Wang On Group Limited — Interim / Quarterly Report 2003

Dec 16, 2002

WANG ON GROUP LIMITED

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WANG ON GROUP LIMITED （宏安集團有限公司）[*]

(Incorporated in Bermuda with limited liability)

SUMMARISED ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002

INTERIM RESULTS

The Board of Directors of Wang On Group Limited (the “Company”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the “Group”) for the six months ended 30 September 2002, together with the comparative figures for the corresponding period in 2001. The condensed consolidated financial statements have not been audited, but have been reviewed by the Company’s Audit Committee.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 September 2002

Notes TURNOVER 2 Cost of sales Gross profit Other revenue and gains Selling and distribution costs Administrative expenses Other operating expenses Provision for impairment of investments Gain on disposal of interests in subsidiaries 3 PROFIT FROM OPERATING ACTIVITIES 4 Finance costs Share of profits and losses of associates Amortisation of goodwill PROFIT BEFORE TAX Tax 5 PROFIT BEFORE MINORITY INTERESTS Minority interests NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS EARNINGS PER SHARE 6 Basic Diluted	For the six months end 2002 (Unaudited) HK$’000 153,400 (123,596) 29,804 12,206 (14,819) (27,563) (3,413) (4,528) 27,580 19,267 (1,238) (5,686) (4,995) 7,348 (1,292) 6,056 (566) 5,490 0.05 cent N/A	ed 30 September 2001 (Unaudited) HK$’000 145,882 (108,099) 37,783 6,980 (6,593) (24,072) (1,125) - - 12,973 (2,042) 129 - 11,060 (2,301) 8,759 (1,197) 7,562 0.88 cent 0.85 cent

WANG ON GROUP LIMITED 16-12-2002

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WANG ON GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation and significant accounting policies

The unaudited condensed consolidated interim financial statements are prepared in accordance with Hong Kong Statement of Standard Accounting Practice (“SSAP”) No. 25 “Interim Financial Reporting” issued by the Hong Kong Society of Accountants. The accounting policies and basis of preparation used in the interim financial statements are the same as those used in the preparation of the audited financial statements for the year ended 31 March 2002, except as disclosed below.

The following recently-issued and revised SSAPs are effective for the first time for the preparation of the current period’s condensed consolidated financial statements:

SSAP	1 (Revised)	:	Presentation of financial statements
SSAP	11 (Revised)	:	Foreign currency translation
SSAP	15 (Revised)	:	Cash flow statements
SSAP	34	:	Employee benefits

These SSAPs prescribe new accounting treatments and disclosure practices. The major effects of the Group’s accounting policies and on the amounts disclosed in these financial statements of those SSAPs which have had a significant effect on the financial statements, are summarised as follows:

SSAP 1 (Revised) prescribes the basis for the presentation of financial statements and sets out guidelines for their structure and minimum requirements for the content thereof. The main revision to this SSAP is to change the requirement from presenting a statement of recognised gains and losses to a statement of changes in equity. The condensed consolidated statement of changes in equity for the current interim period and the comparative figures have been presented in accordance with the revised SSAP.

SSAP 15 (Revised) prescribes the provision of information about the historical changes in cash and cash equivalents by means of a cash flow statement which classifies cash flows during the period into operating, investing and financing activities. The condensed consolidated cash flow statement for the current interim period and comparative figures have been presented in accordance with the revised SSAP.

2. Segment information

Business segments

The Company is an investment holding company and the Group principally operates in five business segments as described below. The following tables present revenue and profit/(loss) information for the Group’s business segments for the six months ended 30 September. Group

Group
	Chinese		Shopping	centres					Corporate
	wet	markets	and car	parks	Pharmaceutical		Property	Investment	and	other	Eliminations		Consolidated
	2002	2001	2002	2001	2002	2001	2002	2001	2002	2001	2002	2001	2002	2001
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue
Sales to external customers	71,644	75,169	39,853	43,154	25,972	23,721	2,680	1,348	13,251	2,490	–	–	153,400	145,882
Intersegment sales	1,737	–	435	528	–	–	–	–	–	–	(2,172)	(528)	–	–
Other revenue	421	523	2,043	1,382	333	341	8	36	31,729	1,519	–	–	34,534	3,801
Total	73,802	75,692	42,331	45,064	26,305	24,062	2,688	1,384	44,980	4,009	(2,172)	(528)	187,934	149,683
Segment results	4,342	8,839	392	660	6,150	5,900	765	44	5,356	(3,257)	846	–	17,851	12,186
Unallocated expenses													(3,836)	(2,392)
Interest income													5,252	3,179
Profit from operating activities													19,267	12,973
Finance costs													(1,238)	(2,042)
Share of profits and losses of
associates (including
amortisation ofgoodwill)													(10,681)	129
Profit before tax													7,348	11,060
Tax													(1,292)	(2,301)
Profit before minority interests													6,056	8,759
Minorityinterests													(566)	(1,197)
Net profit from ordinary
activities attributable
to shareholders													5,490	7,562

No geographical segment information is presented as over 90% of the Group’s turnover was derived from customers in Hong Kong during the period.

