Tai Ping Carpets International : Interim Report 2020/21

Tai Ping Carpets International Limited

Interim Report 2020/21

Incorporated in Bermuda with Limited Liability

Stock Code: 146

www.taipingcarpets.com

Table of Contents

• 2 Management Discussion & Analysis

• 5 Corporate Governance & Other Information

• 8 Condensed Consolidated Income Statement

• 9 Condensed Consolidated Statement of Comprehensive Income

• 10 Condensed Consolidated Statement of Financial Position

• 12 Condensed Consolidated Statement of Changes in Equity

• 13 Condensed Consolidated Statement of Cash Flows

• 14 Notes to the Condensed Consolidated Financial Statements

• 32 Corporate Information

Management Discussion & Analysis

The Board of Directors (the "Board") of Tai Ping Carpets International Limited (the "Company") hereby presents the interim report and the condensed consolidated interim financial statements of the Group for the six months ended 31 December 2020 (the "period"), together with the comparative figures for the previous corresponding period. The condensed consolidated income statement, statement of comprehensive income, statement of cash flows and statement of changes in equity of the Group for the six months ended 31 December 2020, and the condensed consolidated statement of financial position as at 31 December 2020, along with selected explanatory notes, all of which are unaudited and reviewed by the Audit Committee of the Company, can be found on pages 8 to 31 of this report.

BUSINESS REVIEW

The Group's consolidated turnover for the period was HK$220 million, down by 28% compared to the HK$305 million for the same period in 2019. Trading was affected by the on-going COVID-19 outbreak which lasted throughout the year. However, the impact of the pandemic during the reporting period - the second half of 2020 - was less severe than in the first half when turnover was lower at HK$190 million.

During the period, stringent cost controls were implemented which included negotiation of temporary rent reductions, staff furloughing and voluntary pay reductions. In addition, direct selling and marketing expenditure reduced considerably following the suspension of major trade shows during lockdowns. With cost-saving measures in place, the operating profit for the period was HK$7 million. The comparative figure in 2019 was HK$14 million although this benefitted from a one-off income of HK$11 million relating to the disposal of assets held for sale. The operating result was a significant improvement compared to the operating loss of HK$30 million recorded in the first half of 2020.

The Group's profit attributable to the equity holders of the Company was HK$6 million, compared to the profit of HK$11 million recorded for the same period in 2019.

CARPET OPERATIONS

Sales revenue in carpet operations for the period was HK$213 million, a 28% decrease compared to the HK$297 million for the same period in 2019. All three regions recorded double-digit sales decline primarily due to the delays in securing and completing projects caused by government lockdowns in various countries. The uncertainty around international travel also caused customers to temporarily reduce or postpone their purchases.

Gross profit margins across almost all business segments and regions were intact and showed improvements as compared to 2019 due to higher efficiency of the manufacturing operations.

Management Discussion & Analysis

MANUFACTURING OPERATIONS

The performance of the Artisan workshop in Xiamen continues to improve with management remaining focused on delivering further gains in efficiency, productivity and material utilisation. Following the implementation of stringent social distancing guidelines to protect the health and safety of employees, the COVID-19 outbreak had no major impact on manufacturing operations.

The Company's new carpet manufacturing operation in the US, based at its Premier Yarn Dyers ("PYD") facility in Georgia has been fully operational since April 2020. The new manufacturing facility will support long-term growth plans in the US market.

NON-CARPET OPERATIONS

Other operations represent mainly the Company's US based yarn-dyeing subsidiary, PYD, contributing approximately 3% of total sales. Whilst the implementation of streamlining measures further reduced the operating loss in this part of the business, results are expected to improve in future when the spare production capacity is better utilised.

OUTLOOK

The outbreak of the COVID-19 will continue to be the biggest challenge to the recovery of the global economy and Tai Ping's business in the near-term. However, with the global deployment of vaccinations accelerating and societies continuing to adapt to new health and safety norms, we are cautiously hopeful that economic and business activity will gradually return to normal.

Trade frictions between the US and China also remain a concern, particularly as the US is Tai Ping's biggest market while its manufacturing is located in China. Whilst the newly-invested US carpet manufacturing footprint is still in early stages, and will take time to become established, high US tariffs will continue to affect business growth in the US.

DIVIDEND

The Board does not recommend the payment of an interim dividend for the period (2019: Nil).

CAPITAL EXPENDITURE

Capital expenditure in the form of property, plant and equipment and construction in progress incurred by the Group totalled HK$5 million during the period (2019: HK$8 million). As at 31 December 2020, the aggregated net book value of the Group's property, plant and equipment, land use rights, construction in progress and intangible assets amounted to HK$395 million (30 June 2020: HK$378 million).

Management Discussion & Analysis

LIQUIDITY & FINANCIAL RESOURCES

The Group coordinates its financing and cash management activities at the corporate level, and usually funds its business with internally generated cash flows and through banking facilities at various subsidiaries.

As at 31 December 2020, the Group had total cash and cash equivalents including short-term fixed deposits (with maturity within 12 months) amounting to HK$138 million (30 June 2020: HK$136 million) and had no bank borrowings (30 June 2020: HK$31 million).

EXPOSURE TO FOREIGN EXCHANGE RISKS

The Group has overseas operations in the US, Europe and China. The Group treats its investments in these foreign operations as permanent equity, so exchange differences from translating the net investments in these foreign operations do not affect cash flows and are dealt with in the reserves.

The Group's sales are denominated primarily in US dollars and Euro, and to a lesser extent in a variety of other currencies.

