baguio green group limited 碧瑤綠色集團有限公司– 4 – as one of the key players in...

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Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

Baguio Green Group Limited碧瑤綠色集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1397)

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2019

FINANCIAL SUMMARY

• Revenueforthesixmonthsended30June2019amountedtoapproximatelyHK$719.1million(1H2018:HK$688.0million),representinganincreaseofapproximately4.5%ascomparedwiththeprecedingperiod.

• Grossprofit for the sixmonths ended30 June2019was approximatelyHK$42.9million(1H2018:HK$47.4million),representingadecreaseofapproximately9.5%ascomparedwiththeprecedingperiod.

• Profit attributable toequity shareholdersof theGroup for the sixmonthsended30June 2019was approximately HK$3.8mill ion (1H2018: HK$12.6mill ion),representing adecreaseof approximately69.5%as comparedwith theprecedingperiod.

• TheBoarddoesnotrecommendthepaymentofaninterimdividendforthesixmonthsended30June2019(1H2018:Nil).

Theboardofdirectors(the“Directors”andthe“Board”)ofBaguioGreenGroupLimited(the“Company”)ispleasedtoannouncetheunauditedconsolidatedinterimresultsoftheCompanyand its subsidiaries (the“Group”or“Baguio”) for thesixmonthsended30June2019 (the“Period”).

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MARKET REVIEW

DuringthePeriod,theenvironmentalindustryinHongKonghasbeenfacingbothchallengesandopportunities. In spiteof intensecompetitionandescalating laborcost, asoneof thelargest integrated environmental service providers inHongKongwithmarket leadingadvantages in technologyandeconomiesof scale,Baguioseesvastopportunities in the fastgrowingenvironmentalindustryledbytherisingpublicawarenessonsustainabledevelopmentin the city.According to theCensus andStatisticsDepartment, thevalueaddedofHongKong’senvironmentalindustryincreasedby10.8%yearonyeartoHK$9.3billionin2017(or0.4%ofGDP).Asaglobal trend,different industries inHongKonghavebeenundergoingatransformation towards lowcarbonandgreeneconomy,which facilitates thedemand foragreenerandhealthier livingenvironmentwithlesspowerconsumptionandwastegeneration.Therefore, thedemand for cleaningand landscape services is still on a rising trendwithtremendousroomforgrowth.

Ontheotherhand,on1January2018,thePeople’sRepublicofChina(the“PRC”)endeditslong-runningpracticeofacceptingthousandsofcontainerscarryingscrappaper,plasticsandmetals for recyclingand reuse.Governments around theworld, including theHongKongGovernment,arenowbeingforced to rollout theirowndisposalandrecyclingsystems.ThePRC’sdecisionnottoremainthedumpinggroundforforeigngarbagehasshinedthespotlighton theneed for countries to start facingup to theirplasticsaddictions, and formakersofplasticsanddisposablegoods to takeonmore responsibility for theenvironmentaldamagethey inflict. The reform in the PRC has become a keymilestone in speeding up thedevelopmentof theenvironmentalprotection industryandmeanwhile,an immediatealert toHongKongtotacklewiththeseriouswasteproblemwithherownresources.

Further,thePRCannouncedtheimplementationof“compulsorywasteclassification”since1July2019 andShanghai to be thepilot city.Thevibrant development of environmentalprotectionandrecyclingindustriesinthePRChasbecomeadrivingforceforHongKongtogear up her efforts in the city’s environmental protectionmeasures and sustainabledevelopment.Thecity’s leaders and institutionshave long takenaproactiveapproach inmotivating thepublic toachieve improvedwaste recyclingandwaste reduction inorder todivertrecyclablesawayfromlandfills.MeasuresincludingtheSourceSeparationofDomesticWaste(2005),TuenMunEcoPark(2007),theCommunityRecyclingNetwork(2011),the$1billionRecycling Fund (2015) andmany other green procurement policies have beenintroducedtopromotewastereductionandrecycling.

Whereas for foodwaste,projects suchas the“FoodWasteRecyclingProjects inHousingEstates”under theEnvironmentandConservationFundof theHongKongGovernmentarebeing rolledout toarousepublicawareness.Theseprojectswere launched in July2011 tosubsidise the installationofon-site foodwaste treatment facilities inprivatehousingestates,organising relatededucationalactivitiesandsettingup relatedserviceplatforms toprovidetechnical support to estates.Another35“HouseholdFoodRecyclingProjects”havebeenapprovedandsofarabout2,000tonnesoffoodwastearebeingrecycled.

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However, all the abovemeasures are far frombeing able to solve the escalatingwasteproblems inHongKong.TheGroupbelieves that theactiveparticipation from thebusinesssector in promotingmore vigorous recycling industry development is amore effectiveapproach inachieving the sustainablegoalsof thecityand, therefore, seeshugebusinessopportunitiesfromtheincreasingdemandofgreeningandenvironmentalprotectionservices.Asaone-stopwastemanagementandrecyclingoperator,BaguioisworkingcloselywiththeHongKongGovernmenttoadvancethedevelopmentofthegreenindustry.

BUSINESS REVIEW

Competition remained intensiveduring thePeriod.TheGroup’sgrossprofitwasadverselyaffecteddue to increasingcostsof labor,particular in thecleaningsegment.Marginswerealso impacteddraggingoverall profitability downward.During thePeriod, theGroup’srevenuewasapproximatelyHK$719.1million, representingan increaseof approximately4.5% fromapproximatelyHK$688.0million for thecorrespondingperiodof2018.Grossprofit decreased by approximately 9.5% to approximatelyHK$42.9million (1H2018:HK$47.4million) andgrossprofitmargindecreasedby0.9percentagepoints (“p.p”) toapproximately 6.0% (1H2018: 6.9%). Profit attributable to equity shareholders of theCompanyamountedtoapproximatelyHK$3.8million,representingayear-on-yeardeclineofapproximately 69.5% (1H2018:HK$12.6million),with net profitmargin decreasedbyapproximately1.3p.ptoapproximately0.5%(1H2018:1.8%).

