The directors herein present their report and the audited financial statements of the Company and the Group for the year ended 31st December, 1998.
PRINCIPAL ACTIVITIES
The principal activity of the Company is investment holding. The Group's principal activities have not changed during the year 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.
SEGMENTED INFORMATION
An analysis of the Group's turnover and the contribution to operating profit/(loss) by principal activity and an analysis of turnover by geographical area according to principal activity is as follows:
Turnover Contribution
14 months 14 months
period from period from
Year ended 1st November, Year ended 1st November,
31st 1996 to 31st 31st 1996 to 31st
December, December, December, December,
1998 1997 1998 1997
HK$'000 HK$'000 HK$'000 HK$'000
By activity:
Electronic products:
Manufacture and sale of
electronic products 287,952 300,695 8,264 25,170
Electronic components
and parts:
Manufacture and sale
of PCBs 92,723 93,759 (5,547) 63
Trading and distribution
of electronic
components and parts 102,882 162,602 (16,566) (5,740)
------- ------- ------- -------
483,557 557,056 (13,849) 19,493
======= =======
Less: interest
expense --- net (5,718) (5,756)
------- -------
(19,567) 13,737
Exceptional item (7,926) --
------- -------
(27,493) 13,737
======= =======
By geographical area according to principal activity:
Turnover
14 months
period from
Year ended 1st November,
31st 1996 to 31st
December, December,
Notes 1998 1997
HK$'000 HK$'000
Manufacture and sale
of electronic products:
Europe 55,771 80,036
North America 88,257 64,274
The People's Republic of China
("PRC"),including Hong Kong 1 44,710 50,270
Japan 81,378 84,272
Others 2 17,836 21,843
------- -------
287,952 300,695
======= =======
Turnover
14 months
period from
Year ended 1st November,
31st 1996 to 31st
December, December,
Note 1998 1997
HK$'000 HK$'000
Manufacture and sale of PCBs:
The PRC, including Hong Kong 89,720 90,176
Others 3 3,003 3,583
------- -------
92,723 93,759
======= =======
Turnover
14 months
period from
Year ended 1st November,
31st 1996 to 31st
December, December,
1998 1997
HK$'000 HK$'000
Trading and distribution of
electronic components and parts:
The PRC:
Hong Kong 66,205 102,453
Elsewhere 36,677 60,149
------- -------
102,882 162,602
======= =======
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 the United States of America, Europe, Australia and South East Asia.
RESULTS AND DIVIDENDS
The Group's loss for the year ended 31st December, 1998 and the state of affairs of the Company and the Group at that date are set out in the financial statements on pages 30 to 56.
The directors do not recommend the payment of any dividends in respect of the year.
SUMMARY FINANCIAL INFORMATION
A summary of the published results of the Group for the last five financial reporting years/period and of its assets and liabilities at respective financial reporting year/period end dates, as extracted from the audited financial statements of the Group for the year ended 31st December, 1998 as set out on pages 30 and 31 of the financial statements, and from the audited financial statements of the Group for the fourteen months period ended 31st December, 1997, and the years ended 31st October, 1996 and 31st October, 1995, and the prospectus of the Company dated 25th July, 1995 and reclassified as appropriate, prepared on the basis as if the Group reorganisation on 21st July, 1995 had taken place prior to the years/period 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.
14 months
Year period from Year Year Year
ended 1st November, ended ended ended
31st 1996 to 31st 31st 31st 31st
December, December, October, October, October,
1998 1997 1996 1995 1994
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
RESULTS
TURNOVER 483,557 557,056 578,256 454,373 282,940
======= ======= ======= ======= =======
OPERATING PROFIT/(LOSS)
BEFORE EXCEPTIONAL
ITEM (19,567) 13,737 79,367 78,723 43,108
Exceptional item (7,926) -- -- -- --
------- ------- ------- ------- -------
OPERATING PROFIT/
(LOSS) (27,493) 13,737 79,367 78,723 43,108
Share of profits less
losses of associated
companies 23 -- (123) 107 420
------- ------- ------- ------- -------
PROFIT/(LOSS) BEFORE
TAXATION (27,470) 13,737 79,244 78,830 43,528
Taxation 988 (2,715) (7,035) (8,228) (6,622)
------- ------- ------- ------- -------
PROFIT/(LOSS) BEFORE
MINORITY INTERESTS (26,482) 11,022 72,209 70,602 36,906
Minority interests (4) 5 (314) 1,006 (193)
------- ------- ------- ------- -------
PROFIT/(LOSS)
ATTRIBUTABLE TO
SHAREHOLDERS (26,486) 11,027 71,895 71,608 36,713
======= ======= ======= ======= =======
31 st 31 st 31 st 31 st 31 st
December, December, October, October, October,
1998 1997 1996 1995 1994
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
ASSETS AND LIABILITIES
FIXED ASSETS 185,810 192,164 138,894 95,031 50,630
PREPAID RENTAL 7,061 7,798 8,658 9,395 10,132
DEFERRED PRODUCT
DEVELOPMENT COSTS 5,829 3,954 3,471 3,179 2,546
DEFERRED PRE-OPERATING
EXPENSES 3,363 4,466 5,818 2,972 1,342
INTERESTS IN ASSOCIATED
COMPANIES 363 1,056 1,023 147 143
CURRENT ASSETS 198,043 256,130 371,563 221,135 100,681
------- ------- ------- ------- -------
TOTAL ASSETS 400,469 465,568 529,427 331,859 165,474
------- ------- ------- ------- -------
CURRENT LIABILITIES 138,538 165,497 250,501 133,040 94,866
LONG TERM BANK
BORROWINGS 13,247 16,944 21,257 2,458 8,348
LONG TERM LEASE
PAYABLES -- -- 272 726 164
DEFERRED TAXATION -- 1,196 1,325 1,196 1,009
------- ------- ------- ------- -------
TOTAL LIABILITIES 151,785 183,637 273,355 137,420 104,387
------- ------- ------- ------- -------
MINORITY INTERESTS 8,806 8,802 8,809 8,587 17,078
------- ------- ------- ------- -------
NET ASSETS 239,878 273,129 247,263 185,852 44,009
======= ======= ======= ======= =======
FIXED ASSETS
Details of movements in the fixed assets of the Group during the year 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, 1998 is as follows:
HK$'000
Amounts repayable:
Within one year 43,308
In the second year 3,697
In the third to fifth years, inclusive 9,550
------
56,555
======
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 year.
