Baguio Green : Announcement - Interim Result 2017

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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 2017

FINANCIAL SUMMARY

Revenue for the six months ended 30 June 2017 amounted to approximately HK$571.1 million (1H2016: HK$538.1 million), representing an increase of approximately 6.1% as compared with the preceding period.

Gross profit for the six months ended 30 June 2017 was approximately HK$51.8 million (1H2016: HK$49.9 million), representing an increase of approximately 3.7% as compared with the preceding period.

Net profit for the six months ended 30 June 2017 was approximately HK$15.1 million (1H2016: HK$17.3 million), representing a decrease of approximately 12.7% as compared with the preceding period.

The Board does not recommend the payment of an interim dividend for the six months ended 30 June 2017 (1H2016: Nil).

The board of directors (the "Directors" and the "Board") of Baguio Green Group Limited (the "Company") is pleased to announce the unaudited consolidated interim results of the Company and its subsidiaries (the "Group" or "Baguio") for the six months ended 30 June 2017 (the "Period").

MARKET REVIEW

2017 is an important year for Baguio to expand its waste management and recycling services. Waste management has long been a critical challenge in Hong Kong. According to the Monitoring of Solid Waste in Hong Kong - Waste Statistic for 2010 and 2015 issued by Environmental Protection Department ("EPD"), the recovery rate of municipal solid waste generated dropped sharply from 52% in 2010 to 35% in 2015. While the international leading countries are giving strong impetus in waste reduction and recycling, Hong Kong, as an international financial hub, must take a more proactive approach in motivating the public to achieve waste recycling and waste reduction, in order to divert recyclables away from landfills. To catch up with the global trend, the Hong Kong Government stepped up its efforts to promote green policies, such as advocating the Municipal Solid Waste Charging Scheme and Food Waste Hong Kong Scheme, the construction of the organic waste treatment facilities, as well as the legislation of Producer Responsibility Scheme on Glass Beverage Bottles. Together with public education and supporting measures, the government has significantly aroused the public's awareness to the importance of proper waste management. In the first half of 2017, Baguio received a rising number of enquiries from public entities and private enterprises looking for a total waste management solution. It is believed that a wider scope of waste management services is required to answer the increasing demand in both the public and private sectors, which opened the gate for the Group to further delve into the waste management services market in various aspects.

In parallel, the People's Republic of China ("PRC") is also putting "Green Development" as one of the top five priorities under the 13th Five-year Plan framework. Aiming to tackle the severe conditions of environmental issues, the Environmental Protection Tax Law (環境保護 稅法) was enacted on 25 December 2016 and will come into effect on 1 January 2018. Various significant environmental policies or plans, such as the "13th Five-Year" Eco-Environmental Protection Plan (「十三五」生態環境保護規劃) and the "13th Five-Year Plan" for Nationwide Municipal Waste Detoxification Treatment Facilities Construction (「十三五」全 國城鎮生活垃圾無害化處理設施建設規劃), also came into force, clearly demonstrating that the Central Government's determination to pursuit a greener and more sustainable development. These top-down policies also provided new opportunities for the development of environmental protection industry. Coupled with the raising public awareness on creating a clean environment, the Central Government's effort has unleashed the market potential for the Group to explore opportunities in the environmental services in the PRC.

BUSINESS REVIEW

Being a leading integrated environmental services provider, Baguio strives to create a "Green

& Clean" environment to the society by providing a wide scope of comprehensive environmental services, ranging from cleaning, landscaping and pest management to waste management and recycling. Following the yard waste collection contract gained in November 2016, the Group further delved into the waste management and recycling segment and broadened its services scope for the Period. In February 2017, the Group secured a contract with the Hong Kong Jockey Club to provide stable waste collection service, which commenced in April 2017. In this contract, Baguio collects the stable waste at the Shatin Racecourse and delivers to Animal Waste Composting Plant ("AWCP") at Ngau Tam Mei for composting. In July 2017, Baguio again stretched the boundary of its services offerings and partnered with The Jardine Engineering Corporation Limited to win the contract from the Electrical and Mechanical Services Department to operate AWCP in composting the collected animal waste and turning it into organic compost. Synergizing with the landscaping segment of the Group, Baguio managed to provide a one-stop waste management solution to animal waste, covering the entire supply chain from waste collection to downstream waste reprocessing and reusing.

When it comes to waste recycling, animal waste recycling is not Baguio's only new venture. In May 2017, Baguio procured the first food waste truck to accelerate the efficiency of its food waste collection services. Specially designed for food waste collection, the truck is equipped with advanced functions to facilitate the collection process, and thus, reliance on manual labour is reduced. This significantly improved the cost effectiveness and overall margin. During the Period, the Group also participated in the tender on glass bottles recycling, which covers the whole supply chain from glass bottles collection, processing to downstream remanufacturing, as well as community education. With the Group's extensive industry experiences, advanced technological capabilities and strong track records in large scale tendering, it is believed that Baguio would be able to enjoy the first-mover advantage for future tenders.

Riding on the solid business foundation in Hong Kong, Baguio also saw huge potential in the environmental services market in the PRC. Cities in the PRC, particularly the second to third- tier cities, started to outsource their municipal cleaning services, waste management and recycling services to private service providers. During the Period, the Group has examined the feasibility of expanding its operation in the PRC and proactively looked into the possibility of cooperation with local operators. Supported by its technical know-how, management expertise, financing capability and well-established reputation, Baguio is ready to capture the diverse opportunities in this vast market.

Results

For the Period, revenue of the Group was approximately HK$571.1 million, registering a stable growth of approximately 6.1% from approximately HK$538.1 million for the same period of 2016. This was mainly attributable to the Group's genuine efforts in gaining new and renewal contracts. Gross profit increased by 3.7% to approximately HK$51.8 million (1H2016: approximately HK$49.9 million), but gross profit margin decreased by 0.2% to 9.1%(1H2016: 9.3%) mainly due to increased labor cost. Profit attributable to equity shareholders of the Company amounted to approximately HK$15.1 million, representing a decline of 12.7% year-on-year for the Period (1H2016: approximately HK$17.3 million) while the net profit margin decreased by 0.6% to 2.6% (1H2016: 3.2%). Earnings per share was 4 HK cents (1H2016: 4 HK cents).

Interim Dividend

The Directors do not recommend the payment of an interim dividend for the Period (1H2016: nil).

Revenue Breakdown of Major Business Segments

For the six months ended 30 June
2017	2016
Revenue	% of total revenue	Revenue	% of total revenue	Change
(HK$ Million)	(HK$ Million)
Cleaning	423.8	74.2%	397.8	73.9%	6.5%
Landscaping	72.5	12.7%	58.1	10.8%	24.8%
Pest management	20.7	3.6%	25.5	4.7%	-18.8%
Waste management and recycling	54.1	9.5%	56.7	10.6%	-4.6%
Total	571.1	100.0%	538.1	100.0%	6.1%

Gross Profit Margin of Major Business Segments

For the six months ended 30 June
2017	2016	Change
Cleaning	7.2%	7.3%	-0.1 p.p.
Landscaping	16.9%	17.3%	-0.4 p.p.
Pest management	12.0%	11.9%	0.1 p.p.
Waste management and recycling	12.4%	14.0%	-1.6 p.p.
Overall	9.1%	9.3%	-0.2 p.p.