国际精密(00929) - 2018 - 年度财报

Corporate Information Board of Directors The Board comprises executive, non-executive, and independent directors, with established Audit, Remuneration, and Nomination Committees - The Board of Directors includes Executive Directors Mr Cheung Chun Yue, Mr Zeng Guangsheng (Chairman and CEO), Mr Mui Wai Yat, Mr Wu Kai Ping; Non-executive Director Ms Zeng Jing; and Independent Non-executive Directors Mr Yeung Jue Sheng, Mr Cheung Chun Yue, Mr Mui Wai Yat[4] - The Audit Committee is chaired by Mr Yeung Jue Sheng, the Remuneration Committee by Mr Cheung Chun Yue, and the Nomination Committee by Mr Zeng Guangsheng[4] Registered Office and Principal Places of Business The company is registered in the Cayman Islands with principal business locations in Hong Kong, Guangdong China, and Thailand - The company's registered office is in the Cayman Islands, with principal places of business in Kowloon Bay, Hong Kong; Zengcheng District, Guangzhou, China; and Ayutthaya, Thailand[6][12][16][20] - The auditor is KPMG, and the Hong Kong branch share registrar is Tricor Investor Services Limited[20] - The company's stock code is 929, listed on the Main Board of The Stock Exchange of Hong Kong Limited[20] Corporate Profile Business and Customers The Group manufactures and sells precision metal parts for automotive, hydraulic, HDD, and electronics industries, serving top multinational clients - The Group began its precision parts business in Singapore in 1990 and was incorporated in the Cayman Islands as an investment holding company in 2002[23] - It primarily manufactures precision metal parts and assembled components for automotive parts, hydraulic equipment, hard disk drives (HDD), electronics, and other instruments[23] - Customers are mainly top-tier multinational corporations in the IT, hydraulic power, automotive, and electrical appliance industries with stringent precision requirements[23] Corporate Milestones Key Development History The company has expanded geographically, gone public, and obtained multiple key industry certifications since its establishment in 1990 - Established IPE (Singapore) in 1990, followed by IPE (Hong Kong) and Dongguan Koda in Guangdong, China in 1994[27] - Listed on the Main Board of The Stock Exchange of Hong Kong Limited on November 1, 2004[27] - Obtained key industry certifications including AS9100 (aerospace) and TS16949 (automotive) in 2010, IATF16949 (automotive) in 2017, and further IATF16949 certifications in 2018[27] - Successfully developed its own brand of robotic arms in 2015 and was recognized as a High-tech Enterprise in 2018, signing a strategic cooperation agreement with Zhejiang University's South China Institute of Industrial Technology[27] Corporate Structure Group Organizational Structure The investment holding company controls manufacturing, sales, and technology subsidiaries in Hong Kong, Mainland China, and Thailand - The company is an investment holding company that holds subsidiaries through several British Virgin Islands investment holding companies[30][33][36][37][38] - Major subsidiaries are located in China (Guangzhou, Dongguan, Jiangsu, Changshu, Taicang, Zhenjiang, Shenzhen), Thailand, Hong Kong, and Macau[30][31][33][36][38][39][40][41][42][43][44][45][46] - Subsidiary businesses cover precision metal parts manufacturing, surface treatment services, robotics manufacturing, lighting technology, and technology development[30][31][33][40][41][42][43][46] Financial Summary Performance In FY2018, revenue slightly increased by 0.2% to HK$943 million, but gross margin declined from 34% to 31%, impacting overall profitability Key Financial Data for FY2018 (Consolidated) | Indicator | 2018 (HK$ '000) | 2017 (HK$ '000) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 943,476 | 941,438 | +0.2 | | Cost of sales | (652,687) | (618,010) | +5.6 | | Gross profit | 290,789 | 323,428 | -10.1 | | Other income | 8,557 | 7,017 | +21.9 | | Distribution costs | (26,535) | (23,778) | +11.6 | | Administrative and other expenses | (152,887) | (160,639) | -4.8 | | Finance costs | (18,471) | (15,972) | +15.6 | | Share of loss of an associate | (1,271) | (17) | +7352.9 | | Profit before taxation | 100,182 | 130,039 | -23.0 | | Income tax | (15,720) | (15,327) | +2.6 | | Profit for the year | 84,462 | 114,712 | -26.4 | | Attributable to equity shareholders of the Company | 85,328 | 114,808 | -25.7 | | Non-controlling interests | (866) | (96) | +802.1 | - Gross profit margin decreased from 34% in 2017 to 31% in 2018[48] Condensed Consolidated Statement of Financial Position As of year-end 2018, total assets slightly decreased, with a significant reduction in non-current liabilities but an increase in current liabilities Condensed Consolidated Statement of Financial Position (as of December 31) | Indicator | 2018 (HK$ '000) | 2017 (HK$ '000) | | :--- | :--- | :--- | | Total non-current assets | 828,700 | 883,043 | | Total current assets | 1,426,636 | 1,447,979 | | Total current liabilities | 550,870 | 438,977 | | Net current assets | 875,766 | 1,009,002 | | Total non-current liabilities | 11,601 | 190,770 | | Total equity | 1,692,865 | 1,701,275 | - Total non-current liabilities decreased significantly from HK$190,770 thousand in 2017 to HK$11,601 thousand in 2018[50] Ratio Analysis In 2018, key liquidity, profitability, and operational efficiency ratios deteriorated, reflecting increased business challenges Key Statistics (as of December 31) | Indicator | 2018 | 2017 | | :--- | :--- | :--- | | Current ratio | 2.59 | 3.30 | | Dividend payout ratio | 11.2% | 34.9% | | Gross profit margin | 30.8% | 34.4% | | Net profit margin | 9.0% | 12.2% | | Average trade receivables turnover days | 103 Days | 94 Days | | Average inventories turnover days | 143 Days | 122 Days | | Net asset value per share (HK$) | 1.61 | 1.62 | | Dividend per share | 0.9 HK cents | 3.8 HK cents | | Earnings per share — Basic | 8.11 HK cents | 10.91 HK cents | - The current ratio declined from 3.30 in 2017 to 2.59 in 2018, and the dividend payout ratio dropped sharply from 34.9% to 11.2%[51] - Both gross and net profit margins decreased, while turnover days for receivables and inventories increased, indicating lower operational efficiency[51] Geographical Segment Ratios In 2018, the sales contribution from Mainland China, Macau, and Hong Kong increased, while North America's share declined - In 2018, sales from Mainland China, Macau, and Hong Kong accounted for 31%, North America for 25%, Europe for 23%, Thailand for 12%, Malaysia for 6%, and other regions for 3%[55] - Compared to 2017, the sales proportion from Mainland China, Macau, and Hong Kong increased, while the share from North America decreased[55] Cash