Yunkang Group Limited — Earnings Release 2001

Jun 28, 2001

(Incorporated in Hong Kong under the Companies Ordinance)

2000/01 ANNUAL RESULTS ANNOUNCEMENT

FINANCIAL HIGHLIGHTS * Turnover increased by 56% to HK$27,219,212,000 * Profit attributable to shareholders for the year increased by 79% to HK$860,031,000 * Basic earnings per share increased by 69% to HK11.5 cents * Fully diluted earnings per share increased by 70% to HK11.4 cents * Proposed final dividend is HK2.4 cents per share

AUDITED CONSOLIDATED RESULTS

The board of directors (the "Directors") of Legend Holdings Limited (the "Company") is pleased to announce that the audited consolidated results of the Company and its subsidiaries (the "Group") for the year ended 31st March 2001, together with the proforma unaudited results of the Group for the year ended 31st March 2001 (note 1b) and the comparative figures for the corresponding period of last year, are as follows:

Consolidated profit and loss account

Note 1(b)

2001 2001 2000

Actual Proforma Actual

(Audited) (Unaudited) (Audited)

Note HK$'000 HK$'000 HK$'000

Turnover 2 27,219,212 18,665,139 17,449,649

Earnings before interest,

taxation and depreciation expenses 969,362 738,482 603,278

Depreciation expenses (123,359 ) (104,964 ) (93,275 )

Interest income 103,214 139,767 16,373

Profit from operations 3 949,217 773,285 526,376

Finance costs (33,516 ) (18,247 ) (41,456 )

915,701 755,038 484,920

Share of (loss)/profit of

associated companies (6,628 ) (6,628 ) 2,803

Profit before taxation 909,073 748,410 487,723

Taxation 4 (19,156 ) (19,156 ) 3,152

Profit after taxation 889,917 729,254 490,875

Minority interests (29,886 ) (10,944 ) (9,986 )

Profit attributable to shareholders 860,031 718,310 480,889

Dividends 5 1,072,672 264,672 178,248

Earnings per share - Basic 6 11.5 cents 9.63 cents 6.8 cents

• Fully diluted 6 11.4 cents 9.56 cents 6.7 cents

Notes:

1. Basis of preparation

(a) The accounts have been prepared under the historical cost conventions as modified by the revaluation of investment securities in accordance with generally accepted accounting principles in Hong Kong and comply with accounting standards issued by the Hong Kong Society of Accountants.

(b) The proforma unaudited consolidated results of the Group for the year then ended have been prepared as if the spin-off (see Major Subsequent Event) had been completed as at 31st March 2000. Had Digital China Holdings Limited and its subsidiaries been spun off from the Group from 1st April 1999 onwards, the turnover and profit attributable to shareholders for the year ended 31st March 2000 would have been approximately HK$10,993 million and HK$365 million respectively. The 2001 unaudited proforma results, comparing with those of 2000, indicated an increase of 70% and 97% in turnover and profit attributable to shareholder respectively.

2. Principal activities and geographical analysis of operations

2001 2000

HK$'000 HK$'000

Contribution Contribution

to operating to operating

Turnover profit Turnover profit

Legend PC and other

access devices 16,348,555 667,910 8,982,106 335,058

Motherboards 1,056,164 104,445 874,729 16,208

Internet services 106,172 (96,327 ) - -

Digital China Business

(see Major

Subsequent Event) 8,554,246 160,663 6,458,283 115,665

Others 1,154,075 79,010 1,134,531 17,989

Total 27,219,212 915,701 17,449,649 484,920

People's Republic of

China ("PRC") 25,872,557 838,265 16,333,718 440,465

Asia Pacific

(excluding PRC) 396,827 24,145 227,879 8,080

North America 245,236 36,447 210,874 14,181

Europe 704,592 16,844 677,178 22,194

Total 27,219,212 915,701 17,449,649 484,920

3. Profit from operations

2001 2000

HK$'000 HK$'000

(a) Turnover 27,219,212 17,449,649

Cost of sales (23,911,174 ) (15,237,727 )

Gross profit 3,308,038 2,211,922

Other revenues 103,214 16,373

Distribution expenses (1,565,228 ) (799,560 )

