The Group s various divisions had mixed results due to very volatile economic conditions in Asia during the second

REVIEW OF OPERATIONS INTRODUCTION The Group s various divisions had mixed results due to very volatile economic conditions in Asia during the second half of the year. RESULTS AND DIVIDEND The Group's consolidated turnover for the year ended March 31, 1998 was HK$2,234.5 million, compared with HK$4,155.6 million for the previous year. In June 1997, the Group's subsidiaries, GP Batteries and Clipsal Industries became associated companies as a result of the placements of new shares by both companies. This caused a significant reduction in the Group's reported turnover as their sales were not consolidated. If the companies were to remain subsidiaries, the Group's turnover would have increased by approximately 10.7 per cent to HK$4,599.3 million. Consolidated profit attributable to shareholders amounted to HK$202.6 million, down 16.5 per cent compared with HK$242.7 million for the previous year. Earnings per share for the year amounted to 53.23 cents, down 13.6 per cent as compared with 61.61 cents for the previous year. The drop was mainly due to the placements of new shares by GP Batteries and Clipsal Industries which resulted in dilution in the Group s earnings. The Group reported an exceptional gain of HK$194 million as a result of the placements of shares by the Group's Singapore-listed member companies. However, total provisions of HK$119 million were made in view of the still volatile conditions in Asia. The provision included the written off of the Group s investment costs of Clipsal Industries warrants which are due to expire on August 12, 1998. It is unlikely that the Group will exercise these warrants due to the drop of Clipsal Industries share price. The net exceptional gain for the year amounted to HK$75 million. The contribution from Clipsal Industries covered only the nine-month period from April to December 1997, instead of from April 1997 to March 1998 as in the previous years. As Clipsal Industries became an associated company, the Group considered it more appropriate for both Gold Peak and Clipsal Industries to use the same set of accounts for reporting purposes, i.e. using Clipsal Industries accounts ending December 31. An interim dividend of 11.0 cents (1997: 9.0 cents) per share was paid in February 1998. The Board of Directors proposes to recommend at the forthcoming Annual General Meeting the payment of a final dividend of 8.0 cents (1997: 12.5 cents) per share to shareholders on the Register of Shareholders of the Company on September 29, 1998, making a total dividend of 19.0 cents (1997: 21.5 cents) per share for the whole year. If approved, the proposed final dividend will be paid on or about October 8, 1998. 17

GP branded rechargeable batteries for use in telecommunication products BATTERY DIVISION GP Batteries achieved record turnover and profit during the year. Turnover and profit attributable to shareholders increased by 10.4 per cent and 7.8 per cent respectively over the previous year. However, the profit margin in the second half of the year was adversely affected by the Asian crisis and the much weakened Yen. Global Markets Continued Growth In Asia, GP Batteries still experienced healthy growth in turnover and profit despite the Asian crisis. The impact of the devalued ASEAN currencies was minimal because sales to these markets accounted for only 4.8 per cent of GP Batteries' total turnover. The industrial sector in ASEAN became more competitive for export business with their depreciated currencies. As a result, GP Batteries business in this sector was not very much affected by the crisis. Through aggressive marketing efforts, "GP" has become one of the top brands in Asia for rechargeable battery packs and consumer rechargeable batteries. To further strengthen GP Batteries distribution in Asia, a new sales office was set up in Malaysia. It also acquired a 100 per cent stake in Champion World Limited to strengthen its distribution capability in China. In North America, the private label business surged. GP Batteries products continued to gain recognition and acceptance among major original equipment manufacturers ("OEM"). In Latin America, products marketed under "GP" brand continued to gain market acceptance and GP Batteries will continue to capitalize on the high growth of this region. Healthy growth was achieved in Europe with increase in sales to the consumer market and in rechargeable batteries. New markets such as Australia and Sri Lanka progressed well. More efforts were made to develop other emerging markets in the Middle East, India and Pakistan. 18

