KLN Logistics Group Limited — Earnings Release 2001

Jul 13, 2001

(Incorporated in Hong Kong under the Companies Ordinance)

ANNOUNCEMENT OF RESULTS

FOR THE YEAR ENDED 31ST MARCH, 2001

FINANCIAL HIGHLIGHTS

• Turnover increased by 6.7% to HK$2,012,372,000
• Profit attributable to shareholders for the year increased by 1.6% to HK$128,146,000
• Basic earnings per share increased by 2.3% to HK13.2 cents
• Diluted earnings per share increased by 2.3% to HK13.1 cents
• A final dividend of HK5.1 cents per share is proposed, up 13.3% from the previous year

RESULTS

The Board of Directors of Vitasoy 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 March, 2001, together with the comparative figures for the previous financial year, as follows:-

2001 2000 Change

Note HK$'000 HK$'000 %

Turnover 1 & 2 2,012,372 1,885,490 +6.7

Cost of sales (900,581 ) (880,946 ) +2.2

Gross profit 1,111,791 1,004,544 +10.7

Other revenue 33,272 23,981 +38.7

Marketing, selling and

distribution expenses (718,237 ) (620,996 ) +15.7

Administrative expenses (150,968 ) (140,716 ) +7.3

Other operating expenses (98,044 ) (96,274 ) +1.8

Profit from operations 177,814 170,539 +4.3

Finance cost (12,951 ) (12,679 ) +2.1

Share of profits less losses

of associates 647 1,779 -63.6

Profit from ordinary activities

before taxation 3 165,510 159,639 +3.7

Taxation 4 (35,555 ) (29,589 ) +20.2

Profit from ordinary activities

after taxation 129,955 130,050 -0.1

Minority interests (1,809 ) (3,915 ) -53.8

Profit attributable to shareholders 128,146 126,135 +1.6

Earnings per share 5

Basic 13.2 cents 12.9 cents +2.3

Diluted 13.1 cents 12.8 cents +2.3

Notes:-

1. Turnover

The principal activities of the Group are the manufacture and distribution of food and beverages. Turnover represents the gross sales value less returns, to third parties.

2. Segmental information

The principal activities of the Group are the manufacture and distribution of food and beverages which, in the view of management are comprised within the principal activity of manufacture and distribution of food and beverages. Therefore, no separate analysis of turnover and results from operations by principal activity is prepared as all the information has been disclosed in the consolidated profit and loss account.

The analysis of turnover by geographical location of the Group's operations during the year is as follows:

Group Turnover

2001 2000

HK$'000 HK$'000

Hong Kong 1,261,219 1,166,799

North America 499,351 470,931

Rest of the world 251,802 247,760

2,012,372 1,885,490

An analysis of profits relating to operations outside Hong Kong is not given since they aggregate less than 10 percent of the Group's operating profit.

3. Profits from ordinary activities before taxation

Profit from ordinary activities before taxation is arrived at after charging:

2001 2000

HK$'000 HK$'000

Interest on borrowings 12,951 12,679

Depreciation 87,617 80,068

4. Taxation

Taxation in the consolidated results represents:

2001 2000

HK$'000 HK$'000

Provision for Hong Kong profits tax for the year 35,086 18,937

Underprovision/(overprovision) for Hong Kong

profits tax in respect of previous years 252 (3,811 )

35,338 15,126

Overseas taxation 477 3,361

Deferred taxation (370 ) 11,067

Share of associates' taxation 110 35

35,555 29,589

The provision for Hong Kong profits tax is calculated at 16% (2000: 16%) of the estimated assessable profits for the year. Taxation for subsidiaries outside Hong Kong is similarly charged at the appropriate current rates of taxation ruling in the relevant countries.

5. Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by using the profit attributable to shareholders of HK$128,146,000 (2000: HK$126,135,000) and the weighted average number of 974,463,000 shares (2000: 975,891,000 shares after adjusting for the bonus issue in September 2000) in issue during the year.

(b) Diluted earnings per share

The calculation of diluted earnings per share is based on the profit attributable to shareholders of HK$128,146,000 (2000: HK$126,135,000) and the weighted average number of 975,131,000 shares (2000: 982,134,000 shares after adjusting for the bonus issue in September 2000) in issue after adjusting for the effects of all dilutive potential shares.

