interim report 2100.pdf · management discussion and analysis business review the group’s...

INTERIM REPORT

1 Financial Highlights

2 Management Discussion and Analysis

11 Consolidated Profit and Loss Account

12 Consolidated Statement of Recognised Gains

and Losses

13 Consolidated Balance Sheet

14 Condensed Consolidated Cash Flow Statement

15 Notes on the Unaudited Interim Financial Report

28 Additional Information Provided In Accordance

With The Main Board Listing Rules

34 INDEPENDENT REVIEW REPORT

Web-site Addresses:

Vitasoy International Holdings Limited — www.vitasoy.com (English & Chinese)

Vitaland Services Limited — www.vitaland.com.hk (Chinese only)

Hong Kong Gourmet Limited — www.hkgourmet.com.hk (Chinese only)

Vitasoy USA Inc. — www.vitasoy-usa.com (English only)

Nasoya Foods Inc. — www.nasoya.com (English only)

Shenzhen Vitasoy (Guang Ming) Foods & Beverage Company Limited — www.vitasoy.com.cn (Chinese only)

Vitasoy Australia Products Pty. Limited — www.vitasoy.com.au (English only)

FINANCIAL HIGHLIGHTS

Six months ended

30th September,

2001

(Unaudited)

2000

(Unaudited)

HK$ million HK$ million

Turnover 1,104 1,004

Profit Attributable to Shareholders 49 66

Basic Earnings per Share (HK cents) 5.0 6.7

Diluted Earnings per Share (HK cents) 5.0 6.7

Interim Dividend per Share (HK cents) 2.8 2.8

Notes:

1. Basic Earnings per Share is calculated on a weighted average basis.

2. Diluted Earnings per Share is calculated on a weighted average basis and is after adjusting for the

effects of all dilutive potential shares.

INTERIM REPORT

1

MANAGEMENT DISCUSSION AND ANALYSIS

Business review

The Group’s consolidated turnover for the six months ended 30th September, 2001 was

HK$1,104 million, compared with HK$1,004 million for the same period last year, showing a

10% growth. Profit attributable to shareholders was HK$49 million, compared with HK$66

million for the corresponding six months last year, down by 26%. This decline in profit was

attributable primarily to the start-up cost of the new plant in Australia and the costs associated

with the launch of fresh soymilk and seasoned tofu products in the US aimed at developing our

global markets. While we recognise that these costs have had a negative impact on the

Group’s performance in the short term, we feel strongly that they are a crucial part of

investment in the VITASOY brand, as well as in our long-term market development.

Hong Kong

Hong Kong’s production plant supports both the domestic sales and export markets. We are

pleased with the continuing strong growth in our export markets and the steady sales growth in

the competitive local market.

1. Hong Kong Domestic Market

The poor retail environment in Hong Kong over the past few years has caused the

closure of several general trade outlets, as well as one of the largest supermarket chains

in the Special Administrative Region, having an adverse effect on our business.

Nevertheless, the Group continued to enhance its responsiveness to market conditions

through its ongoing pursuit of total quality management. The strategies of a corporate

purchasing function and new sourcing contributed to the improvement in the gross

margin. In addition, we achieved increased efficiency through the use of information

technology and intensive training programs, which helped to streamline costs.

More recently, over the past six months, our competitors have become very active in the

Hong Kong market, using a low retail pricing strategy to gain market share and

distribution within the general trade. Despite the difficult trading environment, we

improved sales by around 7% over last year. This was made possible by the launch of

15 new products and effective marketing campaigns for the GOR YIN HAI Fruity Tea

range and the VITA Green Tea range. Our most successful product launch was the GOR

INTERIM REPORT

2

YIN HAI range of specially formulated light fruit teas and flavoured waters, whose

packaging featured happy, smiling fruit faces designed specifically to appeal to the

young and the young at heart. We also saw good sales of our VITA Apple Green Tea, Q

Ban (child’s size) VITA Yoghurt Flavoured Drink featuring a duckling design, VITA

Supreme Coffee in its premium slim metallic tetra pak container and Fresh VITA Family

Milk with its ‘‘value for money’’ positioning.

We also launched a pilot Home Delivery Service for our products, available to

customers who use our VITA Distilled Water Carboy, and established an Internet-based

ordering system to complement this service.

Recognition of our success came with our VITASOY brand being elected one of the top

10 favourite brands in a poll organised by one of Hong Kong’s biggest supermarket

chains.

Over the past six months, Vitaland Services Limited continued the steady expansion of

its tuckshop business, adding 22 operating outlets to reach a total of 166 during the

period. Business turnover saw substantial growth due to this increase.

In order to ensure the quality of lunch boxes provided to our tuckshops, as well as to

meet the growing demand for school meals, Vitaland Services Limited made a modest

capital investment in the establishment of a central production kitchen under the name of

Hong Kong Gourmet Limited, which provides high-quality, wholesome lunch boxes and

services to the Hong Kong school community.

2. Export Markets

We are actively building our export markets by launching new products in current

markets and developing new markets.

Our largest growth has come from Europe, where we saw a 77% increase in volume.

This can be attributed to the start of new businesses in Spain and Croatia, as well as

aggressive sales in the UK. The new products launched recently in Hong Kong were also

made available for export, while the sale of the 250ml VITASOY Natural Soymilk

product in the UK supermarket chain J.S. Sainsbury has boosted our position

considerably.

INTERIM REPORT

3

Macau also showed a strong domestic growth in sales of 12% as our new ranges of

GOR YIN HAI Fruity Tea and VITA Green Tea were readily accepted by consumers.

