flexible strategy

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4 flexible strategy

5 shaping the future

6 NEXT MEDIA LIMITED ANNUAL REPORT chairman s statement I am delighted to inform you that Next Media had another very successful year in 2005/06. Its highlight was undoubtedly the fact that our Taiwan operation became profitable for the first time during the year. Taiwan Next Magazine has always been a tremendous hit ever since it was launched in May In fact, it has consistently sold more copies than any other weekly magazine on the island. According to audited figures, it sold an average of 140,000 copies a week during the six months ended 31 December 2005; and it was read by an average of 1,570,000 people a week throughout last year.

7 embracing challenges Meanwhile, Taiwan Apple Daily has revolutionised the island s entire newspaper industry since the first issue appeared in May Taiwan already had many vibrant and competitive newspapers. Yet, Taiwan Apple Daily has succeeded by offering its 23 million people a fresher, livelier style of journalism and a more colourful and exciting format than they had ever seen before. It has set new benchmarks against which all the island s other newspapers are now judged. However, none of them have managed to match our unique combination of robust 100 percent local content, and the vibrant presentation we adapted from the titles that we previously pioneered in Hong Kong. As a result, Taiwan Apple Daily has leapt up the sales and readership charts, overtaking its long-established competitors. Despite a 50 percent cover price increase last September, it was one of the island s bestselling dailies, with an audited circulation of 527,000 copies during the six months ended 31 December It was also one of the two most widely read newspapers, with an average daily readership of 2,696,000 during 2005.

8 NEXT MEDIA LIMITED ANNUAL REPORT

9 bridging Hong Kong & Taiwan

10 NEXT MEDIA LIMITED ANNUAL REPORT These two examples illustrate the truth of what I said so many times before: Next Media s future lies in Taiwan. The island has the potential to become the jewel in the crown of our operations. We have succeeded in establishing ourselves as leading players in the media industries of two key Chinese-speaking communities. We have two legs on which to walk giving us a major advantage now that the Hong Kong media industry has matured on which nobody is likely to score sensational results in the near future. This asset has great potential for further growth. Besides strengthening the leading edge of our existing titles in Taiwan, we are now exploring how to leverage it in other ways. For instance, we are considering opportunities to expand our business by launching other publications there. We believe the market is ripe for such initiatives. Of course, there will always be pessimists in this world. Some now say that Taiwan faces many political and economic uncertainties, and that these may increase in the coming years. Yet, we believe the island has a bright future. Its economic fundamentals are likely to remain strong, and the outlook is positive. Taiwan s free and democratic society will continue to flourish; and its social and business climate will continue to offer us outstanding opportunities to deliver the products its readers and advertisers want.

11 bonding teams

12 NEXT MEDIA LIMITED ANNUAL REPORT Turning to Hong Kong, as I previously mentioned, the media industry here is mature and stable. We have a well-entrenched and profitable position in the market. Although we faced fierce competition during the past year, our advertising revenue continued to hold steady. Against a backdrop of promising economic and business conditions, our target for the coming year is to battle to increase our market share further. We always remember that our readers are our masters. So, we will constantly study their needs, and satisfy these in innovative ways. While continuously enriching the content of our print publications, we will seize every chance to exploit the new possibilities created by advances in information technology. In that way, both we and our readers will benefit from the opening up of the information superhighway in the future. All our successes during 2005/06 were due to the exceptional hard work, dedication and skills of our teams in Hong Kong and Taiwan. They were the results of the loyalty of our readers, and they stemmed from the unswerving support we received from our shareholders. I would like to take this opportunity to thank all of you from the bottom of my heart. Please be assured that everyone connected with Next Media will persevere in rewarding the trust you have shown in us during the coming months. Jimmy Lai Chairman

13 HK$ million Turnover HK$ million EBITDA and before impairment loss in respect of intangible assets 3,500 3,000 2,500 2, , , ,000 1,500 1, turnover +13.3% EBITDA +32.6% 7y10k HK$ million Profit / (Loss) for the year HK Cents Basic Earnings / (Loss) per share (89.9) 0 (6) Note: Prior period figures have been adjusted to reflect the changes as described in Note 3 to the financial statements.

14 NEXT MEDIA LIMITED ANNUAL REPORT % Quick Ratio % Gearing Ratio profit for the year % earnings per share % % Current Ratio % Debt to Equity Ratio Working Capital Turnover

15 Our flexible business strategy and transparent corporate governance is the foundation to our sound financial performance

16 NEXT MEDIA LIMITED ANNUAL REPORT annual report BUSINESS REVIEW FINANCIAL REPORT 14 Management Discussion & Analysis Operational Review Financial Review 29 Group Commitments 34 Corporate Governance 42 Directors and Senior Management 45 Corporate Information 46 Company Profile 47 Corporate Structure 48 Share Information 49 Directors Report 61 Auditors Report 62 Consolidated Income Statement 63 Consolidated Balance Sheet 65 Balance Sheet 67 Consolidated Statement of Changes in Equity 68 Consolidated Cash Flow Statement 70 Notes to the Financial Statements 116 Five Years Financial Summary

17 Management Discussion and Analysis Operational Review (continued) management discussion and analysis Next Media again achieved satisfactory financial results during the year ended 31 March Against a backdrop of fierce competition in the marketplace, it maintained its unchallenged position as Hong Kong s largest print media group. Meanwhile, its Taiwan operation became profitable for the first time during the year. Operational Review Overview of Major Markets Hong Kong Hong Kong s economy grew steadily during the year under review. The unemployment rate declined and market sentiment strengthened. Meanwhile, the city s print media industry grew increasingly mature. With few opportunities to achieve significant growth in new directions, publishers vied with each other to increase their shares of the existing market, in terms of readership and advertising revenue. Despite this strong rivalry, Next Media remained by far the biggest Chineselanguage print media conglomerate in Hong Kong. All its publications retained the solid market shares they have built up over the years. According to the 2005 Nielsen Media Index: Hong Kong Report (January December 2005) (the 2005 Nielsen Report ), the two top dailies continued to dominate the market. Their combined readership of 3,166,000 accounted for 60 percent of the total Hong Kong population aged 12 or over a marginal increase in their 2005 market share. Apple Daily remained one of Hong Kong s bestselling newspapers, despite the launch of several new free dailies and the decision by one of its competitors to cut its cover price. Its advertising revenue also held steady. Next Magazine, Sudden Weekly and Eat & Travel Weekly ( Sudden Weekly Bundle ), and Easy Finder and Eat & Travel Weekly ( Easy Finder Bundle ) all kept their firm

18 NEXT MEDIA LIMITED ANNUAL REPORT ,000 1,500 1, Top Five Newspapers Readership in Hong Kong for the period from Jan 2005 Dec South China Morning Post 250 Ming Pao 370 The Sun 1,323 Apple Daily 1,843 Oriental Daily News Top Five Chinese Weekly Magazines Readership in Hong Kong for the period from Jan 2005 Dec New Monday 314 Easy Finder 333 East Week 527 Next Magazine 635 Sudden Weekly grips on leadership status in their respective markets in the face of challenges from other publications and the growing popularity of online media. The 2005 Nielsen Report confirmed that they were three of the five most widely read weeklies in Hong Kong, and their combined weekly readership of 1,476,000 accounted for 28 percent of the population aged between 12 and 64. Next Media s titles also continued to exert a strong appeal among advertisers. Taiwan Taiwan is a vibrant society. By Asian standards, its 23 million people are well educated and affluent. They have enthusiastically embraced democracy in recent years, and established vigorous traditions of free speech and a free press. In contrast, Taiwan s print media remained rather conservative and dull. Many of its publications presented the news in an uninteresting way, whereas others served as biased mouthpieces for individuals, and the special interests of different business and political sectors. This has changed greatly since the arrival of Taiwan Next Magazine in 2001 and the launch of Taiwan Apple Daily in Their incisive journalistic style and colourful and lively layouts adapted from their Hong Kong counterparts but with 100 percent local content have caused a major transformation in the way news is reported and presented on the island. Taiwan s information-hungry public have given them a hearty welcome. Source: 2005 Nielsen Media Index: Hong Kong Report

19 Management Discussion and Analysis Operational Review (continued) 000 3,000 2,500 2,000 1,500 1, ,000 1,500 1,000 Top Five Newspapers Readership in Taiwan for the period from Jan 2005 Dec Min Sheng Daily 1,726 China Times 1,947 United Daily News 719 The Liberty Times 2,689 2,696 Taiwan Apple Daily Top Five Chinese Weekly Magazines Readership in Taiwan for the period from Jan 2005 Dec ,570 According to ACNielsen (Taiwan) Limited ( ACNielsen Taiwan ), the island s four most widely read newspapers (Apple Daily, China Times, Liberty Times and United Daily) enjoyed a combined daily readership of 9,058,000 during This represented 55.5 percent of the population aged over 12. In less than three years, the readership of Taiwan Apple Daily has outstripped those of all other Taiwan dailies. It has now become the island s most widely read newspaper. Such is the degree of loyalty it inspires among its readers that they remained unfazed by a 50 percent increase in its cover price (from NT$10 to NT$15) on 1 September Taiwan Next Magazine remained head and shoulders above its competitors. ACNielsen Taiwan reported that it enjoyed an average weekly readership of 1,570,000 readers aged during 2005, compared with the 719,000 readership of its closest competitor. Although the island s advertising spending as a whole declined by 13.2 percent in 2005, the advertising and sales revenues of both Next Media titles increased during 2005/06. Taiwan Next Magazine remained highly profitable, whereas Taiwan Apple Daily became profitable during the year. This means the Group s entire Taiwan operation is now in the black for the first time Scoop Weekly TVBS Weekly Business Weekly China Times Weekly Taiwan Next Magazine Source: ACNielsen (Taiwan) Ltd.

