Guoco Group Limited
(Incorporated in Bermuda with limited liability)
Announcement of 1998/99 Final Results
RESULTS
The Board of Directors of Guoco Group Limited ("the Company" or "the Group") is pleased to announce its audited consolidated net profit after taxation and minority interests for the financial year ended 30th June, 1999 together with comparative figures for the previous year as follows:
1999 1998 Change
Note HK$'000 HK$'000 %
Turnover 1 13,219,649 13,983,323 -5.46
========== ==========
Operating profit 1,630,672 1,816,466 -10.23
Exceptional items 2 (610,027) (776,129)
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Operating profit on
ordinary activities 1,020,645 1,040,337 -1.89
Share of (losses)/profits
of associated companies (104,517) 122,302
Share of profits of jointly
controlled entities 8,363 7,020
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Profit before taxation 924,491 1,169,659
Taxation 3 (349,584) (465,336)
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Profit after taxation 574,907 704,323
Minority interests 37,376 (321,175)
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Profit attributable to
shareholders 612,283 383,148 59.80
Appropriations:
Dividends 4 (255,979) (298,642)
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Retained profit for
the year 356,304 84,506
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Retained in:
Company and subsidiaries 452,559 64,678
Associated companies (104,424) 12,808
Jointly controlled entities 8,169 7,020
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356,304 84,506
========== ==========
Earnings per share 5 HK$1.44 HK$0.90
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Notes:
1. Group turnover for the year includes reinsurance, brokerage, underwriting and other commission, interest income, insurance premiums earned, dividend income, rental income and net investment income, property disposal income. It also includes net interest income, commission, fees and other revenues earned from banking.
2. Exceptional items
1999 1998
HK$'000 HK$'000
Provision for diminution in value of
development properties (1,307,302) (494,145)
Provision for investment in
associated companies (232,958) (4,998)
Provision for investment in jointly
controlled entities (141,458) (96,004)
Loss on disposal of properties (100,343) --
Net loss on disposal of investments
securities excluding banking operations (42,434) --
Net profit on disposal of
associated companies 1,214,468 --
Exchange loss on foreign currency
monetary assets and liabilities
excluding banking operation -- (180,982)
--------- ---------
(610,027) (776,129)
========= =========
3. Taxation
Provision for Hong Kong profits tax is based on the estimated assessable profits for the year at the rate of 16% (1998: 16%). Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the countries in which they operate.
The taxation charge is made up as follows:
1999 1998
HK$'000 HK$'000
Hong Kong profits tax 203,565 185,739
Overseas taxation 219,413 117,452
Deferred taxation (73,495) 52,651
-------- --------
349,483 355,842
Share of associated companies' taxation (93) 109,494
Share of jointly controlled entity's taxation 194 --
-------- --------
349,584 465,336
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4. Dividends
1999 1998
HK$'000 HK$'000
Interim dividend of HK$0.10 per share
(1998: HK$0.20 per share) 42,663 85,326
Final dividend of HK$0.50 per share
(1998: HK$0.50 per share) 213,316 213,316
-------- --------
255,979 298,642
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5. Earnings per share
The calculation of earnings per share is based on the profit attributable to shareholders of HK$612,283,000 (1998: HK$383,148,000) and on the 426,631,086 shares (1998: 426,631,086 shares) in issue during the year.
6. 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 (1999: US$1=HK$7.7575; 1998: US$1=HK$7.7485).
DIVIDENDS
The Directors are recommending to the shareholders, for approval at the forthcoming Annual General Meeting, payment of a final dividend of HK$0.50 (1998: HK$0.50) per share amounting to HK$213,316,000 for the financial year ended 30th June, 1999 (1998: HK$213,316,000). Together with the interim dividend of HK$0.10 per share totalling HK$42,663,000 paid on 16th April, 1999, the total distribution of the year will amount to HK$0.60 per share totalling HK$255,979,000 (1998: HK$0.70 per share totalling HK$298,642,000). The final dividend will be payable on 15th November, 1999 to the shareholders whose names appear on the Register of Members on 12th November, 1999.
REVIEW OF ACTIVITIES
Dao Heng Bank Group Limited ("DHBG") - 71.59% owned by the Group
The consolidated net profit of DHBG for the 1998/99 fiscal year ended 30th June, 1999, after minority interests, provisions for doubtful loans, depreciation and taxation amounted to HK$1,203,000,000, a decline of 4.1% from the previous fiscal year. Earnings per share were HK$1.74.
To better serve its customers and position DHBG for the rapidly evolving financial services industry, DHBG continues to develop its organizational structure to reflect global best practice. Presently DHBG operates three consumer relationship segments, namely Personal Banking, Premier Banking, and Global Private Banking, which are complemented by two consumer product segments, namely Mortgage Banking and Credit Card.
Personal Banking Division manages DHBG's extensive domestic branch network, as well as a range of offsite ATMs and several high tech automated banking centres. The Premier Banking and Global Private Banking Divisions of DHBG further differentiate their product and service offerings to meet diverse client needs and preferences.
