Melco International Development Limited — Earnings Release 2001

Nov 12, 2001

(Incorporated in Hong Kong with limited liability)

ANNOUNCEMENT OF FINAL RESULTS FOR THE YEAR ENDED 31ST JULY, 2001

RESULTS

The Board of Directors of Crocodile Garments Limited (the “Company”) announces that the audited consolidated results of the Company and its subsidiaries (the “Group”) for the financial year ended 31st July, 2001 together with comparative figures for the previous year as follows:

		2001	2000
	Notes	HK$'000	HK$'000
TURNOVER	a	679,939	727,522
Cost of sales		(327,122)	(379,939)
Gross profit		352,817	347,583
Other revenue		5,457	4,753
Selling and distribution costs		(266,268)	(321,142)
Administrative expenses		(85,965)	(47,860)
Refund of retirement scheme contributions not fully vested		18,169	—
Loss on disposal of fixed assets, net		(4,515)	(4,139)
Forfeiture of deposits received in respect of a property sale transaction		—	12,004
Other operating expenses, net		(7,516)	(15,192)
PROFIT/(LOSS) FROM OPERATING ACTIVITIES		12,179	(23,993)
Finance costs		(4,349)	(5,037)
PROFIT/(LOSS) BEFORE TAX		7,830	(29,030)
Tax	b	(1,953)	(6,698)
NET PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS	c	5,877	(35,728)
EARNINGS/(LOSS) PER SHARE — BASIC	d	0.95 cent	(5.79 cents)

Notes:

1. Turnover

Turnover represents the net invoiced value of goods supplied to customers after allowances for returns and discounts, rental income and revenue from restaurant operations.

During the year, the Group ceased to operate its restaurant. As the contribution from the operation of the restaurant was not significant to the Group, no discontinued operations disclosure has been made.

1. Tax

	2001	2000
	HK$'000	HK$'000
Current year provision
Hong Kong	—	62
Outside Hong Kong	6,228	6,781
	6,228	6,843
Prior year overprovision
Hong Kong	(9)	(145)
Outside Hong Kong	(4,266)	—
	(4,275)	(145)
Tax charge for the year	1,953	6,698

No Hong Kong profits tax has been provided as the Group has no assessable profit arising in Hong Kong during the year. In the prior year, Hong Kong profits tax had been provided at the rate of 16% on the estimated assessable profits arising in Hong Kong during that year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

1. Movement in reserves

	Share Premium account	Capital reserve	Fixed Asset revaluation reserve	Accumulated losses
	HK$'000	HK$'000	HK$'000	HK$'000
Group
At beginning of year	164,921	350	318,995	(203,597)
Deficit on revaluation*	—	—	(41,916)	—
Net profit for the year	—	—	—	5,877
At 31st July, 2001	164,921	350	277,079	(197,720)

*During the year, certain land and buildings of the Group were reclassified as investment properties. Such land and buildings were revalued at HK$58,000,000 based on their open market value and their existing use at the date of transfer by Centaline Surveyors Limited, independent professional qualified valuers. A revaluation deficit of HK$41,916,000 was charged against the Group's fixed assets revaluation reserve.

(d) Earning/(Loss) per share

Earnings/(Loss) per share is calculated based on the net profit attributable to shareholders of HK$5,877,000 (2000: net loss of HK$35,728,000) and the 617,127,130 (2000: 617,127,130) shares of the Company in issue throughout the year.

The diluted earnings/(loss) per share for the years ended 31st July, 2001 and 2000 has not been calculated because no diluting events existed during these years.

