Computer And Technologies Holdings Limited — Interim / Quarterly Report 2003

Sep 18, 2003

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CHINA AEROSPACE INTERNATIONAL HOLDINGS LIMITED

(Incorporated in Hong Kong with limited liability)

ANNOUNCEMENT OF INTERIM RESULT 2003

The Board of Directors (the “Board”) of China Aerospace International Holdings Limited (the “Company”) is pleased to announce that the unaudited results and financial statements of the Company and its subsidiaries (collectively the “Group”) for the six months ended 30 June 2003 together with the comparative figures of the same period in 2002 are as follows:

CONDENSED CONSOLIDATED INCOME STATEMENT

Notes Turnover 3 Cost of sales and services Gross profit Other operating income Distribution costs Administrative expenses Profit from operations 4 Finance costs Share of results of associates Gain on partial disposal of subsidiaries Gain on disposal of subsidiaries and an associate	1.1.2003 to 30.6.2003 HK$’000 (Unaudited) 576,220 (448,298) 127,922 41,551 (20,602) (97,058) 51,813 (32,570) (1,993) 54 –	1.1.2002 to 30.6.2002 HK$’000 (Unaudited and as restated) 523,475 (403,438) 120,037 5,967 (20,287) (100,656) 5,061 (40,826) (284) – 2,646

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Profit (loss) before taxation Taxation 5 Profit (loss) before minority interests Minority interests Net profit (loss) for the period Earnings (loss) per share 6 – Basic	17,304 (2,862) 14,442 1,064 15,506 0.7 cents	(33,403) (2,215) (35,618) 7,794 (27,824) (1.3)cents

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the six months ended 30 June 2003

1. BASIS OF PREPARATION

The condensed financial statements have been prepared in accordance with the Statement of Standard Accounting Practice 25 “Interim financial reporting” issued by the Hong Kong Society of Accountants (“HKSA”) and with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

2. PRINCIPAL ACCOUNTING POLICIES

The condensed financial statements have been prepared under the historical cost convention, as modified for the revaluation of investment properties.

In the current period, the Group has adopted Statement of Standard Accounting Practice (“SSAP”) 12 (Revised) “Income taxes”, for the first time, issued by the HKSA. SSAP 12 (Revised) has introduced a new basis of accounting for income taxes. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. The adoption of SSAP 12 (Revised) has been applied retrospectively and resulted in increases in accumulated losses of the Group at 1 January 2002 and 1 January 2003 by HK$20,474,000 and HK$20,619,000, respectively. The adoption of SSAP 12 (Revised) has also resulted in the decrease in net loss of the Group amounted to HK$4,000 for the six months ended 30 June 2002 and decrease in net profit of the Group amounted to HK$1,105,000 for the six months ended 30 June 2003. Comparative amounts for the prior period have been restated in order to achieve a consistent presentation.

Other accounting policies adopted are consistent with those followed in the preparation of the Group’s annual audited financial statements for the year ended 31 December 2002.

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3. SEGMENT INFORMATION

(a) Business segments

The Group’s turnover and segment results analysed by business segments which is the primary segment, are as follows:

External sales HK$’000 For the six months ended 30 June 2003 Manufacturing Plastic products 142,325 Liquid crystal display 32,057 Audio-video products 103,129 Printed circuit boards 37,539 Telecommunication products 65,959 Intelligent chargers and security system 109,904 Other products 5,220 496,133 Property 69,613 Trading 10,088 Finance 386 576,220 Eliminations – 576,220		Turnover	Total HK$’000 151,725 32,057 103,129 37,539 65,959 110,336 5,220 505,965 74,141 10,088 2,743 592,937 (16,717) 576,220	Profit (loss) from operations
		Inter- segment sales HK$’000 9,400 – – – – 432 – 9,832 4,528 – 2,357 16,717 (16,717) –		Un- allocated Un- corporate allocated Profit Segment income corporate from result (note 4) expenses operations HK$’000 HK$’000 HK$’000 HK$’000 15,398 1,350 (5,591) 5,593 1,316 14,388 (3,416) 29,038 10,927 (149) 4,831 44,647 (8,307) 36,340 36,273 (20,800) 51,813

Inter-segment sales are charged at prevailing market prices.

