KARL THOMSON HOLDINGS LIMITED
(Incorporated in Bermuda with limited liability)
(Stock Code: 7)
RESULTS ANNOUNCEMENT FOR THE PERIOD
FROM 1 APRIL 2004 TO 31 DECEMBER 2004
Results
The Board of Directors of Karl Thomson Holdings Limited (the “Company”) is pleased to announce that the audited consolidated results of the Company and its subsidiaries (the “Group”) for the nine months ended 31 December 2004 are as follows:
CONSOLIDATED INCOME STATEMENT
For the period from 1 April 2004 to 31 December 2004
1.4.2004 to 31.12.2004 / 1.4.2003 to 31.3.2004NOTES / HK$’000 / HK$’000
Turnover / 3 / 29,753 / 47,031
Other operating income / 840 / 4,417
Allowance for bad and doubtful debts / (3,011) / (413)
Amortisation of intangible assets / (4) / (6)
Depreciation / (1,556) / (2,418)
Finance costs / 5 / (9) / (45)
Other operating expenses / (20,203) / (30,191)
Staff costs, including Directors’ remuneration / (7,422) / (10,197)
Discount on acquisition of an associate / 41,728 / -
Share of results of an associate / 5,321 / -
Profit before taxation / 6 / 45,437 / 8,178
Taxation (charge) credit / 7 / (58) / 6
Profit before minority interests / 45,379 / 8,184
Minority interests / 305 / (36)
Net profit for the period/year / 45,684 / 8,148
Earnings per share / 8
Basic and diluted / HK9.9 cents / HK1.8 cents
Notes:
1. Change of financial year end date
During the period, the Company changed its financial year end date from 31 March to 31 December in order to cope with the financial year end date of its principal revenue generating associate. The financial statements for the current period cover the nine month period from 1 April 2004 to 31 December 2004.
2. EARLY APPLICATION OF CERTAIN recently issued accounting standards
In 2004, the Hong Kong Institute of Certified Public Accountants issued a number of new or revised Hong Kong Accounting Standards (“HKAS”) and Hong Kong Financial Reporting Standards (“HKFRS”) (herein collectively referred to as “New HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. The Group has early adopted the following New HKFRSs from 1 April 2004:
HKFRS 3 / Business combinationsHKAS 36 / Impairment of assets
HKAS 38 / Intangible assets
The early adoption of HKFRS 3, HKAS 36 and HKAS 38 has had no effect on the result for the prior accounting period.
The effects of the early adoption of HKFRS 3, HKAS 36 and HKAS 38 on the results and financial position of the Group for the current accounting period are summarised below:
Effect on net profit for the period
HK$’000Net profit for the period as reported in the income statement / 45,684
Effect of early adoption of HKFRS 3, HKAS 36 and HKAS 38:
Discount on acquisition recognised in income statement / (41,728)
Impairment loss recognised in respect of goodwill held in reserve / (13,950)
Amortisation of discount on acquisition / 1,739
Net loss for the period without early adoption of HKFRS 3, HKAS 36 and HKAS 38 / (8,255)
Effect on equity
HK$’000Retained profits at 31 December 2004 as set out on the consolidated statement of changes in equity / 10,232
Effect of early adoption of HKFRS 3, HKAS 36 and HKAS 38:
Discount on acquisition recognised in income statement / (41,728)
Amortisation of discount on acquisition / 1,739
Accumulated losses at 31 December 2004 without early adoption of HKFRS 3, HKAS 36 and HKAS 38 / (29,757)
Effect on interest in an associate
HK$’000Interest in an associate at 31 December 2004 as set out in the consolidated balance sheet / 77,333
Effect of early adoption of HKFRS 3, HKAS 36 and HKAS 38:
Discount on acquisition recognised in income statement / 41,728
Amortisation of discount on acquisition / (1,739)
Interest in an associate at 31 December 2004 without early adoption of HKFRS 3, HKAS 36 and HKAS 38 / 117,322
The Group has considered other New HKFRSs but does not expect that the issuance of other New HKFRSs will have a material effect on how the results of operations and financial position of the Group are prepared and presented.
