The Board of Directors are pleased to announce that the proforma combined turnover of the Group for 1997 increased by 17.5 percent from 1996 to HK$525 million. Proforma combined profit attributable to shareholders rose 54.7 percent to HK$96,324,000. If the exceptional profit of HK$6,022,000 being interest income earned during the initial public offering is excluded, the proforma combined profit attributable to shareholders then rose by 45.0 percent. Proforma earnings per share rose 33.3 percent to 9.2 cents.
Spin off and Initial Public Offering
In 1997, the smooth return of sovereignty of Hong Kong
to China and the realisation of "One country, two systems" is a milestone
in the history of China. Likewise, the year 1997 has a special meaning
in the corporate history of the Group. On 8 August 1997, Guangdong Brewery
was successfully spun off from its parent company, Guangdong Investment
Limited, and was publicly listed on the Stock Exchange of Hong Kong Limited.
Capitalising on the vibrant equity market, we have succeeded in raising
HK$630 million of capital for the development of the Group, marking an
era of more rapid development and expansion for the brewery business of
the Guangdong Group. The net proceeds from the new issue of shares have
been applying in the Group's operations according to the plan in the Prospectus.
Financial Status
Despite the Asian currency turmoil in October 1997, the
Group remains financially sound. Since we do not have any Hong Kong dollar
floating rates debt and the fact that the economy of our key market, Guangdong,
has not been directly affected by the crisis and the consistent stability
of the Renminbi, the Group was not affected by the turmoil during the year.
Market Development and Brand Publicity
Sales of Kingway increased 15.4 percent from 1996 to
137,000 tonnes. The sales volume was lower than forecast because the sale
of beer has been adversely affected by the unusually poor weather conditions
in southern China. As beer production volume in China continues to grow,
competition in the beer market intensifies. During the year, Kingway beer
was devoted to consolidate its position in Shenzhen and eastern Guangdong
market, to strengthen its sales network in Guangzhou, Dongguan and western
Guangdong areas and to develop the market in the neighbouring provinces
of Guangdong.
To complement the needs arising from market expansion, Kingway beer put its efforts in all directions on brand recognition and product promotion and publicity during the year. In particular, with the full support of Guangdong Enterprises (Holdings) Limited, the Group is proactively applying to The Light Industry Bureau of China to become one of the national namebrand beer manufacturers. This will enable the Group to benefit from state incentives to beer manufacturers in the reform of the industry.
Becoming a state endorsed national namebrand beer will not only be beneficial in strengthening the brand equity of Kingway but will also be extremely helpful to the long-term expansion of the Group.
Product Development and Cost Control
To increase the competitiveness of Kingway beer in the
market, the Group continues to raise the quality standards of the product
and to develop new products to satisfy the varying needs of consumers.
In 1997, we have launched the new 11 degree light beer in trendy green bottles, giving consumer a new taste and look. The 11 degree beer is widely accepted by consumers since its launch.
The management has also implemented measures to effectively control cost and to increase the profit margin of the operations, thus ensuring that the operation of Kingway beer is at an optimum level. We continue to maintain a leading position in the industry in terms of profit per tonne of beer produced.
Bao An Kingway Plant II
Situated in Bao An, Shenzhen, the Kingway Plant II was
completed on 28 August 1997. Within a year, we built a design modern, installed
with the world leading machineries beer factory with an annual production
capacity of 200,000 tonnes for a total budgeted investment of about RMB900
million. This achievement can be said to have set a record for China and
overseas.
Since its completion, Kingway Plant II has not only captured the attention of the brewing industry but was also selected as a sample plant by the Government officials of the industry. The plant has garnered a lot of compliments from local and overseas securities analysts and fund managers, strengthening their confidence in the Group's prospects. The trial production run in Plant II has been going smooth, the product will enter the market as planned.
Increasing the equity holding of Kingway beer and acquiring
a stake in Shandong's Amber Beer Plant
The company has come to an agreement with Shenzhen Lionda
on 24th October 1997 to acquire its 20 percent stake in Kingway Plant I
at a consideration of RMB221 million. With the completion of the acquisition
on 26th December 1997, the Group's equity holding in Kingway Plant I has
increased to 95 percent from 75 percent; and for Kingway Plant II, its
holding increased to 87 percent from 75 percent. The consideration was
approximately 10.3 times the earnings attributable to shareholders of Kingway
Plant I for 1997. The Board of Directors was very confident in the profitability
of Kingway beer and believe that the acquisition price paid to raise the
equity holdings of the Group in Kingway is beneficial to the long term
interest of the shareholders and will reap an extremely good return on
investment.
On 22nd December 1997, Guangdong Brewery has signed another agreement to acquire all the outstanding shares and shareholder's loan amounted to HK$26,900,000 of Central China (Asia) Investment Limited ("Central China"). Central China has a 50 percent stake in Shandong Huazhong Amber Brewery Co., Ltd. ("Joint Venture"). The payment of HK$3,069,000 being the initial consideration of the shares and the payment of HK$26,900,000 for the shareholder's loan had been paid. Further consideration on the shares calculated by a formula may be paid if the audited profits of the Joint Venture for each of the two years ended 31st December 1999 reached the pre-agreed amounts. The total investment of the Joint Venture was US$35,620,000. Prior to the acquisition, Central China has injected US$2,750,000 of capital in the Joint Venture. After completion of the acquisition and by the end of 1997, Central China injected another US$6,250,000 to complete the investment required for the registered capital.