Administrative expenses (649,376 ) (718,547 )

Other operating expenses (247,431 ) (183,812 )

Total operating expenses (see note 3b) (2,462,035 ) (1,701,919 )

Profit from operations 949,217 526,376

(b) Analysis of total operating expenses by nature:

Selling expenses (492,282 ) (339,997 )

Promotional and advertising expenses (542,932 ) (249,806 )

Staff costs (835,703 ) (644,708 )

Other expenses (591,118 ) (467,408 )

Total (2,462,035 ) (1,701,919 )

4. Taxation

The amount of taxation charged to the profit and loss account represents:

2001 2000

HK$'000 HK$'000

Hong Kong profits tax 11,617 -

Overseas taxation 6,864 4,869

Over provisions in prior years - (8,830 )

Deferred taxation (173 ) -

18,308 (3,961 )

Share of taxation attributable to associated companies 848 809

19,156 (3,152 )

5. Dividends

2001 2000

HK$'000 HK$'000

Interim paid, of HK1.1 cents

(2000: HK0.625 cents) per share 82,942 44,738

Special interim dividend

(see Major Subsequent Event) 808,000 -

Final, proposed, of HK2.4 cents

(2000: HK1.8 cents) per share 181,730 133,510

1,072,672 178,248

6. Earnings per share

The calculation of basic and fully diluted earnings per share are based on the Group's profit attributable to shareholders of HK$860,031,000 (2000: HK$480,889,000).

The basic earnings per share is based on the weighted average number of 7,459,949,492 (2000: 7,101,212,291) shares in issue during the year. The fully diluted earnings per share is based on 7,516,364,463 (2000: 7,208,590,639) shares which is the weighted average number of shares in issue during the year plus the weighted average number of 56,414,971 (2000: 107,378,348) shares deemed to be issued at no consideration if all outstanding share options had been exercised.

Consolidated balance sheet

As at As at As at

31st March 31st March 31st March

2001 2001 2000

Actual Proforma Actual

(Audited) (Unaudited) (Audited)

HK$'000 HK$'000 HK$'000

Intangible fixed assets 1,887,850 1,887,850 1,887,850

Tangible fixed assets 717,577 636,287 503,074

Construction-in-progress 199,984 199,984 55,766

Investments 252,333 541,470 126,934

Current assets 6,895,657 5,009,580 5,506,719

Current liabilities 5,053,886 3,428,840 2,888,743

Net current assets 1,841,771 1,580,740 2,617,976

4,899,515 4,846,331 5,191,600

Capital and reserves 4,808,944 4,808,944 5,040,178

Minority interest 74,458 21,274 10,506

Long-term liabilities 16,113 16,113 140,916

4,899,515 4,846,331 5,191,600

PROPOSED FINAL CASH DIVIDEND

The Directors recommend a final cash dividend of HK2.4 cents per share for the year ended 31st March 2001 to the shareholders whose names appear on the Register of Members of the Company on 8th August 2001. Subject to the shareholders' approval at the forthcoming annual general meeting, the final dividend will be paid on or before 31st August 2001.

Major Subsequent event

In connection with the spin-off of Digital China Holdings Limited and its subsidiaries from the Group (the "Spin-off") and the separate listing of the shares of HK$0.10 each in capital of Digital China Holdings Limited on the Main Board of The Stock Exchange of Hong Kong Limited (the "Stock Exchange"), in addition to the above-mentioned cash dividends, the Directors have on 24th April 2001 declared a conditional special interim dividend which was satisfied wholly by a distribution in specie by granting one share of HK$0.10 each in the capital of Digital China Holdings Limited for every ten shares of HK$0.025 each in the share capital of the Company held by registered holders of the Company whose names appear on the register of members on 9th May 2001, on and subject to the terms and conditions described in the circular of the Company dated 27th April 2001. The conditions as referred to in that circular was fulfilled on 1st June 2001.

Digital China Group is principally engaged in the distribution of foreign brand IT products, provision of systems integration services and development and distribution of networking products (the "Digital China Business")

BUSINESS REVIEW

Despite the global economy and IT market experienced an adverse year, the PRC's PC market developed rapidly with an upsurge of 46% due to the growing Internet fever. This makes the country one of the world's fastest growing IT markets. Legend, leveraging our local niche, achieved excellent results in turnover, net profit and market share.

