CTI.L Regulatory News (CTI)

29 Apr 2005 12:07

Cathay International Holdings Ld29 April 2005 29 April, 2005 CATHAY INTERNATIONAL HOLDINGS LIMITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 CHAIRMAN'S STATEMENT Gross turnover for the year ended 31 December 2004 was USD6,918,000 compared toUSD9,896,000 in 2003. (The 2003 figure included turnover from discontinuedoperations of USD2,507,000). The operating loss for 2004 was USD5,573,000compared to USD2,685,000 in 2003. (The 2003 figure included losses fromdiscontinued operations of USD37,000). The increase in the operating loss wasowing to an increase in administrative expenses associated with the significantresources committed to the development of new business for the Company. Thepre-tax loss before minority interests was USD6,832,000 (2003: USD4,122,000).The loss after tax and minority interests for the year was USD6,818,000 (2003:profit of USD6,115,000). Net assets per share were USD0.400 (2003: USD0.427).Gearing increased slightly during the year from 34.9% to 35.5%. LANDMARK HOTEL (SHENZHEN) In December 2004, the Landmark Hotel (the "Hotel"), the Company's 351 room5-star hotel in Shenzhen, China was closed for a major renovation. The Hotel isexpected to reopen by mid 2005. All rooms in the Hotel will be completelyredesigned and enlarged to reflect the market trend towards larger rooms forfive-star hotels in Shenzhen as well as to meet the new "platinum five-star"hotel rating of the China National Tourism Administration which is the higheststandard for hotels in China. When the renovation is completed, the Hotel willhave 235 renovated and enlarged rooms and suites. Other new facilities will beadded including a new and enlarged banquet hall, a new Italian restaurant and aspa. The average room occupancy level for the year 2004 increased to 51.8% from 50.7%in 2003 (2003 occupancy was adversely affected by SARS). The average room rateincreased by 8.4% in 2004 compared to 2003. The occupancy level for 2004 waslower than the Hotel achieved in past years when occupancy was consistentlyabove 60%. This reflects the intense market competition. Turnover at food andbeverage outlets at the Hotel also dropped by 18.2% during 2004. The grossoperating profit of the Landmark Hotel in 2004 was 31.7% higher than that oflast year at USD819,000 (2003: USD622,000). The cost structure of the Hotel wassignificantly reduced in 2004 to USD6,098,000 (2003: USD6,594,000) mainly as aresult of staff reductions associated with the anticipated closure of the Hotelfor renovations. INVESTMENT IN PHARMACEUTICALS AND BIOTECH In 2004, the Company announced a further investment of USD1.81 million inChangchun Botai Medicine and Biological Technology Company Limited ("Botai"),Cathay's pharmaceutical and biotechnology joint venture in Jilin Province in thenorth east of China. This additional investment was used to construct a newresearch and development centre with Good Laboratory Practice ("GLP") and GoodManufacturing Practice ("GMP") facilities in order to bring forward thecommercialization of Botai's technologies. Construction was completed by yearend 2004. The Company's other biotech subsidiary, Tianjin Longbai Biological Engineeringand Technology Company Limited ("Longbai") has continued its research anddevelopment of oral fast release drugs. In November 2004, Longbai's operationswere moved to a new laboratory in the Tianjin Huayuan Hi-Tech Industry Park. Themove which cost USD283,000 was funded by a group loan to Longbai. Although the Company did not announce a new acquisition in 2004, we haveexamined a number of prospective investments. We are hopeful of identifying,negotiating and closing new investments in the pharmaceutical and other sectorsin China that will provide attractive sources of earnings and capital growth. The Board wishes to provide the Company's year end 2004 financial information ona timely basis for shareholders and is therefore releasing its results at theearliest opportunity. The Company will confirm the arrangements for its nextAnnual General Meeting in a separate circular containing notice of the AnnualGeneral Meeting which will be