RESULTS
The Board of Directors of Guoco Group Limited ("the Company") is pleased to announce its audited consolidated net profit after taxation and minority interests for the financial year ended 30th June, 2001 together with comparative figures for the previous year as follows:
Consolidated Profit and Loss Account
2001 2000 change
Note HK$'000 HK$'000 %
(Restated)
Turnover
Continuing operations 1,882,439 1,348,614
Discontinued operations 2 10,019,738 9,521,408
---------- ----------
3 & 4 11,902,177 10,870,022 9
Cost of property sales (1,193,260) (713,670)
Interest expenses of discontinued
operations (5,895,035) (5,572,902)
Other attributable costs (234,757) (158,584)
---------- ----------
4,579,125 4,424,866
Other revenue 16,590 17,774
Other net income / (loss) 5 131,090 (55,816)
Administrative expenses (2,022,124) (1,824,942)
Other operating expenses (26,660) (43,405)
Provisions for bad and doubtful
loans and advances for
discontinued operations (507,085) (365,913)
---------- ----------
Operating profit before
finance cost 2,170,936 2,152,564
Finance cost for
non-banking operations (446,887) (399,301)
Operating profit
Continuing operations (64,590) (209,457)
Discontinued operations 1,788,639 1,962,720
---------- ----------
3 1,724,049 1,753,263
Profit on disposal of subsidiaries 22,630,070 --
(Provision) / write back for
investments in subsidiaries,
associates and jointly controlled
entities (2,538,702) 14,546
Provision for diminution in value of
properties (51,010) (64,282)
Net profit on disposal of investment
properties -- 246,494
Loss on deemed disposal of
a subsidiary's property portfolio -- (296,938)
---------- ----------
Operating profit on ordinary activities 21,764,407 1,653,083 1,216
Share of profits less losses of
associates 39,888 (2,939)
Share of profits less losses of
jointly controlled entities 49,794 29,802
---------- ----------
Profit from ordinary activities
before taxation 6 21,854,089 1,679,946
Taxation 7 (375,730) (386,384)
---------- ----------
Profit after taxation 21,478,359 1,293,562
Minority interests (214,220) (604,900)
---------- ----------
Profit attributable to shareholders 21,264,139 688,662 2,988
Appropriations:
2000 Final dividend paid 8 (234,647) (213,316)
2001 Interim dividend paid 8 (85,326) (63,995)
---------- ----------
Retained profit for the year 20,944,166 411,351
========== ==========
Retained in:
The Company and its subsidiaries 20,958,518 480,841
Associates (55,292) (93,983)
Jointly controlled entities 40,940 24,493
---------- ----------
20,944,166 411,351
========== ==========
Earnings per share
Basic 9 HK$ 49.83 HK$ 1.61 2,995
========== ==========
Diluted 9 HK$ 49.60 HK$ 1.58
========== ==========
HK$'000 HK$'000
Proposed final dividend 8 256,255 234,647
========== ==========
Notes:
1. Change of accounting policies
(a) Proposed dividends which were subject to shareholders' approval were previously treated as post balance sheet adjusting events, thus were accrued as a liability in the Group's and Company's balance sheets at the balance sheet date and as income in the Company's profit and loss account for dividends by subsidiaries. On adoption of Statements of Standard Accounting Practice ("SSAP") 9, a proposed dividend is not so accrued until shareholders' approval is obtained. This change in accounting policy has been applied retrospectively. As a result, the Group's retained profit for the years ended 30th June, 2000 and 2001 increased by HK$20.3 million and HK$21.8 million respectively. The Company's retained profit for the years ended 30th June, 2000 and 2001 decreased by HK$131 million and increased by HK$523.4 million respectively. The proposed final dividend of HK$234.8 million appearing in the Group's and Company's balance sheets and the final dividend receivable of HK$501.5 million appearing in the Company's balance sheet as at 30th June, 2000 were reclassified as items in shareholders' funds. Prior year adjustments on the opening balances of retained earnings of the Group and Company were put through accordingly.
