(Incorporated in Bermuda with limited liability)


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.


                                                       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
                                                 ==========   ==========


(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
  (1999 : 1 cent per share)                             6,432       6,517
Final dividend proposed of 3 cents per share
  (1999 : 2 cents per share)                           18,756      12,944
                                                      -------     -------
                                                       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.


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.


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.


The Directors will recommend a final dividend of 3 cents per share (1999: 2 cents). 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). The total amount of final dividend payment of HK$18,756,000 was based on the total number of shares in issue as at 27 July, 2000 being the latest practicable date prior to the announcement of the results. Dividends will be payable on 22 September, 2000 to shareholders registered in the Register of Members on 8 September, 2000.


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.


The notice convening the Annual General Meeting of shareholders together with the 2000 Annual Report will be despatched to shareholders of the Company shortly.


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.


Pursuant to the Listing Rules, an audit committee, comprising three independent non-executive directors, namely Messrs Denis Campbell Bray, Hugh Moss Gerald Forsgate and Tsao Kwang Yung Peter, was established on 1 April, 1999 with reference to "A Guide For The Formation of An Audit Committee" issued by the Hong Kong Society of Accountants.


During the year, the Company repurchased a total of 14,625,000 of its shares on The Stock Exchange of Hong Kong Limited, all of which were then cancelled. The premium paid on repurchase was charged against share premium in accordance with the Companies Act 1981 of Bermuda (as amended). Details of the shares repurchased are as follows:

Month of repurchase   Number of shares   Price per share   Aggregate Price
                                         Highest  Lowest
                                             HK$     HK$               HK$

April 1999                     400,000     0.220   0.215            88,000
May 1999                     1,000,000     0.310   0.275           299,000
June 1999                    1,495,000     0.345   0.340           512,000
September 1999               3,835,000     0.400   0.365         1,459,000
November 1999                  155,000     0.365   0.355            57,000
December 1999                1,270,000     0.360   0.355           457,000
January 2000                   430,000     0.350   0.340           150,000
March 2000                   6,040,000     0.550   0.500         3,261,000
                            ----------                           ---------
                            14,625,000                           6,283,000
                            ==========                           =========


The Company has complied throughout the year with the Code of Best Practice as set out by The Stock Exchange of Hong Kong Limited in Appendix 14 to the Listing Rules.

By Order of the Board
George Bloch

Hong Kong, 28 July, 2000

Source: Herald Holdings Limited
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