sent to shareholders in due course. On behalf of the Board, I would like to thank our staff for their continueddedication and commitment. James BuchananChairman29 April 2005 Enquiries: Stephen Hunt (Deputy Chairman) (via Brunswick) 020 7404 5959Patrick Sung (Director - Finance) Jon Coles, Brunswick 020 7404 5959 Operational Review LANDMARK HOTEL (SHENZHEN) On 20 December 2004, the Landmark Hotel (the "Hotel"), Cathay's 351 room 5-starhotel located in Shenzhen, was closed for extensive renovations. During therenovation programme, all rooms in the Hotel will be completely redesigned andenlarged to reflect the market trend toward larger rooms for five-star hotels inChina and to meet the new "platinum five-star" hotel rating of the ChinaNational Tourism Administration which is the highest standard for hotels inChina. When finished, the Hotel will have 235 renovated and enlarged rooms andsuites. The Hotel will have a new and enlarged banqueting facility, a newexecutive lounge, a new Italian restaurant and coffee shop and a new spa. Theexisting common areas of the Hotel will also be refurbished. The estimated costof the renovation programme is USD10 million to USD12 million. Cathay willfinance the renovation from existing cash resources and bank financing. Theobjective of this programme which is the first major upgrade of all areas of theHotel since 1994 is to position the Hotel as one of the most luxurious platinumfive-star hotels in China. Although the closure of the Hotel during the firsthalf of 2005 will negatively impact Cathay's results, the Company believes thatthe renovation will significantly enhance the revenue and capital value of theHotel in the future. In accordance with its usual practice, the Group conductedan annual valuation of the Hotel. The Hotel was valued at USD102,000,000 (2003:USD100,000,000) at 31 December 2004 by Colliers International, an independentfirm of professional valuers. The Hotel has gradually recovered in 2004 from the adverse impact of SARS in2003. However, the Hotel's average room occupancy level only increased to 51.8%from 50.7% in 2003. This was below historical levels which were generally 60%and above and signaled to the Board the need for the upgrade and renovation ofthe Hotel. The food and beverage turnover also decreased by 18% from 2003 to2004. Again, this was a signal to the Board that an improvement in the hotelrestaurant outlets was required. During the year, the Hotel continued to reducestaff (from 452 at the beginning of 2004 to 304 at the end of 2004). It isexpected that head count will increase when the Hotel is reopened. During the closure of the Hotel, staff training will be emphasized. The Hotelhas engaged a firm associated with Singapore Airlines that specializes indeveloping and enhancing service quality to provide training to all staff of allranks in the Hotel. Butler service will be introduced into the Hotel when itreopens. A UK firm specializing in butler training has been engaged to providetuition in this unique service for the Hotel. Training will also be provided toa sales and marketing team, and new efforts will be made to position the Hotelaggressively in the high end of the corporate and business market segment. Inshort, the Company is not only investing in the improvement of the physicalassets of the Hotel, but is also investing in the improvement of its staff andits service quality. The Landmark is an extremely important and valuable assetwhich the Company believes will make a major contribution to results starting inthe second half of 2005. BIOTECHNOLOGY AND PHARMACEUTICAL PROJECTS The Board of Cathay has identified the biotech pharmaceutical market in China asone with high growth potential. Cathay has made two investments, Changchun BotaiMedicine and Biological Technology Company Limited ("Botai") through CathayInternational Changchun Biotechnology and Pharmaceutical Limited ("ChangchunBiotechnology"); and Tianjin Longbai Biological Engineering and TechnologyCompany Limited ("Longbai") through Changchun Biotechnology and another specialpurpose vehicle wholly owned by Cathay, in the year of 2003. On 3 September 