Telecom Digital Holdings Limited. (Incorporated in the Cayman Islands with limited liability) Stock Code: Annual Report 2015/16 - PDF

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Telecom Digital Holdings Limited (Incorporated in the Cayman Islands with limited liability) Stock Code: 8336 Annual Report 2015/16 CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET ( GEM ) OF THE STOCK
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Telecom Digital Holdings Limited (Incorporated in the Cayman Islands with limited liability) Stock Code: 8336 Annual Report 2015/16 CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET ( GEM ) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE STOCK EXCHANGE ) GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors. Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM. Hong Kong Exchanges and Clearing Limited and the Stock Exchange take no responsibility for the contents of this annual report, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this annual report. This annual report, for which the directors (the Directors ) of Telecom Digital Holdings Limited (the Company ) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the GEM Listing Rules ) for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this annual report is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this annual report misleading. The English text of this annual report shall prevail over the Chinese text in case of inconsistencies. CONTENTS Corporate Information Chairman s Statement Chief Executive Officer s Review Management Discussion and Analysis Directors and Senior Management Corporate Governance Report Report of the Directors Independent Auditor s Report Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Financial Summary 02 Telecom Digital Holdings Limited Annual Report 2015/16 Corporate Information BOARD OF DIRECTORS Executive Directors Cheung King Shek (chairman) Cheung King Shan Cheung King Chuen Bobby Cheung King Fung Sunny (chief executive officer) Wong Wai Man Mok Ngan Chu Independent Non-executive Directors Hui Ying Bun Ho Nai Man Paul Lam Yu Lung COMPANY SECRETARY Chan Yi Kan, CPA COMPLIANCE OFFICER Cheung King Fung Sunny BOARD COMMITTEES Audit Committee Lam Yu Lung (chairman) Hui Ying Bun Ho Nai Man Paul Remuneration Committee Ho Nai Man Paul (chairman) Hui Ying Bun Lam Yu Lung Nomination Committee Hui Ying Bun (chairman) Ho Nai Man Paul Lam Yu Lung AUTHORISED REPRESENTATIVES Cheung King Fung Sunny Chan Yi Kan COMPANY S WEBSITE AUDITOR SHINEWING (HK) CPA Limited 43/F., Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong LEGAL ADVISER CFN Lawyers (in association with Broad & Bright) 27/F., Neich Tower, 128 Gloucester Road, Wanchai, Hong Kong COMPLIANCE ADVISER Guotai Junan Capital Limited 27/F., Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong REGISTERED OFFICE Clifton House, 75 Fort Street, P.O. Box 1350, Grand Cayman KY1-1108, Cayman Islands HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG 19/F., YHC Tower, No.1 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong PRINCIPAL BANKERS Bank of China (Hong Kong) Limited Bank of China Tower, 1 Garden Road, Hong Kong The Hongkong and Shanghai Banking Corporation Limited HSBC Main Building, 1 Queen s Road Central, Hong Kong PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE Estera Trust (Cayman) Limited Clifton House, 75 Fort Street, P.O. Box 1350, Grand Cayman KY1-1108, Cayman Islands HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE Union Registrars Limited Suites , 33/F., Two Chinachem Exchange Square, 338 King s Road, North Point, Hong Kong PRINCIPAL PLACE OF LISTING The Stock Exchange of Hong Kong Limited STOCK CODE 8336 Annual Report 2015/16 Telecom Digital Holdings Limited 03 Chairman s Statement Dear Shareholders, On behalf of the board of Directors (the Board ), I am pleased to present the audited annual results of the Company and its subsidiaries (collectively, the Group ) for the year ended 31 March RESULTS The Group s revenue for the year ended 31 March 2016 was approximately HK$1,428,914,000 (2015: HK$1,358,304,000), representing an increase of approximately 5.2% over the previous year. Profit for the year ended 31 March 2016 was approximately HK$89,769,000 (2015: HK$86,817,000), representing an increase of approximately 3.4% as compared to the previous year. The increase in revenue and profit was primarily due to the increase in revenue in relation to the Group s retail business as well as the provision of operation services to Sun Mobile Limited ( SUN Mobile ), an associate owned as to 40% by the Group and as to 60% by HKT Limited. BUSINESS OVERVIEW The Group was founded in 1974 as one of the first paging operators in Hong Kong. In the past 42 years, it