Hang Lung Group Limited — Earnings Release 2002

Mar 20, 2003

Listed Company Information

PCCW<00008> - Results Announcement (Summary) PCCW Limited announced on 20/3/2003: (stock code: 8) Year end date: 31/12/2002 Currency: HK$ Auditors' Report: Unqualified (Audited) (Audited) Last Current Corresponding Period Period from 1/1/2002 from 1/1/2001 to 31/12/2002 to 31/12/2001 (Restated) ('Million) ('Million) Turnover : 20,112 21,959 Profit/(Loss) from Operations : 4,544 5,998 Finance cost : (2,161) (3,604) Share of results of associates and unconsolidated subsidiaries : 281 310 Share of results of Jointly Controlled Entities : 550 523 Profit/(Loss) after Tax & MI : (7,762) 1,343 % Change over Last Period : N/A EPS/(LPS)-Basic : (168.53 cents) 30.01 cents -Diluted : N/A 29.11 cents Extraordinary (ETD) Gain/(Loss) : Nil Nil Profit/(Loss) after ETD Items : (7,762) 1,343 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. Basis of presentation Except as described in Remark 3, the accounting policies adopted in preparing these audited consolidated financial statements are consistent with those followed in the Group's annual financial statements for the year ended December 31, 2002. 2. Material Developments (a) On January 24, 2002, the Company issued 175 million ordinary shares at their estimated market value totalling approximately US$48 million (approximately HK$375 million) to a wholly-owned subsidiary of Trans World International, Inc. ("TWI") for the acquisition of a licence to use its sports archive and programmes. The Group was granted a 10-year royalty free non-exclusive licence to use existing and future sports archive and programmes owned by TWI in connection with the Group's services in Hong Kong and elsewhere in Asia. (b) On January 29, 2002, PCCW Capital No. 2 Limited, an indirect wholly-owned subsidiary of the Company, issued US$450 million 1 percent guaranteed convertible bonds due 2007, unconditionally and irrevocably guaranteed on a joint and several basis by the Company and PCCW-HKT Telephone Limited ("HKTC"), another indirect wholly-owned subsidiary of the Company. The net proceeds from the bonds were used to prepay a portion of the Group's outstanding balance of the US$4,700 million term loan facility and for working capital purposes. (c) In March and April 2002, HKTC entered into agreements with several banks for two HK$5,000 million term loan facilities respectively. The facilities were used to prepay a portion of the outstanding balance of the US$4,700 million term loan facility. (d) On June 28, 2002, the Company and Telstra Corporation Limited ("Telstra") entered into, and completed, an agreement relating to the following#: i. the sale by the Company of its entire 40 percent equity interest in Joint Venture (Bermuda) No. 2 Limited ("Regional Wireless Company" or "RWC") to Telstra for a consideration of approximately US$614.38 million (approximately HK$4,792 million); ii. the redemption by the Company of the outstanding principal amount of the US$750 million (approximately HK$5,850 million) variable coupon subordinated convertible bond due 2007 together with accrued interest of approximately US$54.38 million (approximately HK$424 million); and iii. the issue by the Company of a US$190 million (approximately HK$1,482 million) 5 percent mandatory convertible note due 2005 to Telstra. On disposal of the Group's 40 percent equity interest in RWC in June 2002, the Group recorded an accounting loss on disposal of approximately HK$1,771 million resulting from the restatement of goodwill previously eliminated against reserves as the cost of disposal. # Please refer to the Company's circular to the shareholders of the Company dated July 22, 2002 providing information on the disposal of the Company's 40 percent equity interest in RWC for details. A summary of the loss on disposal of interest in RWC, an associate, is set out below: 2002 HK$'million 2007 Bond 5,850 2007 Bond accrued interest 424 Less: Fair value of 2005 Note (1,482) --------- Proceeds on disposal of interest in RWC 4,792 Less: Book carrying value of interest in RWC at June 28, 2002, as previously stated (2,770) --------- Surplus of proceeds on disposal of interest in RWC over its book carrying value 2,022 Less: Realization of related goodwill previously charged against reserves, as previously stated (3,831) --------- Accounting loss on disposal of interest in RWC, as previously stated (1,809) Adjustment to book carrying value of interest in RWC upon adoption of Statement of Standard Accounting