VITASOY International - Hong Kong Web Page Company · 2002-07-14 · VITASOY International HOLDINGS...

PRODUCTION Job Name: VITASOY File Name: Contents Date: 14-07-00 Job No. 0006143(O)-02(Ray)

ANNUAL REPORT 1999/2000 1

VITASOY

InternationalHOLDINGS LTD

"At Vitasoy, promoting consumer well-being is our number one

priority. This is achieved through the provision of a variety of

high-quality, nutritious food and beverages. Vitasoy is an innovative

company, a reliable employer, a responsible corporate citizen and

is dedicated to creating value for our shareholders."

Directors and Corporate Information 2

Financial Highlights 3

Chairman’s Statement 4

Review of Operations 8

North American Market Analysis 16

Directors and Senior Management 23

Report of the Directors 28

Report of the Auditors 38

Consolidated Profit and Loss Account 40

Consolidated Statement of

Recognised Gains and Losses 41

Consolidated Balance Sheet 42

Balance Sheet 44

Consolidated Cash Flow Statement 46

Notes on the Accounts 48

Five Year Summary 73

Notice of Annual General Meeting 74

Contents

ANNUAL REPORT 1999/20002

Directors and Corporate Information

Board of DirectorsMr. Winston Yau-lai LO Executive ChairmanDr. The Hon. David Kwok-po LI Independent non-executive DirectorMr. Eoghan Murray MCMILLAN Independent non-executive DirectorMr. Chi-kian SHIU Non-executive DirectorMs. Myrna Mo-ching LO Non-executive DirectorMr. Frank Yau-yee LO Non-executive DirectorMs. Yvonne Mo-ling LO Executive DirectorMr. Fransis Ming-yin KONG Executive DirectorMr. Eric Fat YU Executive DirectorMr. John Shek-hung LAU Executive Director

Company SecretaryMs. Paggie Ah-hing TONG

Registered & Head OfficeNo. 1 Kin Wong Street,Tuen Mun,New Territories,Hong Kong

AuditorsKPMG

Legal AdviserStephenson Harwood & Lo

Principal BankersThe Bank of East Asia, LimitedBanque Nationale De ParisThe Sanwa Bank LimitedUnion Bank of California

Share RegistrarCentral Registration Hong Kong Limited19/F., Hopewell Centre, 183 Queen’s Road East, Hong Kong

Web Site AddressesVitasoy International Holdings Limited — http://www.vitasoy.comVitasoy USA Inc. — http://www.vitasoy-usa.comNasoya Foods, Inc. — http://www.nasoya.com

Key Dates

Closure of Register: 30th August, 2000 (Wednesday) to 6th September, 2000 (Wednesday)

Annual General Meeting: at 3:00 p.m., 6th September, 2000 (Wednesday) Jade Ballroom 1, 3/F., Furama Hotel HongKong, One Connaught Road Central, Hong Kong

Final Dividend Payable: 15th September, 2000 (Friday)

Despatch of Share Certificates in respect of Bonus Shares: 15th September, 2000 (Friday)


Financial Highlights

Year ended 31st March2000 1999 Change

Financial Highlights HK$Mn HK$Mn %

Turnover 1,885 1,836 +2.7

Profit Attributable to Shareholders 126 106 +19.1

Basic Earnings per Share (HK cents) 19.4 16.4 +18.3

Dividend per Share (HK cents) 10.5 8.8 +19.3

Note:

Basic Earnings per Share are calculated on a weighted average basis.

Group Turnover(Year ended 31st March)

Profit Attributable to Shareholders(Year ended 31st March)

1,301

1,5241,691

1,836 1,885

HK$Mn HK$Mn

31

114 121

106

126

96 97 98 99 00 96 97 98 99 00


The year under review was

challenging, but rewarding...Our

strategy of geographical

diversification paid good

dividends in markets like North

America and Oceania.

Global growthensured by

strongbrand & market leader position


Chairman’s Statement

Overview

The year under review was challenging, but rewarding. Challenging

because there was stiff competition in our home market, because of the

need for strengthening our foothold in the Mainland China market,

and because we were embarking on a new manufacturing joint venture

in Australia. However, it was also rewarding because of the achievement

of a major breakthrough in the US.

Insofar as individual markets are concerned, it was a year of mixed

performance for the Group. Our strategy of geographical diversification

paid good dividends in markets like North America and Oceania, where

consumers have become more health conscious and receptive to soy

products in recent years. Our US operation, in particular, experienced a

dramatic turnaround by accomplishing strong growth in sales and profits

due mainly to successful marketing and higher operational efficiency.

Australia also saw encouraging growth with the Group’s increased

presence. The Asian market, on the other hand, was still in the process

of recuperating from the economic ailment caused by the 1997 financial

turmoil. While the retail sector in general has been showing signs of

recovery, a full rebound has not yet occurred. The Hong Kong market

registered a decline in sales but demonstrated a rapid recovery in profits

in the second half of the year. However, we are glad to note that Mainland

China was able to achieve healthy growth.

We celebrated our 60th anniversary in March 2000 with over three

hundred guests from our major markets, including customers,

shareholders, and partners. The event was an important milestone in

Vitasoy’s history. Vitasoy’s success owes much to the vision of Dr. K.S.

Lo who founded Vitasoy 60 years ago. Dr. Lo not only paved the way

but laid the groundwork for the Group to participate in the vast business

opportunity offered now and in the future by the growing awareness in

both the Western and Eastern worlds of the health benefits of soyfoods.

Winston Yau-lai LOExecutive Chairman


Chairman’s Statement (cont’d)

Two other notable events took place

during the year. We completed the

installation of a fully automated distilled

water production line in our Tuen Mun

plant in Hong Kong and commenced the

construction of a new plant in Wodonga,

in the State of Victoria in Australia. The

establishment of these two production

facilities is of strategic importance to the

Group in terms of product and geographical

diversification.

Performance

The Board of Directors is pleased to

report that for the year ended 31st March,

2000, the Group achieved a consolidated

turnover of HK$1,885,490,000 (1999:

HK$1,835,774,000).

Profit attributable to the shareholders

stood at HK$126,135,000, representing an

increase of 19.1% over the previous year.

Basic earnings per share were HK19.4 cents.

Dividend

The Board of Directors has recommended a final dividend of HK6.7

cents per share (1999: HK5.2 cents per share). That, together with the

interim dividend of HK3.8 cents per share would make a total dividend

of HK10.5 cents per share for the year (1999: HK8.8 cents per share).

Bonus Issue

The Board of Directors has also proposed to make a bonus issue at

the forthcoming Annual General Meeting to be held on 6th September,

2000 on the basis of one share for every two shares held. The issue of

new shares under the bonus issue is subject to the Listing Committee of

The Stock Exchange of Hong Kong Limited granting listing of and

permission to deal in the new shares.

Outlook

Looking ahead, we see bright prospects for the Group. We are now

well poised to leverage on our market leader position to capture a bigger

share of the North American market, which is becoming more mature

in terms of receptivity to soy products and hence presenting enormous

growth potential for the VITASOY range of products. The North

American market now constitutes about 25% of the Group’s sales. These

sales are up from 22% a year ago, and have grown at an annual average

rate of 17% over the last three years.

From Left: Eric Fat YU,Yvonne Mo-ling LO,Fransis Ming-yin KONG,John Shek-hung LAU,Winston Yau-lai LO (Executive Chairman),David Kwok-po LI,Eoghan Murray MCMILLAN,Myrna Mo-ching LO,Frank Yau-yee LO andChi-kian SHIU


We also see good growth potential in the

Australian market in the coming years with

the imminent establ ishment of our

production base in Wodonga. Australian

consumers’ growing awareness of the health

benefits of soy and preference for soyfoods

in their pursuit of healthier life styles

promise a stronger following for our

products.

The Group’s operational efficiency and

sourcing capabilities will be further

enhanced with the implementation of a new

supply chain management system. This

implementation will commence later this

year. This will also contribute to improving

the Group’s performance in the coming

years.

Structural Re-organization

During the year we undertook some

structural re-organization initiatives in

order to cope with our global expansion

plans. A corporate management office has

been set up in our head office to focus on

the formulation of expansion strategies and

to oversee the Group’s operating units

worldwide.

On 1st April, 2000, I deputed my direct role as Managing Director

of the Group’s Hong Kong operation to Mr. Fransis Ming-yin Kong

while retaining my responsibilities as Executive Chairman of the Group.

This decision allows me to concentrate on the fore-mentioned long-

term strategic development of the Group, especially at the global level.

Mr. Fransis Ming-yin Kong was appointed Managing Director of

the Group’s Hong Kong operation effective 1st April, 2000. Fransis joined

the Group in 1978 and has been a Director of the Board since 1996.

Enhanced Review of Operations

In view of the major breakthrough in the North American market,

the ensuing “Review of Operations” is supplemented by a section entitled

“North American Market Analysis” which gives shareholders an insight

into recent developments in North America. These developments

achieved by Vitasoy USA Group are of major significance to the Group.

Vote of Thanks

I would like to thank the Board of Directors for their advice and

support throughout this period and I look forward to their continued

guidance. I also wish to thank all our staff worldwide for their dedication

and hard work. Last but not least, I would like to thank our business

partners, shareholders and customers for their trust and support.

Winston Yau-lai LoExecutive Chairman


Increased publicity and

government endorsement of the

health benefits of soyfoods have

boosted the demand for soymilk,

tofu and other soyfood products

significantly in North America.

North America - theGroup’s new engine for

global growth


Review of Operations

MARKETS OVERVIEW

During the year under review, the Group continued with its strategy

of geographical and product diversification. By reinforcing our marketing

efforts in both existing and new markets and rolling out new products,

we were able to strengthen our brand image and customer base. At the

same time, new production lines and production bases were set up in

markets with good potential to better serve local customers. Another

positive development for our industry has been the increasing publicity

of the health benefits of soybeans and consumers’ growing health

consciousness, especially in the Western world, which have given rise to

greater demand for soy drinks and food products.

Our US operation was the star performer of the year by demonstrating

a complete turnaround in business. The outstanding performance of

the North American market was made possible by Vitasoy USA Group’s

success in overcoming the production problems previously encountered

during the installation phase of the new plant, and making effective use

of marketing in boosting sales substantially. In line with our strategy of

geographical diversification, we established a manufacturing plant in

Australia, which is expected to help bring in higher revenue for the Group

from that part of the world. The Asian market had yet to recover fully

from the general economic downturn. As a result, sales declined in the

Hong Kong market. However, Mainland China managed to register a

growth in sales.

Max OULD — Managing Director of National FoodsLtd. (right)Winston Yau-lai LO — Executive Chairman ofVitasoy International Holdings Ltd. (left)— Ground breaking and tree planting ceremony forthe building of the factory at Wodonga in Victoria,Australia on 13th April, 2000. The occasion marksthe beginning of a joint venture relationship betweenNational Foods Ltd. of Australia and VitasoyInternational Holdings Ltd. of Hong Kong.


Review of Operations (cont’d)

MAJOR MARKETS

North America

Increased publicity and government

endorsement of the health benefits of

soyfoods have boosted the demand for

soymilk, tofu and other soyfood products

significantly in North America. In October

1 9 9 9 , t h e U S F o o d a n d D r u g

Administration authorized the health claim

that soy protein, when 25 gm is consumed

daily as part of a diet low in saturated fat

and cholesterol, may reduce the risk of heart

disease.

With the dramatic turnaround in

production efficiency and successful

product introductions, Vitasoy USA Group

has experienced healthy growth in sales as

well as a return to profitability. Its Ayer

plant in Massachusetts achieved great

improvement in production and wastage,

resulting in more output, better product

quality and higher efficiency.

The increased production efficiency grew sales volume by 36% in

the VITASOY Natural Soymilk and VITA SAN SUI Soymilk markets.

Vitasoy USA Group introduced the Extended Shelf Life Refrigerated

VITASOY Natural Soymilk in original and chocolate flavours to natural

food stores and mainstream supermarkets. Welcomed by the US

consumers as a dairy alternative in attractive larger, family-sized

containers, this new product line won the Best Tasting Gold Seal Award

of the American Tasting Institute.

