Emperor Capital Group Ltd. — Earnings Release 2005

Apr 20, 2006

Listed Company Information

Listed Company Information
LUKS IND(GROUP)<00366> - Results Announcement Luks Industrial (Group) Limited announced on 20/04/2006: (stock code: 00366 ) Year end date: 31/12/2005 Currency: HKD Auditors' Report: Qualified (Audited ) (Audited ) Last Current Corresponding Period Period from 01/01/2005 from 01/01/2004 to 31/12/2005 to 31/12/2004 Note ('000 ) ('000 ) Turnover : 313,074 278,144 Profit/(Loss) from Operations : 58,947 46,447 Finance cost : (6,028) (3,994) Share of Profit/(Loss) of Associates : N/A N/A Share of Profit/(Loss) of Jointly Controlled Entities : (3,313) 3,806 Profit/(Loss) after Tax & MI : 22,413 30,632 % Change over Last Period : -26.83 % EPS/(LPS)-Basic (in dollars) : 0.045 0.074 -Diluted (in dollars) : N/A 0.073 Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : 22,413 30,632 Final Dividend : 5 cents 5 cents per Share (Specify if with other : N/A N/A options) B/C Dates for Final Dividend : 16/05/2006 to 18/05/2006 bdi. Payable Date : 02/06/2006 B/C Dates for Annual General Meeting : 16/05/2006 to 18/05/2006 bdi. Other Distribution for : N/A Current Period B/C Dates for Other Distribution : N/A Remarks: 1. IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS The following new and revised HKFRSs affect the Group and are adopted for the first time for the current year's financial statements: HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 12 Income Taxes HKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 18 Revenue HKAS 19 Employee Benefits HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 28 Interests in Associates HKAS 31 Interests in Joint Ventures HKAS 32 Financial Instruments: Disclosure and Presentation HKAS 33 Earnings per Share HKAS 36 Impairment of Assets HKAS 37 Provisions, Contingent Liabilities and Contingent Assets HKAS 38 Intangible Assets HKAS 39 Financial Instruments: Recognition and Measurement HKAS 39 Transition and Initial Recognition of Financial Assets and Amendment Financial Liabilities HKAS 40 Investment Property HKFRS 2 Share-based Payment HKFRS 3 Business Combinations HK(SIC)-Int 21 Income Taxes - Recovery of Revalued Non-depreciable Assets HK-Int 4 Leases - Determination of the Length of Lease Term in respect of Hong Kong Land Leases The adoption of HKASs 2, 7, 8, 10, 12, 14, 16, 18, 19, 23, 27, 28, 31, 33, 37, 38, HKFRS 2 and HK-Int 4 has had no material impact on the accounting policies of the Group and the Company and the methods of computation in the Group's and the Company's financial statements. HKAS 1 has affected the presentation of minority interests on the face of the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity and other disclosures. In addition, in prior periods, the Group's share of tax attributable to a jointly-controlled entity was presented as a component of the Group's total tax charge in the consolidated income statement. Upon the adoption of HKAS 1, the Group's share of the post-acquisition results of a jointly -controlled entity is presented net of the Group's share of tax attributable to a jointly-controlled entity. HKAS 21 had no material impact on the Group. As permitted by the transitional provisions of HKAS 21, goodwill arising in a business combination prior to 1 January 2005 and fair value adjustments arising on that acquisition are deemed to be in the currency of the Company. In respect of acquisitions subsequent to 1 January 2005, any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of the assets and liabilities are treated as assets and liabilities of the foreign operation and are translated at the closing rate in accordance with HKAS 21. HKAS 24 has expanded the definition of related parties and affected the Group's related party disclosures. The impact of adopting the other HKFRSs is summarised as follows: (a) HKAS 17 - Leases In prior years, leasehold land and buildings held for own use were stated at cost less accumulated depreciation and any impairment losses. Upon the adoption of HKAS 17, the Group's leasehold interest in land and buildings is separated into leasehold land and buildings. The Group's leasehold land is classified as an operating lease, because the title of the land is not expected to pass to the Group by the end of the lease term, and is reclassified from property, plant and equipment to prepaid land lease payments, while buildings continue to be classified as part of property, plant and equipment. Prepaid land premiums for land lease payments under operating leases are initially stated at cost and subsequently amortised on the straight-line basis over the lease term. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment. The effects of the above change are summarised in note 2.4 to the financial statements. The comparative amounts in the consolidated balance sheet as at 31 December 2004 have been restated to reflect the reclassification of the leasehold land. In the opinion of the directors, certain prepaid land lease payments of the land situated in Hong Kong and Mainland China of the Group cannot be allocated reliably between the land and buildings element, therefore, the entire prepaid land lease payments of those land are included in the cost of land and buildings and are amortised over the shorter of the lease terms and useful lives. (b) HKAS 32 and HKAS 39 - Financial Instruments In prior years, the Group classified its investments in equity securities as long term investments, which were held for non-trading purposes and were stated at cost less any impairment losses which are expected to be other than temporary, on an individual basis. The amounts of such impairment losses are charged to the income statement for the period in which they arise. Upon the adoption of HKAS 39, these securities held by the Group at 1 January 2005 in the amount of approximately HK$234,000 are designated as available-for-sale investments under the transitional provisions of HKAS 39 and accordingly are stated at fair value with gains or losses being recognised as a separate component of equity until subsequent derecognition or impairment. In prior years, the Group classified its investments in debt investments and equity securities for trading purposes as short term investments. The debt investments and equity securities were stated at their fair values on an individual basis with gains and losses recognised in the income statement. Upon the adoption of HKAS 39, the debt investments held by the Group at 1 January 2005 in the amount of approximately HK$1,094,000 are designated as debt investments at fair value through profit or loss under the transitional provisions of HKAS 39 and accordingly are stated at fair value with gains or losses being recognised in the income statement, while the equity securities held by the Group at 1 January 2005 in the amount of approximately HK$761,000 are designated as available-for-sale equity investments and accordingly are stated at cost less any impairment losses. The effect of the above changes are summarised in note 2.4 to the financial statements. (c) HKAS 40 - Investment Property In prior years, changes in the fair values of investment properties were dealt with as movements in the investment property revaluation reserve. If the total of this reserve was insufficient to cover a deficit, on a portfolio basis, the excess of the deficit was charged to the income statement. Any subsequent revaluation surplus was credited to the income statement to the extent of the deficit previously charged. Upon the adoption of HKAS 40, gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise. In accordance with the transitional provisions of HKAS 40, the opening balance of retained profits has been adjusted to reflect this change. The effects of the above change are summarised in note 2.4 to the financial statements. (d) HKFRS 2 - Share-based Payment The Group has adopted the transitional provisions of HKFRS 2 under which the new measurement policies have not been applied to (i) options granted to employees on or before 7 November 2002; and (ii) options granted to employees after 7 November 2002 but which had vested before 1 January 2005. As the Group did not have any employee share options which were granted during the period from 7 November 2002 to 31 December 2004 but had not yet vested as at 1 January 2005, the adoption of HKFRS 2 has had no impact on the retained profits as at 31 December 2003 and at 31 December 2004. (e) HKFRS 3 - Business Combinations and HKAS 36 - Impairment of Assets In prior years, negative goodwill arising on acquisitions prior to 1 January 2001 was credited to the consolidated capital reserve in the year of acquisition and was not recognised in the income statement until disposal of the acquired businesses. Goodwill arising on acquisitions on or after 1 January 2001 was capitalised and amortised on the straight-line basis over its estimated useful life and was subject to impairment testing when there was any indication of impairment. The adoption of HKFRS 3 and HKAS 36 has resulted in the Group ceasing annual goodwill amortisation and commencing testing for impairment at the cash-generating unit level annually (or more frequently if events or changes in circumstances indicate that the carrying value may be impaired ). Any excess of the Group's interest in the net fair value of the acquirees' identifiable assets, liabilities and contingent liabilities over the cost of the acquisition of subsidiaries (previously referred to as negative goodwill), after reassessment, is recognised immediately in the income statement. The transitional provisions of HKFRS 3 have required the Group to