MAN WAH HOLDINGS LIMITED ANNUAL REPORT 2008 MAN WAH HOLDINGS LIMITED. It s what you can trust

Transcription

1 It s what you can trust MAN WAH HOLDINGS LIMITED 7th Floor, Phase 1, Tai Sang Shatin Warehouse Centre, No.6, Wong Chuk Yeung Street, Fotan, New Territories, Hong Kong Tel: (852) / / Fax: (852) MAN WAH HOLDINGS LIMITED ANNUAL REPORT 2008

2 CORPORATE PROFILE Established in 1992, Man Wah Holdings Ltd. ( Man Wah ) is a home furnishing group, primarily engaged in the design, manufacture and sale of a broad range of mid to high-end motion sofas (specialty sofas with features such as recline and footrests), which are sold through extensive distribution channels in the PRC and Hong Kong, and direct export to the international market under its well-known brand - Cheers and 芝华仕. The Cheers brand had received the prestigious China Top Brand award in September 2007 from the PRC authorities. Currently, there are 213 Cheers specialty stores located in prime locations throughout the PRC serving the fast growing domestic furniture market. The Group currently operates three sofa production facilities in the PRC. (With the completion of Phase II of its Huizhou Daya Bay plant in December 2007, production capacity has increased to 500,000 sofa sets per annum to meet the growing demand from its expanding clientele base). It s what you can trust MAN WAH HOLDINGS LIMITED 7th Floor, Phase 1, Tai Sang Shatin Warehouse Centre, No.6, Wong Chuk Yeung Street, Fotan, New Territories, Hong Kong Tel: (852) / / Fax: (852) For more information pertaining to Man Wah Holdings Limited, please log on MAN WAH HOLDINGS LIMITED ANNUAL REPORT 2008

3 CONTENTS Corporate Information 3 Chairman s Statement 6 Financial Highlights 13 International Market 14 Financial and Operation Review 16 Board of Directors 23 Executive Officers 25 Corporate Milestone 26 Corporate Governance Report 27 Report of the Directors 37 Independent Auditors Report 41 Balance Sheets 43 Consolidated Profit and Loss Statement 44 Statements of Changes in Equity 45 Consolidated Cash Flow Statement 47 Notes to the Consolidated Financial Statement 49 Statement of the Directors 91 Shareholding Statistics 92 Notice of Annual General Meeting 94 P

4 Stepping Up With the increased popularity of Man Wah products as more customers recognize the strong value propositions of Man Wah s motion sofas, Man Wah stepped up to improve their production capability. With the completion of Phase II of Huizhou Daya Bay Plant in September 2007, the current production capacity has more than doubled to 500,000 sets per annum. This effectively alleviate previous production constraints and most importantly, create room for further growth. P 2 Man Man Wah Wah Holdings Holdings Limited Limited annual annual report report

5 CORPORATE INFORMATION BOARD OF DIRECTORS Wong Man Li (Managing Director) Hui Wai Hing (Executive Director) Li Jianhong (Executive Director) Lee Fook Wah Francis (Finance Director) Yu Tung Wan (Non-executive Director) Bernard Tay Ah Kong (Independent Director) Lee Teck Leng Robson (Independent Director) JOINT COMPANY SECRETARIES Gwendolyn Gn Jong Yuh Loy Sye Ling Appleby Corporate Services (Bermuda) Ltd REGISTERED OFFICE Canon s Court 22 Victoria Street Hamilton HM 12 Bermuda PRINCIPAL PLACE OF BUSINESS 1st Floor, Wah Lai Industrial Center, Kwei Tei Street, Fotan, New Territories,Hong Kong Tel No: (852) Fax No. : (852) AUDIT COMMITTEE Bernard Tay Ah Kong (Chairman) Lee Teck Leng Robson Yu Tung Wan SINGAPORE SHARE REGISTRAR AND SINGAPORE SHARE TRANSFER AGENT Boardroom Corporate & Advisory Services Pte. Ltd. 3 Church Street #08-01 Samsung Hub Singapore NOMINATING COMMITTEE Lee Teck Leng Robson (Chairman) Bernard Tay Ah Kong Yu Tung Wan REMUNERATION COMMITTEE Lee Teck Leng Robson (Chairman) Bernard Tay Ah Kong Yu Tung Wan BERMUDA SHARE REGISTRAR AND SHARE TRANSFER AGENT Reid Management Limited Argyle House 41A Cedar Avenue Hamilton HM 12 Bermuda P

6 AUDITORS OF THE COMPANY Deloitte & Touche LLP Public Accountants and Certified Public Accountants 6 Shenton Way #32-00 DBS Building Tower Two Singapore Partner in charge: Ng Peck Hoon PRINCIPAL BANKERS Hongkong and Shanghai Banking Corporation Limited 1 Queen s Road Central Hong Kong Bank of China (Hong Kong) Limited 4-6 Pak Tai Street Tokwawan Kowloon Hong Kong LEGAL ADVISER TO THE COMPANY AS TO HONG KONG LAW CHOW, GRIFFITHS & CHAN Solicitors & Notaries 6th Floor, South China Building No.1 Wyndham Street, Central Hong Kong Lawyer : LL.B. (Hons.), LL. M. Chua Man Pang, William LEGAL ADVISER TO THE COMPANY AS TO BERMUDA LAW Appleby Spurling Hunter 5511 The Center 99 Queen s Road Central Hong Kong LEGAL ADVISER TO THE COMPANY AS TO PRC LAW Guangdong Kingdom Law Firm Address : 18/F CEC Information Tower, Xinwen Road,1st Fu Tian District Shenzhen P.R. China Lawyer : Lv Cheng Gang Zhou Jiang Tao P Man Wah Holdings Limited annual report 2008

7 Beyond Impediments Man Wah attuned their products mix to mitigate on the volatility of the cost of raw materials. They use microfibre a kind of suede-like material - to produce motion sofa which helps to assuage the dependency of leather. The microfibre sofa is very sellable and popular due to its affordability and flexibility to take a wide range of colour mix. P

8 CHAIRMAN S STATEMENT Mr WONG MAN LI Chairman Dear Shareholder, On behalf of the Board of Directors, I am pleased to present to you the Group s annual report for the financial year ended 31st March 2008 (FY2008). The Year In Review I am pleased to announce that Man Wah has emerged as the largest furniture stock on SGX by market cap. It had indeed been a challenging yet fulfilling year for Man Wah! Through intensive and effective marketing initiatives, we have achieved brand recognition across our three key growth regions United States, Europe and China. Particularly in China, Man Wah is honored to be one of only eight PRC sofa makers to receive the prestigious China Top Brand award from the PRC authorities - the General Administration of Quality Supervision, Inspection and Quarantine of the People s Republic of China ( AQSIAQ ) for our Cheers brand of mid to high-end motion sofas on 10 September P The increased popularity of Man Wah s sofas in these regions can be attested by our significant revenue growth of 74.3% to HK 1,485.6 million, resulting in net profit surging 107% to HK million for FY2008. This remarkable set of results are achieved due to our customers constant support and the hard work of our employees. Man Wah Holdings Limited annual report 2008

9 CHEERS To Our Growth With the completion of Phase II of Huizhou Daya Bay Plant in September 2007, our production capacity has almost doubled to 500,000 sets per annum, alleviating our previous production constraints and allowing us to cater effectively to the increasing demand as more customers recognize the value propositions of our motion sofas. The completion of the Huizhou Daya Bay facility also brought about greater efficiencies as our operations are better streamlined and greater economies of scale were achieved. We continue to effectively execute our two-pronged growth strategy to concurrently expand both our export and domestic market. We remain optimistic about the housing boom and strong domestic consumption in China. As such, we continue to aggressively expand our retail network, adding numerous Cheers specialty stores. At the end of FY2008, we have 213 stores situated in prime locations throughout China. Our initiatives was paid off with a 150.6% surge in sales to HK$277.2 million for China and its contribution to total sales increased to 19% (FY2007: 13%). Our export sales to European market climbed 51.5% to HK$317.7 million. Excitement is growing as more plans are in place to expand into new geographical markets, in conjunction with further penetration into our existing markets. We met the challenges faced in FY2008 head-on and emerged in excellent shape. In the US market, the subprime situation and general economic slow down were genuine threats which could potentially threatened our progress if handled inappropriately. We analyzed the US market carefully and reckoned that these seemingly negative factors could be turned into opportunities to increase our market share. We took this opportunity to build better relationships with our customers by providing quality service and improving delivery times. We also improved our products as we customized our new products to meet the needs of the end users hence increasing product differentiation and the selling points of our products. This provided a win-win situation for both our customers and ourselves, while significantly increasing our orders from our existing and new customers. Our US sales almost doubled to HK$639.0 million. I am proud to say we successfully overcome our challenges and Man Wah did it! To reward our shareholders, our Directors have recommended a final dividend per share of 3.79 HK$ cents. The total annual dividends for FY2008 stand at HK$47.3 million, representing 25% of the net profit. CHEERS To Our Next Move We continue to be mindful of the challenges ahead, such as competitive market conditions, volatility in raw material costs and wide anticipation of the appreciation of Chinese yuan against US dollar. Having said that, we remain cautiously optimistic. We believe with the continuation of our two-pronged growth strategy - to expand both the export markets and domestic markets we will maintain healthy utilization rates and sales performance for FY2009. P

10 We aim to continue expanding our foothold in export markets by securing bigger orders from the largescale furniture retailers and capture more customers interest with new sofa models customized to their needs. We continue to see immense opportunities in US as local furniture companies increase their manufacturing outsourcing activities. There is much potential in China in view of the impending Beijing Olympics 2008 and the positive effect of this major event. Man Wah is definitely ready to exploit this opportunity as we are targeting to increase our retail presence with a total of 300 Cheers specialty stores by the end of FY2009. I believe this will definitely help to build brand loyalty for our Cheers brand within and even outside of China. Cheers is the way to go! Appreciation I am taking this opportunity once again to extend my heartfelt appreciation and gratitude to our management team, staff, suppliers, business associates and customers for their dedication and commitment to Man Wah. To the Board of Directors, I thank you for your judicious consel and guidance to the Group. On behalf on the board, we welcome Mr Lee Fook Wah Francis who joined the Board as Finance Director on 8 November Lastly, to our shareholders, thank you for your continuous support and interest in Man Wah. We will continue to deliver as promised and I look forward to meeting you at the coming shareholders meeting. Wong Man Li Chairman June 18, 2008 P 8 Man Wah Holdings Limited annual report 2008

11 总裁致词 亲爱的股东, 我谨代表敏华董事会为大家做 2008 财政年 ( 截止于 2008 年 3 月 31 日 ) 的报告 年度回顾 我很自豪地宣布, 敏华以市值成为新交所最大的家具类股票 敏华 2008 财政年确实是硕果累累然而具有挑战性的一年! 透过密集和有效的营销活动, 我们已经在三个主要增长地区 - 美国, 欧洲和中国获得品牌认知度 特别是在中国, 敏华很荣幸的成为 8 家获得中国最负盛名品牌奖的中国沙发制造商之一 这是中华人民共和国国家质量监督检验检疫总局产品质量监督司, 于 2007 年 9 月 10 日为我们位于中高档沙发的 芝华士 品牌颁发的 逐渐获得消费者青睐的敏华沙发使得我们在这些地区的销售大幅增长了 % 达到 HK$14.86 亿, 使得净利润激增 107%, 于 2008 财政年度达到 HK$1.878 亿 敏华能取得这样可喜的业绩都得归功于顾客群对我们的一贯支持和员工们的辛勤努力 为我们的增长 Cheers 随着 2007 年 9 月惠州大亚湾工厂二期工程的完工, 我们的生产能力几乎增加了一倍, 达到每年 500,000 套 这减少了之前产能的制约因素, 并有效地应付由于越来越多的顾客对我们沙发品牌的认可而日益增加的需求 惠州大亚湾工厂的完工也极大地提高了生产效率, 它使我们的运作更简单化并由于经营规模扩大而降低成本 我们将继续有效地执行我们两方面的增长策略, 即同时扩大我们的出口和国内市场 我们对中国房地产市场的繁荣和强劲的国内消费仍然持有乐观态度 因此, 我们将继续积极地扩展我们的零售网络, 将增加额外的数十间 芝华士 品牌专卖店 在 2008 财政年底, 我们将有 213 间 芝华士 品牌专卖店, 分布在中国各省的黄金地段 我们在中国的销售额激增 150.6%, 达到 HK$2.772 亿 并使得其在总销售额的比例增加至 19 % (2007 财政年度为 13% ) 我们出口到欧洲市场的销售上涨了 51.5% 达到 HK$3.177 亿 令人兴奋的是, 我们已开始一系列的周详计划以扩展新地区的市场并进一步巩固我们的现有市场, 以发挥我们在欧洲的巨大市场潜能 我们从容不迫地的应付了 2008 财政年度所面临的各种挑战, 依然保持良好的竞争优势 P

12 美国的次贷危机和经济放缓对敏华在美国市场的进展造成了一定的阻碍, 一旦处理不当就有可能延缓我们的工作进度 我们谨慎地分析了美国市场并推测, 这些看似负面的因素也可能转变为增加我们市场份额的机会 我们借此机会, 通过提供优质的服务和缩短交货时间与顾客建立更良好的关系 我们通过改进产品, 为客户量身定做以满足他们不同的需求, 因此有助于突出产品差异化和产品卖点 这为敏华的顾客和我们自己提供了一个双赢的局面, 也使得我们现有客户和新客户的订单显著增加, 我们在美国的销售几乎增加了一倍达到 HK$6.39 亿 我很自豪地说, 敏华成功地克服了所面临的挑战! 为了回馈我们的股东, 敏华董事会建议每股派发 HK$3.79 分股息 2008 财政年度总的年度股息为 HK$4730 万, 占净利润的 25% 为我们的下一步 Cheers 我们将继续留意未来的挑战, 如市场的竞争情况, 原材料成本的波动和人民币增值 话虽如此, 我们仍然持有谨慎乐观的态度 我们相信, 随着我们的两方面增长战略的继续 - 扩大出口和国内市场 - 我们将会在 2009 财政年度保持健康的产能使用率和销售业绩 我们的目标是继续扩大我们在出口市场的立足点 我们会更积极地与大型家具零售商争取更大的订单, 也会满足更多客户对新产品的需求以提高他们购买敏华产品的兴趣 由于美国当地的家具公司正逐渐增加他们的外包活动, 这使我们看到敏华在美国市场的巨大商机 鉴于迫近的 2008 年北京奥运会和这一重大事件的积极影响, 中国存在着巨大的潜力 敏华将会利用这个机会, 我们的目标是在 2009 财政年底将我们在中国的 芝华士 品牌专卖痁增加到 300 家 我相信这一定有助于在国内, 甚至在国外建立 芝华士 品牌的忠诚度 为敏华的光明前景而 Cheers! P 10 Man Wah Holdings Limited annual report 2008

