Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
6-K
REPORT
OF FOREIGN PRIVATE ISSUER
PURSUANT
TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES
EXCHANGE ACT OF 1934
For the
month of: September
2010
Commission
File Number: 000-53826
GSME ACQUISITION PARTNERS
I
(Translation
of registrant’s name into English)
762 West Beijing Road,
Shanghai, China 200041
(Address
of Principal Executive Offices)
Indicate
by check mark whether the registrant files or will file annual reports under
cover Form 20-F or Form 40-F. Form 20-F x Form 40-F ¨
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1): _____
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7): _____
Indicate
by check mark whether the registrant by furnishing the information contained in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of
1934. Yes ¨ No x
If “Yes”
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-___________.
GSME
ACQUISITION PARTNERS I (“GSME”) INTENDS TO
HOLD PRESENTATIONS FOR CERTAIN OF ITS SHAREHOLDERS, AS WELL AS OTHER PERSONS WHO
MIGHT BE INTERESTED IN PURCHASING GSME SECURITIES, REGARDING ITS PROPOSED
BUSINESS COMBINATION WITH PLASTEC INTERNATIONAL HOLDINGS LIMITED (“PLASTEC”), AS
DESCRIBED IN THE REPORT OF FOREIGN PRIVATE ISSUER ON FORM 6-K FILED BY GSME WITH
THE SEC ON AUGUST 10, 2010, THE REPORT OF FOREIGN PRIVATE ISSUER ON FORM 6-K
FILED BY GSME WITH THE SEC ON SEPTEMBER 14, 2010, AND IN THIS REPORT OF FOREIGN
PRIVATE ISSUER ON FORM 6-K (COLLECTIVELY, THE “FORM 6-K”). THE FORM
6-K, INCLUDING SOME OR ALL OF THE EXHIBITS THERETO, MAY BE DISTRIBUTED TO
PARTICIPANTS AT SUCH PRESENTATIONS.
COHEN
& COMPANY SECURITIES, LLC (“COHEN”), THE
REPRESENTATIVE OF THE UNDERWRITERS OF GSME’S INITIAL PUBLIC OFFERING (“IPO”) CONSUMMATED IN
NOVEMBER 2009, HAS BEEN ENGAGED TO ASSIST GSME IN THESE EFFORTS PURSUANT TO
WHICH IT WILL BE PAID A SUCCESS FEE OF $500,000, PLUS EXPENSES, UPON
CONSUMMATION OF THE BUSINESS COMBINATION WITH PLASTEC. GSME HAS ALSO
ENGAGED CAPSTONE INVESTMENTS (“CAPSTONE”) TO ASSIST
IT IN IDENTIFYING INVESTORS THAT MAY BE INTERESTED IN PURCHASING GSME’S
SECURITIES AND REMAIN SHAREHOLDERS OF GSME FOLLOWING CONSUMMATION OF THE
BUSINESS COMBINATION WITH PLASTEC, PURSUANT TO WHICH CAPSTONE WILL RECEIVE A FEE
AND BE TRANSFERRED CERTAIN SECURITIES OF GSME BY COHEN. ADDITIONALLY,
COHEN AND THE OTHER UNDERWRITERS IN GSME’S IPO DEFERRED AN AGGREGATE OF
$1,440,000 COMMISSIONS OWED TO THEM IN CONNECTION WITH THE IPO UNTIL THE CLOSING
OF GSME’S BUSINESS COMBINATION. IF THE BUSINESS COMBINATION WITH
PLASTEC IS NOT CONSUMMATED AND GSME DOES NOT CONSUMMATE ANOTHER BUSINESS
COMBINATION BY MAY 25, 2011, SUCH DEFERRED UNDERWRITING COMMISSIONS WILL BE
FORFEITED BY THE UNDERWRITERS AND WILL BE INCLUDED AMONG THE FUNDS THAT WILL BE
AVAILABLE TO THE GSME SHAREHOLDERS UPON LIQUIDATION. GSME, ITS
DIRECTORS AND EXECUTIVE OFFICERS, COHEN AND CAPSTONE MAY BE DEEMED TO BE
PARTICIPANTS IN THE SOLICITATION OF PROXIES FOR THE EXTRAORDINARY GENERAL
MEETING OF GSME SHAREHOLDERS TO BE HELD TO APPROVE THE BUSINESS
COMBINATION.
SHAREHOLDERS
OF GSME AND OTHER INTERESTED PERSONS ARE ADVISED TO READ, WHEN AVAILABLE, GSME’S
DEFINITIVE PROXY STATEMENT IN CONNECTION WITH ITS SOLICITATION OF PROXIES FOR
THE EXTRAORDINARY GENERAL MEETING BECAUSE THE PROXY STATEMENT WILL CONTAIN
IMPORTANT INFORMATION. SUCH PERSONS CAN ALSO READ GSME’S FINAL PROSPECTUS, DATED
NOVEMBER 19, 2009, FOR A DESCRIPTION OF THE SECURITY HOLDINGS OF THE GSME
OFFICERS AND DIRECTORS AND THEIR, AND COHEN’S, RESPECTIVE INTERESTS IN THE
SUCCESSFUL CONSUMMATION OF THE BUSINESS COMBINATION. THE PROXY STATEMENT WILL BE
MAILED TO GSME SHAREHOLDERS AS OF A RECORD DATE TO BE ESTABLISHED FOR VOTING ON
THE BUSINESS COMBINATION. SHAREHOLDERS WILL ALSO BE ABLE TO OBTAIN A COPY OF THE
PROXY STATEMENT, WITHOUT CHARGE, BY DIRECTING A REQUEST TO: GSME ACQUISITION
PARTNERS I, 762 WEST BEIJING ROAD, SHANGHAI, CHINA 200041. THE PROXY STATEMENT
WILL ALSO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER COVER OF A
REPORT OF FOREIGN PRIVATE ISSUER ON FORM 6-K AND, ONCE FILED, CAN BE OBTAINED,
WITHOUT CHARGE, AT THE SECURITIES AND EXCHANGE COMMISSION’S INTERNET SITE (http://www.sec.gov).
Business
Combination Between GSME and Plastec
As
previously announced, GSME Acquisition Partners I (“GSME”) has entered
into an Amended and Restated Agreement and Plan of Reorganization (the “Merger Agreement”)
with GSME Acquisition Partners I Sub Limited, Plastec International Holdings
Limited (“Plastec”), and each
of Sun Yip Industrial Company Limited (BVI), Tiger Power Industries Limited
(BVI), Expert Rank Limited (BVI), Fine Colour Limited (BVI), Cathay Plastic
Limited (BVI), Greatest Sino Holdings Limited (BVI), Colourful Asia
International Limited (BVI) and Top Universe Management Limited (BVI), pursuant
to which Plastec will become a wholly-owned subsidiary of GSME.
The
following is additional information on the business and financial condition of
Plastec.
Business
of Plastec
Plastec is a vertically integrated
plastic manufacturing services provider that provides comprehensive precision
plastic manufacturing services from mold design and fabrication, plastic
injection manufacturing to secondary-process finishing as well as parts
assembly. Plastec manufactures a wide range of plastic parts and components
for:
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consumer
electronics, such as LCD and LED television sets, DVD players, DVD-VHS
combos, Blu-ray disc players, speakers, MP3, remote controls and other
consumer audio-visual products;
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·
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electrical
home appliances, such as power tools, hair dryers, shavers, vacuum
cleaners and other home-use electrical
products;
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·
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telecommunication
devices, such as modems, set-top boxes, cordless phone handsets, GPS
devices and other telecommunication-related parts and
components;
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·
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computer
peripherals, such as LCD monitors, printers and other personal computer
parts and components; and
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·
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other
industries, such as precision plastic based toys and automobile audio
systems.
|
Plastec manufactures its products
solely on the basis of customer orders. Plastec’s major customers include
leading international original equipment manufacturers (OEMs), original design
manufacturers (ODMs) and original brand manufacturers (OBMs) of consumer
electronics, electrical home appliances, telecommunication devices and computer
peripherals.
The Asia-Pacific region has been
Plastec’s principal market, accounting for approximately 96.6%, 91.4% and 83.1%
of Plastec’s turnover for the three years ended April 30, 2008, 2009 and 2010,
respectively. Other markets, especially Europe and the United States, accounted
for approximately 3.4%, 8.6% and 16.9% of Plastec’s turnover for the three years
ended April 30, 2008, 2009 and 2010, respectively.
Plastec has six production facilities
located in Dongguan, Shenzhen, Zhuhai, and Heyuan cities of Guangdong Province
and Kunshan of Jiangsu Province, China. Plastec has carefully selected the
locations of its production facilities in order to facilitate timely delivery of
its products to customers to accommodate their just-in-time inventory control
systems and production schedules. Plastec operates four manufacturing
facilities, Heyuan Sun Line Manufacturing Plant, Dongguan Sun Chuen
Manufacturing Plant, Zhuhai Sun Line Manufacturing Plant, Kunshan Broadway
Manufacturing Plant, through its four wholly owned PRC subsidiaries. Plastec,
together with PRC counterparties, manage the remaining two manufacturing
facilities, Dongguan Sun Line Processing Factory and Shenzhen Broadway
Processing Factory, pursuant to certain Processing Agreements Plastec entered
into with the PRC counterparties and the practical arrangements between Plastec
and the PRC counterparties.
Plastec’s business has grown
significantly over the past few years. Driven by increasing orders from its
customers, turnover increased from HK$463.0 million for the year ended April 30,
2005 to HK$966.8 million for the year ended April 30, 2010, representing a
compound annual growth rate of 15.9%.
History
and Development
Plastec’s
business operations began in 1993 when its founder, Kin Sun Sze-To, together
with a co-investor, an independent third party, established Sun Line Industrial
Limited (“Sun Line
(HK)”). In that same year, Sun Line (HK) entered into the
Shenzhen Sun Line Processing Agreement to start its productions at the Shenzhen
Sun Line Processing Factory. In November 2002, Sun Line (HK) expanded
its operations by entering into the Dongguan Sun Line Processing Agreement to
start its productions at the Dongguan Sun Line Processing Factory. In
April 2004, Plastec was established by the owners of Sun Line (HK) under its
former name Sunbest Enterprises Limited (incorporated in the British Virgin
Islands (“BVI”)) to ultimately become the holding company of Sun Line
(HK). To this end, in August 2004, all of the outstanding shares of
Sun Line (HK) were transferred to Plastec in exchange for shares of Plastec
through a restructuring and reorganization and Sun Line (HK) became a wholly
owned subsidiary of Plastec.
In February 2004, Sun Line (HK)
established Heyuan Sun Line Industrial Ltd. (“Heyuan Sun Line
Industrial”), as a wholly foreign owned enterprise in China and its
wholly owned subsidiary, for the purpose of constructing Heyuan Sun Line
Manufacturing Plant, one of Plastec’s wholly owned manufacturing plants in
China, to cater to a major customer of Plastec that established a manufacturing
plant in Heyuan. The construction of the first phase of Plastec’s Heyuan Sun
Line Manufacturing Plant was subsequently completed in December
2005.
In July 2004, Plastec established Fast
Achieve Enterprises Limited (incorporated in the BVI) as its wholly owned
subsidiary.
In August 2004, Plastec incorporated
Sun Line (Macao Commercial Offshore) Company Limited under the laws of Macau
(“Sun Line
Macau”) as a sales center.
In September 2004, Plastec established
New Skill Holdings Limited (“New Skill”)
(incorporated in Samoa) as its wholly owned subsidiary. Also, in September 2004,
Sun Ngai Spraying and Silk Print Co., Ltd. (incorporated in the BVI, the entity
that operated the manufacturing services at Shenzhen Sun Ngai Processing
Factory), became Plastec’s wholly owned subsidiary through a share acquisition
for the purpose of expanding Plastec’s secondary-process finishing
business. Plastec has subsequently determined not to renew the
Processing Agreement relating to this factory.
In December 2004, Plastec established
Dongguan Sun Chuen Plastic Products Co., Ltd. (“Dongguan Sun Chuen”),
as a wholly foreign owned enterprise in China and wholly owned subsidiary of New
Skill, to manage Plastec’s domestic sales in China.
