Corporate information Chairman s statement Directors and senior management Report of the directors... 10

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2 Annual Report 2004 CONTENTS Corporate information... 2 Chairman s statement... 3 Directors and senior management... 8 Report of the directors Report of the auditors Consolidated profit and loss account Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash flow statement Balance sheet Notes to financial statements Particulars of properties Five year financial summary

3 Annual Report 2004 CORPORATE INFORMATION EXECUTIVE DIRECTORS Cheung Chung Kiu (Chairman) Wong Chi Keung (Managing Director) Yuen Wing Shing Tung Wai Lan, Iris NON-EXECUTIVE DIRECTOR *Lee Ka Sze, Carmelo PRINCIPAL BANKERS The Hongkong and Shanghai Banking Corporation Limited The Bank of East Asia, Limited SOLICITORS Bermuda: Conyers Dill & Pearman INDEPENDENT NON-EXECUTIVE DIRECTORS *Wong Wai Kwong, David *Wong Yat Fai *Ng Kwok Fu *Audit committee member SECRETARY Albert T. da Rosa, Jr. REGISTERED OFFICE Clarendon House Church Street Hamilton HM 11 Bermuda PRINCIPAL OFFICE , China Resources Building 26 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) Hong Kong: Woo, Kwan, Lee & Lo Cheung, Tong & Rosa REGISTRARS & TRANSFER OFFICES Bermuda: The Bank of Bermuda Limited 6 Front Street Hamilton HM 11 Bermuda Hong Kong: Abacus Share Registrars Limited G/F., Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong Tel: (852) Fax: (852) SHARE LISTING The Stock Exchange of Hong Kong Limited Stock Code: 75 AUDITORS Ernst & Young Certified Public Accountants 2

4 Annual Report 2004 CHAIRMAN S STATEMENT On behalf of the board of directors, I am pleased to report the following results and operations of the Group for the year ended 31 December RESULTS The audited consolidated profit after tax for the year was HK$102.9 million and the earnings per share amounted to HK12.9 cents, as compared to net profit of HK$28.4 million and the earnings per share of HK3.6 cents for the year ended 31 December The net profit after tax for 2004 represents a 262.2% increase from DIVIDENDS The directors recommend the payment of a final dividend of HK2.0 cents per share for the year ended 31 December Subject to the approval of shareholders at the forthcoming annual general meeting, it is expected that the final dividend will be paid on 9 May 2005 to shareholders registered on 29 April No interim dividend was paid during the year. In respect of the preceding year, a final dividend of HK1.5 cents per share was paid and no interim dividend was declared. NET ASSET VALUE The consolidated net asset value per share of the Group as at 31 December 2004 was HK$2.46 based on the 797,157,415 shares in issue, as compared to HK$2.30 per share and 797,157,415 shares in issue as at 31 December BUSINESS REVIEW The Group s net profit attributable to shareholders for the year was HK$102.9 million as compared to a net profit of HK$28.4 million in Turnover for the year was HK$89.8 million as compared to HK$105.6 million reported in The decrease in turnover was mainly attributed to reduced turnover of properties held for sale and decrease in rental income resulting from the disposal of an investment property in a commercial complex which ownerships are under strata-titles. Revaluation of the Group s portfolio of properties resulted in a surplus of HK$74.5 million, of which HK$70.3 million was written back as profit for the year (2003: net loss of HK$17.2 million). In 2004, the Group s share of net profit after tax from an associated company, namely The Cross-Harbour (Holdings) Limited, was HK$38.8 million (2003: HK$24.1 million), representing a 61% increase from the prior year. 3

