Sinopec Engineering Group Co Ltd. — Interim / Quarterly Report 2007

Mar 19, 2007

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 2006

The board of directors (the “Board”) of Universe International Holdings Limited (the “Company”) announces the unaudited condensed consolidated results of the Company and its subsidiaries (the “Group”) for the six months ended 31st December 2006 together with comparative figures as follows:

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

Note Turnover 2 Cost of turnover 3 Other gains — net Selling expenses Administrative expenses 3 Other operating expenses 3 Profit on disposal of investment properties Profit before income tax Income tax credit / (expense) 4 Profit for the period Attributable to equity holders of the Company	For the six months ended 31st December 2006 2005 HK$’000 HK$’000 91,111 48,773 (66,635) (35,362) 3,438 2,215 (1,190) (556) (15,287) (10,932) (284) (133) 5,429 — 16,582 4,005 2,633 (351) 19,215 3,654 19,215 3,654

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Earnings per share for profit attributable to the equity holders of the Company during the period (expressed in HK cents) — basic 5 1.18 — diluted 5 N/A UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET Unaudited 31st December 2006 Note HK$’000 ASSETS Non-current assets Property, plant and equipment 16,749 Investment properties 24,495 Leasehold land 8,903 Film rights and films in progress 91,775 Deferred income tax assets 2,989 Long-term bank deposit 7,800 152,711 ----------------- Current assets Film deposits 4,576 Inventories 10,830 Accounts receivable 6 23,542 Deposits paid and prepayments 13,588 Pledged bank deposits 4,000 Cash and cash equivalents 155,481 Non-current assets held for sale — 212,017 ----------------- Total assets 364,728 EQUITY Capital and reserves attributable to the Company’s equity holders Share capital 32,492 Other reserves 129,705 Retained earnings — Proposed final dividend — — Others 159,355 Total equity 321,552 -----------------	0.23
	N/A
	Audited 30th June 2006 HK$’000 16,016 51,845 9,031 95,735 5,447 7,800
	185,874 ----------------- 9,330 12,004 16,309 9,660 2,000 108,623 31,650
	189,576 -----------------
	375,450
	32,492 129,705 14,621 139,881
	316,699 -----------------

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LIABILITIES Non-current liabilities Other long-term liabilities Deferred income tax liabilities Current liabilities Accounts payable 7 Other payables and accrued charges Deposits received Amount due to ultimate holding company Obligations under finance leases Taxation payable Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	65 3,542 3,607 ----------------- 6,412 9,356 23,710 — 83 8 39,569 ----------------- 43,176 ----------------- 364,728 172,448 325,159	99 8,892
		8,991 ----------------- 9,684 7,258 32,629 86 95 8
		49,760 -----------------
		58,751 -----------------
		375,450
		139,816
		325,690

Notes:

1. Basis of preparation and accounting policies

The unaudited condensed consolidated interim financial statements have been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants.

The unaudited condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 30th June 2006.

The preparation of the unaudited condensed consolidated interim financial statements in conformity with HKAS 34 requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

The accounting policies and methods of computation used in preparing these unaudited consolidated interim financial statements are consistent with those followed in preparing the Group’s annual financial statements for the year ended 30th June 2006, except for the adoption of the following new and revised Hong Kong Financial Reporting Standards (“HKFRS”), HKASs and Interpretations (“Int”) (hereinafter collectively referred to as “new HKFRSs”) which are relevant to the Group’s operation and are effective for the accounting periods beginning on or after 1st January 2006.

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— Amendment to HKAS 19 Employee Benefits

2. Segment information

• Actuarial Gains and Losses, Group Plans and Disclosures

• Amendment to HKAS 21 The Effects of Changes in Foreign Exchange Rates

• Net Investment in a Foreign Operation

• Amendment to HKAS 39 Financial Instruments: Recognition and Measurement

• Cash Flow Hedge Accounting of Forecast Intragroup Transactions

• The Fair Value Option

• Amendments to HKAS 39 Financial Instruments: Recognition and Measurement & HKFRS 4 Insurance Contracts

• Financial Guarantee Contracts

• HKFRS-Int 4 Determining whether an Arrangement contains a Lease

The adoption of these new HKFRSs has no material effect on the Group’s results and financial position for the current or prior accounting periods reflected in these financial statements.

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.

The Group is organised into the following main business segments:

• Distribution of films in various videogram formats

• Licensing and sub-licensing of film rights and film exhibition

• Leasing of investment properties

The Group’s inter-segment transactions mainly consist of licensing of film rights, which are transferred at cost.

Secondary reporting format — geographical segments

Distribution of films in various videogram formats is solely operated in Hong Kong and Macau, while the Group operates its licensing and sub-licensing of film rights, film exhibition and leasing of investment properties in five main geographical segments.

