DIT Group Limited — Annual Report 2003

Jul 22, 2003

SOUTH EAST GROUP LIMITED 東南國際集團有限公司

(incorporated in Bermuda with limited liability)

ANNUAL RESULTS FOR THE YEAR ENDED 31 MARCH 2003

AUDITED RESULTS

The board of directors (the “Directors”) of South East Group Limited (the “Company”) announces the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31 March 2003 with comparative figures for the previous corresponding year as follows:

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CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2003

NOTE TURNOVER 2 COST OF INVENTORIES SOLD GROSS PROFIT OTHER REVENUE/(LOSS) 3 SELLING AND DISTRIBUTION COSTS ADMINISTRATIVE EXPENSES LOSS FROM OPERATIONS FINANCE COSTS SHARE OF LOSSES OF JOINT VENTURE LOSS BEFORE TAXATION TAXATION 4 LOSS AFTER TAXATION MINORITY INTERESTS NET LOSS FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS DIVIDENDS LOSS FOR THE YEAR LOSS PER SHARE (CENTS) 5	2003 HK$’000 60,252 (48,382) 11,870 398 (4,585) (40,170) (32,487) (539) (663) (33,689) (122) (33,811) 111 (33,700) – (33,700) 10.2	2002 HK$’000 37,055 (29,447) 7,608 (771) (5,740) (17,904) (16,807) (997) (604) (18,408) – (18,408) – (18,408) – (18,408) 5.6

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Notes:

1. Principal accounting policies

In the current year, the Group has adopted for the first time the following new and revised Statements of Standard Accounting Practice (“SSAPs”) issued by the Hong Kong Society of Accountants:

SSAP 1 (revised) : Presentation of financial statements SSAP 11 (revised) : Foreign currency translation SSAP 15 (revised) : Cash flow statement SSAP 34 : Employee benefits

The effect of adopting these new/revised SSAPs is resulted in the introduction of the statement of changes in equity and a change in the format of presentation of the cash flow statements as well as additional disclosures. These changes have not had any material effect on the results for the current or prior year. Accordingly, no prior year adjustment has been required.

2. Turnover and segment results

The business activities of the Group can be categorised into manufacturing and trading of magnetic media products, property development, wine producing and other strategic investment projects. Segment information in respect of these activities is as follows:

By principal activities: Sales of magnetic media products and related equipment Sales of by-products of magnetic media Sales of property under development Sales of wine Others Other revenues/(loss)	2003 Contribution to operating Turnover profit/(loss) HK$’000 HK$’000 23,171 (7,652) – – 31,774 3,778 4,270 628 1,037 (29,639) 60,252 (32,885) 398 (32,487)	2002 Contribution to operating Turnover loss HK$’000 HK$’000 36,433 (14,784) 622 (1,252) – – – – – – 37,055 (16,036) (771) (16,807)

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By geographical markets:

Hong Kong 241 (29,556) USA and Canada 2,518 (1,979) People’s Republic of China 26,053 (2,806) Australia and New Zealand 30,329 2,250 Others 1,111 (794) 60,252 (32,885) Other revenues/(loss) 398 (32,487) Other revenues/(loss) Interest income Rental income Dividend income Unrealised loss in short-term investments Loss from operations	728 2,509 31,992 – 1,826 37,055 2003 HK$’000 382 117 24 (125) 398	(2,986) (4,829) (2,818) (1,888) (3,515) (16,036) (771) (16,807) 2002 HK$’000 513 128 43 (1,455) (771)

3. Other revenues/(loss)

4. Taxation

• (a) Taxation in the income statement represents the Hong Kong profits tax underprovided for prior year. No provision for Hong Kong and overseas profits tax has been made in the financial statements for the current year as the Group has no assessable profits for the year. The Group did not have taxation payable as at 31 March 2003.

• (b) At 31 March 2003, the major components of unprovided/ unrecognised deferred tax assets of the Group are as follows:

Tax effect of timing differences attributable to: Tax losses Accelerated depreciation allowance	2003 HK$’000 4,822 – 4,822	2002 HK$’000 4,300 (97) 4,203

The Group’s tax losses have not been recognised as deferred tax assets due to the unpredictability of future profit streams.