and Cash Equivalents, Total Debt, and Equity As of year-end 2018, both cash and total debt decreased, while total equity remained relatively stable - In 2018, cash and cash equivalents stood at HK$840,181 thousand, total debt was HK$436,775 thousand, and equity was HK$1,692,865 thousand[58][50] - Both cash and cash equivalents and total debt decreased compared to 2017[58][50] Chairman's Statement Business Review In 2018, sales grew slightly by 0.2% to HK$943 million amid trade frictions, with automotive parts growth offsetting HDD parts decline - The Group's 2018 sales were HK$943,476,000, a slight increase of 0.2% from 2017, primarily impacted by US-China trade friction[60] - The automotive parts business grew by 6.2% to HK$465,070,000, mitigating trade impacts by shifting sales from North America (down from 29.3% to 24.9%) to China (up from 27.5% to 31.1%)[61] - Hydraulic equipment parts sales increased by 3.2% to HK$263,476,000, helping to offset the 7.3% decline in HDD parts sales (which totaled HK$165,964,000)[62] - Gross profit margin decreased by 3.6 percentage points to 30.8%, and net profit attributable to equity shareholders fell by 25.7% to HK$85,328,000[62] Prospects The Group will focus on the automotive parts business, particularly in the new energy vehicle market, and enhance automation to improve efficiency - The Group will steadily develop its automotive parts business, targeting orders from Chinese automakers and focusing on the new energy vehicle sector[64] - Automation will be enhanced to improve production efficiency, especially for high-volume, labor-intensive products, with continued improvements to in-house developed robots[64] - R&D investment reached HK$22,942,000 in 2018, an 83.3% year-on-year increase, and a strategic cooperation agreement was signed with Zhejiang University's South China Institute of Industrial Technology for technology commercialization[65] Management Discussion and Analysis Financial Review In 2018, total sales grew 0.2% to HK$943 million, driven by automotive and hydraulic parts, while profitability was impacted by rising costs - The Group's overall sales for 2018 amounted to HK$943,476,000, a year-on-year increase of 0.2%[70] Sales Breakdown by Business Segment in 2018 | Business Segment | 2018 (HK$ '000) | % of Total | 2017 (HK$ '000) | % of Total | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Automotive parts | 465,070 | 49.3 | 438,009 | 46.5 | +6.2 | | Hydraulic equipment parts | 263,476 | 27.9 | 255,326 | 27.1 | +3.2 | | HDD parts | 165,964 | 17.6 | 179,018 | 19.0 | –7.3 | | Others | 48,966 | 5.2 | 69,085 | 7.4 | –29.1 | | Total | 943,476 | 100.0 | 941,438 | 100.0 | +0.2 | - Distribution costs increased by HK$2,757,000, mainly due to US tariffs, while administrative expenses decreased by 4.8% due to foreign exchange gains, though offset by higher salaries and R&D investment[74] - Finance costs rose by HK$2,499,000 to HK$18,471,000, primarily due to higher interest rates on bank loans[74] Pledge of Group's Assets As of year-end 2018, the Group's total borrowings decreased to HK$437 million, secured by corporate guarantees without other asset pledges - As at 31 December 2018, the Group's total borrowings amounted to HK$436,775,000, a decrease from HK$504,504,000 in 2017[75] - All borrowings were secured by corporate guarantees from the Company, with no other assets pledged[75] Liquidity, Financial Resources and Financial Ratios The Group's operations are funded by internal cash flow and bank financing, with stable operating cash flow but a slight decrease in net cash - In 2018, cash per share was HK$0.80 (2017: HK$0.87), and net asset value per share was HK$1.61 (2017: HK$1.62)[76] - Net cash inflow from operating activities was HK$180,434,000, remaining stable compared to 2017[76] - Net cash outflow from investing activities decreased from HK$185,836,000 in 2017 to HK$98,544,000 in 2018[76] - Net cash (cash and bank balances less total bank borrowings) was HK$403,406,000, a slight decrease from 2017[76] Currency Risk and Management The Group is exposed to foreign currency risk as revenue is in USD while most expenses are in JPY, RMB, THB, and HKD - The Group is exposed to foreign currency exchange rate fluctuation risks, primarily involving USD (revenue) and JPY, RMB, THB, and HKD (expenses)[77] - Fluctuations in the RMB could particularly have a negative impact on the Group's profitability[77] Human Resources As of year-end 2018, the Group's total number of employees was 2,369, a slight increase of 1.7% from the previous year - As at 31 December 2018, the Group had a total of 2,369 employees, an increase of 40 employees or 1.7% from 2017[80] - The Group has a share option scheme, mandatory provident fund scheme, and local retirement benefit schemes to motivate and reward employees[80] - Employee training is encouraged to enhance skills and personal development, with workshops held to improve work safety knowledge and team spirit[82] Directors and Senior Management Directors The section details the backgrounds and responsibilities of the Group's executive, non-executive, and independent non-executive directors - Mr Zeng Guangsheng serves as Chairman of the Board, CEO, and Executive Director, having joined the Group in 2016 with a Ph.D. in Economics[85] - Mr Wu Kai Ping, an Executive Director, is responsible for the Group's overall financial management and holds Master's degrees in Economics and Business Administration[85] - Ms Zeng Jing is a Non-executive Director and the current CFO of China Baoan Group Asset Management Co, Ltd, with over 21 years of experience[86] - Independent Non-executive Directors Mr Yeung Jue Sheng, Mr Cheung Chun Yue, and Mr Mui Wai Yat possess extensive professional experience in finance, audit, and investment management[91] Senior Management The Group's senior management team includes vice presidents responsible for marketing and sales strategies, and deputy general managers for key departments - Mr Ho Yu Hoi, Vice President, is responsible for overall marketing strategy and daily operations of IPE (Thailand), with over 36 years of experience[94] - Mr Lau Siu Chung, Vice President, is responsible for formulating and implementing sales strategies, with over 22 years of experience in precision parts marketing[94] - Mr Jiang Fei and Mr Lei Ting Yong serve as Deputy General Managers, heading the Heat Treatment Department and the Research and Product Development Department, respectively[94] - Mr Tam Yiu Chung is the Chief Financial Officer and Company Secretary, holding a Master's degree in Professional Accounting[95] Corporate Governance Report Corporate Governance Practices of the Company The Group is committed to maintaining high standards