North America

During the six months ended 30th September, 2001, our sales in North America increased by

a healthy 14% over the same period last year, with the overall soymilk category rising by 23%

and tofu by 11%. In an effort to boost our product base, we introduced our seasoned and

baked tofu product and are pleased to note that its distribution is gaining ground.

Because of the high costs associated with the launch of Refrigerated VITASOY Natural Soymilk

in the dairy sections of mainstream supermarket chains, we continued our strategy of regional

market development by selectively targeting the prime distribution outlets in the North-east and

on the East Coast. This effective strategy resulted in our strong sales performance.

The soymilk market remains very competitive in North America. Trade and consumer

promotions in the market have resulted in extremely competitive pricing, but we are delighted

that Refrigerated VITASOY Natural Soymilk has taken over the Number Two spot ahead of our

competitors in New England and New York.

We also remain the market leader in the unseasoned tofu category, with, according to data

from A. C. Nielsen, almost a 50% share of the national retail market. Growth in the tofu

category will continue to be driven by the introduction of such innovative new products as our

seasoned Baked Tofu products.

Despite this, in the period up to September this year, we experienced broader losses in North

America than over the same period last year, due primarily to increased expenditure on

advertising and promotions, especially for Refrigerated VITASOY Natural Soymilk, which

included for the first time a TV commercial broadcast in a few key cities on the East Coast. This

loss is however viewed as market development investment and our long-term commitment to a

growing category rather than as a periodic expense.

INTERIM REPORT

4

The Mainland

The production plants in the Mainland support both domestic sales and export sales to the

Hong Kong market.

1. The Mainland Domestic Market

This market saw mixed results in terms of sales during the period under review.

Despite a very competitive environment, the Group achieved healthy growth in both

sales value and sales volume in Southern China, attributable mainly to the continuing

success of VITASOY Soymilk and VITA Tea in returnable bottles in the Guangdong

market, as well as the introduction of new flavours and new package designs supported

by aggressive advertising and promotional campaigns.

However, the positive growth in Southern China was offset by the expected decline in

sales caused by measures to trim discounts and consolidate distribution channels, as

well as to streamline unprofitable products in Eastern China. For example, we

implemented a range of key initiatives in the first half of the year, which aimed to

improve overall efficiency and reduce operating losses at the Shanghai plant. The

results were very much within our expectations. Our next step is to launch new,

profitable products in PET plastic bottles next year.

Overall, the non-alcoholic beverage market in the Mainland is showing encouraging

growth, fueled particularly by the ready-to-drink tea and juice segments. Water and

carbonated drinks also continued their upward trend, although soymilk remained soft

with an estimated growth rate for the year of 5%.

2. Export to the Hong Kong Market

During the interim period under review, sales to the Hong Kong market have fallen in

line with our target to allocate more capacities to future domestic growth in the

Mainland.

INTERIM REPORT

5

Australia and New Zealand

Further boosting our position in Australia was the commencement of operations at our new

joint venture plant in Wodonga, Victoria, which marked another step in the Group’s long-term

market diversification. The new plant carries production lines for both refrigerated and UHT

(ultra high temperature) soymilk.

The joint venture is a result of close collaboration between our Group and National Foods

Limited of Australia, and makes full use of the synergy each party brings to the relationship.

Our main area of contribution was our technical know-how, garnered over 60 years of

experience in soymilk production. National Foods Limited, Australia’s largest listed dairy

company, contributed its comprehensive knowledge of the distribution system in the Australian

market.

During the interim period under review, the joint venture completed a national launch of

domestically produced Refrigerated VITASOY Natural Soymilk in key supermarket chains

across Australia, supported by strong marketing campaigns. It may still be too early to gauge

the product’s acceptance by the market but the initial reception was encouraging.

The start-up cost of the new plant, and the advertising and promotion expenses associated with

the launch of domestic production largely accounted for the losses experienced in the six

months ended 30th September, 2001.

Associate

Despite the tough economic environment and a competitive operating environment, Sodexho

(Hong Kong) Limited generated a higher operating profit, driven mainly by a strategic plan to

create added-value services for its customers and a consolidation of operations. The gains

were however completely eroded by the write off of certain intangible assets for the six months

ended 30th September, 2001.

General outlook

The market situation in Hong Kong is expected to become even more difficult over the next 18

months due to recession. This will place greater pressure on our margins, with promotional

activities becoming even more aggressive as companies fight to protect volume in a shrinking

INTERIM REPORT

6

spending environment. As we introduce more new products over the coming months and spend

more in marketing our core products, we expect to further improve our volume and total market

share, but with some erosion of our profit margin.

We expect Vitaland Services Limited’s tuckshop business to continue its expansion. With the

establishment of Hong Kong Gourmet Limited, we are broadening our product and service

range, and providing one-stop-shop services for our customers.

In North America, the general outlook remains cautious under current economic conditions,

although we project finishing fiscal year 2001/2002 with solid growth in sales compared with

last year. Guided by the experience and strength of a new president and CEO, the Vitasoy

USA Group is currently undergoing restructuring wherein the West Coast operation will move

to the East Coast to be consolidated into a single operation. We expect this move to achieve

substantial long-term savings in operational costs. The West Coast sales team will remain in

place to serve existing customers and source new ones. Measures have also been taken to scale

back some of the planned increases in marketing expenses in the second half of the year in

order to concentrate on existing Refrigerated VITASOY Natural Soymilk outlets in strategic

markets.

