Dragon Mining Limited — Annual Report 2004

Jul 20, 2004

Samson Paper Holdings Limited

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SAMSON PAPER HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability) Stock Code: 731

ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 MARCH 2004

The board of directors (the “Board”) of Samson Paper Holdings Limited (the “Company”) is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31 March 2004 and balance sheet as at that date together with comparative figures for the year ended 31 March 2003 as follows:–

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Note Turnover 2 Cost of sales Gross profit Other revenues Selling expenses Administrative expenses Other operating expenses Operating profit 3 Finance costs Share of profits of associated companies Profit before taxation Taxation 4 Profit attributable to shareholders Dividends Earnings per share – basic 5 Dividends per share Interim Proposed final CONSOLIDATED BALANCE SHEET Non-current assets Fixed assets Interests in associated companies Deferred tax assets Current assets Inventories Accounts receivable, deposits and prepayments Other investments Cash and bank balances Current liabilities Accounts payable and accrued charges Trust receipt loans Taxation Bank loans	2004 HK$’000 2,644,619 (2,373,222) 271,397 7,740 (98,452 ) (68,482 ) (16,076 ) 96,127 (32,352 ) 402 64,177 (11,396 ) 52,781 17,171 12.3 cents 1.0 cent 3.0 cents 4.0 cents As at 31 Ma 2004 HK$’000 144,691 66,018 2,508 213,217 299,023 991,250 24,982 282,215 1,597,470 390,488 595,808 4,564 148,809 1,139,669	As restated 2003 HK$’000 2,512,363 (2,248,324) 264,039 4,744 (98,899 ) (71,786 ) (9,859) 88,239 (39,428 ) 146 48,957 (9,134) 39,823 12,878 9.3 cents 1.0 cent 2.0 cents 3.0 cents rch As restated 2003 HK$’000 151,013 67,708 1,629 220,350 250,482 850,444 8,582 241,847 1,351,355 240,864 546,050 6,222 179,837 972,973

Samson Paper Holdings Limited

20-7-2004

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Samson Paper Holdings Limited

Net current assets Total assets less current liabilities Share capital and reserves Non-current liabilities Bank loans Deferred tax liabilities Net asset value per share	457,801 671,018 577,185 86,806 7,027 671,018 134 cents	378,382
		598,732
		537,980 52,737 8,015
		598,732
		125 cents

1. Basis of preparation and accounting policies

The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Society of Accountants ("HKSA"). The accounts have been prepared under the historical cost convention except that certain land and buildings, machinery and equipment and investments in securities are stated at fair value.

In the current year, the Group adopted Statement of Standard Accounting Practice (“SSAP”) 12 (revised) “Income Taxes” issued by the HKSA which is effective for accounting period commencing on or after 1 January 2003.

The adoption of the revised SSAP 12 represents a change in accounting policy, which has been applied retrospectively so that the comparatives presented have been restated to conform to the changed policy. As a result of the change, the opening reserves at 1 April 2002 and 2003 have been decreased by HK$5,249,000 and HK$6,384,000 respectively, which represent the unprovided net deferred tax liabilities. This change has resulted in an increase in deferred tax assets and deferred tax liabilities at 31 March 2003 by HK$1,629,000 and HK$6,178,000 respectively. The profit and amount charged to equity for the year ended 31 March 2003 have been increased by HK$700,000 and decreased by HK$10,700,000 respectively.

2. Segment information

The Group is engaged in the trading and marketing of paper products. Accordingly, an analysis of the Group’s revenue and results for the year by business segments has not been presented.

An analysis of the Group’s turnover and contribution to profit from operating activities by geographical location of customers is as follows:–

Hong Kong Mainland China (“Mainland”)	T 2004 HK$’000 1,566,699 1,077,920 2,644,619	urnover 2003 HK$’000 1,711,461 800,902 2,512,363	Contribu oper 2004 HK$’000 57,903 38,224 96,127	tion to profit from ating activities 2003 HK$’000 61,007 27,232
				88,239

3. Operating profit Operating profit is stated after crediting and charging the following:–

Crediting: Interest income Charging: Depreciation of fixed assets	2004 HK$’000 5,094 11,037	2003 HK$’000 4,286
		11,351

4. Taxation

Hong Kong profits tax has been provided at the rate of 17.5% (2003: 16%) on the estimated assessable profits for the year. Taxation on profits assessable overseas has been calculated at the applicable rates of taxation prevailing in the countries in which the Group and the associated companies operate, based on existing legislation, interpretation and practices in respect thereof.

The taxation charged to the consolidated profit and loss account represents :

Hong Kong profits tax Current Overprovision in previous years Mainland taxation Deferred taxation relating to origination and reversal of temporary differences Deferred taxation resulting from increase in tax rate Share of taxation attributable to associated companies	2004 HK$’000 13,177 (247) 12,930 724 (2,512) 642 (388) 11,396	As restated 2003 HK$’000 10,079 (675)
		9,404 27 (307) – 10
		9,134

5. Earnings per share – basic

The calculation of basic earnings per share is based on the audited consolidated profit attributable to shareholders of the Company of HK$52,781,000 (2003: HK$39,823,000 (as restated)) and on the weighted average number of 429,258,039 shares (2003: 429,258,039 shares) of the Company in issue during the year.

