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Guoco Group Limited
(Incorporated in Bermuda with limited liability)
Announcement of 1997/98 Final Results

 

RESULTS

The Board of Directors of Guoco Group Limited ("the Company") is pleased to announce the audited consolidated net profit of the Group, after exceptional items, taxation and minority interests, for the financial year ended 30th June, 1998 together with comparative figures for previous year as follows:

 
 
 
 
Note
1998
HK$'000
 
1997
HK$'000
 
Change
%
Turnover 
 
1
13,983,323
======== 
 
13,244,553
======== 
 
+5.6
   
 
 
 
 
 
Operating profit 
Exceptional items 
 
2
1,998,005
(957,668)
_________
 
3,148,940
451,912
_________
 
-36.5
   
 
 
 
 
 
Operating profit on ordinary activities 
Share of profits less losses of associated companies
 
1,040,337
129,322
_________
 
3,600,852
484,451
__________
 
-71.1
   
 
 
 
 
 
Profit before taxation 
Taxation 
 
3
1,169,659
(465,336)
_________
 
4,085,303
(830,888)
__________
 
 
   
 
 
 
 
 
Profit after taxation 
Minority interests
 
704,323
(321,175)
_________
 
3,254,415
(1,106,281)
__________
 
 
   
 
 
 
 
 
Profit attributable to shareholders  
383,148
 
2,148,134
 
-82.2
   
 
 
 
 
 
Appropriations:  
 
 
 
 
 
   
 
 
 
 
 
Dividends 
 
4
(298,642)
_________
 
(362,637)
__________
 
 
   
 
 
 
 
 
Retained profit for the year 
 
 
84,506
========
 
1,785,497
=========
 
 
   
 
 
 
 
 
Retained in:  
 
 
 
 
 
   
 
 
 
 
 
     Company and subsidiaries 
     Associated companies 
 
 
64,678
19,828
_________
 
1,480,269
305,228
__________
 
 
   
 
 
 
 
 
   
84,506
========
 
1,785,497
========
 
 
   
 
 
 
 
 
Earnings per share 
 
5
 
HK$0.90
========
 
HK$5.04
========
 
 
 

 

Notes:
 
 
1. 
 

 

Group turnover for the year includes reinsurance, brokerage, underwriting and other commission, interest income, insurance premiums earned, dividend income, rental income and net investment income and property disposal income. It also includes net interest income, commission, fees and other revenues earned from banking.
   
2. Exceptional items
 
 
 
     
1998
HK$'000
 
1997
HK$'000
     
 
 
 
  Exchange loss on foreign currency monetary assets and liabilities  
 
 
 
       excluding banking operation  
(180,982)
 
-
  Provision for diminution in value of investments  
(181,540)
 
-
  Provision for diminution in value of properties  
(595,146)
 
-
  Profit on disposal of premises  
-
 
275,524
  Net profit on disposal of investments  
-
 
74,082
  Net compensation received on compulsory acquisition of land  
-
 
________
 
102,306
 
_______
     
(957,668)
=======
 
451,912
======
 
 
3. Taxation
   
  Provision for Hong Kong profits tax is based on the estimated assessable profits for the year at the rate of 16% (1997: 16.5%). Taxation for overseas subsidiaries is charged at the appropriate rates of taxation ruling in the countries in which they operate.
   
  The taxation charge is made up as follows:
 
 
 
   
1998
HK$'000
 
1997
HK$'000
   
 
 
 
  Hong Kong profits tax
185,739
 
259,789
   
 
 
 
  Overseas taxation 
Deferred taxation 
 
117,452
52,651
________
 
514,225
(118,823)
________
   
 
 
 
   
355,842
 
655,191
  Share of associated companies' taxation 
 
109,494
________
 
175,697
________
   
 
 
 
   
465,336
=======
 
830,888
=======
 
 
4. Dividends
 
 
 
   
1998
HK$'000
 
1997
HK$'000
  Interim dividend of HK$0.20 per share
 
 
 
  (1997: HK$0.25 per share)
85,326
 
106,658
  Final dividend of HK$0.50 per share
 
 
 
  (1997: HK$0.60 per share) 
 
213,316
________
 
255,979
________
   
298,642
=======
 
 362,637
=======
   
 
 
 
 
 
 
5. Earnings per share
   
  The calculation of earnings per share is based on the profit attributable to shareholders of HK$383,148,000 (1997: HK$2,148,134,000) and on the 426,631,086 shares (1997: 426,631,086 shares) in issue during the year.
   
6. The accounts of the Company are maintained in United States dollars. The accounting figures shown above have been translated from United States dollars into Hong Kong dollar equivalents at the rates ruling at the respective financial year ends for presentation purposes only (1998: US$1=HK$7.7485; 1997: US$1=HK$7.7475).
 

