FINANCIAL RESULTS
The Board of Directors (the "Board") of Bossini International Holdings Limited (the "Company") is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the "Group") for the six months ended 30 September 2001. The results, together with the comparative figures for the corresponding period in 2000, are summarised below:
Condensed consolidated profit and loss account
Six months ended
30 September
2001 2000
(Unaudited) (Unaudited)
Notes HK$'000 HK$'000
TURNOVER 2 700,365 690,828
Cost of sales (380,066) (402,687)
------------ -----------
Gross profit 320,299 288,141
Other revenue 3 2,336 7,578
Selling and distribution costs (255,197) (204,906)
Administrative expenses (66,854) (54,270)
Other operating expenses (33,794) (20,641)
------------ -----------
PROFIT/(LOSS) FROM OPERATING ACTIVITIES 4 (33,210) 15,902
Finance costs 5 (1,840) (821)
------------ -----------
PROFIT/(LOSS) BEFORE TAXATION (35,050) 15,081
Taxation 6 (201) (3,969)
------------ -----------
PROFIT/(LOSS) BEFORE MINORITY INTERESTS (35,251) 11,112
Minority interests - (466)
------------ -----------
NET PROFIT/(LOSS) ATTRIBUTABLE
TO SHAREHOLDERS (35,251) 10,646
============ ===========
RELEASE FROM REVALUATION RESERVE 7 202 202
============ ===========
BASIC EARNINGS/(LOSS) PER SHARE 8 (12.85 cents) 3.88 cents
============ ===========
Condensed consolidated statement of recognised gains and losses
Six months ended
30 September
2001 2000
(Unaudited) (Unaudited)
HK$'000 HK$'000
Exchange differences on translation of the
financial statements of foreign entities and
gains not recognised in the consolidated
profit and loss account 589 46
Net profit/(loss) attributable to shareholders (35,251) 10,646
----------- -----------
Total recognised gains and losses (34,662) 10,692
Capital reserve on acquisition of
subsidiaries - (23,415)
----------- -----------
(34,662) (12,723)
=========== ===========
Condensed consolidated balance sheet
As at As at
30 September 31 March
2001 2001
(Unaudited) (Audited)
Notes HK$'000 HK$'000
NON-CURRENT ASSETS
Fixed assets 166,298 163,671
Intangible assets 2,145 4,291
Deposits paid 46,876 44,875
----------- -----------
215,319 212,837
----------- -----------
CURRENT ASSETS
Inventories 265,482 171,270
Debtors 9 18,469 12,073
Bills receivable 14,782 11,369
Deposits paid 21,116 20,075
Prepayments and other receivables 18,917 21,096
Tax recoverable 3,706 603
Time deposits - 37,500
Cash and bank balances 33,363 39,237
----------- -----------
375,835 313,223
----------- -----------
CURRENT LIABILITIES
Creditors and accruals 10 205,654 104,640
Bills payable 6,558 22,105
Bank loans and overdrafts 48,111 31,332
----------- -----------
260,323 158,077
----------- -----------
NET CURRENT ASSETS 115,512 155,146
----------- -----------
TOTAL ASSETS LESS CURRENT LIABILITIES 330,831 367,983
NON-CURRENT LIABILITIES
Long term bank loans 42,500 45,000
Deferred taxation 606 596
----------- -----------
43,106 45,596
----------- -----------
287,725 322,387
=========== ===========
CAPITAL AND RESERVES
Share capital 11 27,430 27,430
Reserves 260,295 294,957
----------- -----------
287,725 322,387
=========== ===========
Condensed consolidated cash flow statement
Six months ended
30 September
2001 2000
(Unaudited) (Unaudited)
HK$'000 HK$'000
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES (19,577) 34,434
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (991) 1,874
TAXATION (3,225) (4,506)
INVESTING ACTIVITIES (33,804) (50,807)
----------- -----------
NET CASH OUTFLOW BEFORE
FINANCING ACTIVITIES (57,597) (19,005)
FINANCING ACTIVITIES 10,178 (6,596)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (47,419) (25,601)
Cash and cash equivalents at beginning of period 73,664 96,079
Effect of foreign exchange rate changes, net (42) (33)
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD 26,203 70,445
=========== ===========
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances 33,363 31,026
Time deposits - 50,038
Bank overdrafts (191) (8,834)
Short term bank and trust receipt loans repayable
within three months from date of advance (6,969) (1,785)
----------- -----------
26,203 70,445
=========== ===========
Notes:
1. Significant accounting policies
Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with Hong Kong Statement of Standard Accounting Practice ("SSAP") No. 25 "Interim financial reporting". The accounting policies and basis of preparation used in the preparation of the interim financial statements are the same as those used in the annual financial statements for the year ended 31 March 2001, except that the Group has changed certain of its accounting policies following the adoption of new and revised SSAPs which became effective for accounting periods commencing on or after 1 January 2001.
