Wan Kei Group Holdings Limited (Incorporated in the Cayman Islands with limited liability) Stock Code 1718 Interim Report 2018
Contents Pages CORPORATE INFORMATION 2 MANAGEMENT DISCUSSION AND ANALYSIS 5 UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income 20 Condensed Consolidated Statement of Financial Position 21 Condensed Consolidated Statement of Changes in Equity 23 Condensed Consolidated Statement of Cash Flows 24 Notes to the Unaudited Condensed Consolidated Interim Financial Information 25 CORPORATE GOVERNANCE AND OTHER INFORMATION 61 Interim Report 2018 1
Corporate Information DIRECTORS Executive Directors Mr. Fong Hon Hung (Chairman and Chief Executive Officer) Mr. Zhang Zhenyi Mr. Yan Shuai Mr. Chan Kwan Independent Non-executive Directors Mr. Lo Wa Kei Roy Ms. Wang Qing Mr. Leung Ka Fai Nelson COMPANY SECRETARY Ms. Wong Kit Ying AUTHORISED REPRESENTATIVES Mr. Zhang Zhenyi Mr. Chan Kwan AUDIT COMMITTEE Mr. Lo Wa Kei Roy (Chairman) Mr. Leung Ka Fai Nelson Ms. Wang Qing REMUNERATION COMMITTEE Mr. Leung Ka Fai Nelson (Chairman) Mr. Yan Shuai Mr. Lo Wa Kei Roy NOMINATION COMMITTEE Mr. Lo Wa Kei Roy (Chairman) Mr. Yan Shuai Mr. Leung Ka Fai Nelson 2 Wan Kei Group Holdings Limited
Corporate Information (Continued) LEGAL COMPLIANCE COMMITTEE Mr. Yan Shuai (Chairman) Mr. Chan Kwan Mr. Zhang Zhenyi REGISTERED OFFICE IN THE CAYMAN ISLANDS Clifton House 75 Fort Street P.O. Box 1350 Grand Cayman KY1-1108 Cayman Islands Clifton House 75 Fort Street P.O. Box 1350 Grand Cayman KY1-1108 Cayman Islands HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG Room 1802, 18/F Capital Centre No. 151 Gloucester Road Wanchai, Hong Kong 151 18 1802 LEGAL ADVISER AS TO HONG KONG LAW Nixon Peabody CWL 5th Floor, Standard Chartered Bank Building, 4-4A Des Voeux Road Central, Hong Kong 4 4A 5 INDEPENDENT AUDITORS HLB Hodgson Impey Cheng Limited Certified Public Accountants 31/F, Gloucester Tower The Landmark 11 Pedder Street, Central Hong Kong 11 31 Interim Report 2018 3
Corporate Information (Continued) PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE IN THE CAYMAN ISLANDS Estera Trust (Cayman) Limited Clifton House, 75 Fort Street P.O. Box 1350, Grand Cayman KY1-1108 Cayman Islands Estera Trust (Cayman) Limited Clifton House, 75 Fort Street P.O. Box 1350, Grand Cayman KY1-1108 Cayman Islands HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE Tricor Investor Services Limited Level 22, Hopewell Centre 183 Queen s Road East Hong Kong 183 22 PRINCIPAL BANKERS Industrial and Commercial Bank of China (Asia) Limited Hang Seng Bank Limited Bank of Communication Co., Ltd. DBS Bank (Hong Kong) Limited Bank of China (Hong Kong) Limited STOCK CODE 1718 1718 COMPANY S WEBSITE www.hkex1718.hk www.hkex1718.hk 4 Wan Kei Group Holdings Limited
Management Discussion and Analysis FINANCIAL HIGHLIGHTS Revenue of Wan Kei Group Holdings Limited (the Company ) and its subsidiaries (collectively, the Group ) for the six months ended 30 September 2018 (the Reporting Period ) amounted to approximately HK$78,929,000 (six months ended 30 September 2017: approximately HK$139,530,000). 78,929,000 139,530,000 Loss attributable to the equity shareholders of the Company (the Shareholders ) for the Reporting Period amounted to approximately HK$34,321,000 (six months ended 30 September 2017: approximately HK$26,371,000). 34,321,000 26,371,000 Basic and diluted loss per share of the Company for the Reporting Period amounted to approximately HK cents 3.58 (six months ended 30 September 2017: approximately HK cents 2.75). 3.58 2.75 The board (the Board ) of the directors (the Directors ) of the Company does not recommend the declaration of any interim dividend for the Reporting Period (six months ended 30 September 2017: nil). Interim Report 2018 5
Management Discussion and Analysis (Continued) BUSINESS REVIEW During the Reporting Period, the Group was principally engaged in the provision of (i) foundation construction; (ii) ground investigation services; and (iii) financial services. i ii iii Foundation Construction During the Reporting Period, the Group was principally engaged in the provision of foundation construction in Hong Kong. The foundation construction undertaken by the Group mainly consisted of the construction of socketed H-piles, mini piles, soldier piles, pipe piles and king posts. The Group undertook foundation construction projects in both public and private sectors. Income from foundation construction works contributed approximately 78.1% of the total revenue of the Group during the Reporting Period (six months ended 30 September 2017: approximately 87.2%). 78.1% 87.2% Ground Investigation Services The Group also acted as a contractor to provide ground investigation services in Hong Kong and, it undertook ground investigation services in both public and private sectors during the Reporting Period. Income from ground investigation services contributed approximately 21.8% of the total revenue of the Group during the Reporting Period (six months ended 30 September 2017: approximately 12.8%). 21.8% 12.8% 6 Wan Kei Group Holdings Limited
Management Discussion and Analysis (Continued) BUSINESS REVIEW (Continued) Financial Services During the Reporting Period, the money lending business had commenced. Income from financial services contributed approximately 0.1% of the total revenue of the Group during the Reporting Period (six months ended 30 September 2017: nil). The Group is in the course of applying for the relevant licenses from the Securities and Futures Commission. 0.1% FINANCIAL REVIEW Revenue The Group s total revenue for the Reporting Period decreased by approximately HK$60,601,000, or approximately 43.4%, from approximately HK$139,530,000 for the six months ended 30 September 2017 to approximately HK$78,929,000 for the Reporting Period, was primarily as a result of the following: 139,530,000 60,601,00043.4% 78,929,000 Foundation Construction The decrease in revenue from foundation construction works by approximately 49.3%, from approximately HK$121,652,000 for the six months ended 30 September 2017 to approximately HK$61,635,000 for the Reporting Period, was primarily due to the absence of sizable projects in relation to foundation construction tendered by the Group during the Reporting Period. 121,652,000 49.3% 61,635,000 Interim Report 2018 7
