ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31ST DECEMBER 1999
Website: http://www.irasia.com/listco/hk/silvergrant
RESULTS
The Board of directors ("Directors") of Silver Grant International Industries Limited ("the Company") announce the audited consolidated results of the Company and its subsidiaries (together "the Group") of the year ended 31st December 1999 are as follows:
1999 1998
Notes HK$'000 HK$'000
Turnover 1 81,032 64,145
Direct operating expenses (18,161) (15,654)
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62,871 48,491
Other revenue 54,017 59,958
Administrative expenses (33,068) (32,696)
Other operating expenses 3 (124,282) (198,533)
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Loss from operations (40,462) (122,780)
Finance costs (63,554) (64,895)
Other (expenses) income 4 (4,193) 133,692
Share of results of associates 5 (58,398) (48,761)
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(166,607) (102,744)
Taxation credit (charge) 6 45,986 (6,761)
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Net loss for the year (120,621) (109,505)
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Dividends - -
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Loss per share - Basic 7 (13.5 cents) (12.3 cents)
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Notes:
1. Turnover
Turnover represents the aggregate of rental income from leasing of properties, dividend income earned from investments in securities and the gross proceeds received and receivable from trading of securities during the year.
2. Adoption of Statement of Standard Accounting Practice
The implementation of the new Statement of Standard Accounting Practice 2.124 "Accounting for Investment in Securities" ("SSAP 24") effective on 1st January 1999, has introduced a new framework for the classification of investments in securities. The adoption of the Standard has had a significant effect on the treatment adopted by the Group for its investments in securities. In adopting SSAP 24, the Group has selected the benchmark treatment for securities other than held-to-maturity securities.
In prior years, the Group' s investments were classified as either long-term (carried at fair value with valuation surplus dealt with in the asset revaluation reserve. Valuation deficits were set off first against surpluses on previous revaluations and thereafter were charged to the income statement. Surpluses in the asset valuation reserve in respect of investments disposed of were credited to the income statement in the year of disposal) or short-term (carried at the lower of cost and market value). The accounting treatment specified by SSAP 24 has been applied retrospectively, resulting in an increase in accumulated profits at 1st January 1998 of HK$142,343,000, a decrease in profit for the year 1998 of HK$119,574,000 and an increase in loss for the current year of HK$20,582,000. Comparative amounts have been restated in line with the new accounting policy.
3. The amount includes unrealized loss on other investments of HK$20,394,000 (1998: HK$175,501,000) and loss on disposal of an investment property of HK$97,712,000 (1998: nil).
4. Other (expenses) income
1999 1998
HK$'000 HK$'000
Profit on repurchase of convertible bonds 72,344 111,277
Provision for amount due from
a shareholder of an associate (76,537) -
Profit realized on disposal of interest
in a former subsidiary - 22,415
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(4,193) 133,692
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5. The amount in 1998 included the Group's share of provision for impairment in value of properties in an associate amounted to HK$42,307,000.
6. Taxation credit (charge)
1999 1998
HK$'000 HK$'000
The credit (charge) comprises:
Hong Kong Profit Tax
- charge for the year - -
- over (under) provision in prior years 42,178* (90)
- tax refund of a prior year 209 -
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42,387 (90)
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Share of taxation of associates
- Hong Kong Profit Tax 26 (2,016)
- Income tax in the People's Republic
of China, excluding Hong Kong 3,573 (5,170)
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3,599 (7,186)
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Deferred taxation - 515
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45,986 (6,761)
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* The amount represent the write back of previous years' tax provision as a result of an agreement with the Inland Revenue Department on the non- accessibility of certain capital gain.
7. Loss per share
The calculation of loss per share is based on the net loss for the year of HK$120,621,000 (1998: HK$109,505,000) and on the weighted average of number of 892,348,472 (1998: 892,343,500) ordinary shares in issue during the year.
The adjustment to comparative loss per share for 1998 arising from the adoption of new accounting policies explained in note 2 above is as follows:
Restatement of loss per share for 1998:
HK$'000
Profit for the year, previously reported 10,069
Adjustment arising from the adoption of SSAP 24 (119,574)
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Loss for the year, restated (109,505)
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Loss per share, restated (12.3 cents)
===========
No dilutive loss per share has been presented as the exercise of outstanding employee's share options and outstanding warrants and the conversion of outstanding convertible bonds have no dilutive effect on the loss per share for the year and for 1998.
