TIDMCTI
RNS Number : 4859X
Cathay International Holdings Ld
28 August 2020
Cathay International Holdings Limited
("Cathay" or the "Company" or together with its subsidiaries,
the "Group")
Interim Results for the Six Months Ended 30 June 2020
Hong Kong, 28 August 2020 - Cathay International Holdings
Limited (LSE: CTI.L), an operator and investor in the growing
healthcare sector in the People's Republic of China (the "PRC"),
today
announces its Interim Results for the six months ended 30 June 2020.
Group Operational Highlights
The ongoing COVID-19 pandemic has had a significant impact
across all the China business sectors in which the Group operates.
The Group has taken steps to react to these challenging market
conditions and continues to focus
on the development of its pharmaceutical, healthcare and cosmetic businesses.
Pharmaceutical
-- The pharmaceutical business began to see a positive
contribution and experienced modest sales growth due
to implementation of management initiatives
-- Lansen continued to focus its business strategy on the
development and acceleration of its own product portfolio and is
working to broaden market coverage in commercial segment, hospitals
and OTC segment in order to
improve profitability
-- Lansen recorded an increase in sales of self-owned specialty
drugs which mitigated the drop in other
pharmaceutical product sales
-- Lansen incurred lower selling and distribution expenses
during H1 2020 due to there being fewer physical
sales visits and conferences under the COVID-19 restrictions
Healthcare
-- Haizi has continued to suffer from a low inositol market
price and the unsatisfactory development of food
grade DCP as a co-product to enhance its overall business
-- The Group has prudently made a provision of USD22.3 million
against its investment in Haizi
-- Natural Dailyhealth recorded a small sales growth by
continuing to build its product portfolio in plant
extracts and health foods and by continuing to develop new customers
Cosmetics
-- The Group continues to pursue its business strategies to
promote sales of Fillderm and San Parietti branded products
-- Due to the COVID-19 pandemic, however, the Group has had to
delay the implementation of these strategies and the Group remains
uncertain of how long the pandemic might continue to affect its
business strategies
Hotel
-- COVID-19 has had a significant adverse impact on the hotel's performance
-- Actions were taken to reduce operating costs including
closing most guestroom floors, food and beverage outlets and
deploying minimal staff in the hotel
-- The Hotel continues to be one of the best rated hotels in Shenzhen on Trip Advisor
Group Financial Highlights
-- Revenue decreased to USD35.2 million (H1 2019: USD38.3 million)
-- Gross profit decreased to USD15.1 million (H1 2019: USD16.2
million) but with average gross margin
improved to 43.0% (H1 2019: 42.4%)
-- Operating loss decreased by USD3.4 million to USD2.3 million
(H1 2019: USD5.7 million) mainly due to a decrease in selling and
distribution expenses and in administration expenses
-- Non-operating profit of USD75.9 million (H1 2019: USD7.9
million) mainly due to an unrealised net gain of USD100.4 million
arising from a change in accounting treatment on Starry shares as
detailed below, offset by an impairment of USD22.3 million on
Haizi
-- The change in accounting treatment is due to loss of
significant influence in Starry. The Group's investment in Starry
was previously that of an associate company and was being equity
accounted for in the financial statement. With gradual disposals of
Starry shares since 2017, and loss of board representation in
Starry in April 2020, Lansen no longer has significant influence in
Starry and so the investment has been reclassified to that of a
financial asset.
The carrying value of Starry shares in the condensed
consolidated statement of financial position is measured in
according to the applicable accounting standard and discussed with
the Group's auditor, based on the quoted price on the Shanghai
Stock Exchange of RMB84.06 per Starry share times the 9,402,360
shares held on 30 June 2020. At this price, Starry's historical
price-earnings ratio is 83 times. The stock price of Starry shares
has been volatile over a period. Its lowest and highest share
prices in the past 12 months were RMB20.77 and RMB87.97 per Starry
share respectively. The Group is restricted from disposing of the
Starry shares under the Shanghai Stock Exchange rules: the total
amount of share reduction through block trade sales and the
centralised competitive bidding system in any consecutive ninety
day period shall not exceed 2% and 1% respectively of the total
number of issued shares in Starry. The weighted average selling
price of the Group's disposals of Starry in the past 18 months of
RMB30.83, this is 63.32% lower than the above mention RMB84.06 per
Starry shares on 30 June 2020.
Lansen will actively seek opportunities to further dispose of
its Starry shares subject to prevailing market price of Starry
shares and general stock market conditions, as well as selling
restrictions described above. Accordingly, the actual sales
proceeds from disposals may be subject to market volatility and may
be lower than the carrying value recorded as at 30 June 2020. In
the event that the actual disposal proceeds of Starry shares at the
prevailing market price or the carrying value remeasured based on
reference price as at 31 December 2020 is below the carrying value
as at 30 June 2020, there would be a partial or complete reversal
at year end of the unreali s ed gain so recorded.
