The Group is pleased to announce that it had operated satisfactorily through 1998, another year in which the global economy offered little cheer for Asian countries. After the challenging period in 1997 and 1998, characterised by tight spending and consolidation, the Group looks forward to improvements in the economy in 1999.
Net loss for the year ended 31st December, 1998, amounted to HK$26.5 million, on a yearly turnover of HK$483.6 million, a decline of 13 per cent from the turnover of HK$557.1 million for the fourteen months period ended 31st December, 1997. The results reflect the difficult operating conditions suffered by Asian manufacturers, as well as fierce competition faced by the electronics industry.
Loss per share for the year under review were HK$6.0 cents, compared with earnings per share of HK$2.5 cents for the previous fourteen months period. The Board of Directors did not recommend payment of a dividend for the year.
The Group's electronic products business registered a 10 per cent increase in turnover throughout 1998, compared with the same period in the previous year. The Board is pleased with the Group's initiatives, and the positive customer response, in the world's two most open and developed markets of the US and Japan. Our business in the strong domestic US economy, which has been growing steadily for the past five years, contributed to the Group's bottom line last year.
In Japan, the birthplace of the electronics industry, the Group's continued marketing efforts to develop the domestic OEM businesses, paid off with rising turnover. Lower profit margins and increased overhead costs, however, undermined the overall profitability of the electronic products' business.
The PCB manufacturing business also recorded a growth in turnover last year, on the back of a boost in the production capacity. Turnover grew 15 per cent. to HK$92.7 million, compared with the calendar year 1997. Nevertheless, the amortisation of capital expenditure put pressure on the business. It also had to absorb heavier demands of overheads as a result of the expansion plan.
However, such situation in the PCB manufacturing business is now under control by use of a package of business process re-engineering exercises aimed at lifting the business's operating efficiency. Improvements have also been seen with the optimisation of the plant's production capacity. Further improvements are expected in the coming year as the business actively seeks new opportunities for development in the more mature markets of the US and Japan. New potential possibilities for growth will also be explored in certain European countries.
The recessionary environment in Hong Kong and slower PRC market were unfavourable characteristics of 1998. This especially put pressure on the Group's trading and distribution business. The business performed unsatisfactorily over the year, with turnover down 28 per cent, to HK$102.9 million, over the same period in the previous year.
In order to reduce operating costs, the management decided to close down the Group's representative offices in Beijing and Tokyo, and did so in September and December, respectively. This year, we are considering consolidating the trading and distribution business. If the market conditions remain unfavourable, this option would help to reduce costs.
The management placed extra emphasis on planning how best to steer the company through the economic crisis, that persisted for a second year in 1998. This included adopting various measures to tighten the group's control over costs, accounts receivable, inventories and improving operating advantages. This has helped to strengthen the Group's competitiveness in the marketplace.
The Group has taken seriously the potential threat of damage and failure to systems that could be caused by the millennium bug. We are currently undergoing a thorough office automation programme, with emphasis on upgrading the Group's computer operating systems, as part of our Y2K compliance project. The Group expects all its systems to be fully Y2K compliant by September 1999 at the latest.
With initial signs of an improvement in the Asian economies on the horizon, the Group is operationally prepared to meet with any new market demand for its products. All of the Group's business units have development plans, which will be put into operation once the outlook for the economies has improved. The Group will take a conservative approach to implementing any further development plans and will monitor the recovery of the economies closely.
The acknowledged economic recovery signs were backed up by noticeable improvements seen in the second quarter of 1999. The Group is confident that it will benefit from the economic rebound through greater sales and profitability and will deliver dividends to shareholders in the years ahead.
On behalf of the board, I would like to thank all our employees, for their dedication and support throughout the year, as well as our suppliers, customers, bankers and shareholders.
On behalf of the Board
Yau Tak Wah, Paul
Chairman
Hong Kong, 14th May, 1999