ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31ST DECEMBER, 1998
RESULTS
The board of directors ("Board of Directors") of Silver Grant International Industries Limited (the "Company") is pleased to announce the audited consolidated results of the Company and its subsidiaries (together the "Group") for the year ended 31st December, 1998 are as follows:
1998 1997
Notes HK$’000 HK$’000
Turnover 1 64,145 173,271
========= ==========
Operating profit/(loss)
Continuing operation before
exceptional items 10,858 (16,015)
Exceptional items 2 54,733 99,308
--------- ----------
Operating profit 65,591 83,293
--------- ----------
Share of profit/(loss) of
associated companies
Continuing operation before
exceptional item (6,454) 37,508
Exceptional item 3 (42,307) 90,090
--------- ----------
(48,761) 127,598
--------- ----------
Profit from ordinary activities
before taxation 16,830 210,891
Taxation 4 6,761 9,203
--------- ----------
Profit for the year 10,069 201,688
Dividends - 53,541
--------- ----------
Profit for the year, retained 10,069 148,147
========= ==========
Earnings per share 5
Basic 1.1 cents 26.3 cents
========= ==========
Diluted 1.1 cents 25.3 cents
========= ==========
Notes:
1. Turnover
Turnover represents the aggregate of rental income from leasing of properties, dividend income earned from long term investments and the gross proceeds received and receivable from trading of marketable securities during the year.
2. Exceptional items
1998 1997
HK$’000 HK$’000
Profit on repurchase of convertible bonds 111,277 -
Profit realised on disposal of interest in a
former subsidiary (Note) 22,415 -
Deficit on valuation of long term listed
investments based on market value at
the balance sheet date (55,927) (11,102)
Deficit on valuation of land and buildings (13,802) -
Write off of expenses recoverable relating
to an associated company (9,230) -
Profit on disposal of listed investments - 110,410
------- -------
54,733 99,308
======= =======
Note This amount represents the realisation of a gain arising on the disposal of a former subsidiary to an associated company in 1994, which was previously deferred and credited to capital reserve. The capital reserve was realised as a result of the disposal of the former subsidiary by the asociated company during the year.
3. The amount in 1998 includes the Group's share of provision for diminution in value of properties in an associated company amounting to HK$42,307,000.
The amount in 1997 presents the gain arising on the deemed disposal of the interest in Jiangxi Copper Company Limited ("JCC") upon the listing of the H shares of JCC on The Stock Exchange of Hong Kong Limited ("HKSE") and the London Stock Exchange Limited ("LSE") during the year.
4. Taxation
1998 1997
HK$’000 HK$’000
The charge comprises:
Hong Kong Profits Tax
Charge for the year - 20,218
Under/(over) provision in prior years 90 (13,102)
------ -------
90 7,116
Share of taxation of associated companies
Hong Kong Profits Tax 2,016 2,087
Income tax in the People’s Republic
of China excluding Hong Kong 5,170 -
------ -------
7,186 2,087
------ -------
Deferred taxation (515) -
------ -------
6,761 9,203
====== =======
Hong Kong Profits Tax is calculated at 16% (1997: 16.5%) of the estimated assessable profit for the year.
Income tax in the PRC, other than those in Hong Kong, is calculated at rates prevailing in the respective jurisdictions.
The write back of overprovision for Hong Kong Profits Tax in 1997 was a result of agreement with the Inland Revenue Department on the non-assessability of certain captial gain.
The deferred taxation credit for the year represents the tax effect of timing difference arising from the difference between fixed assets depreciation allowance claimed for tax purposes and depreciation charged in the financial statements.