-- Lower finance costs of USD4.7 million (H1 2019: USD5.9
million) due to a decreased effective interest rate to 5.6% (H1
2019: 5.8%) on the lowering of LIBOR and the PRC lending rates and
reduction in borrowings
-- After tax profit before non-controlling interests for the
period was USD62.3 million (H1 2019: loss of
USD2.8 million)
-- Profit attributable to owners of the parent for the period
was USD16.8 million (H1 2019: loss of USD5.1 million)
Corporate Highlights
-- The Group completed an open offer and subscription raise of
USD82.1 million to reduce group borrowings and raise funds for its
business developments but is short of the original target of USD130
million
-- The Company transferred from the premium list to the standard
list on the London Stock Exchange
-- As the hotel performance is significantly impacted by
COVID-19, the Group expects to see an adverse impact on the year
end revaluation
-- In addition, there is a hotel mortgage loan of USD50.6
million maturing in June 2021. The bank's view on future
profitability in the hotel industry has also been adversely
affected by the pandemic and, as a result, it may be challenging to
refinance the mortgage loan on the hotel
-S -
For further enquiries, please contact:
Cathay International Holdings Limited
Eric Siu (Finance Director) Tel: +852 2828 9289 Patrick Sung
(Director and Controller)
SPARK Advisory Partners Limited (financial adviser)
Andrew Emmott/James Keeshan Tel: +44 (0) 20 3368 3555
About Cathay
Cathay International Holdings Limited (LSE: CTI.L) is a main
market listed investment holding company and an operator and
investor in the healthcare sector in the People's Republic of China
(the "PRC"). The Company and its subsidiaries (collectively the
"Group") aim to leverage on investment opportunities in the growing
domestic demand for high quality healthcare products in the PRC and
build portfolio companies into market sector leaders with
competitive edge. Cathay has already demonstrated a track record of
identifying investment opportunities in this area including:
Lansen, a leading specialty pharmaceutical company focused on
rheumatology and dermatology in the PRC; Haizi, a company engaged
in the manufacture, marketing and sale of inositol and phosphate
related products; Natural Dailyhealth, a company engaged in
production and sales of plant extracts for use as key active
ingredients in healthcare products; and Botai, a company engaged in collagen related products.
The Group employs approximately 1,300 people across the PRC,
including over 20 specialist corporate and business development
staff based at the holding company's offices in Hong Kong and
Shenzhen. Cathay also has a hotel
investment. For more information please visit the Company's website: www.cathay-intl.com.hk .
MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS REVIEW
The ongoing COVID-19 pandemic has had a significant impact
across all the business sectors in China in which the Group
operates. Outpatient treatments and drug prescription at hospitals
and clinics dropped significantly, promotional activities for
cosmetic products were slow or deferred and the hospitality
industry was significantly impacted. Nonetheless, the Group has
taken steps to react to these challenging market conditions.
Despite the difficult market conditions in the China's
pharmaceutical sector, the Group experienced a small sales growth
in its pharmaceutical business. The Group began to see a positive
contribution from its strategy of driving commercial sales;
expanding coverage at large hospitals and developing its self-owned
drug portfolio; promoting over-the-counter sales; and increasing
market penetration in the Zhejiang province (Lansen's home
province). As a result, there was an increase in sales of
self-owned specialty drugs which mitigated the drop in other
pharmaceutical product sales. Lansen also incurred lower selling
and distribution expenses during H1 2020 due to there being fewer
physical sales visits and conferences under the COVID-19
restrictions.
In the healthcare business, Haizi has continued to suffer from a
low inositol market price and the unsatisfactory development of
food grade di-calcium phosphate ("DCP") as a co-product to enhance
its overall business. As such, the Group has prudently made a
provision of USD22.3 million against its investment in Haizi.
Natural Dailyhealth recorded a small sales growth by continuing to
build its product portfolio in plant extracts
and health foods and by continuing to develop new customers.
In the cosmetic business, the Group continues to pursue its
business strategies to promote sales of Fillderm and San Parietti
branded products and to establish flagship beauty salons in
Beijing, Shanghai and Chengdu in order to attract franchisee's to
join and market its products. Due to the COVID-19 pandemic,
however, the Group has had to delay the implementation of these
strategies and the Group remains uncertain of how long the
pandemic
might continue to affect its business strategies.
At the Hotel, the COVID-19 pandemic has had a significant
adverse impact on the hotel's performance. Whilst hotel management
took prompt actions to reduce operating costs such as closing most
guestroom floors, food and beverage outlets and deploying minimal
staff in the hotel, the Hotel returned an operating loss and we
expect to see an adverse impact on the year end hotel revaluation.
Under the accounting policies adopted by the Group, any changes in
the hotel revaluation will be accounted for as movements in the
revaluation reserve. If the revaluation reserve is not sufficient
to cover such adverse changes, the excess will be charged to the
consolidated statement of profit or loss.
The Group's investment in Starry was previously that of an
associate company and was being equity accounted for in the
financial statement. With gradual disposals of Starry shares since
2017, and loss of board representation in Starry in April 2020,
Lansen no longer has significant
influence in Starry and so the investment has been reclassified
to that of a financial asset. The change in accounting treatment
resulted in an unrealised net gain of USD100.4 million. The
carrying value of Starry shares in the condensed consolidated
statement of financial position is measured in according to the
applicable accounting standard and discussed with the Group's
auditor, based on the quoted price on the Shanghai Stock Exchange
of RMB84.06 per Starry share times the 9,402,360 shares held on 30
June 2020. At this price, Starry's historical price- earnings ratio
is 83 times. The stock price of Starry shares has been volatile
over a period. Its lowest and highest share prices in the past 12
months were RMB20.77 and RMB87.97 per Starry share respectively.
The Group is restricted from disposing of the Starry shares under
the Shanghai Stock Exchange rules: the total amount of share
reduction through block trade sales and the centralised competitive
bidding system in any consecutive ninety day period shall not
exceed 2% and 1% respectively of the total number of issued shares
in Starry. The weighted average selling price of the Group's
disposals of Starry in the past 18 months of RMB30.83, this is
63.32% lower than the above mention RMB84.06 per Starry shares
on 30 June 2020.
Lansen will actively seek opportunities to further dispose of
its Starry shares subject to prevailing market price of Starry
shares and general stock market conditions, as well as selling
restrictions described above. Accordingly, the actual sales
proceeds from disposals may be subject to market volatility and may
be lower than the carrying value recorded as at 30 June 2020. In
the event that the actual disposal proceeds of Starry shares at the
prevailing market price or the carrying value remeasured based on
reference price as at 31 December 2020 is below the carrying value
as at 30 June 2020, there would be a partial or complete reversal
at year end of the unreali s ed gain so recorded.