3. Changes in composition of the Group

As disclosed in a circular of the Company dated 17 June 2002, on 22 May 2002, the Group entered into an agreement with Town Health International Holdings Company Limited and Wai Yuen Tong Medicine Holdings Limited (“WYT Holdings”) (formerly known as Dailywin Group Limited), an associate of the Company, to dispose of the Group’s interests in Wai Yuen Tong Medicine Company Limited, a 75.79% indirectly-owned subsidiary of the Company, to WYT Holdings for an aggregate consideration of approximately HK$167 million. The consideration comprised approximately HK$103 million in new ordinary shares of WYT Holdings, with the remainder comprising approximately HK$64 million convertible notes convertible into ordinary shares of WYT Holdings on or before 8 July 2005.

As a result of the WYT Holdings’ ordinary shares issued to the Group as part of the consideration for the transaction, the Group’s interests in WYT Holdings increased from 29.19% at 31 March 2002 to 75.04%. Completion of the above transaction took place on 9 July 2002. On the same day, the Group placed down its equity interests in WYT Holdings from 75.04% to 42.4% for a consideration of HK$45 million.

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WANG ON GROUP LIMITED

4. Profit from operating activities

The Group’s profit from operating activities is arrived at after charging/(crediting):

Depreciation Amortisation of goodwill Amount released from onerous contracts, net Gain on disposal of properties held for re-sale Gain on disposal of interests in subsidiaries Interest income Investment income – Listed – Unlisted	For the six months en 2002 (Unaudited) HK$’000 7,873 65 (41) (493) (27,580) (5,252) – (200)	ded 30 September 2001 (Unaudited) HK$’000 7,479 196 (2,062) (6) – (3,179) (632) –

5.

Tax

Group: Hong Kong profits tax Underprovision in prior year Share of tax attributable to: Associates Tax charge for the period	For the six months en 2002 (Unaudited) HK$’000 1,050 – 1,050 242 1,292	ded 30 September 2001 (Unaudited) HK$’000 2,074 189
		2,263 38
		2,301

Hong Kong profits tax has been provided at the rate of 16% (2001:16%) on the estimated assessable profits arising in Hong Kong for the period under review. The Group did not have any significant unprovided deferred tax in respect of the periods.

6. Earnings per share

The calculation of basic earnings per share for the six months ended 30 September 2002 is based on the net profit attributable to shareholders for the period of HK$5,490,000 (2001: HK$7,562,000) and on the weighted average number of 11,484,037,727 (2001: 857,361,477) ordinary shares in issue during the period.

The diluted earnings per share for the period ended 30 September 2002 has not been shown as the share options and warrants outstanding did not have a dilutive effect.

The calculation of diluted earnings per share for the period ended 30 September 2001 was based on the net profit attributable to shareholders for the period of HK$7,562,000. The weighted average number of ordinary shares used in the calculation was 857,361,477 ordinary shares in issue during the period, as used in the basic earnings per share calculation, and the weighted average of 28,380,000 ordinary shares assumed to have been issued at no consideration on the deemed exercise of all share options during the period.

INTERIM DIVIDEND

The directors do not recommend the payment of an interim dividend for the six months ended 30 September 2002 (2001: Nil).

BUSINESS REVIEW

The Group’s unaudited consolidated turnover and net profit attributable to shareholders for the six months ended 30 September 2002 were approximately HK$153.4 million (2001: HK$145.9 million) and approximately HK$5.5 million (2001: HK$7.6 million) respectively.

Management and Sub-licensing of Chinese Wet Markets

Yu Chui (Allmart) Chinese Market at Yu Chui Shopping Centre, Shatin will commence business in mid December 2002.

Though due to the continuing difficult economic environment in Hong Kong, profit has been squeezed, this area of business continues to generate steady revenue and profit for the Group.

Management and Sub-licensing of Shopping Centres and Car Parks

This area of business remains steady. The Group continues to manage 7 shopping centres and approximately 3,800 car parking bays.

Wai Yuen Tong Medicine Holdings Limited (“WYT Holdings”)

After the completion of the disposal of Wai Yuen Tong Medicine Company Limited to Dailywin Group Limited (which has since changed its name to Wai Yuen Tong Medicine Holdings) in July 2002, the Group currently holds approximately 42% of the issued share capital of WYT Holdings and is its single largest shareholder.