In January 2005, Plastec established
Sun Terrace Industries Limited (“Sun Terrace”)
(incorporated in the BVI) as its wholly owned subsidiary.
In September 2005, Plastec established
Broadway Industrial Holdings Limited (incorporated in the BVI) (“Broadway Industrial
(BVI)”) as its wholly owned subsidiary and an overseas holding company to
expand its manufacturing operations at Shenzhen Broadway Processing Factory as
well as Broadway Manufacturing Company Limited (incorporated in the BVI) as it
wholly owned subsidiaries and an overseas holding company to hold certain fixed
assets in China.
On
September 23, 2005, Plastec changed its name from Sunbest Enterprises Limited to
its current name of Plastec International Holdings Limited.
In May 2006, Plastec established Sun
Ngai Spraying and Silk Print (HK) Co., Limited (incorporated in Hong Kong) and
Broadway Industrial Holdings Limited (incorporated in Hong Kong) (“Broadway Industrial
(HK)”) as its indirect wholly owned subsidiaries.
In August 2008, Plastec established
Broadway Precision Industrial (Kunshan) Ltd. (“Kunshan Broadway”) as
a wholly foreign owned enterprise in China and wholly owned subsidiary of
Broadway Industrial (HK), in order to expand Plastec’s operations to the Yangtze
River delta under Kunshan Broadway Manufacturing Plant. To expedite
the approval process for the establishment of Broadway Precision Industrial
(Kunshan) Ltd. as a wholly foreign owned enterprise, there was a momentary
transfer of Broadway Industrial (BVI)’s registered shareholding interest in
Broadway Industrial (HK) to Plastec’s founder, Kin Sun Sze-To, in September 2008
at par and a re-transfer back of the same registered shareholding interest from
Kin Sun Sze-To to Broadway Industrial (BVI), again at par, in October 2008 upon
completion of the approval process.
With a view to expanding Plastec’s
domestic sales in China, in October 2008 Sun Line Precision Industrial (Zhuhai)
Ltd. (“Zuhai Sun
Line”) was established as a wholly foreign owned enterprise in China and
wholly owned subsidiary of Allied Sun Corporation Limited (“Allied Sun”)
(incorporated in Hong Kong); which company was established by Plastec in
September 2008 in the name of Kin Sun Sze-To.
In November 2008 and upon completion of
the approval process for the establishment of Sun Line Precision Industrial
(Zhuhai) Ltd. as a wholly foreign owned enterprise, Kin Sun Sze-To transfer his
registered shareholding interest in Allied Sun, at par, to Sun Terrace thereby
formally establishing Allied Sun as Plastec’s indirect wholly owned
subsidiary.
In December 2009, Plastec determined
not to renew the Processing Agreement of Shenzhen Sun Line Processing Factory,
whereas its expiration date was July 2010.
Plastec’s
Competitive Strengths
Plastec believes that its principal
competitive strengths include the following:
Plastec’s ability to
provide one-stop integrated manufacturing services
Plastec provides one-stop integrated
services for the manufacture of precision plastic components used in various
electronic devices, including mold design, precision mold fabrication, plastic
injection manufacturing, secondary-process finishing and parts assembly. As an
integrated plastic manufacturing services provider, Plastec is able to plan and
undertake the entire plastic component manufacturing process for new products
launched by its customers. With Plastec’s dedication and expertise in mold
design and fabrication, plastic injection manufacturing and secondary-process
finishing, Plastec is also able to assist its customers in moving their products
from their conceptual design to mass production quickly and economically.
Plastec’s integrated manufacturing ability allows its customers to focus on
other aspects of the production and marketing of their products.
Plastec’s expertise and
capabilities in high-precision mold design and fabrication
Plastec possesses considerable plastic
manufacturing expertise and know-how and is able to provide quick and quality
services to its customers, especially in high-precision mold design and
fabrication. One of the strengths of Plastec’s mold fabrication division is its
ability to assist its customers in accurately prototyping their product concepts
and in designing and manufacturing precision toolings and molds. Plastec owns
advanced design software and equipment necessary for such high-precision mold
fabrication, including a fused deposition modeling, or FDM, system, which
enhances the efficiency of its mold design and fabrication. Plastec also uses
some of the most advanced mold fabrication machines and plastic injection
machines available in the industry. Plastec believes its expertise and know-how
in high-precision mold design and fabrication shortens the lead time it needs
before it mass-produces such products and represents a significant advantage
over Plastec’s competitors.
Plastec’s just-in-time
delivery service
Plastec’s just-in-time delivery service
is designed to meet its customers’ stringent inventory management systems and
their demanding delivery schedules. Plastec has strategically established its
manufacturing facilities in Dongguan, Shenzhen, Zhuhai and Heyuan of Guangdong
Province and Kunshan of Jiangsu Province in order to stay close to its
customers’ assembly plants, most of which are located in Guangdong Province of
China. Plastec’s locations not only enable it to accommodate its customers’
just-in-time inventory management systems but also reduces its transportation
costs and enhances its direct communications with customers.
Plastec’s stringent
quality control
Plastec’s customers include major
companies in their respective industries who are generally known for their high
quality products sold throughout the world, and a majority of Plastec’s products
are used in well-known brands. Plastec has imposed stringent quality control
measures on each phase of its manufacturing process, including its raw
materials, semi-finished products and finished products. Plastec’s quality
control procedures are designed to enable it to promptly identify flaws or
defects during the production process. The successful implementation of
Plastec’s quality control system is demonstrated by the low rate of goods
returned, which was approximately 0.89%, 0.57%, and 0.55% during the years ended
April 30, 2008, 2009 and 2010, respectively, based on Plastec’s total turnover
of HK$986.2 million, HK$913.4 million and HK$966.8 million for the three years,
respectively. Both of the Processing Factories have been accredited ISO9001 and
ISO14001 certifications. Plastec’s stringent quality control is highly regarded
by its customers as one of the most important attributes that enables Plastec to
retain its existing customers and to expand its customer base. Plastec’s
dedication to the quality of its products and services has also won Plastec
numerous certifications of satisfaction from its customers in respect of such
products and services.
Plastec’s well established
long-term customer relationships
Plastec has successfully established
and maintained good long-term business relationships with many of its customers.
Most of Plastec’s major customers have been doing business with Plastec for more
than five years and some of them for over 10 years. Plastec believes its
capability to design and fabricate high-precision mold and tooling, to
manufacture high quality plastic components and its strategically located
production facilities to accommodate the just-in-time inventory control systems
of its customers and their demanding production schedules provide Plastec with a
significant competitive advantage over its competitors. Plastec believes that it
has earned the trust and confidence of its customers mainly due to its
reliability in providing quality products and services at competitive prices on
a timely basis.
Plastec’s experienced and
dedicated management
Mr. Sze-To, Plastec’s Chairman and
founder, and Mr. Tan, Plastec’s Executive Director, have over 20 years of
experience each in the plastic injection and molding industry. Mr. Sze-To leads
a professional management team that possesses extensive industry experiences and
knowledge in the latest plastic technology. Guided by Plastec’s senior
management, Plastec entered the PRC market in 1993. As more and more global
brands started to outsource component manufacturing from their China assembly
plants over the years, Plastec has strategically established itself in the PRC
market, with a diversified and growing customer base. Plastec believes that its
extensive experience accumulated over the past 20 years and its familiarity with
the PRC market, coupled with its scale of operations and cutting edge technology
and equipment, are key competitive advantages that Plastec has over many of its
competitors.
Plastec’s
Business Strategy
Plastec’s principal business strategies
and future plans include the following:
Expanding
its product mix and customer base
As plastic is becoming an increasingly
popular material in many industries, Plastec intends to capitalize on this trend
by manufacturing plastic casings, components and utensils for products beyond
the consumer electronics, electrical home appliances, telecommunication and
computer equipment to include, for example, plastic parts used in automobiles
and industrial applications. Plastec has already started manufacturing GPS, car
audio and photo printer parts for its customers. As most of Plastec’s customers
are multinational companies engaged in the production of a variety of products,
Plastec believes that its efforts to keep its technology and manufacturing
capabilities in line with industry trends and the confidence and trust Plastec
has gained from its multinational customers will facilitate the realization of
its strategy of seeking new business opportunities and expanding its product
mix.
Continue
to improve its production facilities and expand its production
capacity
Plastec is devoted to continuously
improving and expanding its existing production facilities in Guangdong Province
while it seeks opportunities to further expand its production capacity in other
parts of China. Plastec is planning to acquire additional advanced injection
molding and mold fabrication machines and to install clean rooms for its
processing services in its existing facilities in order to increase its
capability of manufacturing plastic parts and components that demand higher and
more stringent specifications. Plastec believes these improvements will enhance
its competitiveness in the higher-end plastic production market and will also
improve its overall profit margin in the long-run.
In order to provide prompt delivery
services to accommodate its customers’ stringent just-in-time inventory control,
Plastec intends to establish additional manufacturing facilities near the
assembly plants of its major customers in other parts of China. Currently, 5 of
the 6 production facilities run by Plastec are located in Guangdong Province to
service the needs of its customers in southern China. Since Plastec’s production
is entirely customer order based, and in order to meet demands of its customers
in other regions of China, as a long-term plan, Plastec is planning to establish
additional facilities in other parts of China, including the the Bohai Bay
economic region. Well-selected strategic locations of production facilities will
allow Plastec to shorten its delivery time, facilitate communications with
customers and help customers reduce their inventory carrying costs.
Continue
to focus on leading global brands in Plastec’s customer
development efforts
Plastec will continue to devote
significant marketing efforts to maintaining its existing customers and
developing new customers from leading global brands in order to broaden its
customer base. As Plastec’s manufacturing facilities are geared for high-end
plastic products, Plastec will continue to focus on top global brands that
demand higher product quality and more stringent product specifications. Global
brands also tend to have a shorter product cycle and generally launch new
products and product models to the market at shorter intervals. Plastec believes
that it is uniquely positioned to cater to the needs of these customers with its
technology, know-how and some of the most advanced production facilities
available in the industry. In such pursuit, Plastec not only enjoys generally
better profit margins associated with newly launched products and models, but
also benefits from the generally better credit standings of such global
customers in its efforts to reduce credit risk. Plastec believes that it is
crucial for it to stay abreast with the global trend of manufacturing
outsourcing and to be able to service needs of international manufacturers that
decide to outsource their precision plastic products.
Continue
to improve precision molding to cater to higher quality
specifications
Capitalizing on Plastec’s expertise in
precision mold design and fabrication, Plastec will continue to improve and
enhance its high and stringent specification molding production. Plastec plans
to purchase additional state-of-the-art computerized design systems and molding
equipment so as to further distinguish itself as a precision molding specialist
in the industry. Plastec expects that its high-end production approach will
avoid or minimize competition from other PRC competitors and will increase its
market share in high- precision component manufacturing.
Products
and Services
Plastec produces a vast array of
plastic casings, components and utensils for use in consumer electronics,
electrical home appliances, telecommunication devices and computer peripherals.
These high-precision molded plastic products are designed and made for different
applications. Plastec also provides mold design and fabrication services,
secondary-process finishing and parts assembly services to offer its customers
with one-stop-shop services. Plastec’s sales to different categories of
customers during the three years ended April 30, 2010 were approximately as
follows:
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Customer category
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Year ended
April 30, 2008
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Year ended
April 30, 2009
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Year ended
April 30, 2010
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Consumer
electronics
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39.6 |
% |
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53.7 |
% |
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51.0 |
% |
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Electrical
home appliances
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14.3 |
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7.9 |
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2.3 |
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Telecommunication
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9.8 |
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10.7 |
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14.9 |
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Computer
peripherals
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15.7 |
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6.3 |
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5.5 |
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Others
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20.6 |
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21.4 |
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26.3 |
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Total
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|
100.0 |
% |
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|
100.0 |
% |
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|
100.0 |
% |
Plastec categorizes its sales as
described in the table above on the basis of the primary industry to which the
immediate customers belong, regardless of the actual goods Plastec ships to such
customers. For example, if a consumer electronics customer orders goods for
computer peripherals, Plastec generally groups such shipments under consumer
electronics for the purpose of its sales analysis. While Plastec has maintained
sales to its consumer electronics and electrical home appliances customers,
Plastec has over the years made increasing amounts of sales to other customers,
such as manufacturers of telecommunication devices, computer peripherals and
other manufacturers. The foregoing sales analysis information is prepared by
management and is not based on IFRS requirements or any other accounting
standards.
