Information. Corporate. General Information. Principal Bankers. Executive Directors. Non-executive Directors. Auditors.

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4 Corporate Information Inform 2 General Information Executive Directors CHENG Kar Shun, Henry Chairman LO Lin Shing, Simon Deputy Chairman DOO Wai Hoi, William Deputy Chairman WONG Shiu Hoi, Peter Managing Director LEE Yiu Wing, William CHAN Chi On, Derek LUO Gang Non-executive Directors CHAN Wing Luk, Lennon TO Hin Tsun, Gerald HO Hau Chong, Norman CHAN Kam Ling WONG Kwok Kin, Andrew CHEUNG Wing Yui, Edward* LIANG Chung Meng, Arthur* * Independent Non-executive Directors Company Secretary LI Tung Wing, Mike Place of Incorporation Incorporated in Bermuda with limited liability Registered Office Clarendon House Church Street, Hamilton HM 11 Bermuda Head Office and Principal Place of Business 25th Floor, New World Tower Queen's Road Central Hong Kong Web Site Address Homepage: e-wealth club: Principal Bankers The Hongkong and Shanghai Banking Corporation Limited Hang Seng Bank Limited Wing Hang Bank, Limited Standard Chartered Bank Asia Commercial Bank Limited CITIC Ka Wah Bank Limited Dah Sing Bank, Limited Deutsche Bank AG Liu Chong Hing Bank Limited Bank of America (Asia) Limited Fortis Bank Asia HK BNP Paribas DBS Kwong On Bank Limited The Bank of East Asia, Limited Industrial and Commercial Bank of China (Asia) Limited Auditors Ernst & Young Legal Adviser in Hong Kong Woo, Kwan, Lee & Lo Legal Adviser on Bermuda Law Conyers, Dill & Pearman Principal Share Registrars and Transfer Office The Bank of Bermuda Limited 6 Front Street, Hamilton HM 11 Bermuda Hong Kong Branch Share Registrars and Transfer Office Warrant Registrars Central Registration Hong Kong Limited Shops , 17th Floor Hopewell Centre 183 Queen's Road East Hong Kong

5 ation Composition of Committees Audit Committee CHEUNG Wing Yui, Edward HO Hau Chong, Norman LIANG Chung Meng, Arthur TO Hin Tsun, Gerald* * Alternate to HO Hau Chong, Norman Executive Committee WONG Shiu Hoi, Peter LEE Yiu Wing, William CHAN Chi On, Derek WONG Yat Hang, Peter HUI Yee, Wilson WONG Chung Mun, Sunny WU Kwok Leung, Edmond LAU Chi Keung, Sammy Credit Committee CHENG Kar Shun, Henry LO Lin Shing, Simon DOO Wai Hoi, William WONG Shiu Hoi, Peter LEE Yiu Wing, William HUI Yee, Wilson WONG Chung Mun, Sunny WU Kwok Leung, Edmond LAU Chi Keung, Sammy HO Wai Hung, Fred CHEUNG Kwok Wai, Hamon IT Steering Committee WONG Shiu Hoi, Peter LEE Yiu Wing, William WONG Yat Hang, Peter WU Kwok Leung, Edmond LAU Chi Keung, Sammy YING Tak Sun, Nelson KAN Ho Man, Michael 3

6 Corporate Structure 4 TAI FOOK SECURITIES GROUP LTD. Financial Services On-line Services Asset and Fund Management Strategic Investment Major Subsidiaries Tai Fook Finance Co. Ltd. Tai Fook Information Systems Ltd. Tai Fook Asset Management Ltd. Prosper Ideal Ltd. Tai Fook Securities Co. Ltd. Tai Fook On-line Services Ltd. Tai Fook Asset Management Nominees Ltd. Tai Fook Futures Ltd. Tai Fook Net Ltd. Tai Fook Fund Management Co. Ltd. Tai Fook Capital Ltd. E-wealth Club Ltd. Tai Fook Growth Enterprise Fund Ltd. Tai Fook Research Ltd. Tai Fook Investment Consultants Ltd. Tai Fook Nominees Co. Ltd. Tai Fook Investment Services Ltd. Tai Fook Securities (U.S.) Inc. Tai Fook Securities (U.K.) Ltd.

7 Chairman's Office Doo Wai Hoi, William Deputy Chairman Cheng Kar Shun, Henry Chairman Lo Lin Shing, Simon Deputy Chairman 5

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26 Financial Highlights 24 FINANCIAL ABSTRACTS FINANCIAL ABSTRACTS Turnover (HK$'000) Net Profit (HK$'000) Basic Earnings Per Share (HK Cents) Diluted Earnings Per Share (HK Cents) Dividend Per Share (HK Cents) Shareholders' Funds (HK$'000) Total Assets (HK$'000) Number of Shares in Issue Net Assets Value Per Share (HK$) Gearing Ratio - Borrowing to Total Assets - Borrowing to Net Assets Value Return on Assets (%) Return on Shareholders' Fund (%) Share Price - High (HK$) - Low (HK$) For the year ended 31 March , ,323 96, , , ,380 2,177,922 2,503, ,409, ,074, Percentage change Increase/(Decrease) (28) (54) (61) (61) (68) 45 (13) 33 8 (26) (55) (48) (69) (1) 40 TURNOVER Year ended 31 March Net Profit Attributable to Shareholders Year ended 31 March HK$ million HK$ million

27 TURNOVER BREAKDOWN Commission and Brokerage Income from Securities Broking 32.26% 33.93% Commission and Brokerage Income from Futures and Options Contracts Broking 2.79% 2.36% Margin Financing Interest Income 27.60% 44.87% Corporate Advisory Fees Placing, Underwriting and Sub-underwriting Commission Income 7.89% 9.58% 9.45% 17.75% Securities Trading (5.50%) 1.77% Futures Contracts Trading 0.06% (0.40%) Commission and Brokerage Income from Insurance Broking Other Income 6.93% 6.66% 1.25% 0.75% Year ended 31 March OPERATING PROFIT BREAKDOWN Commission and Brokerage Income from Securities Broking -20 (12.12%) % Commission and Brokerage Income from Futures and Options Contracts Broking (5.04%) (1.50%) Margin Financing Interest Income 14.92% 19.31% Corporate Advisory Fees Placing, Underwriting and Sub-underwriting Commission Income 7.69% 6.34% 17.02% 18.07% Securities Trading 12.20% 60.21% Futures Contracts Trading Commission and Brokerage Income from Insurance Broking (0.91%) 0.01% 6.38% 3.37% Other Income 0.51% 21.61% Year ended 31 March

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30 Report of the Board of Directors 28 SEGMENTAL INFORMATION An analysis of the Group s turnover and contribution to profit from operating activities by principal activity, disclosed pursuant to the requirements of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ), is as follows: Contribution to profit Turnover from operating activities By principal activities: HK$ 000 HK$ 000 HK$ 000 HK$ 000 Commission and brokerage income from securities broking 130, ,104 (12,363) 78,403 Commission and brokerage income from futures and options contracts broking 11,268 13,211 (5,143) (3,686) Margin financing interest income 181, ,653 15,217 47,427 Corporate advisory fees 31,867 53,697 7,845 41,804 Placing, underwriting and sub-underwriting commission income 38,171 99,440 6,468 44,375 Fund management fees (107) (309) Nominee and custodian services income 4,958 4,078 4,011 1,578 Securities trading (22,197) 9,937 61,398 29,965 Futures contracts trading 238 (2,245) 6 (2,245) Commission and brokerage income from insurance broking 27,991 37,343 6,509 8,264 Gain on disposal of subsidiaries 18, , , , ,576 The Group s turnover and contribution to profit from operating activities were principally derived from operations in Hong Kong. The Group s operations outside Hong Kong contributed less than 10% of turnover and less than 10% of contribution to profit from operating activities, and accordingly an analysis of such activities is not shown. RESULTS AND DIVIDENDS The Group s profit for the year ended 31 March 2001 and the state of affairs of the Company and the Group at that date are set out in the financial statements on pages 46 to 89. An interim dividend of HK4 cents per ordinary share was paid on 22 January The directors recommend the payment of a final dividend of HK2 cents per ordinary share in respect of the year, to shareholders on the register of members on 24 August This recommendation has been incorporated in the financial statements.

31 Report of the Board of Directors SUMMARY OF FINANCIAL INFORMATION A summary of the results and of the assets and liabilities of the Group for the last five financial years, as extracted from the audited financial statements and reclassified as appropriate, is set out below. This summary is not part of the audited financial statements. RESULTS Year ended 31 March HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 TURNOVER 403, , , , ,069 OPERATING PROFIT 101, ,576 46, , ,970 Share of profits of associates PROFIT BEFORE TAX 102, ,117 47, , ,970 Tax (5,350) (33,727) (7,591) (62,338) (16,199) PROFIT BEFORE MINORITY INTERESTS 96, ,390 39, ,116 87,771 Minority interests (839) (1,205) (302) 75 NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 96, ,185 39, ,191 87,771 ASSETS AND LIABILITIES 31 March HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 TOTAL ASSETS 2,177,922 2,503,902 1,909,245 2,607,904 2,606,184 TOTAL LIABILITIES (1,235,340) (1,850,232) (1,422,351) (2,123,392) (2,231,132) MINORITY INTERESTS (2,290) (1,099) NET ASSETS 942, , , , ,052 Note: The Company was incorporated in Bermuda on 7 May 1996 and became the holding company of the companies comprising the Group as a result of a group reorganisation on 17 July The financial results of the Group for the year ended 31 March 1997 were prepared on the basis of merger accounting as if the Group structure had been in existence throughout the period presented. 29

32 Report of the Board of Directors 30 FIXED ASSETS Details of movements in the fixed assets of the Company and the Group are set out in note 11 to the financial statements. SUBSIDIARIES Particulars of the Company s subsidiaries are set out in note 14 to the financial statements. ASSOCIATE Particulars of the Group s interest in its associate are set out in note 15 to the financial statements. BANK LOANS, OVERDRAFTS AND OTHER BORROWINGS Details of the bank loans, overdrafts and other borrowings of the Group are set out in notes 26 and 25 to the financial statements, respectively. SHARE CAPITAL, WARRANTS AND SHARE OPTIONS Details of movements in the Company s share capital, warrants and share options during the year, together with reasons therefor, are set out in note 28 to the financial statements. PRE-EMPTIVE RIGHTS There are no provisions for pre-emptive rights under the Company s bye-laws or the laws of Bermuda, being the jurisdiction in which the Company is incorporated, which would oblige the Company to offer new shares on a pro rata basis to existing shareholders. PURCHASE, SALE OR REDEMPTION 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 other than as an agent for clients of the Company or its subsidiaries. RESERVES Details of movements in the reserves of the Company and the Group during the year are set out in note 29 to the financial statements. DISTRIBUTABLE RESERVES At 31 March 2001, the Company s reserves available for cash distribution and/or distribution in specie, calculated in accordance with the provisions of the Companies Act 1981 of Bermuda (as amended), amounted to HK$36,587,000. In addition, the Company s share premium account, in the amount of HK$421,600,000, may be distributed in the form of fully paid bonus shares.