HUMAN RESOURCES & REMUNERATION POLICIES

Consistent with continuing cost reduction measures, the total number of employees at the end of December 2020 was 670 compared to 740 at the end of June 2020.

Employees are remunerated according to the nature of the job and market trends, with built-in merit components incorporated as an annual incentive to reward and motivate individual performance.

The primary focus for Human Resources during the period was maintaining stability and retaining talent through a period of economic uncertainty and continuing organisational change.

CONTINGENT LIABILITIES

As at 31 December 2020, the Group's total contingent liabilities amounted to HK$8 million (30 June 2020: Nil).

Mark Stuart Worgan

Chief Executive Officer

Hong Kong, 26 February 2021

Corporate Governance & Other Information

CORPORATE GOVERNANCE

The Board of Directors and Management are committed to promoting good corporate governance to safeguard the interests of shareholders. The Company has complied with the applicable code provisions in the Corporate Governance Code (the "CG Code") as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") during the six months ended 31 December 2020, except the Company's Non-Executive Directors are not appointed for specific terms as required by code provision A.4.1 of the CG Code. However, the relevant Bye-laws of the Company require that every Director would retire by rotation at least once every three years, which is in line with the CG Code.

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted a code of conduct regarding the Directors' transactions in the securities of the Company (the "Tai Ping Code") on terms no less exacting than the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Listing Rules (the "Model Code"). Specific enquiry has been made of all the Directors of the Company and they have confirmed their compliance with the required standard set out in the Model Code and the Tai Ping Code during the six months ended 31 December 2020.

AUDIT COMMITTEE

The Company has set up an Audit Committee on 23 September 2005 and the terms of reference of the Audit Committee are aligned with the CG Code. Under these terms of reference, the responsibilities of the Audit Committee include overseeing the relationship with the Company's external auditor (including making recommendation to the Board on the appointment, re-appointment and removal of the external auditor, and approving the audit fee and reviewing the audit scope), review of financial information of the Group, oversight of the Group's financial reporting system, risk management and internal controls.

The Audit Committee, together with the management of the Company, has reviewed the accounting principles and practices adopted by the Company as well as the internal control procedures of the Company, and discussed financial reporting matters, including the review of the interim financial information for the six months ended 31

December 2020.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S SHARES

The Company has not redeemed any of its shares during the six months ended 31 December 2020. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company's shares during the period.

DIVIDEND

The Board does not recommend the payment of an interim dividend for the six months ended 31 December 2020.

Corporate Governance & Other Information

DIRECTORS' INTERESTS IN THE SHARE, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ANY SPECIFIED UNDERTAKING OF THE COMPANY

As at 31 December 2020, the interests of the Directors in the shares of the Company and its associated corporations (within the meaning of the Part XV of Securities and Futures Ordinance ("SFO")) as recorded in the register maintained by the Company under Section 352 of the SFO or as notified to the Company were as follows:

Ordinary shares of HK$0.10 each in the Company as at 31 December 2020

No. of ordinary shares held (long position)

Corporate Interests	% of the issued
Personal Interests	(interests of controlled	share capital of the
Name	(held as beneficial owner)	corporation)	Company
Tong Chi Leung David	431,910	-	0.204%
Yung Lincoln Chu Kuen	30,000	-	0.014%
Leong Kwok Fai Nelson	700,000	2,182,0001	1.358%
John Jeffrey Ying	-	32,605,5832	15.366%
Notes:

• 1 2,000,000 shares are held by Gainsborough Associates Limited and 182,000 shares are held by Fontana Enterprises Limited, companies in which Mr. Leong Kwok Fai Nelson holds 33.33% and 40% equity interests respectively and have controlling interest.

• 2 The shares are held by Peak Capital Partners I, L.P. of which Mr. John Jeffrey Ying is the sole shareholder of the general partner of Peak Capital Partners I, L.P. and is deemed to have an interest in the shares held by Peak Capital Partners I, L.P. (the Company is advised that the term "general partner" commonly refers to the entity liable for all the debts and obligations of a limited partnership and has power to bind a limited partnership).

At no time during the period was the Company or any of its subsidiaries a party to any arrangements to enable the Directors of the Company (including their spouse and children under 18 years of age) to hold any interests in the shares in, or debentures of, the Company or its specified undertakings or other associated corporation.

Corporate Governance & Other Information

SUBSTANTIAL SHAREHOLDERS

As at 31 December 2020, the register of substantial shareholders required to be kept under Section 336 of Part XV of the SFO showed that the Company had been notified of the following substantial shareholders' interests, being 5% or more in the issued ordinary share capital of the Company. These interests are in addition to those disclosed above in respect of the Directors.

No. of ordinary shares

held in the Company	% of the
of HK$0.10 each
Name	(long position)	of the Company
Acorn Holdings Corporation1	40,014,178	18.858%
Bermuda Trust Company Limited1	40,014,178	18.858%
Harneys Trustees Limited1	77,674,581	36.607%
Lawrencium Holdings Limited1	77,674,581	36.607%
The Mikado Private Trust Company Limited1	77,674,581	36.607%
The Hon. Sir Michael Kadoorie1	77,674,581	36.607%
Peak Capital Partners I, L.P.2	32,605,583	15.366%
Notes:

issued share capital

• 1 Bermuda Trust Company Limited is deemed to be interested in the same 40,014,178 shares in which Acorn Holdings Corporation is interested. The Mikado Private Trust Company Limited and Harneys Trustees Limited are deemed to be interested in the same 77,674,581 shares in which Lawrencium Holdings Limited is interested. For the purpose of the SFO, the spouse of the Hon. Sir Michael Kadoorie has a duty of disclosure in Hong Kong in relation to the 77,674,581 shares. The interest disclosed by the spouse of the Hon. Sir Michael Kadoorie is that of the Hon. Sir Michael Kadoorie attributed to her under the SFO. Except the above, she has no interest, legal or beneficial in those shares.

