Dragon Mining Limited — Interim / Quarterly Report 2008

Dec 12, 2007

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

(Incorporated in Bermuda with limited liability)

(Stock code: 731)

ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007

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 2007 together with comparative figures for the corresponding period in 2006, and the unaudited condensed consolidated balance sheet of the Group as at 30 September 2007 with audited comparative figures as at 31 March 2007. The unaudited interim financial report has been reviewed by the Company’s audit committee, and the Company’s auditors, PricewaterhouseCoopers, in accordance with the Statement of Review Engagements 2410 “Review of interim financial information performed by the independent auditor of the entity” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The auditors, on the basis of their review, concluded that nothing has come to their attention that causes them to believe that the interim financial report is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34, “Interim Financial Reporting”.

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CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

Notes Turnover 2 Cost of sales Gross profit Other gains and income Selling expenses Administrative expenses Other operating expenses Operating profit 3 Finance costs Share of profits less losses of associated companies Profit before taxation Taxation 4 Profit for the period Attributable to: Equity holders of the Company Minority interests Earnings per share for profit attributable to the equity holders of the Company — Basic 5 Interim dividend per share Interim dividends 6

Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 1,949,218 1,686,671 (1,769,233) (1,538,614) 179,985 148,057 10,775 12,258 (60,856) (53,653) (55,195) (39,428) (4,142) (10,111) 70,567 57,123 (27,575) (27,956) 618 303 43,610 29,470 (7,734) (4,761) 35,876 24,709 35,766 24,462 110 247 35,876 24,709 HK 8.3 cents HK 5.7 cents HK 2.5 cents HK 1.5 cents 10,731 6,439

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As at 30 September 2007

CONDENSED CONSOLIDATED BALANCE SHEET

Non-current assets Property, plant and equipment Construction in progress Prepaid premium for land leases Investment property Intangible assets Interest in associated companies Deferred tax assets Finance lease receivables Current assets Inventories Trade and other receivables Other financial assets at fair value through profit or loss Restricted bank deposits Bank balances and cash Current liabilities Trade and other payables Trust receipt loans Taxation payable Other financial liabilities at fair value through profit or loss Borrowings Net current assets Total assets less current liabilities	Unaudited 30 September 2007 HK$’000 128,776 1,886 48,192 51,679 41,962 64,170 5,093 489 342,247 445,366 1,422,005 21,262 54,928 362,477 2,306,038 875,794 561,246 5,267 100 337,367 1,779,774 526,264 868,511	Audited 31 March 2007 HK$’000 118,411 — 48,785 51,679 32,414 57,976 4,055 1,518 314,838 352,225 1,122,076 34,446 14,095 337,529 1,860,371 649,967 389,509 2,348 406 262,953 1,305,183 555,188 870,026

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Equity Share capital Reserves Proposed dividend Equity attributable to shareholders of the Company Minority interests Total equity Non-current liabilities Borrowings Deferred tax liabilities	Unaudited 30 September 2007 HK$’000 42,926 672,683 10,731 726,340 7,879 734,219 128,169 6,123 134,292 868,511	Audited 31 March 2007 HK$’000 42,926 646,334 10,731 699,991 6,872 706,863 157,159 6,004 163,163 870,026

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Notes

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

These unaudited condensed consolidated interim financial statements for the six months ended 30 September 2007 have been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” and other relevant HKAS and Interpretations, the Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants, and the applicable requirements of Appendix 16 of the Rules (the “Listing Rules”) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

These condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2007.

The accounting policies and methods of computation used in the preparation of these condensed interim financial statements are consistent with those used in the annual financial statements for the year ended 31 March 2007 and with the adoption of certain new or revised HKFRS and HKAS, which are mandatory for the year ending 31 March 2008, among which the following will have disclosure impacts on the 2008 annual financial statements:

• HKFRS 7 Financial instruments: Disclosure; and

• HKAS 1 (Amendment) Amendment to capital disclosures

The adoption of these accounting standards has no material effect on the Group’s results of operations.

2. SEGMENT INFORMATION

(a) Primary reporting format — Business segments

As at 30 September 2007, the Group is organised on a worldwide basis into four main business segments:

• (1) Trading and marketing of paper products;

• (2) Provision of logistics services;

• (3) Trading and marketing of aeronautic parts and services;

• (4) Provision of marine services to marine, oil and gas industries.

