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The Board of Directors (the "Directors") of Tonic Industries Holdings Limited (the "Company") is pleased to announce that the unaudited condensed consolidated financial statements of the Company and its subsidiaries (the "Group") for the six months ended 30 September 2001 (the "Period") together with the comparative figures for the previous corresponding period are as follows:
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months
ended 30 September
(Restated)
2001 2000
Unaudited Unaudited
Notes HK$'000 HK$'000
Turnover 2 1,253,066 1,390,436
Cost of sales (1,176,438) (1,296,523)
------------ ------------
Gross profit 76,628 93,913
Other revenue 3,153 6,477
Selling and distribution costs (11,824) (20,921)
Administrative expenses (37,809) (39,607)
------------ ------------
Profit from operating activities 30,148 39,862
Finance costs (9,859) (11,230)
------------ ------------
Profit before taxation 3 20,289 28,632
Taxation 4 (1,623) (1,745)
------------ ------------
Profit before minority interests 18,666 26,887
Minority interests - 2
============ ============
Profit retained for the period 18,666 26,889
============ ============
Interim dividend 3,176 6,353
============ ============
Earnings per share 5
- Basic 2.9 cents 4.6 cents
============ ============
- Diluted N/A N/A
============ ============
CONDENSED CONSOLIDATED BALANCE SHEET
30 September 31 March
2001 2001
Unaudited Audited
Notes HK$'000 HK$'000
NON-CURRENT ASSETS
Fixed assets 456,598 415,300
Long term investments 23,076 22,076
Deposits for acquisition of fixed
assets 37,106 28,254
Other non-current assets 4,441 4,326
------------ ------------
521,221 469,956
------------ ------------
CURRENT ASSETS
Cash and bank balances 90,946 48,382
Time deposits 30,000 -
Accounts and other receivables 6 280,512 99,745
Inventories 322,290 262,492
------------ ------------
723,748 410,619
------------ ------------
CURRENT LIABILITIES
Accounts and other payables 7 587,459 316,273
Borrowings due within one year 193,875 154,190
Dividend payable 3,175 -
------------ ------------
784,509 470,463
------------ ------------
NET CURRENT LIABILITIES (60,761) (59,844)
------------ ------------
TOTAL ASSETS LESS CURRENT LIABILITIES 460,460 410,112
NON-CURRENT LIABILITIES
Long term borrowings (53,946) (21,765)
Deferred tax (10,600) (10,600)
------------ ------------
(64,546) (32,365)
------------ ------------
395,914 377,747
============ ============
CAPITAL AND RESERVES
Share capital 8 63,526 63,526
Reserves 9 332,388 311,045
Proposed dividend - 3,176
------------ ------------
395,914 377,747
============ ============
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
The unaudited condensed consolidated interim financial statements of the Group are prepared in accordance with Statement of Standard Accounting Practice ("SSAP") No. 25 "interim financial reporting" and the Listing Rules of The Stock Exchange of Hong Kong Limited. In prior years, dividends proposed or declared after the balance sheet date in respect of an accounting period were recognised as a liability at the balance sheet date. In order to comply with SSAP 9 (revised) "Events after the balance sheet date", the Group does not recognise a liability for dividends in the accounting period in which they are declared or proposed and approved by shareholders. The new accounting policy has been adopted retrospectively, with the retained profits as at 1 April 2001 adjusted for the amounts relating to final dividend declared for the year ended 31 March 2001.
Except for the above, the accounting policies and basis of preparation are the same as those used in the annual financial statements for the year ended 31 March 2001. Figures for the year ended 31 March 2001 are extracted from the Group's annual financial statements for that year.
2. Segmental Information
The principal activities of the Group are the manufacture of consumer video and audio products. A geographical analysis of the Group's turnover by market is as follows:
Turnover
For the six months
ended 30 September
2001 2000
Unaudited Unaudited
HK$'000 HK$'000
Asia Pacific countries 304,273 514,462
Americas 502,050 472,748
Europe 446,743 403,226
------------ ------------
Total 1,253,066 1,390,436
============ ============
An analysis of the turnover by principal activities are as follows:
Turnover
For the six months
ended 30 September
2001 2000
Unaudited Unaudited
HK$'000 HK$'000
Manufacture of audio products 876,028 1,368,948
Manufacture of video products 340,678 -
Others 36,360 21,488
------------ ------------
1,253,066 1,390,436
============ ============
An analysis of the profit from operating activities by principal activities are as follows:
Profit from operating
activities
For the six months
ended 30 September
2001 2000
Unaudited Unaudited
HK$'000 HK$'000
Manufacture of audio products 21,749 38,326
Manufacture of video products 6,135 -
Others 2,264 1,536
------------ ------------
30,148 39,862
============ ============
Contribution to profit from operating activities by geographical region is not presented as the contribution from each region is substantially in line with the overall ratio of profit from operating activities to turnover of the Group.
