Zindart Ltd.

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Zindart Ltd.

Flat C&D
25/F Block 1
Tai Ping Industrial Centre
57 Ting Kok Road
Tai Po, New Territories, Hong Kong S.A.R.
China
Telephone: (852) 2665-6992
Fax: (852) 2664-7066
Web site: http://www.zindart.com

Public Company
Incorporated: 1978
Employees: 10,638
Sales: $120.7 million
Stock Exchanges: NASDAQ
Ticker Symbol: ZNDT
NAIC: 323117 Books Printing; 323119 Other Commercial Printing; 339932 Game, Toy, and Children's Vehicle Manufacturing

Zindart Ltd. produces die-cast collectibles for other companies, such as miniature toy cars for Mattel Toys and Keepsake Ornaments for Hallmark Cards, Inc. Zindart also owns Hua Yang, a producer of specialty printing and packaging. Zindart's die-cast, plastic forming, and packaging capacity together allow the company to offer a turnkey manufacturing service. Zindart has invested in state-of-the-art equipment to streamline setup times and can handle large production runs of up to 30 million units. Based in Hong Kong, Zindart has two plants in mainland China and offices in the United States and the United Kingdom.

Hong Kong Origins

Zindart Industrial Co. was founded in Hong Kong in 1978 by George K.D. Sun. Its production facilities were relocated to the new Zhong Xin factory in nearby Guangzhou, China, in 1982, and a second plant, called Xin Xing, opened there five years later. At this time, certain entities of the People's Republic of China acquired a controlling interest from Zindart's founder, management, and The Ertl Company. In 1993, two investment groups, ChinaVest Limited of Hong Kong and San Francisco and Boston-based Advent International, acquired a 76 percent controlling interest in Zindart from shareholders in the People's Republic of China.

Zindart was starting to turn its focus away from the toy market, which was very trend-conscious, making planning for large production runs difficult. More detailed replicas aimed at adult collectors were one area of expansion. Zindart attained net income of $3.7 million on revenues of $35.6 million in 1994.

A new plant, the Dongguan Facility in Guangzhou, was begun in 1994, though it would not be fully complete for another four years. Zindart was also setting up a research and development center in Singapore. The company posted a profit of HK$40 million on turnover of HK$330 million in the fiscal year ended March 1996. Hallmark Cards, Inc., a customer since 1983, and The Ertl Company each accounted for a quarter of revenues. Earnings and sales had averaged more than 20 percent annual growth for the previous ten years, according to Henry Hu, Zindart chairman and CEO.

In 1996, the company sought to raise HK$100 million ($18 million) for expansion in Southeast Asia. Zindart was going public on the Singapore Stock Exchange as it was perceived as being more accommodating to industrial stocks than the Hong Kong exchange, reported Singapore's Business Times. Zindart CEO Henry Hu was the founder of Wah Shing, a soft-toy manufacturer that had recently gone public on the Singapore exchange.

Another attractive bourse for Zindart was the NASDAQ in the United States, which had more liberal listing requirements than the Hong Kong stock market and tended to see higher valuations of initial public offerings. It also afforded companies access to more than $5 trillion in U.S. equity capital, reported the South China Morning Post.

Going Public in 1997

Zindart Industries Co. Ltd. had its initial public offering (IPO) on the NASDAQ in March 1997, listing 1,725,000 American Depository Shares priced at $10.00 each. It chose the ticker symbol ZNDTY, later shortened to ZNDT. Proceeds from the offering were used to fund the completion of a third factory in Guangzhou, which would triple the company's capacity.

Zindart posted record results for the fiscal year ending March 31, 1997. Net sales rose 33 percent to $72.2 million, while net income of $5.7 million was up 23 percent. Fueling these figures were record sales for both Hallmark's Keepsake Ornaments and The Ertl Company's die-cast toys. Die-cast replicas accounted for more than half of Zindart's business. Molded plastic giftware accounted for another quarter, with the remainder coming from toy plastic figurines. Zindart Manufacturing consolidated its operations from three factories into the main Dongguan Facility in 1997.

