CAI Corp — Annual Report 2003

Mar 9, 2004

HARBOUR CENTRE DEVELOPMENT LIMITED

2003 Results Announcement

GROUP RESULTS

The audited Group profit attributable to Shareholders for the year ended 31st December, 2003 amounted to HK$169.4 million, compared to the restated profit of HK$12.8 million last year. Earnings per share were 54 cents.

DIVIDENDS

An interim dividend in respect of the year ended 31st December, 2003 of 5.0 cents (2002: 5.0 cents) per share was paid on 10th October, 2003, absorbing a total amount of HK$15.8 million (2002: HK$15.8 million). The Directors have recommended for adoption at the Annual General Meeting to be held on Monday, 10th May, 2004 the payment on 17th May, 2004 to Shareholders registered on 10th May, 2004 of a final dividend in respect of the year ended 31st December, 2003 of 12.0 cents (2002: 12.0 cents) per share, absorbing a total amount of HK$37.8 million (2002: HK$37.8 million).

AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31ST DECEMBER, 2003

				2003		2002
				HK$		HK$
		Note		Million		Million
						Restated
Turnover		(1)		308.7		335.2
Direct costs and operating expenses				(162.6)		(171.9)
Selling and marketing expenses				(17.3)		(13.9)
Depreciation				(12.4)		(13.3)
Administrative and corporate expenses				(4.9)		(5.9)
Operating profit		(1)		111.5		130.2
Non-operating items		(2)		(34.4)		7.2
Share of profits less losses of associates				124.9		(102.2)
Profit before taxation				202.0		35.2
Taxation		(3)		(32.6)		(22.4)
Profit attributable to shareholders				169.4		12.8
Dividends attributable to the year
Interim dividend declared during the year				15.8		15.8
Final dividend proposed after the balance sheet date				37.8		37.8
				53.6		53.6
Earnings per share		(4)		HK$0.54		HK$0.04

NOTES TO THE ACCOUNTS

1. Revenue and operating profit

(a) Segment information

Analysis of the Group’s segment revenue and segment result by business segments and geographical segments for the year ended 31st December is as follows:

1. Business segments

	Hotel and restaurants				Property				Investments				Total
	2003		2002		2003		2002		2003		2002		2003			2002
	HK$		HK$		HK$		HK$		HK$		HK$		HK$			HK$
	Million		Million		Million		Million		Million		Million		Million			Million
			Restated				Restated				Restated					Restated
Segment revenue	238.8		269.5		40.3		26.8		29.6		38.9		308.7			335.2
Segment result	46.2		67.1		26.8		17.9		38.5		45.2		111.5			130.2
Non-operating items	-		-		(9.3)		(43.3)		(25.1)		50.5		(34.4)			7.2
Share of profits less losses
of associates	-		-		124.2		(103.3)		0.7		1.1		124.9			(102.2)
Profit before taxation													202.0			35.2
Taxation													(32.6)			(22.4)
Profit attributable to shareholders													169.4			12.8
Depreciation for the year	12.4		13.3		-		-		-		-		12.4			13.3

1. Geographical segments

	Segment revenue				Segment result
	2003		2002		2003		2002
	HK$		HK$		HK$		HK$
	Million		Million		Million		Million
Hong Kong	292.1		310.3		94.9		105.3
Singapore	16.6		24.9		16.6		24.9
	308.7		335.2		111.5		130.2

No inter-segment revenue was recorded during the years.

1. Operating profit is arrived at after charging:

	2003		2002
	HK$		HK$
	Million		Million
Cost of inventories sold	22.9		21.7

1. Non-operating items

	2003		2002
	HK$		HK$
	Million		Million
Release of deferred income	83.8		70.9
Profit/(loss) on disposal of investment
securities (note a)	19.3		(20.4)
Provision for impairment in value of
investment securities (note b)	(128.2)		-
Provision for impairment in value of property held for redevelopment	(9.3)		(43.3)
	(34.4)		7.2

1. Profit/(loss) on disposal of investment securities includes a revaluation deficit of HK$2.5 million (2002: HK$14.4 million) transferred from the investment securities revaluation reserve to the profit and loss account upon disposal of the related investment securities.
2. The fair value of certain of the Group’s investment securities has been persistently below cost for a period of three years and, therefore, management consider these investment securities are impaired in value. Accordingly, to comply with the Group’s accounting policies, a provision for the impairment of investment securities of HK$128.2 million has been made in 2003. The provision includes the cumulative deficit reflected in the investment securities revaluation reserve in previous years which has been transferred to the profit and loss account. The treatment has no effect on the net asset value of the Group.
3. Taxation

Hong Kong profits tax has been provided at the rate of 17.5% (2002: 16.0%) on the estimated assessable profit for the year.

	2003		2002
	HK$		HK$
	Million		Million
			Restated
Current tax – provision for Hong Kong profits tax
Tax for the year	21.8		18.5
Underprovision in respect of prior years	0.8		-
	22.6		18.5
Deferred tax
Origination and reversal of temporary differences	2.8		3.4
Effect of increase in tax rate on deferred tax balances at 1st January	0.8		-
	3.6		3.4
Share of associates’ Hong Kong profits tax for the year	6.4		0.5
Total tax charge	32.6		22.4

1. Earnings per share

The calculation of earnings per share is based on the profit for the year of HK$169.4 million (2002: restated HK$12.8 million) and on 315.0 million (2002: 315.0 million) ordinary shares in issue throughout the year. For the year under review and the preceding year, there is no difference between the basic and diluted earnings per share.

1. Changes in accounting policies

SSAP 12 (Revised) “Income taxes”

In prior years, deferred tax liabilities were 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 were expected with reasonably probability to crystallise in the foreseeable future. Deferred tax assets were not recognised unless their realisation was assured beyond reasonable doubt.