• 2 Mr. John Jeffrey Ying (a Non-Executive Director of the Company) is the sole shareholder of the general partner of Peak Capital Partners I, L.P. and is deemed to have an interest in the shares held by Peak Capital Partners I, L.P. (the Company is advised that the term "general partner" commonly refers to the entity liable for all the debts and obligations of a limited partnership and has power to bind a limited partnership).

Condensed Consolidated Income Statement

Unaudited

2020	2019
Note	HK$'000	HK$'000
Revenue	6	220,342	305,233
Cost of sales	(93,524)	(140,035)
Gross profit	126,818	165,198
Distribution costs	7	(61,768)	(90,188)
Administrative expenses	7	(59,726)	(73,811)
Gain on disposal of non-current asset held for sale	8	-	11,089
Other gains - net	9	1,848	1,353
Operating profit	7,172	13,641
Finance costs - net	10	(1,474)	(1,826)
Profit before income tax	5,698	11,815
Income tax expense	11	(161)	(1,223)
Profit for the period	5,537	10,592
Profit/(loss) attributable to:
Owners of the Company	5,838	11,377
Non-controlling interests	(301)	(785)
5,537	10,592
Profit per share attributable to the owners of the Company
during the period (expressed in HK cents per share)
Basic/diluted	13	2.75	5.36

The notes on pages 14 to 31 are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Comprehensive Income

Unaudited

2020	2019
HK$'000	HK$'000
Profit for the period	5,537	10,592
Other comprehensive income:
Items that may be reclassified to profit or loss
Release of reserves attributable to the disposal of non-current asset held for sale	-	(14,743)
Currency translation differences	29,942	(7,754)
Other comprehensive income/(loss) for the period - net of tax	29,942	(22,497)
Total comprehensive income/(loss) for the period	35,479	(11,905)
Attributable to:
Owners of the Company	34,390	(10,798)
Non-controlling interests	1,089	(1,107)
35,479	(11,905)
9

The notes on pages 14 to 31 are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Financial Position

Unaudited	Audited
31 Dec	30 Jun
2020	2020
Note	HK$'000	HK$'000
Assets
Non-current assets
Land use rights	14	26,974	25,148
Property, plant & equipment	15	347,913	332,747
Construction in progress	15	-	640
Intangible assets	16	19,720	19,798
Prepayments	18	2,233	1,369
Other receivable	18	4,887	4,887
Right-of-use assets	17	102,759	107,195
Lease receivables	276	1,083
504,762	492,867
Current assets
Inventories	64,709	68,557
Trade & other receivables	18	52,884	70,931
Lease receivables	1,578	2,186
Derivative financial instruments	332	-
Current income tax assets	3,409	6,228
Pledged bank deposit	19	404	402
Cash & cash equivalents	137,792	136,036
261,108	284,340
Total assets	765,870	777,207

The notes on pages 14 to 31 are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Financial Position

Unaudited	Audited
31 Dec	30 Jun
2020	2020
Note	HK$'000	HK$'000
Equity
Equity attributable to owners of the Company
Share capital	20	21,219	21,219
Reserves	21	272,827	244,275
Retained earnings	109,849	104,011
403,895	369,505
Non-controlling interests	18,504	17,415
Total equity	422,399	386,920
Liabilities
Non-current liabilities
Deferred income tax liabilities	2,065	2,065
Retirement benefit obligations	4,031	3,719
Lease liabilities	86,872	91,708
92,968	97,492
Current liabilities
Trade & other payables	22	124,329	136,982
Contract liabilities - Deposits received in advance	100,230	97,047
Derivative financial instruments	-	93
Current income tax liabilities	2,632	2,284
Bank borrowings - unsecured	23	-	31,040
Lease liabilities	23,312	25,349
250,503	292,795
Total liabilities	343,471	390,287
Total equity & liabilities	765,870	777,207
Net current assets/(liabilities)	10,605	(8,455)
Total assets less current liabilities	515,367	484,412
11

The notes on pages 14 to 31 are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Changes in Equity

Attributable to owners of the Company

Share capital HK$'000

Balance at 1 July 2019

Share premium HK$'000

21,219

Other reserves HK$'000

189,699

Unaudited

Retained earnings HK$'000

83,959

Total HK$'000

121,851

Non-controlling interests HK$'000

416,728

Total equity HK$'000

19,449

436,177

Comprehensive income Profit/(loss) for the period

Other comprehensive income for the period

Release of reserves attributable to the disposal of non-current asset held for sale

Currency translation differences Total other comprehensive loss for the period - net of tax Total comprehensive loss for the period

-

-

- - -

Balance at 31 December 2019

-

-

- - -

21,219

-

(14,743)

(7,432) (22,175)

(22,175)

189,699

11,377

-

- -

11,377

61,784

11,377

(14,743)

(7,432) (22,175)

(10,798)

133,228

(785)

-

(322) (322)

(1,107)

405,930

10,592

(14,743)

(7,754) (22,497)

(11,905)

18,342

424,272

Balance at 1 July 2020

21,219

189,699

54,576

104,011

369,505

17,415

386,920

Comprehensive income Profit/(loss) for the period

Other comprehensive income for the period

Currency translation differences Total other comprehensive income for the period - net of tax Total comprehensive income for the period

-

- - -

Balance at 31 December 2020

-

- - -

21,219

-

189,699

28,552 28,552 28,552 83,128

5,838

- -

5,838

109,849

5,838

28,552 28,552 34,390

403,895

(301)

1,390 1,390 1,089

18,504

The notes on pages 14 to 31 are an integral part of these condensed consolidated financial statements.

