Investor Relations

Management Discussion & Analysis

RESULTS

For FY2020, the Group recorded revenue of approximately HK$589.1 million, representing a slight decrease of 2.47% from the revenue of approximately HK$604.0 million for the year ended 30 June 2019 (“FY2019”). The decrease in revenue was mainly attributable to the significant drop in revenues from the wine and related businesses, which the drop was however, largely offset by the increase in revenues generated by the Group’s real estate businesses and the factoring business. Gross profit for the year amounted to HK$437.7 million, decrease by 4.6% compared with that of HK$459.0 million in FY2019. The decrease in gross profit was mainly attributable to the drop in revenues from the wine and related businesses for the year. The Group recorded a substantial loss attributable to owners of the Company of HK$7,461.1 million for FY2020 as compared to a profit of HK$6,255.0 million for the last year. The substantial loss for FY2020 was mainly attributable to the Group’s (i) write-down of its properties under development in relation to the Kai Tak residential project of approximately HK$2,786.4 million; (ii) decrease in the fair value of the investment properties of approximately HK$3,495.9 million (as compared with an increase of approximately HK$1,299.7 million for the FY2019) as a result of the decline in prices and rental yields in the Hong Kong properties market; (iii) impairment loss on certain property, plant and equipment of the Group of approximately HK$167.0 million as a result of the review of recent business performance of the Group’s wine and related businesses; and (iv) increase in finance and related costs of approximately HK$254.1 million incurred for certain existing borrowings. The write-down of properties under development is an one-off event, and the fair value loss and the impairment loss is non-cash item. The Group will continue to look out for opportunities to realise the value of its assets and to reduce the existing borrowings and enhance its financial flexibility.

BUSINESS REVIEW

The FY2020 was a challenging year for the Group. Business performance of all our core segments was under pressure due to the crippling effects of the social unrest and the coronavirus pandemic.

Real Estate Business

Property Investment

In 2020, the COVID-19 pandemic aggravated the economic risks in Hong Kong further from the ongoing sociopolitical unrest since June 2019. Leasing demand for Grade-A offices in the city softened. Corporates were more cost-conscious, with some MNCs, trading firms and co-working operators continued to downsize during the year, pushing up the overall vacancies of the city to 8.8% at end of June 2020. The leasing rentals had declined across the traditional central business district (“CBD”) and office sub-markets where both Hong Kong Island and Kowloon reported a year-on-year drop of 10.1% and 11.4% respectively#. Meanwhile, the trend of office decentralization from the CBD to the lower rents office submarkets, particularly Kowloon East as the prominent alternative central business district (“CBD2”), was steady for the FY2020.

# Source: Market statistics of CBRE, JLL and Savills (Q2 2020)

The Group’s investment properties, Goldin Financial Global Centre, which is located in the CBD2, Kowloon East, is a premium Grade-A office building. It provides approximately 800,000 square feet (sq. ft.) of premium office space and approximately 100,000 sq.ft. of fine dining area. In FY2020, rental income, revenue from property management services and project management services amounted to HK$228.8 million (FY2019: HK$166.6 million), up by 37.3% compared with FY2019. The general decline in market rents and the weak investor sentiment amid the COVID-19 outbreak affected the valuation of the commercial properties in Hong Kong. As a result, the Group recorded a fair value decrease of approximately HK$3,495.9 million for Goldin Financial Global Centre (as compared with an increase of approximately HK$1,299.7 million for FY2019). The property business segment recorded a loss of HK$6,165.4 million in the current year, against a profit of HK$1,336.8 million for FY2019.

In late September 2019, the Company announced the proposed acquisition of the entire issued share capital of Solar Time Developments Limited (“Solar Time”) at the consideration of HK$4,598.0 million (the “Solar Time Acquisition”). Solar Time held the entire equity interests in Goldin Financial Global Square Limited, which holds the land site known as New Kowloon Inland Lot No.5948, 7 Wang Tai Road, Kowloon Bay that will be redeveloped into a Grade-A office building. The Solar Time Acquisition was approved by shareholders of the Company in the special general meeting held on 18 December 2019. The Solar Time Acquisition has yet to be completed.

Property Development

The Group acquired, by way of a government tender, 60% interest in its Kai Tak residential development project (the “Development”) through its indirectly 60%-owned subsidiary, Rich Fast International Limited (“Rich Fast”) in December 2018. The Development is located at Kai Tak Area 4B Site 4, Kai Tak, Kowloon with a maximum developable gross floor area of 53,394 sq.m. The formulation of development plan had been underway and the Development was scheduled to be completed on or before 30 September 2024. During the FY2020, the Group completed the acquisition of the remaining 40% equity interest in the Development and become the sole developer of the Development.

