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HERALD HOLDINGS LIMITED
(Incorporated in Bermuda with limited liability)
Financial Results for the year ended 31 March, 2000

PRESS RELEASE

The Directors of the Company are pleased to announce the audited results of the Group for the year ended 31 March, 2000. During the year under review, the Group recorded satisfactory results which were better than those achieved in the previous financial year. The Group's turnover ("Turnover") and profit attributable to shareholders ("Net Profit") for the year ended 31 March 2000 amounted to HK$947 million and HK$39 million respectively. As compared to last year, the Turnover increased by 5% while the Net Profit improved by 75%. The earnings per share for the year increased by 77% to 6.10 cents from last year's 3.45 cents.

RESULTS

                                                     2000             1999
                                       Note       HK$'000          HK$'000
          
Turnover                                          947,486          905,930
          
Cost of sales                                    (681,390)        (658,449)
                                             ------------     ------------
Gross profit                                      266,096          247,481
          
Other revenue                                      10,387           10,031
Other net losses                                   (4,959)          (9,373)
          
Selling expenses                                  (26,451)         (21,277)
Administrative expenses                          (199,982)        (192,639)
                                             ------------     ------------
Profit from operations                             45,091           34,223
          
Finance cost                                       (1,224)          (3,071)
Share of profits/(losses) of associates               137           (1,433)
                                             ------------     ------------
Profit before taxation                             44,004           29,719
Taxation                                 (1)        1,548           (5,448)
                                             ------------     ------------
Profit after taxation                              45,552           24,271
Minority interests                                 (6,185)          (1,789)
                                             ------------     ------------
Profit attributable to shareholders                39,367           22,482
                                             ============     ============
Dividends                                (2)      (25,188)         (19,461)
                                             ============     ============
Earnings per share                       (3)        
- Basic                                        6.10 cents       3.45 cents
                                             ============     ============

Notes:

(1) Taxation represents:

                                                     2000             1999
                                                  HK$'000          HK$'000
Hong Kong profits tax           
-  Current year                                     2,402            4,287
-  Overprovision in prior year                     (7,251)            (224)
-  Tax rebate received                                  -             (270)
Overseas taxation                                   3,064            2,205
Deferred taxation                                     237             (550)
                                             ------------     ------------
                                                   (1,548)           5,448
                                             ============     ============

The provision for Hong Kong Profits Tax is calculated at 16% (1999: 16%) of the estimated assessable profits for the year ended 31 March, 2000. Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries.

(2) Dividends

                                                    2000             1999
                                                 HK$'000          HK$'000

Interim dividend paid of 1 cent per share          6,432            6,517
  (1999 : 1 cent per share)          
Final dividend proposed of 3 cents per share      18,756           12,944
  (1999 : 2 cents per share)          
                                            ------------     ------------
                                                  25,188           19,461
                                            ============     ============

(3) Earnings per share

The calculation of basic earnings per share is based on the net profit for the year attributable to ordinary shareholders of HK$39,367,000 (1999: HK$22,482,000) and on 645,031,000 (1999: 652,085,000) ordinary shares, being the weighted average number of ordinary shares outstanding during the year.

There were no dilutive potential ordinary shares in existence during the years ended 31 March, 2000 and 1999.

REVIEW OF OPERATIONS

The toy division posted improved results over last year. However, the division experienced a year of fluctuations. The division started the financial year with a very strong order book largely due to a range of toys related to a very popular movie. In the first six months ended 30 September 1999, the division recorded a very strong 34% growth in its turnover. Unfortunately, the growth in sales could not be sustained in the second half of the fiscal year following an unexpected and rapid reduction of orders for the above-mentioned toys. In the second half of the year, the division was mostly operating below production capacity.

With the commencement of production at our new Dongguan factory in August 1999, the division has larger production facilities which can better serve our customers. The factory is equipped with more sophisticated mould tooling facilities which substantially shorten the time required for mould tooling. In December 1999, the division decided to close down our factory in Shanghai which manufactured toys due to higher manufacturing costs in the urban area in Shanghai where the factory was located.

The computer head division performed well during the year under review. The demand for half-inch thin film heads remained stable throughout the year. The division has developed manufacturing capabilities for higher level assemblies for these heads. The division produced small quantities of half-inch ferrite heads in the first nine months of the year and began to ramp up the production in January 2000. Furthermore, one of the major achievements in the year was the successful development of the technology to manufacture the head guide assemblies ("HGA") for the half-inch ferrite heads. On the other hand, sales of quarter-inch ferrite heads and 8 mm thin film heads were weak due to the end-buyers' concern over the Y2K issue and an overstock situation of some customers. In October, 1999 the Group increased its holdings in Herald Datanetics Limited ("HDL") to 86.1% by an acquisition of an additional 16.8 % interest in the shares of HDL from connected parties of the Company. The details of this connected party transaction are disclosed in the Directors' Report of the Group.

