Television Broadcasts Limited — Interim / Quarterly Report 2003

Dec 31, 2002

YEW SANG HONG (HOLDINGS) LIMITED 耀 生 行 （ 集 團 ） 有 限 公 司

YEW SANG HONG (HOLDINGS) LIMITED 耀生行（集團） 有限公司 [*]

(Incorporated in the Cayman Islands with limited liability)

INTERIM RESULTS

On behalf of the board of directors (the “Board”) of Yew Sang Hong (Holdings) Limited (the “Company”), I am honored to present the interim results of the Company and its subsidiaries (the “Group”) for the six months ended 30 September 2002 (the “Period”).

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002

NOTES Turnover Cost of sales Gross profit Other operating income Selling expenses Administrative expenses (Loss) profit from operations 3 Finance costs Share of results of associates (Loss) profit before taxation Taxation 4 (Loss) profit before minority interests Minority interests Net (loss) profit for the Period (Loss) earnings per share 6	Six months ended 30 September 2002 2001 HK$’000 HK$’000 (unaudited) (unaudited) 108,659 39,810 (90,321) (26,920) 18,338 12,890 2,903 1,909 (467) (465) (28,986) (11,602) (8,212) 2,732 (7) (154) (257) — (8,476) 2,578 (2,047) (822) (10,523) 1,756 4 — (10,519) 1,756 (4.8) cents 0.90 cents

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NOTES

1. Basis of Presentation and Accounting Policies

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with the Statement of Standard Accounting Practice (“SSAP”) No. 25 “Interim Financial Reporting” issued by the Hong Kong Society of Accountants.

The condensed financial statements have been prepared under the historical cost convention. The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 March 2002, except as described below.

In the current period, the Group has adopted, for the first time, the following new and revised SSAPs:

SSAP 1 (Revised) Presentation of Financial Statements SSAP 11 (Revised) Foreign Currency Translation SSAP 15 (Revised) Cash Flow Statements SSAP 34 Employee Benefits

The adoption of these SSAPs has resulted in a change in the format of presentation of the cash flow statement and the statement of changes in equity but has had no material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

Following the acquisition of investments in associates and other investments, the Group has also adopted the following policies:

Interests in associates

The condensed consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the Period. In the condensed consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates on acquisition, less any identified impairment loss.

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

At subsequent reporting dates, all securities are measured at fair value.

Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the Period. For other securities, unrealised gains and losses are dealt with in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the Period.

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2. Segment Information

For management purposes, the Group is currently organised into two operating divisions — electrical engineering contracting and sale of electrical goods. These divisions are the basis on which the Group reports its primary segment information.

Business segments

Business segments
	Electrical	Sale of
	engineering	electrical	Other
	contracting	goods	operations	Eliminations	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
For the six months ended
30 September 2002
TURNOVER
External sales	88,949	19,584	126	—	108,659
Inter-segment sales	—	11,097	—	(11,097)	—
Total revenue	88,949	30,681	126	(11,097)	108,659
Inter-segment sales are
charged at prevailing
market rates
RESULTS
Segment results	8,812	1,881	(991)	—	9,702
Interest income					626
Other operating income					143
Unallocated corporate expenses					(18,683)
Loss from operations					(8,212)
Finance costs					(7)
Share of results of associates			(257)		(257)
Loss before taxation					(8,476)
Taxation					(2,047)
Loss before minority interests					(10,523)
Minority interests					4
Net loss for the Period					(10,519)

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		Electrical	Sale of
		engineering	electrical
		contracting	goods	Eliminations	Consolidated
		HK$’000	HK$’000	HK$’000	HK$’000
	For the six months ended
	30 September 2001
	TURNOVER
	External sales	19,086	20,724	—	39,810
	Inter-segment sales	—	3,962	(3,962)	—
	Total revenue	19,086	24,686	(3,962)	39,810
	Inter-segment sales are charged at
	prevailing market rates
	RESULTS
	Segment results	(1,880)	3,265	—	1,385
	Interest income				1,828
	Other operating income				81
	Unallocated corporate expenses				(562)
	Profit from operations				2,732
	Finance costs				(154)
	Profit before taxation				2,578
	Taxation				(822)
	Net profit for the Period				1,756
3.	(Loss) Profit from Operations
				Six months	ended
				30 September
				2002	2001
			HK$’000		HK$’000
	(Loss) profit from operations has been
	arrived at after charging:
	Depreciation of plant and equipment			914	201
	Amortisation of goodwill included in
	administrative expenses			356	—

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4. Taxation

The charge represents provision for Hong Kong Profits Tax of the Company and its subsidiaries for the Period. Hong Kong Profits Tax is calculated at 16% (2001: 16%) of the estimated assessable profit for the Period.

