Interim Report 2005 中期報告 - Dynasty Fine Wines ... · Bank of Bermuda (Cayman) Limited PO BOX 513GT, Strathvale House North Church Street, George Town Grand Cayman, Cayman
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Interim Report 2005中期報告
02 Corporate Profile
03 Financial Highlights
04 Corporate Information
06 Product Portfolio
08 Management Discussion and Analysis
15 Interim Dividend
15 Closure of Register of Members
16 Share Option Scheme
16 Directors’ Interests and Short Positions in
the Shares, Underlying Shares and
Debentures of the Company
18 Substantial Shareholders’ Interests and
Short Positions in the Shares
and Underlying Shares of the Company
19 Purchase, Sale or Redemption of Shares
of the Company
19 Compliance with the Model Code for
Securities Transactions by Directors
20 Corporate Governance
21 Financial Section
Dynasty is a leading premier wine producer with a dominant presence in the PRC wine
market. Our brand name, ‘‘Dynasty’’, was recognised as a well-known trademark by the State
Administration for Industry and Commerce of the PRC. For seven of the eight years between
1997 and 2004, Dynasty was granted ‘‘The Certificate of Best Selling Grape Wines’’ in the
PRC by the China Industry and Enterprise Information Centre.
Dynasty has inherited the fine traditions and state-of-the-art expertise in wine making from
Remy Cointreau, one of the world’s leading wine and spirits operators and our second largest
shareholder ever since Dynasty’s inception. From grape growing, harvesting, to every single
step of wine making, Dynasty believes in quality. The entire production process is under
stringent quality control to ensure the high standards of our products. In recognition of our
high standards, we were accredited with certificates of ISO 9002 in 1996, ISO 14001 in 2000
and ISO 9001 : 2000 in 2002.
Dynasty has a diversified product portfolio, catering to various price segments and consumer
tastes and preferences. We now make and sell over 50 types of wine products in four main
categories, namely red wines, white wines, sparkling wines and brandy.
Over the years, Dynasty has sustained a strong financial performance and generated excellent
returns for its shareholders. On 26 January 2005, Dynasty was successfully listed on the Main
Board of The Stock Exchange of Hong Kong Limited with the stock code 828. Subsequently,
Dynasty has been added to the Hang Seng China-Affiliated Corporations Index (HSCCI) as a
constituent stock, effective from 5 September 2005. Having strong support from our major
shareholders — Tianjin Development Holdings Ltd. (882) and Remy Cointreau, Dynasty keeps
on providing all consumer strata high quality and ‘‘excellent value for money’’ wines. With
enhanced facilities and continual marketing efforts, Dynasty is well positioned to capture the
robust growth potential of the Chinese wine market. We will build a stronger Dynasty for the
future of all our stakeholders.
02Dynasty Fine Wines Group LimitedInterim Report 2005
Corporate Profile
For the six months ended 30 June
(unaudited)
2005 2004 Changes
HK$’000 HK$’000
Turnover 511,610 445,379 +14.9%
Gross Profit 263,520 243,386 +8.3%
Profit attributable to equity holders
of the Company 116,936 101,218 +15.5%
2005 2004
Changes in
percentage point
Gross margin 51.5% 54.6% -3.1%
Net profit margin 22.9% 22.7% +0.2%
Dynasty Fine Wines Group LimitedInterim Report 2005 03
Financial Highlights
Board of DirectorsExecutive Directors
Mr. HE Xiuheng
Mr. GAO Xiaode
Mr. NIE Jiansheng(&)
Mr. BAI Zhisheng
Mr. CHEN Naiming
Non-Executive Directors
Mr. HERIARD-DUBREUIL Francois
Mr. WANG Guanghao
Mr. CHEUNG Wai Ying, Benny
Mr. ZHANG Wenlin
Mr. WONG Ching Chung(&)
Mr. ROBERT Luc
Independent Non-Executive Directors
Mr. LAI Ming, Joseph(#)(&)
Mr. HUI Ho Ming, Herbert(#)(&)
Mr. CHAU Ka Wah, Arthur(#)(&)
# Audit committee members& Remuneration committee members
Company SecretaryMr. YEUNG Chi Tat
Authorised RepresentativesMr. NIE Jiansheng
Mr. YEUNG Chi Tat
Legal AdvisorsHong Kong
Preston Gates & Ellis
Cayman
Conyers Dill & Pearman, Cayman
The People’s Republic of China
Global Law Office
AuditorsPricewaterhouseCoopers
Registered OfficeCentury Yard, Cricket Square
Hutchins Drive
P.O. Box 2681GT
Grand Cayman
Cayman Islands
04Dynasty Fine Wines Group LimitedInterim Report 2005
Corporate Information
Principal Place of BusinessHong Kong Office
Unit 1408, Two Pacific Place
88 Queensway, Admiralty
Hong Kong
Tianjin Office
Xing Dian Road, Bei Chen District
Tianjin City, PRC
Principal Share Registrar andTransfer Office
Bank of Bermuda (Cayman) Limited
PO BOX 513GT, Strathvale House
North Church Street, George Town
Grand Cayman, Cayman Islands
British West Indies
Hong Kong Branch ShareRegistrar and Transfer Office
Tricor Investor Services Limited
G/F, Bank of East Asia Harbour View Centre
56 Gloucester Road
Wanchai, Hong Kong
Principal BankersIndustrial and Commercial Bank of China
Commercial Bank
Bank of China
The Hongkong & Shanghai Banking
Corporation
CITIC Ka Wah Bank
Rabobank
China Merchants Bank
Investor Relations ConsultantStrategic Financial Relations (China) Limited
Compliance AdvisorDeloitte & Touche Corporate Finance Limited
Stock Code828
Company Websitehttp://www.dynasty-wines.com
Dynasty Fine Wines Group LimitedInterim Report 2005 05
06Dynasty Fine Wines Group LimitedInterim Report 2005
Product Portfolio
Dynasty Fine Wines Group LimitedInterim Report 2005 07
Results
The Board of Directors (‘‘Directors’’) of Dynasty Fine Wines Group Limited (‘‘the Company’’) is
pleased to report a steady growth in the unaudited results of the Company and its
subsidiaries (‘‘the Group’’) for the first half of 2005. These interim results have been reviewed
by the Company’s Audit Committee and the Company’s auditors, PricewaterhouseCoopers. All
of the Audit Committee members are independent non-executive Directors, including the
Chairman of the Audit Committee.
Our turnover was HK$512 million (2004 — HK$445 million), increased by 14.9% and our
profit attributable to equity holders of the Company was HK$117 million (2004 — HK$101
million), increased by 15.5% during the period under review.
Earnings per share of the Company (‘‘Share’’) was HK9.8 cents per Share based on the
weighted average number of 1,195,856,354 Shares in issue during the period (2004 —
HK11.2 cents per Share on a pro forma basis as if 900,000,000 Shares were outstanding since
1 January 2004). As there was no dilutive potential ordinary Share outstanding as at 30 June
2005, dilutive earnings per Share are not presented.
The satisfactory financial results in the first half of 2005 were mainly attributable to the
growth in sales volume and the relatively stable distribution costs and general and
administrative expenses. As a reflection of the good performance and generally positive
outlook, the Directors have resolved to pay an interim dividend of HK3.7 cents per Share.
08Dynasty Fine Wines Group LimitedInterim Report 2005
Management Discussion and Analysis
Our turnover surged by 14.9% to HK$512
million and profit attributable to equity
holders of the Company by 15.5% to
HK$117 million
Financial review
Turnover
Turnover for the six months ended 30 June 2005 increased by 14.9% to HK$512 million, from
HK$445 million in the first half of 2004 as a result of increase in sales volume. This increase
was attributable to the sales and marketing effort and the organic growth of the overall grape
wine market in the PRC.
