| +56% to HK$10.3 billion |
| +52% to HK$294 million |
| +47% to 22.2 cents |
| +56% to 14 cents per share |
|
We are pleased to announce the unaudited consolidated profit and loss account, condensed consolidated cash flow statement and consolidated statement of recognised gains and losses of the Company, its subsidiaries and associated companies (the "Group") for the six months ended 30 June 2000 and the condensed consolidated balance sheet of the Group as at 30 June 2000, together with the comparative figures in 1999, as follows:
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months ended 30 June
------------------------
2000 1999
Note HK$'000 HK$'000
Turnover 2 10,267,606 6,583,730
Cost of Sales (9,262,171) (5,895,432)
---------- ----------
Gross profit 1,005,435 688,298
Other revenues 74,749 40,743
Selling expenses (191,616) (143,136)
Merchandising expenses (523,376) (339,514)
Administrative expenses (87,741) (56,436)
---------- ----------
Operating profit 3 277,451 189,955
Interest income 54,357 26,305
Interest expense (10,829) (14,253)
Share of profits less losses of
associated companies 7,964 6,929
---------- ----------
Profit before taxation 328,943 208,936
Taxation 4 (29,605) (14,536)
---------- ----------
Profit after taxation 299,338 194,400
Minority interests (5,530) (1,272)
---------- ----------
Profit attributable to shareholders 293,808 193,128
========== ==========
Basic earnings per share 5 22.2 cents 15.1 cents
========== ==========
Dividend per share 14 cents 9 cents
========== ==========
CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES
Six months ended 30 June
------------------------
2000 1999
HK$'000 HK$'000
Exchange adjustment on translation of the accounts of
overseas subsidiaries and associated companies 2,690 1,816
Profit for the period 293,808 193,128
---------- ----------
Total recognised gains and losses 296,498 194,944
Goodwill eliminated directly against reserves (65,259) (28,706)
---------- ----------
231,239 166,238
========== ==========
CONDENSED CONSOLIDATED BALANCE SHEET
30 June 31 December
2000 1999
Note HK$'000 HK$'000
Fixed assets 1,143,172 1,161,808
Associated companies 7,086 1,242
Investments 48,206 86,484
Current assets
Inventories 198,566 110,014
Trade and bills receivable 6 1,407,523 1,488,780
Cash and bank balances 2,340,164 1,029,373
Other current assets 370,284 333,467
---------- ----------
4,316,537 2,961,634
Current liabilities
Trade and bills payable 7 1,826,332 1,617,587
Current portion of
long-term liabilities 10 18,069 79,663
Bank loans and overdrafts 10 177,563 113,617
Balance of purchase consideration
payable for acquisition of Swire
& Maclaine Limited and
Camberley Enterprises Limited - 300,000
Other current liabilities 665,127 865,962
---------- ----------
2,687,091 2,976,829
---------- ----------
Net current assets/(liabilities) 1,629,446 (15,195)
---------- ----------
2,827,910 1,234,339
========== ==========
Financed by:
Share capital 8 68,137 64,765
Reserves 9 2,703,279 749,346
---------- ----------
Shareholders' funds 2,771,416 814,111
Minority interests 11,284 4,460
Long-term liabilities 10 44,443 414,868
Deferred taxation 767 900
---------- ----------
2,827,910 1,234,339
========== ==========
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six months ended 30 June
------------------------
2000 1999
HK$'000 HK$'000
Net cash inflow from operating activities 407,419 96,179
Dividend paid (340,388) (270,418)
Net interest received 43,528 12,052
Tax paid (7,432) (7,420)
Net cash outflow from investing activities (358,930) (61,950)
---------- ----------
Net cash outflow before financing (255,803) (231,557)
Net cash inflow from financing 1,501,685 4,919
---------- ----------
Increase/(decrease) in cash and cash equivalents 1,245,882 (226,638)
Cash and cash equivalents at 1 January 915,756 837,917
Effect of foreign exchange rate changes 963 2,455
---------- ----------
Cash and cash equivalents at 30 June 2,162,601 613,734
========== ==========
Analysis of the balances of cash and cash equivalents
Cash and bank balances 2,340,164 741,999
Bank loans and overdrafts (177,563) (128,265)
---------- ----------
2,162,601 613,734
========== ==========
Notes:
1 PRINCIPAL ACCOUNTING POLICIES
The condensed consolidated interim financial statements are prepared in accordance with Hong Kong Statement of Standard Accounting Practice No. 25 "Interim Financial Reporting". The accounting policies and methods of computation used in the preparation of the interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 1999.