GP Batteries has successfully made significant improvement in Andrew Ng Chairman & Chief Executive GP Batteries productivity through time compression, benchmarking, continuous improvement of manufacturing technology, Richard Ku Vice Chairman GP Batteries re-engineering and quality excellence. 19

Clipsal s newly launched moulded case circuit breakers Acquisition of Duracell's U. S. Lithium Ion Operation GP Batteries completed the acquisition of Duracell's rechargeable Lithium Ion battery operations in the U.S. in February 1998. An on-going Technology Agreement was also signed between the two companies wherein future product developments and enhancements to existing technology will be shared between GP Batteries and Duracell. Manufacturing Strengths Enhanced GP Batteries has been able to achieve cost reductions through purchase of more competitive materials and improvement in productivity. The production of Carbon Zinc 9-volt batteries remained steady. The facilities in Malaysia were expanded to meet the upsurge in demand for Alkaline 9-volt batteries. Production for Alkaline cylindrical batteries commenced in China. Electric Vehicle Project GP Batteries continued to be a major supporter of use of electric vehicles. During the year, six electric vehicles ("EV") installed with Nickel Metal Hydride batteries were delivered to a major utility company in Hong Kong. Another EV project began with a major auto manufacturer in China. GP Batteries EV batteries are constantly being upgraded and pilot production has been increased. Product Development GP Batteries will expand its market share in Nickel Cadmium batteries by developing large-sized batteries for applications in Emergency Lightings, Power Tools and Electric Bicycle. It will also enhance the performance of micro and Nickel Metal Hydride batteries. More new products for the consumer market such as PowerBank, a revolutionary rechargeable batteries pack with a smart charger, will be developed. ELECTRICAL DIVISION For its financial year ended December 31, 1997, Clipsal Industries recorded a steady growth of 3.3 per cent in turnover while profit dropped 24.8 per cent after a special provision of HK$31.2 million was made as a result of the Asian crisis. 20

As the Official Provider of the Sydney 2000 Olympic Games, K.W. Chau Managing Director Clipsal Industries Clipsal is supplying its high quality wiring accessories and the state-of-the-art C-Bus energy management system to the Olympic site. Parklin Ho Executive Director Clipsal Industries Michael Clayton Executive Director Clipsal Industries 21

North Asian Market In China, Clipsal Industries continued to achieve satisfactory sales growth. Aggressive advertising and marketing programs were implemented to further strengthen the "CLIPSAL" brand and to help promote the expanded product range. In Hong Kong, the property market remained active in the first half of 1997 but started to slow down in the second half. However, steady sales growth for the whole year was maintained due to the increasing popularity of the E2000 Series and the successful introduction of new lighting products. In Thailand, development in the first half of 1997 was encouraging with significant growth in sales. However, the gross margin fell sharply in the third quarter with the escalating cost of imported products. Good progress was made in Taiwan and Vietnam. South East Asian Markets The Singaporean and Malaysian markets continued to experience growth in sales for the year despite unfavourable conditions in the region from the middle of the year. However, sales growth in Malaysia was largely offset by the substantial devaluation of the Malaysian Ringgit and the profit margin also declined. In Indonesia, favourable progress was made in the first half but the plant in Jakarta faced severe inflation in the cost of its imported materials. Clipsal s new plant in Vietnam 22

Emerging Markets The new sales offices in the Middle East and Pakistan commenced operations with encouraging results. Australian Market The business environment in Australia was very strong during the year as the domestic economy continued to experience steady growth. Gerard Industries achieved strong growth in both sales and market share. In South Africa, Lumex Clipsal (Pty) Ltd achieved improved results despite a tough business environment. New Joint Venture and Partnership In March 1998, a new joint venture for the manufacture of electrical wiring accessories was formed in India between Gerard Industries and Electric Control Gear (India) Limited. This joint venture will make available a wide range of premium domestic switches, sockets and other wiring accessories to the Indian market. In May 1998, Clipsal Industries completed the acquisition of a 38.02% interest in Lovato S.P.A., a leading manufacturer of industrial controlgears and related products based in Italy. Further to the acquisition, the two companies have formed a joint venture plant in China to produce "CLIPSAL" branded industrial contactors and related products. Lovato S.P.A. s manufacturing facilities in Italy 23

