China In-Tech Limited — Annual Report 2005

Jul 25, 2005

(Incorporated in the Cayman Islands with limited liability)

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(Stock Code: 464)

ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 MARCH 2005

The board of directors (the “Board”) of Kenford Group Holdings Limited (the “Company”) is pleased to announce the audited consolidated results of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 March 2005, prepared on the basis set out in Note 1, together with the comparative figures for the previous year as follows:

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2005

Note Turnover 2 Cost of sales Gross profit Other revenue 2 Impairment loss on land and buildings Selling and distribution expenses General and administrative expenses Profit from operations 3 Finance costs 4 Gain on disposal of an associate Share of profits and losses of an associate Profit before taxation Taxation 5 Net profit attributable to shareholders Dividends 6 Earnings per share 7 –Basic (HK cents) – Diluted (HK cents)	2005 HK$’000 464,910 (370,729) 94,181 12,215 – (8,020) (31,704) 66,672 (3,912) – – 62,760 (5,357) 57,403 40,000 19.13 N/A	2004 HK$’000 301,634 (232,979) 68,655 6,790 (583) (8,356) (27,890) 38,616 (3,495) 22 (11) 35,132 (4,056) 31,076 80,000 10.36 N/A

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Kenford Group Holdings Limited – Announcement 22 July 2005

Notes:

1. Reorganisation and basis of preparation

The Company was incorporated in the Cayman Islands on 10 November 2004 as an exempted company with limited liability under the Companies Law of the Cayman Islands.

Pursuant to the transfer of Asia Pilot Development Limited and its subsidiaries, namely Kenford Industrial Company Limited and Sky Ocean Group Limited, into the Company through an exchange of shares (the “Exchange of Shares”), which was completed on 23 March 2005 as detailed in the prospectus of the Company dated 31 May 2005 (“Prospectus”), the Company became the holding company of these companies.

The Exchange of Shares is accounted for using merger accounting as permitted by the Hong Kong Statement of Standard Accounting Practice (“SSAP”) No. 27 “Accounting for Group Reconstructions” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The financial statements of the Group for the year ended 31 March 2005, including comparative figures, are prepared as if the Company had been the holding company of the above companies for the years ended 31 March 2005 and 2004.

Immediate after the Exchange of Shares, on the same day, the Company entered into further transactions to complete its reorganisation on 23 March 2005 in preparation for the listing of the shares of the Company. These transactions comprise primarily acquisitions of interests in Kario Company Limited (“Kario HK”) and its subsidiary, Dongguan Kario Electrical Appliance Company Limited (“DG Kario”), (collectively the “Kario Group”) as set out in the Prospectus. The results of the Kario Group are accounted for using the acquisition method of accounting.

The shares and warrants of the Company were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on 16 June 2005 (the “Listing Date”).

The financial statements have been prepared under the historical cost conventions basis in accordance with accounting principles generally accepted in Hong Kong, and comply with accounting standards issued by the HKICPA.

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”), which are effective for accounting periods beginning on or after 1 January 2005 except for HKFRS 3 “Business Combination”. The Group has not early adopted these new HKFRSs in the consolidated financial statements for the year ended 31 March 2005. HKFRS 3 is applicable to business combinations for which the agreement date is on or after 1 January 2005. Accordingly, the Group adopted HKFRS 3 together with HKAS 36 “Impairment of Assets” and HKAS 38 “Intangible Assets” for the acquisition of the Kario Group for which the agreement date is after 1 January 2005. Under HKFRS 3, goodwill is initially recognised as an asset at cost and review for impairment annually. No impairment loss was recognised in the consolidated financial statements. The Group has already commenced an initial assessment of the impact of the other new HKFRSs and considered that the adoption of these new HKFRSs would not have a significant impact on its results of operations and financial positions.

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Kenford Group Holdings Limited – Announcement 22 July 2005

2. Turnover, revenue and segment information

The Group is principally engaged in the design, manufacture and sale of electrical hair care products, electrical health care products and other small household electrical appliances. Turnover represents the net invoiced value of goods sold which is the most significant category of revenue during the year.

