Legend Group Limited 2002/03 Annual Results Announcement Financial Review Ms. Mary Ma Senior...

Legend Group Limited2002/03 Annual Results Announcement

Financial Review

Ms. Mary MaSenior Vice-President & Chief Financial Officer

May 28, 2003

2

Overview

Turnover for the full year grew 5.0% to HK$20.23 billion

EBITDA amounted to HK$1.175 billion, an increase of 20.8% compared to proforma EBITDA of HK$973 million for last year

Profit attributable to shareholders amounted to HK$1.017 billion, similar to that of last year. Net profit before disposal of investment was HK$1.044 billion, representing a substantial increase of 21.1% from HK$862 million (proforma) of previous year

The Group’s gross margin improved from 13.70% (proforma) of previous year to 14.82%

Overall net margin was 5.03%, compared to 5.33% (proforma) of previous year

Return on equity (ROE) was 25.6%

The board of directors proposed a final dividend of 3.0 HK cents per share and a special dividend of 5.2 HK cents per share

3

2002/03 Consolidated Profit & Loss Account

Note: The demerger of Digital China had been completed on June 1, 2001. Hence, its results for the period from April to May 2001 is not consolidated in the Group’s proforma results of FY2001/02.

(HK$'000) 2002/03 % of

Turnover

2002/03 Q4

2001/02 (Proforma)

% of Turnover

2001/02 Q4

Turnover 20,233,290$ 4,265,652$ 19,267,384$ 4,126,685$

EBITDA 1,174,720$ 5.81% 245,698$ 972,580$ 5.05% 192,448$

Depreciation expenses (160,304)$ (45,997)$ (137,980)$ (33,799)$

Amortisation of intangible assets (15,246)$ (5,282)$ -$ -$

(Losses)/gains on disposal of subsidiaries, an associated companyand investment securities (26,802)$ (33,089)$ 164,240$ 106,254$

Interest income 77,233$ 22,494$ 66,664$ 12,460$

Profit from operations 1,049,601$ 5.19% 183,824$ 1,065,504$ 5.53% 277,362$

Finance costs (20)$ (20)$ (1,676)$ (51)$

1,049,581$ 183,804$ 1,063,828$ 277,311$ Share of (losses)/profits of jointly

controlled entities (34,756)$ (979)$ 8,468$ 9,392$

Share of profits/(losses) ofassociated companies 13,826$ (4,369)$ (12,979)$ (4,512)$

Profit before taxation 1,028,651$ 5.08% 178,456$ 1,059,317$ 5.50% 282,191$

Taxation (26,018)$ (9,319)$ (23,092)$ (2,675)$

Profit after taxation 1,002,633$ 169,137$ 1,036,225$ 279,516$

Minority interests 14,519$ 5,956$ (9,768)$ -$

Profit attributable shareholders 1,017,152$ 5.03% 175,093$ 1,026,457$ 5.33% 279,516$

Dividend 747,411$ N/A 383,897$ N/A

Earnings per share (Basic) 13.55 cents 2.33 cents 13.61 cents 3.72 cents

Earnings per share (Fully diluted) 13.54 cents 2.33 cents 13.55 cents 3.71 cents

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EBITDA Growth

$739,820

$972,580

$1,174,720

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

2000/01 (Proforma) 2001/02 (Proforma) 2002/03 Full Year

HK$'000

71.9%

31.5%

20.8%

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Pre-ex Profit*

$719,648

$862,217

$1,043,952

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

2000/01 (Proforma) 2001/02 (Proforma) 2002/03Full Year

HK$'000

97.0%

19.8%

21.1%

* Pre-ex Profit: Net profit before one-time amortization of intangible assets and (losses)/gains on disposal of subsidiaries, an associated company and investment securities

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2002/03 Turnover Breakdown

Corporate IT 53.4% (52.3%)

Consumer IT 33.7% (38.4%)

Handheld Device (Note 1)

7.1% (1.1%)

Contract Manufacturing (Note 2)

4.9% (8.0%)

IT Service 0.9% (0%)

Note 1: Starting from FY2002/03, contribution from handheld device business includes the contribution from mobile handset business.

