CAI Corp — Earnings Release 2005

Mar 8, 2006

HARBOUR CENTRE DEVELOPMENT LIMITED

Stock Code: 51

2005 Results Announcement

GROUP RESULTS

The Group's profit attributable to shareholders for the year ended 31st December, 2005 amounted to HK$517.1 million, an increase of HK$145.4 million or 39.1% as compared with HK$371.7 million (as restated) recorded for the year ended 2004. Earnings per share were HK$1.64 (2004 restated: HK$1.18).

Following the adoption of the new accounting standards as detailed hereunder, the Group has included an investment property revaluation surplus, after related deferred tax, of HK$223.7 million in the results. Excluding this net surplus, the profit for the year under review would have been HK$293.4 million, an increase of 17.8% over the comparable period.

The Group's operating profit improved by 29.2% to HK$259.3 million, principally attributable to better performance of The Marco Polo Hongkong Hotel amid favourable market conditions and considerable increase in rental income from the hotel's commercial section during 2005.

dividends

An interim dividend in respect of the year ended 31st December, 2005 of 5.0 cents (2004: 5.0 cents) per share was paid on 12th October, 2005, absorbing a total amount of HK$15.8 million (2004: HK$15.8 million). The Directors have recommended for adoption at the Annual General Meeting to be held on Monday, 9th May, 2006 the payment on 17th May, 2006 to shareholders registered on 9th May, 2006 of a final dividend in respect of the year ended 31st December, 2005 of 12.0 cents (2004: 12.0 cents) per share, absorbing a total amount of HK$37.8 million (2004: HK$37.8 million).

MANAGEMENT DISCUSSION AND ANALYSIS

Segment Review

The Marco Polo Hongkong Hotel ("MPHK Hotel") recorded steady occupancy and double-digit growth in the average room rates during 2005. Total revenue and operating profit of the Hotel Segment in 2005 grew by 11 per cent and 9 per cent to HK$370.9 million and HK$117.0 million respectively over the corresponding period of last year.

Average occupancy at MPHK Hotel was maintained at 87 per cent during the year under review, compared with 88 per cent in 2004. Despite the slight decline in occupancy, MPHK Hotel recorded 19 per cent growth in average room rate during 2005 as compared to 2004. The outlook for the Hong Kong's hotel industry remains positive in the wake of strong economic fundamentals and growth in tourist arrivals.

The Property Segment revenue and operating profit increased by 14 per cent and 12 per cent to reach HK$94.3 million and HK$83.0 million respectively as compared to 2004. The increase was attributable to increased rental from MPHK Hotel's retail space, which was enlarged following the completion of the second phase retail space extension completed in October 2005, and first time rental contribution from retail units at Star House, Tsimshatsui, which were acquired for a cash consideration of HK$309.2 million in September 2005.

During 2005, the office and retail areas of MPHK Hotel were respectively 100% and 91% occupied, while the newly acquired Star House units were 99% occupied at the end of 2005. Lane Crawford remains the anchor tenant at MPHK Hotel's retail area, which nicely compliments the patronage of the hotel.

The Group's investment property, including the office and retail areas in MPHK Hotel and the Star House units, were revalued by an independent valuer at 31st December, 2005, giving rise to a net revaluation surplus (after deferred tax) of HK$223.7 million which has been included as part of the profit for the year under review in accordance with the new Hong Kong accounting standards.

On property developments, superstructure work for the 60 Victoria Road development at Kennedy Town is in progress and scheduled completion will be in August 2006. Pre-sales of the residential units (Total: 73 units) were launched in October 2005 and met with favourable market response. At the end of 2005, cumulative sales reached 21%, realising approximately HK$70 million in proceeds. In accordance with current accounting standards, these sales will only be recognised in the profit and loss account on completion of the development.

For the Sorrento development (Kowloon Station Package II), in which the Group has a 20% interest, cumulative sales of Phase II reached 851 units (99% sold) at the end of 2005.

