The directors herein present their report and the audited financial statements of the Company and the Group for the period from 1st November, 1996 to 31st December, 1997.
PRINCIPAL ACTIVITIES
The principal activity of the Company is investment holding. The Group's principal activities have not changed during the period and consisted of the design, development, manufacture and sale of electronic products, the manufacture and sale of printed circuit boards ("PCBs"), and the trading and distribution of electronic components and parts.
CHANGE OF ACCOUNTING DATE
Pursuant to the directors' resolution on 29th April, 1997, the Group changed its financial year end reporting date from 31st October to 31st December in order to have a coterminous accounting date among all group companies.
SEGMENTED INFORMATION
An analysis of the Group's turnover and the contribution to operating profit by principal activity and by geographical area according to principal activity is as follows:
Notes:
1. Sales in the PRC including Hong Kong were mainly to trading companies which, to the best of the directors' knowledge, resell the Group's electronic products worldwide. Certain sales to the PRC were made indirectly through Hong Kong trading companies.
2. These include sales to Australia, New Zealand, and countries in Latin America, the Middle East and other parts of Asia.
3. These include sales to North America, Europe and South East Asia.
RESULTS AND DIVIDENDS
The Group's profit for the period from 1st November, 1996 to 31st December, 1997 and the state of affairs of the Company and the Group at that date are set out in the financial statements on pages 33 to 64.
The directors do not recommend payment of a dividend in respect of the period.
SUMMARY FINANCIAL INFORMATION
A summary of the results of the Group for the last five financial reporting years/period and of its assets and liabilities for the last four financial periods, as extracted from the audited financial statements of the Group for the fourteen months period ended 31st December, 1997 as set out on pages 33 to 34 and from the audited financial statements of the Group for the years ended 31st October, 1996 and 31st October, 1995 and the prospectus of the Company dated 25th July, 1995 and reclassified as appropriate and as if the Group reorganisation on 21st July, 1995 had taken place prior to the periods presented, is set out below. As the Company was incorporated on 3rd April, 1995, no other published audited financial statements of the Group are available.
FIXED ASSETS
Details of movements in the fixed assets of the Group during the period are set out in note 9 to the financial statements.
SUBSIDIARIES
Details of the Company's subsidiaries are set out in note 13 to the financial statements.
BANK BORROWINGS
The amount of bank borrowings of the Group at 31st December, 1997 is as follows:
Further details of the Group's bank borrowings are set out in note 18 to the financial statements.
No interest was capitalised by the Group during the period.
SHARE CAPITAL, SHARE OPTIONS AND WARRANTS
Details of movements in the Company's share capital, share options and warrants during the period, together with the reasons therefor, are set out in note 21 to the financial statements.
There are no provisions for pre-emptive rights under the Company's Bye-laws or the laws of Bermuda which would oblige the Company to offer new shares on a pro rata basis to existing shareholders.
RESERVES
Details of movements in the reserves of the Company and the Group during the period are set out in note 22 to the financial statements.
DISTRIBUTABLE RESERVES
At 31st December, 1997, the Company's reserves available for cash distribution and/or distribution in specie amounted to HK$85,939,000 as computed in accordance with the Companies Act 1981 of Bermuda (as amended). In addition, the Company's share premium account may be distributed in the form of fully paid bonus shares.
MAJOR CUSTOMERS AND SUPPLIERS
In the period under review, sales to the five largest customers accounted for less than 30% of the total sales. Purchases from the five largest suppliers accounted for approximately 54% of the total purchases for the period and purchases from the top largest supplier included therein amounted to 40% of the total purchases.
As far as the directors are aware, neither the directors, their associates nor those shareholders which to the knowledge of the directors own more than 5% of the Company's share capital had any interest in the five largest customers or suppliers.
PENSION COSTS
The pension scheme contributions made by the Group during the period amounted to HK$292,000 (1996: HK$Nil) and were in respect of employees of the Group in Hong Kong who were members of a defined contribution pension scheme. There were no forfeited contributions during the period. At 31st December, 1997, no forfeited contributions (1996: HK$Nil) were available to reduce the Group's contributions to the pension scheme in future years.
DIRECTORS
The directors of the Company during the period were:
Executive directors:
Mr. Yau Tak Wah, Paul (Chairman)
Mr. Yung Ip Ki (Deputy Chairman)
Mr. Tse Kam Fow (Managing Director)
Mr. Tam Ping Wah
Mr. Chiu Wing Hong
Independent non-executive directors:
Mr. Alfred Donald Yap
Mr. Yam Po Wah
In accordance with clause 87 of the Company's Bye-laws, Mr. Tse Kam Fow and Mr. Yam Po Wah will retire by rotation and, being eligible, will offer themselves for re-election at the forthcoming annual general meeting.
DIRECTORS' SERVICE CONTRACTS
Each of the executive directors entered into a service contract with the Company for a fixed term of three years which commenced on 21st July, 1995 or their effective date of appointment which is terminable by either party upon the giving of six months' notice thereafter.
