Hang Lung Group Limited — Earnings Release 2003

Mar 4, 2004

Listed Company Information

PCCW<00008> - Results Announcement (Summary) PCCW Limited announced on 4/3/2004: (stock code: 00008 ) Year end date: 31/12/2003 Currency: HKD Auditors' Report: Unqualified (Audited ) (Audited ) Last Current Corresponding Period Period from 1/1/2003 from 1/1/2002 to 31/12/2003 to 31/12/2002 Note ('Million ) ('Million ) Turnover : 22,550 20,112 Profit/(Loss) from Operations : 2,388 4,544 Finance cost : (2,249) (2,161) Share of Profit/(Loss) of Associates : 65 281 Share of Profit/(Loss) of Jointly Controlled Entities : (891) 550 Profit/(Loss) after Tax & MI : (6,100) (7,762) % Change over Last Period : 21% EPS/(LPS)-Basic (in dollars) : (1.2281) (1.6853) -Diluted (in dollars) : (1.2281) (1.6853) Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : (6,100) (7,762) Final Dividend : Nil Nil per Share (Specify if with other : N/A N/A options) B/C Dates for Final Dividend : N/A Payable Date : N/A B/C Dates for (-) General Meeting : N/A Other Distribution for : N/A Current Period B/C Dates for Other Distribution : N/A Remarks: 1. Provisions for impairment losses 2003 2002 HK$ million HK$ million Provisions for impairment of: Fixed assets (note a) 1,167 204 Multimedia business related assets (note b) 301 309 Game business related assets (note c) 893 - Other non-current assets 91 21 ---------- ----------- 2,452 534 ===== ==== (a) Due to technology and market changes in the sectors in which the PCCW Group (the "Group") operates, certain of the Group's fixed assets have become obsolete or impaired. Accordingly, the Group has recognized an impairment loss of approximately HK$1,155 million in the income statement for the year ended December 31, 2003. Further, an impairment loss of approximately HK$12 million on the fixed assets of the game business has been recognized as described in remark (c) below. (b) Following the launch of certain value-added services in 2003, the Group has reviewed the recoverable amount of its multimedia business related assets and identified that the usage of certain content archive will be diminishing. The income to be generated from such assets is expected to be insignificant. Accordingly, the Group has fully written down the remaining carrying value of a content licence as at December 31, 2003 to zero and recognized an impairment loss of approximately HK$301 million. (c) During the year, JALECO LTD. ("JALECO"), the Group's majority owned subsidiary listed in Japan, has restructured its on-line game and game development businesses and exited certain legacy businesses. In view of the continual losses incurred by JALECO, management has performed an assessment of the fair value of its interest in JALECO, including the related goodwill that had previously been eliminated against reserves as at December 31, 2003. As a result, based on the estimated value in use of JALECO determined using a discount rate of 12.5 percent (2002: 12.5 percent), the Group has recognized impairment losses for goodwill and other assets of HK$742 million and HK$151 million respectively in the income statement for the year. 2. Restructuring costs During the current year, JALECO incurred restructuring costs of approximately HK$38 million representing mainly the severance payments and the write-off of development cost and inventory in relation to the restructuring exercise described in remark 1(c) above. During 2002, the Group subcontracted a significant portion of its network maintenance function to 17 newly-established subcontracting companies owned by individuals previously employed by the Group. Approximately 1,600 former employees joined these subcontracting companies in November 2002 and approximately 3,000 of the Group's employees joined a new wholly -owned subsidiary, Cascade, on January 1, 2003. In addition, the Group reset staff levels in 2002 involving approximately 1,400 employees. Restructuring costs of approximately HK$311 million in 2002 mainly represent the ex-gratia payments, curtailment losses on the related defined benefit retirement schemes, Cascade incentive bonuses on employment transfers and payments in lieu of notice for the above exercises. 3. Impairment losses on interests in jointly controlled companies and associates 2003 2002 HK$ million HK$ million Impairment losses on interests in: Reach Ltd. ("REACH") (note a) 4,159 8,263 Another jointly controlled company (note b) 227 - Other associates 78 - ------ ------------- 4,464 8,263 ====== ======== (a) On April 15, 2003, REACH and its bankers amended the terms of REACH's US$1,500 million syndicated term loan facility, which was subsequently reduced to US$1,200 million, with effect from April 25, 2003. The amendments to the term loan facility were intended to provide REACH with greater financial flexibility and an improved capital structure. REACH continues to operate in a difficult environment and the industry is expected to remain challenging for a period of time due to aggressive pricing and oversupply of capacity. 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, 2003. As a result, based on the estimated value in use of REACH determined using a discount rate of 10 percent (2002: 9 percent), the Group has made full provision for impairment of its previously unimpaired interest in REACH, recognizing an impairment loss of approximately HK$4,159 million (2002: HK$8,263 million) in the income statement for the year ended December 31, 2003. Accordingly, the Group's total interest in REACH has been written down to zero as at December 31, 2003 (2002: HK$3,930 million). (b) Due to continual losses sustained, the Group has performed an assessment of the carrying value of its interest in a jointly controlled company, which is engaged in the on-line game business, as at December 31, 2003. Based on the result of the assessment, the Group has made a full provision for impairment of its interest in this jointly controlled company of approximately HK$227 million in the income statement for the year ended December 31, 2003. 4. Loss per share The calculation of basic loss per share is based on the following data: 2003 2002 Loss (HK$ million) (6,100) (7,762) ======= ========= Weighted average number of ordinary shares 4,967,178,732 4,605,653,512 ============= ============== The diluted loss per share for the year ended December 31, 2003 and 2002 is the same as the basic loss per share as all potential ordinary shares are anti-dilutive. The weighted average number of ordinary shares in 2003 and 2002 for the purposes of calculating the basic and diluted loss per share has been retrospectively adjusted for the five-to-one share consolidation which took place in January 2003. 5. The interest income of HK$132 million (2002: HK$164 million) is included in "Profit / (Loss) from Operations" for the purpose of this form but is included in "Finance costs, net" for the purposes of the annual results announcement and annual report. A reconciliation of the annual report to the Hong Kong Stock Exchange (HKSE) announcement form is as follows :- Per annual Reclassification HKSE 2003 annual results report 2003 of interest Announcement income Form HK$'M HK$'M HK$'M Turnover 22,550 22,550 Profit/(Loss) from Operations 2,256 132 2,388 Finance cost (2,117) (132) (2,249) Share of Profit /(Loss) of Associates 65 65 Share of Profit / (Loss) of Jointly Controlled Entities (891) (891) Profit / (Loss) after Taxation & MI (6,100) (6,100) Per annual Reclassification HKSE 2002 annual results report 2002 of interest Announcement income Form HK$'M HK$'M HK$'M Turnover 20,112 20,112 Profit/(Loss) from Operations 4,380 164 4,544 Finance cost (1,997) (164) (2,161) Share of Profit /(Loss) of Associates 281 281 Share of Profit / (Loss) of Jointly Controlled Entities 550 550 Profit / (Loss) after Taxation & MI (7,762) (7,762)