No provision for People’s Republic of China (the “PRC”) income tax has been made in respect of the Company’s PRC subsidiary as the PRC subsidiary incurred a loss during the Period.

No provision for deferred taxation has been recognised in the financial statements as the amount involved is immaterial.

5. Dividends

No dividends were paid during the Period. The directors do not recommend the payment of any interim dividend.

6. (Loss) Earnings Per Share

The (loss) earnings per share is calculated based on the loss for the Period amounting HK$10,519,000 (for the six months ended 30 September 2001: profit of HK$1,756,000) and the weighted average of 217,297,268 shares (196,065,574 shares for the six months ended 30 September 2001) in issue.

No diluted loss per share has been presented for 2002 as the exercise of share options would result in a decrease in loss per share. There were no dilutive potential ordinary shares in issue during 2001.

INTERIM DIVIDEND

The Directors of the Company have resolved not to declare any interim dividend for the six months ended 30 September 2002 (2001: Nil).

MANAGEMENT DISCUSSION & ANALYSIS

Review of Operations

The unaudited consolidated loss attributable to shareholders for the Period amounted approximately HK$10,519,000 whereas profit attributable to shareholders of HK$1,756,000 was made for the same period in 2001. Turnover of the Period was HK$108,659,000, representing an increase of 172.9% compared with last corresponding period.

Electrical Engineering Contracting Business

During the Period, the Group mainly continued its outstanding work in progress brought forward at the beginning of the Period.

Rewiring of Lei Cheng Uk Estate and MTR’s Tseung Kwan O Extension in Signaling System Installation were completed during the Period under review. The Group also completed an electrical installation project for a printing factory in Dongguan, Guangdong, the PRC. It is believed to be a stepping stone of the Group to increase its PRC exposure for tendering similar mainland projects in the future. The Group has managed to secure new contracts as shown below:

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New Contracts

Project	Description	Approx. Contract Value (HK$ million)
Tin Shui Wai Area 102 phase 3 Completion Contract	Electrical installation	3.3
School Improvement Programme Final Phase Package 1 Group 1	Electrical installation	8.7
School Improvement Programme Final Phase Package 4 Group 1	Electrical installation	5.4
School Improvement Programme Final Phase Package 6 Group 1	Electrical installation	6.9
School Improvement Programme Final Phase Package 1 Group 2	Electrical installation	1.8
	Total	26.1

As at 30 September 2002, the Group’s electrical engineering contracts on hand amounted approximately HK$184 million in total, comprising HK$139.1 million for public housing contracts, approximately HK$22.8 million for private contracts and HK$22.1 million for maintenance projects.

Electrical & Component Trading Business

The performance of the Group’s trading division was satisfactory. This reflects the internal vertical integration process in terms of control of material supply and pricing. Currently, the Group possesses distribution rights of a number of products for the following major brands of electrical equipment and materials:

Brand	Orgin of Manufactures	Products
Togami	Japan	Thermal overload relays switchgears contactors
Benedikt & Jager	Austria	Thermal overload relays, push bottons, main switches
		and Rotary cam switches
Asahi	Japan	Insulated busbar busducts
Toyokuni	Japan	Branchmatic cable systems
Carlo Gavazzi	Europe	Electronic controls & monitoring systems
Garre	Denmark	Current transformers
Rupam	India	Brass cable glands & cable accessories
Axis	India	Copper cable lugs, earthing systems & accessories
Polywater	U.S.A	Cable pulling lubricant

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Financial Review & Analysis

Financing

1. Placing of New Shares

On 21 May 2002, the Company entered into a conditional placing and underwriting agreement with two independent placing agents for the placing of 23,800,000 new shares at a placing of HK$5.13 per placing share to independent investors. The placing has been completed on 19 June 2002. The net proceeds of the placing were amounted to approximately HK$118 million, of which up to approximately HK$50 million was retained for the business operation of a new joint venture company to be established in the PRC and the remaining balance of approximately HK$68 million was retained for the future operation of a new securities firm established by the Company in Hong Kong.