Shandong Amber Brewery is a financially sound company and a large brewery with annual production capacity of 200,000 tonnes. Sales for the brewery in 1997 hit 147,000 tonnes. The brewery has a large sales network in Shandong and its neighbouring provinces.
With this investment, the Group's annual production capacity
is immediately boosted by 200,000 tonnes but more importantly, the Group
now has access to Shandong Amber Brewery's extensive sales and distribution
network which will be instrumental in helping the Group's expansion in
the central China market.
Going into 1998, the negative impact of the Asian currency turmoil on the economies of the region is surfacing by phases and have affected the economies of Mainland China and Hong Kong to a certain extent. However, the Central Government of China has decided to increase investments in infrastructure and fixed assets to stimulate consumption in the country. We believe that China's economy will steadily flourish, fostering a positive environment for the continuous expansion of the brewery business.
Since the brewing industry in China is very competitive, we will face even greater challenge this year in our operations but the Group is well-prepared to boost the sales of Kingway in 1998. Efforts include the launching of a series of brand and product promotional programs; increasing professional sales staff to strengthen the sales team; reasonably adjusting the market strategies and strengthening the cooperation between our sales teams and our distributors. We are confident that Kingway will achieve good sales targets in this coming year.
With annual production capacity of Kingway Plant I and II now reached 400,000 tonnes, the management has been actively working to develop an economy of scale to minimise costs. The Group presently has achieved an aggregate annual production capacity of 600,000 tonnes. The Board of Directors will prudently implement future expansion plans when the right opportunity emerges in order to achieve our targeted annual beer production capacity of one million tonnes by the year 2000.
Consolidated
Profit And Loss Account
For the period from 21 March 1997 (date of incorporation) to 31
December 1997
|
Consolidated For
the period from 21.3.1997 to 31.12.1997 HK$'000 |
Proforma Combined
for the year ended 31.12.1997 HK$'000 |
|
| TURNOVER |
253,223
|
525,069
|
| OPERATING PROFIT BEFORE EXCEPTIONAL ITEM |
61,159
|
126,367
|
|
6,022
|
6,022
|
| PROFIT BEFORE TAXATION |
67,181
|
132,389
|
|
(5,635)
|
(10,217)
|
| PROFIT BEFORE MINORITY INTERESTS |
61,546
|
122,172
|
|
(10,781)
|
(25,848)
|
| NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS |
50,765
|
96,324
|
|
-
|
(133,127)
|
| EARNINGS PER SHARE |
9.6 cents
|
9.2 cents
|
Consolidated
Balance Sheet
31 December 1997
|
Consolidated
1997 HK$'000 |
|
| FIXED ASSETS |
1,364,884
|
| INTEREST IN AN ASSOCIATED COMPANY |
69,726
|
| OTHER LONG TERM ASSETS |
34,936
|
| CURRENT ASSETS |
420,911
|
| CURRENT LIABILITIES |
(399,919)
|
| NET CURRENT ASSETS/(LIABILITIES) |
20,992
|
| TOTAL ASSETS LESS CURRENT LIABILITIES |
1,490,538
|
| LONG TERM BANK LOANS |
(50,515)
|
| LONG TERM PORTION OF AMOUNTS DUE
TO THE ULTIMATE HOLDING COMPANY |
(339,019)
|
| LONG TERM PORTION OF AMOUNTS DUE
TO MINORITY SHAREHOLDERS OF SUBSIDIARIES |
(95,001)
|
|
1,006,003
|
|
| MINORITY INTERESTS |
(48,686)
|
|
957,317
|
|
| SHARE CAPITAL |
125,000
|
| RESERVES |
832,317
|
|
957,317
|
Consolidated
Cash Flow Statement
For the period from 21 March 1997 (date of incorporation) to 31
December 1997
|
1997
HK$'000 |
|
| NET CASH INFLOW FROM OPERATING ACTIVITIES |
57,076
|
| RETURNS ON INVESTMENTS AND SERVICING OF FINANCE | |
|
9,501
|
|
(5,635)
|
| Net cash inflow from returns on investments and servicing of finance |
3,866
|
| TAXATION | |
|
(6,305)
|
| INVESTING ACTIVITIES | |
|
496
|
|
(233,247)
|
|
(130,670)
|
|
(48,453)
|
|
(11,162)
|
| Net cash ouflow from investing activities |
(423,036)
|
| NET CASH OUTFLOW BEFORE FINANCING |
(368,399)
|
| FINANCING | |
|
630,000
|
|
(28,419)
|
received during the initial public offering |
6,022
|
|
191,163
|
|
(11,693)
|
subsidiary |
(26,900)
|
|
20,700
|
|
(156,738)
|
| Net cash inflow from financing |
624,135
|
| INCREASE IN CASH AND CASH EQUIVALENTS |
255,736
|
| Cash and cash equivalents at beginning of period |
-
|
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
255,736
|
| ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS | |
|
255,736
|