5,537

29,942 29,942 35,479

422,399

Condensed Consolidated Statement of Cash Flows

Unaudited

2020	2019
HK$'000	HK$'000
Cash flows from operating activities
Cash generated from operations	46,770	66,314
Income tax recovered/(paid)	3,060	(179)
Interest paid	(134)	(96)
Net cash generated from operating activities	49,696	66,039
Cash flows from investing activities
Purchases of property, plant & equipment and construction in progress	(4,707)	(9,685)
Acquisition of intangible assets	(846)	-
Proceeds from disposal of property, plant & equipment	5	41
Proceeds from disposal of non-current asset held for sale	-	8,651
Decrease/(increased) in derivative financial instruments	253	(39)
Interests received	289	61
Net cash used in investing activities	(5,006)	(971)
Cash flows from financing activities
Capital element of lease rentals paid	(17,264)	(17,348)
Interest element of lease rentals paid	(1,731)	(1,919)
Proceeds from borrowings	-	15,560
Repayments of borrowings	(31,040)	(15,560)
Net cash used in financing activities	(50,035)	(19,267)
Net (decrease)/increase in cash & cash equivalents	(5,345)	45,801
Cash & cash equivalents at beginning of period	136,036	60,094
Exchange gain on cash & cash equivalents	7,101	4,044
Cash & cash equivalents at end of period	137,792	109,939
13

The notes on pages 14 to 31 are an integral part of these condensed consolidated financial statements.

Notes to the Condensed Consolidated Financial Statements

• 1. GENERAL INFORMATION

  Tai Ping Carpets International Limited ("the Company") and its subsidiaries (together "the Group") are principally engaged in the design, manufacture, import, export and sale of carpets and manufacture and sale of yarns.

  The Company is a limited liability company incorporated in Bermuda. The address of its registered office is Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 10, Bermuda. The principal office in Hong Kong is located at Units 1801-1804, 18th Floor, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon, Hong Kong.

  The Company's shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited.

  These condensed consolidated interim financial statements are presented in thousands of Hong Kong dollars (HK$'000), unless otherwise stated. These condensed consolidated interim financial statements have been approved for issue by the Board of Directors of the Company on 26 February 2021.

  These condensed consolidated interim financial statements have not been audited.

• 2. BASIS OF PREPARATION

  The unaudited condensed consolidated interim financial statements for the six months ended 31 December 2020 have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") and with Hong Kong Accounting Standard ("HKAS") 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA"). The condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements for the eighteen months ended 30 June 2020, which have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs").

  The condensed consolidated interim financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value through profit or loss, which are carried at fair value.

• 3. CHANGES IN ACCOUNTING STANDARDS

  The HKICPA has issued a number of new HKFRSs and amendments to HKFRSs that are first effective for the financial period beginning 1 July 2020 and none of them have impact to the Group. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

• 4. ESTIMATES

  The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

  In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation for uncertain events were the same as those that applied to the consolidated financial statements for the eighteen months

• ended 30 June 2020.

• 5. FINANCIAL RISK MANAGEMENT

  Financial risk factors

  The Group's activities expose it to a variety of financial risks: foreign exchange risk, price risk, credit risk, liquidity risk and cash flow and fair value interest rate risk.

  The condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's consolidated financial statements for the eighteen months ended 30 June 2020.

  There have been no changes in the risk management team and/or in any risk management policies since the end of 30 June 2020.

(a)Liquidity risk

Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group finance. Group finance monitors rolling forecasts of the Group's liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group's debt financing plans, covenant compliance, compliance with internal statement of financial position ratio targets and, if applicable external regulatory or legal requirements - for example, currency restrictions.

Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group Treasury. Group Treasury invests surplus cash in time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the above-mentioned forecasts. At the end of the financial period, the Group held cash and cash equivalents of HK$137,792,000 (as at 30 June 2020: HK$136,036,000) that are expected to readily generate cash inflows for managing liquidity risk.

5.

(b) Fair value estimation

FINANCIAL RISK MANAGEMENT (CONTINUED)

As at 31 December 2020	After 1 year but	More than 5
Within 1 year	within 5 years	years	Total
Unaudited	HK$'000	HK$'000	HK$'000	HK$'000
Trade & other payables	48,522	-	-	48,522
Lease liabilities	23,312	47,100	39,772	110,184
71,834	47,100	39,772	158,706
As at 30 June 2020	After 1 year but	More than 5
Within 1 year	within 5 years	years	Total
Audited	HK$'000	HK$'000	HK$'000	HK$'000
Trade & other payables	61,109	-	-	61,109
Bank borrowings - unsecured	31,040	-	-	31,040
Lease liabilities	25,349	49,358	42,350	117,057
117,498	49,358	42,350	209,206

The table below analyses the Group's non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the condensed consolidated statement of financial position date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows:

All of the Group's non-trading gross settled derivative financial instruments (Note 5(b)) are in hedge relationships and are due to settle within 12 months of the consolidated statement of financial position date. These contracts require undiscounted contractual cash inflows of HK$24,919,000 (30 June

2020: HK$12,416,000) and undiscounted contractual cash outflow of HK$24,363,000 (30 June 2020: HK$12,416,000).

