CAI Corp — Earnings Release 2004

Mar 8, 2005

HARBOUR CENTRE DEVELOPMENT LIMITED

2004 Results Announcement

GROUP RESULTS

The audited Group profit attributable to shareholders for the year ended 31st December, 2004 amounted to HK$250.7 million, an increase of 48% as compared with HK$169.4 million last year. Earnings per share were 80 cents.

DIVIDENDS

An interim dividend in respect of the year ended 31st December, 2004 of 5.0 cents (2003: 5.0 cents) per share was paid on 7th October, 2004, absorbing a total amount of HK$15.8 million (2003: HK$15.8 million). The Directors have recommended for adoption at the Annual General Meeting to be held on Monday, 9th May, 2005 the payment on 17th May, 2005 to shareholders registered on 9th May, 2005 of a final dividend in respect of the year ended 31st December, 2004 of 12.0 cents (2003: 12.0 cents) per share, absorbing a total amount of HK$37.8 million (2003: HK$37.8 million).

AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31ST DECEMBER, 2004

				2004		2003
				HK$		HK$
		Note		Million		Million
Turnover		(1)		445.0		308.7
Direct costs and operating expenses				(207.1)		(162.6)
Selling and marketing expenses				(16.6)		(17.3)
Depreciation				(14.2)		(12.4)
Administrative and corporate expenses				(4.7)		(4.9)
Operating profit		(1)		202.4		111.5
Non-operating items		(2)		20.9		(34.4)
Share of profits less losses of associates				64.8		124.9
Profit before taxation				288.1		202.0
Taxation		(3)		(37.4)		(32.6)
Profit attributable to shareholders				250.7		169.4
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$0.80		HK$0.54

NOTES TO THE ACCOUNTS

1. Revenue and operating profit

(a) Segment information

Analysis of the Group’s segment revenue and segment results by business segments and geographical segments for the year ended 31st December, 2004 is as follows:

1. Business segments

	Hotel and restaurants				Property				Investments				Total
	2004		2003		2004		2003		2004		2003		2004			2003
	HK$		HK$		HK$		HK$		HK$		HK$		HK$			HK$
	Million		Million		Million		Million		Million		Million		Million			Million
Segment revenue	333.7		238.8		82.8		40.3		28.5		29.6		445.0			308.7
Segment results	108.9		46.2		74.1		26.8		19.4		38.5		202.4			111.5
Non-operating items	-		-		-		(9.3)		20.9		(25.1)		20.9			(34.4)
Share of profits less losses
of associates	-		-		64.7		124.2		0.1		0.7		64.8			124.9
Profit before taxation													288.1			202.0
Taxation													(37.4)			(32.6)
Profit attributable to shareholders													250.7			169.4
Depreciation for the year	14.2		12.4		-		-		-		-		14.2			12.4

1. Geographical segments

	Segment revenue				Segment results
	2004		2003		2004		2003
	HK$		HK$		HK$		HK$
	Million		Million		Million		Million
Hong Kong	428.4		292.1		185.8		94.9
Singapore	16.6		16.6		16.6		16.6
	445.0		308.7		202.4		111.5

No inter-segment revenue has been recorded during the current and prior years.

1. Operating profit is arrived at after charging:

	2004		2003
	HK$		HK$
	Million		Million
Cost of inventories sold	26.6		22.9

1. Non-operating items

	2004		2003
	HK$		HK$
	Million		Million
Release of deferred income	20.9		83.8
Profit on disposal of long term investments (note a)	-		19.3
Provision for impairment in value of long term
investments (note b)	-		(128.2)
Provision for impairment in value of property held for redevelopment	-		(9.3)
	20.9		(34.4)

1. For the year ended 31st December, 2003, profit on disposal of long term investments includes a revaluation deficit of HK$2.5 million transferred from the investments revaluation reserve to the consolidated profit and loss account upon disposal of the related long term investments.
2. At 31st December, 2003, management considered that certain of the Group’s long term investments were impaired in value. Accordingly, to comply with the Group’s accounting polices, a provision for impairment of long term investments of HK$128.2 million was made.
3. Taxation
4. The provision for Hong Kong profits tax is based on the profit for the year as adjusted for tax purposes at rate of 17.5 per cent.
5. Taxation in the consolidated profit and loss account represents:-

