Tak Lee Machinery : 2020-2021 INTERIM REPORT

TAK LEE MACHINERY HOLDINGS LIMITED ᅃлዚ૛છٰϞࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

Stock code : 2102

INTERIM REPORT

2020-2021

RESULTS FOR THE SIX MONTHS ENDED 31 JANUARY 2021

CONTENTS

Corporate Information 2

Financial Highlights 3

Interim Condensed Consolidated Statement of Profit or Loss and 4

Other Comprehensive Income

BOARD COMMITTEES

Audit Committee

Mr. LAW Tze Lun (Chairman) Sir KWOK Siu Man KR

Dr. WONG Man Hin Raymond

Remuneration Committee Dr. WONG Man Hin Raymond

(Chairman)

Sir KWOK Siu Man KR Mr. LAW Tze Lun

Nomination Committee

Sir KWOK Siu Man KR (Chairman) Mr. LAW Tze Lun

Dr. WONG Man Hin Raymond

REGISTERED OFFICE

Cricket Square, Hutchins Drive, P.O. Box 2681,

Grand Cayman KY1-1111, Cayman Islands

LEGAL ADVISER

As to Hong Kong Law Loeb & Loeb LLP

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Conyers Trust Company (Cayman)

Limited

Cricket Square, Hutchins Drive, P.O. Box 2681,

Grand Cayman KY1-1111, Cayman Islands

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Investor Services Limited Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong

STOCK CODE 2102

COMPANY'S WEBSITEwww.tlmc-hk.com

KEY DATES

Closure of Register of Members 12 to 15 April 2021

Proposed Payment of Interim Dividend 27 April 2021

FINANCIAL HIGHLIGHTS

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JANUARY 2021

The board of directors (the "Board" and the "Directors", respectively) of Tak Lee Machinery Holdings Limited (the "Company") is pleased to announce the unaudited condensed consolidated results of the Company and its subsidiaries (collectively, the "Group") for the six months ended 31 January 2021, together with the comparative figures for the corresponding period in 2020.

The Group recorded an increase in profit attributable to owners of the Company for the six months ended 31 January 2021 by approximately 11.9% to approximately HK$31.0 million from approximately HK$27.7 million for the six months ended 31 January 2020.

The increase in net profit of the Group for the six months ended 31 January 2021 was mainly attributed to (i) the growth in the leasing business of the Group, which was driven by the demand arising from the progress of large-scale infrastructure and reclamation projects in Hong Kong such as the Three Runway System of the Hong Kong International Airport and the Route 6 Development; and (ii) the receipt of subsidies under the Employment Support Scheme of the Hong Kong Government.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 31 January 2021

Six months ended

31 January 2021

2020

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 January 2021

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 January 2021

Six months ended

31 January 2021

2020

Application of amendments to HKFRSs

In current interim period, the Group has applied the Amendments to References to the Conceptual Framework in HKFRS Standards and the following amendments to HKFRSs issued by the HKICPA, for the first time, which are mandatorily effective for the annual period beginning on or after 1 August 2020 for the preparation of the Interim Condensed Consolidated Financial Statements:

Except as described below, the application of the Amendments to References to the Conceptual Framework in HKFRS Standards and the amendments to HKFRSs in the current 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.

Impacts of application on Amendments to HKAS 1 and HKAS 8 "Definition of Material"

The amendments provide a new definition of material that states "information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements mark on the basis of those financial statements, which provide financial information about a specific reporting entity." The amendments also clarify that materiality depends on the nature of magnitude of information, either individually or in combination with other information, in the context of the financial statements taken as a whole.

The application of the amendments in the current period had no impact on the Interim Condensed Consolidated Financial Statements.

REVENUE AND SEGMENT INFORMATION

Disaggregation of revenue from contracts with customers by major products or service lines is as follows:

Six months ended

Segment revenue is measured in a manner consistent with that in the interim condensed consolidated statement of profit or loss and other comprehensive income.

