Dragon Mining Limited — Earnings Release 2002

Jul 23, 2002

Samson Paper Holdings Limited

(incorporated in Bermuda with limited liability)

Announcement of results

For the year ended 31 March 2002

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 2002 and balance sheet as at that date together with comparative figures for the year ended 31 March 2001 as follows:

CONSOLIDATED PROFIT AND LOSS ACCOUNT

		2002		2001
	Note	HK$'000		HK$'000
Turnover	2	2,117,592		2,538,064
Cost of sales		(1,896,710	)	(2,280,661	)
Gross profit		220,882		257,403
Other revenues		7,107		12,065
Selling expenses		(79,564	)	(88,905	)
Administrative expenses		(62,120	)	(62,735	)
Other operating expenses		(18,507	)	(11,490	)
Operating profit	3	67,798		106,338
Finance costs		(40,410	)	(80,693	)
Profit before taxation		27,388		25,645
Taxation	4	(3,518	)	(4,136	)
Profit attributable to shareholders		23,870		21,509
Dividends		6,439		6,439

CONSOLIDATED BALANCE SHEET

		As at 31 March
		2002		2001
	Note	HK$'000		HK$'000
Fixed assets		158,970		166,615
Current assets
Inventories		279,914		228,629
Accounts receivable, deposits and prepayments		716,915		791,444
Other investments		23,887		-
Taxation recoverable		-		7,495
Cash and bank balances		92,668		151,593
		1,113,384		1,179,161
Current liabilities
Accounts payable and accrued charges		158,897		215,231
Trust receipt loans		417,597		516,480
Taxation		3,155		-
Bank loans		134,846		59,400
		714,495		791,111
Net current assets		398,889		388,050
		557,859		554,665
Share capital and reserves		514,358		492,634
Non-current liabilities		43,501		62,031
		557,859		554,665
Earnings per share - basic	5	5.6 cents		5.2 cents
Dividends per share
Interim		0.5 cent		1.5 cents
Proposed final		1.0 cent		- cent
		1.5 cents		1.5 cents
Net asset value per share		120 cents		114 cents

Notes:

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 the following Statements of Standard Accounting Practice ("SSAPs") issued by the HKSA which are effective for accounting periods commencing on or after 1 January 2001:

SSAP 9 (revised)	:	Events after the balance sheet date
SSAP 14 (revised)	:	Leases (effective for periods commencing on or after 1 July 2000)
SSAP 26	:	Segment reporting
SSAP 28	:	Provisions, contingent liabilities and contingent assets
SSAP 30	:	Business combinations
SSAP 31	:	Impairment of assets
SSAP 32	:	Consolidated financial statements and accounting for investments in subsidiaries

The adoption of these SSAPs has resulted in a number of changes in the Group's accounting policies. Certain new accounting policies have been adopted retrospectively, with the opening balance of retained earnings adjusted for the amounts relating to prior periods. The effect of adopting these new or revised standards is set out in the notes to the financial statements in the annual report.

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:

	Turnover				Contribution to profit from operating activities
	2002		2001		2002		2001
	HK$'000		HK$'000		HK$'000		HK$'000
Hong Kong	1,595,602		2,189,671		50,389		93,692
Mainland China	521,990		348,393		17,409		12,646
	2,117,592		2,538,064		67,798		106,338

3. Operating profit

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

	2002		2001
	HK$'000		HK$'000
Crediting:
Interest income	6,395		11,413
Charging:
Depreciation of fixed assets	12,466		11,771

4. Taxation

Hong Kong profits tax has been provided at the rate of 16% (2001: 16%) on the estimated assessable profits for the year.

The taxation charges comprise:

	2002		2001
	HK$'000		HK$'000
Hong Kong profits tax-current	4,518		3,820
Overprovision in previous years	(873	)	(1,008	)
	3,645		2,812
Mainland China taxation	-		266
Deferred taxation	(127	)	1,058
	3,518		4,136

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$23,870,000 (2001: HK$21,509,000) and on the weighted average number of 429,258,039 shares (2001: 411,778,587 shares) of the Company in issue during the year.

MANAGEMENT DISCUSSION AND ANALYSIS

The Global Economy

Hit by the dampened U.S. market, developments in most of the global economies were restrained. As for the local economy, demand conditions remained weak which severely hindered growth. Against this background, Mainland China nevertheless continued to prosper with a registered GDP growth of 7.3% for 2001.

