Contents NOTICE OF ANNUAL GENERAL MEETING PROFILE OF DIRECTORS AND SENIOR MANAGEMENT DIRECTORS REPORT

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1 PRODUCTION Job Name: Lee& Man File Name:Contents Date: Job No (kit)-02(kengi) Contents CORPORATE INFORMATION... 2 NOTICE OF ANNUAL GENERAL MEETING CHAIRMAN S STATEMENT PROFILE OF DIRECTORS AND SENIOR MANAGEMENT DIRECTORS REPORT AUDITORS REPORT CONSOLIDATED INCOME STATEMENT CONSOLIDATED BALANCE SHEET BALANCE SHEET CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES CONSOLIDATED CASH FLOW STATEMENT NOTES TO THE FINANCIAL STATEMENTS FINANCIAL SUMMARY ANALYSIS OF THE GROUP S TURNOVER AND CONTRIBUTION TO OPERATING PROFIT Lee & Man Holdings Limited 1

2 Corporate Information BOARD OF DIRECTORS Mr. LEE Wan Keung (Chairman) Ms. WAI Siu Kee Mr. TUNG Cheung Kong Mr. LUI Chung Man Ms. POON Lai Ming Mr. WONG Kai Tung, Tony* Mr. HENG Kwoo Seng* * Independent non-executive director PRINCIPAL BANKERS Hang Seng Bank Limited Standard Chartered Bank Bank of China, Hong Kong Branch AUDITORS Deloitte Touche Tohmatsu Certified Public Accountants COMPANY SECRETARY Mr. HUI Yick Kwan REGISTERED OFFICE P.O. Box 309 Ugland House South Church Street George Town Grand Cayman Cayman Islands British West Indies PRINCIPAL OFFICE 8th Floor, Liven House King Yip Street Kwun Tong Kowloon Hong Kong PRINCIPAL SHARE REGISTRARS Bank of Butterfield International (Cayman) Ltd. Butterfield House Fort Street P.O. Box 705 George Town Grand Cayman Cayman Islands HONG KONG BRANCH SHARE REGISTRARS Secretaries Limited 5th Floor, Wing On Centre 111 Connaught Road Central Hong Kong WEBSITE 2 Lee & Man Holdings Limited

3 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the 2000 Annual General Meeting of the Members of the Company will be held at The Ballroom B, 2/F, Great Eagle Hotel, 8 Peking Road, Tsimshatsui, Kowloon, Hong Kong on 26th August 2000 (Saturday) at 11:00 a.m. for the following purposes: 1. To receive and consider the audited financial statements and the reports of the Directors and Auditors for the year ended 31st March 2000; 2. To declare a final dividend for the year ended 31st March 2000; 3. To re-elect Directors and to authorize the Board of Directors to fix their remuneration; 4. To re-appoint Deloitte Touche Tohmatsu as Auditors and to authorize the Board of Directors to fix their remuneration; 5. As a special business, to consider and, if thought fit, pass with or without amendments, the following resolution as an ordinary resolution: THAT: (a) subject to paragraph (b) below of this resolution, the exercise by the directors of the Company (the Directors ) during the Relevant Period (as hereinafter defined) of all the powers of the Company to repurchase issued shares in the capital of the Company on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) or on any other stock exchange on which the securities of the Company may be listed and recognized by the Securities and Futures Commission and the Stock Exchange for this purpose, subject to and in accordance with all applicable laws and the requirements of the Rules Governing the Listing of Securities on the Stock Exchange or any other stock exchange as amended from time to time, be and is hereby generally and unconditionally approved; (b) the aggregate nominal amount of the shares of the Company to be repurchased by the Company pursuant to the approval in paragraph (a) above of this resolution during the Relevant Period shall not exceed 10% of the aggregate nominal amount of the share capital of the Company in issue at the date of passing this resolution and the said approval shall be limited accordingly; and Lee & Man Holdings Limited 3

4 Notice of Annual General Meeting (c) for the purpose of this resolution, Relevant Period means the period from the passing of this resolution until whichever is the earliest of: (i) the conclusion of the next annual general meeting of the Company; (ii) the date upon which the authority set out in this resolution is revoked or varied by way of an ordinary resolution of the shareholders of the Company in general meeting; and (iii) the expiration of the period within which the next annual general meeting of the Company is required by law to be held. 6. As a special business, to consider, and if thought fit, pass with or without amendments, the following resolution as an ordinary resolution: THAT: (a) subject to paragraph (c) of this resolution, the exercise by the Directors during the Relevant Period (as hereinafter defined) of all the powers of the Company to issue, allot and deal with additional shares in the capital of the Company, and to make or grant offers, agreements and options which might require the exercise of such power be and is hereby generally and unconditionally approved; (b) the approval in paragraph (a) of this resolution shall authorize the Directors during the Relevant Period to make or grant offers, agreements and options which would or might require the exercise of such power after the end of the Relevant Period; (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors pursuant to approval in subparagraph (a) of this resolution, otherwise than pursuant to the following, shall not exceed 20% of the aggregate nominal amount of the share capital of the Company in issue as at the date of the passing of this resolution and the said approval shall be limited accordingly: (i) a Rights Issue (as hereinafter defined); 4 Lee & Man Holdings Limited

