Central Development Holdings Limited — Annual Report 2001

Jul 27, 2001

Seapower Resources International Limited

(Incorporated in the Cayman Islands with limited liability)

Announcement of audited consolidated results

for the year ended 31st March, 2001

RESULTS

The Directors of Seapower Resources International Limited (the “Company”) announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31st March, 2001 together with the comparative figures for the previous year as follows:

		2001		2000
	Notes	HK$’000		HK$’000
Turnover		201,110		300,259
Direct operating expenses		(152,963	)	(220,268	)
Other revenue		64,891		95,746
Selling and administrative expenses		(91,099	)	(120,293	)
Other operating expenses	2	(127,827	)	(68,179	)
Loss from operations		(105,888	)	(12,735	)
Finance costs		(121,902	)	(124,879	)
(Loss) gain on disposal of subsidiaries		(10,847	)	59,043
Share of results of associates		362		(3,328	)
Share of results of jointly controlled entities		-		(1,366)
Provision for diminution in value of
associates and jointly controlled entities		-		(77,404	)
Loss before taxation		(238,275	)	(160,669	)
Taxation credit	3	(407	)	(270	)
Loss before minority interests		(237,868	)	(160,399	)
Minority interests		1,186		1,075
Net loss for the year		(239,054	)	(161,474	)
Loss per share
Basic	4	(15.45 cents	)	(HK11.82 cents	)

Notes:

1. Change in accounting policy

In prior years, goodwill on acquisition was written off to reserves immediately on acquisition. During the year ended 31st March, 2000, goodwill was capitalised as intangible asset and amortised on a straight-line basis over its estimated useful economic life. In the opinion of the Directors, the change in accounting policy since that year could better reflect the financial position of the Group.

A prior year adjustment was made during the year ended 31st March, 2000 in order to reflect the adjustment for the effects of capitalisation and amortisation of goodwill on acquisition.

The effect of the change in accounting policy, which had been applied retrospectively, on the results for the year ended 31st March, 2000 and deficit at 31st March, 1999 are as follows:

HK$’000

Decrease in net loss for the year ended 31st March, 2000 33,982

Increase in deficit at 31st March, 1999 88,423

1. Other operating expenses

	2001		2000
	HK$’000		HK$’000
Other operating expenses comprises:
Provision for bad and doubtful debts	59,260		13,413
Deficit arising on revaluation of cold storage
warehouses and other land and buildings	30,933		-
Deficit arising on revaluation of investment properties	28,990		-
Bank charges	8,559		5,153
Provision for impairment losses of goodwill	85		30,134
Amortisation of goodwill	-		14,992
Write down of investment in convertible notes
to net realisable value and provision for accrued interest	-		4,487
	127,827		68,179

1. Taxation Credit

	2001		2000
	HK$’000		HK$’000
The (credit) charge comprises:
Under(over)provision of Hong Kong Profits Tax in prior years	91		(191	)
Overseas taxation	-		71
	91		(120	)
Deferred taxation	(500	)	(209	)
Taxation attributable to the Company and its subsidiaries	(409	)	(329	)
Share of taxation on results of associates	2		59
	(407	)	(270	)

No provision for Hong Kong Profits Tax has been made in the financial statements as the Company and its subsidiaries did not have any assessable profits for both years.

Overseas taxation is calculated at the rates prevailing in the respective jurisdictions.

4. Loss per share

The calculation of the basic loss per share is based on the net loss for the year of approximately HK$239,054,000 (2000: HK$161,474,000) and on 1,547,042,829 (2000: weighted average of 1,366,583,813) shares in issue during the year.

No amount has been presented for the diluted loss per share for the years ended 31st March, 2001 and 2000 as the exercise of the outstanding share options of the Company during the year 31st March, 2001 and 2000 would result in reducing loss per share.

Summary of the Auditors’ Report

The auditors included in their opinion in respect of the financial statements for the year ended 31st March, 2001 a paragraph (paragraph a) below) on the fundamental uncertainty relating to the preparation of the financial statements on a going concern basis. However, the auditors considered that the fundamental uncertainty has been adequately disclosed in the financial statements and their opinion was not qualified in this respect. The auditors opined that except for any adjustments that might have been found to be necessary had they been able to obtain sufficient evidence concerning the items mentioned in paragraph b) below, the financial statements gave a true and fair view of the state of affairs of the Company and of the Group as at 31st March, 2001 and of the loss and cash flows of the Group for the year then ended and had been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

a) Fundamental uncertainty relating to the going concern basis

The Group’s servicing of borrowings from certain financial creditors (the “Financial Creditors “) were not made according to the schedules set by the Financial Creditors such that the Group’s borrowings from these Financial Creditors have become due for repayment. As a result, receivers had been appointed by certain of the Financial Creditors (the “Banking Syndicate”) in respect of two of the Group’s three cold storage warehouses (the “Properties”). Also, one member of the Banking Syndicate had taken action in connection with their specific security over certain Group assets.

