Asia Commercial Holdings Limited
Asia Commercial Holdings Limited
(Incorporated in Bermuda with limited liability)
ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31st MARCH, 2001
RESULTS
The Board of Directors (the “Board”) of Asia Commercial Holdings Limited (the “Company”) is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31st March, 2001 as follows:
2001 / 2000Notes / HK$’000 / HK$’000
TURNOVER / 1 / 146,289 / 146,146
COST OF SALES / (87,816 / ) / (101,844 / )
GROSS PROFIT / 58,473 / 44,302
OTHER REVENUE / 1 / 9,101 / 17,584
DISTRIBUTION COSTS / (39,120 / ) / (33,842 / )
ADMINISTRATIVE EXPENSES / (15,504 / ) / (12,240 / )
OTHER OPERATING EXPENSES / 3 / (10,615 / ) / (19,443 / )
PROFIT (LOSS) FROM OPERATIONS / 2,335 / (3,639 / )
FINANCE COSTS / 5 / (1,831 / ) / (2,066 / )
OTHER INCOME (EXPENSES) / 4 / 6,284 / (2,357 / )
PROFIT (LOSS) BEFORE TAXATION / 6 / 6,788 / (8,062 / )
TAXATION / 7 / (45 / ) / (204 / )
PROFIT (LOSS) AFTER TAX / 6,743 / (8,266 / )
MINORITY INTERESTS / - / 1,939
NET PROFIT (LOSS) FOR THE YEAR / 6,743 / (6,327 / )
ACCUMULATED LOSSES BROUGHT FORWARD / (328,068 / ) / (322,075 / )
EXCESS DEPRECIATION ON REVALUED
PROPERTIES / 22 / 248
REVERSAL OF GOODWILL WRITTEN OFF
UPON LIQUIDATION OF A SUBSIDIARY / 1,008 / 86
ACCUMULATED LOSSES CARRIED FORWARD / (320,295 / ) / (328,068 / )
EARNINGS (LOSS) PER SHARE / 8 / 2 cents / (2 cents / )
Notes:
1.Turnover and other revenue
Turnover represents the gross proceeds received and receivable derived from the sales of complete watches, investment securities and property rental and is summarised as follows:
2001 / 2000HK$’000 / HK$’000
Turnover
Investment securities / 1,341 / -
Sales of watch components / - / 21,028
Sales of complete watches / 141,032 / 121,652
Rental income
Investment properties / 3,348 / 2,140
Land and buildings / 568 / 1,326
3,916 / 3,466
146,289 / 146,146
Other revenue
Written back of provision for bad and doubtful debts / 975 / 2,885
Written back of trade payable / 544 / 7,834
Dividend income / 30 / 125
Interest income from other than short-term bank deposits / 1,245 / 1,190
Interest income from short-term bank deposits / 3,122 / 2,898
Others / 3,185 / 2,652
9,101 / 17,584
155,390 / 163,730
2.Segmental information
The analyses of the Group’s turnover and profit (loss) before taxation by principal activities and by geographical markets are as follows:
20012000
Profit (loss) / Profit (loss)Turnover / before
taxation / Turnover / before
taxation
HK$’000 / HK$’000 / HK$’000 / HK$’000
By principal activities
Sale of watch components / - / - / 21,028 / (4,931 / )
Sale of complete watches / 141,032 / (1,827 / ) / 121,652 / (12,284 / )
Property-related business / 3,916 / 10,723 / 3,466 / 11,219
Other activities / 1,341 / (277 / ) / - / -
146,289 / 146,146
Finance costs / (1,831 / ) / (2,066 / )
Profit (loss) before taxation / 6,788 / (8,062 / )
By geographical markets
Hong Kong / 6,698 / (8,145 / ) / 29,224 / (21,657 / )
People’s Republic of China (“PRC”),
excluding Hong Kong / 129,853 / 16,476 / 109,500 / 12,431
Others / 9,738 / 288 / 7,422 / 3,230
146,289 / 146,146
Finance costs / (1,831 / ) / (2,066 / )
Profit (loss) before taxation / 6,788 / (8,062 / )
3.Other operating expenses
2001 / 2000HK$’000 / HK$’000
Provision for bad and doubtful debts / 565 / 3,560
Provision for diminution in value of properties held for resale / 1,990 / 4,152
Provision for slow-moving inventories / 6,257 / 5,144
Net unrealised loss on revaluation of investments in securities / 1,803 / 6,587
10,615 / 19,443
4.Other income (expenses)
2001 / 2000HK$’000 / HK$’000
Profit on disposal of a subsidiary / - / 5,208
Profit on disposal of a discontinued operation (Note) / - / 10,645
Provision for diminution in value of land and buildings / - / (967 / )
Loss arising from exchange difference / - / (11,087 / )
Written off of fixed assets / (3,826 / ) / (2,740 / )
Written off of investment and amounts due from subsidiaries upon
liquidation / 10,110 / (3,416 / )
6,284 / (2,357 / )
Note:On 23rd August, 1999, the Group has completed the disposal of its interests in the Lakeview Project, a property development operation in the PRC. A gain of HK$10,645,000, which represents the difference between the net sales proceeds and the net carrying amount of the assets and liabilities of the operation at the date of disposal, is included in the net loss for the previous year. The profit on disposal of the discontinued operation comprised:
2001 / 2000HK$’000 / HK$’000
Gain on disposal of a subsidiary / - / 11,233
Gain on disposal of investments in securities - investment
securities / - / 19,948
