Executive Summary

Crocodile Garments Limited has released its 2025 Annual Report, offering a comprehensive overview of the company’s performance, financial position, and strategic direction. The year was marked by shifting market dynamics, challenging economic conditions in Hong Kong, and significant corporate actions that may influence the company’s share price and investor sentiment.

Key Financial Highlights

• Revenue Decline: Group revenue fell to HK\$92.3 million for the year ended 31 December 2025, a notable decline from HK\$137.6 million in the previous period. This reflects continued challenges in the core garment and property investment segments.
• Substantial Loss: The Group posted a net loss attributable to shareholders of HK\$108 million, more than double the loss of HK\$49.9 million in the prior 17-month period.
• Asset Base: Total assets decreased to HK\$2.12 billion, while total equity fell to HK\$1.37 billion.
• Gearing: The company maintained a stable gearing ratio of 49%, indicating prudent management of financial leverage despite challenging market conditions.

Segment Performance and Notable Business Developments

Property Investment and Letting

• Revenue Impact: The property investment segment faced headwinds from record-high vacancy rates and oversupply in the Hong Kong office market, resulting in a drop in rental income from HK\$77 million in 2024 to HK\$54 million in 2025.
• Key Tenant Departure: The loss of a major tenant at a core property further impacted rental revenue in the second half.
• Revaluation Losses: The Group recorded fair value losses on investment properties of HK\$73 million, compared to HK\$23 million previously. This is a significant non-cash item that has a direct impact on net asset value and could affect investor perception.

Treasury Management

• Profit Growth: Treasury operations generated a profit of HK\$11 million, up slightly from HK\$10 million, driven by a prudent strategy and favorable global market trends.
• Derivative Losses: The Group faced a HK\$10 million net deficit from fair value changes in derivative instruments, mainly due to mark-to-market losses on interest rate swaps.

Garment and Related Accessories Business

• Restructuring and Cost Control: The Group responded to declining domestic retail demand with cost streamlining, network rationalisation, and a focus on efficiency and product innovation to improve gross margins and competitiveness.
• Brand Strategy: Continued investment in reinforcing “Crocodile” as a leading Hong Kong brand through targeted marketing and product development.

Corporate Actions and Capital Management

• Rights Issue: In December 2025, Crocodile Garments completed a rights issue, raising net proceeds of approximately HK\$47 million. The rights issue was structured as one new share for every two held at a price of HK\$1.5 per share, resulting in the issuance of 32,451,736 new shares and an increase in total issued shares to 103,517,513.
  • The bulk of the proceeds (HK\$45.2 million) remains unutilised at year-end and is earmarked for debt repayment and interest payments through December 2026.
• Dividend Policy: No final or interim dividend was declared for the 2025 financial year, reflecting the Group’s cautious stance given ongoing losses and the need to preserve liquidity.
• Public Float and Shareholder Structure: The company maintained the required public float (over 25% of shares held by the public), with 501 shareholders as of March 2026. Significant shareholdings are controlled by Honorman Limited and Rich Promise Limited, with Ms. Lam Wai Shan, Vanessa (Chairman and CEO) having substantial interests via these vehicles.

Risk Factors and Price-Sensitive Issues

• Valuation of Investment Properties: The fair value losses on investment properties, driven by external market conditions, are a significant item that may pressure the Group’s NAV and share price.
• High Customer/Supplier Concentration: Purchases from the Group’s five largest suppliers accounted for 83% of total purchases, exposing the company to supply chain risks.
• Interest Rate Sensitivity: With a material amount of floating-rate debt, a 100 basis point move in rates could impact annual profit/loss by approximately HK\$6.7 million.
• Foreign Exchange Risk: The Group is exposed to RMB, JPY, and EUR fluctuations, although HKD/USD risk is minimal due to the currency peg.
• No Major Acquisitions or Capital Commitments: The Group did not undertake significant investments or acquisitions in 2025, reflecting a conservative approach amidst uncertainty.

Corporate Governance and Compliance

• Board Oversight: The Board and its committees (Audit, Remuneration, Nomination, Executive) have continued to oversee governance, risk, and compliance. The Audit Committee is tasked with risk management and internal controls.
• Audit and Internal Controls: The 2025 audit was conducted by Ernst & Young, with audit and non-audit fees totaling HK\$1.7 million. No material control deficiencies were flagged.
• Related Party Transactions: All related party transactions were below the threshold for connected transaction reporting under Hong Kong listing rules.

Outlook and Guidance

• Recovery Focus: The Group is confident that its garment business will recover alongside market dynamics, supported by cost controls and innovation.
• Property Segment: Management expects the property investment and letting business to provide stable income, but notes ongoing risks related to weak office demand.
• Treasury Management: A cautious approach will continue, with a focus on long-term value and risk mitigation amid global policy and market uncertainties.
• Liquidity and Cash Flow: Post-rights issue, the Group’s cash flows are robust, and the anticipated interest rate reduction cycle could further ease financial pressure.
• No Material Contingent Liabilities or Capital Commitments: The Group reported no material contingent liabilities or forward capital commitments at year-end.

Conclusion: Potentially Price-Sensitive Items for Investors

• The significant net loss and recurring losses may weigh on investor sentiment and the share price, especially in the absence of a dividend.
• Fair value losses on properties (HK\$73 million) could further pressure the company’s net asset value and may be considered price-sensitive.
• The successful rights issue strengthens the capital base but may dilute existing shareholders.
• The ongoing challenging market conditions for Hong Kong commercial property and retail suggest continued uncertainty and risks to recovery.
• No major investments or acquisitions signal a defensive stance, which could be interpreted positively or negatively depending on market sentiment.