Worldsec Limited

Interim Report for the six months ended 30 June 2020

The board (the "Board") of directors of Worldsec Limited (the "Company") hereby submits the interim report on the Company and its subsidiaries (collectively the "Group") for the six months ended 30 June 2020 (the "Interim Report").

For the period under review, the Group recorded a net loss of US$265,000 (equivalent to loss per share of 0.31 US cent) against a net loss of US$220,000 (equivalent to loss per share of 0.26 US cent) for the corresponding six months in 2019.  The increase in the loss basically reflected (i) the lack of interest income following the redemption by the issuer of a term loan in which the Group had previously invested; and (ii) an increase in the negative change in the fair value of the Group's financial assets that was recognised through the profit and loss account under International Financial Reporting Standard 9 ("IFRS 9").

During the period under review, the investment portfolio of the Group comprised six investments:

ICBC Specialised Ship Leasing Investment Fund (the "ICBC Ship Fund") - The Group's investment in the ICBC Ship Fund, which is involved in marine vessel leasing, continued to provide a stable return generating monthly dividends that amounted to a total of US$48,000 for the six months ended 30 June 2020.

Agrios Global Holdings Ltd. ("Agrios") - Agrios, an investee company of the Group listed on the Canadian Securities Exchange, is the holding company of a data analytics driven agriculture technology group that leases and manages property and equipment for eco-sustainable agronomy and provides advisory services for aeroponic cultivation to the cannabis industry.  Being at an early phase of development, the Agrios group has yet to achieve profitability.  On top of that, there has been a difficult operating environment for the cannabis industry that has further been disrupted by the COVID-19 pandemic.  Under such circumstances, the Agrios group has instituted a strategic review and has continued to focus on improving operational efficiencies while reducing capital requirements and operating expenses.  Relying on the financial hardship exemption for minority shareholder approval, the Agrios group has arranged with a related party a credit facility of up to US$3.5 million to mainly refinance the mortgage of its Shelton cultivation facility in Washington, the United States.  The Agrios group has also undergone certain board and management changes, including notably the resignation and departure of a number of senior executives.  Moreover, because of the COVID-19 situation, Agrios has applied and has been granted relevant approval for a delay in the filing of its audited annual financial statements for the year ended 31 March 2020.  In the absence of updated financial information, Agrios share price performed poorly on generally low trading volume.  As a consequence, the fair value of the Group's investment in Agrios was further marked down by the end of the period under review.

ayondo Ltd. ("Ayondo") - Ayondo, an investee company of the Group listed on the Catalist of the Singapore Exchange, is the holding company of a financial technology group that previously focused on social trading activity. The Ayondo group has had a number of successes in recent months in fund raising and business restructuring, moving steadily towards the goal of resuming trading in Ayondo shares which has been suspended since 1 February 2019.  On 3 March 2020, Ayondo obtained shareholder approval for the issue of three convertible notes totalling S$9.9 million with a conversion price of S$0.007 per Ayondo share to Golden Nugget Jinzhuan Limited ("Golden Nugget"), an operator of social investing platforms, and Mr. Mamoru Taniya, a Golden Nugget shareholder.  By 1 June 2020, certain of these convertible notes were issued enabling the Ayondo group to raise a total of S$2.5 million for working capital and debt repayment purposes.  The convertible notes that were issued were subsequently converted into Ayondo shares and Golden Nugget and Mr. Mamoru Taniya became the largest and second largest shareholder of Ayondo with a shareholding of 22.60% and 12.31% respectively.  As part of the restructuring effort, on 29 July 2020, Ayondo entered into a conditional sale and purchase agreement with Speed Success Group Limited ("Speed Success") for the acquisition (the "Proposed Acquisition") of the entire equity interest in Rich Glory International Investment Limited ("Rich Glory"), a company engaged in the business of licensed collateralised lending specialising in residential mortgages, commercial mortgages and shareholder loans.  Due diligence on Rich Glory is currently underway.  The Proposed Acquisition, which will be subject to, inter alia, shareholder and regulatory approval, will. if undertaken and completed, constitute a reverse takeover involving the issue of Ayondo shares, at an effective 39% discount to the volume weighted average price of S$0.0459 for trades done on Ayondo shares shortly prior to their trading suspension, to Speed Success who would then become the single largest and controlling shareholder of Ayondo. 