Production
Process
Plastec’s production process currently
takes approximately six to eight weeks on average from the design stage to the
delivery of products to the customers. Over the years, Plastec has
implemented various measures to improve its efficiencies and to shorten
lead-time. Accordingly, this time period has been reduced from the approximately
12 to 16 weeks it previously took in 2005. The foregoing timeframes exclude time
used or needed by the customer during the interactive design process. Complexity
of the product specifications tends to prolong the time needed by Plastec and
the customer to finalize the product model. The stages of this production
process where Plastec plays a crucial role include mainly:
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mold
design and fabrication;
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plastic
injection manufacturing;
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secondary-process
finishing; and
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Mold
design and fabrication
Mold design and fabrication, or
“tooling,” is a crucial step in the manufacturing process of molded precision
plastic products. With Plastec’s sophisticated equipment and substantial
experience and know-how relating to mold development, Plastec is capable of
fabricating high precision molds for use in plastic injection machines of up to
850 tons in clamping force with parts dimension tolerance of up to 0.01
millimeters, which measures the changes in dimensions of molded plastic products
before and after they are cooled. Molds with high precision are necessary for
the production of high quality molded plastic products. Plastec’s design
engineers closely collaborate with its customers throughout the mold design
process in order to develop a mold that optimizes cost-efficiency, capacity and
quality. Plastec believes that its mold design and fabrication capability
represents a substantial competitive strength over its competitors and
constitutes an indispensable part of its core competencies in this precision
plastic products business.
Most of Plastec’s customers require it
to undertake the entire plastic manufacturing services, including mold design
and fabrication, for their products. Occasionally, some customers provide
Plastec with their molds for carrying out the plastic injection
process.
Mold design and fabrication is an
interactive process between Plastec and its customers. Plastec has over 120
skilled design engineers and technicians in Shenzhen and Dongguan, assisted by
computer-aided design, or CAD, and computer-aided manufacturing, or CAM,
software systems to design the molds. Based on initial product designs and
specifications provided by Plastec’s customers, Plastec’s design engineers use
FDM to prototype the finished products in accordance with the designs of the
customers and prepare detailed specifications for the molds. Through a
consultation process known as “co-design” for the molds, Plastec’s design
engineers would recommend improvements to the original product design and
specifications, such as to increase durability of the molds and to enhance
reliability of the products.
When Plastec finalizes the mold
designs, it uses CAD to draw up the detailed specifications. Plastec then uses
CAM to detail its manufacturing procedures in accordance with the detailed CAD
specifications and start to manufacture with the assistance of its advanced
machinery such as its computer-numerical controlled, or CNC, machining systems.
Plastec’s CNC machining systems commence milling the mold prototypes from
graphite or copper electrodes. Once the customers have verified the
finished-product prototypes, Plastec commences fabrication of the molds via a
combination of precision milling, grinding, wire-cutting and electro-discharge
machining, or EDM.
Plastec then polishes, assembles and
uses the molds to manufacture an initial batch of the plastic products for the
first-article inspection by Plastec’s customers. Plastec also offers chemical
treatment process for the molds, at the request of its customers, to produce
special textured casings or high-gloss mirror finishing for products, such as
LCD and LED television sets or audio-visual products.
Plastec begins mass production of
plastic products upon final approval of the mold by the customers.
Plastec’s tooling division is able to
produce approximately 100 to 120 molds on a monthly basis with competitive lead
time ranging from 20 to 60 days. The length of the lead time primarily depends
on the complexity and size requirements of the mold. Molds Plastec produces
generally weigh up to 7.5 tons.
Mold design and fabrication requires
specialized machines and is capital intensive. Plastec owns approximately 84
advanced mold-making machines, including CNCs, FDM system, EDMs and wire-cutting
machines.
Plastec’s customers generally bear the
costs of designing and producing customer-specific molds. Plastec generally
maintains and stores the molds it has fabricated for its customers at its
facilities for use in further productions. Sometimes Plastec also owns the
molds, in which case it will bear the costs in designing and producing them.
Through such additional services to its customers, Plastec seeks to create
customer dependence on it to manufacture additional plastic parts and components
when need arises.
Plastic
injection manufacturing
To manufacture a molded plastic
product, the mold is first mounted onto an injection molding machine and is
clamped. Resin, in granular form, is then loaded into the machine, to be
dehumidified and melted into viscous form. The viscous resin is then injected
into the mold at high pressure. Coolant will then pass though the mold to
solidify the resin into the shape required. When the plastic has cooled, the
mold is unclamped and the product is ejected. Plastec then performs quality
checks on the products for flaws and defects before forwarding them for
secondary-process finishing or packaging for shipment. The entire injection
molding process takes approximately 15 to 60 seconds.
Each of Plastec’s injection molding
machines is capable of servicing a variety of applications and product
configurations. Plastic injection molding machines are classified according to
the clamping force, the maximum force/pressure an injection molding machine is
capable of exerting in order to hold a mold in place during the injection
molding process. Plastec owns over 500 plastic injection machines, with clamping
forces between 50 to 1,000 tons.
Secondary-process
finishing
Plastec provides a wide range of
secondary-process finishing services, including smoothing and polishing, laser
marking, silk-screening, pad printing, spraying, painting, ultra-violet coating,
anti-fog coating, hot stamping and metallic coating in its production plants in
Dongguan, Shenzhen, Heyuan, Zhuhai and Kunshan. Plastec carries out most of
these secondary-process finishing services in its controlled environment
production areas. Although Plastec automates some of its secondary-process
finishing services, such as spray painting, a significant portion of its other
secondary-process finishing services is labor-intensive due to the different
secondary-process finishing requirements from its customers. Plastec’s
secondary-process finishing enhances the appearance or external functionality of
molded plastic products.
Parts
assembly
In response to increasing demands for
integrated manufacturing solutions from Plastec’s customers, Plastec also
provides parts assembly services for its molded plastic products as a turn-key
solution to its customers. Plastec usually assembles its plastic components into
semi-finished parts before their delivery. Plastec’s customers will further
incorporate their electronic or electrical components into Plastec’s products to
produce their finished products. The parts assembly business has become an
important part of Plastec’s integrated manufacturing services desired by its
customers. Most of Plastec’s parts assembly services, however, are
labor-intensive due to the different assembly requirements from its
customers.
Quality
Control
Commensurate with Plastec’s competitive
capabilities in high-precision plastic product manufacturing, Plastec has
established an in-house quality control, or QC, department that maintains
stringent quality controls over all of Plastec’s products. Plastec strictly
carries out all customer-required QC measures in addition to its routine quality
control. Plastec’s fundamental QC principle is to build quality not only into
its products and services but also into its processes at the earliest possible
stage. Plastec’s QC procedures require quality control checks to be performed at
each critical stage of its production process to meet Plastec’s own quality
requirements and to conform to its customer’s specifications. Quality control
checks are carried out, recorded and monitored by its QC
department.
As integrated plastic manufacturing
services are relatively labor intensive by nature, Plastec deploys staff members
at various control check points to make sure that its customers’ numerous
requirements in product designs, appearances and functionalities are properly
observed. Plastec’s QC staffs are located at all of its Manufacturing Plants and
Processing Factories in China.
In addition to its human quality
controllers, Plastec also uses some of the most advanced machines to control and
test its product quality. Plastec’s QC department also employs the following
equipment to monitor its product quality:
|
|
·
|
Coordinate measuring
machine. Plastec’s coordinate measuring machine measures the
dimensions of the molds and the manufactured plastic components to ensure
their conformance with the requisite specifications. Plastec’s coordinate
measuring machine uses an electronic probing system to provide the
three-dimensional measurements of the manufactured plastic component. It
automates the measuring process and, therefore reduces human errors and
manpower in taking measurements of a plastic component. Plastec’s
coordinate measuring machine is particularly useful if the plastic
component requires very precise dimensional
tolerances.
|
|
|
·
|
Optical measuring
system. Plastec’s optical measuring system utilizes complex optical
mechanisms to measure or inspect tooling inserts and plastic components in
three-dimensional perspectives. This system is suitable for very complex,
small or delicate plastic components that cannot be readily measured or
inspected using an electronic probing
system.
|
|
|
·
|
Spectrophotometer.
Plastec’s spectrophotometer is an electronic optical device designed for a
broad range of color measurement applications. It measures the coloring
and brightness level of incoming materials, in-process parts and painted
surfaces of finished products to ensure that the precision plastic
components Plastec manufactures are of consistent color
quality.
|
|
|
·
|
RoHS analyzing system.
RoHS is often referred to as the lead-free directive. It restricts the use
of the following six substances: lead, mercury, cadmium, hexavalent
chromium, polybrominated biphenyls, or PBB, and polybrominated diphenyl
ether, or PBDE. Plastec’s RoHS analyzing system is an electronic device to
measure whether there are any hazardous materials in Plastec’s incoming
raw materials, especially resin, and Plastec’s completed products before
delivering them to its customers.
|
|
|
·
|
Paint thickness tester.
Plastec use paint thickness testers to test and control the thickness of
paint that it uses in the spraying
process.
|
|
|
·
|
UV analyzer. Plastec
uses UV analyzers to test and check energy intensity in its curing
system.
|
Plastec procures raw materials,
including resins, chemicals, solvent and mold base, used in its productions from
suppliers designated by customers. These suppliers are on the approved vendor
list of its customers.
To ensure the quality of Plastec’s
manufacturing processes, Plastec has subjected its Manufacturing Plants and the
Processing Factories to various compliance standards and certifications
available in the plastics industry, such as the following:
|
Award/certification
|
|
Award date
|
|
Manufacturing facility
|
|
Awarding/certifying
organization
|
|
ISO9001:2000
Certification
|
|
October
2003
|
|
Dongguan
Sun Line Processing Factory
|
|
SGS*
|
|
Certificate
of Compliance to Standard for Safety (UL-746D-fabricated
parts)
|
|
August
2003
|
|
Dongguan
Sun Line Processing Factory
|
|
UL*
|
|
ISO14001:2004
Certification
|
|
October
2005
|
|
Dongguan
Sun Line Processing Factory
|
|
SGS*
|
|
ISO9001:2000
Certification
|
|
May
2009
|
|
Zhuhai
Sun Line Manufacturing Plant
|
|
SGS*
|
|
ISO9001:2008
Certification
|
|
August
2009
|
|
Kunshan
Broadway Manufacturing Plant
|
|
Kaixin
Certification (Beijing)
|
|
ICTI
Code of Business Practices (2009 Version)
|
|
Nov.
2009
|
|
Shenzhen
Broadway Processing Factory
|
|
ICTI*
|
|
ISO9001:2000
Certification
|
|
July
2006
|
|
Shenzhen
Broadway Processing Factory
|
|
SGS*
|
|
ISO14001:2004
Certification
|
|
June
2007
|
|
Shenzhen
Broadway Processing Factory
|
|
SGS*
|
*SGS is
SGS United Kingdom Ltd., a provider of inspection, verification, testing and
certification services. UL is The Underwriters Laboratories Inc., an
independent product safety certification organization. ICTI is The
International Council of Toy Industries, an association of associations, is
committed on behalf of its member companies to the operation of toy factories in
a lawful, safe, and healthful manner.
For plastic components, Plastec is
required by its customers to have the procurement and manufacturing processes
certified by UL.
Some of Plastec’s manufacturing
processes and quality control systems are subject to semi-annual QC audit by SGS
or other internationally recognized organizations. Such audit includes
verification of personnel training, proper maintenance and calibration of
equipment used in the manufacturing process as well as use of correct procedures
for all operations.