Dao Heng Bank Group is committed to providing its customers with a full range of delivery channel alternatives to facilitate convenient access "anytime, anywhere". DHBG's latest new service, the first of its kind by a bank in Hong Kong, is mobile phone banking and share trading.
A new Mortgage Banking Division has recently been established to enable DHBG to excel in the delivery of its most important consumer loan product. Based on state of the art call centre technology, and an advanced product development and loan fulfilment capability, the Mortgage Banking Division will enable DHBG to be the low cost provider in its marketplace. Dao Heng Card was launched in January 1999 as the successor to DHBG's OTB Card product and is rapidly gaining acceptance as one of the market's most successful brands.
Demand for commercial loans was weak during the past year as Hong Kong's economy was in the midst of a deflationary environment exacerbated by high real interest rates. DHBG is taking advantage of the present slow market to accelerate the restructuring of its Commercial Banking Division to enable it to offer a wide range of business banking products in a more professional, productive and profitable manner. A new Trade Finance and Corporate Services Division is being established to reinvigorate these important products and services for its commercial and corporate clients.
DHBG's treasury related activities under the leadership of its Dao Heng Markets Division achieved outstanding results. DHBG's role as one of the most active market makers in Hong Kong Dollar instruments was affirmed with the successful launch of a new "Dao Heng Government Bonds Master Index", which has rapidly become the benchmark for measuring performance in Hong Kong Government fixed income securities. Another major initiative was the promotion of Dao Heng's new concept to retailize selected institutional instruments in both US and HK Dollars to its premier and private banking customer base. Dao Heng Markets also continues to be one of the largest arrangers and issuers of Hong Kong Dollar denominated instruments.
DHBG's 60% owned subsidiary in the Philippines, Dao Heng Bank, Inc., ("DHBI") completed its third year of operations in January 1999. Although new business activities have been constrained due to the continuing impact of the Asian financial turmoil, DHBI continues to invest in the necessary infrastructure to ensure its ability to take advantage of opportunities that are expected to present themselves once the Philippine economy emerges from the current sluggish business conditions.
First Capital Corporation Ltd ("FCC") - 50.68% owned by the Group
For the year ended 30th June, 1999, FCC's turnover decreased by 25% to S$471.7 million as less development units were launched during the year. The only development project launched for sale was Aquarius By The Park. FCC made an aggregate provision of S$145.8 million on its residential and commercial properties. As a result, FCC recorded an operating loss before interest and tax of S$70.9 million for the year ended 30th June, 1999.
An independent valuation for FCC's investment properties was carried out as at 30th June, 1999. An amount of S$77.8 million was written down in FCC's revaluation reserves. After the write-down, FCC has a surplus of S$218.1 million in its revaluation reserves. During the year, FCC sold almost all of its residential units which had been launched for sale and had acquired additional property interest to build up its landbank in well-located residential areas. FCC has been divesting its interests in non-strategic assets so that financial resources could be reallocated towards FCC's core property business.
Guoco Land Limited ("GLL") - 53.04% owned by the Group and 20% by FCC
GLL recorded an operating loss of HK$6,359,000 for the year under review. GLL has engaged external professional valuers to revalue the three investment properties at O.T.B. Building, Wu Chung House and The Center at their open market value on 30th June, 1999. Provisions for deficits on revaluation totalling HK$434,474,000 were made in the financial statements. Taking into consideration the downturn in the property market, GLL has also during the year made provisions for interest in jointly controlled entities totalling HK$141,455,000 as exceptional items. During the year, GLL has also disposed of its property interests in the car parking spaces at South Horizons and 11th Floor of The Center.
After taking into consideration the above exceptional items, share of loss of an associated company, taxation and minority interests, GLL reported a loss attributable to shareholders of HK$722,896,000. Loss per share was HK$2.85 (1998: HK$0.85).
A conditional sale and purchase agreement was entered into on 27th September, 1999 between Supreme Goal Investments Limited ("SGIL"), a wholly-owned subsidiary of GLL and Dao Heng Bank Limited, a wholly-owned subsidiary of DHBG, in respect of the disposal by SGIL of the 16th, 17th and 18th floors of The Center, for a cash consideration of HK$481,030,000.
Guoco Properties Limited ("GPL") - 55% owned by the Group and 45% by FCC
The Asian financial crisis has caused contraction in investments into PRC as well as dampening the demand for commercial and residential properties. As a consequence, GPL is actively taking measures to re-structure its property projects in the PRC in order to enhance its cashflow position and to reduce the risk of RMB devaluation.
Guoco Holdings (Philippines), Inc. ("GHPI") - 36.61% owned by the Group
GHPI incurred substantial losses during the past fiscal year as it suffered from the negative effects of the regional recession. High debt service resulting from the increase in interest rates weakened operating cash generation and higher raw material and labour costs resulting from the depreciation of the peso pulled down overall profitability of GHPI Group companies. Accounting for a large portion of the loss was Pepsi-Cola Products Philippines, Inc. which suffered from a series of adverse factors which negatively impacted the softdrink category.
