Comba Telecom Systems Holdings Limited — Earnings Release 2005

Apr 21, 2006

Listed Company Information

Listed Company Information
COMBA<02342> - Results Announcement Comba Telecom Systems Holdings Limited announced on 21/04/2006: (stock code: 02342 ) Year end date: 31/12/2005 Currency: HKD Auditors' Report: Unqualified (Audited and restated) (Audited ) Last Current Corresponding Period Period from 01/01/2005 from 01/01/2004 to 31/12/2005 to 31/12/2004 Note ('000 ) ('000 ) Turnover : 1,170,515 1,092,761 Profit/(Loss) from Operations : 107,259 246,147 Finance cost : (21,480) (9,531) Share of Profit/(Loss) of Associates : N/A N/A Share of Profit/(Loss) of Jointly Controlled Entities : N/A N/A Profit/(Loss) after Tax & MI : 82,089 237,478 % Change over Last Period : -65.4 % EPS/(LPS)-Basic (in dollars) : 0.0986 0.2859 -Diluted (in dollars) : 0.0975 0.2796 Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : 82,089 237,478 Final Dividend : 3 cents 5 cents per Share (Specify if with other : N/A N/A options) B/C Dates for Final Dividend : 24/05/2006 to 26/05/2006 bdi. Payable Date : 08/06/2006 B/C Dates for (-) General Meeting : N/A Other Distribution for : N/A Current Period B/C Dates for Other Distribution : N/A Remarks: 1 BASIS OF PREPARATION These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") (which also include Hong Kong Accounting Standards ("HKASs") and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for certain buildings which have been measured at fair value. These financial statements are presented in Hong Kong dollars ("HK$") and all values are rounded to the nearest thousand except when otherwise indicated. Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2005. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation. Minority interests represent the interests of outside shareholders in the results and net assets of the Company's subsidiaries. The following new and revised HKFRSs affect the Group and are adopted for the first time for the current year's financial statements: HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 12 Income Taxes HKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 18 Revenue HKAS 19 Employee Benefits HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 32 Financial Instruments: Disclosure and Presentation HKAS 33 Earnings per Share HKAS 36 Impairment of Assets HKAS 37 Provisions, Contingent Liabilities and Contingent Assets HKAS 38 Intangible Assets HKAS 39 Financial Instruments: Recognition and Measurement HKAS 39 Transition and Initial Recognition of Financial Assets and Financial Liabilities Amendment HKFRS 2 Share-based Payment HKFRS 3 Business Combinations The adoption of HKASs 2, 7, 8, 10, 12, 14, 16, 18, 19, 27, 33, 37 and 38 has had no material impact on the accounting policies of the Group and the Company and the methods of computation in the Group's and the Company's financial statements. HKAS 1 has affected the presentation of minority interests on the face of the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity and other disclosures. HKAS 21 had no material impact on the Group. As permitted by the transitional provisions of HKAS 21, goodwill arising in a business combination prior to 1 January 2005 and fair value adjustments arising on that acquisition are deemed to be in the currency of the Company. In respect of acquisitions subsequent to 1 January 2005, any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of the assets and liabilities are treated as assets and liabilities of the foreign operation and are translated at the closing rate in accordance with HKAS 21. HKAS 24 has expanded the definition of related parties and affected the Group's related party disclosures. The impact of adopting the other HKFRSs is summarised as follows: (a) HKAS 17 - Leases In prior years, leasehold land and buildings held for own use were stated at cost or valuation less accumulated depreciation and any impairment losses. Upon the adoption of HKAS 17, the Group's leasehold interest in land and buildings is separated into leasehold land and buildings. The Group's leasehold land is classified as an operating lease, because the title of the land is not expected to pass to the Group by the end of the lease term, and is reclassified from property, plant and equipment to prepaid land lease payments, while buildings continue to be classified as part of property, plant and equipment. Prepaid land premiums for land lease payments under operating leases are initially stated at cost and subsequently amortised on the straight-line basis over the lease term. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment. This change in accounting policy has had no effect on the consolidated income statement and retained profits. The comparative amounts for the year ended 31 December 2004 in the consolidated balance sheet have been restated to reflect the reclassification of the leasehold land. (b) HKAS 32 and HKAS 39 - Derecognition of financial assets HKAS 39 provides more rigorous criteria for the derecognition of financial assets than the criteria applied in previous periods. Under HKAS 39, a financial asset is derecognised , when and only when, either the contractual rights to the asset's cash flows expire, or the asset is transferred and the transferred and the transfer qualifies for the derecognition in accordance with HKAS 39. The decision as to whether a transfer qualifies for derecognition is made by applying a combination of risks and rewards and control tests. The Group has applied the relevant transitional provisions and applied the revised accounting policy prospectively to the transfers of financial assets from 1 January 2005 onwards. As a result, the Group's trade