DECCA HOLDINGS LIMITED. annual report

Transcription

1 DECCA HOLDINGS LIMITED annual report 2005

2 contents 1 CORPORATE INFORMATION & FINANCIAL CALENDAR 3 CHAIRMAN S STATEMENT 7 FINANCIAL SUMMARY 9 MANAGEMENT DISCUSSION AND ANALYSIS 21 DIRECTORS AND SENIOR MANAGEMENT 25 REPORT OF THE DIRECTORS 37 REPORT OF THE AUDITORS 39 FINANCIAL STATEMENTS 53 NOTES TO THE FINANCIAL STATEMENTS

3 CORPORATE INFORMATION & FINANCIAL CALENDAR CORPORATE INFORMATION Executive Directors Independent Non-executive Directors Company Secretary Registered Office Head Office and Principal Place of Business in Hong Kong Principal Bankers Principal Share Registrar and Transfer Office Hong Kong Branch Share Registrar and Transfer Office Auditors Legal Advisers Mr. Tsang Chi Hung, Chairman Mr. Liu Hoo Kuen, Vice Chairman Mr. Richard Warren Herbst Ms. Kwan Yau Choi Ms. Fung Sau Mui Mr. Tai Wing Wah Mr. Wong Kam Hong Mr. Chu Kwok Man Mr. Lok Wai Kiang, Paul Mr. Cheung Woon Kam Mr. Kwan Kam Ming Clarendon House 2 Church Street Hamilton HM 11 Bermuda 2nd Floor, Decca Industrial Centre 21 Cheung Lee Street Chai Wan Hong Kong Wing Hang Bank, Limited Standard Chartered Bank (Hong Kong) Limited DBS Bank (Hong Kong) Limited The Bank of Bermuda Limited Bank of Bermuda Building 6 Front Street Hamilton HM 11 Bermuda Standard Registrars Limited G/F, BEA Harbour View Centre 56 Gloucester Road Wanchai Hong Kong Deloitte Touche Tohmatsu Certified Public Accountants Li & Partners, Solicitors Guangzhou Guang Xin Lawyers FINANCIAL CALENDAR Interim Results Announced on Tuesday, 14 December 2004 Interim Dividend HK0.8 cent per share paid on Thursday, 20 January 2005 Final Results Announced on Monday, 11 July 2005 Annual Report Sent to Shareholders on Friday, 22 July 2005 Register of Members To be closed from Wednesday, 17 August 2005 to Monday, 22 August 2005, both days inclusive Annual General Meeting To be held on Monday, 22 August DECCA Annual Report 2005

4 Richard Warren Herbst Clarendon House 2 Church Street Hamilton HM 11 Bermuda 21 2 The Bank of Bermuda Limited Bank of Bermuda Building 6 Front Street Hamilton HM 11 Bermuda DECCA Annual Report

5 CHAIRMAN S STATEMENT RESULTS The year under review was a challenging year for the Group. For the year ended 31 March 2005, the Group recorded a turnover of HK$357.4M, up 33.2% as compared with the previous financial year of HK$268.2M. The satisfactory improvement was mainly attributable to the increase in sales demand for furniture and fixtures products after the improvement of the global economy. The net profit for the year increased by 525% to approximately HK$14.8M compared with the previous financial year of HK$2.4M. The Directors have recommended a final dividend of HK 1.4 cents per share for the year ended 31 March 2005 (2004: nil), which is subject to approval by shareholders at the Annual General Meeting to be held on 22 August This together with the interim dividend of HK 0.8 cent (2004: nil) per share giving a total dividend of HK 2.2 cents per share for the year (2004: nil). The final dividend payment will be made on 8 September 2005 to shareholders whose names appear on the Register of Members of the Company on 22 August BUSINESS REVIEW United States and Europe continued to be the principal markets of the Group. HK$240M of the Group s products were sold to USA and Europe, accounting for 67% of the Group s total turnover. During the previous financial year, HK$140M were sold to USA and Europe. The Group had continued to have the opportunity to participate in a number of sizeable projects during the year in various sectors of the business which had helped increasing the Group s turnover as a whole. Hong Kong and Mainland China markets continued to slow down during the year under review representing only 29% the Group s turnover compared with that of 43% of the previous financial year. The new Decca Contract showroom in Chicago Decca Contract During the year under review, the Group completed interior fitting out projects and/or supply of furniture for a large residence at Repulse Bay Road, Hong Kong, Hilton Hotel, San Francisco, Four Seasons Hotel, Palo Alto, USA and the Langham Hotel, London. Shop fixtures were supplied to several Ermenegildo Zegna stores in Shenzhen, Changchun and Hangzhou. The Group also undertook to supply architectural woodwork for the branch offices of an international law firm in Los Angeles, San Francisco and New York through its partner, Imperial Woodworking Company. Projects currently in progress include interior fitting-out project for a French Restaurant at the Four Seasons Hotel, Hong Kong, furniture supply contracts for MGM Turnberry, Las Vegas, the Ritz-Carlton Hotel, Moscow, the Grosvenor House Hotel, London, and shop fixtures projects for Hermes Boutique in Hangzhou and Manolo Blahnik Boutique in Central, Hong Kong. In June 2005, the Group opened a contract furniture showroom at the Merchandise Mart in Chicago, the showroom was well received by architects and designers. The showroom had also won the 2005 Showroom and Booth Competition Award, organized by the International Design Association. This showroom is in addition to the showroom in Dallas, Texas which had been operating since April Chicago is the centre of the office furniture industry. The Group believes that by establishing this showroom, the Group s presence in the contract furniture market in USA is more visible and elevates Decca Contract Furniture ( DCF ) to being a National supplier. 3 DECCA Annual Report 2005

