Sinopec Engineering Group Co Ltd. — Interim / Quarterly Report 2003

Mar 24, 2003

UNIVERSE INTERNATIONAL HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 31ST DECEMBER 2002

The Board of Directors 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 2002, together with comparative figures for the corresponding period in the previous year, as follows:—

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 Profit before taxation Taxation 4 Profit attributable to shareholders Dividends 5 Basic earnings per share (HK cents) 6 Fully diluted earnings per share (HK cents) 6	Unaudited For the six months ended 31st December 2002 2001 HK$’000 HK$’000 158,444 160,440 (134,615) (114,716) 23,829 45,724 291 594 958 1,107 (2,328) (2,098) (15,154) (13,094) (1,765) (1,470) 5,831 30,763 (603) (1,685) 5,228 29,078 (1,097) (4,619) 4,131 24,459 — 2,859 0.43 2.57 N/A 2.33

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Notes:

1. Basis of preparation and principal accounting policies

These unaudited consolidated condensed 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 financial statements should be read in conjunction with the 2002 annual financial statements.

The accounting policies and methods of computation used in the preparation of these condensed financial statements are consistent with those used in the annual financial statements for the year ended 30th June 2002 except that the Group has changed certain of its accounting policies following its adoption of the following Statements of Standard Accounting Practice (SSAPs) issued by the HKSA which are effective for accounting periods commencing on or after 1st January 2002:

SSAP 1 (revised) : Presentation of financial statements SSAP 15 (revised) : Cash flow statements SSAP 25 (revised) : Interim financial reporting SSAP 34 : Employee benefits

The adoption of the above SSAPs does not have a material effect on the Group’s financial statements except for the changes in presentation resulting from the adoption of SSAP 1 (revised), SSAP 15 (revised) and SSAP 25 (revised).

2. Segment information

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 property and machinery for replication of optical discs.

The Group is organised into three segments:

• Distribution of films in various videogram formats and replication of optical discs

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

• Leasing of property and machinery for replication of optical discs.

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

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

Turnover External sales Inter-segment sales Segment results Other revenue Finance costs Profit before taxation Taxation Profit attributable to shareholders	Sale of goods and replication of optical discs 117,963 — 117,963 3,758	Unaudited 6 months ended 31st December 2002 HK$’000 Rental Licensing, income sub-licensing from of film rights property and film and exhibition machinery Elimination 39,139 1,342 — 10,178 — (10,178) 49,317 1,342 (10,178) 1,813 (31)	Group 158,444 — 158,444 5,540 291 (603) 5,228 (1,097) 4,131

Due to keen price competition within the industry of replication of optical discs, the Group disposed its replication business and leased its replication machinery and property to a third party starting from 1st December 2002, in order to achieve a better allocation of the Group’s resources and secure a stable rental income.

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Unaudited 6 months ended 31st December 2001 HK$’000

Turnover External sales Inter-segment sales Segment results Other revenue Finance costs Profit before taxation Taxation Profit attributable to shareholders	Sale of goods and replication of optical discs 115,877 — 115,877 22,147	Licensing, sub-licensing of film rights and film exhibition 44,563 4,001 48,564 8,022	Rental income from property and machinery — — — —	Elimination — (4,001) (4,001)	Group 160,440 — 160,440 30,169 594 (1,685) 29,078 (4,619) 24,459

Distribution of films in various videogram formats, replication of optical discs and leasing of property and machinery are solely operated in Hong Kong and Macau, while the Group operates its licensing, sub-licensing of films and film exhibition in five main geographical areas.