In May 2020, the Group completed an open offer and subscription
to reduce group borrowings and raise funds for its business
developments. The Company also transferred from the premium list to
the standard list on the London Stock Exchange. Although we
targeted to raise USD130.0 million in the open offer, we only
raised USD82.1 million and, as such, it will not be sufficient to
fully implement our business plans. In addition, there is a sizable
hotel mortgage loan maturing in 2021. Due to the COVID-19 pandemic
the hotel's performance in 2020, and future outlook, has been
adversely impacted and will affect the hotel valuation. The bank's
view on future profitability in the hotel industry has also been
adversely affected by the pandemic and, as a result, it may be
challenging to refinance the mortgage loan on the hotel and the
Group may need to look for alternative financing in the medium to
long term.
The COVID-19 pandemic also impacted physical promotion
activities and sales channels were significantly affected or
delayed during the period. The Group plans to strengthen its online
marketing efforts and develop an integrated e-commerce ecosystem
for the Group's pharmaceutical, healthcare and cosmetic
sectors.
FINANCIAL REVIEW
During the period, the Group's performance was mainly driven by
the pharmaceutical business at Lansen.
As at 30 June 2020, the Group's revenue decreased to USD35.2
million (H1 2019: USD38.3 million), mainly due to a drop in the
Hotel's revenue but partly offset by an increase in sales from
Lansen, Haizi and Natural Dailyhealth.
The Group's gross profit decreased to USD15.1 million (H1 2019:
USD16.2 million). The increase in Lansen's gross profit is not
enough to cover the gross losses incurred by Haizi and the Hotel.
Average gross margin
improved to 43.0% (H1 2019: 42.4%) mainly due to an increase in Lansen's gross margin.
The Group's operating loss decreased by USD3.4 million to USD2.3
million (H1 2019: USD5.7 million) mainly due to a decrease in
selling and distribution expenses and in administration expenses
(which lesser stock provision was made in H1 2020 than in last
period).
The Group recorded a non-operating profit of USD75.9 million (H1
2019: USD7.9 million) mainly due to an unrealised net gain of
USD100.4 million arising from a change in accounting treatment on
Starry shares, offset by an impairment of USD22.3 million on
Haizi.
The Group incurred lower finance costs of USD4.7 million (H1
2019: USD5.9 million) due to a decreased effective interest rate to
5.6% (H1 2019: 5.8%) on the lowering of LIBOR and the PRC lending
rates and reduction in borrowings.
The Group's income tax expense increased to USD6.8 million (H1
2019: USD0.4 million) mainly due to deferred income tax of USD5.9
million recognised on the unrealised net gain on Starry shares.
The Group's after tax profit before non-controlling interests
for the period was USD62.3 million (H1 2019: loss of USD2.8
million). The Group's profit attributable to owners of the parent
for the period was USD16.8
million (H1 2019: loss of USD5.1 million).
As at 30 June 2020, the Group's net bank borrowings decreased to
USD103.8 million (31 December 2019: USD131.1 million) due to a
decrease in borrowings at Lansen (USD14.1 million) and corporate
level (USD12.7 million). Net gearing decreased to 26.8% (31
December 2019: 151.2%) due to the completion of the open offer and
subscription
and recording of Starry shares at closing price on 30 June 2020.
Inter-
Hotel Corporate segment
Healthcare Operations Office Elimination Total
===============
Natural
Dailyhealth
(Stated in USD'000) Lansen Haizi Botai
For the six months
ended
30 June 2020
REVENUE
External sales 26,774 3,066 3,400 210 1,781 - - 35,231
Inter-segment
sales 2 7 98 20 - - (127) -
========= ========== =============== ======== ===================== ========== ================= =========
Segment revenue 26,776 3,073 3,498 230 1,781 - (127) 35,231
========= ========== =============== ======== ===================== ========== ================= =========
Segment gross
profit/(loss) 17,928 (2,644) 493 141 (681) - (101) 15,136
Segment operating
profit/(loss) 6,185 (4,325) (626) (286) (642) (2,449) (163) (2,306)
Segment non-operating
income
and expenses 98,229 (22,293) - - - - - 75,936
Segment finance costs (1,176) (622) (17) (99) (530) (2,365) 93 (4,716)
Segment share of
post-tax
result of associates 4 (8) - - - - 193 189
Segment profit/(loss)
before
income tax 103,242 (27,248) (643) (385) (1,172) (4,814) 123 69,103
Segment income tax
expense (6,800) 13 - - - - - (6,787)
Segment
profit/(loss)
for
the period
before
non-controlling
interests 96,442 (27,235) (643) (385) (1,172) (4,814) 123 62,316
Segment profit/(loss)
for
the period
attributable
to owners of the
parent 50,950 (27,235) (450) (385) (1,172) (4,814) (70) 16,824
For the six months
ended
30 June 2019
REVENUE
External sales 26,094 2,821 2,799 - 6,601 - - 38,315
Inter-segment
sales 58 1 112 - - - (171) -
========= ========== =============== ======== ===================== ========== ================= =========
Segment revenue 26,152 2,822 2,911 - 6,601 - (171) 38,315
========= ========== =============== ======== ===================== ========== ================= =========
Segment gross
profit/(loss) 16,095 (907) 149 - 920 - (16) 16,241
Segment operating
profit/(loss) 933 (2,887) (1,011) (681) 958 (3,247) 236 (5,699)
Segment non-operating
income
and expenses 7,755 - - - - - 101 7,856
Segment write off
of derivative
financial
instrument (1,910) - - - - - 1,910 -
Segment finance costs (2,358) (613) - (96) (513) (2,389) 97 (5,872)
Segment share of
post-tax
result of associates 1,019 (13) - - - - 279 1,285
Segment profit/(loss)
before
income tax 5,439 (3,513) (1,011) (777) 445 (5,636) 2,623 (2,430)
Segment income tax
expense (396) (6) - - - - - (402)
Segment
profit/(loss)
for
the period
before
non-controlling
interests 5,043 (3,519) (1,011) (777) 445 (5,636) 2,623 (2,832)
Segment
profit/(loss)
for
the period
attributable
to owners of the
parent 2,704 (3,519) (732) (740) 445 (5,636) 2,344 (5,134)
Lansen
In the first half of 2020, Lansen continued to implement the
strategies formulated last year, with a priority to focus on the
development and acceleration of research and development of its own
products and widening hospital coverage and self-owned product
coverage to achieve scale effects on sales and market share and
improve profitability.
