UNAUDITED RESULTS
The board of directors (the "Board") of Founder (Hong Kong) Limited (the "Company") is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (together the "Group") for the six months ended 30 June 1998 with comparative figures of the corresponding period in 1997 as follows:
Notes:
1. Taxation
No provision for Hong Kong profits tax has been made as there were no assessable profits arising in Hong Kong during the period.
The Group's subsidiary in the PRC, other than Hong Kong, has been exempted from PRC profits tax for the three fiscal years which commenced in 1995 and ended on 31 December 1997 and, thereafter, are taxable at 50% of its standard tax rate in the fourth to sixth years, inclusive. At present, the standard tax rate applicable to the PRC subsidiary is 15%.
Taxes on assessable profits of overseas subsidiaries have been calculated at the rates of taxation prevailing and based on existing taxation legislation, interpretation and practices in the countries in which the subsidiaries operate.
The Group did not have any significant unprovided deferred taxation in respect of the period.
2. Transfers to general reserve
No transfer from retained earnings was made to the general reserve for the six months ended 30 June 1998. Such appropriation will be made at the year end in accordance with the relevant PRC regulations.
3. Earnings per share
The calculation of earnings per share for the six months ended 30 June 1998 is based on the unaudited profit attributable to shareholders for the period of HK$17,054,000 (Six months ended 30 June 1997: HK$62,275,000) and the weighted average of 794,350,838 shares (Six months ended 30 June 1997: 792,308,115 shares) in issue, adjusted to reflect the bonus issue made during the period. The earnings per share for the comparative figures have been adjusted accordingly.
The diluted earnings per share for both periods are not shown because the outstanding share options are not exercisable until 21 December 1998.
INTERIM DIVIDEND
The Board does not recommend the payment of any interim dividend for the six months ended 30 June 1998.
REVIEW OF OPERATIONS
During the first half of 1998, our business was, to some extent, affected by the Asian economic downturn. Our performance seemed to slow down and deteriorate, but we managed to run a smooth operation and maintain a profitable business under such a difficult financial situation. Within this period, the Group recorded a turnover of HK$975,136,000 and a net profit attributable to shareholders of HK$17,054,000.
Our electronic publishing business garnered a steady growth of 19% with a total sales of HK$404,650,000. Since the local publication market is slightly affected by the economic crisis, Mainland China remains a significant factor for our substantial growth in the publication sector. As for our overseas markets, which include Japan, Malaysia and South Korea, progress was slower than was anticipated.
During this period, the Group recorded a turnover of HK$94,188,000 for the systems integration business, which is just 5% higher than that of the previous year. This is mainly due to the reshuffling of the China government and the decrease in sales orders. Moreover, our business was not focused on the systems integration sector, and, as a result, our performance was greatly affected by the stiff competition and increasing pressure. In addition, the restructuring of our systems integration department in the first half of the year had also resulted in the slow down of our business development. We have learned from experience the importance of focusing on a specialised sector and of enhancing our management skills.
Within this period, the hardware manufacturing business of the Group had also been confronted with stiffer competition from the local market. Even though there was a rise in the delivery of goods and our turnover reached an impressive HK$431,812,000 our overall gross profit was down. In order to concentrate on higher margin software development, the shareholders of the Company had reached a decision to sell the hardware manufacturing business to our parent company and the amount gained from such a split will be used in the development of software and systems integration as well as to increase working capital. As for the distribution of hardware, we had sustained a loss in certain brands of products, hence our business was also affected in the first half of 1998.
PROSPECTS
After a slow-down in our business during the first half of the year, the Company had learned from experience and we pledge to improve our management and operations in order to prepare for our long-term goals for the future.
Firstly, the Group entered into a 50:50 joint venture with Digital Equipment Corporation on 2 June 1998 to enhance our competitiveness in the systems integration sector, which is set to commence operation in the second half of 1998. Our major range of business includes providing network services and systems integration solutions to government offices, enterprises, postal and communications companies, banks and financial institutions etc. We strongly believe that this joint venture will inject modernised management concepts into the Group and we are positive about its future performance. The target turnover for the year 2000 is US$200 million.
