Persistence Gold Group Ltd — Interim / Quarterly Report 2002

Sep 19, 2002

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SHANGHAI MERCHANTS HOLDINGS LIMITED 上海商貿控股有限公司[*]

(formerly known as Ying Wing Holdings Limited 盈榮集團有限公司 *) (Incorporated in Bermuda with limited liability)

ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2002

The Board of Directors (the “Directors”) of Shanghai Merchants Holdings Limited (the “Company”) are pleased to announce the unaudited consolidated interim results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2002, together with the comparative figures. These condensed interim financial statements have not been audited, but were reviewed by the Company’s audit committee.

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CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2002

Notes Turnover 2 Cost of sales Gross profit Other income Distribution costs Administrative expenses Other operating expenses Loss from operations 3 Interest on bank borrowings wholly repayable within five years Gain on disposal of subsidiaries Loss before taxation Taxation 4 Loss after taxation Minority interests Loss attributable to shareholders Loss per share 6	Unaudited Six months ended 30 June 2002 2001 HK$’000 HK$’000 34,891 16,518 (33,181) (15,969) 1,710 549 3,122 824 (104) (2,868) (6,022) (4,529) – (5,849) (1,294) (11,873) (269) (613) 261 – (1,302) (12,486) – – (1,302) (12,486) 98 434 (1,204) (12,052 ) (0.56 cents ) (6.03 cents )

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NOTES

1. Basis of preparation and accounting policies

The unaudited condensed interim financial statements are prepared in accordance with Hong Kong Statement of Standard Accounting Practice (“SSAP”) 25, “Interim Financial Reporting” issued by the Hong Kong Society of Accountants (“HKSA”).

These condensed interim financial statements should be read in conjunction with the 2001 annual financial statements.

The accounting policies and methods of computation used in the preparation of these condensed interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2001 except that the Group has adopted the following new and revised SSAPs which became effective on 1 January 2002.

SSAP 1 (revised) : Presentation of financial statements SSAP 15 (revised) : Cash flow statements SSAP 25 (revised) : Interim financial reporting SSAP 33 : Discontinuing operations

The adoption of these new and revised SSAPs has no material effect on the Group’s results.

Certain comparative figures have been reclassified to conform with the current period’s presentation.

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2. Segmental information

An analysis of the Group’s turnover and results for the period by business segments is as follows:

Continuing operations Trading and processing of fabric Trading of base metals Discontinued operations Snack food Unallocated corporate expenses Interest on bank borrowings wholly repayable within five years Gain on disposal of subsidiaries Loss before taxation	Turnover Six months ended 30 June 2002 2001 HK$’000 HK$’000 30,718 6,164 3,824 – 34,542 6,164 349 10,354 34,891 16,518	Operating profit (loss) Six months ended 30 June 2002 2001 HK$’000 HK$’000 582 (8,184) 1,542 – 2,124 (8,184) (506) (2,740) (3,057) (1,465) (124) (97) 261 – (1,302) (12,486)

A large part of the activities of the Group were based in the PRC and more than 90% of the Group’s turnover and operating results were derived from the PRC.

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3. Loss from operations

Loss from operations has been arrived at after charging:

	Six months ended	Six months ended
	30 June
	2002	2001
	HK$’000	HK$’000
Amortisation of intangible assets
(included within cost of sales)	–	202
Depreciation and amortisation of property,
plant and equipment	2,568	5,985
Loss on disposal of property, plant and equipment	–	874
Provision for doubtful debts	–	4,975

4. Taxation

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.

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 period.

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

5. Interim dividend

The Directors do not recommend the payment of an interim dividend for the period (2001: HK$Nil).

6. Loss per share

The calculation of loss per share is based on the loss attributable to shareholders for the period of HK$1,204,000 (2001: HK$12,052,000) and on the weighted average number of 213,934,807 (2001: 200,000,000) ordinary shares in issue during the period.

No diluted loss per share for the six months ended 30 June 2002 has been presented as the share options outstanding during the period would have an anti-dilutive effect on the basic loss per share for the period.

