Dragon Mining Limited — Annual Report 2005

Jul 13, 2005

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SAMSON PAPER HOLDINGS LIMITED 森信紙業集團有限公司

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

ANNOUNCEMENT OF RESULTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2005

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 financial year ended 31 March 2005 and balance sheet as at that date together with comparative figures for the financial year ended 31 March 2004 as follows:

CONSOLIDATED PROFIT AND LOSS ACCOUNT For the financial year ended 31 March

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 after taxation Minority interests Profit attributable to shareholders Dividends Earnings per share – basic 5 Dividends per share Interim Proposed final	2005 HK$’000 2,944,408 (2,661,027) 283,381 10,060 (103,040) (72,828) (13,596) 103,977 (31,714) 2,032 74,295 (16,107) 58,188 (1,604) 56,584 21,463 13.2 cents 2.0 cents 3.0 cents 5.0 cents	2004 HK$’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 –
		52,781
		17,171
		12.3 cents
		1.0 cent 3.0 cents
		4.0 cents

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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 Net current assets Total assets less current liabilities Share capital and reserves Minority interests Non-current liabilities Bank loans Deferred tax liabilities Net asset value per share Notes:	As at 31 Ma 2005 HK$’000 153,009 65,621 4,044 222,674 353,441 1,071,344 30,197 297,313 1,752,295 480,840 565,415 3,612 266,370 1,316,237 436,058 658,732 610,447 3,437 36,840 8,008 44,848 658,732 142 cents	rch 2004 HK$’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
		457,801
		671,018
		577,185 – 86,806 7,027
		93,833
		671,018
		134 cents

1. Basis of preparation

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 Institute of Certified Public Accountants (“HKICPA”). 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.

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the accounts for the financial year ended 31 March 2005. The Group has commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

2. Segment information

The Group is engaged in the trading and marketing of paper products. In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format. No business segment analysis is presented as over 90% of the Group’s turnover and profit contribution came from the distribution business of paper products during the financial year.

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An analysis of the Group’s turnover for the financial year by geographical segment, based on geographical location in which customers are located is as follows:

are located is as follows:
Hong Kong People’s Republic of China* (the “PRC”) Others	2005 HK$’000 1,538,822 1,385,533 20,053 2,944,408	2004 HK$’000 1,566,699 1,077,920 –
		2,644,619

No contribution to operating profit from any of the above geographical segments is substantially out of line with the normal ratio of profit to turnover.

• “the People’s Republic of China, for the purpose of this announcement, excluding Hong Kong, Macau Special Administrative Region of the PRC and Taiwan”

3. Operating profit

Operating profit is stated after crediting and charging the following:-

Crediting : Interest income Charging : Depreciation of fixed assets	2005 HK$’000 7,419 9,927	2004 HK$’000 5,094
		11,037

4.

Taxation

Hong Kong profits tax has been provided at the rate of 17.5% (2004:17.5%) on the estimated assessable profits for the financial 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 Under/(over) provision in previous financial years Overseas 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	2005 HK$’000 12,808 143 12,951 4,178 (555) – (467) 16,107	2004 HK$’000 13,177 (247)
		12,930 724 (2,512) 642 (388)
		11,396

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$56,584,000 (2004: HK$52,781,000) and on the weighted average number of 429,258,039 shares (2004: 429,258,039 shares) of the Company in issue during the financial year.

MANAGEMENT DISCUSSION AND ANALYSIS

The Economy

The Hong Kong economy continued to grow in the last quarter of the financial year ended 31 March 2005, with GDP surged by a further 6%, following the strong 8.1% growth in the calendar year of 2004. In the PRC, despite the implementation of the macroeconomic control measures by the central government, the country’s GDP still increased by 8.8% in the last quarter of the financial year ended 31 March 2005.

The printing and publishing industries benefited from the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”), which was concluded in June 2003. Certain printed matters made in Hong Kong, thanks to CEPA, began to enjoy duty-free access to the PRC from January 2004.

