Half Yearly Report

JIASEN INTERNATIONAL HOLDINGS LIMITED

嘉森國際控股有限公司

half-yearly results for the six months ended 30 june 2015

Jiasen International Holdings Limited ("Jiasen" or "the Company"), together with its subsidiaries ("the Group"), is pleased to report its unaudited results for the six month period ended 30 June 2015 ("HY2015"). Jiasen is an international property fit-out business specialising in designing, manufacturing, and installing a range of wooden products for residential and commercial properties.

Financial Highlights

· Revenue increased by 2.6% to RMB 427 million (HY2014: RMB 416 million).

· The Group operates a highly flexible production policy in order to accommodate short-term changes in end-user demand. During the period under review, output of doors was reduced in favour of furniture and fixtures.

· During the period, the Group continued to diversify its product mix away from a reliance on doors in response to a market requirement for a more comprehensive offering and to stabilise gross profit margin due to increased competition within the door category.

· Gross margin for HY2015 is 27.5% in line with our previously stated guidance range of 27% to 30% (HY2014: 35.5%).

· The Group's strategy of diversification mitigated significant market margin erosion seen within bulk door supply by expanding higher margin segments.

· The reduction in gross profit margin was also partly due to the increase in the average cost of materials and our competitive pricing strategy implemented mid-2014 to secure larger and multi-product order, to ensure a predictable and visible revenue stream moving forward.

· Profit before tax decreased by 23.6% to RMB 93 million (HY2014: RMB 122 million).

· Profit after tax decreased by 25.8% to RMB 68 million (HY2014: RMB 92 million).

· The Group has a strong order book of RMB 159 million as at 30 June 2015 (HY2014: RMB 137 million). The order book is mainly made up of orders from property developers and is expected to be completed by end of 2015.

· Cash and cash equivalents as at 30 June 2015 amounted to RMB 339 million (31 December 2014: RMB 334 million).

Operational Highlights

· Secured six new contracts, five of which are worth more than RMB 20 million each during the period under review. Of these contracts, one is worth more than RMB100 million.

· Wholesale distribution revenue grew by 13% as a result of new outlets opened during the period. The Group now has 16 distributors which operate 54 outlets across China. 15 outlets are currently under renovation and are expected to be completed in following months. Upon completion the total number of outlets will be 69.

· Although exports during the first half increased relative to 2014 largely due to contract timing, the percentage of total sales for the whole of 2015 is expected to be similar.

Outlook

· The property market in China continues to stabilise driven by a relaxation of regulatory limits on home purchases and more favourable monetary policies.

· The Group's core business driver is the preference for semi-furnished homes (known as Refined Housing Decoration (RHD)) which continues to increase. This in turn drives the demand for the Group's multiple product offering by property developers.

· Continued focus on winning larger and more luxurious property projects.

· Intention to expand sales and marketing efforts for higher margin non-door products and diversify our revenue streams further.

· We are seeking foreign and local brand partnerships and investment opportunities.

· Trading to date in the current financial year is slightly below the Group's expectations.

· Appointment of two new directors, Gareth Wong, as Finance Director, and Curt Riley, as Non-executive Director.

Land Purchase and Future Development

On 18 November 2014, the Group signed a contract with the local government (Quanzhou Economic Development District - Guanqiao Sector) ("QEDD") to purchase 47 hectares of land for the purpose of its new factory. The land is being bought for RMB 217 million and a down payment of RMB 69 million was paid in February 2015. The completion of the purchase of the land was subject to QEDD approval.  

The directors are pleased to advise that approval has been granted subject to the final payment of approximately RMB 150 million. Following the payment being made, QEDD will issue the land use rights certificate and planning consent. It is the intention of the directors to make the final payment during the course of 2016 and commence construction during the same year which is expected to take approximately 18 months.

The construction of the new factory buildings, (which will occupy a site of approximately 12 hectares) plant and machinery is expected to cost in the region of RMB 470 million. The Directors are working with the planners to finalise the design of the factory.

The Company intends to continue to use its existing facility during construction of the new factory. Following completion of the new factory, the Company will retain the use of a portion of the existing facilities it owns which will be used for the production of export products, head office functions and will house the Company's showroom.

Interim Dividend

The Directors are pleased to report that the Company will declare an interim dividend of 0.5p per share to shareholders who are on the register as the close of business on 16 October 2015. The ex-dividend date will be 15 October 2015 and it is expected that the dividend will be paid on or around 16 November 2015.

In light of the Company's forthcoming financial need for the development of Company's new factory, the Company will review its final dividend in line with its capital need and its stated dividend policy.

Commenting on the results, Weigang Chen, Executive Chairman said:

"These results reflect the Company's hard work to drive the business forward and we are pleased that our strategy to pursue larger and more luxurious projects has delivered a strong order book thereby ensuring a visible and predictable revenue stream. We are also pleased with the progress made with the local authorities on the land purchase approval. Furthermore our management team are working with the planners on the design and layout of our proposed new factory.

We believe the property market is showing signs of stabilisation and increased market confidence and that this is set to continue for the remainder of the year. We remain cautiously optimistic about stabilising margins.