Legend PCs and other Internet Access Devices

Driven by the surge in demand for PCs in the PRC, the turnover of Legend computers and other Internet access devices increased by 82%. Legend PCs maintain and consolidate their leading position in the PRC and the Asia Pacific regions, with market share in the PRC increased from 21.5% in 1999 to 28.9% in 2000. Sales of consumer computers and notebook computers achieved breakthroughs, with market share substantially increasing from 25.3% and 17.1% to 39.1% and 23.2% respectively. Sales of pocket PCs also recorded rapid growth.

Legend has highlighted the importance of enhancing service to drive sales. During the period under review, Legend launched its low-end "Tongxi" Internet PCs. These combine in one straightforward unit a simplified "One-Touch-to-the-Net" function, facilitating practical Internet information and offering convenient and easy-to-use Internet connection services. "Tongxi" PCs were very well received by the home user market and became the mainstream products for the year.

In the commercial computer market, Legend has paid special attention to enhancing its value-added service capacity. Catering for the specific needs and problems of small-and-medium-sized enterprises in the PRC as they move towards office automation, Legend launched the "IT 1 for 1" service brand to provide customers with one-on-one tailor-made services, including pre-sales consultations, module-based solutions, and after-sales follow-up. Additionally, "IT 1 for 1" already launched 4 self-developed IT solutions packages: corporate-to-the-net, sales-on-the-net, website construction and Intranet solutions.

Legend has been expanding its product distribution network, which includes 260 "Legend 1+1 Home PC Specialty Shops" and over 3,700 distributors, up from 2,000 last year. The network is extending into many of the PRC's medium and small cities. Last year, Legend established a call centre with 400 engineers providing customers with 24-hour telephone consultation to provide services including pre-sales consultation, after-sales technical support, sales services and the collection of customer feedback, not only bringing the Group closer to customers and but also enabling it to gain first hand market information.

Production has tracked the rapid growth in demand. The new PC manufacturing facility in Beijing has applied modernized information system management, equipped with 6 production lines including 3 cell lines. The new plant commenced production during the fourth quarter of the financial year, adding to 2-million-units production capacity annually. The Group is also establishing new manufacturing production lines in Shanghai, which is scheduled for completion by the end of 2001. These production lines will have a manufacturing capacity of 1.5 million units annually.

Internet Services

Turning to Internet services, the Group launched its FM365.com portal in April 2000. Daily page views for FM365.com have reached 34 million, and the site has won 2.9 million registered e-mail users in just a year. In cooperation with China Telecom, Legend provides PC users with Internet connection services. Registered users have reached 1.7 million. During the year, Legend collaborated with Yestock, the PRC's most popular financial website, and leading education institutions, the Affiliated High School of Peking University and the New Oriental School, to jointly develop on-line financial and education services.

Motherboard Manufacturing

After a series of adjustments, the motherboard business has entered a stable stage of development. During the year, Legend sold over 3.5 million motherboards, breaking all previous sales records. Motherboards used in the manufacture of Legend computers accounted for 45% of these sales.

FUTURE PROSPECTS

The coming year looks to present a wide array of opportunities and challenges. The Group guarantees a customer-oriented focus at every level of the business, including product planning, research and development, manufacturing, distribution, service, etc."

To accurately gauge customer needs and develop appropriate products and services, Legend has adjusted its corporate structure in order to shorten the distance between decision-makers and users. Upon the adjustment, the corporate structure will be divided into 5 major businesses:

Consumer IT business: To promote the new concept of "Digital Home" to boost the sale of Internet computers and personalized computers. It is also committed to driving the sale of information home appliances and peripheral products as well as to further expand its retail specialty shops.

Corporate IT business: Quality services promote sales. Legend is extending one-stop services to include pre-sales consultation, solutions implementation and operational maintenance services. Establishing account manager system to develop one-on-one marketing to boost sales of Legend commercial products, including computers, notebook computers, servers, peripherals and software.

Handheld device business: This is a major new development for the Group. The launch of pocket PCs with data processing and communications functions, and smart phones integrated with voice and data processing functions highlight the personalized and professional application needs of customers, merging with information services.