and bills receivables discounted with full recourse with wee derecognised prior to 1 January 2005 have not been restated. As at 31 December 2005, the Group's trade and bills receivables discounted with full recourse have not been derecognised. Instead, the related borrowings of HK$115,296,000 have been recognised on the balance sheet date. The relevant finance costs incurred in order to obtain such borrowings are included in the carrying amount of the borrowings on initial recognition and amortised over the terms of the borrowings using the effective interest method. The effects of the above changes are summarised in note (2) to the financial statements. In accordance with HKAS 32, the comparative amounts of certain other receivables have been reclassified under loans and advances and receivables for presentation purposes. (c) HKFRS 2 - Share-based Payment In prior years, no recognition and measurement of share-based payment transactions in which employees (including directors) were granted share options over shares in the Company were required until such options were exercised by employees, at which time the share capital and share premium were credited with the proceeds received. Upon the adoption of HKFRS 2, when employees (including directors) render services as consideration for equity instruments ("equity-settled transactions"), the cost of the equity-settled transactions with employees is measured by reference to the fair value at the date at which the instruments are granted. In prior year, the fair value is determined by adoption of the Black-Scholes pricing model. The fair value of share options granted during the year is determined by adoption of binomial model. The main impact of HKFRS 2 on the Group is the recognition of the cost of these transactions and a corresponding entry to equity for employee share options. The Group has adopted the transitional provisions of HKFRS2 under which the new measurement policies have not been applied to (i) options granted to employees on or before 7 November 2002; and (ii) options granted to employees after 7 November 2002 but which had vested before 1 January 2005. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employee becomes fully entitled to the award (the "vesting date "). The cumulative expense recognised for equity-settled transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in cumulative expense recognised as at the beginning and the end of that period. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share. The effects of adopting HKFRS 2 are summarised in note 2 to the financial statements. (d) HKFRS 3 - Business Combinations and HKAS 36 - Impairment of Assets In prior years, goodwill arising on acquisitions prior to 1 January 2001 were eliminated against the consolidated retained profits and credited to the consolidated capital reserve, respectively, in the year of acquisition and were not recognised in the income statement until disposal or impairment of the acquired businesses. Goodwill arising on acquisitions on or after 1 January 2001 was capitalised and amortised on the straight-line basis over its estimated useful life and was subject to impairment testing when there was any indication of impairment. The adoption of HKFRS 3 and HKAS 36 has resulted in the Group ceasing annual goodwill amortisation and commencing testing for impairment at the cash-generating unit level annually (or more frequently if events or changes in circumstances indicate that the carrying value may be impaired ). Any excess of the Group's interest in the net fair value of the acquirees' identifiable assets, liabilities and contingent liabilities over the cost of acquisition of subsidiaries (previously referred to as negative goodwill), after reassessment, is recognised immediately in the income statement. The transitional provisions of HKFRS 3 have required the Group to eliminate at 1 January 2005 the carrying amounts of accumulated amortisation with a corresponding adjustment to the cost of goodwill and to derecognise at 1 January 2005 the carrying amounts of negative goodwill (including that remaining in the consolidated capital reserve) against retained profits. Goodwill previously eliminated against the retained earnings remains eliminated against the retained earnings and is not recognised in the income statement when all or part of the business to which the goodwill relates is disposed of or when a cash-generating unit to which the goodwill relates becomes impaired. The effects of the above changes are summarised in note 2 to the financial statements. In accordance with the transitional provisions of HKFRS 3, comparative amounts have not been restated. 2. IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements. Unless otherwise stated, these HKFRSs are effective for annual periods beginning on or after 1 January 2006: HKAS 1 Amendment Capital Disclosures HKFRS 7 Financial Instruments: Disclosures The HKAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007. The revised standard will affect the disclosures about qualitative information about the Group's objective, policies and processes for managing capital; quantitative data about what the Company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance. HKFRS 7 incorporates the disclosure requirements of HKAS 32 relating to financial instruments. This HKFRS shall be applied for annual periods beginning on or after 1 January 2007. Except as stated above, the Group expects that the adoption of the other pronouncements will not have any significant impact on the Group's financial statements in the period of initial application. (a) Effect on the consolidated balance sheet Effect of adopting ------------------------------------------------------------- At 1 January 2005 HKAS 17# HKFRS 2 HKFRS 3* HKASs 32 Effect Equity- Discontin- and 39*@ of new Prepaid settled uation of Derecogn- policies land lease share amortis- ition of Total (Increase/ payments option ation of financial (decrease)) arrange- goodwill assets ments HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 Assets Property, plant and equipment (13,327) - - - (13,327) Prepaid land lease payments 13,041 - - - 13,041 Other receivables 286 - - - 286 _________ - ========== Liabilities/equity Capital reserve - 21,042 - - 21,042 Retained profits - (21,042) - - (21,042) _________ - ========= * Adjustments taken effect prospectively from 1 January 2005 # Adjustments/presentation taken effect retrospectively @ In accordance with the transitional provision of HKAS 39, HKAS 39 should not be applied retrospectively. Factored trade receivables and bank advances on factored trade receivables in the amount of HK$206,767,000 respectively as at 31 December 2004 have not been restated. (a) Effect on the consolidated balance sheet (continued) Effect of adopting ------------------------------------------------------------- At 31 December 2005 HKAS 17 HKFRS 2 HKFRS 3 HKASs 32 Effect Equity- Discontin- and 39 of new Prepaid settled uation of Derecogn- policies land lease share amortis- ition of Total (Increase/ payments option ation of financial (decrease)) arrange- goodwill assets ments HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 Assets Property, plant and equipment (13,332) - - - (13,332) Prepaid land lease payments 13,040 - - - 13,040 Goodwill - - 6,020 - 6,020 Factored trade receivables - - - 115,296 115,296 Other receivable 292 - - - 292 ________ 121,316 ======== Liabilities/equity Bank advances on factored trade receivables - - - 115,296 115,296 Capital reserve - 37,938 - - 37,938 Retained profits - (37,938) 6,020 - (31,918) _________ 121,316 ========= (b) Effect on the balances of equity at 1 January 2004 and at 1 January 2005 Effect of adopting ----------------------------------------------- HKAS 17 HKFRS 2 HKFRS 3 HKASs 32 Effect Equity- Discontin- and 39 of new Prepaid settled uation of Derecogn- policies land lease share amortis- ition of Total /Increase/ payments option ation of financial (decrease)) arrange- goodwill assets ments HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 1 January 2004 Retained profits - (3,415) - - (3,415) _________ (3,415) ======== 1 January 2005 Retained profits - (21,042) - - (21,042) _________ (21,042) ======== (c) Effect on the consolidated income statement for the years ended 31 December 2005 and 2004 Effect of adopting __________________________________________________ HKAS 17 HKFRS 2 HKFRS 3 HKASs 32 Effect Equity- Discontin- and 39 of new Prepaid settled uation of Derecogn- policies land lease share amortis- ition of Total payments option ation of financial arrange- goodwill assets ments HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 Year ended 31 December 2005 Increase in administrative expenses - (16,896) - - (16,896) Decrease in other expenses - - 6,020 - 6,020 ______________________________________________________________ Total increase/(decrease) in profit - (16,896) 6,020 - (10,876) ============================================================== Increase/(decrease) in basic earnings per share(HK cents) - (2.03) 0.72 - (1.31) ============================================================= Increase/(decrease) in diluted earnings per share (HK cents) - (2.01) 0.72 - (1.29) ============================================================= Year ended 31 December 2004 Increase in administrative expenses - (17,627) - - (17,627) _____________________________________________________________ Total decrease in profit - (17,627) - - (17,627) ============================================================= Decrease in basic earnings per share (HK cents) - (2.12) - - (2.12) ============================================================= Decrease in diluted earnings per share (HK cents) - (2.07) - - (2.07) _____________________________________________________________ 3. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT The calculation of basic earnings per share is based on the net profit for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares in issue during the year. The calculation of diluted earnings per share is based on the net profit for the year attributable to ordinary equity holders of the parent. The weighted average number of ordinary shares used in the calculation is the ordinary shares in issue during the year, as used in the basic earnings per share calculation and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares. The calculations of basic and diluted earnings per share are based on: 2005 2004 HK$'000 HK$'000 (Restated) Earnings Net profit attributable to ordinary equity holders of the parent, used in the basic and diluted earnings per share calculation 82,089 237,478 ============================= Number of shares 2005 2004 Shares Weighted average number of ordinary shares in issue during the year used in basic earnings per share calculation 832,918,000 830,693,000 Effect of dilution - weighted average number of ordinary shares: 8,595,000 18,700,000 ----------------------------- 841,513,000 849,393,000 ============================= 4. DIVIDENDS 2005 2004 HK$'000 HK$'000 Interim - Nil (2004: HK4 cents) per ordinary share - 33,291 Proposed final - HK 3 cents (2004: HK5 cents) per ordinary share 24,991 41,637 ----------------------------- 24,991 74,928 ============================= The proposed final dividend for the year is subject to the approval of the Company's shareholders at the forthcoming annual general meeting.