Velocity Mobile Limited ("Velocity") - Velocity, an unlisted investee company of the Group, is the holding company of a technology group that operates mobile commerce platforms targeting at premium consumers and focusing on the sectors of dining, travel, experiences and luxury goods.  The business of the Velocity group was therefore expected to be badly hit by the COVID-19 pandemic.  Nevertheless, thanks to the premium nature of its customers, the diversity of its product offerings and the resilience of the growing contribution from its enterprise clients, coupled with the adoption of stringent cost control, the Velocity group was able to meaningfully contain the pandemic shock, and even though there was a decline in revenue, cash flow from operations continued to improve.  With the launch of a new proprietary commerce engine, Gravity, an agent-facing software that utilises automation and artificial intelligence in the management of inventory, supply arrangements, requests, bookings, payments, client conversations and contents, gross profit margin was largely upheld notwithstanding the challenging conditions under the COVID-19 pandemic.  The Velocity group also reached an important milestone by securing the renewal of its first ever contract for Velocity for Business, a white-label product designed for its enterprise clients.  In many ways, the COVID-19 pandemic is an accelerant of existing megatrends, including the advancement of mobile commerce, from which the Velocity group, with an asset-light business model that is capable of quickly tailoring its product offerings to meet customer needs under changing market conditions, is well positioned to benefit.  This offers the potential for the Velocity group to continue to grow once the negative impact from the health crisis subsides.  In fact, Velocity was ranked by Beauhurst Limited, a financial market analytics firm, as the third fastest growing company in the United Kingdom in 2019. 

Oasis Education Group Limited ("Oasis Group") - Oasis Group is a 50% joint venture of the Group. The operating subsidiary of Oasis Group, Oasis Education Consulting (Shenzhen) Company Limited (奧偉詩教育諮詢(深圳)有限公司), provides consulting and support services to the Huizhou Kindergarten, which is located in the Guangdong Province in China.  The operations of the Huizhou Kindergarten were adversely affected by the COVID-19 pandemic.  Owing to the social restraining order that was imposed and the fear of spreading the disease among the pupils, classes were suspended for more than three months during the early part of 2020.  Various measures have consequently been taken to reduce operating costs and staff expenses. On a brighter note, the Huizhou Kindergarten, which graduated 69 pupils in the summer of 2020, has successfully enrolled 103 new pupils for the academic term commencing in September 2020, bringing its total pupil enrolment to 237.

Beijing ByteDance Technology Co. Ltd. ("ByteDance") through the Unicorn Equity Investment Portfolio Class D Shares of the Homaer Asset Management Master Fund SPC-Headquartered in Beijing, China, ByteDance is an unlisted technology group operating machine learning-enabled content platforms across cultures and geographies. The ByteDance group has a portfolio of mobile applications that is available in over 150 markets and 75 languages and that includes Douyin, Toutiao, TikTok, Xigua Video, Helo, Lark and Babe.  On the back of a surge in mobile application downloads and installs following lockdown restrictions imposed in the wake of the COVID-19 pandemic, the platforms of the ByteDance group have enjoyed a substantial boost in usage.  However, in its quest for global expansion, ByteDance faces a major challenge in navigating the geopolitical landscape under rising nationalist sentiment.  With a simmering Himalayan border dispute between China and India, the Indian Government has recently banned over 200 Chinese mobile applications, including TikTok.  TikTok, the highly popular short-form video-sharing product of the ByteDance group which has consistently topped the mobile application download list and which has caught significant attention in the international arena, has also been accused of posing national security threat to the United States.  In response to the executive orders from the Trump Administration in connection with its interest in TikTok, ByteDance is proposing to team up with two American firms, Oracle Corporation and Walmart Inc., in a deal that would involve the setting up of a new entity to be responsible for running most of the TikTok business of the ByteDance group.  The proposed deal will be subject to the approval by the United States Government and the Chinese Government and the final outcome accordingly remains uncertain.  Given the unfavourable and inimical geopolitical climate that prevails, ByteDance may have to revise and modify the expansion strategy and approach it has adopted in advancing its global ambition.  Meantime, the enormous domestic market in China will continue to provide excellent opportunities for the ByteDance group to pursue growth.

