Hang Lung Group Limited — Earnings Release 2001

Mar 20, 2002

Listed Company Information

PCCW<00008> - Results Announcement (Summary) Pacific Century CyberWorks Limited announced on 20/3/2002: (stock code: 8) Year end date: 31/12/2001 Currency: HKD Auditors' Report: Neither Review of Interim Report by: N/A (Audited) (Audited) Last Current Corresponding Period Period from 1/1/2001 from 1/1/2000 to 31/12/2001 to 31/12/2000 ('Million) ('Million) (Restated) Turnover : 21,959 7,291 Profit/(Loss) from Operations : 5,998 (126,071) Finance cost, net : (3,604) (3,354) Share of Results of Associates and Unconsolidated Subsidiaries : 310 727 Share of Results of Jointly Controlled Entities : 523 (100) Profit/(Loss) after Tax & MI : 1,892 (129,297) % Change over Last Period : N/A EPS/(LPS)-Basic : 8.46 cents (889.97 cents) -Diluted : 8.20 cents N/A Extraordinary (ETD) Gain/(Loss) : Nil Nil Profit/(Loss) after ETD Items : 1,892 (129,297) Final Dividend per Share : Nil Nil (Specify if with other options) : - - B/C Dates for Final Dividend : N/A Payable Date : N/A B/C Dates for (-) General Meeting : N/A Other Distribution for Current Period : N/A B/C Dates for Other Distribution : N/A Remarks: 1. Numbers differ from the Company's income statement as interest income of HK$548 Million (2000: HK$998 Million) has been included in "Profit/(Loss) from Operations" for the purpose of this Form. Such interest income has been grouped under "Finance costs, net" in the Company's income statement. 2. Basis of presentation As a result of the Company's acquisition of PCCW-HKT Limited ("HKT"), which became effective on August 17, 2000, the results for the year ended December 31, 2001 include the twelve months results of HKT and its subsidiaries (the "HKT" Group) whereas the results for the year ended December 31, 2000 included the results of the HKT Group for the period from August 17, 2000 to December 31, 2000. Except as described in Remark 4, the accounting policies adopted in preparing these financial statements are consistent with those followed in the Group's annual financial statements for the year ended December 31, 2000. 3. Material Developments (a) Telstra Alliance In February 2001, the Group formed a strategic alliance with Telstra Corporation Limited of Australia ("Telstra") ("Telstra Alliance") which provided for, amongst others, (i) the merger of certain of the businesses and assets of certain subsidiaries of the Company and Telstra, including the Internet Protocol ("IP") Backbone business, to create a 50:50 joint venture to operate an IP Backbone business, named Reach Ltd. ("Reach") for which the Company received cash from Reach of US$1,125 million (approximately HK$8,775 million), (ii) the purchase by Telstra of a 60 percent interest in a newly formed company, Regional Wireless Company ("RWC"), for a cash consideration of US$1,680 million (approximately HK$13,100 million) that owns the Hong Kong wireless communications business contributed by the Company and (iii) the issuance of a convertible bond with a principal amount of US$750 million (approximately HK$5,850 million) to Telstra ("Telstra Bond"). (b) Acquisition of Telecommunications Technology Investments Limited ("TTIL") In March 2001, the Group completed the acquisition of 100 percent of TTIL, a leading satellite-based network communication solutions provider in Asia, together with a shareholder's loan of approximately HK$546 million for an aggregate consideration of approximately HK$803 million. The consideration was satisfied by the issue of 183,634,285 ordinary shares of the Company at a price of HK$4.375 per share. (c) Acquisition of License to Use Sports Archive and Programmes On December 31, 2001, the Group agreed to acquire a 10-year royalty free non-exclusive license to use existing and future sports archive and programming owned by Trans World International, Inc. ("TWI"), a leading provider of sports programming and sponsorship. The consideration for the grant of such license was approximately US$48 million (HK$376 million) which was satisfied by the issue to a wholly owned subsidiary of TWI of 175 million ordinary shares of the Company at a price of HK$2.15 per share on January 24, 2002. On December 31, 2001, the Group and TWI entered into certain other agreements intended to allow the Group to secure sports content and on-line gaming services targeted at the Asian market, and to broaden the appeal of the Group's Hong Kong broadband streaming service NOW.com.hk. The Group's prior agreement with TWI for content production services was terminated. 