Intensive competition has negatively impacted profitmargins for our clearing businesssegment.Tomitigateitsexposuretoheightenedcompetition,Baguiowillbemoreselectiveinthebiddingprocessand focusonlyonhighmarginprojects including thosewhich requireadvanced skill sets or good governance such as airports, aircraft and public utilities.Furthermore, theGroup isworkingon technological transformation toenhanceoverallworkefficiencyandproductivityinordertoconsolidateitsindustryleadingposition.

Inour landscapingbusiness,Baguiohas increased investment andmanpoweron seedlingproductionasa strategywithaview toexpand into large-scale landscapingprojects. Inpastyearstherehavebeensignificantchangesinrequirementsforbetterlivingenvironmentsalongwith improving livingstandards inHongKongand thePRC.Following the introductionoftoughergreeningpoliciesfromtheHongKongGovernment, theGroupisexpectingastrongdemandforqualitylandscapinginthecomingyears.Leveragingonitsfirst-moveradvantage,Baguio’s plant nurseries inZhongshanPRChave already started supplying seedlings tolandscapingprojectsandotherclientsintheGreaterBayarea.ThelandscapingbusinesswillbecomeanimportantgrowthdriverfortheGroup.

TheGrouphasalsolongbeenoneofthelargestpestcontrolserviceprovidersinHongKong,boastinga full spectrumof services, includingpest investigationand inspection, speciesidentification,pestcontrolandmonitoringsince2005.Thepestcontrolbusinessalignscloselywith theGroup’sGo-Greenpolicy,andBaguio isdedicated tobettering the livesofpeopleandcreatingagreenandhealthyenvironmentforthecommunity.

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AsoneofthekeyplayersinprocessingrecyclablewastesinHongKong,Baguiobelievesthatthewaste recyclingandprocessingsegment isacorepillar for thecity’s sustainability,andthateffortsmadeatthisstagewillberewardedgreatlyinfuture.Capitalisingonmovesmadein2018,Baguio intended to formapartnershipwithALBAGroupAsiaLimited (“ALBA”)andSwireBeveragesHoldingsLimited (“Swire”), for the formationofa jointventure (the“JV”)dedicatedtobuildingandoperatingastate-of-the-artrecyclingfacilityforplasticwaste,thefirstofitskindinHongKong.Thefacilityisexpectedtocommenceoperationinthethirdquarterof2020,atwhich time itwillbewellplaced toseize theopportunitybroughtby theonsetof the strange spacingbetweenalphabets and theproposedProducerResponsibilitySchemeonplasticbottles.TheGroupisconfidentthatthenewfacilitywilleasetheproblemofcurrent lower-than-expectedplasticbottle recycling rateandheavy relianceonexportingplasticrecyclables.

Since2018,continuedefforthasalsobeen focusedonexpandingother recyclingbusinessareas, includingglassbottles,animalwasteandhorticulturalwaste.TheGroup’sglassbottlemanagement facilitycommencedoperationandpassed the trial run in2018. Inaddition,astrongandwidespreadwastecollectionnetworkhasbeenestablished.TheGroupis,therefore,well-positioned toparticipate in the soon-to-bevibrant resource recyclingmarket inHongKong.

Interim Dividend

TheDirectorsdonotrecommendthepaymentofaninterimdividendforthePeriod(1H2018:Nil).

Revenue Breakdown of Major Business Segments

For the six months ended 30 June2019 2018

Revenue(HK$ Million)

% of totalrevenue

Revenue(HK$ Million)

%oftotalrevenue Change

Cleaning 513.5 71.5% 518.2 75.3% -0.9%Landscaping 97.2 13.5% 85.3 12.4% +13.9%Pestmanagement 27.6 3.8% 23.5 3.4% +17.6%Wastemanagementand recycling 80.8 11.2% 61.0 8.9% +32.5%

Total 719.1 100.0% 688.0 100.0% +4.5%

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Gross Profit Margin of Major Business Segments

For the six months ended 30 June

2019 2018 Change

Cleaning 2.8% 4.7% -1.9p.p.Landscaping 18.7% 17.3% +1.4p.p.Pestmanagement 9.2% 11.6% -2.4p.p.Wastemanagementandrecycling 9.5% 9.4% +0.1p.p.Overall 6.0% 6.9% -0.9p.p.

During thePeriod, theGroupwasable to secure tendercontractswith itsexistingandnewcustomers todriveoverall revenueupwards.TheGrouphasdeliveredsatisfactorygrowth initslandscaping,pestmanagementtogetherwithwastemanagementandrecyclingsegmentsbyachievingapproximately13.9%,17.6%and32.5%revenuegrowthrespectively,whichoffsettheeffectof revenuedecrease fromourcleaningsegment.With the increasingdemand forprofessional landscapingandarboricultureservices, thelandscapingsegmentstillmaintainedhighergrossprofitmargin.Theoverallgrossprofitmargindroppedfrom6.9%to6.0%mainlydue to increase in laborcosts,especially in thecleaningsegment.The increment incostofserviceswashigherthanthatinrevenue.

Contracts on hand

Asof30June2019, theGrouphada total amountofapproximatelyHK$1,469.50millionworthofunexpiredcontractsonhand,amongwhich,approximatelyHK$590.6millionwouldbe recognisedby theendof2019;approximatelyHK$561.4millionwouldbe recognised in2020 and the rest of approximatelyHK$317.5millionwouldbe recognised in2021 andbeyond.

Unexpiredcontract

value

Contract value to be

recognised by31 December

2019

Contractvalue to be

recognised by31 December

2020

Contractvalue to be

recognised in2021 and

beyond(HK$ Million) (HK$ Million) (HK$ Million) (HK$ Million)

Cleaningservices 826.0 406.2 322.0 97.8Landscapingservices 159.9 83.6 69.1 7.2Pestmanagementservices 75.4 30.6 35.7 9.1Wastemanagementandrecyclingservices 408.2 70.2 134.6 203.4

Total 1,469.5 590.6 561.4 317.5

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PROSPECTS

Lookingahead,Baguiowill remaincautious in furtherexpanding themarketpresence in theenvironmentalindustry.On14June2019,theCouncilforSustainableDevelopmentlaunchedthepublicinteractionphaseofthepublicengagementonLong-termDecarbonisationStrategywith an aim to pave theway for the building of a low-carbon society.Driven by thesustainabledevelopment initiativesby theHongKongGovernment,Baguiowill leverageonourleadingedgeinR&D,marketexpertiseandindustryexperienceincleaning,landscaping,pestmanagement,recyclingandwastemanagementtostriveforabetterdevelopmentwithourbesteffort.

