JD Logistics, Inc. — Annual Report 2003

Mar 25, 2004

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ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31ST DECEMBER, 2003

FINANCIAL HIGHLIGHTS

• Turnover of the Group increased to HK$675,237,000 from HK$574,090,000, representing an increase of approximately 18%.

• Profit before taxation grew 15% to HK$59,673,000.

• Earnings before interest, tax, depreciation and amortisation amounted to HK$99,336,000, representing 14% increase over last year.

• Capital expenditure in 2003 on plant, machineries and printing equipment was HK$73,000,000.

• Net cash of the Group amounted to approximately HK$51,000,000 as at 31st December, 2003.

• Total dividends (including special dividend) per ordinary share amount to HK5.2 cents, representing an increase of 86%.

* For identification purpose only

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RESULTS

The Board of Directors of Midas International Holdings Limited (the “Company”) is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31st December, 2003 together with comparative figures for 2002 are as follows:–

Notes Turnover 2 Direct expense Gross profit Other operating income 3 Selling expenses Administrative and operating expenses Profit from operations 4 Finance costs Profit before taxation Income tax expenses 5 Profit before minority interest Minority interest Net profit for the year Dividends paid during the year 6 Earnings per share 7 Basic Diluted	2003 HK$’000 675,237 (469,857) 205,380 14,457 (18,897) (135,010) 65,930 (6,257) 59,673 (6,704) 52,969 (607) 52,362 24,756 10.5 cents 9.1 cents	2002 HK$’000 (Restated) 574,090 (398,877) 175,213 13,917 (17,531) (115,645) 55,954 (4,104) 51,850 (1,937) 49,913 (141) 49,772 13,928 11.4 cents 8.4 cents

Notes:

1. BASIS OF PREPARATION

In the current year, the Group has adopted Statements of Standard Accounting Practice 12 (Revised) “Income Taxes” which comes into effect for the accounting period beginning on or after 1st January, 2003. The effect of the change is a decrease in the profit of approximately HK$901,000 for the year ended 31st December, 2002. The comparative amounts for 2002 have been restated accordingly.

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2. SEGMENT INFORMATION

During the year, the management has reassessed the primary source of the Group’s risks and return and redesignated business segments as the Group’s primary reporting format.

Business segments

The Group is currently operating in two business segments, namely, printing and property investment. Turnover of the Group represents net amounts received and receivable for goods sold by the Group to outside customers, less returns and allowances and property rental income during the year. Segmental information about these businesses is presented below.

2003 CONSOLIDATED INCOME STATEMENT

		Property
	Printing	investment	Consolidated
	HK$’000	HK$’000	HK$’000
TURNOVER – external	660,361	14,876	675,237
SEGMENT RESULTS	54,488	11,860	66,348
Unallocated corporate income			1,202
Unallocated corporate expenses			(1,620)
Profit from operations			65,930
Finance costs			(6,257)
Profit before taxation			59,673
Income tax expenses			(6,704)
Profit before minority interest			52,969

2002 CONSOLIDATED INCOME STATEMENT

		Property
	Printing	investment	Consolidated
	HK$’000	HK$’000	HK$’000
TURNOVER	569,375	4,715	574,090
SEGMENT RESULTS	53,693	4,868	58,561
Unallocated corporate income			2,504
Unallocated corporate expenses			(5,111)
Profit from operations			55,954
Finance costs			(4,104)
Profit before taxation			51,850
Income tax expenses			(1,937)
Profit before minority interest			49,913

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3. OTHER OPERATING INCOME

Included in other operating income is investment income as follows:

Dividend from investments in securities Interest earned on bank deposits 4. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging: Depreciation and amortisation _Less:_Amount capitalised in properties under development Loss on disposal of investments in securities 5. INCOME TAX EXPENSES The charge (credit) represents: Current tax: Hong Kong Profits Tax The People’s Republic of China (“PRC”) income tax Under(over)provision in prior years: Hong Kong Profits Tax PRC income tax Deferred tax: Current year Overprovision in prior years Attributable to a change in tax rate	2003 HK$’000 – 1,202 2003 HK$’000 34,608 – 34,608 – 2003 HK$’000 5,572 1,459 7,031 324 (216) 108 (747) – 312 (435) 6,704	2002 HK$’000 1 2,038 2002 HK$’000 (restated) 33,529 (139) 33,390 2 2002 HK$’000 3,900 1,173 5,073 (165) – (165) (1,120) (1,851) – (2,971) 1,937

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Hong Kong Profits Tax is calculated at 17.5% (2002: 16%) on the estimated assessable profit for the year. In June 2003, the Hong Kong Profits Tax rate was increased from 16% to 17.5% with effect from the 2003/2004 year of assessment. The effect of this increase has been reflected in the calculation of current and deferred tax balances at 31st December, 2003.