2. Use of Proceeds

As at 31 March 2002, out of the net proceeds HK$24.2 million from the shares issued during the New Listing, the Group had already utilized approximately HK$1.5 million. On 16 December 2002, the Company announced that, in view of the uncertainties in respect of the future prospects of the electrical contracting business, the Board has taken a prudent approach that it will not be in the interests of the Company to expand electrical engineering and trading business at this stage by applying the full amount of the IPO proceeds in according with the intended way of usage as stated in the prospectus of the Company. Out of the approximately HK$24.2 million IPO proceeds, the unused portion approximately HK$22.7 million will be allocated into two parts, (i) approximately HK$1.0 million for developing trading business of electrical equipment and materials in the PRC which has not been used up to 30 September 2002 and (ii) approximately HK$21.7 million for working capital purpose, in particular, for general overheads of the Group.

Liquidity, Financial Resources and Gearing

The Group’s total current assets and liabilities were approximately HK$191,092,000 and HK$58,961,000 respectively as at 30 September 2002 when the current ratio was about 3.24 times. As at 30 September 2002, the Group’s aggregate cash amounted to HK$82,460,000 whilst combining with short-term guarantee fund investment of approximately HK$26,227,000, which totalled HK$108,687,000, representing approximately 57% of total current assets. The Directors believe that the Group has adequate fund for business operation and maintains a high liquidity. The reason for a strong financial position mainly comes from the placing of new shares during the Period approximately HK$118,000,000.

During the Period, the Group’s financial position was healthy, principally financed by its equity capital. As at 30 September 2002, the consolidated shareholders funds amounted to approximately HK$213,764,000; whereas the Group’s total borrowings was about HK$361,000 only which mainly comprised of short-term bank loans, overdraft and finance leases. The bank borrowing principally comprised of loans in Japanese Yen on a floating rate basis.

As at 30 September 2002, the gearing ratio, defined as the total debts over total assets, was approximately 0.13% (31 March 2002: 4.2%). The favourable improvement in the ratio reflected the Group’s increase in its equity capital and the reduction in the amount of its net borrowings at the end of the Period.

With strong working capital, less banking facilities offered by financial institutes were utilized during the Period. As a result, the Group financial costs in loan and overdraft interests payment were substantially decreased to only about HK$7,000 for the Period, a drop of about 95% comparing to HK$154,000 for the last year.

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Major Investments

1. Acquisition of 北京易行商盟在線網絡技術有限公司（“北京易行”）

An indirect wholly-owned subsidiary of the Company acquired 60% stake of Cyber Touch Limited for a consideration of HK$18 million in July 2002. The principal asset of Cyber Touch Limited is 100% interest in 北京易行 which is engaged in manufacture and sales of computer software and network products. Through the alliance with Bank of Communication in China, 北京易行 will launch “太平洋易行聯名 卡” which provides financial, tour reservation and travel insurance services.

1. Other Investments

During the Period, the Group has invested in two associated companies which are engaged in mobile phone trading business in the PRC and trading of pharmaceutical products respectively. Total investment of the two companies amounted to approximately HK$7 million.

Prospects

In November 2002, the housing policy in Hong Kong was revamped in a bid to revive local sluggish property market. The Government has ceased Home Ownership Scheme as well as development projects under Housing Authority and Housing Society. The decline in the volume of new public housing works has lured contractors who previously were active in the public sector to begin competing in the private sector. This will in turn result in a deeper cut in the contract price. As part of the corporate diversification plans, the Group has been diverting its core business towards maintenance activities which will provide a steady stream of revenue. Target segments include property developers, estate management companies, public utilities, hotels, schools and educational institutions.

On the other hand, the Group is seeking business ventures in residential building and material supply in the PRC. As a total solution building service provider, the Group has been vertically integrated into distribution of electrical products which are re-exported from the PRC to Australia, Italy and Japan. The Group is looking into opportunities for extension of distribution rights in the PRC.