The Group’s average ex-factory sales prices during the period under review for red and white
wine products had been relatively stable compared to 2004 yearly average price of HK$20.8
per bottle (750ml). The average ex-factory sales prices of the Group’s red wine products are,
however, in general higher than the Group’s white wine products. Based on consumers in the
PRC having a prevalent preference in favour of red wine products, the Group is able to set
higher prices for its red wine products.
Cost of sales
The following table sets forth the major components of our cost of sales for the period under
review:
For the six months ended
30 June
2005 2004
% %
Cost of raw materials
. Grapes and grape juice 38.4 35.1
. Yeast and additives 1.8 1.5
. Packaging materials 27.4 29.2
. Others 1.8 1.8
Total cost of raw materials 69.4 67.6
Manufacturing overheads 10.1 10.4
Consumption tax 20.5 22.0
Total cost of sales 100.0 100.0
The major raw materials required by the Group in producing wine products are grapes, grape
juice, yeast and additives and packaging materials. During the period under review, the cost
of grapes and grape juice accounted for approximately 38.4% of the Group’s total cost of
sales, an increase of 3.3 percentage points from approximately 35.1% in the corresponding
Dynasty Fine Wines Group LimitedInterim Report 2005 09
period in 2004 and was due to the unfavorable demand and supply situation of grapes or
grape juice. The average cost of packaging materials was relatively stable during the period
under review as compared with the preceding period.
Manufacturing overheads consist primarily of depreciation or rental of fixed assets, supplies,
utilities, repair and maintenance expenses, salaries and related personnel expenses for the
production and related departments and other incidental expenses for production. During the
period, manufacturing overheads did not fluctuate significantly as a percentage of turnover.
Gross profit margin
During the period under review, the gross margin was calculated based on cost of sales
inclusive of consumption tax over gross invoiced sales. Overall gross profit margin reached
51.5% in the first half of 2005, a decline of 3.1 percentage points from 54.6% in the
corresponding period in 2004 and was primarily due to higher purchase cost of grape juice as
compared to the first half of 2004. The gross margin of red wine products and white wine
products were 51.9% and 42.3% respectively (2004 — 55.4.% and 43.4% respectively). The
higher gross margin of the red wine products was attributable to their higher sales prices.
Distribution costs
Distribution costs include principally advertising and market promotion expenses,
transportation and delivery charges in connection with the sales of wine products, salaries
and related personnel expenses for the sales and marketing department and other incidental
expenses. During the period under review, distribution costs decreased and accounted for
approximately 15.9% (2004 — 18.9%) of the Group’s turnover. In particular, advertising and
market promotion expenses accounted for approximately 8.6% (2004 — 12.0%) of the
Group’s turnover. The decrease in percentage reflected that turnover outgrew the effect of
incurring more advertising and market promotion expenses during the period. We expect
advertising and market promotion expenses to increase in line with the growth in turnover of
the Group in the foreseeable future so as to allow the Group to maintain consumer awareness
of our brand name — ‘‘Dynasty’’, to increase the market share and also to facilitate the
launch of new products.
General and administrative expenses
General and administrative expenses consist primarily of salaries
and related personnel expenses for administrative, finance and
human resources departments, provision for doubtful debts and
write off for obsolete inventories, depreciation and amortisation
expense and other incidental administrative expenses.
During the period under review, general and administrative
expenses remained relatively stable and accounted for
approximately 5.7% (2004 — 4.7%) of the Group’s turnover.
10Dynasty Fine Wines Group LimitedInterim Report 2005
Management Discussion and Analysis
Taxation expense
Under the current laws of the Cayman Islands and the British Virgin Islands (‘‘BVI’’), neither
the Company nor its subsidiaries incorporated in BVI is subject to tax on its income or capital
gains. In addition, payment of dividends by them is not subject to withholding tax in those
jurisdictions.
Pursuant to the relevant income tax rules and regulations of the PRC, the applicable tax rate
for Sino-French Joint-Venture Dynasty Winery Limited, our major operating subsidiary, and for
Tianjin Tianyang Grape Extracting Co. Ltd, another subsidiary of the Group, is 24%, being the
preferential income tax rate for foreign investment production enterprises established in a
coastal economic development zone. The applicable rate for Shandong Yu Huang Grape Wine
Co., Ltd., another subsidiary of the Group, is 30%. During the period under review, the
effective tax rate of the Group was slightly lowered to approximately 26.6% (2004 —
27.6%).
Cash flow
In the first half of 2005, the Group’s source of cash flow was mainly from its financing
activities. The Group’s cash has principally been applied to pay the consideration for
acquisition of Smiling East Resources Limited (‘‘Smiling East’’), 2004 special dividends to
shareholders and listing expenses.
The decrease in cash inflow from operating activities from HK$102.0 million in 2004 to
HK$52.4 million in 2005 was primarily attributable to the effects of the changes in working
capital, mainly other payables and accruals.
Net cash used in investing activities was primarily attributable to the acquisition of Smiling
East pursuant to the plan disclosed in the prospectus dated 17 January 2005 and amounting
to approximately HK$47.0 million (2004 — HK$Nil).
Net cash inflow in financing activities was primarily attributable to the net proceeds from the
placing and public offer approximately HK$724 million (2004 — HK$Nil) and offset by the
payment of dividends to shareholders of approximately HK$78.7 million (2004 — HK$Nil).
Dynasty Fine Wines Group LimitedInterim Report 2005 11
Financial management and treasury policy
As at 30 June 2005, except for the net proceeds from the placing and public offer, the
Group’s revenues, expenses, assets and liabilities are substantially denominated in RMB.
Accordingly, the Group does not anticipate significant exposure to foreign currency
fluctuation. The Group has maintained sufficient financial resources and is in a net cash
position, thus we are exposed to minimal financial risk on interest rate fluctuation.
As at the date of this report, almost all of our cash and bank balances are denominated either
in RMB, Hong Kong dollars or United States dollars. The net proceeds from the placing and
public offer that were not already used for the intended purposes have been placed on short
term deposits with authorised financial institutions in Hong Kong. The Group has established
an investment policy with the objective of monitoring the investments of the Group’s
uncommitted funds to ensure the achievement of the highest practicable return on the
investments with priority on capital preservation and liquidity.
Liquidity and financial resources
The Group’s cash balances as at 30 June 2005 amounted to HK$853 million and net cash
inflow from operating activities are ample enough to satisfy the working capital requirement
for the business operations and capital expenditures. No bank debts were recorded and the
gearing of the Group was net cash as at 30 June 2005, reflecting the sound capital structure
of the Group. New investment will be funded by the Group’s internal resources.
Capital structure
Upon the completion of the placing and public offer, the net proceeds from our listing further
strengthen our capital structure and we expect our cash to be sufficient for meeting our
operating and capital expenditure requirements in the foreseeable future.
The market capitalisation of the Company as at 30 June 2005 was approximately HK$3,424
million.
Capital commitments, contingencies and charges on assets
The Group has made capital expenditure commitments mainly for machineries of
approximately HK$144.6 million which are authorised but not contracted for and
approximately HK$7.2 million which are contracted but not provided for in the financial
statements as at 30 June 2005. These commitments, mainly related to the expansion of the
Group’s production capacity, are expected to be paid within one year. The funding of such
capital commitments will be out of the proceeds of the new issue as stated in the prospectus.
