Dragon Mining Limited — Interim / Quarterly Report 2001

Dec 20, 2001

SAMSON PAPER HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

ANNOUNCEMENT OF INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2001

The board of directors (the “Board”) of Samson Paper Holdings Limited (the “Company”) is pleased to announce the unaudited consolidated interim results of the Company and its subsidiaries (the “Group”) for the six months ended 30 September 2001 together with comparative figures for the corresponding period in 2000 and the unaudited consolidated balance sheet of the Group as at 30 September 2001 with audited comparative figures for the year ended 31 March 2001, as follows:

CONSOLIDATED PROFIT AND LOSS ACCOUNT

		Unaudited Six months ended 30 September
		2001		2000
	Notes	HK$’000		HK$’000
Turnover	2	1,226,760		1,495,245
Cost of sales		(1,102,688	)	(1,336,523	)
Gross profit		124,072		158,722
Other revenues		4,875		7,772
Selling expenses		(45,736	)	(47,762	)
Administrative expenses		(31,008	)	(31,662	)
Other operating expenses		(13,126	)	(6,547	)
Operating profit	3	39,077		80,523
Finance costs		(25,349	)	(43,780	)
Profit before taxation		13,728		36,743
Taxation	4	(3,620	)	(6,225	)
Profit attributable to shareholders		10,108		30,518
Dividends	5	2,146		6,439
Earnings per share	6	2.4 cents		7.6 cents
Interim dividend per share		0.5 cent		1.5 cents

CONSOLIDATED BALANCE SHEET

	Unaudited		Audited
	As at 30 September 2001		As at 31 March 2001
	HK$’000		HK$’000
Fixed assets	163,795		166,615
Current assets
Inventories	197,503		228,629
Accounts receivable,
deposits and prepayments	917,753		791,444
Taxation recoverable	6,285		7,495
Cash and bank balances	153,201		151,593
	1,274,742		1,179,161
Current liabilities
Accounts payable and
accrued charges	234,321		215,231
Trust receipt loans	533,301		516,480
Bank loans
Secured	8,347		5,040
Unsecured	106,622		54,360
	882,591		791,111
Net current assets	392,151		388,050
Total assets less current liabilities	555,946		554,665
Financed by:
Share capital	42,926		42,926
Reserves	457,670		449,708
Proposed interim dividend	2,146		-
	459,816		449,708
Shareholders’ funds	502,742		492,634
Bank loans	51,633		60,460
Deferred taxation	1,571		1,571
	555,946		554,665
Net asset value per share	117 cents		114 cents

Notes:

1. Basis of preparation and accounting policies

These unaudited consolidated condensed interim accounts are prepared in accordance with Hong Kong Statement of Standard Accounting Practice (“SSAP”) No.25 “Interim Financial Reporting”, issued by the Hong Kong Society of Accountants.

These condensed interim accounts should be read in conjunction with the 2001 annual financial statements.

The accounting policies and methods of computation used in the preparation of these condensed interim accounts are consistent with those used in the annual accounts for the year ended 31 March 2001 except that the Group has changed certain of its accounting policies following its adoption of the following SSAPs issued by the Hong Kong Society of Accountants 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 changes to the Group’s accounting policies and the effect of adopting these new policies is set out below:

a) SSAP 9 (revised): Events after the balance sheet date

In accordance with the revised SSAP 9, the Group no longer recognizes dividends proposed or declared after the balance sheet date as a liability at the balance sheet date. This change in accounting policy has been applied retrospectively so that the comparatives presented have been restated to conform to the changed policy.

Opening retained earnings at 1 April 2000 have increased by HK$6,004,000 which is the reversal of the provision for the 1999-2000 proposed final dividend previously recorded as a liability as at 31 March 2000 although not declared until after the balance sheet date.

This adjustment has resulted in a decrease in current liabilities at 31 March 2000 by HK$6,004,000 for provision for proposed dividends that is no longer required.

b) SSAP 26: Segment reporting

In note 2 to these condensed interim accounts, the Group has disclosed segment revenue and results as defined under SSAP 26. In accordance with the Group’s internal financial reporting the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format. Comparative information has been given.

2. Segment information

The Group is engaged in the trading and marketing of paper products. As stated in note 1 to these condensed interim accounts, the Group has determined that business segments, which comprise the trading and marketing of paper products only, be presented as the primary reporting format. Accordingly, an analysis of the Group’s revenue and results for the period by business segments has not been presented.

The Group operates in two main geographical areas, Hong Kong and Mainland China. An analysis of the Group’s turnover for the period by geographical segment is as follows:-

	Six months ended 30 September
	2001		2000
	HK$’000		HK$’000
Hong Kong	987,211		1,354,158
Mainland China	239,549		141,087
	1,226,760		1,495,245

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

3. Operating profit

Operating profit is stated after crediting and charging the following:

	Six months ended 30 September
	2001		2000
	HK$’000		HK$’000
Crediting
Interest income	4,474		5,510
Charging
Depreciation of fixed assets	5,955		5,770

4. Taxation

Hong Kong profits tax has been provided at the rate of 16%(2000:16%) on the estimated assessable profit for the period. Taxation on overseas profits has been calculated on the estimated assessable profit for the period at the applicable rates of taxation prevailing in the areas in which the Group operates.