Many international reports and surveys show that the recyclingmarket isboomingand isgraduallygainingprominence.Growingsustainabilityawareness,government initiativesandmorestringentenvironmentalprotection regulationsaredriving thegrowthof the recyclingmarket.Lookingatthesecondhalfof2019,withtheprogressiveimplementationofwaste-to-energyinfrastructure,wearehopingtoseemuchstrongerdemandfortherecyclingmarket.Inview of that, we believe the government will continue to explore incubating localmanufacturingindustriestohelpabsorbthelocalrecyclablesgenerated,soastoreduceHongKong’s relianceonwaste exports.TheGroupwill continue to look into thepotential ofestablishingprocessing facilitiesand furtherexpanding its footprint in the recyclingsector.Throughcollaborationwith industry experts, theGroup isworking togainground in therecycling industryby incorporatingadvanced technologiesandexperiences inorder tohelpaccelerate thedevelopmentofHongKong’s recycling industryandultimately todevelopasustainablecommunity thatembraces thekeysustainabledevelopmentgoalsof supportingresponsibleconsumptionandproduction,reducingcarbonemissionandwasteemissiontotheoceans,sealifeaswellastothelandincreatingahealthierenvironments.

TheGroup isconfident that theJVwithSwireandALBAwillbeable toprocess theentiredomesticvolumeofpost-consumerplasticbottles frombeverageandpersonalcareproductsand to further unleash other business synergies.Whereas theGroup’s investment intechnologicaladvancement,includingbuildingnewsystemsandplatforms,isexpectedtogiveapositiveboosttobusinessefficiency.

Forclose to40years,Baguiohasbeen tapping intodifferentenvironmental servicemarketsandhassuccessfullybuilt aholisticandhighlysynergisticenvironmental servicesportfolio,ranging from cleaning, landscaping and pestmanagement, towastemanagement andrecycling.RidingonBaguio’sexistingcollectionnetworkand resources,aswellas itswell-establishedreputationandextensiveexperienceinthewastemanagementindustry,theGroupwillleverageitsstrongoperationalknowhow,advancedmanagementsystemandproventrackrecordinordertoseizenewbusinessopportunitiesinHongKongandthePRC.Asoneofthegovernment’s closestpartners in city cleaningandgreening,Baguioaims tohelpbuild aclean, safe and sustainable city and to deliver greater and satisfactory returns to ourshareholders.

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FINANCIAL REVIEW

Revenue

TheGroup’s revenue foreachof thesix-monthperiodsended30June2019and2018wereapproximatelyHK$719.1millionandHK$688.0millionrespectively,representinganincreaseofapproximately4.5%.TheincreasewasmainlyduetotheoverallincreaseinrevenueinourservicessegmentsoflandscapingtogetherwithwastemanagementandrecyclingwithincreaseinnumberofcontractsandordersduringthePeriod.

Cost of Services

Foreachofthesix-monthperiodsended30June2019and2018,thecostofservicesamountedto approximatelyHK$676.2million andHK$640.6million respectively, representingapproximately94.0%andapproximately93.1%oftheGroup’srevenueforthecorrespondingperiodsrespectively.Thecostofservicesprimarilycomprisedofdirectwages,directoverheadexpenses,materialconsumablesandsub-contractingfees.ThecostofservicestotheGroup’srevenue increaseddue to increase in laborcosts in themarket and theoperatingexpensesincurredfortheglasstreatmentfacilityandcollectionnetwork,thatcommencedoperationinMay2018.

Gross Profit

TheGroup’sgrossprofit for thePeriodwasapproximatelyHK$42.9million, representingadecreaseofapproximately9.5%fromapproximatelyHK$47.4million for thecorrespondingperiodin2018.Thedecreasewasmainlyduetothekeencompetitioninthemarket,coupledwith an increase in labor costs, especially in cleaning segment.The increment in costofserviceswashigherthanthatinrevenue.

Gross Profit Margin

ThegrossprofitmarginsoftheGroupforeachofthesix-monthperiodsended30June2019and2018were approximately6.0%andapproximately6.9% respectively.Asmentionedabove,thedecreaseingrossprofitmarginwasmainlyduetotheincreaseindirectlaborcostsinlightofthelaborintensivenatureofourbusinessesduringthePeriod.

Change in Fair Value Less Costs to Sell of Biological Assets

TheGroup’sbiological assets consist of trees, plants and flowers locatedat theGroup’snurseries in thePRCandHongKong.Thegain in fairvalueofbiologicalassets foreachofthesix-monthperiodsended30June2019and2018wereapproximatelyHK$1.7millionandHK$1.5millionrespectively,representinganincreaseofapproximately14.0%.Thisisduetothecontinuingaccumulationandgrowthof thebiologicalassets in thenurseries for futurelandscapingprojects.

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Selling and Marketing Expenses

ThesellingandmarketingexpensesoftheGroupforeachofthesix-monthperiodsended30June2019and2018wereapproximatelyHK$1.1millionandHK$1.0million respectively,representinganincreaseofapproximately3.7%andaccountingforapproximately0.1%ofthetotalrevenueofeachoftherespectiveperiods.

Administrative Expenses

Theadministrativeexpensesof theGroup foreachof thesix-monthperiodsended30June2019and2018were approximatelyHK$35.9million andHK$31.2million respectively,representingapproximately5.0%andapproximately4.5%of the respectiveperiod’s totalrevenue.Theincreasewasmainlyduetotheincreaseintheoverheadanddepreciationchargeonexpansionofofficepremises,andtheincreaseofthenumberofadministrativestaffforthedevelopmentofglassmanagementandbuilding the recyclingnetwork.TheGroupcontinuedtoimplementitsbudgetcostcontrolmeasuresforadministrativeexpensesduringthePeriod.