With the rising challenge of the business environment brought by the weakening of global economy and the decline of economic activities in Hong Kong, showing signs of economic contraction, the property development market in Hong Kong became uncertain in the long run. To take into account the significant capital required for the Development in its preliminary stage, the Group adopted a prudent approach by planning to dispose of the Development so as to retain more cash for the Group’s existing business, and to offset negative impact of the uncertainties in the property market and the overall economic downturn in Hong Kong. On 10 May 2020, the Group entered into a sale and purchase agreement (the “GF SPA”) to dispose of its entire equity interest in Gold Flair Holdings Limited (“Gold Flair”), the holding company of Rich Fast and the related shareholder’s loan at an aggregate consideration of HK$7,040.5 million. The Group intended to apply the proceeds from the disposal of the Development to reduce the Group’s borrowings, thereby enhancing its financial flexibility, further details of which are set out in the Company’s announcement dated 10 May 2020. Based on a valuation performed by an independent valuer, the Group recorded a write-down of properties under development amounted to HK$2,786.4 million as at 30 June 2020 as a result of the decline in prices of residential land in Hong Kong.

Subsequent to the FY2020, the GF SPA was terminated and, on 27 July 2020, the Group further entered into a sale and purchase agreement and a profit sharing agreement with an independent third party to dispose of the entire equity interest in Rich Fast at a cash consideration of approximately HK$3,477.3 million. The disposal was completed on 27 July 2020 and the bridging loan associated with the acquisition of the Kai Tak land of approximately HK$3,563.2 million was derecognised upon completion of the disposal of Rich Fast. The profit sharing agreement provides a mechanism for the Group to share the potential upside in the Development if the future sale prices of the units exceed the target agreed with the purchaser. Please refer to the announcements of the Company dated 23 July 2020, 28 July 2020 and 30 July 2020, respectively for further details.

Wine and Related Businesses

Based on the latest information of OIV (International Organisation of Vine and Wine), the global wine trade in the first half of 2020 was delicate due to the pandemic impacts. This saw the unprecedented halts at the logistics points like ports and airports, and at the points of consumption such as cafes, bars and restaurants. As a result, the world wine trade simultaneously shrank, and the global wine merchants tend to deplete their wine stock in the near term.

The China’s wine market became mellow following the nationwide shutdown measures in order to battle with the pandemic outbreaks. The volume and value of the total wine imports for the first six months of 2020 fell 31.7% and 34.8% respectively (source from 華經情報網). Meanwhile, the persistent uncertainties in the China-US trade tensions and the economic contraction brought by the global pandemic had dampened the investment sentiment for the Chinese investors and wine collectors in premium wines, especially the American wines on which the retaliatory tariff increased to 93% in 2019 due to the trade war between the two countries. Facing these headwinds, the Group recorded a significant drop in revenue from its wine trading business during the FY2020.

In FY2020, the wine and related businesses recorded revenues (including income in the form of storage fees and income from the restaurant operations) of approximately HK$157.0 million (FY2019: HK$298.6 million), which represented a decrease of 47.4%. The drop was mainly due to the loss in revenue generated by the wine trading business during FY2020. The Group traded its premium wines at a much lower profit margin in the year and thus brought the overall gross profit margin for the wine and related businesses dropped to 53.0% as at the end of FY2020 against the figure of 75.5% for the last year. Given the significant drop in the business performance of the wine and related businesses during the year, impairment assessments were performed for each cash-generating unit within this segment. The Group recognized an impairment loss on certain property, plant and equipment in respect of the Group’s wine cellar and the restaurant operation in an aggregate amount of approximately HK$167.0 million as a result of the review of their business performance. Coupled with this, the wine and related businesses reported a loss for this segment of approximately HK$283.1 million for FY2020, in contrast to the profit of approximately HK$47.3 million for FY2019.

Factoring

The global trade has been disrupted by the pandemic outbreaks as many countries imposed border closure measures. According to the World Bank forecasts, it is expected that the global economy will contract sharply by 5.2% for the year, and shall experience the largest declines in per capita output in over a century.

