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Legend Group Limited
2002/03 Fiscal Year
Interim Results Announcement
Business and Financial Review
Ms. Mary MaSenior Vice-President & CFO
November 12, 2002
2
Overview
• Turnover for the first half of FY2002/03 increased by 4.1% to HK$10.37 billion, from HK$9.96 billion for the corresponding period of last year
• Profit attributable to shareholders increased to HK$524 million, or 20.5%, compared to the proforma profit of the same period last year of HK$435 million
• Gross margin is 15.02%, up from proforma gross margin of 13.72% of the same period last year
• Net profit margin increased from 4.37% (proforma) to 5.06%
• The Board of Directors proposed an interim dividend of 1.8 HK cents per share
3
Overview
• Turnover for FY2002/03 Q2 increased by 2.3% to HK$5.57 billion, from HK$5.45 billion for the corresponding period of last year
• Profit attributable to shareholders increased to HK$256.3 million, or 26.5%, compared to the proforma profit of the same period last year of HK$202.6 million
• Gross margin is 14.61%, up from proforma gross margin of 12.28% of the same period last year
• Net profit margin increased from 3.72% (proforma) to 4.6%
4
(HK$'000)2002/03
Q2 2002/03 Interim
% of Turnover
2001/02 Q2
2001/02 Interim
(Proforma)% of
Turnover
Turnover 5,573,185$ 10,369,537$ 5,449,065$ 9,957,341$
EBITDA 279,736$ 580,173$ 5.59% 225,834$ 487,412$ 4.90%
Depreciation expenses (34,306)$ (66,321)$ (33,992)$ (66,571)$
Amortisation of goodwill (4,063)$ (5,901)$ -$ -$
Gain on disposal of investment -$ 6,401$ -$ -$
Interest income 19,348$ 32,939$ 18,901$ 40,780$
Profit from operations 260,715$ 547,291$ 5.28% 210,743$ 461,621$ 4.64%
Finance costs -$ -$ (597)$ (1,430)$
Share of losses of jointlycontrolled entities (16,372)$ (34,623)$ -$ -$
Share of profits/(losses) ofassociated companies 8,020$ 15,227$ (4,480)$ (7,646)$
Profit before taxation 252,363$ 527,895$ 5.09% 205,666$ 452,545$ 4.54%
Taxation 571$ (10,348)$ 462$ (10,960)$
Profit after taxation 252,934$ 517,547$ 206,128$ 441,585$
Minority interests 3,335$ 6,638$ (3,577)$ (6,587)$
Profit attributable to shareholders 256,269$ 524,184$ 5.06% 202,551$ 434,998$ 4.37%
Dividend -$ 135,121$ -$ 921,384$
Earnings per share (Basic) 3.41 cents 6.98 cents 2.68 cents 5.75 cents
Earnings per share (Fully diluted) 3.41 cents 6.97 cents 2.65 cents 5.71 cents
2002/03 Interim Consolidated P&L Account
Proforma results: The proforma results are prepared on the basis as if the demerger of Digital China has been completed as at March 31, 2000, and hence its results are not consolidated in the Group’s proforma results of FY2001/02.
5
2002/03 Interim Turnover Breakdown
Consumer IT 35.2% (39.7%)Corporate IT
53.6% (49.7%)
Handheld Device
(Note 1) 6.4% (1.3%)
Contract Manufacturing (Note 2) 4.1%
(9.0%)
IT Services 0.7% (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 interim does not include any contribution from Legend Techwise. Note 3: FY2001/02 interim proforma figures are in brackets. Internet service business contributed about 0.3% in FY2001/02 interim. 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.
6
Changes in Turnover Breakdown
(HK$ Million) Note2002/03 Interim
2001/02 Interim
Proforma Change
Corporate IT 5,559$ 4,952$ 12.2%
Consumer IT 3,645$ 3,951$ -7.8%
Handheld Access Devices 667$ 126$ 429.5%
IT Services 72$ -$ N/A
Contract Manufacturing 4 427$ 893$ -52.2%
Other 5 -$ 34$ N/A
Total 10,370$ 9,957$ 4.1%
Note 4: Legend sold 55% of Legend Techwise (PCB) in Jan 2002. Hence, the contribution from contract manufacturing business in FY2002/03 interim does not include any contribution from Legend Techwise.
Note 5: Contribution from Internet service for FY2001/02.
7
Changes in Proforma Turnover Breakdown
Note 4: Legend sold 55% of Legend Techwise (PCB) in Jan 2002. Hence, the contribution from contract manufacturing business in FY2002/03 Q2 does not include any contribution from Legend Techwise.
Note 5: Contribution from Internet service for FY2001/02.