Financial Review

(I) Review of 2005 Results

In preparing the accounts for the year under review, the Group has adopted the new and revised Hong Kong Financial Reporting Standards ("HKFRSs"), including all Hong Kong Accounting Standards ("HKASs") and relevant Interpretations ("HKAS-INTs" and "HK-INTs"), which took effect on 1st January, 2005. The resultant significant changes in accounting treatment and presentation are detailed in the Note 1 to the Accounts.

Profit Attributable to Shareholders

The Group's profit attributable to shareholders for the year amounted to HK$517.1 million, representing an increase of HK$145.4 million or 39.1% from last year's profit of HK$371.7 million (as restated). Earnings per share were HK$1.64 (2004 restated: HK$1.18).

In compliance with the new HKFRSs, the Group's investment properties were revalued as at 31st December, 2005 resulting in a net surplus after deferred tax of HK$223.7 million being recorded in the profit and loss account for the year under review. Excluding this surplus, profit for the year under review would have been HK$293.4 million, an increase of 17.8% over 2004's profit. The improvement is mainly due to the increase in the Group's operating profit by HK$58.6 million offset partially by the decrease in contribution from associates by HK$32.0 million (primarily due to the reduction in sales of Sorrento units held by an associate).

Turnover

The Group's turnover for the year under review was HK$526.8 million, an increase of 18.4% from HK$445.0 million achieved in 2004. Against the backdrop of the improving economic conditions in Hong Kong and fuelled by the remarkable performance of The Marco Polo Hongkong Hotel and its retail space, the Group's hotel revenue and property investment income increased by 11% and 14% to HK$370.9 million and HK$94.0 million, respectively. The growth was also aided by higher interest income generated from the Group's surplus cash as a result of interest rate hikes during the year.

Operating Profit

The Group's operating profit for 2005 amounted to HK$259.3 million, increased by HK$58.6 million or 29% from HK$200.7 million in 2004 (as restated) as all segments of the Group reported revenue increases.

Performance of the Group's business segments is covered in detail under the Segment Review Section.

Other Items

Included in the Group's profit is a revaluation surplus of HK$271.1 million (2004: HK$148.7 million) on revaluation of the Group's investment properties and other net income of HK$42.6 million (2004: HK$20.9 million). Other net income includes deferred interest income of HK$3.9 million (2004: HK$20.9 million), which was earned from a loan advanced to an associate undertaking the Sorrento project and recognised on the basis of the sale progress of the project, and a write-back of provision for impairment totalling HK$40.7 million for the Victoria Road property project, based on the prevailing market conditions.

Share of Profits of Associates

Share of profits of associates in the year of 2005 was HK$24.4 million, reduced from HK$56.4 million for the last year. This was caused by the reduction in attributable profit by HK$33.1 million from the Sorrento project as less residential units were sold during the year under review. As over 99% units of Sorrento were sold by the end of 2005, further profit contributions from this project will be insignificant in the coming years.

Taxation

The taxation charge for the year was HK$80.3 million, compared to HK$55.0 million recorded the last year. Included in current year's taxation charge is a deferred tax provision of HK$47.4 million (2004: HK$26.0 million) relating to investment property revaluations in accordance with the HKAS 12 "Income taxes" and HKAS-INT 21 "Income taxes – recovery of revalued non-depreciable assets".

(II) Liquidity and Financial Resources

As of 31st December, 2005, the Group's shareholders' equity was HK$4,101.0 million or HK$13.02 per share based on the currently adopted HKFRSs.

In compliance with the new and revised HKFRSs, which are effective from 1st January 2005 and have been adopted retrospectively as detailed in the notes to the Accounts, the Group's shareholders' equity as at 31st December, 2004 has been restated to HK$3,505.6 million or HK$11.13 per share from HK$5,462.7 million or HK$17.34 per share respectively, a decrease of HK$1,957.1 million or HK$6.21 per share. The reduction mainly represents the reversal of the revaluation reserve for the Group's hotel property of HK$1,813.0 million on restating it at cost (less depreciation) instead of at valuation as previously adopted, and the provision for deferred tax of HK$144.1 million on investment property revaluations, both in compliance with the new HKFRSs. Details of these adjustments are stated in the Note 1 to the Accounts.

