Sinopec Engineering Group Co Ltd. — Interim / Quarterly Report 2006

Mar 21, 2006

UNIVERSE INTERNATIONAL HOLDINGS LIMITED 寰宇國際控股有限公司 [*]

(Incorporated in Bermuda with limited liability)

(Stock Code:1046)

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 31ST DECEMBER 2005

The Board of Directors of Universe International Holdings Limited (the “Company”) announces the unaudited condensed consolidated profit and loss account of the Company and its subsidiaries (the “Group”) for the six months ended 31st December 2005 and the unaudited condensed consolidated balance sheet as at 31st December 2005, together with comparative figures for the corresponding period in the previous year, as follows:—

UNAUDITED CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

Note Turnover 2 Cost of sales Gross profit Other revenue Other operating income Selling expenses Administrative expenses Other operating expenses Operating profit 3 Finance costs Share of loss of an associated company Profit before taxation Taxation 4 Profit attributable to equity holders of the Company Basic earnings per share_(HK cents) _5 Fully diluted earnings per share_(HK cents) _5	For the six months ended 31st December 2005 2004 HK$’000 HK$’000 48,773 101,028 (35,362) (77,802) 13,411 23,226 1,784 154 431 466 (556) (1,252) (10,932) (11,692) (133) (5,187) 4,005 5,715 — (197) — (572) 4,005 4,946 (351) (617) 3,654 4,329 0.23 0.27 N/A N/A

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

Note Non-current assets Property, plant and equipment Investment properties Leasehold land Film rights and films in progress Interest in associated company Deferred tax assets Long-term bank deposit Current assets Film deposits Inventories Accounts receivable 6 Deposits paid and prepayments Pledged bank deposits Bank balances and cash Current liabilities Accounts payable 7 Other payables and accrued charges Deposits received Due to ultimate holding company Obligations under finance leases Taxation payable Net current assets Total assets less current liabilities Financed by: Share capital Reserves Total capital and reserves Other long-term liabilities Deferred tax liabilities	At 31st December 2005 HK$’000 15,432 47,500 9,064 66,968 — 5,335 7,800 152,099 14,326 14,624 18,786 9,764 2,000 120,203 179,703 -------------- 8,202 6,807 19,562 83 83 8 34,745 -------------- 144,958 -------------- 297,057 32,492 260,142 292,634 64 4,359 297,057	(Restated) At 30th June 2005 HK$’000 21,512 38,400 12,121 77,356 1,294 5,270 7,800
		163,753 17,018 17,358 32,219 5,065 4,000 82,087
		157,747 -------------- 7,545 5,708 15,098 86 77 8
		28,522 --------------
		129,225 --------------
		292,978
		32,492 256,449
		288,941 102 3,935
		292,978

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Notes:

1. Basis of preparation and principal accounting policies

These unaudited consolidated condensed accounts are prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants.

These condensed accounts should be read in conjunction with the 2005 annual accounts.

The accounting policies and methods of computation used in the preparation of these condensed accounts are consistent with those used in the annual accounts for the year ended 30th June 2005 except that the Group has changed certain of its accounting policing following the adoption of new/revised Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and interpretations (collectively, “new HKFRS”) which are effective for accounting periods commencing on or after 1st January 2005.

These condensed accounts have been prepared in accordance with those HKFRS standards and interpretations issued and effective as at the time of preparing these information. The new HKFRS that will be applicable at 30th June 2006, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing these interim financial statements.

Following the adoption of those new HKFRS which are relevant to the Group’s operations, the significant changes to the Group’s accounting policies and the effect of which are set out below:—

• (a) HKAS 1 — HKAS 1 has affected the presentation of share of net after-tax result of associated company and other disclosure.

• (b) HKAS 17 — The adoption of revised HKAS 17 has resulted in a change in the accounting policy relating to the reclassification of leasehold land from property, plant and equipment to operating leases. The upfront prepayments made for the leasehold land are expensed in the profit and loss account on a straightline basis over the period of the lease or where there is impairment, the impairment is expensed in the profit and loss account. In prior years, the leasehold land was accounted for at fair value or cost less accumulated depreciation and accumulated impairment. This new accounting policy has been adopted retrospectively and comparative amounts have been restated accordingly.