The escalating China-US trade tensions as well as the exchange rate fluctuation significantly increased the credit risk for the small and medium-sized enterprises (“SMEs”) in China. Traditional banks tightened their credit policy toward the SMEs, driving them to turn to other avenues for financing, such as shadow banks to obtain necessary funds for their business at a higher borrowing cost. Amid the credit crunch, the Group had increased the handling fees and interests charged to its factoring clients.

The factoring business of the Group recorded a 46.4% increase in revenue to approximately HK$203.3 million for FY2020 (FY2019: HK$138.9 million). The increase was mainly due to the increased fees and interests charged to the factoring clients in the current year. Profit from this business segment increased by 39.1% to approximately HK$157.6 million, compared with the HK$113.3 million for FY2019, which was mainly due to the increase in factoring revenues. On the other hand, as factoring business is highly capital intensive, the Group took out a working capital loan in late May 2019 to finance its factoring operations. As a result, the funding costs for the Group’s factoring business in FY2020 had increased significantly to HK$177.0 million (FY2019: HK$15.2 million), rendering the factoring business to report a net loss of HK$68.2 million against a net profit of HK$55.5 million for FY2019.

FINANCIAL REVIEW

Liquidity, Financial Resources and Gearing

As at 30 June 2020, the Group was in a net current liabilities position of approximately HK$5,751.6 million, as compared to the net current assets of approximately HK$5,457.8 million recorded at the end of FY2019. This was mainly because an aggregate amount of HK$6,800 million two-year senior notes (the “Senior Notes”) drawn down in FY2019 was classified as current liabilities as at 30 June 2020 when the Group breached certain financial covenants of these bank borrowings, which primarily related to the occupancy rate of the Group’s investment properties and the debt service coverage ratio (see further disclosure in the section headed “LITIGATIONS”). Cash and cash equivalents and pledged bank deposits totalled approximately HK$37.3 million, down by 99.1% compared with the HK$4,231.0 million at the end of FY2019, which was mainly due to the cash used in the investing and financing activities, which included general expenses, finance costs and payment for committed transaction of the Group.

As at 30 June 2020, the Group’s interest-bearing bank and other borrowings (including the bridging loan in relation to the Kai Tak residential development project of approximately HK$3,563.2 million grouped under liabilities directly associated with the assets classified as held for sale) amounted to approximately HK$15,849.0 million (30 June 2019: HK$15,365.2 million). The slight increase was mainly due to the amortization of upfront fees incurred for the arrangement of bank and other borrowings. As aforementioned in the Business Review section, the bridging loan in relation to the Kai Tak residential development project was derecognised upon the disposal of Rich Fast in July 2020.

The Group maintained a borrowing facility of US$500 million (equivalent to HK$3,875.1 million) (30 June 2019: US$500 million (equivalent to HK$3,906.0 million)) from a related company in which Mr. Pan Sutong, the controlling shareholder of the Company, has a beneficial interest. None of the amount of the facilities had been utilized as at 30 June 2020.

As at 30 June 2020, the debt-to-total assets ratio, which is calculated as total bank and other borrowings (“Total Debts”) divided by total assets of the Group, increased to 54.3% (30 June 2019: 40.1%). The ratio of net debts (Total Debts net of cash and cash equivalents and pledged bank deposits) divided by total assets was approximately 54.2% (30 June 2019: 29.1%).

Foreign Exchange

As the Group’s key operations are located in Hong Kong, China, the US and France, its major assets and liabilities are primarily denominated in Hong Kong dollar, Renminbi, the US dollar and euro. While the Group has yet to formulate a formal policy on foreign currency hedging, it will, as always, continue to monitor its exposure to foreign exchange fluctuations carefully and may introduce appropriate hedging measures should the need arises.

LITIGATIONS

On 13 July 2020, in connection with the Senior Notes, Smart Edge Limited (“Smart Edge”) received notifications concerning the appointment of Cosimo Borrelli (“Mr. Borrelli”) and Ma Siu Ming Simon (“Mr. Simon Ma”) as joint and several receivers and managers over the security assets provided under the Senior Notes, including the Group’s investment properties with an aggregate value of HK$15 billion as at 30 June 2020, and the appointment of Mr. Borrelli, Mr. Simon Ma and Chi Lai Man Jocelyn (“Ms. Jocelyn Chi”) as new directors of Smart Edge in place of the former directors of Smart Edge (the “SE Former Directors”). Further details are set out in the Company’s announcement dated 15 July 2020.

