1997/98 Interim Announcement
RESULTS
The Board of Directors of Guoco Group Limited ("the Company") is pleased
to announce the unaudited consolidated net profit of the Group, after
exceptional items, taxation and minority interests, for the six months
ended 31st December, 1997 together with comparative figures for the
corresponding period last year as follows :
|
Note
|
Six months
ended 31.12.97
(unaudited)
HK$?00
|
Six months
ended 31.12.96
(unaudited)
HK$?00
|
Turnover
|
1
|
6,813,957
==========
|
6,663,066
==========
|
Operating profit before exceptional items
Exceptional items
|
2
|
1,160,336
(274,146)
___________
|
1,584,904
366,036
___________
|
Operating profit after exceptional items
Share of profits of associated companies
|
|
886,190
110,733
___________
|
1,950,940
241,046
___________
|
Profit before taxation
Taxation
|
3
|
996,923
(351,564)
___________
|
2,191,986
(512,655)
___________
|
Profit after taxation
Minority interests
|
|
645,359
(282,609)
___________
|
1,679,331
(624,348)
___________
|
Profit attributable to shareholders
Dividend
|
|
362,750
(85,326)
___________
|
1,054,983
(106,658)
___________
|
Retained profit for the period
|
|
277,424
==========
|
948,325
==========
|
Earnings per share
|
4
|
HK$0.85
==========
|
HK$2.47
==========
|
Notes:
1. Group turnover for the period includes
reinsurance, brokerage, underwriting and other
commission, interest
income, insurance premiums earned, dividend income, rental income
and net investment
income, property development income and the value of goods sold.
It also includes net
interest income, commissions, fees and other revenues earned from
banking.
2. Exceptional items
|
Six months
ended 31.12.97
HK$'000
|
Six months
ended 31.12.96
HK$'000
|
Exchange (loss) /gain on foreign currency
monetary assets and liabilities
Net profit on disposal of premises
Written back on compulsory
acquisition of land
|
(274,146)
-
-
_____________
|
10,946
251,504
103,586
_____________
|
|
(274,146)
===========
|
366,036
===========
|
3. Taxation
|
Six months
ended 31.12.97
HK$'000
|
Six months
ended 31.12.96
HK$'000
|
Hong Kong profits tax
Overseas taxation
Deferred taxation
Share of associated companies' taxation
|
152,743
82,059
48,233
68,529
___________
|
198,617
432,840
(197,248)
78,446
___________
|
|
351,564
==========
|
512,655
==========
|
Hong Kong profits tax is provided on the estimated assessable profits
for the period at the rate of 16.5% (1996: 16.5%). Profits tax of foreign
subsidiaries is provided in accordance with their respective local laws.
Deferred taxation is provided using the liability method in respect
of the taxation effect arising from all material timing differences which
are expected with reasonable probability to crystallize in the foreseeable
future.
4. Earnings per share
The calculation of earnings per share is based on the profit attributable
to shareholders for the period ended 31st December, 1997 of HK$362,750,000
(1996: HK$1,054,983,000) and on the 426,631,086 shares (1996: 426,631,086
shares) in issue during the period.
5. The accounts of the Company are
maintained in United States dollars. The accounting
figures shown
above have been translated from United States dollars into Hong Kong dollar
equivalents
at the rates ruling at the respective financial period ends for presentation
purposes only
(1997: US$1=HK$7.7495; 1996: US$1=HK$7.7355).
6. Certain comparative figures
have been reclassified to conform with the current period's
presentation.
REVIEW OF ACTIVITIES
In its Annual Report for the year ended 30th June 1997, the Group cautioned
that the immediate outlook for the region must be viewed with realistic
objectivity. During the six months period ended 31st December 1997,
well publicized macro-economic changes throughout the region occurred with
a swiftness and a dimension that few could have foreseen. These events
had an immediate effect on almost all businesses throughout the region
including the core businesses of the Group. Against the backdrop
of these macro-economic factors, the Group's profit for the six months
ended 31st December, 1997 decreased by 65.6% to HK$362.8 million.
Three significant reasons can be identified for this exceptional decline,
namely:
-
In the corresponding period in the previous year, the Group reported an
exceptional interim gain of HK$366 million.
-
As a result of the sharp devaluation of regional currencies against the
U.S. Dollar, the Group suffered exchange losses on foreign currency monetary
assets and liabilities totalling HK$274.1 million, which are reflected
as an exceptional item in the profit and loss account. Differences
arising on the translation of foreign currency accounts of subsidiaries
and associated companies are dealt with in reserves in accordance with
the accounting policies of the Group.
-
The increase and volatility of interest rates and consequential tightening
of liquidity disrupted the region's fundamental economics and had a similar
impact on the progress of the Group's core businesses.
