(cid:2) (cid:2) EPI (Holdings) Limited Contents Corporate Profi le Vision and Mission Milestones Corporate Structure Chairman’s and CEO Statement Management Discussion and Analysis Directors and Senior Management Profi le Corporate Governance Report Directors’ Report Independent auditor’s Report Consolidated Income Statement Consolidated Balance Sheet Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements Five Year Financial Summary Corporate Information 3 5 6 7 8 10 17 20 29 33 36 37 38 39 40 41 75 76 01 EPI Contents(e).indd 1 4/28/07 9:02:09 AM Annual Report 2006 1 EPI (Holdings) Limited Corporate Profi le 2 Annual Report 2006 02 EPI Corporate Profile(e).indd2 2 4/28/07 9:01:45 AM Corporate Profi le EPI (Holdings) Limited EPI focuses on the high growth non-ferrous metals industry in the areas of copper, aluminium and zinc. Building on the solid foundations of its scrap copper business, EPI is developing a portfolio of businesses including global sourcing, smelting, logistic, warehousing, fi nancing of metal businesses and investment in mining. The Group plans to accelerate its growth through selective mergers and acquisitions and by integrating the services of related supply chains, thus creating a worldwide non-ferrous metals sourcing network that provides major non-ferrous metals quasi-sovereign enterprises in China with high quality, value-added services. The Group also continues to operate its consumer electronics business on an ODM and OEM basis, serving existing clients in the United States, Europe and Asia. In this way, EPI aims to become a leader in its fi eld in China and achieve stable, strong returns for its shareholders. 02 EPI Corporate Profile(e).indd3 3 4/28/07 9:01:49 AM Annual Report 2006 3 EPI (Holdings) Limited Anode casting machine in Qingyuan smelting plant 4 Annual Report 2006 03 EPI Mission M&VS (e).indd 4 4/28/07 9:01:24 AM EPI (Holdings) Limited Vision and Mission VISION Our vision is to become the leading supplier of non-ferrous and scrap metals in China. We will achieve this by building a global supply chain network covering sourcing, smelting, logistics, warehousing, fi nancing and mining investment, focused on copper, aluminum, zinc and precious metals. MISSION Our mission is to develop strategic partnerships with selective major quasi-sovereign enterprises in China’s non-ferrous metals sector, using our global sourcing and fi nancing capabilities to provide them with high quality supply chain services. We aim to expand our business on the basis of well- structured risk management and sound fi nances, providing strong but stable returns to shareholders. 03 EPI Mission M&VS (e).indd 5 4/28/07 9:01:26 AM Annual Report 2006 5 EPI (Holdings) Limited Milestones 22 Sept 2006 Change of name from Greatwall Cybertech to EPI (Holdings) Limited 26 Sept 2006 Resumption of trading in shares on the Stock Exchange of Hong Kong Limited 26 Nov 2006 Established Qingyuan JCCL EPI Copper Limited, a joint venture partnership with Jiangxi Copper, the largest quasi-sovereign enterprise in the copper sector, to engage in copper sourcing and smelting in Qingyuan, China 5 Dec 2006 Raised HK$172 million via the placement of 605 million shares to institutional investors 13 Feb 2007 Established Guangzhou (Foshan) Metals Company Limited, a joint venture partnership with the quasi-sovereign Guangdong Guanghong International Trade Group Co. Ltd., a subsidiary company of Guanghong Assets Management Co. Ltd., one of China’s three largest asset management companies in Guangdong province, to engage in metal logistics and fi nancing businesses in Nanhai, China Apr 2007 Acquired a smelting plant in Qingyuan through Qingyuan JCCL EPI Copper Limited 6 Annual Report 2006 04 EPI Milestones(e).indd 6 4/28/07 9:02:56 AM Corporate Structure EPI (Holdings) Limited EPI (Holdings) Ltd. 100% Innovision Enterprises Ltd. 100% EPI Metals Ltd. Century Great Ltd. 100% *Qingyuan JCCL EPI Copper (HK) Ltd. 100% *Qingyuan JCCL EPI Copper Ltd. 51% *Note: formed in January 2007 05 EPI Structure(e).indd 7 4/28/07 9:02:00 AM Annual Report 2006 7 EPI (Holdings) Limited Chairman’s and CEO Statement business. However, we were able to maintain a stable profi t margin of 2.6%. In addition, the lower turnover was partially offset by revenue generated by the newly established scrap metal trading team in Nov 2006. In light of the results and the need to invest in future growth, the Board will not recommend a dividend. The initial contribution from the non-ferrous metals business is an encouraging indicator and we plan to accelerate our activities in this area to capitalise on opportunities arising from the growing demand for copper in China that is being driven by the country’s economic development. We believe this strategy offers the best opportunity to achieve steady profi t growth in the years ahead and increase shareholder value. Future Prospects Looking ahead, we expect the contribution of our non- ferrous metals business to increase substantially in the coming fi nancial year. This business is expected by the end of April 2007 to see the addition of a smelting plant in Guangdong province that was acquired by our joint venture with Jiangxi Copper. We also expect to solidify our business model and operations in the coming year. We will devote every effort to building a business that generates immediate results and combines full endeavour in seeking opportunity with prudence in assessing the risks and rewards involved in any new venture. We have already, I believe, taken our fi rst confi dent steps on what will be a long track record of rapid growth. Appreciation Finally, I would like to take this opportunity to express my appreciation to our shareholders for their support and to my fellow Directors and all staff members for their valuable contributions to our restructuring. Joseph Wong Chairman & CEO Hong Kong, 23 April 2007 Dear Shareholders, I am pleased to report that EPI has entered a new stage of development that promises to create steady and strong returns for shareholders in future. Group Restructuring During 2006, the Group completed a capital reorganisation and a fi nancial restructuring that met with the approval of its creditors. Having fulfi lled all conditions necessary, conditional approval for resumption of trading of the Company’s shares on the Stock Exchange of Hong Kong, was granted by the Listing Review Committee and trading resumed on 26 September. As a result of our efforts, the legal disputes which have in recent times strained the Group’s fi nancial resources have now been resolved. The petition lodged against the Company on 25 March 2003 was withdrawn and the provisional liquidation order was rescinded. To mark this change of fundamentals and our new strategic direction, on 22 September the Group was renamed EPI (Holdings) Limited, signifying an “ever profi table” and continuously growing Group. During the year, the Group’s principal business activities during the fi rst three quarters were the sale of consumer electronic products. In the fourth quarter, however, we began our diversifi cation into the rapidly growing non- ferrous metals market in China, where we see many opportunities. We began by establishing a scrap metal trading team. This was quickly followed by the formation of a joint venture with Jiangxi Copper Limited (Jiangxi Copper) for the development of a copper anode production in November 2006 and in February 2007 by a second joint venture with Guangdong Guanghong International Trade Group Co. Ltd, a wholly owned trading arm of Guanghong Assets Management Co. Ltd which operates under the supervision of Guangdong Provincial Government, to engage in metal logistics and fi nancing businesses. Financial Performance and Dividend For the year ended 31 December 2006, the Group recorded turnover of HK$264.8 million and net profi t attributable to shareholders of HK$265 million, respectively a decrease of 48.4% and an increase of 3,231% over the previous year. The decline in turnover was caused by severe competition and increasing production costs at the consumer electronics 8 Annual Report 2006 06 EPI Chairman(e).indd 8 4/28/07 9:03:54 AM Chairman’s and CEO Statement EPI (Holdings) Limited Joseph Wong Chi Wing Chairman and CEO “We are building a business that generates immediate results and combines full endeavour in seeking opportunity with prudence in assessing risks and rewards.” 06 EPI Chairman(e).indd 9 4/28/07 9:03:57 AM Annual Report 2006 9 EPI (Holdings) Limited Management Discussion and Analysis During 2006, the Group completed a corporate restructuring Subsequently, the Group was further recapitalised via the that succeeded in recapitalising the business, enabling placing of 605,000,000 existing shares by Climax Associates trading in the Company’s shares to resume and allowing Limited at HK$0.295 per share, and the top-up subscription management to embark upon a new strategic direction for new shares by Climax Associates Limited at HK$0.295 focused on the non-ferrous metals market in China. per share. The event raised approximately HK$172 million. (Full details are set out in the announcement dated 5 Restructuring and Recapitalisation December 2006.) The Restructuring Proposal was completed on 20 September Subsequent to completion of the Restructuring Proposal, 2006, and as a result the Group emerged from provisional the original Executive Directors resigned from the Board. liquidation and the Company’s shares resumed trading on Mr. Wong Chi Wing, Joseph, Mr. Cheng Hairong, and Mr. Chu the Stock Exchange of Hong Kong Limited (SEHK) on 26 Kwok Chi, Robert, the shareholders of Climax Associates September 2006. Limited, were appointed Executive Directors of the Company. The major elements of the Restructuring Proposal were It is the view of the new Board of Directors of the Company implemented in the last four months of the year, namely that severe competition and increasing production costs a Special General Meeting of the shareholders held on 22 in the consumer electronics business have hindered the June 2006 to approve the Restructuring Proposal, a Scheme Group’s growth. In order to maintain stable and increasing Creditors meeting held on 17 July 2006 to approve the income for the Group, diversifi cation of business activities Creditors’ Scheme, share consolidation, issue of subscription is therefore necessary. After conducting detailed market shares, open offer and placing of new shares. studies, the Board of Directors has decided to diversify the Group’s activities into the non-ferrous metals industry The Restructuring Proposal involved the subscription by with a view to capitalise on business opportunities that are Climax Associates Limited of 2,075,000,000 shares at being generated by the fast growing demand for copper and HK$0.04 per share; the placing of 374,627,374 shares at no related resources in China. less than HK$0.06 per share (the placing price was fi nally determined at HK$0.1 per share), and an open offer of Financial Review 145,372,626 shares at HK$0.06 per offer share on the basis of 9 offer shares for every 5 shares held. Total funds raised Turnover of the Group’s consumer electronic business for the amounted to approximately HK$105 million. (Full details are year 2006 was HK$264.8 million, representing a decrease set out in the circular dated 29 May 2006.) of 48.4% from the HK$513.6 million recorded in 2005. The stripable wire/insulated wire Copper cathodes copper rice 10 Annual Report 2006 07 EPI MD&A(e).indd 10 4/28/07 9:02:14 AM Management Discussion and Analysis EPI (Holdings) Limited No. 1 scrap copper decline in revenue was caused by severe competition in As at 31 December 2006, the total assets and net assets of the consumer electronics market together with increasing the Group were valued at HK$283.5 million (31 December production costs. However, we were able to maintain a 2005: 14 million) and HK$265.6 million (31 December stable profi t margin of 2.6% in 2006 (2005: 3.0%). In 2005: a net liabilities of HK$294.4 million) respectively. addition, part of the shortfall in the consumer electronic The net assets as at 31 December 2006 returned to a business was covered by the revenue generated by the newly positive fi gure because of the elimination of the liabilities established scrap metal trading team, which contributed a under indemnities given to subsidiaries not consolidated net profi t of HK$7.2 million for the year. of approximately HK$291 million brought forward from The Group made a profi t before taxation of HK$265.2 to the Scheme Creditors pursuant to the completion of 31 December 2005 upon the payment of HK$21.5 million million (2005: profi t before taxation of HK$10 million). The Restructuring Proposal. substantial increase was due to non-recurring adjustments for the effects of debt restructuring, namely, a gain on debts As at 31 December 2006, the Group’s cash on hand and waived of HK$277.8 million less restructuring expenses of bank deposits totalled approximately HK$191.3 million (31 HK$14.7 million. The profi t from operations for the Group December 2005: HK$59,000), representing an increase of was HK$2.24 million (2005: HK$10.3 million). No dividend 3,243 times against the balance as at 31 December 2005. was declared for the year (2005: Nil). The substantial increase in cash was due to the receipts 07 EPI MD&A(e).indd 11 4/28/07 9:02:19 AM Annual Report 2006 11 EPI (Holdings) Limited Management Discussion and Analysis of the subscription, placing and open offer money on 20 Review of Operations September 2006 pursuant to the Restructuring Proposal and the receipt of proceeds upon the completion of the placing During the fi rst three quarters of the year, the majority of 605,000,000 existing shares and top-up subscription for of the Group’s operational activities were at its consumer new shares by the majority shareholder Climax Associated electronics business. Limited in December 2006. Consumer electronics business As at 31 December 2006, the Group’s net current assets were valued at HK$264.9 million and as at 31 December The Group’s consumer electronics business arm, Innovision 2005 there were net current liabilities of HK$294.4 million. Enterprises Limited (“Innovision”), is involved in the The improvement was due to the increase in cash and the production of DVD combos, home theatres and portable discharge of brought forward liabilities under indemnities DVDs for the US, Asian and European markets. The business given to subsidiaries not consolidated. The Group’s liabilities continued to face strong competition and rising costs during as at 31 December 2006 mainly comprised trade and other the year, which led to a decline in revenues. However, we payables repayable within one year. The gearing ratio was were able to maintain a stable profi t margin of 2.6% and 6.3% (total borrowings/total assets). the management will continue to take a cautious approach to accept sales orders. Liquidity and Financial Resources During the year, the Group’s fi nancial resources comprised Innovision has since its inception been sub-contracting mainly of cash infl ow generated by its business operations its production on an OEM and ODM basis to reliable and the proceeds totalling approximately HK$277 million manufacturers in China. The company has also expanded its from the fund raisings under the Restructuring Proposal and service scope to include product design and marketing for In order to maintain good control over its production costs, the subsequent placement of shares to Climax Associates key clients. Limited. Non-ferrous metals business Following these events, the Group has retained suffi cient funds for working capital and for realising its plans for China’s domestic copper consumption in 2006 recorded diversifying its business into non-ferrous metals. strong growth arising from its infrastructure development, Depending on what additional funding is required to and increasing demand for consumer products. (please refer growing motor vehicle production, real estate development facilitate its current and future development plans (including to chart on page 13) its capital expenditure), the Group will make fi nancial arrangements which may include equity fi nancing and debt China’s copper consumption of 3.876 million tons accounted fi nancing that are in the best interests of shareholders, after for 21.80% of the world’s as of 30 November 2006, taking into account the Group’s fi nancial position, capital exceeding its production by 960,000 tons (please refer to structure and cost of funding, along with market conditions chart on page 13). (CRU Monitor-Nov. 06) and the country at the time. 12 Annual Report 2006 ranked among the largest three markets in the world by both production and consumption. (please refer to chart on page 13). 