Dragon Mining Limited — Interim / Quarterly Report 2003

Dec 6, 2002

Samson Paper Holdings Limited

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SAMSON PAPER HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002

The board of directors (the “Board”) of Samson Paper Holdings Limited (the “Company”) is pleased to announce the unaudited condensed consolidated interim results of the Company and its subsidiaries (the “Group”) for the six months ended 30 September 2002 together with comparative figures for the corresponding period in 2001, and the unaudited condensed consolidated balance sheet of the Group as at 30 September 2002 together with audited comparative figures for the year ended 31 March 2002, as follows:

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

Notes Turnover 2 Cost of sales Gross profit Other revenues Selling expenses Administrative expenses Other operating expenses Operating profit 3 Finance costs Share of loss of associated company Profit before taxation Taxation 4 Profit attributable to shareholders Dividends 5 Earnings per share 6 Interim dividend per share	Unaudited Six months ended 30 September 2002 2001 HK$’000 HK$’000 1,342,078 1,226,760 (1,200,839) (1,102,688) 141,239 124,072 2,585 4,875 (50,543) (45,736) (33,475) (31,008) (5,273) (13,126) 54,533 39,077 (22,453) (25,349) (34) – 32,046 13,728 (5,705) (3,620) 26,341 10,108 4,293 2,146 6.1 cents 2.4 cents 1.0 cent 0.5 cent	Unaudited Six months ended 30 September 2002 2001 HK$’000 HK$’000 1,342,078 1,226,760 (1,200,839) (1,102,688) 141,239 124,072 2,585 4,875 (50,543) (45,736) (33,475) (31,008) (5,273) (13,126) 54,533 39,077 (22,453) (25,349) (34) – 32,046 13,728 (5,705) (3,620) 26,341 10,108 4,293 2,146 6.1 cents 2.4 cents 1.0 cent 0.5 cent
		124,072 4,875 (45,736) (31,008) (13,126)
		39,077 (25,349) –
		13,728 (3,620)
		10,108
		2,146
		2.4 cents
		0.5 cent

Samson Paper Holdings Limited 06-12-2002

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Samson Paper Holdings Limited

CONDENSED CONSOLIDATED BALANCE SHEET

CONDENSED CONSOLIDATED BALANCE SHEET	CONDENSED CONSOLIDATED BALANCE SHEET	CONDENSED CONSOLIDATED BALANCE SHEET	CONDENSED CONSOLIDATED BALANCE SHEET
Unaudited Audited 30 September 2002 31 March 2002 HK$’000 HK$’000 Fixed assets 156,301 158,970 Interest in associated company 606 – Current assets Inventories 270,287 279,914 Accounts receivable, deposits and prepayments 1,024,948 716,915 Other investments 15,795 23,887 Cash and bank balances 194,039 92,668 1,505,069 1,113,384 Current liabilities Accounts payable and accrued charges 271,966 158,897 Trust receipt loans 639,924 417,597 Taxation 8,653 3,155 Bank loans 98,520 134,846 1,019,063 714,495 Net current assets 486,006 398,889 Total assets less current liabilities 642,913 557,859 Financed by: Share capital 42,926 42,926 Reserves 489,187 467,139 Proposed dividend 4,293 4,293 493,480 471,432 Shareholders’ funds 536,406 514,358 Bank loans 105,063 42,057 Deferred taxation 1,444 1,444 642,913 557,859 Net asset value per share 125 cents 120 cents
	489,187 4,293		467,139 4,293
	493,480 536,406 105,063 1,444 642,913 125 cents		471,432 514,358 42,057 1,444 557,859 120 cents

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Samson Paper Holdings Limited

Notes:

1. Basis of preparation and accounting policies

The unaudited interim financial report has been reviewed by the Company’s audit committee, and reviewed by the Company’s auditors, PricewaterhouseCoopers, in accordance with Statement of Auditing Standard 700 “Engagements to review interim financial reports” issued by the Hong Kong Society of Accountants.