As at 31st December, 2005, the Group had a net cash balance of HK$1,519.6 million, decreased by HK$217.9 million from HK$1,737.5 million as at 31st December, 2004. The decrease was mainly due to the acquisition of Star House units in September 2005. Our cash surplus was mostly placed as bank deposits. In addition, the Group maintained a portfolio of investments primarily consisting of blue chip securities, with a market value aggregating HK$922.8 million as at 31st December, 2005 (2004: HK$820.4 million). The performance of the portfolio was in line with the stock markets.

At 31st December, 2005, the Group had no significant exposure to foreign exchange rate fluctuations.

(III) Human Resources

The Group has approximately 452 employees working at the Group's hotel. Employees are remunerated according to the 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, 2005 amounted to HK$92.9 million (2004 : HK$84.2 million).

CODE ON CORPORATE GOVERNANCE PRACTICES

During the financial year under review, same as previously stated in the Company's latest interim report for the six months ended 30th June, 2005, all those code provisions set out in the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited which became applicable to the Company in respect of the year under review were met by the Company, except in respect of one code provision providing for the roles of chairman and chief executive officer to be performed by different individuals. The deviation is deemed appropriate as it is considered to be more efficient to have one single person to be the Chairman of the Company as well as to discharge the executive functions of a chief executive officer. The Board of Directors believes that the balance of power and authority is adequately ensured by the operations of the Board which comprises experienced and high calibre individuals with a substantial number thereof being independent Non-executive Directors.

CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31ST DECEMBER, 2005

				2005		2004
				HK$		HK$
		Note		Million		Million
						Restated
Turnover		2		526.8		445.0
Direct costs and operating expenses				(217.8)		(207.1)
Selling and marketing expenses				(19.1)		(16.6)
Depreciation and amortisation				(25.2)		(15.9)
Administrative and corporate expenses				(5.4)		(4.7)
Operating profit		3		259.3		200.7
Increase in fair value of investment properties				271.1		148.7
Other net income		4		42.6		20.9
				573.0		370.3
Share of profits less losses of associates				24.4		56.4
Profit before taxation				597.4		426.7
Taxation		5		(80.3)		(55.0)
Profit attributable to shareholders				517.1		371.7
Dividends attributable to the year
Interim dividend declared and paid 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		6		HK$1.64		HK$1.18
Dividends per share
Interim dividend				5.0 cents		5.0 cents
Final dividend				12.0 cents		12.0 cents
				17.0 cents		17.0 cents

CONSOLIDATED BALANCE SHEET

AS AT 31ST DECEMBER, 2005

					2005				2004
					HK$				HK$
		Note			Million				Million
									Restated
Non-current assets
Fixed assets
- Investment properties					1,561.0				973.0
- Other properties, plant and equipment					61.0				103.8
- Leasehold land					15.3				15.3
Interest in associates					14.6				42.4
Available-for-sale investments					922.8				820.4
Employee benefits					9.1				8.7
					2,583.8				1,963.6
Current assets
Inventories			243.5				3.4
Trade and other receivables		7	105.8				51.4
Cash and cash equivalents			1,519.6				1,737.5
			1,868.9				1,792.3
Current liabilities
Trade and other payables		8	134.0				67.6
Taxation payable			9.1				19.0
			143.1				86.6
Net current assets					1,725.8				1,705.7
Total assets less current liabilities					4,309.6				3,669.3
Non-current liabilities
Deferred income			1.6				5.2
Deferred taxation			207.0				158.5
					208.6				163.7
NET ASSETS					4,101.0				3,505.6
Capital and reserves
Share capital					157.5				157.5
Reserves					3,943.5				3,348.1
TOTAL EQUITY					4,101.0				3,505.6