An analysis of the Group’s turnover and other revenue is as follows:

Turnover Sale of goods Other revenue Reimbursement of mould costs Commission income Gain on disposals of property, plant and equipment Interest income Sample sales Sundry income Total revenue	2005 HK$’000 464,910 7,734 2,861 – 117 101 1,402 477,125	2004 HK$’000 301,634 2,291 3,784 146 187 24 358
		308,424

(a) Primary reporting format – business segments

The Group has been operating in a single business segment, which is the design, manufacturing and sale of electrical hair care products, electrical health care products and other small household electrical appliances.

(b) Secondary reporting format – geographical segments

The following is an analysis of the Group’s sales by geographical location of customers:

Europe North and South America Asia Australia Africa	2005 HK$’000 341,257 35,426 30,667 48,064 9,496 464,910	2004 HK$’000 220,507 26,506 28,628 19,625 6,368
		301,634

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Kenford Group Holdings Limited – Announcement

22 July 2005

3. Profit from operations

Profit from operations is stated after charging/(crediting):

Auditors’ remuneration Cost of inventories sold Depreciation – Owned – Held under finance leases Exchange losses, net Staff costs (including directors’ emoluments and retirement benefits scheme contributions) – Basic salaries, bonuses, allowances and benefits in kind Less: Amount paid under PRC sub-processing arrangement Retirement benefits scheme contributions Research and development costs_(note (i))_ Provision for/(reversal of) obsolete inventories	2005 HK$’000 300 370,729 10,326 1,829 1,521 50,569 (32,616) 17,953 448 4,532 (104)	2004 HK$’000 161 232,979 9,730 1,991 1,147 40,839 (24,597) 16,242 386 4,373 199

Note:

(i) Research and development costs comprised of mainly salaries to engineers who are responsible for the research and development functions. The amounts were included in staff costs.

4. Finance costs

Interest on bank loans and overdrafts wholly repayable within five years Interest on trust receipt loans Interest on finance leases	2005 HK$’000 1,051 2,781 80 3,912	2004 HK$’000 1,318 2,018 159
		3,495

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Kenford Group Holdings Limited – Announcement

22 July 2005

5. Taxation

The amount of taxation in the consolidated income statement represents:

Current profits tax – Hong Kong – Tax for the year – Overprovision in respect of prior years Deferred taxation – Current year – Over/(under) provision in prior years Tax charge for the year	2005 HK$’000 5,268 – 5,268 234 (145) 89 5,357	2004 HK$’000 3,377 (77) 3,300 (169) 925 756 4,056

No provision for profits tax in the Cayman Islands or British Virgin Islands has been made as the Group had no income assessable for profits tax in these jurisdictions.

Hong Kong profits tax has been provided for at the rate of 17.5% (2004: 17.5%) on the estimated assessable profits less allowable losses brought forward.

Pursuant to the relevant laws and regulations in the People’s Republic of China (“PRC”), DG Kario, a wholly owned subsidiary acquired by the Group on 23 March 2005, being a foreign investment enterprise, is subject to income tax rate of 24%. DG Kario is also exempted from enterprise income tax for two years starting from the first year of profitable operations in 2003 after off-setting prior year tax losses, following by a 50% reduction in the applicable tax rate for the next three years. No provision for PRC enterprise income tax has been made in the consolidated income statement for the year ended 31 March 2005.

6. Dividends

The dividends declared and paid during the years ended 31 March 2005 and 2004 represent dividends declared by a subsidiary of the Group to its then shareholders before the Reorganization.

Interim dividends Special dividends	2005 HK$’000 – 40,000 40,000	2004 HK$’000 80,000 –
		80,000

The rate of dividend and number of shares ranking for the dividends are not presented as such information, in the opinion of directors, is not meaningful for the purpose of this report.

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Kenford Group Holdings Limited – Announcement 22 July 2005

7. Earnings per share

The calculation of basic earnings per share is based on the Group’s net profit attributable to shareholders of approximately HK$57,403,000 (2004: HK$31,076,000).

The number of shares used to calculate the basic earnings per share is based on 300,000,000 ordinary shares comprising 100,000,000 ordinary shares in issue during the year and the capitalization issue of 200,000,000 ordinary shares of the Company, which were deemed to be issued since 1 April 2003.