13 感谢 我借这个机会再次衷心的感谢我们的管理团队, 员工, 供应商, 商业伙伴和客户群对敏华的奉献和承诺 同时我也要感谢董事会所做的明智决策和对集团的领导 本董事会在此欢迎李福华先生于 2007 年 11 月 8 日上任执行董事 ( 财务 ) 职位 最后, 感谢敏华股东, 感谢您对敏华的不断支持和关注 我们将继续努力, 并期待在即将举行的股东大会看到你们 黄敏利主席 2008 年 6 月 18 日 P 11

14 Man Wah continued its two-pronged growth strategy; to concurrently expand both export market and domestic market. P 12 The Fighting Spirit Man Wah aggressively expand its retail network in the domestic market to capitalize on the housing boom and strong domestic comsumption. The number of Cheers specialty stores increased to 213 (FY2007: 154) and can be located throughout the prime locations in China. In the export markets US and Europe, they continue to strengthen their foothold, exploring new areas and penetrating further into its existing market. Man Wah Holdings Limited annual report 2008

15 FINANCIAL HIGHLIGHTS Proforma Group # Actual Group Financial Results and Information FY2004 HK 000 FY2005 HK 000 FY2005 HK 000 FY2006 HK 000 FY2007 HK 000 FY2008 HK 000 Profit and Loss Revenue 232, , , , ,494 1,485,567 Gross Profit 97, ,130 49, , , ,607 Profit before taxation 57,729 53,122 23,448 87,462 95, ,383 Net profit attributable to shareholder 50,346 61,033 27,959 83,388 90, ,794 Balance Sheet Bank loans and overdrafts 1,225 14,725 14,725 45,519 71, ,146 Cash and bank balances 12,475 22,522 22,522 43,633 48,620 29,580 Total assets 159, , , , ,361 1,019,913 Total liabilities 105,849 81,325 81,325 95, , ,456 Net assets 53, , , , , ,457 Per share statistics* Net assets per shares (HK cents) Earnings per shares (HK cents) Financial Ratio* Return on total assets (%) Return on equity (%) Gearing ratio (%) * The per share statistics are based on pre-invitation number of shares of 217,600,000. For comparision purposes, earnings per share, return on total assets and return on equity of the Actual Group for FY2005 have been annualized to reflect the total earnings for a full year # The financial information for the Proforma Group are prepared on the assumption that the current group structure, resulting from the Restructuring Exercise, had been in place since April 1, P 13

16 MAN WAH S INTERNATIONAL MARKETS EUROPE NORTH AMERICA CHINA and other markets all over the world REVENUE BY GEOGRAPHICAL SEGMENT P 14 Man Wah Holdings Limited annual report 2008

17 Winning the race Man Wah has emerged as the largest furniture stock on SGX by market cap in FY2008. With a great management team to plan and effectively execute, Man Wah streamline its operation, provide better quality services to customers and roll out new products to optimize pricing. Revenue increased significantly by 74.3% to HK$1,485.6 million which resulted in a surge in the net profit by 107% to HK$ million. P 15 Man Wah Holdings Limited annual report 2008

18 FINANCIAL AND OPERATION REVIEW Revenue For the full year ended 31 March 2008 (FY2008), revenue surged by 74.3% to HK$1,485.6 million as compared to HK$852.5 million in the preceding year. This is mainly attributed to the following factors: Significant increase in export sales in particular to the US market; Rise in domestic sales in the PRC due to higher number of Cheers specialty stores and extensive marketing activities; and Increased production capacity allowing us to cope with strong demand. With the completion of Phase II of the Group s Huizhou Daya Bay plant in FY2008, production capacity has almost doubled to approximately 303,000 sofa sets per annum to meet the growing demand from its expanding clientele base. Revenue by Geographical Segment Revenue FY2008 FY2007 Change HK$m % HK$m % % North America Europe PRC Hong Kong Others Total 1, Sales in the North America segment spearheaded growth in absolute terms, with sales surging by 99.3% to HK$639.0 million. This was due to higher sales orders from the top 100 largest US furniture retailers (as ranked by leading trade publication Furniture Today). The Group had aggressively increased its Cheers specialty stores in the PRC from 154 at the end of FY2007 to 213 at end of FY2008, leading to a 150.6% surge in PRC sales to HK$277.2 million. The Group s specialty stores can be found in Beijing, Shanghai, Guangdong, Shenzhen as well as other major PRC cities. Sales to the European market rose by 51.5% to HK$317.7 million in FY2008. The strength of the Euro against the US dollar and the Chinese yuan has partially help to drive up sales to this segment. In addition, the Group has continued its expansion into new geographical markets while further penetrating existing ones via tie-ups with established distributors. The positive economic environment in the Hong Kong market has also led to a credible 34.5% increase in sales in the Hong Kong market, bringing sales to a record HK$125.2 million. P 16 Man Wah Holdings Limited annual report 2008

19 With increasing awareness of the Cheers brand in the international market and an established track record for producing quality furniture products, sales to countries other than the Group s three main geographical segments also grew 6.8% to HK$126.5 million. Results by Business Segment Revenue FY2008 FY2007 Change HK$ % HK$ % % Sofa 1, Other Furniture Total 1, The broad demand for the Group s motion sofas as outlined above, led to a strong 73.6% increase in revenue to HK$1,382.5 million for the Sofa segment. Revenue from the Other Furniture segment also recoded a 83.1% growth to HK$103.1 million, supplementing the Group s mainstay sofa products. Cost of goods sold Due to higher level of sales, cost of goods sold increased by 61.9% to HK$1,021.9 million. Labour costs in FY2008 rose 54.8% to HK$67.8 million while manufacturing overheads rose more than one-fold from HK$21 million to HK$53.5 million in FY2008. However, the increase is lower than the overall increase in the sales growth. Gross profit As a result of better pricing and general savings from economies of scale, the Group s gross profit for FY2008 rose 109.5% to HK$463.6 million, representing a higher gross profit margin of 31.2% (FY2007: 26.0%). Other income Other operating income increased by 144.4% to HK$27.8 million in FY2008. The increase came largely from a surplus on the revaluation of investment property from HK$0.6m to HK$2.7m; rental income from HK$2.9 million to HK$3.3 million; foreign exchange gain from HK$3.5 million to HK$7.5 million; and unrealized net gain on derivative financial instruments of HK$5.0 million. The Group does not engaged in foreign exchange trading and the gain on derivative financial instruments arose as the Group, through its PRC and Hong Kong subsidiaries, took advantage of the foreign exchange rate differential for US$ and RMB prevailing in Hong Kong and PRC to earn net foreign exchange gain at Group level. On a group basis, as the open positions recorded at both the Hong Kong and PRC entities are substantially netted off, there is no material open foreign exchange position at Group level and the Group will not be affected by foreign exchange fluctuations. P 17

20 Selling and distribution expenses Selling and distribution expenses rose 143.0% or HK$131.3 million, to HK$222.9 million in FY2008. The increase was mainly attributed to: a) Transportation, port charges and freight costs increased by HK$75.7 million to HK$113.9 million in FY2008. This increase was mainly due to the higher level of export sales and higher costs associated in transporting sofas direct to customers warehouses; b) In an effort to promote our brand name Cheers both in the domestic and international markets, the Group s spending on exhibition and advertising expenses rose by HK$6.8 million to HK$15.0 million. The Group has participated in 8 large scale furniture fairs during the period as compared to 9 in the previous corresponding period; c) Rent and rates for the year saw a further increase of HK$18.1 million to HK$35.0 million as rental rates were generally trending up; d) As a result of higher sales and promotional activities to promote the Group s products and its main brand name, Cheers, overall sales commission and salaries in FY2008 rose by HK$15.1 million to HK$26.2 million; and e) Depreciation expenses for the year rose from HK$0.5 million to HK$4.8 million. Administrative expenses Administrative expenses increased 62.4% or HK$27.2 million, to HK$70.7 million in FY2008. The increase was mainly attributed to: a) Salaries, allowances and related costs rose from HK$14.5 million to HK$30.2 million due to the need for expanded staff strength to cater for an enlarged Group activities; b) Overall office administrative expenses rose by HK$4.7 million to HK$10.0 million due to additional administrative support to cope with overall sales increases; c) Depreciation for the year was slightly higher at HK$6.7 million as compared to HK$5.8 million in the preceding year. The increase was due to the Group increasing its level of fixed assets in line with its expansion plan; d) Professional fees for the year rose by HK$1.4 million to HK$6.8 million; and e) Other PRC tax and duties expenses for the year rose by HK$1.7 million to HK$3.0 million. P 18 Man Wah Holdings Limited annual report 2008

21 Share of gain of an associate The Group s joint venture company with its Xiamen counterpart has managed to result in a profit of HK$0.3 million in its first year of operation. Finance costs Finance costs increased from HK$2.0 million to HK$4.6 million in line with the Group s higher borrowings to support the expansion of the Group s Daya Bay production facility. Profit before income tax Finance costs increased from HK$2.0 million to HK$4.6 million in line with the Group s higher borrowings to support the expansion of the Group s Daya Bay production facility. Income tax expense The PRC subsidiaries are 100% exempt from corporate tax for the two years from their respective first year of profit, and thereafter are entitled to a 50% tax exemption for the following three years. All the PRC subsidiaries other than Man Wah (Huizhou) have fully enjoyed the 100% tax exemption and are now entitled to 50% tax exemption. In addition, the Group s wholly owned subsidiary Man Wah (Macao Commercial Offshore) Ltd in Macau is fully exempted from corporate income tax. Income tax expense for the financial year rose slightly by 3.6% from HK$4.4 million to HK$4.6 million, representing an effective income tax rate of 2.4% (FY07: 4.8%). Profit for the year As a result of an overall improved performance, profit for the year was 107% higher at HK$187.8 million. Non-Current Assets As at 31 March 2008, non-current assets increased by 72.1% to HK$485.4 million largely due to the expansion in our new plant at Huizhou Daya Bay. Investment in property, plant and equipment increased by 77.1% to HK$392.7 million. This is in line with the Group s expansion of its Huizhou Daya Bay production facility. With the increase in the overall property values, the value of investment properties rose by 22.4% from approximately HK$16.0 million to HK$19.6 million. P 19

22 Current Assets Current assets increased by 51.3% to HK$534.5 million in FY2008 mainly due to the overall increases in inventories, trade receivables, other receivables and prepayments and other financial assets by approximately HK$37.0 million, HK$83.7 million, HK$38.2 million and HK$41.0 million respectively. Cash and bank balances however went down by 39.2% to HK$29.6 million as at end FY2008. The increase in trade receivables and other receivables and prepayments were in line with the increase in the overall turnover. As a result of the enlarged sales volume and in particular higher sales to the North America segment, which has longer credit period averaging 60 days, the Group s account receivable turnover for FY2008 rose to an average of 39 days as compared to an average of 33 days in the corresponding period. Other receivables were also higher due mainly to refund from Huizhou local government. Inventory turnover improved in FY2008 to an average of 72 days as compared to 76 days in the corresponding period due to lesser stockpiling of its key raw material. As a result of the difference in the rate of appreciation of the Renminbi against the US dollar in the PRC and Hong Kong, the Group has at end of FY2008 other financial assets of HK$41.0 million. Current Liabilities As at 31 March 2008, current liabilities increased by 98.9% to HK$349.8 million. The increase was mainly attributed to: a) Trade payables increasing from HK$55.7 million to HK$99.5 million as the Group secured better terms from its suppliers; b) Bank and other borrowings increasing from HK$45.1 million to HK$88.0 million due mainly to the increased use of banks trade facilities and term loan to support the Group s purchases and expansion plans over in Huizhou plant respectively; c) Increase in other payables from HK$72.9 million to HK$127.3 million attributed to higher proportion of trade deposits received from customers, bills payables and accruals; and d) Increase in other financial liabilities of HK$31.0 million as a result of the difference in the rate of appreciation of the Renminbi against the US dollar in the PRC and in Hong Kong. Non-Current Liabilities Non-current liabilities increased by 147.6% to HK$67.7 million as a result of an increase in long term bank loan for the purpose of its expansion plans for the Huizhou plant. P 20 Man Wah Holdings Limited annual report 2008

23 Cash Flow The Group registered significantly higher positive net cash in operating activities of HK$121.4 million as compared to HK$11.6 million in the preceding year due mainly to higher profit and efficient management of working capital. Net cash used in investing activities for the current financial year amounted to HK$194.0 million as compared to HK$123.5 million in FY2007 largely due to the completion of Phase II of the Group s Huizhou Daya Bay. To partly finance the requirement in the investment in Huizhou Daya Bay, the Group recorded net cash from financing activities of HK$47.8 million as a result of higher bank borrowings. Overall, cash and cash equivalents were reduced by HK$24.8 million. P 21

24 22 Building a World Class Brand Man Wah is honored to be one of only eight PRC sofa makers to receive the prestigious China Top Brand award from the PRC authorities - the General Administration of Quality Supervision, Inspection and Quarantine of the People s Republic of China ( AQSIAQ ) for our Cheers brand of mid to highend motion sofas on 10 September P 22 Man Man Wah Wah Holdings Holdings Limited Limited annual annual report report

25 BOARD OF DIRECTORS Wong Man Li (Managing Director) Wong Man Li is our Managing Director and was appointed our Director on 17 November He is responsible for the day-to-day overall management and mapping the growth of our Group. Mr Wong founded our Group in He started his career in Hong Kong Kang Li Electronics Group Company Limited, a Hong Kong company engaged in the manufacturing of TV and radio sets, in 1980 and he left the said company in 1984 holding the appointment of a factory manager. Between 1985 and 1991, he held various positions in Hong Kong De Bao Yin Ran Factory Company Limited, a Hong Kong Company engaged in the business of printing and colouring of textile industry, and he last held the appointment of factory technician when he left the said company. Mr Wong graduated from Nan An Guo Guang secondary school in Fujian Province in the PRC. Hui Wai Hing (Executive Director) Hui Wai Hing is our Executive Director and Vice President and was appointed our Director on 17 November She is responsible for Hong Kong general administration and retail sales functions of our Group. Ms Hui joined our Group in She started her career in 1981 as an administrative officer with Nan An Trade Office, where she left in Between 1985 and 1988, she was an officer with Xiamen Statistics Office. Ms Hui graduated from Nan An Guo Guang secondary school in Fujian Province in the PRC. Our Executive Director Hui Wai Hing is the spouse of our Managing Director Wong Man Li. Li Jianhong (Executive Director) Li Jianhong is our Executive Director and Vice President. He was appointed our Director on 26 April He is responsible for the overall management in the department of design and development, production and the PRC sales of our Group. Mr Li joined our Group in Prior to that he was a finance officer with the Xiamen Customs from 1994 to Mr Li holds a Bachelor of Economics (Accountancy) from the University of Xiamen in the PRC, a Masters in Business Administration from the University of Peking in the PRC and is a fellow of the Institute of Certified Public Accountant of China. Yu Tung Wan (Non-Executive Director) Yu Tung Wan is our non-executive Director and was appointed our Director on 26 April He is currently an executive Director of King Famous Bedding Company Limited, a company incorporated in Hong Kong that is the holding company of a PRC company engaged in the manufacture, design and sale of mattresses in the PRC. Prior to his current appointment, he was a sales manager with the Asia Pacific Division of the Leggett & Platt Incorporated, a group engaged in the business of trading of furniture components, from 1992 to Between 1988 to 1992, Mr Yu was a sales manager with Skynews Development Co. Ltd., a Hong Kong company that is engaged in the business of trading of machineries for garment industries. He started his career in 1977 as an engineer with Men Sum Shipping Engineering Co. Ltd., a shipping engineering company in Hong Kong, where he left in Mr Yu graduated from Shek Chun Bar High Level College in Hong Kong. P 23

