Dragon Mining Limited — Earnings Release 2001

Jul 20, 2001

Samson Paper Holdings Limited

(incorporated in Bermuda with limited liability)

Announcement of results

For the year ended 31 March 2001

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 2001 and balance sheet as at that date together with comparative figures for the year ended 31 March 2000 as follows:-

CONSOLIDATED PROFIT AND LOSS ACCOUNT

		2001		2000
	Note	HK$’000		HK$’000
Turnover	1	2,538,064		2,379,132
Cost of sales		(2,280,661	)	(2,103,149	)
Gross profit		257,403		275,983
Other revenues		12,065		8,970
Selling expenses		(88,905	)	(85,078	)
Administrative expenses		(62,735	)	(60,975	)
Other operating expenses		(11,490	)	(7,555	)
Operating profit	2	106,338		131,345
Finance costs		(80,693	)	(57,543	)
Profit before taxation		25,645		73,802
Taxation	3	(4,136	)	(11,399	)
Profit attributable to shareholders		21,509		62,403
Dividends		(6,439	)	(12,008	)
Profit for the year retained		15,070		50,395

CONSOLIDATED BALANCE SHEET

As at 31 March

		2001		2000
	Note	HK$’000		HK$’000
Fixed assets		166,615		163,809
Current assets
Inventories		228,629		336,132
Accounts receivable, deposits and prepayments		791,444		761,893
Taxation recoverable		7,495		-
Cash and bank balances		151,593		156,087
		1,179,161		1,254,112
Current liabilities
Accounts payable and accrued charges		215,231		293,055
Trust receipt loans		516,480		610,471
Bank loans		59,400		44,683
Others		-		14,716
		791,111		962,925
Net current assets		388,050		291,187
		554,665		454,996
Share capital and reserves		492,634		454,483
Non-current liabilities		62,031		513
		554,665		454,996
Earnings per share	4	5.2 cents		15.6 cents
Dividends per share
Interim		1.5 cents		1.5 cents
Proposed final		-		1.5 cents
		1.5 cents		3.0 cents
Net asset value per share		114 cents		113 cents

Notes:

1. Segment information

The principal activity of the Company is investment holding and that of its subsidiaries are the trading and marketing of paper products.

An analysis of the Group’s turnover for the year by principal markets is as follows:-

	2001		2000
	HK$’000		HK$’000
Hong Kong	2,189,671		2,159,293
Mainland China (“PRC”)	348,393		219,839
	2,538,064		2,379,132

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

2. Operating profit

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

	2001		2000
	HK$’000		HK$’000
Crediting:
Interest income	11,413		6,483
Charging:
Depreciation of fixed assets	11,771		11,068

3. Taxation

Hong Kong profits tax has been provided at the rate of 16% (2000:16%) on the estimated assessable profits for the year. Taxation on PRC profits has been calculated on the estimated assessable profits for the year at the applicable rates of taxation prevailing in the PRC, and based on existing legislation, interpretation and practices in respect thereof.

The taxation charges comprise:

	2001		2000
	HK$’000		HK$’000
Hong Kong profits tax-current	3,820		11,931
Overprovision in previous years	(1,008	)	(1,126	)
	2,812		10,805
PRC taxation	266		594
Deferred taxation	1,058		-
	4,136		11,399

4. Earnings per share

The calculation of earnings per share is based on the audited consolidated profit attributable to shareholders of the Company of HK$21,509,000 (2000: HK$62,403,000) and on the weighted average number of 411,778,587 shares (2000: 400,258,039 shares) of the Company in issue during the year.

MANAGEMENT DISCUSSION AND ANALYSIS

Economic Review

GDP growth in the Hong Kong economy was reported at a strong 10.5% in 2000. Mainland China has also exhibited sustained growth with GDP reaching 8% in 2000, with the momentum continuing into the first quarter of 2001. However, having dragged down by the sharp moderation in the US economy and the stagnation in other markets, Hong Kong’s economic growth in the first quarter of 2001 was reduced to 2.5%.

The Paper Industry

Paper prices were volatile during the financial year under review. After a substantial improvement in the first half of 2000, paper prices began to decline in the third quarter due to an influx of paper supplies from Asian paper manufacturers. As these paper manufacturers are able to fetch more favorable prices in Hong Kong than in their own domestic markets, they continued to sell their products in the Hong Kong market. At the same time, mounting financial pressure has driven these manufacturers to sell at very competitive prices in order to generate cash flow. As a result, the local paper market quickly became flooded, with profit margins under severe pressure.

