Persistence Gold Group Ltd — Annual Report 2001

Apr 9, 2002

Ying Wing Holdings Limited

(Incorporated in Bermuda with limited liability)

ANNOUNCEMENT OF ANNUAL RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2001

RESULTS

The board of directors (the "Directors") of Ying Wing Holdings Limited (the "Company") is pleased to announce the audited consolidated results of the Company and its subsidiaries (the "Group") for the year ended 31 December 2001 together with comparative figures for the year ended 31 December 2000 as follows:

		2001		2000
	Notes	HK$'000		HK$'000
Turnover	2	38,140		124,742
Cost of sales		(46,145	)	(122,968	)
Gross (loss) profit		(8,005	)	1,774
Other revenue		989		3,288
Distribution costs		(7,635	)	(1,168	)
Administrative expenses		(11,599	)	(10,629	)
Other operating expenses	3	(19,177	)	(6,390	)
Loss from operations		(45,427	)	(13,125	)
Interest on bank borrowings wholly repayable
within five years		(1,622	)	(1,406	)
Loss before taxation		(47,049	)	(14,531	)
Taxation	4	52		-
Loss after taxation		(46,997	)	(14,531	)
Minority interests		1,439		930
Loss for the year		(45,558	)	(13,601	)
Dividend	5	-		-
Loss per share	6	(22.78 cents	)	(6.80 cents	)

Notes:

1. Adoption of new and revised Statements of Standard Accounting Practice

In the current year, the Group has adopted for the first time a number of new and revised Statements of Standard Accounting Practice ("SSAP(s)") issued by the Hong Kong Society of Accountants. Adoption of these SSAPs has led to a number of changes in the Group's accounting policies. In addition, the new and revised SSAPs have introduced additional and revised disclosure requirements which have been adopted in these financial statements. Comparative amounts for the prior year have been restated in order to achieve a consistent presentation.

In particular, the Group has adopted SSAP 33 Discontinuing Operations in advance of its effective date. SSAP 33 does not deal with measurement issues, but rather establishes principles for reporting information about discontinuing operations. The disclosures presented in the financial statements, therefore, reflect the requirements of SSAP 33, rather than those stipulated in SSAP 2 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies.

The adoption of these new and revised SSAPs has no significant impact on the amounts reported for the current or prior periods except that in accordance with SSAP 9 (Revised) Events after the Balance Sheet Date, dividends proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date, but are disclosed in the notes to the financial statements. This change in accounting policy has been applied retrospectively, resulting in a prior period adjustment the effect of which is to increase the accumulated profits at 1 January 2000 by HK$16,000,000.

2. Business and geographical segments

For management purposes, the Group is organised into three operating divisions - processing of fabric, trading of fabric and manufacture and sale of snack food. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Continuing operations:

Processing of fabric	-	processing of raw fabric and the sale of finished fabric
Trading of fabric	-	trading of fabric

Discontinuing operations:

Snack food	-	manufacture and sale of potato chips

Segment information about these businesses is presented below.

2001

					Discontinuing
	Continuing operations				operations
	Processing of fabric		Trading of fabric		Snack food		Consolidated
	HK$'000		HK$'000		HK$'000		HK$'000
TURNOVER
External sales	6,164		13,540		18,436		38,140
RESULTS
Segment loss	(19,505	)	(2,642	)	(21,087	)	(43,234	)
Unallocated corporate expenses							(3,478	)
Interest on bank borrowings wholly repayable
within five years							(337	)
Loss before taxation							(47,049	)
Taxation							52
Loss after taxation							(46,997	)

2000

						Discontinuing
	Continuing operations				operations
	Processing of fabric		Trading of fabric			Snack food		Consolidated
	HK$'000		HK$'000			HK$'000		HK$'000
TURNOVER
External sales	99,911		23,825			1,006		124,742
RESULTS
Segment (loss) profit	(3,197	)	384			(8,517	)	(11,330	)
Unallocated corporate expenses								(2,208	)
Interest on bank borrowings wholly repayable
within five years								(993	)
Loss for the year								(14,531	)

More than 90% of the Group's turnover and operating results for the two years ended 31 December 2001 were derived from the mainland People's Republic of China ("PRC").