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Revenue (Continued) Ground Investigation Services The revenue from ground investigation services decreased by approximately 3.7%, from approximately HK$17,878,000 for the six months ended 30 September 2017 to approximately HK$17,214,000 for the Reporting Period. 17,878,000 3.7% 17,214,000 Financial Services During the Reporting Period, the money lending business had commenced. The revenue for financial services amounted to HK$80,000 for the Reporting Period (six months ended 30 September 2017: nil). Gross (Loss)/Profit and Gross (Loss)/Profit Margin The Group s gross loss amounted to approximately HK$14,332,000 for the Reporting Period (six months ended 30 September 2017: approximately HK$7,862,000). The Group s overall gross loss margin during the Reporting Period was approximately 18.2% (six months ended 30 September 2017: approximately 5.6%). Gross loss of the Group s foundation construction segment was approximately HK$18,660,000 for the Reporting Period (six months ended 30 September 2017: approximately HK$11,632,000). Gross loss margin of the foundation construction segment was approximately 30.3% for the Reporting Period (six months ended 30 September 2017: approximately 9.6%). 80,000 14,332,000 7,862,000 18.2% 5.6% 18,660,000 11,632,000 30.3% 9.6% 8 Wan Kei Group Holdings Limited
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Gross (Loss)/Profit and Gross (Loss)/Profit Margin (Continued) Gross profit of the Group s ground investigation services segment was approximately HK$4,248,000 for the Reporting Period, representing an increase of approximately 12.7% from approximately HK$3,770,000 compared to the six months ended 30 September 2017. Gross profit margin of the ground investigation services segment increased from approximately 21.1% for the six months ended 30 September 2017 to approximately 24.7% for the Reporting Period. 4,248,000 3,770,000 12.7% 21.1% 24.7% The increase in overall gross loss margin was mainly due to: (i) increase in gross loss margin of the newly tendered foundation construction works projects of the Group during the Reporting Period as a result of the increasing competition in the market and the lower bidding prices on the new tenders; and (ii) increase in direct costs during the Reporting Period. (i) (ii) Other Revenue The other revenue decreased by approximately HK$1,619,000, or approximately 40.9%, from approximately HK$3,959,000 for the six months ended 30 September 2017 to approximately HK$2,340,000 for the Reporting Period. The decrease was mainly due to the absence of rental income from lease of machinery (six months ended 30 September 2017: approximately HK$1,940,000). 3,959,000 1,619,00040.9% 2,340,000 1,940,000 Interim Report 2018 9
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Other Net Income The other net income increased by approximately HK$893,000, from approximately HK$879,000 for the six months ended 30 September 2017 to approximately HK$1,772,000 for the Reporting Period. The increase was mainly due to the increase of gain on disposal of machinery (Reporting Period: approximately HK$1,181,000; six months ended 30 September 2017: approximately HK$338,000). General and administrative expenses The Group s general and administrative expenses for the Reporting Period were approximately HK$22,546,000 (six months ended 30 September 2017: approximately HK$19,509,000), representing an increase of approximately 15.6% over the corresponding period in 2017. This was mainly attributable to (i) the increase of the general operating expenses (mainly included salaries, rental expense and other administrative expenses) for financial services segment; and (ii) professional fees for the potential acquisition during the Reporting Period. Finance Costs For the Reporting Period, the finance costs were approximately HK$2,889,000 (six months ended 30 September 2017: approximately HK$3,344,000). The decrease was mainly due to the decrease of interest rate for borrowing from a related company, Bright Dynasty Trading Limited and borrowing from a director of a subsidiary since 1 July 2018. The interest rate decreased from 5% to 2.5%. 879,000 893,000 1,772,000 1,181,000 338,000 22,546,000 19,509,000 15.6% (i) (ii) 2,889,000 3,344,000 Bright Dynasty Trading Limited 5% 2.5% Wan Kei Group Holdings Limited 10
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Income Tax The tax credit for the Reporting Period was approximately HK$1,334,000 (six months ended 30 September 2017: tax expense of approximately HK$494,000). The change was mainly due to the change of deferred tax for the Reporting Period. 1,334,000 494,000 Loss Attributable to Equity Shareholders of the Company For the Reporting Period, the Group recorded a net loss of approximately HK$34,321,000, as compared to the net loss of approximately HK$26,371,000 for the corresponding period in 2017. The increase was mainly attributable to the increase in overall gross loss margin and the increase in general and administrative expenses as previously discussed. 34,321,000 26,371,000 Prospects The Directors estimate that the growth of the overall foundation industry in Hong Kong will continue to slow down in the coming years. The intense competition has continued to impact the foundation industry in Hong Kong, which will, in turn, affect the development and profitability of the Group. The Directors are of the view that the market for public sector construction sites will start to improve, as volumes of government and quasi-government projects will be coming on stream. The Directors are confident that with the Group s reputation in the foundation industry and the experienced management team, the Group is in a good position to compete with its competitors. Interim Report 2018 11