(c) Reconciliation

2001 2000

Number of shares Number of shares

'000 '000

Weighted average number of shares used in

calculating basic earnings per share 974,463 975,891

Deemed issue of shares for no consideration

arising from share options 668 6,243

Weighted average number of shares used in

calculating diluted earnings per share 975,131 982,134

6. Dividends

2001 2000

HK$'000 HK$'000

Interim dividend paid of HK2.8 cents per share

(2000: HK2.5 cents per share, adjusted for

the bonus issue in September 2000) 27,287 24,739

Final dividend proposed of HK5.1 cents per share

(2000: HK4.5 cents per share, adjusted for

the bonus issue in September 2000) 49,701 43,520

76,988 68,259

7. Change in accounting policy

In prior years, the cost of retirement gratuities was charged to the profit and loss account when the gratuities became vested. During the year, the Group changed the basis of recognition of the retirement gratuity provision, such that the provision represents the present value of the defined benefit obligation, being the expected future payments required to settle the obligation resulting from employee service in the current and prior periods, at the balance sheet date. The current service cost, being the present value of benefits attributed to the current year based on the recommendation of an actuary, is charged to the profit and loss account. In the opinion of the management, this policy better reflects the present obligations of the Group.

As a result of the change in accounting policy, the Group's profit for the year has been decreased by HK$2,354,000 and the Group's and the Company's net assets as at the year end have been decreased by HK$38,278,000 and HK$37,715,000 respectively. The effect of adopting the changed policy at 31st March, 2000 has been adjusted to the opening balance of retained earnings for the year. No restatement of other comparative information has been made since it is impractical to do so.

8. Other movements in reserves

Other movements in reserves of the Group for the years ended 31st March, 2001 and 2000 are as follows:

2001 2000

HK$'000 HK$'000

Increase in share premium account arising from

issue of shares 167 3,479

Decrease in capital reserve arising from transfer to

profit and loss account (4,087 ) (4,087 )

Increase in capital redemption reserve arising from

repurchase of own shares 60 558

(Decrease)/increase in exchange reserve arising from

the translation of

the accounts of overseas subsidiaries (4,414 ) 47

Increase in legal reserve arising from transfer from

profit and loss account 1,162 1,746

DIVIDENDS

The Board of Directors will recommend a final dividend of HK5.1 cents per share (2000: HK4.5 cents per share, adjusted for the bonus issue in September 2000) at the forthcoming Annual General Meeting. This, together with the interim dividend of HK2.8 cents per share (2000: HK2.5 cents per share, adjusted for the bonus issue in September 2000), makes a total dividend of HK7.9 cents per share for the year (2000: HK7.0 cents per share, adjusted for the bonus issue in September 2000).

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from Friday, 31st August, 2001 to Thursday, 6th September, 2001, both days inclusive, during which period no transfers of shares will be effected. To determine entitlement of shareholders to the recommended final dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company's Share Registrars, Central Registration Hong Kong Limited of 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong for registration not later than 4:00 p.m. on Thursday, 30th August, 2001.

BUSINESS REVIEW

The year under review was one of mixed results. In general, we were able to sustain good profit growth in our core market - Hong Kong - while forging ahead in developing new channels and new products.

The world market for soy products has continued to grow, spurred by increasing consumer awareness of the health benefits of soy that are well documented and widely reported in the media.

Refrigerated VITASOY Natural Soymilk was launched in approximately 4,500 stores in major coastal cities in the US with encouraging response from customers. The launch was supported by a significant increase in marketing expenses, which affected the profitability of the US operation for the year under review. However, to enlarge and ensure our market share in the US, it is necessary to continue expanding into the mainstream channels and investing in marketing.

We are glad to report that the construction of the soymilk plant in Australia was completed and that commercial production began in July 2001. The Refrigerated VITASOY Natural Soymilk line will be launched through the extensive sales and distribution network of our Australian partner, National Foods Limited. The launch will be supported with an aggressive marketing campaign, which is expected to boost demand as well as market share.

The beverage market in the Mainland has begun to show signs of recovery following an extended period of contraction. The growth momentum of VITASOY and VITA drinks in returnable glass bottles since their re-launch in Guangdong in the middle of 1999 has been sustained. As a result, the bottling capacity of our Shenzhen plant has been fully utilized. The line was upgraded in the middle of 2000 to increase its capacity, which will provide the basis for us to continue developing and deepening our distribution network in the Pearl River Delta.

