Silkwave Inc — Interim / Quarterly Report 2009

Sep 22, 2009

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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SOUTH CHINA HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 265)

ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2009

UNAUDITED INTERIM RESULTS

The board of directors (the “Board”) of South China Holdings Limited (the “Company”) announces that the unaudited consolidated results of the Company and its subsidiaries (collectively the “Group”) for the six months ended 30 June 2009 are as follows:

CONDENSED CONSOLIDATED INCOME STATEMENT

Notes CONTINUING OPERATIONS Revenue 2 Cost of sales Gross profit Interest income Other income and gains Selling and distribution costs Administrative and operating expenses Non-cash equity-settled share option expenses Impairment of trade and other receivables Gain on disposal of assets and investments_(net) _3 Fair value gain on financial assets at fair value through profit or loss 11 Profit from operations 2 Finance costs Share of profits and losses of associates Profit before tax 4 Tax 5 Profit for the period from Continuing Operations DISCONTINUED OPERATIONS Profit for the period from Discontinued Operations 2&6 Profit for the period	Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$'000 HK$'000 920,414 1,286,476 (876,803) (1,235,042) 43,611 51,434 63 264 2,261 3,917 (4,545) (6,066) (34,187) (35,503) (6,107) (13,609) (1,200) (610) - 35,372 4,239 - 4,135 35,199 (1,360) (1,351) 4 (55) 2,779 33,793 (1,818) (2,886) 961 30,907 10,564 169,922 11,525 200,829	Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$'000 HK$'000 920,414 1,286,476 (876,803) (1,235,042) 43,611 51,434 63 264 2,261 3,917 (4,545) (6,066) (34,187) (35,503) (6,107) (13,609) (1,200) (610) - 35,372 4,239 - 4,135 35,199 (1,360) (1,351) 4 (55) 2,779 33,793 (1,818) (2,886) 961 30,907 10,564 169,922 11,525 200,829
		51,434 264 3,917 (6,066) (35,503) (13,609) (610) 35,372 -
		35,199 (1,351) (55)
		33,793 (2,886)
		30,907 169,922
		200,829

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Attributable to: - Equity holders of the Company - Minority interests

Dividends

Special interim distribution Interim dividend

Earnings per share attributable to ordinary equity holders of the Company - Basic Profit for the period

For profit from continuing operations

	Six months	ended 30 June
	2009	2008
		Unaudited
	Unaudited	and restated
Notes	HK$'000	HK$'000
	19,651	166,661
	(8,126)	34,168
	11,525	200,829
6	1,552,809	-
7	-	-
8
	HK1.1 cents	HK9.1 cents
	HK0.1 cents	HK1.8 cents

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CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment Investment properties Prepaid land lease payments Construction in progress Interests in associates Biological assets Available-for-sale financial assets 11 Other non-current assets 12 Goodwill Total non-current assets CURRENT ASSETS Properties under development Inventories Trade and other receivables 9 Financial assets at fair value through profit or loss 11 Due from affiliates Advance to minority shareholders of subsidiaries Tax recoverable Pledged bank deposits Cash and cash equivalents Total current assets CURRENT LIABILITIES Trade and other payables 10 Interest-bearing bank and other borrowings Advances from minority shareholders of subsidiaries Due to affiliates Tax payable Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	As at 30 June 2009 Unaudited HK$'000 16,684 25,000 - - 642 - 33,222 26,615 5,568 107,731 - 32,720 157,616 4,803 1,040 1,635 - 15,092 58,816 271,722 138,109 60,233 1,582 931 1,926 202,781 68,941 176,672	As at 31 December 2008 Audited HK$'000 296,938 1,605,674 48,323 27,279 298,449 84,904 44,741 48,165 12,041
		2,466,514
		448,734 322,478 410,950 10,945 457 27,480 5,016 14,342 193,072
		1,433,474
		644,860 487,606 22,048 2,180 29,284
		1,185,978
		247,496
		2,714,010

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Notes NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings Advances from shareholders Advances from minority shareholders of subsidiaries Other non-current liabilities Promissory notes Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the Company Issued capital Reserves Minority interests Total equity	As at 30 June 2009 Unaudited HK$'000 - 44,571 107 - - 2,499 47,177 129,495 45,584 55,532 101,116 28,379 129,495	As at 31 December 2008 Audited HK$'000 281,845 7,876 29,226 85,419 97,079 232,079
		733,524
		1,980,486
		45,584 1,332,647
		1,378,231 602,255
		1,980,486

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2009

1. Basis of presentation

The unaudited consolidated financial statements for the six months ended 30 June 2009 have not been audited by the Company’s auditors but have been reviewed by the Company’s audit committee.

The financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

The accounting policies and methods of computation used in the preparation of the interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2008 except that the Group has adopted certain newly issued Hong Kong Financial Reporting Standards, which are effective for the annual period beginning on 1 January 2009 as disclosed in the annual financial statements for the year ended 31 December 2008. The adoption of these new Hong Kong Financial Reporting Standards does not have significant impact on the Group’s results of operations and financial position.

These interim financial statements should be read in conjunction with the 2008 annual report.

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2. Revenue and segmental information

Revenue represents the net invoiced value of goods sold, after allowances for returns and trade discounts; the value of services rendered and gross rental income received and receivable from investment properties during the period.

An analysis of the Group’s revenue and contribution to profit/(loss) from operations by principal activities and geographical location is as follows:

By principle activity: Continuing operations Travel and related services Information technology Trading and manufacturing Investment holding Discontinued operations Trading and manufacturing Property investment and development Securities and financial services Agriculture and woods Media and publications Investment holding Total By geographical location#: The People’s Republic of China (“PRC”, including Hong Kong and Macau) United States of America Europe Japan Others	Revenue Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 845,642 1,215,818 41,639 37,439 33,133 33,219 - - 920,414 1,286,476 598,008 660,701 22,687 25,204 - 43,881 1,789 1,447 10,989 18,395 - - 633,473 749,628 1,553,887 2,036,104 Revenue Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 1,008,610 1,441,755 376,036 375,247 87,992 135,234 3,301 4,949 77,948 78,919 1,553,887 2,036,104	Contribution to profit/(loss) from operations Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 9,318 16,060 (2,791) (2,067) (267) 260 (2,125) 20,946 4,135 35,199 2,706 (26,883) 45,210 100,866 - (88,418) (6,394) (4,791) (3,534) 185 (29,000) 169,498 8,988 150,457 13,123 185,656 Contribution to profit/(loss) from operations Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 16,032 209,035 1,183 (5,311) (3,221) (12,123) (201) (491) (670) (5,454) 13,123 185,656	Contribution to profit/(loss) from operations Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 9,318 16,060 (2,791) (2,067) (267) 260 (2,125) 20,946 4,135 35,199 2,706 (26,883) 45,210 100,866 - (88,418) (6,394) (4,791) (3,534) 185 (29,000) 169,498 8,988 150,457 13,123 185,656 Contribution to profit/(loss) from operations Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 16,032 209,035 1,183 (5,311) (3,221) (12,123) (201) (491) (670) (5,454) 13,123 185,656
			185,656

# Revenue by geographical location is determined on the basis of the location where merchandise is delivered and/or service is rendered.

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3. Gain on disposal of assets and investments (net)

Gain on disposal of interests in subsidiaries* Gain on disposal of financial assets at fair value through profit or loss Loss on disposal of plant and equipment	Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 - 34,530 - 874 - (32) - 35,372	Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 - 34,530 - 874 - (32) - 35,372
		35,372

• In February 2008, the Group disposed of its entire interest in South China Media Limited and the related

• shareholders’ loan to Broaden Base Investment Limited for the media operation. The Group recognised a gain of HK$34.5 million on disposal.

4. Profit before tax

For the period ended 30 June 2009, profit before tax is arrived at after charging depreciation of approximately HK$1,574,000 (six months ended 30 June 2008: HK$1,372,000) in respect of the Group’s properties, plants and equipments.

5. Tax

Hong Kong profits tax has been provided at the rate of 16.5% (six months ended 30 June 2008: 16.5%) on the estimated assessable profits arising in Hong Kong during the period. 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.

6. Profit for the period from Discontinued Operations and Special interim distribution

In June 2009, the Group distributed its interest in South China (China) Limited (“SCC”), representing approximately 72.88% of SCC’s issued share capital, by way of distribution in specie. SCC is a company principally engaging in trading and manufacturing of toys, shoes, leather product, motors and capacitors, magazine publishing business, property investment and development and agriculture and woods with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (stock code: 413).

The Group paid a special dividend distribution to the then shareholders in specie on the basis of 106 SCC shares and 21 SCC warrants for every 100 shares held by the shareholders on 19 June 2009. The aggregate fair value of SCC shares and SCC warrants distributed was amounted to HK$1,552,809,000.

