The directors have pleasure in presenting their annual report and the audited financial statements of the Company and the Group for the year ended 31 March 1998.
GROUP REORGANISATION
The Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 24 April 1997. On 30 May 1997, pursuant to a reorganisation to rationalise the Group structure in preparation for the listing of the Company's shares on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"), the Company became the holding company of the companies now comprising the Group through the acquisition, for shares, of the entire issued share capital of Tonic Electronics (B.V.I.) Limited, the former holding company of the Group. The shares of the Company were listed on the Stock Exchange on 16 October 1997.
PRINCIPAL ACTIVITIES
The principal activity of the Company is investment holding. The subsidiaries are engaged in the design, manufacture and marketing of consumer audio products.
SEGMENTAL INFORMATION
The principal activity of the Group is the manufacturing and trading of consumer audio products. An analysis of the Group's turnover for the year ended 31 March 1998 by geographical region is as follows:
Contribution to operating profit by geographical region is not presented as the contribution from each region is substantially in line with the ratio of profit to turnover of the Group.
RESULTS AND DIVIDENDS
The Group's profit for the year ended 31 March 1998 and the state of affairs of the the Group at that date are set out in the financial statements on page 22 and 23 respectively. The state of affairs of the Company are set out on page 26 in the financial statements.
An interim dividend of HK1 cent per share was paid to shareholders on 10 January 1998. The directors recommend the payment of a final dividend of HK3 cents per share in cash to shareholders whose names appear on the register of members on 16 September 1998 . This recommendation has been incorporated in the financial statements.
BONUS ISSUE OF SHARES AND WARRANTS
The directors propose a bonus issue of new shares (the "Proposed Bonus Share Issue") and a bonus issue of warrants (the "Proposed Bonus Warrant Issue") to shareholders whose names appear on the register of members on 16 September 1998.
The Proposed Bonus Share Issue will be made on the basis of two bonus shares for every five existing ordinary shares. The bonus shares will be credited as fully paid at par and will rank pari passu with the existing ordinary shares in all respects, except that they will not rank for the Proposed Final Dividend, the Proposed Bonus Share Issue and the Proposed Bonus Warrant Issue.
The Proposed Bonus Warrant Issue will be made on the basis of one bonus warrant for every five existing ordinary shares. Each bonus warrant will entitle the holder to subscribe in cash for a new share of the Company at an initial subscription price of HK$0.65, subject to adjustments, at any time from the date of issue to 30 September 2000 or such earlier date as provided in the instrument constituting the warrant.
The proposals are subject to (i) the approval of the Company's shareholders at the forthcoming 1998 Annual General Meeting; (ii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the bonus shares and warrants, and any new shares which may be issued upon the exercise of the subscription rights attaching to the bonus warrants, on the Stock Exchange.
DISTRIBUTABLE RESERVES
At 31 March 1998, the Company's reserves available for cash distribution and/or distribution in specie amounted to HK$99,371,000. Under the Companies Law (1995 Revision) of the Cayman Islands, the share premium of the Company is available for paying distributions or dividends to shareholders subject to the provisions of its Memorandum or Articles of Associations and, provided that immediately following the distribution of dividend, the Company is able to pay its debts as they fall due in the ordinary course of business. In the opinion of the directors, the Company's reserves available for distribution represent the share premium, contributed surplus and retained profits.
MAJOR CUSTOMERS AND SUPPLIERS
During the year, the five largest customers in aggregate accounted for approximately 69% of the total turnover of the Group and the largest customer accounted for approximately 21% of the total turnover of the Group.
During the year, the five largest suppliers in aggregate accounted for approximately 54% of the total purchases of the Group and the largest supplier accounted for approximately 37% of the total purchases of the Group.
As far as the directors are aware, neither the directors, their associates, nor any shareholders which to the knowledge of the directors own more than 5% of the Company's issued share capital, had any interest in the five largest customers or suppliers.
FINANCIAL SUMMARY
A summary of the results and of the assets and liabilities of the Group is set out on page 46 of the annual report.
FIXED ASSETS
During the year, the Group spent approximately HK$16,408,000 on construction in progress in respect of two new factory and one dormitory buildings in the People's Republic of China and approximately HK$17,718,000 on equipment and tools to increase and enhance its production capacity.