There are no sales between geographical segments.

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Primary reporting format — business segments

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

Turnover External sales Inter-segment sales Results Segment results before impairment losses Impairment losses of film rights and film deposits Segment results Interest income Profit on disposal of investment properties Profit before income tax Income tax credit Profit attributable to equity holders of the Company	Sale of goods HK$’000 20,935 — 20,935 761 (25) 736 —	For the six months ended 31st December Licensing and sub- licensing of film rights Leasing of and film investment exhibition properties Others HK$’000 HK$’000 HK$’000 67,536 1,865 775 5,503 — 236 73,039 1,865 1,011 5,981 1,149 196 (87) — — 5,894 1,149 196 — 5,429 —	2006 Elimination HK$’000 — (5,739) (5,739) — — — —	Group HK$’000 91,111 — 91,111 8,087 (112) 7,975 3,178 5,429 16,582 2,633 19,215

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Other information Capital expenditures Unallocated capital expenditures Total capital expenditures Depreciation and amortization of leasehold land Unallocated depreciation and amortization of leasehold land Total depreciation and amortization of leasehold land Amortization charge Turnover External sales Inter-segment sales Results Segment results Interest income Profit before income tax Income tax expense Profit attributable to equity holders of the Company	3,515 470 8,497 Sale of goods HK$’000 19,100 — 19,100 32	4,888 — — — 24 44 2 — 37,840 — — — Unaudited For the six months ended 31st December 2005 Licensing and sub- licensing of film rights Leasing of and film investment exhibition properties Others Elimination HK$’000 HK$’000 HK$’000 HK$’000 26,922 2,207 544 — 2,500 — 129 (2,629) 29,422 2,207 673 (2,629) 217 1,801 171 —	8,403 35,590 43,993 540 358 898 46,337 Group HK$’000 48,773 — 48,773 2,221 1,784 4,005 (351) 3,654

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Other information Capital expenditures 5,082 133 70 — — Unallocated capital expenditures Total capital expenditures Depreciation and amortization of leasehold land 665 19 31 2 — Unallocated depreciation and amortization of leasehold land Total depreciation and amortization of leasehold land Amortization charge 7,928 15,229 — — — Unaudited As at 31st December 2006 Licensing and sub- licensing of film rights Leasing of Sale of and film investment goods exhibition properties Others Elimination HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 30,269 48,248 24,866 4,938 — Unallocated assets Total assets Segment liabilities 5,502 20,310 491 5,216 — Unallocated liabilities Total liabilities	5,285 8,481
	13,766
	717 272
	989
	23,157
	Group HK$’000 108,321 256,407
	364,728
	31,519 11,657
	43,176

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Audited

As at 30th June 2006

Licensing and sub- licensing of film rights Leasing of Sale of and film investment goods exhibition properties Others Elimination HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 35,864 27,302 83,744 4,362 — Unallocated assets Total assets Segment liabilities 6,617 27,467 4,701 4,244 — Unallocated liabilities Total liabilities	Group HK$’000 151,272 224,178
	375,450
	43,029 15,722
	58,751

Secondary reporting format-geographical segments

Hong Kong and Macau Asia (other than Hong Kong and Macau) South and North America Australia and New Zealand Europe Others	Turnover Total assets For the six months ended As at 31st December 31st December 30th June 2006 2005 2006 2006 Unaudited Unaudited Unaudited Audited HK$’000 HK$’000 HK$’000 HK$’000 47,531 31,199 340,339 360,620 38,139 13,766 24,000 14,524 1,638 15 — 4 98 175 — — 3,705 3,618 389 160 — — — 142 91,111 48,773 364,728 375,450	Capital expenditures For the six months ended 31st December 2006 2005 Unaudited Unaudited HK$’000 HK$’000 43,993 13,766 — — — — — — — — — — 43,993 13,766	Capital expenditures For the six months ended 31st December 2006 2005 Unaudited Unaudited HK$’000 HK$’000 43,993 13,766 — — — — — — — — — — 43,993 13,766
			13,766

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3. Expenses by nature

Expenses included in cost of turnover, administrative expenses and other operating expenses, are analyzed as follows:

	Unaudited
	For the six months ended
	31st December
	2006	2005
	HK$’000	HK$’000
Depreciation on owned assets	758	897
Depreciation on leased assets	140	38
Cost of inventories sold	7,611	10,029
Loss on disposal of property, plant and equipment	111	—
Write-off of expired film rights	2	91
Impairment losses of film deposits	112	—
Amortization of film rights	46,337	23,157

4.

Income tax (credit)/expense

Hong Kong profits tax has been provided at the rate of 17.5% on the estimated assessable profit for the period (2005: 17.5%).