20 NEXT MEDIA LIMITED ANNUAL REPORT Readership Profile of Apple Daily Source: 2005 Nielsen Media Index: Hong Kong Report Sex Age Education Monthly Household Income (HK$) Male Female Below Primary or below F.1 F.3 F.4 F.5 Post secondary/ University or above Below $15,000 $30,000 39,999 $15,000 19,999 $40,000 49,999 $20,000 29,999 $50, % 54% 10% 20% 2% 13% 24% 31% 30% 40% 10% 20% 16% 9% 14% 31% 8% 22% Business Performance The year ended 31 March 2006 was the fourth full year since the Group acquired Database Gateway Limited and its subsidiaries in October The Group s turnover totalled HK$3,322.0 million, an increase of 13.3 percent on the previous financial year s figure of HK$2,932.2 million. As in the two previous years, a large percentage of this increased turnover was directly attributable to income from Taiwan Apple Daily. Newspapers Publication and Printing Division The Group s Newspapers Publication and Printing Division again generated the largest share of its total turnover in 2005/06. Its turnover rose to HK$2,275.0 million, an increase of 18.7 percent on the figure of HK$1,916.9 million during the previous financial year. Apple Daily Apple Daily continued to be the second most widely read newspaper in Hong Kong during Its popularity in the hearts and minds of well-educated, middle-income mass-market readers held steady, notwithstanding the strong competition from paid-for titles, the launch of two new free dailies, the decision of another daily newspaper to cut its cover price, and the growing popularity of online media as alternative sources of information. The 2005 Nielsen Report revealed that Apple Daily enjoyed an average daily readership of 1,323,000 people aged 12 and above, compared with a figure of 1,288,000 during 2004, an increase of 35,000 or 2.7 percent. However, the Hong Kong Audit Bureau of Circulations (the HKABC ) figures for July to December 2005 indicated average daily sales were 316,923 copies, a decline of 26,379 copies or 7.7 percent compared to the 343,302 copies sold daily in the corresponding period of This was the result of fierce competition in the market. During the year under review, Apple Daily s total turnover was HK$1,161.1 million, a slight decrease of 2.9 percent on the previous year s figure of HK$1,195.2 million. Of this, circulation sales income accounted for HK$422.7 million, a decrease of HK$34.0 million or 7.4 percent compared to the previous year s figure of HK$456.7 million. Advertising declined slightly by HK$0.1 million from HK$738.5 million in 2004/05 to HK$738.4 million during 2005/06. Apple Daily maintained a high degree of market penetration, especially among consumers with above-average incomes and educational levels. The proportions of its readers whose monthly personal incomes exceeded HK$20,000 a month and whose monthly household incomes exceeded HK$40,000 remained higher than those of its main rival, as was the percentage of its readers in the professional/managerial/executive category.

21 Management Discussion and Analysis Operational Review (continued) Readership Profile of Taiwan Apple Daily Sex Age Education Source: ACNielsen (Taiwan) Ltd. Monthly Household Income (NT$) Male Female Primary or below College/University Below $40,000 $130, , High School Master/Doctor $40,000 69,999 $150, Senior High School $70,000 99,999 Refuse to anwser/ $100, ,999 dont t know 2% 3% 13% 51% 49% 23% 28% 31% 1% 34% 5% 16% 44% 11% 11% 1% 3% 24% 14% 36% The strong reader loyalty Apple Daily enjoys also makes it a highly attractive medium for advertisers eager to reach these key target audiences. Thus, it is an indispensable advertising tool for leading product and service brands. The newspaper is likely to remain a major revenue source for the Group in the foreseeable future. Taiwan Apple Daily The launch of Taiwan Apple Daily in May 2003 breathed new life into the island s media industry. Despite having a free press environment, Taiwan s existing dailies lagged behind their counterparts in other regions of Asia, continuing to present news in a conservative and monotonous manner, mainly in a blackand-white format. This lack of excitement was mirrored by the way newspapers were distributed. Most of their sales were via subscriptions, which readers ordered as a matter of habit. Taiwan Apple Daily broke the mould from the moment the first issue appeared. Its outspoken and insightful writing style was matched by a vivid and vigorous layout. The eye-catching appearance was not merely intended to give readers something more attractive to look at: Taiwan Apple Daily also adopted an innovative distribution model. Ninetyeight percent of its print run went on sale in convenience stores and similar retail outlets. Thus, it needed to capture the attention of passers-by and ensure they bought a copy, day after day. During the year under review, Taiwan Apple Daily continued to strengthen its popularity among the island s readers. It surpassed the readership level of the island s other bestselling newspapers during 2005, garnering an average daily readership of 2,696,000 readers a day, according to data from ACNielsen Taiwan. The Audit Bureau of Circulations, Republic of China ( ROCABC ) confirmed that Taiwan Apple Daily sold an average of 527,609 copies a day between July and December 2005, an increase of 24,211 copies a day or 4.8 percent on the figure of 503,398 for the same period in ACNielsen Taiwan reported that Taiwan Apple Daily was the only major Taiwan newspaper whose readership in every category increased fast during the year. Taiwan Apple Daily also grew ever more popular among readers of every educational level and geographical sector, and both urban and rural residents. Sixty-two percent of its readers were aged below 35, and 22 percent were students, giving it a more youthful readership profile than any of its competitors. The meteoric rise in its readership has been mirrored by the growth in Taiwan Apple Daily s advertising income. Whereas total advertising spending in Taiwan declined by 13.2 percent in 2005, Taiwan Apple Daily s advertising income grew from HK$458.6 million to HK$700.3 million, a remarkable increase of 52.7 percent.

22 NEXT MEDIA LIMITED ANNUAL REPORT Readership Profile of Next Magazine Sex Age Education Source: 2005 Nielsen Media Index: Hong Kong Report Monthly Household Income (HK$) Male Female Primary or below F.1 F.3 F.4 F.5 Post secondary/ University or above Below $15,000 $25,000 29,999 $15,000 19,999 $30,000 + $20,000 24,999 50% 50% 5% 23% 2% 10% 28% 32% 36% 35% 9% 20% 45% 10% 27% 7% 11% As a result, Taiwan Apple Daily s financial position has strengthened steadily, and it achieved its first-ever profit of HK$1.2 million for the year ended 31 March 2006, compared with a loss of HK$196.3 million for the previous year. Its impressive record to date encourages the Group s belief that Taiwan Apple Daily will become one of its major profit centres in the near future. Apple Daily Printing Limited The Group s newspaper printing business grew during the past fiscal year, fortifying its status as a long-term mainstay of the Group s success. Revenue from all printing activities in Hong Kong during 2005/06 amounted to HK$414.8 million, a rise of 14.0 percent on the previous year s figure of HK$363.8 million. Besides providing a full spectrum of printing support services to the Group s own titles, Apple Daily Printing Limited also enlarged its portfolio of external customers. Excluding transactions with Next Media titles, the Division s turnover in the 2005/06 financial year was HK$99.1 million, a year-on-year increase of HK$39.0 million or 64.9 percent on the previous year s figure of HK$60.1 million.

23 Management Discussion and Analysis Operational Review (continued) Readership Profile of Sudden Weekly Bundle Source: 2005 Nielsen Media Index: Hong Kong Report Sex Age Education Monthly Household Income (HK$) Male Female Primary or below F.1 F.3 F.4 F.5 Post secondary/ University or above Below $15,000 $25,000 29,999 $15,000 19,999 $30,000 + $20,000 24,999 74% 26% 4% 17% 31% 3% 17% 28% 22% 46% 10% 22% 39% 11% 30% 9% 11% Books and Magazines Publication Division The turnover of the Group s Books and Magazines Publication Division rose to HK$902.1 million during the year under review. This was 1.9 percent more than the previous year s figure of HK$885.3 million. Next Magazine Notwithstanding tremendous market competition, the turnover and profitability of Next Magazine remained stable, and it maintained its No. 2 ranking in the Hong Kong weekly magazine market. The 2005 Nielsen Report showed that the average weekly readership of Next Magazine among 12 to 64-year-olds rose to 527,000 from 485,000 during the preceding year, an increase of 42,000 or 8.7 percent. On the other hand, the HKABC reported a slight dip of 7,008 copies or 4.9 percent in the number of copies sold, from 141,642 in the second half of 2004 to 134,634 in the same period of Even so, Next Magazine s popularity among both male and female readers with post-secondary/tertiary education remained unequalled; it continued to reach a far higher percentage of such people than any other weekly. This accounted for its sustained appeal among advertisers, who regard it as an obligatory medium for selling their products and services to young, affluent managers and professionals. Against fierce competition, Next Magazine s advertising revenue grew slightly, from HK$189.7 million in the 2004/05 financial year to HK$191.2 million in 2005/06. Sudden Weekly Bundle Its unique breadth and depth of appeal, coupled with its clear positioning and upto-the-minute coverage, ensured that Sudden Weekly Bundle kept a firm hold on its status as the most widely read weekly magazine in Hong Kong. During the 12 months ended 31 December 2005, its readership rose to 635,000 from 545,000, an increase of 16.5 percent, according to the 2005 Nielsen Report. It also reported that 74.2 percent of the magazine s readers were female; almost 76.0 percent were in the 15 to 44 age category; and 60.6 percent had a monthly household income in excess of HK$20,000. HKABC figures indicated that sales of Sudden Weekly Bundle during the second half of 2005 averaged 196,328 copies a week, compared to the 198,811 sold in the same period of 2004, a small decline of 2,483 copies or 1.2 percent. The total revenue of Sudden Weekly Bundle stood at HK$226.7 million against the previous year s figure of HK$226.6 million. Due to keen market competition, its advertising revenue declined to HK$153.0 million from the previous year s figure of HK$153.6 million, a small decline of 0.4 percent.