As at 30 June 2005, none of the Group’s assets were charged or subject to any encumbrance
and the Group had no material contingent liabilities.
12Dynasty Fine Wines Group LimitedInterim Report 2005
Management Discussion and Analysis
Use of proceeds
The Company was successfully listed on the Main Board of The Stock Exchange of Hong Kong
Limited (the ‘‘Stock Exchange’’) on 26 January 2005. Upon the completion of the placing and
public offer, we issued a total of 345,000,000 new shares, including the shares issued upon
the exercise of the over-allotment option. The net proceeds raised from the placing and public
offer amounted to approximately HK$724 million. The satisfactory results of the placing and
public offer reflected the confidence of investors in the prospects of our business as well as in
the grape wine industry of the People’s Republic of China (the ‘‘PRC’’). The planned usage of
proceeds was as follows:
Use
Usage as
announced
Actual
progress
HK$ million HK$ million
Expansion of existing production facilities 200 61
Establishment of new production facilities 160 —
Expansion of sales and distribution network 20 —
Acquisition of Smiling East 47 47
Other acquisition opportunities and general working capital 297 1
Total 724 109
To cope with the Group’s long term development and to crystallise our business plan as set
out in our prospectus dated 17 January 2005, we are planning to build a new production
facility in Tianjin to further boost our production capacity. Moreover, we are in discussion
with certain companies in complementary wine business, which we consider as possible
targets of acquisition in the future. As at the date of this report, no agreement was entered
into between the Group and other parties in this regard.
We have placed the unutilised net proceeds in short term bank deposits.
Business review
Sales analysis
During the period under review, the Group experienced satisfactory growth in sales volume.
The number of bottles of wine sold increased from approximately 20.8 million in the first half
of 2004 to approximately 24.9 million in the first half of 2005, whilst the average ex-factory
Dynasty Fine Wines Group LimitedInterim Report 2005 13
sale price remained relatively stable. The primary revenue sources of the Group continued to
be red wine product sales which accounted for approximately 95.1% of the Group’s turnover
for the period (2004 — 94.2%). Dynasty Dry Red, the prototype of our mass market product,
remained as the Group’s best selling wine product, accounting for approximately 49.6% of
the Group’s turnover (2004 — 50.4%).
During the period under review, we sold our products in all provinces and autonomous
regions and four municipalities directly under the central government of the PRC. Huadong
region, or Eastern region of the PRC, still remained as our primary market. In addition to the
primary market, we are expanding the sales of our products in other markets, such as
Guangdong, Jiangxi, Hunan and Hubei, etc., in the PRC as well as to enhance our marketing
and promotion efforts in other coastal provinces in order to increase market share in those
markets. Overseas sales remained insignificant at 0.2% (2004 — 0.1%) of our turnover during
the period as the domestic market was our primary focus.
We produce over 50 products under the ‘‘Dynasty’’ brand name to meet different consumer
demands in the PRC grape wine market and focus on medium to high end segments. With a
diversified and high quality product portfolio, we believe we will be able to attract higher end
consumers by introducing premium higher end products. During the period under review,
sales of premium wine products, such as Dynasty Dry Red Wine-Aged in Oak Barrels and Dry
Red and Dry White Wine-Seven-Year Reserve that were launched in 2003, saw encouraging
growth. Although sales of these products made up an insignificant contribution to our
turnover during the period, we believe these products will become an increasingly significant
source of our future growth.
Supplies of grapes or grape juice
The production and quality of wine products is highly dependent upon sufficient supply of
quality grapes or grape juice. We currently have over 10 major grape juice suppliers, mainly
located in Tianjin, Shandong, Hebei and Ningxia, with whom we have had long term
relationships. To ensure reliable and solid supplies of quality grapes and grape juice to meet
the needs of the growing business and our expected increasing demand generated from the
production capacity expansion plan, we are working with our
grape growing partners on enlarging their vineyards to increase
harvests and also identify new suppliers who can meet our
quality requirements. Such measures will enable us to secure
grape supplies and lower the risk of our production being
interrupted by effects of weather, affecting the quality of our
grapes or grape juice. We will also explore opportunities of
acquiring grape juice suppliers in the PRC or overseas.
Production capacity
The progress of production capacity expansion from 30,000
tonnes (equivalent to approximately 40.0 million bottles) to
50,000 tonnes (equivalent to approximately 66.7 million bottles)
per annum is in accordance with our schedule and is expected to
be completed around mid-2006. The management will put all its
14Dynasty Fine Wines Group LimitedInterim Report 2005
Management Discussion and Analysis
efforts into ensuring the timely, or even early, completion of the plan. During the period, we
commenced a feasibility study on the establishment of a new production facility and identified
an appropriate site in Tianjin for that purpose. The new production facility, expected to be
completed by the end of 2008, will further increase our production capacity to 70,000 tonnes
(equivalent to approximately 93.3 million bottles) per annum.
Employees
The Group employed 386 staff (including Directors) in Hong Kong and the PRC. The increase
in manpower occurred mainly due to the acquisition of Smiling East. Total salaries and related
costs incurred for the six months ended 30 June 2005 amounted to HK$26.2 million. The
Group offers competitive remuneration packages commensurate with industry level and
provides various fringe benefits, including trainings, medical, insurance coverage as well as
retirement benefits to all employees in Hong Kong and in the PRC.
The Company also adopted a share option scheme on 6 December 2004 for the purposes of
providing incentives and rewards to eligible participants who have contributed to the success
of our operations. As at 30 June 2005, 23,100,000 share options were granted under the
scheme.
Prospects
Successful listing on the Main Board in January 2005 was a historical milestone of the Group.
Our financial position have since benefited significantly, laying the foundation for our further
growth in the industry. Looking ahead, we will continue to capitalise on the robust market
demand of grape wine products in the PRC in order to maximise business growth in the
future. By leveraging the advantages of the Group in a wide range of areas, such as our
reputable brand name, comprehensive product and market knowledge and extensive
distribution network, further upgrading our product mix and pursuing appropriate capacity
expansion strategies, we will further consolidate and strengthen our leading position in the
PRC and generate greater value for our shareholders in the years ahead.
Interim Dividend
The Directors are pleased to declare an interim dividend of HK3.7 cents per Share. The interimdividend will be paid to shareholders whose names appear on the Register of Members onWednesday, 19 October 2005. The interim dividend will be paid on Wednesday, 2 November2005.
Closure of Register of Members
The Register of Members of the Company will be closed from Monday, 17 October 2005 toWednesday, 19 October 2005, both days inclusive, during which period no share transfer willbe effected. In order to qualify for the interim dividend, all transfers accompanied by therelevant share certificates must be lodged with the Company’s branch share registrar in Hong
Dynasty Fine Wines Group LimitedInterim Report 2005 15
Kong, Tricor Investor Services Limited, Ground Floor, Bank of East Asia Harbour View Centre,56 Gloucester Road, Wanchai, Hong Kong, for registration of not later than 4 : 30 pm onFriday, 14 October 2005.