The Group has adopted the transitional provisions of SSAP 30 "Business Combinations" such that goodwill previously eliminated against reserves need not be restated and will be charged to the profit and loss account at the time of disposal of the subsidiary/business or at such time the goodwill is determined to be impaired. Goodwill arising on acquisition after 1 April 2001 is capitalised and amortised on a straight-line basis over its estimated useful life. Any impairment of goodwill will be recognised as an expense in the profit and loss account immediately.
The adoption of the other new and revised SSAPs has no significant effect to the results of the Group in the current and prior periods.
2. Segment information
An analysis by activity is not presented as the Group is predominantly engaged in the retailing and distribution of garments.
An analysis of the Group's turnover and contribution to profit/(loss) from operating activities by geographical area of operations for the period ended 30 September 2001, together with the comparative figures for the corresponding period in 2000, is as follows:
Contribution to
profit/(loss) from
Turnover operating activities
Six months ended Six months ended
30 September 30 September
2001 2000 2001 2000
HK$'000 HK$'000 HK$'000 HK$'000
People's Republic of China
Hong Kong 405,958 498,436 (24,752) 11,845
Elsewhere 92,296 96,563 (1,380) (2,715)
Singapore 82,241 80,125 (1,836) 4,518
Taiwan 119,870 15,704 (5,242) 2,254
-------- -------- -------- --------
700,365 690,828 (33,210) 15,902
======== ======== ======== ========
3. Other revenue
Six months ended
30 September
2001 2000
HK$'000 HK$'000
Interest income 849 2,700
Royalty income - 646
Rental income 254 254
Others 1,233 3,978
------- -------
2,336 7,578
======= =======
4. Profit/(loss) from operating activities
Profit/(loss) from operating activities is arrived at after charging:
Six months ended
30 September
2001 2000
HK$'000 HK$'000
Depreciation 27,942 24,954
Amortisation of intangible assets 2,145 2,145
======= =======
5. Finance costs
Six months ended
30 September
2001 2000
HK$'000 HK$'000
Interest on bank loans, overdrafts and
other loans wholly repayable
within five years 1,840 821
======= =======
6. Taxation
No provision for Hong Kong profits tax has been made as the Group had no assessable profits arising in Hong Kong during the period ended 30 September 2001. Hong Kong profits tax was provided at the rate of 16% on the estimated assessable profits arising in Hong Kong during the period ended 30 September 2000. Taxes on profits assessable elsewhere have been calculated at the rates of taxation prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.
Six months ended
30 September
2001 2000
HK$'000 HK$'000
Hong Kong - 2,235
Elsewhere 201 1,734
------- -------
Taxation charge for the period 201 3,969
======= =======
7. Release from revaluation reserve
The revaluation reserve arising from revaluation of fixed assets is realised and transferred directly to retained earnings on a systematic basis, as the corresponding asset is used by the Group. The amount realised is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset's original cost.
8. Basic earnings/(loss) per share
Basic loss per share is calculated based on the net loss attributable to shareholders for the period of HK$35,251,000 (2000: net profit of HK$10,646,000) and on 274,297,493 shares (2000: 274,297,493 shares) in issue during the period.
Diluted earnings/(loss) per share for the six months ended 30 September 2001 and 2000 has not been calculated as no diluting events existed during these periods.
9. Debtors
Other than cash and credit card sales, the Group normally allows an average credit period of 60 days to its trade customers.
The aged analysis of trade debtors is as follows:
As at As at
30 September 31 March
2001 2001
HK$'000 HK$'000
0 - 30 days 6,915 4,032
31 - 60 days 9,381 6,401
61 - 90 days 1,951 281
Over 90 days 222 1,359
---------- ----------
Total 18,469 12,073
========== ==========
10. Creditors and accruals
Included in creditors and accruals is a trade creditors balance of HK$146,216,000 (31 March 2001: HK$51,827,000).