The amount of income tax (credit)/expense (credited)/charged to the condensed consolidated income statement represents:

Hong Kong profits tax Deferred income tax relating to the origination and reversal of temporary differences	Unaudited For the six months ended 31st December 2006 2005 HK$’000 HK$’000 — — (2,633 ) 351 (2,633 ) 351	Unaudited For the six months ended 31st December 2006 2005 HK$’000 HK$’000 — — (2,633 ) 351 (2,633 ) 351
		351

5. Earnings per share

The calculation of basic earnings per share is based on the profit for the period attributable to equity holders of the Company of HK$19,215,000 (2005: HK$3,654,000) and the weighted average of 1,624,605,370 (2005:1,624,605,370) ordinary shares in issue during the period.

The diluted earnings per share for the six months ended 31st December 2005 and 2006 are not presented as there were no dilutive potential ordinary shares outstanding during the periods.

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6. Accounts receivable

Accounts receivable Less: Provision for impairment of accounts receivable Accounts receivable — net	Unaudited As at 31st December 2006 HK$’000 23,937 (395) 23,542	Audited As at 30th June 2006 HK$’000 16,704 (395)
		16,309

As at 31st December 2006, the ageing analysis of the accounts receivable was as follows:

Current to 90 days 91 days to 180 days Over 180 days	Unaudited As at 31st December 2006 HK$’000 12,577 6,555 4,410 23,542	Audited As at 30th June 2006 HK$’000 10,014 1,028 5,267
		16,309

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

There is no concentration of credit risk with respect to accounts receivable, as the Group has a large number of customers, internationally dispersed.

7.

Accounts payable

As at 31st December 2006, the ageing analysis of the accounts payable was as follows:

Current to 90 days 91 days to 180 days Over 180 days	Unaudited As at 31st December 2006 HK$’000 2,741 536 3,135 6,412	Audited As at 30th June 2006 HK$’000 4,335 296 5,053
		9,684

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INTERIM DIVIDEND

The Board does not recommend the payment of an interim dividend in respect of the six months ended 31st December 2006 (2005: Nil).

REVIEW OF OPERATIONS

Overall Group results

The Group’s unaudited consolidated turnover for the six months ended 31st December 2006 was approximately HK$91.1 million, representing an increase of HK$42.3 million over the same period last year. Gross profit margin maintained at 26.9%, similar to the level of the same period last year (2005: 27.5%). Profit attributable to equity holders of the Company was HK$19.2 million (2005: HK$3.7 million), translating into earnings per share of 1.18 cents. This represented an increase of 413.0% compared to HK 0.23 cents in the corresponding period last year.

The Group’s liquidity position was strong with cash as at 31st December 2006 amounting to HK$167.3 million.

Video distribution

During the period under review, turnover from video distribution business was HK$20.9 million, representing an increase of 9.6% over the same period last year. Overall, this business segment accounted for 23.0% (2005: 39.2%) of the Group’s total turnover.

As this business segment remained battered by keen market competition and illegal distribution of copyrighted films on the internet through peer-to-peer file sharing activities, the Group has continued to adopt a prudent approach in film acquisitions as well as conducting cost restructuring measures. The Group recorded satisfactory growth during the period under review despite difficult operating conditions where turnover and segment results improved marginally from HK$19.1 million and HK$32,000 to HK$20.9 million and HK$736,000 respectively.

Film exhibition, film licensing and sub-licensing

Turnover from this business segment during the six months ended 31st December 2006 was HK$67.5 million, representing an increase of 150.9% over the same period last year. It accounted for 74.1% (2005: 55.2%) of the Group’s total turnover during the period.

Turnover from film exhibition rose to HK$10.8 million from HK$1.7 million last year. Such significant increase in turnover was attributable to more films being released during the period under review. Despite higher turnover, operating losses rose to HK$971,000 compared with HK$93,000 in the previous period due mainly to an increase in cost of promotions incidental to the film releases.

Turnover from licensing and sub-licensing of film rights was HK$56.7 million, representing an increase of HK$31.5 million over the same period last year. With implementation of a multi-faceted content production strategy, it would be beneficial to maintain the Group’s growth momentum in this business segment carried forward from the first half of the financial year 2006/2007.

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Such rapid growth in turnover was mainly attributable to strong demand from the People Republic of China (the “PRC”) for media contents. The Group’s initiatives of investing in television series, and leveraging on its distribution network established since the release of the popular “Kung Fu Soccer” television series in the financial year 2003/2004, helped spurred the Group’s income from the PRC market.

In line with the above, overseas markets became major sources of the Group’s turnover during the period under review, accounting for 47.8% of the Group’s total turnover (2005: 36.0%). Given the continued difficult operating environment in the local Hong Kong market, the management believes that it is beneficial to the Group’s long term development that it diversifies its sources of income while reducing its reliance on the Hong Kong market.

