FINANCIAL RESULTS
The directors (the "Directors") of Lung Kee (Bermuda) Holdings Limited (the "Company") are pleased to announce the unaudited consolidated financial results of the Company and its subsidiaries (collectively the "Group") for the six months ended 30th September, 2001 together with the comparative figures.
Six months ended
30th September,
2001 2000
(unaudited) (unaudited)
(as restated)
Notes HK$'000 HK$'000
Turnover 451,609 505,927
Other revenue 9,401 6,650
Changes in inventories of
finished goods and work in progress 2,397 8,344
Raw materials and consumables used (207,947) (240,028)
Staff costs (75,182) (77,412)
Depreciation and amortisation of
property, plant and equipment (41,656) (34,696)
Amortisation of goodwill (546) -
Other operating expenses (71,169) (60,163)
----------- -----------
Profit from operations 4 66,907 108,622
Finance costs (10,816) (6,580)
Interest income 9,568 7,584
Loss on deemed disposal of
a subsidiary (84) (1,903)
----------- -----------
Profit before taxation 65,575 107,723
Taxation 5 (10,247) (18,805)
----------- -----------
Profit after taxation 55,328 88,918
Minority interests (12,297) (17,611)
----------- -----------
Net profit for the period 43,031 71,307
=========== ===========
Dividend 6
Proposed interim dividend of
HK3 cents per share (2000:
HK6 cents) 14,519 28,899
=========== ===========
Earnings per share 7
- Basic 8.92 cents 14.83 cents
=========== ===========
- Diluted 8.86 cents 14.71 cents
=========== ===========
Notes:
1. BASIS OF PREPARATION
The condensed financial statements have been prepared in accordance with the Statement of Standard Accounting Practice ("SSAP") 25 "Interim Financial Reporting" issued by the Hong Kong Society of Accountants and with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("the Listing Rules").
2. PRINCIPAL ACCOUNTING POLICIES
The condensed financial statements have been prepared under the historical cost convention, as modified for the revaluation of investment properties. The accounting policies adopted are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31st March, 2001, except as described below.
In the current period, the Group has adopted, for the first time, the following new or revised SSAP.
Dividends proposed or declared after the balance sheet date
In accordance with SSAP 9 (Revised) "Events after the Balance Sheet Date", dividends proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date, but are disclosed as a separate component of equity in the notes to the condensed financial statements. This change in accounting policy has been applied retrospectively, resulting in a prior period adjustment which increases the accumulated profits as at 1st April, 2000 by HK$38,469,000 and as at 1st April, 2001 by HK$43,320,000 respectively.
Goodwill
In the current period, the Group has adopted SSAP 30 "Business Combinations" and has elected not to restate goodwill (negative goodwill) previously eliminated against (credited to) reserves. Accordingly, goodwill arising on acquisitions prior to 1st January, 2001 is held in reserves and will be charged to the income statement at the time of disposal of the relevant subsidiary, or at such time as the goodwill is determined to be impaired. Negative goodwill arising on acquisitions prior to 1st January, 2001 will be credited to income at the time of disposal of the relevant subsidiary.
Goodwill arising on acquisitions after 1st January, 2001 is capitalised and amortised over its estimated useful life. Negative goodwill arising on acquisitions after 1st January, 2001 is presented as a deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted.
3. SEGMENT INFORMATION
The business and geographical segments of the operations of the Group are as follows:
Contribution to
profit
Turnover from operations
Six months ended Six months ended
30th September, 30th September,
2001 2000 2001 2000
HK$'000 HK$'000 HK$'000 HK$'000
Business segments
Manufacture of mould bases 356,863 373,618 55,119 81,839
Trading of metal and parts 94,746 132,309 11,788 26,783
------- ------- ------- -------
451,609 505,927 66,907 108,622
======= ======= ======= =======
Geographical segments
Hong Kong and elsewhere
in the People's
Republic of China
(the "PRC") 352,051 420,774
Other countries 99,558 85,153
------- -------
451,609 505,927
======= =======
Contribution to profit from operations by geographical location of customers not been presented as the contribution to profit from operations in each market is substantially in line with the overall Group's ratio of profit from operations to turnover.