	2004		2003
	HK$		HK$
	Million		Million
Current taxation
Provision for Hong Kong profits tax for the year	30.7		21.8
(Overprovision)/underprovision in respect of prior years	(3.2)		0.8
	27.5		22.6
Deferred taxation
Origination and reversal of temporary differences	1.5		2.8
Effect of increase in tax rate on deferred taxation at 1st January, 2003	-		0.8
	1.5		3.6
Share of associates’ Hong Kong profits tax	8.4		6.4
Total tax charge	37.4		32.6

1. Earnings per share

The calculation of earnings per share is based on the profit for the year of HK$250.7 million (2003: HK$169.4 million) and on 315.0 million (2003: 315.0 million) ordinary shares in issue throughout the year ended 31st December, 2004. For the year under review and the preceding year, there is no difference between the basic and diluted earnings per share.

1. Future changes in accounting policies

For full convergence with International Financial Reporting Standards, the Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (collectively, “new HKFRSs”) which are effective for accounting periods beginning on or after 1st January, 2005.

The Group has not early adopted these new HKFRSs in the accounts for the year ended 31st December, 2004.

The Group has made a preliminary assessment of the impact of these new HKFRSs and has so far concluded that the adoption of Hong Kong Accounting Standards (“HKAS”) 40 “Investment Property” and HKAS Interpretation 23 “The Appropriate Policies for Hotel Properties” will have a significant impact on its consolidated accounts as set out below:

a) At present, the Group records its hotel property at valuation in accordance with Statement of Standard Accounting Practice (“SSAP”) 17 “Property, plant and equipment”. No depreciation is provided on the hotel property as it is maintained in a continuous state of sound repair such that, given the estimated life of the hotel property and its residual value, any depreciation would be immaterial. For the financial year beginning 1st January, 2005, the Group will adopt the requirements of HKAS Interpretation 23 and apply them retrospectively. The Group’s hotel property will be stated at cost less accumulated depreciation and impairment, if any. The adoption of this new accounting interpretation at 31st December, 2004 would have had the effect of reducing the Group’s net assets by approximately HK$1.8 billion or HK$5.71 per share at 31st December, 2004, mainly as a result of the reversal of the hotel property revaluation reserve. The preliminary assessment indicates that the annual depreciation on the Group’s hotel property on adoption of this new accounting interpretation will be less than HK$2.0 million in 2005.

1. At present, surpluses or deficits arising on the annual revaluation of the Group’s investment property are recognised in the investment property revaluation reserve. On adoption of the new HKAS 40, the Group’s investment property will continue to be stated at fair value. However, all changes in the fair value on revaluation of the investment property will be reported in the profit and loss account. If this revised accounting standard had been adopted at 31st December, 2004, the revaluation surplus arising on the Group’s investment property of HK$148.7 million would have been dealt with in the consolidated profit and loss account.

The Group is continuing its assessment of the impact of the new HKFRSs and other significant changes may be identified as a result of this assessment.

COMMENTARY ON ANNUAL RESULTS

(I) Review of 2004 Results and Segmental Performance

The Group’s profit attributable to shareholders for the year amounted to HK$250.7 million, increased by 48.0% as compared with the profit of HK$169.4 million for 2003. Earnings per share were HK$0.80 (2003: HK$0.54).

The sharp improvement in the results was mainly attributable to the increase in profit contribution from both the Hotel Segment and Property Segment that had attained strong recovery in their businesses as compared with the previous year, in the first half of which the economy of Hong Kong was severely affected by the outbreak of SARS.

The Group’s turnover for the year under review was HK$445.0 million, an increase by 44.2% from HK$308.7 million achieved in 2003. Operating profit jumped to HK$202.4 million from HK$111.5 million reported last year.