In the first quarter of 2001, the US economy began to show a downturn. Local printers and publishers reduced their buying activities as their end-customers were reluctant to place large quantity forward orders or even place orders at competitive prices. The growth in the value of monthly orders on hand in the printing and publishing industries in Hong Kong slowed down from 11% to 5% during the period from December 2000 to March 2001. This has caused a further imbalance in the supply and demand situation and further dampened the prices as well as margins in the already competitive local paper industry. By the end of the financial year, the prices of book printing papers and packaging boards had fallen at the rates of approximately 12% and 20% respectively as compared with the levels in August 2000.

Operations Review

Against this slowing economic climate with abundant paper supplies and price volatility prevailing in the local market, the Group experienced severe competition in the second half of the financial year. Turnover rose approximately 7% to HK$2,538 million with a 1% drop in volume to 425,814 metric tons, despite a 22% fall in volume of total paper and board imports to Hong Kong for the financial year under review. The satisfactory business performance of the Group was supported by enhancements to its service capabilities and strong business growth in the Mainland China. As a result of more personalized service contacts and the ability to offer a wider range of product brands at very competitive prices, the Group was able to maintain its competitive edge in the market.

Decreasing paper prices as a result of the influx of paper supplies in the second half of the financial year has put adverse pressure on growth as well as the margins of the business. Despite the difficult trading conditions in the second half of the financial year, the Group remained profitable and recorded an audited consolidated profit attributable to shareholders of HK$21.5 million, although this represented a drop of 65.5% when compared with the financial year ended 31 March 2000. The fall in profit was mainly attributable to the drop in gross margins from 11.6% to 10.14% and the significant increase in interest expenses from 2.42% to 3.18% of total sales. The increase in interest expenses resulted from financing higher levels of working capital for business growth. However, owing to the supply conditions in the market during the second half of the financial year, the rate of business growth did not turn out as expected. Additionally, the relatively high market interest rate in the first half of the year also pushed up interest expenses.

Notwithstanding the situation, the Group’s debt provision for the year has decreased from 0.33% to 0.25% of sales and efficient cost controls effected a reduction in selling and administrative expenses on the Group’s turnover. With its strong financial position, the Group has recently successfully negotiated with bankers to lower the interest rates regarding the existing banking facilities of the Group. Together with the gradual reduction of market interest rates, the Group’s borrowing costs are expected to be lowered in the future. In addition, the Group’s financial strengths were further enhanced following the injection of HK$23.2 million in new working capital from Vickers Capital Limited who became a new shareholder in November 2000.

In view of the change in market situation, the Group has adopted appropriate sales and purchase strategies since early September to reduce inventory levels. The level of inventory was successfully reduced from 14.1% (as at 31 March 2000) to 8.96% (as at 31 March 2001) of sales. The Group will continue to cautiously maintain the level of inventory under present market conditions in order to further reduce financing costs.

The Group achieved significant growth in its business in the Mainland China despite severe competition in the Mainland Chinese market which was also flooded with an abundant supply of paper. During the financial year ended 31 March 2001, sales in the Mainland China rose 58% in value, accounting for approximately 13.7% of the Group’s sales. This encouraging growth was attributable to the enlarged sales network and customer base, as well as additional value-added delivery services to meet the different needs of individual customers. The Mainland Chinese market will be a key market for the future. As such, the Group will allocate more resources in developing this market.

Prospects

Paper price remains soft in the present market situation. Globally, major paper manufacturers are initiating production curtailment in the hope of improving the over-supply condition and this will have a positive bearing on paper prices in the long term.

The Directors expect the current level of price competition to persist. However, the Group will meet the challenge with stringent cost controls, flexible inventory policy and prudent financial management. At the same time, the Group is committed to the planned expansion in its customer base and supplier channels, and will continue to seek further operational efficiencies.

The Directors are confident that the Group’s business development plans are on the right track. The Group first entered the Mainland Chinese market in 1994, and has since built up a significant presence with four representative offices located in Beijing, Shenzhen, Chongqing and Foshan. With strong domestic demand in the Mainland Chinese economy and China’s imminent accession into the World Trade Organization, the Group has identified Mainland China as a key market for the Group’s business growth. The Group will certainly benefit from the continuous strong growth expected in the Mainland Chinese economy.