On 14 July 2020, each of Matsunichi Goldbase Limited (“Matsunichi Goldbase”), the SE Former Directors and the Company commenced legal proceedings in the High Court of Hong Kong against the appointment of Mr. Borrelli, Mr. Simon Ma and Ms. Jocelyn Chi in their respective capacities as receivers and directors of Smart Edge (correspondingly, the “Matsunichi Action”, the “SE Former Directors’ Action” and the “Company Action”). As at the date of this annual report, no hearing date has been fixed for the Matsunichi Action and the Company Action.

On 24 July 2020, Smart Edge (at the direction of its receivers and managers, Mr. Borrelli and Mr. Simon Ma) issued a writ against the SE Former Directors (the “HCA Action”) seeking various injunctions and damages. On 27 July 2020, Smart Edge issued a summons in the HCA Action for the immediate granting of the injunctions (the “Summons”), (the Summons together with the SE Former Directors’ Action hereafter, the “Smart Edge Applications”). On 31 July 2020, the application for the immediate granting of the injunctions was dismissed by the High Court of Hong Kong. The Smart Edge Applications were adjourned to be heard together on 29 October 2020. Further details are set out in the Company’s announcements dated 28 July 2020 and 2 August 2020.

On 14 September 2020, Mr. Borrelli and Mr. Simon Ma (as receivers and managers of Smart Edge) took out a further originating summons for orders in respect of the alleged powers of the receivers and managers and their appointed directors over Smart Edge pending the determination of the Smart Edge Applications on 29 October 2020. On 25 September 2020, the High Court of Hong Kong ordered, inter alia, that pending determination of the Smart Edge Applications, (i) Mr. Borrelli and Mr. Simon Ma are entitled to exercise rights and powers granted to them under the security documents in respect of the Senior Notes unless and until they are lawfully removed from office by an order of the Court or otherwise; and (ii) Mr. Borrelli, Mr. Simon Ma and Ms. Jocelyn Chi are the only directors of Smart Edge until lawfully removed from office by an order of the Court or otherwise. Further details are set out in the Company’s announcement dated 30 September 2020.

The Smart Edge Applications were heard together on 29 October 2020. At the hearing, the respective legal representatives for the SE Former Directors and Smart Edge reached agreement in respect of the Smart Edge Applications as set out in the announcement of the Company dated 30 October 2020. The High Court of Hong Kong accordingly made an order to give effect to the agreement, and dismissed the SE Former Directors’ Action.

As at 30 June 2020, the outstanding principal and accrued interest and charges relating to the Senior Notes amounted to approximately HK$6,800 million and HK$213 million, respectively, and were included in the Group’s interest-bearing bank and other borrowings and accruals and other payables, respectively.

In connection with the loan facilities with principal amounts of approximately HK$3,378 million (the “Mezzanine Loan”), on 7 October 2020, the Company received notification from its Bermuda agent of a petition dated 7 August 2020 (the “Winding-up Petition”) and an application (the “JPL Application”) presented by the security agent of the Mezzanine Loan to the Supreme Court of Bermuda for the winding-up and the appointment of joint provisional liquidators of the Company, respectively. The hearing of the Winding-up Petition and the JPL Application scheduled on 9 October 2020 was subsequently adjourned to 12 February 2021. In addition, on 8 October 2020, Cheng Mei Holdings Limited (“Cheng Mei”) and Goal Eagle Limited (“Goal Eagle”) also received notifications from the security agent of the Mezzanine Loan that joint receivers have been appointed to Cheng Mei and Goal Eagle over the security assets provided under the Mezzanine Loan. Further details are set out in the Company’s announcements dated 11 October 2020, 16 October 2020, 1 November 2020, 25 November 2020, 8 December 2020 and 10 January 2021.

As at 30 June 2020, the outstanding principal and accrued interest and charges relating to the Mezzanine Loan amounted to approximately HK$3,378 million and approximately HK$163 million, respectively, and were included in the Group’s interest-bearing bank and other borrowings and accruals and other payables, respectively.

As at 30 June 2020, a subsidiary of the Group was a defendant in a lawsuit brought by a contractor of the Group’s properties in the PRC for the settlement of outstanding construction costs. The court judgement was issued in October 2020 and the Group is required to settle the outstanding sum in full plus overdue interest. As at the date of this annual report, the Group is in the process of appealing the judgement. However, the full amount of the outstanding construction costs and the related overdue interest aggregating to HK$326,890,000 were fully provided by the Group as at 30 June 2020. In addition, as a result of this lawsuit, the Group’s buildings and leasehold land with an aggregate amount of HK$1,345,984,000 as at 30 June 2020 were preserved by the relevant court as a property preservation measure.