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RESULTS

Since the new management took over the office in April 2002, the Group has been able to identify opportunities to improve its business operations. For the period under review, the Group had attained a turnover of HK$34.9 million, representing an increase of 111% over that of the same period last year. Loss attributable to shareholders was trimmed down to HK$1.2 million, a substantial reduction of 90% from HK$12.1 million in 2001. Loss per share was also reduced to 0.56 cents from 6.03 cents in 2001. The improved financial performance was benefited from an enlarged revenue base coupled with improved profit margin.

CHANGE OF COMPANY NAME

On 7 June 2002, the name of the Company was changed from “Ying Wing Holdings Limited” to “Shanghai Merchants Holdings Limited” which emphasizes the development of international trading and market of consumer products, turns into a competitive international trading group.

BUSINESS REVIEW AND OUTLOOK

Fabric business

Despite the difficulties the Group has faced in last year, the new management has made efforts to pursue active business opportunities in the period.

The Group’s fabric business had achieved a favourable result, with its turnover increased remarkably by 398% to HK$30.7 million when compared with that attained in the same period of 2001. Leveraging the new management’s solid experience in the industry, operating result for the fabric segment had swung back to a profit of HK$0.6 million in the period from a loss of HK$8.2 million last year.

Given the intense competition from state-owned enterprises in the PRC and the more stringent business environment, the Group had gradually scaled down its raw fabric processing operation during the period so as to redirect resources to other more promising trading business.

While the Group is actively exploring new business opportunities, it will continue with its prudence policies. In assessing new business opportunities, the management will exercise a prudent and cautious approach while maintaining flexibility in granting credit terms in capturing opportunities.

Snack food business

Following the disposal of its loss sustaining snack food business in the period, the Group will continue to take advantage of emerging opportunities and actively explore into new and quality food and beverage related manufacturing investment opportunities with good potential in profitability.

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Trading of base metals

Eyeing the great potential of the PRC market in the consumption of base metals and looking forward to benefiting from the opening up of untapped markets arising from the accessing of the PRC into the World Trade Organization, the Group is very optimistic of its business opportunities in the trading of base metals. As such, the Group had started to develop its business to the trading of copper cathodes and operating profits attained from such business had amounted to HK$1.5 million in the period.

Business outlook

China’s foreign trade has witnessed continuous growth in 2002, with total imports and exports increasing by 12% to US$270 billion in the first six months. As the main gate for import and export and the largest economic and trading center in China, Shanghai’s imports and exports accounted for over 11% of the national total.

Leveraging on the robust economic growth of the PRC market and with Shanghai as its strategic base, the Group is very optimistic of its future development in the PRC market. This coupled with the new management’s unrivaled expertise and experience in the PRC trading business environment, the Directors believed that the Group is very well positioned to secure a leadership role in the PRC market and to further expand its network in international business and trading.

To take advantage of this, the Group intends to continue its original business of fabric trading and at the same time, actively explore new business opportunities with existing business partners and to identify new strategic partners to extend its business reach to the trading of general commodities such as textile products, base metals, mechanic equipment, agricultural by-products, tea leaves, high-tech products and etc.

With future emphasis being placed in business rationalization and diversification, it is anticipated that these efforts would offer a route to business growth and help to restore a profit growth for the Group in the long run. The Group would then be in a better position to enhance the shareholder value going forward.

Given the healthy financial position of the Group, the Directors believe that the Group is able to leverage the available opportunities to maximize returns for its shareholders and its business is expected to continue strengthening in the second half of 2002.

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Change of controlling shareholder

On 22 January 2002, a sale and purchase agreement (the “Sale and Purchase Agreement”) was entered into between, amongst others, Feng Lin Holdings Limited (“Feng Lin”) (the former controlling shareholder of the Company) and Angel Field Limited (“Angel Field”) (the existing controlling shareholder of the Company), pursuant to which Feng Lin agreed to sell 148,000,000 shares in the Company, representing 74% of the then 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.

Following completion of the Sale and Purchase Agreement, there was a mandatory general offer (the “General Offer”) made by Kingsway SW Securities Limited on behalf of Angel Field to acquire all the issued shares of Ying Wing Holdings Limited (former name of the Company) other than those already held by Angel Field or parties acting in concert with it at the offer price of HK$0.418. Upon closing of the General Offer on 12 April 2002, Angel Field has received valid acceptances in respect of 5,104,000 shares under the General Offer which made Angel Field and parties acting in concert with it interested in 153,104,000 shares, representing approximately 76.55% of the issued share capital of the Company as at the closing date. Details of the General Offer were set out in the Offeror Document dated 14 March 2002.