The interim financial statements should be read in conjunction with the 1999 annual financial statements.
2 SEGMENT INFORMATION
Over 90% of the Group's turnover and contribution to operating profit are attributable to the export trading of consumer products. An analysis of the Group's turnover for the period by principal market is as follows:
Six months ended 30 June
------------------------
2000 1999
HK$'000 HK$'000
Principal markets:
USA 7,116,067 4,532,738
European Union 2,731,329 1,786,740
Asia Pacific 221,578 145,459
Other countries 198,632 118,793
---------- ----------
10,267,606 6,583,730
========== ==========
No contribution to operating profit from any of the above geographical locations is substantially out of line with the normal ratio of profit to turnover.
3 OPERATING PROFIT
Operating profit is stated after charging depreciation and amortisation amounting to HK$46,404,000 (1999: HK$36,247,000).
4 TAXATION
Six months ended 30 June
------------------------
2000 1999
HK$'000 HK$'000
The taxation charges comprise:
Hong Kong profits tax 23,008 10,059
Overseas taxation 4,404 3,280
---------- ----------
27,412 13,339
---------- ----------
Share of taxation attributable to
associated companies
- Hong Kong 458 286
- Overseas 1,735 911
---------- ----------
2,193 1,197
---------- ----------
29,605 14,536
========== ==========
Hong Kong profits tax has been provided at the rate of 16% (1999: 16%) on the estimated assessable profit for the period. Taxation on overseas profits has been calculated on the estimated assessable profit for the period at the rates of taxation prevailing in the countries in which the Group operates.
5 EARNINGS PER SHARE
The calculation of basic earnings per share is based on the profit after taxation and minority interests of HK$293,808,000 (1999: HK$193,128,000) and on the weighted average number of 1,325,668,000 (1999: 1,277,574,000) shares in issue during the period, as adjusted for the effect of the share subdivision on 13 October 1999, under which each of the existing issued and unissued shares of HK$0.1 each in the share capital of the Company were subdivided into two shares of HK$0.05 each.
In the event that share options outstanding at 30 June 2000 were exercised in full, the diluted earnings per share would not be significantly different from the basic earnings per share as disclosed in the consolidated profit and loss account.
6 TRADE AND BILLS RECEIVABLE
Current to 91 to 180 181 to 360 Over 360
90 days days days days Total
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Balance at
30 June 2000 1,371,107 34,686 1,287 443 1,407,523
========= ========= ========= ========= =========
Balance at
31 December 1999 1,459,113 18,053 8,783 2,831 1,488,780
========= ========= ========= ========= =========
Majority of the Group's turnover are on letter of credit (sight or usance) or documents against payment. The remaining balances of the turnover are on open account terms which are mostly covered by customers' standby letters of credit or bank guarantees.
7 TRADE AND BILLS PAYABLE
Current to 91 to 180 181 to 360 Over 360
90 days days days days Total
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Balance at
30 June 2000 1,782,459 23,795 17,339 2,739 1,826,332
========= ========= ========= ========= =========
Balance at
31 December 1999 1,563,057 45,094 8,995 441 1,617,587
========= ========= ========= ========= =========
8 SHARE CAPITAL
Number of Share Share
shares capital premium Total
(thousands) HK$'000 HK$'000 HK$'000
Balance at 1 January 2000 1,295,296 64,765 730,956 795,721
Issue of shares pursuant to
exercise of share options 7,450 372 30,383 30,755
Issue of shares pursuant to
a placing arrangement 60,000 3,000 1,900,177 1,903,177
--------- --------- --------- ---------
Balance at 30 June 2000 1,362,746 68,137 2,661,516 2,729,653
========= ========= ========= =========
Pursuant to a placing agreement dated 28 March 2000, Li & Fung (1937) Limited, a substantial shareholder of the Company, placed 60,000,000 existing shares of HK$0.05 each (the "Shares") in the share capital of the Company to more than six independent institutional investors at a price (the "Placing Price") of HK$32.50 per Share and to subscribe from the Company for 60,000,000 new Shares at the Placing Price (the "Subscription"). The net proceeds of the Subscription amounted to approximately HK$1,903 million.