Tofu products also achieved healthy growth in both the ethnic

markets and supermarkets. The sales of NASOYA and AZUMAYA

continued to grow, capturing a major share – 48% – of the supermarket

category. In the fall of 1999, a new line of tofu fortified with vitamins

and minerals was successfully introduced in mainstream supermarkets

and gained the support of vegetarians and aging baby-boomers who tend

to be more health-conscious.

With the phenomenal rise in soymilk demand in North America,

Vitasoy USA Group expects a dynamic growth in sales and profitability

in the coming years. Vitasoy USA Group is well poised to capture the

new wave of consumer demand for soymilk by aggressively marketing

VITASOY Soymilk in refrigerated sections of mainstream supermarkets.

VITASOY Natural Soymilk and VITA SAN SUI Soymilk are forecasted

to grow at a pace that will surpass tofu to generate the highest sales

revenue.

Vitasoy USA Group is expected to continue with its growth in sales

and profitability in the coming years.


Hong Kong

In the past 12 months, the domestic

market on the whole remained sluggish.

While we continued with aggressive

marketing in the first half of the year, it

became necessary to cut down promotion

expenses in the second half in order to

protect our profit margin. As a result, the

fiscal year ended with lower sales and

operating profits as compared to the

previous year. However, the worst was

apparently over towards the end of 1999 as

pricing became more stable and sales

returned to normal again.

During the year, the Group continued

with its strategy of product diversification

and innovation. In May 1999, VITASOY

CALCI-PLUS - a new calcium-fortified

soymilk - was launched. Market response

has been encouraging, signifying good

prospects for the Group’s value-added

product range targeted for both the general

public and the health-conscious consumer

group. The instal lation of the fully

automated distilled water production

facilities was completed in March 2000. The production lines are now

fully operational, enabling us to better serve customers while adding a

new and stable source of profit for the Group. On the other hand, our

Bottled VITA Green Tea drinks introduced to the market several months

ago, are also expected to be another profit source.

The year 1999 was one of success for the Group in its marketing

campaigns. In 1999, the VITA Lemon Tea television advertising

campaign, which featured a simple tag line “We love you just the way

you are”, won the Hong Kong Kam Fan Award - Hong Kong’s Most

Honoured Advertisement of 1999, and also the Asia Best of ’99 award

- Best Television Advertisement for excellence in creativity. It is the

Group’s strategy to continue with aggressive and effective marketing to

support our product innovation and diversification efforts and to further

consolidate our brands as market leaders.

Looking ahead, while focusing on product development and

marketing, the Group will also seek to diversify and expand its

distribution network. With the commissioning of its own distilled water

production facilities, the Group is now in a position to gain a presence

in restaurants and other vending channels in Hong Kong.

Effective cost control remains high on the Group’s agenda. Our

strategy of sourcing more raw materials and packaging materials from

Mainland China has resulted in substantial cost benefits. As far as

manpower cost is concerned, we shall streamline our operation further

with a view to increasing productivity and efficiency to meet the changing

needs of the market.



The operation of school tuckshops or

kiosks in Hong Kong, under the Group’s

wholly owned subsidiary, Vitaland Services

Limited, continued to contribute to the

Group’s sales and profit during the year.

Owing to the substantial increase in the

number of tuckshops to 114 from last year’s

63, both sales and profits achieved double-

digit growth. In view of keen competition,

we shall adopt a multi-supplier system to

secure the best pricing and exercise strong

control over purchase cost and overheads

so as to ensure a reasonable profit margin.

Mainland China

The sluggish market environment

adversely affected the food and beverage

sector in Mainland China in general. Yet,

in spite of all the difficulties and owing to

the establishment of the VITASOY and

VITA brands, the Group sustained a healthy

14% growth in sales value during the year.

We continued to focus our sales and

distribution in strategically important cities

like Shanghai and Guangzhou. We shall

sustain our extensive distribution in

Shanghai and Guangzhou and systematically roll out the Shanghai and

Guangzhou distribution template to other secondary cities in

Guangdong, Jiangsu and Zhejiang provinces. As part of our aggressive

effort in boosting sales and market share, we shall introduce beverage

products in returnable glass bottles and other economic aseptic packing

to capture the support of the lower-income market segment. New flavours

will be introduced to VITA Tea and Dairy drink products to stimulate

consumers’ interest.

Australia and New Zealand

The sales of VITASOY Natural Soymilk in Australia grew by 33%

during the year and the Group was able to maintain its dominant position

in the UHT (ultra high temperature) paper pack segment. Performance

in the New Zealand market was even more striking as sales growth of

44% was registered due to our success in pricing, advertising and

promotion, and new product launch.

There is a high potential demand for fresh soymilk in the Oceanian

market. In December 1999, the Group entered into a joint venture

agreement with National Foods Ltd. of Australia to manufacture, market

and distribute VITASOY branded soy beverages for the mainstream

Australian market. This joint venture, which involves an investment of

HK$136 million, will commence production in early 2001. By owning

51% of the shareholding in the joint venture, the Group ensures its

increasing presence in the fresh soymilk market of Australia and New

Zealand. We expect that in the coming year, both the UHT paper packed

soymilk and fresh soymilk markets in this part of the world will see

satisfactory growth.


OTHER MARKETS

The performance of the Macau market

was affected by the prevailing economic

downturn. Sales and profit were affected by

the high cost of introducing the Group’s

products into new distribution channels,

including the cost of promotion campaigns.

In the coming year we shall continue to

expand our distribution network in Macau

in order to secure a higher market share.

The European market remained

stagnant during the period under review.

However, we expect an improvement in the

market conditions in the Continent in the

coming year. In the Singapore/Brunei

market, we experienced a modest decrease

in sales but a significant improvement in

profit over last year. The performance in the

Singapore market was not satisfactory.

However, the Brunei market registered a

healthy growth, after a direct distributorship

was established there following the closure

of the Singaporean operation in 1998.

Supported by the Group, the distributor in

Brunei succeeded in boosting sales with

aggressive promotional activities. The

Group expects the growth trend to continue

in Brunei in the coming year.

During the year, in line with the strategy of geographical

diversification, the Group succeeded in penetrating three new markets -

the Philippines, Trinidad and Israel - where distributors have been active

in promoting the VITASOY and VITA brands.

ASSOCIATE

Gardner Merchant (Hong Kong) Limited, the Group’s associate, was

renamed Sodexho (Hong Kong) Limited in June 1999 following the

acquisition of our partner’s worldwide interests by the French group,

Sodexho S.A..

During the year under review, the contract catering business in Hong

Kong was adversely affected by the economic conditions. However, the

negative impact was offset by a gain realized from the Group’s withdrawal

from its contract catering investment in Mainland China.

A critical review of Sodexho (Hong Kong) Limited’s operations was

undertaken and a strategic plan is now in place to focus on new business

development and to provide value-added services to customers in Hong

Kong.

LIQUIDITY AND FINANCIAL RESOURCES

At the end of the fiscal year under review, the Group’s cash and cash

equivalents showed a positive balance of HK$152 million, as compared

to HK$127 million a year ago. This strong cash position was made

possible by the operating profit generated by the Hong Kong and US

operations.



Capita l investment increased to

HK$110 million from last year’s HK$77

million, mainly due to the establishment of

the new fully automated distilled water

production facilities in Hong Kong.

The costs of key raw materials and

packaging materials remained soft during

the year. The prices of sugar and soybeans

were at historical lows. The strategy of

sourcing more raw materials from Mainland

China has paid off well. Up to 50% of the

raw materials used by the Group’s Hong

Kong and Mainland China operations now

comes from Mainland China.

The healthy cash position has ensured

that adequate funds will be available for the

Group to finance its expansion programmes

and capital expenditure needs in the future.

REPURCHASE OF SHARES

The Board of Directors noted the

decline of the Group’s share price and

decided to repurchase a total of 2,230,000

shares from the market at prices of between

HK$1.75 and HK$1.85. The Board

believed that the Group’s businesses were

sound, and that the share prices did not

adequately reflect this . The Board therefore

decided that the repurchases were necessary to demonstrate their

confidence in the future prospects of the Group.

INVESTOR RELATIONS

Investment analysts’ level of interest in the so-called “Old Economy”

stocks was relatively low during the year partly due to the rise of Internet-

related “New Economy” stocks and partly due to the high turnover rate

of fund management personnel. Notwithstanding these developments,

the Group continued to initiate meetings with analysts in Hong Kong

as well as investors and potential investors in Europe and the US for the

purpose of explaining its latest initiatives and assuring them of its strong

fundamentals and prospects moving forward.

EMPLOYMENT, TRAINING AND DEVELOPMENT

The Group follows a prudent approach as regards the size of its

workforce. As of 31st March, 2000, the number of our full-time

employees totalled 2,216 (not including the associated companies),

representing a year-on-year increase of 1.6%. The increase was

necessitated by the staffing of our sales team in Mainland China for

business expansion and the continuous expansion of the Group’s

tuckshop business in Hong Kong. On the other hand, the headcount of

the Group’s headquarters decreased by 5.4% as a result of increased

productivity and improved human resources management.

The Group remains committed to staff development. During the

year, extensive training programmes on management, quality, and

technical and customer services were provided to staff in Hong Kong,

Mainland China and the US. The Group also sponsored employees’

participation in external training and education programmes, including

MBA and the other degree courses.


COMMUNITY SUPPORT

The Group is committed to serving and

becoming an act ive member of the

communities in which it operates. During

the year, the Group participated in the

promotion of soy benefits and other

activities for charitable causes through

donation, sponsorship or cooperation with

other organizations. Some examples are

reported below.

Soy Benefits Promotion

The Group co-organized with the

Chinese University of Hong Kong a seminar

on the health benefits of soybeans for

dieticians and nutritionists. We also

collaborated with and sponsored other

organizations in producing publications and

organizing events to promote the health

benefits of soyfoods.

Support of Charitable Causes

The Group supported the famine camps organized by World Vision

Hong Kong; the annual exhibition of the Children’s Heart Foundation;

and the “Discover Mai Po Charity Walk” organized by World Wide Fund

for Nature Hong Kong. The Group and the K.S. Lo Foundation jointly

established a HK$2 million endowment fund for disabled students at

the University of Hong Kong. During the year, the Group also made

donations to several US charities and research institutes, including the

American Cancer Society, University of California Medical School and

other causes to promote breast cancer awareness, a healthy diet and

environmental protection.



North American Market Analysis

Vitasoy’s New Engine for Global Growth-

North America

The North American soyfoods market

has grown by leaps and bounds in the past

ten years, and Vitasoy USA Group has

experienced exceptional growth as a result.

As a 20 year veteran in the North American

soyfoods industry, Vitasoy USA Group has

been successful in promoting soyfoods in

ethnic, natural foods and mainstream

supermarkets. Known for its longstanding

commitment for producing delicious and

healthy soy products, Vitasoy USA Group

is equipped to meet consumers’ growing

demand.

Increasing Appreciation of Soy’s Health

Benefits in the US

American consumers are eating more

soy products, according to the 1999-2000

National Report recently released by the

United Soybean Board (USB). About 66

million Americans, representing some 24%

of the US population, are using soy

products at least once a week compared to

only 15% in 1998. More Americans than

ever are eating soy for its healthful attributes

and incorporating products like tofu and

soymilk into their daily diets. The USB

Report also found that the number of

American consumers who perceived soy and soy products as very healthy

had increased significantly to 71%, up from 67% in 1998. The reasons

for this increase in consumer acceptance are manifold, including:

• Broader consumer demand from the aging population for health

enhancing products

• Growing trend of vegetarianism

• Double-digit growth in Asian populations

Baby Boomer Generation

The US is undergoing a change in demographics and consumer

purchasing trends as the baby boom generation ages. This large group

of consumers, now more interested in longevity and good health, has

been most influential in terms of product trends in the marketplace and

are looking to soy as a way to stay healthy.

Vegetarians

The popularity of vegetarianism is at an all time high as individuals

focus on tasty meatless and dairy alternatives in their healthful diets.

According to the 2000 poll conducted by vegetarian resource group

Zogby, there are approximately 4.8 million vegetarian adults in the US.,

though not all are considered as true “vegetarians”. Many Americans are

eating meatless meals, tofu and meat analogues.