Share Option Scheme
Details of the Company’s Share Option Scheme are set out in the published annual report ofthe Company for the year ended 31 December 2004. Share options are granted to Directors,other than the independent non-executive directors, and employees of the Group to provideincentive and/or reward for their contribution to, and continuing efforts to promote theinterest of the Group. Details of the share options granted, exercised, lapsed and cancelledunder the Scheme during the period and outstanding as at 30 June 2005 are as follows:
Granted ExercisedLapsed/
Cancelled
Outstandingoptions held
at 30 June2005
Approximatepercentage ofissued share
capital of theCompany
Executive directors:Mr. He Xiuheng 2,300,000 — — 2,300,000 0.19%Mr. Gao Xiaode 2,100,000 — — 2,100,000 0.17%Mr. Nie Jiansheng 1,950,000 — — 1,950,000 0.16%Mr. Bai Zhisheng 1,100,000 — — 1,100,000 0.09%Mr. Chen Naiming 1,950,000 — — 1,950,000 0.16%
Non-executive directors:Mr. Heriard-Dubreuil
Francois 1,200,000 — — 1,200,000 0.10%Mr. Wang Guanghao 900,000 — — 900,000 0.07%Mr. Cheung Wai Ying,
Benny 900,000 — — 900,000 0.07%Mr. Zhang Wenlin 900,000 — — 900,000 0.07%Mr. Wong Ching Chung 900,000 — — 900,000 0.07%Mr. Robert Luc 900,000 — — 900,000 0.07%
Other employees 8,000,000 — — 8,000,000 0.64%
Total 23,100,000 — — 23,100,000 1.86%
All of the above share options were granted on 27 January 2005, with an exercise price of
HK$3.00 and are exercisable from 17 August 2005 to 26 January 2015.
Directors’ Interests and Short Positions in the Shares, UnderlyingShares and Debentures of the Company
As at 30 June 2005, the interests and short positions of the Directors, chief executives and
their respective associates of the Company in the shares, underlying shares and debentures of
the Company or its associated corporation (within the meaning of Part XV of the Securities
and Futures Ordinance (‘‘SFO’’)) which require notification pursuant to Divisions 7 and 8 of
Part XV of the SFO or which were required to be recorded in the register required to be kept
16Dynasty Fine Wines Group LimitedInterim Report 2005
under Section 352 of SFO or as otherwise notified to the Company and the Stock Exchange
pursuant to the Model Code for Securities Transactions by Directors of Listed Companies,
were as follows:
(a) Long position in Shares
Name Capacity
Number of
Shares
interested
Approximate
percentage of
issued share
capital of the
Company
Mr. Cheung Wai Ying, Benny Corporate
interest
45,000,000
(Note)
3.6%
Note: Inttra Limited directly owns 45,000,000 Shares or 3.6% of the issued share capital of the Company. The
entire issued share capital of Inttra Limited is owned by Mr. Cheung Wai Ying, Benny and his spouse. By
virtue of the SFO, Mr. Cheung Wai Ying, Benny is deemed to be interested in the Shares held by Inttra
Limited.
(b) Rights to acquire Shares
The interests of the Directors in the share options of the Company as beneficial owner
are set out in the section headed ‘‘Share Option Scheme’’ above.
Except as set out above, as at 30 June 2005, none of the Directors and chief executives
and their respective associates has any interest or short positions in the shares,
underlying shares and debentures of the Company or its associated corporation (within
the meaning of Part XV of the SFO) which require notification pursuant to Divisions 7
and 8 of Part XV of the SFO or which were required to be recorded in the register
required to be kept under Section 352 of the SFO or as otherwise notified to the
Company and the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors of Listed companies.
Dynasty Fine Wines Group LimitedInterim Report 2005 17
Substantial Shareholders’ Interests and Short Positions in the Sharesand Underlying Shares of the Company
As at 30 June 2005, so far as was known to the Directors or chief executive of the Company,
the interests or short positions of every person, other than a Director or chief executive of the
Company which would fall to be disclosed to the Company under the provisions of Divisions 2
and 3 of Part XV of the SFO, in the shares and underlying shares of the Company as recorded
in the register required to be kept by the Company under Section 336 of the SFO are as
follows:
Long position in shares
Name Nature of interest
Number of
Shares held
Approximate
percentage of
the Company’s
issued share
capital
Famous Ever Group Limited Beneficial owner 558,000,000 44.82%
Tianjin Development
Holdings Limited (Note 1)
Interest of a controlled
corporation
558,000,000 44.82%
Tianjin Investment Holdings
Limited (Note 2)
Interest of a controlled
corporation
558,000,000 44.82%
Tsinlien Group Company
Limited (Note 3)
Interest of a controlled
corporation
558,000,000 44.82%
Remy Pacifique Limited Beneficial owner 297,000,000 23.86%
Remy Concord Limited
(Note 4)
Interest of a controlled
corporation
297,000,000 23.86%
Remy Cointreau S.A.
(Note 4)
Interest of a controlled
corporation
297,000,000 23.86%
Orpar S.A. (Note 4) Interest of a controlled
corporation
297,000,000 23.86%
Andromede S.A. (Note 4) Interest of a controlled
corporation
297,000,000 23.86%
Notes:
(1) Famous Ever Group Limited is a wholly owned subsidiary of Tianjin Development Holdings Limited (‘‘Tianjin
Development’’). By virtue of the SFO, Tianjin Development is deemed to be interested in the Shares held by
Famous Ever Group Limited.
(2) Tianjin Investment Holdings Limited (‘‘Tianjin Investment’’) owns 63.86% shareholdings in Tianjin Development. By
virtue of the SFO, Tianjin Investment is deemed to be interested in the Shares held by Tianjin Development.
18Dynasty Fine Wines Group LimitedInterim Report 2005
(3) Tianjin Investment is a wholly owned subsidiary of Tsinlien Group Company Limited, the ultimate holding
company of Tianjin Development. By virtue of the SFO, Tsinlien Group Company Limited is deemed to be
interested in the Shares held by Tianjin Investment.
(4) Remy Pacifique Limited is a wholly owned subsidiary of Remy Concord Limited, which is wholly owned by Remy
Cointreau S.A.. Orpar S.A. owns approximately 50.87% of the shareholding in Remy Cointreau S.A. and
Andromede S.A. owns approximately 84.83% of the shareholding in Orpar S.A. By virtue of Part XV of the SFO,
each of Remy Concord Limited, Remy Cointreau S.A., Orpar S.A. and Andromede S.A. is deemed to be interested
in the Shares held by Remy Pacifique Limited.
Saved as disclosed above, as at 30 June 2005, no person, not being a Director or chief
executive of the Company, had interests or short positions in the shares and underlying shares
of the Company as record in the register required to be kept by the Company under Section
336 of the SFO.
Purchase, Sale or Redemption of Shares of the Company
Pursuant to the international underwriting agreement dated 21 January 2005, the Company
granted an option (‘‘Over-allotment Option’’) to the international placing underwriters
exercisable by ABN AMRO Rothschild, to require the Company to allot and issue up to an
aggregate of 45,000,000 additional Shares to cover over-allocation in the international
placing. The exercise price per Share for the Over-allotment Option is HK$2.25. On 1 February
2005, the Over-allotment Option was fully exercised and, as a result, the Company issued
45,000,000 additional Shares.
Except for as disclosed above, since the listing of the Company’s Shares on the Stock
Exchange on 26 January 2005 and up to 30 June 2005, neither the Company nor any of its
subsidiaries purchased, sold or redeemed any of the Company’s Shares.
Compliance with the Model Code for Securities Transactions byDirectors
The Company has adopted procedures governing Directors’ securities transactions in
compliance with the Model Code for Securities Transactions by Directors of Listed Issuers
(the ‘‘Model Code’’) as set out in Appendix 10 of the Listing Rules. Upon enquiry by the
Company, all Directors had confirmed that they had complied with the required standards set
out in the Model Code throughout the six months ended 30 June 2005.
