1. GENERAL
The Company is incorporated in Bermuda as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended) and its shares are listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange").
In the current year, the Group adopted the following Statements of Standard Accounting Practice ("SSAP") issued by the Hong Kong Society of Accountants:
2. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE
| SSAP 5 (Revised) | Earnings per share |
| SSAP 20 | Related party disclosures |
| SSAP 21 | Accounting for interests in joint ventures |
| SSAP 22 | Inventories |
The adoption of SSAP 5 (Revised) has resulted in some modifications to the basis of calculation of earnings per share amounts and to the disclosures presented for earnings per share (see note 9). Amounts presented for the prior year have been restated to reflect the requirements of SSAP 5 (Revised).
SSAP 20 requires the disclosure of details of transactions with specified related parties (see note 31).
SSAP 21 specifies the accounting treatment to be adopted for joint ventures. In previous years, joint venture arrangements have been accounted for as associated companies. Adoption of the new standard has resulted in the separate identification of joint ventures in the financial statements. However, since the basis of accounting used for joint ventures is the same as that specified for associated companies, there has been no material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment is required.
SSAP 22 specifies the accounting treatment to be adopted for inventories. The adoption of this standard has resulted in some changes in terminology and presentation but does not have a material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment is required.
The principal accounting policies which have been adopted in preparing these financial statements and which conform with accounting principles generally accepted in Hong Kong are as follows:
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31st March each year.
Goodwill
Goodwill represents the excess of the purchase consideration over the fair value ascribed to the Group's share of the net assets at the date of acquisition of a subsidiary and is written off to reserves immediately on acquisition. Negative goodwill, which represents the excess of the fair value ascribed to the Group's share of the separable net assets at the date of acquisition of a subsidiary over the purchase consideration is credited to reserves.
Any premium or discount arising on the acquisition of an interest in a jointly controlled entity or an associated company, representing the excess or shortfall respectively of the purchase consideration over the fair value ascribed to the Group's share of the separable net assets of the jointly controlled entity or associated company at the date of acquisition, is dealt with in the same manner as that described above for goodwill.
On disposal of subsidiaries, jointly controlled entities or associated companies, the attributable amount of goodwill previously eliminated against or credited to reserves is included in the determination of the profit or loss on disposal.
Subsidiaries
A subsidiary is an enterprise in which the Company, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or where the Company controls the composition of its board of directors or equivalent governing body.
Investments in subsidiaries are included in the Company's balance sheet at cost less provision, if necessary, for any permanent diminution in value.
Income from subsidiaries is accounted for by the Company on the basis of dividends received and receivable during the year.
Jointly controlled entities
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and over which none of the participating parties has unilateral control.
Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.
The Group's interests in jointly controlled entities are included in the consolidated balance sheet at the Group's share of the net assets of the jointly controlled entities. The Group's share of post-acquisition results of jointly controlled entities is included in the consolidated profit and loss account.
When the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group's interest in the relevant joint venture, except where unrealised losses provide evidence of an impairment of the asset transferred.
Associated companies
An associated company is an enterprise over which the Group is in a position to exercise significant influence, including participation in financial and operating policy decisions.
The consolidated profit and loss account includes the Group's share of the post-acquisition results of its associated companies for the year. In the consolidated balance sheet, interests in associated companies are stated at the Group's share of the net assets of the associated companies.
When the Group transacts with its associated companies, unrealised profits and losses are eliminated to the extent of the Group's interest in the relevant associated company, except where unrealised losses provide evidence of an impairment of the asset transferred.
Turnover
Turnover represents the amounts received and receivable for goods sold, less returns, to outside customers during the year.
Recognition of income
Sales of goods are recognised when goods are delivered and title has passed.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.
Interest income from bank deposits is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.
Fixed assets, depreciation and amortisation
Fixed assets other than investment properties and properties under construction are stated at cost less depreciation and amortisation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed assets, the expenditure is capitalised as an additional cost of the fixed asset.
The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit and loss account.
Where the recoverable amount of an asset has declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. In determining the recoverable amount of assets, expected future cash flows are not discounted to their present values.
Depreciation and amortisation are provided to write off the depreciable amount of fixed assets other than investment properties and properties under construction over their estimated useful lives, using the straight line method, at the following rates per annum:
| Freehold property | 2% |
| Leasehold land | Over the term of the leases |
| Buildings | 2% |
| Furniture, fixtures and fittings | 15% |
| Plant and machinery | 20% |
| Motor vehicles | 30% |
Properties under construction are stated at cost which includes all development expenditure and other direct costs attributable to such projects. Properties under construction are not depreciated until completion of construction when the properties are ready for their intended use. Costs on completed construction work are transferred to the appropriate category of fixed assets.
Assets held under finance leases are depreciated over their estimated useful lives on the same basis as owned assets or, where shorter, the term of the leases.
Investment properties
Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arms' length.
Investment properties are stated at their open market value based on independent professional valuations at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a deficit, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the profit and loss account. Where a deficit has previously been charged to the profit and loss account and a revaluation surplus subsequently arises, this surplus is credited to the profit and loss account to the extent of the deficit previously charged.
On disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to the profit and loss account.
No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less.
Assets held under finance leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. Assets held under finance leases are capitalised at their fair value at the date of acquisition. The corresponding liabilities to the lessor, net of interest charges, is included in the balance sheet as obligations under finance leases. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the profit and loss account on the actuarial basis over the term of the relevant leases.
Investments
Investments held for long-term investment purposes are stated at cost less provision, if necessary, for permanent diminution in value.
Short-term investments are stated at the lower of cost and net realisable value.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and, where applicable, costs of conversion and other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the first-in, first-out method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Foreign currencies
Transactions in foreign currencies are translated at the rates ruling on the dates of the transactions or at the contracted settlement date. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the profit and loss account.