Ethnic Cuisine

Ethnic foods have been widely accepted by American diners in recent

years. As the Asian population continues to grow in the US and influences

dining and culinary preferences, Americans increasingly look upon soy

based foods as good protein alternatives.


The VITASOY and NASOYA advertisements focus on attracting

new mainstream consumers by spreading the message that tofu

and soymilk taste great, are easy to prepare, and are loved by

the entire family. For example, the NASOYA tofu advertisement

features everyday people, appetite-appealing food photography, a different

recipe in each advertisement and the creative tag line “We’re Putting Tofu On America’s Tables.”


Growth in Industry

According to a recent study completed

by Soyatech, Inc. and Senechal, Jorgensen

& Hale Co., retail sales in the US of soy-

based products reached US$1.75 billion and

US$2.1 b i l l ion in 1998 and 1999

respectively, and are expected to reach

US$2.6 billion in 2000. Sales of soymilk

have increased from US$2 million in 1980

to US$216 million in 1998, and sales are

forecasted to reach over US$390 million by

2000. Sales of tofu have increased from

US$38 million in 1980 to US$206 million

in 1998, and are expected to reach US$274

million in 2000. In 1998, the sales of soy-

based meat alternatives also grew to a

significant US$325 million.

Endorsement of Soyfoods by US Federal

Agencies

Fol lowing hea l th and nutr i t ion

professionals’ endorsement of soy for its

health benefits, the US Food and Drug

Adminis trat ion (FDA) and the US

Department of Agriculture (USDA)

approved regulations to include soy in

national feeding programs and dietary

guidelines. Companies are allowed to use a

soy health c la im on packaging and

promotional materials.

Soy Protein Health Claim

In a monumental decision, the FDA authorized in October 1999 a

health claim that is allowed to appear on product packaging stating that

soy protein may reduce the risk of heart disease when 25 gm is consumed

daily as part of a diet low in saturated fat and cholesterol. The FDA’s

decision firmly establishes soy as a healthy product in the highly

competitive “health foods” market. Most of the Vitasoy USA Group’s

products now proudly display the health claim.

National School Breakfast and Lunch Program

In March 2000, the USDA approved a regulation allowing US school

tuckshops to include soy as a source of protein in breakfasts and lunches.

This regulation offers great opportunities for Vitasoy USA Group to

market its products to institutions that previously restricted the amount

of soy in school meals. It also creates an environment for us to identify

and develop a new life-long customer base as dietary habits usually start

at a young age.

Dietary Guidelines for Americans

For the first time ever, the US Department of Agriculture and the

US Department of Health and Human Services recommended soyfoods

as a means to meet the dietary recommendations demonstrated by the

Food Guide Pyramid in the 5th edition of the Dietary Guidelines for

Americans. These guidelines form the basis of all federal food and

nutrition programs and help direct private health promotion projects.

The 2000 Dietary Guidelines acknowledge that calcium rich soy

beverages, like VITASOY ’s Refrigerated Fortified Soymilk, are an

excellent way to get the recommended amount of calcium. Tofu was

also listed as a good source of calcium if made with calcium sulfate. Also



of interest to the soy industry is the

inclusion of tofu and soy burgers in the

Meat and Beans Group.

Vitasoy USA Group’s Strategic Corporate

Values

Vitasoy USA Group’s strategic approach

is to develop a strong relationship with

mainstream consumers. To successfully

capture the attention of the North

American mainstream population, we focus

on total quality integrative business

practices through achieving excellence in

R e s e a r c h a n d D e v e l o p m e n t ,

Manufacturing, Quality Assurance, and

Sales and Marketing.

Research and Development

Vitasoy USA Group focuses its Research

and Development efforts on rounding out

catalogue of products to satisfy a wider

range of consumer product needs. Our food

technologists develop signature recipes that

cater specifically to mainstream consumer

palate preferences. The attention to quality

and excellence in taste sets our products

apart from competitors in the market.

Manufacturing and Distribution

As one of the leaders in the North American soyfoods market, Vitasoy

USA Group continually invests in new manufacturing and distribution

equipment. All of our manufacturing facilities are fully operational and

are functioning at optimum efficiency. Vitasoy USA Group is equipped

with adequate capacity to capture future growth as sales demand escalates.

Sales and Marketing

Vitasoy USA Group invests in marketing expertise to maintain and

build strong soy brand recognition in the North American market. Pure,

all natural ingredients and the highest standards of manufacturing assure

consumers that the brands of Vitasoy USA Group (VITASOY, NASOYA

and AZUMAYA) stand for great taste and good health.

To recognize our signature recipes and commitment to quality, the

American Tasting Institute awarded NASOYA Tofu and VITASOY Soy

beverages its highest honor— the Best of Show Gold Medal. Vitasoy

USA Group prominently places the gold medal on its award winning

tofu and soymilks.

North American Market Analysis (cont’d)


Vitasoy USA Group’s marketing strategy

for the VITASOY and NASOYA brands

encompasses the use of consumer-focused

advertising campaigns to generate initial

trial use and educate new consumers on the

benefits of soy and how Vitasoy USA Group

distinguishes itself from the rest while

fostering a strong loyalty with its existing

customers. Vitasoy USA Group positions

the AZUMAYA tofu line as an Asian

gourmet delicacy and a prominent player

in West Coast supermarkets. Vitasoy USA

Group’s ability to capture 48% of the tofu

market with the NASOYA and AZUMAYA

brands in the supermarket segment

reinforces its position as the dominant tofu

manufacturer.

The VITASOY and NASOYA advertisements focus on attracting new

mainstream consumers by spreading the message that tofu and soymilk

taste great, are easy to prepare, and are loved by the entire family. For

example, the NASOYA tofu advertisement features everyday people,

appetite-appealing food photography, a different recipe in each

advertisement and the creative tag line “We’re Putting Tofu On America’s

Tables.”

Consumer education is also a critical component of Vitasoy USA

Group’s marketing strategy. As one of America’s leading soyfoods

companies, Vitasoy USA Group takes an active role in educating its

consumers, and includes a specially developed Vitasoy USA Group’s

heart-healthy claim and a non-GMO (Genetically Modified Organism)

symbol in all its consumer communications.

We are proud of the achievement of Vitasoy USA Group and believe

that it has an exceptional future.


BOARD OF DIRECTORS

Executive Chairman

Mr. Winston Yau-lai LO, aged 59, was

appointed a Director of the Company in

1972 and has held the position of Managing

Director of the Company since 1978. Mr.

Lo resigned as Managing Director of the

Group’s Hong Kong operation with effect

from 1st April, 2000 while retaining his role

as Executive Chairman of the Group. He

now concentrates on the long-term strategic

development of the Group. Mr. Lo is a

Hong Kong appointee to the Chinese

People’s Political Consultative Conference.

He is also a member of the Advisory

Council on Food and Environmental

Hygiene of the Hong Kong Special

Administrative Region and Vice President

of the Council of Outward Bound Trust of

Hong Kong. He is the brother of Mr. Frank

Yau-yee LO, Ms. Yvonne Mo-ling LO and

Ms. Myrna Mo-ching LO.

Directors and Senior Management

Independent Non-executive Directors

Dr. The Hon. David Kwok-po LI, aged 61, was appointed a Director

of the Company in 1994. Dr. Li is the chairman and chief executive of

The Bank of East Asia, Limited. He is the chairman of the Chinese

Banks’ Association, Ltd. and the Hong Kong Management Association.

He is a member of the Exchange Fund Advisory Committee and the

Banking Advisory Committee. He is also a member of the Legislative

Council of the Hong Kong Special Administrative Region. He serves on

the boards of several public listed companies in Hong Kong and overseas.

Mr. Eoghan Murray MCMILLAN, aged 64, was appointed a

Director of the Company in 1993. Mr. McMillan was the managing

partner of Arthur Andersen & Co’s practices in Hong Kong and China

until 1993. He also served as chairman of the Hong Kong Futures

Exchange and was a director of the Hong Kong Futures Exchange

Clearing Corporation Ltd. from 1989 to 1992. He is currently chairman

of Rodamco Asia NV and Rodamco Pacific BV, director of several

companies listed in Hong Kong and director of private and Government

controlled companies in Hong Kong and Malaysia.

Directors and Senior Management (cont’d)


Non-executive Directors

Mr. Chi-kian SHIU, aged 68, was


1987. Mr. Shiu was a director of South

China Cinema & Investment Co. Ltd. with

which he had been associated since 1952.

Ms. Myrna Mo-ching LO, aged 61, was


1992. Ms. Lo is a member of the Docent

Committee and Bishop White Committee

of the Royal Ontario Museum in Toronto,

Canada. She is the sister of Mr. Winston

Yau-lai LO, Mr. Frank Yau-yee LO and Ms.

Yvonne Mo-ling LO.

Mr. Frank Yau-yee LO, aged 60, was


1977. Mr. Lo joined the Group in 1965 and

was appointed the Deputy Managing

Director in 1978 until 31st March, 1997.

He is the brother of Mr. Winston Yau-lai

LO, Ms. Yvonne Mo-ling LO and Ms.

Myrna Mo-ching LO.

Executive Directors

Ms. Yvonne Mo-ling LO, aged 52, was appointed a Director of the

Company in 1993. Ms. Lo is the President of the Group’s operations in

the US. She has been responsible for the development of the Group’s

operations in the US since 1980. In April 2000, she was elected the

President of the Soyfoods Association of North America which represents

60 soyfoods companies covering the US and Canada. She is the sister of

Mr. Winston Yau-lai LO, Mr. Frank Yau-yee LO and Ms. Myrna Mo-

ching LO.

Mr. Fransis Ming-yin KONG, aged 47, was appointed a Director

of the Company in 1996. Mr. Kong was appointed the Managing

Director of the Group’s Hong Kong operation in April 2000. He joined

the Group in 1978 and had been in charge of the Company’s various

departments including research and development, project, quality control

and international sales. He was appointed the Deputy Managing Director

of the Company in March 1992. He was appointed the Managing

Director of the Group’s China operation in 1997 prior to his present

appointment. He is now responsible for the Group’s business in Hong

Kong and export markets.


Mr. Eric Fat YU , aged 50, was


1989. Mr. Yu is currently the Group’s Senior

Director - Manufacturing and Project

Management. He had experience in

engineering works and project management

whilst working previously with a number

of companies overseas. He joined the Group

in 1974. He is now responsible for the

formulation of the Group’s manufacturing

policy and strategy and is also responsible

for the management of the Group’s new

joint venture project.

Mr. John Shek-hung LAU, aged 53,

was appointed a Director of the Company

in 1990. Mr. Lau is currently the Group’s

S e n i o r D i r e c t o r - F i n a n c e a n d

Administration. He joined the Group in

1988 having worked previously with a

number of multinational companies both

in Hong Kong and overseas. He is currently

r e s p o n s i b l e f o r t h e f i n a n c e a n d

administration of the Group.

SENIOR MANAGEMENT

Hong Kong Operation

Mr. Peter Dau-ming YU, aged 50, Human Resources Director of

the Company. Mr. Yu is responsible for the Group’s human resources

management and development function in Hong Kong and Mainland

China. He joined the Group in 1981 and has worked in all aspects of

the Company’s Human Resources Division. He has over 6 years of

personnel management experience in working with an electronic

company before joining the Group.

Mr. Stephen Moon-chi LEUNG, aged 52, Commercial Director of

the Company. Mr. Leung joined the Group in 1988 and he is responsible

for the Group’s procurement of major raw materials for the Group’s

operation in Hong Kong and for special projects in Hong Kong. Mr.

Leung previously held a senior accounting position with a trading

company.

Mr. Nigel F. OAKES, aged 40, Sales and Marketing Director of the

Company. Mr. Oakes is responsible for the Group’s sales and marketing

activities in Hong Kong. He joined the Group in 1994 after six years

involvement in the Hong Kong retail and beverage manufacturing sectors.

Mr. Oakes previously held a senior position in an OTC pharmaceutical

retail company in the United Kingdom.

Directors and Senior Management (cont’d)


Mr. Raymond Hon-chak TAM, aged

47, Purchasing and Logistics Director of the

Company. Mr. Tam is responsible for the

Group’s pu rcha s ing and l og i s t i c s

management in Hong Kong. He joined the

Group in 1999 and his responsibilities

include the purchasing, warehousing and

shipping operations of the Group in Hong

Kong and the overall monitoring function

of the Group’s purchasing in Mainland

China. Mr. Tam has over 20 years of

experience in purchasing and logistics

management before joining the Group.

