Dragon Mining Limited — Interim / Quarterly Report 2004

Dec 15, 2003

Samson Paper Holdings Limited

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

(incorporated in Bermuda with limited liability)

ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003

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 2003 together with comparative figures for the corresponding period in 2002, and the unaudited condensed consolidated balance sheet of the Group as at 30 September 2003 with audited comparative figures for the year ended 31 March 2003, 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 profit less loss of associated companies Profit before taxation Taxation 4 Profit attributable to shareholders	Unaudit Six months ended 3 2003 HK$’000 1,394,255 (1,254,160) 140,095 4,077 (47,980) (38,301) (9,556) 48,335 (18,797) (542) 28,996 (7,822) 21,174	ed 0 September 2002 HK$’000 1,342,078 (1,200,839) 141,239 2,585 (47,423) (36,595) (5,273) 54,533 (22,453) (34) 32,046 (5,705) 26,341

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Samson Paper Holdings Limited Dividends 5 4,293 Earnings per share 6 4.9 cents Interim dividend per share 1.0 cent CONDENSED CONSOLIDATED BALANCE SHEET Unaudited 30 September 2003 3 HK$’000 Fixed assets 149,032 Interests in associated companies 65,664 Current assets Inventories 231,541 Accounts receivable, deposits and prepayments 1,088,144 Other investments 24,112 Cash and bank balances 254,186 1,597,983 Current liabilities Accounts payable and accrued charges 335,757 Trust receipt loans 537,990 Taxation 13,005 Bank loans 185,598 1,072,350 Net current assets 525,633 Total assets less current liabilities 740,329 Financed by: Share capital 42,926 Reserves 499,078 Proposed dividend 4,293 503,371 Shareholders’ funds 546,297 Bank loans 182,737 Deferred taxation 11,295 740,329 Net asset value per share 127 cents	4,293
	6.1cents
	1.0cent
	Audited 1 March 2003 HK$’000 151,013 67,708 250,482 850,444 8,582 241,847
	1,351,355 240,864 546,050 6,222 179,837
	972,973
	378,382
	597,103
	42,926
	481,560 8,585
	490,145
	533,071 52,737 11,925
	597,103
	124 cents

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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 2003 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 2003 except that the Group has changed its accounting policies following its adoption of the revised SSAP No.12 “Income Taxes” issued by the Hong Kong Society of Accountants which is effective for accounting period commencing on or after 1 January 2003.

In prior years, deferred taxation was accounted for at the current taxation rate in respect of timing difference between taxable profit and accounting profit to the extent that a liability or an asset was expected to be payable or recoverable in the foreseable future.

Under the revised SSAP 12, deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The change in accounting policy has been applied retrospectively, and comparatives presented have been restated to conform the accounting policy. As a result, the Group’s assets revaluation reserve as at 1 April 2002 and 2003 decreased by the same amount of HK$9,458,000, which represent the amount of deferred tax liabilities in respect of the assets revaluation reserve previously recognized.

2. Segment information

The Group is engaged in trading and marketing of paper products. In accordance with the Group’s internal financial reporting, the Group has determined that business segments, which comprises only trading and marketing of paper products, 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:–

Hong Kong Mainland China	Six months ende 2003 HK$’000 851,156 543,099 1,394,255	d 30 September 2002 HK$’000 958,001 384,077
		1,342,078

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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3. Operating profit

Operating profit is stated after crediting and charging the following:

Crediting Interest income Charging Depreciation of fixed assets	Six months ende 2003 HK$’000 3,147 5,427	d 30 September 2002 HK$’000 2,006
		5,416

4.

Taxation

Hong Kong profits tax has been provided at the rate of 17.5%(2002:16%) on the estimated assessable profit for the period. Taxation on profits assessable elsewhere 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.

5.

Hong Kong profits tax Mainland China taxation Share of taxation attributable to: Associated companies Taxation Deferred taxation Total taxation charge Dividends Proposed interim – HK$0.01 (2002: HK$0.01) per share	Six months ende 2003 HK$’000 6,910 175 210 527 7,822 Six months ende 2003 HK$’000 4,293	d 30 September 2002 HK$’000 5,520 185 – –
		5,705
		d 30 September 2002 HK$’000 4,293

• Note: 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 2004.

6. Earnings per share

The calculation of earnings per share is based on the Group’s unaudited consolidated profit attributable to shareholders of HK$21,174,000 (2002:HK$26,341,000) for the period and on the weighted average number of 429,258,039 (2002:429,258,039) shares of the Company in issue during the period.

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7. Contingent liabilities

The Company provided corporate guarantees on the banking facilities granted to four subsidiaries. The amount of such facilities utilized by the subsidiaries as at 30 September 2003 amounted to HK$906,325,000 (31 March 2003:HK$778,624,000).

8. Commitments

• (a) Forward exchange contracts

At 30 September 2003, the Group had outstanding forward exchange contracts to purchase American Dollars amounted to an aggregate of HK$196,387,460 (31 March 2003: Nil ).

• (b) Operating lease commitments

At 30 September 2003, the Group had total future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings as follows :

Within one year In the second to fifth years inclusive	30 September 2003 HK$’000 10,750 8,515 19,265	31 March 2003 HK$’000 9,434 12,538
		21,972

9. Charge of assets

At 30 September 2003, trust receipt loans of HK$205,477,000 (31 March 2003: HK$175,289,000) and bank loans of HK$50,813,000 (31 March 2003: HK$62,890,000) were secured by legal charge on certain properties of the Group in Hong Kong.

10. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current period.

