TIDMZBO
RNS Number : 2231B
Zibao Metals Recycling Holdings PLC
19 September 2018
For immediate release
19 September 2018
RNS Announcement: The information communicated in this
announcement contains inside information for the purposes of
Article 7 of Regulation 596/2014.
Zibao Metals Recycling Holdings Plc
("Zibao" or the "Company" or the "Group")
Final Results for Year Ended 31 March 2018
Highlights
-- Revenue HKD 857.1 million (2017: HKD 808.9 million)
-- Profit Before Tax HKD 1.8 million (2017: HKD 1.1 million)
-- Net Profit after tax HKD 1.7 million (2017: HKD 1.0 million)
-- Cash position at period end HKD 12.3 million (2017: HKD 1.3 million)
-- Direct sales at the Zhengbao Yard accounted for 76% of the total Group sales
-- The Board will not declare a final dividend (2017: Nil)
The full Annual Report and Notice of AGM will shortly be posted
to shareholders and be made available on the Company's website,
www.zibaometals.com.
For further information please contact:
Zibao Metals Recycling Holdings Plc
Wenjie "Joe" Zhou, Chairman
Jianfeng "Eddy" Li, Chief Executive
Officer
Chor Wei "Alan" Ong, Finance Director
www.zibaometals.com +852 2769 7662
SPARK Advisory Partners Limited (Nominated
Adviser)
Mark Brady
Neil Baldwin
www.sparkadvisorypartners.com +44 (0) 203 368 3551
SI Capital Limited (Broker)
Nick Emerson +44 (0) 1483 413500
Chairman's Statement
Results (Note: all figures are rounded)
Revenue increased by 6% from HKD808.9 million to HKD857.1
million mainly due to increased orders from existing customers and
orders from new customers.
The cash position increased from HKD1.3 million to HKD12.3
million principally due to the decreased requirement for working
capital to fund inventories to support the growth in sales.
The gross profit increased from HKD8.1 million to HKD9.3
million, as a result of higher margins arising from the
diversification of the customer base. Profit after taxation
increased from HKD1.0 million to HKD1.7 million.
Administrative expenses increased from HKD7.2 million to HKD7.3
million.
Business Model
China's rapid economic growth has turned it into a major
consumer of both aluminium and copper. To help service this need
the Group imports both "unprocessed" aluminium scrap (also known as
"Zorba") which has already been shredded, but before smelting
requires sorting and cleaning, as well as copper wiring, requiring
the casing (insulation) being stripped before it can be refined.
These final stages of production are labour intensive and typically
the Group's customers will carry out this treatment before
on-selling to refiners.
In the year ended 31 March 2018 copper has accounted for 71% of
the Group's sales (by value) with the balance coming from sales of
aluminium.
The Group operates both in back-to-back sales trading and,
following the acquisition of Zhengbao, in the holding and
processing of stock, much of which is purchased locally.
Since acquiring the Zhengbao Yard in January 2016 the Group now
holds stock at this site from which it makes direct sales. Such
sales accounted for 76% of total Group sales for the year ended 31
March 2018 and it is the intention to further increase the
percentage of sales from this side of the business, primarily by
increasing the customer base. Direct sales have the added benefit
of reducing the credit exposure required to support back-to-back
sales.
The Group and indirectly its customers depend upon the integrity
and reliability of the suppliers in terms of availability, quality
and delivery of raw material. Particularly in respect of
back-to-back sales strong relationships are essential to the
development of the business - these extend both up and down the
supply chain. In many cases there has been a long-term relationship
which is a significant factor in reducing risk. This is especially
relevant to China where credit referencing is unreliable and the
Group is dependent upon its relationships with its customers and on
its own local knowledge of its customer base and the metal
recycling market in the PRC generally.
Suppliers
Goods are sourced globally, as is shown by the table below:
Percentage of Sales
Source FY 2015 FY 2016 FY 2017 FY 2018
Asia (Including the PRC) 60% 92% 90% 77%
Australia 17% - - -
Europe 16% 5% 4% 8%
North America 7% 2% 4% 13%
Others - 1% 2% 2%
-------- -------- -------- -------
Goods shown as "sourced" from Asia are mainly supplied through
the offices of international companies or importers based in Hong
Kong which may in turn source from other areas including US, Europe
and Australia. The level of trade with individual suppliers varies
significantly from year to year. No one supplier accounted for more
than 43% of purchases in any of the three years ended 31 March
2018.
As at 31 March 2018, the Group held HKD25.8 million of stock of
which HKD18.7 million of inventory was held at the yard at Zhengbao
with the remainder being accounted for by goods in transit.
Trading and Outlook
Due to the continued weakening of the PRC economy and the
limited availability of credit, the trading environment has become
more challenging than the Board anticipated. Competition remains
intense; in an effort to meet these challenges Zibao has
strengthened its competitive position by offering more services to
its customers, such as stripping, sorting and cleaning of
materials.
In addition to the overall weak trading environment, between
January and April 2018, China's Ministry of Ecology and Environment
("MEE") made various announcements banning the importation of 32
types of scrap materials including plastic waste and unsorted waste
paper (which the MEE labels as "solid waste"). In addition, the MEE
announced the imposition of tighter quality standards on all scrap
imports beginning March 1, 2018. Such scrap imports include the
metal scrap which the Group buys directly or indirectly from
overseas.
Whilst there has been no discernible impact on the financial
year ended 31 March 2018 it is clear that the MEE's ruling will
have a direct impact on the Group's ability to source its raw
materials from its existing supplier base and, as a result, the
Group's current trading model is likely to be adversely and
significantly affected by these new regulations. The Board is
evaluating the potential impact, both on the market as a whole, and
specifically the effect on the Group and is actively investigating
and developing a revised trading and operational strategy to
mitigate, as far as possible, the new regulatory environment. As
part of this process the Group is exploring new sources of supply
but remains cautious as to the speed of transition to any new
supply arrangements. The Board is of the view that sales will be
significantly reduced in the current year compared to the prior
year, and that the Group will likely report a loss for the period.
The Group is also undertaking a review of costs which will be
reduced, wherever possible, to help mitigate the anticipated fall
in revenues.
The Company will keep shareholders updated with its progress in
securing the new supplies as appropriate.
Wenjie Zhou
Chairman
18 September 2018
Directors and officers
The board of Zibao Metals Recycling Holdings Plc ("Company")
consists of three executive directors and three non-executive
directors.
Wenjie ("Joe") Zhou, CPA, Chairman and executive director, aged
50
Joe Zhou is the chairman and executive director of the Company.
He is responsible for the strategic planning, development of
strategic supplier and customer relationships and finance of the
Group.
Joe Zhou is also the non-executive chairman of the Singapore
listed Net Pacific Financial Holdings Limited. With over 16 years
of experience in the industry of recycling of ferrous and
non-ferrous metals, Joe Zhou holds non-executive directorships in
various companies involved in the metal recycling business,
including Wuzhou Junbao Metals Company Limited, Guixi Huibao Metals
Company Limited, Foshan Zibao Metals Company Limited; Ningbo Global
Recycling Resources Company Limited, Global Metals Limited and
Global Metals America Limited Inc.
In addition, he also invests in property developments and
investments in China and Australia, private equity funds in China,
fund management and metal recycling related businesses. He
graduated from the University of New South Wales, Australia with a
Bachelor of Economics (major in Accounting and Economics). He is a
Certified Practising Accountant (of Australia).
Jianfeng ("Eddy") Li, Chief executive officer and executive
director, aged 42
Eddy is the chief executive officer and executive director of
the Company. He is responsible for the overall management, sales
and purchases for the Group.
Eddy Li has over 15 years of experience in the industry of
recycling of ferrous and non-ferrous metals and holds non-executive
directorships in Foshan Beifang Guangdian Metals Company Limited,
Wuzhou Junbao Metals Company Limited and Guixi Huibao Metals
Company Limited, all of which are involved in the metal recycling
business.
He holds a Bachelor of Engineering Degree (major in
Architecture) from the Guangdong University of Technology.
Chor Wei Ong ("Alan Ong"), ACA, CPA, Executive finance director,
aged 49
Alan Ong is the Company's Finance Director and is responsible
for overseeing the finance function within the Group.
Alan Ong is currently also a non-executive director of Joyas
International Holdings Limited and an executive director of Net
Pacific Financial Holdings Limited, both of which are listed in
Singapore. He is also currently an independent non-executive
director of Man Wah Holdings Limited, Nameson Holdings Limited,
Denox Environmental & Technology Holdings Limited, O-Net
Technologies (Group) Limited (formerly known as O-Net
Communications (Group) Limited) and Smart Globe Holdings Limited,
all of which are listed in Hong Kong. He is also the non-executive
director of Vico International Holdings Limited and Prosperous
Printing Company Limited, all of which are listed in Hong Kong.5He
has over 25 years of experience in finance and accounting. He holds
a Bachelor of Laws degree from the London School of Economics and
Political Science and a distance learning Masters degree in
Business Administration jointly awarded by the University of Wales
and the University of Manchester.
Mr Ong is an associate member of The Institute of Chartered
Accountants in England and Wales and a member of the Hong Kong
Institute of Certified Public Accountants.
Chin Phang Kwok, non-executive director, aged 52
Mr. Kwok is a non-executive director of Joyas International
Holdings Limited and an executive director of Net Pacific Financial
Holdings Limited, both of which are listed in Singapore. He worked
for Nomura Singapore Limited from 1994 to 2008 and has more than 16
years of experience in the investment banking industry. He has
extensive experience in capital markets, corporate advisory and
mergers and acquisitions. He graduated from King's College,
University of London, with a Bachelor of Engineering Degree (First
Class Honours) in Electrical and Electronic Engineering.
Peter George Greenhalgh, Independent non-executive director,
aged 78
Peter Greenhalgh is a financial consultant. Between 1956 and
1990 he worked for Barclays Bank DCO/International in a variety of
positions, mainly overseas, and which latterly included Regional
Inspector for the Far East, based in Hong Kong. Between 1990 and
2000 he worked for Henry Ansbacher, a merchant bank, in audit and
compliance roles, including that of compliance director. Since
leaving Ansbacher he has worked for Hoodless Brennan & Partners
Plc (a stockbroker) as projects director and Chancery Lane Finance
Limited as managing director.