The table below analyses the Group's financial instruments carried at fair value as at 31 December 2020, by level of the inputs to valuation techniques used to measure fair value. Such inputs are categorised into these levels within a fair value hierarchy as follows:

• - quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)

• - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2)

• - inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (level 3)

• 5. FINANCIAL RISK MANAGEMENT (CONTINUED)

  The following table presents the Group's assets and liabilities that are measured at fair value at 31 December 2020.

  Level 2

  HK$'000

  Assets

  Derivative financial instruments:

  Foreign currency forward contracts

  332

  The following table presents the Group's assets and liabilities that are measured at fair value at 30 June 2020.

  Level 2 HK$'000

  Liabilities

  Derivative financial instruments:

  Foreign currency forward contracts

  (93)

  The fair value of derivative financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to measure fair value of an instrument are observable, the instrument is included in level 2.

• 6. REVENUE & SEGMENT INFORMATION

(a)Revenue

Six months ended

31 December

2020	2019
HK$'000	HK$'000
Sale of carpets & underlays	190,960	269,192
Installation of carpets & furnishing business	22,309	27,681
Sale of yarns & others	7,073	8,360
220,342	305,233

(b) Segment information

Management has determined the operating segments based on the reports reviewed by the Board which are used to assess performance and allocate resources. The Board assesses the performance in the following geographical areas: Asia, Europe, the Middle East and Africa ("EMEA") and America.

The Board assesses the performance of the operating segments based on a measure of segment results.

Segment results which comprise the operating profit/loss of each business segment and effects of gain/loss and income/expenditure which are considered relevant in assessing the segment's performance.

6.

REVENUE & SEGMENT INFORMATION (CONTINUED)

The segment information provided to the management for the reportable segments for the six months ended 31 December 2020 and 2019 are as follows:

For the six months ended 31 December 2020

Unaudited

Revenue from external customers Cost of production 1

Segment gross margin Segment results Unallocated expenses 2 Operating profit Finance costs - net Profit before income tax Income tax expense Profit for the periodAsia HK$'000 41,834 (18,022) 23,812 5,289

EMEA HK$'000 79,245 (33,072) 46,173 199

America HK$'000 99,263 (41,752) 57,511 11,618

Unallocated

HK$'000 - - - -

Group HK$'000 220,342

(92,846)

127,496

17,106

(9,934)

7,172

(1,474)

5,698

(161)

5,537

Capital expenditure

Depreciation of right-of-use assets Depreciation of property, plant & equipment

(Note 15)

Amortisation of land use rights (Note 14) Amortisation of intangible assets (Note 16) Recovery of impairment of trade receivables - net

(2,087) (3,923) (9,216)

(305)

- 130

(2,497) (5,588) (1,824)

(198) (5,232) (1,928)

- - 474

- (66) 31

- (14,743)

(313) (13,281)

- (4,782)

- (2,166)

(305) (2,232)

-

635

6.

REVENUE & SEGMENT INFORMATION (CONTINUED)

For the six months ended 31 December 2019

Unaudited

Revenue from external customers Cost of production 1

Segment gross margin Segment results Unallocated expenses 2 Operating profit Finance costs - net Profit before income tax Income tax expense Profit for the periodAsia HK$'000 65,316 (35,666) 29,650 5,570

EMEA HK$'000 107,322 (46,394) 60,928 4,958

America HK$'000 132,595 (54,587) 78,008 16,523

Unallocated

HK$'000 - - - -

Group HK$'000 305,233

(136,647)

168,586

27,051

(13,410)

13,641

(1,826)

11,815

(1,223)

10,592

Capital expenditure

Depreciation of right-of-use assets Depreciation of property, plant & equipment

(Note 15)

Amortisation of land use rights (Note 14) Amortisation of intangible assets (Note 16) (Allowance for)/recovery of impairment of trade receivables - net

(1,669) (4,592) (5,501)

(301) (2,102)

(1,985) (6,008) (1,619)

(118)

(3,932) (5,564) (2,128)

- - 649

- (16,164)

(2,334) (11,582)

- (65) (427)

- (7,586)

- - -

(301) (2,167)

104

Notes: ¹ Cost of production comprises cost of sales, transportation and administrative expenses of the factories, which are classified as distribution costs and administrative expenses in the condensed consolidated income statement.

² Unallocated expenses include corporate expenses and income of the Group.

7.

EXPENSES BY NATURE

Six months ended

31 December

8.

2020	2019
HK$'000	HK$'000
Depreciation of right-of-use assets	14,743	16,164
Depreciation of property, plant & equipment (Note 15)	13,281	11,582
Amortisation of land use rights (Note 14)	305	301
Amortisation of intangible assets (Note 16)	2,232	2,167
Recovery of impairment of trade receivables - net	(635)	(104)
Allowance for impairment of inventories - net	2,021	2,365
Bad debts written off	309	1,034
GAIN ON DISPOSAL OF NON-CURRENT ASSET HELD FOR SALE

On 13 December 2013, the Directors approved the disposal of the Group's investment in 33% equity interest in Philippine Carpet Manufacturing Corporation ("PCMC"). Accordingly, management reclassified all the Group's investment in PCMC as non-current asset held for sale as at 31 December 2013.

In February 2019, PCMC entered into a sale and purchase agreement to dispose of its principal property asset in Manila (the "disposal") and the transaction was completed in May 2019. In December 2019, PCMC distributed the first installment of the proceeds after the gain on disposal was finalised. The balance of the proceeds should be distributed after PCMC has received all tax clearances for the disposal. As the transaction has been substantially concluded, the Company recorded its share of the gain on disposal of HK$11 million in December 2019. The balance of the outstanding proceeds of HK$5 million was recorded as long-term other receivable as at 31 December 2019 and 2020.