Note 2: Legend sold 55% of Legend Techwise (PCB) in Jan 2002. Hence, the contribution from contract manufacturing business in FY2002/03 does not include any contribution from Legend Techwise.

Note 3: FY2001/02 figures are in brackets. Internet service business contributed about 0.2% in FY2001/02. Legend-AOL JV was formally set up on Nov 20, 2001. Hence, the contribution from Internet service is not included in the consolidated turnover for FY2002/03.

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Changes in Turnover Breakdown (Full Year)


Note 5: Contribution from Internet service for FY2001/02.

(HK$ Million) Note2002/03

Full Year

2001/02 Full Year

(Proforma) Change

Corporate IT 10,803$ 10,078$ 7.2%

Consumer IT 6,823$ 7,401$ -7.8%

Handheld Device 1,440$ 216$ 566.7%

IT Service 184$ -$ N/A

Contract Manufacturing 4 983$ 1,534$ -35.9%

Other 5 -$ 39$ N/A

Total 20,233$ 19,268$ 5.0%

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Changes in Turnover Breakdown (Q4)

(HK$ Million) Note2002/03

Q42001/02

Q4 Change

Corporate IT 2,092$ 2,058$ 1.7%

Consumer IT 1,525$ 1,807$ -15.6%

Handheld Device 331$ 49$ 575.5%

IT Service 64$ -$ N/A

Contract Manufacturing 4 254$ 213$ 19.2%

Other -$ -$ N/A

Total 4,266$ 4,127$ 3.4%


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Changes in Operating Profit Breakdown (Full Year)

(HK$'000) Note2002/03

Full Year

2001/02 Full Year

(Proforma) Change

Corporate IT 744,153$ 573,077$ 29.9%

Consumer IT 363,527$ 234,335$ 55.1%

Handheld Device 29,017$ (18,906)$ N/A

IT Service (61,405)$ -$ N/A

Contract Manufacturing 8,554$ 147,901$ -94.2%

Other -$ (36,818)$ N/A

Total 6 1,083,846$ 899,589$ 20.5%

Note 6: Operating profit for FY2001/02 and FY2002/03 before amortization of goodwill and (losses)/gains on disposal of subsidiaries, an associated company and investment securities.

10

Changes in Operating Profit Breakdown (Q4)

(HK$'000) Note2002/03

Q42001/02

Q4 Change

Corporate IT 144,547$ 92,985$ 55.5%

Consumer IT 102,918$ 39,675$ 159.4%

Handheld Device 173$ (3,581)$ N/A

IT Service (20,838)$ -$ N/A

Contract Manufacturing (6,747)$ 41,979$ N/A

Other -$ -$ N/A

Total 6 220,053$ 171,058$ 28.6%

Note 6: Operating profit for FY2001/02 and FY2002/03 before amortization of goodwill and (losses)/gains on disposal of subsidiaries, an associated company and investment securities.

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Gross Margin Analysis (Full Year)

13.70%

18.13%

10.83%

22.35%

14.22%

14.82%15.33%

13.28%

16.20% 15.21%

28.66%

0%

5%

10%

15%

20%

25%

30%

35%

2001/02 Full Year (Proforma)

2002/03 Full Year

Corporate IT Consumer IT Handheld Device

GroupContract Manufacturing

(Note 7)

IT Service

Note 7: Before elimination of inter-company transaction, the gross margin of contract manufacturing business is 9.6% (2001/02: 14.9%).

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Gross Margin Analysis (Q4)

13.36%

16.65%

10.30%

24.68%

14.80%15.39%15.81% 15.27%

13.34%11.94%

28.89%

0%

5%

10%

15%

20%

25%

30%

35%

2001/02 Q4

2002/03 Q4

Corporate IT Consumer IT Handheld Device

GroupContract Manufacturing

(Note 7)

IT Service

Note 7: Before elimination of inter-company transaction, the gross margin of contract manufacturing business is 9.7% (2001/02: 12.3%).