Furthermore, the Group has also fully utilised the cutting edge of the Founder Institute of Research in the multimedia and digital video frequency technology. We have set up a digital multimedia institute of research to take hold of the current trends in global technology development and to venture into the digital media sector. The software systems which are completed or under development include the news production management system, information retrieval management system, advertisement management airing system, animation production supplementary system, virtual background system etc. Some of these products have already been selling nationwide for some time and have made a name for themselves. We are confident that these software will become another flagship for the Group. We have also signed new agreements with business associates such as Beijing TV, Nanjing TV, Tianjin People's Radio Station, Beijing Institute of Motion Pictures, etc, in the first half of the year.
As for our publishing system unit, the Company believes that the "Computer-to-Plate" (CTP) technology is the future trend. This technology will replace the current output procedure from the "filming" stage up to the "plate material" stage, and transfer the message directly from the computer onto the plate instead. This will also create a new requirement for the clients of the Group besides system upgrading. In view of this, the Group had signed agreements with several vendors to capture the CTP market, by incorporating the Group's new software and hardware. This technology has already been adopted by some newspapers in the PRC during the first half of the year. Apart from looking for improvement plans and upgrading the business, our management team has also spared greater effort in exploring the overseas market in order to hasten the growth of the Company. Our plan to venture into the Taiwan market is well underway and we are all set to involve ourselves in various programmes, including by means of direct management. In other words, the Group will no longer promote its software through its agents but will provide overall solution plans for our clients, which means meeting the clients and participating in the market activities in person. The Taiwanese market is estimated to have, over ten thousand magazine houses and printing companies and the Group anticipates that our operation in Taiwan will record a turnover of NT200 million next year, after it becomes fully operational in the second half of the year.
DIRECTORS' RIGHTS TO ACQUIRE SHARES
Pursuant to the Company's share option scheme, the Company had granted share options in favour of the following directors to subscribe for ordinary shares in the Company's share capital at an exercise price of HK$1.397 per ordinary share, subject to adjustment, exercisable between 21 December 1998 to 6 December 2005.
Apart from the foregoing, at no time during the six months ended 30 June 1998 was the Company or any of its subsidiaries a party to any arrangement to enable the Company's directors, their respective spouses or children under 18 years of age to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other related body corporate.
DIRECTORS' INTERESTS IN SHARE CAPITAL
As at 30 June 1998, Mr. Cheung Shuen Lung and his wife each had a 50% interest in the share capital of Swan-City International Group Limited which in turn held 29,726,058 shares of the Company. As at the same date, Mr. Cheung Shuen Lung had corporate interests as defined by the Securities (Disclosure of Interests) Ordinance ("SDI Ordinance"), in 29,726,058 shares of the Company.
In addition to the above, Mr. Cheung Shuen Lung has non-beneficial personal equity interests in certain subsidiaries held on trust for the Company solely for the purpose of compliance with the minimum company membership requirement.
Save as disclosed above, as at 30 June 1998, none of the directors or their associates had any other beneficial interests in the share capital of the Company or any of its associated corporations as defined in the SDI Ordinance and recorded in the register required to be maintained pursuant to Section 29 thereof.
SUBSTANTIAL SHAREHOLDERS
As at 30 June 1998, the following interests of 10% or more of the issued share capital of the Company were recorded in the register of interests required to be kept by the Company pursuant to Section 16(1) of the SDI Ordinance:
Note: Peking Founder is wholly-owned by Peking University. The interests disclosed under Peking University represent its deemed interests in the shares of the Company by virtue of its interests in Peking Founder.
YEAR 2000 COMPLIANCE
The Group is aware of the impact of the Year 2000 issue, and thus has developed a detailed plan to resolve the issue. A working committee has been formed and is engaged in a thorough assessment of the Group's internal software and hardware systems.
After a complete assessment, appropriate implementation plans are under developed. The cost involved during the period was not more than HK$1,000,000 and we expect no significant costs will be incurred in the near future. All implementation plans are scheduled to be effectively completed by mid-1999. There was no significant commitments undertaken by the directors at the financial period end date in respect of Year 2000 modification costs. The Group believes that the Year 2000 issue will not pose significant operational problems for its computer systems.
PURCHASE, SALE OR REDEMPTION OF LISTED SHARES
Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company's listed securities during the six months ended 30 June 1998.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
In the opinion of the directors, the Company has complied with the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited during the six months ended 30 June 1998.
By Order of the Board
Cheung Shuen Lung
Executive Director
Hong Kong, 28 September 1998
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