Ajay Kumar Rajpal, Independent non-executive director, aged
49
Ajay Rajpal is a Chartered Accountant and a member of the
Institute of Chartered Accountants in England and Wales. Mr. Rajpal
has a background in cross-border mergers and acquisitions,
financial management and corporate recovery. Mr. Rajpal qualified
with Arthur Andersen, and has worked for Smith Industries plc, as
well as a number of other international firms.
Strategic Report
Review of the business
A review of the business of the Group, together with comments on
future development is given in the Chairman's Statement.
Principal Risks and Uncertainties
The Directors continually monitor, identify and manage the risks
and uncertainties affecting the Group. Risk is inherent in all
businesses. Set out below are the major risk factors which could
have an impact on the Group's long-term performance and the
mitigating factors adopted to alleviate these risks. This list does
not purport to be an exhaustive summary of the risks affecting the
Group.
Political sensitivity
The export of aluminium and copper for reprocessing has on
occasion been treated as an economically sensitive issue for the
countries from which such export takes place and historically has
been subject to government and regulatory controls in certain
jurisdictions (including the UK and the US). Were such controls to
be reinstated by any of the countries from which the Group sources
its supplies (either directly or indirectly), this could have a
material adverse effect on the Group's business.
Insurance risk
The value of goods traded is high relative to the Group's
profits. If a shipment is lost or delayed at sea the Group may be
obliged to recover any loss from insurers or other contracting
parties. Any delay in recovery will adversely affect the Group's
working capital and limit its ability to trade.
Competition risk
The metal recycling industry in China is highly fragmented with
market players scattered throughout the country. Any increase in,
or consolidation of, competition in the market may result in
pressure on the Group's profit margin and business prospects.
Financial and capital risk management
The Group has adopted various financial capital risk management
policies and procedures which are set out in Note 25 to the
financial statements.
Key Performance Indicators
The key performance indicators currently used by the Group are
revenue, operating profit, cash resources and sales tonnage.
These are addressed in the Chairman's Statement.
Employees
The Group has continued to give full and fair consideration to
applications made by disabled persons, having regard to their
respective aptitudes and abilities, and to ensure that they benefit
from training and career development programmes in common with all
employees. The Group has continued its policy of employee
involvement by making information available to employees through
the medium of frequent staff meetings, together with personal
appraisals and feedback sessions.
Wenjie Zhou
Director
18 September 2018
Directors' Report
The directors have pleasure in submitting this report together
with the accounts of Zibao Metals Recycling Holdings Plc ('the
Company') and its subsidiary undertakings (together 'the Group')
for the year ended 31 March 2018.
The Company was formed on 9 October 2013 as Zibao Metals
Recycling Holdings Limited ("the Company") and changed to its
current style on 28 March 2014. On 20 June 2014 the company gained
admission to the Alternative Investment Market (AIM).
The Company was set up as a holding company for Masterpiece
Enterprises Limited ("MEL"), a company registered and operating in
Hong Kong. The Company acquired its 100% interest in MEL by way of
a share for share exchange. This has been accounted for as a group
reorganisation in the group accounts.
As the business combination involved entities under common
control, the consolidated financial statements are issued in the
name of the Group but they are a continuance of MEL.
Principal Activities
The principal activities of the Group are those of providing
products and services to the metal recycling industry.
Results and dividend
The results for the year are set out in the Consolidated
Statement of Comprehensive Income. Refer to Note 11 for details of
interim dividends paid during the year by the Group.
Directors and their interests
The directors who held office during the year are as
follows:
Wenjie ("Joe") Zhou
Jianfeng ("Eddy")
Li
Chor Wei Ong ("Alan
Ong")
Chin Phang Kwok
Peter George Greenhalgh
Ajay Kumar Rajpal
The interests of those directors serving at the year ended 31
March 2018, all of which are beneficial, in the share capital of
the Company, were as follows:
Shares of 0.1p %
each
------------------------ -------------- -----
Wenjie Zhou 58,000,000 47.5%
Sino Jump Global Inc
(Note 1) 10,000,000 8.2%
Add Profit Corporations
(Note 1) 10,000,000 8.2%
Note 1:
Wenjie Zhou owns 100% of the beneficial interest
Except as set out above, none of the Directors or their
immediate families had at 31 March 2018, acquired or disposed of
since that date, any interest in any shares in the Company or any
of its subsidiaries, any rights to subscribe for shares in the
Company or any of its Subsidiaries.
On 16 June 2014 the Company granted options on 525,000 ordinary
shares to certain directors. The options are exercisable at 8p per
share after the first anniversary of Admission, provided that the
director remained in office until then.
Share Capital
Details of the Company's share capital are disclosed in Note 20
of the financial statements.
Financial Instruments
Details of the use of financial instruments by the Company and
its subsidiary undertakings are disclosed in Note 25 to the
financial statements.
Statement to Auditors
So far as the directors are aware, there is no relevant audit
information (as defined by section 418 of the Companies Act 2006)
of which the Company's auditors are unaware, and each director has
taken all the steps that he ought to have taken as a director in
order to make himself aware of any relevant audit information and
to establish that the Company's auditors are aware of that
information.
Substantial Shareholdings
As at 10 September 2018, the following interests in 3% or more
of the issued ordinary share capital appear in the register:
Shareholder Number of shares Percentage of
issued share
capital
Wenjie Zhou 58,000,000 47.5%
Solid Profits International Limited 24,760,000 20.3%
Sino Jump Global Inc 10,000,000 8.2%
Add Profit Corporation 10,000,000 8.2%
Liu Jian Yang 9,300,000 7.6%
Payment of Creditors
The Group does not follow any published code or statement on
payment practice. However, it is the Group's policy to settle all
amounts due to its creditors on a timely basis, taking into account
the credit period afforded by each creditor.
Post Balance Sheet Events
Details of post-balance sheet events are disclosed in Note 31 to
the financial statements.
Directors' Responsibilities
The directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted for
use in the European Union. The financial statements are required by
law to give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Group for
that year. In preparing these financial statements, the directors
are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable and
prudent;
- prepare the Financial statements on the going concern
basis unless it is inappropriate to presume that the
company will continue in business.
- state whether applicable IFRS as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements.
The directors are responsible for keeping adequate accounting
records which disclose with reasonable accuracy at any time the
financial position of the company and the Group and to enable them
to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of
the Company and the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Listing
The Company's ordinary shares have been traded on London's AIM
Market, since 20 June 2014. Spark Advisory Partners Limited are the
Company's Nominated Advisor.
Publication of Financial Statements
The Company's financial statements will be made available on the
Company's web-site http://www.zibaometals.com. The maintenance and
integrity of the website is the responsibility of the directors.
The directors' responsibility also extends to the financial
statements contained therein.
Going Concern
After making appropriate enquiries, the directors consider that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. For this reason
they continue to adopt the going concern basis in preparing the
financial statements. This is reflected in the section 'Going
Concern' in Note 2 to the financial statements.
Auditors
In accordance with Section 485 of the Companies Act 2006, a
resolution proposing that Jeffreys Henry LLP be re-appointed as
auditors will be put to the Annual General Meeting.
Strategic Report
In accordance with section 414C(11) of the Companies Act 2006
the Company choose to report the review of the business, the future
outlook and the risks and uncertainties faced by the Group in the
Strategic Report on page 7.
The Report of the Directors was approved by the Board on 18
September 2018 and signed on its behalf by:
Wenjie Zhou
Director
18 September 2018
UK Corporate Governance Statement
The Corporate Governance Code (the 'Code')
Though full compliance with the Code is not mandatory for the
Group, it is the policy of the board to adopt its main principles
and comply with its guidelines when it is reasonably practicable to
do so. The small size of the Company and its current stage of
development mean that it would not be sensible or even possible to
adhere to some of the guidelines in the Code. The Company plans to
adopt the QCA Corporate Governance Code April 2018 with effect from
28 September 2018 and will report on its application on its
website.
In addition to summarising its Corporate Governance procedures,
the following statement also sets out some aspects of the Code with
which the Company does not comply and explains why it does not or,
in some cases, complies with the spirit of the Code by some other
means.
The Role of the Board
At formal meetings, the board receives reports by Wenjie Zhou or
Jianfeng Li, or both on the overall performance over the previous
period. They were supported by the Finance Director on financial
detail. They are followed with reports on other matters,
particularly progress with development projects. Minutes of board
Committee meetings held since the previous formal board meeting are
received and decisions made by those committees are submitted for
ratification where such is needed.
There is a formal schedule of matters reserved for the board.
This includes the setting of high--level targets, approval of
budgets, strategy, funding, capital expenditure, license agreements
and incentive schemes. Specific authority levels for expenditure
are delegated to individual executives or management committees
according to a schedule agreed by the board.
Whilst the bulk of the formulation of budgets and strategy is
undertaken by executive directors, this is done against a framework
set by the whole board, challenged by it in detail and finally
approved by it.
Financial information submitted regularly to the board includes
monthly balance sheets and profit & loss accounts; together
with analyses of movements in cash, trade debtors and creditors,
and fixed assets.
There are two board Committees; each with terms of reference set
by the board. These are the combined Remuneration Committee and the
Audit Committee.
In the normal course, board Committees make recommendations to
the board but also have certain limited powers delegated to them.
Minutes of Committee meetings are made available to the board as a
whole but may be redacted at the discretion of the Chairman of the
Committee, if appropriate in consultation with the Company
Chairman. Where it is urgent that a recommendation of a Committee
needs to be accepted by the board, this is done by a directors'
resolution in writing.
Certain other high level decisions that cannot await the
convening of a formal board meeting may be agreed by way of written
resolutions. In such cases supporting papers are submitted to the
directors and they are given the opportunity to discuss the matter
with other directors and executive management. Written resolutions
are deemed passed only if all directors vote in favour.
Overcoming geographic and time differences
The board is conscious of the need to overcome the difficulties
that can arise from the time differences and geographic separations
that face directors; both between and within regions.
It is not practical or cost-justified for the whole board to
meet face-to-face at every board meeting. So where one or more
director is unable to be physically present, use is made of
telephone conference calls.
During the course of 2018, there were 2 meetings of the board.
All directors were present at all meetings, either in person or by
conference call. The Company's chairman attended all of the 3
meetings and in person in Hong Kong.
In addition to the board meeting, there are also frequent but
less-formal telephone and email exchanges among directors. On these
occasions there may be discussion of monthly management accounts or
any other topic a director may wish to raise. These meetings are
chaired by the Company's chairman.
In addition to using their influence at board and board
Committee meetings, non--executive directors have direct access to
the secretary of the board Committees. This individual reports
directly to the chairman of the Audit Committee, and has delegated
to him all of the routine company secretarial work.
