Wang On Group Limited — Interim / Quarterly Report 2004

Dec 22, 2003

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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 2003

INTERIM RESULTS

The Board of Directors (the “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 2003, together with the comparative figures for the corresponding period in 2002. 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 2003

For the six months ended 30 September

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/(loss) on disposal of interests in subsidiaries Gain on disposal of an associate PROFIT FROM OPERATING ACTIVITIES 4 Finance costs Share of profits and losses of associates Amortisation of goodwill of associates PROFIT BEFORE TAX Tax 5 PROFIT BEFORE MINORITY INTERESTS Minority interests NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS PROPOSED DIVIDEND 6 EARNINGS PER SHARE 7 Basic Diluted	2003 (Unaudited) HK$’000 156,307 (120,078) 36,229 22,224 (8,207) (20,942) (5,781) (4,539) (1,020) 5,830 23,794 (1,053) (6,697) (5,308) 10,736 (3,486) 7,250 (12) 7,238 3,544 6.13 cents N/A	2002 (Unaudited and restated) HK$’000 153,400 (123,596) 29,804 12,206 (14,819) (27,563) (3,413) (4,528) 15,029 12,551 19,267 (1,238) (5,686) (4,995) 7,348 (1,369) 5,979 (566) 5,413 – 4.71 cents N/A

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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 2003 except for the first time adoption of SSAP 12 (Revised) “Income Taxes”.

SSAP 12 prescribes the accounting for income taxes payable or recoverable, arising from the taxable profit or loss for the current period (current tax); and income taxes payable or recoverable in future periods, principally arising from taxable and deductible temporary differences and the carryforward of unused tax losses (deferred tax).

The principal impact of the revision of this SSAP on these financial statements is described below:

Measurement and recognition:

• deferred tax assets and liabilities relating to the differences between capital allowances for tax purposes and depreciation for financial reporting purposes and other taxable and deductible temporary differences are generally fully provided for, whereas previously the deferred tax was recognised for timing differences only to the extent that it was probable that the deferred tax asset or liability would crystallise in the foreseeable future; and

• a deferred tax asset has been recognised for tax losses arising in the current/prior periods to the extent that it is probable that there will be sufficient future taxable profits against which such losses can be utilised.

• Deferred tax assets and liabilities are presented separately on the balance sheet, whereas previously they were presented on a net basis.

This change in accounting policy has resulted in an increase in the Group’s deferred tax assets as at 30 September 2003 and 31 March 2003 by HK$1,351,000 and HK$2,227,000, respectively, and a decrease in the Group’s deferred tax liabilities as at 30 September 2003 and 31 March 2003 by HK$765,000, respectively. As a consequence, the consolidated net profits attributable to shareholders for the periods ended 30 September 2003 and 2002 have been decreased by HK$876,000 and HK$77,000, respectively, and the consolidated retained profits at 1 April 2003 and 2002 have been increased by HK$2,992,000 and HK$3,146,000, respectively, as detailed in the condensed consolidated statement of changes in equity.

2. Segment information

Business segments

The Company is an investment holding company and the Group principally operates in six business segments as described below.

The following table presents revenue and profit information for the Group’s business segments for the six months ended 30 September.

		Chinese		Shopping centres	Shopping centres	Pharmaceutical	Pharmaceutical		Property					Corporate	Corporate
	wet markets			and car parks		business			investment		Retail business			and other			Eliminations		Consolidated
													2002			2002		2002			2002
	2003		2002	2003	2002	2003		2002	2003	2002	2003	(Unaudited		2003 (Unaudited)			2003 (Unaudited)		2003	(Unaudited
	(Unaudited)	(Unaudited)		(Unaudited) (Unaudited)		(Unaudited) (Unaudited)			(Unaudited) (Unaudited)		(Unaudited)	and restated)		(Unaudited) and		restated)	(Unaudited) and restated)		(Unaudited)	and restated)
	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	HK$’000	HK$’000
Group
Segment revenue
Sales to external
customers	66,378	71,644		44,516	39,853	18,556	25,972		5,580	2,680	18,629	11,175		2,648		2,076	–	–	156,307	153,400
Intersegment sales	1,479		1,737	481	435	–		–	346	–	–		–	1,322		–	(3,628)	(2,172)	–		–
Other revenue	376		421	1,126	2,043	45		333	–	8	41		29	20,002		31,700	–	–	21,590		34,534
Total	68,233	73,802		46,123	42,331	18,601	26,305		5,926	2,688	18,670	11,204		23,972		33,776	(3,628)	(2,172)	177,897	187,934
Segment results	6,841		4,342	2,677	392	6,023		6,150	1,502	765	2,190		374	3,927		7,154	(3,282)	(1,326)	19,878		17,851
Unallocated expenses																			(2,548)		(3,836)
Interest income																			6,464		5,252
Profit from operating activities																			23,794		19,267
Finance costs																			(1,053)		(1,238)
Share of profits and losses
of associates (including
amortisation of goodwill)																			(12,005)	(10,681)
Profit before tax																			10,736		7,348
Tax																			(3,486)		(1,369)
Profit before minority interests																			7,250		5,979
Minority interests																			(12)		(566)
Net profit from ordinary
activities attributable to	shareholders																		7,238		5,413

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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

On 8 July 2003, the Group entered into an agreement with Wai Yuen Tong Medicine Holdings Limited (“WYT Holdings”), an associate of the Company, to dispose of the Group’s entire interest of approximately 99.79% in Luxembourg Medicine Company Limited (“LMC”) to WYT Holdings for an aggregate consideration of approximately HK$129.7 million (the “Consideration”). The Consideration comprised approximately HK$59.7 million in new ordinary shares of WYT Holdings, with the remainder comprising HK$70 million convertible notes due from WYT Holdings convertible into ordinary shares of WYT Holdings on or before 19 August 2006.