Finance Costs

ThefinancecostsamountedtoapproximatelyHK$4.4millionandHK$2.3millionforeachofthesix-monthperiodsended30June2019and2018respectively,representingapproximately0.6%and0.3%oftheGroup’stotalrevenuerespectively.TheincreasewasmainlyduetotheincreaseintheaveragelevelofbankborrowingsduringthePeriod.

Profit for the Period Attributable to Equity Shareholders of The Company

TheGroup’snetprofitattributabletoequityshareholdersoftheCompanyforeachofthesix-month periods ended 30 June 2019 and 2018were approximatelyHK$3.8million andHK$12.6millionrespectively,representingadecreaseofapproximately69.5%.Thedecreasewasmainlyduetothefactorsdescribedabove.

CAPITAL STRUCTURE

Thesharecapitalof theGroupcomprisesonlyordinaryshares.Thecapital structureof theGroupmainlyconsistsofborrowingsfrombanksandleaseliabilitiesandequityattributabletoequityshareholdersoftheGroup,comprisingissuedsharecapitalandreserves.

TheDirectors review thecapital structure regularly, taking intoconsiderationof thecostofcapitaland the risksassociatedwith thecapital.TheGroupconsiders thecostofcapitalandthe risksassociatedwitheachclassofcapital tomonitor itscapital structureon thebasisofgearingratio.

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LIQUIDITY AND FINANCIAL RESOURCES

TheGroupderivescashflowsfromoperatingactivitiesprincipallyfromrenderingcomprehensiverangeofenvironmentalservices.ForthePeriod,wehadnetcashusedinoperatingactivitiesofapproximatelyHK$8.1million(1H2018:netcashgeneratedfromHK$2.7million).Asat30June2019, theGrouphadavailablecashandbankbalancesamounting toapproximatelyHK$20.3million(31December2018:HK$36.1million),representingadecreaseofapproximately43.7%from31December2018.

Asat30June2019,theGroup’stotalcurrentassetsandcurrentliabilitieswereapproximatelyHK$451.2million (31December 2018:HK$454.5million) andHK$432.8million (31December2018:HK$422.8million) respectively,while thecurrent ratiowasapproximately1.0times(31December2018:1.1times).

Asat30 June2019, theGroup’sbankborrowingsamounted to approximatelyHK$245.4million (31December2018:HK$218.3million), representingan increaseofapproximately12.4%;theGroup’sleaseliabilitieswereapproximatelyHK$53.1million(31December2018:HK$23.8million), representing an increaseof approximately122.9%, for financing theacquisitionofmotorvehiclesforoperationalusageandrecognisingleaseliabilitiesrelatedtothe leasecontracts in respectofcertainofficebuildingsas requestedby thenewlyadoptedHKFRS16since1January2019.During thePeriod,no financial instrumentswereused forhedgingpurposes.

ThegearingratiooftheGroupwasapproximately1.2timesasat30June2019(31December2018:1.0 times),whichwascalculatedbasedon the total interest-bearingbankborrowingsandleaseliabilitiesovertotalequityoftheGroup.

Asat30June2019, theGrouphadunutilisedbanking facilitiesofapproximatelyHK$150.4million(31December2018:HK$72.2million).

FOREIGN CURRENCY EXPOSURE

TheGroup’s foreign currency exposure is limited asmostof its transactions, assets andliabilities are denominated inHongKongdollars.During thePeriod, themain foreigncurrencyexposurearosefromthefluctuationinRenminbi(“RMB”).DuetotheGroup’sPRCoperation, theGrouppossessedRMBbankbalancesandasmallportionof transactionsweredenominatedinRMB.

CAPITAL COMMITMENT

Asat 30 June2019, theGrouphad capital commitment contracted for of approximatelyHK$2.0million(31December2018:HK$5.4million)andcapitalcommitmentauthorisedbutnotcontractedforofnil(31December2018:HK$90.0million).

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CHARGES ON THE GROUP’S ASSETS

As at 30 June 2019, the amounts payable under lease liabilitieswithin one yearwasapproximatelyHK$15.0million (31December2018:HK$12.4million), thatafteroneyearbutwith five yearswas approximatelyHK$15.8million (31December 2018:HK$11.4million),and thatover fiveyearswasapproximatelyHK$22.3million (31December2018:Nil).Meanwhile,theGroupadoptedHKFRS16since1January2019andrecognisedtheleaseliabilitiesaccordingly.

Asat30June2019, the lease liabilitiesof theGroupofapproximatelyHK$16.3million(31December2018:HK$23.8million)wereguaranteedby theCompanyandasubsidiaryof theCompany.

Inadditionasat30June2019, theGrouphave (i)pledgedbankdepositsofapproximatelyHK$6.1million(31December2018:HK$6.1million);(ii)mortgageofthelandandbuildingsofapproximatelyHK$74.3million(31December2018:HK$75.7million);(iii)pledgeofthefinancial assets at fairvalue throughprofitor lossofapproximatelyHK$14.0million (31December2018:HK$13.9million); (iv)pledgeof the trade receivablesof approximatelyHK$87.5million(31December2018:HK$78.1million);and(v)pledgeofthecontractassetsarisingfromperformanceunderglassmanagementcontractsofapproximatelyHK$6.8million(31December2018:HK$7.0million).

Save asmentioned above in this section,wedidnot have anyoutstandingmortgagesorcharges,borrowingsor indebtedness includingbankoverdrafts, loansordebentures, loancapital,debtsecuritiesorothersimilarindebtedness,financeleaseorhirepurchase.

CONTINGENT LIABILITIES

Asat30June2019,theGroupdidnothaveanymaterialcontingentliabilities.

ACQUISITION, DISPOSAL AND SIGNIFICANT INVESTMENT HELD

During thePeriod, theGroupdidnotmakeanymaterialacquisition,disposalnorsignificantinvestment.

HUMAN RESOURCES

Asat30 June2019, theGroupemployed7,856employees.Remunerationpackagesweregenerallystructuredbyreferencetomarkettermsandindividualqualificationsandexperience.