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

Geographical segment : Hong Kong and Macau Asia (other than Hong Kong and Macau) North America Others Other revenue Operating profit	Unaudited Turnover 6 months ended 31st December 2002 2001 HK$’000 HK$’000 149,832 143,837 7,347 8,568 1,165 7,930 100 105 158,444 160,440	Unaudited Operating profit 6 months ended 31st December 2002 2001 HK$’000 HK$’000 4,485 26,590 854 2,434 190 1,087 11 58 5,540 30,169 291 594 5,831 30,763	Unaudited Operating profit 6 months ended 31st December 2002 2001 HK$’000 HK$’000 4,485 26,590 854 2,434 190 1,087 11 58 5,540 30,169 291 594 5,831 30,763
			30,169 594
			30,763

3. Operating profit

Operating profit is stated after crediting and charging the following:

Crediting Interest income Charging Depreciation: — owned fixed assets — leased fixed assets Cost of inventories sold Write-off of film rights Amortisation of film rights Loss on disposal of fixed assets	Unaudited 6 months ended 31st December 2002 2001 HK$’000 HK$’000 291 594 6,452 6,452 5,850 6,037 36,675 37,915 260 — 88,389 70,623 196 5	Unaudited 6 months ended 31st December 2002 2001 HK$’000 HK$’000 291 594 6,452 6,452 5,850 6,037 36,675 37,915 260 — 88,389 70,623 196 5
		6,452 6,037 37,915 — 70,623 5

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4. Taxation

Hong Kong profits tax has been provided at the rate of 16% (2001: 16%) on the estimated assessable profits for the period.

5. Dividends

		Unaudited
	6	months ended
	31st December
	2002	2001
	HK$’000	HK$’000
Final dividend, declared, of nil
(2001: HK 0.3 cents) per ordinary share	—	2,859

6. Earnings per share

The calculation of basic earnings per share is based on the profit for the period attributable to shareholders of approximately HK$4,131,000 (2001: HK$24,459,000) and the weighted average of 956,403,580 (2001: 952,976,616) ordinary shares in issue during the period.

The diluted earnings per share for the period was not shown as there was no dilution effect after taking into account of all potential ordinary shares under the share option scheme.

INTERIM DIVIDEND

The Board of Directors does not recommend the payment of an interim dividend in respect of the six months ended 31st December 2002 (2001: Nil).

REVIEW OF OPERATIONS

Overall Group results

The Group’s unaudited consolidated turnover for the six months ended 31st December 2002 was approximately HK$158.4 million, decreasing marginally by approximately 1.2% over the comparative period last year. Profit attributable to shareholders was approximately HK$4.1 million, representing a reduction of 83.1% compared with the same period last year. Earnings per share for the period were HK0.43 cents compared with HK2.57 cents in 2001.

Video distribution

The turnover figure of video distribution achieved in the period under review is satisfactory in light of the current economic environment in Hong Kong, The turnover from video distribution has increased by 4.3% to HK$117.9 million, as compared with the same period last year, accounting for approximately 74.4% of the Group’s total turnover.

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The local retail market has remained stagnant and sluggish during the period under review. Consumers’ spending sentiment has been adversely affected by high unemployment rate. Undoubtedly these are negative factors affecting generally the retail and entertainment industry in which the Group is an active player. In view of this persistent deflationary economic downturn, the Group has implemented aggressive pricing policy, maintaining our market share while sacrificing profit margin to some extent.

Although the turnover generated from the video distribution business has been increased continuously, the gross profit of this business segment for the period has significantly decreased by 43.1%, compared with the same period last year. Apart from an aggressive pricing policy, escalating royalty costs for video distribution rights due to keen competition within the industry have also resulted in the reduction in the gross profit margin of the video distribution business for the six months period ended 31st December 2002. Amortisation of film rights for the video distribution business was approximately HK$62.3 million, which is approximately HK$18.9 million or 43.4% higher than the same period last year.

Film exhibition, film licensing and sub-licensing

During the period under review, the turnover from film exhibition, film licensing and sub-licensing decreased by 12.2% to HK$39.1 million compared with same period last year.

In view of the overall contracted film exhibition business of Chinese language films, the Group has been adopting a more prudent approach in investing in film productions since early 2002, so that the number of films produced and available for film exhibition and film licensing has been reduced during the period under review, thus the turnover from this business segment was decreased.

Despite a decrease in the number of films produced and available for film exhibition and film licensing, we are encouraged to see the trend of the PRC market which showed growth. During the period under review, the turnover generated from the PRC was increased by approximately HK$1.1 million compared with the same period last year.

