CAI Corp — Interim / Quarterly Report 2006

Aug 15, 2006

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HARBOUR CENTRE DEVELOPMENT LIMITED

Stock Code: 51

Interim Results Announcement For the six months ended 30th June, 2006

GROUP RESULTS

The unaudited Group profit attributable to Shareholders for the six months ended 30th June, 2006 amounted to HK$269.7 million, an increase of 36.3% as compared with HK$197.9 million reported for the corresponding period last year. Earnings per share were 86 cents (2005: 63 cents).

The Group's profit has included an investment property revaluation surplus, after related deferred tax, of HK$80.9 million in the results. Excluding this net surplus, the profit for the period under review would have been HK$188.8 million, an increase of 69.5% over the comparable period.

The Group's operating profit increased by 49.5% to HK$163.3 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 the period.

INTERIM DIVIDEND

The Board has declared an interim dividend in respect of the half-year period ended 30th June, 2006 of 5.0 cents (2005: 5.0 cents) per share, payable on Friday, 13th October, 2006 to shareholders on record as at 5th October, 2006.

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Harbour Centre Development Limited - Interim Results Announcement (15th August, 2006)

MANAGEMENT DISCUSSION AND ANAYLSIS

Segment Review

For the first half of 2006, total revenue and operating profit of the Hotel Segment grew by 17% and 23% to HK$202.4 million and HK$69.7 million respectively compared to the same period last year. With encouraging increase in tourist arrivals and soaring demand from business visitors attending trade shows and exhibitions, average room rate of The Marco Polo Hongkong Hotel ("MPHK") grew by 19% to over HK$1,200 and average occupancy grew to 88%.

Total revenue and operating profit of the Property Segment increased by 84% and 93% to HK$56.8 million and HK$49.1 million respectively. Rental from the enlarged retail space of MPHK, which was completed in October 2005, and the retail units at Star House acquired in November 2005, contributed to this increase.

The office and retail space of MPHK was virtually fully let during the period under review, while the Star House retail units were 88% leased at June 2006. These investment properties were revalued by an independent valuer at 30th June, 2006 at HK$1,365 million and generated a net revaluation surplus (after deferred tax) of HK$80.9 million to be recognised in the profit for the period under review in accordance with Hong Kong accounting standards.

On property development, 62% (45 units) of 60 Victoria Road have been sold by the end of June 2006 to realise HK$176.5 million in proceeds. These sales were recognised in the current period following the issuance of occupancy permit in May. Full completion will be in late August 2006.

Financial Review

(I) Review of 2006 Interim Results

Turnover

Group turnover for the period under review grew by 108.2% to HK$483.0 million (2005: HK$232.0 million). Underpinned by the encouraging performances achieved by MPHK , the Group's hotel revenue rose by 16.8% to HK$202.4 million. Property investment revenue was up 84.4% to HK$56.8 million due to higher rental income generated from MPHK's retail areas and additional rental income contributed by the Star House units, which was acquired in November 2005. Property development revenue was HK$176.5 million, mainly contributed by the proceeds from the sale of 45 residential units at 60 Victoria Road. Increase in dividend income and interest income generated from the Group's surplus cash as a result of interest rate hikes during the period also contributed to the turnover growth.

Operating Profit

Group operating profit for the period amounted to HK$163.3 million, an increase of

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HK$54.1 million or 49.5%. This was driven by the favourable results recorded by the Hotel and Property investment segments.

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

Share of Profits of Associates

Share of profits of associates in the first half of 2006 was HK$2.8 million, a decrease of HK$9.6 million, due to the reduction in attributable profit from the Sorrento project as over 99% units of this project were sold by end 2005.

Taxation

The taxation charge for the period was HK$37.6 million, compared to HK$31.4 million in the same period last year. The increase was mainly due to the increase in operating profit.

Profit Attributable to Shareholders

The unaudited Group profit attributable to shareholders for the six months ended 30th June, 2006 amounted to HK$269.7 million (2005: HK$197.9 million), for an increase of HK$71.8 million or 36.3%. Earnings per share were HK$0.86 (2005: HK$0.63).

The Group's investment properties were revalued as at 30th June, 2006 resulting in a net surplus after deferred tax of HK$80.9 million being recorded in the profit and loss account for the period under review. Excluding this surplus, profit for the period would have been HK$188.8 million, an increase of 69.5% against the comparable period in 2005. The favourable results were mainly due to the increase in the Group's operating profit by HK$54.1 million to HK$163.3 million (2005: HK$109.2 million) and profit on disposal of investments by HK$42.5 million, but offset in part by the decrease in share of profits of HK$9.6 million contributed by the associate undertaking the Sorrento property project.

(II) Liquidity and Financial Resources

At 30th June, 2006, the Group's shareholders' equity was HK$4,508.8 million or HK$14.31 per share.