The Group’s third cold storage warehouse secured borrowings obtained from a Financial Creditor which was not a member of the Banking Syndicate. The Group was dependent upon the continuing support of Financial Creditors with which the Group was in discussion for the restructuring of the borrowings.

Provided that the Financial Creditors continued to support the Group until such time as agreement could be reached with the Financial Creditors for the restructuring of the Group’s borrowings, the Directors considered that the Group would have sufficient financial resources to meet in full its financial obligations as they fell due for the foreseeable future.

The financial statements had been prepared on a going concern basis, the validity of which depended upon future funding being available. The financial statements did not include any adjustments that might result from the failure to obtain such funding.

b) The evidence of certain items available to the auditors was limited as follows:

(1) Included in the consolidated income statement was a loss on disposal of a subsidiary of approximately HK$3 million. However, the auditors were unable to obtain the sale and purchase agreement or other documentary evidence in respect of the disposal. Also, full provision has been made in respect of the balance of the receivable for the disposal of approximately HK$27 million. Against this background, the auditors were unable to satisfy themselves as to the validity of the disposal and as to whether the recorded loss on disposal and the subsequent provision were fairly stated.

(2) Included in the Group’s property, plant and machinery as at 31st March, 2001 were properties held for development of approximately HK$54 million. The auditors were unable to obtain sufficient information and explanations regarding the valuation of the properties under development as at 31st March, 2001 to assess whether any provision was required for impairment in value.

Any adjustments to the figures mentioned above would affect the net assets of the Company and the Group as at 31st March, 2001 and the results of the Group for the year then ended.

DIVIDENDS

The Directors do not recommend the payment of a final dividend in respect of the year ended 31st March, 2001. (2000: nil) to shareholders of the Company.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from 4th September, 2001 to 6th September, 2001, both days inclusive, during which period no share transfers will be registered.

In order to be eligible to attend and vote at the 2001 Annual General Meting of the Company, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Branch Share Registrars in Hong Kong, Progressive Registration Limited, not later than 4:00 p.m. on 3rd September, 2001.

RESULTS FOR THE YEAR

The US economy, acting as the global economic indicator, slowed down with weakened consumer sentiment during the year under review. Hong Kong economy, especially the export, trading and retail industry, was correspondingly affected by such decline. Despite this, the Group managed to minimize the adverse effects by virtue of its solid experience in the industry and flexible marketing strategies. The Group’s turnover was HK$201,110,000 (2000: HK$300,259,000) for the financial year ended 31st March, 2001. During the financial year, the Group continued to dispose non-core businesses and assets and manage the businesses with prudent measures in response to the challenging market conditions. The Group made a net loss for the year ended 31st March, 2001 of HK$239,054,000 (2000: HK$161,474,000).

OPERATIONS REVIEW

The unique business model of the Group was endorsed by its strategic alliances worldwide. They also see the need for a nerve centre to link two of the world’s largest and powerful markets, namely, United States and the People’s Republic of China (“PRC”). The Group’s connection and experience in the PRC market make the Group the most qualified entity to perform a nerve centre role for the climate controlled products industry between these two important markets. The unique business model of the Group is as follows:

1. Global Supply Chain Management

With the Group’s 20 years experience in cold storage and warehousing, it has accumulated significant expertise in handling and earned the trust from international clients. As a logical extension of its business, the Group has allocated appropriate resources in building up the physical and IT infrastructure to provide a global supply chain management solution for such international traders and manufacturers of climate controlled products since late 1999. The objective is to assist the Group’s customers to replenish their stocks, identify new and cheaper sources worldwide, both online and offline. To streamline the operation, a separate business unit was set up to house all IT systems, global alliances and ancillary business services so that the Group’s customers need only a single point of contact to reach a wide variety of services and markets.