24 NEXT MEDIA LIMITED ANNUAL REPORT Readership Profile of Easy Finder Bundle Sex Age Education Source: 2005 Nielsen Media Index: Hong Kong Report Monthly Household Income (HK$) Male Female Primary or below F.1 F.3 F.4 F.5 Post secondary/ University or above Below $15,000 $25,000 29,999 $15,000 19,999 $30,000 + $20,000 24,999 53% 47% 2% 7% 20% 4% 37% 30% 29% 53% 4% 14% 41% 9% 27% 8% 15% Easy Finder Bundle Riding on a reputation for delivering indepth coverage of all the hottest fashions and trends to younger, brand-conscious readers, Easy Finder Bundle remained one of the Hong Kong s most widely read weeklies and the leader in its category, as well as a firm favourite among media planners aiming to reach out to this highspending market segment. According to the 2005 Nielsen Report, the magazine had an average weekly readership of 314, to 64-year-olds during 2005, an increase of 4,000 or 1.3 percent on the 2004 figure of 310,000. Of these, 36.7 percent were in the age group. At the same time, the HKABC reported that sales in the second half of 2005 stood at a weekly average of 92,445 copies, compared with 99,144 in the same period of 2004, a fall of 6,699 copies or 6.8 percent. During 2005/06, the Easy Finder Bundle s combined sales and advertising revenue totalled HK$143.9 million, a rise of 2.6 percent on the previous year s figure of HK$140.3 million. Taiwan Next Magazine From the moment its first issue hit the newsstands in 2001, the forthright voice and lively format of Taiwan Next Magazine have won the hearts and minds of readers. It has also earned it the uncontested reputation of being the island s hardest-hitting, most-talkedabout and bestselling weekly. Data compiled by ACNielsen Taiwan showed that Taiwan Next Magazine was read by an average of 1,570,000 people in the age group during It accounted for almost half the combined readership of all Taiwan s top five weekly magazines. It also had more than twice as many readers as its nearest rival, a gap that widened considerably since the previous year. ROCABC figures for July- December 2005 revealed that Taiwan Next Magazine sold an average of 140,126 copies a week, almost unchanged from the figure of 140,108 copies a year earlier. In 2005/06, Taiwan Next Magazine s advertising income totalled HK$155.4 million, an increase in the order of 12.0 percent on the previous year s figure of HK$138.8 million. The title made a segment profit of HK$43.9 million, which was 3.3 percent less than the previous year s figure of HK$45.4 million. Taiwan Next Magazine s supremacy in the local weekly magazine market is likely to continue to attract business from the island s top advertisers and ad agencies. This is expected to maintain its position as a key profit centre for the Group in the coming years.

25 Management Discussion and Analysis Operational Review (continued) Readership Profile of Taiwan Next Magazine Sex Age Education Source: ACNielsen (Taiwan) Ltd. Monthly Household Income (NT$) Male Female Primary or below High School Senior High School College/University Master/Doctor Below $40,000 $100, ,999 $40,000 69,999 $150,000 + $70,000 99,999 Refuse to answer/ don t know 1% 3% 10% 58% 42% 23% 31% 2% 40% 3% 13% 42% 8% 5% 14% 13% 35% 32% 25% Books and Magazines Printing Division The Books and Magazines Printing Division made another significant contribution to the Group s income during 2005/06. Its turnover totalled HK$306.3 million, an increase of 9.5 percent on the previous financial year s figure of HK$279.7 million. Of this amount, HK$190.6 million consisted of intersegmental sales, whereas the value of its business with external customers was HK$115.7 million, an increase of 9.0 percent on the previous year s figure of HK$106.1 million. The Division continued to receive a steady stream of work from companies in Hong Kong, North America, Europe and Australasia. The Group is convinced that it will continue to derive a stable flow of revenue from commercial printing operations in the future. Internet Division The Group s Internet Division provides a convenient and inexpensive way for local and overseas readers to access online editions of their favourite Next Media publications. During 2005/06, the Division s revenue increased to HK$29.2 million, a rise of 21.7 percent on the previous year s figure of HK$24.0 million. Its segment profit rose by 18.8 percent, from HK$11.2 million to HK$13.3 million. Subscription fees accounted for the majority of the Division s earnings, followed by advertising revenue and content licensing. Much of its growth during the past year was due to increases in subscription rates and advertising revenue. A growing number of advertisers now use online media as an important marketing tool. The Group is cautiously optimistic that it will be able to exploit this demand, and increase the revenue it derives from this sector in the future.

26 NEXT MEDIA LIMITED ANNUAL REPORT Turnover North America Hong Kong 2% 38% Others Taiwan 1% 59% Financial Review Consolidated Financial Results Turnover The Group recorded a total turnover of HK$3,322.0 million during the year ended 31 March This was 13.3 percent greater than the figure of HK$2,932.2 Division contributed HK$2,275.0 million or 68.5 percent of its total turnover. This was an increase of HK$358.1 million or 18.7 percent on the figure of HK$1,916.9 million for the previous year, or 65.4 percent of the Group s total revenue in the previous year. million achieved in the preceding 12 months. The increase in turnover was primarily driven by Taiwan Apple Daily, which accounted for HK$1,014.7 million or 30.5 percent of the total turnover of the year. The Books and Magazines Publication Division also performed well. It generated HK$902.1 million or 27.2 percent of the Group s total turnover. Meanwhile, the Internet Division contributed HK$29.2 million or 0.9 percent of the total. These In terms of geographical markets, Hong Kong remained the Group s bedrock, and its biggest source of revenue, accounting for HK$1,977.5 million or 59.5 percent of its total turnover in the 2005/06 financial two divisions scored increases of 1.9 percent and 21.7 percent on their respective turnovers of HK$885.3 million and HK$24.0 million during the previous year. year. EBITDA and Segment Results The turnover it derived from Taiwan increased substantially during the same period. These rose by 41.9 percent, from HK$881.5 million to HK$1,250.8 million. Taiwan is now the Group s second-largest revenue earner, accounting for 37.7 percent of the total, up from 30.1 percent the previous year. The Group s Earnings Before Interest, Taxes, Depreciation and Amortisation (EBIDTA) and before impairment loss in respect of intangible assets for the year ended 31 March 2006 amounted to HK$720.3 million. This represents an increase of HK$176.9 million over the figure of HK$543.4 million achieved during the preceding financial year. The In operational terms, newspaper publication and printing remained the Group s principal revenue source. The Newspapers Publication and Printing improvement in the Group s performance was primarily attributable to a substantial improvement in the performance of Taiwan Apple Daily.

27 Management Discussion and Analysis Financial Review (continued) The Group achieved a segment profit of HK$475.7 million during the year under review. This was percent higher than the segment profit of HK$139.7 million reported in the previous financial year. The segment profit of the Group s Newspapers Publication and Printing Division during the 2005/06 financial year was HK$299.5 million, representing a percent increase over the previous year s figure of HK$107.3 million. The Group s Books and Magazines Publication Division contributed a segment profit of HK$160.0 million before a non-recurring impairment loss recognised in respect of intangible assets amounting to HK$45.0 million. This represented an increase of 41.8 percent on the previous year s figure of HK$112.8 million before a non-recurring impairment loss recognised in respect of intangible assets amounting to HK$136.9 million. Operating Expenses The Group s operating expenses during the 2005/06 financial year totalled HK$2,806.7 million. This represented an increase of HK$37.7 million or 1.4 percent compared to the previous year s figure of HK$2,769.0 million. Of this amount, HK$2,031.9 million or roughly 72.4 percent was attributable to essential production costs, including paper. Personnel costs (excluding direct production staff costs) accounted for HK$368.8 million or 13.1 percent of total operating expenses. This represented an increase of HK$45.1 million or 13.9 percent over the previous year s figure of HK$323.7 million. Another major contributing factor to the Group s operating expenses was the depreciation of property, plant and equipment and release of prepaid lease payments, which accounted for HK$145.9 million or 5.2 percent of the total amount. Taxation During the year ended 31 March 2006, the taxes levied on the Group amounted to HK$74.5 million, an increase of 26.5 percent compared to the previous year s figure of HK$58.9 million. The difference was mainly due to a deferred tax of HK$37.2 million credited to the consolidated income statement for 2004/05 financial year. Financial Position Current Assets and Current Liabilities As at 31 March 2006, the Group held HK$1,485.1 million in current assets, an increase of 13.5 percent over the figure of HK$1,307.9 million 12 months earlier. The Group s total liabilities on the same date were HK$1,085.2 million. This represented an increase of 15.3 percent on the figure of HK$941.5 million a year earlier. The Group s cash in hand totalled HK$676.4 million as at 31 March The current ratio as at 31 March 2006 was percent, a decrease of 11.9 percent, compared to the ratio of percent that existed on 31 March 2005.