Dynasty Fine Wines Group LimitedInterim Report 2005 19
Corporate Governance
The Company recognises its responsibilities to shareholders and aims to protect and enhance
shareholder value through solid corporate governance. Considerable efforts are devoted to
identify and formalise best practices. The Group is committed to ensuring even greater
transparency and quality of disclosures. The Board has been and will continue to uphold the
appropriate standards of corporate governance within the Group, thereby ensuring that all
business is conducted in an honest, ethical and responsible manner.
The Company had complied throughout the half-year ended 30 June 2005 with the Code
Provisions set out in the Code on Corporate Governance Practices contained in Appendix 14
of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.
By order of the Board
Mr. He Xiuheng
Chairman
Hong Kong, 13 September 2005
20Dynasty Fine Wines Group LimitedInterim Report 2005
Independent Review Report 22
Condensed Consolidated Income
Statement 23
Condensed Consolidated Balance Sheet 24
Condensed Consolidated Statement
of Changes in Equity 25
Condensed Consolidated Cash Flow
Statement 26
Notes to the Interim Accounts 27
TO THE BOARD OF DIRECTORS OFDYNASTY FINE WINES GROUP LIMITED(incorporated in Cayman Islands with limited liability)
Introduction
We have been instructed by the Company to review the interim financial report set out onpages 23 to 44.
Respective responsibilities of directors and auditors
The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limitedrequire the preparation of an interim financial report to be in compliance with Hong KongAccounting Standard 34 ‘‘Interim Financial Reporting’’ issued by the Hong Kong Institute ofCertified Public Accountants and the relevant provisions thereof. The interim financial reportis the responsibility of, and has been approved by, the directors.
It is our responsibility to form an independent conclusion, based on our review, on the interimfinancial report and to report our conclusion solely to you, as a body, in accordance with ouragreed terms of engagement and for no other purpose. We do not assume responsibilitytowards or accept liability to any other person for the contents of this report.
Review work performed
We conducted our review in accordance with Statement of Auditing Standards 700‘‘Engagements to review interim financial reports’’ issued by the Hong Kong Institute ofCertified Public Accountants. A review consists principally of making enquiries of managementand applying analytical procedures to the interim financial report and based thereon,assessing whether the accounting policies and presentation have been consistently appliedunless otherwise disclosed. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially less in scope than an auditand therefore provides a lower level of assurance than an audit. Accordingly we do notexpress an audit opinion on the interim financial report.
Review conclusion
On the basis of our review which does not constitute an audit, we are not aware of anymaterial modifications that should be made to the interim financial report for the six monthsended 30 June 2005
PricewaterhouseCoopersCertified Public Accountants
Hong Kong, 13 September 2005
22Dynasty Fine Wines Group LimitedInterim Report 2005
Independent Review Report
Unaudited
Six months ended 30 June
2005 2004
Note HK$’000 HK$’000
Turnover 5 511,610 445,379
Cost of sales (248,090) (201,993)
Gross profit 263,520 243,386
Other revenue 5 7,738 2,353
Distribution costs (81,369) (84,058)
General and administrative expenses (29,415) (21,009)
Operating profit 6 160,474 140,672
Finance costs (369) (359)
Profit before taxation 160,105 140,313
Taxation 7 (42,578) (38,784)
Profit after tax for the period 117,527 101,529
Attributable to:
Equity holders of the Company 116,936 101,218
Minority interest 591 311
117,527 101,529
Dividends 8 46,065 —
Earnings per share for profit attributable to the
equity holders of the Company during the period HK cents HK cents
Basic earnings per share 9 9.8 11.2
Dynasty Fine Wines Group LimitedInterim Report 2005 23
Condensed Consolidated Income StatementFor the six months ended 30 June 2005
As at
Unaudited
30 June
2005
Audited
31 December
2004
Note HK$’000 HK$’000
(Restated)
ASSETS
Non-current assets
Fixed assets 10 240,275 189,596
Leasehold land and land use rights 10 18,844 16,860
Goodwill 10 9,421 —
Deferred tax assets 1,212 1,212
269,752 207,668
Current assets
Trade receivables 11 82,895 106,097
Other receivables, deposits and prepayments 28,481 24,598
Inventories 240,357 234,425
Cash and bank balances 852,623 227,898
1,204,356 593,018
Total assets 1,474,108 800,686
EQUITY
Capital and reserves attributable to the
Company’s equity holders:
Share capital 12 124,500 90,000
Reserves 13 1,143,952 330,284
1,268,452 420,284
Minority interest 28,716 3,072
1,297,168 423,356
LIABILITIES
Current liabilities
Trade payables 14 32,153 45,207
Other payables and accruals 122,382 211,761
Amounts due to related companies 8,060 11,994
Amount due to a fellow subsidiary — 1,735
Taxation payable 14,345 18,142
Short-term bank loan 15 — 14,151
Dividend payable — 74,340
176,940 377,330
Total equity and liabilities 1,474,108 800,686
24Dynasty Fine Wines Group LimitedInterim Report 2005
Condensed Consolidated Balance SheetAs at 30 June 2005
Unaudited
Six months ended 30 June
2005 2004
Note HK$’000 HK$’000
Capital and reserves attributable to the
Company’s equity holders
As at 1 January 420,284 465,838
Issue of shares
— Share capital 12 34,500 —
— Share premium 12 689,518 —
Employee share option scheme
— Value of employee services 13 6,610 —
Profit attributable to equity holders of the
Company for the period 13 116,936 101,218
Currency translation differences 13 604 —
Dividends 13 — (74,344)
As at 30 June 1,268,452 492,712
Minority interest
As at 1 January 3,072 2,550
Profit attributable to minority interest for
the period 591 311
Acquisition of subsidiaries 25,053 —
As at 30 June 28,716 2,861
Total equity 1,297,168 495,573
Dynasty Fine Wines Group LimitedInterim Report 2005 25
Condensed Consolidated Statement of Changes in EquityFor the six months ended 30 June 2005
Unaudited
Six months ended 30 June
2005 2004
HK$’000 HK$’000
Net cash generated from/(used in):
— operating activities 52,392 101,978
— investing activities (59,103) (25,600)
— financing activities 631,436 (359)
Net increase in cash and cash equivalents 624,725 76,019
Cash and cash equivalents at 1 January 227,898 300,166
Cash and cash equivalents at 30 June 852,623 376,185
Analysis of balances of cash and cash equivalents
Bank balances and cash 852,623 376,185
26Dynasty Fine Wines Group LimitedInterim Report 2005
Condensed Consolidated Cash Flow StatementFor the six months ended 30 June 2005
1. Group reorganisation
The Company was incorporated in the Cayman Islands on 29 July 2004 as an exempted
company with limited liability under the Companies Law of the Cayman Islands.
Pursuant to the reorganisation, as disclosed in the Company’s prospectus dated 17
January 2005, prepared for the purpose of listing its shares on the Main Board of The
Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) (‘‘the Reorganisation’’),
the Company became the holding company of Grand Spirit Holdings Limited (‘‘Grand
Spirit’’), Sino-French Joint-Venture Dynasty Winery Ltd. (‘‘Dynasty Winery’’) and
Shandong Yu Huang Grape Wine Co., Ltd (‘‘Yu Huang’’) on 13 January 2005.
The Company together with its subsidiaries are hereafter collectively referred to as the
Group.
The shares of the Company were listed on the Main Board of the Stock Exchange on 26
January 2005.
2. Basis of preparation and accounting policies
These unaudited condensed consolidated accounts are prepared in accordance with
Hong Kong Accounting Standard (‘‘HKAS’’) 34, ‘‘Interim Financial Reporting’’, issued by
the Hong Kong Institute of Certified Public Accountants and Appendix 16 of the Rules
Governing the Listing of Securities (‘‘Listing Rules’’) on the Stock Exchange.