07 EPI MD&A(e).indd 12 4/28/07 9:02:21 AM Management Discussion and Analysis EPI (Holdings) Limited The China Market Consumption and Supply Refi ned copper consumption Mil / ton YOY% change % of the world 2003-04 2005 2006 3.456 3.781 3.876 +14.3% +9.4% +2.5% 20.6% 22.4% 21.8% Refi ned copper supply/production Mil / ton YOY% change % of the world 2003-04 2005 2006 2.198 2.587 2.916 +19.8% +17.7% +12.7% 13.8% 15.6% 16.4% China S/D Balance Thousands / ton YOY% change % of the world 2003-04 2005 2006 Source: CRU Monitor, Nov 2006 (1258) (1194) (960) China Ranked Top 2 in the world and is in an incrreasing trend in production Top 4 Countries Copper Production % of Market Share in the World Ranking Countries 2003-04 1 2 3 4 Chile China Japan USA 18.2% 13.8% 8.7% 8.1% Source: CRU WBMS Nov 2006 YoY% change 2005 YoY% change -1.8% 17.35% -0.9% +19.8% 15.6% +17.7% -2.7% +0.9% 8.7% 7.6% +4.5% -3.2% 2006 17.3% 16.4% 8.8% 7.5% YoY% change +6.9% +12.7% +8.5% +6.4% Three Sectors account for 93% of Chinese Copper Consumption and is in a strong demand trend • Power Infrastructure ~41% • Consumer Appliances ~32% • Building / Construction ~20% Distribution / Transmission ~70% Power Generation ~30% Home Electrical ~71% Overall ~23% (air conditioner accounts for 50% of consumer electronic and 16% of all copper consumption) Building / Construction ~66% (electrical building wire is 66% of segment and 13% of all copper consumption) • Automotive ~3% Rural area Chinese Copper Consumption 2005-3.78 mil tons, 2006-3.87 mil tons Source: CRU Monitor Nov 2006 07 EPI MD&A(e).indd 13 4/28/07 9:02:22 AM Annual Report 2006 13 EPI (Holdings) Limited Management Discussion and Analysis Jiangxi Copper is a China-based publicly listed company trading on the Stock Exchange of Hong Kong. Headquartered in Jiangxi province, the company is involved in copper mining, milling, smelting, refi ning and trading. It is a strong and infl uential market player in the non-ferrous metal markets in China, enjoying a high reputation and strong fi nances. Prospects During the coming year, the Group will continue to focus the bulk of its efforts on developing the highly promising non-ferrous metals business, while continuing to serve its existing customers in the consumer electronics fi eld. We will adopt proper measures to meet the increasing competition for our consumer electronics products, including imposing tight cost controls and actively seeking high quality and competitively priced sub-contractors in Asia. In addition, we will expand the client base for our product design and marketing services. Demand for non-ferrous metals in China is expected to continue to rise in 2007 on the back of fast economic growth. During 2007, the Group will accelerate its business diversifi cation activities in the non-ferrous metals industry, in particular, in copper and related metals. Our plans include the formation of joint venture operations for building new and acquiring existing non-ferrous metals production plants in China in co-operation with Jiangxi Copper and other reputable quasi-sovereign enterprises in China. copper scrap for recycling To capitalise on these market opportunities, we began diversifi cation of business activities into the non-ferrous metals industry during the last two months of 2006. Our fi rst move was the establishment of a scrap metal trading team, based in Hong Kong, conducting global sourcing of copper scrap for clients in China. The trading business generated a net profi t of HK$7.2 million within the last two months. On 26 November 2006, our wholly owned subsidiary, EPI Metals Limited, together with Jiangxi Copper and Qingyuan Tongde Electric Co., Ltd established Qingyuan JCCL EPI Copper Limited (“Qingyuan JCCL EPI”) in Qingyuan, Guangdong province. The joint venture will engage in the production and sale of copper anode in China and the agreement calls for a period of cooperation over 15 years during which all the copper anode produced by the joint venture will be sold to Jiangxi Copper at the prevailing market price and on general commercial terms. Total investment of the joint venture is estimated at RMB$180 million and EPI has a 51% interest. copper ingot No.2 copper wire copper concentrate 14 14 Annual Report 2006 Annual Report 2006 07 EPI MD&A(e).indd 14 4/28/07 9:02:23 AM Management Discussion and Analysis EPI (Holdings) Limited No. 2 copper bales Honey Ocean QINGYUAN JCCL EPI was acquired a copper smelting plant in Guangdong Guanghong International Trade Group Co. Qingyuan. The acquisition involves the purchase of a fully Ltd is a wholly owned trading arm of Guanghong Assets fl edged copper ore and scrap copper smelting plants built on Management Co. Ltd (“GUANGHONG “) which operates a block of land with a total area of 161,644 square meters under the supervision of Guangdong Provincial Government. to produce copper blister and copper anode and the plant GUANGHONG itself is one of the three largest asset- to be in full operation by the end of June 2007. Maximum management companies as well as the leading enterprise in production capacity will be 100,000 tons per annum by the non-ferrous metals in Guangdong province. end of 2007, increasing to 200,000 tons per annum when at full production capacity in 2008. We are confi dent that our close association with our existing Subsequent to the year end, in February 2007 the Group the diversifi cation of our activities into the non-ferrous has established a second joint venture, Guangzhou (Foshan) metals markets. Our ultimate goal is to become one of the Metals Company Limited (“GUANGFO”), with Foshan Nanhai leading players in the non-ferrous metals markets in Asia. Chinese business partners will provide expert guidance for Xinweifeng Trading Co. Ltd. and Guangdong Guanghong International Trade Group Co. Ltd. The joint venture provides one-stop metal warehousing, logistics, trading and fi nancing services to small to medium size enterprises in Nanhai, a city in Guangdong province. Total investment is estimated at RMB10 million (HK$10 million). The Group holds a 40% stake with an option to increase its shareholding to 50% within a year from signature of the joint venture agreement. We have seconded fi nancial and risk management experts to assist in the formation of GUANGFO’s management team. The joint venture is expected to be in full operation by mid 2007. 07 EPI MD&A(e).indd 15 4/28/07 9:02:26 AM Annual Report 2006 15 EPI (Holdings) Limited Directors and Senior Management Profi le From left to right, front to back: Robert Chu Kwok Chi, Joseph Wong Chi Wing, Cheng Hai Rong, Rose Cheung Siu Yuen, Kelvin Chu Kar Wing, Bryan Hong Kin Choy, Kenneth Huang Sai Jing, John Yue Yan Wai 16 Annual Report 2006 08 EPI Manage Profile(e).indd 16 4/28/07 9:03:33 AM Directors and Senior Management Profi le EPI (Holdings) Limited Executive Directors WONG Chi Wing, Joseph products, energy saving, tourism, trading, fi nance and brokerage. Mr. Cheng brings extensive experience and wide China business connections to EPI (Holdings) Limited. Aged 46, has been the Chairman and CEO for the Group since He is the founder and Managing Director of China Point September 2006. He is also the chairman of Nomination Stock Brokers Limited and founder, shareholder and Committee. Mr. Wong has over 20 years of investment President of ChinaXue Ling Ltd. banking experience in the Greater China region, including experience in Capital Markets, Corporate Finance, M&A, and CHU Kwok Chi, Robert Corporate Restructuring. Aged 57, Mr. Chu has been a Sales Director for the Group In 1990 Mr. Wong joined CEF Holdings, a fi nancial since August 2004 and was appointed Executive Director investment group 50% owned by Canadian Imperial Bank for the Group on September 2006, heading consumer of Commerce (CIBC) and 50% by Cheung Kong (Holdings) electronic business. Mr. Chu has over 30 years of experience Limited., he was made Managing Director in 1995. He in the international trade and the electronics industry. Mr. was also a Director of CEF (Capital Markets) Limited, Chu has been responsible for the marketing, sales, trading and a member of CEF Holding’s Commitment Committee and production of various private and listed consumer responsible for credit risk management. electronics companies in Hong Kong. He was the Managing In 2004, Mr. Wong assumed the role of a “White Knight”, of Greatwall Cybertech (former name of EPI (Holdings) rescuing Great Wall Cybertech Limited (HKEx: 689) by Limited), from 1990 to 2000. entering into an escrow and exclusivity agreement which saved the company from the threat of liquidation. On 26 Mr. Chu holds a Bachelor’s Degree in Business Administration Director of Eltic Electronics Company Limited, a subsidiary September 2006, after Great Wall Cybertech had completed its restructuring, trading of its shares resumed on the Non-Executive Director Stock Exchange of Hong Kong Limited, and Mr. Wong was appointed as Chairman and CEO of the Group. The Group was LEUNG Hon Chuen, David then renamed EPI (Holdings) Limited. Mr. Wong holds a Bachelor’s Degree in Social Science from since October 2006. He is also chairman of Remuneration the Chinese University of Hong Kong, with a major in Committee. Mr. Leung has had over 25 years of experience Aged 55, has been Non-Executive Director for the Group Economics. CHENG, Hairong in the fi nancial services industry in Canada and Asia. He worked for Canadian Imperial Bank of Commerce in Canada and Asia for 15 years, where he held senior management positions in investment banking, retail & corporate banking Aged 47, has been the Deputy Chairman and Executive and private banking. From 1994 to 1997, he was the Director for the Group since September 2006. Mr. Cheng Director & General Manager of Essential Enterprises Company has over 20 years’ experience in establishing and managing Limited (0128HK). He is now currently operating a fi nancial listed companies in Hong Kong as an executive director and and investment consultation company. consultant. Mr. Cheng has extensive industry knowledge in China fi nance and investment in sectors such as life Mr. Leung has a Bachelor of Arts degree with a major in sciences, production of marine, biotech and herbal health Economics from the University of Western Ontario in Canada. 08 EPI Manage Profile(e).indd 17 4/28/07 9:03:38 AM Annual Report 2006 17 EPI (Holdings) Limited Directors and Senior Management Profi le Independent Non-Executive Directors POON Kwok Shin, Edmond the Guangzhou Institute of Foreign Languages, China. He is currently a senior economist. He has studied economics at the Institute of the International Monetary Fund in the United States and at the Beijing Institute of Economics Aged 54, has been an Independent Non-Executive Director and Management, where he also pursued his study of for the Group since November 2005. He is also the chairman International Trade and International Law. of Audit Committee. Mr. Poon is a founder and Executive Director of Compass Technology Holdings Limited. He has Wu, Xiaoke 30 years of experience in fi nancial accounting and auditing. From 1990 to 1996 he served as an Executive Director of Aged 54, has been an Independent Non-Executive Director QPL International Holdings Limited, a Hong Kong-based for the Group since August 2002. He is a professional manufacturer of leadframes and provider of semiconductor economist and a director of various companies in Hong assembly and test services. Prior to that he worked for Kong 14 years with Kwan Wong Tan & Fong, which merged with Deloitte & Touche to form Deloitte Touche & Tohmatsu, an Senior Management Profi le international accounting fi rm, and was a partner of that fi rm when he left. HONG Kin Choy, Bryan Mr. Poon received a Higher Diploma in Electronic Aged 42, has been Chief Financial Offi cer & Company Engineering from Hong Kong Polytechnic University Secretary for the Group since October 2005. Mr. Hong in 1976, and subsequently worked for international oversees the Group’s fi nancials and carries out the role accounting fi rm Touche Ross & Co. while obtaining his of Company Secretary. He is a practising certifi ed public professional qualifi cations in accounting and auditing. He accountant in Hong Kong and a Fellow Member of both is a Fellow Member of the Association of Chartered Certifi ed the Association of Chartered Certifi ed Accountants and the Accountants and Hong Kong Institute of Certifi ed Public Hong Kong Institute of Certifi ed Public Accountants. Mr. Accountants. XU, Mingshe Hong has over 20 years of experience in the fi elds of audit, accountancy, business advisory services and corporate fi nance. He spent fi ve years with international accounting fi rm Deloitte Touche Tohmatsu, where he had extensive Aged 51, has been an Independent Non-Executive Director experience in accountancy, auditing and taxation. for the Group since October 2006. Dr. Xu has served as Deputy Executive Offi cer of ICEA Finance Holdings Limited, Mr. Hong has wide experience in the commercial sector and General Manager of the International Business Department has held Financial Controller and General Manager positions of the Industrial and Commercial Bank of China Head over more than ten years. Offi ce, President of its Shenzhen Branch, as well as holding other signifi cant positions. He has extensive experience Prior to joining the Group, Mr. Hong was the General in banking, economy, fi nance and public listing. He has Manager of Bright & Shine Corporate Finance Limited, participated in public listing issues in Hong Kong for a corporation licensed under the SFO to conduct Type 4 more than 20 PRC enterprises, with total fi nance raised (advising on securities) and Type 6 (advising on corporate amounting to HK$85 billion. He has also been engaged in fi nance) regulated activities. project fi nancing, syndicated loans, debt restructuring and acquisitions. CHU Kar Wing, Kelvin Dr. Xu obtained a Doctoral Degree in Economics from Aged 50, has been Vice President for the Group since Xiamen University and a bachelor’s degree in English from January 2007. He is responsible for the Group’s overall risk control and its banking relationships. 18 Annual Report 2006 08 EPI Manage Profile(e).indd 18 4/28/07 9:03:41 AM Directors and Senior Management Profi le EPI (Holdings) Limited Mr. Chu has over 20 years’ experience in the banking YUE Yan Wai, John industry and in commerce. He has been Deputy General Manager of the Bank of China, Hong Kong Branch, Deputy Aged 47, has been Vice President for EPI Metals Ltd, a Chief Risk Offi cer, Bank of China Hong Kong Ltd., and subsidiary of the Group since January 2007. He is head of General Manager of Mark Universal Ltd. the Group’s metal sourcing team. Appointed by the Government, Mr. Chu has acted as a Board Mr. Yue has over 25 years of experience in sales, marketing Member for the Banking Training Board of the Vocational and operations across the metal recycling and refi nery Training Council from 1992 to 1999 and as a Member of the business. HKSAR’s SME Committee from 2000 to 2002. From 2004 to 2007, Mr. Yue worked with Ecycle Tech Mr. Chu is currently an Independent Non-executive Director International Ltd in Hong Kong. As a partner and Director of of four Hong Kong listed companies, namely Oriental the company, he was responsible for providing scrap refi ning Investment Corporation Ltd, Foundation Group Ltd, Emperor services to many listed companies in Hong Kong, China and Entertainment Group Ltd, and New Chinese Medicine Asia, including Johnny Electric, Philips Semiconductors, SAE Holdings Ltd. Magnetics, and Cooper Lighting Mr. Chu graduated from the Economics Department of the Prior to that, Mr. Yue worked at QPL Group as Sales Vice Chinese University of Hong Kong in 1979. President from 1987 to 2003, where he was responsible for CHEUNG Siu Yuen, Rose Aged 42, has been Vice President for the Group since sales and marketing activities for the Group in Asia. Mr. Yue also worked as a sales manager for Heraeus Zenith Refi nery Ltd and Truegold Refi nery Ltd. October 2006. She is responsible for the Group’s corporate Mr Yue is a graduate of RMIT University in Melbourne, development and capital markets. Australia, and holds a BA degree in management, Ms Cheung has 20 years of experience in strategy, capital markets, marketing and sales for listed companies involved Huang Sai Jing, Kenneth in consumer electronics, media, telecommunications, and in specializing in marketing. fi nancial institutions, in the Asia Pacifi c and China markets. Aged 44, has been General Manager for Guanghong (Foshan) Metal Co. Ltd., a joint venture partnership of EPI Metals Ltd Prior to joining EPI (Holdings) Limited, Ms Cheung was the since April 2007. Prior to that, Mr. Huang has been Group Director of Corporate Development for FE Global China Ltd; Treasury Manager of Yue Xiu Enterprises Co. Ltd. in the General Manager of Investor Relations for Skyworth Digital Bank of China Group, Director and Deputy General Manager Holdings; Director of Asia Pacifi c Marketing, Beenz and has of China Century Oriental Hotel & Tourism (Holdings) held managerial position with Cable & Wireless HKT. Company Ltd, and Project General Manager of Tian An China Investment Company, a subsidiary of the Sun Hung Kai Ms Cheung graduated from York University in Toronto, Finance Group. Canada with a BA (Hons) in Mass Communication and Psychology and has pursued education at Harvard University, Mr. Huang graduated from Wuhan University, China in 1985, United States resulting in credits in Banking, Finance and and also holds an MBA degree from Australia’s Murdoch Eurodollar. University. 