eliminate at 1 January 2005 the carrying amounts of accumulated amortisation with a corresponding adjustment to the cost of goodwill and to derecognise at 1 January 2005 the carrying amounts of negative goodwill remaining in the consolidated capital reserve against retained profits. The effects of the above changes are summarised in note 2.4 to the financial statements. In accordance with the transitional provisions of HKFRS 3, comparative amounts have not been restated. (f) HK(SIC)-Int 21 - Income Taxes - Recovery of Revalued Non-depreciable Assets In prior periods, deferred tax arising on the revaluation of investment properties was recognised based on the tax rate that would be applicable upon the sale of the investment properties. Upon the adoption of HK(SIC)-Int 21, deferred tax arising on the revaluation of the Group's investment properties is determined depending on whether the properties will be recovered through use or through sale. The Group has determined that its investment properties will be recovered through use, and accordingly the profits tax rate has been applied to the calculation of deferred tax. The effects of the above changes are summarised in note 2.4 to the financial statements. The change has been adopted retrospectively from the earliest period presented and comparative amounts have been restated. 2. EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares in issue during the year. A diluted earnings per share amount for the year ended 31 December 2005 has not been disclosed as no diluting events existed during that year. The calculation of diluted earnings per share for the year ended 31 December 2004 was based on the profit for the year attributable to ordinary equity holders of the parent. The weighted average number of ordinary shares used in the calculation was the ordinary shares in issue for the year ended 31 December 2004, as used in the basic earnings per share calculation and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares. The calculations of basic and diluted earnings per share are based on: 2005 2004 HK$'000 HK$'000 Earnings Profit attributable to ordinary equity holders of the parent, used in the basic earnings per share calculation 22,413 30,632 ========== ========= Number of shares 2005 2004 Shares Weighted average number of ordinary shares in issue during the year used in the basic earnings per share calculation 490,705,418 413,517,805 Effect of dilution - weighted average number of ordinary shares: Warrants - 7,200,449 Share options - 733,130 ------------- ------------ 490,705,418 421,451,384 ============= ============ 3. SUMMARY OF AUDITOR' REPORT Included in the consolidated balance sheet as at 31 December 2004 was goodwill of the Group with a net carrying amount of approximately HK$247 million in relation to a subsidiary engaged in the manufacture and sale of traditional Chinese medicine products. In view of continuous loss making since acquisition of the subsidiary, the directors are of the opinion that the carrying amount of the goodwill in the consolidated balance sheet exceeded its recoverable amount, and therefore, based on a business valuation performed by directors as at balance sheet date, an impairment loss of approximately HK$169 million was made. However, we have been unable to obtain sufficient reliable evidence to satisfy ourselves as to the reasonableness of the bases and assumptions used by the directors in arriving at the business valuation performed as at balance sheet date, and therefore as to whether the net carrying amount of the goodwill as at 31 December 2005 of approximately HK$78 million and the impairment loss provided during the year then ended of approximately HK$169 million are fairly stated. Any adjustment to the goodwill and impairment loss would have a consequential impact on the Group's net assets as at 31 December 2005 and its results for the year then ended, the amount of the interests in subsidiaries in the Company's balance sheet as at 31 December 2005 and the results of the Company for the year then ended, and the related disclosures thereof in the financial statements. Our report dated 26 April 2005 in respect of the financial statements for the year ended 31 December 2004 was also qualified in respect to the carrying amount of the abovementioned goodwill. Except for any adjustments that might have been found necessary had we been able to satisfy ourselves as to the reasonableness of the bases and assumptions in the business valuation used by the directors to determine the recoverable amount of the goodwill, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2005 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. In respect alone of the limitations on our work as set out in the basis of opinion section of this report, we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.