Some of GPE s latest automotive electronic products, including the GPS for car navigation application ELECTRONICS DIVISION GPE Industries achieved overall satisfactory results for the year against a tougher business environment and keen price competition in the second half. Turnover and net profit increased by 36.5 per cent and 0.3 per cent respectively over the previous year. The results reported included the loudspeaker business under GP Acoustics Limited which was transferred from the Group s Strategic Investment Division. Electronics Group Automotive Electronics The after-market car audio business in the U.S. continued to be very price competitive. In Europe, sales were stable in the first half, but GPE Industries faced much stronger price competition in the second half due to the further weakened Yen and the sharp depreciation of currencies in South Korea and South East Asia. As a result, the profit margin was much affected. Sales and contribution from the associated companies in China continued to grow satisfactorily due to the stable development of the country s auto industry and the strong demand for high-priced models. Specialty Electronics Sales of specialty electronic products showed satisfactory growth during the year with the launch of the wellreceived public address system. Sales of other home electronic products to OEM customers in Europe and the U.S. also grew healthily as both the product range and customer base were broadened. Cable & Harness Group Automotive Wire Harness Export sales of automotive wire harness products to Japan continued to grow strongly. The strategic alliance with Ohmi Electric Wire Co., Ltd of Japan enabled GPE Industries to gain further market share in Japan. 24

As one of the largest suppliers of car audio products, automotive wire harnesses and related P.C. Leung Vice Chairman & Managing Director GPE Industries parts & components in China, GPE is favourably positioned to Brian Li Deputy Managing Director GPE Industries capitalise on China s growing car industry. 25

In China, the joint ventures progressed well. Both the sales and contribution from the joint ventures in Chongqing and Xuzhou increased satisfactorily. The new Shanghai plant became operational in July 1997. In August 1997, GPE Industries formed a wire harness joint venture, Furukawa GP Auto Parts (HK) Limited, with The Furukawa Electric Co., Ltd. The new company then acquired the three wire harness joint ventures in Shanghai, Chongqing and Xuzhou from GPE Industries. In March 1998, Shanghai Dong Chang Enterprises Corporation, a leading supplier of auto parts and fittings in China became a new joint venture partner in the Shanghai plant. This partnership is expected to strengthen GPE Industries' market position in China's auto harness industry. Wires & Cables LTK Industries Ltd, an associated company of GPE Industries, achieved another year of satisfactory growth due to the strong sales of LAN ("Local Area Network") cable products. The production capacity of the LAN cable plant in Shanghai doubled in the second half of 1997. The production capacity will be further expanded to meet the strong market demand. The completion of the installation of new copper-drawing facilities in the Huizhou plant further strengthens LTK s vertical integration and its competitiveness. GPE s all-in-one portable public address system Celestion s revolutionary C Series loudspeakers for the home market 26

Acoustics Group The overall performance of the loudspeaker business was satisfactory. Sales of KEF and Celestion high-end loudspeakers in Asia slowed down during the second half of the year due to the Asian crisis. The other markets also experienced tougher price competition due to a strong Sterling Pound. GPE Industries has expedited the relocation of some manufacturing from the U.K. to more cost-competitive areas. The Asian speaker manufacturing joint ventures achieved satisfactory growth as demand from their OEM customers in Europe and the U.S. remained strong. The Group s high quality loudspeakers being put under stringent acoustic test in the U.K. anechoic chamber 27