The Marco Polo Hongkong Hotel recorded higher occupancy levels and average room rates in 2004. Total revenue and operating profit of the Hotel Segment increased to HK$333.7 million and HK$108.9 million in 2004 compared to HK$238.8 million and HK$46.2 million in 2003, respectively.

After the completion of the upgrading project for the retail podium within The Marco Polo Hongkong Hotel in mid-2003, the occupancy has gradually returned to a steady level. Consequently, the Property Segment revenue and operating profit increased to HK$82.8 million and HK$74.1 million in 2004 from HK$40.3 million and HK$26.8 million in 2003, respectively.

Profit before taxation for the year under review included deferred interest income of HK$20.9 million (2003: HK$83.8 million), which was earned from a loan advanced to an associate involved in the Sorrento project and recognised as in previous years on the basis of the sale progress of the project. A net loss of HK$10.0 million on disposal of certain securities was recorded during the year.

Share of profits of associates in 2004 amounted to HK$64.8 million, largely contributed from sale of Sorrento units held through an associate, compared to the HK$124.9 million recorded in the previous year. All Phase I units and 97% Phase II units of Sorrento were sold by 2004 year-end, and profit contribution from the project has been recognised accordingly.

The taxation charge for 2004 was HK$37.4 million as opposed to HK$32.6 million recorded in the previous year. The increase is mainly due to the increase in operating profit.

(II) Liquidity and financial resources

At 31st December, 2004, the Group’s shareholders’ funds stood at HK$5,462.7 million or HK$17.34 per share, an increase from HK$4,686.6 million or HK$14.88 per share at 31stDecember, 2003, respectively.

As at 31st December, 2004, the Group had net cash of HK$1,737.5 million, against HK$1,277.4 million as at 31st December, 2003. The increase was mainly generated from the Group’s operating income and the distribution of cash by the associate undertaking the Sorrento project. Most of the cash surpluses were placed on deposit. In addition, the Group maintained a portfolio of listed investments with market value aggregating HK$820.4 million at 31st December, 2004 (2003: HK$550.0 million). The Group’s investment revaluation surplus increased by HK$263.3 million to HK$272.5 million at 31st December, 2004, mainly as a result of the upsurge in market value of its investment portfolio. The performance of the portfolio is generally in line with the trend of the stock markets.

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

(III) Future changes in accounting policies

The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (collectively, “new HKFRSs”) which are effective for accounting periods beginning on or after 1st January, 2005.

The Group has not early adopted these new HKFRSs in the accounts for the year ended 31st December, 2004 and is in the process of making an assessment of the impact of these new HKFRSs. The Group has so far concluded that the adoption of Hong Kong Accounting Standards (“HKAS”) 40 “Investment Property” and HKAS Interpretation 23 “The Appropriate Policies for Hotel Properties” would have a significant impact on its consolidated accounts as detailed in the above note 5 to the consolidated profit and loss account.

The Group is continuing its assessment of the impact of the new HKFRSs and other significant changes may be identified as a result of this assessment.

(IV) Employees

The Group has approximately 450 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, 2004 amounted to HK$84.2 million.

BOOK CLOSURE

The Register of Members of the Company will be closed from Wednesday, 4th May, 2005 to Monday, 9th May, 2005, 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 in force prior to 31st March, 2004, which remain applicable to results announcements in respect of accounting periods commencing before 1st July, 2004 under the transitional arrangements, will be published on the Stock Exchange’s website in due course.

By Order of the Board

Wilson W. S. Chan

Secretary

Hong Kong, 8th March, 2005

As at the date of this announcement, the Board of Directors of the Company comprises Mr. Gonzaga W. J. Li, Mr. Brian S. Forsgate, Mr. C. C. Haung, Mr. T. Y. Ng, Mr. H. M. V. de Lacy Staunton and Mr. M. K. Tan.

“Please also refer to the published version of this announcement in South China Morning Post and Hong Kong Economic Journal as of 9th March, 2005.”