Internet business: Apart from existing Internet content and Internet connection services, the Group is introducing the advanced interactive service technology and operations experience of AOL, implementing a membership model and expanding the customer base.

Contract manufacturing Leverage on the rich manufacturing resources and

business: low cost advantages of the PRC, the Group is developing contract manufacturing business based on its solid foundation to bring in advanced manufacturing experience and technologies through business cooperation.

Looking ahead, the Group will place more resources in research and development to develop more competitive new products. It will also further improve its Enterprise Resources Planning system to enhance operational efficiencies and minimize cost. We are also committed to attracting more professionals and talents as well as enhancing our long run and continuing core competence. All these positive moves are Legend's commitment to creating higher returns for shareholders.

Liquidity and financial resources

At year end, the Group had cash and bank deposits of HK$2,633 million (2000: HK$2,180 million) and outstanding bank borrowings and other loans of HK$832 million (2000: HK$332 million), of which HK$813 million was borrowed for Digital China Business. There are no assets held under finance lease as at the year end (2000: HK$10 million).

Bank loans were mainly borrowed for the business in Mainland China and the loans are mainly denominated in Renmibi for hedging purpose. The annual interest rate of the borrowings at the current financial year end ranged from 5.58% to 5.85%.

The Group continued to follow the practice of prudent cash management during the year. When necessary, the Group will engage in currency hedging against exchange risks.

The Group's gearing ratio at the year end was 0.17 (2000: 0.07) which is calculated based on the Group's total borrowings of HK$832 million (2000: HK$332 million) and the shareholders' funds of HK$4,809 million (2000: HK$5,040 million). The Group has adopted a prudent borrowing policy with a gearing ratio being maintained at an acceptable level.

Management is comfortable that existing financial resource will be sufficient for future expansion plans. Should other opportunities arise requiring additional funding, management also believes that the Group is in a good position to obtain financing on favourable terms.

Contingent Liabilities

The Group had no material contingent liabilities as at 31st March 2001.

All guarantees executed by the Company for the benefits of Digital China Business has been released with effect from the listing of Digital China Holdings Limited.

PURCHASES, SALE OR REDEMPTION OF LISTED SECURITIES

During the year, the Company has not redeemed any of the Company's listed securities. Moreover, neither the Company nor any of its subsidiaries purchased or sold any of the Company's listed securities.

CODE OF BEST PRACTICE

Apart from the non-executive directors are not appointed for a specific term as they are subject to retirement by rotation at annual general meeting in accordance with the Company's articles of association, the Company has complied with the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") throughout the year.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members will be closed from 6th August 2001 to 8th August 2001, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for proposed final dividend, all completed transfer forms accompanied by the relevant share certificates must be lodged with the Company's share registrar, Abacus Share Registrars Limited of 2401 Prince's Building, Central, Hong Kong for registration not later than 4:00 p.m. on 3rd August 2001.

FULL DETAILS OF FINANCIAL INFORMATION

A detailed results announcement of the Company containing all the information required by paragraphs 45(1) to 45(3) inclusive of Appendix 16 of the Listing Rules will be published on the websites of the Stock Exchange and the Company in due course.

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that an annual general meeting of the Company will be held at Jade Ballroom Room 1, 3rd Floor, Furama Hotel Hong Kong, One Connaught Road Central, Hong Kong on 8th August 2001 at 10:00 a.m. for the following purposes:

1. To receive and consider the audited accounts and the reports of the directors and auditors for the year ended 31st March 2001.

2. To declare a final dividend.

3. To elect directors and to fix their remuneration.

4. To appoint auditors and authorise the directors to fix their remuneration.

Notes:

1. Any member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him. A proxy need not be a member of the Company.

2. To be valid, a proxy form, together with any power of attorney or other authority (if any) under which it is signed, or a notarially certified copy thereof must be completed and lodged with the Company's share registrar, Abacus Share Registrars Limited of 2401 Prince's Building Central, Hong Kong, not less than 48 hours before the time appointed for holding the meeting.

By order of the Board

Liu Chuanzhi

Chairman

Hong Kong, 27th June 2001

Website: www.legend.com

"Please also refer to the published version of this announcement in the South China Morning Post "