The gain on disposal of the non-current asset held for sale is as follows:

Unaudited
2019
HK$'000
Consideration of the disposal	34,256
Less: Direct expenses in relation to the disposal	(20,718)
Net consideration	13,538
Carrying value of the non-current asset held for sale	(17,192)
Release of reserves attributable to the disposal of non-current asset held for sale	14,743
Gain on disposal	11,089

9.

OTHER GAINS - NET

Six months ended

31 December

2020	2019
HK$'000	HK$'000
Net foreign exchange gain	1,154	1,124
Gain/(loss) on change in fair value of derivative financial instruments	678	(142)
Property, plant and equipment written off	(1,273)	(1,169)
Gain/(loss) on disposal of property, plant & equipment	5	(587)
Others	1,284	2,127
1,848	1,353

10. FINANCE COSTS - NET
2020	2019
HK$'000	HK$'000
Finance income - interest income from banks	289	61
Finance costs - interest expenses for leases - net	(1,629)	(1,791)
Finance costs - interests on bank loans & overdrafts wholly repayable within	(134)	(96)
five years
Finance costs - net	(1,474)	(1,826)
11. INCOME TAX EXPENSE

Six months ended

31 December

Hong Kong profits tax has been provided at the rate of 16.5% (2019: 16.5%) on the estimated assessable profits for the period. Taxation on overseas profits has been calculated on the estimated assessable profits for the period at the rates of taxation prevailing in the countries in which the Group operates.

Six months ended

31 December

2020	2019
HK$'000	HK$'000
Current income tax
Hong Kong	-	148
PRC & overseas	161	870
Deferred income tax expense	-	205
Income tax expense	161	1,223
21

• 12. DIVIDEND

  The Board does not recommend the payment of an interim dividend for the period. At the Board meeting held on 26 February 2021, the Board resolved not to declare any dividend for the six months ended

  31 December 2020 (2019: Nil).

• 13. PROFIT PER SHARE

  Basic profit per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares in issue during the period.

Six months ended

31 December

2020	2019
Profit attributable to owners of the Company (HK$'000)	5,838	11,377
Weighted average number of ordinary shares in issue (thousands)	212,187	212,187
Basic profit per share (HK cents)	2.75	5.36

The Group had no dilutive potential shares outstanding during the six months ended 31 December 2020 and 2019.

14. LAND USE RIGHTS

The Group's interests in land use rights are also identified as right-of-use assets and their carrying amounts are analysed as follows:

Unaudited	Audited
31 Dec	30 June
2020	2020
HK$'000	HK$'000
At beginning of the period	25,148	27,138
Amortisation of land use rights (Note 7)	(305)	(911)
Exchange differences	2,131	(1,079)
At end of the period	26,974	25,148

15. PROPERTY, PLANT & EQUIPMENT AND CONSTRUCTION IN PROGRESS

For the six months ended 31 December 2020

Property, plant & equipment

Property, plant

& equipment	Construction
Buildings	Other assets	total	in progress
Unaudited	HK$'000	HK$'000	HK$'000	HK$'000
At 1 July 2020
Cost or valuation	306,440	302,712	609,152	640
Accumulated depreciation	(44,407)	(231,998)	(276,405)	-
Net book amount	262,033	70,714	332,747	640
Period ended 31 December 2020
Opening net book amount	262,033	70,714	332,747	640
Additions	-	4,782	4,782	-
Transfer from construction in progress	-	-	-	(606)
Disposals	-	(36)	(36)	-
Assets written off	-	(1,273)	(1,273)	-
Depreciation (Note 7)	(3,841)	(9,440)	(13,281)	-
Exchange differences	20,379	4,595	24,974	(34)
Closing net book amount	278,571	69,342	347,913	-
At 31 December 2020
Cost or valuation	331,031	306,636	637,667	-
Accumulated depreciation	(52,460)	(237,294)	(289,754)	-
Net book amount	278,571	69,342	347,913	-
23

15. PROPERTY, PLANT & EQUIPMENT AND CONSTRUCTION IN PROGRESS (CONTINUED)

For the six months ended 31 December 2019

Property, plant & equipment

Construction in
Buildings	Other assets	equipment total	progress
Unaudited	HK$'000	HK$'000	HK$'000	HK$'000
At 1 July 2019
Cost or valuation	217,851	310,173	528,024	108,139
Accumulated depreciation	(41,326)	(226,965)	(268,291)	-
Net book amount	176,525	83,208	259,733	108,139
Year ended 31 December 2019
Opening net book amount	176,525	83,208	259,733	108,139
Additions	1,019	5,696	6,715	871
Transfer from construction in progress	6,150	838	6,988	(6,988)
Disposals	-	(623)	(623)	-
Assets written off	-	(1,169)	(1,169)	-
Depreciation (Note 7)	(2,217)	(9,365)	(11,582)	-
Exchange differences	(3,134)	(1,224)	(4,358)	(1,592)
Closing net book amount	178,343	77,361	255,704	100,430
At 31 December 2019
Cost or valuation	221,136	310,392	531,528	100,430
Accumulated depreciation	(42,793)	(233,031)	(275,824)	-
Net book amount	178,343	77,361	255,704	100,430