33 Report of the Board of Directors CHARITABLE CONTRIBUTIONS During the year, the Group made charitable contributions totalling HK$541,725. MAJOR CUSTOMERS AND SUPPLIERS The turnover attributable to the five largest customers of the Group accounted for less than 30% of the Group s total turnover for the year. None of the directors of the Company or any of their associates or any shareholder (which, to the best knowledge of the directors, own more than 5% of the Company s issued share capital) had any beneficial interest in the Group s five largest customers. The Group is a provider of financial services. In the opinion of the directors, it is therefore of no value to disclose details of the Group s suppliers. DIRECTORS The directors of the Company during the year were: Executive directors: Cheng Kar Shun, Henry Lo Lin Shing, Simon Doo Wai Hoi, William Wong Shiu Hoi, Peter Lee Yiu Wing, William (appointed on 29 June 2000) Chan Chi On, Derek (appointed on 29 June 2000) Luo Gang Non-executive directors: Chan Wing Luk, Lennon (resigned as executive director on 1 May 2000 and remained as non-executive director on the same date) To Hin Tsun, Gerald Ho Hau Chong, Norman Chan Kam Ling (appointed on 29 September 2000) Wong Kwok Kin, Andrew (appointed on 29 September 2000) Cheung Wing Yui, Edward* Liang Chung Meng, Arthur* * independent non-executive directors In accordance with the Company s bye-laws, Messrs. Chan Wing Luk, Lennon, Chan Kam Ling, Wong Kwok Kin, Andrew, Cheung Wing Yui, Edward and Liang Chung Meng, Arthur will retire at the forthcoming annual general meeting and, being eligible, will offer themselves for re-election. 31

34 Report of the Board of Directors 32 BRIEF BIOGRAPHIES OF THE DIRECTORS AND SENIOR MANAGEMENT Directors Executive Directors CHENG Kar Shun, Henry, aged 54, is the Chairman of the Company. Dr. Cheng joined the Group in November He holds an Honorary Doctor of Business Administration in Hospitality Management Degree from Johnson & Wales University in Providence, Rhode Island, in U.S.A. and an Honorary Doctor of Law from the University of Western Ontario in Canada. Dr. Cheng has been an executive director of New World Development Company Limited since 1973 and its managing director since He is currently the chairman of New World infrastructure Limited, New World China Land Limited, New World Telephone Holdings Limited, New World CyberBase Limited and New World Services Limited; a managing director of New World Hotels (Holdings) Limited; and a director of various companies including Marriott International Inc., Chow Tai Fook Enterprises Limited, Chow Tai Fook Nominee Limited, Chow Tai Fook Jewellery Company Limited and HKR International Limited. Dr. Cheng is the chief executive officer of a large number of development projects including the multi-billion dollar Hong Kong Convention and Exhibition Centre. He is the chairman of the Advisory Council for The Better Hong Kong Foundation and chairman of the Advisory Panel of the Asian Management Institute, University of Western Ontario. Dr. Cheng is also a member of the Advisory Board of the University of Alberta, Canada, a member of the Advisory Committee for the Harvard Asia Centre, a member of the John Harvard Fellows, a member of the Asian Advisory Board of the Prudential Insurance Company of America, a member of the Young Presidents Organization (China Chapter) and a committee member of the Eighth & Ninth Chinese People s Political Consultative Committee of The People s Republic of China, a committee member of the Chinese General Chamber of Commerce and a member of the Hong Kong/Japan Business Cooperation Committee and the Hong Kong/European Union Business Cooperation Committee. Dr. Cheng is a son of Mr. Cheng Yu Tung who is a substantial shareholder of the Company. LO Lin Shing, Simon, B.B.A., aged 45, is a Deputy-chairman of the Company. Mr. Lo joined the Group in June Mr. Lo possesses over 20 years of experience in the financial, securities and futures industries. He has been a member of the CME and IMM since Mr. Lo is the chairman of Asia Logistics Technologies Limited and a deputy-chairman of New World CyberBase Limited. He is also an executive director of Asean Resources Holdings Limited, The Kwong Sang Hong International Limited and Pacific Ports Company Limited, all of which are companies whose shares are listed on The Stock Exchange of Hong Kong Limited. Mr. Lo is also a non-executive director of Beijing Beida Jade Bird Universal Sci-Tech Company Limited and hkcyber.com (Holdings) Limited, both companies whose shares are listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.

35 Report of the Board of Directors BRIEF BIOGRAPHIES OF THE DIRECTORS AND SENIOR MANAGEMENT (Continued) Directors (Continued) Executive Directors (Continued) DOO Wai Hoi, William, aged 56, is a Deputy-chairman of the Company. He is also a deputy-chairman of New World CyberBase Limited. Mr. Doo joined the Group in June 1986, left in July 1988 and rejoined in May He holds a Bachelor of Science Degree from the University of Toronto, Canada and a Master Degree in Science from the University of California, U.S.A. He also holds a Diploma of Graduate Gemologist from the Gemologist Institute of America. Mr. Doo is currently the vice-chairman of New World China Land Limited, New World Infrastructure Limited and New World Services Limited. He is also the managing director of Fung Seng Diamond Company Limited. In addition, Mr. Doo is a director of NWD (Hotels Investments) Limited and The United Chinese Bank in Hong Kong. Mr. Doo is appointed by The People s Republic of China as a member of the Executive Committee of Shanghai Committee of Chinese People s Political Consultative Conference. He has served as the Governor of the Canadian Chamber of Commerce in Hong Kong since Mr. Doo is the brother-in law of Dr. Cheng Kar Shun, Henry. WONG Shiu Hoi, Peter, aged 60, is the Managing Director and Chief Executive of the Company. Mr. Wong holds a Master of Business Administration Degree from the University of East Asia in Macau. Mr. Wong possesses over 30 years of experience in the financial services industry. He has extensive experience in and knowledge of the securities industry and investment consultancy while working for various financial institutions before joining the Group in November He is an executive director of The Kwong Sang Hong International Limited and a non-executive director of Ching Hing (Holdings) Limited, both companies whose shares are listed on The Stock Exchange of Hong Kong Limited. He is a registered dealer and a registered investment adviser under the Securities Ordinance of Hong Kong. Mr. Wong is a listing committee member of both the Main Board and Growth Enterprise Market of The Stock Exchange of Hong Kong Limited. LEE Yiu Wing, William, aged 41, is the Executive Director and Chief Operating Officer of the Company. Mr. Lee is responsible for the management of all operations divisions as well as the corporate services and sales department. Mr. Lee first joined the Group in 1988 and subsequently rejoined us in 1997 after his departure in Mr. Lee is a member of both the Hong Kong Institute of Directors and the Hong Kong Securities Institute. He holds a BA Degree in Economics and Management from the University of Guelph, Canada. He possesses over 13 years of experience in the financial services industry. 33

36 Report of the Board of Directors 34 BRIEF BIOGRAPHIES OF THE DIRECTORS AND SENIOR MANAGEMENT (Continued) Directors (Continued) Executive Directors (Continued) CHAN Chi On, Derek, aged 38, is an Executive Director of the Company and the Deputy Managing Director of Tai Fook Capital Limited. Mr. Chan joined the Group in 1996, and is in charge of the corporate finance division. Mr. Chan holds a Master of Business Administration Degree from the Hong Kong University of Science & Technology as well as a Social Sciences Degree in Economics from the University of Hong Kong. Mr. Chan is a registered investment adviser under the Securities Ordinance of Hong Kong. He possesses over 10 years of experience in the financial services industry. Mr. Chan published a book on the subject of listing procedures and securities rules & regulations. Mr. Chan is an executive director of Asean Resources Holdings Limited, a company whose shares are listed on The Stock Exchange of Hong Kong Limited. LUO Gang, aged 67, is an Executive Director of the Company. Mr. Luo joined the Group in October He graduated from Beijing Polytechnic University in 1959 with a certificate in machinery manufacturing and design. He was formerly the deputy commissioner of China North Industries Corporation and the general manager of Nanjing Yanxing Company in The People s Republic of China. Non-executive Directors CHAN Wing Luk, Lennon, aged 49, is a Non-executive Director of the Company. Mr. Chan joined the Group in September He holds a Bachelor of Science Degree from the University of Hong Kong. Mr. Chan has more than 28 years of experience in the financial services industry. He formerly held responsible positions in various financial institutions, both in Hong Kong and in Singapore. He is currently an independent market commentator on the financial services industry in Hong Kong. TO Hin Tsun, Gerald, aged 52, is a Non-executive Director of the Company. Mr. To joined the Group in May He has been a practising solicitor in Hong Kong since He is also qualified as a solicitor in the United Kingdom, as well as an advocate and solicitor in Singapore. He is currently the senior and managing partner of Messrs. T. S. Tong & Co., Solicitors and Notaries. Mr. To is also a non-executive director of Asean Resources Holdings Limited, Asia Logistics Technologies Limited, The Kwong Sang Hong International Limited, New World CyberBase Limited and Pacific Ports Company Limited, all of which are companies whose shares are listed on The Stock Exchange of Hong Kong Limited. He is also a non-executive director of Asian Information Resources (Holdings) Limited, a company whose shares are listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited. HO Hau Chong, Norman, aged 45, is a Non-executive Director of the Company. Mr. Ho joined the Group in May He is a director of Tak Hung (Holdings) Company Limited and Honorway Investments Limited, which are private companies owned by his family. He is also a director of Asia Logistics Technologies Limited, CITIC Pacific Limited, Lee Hing Development Company Limited and Hong Kong Ferry (Holdings) Company Limited. He is a member of the Institute of Chartered Accountants in England and Wales and a member of the Hong Kong Society of Accountants. He has over 19 years of experience in international finance and property development.