5 Notice of Annual General Meeting (ii) an issue of shares under any share option scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares of the Company and approved by the Stock Exchange; (iii) the exercise of rights of conversion under the terms of any securities which are convertible into shares of the Company or warrants to subscribe for shares of the Company; or (iv) an issue of shares of the Company in lieu of the whole or part of the dividend on shares of the Company in accordance with the Company s Articles of Association; (d) for the purposes of this resolution: Relevant Period means the period from the passing of this resolution until whichever is the earliest of: (i) the conclusion of the next annual general meeting of the Company; (ii) the date upon which the authority set out in this resolution is revoked or varied by way of an ordinary resolution of the shareholders of the Company in general meeting; and (iii) the expiration of the period within which the next annual general meeting of the Company is required by law to be held; Rights Issue means an offer of shares of the Company open for a period fixed by the Directors to the holders of shares whose names appear on the register of members of the Company on a fixed record date in proportion to their then holdings of such shares as at that date (subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the law of, or the requirements of any recognized regulatory body or any stock exchange, or in any territory applicable to the Company). Lee & Man Holdings Limited 5

6 Notice of Annual General Meeting 7. As a special business, to consider, and if thought fit, pass with or without amendments, the following resolution as an ordinary resolution: THAT: conditionally upon the passing of resolution no. 6 the general mandate granted to the Directors to exercise the powers of the Company to issue, allot and deal with additional shares in the capital of the Company pursuant to the said resolution no. 6 set out in the notice convening this meeting be and is hereby extended by the addition to the aggregate nominal amount of share capital which may be allotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant to such general mandate thereto of an amount representing the aggregate nominal amount of shares in the capital of the Company repurchased by the Company under the authority granted pursuant to resolution no. 5 set out in the notice convening this meeting, provided that such amount of shares so repurchased shall not exceed 10% of the aggregate nominal amount of the issued share capital of the Company at the date of passing this resolution. By Order of the Board Hui Yick Kwan Company Secretary Hong Kong, 19th July 2000 Notes: (a) The register of Members of the Company will be closed from 22nd August 2000 (Tuesday) to 25th August 2000 (Friday) (both days inclusive) during which period no share transfer will be registered. All transfer documents accompanied by the relevant share certificates must be lodged with the Company s Share Registrars in Hong Kong, Secretaries Limited, 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong for registration no later than 4:00 p.m. on 21st August (b) A Member entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies to attend and vote on his behalf. A proxy need not be a Member of the Company. (c) A form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy thereof, must be deposited at the Company s Share Registrars in Hong Kong, Secretaries Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not less than 48 hours before the time appointed for holding the annual general meeting or adjourned meeting (as the case may be) and in default the proxy shall not be treated as valid. (d) A circular containing details regarding Resolutions 5 to 7 above will be sent to shareholders together with the annual report of the Company for the year ended 31st March Lee & Man Holdings Limited

7 Chairman s Statement On behalf of the Board of Directors, I am pleased to present to the shareholders the annual report for Lee & Man Holdings Limited (the Company ) and its subsidiaries (the Group ) for the year ended 31st March RESULTS The Group achieved an audited consolidated profit attributable to shareholders for the year ended 31st March 2000 of approximately HK$128 million, representing an increase of approximately 1.6 per cent as compared to approximately HK$126 million in the previous financial year. Turnover for the year incresed by approximately 10.8 per cent to HK$923 million as compared to approximately HK$833 million in the previous financial year. DIVIDENDS The directors have resolved to recommend at the forthcoming Annual General Meeting to be held on 26th August 2000 payment of a final dividend of 7.0 Hong Kong cents per share for the year ended 31st March 2000 to shareholders whose name appear on the register of members of the Company on 26th August Together with an interim dividend of 6.0 Hong Kong cents per share, the total dividend for the financial year is 13.0 Hong Kong cents per share. BUSINESS REVIEW During the year under review, the Group continued to focus on its three main businesses, namely handbag business, paper packaging products business and audio cassette products business. All businesses achieved a very satisfactory performance. Handbag business During the year under review, handbag business continued to be the largest business of the Group and was the major contributor to the Group s performance. Turnover rose by 7.3 per cent to approximately HK$601 million, accounting 65.1 per cent of the Group s total turnover. It reported an operating profit of HK$89 million despite the intense competition. Most of our customers are based in the world s major consumer markets such as United States of America and Western Europe and we compete with our competitors mainly in terms of product quality, designs and style. In order to sustain the Group s position as one of the key handbag providers in these markets, the Group will continue strategically to place more resources in further enhancing its design and product development capabilities to develop a series of innovative product design and feature, as well as to further strengthen its cost control measures to produce quality products at a competitive price. With the above strategies, the Directors believe that its handbag business will continue to outperform and establish its competitive edge in the markets. The Group will constantly observe the market changes and then fine tune its strategies to capitalize any opportunities that will be arising from time to time. As a result, the Group is well position to expand its handbag business in the major markets around the globe. Paper Packaging Products business During the year under review, the paper packaging business is the second largest and the fastest growing business of the Group. Turnover rose by 33.5 per cent to HK$242 million, accounting to 26.3 per cent of the Group s total turnover. It achieved a strong performance with operating profit amounted to approximately HK$41 million. Lee & Man Holdings Limited 7