In compliance with the amendments to accounting standards (HKAS 19), with effect from 1st January, 2006 retrospectively, the Group's shareholders' equity as at 31st December, 2005 has been restated to HK$4,096.3 million from HK$4,101.0 million, a decrease of HK$4.7 million, due to the recognition of unrecognised actuarial losses to equity.

As at 30th June, 2006, the Group had a net cash balance of HK$1,585.3 million, HK$65.7 million higher than at 31st December, 2005. The increase was mainly due to HK$110.0 million sale proceeds released from stakeholders of 60 Victoria Road. Cash

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Harbour Centre Development Limited - Interim Results Announcement (15th August, 2006)

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$1,332.6 million as at 30th June, 2006 (31/12/2005: HK$922.8 million). The performance of the portfolio was in line with the stock markets.

At 30th June, 2006, the Group had no significant exposure to foreign exchange rate fluctuations.

(III) Human Resources

The Group has approximately 455 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 six months ended 30th June, 2006 amounted to HK$52.7 million (2005: HK$45.3 million).

CODE ON CORPORATE GOVERNANCE PRACTICES

During the financial period under review, basically same as previously stated in the Corporate Governance Report in the Company's latest annual report for the year ended 31st December, 2005, all the 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 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.

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Harbour Centre Development Limited - Interim Results Announcement (15th August, 2006)

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30TH JUNE, 2006

Note Turnover 2 Direct costs and operating expenses Selling and marketing expenses Depreciation and amortisation Administrative and corporate expenses Operating profit 3 Increase in fair value of investment properties Other net income 4 Share of profits less losses of associates Profit before taxation Taxation 5 Profit attributable to shareholders Proposed interim dividends Earnings per share 6 Proposed interim dividends per share	Unaudited 30/6/2006 HK$ Million 483.0 (283.9) (22.8) (10.4) (2.6) 163.3 98.1 43.1 304.5 2.8 307.3 (37.6) 269.7 15.8 HK$0.86 HK$0.05	Unaudited 30/6/2005 HK$ Million
		Restated 232.0 (100.8) (10.3) (9.2) (2.5)
		109.2 104.8 2.9
		216.9 12.4
		229.3 (31.4)
		197.9
		15.8
		HK$0.63
		HK$0.05

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CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE, 2006

Note Non-current assets Fixed assets Investment properties Other properties, plant and equipment Leasehold land Interest in associates Available-for-sale investments Long term receivables Employee benefits Current assets Inventories Trade and other receivables 7 Cash and cash equivalents Current liabilities Trade and other payables 8 Taxation payable Net current assets Total assets less current liabilities Non-current liabilities Deferred income Deferred taxation NET ASSETS Capital and reserves Share capital Reserves TOTAL EQUITY	Unaudited 30/6/2006 HK$ Million 1,663.0 54.8 15.3 1.8 1,332.6 3.8 4.4 3,075.7 103.1 132.0 1,585.3 1,820.4 139.3 22.2 161.5 1,658.9 4,734.6 1.0 224.8 225.8 4,508.8 157.5 4,351.3 4,508.8	Audited 31/12/2005 HK$ Million
		Restated 1,561.0 61.0 15.3 14.6 922.8 - 4.4
		2,579.1 243.5 105.8 1,519.6
		1,868.9
		134.0 9.1
		143.1
		1,725.8
		4,304.9
		1.6 207.0
		208.6
		4,096.3
		157.5 3,938.8
		4,096.3

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NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The preparation of the interim financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

The accounting policies and methods of computation used in the preparation of the interim financial report are consistent with those used in the annual financial statements for the year ended 31st December, 2005 except for the changes in accounting policies as described below.

HKAS 19 "Employee Benefits – Actuarial Gains and Losses, Group Plans and Disclosures"

In prior years, in calculating the Group's obligation in respect of a defined benefit pension scheme, if any cumulative unrecognised actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of scheme assets, that portion is recognised in the consolidated profit and loss account over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognised.

With effect from 1st January, 2006, the Group adopted retrospectively the additional recognition policy in the amendment to HKAS 19 under which all actuarial gain or loss of all defined benefit pension schemes can be recognised outside profit or loss. The effect of adoption is to decrease shareholders' equity as at 1st January, 2006 and 1st January, 2005 by HK$4.7 million and HK$8.2 million respectively. This change has no significant impact on the Group's results.