• (c) Effect of changes in the accounting polices on the condensed consolidated balance sheet is as follows:—

		As at
	31st December		30th June
	2005		2005
	HK$’000		HK$’000
HKAS 17
— Decrease in property, plant and equipment	(9,064)		(12,121)
— Increase in leasehold land	9,064		12,121

The adoption of other new HKFRS did not result in substantial changes to the Group’s accounting policies.

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2. Segment information

Primary reporting format — business segments

The Group is principally engaged in the distribution of films in various videogram formats, licensing and sublicensing of film rights, film exhibition and leasing of investment properties.

An analysis of the Group’s turnover and profit attributable to equity holders of the Company for the period by business segments is as follows:—

Unaudited

For the six months ended Licensing and sub-licensing of Leasing of film rights and investment Sale of goods film exhibition properties HK$’000 HK$’000 HK$’000 Turnover External sales 19,100 26,922 2,207 Inter-segment sales — 2,500 — 19,100 29,422 2,207 Segment results 32 217 1,801 Other revenue Profit before taxation Taxation Profit attributable to equity holders of the Company Capital expenditures 5,082 133 70 Unallocated capital expenditures Total capital expenditures Depreciation 665 19 31 Unallocated depreciation Total depreciation Amortisation charge 7,928 15,229 —	31st December 2005 Others Elimination HK$’000 HK$’000 544 — 129 (2,629) 673 (2,629) 171 — — — 2 — — —	Group HK$’000 48,773 — 48,773 2,221 1,784 4,005 (351) 3,654 5,285 8,481 13,766 717 272 989 23,157

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Unaudited

For the six months ended 31st December 2004

Turnover External sales Inter-segment sales Segment results before impairment losses Impairment losses of film rights Segment results Unallocated cost Other revenue Finance costs Share of loss of an associated company Profit before taxation Taxation Profit attributable to equity holders of the Company Capital expenditures Unallocated capital expenditures Total capital expenditures Depreciation Unallocated depreciation Total depreciation Amortisation charge	Leasing of Licensing investment and properties and sub-licensing of machinery film rights and for replication Sale of goods film exhibition of optical discs HK$’000 HK$’000 HK$’000 40,910 55,601 2,803 — 3,843 — 40,910 59,444 2,803 895 10,954 (2,016) (472) (3,583) — 423 7,371 (2,016) 37,319 4,365 5 5,855 83 28 23,069 27,082 —	Others HK$’000 1,714 67 1,781 641 — 641 — 2 —	Elimination HK$’000 — (3,910) (3,910) — — — — — —	Group HK$’000 101,028 — 101,028 10,474 (4,055) 6,419 (858) 154 (197) (572) 4,946 (617) 4,329 41,689 14,087 55,776 5,968 1,141 7,109 50,151

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Unaudited As at 31st December 2005

Licensing

and sub-licensing of Leasing of film rights and investment Sale of goods film exhibition properties Others Elimination HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 48,766 26,482 47,793 4,372 — Unallocated assets Total assets Segment liabilities 8,354 14,465 1,506 4,719 — Unallocated liabilities Total liabilities Audited As at 30th June 2005 Leasing Licensing of investment and properties sub-licensing of and machinery film rights and for replication Sale of goods film exhibition of optical discs Others Elimination HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 56,505 51,918 38,650 1,128 — Unallocated assets Total assets Segment liabilities 6,902 10,732 1,058 4,447 — Unallocated liabilities Total liabilities	Group HK$’000 127,413 204,389
	331,802
	29,044 10,124
	39,168
	Group HK$’000 148,201 173,299
	321,500
	23,139 9,420
	32,559

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Secondary reporting format — geographical segments

An analysis of the Group’s turnover and contribution to operating profit for the period by geographical segments is as follows:—