The Group resulting from the Reorganisation referred to in Note 1 above is regarded as
a continuity entity. Accordingly, the unaudited condensed consolidated accounts have
been prepared on the merger basis as if the Company had been the holding company of
the companies comprising the Group as if the group structure as at 13 January 2005
had been in existence from the beginning of 1 January 2004. In the opinion of the
Directors, the unaudited condensed accounts prepared on the above basis present more
fairly the results, cash flows and state of affairs of the Group as a whole.
These condensed accounts should be read in conjunction with the 2004 Annual Report.
The accounting policies and methods of computation used in the preparation of these
condensed accounts are consistent with those used in the annual report for the year
ended 31 December 2004, except that upon adoption of the new and revised Hong
Kong Financial Reporting Standards and Hong Kong Accounting Standards (‘‘new
HKFRSs’’) which are effective for accounting periods commencing on or after 1 January
2005, certain of the Group’s accounting policies were changed.
Dynasty Fine Wines Group LimitedInterim Report 2005 27
Notes to the Interim Accounts
2. Basis of preparation and accounting policies (Continued)
These interim accounts have been prepared in accordance with those new HKFRSs and
interpretations issued and effective as at the time of preparing this information (July
2005). The new HKFRSs and interpretations that will be applicable at 31 December
2005, including those that will be applicable on an optional basis, are not known with
certainty at the time of preparing this interim financial information.
The changes to the Group’s accounting policies and the effect of adopting these new
policies are set out in Note 3 below.
3. Changes in accounting policies
(a) Effect of adopting new HKFRSs
In 2005, the Group adopted the new HKFRSs below, which are relevant to its
operations. The 2004 comparatives have been restated as appropriate.
HKAS 1 Presentation of Financial Statements
HKAS 2 Inventories
HKAS 7 Cash Flow Statements
HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10 Events after the Balance Sheet Date
HKAS 16 Property, Plant and Equipment
HKAS 17 Leases
HKAS 21 The Effects of Changes in Foreign Exchange Rates
HKAS 23 Borrowing Costs
HKAS 24 Related Party Disclosures
HKAS 27 Consolidated and Separate Financial Statements
HKAS 32 Financial Instruments: Disclosures and Presentation
HKAS 33 Earnings Per Share
HKAS 36 Impairment of Assets
HKAS 39 Financial Instruments: Recognition and Measurement
HKFRS 2 Share-based Payments
HKFRS 3 Business Combinations
Adoption of new HKASs 1, 2, 7, 8, 10, 16, 21, 23, 24, 27 and 33 did not result in
substantial changes to the Group’s accounting policies. Related impact on
presentation of the Group’s financials is summarised below.
— HKAS 1 has affected the presentation of minority interest and other
disclosures.
28Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
3. Changes in accounting policies (Continued)
(a) Effect of adopting new HKFRSs (Continued)
— According to HKAS 21, the functional currency of each of the consolidated
entities has been re-evaluated based on guidance to the revised standard.
— HKAS 24 has affected the identification of related parties and some other
related-party disclosures.
Adoption of revised HKAS 17 has resulted in a change in the accounting policy
relating to leasehold land and land use rights. The up-front prepayments made for
the leasehold land and land use rights are now reclassified as operating lease and
expensed in the income statement on a straight-line basis over the period of the
lease or where there is impairment, the impairment is expensed in the income
statement in the year identified. In prior years, the leasehold land was accounted
for at cost less accumulated depreciation and accumulated impairment.
Adoption of HKASs 32 and 39 has resulted in a change in the accounting policy
relating to classification of financial assets at fair value through profit or loss and
available-for-sale financial assets. It has also resulted in the recognition of
derivative financial instruments at fair value and the change in the recognition
and measurement of hedging activities. Up to 2004, no adjustment is necessary
upon adoption of HKASs 32 and 39.
In accordance with the provisions of HKFRS 3 and HKAS 36, goodwill is tested
annually for impairment, and also when there is indication of impairment
commencing from the year ending 31 December 2005. In accordance with
HKFRS 2, cost of share options are expensed in income statement.
All changes in the accounting policies have been made in accordance with the
transition provisions in the respective standards. All standards adopted by the
Group require retrospective application other than HKASs 16, 21, 39 and HKFRSs 2
and 3.
Dynasty Fine Wines Group LimitedInterim Report 2005 29
3. Changes in accounting policies (Continued)
(b) New accounting policies
The accounting policies used for the condensed consolidated accounts for the six
months ended 30 June 2005 are the same as those set out in Note 2 to the 2004
annual report except for the following:
(i) Acquisition of subsidiaries
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any minority
interest. The excess of the cost of acquisition over the fair value of the
Group’s share of the identifiable net assets acquired is recorded as goodwill.
If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the income
statement.
(ii) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are
measured using the currency of the primary economic environment in which
the entity operates (‘‘the functional currency’’). The consolidated financial
statements are presented in Hong Kong dollars, which is the Company’s
functional and presentation currency. The functional currency of the Group’s
subsidiaries in PRC is Renminbi.
(iii) Property, plant and equipment
The assets’ residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
(iv) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group’s share of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries
is included in intangible assets. Goodwill is tested annually for impairment
and carried at cost less accumulated impairment losses. Gains and losses on
the disposal of an entity include the carrying amount of goodwill relating to
the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing.
30Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
3. Changes in accounting policies (Continued)
(b) New accounting policies (Continued)
(v) Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation,
which are at least tested annually for impairment are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cash-generating units).
(vi) Share capital
Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
(vii) Share-based compensation
The Group operates an equity-settled, share-based compensation plan. The
fair value of the employee services received in exchange for the grant of the
options is recognised as an expense. The total amount to be expensed over
the vesting period is determined by reference to the fair value of the options
granted, excluding the impact of any non-market vesting conditions (for
example, profitability and sales growth targets). Non-market vesting
conditions are included in assumptions about the number of options that
are expected to become exercisable. At each balance sheet date, the entity
revises its estimates of the number of options that are expected to become
exercisable. It recognises the impact of the revision of original estimates, if
any, in the income statement, and a corresponding adjustment to equity over
the remaining vesting period.
The proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the
options are exercised.
4. Segment information
Manufacturing and sale of wine products is the only business segment of the Group for
the periods ended 30 June 2004 and 2005. All operating assets of the Group for the
periods ended 30 June 2004 and 2005 are located in the PRC. Accordingly, no separate
business and geographic segment information is presented.
Dynasty Fine Wines Group LimitedInterim Report 2005 31
5. Turnover and other revenue
The Group is principally engaged in the manufacturing and sale of wine products.
