RESULTS
The directors of Denway Motors Limited (the "Company") announce the unaudited consolidated results of the Company and its subsidiaries, including the results of the associated companies and a jointly controlled entity (the "Group"), for the six months ended 30th June 2000 together with comparative figures for the corresponding period in 1999 as follows:
Six months ended
30th June
2000 1999
Note HK$'000 HK$'000
Turnover 327,545 291,962
Cost of sales (287,644) (251,941)
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Gross profit 39,901 40,021
Other revenues 9,416 9,321
Selling expenses (6,045) (11,185)
General and administration expenses (44,373) (36,867)
Other operating income 3,000 58,501
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Operating profit 1,899 59,791
Finance costs (7,161) (8,950)
Share of profits less losses of
Non-consolidated subsidiaries
and associated companies 40 (162)
A jointly controlled entity (1) 169,303 (38,816)
------------ -----------
Profit before taxation 164,081 11,863
Taxation (2) (121) (377)
------------ -----------
Profit after taxation 163,960 11,486
Minority interests (3,085) (729)
------------ -----------
Profit attributable to shareholders 160,875 10,757
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Transfer to reserves (3) - 941
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Earnings per share
Basic (4) 6.25 cent 0.47 cent
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Fully diluted (4) 6.11 cent 0.46 cent
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Notes:
1. Financial information of Guangzhou Honda Automobile Company Limited ("Guangzhou Honda"), a jointly controlled entity in the Mainland of China ("PRC") is as follows:
As at As at
30th June 31st December
2000 1999
HK$'000 HK$'000
Fixed assets 936,371 937,169
Intangible assets 16,007 11,452
Goodwill 371,520 381,561
Net current assets/(liabilites) 325,486 (29,301)
Minority interest (4,409) (4,244)
Long-term bank loans (262,935) (271,028)
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Net assets 1,382,040 1,025,609
=========== ===========
Six months ended
30th June
2000 1999
HK$'000 HK$'000
Turnover 2,391,632 633,303
============ ===========
Profit/(loss) for the period before
minority interest 356,619 (81,717)
Minority interest (192) -
------------ -----------
Profit/(loss) for the period 356,427 (81,717)
============ ===========
2. Taxation comprises:
Six months ended
30th June
2000 1999
Note HK$'000 HK$'000
Hong Kong profits tax (i) - 89
PRC income tax (ii) 121 288
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121 377
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(i) Hong Kong profits tax is calculated at 16 per cent. (1999: 16 per cent.) on the estimated assessable profits for the period.
(ii) The PRC income tax is calculated at the applicable tax rates in accordance with the prevailing local tax laws. No PRC income tax is provided for Guangzhou Honda as it is still within the tax holiday period.
3. This represents transfers made to the reserve fund and the enterprise development fund set up by certain subsidiaries and associated companies, which are foreign investment enterprises in the PRC, pursuant to regulations in the PRC. According to the regulations, the reserve fund may be used for making up losses, if any, and increaseing capital while the enterprise development fund may be used for increasing capital.
4. The calculation of basic earnings per share is based on the unaudited consolidated profit attributable to shareholders of HK$160,875,000 (1999: HK$10,757,000) and on the weighted average number of 2,574,096,837 (1999: 2,289,016,654) shares in issue during the six months ended 30th June 2000.
The calculation of the fully diluted earnings per share is based on the unaudited consolidated profit attributable to shareholders of HK$160,875,000 (1999: HK$10,757,000) and on the weighted average number of 2,631,590,273 (1999: 2,339,981,542) shares after adjusting for the effects of all dilutive potential shares.
INTERIM DIVIDEND
The Board of Directors (the "Board") does not recommend an interim dividend for the year 2000 (1999: Nil).
BUSINESS REVIEW
For the six months ended 30 June 2000, turnover of the Group amounted to HK$327,545,000 (1999: HK$291,962,000), and the unaudited consolidated interim profit attributable to shareholders amounted to HK$160,875,000 (1999: HK$10,757,000). Basic earnings per share were HK$6.25 cents (1999: HK$ 0.47 cent).