(b) Goodwill arising on acquisition of subsidiaries and associates was previously eliminated against capital and other reserves. Subsequent to the adoption of SSAP 30, goodwill is capitalised and amortised on a straight line basis over its estimated useful life not exceeding 20 years. Any impairment loss identified will be recognised as an expense in the profit and loss account immediately.
The requirements of SSAP 30 are applied retrospectively. Goodwill previously eliminated against capital and other reserves is restated, resulting in additional amortisation of goodwill of HK$64 million and HK$25.7 million for the years ended 30th June, 2000 and 2001 respectively. The opening balances of retained earnings brought forward as at 1st July, 2000 and 2001 are reduced by HK$646.6 million and HK$710.6 million respectively, representing amortisation of goodwill which should have been made if the goodwill previously eliminated against capital and other reserves were instead capitalised on the date of acquisition and amortised on a straight line basis over its estimated useful life.
2. Discontinued operations
On 29th June, 2001, the Group disposed of its entire interest in a 71.2% subsidiary group, Dao Heng Bank Group Limited ("DHBG"). As a result of the disposal, the Group received approximately HK$21,429 million in cash and a 20% interest in DBS Diamond Holdings Limited ("DBS Diamond") which is subject to a put and call option for a cash consideration approximately of HK$10,782 million. The option is exercisable within seven days following 31st December, 2002. The investment in DBS Diamond is stated in the accounts at the fair value reflecting the future receipt of the option proceeds due in January 2003. The principal activities of DHBG and its subsidiaries are the provision of banking and related financial services. As a result of this disposal, the Group's business related to the provision of banking and related financial services in relation to DHBG was discontinued. The results of the activities and operations carried by DHBG and its subsidiaries have been included in the Group's consolidated profit and loss account for the year ended 30th June, 2001 up to the date of disposal of 29th June, 2001 and together with the comparative figures have been separately disclosed as results from discontinued operations. The assets and liabilities of DHBG and its subsidiaries at 29th June, 2001, and the related reserves were accounted for in the profit and loss account in determining the net gain on disposal of approximately HK$22,630 million.
3. Segmental information
The analysis of the principal activities and geographical locations of operations of the Company and its subsidiaries during the financial year are as follows:
By principal activities:
Group turnover Operating profit/(loss)
2001 2000 2001 2000
HK$'000 HK$'000 HK$'000 HK$'000
(Restated)
Property development
and investment 1,393,449 880,073 158,772 150,851
Treasury and
investment management 226,903 179,086 195,352 (87,575)
Insurance 170,019 162,934 20,217 51,458
Stockbroking 92,068 126,521 7,956 75,110
---------- ---------- --------- ---------
1,882,439 1,348,614 382,297 189,844
Less: Finance cost for
non-banking
operations (446,887) (399,301)
--------- ---------
(64,590) (209,457)
Banking and financing
(discontinued
operations) 10,019,738 9,521,408 1,788,639 1,962,720
---------- ---------- --------- ---------
11,902,177 10,870,022 1,724,049 1,753,263
========== ========== ========= =========
By geographical location of operations:
Group turnover Operating profit/(loss)
2001 2000 2001 2000
Hong Kong 83% 87% 91% 99%
Asia (excluding Hong Kong) 15% 11% 8% --
Others 2% 2% 1% 1%
---------- ---------- --------- ---------
100% 100% 100% 100%
========== ========== ========= =========
4. Turnover
2001 2000
HK$'000 HK$'000
Continuing operations
Income from sale of properties 1,235,278 730,298
Gross insurance premiums 170,019 162,934
Rental income from properties 158,171 149,775
Securities commission, brokerage and other income 126,060 144,817
Income from sale of investments in securities 88,184 88,861
Interest income from non-banking operations 56,174 59,160
Dividend income from listed securities 48,553 12,769
---------- ----------
1,882,439 1,348,614
.......... ..........