of corporate governance in compliance with the Hong Kong Stock Exchange's code - The Group complies with the Corporate Governance Code in Appendix 14 of the Listing Rules, with the exception of code provision A.2.1 (separation of Chairman and CEO roles)[99] - The Company is committed to reviewing and enhancing its corporate governance practices to meet regulatory requirements and shareholder expectations[100] Board of Directors The Board provides leadership and approves strategic policies, with a diverse composition and a strong attendance record at meetings - The Board is responsible for the overall management and supervision of the Company's business, providing leadership and approving strategic policies to enhance shareholder value[101] - The Board's composition reflects a balance of skills and experience necessary for the business and independent judgment, with all Directors contributing broad business and financial expertise[107] - Mr Zeng Guangsheng serves as both Chairman and CEO, an arrangement the Board believes provides strong and consistent leadership beneficial to the Group[112] - Board members actively participate in continuous professional development through internal briefings, reading materials, and external training courses[116] - The Company has adopted a code of conduct for directors' securities transactions no less exacting than the Model Code in Appendix 10 of the Listing Rules, with all Directors confirming compliance[117] - The Board held four meetings in 2018 with good attendance from most directors, and the Chairman also met with the independent non-executive directors[123][125] Responsibilities and Delegation The Board oversees overall management and strategic policy approval, while delegating daily operational responsibilities to senior management - The Board is responsible for the overall management and supervision of the Company's business, with its main role being to provide leadership and approve strategic policies to enhance shareholder value[101] - The Board retains decision-making authority on all major matters, including the approval and monitoring of all policy matters, overall strategies, budgets, and internal control systems[101] - The Board delegates certain responsibilities to senior management, including implementing Board decisions, coordinating daily operations, and overseeing production and business planning[102] Composition of the Board The Board's composition reflects a balance of skills and experience, meeting Listing Rules requirements for independent directors - The Board consists of Mr Zeng Guangsheng (Chairman and CEO), Mr Wu Kai Ping (Executive Director), Ms Zeng Jing (Non-executive Director), and Mr Yeung Jue Sheng, Mr Cheung Chun Yue, and Mr Mui Wai Yat (Independent Non-executive Directors)[105] - There are no relationships among the Board members, and its composition reflects the balance of skills and experience required for the Group's business needs and independent judgment[107] - The Board complies with Listing Rules regarding the minimum number of independent non-executive directors (at least three, representing one-third) and the requirement for at least one to have appropriate professional qualifications[107] Chairman and Chief Executive Officer Mr Zeng Guangsheng holds the dual roles of Chairman and CEO, which the Board believes provides strong and consistent leadership - Following the resignation of Mr Chui Siu On as CEO on 29 October 2018, Mr Zeng Guangsheng has served as both Chairman of the Board and CEO[112] - The Board believes that combining these two roles allows Mr Zeng to provide strong and consistent leadership, enabling more efficient planning, decision-making, and implementation of the Group's long-term business strategy[112] Appointment and Re-election of Directors Independent non-executive directors are appointed for one-year terms, and all directors are subject to retirement by rotation every three years - Each independent non-executive director is appointed for a term of approximately one year, until the next annual general meeting[113] - According to the Company's Articles of Association, all directors must retire by rotation at least once every three years, and newly appointed directors must be re-elected at the next general meeting[113] - Mr Mui Wai Yat, Mr Yeung Jue Sheng, and Mr Cheung Chun Yue will retire by rotation and be eligible for re-election at the 2019 Annual General Meeting[113] Directors' Training and Continuous Development The company provides comprehensive induction for new directors and supports ongoing professional development for all board members - Newly appointed directors receive a comprehensive induction to understand the Group's business, operations, and their duties under the Listing Rules[116] - Directors are required to participate in continuous professional development, with the Company arranging internal briefings, providing reading materials, and encouraging participation in relevant training courses at the Company's expense[116] - In 2018, all directors participated in briefings and received materials on Listing Rules amendments, with some also attending other professional training[116] Model Code for Securities Transactions The company has adopted a strict code for directors' securities transactions, and all directors have confirmed compliance - The Company has adopted a code of conduct for directors' securities transactions no less exacting than the Model Code in Appendix 10 of the Listing Rules, and all directors have confirmed compliance[117] - The Company has established written guidelines for employees who may have access to inside information, with no instances of non-compliance found[117] - The Company informs directors and relevant employees of restricted periods for securities trading in advance[118] Corporate Governance Functions The Board is responsible for performing the corporate governance functions as set out in the Corporate Governance Code - The Board is responsible for performing the functions set out in code provision D.3.1 of the Corporate Governance Code[119] - In 2018, the Board reviewed the Company's corporate governance policies, director and senior management training, legal and regulatory compliance, code of conduct adherence, and disclosures in the Corporate Governance Report[119] Attendance Record of Meetings of Directors and Committee Members In 2018, the Board held four meetings with a strong attendance record from directors and committee members Attendance Record of Director and Committee Meetings in 2018 | Director's Name | Board of Directors | Remuneration Committee | Nomination Committee | Audit Committee | Annual General Meeting | | :--- | :--- | :--- | :--- | :--- | :--- | | Mr