INTERIM RESULTS
The Board of Directors (the "Directors") of Singamas Container Holdings Limited (the "Company") is pleased to announce the unaudited consolidated interim results of the Company and its subsidiaries (together the "Group") for the six months ended 30th June, 1999 together with comparative figures for the corresponding period of 1998 as follows:
Six months
ended 30th June,
1999 1998
Notes US$'000 US$'000
Turnover 1 58,995 75,255
========= =========
Operating profit 704 1,287
Share of results of
associated companies 238 53
--------- ---------
Profit before taxation 942 1,340
Taxation 2 (193) (324)
--------- ---------
Profit after taxation 749 1,016
Minority interests (131) (512)
--------- ---------
Profit after taxation and
minority interests 618 504
========= =========
Earnings per share 3 0.14 cent 0.11 cent
========= =========
Notes:
1. Turnover
Turnover represents revenue, less returns and allowances, from container manufacturing, container depot and terminal, and mid-stream operations.
2. Taxation
Hong Kong profits tax has been provided at the rate of 16% (1998: 16%) on the estimated assessable profit for the six months ended 30th June, 1999. Taxation on overseas profits has been calculated on the estimated assessable profits for the period at the rates of taxation prevailing in the countries in which the Group operates.
1999 1998
US$'000 US$'000
Company and subsidiaries:
Hong Kong profits tax - -
Overseas taxation 193 324
Deferred tax - -
------- -------
193 324
======= =======
3. Earnings per share
The calculation of earnings per share is based on profit of US$618,000 (1998: US$504,000) and 456,001,760 ordinary shares in issue (1998: 456,001,760 ordinary shares) throughout the period.
Diluted earnings per share is not presented as the exercise price of the Company's outstanding share options is higher than the fair value per share throughout both periods.
BUSINESS REVIEW
During the period under review, the Group continued to be affected by the Asian economic crisis and resulted in a consolidated turnover of US$58,995,000, a 21.6% decrease from the same period last year. The Group, however, with its solid foundation and successful operating strategies, managed to achieve a consolidated profit after taxation and minority interests of US$618,000, a 22.6% increase from the same period of 1998. This favourable result was mainly attributable to the satisfactory performance of the Group's container depot and mid-stream operations.
The imbalance of trade between Asia and the U.S.-Europe markets, which was aggravated by the Asian economic and financial crisis, continued into the first half of 1999 and affected the profitability of the Group's container manufacturing operations. In view of the difficult business environment and market uncertainties, container leasing companies remained cautious in placing orders. The profit margins of the Group's container manufacturing business were also affected by the fierce competition and the oversupply situation in the container market of the People's Republic of China (the "PRC"). Nevertheless, the Group was able to maintain its overall profitability due to the significant improvement achieved by its container depot and mid-stream operations.
Container Manufacturing Operations
The slow-down of container demand in the Asian region continued from the second half of 1998 into the first half of 1999. Empty containers were building up at the ports of the U.S. and Europe due to the continuing imbalance of trade and container movement between Asia and the U.S.-Europe markets, and the high cost involved in repositioning these containers back to Asia deterred container leasing companies from placing orders. Despite these difficulties, the Group attained an aggregate container output of 41,593 twenty-foot equivalent units ("TEUs") and a sales volume of 38,155 TEUs in the first six months ended 30th June, 1999, representing an increase of 12.5% and 7.0% respectively from the same period last year.
Although selling price for dry freight container stabilized recently, cost of raw materials, particularly the price of plywood, surged in the first half of 1999. The cost of steel also started to increase in the second quarter of 1999.
Notwithstanding these unfavourable factors, the Group was able to minimize the effects from the rising material costs by its on-going controls over production efficiency and costs and had maintained its overall profitability to a certain degree. During the period under review, in order to achieve economies of scale and regain its market share, the Group expanded its dry freight and collapsible flatrack container production scale and attained production of 40,222 TEUs, representing an increase of 12.5% over the same period of 1998.