Practice ("SSAP") No.12 "Income taxes" Remark 3(b) 288 Adjustment to realization of related goodwill charged against reserves (250) ---------- Accounting loss on disposal of interest in RWC, as restated (1,771) ========= (e) Reach Ltd. ("Reach"), a jointly controlled company of the Group, is currently in negotiations with its bankers to restructure the terms of a syndicated bank loan of US$1,500 million. It has been granted waivers for certain of its debt covenants until the end of March 2003. Reach continues to operate in difficult and volatile conditions and its ability to continue as a going concern is dependent on successful renegotiation of its existing bank loan or other forms of funding being made available. The directors believe that the negotiations with the syndicate of the banks will be concluded successfully and Reach will continue to operate as a going concern. In view of the continuing difficult and volatile trading conditions in which Reach operates, the Group has performed an assessment of the fair value of its interest in Reach, including the related goodwill that had previously been eliminated against reserves, as at December 31, 2002. As a result, based on the estimated value in use of Reach, the Group has recognized an impairment loss for the goodwill attributable to the interest in Reach of approximately HK$8,263 million in the consolidated income statement for the year ended December 31, 2002. (f) The Group owned an effective 14.7 percent interest in MobileOne, which was an associate of the Group. In December 2002, MobileOne was listed on the Singapore Exchange Securities Trading Limited through the sale of existing shares. This results in a disposal of an equivalent of 8.4 percent stake in MobileOne by the Group. The effective consideration of the disposal was approximately HK$497 million, which generated a profit of approximately HK$338 million. Following completion of the disposal, the Group's effective interest in MobileOne was reduced from 14.7 percent to 6.3 percent as at December 31, 2002. 3. Details of significant items Adjustments Retrospectively Applied Upon Adoption of New Accounting Standards in Hong Kong (a) Adoption of SSAP 34 "Employee Benefits" SSAP34 prescribes the accounting and disclosure for all forms of consideration given by an enterprise in exchange for services rendered by employees. The underlying principle is that the cost of providing employee benefits should be recognized in the period in which benefits are earned by the employees, rather than when they are paid or payable. The Group has been providing defined benefit retirement plans to certain of its employees. Prior to the adoption of SSAP 34, contributions to the defined benefit schemes were made in accordance with the advice of qualified independent actuaries and were recognized as costs of retirement benefits to the income statement in the relevant accounting period. Special contributions were made to the retirement plans as recommended by the actuaries and were deferred and amortized to the income statement on a systematic basis over the employees' average expected service lives. With effect from January 1, 2002, in order to comply with SSAP 34, the Group adopted a new policy for defined benefit retirement plans. As a result of the adoption of this accounting policy, the Group has chosen to recognize the entire transitional liability immediately under the transitional provision of SSAP 34. As at January 1, 2002, the transitional liability of the Group's defined benefit retirement plans, which represented the excess of the defined benefit obligation over the fair value of the plan assets, was HK$521 million. The amount was recognized retrospectively against the opening balance of the accumulated deficit as at January 1, 2002 and the defined benefit liability has been carried in the consolidated balance sheet as non-current liabilities. In addition, the Group wrote off the unamortized balance of special contribution of HK$298 million that was made to the defined benefit retirement plans in 1998. A resultant adjustment of HK$723 million after netting of deferred tax impact of HK$96 million was made to the opening balance of the accumulated deficit of the Group as at January 1, 2002. Comparative financial statements have not been restated. (b) Adoption of SSAP 12 (revised) "Income taxes" The Hong Kong Society of Accountants issued SSAP 12 "Income taxes" ("SSAP 12 (revised)") in August 2002, which supercedes the previous SSAP 12 "Accounting for deferred taxes". The