TOM Group Limited — Earnings Release 2005

Mar 21, 2006

Listed Company Information

Listed Company Information
TOM GROUP<02383> - Results Announcement TOM Group Limited announced on 21/03/2006: (stock code: 02383 ) Year end date: 31/12/2005 Currency: HKD Auditors' Report: Unqualified (Restated) (Audited ) (Audited ) Last Current Corresponding Period Period from 01/01/2005 from 01/01/2004 to 31/12/2005 to 31/12/2004 Note ('000 ) ('000 ) Turnover : 3,105,317 2,595,245 Profit from Operations before share of profits and losses of associates and jointly controlled entities : 474,358 948,839 Profit from Operations after share of profits and losses of associates and jointly controlled entities : 495,449 959,516 Finance cost : (103,973) (65,801) Share of Profit/(Loss) of Associates : 21,229 11,044 Share of Profit/(Loss) of Jointly Controlled Entities : (138) (367) Profit/(Loss) after Tax & MI : 259,526 773,448 % Change over Last Period : -66 % EPS/(LPS)-Basic (in dollars) : 0.0667 0.1990 -Diluted (in dollars) : 0.0667 0.1945 Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : 259,526 773,448 Final Dividend : NIL NIL per Share (Specify if with other : N/A N/A options) B/C Dates for Final Dividend : N/A Payable Date : N/A B/C Dates for (-) General Meeting : N/A Other Distribution for : N/A Current Period B/C Dates for Other Distribution : N/A Remarks: 1 Basis of preparation and accounting policies These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with Hong Kong Financial Reporting Standards ("HKFRS", which term collectively includes Hong Kong Accounting Standards ("HKAS") and Interpretations ("HK-INT")) issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and the disclosure requirements by the Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. They have been prepared under the historical cost convention except that available-for-sale financial assets are stated at fair value. The accounting policies and methods of computation used in preparation of these condensed consolidated financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2004 except that the Group has changed certain of its accounting policies following its adoption of new HKFRS which are effective for accounting periods commencing on or after 1 January 2005. The changes to the Group's accounting policies and the effect of adopting these new policies are set out in note 2 below. 2 Changes in accounting policies In 2004, the Group has early adopted the following new HKFRS: HKFRS 3 Business Combinations HKFRS 36 Impairment of Assets HKFRS 38 Intangible Assets In preparing the consolidated financial statements for the year ended 31 December 2005, the Group has adopted the new/revised HKFRS below which are relevant to the Group's operations. The 2004 comparatives have been amended as required in accordance with the relevant requirements. HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 19 (Amendment) Actuarial Gains and Losses, Group Plans and Disclosures HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 28 Investments in Associates HKAS 31 Investments in Joint Ventures HKAS 32 Financial Instruments: Disclosures and Presentation HKAS 33 Earnings per Share HKAS 39 Financial Instruments: Recognition and Measurement HKFRS 2 Share-based Payments HKFRS 5 Non-current Assets held for Sale and Discontinued Operations The adoption of HKAS 1, 2, 7, 8, 10, 16, 21, 23, 24, 27, 28, 31, 33 and HKFRS 5 did not result in substantial changes to the Group's accounting policies. In summary: - HKAS 1 has affected the presentation of minority interests, share of net after-tax results of associates and certain other disclosures in the accounts; - HKAS 21 requires goodwill and fair value adjustments arising on acquisition of foreign entities be treated as assets and liabilities of the foreign entities and translated at closing rates. Furthermore, the functional currency of each of the consolidated companies has been re- evaluated based on the guidance to the revised standard; and - HKAS 2, 7, 8, 10, 16, 23, 24, 27, 28, 31, 33 and HKFRS 5 had no material effect on the Group's accounting policies. Details of the effects of the other applicable new/revised HKFRS are as below: 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 fixed assets to prepaid operating leases. The up-front prepayments made for the leasehold land are expensed in the profit and loss account on a straight-line basis over the period of the lease and where there is impairment, the impairment is expensed in the profit and loss account. In prior years, the leasehold land was accounted for at cost less accumulated depreciation and accumulated impairment. If the allocation between the leasehold land and building elements cannot be made reliably, the leasehold land is accounted for as properties within fixed assets. HKAS 19 (Amendment) The Group has early adopted HKAS 19 (Amendment) from 1 January 2005. This amendment introduces an additional recognition option for all actuarial gains and losses arising from post-employment defined benefit plans outside profit and loss account. The Group has elected to take this option for recognition of all such actuarial gains and losses directly in equity. HKAS 32 and 39 The adoption of HKAS 32 and 39 has resulted in a change in the accounting policy relating to the classification of financial assets from investment securities to available-for-sale financial assets. These assets are carried at fair value at the balance sheet date with movements in fair value taken to reserves, or the part of any change in fair value attributable to interest income calculated using the effective interest method being recognised in profit and loss account. Furthermore, financial liabilities, except for those carried at fair value through profit or loss, are required to be carried at amortised cost using effective interest method, instead of being carried at face values before the adoption. Embedded derivatives are separated from the host contract and accounted for as a derivative if the economic characteristics and risks of the derivative are not closely related to that of the host contract. HKFRS 2 By the adoption of HKFRS 2, the Group recognises the fair value of share options granted to employees as an expense in the profit and loss account and a corresponding increase in capital reserve. All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. All standards adopted by the Group require retrospective application other than: HKAS 19 (Amendment) - the impacts on the prior periods by the adoption of this standard are not material