2000/2001 Interim Report
BUSINESS REVIEW
The Directors are pleased to announce that the Group has continued to achieve double-digit growth in both turnover and earnings during the six months ended 31st October, 2000 over the corresponding period in 1999. The Group recorded a turnover of approximately HK$187,675,000, representing a growth of 41% as compared to the same period in 1999. Profit attributable to shareholders was approximately HK$27,511,000, up 15% over the same period last year. The Group was able to enjoy strong and sustainable growth in business and profitability amidst the flourishing worldwide electronics industry by the implementation of effective strategies in capturing the emerging business opportunities, a summary of which is presented as follows:
Reinforcement of Capital Structure
On 3rd July, 2000, the Company issued 400,000,000 units of warrants at HK$0.0625 per unit of warrant through a private placement, resulting in net proceeds of approximately HK$22,891,000, after deduction of related issuance expenses of approximately HK$2,109,000. During the period under review, 7,700,000 new shares were issued upon exercise of the warrants, which has brought in additional proceeds of HK$4,543,000 to the Group for further enrichment of its financial frontier and more progressive business development.
On 13th July, 2000, the Company announced a scrip dividend scheme for the year ended 30th April, 2000, under which shareholders of the Company may elect to receive new fully paid shares in lieu of cash in respect of part or all of the final dividend for the year ended 30th April, 2000. Pursuant to the elections of the shareholders, a total of 4,277,108 new shares were issued in lieu of cash in respect of final dividend of approximately HK$7,605,000 in aggregate. The Directors considered the popularity of the scrip dividend scheme attributable to strong shareholders’ confidence in the Group’s future.
Growth of Market and Expansion of Production Capacity
Due to the continued growth of the telecommunication and information technology industries as well as the digital revolution in the audio-visual (AV) sector where the demand for modern handheld electronic communication and AV products such as personal digital assistants (PDA), digital cameras, DVD and MD players was increasing, the growth in global demand for high-quality and miniaturized electronic components was also dynamic and is expected to continue in the future. The Group’s turnover to all major geographical locations for the six months ended 31st October, 2000 recorded a double-digit increase over the corresponding period in 1999. In particular, the turnover to Europe recorded an encouraging growth rate of 90% during the period.
To lay more solid foundations for future development, the Group has actively implemented a number of expansion plans, which was evidenced by the capital investment totalling more than HK$86,000,000 during the first half of the financial year. In June, a new branch factory in Zhuhai, Guangdong Province, was established to accommodate the expanded production facilities for such components as toroidal transformers, common mode chokes and electromagnetic interference (EMI) filters. Further to the acquisition of three new land lots in Zhongshan with an aggregate cost of approximately HK$5,000,000 in January and May, the construction of the new phase of factory blocks was already near completion by the end of October. Upon completion during the third quarter, the new phase will be ready to house the production facilities for manganese-zinc series ferrite cores, which are the key components of line filters and compact but high power converters such as switching mode power supply (SMPS).
Management of Production Cost Structure
The Group was committed to its uncompromising strategy of production cost management. In particular, the Group’s capabilities and experience in refining the production technology of the key component of coils - ferrite powders and ferrite cores, has enabled the Group to slash its production cost successfully and enhance its profitability throughout the years. During the period under review, the considerable and continuous surge in the price of petroleum products on a global basis has led to adverse repercussions on the manufacturing sector. Owing to this trend in the worldwide petroleum market, the Group’s factory in Zhongshan has incurred an additional cost of power generation amounting to approximately HK$4,000,000 during the period. Despite the impact resulting from this factor, the Group has still managed to keep its overall production cost under control and achieved a 33% growth in gross profit from approximately HK$46,301,000 for the first half of the previous financial year to approximately HK$61,381,000 for the same period in the current year.
In a bid to mitigate the impact resulting from the unfavourable trend in petroleum market, the Group commenced the installation of a new power conversion station for its factory in Zhongshan in the third quarter, which is expected to improve the Group’s production cost management by saving approximately 30% in the cost of power generation starting from the fourth quarter of the financial year.
FUTURE PLANS AND PROSPECTS
Foundation for the Future
With the completion of the new phase of factory blocks in Zhongshan expected in the third quarter of the financial year, the Group will continue to well-equip itself with substantially improved infrastructure to capitalise on the favourable development in the global electronics industry as well as to meet the ever-intensifying market competition. This will embrace a further expansion of the production facilities for chip inductors in the coming quarter in order to cater for the growing demand of our customers. The first phase of such expansion will consist of five production lines and is expected to contribute to the growth in the Group’s profitability in the fourth quarter.
Diversification of Product Line
The Group will also implement the production of ceramic capacitors, which represent a kind of electronic components complementary to coils. Further to this investment, which is expected to bring in higher return starting from the third quarter, the Group also plans to invest in the manufacture of machinery and equipment for the production of ceramic capacitors, which is scheduled to be fully operational in the fourth quarter.
Based on the Group’s expertise and know-how in manufacturing coils over the years, the Group is now ready to further elevate its strengths in the industry by implementing the production plan for micro-motor coils, a kind of electronic components commonly found in mobile phones, in the coming year. The Group will then be able to provide more value-added services to the blooming telecommunication industry and, at the same time, enhance its status in the global coil market.
Looking forward to the future, with the persistently growing worldwide demand in the electronics industry and coupled with the Group’s proactive business strategies, the Group’s future is bright and promising. The management is fully confident that the Group will achieve even more rewarding results in the coming future.