The aged analysis of trade creditors is as follows:
As at As at
30 September 31 March
2001 2001
HK$'000 HK$'000
0 - 30 days 109,714 44,261
31 - 60 days 31,995 6,305
61 - 90 days 3,992 4
Over 90 days 515 1,257
---------- ----------
Total 146,216 51,827
========== ==========
11. Share capital
As at As at
30 September 31 March
2001 2001
HK$'000 HK$'000
Authorised:
1,000,000,000 (31 March 2001:
500,000,000) ordinary shares
of HK$0.10 each 100,000 50,000
========== ==========
Issued and fully paid:
274,297,493 ordinary shares of
HK$0.10 each 27,430 27,430
========== ==========
Pursuant to an ordinary resolution passed on 31 August 2001, the authorised share capital of the Company was increased from HK$50,000,000 to HK$100,000,000 by the creation of an additional 500,000,000 shares of HK$0.10 each, such shares ranking pari passu in all respects with the existing issued shares of the Company.
12. Related party transactions
The Group had the following material transactions with related parties during the period:
Six months ended
30 September
2001 2000
Notes HK$'000 HK$'000
Rental paid for warehouse premises (i) 620 620
Rental paid for office premises (ii) 2,161 2,106
Rental paid for a retail outlet (iii) - 648
======= =======
Notes:
(i) The rental was paid to Laws Fashion Knitters Limited ("Laws Fashion"). Mr. Ka Sing LAW, a director of the Company, has beneficial equity interest in Laws Fashion. The rental was determined by reference to open market rentals at the inception of the tenancy agreement.
(ii) The rental was paid to First On International Limited ("First On"). Mr. Ka Sing LAW, a director of the Company, has beneficial equity interest in First On. The rental was determined by reference to open market rentals at the inception of the tenancy agreement.
(iii) The rental for the prior period was paid to Yatin Development Limited ("Yatin"). Mr. Ka Sing LAW, a director of the Company, was also a director of, and had beneficial equity interest in, Yatin during the prior period. The rental was determined by reference to open market rentals at the inception of the tenancy agreement.
13. Contingent liabilities
As at As at
30 September 31 March
2001 2001
HK$'000 HK$'000
Bank guarantees given in lieu of
utility and property rental
deposits 4,036 4,405
========== ==========
14. Comparative figures
Certain comparative figures have been reclassified to conform with the current period's presentation.
15. Approval of the interim financial statements
The condensed consolidated interim financial statements were approved by the Board on 29 November 2001.
INTERIM DIVIDEND
The Board has resolved not to declare an interim dividend for the six months ended 30 September 2001 (2000: Nil).
MANAGEMENT DISCUSSION AND ANALYSIS
Business Review
The Group's consolidated turnover for the six months ended 30 September 2001 was HK$700,365,000, representing an increase of 1.4% as compared to the figure of HK$690,828,000 for the corresponding period last year. However, in spite of the Group achieving a 4 percentage point improvement in gross margin, sales fell short of expectations, while operating costs were not immediately brought down in line with the disappointing level of sales. This combination of factors put considerable pressure on net profit, driving the Group into a loss-making position. The net loss attributable to shareholders for the period was HK$35,251,000, equivalent to a loss per share of HK12.85 cents, whereas in the same period last year a profit of HK$10,646,000 was recorded, resulting in an earnings per share of HK3.88 cents.
The unsatisfactory results of the period derived from both external and internal adverse forces.
Externally, the global economic slow-down exacerbated economic conditions in Asia during the period. The performance of most retail markets in Asia (including Hong Kong) remained soft. Moreover, a lack of public confidence in the economic outlook and a rise in the unemployment rate led people to be more prudent in their spending. Unavoidably, the Group was adversely affected by these unfavourable external forces.
Internally, the products offered by the Group during the period were not sufficiently distinctive in style to further stimulate customers' desire to spend in the face of economic adversity. At the same time, the Group's advertising during the period did not achieve the desired effect, failing to convey a simple, clear message. The overall market downturn and the unsatisfactory response to our products, advertising and promotions adversely affected the comparable-store sales for the period, which fell by 18 percent compared to the same period last year.
On the other hand, the Group believes that quality customer service is one of the keys to success for a retail fashion chain. Accordingly, the Group invested substantially in its human resources during the period, hiring a professional consultancy firm to carry out a series of extensive training programmes for the front-end staff in Hong Kong. Through these training activities and the introduction of more effective performance assessments, the Group has achieved great advances in improving its service quality. Following the training, our shops earned a positive response from a full-scale survey in assessing the level of service standards.
Outlook
Despite the uncertain economic prospects of the Asian region and the continuing difficult business environment, the Group is confident that the measures it has taken to address identified problems will gradually take effect. Consequently, results for the second half of the financial year should become steady, and improved profitability is expected in the next financial year.