26 Bernard Tay Ah Kong (Independent Director) Mr Bernard Tay Ah Kong is currently the Non-Executive Chairman of Horwath First Trust, which is a Certified Public Accountants firm. Mr Tay is also an Independent Director of several public companies listed on the SGX Mainboard and Catalist. He is the Senior Advisor to the Government of Huzhou City, Zhejiang Province of the People s Republic of China, President of the Automobile Association of Singapore and Vice- President of the Singapore Productivity Association. He is also a sub-committee member of the Singapore Institute of Directors. Mr Tay is a recipient of the Service to Education Award and Community Service Medal and was conferred the Pingat Bakti Masyarakat (Public Service Medal) by the President of Singapore in In addition, he is a former member of the Resource Panel of the Government Parliamentary Committees for Home Affairs and Communications. He had also sat on several committees under the Accounting and Corporate Regulatory Authority which includes the Complaints and Disciplinary Panel - Public Accountants Oversight Committee, Standing Law Review Focus Group and Directors Duties Study Team. Mr Tay is a Fellow of the Association of Chartered Certified Accountants ( U.K.), the Institute of Certified Public Accountants of Singapore, the Taxation Institute of Australia and the Singapore Institute of Directors. He is also a Chartered Accountant of Malaysia. Mr Tay has a wide range of experience, from having worked in public accounting firms in the United Kingdom and Singapore, the Inland Revenue Authority of Singapore and companies in commerce, industry and management consulting for a period over 30 years. Lee Teck Leng Robson (Independent Director) Lee Teck Leng Robson is our Independent Director and was appointed on 26 April Mr Lee is currently a partner in Shook Lin & Bok LLP s corporate finance and international finance practice and has been with the firm since Mr Lee is also a partner in the firm s China practice, focusing on cross-border corporate transactions in the PRC. Mr Lee is currently also the chairman of the audit committee of Qian Hu Corporation Limited ( Qian Hu ) as well as the chairman of the remuneration committee of Sim Lian Group Limited ( Sim Lian ), and chairman of the nominating committees of Serial System Ltd ( Serial System ) and Youcan Foods International Limited ( Youcan Foods ). Qian Hu, Sim Lian, Serial Systems and Youcan Foods are companies listed on the Main Board of the SGX-ST. In addition, Mr Lee is a member of the audit committees of Sim Lian, Serial System, Youcan, and Best World International Limited, a company listed on the Main Board of the SGX-ST. Mr Lee is the Secretary of the Board of Governors of Hwa Chong Institution (incorporating the Chinese High School and the Hwa Chong Junior College) and Supervisor Hwa Chong International School, as well as a Director of the Singapore Chinese High School, in his capacity as a trustee of the land on which Hwa Chong Institution and Hwa Chong International School are situated. Mr Lee graduated from the National University of Singapore with a Second Class Upper Honours Bachelor degree in law. Mr Lee is also a member of the Audit Committee of Matex International Limited and the Chairman of its Remuneration Committee, Chairman of Remuneration Committe of Best World International Ltd and Lead Independent Director of China Energy Limited. P 24 Lee Fook Wah Francis (Finance Director) Lee Fook Wah Francis is currently holding the position of Finance Director and Chief Financial Officer. He was appointed as our Finance Director on 8 November 2007 and our Chief Financial Officer on July 7, He oversees the Group s accounting functions and is responsible for matters relating to the corporate regulatory compliance and reporting requirements of the Group. He is also in charge of the Group s Hong Kong and Macau subsidiaries. Mr. Lee has over 12 years of experience in the financial industry before he joined us in After leaving the Commercial Crime Division of the Criminal Investigation Department in 1993, where he was appointed as a Senior Investigation Officer, he joined OCBC Bank as an Assistant Manager where he was involved in the conduct of credit analysis on the financial positions of correspondent banks. In 1994, he joined Deutsche Morgan Grenfell Securities as a Dealer s Representative where he managed clients investment portfolios and was also involved in the risk evaluation of clients. In 2001, he joined the Bank of China, Corporate Banking Department as an Assistant Manager where he oversaw a team of 6 credit officers. He was also tasked with conducting credit evaluation and risk analysis on the financial performance and position of corporate customers. He joined AP Oil International Ltd in 2004, where he was involved in a number of foreign merger and acquisitions and was also tasked with overseeing the Group s overall credit policy. Mr. Lee has obtained a Bachelor Degree in Accountancy from the National University of Singapore in 1990 and a Degree in the Masters of Business Administration (Investment and Finance) from the University of Hull in Mr Lee is also a member of the Institute of Certified Public Accounts of Singapore. Man Wah Holdings Limited annual report 2008

27 EXECUTIVE OFFICERS Chan Chi Cheung (Sales Manager) Chan Chi Cheung is our Sales Manager and President of Overseas Sales Department. He is responsible for the sales and marketing functions of our Group. Mr Chan joined our Group in Prior to joining our Group, he was an accountant with Fu Ho Sewing Machine Co Ltd, a company in Hong Kong that is engaged in the sales and distribution of sewing machines, from 1994 to Mr Chan started his career as a bank officer with The Ka Wah Bank Ltd, a commercial bank in Hong Kong, in He holds an Associate Diploma of Business (Accounting) awarded by the Department of Employment, Vocational Education and Training, Government of Western Australia. Zeng Wenli (Purchasing Manager) Zeng Wenli is our Vice President and our Purchasing Manager. He is responsible for the PRC general administration and supervision of our purchasing department. Mr Zeng joined our Group in Prior to joining our Group, he held various positions such as technician, assistant engineer and engineer with the various state land surveyor divisions in the Fujian Province in the PRC, between 1970 and Mr Zeng started his career in 1969 as a technician in the Fujian Province. Zeng Wenli graduated from a secondary school 南安梅山公社新华中学 in the PRC and holds a technical certificate 中级专业技术证书. Wu Yetian (Financial Manager) Wu Yetian is our Finance Manager. He is responsible for all financial and accounting matters in our Group. Mr Wu joined our Group in Prior to that, he was a finance manager with Xiamen Xiang Yu Group Company Limited, a PRC conglomerate that is engaged in the business of investment and property development, from 1998 to Mr Wu started his career as an accountant with Xiamen Xing Da Import & Export Company Limited, a trading company in the PRC, in He holds a Bachelor of Economics (Accountancy) from the Xiamen University. P 25

28 CORPORATE MILESTONES Number of CHEERS speciality stores in PRC hit 213 at the end of March 2008 Supplying to >30 of the United States 100 largest furniture retailers (as ranked by leading trade publication Furniture Today). More than 50% growth as compared to 2007 Completion of Phase 2 expansion of the Group s Huizhou Daya Bay plant. (Almost doubling the production capacity to approximately 500,000 sofa sets per annum to meet the growing demand from its expanding clientele base) Number of CHEERS speciality stores hit 154 at the end of March Supplying to >20 of the United States 100 largest furniture retailers (as ranked by leading trade publication Furniture Today) compared to just 2 in Placement of 14 million vendor shares at S$0.39 per share in February to several institutions and high net worth investors to improve free float. Placement of 43 million new shares at S$0.56 per share in April to fund Phase 2 expansion of Group s Huizhou Daya Bay production facilities. Completion of Phase 1 of Man Wah Holdings Furniture Industrial Park in June. The Group s production capacity reached 153,000 sofa sets per annum. Listed on SGX Mainboard in June via initial public offering of 75.5 million shares at S$0.23 per share Commence Phase 1 construction of new mega production facility, Man Wah Holdings Furniture Industrial Park, on 259,000 sq m plot of land in Huizhou Daya Bay, PRC. Received ISO9001:2000 certification Commenced the sale of our products to furniture importers and retailers in Europe. Appointment of first 3 CHEERS specialty stores in Shanghai, Beijing and Shenzhen Acquired the brand names CHEERS and 芝华仕 Commenced the distribution of our products to furniture importers and retailers in the United States Man Wah Sofa commenced leather sofa manufacturing activity at leased location via joint venture with an independent PRC third party. Man Wah Sofa started with a team of three staff in Hong Kong to engage in the sale of leather. P 26 Man Wah Holdings Limited annual report 2008

29 CORPORATE GOVERNANCE REPORT 1. CORPORATE GOVERNANCE The Board of Directors ( the Board ) of Man Wah Holdings Limited recognises the significance of sound corporate governance in ensuring greater transparency, protecting the interests of its shareholders as well as strengthening investors confidence in its management and financial reporting. It is committed to maintaining a high standard of corporate governance within the Group based on which its operations, businesses and strategies are directed and controlled. This report outlines the Company s corporate governance processes and activities with specific reference to the Code of Corporate Governance (the Code ). Board Matters (1) Board s Conduct of its Affairs The Board s primary role is to protect and enhance long-term shareholder value. It oversees the overall management of the Group, approves the Group s major strategic plans as well as major investments, disposals and funding matters. The Board is also responsible for the overall corporate governance of the Group. The Board conducts meetings on a regular basis throughout the year to oversee, review and approve the Group s major strategic plans. Ad-hoc meetings are also arranged when the need arises. To facilitate the attendance and participation of Directors at Board meetings, the Company s bye-laws provides for telephone and other electronics means of meetings of the Board as encouraged by the Code. The Board is supported by the Audit Committee, the Nominating Committee and the Remuneration Committee which are chaired by independent Directors. All Directors are obliged to act in good faith and consider at all times the interests of the Company. During the financial year in review, the attendance of the Directors at meetings of the Board and Board Committees, as well as the frequency of such meetings, are as follows: Name of Director Board of Directors Nominating Committee Audit Committee Remuneration Committee Numbers of meetings Held Attended Held Attended Held Attended Held Attended Wong Man Li * 2 2* 2 2* Hui Wai Hing * 2 2* 2 2* Li Jianhong * 2 2* 2 2* Lee Fook Wah Francis (1) * 1 1* 1 1* Yu Tung Wan Bernard Tay Ah Kong Lee Teck Leng Robson Note: (1) Lee Fook Wah Francis was appointed as Finance Director on 8 November * By invitation All the Directors are updated regularly on changes in the Company s policies, Board processes, corporate governance and best practices. All the Directors also have the opportunity to visit the Group s operational facilities and meet with the management to gain a better understanding of the Group s business operations. P 27

30 CORPORATE GOVERNANCE REPORT (2) Board Composition and Balance As at the date of this report, the Board comprises four executive Directors, one non-executive Director and two independent Directors. Key information regarding the directors can be found under the Board of Directors" section of this annual report. The Nominating Committee reviews the independence of each Director annually and adopts the Code s definition of what constitutes an independent Director in its review. The Nominating Committee is of the view that the current Board, with independent Directors making up almost one-third of the Board, has an independent element that sufficiently enables the Board to exercise objective judgment on corporate affairs independently from the management. The Nominating Committee is also of the view that no individual or groups of individuals dominate the Board s decision-making processes. Where necessary, the Company co-ordinates informal meeting sessions for independent Directors to meet without the presence of the management. The Board is of the view that the size of the current board, comprising seven Directors is appropriate, with reference to the scope and extent of the Group s operations. The Board will constantly examine its size with a view to determine its impact upon its effectiveness. The Board also considers that its composition of non-executive and independent Directors provide an effective Board with a combination of knowledge, business contacts and extensive business and commercial experience. This balance is vital in ensuring that the strategies proposed by the executive management are fully discussed and examined, taking into account the long term interests of the Group. (3) Role of Chairman and Chief Executive Officer Mr Wong Man Li is our Managing Director (equivalent to the position of a Chief Executive Officer). Mr. Wong Man Li is responsible for the day-to-day operations of the Group and ensures that the timeliness and quality of information flow between the Board and the management. The Board is of the view that it is not necessary to separate the roles of the Chairman and the Managing Director given the current corporate structure and scope of the Group s operations. The Board is of the view that there is also a balance of power and authority with the various committees chaired by the independent Directors. P 28 Man Wah Holdings Limited annual report 2008

31 CORPORATE GOVERNANCE REPORT (4) Board Membership We believe that Board renewal must be an on-going process, to ensure good corporate governance and to maintain relevance to the business as well as the changing needs of the Company. Our bye-laws require one-third of our Directors to retire by rotation and subject themselves to re-election by shareholders at every Annual General Meeting ( AGM ) such that no director stays in office for more than three years without being re-elected by shareholders. The Nominating Committee comprises our independent Directors, Lee Teck Leng Robson, Bernard Tay Ah Kong and Yu Tung Wan. Lee Teck Leng Robson is the Chairman of our Nominating Committee. The Nominating Committee is responsible for, inter alia, (i) renomination of the Directors having regard to the Directors contribution and performance, (ii) determining on an annual basis whether or not a Director is independent and (iii) deciding whether or not a Director is able to and has been adequately carrying out his duties as a Director. The Nominating Committee, in consultation with the Board, determines the selection criteria and identifies candidates with the appropriate expertise and experience for the appointments of new directors. The Nominating Committee then nominates the most suitable candidate who is only appointed to the Board. (5) Board Performance The Nominating Committee also uses its best efforts to ensure that directors appointed to the Board possess the relevant background, experience and knowledge and that each director brings to the Board an independent and objective perspective to enable balanced and well-considered decisions to be made. The Nominating Committee will review and evaluate the performance of the Board as a whole, taking into account the attendance record at meetings of the Board and Board committees, performance comparisons with industry peers and the contribution of each individual director to the effectiveness of the Board. Reviews of the Board performance are also undertaken collectively by the Board annually. (6) Access to Information In order to ensure that the Board is able to fulfill its responsibilities, management is required to provide adequate and timely information to the Board on Board affairs and issues that require the Board s decision and ongoing reports relating to operational and financial performance of the Company to the Board. The Board has separate and independent access to the senior management and the Company Secretary at all times. Requests for information from the Board are dealt promptly by management. Where necessary, the Company will, upon the request of Directors (whether as a group or individually), provide them with independent professional advice, to enable them to discharge their duties. The costs of such professional advice will be borne by the Company. Please refer to the Corporate Information section of the annual report for the composition of the Board, Board committees and the executive committee. P 29