Discontinued operations
Interest income from banking operations 8,860,461 8,640,290
Other income from banking operations 1,159,277 881,118
---------- ----------
10,019,738 9,521,408
.......... ..........
---------- ----------
11,902,177 10,870,022
========== ==========
5. Other net income / (loss)
2001 2000
HK$'000 HK$'000
Net profits from dealing investments 1,146 1,863
Net realised gains on investment securities -- 17,891
Provision on held-to-maturity securities and
investment securities -- (9,129)
Net realised gains on other investments 10,647 86,257
Net unrealised gains / (losses) on
other investments 143,632 (77,760)
Gains / (losses) on foreign exchange dealing 11,653 (6,790)
Net profit / (loss) on disposal of fixed assets 15,771 (33,887)
Net exchange (losses) / gains (6,614) 6,486
Others (45,145) (40,747)
-------- --------
131,090 (55,816)
======== ========
6. Profit from ordinary activities before taxation
2001 2000
HK$'000 HK$'000
(Restated)
Profit from ordinary activities before taxation
of the Group is arrived at after charging:
Staff costs (including retirement scheme
contributions of HK$21,286,000
(2000: HK$61,031,000)) 1,081,428 1,072,630
Depreciation 254,904 192,175
Amortisation of goodwill 25,427 63,806
Auditors' remuneration 7,012 7,710
Operating lease charges
- properties 65,541 48,472
- others 140 164
Donations 1,466 1,255
========= =========
and crediting:
Gross rental income from investment properties 158,171 149,775
Less: direct outgoings (10,171) (7,421)
--------- ---------
Net rental income 148,000 142,354
========= =========
Share of profits less losses of associates:
Listed 217,371 110,548
Unlisted (177,483) (113,487)
--------- ---------
39,888 (2,939)
========= =========
7. Taxation
2001 2000
HK$'000 HK$'000
Hong Kong Profits Tax 188,918 269,911
Overseas taxation 43,757 58,170
Deferred taxation 39,022 (38,050)
-------- --------
271,697 290,031
Share of associates' taxation 95,180 91,044
Share of jointly controlled entities' taxation 8,853 5,309
-------- --------
375,730 386,384
======== ========
Provision for Hong Kong Profits Tax is based on the estimated assessable profits for the year at the rate of 16% (2000: 16%). Taxation for overseas subsidiaries is charged at the appropriate rates of taxation ruling in the countries in which they operate.
Deferred taxation is provided using the liability method in respect of the taxation effect arising from all material timing differences between the accounting and tax treatment of income and expenditure, which are expected with reasonable probability to crystallize in the foreseeable future.
Future deferred tax benefits are not recognised unless their realisation is assured beyond reasonable doubt.
8. Dividends
2001 2000
HK$'000 HK$'000
2000: Final dividend paid of HK$0.55 per share
(1999: HK$0.50 per share) 234,647 213,316
2001: Interim dividend paid of HK$0.20 per share
(2000: HK$0.15 per share) 85,326 63,995
-------- --------
319,973 277,311
======== ========
2001: Proposed final dividend of HK$0.60 per share
(2000: HK$0.55 per share) 256,255 234,647
======== ========
The proposed final dividend for the year ended 30th June, 2001 of HK$256,255,000 is calculated based on 427,091,086 ordinary shares in issue as at 30th June, 2001.
Under the share repurchase program that was announced on 8th September, 2001, all successfully tendered shares will not receive any final dividend to be declared for the financial year ended 30th June, 2001.
9. Earnings per share
(a) Basic earnings per share
The calculation of basic earnings per share is based on the profit attributable to shareholders of HK$21,264,139,000 (2000 as restated: HK$688,662,000) and the weighted average number of 426,711,908 ordinary shares (2000: 426,631,086 ordinary shares) in issue during the year.
(b) Diluted earnings per share
The calculation of diluted earnings per share is based on the profit attributable to shareholders of HK$21,262,041,000 (2000 as restated: HK$676,205,000) and the weighted average number of 428,679,403 ordinary shares (2000: 426,631,086 ordinary shares) in issue during the year after adjusting for the effect of all dilutive potential ordinary share.