As a result of the WYT Holdings’ ordinary shares issued to the Group as part of the Consideration, the Group’s interests in WYT Holdings increased from 30.87% to 49.84%. Completion of the above transaction took place on 20 August, 2003. On 29 August 2003, the Group announced that it had placed down an aggregate amount of HK$33 million convertible notes due from WYT Holdings to third parties (the “Placement”) with option rights to purchase a further aggregate amount of HK$99 million convertible notes of WYT Holdings (the “Options”). Up to the balance sheet date, a further aggregate amount of HK$34.5 million convertible notes of WYT Holdings was disposed of by the Group upon exercise of the Options. All convertible notes disposed were converted by the third parties into ordinary shares of WYT Holdings. The Group’s interests in WYT Holdings decreased from 49.84% to 38.04% as at 30 September 2003.

4.

Profit from operating activities

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

	For the six	months
	ended 30 September
	2003	2002
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Cost of inventories sold	12,241	7,541
Depreciation	8,179	7,873
Amortisation of goodwill	5,457	65
Amount released from onerous contracts, net	(4,629)	(41)
Loss on disposals of investment properties	15	–
Gain on disposal of properties held for re-sale	–	(493)
Loss/(gain) on disposal of interests in subsidiaries	1,020	(15,029)
Gain on disposal of an associate	(5,830)	(12,551)
Provision for impairment of investments	4,539	4,528
Interest income	(6,464)	(5,252)
Unlisted investment income	(258)	(200)

5. Tax

Group: Current tax – Hong Kong Charge for the period Overprovision in prior year Deferred tax Share of tax attributable to: Associates Total tax charge for the period	For the six months ended 30 September 2002 2003 (Unaudited (Unaudited) and restated) HK$’000 HK$’000 2,560 1,050 (183) – 876 77 3,253 1,127 233 242 3,486 1,369	For the six months ended 30 September 2002 2003 (Unaudited (Unaudited) and restated) HK$’000 HK$’000 2,560 1,050 (183) – 876 77 3,253 1,127 233 242 3,486 1,369
		1,127 242
		1,369

Hong Kong profits tax has been provided at the rate of 17.5% (2002: 16%) on the estimated assessable profits arising in Hong Kong during the period under review. The increased Hong Kong profits tax rate became effective from the year of assessment 2003/2004, and is applicable to the assessable profits arising in Hong Kong for the whole of the period ended 30 September 2003.

6.

Dividend

					For the six	months
					ended 30 September
					2003	2002
					HK$’000	HK$’000
2003	Interim of HK	3	cents per share (2002	Interim: Nil)	3,544	–

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7. Earnings per share

The calculation of basic earnings per share is based on the net profit attributable to shareholders for the period of HK$7,238,000 (2002 (restated): HK$5,413,000), and the weighted average of 118,143,655 (2002: 114,840,377) ordinary shares in issue during the period, as adjusted to reflect the capital reorganisation in October 2002.

Diluted earnings per share amounts for the periods ended 30 September 2003 and 2002 have not been disclosed as no diluting events existed during these periods.

8. Comparative amounts

Certain comparative amounts have been restated due to the adoption of the revised SSAP 12 “Income Taxes” during these periods as detailed in note 1.

INTERIM DIVIDEND

The Directors have resolved to declare an interim dividend of 3.0 HK cents (2002: Nil) per share for the six months ended 30 September 2003. The interim dividend will be payable on 3 February 2004 to those shareholders whose names appear on the register of members of the Company on 9 January 2004 (the “Record Date”). The register of members of the Company will be closed from 7 January 2004 to the Record Date, both days inclusive, during that period, no transfer of shares will be effected.

The Directors have also resolved that shareholders be given the option to elect to receive an allotment and issue of shares of the Company credited as fully paid in lieu of cash in respect of part or all of the proposed interim dividend (“Scrip Dividend Scheme”). The market value of the new shares to be issued under the Scrip Dividend Scheme will be fixed by reference to the average of the closing prices of the Company’s shares on The Stock Exchange of Hong Kong Limited (“Stock Exchange”) for the five consecutive trading days up to and including the Record Date less a discount of ten per cent., or the par value of the shares, whichever is the higher. The Scrip Dividend Scheme is conditional upon the Stock Exchange granting listing of, and permission to deal in, the new shares to be issued.