DuringthePeriod,varioustrainingactivities,suchastrainingonoperationalsafety,officeandmanagement skills,havebeenconducted to improve the front-endqualityof servicesandofficesupport.Inaddition,employeesarealsoencouragedandsubsidisedtoattendjob-relatedseminarsandcourseorganisedbyprofessionaland/oreducational institutions toensure thesmoothandeffectivemanagementoftheGroup’sbusiness.

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TheunauditedconsolidatedinterimfinancialresultsoftheGroupforthesixmonthsended30June2019togetherwiththecomparativefiguresof2018areasfollows:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS ANDOTHER COMPREHENSIVE INCOMEFor the six months ended 30 June 2019 — UNAUDITED(EXPRESSEDINHONGKONGDOLLARS)

For the six monthsended 30 June

2019 2018Note HK$’000 HK$’000

Revenue 4 719,055 687,999Costofservices (676,197) (640,636)

Gross profit 42,858 47,363Otherincome 1,220 344Changeinfairvaluelesscoststosellof biologicalassets 1,673 1,468Sellingandmarketingexpenses (1,068) (1,030)Administrativeexpenses (35,913) (31,173)

Profit from operations 8,770 16,972

Financecosts 5 (4,436) (2,281)

Profit before taxation 6 4,334 14,691

Incometax 7 (779) (2,131)

Profit for the period 3,555 12,560

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss, net of nil tax: Exchangedifferencesontranslationoffinancial statementsofsubsidiaries 10 (69)

Total comprehensive income for the period 3,565 12,491

Profit for the period attributable to:EquityshareholdersoftheCompany 3,834 12,560Non-controllinginterests (279) –

3,555 12,560

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2019 2018Note HK$’000 HK$’000

Total comprehensive income for the period attributable to:EquityshareholdersoftheCompany 3,844 12,491Non-controllinginterests (279) –

3,565 12,491

Earnings per share

Basicanddiluted(HKcents) 9 0.92 3.03

Note: TheGrouphasinitiallyappliedHKFRS16at1January2019usingthemodifiedretrospectiveapproach.Underthisapproach,comparativeinformationisnotrestated.Seenote3.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2019 — UNAUDITED(EXPRESSEDINHONGKONGDOLLARS)

At 30 June

2019

At31December

2018Note HK$’000 HK$’000

Non-current assetsProperty,plantandequipment 181,913 222,794Right-of-useassets 79,792 –Financialassetsatfairvaluethroughprofitorloss 13,987 13,893Prepaymentsanddeposits 7,362 6,637

283,054 243,324

Current assetsInventories 3,920 3,902Contractassets 12,002 10,526Tradereceivables 10 349,689 352,779Prepayments,depositsandotherreceivables 11 30,730 22,439Taxrecoverable 2,425 1,819Biologicalassets 25,953 20,772Pledgedbankdeposits 6,147 6,143Cashandcashequivalents 20,327 36,105

451,193 454,485

Current liabilitiesTradepayables 12 27,641 30,921Accruals,depositsreceivedandotherpayables 143,485 160,540Bankborrowings 245,390 218,314Leaseliabilities 14,991 12,437Taxpayable 1,315 608

432,822 422,820

Net current assets 18,371 31,665

Total assets less current liabilities 301,425 274,989

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At 30 June

2019

At31December

2018Note HK$’000 HK$’000

Non-current liabilitiesLeaseliabilities 38,138 11,400Deferredtaxliabilities 11,255 11,727

49,393 23,127

Net assets 252,032 251,862

Capital and reservesSharecapital 13 4,150 4,150Reserves 247,882 248,673

Total equity attributable to equity shareholders of the Company 252,032 252,823Non-controlling interests – (961)

Total equity 252,032 251,862

Note: TheGrouphasinitiallyappliedHKFRS16at1January2019usingthemodifiedretrospectiveapproach.Underthisapproach,thecomparativeinformationisnotrestated.Seenote3.

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2019 — UNAUDITED(EXPRESSEDINHONGKONGDOLLARS)

Attributable to equity shareholders of the Company

Sharecapital

Share premium

Other reserve

Share option

reserveTranslation

reserveRetained earnings Total

Non-controlling

interestsTotal

equityHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At1January2018 4,150 100,850 18,330 1,911 14 115,636 240,891 – 240,891

Profitfortheperiod – – – – – 12,560 12,560 – 12,560Othercomprehensiveincome fortheperiod – – – – (69) – (69) – (69)

Totalcomprehensiveincome fortheperiod – – – – (69) 12,560 12,491 – 12,491

Dividendsapprovedinrespect ofthepreviousyear(note 8) – – – – – (5,810) (5,810) – (5,810)Shareoptionslapsed – – – (108) – 108 – – –

At30June2018 4,150 100,850 18,330 1,803 (55) 122,494 247,572 – 247,572

At1January2019 4,150 100,850 18,330 1,773 (137) 127,857 252,823 (961) 251,862

Profitfortheperiod – – – – – 3,834 3,834 (279) 3,555Othercomprehensiveincome fortheperiod – – – – 10 – 10 – 10

Totalcomprehensiveincome fortheperiod – – – – 10 3,834 3,844 (279) 3,565

Acquisitionofnon-controlling interestsinasubsidiary – – – – – (1,730) (1,730) 1,240 (490)Dividendsapprovedinrespect ofthepreviousyear(note 8) – – – – – (2,905) (2,905) – (2,905)Shareoptionslapsed – – – (78) – 78 – – –

At 30 June 2019 4,150 100,850 18,330 1,695 (127) 127,134 252,032 – 252,032


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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSFor the six months ended 30 June 2019 — UNAUDITED(EXPRESSEDINHONGKONGDOLLARS)


2019 2018HK$’000 HK$’000

Net cash (used in)/generated from operating activities (8,110) 2,677

Investing activitiesPaymentforthepurchaseofproperty,plantandequipment (21,015) (27,218)Othercashflowsarisingfrominvestingactivities 2,866 2,856

Net cash used in investing activities (18,149) (24,362)