MANAGEMENT DISCUSSION AND ANALYSIS

The Economy

The financial year under review was extraordinary for Hong Kong. The effect of the outbreak of Severe Acute Respiratory Syndrome (SARS) swept the territory, impacting almost all business sectors. Fortunately, the SARS scare was brief and with support of the central government, Hong Kong soon found itself on the track of recovery. The economy of Mainland China remained extremely strong, creating an environment conducive to the growth of the Group’s business.

Samson Paper Holdings Limited 20-7-2004

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Samson Paper Holdings Limited

The Paper Industry

In the early half of the year, prices of paper saw a mild general downward adjustment. However, as suppliers began to exhaust their inventories, prices surged again. Compared with the level at the end of September 2003, prices of book printing papers and packaging boards were approximately 15% and 5% higher at the end of the financial year. Much of the rise was recorded in the first quarter of 2004, when global demand of paper as well as pulp costs started to escalate.

Operations Review

The Group reported turnover of HK$2,644,619,000 for the financial year ended 31 March 2004, 5.3% higher than that of the previous financial year. This was matched by a rise of 6.1% in sales volume to 506,000 metric tonnes.

The Group is pleased to report that its profit levels have also improved. Gross profit climbed 2.8% to reach HK$271,397,.000, giving a gross profit margin of 10.3%. Profit attributable to shareholders rose significantly by 32.5% to HK$52,781,000, translating into net margin of 2.0% as opposed to 1.6% in the previous financial year. The level of net profit was also very encouraging despite increase in doubtful debt provision which itself was resulted from a prudent provision policy. Basic earnings per share were HK12.3 cents, 32.3% above the level the year before. The Board of Directors resolved to pay a final dividend of HK3.0 cents per share. Together with interim dividend of HK1.0 cent per share paid, total dividend for the financial year amounted to HK4.0 cents.

Expansion of the Mainland China market continued to be one of the key reasons behind these pleasing results. It was particularly important in driving turnover growth. The Group was also able to achieve higher gross margin in the latter half of the financial year. In addition, effective control on operation costs and inventory management also brought important contributions.

Hong Kong remained the Group’s main market with a share of HK$1,566,699,000, approximately 59% of the total turnover, and the Mainland China market accounted for the remaining 41%. The Group has also continued to forge ahead in the Mainland China market where sales formally surpassed the billion mark to reach HK$1,077,920,000, 35% higher than the previous financial year’s figure. The sequential turnover increase in Mainland China was the result of various factors, including expansion of sales network and the Group’s ability to offer value added logistics services. The Group will strive to push further in this market and expects to see further growth in the years ahead.

By product types, packaging boards and book printing papers accounted for 50% and 44% of the total turnover respectively.

The Board is delighted to see improving performance from its paper manufacturing arm, the Singapore-listed United Pulp & Paper Company Limited (“UPP”), an associated company of the Group. UPP will continue to be our vehicle in exploring opportunities within the paper industry and we shall render our full support to its business development.

Despite higher turnover, the Group was able to lower its selling expenses from 3.94% to 3.72%. Administrative expenses were lower at 2.59% of turnover, whilst finance costs were also down to 1.22%.

Average stock turnover for the year under review stood at 37 days, compared with 43 days a year ago. The Group’s policy has always been to maintain an average inventory level of approximately one month whilst having close regard to the prevailing and expected market conditions. Under the shadow of SARS, market environment in the early half of the financial year was extremely tough. Therefore, the Group decided to exercise a more stringent credit policy which helped to contain its doubtful debt exposure. However, in line with its prudent provision policy, the Group’s provision for the year stood at 0.61% of turnover, as compared to 0.41% in the year before. This included a general provision of 0.1% of total sales.

Prospects

The influx of Mainland tourists and the introduction of the Closer Economic Partnership Arrangement (“CEPA”) in the latter half of 2003 have helped to boost the overall market sentiment, sending the local market onto the recovery path. It is widely believed that they will remain important stimuli to maintain Hong Kong’s growth momentum. The economy of Mainland China is expected to continue to flourish, despite the recent austerity measures instituted by the central government. As demand for paper products correlates closely with economic development, we see a favorable market environment for the Group business.

Demand for paper products is expected to be keen given the continual pick up of business activities globally. In view of the time required for supply to adjust, the industry expects prices of paper, in particular book printing paper, to rise mildly.

Notwithstanding the price development, the Group will continue to commit itself to boosting its core paper trading business. Sounding a positive note is the expansion of our Mainland China business, from which the Group anticipates higher contribution. As for the Hong Kong market, steady development is expected as the Group further strengthened its leading position.

The Group will be entering its 40th anniversary. It is a testimony to our past achievements and at the same time a strong impetus for us to bring better products and services to our customers. We will continue to work hard and maintain the Group’s position as an industry leader in the years to come.