By these means, the non-executive directors believe that their
roles are being discharged effectively.
Non-executive directors
It is not thought that the Company is large enough to warrant
the formal appointment of a senior non--executive director.
Instead, other non-executive directors are actively and regularly
consulted by the Chairman and encouraged to provide feedback.
Wenjie Zhou and Jianfeng Li as well have maintained a dialogue with
major shareholders and these directors have kept the board up to
date with shareholders' views.
No formal mechanism exists for appraising the effectiveness of
the board as a whole or of the Chairman alone. The Remuneration and
Nomination Committee has not recommended that such a process is
implemented.
Composition and effectiveness of the Board
By virtue of his substantial indirect shareholding in the
Company, Wenjie Zhou has not been considered to be an independent
director. Each of the other two non-executive directors is
considered to be 'independent'.
The service agreements for the non-executive directors were
agreed by the board before the Admission to AIM, and these have not
been changed since. Copies of the service contracts of all current
directors' are available for inspection at the Company's registered
office and at the location of the AGM for a period before that
meeting begins.
All directors may have access to independent professional advice
at Company expense if this is felt by them in their own judgement
that it is needed to enable them to discharge their duties and that
the cost of such advice is reasonable in the circumstances.
Emphasis is placed by the Chairman on the importance of
familiarity with the board pack and the contributions made by
directors. However, given its size, a formal evaluation of board
performance by an outside agency is not believed to be appropriate.
Instead, the Chairman's frequent contact with other directors
provides sufficient opportunity for frequent and effective two-way
'calibration'.
Incentive schemes for staff and directors
All staff enjoy a bonus of 1 month, payable after the end of the
calendar year if they remain in the employment of the Company. In
addition, selected staff will be paid a discretionary bonus that
depends upon personal and company performance. The broad guidelines
for this are set by the Remuneration Committee. The discretionary
bonuses for a few of the most senior staff are also set by that
Committee.
Selected senior members of staff participate in the Company's
share option scheme and the overall award of grants to such staff
is approved by the Remuneration Committee according to the rules of
that committee.
Board Committees
There are two standing Committees of the board. Each committee
has written terms of reference approved by the board. These are
kept under review and updated as needed. During the year, the
Remuneration Committee sat twice, and the Audit and Committee sat
twice. All members were present on each occasion.
The membership and the chairmen of board Committees is
determined by the board but, given the small number of directors,
refreshing membership on a regular or frequent basis is not
viable.
The main purposes and general terms of reference of each board
Committee are set out below.
Remuneration Committee
The Remuneration Committee consists of Chin Phang Kwok and Ajay
Rajpal. Chin Phang Kwok has been appointed chairman. The
Remuneration Committee monitors the performance of each of the
Company's executive Directors and senior executives to ensure they
are rewarded fairly for their contribution. The recommendations of
the Remuneration Committee are presented to a meeting of the full
Board. The remuneration and terms and conditions of appointment of
the non-executive directors are set by the Board as a whole.
The duties of the Remuneration Committee are to:
i Reviewing and recommending the emoluments, pension
entitlements and other benefits of the executive directors and as
appropriate other senior executives; and
ii Reviewing the operation of share option schemes and the granting of such options.
Audit Committee
The Audit Committee consists of Peter Greenhalgh and Ajay
Rajpal. Ajay Rajpal has been appointed chairman. The Audit
Committee is responsible for ensuring that the Combined Code is
implemented in respect to matters relating to the Company's
external audit. In addition, the Committee also discusses the scope
of the audit before its commencement and it receives reports from
the external auditors. The Committee also recommends the
appointment of, and will review the fees of, the external auditors.
The Audit Committee meets the external auditors and meets
internally at least twice per year. It also meets on an ad hoc
basis as required.
The duties of the Audit Committee are to:
i Review of the annual financial statements and interim reports
prior to approval, focusing on changes in accounting policies and
practices, major judgemental areas, significant audit adjustments,
going concern and compliance with accounting standards, Stock
Exchange and legal requirements;
ii Receive and consider reports on internal financial controls,
including reports from the auditors and report their findings to
the Group Board;
iii Consider the appointment of the auditors and their
remuneration including reviewing and monitoring of independence and
objectivity;
iv Meet with the auditors to discuss the scope of the audit,
issues arising from their work and any matters the auditors wish to
raise; and
v Develop and implement policy on the engagement of the external
auditor to supply non-audit services.
vi Develop and implement policy on the engagement of the internal auditor.
The Audit Committee will be provided with details of any
proposed related party transactions in order to consider and
approve the terms and conditions of such transactions.
Bribery Act, 2010 (the 'Act')
The Group has in place a full "Anti-bribery Policy" and this is
augmented by a "Whistle-blower's Policy". Both have been translated
into the Chinese language and all members of staff are required to
read and understand the policies and confirm in writing that they
have done so.
Under guidelines set by the board, a designated 'Group
Compliance Officer' manages the processes and procedures that flow
from the policies, in particular the areas perceived to represent
most risk. The Group Compliance Officer reports to the board or a
board committee as needed.
Since its inception, the board has reviewed the practical
implementation of the Anti-bribery Policy and will do so again at
least once a year. The basic requirements include ensuring
familiarity and acceptance of the policies, risk analysis and
maintenance of an 'incident' book.
On behalf of the board,
Wenjie Zhou
Chairman
18 September 2018
INDEPENT AUDITORS' REPORT TO THE MEMBERS OF Zibao Metals
Recycling Holdings PLC
Opinion
We have audited the financial statements of Zibao Metals
Recycling Holdings Plc (the 'parent company') and its subsidiaries
(the 'group') for the year ended 31 March 2018 which comprise the
consolidated statements of comprehensive income, the consolidated
and company statements of financial position, the consolidated and
company statements of cash flows, the consolidated and company
statements of changes in equity and notes to the financial
statements, including a summary of significant accounting
policies.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union, and, as regards the parent company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
March 2018 and of the group's profits for the year then ended;
-- the group's financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs UK) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the company
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the company's ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for
issue.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a
complete list of all risks identified by our audit.
Key audit matter How our audit addressed the
key audit matter
Impairments of investments and Our audit procedures:
goodwill - We reviewed the estimates
* The Parent Company had investment of HKD30,046,000 as of valuation of investment using
at 31 March 2018. different methodologies;
- We considered whether management
had exercised any bias in assumptions
* The Group had goodwill of HKD1,457,000 as at 31 March used or the outputs produced
2018. in the forecasts prepared.
- We reviewed management's impairment
workings and agree their approach.
* The Parent Company had intercompany debtors of - We reviewed the valuation
HKD42,873,000 as at 31 March 2018 of investment and assessed the
recoverability of intercompany
debtors held by the parent company.
---------------------------------------
Our application of materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgment, we determined materiality
for the financial statements as a whole as follows:
Group financial statements Company financial statements
Overall materiality HKD622,000 (2017: HKD446,000). HKD477,000 (2017: HKD397,000)
---------------------------------- ------------------------------
How we determined Average of 3% of net profit Average 10% of net profit
it and 1% of gross assets. and 1% of gross assets.
---------------------------------- ------------------------------
Rationale for We believe that profit We believe that this
benchmark applied before tax is the primary is adequate for the parent
measure used by the shareholders company as it is a holding
in assessing the performance company with no revenue.
of the Group, and is a
generally accepted auditing
benchmark.
---------------------------------- ------------------------------
For each component in the scope of our Group audit, we allocated
a materiality that is less than our overall Group materiality. The
range of materiality allocated across components was between HKD
41,000 and HKD 477,000.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above HKD 31,000 (2017:
HKD22,000) as well as misstatements below those amounts that, in
our view, warranted reporting for qualitative reasons.
An overview of the scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made
subjective judgments, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits we also addressed the risk of management override of
internal controls, including evaluating whether there was evidence
of bias by the directors that represented a risk of material
misstatement due to fraud.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Group and the Company, the accounting processes and controls, and
the industry in which they operate.
The Group financial statements are a consolidation of three
reporting units, comprising the Group's operating businesses and
holding companies.
We performed audits of the complete financial information of
Zibao Metals Recycling Holdings Plc and the five subsidiaries
Masterpiece Limited, Zibao Metals Co.,Limited, Global Metal
Enterprises Limited, Fine Luck Trading Limited and Qingyun Zheng
Bao Metals Limited. The five subsidiaries were individually
financially significant and accounted for 100% of the Group's
revenue and the
Group's absolute profit before tax (the parent company is
loss-making), i.e. the sum of the numerical values without regard
to whether they were profits or losses for the relevant reporting
units.
The Group engagement team performed all audit procedures, with
the exception of the audit of five subsidiaries, which were
performed by a component auditor in Hong Kong.
Our involvement in the work of the component auditor in Hong
Kong included regular communication with a formal meeting arranged
following the performance of the procedures. We have been granted
full access of the working paper and conducted a review of
them.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to
determine whether there is a material misstatement in the
financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this
regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and
parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements [and the part of the
directors' remuneration report to be audited] are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out on page 9, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and parent company's ability
to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs (UK), we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the group's or the
parent company's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to
draw
attention in our auditor's report to the related disclosures in
the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However,
future
-- events or conditions may cause the group or the parent
company to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Other matters which we are required to address
We were appointed by the board of directors on 4 July 2014 to
audit the financial statements for the period ending 31 March 2018.
Our total uninterrupted period of engagement is 5 years, covering
the periods ending 31 March 2014 to 31 March 2018.
The non-audit services prohibited by the FRC's Ethical Standard
were not provided to the group or the parent company and we remain
independent of the group and the parent company in conducting our
audit.
Our audit opinion is consistent with the additional report to
the audit committee.