Financing activitiesProceedsfromnewbankborrowings 651,750 462,355Repaymentofbankborrowings (624,674) (437,993)Othercashflowsusedinfinancingactivities (16,605) (12,341)

Net cash generated from financing activities 10,471 12,021

Net decrease in cash and cash equivalents (15,788) (9,664)

Cash and cash equivalents at the beginning of the period 36,105 47,983

Effect of foreign exchange rates changes 10 (69)

Cash and cash equivalents at the end of the period 20,327 38,250


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NOTES

1. GENERAL INFORMATION

TheCompanywasincorporatedwithlimitedliabilityintheCaymanIslandsanditssharesarelistedontheMainBoardofTheStockBoardof theStockExchangeofHongKongLimited.TheultimateholdingcompanyoftheCompanyisBaguioGreen(Holdings)Limited,whichwasincorporatedintheBritishVirginIslands.TheregisteredofficeoftheCompanyislocatedatCricketSquare,HutchinsDrive,POBox2681,GrandCaymanKY1-1111,CaymanIslandsand itsprincipalplaceofbusiness inHongKongis locatedatUnitA,4/F.,DragonIndustrialBuilding,No.93KingLamStreet,LaiChiKok,Kowloon,HongKong.

TheprincipalactivityoftheCompanyisinvestmentholding.Theprincipalactivitiesofitssubsidiariesareengagedintheprovisionofenvironmentalandrelatedservices.

2. BASIS OF PREPARATION

The interimfinancial results setout in thisannouncementdonotconstitute theGroup’s interimfinancialreportforthesixmonthsended30June2019,butareextractedfromthatinterimfinancialreport.

The interimfinancial reporthasbeenprepared inaccordancewith theapplicabledisclosureprovisionsoftheRulesGoverning theListingofSecuritiesonTheStockExchangeofHongKongLimited, includingcompliancewithHongKongAccountingStandard(“HKAS”)34,Interim financial reporting,issuedbytheHongKongInstituteofCertifiedPublicAccountants(“HKICPA”).Itwasauthorisedforissueon29August2019.

Theinterimfinancialreporthasbeenpreparedinaccordancewiththesameaccountingpoliciesadoptedinthe2018annual financial statements, except for theaccountingpolicychanges that areexpected tobereflectedinthe2019annualfinancialstatements.Detailsofanychangesinaccountingpoliciesaresetoutinnote3.

Thepreparationofaninterimfinancialreport inconformitywithHKAS34requiresmanagement tomakejudgements,estimatesandassumptionsthataffecttheapplicationofpoliciesandreportedamountsofassetsandliabilities,incomeandexpensesonayeartodatebasis.Actualresultsmaydifferfromtheseestimates.

Theinterimfinancialreportcontainscondensedconsolidatedfinancialstatementsandselectedexplanatorynotes.Thenotes includeanexplanationofeventsandtransactionsthataresignificant toanunderstandingof the changes in financial position and performance of theGroup since the 2018 annual financialstatements.Thecondensedconsolidatedinterimfinancialstatementsandnotesthereondonotincludeallofthe information required for a full setof financial statementsprepared inaccordancewithHongKongFinancialReportingStandards(“HKFRSs”).

Theinterimfinancialreportisunaudited,buthasbeenreviewedbyKPMGinaccordancewithHongKongStandard onReviewEngagements 2410,Review of interim financial information performed by the independent auditor of the entity,issuedbytheHKICPA.

The financial information relating to the financialyearended31December2018 that is included in theinterimfinancialreportascomparativeinformationdoesnotconstitutetheCompany’sannualconsolidatedfinancialstatementsforthatfinancialyearbutisderivedfromthosefinancialstatements.

–18–

3. CHANGES IN ACCOUNTING POLICIES

TheHKICPAhasissuedanewHKFRS,HKFRS16,Leases,andanumberofamendmentstoHKFRSsthatarefirsteffectiveforthecurrentaccountingperiodoftheGroup.

Except forHKFRS16,Leases,noneof thedevelopmentshavehadamaterialeffectonhow theGroup’sresultsandfinancialpositionforthecurrentorpriorperiodshavebeenpreparedorpresentedinthisinterimfinancialresults.TheGrouphasnotappliedanynewstandardorinterpretationthatisnotyeteffectiveforthecurrentaccountingperiod.

TheGrouphas initially appliedHKFRS16as from1 January2019.TheGrouphaselected touse themodified retrospectiveapproachandhas therefore recognised lease liabilitiesandcorresponding right-of-useassetsofHK$38,423,000inrelationtoleasespreviouslyclassifiedasoperatingleases.Property,plantandequipmentofHK$67,006,000heldpreviouslyunder finance leaseswere reclassified to right-of-useassetson1January2019.ThereisnoimpactontheopeningbalanceoftheGroup’sequityasat1January2019.ComparativeinformationhasnotbeenrestatedandcontinuestobereportedunderHKAS17.

So far as the impactof theadoptionofHKFRS16on leasespreviouslyclassifiedas finance leases isconcerned, theGroup isnot required tomakeanyadjustmentsat thedateof initialapplicationofHKFRS16,other thanchanging thecaptions for thebalances.Accordingly, insteadof“Obligationsunder financeleases”,theseamountsareincludedwithin“Leaseliabilities”.

4. SEGMENT INFORMATION

Informationreportedtotheexecutivedirectors,beingthechiefoperatingdecisionmaker,forthepurposesof resourceallocationandassessmentofsegmentperformancefocuseson typesofservicesprovided.TheGrouphas identified four reportable segments.Nooperatingsegmentshavebeenaggregated to form thefollowingreportablesegments:

— Cleaningservicesbusiness

— Landscapingservicesbusiness

— Pestmanagementbusiness

— Wastemanagementandrecyclingbusiness

InformationregardingtheGroup’sreportablesegmentsispresentedbelow.

–19–

Segment revenue and results

Segment results represent theearnings fromeach segmentbefore interest, taxationandadministrativeexpenses includingdirectors’emolumentsandexcludeother incomeandchangeinfairvalue lesscosts tosellofbiological assets.The following is ananalysisof theGroup’s revenueand resultsby reportablesegments.