28 NEXT MEDIA LIMITED ANNUAL REPORT Accounts Receivable As at 31 March 2006, the Group s accounts receivable totalled HK$501.4 million, an increase of 12.0 percent over the figure of HK$447.5 million a year earlier. The average turnover days for the Group s accounts receivable as at 31 March 2006 was 52.1 days, compared to 53.4 days on the same date of the previous year. Accounts Payable As at 31 March 2006, the Group s accounts payable amounted to HK$151.2 million. This was roughly 31.6 percent more than the figure of HK$114.9 million on the same date of the previous year. The average turnover days for its accounts payable was 38.3 days, compared with 36.4 days on the same date of the previous year. Long-term and Short-term Liabilities As at 31 March 2006, the Group s longterm liabilities, including current portions, totalled HK$260.4 million. This represented an increase of 19.9 percent on the figure of HK$217.2 million on the same date of the previous year. As at 31 March 2006, the current portion of the Group s long-term liabilities stood at HK$79.6 million, an increase of 48.0 percent measured against the figure of HK$53.8 million a year earlier. Borrowing and Gearing The Group s primary source of financing for its operations during the 2005/06 financial year was the cash flow generated by its operating activities and to a lesser extent banking facilities provided by its principal bankers. During the year, its available banking facilities totalled HK$495.4 million, of which HK$295.6 million had been utilised. There was no seasonality in the Group s bank borrowing requirements, and all the monies borrowed bear interest at floating rates. All the Group s bank borrowings during the year were denominated in New Taiwanese dollars. As at 31 March 2006, the Group possessed a total of HK$676.4 million in cash on hand. Its gearing ratio on the same date was 5.8 percent, compared to 4.9 percent a year earlier. The Group s gearing ratios are calculated by dividing long-term liabilities, including current portions, by total asset value. Share Capital Structure During the year, the Company issued 8,869,800 ordinary shares with a par value of HK$1.00 each. The issue was a result of the exercise of certain share options by option holders at an exercise price of HK$1.67 per share. As at 31 March 2006, the Company s total issued share capital was HK$3,101.6 million. This figure was made up of 1,491,643,281 ordinary shares with a par value of HK$1.00 each and 920,000,000 preference shares with a par value of HK$1.75 each. Cash Flow The Group s net cash inflow from operating activities during the year ended 31 March 2006 amounted to HK$559.7 million, whereas its cash inflow from operating activities in last year was HK$328.1 million. The outflow of investment-related cash during the same period totalled HK$75.9 million. This figure represented an increase of percent on the total amount of HK$25.7 million during the previous financial year.

29 Management Discussion and Analysis Financial Review (continued) The Group s net cash outflow for financing activities during the year reached HK$398.5 million, compared with the preceding year s net cash outflow figure of HK$78.3 million. The 2005/06 figure mainly represented dividends paid in a total of HK$447.2 million, repayment of bank borrowings of HK$241.5 million and new borrowings raised amounting to HK$286.8 million. Exchange Rate Exposure and Capital Expenditure The Group s assets and liabilities are mainly denominated in either Hong Kong dollars or New Taiwanese dollars. The Group continues to face exchange rate exposure due to its magazine and newspaper publishing operations in Taiwan. It intends to reduce such exposure by arranging bank loans in New Taiwanese dollars, as and when possible. As at 31 March 2006, the Group s net currency exposure stood at NT$3,560.2 million (the equivalent of HK$850.9 million) a decrease of 29.4 percent on the figure of NT$5,042.6 million (the equivalent of HK$1,244.5 million) a year earlier. The decrease in currency exposure was due to the Group s arrangement of a four-year term loan worth NT$1.2 billion with various leading Taiwanese banks with Taiwan Apple Daily as the borrower during the previous financial year. This loan was drawn down in two tranches of NT$500.0 million and NT$700.0 million in April and June 2005 respectively. The Group will continue to monitor its overall currency exposure, and will take steps to hedge further against such exposure, if and when necessary. The Group s capital expenditure for the 2005/06 financial year totalled HK$84.2 million, of which HK$15.2 million was used to fund its operations in Taiwan. By the year-end, it had committed to further capital expenditure of HK$91.9 million on its operations, of which HK$86.3 million was to fund its operations in Taiwan. Pledge of Assets As at 31 March 2006, Next Media had pledged certain elements of the Group s Hong Kong and Taiwanese property portfolio and printing equipment to various banks as security for bank loans and general banking facilities granted to the Group. The aggregate net book value of these assets was HK$669.2 million. Various leading banks in Hong Kong have currently proposed a four-year syndication facility amounting to HK$240.0 million to the Group for its consideration. If the Group decides to proceed with this facility, it will involve pledging further securities consisting of property and printing equipment bearing a net book value of HK$370.2 million. Contingent Liabilities During the year under review, Next Media incurred contingent liabilities arising as a result of a number of litigation proceedings in Hong Kong and Taiwan. Such proceedings are an occupational hazard for those involved in the publishing business. The Group was also involved in a dispute with UDL Contracting Limited regarding amounts payable for the construction of a printing facility for a subsidiary, Apple Daily Printing Limited. As this dispute is now under arbitration, the final outcome of the proceedings remains uncertain. When Next Media acquired Database Gateway Limited in October 2001 (the Acquisition ), Mr. Lai Chee Ying, Jimmy ( Mr. Lai ) agreed to provide unlimited personal indemnities (the Indemnity ) to

30 NEXT MEDIA LIMITED ANNUAL REPORT the Group. This Indemnity will help safeguard the Group against all payments, claims, suits, damages and settlement payments and associated costs and expenses arising as a result of certain legal proceedings (including the dispute with UDL Contracting Limited) involving the businesses acquired through the Acquisition. Mr. Lai has subsequently procured a bank guarantee of HK$60.0 million in favour of Next Media in respect of his obligations under the Indemnity. Having carefully considered the advice of the Group s legal counsel and the Indemnity given by Mr. Lai, Next Media s Directors are of the opinion that any ultimate liability arising from these proceedings will have no material impact on the Group s financial position. Next Media also maintains contingent liabilities which are related to various corporate guarantees the Company has provided to financial institutions for facilities utilised by certain of its subsidiaries. As at 31 March 2006, these contingent liabilities stood at HK$125.4 million. Impairment Loss in respect of Intangible Assets In light of the new accounting standards, particularly HKAS 38 in respect of the valuation of intangible assets, the Board appointed an independent professional valuer, Ernst & Young Transaction Advisory Services Limited ( E&Y ), to conduct a valuation of the Group s mastheads and publishing rights as at 31 March 2006, based on the value-in-use approach. According to the valuation report issued by E&Y, the value of the Group s mastheads and publishing rights as at 31 March 2006 was HK$1,541.0 million (31 March 2005: HK$1,605.0 million) against the corresponding net book value of HK$1,345.9 million, before impairment loss, as at 31 March 2006 (31 March 2005: HK$1,482.8 million). Accordingly, a net revaluation surplus of HK$195.1 million as at 31 March 2006 (31 March 2005: HK$122.2 million) arose on a group basis, which comprised a revaluation surplus of HK$224.6 million as at 31 March 2006 (31 March 2005: HK$259.1 million) and a revaluation deficit of HK$29.5 million as at 31 March 2006 (31 March 2005: HK$136.9 million) calculated on an individual masthead basis. In regard to the revaluation deficit for that masthead and publishing right, the Directors considered that, as its carrying value exceeded the estimated recoverable amount and such impairment was not temporary in nature, an impairment loss of HK$45.0 million should be recognised in the consolidated income statement for the year ended 31 March 2006 (for the year ended 31 March 2005: HK$136.9 million). No adjustment was made to the Group s financial statements for those masthead and publishing rights with revaluation surplus amounting to HK$224.6 million as at 31 March 2006 (31 March 2005: HK$259.1 million), as the Group s accounting policy is to state these intangible assets at cost less accumulated amortisation and accumulated impairment loss.

31 Management Discussion and Analysis Financial Review (continued) Prospects and Outlook Looking Ahead Next Media remains Hong Kong s biggest Chinese-language print media publisher. Each title in the Group s portfolio Apple Daily, Next Magazine, Easy Finder Bundle, and Sudden Weekly Bundle has gained a major share of its respective markets. The Group strongly believes that they will continue to generate steady income streams during the coming years, and that their advertising revenues will grow in tandem with the steady development of Hong Kong s economy. It intends to exert every effort to ensure that this happens. At the same time, Taiwan s economy is expected to continue growing steadily during the coming months. The Group is confident that its operations in Taiwan will continue to flourish, and that these will contribute an increasing percentage of its future income. This optimism is driven by Taiwan s stable economic outlook, as well as by the encouraging successes of Taiwan Next Magazine and Taiwan Apple Daily, both of which have secured leadership status in the island s print media industry within a very short space of time. In particular, Taiwan Apple Daily has overtaken all its peers within three years to become the most widely read daily newspaper on the island. The Group will likewise dedicate itself to building on the firm foundations that it has established in Taiwan, and it will make it a priority to introduce more of the titles it has successfully pioneered in Hong Kong to the island. Dividend The Directors recommend the payment of a final dividend of HK18 cents (2005: Nil) per ordinary share to the shareholders whose names appear on the register of members on Wednesday, 19 July 2006, which, together with the interim dividend and the special dividend per ordinary share will amount to a total of HK48 cents per ordinary share (2005: Nil). The proposed final dividend, if approved by the shareholders at the forthcoming annual general meeting to be held on Wednesday, 19 July 2006, will be paid on Friday, 28 July Book Close Period The Register of Members of the Company will be closed from Monday, 17 July 2006 to Wednesday, 19 July 2006, both days inclusive, during which period no transfer of ordinary shares will be effected. All transfers of ordinary shares accompanied by relevant ordinary share certificates must be lodged with the Company s share registrars, Computershare Hong Kong Investor Services Limited at Shops , 17th Floor, Hopewell Centre, 183 Queen s Road East, Hong Kong for registration no later than 4:00 p.m. on Friday, 14 July 2006, so as to qualify for the proposed final dividend. Forward-looking Statements This document contains several statements that are forward-looking, or which use various forward-looking terminologies. Such statements are based on the current beliefs, assumptions, expectations and projections of the Directors regarding the industry and markets in which the Group is active. Readers are reminded that such statements are subject to risks, uncertainties and other factors that are beyond the Group s control.