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 2002 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 2002 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 2002:–

SSAP	1 (revised)	Presentation of financial statements
SSAP	15 (revised)	Cash flow statements
SSAP	25 (revised)	Interim financial reporting
SSAP	34	Employee benefits

The changes to the Group’s accounting policies and the effect of adopting these new policies is set out below:–

• a) SSAP15 (revised): Cash flow statements

The presentation and classification of items in the cash flow statement have been changed due to the adoption of SSAP15 (revised). As a result, cash flow during the period has been reclassified by operating, investing and financing activities. For the six months ended 30 September 2001, net cash outflow from taxation paid of HK$2,411,000 has been reclassified as operating cash flow. Interest received of HK$4,474,000 has been reclassified as investing cash flow. Interest paid of HK$25,349,000 has been reclassified as financing cash flow.

• b) SSAP34: Employee benefits

This new SSAP prescribes the accounting treatment and disclosure requirements for employee benefits. There is no material impact on the financial results and financial position of the Group by the adoption of this new SSAP.

2. Segment information

The Group is engaged in trading and marketing of paper products. An analysis of the Group’s turnover and contribution to profit from operating activities by principal activity is not presented as profit from operating activities was derived predominantly from trading and marketing of paper products.

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:–

Group’s turnover for the period by geographical segment is as follows:–
Hong Kong Mainland China	Six months ended 30 2002 HK$’000 958,001 384,077 1,342,078	September 2001 HK$’000 987,211 239,549
		1,226,760

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.

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Samson Paper Holdings Limited

3. Operating profit

Operating profit is stated after crediting and charging the following:

	Six months ended 30 September	Six months ended 30 September
	2002	2001
	HK$’000	HK$’000
Crediting
Interest income	2,006	4,474
Charging
Depreciation of fixed assets	5,416	5,955

4. Taxation

Hong Kong profits tax has been provided at the rate of 16%(2001:16%) 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:

Hong Kong profits tax Overseas taxation Dividends Proposed interim – HK$0.01 (2001: HK$0.005) per share	Six months ended 30 2002 HK$’000 5,520 185 5,705 Six months ended 30 2002 HK$’000 4,293	September 2001 HK$’000 3,620 –
		3,620
		September 2001 HK$’000 2,146

5. Dividends

Notes:

• a) At a meeting held on 22 July 2002 the directors proposed a final dividend of HK$0.01 per share for the year ended 31 March 2002, which was paid on 9 September 2002 and has been reflected as an appropriation of retained earnings for the six months ended 30 September 2002.

• b) At a meeting held on 5 December 2002 the directors declared an interim dividend of HK$0.01 per share for the year ending 31 March 2003. This proposed dividend is not reflected as a dividend payable in these condensed accounts, but will be reflected as an appropriation of retained earnings for the year ending 31 March 2003.

6. Earnings per share

The calculation of earnings per share is based on the Group’s unaudited consolidated profit attributable to shareholders of HK$26,341,000 (2001:HK$10,108,000) for the period and on the weighted average number of 429,258,039 (2001:429,258,039) shares of the Company in issue during the period.

7. Contingent liabilities

The Company provided corporate guarantees on the banking facilities granted to three subsidiaries. The amount of such facilities utilized by the subsidiaries as at 30 September 2002 amounted to HK$843,507,000 (31 March 2002:HK$594,500,000).

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Samson Paper Holdings Limited

8. Commitments

• (a) Forward exchange contracts

As at 30 September 2002, the Group had outstanding forward exchange contracts to purchase American Dollars amounted to an aggregate of HK$42,220,730 (31 March 2002: HK$26,462,000).