In the Mainland, we aim to consolidate the Group’s leading position in the ready-to-serve

premium soymilk markets in Eastern and Southern China. We will also continue efforts to

execute critical sales and distribution strategies in new channels and markets; introduce trendy,

healthy and profitable new products; and improve operating efficiency by controlling

production and administrative costs. Overall, we expect a steady business environment for

the Group’s products in the Mainland for the remainder of the year.

Meanwhile, in Australia, we have seen some slowdown in the overall soymilk market growth

over the past few months, due partly to lower advertising and marketing support for the

category and partly to pricing pressure from the deregulation of the dairy industry. However

we anticipate that the growing health consciousness of consumers and increased publicity of

the health benefits of soy foods in this market will result in a future growth in sales. With our

Wodonga plant now in production, our presence in Oceania has been greatly enhanced,

improving our ability to deliver chilled products directly to retail outlets throughout Australia.

We are optimistic that we are well positioned to leverage on future market growth.

INTERIM REPORT

7

Generally, as the worldwide recession deepens, it is likely that sales in our export markets in

Europe and South East Asia will decline as we price our products at premium levels compared

to local players. However, we will continue to explore new markets and introduce new

products, and expect to equal last year’s sales figures even after excluding the Australia and

New Zealand volume.

Employment, training, development and remuneration policy

The Group employs a total of 3,152 people worldwide and adopts a competitive remuneration

package for its employees. Promotion and salary adjustments are assessed on a performance-

related basis, and the Group sponsors external training and education programs to improve

work performance and long-term career development.

The Group’s overall policies on human resources management and details of the share options

scheme remain unchanged from those described in the 2000/2001 Annual Report.

Capital expenditure

During the interim period, the Group’s capital expenditure totalled HK$55 million (2000:

HK$40 million). This expenditure was funded partly by internal resources and partly by bank

borrowings. A major portion of the capital expenditure went to the acquisition of sales

equipment, balancing payment on the construction of the manufacturing plant in Australia and

the expansion of our tuckshop business in Hong Kong.

Liquidity and financial resources

As at 30th September, 2001, the Group had a healthy net cash position of HK$121 million

(31st March, 2001: HK$159 million). Undrawn facilities available to the Group totalled

HK$287 million.

The Group’s total borrowings as at 30th September, 2001 amounted to HK$285 million (31st

March, 2001: HK$241 million). The maturity profile is spread over a period of five years, with

HK$237 million repayable in the first year, HK$10 million in the second year and HK$38

million within the third to the fifth years. The amounts of borrowings denominated in US

dollars, Renminbi and Australian dollars were the equivalent of HK$127 million, HK$79

million and HK$71 million respectively, in addition to HK$8 million in Hong Kong dollars.

INTERIM REPORT

8

The Group continued to maintain a low gearing ratio, calculated on the Group’s borrowings of

HK$285 million (31st March, 2001: HK$241 million) over the shareholders’ fund of

HK$1,175 million (31st March, 2001: HK$1,178 million), at 0.24 at the interim period end

date.

With adequate funds and as yet unused banking facilities, the Group’s liquidity position

remains strong, with sufficient financial resources to meet current commitments and working

capital requirements.

Charges on group assets

As at 30th September, 2001, assets of the Group with an aggregate carrying value of HK$342

million (31st March, 2001: HK$330 million) were pledged to secure loan facilities used by

subsidiaries.

Financial risk management

The Group maintains a prudent approach to foreign exchange exposure management, with

income and expenditure streams denominated mainly in Hong Kong dollars, US dollars,

Australian dollars and Renminbi. To manage currency risks, non-Hong Kong dollar assets are

financed primarily by matching local currency debts as far as possible. Forward foreign

exchange contracts are also used to cover future currency risks associated with major

committed capital expenditure programs, when appropriate.

The cost of major raw and packaging materials remained stable during the period under

review. The strategy of making the Mainland our chief source of materials while continuing to

explore alternative sources in other parts of the world proved effective in containing costs. The

Group’s consistent policy of covering forward purchases of key commodities based on

production plans has helped to stabilise production costs.

Payment terms with customers are largely on credit. In order to minimise the credit risks

associated with trade receivables, credit evaluations of debtors are performed periodically

and, when appropriate, security is obtained. Bad debts have been insignificant.

INTERIM REPORT

9

Vote of thanks

We were deeply saddened by the passing of Mr. Eoghan Murray McMillan, an Independent

Non-executive Director of the Company, on 2nd October, 2001. Mr. McMillan, who was

appointed to the Board in September 1993, will be remembered as a brilliant and zealous co-

worker, and for his insightful guidance and valuable contribution to the Company throughout

the past eight years.

INTERIM REPORT

10

CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the six months ended 30th September, 2001 — Unaudited

(Expressed in Hong Kong dollars)

Six months ended

30th September,

2001 2000Note $’000 $’000

Turnover 2 1,103,522 1,003,941Cost of sales (490,594) (448,879)

Gross profit 612,928 555,062Other revenue 14,255 14,917Marketing, selling and distribution expenses (422,865) (360,712)Administrative expenses (74,809) (71,017)Other operating expenses (57,051) (46,371)

Profit from operations 2 72,458 91,879Finance cost 3 (8,394) (6,141)Share of losses of associates (3,207) (86)

Profit from ordinary activities before

taxation 3 60,857 85,652Taxation 4 (18,050) (16,579)

Profit from ordinary activities after

taxation 42,807 69,073Minority interests 5,919 (3,380)

Profit attributable to shareholders 13 48,726 65,693

Dividend — interim declared 5 27,233 27,287

Earnings per share 6Basic 5.0 cents 6.7 cents

Diluted 5.0 cents 6.7 cents

The notes on pages 15 to 27 form part of this interim financial report.