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Prospects (Continued) The global economy is in turmoil following the outbreak of the trade war between the People s Republic of China ( PRC ) and the United States of America ( U.S. ). The tariff increases announced by the U.S. and retaliatory measures from trading partners have increased the likelihood of escalating and sustained trade actions. The outlook for the global and Hong Kong economy is bleak in the short term. Due to the uncertainty of the macroeconomy, the directors are of the view that the conservative strategy is suitable for the financial service segment in the short term. In order to maintain a stable and sustainable development of the Group s existing businesses as well as diversifying and expanding the Group s businesses at the same time, the Group will leverage on its industrial experience and the advantage of its existing resources and talented team to seek cooperation and investment opportunities with high-quality companies in the emerging industries in the PRC. On 2 October 2018, the Company, the vendors and the warrantors entered into the sale and purchase agreement. The Company conditionally agreed to acquire approximately 51.315% of issued share capital of the target group which is principally engaged in the business of operation of e-sports events, production of videos of e-sports events broadcast online, and filming and production of dramas broadcast online in the PRC. 51.315% Wan Kei Group Holdings Limited 12
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Prospects (Continued) In recent years, the e-sports industry has experienced rapid growth in audience and revenue globally. With extensive experience from the target group plus favorable government policies launched in the PRC, the Group would like to take this opportunity to step into this new emerging market. Debts and Charge on Assets The total interest bearing borrowings of the Group, which consist of obligations under finance leases, loan from a director of a subsidiary and loan from a related company, increased from approximately HK$160,740,000 as at 31 March 2018 to approximately HK$173,772,000 as at 30 September 2018. All borrowings were denominated in Hong Kong Dollar. Except for finance leases, interest on borrowings are charged at fixed rates. The Group currently does not have any interest rate hedging policy, and the Group monitors interest risks continuously and considers hedging any excessive risk when necessary. 160,740,000 173,772,000 The finance leases of the Group were secured by the Group s machinery with an aggregate net book value of approximately HK$9,867,000 (31 March 2018: approximately HK$11,467,000). 9,867,000 11,467,000 Interim Report 2018 13
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Net Current Assets As at 30 September 2018, the Group s net current assets amounted to approximately HK$270,627,000, which was approximately HK$30,534,000 less than its net current assets of approximately HK$301,161,000 as at 31 March 2018. The decrease was primarily due to (i) the net cash outflow from operating activities; and (ii) the increase in trade payables of approximately HK$12,834,000 as compared to that as at 31 March 2018. As at 30 September 2018, the Group s current liabilities amounted to approximately HK$213,932,000, representing an increase of approximately HK$3,340,000 over approximately HK$210,592,000 as at 31 March 2018. 270,627,000 301,161,000 30,534,000 (i) (ii) 12,834,000 213,932,000 210,592,000 3,340,000 Liquidity and Financial Resources As at 30 September 2018, the Group had cash and bank balances of approximately HK$387,652,000 (31 March 2018: approximately HK$415,137,000), which were mainly denominated in Hong Kong Dollar. 387,652,000 415,137,000 During the Reporting Period, the Group did not employ any financial instrument for hedging purposes. Wan Kei Group Holdings Limited 14
FINANCIAL REVIEW (Continued) Cash Flow The Group s net cash used in operating activities was approximately HK$44,351,000 during the Reporting Period, which was mainly used in the foundation construction and ground investigation services. Net cash generated from investing activities was approximately HK$6,723,000. It was mainly related to (i) the proceeds from disposal of machinery which amounted to approximately HK$6,282,000, and (ii) the receipt of interest income which amounted to approximately HK$1,111,000. The net cash generated from financing activities was approximately HK$10,143,000 in which HK$13,000,000 was arising from borrowing from a director of a subsidiary during the Reporting Period. Management Discussion and Analysis (Continued) 44,351,000 6,723,000 (i) 6,282,000 (ii) 1,111,000 10,143,000 13,000,000 The gearing ratio of the Group as at 30 September 2018 (defined as total interest-bearing liabilities divided by the Group s total equity) was approximately 60.0% (As at 31 March 2018: approximately 49.5%). Treasury Policy The Group has adopted a prudent financial management approach towards its treasury policies and thus maintained a healthy position of liquidity throughout the Reporting Period. The Group strives to reduce exposure to credit risk by performing ongoing credit assessments and evaluations of the financial status of its customers. To manage liquidity risk, the Board closely monitors the Group s liquidity position to ensure that the liquidity structure of the Group s assets, liabilities and other commitments can meet its funding requirements from time to time. 60.0% 49.5% Interim Report 2018 15
