FOR THE SIX MONTHS ENDED 30TH SEPTEMBER, 1998
The Board of Directors of the Company has pleasure in presenting the unaudited consolidated results of the Group for the six months ended 30th September 1998 as follows :
Hong Kong profits tax is provided at the rate of 16.0% (1997 - 16.5%) on the estimated assessable profits arising in Hong Kong for the period.
Taxes on profits in respect of subsidiaries operating overseas have been calculated at the rates of taxation prevailing in the respective tax jurisdiction in which they operate based on existing legislation, interpretations and practices in respect thereof.
2. Earnings per share
The comparative amounts have been restated to comply with the newly revised Hong Kong Statement of Standard Accounting Practice No.5 ("Earnings per share").
(a) Basic earnings per share
The calculation of basic earnings per share is based on the profit attributable to shareholders of HK$110,820,000 (1997:HK$170,485,000) and the weighted average of 1,279,174,486 (1997:HK$1,287,050,814) ordinary shares in issue during the period.
(b) Diluted earnings per share
The calculation of profit attributable to shareholders is the same as that of (a) above. The weighted average number of ordinary shares in issue is adjusted to reflect the number of dilutive ordinary shares deemed to have been issued for no consideration throughout the period in respect of share options.
The Board has declared an interim dividend of 2.00 cents per share (1997 : 1.75 cents) for the six months ended 30th September, 1998. The interim dividend will be payable on Wednesday, 10th February, 1999 to shareholders registered on the Register of Members at the close of business on Friday, 22nd January, 1999.
CLOSURE OF REGISTER OF SHAREHOLDERS
The Register of Members will be closed from Friday, 15th January, 1999 to Friday, 22nd January, 1999 (both days inclusive), during which period no transfer of shares can be registered. In order to qualify for the interim dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company's Registrar in Hong Kong Tengis Limited at 1601 Hutchison House, 10 Harcourt Road, Hong Kong for registration not later than 4:00 p.m. on Thursday, 14th January, 1999.
REVIEW OF OPERATIONS AND PROSPECTS
For the interim period of this year, turnover and profit attributable to shareholders were down by 3% and 35% respectively compared to that of last year. An interim dividend of 2.00 cents per share was recommended by the Board, a 14% increase from last year's 1.75 cents.
The fall in profit was mainly due to higher interest rates which had resulted in higher financial costs, and the unsatisfactory performance of the Hong Kong retail business. With the economic slowing, the Management has opted for a more conservative strategy of reducing investment and liability.
The production and sale of knitted fabric, the Group's major business, remains stable. The United States (65%) and Europe (25%) are still our major markets. The economic conditions of these markets are good, consequently we continue to be optimistic about the coming year.
China continues to be the major market of the Baleno retail business, with about 230 retail shops there. There are 17 and 38 shops in Hong Kong and Taiwan respectively. As the rents of the Hong Kong shops have come down significantly, we expect to see an obvious improvement in our retail business in the next results.
During this interim period, the economic condition of Hong Kong had been most unfavourable. However, with lower interest rates and the stablilising of market conditions, we hope to see better results in the coming half year.
ARRANGEMENTS TO PURCHASE, REDEEM AND SELL SHARES
During the six months ended 30th September, 1998, the Company repurchased a total of 984,000 of its listed shares on the Stock Exchange of Hong Kong Limited as follows : -
The above repurchased shares have been duly cancelled and the issued share capital of the Company has been reduced according to the par value of the cancelled shares.
Save as disclosed above, neither the Company nor any of its subsidiaries purchased, redeemed, or sold any of the Company's securities during the six months ended 30th September, 1998.
YEAR 2000 PROBLEM
The Group understands that many computer systems have adopted two digits in year representation and such storage method may lead to malfunction when the computer is attempting to retrieve or process time related information.
Regarding the Year 2000 problem, the Group has completed an in-depth technical testing and evaluation. As most computer applications have been developed by in-house technicians and the issue of Year 2000 was addressed in system designing stage, there would not be any problem happened. On the other hand, the Group has collaborated and reviewed the remaining systems supplied by outsiders and the problem has been solved. In the meantime, the Group is preparing a contingency plan to cope with Year 2000 risk and will complete the plan by the end of March 1999.
Since most computer software and hardware are maintained by in-house technicians, the Group does not expect any substantial costs be incurred for the Year 2000 project. As at today, the Group has spent about 75% of the total cost for the Year 2000 project.
THE LISTING RULES PRACTICE NOTE 19
(a) The Company has entered into two syndicated loan agreements under which the controlling shareholder, Poon family (Mr. Poon Bun Chak and his family), has to maintain controlling interest in the management of the Company ("Management") and hold an aggregate shareholding of not less than 51% of the issued capital ("Shareholding") of the Company during the tenure of the loans. And, the breach of the Management and Shareholding conditions is considered as a default under the loan agreements. As at today, the aggregate outstanding of the loans is HKD 315 million and the aggregate outstanding to net assets value (per latest audited annual report) is 31%. The final repayment date of the loans is 27th August, 2001.
b) Save as disclosed above, there are no other events/transactions of the Company which require disclosure under the Practice Note 19.
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 six months ended 30th September, 1998, in compliance with the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities issued by the Stock Exchange of Hong Kong Limited.
By order of the Board
Poon Bun Chak
Hong Kong, 15th December 1998
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