Shareholders whose registered addresses are outside Hong Kong as shown in the register of members of the Company on the Record Date will not be permitted to participate in the Scrip Dividend Scheme and accordingly they will receive the interim dividend wholly in cash.

A circular giving full details of the Scrip Dividend Scheme and a form of election will be sent to shareholders on or before 14 January 2004.

BUSINESS REVIEW

The Group posted a satisfactory performance for the six months ended 30 September 2003 amidst the challenges caused by the Iraq war and the outbreak of Severe Acute Respiratory Syndrome (“SARS”) to the Hong Kong economy.

Turnover and net profit attributable to shareholders for the six months ended 30 September 2003 increased to HK$156.3 million (2002: 153.4 million) and HK$7.2 million (2002 (restated): HK$5.4 million), respectively, representing increases of approximately 1.9% and 33.3%, respectively.

Management and Sub-licensing of Chinese Wet Markets

Profit contribution to the Group was increased as compared to the corresponding period last year, mainly due to more stringent cost control. However, due to the effects of the rental concessions during the SARS period, turnover during the period recorded a slight drop.

We are also pleased to announce that the Group has recently been granted the lease for the Chinese wet market at Tseung Kwan O Plaza by a private property developer, with a floor area of approximately 11,840 sq.ft. The market is expected to commence business in April 2004.

Management and Sub-licensing of Shopping Centres and Car Parks

With the commencement of the new car park management contract in April 2003, both the turnover and profit contribution in these two areas of business improved.

WYT Holdings

As detailed in the circular to shareholders dated 30 July 2003, with a view to consolidate its pharmaceutical business under WYT Holdings, the Group disposed of its entire effective interest of approximately 99.79% in LMC, which is principally engaged in the pharmaceutical business under the brand name “Madame Pearl’s”, to WYT Holdings at a consideration of approximately HK$129.7 million.

As detailed in the circular to shareholders dated 22 September 2003, the Group placed out its interests in WYT Holdings’ convertible notes (“WYTH CN”) in an aggregate nominal amount of HK$33 million and granted certain call options to the relevant placees entitling them to purchase from the Group further WYTH CN in an aggregate nominal amount of up to HK$99 million. Up till now, a total of HK$49.5 million WYTH CN have

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been purchased by the relevant option holders under the call options. All the WYTH CN purchased by the placees have been converted into ordinary shares of WYT Holdings which has resulted in an enlargement of the capital base of WYT Holdings. The Group currently holds an approximately 29.9% shareholdings in WYT Holdings and HK$49.5 million WYTH CN and remains its single largest shareholder.

Despite the loss recorded by WYT Holdings for the six months under review, the Directors are still confident of its long term prospects because of the improvement in the worldwide economy and the increasing contribution from its pharmaceutical business.

Retail Business

Taking advantage of the Group’s retail network in Chinese wet markets, the Group has diversified into the retail fresh meat selling business with satisfactory return.

Property Investment

With the gradual recovery of the Hong Kong economy and the property market, the Group recently purchased a retail property at a consideration of HK$16.5 million and entered into agreements for the purchase of another retail property and a house for residential use at considerations of HK$48 million and HK$27.2 million, respectively. Together with the Group’s existing properties portfolio, the Group’s total book value of properties will increase to approximately HK$219 million. The Directors believe that the Group’s investment property portfolio will secure the Group’s long term stable return. With the gradual recovery of the Hong Kong economy, in particular in the retail sector, a long term capital appreciation is also expected.

LIQUIDITY AND FINANCIAL RESOURCES

The Group currently has cash resources of around HK$250 million. In order to enhance its returns on the Group’s financial resources in the current low interest rate environment, the Group has also invested, in aggregate, approximately HK$30 million in certain long-term guaranteed returns, certificates of deposits and bank commercial papers.

The Group’s gearing ratio as at 30 September 2003 was approximately 0.11 (calculated with reference to the Group’s total borrowings and capital and reserves of HK$67.0 million and HK$630.7 million, respectively, as at 30 September 2003).

At 30 September 2003, the Group’s investment properties with a book value of approximately HK$127 million and certain rental income generated therefrom were pledged to secure the Group’s banking facilities, approximately HK$111.6 million of which was utilised at 30 September 2003.

The Group’s contingent liabilities and capital commitment as at 30 September 2003 amounted to approximately HK$5.7 million.

PROSPECTS

The efforts contributed by all staff of the Group in the past few years, under the direction of the Directors, have proved to be fruitful. With the gradual recovery of the Hong Kong economic environment and the Group’s strong liquid financial resources, the Directors will continue to expand the Group’s business horizon to enhance shareholders’ long term returns.

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

Neither the Company or any of its subsidiaries purchased, redeemed or sold any of the Company’s listed shares during the period under review.

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 Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), comprises 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.

COMPLIANCE WITH CODE OF BEST PRACTICE

In the opinion of the Directors, the Company complied with the Code throughout the accounting period covered by the interim report, save that the non-executive directors of the Company are not appointed for specific terms as required by paragraph 7 of the Code, but are subject to retirement by rotation in accordance with the Company’s bye-laws.

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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, 19 December 2003

• For identification purpose only

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

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