Result AnalysisThe Group’s turnover for the year amounted to US$3.7 billion, an increase of 8.4% as compared to the US$3.4 billion reported in 2010. Profit attributable to Owners of the Company amounted to US$151 million as compared to US$95 million reported in 2010. Basic earnings per share for the year improved to US9.39 cents as compared to US5.93 cents in 2010.
EBITDA amounted to US$338 million, an increase of 20.5% as compared to US$280 million reported in 2010.
EBIT amounted to US$218 million, an increase of 30.6% as compared to US$167 million reported in 2010.
Gross MarginGross margin improved to 32.6% as compared to 32.2% reported last year. The margin improvement was the result of new product introduction, category expansion, all with higher margin, efficient production in the new PRC facility, effective supply chain management and volume leverage on our economies of scale.
Operating ExpensesTotal operating expenses for the year amounted to US$985 million as compared to US$911 million reported in 2010. SG&A as a percentage of sales improved by 0.1% to 26.8%.
Investments in product design and development amounted to US$69 million, representing 1.9% of turnover (2010: 1.9%) reflecting our continuous investment in R&D even in times of economic challenge. With our new innovation centre in full operation in 2012, efficiency and cost effectiveness is expected to be further improved in the coming years.
Net interest expenses for the year amounted to US$58 million as compared to US$72 million reported in 2010. Interest coverage, expressed as a multiple of EBITDA to total interest was 5.4 times (2010: 3.8 times).
The effective tax rate, being tax charged for the year to before tax profits was at 5.8%. The Group will continue to leverage its global operations to further improve the overall tax efficiencies.
Shareholders’ FundsTotal shareholders’ funds amounted to US$1.2 billion as compared to US$1.1 billion in 2010. Book value per share was at US$0.78 as compared to US$0.69 as reported last year, an increase of 13.0%.
Financial PositionThe Group’s net gearing, expressed as a percentage of total net borrowing (excluding bank advance from factored trade receivables which are without recourse in nature) to equity attributable to Owners of the Company, improved to 59.3% as compared to 72.9% last year. One of the Group’s primary objectives is to reduce gearing and we remain confident that gearing will improve further after the successful implementation of key initiatives to deliver focused and stringent working capital management.
In January 2012, some of the holders of the Company’s convertible bonds converted convertible bonds of US$40,000,000 into shares of the Company at HK$5.20 per share for 59,615,384 shares. This will also lower our interest cost in future periods. Gearing on a pro-forma basis immediately improved to approximately 54.4% following the conversion.
Bank BorrowingsLong term borrowings accounted for 33.1% of total debts (44.8% at December 31, 2010).
The Group’s major borrowings continued to be in US Dollars and in HK Dollars. Other than the fixed rate notes and the 5-year 8.5% Coupon Convertible Bonds, borrowings are predominantly LIBOR or Hong Kong best lending rates based. There is a natural hedge mechanism in place as the Group’s major revenues are in US Dollars and currency exposure therefore is low. Currency, interest rate exposures, and cash management functions are all being closely monitored and managed by the Group’s treasury team.
During the year, the Group repaid US$5.6 million of fixed interest rate notes, refinanced by a new syndicated loan obtained in February 2011. This refinancing arrangement will lower our interest cost in future periods.
Working CapitalTotal inventory increased from US$645 million in 2010 to US$704 million in 2011. Days inventory was maintained at 70 days. Part of the increase in inventory at year end was a result of pre-build of products before the Chinese New Year in mid-January 2012 to prepare for the sales in early February. The Group will continue to focus in reducing the inventory level and improve inventory turns.
Trade receivable turnover days were at 60 days as compared to 63 days as reported last year. Excluding the gross up of the receivables factored which is without recourse in nature, receivable turnover days were at 53 days as compared to 55 days as reported last year. The Group is comfortable with the quality of the receivables and will continue to exercise due care in managing the credit exposure.
Trade payable days were extended by 10 days from 52 days reported in 2010 to 62 days in 2011.
The Group’s current ratio decreased from 1.34 times in 2010 to 1.23 times and the quick ratio also decreased to 0.79 from 0.89 in 2010. The decline was mainly due to the reclassification of convertible bonds from long term to current. Excluding the reclassification of convertible bonds, the current ratio and quick ratio were 1.35 and 0.87 respectively.