No diluted earnings per share is presented as no diluting event existed during the year (2004: Nil).

MANAGEMENT DISCUSSION AND ANALYSIS

Financial year 2005 was a remarkable year for the Group. We achieved significant growth in both our turnover as well as net profit attributable to shareholders. We experienced rapid growth through enhancing our products’ quality and our services to our customers. The excellent financial results in 2005 were mainly attributable to the growth in sales volume and relatively stable selling and distribution costs and general and administrative expenses.

The satisfactory results of the placing and public offer reflected the confidence of investors in the prospects of our business as well as in the electrical appliances manufacture industry. The listing is a new milestone in the Group’s development, laying the foundation for our further growth in the industry.

Turnover

The Group’s turnover for the year ended 31 March 2005 was approximately HK$464.9 million, of which approximately HK$433.6 million was contributed by the sales of hair care products, representing approximately 93% of the turnover of the Group. The Group’s turnover for the year ended 31 March 2005 was increased by approximately 54% when comparing with the year ended 31 March 2004. The sharp increase was mainly attributed to the further increase in demand for the Group’s electrical hair care products in the European market, including the acceptance of the Group’s innovative products (new kind of hair straighteners) by the market.

Cost of sales

Our cost of sales for the financial year ended 31 March 2005 increased by approximately 59% to approximately HK$370.7 million. Such increase was principally a result of the increase in our business volume, turnover and increase in cost of raw materials, like plastic-related and metal-related materials.

Gross profit

Our gross profit for the year ended 31 March 2005 was approximately HK$94.2 million, representing an increase of approximately 37%, as compared with the year ended 31 March 2004. Our overall gross profit margin was decreased from approximately 22.8% to approximately 20.3%. The deterioration was due to the increase in cost of raw materials like plastic-related and metal-related materials and the increase in factory overhead cost such as labour cost in the Dongguan region.

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Kenford Group Holdings Limited – Announcement 22 July 2005

Other revenue

Our other revenues were approximately HK$12.2 million for the year ended 31 March 2005, as compared with approximately HK$6.8 million for the year ended 31 March 2004. Such increase was principally attributable to the reimbursement of mould costs (including the sale of our design and concept). The Group has been developing series of new and innovative products as well as general electrical hair care, health care and other small appliances during the year. The new series of products are scheduled to be launched in the year ending 31 March 2006.

Selling and distribution expenses

For the year ended 31 March 2005, selling and distribution expenses of the Group was approximately HK$8.0 million, representing approximately 1.7% of the total turnover for the same period. This ratio was lower than that of approximately 2.8% recorded for the year ended 31 March 2004 (as a result of more usage of PRC based ports which were cheaper in cost).

General and administrative expenses

For the year ended 31 March 2005, administrative expenses of the Group was approximately HK$31.7 million which was increased by approximately HK$3.8 million as compared with the year ended 31 March 2004. The increase was mainly due to the increase in depreciation as a result of the addition of property, plant and equipment during the year, the increase in bank charges which were resulted from the increase in usage of trust receipt loans and the distribution of staff performance bonus for the year.

Finance costs

For the year ended 31 March 2005, finance cost of the Group was approximately HK$3.9 million which was increased by approximately HK$0.4 million as compared with the year ended 31 March 2004. The increase was mainly due to the increase in usage of trust receipt loans.

Liquidity and financial resources

As at 31 March 2005, the Group had approximately HK$77.2 million cash and cash equivalents balances (31 March 2004: HK$30.0 million). The Group’s net current assets were approximately HK$6.7 million (31 March 2004: net current liabilities HK$4.9 million). The gearing ratio as at 31 March 2004 was approximately 35% while that as at 31 March 2005 was approximately 35%. The Group has sufficient financial resources to meet the requirements of its ordinary operation and capital expenditure.

Pledge of assets

As at the balance sheet date, the Group pledged leasehold land and buildings having a net book value of approximately HK$11.8 million (2004: HK$ 12.2 million) and fixed deposits placed with banks to the amount totaling approximately HK$6.0 million (2004: HK$6.0 million) to secure general banking facilities granted to the Group.

