JD Logistics, Inc. — Annual Report 2002

Mar 11, 2003

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ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31ST DECEMBER, 2002

FINANCIAL HIGHLIGHTS

• Turnover of the Group increased to HK$574,090,000 from HK$513,537,000, representing an increase of approximately 11.8%.

• Profit attributable to shareholders recorded a significant increase to HK$50,673,000 from HK$28,047,000, representing an increase of approximately 80.7%.

• Earnings before interest, tax, depreciation and amortisation amounted to HK$88.2 million, representing 31.7% increase over last year.

• Net cash of the Group improved to HK$95.4 million as at 31st December, 2002.

• Proposed dividend per ordinary share amounts to HK2.8 cents, representing an increase of 40%.

RESULTS

The Board of Directors of Midas International Holdings Limited (the “Company”) (formerly known as Midas Printing Group Limited) is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31st December, 2002 together with comparative figures for 2001 are as follows:–

NOTES Turnover 1 Direct expense Gross profit Other operating income 2 Selling expenses Administrative expenses Impairment loss on property, plant and equipment Profit from operations 3 Finance costs Profit before taxation Taxation 4 Profit before minority interest Minority interest	2002 HK$’000 574,090 (398,877) 175,213 13,917 (17,531) (114,744) – 56,855 (4,104) 52,751 (1,937) 50,814 (141)	2001 HK$’000 513,537 (359,650) 153,887 13,002 (12,720) (115,739) (1,263) 37,167 (8,539) 28,628 (581) 28,047 –

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Net profit for the year		50,673	28,047
Dividends	5	13,928	294
Earnings per share	6
Basic		11.6 cents	7.6 cents
Diluted		8.6 cents	7.5 cents

1. SEGMENT INFORMATION

In accordance with the Group’s internal financial reporting, the Group has determined that geographical segments by market are its primary reporting format and business segment are its secondary reporting format.

Geographical segments

The Group’s printing business is located in both Hong Kong and the People’s Republic of China, other than Hong Kong (“the PRC”) while the property business is located in the PRC.

The Group reports its primary segment information by geographical location of its customers who are principally located in Hong Kong, North America, Europe, Australia and New Zealand, and the PRC. Segment information about these geographical markets is presented below:

2002

Hong Kong HK$’000 TURNOVER Sales of goods 180,636 Property rental income – 180,636 SEGMENT RESULT 1,149 Unallocated corporate income Unallocated corporate expenses Profit from operations Finance costs Profit before taxation Taxation Profit before minority interest	North America HK$’000 131,592 – 131,592 15,284	Europe HK$’000 151,023 – 151,023 19,746	Australia and New Zealand HK$’000 88,776 – 88,776 17,503	PRC HK$’000 16,872 4,715 21,587 5,600	Others Consolidated HK$’000 HK$’000 476 569,375 – 4,715 476 574,090 180 59,462 2,504 (5,111 ) 56,855 (4,104 ) 52,751 (1,937 ) 50,814

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2001

Hong Kong HK$’000 TURNOVER Sales of goods 173,922 Property rental income – 173,922 SEGMENT RESULT 3,528 Unallocated corporate income Unallocated corporate expenses Profit from operations Finance costs Profit before taxation Taxation Profit before minority interest	North America HK$’000 98,080 – 98,080 9,281	Europe HK$’000 142,090 – 142,090 14,822	Australia and New Zealand HK$’000 90,223 – 90,223 10,160	PRC HK$’000 8,881 130 9,011 333	Others Consolidated HK$’000 HK$’000 211 513,407 – 130 211 513,537 38 38,162 4,766 (5,761 ) 37,167 (8,539 ) 28,628 (581 ) 28,047

Business segments

The Group is currently operating in two business segments, namely printing and property investment and development. Segment information about these businesses is presented below:

				Contribution to profit	Contribution to profit
		Turnover		(loss) from operations
		2002	2001	2002	2001
		HK$’000	HK$’000	HK$’000	HK$’000
	Printing	569,375	513,407	53,693	38,171
	Property investment and development	4,715	130	5,769	(9)
		574,090	513,537	59,462	38,162
	Unallocated corporate income			2,504	4,766
	Unallocated corporate expenses			(5,111)	(5,761)
	Profit from operations			56,855	37,167
2.	OTHER OPERATING INCOME
	Included in other operating income is investment income as follows:
				2002	2001
				HK$’000	HK$’000
	Dividend from investments in securities			1	10
	Interest earned on bank deposits			2,038	4,647

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3. PROFIT FROM OPERATIONS

		2002	2001
		HK$’000	HK$’000
	Profit from operations has been arrived at after charging:
	Depreciation and amortisation	33,529	34,463
	_Less:_Amount capitalised in properties under development	(139)	–
		33,390	34,463
	Loss on disposal of investments in securities	2	6
4.	TAXATION
		2002	2001
		HK$’000	HK$’000
	The charge comprises:
	Hong Kong Profits Tax
	Current year	3,900	1,433
	(Over)underprovision in previous years	(165)	716
	PRC income taxation	1,173	32
		4,908	2,181
	Deferred taxation	(2,971)	(1,600)
		1,937	581
	Hong Kong Profits Tax is calculated at 16% (2001: 16%) of the estimated	assessable profit for the year.
	PRC income tax is calculated at the applicable rates relevant to the PRC subsidiaries.