PRC income tax is calculated at the applicable rates relevant to the PRC subsidiaries.

6. DIVIDENDS

Dividends paid to ordinary shareholders: 2001 final dividend of HK2.0 cents per share 2002 final dividend of HK2.8 cents per share 2003 special dividend of HK1.2 cents per share 2003 interim dividend of HK1.0 cent per share Dividends paid to preference shareholders: Dividends to Series A preference shareholders Dividends to Series B preference shareholders Total dividends paid during the year	2003 HK$’000 – 10,928 4,684 5,343 – 3,801 24,756	2002 HK$’000 7,786 – – – 1,128 5,014
		13,928

The final dividend of HK3.0 cents (2002: HK2.8 cents) per share to ordinary shareholders on the register of members on 20th May, 2004, amounting to approximately HK$16,029,000 (2002: HK$10,928,000), has been proposed by the directors and is subject to approval by the shareholders in general meeting.

7. EARNINGS PER SHARE

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

Net profit for the year Dividends on preference shares Earnings for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: – Dividends 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		2003 HK$’000 52,362 (3,801) 48,561 – 48,561 Number of 462,821,575 71,408,219 10,818 534,240,612	2002 HK$’000 (restated) 49,772 (6,142) 43,630 1,128 44,758 shares 382,780,479 150,509,589 6,292 533,296,360

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DIVIDENDS

The Directors propose to declare a final dividend of HK3.0 cents (2002: HK2.8 cents) per ordinary share payable on or before 3rd June, 2004 to ordinary shareholders whose names appear on the Company’s register of members on 20th May, 2004. An interim dividend of HK1.0 cent per ordinary share and a special dividend of HK1.2 cents (2002: nil) per ordinary share had been paid during the financial year. Therefore, total dividends per ordinary share amount to HK5.2 cents, representing an increase of 86% over last year.

MANAGEMENT DISCUSSION ON RESULTS

Year 2003 was a challenging year for the Group. For the year ended 31st December, 2003, the Group achieved a satisfactory growth of 18% in turnover from HK$574,090,000 to HK$675,237,000. It was principally attributable to growth of our export sales in book printing and paper products printing businesses.

During the year under review, gross profit increased by 17% to HK$205,380,000 (2002: HK$175,213,000). However, the Group incurred an increase of 17% in administrative and operating expenses to HK$135,010,000 (2002: HK$115,645,000). Such increase was mainly resulted from the significant rise in global freight charges in the shipping industry, as well as additional operating costs for the new processing plant in the PRC. Furthermore, the relocation of the Tsuen Wan plant in May 2003 gave rise to certain one-off relocation expenditures which included severance payment of approximately HK$2 million. Nevertheless, profit before tax increased by 15% to HK$59,673,000 (2002: HK$51,850,000). Taxation expenses increased as a result of the increase in Hong Kong Profits Tax rate during the year as well as absence of overprovision written back in previous years. Therefore, net profit increased by 5% to HK$52,362,000 (2002: HK$49,772,000). Earnings before interest, tax, depreciation and amortisation increased by about 14% to HK$99,336,000 (2002:HK$87,306,000).

BUSINESS REVIEW

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 printing solution providers and exporters in Asia. Our major customers of book printing are the global publishers in the world. To expand client base, the Group had tactically explored the markets in mainland China, the United States and certain European countries, which resulted in a 13% growth in our book printing turnover during the year.

To fulfill the growing demand for book printing from existing customers and prospective customers, the expansion of book printing facilities of the Yuanzhou plant was completed in the second quarter of 2003. Capital expenditures for book printing division in respect of plant, machineries and printing equipment amounted to HK$33 million. It included the extension of the Yuanzhou plant from a gross floor area of 260,000 sq. ft. to 410,000 sq. ft., and the installation of a new 8-color perfector. Combining with the

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set up of the processing plant in Dongguan during the year to support book printing business, the Group’s book printing capacity had substantially increased in printing, binding and hand-assembly capacity.

2003 was a fruitful year for the Group in major printing competitions. The Group won a total of 22 awards in local and international printing competitions. Of which, 15 awards were awarded by the Printing Industries of America (PIA) including a Benny award and 7 awards in the Hong Kong Print Award including two championship awards.

(ii) Paper Products Printing

With a proactive strategy in sales and marketing, the Group had developed new business network in the overseas market for paper products and packaging printing. Besides, with the growth in local PRC market, the Group had accomplished a 19% growth in the paper products printing sales for the year under review.

The Group had consistently implemented its diversified strategy in product mix. Paper products printing includes packaging products, commercial printing products, greeting cards, premium gift products and stationery items. To provide value-added services, the Group had promoted a series of generic paper product designs and concepts and were widely appraised by customers.