3. Turnover
1.4.2004 to 31.12.2004 / 1.4.2003 to 31.3.2004HK$’000 / HK$’000
Commission and brokerage / 24,805 / 40,222
Interest income from:
Clients / 3,227 / 5,349
Authorised institutions / 96 / 204
Others / 13 / 36
Advisory fee income / 1,612 / 1,220
29,753 / 47,031
4. Business and geographical segments
Business segments
For management purposes, the Group is currently organised into two operating divisions, namely, broking and securities margin financing. These divisions are the basis on which the Group reports its primary segment information. The principal activities of these divisions are as follows:
Broking - provision of stockbroking, futures and options broking and mutual funds as well as insurance-linked investment plans and products broking
Securities margin financing - provision of securities margin financing
Segment information about these businesses is presented below:
Income statement for the period from 1 April 2004 to 31 December 2004
Broking / Securities margin financing / Others / ConsolidatedHK$’000 / HK$’000 / HK$’000 / HK$’000
REVENUE
Segment turnover / 26,245 / 1,702 / 1,806 / 29,753
RESULTS
Segment loss / (803) / (175) / (54) / (1,032)
Unallocated expenses / (580)
Discount on acquisition of an associate / 41,728
Share of results of an assoicate / 5,321
Profit before taxation / 45,437
Taxation charge / (58)
Profit after taxation and before minority interests / 45,379
Income statement for the year ended 31 March 2004
Broking / Securities margin financing / Others / ConsolidatedHK$’000 / HK$’000 / HK$’000 / HK$’000
REVENUE
Segment Turnover / 41,289 / 2,713 / 3,029 / 47,031
RESULTS
Segment profit (loss) / 7,971 / (796) / 1,296 / 8,471
Unallocated expenses / (293)
Profit before taxation / 8,178
Taxation credit / 6
Profit after taxation and before minority interests / 8,184
Geographical segments
All of the activities of the Group are based in Hong Kong and all of the Group’s turnover and profit before taxation are derived from Hong Kong. In addition, the Group’s assets are located in Hong Kong.
5. Finance costs
1.4.2004 to 31.12.2004 / 1.4.2003 to 31.3.2004HK$’000 / HK$’000
Interest on borrowings wholly repayable within five years:
Bank overdrafts / 8 / 1
Finance leases / 1 / 17
Other bank borrowings / - / 27
9 / 45
6. Profit before taxation
1.4.2004 to 31.12.2004 / 1.4.2003 to 31.3.2004HK$’000 / HK$’000
Profit before taxation has been arrived at after charging (crediting):
Auditors’ remuneration / 558 / 722
Contributions to retirement benefits scheme (including in staff costs) / 292 / 321
Loss from error trades / 39 / 52
Loss on disposal of fixed assets / - / 5
Operating lease rentals in respect of rented premises / 3,153 / 4,093
Net realised and unrealised loss (gain) on trading securities / 12 / (1,443 )
7. TAXATION (CHARGE) CREDIT
1.4.2004 to 31.12.2004 / 1.4.2003 to 31.3.2004HK$’000 / HK$’000
Hong Kong Profits Tax
(Under)overprovision in prior years / (58 ) / 6
No provision for Hong Kong Profits Tax has been made in the financial statements as the Company and its subsidiaries either had no assessable profits arising in Hong Kong or the assessable profits were wholly absorbed by estimated tax losses brought forward.
8. Earnings per Share
The calculation of the basic and diluted earnings per share is based on the following data:
1.4.2004 to 31.12.2004 / 1.4.2003 to 31.3.2004HK$’000 / HK$’000
Net profit for the period/year / 45,684 / 8,148
Number of shares
‘000 / ‘000Number of ordinary shares for the purpose of basic and diluted earnings per share / 460,000 / 460,000
The computation of diluted earnings per share for the period/year did not assume the exercise of the Company’s share options during the period/year as their exercise prices were higher than the average market price for shares for the period/year.
9. INTEREST IN AN ASSOCIATE
THE GROUP31.12.2004 / 31.3.2004
HK$’000 / HK$’000
Share of net assets / 77,333 / -
Market value of listed shares / 56,250 / -
The amount represents the Group’s 35.17% equity interest in Asia Tele-Net and Technology Corporation Limited (“ATNT”), a company incorporated in Bermuda with its shares being listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). At 31 December 2004, the issued and fully paid share capital of ATNT was 426,463,000 ordinary shares of HK$0.01 each. ATNT and its subsidiaries are mainly engaged in design, manufacturing and sale of electroplating equipment, custom-built horizontal wet processing and automation machinery, trading of logged timber, as well as provision of stage construction and arts production. The principal places of operation of ATNT and its subsidiaries are Hong Kong, the People’s Republic of China and Taiwan.
During the period, the Group subscribed the convertible note of HK$30,000,000 issued by ATNT and exercised the right to convert in full the convertible note of HK$30,000,000 into 150,000,000 new shares of ATNT at a conversion price of HK$0.20 per share of ATNT. ATNT then becomes the associate of the Group. The discount on acquisition of ATNT of approximately HK$41,728,000 was released to the consolidated income statement on the acquisition date.