PROSPECTS

The lockdown restrictions imposed under the COVID-19 pandemic have evidently altered the behaviours and habits of the mobile application users.  They are spending more time and placing more reliance on their mobile devices for work, information, socialising, entertainment, accessing services and making purchases.  This is likely to have a lasting effect on the mobile application economy which would be beneficial for the development of the Velocity group and the ByteDance group.  In the near term, however, apart from the continued contribution of a stable stream of monthly dividends from the ICBC Ship Fund, the other investments of the Group are not expected to contribute to the Group's results in any meaningful way, except for any positive or negative fair value change that may be recognised under IFRS 9. 

By order of the Board

Alastair GUNN-FORBES

Non-Executive Chairman

25 September 2020

PRINCIPAL RISKS AND UNCERTAINTIES

The Group is exposed to a number of principal risks and uncertainties that could materially and adversely affect its performance for the remaining six months of the year ending 31 December 2020 and beyond. Such risks and uncertainties, the directors believe, remain basically unchanged from those, including, in particular, target market risk, operational risks and financial risks, set out on pages 11 and 12 of the Company's 2019 Annual Report.

RESPONSIBILITY STATEMENT

The Board, comprising Alastair GUNN-FORBES, Henry Ying Chew CHEONG, Ernest Chiu Shun SHE, Mark Chung FONG, Martyn Stuart WELLS and Stephen Lister d'Anyers WILLIS, confirms to the best of its knowledge and understanding that:

(a)     the unaudited consolidated financial statements of the Group for the six months ended 30 June 2020 have been prepared in accordance with International Accounting Standard 34 as adopted by the European Union and give a true and fair view of its assets, liabilities and financial position at that date and its net loss for the period then ended; and

(b)     the Interim Report includes a fair review of the information, such as important events and related party transactions that took place during the six months ended 30 June 2020, that is required by Disclosure Guidance and Transparency Rules 4.2.7R and 4.2.8R.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2020                                              

The accompanying notes form an integral part of these interim financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2020                                                        

The accompanying notes form an integral part of these interim financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2020                                                

The accompanying notes form an integral part of these interim financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2020                                                

The accompanying notes form an integral part of these interim financial statements.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2020                              

1.   GENERAL INFORMATION

The Company is an exempted company incorporated in Bermuda and has a premium listing on the Main Market of the London Stock Exchange. The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information in the Interim Report.

2.   BASIS OF PREPARATION

This unaudited consolidated financial statements of the Company and its subsidiaries (the "Group") for the six months ended 30 June 2020 (the "Interim Financial Statements") have been prepared in accordance with International Accounting Standard 34 ("IAS 34") issued by the International Accounting Standards Board ("IASB") as adopted by the European Union.

The Interim Financial Statements do not include all of the information required in annual financial statements in accordance with International Financial Reporting Standards ("IFRS"), International Accounting Standards ("IAS"), Interpretations adopted by the European Union ("EU"), Interpretations adopted by the International Financial Reporting Interpretations Committee ("IFRIC") and Interpretations adopted by the Standing Interpretations Committee ("SIC") (collectively referred to as the "IFRSs"), and should be read in conjunction with the annual financial statements of the Group for the year ended 31 December 2019. The Interim Financial Statements are neither audited nor reviewed by the Group's auditor.

Save as described in note 3 "Adoption of new and revised IFRSs", which are effective for the Group's financial year beginning on 1 January 2020, the accounting policies adopted in the Interim Financial Statements are consistent with those used in the preparation of the Group's annual financial statements for the year ended 31 December 2019.

The Interim Financial Statements have been prepared on a going concern basis using the historical cost conversion except for certain financial instruments, which are stated at fair value, as appropriate.

