RNS No 5689e
WORLDSEC LIMITED
28th September 1998
Worldsec Limited
Interim Report for the six months ended 30 June 1998
The Directors submit the interim report on Worldsec
Limited (the "Company") and its subsidiaries
(collectively known as the "Group") for the six months
ended 30 June 1998 (the "Period").
HIGHLIGHTS
* Turnover for the Period dropped by 46% as
compared with the same period in 1997 to US$6,362,000.
* Loss from ordinary activities after taxation and
minority interests for the Period was US$4,505,000.
REVIEW OF OPERATIONS AND PROSPECTS
The repercussions of the Asian currency crisis
continue to impact the Asian economies adversely.
This impact was of course reflected in the performance
of the stockmarkets in the region. After collapsing
in the second half of 1997, Asian stockmarkets staged
a technical rebound in the first quarter of this year
only to fall sharply once more in the second quarter.
The overall performance for the first half was poor
with the main regional market indices falling by
between 5.8% in the case of the Philippines, which was
the best performing market, and 30.3% in the case of
Singapore, the region's worst performing stockmarket
in local currency terms. The fall in value was
accompanied by a sharp fall in market turnover, which
translated into a dramatic collapse in commission
income for stockbrokers. Our commission income
reflected the fall in the volume of business in US
dollar terms in the markets in the region.
Since the start of the Asian currency crisis in July
1997, there has been a sharper compartmentalisation
within the brokerage industry in Asia with smaller
brokers suffering from a "flight to quality",
particularly after a number of high profile brokerage
failures. Unfortunately for us, quality in the eyes
of many compliance officers is equated with size.
What they overlook is that the brokerages which have
failed in recent years have included very sizable
firms and they failed primarily because of large
proprietary positions rather than because of any
problems in their agency brokerage business. As we do
not run a proprietary book, our capital base is of
course modest but large enough to make us a very high
quality counterparty for the institutional clients for
whom we deal. We are grateful for their support.
Notwithstanding this support, as a result of the
dramatic falls in market turnover, our broking
business operated at a loss during the Period.
REVIEW OF OPERATIONS AND PROSPECTS (CONTINUED)
The acquisitions of the businesses of Jin Loong
Securities Company Limited and Jin Loong Futures
Limited were completed during the Period. These
acquisitions add established retail equity and futures
sales teams to the Group's operation in Hong Kong.
Capital raising work has been difficult in Asia for
some time and the Group's corporate finance division
has been concentrating more on advisory work. Despite
the difficult operating environment, the Group's
corporate finance business continued to contribute
positively during the Period.
Because of the adverse market environment and as
mentioned in our 1997 annual report, we are operating
at a loss. The unaudited Group loss from ordinary
activities, after taxation and minority interests, for
the Period amounted to US$4,505,000, equivalent to
loss per share of 35 US cents as compared to a profit
of US$735,000 in the corresponding period of 1997,
equivalent to earnings per share of 7 US cents. The
Directors do not recommend any interim dividend
payment for the current financial year.
In recent months, the impact of the Asian currency
crisis has spread well beyond Asia to emerging markets
all over the globe. Financial instability in world
emerging markets threatens the global economy
including the economies of the developed
industrialised nations. There is a growing belief
that the balance of risks in the world economy is
shifting away from inflation to deflation and possibly
even depression.
We see no early end to the recession affecting Asia
and growing risks to the financial fabric of the world
economy. There have been calls for a co-ordinated
global response to turmoil in world financial markets
and to economic problems, with a view to reducing
destabilising volatility associated with large and
sudden capital flows while at the same time promoting
economic growth. Even if such a co-ordinated response
were to materialise, recovery is likely to be slow.
In response to their specific situations, Malaysia has
instituted capital controls and introduced measures to
reflate its economy, while the Hong Kong authorities
have intervened in the stockmarket and money markets
in defence of the Hong Kong currency peg. Our
commission income in Hong Kong rose sharply in August
benefiting from the surge in volume associated with
the Government's intervention in the local
stockmarket, but such an increase in our commission
income is not sustainable. Although the surge in
business in August is likely to mean that the second
half results should be materially better than in the
first half, we expect our operating environment will
continue to be difficult and we are looking at ways to
reduce costs
It is very easy to be very pessimistic about prospects
but at the micro level, value in individual stocks in
certain Asian markets have begun to appear. We are
confident our knowledge and experience of the region
will give us an edge to help our clients take
advantage of the value that falling share prices
uncover.