The following details have been extracted from the audited consolidated financial statements of ATNT:
31.12.2004HK$’000
Turnover / 606,826
Profit before taxation / 61,425
Profit after taxation attributable to the Group / 5,321
Non-current assets / 133,098
Current assets / 303,000
Current liabilities / 193,889
Non-current liabilities / 3,948
Minority interests / 8,947
Net assets / 229,314
Net assets attributable to the Group / 77,333
MANAGEMENT DISCUSSION AND ANALYSIS
BUSINESS REVIEW
Results
During the nine months ended 31 December 2004, the Group managed to sustain another impressive profit growth as compared to the result of twelve months ended 31 March 2004. Total turnover for the Group was HK$29,753,000 (1.4.2003 to 31.3.2004: HK$47,031,000). Net profit attributable to shareholders was approximately HK$45,684,000, representing a leap of 4.61 times over that of HK$8,148,000 for the twelve months ended 31 March 2004.
Market Overview
Market was characterized with a wide and volatile trading pattern during the period. Subsequent to a favourable performance in the first quarter of 2004 riding on the V-shaped economic turnaround from the doldrums in 2003 and the enthusiastic reception of newly listed stocks, the market soon fell into steep correction triggered by the renewed anxieties on the escalating oil prices, the potential terror threat before US presidency election, the implement of China credit tightening policy to curb overheating economy and the revival of interest hike cycle. Aggressive profit takings emerged across the board, causing further dumping of a lot of shares and sending Hang Seng Index down from 13,919 at 1 March 2004 to a year low of 10,968 at 17 May 2004. Since the market underwent some lengthy sideways during the correction in the middle of the year, activities from retail investors were curtailed by the poor investment confidence and the absence of sizable performing new listings. As the situations of these negative external elements were improved and worries gradually faded away, the market cautiously resumed the upward movement. Investment sentiment was further boosted by the bullish reports on the outlook of leisure and gaming business in Macau and investors rushed in to chase those related counters. Speculative activities on Macau concepts were hot heating as investors reacted emotionally to the rumours and news. Hang Seng Index closed near the year high at 14,222 with 1,680 points gain (or about 13.4% higher) during the period and 1,586 points gain (or 12.2% higher) as compared to that of 2003. Total turnover for the whole market during the period marked good gains over the same corresponding period of last year with average daily turnover rising 30.4% to HK$15.11 billions. Significant portion of the market turnover was attributed to the trading in derivatives products and those related cash stock hedging products. The market volume skewed in favour of Group A brokers and inevitably at the expense of Group C.
The abolition of minimum commission charge system intensified competitions in the industry and has eroded the profit margin of the operators. Indirectly, it also put pressure on some operators in extending generous credits to investors as alternate competitive appeals to maintain business volume and hence increased business risks. The aggressive marketing of bank operators backed with privileged competitive advantages continued to plunder business from the broking operators especially in Group C which mainly focus on serving local client.
Hong Kong economy towards 2005 remains solid and intact though it is still vulnerable to the occasional disturbance from the external economic uncertainties and geopolitical risks. Performance in various areas still trends positively covering the unemployment rates, tourist visits, external trades, property, domestic consumption and inflation. The clearer domestic government policies coupled with the persistent favourable China policies effect in consolidating an unrivaled position for Hong Kong as an international financial, tourist, trade and logistic center in the Asia and the international. The closer integration of China with international market amplifies demand for financial services from both Chinese enterprises and individuals. Due to the geographical convenience and other structural advantages, more sizeable and quality Chinese enterprises intend to get listings in Hong Kong. It helps to attract more international investors and investment funds. The gradual implementation of various projects including the coming Grand Opening of Disney Park and the construction of Hongkong-Zhuhai-Macau Bridge further enhances the economic development of Hong Kong as well as the earning power of listed companies. We are cautiously optimistic on the economy and would still see a buoyant market in 2005.
Brokerage Business
During the period, turnover for the Group’s securities broking business and futures and options broking business as well as underwriting commission reached HK$12,299,000 (1.4.2003 to 31.3.2004: HK$23,787,000). The Group’s performance and profit margin in its stockbroking, futures and options broking and dealing businesses were still inevitably facing the pressure from the fiercer industrial competition and ambitious acts of the bank operators though the stringent cost minimization exercise over the past few years already helped to set off part of the adverse impact. The Group is still endeavoring hard to achieve further possible savings to produce greater cost advantages against the tougher market condition. The Group intends to diversify investment in other business and to form a more balanced business profile in order to level off the industrial fluctuations of the brokerage business.