08 EPI Manage Profile(e).indd 19 4/28/07 9:03:41 AM Annual Report 2006 19 EPI (Holdings) Limited Corporate Governance Report CORPORATE GOVERNANCE PRACTICES The code provision E.1.2 of the CG Code stipulates that the Chairman of the Board should attend the Annual The Company recognises the value and importance to General Meeting and arrange for the chairman of the audit, achieving high standards of corporate governance to remuneration and nomination committees or in the absence enhance corporate performance and accountability. of the chairman of such committees, another member of the committee or failing this his duly appointed delegate, The Company has applied the principles and has complied to be available to answer questions at the annual general with the code provisions set out in the Code on Corporate meeting. The Company did not hold any Annual General Governance Practices (the “CG Code”) in Appendix 14 of Meetings in the year 2003 to 2006 during the period under the Rules Governing the Listing of Securities on the Stock provisional liquidation. The Company will hold all the Exchange of Hong Kong Limited (the “Listing Rules”). outstanding Annual General Meeting after the 2006 annual For the year ended 31 December 2006, the Company committee chairman or member will attend the meeting to has complied with the CG Code with deviations from the answer the questions of the shareholders. code provision A.2.1, A.4.1 and E.1.2 of the CG Code as summarised below. DIRECTORS’ SECURITIES TRANSACTIONS results announcement and the Chairman and the relevant The code provision A.2.1 of the CG Code stipulates that The Company has adopted a code of conduct rules (the the roles of Chairman and Chief Executive Offi cer should “Model Code”) regarding securities transactions by Directors be separate and should not be performed by the same on terms no less exactly than the required standard set out individual. Mr. Wong Chi Wing Joseph is the Chairman in the Model Code for Securities Transactions by Directors of and Chief Executive Offi cer of the Company. The Company Listed Issuers as set out in Appendix 10 of the Listing Rules, recognises the importance of segregating the duties of the and that having made specifi c enquiry of all Directors, the Chairman and the Chief Executive Offi cer and when a high Company confi rms that all the Directors have complied with calibre executive is identifi ed, he will be invited to take up the Model Code throughout the year. either one role in the forthcoming year. The code provision A.4.1 of the CG Code stipulates that non-executive Directors should be appointed for a specifi c a) Board Composition term, subject to re-election. Currently the non-executive BOARD Directors were not appointed for a specifi c term. However, Upon the completion of Restructuring Proposal on 20 all non-executive Directors were subject to the retirement September 2006, all the executive Directors including and rotation requirements in accordance with the Company’s Mr. Wu Shaozhang, Mr. Wong Kwok Wing, Mr. Tse On Bye-laws. 20 Annual Report 2006 Kin, Mr. Chen Weixiong and Mr. Yuen Chung Yan John resigned and were replaced by Mr. Wong Chi Wing Joseph, Mr. Cheng Hairong and Mr. Chu Kwok Chi Robert. Mr. Lee Shue Shing, an independent non-executive Director, resigned on 4 October 2006 and replaced by Mr. Xu Mingshe. On the same date, Mr. Leung Hon Chuen was appointed as the non-executive Director of the Company. 09 EPI Corp Governce(e).indd 20 4/28/07 9:04:25 AM Corporate Governance Report EPI (Holdings) Limited The Board members as at 31 December 2006 and up to the The Board delegates specifi c tasks to the Group’s date of the annual report are: management including the implementation of strategies Chairman and decisions approved by the Board and the preparation of accounts for approval by the Board before public reporting. Mr. Wong Chi Wing Joseph b) Board Functions Deputy Chairman Mr. Cheng Hairong Executive Directors Mr. Wong Chi Wing Joseph Mr. Cheng Hairong Mr. Chu Kwok Chi Robert Non-Executive Directors Leung Hon Chuen Independent Non-Executive Directors Mr. Poon Kwok Shin Edmond Mr. Wu Xiaoke Mr. Xu Mingshe The Board is responsible for the promotion of the success of the Company by directing and guiding its affairs in an accountable and effective manner. Board members have a duty to act in good faith, with due diligence and care, and in the best interests of the Company and its shareholders. The types of decisions which are to be taken by the Board include: 1. Setting the Company’s mission and values; 2. Formulating strategic directions of the Company; 3. Reviewing and guiding corporate strategy; setting performance objectives and monitoring implementation and corporate performance; 4. Monitoring and managing potential confl icts of Biographical details of Directors of the Company are set out interest of management and Board members; on page 17 under the section titled “Directors and senior and management profi le”. The Chairman is responsible for developing strategic direction and development of the Group and the executive Directors are responsible for managing the Group’s business 5. Ensuring the integrity of the Company’s accounting and fi nancial reporting systems, including the independent audit, and that appropriate systems of control are in place, affairs, including the implementation of strategies adopted in particular, systems for monitoring risk, by the Board and attending to the formulation and fi nancial control, and compliance with the law. successful implementation of Group’s policies and assuming full accountability to the Board for all Group’s operations. The Board gives clear directions as to the powers delegated to the management for the management The non-executive Director and independent non-executive and administration functions of the Group, in Directors contribute to the Company with diversifi ed particular, with respect to the circumstances where industry expertise, advise the management on strategy management should report back and obtain prior development and ensure that the Board maintains high approval from the Board before making decisions standards of fi nancial and other mandatory reporting as well or entering into any commitments on behalf of the as provide adequate checks and balances to safeguard the Group. The Board will review those arrangements on a interests of shareholders and the Company as a whole. Annual Report 2006 21 09 EPI Corp Governce(e).indd 21 4/28/07 9:04:26 AM EPI (Holdings) Limited Corporate Governance Report periodic basis to ensure that they remain appropriate 11. reviewed and approved the resignation of to the needs of the Group. Mr. Lee She Shing as the independent non- executive Director of the Company in which Mr. For the year ended 31 December 2006, the Board:- Lee confi rmed that there were no disagreement 1. reviewed and approved the annual results of resignation that needed to be brought to the Group for the year ended 31 December the attention of the shareholders of the 2005 and the interim results of the Group for Company and no claim to the Company for his the period ended 30 June 2005 and 30 June resignation. with the Board, no matter relating to his 2006. Regular Board meetings are scheduled in advance 2. reviewed and approved the Restructuring to give all Directors an opportunity to attend. All Proposal which involves, among other Directors are kept informed on a timely basis of major things, (i) the capital reorganisation, (ii) the changes that may affect the Group’s businesses, subscription, (iii) the creditors’ schemes, (iv) including relevant rules and regulations. Directors the open offer, (v) the placings, and (vi) the shall have full access to information on the Group group reorganisation. and are able to obtain independent professional advice whenever deemed necessary by the Directors. 3. reviewed and approved the general mandates No request was made by any Director for such to issue and repurchase shares of the Company. independent professional advice in 2006. The 4. reviewed and approved the issue of records of matters discussed and decisions resolved 605,000,000 new shares under a top-up at all Board meetings, which will be available for subscription with Climax Associates Limited, inspection by Directors upon request. Company Secretary shall prepare minutes and keep the major shareholder. 5. reviewed and approved the shares repurchase by the Company. c) Meeting Records There were fourteen Board meetings held for the year ended 31 December 2006, two of which was held 6. reviewed the internal controls of the Group prior to the completion of Restructuring Proposal on 20 September 2006. There is a change of majority 7. reviewed the performance of the Group and Board members upon the completion of Restructuring formulated business strategy of the Group. Proposal on 20 September 2006. 8. reviewed and approved the diversifi cation of business into non-ferrous metals. 9. reviewed and approved the formation of Qingyuan JCCL EPI Copper Limited in PRC for the production of copper anode. 10. reviewed and approved price-sensitive transactions. 22 Annual Report 2006 09 EPI Corp Governce(e).indd 22 4/28/07 9:04:27 AM Corporate Governance Report EPI (Holdings) Limited The following was an attendance record of the Board e) Chairman and Chief Executive Offi cer Meetings held by the Board during the year: Attendance at meetings to the Board and formulate the Group’s business The chairman’s responsibility is to provide leadership Board Members held from 1 January 2006 to strategies. The Chief Executive Offi cer is responsible before 20 September 2006 20 September 2006 for the day-today operation of the Company and Mr. Wu Shaozhang2 Mr. Wong Kwok Wing2 Mr. Tse On Kin2 Mr. Yuen Chung Yan, John2 Mr. Chen Weixiong2 Mr. Lee Shue Shing Mr. Wu Xioake Mr. Poon Kwok Shin Edmond implementation of the development strategy adopted by the Board. Mr. Wong Chi Wing Joseph is the chairman and Chief Executive Offi cer of the Company. The Company recognizes the importance of segregating the duties of the Chairman and the Chief Executive Offi cer and when a capable executive is identifi ed, he will be invited to take up either one role in the forthcoming year. 2/2 1/2 2/2 0/2 1/2 1/2 1/2 2/2 Attendance at meetings f) Accountability and Audit The Directors are responsible for preparing the accounts of each fi nancial period, which give a true and fair view of the state of affairs of the Group and of the results and cash fl ow for that period. The Directors also ensure that the fi nancial statements of the Group are prepared in accordance with the statutory requirements and applicable accounting policies. Due to the fact that the Company was under provisional liquidation prior to 20 September 2006 and Company lost control of a number of principal subsidiaries, the results of the principal subsidiaries have not been consolidated into the Group accounts. Accordingly, the auditors’ report has been substantially qualifi ed in this respect. Upon the completion of the Restructuring Proposal on 20 September 2006, all the uncertain issues have been cleared up and the Group’s state of affairs are back in the control of the Directors. Board Members held from 20 September 2006 to after 20 September 2006 31 December 2006 12/12 12/12 12/12 10/12 12/12 0/12 10/12 8/12 Mr. Wong Chi Wing Joseph1 Mr. Cheng Hairong1 Mr. Chu Kwok Chi Robert1 Mr. Leung Hon Chuen3 Mr. Poon Kwok Shin Edmond Mr. Lee Shue Shing4 Mr. Xu Mingshe3 Mr. Wu Xioake Note: 1 2 3 4 appointed on 20 September 2006 resigned on 20 September 2006 appointed on 4 October 4, 2006 resigned on 4 October 4, 2006 d) Independent Non-executive Directors All independent non-executive Directors are fi nancially independent from the Company and any of its subsidiaries. Each of the independent non-executive Directors has given a written confi rmation to the Company confi rming that he has met the criteria set out in Rule 3.13 of the Listing Rules regarding the guidelines for the assessment of independence of directors. 09 EPI Corp Governce(e).indd 23 4/28/07 9:04:28 AM Annual Report 2006 23 EPI (Holdings) Limited Corporate Governance Report In preparing the fi nancial statements, the Directors 1) Audit Committee consider that the fi nancial statements of the Group are prepared on a going concern basis and appropriate a) Composition of audit committee members accounting policies have been consistently applied. The Directors have also made judgments and estimates that are prudent and reasonable in the preparation of the fi nancial statements. Mr. Poon Kwok Shin Edmond (Chairman) Mr. Leung Hon Chuen (appointed on 4 October 2006) Mr. Xu Mingshe The statement of the auditors of the Company about (appointed on 4 October 2006) their reporting responsibilities on the fi nancial statements is set out in the independent auditor’s Mr. Lee Shue Shing (resigned on 4 October 2006) report on page 33. Mr. Wu Xiaoke (resigned on 4 October 2006) g) Internal Control and Risk Management b) Role and function The Board is responsible for the Group’s system of The audit committee is mainly responsible for: internal control so as to maintain sound and effective controls to safeguard the shareholders’ investment i. to review the fi nancial statements and and the assets of the Group. The Board has established an on-going process for reports and consider any signifi cant or unusual items raised by the qualifi ed accountant or external auditors before identifying, evaluating and managing the signifi cant submission to the Board. risks faced by the Group. This process includes continuous updating of the internal control system ii. to review the relationship with the external auditors by reference to the work performed by the auditors, their fees and terms of engagement, and make recommendation to the Board on the appointment, re-appointment and removal of external auditors. iii. to review the adequacy and effectiveness of the Company’s fi nancial reporting system, internal control and risk management system and associated procedures. of the Group in response to the changing business environment and regulatory requirements. The Board is also conducting a review of the internal controls of the Group to ensure that the policies and procedures in place are adequate. BOARD COMMITTEES The Board has also established the following committees with defi ned terms of reference:- 1. 2. 3. Audit Committee Remuneration Committee Nomination Committee Each Board Committee makes decision on matters within its term of reference and applicable limit of authority. The terms of reference as well as the structure and membership of each committee will be reviewed from time to time. 24 Annual Report 2006 09 EPI Corp Governce(e).indd 24 4/28/07 9:04:29 AM Corporate Governance Report EPI (Holdings) Limited c) Meeting records b) Role and function Two meetings were held for the year ended 31 The remuneration committee is mainly December 2006 and the attendance of each responsible for: i. reviewing any signifi cant changes in human resources policies and structure made in line with the prevailing trend and business development. ii. making recommendations to the Board on the Company’s policy and structure of all remuneration of Directors and senior management and on the establishment of a formal and transparent procedures for developing policy on such remuneration; iii. reviewing and approve the compensation payable to executive Directors and senior management in connection with any loss or termination of their offi ce or appointment to ensure that such compensation is determined in accordance with relevant contractual terms and that such compensation is otherwise fair and not excessive for the Company; and iv. ensuring that no Director or any of his associates is involved in deciding his own remuneration. committee member is set out as follows: Attendance at meetings held for the year ended Committee Members 31 December 2006 Mr. Poon Kwok Shin Edmond Mr. Lee Shue Shing2 Mr. Wu Xiaoke2 Mr. Leung Hon Chuen1 Mr. Xu Mingshe1 Note: 1 appointed on 4 October 4, 2006 2 resigned on 4 October 4, 2006 2/2 1/2 1/2 1/2 1/2 During the meeting, the audit committee discussed with the following matters:- i. Financial Reporting The audit committee reviewed with the Chief Executive Offi cer, the Company Secretary and the Financial Controller of the Company the interim results. ii. External Auditors The audit committee reviewed the audit fee for the year ended 31 December 2005 and recommended to the Board. 