The preparation of the Interim Financial Statements in conformity with IAS 34 as adopted by the European Union requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

3.     ADOPTION OF NEW AND REVISED IFRSs

The Group has applied the same accounting policies in the Interim Financial Statements as in its 2019 annual consolidated financial statements, except that it has adopted the following amendments to IFRS:

The application of the above revised IFRS in the current interim period had no material effect on the amounts reported in the Interim Financial Statements and/or disclosures set out in the Interim Financial Statements.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2020                              

4.   REVENUE

The Group's revenue represents dividend income from financial assets at fair value through profit or loss and interest income from other financial assets at amortised cost for the periods ended 30 June 2020 and 2019. An analysis of the Group's revenue from principal activities is as follows:

5.   OTHER INCOME, GAINS AND LOSSES, NET

6.   BUSINESS AND GEOGRAPHICAL SEGMENTS

No business and geographical segment analyses are presented for the periods ended 30 June 2020 and 2019 as the major operations and revenue of the Group arose from Hong Kong. The Board considers that most of the non-current assets (other than the financial instruments) of the Group were located in Hong Kong.

7.   STAFF COSTS

NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2020                              

7.   STAFF COSTS (CONTINUED)

8.   FINANCE COSTS

9.   INCOME TAX EXPENSE

No provision for taxation had been made as the Group did not generate any assessable profits for United Kingdom Corporation Tax, Hong Kong Profits Tax or tax in other jurisdictions.

10. LOSS PER SHARE

Diluted loss per share was the same as basic loss per share for the six months ended 30 June 2020 and 2019 as the impact of the potential dilutive ordinary shares outstanding had an anti-dilutive effect on the basic loss per share presented for the six months ended 30 June 2020 and 2019.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2020                              

11. SHARE CAPITAL

12. RELATED PARTY TRANSACTIONS

Other than the compensation of key management personnel disclosed below, the Group did not have any related party transactions during the six months ended 30 June 2020 and 2019.

Compensation of key management personnel

The remuneration of directors is set out in note 7 to the Interim Financial Statements.

13.  SHARE-BASED PAYMENTS

The Company operates an equity-settled share-based remuneration scheme for the employees and directors.

On 29 May 2019, the Company granted to certain eligible persons a total of 2,050,000 share options to subscribe for ordinary shares of US$0.001 each in the share capital of the Company under the Worldsec Employee Share Option Scheme 1997 (the "Scheme") which was revised on 24 September 2014. The share options vested six months from the date of grant and were then exercisable within a period of 10 years.

The fair value of the share options granted under the Scheme during the period ended 30 June 2019 was determined at the grant date to be US$77,000.

The share-based payment expenses of US$13,000 were charged to the profit or loss account of the Group during the period ended 30 June 2019.

No share option was exercised, expired or lapsed under the Scheme during the period ended 30 June 2019.

For the period ended 30 June 2020, no share option was granted, exercised, expired or lapsed under the Scheme.

14.  CONTINGENT LIABILITIES

The Group had no material contingent liabilities at 30 June 2020 (31 December 2019: nil).

15.  INTERIM REPORT

The Interim Report was approved and authorised for issue by the Board on 25 September 2020.

CORPORATE INFORMATION

Board of Directors

Non-Executive Chairman

Alastair GUNN-FORBES*

Executive Directors

Henry Ying Chew CHEONG (Deputy Chairman)

Ernest Chiu Shun SHE

Non-Executive Directors

Mark Chung FONG*

Martyn Stuart WELLS*

Stephen Lister d'Anyers WILLIS*

* independent

Company Secretary

Vistra Company Secretaries Limited

First Floor, Templeback, 10 Temple Back, Bristol BS1 6FL, United Kingdom

Assistant Company Secretary

Ocorian Services (Bermuda) Limited

Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 10, Bermuda

Registered Office Address

Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 10, Bermuda

Registration Number

EC21466 Bermuda

Principal Banker

The Hongkong and Shanghai Banking Corporation Limited

1 Queen's Road, Central, Hong Kong

External Auditor

BDO Limited

25^th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong

Principal Share Registrar and Transfer Office

Ocorian Management (Bermuda) Limited

Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 10, Bermuda

International Branch Registrar

Link Market Services (Jersey) Limited

12 Castle Street, St Helier, Jersey, JE2 3RT, Channel Islands

United Kingdom Transfer Agent

Link Asset Services

The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, United Kingdom

Investor Relations

For further information about Worldsec Limited, please contact:

Henry Ying Chew CHEONG

Executive Director

Worldsec Group

Unit 607, 6th Floor, FWD Financial Centre, 308 Des Voeux Road Street, Central, Sheung Wan, Hong Kong

enquiry@worldsec.com

Company's Website

http://www.worldsec.com