Financial Report
Notes to the Accounts
1. Status of the Electrical and Mechanical Services Trading Fund
The Electrical and Mechanical Services Trading Fund was established on 1 August 199 under the Legislative Council Resolution passed on 26 June 1996 pursuant to sections 3,4 and 6 of the Trading Funds Ordinance (Cap.430). After the first three years of operation of the Electrical and Mechanical Services Trading Fund. Customers will be gradually permitted to choose alternative suppliers for services provided under a phased programme.
2. Accounting Policies
| (a) |
Basis of accounting The accounts have been prepared in accordance with generally accepted accounting principles. |
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| (b) |
Fixed assets Fixed assets appropriated to the Electrical and Mechanical Services Trading Fund on 1 August 1996 are stated at the value contained in the Legislative Council Resolution for the setting up of the Electrical and Mechanical Services Trading Fund. Fixed assets acquired since 1 August 1996 and costing more than $100,000 on an individual basis are Capitalised at the actual direct expenditure of acquisition and installation with the exception of motor vehicles which are treated as fixed assets regardless of value. |
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| (c) |
Depreciation Depreciation is provided on a straight-line basis calculated to write off the cost of assets less residual value over their estimated useful lives. The annual rates of depreciation used are:-
Land is regarded as a non-depreciation asset. |
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| (d) |
Deferred tax Deferred tax is provided, by using the liability method. In respect of the taxation effect arising form all timing differences which are expected with reasonable probability to crystallize in the foreseeable future. |
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| (e) |
Revenue recognition Revenue is recognized as services are provided, Interest income is recognized on an accrual basis. |
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| (f) |
Stocks and work in progress Stocks and work in progress are stated at the lower of cost and net realizable value. Work in progress represents jobs in progress as at 31 March 1998. |
3. Revenue
Revenue is derived form the following operation services:
| Year ended 31 March 1998 $000 |
Eight months ended 31 March 1998 $000 |
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| Vehicle services | 346,407 | 248,682 | |||
| Electrical, mechanical and electronic services | 2,105,535 | 1,308,837 | |||
| Project and consultancy services | 176,367 | 95,981 | |||
| Others | 25,381 | 16,415 | |||
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| 2,653,690 | 1,669,915 | ||||
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4. Operating costs
| Year ended 31 March 1998 $000 |
Eight months ended 31 March 1998 $000 |
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| Staff costs | 1,489,248 | 900,027 | |||
| Materials | 251,276 | 162,880 | |||
| Contract maintenance | 412,530 | 277,028 | |||
| Rental and management charges | 44,933 | 19,178 | |||
| General operating and administration expenses | 126,180 | 100,723 | |||
| Depreciation | 26,384 | 17,021 | |||
| Audit fees | 459 | 486 | |||
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| 2,351,010 | 1,477,343 | ||||
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5. Other income
| Year ended 31 March 1998 $000 |
Eight months ended 31 March 1997 $000 |
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| Bank deposits interest | 36,753 | 8,800 | |||
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6. Other expenses
| Year ended 31 March 1998 $000 |
Eight months ended 31 March 1997 $000 |
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| Interest on Government loans repaid and repayable within one year | 4,037 | 1,712 | |||
| Government loan repayable after one year | 22,379 | 21,079 | |||
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| 26,416 | 22,791 | ||||
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7. Provision for taxation
Notional profit tax is provided at the rate of 16.5%.A payment in lieu of profits tax calculated on the basis of the provisions of the inland Revenue Ordinance will be made to the government. Provision is made for deferred tax in respect of all material timing difference attributable to accelerated depreciation allowances on fixed assets except where it is considered that no liability will crystallize in the foreseeable future
| Year ended 31 March 1998 $000 |
Eight months ended 31 March 1998 $000 |
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| Notional profits tax | 55,593. | 18,498 | |||
| Deferred tax for the year | (4,117) | 10,968 | |||
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| Taxation for the year | 51,476 | 29,466 | |||
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8. Dividend
A dividend of $78,462 million being 30% of the profit taxation is proposed for the year ended 31 March 1998 (1997:44,735 million)
9. Rate of return on fixed assets
This is calculated as a percentage of operating profit and interest income after taxation to Average Net Fixed Assets (ANFA). The Electrical and Mechanical Services Trading Fund is expected to meet a target return of 13.5% per annum on ANFA as determined by the Financial Secretary.