The results of the houseware division were similar to those of last year. On average, the aluminium price has increased by about 14% over the same period last year. As a result, the material costs of the division's products were higher and profit margins were narrower. The sales in both the USA and Japan were both down as compared to those in the same period last year. Pilot, the UK operation of the division, performed particularly well and recorded a 67% increase in turnover. During the year under review, the division has continued to develop new products and new production methods to improve the overall efficiency in production lines.

The overall results of Zeon Limited, the group's timepiece division in the UK, were in line with management's expectations. The sales in the UK dropped mainly due to the poor performance of character watches and clocks. On the other hand, Zeon recorded a very healthy growth in sales in France and Germany where additional sales were generated from several new large customers. In addition, the French subsidiary has been successful in commencing sales to hypermarkets. The results of the timepiece division in Hong Kong were severely affected by provisions for bad debts relating to two of its major customers which both went into liquidation.

FINANCIAL POSITION

The Group has maintained its sound financial position. At the end of the financial year, the Group had a strong balance sheet with a healthy liquidity position. As at 31 March 2000 the Group had total assets of HK$640 million (1999: HK$641 million) which were financed by current liabilities and deferred taxation of HK$149 million (1999: HK$151 million), minority interests of HK$27 million (1999: HK$34 million) and shareholders' equity of HK$464 million (1999: HK$456 million).

At 31 March 2000 the Group's fixed deposits and cash balances aggregated to HK$159 million representing an increase of HK$31 million over the comparable figure in last year's balance sheet. As last year, the Group's borrowings were maintained at a low level of HK$6 million (1999: HK$4 million). As at 31 March 2000, the working capital ratio, an indicator of a company's liquidity represented by a ratio between the current assets over the current liabilities, was 2.57 compared to 2.44 last year.

PROSPECTS AND GENERAL OUTLOOK

The Directors are optimistic about the overall prospects of the business in the new Millennium. The Group will continue to concentrate its efforts on its existing four core businesses which include the manufacturing and sale of toys, computer tape heads, houseware and timepieces.

The toy division started the current financial year with a much lower order position than the same period in the previous year. The order situation has improved now and as a result, it is anticipated that the division will perform well in the current year.

With the introduction of stainless steel and anodised products, it is expected that both the turnover and profit in the houseware division will improve. At the moment, the division is exploring business opportunities with some major potential cookware companies which may generate new business in the near future.

The management is cautiously optimistic about the prospects of the computer head division. Substantial business may result from the half-inch ferrite heads which are now shipped together with HGA . With the Y2K concerns now over, there are indications that the orders for the quarter-inch ferrite heads are coming back.

Zeon has secured the timepiece license rights to the "Pokemon" characters in Europe. The management believes this brand together with the other two newly licensed brands, "Red or Dead" and "Fiorelli", are important product lines for the current financial year. Management is concerned about the impact of the adverse movement of sterling which has weakened by more than 10% since the beginning of this calendar year.

ANNUAL GENERAL MEETING AND DIVIDENDS

The Annual General Meeting will be held on 15 September, 2000 at which the Directors will recommend a final dividend of 3 cents per share (1999: 2 cent). Together with the interim dividend of 1 cent per share (1999: 1 cent), total dividends for the year under review will amount to 4 cents per share (1999: 3 cents). Dividends will be payable on 22 September, 2000 to shareholders registered in the Register of Members on 8 September, 2000.

REGISTER OF MEMBERS

The Register of Members will be closed on 7 and 8 September, 2000. Shareholders should ensure that all transfers accompanied by relevant share certificates are lodged with the Company's Registrars, Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road, Hong Kong for registration not later than 4:00 p.m. on 6 September, 2000 in order that they may receive their dividend entitlement.

YEAR 2000 COMPLIANCE

The Group experienced a smooth transition into Year 2000. All computer systems and equipment of the Group functioned properly during the transition to Year 2000. To date, the Group has not experienced any Year 2000 non-compliance issues.

Herald Holdings Limited

Hong Kong, 28 July, 2000

Contact Person :Mr. Robert Dorfman
Mr. Peter Shum
Tel : 2522 6181
Tel : 2726 5565


Source: Herald Holdings Limited
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