Cleaning services business

Landscaping services business

Pest management

business

Waste management

and recycling business Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Six months ended 30 June 2019

Revenuefromexternalcustomersand reportablesegmentrevenue recognisedovertime 513,481 97,183 27,584 80,807 719,055

Segmentresults 13,634 18,178 2,621 7,357 41,790

Otherincome 1,220Changeinfairvaluelesscosts tosellofbiologicalassets 1,673Administrativeexpenses (35,913)Financecosts (4,436)

Profitbeforetaxation 4,334

Cleaningservicesbusiness

Landscapingservicesbusiness

Pestmanagement

business

Wastemanagementandrecycling

business TotalHK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Six months ended 30 June 2018

Revenuefromexternalcustomersand reportablesegmentrevenue recognisedovertime 518,240 85,329 23,456 60,974 687,999

Segmentresults 23,642 14,645 2,720 5,326 46,333

Otherincome 344Changeinfairvaluelesscosts tosellofbiologicalassets 1,468Administrativeexpenses (31,173)Financecosts (2,281)

Profitbeforetaxation 14,691

–20–

Segment assets and liabilities

Segmentassetsincludeallassetsattributabletotheactivitiesoftheindividualsegments,withtheexceptionofintercompanyreceivablesandothercorporateassets.Segmentliabilitiesincludeallliabilitiesattributableto theactivitiesof the individual segments,with theexceptionof intercompanypayablesandcorporateliabilities.Thesegmentassetsandliabilitiesattheendofthereportingperiodbyreportablesegmentsareasfollows:



Pestmanagement

business

Wastemanagement

and recyclingbusiness Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

As at 30 June 2019

Segmentassets 413,461 122,078 28,848 164,928 729,315Unallocated 4,932

Totalassets 734,247

Segmentliabilities 352,737 32,543 17,426 75,067 477,773Unallocated 4,442

Totalliabilities 482,215



Pestmanagement

business

Wastemanagementandrecycling

business TotalHK$’000 HK$’000 HK$’000 HK$’000 HK$’000

As at 31 December 2018

Segmentassets 429,398 106,432 26,105 131,647 693,582Unallocated 4,227

Totalassets 697,809

Segmentliabilities 359,663 29,921 14,701 40,427 444,712Unallocated 1,235

Totalliabilities 445,947

Geographical information

All of theGroup’s businesses are carried out inHongKong and theGroup’s revenue fromexternalcustomersisgeneratedinHongKongduringtheinterimperiod.

–21–

5. FINANCE COSTS


2019 2018HK$’000 HK$’000

Intereston: Bankoverdrafts 7 18 Bankloans 3,885 1,621 Leaseliabilities 1,014 642

Totalinterestexpenses 4,906 2,281Less:Capitalisedinterestexpenses (470) –

4,436 2,281

# Theborrowingcostshavebeencapitalisedatarateof3.88%perannumduringthesixmonthsended30June2019.

6. PROFIT BEFORE TAXATION


2019 2018#

HK$’000 HK$’000

Profitbeforetaxationisarrivedataftercharging/(crediting): Costofconsumablesgoods 23,368 21,988 (Reversalof)/creditlossesontradereceivables (43) – Depreciation#

–ownedproperty,plantandequipment 13,937 8,882 –property,plantandequipmentheldunderfinancelease – 4,586 –right-of-useassets 5,606 – (Gain)/lossondisposalofproperty,plantandequipment (19) 17 Governmentgrants* (111) (202)

Staffcosts(includingdirectors’remuneration): Wages,salariesandotherbenefits 573,190 541,881 Provisionforlongservicepayments 8,230 4,487 Provisionforuntakenpaidleave 4,808 6,084 Contributionstodefinedcontributionretirementscheme 17,385 17,012

603,613 569,464

Totalminimumleasepaymentsforleasespreviouslyclassifiedasoperating leasesunderHKAS17#

Landandbuildings – 2,335

Short-termleasepaymentsnotincludedinthemeasurementofleaseliabilities Machineryandmotorvehicles 15,721 15,330 Landandbuildings 2,261 572

17,982 15,902

–22–

# TheGrouphas initially appliedHKFRS16at1 January2019using themodified retrospectivelyapproach.Underthisapproach,comparativeinformationisnotrestated.Seenote3.

* GovernmentgrantsofHK$111,000 (sixmonths ended30 June2018:HK$202,000)weregrantedduringthesixmonthsended30June2019inrespectofphasingoutcertaindieselcommercialvehiclesbytheGroup.Therewerenounfulfilledconditionsandothercontingenciesattachedtothereceiptofthosegrants.ThereisnoassurancethattheGroupwillcontinuetoreceivesuchgrantinthefuture.

7. INCOME TAX


2019 2018HK$’000 HK$’000

Currenttax: HongKongProfitsTax 1,250 1,519

Deferredtax (471) 612

779 2,131

TheprovisionforHongKongProfitsTaxiscalculatedbyapplyingtheestimatedannualeffectivetaxrateof16.5%(2018:16.5%) to the sixmonthsended30June2019,except foronesubsidiaryof theGroupwhichisaqualifyingcorporationunderthetwo-tieredProfitsTaxrateregime.

For this subsidiary, the firstHK$2millionof assessableprofits are taxedat8.25%and the remainingassessableprofitsare taxedat16.5%.Theprovision forHongKongProfitsTax for this subsidiarywascalculatedatthesamebasisin2018.

8. DIVIDENDS


2019 2018HK$’000 HK$’000

Finaldividendinrespectofthepreviousfinancialyear,wasapprovedand recognisedduringthefollowinginterimperiod,ofHK0.7cents (sixmonthsended30June2018:HK1.4cents)perordinaryshare 2,905 5,810

Thedirectorsof theCompanydonot recommend thepaymentofany interimdividend for thesixmonthsended30June2019(sixmonthsended30June2018:Nil).