Mr. David Chi-ming KWAN, aged 38,

General Manager of Vitaland Services

Limited, a wholly owned subsidiary of the

Company. He is responsible for overseeing

the development of Vitaland Services

Limited in the tuckshop business. He joined

the Company in 1998. He has over 18 years’

experience in both commercial and

institutional catering business with several

Hong Kong listed companies.

US Operation

Mr. Michael Kwong-hoo HO, aged 44, Executive Vice President -

Finance, of Vitasoy USA Group. Mr. Ho is responsible for the finance

and management information system of Vitasoy USA Group. He joined

the Group in 1982. He has over 21 years’ experience in the areas of

finance and administration.

Mr. Jerry MAYNARD, aged 50, Executive Vice President - Sales

and Marketing, of Vitasoy USA Group. Mr. Maynard is responsible for

overseeing the Produce-Supermarkets, Ethnic and Natural Foods Business

Divisions of Vitasoy USA Group. He joined the Group in 1988 and

became the President of Nasoya Foods, Inc. in September 1993, and

served as Chief Operating Officer of Vitasoy USA Inc. from 1996 to

1999.

Mr. Alfred H. EATON, aged 44, Executive Vice President - Strategic

Planning and Administration, of Vitasoy USA Group. Mr. Eaton is

responsible for new strategic business development and projects for

Vitasoy USA Group. Mr. Eaton joined the Group in 1990. He has over

20 years’ experience in accounting and finance in manufacturing

environments.

Mr. Joe Chui-wah HO, aged 48, Executive Vice President -

Manufacturing and Technical Services, of Vitasoy USA Group. Mr. Ho

is responsible for overseeing the manufacturing and technical services of

Vitasoy USA Group. He joined the Group in 1996. Before joining the

Group, he had worked in several well known food and beverage

companies.


Mainland China Operation

Mr. Kelly Sik-cheong YU, aged 46,

Managing Director of Vitasoy (China)

Investment Company Limited. Mr. Yu is

responsible for the general management of

the Group’s business in Mainland China.

Mr. Yu joined the Group in January 2000.

Before joining the Group, he was the area

vice president and managing director of the

China operation of an international food

manufacturing company. He has over 24

years of experience in the food, beverage and

health care industry.

Report of the Directors (cont’d)


Report of the Directors

The Directors have pleasure in submitting their annual report together with the audited accounts for the year ended

31st March, 2000.

Principal activities

The principal activities of the Group are the manufacture and distribution of food and beverages.

An analysis of the Group’s turnover by geographical area is as follows:

2000 1999

HK$’000 HK$’000

Hong Kong 1,166,799 1,223,212

North America 470,931 396,895

Rest of the world 247,760 215,667

1,885,490 1,835,774

An analysis of profits relating to operations outside Hong Kong is not given since they aggregate less than 10 per cent

of the Group’s operating profit.

Subsidiaries

Particulars of the Company’s subsidiaries at 31st March, 2000 are set out in note 10 on the accounts.


Accounts

The profit of the Group for the year ended 31st March, 2000 and the state of the Company’s and the Group’s affairs at

that date are set out in the accounts on pages 40 to 72.

An interim dividend of HK3.8 cents per share was paid on 24th December, 1999. The Directors now recommend the

payment of a final dividend of HK6.7 cents per share in respect of the year ended 31st March, 2000.

Major customers and suppliers

During the year 39% of turnover and 36% of purchases (not including items which are of a capital nature) were

attributable to the Group’s five largest customers and suppliers respectively. 17% of turnover was attributable to the

Group’s largest customer and 24% of purchases was attributable to the Group’s largest supplier.

To the knowledge of the Directors, at no time during the year have the Directors, their associates or any shareholder of

the Company (which to the knowledge of the Directors owns more than 5% of the Company’s share capital) had any

interest in these major customers and suppliers.

Charitable donations

Donations made by the Group during the year amounted to HK$1,208,000 (1999: HK$447,000). The principal

donation in the year was to The University of Hong Kong for “Vitasoy and K.S. Lo Foundation Bursaries for Students

with a Disability” and was given as part of the celebration to mark the 60th anniversary of the Group’s founding.

Fixed assets

Movements in fixed assets during the year are set out in note 9 on the accounts.



Bank loans

Particulars of bank loans at 31st March, 2000 are set out in note 15 on the accounts.

Share capital and reserves

Movements in share capital and reserves during the year are set out in notes 17 and 18 on the accounts.

Directors

The Directors in office during the year and up to the date of this report are set out on pages 2, 23, 24 and 25.

In accordance with Article 104 of the Company’s Articles of Association, Frank Yau-yee Lo, Eoghan Murray McMillan

and Fransis Ming-yin Kong retire from the board by rotation at the forthcoming Annual General Meeting and, being

eligible, offer themselves for re-election. None of the Directors proposed for re-election at the forthcoming Annual General

Meeting has a service contract with the Company or any of its subsidiaries which is not determinable by the Company

within one year without payment of compensation.

Non-executive Directors are appointed under the same terms for rotational retirement as other Directors, pursuant to

the Articles of Association of the Company.


Directors’ interests in shares

The Directors who held office at 31st March, 2000 had the following interests in the issued share capital of the

Company as recorded in the register required to be kept pursuant to Section 29 of the Securities (Disclosure of Interests)

Ordinance (including interests which they are taken and deemed to have under that Ordinance) at that date:

Type of interests and number of shares of HK$0.25 each

Personal Family Corporate Other Total

Name interests interests interests interests interests

Winston Yau-lai Lo

(Notes 1, 5 and 6) 7,459,000 19,135,000 — 72,871,700 99,465,700

Frank Yau-yee Lo

(Notes 2 and 6) 307,500 — — 74,518,500 74,826,000

Yvonne Mo-ling Lo

(Notes 3 and 6) 20,198,300 562,500 — 48,210,200 68,971,000

Myrna Mo-ching Lo

(Notes 4 and 6) — — 18,649,800 48,210,200 66,860,000

Chi-kian Shiu (Note 5) 2,187,600 — — 2,951,300 5,138,900

John Shek-hung Lau (Note 5) 10,000 — — 2,951,300 2,961,300

Eric Fat Yu (Note 5) 50,000 — — 2,951,300 3,001,300

Eoghan Murray McMillan 500,000 — — — 500,000

David Kwok-po Li 1,000,000 — — — 1,000,000

Fransis Ming-yin Kong 2,000 — — — 2,000



Notes:

1. Winston Yau-lai Lo is interested in 21,710,200 shares held by The Bank of East Asia (Nominees) Limited, 1,250,000 shares held by his wife

and 17,885,000 shares held by HKSCC Nominees Limited in trust for his wife.

2. Frank Yau-yee Lo is interested in 26,308,300 shares held by Benson Corporation which is the trustee of the Benson Unit Trust, the beneficiaries

of which are members of his family.

3. Yvonne Mo-ling Lo is interested in 562,500 shares held in name of Yvonne Wong who holds the shares in trust for Yvonne Mo-ling Lo’s

daughter who is under the age of 18.

4. Myrna Mo-ching Lo is interested in 18,649,800 shares held by Supreme Luck Holdings Limited which in turn holds such shares in trust for

The Lo Kwee Seong 1987 Trust. Myrna Mo-ching Lo is a director of Supreme Luck Holdings Limited.

5. Each of Winston Yau-lai Lo, Chi-kian Shiu, John Shek-hung Lau and Eric Fat Yu are trustees of the Group’s staff provident fund scheme,

which holds 2,951,300 shares, and are therefore deemed to be interested in such shares.

6. Each of Winston Yau-lai Lo, Frank Yau-yee Lo, Yvonne Mo-ling Lo and Myrna Mo-ching Lo are interested in 48,210,200 shares held by The

Bank of East Asia (Nominees) Limited which holds such shares as a nominee for the K.S. Lo Foundation. Each of them are trustees of the K.S.

Lo Foundation and are therefore deemed to be interested in such shares.

Other than certain nominee shares in subsidiaries held by the Directors in trust for the Company, no directors held

any interest in the share capital of the Company’s subsidiaries.

Save as herein disclosed, none of the Directors of the Company has any interest in any shares in or debentures of the

Company or any of its associates within the meaning of the Securities (Disclosure of Interests) Ordinance.


Directors’ rights to purchase shares

The Directors of the Company had the following personal interests as at 31st March, 2000 in options to subscribe for

shares of HK$0.25 each in the Company granted for consideration of HK$10 for each grant of options under the share

option scheme of the Company:

Price per Number of

share to be shares Number of

paid on acquired on options

Period during exercise exercise of outstanding

which options of options options during at the

Name of Director Date granted are exercisable HK$ the year year end

Winston Yau-lai Lo 28th June, 1994 31/5/1995 - 31/5/2001 2.152 — 1,195,000

28th June, 1998 1/8/1998 - 31/7/2003 1.656 — 1,825,000

Yvonne Mo-ling Lo 28th June, 1994 31/5/1995 - 31/5/2001 2.152 — 1,600,000

3rd September, 1996 4/9/1996 - 3/9/2001 1.912 — 542,500

28th June, 1998 1/8/1998 - 31/7/2003 1.656 986,000 1,500

Eric Fat Yu 28th June, 1994 31/5/1995 - 31/5/2001 2.152 — 1,425,000

3rd September, 1996 4/9/1996 - 3/9/2001 1.912 — 482,500

28th June, 1998 1/8/1998 - 31/7/2003 1.656 50,000 830,000

John Shek-hung Lau 28th June, 1994 31/5/1995 - 31/5/2001 2.152 — 1,425,000

3rd September, 1996 4/9/1996 - 3/9/2001 1.912 — 482,500

28th June, 1998 1/8/1998 - 31/7/2003 1.656 10,000 870,000

Fransis Ming-yin Kong 28th June, 1994 31/5/1995 - 31/5/2001 2.152 — 1,600,000

3rd September, 1996 4/9/1996 - 3/9/2001 1.912 — 542,500

28th June, 1998 1/8/1998 - 31/7/2003 1.656 2,000 985,500

No options were granted during the year.

Apart from the above, at no time during the year was the Company or any of its subsidiaries a party to any arrangement

to enable the Directors of the Company or any of their spouses or children under eighteen years of age to acquire benefits

by means of the acquisition of shares in or debentures of the Company or any other body corporate.



Substantial interests in the share capital of the Company

The Company has been notified, in additon to Winston Yau-lai Lo, Frank Yau-yee Lo, Yvonne Mo-ling Lo and Myrna

Mo-ching Lo as stated under Directors’ interests in shares above, of the following interests in the Company’s issued shares

at 31st March, 2000 amounting to 10% or more of the shares in issue, as recorded in the register required to be kept

pursuant to section 16(1) of the Securities (Disclosures of Interests) Ordinance (including interests which they are taken

and deemed to have under that Ordinance):

Interests in shares Percentage of

of HK$0.25 each total issued shares

Peter Tak-shing Lo 84,556,000 13.01%

Irene Chan 67,360,000 10.37%

Both Peter Tak-shing Lo and Irene Chan are interested in 48,210,200 shares held by The Bank of East Asia (Nominees)

Limited which holds such shares as a nominee for the K.S. Lo Foundation. They are both the trustees of the K.S. Lo

Foundation and are therefore deemed to be interested in such shares.

Directors’ interests in contracts

No contract of significance, to which the Company or any of its subsidiaries 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.

Directors’ and officers’ liability insurance

Directors’ and officers’ liability insurance was maintained during the year.