Dao Heng Bank Group Limited ("DHBG")
DHBG, the Group's 71.1% owned Hong Kong listed subsidiary recorded a
consolidated net profit attributable to shareholders of HK$821.5 million,
representing a decrease of 25.2% from the previous corresponding period.
After adjusting for a HK$281.6 million non-recurring profit on disposal
of fixed assets in the previous year, consolidated net profit registered
a 0.7% increase.
As at 31st December, 1997, total deposits were HK$99.5 billion and total
loans HK$67.4 billion, representing growth rates of 1.7% and 14.2% respectively.
Shareholders' Fund increased 9.6% to HK$11.2 billion and Dao Heng Bank
Limited's consolidated Capital Adequacy Ratio was 20.6%.
The unsuccessful challenge to the Hong Kong Dollar to U.S. Dollar peg
rate had a considerable short term impact on Hong Kong Dollar interest
rates and Hong Kong Dollar liquidity, particularly in the fourth quarter
of 1997. As DHBG has a high percentage of loan assets based upon
the HK Prime lending rate, its net interest income was affected adversely
by the dramatic narrowing of the HK Prime/HIBOR rate differential which
was even negative for part of the period. Due to the prevailing
uncertainty in the marketplace, DHBG continues to follow a policy of restrained
growth and conservative balance sheet management, which has stood it in
good stead during this difficult period. A high degree of liquidity
and close attention to asset quality have been paramount in its strategy.
Credit quality of DHBG's loan portfolio continues to be at acceptable
levels with non-accrual loans accounting for about 0.6% of total loans.
However, as a measure of prudence in the present uncertain economic conditions,
DHBG has set aside an additional HK$112 million in general loan loss provisions
during the period, raising DHBG's general provision account to 1.1% of
total loans as at 31st December 1997.
DHBG has carefully controlled its cross-border exposure to other Asian
countries, in particular to those countries located in Southeast Asia.
Approximately 95% of DHBG's consolidated total loans were extended to customers
in Hong Kong. DHBG had negligible exposure to borrowers in the three
countries which have applied to the IMF for assistance, namely Indonesia,
Thailand and Korea. With the exception of DHBG's Philippine subsidiary,
referred to below, DHBG's loans to customers in the other Asean countries
amounted to about 0.2% of its total assets.
Dao Heng Bank, Inc. ("DHBI"), a 60% owned Philippine subsidiary of DHBG,
has completed its second year of operation and now has a total of 15 branches.
DHBI is strongly capitalized with Pesos 1.75 billion in paid-up capital
and a Capital Adequacy Ratio of 38%. Its total assets account for
approximately 1% of DHBG's total assets and are self-funded by DHBI within
the Philippines.
Positioning itself for future growth, DHBG continues its large scale
investment in information technology infrastructure and delivery channel
expansion, including its Direct Banking Services. DHBG will look increasingly
to diversify its source of funds through the further securitization of
assets. This will generate additional fee income, enhance its ability
to satisfy future demand for mortgages and improve its asset mix and maturity
profile. Concurrently, DHBG is streamlining operations to improve productivity
and cost-effectiveness.
The Group's other financial services in Hong Kong generally performed
satisfactorily during the period under review.
First Capital Corporation Ltd ("FCC")
The performance of FCC, the Group's 57.4% owned listed subsidiary in
Singapore, continues to be affected by an already soft domestic residential
property market. FCC reported a profit before tax and after tax (excluding
extraordinary items) of S$40.5 million and S$8.2 million respectively.
The tax charge is higher than the standard corporate income tax rate as
there is no group tax relief in Singapore. As a result, tax losses
of certain subsidiaries are not available for off-set against the profits
of other subsidiaries.
During the corresponding period in the previous year, FCC reported an
exceptional interim gain of S$13.3 million, while in the current period
being reported, no exceptional gains were realized. FCC's current results
have also incorporated:
(a) provisions for development properties which took into account the
prevailing oversupply,
subdued demand and cautious market sentiment for
residential properties in Singapore;
(b) provisions for unrealised losses in respect of the FCC group's short
term quoted equities.
The FCC group is restricted from borrowing entirely in Singapore Dollars
and hence have exposure to foreign currencies. In respect of this
exposure, the FCC group has actively managed its foreign exchange exposure.
During the period under review, the realised gain on foreign exchange contracts
amounted to S$19.9 million which was capitalised at the property development
companies' level. The FCC group has to make a provision for an unrealised
translation loss of S$28.8 million arising from the revaluation of foreign
currency loans as at 31 December 1997.
As certain conditions precedent were not met, the proposed joint venture
to develop the site at Jalan Gatot Subroto in Jakarta, was terminated.
This has avoided large write-offs which would have otherwise resulted.