On 16 September 2020, the Group received a writ of summons from the High Court of Hong Kong regarding the construction payable in the amount of HK$40,000,000 plus interests due to a contractor by Smart Edge. As at the date of this annual report, the Group is in the process of negotiating with the contractor for the settlement of the outstanding sum and the full amount of the outstanding construction costs of HK$40,000,000 was provided by the Group as at 30 June 2020.

LITIGATIONS

On 13 July 2020, in connection with the Senior Notes, Smart Edge Limited (“Smart Edge”) received notifications concerning the appointment of Cosimo Borrelli (“Mr. Borrelli”) and Ma Siu Ming Simon (“Mr. Simon Ma”) as joint and several receivers and managers over the security assets provided under the Senior Notes, including the Group’s investment properties with an aggregate value of HK$15 billion as at 30 June 2020, and the appointment of Mr. Borrelli, Mr. Simon Ma and Chi Lai Man Jocelyn (“Ms. Jocelyn Chi”) as new directors of Smart Edge in place of the former directors of Smart Edge (the “SE Former Directors”). Further details are set out in the Company’s announcement dated 15 July 2020.

On 14 July 2020, each of Matsunichi Goldbase Limited (“Matsunichi Goldbase”), the SE Former Directors and the Company commenced legal proceedings in the High Court of Hong Kong against the appointment of Mr. Borrelli, Mr. Simon Ma and Ms. Jocelyn Chi in their respective capacities as receivers and directors of Smart Edge (correspondingly, the “Matsunichi Action”, the “SE Former Directors’ Action” and the “Company Action”). As at the date of this annual report, no hearing date has been fixed for the Matsunichi Action and the Company Action.

On 24 July 2020, Smart Edge (at the direction of its receivers and managers, Mr. Borrelli and Mr. Simon Ma) issued a writ against the SE Former Directors (the “HCA Action”) seeking various injunctions and damages. On 27 July 2020, Smart Edge issued a summons in the HCA Action for the immediate granting of the injunctions (the “Summons”), (the Summons together with the SE Former Directors’ Action hereafter, the “Smart Edge Applications”). On 31 July 2020, the application for the immediate granting of the injunctions was dismissed by the High Court of Hong Kong. The Smart Edge Applications were adjourned to be heard together on 29 October 2020. Further details are set out in the Company’s announcements dated 28 July 2020 and 2 August 2020.

On 14 September 2020, Mr. Borrelli and Mr. Simon Ma (as receivers and managers of Smart Edge) took out a further originating summons for orders in respect of the alleged powers of the receivers and managers and their appointed directors over Smart Edge pending the determination of the Smart Edge Applications on 29 October 2020. On 25 September 2020, the High Court of Hong Kong ordered, inter alia, that pending determination of the Smart Edge Applications, (i) Mr. Borrelli and Mr. Simon Ma are entitled to exercise rights and powers granted to them under the security documents in respect of the Senior Notes unless and until they are lawfully removed from office by an order of the Court or otherwise; and (ii) Mr. Borrelli, Mr. Simon Ma and Ms. Jocelyn Chi are the only directors of Smart Edge until lawfully removed from office by an order of the Court or otherwise. Further details are set out in the Company’s announcement dated 30 September 2020.

The Smart Edge Applications were heard together on 29 October 2020. At the hearing, the respective legal representatives for the SE Former Directors and Smart Edge reached agreement in respect of the Smart Edge Applications as set out in the announcement of the Company dated 30 October 2020. The High Court of Hong Kong accordingly made an order to give effect to the agreement, and dismissed the SE Former Directors’ Action.

As at 30 June 2020, the outstanding principal and accrued interest and charges relating to the Senior Notes amounted to approximately HK$6,800 million and HK$213 million, respectively, and were included in the Group’s interest-bearing bank and other borrowings and accruals and other payables, respectively.