Loss on release of sub-participation interest and assignment of
indebtedness / - / (20,536 / )
- / 10,645
The contribution to turnover and loss from ordinary activities in respect of the discontinued operation, accounted for up to the date of disposal, were as follows:
2001 / 2000HK$’000 / HK$’000
Turnover / - / -
Loss from ordinary activities / - / 1,569
5.Finance costs
2001 / 2000HK$’000 / HK$’000
Interest payable on:
Bank loans and overdrafts wholly repayable within five year / - / 279
Convertible notes / 377 / 375
Other loans / - / 1,297
Hire purchase contract / - / 6
377 / 1,957
Convertible notes:
Amortization of premium on redemption / 972 / 972
Others / 482 / 372
Total borrowing costs / 1,831 / 3,301
Less: Amount capitalized in respect of properties under development / - / (1,235 / )
1,831 / 2,066
6.Profit (Loss) before taxation
Profit (loss) before taxation has been arrived at:
2001 / 2000HK$’000 / HK$’000
After charging:
Depreciation / 2,983 / 3,558
7.Taxation
2001 / 2000HK$’000 / HK$’000
The charge comprises:
Taxation in other jurisdictions of the Company and its subsidiaries / 45 / 204
No provision for Hong Kong Profits Tax has been made for the year as the Company and its subsidiaries operating in Hong Kong have no assessable profit during the year under review. Hong Kong Profits Tax is calculated at 16% (2000: 16%) of the estimated assessable profit for the year.
Taxation in other jurisdictions has been calculated at the rates prevailing in the respective jurisdictions.
8.Earnings (loss) per share
The calculation of the basic earnings (loss) per share is computed based on the following data:
2001 / 2000Earnings (loss)
Earnings (loss) for the purpose of basic earnings (loss) per share / HK$6,743,000 / HK$(6,327,000 / )
Number of shares
Number of shares for the purpose of basic earnings (loss) per share / 291,719,516 / 291,719,516
Basic earnings (loss) per share / 2 cents / (2 cents / )
No disclosure of the diluted earnings per share for the year under review with comparative diluted loss per share for the previous year is shown as the issue of potential ordinary shares during both years from the exercise of the outstanding share options and convertible notes will be anti-dilutive.
9.Comparative figures
Certain comparative figures have been reclassified to conform with the current year’s presentation.
DIVIDEND
The Board has resolved not to recommend to shareholders at the forthcoming annual general meeting the payment of final dividend for the year (2000: nil). No interim dividend was paid during the year (2000: nil).
FINANCIAL REVIEW
For the year ended 31st March, 2001, the turnover of the Group was approximately HK$146 million, largely at the same level with the previous year as a whole. The profit attributable to shareholders amounting to approximately HK$6.7 million for the year under review, compared to a net loss of HK$6.3 million for the previous year. The Company’s shareholders’ funds increased by 5.5% to HK$134 million (2000: HK$127 million).
OPERATIONAL REVIEW
Watch Trading and Retailing
The aggregate turnover from the sales of completed watches excluding the Swiss office during the year under review amounted to HK$135 million, representing an increase of 16% compared with HK$116 million for the previous year. The reasons for the increases are mainly due to fivefold:
Firstly, the effect of the refurbishing programmes launched for the main shops in Shenyang and Shanghai in the first half year. It is in line with the Company’s policy to provide a comfortable environment for shopping and a warm feeling of elegance and harmony to our customers of the retail distribution network.
Secondly, the decentralization of the various sales and marketing programmes that launched to each local markets and customers sectors. The management information provided by our point of sales system offer a strong support, other than internal control functions, to these marketing plan and sales campaign which in turn can react to the market and customers’ preference promptly.
Thirdly, the proven result retail distribution network over the PRC. It is the Group’s strategy to seize any prime locations available of higher flow of passers-by and give more resources to efficient and effective outlets in different regions.
Fourthly, the success of various joint co-operation schemes with our various Brands during the year under review as a result of our long term and solid business relationships.
Fifthly, the combination of management expertise from Hong Kong and local executives brings synergy to the performance of the business.