Lansen's portfolio of self-owned products currently include
Pafulin, Sicorten Plus and several featured pharmaceutical products
such as Bazhen granules, Qixuekang, Licorice Oral Solution and
Yahao Dengpeng toothpaste.
Lansen recorded a 2.4% increase in revenue to USD26.8 million
(H1 2019: USD26.2 million). The increase in sales was mainly due to
an increase in sales of Pafulin and Sicorten Plus to USD23.6
million (H1 2019: USD19.6
million) but partly offset by the reduction in sales of generic drugs.
Gross profit margin was USD17.9 million (H1 2019: USD16.1
million) and the profit margin was 67.0% (H1 2019: 61.5%) mainly
due to an increased gross margin of Pafulin which resulted from
lower raw material costs and production scale effect and increased
component sales of Pafulin and Sicorten.
Lansen's operating profit increased to USD6.2 million (H1 2019:
USD0.9 million) mainly due to
(i) a decrease in administration expenses to USD6.3 million (H1
2019: USD7.9 million), mainly from a lower stock provision being
recorded; and (ii) a decrease in selling and distribution expenses
by 25.3% to USD6.1 million (H1 2019: USD8.1 million), resulting
from fewer sales visit and attendance at conferences. Lansen
expects to increase marketing activities in H2 but will continue to
manage its spending.
Lansen's shareholding in Starry was approximately 4.0%
throughout H1 2020. During Q1 2020, when Starry was equity
accounted for, the contribution to Lansen was USD0.3 million (H1
2019: USD1.3 million). Upon change in accounting treatment on
Starry shares, an unrealised net gain of USD100.4 million was
recorded.
Lansen's profit before non-controlling interests was USD96.4
million (H1 2019: USD5.0 million).
In July 2020, Lansen disposed of a total of 4,683,505 shares in
Starry and owns a remaining 4,718,855 shares in Starry.
Haizi
Haizi recorded USD3.1 million (H1 2019: USD2.8 million) from
sales of inositol and DCP. Haizi produced 604 tonnes (H1 2019: 762
tonnes) and 4,186 tonnes (H1 2019: 4,365 tonnes) of inositol and
feed grade DCP respectively and sold 937 tonnes (H1 2019: 449
tonnes) and 3,813 tonnes (H1 2019: 4,391 tonnes) of feed grade DCP.
The average selling price of inositol was lower at approximately
USD2.37 per kg (H1 2019: USD4.46 per kg).
Haizi's gross loss was USD2.6 million (H1 2019: USD0.9 million)
and its gross margin was
-86.0% (H1 2019: -32.1%). Haizi's operating loss was USD4.3
million (H1 2019: USD2.9 million) and its net loss was USD27.2
million (H1 2019: USD3.5 million).
Going forward, Haizi will continue to lower its production costs
by modifying its production plant and by developing higher
value-added co products to strengthen its competitive position. As
Haizi has been continuously making losses, and Haizi is still yet
to complete the development of higher value-added co-products, the
Group
has prudently made a provision of USD22.3 million against its investment in Haizi.
Natural Dailyhealth
Natural Dailyhealth continues to modify its sourcing and
production process and implement its "key products
and key customers" marketing strategy for its healthcare products.
Natural Dailyhealth's revenue increased to USD3.5 million (H1
2019: USD2.9 million) and its gross profit was USD0.5 million (H1
2019: USD0.1 million). The operating loss decreased to USD0.6
million (H1 2019: USD1.0 million).
Despite the unsuccessful launch of LangZunZun and the continued
challenges and uncertainty faced in launching new health food
products, Natural Dailyhealth is continuing to build its health
food and drink product portfolio, aiming to improving the gross
margin above that achieved in its existing plant extract product
portfolio.
Botai
Botai's revenue was USD0.2 million (H1 2019: Nil) mainly due to
the COVID-19 pandemic which has caused a delay in its marketing
strategy for Fillderm. The operating loss for the period was USD0.3
million (H1 2019:
USD0.7 million).
Hotel Operations
Due to the impact of COVID-19, the market demand for rooms and
food and banqueting services declined rapidly from the end of
January onwards. Whilst the hotel closed some of its food and
banqueting outlets and other facilities in February and March to
save costs, we could not have foreseen the negative impact the
pandemic would have on the hospitality industry in H1.
The Hotel's revenue decreased by 73.0% in the first half to
USD1.8 million (H1 2019: USD6.6 million). It had to decrease its
room rates to capture the already very low customer demand. Average
room rate dropped to USD92 (H1
2019: USD111) and room occupancy went down to 23.8% (H1 2019: 73.9%).
The Hotel's food and beverage sales dropped by 72.5% to USD0.5
million (H1 2019: USD2.0 million), mainly due to a temporary
closure of the restaurants and some of the food and beverage
outlets during H1.
To further reduce costs, the Hotel also closed down unoccupied
guestroom floors, encouraged staff to take unpaid leave, and
reduced head count through natural staff turnover. As at 30 June
2020, the Hotel managed to reduce electricity charges by USD0.2
million and staff costs by USD0.6 million. The Hotel head count
reduced by 22.0%
to 245. The Hotel intends to gradually increase head count when the business recovers.
As a result of the COVID-19 pandemic, the Hotel's operating loss
was USD0.6 million (H1 2019: profit of USD1.0 million).
The Hotel will closely monitor the market situation and will
endeavor to re-capture customer demand as the market improves. The
Hotel continues to strive for high service quality and is
frequently rated by Tripadvisor one of the top 10 hotels in
Shenzhen.
Corporate office
Corporate overheads decreased by USD0.7 million to USD2.5
million (H1 2019: USD3.2 million) due to professional fees incurred
in relation to a class 1 transaction in H1 2019.