In connection with the loan facilities with principal amounts of approximately HK$3,378 million (the “Mezzanine Loan”), on 7 October 2020, the Company received notification from its Bermuda agent of a petition dated 7 August 2020 (the “Winding-up Petition”) and an application (the “JPL Application”) presented by the security agent of the Mezzanine Loan to the Supreme Court of Bermuda for the winding-up and the appointment of joint provisional liquidators of the Company, respectively. The hearing of the Winding-up Petition and the JPL Application scheduled on 9 October 2020 was subsequently adjourned to 12 February 2021. In addition, on 8 October 2020, Cheng Mei Holdings Limited (“Cheng Mei”) and Goal Eagle Limited (“Goal Eagle”) also received notifications from the security agent of the Mezzanine Loan that joint receivers have been appointed to Cheng Mei and Goal Eagle over the security assets provided under the Mezzanine Loan. Further details are set out in the Company’s announcements dated 11 October 2020, 16 October 2020, 1 November 2020, 25 November 2020, 8 December 2020 and 10 January 2021.

As at 30 June 2020, the outstanding principal and accrued interest and charges relating to the Mezzanine Loan amounted to approximately HK$3,378 million and approximately HK$163 million, respectively, and were included in the Group’s interest-bearing bank and other borrowings and accruals and other payables, respectively.

As at 30 June 2020, a subsidiary of the Group was a defendant in a lawsuit brought by a contractor of the Group’s properties in the PRC for the settlement of outstanding construction costs. The court judgement was issued in October 2020 and the Group is required to settle the outstanding sum in full plus overdue interest. As at the date of this annual report, the Group is in the process of appealing the judgement. However, the full amount of the outstanding construction costs and the related overdue interest aggregating to HK$326,890,000 were fully provided by the Group as at 30 June 2020. In addition, as a result of this lawsuit, the Group’s buildings and leasehold land with an aggregate amount of HK$1,345,984,000 as at 30 June 2020 were preserved by the relevant court as a property preservation measure.

On 16 September 2020, the Group received a writ of summons from the High Court of Hong Kong regarding the construction payable in the amount of HK$40,000,000 plus interests due to a contractor by Smart Edge. As at the date of this annual report, the Group is in the process of negotiating with the contractor for the settlement of the outstanding sum and the full amount of the outstanding construction costs of HK$40,000,000 was provided by the Group as at 30 June 2020.

RISK MANAGEMENT

The Group’s businesses, results of operations, financial conditions and prospect are subject to risks and uncertainties. The Group has established policies and procedures for managing its business risks arising from its core business segments, including factoring, wine, and property investment and development.

Management of key customers

The Group traded with certain major customers from the factoring business. For the year ended 30 June 2020, the aggregate amount of revenue attributable to the Group’s largest customer who is customer from the factoring business, represented approximately 29% (FY2019: 21%) of the Group’s revenue for the year. The major customers of the factoring business are PRC based enterprises, which manufacture and export high-end digital electronic products to reputable end-buyers in the United States. These customers have had long established business relationships with the Group around ten years.

The Group strived to diversify its businesses and broaden its customer base through the continuing development of the leasing business and the wine and related businesses. With the growth of the Group’s restaurant business and the increasing rental income generated from the leasing activities of the Goldin Financial Global Centre, the Group has strengthened its revenue sources.

Credit risk management

The Group is selective about its customers and will only deal with creditworthy parties. In order to minimize the credit risk and risks of money laundering, the Group has formulated policies on credit and anti-money laundering, and delegated a team to determine credit limits, approve credit, monitor progress in recovering overdue debts and implement anti-money laundering measures. In addition, the Group regularly reviews the aging and recoverable amount of each individual trade debt and takes appropriate follow-up actions to recover any long overdue debts.

The Group only accepts the factoring of quality trade receivables from customers/buyers with good credit standing, good repayment records and no history of default. As at 30 June 2020, majority of the Group’s trade receivables, which were factored to the Group by our factoring customers, are mainly due from three debtors who are international corporations with exceptionally low risk of default.

During the year ended 30 June 2020, the Group experienced delay in receipt of settlements of the receivables and there was a trend of increasing past due balances for the factoring business when compared to the past settlement history. The Directors considered that the trend of increasing past due balances for the year ended 30 June 2020 was temporary as a result of the outbreak of COVID-19 pandemic, and sufficient impairment losses for the factoring receivables was provided for the year ended 30 June 2020. The Directors are confident that the outstanding receivables at 30 June 2020 will be recovered gradually. Besides, the Group had entered into a legally binding term sheet to dispose of the factoring business in September 2020, which is currently expected to be completed in February 2021. The outstanding factoring receivables will be recovered through the sale of the Factoring Group should the Group successfully complete the disposal.

Real estate business risk management

The Group has established measures to ensure that (i) the costs of the property development projects are within budgets; (ii) the progress of the property development projects is on schedule; and (iii) the quality of the properties under construction meets the industrial standards.