The taxation charges comprise:

	Six months ended 30 September
	2001		2000
	HK$’000		HK$’000
Hong Kong profits tax	3,620		6,102
Overseas taxation	-		123
	3,620		6,225

5. Dividends

	Six months ended 30 September
	2001		2000
	HK$’000		HK$’000
Final - HK$Nil (2000: HK$0.015) per share paid (Note (i))	-		6,004
Proposed interim - HK$0.005 (2000: HK$0.015) per share (Note (ii))	2,146		6,439
	2,146		12,443

Notes:

(i) The previously recorded final dividend proposed and declared after the balance sheet date but accrued in the accounts for the year ended 31 March 2000 was HK$6,004,000. Under the Group’s new accounting policy as described in Note 1 (a), the dividend has been written back against opening reserves as at 1 April 2000 and was now charged in the year ended 31 March 2001 the year in which the dividend was proposed.

(ii) At a meeting held on 19 December 2001 the directors declared an interim dividend of HK$0.005 per share. This proposed dividend is not reflected as a dividend payable in these interim condensed accounts, but will be reflected as an appropriation of retained earnings for the year ending 31 March 2002.

6. Earnings per share

The calculation of earnings per share is based on the Group’s unaudited consolidated profit attributable to shareholders of HK$10,108,000 (2000:HK$30,518,000) for the period and on the weighted average number of 429,258,039 (2000:400,258,039) shares of the Company in issue during the period.

7. Contingent liabilities

The Company provided corporate guarantees on the banking facilities granted to two subsidiaries. The amount of such facilities utilized by the subsidiaries as at 30 September 2001 amounted to HK$699,903,000 (31 March 2001:HK$636,340,000).

8. Commitments

(a) Forward exchange contracts

At 30 September 2001, the Group had outstanding forward exchange contracts to purchase American Dollars and Euro amounting to an aggregate of HK$77,822,000 (31 March 2001: HK$30,604,000).

(b) Operating lease commitments

At 30 September 2001, the Group had total future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings as follows:

			Restated
	30 September		31 March
	2001		2001
	HK$’000		HK$’000
Within one year	10,082		3,768
In the second to fifth years inclusive	419		7,020
	10,501		10,788

9. Charge of assets

At 30 September 2001, trust receipt loans of HK$246,548,000 (31 March 2001: HK$224,597,000) and bank loans of HK$37,480,000 (31 March 2001: HK$40,000,000) were secured by legal charges on certain properties of the Group in Hong Kong.

INTERIM DIVIDEND

The Board has resolved to declare the payment of an interim dividend of HK0.5 cent (2000: HK1.5 cents) per share for the six months ended 30 September 2001. The interim dividend will be payable to all shareholders of the Company whose names appear on the register of members of the Company on Friday, 11 January 2002. The interim dividend will be paid on or about Friday, 18 January 2002.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Thursday, 10 January 2002 to Friday, 11 January 2002 both days inclusive, during which period no transfers of shares of the Company will be registered. In order to qualify for the interim 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 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration no later than 4:00 pm on Wednesday, 9 January 2002.

MANAGEMENT DISCUSSION AND ANALYSIS

The Economy

During the review period, the Hong Kong economy remained sluggish as a result of the spillover effect from the general global economic downturn. On the international front, exports further declined. Locally, consumption continued to slacken as public confidence weakened. The overall effect was a reduced level of business in a difficult business environment.

The Paper Industry

The general economic downturn has certain impact on the paper industry. Compared to the same period last year, imports of paper products have decreased by 27% in volume. This to a large extent reflected the demand conditions. Growth in the value of monthly orders on hand for the printing and publishing industries eased from 7% in April 2001 to 3% in August 2001. The paper prices remained at a low level. By the end of the six month period ended 30 September 2001, prices for book printing paper and packaging boards had fallen by approximately 5% and 10% respectively as compared to the price levels in March 2001. Customers kept low inventories and were more cautious in placing orders in view of the uncertainties in the global economy. This in turn intensified market competition in the local paper industry with pressure on the margin of the business.

Operations Review

Amidst the difficult trading environment, the Group has managed to deliver above-benchmark results with only a slight drop of 3% in sales volume to 236,000 metric tonnes during the period. The Hong Kong market accounted for 80.5% of the Group’s total turnover. This satisfactory performance was mainly attributable to the Group’s efforts in enhancing customer services, by providing value added logistics services, and the broadening of product diversity at extremely competitive prices. In addition, increase in supplier channel and expansion in the Mainland China market have also helped to deliver the performance.