MANAGEMENT
Mr. Toshiyuki Morioka was elected as a non-executive
director of the Company by the members at the last
Annual General Meeting of the Company held on 23 July
1998. Mr. Morioka is also the Managing Director of
Tokyo-Mitsubishi International (HK) Limited.
Mr. Kenichi Masuda, a non-executive director, and his
alternate, Mr. Yasushi Ando, ceased to be directors of
the Company when their terms of office came to an end
on 23 July 1998.
By order of the
Board
Henry Ying Chew Cheong
Deputy Chairman and
Chief Executive Officer
28 September 1998
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Unaudited Audited
Six months ended Year
ended
Notes 30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Turnover 3 6,362 11,782 23,682
Fees and (1,015) (2,221) (3,382)
commission
payable
5,347 9,561 20,300
Other operating 313 479 1,025
income
5,660 10,040 21,325
Staff costs (6,138) (6,094) (12,774)
Other operating (3,219) (3,056) (6,027)
costs
Provision for
doubtful 4 (1,018) - (549)
receivables
Operating 3 (4,715) 890 1,975
(loss)/profit
Interest
receivable and 528 397 1,192
similar charges
Interest payable
and similar (128) (149) (293)
charges
(Loss)/profit on
ordinary (4,315) 1,138 2,874
activities
before taxation
Tax 5 (144) (291) (674)
(Loss)/profit on
ordinary (4,459) 847 2,200
activities after
taxation
Equity minority 6 (46) (112) (12)
interest
(Loss)/profit for
the financial (4,505) 735 2,188
period/year
Equity dividends 7 - (258) (516)
Transfer (4,505) 477 1,672
(from)/to
reserves
(Loss) earnings 8 (35 cents) 7 cents 19 cents
per share
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
(Loss)/profit for the (4,505) 735 2,188
period/year
Deficit arising on
revaluation of - - (173)
investments and
tangible fixed assets
Currency translation (105) (37) (1,833)
differences
Total recognised (4,610) 698 182
(losses)/gains
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
(Loss)/profit for the (4,505) 735 2,188
period/year
Equity dividends - (258) (516)
(4,505) 477 1,672
Other recognised gains
and losses relating to (105) (37) (2,006)
the period/year
Issue of shares - 17,226 17,226
Net
(reduction)/addition to (4,610) 17,666 16,892
shareholders' funds
during the period/year
Shareholders' funds 34,921 18,029 18,029
brought forward
Shareholders' funds 30,311 35,695 34,921
carried forward
CONSOLIDATED BALANCE SHEET
Unaudited Audited
Notes 30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Fixed assets
Intangible assets 9 9 31 15
Tangible fixed 1,466 1,795 1,354
assets
Investments 10 5,944 5,533 4,428
7,419 7,359 5,797
Current assets
Debtors 17,203 37,546 14,730
Bank deposits and 11 55,399 59,298 67,437
cash
72,602 96,844 82,167
Creditors:
Amounts falling 12 (49,435) (68,179) (52,804)
due within one
year
Net current 23,167 28,665 29,363
assets
Total assets less
current 30,586 36,024 35,160
liabilities
Creditors:
Amounts falling
due after more 13 - (10) -
than one year
Provisions for
liabilities and 14 (30) (30) (30)
charges
Equity minority 6 (245) (289) (209)
interest
Net assets 30,311 35,695 34,921
Capital and
reserves
Called up share 15 12,900 12,900 12,900
capital
Reserves 17,411 22,795 22,021
Equity 30,311 35,695 34,921
shareholders'
funds
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Net cash outflow from
operating activities (7,633) (6,205) (2,086)
(Note 16)
Returns on investments
and servicing of
finance
Interest received from 528 397 1,192
banks
Interest paid on bank
loans and overdrafts (128) (148) (290)
Interest paid on hire - (1) (3)
purchase contracts
Net cash inflow from
returns on investments 400 248 899
and servicing of
finance
Tax paid (61) - (281)
Capital expenditure and
financial investment
Purchase of fixed (303) (29) (413)
assets
Purchase of investments (1,570) - -
Sale of fixed assets - - 50
Partial disposal of a
subsidiary to minority - - 55
shareholders
Net cash outflow from
capital expenditure and (1,873) (29) (308)
financial investment
Equity dividend paid - - (258)
Net cash outflow before
use of liquid resources (9,167) (5,986) (2,034)
and financing
Management of liquid
resources
(Increase)/decrease in
time deposits of (7) 58 (75)
maturity exceeding 1
day
Financing
Issue of shares - 17,226 17,226
Capital element of
payments under hire (3) (8) (21)
purchase contracts
Net cash
(outflow)/inflow from (3) 17,218 17,205
financing
(Decrease)/increase in (9,177) 11,290 15,096
cash (Note 17)
NOTES TO THE INTERIM REPORT
1 BASIS OF PREPARATION
The financial statements have been prepared by
applying the merger accounting principles and
include the financial positions and operating
results of all subsidiary undertakings of the
Company.