Although the Group's refrigerated container ("reefer") operation, Shanghai Reeferco Container Co., Ltd. ("Shanghai Reeferco"), continued to be affected by the global downturn in the reefer container leasing industry, stiff competition in the PRC market, adverse effects from the Asian turmoil and the eroding selling price of reefer, the factory increased its production by 13.0% from the same period last year.
Container Depot and Terminal Operations
During the period under review, the Group's container depot and terminal operations achieved turnover of US$10,297,000, representing an increase of 18.3% from the same period last year, and managed to turnaround from a loss before taxation of US$21,000 in 1998 to a profit of US$698,000. The encouraging results were primarily due to the significant recovery by the Hong Kong depot operations.
The container depot business in Hong Kong was rectified by the dramatic slow-down in cargo throughput and higher idle leased container inventory for the first half of 1999, particularly in the first quarter of the year. In addition, management successfully restructured the operations of its Hong Kong depots and implemented a number of cost reduction programs in the second half of 1998, which achieved substantial cost savings.
Performance of the Group's five container terminals located in Tianjin, Qingdao, Shanghai, Ningbo and Xiamen of the PRC was stable. They collectively attained turnover of US$5,639,000, an increase of 6.0% from 1998. Besides having well established market position, well managed operations and strategic locations, the increased trade volume in the PRC also accounted for the better results generated by the PRC terminal operations.
Mid-stream Operation
In the first half of 1999, the mid-stream operation continued to perform well with a turnover of US$3,774,000. The high demand for empty containers in the PRC and other South East Asian countries continued from 1998 into the first half of 1999, which benefited the container repositioning business division of the mid-stream operation. This factor coupled with the Group's ongoing cost control measures and effective restructuring that took place in November 1997 accounted for the good results. The Group is confident that the mid-stream operation will continue to contribute positively to the Group in the future.
PROSPECTS
In the light of the uncertainties resulted from the Asian economic crisis, the Group's prudent approach has proven to be effective and at the same time, protecting the interests of its shareholders. The Group will continue to strengthen its business foundation by focusing on its existing businesses, further minimizing its overall operating costs, and improving efficiency and standard of service in order to enhance its competitiveness and market position.
At the same time, the Group will actively and cautiously seek positive investment opportunities with the aim of maximizing returns for its shareholders. In line with this objective, the Group has entered into an agreement with Shunde Shun An Da Container Manufacturing Co., Ltd. ("Shun An Da") on 16th July, 1999 to jointly operate and manage the factory with effect from 1st September, 1999. This factory, with an annual capacity of 120,000 TEUs, is engaged in the production of dry freight containers as well as 45-foot and 48-foot specialised containers.
The agreement enables the Group to establish a wider manufacturing network from the central to the southern part of the PRC in order to capitalise on the rising container demand, particularly in the Southern PRC. With Shun An Da's advanced production facilities, skillful labour force and strategic location, along with the Group's established customer base and manufacturing network, the Group believes that this project will be beneficial to both parties and will strengthen the Group's competitiveness and business growth.
Moreover, recent industrial periodicals revealed that the shipping industry is reviving. With the recovery of the shipping industry, the Group expects that both container demand and selling prices will gradually increase, which would benefit the Group's container manufacturing business. Building on our solid foundation and barring any unforeseen circumstances, the Group is confident of achieving better results in the second half of the year.
TRANSFERS TO RESERVES
Pursuant to the legal requirements in the PRC and the appropriation agreed in the subsidiaries and associated companies, aggregate amounts of US$102,000 and US$86,000 have been transferred to general reserve and development reserve of the Group respectively during the period.
INTERIM DIVIDEND
The Directors do not recommand the payment of an interim dividend for the six months ended 30th June, 1999 as working capital is required by the Company to finance its daily operations, which will benefit the Company's long term profitability.
YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") issue is the result of computer programs being written by using two digits rather than four to define the applicable year. Any computer systems that have date-sensitive software may recognise a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar business activities. The Group defines Y2K compliance as to ensure all our computer systems and computer-related equipment are capable of interpreting dates beyond 31st December, 1999 accurately, and recognise Year 2000 as a leap year in order to keep all systems functioning properly and without interruption during and after Year 2000.