has been actively engaged in the telecommunications and related business in Hong Kong. The Group is principally engaged in the retail sales and distribution of mobile phones in Hong Kong and provision of paging and other telecommunications services in Hong Kong and Macau. The Group is also engaged in the provision of operation services to SUN Mobile. With its extensive market experience and excellent professional teams, the Group has evolved into a reliable service provider. As at the 31 March 2016, our Group had 63 shops in operation. During the year, although the macroeconomic environment was filled with uncertainties, the Group s businesses have been developed steadily. The Group s retail business has recorded a growth of approximately 12.1% in 2015/16 when compared with the previous year. Being an investor of SUN Mobile, the Group has benefited from the growing mobile phone and telecommunications market. Profit from provision of operation services to SUN Mobile in 2015/16 recorded a substantial increase of approximately 46.2% as compared to previous year. On the other hand, due to the popularity of various channels of mobile communication, the total number of paging and Mobitex based services subscribers has continued to experience a decrease in 2015/16. Profit from paging and Mobitex based services had a decline of approximately 96.4% when compared with the previous year. We systematically search for opportunities to create new businesses to maintain our business growth. 04 Telecom Digital Holdings Limited Annual Report 2015/16 Chairman s Statement (continued) FUTURE PROSPECT Being a mobile-first enterprise, we can expect tangible improvements in the way we interact with our employees, customers and partners by raising employee productivity, improving customer relationships and satisfaction, and streamlining business processes and operations. During the year under review, the Group has acquired a new Customer Relationship Management system and an Enterprise Resource Planning system. The two systems will be in use in the second half of 2016 and they will help us to learn more about our target customers and how to best cater to their needs. Given the uncertainties and challenges faced by the world s major economies, the Group will continue to prudently manage its business, implementing stricter financial control, streamlining structure and expenditure austerity. The Group will be cautiously assessing any business opportunities to ensure a bright future for our shareholders. APPRECIATION Finally, on behalf of the Board, I would like to express sincere thanks to our customers, business partners, suppliers and shareholders for their persistent support to the Group. We have a top management team and they are leading our business growth. We consider this leadership team as the best in our industry and fundamental to our records breaking success year after year. I extend my appreciation and thanks for their incredible hard work and consistent, outstanding performance. Cheung King Shek Chairman and Executive Director Hong Kong, 22 June 2016 Annual Report 2015/16 Telecom Digital Holdings Limited 05 Chief Executive Officer s Review OPERATION OVERVIEW With the provision of operation services to SUN Mobile as its core business, the Group continues to benefit from the vibrant but growing mobile phone market. To cope with the continuous growth, numbers of retail shop have been increased from 54 to 63 as at 31 March At the same time, average shop size has been increased together with relocating some of the retail shops to strategic locations to meet with the market demand. In terms of services, the Group continues to strengthen its service quality through staff training, especially on products and customer services skill, enhancing the overall workflow and optimizing the logistic support. Overall speaking, thanks to the guidance from the Board and to the support from our business partners and staff, all business goals are satisfactorily achieved. FUTURE PROSPECT Coming forward in 2016/17, despite a markedly economic downturn in Hong Kong, the Group will continue to strive in maintaining our competitive position within the mobile and telecommunications markets. As the Group has already laid a very solid foundation in terms of its operation, it will continue to work more on controlling cost and expenses, in particular, the rental for retail shops, where more reasonable offers and better locations are now seen in the commercial property market. While the Group continues to focus its core business in the challenging mobile and telecommunications markets, moving forward, the Group is opening up new growth opportunities in our portfolio of businesses by diversifying its business in other aspects of daily