(c) Reconciliations
2001 2000
Number of shares Number of shares
Weighted average number of ordinary shares
used in calculating basic earnings
per share 426,711,908 426,631,086
Deemed issue of ordinary shares under
share option scheme 1,967,495 --
----------- -----------
Weighted average number of ordinary shares
used in calculating diluted earnings
per share 428,679,403 426,631,086
=========== ===========
10. Hong Kong dollar amounts
The accounts of the Company are maintained in United States dollars. The accounting figures shown above have been translated from United States dollars into Hong Kong dollar equivalents at the rates ruling at the respective financial year ends for presentation purposes only (2001: US$1=HK$7.79975; 2000: US$1=HK$7.7955).
DIVIDENDS
The Directors are recommending to the shareholders, for approval at the forthcoming Annual General Meeting, payment of a final dividend of HK$0.60 (2000: HK$0.55) per share amounting to HK$256 million for the financial year ended 30th June, 2001 (2000: HK$235 million). Together with the interim dividend of HK$0.20 (2000: HK$0.15) per share totalling HK$85 million (2000: HK$64 million) paid on 17th April, 2001, the total distribution of the year will amount to HK$0.80 per share totalling HK$341 million (2000: HK$0.70 per share totalling HK$299 million). The final dividend will be payable on 30th November, 2001 to the shareholders whose names appear on the Register of Members on 29th November, 2001.
FINANCIAL RESULTS
The Group has reported consolidated profit attributable to shareholders of HK$21.3 billion, about 30 times increase over the previous year. Basic earnings per share grew approximately 30 times to HK$49.83 per share. Consolidated shareholders' funds have also expanded to HK$32.1 billion, representing an increase of 176% over the previous financial year.
REVIEW OF OPERATIONS
Dao Heng Bank Group Limited ("DHBG") - 20% effective holding by the Group
The profit attributable to shareholders is HK$1,641 million, a decrease of 5.2% from the previous year.
After completion of the disposal, the consolidated net assets value of the Group has increased by approximately HK$20.8 billion, after taking into account the profit arising from the disposal of approximately HK$22.6 billion and release of certain reserves (as a result of the disposal) of approximately HK$1.8 billion.
First Capital Corporation Ltd ("FCC") - 54.39% owned by the Group
For the financial year ended 30th June, 2001, FCC's turnover increased by 10% to S$241.4 million, mainly due to recognition of turnover from units sold in Aquarius By The Park, Sanctuary Green and The Gardens at Bishan. The recognition of turnover is based on the percentage of completion method, which takes into account revenue attributable, at each stage of the development activities, to units actually sold. Turnover at the company level increased slightly by 4% to S$118.2 million primarily due to higher interest income. On the other hand, FCC incurred a higher interest expense of S$53.1 million, mainly due to investment activities.
In the light of prevailing weak market conditions, FCC made provisions for foreseeable losses on development projects. The rapid slowdown in the global economy has also affected FCC's investment in an associated company. These provisions (which were not anticipated at the time when the interim results were announced), together with share of losses in the associated company and higher financing costs, resulted in FCC reporting an operating loss after tax of S$22.3 million against an operating profit after tax of S$55.1 million in the previous year.
FCC has also accounted for its share of losses in the associated company whose underlying asset is KLSE-listed Camerlin Group Berhad. FCC was however able to recognize a profit of S$31.8 million from its other associated companies, including those in London and China.
At the end of the financial year, FCC has 0.9 million sq ft of landbank which has been launched but not sold. This is equivalent to 744 residential units. FCC did not acquire any development sites during the financial year. FCC's landbank which has not been launched is approximately 1.4 million sq ft and this is capable of producing 1,125 residential units. In total, therefore the unsold units of launched and unlaunched developments amount to 1,869 residential units.