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The Paper Industry

With the Hong Kong economy steadily recovering, the value of its total paper import increased by 5.7% to HK$10,939 million and the total re-export value decreased by 2.8% to HK$5,669 million in the calendar year of 2004. The PRC remains as the leading exporter to Hong Kong, accounting for a total worth of HK$2,042 million or 18.7% of the total paper imports.

The paper consumption in the PRC market reached 54.4 million tonnes in the calendar year of 2004, representing a 13.2% growth as compared with the previous calendar year. The average personal paper consumption was 42kg for the calendar year of 2004, 5kg more than that in 2003.

Supported by the encouraging economic environment, the paper trade in Hong Kong and the PRC enjoyed a good year in the calendar year of 2004.

Operations Review

The Group achieved a revenue of HK$2,944 million for the financial year ended 31 March 2005, representing a 11.3% growth as compared with the previous financial year. The Group’s sales increased by 4% in terms of volume to 527,000 metric tonnes.

Gross profit was recorded at HK$283 million with gross margin of 9.6%, as compared with 10.3% for last financial year. Profit attributable to shareholders increased by 7.2% to HK$56.6 million, with net profit margin of 1.9%, similar to that of last financial year. Earnings per share increased by 7.3% to HK13.2 cents.

The Board has resolved to pay a final dividend of HK3 cents per share. Together with the interim dividend of HK2 cents per share already paid, total dividend for the financial year amounted to HK5 cents.

Subsequent to directing reasonable efforts and resources into expanding the PRC market, the Group recorded encouraging results. Turnover from the PRC market rose by 28.5% to reach HK$1,385.5 million. It made up 47.1% of the Group’s total turnover. Hong Kong remained as the largest market of the Group in the region and contributed 52.3%, or HK$1,538.8 million.

By product types, packaging boards and book printing papers accounted for 43% and 48% of the Group’s total turnover respectively.

The Board is pleased to see the continuous growth of its paper manufacturing associate, the Singapore-listed United Pulp & Paper Company Limited (“UPP”). UPP contributed a profit before tax of HK$1.9 million to the Group, representing 4.5 times over that of last financial year.

The Group is committed to providing quality value added service to its customers. During the financial year, the Group spent reasonable resources to further enhance its sheeting, transportation and custom clearance services, which started to have contribution to the business.

During the financial year, the Group employed stringent cost control. As a result, it was able to lower its selling expenses from 3.7% to 3.5% and administrative expenses from 2.6% to 2.5% of its turnover. Other operating expenses and finance costs were also lowered by 15.4% and 2% respectively to HK$13.6 million and HK$31.7 million respectively.

Average stock turnover for the financial year under review stood at 41 days, compared with 37 days a year ago. The Group’s policy has always been maintaining an average inventory level of approximately one month with close regard to prevailing and expected market conditions.

In the light of the introduction of different control measures by the central government to better control its economic development, the Group adopted a more stringent credit policy, which has helped to contain its exposure to doubtful debt. The Group’s provision for the financial year stood at 0.45% of its turnover, as compared to 0.61% in the financial year before.

Prospects

With an abundant supply of paper products and the slowing down of global economic growth, the Group expects competition to intensify in the PRC market, leading to a much more challenging year ahead for it.

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There is a vast demand for paper products in the PRC as most of the printing factories, originally based in Hong Kong, have moved across the border. The Group expects the proportion of revenue contribution from the PRC to further enlarge, while that from Hong Kong to narrow.

In view of the growing demand for paper products in the PRC, the Group will allocate more resources to develop the market. Adding to the current market presence in Beijing, Shanghai, Chongqing, Foshan and Shenzhen, the Group will set up a new office network in Wuxi. The move will enhance the Group’s coverage of the PRC market, allowing it to tap increasing business opportunities in the market and boost its market share. In addition, the Group also plans to open an additional office overseas to assist its regional expansion.

