ANNOUNCEMENT OF INTERIM RESULTS
FOR THE PERIOD ENDED 30TH JUNE, 1999
INTERIM RESULTS
The board of directors (the "Directors") of Silver Grant International Industries Limited (the "Company") are pleased to announce that the unaudited results of the Company and its subsidiaries (the "Group") for the six months ended 30th June, 1999 are as follows:
6 months ended 6 months ended
30th June, 1999 30th June, 1998
(Unaudited) (Unaudited)
Notes HK$'000 HK$'000
Turnover 57,669 23,956
=========== ===========
Operating profit (1) 127,900 1,885
Share of results
of associated companies (3) (25,643) 1,803
----------- -----------
Profit from ordinary activities
before taxation 102,257 3,688
Taxation (4)
The Company and
subsidiaries 209 (18)
Associated companies 43 (984)
----------- -----------
Profit after taxation 102,509 2,686
=========== ===========
Dividend (5) - -
=========== ===========
Earnings (loss) per share (6)
Basic 11.5 cents 0.3 cents
=========== ===========
Diluted 6.0 cents (8.2 cents)
=========== ===========
Notes:
(1) Operating profit for the period has been credited (charged) with the following items:
6 months ended 6 months ended
30th June, 1999 30th June, 1998
(Unaudited) (Unaudited)
HK$'000 HK$'000
Profit on redemption and cancellation of
convertible bonds of nominal value of
US$17,033,000 (1998:US$30,522,000) 66,454 114,069
Unrealized gains (losses) on
other investments (see note 2) 25,823 (108,608)
Profit on disposal of investment 35,449 -
======== ========
(2) Previously, listed investments held for long term purposes were stated at valuation based on market value at the balance sheet date. Surpluses arising on valuation are credited to the asset revaluation reserve. Deficits are set off first against surpluses on revaluation, and thereafter are charged to the profit and loss account. On disposal of a long term listed investment, the balance on the asset revaluation reserve attributable to that investment is transferred to the profit and loss account. Unlisted investments held for long term purposes were stated at cost less provision for permanent diminution in value, if necessary. Listed investments held for short term purposes were stated at the lower of cost and market value at the balance sheet date.
Following the implementation of the new Statement of Standard Accounting Practice 2.124 "Accounting for Investments in Securities" ("SSAP 24") effective on 1st January 1999, the Group has adopted the Benchmark Treatment for investments other than held-to-maturity securities. Investments other than investment securities and held-to-maturity securities are carried at fair value in the balance sheet and any unrealized holding gains and losses are included in the profit and loss for the period.
The change in accounting policy has been applied retrospectively. The effect of the change in the accounting policy is to decrease net profit for the six months ended 30th June, 1998 and net profit for the year ended 31st December, 1998 by HK$80.8 million and HK$119.6 million respectively. The net cumulative effect on retained profits is to increase the retained profits as at 1st January, 1999 by HK$22.8 million. Corresponding comparative figures for the six months ended 30th June, 1998 have been restated to reflect the change in the accounting policy.
(3) The amount is after charging the Group's share of provision for expenditure in respect of scaling down retail operation by an associated company amounting to HK$23,364,000.
(4) Taxation consist of provision for Hong Kong Profit Tax based on the estimated profit of the period as adjusted for tax purpose at the rate of 16% (1998:16%). No deferred taxation has been provided, as there is no significant timing differences arising during the period or as at the period end date. The tax credits for the six months ended 30th June, 1999 were a result of the 1998 tax refund received exceeding the tax provision for the period.
(5) No interim dividend has been proposed (1998:Nil).
(6) Earnings (loss) per share
The calculation of the basic and diluted earnings (loss) per share for the six months ended 30th June, 1999 is based on the following data:
For the six months
ended 30th June,
1999 1998
(unaudited) (unaudited)
HK$'000 HK$'000
Earnings
Profit for the period and profit for the
purposes of basic earnings per share 102,509 2,686
Effect of dilutive potential shares:
Convertible bonds (42,898) (87,334)
------------ -------------
Profit (loss) for the period for the purposes
of diluted earnings (loss) per share 59,611 (84,648)
============ =============
Number of shares
Weighted average number of shares for the
purposes of basic earnings per share 892,343,500 892,343,500
Effect of dilutive potential shares:
Convertible bonds 103,733,559 134,363,901
Warrants 234,765 -
Employee Share Options - 7,157,480
------------ -------------
Weighted average number of shares for the
purposes of diluted earnings per share 996,311,824 1,033,864,881
============ =============
BUSINESS REVIEW
Corporate
The adoption of the new SSAP 24 in the period has led to a prior year adjustment to the profit for the period ended 30th June, 1998. The effect was to reduce last period's profit by HK$80.8m to HK$2.7m from HK$83.5m as previously reported.
For the six months ended 30th June, 1999, the Group recorded turnover of HK$57.7 million representing an increase of approximately 141% from last year. Net profit for the period was HK$102.5 million resulting in earnings per share of 11.5 cents. Both net profit and earnings per share represent increase of approximately 37 times compared to that of previous period.
Property
The south residential block of the East Gate Plaza ("East Gate Plaza") acquired in early 1998 started to generate stable and recurring income to the Group. Total income from East Gate Plaza amounted to approximately HK$34 million for the period, or equivalent to 15% annualized return, before expenditure.