9 MOVEMENT OF RESERVES
Share Capital Exchange Revaluation Retained
premium reserve reserve reserve profits
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Balance at
1 January 2000 730,956 4,959 (37,519) - 50,950
Share premium on issue
of new shares 1,930,560 - - - -
Exchange adjustment
on translation of
the accounts of
overseas subsidiaries
and associated
companies - - 2,690 - -
Goodwill on acquisition
of subsidiaries
written off - - - - (65,259)
Profit for the period - - - - 293,808
Dividend for the period - - - - (192,128)
Additional final
dividend for
previous year - - - - (15,738)
--------- ------ ------- ------- -------
Balance at
30 June 2000 2,661,516 4,959 (34,829) - 71,633
========= ====== ======= ======= =======
Balance at
1 January 1999 652,902 2,695 (40,809) 119,990 295,517
Share premium on issue
of new shares 20,368 - - - -
Exchange adjustment on
translation of the
accounts of overseas
subsidiaries and
associated companies - - 1,816 - -
Transfer to
retained profits - - 1,371 - (1,371)
Goodwill on acquisition
of subsidiaries /
associated company
written off - - - - (28,706)
Profit for the period - - - - 193,128
Dividend for the period - - - - (115,974)
Additional final
dividend for
previous year - - - - (681)
--------- ------ ------- ------- -------
Balance at 30 June 1999 673,270 2,695 (37,622) 119,990 341,913
========= ====== ======= ======= =======
10 BORROWINGS AND DEBTS
30 June 2000 31 December 1999
HK$'000 HK$'000
Current 195,632 193,280
Non-current 44,443 414,868
-------- --------
240,075 608,148
======== ========
The movements in the borrowings can be analyzed as follows:
Six months ended 30 June 2000
HK$'000
Balance at 1 January 2000 608,148
Repayment of bank loans and overdrafts (368,073)
---------
Balance at 30 June 2000 240,075
=========
INTERIM DIVIDEND
The Board of Directors has resolved to declare an interim dividend of 14 cents (1999: 9 cents) per share for the six months ended 30 June 2000 absorbing a total of HK$192 million (1999: HK$116 million).
PROPOSED SUBDIVISION OF SHARES
Subject to the conditions mentioned below, the Board of Directors propose that each of the existing issued and unissued shares of HK$0.05 each ("Share") in the share capital of the Company be subdivided into two shares of HK$0.025 each ("Subdivided Shares") in order to improve market circulation of the Subdivided Shares ("Share Subdivision").
The Share Subdivision will be made on the basis that every Share will be subdivided into 2 Subdivided Shares. As at the date of this announcement, there are 1,372,346,000 Shares in issue. There will be 2,744,692,000 Subdivided Shares in issue following the Share Subdivision. Accordingly, the issued and paid up share capital of the Company will remain unchanged.
The Subdivided Shares will be traded in board lots of 2,000 Subdivided Shares and will rank pari passu to each other.
The Share Subdivision is conditional upon:-
(a) the passing of an ordinary resolution by the shareholders of the Company at the Special General Meeting ("SGM"); and
(b) the Listing Committee of The Stock Exchange of Hong Kong Limited ("Stock Exchange") granting the listing of and permission to deal in the Subdivided Shares.
An application will be made to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Subdivided Shares.
A circular setting out the details of the proposed Share Subdivision together with a notice of the SGM will be despatched to the shareholders of the Company as soon as practicable. Further announcement will be made as soon as practicable in respect of the trading arrangements of the Share Subdivision.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members will be closed from 4 September 2000 to 6 September 2000, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the interim dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company's Hong Kong branch registrars, Abacus Share Registrars Limited at 2401, Prince's Building, Central, Hong Kong not later than 4:00 p.m. on 1 September 2000. Dividend warrants will be despatched on 11 September 2000.