With the slowdown of the economy in Hong Kong, the Group, with its strong financial position, will maintain an open attitude to secure any positive investment opportunities that may arise. The management believes that this will optimize the utilization of the Group’s resources, and will help to diversify the Group’s existing business and improve profitability.

FINAL DIVIDEND

The Board has resolved not to recommend the payment of a final dividend for the year ended 31 March 2001 (2000: HK1.5 cents per share).

CLOSURE OF REGISTER of MEMBERS

The register of members of the Company will be closed from Wednesday, 29 August 2001 to Tuesday, 4 September 2001, both dates inclusive, during which no transfer of shares will be registered.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2001, the total number of the Group’s employees is 234, of which 221 are based in Hong Kong and 13 are based in Mainland China. Remuneration policies are reviewed regularly by the Directors of the Company to ensure that the Group is offering competitive employment packages. In addition to salary payment, other staff benefits including performance bonus, education subsidies, provident fund, medical insurance and share option scheme help to reward high-calibre staff. Training at various levels of staff is undertaken on a regular basis which comprises each of strategic, implementation, sales and marketing disciplines.

LIQUIDITY AND FINANCIAL RESOURCES

The Group continued to adopt prudent financial management strategy. As at 31 March 2001, the Group’s short term deposits and bank balances and bank borrowings amounted to HK$152 million and HK$636 million respectively, representing a decrease of HK$4.5 million and HK$19 million respectively when compared with last year.

During the financial year under review, the Group has maintained a conservative and strong capital structure. In November 2000, 29 million shares totaling approximately HK$23.2 million were issued to enlarge the capital base. In addition, the Group has successfully refinanced a portion of short term trust receipt loans by loan facilities of HK$70 million with longer maturity periods and competitive interest rates. As at 31 March 2001, the current ratio, being current assets divided by current liabilities, was 1.49 times (at 31 March 2000: 1.3 times). Its gearing ratio, measured on the basis of the Group’s total bank loans net of cash balances over the Company’s shareholders’ funds was 0.98 times (at 31 March 2000: 1.10 times).

With bank balances and other current assets of HK$1,028 million as well as available banking and trade facilities, the Group has sufficient working capital for its present requirement.

To contain currency exchange risks, the Group has confined its borrowings to principally US and Hong Kong dollars. The Group also hedged its position with foreign exchange contracts and options if considered necessary. During the year, to cater for the Group’s development in the Mainland market and further minimise currency exposure, the Group managed to raise Renminbi loans to finance the operation in Mainland China. With the growth of business in Mainland China, the Group will continue to arrange more Renminbi loans that will provide a natural hedge against the currency risk of its operation in Mainland China.

CONTINGENT LIABILITIES AND CHARGE OF ASSETS

At 31 March 2001, the Company provided corporate guarantees on the banking facilities granted to two subsidiaries. The amount of facilities utilized by the subsidiaries as at 31 March 2001 amounted to HK$636 million.

The leasehold land and buildings in Hong Kong of the Group’s subsidiaries with a total net book value of HK$139 million as at 31 March 2001 were pledged to banks as securities for bank loans of HK$40 million and trust receipt loans of HK$225 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 statement 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 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.

By Order of the Board

SHAM Kit Ying

Chairman

Hong Kong, 19 July 2001

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the 2001 Annual General Meeting of Samson Paper Holdings Limited will be held at Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Hong Kong on Tuesday, 4 September 2001, at 11:00a.m. for the following purposes:-

As Ordinary Business

1. To receive and adopt the audited statement of accounts and the reports of the directors and auditors for the year ended 31 March 2001.

2. To re-elect the retiring directors of the Company (the “Directors”) and authorize the board of Directors (the “Board’) to fix the Directors’ remuneration;

3. To re-appoint auditors and authorize the Board to fix their remuneration; and

As Special Business

1. To consider and, if thought fit, adopt with or without amendments, the following resolutions as Ordinary Resolutions:-

ORDINARY RESOLUTIONS

(1) “THAT:

(a) subject to paragraph (b) of this Resolution, the exercise by the Directors during the Relevant Period (for the purposes of this Resolution, “Relevant Period” being the period from the passing of this Resolution until the earliest of (i) the conclusion of the next annual general meeting of the Company following the passing of this Resolution; (ii) the expiration of the period within which such meeting is required by law or the bye-laws of the Company to be held; and (iii) the revocation or variation of the approval given in this Resolution by an ordinary resolution of the members of the Company in general meeting) of all powers of the Company to allot or issue shares in the capital of the Company and make or grant offers, agreements and options which would or might require shares to be allotted, issued or disposed of during or after the end of the Relevant Period, be and is hereby generally and unconditionally approved; and