4. Details of significant items Adjustments Retrospectively Applied Upon Adoption of New Accounting Standards in Hong Kong (a) Adoption of SSAP 30 "Business Combinations", SSAP 31 "Impairment of Assets" and Interpretation 13 "Goodwill - continuing requirements for goodwill and negative goodwill previously eliminated against/credited to reserves" SSAP 31 prescribes procedures to be applied to ensure that assets are carried at not more than their recoverable amounts. The Group is required to assess at each balance sheet date whether there are any indications that assets may be impaired, and if there are such indications, the recoverable amount of the assets is to be determined. Any resulting impairment losses identified are charged to the income statement. In accordance with the provisions of Interpretation 13, assessments of impairment of goodwill also apply to goodwill previously eliminated against reserves which will not be restated at the time of adoption of SSAP 30. Any impairment loss identified in respect of goodwill previously eliminated against reserves is to be recognized as an expense in the income statement. The amendments to SSAP 30 and the provisions of Interpretation 13 are required to be reflected in accordance with the requirements of SSAP 2 and the transitional provisions in SSAP 30. The Group has performed an assessment of the fair value of its assets, including the related goodwill that had previously been charged to reserves, as at December 31, 2000. As a result, the Group has retrospectively restated its previously reported net loss for the year December 31, 2000 by HK$122,390 million for the impairment of goodwill arising from the acquisition of subsidiaries, associates and jointly controlled companies. (b) Adoption of SSAP 28, "Provisions, Contingent Liabilities, and Contingent Assets" SSAP 28 clarifies the measurement and disclosures for provisions, contingent liabilities, and contingent assets. In performing its assessment of the effects of adopting SSAP 28 (including the potential effects on prior years), the Group determined that its share option agreement with the minority shareholder of a subsidiary company would require the Company to issue, at the option of the holder, 1,003,070,000 new shares of the Company in exchange for the minority shareholder's remaining interests in the subsidiary even though the fair value of that subsidiary had substantially declined since entering into the option agreement in 1999. As a result of the Group's assessment of the prospective financial performance of the core business of that subsidiary since its launch in June 2000, management believes the minority shareholder's exercise of the option is assured. The minority shareholder began exercising its option in 2001. The Company's additional investments in the subsidiary would initially have to be recorded at the fair value of the shares issued. Given the decline in value of the subsidiary, the Company has experienced an immediate loss on its additional investment in the subsidiary. Accordingly, the option agreement is considered to be an onerous contract as at December 31, 2000. In accordance with the provisions of SSAP 28, the Group has recorded a provision of HK$3,234 million as at December 31, 2000 relating to its obligation under the share option agreement. The effect of this adjustment has been reported as an adjustment to the balance of accumulated deficit of the Group as at January 1, 2001. Comparative financial information for the year ended December 31, 2000 has not been restated as permitted by the transitional provisions of SSAP 28. Changes in the estimated fair value of the Group's unsettled obligation have been and will be reported as a component of income or expense. As of March 20, 2002, the minority shareholder of that subsidiary had exercised options for the issuance of 626,390,000 new shares. During the year, a total amount of HK$477 million has been adjusted to income of the Group due to the exercise of the said options and the change in estimated fair value of the Group's unsettled obligation. These adjustments have been reflected as a component of gains/(losses) on investments in the Group's consolidated results. 5. Earnings / (Loss) per share The calculation of basic and diluted earnings /(loss) per share is based on the following data: 2001 2000 (Restated) Earnings/(loss) (HK$'Million) Earnings/(loss) for the purposes of basic and diluted earnings/(loss) per share 1,892 (129,297) ============== ============== Number of shares Weighted average number of ordinary shares for the purposes of basic earnings/(loss) per share 22,373,078,260 14,528,166,900 Effect of dilutive potential ordinary ============== shares 693,936,406 -------------- Weighted average number of ordinary shares for the purposes of diluted earnings per share 23,067,014,666 ============== 6. Comparative figures Certain of the 2000 comparative figures have been reclassified to conform with the current year presentation.