Zeng Guangsheng | 4/4 | 1/1 | 1/1 | – | 1/1 | | Mr Chui Siu On | 2/3 | 1/1 | 1/1 | – | 0/1 | | Mr Lau Siu Chung | 3/3 | – | – | – | 1/1 | | Ms Zhao Dezhen | 3/3 | – | – | – | 1/1 | | Mr Wu Kai Ping | 4/4 | – | – | – | 1/1 | | Ms Zeng Jing | 4/4 | – | – | – | 1/1 | | Dr Zheng Yue | 3/3 | 1/1 | 1/1 | 2/2 | 0/1 | | Mr Yeung Jue Sheng | 4/4 | 1/1 | 1/1 | 2/2 | 1/1 | | Mr Cheung Chun Yue | 4/4 | 1/1 | 1/1 | 2/2 | 1/1 | | Mr Mui Wai Yat | 1/1 | – | – | – | – | - The Chairman of the Board held a meeting with the independent non-executive directors during the year without the presence of other directors[125] Board Committees The Board has established Executive, Remuneration, Audit, and Nomination Committees to oversee specific areas of company affairs - The Board has established an Executive Committee, a Remuneration Committee, an Audit Committee, and a Nomination Committee to oversee specific areas of the Company's affairs[128] - All Board committees have specific written terms of reference and are required to report their decisions or recommendations to the Board[128] Executive Committee The Executive Committee oversees the implementation of strategic plans and makes decisions on daily management and operational matters - The Executive Committee is composed of Mr Zeng Guangsheng (Chairman) and Mr Wu Kai Ping[129] - Its primary responsibilities include overseeing the implementation of the Group's strategic plans, the operations of all business units, and making decisions on daily management and operational matters[129] Remuneration Committee The Remuneration Committee recommends remuneration policies for directors and senior management to the Board, ensuring transparency - The Remuneration Committee consists of three independent non-executive directors (chaired by Mr Cheung Chun Yue), Mr Yeung Jue Sheng, Mr Mui Wai Yat, and one executive director, Mr Zeng Guangsheng, with a majority of members being independent[130] - Its main duty is to make recommendations to the Board on the remuneration packages, policies, and structure for directors and senior management, ensuring transparency in the process[130] - In 2018, the committee reviewed the Group's remuneration policy and packages for directors and senior officers, and recommended the remuneration for the newly appointed director, Mr Mui Wai Yat[131] Annual Remuneration of Senior Management in 2018 | Remuneration Range | Number of Individuals | | :--- | :--- | | HK$0 to HK$1,000,000 | 2 | | HK$1,000,001 to HK$2,000,000 | 1 | | HK$2,000,01 to HK$3,000,000 | 1 | | HK$3,000,001 to HK$4,000,000 | 2 | Audit Committee The Audit Committee reviews financial statements, monitors the external auditor's independence, and oversees risk management and internal controls - The Audit Committee is composed of three independent non-executive directors (chaired by Mr Yeung Jue Sheng), Mr Cheung Chun Yue, and Mr Mui Wai Yat, with at least one member possessing appropriate professional qualifications in accounting and financial management[137] - Its primary duties include reviewing financial statements, monitoring the independence and effectiveness of the external auditor, recommending the auditor's appointment, and reviewing the Company's financial reporting, internal control, and risk management systems[138] - In 2018, the committee reviewed and discussed the annual and interim financial results, the scope of audit work, auditor's fees, and the risk management and internal control systems[139] Nomination Committee The Nomination Committee reviews the Board's composition, develops nomination procedures, and assesses the independence of directors - The Nomination Committee consists of one executive director, Mr Zeng Guangsheng (Chairman), and three independent non-executive directors, Mr Yeung Jue Sheng, Mr Cheung Chun Yue, and Mr Mui Wai Yat, with a majority of members being independent[142] - Its main responsibilities include reviewing the Board's composition, establishing procedures for the nomination and appointment of directors, and assessing the independence of independent non-executive directors[142] - The Company has adopted a board diversity policy, reviewing the Board's structure, size, and composition annually, considering factors such as gender, age, cultural background, professional qualifications, skills, and experience[142] - The Company has also adopted a director nomination policy with selection criteria and procedures to ensure a balance of skills, experience, and diversity on the Board[143] - In 2018, the committee reviewed the Board's structure, recommended the re-election of directors, assessed the independence of INEDs, and recommended the appointment of Mr Mui Wai Yat as an independent non-executive director[147] Directors' Responsibility for Financial Reporting The Board is responsible for preparing the annual financial statements and ensuring all disclosures are balanced, clear, and understandable - The Directors acknowledge their responsibility for preparing the Company's financial statements for the year ended 31 December 2018[148] - The Board is responsible for presenting a balanced, clear, and understandable assessment in its annual and interim reports, inside information announcements, and other disclosures[148] - The Directors are not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the Company's ability to continue as a going concern[149] Risk Management and Internal Control The Board oversees the establishment and maintenance of an effective risk management and internal control system, supported by an internal audit function - The Board is responsible for evaluating and determining the nature and extent of risks the Group is willing to take in achieving its strategic objectives and ensuring an appropriate and effective risk management and internal control system is established and maintained[152] - The Group's procedures for risk management and internal control include risk identification, assessment, monitoring, and reporting[154][155][156][157] - The Group has an internal audit function and has appointed a professional consulting firm to assist in reviewing the effectiveness of its risk management and internal controls[157] - The Board has reviewed the effectiveness of the risk management and internal control systems and considers them to be effective and adequate, with ongoing improvements and monitoring[157] External Auditor and Auditor's Remuneration KPMG served as the external auditor for 2018, with total fees for audit and non-audit services amounting to HK$2.5 million Analysis of External Auditor's Remuneration in 2018 | Service Type | Fees Paid/Payable (HK$ '000) | | :--- | :--- | | Audit services | 1,800 | | Non-audit services (tax services and others) | 