8 Chairman s Statement The Group s paper packaging business focused on business development and it saw a substantial increase in production and sales volume. Although the price of the raw paper materials for this year has been increased substantially, the Group is able to mitigate the price pressure and to maintain its profit margin rate by increasing productivity and by means of further cost rationalization. Moreover, the paper packaging business has a competitive edge over its competitors by its strategically alliance with a connected paper manufacturing company which is located next to its production plant in Huangyong Industrial Park. These strategic arrangements have enabled the Group to obtain a steady and timely supply of raw paper at a competitive price. In view of this, the Group continues to strengthen its market position by providing excellent services and quality products to its customers at a competitive price notwithstanding the persistent keen competition of the business environment. As a result of our above market development advantages and the proposed entry of China to the World Trade Organization that is expected to further stimulate growth and demand of paper packaging materials on the Great China region, the Directors believe that the Group s paper packaging business is well position to achieve a higher attainment. Audio Cassette Products business In the year ended 31st March 2000, the audio cassette products business recorded a turnover of approximately HK$80 million, representing a decrease of approximately 13.4 per cent as compared with the previous financial year, accounting to approximately 8.6 per cent of the Group s total turnover. It also reported lower profit due to increased competitive pressure on pricing and the increased raw material costs. The Group continued to improve its market position by securing more well-known brand names OEM customers, although trading conditions were depressed in line with the mature nature of the business. FINANCIAL REVIEW During the year under review, the Group continued to maintain a very healthy capital structure with a very low level of debts and high liquidity. Net cash inflow provided by operating activities for the year ended 31st March 2000 remained to be strong and was approximately HK$117million. The consistent strong cash flow from operating activities reflects the Group s continue success in the working capital management. Most of the Group s transactions are carried out in Hong Kong Dollars or United States Dollars. As a result, the Group has minimal exposure to foreign exchange risk. AUDIT COMMITTEE Pursuant to the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited, an audit committee was established with reference to A Guide for the Formation of an Audit Committee issued by the Hong Kong Society of Accountants. The members of the Audit Committee are two independent non-executive directors, namely Mr. Heng Kwoo Seng and Mr. Wong Kai Tung Tony. The principal activities of the Audit Committee include the review of the Group s internal control system and to meet regularly with the executive directors and the external auditors to consider the nature and scope of the audit. 8 Lee & Man Holdings Limited

9 Chairman s Statement COMPUTER CONVERSION FOR THE YEAR 2000 In the 1999 Annual Report and in this year s interim report dated 15th November 1999, the Group addressed its assessment of the Year 2000 problem, the likely impact and the progress of the Year 2000 compliance. The Group became Year 2000 compliance in the second quarter of Costs associated with modifying computer hardware and software to be Year 2000 compliance have been recognized as an expense to the profit and loss account. Costs for purchase of new hardware and software have been capitalized. The Group has no further commitments in respect of year 2000 project. As a consequence, the Group has not experienced any Year 2000 non-compliance issues. However, the Group will continue to monitor the Year 2000 issue to ensure the Group s operations will not be affected. PROSPECTS The Group will continue to focus and expand its handbag and paper packaging products businesses. In facing this highly competitive and changing market environment, the Group will continue to act prudently and to adopt effective and flexible strategies in order to achieve a better return to the shareholders. On behalf of the Board LEE WAN KEUNG Chairman Hong Kong, 19th July 2000 Lee & Man Holdings Limited 9