NOTES TO THE ACCOUNTS

1. PRINCIPAL ACCOUNTING POLICIES AND BASIS OF PRESENTATION

These accounts have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSs"), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs") and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These accounts also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The HKICPA has issued a number of new and revised HKFRSs that are effective or available for early adoption for accounting periods beginning on or after 1st January, 2005. Information on the changes in accounting policies resulting from initial application of these new and revised HKFRSs for the current and prior accounting periods reflected in these accounts are summarised as follows:

HKAS 40 "Investment property"

In prior years, investment properties were stated at fair value and surpluses on revaluation were credited to the investment property revaluation reserve. Deficits arising on revaluation were set off against previous revaluation surpluses and thereafter charged to the consolidated profit and loss account. Revaluation was only done as at the financial year-end date.

With effect from 1st January, 2005, on adoption of HKAS 40, the Group's investment properties are stated at fair value with all the changes in fair value reported in the consolidated profit and loss account. This new accounting policy has been applied retrospectively. The revenue reserve as at 1st January, 2005 and 1st January, 2004 was restated and increased by HK$823.3 million and HK$674.6 million, respectively, which represented the transfer from the investment property revaluation reserve. Such transfer has no effect on the Group's shareholders' equity. The effect of the change in accounting for revaluation surpluses has increased the profit attributable to shareholders for the year ended 31st December, 2005 by HK$271.1 million (2004: HK$148.7 million).

HKAS – INT 21 "Income taxes – recovery of revalued non-depreciable assets"

In previous years, no deferred taxation was recognised on revaluation of the Group's investment properties on the basis that the recovery of the carrying amount of the investment properties would be through sale and such deferred taxation should be calculated at the tax rate applicable on eventual sale, which is nil in Hong Kong.

With effect from 1st January, 2005, HKAS-INT 21 requires deferred taxation to be recognised for any changes in fair value of investment properties on the basis that the recovery of the carrying amount of the investment properties would be through use and be calculated at the applicable profits tax rate and charged to the consolidated profit and loss account. This new accounting policy has been applied retrospectively. Shareholders' equity as at 1st January, 2005 and 1st January, 2004 was restated and decreased by HK$144.1 million and HK$118.1 million respectively. The adjustments represent deferred tax liabilities attributable to the fair value gains on the Group's investment properties. The change has increased the deferred tax charge for the year ended 31st December, 2005 by HK$47.4 million (2004: HK$26.0 million).

HK - INT 2 "The appropriate accounting policies for hotel properties" and HKAS 17 "Leases"

In prior years, the Group's hotel property was stated at fair value based on an annual professional valuation. No depreciation was provided on the hotel property on the basis that it was maintained in a continuous state of sound repair such that, given the estimated life of the hotel property and its residual value, any depreciation was immaterial.

With effect from 1st January, 2005, on adoption of HK-INT 2 and HKAS 17, the cost of the Group's hotel property was split into a lease of land and a lease of a building in proportion to the relative fair values of the interest in the land and the building elements at the inception of the lease. The leasehold land is stated at cost and is amortised over the period of the lease on a straight-line basis whereas the building is stated at cost less accumulated depreciation and impairment. These new accounting policies have been applied retrospectively. Shareholders' equity as at 1stJanuary, 2005 and 1st January, 2004 was restated and decreased by HK$1,813.0 million, which comprised a reversal of the hotel property revaluation reserve of HK$1,756.9 million and adjustments to the revenue reserve of HK$56.1 million, and HK$1,644.3 million, which comprised a reversal of the hotel property revaluation reserve of HK$1,589.9 million and adjustments to the revenue reserve of HK$54.4 million, respectively. The change has increased the depreciation charge to the consolidated profit and loss account for the year ended 31st December, 2005 by HK$5.8 million (2004 as restated: HK$1.7 million).