Share option scheme

On 9th March, 1994, the Company adopted a share option scheme under which the Directors may, at their discretion

on or before 9th March, 2004, grant options to eligible Directors and employees to subscribe for shares of HK$0.25 each

in the Company. At 31st March, 2000, the outstanding options granted under the scheme were:

Number of

Number of options

Price per shares forfeited

share to be acquired during the Number of

paid on on exercise year on options

Period during exercise of options resignation outstanding

which options of options during the of eligible at the

Date granted are exercisable HK$ year employees year end

28th June, 1994 31/5/1995 to 31/5/2001 2.152 596,000 100,000 12,730,000

3rd September, 1996 4/9/1996 to 3/9/2001 1.912 132,000 500 5,066,000

28th June, 1998 1/8/1998 to 31/7/2003 1.656 1,514,000 — 7,323,500

Staff retirement schemes

The Group currently operates a defined contribution retirement benefit plan which is available to all eligible staff

employed by the Group in Hong Kong and Macau. The assets of the plan are held separately from those of the Group. The

plan is funded by contributions from employees and the Group, which contributes sums representing 5-7.5% of basic

salaries. Forfeited contributions are not used to reduce the level of the Group’ contributions.

Employees engaged by the Group outside Hong Kong and Macau are covered by local arrangements.

The Group’s pension cost charged to the profit and loss account for the year ended 31st March, 2000 was HK$9,420,000

(1999: HK$7,445,000).



Compliance with Code of Best Practice

The Company has complied throughout the year with the Code of Best Practice as set out by the Stock Exchange of

Hong Kong Limited in Appendix 14 of the Listing Rules.

Purchase, sale or redemption of the Company’s listed securities

Details of the purchase by the Company of its own shares during the year are set out in note 17 on the accounts. The

purchases were made in view of the depressed market for the shares to enhance the net asset value per share and earnings

per share of the Company. Save as disclosed in note 17 on the accounts, neither the Company nor any of its subsidiaries

purchased, sold or redeemed any of the Company’s listed securities during the year.

Five year summary

A summary of the results and of the assets and liabilities of the Group for the last five financial years is set out on page

73 of the annual report.

Year 2000 compliance

As early as 1997, the Group had formed a special taskforce to deal with possible ramifications of the Year 2000

compliance issue by ensuring that both the Group’s internal business systems and major suppliers’ systems would be Year

2000 compliant. The Board is pleased to report that the transition to Year 2000 was smooth. The total costs of the Year

2000 compliance incurred up to 31st March, 2000 were HK$948,000, compared to the estimate of HK$883,000. Of

these costs HK $895,000 are capital in nature. The balance of the costs was charged to the profit and loss account.


Audit Committee

The Committee was established in 1998 and comprises two independent Non-executive Directors and one Non-

executive Director with written terms of reference. The present Committee members are Messrs Eoghan Murray McMillan,

David Kwok-po Li and Chi-kian Shiu. The Committee met twice during the year to review the internal audit programme

and the plans for and results of the external audit, as well as to review the interim and annual accounts of the Group.

Auditors

KPMG retire and, being eligible, offer themselves for re-appointment. A resolution for the re-appointment of KPMG

as auditors of the Company is to be proposed at the forthcoming Annual General Meeting.

By Order of the Board

Winston Yau-lai LoExecutive Chairman

Hong Kong, 12th July, 2000

Report of the Auditors (cont’d)


Report of the Auditors

Auditors’ report to the shareholders of

Vitasoy International Holdings Limited

(Incorporated in Hong Kong with limited liability)

We have audited the accounts on pages 40 to 72 which have been prepared in accordance with accounting principles

generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Hong Kong Companies Ordinance requires the directors to prepare accounts which give a true and fair view. In

preparing accounts which give a true and fair view it is fundamental that appropriate accounting policies are selected and

applied consistently, that judgements and estimates are made which are prudent and reasonable and that the reasons for

any significant departure from applicable accounting standards are stated.

It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our

opinion to you.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of

Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the

accounts. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation

of the accounts, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances,

consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary

in order to provide us with sufficient evidence to give reasonable assurance as to whether the accounts are free from

material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information

in the accounts. We believe that our audit provides a reasonable basis for our opinion.


Opinion

In our opinion, the accounts give a true and fair view of the state of affairs of the Company and of the Group as at 31st

March, 2000 and of the Group’s profit and cash flows for the year then ended and have been properly prepared in

accordance with the Hong Kong Companies Ordinance.

KPMGCertified Public Accountants



Note 2000 1999$’000 $’000

Turnover 2 1,885,490 1,835,774

Cost of sales (880,946) (879,979)

Gross profit 1,004,544 955,795

Other revenue 3 23,981 23,212

Marketing, selling and distribution expenses (620,996) (598,881)

Administrative expenses (140,716) (136,580)

Other operating expenses (96,274) (98,482)

Profit from operations 170,539 145,064

Finance cost 4 (12,679) (11,004)

Share of profits less losses of associates 1,779 772

Profit from ordinary activitiesbefore taxation 4 159,639 134,832

Taxation 5(a) (29,589) (25,194)

Profit from ordinary activitiesafter taxation 130,050 109,638

Minority interests (3,915) (3,709)

Profit attributable to shareholders 7 126,135 105,929

Earnings per share 8

Basic 19.4 cents 16.4 cents

Diluted 19.3 cents 16.2 cents

The notes on pages 48 to 72 form part of these accounts.

for the year ended 31st March, 2000

(Expressed in Hong Kong dollars)

Consolidated Profit and Loss Account


Note 2000 1999$’000 $’000

Exchange differences on translation of

the accounts of foreign subsidiaries 18(a) 47 (333)

Net gains/(losses) not recognised in theprofit and loss account 47 (333)

Net profit for the year 126,135 105,929

Total recognised gains and losses 126,182 105,596




Consolidated Statement of Recognised Gains and Losses


Consolidated Balance Sheet

Note 2000 1999$’000 $’000 $’000 $’000

Non-current assets

Fixed assets 9 823,308 792,475

Interest in associates 11 14,539 14,907Long-term loans 12 2,524 2,440

840,371 809,822

Current assets

Inventories 13 224,447 215,453

Trade and other

receivables 279,259 275,178

Bank deposits maturing

in more than threemonths 178,276 124,406

Cash and cash

equivalents 14 177,709 143,863

859,691 758,900

Current liabilities

Current portion of

interest-bearing bank

loans and overdrafts 99,312 79,116

Trade and otherpayables 344,486 311,825

Taxation 5(b) 4,817 2,016

Proposed final dividend 43,520 33,840

492,135 426,797

Net current assets 367,556 332,103

Total assets lesscurrent liabilitiescarried forward 1,207,927 1,141,925

at 31st March, 2000



Note 2000 1999$’000 $’000 $’000 $’000

Total assets lesscurrent liabilitiesbrought forward 1,207,927 1,141,925

Non-current liabilities

Interest-bearing

borrowings 15 53,133 58,543

Deferred taxation 16 11,067 —

64,200 58,543

Minority interests 26,221 23,799

NET ASSETS 1,117,506 1,059,583

CAPITAL ANDRESERVES

Share capital 17 162,449 162,446

Reserves 18 955,057 897,137

1,117,506 1,059,583

Approved by the board of directors on 12th July, 2000.

Winston Yau-lai Lo John Shek-hung LauDirector Director



Balance Sheet

Note 2000 1999$’000 $’000 $’000 $’000

Non-current assets

Fixed assets 9 239,537 200,099

Interest in subsidiaries 10 621,215 624,530Long-term loans 12 2,524 2,440

863,276 827,069

Current assets

Inventories 13 112,483 117,266

Trade and other

receivables 196,537 202,938

Amounts due from

subsidiaries 56,712 27,212Bank deposits maturing

in more than three

months 177,903 123,821

Cash and cashequivalents 14 110,947 97,411

654,582 568,648

Current liabilities

Bank overdrafts 12,923 11,999

Trade and otherpayables 199,172 178,919

Taxation 5(b) 1,076 1,318

Proposed final dividend 43,520 33,840

256,691 226,076

Net current assets 397,891 342,572

Total assets lesscurrent liabilitiescarried forward 1,261,167 1,169,641

at 31st March, 2000



Note 2000 1999$’000 $’000 $’000 $’000

Total assets lesscurrent liabilitiesbrought forward 1,261,167 1,169,641

Non-current liabilities

Deferred taxation 16 11,067 —

NET ASSETS 1,250,100 1,169,641

CAPITAL AND RESERVES

Share capital 17 162,449 162,446

Reserves 18 1,087,651 1,007,195

1,250,100 1,169,641

Approved by the board of directors on 12th July, 2000.

Winston Yau-lai Lo John Shek-hung LauDirector Director



Consolidated Cash Flow Statement

Note 2000 1999$’000 $’000 $’000 $’000

Net cash inflow fromoperating activities 19(a) 226,906 251,546

Returns on investmentsand servicing of finance

Interest received 15,783 14,217Dividends received from

associate 598 5,626Interest paid (12,679) (11,004)Dividends paid (58,579) (56,799)Dividends paid to minority

shareholder (4,638) —

Net cash outflow fromreturns on investmentand servicing of finance (59,515) (47,960)

Taxation

Hong Kong profits tax paid (13,723) (34,726)Overseas tax paid (1,963) (657)

Tax paid (15,686) (35,383)

Investing activities

Payment for purchases offixed assets (82,711) (77,043)

Proceeds from sale offixed assets 338 1,979

Repayment of loan to associate 1,243 —Increase in long-term loan

receivable (10,058) —Repayment of long-term

loan receivable 10,531 10,633Increase in bank deposits

maturing after three months (53,870) (124,406)

Net cash outflow frominvesting activities (134,527) (188,837)

Net cash inflow/(outflow)before financing carriedforward 17,178 (20,634)




Note 2000 1999$’000 $’000 $’000 $’000

Net cash inflow/(outflow)before financing broughtforward 17,178 (20,634)

Financing 19(b)

Shares issued under

share option scheme 4,040 8,912Shares repurchased (4,040) —

Capital contribution from

minority shareholder 2,381 —

Increase in loans repayable

after three months 5,678 20,902

Net cash inflow fromfinancing 8,059 29,814

Increase in cash and cashequivalents 25,237 9,180

Effect of foreignexchange rates 116 (150)

Cash and cashequivalents at1st April 126,596 117,566

Cash and cashequivalents at31st March 19(c) 151,949 126,596



Notes on the Accounts (cont’d)(Expressed in Hong Kong dollars)

Notes on the Accounts

1 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These accounts have been prepared in accordance with all applicable Statements of Standard

Accounting Practice and Interpretations issued by the Hong Kong Society of Accountants,

accounting principles generally accepted in Hong Kong and the requirements of the Hong

Kong Companies Ordinance. The accounts also comply with the disclosure provisions of the

Hong Kong Securities (Stock Exchange Listing) Rules. A summary of the significant accountingpolicies adopted by the Group is set out below.

(b) Basis of preparation of the accounts

The measurement basis used in the preparation of the accounts is historical cost.

(c) Basis of consolidation

The consolidated accounts include the accounts of the Company and all its subsidiaries madeup to 31st March each year. The results of subsidiaries acquired or disposed of during the year

are included in the consolidated profit and loss account from or to the effective dates of their

acquisition or disposal, as appropriate. All material inter-company transactions and balances

are eliminated on consolidation.

Goodwill arising on the acquisition of subsidiaries, being the excess of the cost of investments

in these companies over the fair value of the Group’s share of the separable net assets acquired,

is written off against reserves in the year in which it arises.

(d) Interest in subsidiaries

A subsidiary is a company in which the Group, directly or indirectly, holds more than half of

the issued share capital, or controls more than half of the voting power, or controls thecomposition of the board of directors.

Interests in subsidiaries in the Company’s balance sheet are stated at cost less any provision

for diminution in value which is other than temporary as determined by the directors for

each subsidiary individually. Any such provisions are recognised as an expense in the profitand loss account.



1 SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(e) Associates

An associate is a company in which the Group has significant influence, but not control or

joint control, over its management, including participation in the financial and operating

policy decisions.

The consolidated profit and loss account reflects the Group’s share of the post-acquisitionresults of its associates for the year. In the consolidated balance sheet, investments in associates

are stated at the Group’s share of their net assets, including share of associates’ goodwill. The

Group’s share of the associates’ goodwill is amortised by equal instalments over 20 years in

accordance with the associates’ accounting policy for such goodwill.

(f ) Fixed assets and depreciation

Land and buildings are stated in the balance sheet at cost less accumulated depreciation

calculated to write off the assets over their estimated useful lives. Except for certain landwhich has been fully amortised in previous years, leasehold land is amortised in equal annual

instalments over the remaining term of the lease, including the renewal period. The cost of

buildings and improvements thereto are depreciated on the straight line basis over their useful

lives, at annual rates of between 4% and 5%.