FCC had undertaken an independent valuation of its investment properties as at 30th June, 2001 and an amount of S$37.9 million was written down in its revaluation reserves. After the write-down, FCC has a surplus of S$196.2 million in its revaluation reserves.
imGO Limited ("imGO") - 17.61% owned by the Group and 6.64% by FCC
imGO reported a consolidated net profit after taxation of HK$23 million.
imGO has invested in January 2001 in iSilk which is a visionary developer of Natural Language Processing (NLP) and Artificial Intelligence software applications for wireless and other internet platforms. According to the terms of the deal, imGO has rights to invest up to US$7.3 million.
imGO has also invested US$4 million in May 2001 in InfoTalk which specializes in developing multilingual conversational speech recognition technology and natural language technology.
As previously reported, imGO has the option ("Put Option") during the period from 30th May, 2001 to 29th November, 2001 to require the Company to purchase all (but not part) of imGO's interest in the shares in each of the property owning companies at an aggregate consideration of about HK$606.7 million. The properties subject to this Put Option are located at The Center, Wu Chung House and Overseas Trust Bank Building in Hong Kong.
Guoco Properties Limited ("GPL") - 55% owned by the Group and 45% by FCC
GPL has a 75% interest in Corporate Square, a 17-storey office development in Beijing.
Approximately 53% of the office space in Corporate Square were sold and about 47% of the office areas had been leased out.
Management of GPL continues to actively market the remaining office space for sale at prevailing market prices. We are also exploring possible property development opportunities in Shanghai.
Guoco Holdings (Philippines), Inc. ("GHPI") - 36.61% owned by the Group
GHPI reported a consolidated net loss of approximately Peso 1.82 billion during the financial year. GHPI remained in a restructuring mode and continued to be affected by high debt service cost. As such it is continuing with the extensive cost control and rightsizing programs for its operating subsidiaries as well as the divesting of non-core assets.
Benefits to Pepsi Cola Products Philippines Inc. ("PCPPI") from a series of nationwide selling price increases between November 2000 and January 2001 were negated by higher sugar prices and higher concentrate prices due to weak Peso. PCPPI will continue to focus on stringent cost reduction and productivity improvement measures.
In view of the continued difficult operating environment and uncertain economic outlook in the Philippines, the Group has undertaken a thorough and critical evaluation of our Philippine operations and is actively taking measures to minimise any further exposure.
Hong Leong Credit Berhad ("HLC") - 21.56% owned by the Group
HLC achieved a profit before taxation of RM575.5 million for the year ended 30th June, 2001, a decrease of RM104.4 million or 15% over the previous year which recorded RM679.9 million. Except for stockbroking, all other divisions in HLC reported profits for the financial year.
The banking division, including the results of its merger with Wah Tat Bank Berhad and Credit Corporation (Malaysia) Berhad, reported a growth in a profit before taxation of RM8.3 million to RM603.5 million for the financial year ended 30th June, 2001. Higher net interest income earned during the year was the main contributor to higher profit before taxation together with the active management of its interest rate exposure.
The insurance division achieved a profit before taxation of RM27.8 million and a combined gross premium income of RM1,161.2 million for the financial year ended 30th June, 2001, an increase of RM461.7 million or 66% over the previous year which recorded RM699.5 million.
The stockbroking division suffered a loss before taxation of RM28.3 million for the financial year ended 30th June, 2001 from a profit of RM65.3 million for the previous year. The loss is substantially due to the low KLSE trading volume following the bearish market sentiment and reduced commission rates effective in September 2000.
The property division recorded a profit before taxation of RM11.4 million for the financial year ended 30th June, 2001 compared to a loss of RM86.3 million for the previous year. Its performance continued to be affected by the soft property market which resulted in a slowdown of the sales launches and construction activities.
Other Financial Services
Dao Heng Securities Limited ("DHS")
For the year ended 30th June, 2001, DHS continued to earn steady income from its core businesses namely stockbroking, share margin finance and corporate finance.
