Synagistics Limited - Interim / Quarterly Report 2009

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OP FINANCIAL INVESTMENTS LIMITED 東英金融投資有限公司[*]

(Incorporated as an exempted company in the Cayman Islands with limited liability)

(Stock code: 1140)

ANNOUNCEMENT OF UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008

RESULTS

The Board of Directors (the “Board” or the “Directors”) of OP Financial Investments Limited (the “Company”) is pleased to announce the unaudited condensed results of the Company and its subsidiaries (the “Group”) for the six months ended 30 September 2008 (the “Period”) with comparative figures for the corresponding period in 2007 and selected explanatory notes as follows. These results have been reviewed by the Audit Committee of the Company.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 September 2008

		Six months ended	Six months ended
		30 September
		2008	2007
		(Unaudited)	(Unaudited and
			restated)
	Note	HK$	HK$
Turnover	3	4,992,394	688,385
Other income – loan interest income		37,222	–
Net (loss)/gain on financial assets at
fair value through profit or loss		(6,771,515 )	18,900,018
Fair value gain on other financial liabilities		5,524,899	–
Administrative expenses		(12,263,060 )	(1,496,650 )
(Loss)/Profit from operations		(8,480,060 )	18,091,753
Finance cost – interest on bank loan		(73,634 )	–
Share of results of associates		(1,569,875 )	–
(Loss)/Profit before tax		(10,123,569 )	18,091,753
Income tax	5	–	(3,045,589 )
(Loss)/Profit for the Period	6	(10,123,569 )	15,046,164
(Loss)/Earnings per share
Basic	7(a)	(1.44) cents	15.05 cents
Diluted	7(b)	N/A	N/A

* For identification purpose only

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CONDENSED CONSOLIDATED BALANCE SHEET

At 30 September 2008

	30 September	31 March
	2008	2008
	(Unaudited)	(Audited)
	HK$	HK$
Non-current assets
Property, plant and equipment	149,492	–
Investments in associates	5,889,108	2,990,000
Available-for-sale financial assets	286,004,627	556,930
	292,043,227	3,546,930
Current assets
Financial assets at fair value through
profit or loss	237,819,325	9,000
Amount due from a broker	4,628,423	4,237,211
Amount due from an associate	2,000,000	–
Dividend and interest receivables	470,654	1,966,660
Prepayments, deposits and other receivables	7,081,098	139,928
Tax recoverable	1,403,935	1,403,935
Bank balances	330,315,076	753,912,110
	583,718,511	761,668,844
Current liabilities
Accrued charges	2,075,886	16,936,646
Other financial liabilities	7,548,680	–
	9,624,566	16,936,646
Net current assets	574,093,945	744,732,198
Total assets less current liabilities	866,137,172	748,279,128
Non-current liabilities
Other financial liabilities	4,313,277	–
NET ASSETS	861,823,895	748,279,128
Capital and reserves
Share capital	70,600,000	70,050,000
Reserves	791,223,895	678,229,128
TOTAL EQUITY	861,823,895	748,279,128
Net asset value per share	1.22	1.07

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS For the six months ended 30 September 2008

1 Basis of preparation of financial statements

The unaudited condensed consolidated interim financial statements (“Interim Financial Report”) have been prepared in accordance with applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and in compliance with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

2 Summary of significant accounting policies

The Interim Financial Report is prepared under the historical cost convention, as modified by the revaluation of certain investments and other financial liabilities which are carried at their fair values.

The accounting policies and methods of computation used in the preparation of this Interim Financial Report are consistent with those used in the preparation of the annual financial statements for the year ended 31 March 2008, in addition, to the following:

The day one gain or loss on available-for-sale financial assets is included in the investment revaluation reserve.

In the current period, the Group has applied, for the first time, a number of new interpretations issued by HKICPA that are relevant to its operations and effective for its accounting periods beginning on 1 April 2008. The adoption of the new interpretations did not result in substantial changes to the Group’s accounting policies and amounts reported for the current or prior periods.

The Group has not applied the new and revised Hong Kong Financial Reporting Standards (“new HKFRSs”) that have been issued but are not yet effective. The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a material impact on its results of operations and financial position.