Hua Yang Printing Holdings Co. Limited, a manufacturer of "pop-up" books and specialty packaging, was acquired in February 1998 for $35 million and up to a million new shares of Zindart stock. Hua Yang supplied packaging to two of Zindart's largest customers, Hallmark and Mattel Toys; it also had two principal shareholders in common with Zindart, ChinaVest and Advent, which acquired a majority holding in Hua Yang in 1995. Headquartered in Hong Kong, Hua Yang employed 2,500 people at its facility in nearby Shenzhen in mainland China.

Hua Yang had its start as a small, family-run business printer founded by C.M. Chan in Shanghai in 1935. It was relocated to Hong Kong in 1949, and in 1953 it became known as Hua Yang Printing Company Ltd. Packaging operations began in the 1960s with the acquisition of a two-color offset printing press. C.M. Chan's son Karl became head of the company in 1970. Four-color presses were added in the 1980s, and the company entered the labor-intensive business of producing pop-up books in 1989. Six-color presses were added in 1995, when Hua Yang consolidated its manufacturing in the PRC, while keeping headquarters in Hong Kong.

Hua Yang had annual sales of about $33.5 million in the fiscal year ended March 31, 1997. Zindart passed $100 million in annual revenues with the Hua Yang purchase.

George Sun retired as chief executive of the company he founded in 1998. He was succeeded by Alex Ngan, a partner in ChinaVest. Peter A.J. Gardiner became chairman of the board in September 2000, succeeding Robert Theleen. Gardiner had previously been CEO of Veriflo, a supplier of semiconductor materials, and the U.S. arm of British multinational Dalgety plc.

Gardiner told the Wall Street Transcript that the book publishing business had become vertically integrated, eliminating the role of the book packager. As a consequence, Hua Yang began to call directly on publishers in both London and New York. Significant clients included Penguin Putnam Inc. and Scholastic Inc.

By this time, Zindart was making more than model cars. It contracted to produce wind-up radios and flashlights for a company called FreePlay Group. Zindart expanded its relationship with Mattel by producing board games based on the TV show Survivor. Board games manufacture called upon Hua Yang's specialized printing experience and also required production of molded plastic pieces.

Corgi Acquired in 1999

Zindart acquired Corgi Classics Limited, a classic British manufacturer of collectible, die-cast model cars and planes, in July 1999. Based in Leicester, Corgi employed 54 people in Great Britain and Hong Kong at the time and had sales of $30 million (£18.7 million) a year. Corgi products were distributed in Europe, North America, and Asia. Zindart paid $46.4 million (£29 million) for the company.

In November 1999, Corgi acquired the rights and tooling to produce Lledo products, the second largest collectible brand in the United Kingdom. Also, a subsidiary of Corgi was set up in Chicago in 1999 in order to develop the brand's own distribution network in the United States. Zindart also soon began marketing a miniature, working steam train under the Bassett-Lowke brand.

Corgi's origins dated back to the 1930s. It began producing die-cast car replicas in 1956. A management-led group had acquired the company from Mattel for £13 million in 1995. Its new owners, which included the British investment group Cinven, backed an aggressive expansion strategy, reported the European Venture Capital Journal. In the late 1990s, Corgi had a 55 percent market share in the United Kingdom. Over the years, Corgi had developed a considerable international following, and the value of its brand name was of key interest to Zindart. The Corgi connection was expected to open new opportunities in Europe, as well as raising Zindart's profile as an original equipment manufacturer, as Zindart chairman Robert A. Theleen told the South China Morning Post. Theleen was also chairman of ChinaVest.