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Harbour Centre Development Limited - Interim Results Announcement (15th August, 2006)

2. SEGMENT INFORMATION

(a) Business segments

Turnover Operating results Increase in fair value of investment properties Other net income Share of profits less losses of associates Profit before taxation Taxation Profit attributable to shareholders	Hotel and restaurants	Property investment	Property development	Investments	T	otal
	30/6/2006 30/6/2005 HK$ HK$ Million Million 202.4 173.3 69.7 56.7 - - - - - -	30/6/2006 30/6/2005 HK$ HK$ Million Million 56.8 30.8 49.1 25.5 98.1 104.8 - - - -	30/6/2006 30/6/2005 HK$ HK$ Million Million Restated 176.5 - (1.4) - - - - - 2.8 11.2	30/6/2006 30/6/2005 HK$ HK$ Million Million 47.3 27.9 45.9 27.0 - - 43.1 2.9 - 1.2	30/6/2006 HK$ Million 483.0	30/6/2005 HK$ Million Restated 232.0
					163.3 98.1 43.1	109.2 104.8 2.9
					304.5 2.8	216.9 12.4
					307.3 (37.6)	229.3 (31.4)
					269.7	197.9

(b) Geographical segments

(b) Geographical segments
Hong Kong Singapore	Turnover 30/6/2006 30/6/2005 HK$ HK$ Million Million 466.4 218.2 16.6 13.8 483.0 232.0	Operatingresults
	30/6/2006 HK$ Million 466.4 16.6 483.0	30/6/2006 HK$ Million 146.7 16.6 163.3	30/6/2005 HK$ Million
			95.4 13.8
			109.2

No inter-segment revenue has been recorded during the periods.

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Harbour Centre Development Limited - Interim Results Announcement

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3. OPERATING PROFIT

3.	OPERATING PROFIT
		30/6/2006	30/6/2005
		HK$	HK$
		Million	Million
	Operating profit is arrived at:
	After charging:-
	Cost of inventories sold	178.8	13.2
	Depreciation and amortisation	10.4	9.2
	Staff costs, including retirement scheme costs
	HK$2.8 million (2005 : HK$2.6 million)	52.7	45.3
	Auditors' remuneration	0.3	0.3
	Share of associates' taxation	0.4	2.1
	and crediting:-
	Gross rental income from investment properties	56.8	30.8
	Less: direct outgoings	**(5.7) **	(3.7)
		51.1	27.1
	Interest income on bank deposits	25.2	13.2
	Dividend income from listed investments	20.6	14.6
4.	OTHER NET INCOME
		30/6/2006	30/6/2005
		HK$	HK$
		Million	Million
	Release of deferred income	0.6	2.9
	Profit on disposal of available-for-sale investments	42.5	-
		43.1	2.9
5.	TAXATION
	Hong Kong profits tax has been provided at the rate of 17.5% (2005:		17.5%) on the
	estimated assessable profits for the period.
		30/6/2006	30/6/2005
		HK$	HK$
		Million	Million
			Restated
	Current taxation
	Provision for Hong Kong profits tax for the period	19.8	12.6
	Deferred taxation
	Origination and reversal of temporary differences	0.6	0.5
	Change in fair value of investment properties	17.2	18.3
		17.8	18.8
	Total tax charge	37.6	31.4

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Harbour Centre Development Limited - Interim Results Announcement (15th August, 2006)

6. EARNINGS PER SHARE

The calculation of earnings per share is based on the profit for the period of HK$269.7 million (2005: HK$197.9 million) and on 315.0 million (2005: 315.0 million) ordinary shares in issue throughout the period ended 30th June, 2006. For the period under review and the preceding comparative period, there is no difference between the basic and diluted earnings per share.

7. TRADE AND OTHER RECEIVABLES

Included in trade and other receivables are trade debtors (net of provision for bad and doubtful debts) with ageing analysis as at 30th June, 2006 as follows:

Due within 30 days Due after 30 days but within 60 days Due after 60 days but within 90 days Over 90 days	30/6/2006 HK$ Million 31.6 6.7 43.6 - 81.9	31/12/2005 HK$ Million
		39.3 2.5 0.1 0.1
		42.0

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

8. TRADE AND OTHER PAYABLES

Included in trade and other payables are trade creditors with ageing analysis as at 30th June, 2006 as follows:

Due within 30 days Due after 30 days but within 60 days Due after 60 days but within 90 days Over 90 days	30/6/2006 HK$ Million 9.8 4.1 0.4 - 14.3	31/12/2005 HK$ Million
		11.2 3.9 0.4 -
		15.5

9. COMPARATIVE FIGURES

Certain comparative figures have been restated as a result of the changes in accounting policies. Further details are disclosed in note 1.

In addition, certain comparative figures have been re-classified as a result of the change in the presentation of the Group's share of associates' taxation which the Group's share of associates' profits less losses is presented on an after-tax basis.

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Harbour Centre Development Limited - Interim Results Announcement (15th August, 2006)

10. REVIEW OF RESULTS

The unaudited interim results for the six months ended 30th June, 2006 have been reviewed with no disagreement by the Audit Committee of the Company.

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 period under review.

BOOK CLOSURE

The Register of Members will be closed from Thursday, 28th September, 2006 to Thursday, 5th October, 2006, both days inclusive, during which period no transfer of shares of the Company can be registered. In order to qualify for the abovementioned interim 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, 27th September, 2006.

By Order of the Board Wilson W. S. Chan Secretary

Hong Kong, 15th August, 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 The Standard and Hong Kong Economic Journal both dated 16th August, 2006."

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Harbour Centre Development Limited - Interim Results Announcement

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