The Directors assess the performance of the operating segments based on a measure of segment results. Unallocated income, unallocated corporate expenses, finance costs, income tax expense and other major items that are isolated and non-recurring in nature are not included in segment results.

(i) Information about reportable segment profit or loss:

Sales of heavy equipment and spare partsLease of heavy equipmentMaintenance and ancillary services

Unallocated

HK$'000 (unaudited)

HK$'000 (unaudited)

HK$'000 (unaudited)

HK$'000 (unaudited)

For the six months ended

31 January 2021

Disaggregated by timing of revenue recognition Point in time

Over time

Total

Under the two-tiered profits tax rates regime, profits tax rate for the first HK$2 million of assessable profits of qualifying corporations established in Hong Kong will be lowered to 8.25%, and profits above that amount will be subject to the tax rate of 16.5%. The two-tiered profits tax rates regime is applicable to the Group for the six months ended 31 January 2021 and only one subsidiary in the Group could elect for the two-tiered profits tax rates regime and the election, once made, is irrevocable.

PROFIT FOR THE PERIOD

The Group's profit for the period is stated after charging/(crediting) the following:

Six months ended

31 January

2021

2020

Note:

The calculation of the basic earnings per share is based on the profit attributable to the owners of the Company for the six months ended 31 January 2021 of approximately HK$30,957,000 (six months ended 31 January 2020: approximately HK$27,688,000) and the weighted average 1,000,000,000 ordinary shares (six months ended 31 January 2020: 1,000,000,000 ordinary shares) in issue during the period.

The diluted earnings per share is equal to the basic earnings per share as there were no dilutive potential ordinary shares in issue during the six months ended 31 January 2020 and 2021.

PROPERTY, PLANT AND EQUIPMENT/RIGHT-OF-USE ASSETS

During the six months ended 31 January 2021, the Group acquired items of property, plant and equipment with cost of approximately HK$690,000 (six months ended 31 January 2020: approximately HK$3,439,000). Items of property, plant and equipment with a net book value of approximately HK$nil (six months ended 31 January 2020: approximately HK$1,550,000) were disposed of during the six months ended 31 January 2021, resulting in a net gain on disposal of approximately HK$498,000 (six months ended 31 January 2020: approximately HK$315,000).

During the six months ended 31 January 2021, the Group reclassified some of the inventories to property, plant and equipment as machinery for lease when the relevant heavy equipment was leased to its customers. The value of heavy equipment reclassified amounted to approximately HK$4,429,000 (six months ended 31 January 2020: approximately HK$45,987,000).

During the six months ended 31 January 2021, the Group reclassified machinery for lease under property, plant and equipment to inventories held for sale at their carrying amounts of approximately HK$12,029,000 (six months ended 31 January 2020: approximately HK$42,307,000) when the machinery for lease ceased to be leased and became held for sale.

For both periods, the Group leased several premises for fixed term ranging from 2 to 3 years. Lease terms were negotiated on an individual basis and contain a wide range of different terms and conditions. During the six months ended 31 January 2021, the Group recognised approximately HK$2,751,000 (six months ended 31 January 2020: approximately HK$3,247,000) of right-of-use assets and approximately HK$2,871,000 (six months ended 31 January 2020: approximately HK$3,286,000) of lease liabilities.

• 8. TRADE AND LEASE RECEIVABLES

• 9. TRADE PAYABLES

  At 31 January	At 31 July
  2021	2020
  HK$'000	HK$'000
  (unaudited)	(audited)
  Trade and lease receivables	168,851	161,809
  Allowance for doubtful debts	(2,272)	(1,795)
  166,579	160,014

  The Group's credit terms generally range from 30 to 90 days. Each customer has a maximum credit limit. For new customers, payment in advance or cash on delivery is normally required.