699 | | Total | 2,499 | Company Secretary The Company Secretary, Mr Tam Yiu Chung, undertook over 15 hours of professional training during the 2018 financial year - The Company Secretary, Mr Tam Yiu Chung, participated in no less than 15 hours of relevant professional training during the 2018 financial year[163] Communication with Shareholders and Investors The company maintains effective communication with shareholders through its website, regular dialogue, and general meetings - The Company's website (www.ipegroup.com) serves as a communication platform for shareholders and investors, providing information on business development, financial data, and corporate governance practices[171] - Designated senior management maintains regular dialogue with institutional investors and analysts to keep them informed of the Company's latest developments[171] - General meetings provide an opportunity for communication between the Board and shareholders, where Board members and senior officers answer questions[171] Policies on Shareholders The company has established a shareholder communication policy and a dividend policy to address shareholder interests and returns - The Company has established a shareholder communication policy to ensure that shareholders' opinions and concerns are properly handled[172] - The Company has adopted a dividend policy, under which the Board may declare dividends based on financial conditions and policy terms, with final dividends subject to shareholder approval[172] Shareholders' Rights The company protects shareholder rights by proposing separate resolutions at general meetings and allowing shareholders to convene meetings - The Company proposes separate resolutions for each substantial issue, including the election of individual directors, for shareholders' consideration and voting at general meetings[176] - Shareholders holding not less than one-tenth of the paid-up capital have the right to request the Board or Company Secretary to convene an extraordinary general meeting[176] - Shareholders intending to propose a person for election as a director must issue a written notice with relevant information[176] - All resolutions proposed at general meetings (except for purely procedural or administrative matters) are decided by poll on a one-share-one-vote basis, with results published on the websites of the Stock Exchange and the Company[177] Environmental, Social and Governance Report Scope and Reporting Period This third ESG report covers the 2018 calendar year, focusing on the environmental and social performance of three key operating sites - This is the third Environmental, Social and Governance Report of IPE Group Limited, covering the period from 1 January to 31 December 2018[180] - The report's scope includes the manufacturing and sales offices in Guangzhou Xinhao and Dongguan Koda in China, and IPE (Thailand), which together account for over 90% of the Group's total revenue[180][181] Stakeholder Engagement and Materiality The Group engages with key stakeholders to identify material ESG issues, with social topics like anti-corruption and safety being top priorities - The Group communicates with key stakeholders, including board members, managers, supervisors, frontline staff, customers, and suppliers, through daily interactions to understand their needs and concerns[182] - A stakeholder survey identified the most important issues as anti-corruption, occupational health and safety, customer privacy, labor practices, and environmental protection measures[182] - Many stakeholders emphasized that ensuring environmental protection and strengthening community relations are crucial for the Group's long-term success[184] Stakeholders' Feedback The Group welcomes feedback from stakeholders on its ESG approach and performance, which can be submitted via mail - The Group welcomes feedback from stakeholders on its ESG approach and performance, which can be submitted by mail to its Hong Kong office[185] The Group's Sustainability Mission and Vision The Group aims to balance stakeholder profit, responsibility, and satisfaction through management excellence and continuous certification - The Group is committed to achieving an optimal balance to bring maximum profit, responsibility, and satisfaction to its stakeholders[186] - It continuously obtains and renews system certifications such as IATF16949:2016, AS9100:2016, ISO9001:2015, and ISO14001:2004[186] - In 2018, Dongguan Koda obtained IATF16949 and ISO 14001 certifications, and Guangzhou Xinhao was recognized as a High-tech Enterprise[186] - Obtaining the Authorized Economic Operator (AEO) certification helps improve processes and standardize internal procedures for enhanced efficiency and reliability[186] A. Environment The Group adheres to environmental laws and implements various energy and resource conservation programs, with no major violations in 2018 - The Group strictly complies with national and local laws and regulations on environmental protection and pollution control[189] - No material non-compliance with relevant laws and regulations regarding emissions, discharges, and waste was identified in 2018[190] - Various energy and resource conservation programs have been implemented, such as maintaining air conditioning temperatures at no lower than 26°C and turning off idle lighting[189] A1. Emissions The Group's main emissions are monitored and controlled, with total GHG emissions in 2018 amounting to 39,875 tonnes of CO2e - The main sources of air emissions are particulates from production processes and cooking fumes from canteens, both of which are monitored and comply with emission limits[191] Annual Greenhouse Gas Emissions in 2018 | GHG Emission Scope | Source of Emission | GHG Emissions (tonnes of CO2e) | Sub-total (tonnes of CO2e) | Total GHG Emissions (%) | | :--- | :--- | :--- | :--- | :--- | | Scope 1 Direct Emissions | Fuel combustion from stationary sources | 462.51 | 894.66 | 2% | | | Fuel combustion from mobile sources | 408.91 | | | | Scope 2 Energy Indirect Emissions | Purchased electricity | 38,587.03 | 38,592.42 | 97% | | | Purchased town gas | 5.39 | | | | Scope 3 Other Indirect Emissions | Electricity used for fresh water processing by government departments/third parties | 218.73 | 387.78 | 1% | | | Electricity used for sewage processing by government departments/third parties | 108.61 | | | | | Business travel by employees | 14.25 | | | | | Paper waste disposed at landfills | 46.19 | | | | Total | | 39,875 | | 100% | - In 2018, a total of 100.37 tonnes of hazardous waste was generated, primarily engine oil, chemical pollutants, and sludge, all managed in compliance with legal requirements[206] - A total of 164.83 tonnes of