37 Report of the Board of Directors BRIEF BIOGRAPHIES OF THE DIRECTORS AND SENIOR MANAGEMENT (Continued) Directors (Continued) Non-executive Directors (Continued) CHAN Kam Ling, aged 60, is a Non-executive Director of the Company. Mr. Chan joined the Group in September He became a director of New World Development Company Limited in 1994 and also an executive director of New World Infrastructure Limited in 1995 and New World China Land Limited in Mr. Chan is currently the managing director of New World Services Limited, Hip Hing Construction Company Limited, Sino-French Holdings (Hong Kong) Limited and Macao Water Supply Company Limited as well as a director of Companahia de Electricidade de Macau. He has more than 30 years of experience in construction and property investment industry. WONG Kwok Kin, Andrew, aged 55, is a Non-executive Director of the Company. Mr. Wong joined the Group in September He has over 25 years of experience in hotel and project management, as well as finance and human resources administration. Mr. Wong is presently an executive director of New World Services Limited and Sky Connection Limited. He is also a director of New World First Holdings Limited and New World Telephone Holdings Limited. In addition, Mr. Wong has been an executive director of several subsidiaries and affiliated of the New World Group, which provide duty-free liquor and tobacco concession, communication services as well as estate management in both Hong Kong and PRC. Mr. Wong had been an executive director of New World Hotels (International) Limited and Renaissance Hotel Group N.V., a company listed on the New York Stock Exchange, from 1995 to He had also worked in Price Waterhouse and Bowater Group of Companies (UK) before. CHEUNG Wing Yui, Edward, aged 51, is a Non-executive Director of the Company. Mr. Cheung joined the Group in July He has been a practising lawyer in Hong Kong since 1979 and has also been admitted as a solicitor in the United Kingdom and as an advocate and solicitor in Singapore. He is currently a partner of Messrs. Woo, Kwan, Lee & Lo, Solicitors and Notaries. Mr. Cheung is a nonexecutive director of seven other listed companies and company secretary to another four listed companies. He is also a Council Member of the Open University of Hong Kong. LIANG Chung Meng, Arthur, aged 52, is a Non-executive Director of the Company. Mr. Liang joined the Group in April He has been an executive director of Hong Kong China Hydrofoil Limited since He is also an executive director of Yin Cheong Company Limited, whose businesses include property investment and hotel operations. Mr. Liang has more than 21 years of experience in the shipping and property investment industry. 35

38 Report of the Board of Directors 36 BRIEF BIOGRAPHIES OF THE DIRECTORS AND SENIOR MANAGEMENT (Continued) Senior Management WONG Yat Hang, Peter, aged 44, is the Group Chief Financial Officer and an Executive Director of Tai Fook On-line Services Limited. Mr. Wong also spearheaded the Total Quality Management and Quality Assurance Functions of the Group. Prior to joining the Group in 1997, Mr. Wong was a professional management consultant with more than 15 years experience, specialized in Strategic, Financial and Performance Improvement Management. His portfolio covered over 40 local and multinational companies throughout Hong Kong and the PRC, as well as other Asian countries. A Graduate from the University of Birmingham in the United Kingdom, Mr. Wong obtained a Bachelor of Science Degree and a Postgraduate Diploma in Finance. He is currently a fellow member of the Hong Kong Institute of Directors and serves as the committee member of Business Valuation. HUI Yee, Wilson, aged 42, is the Director of Sales and Marketing for the Group and an Executive Director of Tai Fook Securities Company Limited. Mr. Hui is responsible for the development and management of the Group s retail brokerage business. Mr. Hui joined the Group in 1995 after 14 years of experience in the banking and securities industries. He holds a Bachelor Degree in Economics and Management Studies from the University of Hong Kong. He is currently a member of the Hong Kong Institute of Directors and the Hong Kong Securities Institute. WONG Chung Mun, Sunny, aged 43, is the Director of Sales and Marketing for the Group and an Executive Director of Tai Fook Futures Limited. Mr. Wong is responsible for development and management of the Group s retail brokerage, securities and futures businesses. Mr. Wong joined the Group in 1998 after 17 years of experience in securities and futures industries. He holds a Bachelor Degree of Arts from the Chinese University of Hong Kong. He is currently a member of the Hong Kong Institute of Directors and the Hong Kong Securities Institute. WU Kwok Leung, Edmond, aged 47, is the Operations Director of the Group. Before joining the Group, Mr. Wu held senior position with various financial institutions. He was formerly Vice President of First Pacific Bank Limited, Commercial Banking Group and Chief Operations Manager of The Sanwa Bank Limited, in charge of all departments and sub-branch operations in Hong Kong. He holds a Master of Business Administration Degree from the University of East Asia, Macau and a Diploma of Management for Executive Development from the Chinese University of Hong Kong. Mr. Wu has more than 25 years of experience in the field of banking and finance. LAU Chi Keung, Sammy, aged 41, is the Finance Director of the Group. Mr. Lau is responsible for the accounting and financial management. Mr. Lau holds a Master of Applied Finance Degree from the University of Western Sydney, Australia. Prior to joining the Group in 1997, he has more than 15 years of working experience in the Asia Pacific region. He is a fellow member of the Association of Chartered Certified Accountants and the Hong Kong Society of Accountants. Mr. Lau is also a senior associate member of the Australasian Institute of Banking and Finance, and a member of the Hong Kong Institute of Directors and the Hong Kong Securities Institute.

39 Report of the Board of Directors EMOLUMENTS OF DIRECTORS AND THE FIVE HIGHEST PAID EMPLOYEES Details of the directors emoluments and those of the five highest paid employees in the Group are set out in notes 5 and 6 to the financial statements, respectively. DIRECTORS INTERESTS IN COMPETING BUSINESSES During the year and up to the date of this report, the following directors are considered to have interests in the businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Group pursuant to the Listing Rules as set out below: Name of entity which businesses Description of businesses are considered of the entity which Nature of to compete or likely are considered to compete interest of the to compete with the or likely to compete with director in Name of director businesses of the Group the businesses of the Group the entity Lo Lin Shing, Simon Asean Resources Holdings Securities investment and Director Limited trading Chan Chi On, Derek Asean Resources Holdings Securities investment and Director Limited trading To Hin Tsun, Gerald Asean Resources Holdings Securities investment and Director Limited trading As the board of directors of the Company is independent from the board of the aforesaid companies and none of the above directors can control the board of the Company, the Group is capable of carrying its businesses independently of, and at arms length from the businesses of such companies. 37

40 Report of the Board of Directors 38 DIRECTORS SERVICE CONTRACTS Each of Mr. Lo Lin Shing, Simon, Mr. Wong Shiu Hoi, Peter, Mr. Luo Gang and Mr. Chan Wing Luk, Lennon* has entered into a service agreement with the Company. Particulars of these agreements are set out below: (a) Each service agreement is for a term of three years commencing on 1 August 1996 and shall continue thereafter until terminated by either party giving to the other not less than six months prior written notice. (b) The initial salaries of Mr. Lo Lin Shing, Simon, Mr. Wong Shiu Hoi, Peter, Mr. Luo Gang and Mr. Chan Wing Luk, Lennon* were HK$175,000, HK$175,000, HK$83,500 and HK$149,500 per month, respectively, which were adjusted at a rate determined by the independent non-executive directors on 1 January 1997 and thereafter on 1 January in each year during the term of their service agreements. (c) Each of Mr. Lo Lin Shing, Simon, Mr. Wong Shiu Hoi, Peter, Mr. Luo Gang and Mr. Chan Wing Luk, Lennon* is entitled to such management bonus as may be determined by the board of directors with the aggregate of the management bonuses payable to all executive directors in respect of any financial year not exceeding 5% of the consolidated profits of the Group after tax and minority interests but before extraordinary items for the relevant financial year. (d) Each such director shall abstain from voting and not be counted in the quorum in respect of any resolution regarding the amount of management bonus available to himself. * On 1 May 2000, Mr. Chan Wing Luk, Lennon resigned as an executive director and was appointed as a nonexecutive director of the Company. The service agreement entered into between Mr. Chan Wing Luk, Lennon and the Company ceased to be effective on the same date. Save as disclosed above, no director has a service contract with the Company which is not determinable by the Company within one year without payment other than statutory compensation. DIRECTORS INTERESTS IN CONTRACTS No director had a material interest in any contract of significance to the business of the Group to which the Company or any of its subsidiaries was a party during the year.

41 Report of the Board of Directors DIRECTORS INTERESTS IN SHARE CAPITAL At 31 March 2001, the interests of the directors in the share capital of the Company and its associated corporations (as defined in the Securities (Disclosure of Interests) Ordinance ( SDI Ordinance )) as required to be recorded in the register maintained by the Company pursuant to Section 29 of the SDI Ordinance, or as otherwise notified the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Companies under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ( Model Code ), were as follows: (A) Shares (a) The Company Number of ordinary shares held Personal Family Corporate Name of director interests interests interests Total Lo Lin Shing, Simon 1,000,000 70,616,222 71,616,222 (Note 1) Wong Shiu Hoi, Peter 12,500,000 12,500,000 Lee Yiu Wing, William 300, ,000 Chan Chi On, Derek 460, ,000 Chan Wing Luk, Lennon 2,000,000 2,000,000 Wong Kwok Kin, Andrew 390, ,000 (Note 2) (b) The associated corporation Number of Name of shares held associated (Corporate Name of director Class of shares corporation interests) Lo Lin Shing, Simon Non-voting Tai Fook Finance 47,670,000 deferred shares Company Limited (Note 1) (Note 3) Notes: (1) These shares are held by Wellington Equities Inc., a company beneficially wholly-owned by Mr. Lo Lin Shing, Simon. (2) These shares are held by Mrs. Wong Li Chak Wing, Winnie, the spouse of Mr. Wong Kwok Kin, Andrew. (3) Tai Fook Finance Company Limited is an indirect wholly-owned subsidiary of the Company. 39

42 40 Report of the Board of Directors DIRECTORS INTERESTS IN SHARE CAPITAL (Continued) (B) Warrants Number of warrants held Personal Family Corporate Name of director interests interests interests Total Lo Lin Shing, Simon 200,000 14,123,244 14,323,244 (Note) Wong Shiu Hoi, Peter 2,480,000 2,480,000 Chan Chi On, Derek 92,000 92,000 Chan Wing Luk, Lennon 400, ,000 Note: These warrants are held by Wellington Equities Inc., a company beneficially wholly-owned by Mr. Lo Lin Shing, Simon. (C) Share options Certain directors of the Company were granted share options in prior years pursuant to the share option scheme of the Company adopted on 17 July These share options expired during the year. Details of the movements of the directors interests in options to subscribe for shares of the Company under the Company s share option scheme during the year were as follows: Number Number Number Number Number Price of options of options of options of options of options Period per share held on granted exercised expired held on during which to be paid 1 April during during during 31 March options were on exercise Name of director 2000 the year the year the year 2001 exercisable of options HK$ Lo Lin Shing, Simon 5,000,000 5,000,000 7 March March 2001 Wong Shiu Hoi, Peter 4,500,000 4,500,000 7 March March 2001 Lee Yiu Wing, William 1,500,000 1,500,000 7 March March 2001 Chan Chi On, Derek 340, ,000 8 October October ,000,000 1,000,000 7 March March 2001 Luo Gang 1,000,000 1,000,000 8 October October 2000 Chan Wing Luk, 3,000,000 3,000,000 7 March Lennon - 7 March 2001

