yield (%) | 0.00 |
Expected volatility (%) | 44.38 |
Historical volatility (%) | 44.38 |
Risk-free interest rate (%) | 2.24 |
Expected life of options (year) | 10 |
Weighted average share price (HK$ per share) | 2.4 |
The expected life of the options is based on the historical data over the past three years and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
No other feature of the options granted was incorporated into the measurement of fair value.
At the end of the Reporting Period, the Company had 6,643,000 share options outstanding under the Scheme, which represented approximately 1.7% of the Company's shares in issue as at 30 June 2020. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 6,643,000 additional ordinary shares of the Company and additional equity amount of HK$15,278,900 (before issue expenses).
PuraPharm Corporation Limited 2020 Interim Report E053
Notes to Interim Condensed Consolidated Financial Statements
23. SHARE OPTION SCHEME AND SHARES HELD FOR THE SHARE AWARD SCHEME (continued)
-
Shares held for the share award scheme
The Board has adopted a Share Award Scheme on 22 February 2016 (the "Share Award Scheme") in which any employee and non-executive director of the Company and/or any member of the Group who, in the sole opinion of the Board, will contribute or have contributed to the Company and/or any member of the Group (the "Eligible Award Participants") will be entitled to participate. The purposes of the Share Award Scheme are: - to recognise and motivate the contributions by certain Eligible Award Participants and to give incentives thereto in order to retain them for the continual operation and development of the Group;
- to attract suitable personnel for further development of the Group; and
- to provide certain Eligible Award Participants with a direct economic interest in attaining a long-term relationship between the Group and certain Eligible Award Participants.
The Group has set up a trust (the "Share Award Scheme Trust") for the purpose of administrating the Share Award Scheme. The Share Award Scheme Trust will acquire the Company's shares from the Stock Exchange, with a maximum number determined by the Board, and hold the shares granted to the employees but not vested for the employees until they are vested. Unless early terminated by the Board, the Share Award Scheme shall be valid and effective for a term of 10 years commencing on the Adoption Date. The Board has further resolved in February 2016 that a sum of HK$10,000,000 be provided for the purchase of the Shares to be awarded to the Eligible Award Participants to be selected by the Board. As at 30 June 2020, the Share Award Scheme Trust holds 1,916,000 (31 December 2019: 2,206,000) shares of the Company. During the six months ended 30 June 2020, no share was purchased by the Share Award Scheme Trust through the Stock Exchange and a total of 290,000 shares were vested on 16 June 2020.
On 16 June 2017 (the "Date of Grant"), the board of the directors of the Company resolved to grant share awards in respect of a total of 2,050,000 shares (the "Award Shares") to 18 persons who are Eligible Award Participants. Four of the Eligible Award Participants have resigned during the years ended 31 December 2018 and 2019, and therefore their 510,000 shares of Award Shares were forfeited. Details of the grant of Award Shares pursuant to the Award Scheme have been set out in the Company's announcement dated 16 June 2017.
