SINOLINK WORLDWIDE HOLDINGS LIMITED
(Incorporated in Bermuda with limited liability)
ANNOUNCEMENT OF 1998 RESULTS
ANNOUNCEMENT OF 1998 RESULTS
| FINANCIAL HIGHLIGHTS For the year ended 31 December 1998
|
The Board of Directors (the "Directors") of Sinolink Worldwide Holdings Limited (the "Company") is pleased to announce the audited consolidated results of the Company and its subsidiaries (the "Group") for the year ended 31 December 1998, together with the comparative figures for the corresponding year, as follows:
1998 1997 Change
Notes HK$'000 HK$'000 %
(Note 1) (Note 1)
Turnover (2) 1,010,305 612,517 +64.9
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Operating profit 450,182 183,483 +145.4
Share of results of associated
companies (3,384) -
--------- ---------
Profit from ordinary activities
before taxation 446,798 183,483 +143.5
Taxation (3) (63,729) (23,092)
--------- ---------
Profit after taxation 383,069 160,391 +138.8
Minority interests (75,637) (49,644)
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Profit attributable to shareholders 307,432 110,747 +177.6
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Dividends (4) 69,920 90,769
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Earnings per share (5) HK$0.23 HK$0.10 +130.0
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Notes:
(1) Group reorganisation and basis of presentation of financial statements
The Company was incorporated in Bermuda on 15 December 1997 as an exempt company under the Companies Act 1981 of Bermuda (as amended) and its shares have been listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") with effect from 8 June 1998.
As part of the reorganisation of the Group (the "Reorganisation") in preparation for the listing of the Company's shares on the Stock Exchange, the Company acquired, through an intermediate holding company, certain subsidiaries and associated companies, and became the ultimate holding company of the Group from 11 May 1998. Further details of the Reorganisation have been set out in the prospectus issued by the Company dated 26 May 1998 (the "Prospectus"). There was no change in the structure of the Group during the period from 11 May 1998 to 31 December 1998.
The Group resulting from the above mentioned reorganisation is regarded as a continuing entity. Accordingly, the consolidated financial statements of the Group have been prepared on the basis as if the Group structure as at 31 December 1998 had been in existence since 1 January 1997, or since the respective dates of incorporation/establishment of the Company, its subsidiaries and its associated companies, where this is a shorter period.
In the opinion of the Directors, the consolidated financial statements prepared on the above basis present fairly the results and the state of affairs of the Group as a whole.
(2) Turnover
An analysis of the Group's turnover for the year is as follows:
1998 1997 Change
HK$'000 HK$'000 %
Sales of completed
properties/development properties 875,253 364,974 +139.8
Revenue from electricity supply
operations 121,348 224,886 -46.0
Others (Note) 13,704 22,657 -39.5
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Turnover 1,010,305 612,517 +64.9
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Note: Others include income from decoration, interior design work and property management services.
(3) Taxation
1998 1997
HK$'000 HK$'000
Company and subsidiaries
Hong Kong profits tax - (2)
The PRC profits tax 63,729 23,094
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63,729 23,092
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No provision for Hong Kong profits tax has been made as the Group's income neither arises in, nor is derived from Hong Kong.
Pursuant to relevant laws and regulations in The People's Republic of China (the "PRC"), certain of the Group's PRC subsidiaries established in the PRC are exempted from paying income tax for the first two years starting from its first profitable year of operations, followed by a 50 per cent. reduction from the third to fifth year. Provision for PRC income tax is provided for with reference to the applicable tax rates on the estimated assessable profits of those subsidiaries for the year.
Deferred taxation has not been provided in the financial statements as there were no significant timing differences arising during the year or at the balance sheet date.