New lines of businesses are in their initial development and investment stages. In December 2002 and according to the letter of intent dated 2 May 2002, the Company has entered into a joint venture (“JV”) agreement with 深 圳市一輝實業有限公司 for the formation of the JV company in Shenzhen. It is in line with corporate strategy to expand core business to the PRC market. Meanwhile, the Group and 大公國際資信評估有限公司 are arranging the formation of 大公信用信息服務有限公司.

In addition, the Company also has a 50:50 joint venture engaged in mobile phone trading business. New models are manufactured in Korea with special features supporting colour display up to 65,000 pixels. First batch of over 9,000 sets were delivered before December 2002 for testing and processing, which will then be sold in the PRC market. Further, 北京易行 serves its 16 million members through the website of “www.helptrip.com.cn” (the “Helptrip”). Leveraging on the combined client base, 北京易行 will cooperate with Bank of Communication in China to jointly launch a “太平洋易行聯名卡” in early 2003. Apart from comprehensive financial services, the card also provides hotel reservation, ticket reservation, tour booking and travel insurance services. This will increase the use of Helptrip services to a certain extent.

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In view of the solid fundamentals of the Hong Kong economy and the Directors’ belief that Hong Kong will continue to serve as one of the Asian pillars in the global stock market, the Directors have been holding a positive view on the securities market in Hong Kong and believe that the Hong Kong stock market will remain attractive to different types of investors in the long term. The Directors believe that, similar to other countries, the securities market and the economy of Hong Kong are cyclical in nature. As the Directors consider that the securities industry in Hong Kong will continue to be very competitive, the Directors believe that it is important for the Group to have the capability to provide a wide range of services in order to maintain a competitive edge in the market.

In December 2002 the Board also resolved to put forward a proposal (the “Proposal”) for the approval of the shareholders other than the two corporate shareholders beneficially owned by Mr. Lai Sai Sang and Mr. Hon Ming King respectively (the “Independent Shareholders”) at the Extraordinary General Meeting of the shareholders. Under the Proposal, the Company will commence to engage in investing in securities via Hong Kong Hai Securities Limited (“HTH”) which has been established for engaging in stockbroking and related securities businesses. The Group has already commenced its stockbroking business in September 2002.

It is expected that upon the granting of the approval from the Independent Shareholders, HTH will have more flexibility in its stockbroking business by undertaking placing and underwriting of securities, if opportunities arise. It is also the intention of the Group not to engage in active proprietary trading activities in securities and the Group will only make investment in securities for long-term investment purposes with the prior approval of the board of HTH after careful evaluation of the underlying companies’ fundamentals, price performance and liquidity of the securities.

As the economy is still undergoing structural adjustments, the Board intends to adopt a cautious approach to the business outlook. We believe that diversification and integration are effective measures in weathering current economic doldrums.

CORPORATE GOVERNANCE AND OTHER INFORMATION

Review of Interim Results

The interim financial report of the Group for the six months ended 30 September 2002 has not been audited, but has been reviewed by the Audit Committee of the Board and the Company’s auditors, Messrs. Deloitte Touche Tohmatsu.

Audit Committee

The Company has set up an Audit Committee (the “Committee”) on 3 April 2001, comprising two independent non-executive directors of the Company with terms of reference prepared based on “A Guide for the formation of an Audit Committee” published by the Hong Kong Society of Accountants. The principal duties of the Committee are to review and supervise the Group’s financial reporting process and internal control system. The meeting of the Committee was held on 23 December 2002. The Committee has already reviewed the interim report and the condensed financial statements for the Period.

Change of Directors

Ms. Leung Sau Che, Jennifer and Mr. Chuk Wai Chun, Winston retired during the last annual general meeting but did not offer themselves for re-election for the position of executive directors of the Company and Mr. Lau Chun Kay retired during the last annual general meeting but did not offer himself for re-election for the position of independent non-executive director of the Company.

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PUBLICATION OF DETAILED INTERIM RESULTS ANNOUNCEMENT ON THE WEBSITE OF THE STOCK EXCHANGE OF HONG KONG LIMITED

A detailed interim results announcement containing the information required by paragraphs 46(1) to 46(6) of Appendix 16 of the Listing Rules will be published on the website of The Stock Exchange of Hong Kong Limited (www.hkex.com.hk) in due course.

On behalf of the Board Lai Sai Sang Chairman

Hong Kong, 30 December, 2002

• For identification purpose only

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

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