Production
Facilities and Capacity
Plastec currently has six production
facilities to carry out its manufacturing operations:
|
|
·
|
Dongguan
Sun Chuen Manufacturing Plant
|
|
|
·
|
Heyuan
Sun Line Manufacturing Plant
|
|
|
·
|
Zhuhai
Sun Line Manufacturing Plant
|
|
|
·
|
Kunshan
Broadway Manufacturing Plant
|
|
|
·
|
Dongguan
Sun Line Processing Factory
|
|
|
·
|
Shenzhen
Broadway Processing Factory
|
All of these facilities are located in
Guangdong Province, China, adjacent to Hong Kong, except for Kunshan Broadway
Manufacturing Plant which is located in Jiangsu Province, China. Plastec has
carefully selected the locations of its production facilities in order to
facilitate timely delivery of its products to customers to accommodate their
just-in-time inventory control systems and production schedules.
The
average annual utilization rates and maximum annual production capacities of
Plastec’s four wholly owned Manufacturing Plants and the two contractually based
Processing Factories with respect to plastic injection machines and tooling
machines over the periods shown below were as follows:
|
|
|
Year ended
April 30, 2008
|
|
|
Year ended
April 30, 2009
|
|
|
Year ended
April 30, 2010
|
|
|
Plastic
injection machines
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
No.
of Injection Machines
|
|
|
517 |
|
|
|
500 |
|
|
|
505 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Max
annual capacities (machine hours in thousand)
|
|
|
3,268 |
|
|
|
3,248 |
|
|
|
3,299 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilisation
|
|
|
67.6 |
% |
|
|
62.1 |
% |
|
|
64.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tooling
machines
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
No.
of Tooling Machines
|
|
|
76 |
|
|
|
79 |
|
|
|
84 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Max
annual capacities (machine hours in thousand)
|
|
|
483 |
|
|
|
501 |
|
|
|
543 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilisation
|
|
|
101.7 |
% |
|
|
101.5 |
% |
|
|
101.0 |
% |
Plastec
measures its maximum annual production capacities in terms of its machine hours.
Plastec has computed its machine hours as follows: Number of machines x 22 hours
x Number of working days in a year. Plastec has computed the average annual
utilization rates as follows: Number of actual operating hours of
machines/maximum annual production capacity of such machines. Factors such as
the timing of acquisition and installation of machines during any particular
year and the initial ramp-up of machines tend to affect the utilization rates of
the machines. When Plastec calculates the average annual utilization rates for
its plastic injection machines, Plastec also includes idle time during trial
runs, when machines have lower actual operating hours than their normal
production days.
Plastec operates four of the
manufacturing facilities, Heyuan Sun Line Manufacturing Plant, Zhuhai Sun Line
Manufacturing Plant, Kunshan Broadway Manufacturing Plant and Dongguan Sun Chuen
Manufacturing Plant, through its four wholly owned PRC subsidiaries, Heyuan Sun
Line Industrial, Zhuhai Sun Line, Kunshan Broadway and Dongguan Sun Chuen,
respectively. Together with PRC counterparties, Plastec manages the
remaining two production facilities, Dongguan Sun Line Processing Factory and
Shenzhen Broadway Processing Factory, pursuant to the Processing Agreements
described below and the practical arrangement between itself and the PRC
counterparties.
Plastec owns approximately 72,993
square meters in site area at its Heyuan Sun Line Manufacturing Plant as well as
the buildings, manufacturing equipment and other movable assets that constitute
its Heyuan Sun Line Manufacturing Plant. Plastec also owns the manufacturing
equipment and other movable assets of its Dongguan Sun Chuen Manufacturing
Plant, Zhuhai Sun Line Manufacturing Plant, and Kunshan Broadway Manufacturing
Plant and leases its land and premises under the Tenancy Agreements. While
Plastec hires its own workers at the four Manufacturing Plants, it substantially
relies on the PRC counterparties to provide manufacturing workers, utilities,
plant management and other assistance for the two Processing Factories pursuant
to the Processing Agreements. For the two Processing Factories, Plastec owns
their manufacturing equipment and other movable assets and certain leasehold
land lessors lease their land and premises to the PRC counterparties pursuant to
three of the Tenancy Agreements. Certain of Plastec’s leasehold land lessors
also do not possess the full qualification to lease such land and premises to
Plastec. However, all of Plastec’s Manufacturing Plants and Processing Factories
have been granted proper business licenses by the relevant PRC governmental
authorities and have passed annual examinations and received annual renewals
from the relevant PRC government licensing authorities.
The
principal terms of Plastec’s Processing Agreements are as follows:
Dongguan Sun Line Processing
Agreement. This Processing Agreement that Sun Line (HK) entered
into on November 5, 2002 with Dongguan City Dalingshan Township Foreign Economic
Development Corporation was approved by Dongguan City Foreign Trade and Economic
Cooperation Bureau on November 6, 2002. The Dongguan Sun Line Processing Factory
received and is in possession of the following licenses:
|
|
·
|
business
license, from Dongguan City Administration of Industry and Commerce, with
a current term of operation from November 8, 2002 to November 5, 2012;
and
|
|
|
·
|
Guangdong
Province foreign processing business special permit, from Dongguan City
Administration of Industry and Commerce, with a current validity period
from November 8, 2002 to November 5,
2012.
|
This Processing Agreement contemplates
a mutually beneficial venture between Sun Line (HK) and the PRC counterparty to
this Processing Agreement, Dongguan City Dalingshan Township Foreign Economic
Development Corporation, under the following terms:
|
|
·
|
Sun
Line (HK) will provide all manufacturing equipment as well as all raw and
other materials required in the manufacturing of its products without
attributing a monetary value to such contribution by it to the
venture;
|
|
|
·
|
Sun
Line (HK) is responsible for transportation, installation, testing and
technical management of its
equipment;
|
|
|
·
|
Sun
Line (HK) will hire employees through the relevant government-approved
labor administrative agencies;
|
|
|
·
|
the
PRC counterparty is responsible for providing the relevant manufacturing
premises to the venture;
|
|
|
·
|
the
PRC counterparty is responsible for assisting Sun Line (HK) in completing
the necessary governmental approval process and in managing the daily
operations of the Processing
Factory;
|
|
|
·
|
the
venture is subject to a three-month probation from the effective date of
the Processing Agreement during which the parties will evaluate the
viability of the venture, including the operating
results;
|
|
|
·
|
Sun
Line (HK) is responsible for accepting all products of acceptable quality
for export;
|
|
|
·
|
Sun
Line (HK) must pay the PRC counterparty an agreed monthly processing fee
on the basis of the labor used, volume of products produced, size of the
land parcel and the manufacturing premises
involved;
|
|
|
·
|
any
delay by Sun Line (HK) in its payment of the processing fee to the PRC
counterparty is subject to interest compensation based on the prevailing
interest rates of a Hong Kong bank for each delayed day and subject to
suspension of delivery of products from the Processing Factory;
and
|
|
|
·
|
Sun
Line (HK)’s contractual counterparty is responsible for paying the rental
tax to the relevant PRC taxing authorities with respect to the
manufacturing premises used in the
venture.
|
This Processing Agreement does not
contain any termination clauses. Should the Dongguan Sun Line Processing
Agreement be terminated pre-maturely due to a breach by the PRC counterparty to
this Processing Agreement, the PRC counterparty will be required to compensate
Sun Line (HK) for all losses and damages arising from such breach available
under the PRC contract law.
Shenzhen Broadway Processing
Agreement. This Processing Agreement that Broadway Industrial
(BVI) entered into on December 18, 1996, as amended and supplemented on
June 22, 2006 and July 10, 2006, respectively, with Shenzhen City Shamin
Industrial Co., Ltd. was approved by Shenzhen City Baoan District Economic
Development Bureau on December 20, 1996, June 28, 2006 and July 11, 2006,
respectively. The Shenzhen Broadway Processing Factory received and is in
possession of the following licenses:
|
|
·
|
business
license, from Shenzhen City Administration of Industry and Commerce Baoan
Branch, with a current term of operation from December 20, 1996 to
December 17, 2011; and
|
|
|
·
|
Guangdong
Province foreign processing business special permit, from Shenzhen City
Administration of Industry and Commerce Baoan Branch, with a current
validity period from December 20, 1996 to December 17,
2011.
|
This Processing Agreement contemplates
a mutually beneficial venture between Broadway Industrial (BVI) and the PRC
counterparty to this Processing Agreement, Shenzhen City Shamin Industrial Co.,
Ltd., under the following terms:
|
|
·
|
Broadway
Industrial (BVI) will provide all manufacturing equipment as well as all
raw and other materials required in the manufacturing of its products
without attributing a monetary value to such contribution by Plastec to
the venture;
|
|
|
·
|
Broadway
Industrial (BVI) is responsible for transportation, installation, testing
and technical management of its
equipment;
|
|
|
·
|
Broadway
Industrial (BVI) will hire and fire employees through its contractual
counterparty;
|
|
|
·
|
the
PRC counterparty is responsible for providing the relevant manufacturing
premises and manufacturing labor to the
venture;
|
|
|
·
|
the
PRC counterparty is responsible for making available water and electricity
necessary for the manufacturing needs while Broadway Industrial (BVI) is
responsible for paying such
utilities;
|
|
|
·
|
the
PRC counterparty is responsible for assisting Broadway Industrial (BVI) in
completing the PRC customs clearance for the imports and exports of the
venture;
|
|
|
·
|
the
PRC counterparty will provide the factory manager, finance officer,
warehouse personnel and other factory administrative
personnel;
|
|
|
·
|
the
venture is subject to a three-month probation from the effective date of
the Processing Agreement during which the parties will evaluate the
viability of the venture;
|
|
|
·
|
Broadway
Industrial (BVI) is responsible for accepting all products of acceptable
quality for export;
|
|
|
·
|
Broadway
Industrial (BVI) must pay the PRC counterparty an agreed monthly
processing fee on the basis of the labor used, volume of products produced
and the land and manufacturing premises provided by its contractual
counterparty;
|
|
|
·
|
any
delay over 15 days by Broadway Industrial (BVI) in its payment of the
processing fee to the PRC counterparty is subject to interest compensation
based on the prevailing interest rates of a Hong Kong bank for each
delayed day, and any such delay over 30 days is subject to suspension of
delivery of products from the Processing Factory and other measures that
its contractual counterparty may take;
and
|
|
|
·
|
any
dispute between the parties relating to the Processing Agreement is
subject to arbitration by China International Economic and Trade
Arbitration Commission Shenzhen
Branch.
|
This
Processing Agreement also contains the following termination clauses
if:
|
|
·
|
Broadway
Industrial (BVI) fails to start production for a continuous six-month
period;
|
|
|
·
|
either
party fails to perform its obligations under the Processing Agreement
within two months after it came into
force;
|
|
|
·
|
either
party may unilaterally terminate the Processing Agreement upon payment by
the terminating party of two-month processing fees pursuant to the
Processing Agreement;
|
|
|
·
|
parties
to the Processing Agreement mutually agree to terminate;
or
|
|
|
·
|
the
Processing Agreement is not extended by either party upon the expiry of
the Processing Agreement.
|
Sales
and Marketing
Plastec manufactures its products
solely on the basis of customer orders. Plastec’s major customers include
leading international OEM, ODM and OBM manufacturers of consumer electronics,
electrical home appliances, telecommunication devices and computer peripherals.
Plastec markets its manufacturing services largely through specific targeted
client developments, rather than large-scale promotion efforts, such as various
trade shows organized for the plastic industry. Plastec’s marketing personnel
are mostly plastic industry engineers or technicians. They endeavor to identify
appropriate potential customers and to qualify Plastec for the approved vendor
status at these customers. A vendor qualification process typically takes six to
18 months in the plastics industry for precision plastic manufacturing services.
Once a potential customer is identified and has expressed interest in exploring
Plastec’s services, it will often involve an initial period of questions and
answers, followed by various in-depth interactive investigations by the
potential customer, including factory audit, technical capacity and capability
audit, QC audit, supplier audit, attention-to-detail evaluation, environmental
assessment, financial analysis and general industry reputation
investigation.
Plastec’s products are sold principally
to leading international OEM, ODM and OBM manufacturers of consumer electronics,
electrical home appliances, telecommunication devices and computer peripherals.