In terms of value, the Group’s turnover has decreased by 18% over the previous period as a result of lower paper prices. Mounting competition has also placed additional pressure on overall business margins, resulting in a 67% decrease in net profit for the six months ended 30 September 2001 to HK$10,108,000. Gross margin as a percentage of total sales narrowed from 10.6% to 10.1%. Notwithstanding this situation, the adoption of stringent cost controls has helped to curb selling and administrative expenses which fell in absolute terms. However, due to the reduction in turnover, selling and administrative expenses as a percentage of total sales increased slightly from 3.19% to 3.73% and 2.12% to 2.53% respectively.

The Group’s solid financial position has enabled it to negotiate very competitive interest rates with its major bankers. At the same time, a series of rate cuts and tight inventory controls have contributed to a substantial fall in interest expenses which decreased from 2.93% of total sales to 2.07%.

The Group’s proactive effort to diversify the customer base have helped to counteract the existing market environment. In view of the general economic downturn and with its prudent credit policies, the Group has made a general provision of 0.2% of sales. Nevertheless, the Group has successfully expanded business among its major customers whose contribution to total sales increased from 31% to 33%.

The Group continues to maintain an optimal level of inventory, aiming to maintain levels at less than one month. Apart from savings on interest expenses, the management regards tight inventory controls as crucial to maintaining overall flexibility as the market slowly recovers.

Despite the sluggish local economy, Mainland China’s economy continued to have sustained growth. During the period, the Group actively explored business in this market, successfully achieving an impressive 137% rise in sales volumes and a 70% rise in sales value against the previous period. In terms of value, Mainland China’s market contribution to turnover increased from 9.4% last year to 19.5% this year. This encouraging performance was attributable to the Group’s strategies in diversifying the customer and product bases as well as to its provision of value-added logistics services. Active expansion of this market has not only helped to offset the impact of the slow Hong Kong economy, but has also strengthened foundations for the Group’s future growth.

Prospects

Despite the setbacks in the local economy, the management believes that the difficulties experienced are only temporary within the industry. In addition, the burgeoning Mainland market, combined with the Group’s established strengths, is expected to create a favorable environment for improvements in the Group’s performance.

Supported by low stock levels, rigorous consolidation among paper manufacturers and their ongoing production curtailment, it is expected that paper prices will generally be stabilized at the present level, without much room to decline further. Barring unforeseen circumstances, the management remain cautiously optimistic on the outlook of the paper industry.

Upon entry to the World Trade Organization, Mainland China is expected to rally, further stimulating business developments. Demand for paper products are expected to be robust. The Group will therefore further expand its established representative office network with a strong focus on cities where the printing and packaging industries are fast expanding.

To sharpen its competitive edge, the Group will continue to streamline its operations and is committed to offering the best value-added logistics services to customers. At the same time, the Group will also place great emphasis on sharpening its established strengths in close customer relationship and solid financial position. The management regards these strategies crucial in maintaining the Group’s leading position against a backdrop of intense competition.

To warrant long term sustained growth, the Group is actively pursuing a diversified business strategy. This will not only facilitate growth, but will also help to improve profitability. With the Group’s established financial strengths, its proactive sales and marketing approach and its customer-oriented business philosophy, the management will remain committed to improving the Group’s performance.

EMPLOYEES AND REMUNERATION POLICIES

As at 30 September 2001, the total number of the Group’s employees was 237. 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 are offered to reward our high-calibre staff. Training encompassing strategic, implementation, sales and marketing disciplines are offered to various levels of management on a regular basis.

LIQUIDITY AND FINANCIAL RESOURCES

The Group’s short term deposits and bank balances as at 30 September 2001 amounted to approximately HK$153.2 million. To meet the demand of the Group’s activities, additional bank borrowings were drawn and their aggregate balance increased by HK$64 million to HK$700 million in the financial period ended 30 September 2001. At 30 September 2001, 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 1.09 times (31 March 2001: 0.98 times). With bank balances and other current assets of HK$1,274.7 million as well as available bank and trade facilities, the directors of the Company believe the Group has sufficient working capital to meet its present requirement.

The Group’s foreign currency purchases were mainly denominated in United States dollars. Foreign exchange contracts and options were used, if necessary, to hedge the Group’s foreign currency exposure.

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. The Committee has reviewed the Group’s unaudited interim report for the six months ended 30 September 2001 before it was tabled for the Board’s approval. The review of the unaudited interim financial statements was conducted in conjunction with the Group’s external auditors.

PURCHASE, SALE OR REDEMPTION OF SHARES

During the six months ended 30 September 2001 neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

COMPLIANCE WITH THE 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 six months ended 30 September 2001 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 non-executive directors of the Company 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 Interim Results Announcement containing all the information in respect of the Company required by paragraphs 46(1) to 46(6) 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 December 2001

Please also refer to the published version of this announcement in the Hong Kong iMail Post dated 20/12/2001