Chairman's Statement

Words from our CEO

Dear Shareholders,

Our economy has periodic episodes: it goes up and down and then up again regardless of the size of the country – China, U.S. or Singapore – or the level of economic development. It is commonly acknowledged that the global economy and business environments in China, Singapore and Hong Kong were poor in the past year due to the slowdown of global demand and China GDP, the depreciation of Chinese Yuan (“CNY“), the slump in the retail market in Hong Kong and difficulties in energy and industrial sectors in Singapore. Against this backdrop, for the financial year ended 30 June 2016 (“FY2016“) performance of Karin, revenue dropped 31% to HK$2,237,932,000 and profit attributable to owners of the Company dropped 78% to HK$13,651,000. Having said that, Karin retains profitable and net asset has grown to HK$677,398,000 from HK$666,488,000, while inventories dropped 9% to HK$194,016,000, trade and bills receivables dropped 10% to HK$370,082,000 and selling and distribution costs dropped 22% to HK$64,402,000.

The drastic drop in both revenue and profit triggered Karin’s business strategy of the disposal of the Joint Venture of KCF A Store Limited in the retailing business as well as the implementation of tighter credit control on customers as a means of protecting cash flow and shareholder value. On the other hand, Karin keeps investing to support business growth, and most operations are running on its own properties in Hong Kong and China. Karin recently bought a warehouse in Singapore to cope with the growth in the near future as Singapore is the business hub of ASEAN countries and Karin is a committed Corporate Citizen to Singapore. Nevertheless, Karin must also prepare for the forthcoming economic uncertainty and paradigm shift in the industries covered by its three business segments: Components Distributions (“CD“), Information Technology Solutions and Services (“ITSS“) and Consumer Electronics Products (“CEP“).

These areas have been an essential part of Karin’s corporate culture for the past four decades and are the key successful factors in running a profitable business operation. We look closely at Accounts Receivable (“AR“) and Inventories as Marketing and Sales Staff (“MSS“) works with Business Supporting Staff (“BSS“) to implement credit control, review customers’ outstanding bills and aging inventories and improve productivity through ‘Doing Better, Faster and More with Less’ (“DBFMw/L“). We also invest in a new Enterprise Resource Planning system to catch up with the new digital age and the diversified markets of China, Singapore and Hong Kong.

To cope with the business potential and the emerging markets in ASEAN, the China’s Belt and Road (“B&R“); Electrical Vehicle and the third airport runway in Hong Kong, MSS has five Strategic Business Units (“SBU“) to extend business potential of our business divisions: Information Technology Solutions and Services (“ITSS“), Consumer Electronics Products (“CEP“), Electronic & Electrical Components Group (“EECG“), Integrated Circuit Application Design (“ICAD“) and Industrial Materials and Instrumentation Group (“IMIG“).

ITSS is a very competitive value-added SBU but its skill-set has the highest depreciation in value because of the fast moving technology of the IT industry. Therefore, IT industry provides new business opportunities to Karin with the key drivers of Karin: brand name vendors, strong relationships with resellers and customers and a technically capable professional system and service engineering team. That is the reason why ITSS can still generate growth in revenue and profit in FY2016 and can do so in the years to come. ITSS believes that the pace of disruptive changes will occur in all industries like FinTech in Financial Stability Institute (“FSI“), Uber in transportation, Airbnb in tourism and the third airport runway in Hong Kong. The underlying driving engines of all these disruptive innovations are powered by IT technologies, such as Cloud, Mobility, Big Data and Analytics. ITSS will definitely keep abreast of these key emerging technologies so we can help our customers with the digital transformation. ITSS will carefully define the priorities in line with Karin’s business strategy and direction.

CEP has successfully developed a complete distribution network and well-built customer confidence in Hong Kong and Macau after several hard working years of distribution of well-known brand of Apple and Beats products. Under this strong foundation, CEP will expand the number of distributing brands in the years to come by focusing on worldwide famous consumer electronics, consumer products and health-related smart products. With Karin’s strong financial background and reputation in the market, CEP will close and reach distributorship agreements with several successful brands. With more complete and rich product lines, CEP is confident that it will further strengthen Karin’s distribution business in consumer retail market in Hong Kong. Under various local and global impacts in FY2016, the economic growth in Hong Kong has slowed down after several years of rapid growth. Retail environment is especially challenging due to the reduced inbound tourism and unfavorable CNY exchange rate changes. So overall retail performance was unsatisfactory in FY2016. However, CEP has great opportunities for expansion and we believe FY2017 will be a breakthrough year in retail distribution for CEP.

EECG focuses on supplying electronic components to Original Equipment Manufacturers (“OEM“) in the production of electronics products, namely mobile phones, wireless electronics and electric vehicles (“EV“). EECG has strengthened the source of components from China product lines for mobile phone OEM to meet the demand of lower cost components and production in the market. In China, there is also business opportunity in the transformation of analog meter to digital meter for water, gas and electricity. EECG will leverage this opportunity to extend the business of micro-controller and wireless application into this market.

ICAD has developed an application of infra-red (“IR“) remotecontrol embedded in mobile phone. This is a value-added and add-on function for mobile phones so that the mobile phones can control home appliances. Besides IR application, ICAD has also developed the application of smart remote control for TV and gaming device by using Blue-Tooth Low Power Technology BT4.1 (BT4.1 supports IPv6 for IoT application). This is a future trend for remote control for the market with great demand in quantity. ICAD is seeking opportunities for project-based Joint Ventures with integrated circuit design house to develop applications such as Micro-Electro-Mechanical system (“MEMs“) applications and applications for Internet of Things (“IoT“).

IMIG will enhance its Field Application Engineer team to provide professional solutions and technical support to customers in the new energy, infrastructure and automobile markets. In Hong Kong, IMIG will be working on transportation network projects like the railway system extension and the third airport runway in coming years. In China, IMIG focuses on projects along with the China national policy such as the environmental protection, infrastructure constructions, the EV charging system and the 4G telecom network.

Karin has been doing business for four decades and the key success factor of the Company’s transformation is how the Board of Directors (“BOD“) and the Management have led Karin to adapt in the face of challenges. It depends on, firstly, vision and strategy from the BOD, secondly, effective leadership from the Management and, thirdly, the innovative ideas of our MSS who develops new solutions to customers and the continued effort of our BSS who improves the Company’s logistic operation and meets ever changing demands of vendors and customers in different industries, in particular during a global economy depression and the slowdown of the China market. Hence, Karin is working on new business opportunities in car 2.0 (EV), IT 2.0 (big data and cloud computing), global 3.0 (e-commerce) and industry 4.0. Therefore, being a leading player, the Management and staff will continue to build our core competency, leadership, innovation in business development, engineering application in solutions design and technical support so that Karin may continue to serve the needs of our vendors and customers in the coming decades.

It has been a tough year. For our shareholders who continue to have strong faith in us, we have proposed a final tax exempt cash dividend of 11.8 Hong Kong cents per share, which in addition to the interim cash dividend of 5.0 Hong Kong cents paid out at half-time, brings the total dividend to 16.8 Hong Kong cents for FY2016.

In closing, I would like to thank my fellow Directors, the Management and all our staff for their hard work and dedication in the past year. I would also like to thank our vendors and customers for their support over the years.

In closing, I would like to thank my fellow Directors, the Management and all our staff for their hard work and dedication in the past year. I would also like to thank our vendors and customers for their support over the years.

Ng Kin Wing, Raymond

Executive Chairman and CEO, Karin Group

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