Plastec is committed to providing quality products and quality services to its
customers. In addition to maintaining the solid working relationship with its
current customers principally in Guangdong Province of China, Plastec is
actively developing new clientele, not only with respect to leading
international OEM, ODM and OBM manufacturers with whom Plastec has not had an
opportunity to cooperate, but also with respect to its current multinational
customers with operations in regions other than Guangdong Province in
China.
Plastec’s marketing and sales staffs
are able to understand the business and technical needs of its customers, to
engage in in-depth discussions with its customers with respect to their
requirements, and to assist its customers in enhancing and materializing the
contemplated functionalities of the products they plan to launch. In addition to
liaising with customers, securing sales orders and providing after-sales
services, Plastec’s marketing and sales professionals also play an important
role in promoting Plastec’s corporate image through its dedication and
professionalism. In the past, Plastec has also developed important customers and
generated significant sales through referrals from existing
customers.
Credit
Control Policy
Plastec usually requires its customers
to pay an advance deposit for production of molds to cover the related
development costs. Payment of the balance of the production of molds and
manufacturing of plastic products is typically subject to normal credit terms
ranging from approximately 60 to 120 days. However, the exact credit term
granted to a customer is dependent on a number of criteria such as the length of
business relationship, general market standing, past payment record and
financial strength of the relevant customer. Plastec’s finance department
reviews and approves the credit term of each customer before it is agreed and
implemented.
The credit terms extended to Plastec by
its trade suppliers are mostly between 30 to 90 days. Occasionally, Plastec’s
trade suppliers extend credit terms to it for as long as 180 days.
Inventory
Management
As Plastec’s production process is
sales driven, it commences production only after it has received confirmation
from its customers with respect to their purchase orders. Similarly, Plastec
purchases raw materials in accordance with the pre-determined production
schedules. Plastec’s production model, therefore, allows it to minimize its
inventory level due to the fact that it purchases the majority of its raw
materials only when they are needed to fulfill its customers’ orders. Plastec
also maintains a minimum inventory of finished goods as it endeavors to
manufacture its products in accordance with its customers’ “just-in-time”
delivery production schedules.
As at
April 30, 2008, 2009 and 2010, Plastec’s inventory level was approximately
HK$100.1 million, HK$83.2 million, and HK$74.3 million, respectively. Plastec
reviews its inventory level on an ongoing basis. Generally, it makes provision
for any slow-moving inventory that is older than six months. Plastec may sell
obsolete inventory as scrap and recognize income derived from such sales as part
of Plastec’s other income.
Research
and Development
Plastec does not have a dedicated
research and development department. As a result, Plastec does not separately
account for research and development expenditures, as they are included in
Plastec’s cost of sales. However, in response to its customers’ technical
requirements, Plastec launches various research and development initiatives as a
part of its manufacturing process, to focus on enhancing mold design and
fabrication, the overall manufacturing process and the secondary-process
finishing. Plastec organizes its engineers and other technical personnel to
undertake these efforts to improve the quality of its products and services and
to widen its manufacturing capabilities and know-how. Plastec will continue to
upgrade and expand its capabilities in mold design and fabrication and in its
integrated manufacturing services in order to provide higher value-added
services to its customers.
Major
Customers
Plastec’s major customers consist of
some of the leading international OEM, ODM and OBM manufacturers of consumer
electronics, electrical home appliances, telecommunication devices and computer
peripherals. Plastec believes that it has maintained good working relationships
with its customers. Due to the nature of the plastics industry, Plastec has
attached as much importance to customer maintenance as to customer
development.
Plastec has five customers which
accounted for 5.0% or more of its total turnover, who on aggregate, accounted
for approximately 41.0%, 50.2% and 66.2% of Plastec’s turnover for the years
ended April 30, 2008, 2009 2010, respectively. Historically, Plastec’s largest
customer accounted for approximately 19.3%, 23.5% and 32.5% of Plastec’s
turnover for the years ended April 30, 2008, 2009 and 2010,
respectively.
Major
Suppliers and Raw Materials
Plastec purchases a variety of raw
materials, including resins, chemicals, solvent and mold base, from over 40
suppliers in China and Hong Kong. Plastec’s customers determine the suppliers of
specific raw materials to be used in their products. With its customer’s
approved suppliers, Plastec negotiates the price and quantity of raw materials
with the suppliers. Plastec’s customers typically provide multiple suppliers for
any specific raw material. To a significant extent, Plastec’s customers maintain
control over the quality and pricing of raw materials used in their products and
Plastec is generally allowed to pass through any significant raw material price
increases or decreases to them.
Plastec had three suppliers which
accounted for 5.0% or more or its total purchases, who on aggregate, accounted
for approximately 27.2%, 30.2%, and 38.2% of Plastec’s turnover for the years
ended April 30, 2008, 2009 2010, respectively. Historically,
Plastec’s largest supplier accounted for approximately 16.9%, 18.1% and 22.7% of
Plastec’s turnover for the years ended April 30, 2008, 2009 and 2010,
respectively.
The settlement for Plastec’s purchases
of raw materials are mostly denominated either in Hong Kong dollars or U.S.
dollars on an open account basis with credit terms ranging from 30 to 90
days.
As disclosed in the section above
titled “Inventory Management,” because Plastec’s production is customer driven,
it commences production only upon receipt of a customer’s purchase orders.
Similarly, Plastec purchases raw materials according to a pre-determined
production schedule. Plastec endeavors to minimize its inventory risk by
purchasing the majority of raw materials only when needed to fulfill customers’
orders.
Plastec has not experienced any
difficulties in obtaining raw materials from its suppliers. Plastec has
generally maintained a good business relationship with its suppliers and does
not believe that it will experience any significant difficulties in sourcing raw
materials from its existing suppliers or in finding alternative suppliers if
necessary in the future.
Competition
There are many precision plastic
product manufacturing service providers in China and Hong Kong. Plastec’s
industry is fragmented and Plastec is not aware of any independent published
statistics on market share or industry ranking for its industry.
Plastec believes that its main
competitors include the following:
|
Company
|
|
Competing activities
|
|
Deswell
Industries
|
|
Mold
design and fabrication; precision plastic injection molding;
secondary-process finishing; parts assembly
|
|
Sunningdale
Tech Ltd.
|
|
Mold
design and fabrication; precision plastic injection molding;
secondary-process finishing; parts assembly
|
|
Hi-P
International Limited
|
|
Mold
design and fabrication; precision plastic injection molding;
secondary-process finishing; parts assembly
|
|
Fu
Yu Corp. Ltd.
|
|
Mold
design and fabrication; precision plastic injection molding;
secondary-process finishing; parts assembly
|
|
Fischer
Tech Ltd.
|
|
Mold
design and fabrication; precision plastic injection
molding
|
|
First
Engineering Group
|
|
Mold
design and fabrication; precision plastic injection molding;
secondary-process finishing; parts
assembly
|
Plastec believes that the key factors
considered by customers when choosing a vendor for precision plastic products
and services include the vendor’s overall capabilities, such as ability to
provide integrated manufacturing and finishing services, mold design and
fabrication capabilities, products quality, scope and flexibility of product
offering, speed of supply, pricing, attention to details, financial strength, as
well as the customer’s previous experience and relationships with the vendor.
Plastec believes that its in-house mold design and fabrication capability, its
integrated precision plastic manufacturing and finishing capability, its
in-depth knowledge and know-how in this industry and its advanced machinery and
equipment give it a competitive advantage over many of its
competitors.
While most of the foreign
manufacturers, including Plastec, with production sites in China currently
dominate the higher-end sector of the PRC plastic OEM, ODM and OBM market,
domestic PRC manufacturers, including various medium- and small-size companies,
largely compete in the mid- to lower-end market. Domestic PRC manufacturers,
however, often have wider sales networks in the country and lower production
costs. In addition, they are quickly catching up in manufacturing technology and
overall quality control. In addition, China has lifted its import restrictions,
lowered import tariffs and relaxed foreign investment restrictions after its
entry into the World Trade Organization in December 2001. This has led to
increased competition from foreign imports. Plastec cannot assure that, as more
foreign and domestic competitors establish PRC-based manufacturing facilities to
lower their production costs, price competition will not further intensify in
the marketplace.
Properties
At April
30, 2010, Plastec owned the following land use rights:
|
|
|
|
|
|
|
Land
use
rights
certificate
no.
|
|
|
|
|
|
Building
ownership
certificate no.
|
|
Heyuan
Sun Line Manufacturing Plant
|
|
Diaoyutai
Hongyue Science & Technology Park, Hevuan City
|
|
72,993
|
|
He
Guo Fu (2004) 555
|
|
March
26, 2054
|
|
6,912.2
2,726.0
|
|
C4074932
C4078389
|
At April
30, 2010, the Manufacturing Plants and the Processing Factories of Plastec also
leased the following land use rights:
|
Plant
|
|
Location
|
|
Site
area/
sq.
m.
|
|
Status
of
Land
|
|
Gross
floor
area/
sq.
m.
|
|
Leasehold
Land
and
Premises
Lessor
|
|
Lessee
|
|
Activities
|
|
Commencement
Date
|
|
Expiration
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dongguan
Sun Chuen Manufacturing Plant
|
|
Ailingkan
Xiangdong Industrial Zone, Dalingshan Township, Dongguan City, Guanadong
Province
|
|
N.A.
|
|
Collectively
owned
land
|
|
12,000
|
|
Dongguan
Dalingshan Township Ailingkan Village 10th
Economic Cooperation Organization
|
|
Dongguan
Sun Chuen
|
|
Industrial
|
|
Dec./07
|
|
11/30/2015
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dongguan
Sun Line Processing Plant
|
|
Daling
Village, Dalingshan Township, Dongguan City, Guangdong
Province
|
|
9,333
|
|
Collectively
owned
land
|
|
11,543
|
|
Yuan
Xuemei and Ye Manzhi
|
|
Dongguan
Sun Line Processing Factory
|
|
Industrial
|
|
Dec./02
|
|
05/31/2014
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daling
Village, Dalingshan Township, Dongguan City, Guangdong
Province
|
|
8,540
|
|
State
owned
land
|
|
28,341
|
|
Dongguan
Dalingshan Guangyi Furniture Factory
|
|
Dongguan
Sun Line Processing Factory
|
|
Industrial
|
|
Dec./02
|
|
05/31/2015
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shenzhen
Broadway Processing Factory
|
|
Shajing
Township Xinqiao Village Furongmei Area, Bao’an District, Shenzhen City,
Guangdong Province
|
|
47,190
|
|
Collectively
owned
land
|
|
60,150
|
|
Broadway
Manufacturing Co. Ltd.
|
|
Shenzhen
Broadway Processing Factory
|
|
Industrial
|
|
Apr./09
|
|
02/02/2014
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kunshan
Broadway Manufacturing Plant
|
|
88
Chang Shun Road, Chang Po Town, Kunshan City, Jiangsu
Province
|
|
7,142
|
|
Collectively
owned
land
|
|
8,191
|
|
Kunshan
Weixia Metal Products Co. Ltd.
|
|
Kunshan
Broadway
|
|
Industrial
|
|
Aug./08
|
|
08/10/2018
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kunshan
Broadway Manufacturing Plant
|
|
168
Chang Shun Road, Chang Po Town, Kunshan City, Jiangsu
Province
|
|
3,500
|
|
Collectively
owned
land
|
|
4,500
|
|
Kunshan
City, Chang Po Town, Jinhua Village Committee
|
|
Kunshan
Broadway
|
|
Industrial
|
|
Mar./10
|
|
03/01/2019
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhuhai
Sun Line Manufacturing Plant
|
|
22
Shinhe No. 2 Road, Baijiao Scientific & Technological Industry Park,
Zhuhai City, Guanadong Province
|
|
43,017
|
|
State
owned
land
|
|
24,480
|
|
Zhuhai
Kaishinda Investment Co. Ltd.
|
|
Zhuhai
Sun Line
|
|
Industrial
|
|
Nov./08
|
|
10/31/2018
|
Employees
Plastec
has an aggregate of 4,696 employees either directly employed by it or employed
pursuant to the Processing Agreements. Plastec considers its relationships with
its employees to be good and expect that this relationship will continue in the
future. Plastec has not experienced any strikes or work stoppages by its
employees since its inception.