2) Remuneration Committee The Company established the remuneration committee on 4 October 2006. a) Composition of remuneration committee members Mr. Leung Hon Chuen (Chairman) Mr. Poon Kwok Shin Edmond Mr. Xu Mingshe 09 EPI Corp Governce(e).indd 25 4/28/07 9:04:29 AM Annual Report 2006 25 EPI (Holdings) Limited Corporate Governance Report c) Meeting Record b) Role and function One meeting was held for the year ended The nomination committee is mainly 31 December 2006 and the attendance of each committee member is set out as follows: Attendance at meetings held for the year ended Committee Members 31 December 2006 Mr. Leung Hon Chuen Mr. Poon Kwok Shin Edmond Mr. Xu Mingshe 1/1 1/1 1/1 During the year under review, the remuneration committee reviewed the policies for the remuneration of Directors and senior management of the Group, staff costs and headcount of the Group. 3) Nomination Committee The Company established the nomination committee on 4 October 2006. a) Composition of nomination committee members Mr. Wong Chi Wing Joseph (Chairman) Mr. Leung Hon Chuen Mr. Poon Kwok Shin Edmond Mr. Xu Mingshe Mr. Wu Xiaoke responsible for: i. review the structure, size and composition (including the skills, knowledge and experience) of the Board on a regular basis and make recommendations to the Board regarding any proposed changes; ii. identify individuals suitably qualifi ed to become Board members and select or make recommendations to the Board on the selection of, individuals nominated for Directorships; iii. assess the independence of independent non-executive Directors; and iv. make recommendations to the Board on relevant matters relating to the appointment or re-appointment of Directors and succession planning for Directors in particular the chairman and the Chief Executive Offi cer. 26 Annual Report 2006 09 EPI Corp Governce(e).indd 26 4/28/07 9:04:30 AM Corporate Governance Report EPI (Holdings) Limited c) Meeting Records COMMUNICATIONS WITH SHAREHOLDERS One meeting was held for the year ended 31 In respect of each substantially separate issue at a general December 2006 and the attendance of each meeting, a separate resolution is proposed by the chairman committee member is set out as follows: of that meeting. Attendance at meetings held for the year ended The Company did not hold any Annual General Meetings in the year 2003 to 2006 during the period under Committee Members 31 December 2006 provisional liquidation. The Company will hold all the Mr. Wong Chi Wing Joseph (Chairman) Mr. Leung Hon Chuen Mr. Poon Kwok Shin Edmond Mr. Xu Mingshe Mr. Wu Xiaoke 1/1 1/1 1/1 1/1 1/1 During the meeting, the nomination committee outstanding annual general meeting after the 2006 annual results announcement and the chairman and the relevant committee chairman or member will attend the meeting to answer the questions of the shareholders. VOTING BY POLL discussed for the need of segregating The Company informs the shareholders (in its circulars the duties of the Chairman and the Chief convening a general meeting) the procedures for voting Executive Offi cer and unanimously agreed to by poll and the rights of shareholders to demand a poll to identify a high caliber executive, who would ensure compliance with the requirements on the poll voting be considered for an invitation in the next procedures. In accordance with Bye-Law 70 of the Company, committee meeting, to take up either one role at any general meeting a resolution put to the vote of the in the forthcoming year. EXTERNAL AUDITORS meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:- It is the auditors’ responsibility to form an independent opinion, based on their audit, on those fi nancial statements (i) by the chairman of the meeting; or and to report their opinion solely to the Company, as a body, in accordance with section 141 of the Companies (ii) by at least three members present in person (or, in Ordinance, and for no other purpose. They do not assume the case of a member being a corporation, by its duly responsibility towards or accept liability to any other person authorised representative) or by proxy for the time for the contents of the auditors’ report. being entitled to vote at the meeting, or During the year, the remuneration paid to the Company’s (iii) by any member or members present in person (or, auditors, Messrs Ting Ho Kwan & Chan was as follows: in case of a member being a corporation, by its duly authorised representative) or by proxy and Services rendered Fee paid/payable representing not less than one-tenth of the total HK$’000 voting rights of all the members having the right to vote at the meeting; or Audit services Non-audit services 250 80 09 EPI Corp Governce(e).indd 27 4/28/07 9:04:31 AM Annual Report 2006 27 EPI (Holdings) Limited Corporate Governance Report (iv) by any member or members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right. The Company should count all proxy votes, and except where a poll is required, the chairman of a meeting should indicate to the meeting the level of proxies lodged on each resolution, and the balance for and against the resolution, after it has been dealt with on a show of hand. The Company should ensure that votes cast are properly counted and recorded. The chairman of a meeting should at the commencement of the meeting ensure that an explanation is provided of: (i) the procedure for demanding a poll by shareholders before putting a resolution to the vote on a show of hands; and (ii) the detailed procedures for conducting a poll and then answer any questions from shareholders whenever voting by way of a poll is required. 28 Annual Report 2006 09 EPI Corp Governce(e).indd 28 4/28/07 9:04:32 AM Directors’ Report EPI (Holdings) Limited The Directors have pleasure in presenting the annual report of the debts restructuring become effective at 1 August and the audited fi nancial statements for the year ended 31 2006, which had been put through in the current year’s December 2006. consolidated income statement. CORPORATE RESTRUCTURING Upon the completion of the Restructuring Proposal on 20 September 2006, all the balances shown in the balance On 13 April 2006, the Company and an investor, Climax sheet had been ratifi ed and audited and the adjustments Associates Limited (“Climax”) and the provisional liquidators of the debt restructuring would not have any consequential entered into a restructuring agreement in respect of the effects to the Group in future years’ consolidated income restructuring proposal (the “Restructuring Proposal”), which statement and the consolidated balance sheet. involves, among other things, (i) capital reorganisation, (ii) subscription, (iii) creditors’ schemes, (iv) open offer, The Directors as referred in the qualifi cations were former (v) placings, and (vi) group reorganisation. Details of the management who had resigned upon the completion of Restructuring Proposal are set out in the circular of the Restructuring Proposal on 20 September 2006. Company dated 29 May 2006. The special general meeting held on 22 June 2006 CHANGE OF COMPANY NAME duly passed the resolutions approving the transactions Pursuant to the special resolution passed at a special contemplated under the Restructuring Proposal. general meeting held on 22 September 2006 and the The creditors’ schemes were duly approved by the scheme name of the company has been changed from “Great Wall creditors at the scheme creditors’ meetings held on 17 July Cybertech Limited” to “EPI (Holdings) Limited with effect 2006. from 22 September 2006. approval by the Registrar of Companies in Bermuda, the On 20 September 2006, by two respective orders of the court, the winding-up petition lodged against the Company on 25 March 2003 was withdrawn and the provisional liquidators were released. On the same date, the Restructuring Proposal was completed. QUALIFICATION IN THE AUDITOR’S REPORT The Company has also adopted the new Chinese name“長盈 集團（控股）有限公司”in place of the previous Chinese name “長城數碼廣播有限公司” for identifi cation purpose only. PRINCIPAL ACTIVITIES The Company is an investment holding company. The Pursuant to the completion of the Restructuring Proposal activities of its principal subsidiaries are set out in note on 20 September 2006, certain adjustments of debt 17 to the fi nancial statements. The Group has gradual restructuring had been put through in the consolidated diversifi ed its business to non-ferrous metals business after income statement to ratify the opening balances of balance the completion of Restructuring Proposal. sheet as at 1 January 2006. As the auditors are unable to confi rm the opening balance as at 1 January 2006 SEGMENT INFORMATION due to the limitation of audit scope during the period of provisional liquidation, they have to qualify the amount of No business segment information in respect of the Group’s gain on debts waived of HK$277,844,000 arising from the operation has been presented as all the Group’s turnover debts restructuring of the Group. was derived from consumer electronic operation. The qualifi cations in the auditor’s report set out on pages No geographical segment information of the Group as its 33 to 35 in the Annual Report were restricted only to the revenues are primarily generated in Hong Kong and its major opening balances as at 1 January 2006 and the adjustments assets are located in Hong Kong. 10 EPI Directors(e).indd 29 4/28/07 9:01:33 AM Annual Report 2006 29 EPI (Holdings) Limited Directors’ Report RESULTS AND APPROPRIATIONS RESERVES The results of the Group for the year ended 31 December Movements in reserves of the Company during the year are 2006 are set out in the consolidated income statement on set out in note 22 to the fi nancial statements. page 36. The directors did not recommend the payment of a dividend for the year ended 31 December 2006 (2005: NIL). The Directors of the Company during the year and up to the DIRECTORS AND SERVICE CONTRACTS FINANCIAL SUMMARY A summary of the results and the assets and liabilities of date of this report are: Executive Directors: Mr. Wong Chi Wing Joseph (appointed on 20 September 2006) the Group for the last fi ve fi nancial years is set out on page Mr. Cheng Hairong (appointed on 20 September 2006) 75 of the Annual Report. PROPERTY, PLANT AND EQUIPMENT Mr. Chu Kwok Chi Robert (appointed on 20 September 2006) Mr. Wu Shaozhang (resigned on 20 September 2006) Mr. Wong Kwok Wing (resigned on 20 September 2006) Mr. Tse On Kin (resigned on 20 September 2006) Details of the movements during the year in the property, Mr. Chen Weixiong (resigned on 20 September 2006) plant and equipment are set out in note 16 to the fi nancial Mr. Yuen Chung Yan, John (resigned on 20 September 2006) statements. SHARE CAPITAL Non-Executive Directors Leung Hon Chuen (appointed on 4 October 2006) Details of movements during the year in the share capital of the Company are set out in 21 to the fi nancial statements. Independent Non-Executive Directors Mr. Poon Kwok Shin Edmond PURCHASE, SALE OR REDEMPTION OF SHARES At the special general meeting held on 22 June 2006, Mr. Wu Xiaoke Mr. Xu Mingshe (appointed on 4 October 2006) Mr. Lee Shue Shing (resigned on 4 October 2006) ordinary resolutions were passed to grant a general mandate Biographical details of Directors of the Company are set out to the Directors to exercise the powers of the Company to on page 17 under the section titled “Directors and senior issue new shares up to a maximum of 20% of the issued management profi le”. share capital of the Company and to purchase shares up to a maximum of 10% of the issued share capital of the Company The Company has received from each of the Independent immediately following completion of the Restructuring Non-Executive Directors an annual confi rmation of his Proposal. independence pursuant to Rule 3.13 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong On 18 December 2006, 605,000,000 shares were issued Kong Limited (the “Listing Rules”) and the Company by the Company under a top-up subscription with Climax considers such Directors to be independent. pursuant to the general mandate granted on 22 June 2006. On 29 December 2006, the Company has purchased Mr. Cheng Hairong, Mr. Chu Kwok Chi Robert and Mr. Leung 25,300,000 Company’s shares on the Stock Exchange at an Hon Chuen will retire and, being eligible, offer themselves aggregate price of HK$5,583,000 pursuant to the general for re-election at the forthcoming Annual General Meeting. In accordance with Article 99(A) of the Company’s Bye laws, mandate granted on 22 June 2006. 30 Annual Report 2006 10 EPI Directors(e).indd 30 4/28/07 9:01:34 AM Directors’ Report EPI (Holdings) Limited The Independent Non-Executive Directors are subject to or debentures of the Company or any of its associated retirement by rotation and re-election at the Annual General corporations (within the meaning of Part XV of the SFO). Meeting of the Company in accordance with the Company’s Bye laws. DIRECTORS INTERESTS IN CONTRACTS OF SIGNIFICANCE None of the Directors has a service contract with the Company or any of its subsidiaries which is not determinable No contract of signifi cance, to which the Company, or any by the Group within one year without payment of compensation, other than statutory compensation. DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS OR SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES OR DEBENTURES As at 31 December 2006, the interests or short positions of of its subsidiaries, its holding company, or any subsidiaries of its holding company was a party and in which a Director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. MANAGEMENT CONTRACTS the Directors and Chief Executive in the shares, underlying No contract concerning the management and administration shares and debentures of the Company or any of its of the whole or any substantial part of the business of the associated corporations (within the meaning of Part XV of Company and the Group was entered into or existed during Securities and Futures Ordinance (“SFO”)) which had been the year. notifi ed to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests COMPETING INTEREST or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, None of the Directors or their respective associates (as pursuant to Section 352 of the SFO, to be entered in the defi ned in the Listing Rules) had an interest in a business, register referred to therein, or which were required pursuant which competes or may compete with the business of the to the Model Code for Securities Transactions by Directors Group. of Listed Companies to be notifi ed to the Company and the Stock Exchange were as follows: EMOLUMENT POLICY Number of ordinary shares held Approximate The emoluments of the employees of the Group is set up by the human resources department and seeks to provide remuneration packages on the basis of the merit, Capacity/ Long percentage qualifi cations and competence of the employees. Director nature of interest position of interest Mr. Wong Chi The emoluments of the Directors and senior management of the Company will be reviewed by the Remuneration Wing Joseph Corporate (Note) 2,001,810,000 55.09% Committee, having regard to factors including the Group’s Note The Shares are held by Climax Associates Limited, which is a company incorporated in the British Virgin Islands and owned as to 51% by Rich Concept Worldwide Limited (a company benefi cially wholly-owned by Mr. Wong Chi Wing Joseph, 29% by Cheng Hairong and 20% by Mr. Chu Kwok Chi Robert. operating results, responsibilities of the Directors and senior management and comparable market statistics. SHARE OPTION SCHEME As at 31 December 2006, saved as disclosed above, none of The Company has adopted share option scheme as an the Directors, chief executive or their associates had any incentive to directors and eligible employees, details of the interests or short positions in the shares, underlying shares scheme are set out in note 21 to the fi nancial statements. 