new standard will be effective for accounting periods beginning on, or after January 1, 2003. The Group has elected to early adopt the SSAP 12 (revised) for the consolidated financial statements for the year ended December 31, 2002. SSAP 12 (revised) requires deferred tax assets and liabilities to be provided in full using the liability method, which focuses on temporary difference being the difference between the carrying amount and the tax base of an asset or a liability at any point in time. Deferred tax assets or liabilities arising from temporary differences need to be measured at the tax rates enacted or substantially enacted by the balance sheet date. The principal temporary difference arise from depreciation of fixed assets, revaluation surplus of certain non-current assets, provision for pensions, tax losses carried forward, and, in relation to acquisitions, the difference between the fair values of the net assets acquired and their tax base. Deferred tax liabilities are provided in full for all taxable temporary differences while deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Movements of deferred tax assets and liabilities between the two balance sheet dates need to be reported either in the income statement or as an item of recognized gain or loss in reserve movements. In prior years, deferred taxation was accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset was expected to be payable or recoverable in the foreseeable future. The adoption of SSAP 12 (revised) represents a change in accounting policy, which has been applied retrospectively so that comparatives presented has been restated to conform the changed policy. As a result of the new accounting policy, the Group's loss for the year has been decreased by HK$140 million (2001: the Group's profit decreased by HK$549 million) and the net liabilities as at year end have been increased by HK$3,009 million (2001: HK$3,400 million). The new accounting policy has been adopted retrospectively, with the opening balances of accumulated deficit and the comparative information adjusted for the amounts relating to prior periods. The opening accumulated deficit of the Group at January 1, 2001 and 2002 have been increased by HK$3,078 million and HK$3,358 million respectively which represent the unprovided net deferred tax liabilities. This change has resulted in an increase in deferred tax liabilities at December 2001 by HK$2,720 million. 4. (Loss) / Earnings per share The calculation of basic and diluted (loss)/earnings per share is based on the following data: 2002 2001 (Restated) (Loss)/Earnings (HK$ million) (Loss)/Earnings for the purposes of basic and diluted earnings per share (7,762) 1,343 ======= ====== Number of shares Weighted average number of ordinary shares for the purposes of basic (loss) /earnings per share 4,605,653,512 4,474,615,652 ---------------- Effect of dilutive potential ordinary shares 138,787,281 -------------- Weighted average number of ordinary shares for the purposes of diluted earnings per share 4,613,402,933 ============= The diluted loss per share for the year ended December 31, 2002 is the same as the basic loss per share as all potential ordinary shares are anti-dilutive. Pursuant to an ordinary resolution passed at an extraordinary general meeting of the Company held on January 7, 2003, every five issued and unissued ordinary shares of HK$0.05 each were consolidated into one new ordinary share of HK$0.25 ("New Share") in the capital of the Company with effect from January 8, 2003 (the "Share Consolidation"). Upon the Share Consolidation becoming effective on January 8, 2003, the authorized share capital of the Company became HK$1,600,000,000 divided into 6,400,000,000 New Shares, of which 4,653,754,074 New Shares are in issue and fully paid. The New Shares rank pari passu in all respects with each other. The weighted average number of ordinary shares in 2002 and 2001 for the purpose of calculating basic and diluted (loss)/earnings per share have been retrospectively adjusted for the five-to-one Share Consolidation which took place in January 2003. 5. Comparative figures Certain comparative figures have been adjusted as a result of a change in accounting policy for deferred taxation, details of which are set out in Remark 3(b). 6. The interest income of HK$164 million (2001: HK$548 million) is included in "Profit from operations" for the purpose of this form but is included in "Finance costs, net" for the purposes of the annual results announcement and annual report.