(b) Operating lease commitments

As at 30 September 2002, the Group had total future aggregate minimum lease payments under noncancellable operating leases in respect of land and buildings as follows:

30 Within one year In the second to fifth years inclusive	September 2002 HK$’000 167 23,631 23,798	31 March 2002 HK$’000 5,194 247
		5,441

9. Charge of assets

At 30 September 2002, trust receipt loans of HK$244,246,000 (31 March 2002: HK$174,886,000) and bank loans of HK$74,967,000 (31 March 2002: HK$34,960,000) were secured by legal charges on certain properties of the Group in Hong Kong.

10. Subsequent event

The Group completed on 11 November 2002 the acquisition of a 19.18% interest in the share capital of United Pulp & Paper Company Limited (“UPP”) for a total cash consideration of HK$67,334,000 (SG$15,208,000). UPP is a listed company in Singapore which is engaged in manufacturing and supplying paper boards and packaging products. Based upon the net tangible assets of UPP as at 30 June 2002, the acquisition has resulted in a goodwill of approximately HK$7million, which will be amortized over 10 years, leading to a charge of approximately HK$700,000 per annum.

INTERIM DIVIDEND

The Board has resolved to declare the payment of an interim dividend of HK1 cent (2001:HK0.5 cent) per share for the six months ended 30 September 2002. 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, 10 January 2003. The interim dividend will be paid on or about Friday, 17 January 2003.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Thursday, 9 January 2003 to Friday 10 January 2003 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 registrar, Computershare Hong Kong Investor Services Limited at Suite 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration no later than 4:00 pm on Wednesday 8 Jaunuary 2003.

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Samson Paper Holdings Limited

MANAGEMENT DISCUSSION AND ANALYSIS

The Economy

During the review period, the Hong Kong export sector continued to gain momentum. The local printing and publishing industries picked up moderately, as reflected by the turnaround in the growth of orders on hand. Overall performance of the local economy has also been enhanced by the robust growth of the China market, which has continued to benefit from escalating levels of income and investment.

The Paper Industry

The period saw a 12% increase in Hong Kong’s total volume imports of paper products. Mirroring this change, the value of orders on hand in the printing and publishing industries started to pick up during the period, concluding at a level in September 2002 2% higher than the corresponding month last period.

Paper prices followed an upward path during the period. Compared to March 2002, prices of book printing papers have risen by approximately 5% whilst packaging boards have risen by 10%.The supply conditions have also continued to improve, as inventory in major supply countries began to run down.

Operations Review

The Group’s solid foundation helped it to weather the economic climate and made encouraging gains in both turnover and profit. Compared to the corresponding last period , the Group delivered 9.4% growth in turnover to HK$1,342,078,000. In tonnage terms, this represented a rise of 7.6% to approximately 254,000 MT. Gross profit rose 13.8% to HK$141,239,000. The management is also pleased to announce a 161% increase in profit attributable to shareholders to HK$26,341,000. In addition, the Group also achieved significant improvements in business margins with a 139% increase in net profit margin from 0.82% to 1.96% whilst the gross margin improved from 10.1% to 10.5%. Earnings per share increased 154% from HK 2.4 cents to HK 6.1 cents. The Board has resolved to pay an interim dividend of HK 1 cent per share (2001/02 : HK 0.5 cent)

This positive performance during the report period reflects that the Group has turned the corner. Apart from the higher levels in paper prices, the Group’s continued efforts to expand in the Mainland China market have also been an important factor in the turnover growth. The Group’s focus has been to enhance customer services by providing efficient services together with the widest possible range of paper products in the most timely manner. Its market presence in several major cities including Beijing, Chongqing, Foshan and Shenzhen has also presented the Group with advantages in broadening the customer base. During the period, the Group expanded its market presence to cover Shanghai, an important base through which the Group will develop business in the neighboring Jiangsu area. Contributions from the Mainland market recorded sequential growth of 49% over last period in volume terms and 60% in sales terms, accounting for 28.6% of the Group’s total turnover during the period.

Well-defined strategic expansion plans have helped the Group to maintain its leading position in the market. Sales contribution by product was maintained at a stable level, with 39% accounted for by book printing papers and 54% by packaging boards.