2 ACCOUNTING POLICIES
The financial statements set out in this report have
been prepared under the historical cost convention,
as modified by the revaluation of certain fixed
assets, in accordance with accounting principles
generally accepted in the United Kingdom.
The accounting policies adopted in preparing this
report are consistent with those adopted in
preparing the consolidated financial statements of
the Group for the year ended 31 December 1997.
The directors continue to adopt the going concern
basis in preparing the interim report.
NOTES TO THE INTERIM REPORT (CONTINUED)
3 ANALYSIS OF TURNOVER, OPERATING PROFIT AND NET ASSETS
The turnover attributable to the different classes
of the Group's business is as follows:
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Analysis by class of business
Broking 5,479 11,315 20,920
Corporate finance 639 467 2,127
Investment advisory 244 - 635
6,362 11,782 23,682
Geographical analysis of turnover
Hong Kong 4,668 7,791 17,057
Malaysia 387 689 999
Philippines 162 479 608
Thailand 598 1,334 1,525
Others 547 1,489 3,493
6,362 11,782 23,682
The operating
(loss)/profit
attributable to the
different classes of
the Group's business is
as follows:
Broking (4,966) 832 945
Corporate finance 129 58 923
Investment advisory 122 - 107
(4,715) 890 1,975
The net assets utilised in the Group relate
substantially to broking activities.
4 PROVISION FOR DOUBTFUL RECEIVABLES
The amount relates to certain receivables arising in
the ordinary course of broking activities.
NOTES TO THE INTERIM REPORT (CONTINUED)
5 TAX
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
The charge comprises:
UK Corporation Tax at
31% - current year 72 39 153
Hong Kong Profits Tax
at 16% - current year 34 177 482
Other overseas taxation 38 75 39
144 291 674
6 EQUITY MINORITY INTEREST
The minority interest relates to the interests in
Worldsec Capital Management Inc. and in PB Worldsec
Securities Advisors Sdn. Bhd. (formerly known as
Worldsec Securities Consulting (Malaysia) Sdn.
Bhd.).
7 EQUITY DIVIDENDS
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Interim - 258 258
Final - - 258
- 258 516
Dividend per share - 2 cents 4 cents
NOTES TO THE INTERIM REPORT (CONTINUED)
8 (LOSS) EARNINGS PER SHARE
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
(Loss)/profit for the
financial period/year (4,505) 735 2,188
(Loss) earnings per (35 cents) 7 cents 19 cents
share
Number Number Number
Weighted average number
of shares in issue 12,900,000 9,870,994 11,397,945
9 INTANGIBLE ASSETS
Intangible assets represent pre-operating expenses
less amortisation over a period of three years on
the straight line basis.
10 INVESTMENTS
Unaudited Audited
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Exchange memberships -
at directors' valuation *5,361 4,953 3,845
Unlisted investments - 583 580 583
at cost
5,944 5,533 4,428
* The amount includes additions at cost of
US$1,570,000 in the six months ended 30 June
1998.