E054 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
23. SHARE OPTION SCHEME AND SHARES HELD FOR THE SHARE AWARD SCHEME (continued)
-
Shares held for the share award scheme (continued)
Details of the equity-settled share award expenses of the Group during the six months ended 30 June 2020 and 2019 is listed as below:
Six months ended 30 June | ||||||||
2020 | 2019 | |||||||
HK$'000 | HK$'000 | |||||||
(Unaudited) | (Unaudited) | |||||||
Gross amount of recognition share award expenses | 354 | 741 | ||||||
Forfeited during the period | - | (535) | ||||||
Net share award expenses recognised during the period | 354 | 206 | ||||||
Less: Included in directors' remuneration | (171) | (296) | ||||||
Employee benefit expenses | 183 | (90) | ||||||
Summary of particulars of the Award Shares is as follows: | ||||||||
Number of Awarded Shares | ||||||||
Number of | ||||||||
outstanding | Forfeited | |||||||
Awarded | Vested during | during the | Outstanding | |||||
Shares as at 1 | the current | current | as at | |||||
Date of Grant | January 2020 | Fair value | Vesting Date | period | period | 30 June 2020 | ||
HK$'000 | ||||||||
16 June 2017 | 290,000 | 1,081 | 16 June 2020 | (290,000) | - | - | ||
16 June 2017 | 290,000 | 1,081 | 16 June 2021 | - | - | 290,000 | ||
16 June 2017 | 145,000 | 541 | 16 June 2022 | - | - | 145,000 | ||
725,000 | 2,703 | (290,000) | - | 435,000 | ||||
PuraPharm Corporation Limited 2020 Interim Report E055
Notes to Interim Condensed Consolidated Financial Statements
24. RESERVES
Surplus reserves
Pursuant to the relevant laws and regulations in the PRC, the company now comprising the Group which is registered in the PRC shall appropriate a certain percentage of its net profit after tax (after offsetting any prior years' losses) calculated under the accounting principles generally applicable to the PRC enterprises to reserve funds. When the balance of this reserve fund reaches 50% of the entity's capital, any further appropriation is optional. The statutory surplus reserve can be utilised to offset prior years' losses or to increase capital. However, the balance of the statutory surplus reserve must be maintained at a minimum of 25% of the capital after these usages. After making the appropriation to the statutory surplus reserve, the Company may also appropriate its profit for the year to the discretionary surplus reserve upon approval by the board of directors or the shareholders in general meeting.
Capital reserve
Capital reserve represented additional contributions made by the shareholders of the Company's subsidiaries and, in the case of an acquisition of additional non-controlling interest of a subsidiary, the difference between the cost of acquisition and the non-controlling interest acquired.
Merger reserve
The merger reserve represented the difference between the Company's shares of the nominal value of the paid- up capital of the subsidiaries acquired and the Company's cost of acquisition of the subsidiaries under common control upon the reorganisation undergone by the Group.
25. OPERATING LEASE ARRANGEMENTS
As lessee
The Group leases certain of its plantation base, warehouses, clinics, office buildings and office equipment under operating lease arrangements. Leases for plantation base, warehouses, clinics, office buildings and office equipment are negotiated for terms ranging from one to twenty years.
The Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Within one year | 1,226 | 6,906 |
E056 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
26. COMMITMENTS
In addition to the operating lease arrangements detailed in note 25 above, the Group had the following capital commitments at the end of each of the Reporting Period:
30 June | 31 December | |
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Audited) | |
Contracted, but not provided for: | ||
Buildings | 26,386 | 26,579 |
Plant and machinery | 3,542 | 8,142 |
29,928 | 34,721 | |
27. RELATED PARTY TRANSACTIONS
In addition to the transactions detailed elsewhere in the interim condensed consolidated financial statements, the Group had the following transactions with related parties during the Reporting Period:
- Names of the Group's principal related parties and their relationship with the Group
Name of related parties | Relationship |
Mr. Abraham Chan | Director of the Company |
Mr. Chan Kin Man, Eddie ("Mr. Eddie Chan") | Director of the Company |
Edtoma Corporate Services Limited ("Edtoma") | Company significantly influenced by |
Mr. Eddie Chan | |
CWCC Consultancy Limited ("CWCC") | Company significantly influenced by |
Mr. Eddie Chan |
PuraPharm Corporation Limited 2020 Interim Report E057
Notes to Interim Condensed Consolidated Financial Statements
27. RELATED PARTY TRANSACTIONS (continued)
- Significant related party transactions during the Reporting Period are as follows:
Six months ended 30 June | |||
2020 | 2019 | ||
HK$'000 | HK$'000 | ||
(Unaudited) | (Unaudited) | ||
Loans from a director | (i) | - | 15,000 |
Repayment of Loans to a director | (i) | 15,000 | - |
Interest expense to a director | (i) | 107 | 686 |
Professional service fees | (ii) | 262 | 266 |
Notes:
- On 14 March 2018, the Group entered into a loan agreement with Mr. Abraham Chan, in which Mr. Abraham Chan agreed to make loan facility up to HK$50 million to the Group for financing the general corporate funding requirements. During the Reporting Period, the Group repaid loans amounting to HK$15 million to Mr. Abraham Chan (six months ended 30 June 2019: loans drew down amounted to HK$15 million from Mr. Abraham Chan). The interest expense in relation to the aforesaid loan from to a director was accrued at the rate of 1-month HIBOR plus 2.5% per annum which is determined according to prices and conditions similar to loans offered by the banks to the Group.