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3 Turnover

Turnover represents the income received and receivable on investments during the Period as follows:

	Six months	ended
	30 September
	2008	2007
	(Unaudited)	(Unaudited and
		restated)
	HK$	HK$
Dividend income from listed investments	–	365,671
Interest income from deposits with banks	4,992,394	322,714
	4,992,394	688,385

For the year ended 31 March 2008, the Group revised the presentation of turnover in order to conform with market practices. Interest income is included as a component of turnover; and the sale proceeds from sale of financial assets at fair value through profit or loss are offset against the cost of financial assets at fair value through profit or loss and are presented as net gain/loss on financial assets at fair value through profit or loss (as a separate item) in the consolidated income statement. Accordingly, cash flow arising from interest income is reclassified from investing activities to operating activities for the year ended 31 March 2008.

The effects of the change in the presentation of turnover have been accounted for retrospectively with comparative figures restated. These changes do not have any impact on the results of the Group in respect of the current and prior periods.

4 Segment information

No segment information is presented as all of the turnover, contribution to operating results, assets and liabilities of the Group are attributable to investment activities which are carried out or originated principally in Hong Kong.

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5 Income tax

	Six months	ended
	30 September
	2008	2007
	(Unaudited)	(Unaudited)
	HK$	HK$
Current – Hong Kong Profits Tax
Provision for the Period	–	3,045,589

No provision for Hong Kong Profits Tax has been made since the Group has no estimated assessable profit for the Period.

The reconciliation between the income tax and the product of (loss)/profit before tax multiplied by Hong Kong Profits Tax is as follows:

	Six months	ended
	30 September
	2008	2007
	(Unaudited)	(Unaudited)
	HK$	HK$
(Loss)/Profit before tax	(10,123,569 )	18,091,753
Tax at Hong Kong Profits Tax rate of
16.5% (2007: 17.5%)	(1,670,389 )	3,166,057
Tax effect of income that is not taxable	(1,735,353 )	(120,468 )
Tax effect of expenses that are not deductible	279,638	–
Tax effect of temporary differences not recognised	(3,850 )	–
Tax effect of tax losses not recognised	3,129,954	–
Income tax	–	3,045,589

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6 (Loss)/Profit for the Period

The Group’s (loss)/profit for the Period is stated after charging the following:

	Six months	ended
	30 September
	2008	2007
	(Unaudited)	(Unaudited)
	HK$	HK$
Contributions to retirement benefits scheme
(already included in staff costs)	30,445	12,000
Depreciation	25,744	–
Investment management fee	6,500,898	513,183
Operating lease payments in respect of
office premises	401,000	54,000
Staff costs (includingdirectors’ emoluments)	3,898,509	457,998

7 (Loss)/Earnings per share

(a) Basic (loss)/earnings per share

The calculation of basic (loss)/earnings per share is based on the loss for the Period of HK$10,123,569 (2007: profit of HK$15,046,164) and the weighted average number of 702,153,005 (2007: 100,000,000) ordinary shares in issue during the Period.

(b) Diluted (loss)/earnings per share

Diluted loss per share for the Period has not been presented as the Company’s outstanding share options and warrants during the Period have no dilutive effect for the Period because the exercise price of the Company’s share options and warrants was higher than the average market price for shares.

Diluted earnings per share for the period ended 30 September 2007 has not been presented as there were no potential dilutive shares outstanding during the period.

8 Subsequent event

On 1 December 2008, a subscription agreement was entered into between the Company as issuer and Primus Pacific Partners Investments 2 Ltd. in respect of the issue of 78,500,000 shares (“New Issue”) at an issue price of HK$1.50 per share under the general mandate granted to the Directors at the annual general meeting held on 29 August 2008. The New Issue was completed on 8 December 2008. For further details of the New Issue, please refer to the announcement of the Company dated 1 December 2008.

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INTERIM DIVIDEND

The Board has resolved not to pay any interim dividend in respect of the Period (2007: Nil).

MANAGEMENT DISCUSSION AND ANALYSIS Investment Review

The Directors are pleased to report that the management’s foresight to dispose of substantially all of the Group’s investment trading positions in year ended 31 March 2008 is commendable. As the global credit crisis continues to unfold and the rapid transmission of risk across the different economies, the credit crisis has caused more widespread disruption in the global financial markets than has been seen for several decades. The damages resulting from the credit crisis is so severe and far reaching that some commentators referring to recent events as “financial tsunami”.

Together with the net proceeds of approximately HK$701.05 million raised from the share placement in November 2007, the cash generated from operating activities of approximately HK$29.68 million and existing cash then on hand, the Group had a cash position of approximately HK$753.91 million at the beginning of Period to capture new investment opportunities.