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For the six months ended 30 June 2002

Manufacturing Plastic products Liquid crystal display Audio-video products Printed circuit boards Telecommunication products Intelligent chargers and security system Other products Property Trading Finance Others Eliminations	120,369 31,510 114,182 46,985 41,547 79,127 8,823 442,543 23,219 53,067 4,646 – 523,475 – 523,475	7,879 – – – – 419 12 8,310 3,764 – 3,128 – 15,202 (15,202) –	128,248 31,510 114,182 46,985 41,547 79,546 8,835 450,853 26,983 53,067 7,774 – 538,677 (15,202) 523,475	17,727 1,660 (9,529) 8,971 (11,176) 11,220 (12,750) 6,123 19,349 (556) 7,186 1,028 33,130 (8,408) 24,722	–	(19,661)	5,061

(b) Geographical segments

Hong Kong Other parts of the People’s Republic of China (“PRC”) Unallocated corporate expenses Profit from operations	Turnover 1.1.2003 1.1.2002 to to 30.6.2003 30.6.2002 HK$’000 HK$’000 370,620 380,192 205,600 143,283 576,220 523,475	Profit (loss) from operations 1.1.2003 1.1.2002 to to 30.6.2003 30.6.2002 HK$’000 HK$’000 57,683 34,285 14,930 (9,563) 72,613 24,722 (20,800) (19,661) 51,813 5,061
	1.1.2003 to 30.6.2003 HK$’000 370,620 205,600 576,220	1.1.2003 to 30.6.2003 HK$’000 57,683 14,930 72,613 (20,800) 51,813

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4. PROFIT FROM OPERATIONS

Profit from operations has been arrived at after charging (crediting):

Amortisation of development costs Amortisation of goodwill included in administrative expenses Depreciation on property, plant and equipment Gain on disposal of investment properties (Gain) loss on disposal of property, plant and equipment Dividend income from listed investment securities Interest income Waiver of interest expense on other loans_(note)_	1.1.2003 to 30.6.2003 HK$’000 1,172 207 27,538 (470) (130) – (386) (36,273)	1.1.2002 to 30.6.2002 HK$’000 1,566 – 28,685 (1,217) 191 (3,090) (1,557) –

Note : The amount represents interest expense waived by a lender of other loans for early repayment of the loan by the Company during the period. The amount was included in other operating income.

5. TAXATION

The charge comprises: Current tax – Hong Kong Profits Tax – Overseas income tax Deferred tax – Current period – Attributable to change in tax rate	1.1.2003 to 30.6.2003 HK$’000 1,563 202 1,765 (1,098) 2,195	1.1.2002 to 30.6.2002 HK$’000 1,968 193
		2,161
		54 –

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Taxation attributable to the Company and its subsidiaries	1,097 2,862	54
		2,215

Hong Kong Profits Tax is calculated at 17.5% (for the six months ended 30 June 2002: 16%) on the estimated assessable profits for the period.

Overseas income tax represented the income tax of the PRC. Pursuant to relevant laws and regulations in the PRC, the Company’s subsidiaries are entitled to exemption from income tax under certain tax holidays and concessions. Income tax was calculated at rates given under the concessions.

6. EARNINGS (LOSS) PER SHARE

The calculation of basic earnings (loss) per share for the period is based on the net profit for the period of HK$15,506,000 (for the six months ended 30 June 2002: net loss of HK$27,824,000) and on 2,142,420,000 shares (for the six months ended 30 June 2002: 2,142,420,000 shares) in issue during the period.

7. DIVIDEND

No interim dividend was paid by the Company during the period (for the six months ended 30 June 2002: nil).

BUSINESS REVIEW

As at 30 June 2003, the turnover of the Group for the first half of 2003 was HK$576,220,000, representing an increase of 10.08% over the previous period. The profit before taxation was HK$17,304,000 and the net profit was HK$15,506,000. It was the first time the Group recorded profits since 1998.

During the first half of 2003, the overall business environment was full of challenges. Due to the Iraqis war and the outbreak of SARS, the cost of raw materials skyrocketed and consumer demand weakened. Besides, the competition in IT products became intense, this further narrowed profit margins. Under such a harsh condition, the Group managed to increase profitability by adopting effective measures to strengthen market exploration and enhance management. Compared with the previous period, the Group recorded an increase in the overall gross profit by 6.6%, the finance costs decreased by 20.2%, and the administrative and general expenses decreased by 3.6%.

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The hi-tech industries of the Group remained solidly competent through technical innovations and equipment renewals during recent years. The turnover and the operating profits for the first half of this year recorded steady growth compared to the previous year. In particular, the growth rate was significant in businesses of intelligent battery chargers and plastic injection. The LCD business managed to maintain the same level of turnover and profits as the previous year while its production lines were under innovations. The price of PCB continued to slip in the international market which led to a drop in its turnover and profit. Yet, the television manufacturing business had been making progress in the exploration of the overseas markets which contributed to a reduction in inventory and remarkably in the operating loss.