(4) Dividends
1998 1997
HK$'000 HK$'000
Proposed final dividend of HK$0.046 per share
on 1,520,000,000 shares (1997: represents
dividend payable by certain subsidiaries
of the Company to the then shareholder
prior to the Reorganisation) 69,920 90,769
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(5) Earnings per share
The calculation of earnings per share is based on HK$307,432,000 (1997: HK$110,747,000) being profit attributable to shareholders and the weighted average of 1,355,507,000 (1997: 1,140,000,000) shares in issue during the year, assuming the Reorganisation had been completed on 1 January 1997.
The 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.
REVIEW OF OPERATIONS
For the year ended 31 December 1998, the Group's turnover amounted to HK$1,010,305,000, representing an increase of 64.9% over 1997. Profit attributable to shareholders rose 177.6% to approximately HK$307,432,000 which was higher than the profit forecast contained in the Prospectus. As at 31 December 1998, the Group's consolidated net asset value was HK$1,147,406,000, or HK$0.75 per share, with borrowings of HK$370,999,000, resulting in a debt-to-equity ratio of 32.3%. Key financial indicators for the year are contained in the Group's 1998 annual report.
The Asian financial turmoil continued to affect Hong Kong and the PRC during the second half of 1998. In Shenzhen, the real estate market was also affected by an increase of unsold flats and a drop in property prices by an average of 10 to 20%; the electricity supply industry was further aggravated by intense market competition.
In response to those conditions, the Group has revised its development strategies. Recognising that small residential units were in stronger demand due to the change in market sentiment, the Group amended its property development plan so that those large units under the original design were reduced to smaller ones. The Group also strengthened its property sales through better planning and marketing and the enhancement of ancillary facilities. As part of the efforts to increase the sophistication of its properties, the Group offered a number of valuable services to residents, including internal decoration, free installation of telephone and computer lines, and shuttle bus service between Hong Kong and Shenzhen.
Although the real estate market in Shenzhen was hit by the Asian financial turmoil, the impact has been relatively smaller when compared with the slump in the Hong Kong property market. This can be attributed partly to the significant efforts made by the PRC Central Government in developing the domestic housing market, and partly to the land policy maintained by the People's Government of Shenzhen Municipal (the "Shenzhen Municipal Government") under which the supply of land is regulated through auctions and tenders to sustain a healthy market. This policy together with other related measures taken by the Shenzhen Municipal Government have positive effects on the real estate market in Shenzhen. As such, the Group managed to achieve encouraging results for its real estate business in 1998 despite the "depressing" environment.
The Group's subsidiary, Shenzhen Fuhuade Electric Power Co., Ltd. ("Fuhuade"), operates Dapeng Power Plant in Shenzhen. During the year ended 31 December 1998, Fuhuade continued its operations as planned. However, due to the economic downturn, Shenzhen saw a slowdown in electricity demand which resulted in strong competition among small and medium-sized electricity plants. In addition, the biannual major overhauls of the generating units at Dapeng Power Plant took place during the year and lasted three months. As such, Fuhuade experienced a decline in turnover when compared with 1997. Nevertheless, the rate charged for electricity sold by Dapeng Power Plant remained at RMB0.78 per KWh. In view of strong and growing competition among electricity suppliers in Shenzhen, Fuhuade has focused on strengthening its internal management, with further efforts made to reduce costs and increase efficiency. Such measures have improved Fuhuade's earning capacity and contributed to Fuhuade's satisfactory results in 1998.
PROSPECTS FOR 1999
The Group will continue to focus on and actively expand its residential property development and electricity generation businesses in Shenzhen, as well as the liquid petroleum gas ("LPG") business acquired in February 1999. The Group will also study and explore opportunities in other infrastructure projects to maximise returns for shareholders.
1999 will still be a difficult year. In the PRC, deepening economic reforms are giving rise to soaring unemployment and a further decline in consumption. Already riddled with a significant amount of bad debts, the banking sector is more reluctant to make new loans now that the risks have become even higher. These factors combined could lead to serious credit crunch and deflation in the PRC economy. Elsewhere, the international financial market has become more volatile. Largely as a result of the economic problems in Brazil and Russia, both the Hong Kong Dollar and Renminbi are increasingly under pressure to devalue. In view of the above, whether the property industry (and, for that matter, the whole business sector) can start to recover in 1999 depends on the efforts of all concerned.