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The Company did not have any material unprovided deferred taxation as at 31 March 2003.

5. Loss per share

The calculation of loss per share is based on the consolidated loss attributable to shareholders for the year of HK$33,700,000 (2002: loss of HK$18,408,000) and on 330,571,880 (2002: 330,571,880) shares in issue during the year. The Company has no potential dilutive ordinary shares that were outstanding during the two years ended 31 March 2003 and 31 March 2002.

6. Dividends

The directors do not recommend the payment of any dividends for the year (2002: Nil).

MANAGEMENT DISCUSSION AND ANALYSIS Results

The Group’s consolidated turnover for the year ended 31 March 2003 recorded a 63% growth to approximately HK$60.3 million as compared with the previous year of approximately HK$37 million. The growth was primarily attributable to the property business, which accounted for more than 50% of the consolidated turnover. Net loss attributable to shareholders was approximately HK$33.7 million as compared to approximately HK$18.5 million of last year. The loss sustained by the Group during the year under review was mainly due to (i) a one-off provision of approximately HK$22 million arising from realization of a property for use by the Group as its principal place of business in Hong Kong and (ii) termination payments to certain former directors amounted to approximately HK$7 million.

Business review and prospects

The year under review was a transitional period for the Group. It has successfully diverted its core business to property development and investment with primary focus on the China market. Realization of property projects in Australia ended up with an aggregated gain of approximately HK$3.5 million was consistent with this business strategy.

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The construction work in the property development project in Pudong, Shanghai proceeded satisfactorily. Banking facilities had been obtained to finance the construction work and a sum of approximately HK$28 million had been drawn down up to the year end date. Pre-sale of units in the buildings of this project started in March 2003. The market reaction was very encouraging. Up to 30 June 2003, 182 units were sold out of the 204 units launched to the market. Contributions from the project will be reflected in the next financial year.

The overall market for the traditional magnetic media products manufactured by the Group was dwindling in the year under review. China remained the largest market for these products of the Group, although the sales decreased by 35% in terms of geographical segment. Following the termination of production facilities in Yingde, Guangdong Province, which merged into the Changzhou plant in Jiangsu Province, the Group continued to consolidate the operations while remaining our strong emphasis on quality. In view of the contracting floppy disk market, the Group will explore new products to be distributed through its extensive sales network in China. The Group launched its own-branded “BFE” USB flash memory storage media in April 2003 to meet market demand for high volume portable storage.

The Group acquired 55% stake in the joint venture winery in Qingdao after the last stage of capital injection was completed in December 2002. Accordingly, the Group secured closer control over the management of the winery. New ways to more effectively and efficiently manage the operations as well as the marketing and promotional activities have been implemented.

The management expects that property development and investment will become the core turnover and profit driver for the Group in the near future. The Group’s business strategies will continue to focus on developing of the China markets. To fortify the presence in China, the Group will expand its product mix at contained cost.

Along with the efforts put in the existing business in China, the Group will continually look into the business development opportunity there. In particular, the management will actively pursue business opportunities that may arise from the entering into the Closer Economic Partnership Arrangement.

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In terms of internal management, the Group will keep on focusing on enhancement of operational efficiency and effectiveness and increase cost control over all business segments with an aim of turning around to profitability. The management will consider investment projects carefully and prudently and will only accept those suitable for the capabilities of the Group. It will also continue effective cash flow management to ensure a sound financial position.

Liquidity and financial resources

The Group continuously maintained a healthy liquidity position with a net cash inflow of approximately HK$7.3 million for the year, despite of its reported loss of approximately HK$33.7 million. At 31 March 2003, cash and bank balances of the Group amounted to HK$62.9 million (2002: HK$27.8 million). Bank and other borrowings of the Group as at the same date amounted to HK$42.3 million (2002: HK$12.9 million), which is repayable within one year. The calculation of debt to equity ratio (expressed as a percentage of bank and other borrowings net of cash and bank balances over total net assets of the Group) is not applicable.