32 CORPORATE GOVERNANCE REPORT Remuneration Matters (7) Procedures for Developing Remuneration Policies The Remuneration Committee comprises our independent Directors, Lee Teck Leng Robson, Bernard Tay Ah Kong and Yu Tung Wan. Lee Teck Leng Robson is the Chairman of the Remuneration Committee. The function of the Remuneration Committee is to review the remuneration of the executive Directors of the Company and to provide a greater degree of objectivity and transparency in the setting of remuneration. The Remuneration Committee recommends to the Board, in consultation with the management, a framework of remuneration for the Directors and key executives, and determines specific remuneration packages for each executive Director and our Managing Director. The recommendations of the Remuneration Committee are then submitted for endorsement by the entire Board. All aspects of remuneration including but not limited to directors fees, salaries, allowances, bonuses, options and benefits in kind are reviewed by our Remuneration Committee. The Remuneration Committee has access to expert professional advice on human resource matters whenever there is a need to consult externally. In its deliberations, the Remuneration Committee takes into consideration industry practices and norms in compensation, in addition to the Company s relative performance to the industry and the performance of the individual Directors. The remuneration of non-executive and independent Directors should be determined by his contribution, taking into account factors such as his effort and time spent as well as his responsibilities on the Board. No Director will be involved in deciding his own remuneration. (8) Level and Mix of Remuneration The annual review of the remuneration are carried out by the Remuneration Committee to ensure that the remuneration of the executive Directors and senior management is commensurate with the Company s and their performance, giving due regard to the financial and commercial situation of the Company. The Remuneration Committee administers the Man Wah Share Option Scheme. In setting remuneration packages, the Company takes into consideration the remuneration and employment conditions within the same industry and in comparable companies, as well as the Group s relative performance and the performance of individual Directors. P 30 Man Wah Holdings Limited annual report 2008

33 CORPORATE GOVERNANCE REPORT (9) Disclosure on Remuneration Directors Remuneration The Remuneration Committee ensures the level of remuneration is appropriate to attract, retain and motivate the Directors to run the Company successfully. Our executive Director s remuneration consists of a salary, allowances and bonuses. A proportion of the remuneration for the executive Directors is linked to performance. Directors fees for our Directors are subject to approval of shareholders at the AGM of the Company. Remuneration paid to our Directors for the year ended 31 March 2008 (FY2008) are as follows: Name Below S$250,000 Based/fixed salary % Variable or performance related income/ bonuses % Directors fees % Other benefits % Executive Directors Wong Man Li (Managing Director) Hui Wai Hing Li Jianhong Lee Fook Wah Francis Non-Executive Director Yu Tung Wan Independent Directors Bernard Tay Ah Kong Lee Teck Leng Robson Our Executive Director, Hui Wai Hing, is the spouse of our Managing Director, Wong Man Li. P 31

34 CORPORATE GOVERNANCE REPORT Remuneration of Key Employees Details of remuneration paid to the top five executives, in terms of remuneration (who are not Directors of the Company) for the financial year are set out below. Remuneration paid to our key employees for the year ended 31 March 2008 (FY2008) are as follows: Name Base / fixed salary % Variable or performance related income / bonus % Director s fee % Other benefits % Above S$250,000 Stephen Allen Barr Below S$250,000 Colafiglio Giuseppe Chan Chi Cheung Ang Yeow Chong Zeng Wenli There are no employees in the Group, save for Hui Wai Hing, who is the spouse of Wong Man Li, who are immediate family members of a Director or the Managing Director. Accountability and Audit (10) Accountability The Board is accountable to shareholders and is mindful of its obligations to furnish timely information and to ensure full disclosure of material information to shareholders in compliance with statutory requirements and SGX-ST Listing Manual. Price sensitive information is first publicly released, either before the Company meets with any group of investors or analysts or simultaneously with such meetings. Financial results and annual reports will be announced or issued within legally prescribed periods. P 32 Man Wah Holdings Limited annual report 2008

35 CORPORATE GOVERNANCE REPORT (11) Audit Committee The Audit Committee is made up of our independent and non-executive Directors, Bernard Tay Ah Kong, Lee Teck Leng Robson and Yu Tung Wan, who possess the appropriate accounting experience and related financial management expertise. Bernard Tay Ah Kong, an independent Director, chairs the Audit Committee. The Audit Committee meets periodically to perform the following functions: - (a) review the audit plans of our Company s external auditors; (b) review external auditors reports; (c) review the co-operation given by our officers to the external auditors; (d) review the financial statements of our Company and the Group before their submission to the Board of Directors; (e) approve internal control procedures and arrangements for all interested person transactions; (f) review the adequacy of the Company s internal controls; (g) review the effectiveness of the Company s internal audit function; (h) nominate external auditors for appointment; and (i) review and ratify interested person transactions to ensure that, they comply with the approved internal control procedures and have been conducted on an arm s length basis. Apart from the duties listed above, the Audit Committee shall commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore law, rule or regulation which has or is likely to have a material impact on the Group s operating results and/or financial position. The Audit Committee has full access to and full co-operation of the management and external auditors. It also has the discretion to invite any Director and executive Director to attend its meetings. The Audit Committee also has the power to conduct and authorise investigations into any matters within its terms of reference. The Audit Committee meets with the external auditors separately, at least once a year, without the presence of the management to review any matter that might arise. The Company has adopted a whistle-blowing policy in May Such a policy provides an avenue for employees to raise concerns about possible malpractices within the Group of which such employees become aware and to provide reassurance that they will be accorded adequate protection from reprisals or victimization from whistle-blowing in good faith and without retaliation. P 33

36 CORPORATE GOVERNANCE REPORT The Audit Committee has reviewed the external auditors non-audit services and is satisfied that the nature and extent of such services has not prejudiced the independence and objectivity of the external auditors. The Audit Committee recognises the need to maintain a balance between the independence and objectivity of the external auditors and the work carried out by the external auditors based on value for money consideration. The Audit Committee has recommended to the Board the re-appointment of Deloitte & Touche LLP as the Company s external auditors at the forthcoming AGM. (12) Internal Controls The Board is responsible for the overall internal control framework and is fully aware of the need to put in place a system of internal controls within the Group to safeguard shareholders interests and the Group s assets, and to manage risks. The Board also acknowledges that no cost effective internal control system will preclude all errors and irregularities. A system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The Board is satisfied that currently there are adequate internal controls in the Group. The Directors regularly review the effectiveness of all internal controls, including operational controls. The Company does not have a Risk Management Committee. However, the management regularly reviews the Company s business and operational activities to identify areas of significant business risks as well as appropriate measures to control and mitigate these risks. The management reviews all significant control policies and procedures and highlights all significant matters to the Directors and Audit Committee. (13) Internal Audit On 17 December 2007, we have re-engaged the certified public accounting firm, M/s Lee Seng Chan & Co, to provide internal audit services to the Group. The internal auditor is a member of the Institute of Internal Auditors ( IIA ) and the internal audit work is guided by the Standards for the Professional Practice of Internal Auditing set by IIA.. Communication with Shareholders (14) Communication with Shareholders We believe in regular and timely communication with shareholders as part of our organisation s development to build systems and procedures that will enable us to operate globally. The Board places great emphasis on investor relations and the Company strives to maintain a high standard of transparency and to promote better investor communications. The Company does not practice selective disclosure. In line with continuous obligations of the Company pursuant to the SGX-ST Listing Manua, the Board s policy is that all shareholders should be equally and timely informed of all major developments that impact the Company or the Group. Information is communicated to shareholders on a timely basis through the SGXNET and the press. P 34 Man Wah Holdings Limited annual report 2008

37 CORPORATE GOVERNANCE REPORT (15) Greater Shareholder Participation We support the Code s principle to encourage shareholder participation. Shareholders are encouraged to attend the Annual General Meeting ( AGM ) to ensure a high level of accountability and to stay informed of the Company s strategy and goals. The Bye-laws allows a shareholder of the Company who holds two or more shares in the Company to appoint up to two proxies to attend the AGM and vote in place of the shareholders. Notice of the AGM is despatched to shareholders, together with explanatory notes or a circular on items of special business (if necessary), at least 21 clear days before the meeting. All the resolutions at the AGM are single item resolution. Dealings in Securities The Company has adopted internal codes in relation to dealings in the Company s securities pursuant to the SGX-ST Best Practices Guide that are applicable to all its officers. The Company and its officers are not allowed to deal in the Company s shares during the period commencing one month before the announcement of the Company s half year or full financial year financial results and two weeks before the announcement of each of the Company s first three quarterly financial results and ending on the date of the announcements of the relevant results or if they are in possession of unpublished price-sensitive information of the Group. Directors and executives are also expected to observe insider-trading laws at all times even when dealing with securities within the permitted trading period. They are also discouraged from dealing in the Company s shares on short-term considerations. Material Contracts There were no material contracts of the Company or its subsidiaries involving the interests of the Managing Director or any Director or controlling shareholders subsisting at the end of the financial year ended 31 March P 35

38 CORPORATE GOVERNANCE REPORT Interested Person Transactions The Company has established procedures to ensure that all transactions with interested persons are reported on a timely manner to the Audit Committee and that the transactions are carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. The Audit Committee and the Board meets regularly to review if the Group will be entering into any interested person transaction. If the Group is intending to enter into an interested person transaction, the Board will ensure that the Group complies with the requisite rules under Chapter 9 of the Listing Manual. The aggregate value of interested person transactions entered into the financial year under review is as follows:- Aggregate value of all interested person transactions during the financial year under review (excluding transactions less than $100,000 and transactions conducted under shareholders mandate pursuant to Rule 920) Aggregate value of all interested person transactions conducted under shareholders mandate pursuant to Rule 920 (excluding transactions less than $100,000) Name of interested person Rental Agreement - National Mind Ltd (1) HK$2.8 million N.A. Rental Agreement - Famous Bedding Company Limited (2) HK$0.9 million N.A Notes: (1) National Mind Ltd is a company incorporated in Hong Kong and is jointly owned by our executive Directors, Mr Wong Man Li and Mdm Hui Wai Hing. (2) Our Managing Director, Mr Wong Man Li, is also a director in Famous Bedding Company Limited in which he holds 70% of the entire issued and paid up capital. Best Practices Guide The Company has complied materially with the Best Practices Guide issued by SGX-ST. P 36 Man Wah Holdings Limited annual report 2008

39 REPORT OF THE DIRECTORS The Directors present their report together with the audited consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company for the financial year ended March 31, DIRECTORS The Directors of the Company in office at the date of this report are: Wong Man Li Hui Wai Hing Li Jianhong Lee Fook Wah Francis (Appointed on November 08, 2007) Yu Tung Wan Bernard Tay Ah Kong Lee Teck Leng Robson 2 ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THE ACQUISITION OF SHARES AND DEBENTURES Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangement to enable the Directors of the Company to acquire benefits by means of the acquisition of shares or debentures in the Company or any other body corporate except for the share options mentioned in paragraph 5 of this report. P 37

40 REPORT OF THE DIRECTORS 3 DIRECTORS' INTERESTS IN SHARES AND DEBENTURES The Directors of the Company holding office at the end of the financial year had no interests in the share capital and debentures of the Company and related corporations as recorded in the register of directors' shareholdings kept by the Company except as follows: Shareholdings in Name of Directors and companies Shareholdings registered which Directors are in which interests are held in name of Director deemed to have an interest The Company Shares of HK$0.40 each At At April 1, 2007 April 1, 2007 or date of At or date of At appointment, if later March 31, 2008 appointment, if later March 31, 2008 Wong Man Li ,190,000 (a) 420,924,000 Hui Wai Hing ,190,000 (a) 420,924,000 Li Jianhong 4,000,000 (a) 8,000, ,000 1,000,000 Lee Fook Wah Francis 455,000 (a) 1,000, ,000 1,000,000 (a) before bonus share issue Wong Man Li and Hui Wai Hing are husband and wife. Wong Man Li is the sole director of Man Wah Investments Limited and he and his wife own the entire issued and paid up capital of Man Wah Investments Limited. Hence, Wong Man Li and Hui Wai Hing are deemed to have an interest in the Company and in all the related corporations of the Company. The directors interests in shares of the Company as at April 21, 2008 were the same as those at the end of the financial year. 4 DIRECTORS RECEIPT AND ENTITLEMENT TO CONTRACTUAL BENEFITS Since the beginning of the financial year, no Director has received or become entitled to receive a benefit, by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he/she is a member, or with a company in which he/she has a substantial financial interest except for salaries, bonuses and other benefits as disclosed in the financial statements. Certain Directors received remuneration from related corporations in their capacity as directors and/or executives of those related corporation. There were certain transactions (as shown in the financial statements) with corporations in which certain Directors have an interest. P 38 Man Wah Holdings Limited annual report 2008

41 REPORT OF THE DIRECTORS 5 SHARE OPTIONS (a) The Man Wah Share Option Scheme (the Share Option Scheme ) is administered by the Remuneration Committee whose members are: Lee Teck Leng Robson (Chairman) Bernard Tay Ah Kong Yu Tung Wan Under the Share Option Scheme, an option entitles the option holder to subscribe for a specific number of new ordinary shares of HK$0.40 each in the Company comprised in the option at a subscription price per share determined with reference to the market price of the shares at the time of grant of the option. The Remuneration Committee may at its discretion, fix that subscription price at a discount up to 20% off market price but not lower than the par value of the shares. The consideration for the grant of an option is HK$1.00. Options granted with the subscription price set at a discount to the market price shall only be exercised after the second anniversary from the date of grant of the option. Options granted with the subscription price fixed at a price equal to the average of the last dealt market prices for a share for the five consecutive market days immediately preceding the grant of the relevant option shall only be exercised on the first anniversary from the date of grant of that option. The shares under option may be exercised in whole or in part on the payment of the relevant subscription price. Options granted will lapse when the option holder ceases to be a full-time employee of the Company or the Group subject to certain exceptions at the discretion of the Company. The Share Option Scheme shall continue in operation for a maximum duration of 10 years commencing on the date on which the Share Option Scheme is adopted by the Company. (b) (c) The number of shares available under the Share Option Scheme shall not exceed 15% of the issued share capital of the Company. There were no unissued shares of the Company or any corporation in the Group under options granted pursuant to the Share Option Scheme. During the financial year, no options to take up unissued shares of the Company or any corporation in the Group were granted and there were no shares of the Company or any corporation in the Group issued by virtue of the exercise of an option to take up unissued shares. (d) At the end of the financial year, there were no unissued shares of the Company or any corporation in the Group under option. P 39

42 REPORT OF THE DIRECTORS 6 AUDIT COMMITTEE The Audit Committee carried out its functions in accordance with the principles of corporate governance as described in the Code of Corporate Governance 2005 formulated by the SGX-ST with regards to the Audit Committee. The functions carried are detailed in the Corporate Governance Report. 7 AUDITORS The auditors, Deloitte & Touche LLP, have expressed their willingness to accept re appointment. ON BEHALF OF THE board... Wong Man Li... Hui Wai Hing June 16, 2008 P 40 Man Wah Holdings Limited annual report 2008