Analysis of the Group's Revenue and Gross Profit by Business Sectors
The Group's revenue and gross profit, classified into three
focused business sectors, namely, pharmaceutical, healthcare and
cosmetics; together with the hotel, were as follows:
Inter-
Hotel segment
Healthcare Operations Elimination Total
Natural
(Stated in USD'000) Lansen Haizi Dailyhealth Botai
For the six months
ended 30
June 2020
REVENUE
Pharmaceutical 25,556 - - - - - 25,556
Healthcare 1,218 3,073 3,498 - - (107) 7,682
Cosmetics 2 - - 230 - (20) 212
Hotel - - - - 1,781 - 1,781
======== =========== =============== ======== ===================== ================= ========
26,776 3,073 3,498 230 1,781 (127) 35,231
======== =========== =============== ======== ===================== ================= ========
GROSS PROFIT/(LOSS)
Pharmaceutical 18,050 - - - - - 18,050
Healthcare (120) (2,644) 493 - - (81) (2,352)
Cosmetics (2) - - 141 - (20) 119
Hotel - - - - (681) - (681)
======== =========== =============== ======== ===================== ================= ========
17,928 (2,644) 493 141 (681) (101) 15,136
======== =========== =============== ======== ===================== ================= ========
For the six months
ended 30
June 2019
REVENUE
Pharmaceutical 24,335 - - - - - 24,335
Healthcare 1,704 2,822 2,911 - - (171) 7,266
Cosmetics 113 - - - - - 113
Hotel - - - - 6,601 - 6,601
======== =========== =============== ======== ===================== ================= ========
26,152 2,822 2,911 - 6,601 (171) 38,315
======== =========== =============== ======== ===================== ================= ========
GROSS PROFIT/(LOSS)
Pharmaceutical 15,943 - - - - - 15,943
Healthcare 321 (907) 149 - - (11) (448)
Cosmetics (169) - - - - (5) (174)
Hotel - - - - 920 - 920
======== =========== =============== ======== ===================== ================= ========
16,095 (907) 149 - 920 (16) 16,241
======== =========== =============== ======== ===================== ================= ========
PRINCIPAL RISKS AND UNCERTAINTIES
The directors do not consider that the principal risk and
uncertainties, as set out on pages 14 to 21 of the annual report
for the year ended 31 December 2019, have changed materially since
its publication.
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
Six months ended Six months ended
30 June 2020 30 June 2019
USD'000 USD'000
Notes (Unaudited) (Unaudited)
Revenue 4 35,231 38,315
Cost of sales (20,095) (22,074)
=========== ================
Gross profit 15,136 16,241
Other income 646 1,354
Selling and distribution expenses (6,856) (8,819)
Administrative expenses (11,194) (14,275)
Provision for expected credit losses
on
financial assets (38) (200)
=========== ================
Loss from operations (2,306) (5,699)
Non-operating income and expenses 5 75,936 7,856
Finance costs (4,716) (5,872)
Share of post-tax result of associates 189 1,285
=========== ================
Profit/(Loss) before income tax 69,103 (2,430)
Income tax expense (6,787) (402)
=========== ================
Profit/(Loss) for the period 62,316 (2,832)
=========== ================
Profit/(Loss) for the period attributable
to:
Owners of the parent 16,824 (5,134)
Non-controlling interests 45,492 2,302
=========== ================
62,316 (2,832)
=========== ================
US cents US cents
Profit/(Loss) per share (Restated)
Basic and diluted 6 0.87 cents (1.09 cents)
=========== ================
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended
30 June 2020 30 June 2019
USD'000 USD'000
(Unaudited) (Unaudited)
Profit/(Loss) for the period 62,316 (2,832)
=========== ================
Other comprehensive income
Items that may be reclassified subsequently
to
profit or loss:
Exchange differences on translating foreign
operations (577) (315)
Exchange differences reclassified to profit
or loss
upon partial disposal of an associate - 309
Exchange differences reclassified to profit
or loss 1,937 -
upon deemed disposal of an associate
=========== ================
Other comprehensive income for the period,
net of tax 1,360 (6)
=========== ================
Total comprehensive income for the period 63,676 (2,838)
=========== ================
Total comprehensive income attributable
to:
Owners of the parent 17,882 (5,061)
Non-controlling interests 45,794 2,223
=========== ================
63,676 (2,838)
=========== ================
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 June 31 December
2020 2019
USD'000 USD'000
Notes (Unaudited) (Audited)
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 173,958 190,380
Intangible assets 23,214 25,182
Goodwill 7 9,419 19,077
Interests in associates 2,166 11,447
Other non-current financial assets - -
============== ================
208,757 246,086
============== ================
CURRENT ASSETS
Inventories 9,036 11,347
Trade and other receivables 40,206 44,375
Financial asset at fair value through profit
or loss 111,641 -
Pledged bank deposits 13,684 28,626
Cash and cash equivalents 40,633 25,189
============== ================
215,200 109,537
============== ================
TOTAL ASSETS 423,957 355,623
============== ================
EQUITY AND LIABILITIES
CAPITAL AND RESERVES
Called up share capital 8 19,228 19,062
Share premium 62,573 51,035
Treasury shares - (1,765)
Convertible instruments 53,805 -
Contributed surplus 15,496 -
Capital and special reserve 96,850 96,850
Revaluation reserve 2,865 2,865
Foreign exchange reserve (22,581) (23,639)
Fair value through other comprehensive income
reserve (385) (385)
Statutory reserve 11,208 11,208
Profit and loss account (91,734) (108,558)
============== ================
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 147,325 46,673
NON-CONTROLLING INTERESTS 91,167 45,373
============== ================
TOTAL EQUITY 238,492 92,046
============== ================
30 June 31 December
2020 2019
USD'000 USD'000
(Unaudited) (Audited)
NON-CURRENT LIABILITIES
Borrowings 11,594 61,338
Lease liabilities 369 483
Deferred tax liabilities 42,031 36,262
=========== ===========
53,994 98,083
=========== ===========
CURRENT LIABILITIES
Borrowings 105,939 98,360
Lease liabilities 432 653
Current tax liabilities 986 1,407
Trade and other payables 22,493 63,321
Contract liabilities 421 582
Other financial liabilities 1,200 1,171
=========== ===========
131,471 165,494
=========== ===========
TOTAL LIABILITIES 185,465 263,577
=========== ===========
TOTAL EQUITY AND LIABILITIES 423,957 355,623
=========== ===========
NOTES
1. BASIS OF PREPARATION
The unaudited condensed consolidated interim financial
statements of Cathay International Holdings Limited (the "Company")
and its subsidiaries (hereinafter collectively known as the
"Group") for the six months ended 30 June 2020 (the "Interim
Financial Statements") have been prepared in accordance with
International Accounting Standard ("IAS") 34, Interim Financial
Reporting issued by the International Accounting Standards Board
(the "IASB").
