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HONG LEONG CREDIT BERHAD _“HLC”_

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HONG LEONG CREDIT BERHAD _“HLC”_ Powered By Docstoc
					HONG LEONG CREDIT BERHAD (“HLC”)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2005

1. Basis of preparation

  The condensed financial statements are unaudited and have been prepared in compliance with
  Financial Reporting Standards (“FRS”) 134: Interim Financial Reporting and Chapter 9 Part K of
  the Listing Requirements of the Bursa Malaysia Securities Berhad and should be read in
  conjunction with audited financial statements of the Group for the financial year ended 30 June
  2004. The financial statements of the Group are prepared using accounting policies and methods of
  computation consistent with those adopted in the annual financial statements for the financial year
  ended 30 June 2004 and applicable approved accounting standards which became effective for the
  current financial year ending 30 June 2005.


2. Status of matters giving rise to the auditor’s qualified report in the annual financial statement
   for the financial year ended 30 June 2004 of HLC

  There was no qualified report issued by the auditors in the annual financial statements for the
  financial year ended 30 June 2004.


3. Seasonality or cyclicality of operations

  The business operations of the Group have not been affected by any material seasonal and cyclical
  factors.


4. Exceptional items / unusual events affecting financial statements

  There were no exceptional items or unusual events affecting the assets, liabilities, equity, net
  income or cash flows of the Group during the current financial period.


5. Variation from financial estimates reported in preceding financial period/year

   There were no material changes in estimates of amounts reported in the preceding financial
   period/year that have a material effect in the current financial period.


6. Issuance and repayment of debt and equity securities

   There was no repayment of debt or equity share, share buy-back, share cancellation, shares held as
   treasury shares nor resale of treasury shares during the financial period ended 31 March 2005.




                                                                                          Page 1 of 13
7. Dividends Paid

  An interim dividend of 8 sen per share less income tax at 28% amounted to RM59,945,601 was
  paid on 28 December 2004.


8. Segmental reporting

  Segmental information is presented in respect of the Group’s business segments. The primary
  format by business segments, is based on the Group’s management and internal reporting structure.

  No analysis by geographical segments is presented as the Group’s operations are substantially
  carried out in Malaysia.

  Inter-segment pricing is determined based on arms length basis. These transactions are eliminated
  on consolidation. Segment results, assets and liabilities include items directly attributable to the
  segment as well as those that can be allocated on a reasonable basis. Unallocated item mainly
  comprise tax recoverable, tax payable and other corporate assets and other corporate liabilities.
  Segment capital expenditure is the total cost incurred during the period to acquire segment assets
  that are expected to be used during more than one period.

   Business segments
   The Group comprises the following main business segments:
   Banking                            Licensed commercial banking business
   Securities                         Stocks and securities broking, and fund and unit trust
                                      management
   Insurance                          Life and general insurance business
   Property development*              Property investment and development
   Other operations                   Investment holding, provision of management services,
                                      information technology and internet related business


* In the previous financial year, the Group had completed the demerger of the associated company via
  capital distribution and the disposal of its residual shares.




                                                                                           Page 2 of 13
                                                                                Property
Group                              Banking       Securities    Insurance      development       Others       Eliminations   Consolidated
31 March 2005                      RM'000        RM'000        RM'000           RM'000          RM'000        RM'000          RM'000
Revenue
External sales                       1,573,089        64,442       169,033                  -          410              -       1,806,974
Intersegment sales                       5,182         2,405         3,671                  -        2,622       (13,880)               -
                                     1,578,271        66,847       172,704                  -        3,032       (13,880)       1,806,974

Results
Segment results                       564,840         18,741        20,185                  -      233,175      (236,457)         600,484
Share of profits from associates            -           (61)             -                  -            -              -            (61)
Interest expense                                                                                                                 (19,458)
Profit before taxation                                                                                                            580,965
Taxation                                                                                                                        (164,835)
Profit after taxation                                                                                                             416,130
Minority interest                                                                                                               (163,395)
Net profit for the year                                                                                                           252,735

