On behalf of the Board of Directors, I am pleased to report that the Group maintained a performance in the financial period from 1st November, 1996 to 31st December, 1997.
The Group's turnover amounted to HK$557.1 million for the fourteen months period ended 31st December, 1997, 3.7% under the previous year, as the undesirable economic conditions in the Asian countries in the second half of 1997 poised negative impacts on the Group's business. Profits attributable to shareholders after taxation and minority interests amounted to HK$11.0 million, representing a decrease of 84.7% compared with 1996. Such decrease is mainly attributable to the elevation of overhead costs led by the reorganisation programs and expansion plans carried out by the Group in 1996 and 1997.
Earnings per share for the financial period were 2.5 Hong Kong cents compared with 17.8 Hong Kong cents in the previous year. The Board of Directors do not recommend payment of a dividend for the period.
In the period under review, electronic product business helped by strategical market repositioning was able to maintain reasonable business record admist the depressed macro economic environment. OEM business, as strategically and aggressively developed, continued to grow at a healthy rate although a little bit behind than expected. ODM business in North America and Europe increased slightly but the unfavourable economic conditions in Asian countries brought a decrease in orders from ODM business. Overally, turnover for electronic products recorded a slight decrease of 3.3% compared with 1996.
The trading and distribution business of electronic components and parts suffered a loss as a result of the sluggish sales and slim margins caused by the depressed market environment in Hong Kong.
On the other hand, our business in printed circuit boards (PCBs) continued to grow as buoyed by the increasing demand in the high-value high-growth technology industries. Turnover showed an increase of 60.4% over 1996.
Pursuant to the Group's earlier restructuring, the Group now operates in two main business streams, namely; Electronic Products Division (for the manufacture and sale of electronic products) and Electronic Components and Parts Division (for the manufacture and sale of PCBs and the trading and distribution of electronic components and parts). Each division has its own manufacturing and distribution functions.
This structure has the benefit of a more product-oriented approach enabling the Group to better focus and capitalise on the growth of different products. In the period under review, the Electronic Products Division contributed 54.0% of the Group's turnover whereas the Electronic Components and Parts Division took up the remaining 46.0%, compared with 53.7% and 46.3% respectively for the last year.
Under the restructuring, the Group has been operating efficiently, able to leverage its strengths and capabilities to further develop its business. Fuelled by adequate financial resources and suitable qualified personnel and management support as allocated from the Group to enhance manufacturing capability and capacity, our PCB business has as a result transformed to higher potential and the Directors are confident that it will flourish in years to come. Whilst the unfavourable market conditions do not promise a well being in the trading and distribution business, the Group has directed more attention to the consolidation of the operations to prepare for a recovery of the market in the future. For electronic products business, the Group concentrates its effort more upon product development and marketing.
In the Electronic Products Division, the Group will continue to place more emphasis on OEM business with contracts being already secured from renowned customers such as Casio, Citizen, Canon and Napolex. The Group currently manufactures approximately 110,000 units of OEM items per month for Casio and the business is expected to expand even further in the next couple of years. In addition, the Group's expanded sales and marketing force is aggressively seeking new customers for OEM business. After the factory expansion program carried out during 1996 and 1997, the Group now has enough production capacity to support the manufacturing needs. The Group in 1998 will aim at strengthening and enhancing the existing production capacity and will take various management control measures to gear up its efficiency.
Research and development has always been one of our key strengths. Our Electronic Products Division is carrying out R&D projects on Weather Forecast Equipment and Digital Compass which are expected to commence production in the second quarter of 1998. We are also in the process to develop Radio Control Clock on OEM basis and production is scheduled to commence before 1998 year end. In addition, the Group is planning to develop Radio Frequency (RF) products like RF Thermometer and RF Control.
In the Electronic Components and Parts Division, PCBs has grown from strength to strength and will remain the focus of intensive reorganisation and expansion efforts. In April 1998, the second production line for PCBs has become fully operational while the first production line will be upgraded. In mid-1998, when both lines will be fully operational, our production capacity for PCBs will be ramped up by 150% provoking a shift to higher margin and higher layer-count products. It is estimated that it will reach full production before 1998 year end, so as to benefit from the Group's strong order book situation. To match with our reorganisation program, the expansion plan for the third production line has however been postponed till 1999. The Group will target its marketing and sales efforts in Hong Kong, China, Singapore, Europe and North America.
While our trading and distribution business suffered from the Asian financial turmoil and the down-turn market conditions, we anticipate slow growth in this area in the coming year. The Group has tightened its sales and credit policies and inventory control and will also proactively pursue costs reduction opportunities. To better utilise its distribution capacity, the Group has already entered into a distributorship agreement with a Japanese supplier, Copal Electronics Co. Ltd. in August 1997 for a non-exclusive right to sell her products in the PRC. Further, a PRC distributorship right from another internationally well-known Japanese electronics group has also been under discussion.
Based on the Group's R&D expertise, manufacturing capacity and sales and distribution network, along with aggressive yet cautious expansion plans, the Board of Directors believe the Company can look forward with confidence to strong recovery and success in years ahead.
On behalf of the shareholders and directors, I wish to thank the Group's management and staff for their conscientious efforts and loyalty during the past period.
On behalf of the Board
Yau Tak Wah, Paul
Chairman
Hong Kong, 8th May, 1998