–23–

9. EARNINGS PER SHARE

(a) Basic earnings per share

Thecalculationof thebasicearningsper share isbasedon theprofit for theperiodattributable toordinaryequity shareholdersof theCompanyofHK$3,834,000 (sixmonthsended30 June2018:HK$12,560,000)and theweightedaveragenumberof415,000,000 (sixmonthsended30June2018:415,000,000)ordinarysharesinissueduringtheinterimperiod.

(b) Diluted earnings per share

Dilutedearningspershareweresameasthebasicearningspershareastherewerenopotentialdilutiveordinarysharesinexistenceduringtheinterimperiod.

10. TRADE RECEIVABLES

Theageinganalysisoftradereceivablesbasedontheinvoicedate(ordateofrevenuerecognition,ifearlier)andnetoflossallowanceattheendofthereportingperiodisasfollows:

At30 June

2019

At31December

2018HK$’000 HK$’000

Within60days 267,468 259,559Over60daysbutwithin120days 63,489 68,719Over120daysbutwithin365days 18,561 23,355Over365days 171 1,146

349,689 352,779

Ingeneral, for thecontractswith somequasi-governmentorganisationsandTheGovernmentof theHongKongSpecialAdministrativeRegion,theGrouphasnospecificcredittermsinaccordancewiththetenderterms.Forothercontracts,theGroupnormallyallowsacreditperiodrangingfrom30to60daysdependingonthecustomers’creditworthinessandthelengthofbusinessrelationship.

11. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Included in prepayments, deposits and other receivables as at 30 June 2019 is a gross amount ofHK$4,500,000 (31December2018:HK$4,500,000)due fromShanghaiGenyuanEnvironmentalCo.,Limited(“ShanghaiGenyuan”,acompanyprincipallyengagedinharmlesstreatmentoforganicwastesandresourcesutilisationinthePeople’sRepublicofChina)inrespectofarefundabledepositinrelationtotheproposed acquisition of certain equity interest inShanghaiGenyuan.The proposed acquisitionwasterminatedduringyearended31December2016astheGroupcouldnotreachanagreementwiththeselleron certain crucial terms.During theyear ended31December2017, theGroupagreedwithShanghaiGenyuanon the repayment scheduleof theoutstandingbalancebut certain scheduledpaymentsweresubsequentlydefaulted.TheGrouphas taken legalactionagainstShanghaiGenyuanand theguarantors,andalossallowanceofHK$2,250,000continuedtoberecognisedasat30June2019(31December2018:HK$2,250,000),basedonthelatestdevelopmentofthecase.

–24–

12. TRADE PAYABLES

Theageinganalysisof tradepayablesbasedon the invoicedateat theendofeach reportingperiod isasfollow:

At30 June

2019

At

31December

2018

HK$’000 HK$’000

Within30days 19,246 16,561

Over30daysbutwithin60days 4,733 10,913

Over60daysbutwithin90days 722 987

Over90days 2,940 2,460

27,641 30,921

Thecreditperiodonpurchasesofcertaingoodsandservicesisgenerallywithin30to60days.

13. SHARE CAPITAL

Number Nominalof shares value

’000 HK$’000

Authorised:Ordinary shares of HK$0.01 each

Asat1January2018,31December2018,1January2019 and30June2019 1,000,000 10,000

Issued and fully paid:Ordinary shares of HK$0.01 each

Asat1January2018,31December2018,1January2019 and30June2019 415,000 4,150

–25–

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

During thePeriod,neither theCompanynoranyof its subsidiarieshaspurchased, soldorredeemedanyoftheCompany’slistedsecurities.

CORPORATE GOVERNANCE

TheCompanyiscommitted tomaintainhighstandardsofcorporategovernance tosafeguardtheinterestsofshareholdersandtoenhancecorporatevalueandaccountability.TheCompanyhascompliedwithallapplicablecodeprovisionsunder theCorporateGovernanceCode (the“CGCode”)assetoutinAppendix14totheRulesGoverningtheListingofSecuritiesontheStockExchangeofHongKongLimited(the“ListingRules”)throughoutthesixmonthsended30June2019.TheCompanywillcontinue to reviewandenhance itscorporategovernancepracticestoensurecompliancewiththeCGCode.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

TheCompanyhasadoptedtheModelCodeassetoutinAppendix10totheListingRulesasitsowncodeofconduct regardingdirectors’ securities transactions.Havingmadespecificenquirieswithalldirectorsof theCompany,eachof thedirectorshasconfirmed thathe/shehascompliedwith the required standardsas setout in theModelCode throughout the sixmonthsended30June2019.

AUDIT COMMITTEE

TheprimarydutiesoftheauditcommitteeoftheCompany(“AuditCommittee”)istoreviewtheeffectivenessoftheGroup’sfinancialreportingprocessandriskmanagementandinternalcontrolsystems,andtooverseetheauditandreviewprocessoftheexternalauditor.TheAuditCommitteecurrentlyconsistsofthreeindependentnon-executivedirectorsoftheCompany.

TheAuditCommitteehas reviewedwith themanagementof theCompany theaccountingprinciplesandpracticesadoptedby theGroup,anddiscussed riskmanagementand internalcontrolsandfinancialreportingmattersincludingareviewoftheinterimresultsoftheGroupforthePeriod.

–26–

PUBLICATION OF INTERIM RESULTS AND INTERIM REPORT

This interimresultsannouncementwillbepublishedon thewebsitesof theStockExchange(www.hkex.com.hk) and theCompany (www.baguio.com.hk).The interim report of theCompany for thePeriodwillbedespatched to the shareholdersof theCompanyaswellaspublishedonthewebsitesoftheStockExchangeandtheCompanyinduecourse.

ByorderoftheBoardofBaguio Green Group Limited

Ng Wing HongChairman

HongKong,29August2019

As at the date of this announcement, the Board comprises Mr. Ng Wing Hong, Ms. Ng Yuk Kwan Phyllis, Mr. Ng Wing Chuen, Ms. Leung Shuk Ping, Ms. Chan Shuk Kuen and Ms. Cheung Siu Chun as executive Directors and Mr. Sin Ho Chiu, Dr. Law Ka Hung and Mr. Lau Chi Yin Thomas as independent non-executive Directors.

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