Property, plant &

16. INTANGIBLE ASSETS

For the six months ended 31 December 2020

Other

Computer	Design	intangible
software	Brands	library	assets	Total
Unaudited	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
At 1 July 2020
Cost	7,178	81,350	2,090	1,940	2,826	95,384
Accumulated amortisation & impairment	(7,178)	(64,849)	-	(1,617)	(1,942)	(75,586)
Net book amount	-	16,501	2,090	323	884	19,798
Period ended 31 December 2020
Opening net book amount	-	16,501	2,090	323	884	19,798
Additions	-	614	-	-	-	614
Transfer from construction in progress	-	606	-	-	-	606
Amortisation (Note 7)	-	(2,167)	-	(65)	-	(2,232)
Exchange differences	-	688	175	-	71	934
Closing net book amount	-	16,242	2,265	258	955	19,720
At 31 December 2020
Cost	7,169	83,317	2,265	1,937	2,976	97,664
Accumulated amortisation & impairment	(7,169)	(67,075)	-	(1,679)	(2,021)	(77,944)
Net book amount	-	16,242	2,265	258	955	19,720
25

Vendor relationships

Notes to the Condensed Consolidated Financial Statements

16. INTANGIBLE ASSETS (CONTINUED)

For the six months ended 31 December 2019

Vendor

relationships

Other
Computer	Design	intangible
software	Brands	library	assets	Total
Audited	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
At 1 July 2019
Cost	7,197	69,543	2,123	1,945	2,854	83,662
Accumulated amortisation & impairment	(7,197)	(60,162)	-	(1,491)	(1,957)	(70,807)
Net book amount	-	9,381	2,123	454	897	12,855
Year ended 31 December 2019
Opening net book amount	-	9,381	2,123	454	897	12,855
Amortisation (Note 7)	-	(2,103)	-	(64)	-	(2,167)
Exchange differences	-	-	(28)	-	(11)	(39)
Closing net book amount	-	7,278	2,095	390	886	10,649
At 31 December 2019
Cost	7,197	69,543	2,095	1,945	2,830	83,610
Accumulated amortisation & impairment	(7,197)	(62,265)	-	(1,555)	(1,944)	(72,961)
Net book amount	-	7,278	2,095	390	886	10,649

Other intangible assets include customer relationships and non-competition agreements.

17. RIGHT-OF-USE ASSETS

During the six months ended 31 December 2020, the Group entered into a number of lease agreements for use of manufacturing facilities, showrooms and offices, and therefore recognised the additions to right-of-use assets of HK$5,163,000 (2019: HK$688,000).

18. TRADE & OTHER RECEIVABLES

Unaudited	Audited
31 Dec	30 Jun
2020	2020
HK$'000	HK$'000
Trade receivables	19,418	46,637
Less: allowance for impairment of trade receivables	(4,464)	(5,005)
Trade receivables - net	14,954	41,632
Prepayments	15,664	9,228
Value added tax receivables	1,122	3,001
Rental deposits	8,333	6,724
Other receivables	19,931	16,602
60,004	77,187
Less: Non-current portion prepayments	(2,233)	(1,369)
Less: Non-current portion other receivable	(4,887)	(4,887)
52,884	70,931

The carrying amounts of trade receivables approximate their fair values as at 31 December 2020 and 30 June 2020. The credit terms of the Group range from 0 to 90 days, depending on the credit status and repayment history of customers. At the end of the financial period, the ageing analysis of the trade receivables based on invoice date is as follows:

Unaudited	Audited
31 Dec	30 Jun
2020	2020
HK$'000	HK$'000
0 to 30 days	7,817	23,828
31 to 60 days	3,412	6,231
61 to 90 days	894	1,030
91 to 365 days	3,476	8,937
More than 365 days	3,819	6,611
19,418	46,637
27

• 19. PLEDGED BANK DEPOSITS

  Pledged bank deposits of approximated HK$404,000 (30 June 2020: HK$402,000) represented deposits made to a bank to pledge for utilities of factory in the US.

  As at 31 December 2020, the effective interest rate on the Group's pledged bank deposits was 1.39% p.a. (30 June 2020: 1.39% p.a.) and the deposits will mature in 160 days (30 June 2020: 344 days).

  The carrying amounts of the Group's pledged bank deposits are denominated in US$.

• 20. SHARE CAPITAL

No. of shares

HK$'000

Authorised - Ordinary shares of HK$0.10 each:

At 30 June 2020 & 31 December 2020

400,000,000

40,000

Issued & fully paid - Ordinary shares of HK$0.10 each:

At 30 June 2020 & 31 December 2020

212,187,488

21,219

21. RESERVES

Share premium

Unaudited

Balance at 1 July 2019

Release of reserves attributable to the disposal of non-current asset held for sale

HK$'000 189,699 -

Capital reserve HK$'000 55,928 (6,214)Properties revaluation reserve HK$'000 4,161 (4,161)

General reserve

HK$'000

8,000

Exchange reserve HK$'000 15,870

Total HK$'000 273,658

-

(4,368) (14,743)

Currency translation differences Balance at 31 December 2019

- 189,699

- 49,714

- -

-

(7,432) (7,432)

8,000

4,070

251,483

Unaudited

Balance at 1 July 2020 Currency translation differences Balance at 31 December 2020

189,699 - 189,699

49,714 - 49,714

- - -

8,000

-

8,000

(3,138) 28,552 25,414

244,275 28,552 272,827

22. TRADE & OTHER PAYABLES

Unaudited	Audited
31 Dec	30 Jun
2020	2020
HK$'000	HK$'000
Trade payables	15,107	27,330
Accrued expenses	65,386	59,017
Other payables	43,836	50,635
124,329	136,982

