Luye Pharma Group Limited — Earnings Release 1999

Jul 29, 1999

Listed Company Information

TAKSON HOLDINGS<0918> - Announcement The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. Takson Holdings Limited (Incorporated in Bermuda with limited liability) Announcement of Final results for the year ended 31st March, 1999 AND Change in Application of Proceeds From New Issue RESULTS The Board of Directors of Takson Holdings Limited (the "Company") is pleased to announce the audited consolidated results of the Company and its subsidiaries (together, the "Group") for the year ended 31st March, 1999, together with the comparative figures for the year ended 31st March, 1998:- 1999 1998 Notes HK$'000 HK$'000 Turnover 357,221 378,767 Operating profit before taxation Continuing operations excluding exceptional item 51,734 55,892 Exceptional item 2 - 2,019 Profit before taxation from ordinary activities 51,734 57,911 Taxation 3 (3,855 ) (6,182 ) Profit attributable to the shareholders 47,879 51,729 Retained profits brought forward 77,743 36,814 Total available for appropriation 125,622 88,543 Dividends 4 (46,800 ) (10,800 ) Retained profits carried forward 78,822 77,743 Basic earnings per share 5 13.3 cents 16.5 cents Diluted earnings per share 5 13.0 cents 16.5 cents Notes: 1. Basis of preparation The Group accounts include the accounts of the Company and its subsidiaries as at 31st March, 1999 and of the results for the year then ended. The results for the year ended 31st March, 1998 were prepared on a combined basis as if the current Group structure had been in existence throughout the accounting period presented or since the dates of incorporation or acquisition of the respective subsidiaries, whichever is the shorter period. 2. Exceptional item The exceptional item in 1998 represented interest income on subscription money received upon issuance of new shares for the listing of the Company's shares on the Stock Exchange of Hong Kong Limited (the "Stock Exchange") in October, 1997. 3. Taxation The amount of taxation represents: 1999 1998 HK$'000 HK$'000 Hong Kong profits tax - Current tax 5,160 6,646 - Overprovision in previous years (632 ) (439 ) - 10% rebate (601 ) - - Deferred taxation (201 ) - Overseas taxation - Current tax 131 29 - Deferred taxation (2 ) (54 ) 3,855 6,182 Hong Kong taxation represents the amount provided at the rate of 16% (1998: 16.5%) on the estimated assessable profit for the year. Overseas taxation represents the tax provided by a subsidiary, calculated at the tax rate prevailing in the country in which the subsidiary operates. 4. Dividends 1999 1998 HK$'000 HK$'000 Interim dividend at 8.0 cents (1998: Nil) per share on 360,000,000 shares 28,800 - Proposed final dividend at 5.0 cents (1998: 3.0 cents) per share on 360,000,000 shares 18,000 10,800 46,800 10,800 5. Earnings per share The basic and diluted earnings per share is calculated based on the profit attributable to the shareholders of HK$47,879,000 (1998: HK$51,729,000). The basic earnings per share is based on the weighted average of 360,000,000 shares (1998: 313,150,684 shares) in issue during the year. The diluted earnings per share is based on 360,000,000 shares (1998: 313,150,684 shares) which is the weighted average number of shares in issue during the year plus the weighted average of 7,741,276 shares (1998: Nil shares) deemed to be issued at no consideration if all outstanding options had been exercised. FINAL DIVIDEND After careful consideration of the future working capital and development needs of the Group, the Directors will recommend, at the Annual General Meeting to be held on 8th September, 1999, the payment of a final dividend of 5.0 cents per share in respect of the year ended 31st March, 1999, to shareholders whose names appear on the Register of Members of the Company on 2nd September, 1999. The proposed dividend will be paid on 15th September, 1999 following approval at the Annual General Meeting. CLOSURE OF REGISTER OF MEMBERS The register of members of the Company will be closed from Thursday, 2nd September, 1999 to Wednesday, 8th September, 1999, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the proposed final dividend, all transfers, accompanied by the relevant share certificates, must be lodged for registration with the Company's branch share registrars in Hong Kong, Abacus Share Registrars Limited at 10/F., Caroline Centre, 28 Yun Ping Road, Causeway Bay, Hong Kong by not later than 4:00 p.m. on Wednesday, 1st September, 1999. REVIEW OF OPERATIONS For the year under review, the Group saw a slight decline in turnover despite increased order quantities. These contrasting results were primarily attributable to the intensified price competition from South East Asia manufacturers following the recent Asian financial crisis, particularly in the second half year. The Group proactively dealt with these unfavourable market conditions by reducing production costs through tightening up its purchasing and subcontracting policies but with production quality and efficiency in mind. Such cost advantage enabled the Group to obtain more sales order and command