Working capital as a percentage of sales was at 18.9% as compared to 21.9% last year.
Capital ExpenditureTotal capital expenditures for the year amounted to US$95 million (2010: US$93 million) including US$7 million (2010: US$2 million) related to the new Asia Industrial Park and Innovation Centre.
Capital Commitments and Contingent LiabilitiesAs at December 31, 2011, total capital commitments amounted to US$16 million (2010: US$14 million) and there were no material contingent liabilities or off balance sheet obligations.
ChargeNone of the Group’s assets are charged or subject to encumbrance.
Major Customers and Suppliers
For the year ended December 31, 2011
- (i)the Group’s largest customer and five largest customers accounted for approximately 37.7% and 51.9% respectively of the Group’s total turnover; and
- (ii)the Group’s largest supplier and five largest suppliers accounted for approximately 3.6% and 13.2% respectively of the Group’s total purchases (not including purchases of items which are of a capital nature).
According to the knowledge of the Directors, none of the Directors, their associates or any shareholders who owned more than 5% of TTI’s share capital had any interest in the five largest customers or suppliers of the Group.
The Group employed a total of 17,818 employees (2010: 18,440 employees) in Hong Kong and overseas. Total staff cost for the year under review amounted to US$495 million (2010: US$461 million).
The Group regards human capital as vital for the Group’s continuous growth and profitability and remains committed to improving the quality, competence and skills of all employees. It provides job-related training and leadership development programs throughout the organization. The Group continues to offer competitive remuneration packages, discretionary share options and bonuses to eligible staff, based on the performance of the Group and the individual employee.
A total of 5,516,500 ordinary shares of HK$0.10 each were repurchased by the Company during the year at prices ranging from HK$4.62 to HK$6.33 per share. The aggregate amount paid by the Company for such repurchases amounting to US$3,817,000 was charged to the retained earnings.
The repurchased shares were cancelled and the issued share capital and the capital redemption reserve of the Company was reduced and increased respectively by the par value thereof.
The repurchase of the Company’s shares during the year were effected by the Directors pursuant to the mandate from shareholders received at the previous annual general meeting, with a view to benefiting shareholders as a whole by enhancing the net asset value per share and earnings per share of the Company.
Except as disclosed above, neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities during the year.
The Audit Committee has reviewed with senior management of the Group and Messrs Deloitte Touche Tohmatsu the accounting principles and practices adopted by the Group and has discussed internal controls and financial reporting matters, including the review of Group’s consolidated financial statements for the year ended December 31, 2011. The Board acknowledges its responsibility for the preparation of the accounts of the Group.
The Directors have recommended a final dividend of HK7.75 cents (approximately US1.00 cent) per share for the year ended December 31, 2011 (2010: HK6.25 cents (approximately US0.80 cent)) payable to the Company’s shareholders whose names appear on the register of members of the Company on May 25, 2012. Subject to the approval of the shareholders at the forthcoming annual general meeting of the Company, the proposed final dividend is expected to be paid on or about July 6, 2012. This payment, together with the interim dividend of HK5.00 cents (approximately US0.64 cent) per share (2010: HK3.75 cents (approximately US0.48 cent)) paid on September 16, 2011, makes a total payment of HK12.75 cents (approximately US1.64 cents) per share for 2011 (2010: HK10.00 cents (approximately US1.28 cents)).
The register of members of the Company will be closed for the following periods:
To ascertain members’ eligibility to attend and vote at the 2012 Annual General Meeting, the register of members of the Company will be closed from May 17, 2012 to May 18, 2012, both days inclusive, during which period no transfers of shares will be effected. In order to qualify for attend and vote for the 2012 Annual General Meeting, all transfers accompanied by the relevant share certificates must be lodged with the Company’s share registrars, Tricor Secretaries Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:00 p.m. on May 16, 2012.
To ascertain members’ entitlement to the final dividend, the register of members of the Company will be closed from May 24, 2012 to May 25, 2012, both days inclusive, during which period no transfers of shares will be effected. In order to qualify for the final dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s share registrars, Tricor Secretaries Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:00 p.m. on May 23, 2012.