INTERIM REPORT

11

CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES



Six months ended

30th September,

2001 2000

Note $’000 $’000

Exchange differences on translation of the accounts

of foreign subsidiaries 13 122 (1,970)

Net gains/(losses) not recognised

in the profit and loss account 122 (1,970)

Net profit for the period 48,726 65,693

Total recognised gains and losses 48,848 63,723


INTERIM REPORT

12

CONSOLIDATED BALANCE SHEET

At 30th September, 2001 — Unaudited


At 30th September, 2001Restated

At 31st March, 2001

Note $’000 $’000 $’000 $’000

Non-current assetsFixed assets 909,629 904,107Interest in associates 11,907 14,860Long-term loans 7 2,065 6,101

923,601 925,068

Current assetsInventories 8 218,113 224,085Trade and other receivables 9 379,239 316,667Bank deposits maturing in

more than three months 275,345 72,769Cash and cash equivalents 10 130,782 326,922

1,003,479 940,443

Current liabilitiesCurrent portion of bank loans

and bank overdrafts 237,356 185,377Trade and other payables 11 346,130 335,905Taxation 33,058 21,004

616,544 542,286Net current assets 386,935 398,157

Total assets less currentliabilities 1,310,536 1,323,225

Non-current liabilitiesInterest-bearing borrowings 47,904 55,531Provision for retirement

gratuities and longservice payments 40,513 37,956

Deferred taxation 11,447 10,697

99,864 104,184Minority interests 35,765 41,166

NET ASSETS 1,174,907 1,177,875

CAPITAL AND RESERVESShare capital 12 243,148 243,631Reserves 13 931,759 934,244

1,174,907 1,177,875


INTERIM REPORT

13

CONDENSED CONSOLIDATED CASH FLOW STATEMENT



Six months ended

30th September,

2001 2000

$’000 $’000

Net cash inflow from operating activities 70,331 72,781

Net cash outflow from returns on investment

and servicing of finance (49,996) (41,926)

Tax paid (5,241) (4,439)

Net cash outflow from investing activities (253,071) (52,341)

Net cash outflow before financing (237,977) (25,925)

Net cash inflow from financing 115,170 8,749

Decrease in cash and cash equivalents (122,807) (17,176)

Effect of foreign exchange rates (402) (411)

Cash and cash equivalents at 1st April 236,623 151,949

Cash and cash equivalents at 30th September 113,414 134,362

Analysis of the balances of cash

and cash equivalents

Bank deposits maturing within three months 87,990 104,178

Cash at bank and in hand 42,792 56,792

Bank loans repayable within three months

and bank overdrafts (17,368) (26,608)

113,414 134,362


INTERIM REPORT

14

NOTES ON THE UNAUDITED INTERIM FINANCIAL REPORT


1. Basis of preparation

This interim financial report is unaudited, but has been reviewed by KPMG in

accordance with Statement of Auditing Standards 700 ‘‘Engagements to review interim

financial reports’’, issued by the Hong Kong Society of Accountants (‘‘HKSA’’). KPMG’s

independent review report to the Board of Directors is included on page 34 to 35.

The interim financial report has been prepared in accordance with the requirements of

the Main Board Listing Rules of The Stock Exchange of Hong Kong Limited, including

compliance with Statement of Standard Accounting Practice 25 ‘‘Interim financial

reporting’’ issued by the HKSA.

The financial information relating to the financial year ended 31st March, 2001

included in the interim financial report does not constitute the statutory accounts of the

Company and its subsidiaries (the ‘‘Group’’) for that financial year but is derived from

those accounts. Statutory accounts for the year ended 31st March, 2001 are available

from the Company’s registered office. The auditors have expressed an unqualified

opinion on those accounts in their report dated 12th July, 2001.

The same accounting policies adopted in the 2000/2001 annual accounts have been

applied to the interim financial report except for the change in accounting policy with

respect to dividend recognition as described below.

In prior years, dividends proposed or declared were recognised as a liability in the

accounting period to which they related. With effect from 1st April, 2001, in order to

comply with Statement of Standard Accounting Practice 9 (revised) ‘‘Events after the

balance sheet date’’, issued by the HKSA, the Group recognises dividends proposed or

declared as a liability in the accounting period in which they are declared by the

directors (in the case of interim dividends) or approved by the shareholders (in the case

of final dividends). As a result of this change in accounting policy, the Group’s net

assets at 30th September, 2001 have been increased by $27,233,000 (at 31st March,

2001: $49,701,000). There is no impact on the Group’s profit attributable to

shareholders for the periods presented. This new accounting policy has been adopted

retrospectively, with the opening balance of retained profits and the comparative

information adjusted for the amounts relating to prior periods.

INTERIM REPORT

15

1. Basis of preparation (continued)

The notes on the interim financial report include an explanation of events and

transactions that are significant to an understanding of the changes in the financial

position and performance of the Group since the 2000/2001 annual accounts.

2. Asset-based geographical segmentation

The analysis of the geographical location of the operations of the Group during the

period is as follows:

Six months ended 30th September,

Group Turnover

Operating Profit

Before Finance Cost

2001 2000 2001 2000

$’000 $’000 $’000 $’000

Hong Kong 606,766 501,518 82,951 71,884

North America 239,924 207,530 (25,556) (10,597)

The Mainland 252,956 294,893 32,927 37,415

Australia and

New Zealand 3,876 — (8,668) (563)

1,103,522 1,003,941 81,654 98,139

Unallocated — — (9,196) (6,260)

1,103,522 1,003,941 72,458 91,879

Asset-based segment reporting is in line with the Group’s internal management

information reporting system. No business segment analysis of the Group’s turnover

and trading result is presented as all the Group’s turnover and trading result are

generated from manufacture and distribution of food and beverages.