Plastec’s
Management Discussion and Analysis of Financial Condition and Results of
Operations
The following are the key factors that
may affect Plastec’s financial condition and results of operations:
Plastec’s ability to stay
current with the latest market trends and technology
Continued
growth of Plastec’s business depends to a significant extent on its ability to
enhance its existing products and services and to develop new ones in light of
the latest market trends and technology. As a majority of Plastec’s customers
make and sell consumer electronics and electrical home appliances, its industry
is characterized by rapid technological changes and changing consumer
preferences. Most of the consumer electronics and electrical home appliances
tend to have short product life cycles, faster technology obsolescence and
constantly evolving industry standards. In order to stay current with the latest
market trends and technology, Plastec must continually invest in new machines
and technologies to upgrade and expand its manufacturing capabilities and
know-how. If Plastec is unable to remain up to date with respect to market
trends and technology and correspondingly respond to its customers’ requirements
on a timely basis, demand for Plastec’s products and services will be adversely
affected.
Plastec’s ability to
retain existing customers and compete for additional customers and new
businesses
Plastec’s precision plastic
manufacturing industry services principally a limited number of multinational
corporations. Plastec depends on approximately five major customers, who on
aggregate, accounted for approximately 41.0%, 50.2%, and 66.2% of Plastec’s
turnover for the years ended April 30, 2008, 2009, 2010, respectively.
Historically, Plastec’s largest customer accounted for approximately 19.3%,
23.5%, and 32.5% of its turnover for the years ended April 30, 2008, 2009 and
2010, respectively.
Plastec’s ability to retain its
existing customers, to develop additional customers, and to secure new business
opportunities from these existing and new customers is vital to Plastec’s
ongoing success and future expansion. Plastec’s industry is competitive, and it
expects to become more competitive as the plastic market becomes more globally
integrated and as new entrants enter into this global market. If Plastec loses,
or receives reduced orders from, one or more of its existing major customers, or
if Plastec fails to develop additional customers, or if Plastec fails to execute
its expansion plan to compete for new business opportunities from these existing
or new customers in different jurisdictions or in additional product categories,
Plastec’s results of operations will be adversely affected.
Changes in selling prices and gross
margin
A majority of Plastec’s customers are
manufacturers of consumer electronics, electronic home appliances,
telecommunication devices or computer peripherals. As is typical in these
industries, the selling prices of the end products tend to decline significantly
over time. As a result, Plastec’s customers have also placed pricing pressure on
its products over the life of the product. Plastec believes the selling prices
of each of its products will continue to decline for the foreseeable future. To
offset the declining selling prices, Plastec must receive orders for new
products that command higher initial selling prices in a timely manner. In
addition, because the higher initial selling prices of a product often result in
a higher gross margin, if Plastec receives a large order of a new product or
multiple orders of different new products in a short period of time, Plastec may
experience an increase in its gross margin. Conversely, if Plastec does not
receive orders for new products over time and cannot otherwise increase the
selling prices of its products in a timely manner, its gross margins will
decline.
Market
demand for products made and sold by customers
Plastec does not sell its products
directly to the mass consumer market. Instead, it sells its products, largely
plastic components, to leading international OEM, ODM and OBM manufacturers for
them to incorporate into their consumer electronics products, electrical home
appliances, telecommunication devices and computer peripherals. Market demand
for Plastec’s products is, therefore, derived from the demand for the products
of its customers. Plastec’s customers market their products globally and any
significant change in the global demand or preference for these consumer
electronics products, electrical home appliances, telecommunication devices and
computer peripherals will affect Plastec’s revenue. The ability of Plastec’s
customers to compete successfully to increase their market share will indirectly
affect its business prospects and results of operations.
Critical
Accounting Policies
Plastec prepares its consolidated
financial statements in accordance with IFRS, which requires it to make
judgments, estimates and assumptions that affect:
|
|
·
|
the
reported amounts of its assets and
liabilities;
|
|
|
·
|
the
disclosure of its contingent assets and liabilities at the end of each
reporting period; and
|
|
|
·
|
the
reported amounts of revenues and expenses during each reporting
period.
|
Plastec continually evaluates these
estimates based on its own experience, knowledge and assessment of current
business and other conditions, its expectations regarding the future based on
available information and reasonable assumptions, which together form its basis
for making judgments about matters that are not readily apparent from other
sources. Some of Plastec’s accounting policies require a higher degree of
judgment than others in their application. When reading Plastec’s consolidated
financial statements, you should consider:
|
|
·
|
its
selection of critical accounting
policies;
|
|
|
·
|
the
judgment and other uncertainties affecting the application of such
policies; and
|
|
|
·
|
the
sensitivity of reported results to changes in conditions and
assumptions.
|
Plastec believes the following
accounting policies involve the most significant judgments and estimates used in
the preparation of its financial statements:
Depreciation
and amortization
Plastec’s long-lived assets include
property, plant and equipment. Plastec amortizes its long-lived assets using the
straight-line method over the estimated useful lives of the assets, taking into
account the assets’ estimated residual values. Plastec estimates the useful
lives and residual values at the time it acquires the assets based on its
management’s knowledge on the useful lives of similar assets and replacement
costs of similar assets having been used for the same useful lives respectively
in the market, and taking into account anticipated technological or other
changes. On this basis, Plastec has estimated the useful lives of its buildings
to be 30 years, its leasehold improvements to be three to six years, its plants
and machinery to be three to ten years, its furniture and office equipment to be
three to six years, its computer equipment to be three to four years, its moulds
to be two to five years and its motor vehicles to be five years. Plastec reviews
the estimated useful life and residual value for each of its long-lived assets
on a regular basis. If technological changes are to occur more rapidly than
anticipated, Plastec may shorten the useful lives or lower the residual value
assigned to these assets, which will result in the recognition of increased
depreciation and amortization expense in future periods.
Turnover
Plastec derives revenues primarily from
the sale of precision plastic parts and components in its role as an integrated
plastic manufacturing service provider. Plastec’s sales and
percentage sales to these different categories of customers for the periods
described were approximately as follows:
|
|
|
2008
|
|
|
|
|
|
2009
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
HK$’000
|
|
|
%
|
|
|
HK$’000
|
|
|
%
|
|
|
HK$’000
|
|
|
%
|
|
|
Consumer
electronics
|
|
|
390,590 |
|
|
|
39.6 |
|
|
|
490,810 |
|
|
|
53.7 |
|
|
|
492,511 |
|
|
|
51.0 |
|
|
Electrical
home appliances
|
|
|
141,162 |
|
|
|
14.3 |
|
|
|
72,271 |
|
|
|
7.9 |
|
|
|
22,433 |
|
|
|
2.3 |
|
|
Telecom
devices
|
|
|
97,068 |
|
|
|
9.8 |
|
|
|
97,463 |
|
|
|
10.7 |
|
|
|
144,496 |
|
|
|
14.9 |
|
|
Computer
peripherals
|
|
|
154,487 |
|
|
|
15.7 |
|
|
|
57,723 |
|
|
|
6.3 |
|
|
|
53,468 |
|
|
|
5.5 |
|
|
Others
|
|
|
202,902 |
|
|
|
20.6 |
|
|
|
195,177 |
|
|
|
21.4 |
|
|
|
253,847 |
|
|
|
26.3 |
|
|
Total
|
|
|
986,209 |
|
|
|
100.0 |
|
|
|
913,444 |
|
|
|
100.0 |
|
|
|
966,755 |
|
|
|
100.0 |
|
Plastec categorizes its sales as
described in the table above on the basis of the primary industry to which its
immediate customers belong, regardless of the actual goods it ships to such
customers. For example, if a consumer electronics customer orders its goods for
computer peripherals, Plastec generally groups such shipments under consumer
electronics for the purpose of its sales analysis. While Plastec has maintained
sales to its consumer electronics and electrical home appliances customers, it
has over the years made increasing amount of sales to other customers, such as
manufacturers of telecommunication devices, computer peripherals and other
manufacturers. Such sales analysis information is not based on IFRS requirements
or any other accounting standards. You should not place undue reliance on such
data.
The
Asia-Pacific region, primarily including China, Hong Kong, Japan, Korea, Taiwan,
Thailand and Vietnam on the basis of the immediate destination of sales, has
been Plastec’s principal geographical market, contributing 96.6%, 91.4% and
83.1% for the three years ended April 30, 2008, 2009 and 2010, respectively.
Other markets, especially Europe and United States, contributed 3.4%, 8.6% and
16.9% to Plastec’s turnover for each of the three years ended April 30, 2008,
2009 and 2010, respectively. Plastec determines the geographical market of its
sales based on the immediate destination of its goods
shipped.
Cost of Sales
The main components of Plastec’s cost
of sales are raw materials, direct labor costs and factory overheads. Raw
materials mainly include mold bases, resins, paints and solvents. Plastec’s
direct labor cost relates to employees directly hired by it, indirect employees
it hired from the PRC counterparties and temporary employees it hires from time
to time. Plastec’s factory overhead includes machinery depreciation, rental
expenses, utility consumed and other indirect factory overheads. Plastec’s cost
of sales and percentage cost of sales for the periods presented were
approximately as follows:
|
|
|
Year
ending April 30,
|
|
|
|
|
2008
|
|
|
|
|
|
2009
|
|
|
|
|
|
2010
|
|
|
|
|
|
Component
|
|
HK$’000
|
|
|
%
|
|
|
HK$’000
|
|
|
%
|
|
|
HK$’000
|
|
|
%
|
|
|
Raw
materials
|
|
|
370,195 |
|
|
|
48.3 |
|
|
|
371,741 |
|
|
|
49.6 |
|
|
|
371,249 |
|
|
|
45.8 |
|
|
Factory
overheads
|
|
|
278,181 |
|
|
|
36.3 |
|
|
|
245,192 |
|
|
|
32.7 |
|
|
|
293,367 |
|
|
|
36.2 |
|
|
Direct
labor
|
|
|
117,530
|
|
|
|
15.4 |
|
|
|
132,716 |
|
|
|
17.7 |
|
|
|
145,571 |
|
|
|
18.0 |
|
|
Total
|
|
|
765,905 |
|
|
|
100.0 |
|
|
|
749,649 |
|
|
|
100.0 |
|
|
|
810,187 |
|
|
|
100.0 |
|
Approximately 61.5% of Plastec’s
purchases of raw materials in the year ended April 30, 2010 were denominated in
Hong Kong dollars, 32.6% in U.S. dollars and 5.9% in Renminbi. The main factor
affecting the prices of Plastec’s raw materials is the supply and demand for
resins, mold bases and paints. However, fluctuations in prices of raw materials
have not significantly affected Plastec’s gross margins primarily because its
quotations to its customers have been on a “cost-plus” basis that took into
account the pre-determined prices of these raw materials as requested by its
customers. In addition, Plastec’s quotations to customers are generally subject
to revision in the event of any significant increase in raw material
prices.
Gross Margin
In general, factors affecting Plastec’s
revenue and cost of sales will affect its gross profit margin. The following
factors tend to have a material effect on Plastec’s gross margins:
|
|
·
|
Stage of the product life
cycle. Most of the plastic parts and components Plastec
manufactures tend to experience price erosion over the life cycle of the
end-products that its customers make and sell. Such products, especially
consumer electronics and electrical home appliances, generally command a
higher premium in the earlier stages of their life circle and tend to
decline toward the end of their life cycles. This life cycle also affects
the pricing of Plastec’s products. The pricing pressure is particularly
acute and apparent during the time when products at the end of their life
cycles are not replaced with new products, although such decline in margin
is often compensated by larger volumes of orders subsequent to the
start-up stage of a product.
|
|
|
·
|
Volume discount.
Typically, Plastec’s customers with purchase orders exceeding a certain
quantity will request and receive a volume discount from it. Such volume
discounts will lead to a decrease in Plastec’s unit selling price and
lower its profit margin as a
result.
|
|
|
·
|
Market penetration
strategy. From time to time, Plastec may price its products
competitively to penetrate deeper into its target markets or to attract
new customers. Such strategy will also lead to a decrease in Plastec’s
unit selling price and lower its profit margin as a
result.
|
Operating
Costs
Plastec’s operating costs
mainly comprise of administrative expenses and distribution costs, as well as
finance costs. Plastec’s administrative
expenses and distribution costs comprise mainly staff costs, including its
directors’
fees and remuneration, general administrative expenses, marketing expenses and
office expenses, and constituted approximately HK$68.0 million, HK$98.3 million
and HK$104.2 million in the years ended April 30, 2008, 2009 and 2010,
respectively. Included in the administrative expenses and
distribution costs, Plastec recorded loss on disposals of and write offs of
fixed assets for approximately HK$29.0 million and HK$40.3 million in the years
ended April 30, 2009 and 2010, respectively.