During the year, DHS has made further progress in technology development and implementation to improve trading efficiency. DHS was one of the thirty two pilot brokers to go live with a complete electronic trading solution on 10th November, 2000 - the third generation of the Automated Matching System (AMS/3). DHS's trading system is now directly interfaced with the stock exchange AMS/3 host system. With this open gateway system, orders can be routed for execution within a split of a second instead of the ten seconds or more it took previously. Features, content and trading platform for DHS Online has been continuously improved.
DHS has successfully registered its Electronic Initial Public Offer service to provide clients the convenience of IPO application via Internet. DHS's website has been rated joint second by the Asia Banker Journal in January 2001. DHS has started forming strategic alliance with its overseas counterparts in order to enlarge it customer base. DHS corporate finance has kept pace with the market and has completed several financial advisor assignments and is engaged in a number of IPO issues.
Dao Heng Insurance Co., Limited ("DHI")
The Hong Kong non-life insurance market was operating under competitive environment. In the financial year 2000/2001, DHI's underwriting result was eroded by the increase in marketing expenses which however, had proven to be effective in the form of increasing sales. In fact, Direct Club membership has surpassed 100,000 in June 2001.
In the forthcoming financial years, we shall focus on "up-sell" programme to capitalize on the opportunities of this data base. DHI, DHS and Dao Heng Fund Management Limited ("DHFM") are working on an all year round marketing and sales campaign to up-sell higher value financial products to the Direct Club members.
The property market in Hong Kong is expected to remain sluggish in the next few years, DHI's major source of income will shift from fire insurance to personal line insurance which is expected to account for 43% of the company total production in three years.
DHI will also explore business opportunities in the commercial banking areas. Profitable line of business such as Marine Cargo will be focused for development.
Dao Heng Fund Management Limited
DHFM has successfully launched the "Dao Heng Investment Fund Services" which features third party funds offering to compliment the Dao Heng Unit Trusts. The two flagship funds of DHFM namely Dao Heng Hong Kong Fund and Dao Heng China Fund, were well-received by investors, in particular, the Dao Heng Hong Kong Fund sales represented over 20% of total sales in Hong Kong in its sector. Aggressive promotion of the "Dao Heng Monthly Savings Plan" was successful and resulted in over 4,000 new accounts.
During the year under review, DHFM has actively participated in launching Mandatory Provident Fund Scheme ("MPF") and become one of the top ten MPF service providers. In the second half of the financial year, emphasis was placed in the enrolment process, and in providing quality services to both employers and employees. A call centre with Interactive Voice Response System was set up together with Bermuda Trust (Far East) Limited. A customer service team has been put in place to provide on-going services to the employees.
The MPF customer servicing team will continue to work closely with Bermuda Trust (Far East) Limited in providing quality service to both employers and employees in order to retain existing clients and attract more new clients.
New Unit Trust product will be launched to capture the huge potential client base generated from the MPF members. Additional third party fund houses will be included in our distribution list so as to broaden our fund offering range. Emphasis will also be on developing relationship with the Independent Financial Advisors so as to broaden our distribution channel.
DHFM, DHI and DHS will make use of the MPF business as a base to cross sell the Group's financial products and to develop institutional client base together with Friends Ivory & Sime Asia Limited ("FISA"). As at 30th June, 2001, DHFM and FISA together have a total of approximately US$1.7 billion of funds under management.
FINANCIAL COMMENTARY
Turnover
Overall turnover increased by 9.5% mainly due to the increase in property development and investment sectors (an increase of 58.3%). Turnover for the treasury and investment management sectors increased by 26.7% as a result of higher investment gain and dividend income on security investments. Turnover from stockbroking sector decreased by 27.2% while banking and financial sectors and insurance sectors increased by 5.2% and 4.3% respectively.
Borrowing
As at 30th June, 2001, the Group maintained total borrowings of HK$10 billion, of which approximately 63% comprises of unsecured borrowings.
The Group's bank loans, overdrafts and other borrowings were repayable as follows:
Other
Bank loans borrowings Total
HK$'000 HK$'000 HK$'000
On demand or within 1 year 3,407,609 2,045,727 5,453,336
.......... .......... ..........