Other information
Segment assets                      55,184,435      355,876       3,657,374                 -      186,231       (75,803)     59,308,113
Other corporate assets                                                                                                           179,736
Total consolidated assets                                                                                                     59,487,849

Segment liabilities                 50,657,030      135,129       3,284,078                 -       13,464       (78,419)     54,011,282
Other corporate liabilities                                                                                                      607,910
Total consolidated liabilities                                                                                                54,619,192

Capital expenditure                    43,741            711        13,855                  -        1,518              -
Depreciation                           37,525          1,596         8,039                  -          292              -
Net interest income suspended          96,057              -             -                  -            -              -
Loan loss and other provision         115,785              -             -                  -            -              -


                                                                                                                            Page 3 of 13
                                                                               Property
Group                              Banking      Securities    Insurance      development       Others         Eliminations Consolidated
31 March 2004                      RM'000       RM'000        RM'000           RM'000          RM'000           RM'000       RM'000
Revenue
External sales                      1,544,264        62,231       169,648                  -      383,942        (403,914)       1,756,171
Intersegment sales                      7,095         2,749         4,454                  -        1,864         (16,162)               -
                                    1,551,359        64,980       174,102                  -      385,806        (420,076)       1,756,171

Results
Segment results                       400,980        25,512        51,876              -          357,327        (388,581)         447,114
Share of profits from associates            -            84             -            486                -                -             570
Interest expense                                                                                                                  (26,836)
Profit before taxation                                                                                                             420,848
Taxation                                                                                                                         (125,607)
Profit after taxation                                                                                                              295,241
Minority interest                                                                                                                (117,241)
Net profit for the year                                                                                                            178,000

Other information
Segment assets                     46,867,360      303,272       3,141,831                 -      215,466         254,002      50,781,931
Investment in associate                     -        2,445               -                 -            -               -           2,445
Other corporate assets                                                                                                            176,257
Total consolidated assets                                                                                                      50,960,633

Segment liabilities                42,599,722      143,173       2,834,753                 -      432,276        (152,725)     45,857,199
Other corporate liabilities                                                                                                       359,358
Total consolidated liabilities                                                                                                 46,216,557

Capital expenditure                    44,299           764        10,263                  -             53              -
Depreciation                           31,481         1,779         5,801                  -            319              -
Net interest income suspended         101,692             -             -                  -              -              -
Loan loss and other provision         291,675             -             -                  -              -              -



                                                                                                                             Page 4 of 13
9. Property, plant and equipment

   The valuations of property, plant and equipment had been brought forward without amendment
   from the previous annual financial statements.


10. Events after Balance Sheet date

   Other than as disclosed in Note 8 under Additional Information required by Bursa Malaysia
   Securities Berhad’s Listing Requirements, there were no material events subsequent to the end of
   the financial period ended 31 March 2005 to be disclosed.


11. Changes in composition of the Group
   There were no changes in the composition of the Group for the current financial period and up to
   the date of this report except for the following:

      Visia Nominees Sdn Bhd (“Visia”), a wholly-owned subsidiary of Hong Leong Finance
       Berhad, had been put under voluntary winding-up. Visia was dissolved on 20 November 2004.

      HLG Capital Berhad, a 75% owned subsidiary of the Company had, on 20 December 2004,
       acquired the entire equity interest comprising 2 ordinary shares of RM1.00 each in HLG
       Capital Advisory Sdn Bhd (formerly known as HLG Nominees Sdn Bhd) from HLG
       Securities Sdn Bhd, a wholly-owned subsidiary of HLG Capital Berhad, for cash at par.

      Heritage Vest (M) Sdn Bhd (“HV”), a wholly-owned subsidiary of the Company, was placed
       under member’s voluntary winding-up on 25 March 2005.

      Hong Leong Islamic Bank Berhad, a wholly-owned subsidiary of Hong Leong Bank Berhad,
       was incorporated on 28 March 2005 for the purpose of undertaking the Islamic banking
       business pursuant to subsection 3(4) of the Islamic Banking Act, 1983.