The Group’s bank and other borrowings were denominated as to 84% in Renminbi and 16% in Hong Kong dollar as compared to 100% in Hong Kong dollar last year.

The Group conducted most of its business in Renminbi, United States dollars and Hong Kong dollars. As the Hong Kong dollar is pegged to the U.S. dollar, and there has been minimal fluctuation in exchange rate between the Hong Kong dollar and the Renminbi, the Group’s exposure to exchange rate risk was minimal.

Acquisition and disposal of subsidiaries and associated companies

In June 2002, the Group completed the procedure for liquidation of its subsidiary established in Guangdong Province. The subsidiary was dissolved accordingly with no further loss realized. The reason for dissolving the subsidiary is to enable the Group to direct more resources to its property development and investment business and to enhance its cash flow position.

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In December 2002, the Group completed capital injection into the joint venture winery in Qingdao and acquired an equity interest of 55% of its total registered capital. This resulted in the joint venture winery became a consolidated subsidiary of the Group.

Employee information

At 31 March 2003, the Group has approximately 560 employees (2002: 260) serving its operations in Hong Kong and the PRC. There has been an increase in workforce in the PRC taking into account of the 300-strong winery in Qingdao which has became a subsidiary of the Company during the year. The costs for the employees (excluding directors’ remuneration) during the year were approximately HK$7.7 million. Employees are basically remunerated based on the nature of their job and their performance as well as prevailing market trend. Year end discretionary bonus would be granted to reward and motivate those well performed employees.

Charges on group assets

At 31 March 2003, the Group has pledged certain assets including bank deposits of HK$6.2 million (2002: HK$5.5 million), land and buildings with an aggregate net book value of HK$19.2 million (2002: HK$33.3 million) to secure the general banking facilities and bank loans granted to the Group.

Capital commitment and contingent liabilities

At 31 March 2003, the Group’s commitments and contingent liabilities were as follows:

• (a) Commitments contracted but not provided for amounted to HK$1.6 million (2002: HK$6.9 million).

• (b) A purported guarantee in respect of the indebtedness of the Company’s subsidiary to a sub-contractor amounting to HK$38 million (2002: HK$38 million), albeit the Company denies liability to the sub-contractor for the purported guarantee which came to the attention of the directors in previous years, has been treated by the directors of the Company on ground of prudence as a contingent liability in the Company’s financial statement.

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

During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

AUDIT COMMITTEE

The Audit Committee has reviewed with management the accounting principles and practices adopted by the Group in the preparation of the audited consolidated financial statements for the year ended 31 March 2003.

CODE OF BEST PRACTICE

The Company has complied with 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 throughout the year ended 31 March 2003. The term of office for the Non-executive Directors of the Company is subject to retirement by rotation and re-election at the annual general meeting in accordance with the bye-laws of the Company.

PUBLICATION OF FURTHER INFORMATION ON THE STOCK EXCHANGE’S WEBSITE

All the financial and other related information of the Company required by paragraphs 45(1) to 45(3) of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Exchange”) will be published on the Exchange’s website in due course.

By Order of the Board KWAN Kei Chor, Samuel Director

Hong Kong, 21 July 2003

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NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting of South East Group Limited (the “Company”) will be held at Basement Function Room I, Luk Kwok Hotel, 72 Gloucester Road, Wanchai, Hong Kong on Thursday, 18 September 2003 at 10:00 a.m. for the following purposes:

1. To receive and consider the audited financial statements and the reports of the directors and the auditors of the Company for the year ended 31 March 2003;

2. To re-elect retiring directors and to authorise the board of directors to fix the remuneration of directors;

3. To determine the maximum number of directors for the financial year 2003/2004;

4. To re-appoint auditors and to authorise the board of directors to fix their remuneration; and

5. As special business, to consider and, if thought fit, pass, with or without amendments, the following resolution as an Ordinary Resolution:

“ THAT:

• (a) the exercise by the directors of the Company during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares of the Company, be and is hereby g enerally and unconditionally approved, provided that, otherwise than (i) pursuant to a rights issue where shares are offered to shareholders on a fixed record date in proportion to their then holdings of shares of the Company as at that date (subject to such exclusions or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body of any stock exchange, in any territory outside Hong Kong applicable to

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the Company); (ii) an issue of shares upon the exercise of rights of subscription or conversion under the terms of any securities which are convertible into shares of the Company; (iii) an issue of shares as scrip dividends pursuant to the bye-laws of the Company from time to time; or (iv) an issue of shares under any option scheme or similar arrangement for the grant or issue to employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares of the Company, the aggregate nominal amount of share capital issued, allotted or disposed of or agreed conditionally or unconditionally to be issued, allotted or dealt with whether pursuant to an option or otherwise, shall not in total exceed 20 per cent. of the nominal amount of share capital of the Company in issue on the date of passing this Resolution and the said approval shall be limited accordingly; and

• (b) for the purpose of this Resolution, “Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:

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

• (ii) the revocation or variation of the authority given under this Resolution by ordinary resolution of the shareholders of the Company in general meeting; and

• (iii) the expiration of the period within which the next Annual General Meeting of the Company is required by the byelaws of the Company or any applicable law to be held.”

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1. As special business, to consider and, if thought fit, pass with or without amendments, the following resolution as an Ordinary Resolution:

“ THAT:

• (a) subject to paragraph (b) below, the exercise by the directors of the Company during the Relevant Period (as hereinafter defined) of all the powers of the Company to repurchase its shares on The Stock Exchange of Hong Kong Limited (“Stock Exchange”) or on any other stock exchange on which the shares of the Company may be listed and recognised by the Securities and Futures Commission of Hong Kong and the Stock Exchange for this purpose, subject to and in accordance with all applicable laws and the requirements of the Rules Governing the Listing of Securities on the Stock Exchange or of any other stock exchange as amended from time to time, be and is hereby generally and unconditionally approved;

• (b) the total nominal amount of shares of the Company to be repurchased by the Company pursuant to the approval in paragraph (a) above shall not exceed 10 per cent of the total nominal amount of the shares of the Company in issue on the date of passing this Resolution and the said approval shall be limited accordingly; and

• (c) for the purpose of this Resolution, “Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:

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

• (ii) the revocation or variation of the authority given under this Resolution by ordinary resolution of the shareholders of the Company in general meeting; and

• (iii) the expiration of the period within which the next Annual General Meeting of the Company is required by the byelaws of the Company or any applicable law to be held.”

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1. As special business, to consider and, if thought fit, pass, with or without amendments, the following resolution as an Ordinary Resolution:

“ THAT , subject to the passing of Resolutions Nos. 5 and 6 set out in the notice convening this meeting, the general mandate granted to the directors of the Company to exercise the powers of the Company to allot and deal with additional shares and to make or grant offers, agreements and options which might or would require the exercise of such power pursuant to Resolution No. 5 set out in the notice convening this meeting, be and is hereby extended by the addition to the total nominal amount of the share capital of the Company which may be allotted or agreed conditionally or unconditionally to be allotted by the directors of the Company pursuant to such general mandate of an amount representing the total nominal amount of shares in the capital of the Company which has been repurchased by the Company under the authority granted pursuant to Resolution No. 6 set out in the notice convening this meeting provided that such amount of shares shall not exceed 10 per cent of the total nominal amount of the share capital of the Company in issue on the date of passing this Resolution.”

1. To transact any other business.

By Order of the Board CHAN Sau Chee Company Secretary

Hong Kong, 21 July 2003

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Notes:

• (i) A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint a proxy to attend and, in the event of a poll, vote in his stead. A proxy need not be a member of the Company.

• (ii) In order to be valid, the form of proxy together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of the power of attorney or authority must be deposited with the Company’s principal place of business at Room 2705, 27/F., The Centrium, 60 Wyndham Street, Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.

• (iii) An explanatory statement containing further details regarding item 6 above will be sent to members of the Company together with the 2002/2003 Annual Report.

Please also refer to the published version of this announcement in The Standard.

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