HKAS 1 "Presentation of financial statements"

The application of the new HKFRSs has also resulted in changes in the presentation of the accounts retrospectively with comparatives restated to conform to current period's presentation, in particular, the presentation of the Group's share of associates' taxation. In prior years, the Group's share of associates' tax was presented as a component of taxation in the consolidated profit and loss account. On adoption of the HKAS 1, the Group's share of associates' profits less losses is presented on a post-tax basis.

Summary of the effect of changes in the accounting policies

(i) Effect on opening balance of total equity at 1st January, 2005 and 1st January, 2004 (as adjusted)

		Revenue		Other		Total
		reserve		reserves		equity
		HK$		HK$		HK$
		Million		Million		Million
At 1st January, 2005
Prior year adjustments
HKAS 40		823.3		(823.3)		-
HKAS-INT 21		(144.1)		-		(144.1)
HK-INT 2		(56.1)		(1,756.9)		(1,813.0)
Total increase/(decrease) in equity		623.1		(2,580.2)		(1,957.1)

At 1st January, 2004
Prior year adjustments
HKAS 40		674.6		(674.6)		-
HKAS-INT 21		(118.1)		-		(118.1)
HK-INT 2		(54.4)		(1,589.9)		(1,644.3)
Total increase/(decrease) in equity		502.1		(2,264.5)		(1,762.4)

(ii) Effect on profit after taxation

				2005		2004
				HK$		HK$
				Million		Million
HKAS 40				271.1		148.7
HKAS-INT 21				(47.4)		(26.0)
HK-INT 2				(5.8)		(1.7)
Total increase in profit after taxation				217.9		121.0

2. SEGMENT INFORMATION

(a) Business segments

	Hotel and restaurants				Property				Investments				Total
	2005		2004		2005		2004		2005		2004		2005		2004
	HK$		HK$		HK$		HK$		HK$		HK$		HK$		HK$
	Million		Million		Million		Million		Million		Million		Million		Million
			Restated				Restated								Restated
Turnover	370.9		333.7		94.3		82.8		61.6		28.5		526.8		445.0
Operating results	117.0		107.2		83.0		74.1		59.3		19.4		259.3		200.7
Increase in fair value of
investment properties	-		-		271.1		148.7		-		-		271.1		148.7
Other net income	-		-		40.7		-		1.9		20.9		42.6		20.9
													573.0		370.3
Share of profits less
losses of associates	-		-		23.2		56.3		1.2		0.1		24.4		56.4
Profit before taxation													597.4		426.7
Taxation													(80.3)		(55.0)
Profit attributable to
shareholders													517.1		371.7
Segment assets	149.5		101.1		1,845.1		1,054.2		923.9		820.7		2,918.5		1,976.0
Interest in associates	-		-		14.6		38.9		-		3.5		14.6		42.4
Unallocated assets
Cash and cash equivalents													1,519.6		1,737.5
Total assets													4,452.7		3,755.9
Segment liabilities	(69.0)		(48.8)		(65.7)		(22.4)		(0.9)		(1.6)		(135.6)		(72.8)
Unallocated liabilities													(216.1)		(177.5)
Total liabilities													(351.7)		(250.3)
Depreciation and
amortisation for the year	25.2		15.9		-		-		-		-		25.2		15.9
Capital expenditure
incurred during the year	34.8		24.9		441.6		36.9		-		-		476.4		61.8

(b) Geographical segments

	Turnover				Operating results
	2005		2004		2005		2004
	HK$		HK$		HK$		HK$
	Million		Million		Million		Million
							Restated
Hong Kong	507.4		428.4		239.9		184.1
Singapore	19.4		16.6		19.4		16.6
	526.8		445.0		259.3		200.7

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

3. OPERATING PROFIT

Operating profit is arrived at after:

	2005		2004
	HK$		HK$
	Million		Million
			Restated
charging:-
Cost of inventories sold	26.5		26.6
Depreciation and amortisation	25.2		15.9
Staff costs, including retirement scheme costs
HK$4.3 million (2004 : HK$3.9 million)	92.9		84.2
Auditors' remuneration	0.5		0.5
and crediting:-
Gross rental income from investment properties	94.3		82.8
Less: direct outgoings	(8.4)		(6.8)
	85.9		76.0
Interest income on bank deposits	41.1		3.2
Dividend income from listed investments	20.5		25.3

4. OTHER NET INCOME

	2005		2004
	HK$		HK$
	Million		Million
Release of deferred income	3.9		20.9
Loss on disposal of available-for-sale investments	(2.0)		-
Write-back of provision for impairment in value
of property held for redevelopment	40.7		-
	42.6		20.9

The write-back of provision for impairment in value of property held for redevelopment arose due to an increase in the estimated recoverable amount as a result of improvements in the property market.

5. TAXATION

1. The provision for Hong Kong profits tax is based on the profit for the year as adjusted for tax purposes at the rate of 17.5 per cent (2004: 17.5 per cent).

(b) Taxation in the consolidated profit and loss account represents:-

	2005		2004
	HK$		HK$
	Million		Million
			Restated
Current taxation
Provision for Hong Kong profits tax for the year	31.8		30.7
Overprovision in respect of prior years	-		(3.2)
	31.8		27.5
Deferred taxation
Origination and reversal of temporary differences	1.1		1.5
Change in fair value of investment properties	47.4		26.0
	48.5		27.5
Total tax charge	80.3		55.0

6. EARNINGS PER SHARE

The calculation of earnings per share is based on the profit for the year of HK$517.1 million (2004 restated: HK$371.7 million) and on 315.0 million (2004: 315.0 million) ordinary shares in issue throughout the year ended 31stDecember, 2005. For the year under review and the preceding year, there is no difference between the basic and diluted earnings per share.

1. TRADE AND OTHER RECEIVABLES

Included in trade and other receivables are trade debtors (net of provision for bad and doubtful debts) and their age analysis as at 31st December, 2005 as follows:

	2005		2004
	HK$		HK$
	Million		Million
Due within 30 days	39.3		31.8
Due after 30 days but within 60 days	2.5		4.1
Due after 60 days but within 90 days	0.1		0.1
Over 90 days	0.1		0.1
	42.0		36.1

The Group has defined credit policies in each of its core businesses. The general credit terms allowed range from 0 to 60 days.

1. TRADE AND OTHER PAYABLES

Included in trade and other payables are trade creditors and their age analysis as at 31st December, 2005 as follows:

	2005		2004
	HK$		HK$
	Million		Million
Due within 30 days	11.2		12.8
Due after 30 days but within 60 days	3.9		3.8
Due after 60 days but within 90 days	0.4		0.1
Over 90 days	-		0.1
	15.5		16.8

9. REVIEW OF RESULTS

The financial results for the year ended 31st December, 2005 have been reviewed with no disagreement by the Audit Committee of the Company. Also, this preliminary results announcement has been agreed with the Company's Auditors.

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 Thursday, 4th May, 2006 to Tuesday, 9th May, 2006, both days inclusive, for the purpose of determining shareholders’ entitlements to the proposed final dividend. In order to qualify for the final dividend, all transfers, accompanied by the relevant share certificates, must be lodged with the Company's Registrars, Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen's Road East, Wanchai, Hong Kong, not later than 4.30 p.m. on Wednesday, 3rd May, 2006.

By Order of the Board

Wilson W. S. Chan

Secretary

Hong Kong, 8th March, 2006

As at the date of this announcement, the Board of Directors of the Company comprises Mr. Gonzaga W. J. Li and Mr. T. Y. Ng, together with three independent non-executive Directors, namely, Mr. Brian S. Forsgate, Mr. H. M. V. de Lacy Staunton and Mr. Man Kou Tan.

“Please also refer to the published version of this announcement in South China Morning Post and Hong Kong Economic Journal both dated 9th March, 2006.”