The Group has made the following significant investments during the Period based on the investment focus on financial sectors and the Private Equity and Investment Banking or PEIB investment approach adopted in second half of financial year ended 31 March 2008:

Asset management companies

In August 2008, the Group completed its acquisition of 30% issued ordinary share capital in and the 100% non-voting preference shares of Calypso Capital Limited and Calypso Capital (Cayman) Limited (collectively “Calypso Capital Group”).

The Group also established CSOP Asset Management Limited (“CSOP”), an asset management joint venture in Hong Kong, with China Southern Fund Management Co., Ltd (“CSFM”). CSFM is a leading fund management company in China and has assets under its management of over RMB240 billion which include a Qualified Domestic Institutional Investor (“QDII”) fund, namely China Southern Global Dynamic Allocation Fund (“CSGDA Fund”). The CSGDA Fund was approved by the Chinese Securities Regulatory Commission (“CSRC”) in September 2007 and was the first QDII equity fund launched in China. The Group owns 30% of issued capital of CSOP.

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The investments in the 30% issued ordinary share capital of Calypso Capital Group and CSOP were accounted for as investments in associates while the investments in the 100% non-voting preference shares of the Calypso Capital Group were accounted for as available-for-sale financial assets.

In additional to the investment in associate in Guotai Junan Fund Management Limited acquired in the year ended 31 March 2008, the Group currently has strategic position in three asset management companies. The Directors believe these asset management companies can serve as platforms for managing foreign investments into China as well as managing foreign investments by Chinese domestic investors which enable asset management companies to capitalise the continuous benefits from managing the expected massive flow of investment capital in and out of China.

Investment funds

As a common practice for the investment management industry, the investment manager and/or its shareholders may sometimes put seed capital into its investment funds in order to facilitate the launch of products. The purpose of seed capital is to incubate and ensure that investment funds can have a reasonable starting fund size to operate and to build their track record. For this purpose, the Group has invested in two investment funds managing by Calypso Capital Group. These investments were accounted for as financial assets at fair value through profit or loss.

PEIB

Capitalising extensive investment banking experience and network of the Directors and the Group’s investment manager, the Group has led an investment syndicate to co-invest in convertible bonds and shares of Challenger Group Holding Limited (“Challenger”) through a private placement. Challenger is a company listed on the Growth Enterprise Market whose principal activities is the coal beneficiation and the processing of coking coal and coke and their related coal by-products in Inner Mongolia, China. Under the PEIB investment approach, the Group not only contribute monetary capital but also its knowledge capital in leading the managing investment process from identifying, structuring, executing and exiting the investment. Such unique role often allows the Group to command an additional share of return from the investment syndicate thus enable the Group’s return to extend beyond its relative monetary capital contribution provided in coinvestment. This co-investment through a special investment vehicle was accounted for as available-for-sale financial assets.

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Analysis of investments held

As at 30 September 2008, the Group held financial assets and investments (exclusive of loans and receivables) totalling HK$860.03 million (31 March 2008: HK$757.47 million) comprising:

	30 September	31 March
	2008	2008
	(Unaudited)	(Audited)
	HK$	HK$
Investments in associates	5,889,108	2,990,000
Available-for-sale financial assets	286,004,627	556,930
Financial assets at fair value through profit or loss	237,819,325	9,000
Bank balances	330,315,076	753,912,110
	860,028,136	757,468,040

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FINANCIAL ASSETS AND INVESTMENTS
30 SEPTEMBER 2008 UNAUDITED BALANCE SHEET
(HK$’000)
0.70%
Investments in Associates
38.40% 33.25%
Available-For-Sale Financial Assets
Financial Assets at Fair Value
27.65% Through Profit or Loss
Bank Banlances
† Exclusive of loans and receivables
Includes co-investment in Challenger held via a special investment vehicle
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FINANCIAL ASSETS AND INVESTMENTS
31 MARCH 2008 AUDITED BALANCE SHEET
(HK$’000)
0.01%
0.07% 0.39%
Investments in Associates
Available-For-Sale Financial Assets
Financial Assets at Fair Value
99.53% Through Profit or Loss
Bank Balances
† Exclusive of loans and receivables
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Financial Review

Financial position

Net asset value: The Group’s net assets as at 30 September 2008 has increased by 15.17% to HK$861.82 million (31 March 2008: HK$748.28 million) while the net asset value on a per share basis has increased by 14.02% to HK$1.22 (31 March 2008: HK$1.07). The increase in the net assets for the Period was mainly resulting from the appreciation of fair value from the Group’s attributable interests in the bonds and shares of Challenger in June 2008 amounted to HK$114.37 million, the fair value of 5.5 million shares issued as initial consideration for Group’s acquisition of the Calypso Capital Group amounted to HK$5.94 million less the consolidated net loss for the Period of HK$10.12 million.