FINAL DIVIDEND

The Board has resolved to recommend a final dividend of HK3.0 cents per share (2003: HK 2.0 cents) payable on 13 September 2004 to persons who are registered shareholders of the Company on 6 September 2004 subject to approval of shareholders at the forthcoming annual general meeting. Together with the interim dividend of HK1.0 cent per share (2003: HK1.0 cent), the total dividend for the year is HK4.0 cents per share (2003: HK3.0 cents).

CLOSURE OF REGISTER OF MEMBERS

The transfer books and the register of members of the Company will be closed from Tuesday, 31 August 2004 to Monday, 6 September 2004 (both dates inclusive), during which no transfer of shares of the Company will be registered. In order to qualify for the proposed final dividend, all transfers of shares of the Company accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited at Suite 1901-5, 19/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration no later than 4:00 pm on Monday, 30 August 2004.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2004, the Group employed 410 staff members, 204 of whom are based in Hong Kong and 206 are based in Mainland China. The Group’s remuneration policies are primarily based on prevailing market salary levels and the performance of the Group and of the individuals concerned. Remuneration policies are reviewed regularly to ensure that the Group is offering competitive employment packages. In addition to salary payments, other staff benefits include performance bonuses, education subsidies, provident fund, medical insurance and the use of a share option scheme to reward high-caliber staff. Training for various levels of staff is undertaken on a regular basis, consisting of development in the strategic, implementation, sales and marketing disciplines.

Samson Paper Holdings Limited 20-7-2004 3

Samson Paper Holdings Limited

LIQUIDITY AND FINANCIAL RESOURCES

The Group normally finances short term funding requirements with cash generated from operations, credit facilities available from suppliers and banking facilities (both secured and unsecured) provided by our bankers. The Group uses cash flow generated from operations and shareholders’ equity for the financing of long-term assets and investments. As at 31 March 2004, short term deposits plus bank balances and bank borrowings amounted to HK$282 million and HK$831 million respectively.

As at 31 March 2004, the Group’s current ratio (current assets divided by current liabilities) stood at 1.4 times, (31 March 2003: 1.39 times). The gearing ratio, measured on the basis of the Group’s total bank loans net of cash balances over the Group’s shareholders’ funds stood at 0.95 time (31 March 2003 : 1.0 time).

With bank balances and other current assets of HK$1,597 million as well as available banking and trade facilities, the directors of the Company believe the Group has sufficient working capital for its present requirement.

The Group’s borrowings are principally denominated in US and Hong Kong dollars. This arrangement allows the Group to better contain its currency exchange risks. The Group also hedged its position with foreign exchange contracts and options when considered necessary. The Group has continued to obtain Renminbi loans which provide a natural hedge against currency risks. As at 31 March 2004, bank borrowings in Renminbi amounted to HK$53 million.

CONTINGENT LIABILITIES AND CHARGE OF ASSETS

As at 31 March 2004, the Company continued to provide corporate guarantees on banking facilities granted to three subsidiaries. The amounts of facilities utilized by the subsidiaries as at 31 March 2004 amounted to HK$831 million.

The leasehold land and buildings in Hong Kong of the Group’s subsidiaries, with a total net book value of HK$125 million as at 31 March 2004 were pledged to banks as securities for bank loans of HK$39 million and trust receipt loans of HK$195 million granted to the Group.

AUDIT COMMITTEE

The Audit Committee (the “Committee”) comprises two independent non-executive directors of the Company, namely Mr. Pang Wing Kin, Patrick and Mr. Lau Wang Yip, Eric. The principal activities of the Committee include the review and supervision of the Group’s financial reporting process and internal controls. During the year, the Committee has met twice to review with senior management and the Company’s external auditors the interim and annual financial statements before recommending them to the Board for approval.

PURCHASE, SALE OR REDEMPTION OF SHARES

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

CODE OF BEST PRACTICE

None of the directors of the Company is aware of any information which would reasonably indicate that the Company is not, or was not during the year, in compliance with the Code of Best Practice as set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) except that the independent non-executive directors are not appointed for a specific term as they are subject to retirement by rotation and re-election at the annual general meeting of the Company in accordance with the Company’s bye-laws.

PUBLICATION OF DETAILED RESULTS ANNOUNCEMENT ON THE STOCK EXCHANGE’S WEBSITE

A detailed results announcement containing all the information in respect of the Company required by paragraphs 45(1) to 45(3) of Appendix 16 of the Listing Rules will be published on The Stock Exchange of Hong Kong Limited’s website in due course.

BOARD OF DIRECTORS

As at the date of announcement, the Board of Directors comprises five executive directors, namely Mr. SHAM Kit Ying, Mr. LEE Seng Jin, Mr. CHOW Wing Yuen, Ms. SHAM Yee Lan, Peggy and Mr. LEE Yue Kong, Albert and two independent non-executive directors, namely Mr. PANG Wing Kin, Patrick and Mr. LAU Wang Yip, Eric.

By Order of the Board SHAM Kit Ying Chairman

Hong Kong, 19 July 2004

Please also refer to the published version of this announcement in The Standard dated 20 July 2004.

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