43 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF MAN WAH HOLDINGS LIMITED We have audited the accompanying financial statements of Man Wah Holdings Limited (the Company ) and its subsidiaries (the Group ) which comprise the balance sheets of the Group and the Company as at March 31, 2008, the profit and loss statement, statement of changes in equity and cash flow statement of the Group and the statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 43 to 90. Directors Responsibility The Company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. P 41

44 INDEPENDENT AUDITORS REPORT Opinion In our opinion, the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with International Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at March 31, 2008 and of the results, changes in equity and cash flows of the Group and changes in equity of the Company for the year ended on that date. Deloitte & Touche LLP Public Accountants and Certified Public Accountants Singapore June 16, 2008 Ng Peck Hoon Partner P 42 Man Wah Holdings Limited annual report 2008

45 BALANCE SHEETS March 31, 2008 ASSETS THE GROUP THE COMPANY Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 Current assets Cash and bank balances 8 29,580 48, Trade receivables 9 161,344 77, Other receivables and prepayments 10 77,633 39,448 20,359 79,861 Other investment 11 3,524 3, Derivative financial instruments 12 41, Inventories , , Lease premium for land Total current assets 534, ,321 20,543 80,060 Non-current assets Other receivables and prepayments 10 23, Lease premium for land 14 45,511 43, Property, plant and equipment , , Investment properties 16 19,579 15, Investment in subsidiaries , ,454 Interest in a jointly controlled entity 18 3, Interest in an associate Deferred tax assets Total non-current assets 485, , , ,454 Total assets 1,019, , , ,514 LIABILITIES AND EQUITY Current liabilities Bank and other borrowings 21 87,979 45, Trade payables 22 99,502 55, Other payables ,258 72, Derivative financial instruments 12 31, Income tax payable 4,012 2, Total current liabilities 349, , Non-current liabilities Bank and other borrowings 21 67,167 26, Deferred tax liabilities , Total non-current liabilities 67,692 27, Capital and reserves Share capital , , , ,240 Reserves 335, ,946 5, ,790 Total equity 602, , , ,030 Total liabilities and equity 1,019, , , ,514 See accompanying notes to financial statements. P 43

46 CONSOLIDATED PROFIT AND LOSS STATEMENT Financial year ended March 31, 2008 THE GROUP Notes HK$ 000 HK$ 000 Revenue 25 1,485, ,494 Cost of goods sold (1,021,960) (631,185) Gross profit 463, ,309 Other income 26 27,827 11,386 Selling and distribution expenses (222,954) (91,738) Administrative expenses (70,667) (43,522) Other expenses 27 (1,123) (32) Share of profit of a jointly controlled entity Share of loss of an associate 19 - (196) Finance costs 28 (4,610) (2,036) Profit before income tax 192,383 95,171 Income tax expense 29 (4,589) (4,428) Profit for the year ,794 90,743 Earning per share (HK cents) Basic Earning per share (HK cents) Diluted See accompanying notes to financial statements. P 44 Man Wah Holdings Limited annual report 2008

47 STATEMENTS OF CHANGES IN EQUITY Financial year ended March 31, 2008 THE GROUP Share capital Share premium Statutory reserves Revaluation reserves Currency translation reserves Accumulated profits Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Balance at April 1, ,040 37, , ,029 Currency translation ,846-2,846 Gain on fair value changes of availablefor-sale investments Net income recognised directly in equity ,846-2,930 Profit for the year ,743 90,743 Total recognised income and expense for the year ,846 90,743 93,673 Issue of shares 17, , ,270 Share issue expense - (4,179) (4,179) Dividend paid (Note 35) (22,607) (22,607) Transfer to statutory reserve - - 8, (8,656) - Balance at March 31, , ,218 8, , , ,186 Currency translation ,602-14,602 Gain on fair value changes of availablefor-sale investments Net income recognised directly in equity ,602-14,788 Profit for the year , ,794 Total recognised income and expense for the year , , ,582 Issue of bonus shares 133,240 (133,218) (22) - Dividend paid (Note 35) (32,311) (32,311) Transfer to statutory reserve - - 6, (6,445) - Balance at March 31, ,480-15, , , ,457 P 45

48 STATEMENTS OF CHANGES IN EQUITY Financial year ended March 31, 2008 THE COMPANY Share Share Accumulated capital premium profits Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Balance at April 1, ,040 37, ,773 Issue of share capital 17, , ,270 Share issue expense - (4,179) - (4,179) Profit for the year ,773 24,773 Dividend paid (Note 35) - - (22,607) (22,607) Balance at March 31, , ,218 2, ,030 Issue of bonus shares 133,240 (133,218) (22) - Profit for the year ,579 35,579 Dividend paid (Note 35) - - (32,311) (32,311) Balance at March 31, ,480-5, ,298 See accompanying notes to financial statements. P 46 Man Wah Holdings Limited annual report 2008

49 CONSOLIDATED CASH FLOW STATEMENT Financial year ended March 31, 2008 THE GROUP HK$ 000 HK$ 000 Operating activities Profit before income tax 192,383 95,171 Adjustments for: Amortisation of lease premium for land Bad trade debts written off Depreciation expense 18,943 9,235 Loss (Gain) on disposal of property, plant and equipment 65 (250) Gain on revaluation of investment properties (2,733) (566) Interest income (798) (2,895) Interest expense 4,610 2,036 Share of profit of a jointly controlled entity (303) - Share of loss of an associate Operating cash flows before movements in working capital 213, ,869 Trade receivables (98,042) (33,161) Other receivables and prepayments (38,729) (26,834) Inventories (37,009) (104,027) Derivative financial instruments (9,991) - Trade payables 43,841 35,114 Other payables 54,384 37,523 Cash generated from operations 128,420 12,484 Interest received 798 2,895 Interest paid (4,610) (2,036) Income tax paid (3,209) (1,761) Net cash from operating activities 121,399 11,582 Investing activities Purchase of property, plant and equipment (191,698) (123,776) Capital contribution to a jointly controlled entity (3,313) - Proceeds from disposal of property, plant and equipment 1, Capital contribution to an associate - (196) Net cash used in investing activities (193,998) (123,495) P 47

50 CONSOLIDATED CASH FLOW STATEMENT Financial year ended March 31, 2008 Continued THE GROUP HK$ 000 HK$ 000 Financing activities New bank loans raised 115,000 3,000 Increase in trust receipt loans 1,630 30,117 Repayment of bank loans (36,500) (6,000) Dividend paid (32,311) (22,607) Proceeds from shares issue less expenses - 113,091 Net cash from financing activities 47, ,601 Net (decrease) increase in cash and cash equivalents (24,780) 5,688 Cash and cash equivalents at beginning of year 48,620 42,128 Effect of foreign exchange rate changes 1, Cash and cash equivalents at end of year (Note A) 25,695 48,620 Note to the cash flow statement: Note A : Cash and cash equivalents This is made up of the following: THE GROUP HK$ 000 HK$ 000 Cash and bank balances (Note 8) 29,580 48,620 Bank overdrafts (Note 21) (3,885) - 25,695 48,620 Note B : 333,100,000 bonus shares were issued using share premium and accumulated profits. See accompanying notes to financial statements. P 48 Man Wah Holdings Limited annual report 2008

51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, GENERAL (a) (b) (c) The Company was incorporated in Bermuda with its registered office at Canon s Court, 22 Victoria Street, Hamilton HM 12, Bermuda and principal place of business at 1 st Floor, Wah Lai Industrial Centre, Kwei Tei Street, Fotan, New Territories, Hong Kong. The Company is listed on the Singapore Exchange Securities Trading Limited. The financial statements are expressed in Hong Kong dollars and all values are rounded to the nearest thousand (HK$ 000) except when otherwise indicated. The Company s principal activity is that of an investment holding company. The principal activities of its subsidiaries, jointly controlled entity and associate are described in Notes 17, 18 and 19, respectively. The consolidated financial statements of the Group and balance sheet and statement of changes in equity of the Company for the year ended March 31, 2008 were authorised for issue by the Board of Directors on June 16, ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS ( IFRS ) 2.1 Standards and Interpretations effective in the current period In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after January 1, 2007, and the consequential amendments to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group s financial instruments and management of capital (see Note 5). Five Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies; IFRIC 8 Scope of IFRS 2; IFRIC 9 Reassessment of Embedded Derivatives; IFRIC 10 Interim Financial Reporting and Impairment and IFRIC 11 IFRS 2 - Group and Treasury Share Transactions. The adoption of these Interpretations has not led to any changes in the Group s accounting policies. P 49

52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, Standards and Interpretations in issue not yet adopted At the date of authorisation of these financial statements, the following Interpretations were in issue but not yet effective: IAS 1 (Revised) Presentation of Financial Statement (effective January 1, 2009); IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after January 1, 2009); IAS 27 (Revised) Consolidated and Separate Financial Statements (effective July 1, 2009); IFRS 2 Share-based Payment (Amendments relating to vesting conditions and cancellations) (effective January 1, 2009); IFRS 3 (Revised) Business Combinations (effective July 1, 2009); IFRS 8 Operating Segments (effective for accounting periods beginning on or after January 1, 2009); and IFRIC 12 Service Concession Arrangements (effective January 1, 2008); IFRIC 13 Customer Loyalty Programmes (effective for accounting periods beginning on or after July 1, 2008); and IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective January 1, 2008). The directors anticipate that adoption of the above relevant Interpretations and new/revised Standards will have no material impact on the financial statements of the Group and the Company in the period of initial application. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING - The financial statements are prepared in accordance with the historical cost convention, modified to include the revaluation of investment properties, financial instruments and other investment, and are drawn up in accordance with the International Financial Reporting Standards. BASIS OF CONSOLIDATION - The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to March 31 each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by other members of the Group. All significant inter-group transactions, balances, income and expenses are eliminated on consolidation. In the Company's financial statements, investments in subsidiaries are carried at cost less any impairment in net recoverable value that has been recognised in profit or loss. P 50 Man Wah Holdings Limited annual report 2008

53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 INTEREST IN AN ASSOCIATE - An associate is an entity, over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associate are incorporated in these financial statements using the equity method of accounting. Under the equity method, investment in an associate is carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group s share of net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group s interest in that associate (which includes any long-term interests that in substance, form part of the Group s net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group s interest in the relevant associate. In the Company s financial statements, investment in associate is carried at cost less impairment in net recoverable value that has been recognised in profit or loss. INTEREST IN A JOINTLY CONTROLLED ENTITY - Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities. The results and assets and liabilities of jointly controlled entities are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group s share of net assets of the jointly controlled entities, less any identified impairment loss. When the Group s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group s net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity. Any excess of the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. When a group entity transacts with a jointly controlled entity of the Group, profits or losses are eliminated to the extent of the Group s interest in the jointly controlled entity. In the Company s financial statements, investment in a jointly controlled entity is carried at cost less impairment in net recoverable value that has been recognised in profit or loss. P 51

54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 FINANCIAL INSTRUMENTS - Financial assets and financial liabilities are recognised on the Group s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or where appropriate, a shorter period. Income and expense is recognised on an effective interest basis. Financial assets Trade receivables and other receivables Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Other investment Other investment is classified as available-for-sale and is stated at fair value. Fair value is determined in the manner described in Note 5. Gains and losses arising from changes in fair value are recognised directly in the revaluation reserve with the exception of impairment losses and foreign exchange gains and losses on monetary assets which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the revaluation reserve is included in profit or loss for the period. Dividends on available-for-sale equity instruments are recognised in profit or loss when the Group s right to receive payments is established. The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the balance sheet date. The change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in equity. P 52 Man Wah Holdings Limited annual report 2008

55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Impairment of financial assets Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial assets original effective interest rate. Objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation. For certain categories of financial asset, such as receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio, as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of receivables where the carrying amount is reduced through the use of an allowance account. When a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss statement to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss, is recognised directly in equity. P 53

56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. Financial liabilities and equity instruments Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. Financial liabilities Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest method, with interest expense recognised on an effective yield basis. Interest-bearing bank loans are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group s accounting policy of borrowing costs. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group s obligations are discharged, cancelled or they expire. P 54 Man Wah Holdings Limited annual report 2008

57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Derivative financial instruments The Group enters into foreign exchange forward contracts to manage its exposure to foreign exchange rate risk. Further details of derivative financial instruments are disclosed in note 12. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the hedge relationship is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. LEASES - Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessor Rental income from operating leases is recognised in the profit or loss on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term. The Group as lessee Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis. INVENTORIES - Inventories are stated at the lower of costs and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. P 55

58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 LEASE PREMIUM FOR LAND - Lease premium for land are up-front payments to acquire long-term interests in lesseeoccupied properties. The premiums are stated at cost and are amortised over the period of the lease on a straight-line basis to the profit or loss. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Properties in the course of construction for production or administrative purposes, or for purposes not yet determined are carried at cost, less any recognised impairment loss. Depreciation of these assets on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is charged so as to write off the cost of assets other than construction-in-progress, over their estimated useful lives using the straight-line method, on the following bases: Leasehold buildings - 50 years or over the term of the lease, whichever is shorter Leasehold improvements - 5 years or over the term of the lease, whichever is shorter Plant and machinery - 10% Furniture, fittings and office equipment - 20% Motor vehicles - 20% The estimated useful lives and depreciation method are reviewed at each year end with effect of any changes in estimate accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amounts of the asset and is recognised in profit or loss. Fully depreciated assets are retained in the financial statements until they are no longer in use. INVESTMENT PROPERTIES - Investment properties, which are properties held to earn rentals and/or capital appreciation are measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at their fair values at the balance sheet date. Gains/losses arising from changes in the fair values of the investment properties are included in profit or loss in the period in which they arise. P 56 Man Wah Holdings Limited annual report 2008

59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 PROVISIONS - Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. STATUTORY RESERVES Statutory reserve represents the amount transferred from profit after taxation of the subsidiaries incorporated in People s Republic of China ( PRC ) in accordance with the relevant PRC laws. REVENUE RECOGNITION - Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. 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 effective interest rate applicable. Commission income is recognised when services are provided. Rental income from properties under operating lease is recognised on a straight line basis over the terms of the relevant lease. Dividend income from investments is recognised when the shareholders rights to receive payment have been established. BORROWING COSTS - Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. P 57

60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 RETIREMENT BENEFIT COSTS - Payments to defined contribution retirement benefit plans are charged as an expense when employees have rendered service entitling them to the contributions. Payments made to state-managed retirement benefit schemes, such as the Mandatory Provident Fund schemes in Hong Kong and the People s Republic of China ( PRC ) state-managed retirement benefits schemes, are dealt with as payments to defined contribution plans where the Group s obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan. INCOME TAX - Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated profit and loss statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group s liability for current tax is calculated using tax rates (and tax laws) that have been enacted in countries where the subsidiaries operate by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and an associate, and interest in a jointly controlled entity, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. P 58 Man Wah Holdings Limited annual report 2008