favourable pricing so that its overall profit margin was only marginally squeezed. The Board is satisfied with the overall performance, especially in the areas of product quality and delivery where management team assisted by in-house computer garment system and the Web technology had a major role to play. Customers' labels business continued to be the Group's predominant profit contributor, with US market sector increasing its presence and itself alone representing nearly 90% of the Group's total turnover in the year. Sales to Hong Kong department stores and specialty stores reduced as local retailers were hard hit by depressed consumers' demand. Efforts continued in the streamlining of the Group's business operations and the improvement on overheads productivity in anticipation of business expansion in the years ahead. PROSPECTS Management anticipates that buoyant markets in the US and Europe will continue and that the Group will be well positioned to capitalise on such opportunities. As in the past, the Group will continue to sell to four categories of customers, namely designer houses, specialty stores, department stores and retail chains. In addition, the Group will focus on such customers as specialty stores requiring mid-range premium-value products, styles of which are simpler for marketing and more suitable for mass production. With these characteristics, the Group's products will benefit from economies of scale in raw materials sourcing and in-line production and enable the Group to offer its customers not only attractive prices but also good value. Further, the Group will make use of its financial resources to secure materials supplies and minimize costs by purchasing common raw materials such as down feather in bulk during low seasons and arranging for export quotas as soon as sales commitment is obtained from customers. With the surplus production capacity of PRC subcontractors as a result of market competition from overseas, the Group will stand in good stead in facing the imminent surge in demand for its products. Originally, the Group forecasted next year's sales order to be 3.8 million pieces doubling this year's 1.9 million pieces. Now, the Board is pleased to report that up to mid-July 1999 sales order received for shipments in the year ending 31st March, 2000 has already reached 3.4 million pieces. Given this proven marketing strategy, the Group is confident that its turnover will achieve considerable growth in the coming year. As with many other garment manufacturer-exporters, the Group's business is seasonal by nature in both production and financial terms. Only short term revolving trade finance is required during production season. The Group therefore considers no additional long term funding necessary as long as the Group remains substantially engaged in its core business in the foreseeable future. Provided that the Group continues to achieve favourable results and sustains good liquidity position, the Board anticipates that high dividend earnings ratio will be maintained in the coming year. However, as previously pointed out in our interim report 1998, this policy may from time to time be subject to the Board's review when any new relevant factors will be taken account of. The Group's US dollar denominated earning base from its core business will continue to offer shelter from any risks resulting from changes in parity of Hong Kong dollars with other foreign currencies. Change in the Application of Proceeds from New Issue At the year end, total net proceeds from the Company's new issue in October, 1997 amounted to approximately HK$75 million (after approximately HK$15 million of listing expenses), of which approximately HK$11 million has been applied to working capital and approximately HK$4 million to additional marketing and advertising activities as planned. The remaining net proceeds of approximately HK$60 million were in the form of time deposits with commercial banks, approximately HK$20 million of which in US dollar and the remaining in Hong Kong dollar. Contrary to the Board's earlier intention as stated in the Company's prospectus dated 30th September, 1997, it decided on 28th July, 1999 not to proceed with negotiations with two state-owned import and export corporations in Shanghai and Beijing over the setting up of joint-ventured production facilities there. This was a direct result of the recent Asian financial turmoil rendering property prices in the PRC vulnerable to fluctuation and the Group foreseeing PRC subcontractors faced with surplus production capacity in the future. Since the Company's new issue in October, 1997, the Board had been constantly reviewing the PRC property prices and subcontractors' production capacity and it came to this decision expecting only very minimal impact on the Group's manufacturing operation. The amounts which would have been invested in this project were estimated at HK$52 million, approximately 69% of the total net proceeds from the Company's new issue in October, 1997. Acquisitions and organic growth through increasing marketing activities are ways of expansion under consideration by the