2004, Cathay announced an additional investment of USD1.81million in Botai, to fund the construction of a new research, development andproduction centre (the "Centre") in Changchun New and High-Tech IndustriesDevelopment Zone. The Centre consists of office space, a R&D laboratory withGood Laboratory Practice qualities, and four Good Manufacturing Practice ("GMP")production lines that allow Botai to develop and manufacture medical products informs of tablet, capsule, granule and ointment. The new GMP facilities shouldenable Botai to obtain Production Licences for the drugs it has developed, aswell as bringing forward the commercialization of those drugs. The construction was completed on schedule at the end of 2004, and the officeand R&D laboratory have been in operation since January 2005. It is estimatedthat the GMP certificates for the four production lines will be granted to Botaifrom the Jilin Provincial Food and Drug Administration in the second half of2005, by which time this new centre will be in full operation. GMP certificatesgranted by provincial authorities for the drugs being produced are recognizedthroughout China. Botai's portfolio of technologies under research and development include drugdelivery systems, various forms of collagen and diagnostic kits. By March 2005,applications for New Drug Licences and Production Licences for five products hadbeen submitted to the State Food and Drug Administration (the "SFDA") forapproval, of which four are diagnostic kits for prostate and cardiovascularconditions and one medical ointment product for pain relief of rheumatoidarthritis. It is estimated that the New Drug Licences and the ProductionLicences for these five products will be obtained respectively in the latterpart of 2005 and 2006. After the granting of the New Drug Licences and theProduction Licences, Botai will choose either to sell the Production Licences orto manufacture and market the drugs itself using its new GMP production lines. On the recommendation of the management of Botai following a careful evaluationand with the agreement of the Board of Cathay, Botai's Long-acting EPO(Erythropoietin) Technology was terminated due to its failure to meet the R&Dmilestones. The entire technology was written off during 2004 and is no longerbeing developed. This resulted in a net charge of USD567,000. As a result of the write off of the Long-acting EPO Technology and theadditional investment made by Changchun Biotechnology, Cathay's effectiveinterest in Botai has been increased to 94%. As at 31 December 2004, the netasset value of Botai was USD3.81million, and the accumulated loss attributableto Botai was USD1.77million. Since November 2004, Longbai's operations have been moved to a new laboratoryspace in the Tianjin Huayuan Hi-Tech Industry Park, a major science park on theoutskirts of Tianjin City. Investments in additional R&D facilities andequipment have also been made to accelerate the commercialization oftechnologies under development by Longbai. The investment was funded by Cathayon 15 November 2004 through a group loan to Longbai of USD283,000 on arm'slength terms. Longbai has been concentrating on the research and development of drug deliveryformats, and it has successfully developed a series of oral fast release drugproducts. Applications for New Drug Licence and Production Licence for one ofits oral fast release drugs, an analgesic which is expected to be sold over thecounter, have already been submitted to the SFDA for approval. It is estimatedthat the New Drug Licence and Production Licence will be granted by the SFDA inthe second half of 2005. Another of Longbai's oral fast release drug foranti-infection, has completed bioavailability tests (tests which are broadlyequivalent to clinical trials for this type of technology), and is ready toapply for the New Drug Licence and Production Licence from the SFDA. Another twoof its oral fast release drugs are currently undergoing the bioavailabilitytests, which are estimated to be completed in 2005. Longbai has also obtainedapproval from the SFDA to carry out bioavailability tests for another six drugs. GROUP INCOME