Infrastructure
China Infra-structure Investment Limited ("CIIL"), a 40% owned associated company of the Group, is currently holding investments in nine infrastructure projects - three bridges and six roads. Total investment committed by CIIL amounted to HK$1.89 billion at 30th June, 1999 of which HK$1.70 billion had been paid up. All these projects are in operation except two of the bridges are still under construction, the completions of which are scheduled to be in the second quarter and fourth quarter of 2000 respectively. During the period, 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. Computerization of toll collections and effective internal control procedures has been put in place for all projects and is fully operational.
PRC Retailing
In light of the highly competitive retail market in the People's Republic of China ("PRC") and the currently reluctant-to-spend attitude of the Chinese consumers, the management of Beijing Wangfujing Retail Management Co., Ltd. ("Wangfujing") has scaled down shop area of the retail outlet at Nantong and leased out the extra floor area to relevant tenants that aid attracting people flow while maintaining the other outlet located at the commercial zone at the city centre of Wuhan whose operation has more potential. The action is to concentrate Wangfujing's management efforts in streamlining merchandise and rationalizing cost structure while at the same time building up customer base during this sluggish time. However, the Group remains confident in the consumer retail market in the PRC in the long term and will, depending on the then situation, take appropriate adjustment policies when the consumer retail market recovers.
Industrial Investments
The Group shared HK$4m losses from Jiangxi Copper Company Limited ("JCC"), a 10% indirectly owned associated company whose shares are listed on The Stock Exchange of Hong Kong Limited ("HKSE"), for the six months ended 30th June, 1999. The main reason for JCC recording an operating loss was due to nonperformance of copper prices. However, world copper prices seem to recover from the historical bottom and are heading for an upward trend. In addition, the expected economic growth and the heavy investments in infrastructure of the PRC in the coming years will stimulate demand for copper which will have positive effects on JCC's profit. Therefore, the Directors have confidence in the future prospects of JCC.
As at 30th June, 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 HKSE. The Group maintains its intention to hold these shares for long term.
BUSINESS PROSPECTS
Following the outbreak of the Asian Financial Crisis in 1997, the year of 1998 was a hard year for many corporations and the year 1999 is a year of recovery. In order to get the Group ready for an early recovery, the Directors has concentrated their efforts on streamlining operations and strengthening internal controls on existing investments in infrastructure, retailing and property in the PRC. The Directors will keep on doing so in the second half-year of 1999 with particular emphasis on reducing foreign exchange exposure. Exposure on currency mismatches on PRC direct investments are to be eliminated by funding the investments in RMB loans. The Directors are also closely monitoring the market to identify opportunities to repurchase the Group's convertible bonds at favorable prices to minimize USD exposure in relation to those outstanding convertible bonds.
The Group has been looking for business opportunities to further consolidate the relationship with its two ultimate substantial shareholders namely, China Construction Bank and China Everbright Holdings Company Limited.
The Group will look for quality properties with stable rental income to provide the Group with recurring operating income. At the same time, the Group will also keep on looking for quality direct investment opportunities, including investments in the high and new technology field, to bring higher returns to our shareholders. In addition, the Directors believe that infrastructure development is fundamental to PRC's economic growth. Accordingly, various means to diversify funding sources, including financial and strategic investors for CIIL, will be investigated to provide additional funding to further expand the project portfolio of CIIL.
INTERIM DIVIDEND
To cope with the Group's policy to manage its exposure to foreign exchange risk, the Directors consider it is beneficial to the Group to retain as much resources as possible in the Group for better liquidity. For this reason, the Directors did not propose to declare any interim dividend for the six months ended 30th June, 1999.
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 first started testing the computer system in late 1997. In 1998, all computer hardware devices had been tested and were all year 2000 compliant. In the first quarter of 1999, the Group also finished up-grading certain software to their respective year 2000 compliant versions.
Total cost spent in relation 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 Directors believe that the Group's exposure to the year 2000 issue has been appropriately addressed and do not anticipate that the year 2000 issue will have any material adverse effect on the Group nor on its operations going through and beyond the year 2000.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURTIES
During the period, the Group repurchased and cancelled certain convertible bonds of an aggregate principal amount of US$17,033,000.00 at a total consideration of approximately US$9,984,000.00
Save as mentioned above, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities.
FINANCIAL ASSISTANCE TO AFFILIATED COMPANIES
The financial assistance given to and guarantees 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$1,682,488,000.00 as at 31st December, 1998.
In accordance with the requirements under Practice Note 19 of the Rules Governing the Listing of Securities on HKSE, details of all the financial assistance given to, guarantees given for the benefits of the affiliated companies of the Group as at 30th June, 1999 are as follows:
Affiliated Percentage Guarantees Guaranteed Other security
Companies of interest Advances given loan drawn given
(%) (HK$'m) (HK$'m)
1. International 50 139* 330 330 Charge in
Copper Industry respect of
(China) 15th floor,
Investment Peregrine
Limited Tower, Lippo
Centre,
Queensway,
Hong Kong.
2. China Infra- 40 542 93 54
structure
Investment
Limited
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 for the one marked above with "*", a portion of which in the sum of approximately HK$58 million bears interest at prime rate.
By Order of the Board
Gao Jian Min
Managing Director
Hong Kong, 1st September, 1999
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