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Foreign Exchange Exposure Since the Group mainly operates in Hong Kong and most of the revenue and transactions arising from its operations were settled in Hong Kong Dollar, and the Group s assets and liabilities are primarily denominated in Hong Kong Dollar, the Directors believe that the Group s risk in foreign exchange is insignificant and the Group has sufficient foreign exchange to meet its foreign exchange requirements. The Group has not experienced any material difficulties or effects on its operations or liquidity as a result of fluctuations in currency exchange rates and has not adopted any currency hedging policy or other hedging instruments during the Reporting Period. Capital Structure As at 30 September 2018, the Company s issued share capital was HK$9,600,000 and the number of its issued ordinary shares was 960,000,000 of HK$0.01 each. 9,600,000 0.01 960,000,000 Significant Investment, Material Acquisitions and Disposal of Subsidiaries and Associated Companies During the Reporting Period, there was no acquisition or disposal of subsidiaries and associated companies by the Company. Wan Kei Group Holdings Limited 16
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Commitments The contractual commitments of the Group were primarily related to the leases of its office premises and warehouses. The Group s operating lease commitments amounted to approximately HK$9,389,000 as at 30 September 2018 (31 March 2018: approximately HK$11,535,000). As at 30 September 2018, the Group had no other capital commitments (31 March 2018: nil). 9,389,000 11,535,000 Contingent liabilities The Group had no contingent liabilities as at 30 September 2018 and 31 March 2018. Event after the Reporting Period On 2 October 2018, the Company, the vendors and the warrantors entered into the sale and purchase agreement, pursuant to which, the Company conditionally agreed to acquire and the vendors conditionally agreed to sell the approximately 51.315% equity interest in Blue Marble Limited at the consideration of HK$320,000,000. Blue Marble Limited 51.315% 320,000,000 For further details, please refer to the announcement of the Company dated 2 October 2018. Save as disclosed above, there are no other significant events after the Reporting Period and up to the date of this report. Interim Report 2018 17
Management Discussion and Analysis (Continued) FINANCIAL REVIEW (Continued) Employees and Remuneration Policy As at 30 September 2018, the Group had 131 full-time employees (31 March 2018: 123 fulltime employees). 131 123 The remuneration policy and packages of the Group s employees are periodically reviewed. Apart from mandatory provident fund and inhouse training programmes, salaries increment and discretionary bonuses may be awarded to employees according to the assessment of individual performance. The total remuneration cost incurred by the Group for the Reporting Period was approximately HK$29,819,000 compared to approximately HK$30,269,000 for the six months ended 30 September 2017. 29,819,000 30,269,000 Issue of Shares from the Placing under General Mandate On 29 November 2016, the Company entered into a placing agreement with Kingston Securities Limited (the Placing Agent ), whereby the Company conditionally agreed to place, through the Placing Agent, on a best effort basis, a maximum of 160,000,000 new ordinary shares of the Company of HK$0.01 each (the Placing Shares ) to not less than six placees which are independent third parties at a price of HK$0.86 per Placing Share (net placing price of approximately HK$0.84 per placing share) (the Placing ). 160,000,000 0.01 0.86 0.84 Wan Kei Group Holdings Limited 18
FINANCIAL REVIEW (Continued) Issue of Shares from the Placing under General Mandate (Continued) Management Discussion and Analysis (Continued) The Placing was completed on 16 December 2016. The gross proceeds of HK$137,600,000 were received by the Company in accordance with the terms of the placing agreement. The net proceeds from the Placing, after deducting the Placing Agent s commission and other related expenses payable by the Company, amounted to approximately HK$134,000,000. The net proceeds from the Placing are intended to be used for development a business regarding investment and financing services and for setting up a subsidiary with money lenders license according to the placing agreement. As at 30 September 2018, certain net proceeds were used for the operation of the money lending business of the Company, payment of related staff costs, engaging a consultant for the application for securities licenses, administration costs and office set up cost, which amounted to approximately HK$30,499,000 (As at 31 March 2018: approximately HK$14,757,000). Regarding the remaining proceeds of approximately HK$103.5 million which were brought forward from the Placing, the Group intends to utilise up to approximately HK$26.8 million of the proceeds of the Placing in developing the Group s money lending business in the next 12 months. Due to the increasing level of instability pertaining to the financial markets and competition in the financial services sector and the benefits of the proposed entry to the e-sports markets, the Board considers that the reallocation of the use of proceeds from the Placing, may bring better prospects to the Company and its Shareholders in the current situation. The Company therefore intends to change the use of up to approximately HK$76.7 million of such proceeds, and utilise the amount to fund the acquisition instead. 137,600,000 134,000,000 30,499,000 14,757,000 103,500,000 26,800,000 12 76,700,000 Interim Report 2018 19
Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended 30 September 2018 For the six months ended 30 September 2018 2017 (Unaudited) (Unaudited) Notes HK$ 000 HK$ 000 Revenue 4 78,929 139,530 Direct costs (93,261) (147,392) Gross loss (14,332) (7,862) Other revenue 5 2,340 3,959 Other net income 1,772 879 General and administrative expenses (22,546) (19,509) Loss from operations (32,766) (22,533) Finance costs 6(a) (2,889) (3,344) Loss before taxation 6 (35,655) (25,877) Income tax credit/(expense) 7 1,334 (494) Loss and total comprehensive income for the period attributable to equity shareholders of the Company (34,321) (26,371) Loss per share Basic (HK cents per share) 9 (3.58) (2.75) Diluted (HK cents per share) 9 (3.58) (2.75) Note: The group has initially applied HKFRS 15 at 1 April 2018. Under the transition methods chosen, comparative information is not restated. See note 3. 15 3 20 Wan Kei Group Holdings Limited