As a fashion retailer and distributor, the Group clearly understands that product design is the soul of its business. In view of this, the Group has restructured its product design team. In October this year, an executive director was appointed to head the team. Besides, another executive director was recruited to oversee the buying and image-building functions of the Group. The Group is confident that their experience and talents will stimulate the generation of a new look fashionable casual wear from the 2002 Spring season and onwards, giving our customers the trendy styles, high quality and competitive pricing they expect from our products.
The Group has implemented various measures to control its operating costs and to reinforce operating efficiency as follows:
(1) the establishment of a back-up office in Shenzhen to support the headquarters in Hong Kong and to further reduce operating costs;
(2) cutting manpower and related costs;
(3) actively negotiating with landlords to obtain reduced shop rentals;
(4) expanding the sourcing channels for our products to enjoy more competitive purchasing costs;
(5) adjusting the Group's advertising strategies and focus while heightening their effectiveness, making reasonable reductions in advertising and promotion expenditures; and
(6) increasing the application of information technology to improve work efficiency.
The Group's overall business strategy continues to be the development of a diversified international market. Within this strategic framework, the Group is adjusting the scale of its operations in different territories in response to changes in the economic environment, thereby improving the operational efficiency of its distribution network.
In response to the continued economic depression in the local retail market, the Group has decided to consolidate the number of outlets in Hong Kong and Macau from 36 at 30 September 2001 to 33 by the end of the financial year.
The clothing market in Mainland China will still be the main focus of expansion. Mainland China's entry into the World Trade Organisation, the country's steady economic growth and rising living standards will increase the demand for fashionable casual wear. To satisfy this growing demand, the Group expects to complete its planned expansion to 120 outlets by the end of the financial year.
Taiwan is another market with good potential. However, given the current economic stagnation there, the Group will suspend its expansion plan for the time being and will maintain its scale of operations at around 60 outlets. In view of the continued economic slowdown in Singapore, the Group also plans to maintain its operational scale at 30 September 2001 of 27 outlets.
As the Group's business strategy progresses, Hong Kong's proportion of the Group's business will gradually reduce. The Group will develop a diversified market in order to reduce its reliance on the contribution of a single market, which will be beneficial to maintaining the stability and growth capability of the Group in the long term.
Financial Position
The Group relied on its internally generated cash flows, bank borrowings, and import and export-related banking facilities to finance its business development during the period. As at 30 September 2001, the Group had unused banking facilities (including trade finance, revolving loans and guarantees) totalling HK$264,019,000 (31 March 2001: HK$276,854,000).
As at 30 September 2001, the Group maintained a current ratio of 1.44 (31 March 2001: 1.98) while its total debt to equity ratio was 1.05 (31 March 2001: 0.63). The latter was calculated by dividing the total liabilities of HK$303,429,000 (31 March 2001: HK$203,673,000) by the total shareholders' equity of HK$287,725,000 (31 March 2001: HK$322,387,000).
DIRECTORS' INTERESTS IN SHARES
As at 30 September 2001, the interests of the Company's directors in the share capital of the Company, as recorded in the register maintained by the Company pursuant to Section 29 of the Securities (Disclosure of Interests) Ordinance ("SDI Ordinance"), were as follows:
Name of director Nature of interest Number of shares Mr. Ka Sing LAW Personal 172,961,250
Save as disclosed above, none of the directors or their associates had any personal, family, corporate or other interests in the share capital of the Company or any of its associated corporations as defined in the SDI Ordinance.
At no time during the period was the Company or any of its subsidiaries a party to any arrangement to enable the Company's directors, their respective spouse or children under 18 years of age to acquire benefits by means of the acquisition of shares in the Company or any other body corporate.
SUBSTANTIAL SHAREHOLDERS
As at 30 September 2001, the following party had registered an interest in the share capital of the Company that was required to be recorded in the register of interests kept by the Company pursuant to Section 16(1) of the SDI Ordinance.
Name Number of shares Mr. Ka Sing LAW 172,961,250
Save as disclosed above, no person had registered an interest in the share capital of the Company that was required to be recorded under Section 16(1) of the SDI Ordinance.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the period.
AUDIT COMMITTEE
The Audit Committee has reviewed with management the accounting principles and practices adopted by the Group and discussed auditing, internal control and financial reporting matters including the review of the unaudited interim financial statements.
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 30 September 2001, in compliance with the Code of Best Practice as set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"), except that the independent non-executive directors of the Company are not appointed for any specific terms, but are subject to retirement by rotation and re-election at annual general meeting in accordance with the Company's Bye-laws.
By Order of the Board
Ka Sing LAW
Chairman
Hong Kong, 29 November 2001
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