The sales in Shanghai and the surrounding cities have been less satisfactory. We shall streamline the manufacturing operations there and pursue a new strategy of diversifying into alternative packaging and new products through outsourcing production. At the same time, we shall take on contract packing in the aseptic paper pack format for other complimentary brands, i.e. brands that do not compete directly with us in terms of pricing, distribution channel and customer base. This trend of co-packing and capacity rationalization is becoming more common in the beverage market in Eastern China. On the other hand, consumer preference is becoming more diversified as people become wealthier and as there are now more choices on offer in the market.

The performance of our home market Hong Kong has been positive and encouraging. Our continuous effort in streamlining procedures has greatly improved efficiency and supply chain management. The result has been an improvement in profitability. The strategy to outsource manufacturing of, primarily, PET plastic bottled drink products, helped minimize both reaction time and capital investment. We will continue to pursue this pattern of flexible resource deployment and rapid market response in order to further expand our market share in Hong Kong.

To further capture and secure the loyalty of young customers, the Group has successfully grown its tuckshop business under Vitaland Services Limited in Hong Kong. The feedback from school principals and students has been very positive so far. The number of tuckshops grew to 144 at the year end. In order to cater to the increased volume and to ensure the quality of the lunch boxes supplied to the increased number of outlets, Vitaland Services Limited acquired a central kitchen specifically for the purpose. We are optimistic that the tuckshop business will become a significant contributor to growth for the Group.

OUTLOOK

Looking ahead, the Group will continue to safeguard and maximize long-term shareholder value. The coming years will see the Group further its efforts in the development of the US market by prudently opening up the mainstream refrigerated channel in a sustainable manner. At the same time, more ready-to-serve tofu items in the seasoned and pre-baked formats will be introduced to capture the fast growing mainstream demand.

In Australia, the Refrigerated VITASOY Natural Soymilk line will, upon its launch, find its way to the dairy case that will give it the second brand position, following VITASOY in the aseptic paper pack format. We are optimistic about the future of our new joint venture company, Vitasoy Australia Products Pty. Limited, in view of the steady growth of the demand for soy products in the Australian market.

In Hong Kong and the Mainland, we will continue to launch more new brands and new tastes in the coming year. Our strategy of maximizing the effectiveness of out-sourcing and deployment of resources will enable us to maintain steady pricing and profit margin in Hong Kong while at the same time strengthening our leadership position.

In the Mainland, we will continue to forge ahead in Guangdong with enlarged capacity in bottling, whereas in Shanghai there will be rationalization and re-grouping of product lines and distribution channels.

We are highly confident that the Group as a whole will sustain a steady pace of growth and development. We are also optimistic that our profitability can be sustained through market and product diversification.

PURCHASE, REDEMPTION OR SALES OF LISTED SECURITIES

During the year, the Company made the following repurchase of its own shares on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") for the purpose of enhancing the net assets per share:

Price per share

(before bonus issue)

Month of purchase No. of shares Highest Lowest Aggregate price

('000 ) HK$ HK$ HK$'000

April 2000 86 1.55 1.54 133

May 2000 156 1.53 1.48 234

242 367

After giving effect to the bonus issue in September 2000, the above equivalent prices would have been April 2000: highest (HK$1.03) and lowest (HK$1.03); and May 2000: highest (HK$1.02) and lowest (HK$0.99).

Save as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the year.

COMPLIANCE WITH CODE OF BEST PRACTICE

The Company has complied throughout the year with the Code of Best Practice as set out by the Stock Exchange in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules").

PUBLICATION OF ANNUAL RESULTS ON THE STOCK EXCHANGE'S WEBSITE

The detailed results containing all the information required by paragraph 45(1) to 45(3) of Appendix 16 to the Listing Rules will be published on the website of the Stock Exchange in due course.

By Order of the Board

Winston Yau-lai LO

Executive Chairman

Hong Kong, 12th July, 2001

This and other information about Vitasoy International Holdings Limited can be accessed via www.vitasoy.com.