Other fixed assets are stated in the balance sheet at cost less accumulated depreciation calculated

on the straight line basis to write off the assets over their estimated useful lives at the following

annual rates:

Factory machinery and equipment 9 - 25%

Fixtures, furniture and office equipment 9 - 33%

Motor vehicles 18 - 25%

Gains or losses arising from the retirement or disposal of a fixed asset are determined as the

difference between the net disposal proceeds and the carrying amount of the asset and are

recognised in the profit and loss account on the date of retirement or disposal.




(g) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the first-in, first-out method and comprises all costs of purchase,

costs of conversion and other costs incurred in bringing the inventories to their present location

and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the

estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense

in the period in which the related revenue is recognised. The amount of any write-down of

inventories to net realisable value and all losses of inventories are recognised as an expense in

the period the write-down or loss occurs. The amount of any reversal of any write-down of

inventories, arising from an increase in net realisable value, is recognised as a reduction incost of sales in the period in which the reversal occurs.

(h) Cash equivalents

Cash equivalents are short-term, highly liquid investments which are readily convertible into

known amounts of cash without notice and which were within three months of maturity

when acquired. For the purposes of the cash flow statement, cash equivalents would also

include advances from banks repayable within three months from the date of the advance.

(i) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and

costs, if applicable, can be measured reliably, revenue is recognised in the profit and lossaccount as follows:

Revenue arising from sales of goods is recognised on delivery of goods to customers which is

taken to be the point in time when the customer has accepted the goods and the related risks

and rewards of ownership. Revenue excludes value added or other sales taxes and is afterdeduction of returns and trade discounts.

Interest income from bank deposits is accrued on a time-apportioned basis on the principal

outstanding and at the rate applicable.



(j) Operating leases

Rentals of premises payable under operating leases are accounted for on a straight-line basis

over the periods of the respective leases.

Rentals of plant and machinery payable under operating leases are accounted for on a straight-

line basis over the periods of the respective leases, except for fixed sums payable on thecommencement of the leases, known as base rentals, and rentals on the basis of production

volumes which are accounted for when incurred.

(k) Pensions and other post-retirement benefits

The Company operates a defined contribution retirement benefit plan which is available to

all eligible Hong Kong and Macau staff while subsidiaries outside Hong Kong and Macau

contribute to appropriate local retirement arrangements for their staff. The assets of these

schemes are held separately from those of the Group. The amount charged to the profit andloss account represents the contributions payable by the employer to these schemes in respect

of the accounting year.

The Group also makes provision for the estimated amount of severance payments andretirement gratuities.

(l) Deferred taxation

Deferred taxation is provided using the liability method in respect of the taxation effect arisingfrom all material timing differences between the accounting and tax treatment of income and

expenditure, which are expected with reasonable probability to crystallise in the foreseeable

future.

Future deferred tax benefits are not recognised unless their realisation is assured beyond

reasonable doubt.

(m) Translation of foreign currencies

Foreign currency transactions during the year are translated into Hong Kong dollars at the

exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in

foreign currencies are translated into Hong Kong dollars at the exchange rates ruling at the

balance sheet date. Exchange gains and losses on foreign currency translation are dealt with inthe profit and loss account.




(m) Translation of foreign currencies (cont’d)

The accounts of subsidiaries expressed in foreign currencies are translated into Hong Kong

dollars at the rates of exchange ruling at the balance sheet date. The exchange differences

arising on such translation are dealt with in the exchange reserve.

(n) Related parties

For the purposes of these accounts, parties are considered to be related to the Group if the

Group has the ability, directly or indirectly, to control the party or exercise significant influence

over the party in making financial and operating decisions, or vice versa, or where the Groupand the party are subject to common control or common significant influence. Related parties

may be individuals or entities.

2 TURNOVER

The principal activities of the Group are the manufacture and distribution of food and beverages.

Turnover represents the sales value of goods sold to customers.

3 OTHER REVENUE

2000 1999

$’000 $’000

Interest income 15,783 14,217

Commission income 6,274 6,604

Rental income 459 —Sundry income 1,465 2,391

23,981 23,212


4 PROFIT FROM ORDINARY ACTIVITIES BEFORE TAXATION

Profit from ordinary activities before taxation is arrived at after charging:

2000 1999

$’000 $’000

(a) Finance cost:

Interest on bank loans and overdrafts, and other loans

wholly repayable within five years 12,679 11,004

(b) Other items:

Depreciation 80,068 80,232

Auditors’ remuneration 1,728 1,844

Operating lease charges

- hire of plant, machinery and equipment 6,217 6,342- rental of premises 14,021 11,480

Staff costs 362,978 352,027

Cost of inventories 958,725 952,786

5 TAXATION

(a) Taxation in the consolidated profit and loss account represents:

2000 1999

$’000 $’000

Provision for Hong Kong profits tax for the year 18,937 26,679

Over provision for Hong Kong profits taxin respect of previous years (3,811) (2,560)

Overseas taxation 3,361 764

Deferred taxation (note 16(a)) 11,067 —

Share of associates’ taxation 35 311

29,589 25,194

The provision for Hong Kong profits tax is calculated at 16% (1999: 16%) of the estimatedassessable profits for the year. Taxation for subsidiaries outside Hong Kong is similarly charged

at the appropriate current rates of taxation ruling in the relevant countries.



5 TAXATION (cont’d)

(b) Taxation in the balance sheets represents:

The Group The Company2000 1999 2000 1999

$’000 $’000 $’000 $’000

Provision for Hong Kong

profits tax for the year 18,937 26,679 16,298 25,189

Provisional profits tax paid (10,282) (19,427) (9,222) (17,871)

Tax Reserve Certificatepurchased (6,000) (6,000) (6,000) (6,000)

Overseas taxation 2,162 764 — —

4,817 2,016 1,076 1,318

6 DIRECTORS’ EMOLUMENTS

Directors’ emoluments disclosed pursuant to section 161 of the Hong Kong Companies Ordinance

is as follows:

2000 1999

$’000 $’000

Fees 1,195 1,104

Other emolumentsBasic salaries, housing allowances, other

allowances and benefits in kind 11,067 10,099

Deemed gains on exercise of share options 71 —

Contributions to pension scheme 385 342Performance related and discretionary bonuses 4,504 3,787

17,222 15,332

Included in the Directors’ remuneration are fees of $469,000 (1999: $417,000) paid to the

independent non-executive directors during the year.

In addition to the above emoluments, certain Directors were granted share options in prior yearsunder the Company’s share option scheme. Details of these benefits in kind are disclosed under the

paragraph “Directors’ rights to purchase shares” in the Report of the Directors.


6 DIRECTORS’ EMOLUMENTS (cont’d)

In the absence of a ready market for the options granted on the shares of the Company, the Directors

are unable to arrive at an accurate assessment of the value of the options granted to the respectivedirectors until the date they are exercised.

Deemed gains on exercise of share options represent the difference between the price paid on exercise

of the options and the market value of the shares acquired at the date of exercise of the options and,

unlike other emoluments, are not charged against the profit of the Group.

The Directors’ remuneration, which includes the five highest paid individuals, fell within the

following ranges:

2000 1999

Number Number

$0 to $1,000,000 5 5

$1,500,001 to $2,000,000 — 2

$2,000,001 to $2,500,000 3 1

$2,500,001 to $3,000,000 1 1

$5,500,001 to $6,000,000 — 1$6,000,001 to $6,500,000 1 —

7 PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The profit attributable to shareholders includes a profit of $148,718,000 (1999: $152,060,000)

which has been dealt with in the accounts of the Company.



8 EARNINGS PER SHARE

(a) Basic earnings per share

Basic earnings per share is calculated by using the profit attributable to shareholders of

$126,135,000 (1999: $105,929,000) and the weighted average of 650,594,000 shares (1999:

646,298,000 shares) in issue during the year.

(b) Diluted earnings per share

The calculation of diluted earnings per share is based on the profit attributable to shareholders

of $126,135,000 (1999: $105,929,000) and the weighted average of 654,756,000 shares (1999:

653,170,000 shares) in issue after adjusting for the effects of all dilutive potential shares.

(c) Reconciliation

2000 1999

Number of Number of

shares shares’000 ’000

Weighted average number of shares used in

calculating basic earnings per share 650,594 646,298

Deemed issue of shares for no consideration

arising from share options 4,162 6,872

Weighted average number of shares used incalculating diluted earnings per share 654,756 653,170


9 FIXED ASSETS

Factory Fixtures,machinery furniture

Land and and and office Motorbuildings equipment equipment vehicles Total

$’000 $’000 $’000 $’000 $’000

The Group

Cost:At 1st April, 1999 487,875 635,704 83,925 60,054 1,267,558

Exchange adjustments 727 1,622 112 49 2,510

Additions 7,909 84,897 11,233 5,682 109,721

Disposals — (4,174) (739) (1,652) (6,565)

At 31st March, 2000 496,511 718,049 94,531 64,133 1,373,224

Less:Aggregate depreciation 70,158 365,475 62,202 52,081 549,916

Net book value:At 31st March, 2000 426,353 352,574 32,329 12,052 823,308

At 31st March, 1999 435,811 313,816 31,381 11,467 792,475

The Company

Cost:At 1st April, 1999 165,731 272,477 50,998 48,118 537,324

Additions — 58,158 5,769 3,030 66,957

Disposals — (3,593) (316) (1,595) (5,504)

At 31st March, 2000 165,731 327,042 56,451 49,553 598,777

Less:Aggregate depreciation 31,099 244,201 39,921 44,019 359,240

Net book value:At 31st March, 2000 134,632 82,841 16,530 5,534 239,537

At 31st March, 1999 139,605 38,788 16,022 5,684 200,099



9 FIXED ASSETS (cont’d)

The analysis of cost of land is as follows:


$’000 $’000 $’000 $’000

In Hong Kong

- medium-term lease 185,045 185,045 77,014 77,014

Outside Hong Kong

- freehold 6,375 6,341 — —- medium-term lease 6,469 6,446 — —

- short-term lease 1,382 1,376 — —

199,271 199,208 77,014 77,014

The gross amounts of fixed assets of the Group and the Company held for use in operating leases

were $22,698,000 (1999: $Nil) and the related accumulated depreciation charges were $4,384,000(1999: $Nil).

At 31st March, 2000 the net book value of fixed assets of the Group pledged as security for liabilities

was $140,071,000 (1999: $143,210,000).

10 INTEREST IN SUBSIDIARIES

The Company2000 1999

$’000 $’000

Unlisted investments, at cost 107,597 107,597Amounts due from subsidiaries 609,845 604,933

Provision for diminution in value of interest

in subsidiaries (96,227) (88,000)

621,215 624,530

The amounts due from subsidiaries are expected to be recovered after more than one year.


10 INTEREST IN SUBSIDIARIES (cont’d)

Details of the subsidiaries at 31st March, 2000 are as follows:

Issued and

paid-up

Place of share capital/ Percentage of

incorporation registered equity interest held by Principal

Name of company and operation capital Company Subsidiaries activities

Vitasoy Holdings Netherlands US$6,100 100 — Investment

N.V. Antilles holding

Vitasoy International Netherlands DFL40,000 — 100 Investment

B.V. holding

Vitasoy (UK) United GBP2 100 — Investment

Investments Kingdom holding

Company Limited

Vitasoy USA Inc. United States US$12,061,000 — 100 Manufacture

of America Common stock and sale of

soy related

products

US$12,900,000 — 100

Convertible

series A

preferred stock

Nasoya Foods, Inc. United States US$13,846,000 — 100 Manufacture

of America and sale of

soy related

products

The Shenzhen People’s RMB80,000,000 70 — Manufacture

Vitasoy (Guang Republic of and sale of

Ming) Foods and China beverages

Beverage Company

Limited (note i)

Vitasoy (China) Hong Kong $20 100 — Investment

Investments holding

Company Limited

Vitasoy (Shanghai) People’s RMB98,200,813 — 100 Manufacture

Company Limited Republic of and sale of

(note ii) China beverages



10 INTEREST IN SUBSIDIARIES (cont’d)

Issued and

paid-up

Place of share capital/ Percentage of

incorporation registered equity interest held by Principal

Name of company and operation capital Company Subsidiaries activities

Vita International Hong Kong $20 100 — Investment

Holdings Limited holding

Vitasoy Australia Australia A$6,120,000 — 100 Manufacture

Products Pty Ltd. V class shares and sale of

(note iii) (8% paid-up) beverages

A$5,880,000 — —

N class shares

(8% paid-up)

Vitasoja (Macau) Macau MOP100,000 100 — Distribution

Limitada of beverages

Produtos De Soja Macau MOP10,000 — 100 Dormant

Hong Kong

(Macau) Limitada

Vitaland Services Hong Kong $3,000,000 100 — Operation of

Limited tuckshops

The Hong Kong Hong Kong $20 100 — Property

Soya Bean investment

Products Company,

Limited

Vitasoy Distributors Singapore S$2,500,000 100 — Dormant

(Singapore) Pte. Ltd.