After 1 year but within 2 years 1,854,593 492,024 2,346,617
After 2 years but within 5 years 2,178,501 470,637 2,649,138
After 5 years -- -- --
---------- ---------- ----------
4,033,094 962,661 4,995,755
.......... .......... ..........
---------- ---------- ----------
7,440,703 3,008,388 10,449,091
========== ========== ==========
The loans are secured by the following:
-- legal mortgages on investment properties with a book value of HK$952 million;
-- legal mortgages on development properties with a book value of HK$5,049 million; and
-- certain equity investments with total carrying value of HK$1,105 million.
As at 30th June, 2001, the Group has net cash balance of HK$12,902 million after netting off the total borrowings of HK$10,449 million.
Contingent Liabilities
As at 30th June, 2001, there were contingent liabilities in respect of guarantees given to bankers by the Company to secure banking facilities to the extent of HK$2,973 million granted to group companies.
As at 30th June, 2001, there were three put option agreements entered into by the Company whereby imGO was granted the right ("Options") to require the Company to purchase all (but not part) of imGO's interest in the shares in each of the property holding companies at an aggregate consideration of about HK$607 million. The Options are exercisable during the period from 30th May, 2001 to 29th November, 2001.
Capital Commitments
As at 30th June, 2001, the Group had outstanding capital commitments as follows:
HK$'000
Authorised and contracted for 24,304
Authorised but not contracted for --
-------
24,304
=======
Capital and finance
The Group's consolidated shareholders' funds as at 30th June, 2001 after adjusted for the major items set out below, amounted to HK$32,110 million, representing a net asset value of HK$75.2 per share. The major adjustments are as follows:
1. Profit on disposal of a subsidiary amounting to HK$22,630 million;
2. Realisation of reserves of HK$1,849.5 million upon disposal of subsidiaries;
3. Net revaluation surplus for investment properties of HK$57 million;
4. Realisation of revaluation surplus of HK$37.8 million upon the disposal of investment properties by an associate;
5. Written back of revaluation reserves of associates amounting to HK$13.8 million;
6. Share of subsidiaries' and associates' capital reserves of HK$47.7 million;
7. Net dilution loss on investments in subsidiaries and associates of HK$175.4 million;
8. Net exchange loss on investment in subsidiaries and associates of HK$1,252.7 million.
TREASURY MANAGEMENT
The Group practices prudent financial management. Appropriate financial instruments, including interest rate and currency swaps will be used to manage our interest rate and foreign currency exposures.
HUMAN RESOURCES AND TRAINING
The Group, including its subsidiaries in Hong Kong and overseas, employed approximately 500 employees as at 30th June, 2001. The Group continued to follow a measured approach towards the size of its workforce and is committed to provide its staff with ongoing development programmes.
The remuneration policy for the Group's employees is reviewed by management on a regular basis. Remuneration packages are structured to take into account the level and composition of pay and general market conditions in the respective countries and businesses in which the Group operates. Bonus and other merit payments are linked to the financial performance of the Group and individual performance as incentives to optimise performance. In addition, share options have been granted to certain eligible directors and employees of the Group in accordance with the terms of the approved share option schemes adopted by the Group.
FUTURE INVESTMENT STRATEGY
The Group's track record of creating substantial value for shareholders through investing in opportunities and actively managing them to their full potential speaks for itself. The Company will continue to operate as an investment holding company and to maintain its listing on the Hong Kong Stock Exchange. With these objectives in mind, the Group will seek to reinvest the majority of the cash proceeds of the DHBG transaction into assets that are consistent with the Board's objective of generating superior returns. In the past, a substantial portion of our investments was committed to the development of DHBG. Going forward, the Group intends to adopt a more active investment style as regards its investments, which should enable it to achieve greater value creation.
For the time being, as we believe asset prices may undergo further adjustment, we have adopted a conservative cash management process so as to conserve funds until appropriate investment opportunities arise. The Group will also take advantage of this window of opportunity to carefully assess a variety of industrial sectors to identify those that will provide superior overall returns for shareholders.