MANAGEMENT DISCUSSION AND ANALYSIS
The first half of 2000 was indeed a good period for your Company. Buoyed by demand for consumer goods, particularly in the United States, internally generated sales was up a robust 39%. Coupled with the acquisition of the export trading subsidiaries of the Swire Group (viz Swire & Maclaine and Camberley) announced in December 1999, total sales was up 56%.
Although the acquisitions were not finalized till May of this year, the terms of acquisition allowed us to consolidate the results of Swire & Maclaine and Camberley as of 1 January of this year. During the period, the acquisitions added about HK$1.1 billion to turnover and HK$30 million to profits after tax. Both companies have performed to expectations in this half year and your Company is confident that we can further enhance their profitability and effectiveness after integration is completed in the next few months.
There is some speculation that the U. S. economy may be headed for a slow down towards the end of this year. We have not felt signs of this. On the contrary, as customers and potential customers continue to consolidate, globalize, and out source their purchasing of consumer goods, Li & Fung seem to be a major beneficiary of these trends. The Group's order books are strong and we see a continuation of this strong trend in sales to the year end.
Business from the United States continues to dominate, accounting for 70% of our turnover in the first half. Europe suffered through a low valuation of the Euro in the first half but there are signs of improvement for the second half of this year.
Your Company continues to do most of its business in US$. Payment to factories are also in US$ or HK$. Together with a policy of keeping the majority of our assets also in these currencies, our exposure to exchange rate fluctuations are minimal.
Your Company's financial position has never been more robust. A share placement of 60 million new shares at the end of March (about 4.42% of shares outstanding at the time) means we are flush with over HK$2 billion cash net of short term bank loans and overdrafts. Our current ratio is a healthy 1.6 and the Group has minimal long term debt and charges on its assets.
This means that your Group has more than sufficient resources to pursue its two additional growth strategies: one, to expand its current business geographically and product wise by acquisitions. Two, to harness the power of the Internet to fundamentally change the interaction between the Company and its customers and suppliers and specifically to reach new market segments previously too costly for the Company to service.
Your Company is right in the middle of its current 3 year plan (1999 to 2001) and it is well positioned to achieve its goal of doubling profits over this 3 year period. Our global sourcing network of 48 offices in 32 countries, our experienced and dedicated staff force of over 3,500 professionals makes us the recognized leader in our field.
Your Company is deeply honoured and gratified to be included in the Morgan Stanley Country Index of Hong Kong on 17 May and the Hong Kong Hang Seng Index on 2 August of this year.
The Board and the Management thank the staff and shareholders of Li & Fung Limited for their dedication and support of the Company.
PROSPECTS
Baring unforeseen circumstances, the Company expects the present strong trend in sales to continue through to the end of this year and into the first quarter of 2001.
DIRECTORS' INTERESTS IN EQUITY OR DEBT SECURITIES
As at 30 June 2000, the directors, chief executives and their associates had the following interests in the share capital and share options of the Company and its associated corporations (within the meaning of the Securities (Disclosure of Interests) Ordinance ("SDI Ordinance")) which require notification pursuant to section 28 of the SDI Ordinance or the Model Code for Securities Transactions by Directors of Listed Companies ("Model Code") or as recorded in the register maintained pursuant to section 29 of the SDI Ordinance:
(A) Shares of HK$0.05 each
Number of shares beneficially held
-----------------------------------------------
Personal Corporate Family Other
interest interest interest interest
Dr Victor Fung Kwok King - 640,000,000 - 25,375,000
Note (a) Note (b)
Mr William Fung Kwok Lun 32,901,000 640,000,000 4,000 -
Note (a)
Mr Henry Chan 440,000 - - -
Mr Danny Lau Sai Wing 3,040,000 - - -
Mr Lau Butt Farn 1,100,000 - - -
Professor Franklin Warren
McFarlan 26,000 - - -
========== =========== ======= =========
Notes:
(a) As at 30 June 2000, King Lun Holdings Limited ("King Lun") through its wholly owned subsidiary, Li & Fung (1937) Limited, held 640,000,000 shares in the Company. The following directors of the Company are deemed to have interests in the 640,000,000 shares through their personal or other interests in King Lun as set out below:
(i) 1,332,840 shares in King Lun, representing 36.25% of its issued share capital, are owned by Chase Bank & Trust Company (CI) Limited, the trustee of a trust established for the benefit of the family of Dr Victor Fung Kwok King.