Condensed Consolidated Statement of Financial Position As at 30 September 2018 As at 30 September 2018 (Unaudited) As at 31 March 2018 (Audited) Notes HK$ 000 HK$ 000 Non-current assets Property, plant and equipment 22,837 32,336 Club memberships 400 400 23,237 32,736 Current assets Contract assets 61,470 Gross amounts due from customers for contract work 32,243 Loans and advances to customers 10,080 Trade and other receivables 10 24,079 63,582 Amount due from a director 179 Tax recoverable 1,099 791 Cash and cash equivalents 387,652 415,137 484,559 511,753 Current liabilities Gross amounts due to customers for contract work 24,754 Trade and other payables 11 37,731 25,022 Amount due to a related company 12 98,475 96,787 Amount due to a director of a subsidiary 12 69,280 55,265 Provision for onerous contract 443 Deferred income 1,126 1,126 Obligations under finance leases 5,542 5,417 Tax payable 1,778 1,778 213,932 210,592 Net current assets 270,627 301,161 Total assets less current liabilities 293,864 333,897 Interim Report 2018 21
Condensed Consolidated Statement of Financial Position (Continued) As at 30 September 2018 As at 30 September 2018 (Unaudited) As at 31 March 2018 (Audited) Notes HK$ 000 HK$ 000 Non-current liabilities Obligations under finance leases 475 3,271 Long service payment liabilities 384 384 Deferred income 94 657 Deferred tax liabilities 3,139 4,558 4,092 8,870 Net assets 289,772 325,027 Capital and reserves Share capital 13 9,600 9,600 Reserves 280,172 315,427 Total equity 289,772 325,027 Note: The group has initially applied HKFRS 15 at 1 April 2018. Under the transition methods chosen, comparative information is not restated. See note 3. 15 3 Wan Kei Group Holdings Limited 22
Balance at 31 March 2018 (Audited) Impact on initial application of HKFRS 15 Condensed Consolidated Statement of Changes in Equity Share Share Merger Capital Retained capital premium reserve reserve profits Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Note 13) 13 9,600 211,358 3,956 9,669 90,444 325,027 15 (934) (934) Balance at 1 April 2018 (restated) Loss and total comprehensive income for the period Balance at 30 September 2018 (Unaudited) 9,600 211,358 3,956 9,669 89,510 324,093 (34,321) (34,321) 9,600 211,358 3,956 9,669 55,189 289,772 Balance at 1 April 2017 (Audited) Loss and total comprehensive income for the period Balance at 30 September 2017 (Unaudited) 9,600 211,358 3,956 9,669 160,692 395,275 (26,371) (26,371) 9,600 211,358 3,956 9,669 134,321 368,904 Interim Report 2018 23
Condensed Consolidated Statement of Cash Flows For the six months ended 30 September 2018 2017 (Unaudited) (Unaudited) HK$ 000 HK$ 000 Operating activities Cash used in from operations (44,043) (31,401) Tax paid (308) (1,531) Net cash used in operating activities (44,351) (32,932) Investing activities Payments for the purchase of property, plant and equipment (670) (4,473) Proceeds from disposal of property, plant and equipment 6,282 338 Interest received 1,111 1,225 Net cash generated from /(used in) investing activities Financing activities Capital element of finance lease rentals paid Interest element of finance lease rentals paid Loan advanced from a director of a subsidiary Net cash generated from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 6,723 (2,910) (2,671) (2,576) (186) (263) 13,000 31,000 10,143 28,161 (27,485) (7,681) 415,137 412,347 387,652 404,666 24 Wan Kei Group Holdings Limited
Notes to the Unaudited Condensed Consolidated Interim Financial Information 1. GENERAL INFORMATION The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 7 October 2014 under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The address of the Company s registered office is Clifton House, 75 Fort Street, P.O. Box 1350, Grand Cayman KY1-1108, Cayman Islands. The address of the Company s principal place of business in Hong Kong is Room 1802, 18/F., Capital Centre, No. 151 Gloucester Road, Wanchai, Hong Kong. 1. 22 3 Clifton House, 75 Fort Street, P.O. Box 1350, Grand Cayman KY1-1108, Cayman Islands 151 18 1802 The Group is principally engaged in the provision of (i) foundation construction; (ii) ground investigation services; and (iii) financial services. (i) (ii) (iii) The Company acts as an investment holding company and the Company s shares were listed on Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange ). Interim Report 2018 25
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 1. GENERAL INFORMATION (Continued) The unaudited condensed consolidated interim financial information is presented in thousands of units of Hong Kong Dollar (HK$), unless otherwise stated. The unaudited condensed consolidated interim financial information was approved for issue by the Board of Directors on 28 November 2018. 1. The condensed consolidated interim financial information has not been audited, but has been reviewed by the Company s audit committee (the Audit Committee ). 2. BASIS OF PRESENTATION The condensed consolidated financial statements have been prepared in accordance with the Hong Kong Accounting Standard ( HKAS ) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ) as well as with the applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules ). 2. 34 Wan Kei Group Holdings Limited 26