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Consolidated Balance Sheet

(HK$ Million)

As at 31/3/2003

As at 31/3/2002

Intangible assets 121$ -$ Tangible fixed assets 846$ 847$ Construction-in-progress 174$ 44$ Investments 374$ 446$

Current assets 5,241$ 4,354$ Current liabilities 2,507$ 2,002$

Net current assets 2,734$ 2,352$

Total assets less current liabilities 4,249$ 3,689$

Shareholders' funds 4,189$ 3,682$ Minority interests 60$ 7$ Long-term liabilities 0.3$ 0.3$

4,249$ 3,689$

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Key Financial Figures

(HK$ Million)

2002/03 Full Year

2001/02 Full Year

(Proforma)

Cash reserves 2,808$ 2,441$

Total borrowings -$ -$

Net cash reserves 2,808$ 2,441$

Net tangible assets 4,068$ 3,682$

Capital expenditure 689$ 703$

Current ratio 2.1 x 2.2 x

Days inventory 22.9 days 21.8 days

Days receivable 21.5 days 22.0 days

Days payable 36.4 days 36.8 days

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Key Financial Figures

2002/03 Full Year

2001/02 Full Year

(Proforma)

Gross margin 14.82% 13.70%

Net margin 5.03% 5.33%

Return on equity (ROE) 25.6% 30.3%

Return on net tangible assets 26.1% 30.3%

Earnings per share (Fully diluted) 13.54 cents 13.55 cents

Net tangible assets per share 52.21 cents 45.00 cents

Shares in issue (million shares) 7,477 7,508

Note 8: Profit attributable to shareholders used in ratio calculation included (losses)/gains on disposal of subsidiaries, an associated company and investment securities.


Review and Prospect of Market and Business

Mr.Yang YuanqingPresident & Chief Executive Officer

May 28, 2003

17

Market Review China PC unit shipment grew 18% in FY2002/03

– Commercial PC unit up 21.7%– Education and SME are the main drivers of commercial IT– Consumer PC unit up 12.7%– The booming of 2nd - 6th tier cities drove the growth of consumer

PC market

China IT market stayed flat in 2002, grew only 2% in value with hardware spending shrank 3%– Overall PC ASP declined 17% due to cheaper components, lower

tariff, relatively higher growth in lower-end markets (education, etc.)– Commercial PC value up 2.4% while consumer PC value down

7.4%

Rapid growth of digital market spurred demand for digital applications for PCs

Mobile handset market boomed with rapid growth from domestics players– More frequent new product launches in 2H of 2002

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Business Review

Adopted profit centric strategy

Successful implementation of service-oriented transformation and technology innovation strategies showed early promising results

Major operating results exceeded our forecast, in line with the market growth

– Turnover up 5% YoY

– Net profit* up 21.1% YoY, gross margin improved 112 basis point to 14.82%

– PC unit shipment up 17.2%, Q4 up 13.0%

*Before gains/losses on disposal of subsidiaries, associated companies and investment securities

Consumer PCQ4: 7.6%

FY: 9.5%

ServerQ4: 43.2%

FY: 39.6%

Commercial Desktop

Q4: 14.6%

FY: 21.5%

NotebookQ4: 31.7%

FY: 24.9%

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Business Review - Commercial & Consumer IT

Commercial PC unit up 21.5%, with 29.3% market share ( CY 2002)– Operating profit achieved HK$744mn, up 30% y-o-y

– Gross margin improved to 15.3% from 14.2%

– Government orders in Q3 and Q4 were pushed back due to transitions within Chinese government

Consumer PC unit up 9.5% with market share of 27.0% (CY 2002)– Recorded HK$360 mn in operating profit, up 55% y-o-y

– Gross margin improved to 13.3% from 10.8%

– Digital business achieved breakthroughs in three areas • MP3 player: No.1 with market share of 20% in China

• Digital camera: No.1 best seller amongst domestic brands

• Consumer ink-jet printer: leading market share in China

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Business Review - Mobile Handset

