Tomorrow International Holdings Limited
(Incorporated in Bermuda with limited liability)
ANNOUNCEMENT OF 1998 ANNUAL RESULTS
ANNOUNCEMENT OF 1998 ANNUAL RESULTS
GROUP ANNUAL RESULTS
The Board of Directors of Tomorrow International Holdings Limited (the "Company") is pleased to announce the audited consolidated results of the Company and its subsidiaries (the "Group") for the year ended 31st December, 1998.
Period from
1st November,
Year ended 1996 to
31st December, 31st December,
Notes 1998 1997
HK$'000 HK$'000
TURNOVER 2 483,557 557,056
========== ==========
OPERATING PROFIT/(LOSS)
BEFORE EXCEPTIONAL ITEM (19,567) 13,737
Exceptional item 3 (7,926) ---
---------- ----------
OPERATING PROFIT/(LOSS) (27,493) 13,737
Share of profits less losses of
associated companies 23 ---
---------- ----------
PROFIT/(LOSS) BEFORE TAXATION (27,470) 13,737
Taxation 4 988 (2,715)
---------- ----------
PROFIT/(LOSS) BEFORE MINORITY
INTERESTS (26,482) 11,022
Minority interests (4) 5
---------- ----------
NET PROFIT/(LOSS)
ATTRIBUTABLE TO
SHAREHOLDERS (26,486) 11,027
Transfer from warrant subscription
reserve 24,358 ---
---------- ----------
RETAINED PROFIT/(LOSS) FOR THE
YEAR/PERIOD (2,128) 11,027
========== ==========
EARNINGS/(LOSS) PER SHARE 5
Basic (6.0 cents) 2.5 cents
========== ==========
Diluted N/A N/A
========== ==========
Notes:
(1) The principal activities of the Group 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.
(2) Turnover represents the invoiced value of goods sold, net of returns and allowances.
Period from
1st November,
Year ended 1996 to
31st December, 31st December,
1998 1997
HK$'000 HK$'000
By activity:
Electronic products
Manufacture and sale of electronic
products 287,952 300,695
Electronic components and parts
Manufacture and sale of PCBs 92,723 93,759
Trading and distribution of electronic
components and parts 102,882 162,602
---------- ----------
Total 483,557 557,056
========== ==========
(3) Exceptional item for the year represents a deficit arising from the revaluation of leasehold land and buildings situated in Hong Kong and Mainland China.
(4) Taxation
Hong Kong profits tax has been provided at the rate of 16% (1997: 16.5%) on the estimated assessable profits arising in Hong Kong during the year/period.
Period from
1st November,
Year ended 1996 to
31st December, 31st December,
1998 1997
HK$'000 HK$'000
Group:
The People's Republic of China
Hong Kong
Current year/period provision 1,629 2,948
Overprovision in prior period/year (1,457) (196)
Deferred taxation (1,196) (129)
Mainland China 36 92
Associated companies --- ---
---------- ----------
Taxation charge/(credit) for the year/period (988) 2,715
========== ==========
In accordance with the applicable enterprise income tax law of the People's Republic of China (the "PRC"), the Group's subsidiaries registered in the PRC, Dongguan Yifu Circuit Board Factory ("Yifu") and Gaojin Electronics (Shenzhen) Co., Limited ("Gaojin") are exempt from income tax for the first two profitable years of operations and are entitled to 50% relief on the income tax that would otherwise be charged for the succeeding three years. As Yifu began its first profitable year in 1994, Yifu is entitled to a 50% relief on income tax, at an effective rate of 12% in 1998 (1997: 12%). Gaojin has yet to achieve profitable operations and so its income tax exemption holiday has not yet commenced.
(5) Earnings/(loss) per share
The calculation of basic earnings/(loss) per share is based on the loss attributable to shareholders for the year of HK$26,486,000 (1997: profit of HK$11,027,000) and the weighted average of 439,228,815 shares (1997: 436,051,211 shares) in issue during the year/period.
There were no dilutive potential ordinary shares as at 31st December, 1998 so the calculation of diluted loss per share is not necessary. There is no diluted earnings per share shown for the period ended 31st December, 1997 as the dilution effects arising from the exercise of warrants would have been anti-dilutive.
DIVIDEND
The Board of Directors do not recommend the payment of any dividends for the year ended 31st December, 1998.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Company will be closed from Monday, 21st June, 1999 to Thursday, 24th June, 1999, both days inclusive, during which period no transfers of shares will be registered.