- The professional service fees were paid to Edtoma and CWCC, over which Mr. Eddie Chan has significant influence, under a price mutually agreed by both parties. The Directors consider that the service charges offered by the supplier were in line with its other suppliers.
- Outstanding balances with related parties:
30 June 2020 | 31 December 2019 | |||
Maximum | Maximum | |||
amount | amount | |||
outstanding | outstanding | |||
HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
(Unaudited) | (Unaudited) | (Audited) | (Audited) | |
Loans from a director | ||||
Mr. Abraham Chan | - | 15,000 | 15,000 | 45,000 |
The loans from a director is unsecured, repayable on demand and bears interest at the rate of 1-month HIBOR plus 2.5% per annum which is determined according to prices and conditions similar to those offered by the banks to the Group.
E058 PuraPharm Corporation Limited 2020 Interim Report
Notes to Interim Condensed Consolidated Financial Statements
27. RELATED PARTY TRANSACTIONS (continued)
- Compensation of key management personnel of the Group:
Six months ended 30 June | ||
2020 | 2019 | |
HK$'000 | HK$'000 | |
(Unaudited) | (Unaudited) | |
Fees | - | - |
Other emoluments: | ||
Salaries, allowances and benefits in kind | 2,688 | 2,139 |
Pension scheme contributions | 27 | 27 |
Share option expense (note 23(a)) | 2,065 | 725 |
Equity-settled share award expense (note 23(b)) | 171 | 296 |
4,951 | 3,187 | |
28. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS
The Group's financial assets include financial assets at fair value through profit or loss and financial assets at amortised cost which comprise financial assets at fair value through profit or loss, cash and cash equivalents, pledged bank deposits, trade and bills receivables and financial assets included in prepayments, deposits and other receivables. The Group's financial liabilities include financial liabilities at amortised cost which comprise trade and bills payables, lease liabilities, financial liabilities included in other payables and accruals and interest-bearing bank and other borrowings.
Management has assessed that:
- The fair value of the financial assets at fair value through profit or loss has been estimated based on valuation techniques for which any inputs which have a significant effect on the recorded fair value are not based on observable market data; and
- the fair values of the Group's financial assets classified as financial assets at amortised cost and financial liabilities were approximate to their carrying amounts largely due to the short term maturities of these instruments.
There were no transfers of fair value measurements during the Reporting Period.
PuraPharm Corporation Limited 2020 Interim Report E059
Notes to Interim Condensed Consolidated Financial Statements
29. CONTINGENT LIABILITIES
For the year ended 31 December 2019, an action was brought against a subsidiary of the Group by a party alleging that the subsidiary of the Group breached and repudiated four contracts regarding purchase of Chinese raw herbs (including seedling products) (the "Agreements"). Since the plaintiff of the action had not yet provided the evidence regarding the aforesaid claims, the Directors of the Group have made provision of HK$4.0 million for the probability-weighted outcomes which might arise from the action (including related legal and other costs) according to the advice from the Group's legal counsel and available evidence on hand. Up to the date of this report, such litigation is still in progress, and there was no further provision made by the Group based on the latest available information. The Company would vigorously contest the action and the claims made against the Group.
30. EVENTS AFTER THE REPORTING PERIOD
On 24 July 2020, the Board of the Directors of the Group has resolved to grant share options to certain directors and employees of the Company, entitling them to subscribe for a total of 16,124,000 ordinary shares of the Company (the "Granted Share Options"). Further details of the Granted Share Options are set out in the announcement dated 24 July 2020 issued by the Company.
31. APPROVAL OF FINANCIAL STATEMENTS
The interim condensed consolidated financial statements were approved and authorised for issue by board of directors on 25 August 2020.
E060 PuraPharm Corporation Limited 2020 Interim Report
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