CAI Corp — Earnings Release 2001

Mar 11, 2002

HARBOUR CENTRE DEVELOPMENT LIMITED

2001 Results Announcement

GROUP RESULTS

As a result of a provision charged to profit and loss account of HK$301.5 million for the impairment of investment securities, which included HK$274.2 million provided against the investment securities revaluation reserve in previous years, the Group recorded a loss attributable to Shareholders of HK$113.1 million for the year ended 31st December, 2001, as compared with a restated profit of HK$114.5 million last year. Loss per share was 36 cents.

DIVIDENDS

An interim dividend in respect of the year ended 31st December, 2001 of 5.0 cents (2000 － 5.0 cents) per share was paid on 8th October, 2001, absorbing a total amount of HK$15.8 million (2000 － HK$15.8 million). The Directors will recommend at the Annual General Meeting to be held on Wednesday, 5th June, 2002 the payment on 18th June, 2002 to Shareholders on record as at 5th June, 2002 of a final dividend in respect of the year ended 31st December, 2001 of 12.0 cents (2000 － 12.0 cents) per share, absorbing a total amount of HK$37.8 million (2000 － HK$37.8 million).

AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31ST DECEMBER, 2001

				2001		2000
						Restated
				HK$		HK$
		Note		Million		Million
Turnover				375.5		400.6
Other income				28.6		30.8
		(1)		404.1		431.4
Direct costs and operating expenses				(208.0)		(241.0)
Selling and marketing expenses				(15.2)		(16.1)
Depreciation				(10.9)		(6.8)
Administrative and corporate expenses				(8.1)		(8.8)
Operating profit		(1)		161.9		158.7
Borrowing costs				(24.3)		(17.9)
Provision for impairment in value of investment
securities including HK$274.2 million provided
against the investment securities revaluation
reserve in previous years		(2)		(301.5)		－
Provision for impairment in value of investment
securities written back				－		247.0
Other non-operating items		(3)		53.2		(163.4)
Share of profits of associates				10.3		4.2
(Loss)/profit before taxation				(100.4)		228.6
Taxation		(4)		(12.7)		(114.1)
(Loss)/profit attributable to shareholders				(113.1)		114.5
Dividends attributable to the year
Interim dividend declared during the year				15.8		15.8
Final dividend proposed after the balance sheet date				37.8		37.8
				53.6		53.6
(Loss)/earnings per share		(5)		HK$(0.36)		HK$0.36

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:

	Segment revenue				Segment result
	2001		2000		2001		2000
	HK$		HK$		HK$		HK$
	Million		Million		Million		Million
Business segments Hotel and restaurants	296.3		323.5		78.8		88.8
Investment property	48.2		59.2		33.4		48.6
Investments and others	59.6		48.7		49.7		21.3
	404.1		431.4		161.9		158.7
Geographical segments Hong Kong	382.5		413.6		140.3		140.9
Singapore	21.6		17.8		21.6		17.8
	404.1		431.4		161.9		158.7

No inter-segment revenue was recorded during the years.

(b) Operating profit is arrived at after charging:

	2001		2000
	HK$		HK$
	Million		Million
Cost of inventories sold	31.3		33.5

(2) Provision for impairment in value of investment securities

In accordance with the method of accounting policy adopted under Statement of Standard Accounting Practice 24 (“Accounting for investments in securities”), the amount of reduction in fair value of investment securities should be provided against the investment securities revaluation reserve unless there is evidence that the securities are impaired, at which time the relevant reduction that had been directly provided against the investment securities revaluation reserve should be transferred to the consolidated profit and loss account and recognised as an expense.

The fair value of certain of the Group’s investment securities has been persistently below the original cost for a period of in excess 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$301.5 million, which includes HK$274.2 million provided against the investment securities revaluation reserve in previous years, was transferred from the investment securities revaluation reserve to the consolidated profit and loss account. This treatment has no effect on the net asset value of the Group.

(3) Other non-operating items

	2001		2000
	HK$		HK$
	Million		Million
Release of deferred income (see “Review of 2001 Results” below)	62.8		－
Loss on disposal of investment securities	(1.9)		(92.6)
Provision for impairment in value of property held for redevelopment	(7.7)		(70.8)
	53.2		(163.4)

(4) Taxation

Hong Kong profits tax has been provided at the rate of 16.0% (2000: 16.0%) on the estimated assessable profit for the year.

	2001		2000
	HK$		HK$
	Million		Million
Company and subsidiaries
Hong Kong profits tax	11.8		22.3
Underprovision in prior years	－		91.8
	11.8		114.1
Share of associates’ Hong Kong profits tax for the year	0.9		－
	12.7		114.1

(5) (Loss)/earnings per share

The calculation of (loss)/earnings per share is based on the loss for the year of HK$113.1 million (2000: a restated net profit of HK$114.5 million) and on 315.0 million (2000: 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 (loss)/ earnings per share.

