DIT Group Limited — Annual Report 2004

Jul 19, 2004

SOUTH EAST GROUP LIMITED （東南國際集團有限公司）[*]

(Incorporated in Bermuda with limited liability) (Stock Code: 726)

ANNUAL RESULTS FOR THE YEAR ENDED 31 MARCH 2004

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 2004 with comparative figures for the previous corresponding year as follows:

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2004

NOTE TURNOVER 3 COST OF INVENTORIES SOLD GROSS PROFIT OTHER REVENUE SELLING AND DISTRIBUTION COSTS ADMINISTRATIVE EXPENSES PROFIT/(LOSS) FROM OPERATIONS 4 FINANCE COSTS SHARE OF LOSSES OF JOINT VENTURE PROFIT/(LOSS) BEFORE TAXATION TAXATION 5 PROFIT/(LOSS) AFTER TAXATION MINORITY INTERESTS	2004 HK$’000 192,850 (132,194) 60,656 1,035 (23,277) (22,734) 15,680 (335) – 15,345 (4,789) 10,556 2,209	2003 HK$’000 60,252 (48,382) 11,870 398 (4,585) (40,170) (32,487) (539) (663) (33,689) (122) (33,811) 111

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2004 2003 NOTE HK$’000 HK$’000

NET PROFIT/(LOSS) FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 6 DIVIDENDS 8 PROFIT/(LOSS) FOR THE YEAR EARNING/(LOSS) PER SHARE (CENTS) 7	12,765 – 12,765 3.9	(33,700) – (33,700) (10.2)

Notes:

1. BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice (“SSAP”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance.

2. ADOPTION OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE

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

SSAP 12 (Revised) : Income Taxes

The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. This change in accounting policy has not had any material effect on the results for the current or prior year.

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3. SEGMENT INFORMATION

The business activities of the Group are categorised into the manufacturing and trading of data storage 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 data storage media products and related equipment – Sales of property under development – Sales of wine – Others Other revenue By geographical markets: – Hong Kong – USA and Canada – People’s Republic of China – Australia and New Zealand – Others Other revenue	2004 Contribution to operating Turnover profit/(loss) HK$’000 HK$’000 15,185 (5,276) 167,178 26,335 10,487 (6,414) – – 192,850 14,645 1,035 15,680 190 (4,315) 2,302 813 189,945 17,185 – 816 413 146 192,850 14,645 1,035 15,680	2003 Turnover HK$’000 23,171 31,774 4,270 1,037 60,252 241 2,518 26,053 30,329 1,111 60,252	Contribution to operating profit/(loss) HK$’000 (7,652) 3,778 628 (29,639) (32,885) 398 (32,487) (29,556) (1,979) (2,806) 2,250 (794) (32,885) 398 (32,487)

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4. PROFIT/(LOSS) FROM OPERATIONS

2004 2003 HK$’000 HK$’000

Profit/(loss) from operations is arrived at after charging: Auditors’ remuneration – Current year 294 – Under/(over)-provision for prior years 13 307 Depreciation and amortisation 3,085 Impairment loss recognised 890 (Gain)/loss on disposal of property, plant and equipment (219) Operating lease payments 922 Retirement benefit costs 259 Staff costs (excluding directors’ remuneration) 5,872 Net exchange gain (362) 5. TAXATION (a) Taxation in the income statement represents: 2004 HK$’000 Hong Kong profits tax – Underprovided for prior years 183 China income tax – Provision for the year 4,606 Total tax expenses 4,789

305 (2) 303 5,883 21,371 178 – (374) 7,758 (1,285) 2003 HK$’000 122 – 122

No provision for Hong Kong profits tax has been made in the financial statements for the current year as the Group did not derive any assessable profits in Hong Kong for the year (2003: Nil).

China income tax has been provided on the estimated taxable income at the applicable rate.

• (b) At 31 March 2004, the Group had China income tax payable amounting to HK$1,480,000 (2003: Nil).

• (c) No provision for deferred taxation has been accounted for as the Group has net deferred tax assets at the balance sheet date.

6. PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS

Included in the profit of HK$12,765,000 (2003: loss of HK$33,700,000) attributable to the shareholders of the Company is a loss of HK$26,966,000 (2003: loss of HK$7,520,000), which is dealt with in the Company’s own accounts.

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7. EARNING/(LOSS) PER SHARE

The calculation of earning/(loss) per share is based on the consolidated profit attributable to shareholders for the year of HK$12,765,000 (2003: loss of HK$33,700,000) and on 330,571,880 (2003: 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 2004 and 31 March 2003.

8. DIVIDENDS

The directors do not recommend the payment of any dividends for the year (2003: Nil).

BUSINESS REVIEW

The Group’s strategy to actively develop and explore the China markets proved to be a success. Percentage sales for the PRC market have increased substantially by approximately 55% to 98% during the year, which has contributed to the improvement in the overall results of the Group.

The division of property development and investment represented the largest business segment generating most of the Group’s revenue and profitability. It represented approximately 87% of the Group’s total turnover, while sales of data storage media products and wine products accounted for approximately 8% and 5% respectively.

The residential property development project in Pudong, Shanghai was the dominant revenue and profit contributor over the year under review. The project was 94% completed during the year, generating a profit of approximately HK$26,300,000. As at 31 March 2004, approximately 90% of the residential units and all commercial units were sold, most of them to local residents in Shanghai. The remaining 10% of the residential units were launched in the market in March 2004. Sales and profits attributed from such portion of the project would be recognised in subsequent years.

As the property project in Pudong is near its completion, the Group has taken on a new development project in another premium area in Shanghai. In October 2003, the Group contracted to acquire an equity interest of 33% in a real estate company established in Shanghai with an ultimate goal of participating in a residential development project in the Song Jiang area. The 33% owned real estate company won the public tender for the target land in February 2004 at a final price of approximately HK$36,848,000 that was higher than originally intended. Because of the recent restrictive measures of some local governments in the Yangtze River Delta, for example, contract tax imposed on pre-sales of unfinished properties and banning of mortgages to pre-sale housing, coupled with price increases of building materials, the Group would take a more cautious approach when planning the development project in Song Jiang. The overall development schedule of this property project will inevitably be affected.

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Continuous efforts have been made to reform the product mix and to establish brand awareness of the data storage media products. In response to the contracting business of magnetic media products among the data storage media products, the Group terminated the operation of its plant in Changzhou, the PRC in December 2003. The negative contribution of this business segment for the year under review has been attributed to the impact sustained as a result of SARS outbreak in the early period of the year.

After a year of consolidation and reform, the operation of the 55% owned winery in Qingdao became smoother and thus closer to the market needs. Intensified marketing initiatives have been taken to broaden the customer base in the PRC market. These include setting up a sales office in Shanghai for entering the local supermarkets, hotels and restaurants. The Company recorded sales of wine products amounting to HK$10,487,000 in the year under review. However, loss incurred mainly due to increases in (i) selling expenses attributed to higher marketing and promotion costs in response to the intensified market competition and (ii) general and administration expenses representing mainly the redundancy pay resulted from streamlining the operation.

PROSPECT

It is believed that the real estate market in the PRC can offer a good return given the robust macroeconomic growth and strong demand for properties, despite the policies recently taken by the central government to avoid overheating of economy. Measures to curb speculative housing investments may cause short-term market fluctuations, however, with the improvement of the financing market and opening of land transactions, the healthy development of the real estate sector will result in the long run.

Seeing the event of the World Expo 2010 in Shanghai as an opportunity, the Group will continue to focus on the property development and investment business in Shanghai, which is also known for its wealth, while searching for other opportunities in the country’s real estate sector.

Witnessed the growing popularity of the data storage media products, like USB flash chips and flash cards, in the PRC market, the Group will also focus on growing this business segment with the addition of new items that have rapid demand growth and hence better profit margin. Leveraging on our extensive sales and distribution network, logistics support as well as knowledge of the PRC market, this business may offer good growth potential.

While striving to achieve balanced performance between the property business and the data storage media products business, the Group plans to develop strategies like improving market responsiveness, magnifying sales activity, forming strategic alliance with business partners and strengthening cost control.