5. DIVIDENDS

2001 final dividend of HK2 cents per share paid to ordinary shareholders Dividends payable to preference shareholders (2002: HK1.5 cents per share; 2001: HK0.07 cent per share for the period from 14th December, 2001 to 31st December, 2001)	2002 HK$’000 7,786 6,142 13,928	2001 HK$’000 – 294
		294

Subject to the Companies Law (Revised) of the Cayman Islands, the holders of preference shares are entitled to receive dividends semi-annually at 2.5 percent per annum on the issue price of HK$0.60 per preference share in arrears on a daily basis.

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6. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

Net profit for the year Dividend on preference shares Earnings for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: – Dividend on convertible preference shares Earnings for the purposes of diluted earnings per share Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: – Convertible preference shares – Share options Weighted average number of ordinary shares for the purposes of diluted earnings per share	2002 HK$’000 50,673 (6,142) 44,531 1,128 45,659 Number of 382,780,479 150,509,589 6,292 533,296,360	2001 HK$’000 28,047 (294) 27,753 59 27,812 Shares 365,286,616 7,824,658 123,134 373,234,408

DIVIDEND

The directors propose to declare a final dividend of HK2.8 cents per ordinary share (2001: HK2 cents) payable on or before 12th May, 2003 to ordinary shareholders whose names appear on the Company’s register of members on 6th May, 2003. No interim dividend had been declared in respect of the current financial year (2001: nil).

MANAGEMENT DISCUSSIONS ON RESULTS

It is encouraging for the Group to achieve an outstanding performance in 2002. Implemented the right strategies at the right time resulted in another record year of earnings for the Group. Turnover of the Group increased to HK$574,090,000 (2001: HK$513,537,000), representing an increase of approximately 11.8%. Profit attributable to shareholders recorded a significant increase to HK$50,673,000 (2001: HK$28,047,000), representing an increase of approximately 80.7% from last year. Earnings before interest, tax, depreciation and amortisation amounted to HK$88.2 million (2001: HK$67.0 million), representing 31.7% increase from last year. Proposed dividend per ordinary share amounts to HK2.8 cents, representing an increase of 40%.

Such remarkable growth was achieved with the concerted efforts of our dedicated staff. First of all, our efforts on proactive marketing are positive. Printing remains the major business segment of the Group, gaining a 10.9% increase to HK$569,375,000, with sales orders rebounded significantly in the second half of 2002. Secondly, the active review on product mix enabled us to better utilise our resources and raised the productivity level. Thirdly, with continuous commitment on cost control, the gross margin was raised to 30.5%. Gross profit grew by about 13.9% to HK$175.2 million. Although selling expenses slightly increased with sales growth, administration expenses were largely held at last year’s level. With sound financial management, finance costs were also significantly reduced by 51.9% to HK$4.1 million. As a result, the Group’s profit before taxation increased by 84.3% to HK$52.8 million.

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BUSINESS REVIEW

After the current management team took charge from mid 2001, the Group has committed to invest in human resources so as to improve our customer services. We also put much effort on operational efficiency to save costs and invest in the state-of-the-art technology to improve quality. As a result, in 2002, we won a total of 10 awards for printing excellence which were conferred on us by two prestigious printing competitions, including: 1) 2002 Premier Print Award; and 2) The 14th Hong Kong Print Awards, and for the latter, we were honoured the Grand Award for 2002. We believe the success builds on the Group’s commitments on providing impeccable services and unsurpassed quality.

(a) Printing Businesses

The Group’s printing businesses focus on two growing market segments: book printing and paper products printing.

(i) Book Printing

The Group is one of the leading book printers and exporters in Asia. Over 90% of our sales are exported. Our customers include multinational publishers and conglomerates in the United States, Europe, Australia and New Zealand.