43 Report of the Board of Directors DIRECTORS INTERESTS IN SHARE CAPITAL (Continued) (C) Share options (Continued) Save as disclosed above, none of the directors or their respective associates had any personal, family, corporate or other interests in the share capital or debt securities of the Company and its associated corporations (as defined in the SDI Ordinance), as required to be recorded in the register maintained by the Company pursuant to Section 29 of the SDI Ordinance, or as otherwise notified the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code. DIRECTORS RIGHTS TO ACQUIRE SHARES Save as disclosed in the section Directors interests in share capital, at no time during the year were rights to acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any director or their respective spouse or children under 18 years of age, or were any such rights exercised by them; or was the Company or any of its subsidiaries a party to any arrangement to enable the directors to acquire such rights in any other body corporate. Further details of the Company s share option scheme are set out in note 28 to the financial statements. SUBSTANTIAL SHAREHOLDERS At 31 March 2001, the following interests of 10% or more of the share capital of the Company were recorded in the register of interests required to be kept by the Company pursuant to Section 16(1) of the SDI Ordinance: Number of shares held Direct Deemed Name Notes interests interests Percentage Chow Tai Fook Nominee Limited 1 107,140, Chow Tai Fook Enterprises Limited 2 30,977,916 97,624, New World Development Company Limited ( NWD ) 3 97,624, Citiplus Investment Limited ( CIL ) 4 97,624, New World Services Limited (incorporated in the Cayman Islands) ( NWS ) 5 97,624, New World Services Limited (incorporated in the British Virgin Islands) ( NWS (BVI) ) 6 97,624, NWS Financial Management Services Limited 97,624, Wellington Equities Inc. 7 70,616,

44 Report of the Board of Directors 42 SUBSTANTIAL SHAREHOLDERS (Continued) Notes: 1. Mr. Cheng Yu Tung beneficially owns all of the issued shares in Chow Tai Fook Nominee Limited. 2. Chow Tai Fook Enterprises Limited and its subsidiaries have interests in more than one-third of the issued shares of NWD and is accordingly deemed to have an interest in the shares deemed to be interested by NWD. 3. CIL is a wholly-owned subsidiary of NWD and its interest in the Company is deemed to be held by NWD. 4. NWS is a 51% owned subsidiary of CIL and its interest in the Company is deemed to be held by CIL. 5. NWS (BVI) is a wholly-owned subsidiary of NWS and its interest in the Company is deemed to be held by NWS. 6. NWS Financial Management Services Limited is a wholly-owned subsidiary of NWS (BVI) and its interest in the Company is deemed to be held by NWS (BVI). 7. These shares were shown in the corporate interests in the Company of Mr. Lo Lin Shing, Simon as set out in the section Directors interests in share capital. Save as disclosed above, no person, other than the directors or the chief executive of the Company, whose interests are set out in the section Directors interests in share capital above, had registered an interest in the share capital of the Company that was required to be recorded pursuant to Section 16(1) of the SDI Ordinance. CONNECTED TRANSACTIONS The connected transactions undertaken by the Group are included in the transactions set out in note 34 to the financial statements. The independent non-executive directors have confirmed to the board of directors that the connected transactions arose in the ordinary and usual course of the Group s business and they were entered into based on normal commercial terms and in accordance with the terms of the agreements of the underlying transactions. The independent non-executive directors also confirmed that the income derived from the provision of financial services and the provision of insurance services to the directors and the substantial shareholders of the Company and their respective associates did not respectively exceed 10% of the Group s total turnover for the year. POST BALANCE SHEET EVENTS Details of the significant post balance sheet events of the Group are set out in note 35 to the financial statements.

45 Report of the Board of Directors CODE OF BEST PRACTICE In the opinion of the directors, the Company has complied with the Code of Best Practice as set out in Appendix 14 of the Listing Rules throughout the accounting period covered by the annual report, except that the non-executive directors of the Company are not appointed for specific terms. The nonexecutive directors are subject to retirement by rotation and re-election at the annual general meeting of the Company in accordance with the provisions of the Company s bye-laws. The Company has established an audit committee in 1999 in accordance with paragraph 14 of the Code of Best Practice. AUDITORS Ernst & Young retire and a resolution for their reappointment as auditors of the Company will be proposed at the forthcoming annual general meeting. On behalf of the board CHENG Kar Shun, Henry Chairman Hong Kong, 5 July

46 Report 44 of the Auditors To the members Tai Fook Securities Group Limited (Incorporated in Bermuda with limited liability) We have audited the financial statements on pages 46 to 89 which have been prepared in accordance with accounting principles generally accepted in Hong Kong. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Company s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements 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 an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, 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 financial statements are free from material misstatement. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2001 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Ernst & Young Certified Public Accountants Hong Kong, 5 July 2001

47 FINANCIAL STATEMENTS 46 Consolidated Profit and Loss Account 47 Consolidated Statement of Recognised Gains and Losses 48 Consolidated Balance Sheet 49 Consolidated Cash Flow Statement 51 Balance Sheet 52 Notes to Financial Statements

48 Consolidated 46 Profit and Loss Account Year ended 31 March 2001 Notes HK$ 000 HK$ 000 TURNOVER 3 403, ,323 Gain on disposal of subsidiaries 18,132 Gain on disposal of a long term investment 110,539 Unrealised gains/(losses) on short term investments, net (37,274) 20,297 Other revenue 10,841 9,068 Staff costs (176,072) (164,684) Commission expenses (5,936) (15,037) Provision for doubtful debts (25,300) (11,380) Interest expense for securities broking and margin financing operations (69,336) (63,587) Exchange loss on swap deposits (5,099) Depreciation (20,230) (12,196) Other operating expenses (107,240) (72,129) PROFIT FROM OPERATING ACTIVITIES 4 101, ,576 Share of profit of an associate PROFIT BEFORE TAX 102, ,117 Tax 7 (5,350) (33,727) PROFIT BEFORE MINORITY INTERESTS 96, ,390 Minority interests (839) (1,205) NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 8 96, ,185 DIVIDENDS 9 29,302 69,554 EARNINGS PER SHARE 10 Basic cents cents Diluted cents cents

49 Consolidated Statement of Recognised Gains and Losses Year ended 31 March 2001 Note HK$ 000 HK$ 000 Surplus on revaluation of long term investments 29 15,376 24,013 Exchange differences on translation of the financial statements of foreign entities 29 (120) 35 Net gains not recognised in the profit and loss account 15,256 24,048 Net profit for the year attributable to shareholders 96, ,185 Total recognised gains and losses 111, ,233 47

50 Consolidated 48 Balance Sheet 31 March 2001 Notes HK$ 000 HK$ 000 NON-CURRENT ASSETS Fixed assets 11 40,198 25,554 Intangible assets 12 7,640 4,731 Other assets 13 6,985 6,355 Interest in an associate Long term investments 16 34,213 45,267 89,036 82,775 CURRENT ASSETS Short term investments 16 52, ,111 Advances to customers 17 1,449,997 1,353,461 Accounts receivable 18 85, ,003 Other receivables 19 28,827 87,343 Prepaid tax 15,502 Cash held on behalf of customers 415, ,151 Cash and cash equivalents 21 40,729 78,058 2,088,886 2,421,127 CURRENT LIABILITIES Accounts payable , ,215 Other payables and accruals 23 51, ,443 Tax payable 6,426 34,731 Other loans , ,109 Bank loans and overdrafts ,765 53,422 1,235,057 1,849,920 NET CURRENT ASSETS 853, ,207 TOTAL ASSETS LESS CURRENT LIABILITIES 942, ,982 NON-CURRENT LIABILITY Deferred tax , ,670 MINORITY INTERESTS 2, , ,380 CAPITAL AND RESERVES Issued capital 28 48,841 36,607 Reserves , , , ,380 LO Lin Shing, Simon Director WONG Shiu Hoi, Peter Director

51 Consolidated Cash Flow Statement Year ended 31 March 2001 Notes HK$ 000 HK$ 000 NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 30(a) (703,855) 267,321 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 8,446 7,746 Dividends received from listed investments 5, Dividends paid (59,805) (36,607) Dividend paid to a minority shareholder of a subsidiary (2,550) Net cash outflow from returns on investments and servicing of finance (48,204) (28,198) TAXATION Hong Kong profits tax paid (51,090) (10,362) Hong Kong profits tax refunded 3,080 Overseas taxes paid (648) (333) Taxes paid (48,658) (10,695) INVESTING ACTIVITIES Purchases of fixed assets (36,211) (19,807) Proceeds from disposal of fixed assets 800 Increase in intangible assets (3,400) Increase in other assets (630) Acquisition of a subsidiary 30(c) (100) Disposal of subsidiaries 30(d) 15,659 Proceeds from disposal of an associate 1,015 Proceeds from disposal of a long term investment 118,108 Net cash inflow/(outflow) from investing activities 94,226 (18,792) NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING ACTIVITIES (706,491) 209,636 49

52 Consolidated Cash Flow Statement Year ended 31 March Note HK$ 000 HK$ 000 NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING ACTIVITIES (706,491) 209,636 FINANCING ACTIVITIES 30(b) New issue of shares 223, Net cash inflow from financing activities 223, INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (482,617) 209,646 Cash and cash equivalents at beginning of year 24,636 (185,020) Effect of foreign exchange rate changes, net (55) 10 CASH AND CASH EQUIVALENTS AT END OF YEAR (458,036) 24,636 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 35,725 78,058 Time deposits 5,004 Bank loans and overdrafts (498,765) (53,422) (458,036) 24,636

53 Balance Sheet 31 March 2001 Notes HK$ 000 HK$ 000 NON-CURRENT ASSETS Fixed assets 11 20,867 7,192 Interests in subsidiaries , ,267 Long term investment 16 34,213 18, , ,296 CURRENT ASSETS Other receivables 19 7, Cash and cash equivalents ,800 1,340 CURRENT LIABILITIES Other payables and accruals 23 14,423 42,188 Tax payable 1, ,671 42,375 NET CURRENT LIABILITIES (7,871) (41,035) 507, ,261 CAPITAL AND RESERVES Issued capital 28 48,841 36,607 Reserves , , , ,261 LO Lin Shing, Simon Director WONG Shiu Hoi, Peter Director 51

54 Notes to Financial Statements Notes to Financial Statements 31 March March CORPORATE INFORMATION During the year, the Group was involved in the following principal activities: securities and futures contracts broking and trading provision of margin financing provision of corporate advisory services provision of placing and underwriting services fund management provision of nominee and custodian services provision of brokerage and agency services for savings plan, liability and general insurance Upon the disposal of the Group s interests in New World Risk Management (L) Limited and its subsidiaries on 29 September 2000, the Group ceased to provide brokerage and agency services for liability and general insurance. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the remeasurement of equity investments, as further explained below. Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 March The results of the subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases: (a) sales of long and short term investments are recognised on the transaction dates when the relevant contract notes are executed; (b) commissions and brokerage income on dealings in securities, futures and options contracts and the profit and loss on trading in securities, futures and options contracts are recognised on the transaction dates when the relevant contract notes are executed;

55 Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue recognition (Continued) (c) consultancy and financial advisory fees, placing, underwriting and sub-underwriting commissions, and insurance brokerage commissions are recognised on an accrual basis in accordance with the terms of the underlying agreements and mandates; (d) income from fund management, custodian and handling services is recognised in the period in which such services are rendered; (e) interest income is recognised on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable; and (f) dividends from investments are recognised as income when the shareholders right to receive payment is established. Subsidiaries A subsidiary is a company in which the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors. Interests in subsidiaries are stated at cost unless, in the opinion of the directors, there have been permanent diminutions in values, when they are written down to values determined by the directors. Associate An associate is a company, not being a subsidiary, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. The Group s share of the post-acquisition results and reserves of an associate are included in the consolidated profit and loss account and consolidated reserves, respectively. The Group s interest in an associate is stated in the consolidated balance sheet at the Group s share of net assets under the equity method of accounting less any provision for diminution in value other than those considered to be temporary in nature deemed necessary by the directors. Goodwill Goodwill arising on consolidation of subsidiaries and on acquisition of associates represents the excess purchase consideration paid over the fair values ascribed to the net underlying assets acquired and is eliminated against reserves in the year of acquisition. On disposal of subsidiaries and associates, the relevant portion of attributable goodwill previously eliminated against reserves is written back and included in the calculation of the gain or loss on disposal. 53

56 Notes to Financial Statements 31 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset. Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows: Leasehold land Over the lease term Buildings 2.5% Leasehold improvements 20% Furniture, fixtures and equipment 20% Computer equipment 30% Motor vehicles 20% Motor yacht 10% The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset. Intangible assets Intangible assets, representing eligibility rights to trade on or through The Stock Exchange of Hong Kong Limited ( Stock Exchange Trading Right ) and the Hong Kong Futures Exchange Limited ( Futures Exchange Trading Right ), are stated at cost less accumulated amortisation. Amortisation is calculated on a straight-line basis over a period of ten years to write off the cost of the rights over their estimated useful lives. Other assets Other assets held on a long-term basis are stated at cost less provisions for any impairment deemed necessary by the directors, on an individual asset basis.