Plastec’s finance costs include mainly
bank interest and charges in relation to its bank borrowings and finance leases,
and constituted approximately HK$8.1 million, HK$5.4 million and HK$2.7 million
in the years ended April 30, 2008, 2009 and 2010, respectively.
Income Tax
Due to the various tax incentives
available to Plastec, its effective corporate income tax rates for the years
ended April 30, 2008, 2009 and 2010 were 5.9%, 1.2% and 19.7%,
respectively. The comparatively lower effective tax rate in 2009 was
due to a write back of an over-provided income tax provision in prior
years.
Hong Kong. Plastec is subject
to income tax on its profits in Hong Kong at the prevailing corporate tax rate
of 16.5%. Plastec makes provisions for its Hong Kong profit tax in its combined
financial statements in reliance on the Departmental Interpretation and Practice
Note No. 21 issued by the Hong Kong Inland Revenue Department regarding
processing arrangements. Accordingly, Plastec’s relevant subsidiaries have made
provisions at the prevailing Hong Kong profit tax rate on 50% of their estimated
assessable profit from their sale of goods manufactured in China under their
processing arrangements for each year.
China. Dongguan Sun Chuen,
Heyuan Sun Line Industrial, Zhuhai Sun Line and Kunshan Broadway are Plastec’s
operating subsidiaries with operations in China. As a result, Plastec is subject
to various PRC taxes as well as the benefits of various PRC tax incentives. The
rate of income tax chargeable on companies in China varies depending on the
availability of preferential tax treatment or subsidies based on their industry
or location. Under PRC laws and regulations, prior to December 31, 2007, a
company established in China was typically subject to a national enterprise
income tax at the rate of 30% on its taxable income and a local enterprise
income tax at the rate of 3% on its taxable income. The PRC government has
provided various incentives to foreign-invested enterprises to encourage foreign
investments. Foreign-invested enterprises that are determined by PRC tax
authorities to be manufacturing companies with authorized terms of operation for
more than ten years are eligible for:
|
|
·
|
a
two-year exemption from the national enterprise income tax beginning with
their first profitable year; and
|
|
|
·
|
a
50% reduction of their applicable national enterprise income tax rate for
the succeeding three years.
|
The local preferential enterprise
taxation treatment is within the jurisdiction of the local provincial
authorities as permitted under the current PRC tax laws relating to foreign-
invested enterprises. The local tax authorities decide whether to grant any tax
preferential treatment to foreign-invested enterprises on basis of their local
conditions. Under such PRC laws and regulations, Plastec’s PRC subsidiary,
Dongguan Sun Chuen, has been approved by the relevant PRC tax authorities for a
reduced national enterprise income tax rate of 15% from 2009 through 2011. When
these tax benefits expire, the effective tax rate of Plastec’s PRC subsidiaries
will increase, which will result in an increase in Plastec’s income tax
expenses.
In March 2007, the National People’s
Congress of China enacted a new Enterprise Income Tax Law, which became
effective on January 1, 2008; in December 2007, the State Council promulgated
the Regulations on the Implementation of the Enterprise Income Tax Law of the
PRC, which became effective on January 1, 2008. The new tax law imposes a
unified income tax rate of 25% on all domestic enterprises and foreign-invested
enterprises unless they qualify under certain limited exceptions, and the
enterprise income tax will on longer be divided into the national enterprise
income tax and the local enterprise income tax. The new PRC tax law also permits
companies to continue to enjoy their existing preferential tax treatment until
such treatment expires in accordance with its current terms. Under the new PRC
tax law, as Zhuhai Sun Line and Kunshan Broadway were incorporated in 2008, they
are subject to the unified income tax rate of 25% on all sales, while Dongguan
Sun Chuen, which was approved by the relevant PRC tax authorities for a reduced
national enterprise income tax rate of 15% from 2009 through 2011, will be
subject to half of the unified income tax rate of 25%, i.e. 12.5%.
Under the PRC tax law effective prior
to January 1, 2008, dividend payments to foreign investors made by
foreign-invested enterprises such as its PRC Subsidiaries are exempt from PRC
withholding tax. Pursuant to the new PRC tax law, however, dividends payable by
a foreign-invested enterprise to its foreign investors is subject to a 10%
withholding tax, unless any such foreign investor’s jurisdiction of
incorporation has a tax treaty with China that provides for a different
withholding arrangement. Heyuan Sun Line Industrial is directly held by the Hong
Kong-incorporated Sun Line (HK) and Dongguan Sun Chuen is directly held by
Samoa-incorporated New Skill. While Hong Kong has a tax treaty with China to
reduce such withholding tax to 5% for Hong Kong-incorporated holding companies,
Samoa does not have any such treaty with China.
Macau. Under Decree-Law No.
58/59/M, a Macau company incorporated under such 58/59/M law is exempt from
Macau complementary tax, or Macau income tax, as long as such 58/59/M company
does not sell its products to a Macau resident. Plastec’s subsidiary, Sun Line
(Macau), was incorporated in Macau and is qualified as a 58/59/M
company.
Review
of Results of Operations
Year ended April 30, 2010 v.
year ended April 30, 2009
Turnover. Plastec’s turnover
increased by approximately 5.8% to HK$966.8 million in the year ended April 30,
2010 from HK$913.4 million in the year ended April 30, 2009. During
the year, the global economic environment became more stable compared to the
prior year. Plastec continued to strengthen its production
capabilities and capacities to cater to different product requirements of its
customers. Some of the sales orders from its customers dropped
because of such customers’ own internal reasons, although Plastec could still
solicit more sales orders from its major customers to balance the
effect. Additionally, Plastec’s Zhuhai and Kushan Manufacturing
Plants started to provide contributions in this year.
Cost of sales. Plastec’s cost
of sales increased by approximately 8.1% to HK$810.2 million in the year ended
April 30, 2010 from HK$749.6 million in the year ended April 30, 2009. The
increase of cost of sales in the year ended April 30, 2010 primarily resulted
from the increase in factory overhead and labor expenses during the fiscal year
resulting from higher production levels. The cost of Plastec’s
materials was HK$371.3 million, or approximately 45.8% of its total cost of
sales, in the year ended April 30, 2010 compared to HK$371.7 million, or
approximately 49.6%, in the year ended April 30, 2009. Plastec’s direct labor
costs increased to HK$145.6 million, or approximately 18.0% of its cost of
sales, in the year ended April 30, 2010 compared to HK$132.7million, or
approximately 17.7%, in the year ended April 30, 2009. The increase in direct
labor costs was in line with overall increased wages of local labor including
other workers' benefits. Plastec’s factory overhead increased to
HK$293.4 million, or approximately 36.2% of its total cost of sales, in the year
ended April 30, 2010 as compared to HK$245.2 million, or approximately 32.7%, in
the year ended April 30, 2009, as a result of increase in subcontracting for
further processing in production and depreciation.
Gross profit. Plastec’s gross
profit decreased by approximately 4.4% to HK$156.6 million in the year ended
April 30, 2010 from HK$163.8 million in the year ended April 30, 2009. Plastec’s
gross profit margin decreased to 16.2% from 17.9% between the two fiscal years.
This was primarily due to the increased direct labor costs and factory overhead
during the year.
Other income. Plastec’s other
income increased by approximately 134.9% to HK$5.5 million in the year ended
April 30, 2010 from HK$2.3 million in the year ended April 30, 2009. The
increase was mainly due to net exchange gain and sales of scrap materials and
fixed assets no longer in use.
Administrative expenses and
distribution costs. Plastec’s administrative expenses and distribution
costs increased by approximately 6.0% to HK$104.2 million in the year ended
April 30, 2010 from HK$98.3 million in the year ended April 30, 2009. Included
in the administrative expenses was a loss on write off of fixed assets for a sum
of HK$40.3 million in the year ended April 30, 2010 and HK$29.0 million in the
year ended Apr 30, 2009. The write off resulted from the close down
of the Shenzhen Sunline Processing Factory and the Shenzhen Sun Ngai Processing
Factory during the year.
Finance costs. Plastec’s
finance costs decreased by approximately 49.0% to HK$2.7 million in the year
ended April 30, 2010 from HK$5.4 million in the year ended April 30, 2009. The
decrease was primarily due to the lower balance in Plastec’s outstanding
obligations under its finance leases bearing higher interest rate while average
balance of its bank borrowings bearing lower interest rate were
increased.
Profit before tax. Plastec’s
profit before tax decreased by approximately 11.8% to HK$55.2 million in the
year ended April 30, 2010 from HK$62.5 million in the year ended April 30,
2009.
Income tax expense. Plastec’s
tax expenses increased by approximately 1,306.3% to HK$10.9 million,
representing an effective tax rate of 19.7%, in the year ended April 30, 2010
from HK$0.8 million, representing an effective tax rate of 1.2%, in the year
ended April 30, 2009. As there was a written back of the income tax
being over-provided in prior years for the year ended April 30, 2009, Plastec’s
effective tax rate increased for the year ended 30, 2010.
Profit for the year.
Plastec’s net profit for the year decreased by approximately 28.2% to HK$44.3
million in the year ended April 30, 2010 from HK$61.7 million in the year ended
April 30, 2009.
Year ended April 30, 2009 v.
year ended April 30, 2008
Turnover. Plastec’s turnover
decreased by approximately 7.4% to HK$913.4 million in the year ended April 30,
2009 from HK$986.2 million in the year ended April 30, 2008. In the year ended
April 30, 2009, Plastec was affected by the financial crisis from its second
half year, whereas sales orders had been reduced and shipment schedules were
postponed from both existing and new customers.
Cost of sales. Plastec’s cost
of sales decreased by approximately 2.1% to HK$749.6 million in the year ended
April 30, 2009 from HK$765.9 million in the year ended April 30, 2008. The
decrease of its cost of sales in the year ended April 30, 2009 primarily
resulted from the decrease in its sales volume during the fiscal year. The cost
of Plastec’s materials increased to HK$371.7 million, or approximately 49.6% of
its total cost of sales, in the year ended April 30, 2009 as compared to
HK$370.2 million, or 48.3% in the year ended April 30, 2008. On the other hand,
its labor costs increased to HK$132.7 million, or 17.7% of its cost of sales, in
the year ended April 30, 2009 as compared to HK$117.5 million, or 15.4%, in the
year ended April 30, 2008 owing to commencing of the trial run in its newly
established plants in Zhuhai and Kushan. Plastec’s factory overhead decreased to
HK$245.2 million, or 32.7% of its cost of sales, in the year ended April 30,
2009 as compared to HK$278.2 million or 36.3% in the year ended April 30,
2008.
Gross profit. Plastec’s gross
profit decreased by approximately 25.7% to HK$163.8 million in the year ended
April 30, 2009 from HK$220.3 million in the year ended April 30, 2008. Gross
profit margin decreased to 17.9% from 22.3% between the two fiscal years
primarily due to pressure of lower margin sales orders because of the effect of
the financial crisis during the fiscal year.
Other income. Plastec’s other
income decreased by approximately 9.4% to HK$2.3 million in the year ended April
30, 2009 from HK$2.6 million in the year ended April 30, 2008 primarily due to a
low deposits interest rate environment and less sales of scrapped materials no
longer in use.
Administrative expenses and
distribution costs. Plastec’s administrative expenses and distribution
costs increased by approximately 44.4% to HK$98.2 million in the year ended
April 30, 2009 from HK$68.0 million in the year ended April 30, 2008. The
increase in its administrative expense and distribution costs was primarily
attributable to one-off loss on the disposal of fixed assets of HK$29.0 million
in relation to close down of one block of Plastec’s factory in Shenzhen Sun Line
Processing Plant.