The emotional effect of the 911 incident had not affected the fundamental of the Group’s printing business. Turnover of book printing picked up rapidly in the second half of 2002 as publishers and customers unfolded their printing orders which were held back during the first half of the year. Our investment in technology is proven to be correct. During 2002, we added two new computer-to-plates (“CTPs”) in our Yuanzhou plant which are well-received by customers. With the use of CTPs, clients are provided with a digital filmless solution, which is able to save on pre-press costs and shorten production cycle for order fulfillment.

To fulfill the growing demand for book printing from existing customers and potential customers, we are undertaking the first phase expansion plan in our Yuanzhou plant for additional printing facilities as well as hand-assembly capacity for novelty books. A 2-storey premises adjacent to the existing Yuanzhou plant is under construction and will be completed in the second quarter of 2003. Upon completion, the total gross floor area of Yuanzhou plant will be increased from 260,000 sq. ft. to 410,000 sq. ft., of which an additional 75,000 sq. ft. will be used for hand-assembly works. Two new printing presses will be installed in 2003, including a 5-colour press and a 8-colour perfector. Following these expansion, printing capacity of the Yuanzhou plant will be enhanced by more than 30% in order to accommodate our growth in sales.

Furthermore, we are conducting a feasibility study on the second phase expansion plan in our Yuanzhou plant. We plan to acquire the adjacent site with a site area of 450,000 sq. ft. for further expansion of our production capacity.

• (ii) Paper Products Printing

With an aim to put our resources to better use and to enhance profitability, the Group repositioned its packaging printing and commercial printing, and formed a new division, the paper products printing division.

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Turnover of packaging printing in our Dongguan plant recorded a double digit growth during 2002, as demand for packaging printing in the Pearl River Delta region improved along with the role of China as the world’s production base becoming more prominent. Outlook for the packaging printing is promising.

On the other hand, however, turnover of our commercial printing in Hong Kong continued to fall, as the local operating environment remained difficult during 2002. In order to eliminate the loss-making impact of commercial printing on the Group’s bottom line, the Group has recently decided to relocate the printing resources in its leased Tsuen Wan plant to Dongguan, such that resources will be focused on the higher growth paper products printing.

To cater for the expansion plan, at the beginning of 2003, the Group leased a 4-storey premises adjacent to its Dongguan plant to expand its production area from 410,000 sq. ft. to 660,000 sq. ft.. Besides the relocation of the Group’s production facilities from its Tsuen Wan plant, we shall also install a new 6-color full-size printing press, paper corrugator, and ancillary post-press facilities during the second quarter of 2003. These strategy and expansion will provide a solid base for our paper products printing business to further prosper.

In addition to packaging boxes, the Group is broadening its product coverage to paper products printing, including paper gift boxes and paper bags, which require quality printing as well as abundant hand-assembly works. The widening of product range will reduce the seasonal impact of packaging boxes on the Group’s production resources. Management resources and additional sales and marketing team are put into place on paper products printing. On the marketing side, the Group will embark on a series of active promotion to buyers overseas and in the PRC, as well as to enhance its ability on product design.

(b) Property Division

The Group holds the entire interests in Lambda Building, Yuen Sang Building and three blocks of residential units of Chuang’s Garden in Huiyang, the PRC, as well as 51% interests in a commercial podium and basement of Chengdu Chuang’s Centre in Sichuan, the PRC, with total attributable gross floor area of 920,500 sq. ft..

During the year under review, the property division contributed stable rental income. Occupancy rate of Yuen Sang Building and Lambda Building improved to about 80% with annual rental of about HK$3.0 million. The three blocks of 372 residential units of Chuang’s Garden are subject to the rental guarantee of not less than HK$3,880,000 per annum, expiring by the end of 2003. Subsequent to the year under review, 92 units of Chuang’s Garden have been leased.

In Chengdu, the entire 7-storey commercial podium and basement 1 of Chengdu Chuang’s Centre have been fully leased for a period of 10 years, in addition to the lease of the commercial signboards for 10 years. These leases commenced in the fourth quarter of 2002. The aggregate annual rental will amount to about RMB12.6 million (approximately HK$11.8 million) for the first full year, with escalating rent thereafter. Total rental income for the entire lease period will amount to approximately RMB175.0 million (or approximately HK$163.6 million).

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LIQUIDITY AND FINANCIAL RESOURCES

As at 31st December, 2002, the Group’s bank balances and cash amounted to HK$182.1 million (2001: HK$136.2 million) and bank borrowings and obligation under finance lease amounted to HK$86.7 million (2001: HK$81.3 million), of which HK$38.9 million (2001: HK$21.3 million) are due from the second to the fifth year. Therefore, the calculation of net debt to equity ratio was not applicable because the Group had surplus cash of about HK$95.4 million (2001: HK$55.0 million) over bank borrowings and obligation under finance lease. Most of the Group’s bank balances and borrowings were denominated in Hong Kong dollars and United States dollars, risk in exchange rate fluctuation would not be material. At the balance sheet date, certain assets of the Group with net book values of HK$108.5 million had been pledged to secure borrowings granted to the Group.

