REVIEW OF OPERATIONS OVERVIEW The global financial tsunami posed an unprecedented challenging market environment for the Group s businesses throughout most of the financial year 2009-2010. In response to the market downturn, the Group implemented effective strategies that involved consolidating operations, reducing expenses and strengthening its balance sheet. As a result, when market conditions became more stable in the second half of the financial year, the Group was able to return to profit with some businesses posting robust increases in revenues. GP INDUSTRIES Revenue increased by 11% mainly due to recovery of the electronics business and additional contribution from Shanghai Jinting Automobile Harness Limited ( Jinting ), in which GP Industries had raised its shareholding to 50% in November 2009. GP Industries profit from operations increased by 50% and it reported a profit for the year, against a loss for the previous year. The strong recovery in profitability was attributable to higher gross profit margin due to improved sales mix, lower expenses resulting from effective cost-control measures and strong performance of the Group s associates, in particular GP Batteries International Limited which contributed a significantly higher profit after taxation. Electronics and acoustics Sales from the electronics business increased, mainly due to an increase in the sales of professional audio equipment, which were driven by strong market reception for new products launched. Despite a tough business environment, the professional audio business grew due to the Group s strength in product development and sales of the renowned Celestion brand professional speaker drivers. Gross profit margin of the electronics business improved. 1 2 1 KEF s multi-award winning KHT systems have been named UK s No. 1 brand in complete home theatre loudspeaker system for five consecutive years. KEF 2 The Group s strength in product development contributed to the growth in professional audio business.
The Sounds of Success Sometimes, to make the best speakers that people will own, you have to make the best they can t. Only one pair of KEF s Concept Blade speakers exists. They are an example of our unique ability to conduct pure acoustic research, as our UK-based team pushes the boundaries of point source technology. They aren t for sale, but the approach they represent is exactly the same as goes into all our speakers. Each part is conceived, designed and made by us to test new limits. It s this that makes KEF speakers simply a class above the rest. ELECTRONICS & ACOUSTICS
REVIEW OF OPERATIONS (continued) Sales from the acoustics business decreased as its major markets in America and Europe remained soft. The sales drop was also aggravated by the depreciation of the Euro against the Singapore dollar. Sales to China and other Asian markets grew. During the year, the acoustics business continued its cost-control measures, streamlined its organization structure and improved its global logistics processes to reduce cost and improve efficiency. In the parts and components business, sales from subsidiaries were lower but the associated companies recovered strongly. The aggregate contribution from associates increased significantly. Total profit contribution from the electronics and acoustics business increased by 60% despite a marginal 1% decrease in revenue. Automotive wire harness In November 2009, GP Industries completed the acquisition of a 50% equity interest in Jinting, a jointly managed automotive wire harness manufacturer serving mainly the automobile industry in China. Accordingly, Jinting contributed to the revenue of the Group from November 2009 to March 2010. Profit contribution from the automotive wire harness business increased substantially as a result of the additional contribution from Jinting. During the year, GP Industries also disposed of its 20% owned wire harness associate which mainly served Japan based manufacturers. Other businesses Profit contribution from the cable associate Linkz Industries Limited increased despite lower sales. Sales of 20%-owned Meiloon Industrial Co., Ltd. decreased and contributed lower profit. However, Meiloon s results improved and returned to profit in the financial quarter ended 31 December 2009. During the year, GP Industries exited from the light fittings business. Linkz entered into an agreement to issue new shares as consideration for its acquisition which diluted GP Industries interest in Linkz from 47.2% to 37.7%. The Group increased its investment in the booming automobile industry in China by acquiring a 50% interest in Jinting, a leading automotive wire harness manufacturer in China.
Harnessing China s Growth We ve been in the automotive wire harness business in China for 18 years. Over this time, we ve invested in becoming one of the few companies able to design, develop and manufacture products for the American, European and Japanese technology platforms. In 2009, China became the world s largest automotive market, and in that same year, we took a 50% stake in Jinting, one of the country s leading wire harness suppliers. We are thus a major force in the world s most promising growth market. 18 2009 50% AUTOMOTIVE WIRE HARNESS
REVIEW OF OPERATIONS (continued) GP Batteries (currently 49.8% owned by GP Industries) Revenue decreased by 8% mainly due to a decrease in sales to Europe particularly in the first half of the financial year. However, gross profit margin improved attributable to the sales mix having better margins as well as effective cost-control measures. Profit after tax attributable to equity holders of GP Batteries was S$37.1 million. Sales of primary batteries increased but that of rechargeable batteries declined. During the year, GP Batteries maintained its leadership position in Asia, in particular China. With market consolidation and focused brand building efforts, GP Batteries continued to maintain its leadership position in Nickel Metal Hydride rechargeable batteries. During the year, GP Batteries has developed new products and accessories such as torches and energy saving lamps to meet varying customer needs. For its Lithium polymer batteries, GP Batteries has realigned resources to position itself to compete better in this business area and meet market demand. It has also established worldwide market presence especially in the Greater China with its comprehensive range of industrial batteries. GP Batteries has acquired a 40% interest in US-based Plug- In Conversions Corporation, allowing GP Batteries to enter the plug-in conversion system market for hybrid electric vehicles. The acquisition of Vectrix Corporation, a producer of electric motorcycles, was completed during the year and will allow GP Batteries to access the electric transportation market directly. In Hong Kong and China, GP Batteries gained more market share in the consumer market segment. According to the Nielsen s MarketTrack Report, the GP Ultra Alkaline battery was again ranked No.1 in Hong Kong by sales volume for the sixth consecutive year while in China, it was one of the top three brands of alkaline 1 2 3 1 GP Batteries continues to build on the GP brand for its consumer series, which remain as the solid foundation of the Group s business. 2 GP Batteries will expend more resources to develop new applications for its industrial series. 3 The rising interest in e-transportation becomes an exciting arena for the Group s battery business.