4. PROFIT FROM OPERATIONS
Profit from operations has been arrived at after (crediting) charging:
Six months ended
30th September,
2001 2000
HK$'000 HK$'000
(Gain) loss on disposal of investment
in securities (2,235) 50
Gain on disposal of property,
plant and equipment (632) (960)
=========== ===========
5. TAXATION
Six months ended
30th September,
2001 2000
HK$'000 HK$'000
The charge comprises:
Hong Kong Profits Tax calculated at
16% on the estimated
assessable profit for the period 2,106 8,805
Taxation in jurisdictions
outside Hong Kong 8,141 10,000
----------- -----------
10,247 18,805
=========== ===========
Taxation in jurisdictions outside Hong Kong is calculated based on the applicable rates in those jurisdictions.
Pursuant to the relevant laws and regulations in the PRC, the Group's PRC subsidiaries are entitled to an exemption from PRC income tax for two years starting from their first profit-making year, followed by a 50% reduction for the next three years. In the current year, certain PRC subsidiaries are exempted from PRC income tax, and other PRC subsidiaries enjoyed a 50% reduction on PRC income tax.
Certain income of the Group is not subject to taxation in the jurisdictions in which the Group operates.
6. DIVIDEND
On 15th August, 2001, a dividend of HK9 cents (2000 final dividend: HK8 cents) per share was paid to shareholders as final dividend for 2001.
The directors have determined that an interim dividend of HK3 cents per share (2000: HK6 cents) should be paid to the shareholders of the Company whose names appear in the Register of Members on 31st December, 2001.
7. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data:
Six months ended
30th September,
2001 2000
HK$'000 HK$'000
Earnings
Earnings for the purposes of
basic earnings per share 43,031 71,307
Effect of dilutive potential ordinary shares:
Adjustment to the share of results
of the group headed by
Lung Kee Metal Holdings Limited
("LKMH") based on dilution of
their earnings per share (94) (243)
----------- -----------
Earnings for the purposes of
diluted earnings per share 42,937 71,064
=========== ===========
Number of shares '000 '000
Weighted average number of
ordinary shares for the
purposes of basic earnings per share 482,225 480,917
Effect of dilutive potential ordinary
shares on exercise of options
of the Company 2,122 2,201
----------- -----------
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 484,347 483,118
=========== ===========
MANAGEMENT DISCUSSION AND ANALYSIS
Business Review and Prospect
The slow down of U.S. economy beginning this year has triggered off the global economic downturn. Clouded by a series of unfavorable political and economic factors, most of clients' export businesses to U.S. and European markets have remained stagnant. As a result, the growth of the Group business has also been adversely affected.
Plants in mainland China have maintained a stable development. The productivity of the second phase of Heyuan plant has increased steadily. However, due to the keen market competition, the selling price of the products has to be adjusted accordingly in line with the market expectation. As stimulated by the continued economic growth in eastern China, the performance of Shanghai plant has been satisfactory.
The Group is experiencing differing results on the overseas markets. Owing to the slow recovery pace in South East Asian economies, the performance of both Singapore and Malaysia businesses is not able to meet the Group's target. For the Japanese market, sales volume has been recorded a new high and the LKM brand has gradually gained a good reputation in the market. Furthermore, improvements have taken place in the newly acquired company in Taiwan. Besides producing standard mould base, new production lines for tailor made mould base have been added in order to offer a more comprehensive service to clients. The penetration into Korean market has also progressed satisfactorily with sales turnover reaching the target volume.
The Group's mould parts business, which mainly promotes the quality mould parts and hot runner mould system throughout U.S. and European countries, has achieved a steady growth. This lays a solid foundation for the Group in developing its horizontally integrated business.
As the market demand for imported mould steel decreases, the sales of mould steel business falls short of expectation. However, the introduction of multiple value-added services to the market has been encouraging. Favorable responses towards heat treatment and welding services arewell received and this further enhances the confidence of clients on the "one-stop" services provided by the Group.