Disposal of snack food business

Pursuant to a disposal agreement (the “Disposal Agreement”), the Group has conditionally agreed to dispose of its entire interest in certain of its indirect subsidiaries, namely Vastco (H.K.) Limited, Cai Yi Trading Limited, Transfit Garments Limited and Hanover VCL Trading Limited, which are principally engaged in the snack food business, to Feng Lin, a then substantial shareholder of the Company for a consideration of HK$24,600,000. As settlement of the consideration, Feng Lin will assume and repay certain liabilities and obligations, which are 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.

CAPITAL STRUCTURE

Pursuant to the subscription agreements dated 16 April 2002 and 29 July 2002 both entered into between the Company and Angel Field, Angel Field had subscribed for 33,800,000 and 48,000,000 new shares respectively in the capital of the Company.

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Pursuant to a subscription agreement dated 7 May 2002 entered into between the Company and the placing agent, 6,200,000 new shares were issued to independent investors.

LIQUIDITY AND FINANCIAL RESOURCES

The financial position of the Group has improved substantially during the period.

During the period, the Group collected HK$26.4 million from the sale proceeds of the disposal of certain subsidiaries principally engaged in the snack food business. The proceeds have wholly been applied in repaying certain of the then outstanding bank borrowings and other liabilities of the Group.

To enlarge the capital base of the Company and to strengthen the financial resources of the Group, additional funding of approximately HK$21,340,000 was obtained by the Company through placements of new shares in the period.

As at 30 June 2002, the Group was free of bank borrowings and operated with a current ratio of 3.3 (31 December 2001: 0.47).

The Group has maintained a cash reserve of over HK$22 million. Whilst managing the Group’s finances very conservatively, the Directors will ensure that there will be sufficient cash to satisfy the Group’s working capital needs for continuous business developments.

FOREIGN EXCHANGE EXPOSURE

Since most business transactions conducted by the Group and payment made to suppliers are either made in Hong Kong Dollars, US Dollars or Renminbi, no use of financial instruments for hedging purposes is considered necessary.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the six months ended 30 June 2002, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

EMPLOYEES AND REMUNERATION POLICY

As at 30 June 2002, the Group had approximately 60 full time managerial, administrative and production staff in Hong Kong and the PRC.

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The Group recruits and promotes individuals based on their competencies, merit and development potential and remunerates its employees largely based on the prevailing industry practice with rent-free quarters being provided to most of its employees in the PRC. Remuneration packages are structured to reward and motivate individual performance and contribution to the Group. Review of remuneration policies are conducted on a regular basis.

AUDIT COMMITTEE

Upon completion of the General Offer, all the former directors resigned on 12 April 2002 and the audit committee which comprised the former directors was dismissed. Simultaneously, the current directors were appointed and a new audit committee (the “New Audit Committee”) was established on 12 April 2002, comprising two independent non-executive directors of the Company. The New Audit Committee has reviewed with management the accounting principles and practices adopted by the Group, and discussed auditing, internal control and financial reporting matters including the review of the unaudited interim financial statements for the six months ended 30 June 2002.

CODE OF BEST PRACTICE

None of the Directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not for any time during the period for the six months ended 30 June 2002, in compliance with the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, except that the independent non-executive directors of the Company are not appointed for a specific term as they are subject to retirement by rotation and re-election at the Company’s annual general meeting in accordance with the Bye-laws of the Company.

PUBLICATION OF RESULTS ON THE WEBSITE OF THE STOCK EXCHANGE OF HONG KONG LIMITED

All information of the Group’s results for the period as required by paragraphs 46(1) to 46(6) of Appendix 16 to the Listing Rules will be published on the website of The Stock Exchange of Hong Kong Limited in due course.

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APPRECIATION

On behalf of the Directors, I would like to take this opportunity to express my sincere gratitude to our loyal staff for their contribution and their dedication and to our shareholders, customers, suppliers, bankers and business associates for their continuing supports.

By order of the Board Mo Yuk Ping Chairman

Hong Kong, 18 September 2002

• For identification purpose only

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

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