6 % % 1, % % 29% Hilton HotelFour Seasons Hotel Langham Hotel Ermenegildo ZegnaImperial Woodworking Company MGMTurnberryRitz-Carlton HotelGrosvenor House HotelHermes Boutique Manolo Blahnik Boutique Merchandise Mart International Design Association 2005 Showroom and Booth Competition Award Decca Contract Furniture DCF The 2005 Showroom and Booth Competition Award 2005 Showroom and Booth Competition Award DECCA Annual Report

7 CHAIRMAN S STATEMENT PROSPECTS During the coming year, the Group will focus on expanding its manufacturing base and improving its production efficiency. Currently, a new 360,000ft 2 addition to the present factory premises in Dongguan is under construction. The new facility will include a 60,000ft 2 finishing line that will fully mechanise the finishing operation from green sanding to final assembly and packing. The Group expects this facility to be operational by the fourth quarter of this year. This will then allow the production facilities to be divided into specialist areas so the attention can be paid to improving the profitability of each main business area; hospitality, contract, architectural & retail fixtures and residential furniture. During the previous year, over HK$15M, primarily bedroom furniture, was shipped from Thailand. The Group has set up a company called Decca Furniture (Thailand) Limited in February 2005 which will continue to expand. The Group expects business to increase over the coming year as a result of the Group targeting hospitality programs in the middle market segment. This business was never actively pursued in the past because of limited production capacity. The Group has continued its fight against the imposition of duties now in effect for Chinese produced bedroom furniture. A decision is expected on the Group s court case in Washington by mid-august A luxury brand store recently completed by the Group s retail fixtures team The Decca brand name continues to develop. In particular, the Group is becoming well known in the European hospitality market and the U.S. contract furniture market. During the coming year: 1. The Group will utilise its three marketing offices in Europe London, Paris and Copenhagen to further develop Decca s brand name with hotel operators and designers. The Group is now active in eight European countries and expects its business to increase significantly over the coming year. 2. DCF s new Chicago showroom has pushed the Decca brand to the forefront of executive case goods suppliers. During the recent NeoCon World s Trade Fair, over 200 architects and designers visited the showroom for the first time and have asked for appointments with company sales representatives to discuss potential projects utilising DCF s case goods capabilities. This will lead to a significant increase in business for DCF in the coming year. Although, there will be challenges in 2005/2006, the Group is well positioned to continue to develop and to improve its overall results in the coming year. APPRECIATION The Board would like to extend its gratitude to all the Group s customers and bankers for their trust and support and would like to thank all of the staff of the Group for their tireless efforts and contribution to the Group. Hong Kong, 11 July 2005 By Order of the Board Tsang Chi Hung Chairman 5 DECCA Annual Report 2005

8 360,000 60, Decca Furniture (Thailand) Limited The New Rosenau series of the Group s Bolier & Co. furniture line Bolier & Co. Rosenau DCF NeoCon 200DCF DCF 2005/2006 DECCA Annual Report

9 FINANCIAL SUMMARY For the financial year (in HK$ 000) (restated) Turnover 357, , , , ,889 Gross profit 133,161 80,872 53,244 89,879 89,783 Profit (loss) before taxation 18,379 5,087 (69,375) 5,514 16,322 Taxation (charge) credit (3,603) (2,728) (2,247) Profit (loss) before minority interest 14,776 2,359 (68,436) 5,965 14,075 Minority interest 4 Net profit (loss) for the year 14,776 2,363 (68,436) 5,965 14,075 Dividends 4,400 3,000 4,400 Basic earnings (loss) per share (HK$) (0.34) As at (in HK$ 000) 31 March March March March March 2001 (restated) (restated) Non-current Assets 100, , , , ,690 Current Assets 218, , , , ,259 Bank Balances and Cash 28,524 31,835 12,614 19,905 30,146 Current Liabilities 115,577 73, ,117 97,320 78,139 Net Current Assets 102,838 85,712 72, , ,120 Non-current Liabilities 9,721 6,670 4,699 8,091 16,338 Net Assets 193, , , , ,472 Note: Certain figures set out above are restated due to the adoption of a number of new and revised accounting practice. 7 DECCA Annual Report 2005

10 Turnover Gross Profit HK$' , , ,386 HK$' , , , , , , , , ,000 89,783 89,879 80,872 53, ,000 50, Net Current Assets Net Assets HK$' ,000 HK$' , , , , , , , , , , , ,000 72,059 85, ,000 50, DECCA Annual Report