Despite this, there are factors favourable to the Group's development in 1999. Firstly, the PRC is continuing with its housing reform whereas its interest rates - already at low levels after having been reduced four times in recent years - have further room for reduction. These provide a fundamental stimulus to the housing demand in Shenzhen. Secondly, the economic tie between Shenzhen and Hong Kong is becoming increasingly strong. Construction of the Western Corridor project has already been approved; the operating hours of the crossing points at the Shenzhen/Hong Kong border have been gradually extended. It is now a trend for Hong Kong people to do their shopping in Shenzhen, or to work or reside there. Major efforts have also been made by Shenzhen to improve its infrastructure, with remarkable results already achieved in urban development, road system and environmental enhancement. Such efforts will help attract more foreign investment to Shenzhen, and particularly beneficial to encouraging Hong Kong people to buy properties there. In addition, the Shenzhen Municipal Government is taking active measures to draw talented people into the city to facilitate the development of high-technology industries. These positive factors will also help stimulate the demand for housing in Shenzhen.
In 1999, the Group will seek to capitalise on the positive factors and to minimise the impact of those negative factors. Given that both Shenzhen and Hong Kong are actively developing the high-technology industries, the Group will strengthen its efforts in promoting Sinolink Garden as an ideal living place for people who work for or invest in the high-technology industries. Such efforts will include the increase of sales and marketing in Hong Kong, advertising at airports, harbours and land crossings, and promotional campaigns at designated sales points. Moreover, the Group will step up marketing and promotion towards the well off class in the PRC, in particular the professionals. It will also further enhance the quality of its properties and property management services to strive for satisfactory sales in 1999. All in all, the Group believes the real estate market in Shenzhen presents both difficulties and opportunities in 1999. By facing the challenges, overcoming the difficulties and grasping the opportunities, it is still likely that the Group can achieve good results in 1999.
The Group is preparing for the cable transformation works at the Yinhu site in Luohu District, Shenzhen. It is expected that these works will take 30 to 36 months to complete. Upon completion, over 320,000 square metres of land will be available for property development. Moreover, the Group is negotiating with the relevant departments of the Shenzhen Municipal Government to jointly develop properties along the future subway lines. Should agreements be reached, the Group would be able to increase its land bank, which would facilitate the Group's long-term development.
Dapeng Power Plant will continue to provide consistent and stable cash revenue for the Group. While the plant's electricity generation is based on market demand, it is expected that the amount in 1999 will be higher than that of 1998 since the generating units already went through major overhauls during the first half of last year. The Group will actively but prudently study the expansion plan of Dapeng Power Plant in 1999 to meet the future electricity demand in Shenzhen.
Infrastructure development has always been regarded as a high priority in the PRC's economic development and is capable of providing long-term stable returns. In view of the growth of the PRC economy and the increasing popularity of LPG in the industrial and commercial sectors, the Group firmly believes that the LPG business has vast development potential in the PRC. The Group has therefore acquired China Pan River Group Ltd., which is principally engaged in the production, transportation, storage, sale and distribution of LPG in the PRC. The acquisition was completed in February 1999.
The Directors consider that LPG has wide applications in the commercial, industrial and civil fields. Given that the PRC's per capita consumption of LPG is merely 5%, 6%, 7.5% and 8.6% respectively of the volume in Japan, Korea, Malaysia and Singapore, the Directors believe that the PRC is a huge potential market for the LPG business. It is expected that the use of LPG will become increasingly popular in the PRC and solid growth will be seen in the coming 10 to 20 years. It is against this background that the Group decided to expand into the LPG business. By capitalising on the rising trend of LPG consumption in the PRC, it is expected that the LPG business will gradually account for a higher proportion of the Group's earnings.