Use of this report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Sanjay Parmar
SENIOR STATUTORY AUDITOR
For and on behalf of Jeffreys Henry LLP, statutory auditor
Finsgate
5-7 Cranwood Street
London
EC1V 9EE
United Kingdom
Date: 18 September 2018
Consolidated Statement of Comprehensive Income
Notes 2018 2017
HKD'000 HKD'000
Continuing operations
Revenue 4 857,145 808,873
Cost of sales (847,884) (800,804)
------------ --------------
Gross profit 9,261 8,069
Other revenue 5 11 368
Selling and distribution expenses (139) (115)
Administrative expenses 8 (7,338) (7,213)
------------ --------------
Profit before tax 1,795 1,109
Income tax (expense) / credit 9 (102) (80)
------------ --------------
Profit for the year 1,693 1,029
------------ --------------
Profit and total comprehensive income for the year 1,693 1,029
Profit and total comprehensive income for the year attributable to
the owners of the Parent 1,693 1,029
Earnings per share 2018 2017
HKD HKD
Basic 10 0.014 0.008
Diluted 0.013 0.008
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Financial Position
Notes 2018 2017
HKD'000 HKD'000
Assets
Non-Current Assets
Property, plant and equipment 14 40,571 40,475
Intangible assets 13 1,457 1,557
-------------- --------------
42,028 42,032
-------------- --------------
Current Assets
Inventories 15 25,792 35,153
Trade receivables 16 11,440 1,685
Prepayments, deposits and other receivables 16 10,066 5,661
Tax recoverable 2,367 -
Cash and cash equivalents 17 12,275 1,288
-------------- --------------
61,940 43,787
-------------- --------------
Total Assets 103,968 85,819
Equity and liabilities
Equity attributable to owners
Share capital 20 15,549 15,549
Share Premium 42,167 42,167
Share based payment reserve 662 662
Group reorganisation reserve 21 (527) (527)
Foreign exchange reserve (910) (1,267)
Retained earnings 9,921 8,228
-------------- --------------
Total Equity 66,862 64,812
-------------- --------------
Non-current liabilities
Deferred tax 19 137 157
-------------- --------------
137 157
-------------- --------------
Current liabilities
Trade payables 18 18,295 6,106
Accrued liabilities and other payables 18 9,500 5,074
Tax payable 9,174 9,670
-------------- --------------
Total Liabilities 36,969 20,850
-------------- --------------
-------------- --------------
Total Equity and Liabilities 103,968 85,819
The financial statements were approved by the Board of directors
and authorised for issue on 18 September 2018. They were signed on
its behalf by:
Wenjie Zhou
Director
18 September 2018
Company Number: 08724168
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Cash Flows
Notes 2018 2017
HKD'000 HKD'000
Cash flows from operating activities
Net cash from operating activities 28 13,092 (5,387)
Taxation (776) 474
Investing activities
Addition of property, plant and equipment - (27)
-------- --------
Net cash used in investing activities - (27)
-------- --------
Net increase / (decrease) in cash and cash equivalents 12,316 (4,940)
Cash and cash equivalents at beginning of the year 1,288 5,289
Decrease in foreign exchange reserve (1,329) 939
---------- --------
Cash and cash equivalents at the end of the year 12,275 1,288
Represented by:
Bank balances and cash 12,275 1,288
---------- --------
12,275 1,288
Cash and cash equivalents (which are presented as a single class
of assets on the face of the balance sheet) comprise cash at bank
and other short-term highly liquid investments with maturity of
three months or less, as adjusted for any bank overdrafts.
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Changes in Equity
Share Share Retained Share Group Foreign Total
Capital Premium Earnings based Reorgan-isation exchange
payment Reserve reserve
reserve
HKD'000 HKD'000 HKD'000 HKD'000 HKD'000 HKD'000 HKD'000
As at 31 March
2016 15,549 42,167 7,199 662 (527) 135 65,185
Total
comprehensive
income for the
year - - 1,029 - - - 1,029
Share option
expense - - - - - - -
Group
reorganisation
reserve - - - - - - -
- - - - - (1,402) (1,402)
As at 31 March
2017 -------- -------- -------- -------- -------- -------- ------
15,549 42,167 8,228 662 (527) (1,267) 64,812
Total
comprehensive
income for the
year - - 1,693 - - - 1,693
Share premium
change - - - - - - -
Share option
expense - - - - - - -
Group
reorganisation
reserve - - - - - - -
Foreign
exchange
differences - - - - - 357 357
-------- -------- -------- -------- -------- -------- --------
As at 31 March
2018 15,549 42,167 9,921 662 (527) (910) 66,862
Share capital is the amount subscribed for shares at nominal
value.
The Group reorganisation reserve relates to the effect on equity
of the group reorganisation. See Note 22.
Retained earnings represent the cumulative profits of the Group
attributable to equity shareholders.
The notes below are an integral part of these consolidated
financial statements.
Company Statement of Financial Position
Notes 2018 2017
HKD'000 HKD'000
Assets
Non-Current Assets
Investment in subsidiaries 12 30,046 30,046
------------ --------------
Current Assets
Prepayments and other receivables 16 42,955 45,203
------------ --------------
Total Assets 73,001 75,249
Equity and liabilities
Equity attributable to owners of the Company
Share capital 20 15,549 15,549
Share premium 42,167 42,167
Share based payment reserve 662 662
Merger relief reserve 21 19,516 19,516
Retained earnings (5,133) (2,885)
---------- ----------
Total Equity 72,761 75,009
Current Liabilities
Accrued liabilities and other payables 18 240 240
-------- ----------
Total Liabilities 240 240
-------- ----------
Total Equity and Liabilities 73,001 75,249
The financial statements were approved by the Board of directors
and authorised for issue on 18 September 2018. They were signed on
its behalf by:
Wenjie Zhou
Director
18 September 2018
Company Number: 08724168
The notes below are an integral part of these consolidated
financial statements.
Company Statement of Cash Flows
Notes 2018 2017
HKD'000 HKD'000
Cash flows from operating activities
Loss for the year before tax (2,248) (1,919)
Adjustments for:
Share option charge - -
Charge for Warrants - -
Decrease/ (Increase) in other receivables 2,248 2,057
(Decrease)/ increase in accrued liabilities and other payables - (138)
-------- --------
Net cash used in operating activities - -
-------- --------
Cash flows from financing activities
Dividends paid - -
Dividends received - -
Net proceeds from the issue of ordinary shares - -
-------- --------
Net cash from financing activities - -
-------- --------
Net increase / (decrease) in cash and cash equivalents - -
Cash and cash equivalents at beginning of the year - -
-------- --------
Cash and cash equivalents at the end of the year - -
The notes below are an integral part of these consolidated
financial statements.
Company Statement of Changes in Equity
Share Share Premium Retained Share Merger Total
Capital Earnings Based Relief
Payment Reserve
Reserve
HKD'000 HKD'000 HKD'000 HKD'000 HKD'000 HKD'000
As at 31 March
2016 15,549 42,167 (966) 662 19,516 76,928
Total
comprehensive
income for the
year - - (1,919) - - (1,919)
Share premium - - - - - -
Group
reorganisation
reserve - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
As at 31 March
2017 15,549 42,167 (2,885) 662 19,516 75,009
Total
comprehensive
income for the
year - - (2,248) - - (2,248)
Share premium - - - - - -
Group
reorganisation
reserve - - - - - -
-------- ---------- ---------- -------- -------- --------
As at 31 March
2018 15,549 42,167 (5,133) 662 19,516 72,761
Share capital is the amount subscribed for shares at nominal
value.
Merger relief reserve arises from the 100% acquisition of the
Masterpiece Group on 10 March 2014 whereby the excess of the fair
value of the issued ordinary share capital issued over the nominal
value of these shares is transferred to this reserve in accordance
with section 612 of the Companies Act 2006.
Retained earnings represent the cumulative profits of the Group
attributable to owners of the Company.
The notes below are an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
1. General information
Zibao Metals Recycling Holdings Plc is a company incorporated in
England on 9 October 2013 under the Companies Act 2006 but
domiciled in Hong Kong. It was listed on the AIM market on 20 June
2014. The address of the registered office is given at the start of
the annual report. The Group's principal activity is that of
trading scrap metals. Further details are set out in the Chairman's
Statement on pages 3 and 4.
2. Basis of preparation and significant accounting policies
The consolidated financial statements of Zibao Metals Recycling
Holdings Plc have been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union
(IFRS's as adopted by the EU), IFRS Interpretations Committee and
the Companies Act 2006 applicable to companies reporting under
IFRS.
The consolidated financial statements have been prepared under
the historical cost convention.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the consolidated financial
statements are disclosed in Note 3.
The preparation of financial statements in conformity with IFRSs
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and reported
amounts of assets, liabilities, income and expenses. Although these
estimates are based on management's experience and knowledge of
current events and actions, actual results may ultimately differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimates are revised if the revision
affects only that period or in the period of the revision and
future periods if the revision affects both current and future
periods.
Going concern
These financial statements have been prepared on the assumption
that the Group is a going concern.
When assessing the foreseeable future, the directors have looked
at a period of at least twelve months from the date of approval of
this report. The forecast cash-flow requirements of the business
are contingent upon the ability of the Group to generate future
sales and renew long term borrowings.
After making enquiries, the directors firmly believe that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
New and amended standards adopted by the Company
There are no IFRSs or IFRIC interpretations that are effective
for the first time for the financial year beginning on or after 1
April 2017 that would be expected to have a material impact on the
Group.
Standards, interpretations and amendments to published standards
that are not yet effective.
The following new standards, amendments to standards and
interpretations have been issued, but are not effective for the
financial year beginning 1 April 2017 and have not been early
adopted:
Reference Title Summary Application date Application
of standard date of
Group
---------- ----------------- ------------------------------- ------------------- -----------
IFRS 9 Financial Revised standard for Periods commencing 1 April
Instruments accounting for financial on or after 1 2018
instruments January 2018
---------- ----------------- ------------------------------- ------------------- -----------
IFRS 15 Revenue from Specifies how and when Periods commencing 1 April
contracts to recognise revenue on or after 1 2018
with customers from contracts as well January 2018
as requiring more informative
and relevant disclosures
---------- ----------------- ------------------------------- ------------------- -----------
IFRS 16 Lease IFRS 16 Leases published Periods commencing 1 April
on or after 1 2019
January 2019
---------- ----------------- ------------------------------- ------------------- -----------
IFRIC 22 Foreign Currency The interpretation addresses Periods commencing 1 April
Transactions foreign currency transactions on or after 1 2018
and Advance or parts of transactions January 2018
Consideration
---------- ----------------- ------------------------------- ------------------- -----------
The directors anticipate that the adoption of these standards
and the interpretations in future periods will have no material
impact on the financial statements of the Group.
(a) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31(st) March each year. Control is
achieved where the Company has the power to govern the financial
and operating policies of an investee entity so as to obtain
benefits from its activities.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated statement of comprehensive
income from the effective date of acquisition or up to the
effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into
line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Changes in the Group's ownership interests in existing
subsidiaries
Changes in the Group's ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the
Group's interests and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the
subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and
attributed to owners of Zibao.