  The ageing analysis of trade and lease receivables, based on the invoice date, before provision for impairment, is as follows:

  0 to 90 days

  91 to 180 days

  181 to 365 days Over 365 days

  At 31 January	At 31 July
  2021	2020
  HK$'000	HK$'000
  (unaudited)	(audited)
  103,322	96,419
  34,378	48,383
  24,874	14,594
  6,277	2,413
  168,851	161,809

  The credit period on trade payables ranges from 0 to 30 days.

  The ageing analysis of trade payables, based on the date of receipt of goods, is as follows:

10. SHARE CAPITAL

Authorised:

Ordinary shares of HK$0.01 each

As at 31 July 2019, 31 July 2020, 1 August 2020 and 31 January 2021 (unaudited)

Issued and fully paid:

Ordinary shares of HK$0.01 each

As at 31 July 2019, 31 July 2020, 1 August 2020 and 31 January 2021 (unaudited)

11. DIVIDEND

Six months ended 31 January

12. OPERATING LEASE ARRANGEMENTS

The Group as lessor

At the end of the period, the total future minimum lease payments under non-cancellable operating leases are receivable as follows:

MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS REVIEW AND OUTLOOK

The Group is a heavy equipment sales and leasing service provider in Hong Kong with over 20 years of presence in the industry. The Group is principally engaged in (i) the sales of new and used earthmoving equipment and spare parts, (ii) the leasing of earthmoving equipment, and (iii) the provision of maintenance and ancillary services for earthmoving equipment users. The Group also offers some heavy equipment other than earthmoving equipment for sales and leasing.

The Group recorded an increase in profit attributable to owners of the Company for the six months ended 31 January 2021 (the "Period") by approximately 11.9% to approximately HK$31.0 million from approximately HK$27.7 million for the six months ended 31 January 2020.

The increase in net profit of the Group for the Period was mainly attributed to (i) the growth in the leasing business of the Group, which was driven by the demand arising from the progress of large-scale infrastructure and reclamation projects in Hong Kong such as the Three Runway System of the Hong Kong International Airport and the Route 6 Development; and (ii) the receipt of subsidies under the Employment Support Scheme of the Hong Kong Government.

The outbreak of the Coronavirus Disease 2019 ("COVID-19") poses threats to the local economy. As the development of such epidemic remains to be unpredictable, the extent of its impact on the economy of Hong Kong is subject to many uncertainties. The industry in which the Group operates may be directly or indirectly affected. Nonetheless, based on the government's plan, the Group remains cautiously optimistic on the outlook and the prospects for sales and leasing of heavy equipment. According to the 2021-22 Budget Speech, the government will continue to invest in infrastructure projects. In the next few years, the average annual capital works expenditure is expected to exceed HK$100 billion and the annual total construction output will increase to around HK$300 billion. Besides, due to the commencement of several large-scale infrastructure projects, such as the Three Runway System of the Hong Kong International Airport, the Route 6 Development and the Tung Chung New Town Extension, the Group is expecting a stable growth in the heavy equipment industry in Hong Kong in the coming future. Hence, the Group believes that the demand for its heavy equipment will remain strong in the coming years. To capture opportunities, the Group is committed to the diversification of its supplier base and product offering. While monitoring closely the impact of COVID-19 on the industry the Group operates in, the Group will continue to implement its corporate strategies to preserve and strive for the growth of the Group in the long term. The Group will continue to identify suitable suppliers and products in pursuit of more dealerships or distributorships of heavy equipment, which would further boost its competitive edge in the long run.

FINANCIAL REVIEW

Revenue

The Group recorded a decrease in revenue for the Period by approximately 25.3% to approximately HK$262.2 million from approximately HK$351.0 million for the six months ended 31 January 2020. The decrease was mainly attributable to the decrease in sales of heavy equipment and spare parts of approximately HK$117.2 million, which was partially offset by an increase in leasing income of approximately HK$25.1 million and an increase in income from provision of maintenance and ancillary services by approximately HK$3.3 million.