The risk arising from property investment business is relatively low due to the business nature, and most of the leasing contracts are long-term ones lasting for two to four years. The Group will maintain a portfolio of tenants who are reputable and creditworthy. In addition, the leasing team keeps monitoring the market conditions in order to maintain the competitive position of Goldin Financial Global Centre.

CONTINGENT LIABILITIES

As at 30 June 2020, the facilities granted to certain subsidiaries of the Company engaging in the businesses of property development, property investment and provision of factoring services, which are subject to guarantees given to the banks and financial institution by the Company for up to 60% and 100% (30 June 2019: 60% and 100%) of the funds drawn down, had been utilized to the extent of HK$14,316.1 million (30 June 2019: HK$14,330.5 million).

PLEDGE OF ASSETS

As at 30 June 2020, the Group’s secured bank and other borrowings were secured by the following assets of the Group:

(i) the investment properties with an aggregate carrying value of HK$15,000.0 million;

(ii) the properties under development which were reclassified to assets of a disposal group classified as held for sale with an aggregate carrying value of HK$7,000.0 million;

(iii) floating charges over all assets and entire share capital of Smart Edge, Cheng Mei, Goal Eagle, Rich Fast, Goldin Factoring Limited (“Goldin Factoring”) and Goldin Logistic (Hong Kong) Limited; and

(iv) entire share capital of Goldin Logistics Holdings Limited, Goldin Factoring Holdings Limited, Gold Podium Limited, Dynasty Select Limited, Country Lofty Limited, Eagle Dynasty Investments Limited, Goldcourt International Limited and Goldin Factoring (China) Development Limited.

PROSPECT

The overall business environment in Hong Kong and China is expected to remain challenging in the short term. The adverse impacts to economies brought by the outbreak of COVID-19 pandemic and the uncertainties arising from the escalating trade tensions between China and the United States of America is expected to continually cause pressure on the Group’s businesses. In such turbulent time, the Group will adhere to a prudent approach to manage its business and strategies.

In July 2020, the Company disposed of the Kai Tak residential development project. This disposal immediately brought in fresh capital to the Group and relieved the Group from the future business and financial risks associated with the development of project.

In view of the rising of capital cost and risks exposure in relation to the factoring operation, the Group decided to dispose of the factoring business and re-allocate the management and financial resources of the Group to strengthen its remaining business. On 2 September 2020, the Group entered into a term sheet with an independent third party to dispose of the factoring operation at a cash consideration of approximately HK$2,050.0 million. The disposal is expected to be completed in February 2021. The disposal would result in derecognition of bank borrowing from the factoring subsidiary which, together with the proceeds arising therefrom, would help strengthen the financial flexibility of the Group as a whole.

On 29 September 2020, the Company entered into a provisional sale and purchase agreement (the “Provisional SPA”) with an independent third party (the “Purchaser”) to conditionally sell and assign the entire issued share capital of Cheng Mei and Goal Eagle and the debts owing by them to the Group at an aggregate consideration of HK$14.3 billion. Cheng Mei and Goal Eagle altogether hold 100% of the issued share capital of Smart Edge, which in turns holds the Group’s investment properties, namely Goldin Financial Global Centre. On 23 December 2020, it was confirmed to the Group by the Receivers that the Receivers and the Purchaser had entered into a sale and purchase agreement (the “SE Disposal Agreement”) in respect of all the ordinary shares of Smart Edge. The Receivers have informed the Company that (i) the funds to be received by the Receivers pursuant to the SE Disposal Agreement will be sufficient to settle all outstanding indebtedness in relation to the Senior Notes and the Mezzanine Loan in full; and (ii) the Purchaser has paid very substantial non-refundable deposits pursuant to the terms of the SE Disposal Agreement. The Purchaser informed the Group of the termination of the Provisional SPA on 28 December 2020.

The Board is confident that once the SE Disposal Agreement has been duly completed, all legal proceedings relating to the Senior Notes and the Mezzanine Loan, as well as the Winding-Up Petition will be resolved amicably.

While the Group continues to dedicate its efforts to maximise returns to shareholders, it will closely monitor the market sentiment, evaluate its business and opportunities on hand and make appropriate adjustments accordingly. The Group may also consider to pursuit opportunities for further business developments or realise its assets if thought fit with a view to enhancing its financial flexibility. Besides, the Group will consider engaging in fund raising activities such as share placing with a view to improving the Group’s liquidity and financial position.