10. Fixed assets
| Land and Building $000 |
Plant and Equipment $000 |
Computer System and Equipment $000 |
Motor Vehicles $000 |
Total $000 |
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| Cost or valuation | |||||
| At 1 April 1997 | 950,100 | 23,082 | 18,817 | 20,160 | 1,012,159 |
| Additions | - | 394 | 671 | 2,692 | 3,757 |
| Disposals | - | (258) | - | (47) | (305) |
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| At 31 March 1998 | 950,100 | 23,218 | 19,488 | 22,805 | 1,015,611 |
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| Aggregate depreciation/amortisation | |||||
| At 1 April 1997 | 9,335 | 2,160 | 3,004 | 2,522 | 17,021 |
| Charge for the year | 14,000 | 3,292 | 4,607 | 4,485 | 26,384 |
| Eliminated on disposals | - | (38) | - | (10) | (48) |
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| At 31 March 1998 | 23,335 | 5,414 | 7,611 | 6,997 | 43,357 |
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| Net book value | |||||
| At 1 April 1997 | 940,765 | 20,922 | 15,813 | 17,638 | 995,138 |
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| At 31 March 1998 | 926,765 | 17,804 | 11,877 | 15,080 | 972,254 |
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11. Stocks and work in progress
| 1998 $000 |
1997 $000 |
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| Stocks | 108,591 | 95,874 | |||
| Work in progress | 20,749 | 43,135 | |||
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| 129,340 | 139,009 | ||||
12. Short-term borrowing
| 1998 $000 |
1997 $000 |
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| Government loan repayable within one year at 31 March (see also note 17) | 30,280 |
30,280 |
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13. Deferred revenue
This represents contract fees received in advance for which services have not yet been rendered.
14. Deferred tax
| 1998 $000 |
1997¦~ $000 |
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| Balance at beginning of year | 10,968 | - | ||
| Provision for the year | (4,117) | 10,968 | ||
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| Balance at end of year | 6,851 | 10,968 | ||
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15. Trading fund capital
This represents government's investment in the Electrical and Mechanical Services Trading Fund
| 1998 $000 |
1997 $000 |
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| Balance at beginning of year | 706,600 | 706,000 | ||
| Addition | - | - | ||
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| Balance at end of year | 706,600 | 706,000 | ||
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16. Revenue reserve
| 1998 $000 |
1997 $000 |
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| Balance at beginning of year | 104,380 | - | ||
| Profit for the year | 261,541 | 149,115 | ||
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| 365,921 | 149,115 | |||
| Proposed dividend | (78,462) | (44,735) | ||
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| Balance at end of year | 287,459 | 104,380 | ||
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17. Government loan
| 1998 $000 |
1997 $000 |
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| Government loan repayable after one year at 31 March | 242,240 | 377,520 | ||
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A set-up loan of $302.8 million from the capital Investment Fund was made in accordance with the resolution passed by the Legislative Council on 26 June 1996 to finance part of initial assets valued at $1,009.4 million appropriated to the electrical and Mechanical Services Trading fund effective From 1 August 1996. The loan is repayable in ten equal annual instalments of $30.28 million starting form 1 July 1997, The second instalment due to be payable on 1 July 1998 is shown under short-term borrowing. The balance of $242.24 million shown under this item represents the balance of loan after repayment of the second instalment.
A further loan facility of $150 million from the capital investment fund was approved by the finance committee on 12 July 1996 to finance the initial years' working capital of the Electrical and Mechanical Services Trading Services Trading Fund. The working capital loan was to operate as an overdraft credit limit of $150 million drawn as and when necessary and repayable in full by 31 July 2006. Two drawn downs of $70 million and $35 milllion were made on 1 August 1996 and 2 September 1996 respectively . During the year ended 31 March 1998. These two drawdowns were fully paid off and no additional drawdown from the loan was made.
Interest for both loans are payable on the amount outstanding at the average of the best lending rates quoted by the continuing members of the committee of the Hong Kong Association of Banks.
18. Analysis of the balances of cash and cash equivalents
| 1998 $000 |
1997 $000 |
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| Cash and bank balance | 147,633 | 12,261 | ||
| Placements with banks | 405,000 | 354,000 | ||
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| Balance at 31 March | 552,633 | 366,261 | ||
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19. Comparative figures
Comparative figures represent 8 months figures for the period from 1 August 1996 to 31 March 1997. Certain comparative figure have be reclassified to conform with the current year's presentation.