Cost of revenue

The Group's cost of revenue amounted to approximately HK$213.4 million for the Period, representing a decrease of approximately 27.6% (six months ended 31 January 2020: approximately HK$294.7 million). Cost of revenue mainly comprised costs of machinery, equipment and spare parts, depreciation, freight and transportation costs, repairs and maintenance costs, staff costs for operators, technicians and inspectors and sub-leasing fee. The decrease was mainly driven by a decrease in sales of heavy equipment and spare parts by approximately by 45.0% for the Period. Nevertheless, the cost of leasing business increased by approximately 48.6%, which was mainly attributable to an increase in staff cost of operators.

Gross profit and gross profit margin

The Group's gross profit decreased by approximately 13.3% from approximately HK$56.3 million for the six months ended 31 January 2020 to approximately HK$48.8 million for the Period, with gross profit margin at approximately 18.6% (six months ended 31 January 2020: approximately 16.0%). The decrease in gross profit was mainly attributable to a decrease in gross profit of the sales of heavy equipment and spare parts by approximately HK$8.4 million. Despite the decrease in gross profit of the sales business, the gross profit of leasing business and the provision of maintenance and ancillary services increased by approximately HK$0.6 million and HK$0.3 million, respectively.

The finance costs decreased by approximately HK$2.3 million or approximately 63.9% from approximately HK$3.6 million for the six months ended 31 January 2020 to approximately HK$1.3 million for the Period. The decrease was in line with the decrease in average bank borrowings for the Period as compared to those of the same period last year.

Income tax expense

The income tax expense decreased by approximately HK$1.1 million or approximately 18.7% for the Period compared with the same period last year. The decrease was mainly due to a decrease in deferred tax liabilities of approximately HK$3.8 million as a result of a decrease in accelerated tax depreciation charge for the Period.

Profit and total comprehensive income for the Period

As a result of the foregoing, the Group's profit and total comprehensive income for the Period increased by approximately 11.9% from approximately HK$27.7 million for the six months ended 31 January 2020 to approximately HK$31.0 million for the Period, with the net profit margin of the Group increased to approximately 11.8% for the Period as compared to approximately 7.9% for the six months ended 31 January 2020.

Liquidity and financial resources

The Group financed the operations primarily with cash flow from operations and bank borrowings. The current ratio (as calculated by dividing the total current assets by the total current liabilities) of the Group as at 31 January 2021 was approximately 3.7 times (31 July 2020: approximately 3.3 times). As at 31 January 2021, the Group had bank and cash balances of approximately HK$72.0 million (31 July 2020: approximately HK$69.3 million). The increase in bank and cash balances was mainly due to the operating cash inflow during the Period.

As at 31 January 2021, the Group had bank borrowings with maturity less than 1 year of approximately HK$68.3 million (31 July 2020: approximately HK$72.9 million). The gearing ratio, calculated based on the total debts (including bank borrowings and lease liabilities) divided by the total equity at the end of the period/ year and multiplied by 100%, was approximately 17.3% as at 31 January 2021 (31 July 2020: approximately 19.1%). The Group's financial position is sound and strong. With available bank and cash balances and banking facilities, the Group has sufficient liquidity to satisfy the funding requirements.

Charges of assets and contingent liabilities

As at 31 January 2021, the Group did not have any charges on the Group's assets for its bank borrowings.

As at 31 January 2021, the Group did not have any material contingent liabilities (31 July 2020: Nil).

Employees and remuneration policies

As at 31 January 2021, the Group employed 240 (31 July 2020: 211) full-time employees. The total staff costs (including Directors' remuneration) were approximately HK$60.6 million for the Period (six months ended 31 January 2020: approximately HK$41.8 million). The Group determines the employees' remuneration based on factors such as their performance, qualification, position, duty, contributions and years of experience, local market conditions and the Group's results. The remuneration policy is reviewed by the Board regularly. The remuneration package includes salary, allowances and bonus. The Group also makes contributions to the mandatory provident fund schemes. The Company adopted a share option scheme on 30 June 2017 for the purpose of enabling the Company to grant options to, among others, the employees and directors of the Group as incentives or rewards for their contribution or potential contribution to the Group. The Group also arranges technical trainings to its existing employees on the operations of its existing and newly introduced heavy vehicles and other heavy equipment provided by the manufacturers.