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The segment results for the period ended 30 September 2007 are as follows:

Total segment revenue Inter-segment revenue Revenue Segment result Finance costs Share of profits less losses of associated companies Profit before taxation Taxation Profit for the period	Paper HK$’000 2,045,903 (204,360) 1,841,543 68,510 618	Logistics services HK$’000 51,347 (22,464) 28,883 (1,479) —	Unaudited Aeronautic parts Marine services HK$’000 HK$’000 42,000 36,792 — — 42,000 36,792 4,116 1,309 — —	Unallocated HK$’000 — — — (1,889) —	Group HK$’000 2,176,042 (226,824) 1,949,218 70,567 (27,575) 618 43,610 (7,734) 35,876

The segment results for the period ended 30 September 2006 are as follows:

Total segment revenue Inter-segment revenue Revenue Segment result Finance costs Share of profits less losses of associated companies Profit before taxation Taxation Profit for the period	Paper HK$’000 1,859,035 (232,649) 1,626,386 58,238 303	Logistics services HK$’000 33,803 (1,424) 32,379 (2,570) —	Unaudited Aeronautic parts Marine services HK$’000 HK$’000 27,906 — — — 27,906 — 1,817 — — —	Unallocated HK$’000 — — — (362) —	Group HK$’000 1,920,744 (234,073) 1,686,671 57,123 (27,956) 303 29,470 (4,761) 24,709

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(b) Secondary reporting format — geographical segments

The Group’s four business segments operate in three main geographical areas, even though they are managed on a worldwide basis.

An analysis of the Group’s turnover for the period by geographical segment is as follows:

Hong Kong Mainland China Others	Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 788,496 729,373 956,527 764,572 204,195 192,726 1,949,218 1,686,671	Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 788,496 729,373 956,527 764,572 204,195 192,726 1,949,218 1,686,671
		1,686,671

3. OPERATING PROFIT

Operating profit is stated after crediting and charging the following:

Crediting Interest income Provision for impairment on receivables written back Net dilution gain on interest in an associated company Charging Depreciation of property, plant and equipment Amortisation of prepaid premium for land leases Provision for impairment on inventory Provision for impairment on receivables	Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 4,606 7,752 1,023 3,547 3,719 — 7,491 3,325 649 983 3,275 274 3,317 15,654	Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 4,606 7,752 1,023 3,547 3,719 — 7,491 3,325 649 983 3,275 274 3,317 15,654
		3,325 983 274 15,654

4. TAXATION

Hong Kong profits tax has been provided for at the rate of 17.5% (2006:17.5%) on the estimated assessable profit for the period. Taxation on overseas profit has been calculated on the estimated assessable profit at the applicable rates of taxation prevailing in the countries in which the Group operates, based on existing legislation, interpretation and practices in respect thereof.

Hong Kong profits tax Overseas taxation Deferred taxation	Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 4,235 3,763 2,580 1,737 919 (739) 7,734 4,761	Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 4,235 3,763 2,580 1,737 919 (739) 7,734 4,761
		4,761

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5. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

Profit attributable to equity holders of the Company Weighted average number of ordinary shares in issue Basic earnings per share (HK cents) INTERIM DIvIDENDS Proposed, of HK$0.025 (2006: HK$0.015) per share	Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 35,766 24,462 429,258 429,258 8.3 5.7 Unaudited Six months ended 30 September 2007 2006 HK$’000 HK$’000 10,731 6,439

6. INTERIM DIvIDENDS

Note: This proposed interim dividend is not reflected as a dividend payable in these condensed consolidated financial statements, but will be reflected as an appropriation of retained earnings for the year ending 31 March 2008.

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MANAGEMENT DISCUSSION AND ANALYSIS

The Economy

In the six months ended 30 September 2007, the Hong Kong economy continued to enjoy robust growth with GDP rising at a rate of 9.8% in the third quarter compared to 8.7% for the second quarter of 2007. In the PRC, the economy maintained phenomenal growth, with GDP up 11.5% for the first nine months of 2007.

The Paper Industry

According to the Hong Kong Census and Statistics Department, the total export value of printed matters was HK$10,306 million during the review period, up 8.6% against the same period last year. The Territory’s import of printed matters was valued at HK$6,286.6 million, up 10.7% compared with the same period last year.

Operations Review

During the review period, the Group achieved remarkable results, with growing turnover and improving of gross profit margin. Turnover increased by 15.6% to HK$1,949 million as compared with the same period last year. Gross profit increased by 21.6% to HK$180 million, with gross profit margin improved to 9.2% (2006/07: 8.8%). Operating profit increased by 23.5% to HK$70.6 million. Profit attributable to shareholders rose sharply, up by 46.2% to HK$35.8 million. Net profit margin also improved, from 1.5% in the corresponding period last year to 1.8% this review period. Earnings per share were HK8.3 cents (2006/07: HK5.7 cents).