non-hazardous waste (excluding office paper) was generated in 2018, mainly industrial and domestic waste, with recycling encouraged[210] - Measures to reduce emissions include using LPG instead of gasoline, optimizing vehicle dispatch, and prioritizing fuel-efficient, low-emission vehicles[214] - Waste reduction is achieved through waste management procedures, recycling bins, reuse of cutting oil, and paper conservation policies[215][216] A2. Use of Resources In 2018, the Group consumed 61.7 million kWh of electricity and 543,437 cubic meters of water, implementing various efficiency initiatives Annual Direct Energy Consumption and Intensity (Electricity) in 2018 | Location | Consumption (kWh) | | :--- | :--- | | Guangzhou Xinhao | 48,175,251 | | Dongguan Koda | 8,964,120 | | IPE (Thailand) | 4,527,280 | | The Group Total | 61,666,651 | - Total water consumption in 2018 was 543,437 cubic meters, sourced from municipal tap water, with no issues in sourcing water[223] - Energy efficiency programs were implemented across operating sites, including using LED lighting, optimizing transformers, and utilizing waste heat from air compressors[226][230][231] - Water conservation policies include efficient water use and wastewater recycling, with regular equipment checks for leaks[239][241][242][243] Annual Packaging Material Usage in 2018 | Packaging Material Type | Guangzhou Xinhao (kg) | Dongguan Koda (kg) | IPE (Thailand) (kg) | | :--- | :--- | :--- | :--- | | Corrugated paperboard | 105,800 | 10,712 | 2,922 | | Plastic film and bags | 40,600 | 22,670 | 4,673 | | Total packaging materials | 146,400 | 33,382 | 7,595 | A3. The Environment and Natural Resources The Group's operations have no significant adverse environmental impact, with continuous efforts to reduce resource consumption - The Group's business operations have not had a significant adverse impact on the environment[247] - The main environmental impact comes from the consumption of purchased electricity, and the Group has adopted policies to conserve electricity, water, and paper to mitigate negative effects[247] B. Social The Group complies with labor laws, prioritizes employee health and safety, invests in training, and maintains ethical operating practices - The Group strictly complies with national and local laws and regulations regarding employment and labor practices[250] - No material non-compliance with laws regarding compensation, dismissal, recruitment, working hours, equal opportunity, or other benefits was identified in 2018[250] - The Group places great importance on providing a safe and accident-free working environment, supplying personal protective equipment and monitoring workplace conditions[271] - Significant resources have been invested in upgrading the supplier management system, with environmental and social performance being key evaluation criteria[284] - Integrity, honesty, and fairness are core values, with strict measures against bribery, fraud, and other illicit activities[308] - The Group encourages employee volunteerism and collaborates with think tanks to create training bases for students and researchers[310] 1. Employment and Labour Practices The Group adheres to labor laws, provides competitive compensation, and focuses on employee health, safety, and professional development - The Group has formally established a trade union and encourages all eligible employees to join for collective bargaining[251] - The dismissal policy was updated to enhance internal security management and standardize termination procedures[254] - All employees are provided with equal opportunities without discrimination based on gender, nationality, race, religion, age, marital status, or disability[254] Employment Profile by Type, Category, Contract, Age, Gender, and Region in 2018 | Category | Guangzhou Xinhao | Dongguan Koda | IPE (Thailand) | Total | | :--- | :--- | :--- | :--- | :--- | | Total employees | 1,608 | 360 | 161 | 2,129 | | Full-time | 1,608 | 360 | 161 | 2,129 | | Senior management | 7 | 1 | 1 | 9 | | Middle management | 48 | 8 | 4 | 60 | | Frontline and other staff | 1,553 | 351 | 156 | 2,060 | | Below 30 years old | 486 | 87 | 30 | 603 | | >=30 to <50 years old | 906 | 220 | 128 | 1,254 | | >=50 years old | 216 | 53 | 3 | 272 | | Male | 820 | 184 | 37 | 1,041 | | Female | 788 | 176 | 124 | 1,088 | | Mainland China | 1,604 | 360 | 0 | 1,964 | | Thailand | 0 | 0 | 160 | 160 | | Others | 4 | 0 | 1 | 5 | | Indefinite or permanent contract | 287 | 73 | 160 | 520 | | Fixed-term contract | 1,321 | 287 | 1 | 1,609 | - The overall employee turnover rate in 2018 was 57%, with most departures being frontline staff; the turnover rate at IPE (Thailand) was significantly lower than in China[264] Total Employee Turnover Rate by Employment Type, Age, Gender, and Region in 2018 | Category | Turnover Rate (%) | | :--- | :--- | | Senior management | 11 | | Middle management | 5 | | Frontline and other staff | 59 | | Below 30 years old | 115 | | >=30 to <50 years old | 39 | | >=50 years old | 9 | | Male | 74 | | Female | 40 | | Mainland China | 61 | | Thailand | 5 | | Others | 20 | - There were no work-related fatalities in 2018, with a total of 285 lost days due to 35 injury cases[274] - In 2018, 1,350 employees completed 7,362.5 hours of training, averaging 3.46 hours per employee[277] - The recruitment process includes background checks to ensure compliance with legal and internal regulations, with no cases of child or forced labor found[281] 2. Operating Practices The Group maintains robust operating practices, including stringent supply chain management, quality control, and anti-corruption measures - The Group has invested heavily in upgrading its supplier management system, obtaining Authorized Economic Operator (AEO) certification and establishing a supplier and procurement management procedure[284] - Environmental and social performance, including discharge permits and ISO 14001 certification, are key considerations when evaluating suppliers[284] - In 2018, the Group engaged 726 suppliers, with 546 from Mainland China and 97 from Thailand[293] - Product quality is managed through a strict quality assurance/control process, including incoming, first-piece, in-process, and finished goods inspections[297] - The product recall percentage at Guangzhou Xinhao decreased in 2018, with the monetary value of losses from recalls reduced by 25%[300] - An information security management system is in place to protect data through technical and administrative controls, with regular backups and accountability for data breaches[304] - Intellectual property is protected through R&D management, confidentiality agreements, and patent applications, with 16 utility model