Group. To position Takson Holdings as a leading garment manufacturer in the next millennium, the Group has decided that, out of the remaining approximately HK$60 million net proceeds raised from the new issue in 1997, approximately HK$25 million will be applied towards working capital and another approximately HK$30 million will be set aside for any investment opportunities related to its core business. Preliminary investment targets will be high value-added garment sourcing companies in terms of proven marketing strategy to US and European customers and minimal own production facilities to allow for greater flexibility in its business strategies. Currently, there are neither negotiations nor agreements over any acquisitions in this respect. As a major garment exporter to the US, closely following US market trend is critical to the Group's business. With the maturing of e-commerce, the Group sees barriers between importers and exporters becoming increasingly lower on a global scale, enabling exporters more responsive to the needs and expectations of importers. With over 20 years of sourcing experience and close working relationships with worldwide customers, the Group has decided to put aside approximately HK$5 million of the remaining net proceeds to build the global leading online community and commerce of importers and exporters linking them through a fast, functional and cost-effective website. Given this network, the Group is expected to capitalise on the revenue generating opportunities from rapid e-commerce growth in Greater China and beyond in the medium term. The funding will be used for installing equipment, employing technical staff and promotion. Subject to the completion of feasibility studies currently undertaken, this Web site is intended to be fully operational by the end of 2000. PURCHASE, SALE OR REDEMPTION OF SHARES The Company has not redeemed any of its shares during the year. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company's shares during the year. YEAR 2000 COMPLIANCE The Group defines Year 2000 compliance as the status whereby neither performance nor functionality of our financial and operational systems are affected by dates prior to, during and after the year 2000. If Year 2000 compliance is not achieved on time, the Group's computers may not be able to recognise the turn of the century, which may result in erroneous processing and recording of data and information, exposing the Group and its business to potential disruption. The Group fully understands the risks and uncertainties in association with the Year 2000 issue. In July 1996, the Group formed a Year 2000 Compliance Steering Committee which is led by an executive director and the manager of the Management Information System department with the support from Managers across the various departments to draw up mitigation plans to cover all material aspects of the Group's business operations. Our Committee reports and monitors the progress on the compliance of computer systems as well as all equipment with embedded processors. The Group has completed the assessment of risks associated with the Year 2000 problem. All corrective measures to attain Year 2000 compliance on computer systems have been completed, tested, and implemented successfully. Similarly, all equipment that has embedded processors has been tested for compliance. The non-compliant ones have been either replaced or upgraded and the remaining has been verified to be fully Year 2000 compliant. A survey of the Year 2000 readiness of our major suppliers and customers has been conducted since January, 1998. None of them have reported potential incapability of their business systems to transit into Year 2000. In addition, a contingency plan has been set up in place for mission-critical systems to ensure business continuity in case of system failure due to Year 2000 non- compliance. The Group achieved full Year 2000 compliance in June 1999. Costs which have been incurred or which the Group have committed to further incur on the compliance project are not considered to be significant to the Group. COMPLIANCE WITH THE CODE OF BEST PRACTICE OF THE LISTING RULES In the opinion of the directors, the Company has complied with the Code of Best Practice as set out in paragraph 7 of appendix 14 of the Rules Governing the Listing of Securities on the Stock Exchange throughout the year ended 31st March, 1999, except that the appointment of non-executive directors of the Company are not for specific terms. AUDIT COMMITTEE The Stock Exchange recently revised the Code of Best Practice as set out in Appendix 14 of the Listing Rules to require listed companies to establish an audit committee with written terms of reference which deal clearly with its authority and duties. Amongst the committee's principal duties will be to review and supervise the Company's financial reporting process and internal controls. The Company has set up an Audit Committee and has formulated its written terms of reference in accordance with the requirements of the Stock Exchange. By Order of the Board Wong Tek Sun, Takson Chairman Hong Kong, 28th July, 1999