In mid-1997, the Group has set up a Steering Committee (the "Committee") to assess the impact of Year 2000 on the Group's operations, and initiated a Year 2000 compliance program (the "Program"). The Committee reports regularly to the Directors and the Audit Committee. The Program involves testing of all relevant systems to ensure that they are Y2K compliant. It also includes planned modification and replacement of a small number of the Group's systems, which are not Y2K compliant. As of the date of this Interim Report, majority of the Group's systems is Y2K compliant and full implementation and completion of the Program is targeted for September 1999. The overall progress of the Program is in line with our schedule.
Although most of the Group's computer systems are used primarily for internal purposes and we do not anticipate any major problem with customers, vendors, and other relevant parties, the Group has initiated formal communications with these respective parties to determine the extent to which the Group is vulnerable to these third parties' failure to remediate their own Year 2000 issue.
The total estimated costs of the Program, which have been approved by the Directors, are US$170,000 and approximately 85% of the amount has been incurred and the remaining 15% has not yet contracted for the Program.
The Program is on schedule to make the Group's computer systems Y2K compliant by September 1999, nevertheless, a contingency plan has developed and in place to account for any unexpected contingencies.
AUDIT COMMITTEE
Pursuant to the requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules"), an Audit Committee of the Company was established on 24th August, 1998 with reference to "A Guide for the Formation of an Audit Committee" issued by the Hong Kong Society of Accountants in December 1997. The Audit Committee met twice during the reporting period and up to the date of this Interim Report.
The principal duties of the Audit Committee include the review of the Company's financial reporting process and internal controls.
DIRECTORS' INTERESTS
As at 30th June, 1999, the beneficial interests of the Directors and their associates in the shares of the Company as required to be recorded in the Register maintained under Section 29 of the Securities (Disclosure of Interests) Ordinance ("SDI Ordinance") or as notified to the Company were as follows:-
Number of Ordinary Shares of HK$0.10 each
Personal Corporate Percentage of
Name Interests Interests issued shares
Mr. Chang Yun Chung - 277,014,178(Note) 60.74
Mr. Teo Siong Seng 9,494,000 - 2.08
Mr. Teo Tiou Seng, Tony 1,114,000 - 0.24
Note: These shares are held by Pacific International Lines (Private) Limited ("PIL") (an associated corporation, within the meaning of the SDI Ordinance, of the Company) in which Mr. Chang Yun Chung is interested, in aggregate, in 16,345,000 shares representing 88.45 per cent. of the issued share capital of that company. Mr. Chang Yun Chung's interest in shares of PIL comprises a personal interest in 2,632,500 shares and corporate interests in 5,850,000 shares through Farcom Enterprises Limited, a company in which he holds 50.33 per cent. of the issued share capital and 7,862,500 shares through Y C Chang & Sons Private Limited, a company in which he holds 2.86 per cent. of the issued capital.
Number of Share Options
Exercise As at
Price 30th June,
Name HK$ 1999 & 1998
Mr. Teo Siong Seng 1.908 1,500,000.000
1.440 1,500,000.000
Mr. Hsueh Chao En 1.908 400,000.000
Save as disclosed above, as at 30th June, 1999, there was no other interest or right recorded in the register required to be kept under Section 29 of the SDI Ordinance.
SUBSTANTIAL INTERESTS IN THE SHARE CAPITAL OF THE COMPANY
Other than the interests of certain directors disclosed under the section headed "Directors' Interests" above, the Register of Substantial Shareholders maintained under section 16(1) of the SDI Ordinance disclosed no other person having an interest of 10 per cent. or more in the issued share capital of the Company as at 30th June, 1999.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities during the period.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
None of the directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not for any part of the accounting period covered by this Interim Report, in compliance with the Code of Best Practice as set out in Appendix 14 of the Listing Rules.
On Behalf of the Board
Chang Yun Chung
Chairman
Hong Kong, 10th August, 1999
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