THE MANAGEMENT’S POSITION, VIEW AND ASSESSMENT ON THE DISCLAIMER OF OPINION

As stated in the section headed Independent Auditor’s Report in this annual report, there are multiple uncertainties relating to going concern, and scope limitation on the Group’s impairment assessment of trade receivables from the factoring business and prepayment for the acquisition of a subsidiary.

To address the disclaimer of opinion and with a view of removing audit qualifications for the coming year ending 30 June 2021, the Company has taken the followings steps:

Multiple uncertainties relating to going concern

(i) the management expects to complete the proposed disposal of Smart Edge within the 1st half of 2021. The Receivers have informed the Company that (i) the funds to be received by the Receivers pursuant to the SE Disposal Agreement will be sufficient to settle all outstanding indebtedness in relation to the Senior Notes and the Mezzanine Loan in full; and (ii) the Purchaser has paid very substantial non-refundable deposits pursuant to the terms of the SE Disposal Agreement. The Board is confident that once the SE Disposal Agreement has been duly completed, all legal proceedings relating to the Senior Notes and the Mezzanine Loan, as well as the Winding-Up Petition will be resolved amicably.

(ii) in relation to the disposal of Goldin Factoring and its subsidiary, the Group actively cooperates with the buyer for the due diligence exercise and expects to complete such disposal in February 2021. The proceeds arising from the disposal will be used for the settlement of the Group’s bank borrowings and as general working capital requirements.

(iii) the Group maintains a borrowing facility of US$500 million (equivalent to HK$3,875.1 million) from a related company in which Mr. Pan Sutong (“Mr. Pan”), the controlling shareholder of the Company, has a beneficial interest. None of the amount of the facility had been utilised as at 30 June 2020. The Directors consider that the Group can utilise this facility to obtain adequate working capital for financing the business development of the Group for the year ending 30 June 2021.

Taking into account the above actions, the Directors believe that the Group will have sufficient working capital to meet its obligations falling due within the next twelve months from the financial reporting date, and are of the opinion that it is appropriate to prepare the consolidated financial statements of the Group for the year ended 30 June 2020 on a going concern basis.

Impairment assessment of trade receivables from the Group’s factoring business

The management of the Company monitors the repayment progress and the financial conditions of the factoring customers on an ongoing basis. The factoring customers are with good repayment records with no history of default. The Directors consider that the trend of increasing past due balances for the year ended 30 June 2020 was temporary as a result of the outbreak of COVID-19 pandemic, and sufficient impairment losses for the factoring receivables was provided in the financial statements for the year ended 30 June 2020. The Directors are confident that the outstanding receivables at 30 June 2020 will be recovered gradually. Besides, the Group had entered into a legally binding term sheet to dispose of the factoring business in September 2020, which is currently expected to be completed in February 2021. The outstanding factoring receivables will be recovered through the sale of the Factoring Group should the Group successfully complete the disposal.

Impairment assessment of a prepayment for the acquisition of a subsidiary

On 28 October 2020, the Group and Goldin Investment Intermediary Limited (“GIIL”) entered into a confirmatory deed, pursuant to which, among other things, GIIL agreed that completion of the acquisition of Solar Time be extended to the third business day after a written notice is served on GIIL by the Group of its intention and readiness to complete the acquisition. As the management expects to complete the proposed disposals of Smart Edge and the factoring business within 1st half of 2021, and in view of the undertaking provided by Mr. Pan that the Group could settle the outstanding consideration for the acquisition by way of a shareholder’s loan, if necessary, by utilising a loan facility provided by a company controlled by him, the Group will have sufficient resources to settle the outstanding consideration for the acquisition for Solar Time. Based on the above, the Directors believe that the acquisition of Solar Time can be completed on or before 30 June 2021 and accordingly no impairment of the prepayment is needed.

The Company has considered the auditor’s rationale and understands their considerations in arriving at the disclaimer of opinion. Based on the assessment above, the management of the Company believes that the Group will be able to resolve the issues in relation to the disclaimer of opinion in the forthcoming financial year for the year ending 30 June 2021.

The Audit Committee has carefully reviewed the basis of the disclaimer of opinion and discussed with the auditor regarding the financial position of the Group, the measures taken and to be taken by the Company, and considered the auditor’s rationale and understands their consideration in arriving at their opinion. The Audit Committee has also reviewed the management’s position above and agree with such position addressing the issues.