Notes:

(i) The Shenzhen Vitasoy (Guang Ming) Foods and Beverage Company Limited is a sino-foreign equity joint ventureestablished in the People’s Republic of China to be operated for 20 years up to 2011.

(ii) Vitasoy (Shanghai) Company Limited is a wholly foreign owned subsidiary established in the People’s Republic ofChina and is to be operated for 50 years up to 2045.

(iii) The Group has an interest in 51% of the equity of Vitasoy Australia Products Pty Ltd.


11 INTEREST IN ASSOCIATES

The Group2000 1999

$’000 $’000

Share of net assets other than goodwill 8,748 7,105Share of goodwill 6,155 6,652

14,903 13,757

Short-term loan — 1,243

Amount due to associates (364) (93)

14,539 14,907

The consolidated retained profit for the year includes an amount of $1,744,000 (1999: $461,000)

attributable to the associates.

Details of the significant associate are as follows:

Percentage ofPlace of shares held by

Name of company incorporation subsidiary Principal activities

Sodexho (Hong Kong) Hong Kong 40.35 Provision of

Limited contract catering

(Formerly Gardner and managementMerchant (Hong Kong) services

Limited)



12 LONG-TERM LOANS

Pursuant to an agreement entered into on 20th January, 2000, which was disclosed as a connected

transaction under the Hong Kong Stock Exchange Listing Rules, the Company has a commitmentto provide financial assistance of up to $30,000,000 to the Guang Ming Farm, the minority

shareholder of the Company’s subsidiary The Shenzhen Vitasoy (Guang Ming) Foods and Beverage

Company Limited. At 31st March, 2000 the Company had provided a loan of $10,058,000 under

this agreement. On 2nd August, 1994 the Company entered into a similar arrangement with the

Guang Ming Farm and the resulting loan was substantially repaid during the year. The loans areinterest bearing and are repayable as follows:

The Group andthe Company

2000 1999

$’000 $’000

Within one year 7,784 8,341

After one year 2,524 2,440

10,308 10,781

The amount repayable within one year is included in trade and other receivables.

The Company has financed the loans with bank facilities established for this purpose. The balanceon this account as at 31st March, 2000 is included in the current portion of interest-bearing bank

loans and overdrafts.

13 INVENTORIES


$’000 $’000 $’000 $’000

Raw materials 131,630 135,373 71,579 80,074

Finished goods 92,817 80,080 40,904 37,192

224,447 215,453 112,483 117,266

The amount of inventories of the Group included above carried at net realisable value is $2,601,000(1999: $1,868,000).

At 31st March, 2000 the carrying amount of inventories of the Group pledged as security for

liabilities was $46,092,000 (1999: $33,714,000).


14 CASH AND CASH EQUIVALENTS


$’000 $’000 $’000 $’000

Deposits with banks and otherfinancial institutions

maturing within three months 126,055 131,972 104,758 94,511

Cash at bank and in hand 51,654 11,891 6,189 2,900

177,709 143,863 110,947 97,411

At 31st March, 2000 cash at bank and in hand of the Group pledged as security for liabilities was

$7,279,000 (1999: $7,597,000).

15 NON-CURRENT INTEREST-BEARING BORROWINGS

The Group2000 1999

$’000 $’000

Bank loans repayable as follows:

After one year but within two years 9,375 9,449

After two years but within five years 43,520 48,725

52,895 58,174

Other non-current liabilities repayable as follows:

After one year but within two years 143 139

After two years but within five years 95 230

53,133 58,543

The total bank loans and overdrafts outstanding at 31st March, 2000 is $152,207,000 (1999:

$137,290,000). Borrowings totalling $94,551,000 (1999: $104,104,000) are secured by certain

assets of which $33,915,000 (1999: $36,482,000) are also guaranteed by the Company. Borrowings

totalling $29,740,000 (1999: $4,682,000) are solely guaranteed by the Company.



16 DEFERRED TAXATION

(a) Movements on deferred taxation comprise:


$’000 $’000 $’000 $’000

At 1st April

Transfer from the profit and — — — —

loss account

(note 5(a)) 11,067 — 11,067 —

At 31st March 11,067 — 11,067 —

(b) Major components of deferred tax of the Group are set out below:

2000 1999

Potential Potential

liabilities/ liabilities/

(assets) (assets)Provided unprovided Provided unprovided

$’000 $’000 $’000 $’000

Depreciation allowancesin excess of related

depreciation 14,390 3,655 — 11,744

General provisions (3,323) (8,019) — (10,324)

Future benefit of losses — (43,811) — (39,581)

11,067 (48,175) — (38,161)

(c) Major components of deferred tax of the Company are set out below:

2000 1999

Potential Potential

liabilities/ liabilities/

(assets) (assets)

Provided unprovided Provided unprovided$’000 $’000 $’000 $’000

Depreciation allowances

in excess of relateddepreciation 14,390 — — 7,209

General provisions (3,323) — — (5,363)

11,067 — — 1,846


17 SHARE CAPITAL

2000 1999

Number of Number of

shares Amount shares Amount

(’000) $’000 (’000) $’000

Authorised:

Shares of $0.25 each 800,000 200,000 800,000 200,000

Issued and fully paid:

At 1st April 649,783 162,446 515,916 128,979

Bonus issue — — 128,979 32,245

Shares issued on exercise

of share options (note (a)) 2,242 561 4,888 1,222

Shares repurchased (note (b)) (2,230) (558) — —

At 31st March 649,795 162,449 649,783 162,446

Notes:

(a) During the year, options were exercised to subscribe for 2,242,000 shares in the Company at a considerationtotalling $4,040,000 of which $560,500 was credited to share capital and the balance of $3,479,500 was creditedto the share premium account.

At 31st March, 2000, options to subscribe for 25,119,500 shares under the Company’s share option scheme wereunexercised (1999: 27,462,000). The options may be exercised in periods up to 31st May, 2001, 3rd September,2001 and 31st July, 2003 at prices of $2.152, $1.912 and $1.656 per share respectively.

(b) During the year, the Company repurchased 2,230,000 of its shares, all of which were then cancelled, for considerationtotalling $4,040,000. The nominal value of the cancelled shares was credited to capital redemption reserve and theconsideration was paid out of retained profits. Details of the shares repurchased are as follows:

Number of Price per share Aggregate

Month of repurchase shares Highest Lowest price

(’000) $ $ $’000

January 2000 1,392 1.85 1.80 2,564

February 2000 838 1.78 1.75 1,476

2,230 4,040



18 RESERVES

(a) The Group

Movements on reserves comprise:

2000 1999$’000 $’000

Share premiumAt 1st April 263,928 256,238Premium on issue of shares 3,479 7,690

At 31st March 267,407 263,928

Capital reserve (Note)At 1st April 116,435 120,522Transfer to profit and loss account (4,087) (4,087)

At 31st March 112,348 116,435

Capital redemption reserveAt 1st April — —Repurchase of own shares 558 —

At 31st March 558 —

Legal reserveAt 1st April 20 20Transfer from profit and loss account 1,746 —

At 31st March 1,766 20

General reserveAt 1st April and 31st March 2,261 2,261

Exchange reserveAt 1st April (31,486) (31,153)Exchange differences arising on consolidation 47 (333)

At 31st March (31,439) (31,486)

Profit and loss accountAt 1st April 545,979 525,312Retained profit for the year 126,135 105,929Repurchase of shares (4,040) —Bonus issue — (32,245)Transfer to legal reserve (1,746) —Transfer from capital reserve (Note) 4,087 4,087Dividends (68,259) (57,104)

At 31st March 602,156 545,979

955,057 897,137


18 RESERVES (cont’d)

(b) The Company

Movements on reserves comprise:

2000 1999$’000 $’000

Share premiumAt 1st April 263,928 256,238

Premium on issue of shares 3,479 7,690

At 31st March 267,407 263,928

Capital reserve (Note)At 1st April 116,435 120,522

Transfer to profit and loss account (4,087) (4,087)

At 31st March 112,348 116,435

Capital redemption reserve

At 1st April — —

Repurchase of own shares 558 —

At 31st March 558 —

General reserve

At 1st April and 31st March 2,261 2,261

Profit and loss account

At 1st April 624,571 557,773Retained profit for the year 148,718 152,060

Bonus issue — (32,245)

Repurchase of shares (4,040) —

Transfer from capital reserve (Note) 4,087 4,087Dividends (68,259) (57,104)

At 31st March 705,077 624,571

1,087,651 1,007,195

Note: The capital reserve represents unrealised profits arising on disposal of property. The amount transferred fromthe capital reserve to the profit and loss account represents profit realised on depreciation of the property towhich the capital reserve related.



18 RESERVES (cont’d)

(c) The balance on the consolidated profit and loss account at the end of each year is analysedas follows:

2000 1999$’000 $’000

Parent company and subsidiaries 601,836 546,805

Associates 320 (826)

602,156 545,979

(d) Dividends

2000 1999$’000 $’000

Interim dividend paid of 3.8 cents per share

(1999: 3.6 cents per share) 24,739 23,264

Final dividend proposed of 6.7 cents per share

(1999: 5.2 cents per share) 43,520 33,840

68,259 57,104

(e) Reserves available for distribution

The Company2000 1999

$’000 $’000

General reserve 2,261 2,261

Profit and loss account 705,077 624,571

707,338 626,832


19 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of profit from operations to net cash inflow from operating activities:

2000 1999

$’000 $’000

Profit from operations 170,539 145,064Interest income (15,783) (14,217)Depreciation 80,068 80,232Loss on sale of fixed assets 447 526Increase in amount due to associates 271 93Decrease in amount due from associates — 460(Increase)/decrease in inventories (8,994) 36,174(Increase)/decrease in trade and other receivables (4,638) 1,722Increase in trade and other payables 6,322 1,677Effect of foreign exchange (1,326) (185)

Net cash inflow from operating activities 226,906 251,546

(b) Analysis of changes in financing during the year:

Share capital(including Loans

share Minority repayable afterpremium) interests three months

$’000 $’000 $’000

Balance at 1st April, 1998 385,217 19,178 99,540Cash flows from financing 8,912 — 20,902Bonus issue 32,245 — —Minority interests in profit

for the year — 3,709 —Effect of foreign exchange rates — 912 (50)

Balance at 31st March, 1999 426,374 23,799 120,392

Balance at 1st April, 1999 426,374 23,799 120,392Cash flows from financing 4,040 2,381 5,678Shares repurchased (558) — —Minority interests in profit

for the year less dividend paid — (723) —Effect of foreign exchange rates — 764 615

Balance at 31st March, 2000 429,856 26,221 126,685

The consideration paid for the repurchase of shares was $4,040,000, which was paid out of

retained profits.