Net current assets: The Group had net current assets of HK$574.09 million (31 March 2008: HK$744.73 million) and no borrowings as at 30 September 2008, which positions the Group advantageously to pursue its investment strategies and new investment opportunities.

Gearing: The gearing ratio, which was calculated on the basis of total liabilities over total equity as at 30 September 2008, was 0.02 (31 March 2008: 0.02).

Property, plant and equipment: The purchase of additional office equipment and furnitures and fixtures of HK$0.18 million was to cope with the additional personnel and the increase in rental floor areas during the Period.

Investments in associates: The increase in investments in associates to HK$5.89 million as at 30 September 2008 (31 March 2008: HK$2.99 million) represents the two investments made by the Group in Calypso Capital Group and CSOP and the share of net results of the three asset management companies for the Period.

Available-for-sale financial assets: The significant increase in available-for-sale financial assets to HK$286.00 million (31 March 2008: HK$0.56 million) represents the coinvestment made in Challenger and the fair value appreciation at the reporting date.

Financial assets at fair value through profit or loss: The significant increase in financial assets at fair value through profit or loss held at the reporting date to HK$237.82 million (31 March 2008: HK$0.009 million) was mainly resulting from the investment in the two investment funds managed by the Calypso Capital Group.

Amount due from a broker: This represents the unsettled proceeds from investment disposal at the report date.

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Amount due from an associate: This represents temporary loan to CSOP for its working capital pending for approval from the State Administration of Foreign Exchange of China approving the remittance of capital contribution from CSFM into CSOP. The temporary loan has been fully repaid subsequent to the reporting date.

Prepayments, deposits and other receivables: This mainly represents a bridge financing to CSFM for its share of capital contribution in CSOP pending for the relevant approval from the State Administration of Foreign Exchange of China. The relevant approval has been obtained subsequent to the reporting date.

Tax recoverable: This presents recoverable of tax payment for the year ended 31 March 2007.

Bank balances: As at 30 September 2008, the Group had bank balances of HK$330.32 million (31 March 2008: HK$753.91 million).

Other financial liabilities: This represents fair value of the additional 4.5 million consideration shares and consideration share options of 20 million shares which (subject to the achievement of certain vesting conditions as described in the announcement of the Company dated 26 June 2008) in connection with investment in Calypso Capital Group.

Results

The Group reports a net loss for the Period of HK$10.12 million comparing to a net profit of HK$15.05 million for the corresponding period.

The reported net loss of HK$10.12 million was mainly attributable to a change of investment focus of the Group from trading focus of listed financial assets in the corresponding period to investment of strategic listed or unlisted financial assets with a much longer horizon. The investment of these strategic financial assets is classified as “Available-for-sale financial assets” in the Group’s financial statements. Under the applicable financial reporting standards, any gains or losses arising from changes in fair value of “Available-for-sale financial assets” are recognised directly in equity until investments are disposed of or are determined to be impaired, at which time the cumulative gains or losses previous recognised in equity are recognised in the income statement. As such, the aggregated gains of HK$117.73 million from the appreciation of the fair value of such investments for the Period was not reflected in the income statement despite the related administrative expenses incurred to support and maintain such available-for-sale financial assets (e.g. staff costs and management fee) was recognised in the income statement thus resulting a net loss position.

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Given the nature of the Group being an investment company, shareholders should not solely rely on the income statement in assessing the performance of the Group but also look to the Company’s net asset value per share (published on a monthly basis) which provides a better overall indicator of the Group’s operating performance for the Period.

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NET ASSET VALUE PER SHARE
HK$
1.40
2008 2007
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Apr May Jun Jul Aug Sep
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Income Statement

Turnover: Turnover comprises interest income and dividends from investments. The significant increase to HK$4.99 million (2007: HK$0.69 million) was mainly due to the Group had a significant higher average bank balances during the Period as comparing to the corresponding period.

Net (loss)/gain on financial assets at fair value through profit or loss: The net loss on financial assets at fair value through profit or loss was arisen mainly from unrealised losses on the two investment funds.

Fair value gain on other financial liabilities: This represents the decrease in fair value of the financial liabilities incurred for the contingent consideration payable by way of additional 4.5 million consideration shares and consideration share options for 20 million shares in connection with the investment in Calypso Capital Group.