Revenue recognised during the period is as follows:
Unaudited
Six months ended
30 June
2005 2004
HK$’000 HK$’000
Turnover
Manufacturing and sale of wine products 511,610 445,379
Other revenue
Interest income 7,738 2,353
519,348 447,732
6. Operating profit
Operating profit is stated after charging/(crediting):
Unaudited
Six months ended
30 June
2005 2004
HK$’000 HK$’000
Employee costs include:
— salaries, other allowance and benefits 28,149 25,003
— contributions to retirement benefits scheme 1,657 1,466
— share-based payments 6,610 —
— government subsidy (Note a) (10,202) (5,706)
Total employee costs including directors’ emoluments 26,214 20,763
Depreciation 10,225 8,139
Amortisation 338 418
Loss on disposal of fixed assets — 19
Operating lease rentals in respect of
— storage facilities and plant and machinery 1,698 1,698
— transformation station 1,020 1,020
— office premises 747 —
32Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
6. Operating profit (Continued)
Note:
(a) Prior to 2003, one of the Group’s subsidiaries, Dynasty Winery, had been making contributions to an
external special purpose fund which is managed and approved by the PRC joint venture partner of Dynasty
Winery as permitted under the then related PRC regulations. Pursuant to revised regulations issued by the
Tianjin Finance Bureau effective 1 January 2003, Dynasty Winery ceased to make further contributions to
this fund. In addition, these regulations require any remaining balance of the fund at 31 December 2007
to be transferred to Dynasty Winery. The Group’s legal counsel has confirmed that the Group does not
have ownership of this fund which effectively belongs to the PRC government and is to be used only for
the general welfare of Dynasty Winery’s employees. For the period ended 30 June 2005, Dynasty Winery
received HK$10,202,000 (2004 : HK$5,706,000) from the fund.
7. Taxation
Unaudited
Six months ended
30 June
2005 2004
HK$’000 HK$’000
Current taxation:
— PRC income tax 42,578 38,275
— underprovision in previous years — 509
42,578 38,784
No provision for Hong Kong profits tax has been made as the Group has no estimated
assessable profit in Hong Kong.
Provision for PRC income tax has been made at the applicable rate on the estimated
assessable profit for the period. The applicable rate for Dynasty Winery and Tianjin
Tianyang Grape Extracting Co., Limited is 24% for the periods ended 30 June 2004 and
2005, being the preferential rate for foreign investment production enterprises
established in a coastal economic development zone. The applicable rate for Yu
Huang is 30% for the periods ended 30 June 2004 and 2005.
Dynasty Fine Wines Group LimitedInterim Report 2005 33
8. Dividends
Unaudited
Six months ended
30 June
2005 2004
HK$’000 HK$’000
Interim dividend proposed of HK3.7 cents per
ordinary share 46,065 —
Note: On 13 September 2005, the directors declared an interim dividend of HK3.7 cents per ordinary share. This
declared dividend is not reflected as a dividend payable in these accounts, but will be reflected as an
appropriation of retained profits for the year ending 31 December 2005.
9. Earnings per share
The calculation of the basic earnings per share is based on the profit attributable to
equity holders of the Company of HK$116,936,000 and the weighted average number
of 1,195,856,354 shares in issue during the period.
The comparative basic earnings per share is calculated based on profit attributable to
equity holders of the Company of HK$101,218,000 and an aggregate of 900,000,000
shares comprising 100 shares issued immediately after incorporation of the Company
and 899,999,900 shares issued upon the Reorganisation, which were deemed to have
been in issue since 1 January 2004.
The exercise of share options would have no material dilutive effect of earnings per
share for the periods ended 30 June 2004 and 2005.
10. Capital expenditure
(a) Acquisitions
During the six months ended 30 June 2005, the Group acquired fixed assets,
leasehold land and land use rights including items through acquisition of
subsidiaries amounting to HK$63,226,000 (six months ended 30 June 2004 :
HK$27,968,000).
34Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
10. Capital expenditure (Continued)
(b) Goodwill arising from acquisition of subsidiaries
HK$’000
As at 1 January 2005 —
Acquisition of subsidiaries 9,421
As at 30 June 2005 9,421
11. Trade receivables
In general, the Group grants a credit period of 30 to 90 days to its customers. The aging
analysis of trade receivables is as follows:
Unaudited
30 June
2005
Audited
31 December
2004
HK$’000 HK$’000
Below 30 days 38,666 76,241
30 to 90 days 24,671 21,062
91 to 180 days 17,806 11,819
Over 180 days 5,641 864
86,784 109,986
Less: Provision for doubtful debts (3,889) (3,889)
82,895 106,097
Dynasty Fine Wines Group LimitedInterim Report 2005 35
12. Share capital
Number
of shares Share capital Share premium Total
HK$’000 HK$’000 HK$’000
As at 1 January 2004 and 30
June 2004 — — — —
Issue of share on 9 August 2004
(Note b) 1 — — —
Issue of shares on 10 August
2004 (Note c) 99 — — —
Acquisition of subsidiary (Note d) 899,999,900 90,000 — 90,000
Proforma share capital as at 31
December 2004 900,000,000 90,000 — 90,000
Issue of shares (Note e) 345,000,000 34,500 689,518 724,018
As at 30 June 2005 1,245,000,000 124,500 689,518 814,018
Notes:
(a) The total authorised number of ordinary shares is 3,000 million shares (31 December 2004 : 3,000 million
shares) with a par value of HK$0.10 per share (31 December 2004 : HK$0.10 per share). All issued shares
are fully paid.
(b) On 9 August 2004, one new share of HK$0.1 was allotted and issued at par for cash.
(c) On 10 August 2004, an aggregate of 99 new shares of HK$0.1 each was allotted and issued at par for
cash.
(d) The Company issued 899,999,900 shares of HK$0.1 each on 13 January 2005 to acquire for the entire
equity interest of Grand Spirit. Grand Spirit is an investment holding company owning the entire interest
in Dynasty Winery which is established in the PRC and engages in manufacturing and sales of wine
products.
(e) On 1 February 2005, the Company completed its placing and public offering of 345,000,000 shares
whereupon 300,000,000 shares were issued on the Main Board of Stock Exchange on 26 January 2005
and the remaining 45,000,000 shares were issued on 1 February 2005 following the exercise of the over-
allotment option pursuant to the underwriting agreement.
36Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
12. Share capital (Continued)
Share options scheme
Pursuant to the resolutions of the shareholders of the Company on 6 December 2004, a
share option scheme (the ‘‘Scheme’’) was approved and adopted.
Under the Scheme, the directors may, at their discretion, grant to any eligible person as
defined under the Scheme to take up options to subscribe for shares of the Company at
a subscription price to be determined by the directors pursuant to the relevant listing
rules. The maximum number of shares issuable upon the exercise of all outstanding
options to be granted under the Scheme must not, in aggregate, exceed 30% of the
total number of shares in issue from time to time. The total number of shares in respect
of which options may be granted under the Scheme and any other share options
schemes of the Company shall not exceed 120 million shares, being 10% of the total
number of shares in issue as at the date of listing of the Company’s shares unless
separate approval is obtained.
On 27 January 2005, 15,100,000 share options were granted to directors, other than
the independent non-executive directors, of the Company and 8,000,000 share options
were granted to employees of the Group. The options are exercisable at a price of HK$3
per share at anytime between 17 August 2005 and 26 January 2015. None of these
share options have been exercised, lapsed or cancelled by the directors or employees
during the period ended 30 June 2005.
The Group has no legal or constructive obligation to repurchase or settle the options in
cash.
Based on the share option valuation report prepared by Vigers Appraisal & Consulting
Limited (‘‘Vigers’’) on 1 September 2005, the fair market value of options granted during
the six months ended 30 June 2005 determined using the Binomial valuation model was
HK$0.38 per option. The significant inputs into the model were share price of HK$3 per
share, at the grant date, exercise price of HK$3 per option, standard deviation of
expected share price returns of 23%, expected life of options of 2 years, expected
dividend paid out rate of 50% and annual risk-free interest rate of 1.478%. According
to the Vigers’ report, the volatility measured at the standard deviation of expected share
price returns is based on statistical analysis of daily share prices over the last several
months since listing on the Stock Exchange.