A financial restructuring exercise to strengthen the balance sheet is being undertaken. It involves basically reduction of borrowings to a level that will enable GHPI to set a foundation to get back into profitability. GHPI is rationalizing its overall investment portfolio to dispose non-core investments.
Hong Leong Credit Berhad ("HLC") - 20.88% owned by the Group
HLC achieved a profit before taxation ("PBT") of RM58.7 million for the year under review. Operating profit was RM517.5 million before making doubtful debts and loss provisions amounting to RM458.8 million. All divisions reported profits except for its Stock-broking Division which recorded a loss of RM89.1 million mainly as a result of a RM88.6 million doubtful debt provision.
HLC has made prudent provisions for doubtful loans and losses for the last two financial years and this has negated operational profitability. Moving forward, with the economy in recovery, HLC is expected to improve its profitability next year. The prospects in the four major business divisions of HLC are good with reasonable upside potential in the recovering economy.
Other Financial Services
Dao Heng Securities Limited ("DHS") continues to report satisfactory results despite a difficult operating environment. Having built up a solid reputation as a full service brokerage house providing stockbroking, margin financing, nominee services, investment research and corporate finance services, DHS is now seeking to enlarge its market share.
To support the massive growth in personal line insurance business for the bank, Dao Heng Insurance Co., Limited ("DHI") launched seven new personal insurance products during the period under review. The monthly savings plan of Dao Heng Fund Management Limited ("DHFM") is well received in the market with encouraging inflow of new accounts. DHFM is collaborating with DHBG to become a meaningful player in the Mandatory Provident Fund Scheme market which will be launched next year.
OUTLOOK
Hong Kong's recession intensified during 1998, registering a negative growth of 5.1% for the full year. Nonetheless, in the first half of 1999, there were emerging signs that the worst was probably over and the regional economies have shown indications of recovery and growth in their GDP by varying degrees.
To position the Group to return to healthy sustainable growth as Asia enters into a recovery period in the aftermath of the worst economic environment in decades, the Group continues to critically assess every aspect of its business fundamentals and take necessary bold action to focus on the strengthening of its core businesses, to rationalise non-core activities, and undertake prudent provisions in light of the currently foreseeable market conditions.
The public image and awareness of the Group has been enhanced through its relocation to its highly visible new headquarters at The Center, the promotion of its new unified corporate logo and branding and favourable response to various business initiatives. Aligning with the Group's aggressive marketing strategy, the expanded marketing division will continue to add measurable value to the Group's brand franchise.
The Group has addressed the regional financial adversity as an opportunity to restructure itself as a stronger and more focused entity. It will continue to undertake the necessary actions to strengthen its fundamentals as it positions itself to realise the opportunities that the new millennium will undoubtedly present.
YEAR 2000 PROJECT
The Company has included in its previous annual report and interim report information relating to the Group's definition of the Year 2000 compliance, risks and uncertainties and structure of the Year 2000 compliance issue.
With respect to activities for the Year 2000 Project, the Group has completed the following activities:
- Validation and implementation of its mission-critical computer systems before 31st March, 1999.
- Testing of System Interfaces with significant external parties.
- The development and drill testing of its Contingency Plan as of 30th June, 1999.
- Participation in all scheduled Industry-wide testing (more than once in some cases) applicable to its business.
- Follow up with significant business partners, creditors, borrowers and customers to assess their respective Year 2000 compliance efforts.
The Group has achieved 100% completion on the modification, upgrading and user acceptance testing of its internal computer systems and remaining activities will be the preparation for successful rolling over and contingency planning in respect of major critical dates that may have Year 2000 issues.
The total Year 2000 project cost for the Group is estimated at approximately HK$29.5 million. Up to the period ended 30th June, 1999, the Group has incurred approximately HK$22.4 million in capital expenditure and HK$5.0 million in expenses. As at 30th June, 1999, HK$0.25 million has been contracted but not provided for in the accounts. The Group expects a further amount of HK$1.85 million will be spent to complete its Year 2000 project.
SHARE BUY BACK
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 an unconditional general mandate to repurchase shares of the Company to an extent not exceeding 10% of the issued share capital of the Company prevailing at the date of passing the resolution approving the mandate for share buy back.
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.
BOARD AUDIT COMMITTEE
The Company established an Audit Committee of the Board of Directors with written terms of reference on 9th October, 1998. The Board Audit Committee comprises Messrs. Harry Richard Wilkinson, Sat Pal Khattar and Kwek Leng Hai.
The Board Audit Committee meets regularly to consider the nature and scope of audit reviews and the effectiveness of the systems of internal control and compliance.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
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.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members will be closed from 8th November, 1999 to 12th November, 1999, 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 5th November, 1999.
By Order of the Board
Doris W. N. Wong
Company Secretary
Hong Kong, 6th October, 1999