10 EPI Directors(e).indd 31 4/28/07 9:01:35 AM Annual Report 2006 31 EPI (Holdings) Limited Directors’ Report No option under the Scheme was granted or exercised during PRE-EMPTIVE RIGHTS the year nor outstanding at 31 December 2006. RETIREMENT BENEFITS SCHEME Particulars of the retirement benefi ts schemes of the Group There are no provisions for pre-emptive rights under the Company’s Bye-laws or the laws of Bermuda which would oblige the Company to offer new shares on a pro rata basis to existing shareholders. are set out in note 23 to the fi nancial statements. PUBLIC FLOAT SUBSTANTIAL SHAREHOLDERS As at 31 December 2006, as far as the Directors were aware, the following persons (other than the Directors and chief As at the date of this report, the Company has maintained the prescribed public fl oat under the Listing Rules, based on the information that is publicly available to the Company and within the knowledge of the Directors. executive of the Company) had interests and short positions MAJOR CUSTOMERS AND SUPPLIERS in the shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the Divisions 2 and 3 of Part XV of the SFO (including interests or short positions which were taken or The percentages of sales and purchases for the year attributable to the Group’s major customers and suppliers are as follows: deemed to be have under such provisions), and required to Sales be recorded in the register of interests required to be kept by the Company under Section 336 of the SFO: – the largest customer Long positions in shares/underlying shares of the Company – fi ve largest customers combined Purchases – the largest supplier Total Approximate – fi ve largest customers combined 45.57% 99.36% 50.76% 99.94% Nature of number of percentage Name interest ordinary shares of interest Climax Associates Corporate 2,001,810,000 55.09% Limited (Note 1) Rich Concept Worldwide Interest of a 2,001,810,000 55.09% controlled Limited (Note 2) corporation None of the Directors, their associates or any shareholder (which to the knowledge of the directors owns more than 5% of the Company’s share capital) had an interest in the major customers or suppliers as noted above. SUBSEQUENT EVENTS Details of signifi cant subsequent events of the Group are set out in 26 to the fi nancial statements. AUDITORS Notes (1) (2) Climax Associates Limited is 51% owned by Rich Concept Worldwide Limited. Rich Concept Worldwide Limited is wholly owned by Mr. Wong Chi Wing, Joseph, a Director and Chairman of the Company. Messrs. Ting Ho Kwan & Chan, Certifi ed Public Accountants (Practising), retire and a resolution for their reappointment as auditors of the Company will be proposed at the forthcoming Annual General Meeting. Saved as disclosed above, as at 31 December 2006, the On behalf of the Board Directors were not aware of any other person (other than the Directors and chief executive of the Company) who had Wong Chi Wing Joseph an interest and short position in the shares and underlying Chairman shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO. Hong Kong, 23 April 2007 32 Annual Report 2006 10 EPI Directors(e).indd 32 4/28/07 9:01:36 AM EPI (Holdings) Limited Independent Auditor’s Report TO THE SHAREHOLDERS OF EPI (HOLDINGS) LIMITED (FORMERLY GREAT WALL CYBERTECH LIMITED) (Incorporated in Bermuda with limited liability) We have audited the financial statements of EPI (Holdings) Limited (the “Company”) set out on pages 36 to 74, which comprise the balance sheets of the Company and the Group as at 31 December 2006, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash fl ow statement for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes. DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The Directors are responsible for the preparation and the true and fair presentation of these fi nancial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certifi ed Public Accountants (the “HKICPA”) and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. AUDITOR’S RESPONSIBILITY Our responsibility is to express an opinion on these fi nancial statements based on our audit. This report is made solely to you, as a body, in accordance with Section 90 of the Companies Act 1981 of Bermuda, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Except as described in the basis for qualifi ed opinion paragraphs, we conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. 11 EPI Auditors Report.indd 33 4/28/07 9:02:50 AM Annual Report 2006 33 EPI (Holdings) Limited Independent Auditor’s Report BASIS FOR QUALIFIED OPINION 1. Our report on the fi nancial statements of the Company and of the Group for the year ended 31 December 2005 was disclaimed in view of the pervasive nature of the limitations on the scope of our audit resulting from insuffi ciency of supporting documentation and explanations. Accordingly, we were unable to form an opinion as to whether the net liabilities of the Company and of the Group as at 31 December 2005 and the results and cash fl ows and the related disclosures in the notes to the fi nancial statements of the Company and of the Group for the year ended 31 December 2005 were fairly stated. In summary the scope limitations included the following: i. Incomplete books and records of certain subsidiaries within the Group; ii. Insufficient information which prevented us from satisfying as to whether the amount of other payables of approximately HK$293,807,000, including the liabilities under indemnities given to subsidiaries not consolidated of approximately HK$291,130,000, included in the Group’s balance sheet was free from material misstatement; and iii. Failure to consolidate certain subsidiaries within the Group into the fi nancial statements in accordance with the Hong Kong Accounting Standard 27 issued by the HKICPA. Any adjustments found to be necessary to the opening balances as at 1 January 2006 may affect the net liabilities of the Company and of the Group as at 31 December 2005 and the results and cash fl ows and the related disclosures in the notes to the fi nancial statements of the Company and of the Group for the year ended 31 December 2006. Also the comparative fi gures in respect of the net liabilities of the Company and of the Group as at 31 December 2005 and the results and cash fl ows and the related disclosure in the notes to the fi nancial statements of the Company and of the Group for the year ended 31 December 2005 may not be comparable with the fi gures for the current year. 2. As set out in note 3 and note 9 to the financial statements, the Directors have been unable to obtain sufficient documentary evidence to satisfy themselves as to whether the gain on debts waived of approximately HK$277,844,000 arising from the Debt Restructuring carried out by the Company during the year and included in the profi t of the Group for the year ended 31 December 2006 was fairly stated. 3. The Directors are unable to satisfy themselves as to the completeness of recording of transactions entered into by the Group and of the completeness of disclosure of fi nance lease obligations, segment information, pledged of assets, commitments and contingent liabilities for the period from 1 January 2006 to 20 September 2006 in the financial statements. Furthermore, the Directors are unable to determine the completeness of related party transactions, employee benefits and emoluments, and taxation and deferred taxation incurred for the period from 1 January 2006 to 20 September 2006. 4. Certain subsidiaries were disposed of according to the Debt Restructuring scheme carried out by the Company during the year. The Directors were unable to obtain suffi cient information to include the results of these subsidiaries up to the date of their disposals in the consolidated fi nancial statements. Accordingly the Directors were unable to satisfy themselves as to the truth and fairness of the gain on disposal of these subsidiaries so included in the financial statements. 34 Annual Report 2006 11 EPI Auditors Report.indd 34 4/28/07 9:02:50 AM Independent Auditor’s Report EPI (Holdings) Limited There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to the matters set out in the above paragraphs. Any adjustments to the above fi gures may affect the profi t and cash fl ows and related notes to the fi nancial statements of the Group for the year ended 31 December 2006. QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the matters set out in the basis for qualifi ed opinion paragraphs, the fi nancial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2006 and of the Group’s profi t and cash fl ows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. TING HO KWAN & CHAN Certifi ed Public Accountants (practising) Hong Kong 23 April 2007 11 EPI Auditors Report.indd 35 4/28/07 9:02:51 AM Annual Report 2006 35 EPI (Holdings) Limited Consolidated Income Statement For the year ended 31 December 2006 TURNOVER COST OF SALES GROSS PROFIT OTHER INCOME AND GAINS, NET GAIN ON DEBT RESTRUCTURING SELLING AND DISTRIBUTION COSTS ADMINISTRATIVE EXPENSES FINANCE COSTS PROFIT BEFORE TAXATION TAXATION PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY EARNINGS PER SHARE Basic Diluted Notes 2006 HK$’000 2005 HK$’000 7 7 9 10 11 13 14 15 264,803 (257,909) 513,610 (498,221) 6,894 15,389 8,064 263,168 (884) (11,834) (116) 2,139 – (236) (6,981) (300) 265,292 10,011 (350) (1,810) 264,942 Cents 8,201 Cents (As restated) 28.3 N/A 10.1 N/A 36 Annual Report 2006 12 EPI Con Income.indd 36 4/28/07 9:03:19 AM Consolidated Balance Sheet At 31 December 2006 ASSETS NON-CURRENT ASSETS Property, plant and equipment CURRENT ASSETS Trade and other receivables Cash and cash equivalents CURRENT LIABILITIES Amounts due to subsidiaries not consolidated Trade and other payables Profi ts tax payable NET CURRENT ASSETS/(LIABILITIES) NET ASSETS/(LIABILITIES) EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY Issued capital Reserves EPI (Holdings) Limited Notes 2006 HK$’000 2005 HK$’000 16 18 19 20 21 779 67 91,395 191,344 282,739 – 15,832 2,038 17,870 13,856 59 13,915 7,885 298,607 1,867 308,359 264,869 (294,444) 265,648 (294,377) 36,082 229,566 80,763 (375,140) 265,648 (294,377) Wong Chi Wing Joseph Chairman Cheng Hairong Deputy-chairman 13 EPI Con Balance Sheet.indd 37 4/28/07 9:03:28 AM Annual Report 2006 37 EPI (Holdings) Limited Balance Sheet At 31 December 2006 ASSETS NON-CURRENT ASSETS Interests in subsidiaries CURRENT ASSETS Cash and cash equivalents CURRENT LIABILITIES Trade and other payables NET CURRENT ASSETS/(LIABILITIES) NET ASSETS/(LIABILITIES) EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY Issued capital Reserves Notes 2006 HK$’000 2005 HK$’000 17 19 20 21 22 160,844 (7,333) 108,678 – 12,848 95,830 293,807 (293,807) 256,674 (301,140) 36,082 220,592 80,763 (381,903) 256,674 (301,140) Wong Chi Wing Joseph Chairman Cheng Hairong Deputy-chairman 38 Annual Report 2006 14 EPI Balance Sheet.indd 38 4/28/07 9:01:20 AM Consolidated Statement of Changes in Equity For The Year Ended 31 December 2006 EPI (Holdings) Limited Attributable to the equity holders of the Company Share Capital Contributed Retained profi ts/ Share capital HK$’000 premium redemption surplus (Accumulated account HK$’000 reserve HK$’000 account HK$’000 losses) Total HK$’000 HK$’000 At 1 January 2005 Profi t for the year 80,763 792,011 9,924 145,372 (1,330,648) (302,578) – – – – 8,201 8,201 At 31 December 2005 80,763 792,011 9,924 145,372 (1,322,447) (294,377) Capital Reduction (note 21 (a) (ii)) Issue of subscription and additional shares (79,955) – (note 21 (a) (iii) (1)) 24,278 62,250 Open Offer (note 21 (a) (iii) (2)) 1,453 6,851 Shares Placing (note 21 (a) (iii) (2)) 3,746 33,529 – – – – 79,955 (3,528) – – – (894,641) (9,924) 904,565 Capital Reserve Reduction Set off against the entire accumulated losses of the Company Shares Placing after Debt – – – – – – 83,000 8,304 37,275 – – – – (1,066,042) 1,066,042 Restructuring (note 21 (b)) 6,050 166,037 Shares Repurchase (note 21 (c)) Profi t for the year (253) – (5,330) – At 31 December 2006 36,082 160,707 – – – – – 172,087 (5,583)_ 264,942 264,942 60,322 8,537 265,648 – – – – – 15 EPI Con SCE.indd 39 4/28/07 9:03:15 AM Annual Report 2006 39 EPI (Holdings) Limited Consolidated Cash Flow Statement For The Year Ended 31 December 2006 CASH FLOWS FROM OPERATING ACTIVITIES Profi t for the year Adjustments for: Taxation Depreciation Impairment losses for: Trade and other receivables Amounts due from subsidiaries not consolidated Gain on debt restructuring Interest income Finance costs Changes in working capital: Trade and other receivables Amounts due from subsidiaries not consolidated Amounts due to subsidiaries not consolidated Trade and other payables Net cash used in operations Taxation paid Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Interest received Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payment to Schemes’ creditors Settlement of restructuring expenses Proceeds from shares subscription Net proceeds from open offer Net proceeds from share placing Net proceeds from share placing after Debt Restructuring Repurchase of ordinary shares Interest paid Net cash generated from/(used in) fi nancing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of the year CASH AND CASH EQUIVALENTS AT END OF THE YEAR Notes 2006 HK$’000 2005 HK$’000 264,942 350 58 – – (263,168) (302) 116 8,201 1,810 24 661 37 – – 300 1,996 11,033 (77,539) (13,216) – (7,885) 16,569 (66,859) (179) (67,038) (770) 302 (468) (21,500) (14,676) 83,000 8,304 37,275 172,087 (5,583) (116) 258,791 191,285 59 191,344 (37) 189 1,250 (781) – (781) (19) – (19) – – – – – – – (300) (300) (1,100) 1,159 59 13 16 11 11 9 10 3(i)(c) 19 19 40 Annual Report 2006 16 EPI Con Cash Flow.indd 40 4/28/07 9:02:45 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 1. CORPORATE INFORMATION AND UPDATE The Company was incorporated in Bermuda with limited liabilities and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The trading of the Company’s shares on the Stock Exchange was suspended on 24 March 2003. Following completion of the Company’s restructuring proposal (“Debt Restructuring”) on 20 September 2006, trading of the Company’s shares on the Stock Exchange was resumed on 26 September 2006. The registered offi ce of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The address of the principal place of business of the Company was 2503B-2505, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong during the year and the Company moved its principal place of business to Suite 6303-4 on 63/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on 8 March 2007. Pursuant to a special resolution passed at the special general meeting of the Company held on 22 September 2006 and approved by the Registrar of Companies in Bermuda and Companies Registry in Hong Kong, the name of the Company has been changed from “Great Wall Cybertech Limited” to “EPI (Holdings) Limited” in English and for identifi cation purpose, adopted “長盈集團（控股）有限公司” to replace “長城數碼廣播有限公司” as its Chinese name. The Company is an investment holding company. The principal activities of the Company’s subsidiaries of which their fi nancial statements have been consolidated at 31 December 2006 are set out in note 17 to the fi nancial statements. Immediately upon completion of Debt Restructuring, the Group is controlled by the investor, Climax Associates Limited (“CA Ltd”), which is incorporated in the British Virgin Islands and owned 55% of the Company’s shares as at 31 December 2006. In the opinion of the directors, the ultimate holding company is Rich Concept Worldwide Limited, which is incorporated in the British Virgin Islands. 2. APPOINTMENT AND RESIGNATION OF PROVISIONAL LIQUIDATORS On 21 June 2003, Mr. Derek K. Y. Lai and Mr. Joseph K. C. Lo of Deloitte Touche Tohmatsu were appointed as joint and several provisional liquidators of the Company by the High Court of Hong Kong Special Administrative Region (the “High Court”) so as to enforce and preserve the assets and business of the Company, to consider and review all debt restructuring proposals and/or scheme of arrangement to be proposed by any party. Following conditional approval of Debt Restructuring on 26 September 2005 and completion of Debt Restructuring on 20 September 2006, being the closing date of the Debt Restructuring (the “Closing”), the petition against the Company on 25 March 2003 was withdrawn and the provisional liquidators were discharged and released by the court with effect from the Closing. 17 EPI Notes(E).indd 41 4/28/07 9:00:33 AM Annual Report 2006 41 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 3. DEBT RESTRUCTURING On 13 April 2006, the Company, CA Ltd and provisional liquidators entered into a restructuring agreement for implementation of Debt Restructuring. (i) The principal elements of Debt Restructuring are as follows: (a) Capital reorganisation The Company implemented capital reorganisation, involving share consolidation, capital reduction and capital reserve reduction. (1) Share consolidation Every 100 issued shares of HK$0.01 each were consolidated into one consolidated share of HK$1 each. (2) Capital reduction The nominal value of each consolidated share was reduced from HK$1 each to HK$0.01 each by cancelling the paid-up capital to the extent of HK$0.99 on each issued consolidated share. (3) Capital reserve reduction and reorganization The Company carried out a cancellation of the entire amount standing to the credit of its share premium account (including the share premium before implementation of Debt Restructuring, the share premium arising from the subscription, open offer and placing as stated in (b), (d) & (e) respectively), capital redemption reserve account and capital reserve account. Amounts of approximately HK$975,947,000 in aggregate arising from the above capital reserve reduction were credited directly to the contributed surplus account of the Company. Approximately HK$3.5 million out of the above contributed surplus would then be used to apply for issue of 352,750,000 ordinary shares to CA Ltd (note b). Upon completion of capital reorganisation, the above remaining contributed surplus of approximately HK$1,137,424,000 would then be used to set off against the entire accumulated losses of the Company before completion of Debt Restructuring and after deducting the gain arising from the settlement and discharge in full of the indebtedness. 