The network-based information technology business had made a new progress. CASIL Telecommunications Holdings Limited, a subsidiary of the Company, aggressively develops businesses of broadband wireless access system and intelligent transportation system. It recorded profits again after realizing the aim of turning loss to profits last year. The number of subscribers of digital TV set-top boxes, developed by the Company’s research & development subsidiary, continues to grow in Changzhou City, Jiangsu Province. Through public tender in April, 2003 , the subsidiary became one of the two set-top box suppliers of China Cable Network Company Limited to provide digital broadcasting business in Wenzhou City and Zhaoxing City, Zhejiang Province.

The disposal of non-core assets is the direction of the Group’s business transformation. The Group has disposed some of its properties located in Hong Kong and the mainland China amounting to over HK$60 million. For the remaining properties, effective measures have been adopted to reduce vacancy rate, to raise property management level and maintain a stable rental income. Besides, the Group had made a progress in reducing the outstanding amount of loans receivable.

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MANAGEMENT DISCUSSION AND ANALYSIS

• I. Assets and Liabilities

As at 30 June 2003, the total assets of the Group were HK$2,847,688,000, in which the non-current portion and the current portion were HK$1,368,509,000 and HK$1,479,179,000 respectively. The total liabilities were about HK$1,942,241,000, of which the current and the non-current portion of bank loans were HK$543,088,000 and HK$235,099,000 respectively. The contingent liabilities were about HK$4,450,000 which were more or less the same as that of the end of last year. The assets/liabilities ratio was 68.2% and the current ratio was 1.05, both were similar to that of the end of last year. The Group did not have any material financial changes to be disclosed.

• II. Cash Flow

The source of funding of the Group mainly comes from its internal financial resources and banking facilities. The Group’s cash on hand as at 30 June 2003 was about HK$381,217,000, most of which was in HK dollars and the rest in RMB and US dollars.

• III. Mortgaged Assets

A couple of the Group’s real estates and investments have been mortgaged to banks with interest calculated at prime rate, and their remaining terms by installment vary from 3 to 10 years.

IV. Human Resources

As at 30 June 2003, the Group has made no major changes in the information related to human resources as stated in its 2002 Annual Report.

BUSINESS OUTLOOK

Anticipating the second half of the year, global economy is expected to fasten its pace in recovery though fierce competition is going to remain. The Group will continue to enhance the competitive advantage of its hi-tech industrial products, endeavour to explore overseas and mainland markets, strengthen business reorganisation and increase investment in new products

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and gradually form a new economic growth point. The Group will also further enhance its internal management and reduce cost to maintain a continuous growth in profitability.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

There had been no purchase, sale or redemption of the Company’s listed securities by the Company and its subsidiaries during the period.

CORPORATE GOVERNANCE

The Company had complied throughout the period with those paragraphs of the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, with which it is required to report compliance, except that none of the nonexecutive directors of the Company has been appointed for a specific term but are subject to retirement by rotation.

During the first half of 2003, in order to improve communications, the executive directors of the Company held several meetings with the independent non-executive directors to discuss and supervise the operations of the Group.

The Audit Committee of the Company and the external auditors, Deloitte Touche Tohmatsu, had reviewed this unaudited interim financial statements.

PRACTICE NOTE 19 OF THE LISTING RULES

As at 30 June 2003, the Company had an outstanding loan amounting to US$5,500,000 (approximately HK$42,900,000). The loan agreement contains a convenant that the controlling shareholder of the Company, China Aerospace Science & Technology Corporation, will maintain a minimum percentage of shareholding of 40% in the Company, the breach of which would trigger an event of default on the related loan facility.

A wholly-owned subsidiary of the Company had made an advance to a third party in the past. The outstanding balance of the advance was HK$234,872,296.05 as at 30 June 2003, representing 29% of the Group’s audited net worth as at 31 December 2002.

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PUBLICATION OF FURTHER INFORMATION

All information required by paragraphs 46(1) to 46(6) of Appendix 16 to the Listing Rules will be published on the Company’s and the Stock Exchange’s websites in due course.

APPRECIATION

I would like to take this opportunity, on behalf of the Board of the Directors, to express my sincere gratitude to our shareholders, bankers, business partners, people from various social communities, as well as all staff of the Group for their long-time support.

By Order of the Board Rui Xiaowu Chairman

Hong Kong SAR, 17 September 2003

“Please also refer to the published version of this announcement in China Daily”

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