3. Other operating expenses

Other operating expenses comprise the followings:

	2001		2000
	HK$'000		HK$'000
Loss on disposal of property, plant and equipment	10,685		3,393
Provision for doubtful debts	8,492		2,997
	19,177		6,390

4. Taxation

The taxation credit for the year represented the overprovision for Hong Kong Profits Tax in a prior year.

A substantial portion of the Group's results neither arises in, nor is derived from, Hong Kong. Accordingly, that portion of the Group's results is not subject to Hong Kong Profits Tax.

Pursuant to the relevant laws and regulations in the PRC, the Company's PRC subsidiaries are entitled to exemption from PRC enterprise income tax for two years commencing from its first profit-making year of operation, followed by a 50 per cent reduction from PRC enterprise income tax for the next three years. No provision for PRC enterprise income tax has been made in the financial statements as the Company's PRC subsidiaries had no assessable profit for the current year.

The Group and the Company had no significant unprovided deferred taxation for the year or at the balance sheet date.

5. Dividend

The Directors do not recommend the payment of a dividend for the year ended 31 December 2001.

6. Loss per share

The calculation of the loss per share is based on the loss for the year of HK$45,558,000 (2000: HK$13,601,000) and on 200,000,000 (2000: 200,000,000) shares in issue during the year.

DIVIDEND

The Directors do not recommend the payment of a dividend for the year ended 31 December 2001.

MANAGEMENT DISCUSSION AND ANALYSIS

Review of operations and financial performance

During the year, the Group was principally engaged in the processing of raw fabric, trading of fabric and manufacture and sales of snack food.

The year ended 31 December 2001 was a difficult year for the Group. The Group recorded a turnover of HK$38,140,000, representing a significant decrease of approximately 69% as compared to the last year. Loss for the year amounted to HK$45,558,000, as compared to loss for the year of HK$13,601,000 recorded in the year 2000. Substantial drop in operating results was mainly due to keen competition in the fabric processing industry and unfavorable performance of the Group's new snack food business.

Processing of raw fabric and trading of fabric

During the year, the Group continued to face fierce competition from state-owned enterprises in the PRC, which had been offering substantial price cuts to boost sales, resulting in very tough market competition. Under such unfavorable business conditions, the Group's turnover decrease significantly. In addition, substantial drop in selling prices followed by the Group caused substantial decline in the Group's overall gross profit.

Despite the fact that the Group had carried out a series of measures for credit control on trade debts, the Group considered that it was prudent and appropriate to make provision of approximately HK$5.0 million against certain trade receivables of which the collectibility became doubtful. During the year, in order to apply the Group's resources more effectively, certain old or idle processing machines were disposed, from which a loss of approximately HK$10.7 million was recorded.

Manufacture and sales of snack food

During the year, the Group recorded a loss before taxation of HK$21.1 million from its new operations - manufacture and sales of stackable fabricated potato chips, of which the commercial production was commenced in November 2000. For the year ended 31 December 2001, turnover from this operation amounted to HK$18,436,000, represented approximately 48% of the Group's total turnover.

However, due to a local press in the PRC reporting that the Group's potato chips failed to meet certain hygiene standard required by the local authorities during their regular inspection test, the Group has temporarily suspended its production of potato chips since end of October 2001 as to improve its product quality and rebuild its product brand image. As the collection of the certain outstanding debts became doubtful after the press report published, the Directors decided to make adequate provision against certain doubtful debts. In addition, the Directors has thoroughly reviewed the valuation of the Group's inventories and made appropriate provision against those inventories that were slow-moving or not good saleable enough and became too close to its "best-before" date.

In view of the financial performance of the Group's snack food business and the possible adverse impact on the image of the Group's products as a result of the unfavorable press report mentioned above, the Directors are of the view that the outlook on the performance of the Group's snack food business is not optimistic.

Post Balance Sheet Events - Disposal of certain subsidiaries of the Group

Pursuant to a disposal agreement (the "Disposal Agreement") dated 22 January 2002, the Group has conditionally agreed to dispose of its entire interest in certain of its indirect subsidiaries which are principally engaged in the snack food business to Feng Lin Holdings Limited ("Feng Lin"), a then substantial shareholder of the Company which was beneficially interested in approximately 74.48% of the issued share capital of the Company, for a consideration of HK$24,600,000. As settlement of the consideration, Feng Lin would assume and repay certain liabilities and obligations, which were in aggregate of HK$24,600,000, in respect of certain subsidiaries to be remained in the Group upon completion of the Disposal Agreement. Details of the Disposal Agreement were set out in the circular of the Company dated 22 February 2002. The resolution in relation to the Disposal Agreement was unanimously passed by way of a poll at the special general meeting of the Company held on 11 March 2002. Completion of the Disposal Agreement took place on 12 March 2002 and the Group recorded no material gain or loss on the disposal in its financial statements.