Currently, the FCC group does not have any exposure in Indonesia and Thailand.
The FCC group has no intention to proceed with investments in Indonesia
and Thailand for the time being.
FCC's 34.7% held associated company, Benchmark Group PLC has announced
pre-tax profits of £8.7 million in its half year results, having
benefitted from the recent strength of the central London property market,
where its investment properties are concentrated.
Other Property Interests
During the period under review, the Group's Hong Kong listed property
subsidiary, Guoco Land Limited ("GLL"), which is 53% owned by the Group
and 20% by FCC, has expanded existing operations and joined with other
major developers in the development of Hong Kong property projects in Tai
Hang Road, Tsim Sha Tsui and Tai Po and is deriving steady recurring rental
income from its Hong Kong investment properties. The agreement to
acquire 6 floors of a prime office property known as "The Center" at 99
Queen's Road Central is expected to be completed by mid-year. GLL
will lease a portion of this property to the Group to be used for its headquarters
and other Group operations. The remaining floors will be leased out to
third party entities for rental income.
As a result of higher interest rates and the prospect of increasing
Government land supply, the Hong Kong property market has recently experienced
an abrupt correction. The sharp drop in residential property prices
is expected to level off, supported by intrinsic demand for home ownership.
Commercial property, however, is expected to remain subdued as current
and projected supply exceeds demand which has been curbed by the economic
slowdown.
The Group has not expanded its property interests in the People's Republic
of China. Guoco Properties Limited ("GPL"), which is 55% owned by
the Group and 45% by FCC, expects to complete a major office project, at
Corporate Square, Jinrong Street, Beijing on time and sales have commenced.
GPL's Shanghai land bank is being retained pending improvements in the
residential property market. The long term phased development project
in Suzhou will be rescheduled in line with market sentiment, once the first
phase is completed.
Guoco Holdings (Philippines), Inc. ("GHPI")
GHPI, a 36.6% associated company of the Group, experienced higher interest
costs arising from the steep devaluation of the Philippine Peso during
the period under review. A total foreign exchange loss provision of approximately
P349.6 million (HK$66.9 million) has been made, contributing to a net loss
after tax and minority interest of P332 million (HK$63.5 million).
The operating income of GHPI before financial charges, non-recurring gains
and income taxes, showed an 87% improvement, largely due to the strong
performance of Pepsi-Cola Products Philippines Inc. However, the
significant increase in Peso interest rates during the period under review
materially reduced the operating profit after interest charges.
Hong Leong Credit Berhad ("HLC")
HLC, the Group's 20.9% associate listed on the Kuala Lumpur Stock Exchange,
will publish its results for the interim period ended 31st December, 1997
subsequent to the Group's own interim announcement. The Group has
incorporated the consolidated results of HLC based on their unaudited management
accounts.
Year 2000 Project
Since late 1996, a designated team has been addressing the Year 2000
issues. Actions have been undertaken to ensure that the computer hardware,
operating systems and applications software throughout the Group are Year
2000 compliant, including:
-
An external software company has been engaged to modify all in-house legacy
systems and is near completion.
-
Hardware/Operating Systems - impact identified and upgrading is in progress.
-
Third Party Application Vendor and Business partners - Year 2000 Compliance
Certification in progress.
It is expected that all major applications will be completed by the end
of 1998. Progress to-date is satisfactory and is well within target.
Outlook
It is expected that the Group will go through a period of consolidation
in 1998. There are recent signs that regional markets have begun
to stabilize. Under such circumstances, the Board feels that it is
difficult to predict performance for the second half year with certainty.
The Board nevertheless looks towards a better second half.
DIVIDEND
The Directors have declared an interim dividend of HK$0.2 per share
amounting to HK$85,326,000 (1996/97 interim dividend: HK$0.25 per share
amounting to HK$106,658,000) for the financial year ending 30th June, 1998
which will be payable on 16th April, 1998 to the shareholders whose names
appear on the Register of Members on 15th April, 1998.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SHARES
During the period, neither the Company nor any of its subsidiaries had
purchased, sold or redeemed any of the Company's listed shares.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
No Director of the Company is aware of information which would reasonably
indicate that the Company was not in compliance with the Code of Best Practice,
as adopted by the Company, at any time during the six months ended 31st
December, 1997.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members will be closed from 7th April, 1998 to 15th
April, 1998, both days inclusive, during which period no transfer of shares
can be effected.
In order to qualify for the above dividend, all share transfers accompanied
by the requisite share certificates must be lodged with the Company's Branch
Share Registrars in Hong Kong, Central Registration Hong Kong Limited,
at 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong, for registration
not later than 4:00 p.m. on 3rd April, 1998.
By Order of the Board
Doris W. N. Wong
Secretary
Hong Kong, 20th March, 1998