Hong Kong and Macau Asia (other than Hong Kong and Macau) North America Australia and New Zealand Europe Add: other revenue Operating profit Hong Kong and Macau Asia (other than Hong Kong and Macau) North America Australia and New Zealand Others Add: other revenue Operating profit	Unaudited For the six months ended 31st December 2005 Segment Capital Turnover results expenditures HK$’000 HK$’000 HK$’000 31,199 1,771 13,766 13,766 397 — 15 1 — 175 2 — 3,618 50 — 48,773 2,221 13,766 1,784 4,005 Unaudited For the six months ended 31st December 2004 Segment Capital Turnover results expenditures HK$’000 HK$’000 HK$’000 64,063 40 55,776 36,334 5,422 — 424 22 — 175 47 — 32 30 — 101,028 5,561 55,776 154 5,715	Unaudited For the six months ended 31st December 2005 Segment Capital Turnover results expenditures HK$’000 HK$’000 HK$’000 31,199 1,771 13,766 13,766 397 — 15 1 — 175 2 — 3,618 50 — 48,773 2,221 13,766 1,784 4,005 Unaudited For the six months ended 31st December 2004 Segment Capital Turnover results expenditures HK$’000 HK$’000 HK$’000 64,063 40 55,776 36,334 5,422 — 424 22 — 175 47 — 32 30 — 101,028 5,561 55,776 154 5,715
		55,776

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Unaudited	Unaudited	Audited
	As at	As at
31st December 2005		30th June 2005
	HK$’000	HK$’000
Assets
Hong Kong and Macau	320,580	304,327
Asia (other than Hong Kong and Macau)	10,192	14,937
North America	—	382
Australia and New Zealand	—	17
Europe	1,030	1,837
	331,802	321,500
Operating profit
Operating profit is stated after crediting and charging the following:
	For the six months ended
	31st December
	2005	2004
	HK$’000	HK$’000
Crediting
Interest income	1,784	154
Gain on disposal of fixed assets	1	3
Charging
Depreciation:
— owned fixed assets	951	7,071
— leased fixed assets	38	38
Cost of inventories sold	10,029	14,740
Write-off of expired film rights	91	175
Impairment losses of film rights	—	4,055
Amortisation charge of film rights	23,157	50,151
Staff costs	8,261	9,680

3. Operating profit

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4. Taxation

Hong Kong profits tax has been provided at the rate of 17.5% on the estimated assessable profit for the period. (2004: 17.5%)

The amount of taxation charged to the consolidated profit and loss account represents:

Hong Kong profits tax Deferred taxation relating to the origination and reversal of temporary differences	For the six months ended 31st December 2005 2004 HK$’000 HK$’000 — 93 351 524 351 617	For the six months ended 31st December 2005 2004 HK$’000 HK$’000 — 93 351 524 351 617
		617

5. Earnings per share

The calculation of basic earnings per share is based on the Group’s profit attributable to equity holders of the Company of approximately HK$3,654,000 (2004: approximately HK$4,329,000) for the period and the weighted average of 1,624,605,370 (2004: 1,624,605,370) ordinary shares in issue during the period.

The diluted earnings per share for the period ended 31st December 2004 and 2005 are not presented as there was no dilutive potential ordinary shares outstanding during the periods.

6. Accounts receivable

At 31st December 2005, the ageing analysis of the accounts receivable was as follows:—

	Unaudited	Audited
	As at	As at
	31st December 2005	30th June 2005
	HK$’000	HK$’000
Current to 90 days	7,255	16,259
91 days to 180 days	4,173	8,460
Over 180 days	7,358	7,500
	18,786	32,219

Sale of video products is with credit terms of 7 days to 60 days. Sale from licensing and sub-licensing of film rights and film exhibition are on open account terms.

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7. Accounts payable

At 31st December 2005, the ageing analysis of the accounts payable was as follows:—

	Unaudited	Audited
	As at	As at
	31st December 2005	30th June 2005
	HK$’000	HK$’000
Current to 90 days	1,982	2,803
91 days to 180 days	1,488	18
Over 180 days	4,732	4,724
	8,202	7,545

8. Events after the balance sheet date

As announced on 23rd January 2006, Universe Laser & Video Co., Limited (“ULV”), an indirect whollyowned subsidiary of the Company, has entered into an unconditional multiple rights assignment with Universe Film Productions Company Limited (“UFP”) whereby ULV acquired the full and complete rights, titles and interests in and to the certain films from UFP for a total consideration of HK$3,160,000.