Company Perspectives:

The Company's strategy calls for further penetration of global collectible markets by achieving greater critical mass and presence in the global sectors it serves through marketing to a broader range of collectible customers as well as highly selective investments in the collectible industry. The Company addresses the market need for vendors that can manufacture high-quality products in the required volumes and in a timely and cost-effective manner. The Company provides a turnkey manufacturing service that enables it to satisfy customers' requirements at every stage in the production process, including component sourcing, product engineering and model making, computer-aided mold design and production, and manufacturing and packaging of the finished product. This coordinated, one-stop production process provides the Company's customers with shortened lead times from design to production, a single participant in the manufacturing process instead of multiple participants, and increased efficiency, resulting in lower per-unit costs. The Company's customers include many well-known marketers of die-cast and injection-molded giftware and collectibles, as well as packagers and publishers of books. The Company has successfully developed long-term relationships with many of its principal customers.

After being acquired by Zindart, Corgi introduced Premier Models, which incorporated details not found in most die-cast car replicas. Corgi also rolled out Unsung Heroes, its tribute to Vietnam era personnel and vehicles. Corgi had been producing collectible cars based on James Bond films since 1965, and in 2001 continued the tradition with a unique bundling deal with book and video distributor Baker & Taylor. Baker & Taylor packaged its James Bond DVDs with Corgi's models of the vehicles driven by Agent 007 in each particular film. This gave Corgi exposure in markets it had not traditionally served, boosting its North American presence.

Corgi licensed other well-known brands for its collectibles. It brought out a line of miniature Budweiser delivery vehicles in 2002. In the same year, a line of die-cast collectibles celebrated the 25th Anniversary of the The Muppet Show, including Miss Piggy driving a pink convertible. In September 2003, Zindart announced the pending sale of Corgi to a group of its managers.

Company Enters Perfume Packaging in 2001

Hua Yang entered the complex perfume packaging business in 2001 with an order to package Christian Dior perfumes for sale in duty free shops. Printing operations were moved into a new, larger, and more efficient factory in Shenzhen in spring 2002. State-of-the-art printing and cutting machines were installed. The company also opened an office in London to serve as a liaison with publishers there in developing new products. Hua Yang had recently won a contract to produce an edition of the popular Cranium board game.

Zindart Limited posted net income of $8.4 million on sales of $120.7 million in 2002. In 2003, Zindart Manufacturing contracted to produce two lines of miniature vehicles, Stars 'n Stripes and Muscle Machines, for Funline Merchandising Co. It was also producing small home improvement and consumer electronics items.

Key Dates:

1935:: C.M. Chan's printing business is founded in Shanghai.
1949:: Chan's printing company is relocated to Hong Kong.
1953:: Chan's printing company is renamed Hua Yang Printing Company Ltd.
1978:: Zindart is founded in Hong Kong.
1982:: Zindart production moves to Guangzhou.
1987:: Hua Yang opens a plant in Shenzhen.
1993:: Investment groups ChinaVest and Advent acquire control of Zindart and Hua Yang.
1997:: Zindart goes public on NASDAQ.
1998:: Hua Yang is acquired by Zindart.
1999:: Corgi Classics Limited is acquired.
2001:: Hua Yang enters the perfume packaging business.
2003:: Zindart announces the sale of Corgi to management.

Principal Subsidiaries

Bassett Lowke Ltd. (United Kingdom); Bassett Lowke (Railways) Ltd. (United Kingdom); Blow-ko Ltd. (United Kingdom); Dongguan Xinda Giftware Co. Ltd. (China); Guangzhou Jin Yi Advertising Co. Ltd. (90%; China); Hua Yang Holdings Co. Ltd. (Cayman Islands); Hua Yang Printing Holdings Co. Ltd. (Hong Kong); Icon Collectibles Ltd. (United Kingdom); Lledo Collectibles Ltd. (United Kingdom); Luen Tat Model Design Co. Ltd. (British Virgin Islands); Luen Tat Mould Manufacturing Ltd. (51%; British Virgin Islands); Onchart Industrial Ltd. (55%; British Virgin Islands); Shenzhen Huaxuan Printing Product Co. Ltd. (China); Wealthy Holdings Ltd. (British Virgin Islands); Zindart Ltd. (Bermuda).