Manufacturing Manufacturing Product Product Development Development Design Design Supply Supply Chain Chain Social Social Compliance Compliance CONTENTS CORPORATE INFORMATION 2 KEY FINANCIAL HIGHLIGHTS 3 CHAIRMAN’S STATEMENT 5 MANAGEMENT DISCUSSION AND ANALYSIS 7 MANAGEMENT EXECUTIVES 12 REPORT OF THE DIRECTORS 16 CORPORATE GOVERNANCE REPORT 28 INDEPENDENT AUDITOR’S REPORT 40 CONSOLIDATED BALANCE SHEET 42 BALANCE SHEET 44 CONSOLIDATED INCOME STATEMENT 45 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 47 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 48 CONSOLIDATED CASH FLOW STATEMENT 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 50 FINANCIAL SUMMARY 128 CORPORATE INFORMATION EXECUTIVE DIRECTORS PRINCIPAL SHARE REGISTRAR AND Dr. TAN Siu Lin, Chairman TRANSFER OFFICE TAN Henry, Chief Executive Officer HSBC Trustee (Cayman) Limited TAN Cho Lung Raymond P.O. Box 484 HSBC House, MOK Siu Wan Anne 68, West Bay Road, TAN Sunny, Chief Financial Officer Grand Cayman, KY1-1106, (resigned on 28 December 2012) Cayman Islands NON-EXECUTIVE DIRECTORS HONG KONG BRANCH SHARE TAN Willie REGISTRAR AND TRANSFER OFFICE LU Chin Chu Computershare Hong Kong Investor Services Limited Shops 1712–1716 INDEPENDENT NON-EXECUTIVE 17th Floor, Hopewell Centre DIRECTORS 183 Queen’s Road East CHAN Henry Hong Kong CHEUNG Siu Kee SEING Nea Yie PRINCIPAL BANKERS Bank of China (Hong Kong) Limited COMPANY SECRETARY Citibank, N.A. CHIU Chi Cheung Hang Seng Bank Limited Standard Chartered Bank (Hong Kong) Limited REGISTERED OFFICE The Bank of East Asia, Limited Cricket Square, Hutchins Drive, The Hongkong and Shanghai Banking P.O. Box 2681, Grand Cayman, Corporation Limited KY1–1111, Cayman Islands AUDITOR PRINCIPAL PLACE OF BUSINESS PricewaterhouseCoopers 5/F, Nanyang Plaza Certified Public Accountants 57 Hung To Road 22nd Floor, Prince’s Building Kwun Tong, Kowloon Central, Hong Kong Hong Kong LEGAL ADVISORS WEBSITE Deacons http://www.luenthai.com 5th Floor, Alexandra House 18 Chater Road Central, Hong Kong 2 Luen Thai Holdings Limited Annual Report 2012 KEY FINANCIAL HIGHLIGHTS 2012 2011 US$’000 US$’000 Revenue 990,198 956,489 Gross Profit 170,058 160,933 As a percentage of revenue 17.2% 16.8% Operating Profit 42,769 28,592 As a percentage of revenue 4.3% 3.0% Profit Attributable to the owners of the Company 38.635 34,310 As a percentage of revenue 3.9% 3.6% Basic Earnings Per Share US3.9 cents US3.5 cents Dividend Per Share — Final US0.791 cent US0.804 cent — Interim US0.367 cent US0.233 cent Capital and Reserves Attributable to the owners of the Company 336,115 307,954 Annual Report 2012 Luen Thai Holdings Limited 3 KEY FINANCIAL HIGHLIGHTS REVENUE (US$'000) 2012 990,198 2012 990,198 2011 956,489 2011 956,489 650,000 700,000 750,000 800,000 850,000 900,000 950,000 1,000,000 650,000 700,000 750,000 800,000 850,000 900,000 950,000 1,000,000 PROFIT ATTRIBUTABLE TO THE OWNERS OF THE PARENT US$ BASIC EARNINGS PER SHARE US cent 2012 38,635,000 2012 3.9 2012 38,635,000 2012 3.9 2011 34,310,000 2011 3.5 2011 34,310,000 2011 3.5 10,000,000 20,000,000 30,000,000 40,000,000 1.0 1.5 2.0 2.5 3.0 3.5 4.0 10,000,000 20,000,000 30,000,000 40,000,000 1.0 1.5 2.0 2.5 3.0 3.5 4.0 SALES BY GEOGRAPHICAL SEGMENTS 7.1% 6.2% 7.1% 6.2% 10.1% 8.2% 10.1% 8.2% 6.8% 6.8% 10.4% 10.4% 2012 2011 2012 2011 48.6% 48.6% 25.9% 50.1% 26.6% 25.9% 50.1% 26.6% United States Europe Japan The PRC Others 4 Luen Thai Holdings Limited Annual Report 2012 CHAIRMAN’S STATEMENT OVERVIEW In my view, the continuous expansion of production I am pleased to present the annual report of Luen capacities in other Southeast Asia countries is of Thai Holdings Limited (“Luen Thai” or “Company”, and critical importance to the sustainable growth of our together with its subsidiaries, the “Group”) for the year manufacturing business. In pursuing our strategic 2012. direction of developing more production bases/capacities in Southeast Asia countries with relatively cheaper Despite the doom and gloom of the global economy, I labour costs, we have considered different factors am pleased to report that Luen Thai achieved another including the availability of workers and mid-ranking year of record high revenue in 2012 of approximately management, median age of working population, wage US$990,198,000 and the profit attributable to the owners level and customs and tax incentive etc. Above all, the of the Company rose by 12.6% to reach a new record key determinant is our execution capability in these of US$38,635,000. production bases. With the support from certain STRATEGIC customers under our DIRECTIONS Accessories Division and the Casual and Fashion Diversification of Apparel Division, the Production Bases Company has successfully Due to the surging developed additional labour cost in China in production capacities in the past