32 NEXT MEDIA LIMITED ANNUAL REPORT group commitments Next Media has always appreciated the tremendous support it receives from its shareholders, readers, advertisers and employees, both in Hong Kong and Taiwan. In recognition of this, it is dedicated to maintaining high standards of investor relations; to contributing to the wellbeing of the communities in which it does business and their environment; to playing a commendable role in the business community; and to being an outstanding employer of media industry professionals. Providing the Complete Picture to Investors As a major media organisation, Next Media acknowledges the importance of presenting timely, accurate and complete information to its readers. The same philosophy is also reflected in its adherence to the principles of transparent investor relations, and to providing added value to shareholders. During the year under review, the Group continued to enhance its communications with investors. Its senior management conducted many activities, such as briefings, lunches and company visits. These involved various interested parties, including research analysts and institutional investors. At the same time, the Group strived to make all relevant investment information easily accessible to anyone who required it. The main channel for providing this is the regularly updated and comprehensive archive of past interim and annual reports, public announcements and press releases that are available on its website at People are the Keys to Success The core of Next Media s business is to deliver precise and up-to-the-minute news and information to readers in Hong Kong and Taiwan. It is a tremendous responsibility, and one that it takes very seriously. As at 31 March 2006, Next Media employed a total of 3,472 people in Hong Kong, Taiwan and Canada. Of this workforce, the frontline journalists and photographers are just the tip of the iceberg. Thousands of back-room staff also labour to ensure that their reports and pictures get to readers in time for them to enjoy as they eat their breakfast or commute to work. It is a complex and time-sensitive operation, and it depends on the strenuous, round-the-clock efforts of dedicated industry professionals. The Group acknowledges the contribution that every employee makes towards its success. By being an exemplary employer, it aims to attract and retain the best and brightest talent available in the industry. Moreover, it treats its staff members with respect, and it compensates them fairly for their hard work, enthusiasm and skills, as well as their adherence to the Group s strict ethical standards.

33 Group Commitments (continued) 1 1 Friends and families joined staff members for our day trip to Lamma Island to encourage our staff to engage in regular physical activities Number of staff as at 31 March 2006 Newspapers Publication and Printing Division Books and Magazines Publication Division Books and Magazines Printing Division Internet Division Supporting Division & Others Next Media has always been an equal opportunity employer. Its recruitment policy is non-discriminatory; and staff members are appointed purely on the basis of their relevant skills and experience. During the year under review, Next Media s total staff-related costs, including retirement benefits, totalled HK$991.7 million, an increase of 8.8 percent on the previous year s figure of HK$911.1 million. 15% 1% 7% 23% 54% To maintain the highest quality of team members, staff remuneration packages are regularly reviewed in the light of each Another major tenet of Next Media s human resources philosophy is that team members are more productive if they feel employee s responsibilities and the they are valued. To this end, it offers them Group s business performance, together a pleasant and professional workplace, with internal relativities and prevailing as well as a range of leisure facilities that market practices and conditions. few other companies can match. They Every employee is rewarded on the basis of his or her performance. Special yearend bonuses that reflect the Group s business results are paid on a regular include a cafeteria, an open-air BBQ area, and a superbly equipped fitness centre with a swimming pool and multifunction athletic court. basis. A profit-sharing scheme is in place During the 2005/06 financial year, the to reward good performers. In addition, Group also staged a host of other staff special subsidies are available to those activities, including: who wish to obtain professional or career-related qualifications. Various legal seminars; Yoga classes; Next Media believes it should care for its employees both during their working day and after it ends. Besides insurance and medical coverage and maternity and paternity leave, it provides retirement and Tai-chi classes; A Feast of Basin Dishes to celebrate Mid-Autumn Festival on 16 September 2005; mandatory provident fund schemes. To A Grand Picnic at Lei Yue Mun Park motivate its staff and generate extra value and Holiday Village for staff members for shareholders, the Group and some of and their relatives and friends on 13 its subsidiaries also operate discretionary November 2005; share option schemes.

34 NEXT MEDIA LIMITED ANNUAL REPORT Mr. Yiu Hung Chi, Mr. Hui Yin Fat, Ms. Wong Sau Lin and Ms. Yau Ho Chun chaired the press conference for the Apply Daily Charitable Foundation Sales of materials donated by staff members to assist people affected by the South East Asian Tsunami; and A one-day hiking trip to Lamma Island for staff members and their relatives and friends on 19 March The Group is convinced that its sizeable investments in all these staff benefits, amenities and activities pay dividends by boosting the sense of commitment and team spirit of its employees, as well as their physical, mental and social wellbeing. This people-centred approach has earned Next Media an enviable reputation as a preferred employer. The brightest talents in the publishing industry are motivated to join the Group because it offers them much more than just a job. Rather, it represents a passport to a dynamic environment in which they can pursue their career goals while they raise the community s awareness of issues that directly influence the lives of everyone in it. Continuously Contributing to the Community The primary duty of every media company is to inform, educate and entertain the public. Next Media has never shirked this task, and it has gained a strong reputation over the years for fearlessly reporting the facts including stories that some would rather keep unpublished. Even so, Next Media sees truthful and balanced journalism as just one of its roles. It simultaneously strives to be a good corporate citizen that creates considerable benefits for all the communities in which it does business. In 2005/06, Paramount Printing Company Limited, a subsidiary of Next Media, was named as a Caring Company by The Hong Kong Council of Social Service, in recognition of its contribution to creating a caring community by employing and giving job opportunities to people in vulnerable groups. Next Media and its employees also supported the following charitable activities during the 2005/06 financial year: The Caring For Your Heart campaign arranged by the Trappist Dairy to raise funds to enable children with congenital heart disease to live a full healthy life, for which staff members helped sell milk drinks and gave donations to the Children s Heart Foundation; The Society for Abandoned Animals annual charity raffle tickets sale in November 2005, for which staff members sold HK$10 raffle tickets; and The Community Chest s Skip Lunch Day in November 2005, for which staff members each donated HK$20 or more to receive a Skip Lunch Day Food Pack. The Apple Daily Charitable Foundation (the Foundation ) was established in Hong Kong in Its main objective is to assist less-privileged members of society through direct financial support, and by sponsoring a variety of social service programmes.

35 Group Commitments (continued) 3 Gilman Home Appliances donated HK$300,000 worth of electrical appliances to Apple Daily Charitable Foundation for the benefit of the underprivileged Tam Yee Kwan is a beneficiary of the Apple Bursaries Scheme, which has given out over HK$3 million during the year The Foundation has two committees, the Charitable Fund Committee and the Educational Fund Committee. In 1997, it launched the Apple Bursaries Scheme with the aim of providing direct financial support to needy students. During the 2005/06 financial year, the Foundation distributed a total of HK$4.2 million to support 87 social service projects. Meanwhile, the Apple Bursaries Scheme gave bursaries totalling more than HK$3 million to assist 775 lessfortunate primary and secondary school students. It also launched the Learning for a New Life scheme, which helped 119 imprisoned students with financial difficulties to pursue their education. The scheme provided the students with financial assistance, donated textbooks and reference materials to libraries in Correctional Service Institutions, and arranged for academics and tutors to visit and hold advisory seminars for them. A similar organisation, the Apple Daily Foundation, was established in Taiwan in 2003 with an initial contribution of NT$15.0 million from Taiwan Apple Daily. Besides a regular editorial column that appeals for donations from its readers, Apple Daily donates 1 percent of its profits to the Foundation on a monthly basis. The newspaper also frequently promotes the Foundation s good works and charitable activities in its pages. The Group also practices its Take it from society! Use it to benefit society philosophy in a number of other ways. In the 2005/06 financial year, it organised or participated in the following programmes: The G HOME programme, in which HK$300,000-worth of electrical household appliances donated by Gilman Home Appliances were distributed to needy households. The appliances included electric fans, refrigerators, cookers, washing machines and stoves. Its main beneficiaries were poor elderly or disabled people and low-income families. Bone Marrow Donor Recruitment Campaign 2005, jointly organised with the Hong Kong Marrow Match Foundation at Metro City, Tseung Kwan O, from 28 to 29 May The campaign aimed to recruit voluntary bone marrow donors, and find matched marrow for leukemia patients and others suffering from blood-related disorders who urgently need marrow transplantations. The Assistance Fund for Shum Ho Yin, which launched an appeal that raised HK$315,853 for a seven-yearold boy who was seriously injured in an attack. The donations were handed over to the Hong Kong Society for the Aged. They will be used to provide him with long-term medical treatment, education and counseling. Next Media has a sincere and longstanding commitment to its readers and their communities. In the future, it will continue to make unstinting efforts to reach out and give a helping hand to financially deprived people in Hong Kong and Taiwan. Striving to Protect the Environment Next Media recognises its responsibility to care for the environment, for the benefit of society. It continuously endeavours to ensure that all the materials it uses and every aspect of its operations are as environmentally friendly as possible. Apart from price levels, turnover days and quality of products, its purchasing policies emphasise whether or not suppliers satisfy the highest environmental standards.