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 3. PRINCIPAL ACCOUNTING POLICIES Excepted as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2018, as described in those annual financial statements. 3. Application of new and amendments to HKFRSs In the current period, the Group has applied, for the first time, the following new and amendments to Hong Kong Financial Reporting Standards ( HKFRS, which include all HKFRSs, HKASs and Interpretations) issued by the HKICPA which are effective for the annual period beginning on or after 1 January 2018 for the preparation of the Group s condensed consolidated financial statements: HKFRS 9 HKFRS 15 Amendments to HKFRS 15 HK (IFRIC)- Int 22 Financial Instruments Revenue from Contracts with Customers Clarifications to HKFRS 15 Revenue from Contracts with Customers Foreign Currency Transactions and Advance Consideration 9 15 15 15 22 Interim Report 2018 27
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 3. PRINCIPAL ACCOUNTING POLICIES (Continued) Application of new and amendments to HKFRSs (Continued) Amendments to HKFRS 2 Amendments to HKFRS 4 Annual Improvements 2014 2016 Cycle Amendments to HKAS 40 Classification and Measurement of Share-based Payment Transactions Applying HKFRS 9 Financial Instruments with HKFRS 4 Insurance Contracts Amendments to HKFRS 1 and HKAS 28 Transfers of Investment Property 3. 2 4 4 9 1 28 40 Other than as further explained below, the adoption of the new and revised HKFRSs has had no significant financial effect on these unaudited condensed consolidated interim financial statements of the Group. Wan Kei Group Holdings Limited 28
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 3. PRINCIPAL ACCOUNTING POLICIES (Continued) Application of new and amendments to HKFRSs (Continued) 3. HKFRS 15 Revenue from Contracts with Customers The Group has applied HKFRS 15 for the first time in the current interim period. HKFRS 15 superseded HKAS 18 Revenue, HKAS 11 Construction Contracts and the related interpretations. 15 15 15 18 11 The Group has elected to use the cumulative effect transition method and has recognised the cumulative effect of initial application as an adjustment to the opening balance of retained profits at 1 April 2018. Therefore, comparative information has not been restated and continues to be reported under HKAS 11 and HKAS 18. As allowed by HKFRS 15, the Group has applied the new requirements only to contracts that were not completed before 1 April 2018. 11 18 15 Interim Report 2018 29
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 3. PRINCIPAL ACCOUNTING POLICIES (Continued) Application of new and amendments to HKFRSs (Continued) HKFRS 15 Revenue from Contracts with Customers (Continued) The following table summarises the impact of transition to HKFRS 15 on retained profits and the related tax impact at 1 April 2018: 3. 15 15 HK$ 000 Retained profits Change in timing of contract costs recognition for construction contracts (1,019) Related tax 85 Net decrease in retained profits as at 1 April 2018 (934) In prior reporting periods, the Group accounted for revenue from construction contracts based on the stage of completion of the contracts, provided that the stage of contract completion and the gross billing value of contracting work can be measured reliably. Wan Kei Group Holdings Limited 30
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 3. PRINCIPAL ACCOUNTING POLICIES (Continued) Application of new and amendments to HKFRSs (Continued) HKFRS 15 Revenue from Contracts with Customers (Continued) Under HKFRS 15, the Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the performance obligation is transferred to the customer. A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same. 3. 15 15 Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: the customer simultaneously receives and consumes the benefits provided by the Group s performance as the Group performs; the Group s performance creates and enhances an asset that the customer controls as the Group performs; or Interim Report 2018 31
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 3. PRINCIPAL ACCOUNTING POLICIES (Continued) Application of new and amendments to HKFRSs (Continued) HKFRS 15 Revenue from Contracts with Customers (Continued) the Group s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. 3. 15 Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service. Over time revenue recognition: Measurement of progress towards complete satisfaction of a performance obligation Output method The progress towards complete satisfaction of a performance obligation is measured based on output method for construction contract, which is to recognise revenue on the basis of direct measurements of the value of the goods or services transferred to the customer to date relative to the remaining goods or services promised under the contract, that best depict the Group s performance in transferring control of goods or services. Wan Kei Group Holdings Limited 32
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 3. PRINCIPAL ACCOUNTING POLICIES (Continued) Application of new and amendments to HKFRSs (Continued) HKFRS 15 Revenue from Contracts with Customers (Continued) Output method (Continued) A contract asset represents the Group s right to consideration in exchange for goods or services that the Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with HKFRS 9 Financial Instrument ( HKFRS 9 ). In contrast, a receivable represents the Group s unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due. 3. 15 9 9 A contract liability represents the Group s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Interim Report 2018 33
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 3. PRINCIPAL ACCOUNTING POLICIES (Continued) Application of new and amendments to HKFRSs (Continued) HKFRS 15 Revenue from Contracts with Customers (Continued) Output method (Continued) The following adjustments were made to the amounts recognised in the condensed consolidated statement of financial position as at 1 April 2018: 3. 15 Carrying amounts previously reported at 31 March 2018 Reclassification Remeasurement Carrying amounts under HKFRS 15 at 1 April 2018 15 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Current assets Contract assets 51,169 51,169 Trade and other receivables 63,582 (947) 62,635 Gross amounts due from customers for contract work 32,243 (32,749) 506 Retention receivables 44,195 (43,326) (869) Current liabilities Gross amounts due to customers for contract work 24,754 (24,906) 152 Provision for onerous contract 443 (443) Non-current liabilities Deferred tax liabilities 4,558 (85) 4,473 Equity Retained profits 90,444 (934) 89,510 Wan Kei Group Holdings Limited 34