57 Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Long term investments Long term investments are non-trading investments in listed and unlisted equity securities intended to be held on a long term basis. Listed securities are stated at their fair values on the basis of their quoted market prices at the balance sheet date on an individual investment basis. Unlisted securities are stated at their estimated fair values on an individual basis. The gains or losses arising from changes in the fair values of securities are dealt with as movements in the long term investment revaluation reserve, until the securities are sold, collected, or otherwise disposed of, or until the securities are determined to be impaired, when the cumulative gain or loss derived from the securities recognised in the long term investment revaluation reserve, together with the amount of any further impairment, is charged to the profit and loss account for the period in which the impairment arises. Where the circumstances and events which led to an impairment cease to exist and there is persuasive evidence that the new circumstances and events will persist in the foreseeable future, the amount of the impairment previously charged and any appreciation in fair value is credited to the profit and loss account to the extent of the amount previously charged. Short term investments Short term investments are investments in equity securities held for trading purposes and are stated at their fair values on the basis of their quoted market prices at the balance sheet date on an individual investment basis. The gains or losses arising from changes in the fair values of such securities are credited or charged to the profit and loss account for the period in which they arise. Deferred tax Deferred tax is provided, using the liability method, on all significant timing differences to the extent it is probable that the liability will crystallise in the foreseeable future. A deferred tax asset is not recognised until its realisation is assured beyond reasonable doubt. Operating leases Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are charged to the profit and loss account on the straight-line basis over the lease terms. 55

58 Notes to Financial Statements 31 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign currencies Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at that date. Exchange differences are dealt with in the profit and loss account. On consolidation, the financial statements of overseas subsidiaries and associate are translated into Hong Kong dollars at the applicable rates of exchange ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve. Provident fund The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the Scheme ) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the Scheme. The Scheme became effective from 31 December Contributions are made based on a percentage of the employees basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the Scheme. The assets of the Scheme are held separately from those of the Group in an independently administered fund. The Group s employer contributions vest fully with the employees when contributed into the Scheme except for the Group s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contribution vesting fully, in accordance with the rules of the Scheme. Prior to the Scheme being effective, the Group operated a defined contribution retirement benefits scheme for those employees who were eligible to participate in the scheme. This scheme operated in a similar way to the Mandatory Provident Fund retirement benefit scheme, except that when an employee left the scheme prior to his/her interest in the Group s employee contributions vesting fully, the ongoing contributions payable by the Group were reduced by the relevant amount of forfeited contributions. With effect from 1 December 2000, this scheme was terminated. Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Cash equivalents For the purpose of the consolidated cash flow statement, cash equivalents represent short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance. For the purpose of balance sheet classification, cash equivalents represent assets similar in nature to cash, which are not restricted as to use.

59 Notes to Financial Statements 3. TURNOVER Turnover represents commissions and brokerage income on dealings in securities, futures and options contracts, interest income from margin and other financing; consultancy and advisory fees; commissions earned from share placing; underwriting and sub-underwriting; income from fund management; income from custodian and handling services; profit and loss on trading in securities, futures and options contracts; dividend income from investments; and commissions earned from insurance broking, after elimination of all significant intra-group transactions. Revenue from the following activities has been included in turnover HK$ 000 HK$ 000 Securities dealing and broking: Commission on securities dealings 130, ,104 Futures dealing and broking: Commission on dealings in futures/options/rolling forex/commodities contracts 11,268 13,211 Interest income: Margin and other financing 181, ,653 Corporate finance and advisory: Consultancy and advisory fee income 31,867 53,697 Placing, underwriting and sub-underwriting commission 38,171 99,440 Fund management: Commission on subscription and redemption of shares of a mutual fund Management income Income earned from provision of nominee and custodian services: Custodian and handling service fees 4,958 4,078 Income from proprietary trading: Profit/(loss) on securities trading (27,902) 9,274 Dividend income 5, Profit/(loss) on futures and options contracts trading 238 (2,245) Commission and brokerage income from insurance broking 27,991 37, , ,323 57

60 Notes to Financial Statements 31 March PROFIT FROM OPERATING ACTIVITIES The Group s profit from operating activities is arrived at after charging: HK$ 000 HK$ 000 Depreciation 20,230 12,196 Amortisation of intangible assets 491 Operating lease rentals in respect of: Land and buildings 20,134 17,683 Computer equipment 10,742 6,500 Auditors remuneration 1,609 1,870 Staff costs (including directors remuneration - note 5) Salaries and wages 132, ,287 Commission and bonuses 38,546 55,045 Contributions to provident fund 5,051 3,776 Less: Forfeited contributions (Note) (506) (424) Net provident fund contributions 4,545 3, , ,684 Loss on disposal of fixed assets 1 Loss on disposal of an associate 37 Provision for doubtful debts 25,300 11,380 Interest expense for securities broking and margin financing operations: On bank loans and overdrafts 18,562 14,653 On other loans wholly repayable within five years 50,774 48,934 and after crediting: Gain on disposal of subsidiaries 18,132 Gain on disposal of a long term investment (after a transfer from the long term investment revaluation reserve of a surplus of HK$18,861,000) 110,539 Gain on disposal of fixed assets 288 Unrealised gains/(losses) on short term listed investments, net (37,274) 20,297 Exchange gains/(losses), net (160) 160 Dividend income from listed investments 5, Interest income 189, ,399 Note: The amount of forfeited contributions available to reduce contributions in future years at 31 March 2001 was not material.

61 Notes to Financial Statements 5. DIRECTORS REMUNERATION Directors remuneration disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance is as follows: Group HK$ 000 HK$ 000 Fees: Executive 1,500 1,500 Non-executive 1, Independent non-executive ,250 2,500 Other emoluments: Executive: Salaries, allowances and benefits in kind 10,363 8,780 Bonuses paid and payable 6,465 10,400 Provident fund contributions ,513 22,278 The remuneration of the directors fell within the following bands: Number of directors Nil - HK$1,000, HK$1,500,001 - HK$2,000,000 1 HK$2,000,001 - HK$2,500, HK$3,000,001 - HK$3,500,000 1 HK$4,500,001 - HK$5,000, HK$6,000,001 - HK$6,500,000 2 There was no arrangement under which a director waived or agreed to waive any remuneration during the year. 59

62 Notes to Financial Statements 31 March FIVE HIGHEST PAID EMPLOYEES The five highest paid employees of the Group during the year included four (2000: four) directors, details of whose remuneration are disclosed in note 5 above. The details of the remuneration of the remaining one (2000: one) non-director, highest paid employee are as follows: Group HK$ 000 HK$ 000 Salaries, allowances and benefits in kind 1,330 1,143 Bonuses paid and payable Provident fund contributions ,074 2, TAX Hong Kong profits tax has been provided at the rate of 16% (2000: 16%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof HK$ 000 HK$ 000 Group: Provision for tax in respect of profit for the year: Hong Kong 6,292 32,935 Mainland China Overseas Underprovision/(overprovision) in prior year (1,341) 313 5,237 33,608 Share of tax attributable to an associate: Overseas Tax charge for the year 5,350 33,727 There was no significant unprovided deferred tax in respect of the year (2000: Nil).

63 Notes to Financial Statements 8. NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS The net profit from ordinary activities attributable to shareholders dealt with in the financial statements of the Company is HK$44,308,000 (2000: HK$121,094,000). 9. DIVIDENDS HK$ 000 HK$ 000 Interim - HK4 cents (2000: HK8 cents) per ordinary share 19,536 29,286 Proposed final - HK2 cents (2000: HK11 cents) per ordinary share 9,766 40,268 29,302 69, EARNINGS PER SHARE The calculation of basic earnings per share is based on the net profit attributable to shareholders for the year of HK$96,149,000 (2000: HK$211,185,000), and the weighted average number of 428,774,354 (2000: 366,070,425) ordinary shares in issue during the year. The calculation of diluted earnings per share for the year ended 31 March 2001 is based on the net profit attributable to shareholders for the year of HK$96,149,000 (2000: HK$211,185,000). The weighted average number of ordinary shares used in the calculation is the 428,774,354 (2000: 366,070,425) ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average of 294,307 (2000: 2,815,567) ordinary shares assumed to have been issued at no consideration on the deemed exercise of all warrants and share options during the year. 61

64 Notes to Financial Statements 31 March FIXED ASSETS Group Leasehold Leasehold Furniture, land and improve- fixtures and Computer Motor Motor buildings ments equipment equipment vehicles yacht Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cost: At beginning of year 3,219 23,545 16,375 18,024 4,631 3,133 68,927 Additions 1,178 9,238 6,765 16,771 2,259 36,211 Disposals (56) (1,396) (1,452 ) Disposal of subsidiaries (3,191) (1,805) (3,950) (8,946 ) Exchange realignment (49) (49) At 31 March ,397 29,592 21,230 30,845 5,494 3,133 94,691 Accumulated depreciation: At beginning of year ,130 12,717 13,289 1,737 1,238 43,373 Provided during the year 110 5,876 3,441 9,267 1, ,230 Disposals (56) (884) (940) Disposal of subsidiaries (3,177) (1,457) (3,514) (8,148 ) Exchange realignment (22) (22) At 31 March ,829 14,623 19,042 2,076 1,551 54,493 Net book value: At 31 March ,025 12,763 6,607 11,803 3,418 1,582 40,198 At 31 March ,957 9,415 3,658 4,735 2,894 1,895 25,554