In April 2002, Chuang’s China Investments Limited exercised its rights to convert HK$7.2 million Series A preference shares in the Company into 24,000,000 ordinary shares of the Company. Subsequent to 31st December, 2002, the Group redeemed 83,333,333 Series B preference shares in the Company at HK$0.60 each, totaling HK$50 million. As at the date of this report, the Group has in issue HK$43.2 million Series A preference shares and HK$152.5 million Series B preference shares.

MANAGEMENT

To cater for the Group’s strategy to focus on book printing and paper products printing, we have strengthened our management team as follows:–

1. Mr. Kwong Tin Lap, our Group Managing Director, continues to be responsible for the overall management of the Group, and in particular the development of the book printing business.

2. Mr. Kwok Chi Fai, Francis was promoted as the Group Deputy Managing Director, and is in charge of the development of the paper products printing business.

3. Mr. Ng Kwok Keung, Thompson joined our paper products printing division, who is in charge of sales and business development. Mr. Ng is a committee member of our paper products printing as mentioned below. He has over 31 years of experiences in the paper products and packaging printing business.

4. Two sub-committees were formed. One is for the book printing business and the other is for the paper products printing business. The members of each of the sub-committee comprise the executive directors of the Company and the respective general manager of our plants in the PRC. The function of the sub-committee is to steer the development of each business closely along the direction of the board.

5. Mr. Cheng Wing Keung was promoted as Financial Controller of the Group, responsible for finance and accounting.

THE OUTLOOK FOR 2003 AND BEYOND

Amid its low production costs and abundant labour supply, the PRC has become the global production base for the book printing industry. In terms of import sources of books to the United States, being the major book market in the world, the PRC has been gaining market share over the past few years. Multinational book publishers have been shifting their printing orders from highcost regions to low-cost regions like the PRC. The Group, being one of the largest book printers in the PRC with both the capability and capacity, is poised to continue to benefit from this trend in the long term. The prospects are very promising.

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The paper products printing division is expected to see a significant growth in profitability in 2003 as the Group has scaled down the unfavourable commercial printing business in Hong Kong since early 2003 and shifted the resources to focus on higher growth paper products printing business in the PRC.

To meet the strong and growing demand for our printing business, the Group plans to invest HK$60 million in 2003 to expand our plants and machineries in the PRC, which will well-equip ourselves for another year of significant growth.

For the printing business, the outlook for the first half of 2003 is positive. The strong demand for printing services in the second half of 2002 is indicative of buyer’s positive market forecast for 2003, with expected sales for the first quarter of 2003 to record a double-digit growth.

The Group will continue to look for business expansion in overseas markets and take proactive strategies to strengthen customer value and brand building. The Group will actively participate in international trade fairs, including the Bologna Children’s Book Fair, Bookexpo America, and the Frankfurt Book Fair. The PRC is also one of the high potential markets for us to explore. In addition to the sales force in Shenzhen, a new sales force will be set up in Beijing to serve clients domestically, paving our way to capture market potential in the future.

On the property investment front, rental income is expected to increase substantially in 2003 since Chengdu Chuang’s Centre will begin to make the first full-year rental contribution to the Group this year as compared with less than three months in 2002.

Overall, both the printing and property divisions are expected to see growth this year. The Group is confident that 2003 will be another fruitful year to shareholders.

CLOSING OF REGISTER

The register of members will be closed from Saturday, 3rd May, 2003 to Tuesday, 6th May, 2003, both days inclusive, during which period no transfer of shares will be effected. All transfers, accompanied by the relevant share certificates, must be lodged for registration with the Company’s share registrars in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712-1716 Hopewell Centre, 183 Queen’s Road East, Hong Kong, by no later than 4:00 p.m. on Friday, 2nd May, 2003.

STAFF

As at 31st December, 2002, the Group employed 2,100 staff and workers approximately, with their remuneration normally reviewed annually. The Group also provides its staff with other benefits including year-end double-pay, discretionary bonus, contributory provident fund, share options and medical insurance. Staff training is also provided as and when required.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed shares.

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FULL DETAILS OF FINANCIAL INFORMATION

All the information required by paragraphs 45(1) to 45(3) of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited will be published on the website of The Stock Exchange of Hong Kong Limited in due course.

By Order of the Board of Midas International Holdings Limited Chan Sheung Chiu Chairman

Hong Kong, 10th March, 2003

• For identification purpose only

• “Please also refer to the published version of this announcement in The Standard”.

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