# MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

# FINANCIAL REVIEW

# Revenue

Revenue in 2020 was approximately HK\$329.9 million, representing a decline of approximately 18.9% from the previous year (2019: approximately HK\$406.7 million). The reduction in revenue was mainly driven by the net effects of a number of the Group’s customers have reduced their printing orders as a result of the depressed government spending and the effect as COVID-19 related government restrictions came into force in Australia. On top of COVID-19 impact, one of the Group’s top five customers has decided not to renew its contract with the Group with effective from 2020. Such negative impact was partly offset by increasing trend of publishers to print their books locally for quicker turnaround time.

# Gross profit and gross profit margin

Our gross profit decreased by approximately HK\$45.3 million, or approximately 48.2%, from approximately HK\$93.8 million in 2019 to approximately HK\$48.5 million in 2020. Gross profit margin dropped by approximately 8.4% in comparison of the prior year. Such drop was mainly due to reduction of revenue as well as the fixed direct and indirect costs are difficult to alter in the short term.

# Other income

Other income significantly increased from approximately HK\$13.5 million in 2019 to approximately HK\$45.9 million in 2020. It was attributable to approximately HK\$40.9 million government subsidy from the JobKeeper Payment Scheme offered by the Australian Government which is a temporary subsidy for businesses significantly affected by COVID-19.

# Selling and distribution costs

Selling and distribution costs decreased by approximately HK\$5.1 million or 17.9% from approximately HK\$28.6 million in 2019 to approximately HK\$23.5 million in 2020. The decrease was greatly in line with the reduction in revenue during the year as freight costs dropped and reduction of sales staff headcount due to the implementation of cost control measures.

# Administrative expenses

Administrative expenses decreased by approximately HK\$2.5 million from approximately HK\$31.3 million in 2019 to approximately HK\$28.8 million in 2020, representing a year-on-year drop of approximately 8.1%. Various administrative expenses were reduced in the light of the implementation of cost control measures and reduction in the number of administrative staff headcount but partially offset by the industrial trend of increasing in insurance premium charges.

# Income tax expense

Income tax expense decreased from approximately HK\$13.8 million (effective income tax rate: 30.1%) in 2019 to approximately HK\$12.6 million (effective income tax rate: 31.0%) in 2020. Such decrease was consistent with the reduction in taxable income during the current year.

# Net profit

The Group reported a net profit of approximately HK\$28.1 million in 2020 compared to HK\$32.1 million in the prior year, which represented a decrease of approximately HK\$ 4.0 million or 12.7%. The profitability of the Group was impacted by COVID-19 when the government agencies and publishers have reduced their printing orders. The Group’s management has taken proactive measures to mitigate the Group’s operational risk, enhance operational efficiency and reduce costs. The Group received considerable financial support from the Australian government’s JobKeeper Payment Scheme, which has cushioned the impact of COVID-19 on the business.

# MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

# FINANCIAL REVIEW (Continued)

# Liquidity and financial resources

As at 31 December 2020, the Group had net current assets of approximately HK\$236.8 million (2019: approximately HK\$209.9 million), among which, cash and bank balances were approximately HK\$174.8 million (2019: cash and bank balance together with the pledged deposit: HK\$169.0 million) which were denominated in Australian Dollars (“AUD”), US Dollars (“USD”) and HK\$.

The Group’s current ratio was approximately 4.5 times (2019: approximately 4.2 times), which is calculated by the Group’s current assets over current liabilities. The only interest bearing liabilities were lease liabilities of approximately HK\$34.2 million (2019: approximately HK\$28.7 million) which were denominated in AUD. The Group’s gearing ratio as at 31 December 2020 was approximately 11.6% (2019: approximately 10.5%), which is calculated on the basis of the Group’s total interest-bearing debts over total equity. The increase of the Group’s interest-bearing liabilities, hence the gearing ratio, was mainly due to the renewal of various property and equipment leases during the year. Save as the aforesaid, the Group maintained net cash position and healthy current and gearing ratios, reflecting its healthy financial position.

The Group adopts centralised financing and treasury policies in order to ensure that Group funding is utilised efficiently. The Group also regularly monitors its liquidity requirements and its relationship with bankers to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and long term.

# Working capital management

The Group’s capital employed includes share capital, reserves and lease liabilities. The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Group acknowledges the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Group is not subject to any externally imposed capital requirements.

The allocation of capital between its specific business segments’ operations and activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The process of allocating capital to specific business segment operations and activities is undertaken independently of those responsible for the operation.

# Foreign currency management

The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the functional currencies. The currencies in which transactions primarily denominated are AUD, NZD, USD, European Union Euros, Great British Pound and HK\$. As at 31 December 2020 and 2019, foreign exchange risks on financial assets and liabilities denominated in other currencies were insignificant to the Group.

Management evaluates the Group’s foreign currency risk using cash flow forecasts with the objective of keeping its exposure to a minimum. The Group may in certain circumstances use forward exchange contracts to hedge its foreign currency risk. When used, the contracts would normally have maturities of less than one year at reporting date. The Group does not hold or issue financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.