(b) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) and issued by the Directors pursuant to the approval referred to in paragraph (a) of this Resolution, otherwise than (i) pursuant to a rights issue (for the purposes of this Resolution, “rights issue” being an offer of shares or other securities to holders of shares or other securities on the register of members of the Company on a fixed record date in proportion to their then holdings of such shares or other securities or otherwise in accordance with the rights attaching thereto (subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, any territory outside Hong Kong)), or (ii) the issue of shares pursuant to a scrip dividend scheme or similar arrangement providing for the allotment of shares in lieu of the whole or part of the dividend on shares of the Company in accordance with the bye-laws of the Company or (iii) pursuant to the exercise of options under any option scheme or similar arrangement for the time being adopted by the Company for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares of the Company or rights to acquire shares of the Company, shall not exceed 20% of the aggregate nominal amount of the issued share capital of the Company in issue at the date of the passing of this Resolution, and the said approval shall be limited accordingly.”

(2) “THAT:

(a) subject to paragraph (b) of this Resolution, the exercise by the Directors of all powers of the Company to repurchase its own shares on The Stock Exchange of Hong Kong Limited (the “Exchange”) or on any other stock exchange on which the shares of the Company may be listed and recognized by the Hong Kong Securities and Futures Commission and the Exchange for this purpose, subject to and in accordance with all applicable laws and regulations, during the Relevant Period (being the period from the passing of this Resolution until the earliest of (i) the conclusion of the next annual general meeting; (ii) the expiration of the period within which such meeting is required by law or the bye-laws of the Company to be held; and (iii) the revocation or variation of this Resolution by an ordinary resolution of the members of the Company in general meeting) be and is hereby generally and unconditionally approved;

(b) the aggregate nominal amount of shares of the Company repurchased by the Company pursuant to the approval referred to in paragraph (a) of this Resolution shall be no more than 10% of the aggregate nominal amount of the share capital of the Company in issue at the date of the passing of this Resolution, and such approval shall be limited accordingly; and

(c) the approval referred to in paragraph (a) of this Resolution shall, where permitted by applicable laws and regulations and subject to the limitation in paragraph (b) of this Resolution, extend to permit the purchase of shares of the Company by subsidiaries of the Company.”

(3) “THAT:

conditional upon Resolution 2 set out in the Notice convening the Meeting above being passed, the general mandate referred to in Resolution 1 set out in such notice above be extended by the addition to the aggregate nominal amount of shares which may be allotted and issued of an amount representing the aggregate nominal amount of shares repurchased by the Company pursuant to the mandate referred to in Resolution 2 above, provided that such amount shall not exceed 10% of the aggregate nominal amount of the share capital of the Company in issue at the date of the passing of this Resolution.”

By Order of the Board

LEE Yue Kong, Albert

Company Secretary

Hong Kong, 19 July 2001

Principal place of business:

3/F Seapower Industrial Centre

177 Hoi Bun Road

Kwun Tong, Kowloon, Hong Kong

Notes:

1. A member entitled to attend and vote at the above Meeting is entitled to appoint another person as his proxy to attend and vote instead of him. A proxy need not be a member of the Company. A member may not appoint more than two proxies to attend on the same occasion. In order to be valid, a 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 that power or authority, must be deposited with the Company Secretary at the Company’s principal place of business at 3/F., Seapower Industrial Centre, 177 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof (as the case may be).

2. The Register of Members of the Company will be closed from Wednesday, 29 August 2001 to Tuesday, 4 September 2001 (both dates inclusive) during which period no transfer of shares will be registered.

3. In relation to Resolutions 1 and 3 referred to in paragraph 4 of this Notice, approval is being sought from the members for a general mandate to authorize the allotment and issue of shares under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

4. In relation to Resolution 2 referred to in paragraph 4 of this Notice, approval is being sought from the members for a general mandate to repurchase shares in the Company. A circular containing an explanatory statement which sets out the terms and conditions upon which such power will be exercised will be sent to all shareholders of the Company together with the Annual Report of the Company for the year ended 31 March 2001.

Please also refer to the published version of this announcement in the i Mail dated 20/7/2001.