2000/2001 First Quarterly Report
BUSINESS REVIEW
The Group has once again successfully achieved outstanding earnings performance during the three months ended 31st July, 2000. Both turnover and profit attributable to shareholders continued to record considerable growth over the corresponding period in 1999. A summary of the financial results of the Group for the three months ended 31st July, 2000 is as follows:
- Turnover was approximately HK$90,617,000, representing a substantial growth of 50% over the corresponding quarter in 1999;
- Profit attributable to shareholders was approximately HK$14,588,000, up 29% over the same quarter last year.
The three months ended 31st July, 2000 was another outstanding quarter for the Group, marked with strong and yet sustainable growth in business and profitability. The Directors attributed the success of the Group to its effective strategies in capturing the opportunities arising from the trend and development in the global electronics industry by actively introducing new and tailor-made products to our customers and expanding the manufacturing facilities for products which suit the markets’ needs most.
The following summarises the Group’s major accomplishments during the quarter under review which contributed to the growth in results:
Private Placement of Warrants
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$22,900,000, after deduction of related issuance expenses of approximately HK$2,100,000. The issue of warrants has strengthened the Group’s financial frontier that further reinforced its horizon for business development. Based on this enriched solid ground, the Group will seek for more business opportunities for maximising our shareholders’ value in the near future.
Expansion and Upgrade of Production Facilities
The new millennium saw the convergence of the telecommunication and information technology industries as well as the digital revolution in the audio-visual (AV) sector. These markets have been marked with dynamic growth in the demand for modern handheld electronic communication products and AV products such as personal digital assistants (PDA), digital cameras, DVD and MD players. In turn, this trend also has given rise to the amazing growth rate in demand for high-quality and miniaturised electronic components on a global basis. To cater for the vibrant growth in these markets and also to capitalise on the emerging opportunities in these sectors, the Group established a new branch factory in Zhuhai, Guangdong Province, in June 2000 in a bid to expand its production capacity for such components as toroidal transformers, common mode chokes and electromagnetic interference (EMI) filters. More than HK$10,000,000 has been invested during the first quarter for the expansion and upgrade of the Group’s production facilities.
To further position itself well for both the future challenges and opportunities in the electronic data communication and transmission sectors, the Group further acquired a land lot of approximately 7 acres in Zhongshan, with a cost of approximately HK$1,300,000, in May 2000 to accommodate the expansion of production facilities. The new phase of the Group’s factory blocks in Zhongshan was also under construction during the quarter under review. The new phase, which is expected to be completed in the third quarter of the current financial year, is scheduled 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).
Production Cost
The Group strongly believes that one of its strengths in the industry is its powerful capabilities and experience in developing the production technology and concoction formulae of ferrite powders and ferrite cores, which are the key components of coils. Over the past several years, the Group has successfully reduced its production cost and raised its profitability continually. During the first quarter of the current financial year, there has been a considerable surge in the price of petroleum products on a global basis, which in turn has led to the extra cost of power generation in the Group’s factory in Zhongshan of approximately HK$1,700,000. Despite the adverse impact resulting from this factor, the Group has still managed to keep its overall production cost under control and achieved a 48.9% growth in gross profit from approximately HK$20,974,000 (gross margin: 34.6%) for the first quarter last year to approximately HK$31,238,000 (gross margin: 34.5%) for the same quarter in the current financial year.
FUTURE PLANS AND PROSPECTS
Looking forward to the new era, the Group will adhere to its principles of proactive business development as and when opportunities arise. The mission of the Group’s management is to grow the business in a manner to ensure delivery of superior value to all our shareholders.
Development of Complementary Products and Expansion of Production
Further to our successful introduction of the manufacture of electrolytic capacitors, a kind of electronic components complementary to coils, the Group plans to devote more resources to the research and development of electrolytes and forming of aluminium foils, which are one of the major materials in manufacturing electrolytic capacitors. The Group is in the process of developing and experimenting a number of new formulae for electrolytes during the first quarter, which will be scheduled for trial production in the second quarter. This accomplishment is expected to further elevate the Group’s competitive edge in the industry and transform the Group from a capacitor assembler to a manufacturer of higher profit margin with powerful research and development capabilities.
The Group plans to commence pilot-run of the production facilities for ceramic capacitors in Zhongshan in the second quarter of the current financial year. The investment is expected to bring in higher return starting from the third quarter. On the other hand, the Group will also implement the first phase of the expansion of production facilities for chip inductors in Zhongshan in the third quarter. The first phase of such expansion, which will consist of five production lines, is scheduled to be operational in the fourth quarter and to contribute to the growth in the Group’s profitability. In order to reinforce the Group’s prospects, 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.
Management Information System
The Group has positioned one of its subsidiaries, CEC-Technology Limited, as the information technology and communication management center of the Group during the first quarter. The center is mainly responsible for the management of the Group’s website “www.0759.com”, e-mail system, on-line sales system, e-banking and development of the internet version of the enterprise resource planning system, which is expected to be completed in the second quarter, tested in the third quarter and implemented in stages in the fourth quarter. The enterprise resource planning system will comprise production management, financial management, sales and customer service management, purchasing and logistics management as well as product development, etc. The investment is expected to benefit the Group by streamlining its various business and management processes, improving its operational efficiency and substantially reducing its administrative expenses.