(e) Segmental reporting

An analysis of the Group's turnover and contribution to profit/(loss) before tax by activity and geographical location of operations is as follows:

	Turnover		Contribution to profit/(loss) before tax
	2001	2000	2001	2000
	HK$'000	HK$'000	HK$'000	HK$'000
By activity:
Manufacture and sale of garments	668,193	712,851	9,183	(40,391)
Property rental	8,896	7,791	2,381	601
Operation of a restaurant	2,850	6,880	(2,154)	245
Forfeiture of deposits received in respect of a property sale transaction	—	—	—	12,004
Others	—	—	(1,580)	(1,489)
	679,939	727,522	7,830	(29,030)
By geographical location of operations:
The People's Republic of China:
Hong Kong	371,296	462,882	(18,676)	(41,332)
Elsewhere	296,603	229,214	27,772	21,218
The United States of America	7,964	20,219	(1,185)	(5,579)
The United Kingdom	83	1,596	(12)	(441)
Others	3,993	13,611	(69)	(2,896)
	679,939	727,522	7,830	(29,030)

(f) Comparative amounts

In the opinion of the directors, the following reclassifications of the prior year comparative amounts provide better presentation as to the nature of these transactions and accord with the presentation adopted in the current year:

(i) the forfeiture of deposits received in respect of a property sale transaction of HK$12,004,000 and the loss on disposal of fixed assets of HK$4,139,000 have been reclassified and separately disclosed on the face of the profit and loss account;

(ii) exchange gains of HK$752,000, previously recorded as other revenue, have been reclassified as other operating expenses, net; and

(iii) other revenue of HK$1,765,000, representing the write-back of over-accrued rental expenses of certain retail shops, previously recorded as other revenue, have been reclassified to offset the rental expenses included in the selling and distribution costs.

MANAGEMENT DISCUSSION AND ANALYSIS

Overview of Operating Results

The Group reported a turnover of HK$680 million for the year ended 31st July, 2001. Although this represented a decline of 7% from the figure of HK$728 million recorded for the previous year, the Group had been able to reverse the unfavourable impact of the Asian financial turbulence in October 1997 on the Group's operations through the conscientious and prudent control by Management on cost of sales and operating costs. As a result, the Group achieved a consolidated net profit attributable to shareholders of approximately HK$6 million for the year, compared with the net loss attributable to shareholders of HK$36 million recorded for the previous year.

Operation in the Mainland of China

During the year under review, the Group continued to develop actively the Mainland operation. Strong growth in sales had been maintained, with turnover further increased significantly to HK$297 million from the HK$229 million recorded for the previous year, an increase of close to 30%. Contribution to profit before tax for the year also increased by around 30%.

To capitalise on the steady upward trend in consumer spending and potential consumer demand, the Group had been vigorously developing the mercerised cotton tee shirts line in the medium- to top-end price range. Building on the existing line, a series of different designs appealling to different consumer tastes and preferences had been marketed. Response to these new designs had been promising, resulting in significant contribution to the profitability of the Group.

On the business development front, the Group had taken the initiative of expanding to the north-western region of the Mainland, and the progress so far had been satisfactory. The Group will continue to identify potential franchise partners with substantial resources to commit for franchises covering whole provinces on an exclusive basis, in order to expand the sales network expeditiously. The results to date have been most encouraging and the total number of retail shops and franchised outlets in the Mainland now exceeds 700.

Retail Operation in Hong Kong

In contrast to the rapid growth in the Group's operations in the Mainland, the retail operation in Hong Kong continued to operate under constraint as local consumer sentiment remained weak. The Group adopted the policy of closing down loss-incurring retail shops as early as two years ago, and the total number of shops for the “Crocodile” brand products in Hong Kong had been reduced to 29. Plans are on hand to close down four to five shops with tenancies expiring in the coming year. At the same time, continuing efforts had been made to streamline aggressively the operational structure and systems of the Hong Kong operation to further reduce operating costs, with the objective of providing products which are good value for money for customers and thereby turning around the loss-making situation of the Hong Kong operation.

Imported Labels Business

Due to the contraction of the local retail industry as a whole, a decline in turnover of the LACOSTE products distributed by the Group had been recorded. However, this business continued to contribute to the profitability of the Group.

Prospects

The Hong Kong retail industry had been adversely affected by a downturn in the local economy and the situation had been further aggravated by recessionary trends in the global economy. It is not anticipated that any significant upturn for the local retail operation of the Group will be attained. However, the Group had established a foothold in the Mainland, and results achieved so far have been satisfactory.