INTERIM REPORT

16

3. Profit from ordinary activities before taxation

Profit from ordinary activities before taxation is arrived at after (crediting)/charging:

Six months ended

30th September,

2001 2000

$’000 $’000

Interest income (8,092) (10,873)

Interest on borrowings 8,394 6,141

Depreciation 49,105 43,960

4. Taxation

Six months ended

30th September,

2001 2000

$’000 $’000

Hong Kong taxation 16,205 15,465

Overseas taxation 1,090 1,302

Deferred taxation 749 (203)

18,044 16,564

Share of associates’ taxation 6 15

18,050 16,579

The provision for Hong Kong profits tax is calculated at 16% (2000: 16%) of the

estimated assessable profits for the period. Taxation for subsidiaries outside Hong Kong

is similarly charged at the appropriate current rates of taxation ruling in the relevant

countries.

INTERIM REPORT

17

5. Dividends

(a) Dividends attributable to the interim period

Six months ended

30th September,

2001 2000

$’000 $’000

Interim dividend declared after the interim period

end of 2.8 cents per share (2000: 2.8 cents

per share) 27,233 27,287

The interim dividend declared after the interim period end has not been

recognised as a liability at the interim period end date.

(b) Dividends attributable to the previous financial year, approved and paid during

the interim period

Six months ended

30th September,

2001 2000

$’000 $’000

Final dividend in respect of the previous financial

year, approved and paid during the interim

period, of 5.1 cents per share (2000: 4.5

cents per share, adjusted for the bonus issue in

September 2000 as set out in note (i)) 49,701 43,520

Note:

(i) Pursuant to an ordinary resolution passed at the annual general meeting held on 6th

September, 2000, a bonus issue of 324,777,000 shares, credited as fully paid, was

made by way of capitalisation of $81,194,000 from retained profits on the basis of

one new share for every two existing shares held on 6th September, 2000.

INTERIM REPORT

18

6. Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by using the profit attributable to

shareholders of $48,726,000 (2000: $65,693,000) and the weighted average

number of 974,417,000 shares (2000: 974,402,000 shares) in issue during the

period.

(b) Diluted earnings per share

The calculation of diluted earnings per share is based on the profit attributable to

shareholders of $48,726,000 (2000: $65,693,000) and the weighted average

number of 976,113,000 shares (2000: 974,951,000 shares) in issue during the

period after adjusting for the effects of all dilutive potential ordinary shares.

(c) Reconciliation

Six months ended

30th September,

2001 2000

Number of

Shares

Number of

Shares

’000 ’000

Weighted average number of shares used

in calculating basic earnings per share 974,417 974,402

Deemed issue of shares for no

consideration arising from share

options 1,696 549

Weighted average number of shares used

in calculating diluted earnings per

share 976,113 974,951

INTERIM REPORT

19

7. Long-term loans

Pursuant to an agreement entered into on 20th January, 2000, which was disclosed as

a connected transaction under the Main Board Listing Rules of The Stock Exchange of

Hong Kong Limited, the Company has a commitment to provide financial assistance of

up to $30,000,000 to the Guang Ming Farm, the substantial shareholder of the

Company’s subsidiary, The Shenzhen Vitasoy (Guang Ming) Foods and Beverage

Company Limited. Guang Ming Farm has drawn loans totalling $20,000,000 under this

agreement and part of them have been repaid. The outstanding loans are interest

bearing and are repayable as follows:

At 30th

September,

At 31st

March,

2001 2001

$’000 $’000

Within one year (Note 9) 6,562 6,129

After one year 2,065 6,101

8,627 12,230

The Company has financed the loans with bank facilities established for this purpose.

The balance of the utilised banking facilities as at 30th September, 2001 is included in

the current portion of bank loans and bank overdrafts.

8. Inventories

At 30th September, 2001, the amount of inventories of the Group carried at net

realisable value was $512,000 (31st March, 2001:$362,000).

INTERIM REPORT

20

9. Trade and other receivables

At 30th

September,

At 31st

March,

2001 2001

$’000 $’000

Debtors and prepayments 372,677 310,538

Current portion of long-term loans (Note 7) 6,562 6,129

379,239 316,667

Included in debtors and prepayments are trade debtors and bills receivable (net of

provisions for bad and doubtful debts) with the following ageing analysis:

At 30th

September,

At 31st

March,

2001 2001

$’000 $’000

0 – 3 months 293,959 238,425

4 – 6 months 40,179 41,833

Over 6 months 526 722

334,664 280,980

Deposits, prepayments and other debtors 38,013 29,558

372,677 310,538

The credit terms given to the customers vary and are generally based on the financial

strength of individual customers. In order to effectively manage the credit risks

associated with trade debtors, credit evaluations of customers are performed

periodically.

INTERIM REPORT

21

10. Cash and cash equivalents

At 30th

September,

At 31st

March,

2001 2001

$’000 $’000

Bank deposits 87,990 278,437

Cash at bank and in hand 42,792 48,485

130,782 326,922

At 30th September, 2001, cash at bank and in hand of the Group pledged as security

for liabilities was $16,223,000 (31st March, 2001: $12,429,000).