living necessities. Such move shall no doubt be benefiting all of our customers and creating new value to the Group and our shareholders. As the Chief Executive Officer of the Group, I would like to express my gratitude to the Board for their professionalism and guidance, to the team for their dedication and hard work, and to our customers, business partners, suppliers and shareholders for their persevering support to the Group. Through all these efforts, the management team shall continue to extend the lead in the competitive mobile and telecommunications market. Meanwhile, we shall also accelerate our move in opening up exciting new opportunities in the other business sectors. Cheung King Fung Sunny CEO and Executive Director Hong Kong, 22 June 2016 06 Telecom Digital Holdings Limited Annual Report 2015/16 Management Discussion and Analysis INDUSTRY OVERVIEW The ecosystem for enterprise mobility is becoming ever complex. To succeed, mobility vendors, solution and service providers will need to understand not only the trends of mobility but also specific requirements of customers needs. A mobile-first enterprise can expect tangible improvements in the way it interacts with their employees, customers and partners by raising employee productivity, improving customer relationships and satisfaction, and streamlining business processes and operations. The Group well understands the above significance and has acquired a new Customer Relationship Management system and an Enterprise Resource Planning system. The two systems will help us to learn more about our target customers and how to best cater to their needs. BUSINESS REVIEW The Group maintained its market position as one of the leading comprehensive telecommunications service providers in Hong Kong and Macau. The business segments of the Group include (i) retail sales of mobile phones and pre-paid SIM cards and related services; (ii) distribution of mobile phones and related services; (iii) provision of paging and other telecommunications services; and (iv) provision of operation services to SUN Mobile., retail sales and distribution of mobile phones and related services remain the key contributor of the Group s revenue. Revenue derived from the two segments contributed to approximately 77.1% of the Group s total revenue, amounting to approximately HK$1,101,280,000 (2015: HK$1,060,597,000) which represents an increase of approximately 3.8% as compared to previous year. Apart from the increase in revenue from retail sales and distribution business, revenue from provision of operation services also increased by approximately 22.3% as compared to the year ended 31 March However, due to the popularity of various channels of mobile communication, the total number of paging and Mobitex based services subscribers has continued to experience a decrease in 2015/16. The management team will systematically search for opportunities to create new businesses to maintain its business growth. Annual Report 2015/16 Telecom Digital Holdings Limited 07 Management Discussion and Analysis (continued) FINANCIAL REVIEW Segment analysis: 2015/ /15 HK$ 000 % HK$ 000 % Retail business 485, , Distribution business 616, , Paging and other telecommunications services 97, , Operation services 230, , Total revenue 1,428, ,358, Revenue The Group s revenue for the year ended 31 March 2016 was approximately HK$1,428,914,000 (2015: HK$1,358,304,000), representing an increase of approximately 5.2% over the previous year. The increase in the Group s revenue was mainly due to higher revenue generated from the retail business and operation services. Revenue from retail sales and distribution of mobile phones were the main source of the Group s revenue, representing approximately 77.1% of the Group s total revenue for the year ended 31 March Revenue from distribution of mobile phones and provision of related services for the year ended 31 March 2016 was approximately HK$616,087,000 (2015: HK$638,888,000), representing a decrease of approximately 3.6% as compared to the previous year. Although the mobile phone manufacturers launched different hero products during year, Hong Kong smartphone prices fall after competition law comes into force in December Revenue from distribution business was hit by the price war in the first quarter of Revenue from provision of paging and other telecommunications services for the year ended 31 March 2016 decreased by approximately 11.0% to HK$97,400,000 (2015: HK$109,417,000). Due to the popularity of various channels of mobile communication, the total number of paging and Mobitex based services subscribers has continued to experience a decrease in 2015/16. Revenue from provision of operation services for the year ended 31 March 2016 was approximately