We are also very pleased to welcome Gareth Wong and Curt Riley, who recently joined the Board and look forward to working with them."

Indicative exchange rate as at 24 September 2015: £1: RMB 9.75

Source:www.oanda.com

For further information, please visit www.jsih.net or contact:

Notes to Editors

The Company was established in 2001 and is based in Quanzhou City, Fujian province, located in south-eastern China. Its products are sold and marketed under the 'Fuyou' brand and produced in its 83,000 sqm factory in Nan'an City, Fujian province by its workforce of more than 1,500 employees. 

Jiasen's main products include doors, wall panels and assorted fixtures, such as fitted wardrobes, cupboards and skirting boards, and furniture which are sold principally to property development projects, through branded 'Fuyou' retail stores and to export markets. The Company's products are sold in three main segments: residential and property development projects, wholesale distribution and export.

Executive Chairman's Statement

I am pleased to present Jiasen's results for the six months ended 30 June 2015. The Company has delivered a strong revenue performance and we have continued to execute our strategy to secure larger, more luxurious, property projects and diversify our product offering to enable us to deliver long term sustainable growth.

Revenue grew by 2.6% to RMB 427 million (HY2014: RMB 416 million). All three divisions performed well with wholesale distribution and property developer projects contributing 88% of revenue. Gross profit margin for the period under review is 27.5% which, despite having shown a decrease due to more competitive pricing, remains and is in line with our previously stated guidance of 27% to 30% (HY2014: 35.5%). As we previously indicated, in order to secure larger property projects, the Group has had to offer more competitive pricing and increase the quality of its furniture, fixtures and fittings. This approach has enabled us to secure a strong order book of RMB 159 million as at 30 June 2015 (HY2014: RMB 137 million) but led to some margin erosion as a result. The order book is mainly made up of orders from property developers and is expected to be completed by end of 2015. 

Wholesale distribution revenues grew by 13.2% to RMB 135 million (HY 2014: RMB 119 million) driven by relocation and renovation of strategic outlets and new stores set up in 2014. Our wholesale business has been successful in driving both our door and non-door products. Export remains a small part of our business contributing 11.8% of revenue, although the channel has shown improved growth. 

The property market is showing signs of stabilisation as a result of the implementation of more favourable monetary policies. This is supported by the recent positive performances of major listed property developers in China. Evidence suggests that market confidence is returning and we expect interest rates to fall further in 2015. The Board believes that the market, together with continued demand for semi-furnished homes, positions the Company strongly to deliver further growth.

In the light of recent share price underperformance and confidence in Jiasen's long term prospects, the Board is considering a number of options to help improve the Company's share price performance. Recognising this opportunity to capture future growth and the fact that Group's existing dividend policy provides for an unrealistically high yield on the current share price, management has decided to commence a review of these options which may result in a reduction, or even cancellation of, future dividend payments.

Financial and Operational Review

Revenue growth for the six month period ended 30 June 2015 (the "period" or "HY2015") has been driven by strong demand for our products. Importantly, the Group has diversified its revenue streams and increased sales of non-door products to property developers as well as through its wholesale distribution network.

Revenue breakdown by channels and products are as follow:-

Revenue from the Group's top three customers contributed approximately RMB 201 million (or 47%) of the total revenue for the six month period ended 30 June 2015 (HY2014 : RMB 185 million or 44%).

Note on Expenses

Selling and distribution expenses for the six month period ended 30 June 2015 decreased by 23.8% to RMB 15 million (HY2014: RMB 20 million). This is mainly due to lower advertisement cost incurred during the first half year in 2015. Selling and distribution expenses as a proportion of revenue is lower at 3.5% for the six month period ended 30 June 2015 (HY2014: 4.7%).

Administrative expenses for the six month period ended 30 June 2015 increased by 43.3% to RMB 9 million (HY2014: RMB 6 million) due mainly to higher depreciation charged for the new office building completed in 2014 and other professional expenses for maintaining AIM listing status since the group listed in July 2014. Administrative expenses as a proportion of revenue remain largely in line with last period at 2.1%.

Included in the other operating income for the six month period ended 30 June 2015 is RMB 1 million (HY2014 : RMB 2 million), being a cash grant received from the local government. During the six month period ended 30 June 2015, interest income amounted to RMB 0.6 million (HY2014: RMB 0.5 million).

The Group's gross profit margin decreased by 8 percentage points to 27.5% (HY2014 :35.5%). The reduction in the gross profit margin is partly due to the increase in the average cost of materials as the Group focuses on securing larger and more luxurious property projects, which require higher quality furniture, fixtures and fittings.

Profit before tax for the year decreased by 23.6% to RMB 93 million (HY2014: RMB 122 million) representing an operating profit before tax margin of 21.8% as compared to 29.4% recorded in HY2014. Net profit after tax for the six month period ended 30 June 2015 decreased by 25.8% to RMB 68 million (HY2014: RMB 92 million).

The Board believes that confidence is returning to the Company's targeted sector of the Chinese property market. The Board remains confident on the future development and performance of the Group in the second half of the year.