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LIQUIDITY AND FINANCIAL RESOURCES

The Group’s liquidity and financial resources remained sound and healthy. It recorded a net cash inflow of approximately HK$18,500,000 during the year. At 31 March 2004, cash and bank balances of the Group amounted to approximately HK$48,800,000 (2003: HK$62,900,000). Bank and other borrowings of the Group as at the same date amounted to approximately HK$13,900,000 (2003: HK$42,300,000), which are repayable within one year. The above bank and other borrowings net of bank deposits pledged amounted to approximately HK$4,500,000.

The Group’s bank and other borrowings were denominated as to 100% in Renminbi. The Group conducted most of its business in Renminbi, United States dollars and Hong Kong dollars so that it does not have any significant exposure to foreign exchange fluctuations.

Shareholders’ equity is HK$135,134,000 (2003: 118,360,000), representing an increase of 14.17% over last year.

The Group’s gearing ratio, expressed as the percentage of the Group’s total borrowings (net of bank deposits pledged) over shareholders’ equity, was approximately 3.3%.

ACQUISITION AND DISPOSAL OF SUBSIDIARIES AND ASSOCIATED COMPANIES

In December 2003, the Group completed acquisition of 33% equity interest in a company mainly engaged in property development and investment in Shanghai from an independent third party for a consideration of RMB2,640,000.

In December 2003, the Group entered into an agreement with its PRC partner for terminating the joint venture contract under which its wholly owned subsidiary, Benelux International Electronics Company Limited (“BIEL”) was set up. Termination of the joint venture contract took effect on 31 December 2003. Dissolution of BIEL is still under process and full provision has been made in the accounts of the Company.

EMPLOYEE INFORMATION

At 31 March 2004, the total number of employees of the Group (including the employees of the winery in Qingdao) was approximately 300 (2003: 560). 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 wellperformed employees. The Company also adopted a share option scheme in November 2003 to reward employees of the Group for their contributions to the Company.

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CHARGES ON GROUP ASSETS

At 31 March 2004, the Group pledged certain assets including bank deposits of HK$14,000,000 (2003: HK$6,200,000), land and buildings with an aggregate net book value of HK$7,600,000 (2003: HK$19,200,000) to secure the general banking facilities and bank loans granted to the Group.

CAPITAL COMMITMENT

At 31 March 2004, the Group had total outstanding capital commitments of approximately HK$36,848,000 (2003: HK$1,600,000).

CONTINGENT LIABILITIES AND LITIGATION

A purported guarantee in respect of the indebtedness of the Company’s subsidiary to a 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 statements.

An order was made by the Hong Kong court on 16 December 2003 restraining the monies amounting to approximately HK$6,160,000 in an account (the “Account”) held by the Company with a bank in Hong Kong. The order was granted upon the ex-parte application of the Hong Kong Secretary of Justice on behalf of the Government of Australia. The application in the Hong Kong courts reflects a restraining order in respect of the Account made by the Supreme Court of New South Wales on application from the Australian Director of Public Prosecutions. On 27 January 2004, the Company indicated to the Hong Kong court that the Company opposes the Hong Kong restraining order, and that the Company intends to issue a summons seeking the removal of the restraining order. The matter has been adjourned until a later date for argument, and will be heard once the proceedings at the Australian count have been concluded.

Based upon the advice from legal counsel, the directors are reasonably confident of ultimately winning the case in Australia and having the Australian court order freezing the Account set aside. Hence, the Hong Kong court restraining order will be also set aside and the Account unfrozen. No provision has been made in respect of the Account in the Company’s accounts.

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 the 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 2004.

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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 2004.

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.

The directors of the Company as at the date of this announcement are Mr. Budiman Rahardja and Mr. Kwan Kei Chor, Samuel as executive directors, Mr. Chen Zhi Yung as non-executive director and Mr. Lo Yuk Lam and Mr. Wong Kam Wah as independent non-executive directors.

By order of the Board KWAN Kei Chor, Samuel Director

Hong Kong, 16 July 2004

* For identification purpose only

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

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