INTERIM DIVIDEND

Percentage of

Note:

These Shares are held by Generous Way Limited ("Generous Way"), which is beneficially owned as to 50% by Mr. Chow, the chairman of the Board, the chief executive officer of the Company and an executive Director and 50% by Ms. Cheng, the non-executive Director. Mr. Chow and Ms. Cheng are spouses. Under the SFO, each of Mr. Chow and Ms. Cheng is deemed to be interested in the same number of Shares held by Generous Way.

Interests in associated corporation of the Company

Long position in the ordinary shares of an associated corporation

Number ofPercentage of

Save as disclosed above, as at 31 January 2021, none of the Directors nor the chief executive of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were (i) 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 or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) recorded in the register required to be kept by the Company under Section 352 of the SFO; or (iii) required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

Code provision A.2.1 of the Corporate Governance Code (the "CG Code") contained in each of Appendix 14 to the Listing Rules and Appendix 15 to the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the "GEM Listing Rules") (applicable to the Company during the relevant periods after and before the Transfer of Listing) stipulates that the roles of chairman and chief executive should be separate and should not be performed by the same individual. Mr. Chow Luen Fat ("Mr. Chow") is the chairman of the Board and the chief executive officer of the Company. In view of the fact that Mr. Chow is one of the founders of the Group and has been operating and managing the Group since its establishment in 2001, all the other Directors believe that the vesting of the roles of chairman and chief executive officer in Mr. Chow is beneficial to the business operations and management of the Group and will provide a strong and consistent leadership to the Group. Accordingly, the Company has not segregated the roles of its chairman and chief executive officer as required by the said code provision.

Save for the deviation from code provision A.2.1 as mentioned above, the Board is satisfied that the Company had complied with all applicable code provisions of the CG Code during the Period.

SHARE OPTION SCHEME

The share option scheme of the Company (the "Share Option Scheme") is a share incentive scheme adopted on 30 June 2017. No share options were granted or agreed to be granted under the Share Option Scheme for the period from the date of its adoption to 31 January 2021 and up to the date of this report. As such, no share options were outstanding as at 31 January 2021 and no share options were exercised, cancelled or lapsed under the Share Option Scheme from the date of its adoption to the end of the Period on 31 January 2021 and up to the date of this report.

INTERESTS IN COMPETING BUSINESS

During the Period, the Directors were not aware of any business or interest of the Directors, the controlling shareholders of the Company and their respective close associates (as defined under the Listing Rules and the GEM Listing Rules, which were respectively applicable to the Company during the relevant periods after and before the Transfer of Listing) that had competed or might compete with the business of the Group and any other conflicts of interests which any such person had or might have with the Group.

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

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

COMPLIANCE WITH CODE OF CONDUCT FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the required standard of dealings as contained in Rules 5.48 to 5.67 of the GEM Listing Rules (the "Required Standard of Dealings") as its required standard for Directors' dealings in the securities of the Company prior to the Transfer of Listing. Following the Transfer of Listing, the Company has adopted the Model Code as its code of conduct for securities transactions by Directors.

IMPORTANT EVENTS AFTER THE REPORTING PERIOD

The Board is not aware of any important event affecting the Group, which have occurred subsequent to 31 January 2021 and up to the date of this report.

REVIEW OF INTERIM RESULTS AND INTERIM REPORT

The interim results and this report of the Group for the Period have not been audited, but have been reviewed by the audit committee of the Company (the "Audit Committee") comprising three independent non-executive Directors, namely Mr. Law Tze Lun, Sir Kwok Siu Man KR and Dr. Wong Man Hin Raymond. Mr. Law Tze Lun is the chairman of the Audit Committee.

By order of the Board

Tak Lee Machinery Holdings Limited

Chow Luen Fat

Chairman and Chief Executive Officer

Hong Kong, 23 March 2021