The preparation of the Interim Financial Statements in
compliance with IAS 34 requires the use of certain judgements,
estimates and assumptions that affect the application of policies
and the reported amounts of assets and liabilities, income and
expenses on a year to date basis. Actual results may differ from
these estimates. The areas where significant judgments and
estimates have been made in preparing the financial statements and
their effect are disclosed in note 3.
These Interim Financial Statements are presented in United
States Dollars ("USD"), unless otherwise stated. The Interim
Financial Statements contain condensed consolidated financial
statements and selected explanatory notes. The notes include an
explanation of events and transactions that are significant to an
understanding of the changes in financial position and performance
of the group since the 2019 annual financial statements. The
Interim Financial Statements do not include all of the information
required for a complete set of financial statements prepared in
accordance with International Financial Reporting Standards
("IFRSs") (which collective term includes all applicable individual
International Financial Reporting Standards and Interpretations as
approved by the IASB, and all applicable individual International
Accounting Standards and Interpretations as originated by the Board
of the International Accounting Standards Committee and adopted by
the IASB), and should be read in conjunction with the 2019 annual
financial statements of the Group . The Interim Financial
Statements are neither audited nor reviewed by the Group's
auditor.
The Interim Financial Statements have been prepared with the
same accounting policies adopted in the 2019 annual financial
statements, except for those that relate to new standards or
interpretations effective for the first time for periods beginning
on or after 1 January 2020.
2. CHANGES IN ACCOUNTING POLICIES
In the current interim period, the Group has applied, for the
first time, the following amended to IFRSs issued by the IASB that
are effective for the annual period beginning on or after 1 January
2020 for the preparation of the Interim Financial Statements.
Amendments to IAS 1 and IAS 8 Definition of Material
Amendments to IFRS 3 Definition of a Business
Amendments to IFRS 9, IAS 39 and Interest Rate Benchmark Reform
IFRS 7
The adoption of the above amended IFRSs has no material impact
on the Group's result and financial position for the current or
prior periods.
The Group has not early applied any new standards or
interpretation that is not effective for the current accounting
period.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of Interim Financial Statements requires
management to make judgements, estimates and assumptions that
affects the application of accounting policies and the reported
amounts of assets and liabilities, income and expenses. Actual
results may differ from these estimates.
In preparing the Interim Financial Statements, significant
judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the
same as those that applied to the consolidated financial statements
for the year 31 December 2019 except for as explained below.
Classification of equity investment in Starry
In April 2020, since the Group's senior management was ceased to
be a director of Zhejiang Starry Pharmaceutical Co., Ltd.
("Starry"), the Group did not have the right to exercise
significant influence on Starry and accordingly derecognised its
interests in Starry as an associate of the Group. They are
classified as financial asset at fair value through profit or loss
("FVTPL") according to the guidance in IFRS 9, Financial
Instruments. This classification requires significant judgment. In
making this judgment, the Group evaluated the intention of holding
the shares of Starry at inception.
Change in value of financial asset at FVTPL is recognised in
profit or loss as part of non-operating income and expenses.
4. SEGMENT INFORMATION
Information reported to the executive directors, being the chief
operating decision makers ("CODM"), for the purposes of resource
allocation and assessment of segment performance based on the types
of goods delivered.
Management currently identifies the Group's five products and
service lines as operating segments as follows:
1) the Lansen segment is focused on the manufacture, marketing
and sale of pharmaceuticals, cosmetic products and plant extracts
and healthcare products in the People's Republic of China (the
"PRC");
2) the Haizi segment is engaged in the manufacture, marketing
and sale of inositol and phosphate related products;
3) the Natural Dailyhealth segment is engaged in the production
and sales of plant extracts for use as key active ingredients in
health products and sale of health food products;
4) the Botai segment is engaged in the production and sales of
collagen injectable fillers and development of collagen related
products; and
5) the Hotel operations segment is a hotel located in the Lowu
district of Shenzhen in the PRC and provides room rentals, food and
beverage sales and meeting room rentals.
These operating segments are monitored and strategic decisions
are made on the basis of adjusted segment operating results.
Segment information can be analysed as follows for the reporting
periods under review.
Inter-segment transactions are priced with reference to prices
charged to external parties for similar order. Certain revenue and
expenses are not allocated to the operating segments as they are
not included in the measure of the segments' profit/(loss) that is
used by CODM for assessment of segment performance.