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING 4. (a) Revenue (a) The principal activities of the Group are foundation construction, ground investigation services and financial services. Revenue represents revenue from construction contracts, from ground investigation services and from financial services. The amount of each significant category of revenue recognised in revenue during the respective periods is as follows: Six months ended 30 September 2018 2017 HK$ 000 HK$ 000 (Unaudited) (Unaudited) Revenue from construction contracts Revenue from ground investigation services Revenue from financial services 61,635 121,652 17,214 17,878 80 78,929 139,530 Interim Report 2018 35
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING (Continued) 4. (b) Segment reporting (b) The Group manages its businesses by business lines. In a manner consistent with the way in which information is reported internally to the Group s most senior management for the purposes of resource allocation and performance assessment, the Group has presented the following three reportable segments. No operating segments have been aggregated to form the following reportable segments. Foundation construction: this segment provides foundation construction works to customers in Hong Kong. Ground investigation services: this segment provides ground investigation services to customers in Hong Kong. Financial services: this segment provides investment, financing and money lending services. Wan Kei Group Holdings Limited 36
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING (Continued) 4. (b) Segment reporting (Continued) (b) Segment information is presented only in respect of the Group s business segments. No geographical analysis is shown as less than 10% of the Group s revenue, profit from operations and assets were derived from activities outside Hong Kong. 10% (i) Segment results, assets and liabilities (i) For the purpose of assessing segment performance and allocating resources between segments, the Group s senior management monitors the results, assets and liabilities attributable to each reportable segment on the following bases: Interim Report 2018 37
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING (Continued) 4. (b) Segment reporting (Continued) (b) (i) Segment results, assets and liabilities (Continued) (i) Segment assets include all current and non-current assets with the exception of unallocated head office and corporate assets, tax recoverable and deferred tax assets (if any). Segment liabilities include all current and non-current liabilities with the exception of tax payable and deferred tax liabilities. Revenue and expenses are allocated to the reportable segments with reference to revenue generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation of assets attributable to those segments. The measure used for reporting segment (loss)/profit is (loss)/ profit before taxation. Wan Kei Group Holdings Limited 38
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING (Continued) (b) Segment reporting (Continued) 4. (b) (i) Segment results, assets and liabilities (Continued) (i) Information regarding the Group s reportable segments as provided to the Group s most senior management for the purposes of resource allocation and assessment of segment performance for the six months ended 30 September 2018 and 2017 are as follows: Six months ended 30 September 2018 Revenue from external customers Reportable segment revenue Foundation construction Ground investigation services Financial services Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 61,635 17,214 80 78,929 61,635 17,214 80 78,929 Reportable segment gross (loss)/profit Reportable segment (loss)/profit (18,660) 4,248 80 (14,332) (27,818) 655 (4,315) (31,478) Interest income from bank deposit 1,257 1,257 Interest expense 1,202 1,202 Depreciation for the period 4,279 389 401 5,069 Interim Report 2018 39
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING (Continued) (b) Segment reporting (Continued) 4. (b) (i) Segment results, assets and liabilities (Continued) (i) Six months ended 30 September 2017 Revenue from external customers Reportable segment revenue Foundation construction Ground investigation services Financial services Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 121,652 17,878 139,530 121,652 17,878 139,530 Reportable segment gross (loss)/profit (11,632) 3,770 (7,862) Reportable segment loss (19,973) (45) (2,425) (22,443) Interest income from bank deposit 1,205 1,205 Interest expense 1,094 1,094 Depreciation for the period 8,073 490 203 8,766 Wan Kei Group Holdings Limited 40
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING (Continued) (b) Segment reporting (Continued) 4. (b) (i) Segment results, assets and liabilities (Continued) (i) Foundation construction Ground investigation services Financial services Total As at As at As at As at 30 September 30 September 30 September 30 September 2018 2018 2018 2018 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Reportable segment assets 221,867 23,426 423,366 668,659 Additions to non-current segment assets during the period Reportable segment liabilities 553 27 90 670 132,773 4,724 406,095 543,592 Foundation construction Ground investigation services Financial services Total As at As at As at As at 31 March 31 March 31 March 31 March 2018 2018 2018 2018 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Audited) (Audited) (Audited) (Audited) Reportable segment assets 228,591 23,392 399,333 651,316 Additions to non-current segment assets during the period Reportable segment liabilities 745 38 3,731 4,514 111,975 4,098 377,215 493,288 Interim Report 2018 41