Notes on Statement of Financial Position

As at 30 June 2015, the Group's total assets amounted to RMB 740 million, total liabilities were RMB 180 million, and shareholders' equity recorded at RMB 560 million.

The average working capital cycle for the period was 94 days (FY2014: 89 days). This was mainly due to the increase in trade receivables when compared with FY2014.

Trade receivables increased by 15% to RMB 203 million as at 30 June 2015 (FY2014: RMB 176 million) due to different project timing and delivery schedules. None of the trade debtors were considered as impaired.

The average inventory turnover cycle decrease by 5 days to 21 days as at 30 June 2015, from the level of 26 days in 31 December 2014. Most of the time, completed finished goods will be shipped out immediately after production. Inventory as at 30 June 2015 amounted to RMB 50 million (FY2014: RMB 61 million)

The average trade payable cycle remained relatively the same at 14 days (FY2014: 11 days). Other payables increased by almost 121% to RMB 63 million as at 30 June 2015 (FY2014: RMB 28 million) due mainly to higher collection of advance receipts and down payment collected from project developers. Our credit management policy ensures timely payment to suppliers and sub-contractors to secure quality raw materials and timely delivery of subcontracted products.

The Group has a cash balance of RMB 339 million as of 30 June 2015 (FY2014: RMB 334 million) and intend to use most of this cash to fund the purchase and development of a new piece of land for additional production facility.

Condensed Interim Consolidated Statement Of Comprehensive Income

For The Financial Period Ended 30 June 2015

The notes are an integral part of the condensed interim consolidated financial statements.

Condensed Interim Consolidated Statement Of Financial Position

As At 30 June 2015

The notes are an integral part of the condensed interim consolidated financial statements.

CONDENSED Interim Consolidated Statement Of Changes In Equity

For The Financial Period Ended 30 June 2015

Condensed Interim Consolidated Statement Of Changes In Equity (Cont'd)

For The Financial Period Ended 30 June 2015

The notes are an integral part of the condensed interim consolidated financial statements

Condensed Interim Consolidated Statement Of Cash Flows

For The Financial Period Ended 30 June 2015

Condensed Interim Consolidated Statement Of Cash Flows (Cont'd)

For The Financial Period Ended 30 June 2015

1. General Information

Jiasen International Holdings Limited (the "Company" or "Jiasen") was incorporated on 31 October 2012 and is domiciled in the British Virgin Islands. The Company's registered office is Commerce House, Wickhams Cay 1, P. O. Box 3140, Road Town, Tortola, VG1110, British Virgin Islands.

Jiasen was established as an investment holding company for two wholly owned subsidiaries, Jiasen Holdings (HK) Company Limited ("Jiasen HK") and Quanzhou Jiasen Wood Co., Ltd. ("Jiasen PRC"), (together, the "Group").

The main activity of the Company and Jiasen HK is that of an investment holding company. Jiasen PRC is principally engaged in the business of design, manufacturing and wholesalers of high quality wooden doors and home furnishings. The principal place of business of the Group is in the People's Republic of China ("PRC"). Amounts are reported in RMB thousands, unless otherwise stated.

2. Basis of Preparation And Accounting Policies

The condensed interim consolidated financial statements (the "interim financial information") have been prepared on the basis of the accounting policies set out in the last audited consolidated financial statements, which are in accordance with AIM rule 18, "Half yearly reports and accounts", and should be read in conjunction with the annual financial statements for the year ended 31 December 2014.

This interim financial information is unaudited and has not been reviewed by the auditors and does not constitute statutory financial statements for the six month period ended 30 June 2015.

The interim financial information is prepared on the assumption that the group structure has been in place since 1 January 2012. Group accounting policies, accounting estimates and judgements have been consistently applied across all periods. No new standards that have become effective in the period have had a material effect on the Group's financial statements.

3. Basis Of Consolidation 

The interim financial information incorporates the results of the Company and its subsidiaries. A subsidiary is an entity (including special purposes entities) over which the Group has the power to govern the financial operating policies, generally accompanied by a shareholding giving rise to the majority of the voting rights, as to obtain benefits from their activities.

A subsidiary is consolidated from the date on which control is transferred to the Group up to the effective date on which control ceases, as appropriate.

The interim financial information presents the results of the Company and its subsidiaries as if they formed a single entity. Intra-group balances and transactions and any income and expenses arising from intra-group transactions are eliminated on consolidation. Unrealised gains and losses arising from transactions with associates and joint ventures are eliminated against the investment to the extent of the Group's interest in the investee.

4. Earnings per share

Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of Ordinary shares in issue during the period.

Although the Group reconstruction did not become unconditional until 4 March 2014, the interim financial information are presented as if the Group structure has always been in place, including a share split effected by the Company on 26 May 2014 by which each of its Ordinary shares, with a par value of US$ 1.00 per share, was split into 10 Ordinary shares, with a par value of US$ 0.10 per share.

No adjustment has been made to the basic earnings per share in respect of a dilution as the impact of the warrant outstanding had an anti-dilutive effect on the basic earnings per share.