The aforesaid reasons contribute the competitive edges of the Company which after adopting the effective pricing and costing tactics, improve our overall profit margin during the year under review.
The Board has set the Company’s mission is to be a proven result distribution network over the PRC. Therefore the Group targets to seize any prime locations available and give more resources to efficient and effective outlets in different regions. In line with such mission, one of the shops in Shenyang is expanded, renovated and removed to a nearby location with higher flow of passers-by and one more shop is opened in the prime location at Nanjing West Road in Shanghai in the first half financial year. And a new outlet in Harbin is established in the second half financial year.
Consistent with the Board’s policy, the Company places great emphasis on establishing long-term and solid business relationship with various brands. The Board is pleased to see that the Company has opened 2 luxurious yet elegant boutiques namely Omega boutique and Vacheron Constantin boutique at OrientalPlaza and Sun Dong An Plaza respectively. Various enriching joint co-operations with brands are being actively discussed.
Looking into the future repair and maintenance business, the Board is of the view that the development and expansion of such market will benefit the Company in various folds as follows:
Firstly, along with the increasing demand for the high quality repair and maintenance service, the Company foresees the generation of revenue from the business grows in a steady pace.
Secondly, the delivery of high quality repair and maintenance services has not only attained good revenue results but at the same time enhances customers’ loyalty to our retail distribution network.
Thirdly, establishment of joint co-operative service centers provides opportunities for the Company to solidify and develop our business relationships with various brand i.e. our business partners.
Apart from the repair and maintenance center located in each outlet, there are 2 authorized service centers for the prestigious brands such as Cartier, Vacheron Constantin and etc. during the last 2 financial years. The Group is committed to keep improving its service quality to customers, in particular the after-sales services so as to meet the great potential demand for high quality watch repair services in the PRC. The Company continues to target and capture any further golden opportunities to establish similar repair centers in other major cities in the PRC, which is one of the medium term business objectives.
Securities Investment
Due to the overall decline in securities market, which reflect the slowdown of the global economy, market value of the portfolio recorded a minor decreased from HK$32 million as at 31st March, 2000 to HK$29 million as at 31st March, 2001 after we disposed of part of our securities amounted to approximately HK$1.3 million. A net unrealized loss on revaluation of HK$1.8 million was recorded as at 31st March, 2001. Interest and dividend income generated from the portfolio accounted for HK$162,000 during the year under review.
Properties Investment
Gross rental income generated from investment properties increased by 56% to HK$3.3 million for the year ended 31st March, 2001. The increase is in line with the Board’s policy to lease out the unoccupied area so as to maximize return to the Group. In order to minimize the exposure of property downturn and build up long-term business relationship with tenants, it is the Board’s policy to lease out the investment properties for medium term agreements.
Swiss Operation
The Board continues to keep the reduced scale of its Swiss operation during the year under review. The total turnover for the year ended 31st March, 2001 was HK$6.2 million (2000: HK$5.9 million). The operating loss for the year ended 31st March, 2001 amounted to approximately HK$1.3 million (2000: HK$1.4 million). During the year, the Group continues its financial support to the Swiss watch brands. JUVENIA S.A. is free of any bank debts and the Board is of the view that JUVENIA S.A. will not be a financial burden to the Group. It is one of the Group’s intentions to sell the Swiss building upon the boom of Swiss property market.
LIQUIDITY AND FINANCIAL RESOURCES
During the year under review, the Group continues to maintain a solid financial structure and generally finances its operation from internal financial resources.
The Group’s total shareholders’ funds have increased to HK$134 million as at the balance sheet date of 2001 compared with HK$127 million as at the balance sheet date of 2000 mainly due to the rise in retained earnings.
As of 31st March, 2001 the Group enjoyed a net current asset position of approximately HK$70 million (2000: a net current asset of HK$60 million) which includes short-term bank deposits, bank balances and cash of approximately HK$69 million (2000: HK$72 million).
The liquidity of the Group as evidenced by the current ratio (current asset/current liabilities) was 1.61 times, which improved from the 1.48 times applicable in the previous year.
Due to healthy recurring stream of cash inflow generated from watch retailing business, the Group has maintained a good liquidity position throughout the year under review.
CAPITAL STRUCTURE
Except the convertible notes of Swiss Francs 11,800,000 at par, which are due in 2010, the Group is free from any bank borrowing. Interest charged on the notes is 7/8% per annum and interest expenses for the year ended 31st March, 2001 was HK$377,000 (2000: HK$375,000). There is also an option granted to the holders of the notes to cause the Company to redeem in US$ at a fixed exchange rate of SFr. 1.00=US$0.67933 any note on 23rd February, 2008 at a redemption price of 117 3/8% of its principal amount together with interest accrued up to the date of redemption and amortization of premium on redemption charged for the year ended 31st March, 2001 was HK$972,000 (2000: HK$972,000).