Although this associated company recorded an operating loss for the six months under review. The directors are optimistic that its results will gradually improve in the longer term with the growth of Wai Yuen Tong’s business.

Other Investments in Pharmaceutical Business

With a view to strengthening its control in Hunan Xiangya Pharmaceutical Company Limited (“Xiangya”), the Group acquired a further 27% equity interests in China Field Enterprises Limited, an investment company which holds an 80% equity interest in Xiangya, at a consideration of approximately HK$17 million.

WANG ON GROUP LIMITED 16-12-2002

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WANG ON GROUP LIMITED

Due to the restructuring of the marketing, costs and production policies, Luxembourg Medicine Company Limited (“Luxembourg”) incurred a loss during the period under review. However, with the renowned brand name of “Madame Pearl’s” and cost saving achieved by the restructuring, the directors are confident that its results will turnaround in the coming financial year in which the benefits of the restructuring are expected to be reflected.

New Business Investment

With a view to further diversifying the Group’s business and strengthening the Group’s revenue base, the Group acquired a butcher shop business with a historical annual turnover of over HK$35 million and a historical annual net profit after taxation of approximately HK$2 million at a consideration of HK$6 million.

During the period, two retail shops were purchased at a total consideration of approximately HK$48 million. The two retail shops generated a rental return of approximately 5.5% per annum. They provide a relatively high investment return in the currently low interest environment and offer the potential for capital gains should the property market rebound when our economy recovers.

Capital Reorganisation

As stated in an announcement dated 4 September 2002 with further details being provided in a circular of the Company dated 11 September 2002, every 100 shares of the Company’s ordinary shares of HK$0.01 each were proposed to be consolidated into one new ordinary share (the “Consolidation”). The par value of the new ordinary share was then reduced from HK$1.00 each to HK$0.10 each (the “Reduction”). The Consolidation and Reduction were approved in the Company’s special general meeting held on 4 October 2002 and have become effective thereafter.

LIQUIDITY AND FINANCIAL RESOURCES

In May 2002, net proceeds of approximately HK$36 million was raised through a top-up placing of 1,950 million new shares at HK$0.02 per share.

In June 2002, 2,000 million unlisted warrants with an initial exercise price of 1.7 HK cent per share were issued at a subscription price of 0.1 HK cent per warrant.

The Group currently has cash resources of over HK$250 million. In order to enhance the return on the Group’s cash resources, approximately HK$14.7 million were invested in certain guaranteed-return funds and long-term certificates of deposit with a major bank.

The Group’s gearing ratio as at 30 September 2002 was approximately 0.15 (calculated with reference to the Group’s total borrowings and capital and reserves of approximately HK$86 million and HK$587 million, respectively, as at 30 September 2002). At 30 September 2002, the Group’s investment properties and fixed assets with an aggregate carrying value of approximately HK$170 million and certain rental income generated therefrom were pledged to secure certain of the Group’s general banking facilities, approximately HK$60 million of which was utilized at 30 September 2002.

The Group’s contingent liabilities as at 30 September 2002 amounted to approximately HK$24.5 million (31 March 2002: HK$27.9 million).

PROSPECTS

With its strong financial resources and the currently low interest environment, the Group will continue to actively look for good investment opportunities to enhance shareholders’ long term returns.

AUDIT COMMITTEE

The Company has an audit committee, which was established in accordance with the requirements of the Code of Best Practice (the “Code”) as set out in Appendix 14 of the Listing Rules, comprising of two independent non-executive directors of the Company. The audit committee has reviewed with management the accounting principles and practices adopted by the Group and discussed auditing, internal control and financial reporting matters, including the review of the unaudited condensed financial statements.

PURCHASE, SALE OR REDEMPTION OF SHARES

During the six months ended 30 September 2002, there was no purchase, sale or redemption of the Company’s listed shares by the Company or any of its subsidiaries.

COMPLIANCE WITH CODE OF BEST PRACTICE

Save that the independent non-executive directors of the Company are not appointed for specific terms, but are subject to retirement by rotation and re-election at the annual general meeting of the Company in accordance with the Company’s bye-laws, none of the directors is aware of any information that would reasonably indicate that the Company is not, or was not, for any part of the six months ended 30 September 2002, in compliance with the Code.

PUBLICATION OF DETAILED RESULTS ANNOUNCEMENT ON THE STOCK EXCHANGE’S WEBSITE

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

By Order of the Board Tang Ching Ho Chairman and Managing Director

Hong Kong, 13 December 2002

* For identification purpose only

Please also refer to the published version of this announcement in The Standard dated on 16-12-2002.

WANG ON GROUP LIMITED 16-12-2002 4