5. Earnings per share
The calculation of the basic and diluted earnings per share for the year is based on the following data:
1998 1997
HK$’000 HK$’000
Earnings
Profit for the year and earnings for
the purposes of basic and
diluted earnings per share 10,069 201,688
=========== ===========
Number of shares
Weighted averager number of
shares for the purposes of basic
earnings per share 892,343,500 766,931,993
Effect of dilutive potential shares:
Employees’ Share Options 2,611,440 29,228,679
----------- -----------
Weighted average number of shares
for the purposes of diluted
earnings per share 894,954,940 796,160,672
=========== ===========
GROUP RESULTS
For the financial year ended 31st December, 1998 the Group recorded turnover of HK$64 million, representing a decrease of approximately 63% from last year. Net profit for the year was HK$10 million, resulting in earnings per share of 1.1 cents. The net profit and earnings per share represent decrease of 95% and 96%, respectively, compared to that of previous year.
DIVIDEND AND BONUS ISSUE OF WARRANTS
The Board of Directors decided not to recommended a final dividend for the year ended 31st December, 1998 but, instead, has proposed a bonus issue ("Bonus Issue") of one warrant ("Warrant") for every ten shares of HK$0.20 each ("Share") in the Company held by shareholders whose names appear on the Company's register of members on 28th June, 1999. Each Warrant will confer upon its holder the right to subscribe HK$0.88 in cash for new Shares in the Company at any time from the date of issue of the Warrants until 30th June, 2001 at a price of HK$0.88 per share, subject to adjustment.
The Bonus Issue will be subject to shareholders' approval in an extraordinary general meeting of the Company to be held on 28th June, 1999 and listing of and permission to deal in the Warrants and any Shares which fall to be issued upon exercise of the subscription rights attached to the Warrant being granted by The Stock Exchange of Hong Kong Limited (the "Stock Exchange"). A circular setting out further details of the proposed Bonus Issue will be despatched to shareholders of the Company as soon as practicable.
Application will be made to the Listing Committee of the Stock Exchange for listing of and permission to deal in the Warrants and any Shares falling to be issued upon exercise of the Warrant.
CLOSURE OF REGISTER OF MEMBERS
The register of members will be closed from Tuesday, 22nd June, 1999 to Monday, 28th June, 1999 (both days inclusive), during which period no transfer of share will be registered. In order to be qualified for the proposed Bonus Issue, all transfers accompanied by the relevant share certificates must be lodged with the Company's registrars, Secretaries Limited, 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong, not later that 4:00p.m. on Monday, 21st June, 1999.
BUSINESS REVIEW
Under a difficult and challenging business environment, the Company adopted a cautious approach and achieved relatively satisfactory results. The significant decrease in turnover and profit is partly attributable to the Company's strategy to hold its investments in Qingling Motors Co. Ltd. and Jiangxi Copper Company Limited as long term investments and the reduced marketable securities trading activities in a turbulent stock market.
The retail market in the People's Republic of China ("PRC") continued to be highly competitive in 1998. As a result, the Wangfujing department store operation in which the Group has a 50% interest experienced an operating loss. The management of Wangfujing is highly conscious of the difficult operating environment and continues to streamline merchandise and rationalise cost structure. The store in Wuhan which was opened in early 1998 has turned profitable early 1999, and with strong economic growth forecast, the Group remains confident in the consumer retail market in the PRC in the long term.
Construction of the South Residential Tower of East Gate Plaza was completed in June, 1998 and officially handed over to the Group on 1st July, 1998. Occupancy rate of the property has increased steadily since completion and the Board of Directors believes that the property will provide the Group with steady long term operating income. Minimum guaranteed return from the property amounted to US$7.4 million or effectively 12.5% per annum applicable to 1998 (10% under construction, 15% after completion).
In 1998, the Group increased its investment in China Infra-Structure Investment Ltd. ("CII") by injecting further shareholder loan of HK$200 million. The injection was made to enable CII to expand its portfolio. The Group now has total HK$546 million invested in CII. Total investment committed by CII amounted to HK$1.89 billion at 31st December, 1998 of which HK$1.33 billion had been paid up. In 1998, CII entered into an agreement to invest upto HK$105 million for a 25% shareholding of the extension of the Chengdu Highway. Focus was set on strengthening management capabilities at all levels, including financial control, project engineering and management, administration and toll collection. An additional 25 people with various infrastructure experience were hired and assigned to the projects, bringing the project management team to a total of 40 people. The added human resources have significantly improved toll collection. Computerisation of toll collection and internal control procedures have been put in place for all projects and will be fully operational in the first half year of 1999.