STRATEGIC INVESTMENT DIVISION Parts and Components The Group's various joint ventures in China producing parts and components continued to perform satisfactorily. During the year, the Group increased its interest from 26.5 per cent to 29.8 per cent in SPG Industry (HK) Limited, a company which manufactures and markets high precision metal and plastic parts in Huizhou, China. Distribution Business The Group's distribution business generally faced very keen price competition since the second half due to Asian crisis. In view of the volatile market conditions, the Group has made full provisions for certain investments. FINANCIAL POSITION During the year, the Group s total assets and bank borrowings decreased by HK$2,347 million to HK$3,038 million and by HK$789 million to HK$1,539 million respectively. This was mainly because the Company is no longer required to consolidate the assets and liabilities of GP Batteries and Clipsal Industries following the deconsolidation exercise in June 1997. At March 31, 1998, the Group s shareholders funds and minority interests stood at HK$1,106 million and the Group s gearing ratio was 1.27. Through the Stock Exchange of Singapore, the three Singapore listed companies raised a total of more than HK$700 million during the year under review. In July 1997, the Company also arranged a 4-year syndication loan of US$ 60 million. These exercises greatly enhanced both the financial strength of the Company and its Singapore listed companies. At March 31, 1998, the gearing ratios of GP Batteries and GPE Industries were 0.60 and 0.19 respectively and Clipsal Industries was in a net cash position at December 31, 1997. Participating the Promoting the various brands of loudspeakers in the Hong Kong AV Show annual AV Show in Shanghai 28

At March 31, 1998, approximately 56 per cent (1997: 62 per cent) of the Group s bank borrowings was revolving or repayable within one year whereas 44 per cent (1997: 38 per cent) was repayable between one to five years. Most of the Group s term loans are in US dollars and over 60 per cent of its revenues is in US dollars. In order to manage its foreign currency risks, the Group will book forward contracts when appropriate and will match currencies of purchases with sales to minimize the effect of currencies fluctuation. EMPLOYEE RELATIONS As at March 31, 1998, including the major operations of the various divisions, the Group employed about 13,000 employees. The work force within the Group is stable, dedicated and closely bonded by the Gold Peak family culture. Employees are rewarded on a performance-related basis. The Company's executive share option scheme has been in place since 1988. The Group s three major member companies, GP Batteries, Clipsal Industries and GPE Industries have had their respective executive share option schemes since 1992, 1993 and 1996 respectively. To further enhance the staff's level of competency, the Group continued to place strong emphasis on staff training and development. Workshops and seminars for both general staff and senior executives on quality and productivity enhancement, marketing and management, were organised throughout the year. Employees are also encouraged to pursue external studies with educational subsidies given by the Group. Regular staff publications are issued to enhance internal communication. In addition, an electronic newsletter sent via the Group s e-mail system is also available. To have a closer tie between the employees, a number of staff activities such as annual dinner and sports competition was organised. 29

COMMUNITY RELATIONS The Group continued to support industry and community events during the year. The Group sponsored the Hong Kong Award for Industry for the ninth year and continued to support The Hong Kong Community Chest's Corporate Contribution Program. The Group was also an active member of the Private Sector Committee on Environment. During the year, the Group participated in 4 major Walks for Millions including the Celebration of Reunification Charity Walk, the Western Harbour Crossing Walk For Millions, the Tsing Ma Bridge Walk For Millions and the New Airport Walks for Millions. Over 2,000 employees and family members participated. In addition, the Group continued to take part in the Annual Dress Casual Day. In support of Red Cross, the Annual Blood Donation Drive was held in July 1998 with a record breaking rate of staff participation. VOTE OF THANKS The Directors would like to extend their sincere thanks to all the employees for the dedication and hardwork contributed in the past year. Their support is particularly vital to the Group as it is facing a challenging period ahead. The Board of Directors Gold Peak Industries (Holdings) Limited August 7, 1998 The Group s Blood Donation Drive Participating Hong Kong s New Airport Walks For Millions 30