With effect from 1st January, 2003, in order to comply with SSAP 12 (revised) “Income taxes” issued by the Hong Kong Society of Accountants, the Group adopted a new accounting policy for deferred tax. A balance sheet method was used to recognise deferred tax in respect of all temporary differences between the carrying amounts of assets and liabilities in the accounts and the corresponding tax bases used in the computation of taxable profit. The effect of adopting the new accounting policy has been applied retrospectively. Revenue reserves as at 1st January, 2003 and 1st January, 2002 were restated and decreased by HK$9.3 million and HK$5.9 million respectively representing the deferred tax liability recognised in respect of temporary difference arising from fixed assets and retirement scheme assets. The effect of change to income tax for the year ended 31st December, 2003 is an increased charge of HK$3.6 million (2002: HK$3.4 million).

1. Comparative figures

Certain comparative figures have been adjusted as a result of changes in accounting policies for income taxes in order to comply with SSAP 12 (revised) as set out in note (5) above.

COMMENTARY ON ANNUAL RESULTS

(I) Review of 2003 Results and segmental performance

Group profit attributable to shareholders for the year amounted to HK$169.4 million, compared to HK$12.8 million for 2002. Earnings per share for 2003 were HK$0.54 (2002 restated: HK$0.04).

Included in the 2003 results is a provision for the impairment of investment securities of HK$128.2 million. Despite this provision and the outbreak of the severe acute respiratory syndrome (“SARS”) in March 2003 seriously lowering the results of the Hotel Segment for the year, the Group’s profit in 2003 has been buoyed by the profit contribution from its 20% associate, the developer of the Sorrento development.

The Group’s turnover for the year under review was HK$308.7 million, a decrease of 8% from HK$335.2 million for 2002. Operating profit in 2003 was HK$111.5 million against HK$130.2 million reported last year.

Adversely impacted by the SARS outbreak, The Marco Polo Hongkong Hotel recorded lower occupancy levels and average room rates in 2003. Total revenue and operating profit of the Hotel Segment decreased by 11% and 31% respectively, though the businesses started picking up as soon as the SARS incidence stabilised from mid-2003.

Following the successful completion in mid-2003 of the upgrading project for the retail podium within The Marco Polo Hongkong Hotel, the Group’s Property Segment rental revenue and operating profit increased to HK$40.3 million and HK$26.8 million in 2003 from HK$26.8 million and HK$17.9 million in 2002 respectively.

As mentioned above, the Group made a provision for the impairment of investment securities of HK$128.2 million, being a transfer of investment securities revaluation deficit accumulated in previous years to the profit and loss account for the year in accordance with the Group’s accounting policies, reflecting the impairment of certain of the Group’s investment securities. This does not have any effect on the net asset value of the Group.

Profit before taxation for the year under review includes deferred interest income of HK$83.8 million, arising from a loan advanced to an associate for the Sorrento development, recognised as in previous years on the basis of the pre-sale progress of the development. It also includes a net profit of HK$19.3 million on disposal of certain investment securities during the year and a provision of HK$9.3 million made for impairment in value of the Group’s property under redevelopment, namely, the Victoria Road site, having due regard to the prevailing market conditions.

Share of profits of associates in 2003 amounted to HK$124.9 million, largely contributed from sale of Sorrento units held through an associate, compared to the losses of HK$102.2 million in 2002 comprising principally an impairment provision made for the Sorrento development.

Full year taxation charge for 2003 was HK$32.6 million as opposed to HK$22.4 million last year. The increase is partly due to a rise of Profits Tax rate from 16% to 17.5%.

(II) Liquidity and financial resources

At 31st December, 2003, the Group’s shareholders’ funds increased to HK$4,686.6 million, compared to the restated shareholders’ funds of HK$4,239.7 million at 31stDecember, 2002, primarily due to the upward revaluation of the Group’s properties and investment securities. The consolidated net asset value of the Group at that date was HK$14.88 per share, compared to that of HK$13.46 per share at 31st December, 2002.

As at 31st December, 2003, the Group had net cash of HK$1,277.4 million, increased from HK$572.8 million as at 31st December, 2002. The increase was mainly attributable to the return of cash from sale of Sorrento units undertaken by an associate. Most of the cash surpluses were placed on deposit. In addition, the Group maintained a portfolio of listed investments with market value aggregating HK$550 million at the year end. As a result of the improvement in market value of the overall portfolio coupled with the transfer of certain revaluation deficit against the 2003 results, the investment revaluation deficit decreased by HK$232.1 million resulting in a turnaround to surplus of HK$9.2 million at 31st December, 2003.

At the year end, the Group had no significant exposure to foreign exchange rate fluctuations.

(III) Comments on segmental information

The principal activity of the Company is investment holding.

The principal activities of the Company’s subsidiaries and associates are the operation of hotel and restaurants, investment property, property development and investments. Further information on the segmental details is provided in note (1) to the Accounts.

(IV) Employees

The Group has approximately 444 employees working at the Group’s hotel. Employees are remunerated according to nature of the job and market trends, with a built-in merit component incorporated in the annual increment to reward and motivate individual performance. Total staff costs for year ended 31st December, 2003 amounted to HK$77.8 million.

BOOK CLOSURE

The Register of Members of the Company will be closed from Monday, 3rd May, 2004 to Monday, 10th May, 2004, both days inclusive, for the purpose of determining Shareholders’ entitlements to the proposed final dividend.

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 will be published on the Stock Exchange’s website in due course.

By Order of the Board

Wilson W. S. Chan

Secretary

Hong Kong, 9th March, 2004

“Please also refer to the published version of this announcement in the South China Morning Post and Hong Kong Economic Journal both dated 10th March, 2004.”