The Group is focusing its attention on the Yangzi River and the southwestern regions where the use of LPG has the highest potential. The Group is striving to increase its market share in these regions for the retail and distribution of LPG. It is utilising the LPG resources available in the local areas and adopting flexible storage and transportation systems to ensure an adequate supply of LPG to the regions. In future, the Group will take steps to expand its investment in the LPG business, such as acquiring major LPG piers and storage facilities. Efforts will also be spent to enhance the Group's corporate brand name in LPG supply, including the establishment of a comprehensive retail and distribution network to ensure an effective control on product quality. The best management practices of modern retail enterprises will also be introduced for developing this huge market. Furthermore, the Group plans to increase pipeline networks in small districts to match the overall urban development of these regions. For these reasons, the LPG business might see a higher amount of investment in the short term and there might not be substantial immediate returns. However, taking a long term perspective, the Directors believe that the LPG business is solid and has tremendous potential and would provide shareholders with reasonable returns over the long term. Indeed, given the significance of LPG in environmental protection, it has received strong support from the PRC Government and favourable attention from renowned international corporations, investment funds and oil companies. The Group is holding talks with these corporations, investment funds and LPG companies on joint development of the LPG business. Successful conclusion of these talks could have a major positive bearing on the Group's future development.
Along with the arrival of 1999 comes a period of hard time. However, the Group has formulated strategies in advance and is well-prepared to overcome the difficulties. Facing the challenges in the real estate market, the Group is strengthening the sales and planning of its property projects while diversifying into other businesses. The acquisition of the LPG business in February 1999 represents a good start. Moreover, the Group pays close attention to the exchange risk associated with investing in the PRC and is taking measures to minimise the impact of exchange rate fluctuations on its operating income. The Directors believe that with prudent financial management, a sophisticated management team, the capability to grasp opportunities, and the diligence of its staff, the Group will continue to provide shareholders with reasonable returns in future.
FINAL DIVIDEND
The Directors propose a final dividend of HK$0.046 (1997: N/A) per share subject to approval of the shareholders at the annual general meeting to be held on 8 June 1999. The proposed final dividend is payable on or before 15 June 1999 to shareholders whose names appear on the register of members of the Company on 4 June 1999.
CLOSURE OF REGISTER OF MEMBERS
The register of members of the Company will be closed from Wednesday, 2 June 1999 to Friday, 4 June 1999, both days inclusive, during which period no transfer of shares will be registered. In order to qualify for the proposed final dividend, all completed transfer forms with share certificates must be lodged with the Company's Hong Kong Registrar and Transfer Office, Central Registration Hong Kong Limited, 19th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong not later than 4:00 p.m. on Tuesday, 1 June 1999.
YEAR 2000 COMPLIANCE
The Directors note that certain computer systems use only two digits to represent a year and may not be able to distinguish the year 1900 from the year 2000. Such deficiency if not rectified may result in the failure of the computer systems to accurately process or record data on transition to the year 2000.
The Directors are aware of the year 2000 issue and appropriate compliance measures have been taken. With regard to the Group's property development business, all major computer systems used at our Shenzhen office had been upgraded by March 1998. The computer systems used at our Hong Kong office were either upgraded or replaced and the final phase of installation and testing was completed at the end of 1998. As for our electricity generation business, the computer systems currently in use at Dapeng Power Plant were purchased and installed in 1997. These systems use four digits to represent a year and have been tested for year 2000 compliance. To date, our compliance project has been 95% completed and the Directors are satisfied with the results. Bearing unforeseen circumstances, the Group should not encounter any major problems arising from year 2000 compliance.
The total cost estimated by the Group for the year 2000 compliance project is approximately HK$369,000. All costs in respect of year 2000 compliance are accounted for as expenses during their respective periods.
PURCHASE, SALE OF REDEMPTION OF LISTED SECURITIES
During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the listed securities of the Company.
By Order of the Board
OU Yaping
Chairman
Hong Kong, 26 April 1999