Apart from the foregoing, no director proposed for re-election at the forthcoming annual general meeting has a service contract which is not determinable by the Company within one year without payment other than statutory compensation.
DIRECTORS' INTERESTS IN SHARES AND WARRANTS
At 31st December, 1997, the interests of the directors in the listed securities of the Company as recorded in the register maintained by the Company pursuant to Section 29 of the Securities (Disclosure of Interests) Ordinance ("SDI Ordinance") were as follows:
Notes:
1. These shares were held through Pacific Shore Profits Limited ("Pacific Shore"), a company beneficially owned by Mr. Yau Tak Wah, Paul.
2. These shares were held through Prosper Union International Limited ("Prosper Union"), a company beneficially owned by Mr. Yung Ip Ki.
3. Out of these shares, 10,000,000 shares were held through Strong Trend International Limited ("Strong Trend"), a company beneficially owned by Mr. Tam Ping Wah. The remaining shares were held personally by Mr. Tam Ping Wah.
4. These shares were held through Dragon United Developments Limited ("Dragon United"), a company beneficially owned by Mr. Chiu Wing Hong.
5. Pursuant to a deed of option dated 1st October, 1996 entered into between, inter alia, Pacific Shore, Prosper Union, Strong Trend, Dragon United (collectively, the "Grantors") and Mr. Tse Kam Fow ("Mr. Tse"), Mr. Tse was granted an option to purchase from the Grantors an aggregate of 60,000,000 shares at the purchase price of HK$0.74 per share. As at 31st December, 1997, the option had been exercised to the extent of 20,000,000 shares.
Save as disclosed above, none of the directors or their associates had any personal, family, corporate or other interests in the equity securities of the Company or any of its associated corporations as defined in the SDI Ordinance.
DIRECTORS' RIGHTS TO ACQUIRE SHARES
The Company has a share option scheme approved on 21st July, 1995 under which the directors may grant options to executive directors and employees of the Group to subscribe up to 10% of the nominal amount of the issued share capital of the Company. As at the balance sheet date, no options have been granted to the executive directors under this scheme.
Apart from the foregoing, at no time during the period was the Company or any of its subsidiaries a party to any arrangement to enable the Company's directors, their respective spouse or children under 18 years of age, to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.
DIRECTORS' INTERESTS IN CONTRACTS
Except as detailed in note 26 to the financial statements, no director had a beneficial interest in any material contract to which the Company or any of its subsidiaries was a party during the period.
DIRECTORS' REMUNERATION
There were no arrangements under which a director had waived or agreed to waive any remuneration.
HIGHEST PAID EMPLOYEES
The six highest paid employees during the period included four (1996: four) directors, details of whose remuneration are set out above.
(a) The details of the remuneration of the remaining two (1996: two) non-director, highest paid employees are as follows:
The remuneration of the two non-director, highest paid employees fell within the following bands:
(b) Share options
No share options were granted to employees during the period.
SUBSTANTIAL SHAREHOLDERS
As at 31st December, 1997, no person, other than the directors of the Company, whose interests are set out above, had registered an interest in the share capital of the Company that was required to be recorded under Section 16(1) of the Securities (Disclosure of Interests) Ordinance.
CONNECTED TRANSACTIONS
In addition to the transactions detailed in note 26 to the financial statements, during the period, the Company executed guarantees in respect of banking facilities granted to an associated company, Golden Bright Plastic Manufacturing Company Limited to the extent of HK$2,058,000.
PURCHASE, SALE OR REDEMPTION OF SECURITIES
During the period, the Company repurchased and cancelled a total of 772,000 shares of HK$0.10 each of the Company (the "Shares") on The Stock Exchange of Hong Kong Limited as follows:
The directors believe that the repurchases are in the best interests of the Company and its shareholders. Such purchases, depending on market conditions and funding arrangements at that time, lead to an enhancement of the net assets and earnings per share of the Company.
Except as disclosed above, neither the Company, nor any of its subsidiaries purchased, redeemed or sold any of the Company's listed securities during the period.
CODE OF BEST PRACTICE
In the opinion of the directors, the Company had complied with the Code of Best Practice as set out in Appendix 14 of the Listing Rules of The Stock Exchange of Hong Kong Limited throughout the accounting period covered by the annual report, except that the independent non-executive directors of the Company were not appointed for specific terms, but are subject to retirement by rotation and re-election at the annual general meeting of the Company in accordance with the provisions of the Company's Bye-laws.
AUDITORS
The financial statements for the year ended 31st October, 1995 were audited by Deloitte Touche Tohmatsu, and the financial statements for the year ended 31st October, 1996 and the period from 1st November, 1996 to 31st December, 1997 were audited by Ernst & Young.
Ernst & Young retire and a resolution for their reappointment as auditors of the Company will be proposed at the forthcoming annual general meeting.
On behalf of the board
Yau Tak Wah, Paul
Chairman
Hong Kong, 8th May, 1998