After the completion of the above transaction, SCC was no longer a subsidiary of the Company since then. Accordingly, the Company ceased to consolidate SCC and its subsidiaries in the Company’s consolidated financial statements from then on. The results of SCC for the period ended 19 June 2009 was thus classified as “ Discontinued Operations ”.

7. Interim Dividend

The Board resolved not to declare the payment of an interim dividend for the six months ended 30 June 2009 (six months ended 30 June 2008: Nil).

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8. Earnings per share attributable to ordinary equity holders of the Company

The calculation of basic earnings per share is based on:

Earnings Profit attributable to equity holders of the Company, used in the basic earnings per share calculation: From continuing operations From discontinued operations Shares Number of ordinary shares in issue during the period used in the basic and diluted earnings per share calculation	Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 2,444 31,968 17,207 134,693 19,651 166,661 1,823,401,376 1,823,401,376	Six months ended 30 June 2009 2008 Unaudited Unaudited and restated HK$’000 HK$’000 2,444 31,968 17,207 134,693 19,651 166,661 1,823,401,376 1,823,401,376
		166,661
		1,823,401,376

Diluted earnings per share is not presented for both periods as there was no diluting event during the periods.

9. Trade receivables

Included in trade and other receivables of the Group are trade receivables of HK$117,290,000 (31 December 2008: HK$295,079,000). The Group's trading terms with its customers are on credit with credit period ranging from period of one to three months (31 December 2008: one to three months), depends on a number of factors including trade practices, collection history and location of customers. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimize credit risk. Overdue balances are reviewed regularly by the senior management and would be handled closely by the credit control department.

An aging analysis of trade receivables as at the balance sheet date based on invoice date is as follows:

Within 90 days 91 to 180 days 181 to 365 days Over 365 days	As at 30 June 2009 Unaudited HK$’000 107,212 9,601 477 - 117,290	As at 31 December 2008 Audited HK$’000 263,901 21,505 4,395 5,278
		295,079

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10. Trade payables

Included in trade and other payables of the Group are trade payables of HK$102,468,000 (31 December 2008: HK$362,374,000) and their aging analysis based on invoice date is as follows:

Within 90 days 91 to 180 days 181 to 365 days Over 365 days	As at 30 June 2009 Unaudited HK$’000 99,080 2,552 704 132 102,468	As at 31 December 2008 Audited HK$’000 281,295 26,534 3,166 51,379
		362,374

The trade payables are non-interest-bearing and normally settled on 15 to 210 days’ terms (31 December 2008: 15 to 210 days).

11. Financial assets at fair value through profit or loss and Available-for-sale financial assets

They are the remaining shares and warrants held by the Group in the former listed subsidiaries of South China Financial Holdings Limited and SCC after the distributions in specie of their shares to the Company’s shareholders in December 2008 and June 2009 respectively.

12. Other non-current assets

They include investment in lands in Panyu, Guangzhou ( 廣州番禺 ) and Tanggu, Tianjin ( 天津塘沽 ) in the PRC.

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

The Group recorded revenue of HK$920.4 million and a profit of HK$11.5 million for the six months ended 30 June 2009. The profits from continuing operations and discontinued operations were HK$1.0 million and HK$10.5 million respectively for the period.

In June 2009, the Group distributed its interest in South China (China) Limited (“SCC”), representing approximately 72.88% of SCC’s issued share capital, by way of distribution in specie. SCC is a company principally engaging in trading and manufacturing of toys, shoes, leather product, motors and capacitors, magazine publishing business, property investment and development and agriculture and woods with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (stock code: 413). During the period, the Group incorporated the results of SCC up to 19 June 2009, the completion date of the distribution, as profit from Discontinued Operations .

The principal businesses or continuing operations of the Group now include travel and related services, information technology and trading and manufacturing in the PRC.

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Travel and Related Services

The significant decrease in corporate travelers, in particular from the financial sector, and the spread of H1N1 epidemics early this year hard hit the global travel industry. Fourseas Travel recorded a profit of HK$9.3 million for the current period, a 42% decrease compared to the first half of 2008 and a 30% drop in revenue. Fortunately, business opportunities arose as most global corporations start seeking for travel agents that provides high quality services at reasonable prices. This enabled us to expand our event management and related travel services and also successfully enlarging our global corporate client base in both local and the China market during the period.