GROUP RESULTS
The turnover of the Group for the financial year ended 31st December 1999 was HK$81 million, representing an increase of approximately 26% from last year. Net loss for the year was HK$120.6 million, resulting in loss per share of 13.5 cents. Both net loss and loss per share has increased approximately 10% compared to that of last year. The loss in the current year was due mainly to HK$97.7 million loss on disposal of the property at Lippo Centre, HK$76.5 million provision on amount due from China Nonferrous Metal Group (H.K.) Limited and HK$20.4 million unrealized deficit on valuation of other investments. Excluding these losses, the Group, in fact, has achieved to record an operating profit of, approximately, HK$74.0 million.
The Group has adopted new SSAP 24 in the year, which led to a prior year adjustment to the profit for the year ended 31st December 1998. The effect of the adjustment was to reduce last year's profit by approximately HK$120 million to loss of HK$110 from profit of HK$10 million as previously reported.
The Group also revised the presentation of the consolidated income statements to take into account the requirements pursuant to the amendments related to financial disclosure provisions and the general disclosure obligation of the Exchange Listing Rules.
As a result, corresponding comparative figures for last year have been restated to reflect the change in accounting policy and the revision in presentation of the consolidated income statement.
BUSINESS REVIEW
Property Investment
The south residential block of East Gate Plaza ("East Gate Plaza") has contributed stable and recurring income to the Group for the year. Total income from East Gate Plaza amounted to approximately HK$68 million or equivalent to 15% annualized return, before expenditure. The Directors believe East Gate Plaza will continue to contribute stable and recurring income to the Group.
Infrastructure
China Infra-structure Investment Limited ("CIIL"), a 40% owned associate of the Group, is currently holding investments in nine infra-structure projects - three bridges and six roads, Total investments committed by CIIL amounted to HK$2.22 billion at 31st December 1999 of which HK$1.90 billion had been paid up. All these projects are in operation except the Wuhan bridge and the ZhaoQing bridge which are still under construction. The completion of the Wuhan bridge and the ZhaoQing bridge are scheduled to be in the third and fourth quarters of 2000 respectively. During the year, CIIL has put on more resources on strengthening management capabilities at all levels including financial control, project engineering and management, administration and toll collection. More engineers with relevant infrastructure experience were hired and assigned to the projects. Computerized toll collection and effective internal control procedures has been put in place for all projects which are fully operational.
PRC Retailing
Despite the management of Beijing Wangfujing Retails Management Co., Ltd. ("Wangfujing") has spent much effort in streamlining merchandise and rationalizing cost structure, performance of retailing business was not satisfactory. The retailing market in the People's Republic of China ("PRC") remained very sluggish during the year. In light of this, management of Wangfujing closed the outlet at Nantong during the year. The outlets in Beijing and Wuhan remain in operation and the Wuhan outlet is able to record net profit during the first and second quarters of 2000. The management of Wangfujing is currently evaluating the effect of China joining the WTO that may have on Wangfujing's retailing and the prospect of continuing the retailing business and will take appropriate adjustment policies accordingly.
Industrial Investments
The Group shared HK$2 million profit from Jiangxi Copper Company Limited ("JCC"), a 10% indirectly owned associate whose shares are listed on The Stock Exchange of Hong Kong Limited ("SEHK"), for the year. The results of JCC have improved especially in the second half-year of 1999. The world market copper prices, which has a direct impact on JCC's profit, start to recover from the historical bottom. In addition, the expected economic growth of and the heavy investment in infrastructure of the PRC in the coming years will stimulate demand for copper which will have positive effect on JCC's profit. Therefore, the Directors are confident in the future prospect of JCC.
As at 31st December 1999, the Group was still holding 49 million shares in Qingling Motors Co. Ltd., representing approximately 2.5% of its registered capital, whose shares are listed on the SEHK. The Group maintains its intention to hold the shares for long term.
BUSINESS PROSPECTS
The currently high effective interest rate of Hong Kong and the dilemma of post 1997 Asia Financial Crisis on the PRC economy render both markets less attractive for investment for the time being. However, it is expected China will be admitted as a member to the WTO by the end of year 2000. The post WTO PRC market will be opened-up further with much more vigorous economic activities. During the year, the Directors have concentrated their effort in streamlining operations and strengthening internal control of the Group to get the Group ready for the next round growth of the PRC economy. This is particularly true in the context of the Group's investment in CIIL. Despite not yet concluded, the Directors has the plan to split CIIL for a separate listing on a suitable Exchange in the second half year of 2000. Preparation works for that purpose has been started.