(HK$ Million) Note2002/03
Q22001/02
Q2 ChangeCorporate IT 3,064$ 2,653$ 15.5%
Consumer IT 1,812$ 2,199$ -17.6%
Handheld Access Devices 406$ 65$ 525.2%
IT Services 35$ -$ N/A
Contract Manufacturing 4 257$ 516$ -50.3%
Other 5 -$ 17$ N/A
Total 5,573$ 5,450$ 2.3%
8
Changes in Proforma Operating Profit Breakdown
(HK$'000) Note2002/03 Interim
2001/02 Interim
Proforma ChangeCorporate IT 372,404$ 284,119$ 31.1%
Consumer IT 171,097$ 153,140$ 11.7%
Handheld Access Devices 17,874$ (9,724)$ N/A
IT Services (23,363)$ -$ N/A
Contract Manufacturing 8,777$ 67,446$ -87.0%
Other -$ (34,790)$ N/A
Total 6 546,789$ 460,191$ 18.8%
Note 6: Operating profit for FY2002/03 interim before amortization of intangible assets and gains on disposal of investment securities.
9
Changes in Proforma Operating Profit Breakdown
(HK$'000) Note2002/03
Q22001/02
Q2 ChangeCorporate IT 208,528$ 154,613$ 34.9%
Consumer IT 56,626$ 52,575$ 7.7%
Handheld Access Devices 13,702$ (8,491)$ N/A
IT Services (12,671)$ -$ N/A
Contract Manufacturing (1,408)$ 30,983$ N/A
Other -$ (19,534)$ N/A
Total 6 264,777$ 210,146$ 26.0%
Note 6: Operating profit for FY2002/03 Q2 before amortization of intangible assets and gains on disposal of investment securities.
10
Interim Gross Margin Analysis
18.66%
13.72%15.02%
11.17%
21.46%
13.95%
15.86%
12.44%
19.94%17.81%17.99%
0%
5%
10%
15%
20%
25%
2001/02 Interim2002/03 Interim
Corporate IT
Consumer IT
Handheld Access Devices
Group
Note: Before elimination of inter-company transaction, the gross margin of contract manufacturing business is 10.2% (2001/02 Interim: 15%).
Contract Manufacturing
IT Service
11
Q2 Gross Margin Analysis
17.90%
12.28%
14.61%13.22%
19.60%
9.03%6.77%
16.97%
22.02%
11.31%
15.47%
0%
5%
10%
15%
20%
25%
2001/02 Q22002/03 Q2
Corporate IT
Consumer IT
Handheld Devices
GroupContract Manufacturing
Note: Before elimination of inter-company transaction, the gross margin of contract manufacturing business is 10.8% (2001/02 Q2: 15.2%).
IT Service
12
(HK$ Million)
As at 30/9/2002
As at 30/6/2002
As at 31/3/2002
Intangible fixed assets 75$ 66$ -$ Tangible fixed assets 849$ 848$ 847$ Construction-in-progress 80$ 56$ 44$ Investments 401$ 392$ 446$
Current assets 5,507$ 5,371$ 4,355$ Current liabilities 2,933$ 2,738$ 2,002$ Net current assets 2,574$ 2,633$ 2,353$ Total assets less current liabilities 3,979$ 3,996$ 3,689$
Capital and reserves 3,911$ 3,928$ 3,682$ Minority interests 68$ 68$ 7$ Long-term liabilities 0.3$ 0.3$ 0.3$
3,979$ 3,996$ 3,689$
Consolidated Balance Sheet
13
Key Financial Figures
(HK$ Million)2002/03 Interim
2001/02 Full Year Proforma
2001/02 Q1
Proforma
Cash reserves 2,781$ 2,441$ 2,095$
Total borrowings -$ -$ 16$
Net cash reserves 2,781$ 2,441$ 2,079$
Net tangible assets 3,835$ 3,682$ 3,266$
Capital expenditure 372$ 703$ 197$
Current ratio 1.9 x 2.2 x 1.9 x
Days inventory 20.2 days 21.8 days 21.3 days
Days receivables 19.7 days 22.0 days 23.1 daysDays payable 35.1 days 36.8 days 37.1 days
14
Key Financial Figures
2002/03 Interim
2001/02 Full Year Proforma
2001/02 Interim
Proforma
Gross margin 15.02% 13.70% 13.72%
Net margin 5.06% 5.33% 4.37%
Return on equity 13.6% 30.3% 13.3%
Return on net tangible assets 13.7% 30.3% 13.3%
Earnings per share (Fully diluted) 6.97 cents 13.55 cents 5.71 cents
Net tangible assets per share 50.8 cents 44.9 cents 43.5 cents
Shares in issue (million shares) 7,507 7,508 7,522
Legend Group Limited
2002/03 Fiscal Year
Interim Results Announcement
Market and Business Review
Mr. Yang YuanqingPresident & CEO
November 12, 2002
16
Business Review• China’s PC market recovers to healthy growth
– PC unit shipment growth in Q1, Q2 and Q3 for 2002 was 4.8% ,9.6% and 22.3%, respectively (April to September grew by 16%)
– Unit shipment of Corporate market in April to September are estimated to grow by 21%, driven by robust growth in“School Link”, e-government and SMEs.