3. Profit before Taxation
For the six months
ended 30 September
2001 2000
Unaudited Unaudited
HK$'000 HK$'000
Profit before taxation is arrived at after
charging/(crediting)
Depreciation 28,876 25,456
Interest on borrowings 9,859 11,230
============ ============
Interest income (889) (4,047)
============ ============
4. Taxation
Hong Kong profits tax has been provided at the applicable rate of 16% (2000: 16%) on the estimated assessable profits arising in Hong Kong during the Period. Taxes on profits assessable in the People's Republic of China ("PRC") have been provided at the rates of taxation prevailing in the PRC based on existing legislations, interpretations and practices in respect thereof.
5. Earnings per share
The calculation of basic earnings per share for the Period is based on the net profit attributable to shareholders of HK$18,666,000 (2000: HK$26,889,000) and the weighted average of 635,259,975 shares (2000: 589,598,398 shares) in issue during the Period.
There is no diluted earnings per share for the Period since the Company has no dilutive potential ordinary share.
6. Accounts and Other Receivables
Included in accounts and other receivables are accounts receivable of HK$265,378,000 (31 March 2001: HK$89,486,000), the aging analysis of which is as follows:
30 September 31 March
2001 2001
Unaudited Audited
HK$'000 HK$'000
0-30 days 168,990 67,978
31-60 days 82,299 7,266
Over 60 days 14,089 14,242
------------ ------------
265,378 89,486
============ ============
The majority of the Group's sales are on terms of L/C at sight and the others on open account basis.
7. Accounts and Other Payables
Included in accounts and other payables are accounts payable of HK$546,891,000 (31 March 2001: HK$284,967,000), the aging analysis of which is as follows:
30 September 31 March
2001 2001
Unaudited Audited
HK$'000 HK$'000
0-30 days 155,987 129,993
31-60 days 191,704 78,723
61-90 days 140,727 32,243
Over 90 days 58,473 44,008
------------ ------------
546,891 284,967
============ ============
8. Share Capital
30 September 31 March
2001 2001
Unaudited Audited
HK$'000 HK$'000
Authorised:
1,200,000,000 ordinary shares of HK$0.10 each 120,000 120,000
========== ==========
Issued and fully paid:
635,259,975 (31 March 2001: 635,259,975)
ordinary shares of HK$0.10 each 63,526 63,526
========== ==========
9. Reserves
Exchange Asset
Share Contributed fluctuation revaluation Retained
premium surplus reserve reserve profits Total
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Balance at 1 April 2001 28,735 280 (9,318) 109,103 182,245 311,045
Exchange difference on
translation of
overseas subsidiaries'
financial statements - - 2,677 - - 2,677
Net profit for the period - - - - 18,666 18,666
-------- -------- -------- -------- -------- --------
Balance at 30 September 2001 28,735 280 (6,641) 109,103 200,911 332,388
======== ======== ======== ======== ======== ========
10. Contingencies and Commitments
(a) Contingent liabilities in respect of bills discounted with recourse at 30 September 2001 was HK$41,535,000 (31 March 2001: HK$13,999,000).
(b) Capital commitments in respect of fixed assets
30 September 31 March
2001 2001
Unaudited Audited
HK$'000 HK$'000
Contracted for but not provided in the
financial statements 15,500 31,936
Authorised but not contracted for - -
------------ ------------
15,500 31,936
========== ==========
(c) Commitments to buy and sell foreign currencies amounted to HK$46,800,000 and HK$124,800,000 respectively (31 March 2001: HK$140,052,000 and Nil respectively).
11. Related Party Transactions
During the Period, the Group had the following related party transactions:
(a) The Group sold audio products and related components amounting to HK$887,858 (six months ended 30 September 2000: HK$806) to Pioneer Ventures Limited ("PVL"), a wholly-owned subsidiary of EganaGoldpfeil (Holdings) Limited which is a substantial shareholder of the Company.
The sales to PVL were made according to the published prices and conditions offered to the major customers of the Group.
(b) The Group paid HK$15,000 (six months period ended 30 September 2000: HK$25,500) to International Taxation Advisory Services Limited, of which Wong Wai Kwong, David, a non-executive director of the Company, is a director, for corporate advisory services rendered. The directors consider that the above corporate advisory services charges were paid according to the published prices and conditions similar to those offered by other external consultants of the Group.
12. Comparative figures
Certain comparative figures have been reclassified to conform with the current period's presentation.