REVIEW OF ACTIVITIES

The Group operates its core businesses through the following listed companies. The following is an overview of the performance of these companies and other subsidiaries of the Group for the past financial year:-

Dao Heng Bank Group Limited ("DHBG" - 71% owned listed subsidiary in Hong Kong)

DHBG reported a consolidated net profit of HK$1,275.8 million for the year ended 30th June, 1998, representing a 39.8% decrease over last year. After adjusting for a HK$354.7 million non-recurring profit on disposal of premises in the comparable prior year period, consolidated profit attributable to shareholders decreased by 27.7%. Total assets was HK$122.6 billion, ranking it in the top tier of the largest locally incorporated banks in Hong Kong.

The net charge for bad and doubtful loans and advances was HK$534.9 million, an increase of HK$196.5 million over 1997. Specific provisions grew by 45.9% as a result of the recessionary environment and lower asset values. As a measure of prudence in the present uncertain economic climate, DHBG has increased its general loan loss provision to 1.33% of total loans. During the year, DHBG also followed a policy of restrained growth and conservative balance sheet management.

During the year under review, DHBG has adopted a defensive posture since the outbreak of the Asian financial turmoil more than a year ago. In view of weak demand and declining asset quality, DHBG's loan portfolio was maintained at last year's level in an effort to balance customer requirements with the realities of a recessionary economy.

DHBG's domestic branch network was streamlined during the year as a result of several branch mergers and relocations. Together with its overseas units, DHBG presently has more than 100 branches.

In order to manage DHBG's exposure to the property market, generate additional fee income and enhance its ability to satisfy future demand for mortgages, Dao Heng was among the first local banks to sign an agreement with the Hong Kong Mortgage Corporation (the "HKMC") in October 1997 to sell its mortgage loans to the HKMC.

DHBG continues its rapidly expanding penetration of the consumer banking market. OTB Card Company Limited ("OTBCC") continued to record significant organic growth during the last fiscal year. OTBCC's cardholder base exceeded the half million benchmark with total cardholder receivables reaching a new high of HK$3.3 billion at the end of June 1998.

Matching the changing lifestyles of Hong Kong consumers, DHBG launched a new service in October 1997, namely "DaoHeng Direct" offered by Dao Heng Bank's Direct Banking Division. DHBG opened its first DaoHeng Direct Banking Centre in the Jumbo Sogo Department Store which is equipped with an Automated Teller Machine, Check Deposit Machine and Cash Deposit Machine.

Dao Heng Bank, Inc. in the Philippines sustained its development as a full-service commercial bank with the continued build-up of branch infrastructure, the introduction of new products and services, and the implementation of programs to improve operating efficiency.

DHBG's solid Treasury Division was renamed "Dao Heng Markets" to reflect its expanded role as market maker and profile in Hong Kong capital markets. In May 1998, Dao Heng Bank was appointed as one of the five initial market-makers for the HKD Repurchase Agreement introduced by the Hong Kong Monetary Authority to boost liquidity in the banking system and to more effectively mobilize existing liquid assets.

Dao Heng Bank was also invited by the HKMC to participate as a Selling Group Member in its HK$20 billion Debt Issuance Programme ("DIP"). Meanwhile, Dao Heng Bank continues to be a market-maker for the HK$20 billion Note Issuance Programme ("NIP") launched in January this year. This appointment and participation in both the NIP and DIP further enhance Dao Heng's position as one of Hong Kong's leading domestic financial institutions.

First Capital Corporation Ltd ("FCC" - a 59% owned listed subsidiary in Singapore)

FCC's performance for the year was affected by the depressed residential property market in Singapore and bearish sentiment in the stock markets. Provisions of S$101.4 million were made for foreseeable losses in development properties and S$18.8 million for diminution in value of short-term quoted investments. Despite these provisions, FCC Group recorded an operating profit (before interest and exchange loss) of S$33.9 million for the year ended 30th June, 1998. As at 30th June, 1998, the consolidated shareholders? funds of FCC was S$1.4 billion and the net tangible asset backing per share was S$4.08.

Foreign exchange loss for the year was S$25.5 million, mainly due to unrealized translation losses arising from the revaluation of foreign currency loans. A S$17.7 million net profit before tax was recorded during the year. As there is no group tax relief in Singapore, losses incurred in some subsidiaries are not available for offset against other subsidiaries income. This resulted in a tax charge at a higher than standard corporate income tax rate and a net loss after tax before minority interests of S$25.9 million.

Guoco Land Limited ("GLL" - a 65% effectively owned listed subsidiary in Hong Kong)

GLL was established as a property company in January 1997 (53%/20% owned by Guoco and FCC respectively). GLL has changed its financial year end from 31st March to 30th June to co-incide the year end date of Guoco. GLL recorded an operating profit of HK$78 million and a consolidated net loss after exceptional items, taxation and minority interests for the 15 months ended 30th June, 1998 amounting to HK$182 million.