such that no prior year adjustment has been made; HKAS 21 - prospective accounting for goodwill and fair value adjustments as part of foreign operations; HKAS 39 - disallow recognition, derecognition and measurement of financial assets and liabilities in accordance with the standard on a retrospective basis. The adjustments required are determined and recognised on 1 January 2005; and HKFRS 2 - only retrospective application for all equity instruments granted after 7 November 2002 and not vested on 1 January 2005. Overall, the effects of changes in accounting policies on profit attributable to equity holders of the Company and on shareholders' fund are summarised as below: HKAS 19 HKAS 32 & (Amendment) HKAS 39 HKFRS 2 Total HK$'000 HK$'000 HK$'000 HK$'000 For the year ended 31 December 2005: (Increase)/decrease in profit attributable to equity holders of the Company (13) 32,114 37,264 69,365 ======== ======== ======== ======== Decrease in basic earnings per share (HK cents) - 0.82 0.96 1.78 ======== ======== ======== ======== Decrease in diluted earnings per share (HK cents) - - - - ======== ======== ======== ======== For the year ended 31 December 2004: Decrease in profit attributable to equity holders of the Company - 30,645 55,729 86,374 ======== ======== ======== ======== Decrease in basic earnings per share (HK cents) - 0.79 1.43 2.22 ======== ======== ======== ======== Decrease in diluted earnings per share (HK cents) - - 1.31 1.31 ======== ======== ======== ======== As at 31 December 2005: Increase in capital reserve - - 96,644 96,644 Increase in convertible bond reserve - 174,327 - 174,327 Decrease in available-for-sale financial assets reserve - (201) - (201) Decrease /(Increase) in accumulated losses 4,185 (65,650) (96,644) (158,109) -------- -------- -------- -------- Net increase in shareholders' fund 4,185 108,476 - 112,661 ======== ======== ======== ======== As at 31 December 2004: Increase in capital reserve - - 59,680 59,680 Increase in convertible bond reserve - 179,036 - 179,036 Decrease in available-for-sale financial assets reserve - (254) - (254) Increase in accumulated losses - (33,536) (59,680) (93,216) -------- -------- -------- -------- Net increase in shareholders' fund - 145,246 - 145,246 ======== ======== ======== ======== 3 Provision for receivables, net Provision for receivables, net, amounting to HK$7,271,000 made in 2005, represents a provision of HK$46,203,000 for accounts receivables in respect of a sports event, offset by a write-back of provision of HK$38, 932,000 made in prior years in respect of loans and advances for certain investee companies. 4 Net gain on deemed disposals of interests in subsidiaries (a) Puccini International Limited ("Puccini") On 19 November 2003, the Group completed the acquisition of the 100% beneficial interest in Beijing Lei Ting Wu Ji Network Technology Limited from Cranwood Company Limited ("Cranwood") through the acquisition of the entire share capital of Puccini. The purchase consideration was contingent on the audited consolidated net profit of Puccini and its subsidiaries (the "Puccini Group") for the year ended 31 December 2004, and subject to a maximum consideration of US$150 million (approximately HK$1,170 million). Half of the consideration is to be settled in cash and the remaining half is to be satisfied by the issue of shares by TOM Online Inc. ("TOM Online"), a non-wholly owned subsidiary of the Company. As at 31 December 2004, the total purchase consideration was estimated to be US$132 million (approximately HK$1,030 million). Shares of TOM Online worth of US$18.5 million (approximately HK$144.3 million) were issued at an issue price of HK$1.50 each to Cranwood in March 2004 as initial consideration. The audited consolidated accounts of Puccini Group for the year ended 31 December 2004 were issued on 6 April 2005 and the purchase consideration was finalised at US$132 million (approximately HK$1,030 million). Accordingly, shares of TOM Online totalling US$47.5 million ( approximately HK$370.5 million) were issued by TOM Online at an issue price of HK$1.2193 per share (being the average closing price of shares of TOM Online during the 30 trading days immediately before the date of the auditors' report of the 2004 accounts of Puccini Group) on 25 April 2005. Cash consideration of US$66 million (approximately HK$515 million) was paid by the Group by 29 April 2005. As a result of the issuance of shares by TOM Online on 25 April 2005, the beneficial interest in TOM Online held by the Group was reduced by 5.20%, resulting in a gain on deemed disposal of approximately HK$160, 872,000. (b) Indiagames Limited ("Indiagames") TOM Online Games Limited ("TOM Online Games"), a non-wholly owned subsidiary of the Company, has acquired 76.29% beneficial interest in Indiagames and its subsidiaries (the "Indiagames Group') on 24 February 2005. In May 2005, Indiagames allotted and issued a total of 112,683 shares to two independent parties for a total consideration of US$4 million (approximately HK$31.2 million). As a result, the beneficial interest held by TOM Online Games in Indiagames Group was reduced by 13. 87%, resulting in a loss on deemed disposal of approximately HK$537,000. 5 Earnings per share (a) Basic The calculation of the basic earnings per share is based on consolidated profit attributable to equity holders of the Company of HK$259,526,000 ( 2004 (As restated): HK$773,448,000) and the weighted average of 3,890,885,006 (2004: 3,886,250,185) ordinary shares in issue during the year. (b) Diluted No diluted earnings per share is presented for the year ended 31 December 2005 as the exercise price of the outstanding share options granted by the Company were higher than the average market price of the share of the Company, and the conversion of the outstanding convertible bonds would have an anti-dilutive effect during the year. Details of calculation of diluted earnings per share for the year ended 31 December 2004 are shown as follows: 2004 (As restated) Profit attributable to equity holders of the Company (HK$'000) 773,448 Finance costs on convertible bonds (HK$'000) 51,267 ------------ Profit used to determine diluted earnings per share (HK$'000) 824,715 ============ Weighted average number of ordinary shares in issue 3,886,250,185 Adjustments for: - assumed conversion of convertible bonds 352,941,176 - share options 220,296 ------------ Weighted average number of ordinary shares for diluted earnings per share 4,239,411,657 ============ Diluted earnings per share (HK cents) 19.45 ============