      HLG Capital Berhad had, on 29 March 2005, disposed off entire equity interest comprising 51
       million shares in HLG Philippines, Inc (“HPI”) to DHG Capital Holdings, Inc (“DHG”) for a
       cash consideration of Peso141,433,000 (or approximately RM9.52 million).

      Allstate Health Benefits Sdn Bhd (“Allstate”), a wholly-owned subsidiary of Hong Leong
       Assurance Berhad had, on 6 April 2005, acquired 500,000 ordinary shares of HKD100.00
       each representing 100% of the issued and paid-up share capital of Dao Heng Insurance Co.
       Limited (“DHI”).




                                                                                        Page 5 of 13
12. Commitments and contingencies
   (a) In the normal course of business, the banking subsidiary company make various commitments
       and incur certain contingent liabilities with legal recourse to its customers. No material losses
       are anticipated as a result of these transactions. These commitments and contingencies are not
       secured against the assets of the Group.
       The commitments and contingencies constitute the following:
                                                        Current Period               Financial Year
                                                      Ended 31/03/2005             Ended 30/06/2004
                                                     Principal     Credit        Principal      Credit
        The Banking Group                            Amount      Equivalent      Amount      Equivalent
                                                     RM’000       RM’000         RM’000        RM’000

        Direct credit substitutes                        165,266      165,266       156,131         156,131
        Transaction-related contingent items             320,588      160,294       433,562         216,781
        Short-term self liquidating trade-
          related contingencies                          467,536        93,508      482,815           96,563
        Other assets sold with recourse and
         commitment with certain drawdown                 52,355        52,355            -                -
        Underwriting obligation                                -             -       62,214           31,107
        Irrevocable commitments to extend
          credit
         -maturity more than 1 year                    3,802,453     1,901,227    3,856,852        1,928,426
         -maturity less than 1 year                    9,159,574             -    8,409,576                -
        Foreign exchange related contracts             7,134,359       141,981    4,714,804           64,229
        Interest rate related contracts               16,417,630        87,774    2,083,591           33,797
        Miscellaneous                                        718             -          556                -
        Total                                         37,520,479     2,602,405   20,200,101        2,527,034

   (b) Other commitments and contingencies – unsecured

       HLG Unit Trust Bhd, a wholly-owned subsidiary company of HLG Capital Berhad, is the
       Manager of HLG Sectoral Fund (“Funds”), which comprises five sector funds. HLG Capital
       Berhad has provided a guarantee to Universal Trustee (Malaysia) Berhad, the trustee of the
       Funds, that if any of the five sector funds fall below the minimum fund size of RM1 million,
       HLG Capital Berhad would invest cash, equivalent to the shortfall, into the relevant fund.

       The size of each of the five funds was above the minimum of RM1 million as at 31 March
       2005.


13. Related party transactions

   All related party transactions within the Group had been entered into in the normal course of
   business and were carried out on normal commercial terms.




                                                                                              Page 6 of 13
HONG LEONG CREDIT BERHAD (“HLC”)

ADDITIONAL INFORMATION REQUIRED BY THE BURSA MALAYSIA SECURITIES
BERHAD LISTING REQUIREMENTS



1. Review of performance
   Current quarter against previous corresponding quarter

   The Group achieved a profit before tax of RM197.2 million for the quarter ended 31 March 2005
   as compared to RM37.6 million in the previous corresponding quarter, an increase of RM159.6
   million or 400.2%. This was mainly due to higher profits from the Banking division.

   The Banking division recorded a profit before taxation of RM188.1 million for the current quarter
   as compared to a profit before taxation of RM41.8 million in the previous corresponding quarter,
   an increase of RM146.3 million or 350.0%. Loan loss provision declined significantly by
   RM149.2 million, as a result of lumpy provision provided in the previous corresponding quarter
   for several restructured and rescheduled loans.

   The Insurance division registered a profit before tax of RM10.2 million for the current quarter
   compared to a profit before tax RM14.0 million in the previous corresponding quarter. The
   decrease was mainly contributed by lower investment income and underwriting profits in the
   current financial quarter.