Handset business launched successfully

– Turnover (in both volume and value) exceeded our initial forecast

– Established operational infrastructure: formed JV, completed M&A integration process

– Distribution networks in place

– Strengthened R&D capabilities

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Landmarks for Technological Breakthroughs

Launched the first commercial supercomputer in China in August 2002

– Penetrated high end users such as: CAS, Ministry of Aerospace and CNOOC– Technological expertise to support market leader position as No. 1 Chinese

server manufacturer

Differentiated technologies added product value and drove sales growth

– “Kaitian 6800” gained “2002 Intel Innovative PC Award”, well received by our customers

– Dual mode consumer PC“Tianjiao” and “Tianrui” series ， featuring self-developed operating system, LEOS, received several awards in China and Hong Kong

“Legend World 2002” debuted our new technology era with “Collaborating Applications” vision

New patent awarded at record high, ranked top 10 in China

– 572 patent applications

22

Service Transformation Showed Promising Results

Launched “Sunshine Service” for customer service

– Largest customer service network in China, covering 260 cities by 3,000

certified service engineers

IT service business completed “Three Horizontal and Four Vertical” operational structure through M&As and integration

– “Three Horizontal”: basic platforms, horizontal applications and operation support

– “Four Vertical”: telecommunication, finance, government and manufacturing

IT 1 for 1 services strengthened core competence

– Successfully rolled out business models, formed solutions that fit the needs from various industries

– Launched 20 new solutions and received numerous awards in the industry

– Developed SME solutions that have been adopted by 300 customers in logistic and manufacturing sectors

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Prospects of China IT Market

Despite the impact by SARS, we remain cautiously optimistic in 2003 and anticipate healthy growth in the long term

Robust China economy will drive China IT market right back to fast track– Accelerated SOE reforms, finance and telecommunication industries

facing fierce competitions

– Urbanization creates vast low-end market

– Replacement cycle drives consumer PC

– The industrialization of digital application

China IT market expected to grow 12% in 2003– PC market by unit: grows annually by 15%~17%

– PC market in value: grows annually by 10%~12%

– Handset: 70 mn pcs, grows annually by 10%

SARS impacted IT industry in short-term but expected to benefit the industry for long-term

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Corporate & Consumer IT, and Handset

Corporate IT : key driver for IT Market – Notebook unit shipment > 30%; Server unit shipment > 25%

– SME market continues to expand, accounts for about 40% of the total commercial IT market

– Government: IT spending expected to exceed 20%

– Education: IT spending expected exceed 25%

Consumer IT : application drive demand

– Internet, education, digital applications, gaming, replacement, small to mid-tier cities

Handset

– Domestic brands maintain growth momentum

– Brand advantage and superior management will win

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Operation Strategies for the New Fiscal Year

Build on what we have achieved

– Strategic developments

– New business initatives

Take advantage of market opportunities in expanding our business scale for sustainable profit growth

Relentlessly pursue core competancies for the long-term

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Product Road Map

Terminal DevicesPC

Handset, PDA, Digital Camera

Back-office ProductsServer

High performance server, storage, network securities products

(产品售前、售后服务 )

ServiceValue-added

service

IT 1for1 IT Service

•Consumers

•SME

•Large clients

“Wanquan” Server

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Three Tier Businesses Drive High Growth

Core Businesses:Core Businesses:

commercial and consumer desktop

Growth Businesses:Growth Businesses:

handset, notebook, server, digital product, peripheral, network security

Seed Businesses: Seed Businesses:

IT service, high performance server, storage, networking products

Turnover Profit

Turnover Profit

Turnover Milestone

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Solidify Core Competencies

Further implement technological innovations and

service transformation

Strengthen professional matrix management

Enhance strategic planning & execution capabilities


Reflection of Legend’s Performance for the Past Two Years

Mr. Liu ChuanzhiChairman of the BoardMay 28, 2003

Legend Group Limited 2002/03 Annual Results Announcement Financial Review Ms. Mary Ma Senior...

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