(6) Changes in accounting policies

(a) Planned maintenance

In prior years, the Group operated a planned maintenance scheme for its hotel which projected future maintenance requirements over a period of years. Within this scheme actual costs and/or projected costs of ensuing four-year period as estimated by the Group were equalised by annual provisions in the consolidated profit and loss account. With effect from 1st January, 2001, maintenance costs are expensed in the consolidated profit and loss account in the year in which they are incurred in accordance with SSAP 28 “Provisions, contingent liabilities and contingent assets” issued by the Hong Kong Society of Accountants. The accounting policy has been adopted retrospectively. In adjusting prior years’ figures, revenue reserves as at 1st January, 2001 were restated and increased by HK$63.2 million representing the reversal of the previous provisions for planned maintenance.

As a result of the adoption of SSAP 28 and restating the prior years’ results and reserves, the Group’s profit for the year attributable to shareholders has increased by HK$11.8 million (2000: HK$5.0 million) as a net result of not making provisions for planned maintenance and charging the actual maintenance costs incurred during the year to the consolidated profit and loss account.

(b) Proposed dividend

In prior years, dividends proposed after balance sheet date were accrued as liabilities at the balance sheet date. With effect from 1st January, 2001, dividends proposed after balance sheet date are shown as a separate component of shareholders’ funds in accordance with revised SSAP 9 “Events after the balance sheet date” issued by the Hong Kong Society of Accountants. The new accounting policy has been adopted retrospectively. In adjusting prior years’ figures, shareholders’ funds as at 1st January, 2001 were restated and increased by HK$37.8 million representing the proposed final dividend for the year ended 31st December, 2000.

As a result of the adoption of SSAP 9 and restating the prior years’ reserves, the Group’s shareholders’ funds at 31st December, 2001 have increased by HK$37.8 million (2000: HK$37.8 million).

(c) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Inter-segment pricing is based on similar terms as those available to other external parties.

In Note (1) above the Group has disclosed segment revenue and results as defined under SSAP 26 “Segment reporting” issued by the Hong Kong Society of Accountants. In accordance with the Group’s internal financial reporting the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

COMMENTARY ON ANNUAL RESULTS

Review of 2001 results and segmental performance

As a result of a provision of HK$301.5 million for the impairment of investment securities as explained below, the Group reported a loss attributable to shareholders for the year of HK$113.1 million, compared to a profit of HK$114.5 million in 2000. Loss per share was HK$0.36, compared to earnings per share of HK$0.36 recorded last year.

Group turnover for the year under review was HK$375.5 million, a decrease of 6% from HK$400.6 million last year. Operating profit was HK$161.9 million, compared to HK$158.7 million last year.

Adversely impacted by the overall unfavourable business environment, especially after the “911” tragedy in USA, The Marco Polo Hongkong Hotel recorded lower occupancy and average room rates for the year under review. Accordingly, turnover and operating profit of the hotel segment decreased by 8% and 11% respectively.

Turnover and operating profit from the commercial section of The Marco Polo Hongkong Hotel also decreased as a result of lower average rental rates being achieved in the existing competitive market.

As the fair value of certain of the Group’s investment securities has been persistently below the original cost for a period in excess of three years, these investment securities are considered impaired in value. Accordingly, to comply with the Group’s accounting policies, a provision for the impairment of investment securities of HK$301.5 million, which included HK$274.2 million provided against the investment securities revaluation reserve in previous years, was transferred from the investment securities revaluation reserve to the profit and loss account. This treatment has no effect on the net asset value of the Group.

Deferred income of HK$62.8 million, arising from a loan advanced to an associate, was recognised in the profit and loss account for the year under review from when the associate started reporting profits.

Share of profit of associates increased from HK$4.2 million in 2000 to HK$10.3 million in 2001 mainly due to the inclusion of the Group’s share of profit from pre-sale of Sorrento (Phase I), which was launched in November 2001.

The taxation charge for this year was HK$12.7 million compared to HK$114.1 million reported in 2000. The taxation charge for last year included an additional provision of HK$90.0 million made for additional tax assessments received by a subsidiary in respect of the deductibility of certain interest payments in prior years. The additional tax assessments were settled and the related liability was paid in 2001.

Liquidity and financial resources

As at 31st December, 2001, the Group had net cash of HK$467.4 million. In addition, the Group maintained a portfolio of listed investments with market value aggregating HK$851.5 million at the year end.

In addition, a HK$3.4 billion project loan facility relating to the development of Sorrento (Kowloon Station Package II), in which the Group has 20 per cent interest, has been completed to replace the previous facility of HK$2.2 billion at a lower interest rate.

The Group has 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) above.

IV. Employees

The Group has approximately 490 employees. 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 the year amounted to HK$89.4 million.

PURCHASE, SALE OR REDEMPTION OF SHARES

Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any listed securities of the Company during the financial year.

BOOK CLOSURE

The Register of Members of the Company will be closed from 29th May to 5th June, 2002, 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, 11th March, 2002

“Please also refer to the published version of this announcement in the South China Morning Post and Hong Kong Economic Journal both dated 12th March, 2002.”