Dynasty Fine Wines Group LimitedInterim Report 2005 37
13. Reserves
Unaudited
Share
premium
Merger
reserve
(Note)
Employee
share-based
compensation
reserve Reserve fund
Enterprise
expansion
reserve
Exchange
reserve
Retained
profits Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
As at 1 January
2004 — 74,519 — 38,124 87,420 — 175,775 375,838
Profit attributable
to equity
holders of the
Company for
the period — — — — — — 101,218 101,218
Dividends — — — — — — (74,344) (74,344)
As at 30 June
2004 — 74,519 — 38,124 87,420 — 202,649 402,712
As at 1 January
2005 — 74,519 — 44,911 94,045 — 116,809 330,284
Issue of shares 689,518 — — — — — — 689,518
Profit attributable
to equity
holders of the
Company for
the period — — — — — — 116,936 116,936
Transfer — — — 146 146 — (292) —
Share-based
payments — — 6,610 — — — — 6,610
Currency
translation
differences — — — — — 604 — 604
As at 30 June
2005 689,518 74,519 6,610 45,057 94,191 604 233,453 1,143,952
Note: The merger reserve of the Group represents the difference between the nominal value of the shares of the
subsidiaries that had been acquired and the nominal value of the Company’s shares issued in exchange therefore
pursuant to the Reorganisation.
38Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
14. Trade payables
The aging analysis of the trade payables is as follows:
Unaudited
30 June
2005
Audited
31 December
2004
HK$’000 HK$’000
Below 30 days 29,977 41,574
30 to 90 days — 337
91 to 180 days — 1,871
Over 180 days 2,176 1,425
32,153 45,207
15. Short-term bank loan
The short-term bank loan in 2004 of HK$14.2 million was secured by certain of the
Group’s properties in Tianjin and the security was released in October 2004.
Dynasty Fine Wines Group LimitedInterim Report 2005 39
16. Operating lease commitments
At 30 June 2005, the Group had total future aggregate minimum lease payments under
non-cancellable operating leases as follows:
Unaudited
30 June
2005
Audited
31 December
2004
HK$’000 HK$’000
Storage facilities and plant and machinery
— Not later than one year 1,698 3,396
Transformation station
— Not later than one year 2,038 2,038
— Later than one year but not later than five years 2,206 3,226
4,244 5,264
Office premises
— Not later than one year 1,425 1,425
— Later than one year but not later than five years 1,901 2,613
3,326 4,038
40Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
17. Capital commitments
Capital expenditure commitments relate to intended purchase of fixed assets and
production facilities:
Unaudited
30 June
2005
Audited
31 December
2004
HK$’000 HK$’000
Authorised but not contracted for 144,570 13,592
Contracted but not provided for 7,161 8,222
151,731 21,814
18. Business combination
On 10 January 2005, the Company entered into a conditional agreement with Tianjin
Development Holdings Limited (‘‘Tianjin Development’’), the intermediate holding
company, to acquire the entire share capital and to assume the shareholder’s loan of
Smiling East Resources Limited (‘‘Smiling East’’) for a consideration of HK$47 million, the
terms and conditions of the acquisition have been fulfilled and the transaction was
completed on 23 February 2005. Smiling East holds 60% equity interest in Tianjin
Tianyang Grape Extracting Co. Ltd (‘‘Tianyang’’) which engages in manufacturing of
unprocessed wines and is a supplier to Dynasty Winery.
The acquired business contributed net profit of HK$878,000 to the Group for the period
from 23 February 2005 to 30 June 2005.
The details of the net assets acquired and goodwill are as follows:
HK$’000
Cash consideration 47,000
Less: Assumption of shareholder’s loan 37,407
9,593
Less: Fair value of net assets acquired 172
Goodwill 9,421
The goodwill is attributable to the significant synergies expected to arise after the
Group’s acquisition of Smiling East.
Dynasty Fine Wines Group LimitedInterim Report 2005 41
19. Related party transactions
The following is a summary of significant related party transactions during the period
which in the opinion of the directors are carried out in the normal course of the Group’s
business:
Unaudited
Six months ended
30 June
2005 2004
HK$’000 HK$’000
(a) Purchase of goods and services
Tianjin Heavenly Palace Winery Co., Ltd
(‘‘Heavenly Palace’’)
Rental paid (Note i) 1,698 1,698
Ning Xia Heavenly Palace Yuma Winery
Co., Ltd (‘‘Yuma’’)
Purchase of unprocessed wine 24,705 17,131
Tianyang
Purchase of unprocessed wine (Note ii) 2,655 5,747
(b) Acquisition of interest in subsidiaries from:
Tianjin Development (Note 18) 47,000 —
(c) Key management compensation
Salaries and other short-term employee benefits 4,838 72
Other long-term benefits 147 —
Share-based payments 6,610 —
11,595 72
42Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
19. Related party transactions (Continued)
As at
Unaudited
30 June
2005
Audited
31 December
2004
(d) Period end balances arising from purchase of
goods and services
Tianyang (Note ii) — 5,618
Heavenly Palace is a subsidiary of Tianjin Development. Yuma is an associate of Heavenly
Palace.
Notes:
(i) Rental for storage facilities and plant and machinery was paid at contracted terms of HK$283,000 per
month. The rental period is three years commencing from 1 January 2003.
(ii) As detailed in Note 18, Tianyang became a subsidiary of the Group after the acquisition of Smiling East on
23 February 2005 and ceased to be a fellow subsidiary of the Group. Total purchase from Tianyang during
the period from 1 January 2005 to 23 February 2005 amounted to HK$2,655,000.
20. Financial risk management
The Group’s activities expose it to a variety of financial risks, including the effects of
changes in foreign currency exchange rates, credit risk and cash flow interest rates risk.
(a) Financial risk factors
(i) Foreign exchange risk
The Group mainly operates in the PRC with most of the transactions settled
in Renminbi and did not have significant exposure to foreign exchange risk
for the periods ended 30 June 2004 and 2005.
Dynasty Fine Wines Group LimitedInterim Report 2005 43
20. Financial risk management (Continued)
(a) Financial risk factors (Continued)
(ii) Credit risk
The Group has no significant concentrations of credit risk. The carrying
amount of trade receivables included in the consolidated balance sheets
represented the Group’s maximum exposure to credit risk in relation to its
financial assets. The Group has policies in place to ensure that sales of
products are made to customers with an appropriate credit history and the
Group performs periodic credit evaluations of its customers. The Group’s
historical experience in collection of trade and other receivables falls within
the recorded allowances and the Directors are of the opinion that adequate
provision for uncollectible trade receivables has been made in the
consolidated accounts.
(iii) Cash flow and fair value interest rate risk
As the Group has no significant interest-bearing assets, the Group’s income
and operating cash flows are substantially independent of changes in market
interest rates. The Group’s exposure to changes in interest rates is mainly
attributable to its short-term borrowings. As at 30 June 2005, the Group’s
short-term bank loan was fully repaid. The Group did not use any interest
rate swaps to hedge its exposure to interest rate risk during the period
ended 30 June 2005.
(b) Fair value estimation
The carrying amounts of the Group’s financial assets including cash and cash
equivalents, time deposits, trade receivables, other receivables, deposits and
prepayments; and financial liabilities including trade payables, short-term
borrowings, other payables and accruals, approximate their fair values due to
their short maturities.
21. Comparative figures
Comparative figures have been translated into Hong Kong dollars to conform with the
current period’s presentation.
22. Approval of interim financial reports
The interim financial reports were approved by the Board on 13 September 2005.
44Dynasty Fine Wines Group LimitedInterim Report 2005
Notes to the Interim Accounts
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Interim Report 2005中期報告
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