As at 31 March 1998, the Group's leasehold land and buildings held in Hong Kong have been pledged to banks against facilities granted. Subsequent to the balance sheet date, the banks have agreed to release all these pledges and the execution documents are now in process.
PRE-EMPTIVE RIGHTS
There are no provisions for pre-emptive rights under the Company's Articles of Association or the laws of Cayman Islands which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.
BORROWINGS AND INTEREST CAPITALISED
Bank loans and facilities of the Group repayable on demand or within one year are classified as current liabilities.
No interest was capitalised by the Group during the year.
DIRECTORS
The directors of the Company during the period and up to the date of this report were:
Executive directors:
| Ling Siu Man, Simon (Chairman and Managing Director) | (appointed on 30 May 1997) |
| Lee Ka Yue, Peter | (appointed on 6 June 1997) |
| Wong Ki Cheung | (appointed on 30 May 1997) |
| Li Fung Ching, Catherine | (appointed on 30 May 1997) |
| Au Wai Man | (appointed on 22 August 1997) |
| Liu Hoi Keung, Gary | (appointed on 22 July 1998) |
Non-executive directors:
| Wong Wai Kwong, David | (appointed on 11 August 1997) |
| Ho Fook Hong, Ferdinand | (appointed on 3 September 1997) |
| Pang Hon Chung, Mica | (appointed on 3 September 1997) |
In accordance with Article 99 of the Company's Articles of Association, all the directors will retire and, being eligible, offer themselves for re-election at the forthcoming annual general meeting.
The terms of office of the non-executive directors are the periods from their dates of appointment up to their retirement by rotation in accordance with the Company's Articles of Association.
DIRECTORS' SERVICE CONTRACTS
All the executive directors, other than Lee Ka Yue, Peter and Liu Hoi Keung, Gary, have entered into service contracts with the Company for terms of three years commencing from 18 September 1997.
Save as disclosed above, none of the directors proposed for re-election at the forthcoming annual general meeting has a service contract with the Company or any of its subsidiaries which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.
DIRECTORS' INTERESTS IN THE SHARE CAPITAL OF THE COMPANY AND ITS SUBSIDIARIES
At 31 March 1998, a director of the Company and his associates held the following interest in the issued share capital of the Company, as recorded in the register maintained by the Company under Section 29 of the Securities (Disclosure of Interests) Ordinance (the "SDI Ordinance"):
Note:
These shares were held by Success Forever Limited, a company incorporated in the British Virgin Islands, the entire issued share capital of which is beneficially owned by Mr. Ling Siu Man, Simon.
Save as disclosed above and other than certain shares of the Company's subsidiaries held by certain Directors in trust for the Group, none of the directors or any of their associates had any interests in any securities of the Company or any of its associated corporations as defined in the SDI Ordinance.
DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES
No options were granted to any directors or employees to subscribe for shares in the Company under this share option scheme.
In addition, other than those shares issued in connection with the Group reorganisation, at no time during the year was the Company, its holding company or any of its subsidiaries a party to any arrangements to enable the directors of the Company or their associates to acquire benefits by means of the acquisition of shares in, or debt securities, including debentures, of the Company or any other body corporate.
DIRECTORS' INTEREST IN CONTRACTS OF SIGNIFICANCE
Save as disclosed in the note to the financial statements, no contract of significance to which the Company or any of its subsidiaries was a party in which any director had a material interest, whether directly or indirectly, subsisted at the end of the year or any time during the year.
SUBSTANTIAL SHAREHOLDERS
At 31 March 1998, the following interests of 10% or more of the issued share capital of the Company were recorded in the register of interests kept by the Company pursuant to Section 16(1) of the SDI Ordinance:
Notes:
1) The entire issued share capital of Success Forever Limited is beneficially owned by Mr. Ling Siu Man, Simon as disclosed in the directors' interests above.
2) The entire issued share capital of Eco-Haru is beneficially owned by Egana.
3) The entire issued share capital of Egana is held as to 42% by Peninsula.
Save as disclosed above, no persons had an interest of 10% or more in the issued share capital of the Company that was required to be recorded under Section 16(1) of the SDI Ordinance.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities.
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 throughout the period from 16 October 1997, the date of listing, to the balance sheet date.
AUDITORS
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
LING SIU MAN, SIMON
Chairman
5 August 1998, Hong Kong
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