61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION The individual financial statements of each group entity are measured and presented in the currency of the primary economic environment in which the entity operates (functional currency). The functional currency of the Company is United States dollars. The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are presented in Hong Kong dollars which is the presentation currency for the consolidated financial statements as Hong Kong dollars is the currency of the primary economic environment in which the Group operates. In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency are recorded at the rates of exchange prevailing on the date of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the period. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations (including comparatives) are expressed in Hong Kong dollars using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group's currency translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of. On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to the currency translation reserve. CASH AND CASH EQUIVALENT - Cash and bank balances comprise cash at bank, cash on hand and bank deposits less bank overdrafts, are subject to an insignificant risk of change in value. P 59

62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (i) Critical judgements in applying the Group s accounting policies In the application of the Group s accounting policies, which are described in note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. During the financial year, management did not make any critical judgements that had a significant effect on the amounts recognised in the consolidated financial statements. (ii) Key sources of estimation uncertainty The management is of the opinion that the key assumptions concerning the future and other key sources of estimation at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, are disclosed below: Allowance for trade and other receivables The provision policy for doubtful debts of the Group is based on the ongoing evaluation of collectibility and aging analysis of the outstanding receivables and on management s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including creditworthiness and the past collection history of each customer. If the financial conditions of customers of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The carrying amounts of the trade and other receivables are disclosed in Notes 9 and 10 respectively. Allowance for inventories Management exercises their judgement in making allowance for inventories. An allowance for inventories is made if inventories are obsolete. The carrying amount of inventories is disclosed in Note 13. P 60 Man Wah Holdings Limited annual report 2008

63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Depreciation and impairment of property, plant and equipment The Group depreciates the property, plant and equipment over their estimated useful lives using the straight line method. The estimated useful life reflects the directors estimate of the periods that the Group intends to derive future economic benefits from the use of the Group s property, plant and equipment. The carrying amount of property, plant and equipment is disclosed in Note FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT a) Capital risk management The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings divided by equity. Equity is equity attributable to equity holders of the Company as shown in the consolidated balance sheet. The Group s overall strategy remains unchanged from The gearing ratio at March 31, 2008 and 2007 were as follows: HK$ 000 HK$ 000 Total borrowings 155,146 71,131 Total equity 602, ,158 Gearing ratio (%) 25.7% 16.5% b) Categories of financial instruments THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 Financial assets Derivative financial instruments 41, Loans and receivables (including cash and bank balances) 250, ,680 20,487 80,005 Available-for-sale financial assets 3,524 3, Financial liabilities Derivative financial instruments 31, Amortised cost 319, , P 61

64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 c) Financial risk management objectives The directors of the Group monitor and manage the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, cash flow interest rate risk and equity price risk), credit risk and liquidity risk. The Group s major financial instruments include trade and other receivables, trade and other payables, other investment, derivative financial instruments, cash and bank balances and bank borrowings. Details of these financial instruments are disclosed in the respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. i) Foreign currency risk management The Group is mainly exposed to the United States dollars ( USD ) and Hong Kong dollars. Several subsidiaries of the Company have bank loans denominated in USD and Hong Kong dollars, which expose the Group to foreign currency risk. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign currency exposure and will consider hedging significant foreign currency exposure should the need arises. At the reporting date, the carrying amounts of the Group s monetary assets and monetary liabilities denominated in currencies other than the respective group entities functional curencies are as follows:: THE GROUP THE COMPANY Liabilities Assets Liabilities Assets HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 United States dollars - 75, , Hong Kong dollars 145,484-10, The Company has a number of investments in foreign subsidiaries, whose net assets are exposed to currency translation risk. The Group does not currently designate its foreign currency denominated debt as a hedging instrument for the purpose of hedging the translation of its foreign operations. P 62 Man Wah Holdings Limited annual report 2008

65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Foreign currency sensitivity analysis The following table details the Group s sensitivity to a 5% increase and decrease in the relevant foreign currencies against functional currency of each group entity. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currencies of the respective entities. If the relevant major foreign currency weakens by 5% against the functional currency of each group entity, profit or loss will increase (decrease) by: THE GROUP United States dollars impact Hong Kong dollars impact HK$ 000 HK$ 000 HK$ 000 HK$ 000 Profit or loss - (285) 6,765 (3) THE COMPANY Profit or loss For a 5% strengthening against the functional currency of each group entity, there would be an equal and opposite impact on the profit or loss. ii) Interest rate risk management Interest rate risk arises from the potential changes in interest rates that may have an adverse effect on the Group s results for the current reporting period and in future years. The Group is exposed to interest rate risk arising from the volatility of benchmark interest rates in United States Dollars, as a majority of bank loans and trust receipts loans are on floating rate basis. The Group generally does not take a speculative view on the movement in interest rates and, therefore, do not actively use interest rate derivative instruments to hedge exposed risks. P 63

66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 The sensitivity analysis below have been determined based on the exposure to interest rates for non-derivative instruments at the balance sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the relevant period in the case of instruments that have floating rates. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management s assessment of the possible change in interest rates. If interest rates had been 50 basis point higher/lower and all other variables were held constant, the Group s profit for the year ended March 31, 2008 would decrease/increase by approximately HK$459,000 (2007 : HK$150,000). This is mainly attributable to the Group s exposure to interest rates on its variable rate borrowings and cash and cash equivalents. iii) Equity price risk management The Group is exposed to equity price risk through its investments in quoted equity funds. The Group s equity price risk is mainly concentrated on equity funds quoted by banks. The Group has limited equity price risk exposure. iv) Credit risk management Credit risk refers to the risk that debtors will default on their obligations to repay the amounts owing to the Group, resulting in a loss to the Group. The Group has adopted procedures in extending credit terms to customers and in monitoring its credit risk. The Group s current credit practices include assessing and valuation of customer s credit reliability and periodic review of their financial status to determine credit limits to be granted. The credit risk on liquid funds is limited because the counterparties are banks which are reputable in the opinion of the directors. The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations as at end of the financial year in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the balance sheets of the Group and the Company. P 64 Man Wah Holdings Limited annual report 2008

67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Significant concentrations of credit risk Concentrations of credit risk exist when changes in economic, industry or geographical factors similarly affect the Group s counterparties whose aggregate credit exposure is significant in relation to the Group s total credit exposure. The Group has no significant concentrations of credit risk, with exposure spreading over a large number of counterparties and customers. v) Fair value of financial assets and financial liabilities The fair values of financial assets and financial liabilities are determined as follows: the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets is determined with reference to quoted market prices; the fair value of other financial assets and financial liabilities (other than those carried at amortised cost) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments; and the fair value of derivative financial instruments is disclosed in Note 12. The fair value of financial assets and financial liabilities carried at amortised cost in the consolidated balance sheet approximate their carrying amounts. vi) Liquidity risk management The Group is exposed to minimal liquidity risk as a substantial portion of its financial assets and financial liabilities are due within one year and it can finance its operations from existing shareholders funds and internally generated cash flows. In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group s operations and mitigate the effects of fluctuations in cash flows. Management monitors the utilisation of borrowings. The following tables detail Group s contractual maturity for its financial liabilities. The tables has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest dates on which the Group can be required to pay. The tables include both interest and principal cash flows. P 65

68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Liquidity and interest risk tables Weighted average effective interest rate Less than 1 month 1-3 months 3 months to 1 year Over 1 year Total undiscounted cash flows Carrying amount at 31/03/2008 % HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 THE GROUP 2008 Non-derivative financial liabilities Trade and other payables - 130,091 33, , ,317 Bank borrowings variable rate ,885 45,341 42,638 71, , , ,976 78,684 43,521 71, , ,348 Derivatives - net settlement Foreign exchange forward contracts - 1,862 9,104 20,047-31,013 31,013 Derivatives - gross settlement Foreign exchange forward contracts - 3,004 7,163 30,837-41,004 41,004 Weighted average effective interest rate Less than 1 month 1-3 months 3 months to 1 year Over 1 year Total undiscounted cash flows Carrying amount at 31/03/2008 % HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ Non-derivative financial liabilities Trade and other payables - 78,232 21, , ,213 Bank borrowings variable rate ,252 21,879 9,000 27,547 72,678 71,131 92,484 43,860 9,000 27, , ,344 Non-derivative financial assets The Group s and Company s non-derivative financial assets of HK$250,724,000 and HK$20,487,000 (2007 : HK$157,680,000 and HK$80,005,000) are due on demand and interest free. 6 HOLDING COMPANY AND RELATED COMPANY TRANSACTIONS The Company is a subsidiary of Man Wah Investments Limited, incorporated in the British Virgin Islands, which is also the Company s ultimate holding company. Related companies in these financial statements refer to entities held directly by the Company. P 66 Man Wah Holdings Limited annual report 2008

69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Many of the Group s transactions and arrangements are between members of the Group and the effect of these on the basis determined between the parties is reflected in these financial statements. The intercompany balances are unsecured, interest-free and repayable on demand unless otherwise stated. Transactions between the Company and its subsidiaries, which are related companies of the Company, have been eliminated on consolidation and are not disclosed in this note. 7 OTHER RELATED PARTY TRANSACTIONS Related parties are entities with common direct or indirect shareholders and/or directors. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Some of the Group s transactions and arrangements are with related parties and the effect of these on the basis determined between the parties is reflected in these financial statements. The balances are unsecured, interest-free and repayable on demand terms unless otherwise stated. During the year, group entities entered into the following transactions with related parties that are not members of the Group: HK$ 000 HK$ 000 Purchase of goods from a jointly controlled entity 3,086 - Rental expense paid to related parties (Note 1) 2,759 2,111 Rental income received from a related party (Note 2) Agency fee paid to an associate Note 1: Note 2: Mr. Wong Man Li and Ms. Hui Wai Hing, who are directors of the Company, are also directors of these related companies. Mr. Wong Man Li, who is a director of the Company, is also one of the directors of this related company. 8 CASH AND BANK BALANCES THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cash and bank balances 29,580 48, P 67

70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 The Group s and Company s significant cash and bank balances that are not denominated in the functional currencies of the respective entities are as follows: THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 United States dollars 3 15,430-3 Hong Kong dollars 2, Chinese Renminbi Macau Pataca TRADE RECEIVABLES THE GROUP HK$ 000 HK$ 000 Outside parties 161,344 77,601 The average credit period on sales of goods is 30 to 60 days (2007: 30 to 60 days). Included in the Group s trade receivables balance are receivables with aggregate carrying amount of HK$3,745,000 (2007: HK$1,299,000) which are past due at the reporting date for which the Group has not provided for impairment loss as there has not been a significant change in credit quality and the amounts are still considered receivable. The Group does not hold any collateral over these balances. The average age of these receivables is 141 days (2007 : 78 days). Ageing of trade receivables which are past due but not impaired HK$ 000 HK$ 000 Within 30 days More than 30 days and within 60 days More than 60 days and within 90 days More than 90 days 2,198 - Total 3,745 1,299 The Group has provided fully for all receivables over 365 days because historical experience is such that receivables that are past due beyond 365 days are generally not recoverable. P 68 Man Wah Holdings Limited annual report 2008

71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 The Group s trade receivables that are not denominated in the functional currencies of the respective entities are as follows: THE GROUP HK$ 000 HK$ 000 United States dollars - 53,839 Hong Kong dollars 6, OTHER RECEIVABLES AND PREPAYMENTS THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 Amounts due from subsidiaries (Note 17) ,303 79,806 Value added taxes recoverables 44,306 17, Bills receivables 7,814 10, Deposits 15,200 6, Sundry receivables 7,680 3, Prepayments 2,633 1, Deposits paid for acquisition of property, plant and equipment 23, Income tax receivables ,410 40,282 20,359 79,861 Presentation in balance sheet: Current assets 77,633 39,448 20,359 79,861 Non-current assets 23, ,410 40,282 20,359 79,861 The amounts due from subsidiaries are unsecured, interest-free and repayable on demand. No guarantee has been received and no expense has been recognised during the year for bad or doubtful debts in respect of the amounts owed by subsidiaries. As at March 31, 2008, the Group had paid approximately HK$23,777,000 (2007: HK$834,000) to certain vendors for the acquisition of property, plant and equipment. Details of the related capital expenditure commitments are disclosed in Note 33. P 69

72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 The Group s and the Company s other receivables that are not denominated in the functional currencies of the respective entities are as follows: THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 United States dollars - 11, Hong Kong dollars OTHER INVESTMENT THE GROUP HK$ 000 HK$ 000 Available-for-sale, at fair value 3,524 3,338 The above investment represents a quoted guaranteed fund which has been pledged as security to obtain certain banking facilities. The fair value is based on the quoted closing market price on the last market day of the financial year. 12 DERIVATIVE FINANCIAL INSTRUMENTS THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 Fair value of foreign currency forward contracts 41,004-31,013 - At March 31, 2008, the fair values of the Group s outstanding foreign currency forward contract are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturity of the contracts. P 70 Man Wah Holdings Limited annual report 2008

73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Major terms of foreign currency forward contracts outstanding at March 31, 2008 are as follows: Notional amount Maturity Exchange rates Fair value Sell United States dollars in total of US$88,000,000 Ranging from April 4, 2008 to March 20, 2009 RMB/USD ranging from to ,004 Buy United States dolllars in total of US$79,000,000 Ranging from April 9, 2008 to March 24, 2009 RMB/USD ranging from to (31,013) 9,991 In 2008, changes in the fair values of non-hedging foreign currency forward contracts amounting to gain of HK$10,490,000 have been recognised in the consolidated profit and loss statement. 13 INVENTORIES THE GROUP HK$ 000 HK$ 000 At cost: Raw materials 140, ,114 Work in progress 20,734 14,256 Finished goods 57,208 36,747 Total 217, ,117 Inventories carried at net realisable value* Finished goods 2,423 2, , ,384 * after an impairment allowance of HK$138,000 (2007 : HK$138,000). P 71

74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, LEASE PREMIUM FOR LAND THE GROUP HK$ 000 HK$ 000 Cost: At April 1 46,524 44,742 Exchange adjustment 3,257 1,782 At March 31 49,781 46,524 Accumulated amortisation: At April 1 2,172 1,218 Exchange adjustment Amortisation for the year At March 31 3,274 2,172 Carrying amount 46,507 44,352 Presentation in balance sheet: Current assets Non-current assets 45,511 43,422 46,507 44,352 The Group s leasehold land is held under medium-term lease of 50 years and is situated in the People s Republic of China ( PRC ). The amortisation expense has been included in administrative expenses in the profit and loss statement. The Group s leasehold land with carrying amount of HK$8,333,000 (2007 : HK$Nil) has been pledged as securities to obtain facilities for bank loans. P 72 Man Wah Holdings Limited annual report 2008