When the Group loses control of a subsidiary, the profit or loss
on disposal is calculated as the difference between (i) the
aggregate of the fair value of the consideration received and the
fair value of any retained interest and (ii) the previous carrying
amount of the assets (including goodwill), and liabilities of the
subsidiary and any non-controlling interests. Where certain assets
of the subsidiary are measured at revalued amounts or fair values
and the related cumulative gain or loss has been recognised in
other comprehensive income and accumulated in equity, the amounts
previously recognised in other comprehensive income and accumulated
in equity are accounted for as if the Company had directly disposed
of the related assets (i.e. reclassified to profit or loss or
transferred directly to retained earnings). The fair value of any
investment retained in the former subsidiary at the date when
control is lost is regarded as the fair value on initial
recognition for subsequent accounting under IAS 39 "Financial
Instruments: Recognition and Measurement" or, when applicable, the
cost on initial recognition of an investment in an associate or a
jointly controlled entity.
Business combinations
Acquisitions of businesses are accounted for using the
acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the
sum of the acquisition-date fair values of the assets transferred
by the Group, liabilities incurred by the Group to the former
owners of the acquiree and the equity interests issued by the Group
in exchange for control of the acquiree. Acquisition-related costs
are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and
the liabilities assumed are recognised at their fair value at the
acquisition date, except that:
- deferred tax assets or liabilities and liabilities or assets
related to employee benefit arrangements are recognised and
measured in accordance with IAS 12 Income Taxes and IAS 19 Employee
Benefits respectively;
- liabilities or equity instruments related to share-based
payment transactions of the acquiree or the replacement of an
acquiree's share-based payment transactions with share-based
payment transactions of the Group are measured in accordance with
IFRS 2 Share-based Payment at the acquisition date; and
- assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that
standard.
Goodwill is measured as the excess of the sum of the
consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer's
previously held equity interest in the acquiree (if any) over the
net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. If, after assessment, the net
of the acquisition-date amounts of the identifiable assets acquired
and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the
acquiree and the fair value of the acquirer's previously held
interest in the acquiree (if any), the excess is recognised
immediately in profit or loss as a bargain purchase gain.
Group reorganisation accounting
The Company acquired its 100% interest in Masterpiece
Enterprises Limited ("MEL") in 2014 by way of a share for share
exchange. This is a business combination involving entities under
common control and the consolidated financial statements are issued
in the name of the Group but they are a continuance of those of
MEL. Therefore the assets and liabilities of MEL have been
recognised and measured in these consolidated financial statements
at their pre combination carrying values. The retained earnings and
other equity balances recognised in these consolidated financial
statements are the retained earnings and other equity balances of
the Company and MEL. The equity structure appearing in these
consolidated financial statements (the number and the type of
equity instruments issued) reflect the equity structure of the
Company including equity instruments issued by the Company to
effect the consolidation. The difference between consideration
given and net assets of MEL at the date of acquisition is included
in a group reorganisation reserve.
(b) Property, plant and equipment
Property, plant and equipment are stated at historical cost less
subsequent accumulated depreciation and accumulated impairment
losses, if any. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to profit
or loss during the financial period in which they are incurred.
Depreciation on property, plant and equipment is calculated
using the straight-line method to write off their cost over their
estimated useful lives at the following annual rates:
Land and building 40-50 years
Furniture, fixtures and equipment 20%-50%
Leasehold improvements 5%-20%
Plant and machinery 20%
Computer equipment 30%
Useful lives and depreciation method are reviewed and adjusted
if appropriate, at the end of each reporting period.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on
the disposal or retirement of an item of property, plant and
equipment is determined as the difference between the sales
proceeds and the carrying amount of the relevant asset, and is
recognised in profit or loss in the year in which the asset is
derecognised.
(c) Intangible assets
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred over the
fair value of the net assets acquired. In the event that the
consideration is less than the fair value of net assets acquired, a
gain on bargain purchase is recognised directly in the income
statement. Goodwill is reviewed annually for impairment by
reference to the recoverable amount of each cash generating unit.
The recoverable amount is taken as the higher of the value in use
or fair value less costs to sell. Any impairment is recognised
immediately as an expense within the income statement and is
considered irreversible.
(d) Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where
appropriate, provisions for impairment.
(e) Inventories
Inventories are carried at the lower of cost and net realisable
value. Cost is determined using specific identification or
first-in, first-out method as appropriate, and in the case of work
in progress and finished goods, comprises the cost of purchase,
cost of conversion and other costs incurred in bringing the
inventories to their present location and condition. Net realisable
value is the estimated selling price in the ordinary course of
business less the estimated cost of completion and applicable
selling expenses.
When the inventories are sold, the carrying amount of those
inventories is recognised as an expense in the year in which the
related revenue is recognised. The amount of any write-down of
inventories to net realisable value and all losses of inventories
are recognised as an expense in the year in which the write-down or
loss occurs. The amount of any reversal of any write-down of
inventories is recognised as an expense in the year in which the
reversal occurs.
(f) Impairment of non-financial assets
The Group assesses at each reporting date whether there is an
indication that an asset may be impaired. If any such indication
exists, or when an annual impairment assessment for an asset is
required, the Group makes an estimate of the asset's recoverable
amount. An asset's recoverable amount is the higher of an asset's
or cash-generating unit's fair value less costs to sell and its
value in use and is determined for an individual asset, unless the
asset does not generate cash inflows that are largely dependent on
those from other assets. Where the carrying amount of an asset or
cash generating unit exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows expected
to be generated by the asset are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. In determining fair value less costs to sell, recent
market transactions are taken into account, if available. If no
such transactions can be identified, an appropriate valuation model
is used. These calculations are corroborated by valuation multiples
or other available fair value indicators.
Impairment losses are recognised in profit or loss in those
expense categories consistent with the function of the impaired
asset, except for assets that are previously revalued where the
revaluation was taken to other comprehensive income. In this case,
the impairment is also recognised in other comprehensive income up
to the amount of any previous revaluation.
An assessment is made at each reporting date as to whether there
is any indication that previously recognised impairment losses may
no longer exist or may have decreased. If such indication exists,
the Group estimates the asset's or cash-generating unit's
recoverable amount. A previously recognised impairment loss is
reversed only if there has been a change in the estimates used to
determine the recoverable amount of an asset since the last
impairment loss was recognised. If that is the case, the carrying
amount of the asset is increased to its recoverable amount. This
increase cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been
recognised previously. Such a reversal is recognised in the profit
and loss unless the asset is measured at revalued amount, in which
case the reversal is treated as a revaluation increase.
(g) Financial instruments
Financial assets and financial liabilities are recognised on the
statement of financial position when an entity becomes a party to
the contractual provisions of the instruments. Financial assets and
financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition
or issue of financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value through
profit or loss) are added to or deducted from the fair value of the
financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair
value through profit or loss are recognised immediately in the
income statement.
(i) Financial assets
The Group's accounting policies for financial assets are set out
below.
Management determine the classification of its financial assets
at initial recognition depending on the purpose for which the
financial assets were acquired and where allowed and appropriate,
re-evaluate this designation at every reporting date.
All financial assets are recognised on a trade date when, and
only when, the Group becomes a party to the contractual provisions
of an instrument. When financial assets are recognised initially,
they are measured at fair value plus transaction costs, except for
those finance assets classified as at fair value through profit or
loss ('FVTPL'), which are initially measured at fair value.
Financial assets are classified into the following specified
categories: financial assets at FVTPL, 'held-to-maturity'
investments, 'available for sale' (AFS) financial assets and loans
and receivables. The classification depends on the nature and
purpose of the financial assets and is determined at the time of
recognition.
Derecognition of financial assets occurs when the rights to
receive cash flows from the investments expire or are transferred
and substantially all of the risks and rewards of ownership have
been transferred.
At each reporting date, financial assets are reviewed to assess
whether there is objective evidence of impairment. If any such
evidence exists, impairment loss is determined and recognised based
on the classification of the financial asset.
Loans and receivables (including trade receivables, prepayments,
deposits and other receivables, cash and bank balances) are
non-derivative financial assets with fixed or determinable payments
that are not quoted on an active market. At each reporting date
subsequent to initial recognition, loans and receivables are
carried at amortised cost using the effective interest method, less
any identified impairment losses. An impairment loss is recognised
in the statement of comprehensive income when there is objective
evidence that the asset is impaired, and is measured as the
difference between the asset's carrying amount and the present
value of estimated future cash flows discounted at the original
effective interest rate. Impairment losses are reversed in
subsequent periods when an increase in the asset's recoverable
amount can be related objectively to an event occurring after the
impairment was recognised, subject to a restriction that the
carrying amount of the asset at the date the impairment is reversed
does not exceed what the amortised cost would have been had the
impairment not been recognised.
(ii) Financial liabilities and equity
Financial liabilities and equity are recognised on the Group's
statement of financial position when the Group becomes a party to a
contractual provision of an instrument. Financial liabilities and
equity instruments issued by the Group are classified according to
the substance of the contractual arrangements entered into and the
definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued by the Group are recognised
at the proceeds received, net of transaction costs.
The Group's financial liabilities include trade payables and
accrued liabilities. These financial liabilities are classified as
Fair Value through the Profit and Loss ("FVTPL") are stated at fair
value with any gains or losses arising on re-measurement recognised
in profit or loss. Other financial liabilities, including
borrowings are initially measured at fair value, net of transaction
costs.
Other financial liabilities, including borrowings, are
subsequently measured at amortised cost using the effective
interest rate method, with interest expense recognised on an
effective yield basis.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where
appropriate, a shorter period, to the net carrying amount on
initial recognition.
Financial liabilities are derecognized when the obligation
specified in the relevant contract is discharged, cancelled or
expires. The difference between the carrying amount of the
financial liability derecognised and the consideration paid is
recognised in the statement of comprehensive income.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original
liability and a recognition of a new liability, and the difference
in the respective carrying amounts is recognised in the statement
of comprehensive income.
(iii) Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment losses for
bad and doubtful debts, except where the receivables are
interest-free loans made to related parties without any fixed
repayment terms or the effect of discounting would be material. In
such cases, the receivables are stated at cost less impairment
losses for bad and doubtful debts.
(iv) Trade and other payables
Liabilities for trade and other payables which are recognised
initially at their fair value and subsequently measured at
amortised cost using the effective interest method, unless the
effect of discounting would not be material, in which case they are
stated at cost.