The Group will continue to develop the Mainland market with vigour, and will at the same time, further strengthen the management and control procedures of supporting offices in the Mainland. Systems will be put in place to monitor closely changes in market trends, to control cost of sales and distribution expenses, and to maintain an optimum inventory level. Appropriate measures will also be implemented to tighten control on debt collection to improve cashflow, so as to support the development of the Mainland operation and to enhance profitability.

Liquidity and Financial Resources

As at 31st July, 2001, total bank borrowings of the Group amounted to HK$66,009,000. The Group's gearing was considered to be at a reasonable level, as the debt to equity ratio at 31st July, 2001 was only 17%, expressed as a percentage of total bank borrowings to total net assets. The cash and bank balances of the Group as at 31st July, 2001 were HK$68,919,000.

Out of the total bank borrowings of HK$66,009,000 as at 31st July, 2001, HK$7,570,000 was a secured term loan repayable by instalments, HK$24,250,000 represented secured short term bank loans and HK$31,270,000 was trust receipt loans. HK$5,268,000 out of the secured term loan is repayable within one year and the balance will be repayable in the second year. The other bank borrowings was repayable on demand.

The Group's bank borrowings are made mainly in Hong Kong dollars or United States dollars. Exchange risk is minimal because the exchange rate between the two currencies is pegged. Interest on the bank borrowings is charged at floating rates.

As at 31st July, 2001, the Group had pledged investment properties with carrying value of HK$125,000,000 and certain land and buildings with a net book value of HK$194,615,000 to bankers to secure banking facilities granted to the Group.

The Group's cash and bank balances are mainly denominated in Hong Kong dollars, Renminbi and United States dollars. The sales receipts in Renminbi are sufficient to cover the Group's Renminbi payments for the business operations and further expansion in the Mainland. Surplus funds are placed as short term deposits with maturities matching the requirements of the Group's daily operations as well as its expansion plans in the Mainland.

Most of the Group's sales and purchases are made in Hong Kong dollars, Renminbi, United States dollars and Euro dollars. Foreign purchases in Euro dollars are mostly hedged with forward contracts to minimise exchange risk and therefore are subject only to negligible exchange risk.

Employees and Remuneration Policy

The Group's total number of employees in Hong Kong and the Mainland, including part time sales staff, was approximately 1,270 as at 31st July, 2001.

Remuneration packages are normally reviewed annually with adjustments compatible to those in the market. In addition to salary and discretionary bonus payments, other staff benefits include subsidised medical care, free hospitalisation insurance plans, defined contribution retirement benefits, subsidised meals, staff discounts on purchases, internal training for sales staff and external training programme subsidies.

Contingent Liabilities

At the balance sheet date, contingent liabilities not provided for in the financial statements were as follows:

	Group		Company
	2001	2000	2001	2000
	HK$'000	HK$'000	HK$'000	HK$'000
Guarantees given to banks in connection with facilities granted to subsidiaries	—	—	3,500	3,500

Apart from the above, the Company is involved in legal disputes with a supplier, who alleges that the Company has infringed its trademark in the Mainland and is seeking orders from the courts in the Mainland for compensation of RMB3,500,000. In the opinion of the directors, having taken legal advice, the claim for compensation against the Company is unlikely to be successful and, therefore, no provision has been made in the financial statements.

DIVIDENDS

The directors do not recommend the payment of a final dividend for the year ended 31st July, 2001 (2000: Nil). No interim dividend was declared by the Company for the year.

ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held on Friday, 21st December, 2001. Notice of the Annual General Meeting together with the Company's Annual Report for 2000–2001 will be despatched to the members on or before 28th November, 2001.

PUBLICATION OF Information ON STOCK EXCHANGE WEBSITE

The Annual Report of the Company which will contain all the information required by paragraphs 45(1) to 45(3) of Appendix 16 to the Listing Rules will be published on the website of the Stock Exchange on or before 30th November, 2001.

	By Order of the Board Lim Por Yen Chairman

Hong Kong, 9th November, 2001

Please also refer to the published version of this announcement in the (Hong Kong iMail)