65 Notes to Financial Statements 11. FIXED ASSETS (Continued) Company Leasehold Leasehold Furniture, land and improve- fixtures and Computer Motor Motor buildings ments equipment equipment vehicles yacht Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cost: At beginning of year 1,305 1, ,631 3,133 10,653 Additions 1,178 9,230 6, ,259 19,268 Disposal (1,396) (1,396) At 31 March ,483 10,633 6, ,494 3,133 28,525 Accumulated depreciation: At beginning of year ,737 1,238 3,461 Provided during the year 62 2,141 1, , ,081 Disposal (884) (884) At 31 March ,506 1, ,076 1,551 7,658 Net book value: At 31 March ,388 8,127 5, ,418 1,582 20,867 At 31 March ,272 1, ,894 1,895 7,192 The Group s leasehold land and buildings included above are held under the following lease terms: Mainland Hong Kong China Total HK$ 000 HK$ 000 HK$ 000 At cost: Medium term lease 1,914 1,914 Long term lease 1,178 1,305 2,483 3,092 1,305 4,397 63

66 Notes to Financial Statements 31 March INTANGIBLE ASSETS Group HK$ 000 HK$ 000 Cost: At beginning of year 4,731 Additions 3,400 Transfer from other assets 4,731 At 31 March 8,131 4,731 Accumulated amortisation: At beginning of year Provided during the year 491 At 31 March 491 Net book value: At 31 March 7,640 4,731 Pursuant to the restructuring of The Stock Exchange of Hong Kong Limited (the Stock Exchange ) and the Hong Kong Futures Exchange Limited (the Futures Exchange ), effective on 6 March 2000, the Group received five Stock Exchange Trading Rights, two Futures Exchange Trading Rights and 6,812,000 shares of HK$1 each in the Hong Kong Exchanges and Clearing Limited (the HKEC Shares ) in exchange for its five shares previously held in the Stock Exchange and two shares previously held in the Futures Exchange. In the prior year, the carrying costs of the previously held shares in the Stock Exchange and Futures Exchange (note 16) were apportioned to the Stock Exchange Trading Rights, the Futures Exchange Trading Rights and the HKEC Shares on the basis of their respective estimated fair values on 6 March The Stock Exchange Trading Rights and Futures Exchange Trading Rights (the Trading Rights ) have been classified as intangible assets. At 31 March 2000, the HKEC Shares were classified as an unlisted long term equity investment in note 16 to the financial statements. Subsequent to the classification under these balance sheet categories, the Trading Rights and the HKEC Shares have been treated under the accounting policies of the respective categories. No amortisation was charged against the Trading Rights for the prior year due to the proximity of the restructuring date to 31 March 2000.

67 Notes to Financial Statements 13. OTHER ASSETS Group HK$ 000 HK$ 000 At cost: Deposits with the Stock Exchange: Compensation fund Fidelity fund Dealers deposit with Securities and Futures Commission Stamp duty deposit Contributions to The Central Clearing and Settlement System Guarantee Fund Admission fee paid to Hong Kong Securities Clearing Company Limited Admission fee paid to The SEHK Options Clearing House Limited Reserve fund with The SEHK Options Clearing House Limited 1,500 1,500 Deposit with the Compensation Fund of the Futures Exchange Deposit with HKFE Clearing Corporation Limited in contribution to the reserve fund 1,500 1,500 Compensation fund paid to The Shenzhen Stock Exchange Co., Ltd Settlement Risk Fund paid to The Shanghai Securities Central Clearing & Registration Corporation Club debentures ,985 6,355 65

68 Notes to Financial Statements 31 March INTERESTS IN SUBSIDIARIES Company HK$ 000 HK$ 000 Unlisted shares, at cost 105, ,477 Due from subsidiaries 379, ,790 Due to subsidiaries (24,080) 460, ,267 The amounts due from subsidiaries are unsecured, interest-free, except for an amount of HK$181,456,000 (2000: HK$58,124,000) which bears interest at Hong Kong prime rate per annum, and has no fixed terms of repayment. The amounts due to subsidiaries are unsecured, interest-free and have no fixed terms of repayment. Particulars of the subsidiaries are as follows: Place of Nominal value Percentage of incorporation of issued equity attributable and ordinary to the Company Name operations share capital Direct Indirect Principal activities Tai Fook (BVI) Limited British Virgin HK$11, % Investment holding Islands Tai Fook Finance Hong Kong HK$2 100% Investment holding, Company Limited (Non-voting money lending and deferred (Note 1) securities trading HK$100,700,001) Tai Fook Securities Hong Kong HK$100,000, % Investment holding, Company Limited securities broking and dealing, margin financing, provision of placing, underwriting and sub-underwriting, and nominee services Tai Fook Nominees Hong Kong HK$50,000, % Securities trading Company Limited

69 Notes to Financial Statements 14. INTERESTS IN SUBSIDIARIES (Continued) Place of Nominal value Percentage of incorporation of issued equity attributable and ordinary to the Company Name operations share capital Direct Indirect Principal activities Tai Fook Futures Limited Hong Kong HK$20,000, % Futures, options and rolling forex broking and trading Tai Fook Research Hong Kong HK$1,000, % Provision of Limited research services Tai Fook Capital Limited Hong Kong HK$10,000, % Provision of corporate advisory services Tai Fook Investment Hong Kong HK$37,500, % Investment holding, Services Limited securities broking and dealing Tai Fook Risk Hong Kong HK$100, % Insurance Consultants Limited** broking (Note 2) Ocean Pilot British Virgin US$1 100% Investment Investments Limited* Islands holding Prosper Ideal Limited* Hong Kong HK$2 100% Dormant Tai Fook Securities United 50, % Provision of (U.K.) Limited Kingdom advisory services Tai Fook Securities United States US$50, % Securities broking (U.S.) Inc. of America Tai Fook Asset Hong Kong HK$2,000, % Investment holding Management Limited and asset management Tai Fook Asset Hong Kong HK$2 100% Proprietary trading Management of derivative Nominees Limited* products 67

70 Notes to Financial Statements 31 March INTERESTS IN SUBSIDIARIES (Continued) Place of Nominal value Percentage of incorporation of issued equity attributable and ordinary to the Company Name operations share capital Direct Indirect Principal activities Tai Fook Fund Bermuda/ US$12, % Fund management Management Hong Kong Company Limited Tai Fook Growth Cayman Islands HK$2 100% Authorised Fund Enterprise Fund Limited* Tai Fook Information British Virgin US$1 100% Investment holding Technology Inc. Islands Tai Fook Net Inc. British Virgin US$1 100% Investment holding Islands Tai Fook On-line Inc. British Virgin US$1 100% Investment holding Islands Tai Fook Information British Virgin US$1 100% Investment holding Systems Inc.* Islands Tai Fook e-wealth British Virgin US$1 100% Investment holding club Inc.* Islands Tai Fook Net Limited Hong Kong HK$1,000, % Dormant Tai Fook On-line Hong Kong HK$6,000, % Provision of Services Limited electronic financial services Tai Fook Information Hong Kong HK$11,000, % Provision of information Systems Limited* technology solution E-wealth Club Limited* Hong Kong HK$1,000, % Club association * incorporated during the year ** disposed of and reacquired during the year

71 Notes to Financial Statements 14. INTERESTS IN SUBSIDIARIES (Continued) Notes: 1. The non-voting deferred shares carry no rights to dividends, no rights to attend or vote at general meetings and no rights to receive any surplus in a return of capital, in a winding-up or otherwise in respect of the first HK$100,000,000,000,000 thereof. 2. Subsequent to the balance sheet date, Tai Fook Risk Consultants Limited changed its name to Tai Fook Investment Consultants Limited on 25 April INTEREST IN AN ASSOCIATE Group HK$ 000 HK$ 000 Share of net assets 854 Due from an associate The Group s share of the post-acquisition reserves of the associate at 31 March 2001 was nil (2000: HK$854,000). The amount due from an associate in the prior year was unsecured, interest-free and was repaid during the year. Particulars of the associate during the year were as follows: Place of Percentage of incorporation ownership interest Business and attributable Name structure operations to the Group Principal activity New World Insurance Corporate Canada 41.65% Insurance broking Services (Ontario) Limited 69

72 Notes to Financial Statements 31 March INVESTMENTS Long term investments Group Company HK$ 000 HK$ 000 HK$ 000 HK$ 000 Listed equity investment in Hong Kong, at market value 34,213 18,837 34,213 18,837 Unlisted equity investment in Hong Kong, at fair value (Note) 26,430 34,213 45,267 34,213 18,837 Note: The unlisted equity investment represented the HKEC Shares acquired in the restructuring as detailed in note 12. On 27 June 2000, the HKEC Shares were listed on the Stock Exchange. The Group subsequently disposed of the HKEC Shares. At the balance sheet date, the listed investment was pledged to banks to secure certain banking facilities granted to the Company s subsidiaries. Short term investments Group HK$ 000 HK$ 000 Listed equity investments, at market value: Hong Kong 51,097 98,460 Elsewhere U.S. Government bond, at fair value 1,516 1,513 52, ,111

73 Notes to Financial Statements 17. ADVANCES TO CUSTOMERS Advances to customers represent loans to margin clients which are secured by the underlying pledged securities, are repayable on demand and bear interest at commercial rates. No ageing analysis is disclosed as, in the opinion of the directors, an ageing analysis is not relevant in view of the nature of the business of securities margin financing. 18. ACCOUNTS RECEIVABLE Group HK$ 000 HK$ 000 Accounts receivable arising from the ordinary course of business of dealing in: Securities and equity options transactions: Clearing house, brokers and dealers 6,586 30,343 Cash clients 27,093 87,458 Futures and options contracts transactions: Clearing house, brokers and dealers 43,677 68,792 Payment in respect of the purchase of securities for which listing is pending on the Stock Exchange 34,631 Accounts receivable arising from the ordinary course of business of the provision of corporate advisory, placing and underwriting services and insurance broking 7,822 29,779 85, ,003 The settlement terms of accounts receivable arising from the ordinary course of business of dealing in securities and equity options transactions are two days after the trade date, and those of accounts receivable arising from the ordinary course of business of dealing in futures and options contracts transactions are one day after the trade date. The above balances are all aged within 30 days. The settlement terms of the payment in respect of the purchase of securities for which listing was pending on the Stock Exchange were in accordance with the terms set out in the subscription agreement. The above balance was aged within 30 days. 71

74 Notes to Financial Statements 31 March ACCOUNTS RECEIVABLE (Continued) The ageing analysis of accounts receivable arising from the ordinary course of business of the provision of corporate advisory, placing and underwriting services and insurance broking is as follows: HK$ 000 HK$ 000 Within 3 months 5,122 22,155 Between 4 to 6 months 1,950 6,566 Between 7 to 12 months Over 1 year ,822 29,779 The Group maintains a defined credit policy which is regularly reviewed by the Credit Committee. 19. OTHER RECEIVABLES Group Company Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 Prepayments, deposits and other debtors 18,527 44,269 7, Due from related companies 20 1,707 33,945 Loans receivable 8,593 9,129 28,827 87,343 7, DUE FROM RELATED COMPANIES The amounts due from related companies are unsecured, interest-free and have no fixed terms of repayment.