The Paper Industry

The price of paper continued to stay at a relatively low level for most of 2001 as supply remained plenteous. However, the level of business activities started to pick up from the beginning of 2002. This stimulated the demand for paper, putting paper price back on an upward cycle. Towards the last quarter of the financial year, demand and supply of paper began to converge. This has had a positive impact on the price of paper products. By the end of the financial year, the prices of book printing papers and packaging boards had risen by 5% and 15% respectively as compared with the levels in September 2001.

Operations Review

Confronted by this difficult market situation, we were committed to reviewing our strategies and rationalizing our operations. Our focus was to carefully strike a balance between boosting sales to maintain growth and streamlining structures to minimize expenses. At the same time, we continued to concentrate on customer needs, to provide more product choice and shorter delivery time - all being major factors in securing our market position.

Faced with sluggish demand in the general economy, the volume of paper product imports to Hong Kong fell by a further 22% compared with the last financial year. Mirroring this drop, monthly orders on hand in the printing and publishing industries declined by 2% to 4% in value during the second half of the financial year. On the back of this, the Group's sales volume recorded a marginal drop of 2% to 417,000 metric tons. This marginal drop was the direct result of the Group's efforts in expanding its Mainland China market. Furthermore, the Group's strategy in enhancing value added logistics services and product range has also contributed to the satisfactory performance. During the year, the Mainland China operations recorded a double-digit growth which has helped to alleviate the external pressure. However, due to lower paper prices, turnover for the year inevitably decreased by 17% from HK$2,538 million to HK$2,118 million.

Despite the lower turnover, the Group has delivered a rise in profitability. Profit attributable to shareholders for the year was 11% higher at HK$23.9 million as compared to HK$21.5 million for the last financial year. This encouraging growth further acknowledged the Group's multi-fold business strategies. On one hand, we actively sought to adjust to the changing market situation; on the other hand, we continued to strengthen our business in readiness for the rising opportunities.

On the external front, we have long identified Mainland China as our future growth driver. We have undertaken active expansion strategy to boost sales through our strategically located representative offices in Beijing, Chongqing, Foshan and Shenzhen. This strategy goes hand in hand with our ongoing introduction of value added benchmarks. These initiatives were all designed to enhance customer stickiness, and have all been met with pleasing responses.

To support our proactive development plans, we have tailored specific internal measures to streamline operation procedures whilst instituting improvements in logistic controls. In addition to the existing network of warehouses, the Group further added a 100,000 sq. ft. warehouse in Shenzhen where our paper cutting operation has been relocated. At present, the Group's warehousing network is located in many important cities in the Mainland China including Shenzhen, Foshan, Chongqing, Beijing and Tianjin. The establishment of a strategically located warehouse network is aimed at minimizing the delivery time, which is instrumental in shortening the overall trading cycle.

Leveraging our 37 year experience in the paper industry, we fully understand the importance of active inventory management. During the year, we continued to maintain tight control over our inventory with an aim to keep the stock level at the most optimal level of about one month. Our average stock turnover day has been shortened significantly.

Active inventory management, together with effective financial management have significantly improved the bottom line of our business. Together with the general low interest rate environment, we concluded the year with substantial reductions in interest expenses. Taken as a percentage of total sales, interest expenses went down from 3.18% to 1.91% year on year. These measures have multiplied, resulting in an increase in net profit margin of 33%. However, due to the adjustment in turnover, our selling and administrative expenses have gone up as a percentage of sales from 3.5% to 3.76% and 2.47% to 2.93% respectively though there have been reductions in absolute term.

Prospects

Globally, the level of commerical activities started to pick up in early 2002 which stimulated the demand for paper. For the first half of 2002, paper price continued to go upward. It is expected that it will take off further from the existing level along with rising global demand.

Enhancements to internal controls will continue to be one of the Group's focus. To this end, the Group will constantly review our operations to ensure process optimization. Equally important, we will continue to apply stringent cost containment policies and advance the physical management of our sales and warehouse network in both Hong Kong and the Mainland China.