10 Profile of Directors and Senior Management EXECUTIVE DIRECTORS Mr. LEE Wan Keung, aged 57, is the founder of the Group and the chairman of the Company. He is responsible for the development of corporate strategies, corporate planning and overall management of the Group. He has over 37 years of experience in manufacturing and international trade. Mr. Lee is the Deputy Chairman of Hong Kong Hainan Commercial Association and an executive member of the Political Consultative Committee of Guangdong Province, the PRC (!"#$%&'( ). Ms. WAI Siu Kee, aged 56, is the General Manager of the Group and co-founder of the Group s handbag business. Prior to the joining to the Group in 1976, she possessed more than 10 years experience in handbag business. She has currently over 35 years experience in the handbag industry. She is responsible for the general operation of the Group in Hong Kong as well as the overall marketing activities of the Group s handbag business. Mr. TUNG Cheung Kong, aged 53, joined the Group in He has over 29 years experience in the establishment and management of manufacturing operations. He is responsible for the general operation of the Group in Dongguan, the PRC and the development of the Group s audio cassette products business. He also assists in liaising and maintaining relationships with various government departments in the PRC. Mr. LUI Chung Man, aged 49, joined the Group in He has substantial experience in factory operations and management. He is responsible for the overall management and business development of the Group s paper packaging products business. Ms. POON Lai Ming, aged 44, joined the Group in She has over 22 years experience in the handbag industry. She is responsible for the overall management and the operation of the Group s handbag manufacturing activities in the PRC. INDEPENDENT NON-EXECUTIVE DIRECTORS Mr. WONG Kai Tung, Tony, aged 57, is an independent non-executive director of the Company. Mr. Wong has been a practising lawyer in Hong Kong since 1968 and is also admitted as a solicitor in England and Wales. He is currently a consultant of Messrs. Hastings & Co., Solicitors and Notaries. Mr. HENG Kwoo Seng, aged 52, is an independent non-executive director of the Company. Mr. Heng is the senior partner of Morison Heng, Chartered Accountants and Certified Public Accountants in Hong Kong. He is a fellow member of the Institute of Chartered Accountants in England and Wales and a member of the Hong Kong Society of Accountants. He is a non-executive director of seven other listed companies and a company secretary of two other listed companies. 10 Lee & Man Holdings Limited

11 Profile of Directors and Senior Management SENIOR MANAGEMENT Mr. HUI Yick Kwan, aged 42, is the financial controller of the Group and company secretary of the Company. He holds a bachelor s degree in commerce and a master s degree in business administration. He is a Certified Public Accountant in Hong Kong, a fellow member of the Chartered Association of Certified Accountants and an associate member of the Hong Kong Society of Accountants. He joined the Group in Mr. NG Simon, aged 46, is the senior manager of the Group s handbag business. He joined the Group in 1977 and has over 24 years experience in sales and marketing of handbag products. He is responsible for the sales and marketing of the Group s handbag business for the European market. Mr. CHIU Shun King, aged 36, is the production manager of the Group s handbag factory in Gao Bu Industrial Park. He joined the Group in 1984 and has over 15 years experience in the handbag industry. He is responsible for production planning and overall production management of the Group s handbag business. Mr. LAM Chi Kin, aged 36, is the factory manager of the Group s handbag business. He joined the Group in 1983 and has over 16 years experience in the handbag industry. He is responsible for the administration and overall factory management of the Group s handbag factory in Gao Bu Industrial Park. Ms. LEE Yee Man, aged 53, is the senior manager of the Group s paper packaging products business. She has over 13 years experience in the paper products industry. She joined the Group in 1981 and is responsible for the administrative activities of the paper packaging products business. Ms. LI Yuen Ling, aged 38, is the finance manager of the Group. She joined the Group in 1984 and has over 15 years experience in accounting and finance for manufacturing operations. She is responsible for the Group s accounting activities. Ms. TANG Kon Ling, aged 52, is the senior manager of the Group s audio cassette products business. She joined the Group in 1974 and has over 23 years experience in the audio cassette industry. She is responsible for the overall marketing activities of the Group s audio cassette products business. She is the spouse of Mr. Tung Cheung Kong, a director. Ms. TSUI Chin Wai, Jennifer, aged 35, is the sales manager of the Group s handbag business. She graduated from the State University of New York with a master s degree in business administration. She is responsible for the sales and marketing of the Group s handbag business for the European market. She joined the Group in Ms. LEE Man Wai, Marina, aged 28, is the sales manager of the Group s handbag business. She graduated from the University of British Columbia, Canada with a bachelor s degree in arts (economics). She is responsible for sales and marketing of the Group s soft luggage products. She is a daughter of Mr. Lee Wan Keung, the Group s chairman and she joined the Group in Lee & Man Holdings Limited 11