STATEMENT For the year ended 31 December 2004 Year Ended Year Ended 31 December 31 December 2004 2003 Note USD'000 USD'000 REVENUE 2 6,918 9,896COST OF SALES (6,099) (9,139) --------- ---------GROSS PROFIT 819 757ADMINISTRATIVE EXPENSES------------------------ ------ ----------- ----------Administrative expenses (5,233) (4,738)Depreciation and amortisation expenses (536) (543)Write off and impairment of intangible fixedassets (623) -Profit on disposal of subsidiary - 1,860Profit on disposal of fixed assets - 76Tender offer expenses - (97)------------------------ ------ ----------- ---------- (6,392) (3,442) __________ __________LOSS FROM OPERATIONS 2 (5,573) (2,685)FINANCE COSTS - NET (1,259) (1,437) __________ __________LOSS BEFORE TAXATION (6,832) (4,122)TAXATION 4 - 16,882 __________ __________(LOSS)/PROFIT ON ORDINARY ACTIVITIESAFTER TAXATION (6,832) 12,760MINORITY INTEREST 14 (6,645) __________ __________ACCUMULATED (LOSS)/PROFIT ATTRIBUTABLE TO (6,818) 6,115EQUITY SHAREHOLDERS __________ __________(LOSS)/EARNINGS PER SHAREBASIC 5 (3.77 cents) 2.92 cents ========== ========== GROUP BALANCE SHEETAs at 31 December 2004 As at As at 31 December 31 December 2004 2003 USD'000 USD'000ASSETS NON-CURRENT ASSETSProperty, plant and equipment 107,288 104,724Intangible assets 192 745Goodwill 180 203Investments 4,946 4,995 __________ __________ 112,606 110,667 __________ __________CURRENT ASSETSInventory 235 405Trade and other receivables 2,653 1,410Cash and cash equivalents 3,835 13,967 __________ __________ 6,723 15,782 __________ __________TOTAL ASSETS 119,329 126,449 __________ __________ EQUITY AND LIABILITIES CAPITAL AND RESERVESCalled up share capital 9,042 9,042Capital and special reserve 43,320 42,923Revaluation reserve 53,529 51,422Exchange equalisation reserve (10,463) (9,924)Statutory reserve 1,083 1,078Profit and loss account (24,170) (17,351) _________ _________SHAREHOLDERS' FUNDS 72,341 77,190 _________ _________ MINORITY INTEREST - 704 NON-CURRENT LIABILITIESBorrowings 21,331 21,759Deferred tax liabilities 15,264 14,695 _________ _________ 36,595 36,454 _________ _________ CURRENT LIABILITIESBorrowings 4,391 5,188Trade and other payables 6,002 6,913 _________ _________ 10,393 12,101 _________ _________TOTAL LIABILITIES 46,988 48,555 TOTAL EQUITY AND LIABILITIES 119,329 126,449 ======== ======== GROUP CASH FLOW STATEMENT Year ended Year ended 31 December 31 December 2004 2003 Note USD'000 USD'000 Cash flows from operating activities Cash absorbed by operations 6 (5,185) (22,716)Interest paid (1,478) (1,692)Tax paid - (25) _________ _________Net cash outflow from operating activities (6,663) (24,433) _________ _________ Cash flows from investing activities Purchase of property, plant and equipment (1,744) (1,028)Purchase of intangible fixed assets (153) -Acquisition of trading assets - (4,941)Proceeds from disposal of subsidiary - 1,963Proceeds from disposal of tangible fixed - 30,416assetsAcquisition of subsidiary - 11Interest received 219 255 _________ _________Net cash (used in)/from investing activities (1,678) 26,676 _________ _________ Cash flows from financing activities Capital element of finance lease payment (5) -Proceeds from borrowings 1,000 6,000Repayments of borrowings (2,399) (12,385)Purchase of own shares - (23,813) _________ _________Net cash used in financing activities (1,404) (30,198) _________ _________Effects of exchange rate changes (387) 896 _________ _________Net decrease in cash and cash equivalent (10,132) (27,059)Cash and cash equivalents at beginning of year 13,967 41,026 _________ _________ Cash and cash equivalents at end of year 3,835 13,967 _________ _________ Reconciliation of cash and cash equivalents Cash and cash equivalents for balance sheetand cash flow statement purposes 3,835 13,967 _________ _________ NOTES 1. BASIS OF PREPARATION AND ACCOUNTING This preliminary results statement has been prepared from the consolidatedfinancial statements of the Group which have been prepared in accordance withInternational Financial Reporting Standards (IFRS) mandatory for the year ended31 December 2004. The preparation of financial statements in accordance with IFRS requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities, and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Although these estimates are based on management'sbest knowledge of current events and actions, actual results may ultimatelydiffer from those estimates. These consolidated financial statements have been prepared under the historicalcost convention as modified by the revaluation of certain property, plant &equipment. 