By business segment, paper products, consumable aeronautic parts/services, marine services, and logistics services accounted for 94.5%, 2.1%, 1.9%, and 1.5% of the Group’s turnover respectively.

Paper Business

The encouraging growth of the Group’s paper business reflected the Group’s continuous effort and success in broadening its sales network in the PRC. Increasing market demand for paper products driven by the booming economy also pushed up the average prices of book printing papers and packaging boards by approximately 10% and 5% respectively and in turn the turnover of the Group’s paper products benefited. The Group’s shift of strategic focus on to serving quality customers as a means of combating the effects of intense competition in the paper industry and controlling credit risk also proved to be successful. Provision for doubtful debts after taking into account the provision written back significantly decreased from 0.7% to 0.1% of total turnover from paper product sales during the review period.

All these factors together contributed to the business achieving turnover of HK$1,841.5 million, representing a rise of 13.2% when compared with the corresponding period last year. In terms of operating profit, HK$68.5 million was recorded representing a rise of 17.6%.

The PRC market continued to be the main growth driver of the segment’s business. Paper product sales in the market increased by 24.9% to HK$951.8 million, making up 51.7% of the Group’s total turnover from paper business. The Group sold 11.7% more paper products in tonnage through its extensive sales network in the PRC.

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Hong Kong is the Group’s second key market accounted for 41.5% of its total paper product sales. It achieved turnover of HK$764.3 million, or a rise of 9.3% against the same period last year. As the Group has been consolidating its businesses in other Asian countries, such as Malaysia, to control credit risks and enjoy more healthy growth in the long run, paper sales from these regions for the review period dropped by 23.9% to HK$125.4 million, accounting for 6.8% of total turnover from paper product sales.

Regarding the Group’s paper manufacturing arm, the Singapore-listed United Pulp & Paper Company Limited (“UPP”), it achieved a net gain of S$1.1 million (2006/07: S$0.4 million). The improved performance was the result of higher paper product prices and UPP’s successful switch from using fuel oil to natural gas for powering its production plant. The change in fuels was implemented in September 2006 and has since been translating into significant savings for the operation particularly when oil prices have been on the rise.

Sales contribution by product was maintained at a stable level. Book printing papers and packaging boards accounted for 50.5% and 33.2% of the Group’s total turnover of paper products respectively.

Consumable Aeronautic Parts / Services Business

The Group has successfully diversified its business in recent years to cover also consumable aeronautic parts/services. This segment continued to generate increasing revenue for the Group, up by 50.5% to HK$42.0 million, with operating profit up by 126.5% to HK$4.1 million.

Logistics Services Business

The Group has sought to consolidate its logistics services business by focusing more on key profit centres such as transportation and warehousing services as reflected in its ongoing expansion in the Yangtze River Delta region. Accordingly, turnover from logistics services decreased by 10.8% to 28.9 million, but operating loss was reduced by 42.5% to HK$1.5 million (2006/07: operating loss of HK$2.6 million).

Marine Services Business

Hypex Holdings Limited, the wholly-owned subsidiary of the Group acquired in December 2006, provides corrosion prevention services to the marine, oil and gas industries in Singapore. The corrosion prevention services comprise blasting (hydro and grit) and painting work. It recorded turnover of HK$36.8 million and operating profit of HK$1.3 million during the period under review.

Prospects

The management team is optimistic about the Group’s business prospects. The anticipated steady rise in price of paper products in the coming months will bode well for the Group. To strengthen its presence and capture the enormous business opportunities in the PRC, the Group has opened a new office in Xiamen and will open offices in Shenyang, Naning and Nanjing in the second half of the financial year, expanding its sales office network currently covering Beijing, Shanghai, Chongqing, Tianjin, Guangzhou, Foshan, Shenzhen and Wuxi.

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Moreover, the Group believes that by building a vertically integrated operation, it will be assured of stable supply of raw material and be able to improve overall profit margin. Thus, it signed an agreement to acquire the entire share capital of Kingsrich Group Limited on 13 July 2007, which has given it 99% holding in Universal Pulp and Paper (Jiangsu) Co. Ltd. (UPP(JS)) (formerly known as Jiangsu Yuan Tong Paper Co. Ltd), a Sino-foreign equity joint venture specializing in the manufacture and sale of kraftliner board and corrugated medium.

