Daiwa Associate : Interim Report 2015-2016

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Daiwa associate HolDings limiteD

11/F., Block G, East Sun Industrial Centre, 16 Shing Yip St., Kwun Tong, Kowloon, Hong Kong Tel: [phone] Fax: [phone]

Website: http://www.daiwahk.com E-mail: [e-mail] Stock Code: 1037

President's statement

On behalf of the Board of Directors, I would like to present to shareholders the unaudited interim results of Daiwa Associate Holdings Limited (the "Company") and its subsidiaries (collectively the "Group") for the six months ended 30 September 2015. The unaudited interim financial statements have been reviewed by the audited committee of the Company.

ResUlts anD Financial ReView

For the six months ended 30 September 2015, turnover of Group was reported as HK$48.3 million (2014: HK$67.0 million), representing a decrease of 27.9% when compared with last corresponding period. Gross profit increased by 5.0% to HK$12.5 million (2014: HK$11.9 million).

• The earnings before interest, tax, depreciation and amortization (EBITDA) were HK$4.8 million (2014: HK$4.5 million), representing a increase of HK$0.3 million when compared to the last corresponding period.

  
  

• The operating profit (EBIT) of the Group was HK$2.8 million (2014: HK$3.5 million), representing a

  decrease of HK$0.7 million when compared to the last corresponding period.

  
  

• The net profit of the Group was HK$1.5 million (2014: HK$1.5 million), which is the same as last

corresponding period.

The Board of Directors does not recommend any payment of interim dividend.

In the special general meeting on 19 October 2015, the shareholders had approved a special dividend of HK$0.23 per ordinary share to shareholders whose names appeared on the shareholder register on 27 October 2015. The special dividend totaling HK$100.6 million was paid to shareholders on 4 November 2015.

At 30 September 2015, the Group's current assets amounted to HK$350.3 million (31 March 2015: HK$292.7 million) and the shareholders' equity were HK$187.2 million (31 March 2015: HK$186.5 million). The current liabilities were HK$178.1 million (31 March 2015: HK$156.8 million).

The inventory level was HK$55.0 million (31 March 2015: HK$116.2 million). The trade receivable (not include note receivable) was HK$19.6 million (31 March 2015: HK$80.8 million).

The cash and bank balances at 30 September 2015 were HK$20.7 million (31 March 2015: HK$71.7 million). Total available banking facilities of the Group were approximately HK$135.6 million (31 March 2015: HK$

141.3 million), of which HK$54.7 million was available for use (31 March 2015: HK$63.5 million). There were no finance lease obligations outstanding as at the period end and at 31 March 2015. The Company committed corporate guarantees of HK$185.0 million (31 March 2015: HK$261.0 million) in favor of banks for the granting of banking facilities to certain subsidiaries. The gearing ratio, which was defined as total borrowings after netting off cash and cash equivalents (net debt), to total capital (being total equity plus net debt) was 2.1% (31 March 2015: 1.7%).

The Group's assets were mostly financed by shareholders' equity, trade payables and bank borrowings. Trade payables were repayable within one year. Bank borrowings comprised of trade financing repayable within one year and term loans repayable in installments of 2 to 5 years based on original contractual maturity.

Borrowings were mostly denominated in Hong Kong dollars and US dollars to prevent currency risk. The Group's cash and cash equivalents were denominated in Hong Kong dollars, US dollars, Canadian dollars and Renminbi. The Group matched the payment and receipts of foreign currency arising from routine purchases and sales to control and to minimize the financial cost and exchange risk. Most of the Group's borrowings were interest bearing at floating rates which were based on the Hong Kong HIBOR rate or London LIBOR rate. As substantial part of trade payable and bank borrowings were denominated in Hong Kong and US dollars, the exchange risk for the Group was not expected to be material. The Group did not use derivative financial instruments for speculative purpose.

The Group did not repurchase any ordinary shares in the open market.

1 Daiwa Associate Holdings Limited

President's statement

cHange in contRol

At 29 April 2015, Mr. Lau Tak Wan ("Mr. Lau"), Ms. Chan Yuen Mei, Pinky ("Ms. Pinky Chan"), together with the entities controlled by them entered into a conditional sale and purchase agreement with Asia-IO Acquisition Fund, L.P. (the "Offerors") to dispose of their entire equity interest in the Company representing 55.17% of the Company's shares at that date at a consideration of HK$276.0 million. At the same date, an entity controlled by Mr. Lau enter into a sale and purchase agreement with the Company in respect of disposal of the Group's business of distribution of electronic components and computer products, and certain property holding entities. The Company also entered into three separate share subscription agreements with the Offerors, Asia-IO Holdings Limited and Huatai Principal Investments I Limited which conditionally agreed to issue and subscribe for 225,000,000 new ordinary shares of the Company at HK$1.144 per share, representing a total amount of HK$257.4 million. All these agreements were inter- conditional and had to be completed at the same time.

In the special general meeting held at 19 October 2015, independent shareholders duly passed the ordinary resolutions to approve these agreements and the special dividend of HK$0.23 per ordinary share to be declared and distributed after the completion of these agreements.

These agreements were duly completed at 29 October 2015 and the consideration on the disposal of the business of distribution of electronics components and computer products, and certain properties holding entities were agreed at HK$102.4 million which were mainly used to distribute to shareholders as special dividend.

The special dividend totaling HK$100.6 million were paid to shareholders on 4 November 2015. Mr. Lau, Ms. Pinky Chan and entities controlled by them, being all together holding 55.17% of the shares at record date, had received special dividend of approximately total HK$55.5 million.

Upon completion of the agreements, the Offerors and parties acting in concert with it are interested in a total of 466,221,529 Shares, representing approximately 70.40% of the issued share capital of the Company. Accordingly, the Offerors are required to make an mandatory unconditional cash offer for all the issued shares (other than those already owned or agreed to be acquired and subscribed by the Offeror and parties acting in concert with it) (the "Offer"). Upon the completion of the Offer on 23 November 2015, the Offerors had received valid acceptances in respect of a total of 104,800 shares, representing approximately 0.02% of the entire issued share capital of the Company. As a result, the Offerors and parties acting in concert with it are interested in an aggregate of 466,326,329 Shares, representing approximately 70.42% of the entire issued share capital of the Company.

After the disposal, the remaining business of the Group is the manufacturing of electronic products including telecommunication modules and diodes. The Offeror intends to continue to operate the remaining business of the Group and to develop new businesses, including the provision of smart manufacturing solutions ("SMS"), which aim to upgrade the manufacturing lines of electronics manufacturers in the Greater China region by means of system integration services utilizing "Internet-of-Things" ("IoT") modules, analytics software, and other digital technologies.

BUsiness ReView anD PRosPect

During the six month ended 30 September 2015, the Group was engaging in the following major businesses:

• Electronic Products Manufacturing;

  
  

• Personal Computer Products Distribution; and

  
  

• Electronic Components Distribution

The business segments of distribution of personal computer products and distribution of electronics components, were discontinued and disposed by the Group at 29 October 2015. Therefore these two segments were classified as discontinued operations in this interim report.

Daiwa Associate Holdings Limited 2