In Hong Kong, a printing and publishing centre of worldwide fame, the Group will further strengthen its leading position to ensure steady business development.

This year marked an important milestone for the Group celebrating its 40th anniversary. As we commemorate our past achievements, we also feel a strong impetus to bring even higher quality 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 cents per share (2004: HK3 cents) payable on 13 September 2005 to persons who are registered shareholders of the Company on 6 September 2005 subject to the approval of shareholders at the forthcoming annual general meeting. Together with the interim dividend of HK2 cents per share (2004: HK1 cent), the total dividend for the financial year is HK5 cents per share (2004: HK4 cents).

CLOSURE OF REGISTER OF MEMBERS

The transfer books and the register of members of the Company will be closed from Wednesday, 31 August 2005 to Tuesday, 6 September 2005 (both days 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 p.m. on Tuesday, 30 August 2005.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2005, the Group employed 479 staff members, 200 of whom are based in Hong Kong and 279 are based in the PRC and others. 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.

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 2005, short term deposits plus bank balances and bank borrowings amounted to HK$297.3 million and HK$868.6 million respectively.

As at 31 March 2005, the Group’s current ratio (current assets divided by current liabilities) stood at 1.33 times, (31 March 2004: 1.40 times). The gearing ratio, measured on the basis of the Group’s long term loans over the Group’s shareholders’ funds, was 6% (31 March 2004: 15%).

With bank balances and other current assets of HK$1,752 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 United States 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 2005, bank borrowings in Renminbi amounted to HK$140 million (31 March 2004: HK$53 million). The majority of the Group’s borrowings bear interest costs which are based on floating interest rates. As at 31 March 2005, the Group has outstanding interest rate swap contracts amounting to HK$370 million in total.

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CONTINGENT LIABILITIES AND CHARGE OF ASSETS

As at 31 March 2005, the Company continued to provide corporate guarantees on banking facilities granted to four subsidiaries. The amounts of facilities utilized by the subsidiaries as at 31 March 2005 amounted to HK$869 million (31 March 2004: HK$831 million).

The leasehold land and buildings in Hong Kong of the Company’s subsidiaries, with a total net book value of HK$120 million (31 March 2004: HK$125 million) as at 31 March 2005 were pledged to banks as securities for bank loans of HK$41 million (31 March 2004: HK$39 million) and trust receipt loans of HK$174 million (31 March 2004: HK$195 million) granted to the Group.

AUDIT COMMITTEE

The audit committee of the Company (the “Committee”) comprises two independent non-executive directors of the Company, namely Mr. Pang Wing Kin, Patrick and Mr. Tong Yat Chong and one non-executive director of the Company, namely 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 financial year, the Committee has met twice with the senior management of the Company and the Company’s external auditors to review the interim and annual financial statements before recommending them to the Board for approval.

PURCHASE, SALE OR REDEMPTION OF SHARES

During the financial year, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any shares in the Company.

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 financial 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”) which was in force prior to 1 January 2005 except that the 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.

INDEPENDENCE OF INDEPENDENT NON-EXECUTIVE DIRECTORS

The Company has received, from each of the independent non-executive directors of the Company, an annual confirmation of his independence pursuant to Rules 3.13 of the Listing Rules. The Company considers all of the independent nonexecutive directors are independent.

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 (in force prior to 31 March 2004, which remain applicable to results annoucements in respect of accounting period commencing before 1 July 2004 under the transitional arrangements) will be published on The Stock Exchange of Hong Kong Limited’s website in due course.

BOARD OF DIRECTORS

As at the date of this announcement, the Board 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, one non-executive director, Mr. LAU Wang Yip, Eric and three independent non-executive directors, namely Mr. PANG Wing Kin, Patrick, Mr. TONG Yat Chong and Mr. NG Hung Sui, Kenneth.

By Order of the Board SHAM Kit Ying Chairman

Hong Kong, 12 July 2005

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

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