patents, 4 design patents, and 2 invention patents obtained in 2018[305] - The Group upholds integrity and fairness as core values, conducting background checks on employees and prohibiting illicit activities, with no violations related to bribery or fraud found in 2018[308] 3. Community The Group encourages employee volunteerism and engages in community investment through donations and industry-academia collaborations - The Group encourages employees to participate in a variety of volunteer activities[310] - Through its industry-academia-research management system, the Group collaborates with think tanks and has established its R&D center as an off-campus training base for students and researchers[310] - In 2018, the Group participated in various community investment activities, including donations for elderly care, children's day events, support for AIDS patients, and sponsoring technical competitions[311] Appendix: Environmental, Social and Governance Index This appendix provides an index cross-referencing the ESG report's content with the Hong Kong Stock Exchange's reporting guide - The appendix provides an index for the ESG report, aligning disclosures with the Hong Kong Stock Exchange's reporting guide by referencing page numbers and tables[314] - The index covers environmental aspects (emissions, resource use), social aspects (employment, health and safety, training, labor standards), and operational practices (supply chain, product responsibility, anti-corruption, community investment)[314][316][319][321][324][326] Report of the Directors Principal Activities The Company's principal activity is investment holding, with subsidiaries primarily engaged in manufacturing and selling precision parts - The Company's principal activity is investment holding, and details of its subsidiaries' principal activities are set out in note 12 to the financial statements[329] - There were no significant changes in the nature of the Group's principal activities during the year[329] Results and Dividends The Group's profit for 2018 is detailed in the financial statements, and the Board does not recommend a final dividend - The Company paid an interim dividend of 0.9 HK cents per share on 21 September 2018 (2017: 2.2 HK cents per share)[330] - The Board does not recommend the payment of a final dividend for the year ended 31 December 2018 (2017: 1.6 HK cents per share)[330] Closure of Register of Members The register of members will be closed from May 15 to May 20, 2019, to determine eligibility for the Annual General Meeting - The register of members of the Company will be closed from Wednesday, 15 May 2019 to Monday, 20 May 2019 (both days inclusive)[331] - To be eligible to attend and vote at the AGM on 20 May 2019, all transfer documents must be lodged with Tricor Investor Services Limited by 4:30 p.m. on Tuesday, 14 May 2019[331] Business Review This review covers the Group's performance, risks, future developments, and commitment to ESG principles and stakeholder relations - The business review covers the principal risks and uncertainties facing the Group, an analysis of its performance using financial key performance indicators, and a discussion of significant events and future developments[332] - The Group strictly complies with applicable environmental and social regulations, laws, and standards[332] - Technological advancements, particularly industrial robots and automation, are expected to enhance operational efficiency, reduce resource consumption, and prevent work-related injuries[332] - The Group will continue to seek improvements in its ESG performance and maintain close communication with stakeholders[332] Summary of Financial Information A summary of the Group's results, assets, liabilities, and non-controlling interests for the last five financial years is provided - A summary of the published results, assets, liabilities, and non-controlling interests of the Group for the last five financial years is set out on pages 8 to 11 of the annual report[334] - This summary does not form part of the audited financial statements[334] Bank Loans and Other Borrowings Details of the Group's bank loans and other borrowings are disclosed in note 18 to the financial statements - Particulars of bank loans and other borrowings of the Group are set out in note 18 to the financial statements[335] Properties Details of the Group's principal properties and property interests are provided on page 129 of the annual report - Particulars of the principal properties and property interests of the Group are set out on page 129 of this annual report[336] Share Capital and Share Options Details of movements in the Company's share options and share capital during the year are disclosed in the financial statements - Details of movements in the share options and share capital of the Company during the year are set out in notes 19 and 21 to the financial statements, respectively[337] Equity-linked Agreements Details of the Company's equity-linked agreements are disclosed in the "Share Option Scheme" section and in the financial statements - Details of the equity-linked agreements entered into by the Company are disclosed in the "Share Option Scheme" section of this report and in note 19 to the financial statements[338] Pre-emptive Rights There are no provisions for pre-emptive rights requiring a pro-rata issue of new shares to existing shareholders - There are no provisions for pre-emptive rights under the Company's Articles of Association or the laws of the Cayman Islands which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders[339] Purchase, Redemption or Sale of Listed Securities of the Company Neither the Company nor any of its subsidiaries purchased, redeemed, or sold any of the Company's listed securities during the year - Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company's listed securities during the year[340] Distributable Reserves As of year-end 2018, the Company's distributable reserves amounted to HK$833 million, subject to solvency conditions - As at 31 December 2018, the Company's reserves available for distribution, calculated in accordance with the Companies Law of the Cayman Islands, amounted to HK$833,205,000[341] - The share premium and contributed surplus, totaling HK$462,243,000, are available for distribution, provided the Company is able to pay its debts as they fall due in the ordinary course of business[341] Charitable Donations The Group's charitable donations in 2018 totaled HK$1.04 million, a significant increase from the previous year - Charitable donations made by the Group during the year amounted to HK$1,042,000 (2017: HK$140,000)[342] Major Customers and Suppliers In 2018, the top five customers and suppliers