75 Notes to Financial Statements 21. CASH AND CASH EQUIVALENTS Group Company HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cash and bank balances 35,725 78, Time deposits 5,004 40,729 78, ACCOUNTS PAYABLE Group HK$ 000 HK$ 000 Accounts payable arising from the ordinary course of business of dealing in: Securities and equity options transactions: Clearing house, brokers and dealers 12,586 Cash clients 280, ,738 Margin clients 178, ,386 Futures and options contracts transactions: Clients 92,109 88,202 Accounts payable arising from the ordinary course of business of the provision of placing and underwriting services and insurance broking 1,726 66, , ,215 73

76 Notes to Financial Statements 31 March ACCOUNTS PAYABLE (Continued) The settlement terms of accounts payable arising from the ordinary course of business of dealing in securities and equity options transactions in respect of clearing house, brokers and dealers and cash clients are two days after the trade date. Included in accounts payable to cash clients arising from the ordinary course of business of dealing in securities and equity options transactions is an amount of approximately HK$263,674,000 (2000: HK$325,722,000) representing these clients undrawn monies/excess deposits placed with the Group. The balances are repayable on demand. No ageing analysis is disclosed as, in the opinion of the directors, an ageing analysis is not relevant in view of the nature of the business of dealing in securities and equity options. Accounts payable to margin clients arising from the ordinary course of business of dealing in securities and equity options transactions are repayable on demand. No ageing analysis is disclosed as, in the opinion of the directors, an ageing analysis is not relevant in view of the nature of the business of dealing in securities and equity options. Accounts payable to clients arising from the ordinary course of business of dealing in futures and options contracts transactions are margin deposits received from clients for their trading of futures and options contracts. The excesses of the outstanding amounts over the required margin deposit stipulated are repayable to clients on demand. No ageing analysis is disclosed as, in the opinion of the directors, an ageing analysis is not relevant in view of the nature of the business of dealing in futures and options contracts. The ageing analysis of accounts payable arising from the ordinary course of business of the provision of placing and underwriting services and insurance broking is as follows: HK$ 000 HK$ 000 Within 3 months 1,726 63,061 Between 4 to 6 months 3,828 1,726 66,889

77 Notes to Financial Statements 23. OTHER PAYABLES AND ACCRUALS Group Company Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 Accruals and other liabilities 41,345 45,440 4,359 1,920 Due to related companies , Proposed final dividend 9,766 40,268 9,766 40,268 51, ,443 14,423 42, DUE TO RELATED COMPANIES The amounts due to related companies in the prior year included an amount of HK$238,747,000 due to Chow Tai Fook Jewellery Company Limited, which was repaid during the year. Except for an amount of HK$237,000,000 which was secured by the listed shares held by the Group as security for advances to customers (with the customers consent) and which bore interest at Hong Kong prime rate per annum, the balance was unsecured and interest-free. The remaining balance of HK$3,988,000 was unsecured, interest-free and had no fixed terms of repayment. The amounts due to related companies in the current year are unsecured, interest-free and have no fixed terms of repayment. 25. OTHER LOANS Group HK$ 000 HK$ 000 Secured 5,164 43,157 Unsecured 107, , , ,109 The secured loan is secured by the listed shares held by the Group as security for advances to customers (with the customers consent) and by the Group s listed shares, bears interest at 6% per annum and is repayable on demand. The unsecured loans bear interest at rates ranging from 4% to 6% per annum and are repayable within one year. 75

78 Notes to Financial Statements 31 March BANK LOANS AND OVERDRAFTS Group HK$ 000 HK$ 000 Bank overdrafts Secured 13,684 9,422 Unsecured 81 Bank loans, secured 485,000 44, ,765 53,422 The secured bank loans and overdrafts of the Group are secured by the listed shares held by the Group as security for advances to customers (with the customers consent) and by the Group s listed shares. 27. DEFERRED TAX Group HK$ 000 HK$ 000 Balance at beginning of year Arising from disposal of subsidiaries (29) At 31 March The provision for deferred tax as shown in the balance sheet relates principally to timing differences arising from accelerated depreciation allowances.

79 Notes to Financial Statements 28. SHARE CAPITAL Shares Company HK$ 000 HK$ 000 Authorised: 600,000,000 ordinary shares of HK$0.10 each 60,000 60,000 Issued and fully paid: 488,409,699 (2000: 366,074,854) ordinary shares of HK$0.10 each 48,841 36,607 During the year, the following movements in share capital were recorded: (a) 280,000 shares of HK$0.10 each were issued for cash at a subscription price of HK$1.836 per share pursuant to the exercise of the Company s share options for a total cash consideration, before expenses, of HK$514,080. (b) 24,420 shares of HK$0.10 each were issued for cash at a subscription price of HK$1.77 per share pursuant to the exercise of the Company s warrants for a total cash consideration, before expenses, of HK$43,223. (c) On 18 and 28 September 2000, pursuant to two subscription agreements dated 19 August 2000 entered into by the Company and Dominance Resources Limited ( DRL ), an independent third party, and the Company and Quality First Services Limited ( QFSL ), an indirect non-wholly owned subsidiary of New World Development Company Limited, for DRL s and QFSL s subscription of 24,406,085 and 97,624,340 new ordinary shares of the Company at a subscription price of HK$1.83 per share, 122,030,425 new ordinary shares of the Company were issued for a total cash consideration, before expenses, of HK$223,315,678. Following the subscription, QFSL became a substantial shareholder of the Company. QFSL changed its name to NWS Financial Management Services Limited on 23 August

80 Notes to Financial Statements 31 March SHARE CAPITAL (Continued) Shares (Continued) A summary of the transactions during the year with reference to the above movements of the Company s ordinary share capital is as follows: Number of ordinary shares of HK$0.10 each Amount HK$ 000 As at 1 April ,074,854 36,607 Exercise of options to acquire shares at a subscription price of HK$1.836 per share in the Company 280, Exercise of warrants to acquire shares at a subscription price of HK$1.77 per share in the Company 24,420 3 Issue of new shares at a cash subscription price of HK$1.83 per share to DRL and QFSL pursuant to two subscription agreements dated 19 August ,030,425 12,203 As at 31 March ,409,699 48,841 Warrants Pursuant to an ordinary resolution passed at the special general meeting of the Company held on 19 September 1997, a bonus issue of warrants was made in the proportion of one warrant for every five shares held by members on the register of members of the Company on 19 September A total of 74,000,000 warrants were issued on 22 September 1997 pursuant to this bonus issue. Each warrant entitled the holder thereof to subscribe in cash for one fully paid ordinary share of HK$0.10 at an initial subscription price of HK$4.125 per share, subject to adjustment, at any time from the date of commencement of dealing of the warrants on The Stock Exchange of Hong Kong Limited on 29 September 1997 to 31 August 1999 (both dates inclusive). In the prior year, two warrants were exercised and the remaining 73,999,196 warrants of the Company lapsed unexercised on 31 August Pursuant to an ordinary resolution passed at the special general meeting of the Company held on 8 November 1999, a bonus issue of warrants was made in the proportion of one warrant for every five shares held by members on the register of members of the Company on 5 November A total of 73,213,760 warrants were issued on 8 November 1999 pursuant to this bonus issue. Each warrant entitles the holder thereof to subscribe in cash for one fully paid ordinary share of HK$0.10 at an initial subscription price of HK$1.77 per share, subject to adjustment, at any time from the date of commencement of dealing of the warrants on The Stock Exchange of Hong Kong Limited on 15 November 1999 to 31 October 2002 (both dates inclusive).

81 Notes to Financial Statements 28. SHARE CAPITAL (Continued) Warrants (Continued) In the prior year, 6,050 warrants were exercised and as at 31 March 2000, the Company had 73,207,710 warrants outstanding. During the year, 24,420 warrants were exercised and at the balance sheet date, the Company had 73,183,290 warrants outstanding. The exercise in full of such warrants would, under the present capital structure of the Company, result in the issue of 73,183,290 additional ordinary shares of HK$0.10 each and generate cash proceeds to the Company of HK$129,534,423 before the related share issue expenses. Share options During the year, 280,000 share options were exercised and the remaining 5,960,000, 18,000,000 and 790,000 share options granted by the Company to certain directors and employees of the Group on 7 April 1997, 5 September 1997 and 29 September 1997 pursuant to the share option scheme adopted on 17 July 1996 lapsed unexercised on 8 October 2000, 7 March 2001 and 30 March 2001, respectively. Details of the movements in the share options during the year are as follows: 8 October 7 March 30 March 1997 to 1998 to 1998 to 8 October 7 March 30 March Exercise period Number of share options outstanding at beginning of year 6,240,000 18,000, ,000 Number of share options exercised during the year (280,000) Number of share options expired during the year (5,960,000) (18,000,000) (790,000) Number of share options outstanding at end of year Exercise price per share (HK$)

82 Notes to Financial Statements 31 March RESERVES Group Long term Share Capital investment Exchange premium redemption Contributed Capital revaluation fluctuation Retained account reserve surplus reserve reserve reserve profits Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 April , ,634 38,665 (62,790 ) , ,188 Premium on shares issued upon exercise of warrants Movement in fair values of long term investments 24,013 24,013 Release on disposal of an associate (104 ) (104) Exchange adjustment on translation of overseas subsidiaries and associates Net profit for the year 211, ,185 Dividends (69,554) (69,554) At 31 March , ,634 38,665 (38,777) , ,773 At 1 April , ,634 38,665 (38,777 ) , ,773 Premium on new shares issued 211, ,113 Premium on shares issued upon exercise of warrants Premium on shares issued upon exercise of share options Movement in fair value of a long term investment 15,376 15,376 Goodwill eliminated against capital reserve released on disposal of subsidiaries 4,106 4,106 Release on disposal of subsidiaries (20) (20) Release on disposal of a long term investment (18,861 ) (18,861) Exchange adjustment on translation of overseas subsidiaries (120 ) (120) Net profit for the year 96,149 96,149 Dividends (29,302) (29,302) At 31 March , ,634 42,771 (42,262) , ,741

83 Notes to Financial Statements 29. RESERVES (Continued) Company Long term Share Capital investment premium redemption Contributed revaluation Retained account reserve surplus reserve profits Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 April , ,310 (62,790) 4, ,952 Premium on shares issued upon exercise of warrants Movement in fair value of a long term investment 5,152 5,152 Net profit for the year 121, ,094 Dividends (69,554) (69,554) At 31 March , ,310 (57,638) 56, ,654 At 1 April , ,310 (57,638) 56, ,654 Premium on new shares issued 211, ,113 Premium on shares issued upon exercise of warrants Premium on shares issued upon exercise of share options Movement in fair value of a long term investment 15,376 15,376 Net profit for the year 44,308 44,308 Dividends (29,302) (29,302) At 31 March , ,310 (42,262) 71, ,676 81

84 Notes to Financial Statements 31 March RESERVES (Continued) Profits retained by: Group HK$ 000 HK$ 000 The Company and subsidiaries 466, ,725 Associates , ,583 The contributed surplus of the Group arose in 1996 as a result of the group reorganisation in preparation for listing and represented the difference between the nominal value of the share capital issued by the Company and the aggregate of the share capital and share premium of the subsidiaries acquired. The contributed surplus of the Company arose in 1996 as a result of the same group reorganisation and represented the difference between the nominal value of the share capital issued by the Company and the aggregate net asset value of the subsidiaries acquired at the date of acquisition. Under the Companies Act 1981 of Bermuda (as amended), the Company may make distributions to its members out of the contributed surplus provided certain conditions are met.

