TOM Group Limited — Interim / Quarterly Report 2005

Aug 22, 2005

Listed Company Information

Listed Company Information
TOM GROUP<02383> - Results Announcement (Summary) TOM Group Limited announced on 22/08/2005: (stock code: 02383 ) Year end date: 31/12/2005 Currency: HKD Auditors' Report: N/A Interim report reviewed by: Both Audit Committee and Auditors (Restated) (Unaudited ) (Unaudited ) Last Current Corresponding Period Period from 01/01/2005 from 01/01/2004 to 30/06/2005 to 30/06/2004 Note ('000 ) ('000 ) Turnover : 1,415,747 1,198,375 Profit from Operations before share of profits and losses of associates and jointly controlled entities : 269,698 754,404 Profit from Operations after share of profits and losses of associates and jointly controlled entities : 278,150 754,911 Finance cost : (45,300) (15,369) Share of Profit/(Loss) of Associates : 8,537 853 Share of Profit/(Loss) of Jointly Controlled Entities : (85) (346) Profit/(Loss) after Tax & MI : 169,348 683,478 % Change over Last Period : -75 % EPS/(LPS)-Basic (in dollars) : 0.0435 0.1760 -Diluted (in dollars) : N/A 0.1637 Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : 169,348 683,478 Interim Dividend : NIL NIL per Share (Specify if with other : N/A N/A options) B/C Dates for Interim 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 unaudited condensed consolidated 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 ("HKICPA") and applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules"). 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 Hong Kong Financial Reporting Standards ("HKFRS") and HKASs (collectively referred to as new "HKFRSs") 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 preparing the consolidated financial statements for the year ended 31 December 2004, the Group has early adopted the following new standards with effective from 1 January 2004: HKFRS 3 Business Combination HKAS 36 Impairment of Assets HKAS 38 Intangible Assets The adoption of HKFRS 3, HKAS 36 and HKAS 38 resulted in a change in accounting policy for goodwill and intangible assets. When preparing the interim financial statements of the Group for the six months ended 30 June 2004, goodwill and intangible assets were: - amortised on a straight-line basis over a maximum period of 20 years; and - assessed for impairment if there are any such indications at each balance sheet date. In accordance with the provisions of HKFRS 3, HKAS 36 and HKAS 38, - the Group ceased amortisation of goodwill from 1 January 2004; - accumulated amortisation as at 31 December 2003 has been eliminated with a corresponding decrease in the cost of goodwill; - goodwill is tested annually for impairment as well as there is indication of impairment; and - intangible assets can have indefinite useful lives. These new accounting standards do not require retrospective application. The comparative financial information of the profit and loss account for the six months ended 30 June 2004 has been restated as below: For the six months ended 30 June 2004 HK$'000 Increase in profit attributable to equity holders of the Company 25,131 ======== Increase in earnings per share-basic (HK cents) 0.64 ======== Increase in earnings per share-diluted (HK cents) 0.59 ======== In 2005, the Group has adopted the new HKFRSs below, which are relevant to its operation. The 2004 comparative financial information, where required, has been amended 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 HKASs 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 interest, share of net after-tax results of associates and certain other disclosures in the financial statements; - HKAS 8 has affected certain disclosures in the financial statements; - HKASs 2, 7, 10, 16, 23, 24, 27, 28, 31, 33 and HKFRS 5 had no material effect on the Group's policy; and - 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. 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 21 - prospective accounting for goodwill and fair value adjustments as part of foreign operations. HKAS 39 - does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with the standard on a retrospective basis. The adjustments required by the adoption of HKAS 39 are determined and recognised on 1 January 2005. HKFRS 2 - only retrospective application for all equity instruments granted after 7 November 2002 and not vested on 1 January 2005. Details of the effects of the other applicable HKFRSs 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 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 interests in land are accounted for as properties within fixed assets. HKASs 32 and 39 The adoption of HKASs 32 and 39 has resulted in a change in the accounting policy for recognition, measurement, derecognition and disclosure of financial instruments. Until 31 December 2004, investments held by the Group for non-trading purpose are classified as available-for-sale financial assets and stated at fair value at the balance sheet date. Changes in the fair value of individual securities are credited or debited to the revaluation reserve until the security is sold, or is determined to be impaired. In accordance with HKAS 39, the investments, depending on the purpose for which the investments are held, are required to be classified into financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables, and available-for-sale. As a result, the investment securities held by