75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, PROPERTY, PLANT AND EQUIPMENT THE GROUP Leasehold buildings Leasehold improvements Plant and machinery Furniture, fittings and office equipment Motor vehicles Construction in progress HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cost: At April 1, ,837 7,470 30,316 3,902 5,817 45, ,308 Exchange adjustment 1, ,624 4,896 Additions 35,404 8,920 14,718 2,744 1,928 62, ,997 Reclassification 43,879 2, (47,331) - Transfer to investment properties (Note 16) (8,749) (8,749) Disposals/written off - (284) (174) - (1,650) - (2,108) At March 31, ,796 18,930 46,079 6,752 6,245 63, ,344 Total Exchange adjustment 15,044 1,530 2,102 2, ,837 23,203 Additions - 19,885 43,220 1,317 6,799 97, ,755 Reclassification 158, (158,672) - Disposals/written off - (1,059) - (231) (1,604) - (2,894) At March 31, ,512 39,286 91,401 10,062 11,906 4, ,408 Accumulated depreciation: At April 1, ,915 5,122 7,138 1,928 2,955-20,058 Exchange adjustment Depreciation for the year 1,781 1,886 3, ,235 Eliminated on disposals/written off - (284) (148) - (1,449) - (1,881) At March 31, ,717 6,737 10,742 2,914 2,470-29,580 Exchange adjustment Depreciation for the year 2,689 6,539 6,759 1,408 1,548-18,943 Eliminated on disposals/written off - (979) - (222) (615) - (1,816) At March 31, ,610 12,538 17,785 4,222 3,517-45,672 Carrying amount: At March 31, ,902 26,748 73,616 5,840 8,389 4, ,736 At March 31, ,079 12,193 35,337 3,838 3,775 63, ,764 The Group s property interests of all leasehold buildings are situated in the PRC. The Group s leasehold building with carrying amount of HK$31,488,000 (2007 : HK$Nil) has been pledged as securities to obtain facilities for bank loans. P 73

76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, INVESTMENT PROPERTIES THE GROUP HK$ 000 HK$ 000 Valuation: At April 1 15,992 6,500 Exchange adjustment Transfer from property, plant and equipment (Note 15) - 8,749 Revaluation gain recognised in profit or loss 2, At March 31 19,579 15,992 In accordance with the accounting policy of the Group as at March 31, 2008 and 2007, the investment properties were stated at valuation based on the professional valuation carried out by Greater China Appraisal Limited, an independent firm of professional valuers, on the basis of open market value for existing use as at the balance sheet date. The investment properties of the Group consist of the following: Tenure of land/ Location (Gross floor area) Description Ground Floor and 1 st Floor, Circle Court, Leasehold Commercial use Nos 3 & 5 Java Road, North Point, Hong Kong 2,135 square feet Factory building No. 1 and One Level of Leasehold Dormitory Building Block A located at Man Wah Factory building: Industrial use Technological and Industrial City, Western 12,810 square meter Section of Dayawan Economic and Technical Dormitory building: Accommodation use Development Zone, Huizhou, Guangdong, PRC 2,275 square meter The investment properties are held under long-term leases in Hong Kong and medium-term leases in PRC and are held for rental purposes. Investment properties located in Hong Kong with carrying amount of HK$8,700,000 (2007 : HK$6,800,000) have been pledged as securities to obtain facilities for bank loans. P 74 Man Wah Holdings Limited annual report 2008

77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, INVESTMENT IN SUBSIDIARIES THE COMPANY HK$ 000 HK$ 000 Unquoted equity shares, at cost (Note i) 252, ,454 (i) Details of the subsidiaries are as follows: Subsidiaries Cost of investments Effective equity interest and voting power held Place of incorporation/ operation Principal activities HK$ 000 HK$ 000 % % Held by the Company: Man Wah Group 250, , British Virgin Investment holding (a) (b) Limited Islands Man Wah USA, Inc. (b) 2,418 1, United States Wholesaler and retailer of leather sofas and other America home furnishing products Held by Man Wah Group Limited Man Wah Industrial Hong Kong Investment holding, Company Limited (c) manufacturing and trading of sofa and other furniture Man Wah (Macao Macau Offshore sales, Commercial Offshore) management Limited (c) business consultancy, and back office support P 75

78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 Subsidiaries Cost of investments Effective equity interest and voting power held Place of incorporation/ operation Principal activities HK$ 000 HK$ 000 % % Held by Man Wah Industrial Company Limited: Man Wah (International) Hong Kong Designing and retailing of Industrial Limited (c) sofa and other furniture and property investment Man Wah Rong Furniture PRC Designing and (Shenzhen) Co., Ltd (b) manufacturing of sofa 敏華榮家具 ( 深圳 ) 有限公司 and trading of other furniture New Uifa Furniture PRC Manufacturing and Manufacturing (Shenzhen) trading of sofa and other Co., Ltd (b) furniture and foam 新歐化家具製造 ( 深圳 ) 有限公司 Man Wah Furniture PRC Manufacturing of sofa Manufacturing (Shenzhen) Co., Ltd (b) 敏華榮家具製造 ( 深圳 ) 有限公司 Man Wah Furniture PRC Manufacturing and Manufacturing (Hui Zhou) trading of sofas and other Co., Ltd (b) furniture and property investment Held by Man Wah Furniture Manufacturing (Shenzhen) Co., Ltd. Shenzhen Carnival Home PRC Trading of furniture Furnishing Co., Ltd. (b) 深圳嘉年明華家具有限公司 Shanghai Carnival Home PRC Trading of furniture Furnishing Co., Ltd. (b) 上海嘉年明華家具製造有限公司 Huizhou Carnival Home PRC Trading of furniture Furnishing Co., Ltd. (b) 惠州嘉年明華家具有限公司 Guangzhou Man Wah Home PRC Trading of furniture Furnishing Co., Ltd. (b) 廣州敏華家具有限公司 Wuhan Man Wah Home PRC Trading of furniture Furnishing Co., Ltd. (b) 武漢敏華家具有限公司 252, ,545 P 76 Man Wah Holdings Limited annual report 2008

79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 (a) (b) (c) Not required to be audited in country of incorporation. Audited by overseas practices of Deloitte Touche Tohmatsu for consolidation purposes. Audited by overseas practices of Deloitte Touche Tohmatsu. 18 INTEREST IN A JOINTLY CONTROLLED ENTITY THE GROUP HK$ 000 HK$ 000 Cost of investment in a jointly controlled entity - unquoted 3,313 - Share of post-acquisition profits 303-3,616 - As at March 31, 2008, the Group had interest in the following jointly controlled entity: Effective equity interest Form of Place/ and voting Name of a business Country of Class of power held jointly controlled entity structure incorporation shares held by the Group Principal activity % Huizhou Ao Li Electronic Incorporated PRC Registered 50 Manufacturing and Technology Co., Ltd. capital trading of massage 惠州市傲力電子科技 chairs 有限公司 P 77

80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 the summarised financial information in respect of the Group s jointly controlled entity is set out below: THE GROUP 2008 HK$ 000 Total assets 13,067 Total liabilities (5,835) Net assets 7,323 Group s share of net assets of a jointly controlled entity 3,616 Revenue 14,724 Profit for the year 606 Group s share of profit of a jointly controlled entity for the year INTEREST IN AN ASSOCIATE THE GROUP HK$ 000 HK$ 000 Cost of investment in an associate - unquoted Share of post-acquisition loss - (196) - - As at March 31, 2007, the Group had interest in the following associate: Effective Place/ equity interest and Form of Country of voting power Name of associate business structure incorporation held by the Group Principal activity % Schieder Cheers GmbH Incorporated Germany 40 Sales agency of furniture and furniture parts The associate has been liquidated during the year ended March 31, P 78 Man Wah Holdings Limited annual report 2008

81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 The summarised financial information in respect of the Group s associate is set out below: THE GROUP HK$ 000 HK$ 000 Total assets Total liabilities - (1,152) Net liabilities - (205) Group s share of net liabilities of an associate - - Revenue - 2,069 Loss for the year - (943) Group s share of profit of a jointly controlled entity for the year - (196) In 2007, the Group had not recognised losses of the associate amounting to HK$181, DEFERRED TAX (ASSETS) LIABILITIES THE GROUP HK$ 000 HK$ 000 Deferred tax assets (220) (28) Deferred tax liabilities 525 1,335 P 79

82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 The following are the major tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting periods: Deferred tax assets Excess of book over tax depreciation HK$ 000 HK$ 000 At April Effect of change in tax rate (Note 29) (2) - Credit (charge) to profit or loss (Note 29) 194 (67) At March Deferred tax liabilities Accelerated tax depreciation HK$ 000 HK$ 000 At April 1 1,335 1,228 Effect of change in tax rate (Note 29) (76) - (Credit) charge to profit or loss (Note 29) (734) 107 At March , BANK AND OTHER BORROWINGS Accelerated tax depreciation HK$ 000 HK$ 000 Trust receipt loans (unsecured) 35,761 34,131 Bank overdrafts (unsecured) 3,885 - Bank loans (unsecured) 59,500 - Bank loans (secured) 56,000 37, ,146 71,131 Less: current portion (87,979) (45,131) Non-current portion 67,167 26,000 P 80 Man Wah Holdings Limited annual report 2008

83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 The average effective interest rates paid were as follows: Trust receipt loans (unsecured) 5.8% 5.9% Bank overdrafts (unsecured) 7.0% 7.0% Bank loans 5.9% 6.0% THE GROUP HK$ 000 HK$ 000 Carrying amount repayable On demand or within one year 87,979 45,131 More than one year, but not exceeding two years 48,333 8,000 More than two years, but not exceeding five years 18,834 18, ,146 71,131 Less: Amounts due within one year shown under current liabilities (87,979) (45,131) Non-current liabilities 67,167 26,000 Trust receipt loans bear interest at an average rate of approximately 1.50% over three month HIBOR (2007 : 1.50% over three month HIBOR) per annum and the bank loans bear interest at 1.25% to 1.50% over three month HIBOR (2007: 1.75% over three month HIBOR) per annum. As at March 31, 2008, the three month HIBOR is 1.99% (2007 : 4.20%) per annum. As at March 31, 2007 and 2008, certain of the borrowings are secured against quoted guaranteed fund of HK$3,524,000 (2007 : HK$3,338,000) (Note 11), leasehold land of HK$8,333,000 (2007 : HK$Nil) (Note 14), leasehold building of HK$31,488,000 (2007 : HK$Nil) (Note 15), investment properties of HK$8,700,000 (2007 : HK$6,800,000) (Note 16) and corporate guarantee provided by the Company and certain subsidiaries for HK$402,000,000 (2007 : HK$318,000,000). The Group s bank and other borrowings that are not denominated in the functional currencies of the respective entities are as follows: THE GROUP HK$ 000 HK$ 000 United States dollars - 34,131 Hong Kong dollars 115,500 - P 81

84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, TRADE PAYABLES THE GROUP HK$ 000 HK$ 000 Outside parties 99,502 55,661 The average credit period on purchase of goods is 1 to 2 months (2007: 1 to 2 months). The Group s trade payables that are not denominated in the functional currencies of the respective entities are as follows: THE GROUP HK$ 000 HK$ 000 United States dollars - 13, OTHER PAYABLES THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade deposits received 29,942 27, Accruals 62,443 28, Bills payable 28,370 14, Amount due to related parties (Note 7) 2,534 1, Amount due to an associate (Note 19) Amount due to a jointly controlled entity (Note 18) 3, Amount due to a director ,258 72, The amounts due to a director, a jointly controlled entity, an associate and related parties are unsecured, interest-free and repayable on demand. P 82 Man Wah Holdings Limited annual report 2008

85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 The Group s other payables that are not denominated in the functional currencies of the respective entities are as follows: THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 United States dollars - 27, Hong Kong dollars 29, SHARE CAPITAL THE GROUP AND THE COMPANY Number of ordinary shares of HK$0.40 each HK$ 000 HK$ 000 Authorised 1,250,000 1,250, , ,000 Issued and fully paid up: At beginning of year 333, , , ,040 Bonus shares/new shares issued during the year 333,100 43, ,240 17,200 At end of year 666, , , ,240 The Company has one class of ordinary shares which carry no right to fixed income. The new shares issued during the year ended March 31, 2008 and March 31, 2007 rank pari passu with the existing shares. On February 27, 2008, the Company completed the bonus issue, of which 333,100,000 new ordinary shares were allotted and issued on the basis of one bonus share for every one existing ordinary share in the capital of the Company held by shareholders of the Company. During the financial year ended March 31, 2007, the Company increased its issued and paid up capital by the issuance of 43,000,000 new ordinary shares at an issue price of S$0.56 each. 25 REVENUE Revenue represents the net amounts received and receivable for goods sold by the Group to outside customers, less returns and allowances. P 83

86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, OTHER INCOME THE GROUP HK$ 000 HK$ 000 Exchange gain 7,537 3,517 Interest income 798 2,895 Rental income 3,344 2,851 Commission income 1,004 1,209 Gain on revaluation of investment properties 2, Gain on disposal of property, plant and equipment Change in fair value of derivative financial instruments 10,490 - Sundry income 1, ,827 11, OTHER EXPENSES THE GROUP HK$ 000 HK$ 000 Bad trade debts written off Penalty 8 6 Donation Loss on disposal of property, plant and equipment 65-1, FINANCE COSTS THE GROUP HK$ 000 HK$ 000 Interest expense on: Trust receipt loans 613 1,453 Bank loans 3, ,610 2,036 P 84 Man Wah Holdings Limited annual report 2008

87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, INCOME TAX EXPENSE THE GROUP HK$ 000 HK$ 000 Current 5,585 4,284 Under (Over) provision in prior year 6 (30) 5,592 4,254 Deferred (Note 20) Current year (928) 174 Attributable to a change in tax rate (74) - (1,002) 174 4,589 4,428 Hong Kong Profits Tax is calculated at 17.5% (2007: 17.5%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions. The total charge for the year can be reconciled to the accounting profit as follows: THE GROUP HK$ 000 HK$ 000 Profit before income tax 192,383 95,171 Tax at the domestic income tax rate of 17.5% (2007 : 17.5%) 33,667 16,655 Tax effect of expenses that are not deductible in determining taxable profit 2,187 1,903 Non-taxable items (108) (233) Under (over) provision in prior year 6 (30) Effect of different tax rates of subsidiaries operating in other jurisdictions 2,695 (652) Tax effect of tax loss not recognised 1,939 1,524 Tax effect of profit of subsidiaries under tax exemption(1) (35,797) (14,739) 4,589 4,428 (1) Pursuant to the relevant laws and regulations in the PRC, certain of the Group s PRC subsidiaries are exempted from PRC income tax for two years starting from their first profit making year, followed by a 50% reduction for the next three years. In addition, the subsidiary incorporated in Macau is also exempted from income tax. P 85