BUSINESS REVIEW
During the year ended 31st December, 1998, the Group's business were still affected by the unfavourable economic condition in the Asian region and the keen competition in the electronic industry as a whole. The Group's total turnover recorded at HK$483.6 million, representing 13% decrease compared with the fourteen months period ended 31st December, 1997. Due to the low profit margin and increased overhead costs, the Group inevitably suffered a loss in its operations for the year under review. Together with the general provision made for doubtful debts and slow moving stocks in total of HK$17.5 million and the deficit of HK$7.9 million arising from the property revaluation as of 31st December, 1998, loss attributable to shareholders amounted to HK$26.5 million.
Electronic product business maintained a steady growth in turnover especially in the North American and Japanese market, but keen competition had cut its profit margin. The increase in overhead costs had also undermined its profit contribution.
Although PCB business enjoyed a satisfactory buoyancy with the enlarged production capacity, it was still under the stress of the amortisation of capital expenditure and the absorption of increased overhead costs arising from the expansion plan.
Under the unfavourable market conditions of the electronic industry in Hong Kong and Mainland China, the Group's trading and distribution business still performed less satisfactorily throughout the year.
FUTURE PLANS
The Group are currently undergoing a thorough office automation programme, with emphasis on upgrading the Group's computer operating system, to strengthen management planning and control and to gain operating advantages within the Group. In addition, tightened credit and inventory policies and control together with effective cost reduction measures will be pursued in the coming year.
In the Electronic Products Division, the Group will continue to develop its OEM business. On the other hand, in order to catch up with the ever-changing electronic industry, the Group has persisted to spend more emphasis on the research and development. It is in the progress to develop new type of electronic products like radio frequency items which may enlarge the product range in both ODM and OEM business in the future.
In the Electronic Components and Parts Division, the Group remains to focus its development on the manufacture of PCBs. With the setup of the second production line for PCB manufacturing by early 1998, it is operationally prepared to meet with any new market demand for its products. Negotiations are being undertaken with several new well-known Japanese customers for future large orders. Although the Group has development plans for further expansion of the PCB operations, it will take a conservative approach in the implementation in order to closely monitor the recovery of the economy.
The recessionary environment in Hong Kong and Mainland China still affect the trading and distribution business. Apart from the closure of Beijing and Tokyo representative office in late 1998, the Group will continue to consolidate its operations to confront with the unfavourable market condition.
YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") issue has arisen because many computer systems and equipment embedded with chip-based devices which store date information based on a two-digit year sequence are unable to accurately process dates for the Year 2000 and beyond. Non-compliance with the Y2K issue by the Group, its suppliers, customers and other business associates may cause disruption to the operations of the Group.
The Group has formed a steering committee in early 1998 to address the Y2K issue. A thorough office automation programme has been carried out since the second half of 1998 where all of the computer hardware, software and operating systems which are not or are not sure to be Y2K compliant have been or will be replaced by the end of September 1999. Up to the present time, the Group is in the progress to execute a parallel run test in the implementation of a new accounting system and a manufacturing operating system to further improve their efficiency and reliability and to remove their Y2K sensitivity. Most of the computer hardware and software have been replaced under the office automation programme. The Group is also undergoing a complete survey to receive assurances from its major suppliers and customers that they are aware of the Y2K issue and are taking appropriate steps to ensure that their computer systems are Y2K compliant.
As a contingency plan, the Group has decided to obtain hardcopy report being generated from all computer systems for both master and transaction files from October 1999 until the end of the year. These serve as back up copies to ensure the continuity of its operations.
The total estimated cost of the project is approximately HK$3.8 million, which includes HK$1.7 million for the purchase of new computer software. The balance of HK$2.1 million is mainly for the replacement of computer hardware where HK$1.6 million out of which will be covered by an operating lease agreement signed with the supplier. No capital expenditure is to be incurred but the monthly lease rentals will be treated as normal operating expenses and charged to the profit and loss account. The aggregate amount of commitments authorised by the directors is HK$2.2 million where approximately HK$0.2 million has been contracted for at 31st December, 1998.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S 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 provisions of the Company's Bye-laws.
By Order of the Board
Yau Tak Wah, Paul
Chairman
Hong Kong, 14th May, 1999