11 MANAGEMENT DISCUSSION AND ANALYSIS The following should be read in conjunction with the financial statements of Decca Holdings Limited and the related notes to the financial statements. REVIEW OF RESULTS The year under review was a challenging year for the Group. For the year ended 31 March 2005, the Group recorded a turnover of HK$357.4M, up 33.2% as compared with the previous financial year of HK$268.2M. The satisfactory improvement was mainly attributable to the increase in sales demand for furniture and fixtures products after the improvement of the global economy. The net profit for the year increased by 525% to approximately HK$14.8M compared with the previous financial year of HK$2.4M. United States and Europe continued to be the principal markets of the Group. HK$240M of the Group s products were sold to USA and Europe, accounting for 67% of the Group s total turnover. During the previous financial year, HK$140M were sold to USA and Europe. The Group had continued to have the opportunity to participate in a number of sizeable projects during the year in various sectors of the business which had helped increasing the Group s turnover as a whole. Hong Kong and Mainland China markets continued to slow down during the year under review representing only 29% the Group s turnover compared with that of 43% of the previous financial year. During the year under review, the Group completed interior fitting out projects and/or supply of furniture for a large residence at Repulse Bay Road, Hong Kong, Hilton Hotel, San Francisco, Four Seasons Hotel, Palo Alto, USA and the Langham Hotel, London. Shop fixtures were supplied to several Ermenegildo Zegna stores in Shenzhen, Changchun and Hangzhou. The Group also undertook to supply architectural woodwork for the branch offices of an international law firm in Los Angeles, San Francisco and New York through its partner, Imperial Woodworking Company. Projects currently in progress include interior fitting-out project for a French Restaurant at the Four Seasons Hotel, Hong Kong, furniture supply contracts for MGM Turnberry, Las Vegas, the Ritz-Carlton Hotel, Moscow, the Grosvenor House Hotel, London, and shop fixtures projects for Hermes Boutique in Hangzhou and Manolo Blahnik Boutique in Central, Hong Kong. In June 2005, the Group opened a contract furniture showroom at the Merchandise Mart in Chicago, the showroom was well received by architects and designers. The showroom had also won the 2005 Showroom and Booth Competition Award, organized by the International Design Association. This showroom is in addition to the showroom in Dallas, Texas which had been operating since April Chicago is the centre of office furniture industry. The Group believes that by establishing this showroom, the Group s presence in the contract furniture market in USA is more visible and elevates Decca Contract Furniture ( DCF ) to being a National supplier. LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE The Group continued to maintain a conservative financial structure during the year, there is no seasonal borrowing requirements. The Group s funding requirements to a certain extent depend on the value of the contracts awarded to the Group by its customers. As at 31 March 2005, the total bank borrowings amounting to HK$46.9M (2004: HK$27.0M) would mature in one year or on demand. The Board believes that the Group s available banking facilities and its bank balances should provide the Group with sufficient financial resources for its operations and future development. 9 DECCA Annual Report 2005

12 % % 1, % % 29% Hilton HotelFour Seasons Hotel Langham Hotel Ermenegildo Zegna Imperial Woodworking Company MGM Turnberry Ritz-Carlton HotelGrosvenor House HotelHermes Boutique Manolo Blahnik Boutique Merchandise Mart International Design Association2005 Showroom and Booth Competition Award Decca Contract Furniture DCF 4,690 2,700 DECCA Annual Report

13 MANAGEMENT DISCUSSION AND ANALYSIS LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE (continued) The borrowings including bank loans and overdrafts are mainly in Hong Kong dollars and Renminbi which will be matched by the inflow of funds from the Group s projects in Hong Kong and Mainland China. Having taken into account of the Group s net worth of HK$193.3M, such borrowing level is considered as prudent. Finance costs were maintained at a low level of HK$2.0M (2004: HK$2.4M) representing 0.6% (2004: 0.9%) of the Group s turnover. Net current assets stood at HK$102.8M. The Group s cash holding is mainly denominated in Hong Kong dollars. The interest rates of the Group s borrowings are usually floating in nature. The Group generally finances its operations with internally generated resources and credit facilities by banks in Hong Kong. Subsidiaries in Mainland China also obtain short-term credit facilities from banks in Mainland China for working capital purpose. GEARING RATIO AND FOREIGN EXCHANGE EXPOSURE As at 31 March 2005, the gearing ratio (total borrowings divided by net assets) was 0.27 (2004: 0.16). As the Group s revenue and expenses were mainly in Hong Kong dollars, Renminbi and US dollars and its cash holding was denominated in Hong Kong dollars, foreign exchange exposure of the Group was minimal as long as the policy of the Government of HKSAR to link the Hong Kong dollars to the US dollars remained in effect, Renminbi s exchange rate remained stable as Mainland China would also like to maintain a stable exchange rate between Hong Kong dollars and Renminbi which would be beneficial to Hong Kong s economy. CHARGE ON ASSETS AND CONTINGENT LIABILITIES At 31 March 2005, land and building of the Group with net book value of approximately HK$6.7M (2004: HK$7.2M) were pledged with a bank to secure a loan granted to the Group. As at 31 March 2005, there were contingent liabilities of approximately HK$4.8M in respect of jointly guarantee with a third party to secure finance leases granted to an associate. At 31 March 2005, the obligations under finance leases in the books and records of the associate amounted to approximately HK$4.8M. There was no significant investments or disposals of subsidiaries in the year under review. SIGNIFICANT INVESTMENTS HELD AND MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES There was no significant investments or disposals of subsidiaries in the year. EMPLOYEES As at 31 March 2005, the Group employed 110, 1471, 4 and 21 staff in Hong Kong, Mainland China, Singapore and USA respectively (2004: 101, 1065, 4 and 11 respectively). The Group remunerated its employees based on their performance, working experience and the prevailing market conditions. Bonus may be given to staff of outstanding performance on a discretionary basis. For the primary purpose of retaining high caliber executives and employees, share options may be granted to eligible employees. Other employee benefits include mandatory provident fund and training programs. 11 DECCA Annual Report 2005