In order to maximise financing efficiency and minimise foreign currency exposure, CII was able to arrange for Rmb bank loans in the amounts of Rmb250 million, Rmb450 million and Rmb67.5 million to finance the Zhaoqing Bridge, the Shantou Bridge and the Chengdu Highway projects, respectively, with the assistance of the shareholders of CII.
RESTRUCTURING AND CHANGE OF SIGNIFICANT SHAREHOLDERS
In November, 1998, the China Construction Bank, through its wholly-owned subsidiary, Maxtrack Limited, purchased a 12.10% stake in the Company from China Nonferrous Metal Group (Hong Kong) Limited. Furthermore, the then controlling shareholder of the Company. Join Truth Limited, made a capital distribution of shares of the Company to its various shareholders, resulting in direct holding of the Company's shares by such shareholders. The Board of Directors believes that the action by Join Truth Limited has resulted in a more transparent shareholding structure in the Company; and that the China Construction Bank becoming a shareholder of the Company will greatly benefit the Group's business development in China.
REPURCHASE OF THE GROUP'S SECURITIES
During the year, a total of US$33 million of the Group's convertible bonds was repurchased for US$17.7 million.
PROSPECTS
The Group will continue to focus on investments in property and infrastructure in the PRC while a prudent approach will be taken as regards retailing and industrial investments. Quality properties with stable rental income will be sought to provide the Group with recurring operating income. At the same time, the Board of Directors believes that infrastructure development is fundamental to PRC's economic growth. Accordingly, various means to diversify funding sources, including financial and strategic investors for CII, will be investigated to further expand its project portfolio.
The Group will keep looking for quality direct investment opportunities, including opportunities in the Hi-Technology field, to bring to higher returns to our shareholders.
The Group is also well positioned to benefit from its two significant shareholders, the China Construction Bank and China Everbright Financial Holdings Limited, two of the most prominent institutions in the PRC.
APPOINTMENT AND RESIGNATION OF DIRECTORS
The Board of Directors also announces that Messrs. Wu Jian Chang, Su Tongnian and Lau Yat Ching have resigned as directors of the Company with effect from today's date and that Messrs. Shi Chun Gui, Gu Jianguo and Liu Erh-fei have been appointed as new directors of the Company taking effect from the same date. Mr. Shi will replace Mr. Wu to become the Chairman of the Company while Mr. Liu will be an independent non-executive director of the Company.
YEAR 2000 ISSUE
The Group is aware of the financial and operating systems risks posted by the inability of computer system, computer applications, software and hardware devices in accurately calculate date/time data prior to, through and beyond the year 2000.
By nature of its business, the Group's reliance on computer system in its daily operations is limited except for the accounting function which is a system made up by commercial software packages building on a LAN network.
The Group had started testing the computer system in late 1997. In the first half year of 1998, all computer hardware devices had been tested and were all year 2000 compliant. In the first quarter of 1999, the Group had finished up-grading certain software to their respective year 2000 compliant versions.
Total cost spent in respect to tackle the year 2000 issue was limited and did not exceed HK$0.2m. These costs were all charged to the profit and loss account at the time of incurring the expenditure.
The Board of Directors believes the year 2000 issue of the Group has been solved. The year 2000 issue will not have material adverse effect to the Group nor its operations going through and beyond the year 2000.
PURCHASE, SALE OR REDEMPTION OF THE GROUP'S LISTED SECURITIES
During the year of 1998, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities other than the Group's convertible bonds as mentioned above.
By order of the Board
Gao Jian Min
Managing Director
Hong Kong, 25th May, 1999
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