Simultaneously with the entering into of the Disposal Agreement, a sale and purchase agreement (the "Sale and Purchase Agreement") was entered into between, amongst others, Feng Lin and Angel Field Limited ("Angel Field"), pursuant to which Feng Lin agreed to sell 148,000,000 shares in the Company, representing 74% of the issued share capital of the Company, to Angel Field at a consideration of approximately HK$0.418 per share. Completion of the Sale and Purchase Agreement took place on 12 March 2002.

Business Outlook

The principal activities of the Group are the processing of raw fabric and trading of fabric in the PRC market upon completion of the Disposal Agreement. Changes in the Directors are expected and the new directors to be appointed will review in detail the financial position and operation of the Group and will formulate long-term business plans and management strategy for the business of the Group. They will explore other business opportunities and consider whether any asset disposals (including redeployment of fixed asset in the ordinary course of business), asset acquisitions, business rationalization, divertment and/or diversification will be appropriate in order to enhance the long term growth potential of the Group. However, at present no detailed plan has been formulated.

Liquidity and financial resources

During the year, the Group generally financed its operations with bank borrowings and internally generated cash flow. At 31 December 2001, the Group had outstanding bank borrowings of approximately HK$20 million, all of which were due within one year and were mainly utilized as working capital for the Group's business operations. Due to significant loss from the Group's operations for the year, the Group's liquidity and financial position deteriorated with its current ratio at 0.47 (2000: 1.14) and its gearing ratio, which was measured on the basis of the Group's total borrowings over shareholders' fund, at 0.30 (2000: 0.18) at the balance sheet date.

During the year, the Group made use of low-interest Renminbi bank loans to maintain its financial flexibility in working capital used by its PRC subsidiaries. Of the total bank borrowings at 31 December 2001, bank loans of approximately Renminbi 10.9 million, equivalent to approximately HK$10.2 million, were secured by the Group's land and buildings in the PRC with an aggregate net book value of approximately HK$48.3 million. Other bank borrowings were secured by the corporate guarantee of the Company and personal guarantee given by certain directors of the Company.

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2001, the Group had a total of approximately 600 full time managerial, administrative and production employees, the majority of them are employed in the PRC. The Group remunerates its employees largely based on industry practice and provides rent-free quarters to most of its employees in the PRC. Review of remuneration policies is conducted on a regular basis.

The Company has a share option scheme adopted on 10 December 1998, but no option has been granted or agreed to be granted under this scheme since its adoption.

PUBLICATION OF RESULTS ON THE STOCK EXCHANGE WEBSITE

The Company's annual report containing 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 (the "Stock Exchange") will be published on the website of the Stock Exchange in due course.

EFFECT ON THE INDEPENDENT OPINIONS ON THE MANDATORY GENERAL OFFER

Reference is made to the circular dated 25 March 2002 issued by the Company (the "Circular") in relation to, among other things, the mandatory general offer by Kingsway SW Securities Limited on behalf of Angel Field to acquire all the issued shares of the Company at a price of HK$0.418 per share (other than those shares already owned by Angel Field or parties acting in concert with it) (the "Offer"). The Directors hereby confirm that, after having discussion with the independent board committee (the "Independent Board Committee") and the joint independent financial advisers (the "Joint Independent Financial Advisers") which have been established and appointed respectively in respect of the Offer, the Independent Board Committee and the Joint Independent Financial Advisers have confirmed to the Directors that there is no material change to their respective opinions in respect of the Offer as set out in the Circular as a result of the Company's announcement of annual results for the year ended 31 December 2001.

On behalf of the Board

Tsoi Hon Chung

Chairman

Hong Kong, 8 April 2002

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this announcement and confirm, having made all reasonable inquiries, that to the best of their knowledge, the opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.

Please also refer to the published version of this announcement in the Hong Kong iMail Post dated 9/4/2002