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING (Continued) 4. (b) Segment reporting (Continued) (b) (ii) Reconciliations of reportable segment revenue, profit or loss, assets and liabilities (ii) Six months ended 30 September 2018 2017 HK$ 000 HK$ 000 (Unaudited) (Unaudited) Revenue Reportable segment revenue and consolidated revenue Loss 78,929 139,530 Reportable segment loss (31,478) (22,443) Unallocated head office and corporate expenses (4,177) (3,434) Consolidated loss before taxation (35,655) (25,877) Wan Kei Group Holdings Limited 42
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 4. REVENUE AND SEGMENT REPORTING (Continued) (b) Segment reporting (Continued) 4. (b) (ii) Reconciliations of reportable segment revenue, profit or loss, assets and liabilities (Continued) (ii) At At 30 September 31 March 2018 2018 HK$ 000 HK$ 000 (Unaudited) (Audited) Assets Reportable segment assets 668,659 651,316 Elimination of intersegment receivables (162,452) (108,649) 506,207 542,667 Tax recoverable 1,099 791 Unallocated head office and corporate assets 490 1,031 Consolidated total assets 507,796 544,489 Liabilities Reportable segment liabilities Elimination of intersegment liabilities 543,592 493,288 (428,960) (376,985) 114,632 116,303 Tax payable 1,778 1,778 Deferred tax liabilities 3,139 4,473 Unallocated head office and corporate liabilities 98,475 96,908 Consolidated total liabilities 218,024 219,462 Interim Report 2018 43
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 5. OTHER REVENUE 5. Six months ended 30 September 2018 2017 HK$ 000 HK$ 000 (Unaudited) (Unaudited) Bank interest income 1,257 1,205 Sales of raw materials 1,083 594 Rental income from lease of machinery 1,940 Others 220 2,340 3,959 Wan Kei Group Holdings Limited 44
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 6. LOSS BEFORE TAXATION Loss before taxation is arrived at after charging/(crediting): 6. Six months ended 30 September 2018 2017 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (a) Finance costs (a) Interest on borrowing from a related company 1,687 2,250 Interest on borrowing from a director of a subsidiary 1,016 792 Finance charges on obligations under finance leases 186 263 Interest on bank overdraft 39 2,889 3,344 Interim Report 2018 45
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 6. LOSS BEFORE TAXATION (Continued) 6. Six months ended 30 September 2018 2017 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (b) Staff costs (including directors remuneration) (b) Contributions to defined contribution retirement plans Salaries, wages and other benefits 782 987 29,037 29,812 29,819 30,799 Add: Amount included in gross amounts due from/(to) customers for contract work (530) 29,819 30,269 Wan Kei Group Holdings Limited 46
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 6. LOSS BEFORE TAXATION (Continued) 6. Six months ended 30 September 2018 2017 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (c) Other items (c) Depreciation 5,069 9,060 Add: Amount included in gross amounts due from/(to) customers for contract work (294) 5,069 8,766 Operating lease charges hire of machinery 5,428 6,839 hire of properties 3,112 2,779 Gain on disposal of property, plant and equipment (1,181) (338) Amortisation of deferred income (563) (563) Interim Report 2018 47
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 7. INCOME TAX (CREDIT)/EXPENSE 7. Six months ended 30 September 2018 2017 HK$ 000 HK$ 000 (Unaudited) (Unaudited) Provision for Hong Kong Profits Tax for the period Deferred tax (1,334) 494 (1,334) 494 Pursuant to the rules and regulations of the Cayman Islands, the Group is not subject to any income tax in the Cayman Islands. Hong Kong Profits Tax is calculated at 16.5% (2017: 16.5%) of the estimated assessable profit arising in or derived from Hong Kong for the period. Hong Kong Profits Tax is not recognised as the Company has no assessable income for the Reporting Period. 16.5% 16.5% 8. DIVIDEND The Board does not recommend the payment of interim dividend for the six months ended 30 September 2018 (six months ended 30 September 2017: nil). 8. Wan Kei Group Holdings Limited 48
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 9. LOSS PER SHARE Basic loss per share Basic loss per share are calculated by dividing the loss attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the respective periods. The calculation of basic loss per share attributable to equity shareholders of the Company is based on the following: 9. Loss attributable to equity shareholders of the Company (HK$ 000) Six months ended 30 September 2018 2017 (Unaudited) (Unaudited) (34,321) (26,371) Number of shares Weighted average number of ordinary shares for the purpose of basic loss per share (in thousand) 960,000 960,000 Basic loss per share (HK cents) (3.58) (2.75) Interim Report 2018 49
Notes to the Unaudited Condensed Consolidated Interim Financial Information (Continued) 9. LOSS PER SHARE (Continued) Diluted loss per share Diluted loss per share is of the same amount as the basic loss per share as there were no potential dilutive ordinary shares outstanding during the period. 10. TRADE AND OTHER RECEIVABLES 9. 10. At 30 September 2018 HK$ 000 (Unaudited) At 31 March 2018 HK$ 000 (Audited) Trade debtors 13,894 9,836 Deposits, prepayments and other receivables (note (i)) (i) 10,185 9,551 Retention receivables (note (ii)) (ii) 44,195 24,079 63,582 Note: (i) Except for the amounts of approximately HK$1,007,000 and HK$1,237,000 as at 30 September 2018 and 31 March 2018 respectively, which are expected to be recovered after one year, all of the remaining balances are expected to be recovered within one year. (i) 1,007,000 1,237,000 (ii) Except for the amounts of approximately HK$10,419,000 as at 31 March 2018 which are expected to be recovered after one year, all of the remaining balances are expected to be recovered within one year. (ii) 10,419,000 Wan Kei Group Holdings Limited 50