This strategy was proved to be correct as in October 2000, the Group and AmeriCold Logistics, LLC (“AmeriCold”) signed an agreement for the formation of a strategic alliance with the intention to provide a single door-to-door fulfillment service to their respective clients. AmeriCold is the largest provider of refrigerated and frozen distribution services in the United States. It has refrigerated capacity of over 500 million cubic feet and operates 106 temperature-controlled facilities. AmeriCold transportation services manage over 7.5 billion pounds of refrigerated and frozen freight per year.

As a result of AmeriCold’s joining the Group strategic alliance network, the Group now has over 160 cold storage and logistics alliances in the world and it is the largest climate controlled products fulfillment network in the globe in terms of total storage capacity and throughput. The Group’s global reach now covers USA, the PRC, Taiwan, Hong Kong, Australia, New Zealand, South Korea, Singapore, Malaysia, Indonesia and United Kingdom. The new initiative will enable the Group’s customers to expand their market coverage without investment. More importantly, this network allows the Group’s customers immediate access to two of the world’s largest markets: USA and the PRC.

In early 2001, in collaboration with the Hong Kong University of Science and Technology and the Stanford University, the Group had committed appropriate resources to study the opportunities and pitfalls in conducting global supply chain management for its clients, especially between USA and China. The findings were very encouraging and insightful and had been used as a blueprint to develop the Group’s strategy in marketing and devising tailor-made logistics and supply chain management solutions to its clients and potential clients.

2. China Operations

As an integral part of the Group’s Global Supply Chain Management initiatives, the Group has also set up a special team in developing the infrastructure and network in the PRC. The Board is pleased to announce that as of the date of this report, the Group has over 45 cold storage and logistics alliances in the PRC. With this critical mass in place, the Group is now in a better position to provide imports consultancy, trading and marketing services, door-to-door logistics management services for foreign based manufacturers, traders, distributors, retailers, supermarket chain operators, fast food chain operators and importers. The network and infrastructure can also be used by the PRC companies to export their climate controlled products to the outside world.

In early December 2000, the Group signed a formal joint venture agreement with Guangzhou Ershang Trade Development Company (“Guangzhou Ershang”), a wholly owned subsidiary of Guangzhou Municipal Government Ôs Business Bureau of the PRC, to develop cold storage warehousing, logistics management and related e-commerce businesses in Guangdong Province of the PRC. This marked an important step forward for the Group to penetrate the fast growing and export-dominated Southern China market and pave the way for higher growth when China is admitted to the World Trade Organization.

Via affiliated companies and partners, the Group was also involved in logistics consultancy services to assist some of the supermarkets and fast food chains in the PRC in solving their supply chain or logistics problems. During the financial year, the Group continued to beef up the China team and was also actively involved in developing tailor-made logistics solution to some of the multinational companies which are interested to extend or expand their market share in the PRC including devising strategy to develop distribution centres and other facilities, vendors inventory management and regional delivery services.

3. Nerve Centre for Climate Controlled products

To link up two of the world largest markets (USA and the PRC), the Group had built a business-to-business platform www.iPowerB2B.com during the financial year to facilitate communication, develop cross fertilization opportunities and friendship among the 160 alliances worldwide and assist the Group’s customers to reach new markets and new products. At the same time, the Group’s own proprietary Warehouse Management System (ÔWMS”) was web-enabled during the year. Customers and alliances of the Group can now access to the WMS to order warehousing services, check their own inventory, do transfers, book delivery and other tasks anytime anywhere via the Internet. The ultimate objective is to build a nerve centre or e-Hub for climate controlled products in Asia to link the PRC with the rest of the world as Hong Kong is well positioned and in fact the largest gateway to the vast and fast growing PRC market. In addition, the Group had recruited appropriate staff to explore ERP, CRM, bar-coding and other IT/information technology initiatives with a view to improve its competitive advantages and operation efficiency among its various warehousing facilities, business partners and customers under the new economy.

4. Cold Storage & Warehousing

This division has been providing specialized storage services for climate controlled products for about 20 years to importers, traders, wholesalers and manufacturers/processors. Climate controlled products cover a wide variety of basic necessities such as frozen meats, fresh fruits, cigarettes and wines, films and pharmaceutical products. During the financial year, this division had undergone a series of rationalization exercises including upgrading its information technology systems and focusing on higher margin accounts in order to provide better return to our shareholders and more dedicated services to our customers.