– Consumer PC market was relatively less dynamic. Unit shipment in April to September are estimated to grow by 8%
• Legend’s management is confident with the growth potential of China IT market– China’s accession to WTO speed up the pace of informatizatio
n of enterprises for increasing competitiveness – E-government implementation is in full force, y-o-y growth of go
vernment spending on IT will exceed 25%
17
Business and Strategy Review• Legend PC sales growth in line with market, gross margin and
net margin increased significantly, 1H FY02/03 y-o-y growth up from 13.72% and 4.37% to 15.02% and 5.06%, respectively while market share continue to rise– Legend PC unit shipment grew 17% in 1HFY02/03 (April to
September 2002), Q1 and Q2 reported 10% and 22.5% growth, respectively
– Legend home PCs, commercial desktop PCs, notebooks and servers increased significantly:
Commercial desktop
PCs 25.9%
Home PCs 5.4% Servers
41.7%
Notebooks 17.2%
18
Successful operating strategy
Legend’s strategy Service-oriented and technology innovations
• Healthy growth and profitability as prime target• Precise process management, value-added services and technology innovations balance growth (cost reduction and value enhancement)• Synergy between new and existing businesses
Precise and effective process management
Service
Customer driven
Emphasis on tailor-made applications and user-friendly products and services
Technology
Reduce Cost
Increase Value-add
Big
ger ro
om
for
pro
fit gro
wth
19
Strategy Review
Terminal Devices
PC (Pocket PCs, PDAs, mobile handsets, digital cameras)
Back-office Products
Server High-end servers, storage, network securities products
Services • Consumers• Small & Medium
scale clients• Large scale
clients
Value-added service(Product pre-sales / after-
sales services)
Service Business
20
Business Review
• Launch of “Dual Mode” home PC– Legend LEOS operating system sets new stan
dard for digital applications
– Provides user-friendly and wide variety of digital applications
– One button for instant browsing hard disk, CD-ROM or memory stick for audio/ video/photo playing
LEOSoperating system
Win XPoperating system
Navigation computer model
Digital home appliance model
Digital home work pack
Dream factorysoftware
Operation
Application
HardwareDigital appliance control system
Packaging technology Smart thermostat system
Legend Tianjiao
Development of terminal device
21
Business Review
• Launch of new generation commercial PC “Kaitian”6800
– Designed for commercial use, equipped with wireless Internet access, keyboard and mouse, 360 adjustable LCD monitor and VPN security system
– The only model that won the "2002 Intel Innovative PC Award"
• “Qitian”PC tailored for education sector
– Leveraging application solutions to enhance sales of education PCs
– “Qitian” is specifically designed for education purpose with features such as easy-to-assemble, smart recovery function, all-in-one mouse, chassis lock and the use of anti bacteria material
Development of terminal device (Cont’d)
22
Development of terminal device (Cont’d)
• Mobile handset
– Smooth operation of the joint venture company, 6 months’ sales attained better-than-expected results
– Rolling out various models of handsets, including colour screen handset i188, which was well received by the market
– Leveraging on Legend’s brand name, Legend handset has become one of the most popular brands in China
– Streamlining Legend’s handset distribution network, after-sales and maintenance services improved substantially
i188
G808
Business Review
23
Business Review
• Servers– Shift business model from “product-centric” to “soluti
on-centric” (VOLUME BUSINESSVALUE BUSINESS)
– Specialize sales and service team– Successful development of server chip applications
enhanced Legend’s capability in server design catering for customer needs
• High Performance Computers– Developed China’s first super computer with world cl
ass computing speed– Enhance Legend’s overall server technology and pro
duct quality
Wanquan Server
Legend Deepcomp 1800 Supercomputer
Development of back office products
24
Business Review
• Education, government and SMEs
Small & Medium scale clients
Services Value-added service
(Product pre-sales / after-sales services)
Service Business
• Consumers• Small & Medium
scale clients• Large scale clients
25
Business Review
e-classroomSchool
IntranetWAN Long Distance
Education Network
Evolution of education informatizationAffiliated
School
Large scale education network
Long
Distance
Education
Network
Solution
Case study: e-Education
26
Business Review
e-School solutions School-Link solutionsFull range of education products
Legend’s total solution for education sector
e-multimedia classroom solution
Teacher’s e-preparation room solution
e-library solution
e-multi function classroom solution
Internet library solution
e-office solution
School e-security solution
Education Hardware Facility Solution
Education Security Solution
Education Software Solution
Education Resources Solution
Education Support & Training Solution
Education Operation Solution
Education PCs,
notebooks,
servers,
peripheral,
storage & networking
equipment
Case study: e-Education
27
Others( Energy, publications, transport sector and etc)B
ank
ing
Tele
com
Vertical application
Horizontal application
Infrastructure platform
OutsourcingS.I.
Consulting
Go
vt
Insu
ranc
e
Operation of IT system
Infrastructure platform and security
Management System: ERP、 SCM、 CRM
Business Review
Large scale clients: Established framework of IT service business
Application Implementation