NOTES TO THE INTERIM REPORT (CONTINUED)
11 ANALYSIS OF CASH
Unaudited Audited
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Bank deposits and cash 55,399 59,298 67,437
Bank loans and (5,660) (3,586) (21)
overdrafts
49,739 55,712 67,416
Less:
Cash at bank - trust (31,815) (32,557) (40,322)
accounts
Time deposits of
maturity exceeding 1 (1,921) (1,781) (1,914)
day
Cash (Note 18) 16,003 21,374 25,180
12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Unaudited Audited
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Bank loans and 5,660 3,586 21
overdrafts
Trade creditors 41,206 61,369 49,154
Dividend payable 258 258 258
Taxation and social 555 370 472
security
Other creditors,
accruals and deferred 1,753 2,587 2,893
income
Obligations under hire
purchase contracts 3 9 6
49,435 68,179 52,804
13 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN
ONE YEAR
The amount represented the portion of obligations
under hire purchase contracts falling due after more
than one year.
NOTES TO THE INTERIM REPORT (CONTINUED)
14 PROVISIONS FOR LIABILITIES AND CHARGES
The amount represents provision for deferred
taxation which is the tax effect of the excess of
depreciation allowances claimed for tax purposes
over the depreciation charged in the financial
statements. Other timing differences are not
significant. There was no movement in the provision
for deferred taxation during the Period. The Group
had no significant unprovided deferred taxation at
30 June 1998.
15 CALLED UP SHARE CAPITAL
Unaudited Audited
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Authorised, issued and
fully paid:
12,900,000 ordinary
shares at US$1 each 12,900 12,900 12,900
To complete the acquisition of the securities and
futures broking businesses from Jin Loong Securities
Company and Jin Loong Futures Limited pursuant to an
agreement dated 23 December 1997, 467,290 ordinary
shares of US$1 each were issued by the Company at
US$2.90 per share on 28 September 1998. These
shares are credited as fully paid and the excess
value of US$1.90 over par per ordinary share or an
aggregate of US$887,851 is credited into the share
premium account.
NOTES TO THE INTERIM REPORT (CONTINUED)
16 RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET
CASH OUTFLOW FROM OPERATING ACTIVITIES
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Operating (loss)/profit (4,715) 890 1,975
Depreciation 191 220 385
Amortisation of 6 21 28
deferred expenditure
Exchange difference (61) (22) (302)
(Increase)/decrease in (2,473) (7,249) 15,567
debtors
(Increase)/decrease in
amounts due from - (4,131) 1,061
related companies
Decrease/(increase) in
cash at bank - trust 8,507 1,170 (6,595)
accounts
(Decrease)/increase in (7,948) 2,010 (10,205)
trade creditors
(Decrease)/increase in
other creditors,
accruals and deferred (1,140) 886 (4,000)
income
Net cash outflow from
operating activities (7,633) (6,205) (2,086)
NOTES TO THE INTERIM REPORT (CONTINUED)
17 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN
NET FUNDS
Unaudited Audited
Six months ended Year
ended
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
(Decrease)/increase in (9,177) 11,290 15,096
cash
Cash outflow from
increase in liquid 7 - 75
resources
Cash inflow from
decrease in liquid - (58) -
resources
Cash outflow from
repayment of hire 3 8 21
purchase contracts
Movement in net funds (9,167) 11,240 15,192
Net funds brought 27,088 11,896 11,896
forward
Net funds carried 17,921 23,136 27,088
forward
18 ANALYSIS OF NET FUNDS
Unaudited Audited
30.6.1998 30.6.1997 31.12.1997
US$'000 US$'000 US$'000
Cash in hand and
deposits repayable on 21,663 24,960 25,201
demand
Bank loans and (5,660) (3,586) (21)
overdrafts
Cash (Note 11) 16,003 21,374 25,180
Obligations under hire
purchase contracts (3) (19) (6)
Time deposits of
maturity exceeding 1 1,921 1,781 1,914
day
Net funds 17,921 23,136 27,088
NOTES TO THE INTERIM REPORT (CONTINUED)
19 INTERIM REPORT
The interim report will be posted to shareholders on
or about 12 October 1998.
END
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