During the year under review, the Group invested about HK$40 million in machineries and printing equipment, including the installation of a 6-color full size printing press, paper corrugator and other ancillary post-press facilities in the Dongguan plant, which had greatly increased its printing capability and competitiveness. With the accreditation of the Integrated Management System Certificate (IMSC) in 2003, the Dongguan plant became one of the first printing factories in Asia that complied with quality, environmental management, occupational health and safety management systems.

b) Property Division

The property division generated a stable rental income throughout the year. The Group’s property interests have a total floor area of 920,500 sq. ft. which comprises Chuang’s Garden, Lambda Building, and Yuen Sang Building in Huiyang, the PRC, and 51% interests in a commercial podium and basement of Chengdu Chuang’s Centre in Sichuan, the PRC. During the year under review, rental income amounted to HK$15 million.

LIQUIDITY AND FINANCIAL POSITIONS

As at 31st December, 2003, the Group’s bank balances and cash amounted to HK$169 million (2002: HK$182 million ) while bank borrowings and obligations under finance leases amounted to HK$118 million (2002: HK$87 million), of which HK$71 million (2002: HK$39 million) are due from the second to fifth year. Therefore, the calculation of net debt to equity ratio was not applicable because the Group had surplus cash of about HK$51 million (2002: HK$95 million) over bank borrowings and obligations under finance leases.

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Most of the Group’s bank balances and borrowings were denominated in Hong Kong dollars, U.S. dollars and Renminbi, risk in exchange rate fluctuation would not be material. Interest on bank borrowings was charged at variable commercial rates prevailing in Hong Kong and the PRC. At the balance sheet date, certain assets of the Group with net book value of HK$106 million (2002: HK$109 million) had been pledged to secure borrowings granted to the Group.

During the year under review, the Group redeemed 83,333,333 Series B preference shares of the Company at HK$0.60 each, totalling HK$50 million. Furthermore, Chuang’s China Investments Limited exercised its rights to convert all the remaining 72 million Series A preference shares of the Company into 144,000,000 ordinary shares of the Company. Subsequent to 31st December, 2003, the Group redeemed 83,333,332 Series B preference shares of the Company at HK$0.60 each, totalling HK$50 million. Accordingly, as at the date hereof, the Group has only in issue HK$98.5 million of Series B preference shares.

PROSPECTS

Business environment for printing business in 2004 continues to be positive, as the export trend to overseas market is still strong and the domestic growth rate in the PRC is high. Therefore, the Group believes there will have enormous business opportunities for printing business in both domestic market of the PRC and the export markets in the America, Europe and Australia. In this respect, the Group will continue its marketing efforts to develop new customers and expand our product range, and recruit additional sales and marketing personnel overseas. In 2004, the Group will actively participate in several international trade fairs and exhibitions, namely the Book Expo of America, the Bologna Children Book Fair, the Beijing International Book Fair, the Frankfurt Book Fair, the Frankfurt Paper World 2004 and the Total Processing and Packaging Fair.

The Group shall implement proactive pricing strategy to increase its sales volume, gross profit and market share for both book printing and paper products printing businesses. Increasing paper prices is an important factor affecting the total cost of the Group. To minimize the effect of such unfavorable factor relating to the soar of paper prices, the Group will apply control measures such as maintaining a stable paper cost through strategic procurement and effective forecast measures. To mitigate the adverse effect of increase in administrative and operating expenses, the Group will improve its logistics arrangement in order to curtail the rise in freight charges. In addition, the Group will implement a stringent production, operations and management control procedure in the production plants in the PRC, in particular to improve the operating efficiency of the processing plant in Dongguan, so as to maintain an efficient production system and to achieve an effective cost control.

In providing the “Total Printing Solution” services, the Group will continue to invest strategically in new technology, staff training, high quality equipment and facilities to take better advantage of economic recovery, so as to maintain our strategic niche in the printing industry. In 2004, the Group invested in two new 5-colour printing presses and has installed an additional binding facility. On top of this, the Group will actively implement further capital expenditure plan to enhance its printing capacity and capability. As for prepress facilities, computer-to-plate is now becoming more sophisticated. The Group will monitor the development of technology and market requirements in order to keep upgrading its prepress capabilities.

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CLOSING OF REGISTER

The register of members will be closed from Tuesday, 18th May, 2004 to Thursday, 20th May, 2004, 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 Monday, 17th May, 2004.

STAFF

As at 31st December, 2003, the Group, including its subcontracting processing plant, employed approximately 2,750 staff and workers, 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.

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION OF THE COMPANY

The Board of Directors has resolved to propose certain amendments to the Articles of Association of the Company in compliance with the new requirements of the Rules Governing the Listing of Securities (“Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) which will become effective on 31st March, 2004.

FULL DETAILS OF FINANCIAL INFORMATION

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

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

Hong Kong, 25th March, 2004

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

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