   The Stockbroking and Asset Management division registered a profit before tax of RM6.6 million
   for the current quarter compared to a profit before taxation of RM3.8 million in the previous
   corresponding quarter. The profit before taxation was lower in the previous corresponding quarter
   due to a foreign translation loss of RM4.4 million in the Translation Reserve charged to the
   Consolidated Income Statement.


   Financial year-to-date against previous corresponding period

   The Group recorded a higher pre-tax profit of RM581.0 million as compared to RM420.8 million
   in the previous corresponding period. This was mainly due to higher profits from the Banking
   division and savings in finance costs of RM7.4 million.

   The Banking division recorded a pre-tax profit of RM564.8 million, an increase of RM163.9
   million as compared to RM401.0 million in the previous corresponding period. Total income
   increased by RM56.6 million, mainly from non-interest income and Islamic operations. Loan loss
   provision declined significantly due to the absence of lumpy specific provisions made in the
   previous corresponding period.

   The Insurance division registered a profit before tax of RM20.2 million for the financial period
   ended 31 March 2005 compared to a profit before tax of RM51.9 million for the previous
   corresponding financial period. This was principally due to lower investment income a well as the
   lower underwriting profit. Investment income decreased against last corresponding period as a
   large portion of equity holdings were disposed off while taking advantage of the positive
   sentiments in the Malaysia Stock Exchange in that period.


                                                                                         Page 7 of 13
   The Stockbroking and Asset Management division registered a profit before taxation of RM16.1
   million compared to a profit before tax of RM22.1 million in the previous financial period. The
   lower profit before tax for the current financial period was due less favourable stock market
   conditions.


2. Review of performance of current quarter against preceding quarter

   For the current financial quarter under review, the Group recorded a profit before tax of RM197.2
   million as compared to RM188.8 million in the preceding financial quarter. This increase was
   mainly contributed by higher profits from the Banking division which recorded a higher profit
   before taxation of RM8.5 million to stand at RM188.1 million as compared to the preceding
   quarter.

   The Insurance division registered a profit before taxation of RM10.2 million for the current quarter
   as compared to RM10.0 million in the preceding financial quarter. The increase was due to higher
   underwriting profits earned in the current financial quarter.

   The Stockbroking and Asset Management division registered a profit before tax of RM6.6 million
   as compared to RM5.9 million in the preceding financial quarter. The higher profit before taxation
   in the current financial quarter was mainly due to higher revenue from sales of unit trust and
   management fee income which arose from the launch of the new HLG Dividend Fund and HLG
   Strategic Fund. However, this was partially off-set by the initial costs for the new trust funds
   launched.


3. Current year prospects

   Barring unforeseen circumstances, the Group is expected to perform satisfactorily for the
   remaining part of the financial year.


4. Variance of actual profit from forecasted profit

   There was no profit forecast or profit guarantee issued by the Group.




                                                                                            Page 8 of 13
5. Taxation

   Provision based on profits for the financial period ended 31 March 2005:
                                                     Group                          Group
                                               Current Quarter              Cumulative Quarter
                                                     Ended                        Ended
                                          31/03/2005       31/03/2004    31/03/2005    31/03/2004
                                            RM’000          RM’000         RM’000       RM’000
    Tax expenses
    Malaysian – current                         (55,881)       (19,091)     (174,192)     (130,949)
    Overseas – current                                  -         (105)             -         (105)

    Deferred tax expenses
    Malaysian – current                          2,000           5,100           9,552           5,537

    Tax expenses on share of profit
     from associated companies                     (15)              -            (30)            (90)
                                              (53,896)        (14,096)       (164,670)      (125,607)
    Prior year over/(under) provision
    - Malaysian                                  (165)           (450)           (165)                -
                                              (54,061)        (14,546)       (164,835)      (125,607)

   The effective tax rate for the Group for the current quarter and the financial period is higher than
   the statutory rate of taxation due to non-availability of Group tax relief in respect of losses
   incurred by certain subsidiaries in the Group and non-deductibility of certain expenses.