SHARE CAPITAL, SHARE OPTIONS AND WARRANTS
Details of movements in the Company's share capital, share options and warrants during the year, together with the reasons therefor, are set out in note 20 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 year are set out in note 21 to the financial statements.
DISTRIBUTABLE RESERVES
At 31st December, 1998, the Company's reserves available for cash distribution and/or distribution in specie amounted to HK$110,301,000 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 year under review, sales to the five largest customers accounted for 31% of the total sales for the year and sales to the largest customer included therein amounted to 12% of the total sales. Purchases from the five largest suppliers accounted for approximately 55% of the total purchases for the year and purchases from the largest supplier included therein amounted to 39% 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 year amounted to HK$1,331,000 (1997: HK$292,000) and were in respect of employees of the Group in Hong Kong who were members of a defined contribution pension scheme. There were no forfeited contributions during the year. At 31st December, 1998, no forfeited contributions (1997: HK$Nil) were available to reduce the Group's contributions to the pension scheme in future years.
DIRECTORS
The directors of the Company during the year 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. Yung Ip Ki and Mr. Tam Ping 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. On 21st July, 1998, each of the executive directors renewed their service contracts with the Company for a fixed term of three years until 20th July, 2001 under the same terms and conditions.
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, 1998, 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:
Director Notes Nature of interest Number of shares Mr. Yau Tak Wah, Paul 1 Corporate 87,000,000 Mr. Yung Ip Ki 2 Corporate 75,000,000 Mr. Tam Ping Wah 3 Corporate/personal 11,050,000 Mr. Chiu Wing Hong 4 Corporate 35,000,000 Mr. Tse Kam Fow 5 Personal 23,700,000
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, 10,080,000 shares were held through Strong Trend International Limited ("Strong Trend"), a company beneficially owned by Mr. Tam Ping Wah. The remaining 970,000 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$0.74 per share in 1996. 20,000,000 share options were exercised in 1997. No options were exercised during the year.
Save as disclosed above, none of the directors or their associates had any personal, family, corporate or other interest in the equity securities of the Company or any of its associated corporations as defined in the SDI Ordinance.
DIRECTORS' RIGHTS TO ACQUIRE SHARES
The Company has a share option scheme approved on 21st July, 1995 under which the directors may grant options to executive directors and employees of the Group to subscribe up to 10 % of the nominal amount of the issued share capital of the Company. As at the balance sheet date, no options have been granted to the executive directors under this scheme.
Apart from the foregoing, at no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable the Company's directors, their respective spouse, or children under 18 years of age, to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.
DIRECTORS' INTERESTS IN CONTRACTS
Details of contracts in which the directors were interested are set out in note 25 to the financial statements.
DIRECTORS' REMUNERATION
14 months
period from 1st
Year ended November,
31st 1996 to 31st
December, December,
1998 1997
HK$'000 HK$'000
Directors' fees:
Executive -- --
Independent non-executive 360 420
Other emoluments:
Executive:
Salaries and other benefits 6,174 5,134
Performance-related
incentive payments -- 900
----- -----
6,534 6,454
Independent non-executive:
Salaries and other benefits -- --
----- -----
6,534 6,454
===== =====
The remuneration of the directors fell within the following bands:
Number of directors
14 months
period from 1st
Year ended November,
31st 1996 to 31st
December, December,
1998 1997
HK$'000 HK$'000
HK$Nil -- HK$1,000,000 2 3
HK$1,000,001 -- HK$1,500,000 5 4
--- ---
7 7
=== ===
There were no arrangements under which a director had waived or agreed to waive any remuneration.
HIGHEST PAID EMPLOYEES
The six highest paid employees during the year included four (1997: four) directors, details of whose remuneration are set out above.
The details of the remuneration of the remaining two (1997: two) non-director, highest paid employees are as follows:
14 months
period from 1st
Year ended November,
31st 1996 to 31st
December, December,
1998 1997
HK$'000 HK$'000
Salaries and other benefits 2,775 3,048
Performance related incentive payments 800 --
----- -----
3,575 3,048
===== =====
The remuneration of the two (1997: two) non-director, highest paid employees fell within the following bands:
Number of employees
14 months
period from 1st
Year ended November,
31st 1996 to 31st
December, December,
1998 1997
HK$'000 HK$'000
HK$Nil -- HK$1,000,000 -- 1
HK$1,500,001 -- HK$2,000,000 2 --
HK$2,000,001 -- HK$2,500,000 -- 1
------ ------
2 2
====== ======
SUBSTANTIAL SHAREHOLDERS
As at 31st December, 1998, 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 PARTY TRANSACTIONS
Details of the connected party transactions are set out in note 25 to the financial statements.
PURCHASE, SALE OR REDEMPTION OF SECURITIES
Neither the Company, nor any of its subsidiaries purchased, redeemed or sold any of the Company's listed securities during the year.
CODE OF BEST PRACTICE
In the opinion of the directors, the Company has 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 are 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 provision 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, the fourteen months period ended 31st December, 1997 and the year ended 31st December, 1998 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, 14th May, 1999