11. Trade and other payables

Included in trade and other payables are creditors and bills payable with the following

ageing analysis:

At 30th

September,

At 31st

March,

2001 2001

$’000 $’000

0 – 3 months 197,790 160,315

4 – 6 months 6,795 2,623

Over 6 months 1,311 2,229

205,896 165,167

Accrued expenses and other payables 125,234 155,319

Provision for retirement gratuities and long

service payments 15,000 15,419

346,130 335,905

INTERIM REPORT

22

12. Share capital

Number

of shares Amount

’000 $’000

Authorised at 30th September, 2001:

Shares of $0.25 each 3,200,000 800,000

Issued and fully paid:

At 1st April, 2001 974,526 243,631

Shares repurchased (note (a)) (1,930) (483)

At 30th September, 2001 972,596 243,148

Notes:

(a) During the period, the Company repurchased 1,930,000 of its shares on The Stock

Exchange of Hong Kong Limited, all of which were then cancelled, for consideration

totalling $2,115,000. The nominal value of the cancelled shares was credited to capital

redemption reserve and the consideration was paid out of retained profits. Details of the

shares repurchased are as follows:

Month of

repurchase

Number of

shares

Price per share Aggregate

amountHighest Lowest

(’000) $ $ $’000

September 2001 1,930 1.15 1.04 2,115

INTERIM REPORT

23

12. Share capital (continued)

(b) During the period, no share option was exercised to subscribe for shares in the Company.

At 30th September, 2001, options to subscribe for 36,027,000 shares under the

Company’s share option scheme were unexercised (31st March, 2001: 62,721,000

shares). The options may be exercised in periods up to 31st July, 2003 and 31st August,

2005 at prices of $1.104 and $1.193 per share respectively.

On 9th March, 1994, the Company adopted a share option scheme under which the

Directors may, at their discretion on or before 9th March, 2004, grant options to eligible

Directors and employees to subscribe for shares of $0.25 each in the Company. At 30th

September, 2001, the outstanding options granted under the schemes were:

Date granted

Period during which

options are exercisable

Price per share

to be paid on

exercise of

options

$

Number of

shares

acquired on

exercise of

options

during the

period

Number of

options

forfeited

during the

period on

resignation

of eligible

employees

Number of

options

expired

during the

period

Number of

options

outstanding

as at 30th

September,

2001

28th June, 1994 31/5/1995 — 31/5/2001 1.435 Nil 787,500 17,298,750 Nil

3rd September, 1996 4/9/1996 — 3/9/2001 1.275 Nil 281,250 6,899,250 Nil

28th June, 1998 1/8/1998 — 31/7/2003 1.104 Nil 2,250 Nil 10,299,000

4th July, 2000 7/9/2000 — 31/8/2005 1.193 Nil 1,425,000 Nil 25,728,000

INTERIM REPORT

24

13. Reserves

Movements on reserves comprise:

At 30th

September,

At 31st

March,

2001 2001

$’000 $’000

Share premium

At 1st April 267,574 267,407

Premium on issue of shares — 167

At 30th September/31st March 267,574 267,574

Capital reserve

At 1st April 108,261 112,348

Transfer to profit and loss account (2,043) (4,087)


Capital redemption reserve

At 1st April 618 558

Repurchase of own shares 483 60

At 30th September/31st March 1,101 618

Legal reserve

At 1st April 2,928 1,766

Transfer from profit and loss account 1,743 1,162


INTERIM REPORT

25

13. Reserves (continued)

At 30th

September,

At 31st

March,

2001 2001

$’000 $’000

General reserve

At 1st April and 30th September/31st March 2,261 2,261

Exchange reserve

At 1st April (35,853) (31,439)

Exchange differences arising on consolidation 122 (4,414)

At 30th September/31st March (35,731) (35,853)

Profit and loss account

At 1st April as previously reported 538,754 566,232

Effect of adopting SSAP 9 (revised) (Note 1) 49,701 43,520

At 1st April as restated 588,455 609,752

Final dividends approved in respect of the

previous financial year (Note 5(b)) (49,701) (43,520)

Interim dividends declared and paid during

the period/year — (27,287)

Profit for the period/year 48,726 128,146

Repurchase of shares (2,115) (367)

Bonus issue — (81,194)

Transfer to legal reserve (1,743) (1,162)

Transfer from capital reserve 2,043 4,087


Total at 30th September/31st March 931,759 934,244

INTERIM REPORT

26

14. Capital commitments

At 30th

September,

At 31st

March,

2001 2001

$’000 $’000

Contracted for 18,752 8,771

Authorised but not contracted for 48,370 109,982

67,122 118,753

15. Contingent liabilities

Three death lawsuits filed against Nasoya Foods Inc. (one of the Company’s

subsidiaries) relating to a traffic accident that occurred in 2000 have been settled.

The amounts claimed were all covered by insurance taken out by Nasoya Foods Inc..

Other claims that are still pending or could potentially be filed are minor, and liability, if

any, in excess of the insured amounts cannot be estimated reliably at this stage. Based

on the information currently available, management’s opinion is that this matter is not

anticipated to have a material adverse effect on the Group’s financial position,

operational results, or cash flows. Therefore, no provision has been made in respect of

these claims.

16. Material related party transactions

There were no significant related party transactions undertaken by the Group at any

time during the six-month period.

17. Comparative figures

Certain comparative figures have been adjusted as a result of a change in accounting

policy in respect of dividend recognition.

18. Approval of interim financial report

The interim financial report was approved by the Board on 30th November, 2001.