14 %0.9% DECCA Annual Report

15 MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE The Audit Committee, which was comprised of three Independent Non-executive Directors, met twice since the last AGM to review and discuss the Group s interim and annual results and other audit and internal control issues with the external auditors. FINANCIAL ASSISTANCE AND GUARANTEE TO AFFILIATED COMPANY The Group made financial assistance of HK$11,667,000 and guarantees of HK$3,425,000 to its associate Vielie Flooring Limited ( Vielie ) as at 30 June These in aggregate represented approximately 15.1% of the consideration ratio of the Group as at 30 June These pursuant to financial assistance and guarantees to affiliated company under Rule of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (The Listing Rules ) as its consideration ratio exceeded the requirement of 8% of the consideration ratio. The financial assistance was interest free, unsecured and repayable on demand. The financial assistance was funded by the Group s internal resources. The guarantee was given by the Company to banks which provided finance leases to Vielie. The Group has 50% share of interest in Vielie as at 31 March 2005 and the audited balance sheet of Vielie was given below: VIELIE FLOORING LIMITED Balance Sheet as at 31 March (audited) HK$ Non-current assets Investment in subsidiary 10,691,308 Plant and machinery, furniture and fixtures 2,132,832 12,824, DECCA Annual Report 2005

16 11,667,0003,425, % % 50% 10,691,308 2,132,832 12,824,140 DECCA Annual Report

17 MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL ASSISTANCE AND GUARANTEE TO AFFILIATED COMPANY (continued) VIELIE FLOORING LIMITED (continued) Balance Sheet as at 31 March (audited) HK$ Current assets Amount due from subsidiary 11,157,553 Inventories 1,030,628 Trade debtors 1,551,762 Bank balances 573,120 14,313,063 Current liabilities Trade creditors 1,303,947 Other creditors and accruals 608,477 Obligations under finance leases - due within one year 2,169,441 Amounts due to shareholding companies 22,132,727 26,214,592 Net current liabilities (11,901,529) Total assets less current liabilities 922,611 Non-current liabilities Obligations under finance leases - due after one year 2,647,367 (1,724,756) CAPITAL AND RESERVES Issued capital 2 Accumulated losses (1,724,758) (1,724,756) 15 DECCA Annual Report 2005

18 11,157,553 1,030,628 1,551, ,120 14,313,063 1,303, ,477 2,169,441 22,132,727 26,214,592 (11,901,529) 922,611 2,647,367 (1,724,756) 2 (1,724,758) (1,724,756) DECCA Annual Report

19 MANAGEMENT DISCUSSION AND ANALYSIS In the opinion of the Directors, the Company has complied throughout the year with the Code of Best Practice as set out by the Stock Exchange in Appendix 14 to the Listing Rules. CLOSURE OF REGISTER OF MEMBERS The Register of Members of the Company will be closed from Wednesday, 17 August 2005 to Monday, 22 August 2005, both days inclusive. During this period, no transfer of shares will be effected. In order to qualify for the attendance at the Annual General Meeting, shareholders must lodge all transfer documents accompanied by the relevant share certificates with the Company s Share Registrars, Standard Registrars Limited on G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong by 4:00 p.m. on Tuesday, 16 August PROSPECTS During the coming year, the Group will focus on expanding its manufacturing base and improving its production efficiency. Currently, a new 360,000ft 2 addition to the present factory premises in Dongguan is under construction. The new facility will include a 60,000ft 2 finishing line that will fully mechanise the finishing operation from green sanding to final assembly and packing. The Group expects this facility to be operational by the fourth quarter of this year. This will then allow the production facilities to be divided into specialist areas so the attention can be paid to improving the profitability of each main business area; hospitality, contract, architectural & retail fixtures and residential furniture. During the previous year, over HK$15M, primarily bedroom furniture, was shipped from Thailand. The Group has set up a company called Decca Furniture (Thailand) Limited in February 2005 which will continue to expand. The Group expects business to increase over the coming year as a result of the Group targeting hospitality programs in the middle market segment. This business was never actively pursued in the past because of limited production capacity. The Group has continued its fight against the imposition of duties now in effect for Chinese produced bedroom furniture. A decision is expected on the Group s court case in Washington by mid-august The Decca brand name continues to develop. In particular, the Group is becoming well known in the European hospitality market and the U.S. contract furniture market. During the coming year: 1. The Group will utilise its three marketing offices in Europe London, Paris and Copenhagen to further develop Decca s brand name with hotel operators and designers. The Group is now active in eight European countries and expects its business to increase significantly over the coming year. 2. DCF s new Chicago showroom has pushed the Decca brand to the forefront of executive case goods suppliers. During the recent NeoCon World s Trade Fair, over 200 architects and designers visited the showroom for the first time and have asked for appointments with company sales representatives to discuss potential projects utilising DCF s case goods capabilities. This will lead to a significant increase in business for DCF in the coming year. Although, there will be challenges in 2005/2006, the Group is well positioned to continue to develop and to improve its overall results in the coming year. 17 DECCA Annual Report 2005

20 56 360,000 60, Decca Furniture (Thailand) Limited DCF NeoCon 200DCF DCF 2005/2006 DECCA Annual Report

21 MANAGEMENT DISCUSSION AND ANALYSIS TURNOVER BY BUSINESS SEGMENTS 30% 16% 70% 84% Sales of Furniture and fixtures Interior building works TURNOVER BY GEOGRAPHICAL SEGMENTS America 8% 35% 5% 5% 47% 7% 4% 22% 9% 58% Hong Kong SAR Mainland China Other countries in Asia Europe DECCA Annual Report 2005