12 Profile of Directors and Senior Management Mr. CHENG Ming Kwong, aged 44, is the assistant finance manager of the Group. He holds a bachelor s degree in accounting and banking from Chu Hai College. He is responsible for the management accounting of the Group s factory in Gao Bu Industrial Park. He joined the Group in Mr. NG Yu Kuen, aged 43, is the senior sales manager of the Group s paper packaging products business. He joined the Group in 1983 and has over 13 years experience in marketing in the paper products industry. He is responsible for the marketing activities of the Group s paper packaging products business in the PRC. Mr. WAI King Chi, aged 43, is the sales manager of the Group s handbag business. He joined the Group in 1987 and has over 13 years experience in the sales and marketing of handbag products. He is responsible for the sales and marketing of the Group s handbag business for the U.S. market. He is the brother of Ms. Wai Siu Kee, a director. Mr. Chan Kam Bun, aged 51, is the business manager of the Group s handbag business. He joined the Group in 1982 and has over 34 years experience in handbag business. He is responsible for overall management and business development of the Group s handbag factory in Thailand. 12 Lee & Man Holdings Limited

13 Directors Report The directors have pleasure in presenting their annual report and the audited financial statements for the year ended 31st March, PRINCIPAL ACTIVITIES The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 29 to the financial statements. An analysis of the Group s turnover and contribution to operating profit is set out on page 48 of the annual report. RESULTS AND DIVIDENDS The results of the Group for the year ended 31st March, 2000 are set out in the consolidated income statement on page 19 of the annual report. An interim dividend of 6.0 Hong Kong cents per share was paid during the year. The directors recommend a final dividend of 7.0 Hong Kong cents per share. FINANCIAL SUMMARY A summary of the results, assets and liabilities of the Group for the past five years is set out on page 47 of the annual report. SHARE CAPITAL AND SHARE OPTIONS There was no change in the issued share capital of the Company during the year. Details of the share options of the Company are set out in note 19 to the financial statements. RESERVES Details of the movements in the reserves of the Group during the year are set out in note 20 to the financial statements. PROPERTY, PLANT AND EQUIPMENT During the year, the Group acquired property, plant and equipment at a cost of approximately HK$13 million for the purpose of expanding its business. In addition, the Group revalued its property, plant and equipment at 31st March, Details of these and other movements in the property, plant and equipment of the Group during the year are set out in note 12 to the financial statements. PRINCIPAL SUBSIDIARIES Details of the Company s principal subsidiaries at 31st March, 2000 are set out in note 29 to the financial statements. Lee & Man Holdings Limited 13

14 Directors Report BORROWINGS Bank and other borrowings of the Group which are repayable within one year or on demand are classified as current liabilities as set out in notes 16 and 17 to the financial statements. A repayment analysis of the obligations under a finance lease and a hire purchase contract is set out in note 16 to the financial statements. No interest was capitalised by the Group during the year. DIRECTORS AND DIRECTORS SERVICE CONTRACTS The directors of the Company during the year and up to the date of this report were: Executive directors Lee Wan Keung Wai Siu Kee Tung Cheung Kong Lui Chung Man Poon Lai Ming (Chairman and Managing Director) Independent non-executive directors Wong Kai Tung, Tony Heng Kwoo Seng In accordance with Article 116 of the Company s Articles of Association, Messrs. Wong Kai Tung, Tony and Heng Kwoo Seng retire and, being eligible, offer themselves for re-election. The term of office of each of the independent non-executive directors is the period up to his retirement as required by the Company s Articles of Association. Each of the executive directors has entered into a service agreement with the Company for an initial period of three years commencing 1st April, 1997, which will continue thereafter unless and until terminated by either party by three months prior written notice. None of the directors being proposed for re-election at the forthcoming annual general meeting has a service contract with the Company or any of its subsidiaries which is not determinable by the Group within one year without payment of compensation, other than statutory compensation. 14 Lee & Man Holdings Limited

15 Directors Report DIRECTORS INTERESTS IN SECURITIES As at 31st March, 2000, the interests of directors in the ordinary shares of the Company as recorded in the register maintained by the Company pursuant to Section 29 of Hong Kong Securities (Disclosure of Interests) Ordinance (the SDI Ordinance ) were as follows: Number of ordinary shares held Personal Family Corporate Other Name of director interest interest interest interest Lee Wan Keung 609,750,000 (Note) Wai Siu Kee 609,750,000 (Note) Tung Cheung Kong 6,000,000 Lui Chung Man 2,000,000 Poon Lai Ming 1,000,000 Wong Kai Tung, Tony Heng Kwoo Seng Note: 609,750,000 ordinary shares were held by Fortune Star Tradings Limited, a company wholly-owned by Centre Trustees (C.I.) Limited as trustee for The Fortune Star 1992 Trust, a discretionary trust the discretionary objects of which include Mr. Lee Wan Keung and certain of his family members and Ms. Wai Siu Kee. In addition to the above, as at 31st March, 2000, Mr. Lee Wan Keung and Ms. Wai Siu Kee each held one nonvoting deferred share of HK$1,000 each in Lee & Man Realty Investment Limited. The rights and restrictions of such non-voting deferred shares are set out in note 29 to the financial statements. Save as disclosed above and other than certain nominee shares in the subsidiaries held by Mr. Lee Wan Keung in trust for the Group, as at 31st March, 2000 none of the directors or any of their associates had any interest in the securities of the Company or any of its associated corporations as defined in the SDI Ordinance. DIRECTORS RIGHTS TO ACQUIRE SHARES OR DEBENTURES The Company has a share option scheme under which the executive directors or employees of the Company and its subsidiaries are eligible to be granted options to subscribe for shares in the Company. No share option was granted during the year ended 31st March, 2000 or was outstanding at that date under this scheme. Save as disclosed above, at no time during the year was the Company, its holding company or any of its fellow subsidiaries or 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 debts securities (including debentures) of, the Company or any other body corporate and none of the directors, their spouses or children under the age of 18, had any rights to subscribe for securities of the Company, or had exercised any such rights. Lee & Man Holdings Limited 15