85 Notes to Financial Statements 30. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of profit from operating activities to net cash inflow/(outflow) from operating activities HK$ 000 HK$ 000 Profit from operating activities 101, ,576 Interest income (8,446) (7,746) Depreciation 20,230 12,196 Amortisation of intangible assets 491 Dividends from listed investments (5,705) (663) Loss/(gain) on disposal of fixed assets (288) 1 Gain on disposal of subsidiaries (18,132) Loss on disposal of an associate 37 Gain on disposal of a long term investment (110,539) Provision for doubtful debts 25,300 11,380 Unrealised losses/(gains) on short term investments, net 37,274 (20,297) Decrease in amounts due from associates Decrease/(increase) in short term investments 9,922 (19,714) Decrease/(increase) in advances to customers (120,459) 41,061 Decrease/(increase) in accounts receivable 143,846 (34,410) Decrease/(increase) in prepayments, deposits and other debtors 20,334 (30,542) Decrease in amounts due from related companies 1,042 9,868 Decrease in loans receivable Decrease/(increase) in cash held on behalf of customers 116,507 (479,767) Increase/(decrease) in accounts payable (157,550) 139,547 Increase in accruals and other liabilities 2,307 26,299 Decrease in amounts due to related companies (221,798) (267,289) Increase/(decrease) in other loans (540,714) 641,628 Net cash inflow/(outflow) from operating activities (703,855) 267,321 83

86 Notes to Financial Statements 31 March NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (Continued) (b) Analysis of changes in financing during the year Share capital and share premium account HK$ 000 Minority interests HK$ 000 Balance at 1 April ,557 1,099 Net cash inflow from financing activities 10 Share of profit for the year 1,205 Effect of foreign exchange translation (14) Balance at 31 March 2000 and 1 April ,567 2,290 Net cash inflow from financing activities 223,874 Share of profit for the year 839 Dividend paid to a minority shareholder of a subsidiary (2,550) Disposal of subsidiaries (579) Balance at 31 March ,441 (c) Acquisition of a subsidiary The net asset acquired represented other receivables of HK$100,000 which was satisfied by cash consideration paid of the same amount. The subsidiary acquired during the year made no significant contribution to the Group in respect of the cash flows, turnover and contribution to the consolidated profit after tax and before minority interests for the year.

87 Notes to Financial Statements 30. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (Continued) (d) Disposal of subsidiaries HK$ 000 HK$ 000 Net assets disposed of: Fixed assets 798 Interest in an associate 1,106 Accounts receivable 20,603 - Prepayments, deposits and other debtors 5,430 - Due from related companies 31,196 Prepaid tax 403 Cash held on behalf of customers 18,905 Cash and bank balances 9,841 Accounts payable (56,951) Accruals and other liabilities (6,357) Due to related companies (20,295) Tax payable (789) Deferred tax (29) Minority interests (579) 3,282 Goodwill eliminated against capital reserve released upon disposal 4,106 Exchange reserve released (20) Gain on disposal of subsidiaries 18,132 25,500 Satisfied by: Cash 25,500 Analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiaries: HK$ 000 HK$ 000 Cash consideration received 25,500 Cash and bank balances disposed of (9,841) Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries 15,659 85

88 Notes to Financial Statements 31 March NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (Continued) (d) Disposal of subsidiaries (Continued) The subsidiaries disposed of during the year contributed HK$17,424,000 to the Group s net operating cash flows, paid HK$16,216,000 in respect of the net returns on investments and servicing of the finance, paid HK$546,000 in respect of tax and paid HK$231,000 in respect of investing activities, but had no significant impact in respect of the financing activities. The results of the subsidiaries disposed of during the year had no significant impact on the turnover or the consolidated profit after tax for the year ended 31 March (e) Major non-cash transaction As further detailed in note 12 to the financial statements, during the prior year, the Group received five Stock Exchange Trading Rights, two Futures Exchange Trading Rights and 6,812,000 shares of HK$1 each in the Hong Kong Exchanges and Clearing Limited in exchange for its shares held in the Stock Exchange and the Futures Exchange. 31. COMMITMENTS (a) Capital commitments Group Company HK$ 000 HK$ 000 HK$ 000 HK$ 000 Contracted for 3,379 1,876 Authorised, but not contracted for 4,550 4,550 7,929 6,426 In addition, the Group s share of capital commitment of a joint venture not included in the above is as follows: Group HK$ 000 HK$ 000 Authorised, but not contracted for 4,596 The Group, together with the other venturers, have committed to invest in a Sino-foreign joint stock company whereby the aggregate capital commitment, being the total registered capital, is HK$47,100,000. Pursuant to an agreement entered into between the venturers, a 2.5% interest in the joint venture is attributable to the Group for which the Group s capital commitment amounted to HK$4,596,000.

89 Notes to Financial Statements 31. COMMITMENTS (Continued) (b) At 31 March 2001, the Company and the Group had commitments under non-cancellable operating leases in respect of land and buildings expiring in the following year as follows: Group Company HK$ 000 HK$ 000 HK$ 000 HK$ 000 Land and buildings expiring: Within one year 9, ,526 In the second to fifth years, inclusive 11,752 16,686 7,471 12,254 21,101 17,006 14,997 12, CONTINGENT LIABILITIES At the balance sheet date, corporate guarantees provided by the Company for banking facilities granted to subsidiaries amounted to HK$1,705,000,000 (2000: HK$1,385,000,000). The amounts drawn down against these facilities at the year end amounted to HK$488,684,000 (2000: HK$52,301,000). 33. RELATED PARTY TRANSACTIONS (a) During the year, the Company leased from New World Tower Company Limited, a company controlled by Chow Tai Fook Enterprises Limited ( CTF ), which is itself a company controlled by the family of Mr. Cheng Kar Shun, certain office premises at New World Tower, Queen s Road Central, Hong Kong, at a monthly rental, including management and air-conditioning fees, of approximately HK$1,217,000 for various terms between one to four years. The Group paid total rental of HK$14,604,000 (2000: HK$11,040,000) for the year. The rentals paid were calculated by reference to open market rentals as confirmed to the Group by an independent professional valuer. (b) Chow Tai Fook Jewellery Company Limited ( CTFJ ), an affiliated company of CTF and a company controlled by the family of Mr. Cheng Kar Shun, made advances to the Group during the year and such advances were repaid prior to the year end. Of the outstanding balance of HK$238,747,000 as at 31 March 2000, HK$237,000,000 was secured by the listed shares held by the Group as security for advances to customers (with customers consent) and bore interest at Hong Kong prime rate per annum. The remaining balance of HK$1,747,000 was unsecured and interest-free. The interest paid to CTFJ for the year amounted to HK$35,567,000 (2000: HK$35,883,000). 87

90 Notes to Financial Statements 31 March RELATED PARTY TRANSACTIONS (Continued) (c) During the year, the Group provided corporate advisory services to the companies which are controlled by the family of Mr. Cheng Kar Shun and to the companies of which Mr. Lo Lin Shing, Simon, a director of the Company, is also a director of the companies. The corporate advisory fee income from those transactions amounted to HK$4,545,000 (2000: HK$21,170,000) for the year and were charged in accordance with terms similar to those offered to unrelated customers. (d) During the year, the Group provided insurance services to various related companies which are controlled by the family of Mr. Cheng Kar Shun. The insurance brokerage commission income arising from those transactions amounted to HK$11,136,000 (2000: HK$21,623,000) for the year and was charged at a rate with reference to the size and nature of the underlying insurance policy. (e) On 19 August 2000, the Company entered into a conditional sale and purchase agreement with QFSL to dispose of its entire interests in New World Risk Management (L) Limited to QFSL for a cash consideration of HK$25,500,000 (the Transaction ). The Transaction gave rise to a gain on disposal of HK$18,132,000. Further details of the Transaction are set out in the Company s circular dated 30 August The Transaction was completed on 29 September On the same date, the Company entered into a subscription agreement with QFSL for QFSL s subscription of 97,624,340 new ordinary shares of the Company at a subscription price of HK$1.83 per share (the Subscription ). Further details of the Subscription are set out in the Company s circular dated 30 August On 28 September 2000, 97,624,340 new ordinary shares of the Company were issued to QFSL for a total cash consideration, before expenses, of HK$178,653,000 and QFSL became a substantial shareholder of the Company. 34. CONNECTED TRANSACTIONS (a) In the prior year, the Company advanced a loan of HK$3,500,000 to New World Insurance Services Limited ( NW Insurance Services ), a 85% owned subsidiary, to finance the working capital of NW Insurance Services. The loan was unsecured, bore interest at Hong Kong prime rate per annum and was repaid during the year. (b) In the prior year, the Company executed in the ordinary and usual course of business a guarantee of HK$10,000,000 for banking facilities granted to NW Insurance Services for its operations. The guarantee was withdrawn following the disposal of the Company s interests in New World Risk Management (L) Limited and its subsidiaries on 29 September (c) Other connected transactions are set out in note 33 to the financial statements.

91 Notes to Financial Statements 35. POST BALANCE SHEET EVENTS (a) On 17 April 2001, the Company entered into a renovation agreement with Kentfull Contracting Limited, a 65% owned subsidiary of New World Services Limited, a company controlled by the family of Mr. Cheng Kar Shun, for the renovation of certain of the Group s office premises situated at New World Tower, Queen s Road Central, Hong Kong, for a consideration of HK$6,500,000. The details of this arrangement were disclosed in an announcement dated 17 April 2001 made by the Company. (b) On 15 May 2001, 36,400,000 share options, representing approximately 7.45% of the issued share capital of the Company, were granted to certain directors and employees of the Company and its subsidiaries to subscribe for shares in the Company pursuant to the share option scheme of the Company adopted on 17 July The subscription price of the options granted under the scheme is HK$0.93 (being not less than 80% of the average of the closing prices of the Company s shares on the Stock Exchange for the five business days from 27 April 2001 to 7 May 2001) and the exercise period is from 16 November 2001 to 16 November The exercise in full of the outstanding options would, with the present capital structure of the Company, result in the issue of 36,400,000 additional ordinary shares of HK$0.10 each, and generate cash proceeds to the Company of HK$33,852,000 before the related share issue expenses. 36. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved by the board of directors on 5 July

92 NOTICE OF ANNUAL GENERAL MEETING