Hotel
Healthcare Operations Elimination Total
===========
Natural
Dailyhealth
Lansen Haizi Botai
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Six months ended
30 June
2020
REVENUE
External sales
-
Recognised
at a point
in time 26,774 3,066 3,400 210 549 - 33,999
-
Recognised
over time - - - - 1,232 - 1,232
=========== =========== =============== =========== ============ ============ ===========
26,774 3,066 3,400 210 1,781 - 35,231
Inter-segment
sales 2 7 98 20 - (127) -
=========== =========== =============== =========== ============ ============ ===========
Segment
revenue 26,776 3,073 3,498 230 1,781 (127) 35,231
=========== =========== =============== =========== ============ ============ ===========
Segment
profit/(loss)
before
income tax 103,242 (27,248) (643) (385) (1,172) 123 73,917
Six months ended
30 June
2019
REVENUE
External sales
-
Recognised
at a point
in time 26,094 2,821 2,799 - 1,997 - 33,711
-
Recognised
over time - - - - 4,604 - 4,604
=========== =========== =============== =========== ============ ============ ===========
26,094 2,821 2,799 - 6,601 - 38,315
Inter-segment
sales 58 1 112 - - (171) -
=========== =========== =============== =========== ============ ============ ===========
Segment
revenue 26,152 2,822 2,911 - 6,601 (171) 38,315
=========== =========== =============== =========== ============ ============ ===========
Segment
profit/(loss)
before
income tax 5,439 (3,513) (1,011) (777) 445 2,623 3,206
=========== =========== =============== =========== ============ ============ ===========
The Group's reportable segments profit reconciled to the Group's
profit/(loss) before income tax as presented in the Interim
Financial Statements as follows:
Six months Six months ended
ended 30 June 2019
30 June 2020
USD'000 USD'000
(Unaudited) (Unaudited)
Reportable segment profit 73,917 3,206
Unallocated corporate income 10 9
Unallocated corporate expenses (4,824) (5,645)
============= ================
Profit/(Loss) before income tax 69,103 (2,430)
============= ================
No segment assets or segment liabilities is presented as they
are not regularly provided to the CODM. The Group's revenue is
divided into the following geographical areas:
Six months Six months ended
ended 30 June 2019
30 June 2020
USD'000 USD'000
(Unaudited) (Unaudited)
The PRC (domicile) 32,997 35,130
Overseas 2,234 3,185
============= ================
Total 35,231 38,315
============= ================
The geographical location of customers is based on the location
at which the services were rendered or the goods delivered. The
Company is an investment holding company incorporated in Bermuda
where the Group does not have any activities, the Group has the
majority of its operations and workforce in the PRC, and therefore,
the PRC is considered as the Group's country of domicile for the
purpose of the disclosures as required by IFRS 8, Operating
Segments.
Revenue from contracts with customers is disaggregated by the
followings:
Six months Six months ended
ended 30 June 2019
30 June 2020
USD'000 USD'000
(Unaudited) (Unaudited)
Sales of pharmaceutical products 25,556 24,335
Sales of healthcare products 7,682 7,266
Sales of cosmetic products 212 113
Hotel operations 1,781 6,601
============= ================
Total 35,231 38,315
============= ================
5. NON-OPERATING INCOME AND EXPENSES
Six months ended Six months ended
30 June 2020 30 June 2019
USD'000 USD'000
(Unaudited) (Unaudited)
Impairment of intangible assets (2,193) (42)
Impairment of property, plant and equipment
(note 7) (12,623) -
Impairment of goodwill (note 7) (9,658) -
Gain on disposal of an associate, net of tax
(note) - 7,898
Gain on deemed disposal of an associate (note) 45,618 -
Gain on change in value of financial asset
at FVTPL (note) 54,792 -
=========== ================
75,936 7,856
=========== ================
Note:
During the six months ended 30 June 2019, the Group had disposed
of a total of 3,600,000 shares in Starry via on-market sales on the
Shanghai Stock Exchange, at the average price of Renminbi ("RMB")
29.65 per share and resulting in a gain on partial disposal, net of
tax of USD7,898,000. After the partial disposal, the Group's equity
interest in Starry has been reduced from 10.6% as at 31 December
2018 to 7.6% as at 30 June 2019.
As mentioned in note 3, the shares of Starry held by the Group
were classified as financial asset at FVTPL after Starry ceased to
be an associate of the Group in April 2020.
As at 30 June 2020, the Group held a total of 9,402,360 shares
in Starry, representing approximately 4.0% interest of the issued
share capital of Starry.
The carrying value of Starry shares in the condensed
consolidated statement of financial position is measured in
according to the applicable accounting standard and discussed with
the Group's auditor, based on the quoted price on the Shanghai
Stock Exchange of RMB84.06 per Starry share times the 9,402,360
shares held on 30 June 2020. At this price, Starry's historical
price-earnings ratio is 83 times. The stock price of Starry share
has been volatile over a period. Its lowest and highest share
prices in the past 12 months were RMB20.77 and RMB87.97 per Starry
share respectively. The Group is restricted from disposing of the
Starry shares under the Shanghai Stock Exchange rules: the total
amount of share reduction through block trade sales and the
centralised competitive bidding system in any consecutive ninety
day period shall not exceed 2% and 1% respectively of the total
number of issued shares in Starry. The weighted average selling
price of the Group's disposals of Starry in the past 18 months of
RMB30.83, this is 63.32% lower than the above mention RMB84.06 per
Starry shares on 30 June 2020.
The Group will actively seek for opportunity to further dispose
of Starry shares, and subject to prevailing market price of Starry
shares and general stock market conditions, as well as selling
restrictions described above. Accordingly, the actual sales
proceeds from disposals may be subject to the market volatility and
maybe lower from the carrying value recorded as at 30 June 2020. In
the event that the actual disposal proceeds of Starry shares at the
prevailing market price or the carrying value remeasured based on
reference price as at 31 December 2020 is below the carrying value
as at 30 June 2020, there would be a partial or complete reversal
at year end of the unreali s ed gain so recorded.
6. PROFIT/(LOSS) PER SHARE
The calculation of the basic and diluted profit/(loss) per share
attributable to the owners of the Company is based on the following
data:
Six months ended 30 June 2020 Six months ended
30 June 2019
Thousands Thousands
(Unaudited) (Unaudited)
(Restated)
Number of shares
Common Shares
Weighted average number of Common Shares outstanding
(after adjusting the treasury shares held
by the Company and convertible instruments)
for the purpose of basic and diluted
profit/(loss) per share 1,923,667 461,611
===================================================================================================== ===================
A Shares
Weighted average number of A Shares for the
purpose of basic
and diluted profit/(loss) per share 8,951 8,954
===================================================================================================== ===================
The basic and diluted profit/(loss) per share for current and
prior reporting periods have been adjusted as a result of open
offer and subscription completed in May 2020 as set out in note
8.