At the end of the financial period, the ageing analysis of the Group's trade payables based on invoice date is as follows:

Unaudited	Audited
31 Dec	30 Jun
2020	2020
HK$'000	HK$'000
0 to 30 days	11,034	15,615
31 days to 60 days	2,675	6,988
61 days to 90 days	431	1,603
More than 90 days	967	3,124
15,107	27,330
23. BANK BORROWINGS
Unaudited	Audited
31 Dec	30 Jun
2020	2020
HK$'000	HK$'000
Current
Short-term bank borrowings	-	31,040

The bank borrowings outstanding as at 30 June 2020 amounted to approximately HK$31,040,000. The bank borrowings are unsecured and interest bearing at 1.86% - 2.47% p.a.. The carrying amounts approximated their respective fair values as at 30 June 2020.

There is no outstanding bank borrowings as at 31 December 2020.

• 24. OPERATING LEASE RECEIVABLE

  The Group leases out a proportion of its factory facilities under operating lease. The lease runs for an initial period of four months. As at 31 December 2020, the remaining minimum lease receivable under non-cancellable operating lease is amounted to HK$256,000.

• 25. CAPITAL COMMITMENTS

  Unaudited	Audited
  31 Dec	30 Jun
  2020	2020
  HK$'000	HK$'000
  Authorised but not contracted for in respect of property, plant & equipment	93	2,589
  Contracted but not provided for in respect of property, plant & equipment	1,674	460
  1,767	3,049
  26. CONTINGENT LIABILITIES
  Unaudited	Audited
  31 Dec	30 Jun
  2020	2020
  HK$'000	HK$'000
  Performance bond issued by banks	7,558	-
  27. RELATED PARTY TRANSACTIONS

  The Mikado Private Trust Company Limited ("MPTCL") is a major substantial shareholder of the Company and MPTCL is also deemed to be interested in more than 30% of the voting power of The Hongkong and Shanghai Hotels, Limited.

  The following transactions were carried out with related parties:

(a)Sale of goods & services

Six months ended

31 December

2020 HK$'000

2019 HK$'000

Sale of carpets and services:

The Hongkong and Shanghai Hotels, Limited ("HSH")1

235

4,937

Note:

1

By virtue of the fact that HSH is under common control with the Company, the transactions of the Company's subsidiaries with HSH and its subsidiaries are related party transactions.

27. RELATED PARTY TRANSACTIONS (CONTINUED)

(b) Period-end balances arising from sale/purchase of goods/services

Unaudited	Audited
31 Dec	30 Jun
2020	2020
HK$'000	HK$'000
Trade receivable from related party:
HSH	27	2,535

(c)Key management compensation

Key management includes Chairman, Executive Director and senior management. The compensation paid or payable to key management for employee service is shown below:

Six months ended

31 December

2020	2019
HK$'000	HK$'000
Salaries & other short-term employee benefits	8,317	17,784
31

Corporate Information

Board of Directors

Auditor

Chairman & Non-Executive Director Mr. Nicholas Timothy James Colfer

Chief Executive Officer & Executive Director Mr. Mark Stuart Worgan

Non-Executive Directors Mr. Tong Chi Leung David Mr. John Jeffrey Ying

Mr. Leong Kwok Fai Nelson

Mr. Andrew Clifford Winawer Brandler

Independent Non-Executive Directors Mr. Roderic Noel Anthony Sage

Mr. Yung Lincoln Chu Kuen

Mr. Daniel George Green Mrs. Fung Yeh Yi Hao Yvette

Executive Committee

Mr. Nicholas Timothy James Colfer (Committee Chairman)

Mr. Mark Stuart Worgan

Mr. Tong Chi Leung David Mr. Leong Kwok Fai Nelson Mr. Daniel George Green

Audit Committee

Mr. Roderic Noel Anthony Sage (Committee Chairman) Mr. John Jeffrey Ying

Mr. Yung Lincoln Chu Kuen

Remuneration Committee

Mr. Roderic Noel Anthoney Sage (Committee Chairman)

Mr. Tong Chi Leung David

Mrs. Fung Yeh Yi Hao Yvette

Nomination Committee

KPMG

Certified Public Accountants Public Interest Entity Auditor Registered in accordance with the Financial Reporting Council Ordinance 8th Floor, Prince's Building

10 Chater Road, Central Hong Kong

Principal Bankers

The Hongkong and Shanghai Banking

Corporation Limited

Standard Chartered Bank (Hong Kong) Limited Bank of China (Hong Kong) Limited

Principal Share Registrar and Transfer Agent

Ocorian Management (Bermuda) Limited

Victoria Place, 5th Floor

31 Victoria Street Hamilton HM 10 Bermuda

Branch Share Registrar

Computershare Hong Kong Investor Services Limited 1712-1716, 17th Floor, Hopewell Centre

183 Queen's Road East, Wan Chai Hong Kong

Registered Office

Victoria Place, 5th Floor 31 Victoria Street Hamilton HM 10 Bermuda

Principal Office in Hong Kong

Mr. Nicholas Timothy James Colfer (Committee Chairman)

Mr. Yung Lincoln Chu Kuen

Mrs. Fung Yeh Yi Hao Yvette

Company Secretary

Mr. Lung Chi Sing Alex

Units 1801-1804, 18th Floor

909 Cheung Sha Wan Road Cheung Sha Wan

Kowloon

Hong Kong

Tel: [phone] Fax: [phone]

Website:www.taipingcarpets.com

Stock Code: 146