IRC Limited — Audit Report / Information 2003

Nov 7, 2003

Listed Company Information

LAI SUN DEV<00488> - Results Announcement Lai Sun Development Company Limited announced on 7/11/2003: (stock code: 00488 ) Year end date: 31/7/2003 Currency: HKD Auditors' Report: Qualified (Audited ) (Audited ) Last Current Corresponding Period Period from 1/8/2002 from 1/8/2001 to 31/7/2003 to 31/7/2002 Note ($ ) ($ ) Turnover : 906,590,000 934,720,000 Profit/(Loss) from Operations : 331,449,000 10,621,000 Finance cost : (473,255,000) (567,748,000) Share of Profit/(Loss) of Associates : (262,682,000) (1,324,063,000) Share of Profit/(Loss) of Jointly Controlled Entities : N/A N/A Profit/(Loss) after Tax & MI : (461,040,000) (1,941,508,000) % Change over Last Period : N/A % EPS/(LPS)-Basic (in dollars) : (0.12) (0.52) -Diluted (in dollars) : N/A N/A Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : (461,040,000) (1,941,508,000) 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. BASIS OF PRESENTATION The Group sustained a net loss from ordinary activities attributable to shareholders of HK$461 million (2002: HK$1,942 million). At the balance sheet date, the Group had consolidated net current liabilities of HK$7,654 million (2002: HK$6,193 million) and consolidated deficiency in assets of HK$374 million (2002: net assets of HK$766 million). The deterioration in Group's net asset position primarily resulted from the valuation deficit arising in respect of the Group's investment properties and the loss incurred by the Group during the year. During the year, the Group had ongoing discussions with all of its financial creditors with the objective of refinancing the Group to put it in a better financial position. On 17th December, 2002, meetings with the holders (the "Exchangeable Bondholders") of the US$115,000,000 exchangeable bonds (the "Exchangeable Bonds") and the holders (the "Convertible Bondholders") of the US$150,000,000 4% convertible guaranteed bonds due in 2002 (the "Convertible Bonds") were held at which, among other things, resolutions to approve the deferral of the Group's obligations to redeem the Exchangeable Bonds and the Convertible Bonds to 31st March, 2003 were duly passed. The Group defaulted on the repayment of the Debt of HK$1,500,040,000 due to Golden Pool Enterprises Limited, a wholly-owned subsidiary of eSun Holdings Limited ("eSun"), on 31st December, 2002. In addition, the Convertible Bonds were due to be redeemed by the Group on 31st March, 2003 but were not so redeemed and, at the same time, the Group also failed to satisfy the redemption rights exercised by certain of the Exchangeable Bondholders, which in turn, has resulted in the Exchangeable Bonds becoming due for redemption in their entirety. Accordingly, the Group had defaulted in the repayment of the Debt and the redemption of both of the Convertible Bonds and the Exchangeable Bonds. Such defaults, in turn, constituted a technical event of default under all of the Group's other borrowing facilities. As at the date of approval of these financial statements, the Group has yet to reach an agreement with the Exchangeable Bondholders, the Convertible Bondholders, eSun and its other financial creditors as to the terms of a comprehensive restructuring of the Group's indebtedness (the "Debt Restructuring Plan"). The Group is currently operating under a period of informal standstill and up to now, neither the Exchangeable Bondholders, the Convertible Bondholders, eSun nor its other financial creditors has taken any action to enforce their respective securities. The Group is, with the assistance of its financial and legal advisers, conducting ongoing negotiations with all of its financial creditors with a view to securing the terms of a Debt Restructuring Plan acceptable to all relevant parties. Throughout the year and up to the date of approval of these financial statements, the Group continued to implement an orderly disposal of its assets, including properties and other investments, to generate positive cash flows for the partial repayment of certain bonds payable, bank and other borrowings and to help providing sufficient working capital for the Group's operations. The directors of the Company believe that the Group will be able to secure the agreement of all its financial creditors to the Debt Restructuring Plan and, at the same time will be able to continue the orderly disposal of the assets of the Group and to obtain financing or refinancing arrangements to generate additional positive cash flows. On this basis, the directors of the Company consider that the Group will have sufficient working capital to finance its operations in the foreseeable future. Accordingly, the directors of the Company are satisfied that it is appropriate to prepare the financial statements on a going concern basis. If the going concern basis is not appropriate, adjustments would have to be made to restate the values of the assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities, respectively. 