Looking ahead, the directions we have set over the years have placed us on the track to progress. In line with our expectation, the paper market started picking up from the beginning of 2002. In anticipation of this recovery, we started to increase our inventory level in March 2002. In addition, the burgeoning economic activities between the Mainland China and Hong Kong following China's entry to WTO are opening up new breadth and depth of trading links. Eyeing on these opportunities, we are committed to improving our logistics chain to make the Group the preferred paper merchant for customers in Hong Kong and the Mainland China.

In view of increasing competition, the Group will also place greater emphasis on widening our business margins. To achieve this, we will actively improve our diversity in the industry. Our initiatives in this respect will be conditional upon significant benefits to our existing business infrastructure. The management will remain vigilant to changes in market situation.

With the strengths we built over the past 37 years in the paper industry, combined with the visions of our management, we are confident that the Group's future prospects will remain promising. The management is determined to improving returns and taking the business to a new phase of growth.

FINAL DIVIDEND

The Board has resolved to recommend a final dividend of HK1.0 cent per share (2001: HK Nil cent) payable on Monday, 9 September, 2002 to persons who are registered shareholders of the Company on Monday, 2 September, 2002 subject to approval of shareholders at the forthcoming annual general meeting. Together with the interim dividend of HK0.5 cent per share (2001: HK1.5 cents), the total dividend for the year is HK1.5 cents per share (2001: HK1.5 cents).

CLOSURE OF REGISTER OF MEMBERS

The transfer books and the register of members of the Company will be closed from Tuesday, 27 August, 2002 to Monday, 2 September 2002, both dates inclusive, during which no transfer of shares will be registered. In order to qualify for the proposed final dividend, all transfers of shares accompanied by the relevant share certificates must be lodged with the Company's branch registrars, Central Registration Hong Kong Limited at Suite 1712-1716, 17/F., Hopewell Centre, 183 Queen's Road East, Hong Kong for registration no later than 4:00 pm on Monday, 26 August 2002.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2002, the total number of the Group's employees is 246, of which 209 are based in Hong Kong and 37 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 individual concerned. 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

As at 31 March 2002, the Group's short term deposits and bank balances and bank borrowings amounted to HK$93 million and HK595 million respectively, representing a decrease of HK$59 million and HK$41 million respectively when compared with last year.

As at 31 March 2002, the current ratio, being current assets divided by current liabilities, was 1.56 times (at 31 March 2001: 1.49 times). Its gearing ratio, measured on the basis of the Group's total bank loans net of cash balances over the Group's shareholders' funds was maintained at 0.98 times (at 31 March 2001: 0.98 times).

With bank balances and other current assets of HK$1,113 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.

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 minimize currency exposure, the Group continued to raise Renminbi loans to finance the operation in Mainland China. As at 31 March 2002, the bank borrowings in Renminbi amounted to HK$51 million.

CONTINGENT LIABILITIES AND CHARGE OF ASSETS

As at 31 March 2002, the Company provided corporate guarantees on the banking facilities granted to three subsidiaries. The amount of facilities utilized by the subsidiaries as at 31 March 2002 amounted to HK$595 million.

The leasehold land and buildings in Hong Kong of the Group with a total net book value of HK$135 million as at 31 March 2002 were pledged to banks as securities for bank loans of HK$35 million and trust receipt loans of HK$175 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 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.

By Order of the Board

SHAM Kit Ying

Chairman

Hong Kong, 22 July 2002

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the 2002 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 Monday, 2 September 2002 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 2002;

2. To declare a final dividend for the year ended 31 March 2002;

3. To re-elect the retiring directors of the Company (the "Directors") and authorize the board of Directors (the "Board') to fix the Directors' remuneration;

4. 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 above being passed, the general mandate referred to in Resolution 1 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, 22 July 2002

Head Office:

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 one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company. 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 Head Office, 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 Tuesday, 27 August 2002 to Monday, 2 September 2002 (both dates inclusive) during which period no transfer of shares will be registered. To rank for the proposed final dividend, all transfers, accompanied by the relevant share certificates, must be lodged with the Company's Hong Kongg branch share registrars, Central Registration Hong Kong Limited at Suite 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong for registration no later than 4:00 p.m. on Monday, 26 August, 2002.

3. In relation to Resolutions 1 and 3 referred to in paragraph 5 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 5 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 2002.

Please also refer to the published version of this announcement in The Standard dated 23 July 2002.