the Group are reclassified as available-for-sale financial assets and carried at fair value at the balance sheet date with movements in fair value taken to reserve, 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, HKAS 39 requires financial liabilities, except for those carried at fair value through profit or loss, to be carried at amortised cost using the effective interest method. Embedded derivative should be 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. Therefore, the convertible bonds in issue by the Group as at 1 January 2005 were split into the equity portion for the fair value of the conversion right by the bondholders, and the liability portion of the loan which is carried at amortised cost using effective interest method. HKFRS 2 The adoption of HKFRS 2 has resulted in a change in the accounting policy for share-based payments. Until 31 December 2004, the provision of share options to employees did not result in an expense in the profit and loss account. Effective from 1 January 2005, the Group expenses the cost of share options in the profit and loss account. In accordance with the transitional provision of HKFRS 2, only the cost of share options granted after 7 November 2002 which had not yet vested on 1 January 2005 was expensed retrospectively in the profit and loss account of the respective periods. HKAS 19 (Amendment) In February 2005, HKICPA issued HKAS 19 (Amendment) "Actuarial Gains and Losses, Group Plans and Disclosures" which is effective for accounting periods beginning on or after 1 January 2006. This amendment to HKAS 19, among others, introduces an additional recognition option for all actuarial gains and losses arising from post-employment defined benefit plans outside the profit and loss account. Certain disclosures requirements in financial statements are also revised. As permitted by HKAS 19 (Amendment), the Group has early adopted this standard with effect from 1 January 2005. The impact on the prior periods from the adoption of HKAS 19 (Amendment) are not material such that no prior year adjustment has been made. Overall, effect of changes in the accounting policies on profit attributable to equity holders of the Company and on equity attributable to equity holder of the Company is summarised below: As at or for the six months HKAS 32 HKAS 19 ended 30 & HKAS 39 HKFRS 2 (Amendment) June 2005 HK$'000 HK$'000 HK$'000 HK$'000 Decrease in profit attributable to equity holders of the Company 18,348 21,188 20 39,556 ========= ======= ======= ========= Decrease in earnings per share-basic (HK cents) 0.47 0.55 - 1.02 ========= ======= ======== ========= Increase/(decrease) in capital and reserves attributable to equity holders of the Company 143,084 - (563) 142,521 ========= ======= ======== ========= As at or for the six months HKAS 32 HKAS 19 ended 30 & HKAS 39 HKFRS 2 (Amendment) June 2004 HK$'000 HK$'000 HK$'000 HK$'000 Decrease in profit attributable to equity holders of the Company - 25,758 - 25,758 ========== ======= =========== ======== Decrease in earnings per share-basic (HK cents) - 0.66 - 0.66 ========== ======= =========== ======== Decrease in earnings per share-diluted (HK cents) - 0.60 - 0.60 ========== ======= =========== ======== Increase/(decrease) in capital and reserves attributable to equity holders of the Company - - - - ========== ======= ============ ========= 3 Provision for receivables, net Provision for receivables, net represents a provision of HK$70,903,000 for accounts receivables in respect of two sports events, offset by a write- back of provision of HK$38,932,000 made in prior years in respect of loans and advances to 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$1.5 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 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 from 71. 86% to 66.66%, 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 at 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 from 76.29% to 62.42%, resulting in a loss on deemed disposal of approximately HK$537,000. 5 Earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, excluding own shares held. Six months ended 30 June 2005 2004 (As restated) Profit attributable to equity holders of the Company (HK$'000) 169,348 683,478 ======== ======== Weighted average number of ordinary shares in issue 3,889,997,150 3,882,734,691 ============== ============== Basic earnings per share (HK cents per share) 4.35 17.60 ============== ============== Diluted No diluted earnings per share is presented for the six months ended 30 June 2005 as the exercise prices 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 convertible bonds would have an anti-dilutive effect during the period. Details of calculation of diluted earnings per share for the period ended 30 June 2004 are shown as follows: Six months ended 30 June 2004 (As restated) Profit attributable to equity holders of the Company (HK$'000) 683,478 Interest expense on convertible debt (HK$'000) 10,224 --------- Profit used to determine diluted earnings per share (HK$'000) 693,702 ========= Weighted average number of ordinary shares in issue 3,882,734,691 Adjustments for - assumed conversion of convertible debt 352,941,176 - share options 1,953,371 --------------- Weighted average number of ordinary shares for diluted earnings per share 4,237,629,238 =============== Diluted earnings per share (HK cents per share) 16.37 =======