Design Capital Limited — Earnings Release 1999

May 16, 2000

Listed Company Information

SWANK INT'L MFG<0663> - Results Announcement Swank International Manufacturing Company Limited announced on 15/5/2000: (stock code: 663) The accounts which contain the following results are qualified by the Company's auditor. For more details, please refer to the press announcement issued by the Company on 16/5/2000. Year end date: 31/12/1999 Currency: HK$ (Audited) (Audited) Last Current Corresponding Period Period from 1/1/1999 from 1/1/1998 to 31/12/1999 to 31/12/1998 ('000) ('000) Turnover - Continuing : 315,090 373,446 - Discontinued : - - Operating (Loss) - Continuing : (32,720) (312,124) - Discontinued : - - Total Operating (Loss) : (32,720) (312,124) Share of (Loss) of Associated Companies : (6,256) (11,371) Share of Profit/(Loss) of Jointly Controlled Entities : - - (Loss) after Tax & MI : (37,746) (323,568) % Change over Last Period : N/A EPS/(LPS) -Basic : (6.5 cents) (90.2 cents) -Diluted : (6.5 cents) (90.2 cents) Extraordinary (ETD) Gain/(Loss) : NIL NIL (Loss) after ETD Items : (37,746) (323,568) Final Dividend per Share : NIL NIL (Specify if with other options) : - - B/C Dates for Final Dividend : - Payable Date : - B/C Dates for (-) General Meeting : - Other Distribution for Current Period : - B/C Dates for Other Distribution : - Remarks: 1. The basis of presentation of results for companies having reorganized of Financial restructuring of the Group's indebtedness On 30 April 1999, the Company entered into a Compromise Agreement with the Group's bankers (the "Banks") pursuant to which the Banks agreed to restructure the Group's indebtedness with a view to significantly reducing the amount of the Group's debt and its related debt servicing burden. At an Extraordinary General Meeting held on 31 May 1999, the Company successfully obtained approval from its shareholders to the Compromise Agreement. As a result of the completion of the Compromise Agreement, the Banks assigned the following to the Company: (i) 100% of the debts owed by the Company's subsidiaries to the Banks amounting to $545 million; and (ii) 75% of the debts owed by the Company's associates to the Banks amounting to $12 million. Following these assignments, the debts owed by the Company to the Banks (the "Bank Debt") increased from $545 million to $1,102 million. In accordance with the Compromise Agreement, the Bank Debt was restructured as follows: (i) $250 million bank loan ("New Loan") - $250 million of the Bank Debt were discharged by the Banks and replaced by $250 million new loan on the terms of the New Loan Agreement between the Company and the Banks; (ii) $300 million convertible notes ("New Convertible Notes") - $300 million of the Bank Debt were discharged by the Banks in consideration of the Company issuing $300 million of convertible notes to Optiset Limited; and (iii) Issue of ordinary shares representing 51% of enlarged issued share capital ("New Shares") - the remaining Bank Debt of approximately $552 million were discharged, in consideration for the Company issuing 373,342,850 new ordinary shares which represent 51% of the enlarged issued share capital of the Company to the Optiset Limited. As a result of issuance of New Shares to Optiset Limited, Optiset Limited became the substantial shareholder of the Company. Optiset Limited is a single purpose company established to hold the New Convertible Notes and New Shares on behalf of the Banks. Pursuant to the standstill agreement signed between the Company and the Banks in July 1997, the Group executed several debentures incorporating fixed and floating charges over all of the undertaking, property and assets of certain Group companies as security for the outstanding indebtedness. After the completion of the Compromise Agreement, these debentures were amended to provide all such securities for the New Loan and the New Convertible Notes. 2. Operating Loss Note 1999 1998 HK$'000 HK$'000 Turnover 315,090 373,446 Cost of sales (228,495) (271,737) ---------- ----------- Gross profit 86,595 101,709 Other revenue 8,173 7,380 Other net income 2.1 51,944 14,859 ---------- ----------- 146,712 123,948 Selling expenses (43,093) (48,732 ) Administrative expenses (45,020) (54,292 ) Other operating expenses 2.2 (36,611) (237,803) ---------- ---------- Profit/(loss) from operations 21,988 (216,879) Finance cost (54,708) (95,245 ) ---------- ----------- Net Operating Loss (32,720) (312,124) ========= ========= Notes : 2.1 Other net income 1999 1998 HK$'000 HK$'000 Gain on settlement of obligation to SHK (note a) 24,000 -- Exchange gain on notes payable (note b) 3,114 14,859 Gain on settlement of notes payable (note c) 24,830 -- ------------ ------------- 51,944 14,859 ======= ======= Notes: (a) Gain on settlement of obligation to Sun Hung Kai China Development Fund Limited ("SHK") arises from a put option being granted to purchase back the interest in a subsidiary of the Group on 20 April 1994, which was subsequently settled at a discount. (b) Exchange gain on notes payable for 1999 and 1998 arises from the translation of the notes payable from its original denomination in Indonesian rupiah to Hong Kong dollars as at 23 March 1999 and 31 December 1998 respectively. (c) Gain on settlement of notes payable represents gain arising on the Group's full redemption of its Indonesian Rupiah Notes on 23 March 1999 at a discount. 2.2 Other operating expenses 1999 1998 HK$'000 HK$'000 Reconstruction cost (note a) (23,278) (14,358 ) Provision for inventories (note b) (6,260) (15,535) Net loss on disposal/write-off of fixed assets (note c) (3,971) (11,310 ) Provision for doubtful debts (note d) (1,862) (24,620 ) Provision for diminution in value of properties (note e) - (38,745 ) Provision for diminution in value of associates (note f) (258) (133,235) Others (982) - -------------- ------------- (36,611) (237,803) ======= ======= Notes: (a) Reconstruction cost in 1999 and 1998 represents professional fees arising from the Group's standstill arrangements, Compromise Agreement, special reviews and financial legal advice on the restructuring plans. (b) Provision for inventories in 1999 and 1998 represents the net provision for slow-moving and obsolete stocks. The provisions are made based on the director's estimate of the net realisable value of stocks. (c) Net loss on disposal/write-off of fixed assets in 1999 represents disposal of fixed assets and assets being written off due to wear, tear and obsolescence. Write-off of fixed assets in 1998 represents write-off of fixed assets with no economic value to the Group's business, based on the directors' exercise of re-assessing the economic useful lives of the fixed assets. (d) Provision for doubtful debts in 1999 represents provision for other receivable. Provision for doubtful debts in 1998 represents the directors' best estimate of the amounts due from Hanmy (Holding) Limited and its subsidiaries which is not recoverable. (e) Provision for diminution in value of properties in 1998 reflects the difference between the net book value and the professional valuation conducted by C.Y. Leung & Company Limited of certain properties of the Group as at 31 December 1998. (f) Provision for diminution in value of associates, which is other than temporary, represents the directors' best estimate of diminution in value for the Group's interest in certain associates. 3. Loss per share (a) Basic loss per share The calculation of basic loss per share is based on the loss attributable to shareholders of HK$37,746,211 (1998: loss of HK$323,568,181) and on the weighted average of 577,593,379 ordinary shares (1998: 358,701,955) in issue during the year. (b) Diluted loss per share There were no dilutive potential ordinary shares in existence during the years 1999 and 1998. 4. Explanation for the change of the diluted loss per share for 1998 Owing to the adoption of the requirements of SSAP 5 (revised) " Earnings per share", the reported diluted loss per share for 1998 was adjusted from "N/A" to "(90.2 cents)". For more details, please refer to the press announcement today.