2. SUMMARY OF AUDITOR'S REPORT Limitation of scope Scope limitations - Interest in an associate, eSun Holdings Limited ("eSun") and its subsidiaries (the "eSun Group") Included in the Group's interests in associates as at 31st July, 2003 is the Group's share of net assets of the eSun Group of HK$805,452,000. The auditors of eSun issued a disclaimer opinion on the financial statements of the eSun Group for the year ended 31st December, 2002 because of the possible effects of scope limitations in respect of (i) the recoverability of the amount of HK$1,500,040,000 due by the Group to the eSun Group (the "Debt") and (ii) the impairment of film rights owned by the eSun Group with a carrying amount of HK$113,109,000. The auditors have been unable either to obtain sufficient reliable information or to carry out any alternative auditing procedures to satisfy themselves as to the value of the Group's share of net assets of the eSun Group included in the consolidated balance sheet as at 31st July, 2003. Included in the Company's balance sheet as at 31st July, 2003 is its 37.86% interest in eSun of HK$896,971,000 and the Company's interests in subsidiaries, which in turn held a 4.68% interest in eSun, with an aggregate carrying value of HK$130,599,000. The auditors have also been unable either to obtain sufficient reliable information, or to carry out alternative auditing procedures to satisfy themselves as to the carrying value of the Company's interests in eSun and in these subsidiaries as at 31st July, 2003. Any adjustments that might have been found necessary in respect of the above scope limitations would have a consequential impact on the deficiency in assets of the Group and the Company as at 31st July, 2003 and the net loss attributable to the shareholders for the year then ended. In forming their opinion the auditors also evaluated the overall adequacy of the presentation of information in the financial statements. The auditors believe that their audit provides a reasonable basis for their opinion. Fundamental uncertainties relating to the going concern basis As detailed in note a to this announcement, the Group defaulted in the repayment of the Debt due to the eSun on 31st December, 2002 and redemption of the Exchangeable Bonds and the Convertible Bonds on 31st March, 2003. Such defaults, in turn, constituted a technical event of default under all of the Group's other borrowing facilities. As at the date of the auditors' report, the Group has yet to reach an agreement with the holders of the Exchangeable Bonds, the holders of the Convertible Bonds, eSun Holdings Limited ("eSun") and its other financial creditors (collectively "All Financial Creditors") on the terms of a comprehensive restructuring of the Group's indebtedness (the "Debt Restructuring Plan"). The Group is currently operating under a period of informal standstill. In forming of their opinion, the auditors have considered the adequacy of the disclosures made in note a to this announcement which explains the circumstances giving rise to concerns regarding the fundamental uncertainties relating to the adoption of the going concern basis of presentation. The financial statements have been prepared on a going concern basis, the validity of which depends on the Group's success in securing the agreement of its All Financial Creditors to the Debt Restructuring Plan (including the continuance of the informal standstill in the meantime), the Group's success in carrying out an orderly disposal of certain of the Group's assets and on the Group's success in obtaining financing or refinancing arrangements to generate additional positive cash flows for the Group's ongoing operations. The financial statements do not include any adjustments that would result from the failure to secure Debt Restructuring Plan with All Financial Creditors, complete the assets disposal programme and obtain financing or refinancing arrangements. The auditors consider that appropriate disclosures have been made but, because of the significant uncertainty relating to whether the securing of the agreement of All Financial Creditors to the Debt Restructuring Plan, the successful orderly disposal of the Group's assets and the successful financing or refinancing arrangements of the bank and other borrowings will be forthcoming, they are not able to determine whether the going concern basis adopted in the financial statements is appropriate. Disclaimer of Opinion Because of the significance of the possible effects of the scope limitations in evidence available to the auditors as mentioned in above and because of the significance of the fundamental uncertainty relating to the going concern basis, the auditors are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Group and of the Company as at 31st July, 2003 and of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the Companies Ordinance. 3. SHARE OF PROFIT/(LOSS) OF ASSOCIATES 2003 2002 HK$ HK$ Share of profits and losses of associates (5,745,000) (232,507,000) Amortisation of goodwill on acquisition of an associate (26,545,000) (6,636,000) Impairment in value of goodwill of an associate -- (228,258,000) Impairment in value of associates (36,804,000) (318,000,000) Loss on disposal of associates (73,265,000) (538,662,000) Loss on deemed disposal of an associate (103,695,000) -- Loss on disposal of partial interest in an associate (16,628,000) -- ----------------------------- (262,682,000) (1,324,063,000) 4. LOSS PER SHARE The calculation of basic loss per share is based on the net loss from ordinary activities attributable to shareholders for the year of HK$461,040,000 (2002:HK$1,941,508,000) and the weighted average number of 3,746,002,000 (2002: 3,746,002,000) ordinary shares in issue during the year. Diluted loss per share amounts for the years ended 31st July, 2003 and 2002 have not been disclosed, as the potential ordinary shares of the Group outstanding during these years had an anti-dilutive effect on the basic loss per share for these years.