Tricker: Corporate Governance 3e
Additional case studies
ABC International Ltd.
ABC International Ltd. was incorporated in 1968 as a manufacturer of electrical
components and telephone equipment in Hong Kong. In 1979 ABC entered into a joint
venture with an Australian group in the telecommunications field and opened a factory in
Shenzhen to manufacture components. Subsequently rights were acquired to
manufacture and sell a range of telecommunications equipment in Hong Kong and China.
This proved to be a very successful arrangement and ABC grew substantially in turnover,
profits and employees.
The company was listed on the Hong Kong stock market in 1997.
Business performance and prospects
The company manufactures and markets a range of equipment for large
telecommunication systems, a proprietary telecommunication system for smaller
organisations, and a range of telecommunication devices for the office and home. These
markets include government, military, and industrial customers, as well as retail outlets.
Growth is expected in each of these markets in Hong Kong and China. A mail order facility
through the internet is being designed for direct sales. The business also has the
potential to expand geographical throughout Asia Pacific, but a covenant in their joint
venture agreement with their Australian partner prevents growth elsewhere in the world.
New products developments come from the Australian joint venture partner, who has also
licensed various products, devices, and software from the United States. ABC is currently
considering a strategy to develop a range of its own products and systems.
Competition for the existing range of products is high, except in the military field where
there are various restrictions. Moreover, there are a number of new technologies,
including wireless communication, computer based systems, and telecommunication
systems convergence, that could have strategic implications for ABC. New entrants into
the market could include computer manufacturers, telephone companies, and media
network providers.
ABC imports some specialised electronic components from Australia, Japan, and the
United States, manufactures other equipment and assembles the products and systems in
its Shenzhen factory.
In his annual report to shareholders, the chairman said that:
“We expect the PRC to maintain its prudent approach to stable financial and
monetary policies so as to strengthen and improve the effectiveness of its austerity
measures. Your company will benefit from the growth of infra-structural investment
at government and industry level and from the increasing spending power of
consumers”
A recent report in the financial press said that:
“The shares of ABC International raced up yesterday with a bullish report from
Salmon, Smith Barney. The company’s recent announcement, of its latest range of
telecommunication products, supports this confidence. Growing optimism on
© Bob Tricker, 2015. All rights reserved.
Tricker: Corporate Governance 3e
Additional case studies
consumer spending and booming sales in electronic products in both the office and
home markets also fuelled the enthusiasm. The company’s earning prospects
seem bright and it will also benefit from lower costs on imported products due to the
weak Japanese yen and the economic slowdown in the US.”
Financial position
In the latest published accounts the chairman of the board reported that turnover in 2004
had exceeded expectations at $237,632,000, but that profits were lower than analysts’
expectations, at $6,693,000, due to one off write-offs of obsolete stocks. The company
did not pay a dividend this year, ploughing back profits into product development and
expanding production capacity.
Employees
ABC International reported 1,280 employees at end 2004: 370 in Hong Kong, 910 in
Shenzhen. Labour productivity had steadily improved in recent years, partly due to
investment in capitally intensive manufacturing and assembly methods.
Shareholdings
According to a Hong Kong financial information company the balance of shareholdings in
ABC at present is:
Goldbarb (a company registered in Bermuda)
39.8%
Transelec (a company incorporated in Australia)
15.6%
Public shareholdings
Institutional investor (1)
8.8%
Other institutional investors (6)
10.2%
Other investors
25.6% 44.6%
100%
The investment report states that Goldbarb is the holding company for the founding
family’s investment in ABC and that Transelec is the Australian joint venture partner.
Transelec is the wholly owned subsidiary of a company incorporated in Delaware in the
United States and listed on the New York Stock Exchange.
Share price history
The floatation in 1997 the ABC share price had risen from 19.80p per share to 63.5p, with
an 11% growth over the year 2004.
Board of directors
The latest annual report states that the board had eight members:
Executive directors
Alan K M. Yau
President
Peter Y. M. Chow
Vice President
Charles K. K. Lau
Director Operations
Johnny Y. K. Ho
Director Finance
Dr. Andy H. S. Woo Director Development
Rebecca H. S. Sun Director Personnel
Independent non-executive directors
Abraham P. K. Lau
© Bob Tricker, 2015. All rights reserved.
Tricker: Corporate Governance 3e
Additional case studies
Frederick W. L. Ho
The company secretary is Rebecca S. S. Cheung
Corporate governance report
The company’s annual report includes the statement that:
“In the opinion of the board, the company has complied with the code of best
practices as set out in Appendix 14 to the Listing Rules throughout the accounting
year covered by this report. An audit committee was established with terms of
reference which deal clearly with its authority and duties in Paragraph 14 of
Appendix 14 of the Listing Rules, including a review of the company’s financial
reporting processes and internal audit systems and the review of audited financial
statements. Two independent non-executive directors have been appointed to the
audit committee and a third member is being actively sought.”
The company’s auditors are Deloitte Touche Tohmatsu, Hong Kong.
© Bob Tricker, 2015. All rights reserved.