19 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (cont’d)

(c) Analysis of the balances of cash and cash equivalents:

2000 1999

$’000 $’000

Bank deposits maturing within three months 126,055 131,972

Cash at bank and in hand 51,654 11,891

Bank loans repayable within three months and overdrafts (25,760) (17,267)

151,949 126,596

20 COMMITMENTS

(a) Lease commitments

At 31st March, 2000, the Group and the Company had commitments under operating leases

to make payments in the next year as follows:

The Group

2000 1999

Plant and Plant and

machinery machineryLand and and Land and and

buildings others buildings others

$’000 $’000 $’000 $’000

Leases expiring:

Within one year 1,594 639 585 340

Between two to five years 11,484 2,762 10,611 2,676

13,078 3,401 11,196 3,016


20 COMMITMENTS (cont’d)

(a) Lease commitments (cont’d)

The Company

2000 1999

Plant and Plant and

machinery machinery

Land and and Land and andbuildings others buildings others

$’000 $’000 $’000 $’000

Leases expiring:

Within one year — 314 4,833 314Between two to five years 9,150 — 66 —

9,150 314 4,899 314

The Group and the Company also have commitments under operating leases in respect of the

hire of plant and machinery which are calculated on the basis of production volume.

(b) Capital commitments

At 31st March, 2000, there were outstanding commitments for capital expenditure not

provided for in the accounts as follows:


$’000 $’000 $’000 $’000

Contracted for 8,990 11,568 3,945 4,343

Authorised but not

contracted for 304,588 134,834 44,377 99,151

313,578 146,402 48,322 103,494

The Group’s capital commitments as at 31st March, 2000 include an amount of $135,667,000for the construction of a soymilk manufacturing plant in Australia.



21 CONTINGENT LIABILITIES

At 31st March, 2000, the Company had contingent liabilities in respect of the following:

2000 1999

$’000 $’000

Guarantees issued in respect of facilities granted by

banks to certain subsidiaries 63,655 41,164

On 26th August, 1999 the Company entered into an agreement to guarantee banking facilities of

$21 million granted to its 70% owned subsidiary, The Shenzhen Vitasoy (Guang Ming) Foods and

Beverage Company Limited. The contingent liability in respect of this guarantee is included above.

The Company has given undertakings to certain wholly-owned subsidiaries to provide them with

such financial assistance as is necessary to maintain them as going concerns.

At 31st March, 2000, the Group had a number of employees who have completed the requirednumber of years of service under the Hong Kong Employment Ordinance (the “Ordinance”) to be

eligible for long service payments on termination of their employment. The Group is only liable to

make such payments where the termination of employment meets the required circumstances

specified in the Ordinance. If the termination of employment of all these employees met thecircumstances required by the Ordinance, the Company’s and the Group’s liability at the balance

sheet date would be $30,701,000 (1999: $31,608,000), of which $16,278,000 (1999: $16,747,000)

has been provided for in the accounts.

In the opinion of the management, appropriate provision has been made at 31st March, 2000 forthe portion of the past service liability, which is expected to crystallise eventually, in respect of

employees of the Group as at that date.

22 MATERIAL RELATED PARTY TRANSACTIONS

There were no material related party transactions during the year (1999: Nil).

23 COMPARATIVE FIGURES

The presentation and classification of items in the accounts have been changed due to the adoption

of the requirements of SSAP 1 (revised) “Presentation of financial statements”. As a result, additional

line items have been included on the face of the consolidated profit and loss account and the

balance sheets as required by SSAP 1 (revised), such as other revenue, finance cost and analysis ofexpenses. Comparative figures have been reclassified to conform with the current year’s presentation.


Five Year Summary(Expressed in Hong Kong dollars)

2000 1999 1998 1997 1996$’000 $’000 $’000 $’000 $’000

Results

Turnover 1,885,490 1,835,774 1,691,485 1,524,134 1,301,482

Profit from operations 170,539 145,064 155,108 126,224 31,375

Finance cost (12,679) (11,004) (5,183) (6,043) (4,053)Share of profits less

losses of associates 1,779 772 6,397 4,694 6,297

Profit from ordinary

activities before taxation 159,639 134,832 156,322 124,875 33,619

Taxation (29,589) (25,194) (29,636) (9,947) (3,817)

Profit from ordinary

activities after taxation 130,050 109,638 126,686 114,928 29,802

Minority interests (3,915) (3,709) (5,514) (1,054) 790

Profit attributable to

shareholders 126,135 105,929 121,172 113,874 30,592

Net assets

Fixed assets 823,308 792,475 798,029 683,957 377,145

Interest in associates 14,539 14,907 20,625 21,179 21,003

Long-term loan 2,524 2,440 14,164 23,025 20,704Net current assets 367,556 332,103 248,369 221,966 464,844

Non-current liabilities (64,200) (58,543) (59,830) (14,083) (13,437)

Minority interests (26,221) (23,799) (19,178) (13,140) (10,040)

Net assets 1,117,506 1,059,583 1,002,179 922,904 860,219

Note:

In the year ended 31st March, 1996 the Group suspended production at its Shenzhen and Tuen Mun plants during January1996 and recalled all paper-packed products in circulation following complaints from consumers of sour tasting products. Productionrecommenced on 27th January, 1996 on completion of a full investigation and having rectified the cause of the productionproblems which resulted in the sour tasting products. The costs associated with these events totalled $79,931,000 and are includedin profit from operations.

Notice of Annual General Meeting (cont’d)


Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at Jade Ballroom 1,

3/F., Furama Hotel Hong Kong, One Connaught Road Central, Hong Kong on Wednesday, 6th September, 2000 at 3:00

p.m. for the following purposes:

1. To receive and adopt the audited Financial Statements and the Reports of the Directors and Auditors for the

year ended 31st March, 2000;

2. To approve the payment of a final dividend in respect of the year ended 31st March, 2000;

3. To re-elect Directors and fix their remuneration;

4. To appoint Auditors and authorise the Directors to fix their remuneration;

5. As special business, to consider and, if thought fit, to pass with or without amendments, the following resolutions

as Ordinary Resolutions:–

A. “THAT the authorised share capital of the Company be and is hereby increased from HK$200,000,000

to HK$800,000,000 by the creation of an additional 2,400,000,000 shares of HK$0.25 each of the

Company ranking pari passu in all respects with the existing issued and unissued shares of the Company,

except for the entitlements to the Bonus Shares (as defined below) and to the final dividend in respect of

the year ended 31st March, 2000.”

B. “(a) THAT conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited

granting listing of and permission to deal in the Bonus Shares to be issued pursuant to this Resolution,

a sum of up to a maximum of HK$86,627,250 being part of the distributable reserves identified in

the profit and loss account of the Company be capitalised and the Directors of the Company be

and are hereby authorised and directed to apply such sum as capital in paying up in full at par up to

a maximum of 346,509,000 unissued shares of HK$0.25 each in the capital of the Company (“Bonus


Shares”) and to allot and issue such Bonus Shares credited as fully paid by way of bonus to the

shareholders of the Company whose names appear on the Register of Members of the Company on

6th September, 2000 on the basis of one Bonus Share for every two shares of the Company held by

such shareholders provided that :-

(i) the Bonus Shares to be allotted and issued pursuant to this Resolution shall rank pari passu

in all respects with the existing issued shares of the Company except that they shall not be

entitled to participate in the final dividend in respect of the year ended 31st March, 2000;

and

(ii) no fractional entitlements to the Bonus Shares shall be issued but all such fractional Bonus

Shares shall be aggregated and issued to a nominee to be named by the Directors and shall be

disposed of at such time(s) as may be deemed appropriate by the Directors, with the net

proceeds thereof retained for the benefit of the Company; and

(b) That the Directors be and are hereby authorised to do all such acts and things as they may deem

necessary or expedient to give effect to the issue of the Bonus Shares.”

C. “THAT there be granted to the Directors of the Company an unconditional general mandate to issue,

allot and deal with additional shares in the capital of the Company, and to make or grant offers, agreements

and options in respect thereof, subject to the following conditions:–

(a) such mandate shall not extend beyond the Relevant Period (as defined below) save that the Directors

of the Company may during the Relevant Period make or grant offers, agreements and options

which might require the exercise of such powers after the end of the Relevant Period;

(b) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally

to be allotted (whether pursuant to an option or otherwise) by the Directors of the Company

otherwise than pursuant to (i) a Rights Issue (as defined below); (ii) any scrip dividend scheme or

similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend

on shares of the Company in accordance with the Articles of Association of the Company; and (iii)



an issue of shares pursuant to the exercise of any options which may be granted under any option

scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or

employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares of the

Company, shall not exceed the aggregate of (aa) 20 per cent of the aggregate nominal amount of

the share capital of the Company in issue as enlarged by the issue of any new shares pursuant to

Resolution 5B set out in the Notice of Annual General Meeting of which this Resolution forms

part at the date of passing of this Resolution plus (bb) (if the Directors of the Company are so

authorised by a separate ordinary resolution of the shareholders of the Company) the nominal

amount of share capital of the Company repurchased by the Company subsequent to the passing of

this Resolution (up to a maximum equivalent to 10 per cent of the aggregate nominal amount of

the share capital of the Company in issue as enlarged by the issue of any new shares pursuant to

Resolution 5B set out in the Notice of Annual General Meeting of which this Resolution forms

part at the date of passing this Resolution), and the said approval shall be limited accordingly; and

(c) for the purposes of this Resolution:

“Relevant Period” means the period from the passing of this Resolution until whichever is the

earlier of:

(i) the conclusion of the next Annual General Meeting of the Company;

(ii) the expiration of the period within which the next Annual General Meeting of the Company

is required by the Articles of Association of the Company or any applicable laws to be held;

and

(iii) the revocation or variation of this Resolution by an ordinary resolution of the shareholders of

the Company in General Meeting.


“Rights Issue” means an offer of shares open for a period fixed by the Directors of the Company

made to holders of shares on the Register of the Company on a fixed record date in proportion to

their then holdings of shares subject to such exclusions or other arrangements as the Directors of

the Company may deem necessary or expedient in relation to fractional entitlements or having

regard to any restriction or obligation under the laws of, or the requirements of any recognized

regulatory body or any stock exchange in, or in any territory outside, Hong Kong.”

D. “THAT there be granted to the Directors of the Company an unconditional general mandate to repurchase

shares of HK$0.25 each in the capital of the Company, and THAT the exercise by the Directors of the

Company of all powers of the Company to purchase shares subject to and in accordance with all applicable

laws, rules and regulations be and is hereby generally and unconditionally approved, subject to the following

conditions:–

(a) such mandate shall not extend beyond the Relevant Period (which shall have the same meaning for

the purpose of this Resolution, mutatis mutandis, as given in paragraph (c) of Resolution 5C as set

out in the Notice of Annual General Meeting);

(b) such mandate shall authorise the Directors of the Company to procure the Company to repurchase

shares at such prices as the Directors of the Company may at their discretion determine; and

(c) the aggregate nominal amount of shares repurchased or agreed to be repurchased by the Company

pursuant to paragraph (a) of this Resolution during the Relevant Period shall not exceed 10 per

cent of the aggregate nominal amount of the share capital of the Company in issue as enlarged by

the issue of any new shares pursuant to Resolution 5B set out in the Notice of Annual General

Meeting of which this Resolution forms part at the date of passing of this Resolution and the said

approval shall be limited accordingly.”



E. “THAT, conditional upon the passing of Resolutions 5C and 5D set out in the Notice of Annual General

Meeting, the aggregate nominal amount of the shares which are repurchased by the Company pursuant

to and in accordance with Resolution 5D set out in the Notice of Annual General Meeting shall be added

to the aggregate nominal amount of the shares which may be allotted or agreed, conditionally or

unconditionally, to be allotted by the Directors of the Company pursuant to and in accordance with

Resolution 5C set out in the Notice of Annual General Meeting.”

By Order of the Board

Paggie Ah-hing TongCompany Secretary


NOTES:–

1. A shareholder entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need

not be a shareholder of the Company.

2. To be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified

copy thereof, must be deposited with the Company Secretary at the Registered Office of the Company at No. 1 Kin Wong Street, Tuen Mun,

New Territories, Hong Kong not less than 48 hours before the appointed time for holding the meeting or any adjournment hereof (as the case

may be).

3. The Register of Members of the Company will be closed from Wednesday, 30th August, 2000, to Wednesday, 6th September, 2000 (both days

inclusive) during which period no transfer of shares will be effected. In order to qualify for the proposed issue of Bonus Shares and the final

dividend, all transfers, accompanied by the relevant share certificates should be lodged with the Company’s Share Registrar, Central Registration

Hong Kong Limited, 17th Floor, Hopewell Centre, Hong Kong for registration not later than 4:00 p.m. on Tuesday, 29th August, 2000.

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