The entire issued share capital of UFP is beneficially owned by Globalcrest Enterprises Limited (“GEL”), the entire issued share capital of which is in turn held by Central Core Resources Limited, the trustee of a discretionary trust under which certain immediate family members of Mr. Lam Shiu Ming, Daneil (“Mr. Lam”) and Ms. Chiu Suet Ying are discretionary objects. GEL, a substantial shareholder of the Company and a connected person of the Company within the meaning of the Rules Governing the Listing of Securities (the “Listing Rules”) on the Stock Exchange of Hong Kong Limited (the “Stock Exchange”), owns approximately 53.7% of the entire issued shares of the Company. Mr. Lam is also a founder of the said discretionary trust. By virtue of the interest of GEL in UFP, this acquisition constituted a connected transaction for the Company under Rule 14A.13(1)(a) of the Listing Rules.

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INTERIM DIVIDEND

The Board of Directors does not recommend the payment of an interim dividend in respect of the six months ended 31st December 2005 (2004: Nil).

REVIEW OF OPERATIONS

Overall Group’s results

The Group’s unaudited consolidated turnover for the six months ended 31st December 2005 was approximately HK$48.8 million, representing a decrease of approximately HK$52.3 million over the same period last year. Profit attributable to equity holders of the Company was approximately HK$3.7 million (2004: approximately HK$4.3 million), translating into earnings per share for the period of 0.23 HK cents compared with 0.27 HK cents during the corresponding period in 2004.

The decrease in turnover was a result of a continuing stagnant local video distribution market and fewer new films and television series being released during the period under review.

Notwithstanding, the 51.7% decline in turnover, the management is delighted to report that the Group recorded a profit attributable to equity holders of the Company of approximately HK$3.7 million.

The ability to remain profitability on the back of lower turnover in the first half of the financial year 2006 demonstrates Group’s effectiveness in controlling cost structure of the business and the implementation of the multi-faceted content production strategy.

Video distribution

During the period under review, the video distribution business continued to shrink, recording a 53.3% decrease in turnover to HK$19.1 million.

The substantial decrease in turnover from video distribution was mainly attributable to fewer number of new title being released during the period under review, as the management streamlined this business operation and adopted a more cautious and prudent approach in the film acquisition, in light of the still rampant illegal distribution of copyrighted films on the internet through peer to peer file sharing activities. In addition, severe price competition persisted in the local video distribution market also impacted on the turnover and profit margin of this business segment.

In view of the difficulties of the video distribution business, the Group will continue to improve the cost structure of this business segment and will exercise prudence when acquiring new titles for video distribution.

Film exhibition, film licensing and sub-licensing

A decline in the number new films produced by the Group in the first half of the financial year 2006, coupled with continued contraction of the local film exhibition market for Chinese Language films affected the turnover of this business segment. Turnover generated from this business segments was HK$26.9 million, representing a decrease of 51.6% over the same period last year. This business segment accounted for 55.2% (2004: 55.0%) of the Group’s total turnover.

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Turnover from film exhibition was HK$1.7 million, representing a decrease of 56.3% compared to the same period last year. Apart from the external factor of a sluggish film exhibition market in Hong Kong, a decline in turnover from film exhibition was mainly attributable to the Group produced fewer films as it focused on the investment in television series. Notwithstanding a decrease in turnover, the operating results improved where a loss reduced to HK$93,000, compared with a loss of HK$6.6 million in the previous period, reflecting Group’s effectiveness in controlling film production and promotional cost.

Turnover and gross profit from film licensing and sub-licensing activities were HK$25.2 million and HK$9.9 million respectively, representing a decrease of 51.2% and 63.4% over the same period last year. Such substantial decrease resulted from the fact that Group only completed the production of one film and one television series for film licensing business during the period under review. In terms of upcoming release, at as 31st December 2005, the Group has two films blockbusters, (being “Recycle” (鬼域) and “The Sparrow” (文雀)) and two television series (being “Legend of Wang Zhao Jun” (昭君出塞) and “The Myth of Ah You” (阿有正傳)), which are in progress.

In line with the Group’s multi-faceted content production strategy of targeting demands of various markets, the overseas market sustained major source of turnover, accounting for 36.0% of the Group’s total turnover (2004: 36.6%), the management believes that it is beneficial to the Group’s long term development as it reduces its reliance on the Hong Kong market.

As a testimony to the quality of films produced by the Group, “Divergence” (三岔口) had been awarded the Best Leading Actor, the Best Cinematography and the Best Film Editing awards at the 42nd Golden Horse Award Presentation Ceremony.