36 NEXT MEDIA LIMITED ANNUAL REPORT Every year, Next Media uses 180,000 metric tonnes of newsprint for its newspapers; plus another 22,000 metric tonnes of paper for its magazines. These are supplied by reputable major manufacturers in Canada, Sweden, Finland and South Korea. All these companies adhere strictly to manufacturing processes that minimise impact on the environment. All of them also comply with the ISO14000 Environment Management System Standard. Moreover, the Group consumes approximately 2,160 tonnes of printing ink for newspapers and 626 tonnes for magazines a year. The ink it uses is a composite of resin and vegetable oil that complies with environmental conservation objectives. The manufacturer is also compliant with the ISO14000 Environmental Management System Standard; and its products are recognised in international treaties on environmental protection. In its production processes, Next Media has implemented environmental monitoring and review systems, together with state-of-the-art technology and a range of strategies designed to reduce pollution. Employees are trained to minimise waste, environmental damage and noise. The Group also recycles and reuses wherever possible. Emission-control systems have been installed in its printing plants to reduce VOC emission levels from printing ink by 90 percent. It also has a comprehensive sewage processing system that fully complies with the Hong Kong SAR Government s legal requirements. Dedicated disposal bins have been installed for chemical wastes. All solid wastes, pulp and paper waste, chemical waste and recyclable materials are properly categorised, then collected and handled by a contractor that is recognised by the Hong Kong SAR Government s Environmental Protection Department. Wastepaper is processed by dedicated recycling companies. In addition, the Group s lighting systems are equipped with energy-saving features; and it uses environmentally friendly cleansing agents.

37 Corporate Governance (continued) corporate governance The Board of Next Media acknowledges the importance and benefits of maintaining high standards of corporate governance. Transparency and business ethics not only enhance the Company s reputation; they also create positive value for its stakeholders, including shareholders, suppliers, customers and employees. The Board is taking the lead in building a corporate culture that emphasises the significance of corporate governance at every level in the Company. Board of Directors Board Responsibilities and Composition The Board is charged with overseeing the management of the Group and formulating strategic policies. Each member of the Board is aware of his responsibilities and duties and has acted in good faith in managing the affairs of the Group effectively and responsibly. The Directors acknowledge their responsibility for preparing financial statements that give a true and fair view of the state of affairs of the Group. The Directors have selected appropriate accounting policies when preparing the financial statements for the year ended 31 March 2006, and they have applied them consistently in keeping accounting records and exercising relevant judgment. The Board currently comprises seven Directors. Mr. Lai Chee Ying, Jimmy ( Mr. Lai ) is also the Executive Chairman. Mr. Ting Ka Yu, Stephen, Mr. Ip Yut Kin and Mr. Tung Chuen Cheuk are Executive Directors. Mr. Yeh V-Nee, Mr. Fok Kwong Hang, Terry, and Dr. Kao Kuen, Charles, all Independent Non-executive Directors. The Board members possess business and financial experience that is essential for the effective governance of a company involved in the media industry. Biographies of the Directors and their respective roles in the Board s committees are set out on pages 42 to 43 of this annual report, and on the Next Media s website at The Company does not have any office with the title of Chief Executive Officer. Mr. Lai, the Executive Chairman, is responsible for formulating the Group s strategic directions and overseeing the effective running of its business. The Board delegates day-to-day operations to the Executive Directors and the senior management (the Management ). The Management takes charge of specific operations, and preparing budgets and business plans for the Board s approval. The Board in turn looks to the Management to ensure it is appraised of all significant developments that may affect the Group and its operations. All major acquisitions, depositions, investments, financing and other significant issues pertaining to the Company are subject to the Board s approval. The Board considers that its present structure and delegation of duties to Executive Directors and the Management work effectively, and do not impair the balance of power and authority.

38 NEXT MEDIA LIMITED ANNUAL REPORT All three Independent Non-executive Directors of the Company have been appointed for a specific term of two years up to 31 March They are subject to the retirement and re-election provisions contained in Next Media s Articles of Association. The Articles of Association state that Directors appointed to fill casual vacancies shall only hold office until the next Annual General Meeting ( AGM ), and shall be eligible for re-election. Other than Directors appointed to fill casual vacancies that may arise during any given year, onethird of all Directors are required to retire on a rotation basis at each AGM and they are eligible for re-election. In view of the current Board s size, each Director has an average term of office of three years. The Company has a policy of providing all newly appointed Directors with a comprehensive, formal and tailored induction to the Company. The Company will also provide refresher seminars to all Directors as and when necessary, to ensure that the skill sets and knowledge of individual Directors remain consistent with all relevant legal and regulatory requirements. The Company Secretary from time to time provides updates to all Directors about the latest developments in terms of rules and regulations. The Directors are empowered with all the sufficient resources that are deemed necessary to carry out their duties to the best of their abilities. They can access the advice and services of the Company Secretary, and they are given full and timely access to all information relevant to Next Media s operations. If the need arises, Directors may also seek independent professional advice about the performance of their duties at the Company s expense. Procedures for Directors to seek independent professional advice have been established and approved by the Board. Directors and Officers of the Group are fully indemnified against all costs, charges, losses, expenses and liabilities incurred by them in discharging their duties. Next Media has arranged comprehensive Directors and Officers liabilities insurance coverage for such purposes, subject to the provisions of the Companies Ordinance and other applicable legislation. Directors must ensure that they can give sufficient time and attention to the Company s affairs. Each Board member is required to make regular six-monthly disclosures to Next Media regarding the number and nature of offices they hold in other public companies or organisations. The Directors are also required to declare all other significant commitments, including the identity of the public company/ies or organisation/s. During the year under review, none of the Executive Directors held any directorship or office in any other public companies or organisations. Each of the three Independent Nonexecutive Directors has provided the Company and The Stock Exchange of Hong Kong Limited (the Stock Exchange ) with written confirmation in respect of the factors set out in Rule 3.13 of the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules ) concerning his independence. The Company considered that all three Independent Non-executive Directors are independent, and that no family, material or other relevant relationship exists between any of the Directors in question.

39 Corporate Governance (continued) Board Activities The Board and its committees take action at regular meetings, at meetings held by conference call, or by written consent. Regular Board meetings for reviewing and considering Next Media s operations, financial results and other relevant matters identified by the Directors are held on a quarterly basis. Additional meetings may also be organised as and when circumstances demand them. The Directors are consulted about any matters proposed to transactions to be considered at the Board meetings, and shall not vote nor be counted in the quorum as appropriate on any resolution of the Board if they are interested. The Company Secretary will ensure that proper procedures for the Board meetings are followed and that all the Directors receive the meeting s materials in a timely manner. Members of the Management are invited to attend the Board meetings in order to make presentations or answer questions when required. be included in the agenda, and they are invited to include any additional matters in the agenda. The Directors are also requested to declare their direct or indirect interest, if any, to any matters or During the year, four Board meetings were held and details of the Directors attendances are set out in the following table: Number of Board Director meetings attended Attendance rate Lai Chee Ying, Jimmy 1/4 25% Ting Ka Yu, Stephen 4/4 100% Ip Yut Kin 4/4 100% Tung Chuen Cheuk 3/4 75% Yeh V-Nee 4/4 100% Fok Kwong Hang, Terry 4/4 100% Kao Kuen, Charles 4/4 100% The Board has established the following committees and a sub-committee, which have been granted the following clearly defined duties, powers and functions: (i) A Committee comprising any two Executive Directors for the purpose of approving the issue and allotment of ordinary shares pursuant to the exercise of share options under the Company s share option scheme; (ii) An Audit Committee; (iii) A Remuneration Committee; and (iv) A Sub-committee made up of the financial heads of all major operating subsidiaries, the Company Secretary, the Financial Controller and the Deputy Chief Financial Officer, which reviews all possible connected transactions to be undertaken by the Group, and monitors the full disclosure of such transactions as required under the Listing Rules. The committees and sub-committee are provided with sufficient resources to discharge their duties by seeking independent professional advice at the Company s expense, as and when necessary.