decade, the the Philippines in 2012. operating costs of labour In addition, I consider intensive industry such as that the Group will also garment manufacturing be benefited from the in the mainland China expansion of the Group’s are currently under great production capacities in pressure. In order to cope Cambodia and Vietnam with the growth plan of if the recent proposed certain key customers acquisition of Ocean within reasonable cost, Sky Global (S) Pte Ltd. Luen Thai will continue materializes. to identify and develop appropriate production Our total labour force as capacities outside China. at the end of 2012 was While I believe China around 33,000 workers still maintains its strong globally, representing an competitive edge for increase of approximately complicated products which require highly skilled labour 8,000 workers compared to 2011. Such increase in and short lead time and therefore the Group will continue headcount is substantially attributable to the completion to maintain our China production facilities, we will also of the acquisition of the remaining 50% equity interest in at the same time focus on investing in other major Yuen Thai Industrial Company Limited, Yuen Thai Holdings production bases outside China to remain competitive. Limited and Yuenthai Philippines, Inc. (collectively the “Yuen Thai Group”) previously held as joint venture between Luen Thai and Yue Yuen Industrial (Holdings) Limited during the year under review. Annual Report 2012 Luen Thai Holdings Limited 5 CHAIRMAN’S STATEMENT Looking forward to the coming year, the Group will APPRECIATION continue to focus on OEM business with stringent quality On behalf of the Group, I would like to express my and cost controls for the existing business operations so sincere appreciation to all our customers, suppliers and as to maintain strong and healthy financial position to shareholders for their dedicated support. Also, I would overcome any unexpected adverse impact of the sluggish like to thank all our employees for their invaluable service, global economy and sustained effect of the European commitment and hard work throughout last year. Finally, I sovereign debt crisis. am grateful to my fellow Board members and the senior management for their contribution to the Group. With the continuous consolidation of the apparel industry and our efforts to adapt and improve with a spirit to TAN Siu Lin create a cutting edge in competitiveness, I believe Luen Chairman Thai’s business model, being an apparel and accessory supply chain services provider with an end-to-end value Hong Kong, 26 March 2013 proposition, has set a solid foundation for Luen Thai to grow further in the next few years. DIVIDEND The Board of Directors has resolved to declare a final dividend of US0.791 cent (or equivalent to HK6.140 cents) per share for the year ended 31 December 2012. CORPORATE GOVERNANCE The Group acknowledges the need and importance of corporate governance as one of the key elements in enhancing shareholder value. The Group is committed to improving its corporate governance policies in compliance with regulatory requirements and in accordance with international recommended practices. As at the date of this report, the Company has formed the Audit Committee, Remuneration Committee, Nomination Committee and Bank Facility Committee all at the Board of Directors’ (the “Board”) level, to provide assistance, advice and recommendations on the relevant matters that aim to ensure protection of the Group and the interest of the Company’s shareholders as a whole. 6 Luen Thai Holdings Limited Annual Report 2012 MANAGEMENT DISCUSSION AND ANALYSIS RESULT REVIEW For the year ended 31 December 2012, the Group’s revenue amounted to approximately US$990,198,000, representing an increase of approximately 3.5% over 2011. The Group produced about 90 million units of apparel and accessory products in 2012 representing an increase of 13.9% over 2011. The slight increase in revenue is mainly due to (1) the consolidation of the operations of Yuen Thai Group, (2) the acquisition of footwear business during the year, (3) the continuous growth of luxury bags business during the year, (4) the decrease in average selling price as a result of the decrease in cotton price and (5) the decline in the European business under the Life-style Apparel Division. Luen Thai’s overall gross profit for 2012 was approximately US$170,058,000, representing an increase of approximately US$9,125,000 over 2011. The overall gross profit margin in 2012 was approximately 17.2%, representing a slight increase of 0.4 percentage point over 2011. The increase in gross profit was mainly due to the elimination of non-profitable accounts, cost savings for production in Southeast Asia countries and the continuous growth in Accessories Division.