INTERIM DIVIDEND
The Directors have resolved to declare an interim dividend of HK0.5 cent per share payable to shareholders whose names appear on the Company's Register of Members at the close of business on 9 January 2002. Dividend warrants will be sent to shareholders on or before 17 January 2002.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Company will be closed from Monday, 7 January 2002 to Wednesday, 9 January 2002, both days inclusive, during which period no transfer of shares will be registered. In order to qualify for the interim dividend, all transfer documents, accompanied by the relevant share certificates must be lodged with the Company's Branch Registrar in Hong Kong - Tengis Limited, 4th Floor Hutchison House, 10 Harcourt Road, Central, Hong Kong not later than 4:00 p.m. on Friday, 4 January 2002.
BUSINESS REVIEW AND OUTLOOK
The Group's profit attributable to shareholders for the Period was HK$18,666,000, representing a 31% decrease from the previous corresponding period. Turnover for the Period decreased approximately 10% to HK$1,253 million.
The market remained competitive and the world economy sluggish during the Period. Decreases in worldwide demand led to a decrease in product selling prices as well as raw material costs. However, the Group's broad customer base helped to maintain overall turnover. Sales to the United States accounted for approximately 40%, sales to Europe accounted for approximately 35% and Asia accounted for 25% of total turnover. Profit margin of regular items was further driven down by the low demand. Whereas new and higher end products can still enjoy a higher margin by making use of the lower raw materials cost. The Group's new products such as MP3 players, DVD players, CD-RW, internet set top box and satellite receivers were all launched during the Period. It is expected that the increase in sales of these products in future will greatly improve the Group's financial performance.
While the Electronic Division is suffering a tough time, the Group is pleased to see the continuous growth of the business in the Home Appliance Division. Turnover for the division increased to approximately HK$40 million during the Period and is expected to further increase in the years ahead. Products have been diversified to include air purifiers, steam stations, electric ovens as well as various new models of coffee making machine.
As a leading consumer electronics manufacturer, the Group continues to invest in the research and development of new and constantly improving products. During the Period the Group opened two new R&D centres, one in Japan and the other in Shenzhen. These two centres support and compliment our existing R&D departments in Hong Kong and the Dongguan factory. Experienced Japanese and Chinese engineers have been recruited for these facilities. The Japan office mainly deals with new product development while the Shenzhen office mainly provides software support solutions.
The new factory block 9 and dormitory saw their final stages of construction being completed during the Period. Total production area now exceeds 1,500,000 square feet, an increase of almost 50% as compared to the year 1999. Production capabilities have also been greatly enhanced as a result of the purchase of additional sets of SMT (Surface Mounted Technology) machines and automated insertion machines. The Group now operates 18 fully automated production lines, as compared to 6 in the year 1999. These production lines not only increase production efficiencies and improve product quality, they will also ensure the manufacture and production of the next generation of digital products.
Four of six heavy oil electric generators have been installed and are now fully operational. The remaining two generators will be installed early next year. With the much cheaper fuel oil available, electricity costs have been reduced by nearly HK$1 million a month. The investment is expected to return within the next three to four years.
As at 30 September 2001, the Group had bank balances and deposits totaling HK$120 million. Lower balances were maintained as compared to last corresponding period as most of the budgeted capital expenditure has been paid for and we do not expect any significant capital expenditure next year. Unutilised short term and long term bank facilities amounted to HK$250 million.
As at 30 September 2001, the Group had 125 staff stationed in Hong Kong and 9,500 staff and workers working in the PRC factories. Total salary and wages amounted to approximately HK$63 million for the Period. The Group provides year end double pay, discretionary bonuses, a provident fund scheme, medical insurance and training. Gearing ratio was 0.63 (31 March 2001: 0.47) calculated using all outstanding loans divided by the capital and reserve.
During the last two years, the Group has seen a consolidation period, taking the opportunity to expand production capacities, improve production capabilities to cope with the needs of the future, carry out thorough review of production efficiencies and enhance product research and development. Although there is no indication of when the recession will be over, the Group is confident that it will benefit from the many opportunities to flourish once the recession is over.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
During the Period, neither the Company, nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities.
AUDIT COMMITTEE
The Audit Committee has reviewed with management the accounting principles and practices adopted by the Group and discussed auditing, internal control and financial reporting matters including the review of the unaudited interim financial statements.
CODE OF BEST PRACTICE
None of the Directors of the Company is aware of any information that would reasonably indicate that the Company had not been for any part of the accounting period covered by the interim report in compliance with the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.
APPRECIATION
On behalf of the Board, I would like to extend my sincere gratitude to our shareholders, customers, suppliers and bankers for their continued support. I would also like to thank my fellow directors and our staff for their dedication and contribution to the Group.
On behalf of the Board
Simon Ling Siu Man
Chairman and Managing Director
Hong Kong, 12 December 2001
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