Pioneering Environmental Battery Technology GP Batteries is known the world over as one of the largest makers of batteries. But we re also rightly seen as a pioneer, not least because of our commitment to the environment through the development of green energy. We began producing rechargeable batteries as far back as the 1980s, developing the first-ever PowerBank concept of bundling with chargers in the 1990s. Since 2007, our latest generation GP ReCyko + batteries, with its superior charge retention and ready-to-use features, have become the environmentally friendly power alternative. GP BATTERIES
REVIEW OF OPERATIONS (continued) batteries. GP Batteries rechargeable batteries and chargers were also ranked the No.1 brand for year 2009 in both Hong Kong and China markets. Sales in emerging markets continued to be strong as a result of branding activities and established distribution network. FINANCIAL REVIEW During the year, the Group s net bank borrowings decreased by HK$717 million to HK$952 million. As at 31 March 2010, the aggregate of the Group s shareholders funds and minority interests was HK$1,938 million and the Group s gearing ratio (the ratio of consolidated net bank borrowings to shareholders funds and minority interests) was 0.49 (31 March 2009: 0.92). The gearing ratios of the Company, GP Industries and GP Batteries were 0.40 (31 March 2009: 0.84), 0.24 (31 March 2009: 0.40) and 0.35 (31 March 2009: 0.60) respectively. At 31 March 2010, 83% (31 March 2009: 57%) of the Group s bank borrowings were revolving or repayable within one year whereas 17% (31 March 2009: 43%) were repayable between one to five years. Most of these bank borrowings are in US dollars, Singapore dollars and Hong Kong dollars. The Group s exposure to foreign currency arises mainly from the net cash flow and the translation of net monetary assets or liabilities of its overseas subsidiaries. The Group and its major associates continued to manage foreign exchange risks prudently. Forward contracts, borrowings in local currencies and local sourcing have been arranged to minimise the impact of currency fluctuation. In March 2010, the Company completed a rights issue of 3 rights shares for every 7 existing shares held at a price of HK$0.65 per rights share. A total of 235,407,885 rights shares were issued and the gross proceeds raised from the rights issue amounted to HK$153 million. The Group will continue to grow its parts and components business through the introduction of new products.
HUMAN RESOURCES The Group and its major business divisions continue to be supported by a motivated workforce of approximately 12,700 people worldwide. The Group offers fair compensation packages and retirement schemes to its employees. Remuneration policies are reviewed regularly to ensure that compensation and benefit packages are in line with the market in countries where the Group has operations. Discretionary incentives were granted to eligible employees based on the performance of the Group and contribution of the staff members. During the year, the Group continued to invest in its people through development programmes designed to help them enhance their skills and contribute to operational excellence. Various workshops and training sessions on management development, professional competence, production efficiency and product knowledge were provided. As a responsible employer, the Group continued its efforts on environment, health and safety ( EHS ) to ensure a safe and conducive work environment for its employees. It conducted seminars and workshops on EHS management for its employees to strengthen their awareness of occupational well-being and environmental protection. COMMUNITY RELATIONS During the year, the Group continued to contribute to the community by supporting a number of industry and charity programmes in Hong Kong. It has actively supported and participated in various educational programmes and community projects, such as awarding scholarships to outstanding students of product design. It has also organized seminars, road shows, treeplanting and cleaning-up of beaches, as well as joined walkathons with the objective of promoting environmental awareness to the public. In recognition of its sustainable commitment in corporate citizenship in the past year, the Company was awarded the Caring Company logo by The Hong Kong Council of Social Service for the eighth consecutive year. The Group values the sustainable development of its business and the communities in which it operates. A number of the Group s battery factories in China received awards from local authorities for their continual efforts in waste reduction in production processes during the year.