5. Logistics Management Services

Leveraging the success of our Cold Storage Division, the Group managed to create the new Logistics Management Services division with relatively small investment. During the financial year, this division had substantially beefed up its manpower, equipment, trucks and capabilities. It managed to provide daily distribution service to most dry seafood traders, certain catering outlets, hotels, supermarkets and fast food chains in Hong Kong.

6. Properties & Financial Services

During the financial year, the remaining units of Seapower Centre and Silver Fortune Plaza continued to generate recurring rental income for the Company.

During the financial year, the Group had exercised its option on 7 securities and 1 futures broker seats retained by the Group in the disposal of its securities and futures operations to an independent third party. As part of this option arrangement, the Group held a minority stake in The Hong Kong Exchanges and Clearing Limited (“HKEX”). The HKEX was subsequently listed in June 2000 and the Group managed to generate substantial capital gain by disposing of some of the shares in HKEX.

7. Ice Manufacturing and Distribution

To focus on logistics business, the Group continued to sell the ice products(both industrial and catering ice) manufactured by its ice manufacturing plants to wholesalers to generate recurring income.

PROSPECTS AND OUTLOOK

According to the PRC’s Tenth Five-Year Plan, the economy is expected to grow at an average annual rate of about 7% over the next five years (first-half of 2001 GDP was up 7.9% year-to-year). On the back of such economic growth, coupled with the business opportunities that will arise from the PRC’s imminent entry to the WTO and Beijing’s hosting the Olympics in 2008, the long-term economic prospects for Hong Kong, being an important gateway to the PRC, are optimistic .

The wholesale commercialization of the Internet during the last two years has effectively removed boundaries between countries . This has a profound effect on the supply chain of various businesses. The Group’s strategic move to create a global supply chain management division, China business focus team, e-Hub and logistics management services for climate controlled products around its Cold Storage & Warehousing business proves to be timely and correct. The Group’s competitive advantages are further enhanced by such strategy as evidenced by the growth in the number and scope of the Group’s strategic alliances both overseas and in the PRC.

The PRC is identified to be the key growth driver for the Group. In order to increase the coverage and services in the PRC market, the Group has also realigned resources strategically to build up more partnerships or co-operations there. This will bring about significant synergies to the Group and further enhance its competitiveness in the crucial markets.

Apart from the above, the Group has also planned to take several measures to improve its cash flow and profitability, including (1) adopting a sector-focus policy in developing the Cold Storage & Warehousing business; (2) leveraging the Group’s previous business experience and connections in the PRC to develop the China logistics business; (3) developing the Global Supply Chain Management and e-Hub business with great care to avoid disproportionate capital commitment; (4) fully capitalize on the Group’s expertise and experience in the Cold Storage & Warehousing business for the development of value-added logistics management services; and (5) leveraging the Group’s connection to the academic world and applying for government funding (both Hong Kong and Australia as the Group has operations in Australia) to develop its IT/information technology initiatives as much as possible.

The Group will continue to build sensible and logistical businesses around its core business of Cold Storage & Warehousing, driving for maximum operational efficiencies and slashing unnecessary overhead. In doing so, new management installed two years ago will use their best endeavours to rebuild value and improve bottom-line in the years ahead.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

There was no purchase, sale or redemption of listed securities of the Company by the Company or any of its subsidiaries during the year.

CORPORATE GOVERNANCE

The Company has complied throughout the year ended 31st March, 2001 with those paragraphs of the “Code of Best Practice” as set out in Appendix 14 of the Listing Rules with which is required to report compliance.

PUBLICATION OF ANNUAL REPORT ON THE STOCK EXCHANGE’S WEBSITE

The Annual Report of the Company containing the information required under the Listing Rules will be published on the website of The Stock Exchange of Hong Kong Limited in due course.

By order of the Board

Shirley Choi Siu Lui

Chairman

Hong Kong, 26th July, 2001

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Members of the Company will be held at the Conference Room on 1st Floor, 8 Kwai Hei Street, Kwai Chung, New Territories, Hong Kong on Thursday, 6th September, 2001 at 3:00 p.m. for the purpose of transacting the following business:

AS ORDINARY BUSINESS

1. to receive and consider the reports of the Directors and Auditors and the statement of accounts for the year ended 31st March, 2001;

2. to re-elect Directors and fix their remuneration for the ensuing year;

3. to re-appoint Auditors and authorise the Directors to fix their remuneration;

AS SPECIAL BUSINESS

1. to consider, and if thought fit, pass the following ordinary resolutions with or without amendments:

A. “THAT:

(a) subject to paragraph (b), the exercise by the Directors of the Company during the Relevant Period of all the powers of the Company to allot and issue additional shares in the capital of the Company and to make or grant offers, agreements and options which might require the exercise of such powers either during or after the Relevant Period be and is hereby generally and unconditionally approved;

(b) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors of the Company pursuant to the approval in paragraph (a), otherwise than pursuant to:

(i) a Rights Issue;

(ii) the exercise of rights of subscription or conversion under the terms of any securities which are convertible into shares of the Company; or

(iii) any option scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares of the Company

shall not exceed 20% of the aggregate nominal amount of the share capital of the Company in issue on the date of this resolution and this approval shall be limited accordingly; and

(c) for the purposes of this resolution:

“Relevant Period” means the period from the passing of this resolution until whichever is the earliest of:

(i) the conclusion of the next Annual General Meeting of the Company;

(ii) the expiration of the period within which the next Annual General Meeting of the Company is required by the Articles of Association of the Company to be held; and

(iii) the date upon which the authority set out in this resolution is revoked or varied by way of an ordinary resolution in General Meeting.

“Rights Issue” means an offer of shares open for a period fixed by the Directors to holders of shares on the Register on a fixed record date in proportion to their then holdings of such shares (subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of any relevant jurisdiction, or of the requirements of any recognized regulatory body or any stock exchange).”;

B. “THAT:

(a) subject to paragraph (c), the exercise by the Directors of the Company during the Relevant Period of all the powers of the Company to repurchase shares in the capital of the Company on the terms and subject to the conditions set out in the letter to Shareholders of the Company dated 27th July, 2001, a copy of which has been tabled at the Meeting marked “A” and signed by the Chairman of this Meeting for the purpose of identification, be and is hereby generally and unconditionally approved;

(b) the approval in paragraph (a) shall be in addition to any other authorization given to the Directors of the Company;

(c) the aggregate nominal amount of shares of the Company to be purchased or agreed conditionally or unconditionally to be purchased by the Directors of the Company pursuant to the approval in paragraph (a) shall not exceed 10% of the aggregate nominal amount of the share capital of the Company in issue on the date of this resolution, and the said approval shall be limited accordingly; and

(d) for the purposes of this resolution:

“Relevant Period” means the period from the passing of this resolution until whichever is the earliest of:

(i) the conclusion of the next Annual General Meeting of the Company;

(ii) the expiration of the period within which the next Annual General Meeting of the Company is required by the Articles of Association of the Company to be held; and

(iii) the date upon which the authority set out in this resolution is revoked or varied by way of an ordinary resolution in General Meeting.”; and

C. “THAT conditional upon the passing of Resolutions 4A and 4B of the Notice of this Meeting, the general mandate granted under Resolution 4A be extended by adding the aggregate nominal amount of shares purchased by the Company pursuant to Resolution 4B to the aggregate nominal amount of shares which may be allotted or agreed conditionally or unconditionally to be allotted by the Directors of the Company.”;

1. to transact any other business.

By Order of the Board

Annie Yuen Wing Kwan

Company Secretary

Hong Kong, 26th July, 2001

Notes:

(1) A member entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and in accordance with the Articles of Association of the Company vote for him. A proxy need not be a member of the Company.

(2) To be valid, a form of proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power of attorney or authority must be deposited at the principal office of the Company at 1st Floor, 8 Kwai Hei Street, Kwai Chung, New Territories, Hong Kong not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof.

(3) The Register of Members of the Company will be closed from 4th September, 2001 to 6th September, 2001, both days inclusive, during which period no transfer of shares will be registered.

(4) With respect to item 4A, approval is being sought from Shareholders for a general mandate to issue shares to be given to the Directors. The Directors are required to obtain this mandate pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”).

(5) With respect to item 4B, approval is being sought from Shareholders for a general mandate to repurchase shares to be given to the Directors.

(6) With respect to item 4C, approval is being sought from Shareholders for an extension of the general mandate granted to the Directors to allot shares by adding to it the number of shares purchased under the authority granted pursuant to Resolution 4B.

(7) In accordance with the Listing Rules and the Hong Kong Code on Takeovers and Mergers and Share Repurchases, a letter setting out the terms and conditions upon which the powers to be granted under Resolution 4B will be exercised accompanies this notice.

Please also refer to the published version of this announcement in the i Mail dated 27/7/2001.