As at 30 June 2000, Guangzhou Honda Automobile Co. Ltd., the core business of the Group, had produced over 12,000 sedans of the Accord model, the sales in quantity of which had achieved a growth of 320% over the same period of last year. Whilst quality assurance is emphasized, Guangzhou Honda has steadily raised the domestic component content level. The Accord sedans manufactured by Guangzhou Honda have been assessed and appraised by the Honda Motor's international accreditation team as top quality production amongst all Honda Motor's overseas factories. In February this year, Guangzhou Honda was declared to have passed the completion test of the State as being able to produce 30,000 sedans annually; based on the two existing products 2.3VTi-E and 2.3VTi-L, it launched the new environmental friendly sedan 2.0EXi in March; in April, the Accord sedan of Guangzhou Honda successfully passed the collision test and met both the State and international standards; upon examination, the Accord sedan of Guangzhou Honda has also attained the low emission limit required by the relevant regulatory authority of the State; in June, upon the stringent assessment by PRC's quality accreditation experts on automobiles, Guangzhou Honda was officially certified as having passed the ISO 9002 certification; the "four-in-one" franchisee shops network has a total of 40 shops covering almost all the provincial municipalities nation-wide, providing sale and after-sale services of Guangzhou Honda; in June this year, the manufacture and sales of Guangzhou Honda's sedans had been ranked as the top position amongst Honda's factories in the Asia Pacific region. On the basis on good faith, equality and mutual benefits and close working relationship gave rise to the entrepreneurship between the Chinese and Japanese parties, reflecting the axiom of "renovation founded on human beings and sharing the joy of success", and this has ensured the long-term and steady development for Guangzhou Honda.
The Group is in the process of strengthening the restructuring of its operations in other segments. Having transferred or terminated the business of 8 loss-making companies, the remaining companies had achieved the targets on the initial business plan set down early this year, and a significant increases can be seen in the sale of electronic products manufacturing business and sale of automobile products; Guangzhou Hua De Automobile Spring Co Ltd. has turned from loss to profit in its batch supply of suspension springs to Guangzhou Honda.
FUTURE PROSPECTS
Not only has Guangzhou Honda to stand up to the competition from domestic manufacturers of sedans, it also has to tackle the challenge that foreign automobiles will enter the PRC market following China's entry into the WTO. Shareholders from both the Chinese and the Japanese side have unanimously approved a plan for the medium to long-term development of Guangzhou Honda which aims at improving work efficiency, ensuring product quality, increasing the varieties of products, expanding the scale of production and heightening its integration capability, all of which will lead to a wider scope of development for Guangzhou Honda and to position it to brave the challenge brought about by competition from overseas. On the basis that China's entry into the WTO will take place by 2006, various targets , plans and arrangements will be set down within this time frame. These efforts are aimed at creating a competitive edge on pricing for automobiles manufactured by Guangzhou Honda in anticipation of the time when the tariffs for imported whole cars of the same grade will have been lowered to 25%, and that for spare parts and components will have been lowered to 10%. In order to meet the strong market demand, investments on technological revamp will be speeded up without affecting the normal production, with a view to raising the annual production scale, striving to exceed the production target of 30,000 sedans this year and to laying the foundation for an even larger scale of production and sales for the future. In this respect, the Group will consider to raise funds from external sources at appropriate time in order to cope with the rapid growth of Guangzhou Honda and the Group's other auto manufacting business. Whilst the Group is endeavouring to develop Gunagzhou Honda and restructure its other motor vehicle manufacturing business, efforts are also being made in respect of the operations concerning automobile products, plans to increase sale services and manufacturing of spare parts.
The Board of directors believe that following Guangzhou Honda's development on the right tack, and on the basis that profit was achieved in the first half of the year, the Company will be able to create even better return for the shareholders for the whole year.
THE YEAR 2000 ISSUE
The Group successfully resolved the Y2K issue. All Y2K compliance activities were completed as scheduled. However, the Group will continually keep an eye on the issue and the contingency plan is still kept in hand so as to ensure the smooth operation of the system as well as the bussiness.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
During the period, the Company has not redeemed any of its securities. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company's listed securities during the period.
CODE OF BEST PRACTICE
In the opinion of the Directors, 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 of Hong Kong Limited ("Listing Rules") throughout the accounting period covered by the interim accounts except that the independent non-executive directors of the Company are not appointed for a specific term as they are subject to retirement by rotation and re-election at the annual general meeting of the Company in accordance with the Company's Articles of Association. The audit committee was established with written terms of reference which deal clearly with its authority and duties in pursuance of paragraph 14 of Appendix 14 of the Listing Rules. Amougst the audit committee's principal duties are the review and supervision of the Company's financial reporting process and internal control systems.
By order of the Board
Zhang Fangyou
Chairman
Hong Kong, 4th September 2000
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