Leasing of investment properties

On 1st August 2006, Universe Property Investment Limited (“UPI”), an indirect wholly-owned subsidiary of the Company, completed a disposal transaction of an investment property at a consideration of HK$33.3 million and recorded a profit of HK$2.0 million. On 18th December 2006, UPI completed another disposal transaction of an investment property at a consideration of HK$31.1 million and recorded a profit of HK$3.4 million.

Following the disposal of the aforesaid investment properties during the period under review, turnover from this business segment decreased by 15.5% to HK$1.9 million.

OUTLOOK

The management expects competition at the local video distribution business will continue to be keen. However, we believe there remain opportunities as long as we adopt a pragmatic and prudent approach towards its business development.

Meanwhile, the management is encouraged by the development of the PRC market and has identified it as the key market for the Group’s future development. The Group will continue to focus its resources on the production of high quality television series in response to the increasing demand for the television series in the PRC.

Given the above, the Group is cautiously optimistic with its future development and prospects.

FINANCIAL RESOURCES/LIQUIDITY AND CAPITAL STRUCTURE

As at 31st December 2006 the Group had cash balances of HK$167.3 million (30th June 2006: $118.4 million) and unutilized banking facilities amounted to HK$40 million (30th June 2006 HK$50 million) respectively. Such significant increase was mainly due to the disposal of two investment properties at a total consideration of HK$64.4 million.

As at 31st December 2006 the Group had total assets of approximately HK$364.7 million, representing a slight decrease of HK$10.7 million over that of 30th June 2006.

The Group’s gearing ratio as at 31st December 2006 was approximately 0.1% (30th June 2006: 0.1%), which was calculated on the basis of the Group’s long term borrowings of approximately HK$148,000 (of which HK$83,000, HK$18,000 and HK$47,000 are repayable within one year, in the second year and in the third to fifth year respectively) and on the total equity of the Company of approximately HK$321.6 million.

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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 2006, certain assets of the Group with an aggregate carrying value of HK$44.5 million (30th June 2006: HK$107.5 million) were pledged to secure banking facilities granted to subsidiaries.

EMPLOYEES AND REMUNERATION POLICIES

As at 31st December 2006, the Group had 62 employees (30th June 2006: 69). 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.

CODE ON CORPORATE GOVERNANCE PRACTICES

The Company has, throughout the six months ended 31st December 2006, complied with the code provisions (“Code Provision”) of the Code on Corporate Governance Practices set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”) except for the Code Provision A.2.1 for the separation of the roles of chairman and chief executive officer (“CEO”) as described in the following.

Code Provision A.2.1 sets out that the roles of chairman and CEO should be separate and should not be performed by the same individual. The Company does not at present have any officer holding the position of CEO. Mr Lam Shiu Ming, Daneil is the founder and Chairman of the Company and has also carried out the responsibilities of CEO. Mr Lam possesses the essential leadership skills to manage the Board and extensive knowledge in the business of the Group. The Board considers the present structure to be more suitable to the Company because it can promote the efficient formulation and implementation of the Company’s strategies.

INTERNAL CONTROL

The Company is committed to establishment of a good standard of internal control. In compliance with Code Provision C.2 and to further improve the effectiveness of its internal control, the Company engaged an independent accounting firm to conduct a review of the effectiveness of the system of internal control of the Group on 5th December 2006. All findings that require management’s attention are under consideration to ensure that they would be properly addressed.

AUDIT COMMITTEE

The Audit Committee was established in 1999. Its current members include three Independent Non-executive Directors, namely Mr Ng Kwok Tung (Chairman), Mr Chiu Shin Koi and Mr Ma Ting Hung.

The Audit Committee has reviewed the accounting principles and practices adopted by the Group and discussed internal control and financial reporting matters including a review of the unaudited condensed consolidated interim financial statements for the six months ended 31st December 2006 with the management.

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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.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

During the six months ended 31st December 2006, the Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules (“Model Code”) as the code for dealing in securities of the Company by Directors. Having made specific enquiry, all Directors of the Company confirmed that all the Directors have complied with the required standard set out in the Model Code throughout the period.

PUBLICATION ON THE COMPANY AND STOCK EXCHANGE’S WEBSITES

This interim results announcement is published on the websites of the Company (www.uih.com.hk) and the Stock Exchange (www.hkex.com.hk). The interim report will also be available at the same websites on or before 31st March 2007.

By the Order of the Board Lam Shiu Ming, Daneil Chairman

Hong Kong, 19th March 2007

As at the date of this announcement, the Board comprises Mr Lam Shiu Ming, Daneil, Ms Chiu Suet Ying and Mr Yeung Kim Piu as Executive Directors and Messrs Ng Kwok Tung, Chiu Shin Koi and Ma Ting Hung as Independent Non-executive Directors.

* For identification purposes only

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

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