(v) Fair values
The carrying amounts of the financial assets and liabilities
such as cash and cash equivalents, receivables and payables of the
Group at the balance sheet date approximated their fair values, due
to the relatively short term nature of these financial
instruments.
(h) Borrowings
Borrowings are presented as current liabilities unless the Group
has an unconditional right to defer settlement for at least 12
months after the statement of financial position date, in which
case they are presented as non-current liabilities.
Borrowings are initially recorded at fair value, net of
transaction costs and subsequently carried for at amortised costs
using the effective interest method. Any difference between the
proceeds (net of transaction costs) and the redemption value is
recognised in profit or loss over the period of the borrowings
using the effective interest method. Borrowings which are due to be
settled within twelve months after the statement of financial
position date are included in current borrowings in the statement
of financial position even though the original term was for a
period longer than twelve months and an agreement to refinance, or
to reschedule payments, on a long-term basis is completed after the
statement of financial position date and before the financial
statements are authorised for issue.
(i) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for the
sales of goods and the use by others of the Group's assets yielding
interest, net of rebates and discounts.
Revenue on sales of goods is recognised on the transfer of risks
and rewards of ownership, which generally coincides with the time
when the goods are delivered to customers and title has been
passed.
Interest income from a financial asset, is recognised on an
accrual basis using the effective interest rate method by applying
the rate that exactly discounts the estimated future cash receipts
through the expected life of the financial instrument or a shorter
period, when appropriate, to the net carrying amount of the
financial asset.
(j) Cost of sales
Cost of sales consists of all costs of purchase and other
directly incurred costs.
Cost of purchase comprises the purchase price, import duties and
other taxes (other than those subsequently recoverable by the Group
from the taxing authorities), if any, and transport, handling and
other costs directly attributable to the acquisition of goods.
Trade discounts, rebates and other similar items are deducted in
determining the costs of purchase.
Cost of conversion primarily consists of hiring charges of
subcontractors incurred during the course of conversion.
(k) Borrowing costs
Borrowing costs are expensed in the period in which they occur.
Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.
(l) Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
statement of comprehensive income because it excludes items of
income and expense that are taxable or deductible in other years,
and it further excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the end of the
reporting period.
Deferred tax is recognised on temporary differences between the
carrying amount of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary differences arise
from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries, except
where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will
not reverse in the foreseeable future. Deferred tax assets arising
from deductible temporary differences associated with such
investments are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the
end of the each reporting period and reduced to the extent that it
is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the period in which the
liability is settled or the asset realised. The measurement of
deferred tax assets and liabilities reflects the tax consequences
that would follow from the manner in which the Group expects, at
the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Current or deferred tax for the year is recognised in profit or
loss, except when it relates to items that are recognised in other
comprehensive income or directly in equity, in which case the
current and deferred tax is also recognised in other comprehensive
income or directly in equity respectively. Where current tax or
deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the
business combination.
(m) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand,
demand deposits with banks and other financial institutions, and
short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an
insignificant risk of changes in value, having been within three
months of maturity at acquisition. Bank overdrafts that are
repayable on demand and form an integral part of the Group's cash
management are also included as a component of cash and cash
equivalents for the purpose of the consolidated statement of cash
flows.
(n) Provisions and contingencies
Provisions are recognised when the Group has a present
obligation as a result of a past event, and it is probable that the
Group will be required to settle that obligation. Provisions are
measured at the directors' best estimate of the expenditure
required to settle the obligation at the statement of financial
position date, and are discounted to present value where the effect
is material. Provisions are not recognised for future operating
losses.
Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be
small.
When the effect of discounting is material, the amount
recognised for a provision is the present value at the reporting
date of the future expenditures expected to be required to settle
the obligation. The increase in the discounted present value amount
arising from the passage of time is included in finance costs in
the statement of comprehensive income.
Contingent liabilities are not recognised in the financial
statements. They are disclosed unless the possibility of an outflow
of resources embodying economic benefits is remote. A contingent
asset is not recognised in the financial statements but disclosed
when an inflow of economic benefits is probable.
(o) Share Capital
Ordinary shares are classified as equity. Proceeds from issuance
of ordinary shares are classified as equity. Incremental costs
directly attributable to the issuance of new ordinary shares are
deducted against share capital.
(p) Foreign currencies
In preparing the financial statements of each individual group
entity, transactions in currencies other than the functional
currency of that entity (foreign currencies) are recorded in the
respective functional currency (i.e. the currency of the primary
economic environment in which the entity operates) at the rates of
exchanges prevailing on the dates of the transactions. At the end
of the reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date.
Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing on the
date when the fair value was determined. Non-monetary items that
are measured in terms of historical costs in a foreign currency are
not retranslated.
Exchange differences arising on the settlement of monetary
items, and on translation of monetary items, are recognised in
profit or loss in the period in which they arise. Exchange
differences arising on the retranslation of non-monetary items
carried at fair value are included in profit or loss for the period
except for differences arising on the retranslation of non-monetary
items in respect of which gains and losses are recognised directly
in other comprehensive income, in which cases, the exchange
differences are also recognised directly in other comprehensive
income.
For the purposes of presenting the consolidated financial
statements, assets and liabilities of the Group's foreign
operations are translated into the presentation currency of the
Group (i.e. Hong Kong Dollars) at the rate of exchange prevailing
at the end of the reporting period, and their income and expenses
are translated at the average exchange rates for the period, unless
exchange rates fluctuate significantly during that period, in which
cases, the exchange rates prevailing at the dates of transactions
are used. Exchange differences arising, if any, are recognised in
other comprehensive income and accumulated in equity.
The principal exchange rates during the year are set out in the
table below:
Rate compared Average rate Average rate Year end rate Year end
to HK$ 2018 2017 2018 rate 2017
------------------ ---------------- ---------------- ----------------- --------------
GBP 10.61 10.14 11.01 9.07
US Dollar 7.82 7.76 7.84 7.77
Euro 9.35 8.51 9.67 8.30
------------------ ---------------- ---------------- ----------------- --------------
(q) Operating leases
Assets held under finance leases are initially recognised as
assets of the Group at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease
payments. The corresponding liability to the lessor is included in
the statement of financial position as a finance lease obligation.
Lease payments are treated as reduction of the lease obligation on
the remaining balance of the liability. Finance expenses are
recognised immediately in profit or loss, unless they are directly
attributable to qualifying assets, in which case they are
capitalised. Contingent rentals are recognised as expenses in the
periods in which they are incurred.
Where the Group has the use of assets held under operating
leases, payment made under the leases are charged to profit or loss
over the accounting periods covered by the lease term except where
an alternative basis is more representative of the pattern of
benefits to be derived from the leased asset. Lease incentives
received are recognised in profit or loss as an integral part of
the aggregate net lease payments made. Contingent rentals are
charged to profit or loss in the accounting period in which they
are incurred.
(r) Employee benefits
(i) Salaries, annual bonuses, paid annual leave, leave passage
and the cost to the Group of non-monetary benefits are accrued in
the period in which employees of the Group render the associated
services. Where payment or settlement is deferred and the effect
would be material, these amounts are stated at their present
values.
(ii) The Group participates in the mandatory provident fund for
its employees in Hong Kong. Contributions to the funds by the Group
and the employees are calculated as a percentage of the employees'
basic salaries. The retirement benefit cost charged to the
statement of comprehensive income represents contributions payable
by the Group to the fund. The Group's contributions to the fund are
expensed as incurred and the Group's voluntary contributions are
reduced by contributions forfeited by those employees who leave the
fund prior to vesting fully in the contributions. The assets of the
fund are held separately from those of the Group in an
independently administered fund.
(iii) Several employees of the Group have completed the required
number of years of services to the Group in order to be eligible
for long service payments under the Hong Kong Employment Ordinance
in the event of the termination of their employment. The Group is
liable to make such payments in the event that such a termination
of employment meets the circumstances specified in the Employment
Ordinance.
Provision has not been recognised in respect of such possible
payments, as it is not considered probable that the situation will
result in a material outflow of resources from the Group.
(s) Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the executive directors who make
strategic decisions.
3. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
In the application of the Group's accounting policies, which are
described above, management is required to make estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
assumptions that had a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities are
discussed below.
(a) Inventory valuation
Inventory is valued at the lower of cost and net realisable
value. Net realisable value of inventories is the estimated selling
price in the ordinary course of business, less estimated costs of
completion and selling expenses. These estimates are based on the
current market conditions and the historical experience of selling
products of a similar nature. It could change significantly as a
result of competitors' actions in response to severe industry
cycles. The Group reviews its inventories in order to identify
slow-moving merchandise and uses markdowns to clear merchandise.
Inventory value is reduced when the decision to markdown below cost
is made.
(b) Impairment of receivables
The Group's management reviews receivables on a regular basis to
determine if any provision for impairment is necessary. The policy
for the impairment of receivables of the Group is based on, where
appropriate, the evaluation of collectability and ageing analysis
of the receivables and on management's judgement. A considerable
amount of judgement is required in assessing the ultimate
realisation of these outstanding's, including the current
creditworthiness and the past collection history of each debtor. If
the financial conditions of debtors of the Group were to
deteriorate, resulting in an impairment of their ability to make
payments, provision for impairment may be required.
(c) Income Taxes
The Group is subject to income taxes in Hong Kong and Macau.
Significant judgement is required in determining the provision for
income taxes and the timing of payment of the related tax. There
are certain transactions and calculations for which the ultimate
tax determination is uncertain during the ordinary course of
business. The Group recognises liabilities for anticipated tax
based on estimates of whether additional taxes will be due. Where
the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact
the income tax provision in the period in which such determination
is made.
(d) Depreciation and amortisation
The Group depreciates property, plant and equipment and
amortises the leasehold land and land use rights on a straight-line
method over the estimated useful lives. The estimated useful lives
reflect the directors' estimate of the periods that the Group
intends to derive future economic benefits from the use of the
Group's property, plant and equipment and the leasehold land and
land use rights.
4. Segmental reporting
In the opinion of the directors, the Group has one class of
business, being the trading of scrap materials. The Group's primary
reporting format is determined by the geographical segment
according to the location of its establishments. There is currently
only one geographic reporting segment, which is China. All revenues
and costs are derived from the single segment.