Replication of optical discs and leasing of property and machinery

As the turnover and profitability of the replication of optical discs services have also been adversely affected by severe price competition within the industry during the period under review, the results of this business segment was significantly decreased. In view of the keen competition and uncertain outlook within the industry, the Group decided not to concentrate on the development of this business in order to achieve a better allocation of the Group’s resources into areas of higher return and secure a stable rental income by leasing replication machinery and property to a third party starting from 1st December 2002.

PROSPECTS

The management expects the difficult operating environment in Hong Kong to continue in the foreseeable future as deflationary threat persists. Price competition will probably remain keen affecting the profit margins of the Group. In such circumstances, the Group will continue to develop its business in a pragmatic and prudent approach so as to maintain its profitability.

The Group has realised its expansion plan and diversification strategy by setting up a joint venture company with a third party in Hong Kong for production of television series in early 2003. The management is confident that this new division will generate positive contribution in the foreseeable future.

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In view of the increasing demand for quality Chinese-language films from overseas markets and the PRC, particularly the latter in which there is still immense potential for further growth after its entry to the WTO, the Group plans to co-produce more films with PRC film production companies in the coming year. The management believes that such co-operation, coupled with our exceptional expertise and leading position in the industry will enable the Group to capture a considerable share of the market in the PRC.

FINANCIAL RESOURCES / LIQUIDITY AND CAPITAL STRUCTURE

As at 31st December 2002, the Group had cash balances and unutilised banking facilities of approximately HK$63.4 million and HK$65.0 million respectively.

As at 31st December 2002, the Group had total assets of approximately HK$347.6 million, representing a decrease of HK$58.4 million over that of 30th June 2002. Such reduction was mainly due to redemption of the convertible notes of approximately HK$54.1 million on 25th July 2002.

The Group’s gearing ratio as at 31st December 2002 was approximately 14.9% (30th June 2002: 14.3%), which was calculated on the basis of the Group’s long term bank borrowings of approximately HK$37.8 million and on the shareholders fund of approximately HK$253.1 million.

Capital expenditure for the period under review has included the acquisition of a property amounted to HK$13.5 million which was financed by a mortgage loan and internal cash of HK$9.5 million and HK$4 million respectively.

In light of the fact that most of the Group’s transactions were denominated in Hong Kong Dollars and US Dollars, the management considered the Group’s exposure to fluctuation in exchange rates was minimal and no financial instruments for hedging purposes were used by the Group.

Finance costs have been reduced by 64.2%, mainly due to a drop in interest expenses as a result of the redemption of interest bearing convertible notes on 25th July 2002 and the Group’s reduced borrowings and lowered interest rates.

THE PLEDGE OF GROUP ASSETS

As at 31st December 2002, certain assets of the Group with aggregate carrying value of approximately HK$72.4 million (30th June 2002: HK$76.5 million) were pledged to secure banking facilities utilized by subsidiaries.

EMPLOYEES AND REMUNERATION POLICIES

As at 31st December 2002, the Group had 153 employees. Remuneration is reviewed annually and certain staff members are entitled to commission. In addition to basic salaries, staff benefits include discretionary bonus, medical insurance scheme and mandatory provident fund. The Group also adopts a share options scheme for its employees.

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.

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AUDIT COMMITTEE

The Audit Committee has reviewed the accounting principles and practices adopted by the Group and discussed internal controls and financial reporting matters including a review of the unaudited condensed financial statements for the six months ended 31st December 2002 with the management.

COMPLIANCE WITH THE CODE OF BEST PRACTICE OF THE LISTING RULES

None of the Directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not, in compliance with the Code of Best Practice as set out in Appendix 14 of in the Listing Rules of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) for the six months ended 31st December 2002.

DETAILED INTERIM RESULTS ANNOUNCEMENT

A detailed interim results announcement containing all the information required by paragraphs 46(1) to 46(6) of Appendix 16 of the Rule Governing the Listing of Securities on the Stock Exchange will be subsequently published on the Stock Exchange’s website (http://www.hkex.com.hk) in due course.

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

Hong Kong, 24th March 2003

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

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