42 Annual Report 2006 17 EPI Notes(E).indd 42 4/28/07 9:00:35 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 3. DEBT RESTRUCTURING-CONTINUED (b) Subscription Pursuant to the subscription agreement dated 13 April 2006, CA Ltd subscribed for 2,075,000,000 ordinary shares at a subscription price of HK$0.04 per share. In addition, 352,750,000 additional shares were allotted and issued to CA Ltd, credited as fully paid, on the basis of 17 additional shares for every 100 subscription shares subscribed by CA Ltd. An amount of HK$21.5 million out of the subscription proceeds has been transferred to the scheme administrators for the creditors’ settlement (note c). Details of the usage of subscription proceeds are set out in note 21 (a)(iii) to the fi nancial statements. (c) Creditors’ Schemes All indebtedness of the Company has been restructured pursuant to the Creditors’ Schemes. An amount of HK$21.5 million out of the subscription proceeds as stated in (b) above and the entire interests of the companies excluding from the restructured group (“relevant assets”) would be transferred to the scheme administrators for settlement and discharge of indebtedness according to the Creditors’ Schemes. Upon the implementation of the Creditors’ Schemes, the Company’s indebtedness has then been fully discharged and settled. (d) Open offer Pursuant to Debt Restructuring, in order to restore the 25% public fl oat as required by the Rules Governing the Listing of Securities on the Main Board of the Stock Exchange (the “Listing Rules”), 145,372,626 offer shares have been made to the qualifying shareholders on the basis of nine offer shares for every fi ve ordinary shares held by the qualifying shareholders at a subscription price of HK$0.06 per offer share. (e) Placings As part of Debt Restructuring to restore the 25% public fl oat as required by the Listing Rules, 374,627,374 placing shares and 156,500,000 sale shares were successfully placed to not less than six independent investors who are third parties independent of the Company and its connected persons and CA Ltd at a placing price of HK$0.1 per share. 17 EPI Notes(E).indd 43 4/28/07 9:00:36 AM Annual Report 2006 43 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 3. DEBT RESTRUCTURING-CONTINUED (ii) Completion of Debt Restructuring The completion of Debt Restructuring took place on 20 September 2006. Immediately after the Closing, the investor, CA Ltd, became the substantial shareholder of the Company. In order to implement the group reorganisation to facilitate implementation of the Creditors’ Schemes, the following former subsidiaries were transferred to the Scheme Administrators of the Creditors’ Schemes, and after the Closing, formed no part of the restructured group. The subsidiaries so disposed of were: Name Great Wall Electronics Holding Limited Great Wall Electronics Group Limited Video Epoch Limited Video Epoch Electronic (Huizhou) Limited Huizhou City Caixing Electrical Appliance Limited Huizhou City Hua Xing Packing Material Company Limited Huizhou City Hang Tung Paper Products Printing Limited Brilliant Plastic Manufacturing Limited Brilliant Plastic and Mould Manufacturing (Huizhou) Limited Brilliant Plastic Industrial (Huizhou) Limited Art-Tech Speakers Manufacturing (Huizhou City) Limited Art-Tech Electronics (Huizhou) Limited Great Wall Industries Company Limited Guangzhou Rowa Electronics Company Limited Great Wall France SA Great Wall Capital Management Limited Great Wall Strategic Holding (BVI) Limited Star Source Industries Limited Well Consur Limited Lipon Products Limited Proportion of nominal value of issued capital held by the Company Directly 100% 100% – – – – – – – – – – – – – – – – – – Indirectly – – 100% 100% 75% 88% 70% 100% 90% 100% 67% 100% 100% 60% 100% 100% 100% 100% 100% 100% 44 Annual Report 2006 17 EPI Notes(E).indd 44 4/28/07 9:00:37 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting polices adopted in the preparation of these fi nancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation The consolidated fi nancial statements have been prepared under the historical cost convention. Application of new/revised Hong Kong Financial Reporting Standards The HKICPA has issued certain new and revised HKFRS that are fi rst effective for the accounting period beginning on or after 1 January 2006 as follows: The Companies (Amendments) Ordinance 2005; HKAS 21 Amendments – The Effects of Changes in Foreign Exchange Rates – Net Investment in a Foreign Operation; HKAS 39 Amendments HKAS 39 Amendments – – Cash Flow Hedge Accounting of Forecast Intragroup Transactions; The Fair Value Option; HKAS 39 and HKFRS 4 Amendments – Financial Guarantee Contracts; HKFRS 6 HK(IFRIC) – Int 4 HK(IFRIC) – Int 5 – – – Exploration for and Evaluation of Mineral Resources; Determining whether an Arrangement Contains a Lease; Rights to Interests Arising from Decommissioning, Restoration and Environment Rehabilitation Funds; and HK(IFRIC) – Int 6 – Liabilities arising from Participating in a Specifi c Market – Waste Electrical and Electronic Equipment The application of these new and revised HKFRS had no material effect on the Company’s results and equity for the current or prior accounting periods. 17 EPI Notes(E).indd 45 4/28/07 9:00:37 AM Annual Report 2006 45 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Standards, interpretation and amendments to existing standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published which are relevant to the Group’s operations and fi nancial statements and are mandatory for the Group’s accounting periods beginning on or after 1 January 2007 as follows: HKAS 1 (Amendment) HKFRS 7 HKFRS 8 – – Presentation of Financial Statements: Capital Disclosures (effective from 1 January 2007) Financial Instruments: Disclosures (effective from 1 January 2007) – Operating Segments (effective from 1 January 2009) HK(IFRIC) – Int 7 – Applying the Restatement Approach under HKAS 29, Financial Reporting HK(IFRIC) – Int 8 HK(IFRIC) – Int 9 HK(IFRIC) – Int 10 – – – in Hyperinfl ationary Economies (effective from 1 March 2006) Scope of HKFRS 2 (effective from 1 May 2006) Reassessment of Embedded Derivatives (effective from 1 June 2006) Interim Financial Reporting and Impairment (effective from 1 November 2006) HK(IFRIC) – Int 11 – HKFRS 2 – Group and Treasury Share Transactions (effective from 1 March 2007) HK(IFRIC) – Int12 – Service Concession Arrangements (effective from 1 January 2008) The Group has not early adopted the above standards, interpretation and amendments and is not yet in a position to state whether substantial changes to the Group’s accounting policies and presentation of the fi nancial statements will be resulted. Basis of consolidation The consolidated fi nancial statements include the fi nancial statements of the Company and its subsidiaries made up to the balance sheet date. The results of the subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. Where the Company holds more than half of the issued share capital of a subsidiary, but does not control the composition of the board of directors or equivalent governing body, the fi nancial statements of that subsidiary are not consolidated because it would be misleading to do so. Where the Company is in a position to exercise signifi cant infl uence, such investments are dealt with as associates as appropriate. Otherwise, they are dealt with as available-for-sale investments. 46 Annual Report 2006 17 EPI Notes(E).indd 46 4/28/07 9:00:38 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the fi nancial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interests. The excess of the cost of acquisition over the fair value of the Group’s share of the identifi able net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. In the Company’s balance sheet the investments in subsidiaries are stated at cost less any accumulated impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifi able assets of the acquired subsidiaries/associates/jointly controlled entities at the date of acquisition. Goodwill on acquisitions of associates and jointly controlled entities is included in investments in associates and jointly controlled entities respectively. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses and is not amortised. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Property, plant and equipment All property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash fl ow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the income statement during the fi nancial period in which they are incurred. 17 EPI Notes(E).indd 47 4/28/07 9:00:39 AM Annual Report 2006 47 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Property, plant and equipment-continued Depreciation of property, plant and equipment is calculated using the straight-line method to allocate costs to their residual values (if, there are any) over their estimated useful lives, as follows: Furniture, fi xtures and equipment Motor vehicle 20%-331/3% 20% The assets’ residual values (if any) and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected to arise from the continued use of the asset. The gain or loss on derecognition of the asset, calculated as the difference between the net disposal proceeds and the carrying amount of the item, is included in the income statement in the period the item is derecognised. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Impairment of assets Assets that have an indefi nite useful life are not subject to amortisation, which are at least tested annually for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows (cash-generating units). Trade and other receivables Trade and other receivables are initially measured at fair value and, after initial recognition, at amortised cost less any impairment losses for bad and doubtful debts, except for the following receivables: – Interest-free loans made to related parties without any fi xed repayment terms or the effect of discounting being immaterial, that are measured at cost less any impairment losses for bad and doubtful debts, and – Short-term receivables with no stated interest rate and the effect of discounting being immaterial, that are measured at their original invoiced amount less any impairment losses for bad and doubtful debts. 48 Annual Report 2006 17 EPI Notes(E).indd 48 4/28/07 9:00:40 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Leases An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Company determines that the arrangement conveys a right to use a specifi c asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. Leases of assets are classifi ed as fi nance leases when the leases transfer substantially all risks and rewards incidental to ownership of the assets to the Company. All other leases are classifi ed as operating leases. (i) Finance leases Assets held under fi nance leases are recognised in the balance sheet at amounts equal to the fair value of the leased assets, or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liabilities, net of fi nance charges, on the fi nance leases are recorded as obligations under fi nance leases. All assets held under fi nance leases are classifi ed as property, plant and equipment, except for those properties held to earn rental income which are classifi ed as investment property, in the balance sheet. Depreciation and impairment loss are calculated and recognised in the same manner as the depreciation and impairment loss on property, plant and equipment as set out above, except for the estimated useful lives cannot exceed the relevant lease terms, if shorter. Minimum lease payments are apportioned between fi nance charge and the reduction of the outstanding liabilities. The fi nance charge is recognised in profi t or loss over the period of the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (ii) Operating leases (both as the lessor and lessee) Where the Group is the lessee, lease payments under an operating lease are recognised as an expense on a straight- line basis over the lease term. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the income statement on a straight line basis over the lease period. 17 EPI Notes(E).indd 49 4/28/07 9:00:40 AM Annual Report 2006 49 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Cash and cash equivalents Cash comprises cash on hand and at banks and demand deposits with banks. Cash equivalents are short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignifi cant risk of changes in value. For the purpose of cash fl ow statement, bank overdrafts which are repayable on demand form an integral part of the Company’s cash management are included as a component of cash and cash equivalents. Trade and other payables Trade and other payables are initially measured at fair value and, after initial recognition, at amortised cost, except for the following payables: – short-term payables with no stated interest rate and the effect of discounting being immaterial, that are measured at their original invoiced amount. – Interest free loans from related parties without any fi xed repayment terms or the effect of discounting being immaterial, that are measured at cost. Financial guarantee issued, provisions and contingent liabilities (a) Financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the benefi ciary of the guarantee (the “holder”) for a loss the holder incurs because a specifi ed debtor fails to make payment when due in accordance with the terms of a debt instrument. Where the Group issues a fi nancial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profi t or loss on initial recognition of any deferred income. The amount of the guarantee initially recognised as deferred income is amortised in profi t or loss over the term of the guarantee as income from fi nancial guarantees issued. In addition, provisions are recognised, in accordance with note (b) below if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation. 50 Annual Report 2006 17 EPI Notes(E).indd 50 4/28/07 9:00:41 AM Notes to the Financial Statements For the year ended 31 December 2006 EPI (Holdings) Limited 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Financial guarantee issued, provisions and contingent liabilities-continued (b) Other provisions and contingent liabilities Provision are recognised for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outfl ow of economic benefi ts will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. Where it is not probable that an outfl ow of economic benefi ts will be required, or the amount cannot be estimated reliable, the obligation is disclosed as a contingent liability, unless the probability of outfl ow of economic benefi ts is remote. Possible obligations, whose existence will only be confi rmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outfl ow of economic benefi ts is remote. Revenue recognition Revenue is recognised when it is probable that the economic benefi ts will fl ow to the Group and when the revenue can be measured reliably, on the following bases: – Sale of goods Revenue is recognised when the signifi cant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; – Consultancy and management services Revenue is recognised when the relevant consultancy and management services are rendered. – Gain on disposal of know-how technology Revenue is recognised when the signifi cant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the know how technology. 17 EPI Notes(E).indd 51 4/28/07 9:00:42 AM Annual Report 2006 51 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Foreign currency translation (a) Functional and presentation currency Items included in the fi nancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated fi nancial statements are presented in HK dollars, which is the Company’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash fl ow hedges or qualifying net investment hedges. Translation differences on non-monetary items, such as equity instruments held at fair value through profi t or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classifi ed as available-for-sale fi nancial assets, are included in the fair value reserve in equity. (c) Group companies The results and fi nancial position of all the group entities (none of which has the currency of a hyperinfl ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximately of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expense are translated at the dates of transactions); and (iii) all resulting exchange differences are recognised as a separate components of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing date. 52 Annual Report 2006 17 EPI Notes(E).indd 52 4/28/07 9:00:42 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Retirement benefi ts costs The Group operates a defi ned contribution retirement benefi ts scheme set up under the Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for its employees who are eligible to participate. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the scheme. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme. Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. In accordance with Group’s internal fi nancial reporting system, the group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these fi nancial statements. Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on the similar terms as those available to other external parties. Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period. Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, tax balances, corporate and fi nancial expenses. 17 EPI Notes(E).indd 53 4/28/07 9:00:43 AM Annual Report 2006 53 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a different period, directly in equity. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated fi nancial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profi t or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profi t will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Related parties A party is related to the Group if: (i) directly, or indirectly through one or more intermediaries, the party: (1) (2) (3) controls, is controlled by, or is under common control with, the Group; has an interest in the Group that gives it signifi cant infl uence over the Group; or has joint control over the Group; (ii) the party is a jointly-controlled entity; (iii) the party is an associate; (iv) the party is a member of the key management personnel of the Company or its parent; (v) the party is a close member of the family of any individual referred to in (i) or (iv); (vi) the party is an entity that is controlled, jointly-controlled or signifi cantly infl uenced by or for which signifi cant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or (vii) the party is a post-employment benefi t plan for the benefi t of employees of the Group, or of any entity that is a related party of the Group. 54 Annual Report 2006 17 EPI Notes(E).indd 54 4/28/07 9:00:44 AM Notes to the Financial Statements For the year ended 31 December 2006 EPI (Holdings) Limited 5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Financial risk factors The Group’s activities expose it to a variety of fi nancial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk and cash fl ow and fair value interest rate risk. Risk management is carried out by senior management of the Group under policies approved by the board of directors of the Company. (i) Market risk (1) Foreign exchange risk The Group operates mainly in both the People’s Republic of China (“the PRC”) and Hong Kong. Most of the Group’s assets and liabilities, revenue and payments are denominated in Hong Kong dollars and United States dollars, in which the Group considers there is no signifi cant exposure to foreign exchange fl uctuations as long as the Hong Kong-United States dollar exchange rate remains pegged. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging signifi cant foreign currency exposure should the need arise. (2) Price risk Sales of consumer electronics products are exposed to drop in market prices. The Group manages the price risk exposure by selling the products on indent order basis and does not carry any inventories. The management continues to seek opportunities to diversify the Group’s business to other business sectors so as to increase the overall profi tability. During the year, the Group has gradually diversifi ed to non-ferrous metals business. (ii) Credit risk The Group’s credit risk is mainly attributable to trade and other receivables. The Group’s top fi ve customers account for over 99% of the turnover and therefore has concentrations of credit risk. It is the management’s decision to concentrate the Group’s sales to a few selected customers which are well known in the market during the time when the Group is under provisional liquidation. The exposures to these credit risks are monitored on an ongoing basis and the Group has established credit limits, credit approvals and other monitoring procedures to ensure appropriate actions are taken to recover overdue debts. 17 EPI Notes(E).indd 55 4/28/07 9:00:44 AM Annual Report 2006 55 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (iii) Liquidity risk Individual operating units within the Group are responsible for their own cash management. To minimise liquidity risks, management of the Group regularly reviews the current and expected liquidity requirements of operating units to ensure they maintain suffi cient liquid cash and adequate committed lines of funding from major fi nancial institutions to meet the Group’s liquidity requirements in the short and long term. (iv) Cash fl ow and fair value interest rate risk The Group does not have any long term borrowings. The management of the Group will regularly review the current and expected funding requirements and might borrow the funds at fi xed rates or variable rates for a medium term or long term in case of need. Long term borrowings at variable interest rates will expose the Group to cash fl ow interest rate risk and those at fi xed rates will expose the Group to fair value interest rate risk. The Group will monitor the interest rate risk exposure on a continuous basis and adjust the portfolio of borrowings where necessary. Fair value estimation The fair value of fi nancial instruments traded in active markets such as publicly traded derivatives is based on quoted market prices at the balance sheet date. The quoted market price used for fi nancial assets held by the Group is the closing bid price at the balance sheet date; the appropriate quoted market price for fi nancial liabilities is the closing ask price at the balance sheet date. The fair value of fi nancial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on the market conditions existing at each balance sheet date. Other techniques, such as estimated discounted cash fl ows, are used to determine fair value for the remaining fi nancial instruments. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate to their fair values. The fair value of fi nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash fl ows at the current market interest rate that is available to the Group for similar fi nancial instruments. 56 Annual Report 2006 17 EPI Notes(E).indd 56 4/28/07 9:00:45 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 6. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Note 4 to the fi nancial statements includes a summary of signifi cant accounting policies used in the preparation of the fi nancial statements. The preparation of fi nancial statements often requires the use of judgements to select specifi c accounting methods and policies from several acceptable alternatives. Furthermore, signifi cant estimates and assumptions concerning about the future may be required in selecting and applying those methods and policies in the fi nancial statements. The Group bases its estimates and judgements on historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates and judgements under different assumptions or conditions. The following is a review of the more signifi cant assumptions and estimates, as well as the accounting policies and methods used in the preparation of the fi nancial statements. (a) Estimated fair value of available-for sales fi nancial assets and liabilities The fair value of fi nancial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for fi nancial assets held by the Group is the closing bid price at the balance sheet date whereas the quoted market price used for fi nancial liabilities held by the Group is the closing ask price at the balance sheet date. The fair value of fi nancial instruments that are not traded in active market is determined based on available recent market information such as most recent market transaction price with third parties and the latest available fi nancial information existing at each balance sheet date. (b) Estimated fair value of other fi nancial assets and liabilities The fair values of loans and receivables and fi nancial liabilities are accounted for or disclosed in the fi nancial statements. The calculation of fair values requires the Group to estimate the future cash fl ows expected to arise from those assets and liabilities and suitable discount rates. Variations in the estimated future cash fl ows and the discount rates used may result in adjustments to the carrying amounts of these assets and liabilities and the amounts disclosed in the fi nancial statements. (c) Useful lives of property, plant and equipment In accordance with HKAS 16, the Group estimates the useful lives of property, plant and equipment in order to determine the amount of depreciation expenses to be recorded. The useful lives are estimated at the time the asset is acquired based on historical experience, the expected usage, wear and tear of the assets, as well as technical obsolescence arising from changes in the market demands or service output of the assets. The Group also performs annual reviews on whether the assumptions made on useful lives continue to be valid. 17 EPI Notes(E).indd 57 4/28/07 9:00:46 AM Annual Report 2006 57 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 6. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS-CONTINUED (d) Estimated impairment of long-lived assets The Group tests annually whether tangible and intangible long-lived assets not subject to amortisation have suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value- in-use calculations. These calculations require the use of estimates. (e) Impairment of available-for sale fi nancial assets In determining when an investment is other than temporarily impaired, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, and the fi nancial health of and near-term business outlook for the investee, including factors such as industry and sector performance, change in technology and operational and fi nancing cash fl ow. (f) Income tax The Group is subject to income taxes mainly in Hong Kong and the PRC jurisdictions. Signifi cant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the fi nal tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the period in which such determination is made. 58 Annual Report 2006 17 EPI Notes(E).indd 58 4/28/07 9:00:47 AM Notes to the Financial Statements For the year ended 31 December 2006 EPI (Holdings) Limited 7. TURNOVER, OTHER INCOME AND GAINS, NET Turnover represents the net amounts received and receivable from goods sold to customers, less returns and discounts, during the year. An analysis of the Group’s turnover, other income and gains, net is as follows: Turnover Sale of consumer electronic products Other income Consultancy and management fees income Interest income Sundry income Gains, net Gain on disposal of know-how technology 2006 HK$’000 2005 HK$’000 264,803 513,610 – 302 7,762 8,064 – 8,064 42 – 97 139 2,000 2,139 272,867 515,749 8. SEGMENT INFORMATION No business segment information in respect of the Group’s operation has been presented as all the Group’s turnover was derived from consumer electronic operation. No geographical segment information of the Group as its revenue are primarily generated in Hong Kong and its major assets are located in Hong Kong. 9. GAIN ON DEBT RESTRUCTURING Gain on debts waived Restructuring and scheme costs 2006 HK$’000 277,844 (14,676) 263,168 2005 HK$’000 – – - Gain on debts waived of approximately HK$277,844,000 represented indebtedness discharged upon the Closing of Debt Restructuring. As explained by the Directors, most of former accounting personnel and former directors had left the Group on or before completion of Debt Restructuring, the Directors were unable to obtain suffi cient documentary information to satisfy themselves as to whether the gain on debts waived for the year ended 31 December 2006 was fairly stated. 17 EPI Notes(E).indd 59 4/28/07 9:00:47 AM Annual Report 2006 59 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 10. FINANCE COSTS Interest on: Other loans wholly repayable within fi ve years 116 300 2006 HK$’000 2005 HK$’000 11. PROFIT BEFORE TAXATION The Group’s profi t before taxation is arrived at after charging: Staff costs: Wages and salaries Directors’ remuneration (note 12) Mandatory provident fund contributions Staff welfare and related expenses Depreciation Management fee Operating leases: Rental for premises Auditor’s remuneration Impairment losses for: Trade and other receivables Amounts due from subsidiaries not consolidated 2006 HK$’000 2005 HK$’000 2,829 922 93 – 3,844 58 210 868 250 – – 2,056 14 76 6 2,152 24 350 740 140 661 37 60 Annual Report 2006 17 EPI Notes(E).indd 60 4/28/07 9:00:48 AM Notes to the Financial Statements For the year ended 31 December 2006 12. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS Details of the remuneration of the Directors of the Group were as follows: Fees Salaries, allowances and benefi ts in kind Retirement benefi ts scheme contributions EPI (Holdings) Limited Group 2006 HK$’000 2005 HK$’000 188 730 4 922 14 – – 14 Details of the remuneration of the Directors for the year ended 31 December 2006 were as follows: Salaries, Retirement allowances and benefi ts benefi ts scheme Fees HK$’000 in kind contributions HK$’000 HK$’000 Total HK$’000 – – 37 114 37 188 495 235 – – – 730 1 3 – – – 4 496 238 37 114 37 922 Executive Directors Wong Chi Wing, Joseph Chu Kwok Chi, Robert Non-executive Director Leung Hon Chuen Independent non-executive Directors Poon Kwok Shin Xu Mingshe 17 EPI Notes(E).indd 61 4/28/07 9:00:49 AM Annual Report 2006 61 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 12. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS-CONTINUED Details of the remuneration of the Directors for the year ended 31 December 2005 were as follows: Salaries, Retirement allowances and benefi ts benefi ts scheme Fees HK$’000 in kind contributions HK$’000 HK$’000 Total HK$’000 Independent non-executive Director Poon Kwok Shin 14 – – 14 There was no arrangement under which a Director waived or agreed to waive remuneration during the year. In addition, no remuneration was paid by the Group to any of the Directors as an inducement to join, or upon joining the Group or as compensation for loss of offi ce. (2005: Nil). Of the fi ve individuals with the highest remunerations in the Group, one (2005: Nil) was Director of the Company whose emoluments are incurred in the disclosures above. The emoluments of the remaining four (2005: fi ve) individuals were as follows: 2006 HK$’000 2005 HK$’000 Salaries and benefi ts in kind 1,659 1,355 The number of the highest paid employees whose remuneration fell within the following bands is as follows: 2006 Number of employees 2005 Number of employees Nil to HK$1,000,000 4 5 No emoluments were paid or payable to the above highest paid individuals as an inducement to join the Group or as compensation for loss of offi ce during the year (2005: Nil). 62 Annual Report 2006 17 EPI Notes(E).indd 62 4/28/07 9:00:49 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 13. TAXATION Hong Kong profi ts tax has been provided at the rate of 17.5% (2005: 17.5%) on the estimated assessable profi ts for the year. Hong Kong Profi ts Tax 2006 HK$’000 2005 HK$’000 350 1,810 The taxation on the Group’s profi t before taxation differs from the theoretical amount that would arise using the taxation rate applicable to profi ts of the consolidated companies as follows: Profi t before taxation Calculated at a taxation rate of 17.5% (2005:17.5%) Tax effect of income not subject to taxation Tax effect of expenses not deductible for taxation purposes Tax effect of tax losses unrecognised for the year Tax effect of temporary differences unrecognised for the year Taxation charge 2006 HK$’000 265,292 46,426 (46,106) 1 118 (89) 350 2005 HK$’000 10,011 1,752 – 6 51 1 1,810 14. PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY The profi t for the year attributable to the equity holders of the Company dealt with in the fi nancial statements of the Company was the profi t of HK$262,731,240 (2005: the loss of HK$292,000). 15. EARNINGS PER SHARE The calculation of the basic earnings per share for the year ended 31 December 2006 is based on the profi t for the year attributable to the equity holders of the Company of approximately HK$264,942,000 (2005: HK$8,201,000) and the weighted average number of 935,590,926 ordinary shares (for the year ended 31 December 2005: 80,762,570 ordinary shares as adjusted for effects of share consolidation on the Closing which was 8,076,257,020 as formerly reported) in issue. No diluted earnings per share has been presented for the both years as there were no outstanding dilutive potential ordinary shares. 