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Samson Paper Holdings Limited

Effective inventory controls on the back of the low interest rate environment have helped to pitch pleasing improvements in profit margins. Stock turnover was maintained at 38 days, an optimal level in view of the gradual pick up in paper prices. The Group saw a further reduction in finance costs during the review period from 2.07% of total turnover to 1.67% of total turnover.

The Group continued to adopt a prudent credit policy and despite the difficult economic conditions, the Group was able to maintain general provision at the 0.1% level. In addition, sales to major customers were also maintained at a stable level of approximately 32% of total turnover.

PROSPECTS

Looking ahead, performance of the Hong Kong economy is expected to hinge upon the global situation, and the US economy in particular. On the other hand, the Mainland China market is expected to thrive, giving the local economy some support. Based on industry statistics for the review period, it is reasonable to believe that the printing and publishing sector will perform steadily. At the same time, the price of paper is expected to remain stable, assuming that supply and demand conditions will continue to develop steadily.

Built over 37 years, the Group’s solid roots in the paper trading industry have enabled it to ride the cycles in the paper industry. With shareholder interest as a priority, the Group’s planned expansion plans are founded on a prudent management philosophy. Marking a new phase of development, management has decided to take business further by diversifying into the industrial paper manufacturing business and the corrugated box production business through the acquisition of a 19.18% interest in the Singapore listed UPP at a cash consideration of approximately HK$67,334,000 (SG$15,208,000) subsequent to the review period. This has made the Group the single largest shareholder of UPP.

With over 35 years of operating history, UPP possesses a diverse mix of skills, experience and integrated manufacturing facilities which will be crucial assets in allowing the Group to tap further opportunities in the Asia Pacific region. In particular, the addition of UPP’s expertise fits well into the Group’s goal in diversifying into China’s paper manufacturing sector. The acquisition will also bring an immediate return, linking the Group to the Asia Pacific markets where UPP already has an established presence. The Group will also benefit from UPP’s satisfactory track record and quality asset base.

In addition to the backward integration plan, the management will continue to focus on developing its paper trading business where the Group enjoys significant advantages. The Mainland China market is expected to be an important growth driver as the positive impact from her entry to WTO becomes more apparent. To further enhance its core business, the Group has plans to create synergies by expanding UPP’s existing trading arm which will boost the Group’s product diversity. On the back of these favorable factors, the Group will also be committed to strengthening its capabilities by closely reviewing and improving operations.

The Group will continue to regard prudent financial management and customer orientation as important elements for accelerated growth. Given the improving industry background, management is optimistic about its performance in the second half of the financial year.

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Samson Paper Holdings Limited

EMPLOYEES AND REMUNERATION POLICIES

As at 30 September 2002, the total number of the Group’s employees was 285. The Group’s remuneration policies are primarily based on prevailing market salary levels and the performance of the Group and the individual concerned. 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 2002 amounted to approximately HK$194 million. To meet the demand of the Group’s activities, additional bank borrowings were drawn and their aggregate balance increased by HK$249 million to HK$843 million in the financial period ended 30 September 2002. As at 30 September 2002, 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 1.21 times (31 March 2002: 0.98 times). With bank balances and other current assets of HK$1,505 million as well as available bank and trade facilities, the directors of the Company (the “Directors”) 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, where necessary, to hedge the Group’s foreign currency exposure.

AUDIT COMMITTEE

The principal activities of the Audit Committee (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 2002 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 2002 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 is aware of any information which would reasonably indicate that the Company is not, or was not during the six months ended 30 September 2002 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 reelection at the annual general meeting of the Company in accordance with the Company’s Bye-laws.

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Samson Paper Holdings Limited

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 46(1) to 46(6) of Appendix 16 to 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, 5 December 2002

Please also refer to the published version of this announcement in The Standard dated on 06-122002.

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