6. Sale of properties / unquoted investments

   There was no sale of properties and / or unquoted investments during the financial quarter / period
   under review.


7. Purchase / sale of quoted securities of the Group

   There was no other purchase or disposal of quoted securities for the financial period under review
   other than those purchased or disposed in the ordinary course of business.


8. Status of corporate proposals

   There were no corporate proposals announced but not completed other than as mentioned below:

   (a) On 11 January 2005, Allstate Health Benefits Sdn Bhd (“AHB”), a wholly-owned subsidiary
       of Hong Leong Assurance Berhad which in turn is 100% owned by the Company, had entered
       into a Sale and Purchase Agreement with Dao Heng Enterprises Limited (“DHE”) for the
       proposed acquisition of 500,000 ordinary shares of HKD100.00 each representing 100% of
       the issued and paid-up share capital of Dao Heng Insurance Co., Limited for a cash
       consideration of HKD152,551,910 (or approximately RM74,750,436) (HKD1 = RM0.49)
       (hereinafter referred to as the “Acquisition”).
                                                                                            Page 9 of 13
        The acquisition was completed on 6 April 2005.

   (b) On 28 January 2005, HLG Capital Berhad (“HLG Capital”), a 75% subsidiary of the Company,
       had entered into a Memorandum of Agreement with DHG Capital Holdings, Inc (“DHG”) and
       HLG Philippines, Inc (“HPI”) to dispose of 51 million common shares of stock of HPI
       representing 100% equity interest in HPI to DHG for a cash consideration of Peso 141,433,000
       (or approximately RM9.52 million) (Peso 1 = RM0.0673) (hereinafter referred to as the
       “Disposal”).

        The Disposal was completed on 29 March 2005.


9. Group borrowings

   The Group borrowings include:
                                                                        As at               As at
                                                                       31/03/05            30/06/04
                                                                       RM’000              RM’000

   Short Term – unsecured                                              210,000             216,800
   Long Term – unsecured                                               300,000             300,000
   Total                                                               510,000             516,800

   All borrowings are denominated in Ringgit Malaysia.


10. Off-Balance Sheet financial instruments
   The Banking Group has incurred the following:
                           Principal    1 mth      >1 – 3    >3 – 6    >6 –12     >1 – 5    >5 yrs      Margin
          Items            Amount       or less    Mths      mths       Mths       Yrs                Requirement
         RM’000
   Foreign exchange
   related contracts
   - forwards               1,864,183 1,245,241    408,597   175,792    34,553      -          -           -
   - swaps                  4,388,020 3,033,546    789,632   507,842    57,000      -          -           -
   - options                  882,156 634,861      247,295     -         -          -          -           -

   Interest rate related
    contracts
    - forwards                 -           -         -         -         -          -          -           -

    - futures              12,286,147     20,309 1,143,880 1,046,000 2,078,880 7,997,078       -           -

    - swaps                 4,131,483     50,000   370,000    20,000    58,880 3,632,603       -           -


   Total                   23,551,989 4,983,957 2,959,404 1,749,634 2,229,313 11,629,681       -           -


   Foreign exchange, interest rate, equity and commodity related contracts are subject to market risk
   and credit risk.
                                                                                               Page 10 of 13
    Market risk

    Market risk is the potential change in value caused by movement in market rates or prices. The
    contractual amounts stated above provide only a measure of involvement in these types of
    transactions and do not represent the amount subject to market risk. Exposure to market risk may
    be reduced through offsetting on and off-balance sheet positions. As at the end of the financial
    period, the amount of contracts which were not hedged and hence, exposed to foreign exchange
    and interest rate market risk were RM560,253,926 (FYE June 2004: RM228,765,000) and
    RM15,564,805,764 (FYE June 2004: RM1,533,591,000) respectively.

    Credit risk

    Credit risk arises from the possibility that a counter-party may be unable to meet the terms of a
    contract in which the Group has a gain position. As at the end of the financial period, the amount
    of credit risk, measured in terms of the cost to replace the profitable contracts, was RM63,099,699
    (FYE June 2004: RM10,689,000). This amount will increase or decrease over the life of the
    contracts, mainly as a function of maturity dates and market rates or prices.