Information Technology

The IT segment reported an increase of 11% in revenue over the last corresponding period to HK$41.6 million in the first half of 2009. Our IT operations are engaging in system integration, software development and supply chain system development and are mainly located in Chongqing, the PRC. The new subsidiary set up last year in the high technology industrial park in Chongqing providing software development services for overseas buyers started to generate revenue in this year. The IT operations in the Mainland recorded a loss of HK$2.8 million for the period (2008: HK$2.1 million).

Trading and Manufacturing

The remaining trading and manufacturing operation after the distribution of SCC is engaging in jewelry production of precious stones, jade, gold and silver located in Nanjing, the PRC. Our products are distributed and sold through counters in sizable departmental stores as well as our own flagship shop in the Nanjing city. The operation sustained revenue of HK$33.1 million and a minor loss of HK$0.3 million during the period, closely the same as compared to the same period last year.

LIQUIDITY AND FINANCIAL RESOURCES

As at 30 June 2009 the Group had a current ratio of 1.34 and a gearing ratio of 0% (31 December 2008: 1.21 and 14.2% respectively). The gearing ratio as at 31 December 2008 was computed by comparing the Group’s total long-term bank borrowings of HK$281.8 million to total equity of HK$1,980.5 million. As at 30 June 2009, there was no long-term bank borrowing for the Group. The Group’s operations and investments continue to be financed by internal resources and bank borrowings.

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES AND ASSOCIATES

In June 2009, the Group distributed its interest in South China (China) Limited (“SCC”), representing approximately 72.88% of SCC’s issued share capital, by way of distribution in specie. SCC is a company principally engaging in trading and manufacturing of toys, shoes, leather product, motors and capacitors, magazine publishing business, property investment and development and agriculture and woods with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (stock code: 413).

The Group paid a special dividend distribution to the then shareholders in specie on the basis of 106 SCC shares and 21 SCC warrants for every 100 share held by the shareholders on 19 June 2009.

PROSPECTS

Fourseas Travel will continue its business development in the China market. At present, we already have five branches in the major cities of the Mainland. We believe they shall start making profit contribution to the Group very soon. More efforts will be devoted to enhance our existing IT system including the fare searching, online booking and performance reporting systems. These upgrading system developments can enrich our sales network and further improve our market competitiveness. With the steady growth of our global client base equipping with the advance information tools, we are confident to gain the most benefits once the market rebounds.

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The Group will place more focus on revamping the existing IT and trading and manufacturing operations for improving their revenue and profit contributions in the coming days.

In addition, the piece of land the Group invested in Tanggu of Tianjin China ( 天津塘沽 ) since the early nineties is of 500,000 square meter in area and located in the economic development zone of the Tianjin city ( 天津市經濟技術開發區 ). According to a valuation report prepared by an independent unrelated professional firm in September 2009, the land in its present bare stage is worth RMB3.75 billion. It is a joint-venture with a PRC third party, of which the Group held 51% interest. Previously, there were some disputes with the joint-venture partner over the land title. We have been trying to resolve the disputes and hope to start development of the land as soon as possible. The investment is now recorded at cost as other non-current assets.

We will continue to seek appropriate investments for the Group whenever opportunities arise.

INTERIM DIVIDEND

The Board resolved not to declare the payment of an interim dividend for the six months ended 30 June 2009. (six months ended 30 June 2008: Nil).

PURCHASE, SALE OR REDEMPTION OF SECURITIES

During the period ended 30 June 2009, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the listed securities of the Company.

CODE ON CORPORATE GOVERNANCE PRACTICE

The Company has complied with all the code provisions as set out in the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) throughout the six months ended 30 June 2009.

AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference in compliance with the Listing Rules. The audit committee comprises three independent non-executive directors namely Mr. Cheng Hong Kei (Committee Chairman), Mr. David John Blackett and Mrs. Tse Wong Siu Yin, Elizabeth and one non-executive director namely Mr. David Michael Norman.

The Group’s unaudited results for the six months ended 30 June 2009 have been reviewed by the audit committee.

By order of the Board South China Holdings Limited Ng Hung Sang Chairman

Hong Kong, 22 September 2009

As at the date of this announcement, the Board comprises (1) Mr. Ng Hung Sang, Mr. Richard Howard Gorges, Ms. Cheung Choi Ngor and Mr. Ng Yuk Fung, Peter as executive directors; (2) Mr. David Michael Norman and Ms. Ng Yuk Mui, Jessica as non-executive directors; and (3) Mr. David John Blackett, Mrs. Tse Wong Siu Yin, Elizabeth and Mr. Cheng Hong Kei as independent non-executive directors.

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