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at Jade Ballroom 1, 3/F., Furama Hotel Hong Kong, One Connaught Road Central, Hong Kong on Thursday, 6th September, 2001 at 3:00 p.m. for the following purposes:

1. To receive and adopt the audited Financial Statements and the Reports of the Directors and Auditors for the year ended 31st March, 2001;

2. To approve the payment of a final dividend in respect of the year ended 31st March, 2001;

3. To re-elect Directors and fix their remuneration;

4. To appoint Auditors and authorise the Directors to fix their remuneration; and

5. As special business, to consider and, if thought fit, to pass with or without amendments, the following resolutions as Ordinary Resolutions:-

A. "THAT there be granted to the Directors of the Company an unconditional general mandate to issue, allot and deal with additional shares in the capital of the Company, and to make or grant offers, agreements and options in respect thereof, subject to the following conditions:-

(a) such mandate shall not extend beyond the Relevant Period (as defined below) save that the Directors of the Company may during the Relevant Period make or grant offers, agreements and options which might require the exercise of such powers after the end of the Relevant Period;

(b) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors of the Company otherwise than pursuant to (i) a Rights Issue (as defined below); (ii) any scrip dividend scheme or similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend on shares of the Company in accordance with the Articles of Association of the Company; and (iii) an issue of shares pursuant to the exercise of any options which may be granted under any option scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares of the Company, shall not exceed the aggregate of (aa) 20 per cent of the aggregate nominal amount of the share capital of the Company in issue at the date of passing of this Resolution plus (bb) (if the Directors of the Company are so authorised by a separate ordinary resolution of the shareholders of the Company) the nominal amount of share capital of the Company repurchased by the Company subsequent to the passing of this Resolution (up to a maximum equivalent to 10 per cent of the aggregate nominal amount of the share capital of the Company in issue at the date of passing this Resolution), and the said approval shall be limited accordingly; and

(c) for the purposes of this Resolution:

"Relevant Period" means the period from the passing of this resolution until whichever is the earlier of:

(i) the conclusion of the next Annual General Meeting of the Company;

(ii) the expiration of the period within which the next Annual General Meeting of the Company is required by the Articles of Association of the Company or any applicable laws to be held; and

(iii) the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in General Meeting.

"Rights Issue" means an offer of shares open for a period fixed by the Directors of the Company made to holders of shares on the Register of the Company on a fixed record date in proportion to their then holdings of shares subject to such exclusions or other arrangements as the Directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restriction or obligation under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, or in any territory outside, Hong Kong."

B. "THAT there be granted to the Directors of the Company an unconditional general mandate to repurchase shares of HK$0.25 each in the capital of the Company, and THAT the exercise by the Directors of the Company of all powers of the Company to purchase shares subject to and in accordance with all applicable laws, rules and regulations be and is hereby generally and unconditionally approved, subject to the following conditions:-

(a) such mandate shall not extend beyond the Relevant Period (which shall have the same meaning for the purpose of this Resolution, mutatis mutandis, as given in paragraph (c) of Resolution 5A set out in the Notice of Annual General Meeting);

(b) such mandate shall authorise the Directors of the Company to procure the Company to repurchase shares at such prices as the Directors of the Company may at their discretion determine; and

(c) the aggregate nominal amount of shares repurchased or agreed to be repurchased by the Company pursuant to paragraph (a) of this Resolution during the Relevant Period shall not exceed 10 per cent of the aggregate nominal amount of the share capital of the Company in issue at the date of passing of this Resolution and the said approval shall be limited accordingly."

C. "THAT, conditional upon the passing of Resolutions 5A and 5B set out in the Notice of Annual General Meeting, the aggregate nominal amount of the shares which are repurchased by the Company pursuant to and in accordance with Resolution 5B set out in the Notice of Annual General Meeting shall be added to the aggregate nominal amount of the shares which may be allotted or agreed, conditionally or unconditionally, to be allotted by the Directors of the Company pursuant to and in accordance with Resolution 5A set out in the Notice of Annual General Meeting."

By Order of the Board

Paggie Ah-hing TONG

Company Secretary

Hong Kong, 12th July, 2001

NOTES:-

1. A shareholder entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need not be a shareholder of the Company.

2. To be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof, must be deposited with the Company Secretary at the Registered Office of the Company at No. 1 Kin Wong Street, Tuen Mun, New Territories, Hong Kong not less than 48 hours before the appointed time for holding the meeting or any adjournment hereof (as the case may be).

3. The Register of Members of the Company will be closed from Friday, 31st August, 2001, to Thursday, 6th September, 2001 (both days inclusive) during which period no transfer of shares will be effected. In order to qualify for the final dividend, all transfers, accompanied by the relevant share certificates should be lodged with the Company's Share Registrar, Central Registration Hong Kong Limited, 17th Floor, Hopewell Centre, Hong Kong for registration not later than 4:00 p.m. on Thursday, 30th August, 2001.

Please also refer to the published version of this announcement in the i-Mail.