HK$230,234,000 (2015: HK$188,290,000), representing an increase of approximately 22.3% as compared to previous year. As SUN Mobile keeps launching different service plans to attract customers, the number of customers keeps growing as well. As boosted by the increase in average revenue per user and in the light of the stable customer growth, the Group s administrative and operational work became more cost efficient and therefore it is expected that the growth in the service fee may continue. Other Income Other income mainly contributed by rental income and exchange difference. Other income for the year ended 31 March 2016 was approximately HK$6,241,000 (2015: HK$8,491,000), representing a decrease of approximately 26.5% as compared to previous year. Such decrease was primarily due to (i) a gain on disposal of plant and equipment in 2014/15; (ii) decrease in rental income due to the resumption of a warehouse for the Group s use; and (iii) decrease in sponsorship from suppliers. 08 Telecom Digital Holdings Limited Annual Report 2015/16 Management Discussion and Analysis (continued) Other Operating Expenses The Group s other operating expenses are mainly consisted of rental and building management fees, information fees in respect of horse racing, football matches and stock market, advertising and promotion expenses, operation fees for paging centre and customer service centre, repair cost for pagers and Mobitex devices, roaming charges, bank charges, audit and professional fees and other office expenses. Other operating expenses for the year ended 31 March 2016 were approximately HK$190,425,000 (2015: HK$172,045,000), representing an increase of approximately 10.7% over the previous year. The increase was mainly brought by the increase in rental expenses, and partly off-set by the decrease in information fees and write-off of obsoleted paging devices. The decrease in information cost was mainly due to the decrease in financial data charged by the HKEx Information Services Limited by reference to the usage of information. Because of the declining number of subscribers, the usage of information decreased accordingly. The increase in rental expenses was primarily due to the expansion of retail shops and the increase in market rental during the year. In addition, due to a prolonged decline in market value of paging devices, impairment loss on paging devices was recognised. Share of Results of an Associate Share of result of an associate for the year ended 31 March 2016 was approximately HK$31,971,000 (2015: HK$28,428,000), representing an increase of approximately 12.5% as compared to the previous year. The amount represents our share of net profit of SUN Mobile. Finance Costs There is no significant change in the Group s bank borrowings throughout year ended 31 March The finance costs for the year ended 31 March 2016 were approximately HK$5,437,000 (2015: HK$3,938,000). It was mainly consisted of interest expenses on interest-bearing bank borrowings for supporting the Group s daily operation and business expansion. Income Tax Expenses Income tax for the year ended 31 March 2016 was approximately HK$13,934,000 (2015: HK$10,430,000), representing an increase of approximately 33.6%. The increase was mainly due to the increase in profit before tax. In addition, the tax loss bought forward from previous years has been utilised in 2015/16. Profit for the Year Attributable to the Owners of the Company Profit for the year ended 31 March 2016 was approximately HK$89,769,000 (2015: HK$86,817,000), representing an increase of approximately 3.4% as compared to the previous year. The increase was primarily due to the increase in revenue and improvement in the share of results of an associate. Annual Report 2015/16 Telecom Digital Holdings Limited 09 Management Discussion and Analysis (continued) Liquidity and Financial Resources As at 31 March 2016, the Group had net current liabilities of approximately HK$26,594,000 (2015: HK$65,533,000) and had cash and cash equivalents of approximately HK$11,999,000 (2015: HK$27,584,000). The Group has a current ratio of approximately 0.9 as at 31 March 2016 comparing to that of 0.8 as at 31 March As at 31 March 2016, the Group s gearing ratio was 91.4% as compared to 188.8% as at 31 March 2015, which is calculated based on the Group s total borrowings of approximately HK$214,934,000 (2015: HK$323,328,000) and the Group s total equity of approximately HK$235,086,000 (2015: HK$171,289,000). Apart from providing working capital to support its business development, the Group also has available banking facilities and the net proceeds from the listing of issued ordinary shares of the Company on GEM of the Stock Exchange (the
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