    Related accounting policies

    The accounting policies applied for recognising the financial instruments concerned are the same
    as those applied for the audited annual financial statements.


11. Material litigation

    The Company was served with a Writ of Summons dated 21 March 2002 filed by Borneo
    Securities Holdings Sdn Bhd (“BSH”) in relation to the termination of the Sale and Purchase
    Agreement (“SPA”) dated 31 October 2000 between HLG Securities Sdn Bhd (“HLG Sec”) and
    BSH for the proposed acquisition of 100% equity interest in Borneo Securities Sdn Bhd (“BS”)
    for a total purchase consideration of RM88 million comprising RM31 million cash and the
    balance RM57 million to be satisfied through the issue of new HLG shares to BSH (“Proposed
    Acquisition”). In conjunction with the Proposed Acquisition, BSH issued a letter to HLC
    undertaking to give HLC a first right of refusal to purchase any or all of the new HLG shares that
    BSH may, from time to time, wish to sell (“Undertaking”).

    In view of the Undertaking, HLC was deemed interested in the Proposed Acquisition and in
    compliance with the rules on related party transactions of the Bursa Malaysia Securities Berhad,
    HLC had to abstain from voting at the extraordinary general meeting (“EGM”) of HLG convened
    to consider the Proposed Acquisition. BSH alleged that HLC ought not to have abstained from
    voting at the EGM and in so doing, had caused the SPA to be terminated. The Company is of the
    view that the claim is baseless and had appointed lawyers to defend the suit.

    Other than the above case, there is no pending material litigation.




                                                                                           Page 11 of 13
12. Dividends

  (a)    An interim dividend of 8 sen per share less income tax at 28% amounted to RM59,945,601
         was paid on 28 December 2004.

  (b) A second interim dividend of 10 sen per share tax-exempt has been recommended during the
      third quarter.

           (i)     Amount per share: 10 sen per share (tax-exempt)
           (ii)    Previous corresponding quarter: 7 sen per share (tax-exempt)
           (iii)   Entitlement date: 17 June 2005
           (iv)    Payment date: 29 June 2005

  (c) Total dividend for the financial period: 8 sen per share less income tax at 28% and 10 sen per
      share tax-exempt


13. Earnings per share

   (a) Basic earnings per share

        Basic earnings per share is calculated by dividing the profit after taxation and minority interest
        by the weighted average number of ordinary shares in issue during the financial period.


                                                          Group                               Group
                                                  Current Quarter Ended             Financial Period Ended
                                               31/03/05           31/03/04         31/03/05           31/03/04
        Weighted Average Number Of
                                               RM’000             RM’000           RM’000             RM’000
        Ordinary Shares
        Weighted average number of
        ordinary shares                           1,040,722          1,040,504        1,040,722          1,040,368
        Net profit attributable to
        shareholders of the company                  88,205               10,235       252,735             178,000
        Basic earnings per share (Sen)                    8.5                1.0              24.3               17.1




                                                                                                 Page 12 of 13
(b) Fully diluted earnings per share

   Diluted earnings per share is calculated by dividing the profit after taxation and minority
   interest by the weighted average number of ordinary shares (diluted) during the financial
   period.

                                                Group                              Group
                                         Current Quarter Ended             Financial Period Ended
                                       31/03/05          31/03/04         31/03/05         31/03/04

   Fully Diluted Weighted Average      RM’000           RM’000            RM’000           RM’000
   Number Of Ordinary Shares
   Weighted average no. of shares as
   at end of financial period             1,040,722        1,040,504         1,040,722        1,040,368
   Effect of share options                      330                 692            330                691
   Weighted average number of
   ordinary shares (Diluted)              1,041,052        1,041,196         1,041,052        1,041,059
   Net profit attributable to
   shareholders of the company               88,205           10,235          252,735           178,000
   Fully diluted earnings per share
   (Sen)                                         8.5                1.0            24.3               17.1




                                                                                      Page 13 of 13

				
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