22 SEGMENT ASSETS BY BUSINESS SEGMENTS 26% 15% 74% 85% Sales of Furniture and fixtures Interior building works CARRYING AMOUNT OF SEGMENT ASSETS BY GEOGRAPHICAL SEGMENTS 1% 1% 0.4% Mainland China 9% 23% Hong Kong SAR 34% 55% 29% 47.6 America Other countries in Asia Others DECCA Annual Report

23 DIRECTORS AND SENIOR MANAGEMENT EXECUTIVE DIRECTORS Mr. Tsang Chi Hung Mr. Tsang Chi Hung, aged 65, is one of the founders of the Group and the chairman and managing director of the Company. He is primarily responsible for corporate policy formulation, strategic planning, business development and overall management of the Group. He has over 31 years experience in the marketing and manufacture of furniture and considerable expertise in the application of automation in woodworking, product development and the interior fitting out and woodworking industries. He was named an Honorary Citizen of Dongguan City, Guangdong in Mr. Tsang is the husband of Ms. Kwan Yau Choi, another executive director of the Company. Mr. Liu Hoo Kuen Mr. Liu Hoo Kuen, aged 53, is one of the founders of the Group and vice chairman and deputy managing director of the Company. He is primarily responsible for overseeing all technical related aspects of fit-out projects, furniture manufacturing and product development. Mr. Liu has over 31 years experience in product design, project management and quality assurance. Mr. Richard Warren Herbst Mr. Richard Warren Herbst, aged 56, joined the Group in 1994 and is an executive director of the Company. Mr. Herbst was promoted to deputy managing director of the Company from 1 April He is primarily responsible for overseeing sales and marketing of the international operations and new product sourcing and development. Mr. Herbst holds a bachelor s of science degree from Georgia Institute of Technology in the United States. He has over 19 years experience in furniture manufacturing and sales, and 12 years experience in corporate banking in Hong Kong, London and the United States. Ms. Kwan Yau Choi Ms. Kwan Yau Choi, aged 59, joined the Group in 1973 and is an executive director of the Company and director of domestic marketing operations. She is primarily responsible for overseeing the operation of the design and build division, public relations and quality assurance. Ms. Kwan has over 31 years experience in sales and marketing of furniture and fit-out project management. She is the wife of Mr. Tsang Chi Hung. Ms. Fung Sau Mui Ms. Fung Sau Mui, aged 50, joined the Group in 1976 and is an executive director of the Company and director of finance and administration. Ms. Fung was promoted to chief financial officer of the Company from 1 April She is primarily responsible for overseeing the finance and administration function of the Group. Ms. Fung has over 27 years experience in financial management, accounting, costing, material sourcing and purchasing, and personnel management. Mr. Tai Wing Wah Mr. Tai Wing Wah, aged 46, joined the Group in 1989 and is an executive director of the Company and director of China operations. He is primarily responsible for overseeing the China operations including factory management, government relationship and local sales. Mr. Tai holds a diploma in business management from the Hong Kong Polytechnic University and a diploma in interior design from Lee Wai Lee Technical Institute in Hong Kong. He is one of the executives involved in the planning and establishment of the Group s operations in China. Mr. Wong Kam Hong Mr. Wong Kam Hong, aged 47, joined the Group in 1993 and is an executive director of the Company. He is primarily responsible for institutional furniture sales. Mr. Wong holds a higher diploma in mechanical engineering from the Hong Kong Polytechnic University and an ordinary diploma in mechanical engineering from Kwun Tong Technical Institute in Hong Kong. He has over 20 years experience in institutional furniture sales and contract management. 21 DECCA Annual Report 2005

24 65 53 Richard Warren Herbst Richard Warren Herbst56Herbst Herbst DECCA Annual Report

25 DIRECTORS AND SENIOR MANAGEMENT INDEPENDENT NON-EXECUTIVE DIRECTORS Mr. Chu Kwok Man Mr. Chu Kwok Man, aged 49, is a solicitor practising in the Hong Kong SAR. Mr. Chu holds a bachelor degree in laws from the University of London and a master degree from the City University of Hong Kong. Mr. Chu became an independent nonexecutive director of the Company in 2000 and a member of the audit committee. Mr. Lok Wai Kiang, Paul Mr. Lok Wai Kiang, Paul, aged 60, became an independent non-executive director of the Company in 2001 and a member of the audit committee. He had served as a Principal Immigration Officer of the Hong Kong SAR Government and has over 33 years experience in the public sector. Mr. Lok holds a diploma in management studies awarded jointly by Hong Kong Polytechnic University and Hong Kong Management Association. Mr. Cheng Woon Kam Mr. Cheng Woon Kam, aged 52, became an independent non-executive director and a member of the audit committee of the Company in Mr. Cheng has over 28 years of experience in accounting and finance. Mr. Cheng is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants. Mr. Cheng is currently a Certified Public Accountant ( CPA ) in Hong Kong and practices as CPA in his own name. SENIOR MANAGEMENT Mr. Kwan Kam Ming Mr. Kwan Kam Ming, aged 50, joined the Group in 1993 and is a senior accounting manager and company secretary of the Company. He is primarily responsible for overseeing the Group s accounting and company secretarial matters. Mr. Kwan has over 17 years experience in accounting, financial management and company secretarial matters. He holds a bachelor degree in social sciences from the University of Hong Kong and is a fellow member of the Association of Chartered Certified Accountants and a fellow member of the Hong Kong Society of Accountants. Mr. Tam Shu Pui Mr. Tam Shu Pui, aged 68, joined the Group in 1977, is a senior technical manager of the Group. He is primarily responsible for technical related aspects of production and fit-out projects. He has over 51 years experience in wooden furniture production, fit-out project works and technical training. Mr. Chiu Chi Ming Mr. Chiu Chi Ming, aged 42, joined the Group in 1998 and is a senior manager in information technology of the Group. He is primarily responsible for overseeing the information technology operations of the Group including system design and analysis, programming and system management. Mr. Chiu holds a bachelor degree in computer science from the University of Saskatchewan, Canada and has over 12 years experience in system management, analysis and programming. 23 DECCA Annual Report 2005