Leasing of investment properties and machinery for replication of optical discs

This business segment posted an encouraging contribution for the period under review, as result of the closure of the unsatisfactory business of leasing of machinery for replication of optical discs in the second half of last fiscal year, the business of leasing of machinery for replication of optical discs made a loss of HK$2.9 million during the same period last year.

As a result of the Group’s effort in streamlining the business of video distribution, the more space vacated was tenanted in return for rental income, in line with this, turnover from leasing of investment properties increased by 8.4% to HK$2.2 million for the period under review.

OUTLOOK

Going forward, the Group will focus on producing high quality films and television series. It will also step up its efforts in expanding its distribution network and exploring new market.

Meanwhile, the Group will continue to streamline its business operation with a view of enhancing the operational efficiency and productivity. Leveraging on our experience and competitive advantages, we are confident that the Group can continue to consolidate its position in the industry.

FINANCIAL RESOURCES/LIQUIDITY AND CAPITAL STRUCTURE

As at 31st December 2005 the Group had cash balances and unutilised banking facilities of approximately HK$130.0 million (30th June 2005: HK$93.9 million) and HK$55.0 million (30th June 2005: HK$55.0 million) respectively.

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As at 31st December 2005 the Group had total assets of approximately HK$331.8 million, representing a slight increase of HK$10.3 million over that of 30th June 2005.

The Group’s gearing ratio as at 31st December 2005 was approximately 0.1% (30th June 2005: 0.1%), which was calculated on the basis of the Group’s long term borrowings of approximately HK$147,000 (of which HK$83,000 and HK$64,000 are repayable within one year and in the second year respectively) and on the funds of equity holders of the Company of approximately HK$292.6 million.

There was no finance costs incurred during the period under review as a result of repayment of all bank loans in last financial year.

In light of the fact that most of the Group’s transactions were denominated in Hong Kong dollars and United States dollars, the management considered that the exposure to fluctuation of currency exchange rates is limited and no financial instruments for hedging purposes was used by the Group.

THE PLEDGE OF GROUP ASSETS

As at 31st December 2005, certain assets of the Group with aggregate carrying value of HK$73.7 million (30th June 2005: HK$73.9 million) were pledged to secure banking facilities utilized by subsidiaries.

EMPLOYEES AND REMUNERATION POLICIES

As at 31st December 2005, the Group had 65 employees (30th June 2005: 63). Remuneration is reviewed annually and certain employees are entitled to commission. In addition to basic salaries, staff benefits include discretionary bonus, medical insurance scheme and mandatory provident fund.

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

The Company has not redeemed any of its shares during the period. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company’s listed securities during the period.

AUDIT COMMITTEE

The Audit Committee has reviewed the accounting principles and practices adopted by the Group and discussed financial reporting matters including a review of the unaudited condensed accounts for the six months ended 31st December 2005 with the management. The Audit Committee comprises three independent non-executive Directors, namely Messrs. Ng Kwok Tung, Chiu Shin Koi and Ma Ting Hung.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

During the six months ended 31st December 2005, the Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules on the Stock Exchange as the code for dealing in securities of the Company by Directors. Having made specific enquiry, all Directors of the Company confirmed that all Directors have complied with the required standards set out in the Model Code throughout the period.

COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES

The Company was in compliance with the Code on Corporate Governance Practices as set out in Appendix 14 to the Listing Rules throughout the period.

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DETAILED INTERIM RESULTS ANNOUNCEMENT

A detailed interim results announcement containing all the information required by paragraphs 46(1) to 46(9) of Appendix 16 to the Listing Rules will be subsequently published on the Stock Exchange’s website (http://www.hkex.com.hk) in due course.

The Board as at the date hereof comprises:

Mr. Lam Shiu Ming, Daneil Mr. Ng Kwok Tung (Chairman and Executive Director) (Independent non-executive Director)

Ms. Chiu Suet Ying Mr. Chiu Shin Koi (Executive Director) (Independent non-executive Director)

Mr. Yeung Kim Piu Mr. Ma Ting Hung (Executive Director) (Independent non-executive Director)

By Order of the Board Lam Shiu Ming, Daneil Chairman and Executive Director

Hong Kong, 20th March 2006

* For identification purposes only

Please also refer to the published version of this announcement in the China Daily.

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