Finance costs. Plastec’s
finance costs decreased by approximately 33.8% to HK$5.4 million in the year
ended April 30, 2009 from HK$8.1 million in the year ended April 30, 2008. The
decrease was primarily due to the decreased interest expenses and financial
charges for the decreased average amount of outstanding obligations under its
finance leases, as well as a lower level of bank borrowing.
Profit before tax. As a
result of Plastec’s decrease in its turnover and gross profit and the loss on
the write off of fixed assets, Plastec’s profit before tax decreased by
approximately 57.4% to HK$62.5 million in the year ended April 30, 2009 from
HK$146.8 million in the year ended April 30, 2008.
Income tax expense. Plastec’s
tax expenses decreased by approximately 91.1% from HK8.6 million in the year
ended April 30, 2008, representing an effective tax rate of 5.9%, to HK$0.8
million in the year ended April 30, 2009, representing an effective tax rate of
1.2%. The decrease was primarily due to the write back of an
over-provided income tax provisions in the prior year for approximately HK$6.1
million in the year ended Apr 30, 2009.
Profit for the year.
Plastec’s profit after tax decreased by approximately 55.3% to HK$61.7 million
in the year ended April 30, 2009 from HK$138.1 million in the year ended April
30, 2008.
Liquidity
and Capital Resources
Plastec’s operations have been
generally funded through a combination of net cash generated from its
operations, equity capital and borrowings from financial institutions. Plastec
believes that it has adequate working capital to finance its
operations.
Summary
of Cash Flows
(in HK
dollars thousands)
|
|
|
Year
Ended April 30,
2008
|
|
|
Year
Ended April 30,
2009
|
|
|
Year
Ended April 30,
2010
|
|
|
Net
Cash From Operating Activities
|
|
|
166,141 |
|
|
|
224,394 |
|
|
|
207,786 |
|
|
Net
Cash From Investing Activities
|
|
|
(147,016 |
) |
|
|
(180,521 |
) |
|
|
(178,217 |
) |
|
Net
Cash From Financing Activities
|
|
|
(11,814 |
) |
|
|
(64,128 |
) |
|
|
25,928 |
|
|
|
|
|
7,311 |
|
|
|
(20,255 |
) |
|
|
55,497 |
|
For
the year ended April 30, 2010
Net cash generated from operating
activities. In the year ended April 30, 2010, Plastec generated a net
cash inflow from operating activities of approximately HK$207.8 million, which
comprised operating cash flows before changes in working capital of HK$223.6
million, adjusted for net working capital outflows of HK$8.5 million and income
tax paid of HK$7.3 million.
Net cash used in investing
activities. Plastec recorded a net cash outflow from investing activities
of HK$178.2 million, which was primarily attributable to the purchase of
property, plant and equipment related to Plastec’s capacity expansion including
new plants in Zhuhai and Kunshan as well as facilities upgrading.
Net cash used in financing
activities. Plastec recorded a net cash inflow from financing activities
of HK$25.9 million. This was mainly due to the new bank borrowings, including
the drawdown of two long term bank loans, during the fiscal years.
For
the year ended April 30, 2009
Net cash generated from operating
activities. In the year ended April 30, 2009, Plastec generated a net
cash inflow from operating activities of approximately HK$224.4 million which
comprised operating cash flows before change in working capital of HK$200.2
million, adjusted for net working capital inflows of HK$32.8 million and income
tax paid of HK$8.6 million.
Net cash used in investing
activities. Plastec recorded a net cash outflow from investing activities
of HK$180.5 million which was primarily attributable to the acquisition of
property, plant and equipment.
Net cash from financing
activities. Plastec recorded a net cash outflow from financing activities
of HK$64.1 million. This was mainly due to the repayment of bank borrowings and
finance lease obligations of HK$317.4 million against new bank borrowings of
HK$258.8 million.
For
the year ended April 30, 2008
Net cash generated from operating
activities. In the year ended April 30, 2008, Plastec generated a net
cash inflow from operating activities of approximately HK$166.1 million, which
comprised operating cash flows before change in working capital of HK$234.0
million, adjusted for net working capital outflows of HK$60.0 million and tax
payments of HK$7.8 million.
Net cash used in investing
activities. Plastec recorded a net cash outflow from investing activities
of HK$147.8 million which was primarily attributable to the purchase of
property, plant and equipment of HK$170.4 million.
Net cash used in financing
activities. Plastec recorded a net cash outflow from financing activities
of HK$11.8 million. This was mainly due to the repayment of HK$96.9 million of
bank borrowings and obligations under finance leases against new bank borrowings
of HK$93.0 million.
Working
capital
Plastec believes that it has adequate
working capital for its present requirements and that its net cash generated
from operating activities, together with cash and cash equivalents, its
borrowing capacity and the net proceeds from the merger, will provide sufficient
funds to satisfy its working capital requirements, planned capital expenditures
and debt repayments for the next 12 months.
Indebtedness
The
following table shows Plastec’s indebtedness as of April 30, 2010:
|
|
|
Actual
HK$’000
|
|
|
Short-term
debt:
|
|
|
|
|
Bank
loans
|
|
|
81,240 |
|
|
Finance
lease liabilities
|
|
|
9,762 |
|
|
Long-term
debt:
|
|
|
|
|
|
Bank
loans
|
|
|
32,736 |
|
|
Finance
lease liabilities
|
|
|
5,570 |
|
|
Total
Indebtedness
|
|
|
129,308 |
|
Plastec’s short-term debts as of April
30, 2010 included short term bank loans of HK$71.2 million, current portion of
long term bank loans of HK$10.0 million and current portion of finance lease
liabilities of HK$9.8 million.
Plastec’s long-term debts as of April
30, 2010 included non-current portion of long term bank loans of HK$32.7
million, and long term portion of finance lease liabilities of HK$5.6 million
with fixed repayment schedules.
Contractual
Obligations and Commitments
The following table sets forth in
Plastec’s contractual cash commitments as of April 30, 2010. Amounts
for debt obligations are principal amounts only.
|
|
|
Total
|
|
|
Payment
Due
Within
1 Year
|
|
|
Within
2-5
Years
|
|
|
After
5 Years
|
|
|
|
|
HK$’000
|
|
|
HK$’000
|
|
|
HK$’000
|
|
|
HK$’000
|
|
|
Long-term
debt obligations
|
|
|
42,800 |
|
|
|
10,064 |
|
|
|
32,736 |
|
|
|
0 |
|
|
Short-term
debt obligations
|
|
|
71,176 |
|
|
|
71,176 |
|
|
|
0 |
|
|
|
0 |
|
|
Finance
lease obligations
|
|
|
15,332 |
|
|
|
9,762 |
|
|
|
5,570 |
|
|
|
0 |
|
|
Operating
lease obligations
|
|
|
52,047 |
|
|
|
15,151 |
|
|
|
36,108 |
|
|
|
788 |
|
|
Capital
commitments
|
|
|
35,612 |
|
|
|
35,612 |
|
|
|
0 |
|
|
|
0 |
|
|
TOTAL
|
|
|
216,967 |
|
|
|
141,765 |
|
|
|
74,414 |
|
|
|
788 |
|
The long-term and short-term debt
obligations in the above table included the long-term and short-term debts as
disclosed in the above section “– Indebtedness” above.
The operating lease obligations in the
above table included the rents payable by Plastec for the leased properties as
disclosed in the section “Business – Properties” section above.
The capital commitments in the above
table included the contracted but not provided for acquisition of property,
plant and equipment.
Order
Book
Due to the nature of its business,
Plastec does not maintain an order book. As consumer electronics, electrical
home appliances and other end products to which Plastec provides its goods and
services are relatively more sensitive to changes in consumer preference and to
the impact of competing products, its customers tend to monitor the market
demand and supply of their products and other competing products more closely
and to time the introduction and inventorying of their products. These customers
generally give Plastec purchase orders one to two months in advance. As a
result, Plastec endeavors to maintain its competitive advantage by being able to
meet its customers’ just-in-time inventory control requirements.
Off-Balance
Sheet Arrangements
Plastec has not entered into any
financial guarantees or other commitments to guarantee the payment obligations
of third parties. Plastec has not entered into any derivative contracts that are
indexed to its shares and classified as shareholder’s equity or that are not
reflected in its combined financial statements. Furthermore, Plastec does not
have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to
such entity. Plastec does not have any variable interest in any unconsolidated
entity that provides financing, liquidity, market risk or credit support to it
or that engages in leasing, hedging or research and development services with
Plastec. There are no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on Plastec’s financial condition, net
sales or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to an investor.
Market
Risks
Foreign exchange risk. A
significant portion of Plastec’s sales is denominated in U.S. dollars. Plastec’s
costs and capital expenditures are largely denominated in Renminbi and other
foreign currencies. Fluctuations in currency exchange rates, particularly among
the U.S. dollar, Renminbi and Japanese yen, could have a significant impact on
its financial condition and results of operations, affect its gross and
operating profit margins and result in foreign exchange and operating losses.
Plastec incurred a net foreign currency exchange loss of approximately
HK$5,124,000 and HK$2,108,000 for the years ended April 30, 2008 and 2009, and a
gain of approximately HK$997,000 for the year ended April 30, 2010 respectively.
Plastec currently does not plan to enter into any hedging arrangements, such as
forward exchange contracts and foreign currency option contracts, to reduce the
effect of its foreign exchange risk exposure. Even if Plastec decides to enter
into any such hedging activities in the future, it may not be able to
effectively manage its foreign exchange risk exposure. In addition, Plastec’s
financial statements are expressed in Hong Kong dollars but the functional
currency of its principal operating subsidiaries in China is in Renminbi.
To the extent its PRC subsidiaries hold assets denominated in foreign
currencies, any appreciation of Renminbi against such foreign currencies could
result in a charge to its income statement and decrease the value of Plastec’s
foreign currency denominated assets.
Interest rate risk. Plastec’s
exposure to interest rate risk relates to interest expenses incurred by its
short-term and long-term borrowings. Plastec has not used any derivative
financial instruments to manage its interest rate risk exposure, except a
four-year Interest Rate Swap contract for an amount of HK$21.6 million to fix
the interest cost for its prevailing long-term bank loan in March 2010.
Historically, Plastec has not been exposed to material risks due to changes in
interest rates on any third-party debt. However, future interest
expenses on Plastec’s borrowings may increase due to changes in market interest
rates. Plastec is currently not engaged in any interest rate hedging
activities.
Seasonality
Market demand for Plastec’s products is
derived from the demand for the products of its customers. Plastec’s customers
market their products globally and any significant change in the global demand
or preference for these consumer electronics, electrical home appliances,
telecommunication devices and computer peripherals will affect Plastec’s
revenue. Plastec has not been subject to any seasonality in its business
operations in any material respect.
Inflation
Inflation in China has not materially
impacted Plastec’s results of operations.
No
Subsequent Material Change
There have been no material changes in
Plastec’s financial condition and results of operations subsequent to April 30,
2010.
Audited
Financial Statements
Attached as Exhibit 99.1 to this Form
6-K are the audited financial statements of Plastec for the fiscal year ended
April 30, 2010. Such audited financial statements of Plastec have not
been prepared in accordance with the standards of the Public Company Accounting
Oversight Board (“PCAOB”). However,
the audited financial statements of Plastec that will be presented in GSME’s
proxy statement to be used to solicit approval of its shareholders in connection
with the proposed business combination with Plastec will be prepared in
accordance with the standards of the PCAOB. Accordingly, readers
should be aware that Plastec’s audited financial statements may be presented
differently in such proxy statement than they are presented in the exhibit to
this Form 6-K.
Exhibits
|
Exhibit
|
|
Description
|
|
|
|
|
|
99.1
|
|
Audited
Financial Statements of Plastec International Holdings
Limited.
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Dated: September
23, 2010
| GSME
ACQUISITION PARTNERS I |
|
|
|
|
By:
|
/s/ Jing Dong Gao
|
|
|
Name:
Jing Dong Gao
|
|
|
Title:
Chairman
|
|
|
|
|
By:
|
/s/ Eli D. Scher
|
|
|
Name:
Eli D. Scher
|
|
|
Title:
Chief Executive Officer
|