16 Directors Report SUBSTANTIAL SHAREHOLDERS As at 31st March, 2000, the register of substantial shareholders maintained by the Company pursuant to Section 16(1) of the SDI Ordinance showed that, other than the interests disclosed under the heading Directors interests in securities, the Company had not been notified of any interests representing 10% or more of the Company s issued share capital. CONNECTED TRANSACTIONS Details of the discloseable connected transactions for the year are set out in note 28 to the financial statements. In the opinion of the independent non-executive directors, these transactions entered into by the Group were: (i) (ii) in the ordinary and usual course of business of the Group (except for the transactions carried out under the licence agreement as detailed in note 28(d) to the financial statements); on normal commercial terms and in accordance with the terms of the agreements; (iii) on terms that were fair and reasonable so far as the shareholders of the Company are concerned; and (iv) within the relevant cap amounts as agreed by The Stock Exchange of Hong Kong Limited (the Stock Exchange ). Save as disclosed above, there were no other transactions which need to be disclosed as connected transactions in accordance with the requirements of the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules ). DIRECTORS INTEREST IN CONTRACTS Save as disclosed under the heading Connected Transactions, there were no contracts of significance to which the Company, its holding company or any of its fellow subsidiaries or subsidiaries was a party and in which a director of the Company had a material interest, whether directly and indirectly, subsisting at the end of the year or at any time during the year. MAJOR CUSTOMERS AND SUPPLIERS During the year, the aggregate sales attributable to the Group s five largest customers comprised approximately 36% of the Group s total sales and the sales attributable to the Group s largest customer was approximately 10% of the Group s total sales. The aggregate purchases during the year attributable to the Group s five largest suppliers was less than 30% of the Group s total purchases. None of the directors, their associates or any shareholder which, to the knowledge of the directors, owned more than 5% of the Company s issued share capital had any interest in the share capital of any of the five largest customers of the Group. PURCHASE, SALE OR REDEMPTION OF THE COMPANY S LISTED SECURITIES During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company s listed securities. 16 Lee & Man Holdings Limited

17 Directors Report PRE-EMPTIVE RIGHTS There is no provision for pre-emptive rights under the Company s Articles of Association although there is no restriction against such rights under the laws in the Cayman Islands. CORPORATE GOVERNANCE The Company has complied throughout the year ended 31st March, 2000 with the Code of Best Practice, as set out in Appendix 14 of the Listing Rules. POST BALANCE SHEET EVENT Details of a significant post balance sheet event are set out in note 30 to the financial statements. AUDITORS Messrs. Deloitte Touche Tohmatsu have acted as auditors of the Company since its incorporation on 26th February, A resolution will be submitted to the annual general meeting of the Company to re-appoint them. Hong Kong, 19th July, 2000 On behalf of the Board LEE WAN KEUNG Chairman and Managing Director Lee & Man Holdings Limited 17

18 Auditors Report!"#$% Certified Public Accountants!"#$ NNN 26/F, Wing On Centre! OS 111 Connaught Road Central Hong Kong TO THE SHAREHOLDERS OF LEE & MAN HOLDINGS LIMITED (incorporated in the Cayman Islands with limited liability) We have audited the financial statements on pages 19 to 46 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 statements and to report our opinion to you. Basis of opinion We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of 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 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 the Group as at 31st March, 2000 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, 19th July, Lee & Man Holdings Limited

19 Consolidated Income Statement NOTES HK$ 000 HK$ 000 Turnover 922, ,234 Cost of sales (653,748) (587,250) Gross profit 269, ,984 Other revenue 21,774 19,304 Distribution costs (41,655) (32,614) Administrative expenses (110,425) (91,333) Profit from operations 4 138, ,341 Finance costs 7 (1,330) (1,858) Profit before taxation 137, ,483 Taxation 8 (9,738) (13,751) Profit attributable to shareholders 9 127, ,732 Dividends , ,250 Earnings per share cents 15.2 cents Lee & Man Holdings Limited 19