26 University of Saskatchewan DECCA Annual Report

27 REPORT OF THE DIRECTORS The directors submit herewith their annual report together with the audited financial statements for the year ended 31 March PRINCIPAL ACTIVITIES The principal activity of the Company is investment holding. The principal activities and other particulars of the subsidiaries and an associate are set out in notes 14 and 15 to the financial statements respectively. The analysis of the principal activities and geographical locations of the operations of the Company and its subsidiaries during the financial year are set out in note 5 to the financial statements. MAJOR CUSTOMERS AND SUPPLIERS Sales and purchases attributable to the Group s five largest customers and suppliers of the Group accounted for less than 30% of the value of the Group s total sales and purchases for the year. RESULTS AND APPROPRIATIONS The results of the Group for the year ended 31 March 2005 are set out on page 39. An interim dividend of HK0.8 cent per share was paid to shareholders during the year. The directors now recommend the payment of a final dividend of HK1.4 cents per share to the shareholders on the register of members on 22 August 2005, amounting to HK$2,800,000, and the retention of the remaining profit for the year. PROPERTY, PLANT AND EQUIPMENT Details of movements during the year in the property, plant and equipment of the Group are set out in note 13 to the financial statements. 25 DECCA Annual Report 2005

28 % ,800, DECCA Annual Report

29 REPORT OF THE DIRECTORS DIRECTORS The directors of the Company during the financial year and up to the date of this report were: Executive directors: Mr. Tsang Chi Hung Mr. Liu Hoo Kuen Mr. Richard Warren Herbst Ms. Kwan Yau Choi Ms. Fung Sau Mui Mr. Tai Wing Wah Mr. Wong Kam Hong Independent non-executive directors: Mr. Chu Kwok Man Mr. Lok Wai Kiang, Paul Mr. Cheng Woon Kam (appointed on 1 September 2004) In accordance with Bye-Law 87, Mr. Tai Wing Wah and Mr. Wong Kam Hong retire from the board by rotation and, being eligible, offer themselves for re-election. In accordance with Bye-Law 86(2), Mr. Cheng Woon Kam shall retire from the board and, being eligible, offer himself for re-election. DIRECTORS SERVICE CONTRACTS Each of the executive directors, Mr. Tsang Chi Hung, Mr. Liu Hoo Kuen, Ms. Kwan Yau Choi, Ms. Fung Sau Mui, Mr. Tai Wing Wah and Mr. Wong Kam Hong, has entered into a service contract with the Company for an initial term of 3 years commencing from 1 February No new service contracts were signed upon expiration on 31 January 2003 and each service contract will continue thereafter unless terminated by either party thereto giving to the other at least three months notice in writing. Another executive director, Mr. Richard Warren Herbst, has entered into a new service contract with the Company for a term of 3 years commencing on 1 April For the three independent non-executive directors, Mr. Chu Kwok Man, Mr. Lok Wai Kiang, Paul and Mr. Cheng Woon Kam have entered into service contracts with the Company for a term of 2 years commencing on 1 February 2004, 1 September 2003 and 1 September 2004 respectively. No director proposed for re-election at the forthcoming annual general meeting has an unexpired service contract which is not determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than normal statutory obligations. 27 DECCA Annual Report 2005

30 Richard Warren Herbst 87 86(2) Richard Warren Herbst DECCA Annual Report

31 REPORT OF THE DIRECTORS DIRECTORS INTERESTS IN SHARES AND UNDERLYING SHARES As at 31 March 2005, the interests of the directors and of their associates in the issued share capital and underlying shares of the Company and its associated corporations, as recorded in the register kept by the Company pursuant to Section 352 of the Securities and Futures Ordinance, or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code of Securities Transactions by Directors of Listed Companies were as follows: Long position (a) Interests in the Company s shares Percentage of Number of shares of HK$0.10 each the issued Personal Family Corporate share capital of Name of director interests interests interests Total the Company Mr. Tsang Chi Hung 9,920, ,511, ,432, % (note 1) (note 1) Mr. Liu Hoo Kuen 8,707,481 33,753,501 42,460, % (note 2) (note 2) Mr. Richard Warren Herbst 589, , % Ms. Kwan Yau Choi 9,920, ,511, ,432, % (note 1) (note 1) Ms. Fung Sau Mui 750, , % Mr. Tai Wing Wah 750, , % Mr. Wong Kam Hong 589, , % Mr. Lok Wai Kiang, Paul 500, , % (note 3) Notes: 1. Mr. Tsang Chi Hung and his wife Ms. Kwan Yau Choi own 348 shares and 347 shares of US$1 each respectively of Peasedow Enterprises Limited respectively, representing 35% each of the issued share capital of that company, which in turn owns 112,511,670 shares of the Company. Mr. Tsang Chi Hung, Ms. Kwan Yau Choi and Mr. Liu Hoo Kuen in their names and through Peasedow Enterprises Limited own 141,060,805 shares of the Company in aggregate, representing 70.53% of the issued share capital of the Company. 2. Mr. Liu Hoo Kuen own 305 shares of US$1 each of Peasedow Enterprises Limited, representing 30% of the issued share capital of that company, which in turn owns 112,511,670 shares of the Company. Mr. Tsang Chi Hung, Ms. Kwan Yau Choi and Mr. Liu Hoo Kuen in their names and through Peasedow Enterprises Limited own 141,060,805 shares of the Company in aggregate, representing 70.53% of the issued share capital of the Company. 3. These shares are held in the name of Ms. Lok Zee Pui Pui, Teresa, the wife of Mr. Lok Wai Kiang, Paul and Mr. Lok Wai Kiang, Paul is deemed to be interested in those shares as family interests. 29 DECCA Annual Report 2005