88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 On March 16, 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the New Law ) by Order No. 63 of the President of the Mainland PRC. On December 6, 2007, the State Council of the PRC issued Implementation Regulations of the New Law. The New Law and Implementation Regulations will unify the tax rate to 25% for all PRC subsidiaries from January 1, There will be a transitional period for PRC subsidiaries that are currently entitled to preferential tax treatments granted by the relevant tax authorities. PRC subsidiaries currently subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower tax rate and be gradually transitioned to the new unified rate of 25% within five years after January 1, PROFIT FOR THE YEAR a) Profit for the year has been arrived at after charging: THE GROUP HK$ 000 HK$ 000 Cost of inventories recognised as expense 913, ,250 Depreciation and amortisation expense 19,896 10,151 Directors fees: - of the Company 1, Directors remuneration: - of the Company 1,669 1,463 - of the Subsidiaries 1, Employee benefits expense (including directors remuneration) 127,884 66,636 Defined contribution plans 1,658 1,222 Non-audit fees: - paid to auditors of the Company paid to other auditors b) Compensation of directors and key management personnel The remuneration of directors and other members of key management during the financial year were as follows: THE GROUP HK$ 000 HK$ 000 Short-term benefits 3,512 2,779 Post-employment benefits ,537 2,842 The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends. P 86 Man Wah Holdings Limited annual report 2008

89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, EARNINGS PER SHARE Earnings: THE GROUP HK$ 000 HK$ 000 Profit attributable to shareholders (HK$ 000) 187,794 90,743 Number of shares: Weighted average number of ordinary shares ( 000) 666, ,958 Earnings per share: Earnings per share after consolidation (HK$ cents) There is no dilution as there were no unissued shares under option. The weighted number of shares for both years has been adjusted for the effect of the bonus issue of shares during the current year. 32 OPERATING LEASE COMMITMENTS The Group as lessee THE GROUP HK$ 000 HK$ 000 Minimum lease payments under operating leases recognised as an expense in the year 40,149 19,007 P 87

90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 At the balance sheet date, the commitments in respect of non-cancellable operating leases for rental of shops and office were as follows: THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within one year 25,607 23, In the second to fifth year inclusive 14,875 18, Over five years - 1, ,482 42, The operating leases are negotiated and rentals are fixed for an average of three years. Certain of the relevant tenancy agreements have provisions for contingent rental payments. Monthly rental payments for the relevant shops are charged according to the gross monthly receipts or the fixed monthly amount, whichever is the higher. The Group as lessor Property rental income earned during the year was HK$3,344,000 (2007 : HK$2,851,000), before outgoings of HK$Nil (2007 : HK$22,000). The properties are expected to generate rental yields of 16% (2007 : 14%) on an ongoing basis. The properties have committed tenants at March 31, 2008 and March 31, 2007 as follows: THE GROUP HK$ 000 HK$ 000 Within one year 2,468 2,252 In the second to fifth year inclusive 790 1,580 3,258 3, CAPITAL COMMITMENTS THE GROUP HK$ 000 HK$ 000 Capital expenditure in respect of - the acquisition of property, plant and equipment contracted but not provided for in financial statements 5,175 72,621 - capital injection in a joint venture contracted but not provided for in financial statements - 9,900 5,175 82,521 P 88 Man Wah Holdings Limited annual report 2008

91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, CONTINGENT LIABILITIES AND GUARANTEES During the year ended March 31, 2008, the Company has issued guarantees to banks to secure general banking facilities granted to certain subsidiaries to the extent of HK$402,000,000 (2007 : HK$318,000,000). The extent of the above facilities utilised by the subsidiaries at March 31, 2008 amounted to HK$179,459,000 (2007 : HK$85,463,000). The financial effect of the amendments to IAS 39 relating to financial guarantee contracts issued by the Company are not material to the financial statements of the Company and therefore are not recognised. 35 DIVIDENDS a) During the financial year, the Company paid the following dividends: THE GROUP HK$ 000 HK$ 000 Tax-exempt final dividend of HK$ (2007 : HK$0.0313) per ordinary share in respect of the previous financial year 10,559 10,482 Tax-exempt interim dividend of HK$ (2007 : HK$0.0364) per ordinary share in respect of the current financial year 21,752 12,125 Total paid 32,311 22,607 b) Subsequent to the balance sheet date, the directors of the Company recommended that a final tax-exempt dividend of HK$ (2007 : HK$0.0317) per ordinary share totaling approximately HK$25,250,000 (2007 : HK$10,559,000) for the financial year just ended be paid. The proposed dividends are not accrued as a liability as the dividend was proposed subsequent to the financial year end. 36 SEGMENT INFORMATION a) Business Segment The Group operates in the following business segments, which the Group reports its primary segment: Sales of sofas and sales of other furniture. Sofa relates to the manufacturing and trading of sofas. Other furniture relates to the manufacturing and trading of other furniture. No analysis on business segment is presented as the Group s turnover and segment results were substantially derived from the sales of sofas. P 89

92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT March 31, 2008 b) Analysis By Geographical Segment The Group s major customers are located in United States of America and Canada ( North America ), the PRC (including Hong Kong), Europe, Australia, Middle East and Africa. Manufacturing of sofas and other furniture is carried out in the PRC. Trading of sofa and other furniture is carried out in Europe, Australia, Middle East, Africa, North America and the PRC (including Hong Kong). Segment revenue by geographical segment is based on location of customers regardless of where the goods are produced. The other geographical segment information on asset is based on the geographical area in which the assets are located. Revenue THE GROUP HK$ 000 HK$ 000 North America 638, ,572 PRC (including Hong Kong) 402, ,734 Europe 317, ,662 Others 126, ,526 Total paid 1,485, ,494 The assets of the Group are substantially located in the PRC (including Hong Kong) which are used to support customers in all the geographical location. P 90 Man Wah Holdings Limited annual report 2008

93 STATEMENT OF DIRECTORS In the opinion of the Directors, the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company as set out on pages 43 to 90 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at March 31, 2008, and of the results, changes in equity and cash flows of the Group and changes in equity of the Company for the financial year then ended and at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts when they fall due. ON BEHALF OF THE BOARD Wong Man Li Hui Wai Hing June 16, 2008 P 91

94 SHAREHOLDING STATISTICS As at June 13, 2008 Authorised share capital HK$500,000,000 Issued and fully paid-up HK$133,240,000 Class of shares ordinary shares of HK$0.40 each Voting rights 1 vote per ordinary share ANALYSIS OF SHAREHOLDINGS No. of Size of Holdings Shareholders % No. of Shares % ,000-10, ,489, ,001-1,000, ,409, ,000,001 and above ,302, Total 1, ,200, TWENTY LARGEST SHAREHOLDERS Name No. of Shares % 1. Man Wah Investments Limited 380,840, UOB Kay Hian Pte Ltd 148,621, Raffles Nominees Pte Ltd 21,415, OCBC Securities Private Ltd 12,827, DBS Vickers Securities (S) Pte Ltd 12,692, HSBC (Singapore) Nominees Pte Ltd 6,669, Heng Tin Meng 5,490, Citibank Nominees Singapore Pte Ltd 5,092, United Overseas Bank Nominees Pte Ltd 4,872, Li Jianhong 4,000, Chan Sau Chi Benjamin 3,164, DBS Nominees Pte Ltd 3,063, Phillip Securities Pte Ltd 2,054, Hong Leong Finance Nominees Pte Ltd 1,650, Ang Kong Ang Kong Eng 1,400, Kim Eng Securities Pte. Ltd. 1,273, Ho Shyh-iang 1,140, Singapore Nominees Pte Ltd 1,040, Lee Fook Wah Francis 1,000, Kwa Soh Ngoh 960, Total 619,262, P 92 Man Wah Holdings Limited annual report 2008

95 SHAREHOLDING STATISTICS SUBSTANTIAL SHAREHOLDERS (AS RECORDED IN THE REGISTER OF SUBSTANTIAL SHAREHOLDERS) AS AT 13 June 2008 No. of ordinary shares Name Direct Interest % Indirect Interest % Man Wah Investments Limited See Note Below Wong Man Li See Note Below Hui Wai Hing See Note Below 380,840, ,924, ,924, Note: Wong Man Li and Hui Wai Hing are husband and wife. Wong Man Li and Hui Wai Hing own the entire issued and paid up capital of Man Wah Investments Limited. Wong Man Li and Hui Wai Hing are deemed to have an interest in the shares held by Man Wah Investments Limited. FREE FLOAT As at 13 June 2008, approximately % of the shareholding in the Company was held in the hands of the public (on the basis of information available to the Company). Accordingly, the Company has complied with Rule 723 of the Listing Manual of the Singapore Exchange Securities Trading Limited. P 93

96 NOTICE OF ANNUAL GENERAL MEETING MAN WAH HOLDINGS LIMITED (Incorporated in Bermuda with limited liability) (Company Registration No ) NOTICE IS HEREBY GIVEN that the Annual General Meeting of Man Wah Holdings Limited (the Company ) will be held at The Fullerton Hotel Singapore, 1 Fullerton Square, Singapore , Room TDB on Tuesday, 22 July 2008 at 10.00am for the following purposes: AS ORDINARY BUSINESS 1. To receive and adopt the Directors Report and Audited Accounts of the Company for the financial year ended 31 March 2008 together with the Auditors Report thereon. (Resolution 1) 2. To declare a final dividend of HK$ per share, tax not applicable, for the year ended 31 March (Resolution 2) 3. To re-elect the following Directors retiring pursuant to Bye-law 104 of the Bye-laws of the Company: Mr Bernard Tay Ah Kong Mr Lee Teck Leng Robson (Resolution 3) (Resolution 4) 4. To re-elect Mr Lee Fook Wah Francis retiring pursuant to Bye-law 107(B) of the Bye-laws of the Company. (Resolution 5) 5. To approve the payment of Directors fees of S$170,000 for the financial year ending 31 March 2009 to be paid monthly in arrears. (2008: S$150,000/-) (Resolution 6) 6. To re-appoint Deloitte & Touche LLP as the Company s Auditors and to authorise the Directors to fix their remuneration. (Resolution 7) 7. To transact any other ordinary business which may properly be transacted at an Annual General Meeting. AS SPECIAL BUSINESS To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without any modifications: 8. Authority to allot and issue shares up to fifty per cent. (50%) of issued capital That, pursuant to Rule 806(2) of the Listing Manual of the Singapore Exchange Securities Trading Limited (the Listing Manual ), authority be and is hereby given to the Directors to:- (a) allot and issue shares in the Company; and (b) issue convertible securities and any shares in the Company pursuant to convertible securities P 94 Man Wah Holdings Limited annual report 2008

97 NOTICE OF ANNUAL GENERAL MEETING (whether by way of rights, bonus or otherwise) at any time and upon such terms and conditions and for such purposes and to such persons as the Directors shall in their absolute discretion deem fit, provided that the aggregate number of shares (including any shares to be issued pursuant to the convertible securities) in the Company to be issued pursuant to such authority shall not exceed fifty per cent. (50%) of the issued share capital of the Company for the time being and that the aggregate number of shares in the Company to be issued other than on a pro-rata basis to the then existing shareholders of the Company will not exceed twenty per cent. (20%) of the issued share capital of the Company for the time being. Unless revoked or varied by the Company in general meeting, such authority shall continue in full force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting is required by law or by the Company s Bye-laws to be held, whichever is the earlier, except that the Directors shall be authorised to allot and issue new shares pursuant to the convertible securities notwithstanding that such authority has ceased. For the purposes of this Resolution and Rule 806(3) of the Listing Manual, the percentage of issued share capital is based on the issued share capital of the Company at the time this Resolution is passed after adjusting for:- (i) new shares arising from the conversion or exercise of convertible securities or from exercising share options or vesting of share awards outstanding or subsisting at the time of the passing of this Resolution, provided the options or awards were granted in compliance with the rules of the Listing Manual; and (ii) any subsequent consolidation or subdivision of shares. (Resolution 8) 9. Authority to grant options and issue shares under the Man Wah Share Option Scheme That the Directors be and are hereby empowered to grant options, and to allot and issue from time to time such number of shares as may be required to be issued pursuant to the exercise of options granted under the Man Wah Share Option Scheme (the Scheme ) provided always that the aggregate number of shares in respect of which such options may be granted and which may be issued pursuant to the Scheme shall not exceed fifteen per cent. (15%) of the issued share capital of the Company from time to time. (Resolution 9) By Order of the Board Loy Sye Ling Joint Company Secretary Singapore, 30 June 2008 P 95

98 NOTICE OF ANNUAL GENERAL MEETING Explanatory Notes to Resolution 3: Mr Bernard Tay Ah Kong is an independent Director of the Company. He also serves as the Chairman of the Audit Committee and a member of both the Nominating Committee and the Remuneration Committee. Upon his re-election, Mr Tay will continue to serve as the Chairman of the Audit Committee and as a member of the Nominating Committee and Remuneration Committee. He will be considered independent for the purposes of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited. Explanatory Notes to Resolution 4: Mr Lee Teck Leng Robson is an Independent Director of the Company. He also serves as Chairman of the Nominating and Remuneration Committees and as a Member of the Audit Committee. Upon his re-election, Mr Lee will continue to serve as the Chairman of the Nominating and Remuneration Committees and as a Member of the Audit Committee. He will be considered independent for the purposes of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited. Explanatory Notes to Resolution 8: The proposed ordinary resolution no. 8, if passed, will empower the Directors from the date of the above Meeting until the date of the next Annual General Meeting, to allot and issue shares and convertible securities in the Company. The aggregate number of shares (including any shares issued pursuant to the convertible securities) which the Directors may allot and issue under this Resolution will not exceed fifty per cent. (50%) of the issued share capital (as defined in Resolution 8) of the Company. For issues of shares other than on a pro rata basis to all shareholders, the aggregate number of shares to be issued will not exceed twenty per cent. (20%) of the issued share capital (as defined in Resolution 8) of the Company. This authority will, unless previously revoked or varied at a general meeting, expire at the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law or the Company s Bye-laws to be held, whichever is the earlier. However, notwithstanding the cessation of this authority, the Directors are empowered to issue shares pursuant to any convertible securities issued under this authority. Explanatory Notes to Resolution 9: The proposed ordinary resolution no. 9, if passed, will empower the Directors of the Company, to grant options and to allot and issue shares upon the exercise of such options in accordance with the Scheme. Note: 1. With the exception of the Central Depository (Pte) Ltd. (the Depository ) who may appoint more than two proxies, a member of the Company entitled to attend and vote at the above meeting is entitled to appoint no more than two proxies to attend and vote on its behalf. A proxy need not be a member of the Company. 2. Where a form of proxy appoints more than one (1) proxy (including the case where such appointment results from a nomination by the Depository), the proportion of the shareholding concerned to be represented by each proxy shall be specified in the form of proxy. 3. A corporation, which, is a member of the Company may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its corporate representative at the meeting. 4. To be valid, the instrument appointing a proxy or proxies together with the power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority, must be deposited at the office of the Company s Singapore Share Transfer Agent, Boardroom Corporate & Advisory Services Pte. Ltd., at 3 Church Street, #08-01 Samsung Hub, Singapore not less than 48 hours before the time appointed for holding the meeting or at any adjournment thereof. P 96 Man Wah Holdings Limited annual report 2008