20 Consolidated Balance Sheet At 31st March, 2000 NOTES HK$ 000 HK$ 000 NON-CURRENT ASSETS Property, plant and equipment , ,858 CURRENT ASSETS Inventories , ,983 Trade and other receivables 132,214 84,706 Bills receivable 4,830 5,642 Taxation receivable 1,693 Bank balances and cash 60,936 70, , ,379 CURRENT LIABILITIES Trade and other payables 95,103 80,208 Amount due to a related company ,345 Obligations under a finance lease and a hire purchase contract due within one year Taxation payable 2,552 12,838 Dividend payable 57,750 57,750 Short-term bank borrowings 17 20,555 9, , ,070 NET CURRENT ASSETS 156, ,309 NON-CURRENT LIABILITIES Obligations under a finance lease and a hire purchase contract due after one year 16 (31) 484, ,136 CAPITAL AND RESERVES Share capital 18 82,500 82,500 Reserves , , , ,136 The financial statements on pages 19 to 46 were approved by the Board of Directors on 19th July, 2000 and are signed on its behalf by: LEE WAN KEUNG Chairman and Managing Director WAI SIU KEE Director 20 Lee & Man Holdings Limited

21 Balance Sheet At 31st March, 2000 NOTES HK$ 000 HK$ 000 NON-CURRENT ASSETS Interests in subsidiaries , ,167 CURRENT ASSETS Dividend receivable 59,000 58,000 Bank balances and cash ,019 58,048 CURRENT LIABILITIES Trade and other payables Dividend payable 57,750 57,750 57,921 57,993 NET CURRENT ASSETS 1, , ,222 CAPITAL AND RESERVES Share capital 18 82,500 82,500 Reserves , , , ,222 LEE WAN KEUNG Chairman and Managing Director WAI SIU KEE Director Lee & Man Holdings Limited 21

22 Consolidated Statement of Recognised Gains and Losses HK$ 000 HK$ 000 Surplus arising on revaluation of property, plant and equipment 15,696 1,946 Exchange differences arising from translation of financial statements of overseas operations 310 1,681 Gains not recognised in the consolidated income statement 16,006 3,627 Profit for the year 127, ,732 Total recognised gains 143, , Lee & Man Holdings Limited

23 Consolidated Cash Flow Statement NOTES HK$ 000 HK$ 000 NET CASH INFLOW FROM OPERATING ACTIVITIES , ,266 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Dividends paid (107,250) (107,250) Interest paid on bank borrowings (1,302) (1,832) Interest paid on obligations under a finance lease and a hire purchase contract (28) (26) Interest received 2,548 4,616 NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (106,032) (104,492) TAXATION Hong Kong Profits Tax paid (18,255) (4,867) Overseas taxation paid (392) (1,384) Hong Kong Profits Tax refunded NET TAXATION PAID (18,331) (5,848) INVESTING ACTIVITIES Purchase of property, plant and equipment (13,380) (36,735) Proceeds from disposal of property, plant and equipment 1, NET CASH OUTFLOW FROM INVESTING ACTIVITIES (12,246) (36,364) NET CASH (OUTFLOW) INFLOW BEFORE FINANCING (20,045) 4,562 FINANCING 22 New bank loan raised 2,749 Repayment of obligations under a finance lease and a hire purchase contract (138) (171) NET CASH INFLOW (OUTFLOW) FROM FINANCING 2,611 (171) (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (17,434) 4,391 CASH AND CASH EQUIVALENTS BROUGHT FORWARD 60,564 56,173 CASH AND CASH EQUIVALENTS CARRIED FORWARD 23 43,130 60,564 Lee & Man Holdings Limited 23

24 Notes to the Financial Statements 1. GENERAL The Company is an investment holding company incorporated and registered as an exempted company with limited liability in the Cayman Islands under the Companies Law (Revised) Chapter 22 of the Cayman Islands and its shares are listed on The Stock Exchange of Hong Kong Limited (the Stock Exchange ). Its ultimate holding company is Fortune Star Tradings Limited ( Fortune Star ), a company which is incorporated in the British Virgin Islands. The principal activities of the Company s principal subsidiaries are set out in note ADOPTION OF REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE In the current year, the Group has adopted, for the first time, the following revised Statements of Standard Accounting Practice ( SSAP(s) ) issued by the Hong Kong Society of Accountants: SSAP 1 (Revised) SSAP 2 (Revised) Presentation of financial statements Net profit or loss for the period, fundamental errors and changes in accounting policies SSAPs 1 (Revised) and 2 (Revised) are concerned with the presentation and disclosure of financial information. The presentation in the current year s financial statements has been modified in order to conform with the requirements of SSAPs 1 and 2. Comparative amounts have been restated in order to achieve a consistent presentation and additional analysis of income and expenditure have been presented. In particular, the description of various components in the financial statements and the terminology used has been updated to reflect the terminology of SSAPs 1 (Revised) and 2 (Revised). None of the amendments outlined above has affected the results for the current or prior periods. 3. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared under the historical cost convention, as modified for the revaluation of property, plant and equipment, and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out below: Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31st March each year. All significant inter-company transactions and balances within the Group are eliminated on consolidation. 24 Lee & Man Holdings Limited