On 9th March 2000, the Group acquired approximately 44% controlling interest in Righteous (Holdings) Limited ("Righteous") at a cost of HK$110 million. Subsequent to that, Righteous has made several investments in the high-technology area including a LCD and related products manufacturer, a PRC company engaged in data-base marketing through mail order and the internet and a PRC based travel portal emphasizing on business customers. The Group has the intention to invest in the high-technology area in Asia through Righteous. The Directors will, through the Company together with Warburg Pincus and Merrill Lynch, endeavor to source more and quality high-technology investments for Righteous and will procure to split off those matured investments for separate listing at appropriate Exchange. The Directors believes the Company's investment in Righteous will bring in good return to the Group and to the shareholders of the Company.
Early in the year of 2000, through subscription of new shares in the Company, Cinda Asset Management Corporation ("Cinda") became a major shareholder of the Company. Cinda is currently holding approximately 13% interest in the Company. Cinda is a state-owned financial institution with independent legal entity status and is under the supervision of China People's Bank. Its major businesses include acquiring, managing and dealing with certain assets of China Construction Bank. Having Cinda as a major shareholder of the Company, the Group and shareholders of the Company will be benefited from the advantageous status of Cinda in the PRC apart from raising more working capital to the Group. Cinda has invited the Group to participate in the disposition of the assets under the possession of Cinda. The Directors believe that by participating in the disposition of Cinda's assets, the Group may be possible to explore another source of income.
The Directors will keep on looking for quality properties with stable rental income and good direct investment opportunities to strengthen the Group's profit in the context of recurring income, income base and magnitude of income.
DIVIDEND
The Directors decided not to recommend a final dividend for the year ended 31st December 1999 (1998: Nil). The Directors consider it is beneficial to the Group by retaining more resources in the Group for better liquidity and to capture good investment opportunity that may arise in the future.
FINANCIAL ASISTANCE TO AFFILIATED COMPANIES
The financial assistance given to and guarantee given for the benefits of affiliated companies by the Group in aggregate exceed 25 per cent of the Group's net asset value of approximately HK$1,631 million as at 31st December 1999. In accordance with the requirement under Practice Note 19 of the Rules Governing the Listing of Securities on SEHK, details of all the financial assistance given to, guarantee given for the benefits of the affiliated companies of the Group as at 31st December 1999 are as follows:
Other
Affiliated Percentage Guarantees Guaranteed securities
company of interest Advances given loan drawn given
(%) (HK$'m) (HK$'m) (HK$'m)
1 International 50% 140.0* 330 330 60 million
Copper shares of the
Industry Company**
(China)
Investment
Limited
("ICI")
2 CIIL 40% 571.4 354 182
Advances to affiliated companies were funded by internal resources and bank borrowings of the Group. The advances are unsecured, non-interest bearing and have no fixed repayment dates, except the one marked with "*", a portion of which in the sum of HK$50.4 million bears interest at prime rate.
** The shares are provided by Silver Grant International Holdings Limited, a substantial shareholder of the Company.
The proforma balance sheet of the subject affiliated companies as at 31st December, 1999 are summarized as follows:
ICI CIIL
HK$'000 HK$'000
Fixed assets - 752
Investments 732,155 1,841,546
Other assets - 102,000
Current assets 87 206,144
Current liabilities (335,589) (220,293)
Non-current liabilities (233,713) (1,803,333)
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Net assets 162,940 126,816
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Net assets attributable to the Group 81,470 50,726
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YEAR 2000 ISSUE
The Group is aware of the financial and operating system risk posted by the inability of computer system, computer application, software and hardware devices to accurately calculate date/time data prior to, through and beyond 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 first started to tackle the year 2000 issue in late 1997 and completed the works by the last quarter of 1999. In the first half of 1998 all computer devices had been tested and were all year 2000 compliant. By the first quarter of 1999 certain software was upgraded to their respective year 2000 compliant versions.
Total cost spent in relation to tackling the year 2000 issue amounted to less than HK$0.2 million. These costs were charged to the income statement at the time of incurring the expenditure.
No disruption in operations was reported when transiting into the new millennium. There was also no problem encountered going into year 2000 up to today's date. The Directors are satisfied that the year 2000 issue will not post any material problem to the Group.
PURCHASE, SALES OR REDEMPTION OF THE GROUP'S LISTED SECURITIES
During the year, the Group repurchased and cancelled certain convertible bonds of an aggregate principal amount of US$19,278,000 at a total consideration of approximately US$11,472,000.
Save as disclosed above, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities.
By order of the Board
GAO Jian Min
Managing Director
29th May, 2000
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