INTERIM DIVIDEND

The Board has resolved to declare the payment of an interim dividend of HK 1 cent (2002:HK 1 cent) per share for the six months ended 30 September 2003. 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, 9 January 2004. The interim dividend will be paid on or about Friday, 16 January 2004.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Thursday, 8 January 2004 to Friday, 9 January 2004 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, 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, 7 January 2004.

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MANAGEMENT DISCUSSION AND ANALYSIS

The Economy

The economy was over-shadowed by the outbreak of Severe Acute Respiratory Syndrome (“SARS”) for much of the period under review, which inevitably created an impact on the economy. Locally, export growth slowed down, especially between July and September due to the aftermath of SARS. Many business activities were postponed or even cancelled. The printing and publishing industries were also affected, as reflected by the lower level of orders on hand in the third quarter. As for the Mainland China market, strong economic growth helped to ease the SARS impact whilst lending support to the Hong Kong economy.

The Paper Industry

The period saw an 18% fall in volume in the total amount of paper products imported into Hong Kong. As a result of SARS, the value of orders on hand in the Hong Kong printing and publishing industry experienced a mild drop of between 2% to 3% in the latter half of the review period.

During the period, there were ample supplies in the paper market, with prices showing a slight downward adjustment. By the end of the review period, prices of book printing papers and packaging boards were 4% and 9% lower than the level in March 2003.

Operations Review

The Group’s performance for the period was affected by the SARS epidermic. Despite the difficult business conditions, the Group recorded a modest growth of 4% in turnover to HK$1,394,255,000. In volume terms, sales grew 5%. Gross profit was recorded at HK$140,095,000. Profit attributable to shareholders was reported at HK$21,174,000. The gross margin was 10.05% as compared to 10.50% in the corresponding period of last year. Earnings per share were HK4.9 cents.

The Board of Directors has resolved to pay an interim dividend of HK1.0 cent per share.

The reduction in net profit compared to the corresponding period of last year was attributable to reduced orders in the third quarter as a result of the SARS impact. In line with its prudent provision policy, the Group made a provision of HK$2,300,000 for slow moving stock during the period. This partly explains the Group’s lower profit for the period under review.

The Group continued to pursue its established strategy in expanding the Mainland China market. With 61% of turnover derived locally, Hong Kong remained the Group’s major market, and the Group maintained its lead as the largest paper trader in the local paper market.

Over the years, the Group has established itself as a leader in the paper trading business. In addition, the acquisition of a paper manufacturing arm, the Singapore listed United Pulp & Paper (“UPP”), has enhanced the Group’s strengths, enabling it to seize suitable opportunities.

To facilitate its business growth, UPP instituted a restructuring program during the period. The Directors remain positive in improving performance of this business arm.

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During the period, contribution to turnover from the Mainland China market reached a new high of 39%, up from 28.6% in the corresponding period of last year. In value terms, sales in Mainland China rose 41% whilst in volume terms, it rose 36%. Having been active in the market for over nine years, the Group’s extensive Mainland China presence now covers major cities including Beijing, Shanghai, Chongqing, Foshan and Shenzhen.

During the review period, sales contribution by product was maintained at stable levels, with book printing papers accounting for 41% and packaging boards accounting for 52%.

Sales and administration expenses were maintained at 6.19%, which is roughly the same level as in the previous six-months period. The Group is also pleased to see a further reduction in finance costs from 1.67% to 1.35%.

Faced with the challenging market environment, the Group’s strategy was to step up its sales efforts to stimulate stock turnover. At the same time, the Group exercised a more prudent inventory policy in view of slackening demand. During the period, stock turnover decreased from 38 days to 36 days.

In view of the prevailing market conditions, the Group adopted a more prudent credit policy to manage its exposure to doubtful debts. As a result, the provision level was maintained at the same level as the previous six-months period. This includes a general provision of 0.1% of total sales.

Despite the disruptions from external factors, the Group’s business fundamentals remained strong. In April, the Group successfully obtained a three-year HK$260,000,000 revolving credit and term loan facility with a syndicate of twelve banks. The facility was over-subscribed by almost 50% for the original HK$200,000,000. This reflects the Group’s intrinsic financial strengths and its high credibility which is shared amongst the financial institution community. The loan proceeds were used to refinance debt and as new working capital for the Group.

PROSPECTS

Despite the SARS outbreak which created temporary disruptions, long term prospects for the Hong Kong economy remain sound with the Mainland China economy lending much support. In addition, Hong Kong’s position as a centre for global printing and publishing activities holds a long history. As printers and publishers strive to raise their competitiveness, this advantage is expected to remain. More importantly, the Mainland China economy is expected to expand further, creating many business opportunities for the Group’s future progression.

The price of paper should continue to reflect global supply and demand conditions, which are expected to remain steady.

The Group’s business in Mainland China is expected to be a major growth driver. In this respect, the Group is committed to leveraging its early mover advantage to broaden the customer base even further.

The Group will continue to value a prudent financial management policy and customer orientation as important elements for accelerated growth. Given the thriving Chinese economy, the management is cautiously optimistic for its performances in the second half of the year.

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EMPLOYEES AND REMUNERATION POLICIES

As at 30 September 2003, the total number of the Group’s employees was 380. 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 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 2003 amounted to approximately HK$254 million. To meet the demand of the Group, additional bank borrowings were drawn and their aggregate balance increased by HK$128 million to HK$906 million in the financial period ended 30 September 2003. At 30 September 2003, 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 1.19 times (31 March 2003: 1.01 times). With bank balances and other current assets of HK$1,598 million as well as available bank and trade facilities, the Directors believe that 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 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 2003 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 2003 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 2003 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 Byelaws.

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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, 15 December 2003

Please also refer to the published version of this announcement in The Standard dated on 16-12-2003.

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