accounted for 30.1% of sales and 29.6% of purchases, respectively - Sales to the Group's five largest customers accounted for 30.1% of the total sales for the year, with the largest customer accounting for 9.1%[344] - Purchases from the Group's five largest suppliers accounted for 29.6% of the total purchases for the year, with the largest supplier accounting for 8.0%[344] - None of the Directors, their close associates, or any shareholder holding more than 5% of the Company's issued shares had any beneficial interest in the Group's five largest customers and suppliers[344] Management Contracts No contracts concerning the management and administration of the Group's business were entered into or existed during the year - No contracts concerning the management and administration of the whole or any substantial part of the business of the Group were entered into or existed during the year[345] Directors This section lists the directors who served during 2018 and notes changes in board composition and upcoming re-elections - In 2018, Mr Chui Siu On, Mr Lau Siu Chung, and Ms Zhao Dezhen resigned as Executive Directors, Dr Zheng Yue resigned as an Independent Non-executive Director, and Mr Mui Wai Yat was appointed as an Independent Non-executive Director[346] - Mr Yeung Jue Sheng, Mr Cheung Chun Yue, and Mr Mui Wai Yat will retire by rotation and be eligible for re-election at the 2019 Annual General Meeting[346] - The Company has received annual confirmations of independence from Mr Yeung Jue Sheng, Mr Cheung Chun Yue, and Mr Mui Wai Yat and considers them to be independent[346] Biographical Details of Directors and Senior Management Biographical details of the Company's directors and the Group's senior management are provided on pages 17 to 19 of the annual report - Biographical details of the directors of the Company and senior management of the Group are set out on pages 17 to 19 of the annual report[348] Directors' Service Contracts Executive directors have three-year service agreements, while independent non-executive directors have one-year appointments - Each of the executive Directors has entered into a service agreement with the Company for a term of three years[349] - Each of the independent non-executive Directors has been appointed for a term of approximately one year[350] - None of the Directors proposed for re-election at the 2019 Annual General Meeting has a service contract with the Company which is not determinable within one year without payment of compensation[351] Directors' Remuneration Directors' fees are subject to shareholder approval, while other remuneration is determined by the Board based on performance - Directors' fees are subject to approval by the shareholders at the general meeting[352] - Other emoluments are determined by the Board of Directors with reference to the Directors' duties, responsibilities, and performance, as well as the Group's results[352] Directors' Interests in Transactions, Arrangements or Contracts No director had a material interest in any significant transaction, arrangement, or contract entered into by the Group during the year - No transaction, arrangement or contract of significance to the business of the Group to which the Company's holding company or any of its subsidiaries was a party and in which a Director or a Director's connected entity had a material interest, whether directly or indirectly, subsisted during the year[353] Directors' Indemnity A permitted indemnity provision for the benefit of the Company's directors was in force throughout the year - A permitted indemnity provision (as defined in the Hong Kong Companies Ordinance) for the benefit of the Directors of the Company is currently in force and was in force throughout the year[354] Directors' and Chief Executive's Interests and Short Positions in Shares and Underlying Shares As of year-end 2018, several directors held interests in the Company's share options and in the ordinary shares of its associated corporation Directors' Long Positions in Underlying Shares of the Company as at 31 December 2018 (Physically settled unlisted equity derivatives) | Name of Director | Capacity and nature of interest | Number of underlying shares in respect of share options granted | Percentage of the Company's issued share capital (%) | | :--- | :--- | :--- | :--- | | Mr Zeng Guangsheng | Direct beneficial owner | 22,000,000 | 2.09 | | Mr Wu Kai Ping | Direct beneficial owner | 10,000,000 | 0.95 | | Ms Zeng Jing | Direct beneficial owner | 8,000,000 | 0.76 | Directors' Long Positions in Ordinary Shares of Associated Corporation as at 31 December 2018 (China Baoan Group Co, Ltd) | Name of Director | Capacity and nature of interest | Number of ordinary shares in China Baoan Group Co, Ltd | Percentage of the issued share capital of China Baoan Group Co, Ltd (%) | | :--- | :--- | :--- | :--- | | Mr Zeng Guangsheng | Direct beneficial owner | 560,755 | 0.03 | | Ms Zeng Jing | Direct beneficial owner | 8,518,819 | 0.40 | - Save as disclosed above, as at 31 December 2018, none of the other Directors or the chief executive had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations that were required to be recorded[358] Share Option Scheme The Company's share option scheme aims to reward eligible participants, with 42 million options outstanding as of year-end 2018 - The Company has a share option scheme to provide incentives and rewards to eligible participants for their contributions to the Group's success[360] Movements in Share Options in 2018 | Name or category of participant | At 1 January 2018 | Granted during the year | Exercised during the year | Lapsed during the year | Forfeited/Cancelled during the year | At 31 December 2018 | Date of grant of options | Exercise period of options | Exercise price of options (per Share HK$) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Mr Zeng Guangsheng | 22,000,000 | – | – | – | – | 22,000,000 | 06-06-17 | 01-09-18 to 31-08-22 | 2.0200 | | Mr Chui Siu On | 2,000,000 | – | – | – | – | 2,000,000 | 06-06-17 | 01-09-18 to 31-08-22 | 2.0200 | | Mr Lau Siu Chung | 2,000,000 | – | – | (2,000,000) | – | – | 06-06-17 | 01-09-18 to 31-08-22 | 2.0200 | | Ms Zhao Dezhen | 2,000,000 | – | – | (2,000,000) | – | – | 06-06-17 | 01-09-18 to 31-08-22 | 2.0200 | | Mr Wu Kai Ping | 10,000,000 | – | – | – | – | 10,000,000 | 06-06-17 | 01-09-18 to 31-08-22 | 2.0200 | | Ms Zeng Jing | 8,000,000 | – | – | – | – | 8,000,000 | 06-06-17 | 01-09-18 to 31-08-22 | 2.0200 | | Total for Directors | 46,000,000 | – | – | (4,000,000) | – | 42,000,000 | | | | | Total for senior management members and other employees | 4,000,000 | – | – | (4,000,000) | – | – | 06-06-17 | 01-09-18 to 31-08-22 | 2.0200 | | T