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Kenford Group Holdings Limited – Announcement

22 July 2005

Capital commitments

As at the balance sheet date, the Group had capital commitment in respect of acquisition of plant and equipment of approximately HK$3.7 million which are authorized but not contracted for (2004: HK$2.7 million).

Contingent liabilities

• (a) As at the balance sheet date, the Group had contingent liabilities in respect of bills discounted to bank with recourse amounting to approximately HK$14.3 million.

• (b) A High Court action was commenced by WIK Far East Limited (the “WIK”) against a subsidiary of the Company on 27 April 2004 in respect of alleged infringements of a patent in respect of retractable brushes.

The Directors have confirmed that no settlement had been reached by the parties and no judgement on the quantum of damages has been made against the Group in respect of the legal action. The Group has sought legal advice from its legal counsel on the merits of the claim.

According to the legal counsel’s opinion, given that the trial has not yet commenced and the parties are still at a pre-mature stage of the litigation, and in the absence of any indication as to how WIK would like to proceed with its claim, it would not be possible to quantify reliably the likely potential damages and cost to be incurred by the Group in the event that the subsidiary of the Group fails in its defense to the claim of patent infringement in the litigation. Assuming that WIK will claim for damages for loss of profits or for accounts of profits, the Directors are of the view that the quantum of the ultimate cost and damages (if any) to be incurred by the Group will not have a material adverse impact on the Group’s financial position.

In the event that a liability has arisen from the litigation, the controlling shareholders have jointly and severally agreed and undertaken to indemnify the Group from and against any of such liability.

Staff and remuneration policies

People are our most important assets and are indispensable to our success in the competitive marketplace. We offer comprehensive remuneration packages level and provide various fringe benefits, including trainings, medical, insurance coverage as well as retirement benefits.

The Group has adopted a pre-IPO share option scheme on 27 May 2005 for the purposes of providing incentives and rewards to eligible participants who have contributed to the success of our operations.

Purchase, sale or redemption of the Company’s listed securities

Other than the group reoganisation steps as disclosed in the Prospectus, there were no purchases, sales or redemptions of the Company’s listed securities by the Company or any of its subsidiaries during the year.

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Kenford Group Holdings Limited – Announcement

22 July 2005

Code on corporate governance practices

In the opinion of the Directors, the Company has complied with the code provision of the Code of Corporate Governance Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) in the period between the Listing Date and the date of this announcement.

Audit committee

The audit committee was established on 29 April 2005 with written terms of reference in compliance with the Listing Rules. The audit committee has three members comprising all independent non-executive Directors, namely Mr. Chiu Fan Wa, Mr. Li Chi Chung and Mr. Li Tat Wah. Mr. Chiu Fan Wa has been appointed as the Chairman of the audit committee. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control system of the Group and to review the Company’s annual reports and interim reports.

The audit committee has reviewed our audited financial results for the year ended 31 March 2005.

Publication of final results on the website of the Stock Exchange

All the information required by paragraphs 45(1) to 45(3) inclusive of Appendix 16 to the Listing Rules will be published on the website of the Stock Exchange in due course.

Closure of register of member

The register of members of the Company will be closed from 12 September 2005 to 15 September 2005, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the voting at the forthcoming annual general meeting of the Company, all transfers accompanied by the relevant share certificates, must be lodged for registration with the Company’s branch share registrar, Computershare Hong Kong Investor Services Limited at Rooms 1712-1719, 17/F Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:00 p.m. on 9 September 2005.

By order of the Board Kenford Group Holdings Limited Lam Wai Ming Chairman

Hong Kong, 22 July 2005

As at the date of this announcement, the Board comprises:

Executive Directors: Mr. Lam Wai Ming, Mr. Tam Chi Sang and Mr. Chan Kwok Tung, Donny

Independent Non-executive Directors: Mr. Chiu Fan Wa, Mr. Li Chi Chung, Mr. Li Tat Wah Please also refer to the published version of this announcement in The Standard.

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Kenford Group Holdings Limited – Announcement

22 July 2005