(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 31st March, 1999. The Group's turnover ("Turnover") and profit attributable to shareholders ("Net Profit") for the year under review amounted to HK$873 million and HK$22 million respectively. As compared to last year, the Turnover decreased by 16% while the Net Profit improved by 344%. The earnings per share for the year increased by 337% to 3.45 cents from last year's 0.79 cent. The increase in Net Profit was largely due to the recovery of the computer head division which had an operating loss a year earlier.

(In Hong Kong dollars)


(1) Exceptional Items comprise:

(2) Hong Kong taxation is calculated at the rate of 16% (1998: 16.5%) on the estimated profits chargeable to Hong Kong Profits Tax for the year. Overseas taxation is provided on the profits of the overseas subsidiaries in accordance with the tax laws of the countries in which these subsidiaries operate.

(3) Earnings per share

(a) Basic earnings per share

The calculation of basic earnings per share is based on the net profit attributable to ordinary shareholders of $22,482,000 (1998: $5,065,000) and on 652,085,000 (1998: 642,733,000) ordinary shares, being the weighted average number of ordinary shares outstanding during the year.

(b) Diluted earnings per share

There were no dilutive potential ordinary shares in existence during the year ended 31st March, 1999.

The calculation of diluted earnings per share for the year ended 31st March, 1998 was based on the net profit for the year attributable to ordinary shareholders of $5,065,000 and on 650,367,000 ordinary shares, being the weighted average number of ordinary shares outstanding during the year, adjusted for the effects of all dilutive potential ordinary shares.

(c) Reconciliations


The Group experienced a very tough year in 1998. All divisions faced declines in sales and pressure on profit margins. Under difficult circumstances, the management carried out various measures to reduce operating overheads in all divisions and looked at every means to improve operating efficiency. Having weathered this difficult time, the directors are pleased to report that all four core divisions were profitable in the year under review.

Following a poor first-half year with a significant drop in turnover and profit, the business of the toy division improved in the second-half of the year. Bolstered by the sales of toys related to a very popular movie which premiered in the United States in May 1999, the division operated at normal capacity during the quarter ended 31st March, 1999, which usually is a quiet quarter for the toy business. While traditional plastic figurines still account for a major portion of the business, the toy division commenced the development of interactive toys. The management anticipates that business for these toys will be a future growth area for the toy division. During the year under review the division streamlined its operation in Hong Kong resulting in a 10% reduction in its overall administrative expenses. In order to upgrade and enlarge its production capabilities, the division set up a wholly owned enterprise named Dongguan Herald Metal and Plastic Company Limited in Dongguan, PRC. The new company has a total floor area of approximately 380,000 sq. ft. and is now in trial production. It is anticipated that this company will start normal production in September 1999.

The computer head division also experienced a recovery in the second-half of the last fiscal year. In the previous financial year, the division developed the technology for the manufacture of half-inch thin-film heads and half-inch ferrite heads. These heads received customers' final qualification during the year under review and generated additional sales in the second-half of the year which helped the division return to profitability. On the other hand, the business of quarter-inch ferrite heads remained stable. During the year under review, the division developed and delivered new quarter-inch ferrite heads with larger storage capacity using more advanced technology.

The houseware division's performance was satisfactory. Turnover remained almost the same as last year. Pilot, the division's distributing arm in the U.K. experienced an 14% drop in turnover. This shortfall was made up by additional sales to the United States transferred from other Asian countries due to political and economic instability in those areas.

The timepiece division managed to achieve satisfactory results. The Hong Kong timepiece division has developed a series of "Touch Screen" watches and clocks which received enthusiastic response at trade fairs held in April 1999. It secured the "Elle Petite" and "Elle Studio" manufacturing licenses for watches and clocks. In addition, Zeon Limited, the group's timepiece division in the UK acquired the "Star Wars" clock license for Europe.


As at 31st March, 1999 the Group had total assets of HK$641 million (1998:HK$616 million) which were financed by current liabilities and deferred taxation of HK$151 million (1998:HK$128 million), minority interests of HK$34 million (1998: HK$34 million) and shareholders' equity of HK$456 million (1998:HK$454 million).

At the end of the financial year, the Group had a strong balance sheet with a healthy liquidity position. At the balance sheet date, the Group had fixed deposits and cash balances aggregate to HK$128 million (1998:HK$123 million) and had negligible bank borrowings of HK$4 million (1998:HK$13 million). As at 31st March, 1999, the working capital ratio was 2.44 compared to 2.78 last year and the quick ratio decreased to 1.36 from 1.56.


The directors are cautiously optimistic about the overall prospects for the business in the Group's four core businesses. The toy division started the new fiscal year with a strong sales order position. The business of the half-inch ferrite and thin-film heads will provide good opportunities for the growth in the computer head division. Despite a general downbeat climate in the markets of both the timepiece division and the houseware division, it is expected that both divisions will perform well in the current year.


The Annual General Meeting will be held on 15th September, 1999 at which the Directors will recommend a final dividend of 2 cents per share. Together with the interim dividend of 1 cent per share, total dividends for the year under review will amount to 3 cents per share. Dividends will be payable on 23rd September, 1999 to shareholders registered in the Register of Members on 9th September, 1999.


The Register of Members will be closed on 8th and 9th September, 1999. Shareholders should ensure that all transfers accompanied by relevant share certificates are lodged with the Company's Registrars, Tengis Limited at 1601 Hutchison House, 10 Harcourt Road, Hong Kong for registration not later than 4:00 p.m. on 7th September, 1999 in order that they may receive their dividend entitlement.


Certain of the Group's older computer programmes were written using two digits rather than four to define the applicable year. As a result, those computer programmes have time-sensitive software that recognises a date using "00" as year 1900 rather than the year 2000. This could cause a system failure or miscalculations causing disruption in operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in normal business activities. Most of the Group's major customers have raised their concerns over the Year 2000 Problem and have requested the Group's computer systems to be Year 2000 compliant in due course.

In 1998, the Group commenced a Year 2000 compliance project to make assessment of the problems and develop and implement plans to reduce the Group's potential exposure to the problems relating to its business and operations. The project was completed by the end of June 1999 and the Group has achieved satisfactory result on evaluations and testing of all relevant systems to ensure that they are Year 2000 compliant and has confirmed with its major trading partners that they are Year 2000 ready. In addition, contingency plans are in place to cater for possible risk that may arise during the transition to Year 2000.

The total cost of the Group's Year 2000 project is approximately HK$6.6 million, which includes HK$4.2 million for the purchase of new hardware and software that was capitalized and HK$2.4 million that was expensed as incurred. Up to 31st March, 1999, the Group incurred and expensed approximately HK$1.7 million for the development of a modification plan and spent and capitalized HK$3.6 million in respect of the purchase of new hardware and software. The remaining cost of HK$1.3 million was spent over the quarter ended 30th June, 1999, out of which HK$0.6 million in respect of hardware and software was capitalized and HK$0.7 million was treated as expenses. These additional costs have not been provided for in the accounts for the year ended 31st March, 1999 and have been neither contracted for nor authorised by the Directors at 31st March, 1999.

Herald Holdings Limited
Hong Kong, 30th July, 1999

Contact person : Thong Yeung Sum Michael    Tel : 2726 5565

Source: Herald Holdings Limited
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