UPP(JS) is planning to build a paper mill in Nantong, Jiangsu with completion scheduled for the second quarter of 2009. The designed total production capacity of the paper mill is 250,000 tonnes per annum – 150,000 tonnes kraftliner board and 100,000 tonnes corrugated medium. The Group has already ordered the core units of a kraftliner board and corrugated medium production line to be installed in the paper mill. The construction work of the plant is expected to begin in mid December 2007.

Between 2002 and 2006, consumption of containerboard products in the PRC had consistently exceeded domestic production. This phenomenon is expected to continue in the next 10 years according to RISI projection. However, containerboard products only accounted for less than 5.0% of the total volume of paper products sold by the Group in 2006. This translates into growth potential for the Group with an over 1,000-strong regular client base in the Asia Pacific Region and strong reputation in the PRC printing and packaging industry as leverage. The Group is confident of securing orders for the new paper mill and expanding the containerboard business in the next few years to bring better returns to shareholders.

Looking ahead, the Group will strive to strengthen its position in the paper industry and expand its business by moving upstream, aiming to become one of the leading paper industry players in the PRC.

INTERIM DIvIDEND

The Board has resolved to declare the payment of an interim dividend of HK2.5 cents (2006: HK1.5 cents) per share for the six months ended 30 September 2007. 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, 4 January 2008. The interim dividend will be paid on or about Friday, 11 January 2008.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Wednesday, 2 January 2008 to Friday, 4 January 2008 (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 1712–16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration no later than 4:30 pm on Monday, 31 December 2007.

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EMPLOYEES AND REMUNERATION POLICIES

As at 30 September 2007, the total number of the Group’s employees was 934. The Group’s remuneration policies are primarily based on prevailing market levels and salaries are reviewed with reference to the performance of the Group and the individual employee 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 on strategic planning and implementation, sales and marketing disciplines are offered to various management levels on a regular basis.

LIQUIDITY AND FINANCIAL RESOURCES

The Group’s short term deposits and bank balances and bank borrowings as at 30 September 2007 amounted to approximately HK$417 million (including restricted bank deposits of HK$55 million) and HK$1,014 million respectively. As at 30 September 2007, its gearing ratio, measured on the basis of the Group’s long term debt over the Group’s shareholders’ funds was 17.6% (31 March 2007: 22.5%). With bank balances and other current assets of approximately HK$2,306 million as well as available banking 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 and RMB. Foreign exchange contracts and options were used, if necessary, to hedge the Group’s foreign currency exposure. As the Group relied on the RMB banking finances to fund the operation in the PRC, which provides a natural hedge against currency risks, the appreciation of RMB does not have much impact on the Group.

CONTINGENT LIABILITIES

The Company provided corporate guarantees on the banking facilities granted to its subsidiaries. The amount of such facilities utilized by the subsidiaries as at 30 September 2007 amounted to HK$1,014,328,000 (31 March 2007: HK$797,023,000).

CHARGE OF ASSETS

As at 30 September 2007, trust receipt loans of HK$277,265,000 (31 March 2007: HK$169,982,000) and bank loans of HK$48,909,000 (31 March 2007: HK$30,313,000) were secured by legal charge on certain properties of the Group in Hong Kong.

AUDIT COMMITTEE

The Audit Committee of the Company (the “Committee”) was set up to review and provide 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 2007 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 2007, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

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MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as the Company’s code of conduct for dealings in securities of the Company by the Directors. Having made specific enquiry of all the Directors, the Directors confirmed that they have complied with the required standard set out in the Model Code throughout the accounting period covered by the interim report.

COMPLIANCE WITH THE CODE ON CORPORATE GOvERNANCE PRACTICES OF THE LISTING RULES

In the opinion of the Directors, the Company was in compliance with the Code of Corporate Governance Practices as set out in Appendix 14 of the Listing Rules during the six-month period ended 30 September 2007 except that the non-executive Directors were not appointed for a specific term but are subject to retirement by rotation and re-election at the Company’s annual general meetings in accordance with the bye-laws of the Company.

BOARD OF DIRECTORS

As at the date of this report, the Board comprises five executive Directors, namely Mr. SHAM Kit Ying, Mr. LEE Seng Jin, Mr. CHOW Wing Yuen, Ms. SHAM Yee Lan, Peggy and Mr. LEE Yue Kong, Albert, one non-executive Director, Mr. LAU Wang Yip, Eric and three independent non-executive Directors, namely Mr. PANG Wing Kin, Patrick, Mr. TONG Yat Chong, and Mr. NG Hung Sui, Kenneth.

By Order of the Board SHAM Kit Ying Chairman

Hong Kong, 12 December 2007

• for identification purposes

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