40 NEXT MEDIA LIMITED ANNUAL REPORT The Company has not established any nomination committee, due to the small size of the Board. The Board will carry out the proper procedure for selecting and recommending candidates for directorships as and when required. Audit Committee Audit Committee Structure and Membership The Audit Committee was established in March 1999 with reference to A Guide for the Formation of an Audit Committee issued by The Hong Kong Society of Accountants (currently known as The Hong Kong Institute of Certified Public Accountants ). On 15 March 2005, the Board adopted revised terms of reference for the Audit Committee, in order to ensure its continued full compliance with the Code on Corporate Governance Practices as set out in Appendix 14 of the Listing Rules (the CG Code ). The Audit Committee s membership is comprised solely of Independent Non-executive Directors, namely, Mr. Yeh V-Nee, Mr. Fok Kwong Hang, Terry, and Dr. Kao Kuen, Charles. None of them is, or has previously been, a member of the Company s current or previous external auditors. The Chairman of the Audit Committee is Mr. Yeh V-Nee, who possesses the professional qualification and financial management expertise required under the Listing Rules. Audit Committee Functions The functions of the Audit Committee are as follows: 1. To assist the Board in overseeing the integrity of Next Media s financial statements, the Company s full compliance with all legal and regulatory requirements, the investigation of external auditors qualifications and independence, and the performance of the Company s internal audit function (if any) and external auditors; 2. To consider the appointment of the Company s external auditors, the audit fee involved, and any questions involving the auditors resignation or dismissal; 3. To review the effectiveness and objectivity of the financial reporting process; 4. To review and approve any and all material accounting policy changes; 5. To review the adequacy of any and all financial controls, internal control and risk management systems; 6. To facilitate liaison between the Company s shareholders, Management, external auditors and internal audit department (if any); and 7. To provide all relevant information and materials in relation to any or all of the above that merits the attention of the Board. Full details of the Audit Committee s role and terms of reference are posted on Next Media s website at Audit Committee Activities During the year, the Audit Committee met twice with the external auditors in the absence of the Executive Directors, in order to review the Group s interim and annual financial statements before they were submitted to the Board for its consideration. All members of the Audit Committee attended both meetings.

41 Corporate Governance (continued) The Company s Deputy Chief Financial Officer and Financial Controller were invited to attend these meetings to give a full account of the financial statements and answer queries from the Committee. Working closely with the external auditors, the Committee also reviewed the adequacy and effectiveness of Next Media s internal control measures. The Chairman of the Audit Committee reported to the Board on the work done by the Committee and highlighted any significant issues. Relationship with External Auditors The Audit Committee is charged with reviewing the external auditors audit review reports and ensuring that the Management makes timely responses to all issues raised therein. In order to ensure the full independence of the external auditors, the Audit Committee also reviews all non-audit related services provided by the external auditors. During the year, the total fees paid and payable to the external auditors for non-audit related services amounted to HK$558,021. This sum included HK$243,021 for taxation services and HK$315,000 for the interim review of the financial statements for the six months ended 30 September Remuneration Committee Remuneration Committee Structure and Membership The Remuneration Committee was established on 15 March 2005 with specific terms of reference that specify its authority and duties. The Remuneration Committee currently comprises five members, the majority of which are Independent Non-executive Directors. The members are: Mr. Yeh V-Nee, Mr. Fok Kwong Hang, Terry, and Dr. Kao Kuen, Charles, all of whom are Independent Non-executive Directors, as well as Mr. Ting Ka Yu, Stephen, and Mr. Tung Chuen Cheuk, both of whom are Executive Directors. Remuneration Committee Functions The Remuneration Committee is responsible for reviewing and developing all policies appertaining to the remuneration of the Company s Directors and Management. The Remuneration Committee is also entrusted with making all recommendations in relation to such policies to the Board. Under the terms of reference of the Remuneration Committee, its role is to provide advice and recommendations to the Board in relation to the following matters: 1. Remuneration policy for the Directors and Management and any changes thereto; 2. Remuneration for Non-executive Directors; 3. Specific remuneration and/or performance-based remuneration packages for Executive Directors and Management; and

42 NEXT MEDIA LIMITED ANNUAL REPORT Compensation payments/ arrangements in connection with the termination of office and/or dismissal or removal of Directors and/or senior executives. The Remuneration Committee shall also ensure that no Director or any of his associates is involved in deciding his own remuneration. The Board has authority to approve any remuneration matters concerning the Directors and Management that are brought before it, subject to recommendation from the Remuneration Committee and any shareholders approval that may be required under the Listing Rules, the Company s Articles of Association and applicable legislation from time to time. Full details of the Remuneration Committee and its terms of reference can be found at: Remuneration Committee Activities During the year under review, the Remuneration Committee reviewed the fees of the Company s Directors for the year ended 31 March 2006, and made its recommendations about these to the Board for its consideration and approval. It also reviewed the salary review for 2006/07 for all the Group s staff, including its Executive Directors and the Management. CG Code, Codes of Conduct and Internal Control Compliance with the CG Code During the year ended 31 March 2006, Next Media achieved full compliance with the applicable provisions of the CG Code with deviations from the following provisions: CG Code provision A.2.1 Pursuant to CG Code provision A.2.1, the roles of the chairman and the chief executive officer should be separate and should not be performed by the same individual. The Company at present does not have any office with the title of Chief Executive Officer. Mr. Lai, being the Executive Chairman of the Board, is responsible for setting the strategic directions of the Group and overseeing the effective running of the business. CG Code provision E.1.2 Pursuant to CG Code provision E.1.2, the Chairman of the Board shall attend the Company s AGM. Due to another business engagement, Mr. Lai was unable to attend the Company s AGM held on 29 July Mr. Ting Ka Yu, Stephen, an Executive Director who was present at the AGM, chaired the meeting in accordance with the provisions of the Company s Articles of Association. The Chairman of the Audit Committee, Mr. Yeh V-Nee, was also present. Compliance with the Model Code on Directors Securities Transactions Next Media has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules (the Model Code ). Following specific enquiries by the Company, all Directors have confirmed, that they have achieved full compliance with the required standards as laid down in the Model Code for the year ended 31 March 2006.

43 Corporate Governance (continued) Specified officers and employees of the Company who, because of their offices, are likely to be in possession of unpublished price-sensitive information pertaining to Next Media or its activities are also subject to compliance with the Model Code. Internal Codes of Conduct Next Media has always done everything in its power to ensure and promote integrity and ethical behaviour at all times and in all areas of its operations. To this end, the Group has laid down a series of stringent codes of conduct governing potential conflicts of interests, declarations of interests, anti-corruption practices, data privacy, etc. All members of Next Media, including its employees, officers and Directors, are required to fully comply with these codes of conduct at all times. Such codes are subject to regular reviews and updates in order to ensure their continued compliance in line with changing circumstances and regulations. Internal Control Next Media holds regular monthly Management meetings to review its financial performance and strategic planning objectives. In addition to the Executive Directors, these meetings are attended by senior officers and managers from the Company s Marketing, Sales, Operations, Editorial and Finance Departments. The Board acknowledges its responsibility for establishing an effective internal control system. Stringent internal control policies and procedures aimed at preventing unauthorized use or misappropriation of the Company s assets have long been in place. These measures ensure that anyone who carries out transactions may only do so by following the proper procedures and with the approval and instruction of the Management. Working through the Audit Committee and with the assistance of the external auditors, the Board has conducted comprehensive six-monthly reviews of the internal control system s effectiveness in the areas of financial reporting, operational controls, compliances and risk management. Communications with Shareholders Annual General Meeting Next Media has endeavoured to maintain an amicable and open relationship with its shareholders. The Company s AGM provides a forum at which the Board members and shareholders can meet to share opinions and ideas. At the AGM, shareholders are invited to direct questions to the Board. Those who are available to answer such questions include not only the Executive Directors but also the Chairmen of the respective committees, or in their absence, members of the committees. Next Media s 2005 AGM took place on 29 July Mr. Lai, the Executive Chairman, was unable to attend as he had another business engagement. All resolutions put forward to the shareholders were passed by way of poll vote. The results of each poll was published in newspapers, and posted on the Next Media s website and the Stock Exchange s website.

44 NEXT MEDIA LIMITED ANNUAL REPORT Details of all polls, the voting procedures and shareholders right to demand a poll, are included in the Company s circulars to shareholders. Questions on the procedures for convening or putting forward resolutions at an AGM or a general meeting may also be forwarded to the Company Secretary via the Company s designated investor relations account at ir@nextmedia.com or by mail to the Company s registered office address. Investor Relations The Board is well aware of the importance of communication between investors, shareholders and the Company. The Board ensures that its dissemination of details of major activities, price-sensitive information and transactions is fully compliant with the Listing Rules. The Company has a series of procedures to communicate with analysts and the media. These measures were developed to ensure full compliance with the Stock Exchange s guidelines regarding the disclosure of price-sensitive information. The Company has also carefully selected certain of its Executive Directors and members of the Management to act as its representatives to meet with analysts and the media. As a media company, Next Media remains determined to further enhancing its transparency by making full use of all appropriate communications channels when sharing information with third parties. During the year, specific activities undertaken in this area included the publishing of corporate news via press releases and formal announcements, and the issuing of interim and annual reports. All such information is freely accessible to anyone with an Internet connection at Shareholders and interested members of the public are welcome to communicate directly with Next Media by sending correspondence marked for the attention of the Company Secretary to the Company s registered office address, or via its designated investor relations account at: ir@nextmedia.com.