The Company had issued 2,916,256,247 convertible instruments of
new Common Shares to controlling shareholder, which are mandatorily
convertible instrument and required to include in calculation of
basic earnings per share from the date the contract is entered
into.
The Group has no potential dilutive shares during the
period.
For six months ended 30 June 2019, the computation of diluted
loss per share did not include the 9,437,899 Common Shares
contingently issuable to Mr. Lee (a former director) as the
conditions for their issue were not met throughout the period.
7. GOODWILL
30 June 31 December
2020 2019
USD'000 USD'000
(Unaudited) (Audited)
Net carrying amount at 1 January 19,077 19,502
Impairment losses recognised in profit or loss (9,658) (425)
================= ===========
Net carrying amount 9,419 19,077
================= ===========
The Group tests goodwill annually for impairment, or more
frequently if there are indications that goodwill might be
impaired.
For the purpose of impairment testing, goodwill has been
allocated to four individual CGUs as follows:
30 June 31 December
2020 2019
USD'000 USD'000
(Unaudited) (Audited)
Healthcare - Lansen 7,356 7,357
Healthcare - Haizi - 9,657
Healthcare - Natural Dailyhealth 2,010 2,010
Healthcare - Botai 53 53
=========== ===========
9,419 19,077
=========== ===========
During the six months ended 30 June 2020, management conducted
an impairment test on healthcare - Haizi unit. The recoverable
amount of the healthcare - Haizi unit is determined based on a
value in use calculation which uses cash flow projections based on
financial budgets approved by management covering a five-year
period. The pre-tax discount rate applied to cash flow projections
is 15% (31 December 2019: 16%). The growth rate used to extrapolate
the cash flows beyond the five-year period is 2.82% (31 December
2019: 2.82%) which does not exceed the long-term growth rate. Other
key assumptions for the value in use calculations relate to the
estimation of cash inflows/outflows which include budgeted sales
and gross margin, such estimation is based on the unit's past
performance and management's expectations for the market
development including rebound of sales price of inositol. Based on
the impairment test performed, impairment loss of USD9,657,000,
USD12,623,000 and USD13,000 were recognised in respect of goodwill,
property plant and equipment and intangible assets respectively, to
the extent that the carrying amount exceeded its recoverable amount
based on the best estimate by the management. The impairment losses
were recognised under "non-operating income and expenses" (note 5)
included in the condensed consolidated statement of profit or
loss.
8. SHARE CAPITAL
30 June 31 December
2020 2019
USD'000 USD'000
(Unaudited) (Audited)
Authorised
9,874,961,433 (31 December 2019: 544,474,103)
Common Shares of
USD0.01 (31 December 2019: USD0.05) each 98,750 27,224
14,042,105 (31 December 2019: 14,042,105) A
Shares of USD0.01
(31 December 2019: USD0.05) each 140 702
=========== ===========
98,890 27,926
=========== ===========
Allotted, called up and fully paid
1,913,811,218 (31 December 2019: 372,289,793)
Common Shares of
USD0.01 (31 December 2019: USD0.05) each 19,138 18,614
8,948,381 (31 December 2019: 8,952,981) A Shares
of USD0.01 (31
December 2019: USD0.05) each 90 448
=========== ===========
19,228 19,062
=========== ===========
The movement in the issued share capital during the period is as
follows:
Number of Common
Number of Shares
A Shares in in issue Share capital
issue
USD'000
At 1 January 2019 (Audited) 8,953,536 372,289,238 19,062
Conversion of A Shares (555) 555 -
================= ======================== ==================
At 1 January 2020 (Audited) 8,952,981 372,289,793 19,062
Conversion of A Shares (note a) (4,600) 4,600 -
Settlement of share grants and share
subscription
(note b) - 6,153,255 308
Share capital reduction (note c) - - (15,496)
Issue of shares upon open offer and
subscription
(note d) - 1,535,363,570 15,354
================= ======================== ==================
At 30 June 2020 (Unaudited) 8,948,381 1,913,811,218 19,228
================= ======================== ==================
Notes:
a) The A Shares and the Common Shares rank equally in all
respects save that each A Share carries 20 votes and each Common
Share carries one vote. A Shares are convertible into Common Shares
on a one for one basis by application in accordance with the
Bye-Laws of the Company. During the period, 4,600 A Shares were
converted into 4,600 Common Shares by the application of holders of
A Shares.
b) During the period, 3,284,644 Common Shares held as treasury
shares were transferred to Mr. Lee (a former director) and the
Company also issued and allotted 6,153,255 new Common Shares to Mr.
Lee, in accordance with the share grants and share
subscription.
c) On 15 May 2020, the par value is reduced from USD0.05 to
USD0.01 per Common Share and from USD0.05 to USD0.01 per A Share.
The credit arising from the share capital reduction amounted to
USD15,496,000 and was transferred to the contributed surplus of the
Company.
d) Pursuant to the Open Offer and Subscription approved by
Shareholders on 15 May 2020, a total of 1,535,363,570 new Common
Shares were issued for a consideration of USD26,347,000, net of
expenses USD1,981,000.
9. EVENT AFTER THE REPORTING DATE
During the period from 14 to 23 July 2020, the Group had
disposed of a total of 4,683,505 shares in Starry via on-market
sales on the Shanghai Stock Exchange, at the average price of
RMB76.76 per share. After the partial disposal, the Group's equity
interest in Starry was reduced from 4.0% as at 30 June 2020 to 2.0%
as at 23 July 2020. On 7 August 2020, Starry completed the
transaction of non-public offering of shares and the Group's equity
interest in Starry was diluted to 1.9% accordingly.
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END
IR SEAFSAESSEIA
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