RISK OF FOREIGN EXCHANGE FLUCTUATION
Apart from the Swiss operation, the Group’s assets employed and operating activities are mainly denominated in Hong Kong dollars, United States dollars and Reminbi. Given the prevailing peg system between Hong Kong dollars and United States dollars and the road ahead for the Renminbi to become an international currency though are bright, is long and winding. Accordingly, the Group has no significant exposure to foreign exchange fluctuation. Nevertheless, the Board would closely observe the China’s economic reform and development as well as Hong Kong fiscal policies and implement any effective programs to minimize any foreign exchange exposure.
CONTINGENT LIABILITIES
As at 31st March, 2001, the Company has given corporate guarantees of HK$40,000,000 (2000: HK$40,000,000) to bankers to secure general banking facilities granted to the Group. Bank facilities utilized at 31st March, 2001 was HK$nil (2000: HK$nil).
PLEDGE OF ASSETS
At the balance sheet date, general banking facilities granted to the Group of HK$40,000,000 (2000: HK$40,000,000) were secured by certain properties as follows:
2001 / 2000HK$’000 / HK$’000
Carrying value of pledged assets
Investment properties / 15,600 / 17,100
Leasehold properties / 2,280 / 2,370
17,880 / 19,470
EMPLOYEE
The Group now has around 332 employees, about 93% of which are working in the PRC, mainly for the watch retailing business. The Group has, in accordance with applicable laws, established pension funds in the PRC. Total staff costs, including Directors’ emoluments, amounted to HK$20.2 million (2000: HK$22.7 million). The Group reviews remuneration packages from time to time and normally annually. Besides salary payments, other staff benefits, include contributions to an employee provident fund, medical insurance and a discretionary bonus scheme. The Group also finances continuing education of staff in recognized associations.
The Board regards its existing human resources as an invaluable asset for the Group’s future development, especially in the PRC watch retail market. It is the Group’s human resources policy to provide equal opportunity and high motivation to all its employees.
PROSPECTS
The apprehension about the scale of US economy’s slowdown and a possible synchronized global economic downturn may have an adverse effect on many businesses and enterprises in the coming year. As stated in the 2000 annual report, pursuant to the Group’s medium term strategy, which set out the Group’s focus is on the PRC market where our strength and expertise lie. The Board is of the view that following the entry of the PRC into the World Trade Organization (the “WTO”), the deepening of the economy globalization would still provide new momentum to the PRC, which bring the Company, fruitful business development opportunities and challenges.
Watch Trading and Retailing
Subsequent to the balance sheet date, the Board has opened new outlets in Pudong of Shanghai and in Southern China. Currently, the retailing network covers major cities including Harbin, Shenyang, Beijing, Shanghai, Chengdu and Chongqing. The Group continues to seize any prime locations available including the watch corner shops by means of co-operation with the reputable foreign departmental stores. It is the Group’s policy to establish and extend a proven result retail network over China including western region of China in line with the pace of local economic reform and growth.
Looking into the joint co-operation schemes with our various brands in the coming financial year, the Group plans to get the joint efforts with the Brands for various promotion campaigns such as road show and co-advertisements so as to solid the long term business relationship.
Looking into the repair and maintenance business, the Group targets to maintain the high quality repair and maintenance services up to the international standard by means of including attending the overseas such as Swiss training campaigns that offered by the various Brands.
Furthermore, the Board is actively studying the feasibility of diversifying the high end watches sold through our proven result retail network in the PRC to other new Swiss brands watches that target to the middle class segment and other premium gifts items such as pens, lighters and leather products so as to maximize the return to the Company and its stakeholders.
The Group, with sound financial position and enhanced internal controls, considers accelerating the pace of business expansion in the PRC. It is to ensure that the Company is well position to realize the full potential of the Group’s strength and expertise on such market opportunity and to take advantage of the tremendous growth opportunities developing in retail market.
Acquisition of Offshore Programming Service Provider (the “Acquisition”)
As details set out in the Company Circular dated 24th May, 2001, the acquisition of 54% interests in KBQuest Holdings Limited (“KBQ”) represents a diversification from the existing core business of the Group and entering into the market of specialized software programs. The Board is of the view that such market has very good growth potential. As KBQ is a business set up recently, the Board does not expect the contribution of KBQ to the Group’s result will be recognized in the immediate financial year but has confidence in the longer-term perspective. The acquisition is fully financed by the issue of the shares. Accordingly, it does not draw on the group’s existing financial resources for the settlement of the consideration. The Board is of the view that the commencement and its development of the KBQ will not affect the development pace of the Group’s existing core business i.e. watch trading and retailing.