(ii) 1,332,840 shares in King Lun, representing 36.25% of its issued share capital, are owned by Mr William Fung Kwok Lun.
(b) 25,375,000 shares in the Company are held by Chase Bank & Trust Company (CI) Limited, the trustee of a trust established for the benefit of the family of Dr Victor Fung Kwok King.
(B) Share options
Number of share options outstanding
-----------------------------------
25 July 1998 16 July 1999
Note (a) Note (b)
Mr William Fung Kwok Lun - 1,200,000
Mr Henry Chan 600,000 600,000
Mr Danny Lau Sai Wing - 600,000
---------- ----------
600,000 2,400,000
========== ==========
Notes:
(a) The share options granted on 25 July 1998 are exercisable at HK$4.315 per share during the period from 25 July 1999 to 24 July 2001.
(b) The share options granted on 16 July 1999 are exercisable at HK$8.305 per share during the period from 16 July 2000 to 15 July 2002.
During the period, a total of 1,040,000 shares and 600,000 shares were issued to certain directors of the Company pursuant to the exercise of the share options granted on 24 June 1997 and 25 July 1998 respectively.
SUBSTANTIAL SHAREHOLDERS
As at 30 June 2000, the register of substantial shareholders maintained under section 16(1) of the SDI Ordinance shows that the Company had not been notified of any substantial shareholders' interests, being 10% or more of the Company's issued share capital, other than those of Li & Fung (1937) Limited as disclosed above.
CORPORATE GOVERNANCE
The Board of Directors is committed to principles of corporate governance consistent with prudent enhancement and management of shareholder value. The accounting systems and internal controls of the Group are designed to provide reasonable assurance that assets are safeguarded against losses from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and that the financial records are reliable for preparing financial statements and maintaining accountability for assets. Qualified personnel throughout the Group maintain and monitor these internal accounting controls on an ongoing basis. The Group's Corporate Governance Division, under the supervision of the Chief Compliance Officer, systematically reviews these controls, evaluates their adequacy and compliance and reports to the Audit Committee.
AUDIT COMMITTEE
An Audit Committee has been established since 1998 to act in an advisory capacity and make recommendations to the Board. Its members currently include:
Dr Victor Fung Kwok King - Chairman
Mr Paul Edward Selway-Swift
Mr Allan Wong Chi Yun
Professor Franklin Warren McFarlan
Mr Leslie Boyd
Mr James Siu Kai Lau (Chief Compliance Officer) - Secretary
The Audit Committee has met twice during the period to review with management the accounting principles and practices adopted by the Group and to discuss auditing, internal control and financial reporting matters (including interim financial statements for the six months ended 30 June 2000) in conjunction with the Company's internal and external auditors.
COMPENSATION COMMITTEE
A Compensation Committee has been formed since 1993 to approve senior executive remuneration including annual allocation of Share Options to employees under the Company's Employee Share Option Scheme. Its current members include Mr Allan Wong Chi Yun, an independent non-executive Director, Dr Victor Fung Kwok King, the Group's non-executive Chairman and Mr William Fung Kwok Lun, the Group's Managing Director.
COMPLIANCE WITH THE LISTING RULES
The directors are not aware of any information which would reasonably indicate that the Company was not for any part of the six-month period to 30 June 2000 in compliance with the Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules").
The financial information disclosed above has been complied with Appendix 16 of the Listing Rules.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
The Company has not redeemed any of its listed securities during the period. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company's listed securities during the period.
By Order of the Board
Victor Fung Kwok King
Chairman
Hong Kong, 17 August 2000
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