Capital investments from countries like Singapore, Japan and Taiwan have been directed continually to eastern China to establish new factories. This resulted in an increase demand for plastic parts that in turn contributed to the booming of the plastic industry. The business potential of the fast growing eastern China market looks particularly attractive. The Group will capitalize on such business opportunity by extending the Shanghai plant in coming year to reinforce the production capacity in securing sales in eastern China.
Turning to the overseas market, with accumulated yearly efforts, LKM products has succeeded in penetrating the U.S. and European markets. Increasingly clients show confidence and willingness to purchase the Group's products. The LKM brand is expected to be widely accepted in both markets.
The Group will have a strategic change in marketing its steel products. More variety of high quality steel products will be promoted to cater different market needs and demand. Moreover, the Group will take a progressive move in developing the eastern China market to capture larger market share.
The entrance of China into WTO has brought unprecedented business opportunities to the market. Increasing foreign investments are attracted into the Chinese market. Domestic enterprises in China have also undergone reform in strengthening their competitiveness. These factors contribute to higher demand in quality mould base and steel products for production. Moreover, following the opening of the mainland market to the world, the mould business will grow. However, it is also anticipated that market competition will become more intense at the same time. Nevertheless, the Group is well prepared in grasping any promising opportunity in the fast growing market in China.
The uncertainty of the U.S. economy has affected the global economy. On the other hand, China's entry into WTO has offered enormous business opportunities to the world. Looking ahead, the coming year will be full of challenges. The Group will still adopt a prudent and realistic attitude in facing these challenges. With the accumulated valuable experience, flexibility in managing changes, a long established goodwill and close relationship with clients, the Group is confident and has the ability to sustain its established position in the industry.
Liquidity and Financial Resources
As at 30th September, 2001, the Group had cash balance of approximately HK$394 million. Most of the cash balance was placed in HK$ and US$ short-term deposits with major banks in Hong Kong.
Total debts were approximately HK$399 million, equal to approximately 58% of shareholders' fund of approximately HK$686 million.
Employees and Remuneration Policies
As at 30th September, 2001, the Group employed a total of approximately 4,400 employees, including approximately 4,000 employees in its PRC production sites and approximately 400 employees in Hong Kong and other countries. The Group adopts a competitive remuneration package for its employees. Promotion and salary increments are assessed based on a performance related basis. Share options may also be granted to staff with reference to the individual's performance.
REVIEW OF INTERIM FINANCIAL STATEMENTS
The Audit Committee has reviewed with management and the external auditors, Deloitte Touche Tohmatsu, the accounting principles and practices adopted by the Group and discuss internal controls and financial reporting matters including the review of the unaudited interim financial statements.
INTERIM DIVIDEND
The Directors have declared an interim dividend of HK3 cents (2000: HK6 cents) per share in respect of the six months ended 30th September, 2001 to be payable on 10th January, 2002 to shareholders whose names are on the Register of Members on 31st December, 2001.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Company will be closed from 27th December, 2001 to 31st December, 2001, both days inclusive, during which period no share transfer will be effected.
In order to qualify for the interim dividend, all transfers accompanied by the relevant share certificates must be lodged with the Hong Kong Branch Registrars of the Company, Central Registration Hong Kong Limited of 17th Floor, 183 Queen's Road East, Hong Kong for registration not later than 4:00 p.m. on 24th December, 2001.
PURCHASE, SALE OR REDEMPTION OF SECURITIES
There was no purchase, sale or redemption of shares or other securities of the Company by the Company or any of its subsidiaries during the six months ended 30th September, 2001.
CODE OF BEST PRACTICE
During the six months ended 30th September, 2001, the directors are not aware of any information that would indicate that the Company was not in compliance 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.
PUBLICATION OF INTERIM RESULTS ON THE WEBSITE OF THE STOCK EXCHANGE
All the information of the Company required by paragraphs 46(1) to 46(6) of Appendix 16 of the Listing Rules will be published on the website of the Stock Exchange at http://www.hkex.com.hk in due course.
On behalf of the Board
Siu Yuk Lung
Managing Director
Hong Kong, 7th December, 2001
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