25 Notes to the Financial Statements 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign currencies Transactions in currencies other than Hong Kong dollars are initially recorded at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates ruling on the balance sheet date. Gains and losses arising on translation are dealt with in the income statement. On consolidation the assets and liabilities of the Group s overseas operations are translated at exchange rates ruling on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and are recognised as income or as expenses in the period in which the operation is disposed of. Turnover Turnover represents the net amounts received and receivable for goods sold by the Group to outside customers during the year. Revenue recognition Sales of goods are recognised when goods are delivered and title has passed. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. Investments in subsidiaries A subsidiary is an enterprise in which the Company, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or where the Company controls the composition of its board of directors or equivalent government body. Investments in subsidiaries are included in the Company s balance sheet at cost less any impairment loss. Lee & Man Holdings Limited 25

26 Notes to the Financial Statements 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Leases and hire purchase contracts A lease is classified as a finance lease when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases or hire purchase contracts are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor or hirer, net of interest charges, is included in the balance sheet as a finance lease or hire purchase obligation. Finance costs, which represent the difference between the total commitments and the fair value of the assets acquired, are charged to the income statement over the period of the relevant leases or contracts so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. All other leases are classified as operating leases and the annual rentals are charged to the income statement on a straight line basis over the period of the relevant lease term. Property, plant and equipment, depreciation and amortisation Property, plant and equipment other than buildings under construction are stated in the balance sheet at their revalued amount, being the fair value on the basis of their existing use at the date of revaluation less any subsequent accumulated depreciation or amortisation. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date. Any surplus arising on revaluation of property, plant and equipment is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation deficit of the same asset previously recognised as an expense, when it is recognised as income. A decrease in the net carrying amount arising on revaluation of an asset is charged to the income statement to the extent that it exceeds the balance, if any, on the asset revaluation reserve relating to a previous revaluation of that asset. On the subsequent disposal or retirement of a revalued asset, the attributable revaluation surplus is transferred to retained profits. The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Where the recoverable amount of an asset has declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. In determining the recoverable amount of assets, expected cash flows are not discounted to their present values. The valuation of freehold land is not amortised. The valuation of leasehold land and land use rights is amortised over the period of the lease or rights respectively using the straight line method. 26 Lee & Man Holdings Limited

27 Notes to the Financial Statements 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Property, plant and equipment, depreciation and amortisation (continued) Buildings under construction are stated at cost which includes all construction costs and other direct costs, including borrowing costs capitalised, if any, attributable to the buildings under construction. They are not depreciated or amortised until completion of construction. The costs of completed buildings under construction are transferred to the appropriate categories of property, plant and equipment. Depreciation and amortisation is provided to write off the valuation of other property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum: Buildings 5% Furniture, fixtures and equipment 15%-30% Leasehold improvements 5% Motor vehicles 20%-30% Moulds 33 1 / 3% Plant and machinery 15%-20% Assets held under finance leases are depreciated on the same basis as owned assets or, where shorter, over the period of the relevant lease. Assets held under hire purchase contracts are depreciated over their expected useful lives on the same basis as owned assets. Capitalisation of borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e. assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are recognised as an expense in the year in which they are incurred. Inventories Inventories are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and, where applicable, costs of conversion and other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Lee & Man Holdings Limited 27

28 Notes to the Financial Statements 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Pension The Group operates a funded defined benefit scheme (the Scheme ), the assets of which are held in a separate insurer-administered fund. The expected costs of providing pensions relating to the employees services, as calculated periodically by a professionally qualified actuary, are charged to the income statement so as to spread the pension costs over the service lives of employees in the Scheme in such a way that the cost is substantially at a level percentage of both current and expected future pensionable payroll. Taxation The charge for taxation is based on the results for the year after adjusting for items which are non-assessable or disallowed. Certain items of income and expense are recognised for tax purposes in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed under the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future. Cash equivalents Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which are within three months of maturity when acquired, less advances from banks which are repayable within three months from the dates of the advances. 28 Lee & Man Holdings Limited