17 EPI Notes(E).indd 63 4/28/07 9:00:50 AM Annual Report 2006 63 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 16. PROPERTY, PLANT AND EQUIPMENT Group Cost: At 1 January 2005 Additions At 31 December 2005 and at 1 January 2006 Additions At 31 December 2006 Accumulated depreciation: At 1 January 2005 Provided during the year At 31 December 2005 and at 1 January 2006 Provided during the year At 31 December 2006 Net book value: At 31 December 2006 At 31 December 2005 Furniture, Motor fi xtures and vehicle HK$’000 equipment HK$’000 Total HK$’000 – – – 485 485 – – – 24 24 461 – 75 19 94 285 379 3 24 27 34 61 318 67 75 19 94 770 864 3 24 27 58 85 779 67 64 Annual Report 2006 17 EPI Notes(E).indd 64 4/28/07 9:00:51 AM Notes to the Financial Statements For the year ended 31 December 2006 17. INTERESTS IN SUBSIDIARIES Unlisted shares, at cost Due from subsidiaries Impairment losses Due to subsidiaries EPI (Holdings) Limited Company 2006 HK$’000 2005 HK$’000 – 5,001 161,457 1,285,670 161,457 1,290,671 – (1,290,671) 161,457 (613) 160,844 – (7,333) (7,333) The balances with subsidiaries are unsecured, interest-free and have no fi xed terms of repayment. Details of the Company’s subsidiaries as at 31 December 2006 which have been consolidated in these fi nancial statements are as follows: Name Fortune Hand Industries Limited Great Wall Infrastructure Limited Innovision Enterprises Limited Eagle World Venture Limited EPI Metals Limited Nominal value of issued and fully paid ordinary share capital USD1 USD1 HKD1 USD1 HKD1 Attributable equity interest of the Company Principal activities Direct Indirect 100% – Investment holding – – – – 100% Investment holding 100% Sales, marketing, product design of audio-visual products 100% Investment holding 100% Trading of Non-Ferrous Metals Century Great Limited HKD1 – 100% Dormant 17 EPI Notes(E).indd 65 4/28/07 9:00:51 AM Annual Report 2006 65 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 17. INTERESTS IN SUBSIDIARIES-CONTINUED Note 1. The subsidiaries, Fortune Hand Industries Limited, Great Wall Infrastructure Limited and Eagle World Venture Limited, were incorporated in the British Virgin Islands and operated in Hong Kong. 2. The subsidiaries, Innovision Enterprises Limited, EPI Metals Limited and Century Great Limited, were incorporated and operated in Hong Kong. 18. TRADE AND OTHER RECEIVABLES Trade receivables Less: impairment loss of receivables Other receivables and prepayments (note a) Group Company 2006 2005 2006 HK$’000 HK$’000 HK$’000 2005 HK$’000 2,797 – 2,797 88,598 8,585 655 7,930 5,926 91,395 13,856 – – – – – – – – – – Note a: Included in other receivables of approximately HK$57,350,000 represent payments in advance in accordance with the agency agreements entered into with the independent third parties and join venture partner. Under these agency agreements, total agency fee income of approximately HK$7,219,000 was earned during the year. Included in trade and other receivables, the following amounts denominated in US dollars and Renminbi as of the balance sheet date: US Dollars Renminbi Group Company 2006 ’000 8,449 1 2005 ’000 1,648 4 2006 ’000 – – 2005 ’000 – – 66 Annual Report 2006 17 EPI Notes(E).indd 66 4/28/07 9:00:52 AM Notes to the Financial Statements For the year ended 31 December 2006 EPI (Holdings) Limited 18. TRADE AND OTHER RECEIVABLES-CONTINUED Sales of the Group are generally on the 90 days’ credit terms. The aging analysis of trade receivables (net of impairment losses) is as follows: Current 1 to 3 months 4 to 6 months More than 6 months Group Company 2006 2005 2006 HK$’000 HK$’000 HK$’000 2005 HK$’000 2,521 77 – 199 2,797 1,965 3,668 2,252 45 7,930 – – – – – – – – – – The Group has recognised a loss of HK$Nil (2005: HK$661,000) for the impairment of its trade and other receivables during the year ended 31 December 2006. The fair value of the Group’s trade and other receivables at 31 December 2006 approximates to the corresponding carrying amounts. 19. CASH AND CASH EQUIVALENTS Cash at banks and in hand Bank margin deposit Pledged bank deposit Group Company 2006 2005 2006 HK$’000 HK$’000 HK$’000 2005 HK$’000 175,664 10,680 5,000 191,344 59 – – 59 103,678 – 5,000 108,678 – – – – Bank deposit of HK$5,000,000 has been pledged to a bank to secure general banking facilities granted to the Group and the Company. Included in cash and cash equivalents, the following amounts denominated in US dollars as of the balance sheet date: US Dollars Group 2006 ’000 114 Company 2005 ’000 2006 ’000 – – 2005 ’000 – 17 EPI Notes(E).indd 67 4/28/07 9:00:53 AM Annual Report 2006 67 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 20. TRADE AND OTHER PAYABLES Group Company 2006 2005 2006 HK$’000 HK$’000 HK$’000 2005 HK$’000 Trade payables Other payables and accruals – 15,832 2,791 295,816 – – 12,848 293,807 15,832 298,607 12,848 293,807 Included in trade and other payables, the following amounts denominated in US dollars and Renminbi as of the balance sheet date: US Dollars Renminbi Group Company 2006 ’000 89 – 2005 ’000 402 3 2006 ’000 – – 2005 ’000 – – Included in other payables and accruals were the liabilities under indemnities given to subsidiaries not consolidated of approximately HK$Nil (2005: HK$291,130,000). At 31 December 2006, the aging analysis of the trade payables was as follows: Group Company 2006 2005 2006 HK$’000 HK$’000 HK$’000 2005 HK$’000 1 to 3 months – 2,791 – – 68 Annual Report 2006 17 EPI Notes(E).indd 68 4/28/07 9:00:53 AM Notes to the Financial Statements For the year ended 31 December 2006 21. SHARE CAPITAL Authorised: EPI (Holdings) Limited Number of shares Amount HK$’000 Ordinary shares of HK$0.01 each at 1 January 2005, 31 December 2005 and 31 December 2006 # 25,000,000,000 250,000 Issued and fully paid: Ordinary shares of HK$0.01 each at 1 January 2005 and 31 December 2005 Share Consolidation (note (a) (i)) Ordinary shares of HK$1 each Capital reduction (note (a) (ii)) Ordinary shares of HK$0.01 each Issue of Subscription and additional shares to the investor, CA Ltd (note (a) (iii)(1)) Open Offer (note (a) (iii)(2)) Shares Placing (note (a) (iii)(2)) Ordinary shares of HK$0.01 each upon completion of capital restructuring Shares Placing (note (b)) Shares Repurchase (note (c)) Ordinary shares of HK$0.01 each at 31 December 2006 8,076,257,020 (7,995,494,450) 80,762,570 – 80,763 – 80,763 (79,955) 80,762,570 808 2,427,750,000 145,372,626 374,627,374 3,028,512,570 605,000,000 (25,300,000) 24,278 1,453 3,746 30,285 6,050 (253) 3,608,212,570 36,082 # The Directors confi rmed that there was no movement of authorised share capital of the Company during the year. 17 EPI Notes(E).indd 69 4/28/07 9:00:54 AM Annual Report 2006 69 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 21. SHARE CAPITAL-CONTINUED During the year, the movements in ordinary share capital were as follows: (a) Pursuant to special and ordinary resolutions passed at a special general meeting held on 22 June 2006, the following capital restructuring of the Company was duly passed and the capital restructuring became effective on 20 September 2006. (i) Share consolidation Every 100 issued shares of HK$0.01 each in the capital of the Company was consolidated into one consolidated share of HK$1 each. (ii) Capital reduction The issued share capital of the Company was reduced by cancelling the paid-up capital to the extent of HK$0.99 on each consolidated share so that each of the issued shares became one fully paid share of HK$0.01 each in the capital of the Company. Surplus of approximately HK$79,955,000 arising from capital reduction had been credited directly to the contributed surplus account of the Company. (iii) Subscription, open offer and placing pursuant to Debt Restructuring (1) On 20 September 2006, 2,075 million ordinary shares of HK$0.01 each were issued to CA Ltd at a consideration of HK$83 million. In addition, 352,750,000 ordinary shares of HK$0.01 each were issued, and credited as fully paid, at par value to CA Ltd by way of capitalisation of the amounts standing to the credit of the contributed surplus account of the Company. (2) On 20 September 2006, 145,372,626 offer shares of HK$0.01 each were issued to the qualifying shareholders at a subscription price of HK$0.06 per share. On the same date, 374,627,374 placing shares of HK$0.01 each were placed to not less than six independent investors at a placing price of HK$0.1 per share. HK$21.5 million out of total subscription proceeds of HK$83 million as stated in note (a)(iii)(1) has been transferred to the scheme administrators for settlement and discharge of indebtedness according to the Creditors’ Schemes. The balance of the proceeds from subscription, open offer and placing were then used for working capital and investment of the Company. 70 Annual Report 2006 17 EPI Notes(E).indd 70 4/28/07 9:00:55 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 21. SHARE CAPITAL-CONTINUED (b) On 5 December 2006, the Company entered into a subscription agreement with CA Ltd to allot and issue 605,000,000 ordinary shares of HK$0.01 each to CA Ltd at a subscription price of HK$0.295 per share. The subscription agreement is conditional upon completion of a placing made by the placing agent on behalf of CA Ltd. On 18 December 2006, following completion of the placing made by CA Ltd, 605,000,000 ordinary shares of HK$0.01 were issued to CA Ltd pursuant to the subscription agreement. HK$152 million out of total subscription proceeds of HK$172 million would be applied for the non-ferrous metal business and the balance of proceeds would be used for general working capital of the Group. (c) The Company repurchased its own shares on the Stock Exchange as follows: Month of Repurchase Number of ordinary shares Price per ordinary share Aggregate Highest Lowest consideration paid December 2006 25,300,000 HK$0.228 HK$0.208 HK$5,583,000 The above ordinary shares were subsequently cancelled. Share options On 15 April 2002, the Company terminated the old share option schemes, which had been adopted in 1991 and 1997, and adopted a new share option scheme (the “New Scheme”). The exercisable period for all the options granted under the old share option schemes which entitled the holder to subscribe for the shares of the Company had been expired on 6 March 2003. The New Scheme shall be valid and effective for a period of 10 years from 15 April 2002, after which period no further share will be granted but the provisions of the New Scheme shall remain in full force and effect in all other respects. The exercise price of the share options is determinable by the Directors, but may not be less than the higher of (i) the Stock Exchange closing price of the Company’s shares on the date of the offer of the share options which must be a business day; (ii) the average Stock Exchange closing price of the Company’s shares for the fi ve trading days immediately preceding the date of the offer; and (iii) the nominal value of the Company’s shares. Since the date of the adoption of New Scheme, no options have ever been granted. 17 EPI Notes(E).indd 71 4/28/07 9:00:56 AM Annual Report 2006 71 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 22. RESERVES Share Capital Contributed premium redemption account HK$’000 reserve HK$’000 792,011 – 792,011 – 62,250 6,851 33,529 9,924 – 9,924 – – – – surplus account HK$’000 (Note) 145,372 – 145,372 79,955 (3,528) – – Company At 31 December 2004 and 1 January 2005 Loss for the year At 31 December 2005 Capital Reduction (note 21(a)(ii)) Issue of subscription and additional shares (note 21(a) (iii)(1)) Open Offer (note 21(a) (iii) (2)) Shares Placing (note 21(a) (iii) (2)) Capital Reserve Reduction (894,641) (9,924) 975,947 (71,382) Set off against the entire accumulated losses of the Company Shares Placing after Debt Restructuring (note 21(b)) Shares Repurchase (note 21 (c)) Profi t for the year At 31 December 2006 – 166,037 (5,330) – 160,707 – – – – – (1,137,424) – – – 60,322 – – – – – Note: The contributed surplus account of the Company and the Group represents the credit arising from capital reduction. Capital reserve HK$’000 Accumulated losses HK$’000 Total HK$’000 71,382 (1,400,300) – (292) (381,611) (292) 71,382 (1,400,592) (381,903) – – – – – – – – – 1,137,424 – – 262,731 79,955 58,722 6,851 33,529 – – 166,037 (5,330) 262,731 (437) 220,592 72 Annual Report 2006 17 EPI Notes(E).indd 72 4/28/07 9:00:56 AM EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 23. RETIREMENT BENEFIT SCHEME The Group contributes to a MPF Scheme for all qualifying employees employed under the jurisdiction of the Hong Kong Employment Ordinance. Contributions to the scheme by the Group and the employees are calculated as a percentage of employee’s relevant income. The retirement benefi t scheme costs charged to income statement represent contributions payable by the Group to the fund. The assets of the scheme are held separately from those of the Group in an independently administered fund. 24. OPERATING LEASE ARRANGEMENTS The Group leases certain of its offi ce properties under operating lease arrangements. Leases for properties are negotiated for terms of three years. At 31 December 2006, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows: Within one year In the second to fi fth years, inclusive Group 2006 HK$’000 2005 HK$’000 1,746 3,201 4,947 – – – At the balance sheet date, the Company did not have any operating lease arrangements (2005:Nil). 25. CAPITAL COMMITMENTS On 26 November 2006, a subsidiary of the Company, EPI Metals Limited, entered into a joint venture agreement with independent third parties to establish an equity joint venture company in the PRC with registered capital of RMB90 million. Pursuant to the joint venture agreement, the Group agreed to contribute RMB45.9 million. At the balance sheet date, the Group had the following capital commitment in respect of establishment of the joint venture company: Group 2006 HK$’000 2005 HK$’000 Contracted, but not provided for 45,592 – At the balance sheet date, the Company did not have any capital commitments (2005:Nil). 17 EPI Notes(E).indd 73 4/28/07 9:00:57 AM Annual Report 2006 73 EPI (Holdings) Limited Notes to the Financial Statements For the year ended 31 December 2006 26. POST BALANCE SHEET EVENT On 12 February 2007, a subsidiary of the Company, EPI Metals Limited, entered into a joint venture agreement with independent third parties to establish an equity joint venture company in the PRC with registered capital of RMB10 million. Pursuant to the joint venture agreement, the Group agreed to contribute RMB4 million. In addition to the above as mentioned in note 25, the newly established joint venture company entered into an agreement on 2 April 2007 to acquire a factory in the PRC to facilitate its business operations at a consideration of RMB47 million. 27. APPROVAL OF THE FINANCIAL STATEMENTS The fi nancial statements were approved and authorised for issue by the board of directors on 23 April 2007. 74 Annual Report 2006 17 EPI Notes(E).indd 74 4/28/07 9:00:58 AM Five Year Financial Summary EPI (Holdings) Limited RESULTS For the year ended 31 December 2006 2005 2004 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 264,803 513,610 119,677 59,070 137,501 Profi t/(Loss) from operating activities Gain on debt restructuring Finance costs Profi t/(loss) before taxation Taxation 2,240 263,168 (116) 265,292 (350) 10,311 200,549 (34,738) (895,859) – (300) 10,011 (1,810) – (42) – (959) – (995) 200,507 (35,697) (896,854) (57) – – Profi t/(loss) for the year 264,942 8,201 200,450 (35,697) (896,854) ASSETS AND LIABILITIES As at 31 December 2006 2005 2004 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Total assets Total liabilities 283,518 13,982 2,532 48,037 73,857 (17,870) (308,359) (305,110) (545,595) (546,288) Shareholders’ funds 265,648 (294,377) (302,578) (497,558) (472,431) 18 EPI Five Year.indd 75 4/28/07 9:01:40 AM Annual Report 2006 75 EPI (Holdings) Limited Corporate Information EPI (HOLDINGS) LIMITED (Incorporated in Bermuda with limited liability) COMPANY SECRETARY AND QUALIFIED ACCOUNTANT STOCK CODE Hong Kin Choy The Stock Exchange of Hong Kong Limited: 0689 PRINCIPAL BANKERS WEBSITE ADDRESS www.epiholdings.com Citic Ka Wah Bank Limited Hang Seng Bank Limited Standard Chartered Bank Limited REGISTERED OFFICE SOLICITORS Vincent T. K. Cheung, Yap & Co. AUDITORS Ting Ho Kwan & Chan PRINCIPAL SHARE REGISTRAR Butterfi eld Fund Services (Bermuda) Limited 3/F., Rosebank Centre 11 Bermudiana Road Pembroke HM 08 Bermuda BRANCH SHARE REGISTRAR Tengis Limited 26/F., Tesbury Centre 28 Queen’s Road East Hong Kong Clarendon House 2 Church Street Hamilton HM 11 Bermuda PRINCIPAL PLACE OF BUSINESS IN HONG KONG Suite 6303, 63/F., Central Plaza 18 Harbour Road Wanchai Hong Kong Telephone: (852) 2616 3689 Facsimile: (852) 2481 2902 DIRECTORS Executive Directors: Mr. Wong Chi Wing Joseph (Chairman & CEO) Mr. Cheng Hairong (Deputy Chairman) Mr. Chu Kwok Chi Robert Non-executive Director: Mr. Leung Hon Chuen Independent Non-executive Directors: Mr. Poon Kwok Shin Edmond Mr. Xu Mingshe Mr. Wu Xioake 76 Annual Report 2006 19 EPI Cor Info(e).indd 76 4/28/07 9:03:11 AM