INTERIM REPORT

27

ADDITIONAL INFORMATION PROVIDED IN ACCORDANCE WITH THE MAIN

BOARD LISTING RULES

Interim Dividend

The Board has declared an interim dividend of HK2.8 cents per share for the year ending 31st

March, 2002 (2001: HK2.8 cents per share), to shareholders whose names appear on the

Register of Members at the close of business on Tuesday, 18th December, 2001. Dividend

warrants will be sent to shareholders on or about Friday, 28th December, 2001.

Closure of Register of Members

The Register of Members of the Company will be closed from 19th to 20th December, 2001,

both days inclusive, during which period no transfers of shares will be effected. To determine

entitlement to the interim dividend, all transfers accompanied by the relevant share certificates

must be lodged with the Company’s Share Registrars, Central Registration Hong Kong Limited

of 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration

not later than 4: 00 p.m. on Tuesday, 18th December, 2001.

INTERIM REPORT

28

Directors’ Interests in Shares

At 30th September, 2001, the interests in the share capital of the Company (within the

meaning of the Securities (Disclosure of Interests) Ordinance (‘‘SDI Ordinance’’)) recorded in

the register kept pursuant to Section 29 of the SDI Ordinance or notified to the Company and

The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities

Transactions by Directors of Listed Companies were as follows:

Director

Personal

interests

Family

interests

Corporate

interests

Other

interests

Mr. Winston Yau-lai LO

(Notes 1, 5 & 6) 11,188,500 28,702,500 — 109,670,550

Mr. Frank Yau-yee LO

(Notes 2 & 6) 461,250 — — 112,140,750

Ms. Yvonne Mo-ling LO

(Notes 3 & 6) 31,866,450 843,750 — 72,678,300

Ms. Myrna Mo-ching LO

(Notes 4 & 6) — — 27,974,700 72,678,300

Mr. Chi-kian SHIU (Note 5) 3,281,400 — — 4,426,950

Mr. John Shek-hung LAU

(Note 5) 15,000 — — 4,426,950

Mr. Eric Fat YU (Note 5) 75,000 — — 4,426,950

Mr. Fransis Ming-yin KONG 3,000 — — —

Mr. Eoghan Murray MCMILLAN

(passed away on

2nd October, 2001) 750,000 — — —

Dr. David Kwok-po LI 2,000,000 — — —

Notes:

1. Mr. Winston Yau-lai LO is interested in 32,565,300 shares held by The Bank of East Asia

(Nominees) Limited, 1,875,000 shares held by his wife and 26,827,500 shares held by HKSCC

Nominees Limited in trust for his wife.

2. Mr. Frank Yau-yee LO is interested in 39,462,450 shares held by Benson Corporation which is the

trustee of the Benson Unit Trust, the beneficiaries of which are members of his family.

INTERIM REPORT

29

3. Ms. Yvonne Mo-ling LO is interested in 843,750 shares held in name of Ms. Yvonne WONG who

holds the shares in trust for Ms. Yvonne Mo-ling LO’s daughter who is under the age of 18.

4. Ms. Myrna Mo-ching LO is interested in 27,974,700 shares held by Supreme Luck Holdings Limited

which in turn holds such shares in trust for The Lo Kwee Seong 1987 Trust. Ms. Myrna Mo-ching LO

is a director of Supreme Luck Holdings Limited.

5. Each of Mr. Winston Yau-lai LO, Mr. Chi-kian SHIU, Mr. John Shek-hung LAU and Mr. Eric Fat YU

are trustees of the Group’s staff provident fund scheme, which holds 4,426,950 shares, and are

therefore deemed to be interested in such shares.

6. Each of Mr. Winston Yau-lai LO, Mr. Frank Yau-yee LO, Ms. Yvonne Mo-ling LO and Ms. Myrna

Mo-ching LO are interested in 72,678,300 shares held by The Bank of East Asia (Nominees) Limited

which holds such shares as a nominee for the K. S. Lo Foundation. Each of them are trustees of the

K. S. Lo Foundation and are therefore deemed to be interested in such shares.

Save as herein disclosed and other than certain nominee shares in subsidiaries held by the

Directors in trust for the Company, none of the Directors or their associates held any beneficial

interests in the shares in or debentures of the Company or any of its associated corporations

(within the meaning of the SDI Ordinance).

INTERIM REPORT

30

Directors’ Rights to Purchase Shares

The Directors of the Company had the following personal interests as at 30th September, 2001

in options to subscribe for shares of HK$0.25 each in the Company granted for consideration

of HK$10 for each grant of options under the share option scheme of the Company.