5. Other revenue
2018 2017
HKD'000 HKD'000
Sundry income 1 -
Exchange gains - 367
Bank interest income 10 1
---------- ----------
Total other revenue 11 368
_________ _________
6. Personnel expenses and staff numbers (excluding directors)
Group Company
------------------------ ---------------------
2018 2017 2018 2017
Number Number Number Number
The average number of
employees in the year
were:
* Management 13 13 - -
* Accounts and administration 12 9 - -
* Production 112 191
-------- -------- -------- --------
137 213 - -
______ ______ ________ ________
HKD'000 HKD'000 HKD'000 HKD'000
The aggregate payroll
costs for these persons
were:
* Staff costs other than mandatory provident fund
contributions 2,392 2,420 - -
* Mandatory provident fund contributions for employees 37 37 - -
------ ------ -------- --------
Total personnel expense 2,429 2,457 - -
______ ______ ________ ________
7. Directors' remuneration
2018 2018 2018 2017
Salaries Share based Total
and fees payment charge Total
HKD'000 HKD'000 HKD'000 HKD'000
Wenjie Zhou 240 - 240 360
Jianfeng Li 240 - 240 240
Chor Wei Ong 116 - 116 134
Chin Phang Kwok 116 - 116 134
Peter George Greenhalgh 116 - 116 134
Ajay Kumar Rajpal* 116 - 116 134
---------- ---------- ---------- ----------
Total 944 - 944 1,136
_________ _________ _________ _________
* Mr Rajpal is paid through NAS Corporate Services Ltd, a
company controlled by him.
8. Expenses - analysis by nature
2018 2017
HKD'000 HKD'000
Auditors' remuneration for audit services
(company only HKD 164,900 (2017: HKD
274,679)) 375 485
Depreciation on property, plant and
equipment 893 857
Rentals of premises under operating
leases 222 217
Employee benefits (Note 6) 2,429 2,457
Other expenses 3,419 3,197
---------- ----------
Total administrative expenses 7,338 7,213
_________ _________
9. Taxation
The charge for the year can be reconciled to the profit
before taxation per the consolidated statement of comprehensive
income as follows:
2018 2017
HKD'000 HKD'000
Profit before taxation 1,795 1,109
_________ _________
Current income tax expense-
Hong Kong 122 100
Deferred tax credit (20) (20)
---------- ----------
Total income tax expense
/ (credit) 102 80
_________ _________
The Company is incorporated in the UK but is treated as a Hong
Kong resident for tax purposes.
Macau and Hong Kong tax has been provided at a rate of 12% and
16.5% respectively.
There was no unprovided deferred taxation in respect of the year
(2017: HKD Nil).
The reconciliation of the current tax expense and the product
of accounting profit multiplied by the applicable tax rate
is as follows:
2018 2017
HKD'000 HKD'000
Accounting profit/(loss) 1,992 1,109
---------- ----------
Tax at the domestic tax rate
of 16.5% (2017: 16.5%) 299 183
Other adjustments (197) (83)
---------- ----------
Income tax expense 102 100
_________ _________
The tax payable of HKD 9,174,000 (2017: 9,670,000) disclosed in
the Consolidated Statement of Financial Position includes a
liability for the current income tax expense and a provision that
has been brought forward as at 1 April 2012 for tax payable in
Macau.
10. Profit per share
Profit per share data is based on the Group profit or loss for
the year and the weighted average number of shares in issue.
2018 2017
HKD'000 HKD'000
Profit for the year from:
Continuing operations used in the calculation of basic and diluted earnings per share
from
continuing operations 1,693 1,029
---------- ----------
Profit for the year attributable to owners of Company 1,693 1,029
Weighted average number of ordinary shares for the purposes of basic earnings per share(
000's) 122,010 122,010
diluted earnings per share( 000's) 125,453 125,453
2018 2017
HKD HKD
Basic earnings per share 0.014 0.008
Diluted earnings per share 0.013 0.008
11. Company's result for the year
The Company has elected to take the exemption under section 408
of the Companies Act 2006 not to present the Parent Company income
statement account.
The loss for the Parent Company for the year was HKD 2,248,000
(2017: loss HKD 1,919,000).
12. Fixed asset investments
Company 2018 2017
HKD'000 HKD'000
Cost
At 1 April 30,046 30,046
Addition - -
-------- --------
At 31 March 2017 & 2018 30,046 30,046
Carrying amount
At 31 March 2017 & 2018 30,046 30,046
As at 31 March 2018, the company directly and indirectly had the
following subsidiaries:
Name of entity Principal Country of incorporation Proportion
activities and place of business (%) of
equity interest
2018 and
2017
%
Masterpiece Enterprises British Virgin
Limited Holding company Islands 100
Trading of scrap
materials and
provision of
Zibao Metals Company management related
Limited* services Hong Kong 100
Trading of scrap
Top Able Enterprises materials and
Limited (Trading provision of
as Global Metals management related British Virgin
Limited)* services Islands 100
Fine Luck Trading Trading of scrap
Limited* materials Hong Kong 100
Non-ferrous
metal processing
and stockholding
Zheng Bao* yard PRC 100
Zibao Metals Company Limited, Top Able Enterprises Limited, Fine
Luck Trading Limited and Zheng Bao are wholly owned subsidiaries of
Masterpiece Enterprises Limited.
*Indirectly held
13. Fixed asset investments and intangible assets
Intangible assets
Group Goodwill Customer Relationships
Total
HKD'000 HKD'000 HKD'000
Cost
At 1 April 2017 764 1,008 1,772
Additions - - -
---------- ---------- ----------
At 31 March 2018 764 1,008 1,772
Amortisation
At 1 April 2017 - (215) (215)
Amortisation charge for the year - (100) (100)
---------- ---------- ----------
At 31 March 2018 - (315) (315)
Carrying amount
At 31 March 2018 764 693 1,457
At 31 March 2017 764 793 1,557
There are no accumulated impairment losses.
Goodwill has arisen as a result of the purchase of Zheng Bao.
Zheng Bao was acquired on 16 February 2015, whose principle
activity is the operation of non-ferrous metal processing and
stock-holding yard.
The goodwill intangible asset represents the excess
consideration paid over and above the fair value of the net assets
of Zheng Bao.
14. Property, plant and equipment
Group
Land and Leasehold Furniture Computer Plant
Buildings improve-ment and fixtures equipment and machinery Total
HKD'000 HKD'000 HKD'000 HKD'000 HKD'000 HKD'000
Cost
As at 31 March
2016 46,605 9,886 498 539 1,900 59,428
Acquisition of - - - - - -
subsidiary
Additions - - - 27 - 27
Exchange translation
difference (1,864) (391) (10) - (76) (2,341)
---------- ---------- ---------- ---------- ---------- --------
As at 31 March
2017 44,741 9,495 488 566 1,824 57,114
Acquisition of
subsidiary
Additions - - - - - -
Exchange translation
difference 1,864 391 10 - 76 2,341
---------- ---------- ---------- ---------- ---------- --------
As at 31 March
2018 46,605 9,886 498 566 1,900 59,455
---------- ---------- ---------- ---------- ---------- --------
Accumulated depreciation
As at 31 March
2016 6,563 6,281 496 538 1,820 15,698
Acquisition of - - - - - -
subsidiary
Charge for the
year 1,053 450 1 5 24 1,533
Exchange translation
difference (263) (246) (10) - (73) (592)
---------- ---------- ---------- ---------- ---------- --------
As at 31 March
2017 7,353 6,485 487 543 1,771 16,639
Acquisition of
subsidiary
Charge for the
year 1,097 465 1 8 19 1,590
Exchange translation
difference 306 265 10 - 74 655
---------- ---------- ---------- ---------- ---------- --------
As at 31 March
2018 8,756 7,215 498 551 1,864 18,884
---------- ---------- ---------- ---------- ---------- --------
Carrying amount
As at 31 March
2018 37,849 2,671 - 15 36 40,571
As at 31 March
2017 37,388 3,010 1 23 53 40,475
15. Inventories
Group 2018 2017
HKD'000 HKD'000
Stock in Trade 25,792 35,153
---------- ------------
25,792 35,153
_________ _________
The amount of inventories recognised as an expense during the
year is HKD 837,799,000 (2017: HKD 810,206,000).
16. Trade and other receivables
Group Company
2018 2017 2018 2017
HKD'000 HKD'000 HKD'000 HKD'000
Trade receivables 11,440 1,685 - -
_________ _________ _________ _________
Other receivables:
Deposits 6,599 2,301 - -
Prepayments 105 3,333 82 119
Other receivables (non-trade) 3,362 27 - -
Amounts due from subsidiaries - - 42,873 45,084
---------- ---------- ---------- ----------
10,066 5,661 42,955 45,203
_________ _________ _________ _________
Trade receivables represent amounts receivable on the sale of
scrap materials and are included at amortised cost. The average
credit period taken is 30 days, there are no provisions for
doubtful debts and 6 customers account for 100% of the total trade
receivables. There are no debts past due at the year end based on
credit term of 30 days.
17. Cash and cash equivalents
Group 2018 2017
HKD'000 HKD'000
Cash and bank balances 12,275 1,288
---------- --------
Cash and bank balances
as presented in balance
sheets 12,275 1,288
---------- --------
Cash and cash equivalents
as presented in consolidated
statement of cash flows 12,275 1,288
_________ ________
18. Trade and other payables
Group Company
2018 2017 2018 2017
HKD'000 HKD'000 HKD'000 HKD'000
Trade payables 18,295 6,106 - -
_________ _________ _________ _________
Other payables:
* Accrued expenses 679 1,256 240 240
193 - - -
* Other payables
* Trade deposit received 8,628 3,818 - -
- ---------- ---------- ---------- ----------
9,500 5,074 240 240
_________ _________ _________ _________
Trade payables represent amounts due for the purchase of scrap
materials and administrative expenses and are included at amortised
cost. The average credit period taken is 8 days. The directors
consider that the carrying amount of trade payables approximates to
their fair value.
19.Deferred tax liability
2018 2017
HKD HKD
At 1 April 157 177
Arising on acquisition of - -
Zheng Bao
Deferred tax release (20) (20)
---------- ----------
At 31 March 137 157
_________ _________
The deferred tax liability has arisen in respect of taxable
timing differences in relation to the customer relationships
intangible asset as mentioned in note 14.
20.Share capital
Group 2018 2017
HKD HKD
Class Nominal
Value
Allotted, issued and
fully paid
122,010,000 Ordinary GBP0.01 15,549,000 15,549,000
_________ _________
The ordinary shares have attached to them full voting, dividend
and capital distribution (including on winding up) rights; they do
not confer any rights of redemption.
21.Other reserves
Group
2018 2017
HKD'000 HKD'000
Group reorganisation reserve 527 527
_________ _________
The Group reorganisation reserve was a result of the group
reorganisation of the old Masterpiece Enterprises Group.