On consolidation, the assets and liabilities of entities which are denominated in currencies other than Hong Kong dollars and which operate in the People's Republic of China (the "PRC") or overseas are translated at the rates ruling on the balance sheet date and the income and expense items are translated at the average rate for the financial period. All exchange differences arising on consolidation are dealt with in reserves.
Taxation
The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of timing differences, computed under the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future.
Operating leases
Rentals payable under operating leases are charged to the profit and loss account on a straight line basis over the term of the relevant leases.
Retirement benefits scheme contributions
The retirement benefits scheme contributions charged in the profit and loss account represent the amount of contributions payable in respect of the current year to the Group's defined contribution scheme.
Cash equivalents
Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance.
1999 1998
HK$ HK$
Operating profit has been arrived at after charging:
Interest payable on:
-- borrowings wholly repayable within five years 9,576,516 7,894,489
-- finance leases 484,108 507,794
---------- ----------
10,060,624 8,402,283
Auditors' remuneration:
-- current year 1,522,880 1,472,457
-- under (over) provision in prior year 40,408 (170,393)
Deficit on revaluation of an investment property 2,855,913 -
Depreciation and amortisation:
-- owned assets 63,112,119 50,642,000
-- assets held under finance leases 1,271,478 2,195,132
Exchange loss 8,477,806 2,286,900
Operating lease rentals in respect of
rented premises 2,472,482 2,199,991
Provision for bad and doubtful debts 16,001,320 5,348,247
Provision for diminution in value in a jointly
controlled entity 2,904,824 -
Retirement benefits scheme contributions, net of
forfeited contributions of HK$414,473
(1998: HK$291,660) 3,428,771 2,312,398
and after crediting:
Dividend income from listed investments - 22,857
Gain on disposal of fixed assets 1,047,781 220,381
Gain on disposal of listed investments - 624,109
Interest income 6,190,761 4,744,709
Rental income 339,520 -
========== ==========
1999 1998
HK$ HK$
Fees paid to independent non-executive
directors 540,000 540,000
Other emoluments paid to executive directors:
Salaries and other benefits 13,752,000 13,072,000
Bonus 5,500,000 6,689,000
Retirement benefits scheme contributions 1,423,200 812,159
---------- ----------
Total emoluments 21,215,200 21,113,159
========== ==========
The emoluments of the directors were within the following bands:
Number of directors
1999 1998
Nil to HK$1,000,000 3 3
HK$1,000,001 to HK$1,500,000 - 1
HK$1,500,001 to HK$2,000,000 1 -
HK$2,500,001 to HK$3,000,000 2 -
HK$3,000,001 to HK$3,500,000 - 2
HK$6,500,001 to HK$7,000,000 2 2
---------- ----------
8 8
========== ==========
The five individuals with the highest emoluments in the Group were directors of the Company for both years.
1999 1998
HK$ HK$
The charge comprises:
Hong Kong Profits Tax calculated at 16%
(1998: 16.5%) on the estimated assessable
profit for the year 11,315,952 16,272,327
Taxation in jurisdictions outside Hong Kong 2,000,000 -
Share of taxation on results of a jointly
controlled entity - (30,217)
---------- ----------
13,315,952 16,242,110
Deferred taxation (note 20) (1,866,000) -
---------- ----------
11,449,952 16,242,110
========== ==========
Certain income of the Group is not subject to taxation in the jurisdictions in which the Group operates.
Taxation in jurisdictions outside Hong Kong is calculated based on the applicable rates in those jurisdictions.
Pursuant to the relevant laws and regulations in the PRC, the Group's PRC subsidiaries are entitled to an exemption from PRC income tax for two years starting from their first profit-making year, followed by a 50% reduction for the next three years. In the current year, certain PRC subsidiaries are exempted from PRC income tax, and other PRC subsidiaries enjoyed a 50% reduction on PRC income tax.
Details of deferred taxation are set out in note 20.
Of the Group's profit attributable to shareholders, a profit of HK$50,055,272 (1998: a loss of HK$1,630,613) has been dealt with in the financial statements of the Company and a loss of HK$199,323 (1998: HK$3,267,071), after taking into account HK$66,441 (1998: HK$1,089,024) shared by minority shareholders of a subsidiary, is attributable to the jointly controlled entities and associated company.
1999 1998
HK$ HK$
Interim dividend of 3 cents (1998: 6 cents)
per share paid to the Company's shareholders 11,386,781 22,773,563
Proposed final dividend of 7 cents
(1998: 10 cents) per share
payable to the Company's shareholders 26,569,157 37,955,938
Final and special dividends underprovided
for previous year - 186,575
---------- ----------
37,955,938 60,916,076
========== ==========
The amount of the proposed final dividend for the year ended 31st March, 1999 has been calculated with reference to the 379,559,375 shares in issue as at 25th June, 1999.
The calculation of the basic and diluted earnings per share is based on the following data:
1999 1998
HK$ HK$
Profit for the year 66,368,855 103,478,810
Effect of dilutive potential ordinary shares:
Adjustment to the share of result of
the group headed by Lung Kee Metal
Holdings Limited ("LKMH") based on
dilution of their earnings per share (315,000) (120,000)
----------- -----------
Earnings for the purposes of diluted
earnings per share 66,053,855 103,358,810
=========== ===========
Weighted average number of ordinary shares
for the purposes of basic earnings
per share 379,559,375 377,523,185
Effect of dilutive potential ordinary
shares on exercise of options
of the Company 12,277 1,353,951
----------- -----------
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 379,571,652 378,877,136
=========== ===========
The computation of diluted earnings per share does not assume the exercise of certain of the Company's outstanding options as the exercise price is higher than the fair value per share.
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