32 352 (a) 0.1 9,920, ,511, ,432, % 1 1 8,707,481 33,753,501 42,460, % 2 2 Richard Warren Herbst 589, , % 9,920, ,511, ,432, % , , % 750, , % 589, , % 500, , % 3 1. Peasedow Enterprises Limited % 112,511,670 Peasedow Enterprises Limited141,060, % 2. Peasedow Enterprises Limited % 112,511,670 Peasedow Enterprises Limited141,060, % 3. DECCA Annual Report

33 REPORT OF THE DIRECTORS DIRECTORS INTERESTS IN SHARES AND UNDERLYING SHARES (continued) Long position (continued) (b) Personal interests in the Company s share options Exercise price per Number of underlying Name of director share option options held shares HK$ Mr. Tsang Chi Hung 0.8 1,000,000 1,000,000 Mr. Liu Hoo Kuen 0.8 1,000,000 1,000,000 Mr. Richard Warren Herbst , ,000 Ms. Kwan Yau Choi 0.8 1,000,000 1,000,000 Ms. Fung Sau Mui , ,000 Mr. Tai Wing Wah , ,000 Mr. Wong Kam Hong , ,000 5,000,000 5,000,000 (c) Personal interests in shares of Decca (Mgt) Limited ( DML ) Name of director Non-voting deferred shares of HK$100 each Mr. Tsang Chi Hung 48,650 Mr. Liu Hoo Kuen 42,700 Ms. Kwan Yau Choi 48,650 Notes: 1. As at 31 March 2005, the issued and fully paid share capital in DML comprised of 145,600 non-voting deferred shares and 10 ordinary shares of HK$100 each. 2. The rights and restrictions attached to the ordinary and non-voting deferred shares of HK$100 each in DML are as follows: (a) (b) (c) The profits which DML may determine to distribute in respect of any financial year shall be distributed as regards the first HK$1 trillion thereof of among the holders of ordinary shares of DML according to the amounts paid up on the ordinary shares of DML held by them respectively and one half of the balance of such profits shall be distributed among the holders of the non-voting deferred shares of DML and the other half among the holders of ordinary shares of DML according to the amounts paid up on the shares held by them respectively. On a return of assets on winding up, the assets of DML to be returned shall be distributed as regards the first HK$5 billion thereof among the holders of ordinary shares of DML in proportion to the nominal amounts of ordinary shares of DML held by them respectively and one half of the balance of such assets shall belong to and be distributed among the holders of the nonvoting deferred shares of DML and the other half among the holders of ordinary shares of DML in proportion to the nominal amounts of the shares held by them respectively. Every holder of ordinary shares of DML shall have one vote for every fully paid up ordinary share of DML held by him but the non-voting deferred shares of DML shall not entitle the holders thereof to vote at any general meeting of DML. Save for disclosed above, none of the directors nor their associates held office at 31 March 2005 had any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations as at that date. 31 DECCA Annual Report 2005

34 (b) 0.8 1,000,000 1,000, ,000,000 1,000,000 Richard Warren Herbst , , ,000,000 1,000, , , , , , ,000 5,000,000 5,000,000 (c) ,650 42,700 48, , (a) (b) (c) 10, DECCA Annual Report

35 REPORT OF THE DIRECTORS SHARE OPTION SCHEME Particulars of the Company s share option scheme are set out in note 31 to the financial statements. DIRECTORS RIGHTS TO ACQUIRE SHARES OR DEBENTURES Save for disclosed above in directors interests in shares and underlying shares, at no time during the year was the Company, its holding company or any of its subsidiaries a party to any arrangements to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. SUBSTANTIAL SHAREHOLDERS Save for disclosed above in directors interests in shares and underlying shares, the Company has not been notified of any interests or short positions in the share capital of the Company as at 31 March 2005 which is required to be recorded in the register as required to be kept under section 336 of the Securities and Futures Ordinance. CONNECTED TRANSACTIONS The Group has entered into tenancy agreements (the Agreements ) with Golden Life Investment Limited ( Golden Life ) on 1 December The transactions pursuant to the Agreements constituted connected transactions under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ) as Mr. Tsang Chi Hung, Mr. Liu Hoo Kuen and Ms. Kwan Yau Choi, directors of the Company, are also directors and shareholders of Golden Life. Pursuant to the Agreements dated 1 December 2002, the Company leases (1) workshop nos. 1-8, on the 2nd floor, together with the rear portion of the flat roof on the 3rd floor and 7 car parking spaces on the ground floor of Decca Industrial Centre, 12 Kut Shing Street, Chai Wan, Hong Kong with an aggregate gross floor area of about 12,358 square feet (excluding the car park and flat roof areas) as its head office, showroom and warehouse at a monthly rental of HK$131,224; and (2) remaining portion of lot nos. 511 and 512 in Demarcation District No. 109, Kam Tin, Yuen Long, New Territories with an aggregate site area of about 24,237 square feet for warehousing at a monthly rental of HK$20,000 for a period of 3 years from 1 December 2002 to 30 November During the year, the Group paid rental of approximately HK$1,815,000 to Golden Life pursuant to the Agreements. The independent non-executive directors have reviewed the transactions pursuant to the Agreements and confirm that these transactions have been entered into: (i) (ii) (iii) by the Group in the usual and ordinary course of business; on normal commercial terms or on terms that are fair and reasonable so far as the independent shareholders of the Company are concerned; and in accordance with the terms of the Agreements. 33 DECCA Annual Report 2005