Masterpiece Enterprises Limited was formed before the acquisition
by Zibao Metals Recycling Holdings Plc to hold the trading
subsidiaries. The difference between the nominal value of the
shares acquired of the trading subsidiaries and the value of the
shares issued by Masterpiece Enterprises in exchange is taken as a
reserve movement.
Company
2018 2017
HKD'000 HKD'000
Merger relief reserve 19,516 19,516
_________ _________
The merger relief reserve arises from the 100% acquisition of
the Masterpiece Group on 10 March 2014 whereby the excess of the
fair value of the issued ordinary share capital issued over the
nominal value of these shares is transferred to this reserve in
accordance with section 612 of the Companies Act 2006.
22. Related-party transactions
During the year, the Group entered into the following trading
transactions with related parties that are not members of the
Group:
Sales of goods Purchase of goods
2018 2017 2018 2017
HKD'000 HKD'000 HKD'000 HKD'000
Wang Kei Yip Development
Limited 11,288 31,541 - -
The following balances were outstanding at the end of the
year:
Amounts owed by related Amounts owed to related
parties parties
2018 2017 2018 2017
HKD'000 HKD'000 HKD'000 HKD'000
Wang Kei Yip Development
Limited - - - 237
Ben Lee, a director of Wang Kei Yip Development Limited, is the
brother in law of the director
Wenjie Zhou. Wang Kei Yip Development Limited is therefore a
related party. The transaction was at arms length.
The parent Company only statement of financial position includes
amounts of HKD 42,873,000 (2017: HKD 45,084,000) due from
Masterpiece Enterprises Limited. All entities are wholly owned
subsidiaries and all balance are repayable on demand.
23. Operating lease commitments
The Group has commitments for leases with independent third
parties in respect of rented premises and staff quarters. The
leases have varying terms and renewal rights.
The future aggregate minimum lease payments under
non-cancellable operating leases contracted for at the balance
sheet date but not recognised as liabilities are as follows:
2018 2017
HKD'000 HKD'000
Within one year - 185
Between two to five years - -
---------- ----------
- 185
_________ _________
The lease on the rented premises had expired on 31 January 2018.
The current rent payable on the leases ranges from HKD 18,500
(2017: HKD 18,000 to HKD 18,500 ) per month.
24. Financial instruments
Financial risk management objectives and policies
The Group's major financial instruments include trade and other
receivables, amounts due to/from related companies, bank balances
and cash, trade and other payables, and amounts due to a director.
Details of these financial instruments are disclosed in respective
notes. The risks associated with these financial instruments
include market risk (foreign exchange risk), credit risk, interest
rate risk, liquidity risk and capital management risk. The Group's
overall risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance. The policies for
managing these risks are summarised below.
It is the Group's policy not to trade in derivative
contracts.
(a) Market risk
Foreign currency risk
Currency risk is the risk that the holding of foreign currencies
will affect the Group's position as a result of a change in foreign
currency exchange rates. The Group has no significant foreign
currency risk as most of the Group's financial assets and
liabilities are denominated in functional currencies of relevant
group entities. Accordingly, no quantitative market risk
disclosures or sensitivity analysis for currency risk have been
prepared.
(b) Cash flow and fair value interest rate risk
The Group currently does not have any interest bearing
borrowings or financial instruments or any interest rate hedging
policy. The director monitors the Group's exposure on an ongoing
basis and will consider hedging interest rate risk should the need
arise. Accordingly, no quantitative market risk disclosures or
sensitivity analysis for interest rate risk have been prepared
(c) Liquidity risks (continued)
The Group manages its liquidity risk by maintaining sufficient
cash, by monitoring the liquidity requirements in the short and
longer term.
The Group monitors its liquidity risk and maintains a level of
cash and cash equivalents deemed adequate by management to finance
the Group's operations and to mitigate the effects of fluctuations
in cash flows. Typically, the Group ensures that it has sufficient
cash on demand to meet expected operational expenses including the
servicing of financial obligations. Management monitors the Group's
liquidity reserve, comprising cash and cash equivalents (Note 18)
on the basis of expected cash flows.
The following tables detail the remaining contractual maturity
for non-derivative financial liabilities. The tables have been
drawn up based on the undiscounted cash flows of financial
liabilities based on the earliest date on which the Group can be
required to pay.
2018 On demand Later than
or not later 1 year and
than 1 year not later
than 5 years
HKD'000 HKD'000
Trade and other payables 27,795 -
Borrowings - -
-------------- ------------
27,795 -
_________ _________
2017 On demand Later than
or not later 1 year and
than 1 year not later
than 5 years
HKD'000 HKD'000
Trade and other payables 11,180 -
Borrowings - -
-------------- --------------
11,180 -
_________ _________
(d) Credit risk
Credit risk refers to the risk that counterparty will default on
its contractual obligations resulting in financial loss to the
Group. The carrying amount of financial assets recorded in the
consolidated financial statements, which is net of impairment
losses, represents the Group's maximum exposure to credit risk. The
Group has adopted a policy of only dealing with creditworthy
counterparties as a means of mitigating the risk of financial loss
from defaults. The Group's exposure and the credit ratings of its
counterparties are continuously monitored. Credit exposure is
controlled by counterparty limits that are reviewed and approved by
the management regularly.
The Group has put in place policies to ensure that sales of
products are made to customers with an appropriate credit history
and the Group performs periodic credit evaluations of its
customers. In this regard, the director of the Group considers that
the Company's credit risk is significantly reduced.
The Group's bank balances and cash are deposited with banks in
Hong Kong. The credit risk on liquid funds is limited because the
counterparties are banks with good credit-rating.
(e) Financial instruments by category
The following table sets out the financial instruments as at the
statement of balance sheet date:
2018 2017
HKD'000 HKD'000
Financial assets:
Loans and receivables:
Trade receivables 11,440 1,685
Deposits and other receivables 9,961 2,328
Bank balances and cash
* denominated in HKD 383 387
- denominated in USD 11,295 719
* denominated in CNY 596 181
* denominated in JPY 1 1
---------- ----------
33,676 5,301
Financial liabilities:
Financial liabilities measured
at amortised cost:
Trade payables 18,295 6,106
Accrued liabilities and other
payables 9,500 5,074
---------- ----------
27,795 11,180
(f) Capital management risk
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern, so that it can
continue to provide returns for shareholders and benefits for other
stakeholders, and to provide an adequate return to
shareholders.
The Group manages its capital structure and makes adjustments to
it in the light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders,
issue new shares, or sell assets to reduce debt.
No changes were made in the objectives, policies and processes
during the years of 2017 and 2018.
The Group monitors capital using a gearing ratio, which is the
Group's net debts divided by its
total capital. Net debt is calculated as total liabilities as
shown in the statement of financial position less cash and bank
balances. Total capital is calculated as equity, as shown in the
statement of financial position, plus net debt. The Group's gearing
ratios are as follows:
2018 2017
HKD'000 HKD'000
Total liabilities 36,969 20,850
Less: Cash and bank balances (12,275) (1,288)
---------- ----------
Net debt 24,694 19,562
Total equity 66,862 64,812
---------- ----------
Total capital 91,556 84,374
Gearing ratio 27.0% 23.2%
25. Fair value of financial instruments
Fair value estimates are made at a specific point in time and
based on relevant market information and information about the
financial instruments. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in
assumptions could significantly affect these estimates. The Group
does not currently have any derivative or other financial
instruments measured at fair value through profit and loss and the
carrying amounts of financial instruments in the balance sheet
approximated their fair values.
26. Controlling Party Note
The ultimate controlling party is Wenjie Zhou.
27. Cash generated from operations
2018 2017
HKD'000 HKD'000
Cash flows from operating activities before changes in working capital and
provisions
Profit before income tax 1,795 1,109
Adjustments for:
Depreciation on property, plant and equipment 1,590 941
Amortisation 100 101
(Increase) / decrease in inventories 9,361 (9,101)
Decrease/(Increase) in trade receivables (9,755) 978
Decrease / (increase) in prepayments, deposits and other receivables (4,405) 3015
Increase in trade payables 12,190 (3,860)
Increase in accrued liabilities and other payables 2,216 1,430
-------- ----------
Cash generated in operations 13,092 (5.387)
28. Share options
On 16 June 2014 the Company granted options on 525,000 ordinary
shares to certain directors. The options are exercisable at GBP0.08
per share after the first anniversary of Admission, provided that
the director remains in office until then.
Weighted
average
remaining
Number Exercise contractual
of options price life
At 31 March 2016 525,000 GBP0.08 5 years
Options issued in the period - - -
---------- ---------- ----------
At 31 March 2017 525,000 GBP0.08 5 years
Options issued in the period - - -
---------- ---------- ----------
At 31 March 2018 525,000 GBP0.08 5 years
The fair value of the share options issued in the current period
is HKD 0.19 and was derived using the Black Scholes model. The
following assumptions were used in the calculation:
Bid price discount 25%
Risk-free rate 1.5%
Volatility 60%
Expected life 3 years
Expected volatility is based on a conservative estimate for a
newly listed entity. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
A charge of HKD nil (2017: HKD nil) has been recognised for the
share based payments during the year.
29. Warrants
On 16 June 2014, the Company granted to ZAI warrants to
subscribe for 2,917,500 Ordinary shares at an issue price of
GBP0.08 at any time in the period to 16 June 2019.
Weighted
average
remaining
Number Exercise contractual
of warrants price life
At 31 March 2016 2,917,500 GBP0.08 5 years
Warrants issued in the period - - -
---------- ---------- ----------
At 31 March 2017 2,917,500 GBP0.08 5 years
Warrants issued in the period - - -
---------- ---------- ----------
At 31 March 2018 2,917,500 GBP0.08 5 years
The fair value of the warrants issued in the current period is
HKD 0.19 and was derived using
the Black Scholes model. The following assumptions were used in
the calculations:
Bid price discount 25%
Risk-free rate 1.5%
Volatility 60%
Expected life 3 years
Expected volatility is based on a conservative estimate for a
newly listed entity. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
A charge of HKD nil (2016: HKD nil) has been recognised for the
share based payments in the period as the warrants vested
immediately in the prior year upon listing.
30. Events subsequent to 31 March 2018
There were no subsequent events.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GUGDCUUBBGIC
(END) Dow Jones Newswires
September 19, 2018 02:01 ET (06:01 GMT)
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