OUTLOOK
The evolution of our investment strategy in a much more active direction may not become immediately apparent. The recent tragic events in America will clearly have far reaching implications, with economic consequences for the entire global community, including the Asian and Greater China communities. Clearly, these unprecedented events have brought forward the timing of the global economic downturn that we had previously anticipated would occur in 2001/2002. Nevertheless, the clouds of uncertainty that now hang over world markets will eventually lift as global events unfold. It is our belief that insightful patience and prudence will ultimately be rewarded with superior investment opportunities. Further, the approval of China's entry into the World Trade Organisation has resulted in China being widely regarded as having one of the best economic outlooks for the foreseeable future. Management will pursue investment opportunities based on established Group disciplines.
SHARE BUY BACK
The Company announced on 8th September, 2001 that a conditional cash offer will be made to repurchase up to 43,000,000 shares, representing approximately 10% of the total issued share capital of the Company, subject to certain conditions. The directors will have the power to increase the maximum number of shares to be repurchased from 43,000,000 up to 107,000,000 shares (representing approximately 25% of the total issued share capital of the Company).
Under the offer, tenders will be invited in the range of HK$46 to HK$51 per share. If fully subscribed, it will result in the Company paying between HK$1,978 million and HK$5,457 million to the accepting shareholders. The offer will be conditional upon approval of the independent shareholders voting at the special general meeting and the Whitewash Waiver being granted by the Securities and Futures Commission.
A circular containing details of the above conditional cash offer will be despatched to shareholders on or about 16th October, 2001.
Pursuant to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited on share buy back and to the Bye-Laws of the Company, the directors intend to seek the shareholders' approval at the forthcoming annual general meeting for the grant of a general and unconditional mandate to exercise all the powers of the Company to repurchase on The Stock Exchange of Hong Kong Limited the issued and fully paid shares in the capital of the Company. Under such mandate, the number of shares that the Company may repurchase shall not exceed 10% of the share capital of the Company in issue on the date of the resolution.
A circular containing an explanatory statement on the general mandates to the directors to repurchase shares and to issue new shares will be despatched to the shareholders as soon as possible.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
During the year, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company's listed securities.
CORPORATE GOVERNANCE
The Company has complied throughout the year with the Code of Best Practice adopted by the Company based on the guidelines set out in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.
A Board Audit Committee has been established on 9th October, 1998 with written terms of reference. The Board Audit Committee comprises Messrs Harry Richard Wilkinson (Chairman), Sat Pal Khattar and Kwek Leng Hai, two of whom are independent non-executive directors. The Board Audit Committee oversees the financial reporting process and the adequacy and effectiveness of the Company's system of internal controls.
The Board Audit Committee meets with the Company's external auditors and the internal auditor, and reviews the audit plans, the internal audit programme, the results of their examination and findings on their evaluation of the system of internal controls. It also reviews interests in contracts and connected transactions. The Board Audit Committee reviews the financial statements of the Company and the consolidated financial statements of the Group and the auditors' report thereon and submits them to the Board of Directors. There were three Board Audit Committee meetings held during the year.
PUBLICATION OF FURTHER INFORMATION ON THE STOCK EXCHANGE'S WEBSITE
All the financial and other related information of the Company required by paragraphs 45(1) to 45(3) of Appendix 16 of the Listing Rules of The Stock Exchange of Hong Kong Limited will be published on the Exchange's website.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members will be closed from 23rd November, 2001 to 29th November, 2001, both days inclusive, during which period no transfer of shares can be effected.
In order to qualify for the above dividend, all share transfers accompanied by the requisite share certificates must be lodged with the Company's Branch Share Registrars in Hong Kong, Central Registration Hong Kong Limited, at Shops 1712-6, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong, for registration not later than 4:00 p.m. on 22nd November, 2001.
By Order of the Board
Doris W. N. Wong
Company Secretary
Hong Kong, 12th October, 2001