2. SEGMENTAL INFORMATION 2.1 Business Segments For management purposes the Group is currently organised into business segmentsas reported below: Property Property Investment Development Pharmaceuticals Hotel (Disposed (Disposed (Acquired Corporate Operations in 2003) in 2003) in 2003) Office Total USD'000 USD'000 USD'000 USD'000 USD'000 USD'000For the yearended31 December 2004 Revenue 6,918 - - - - 6,918 Segment 819 - - (1,509) (6,142) (6,832) result Segment 110,067 - - 4,198 5,064 119,329 assets Segment 40,810 - - 215 5,963 46,988 liabilities Capital 1,095 - - 739 63 1,897 expenditures Depreciation 428 - - 75 10 513 Amortisation - - - 23 - 23 _________ _________ _________ _________ _________ _______For the yearended31 December 2003 Revenue 9,723 173 - - - 9,896 Segment 622 - 76 (454) (4,366) (4,122) result Segment 111,160 - - 3,733 11,556 126,449 assets Segment 43,810 - - 972 3,773 48,555 liabilities Capital 838 - - 252 - 1,090 expenditures Depreciation 489 - - 31 - 520 Amortisation - - - 23 - 23 ======== ======== ======== ======== ======== ====== 2.2 Geographical Segments PRC United Kingdom Hong Kong Total USD'000 USD'000 USD'000 USD'000 For the year ended 31December 2004 Revenue 6,918 - - 6,918Segment assets 114,265 144 4,920 119,329Capital expenditures 1,834 - 63 1,897 _________ _________ _________ _________ For the year ended 31December 2003 Revenue 9,896 - - 9,896Segment assets 114,893 868 10,688 126,449Capital expenditures 1,090 - - 1,090 ======== ======== ======== ======== 3. DIRECTORS' EMOLUMENTS The Directors at 31 December 2004 were as follows: J.R.H. BuchananWu Zhen TaoS. B. HuntJ.H. CossonP. SungMao Yu Min Their aggregate emoluments for the year ended 31 December 2004 were USD1,118,000(2003: USD706,000). 4. TAXATION Year ended Year ended 31 December 31 December 2004 2003 USD'000 USD'000 Current tax - -Deferred tax - (16,882) __________ __________ - (16,882) __________ __________ 5. LOSS/(EARNINGS) PER SHARE Basic earnings per share is based upon the loss after tax attributable toshareholders of USD6,818,000 (2003: profit of USD6,115,000) and the weightedaverage number of A shares and Common shares in issue during the year of12,172,028 and 168,670,297 respectively (2003: A shares, Common shares:12,536,223 and 196,877,468). The profit/(loss) attributable to discontinuedoperations was nil (2003: loss: USD22,000). 6. RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM OPERATING ACTIVITES 31 December 31 December 2004 2003 USD'000 USD'000 Operating loss (5,573) (2,685)Profit on disposal of fixed assets - (76)Profit on disposal of subsidiary - (1,860)Tender offer expenses - 97Impairment of intangible fixed assets 143 -Written off of intangible fixed assets 480 -Depreciation of fixed assets 513 520Amortisation of goodwill 23 23Loss (Gain) on investments 49 (54)Decrease (Increase) in stocks 170 (1)Increase in debtors (1,242) (598)Increase (Decrease) in creditors 252 (18,082) ___________ ___________Net cash outflow from operating activities (5,185) (22,716) ========== ========== 7. FINANCIAL INFORMATION This preliminary results statement was approved by the Board of Directors on 29April 2005. The above results for the year ended 31 December 2004 have beenabridged from the full Group accounts for that year, which received anunqualified auditors' report and which will be delivered to the Registrar ofCompanies shortly. The Annual Report and Financial Statements will be posted to shareholders assoon as practicable. Further copies will be available from the company'sregistered office at Canon Court, 22 Victoria Street, Hamilton HM12, Bermuda. This information is provided by RNS The company news service from the London Stock Exchange