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Administrative expenses: The administrative expenses represent mainly staff costs, management fee to investment manager, rental expenses and overhead cost incurred to maintain and support the operations of the Group. The significant increase of expenses to HK$12.26 million (2007: HK$1.50 million) was mainly due to (i) increase in staff costs to HK$3.90 million (2007: HK$0.46 million) resulting from the increase in headcount; (ii) management fee to HK$6.50 million (2007: HK$0.51 million) which was in line with the significant increase in the average net asset value of the Group over the corresponding period.

Share of results of associates: This represents the net amount of the share of losses incurred by two new formed joint ventures which are still not yet in full commercial operations amounted to HK$1.57 million (2007: Nil).

Outlook and Prospects

The setting up of CSOP was approved by CSRC on 27 June 2008 and the relevant licence approval from the Securities and Futures Commission was granted on 29 September 2008. CSOP is currently finalising its investment management with CSGDA Fund and is expected to in full operation in first quarter of 2009.

Despite the full implication of the “financial tsunami” are difficult to predict, the Directors are confident that the Group are well prepared to sails through the rough storm ahead and continue to create further value for our shareholders.

Liquidity and Financial Resources

For analysis of the Group’s cash position, net current assets and gearing, please refer to paragraphs under sub-sections headed “ Financial position ” above. The Board believes that the Group has sufficient financial resources to satisfy its immediate investments and working capital requirements.

Capital Structure

On 7 August 2008, 5,500,000 new ordinary shares were issued and allotted as fully paid to acquire 30% of the issued ordinary shares and 100% of the issued non-voting preference shares in each of Calypso Capital Limited (“CHK”) and Calypso Capital (Cayman) Limited (“CC”). CHK and CC are asset management companies incorporated in Hong Kong and the Cayman Islands respectively.

For information relation to issue of new shares subsequent to 30 September 2008, please refer to note 8 on page 6 of this announcement under the paragraph headed “Subsequent event”.

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Significant Investments Held

Please refer to the paragraphs under the sub-section headed “ Analysis of investments held ” above.

Employees and Remuneration Policies

Due to the rapid growth of deployable assets after the placement in end of 2007, during the Period four senior executives joined the Group increased its total number of employees to 7 (2007: 3) employees, inclusive of the two executive Directors. Total staff costs for the Period amounted to HK$3.90 million (2007: HK$0.46 million). The Group’s remuneration policies are in line with the market practice and are determined on the basis of the performance and experience of individual employee.

Exposure to Fluctuations in Exchange Rates and Related Hedges

The Group’s assets and liabilities were either denominated in Hong Kong Dollars or United States Dollars and, therefore, the Group had no significant exposure to foreign exchange fluctuation.

Charges on the Group’s Assets and Contingent Liabilities

As at 30 September 2008, there were no charges on the Group’s assets and the Group did not have any significant contingent liabilities.

Purchase, Sale or Redemption of Securities

During the Period, the Company has not purchased, sold or redeemed any of its listed shares.

CODE ON CORPORATE GOVERNANCE PRACTICES

None of the directors is aware of any information that would reasonably indicate that the Company is not, or was not, at any time during the Period, in compliance with the Code on Corporate Governance Practices as set out in Appendix 14 to the Listing Rules.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code for Securities Transactions by Directors by Listed Issuers (the “Model Code”) set out in Appendix 10 of the Listing Rules. Upon enquiry by the Company, all directors of the Company have confirmed that they have complied with the required standards set out in the Model Code throughout the Period.

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AUDIT COMMITTEE

The Company’s audit committee, comprising three independent non-executive directors, has reviewed with management the accounting principles and practices adopted by the Company and discussed auditing, internal controls and financial reporting matters including a review of the unaudited condensed financial statements for the Period before recommending them to the Board for approval.

PUBLICATION OF FINANCIAL INFORMATION

This results announcement is published on the websites of the Stock Exchange (www.hkex.com.hk) and the Company (www.opfin.com.hk). The Group’s Interim Financial Report for 2008 will be dispatched to the shareholders of the Company and available on the above websites in due course.

BOARD OF DIRECTORS

As at the date of this announcement, the Board comprises two executive Directors, namely, Mr. Zhang Zhi Ping and Mr. Zhang Gaobo; a non-executive Director, namely, Mr. Liu Hongru; and three independent non-executive Directors, namely, Mr. Kwong Che Keung, Gordon, Professor He Jia and Mr. Wang Xiaojun.

On behalf of the Board ZHANG Gaobo Executive Director and CEO

Hong Kong SAR, 18 December 2008

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