36 (1) , ,224(2) ,23720,000 1,815,000 (i) (ii) (iii) DECCA Annual Report

37 REPORT OF THE DIRECTORS DIRECTORS INTERESTS IN CONTRACTS OF SIGNIFICANCE Save for disclosed above in connected transactions, no contracts of significance to which the Company, its holding company or any of its subsidiaries was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. PURCHASE, SALE OR REDEMPTION OF THE COMPANY S SHARES During the year, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company s shares. PRE-EMPTIVE RIGHTS There are no provisions for pre-emptive rights under the Company s bye-laws, or laws of Bermuda, which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders. DONATIONS During the year, the Group made donations amounting to approximately HK$100,000. COMPLIANCE WITH THE CODE OF BEST PRACTICE 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. PUBLIC FLOAT Based on the information that is publicly available to the Company as at the date of this report and within the knowledge of the director, there was a sufficiency of public float the Company s securities as required under the Listing Rules. AUDITORS A resolution will be submitted to the annual general meeting to re-appoint Messrs. Deloitte Touche Tohmatsu as auditors of the Company. On behalf of the Board TSANG CHI HUNG Chairman Hong Kong, 11 July DECCA Annual Report 2005

38 100,000 DECCA Annual Report

39 REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF DECCA HOLDINGS LIMITED (incorporated in Bermuda with limited liability) We have audited the financial statements on pages 39 to 110 which have been prepared in accordance with accounting principles generally accepted in Hong Kong. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Company s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. BASIS OF OPINION We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2005 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 11 July DECCA Annual Report 2005

40 DECCA Annual Report

41 FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT For the Year Ended 31 March 2005 NOTES HK$ 000 HK$ 000 Turnover 4 357, ,232 Cost of sales (224,225) (187,360) Gross profit 133,161 80,872 Other operating income 6 2,344 3,764 Distribution costs (8,321) (8,145) Administrative expenses (95,732) (63,740) Allowance for amounts due from customers for contract work (300) (1,000) Allowance for bad and doubtful debts (9,836) (4,304) Allowance for amount due from an associate (900) Profit from operations 7 20,416 7,447 Finance costs 8 (2,037) (2,360) Profit before taxation 18,379 5,087 Taxation 10 (3,603) (2,728) Profit before minority interest 14,776 2,359 Minority interest 4 Net profit for the year 14,776 2,363 Dividends 11 4,400 Earnings per share 12 Basic 7.39 cents 1.18 cents 39 DECCA Annual Report 2005

42 4 357, ,232 (224,225) (187,360) 133,161 80, ,344 3,764 (8,321) (8,145) (95,732) (63,740) (300) (1,000) (9,836) (4,304) (900) 7 20,416 7,447 8 (2,037) (2,360) 18,379 5, (3,603) (2,728) 14,776 2, ,776 2, , DECCA Annual Report

43 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET At 31 March 2005 NOTES HK$ 000 HK$ 000 Non-current assets Property, plant and equipment , ,099 Investment in an associate , ,099 Current assets Inventories 16 72,703 52,741 Amounts due from customers for contract work 17 8,048 9,102 Amount due from an associate 18 10,737 6,935 Trade debtors 19 86,369 50,315 Other debtors, deposits and prepayments 11,105 6,945 Tax recoverable 929 1,405 Bank balances and cash 28,524 31, , ,278 Current liabilities Amounts due to customers for contract work 17 2,340 1,220 Trade creditors 20 26,238 13,963 Other creditors and accruals 35,473 29,890 Obligations under finance leases due within one year 21 2,435 1,474 Taxation 2,151 6 Bank borrowings 22 46,940 27, ,577 73,566 Net current assets 102,838 85, , , DECCA Annual Report 2005

44 13 100, , , , ,703 52, ,048 9, ,737 6, ,369 50,315 11,105 6, ,405 28,524 31, , , ,340 1, ,238 13,963 35,473 29, ,435 1,474 2, ,940 27, ,577 73, ,838 85, , ,811 DECCA Annual Report

45 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (continued) At 31 March 2005 NOTES HK$ 000 HK$ 000 Capital and reserves Share capital 23 20,000 20,000 Reserves , , , ,141 Non-current liabilities Obligations under finance leases due after one year 21 3, Deferred taxation 25 6,536 5,775 9,721 6, , ,811 The financial statements on pages 39 to 110 were approved and authorised for issue by the Board of Directors on 11 July 2005 and are signed on its behalf by: TSANG CHI HUNG Chairman LIU HOO KUEN Vice Chairman 43 DECCA Annual Report 2005