GLL has made revaluation provisions for its properties based on open market value totalling HK$153.5 million and taking into consideration the downturn in the property market, provisions for its interest in associated companies totalling HK$101 million were made in the financial statements as exceptional items (1997: net exceptional gain HK$19.2 million). The consolidated shareholders?funds of the GLL approximated HK$2 billion as at 30th June, 1998, representing a net asset value per share of HK$7.96.

Guoco Holdings (Philippines), Inc. ("GHPI" - a 36% associated company listed in the Philippines)

The financial performance of GHPI in fiscal year 1997/98 was adversely affected by the Asian financial turmoil. The sharp movements in the foreign exchange and interest rates, along with the increase in GHPI's borrowings which were secured to finance the expansion requirements of the manufacturing operations, resulted in an aberrant growth in expenses.

GHPI has made provision for foreign exchange losses amounting to about P490 million as well as significant provisions for diminution in value of its various investments. These provisions together with the high interests costs incurred resulted in GHPI posting a loss of P842 million. In line with Group policy, GHPI has and will continue to undertake the necessary prudent measures to right-size its investments so as to reduce its gearing and operating costs.
 
Hong Leong Credit Berhad ("HLC" - a 20% owned listed associated company in Malaysia)
 
Each of HLC's operating divisions remained profitable except for its stock-broking division which incurred a loss of RM212 million arising from a provision of RM217 million for doubtful debts, resulting from the impact of the region's current financial turmoil. As a consequence, HLC recorded a pre-tax loss of RM76 million and a post-tax loss after minority interests of RM163 million.

In its annual report, HLC announced that it has the necessary reserves and is sufficiently capitalised to weather the economic climate. Further, it is taking prudent measures in reducing its gearing, increasing doubtful debt provisions, right-sizing and reducing operating costs.

FUTURE OUTLOOK

The Group has conducted a critical appraisal of holding cost, risk potential, and synergistic value of each of our investment assets. As a result, each operating unit is undergoing a rationalization programme which will result in leaner, stronger core businesses. The Group has and will continue to undertake prudent measures to see it through the current economic crisis. We have strengthened our resolve to concentrate only on those core businesses with synergistic potential to provide sustainable future earnings and cashflow.

During the current financial year, the Group is relocating its corporate headquarters to The Center, an impressive new addition to Hong Kong's world famous skyline. Combined with our new corporate logo as shown in this announcement, we are hopeful these symbols will serve to differentiate us and heighten public awareness of our Group's growing presence in Hong Kong, Greater China, and the region. With a clear vision and a strong market franchise, we are determined to position our Group to take advantage of the opportunities that will present themselves once the Asian crisis subsides.

DIVIDENDS

The Directors are recommending to the shareholders, for approval at the forthcoming Annual General Meeting, payment of a final dividend of HK$0.50 (1997: HK$0.60) per share amounting to HK$213,316,000 for the financial year ended 30th June, 1998 (1997: HK$255,979,000). Together with the interim dividend of HK$0.20 per share totalling HK$85,326,000 paid on 16th April, 1998 the total distribution of the year will amount to HK$0.70 per share totalling HK$298,642,000 (1997: HK$0.85 per share totalling HK$362,637,000). The final dividend will be payable on 9th November, 1998 to the shareholders whose names appear on the Register of Members on 6th November, 1998.

YEAR 2000 PROJECT

The Group has concluded its assessment of the System Impact of the Year 2000 issue and is in the process of:-

It is expected that all major activities will be completed by 31st December, 1998. Progress to-date is satisfactory and within target. Details of the year 2000 issue will be disclosed in the 1997/98 annual report.

SHARE BUY BACK

Pursuant to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited on share buy back and to the Bye-Laws of the Company, the Directors intend to seek the shareholders?approval at the forthcoming Annual General Meeting for the grant of an unconditional general mandate to repurchase shares of the Company to an extent not exceeding 10% of the issued share capital of the Company prevailing at the date of passing the resolution approving the mandate for share buy back.

A circular containing an explanatory statement on the general mandates to the Directors to repurchase shares and to issue new shares will be despatched to the shareholders as soon as possible.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the year, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company's listed securities.

COMPLIANCE WITH THE CODE OF BEST PRACTICE

The Company has complied throughout the year with the Code of Best Practice adopted by the Company based on the guidelines set out in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members will be closed from 2nd November, 1998 to 6th November, 1998, both days inclusive, during which period no transfer of shares can be effected.

In order to qualify for the above dividend, all share transfers accompanied by the requisite share certificates must be lodged with the Company's Branch Share Registrars in Hong Kong, Central Registration Hong Kong Limited, at Shops 1712-6, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong, for registration not later than 4:00 p.m. on 30th October, 1998.

 

By Order of the Board
Doris W. N. Wong
Company Secretary

Hong Kong, 9th October, 1998


Source: Guoco Group Limited
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