Name of Director Date granted

Period during which

options are exercisable

Price per

share to be

paid on

exercise of

option

HK$

Number of

options

expired

during the

period

Number of

options

outstanding

as at 30th

September,

2001

Mr. Winston Yau-lai

LO

28/6/1994 31/5/1995 – 31/5/2001 1.435 1,792,500 Nil

28/6/1998 1/8/1998 – 31/7/2003 1.104 Nil 2,737,500

4/7/2000 7/9/2000 – 31/8/2005 1.193 Nil 3,450,000

Ms. Yvonne Mo-ling

LO

28/6/1994 31/5/1995 – 31/5/2001 1.435 2,400,000 Nil

3/9/1996 4/9/1996 – 3/9/2001 1.275 813,750 Nil

28/6/1998 1/8/1998 – 31/7/2003 1.104 Nil 2,250

4/7/2000 7/9/2000 – 31/8/2005 1.193 Nil 2,331,000

Mr. Eric Fat YU 28/6/1994 31/5/1995 – 31/5/2001 1.435 2,137,500 Nil

3/9/1996 4/9/1996 – 3/9/2001 1.275 723,750 Nil

28/6/1998 1/8/1998 – 31/7/2003 1.104 Nil 1,245,000

4/7/2000 7/9/2000 – 31/8/2005 1.193 Nil 1,953,000

Mr. John Shek-hung

LAU

28/6/1994 31/5/1995 – 31/5/2001 1.435 2,137,500 Nil

3/9/1996 4/9/1996 – 3/9/2001 1.275 723,750 Nil

28/6/1998 1/8/1998 – 31/7/2003 1.104 Nil 1,305,000

4/7/2000 7/9/2000 – 31/8/2005 1.193 Nil 1,953,000

Mr. Fransis Ming-yin

KONG

28/6/1994 31/5/1995 – 31/5/2001 1.435 2,400,000 Nil

3/9/1996 4/9/1996 – 3/9/2001 1.275 813,750 Nil

28/6/1998 1/8/1998 – 31/7/2003 1.104 Nil 1,478,250

4/7/2000 7/9/2000 – 31/8/2005 1.193 Nil 2,331,000

None of the Directors has exercised their options to acquire shares during the period.

INTERIM REPORT

31

Save as disclosed herein, at no time during the period was the Company or any of its

subsidiaries a party to any arrangement to enable the Directors of the Company or any of their

spouses or children under eighteen years of age to acquire benefits by means of acquisition of

shares in or debentures of the Company or any other body corporate.

Substantial Shareholders

The Company has been notified, in addition to Mr. Winston Yau-lai LO, Mr. Frank Yau-yee LO,

Ms. Myrna Mo-ching LO and Ms. Yvonne Mo-ling LO as stated under ‘‘Directors’ Interests in

Shares’’ above, of the following interests in the Company’s issued shares at 30th September,

2001 amounting to 10% or more of the shares in issue, as recorded in the register required to

be kept pursuant to section 16(1) of the Securities (Disclosure of Interests) Ordinance (including

interests which they are taken and deemed to have under that Ordinance):

Name of shareholder

Shares of

HK$0.25 each held

% of total

issued shares

Mr. Peter Tak-shing LO 127,197,000 13.08%

Ms. Irene CHAN 101,403,000 10.43%

Both Mr. Peter Tak-shing LO and Ms. Irene CHAN are interested in 72,678,300 shares held by The Bank of

East Asia (Nominees) Limited which holds such shares as a nominee for the K. S. Lo Foundation. They are

both the trustees of the K. S. Lo Foundation and are therefore deemed to be interested in such shares.

Purchase, Sale or Redemption of the Company’s Listed Securities

Details of the purchase by the Company of its own shares during the period are set out in Note

12 on the unaudited interim financial report. The purchases were made in view of the

depressed market for the shares to enhance the net asset value per share and earnings per

share of the Company. Save as disclosed in Note 12 on the unaudited interim financial report,

neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the

Company’s listed shares during the period.

INTERIM REPORT

32

Compliance with Code of Best Practice

Save as disclosed in the following paragraph, none of the Directors is aware of information

that would reasonably indicate that the Company is not, or was not for any part of the

accounting period for the six months ended 30th September, 2001, in compliance with the

Code of Best Practice set out by The Stock Exchange of Hong Kong Limited in Appendix 14 of

the Main Board Listing Rules.

In compliance with the Code of Best Practice, the Company established an Audit Committee

with written terms of reference in November 1998. As required, the Committee comprised two

Independent Non-executive Directors and one Non-executive Director since its establishment

and throughout the accounting period for the six months ended 30th September, 2001. Sadly,

Mr. Eoghan Murray McMillan, one of the Company’s Independent Non-executive Directors

and a member of the Committee, passed away on 2nd October, 2001. From that date,

therefore, the Company has been unable to comply with the requirement of the Code of Best

Practice that states that a majority of the Non-executive Directors in the Audit Committee

should be independent. However, the Company is actively searching for a replacement for the

Independent Non-executive Director and to fill this vacancy on the Audit Committee. The Stock

Exchange of Hong Kong Limited has also granted the Company a wavier from strict

compliance with the requirement for the appointment of at least two Independent Non-

executive Directors for a specific period.

By Order of the Board

Winston Yau-lai LO

Executive Chairman

Hong Kong, 30th November, 2001

INTERIM REPORT

33

INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF

VITASOY INTERNATIONAL HOLDINGS LIMITED

Introduction

We have been instructed by the Company to review the interim financial report set out on

pages 11 to 27.

Directors’ responsibilities

The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

require the preparation of an interim financial report to be in compliance with the relevant

provisions thereof and Statement of Standard Accounting Practice 25 ‘‘Interim financial

reporting’’ issued by the Hong Kong Society of Accountants. The interim financial report is the

responsibility of, and has been approved by, the directors.

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 Society of

Accountants. A review consists principally of making enquires of group management and

applying analytical procedures to the interim financial report and based thereon, assessing

whether the accounting policies and presentation have been consistently applied unless

otherwise disclosed. A review excludes audit procedures such as tests of controls and

verification of assets, liabilities and transactions. It is substantially less in scope than an audit

and therefore provides a lower level of assurance than an audit. Accordingly we do not

express an audit opinion on the interim financial report.

INDEPENDENT REVIEW REPORT

34

Review conclusion

On the basis of our review which does not constitute an audit, we are not aware of any

material modifications that should be made to the interim financial report for the six months

ended 30th September, 2001.

KPMG

Certified Public Accountants

Hong Kong, 30th November, 2001

INDEPENDENT REVIEW REPORT

35

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