45 directors and senior management executive directors Mr. Lai Chee Ying, Jimmy 57 Chairman Mr. Lai has been the Company s Chairman since 1999, and he is responsible for formulating the Group s corporate strategies. Prior to founding his publishing business in 1990, Mr. Lai had a distinguished 30-year career in the local garment industry, establishing and running the hugely successful Giordano manufacturing and retail chain. Mr. Lai entered the media industry by launching Next Magazine in March 1990, and he subsequently added several other popular titles to his stable of publications, including Easy Finder (September 1991), Apple Daily (June 1995), Sudden Weekly (August 1995) and Eat & Travel Weekly (July 1997). In recent years, Mr. Lai has extended the boundaries of the Group s operations from Hong Kong to Taiwan by launching Taiwan Next Magazine (May 2001) and Taiwan Apple Daily (May 2003). Mr. Ting Ka Yu, Stephen 47 Mr. Ting joined Apple Daily Limited as Chief Financial Officer in December 1997, and he became a Director of the Company and the Chief Financial Officer of the Group in October Mr. Ting oversees the Group s finance, administration, human resources and various support departments, as well as its Printing Division in Hong Kong. In November 2003, Mr. Ting was also appointed as the Group s Chief Operating Officer. During the course of his career, Mr. Ting has worked with a leading audit firm in both Hong Kong and Australia. He has also held senior financial and management positions with a variety of leading companies and listed groups. The holder of a Bachelor of Economics degree from Macquarie University in Sydney, Australia, Mr. Ting is a member of the Institute of Chartered Accountants in Australia. Mr. Ip Yut Kin 54 A Director of the Company since November 2001, Mr. Ip joined Apple Daily as Deputy Editor-in- Chief in 1995, and he was promoted to Editor-in-Chief the following year. In February 2002, Mr. Ip was appointed as Apple Daily Limited s Chief Executive Officer. In October of the same year, he became Chief Executive Officer of Apple Daily Publication Development Limited, where his responsibilities include overseeing the operations of Taiwan Apple Daily. A graduate of the National Chengchi University of Taiwan with a Bachelor of Social Sciences (Journalism) degree, Mr. Ip has worked with many leading Hong Kong newspapers during his long journalistic career, which has spanned more than 29 years. Mr. Tung Chuen Cheuk 64 A Director of the Company since June 2003, Mr. Tung joined Apple Daily as Associate Publisher in January 1998, and he was promoted to the position of Publisher in May In July 2002, Mr. Tung was appointed Chairman of Apple Daily (Hong Kong and Taiwan). A graduate of Taiwan Provincial Cheng Kung University, Mr. Tung holds a Bachelor of Arts degree. His long and distinguished media career has included spells with the BBC in London, Reader s Digest and Ming Pao.

46 NEXT MEDIA LIMITED ANNUAL REPORT independent non-executive directors Mr. Yeh V-Nee 47 A qualified US attorney-at-law, Mr. Yeh became a Director of the Company in January Following his graduation from Columbia University s School of Law in the USA, Mr. Yeh was admitted as a member of the California Bar Association in He is a co-founder of Value Partners Limited and VP Private Equity Limited, and he sits on a number of prominent committees. These include the Listing Committee of The Stock Exchange of Hong Kong Limited, the Takeovers & Mergers Panel and the Takeovers Appeals Committee of the Securities & Futures Commission. Mr. Yeh is also the Chairman of Hsin Chong Construction Group Limited and of Argyle Street Management Limited, a US$500-million Asian distresses asset management firm. Mr. Fok Kwong Hang, Terry 51 A Director of the Company since June 2000, Mr. Fok holds both M.Sc. and MBA degrees from the University of Wisconsin, USA. He has over 20 years experience in the securities industry, and he is currently the owner of T & F Equities Limited. Dr. Kao Kuen, Charles 72 Dr. Kao became a Director of the Company in November He is also the Chairman and Chief Executive Officer of ITX Services Limited, and he has sat on a number of advisory committees to the Government of the Hong Kong SAR. The pioneer of optical fibre communications, Dr. Kao holds a Ph.D. from the University of London and served as Vice Chancellor of the Chinese University of Hong Kong between October 1987 and July Over the years, Dr. Kao has won many prestigious international honours and awards. These include the Stewart Ballantine Medal, Rank Prize, L.M. Ericsson International Prize, Alexander Graham Bell Medal, Marconi International Fellowship, Faraday Medal of the IEE, Japan Prize and Charles Stark Draper Prize.

47 Directors and Senior Management (continued) senior management Mr. Hong Siu Fan, Allen 47 The Chief Executive Officer of the Group s Magazine Division since March 2005, Mr. Hong joined Next Magazine as its Art Director in December 1989, and he was promoted to Art Director of the Group s Magazine Division in January Mr. Hong holds a Higher Diploma in Graphic Communication from The Hong Kong Polytechnic University. He is a full member of the Hong Kong Designers Association (Graphics Category) and a member of The Chartered Society of Designers. Mr. Tu Nien Chung, James 54 Taiwan Apple Daily s Publisher since March 2003, Mr. Tu graduated from National Taiwan University with a Bachelor of Arts degree. He also holds a Master s Degree in Political Science from Columbia University, USA. Mr. Tu has extensive experience in journalism, both in the United States and Taiwan. Mr. Chow Tat Kuen, Royston 48 The Group s Deputy Chief Financial Officer, Mr. Chow joined Next Media Magazines Limited in May 1993 as Financial Controller. The holder of a Bachelor of Commerce in Accounting degree and a Master of Commerce in Finance degree from the University of New South Wales, Australia, Mr. Chow is also a member of the CPA Australia and The Hong Kong Institute of Certified Public Accountants. Prior to joining Next Media Magazines Limited, he held senior management accounting positions with several leading financial institutions in Hong Kong and Australia. Mr. Loo Cheung Ling, Alvis 53 Mr. Loo joined Apple Daily Limited as Production Director in He was appointed Chief Operating Officer of the Group s printing operations in December Mr. Loo has over 30 years experience in pre-press, production and printing operations in the advertising and publishing industries. The many industry leaders who have benefited from Mr. Loo s expertise over the years include the South China Morning Post, Fortune (Far East) Limited and Emphasis (HK) Limited in Hong Kong, as well as The Arts House Design and Printing Group in Canada. Mr. Peir Woei 45 Mr. Peir joined Taiwan Next Magazine in March 2001 as Editor-in-Chief, and he became the Publisher of Taiwan Next Magazine in March Prior to joining Taiwan Next Magazine, Mr. Peir had more than 13 years of experience in journalism. He graduated from National Taiwan Ocean University with a Bachelor s degree in Marine Transportation. Ms. Wong Shuk Ha, Cat 40 Ms. Wong joined the Group as Company Secretary in July She holds a Bachelor of Arts degree in Accountancy from The City University of Hong Kong, a Bachelor of Laws degree from the University of London, and a Master s degree in Management from the Macquarie University in Sydney, Australia. Ms. Wong is an associate member of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries. Prior to joining the Group, she worked with various listed companies on corporate compliance and corporate finance.

48 NEXT MEDIA LIMITED ANNUAL REPORT corporate information Directors Lai Chee Ying, Jimmy (Chairman) Ting Ka Yu, Stephen Ip Yut Kin Tung Chuen Cheuk Yeh V-Nee* Fok Kwong Hang, Terry* Kao Kuen, Charles* *Independent Non-executive Directors Authorised Representatives Ting Ka Yu, Stephen Tung Chuen Cheuk Company Secretary Wong Shuk Ha, Cat Auditors Deloitte Touche Tohmatsu Principal Bankers Standard Chartered Bank (Hong Kong) Limited DBS Bank (Hong Kong) Limited The Shanghai Commercial & Savings Bank Limited The Hongkong and Shanghai Banking Corporation Limited Sumitomo Mitsui Banking Corporation Fortis Bank Bank of America (Asia) Limited Legal Advisors Simmons & Simmons Registered Office 8 Chun Ying Street Tseung Kwan O Industrial Estate West Tseung Kwan O New Territories Hong Kong Share Registrars and Transfer Office Computershare Hong Kong Investor Services Limited Shops /F., Hopewell Centre 183 Queen s Road East Hong Kong Shareholders Enquiries For additional information, please contact the Company Secretary by mail to the Company s registered office address or by fax at (852) or by at ir@nextmedia.com Website

49 company profile Building success in Hong Kong and Taiwan Since it launched Next Magazine in 1990 and Apple Daily in 1995, Next Media Limited and its subsidiaries have become Hong Kong s largest Chinese-language print media publishing group. Readers know they can rely on Next Media publications for comprehensive, forthright and factual coverage of issues that have an impact on their lives. The journalists who work for the Group deliver the facts without fear or favour, without prejudice, and without pandering to advertisers. The Group s Hong Kong portfolio of publications has also grown to include three other weekly magazines, plus a website. Their combined readerships, circulations and advertising revenues dominate the local media scene. Next Media is committed to constantly seeking new ways to add value for its shareholders. In 2001, it launched Taiwan Next Magazine, followed by Taiwan Apple Daily in Using the same direct and informative journalistic style and lively layouts as their Hong Kong counterparts, but with 100 percent local content, the two titles have seized leading positions in the island s weekly magazine and daily newspaper markets.

50 NEXT MEDIA LIMITED ANNUAL REPORT corporate structure Newspapers Publication and Printing Business Apple Daily Taiwan Apple Daily Newspaper Printing Books and Magazines Printing Business Magazine Printing Book, Calendar and Catalogue Printing Books and Magazines Publication Business Next Magazine Easy Finder Sudden Weekly Eat & Travel Weekly Taiwan Next Magazine Internet Subscription, Content Provision and Advertising Business atnext Portal