5 Annual Report 2004 CHAIRMAN S STATEMENT Property Business The Group s major investment properties include: Century Square Prestige Tower Gross rental income for the year amounted to HK$78.0 million which represents a decrease of about 11.2% when compared with last year s income of HK$87.8 million. The decrease in rental income in 2004 was mainly due to the disposal of certain investment property and a resultant effect of a major tenancy change in Prestige Tower during The economy of Hong Kong continued to stride on its recovery path throughout the last financial year and therefore provided a suitable opportunity for the Group to conclude its remaining consolidation of assets. During the period under review, the Group had largely disposed of its non-core assets and the proceeds so raised were used mostly to improve the Group s gearing ratio which is currently at a very healthy level. We felt the need to adopt such a strategic move in order to strengthen the Group s financial position for possible future business acquisition and further expansion into the premium property market for the coming years. During the year under review, virtually all the economic indicators pointed to a broad-base market rebound. The weak U.S. dollar has attracted fund inflows into Hong Kong, not only leading to lower interest rates but stimulating businesses and retail activities at the same time. The unemployment rate dropped to a three-year low of 6.5%. The most salient economic impetus was perhaps the record arrivals of tourists, predominantly from the Mainland. This helped to boost the consumer confidence and therefore the retail property market in the prime commercial and tourist areas including Tsimshatsui and Central where the Group s major properties are located. Benefiting from the increased retail activities, the Group s retail portfolio recorded satisfactory upward adjustment of rental when concluding lease renewals during Leveraging on the continuous improvement of retail sentiment and with the objective of maximising the potential of investment return, the Group during the last twelve months accelerated the pace in transforming its offices into commercial and retail usage. Currently, over 94% of the tenants in our major portfolio are of retail or commercial background. When implementing such strategic shift of tenants profile, prudent and flexible approaches are always adopted to ensure a constant higher level of occupancy rate in buildings. As at the end of 2004, the overall occupancy rate of the Group s property stood at 96%. 4

6 Annual Report 2004 CHAIRMAN S STATEMENT FINANCING AND LIQUIDITY Financial expenses for the year ended 31 December 2004 amounted to HK$13.0 million (2003: HK$23.1 million), a 43.6% decrease as compared to last year. The decrease in financial expenses was due to the overall lower interest rate environment in Hong Kong and the Group s effort to reduce bank loan balance in As at the end of 2004, the bank loan balance was HK$595.5 million (2003: HK$839.0 million). The bank loans are secured by mortgages on certain investment properties with an aggregate carrying value of HK$1,740 million (2003: HK$1,760 million) and the assignment of rental income from these properties. The following is the maturing profile of the Group s bank borrowings as of 31 December 2004: Within one year 33.0% In the second year 6.4% In the third to fifth year 26.5% After the fifth year 34.1% Total 100.0% The gearing ratio, which is calculated as the ratio of the net bank borrowings to shareholders funds, was substantially reduced to 27.7% (2003: 43.5%). Revolving loans with outstanding balance of HK$160 million will be renewable within the next financial year. Term loan instalments repayable within one year is HK$36.5 million which will be serviced mainly by the Group s rental income. Since the Group s borrowings are denominated in Hong Kong dollars and its sources of income are primarily denominated in Hong Kong dollars, there is basically no exposure to foreign exchange rate fluctuations. At the end of 2004, the Group s cash and cash equivalents was HK$52 million. With its cash, available banking facilities and recurring rental income, the Group has sufficient resources to meet foreseeable funding needs for its working capital and capital expenditure. 5

7 Annual Report 2004 CHAIRMAN S STATEMENT PROSPECTS The Group is optimistic about the economic development of Hong Kong in the coming years. Benefiting from its strategic position at the gateway of the greatest developing nation of China, Hong Kong will continue to be able to act as a useful business platform for the international market entering China. Within Asia, only Hong Kong is endowed with some unique advantages, which are important in attracting foreign investments. Being part of China and in the Pan-Pearl River Delta Region but under the concept of One Country, Two Systems, Hong Kong will continue to be developed into a free and pluralistic society based on the rule of law. The Group is confident in Hong Kong for its mature market economy and world-class infrastructure, its clean government, and a highly professional and dedicated civil service plus a simple tax system with low taxes. Most importantly, Hong Kong has a very high degree of social stability and has always had the staunch support from the Mainland. In the last eighteen months, we saw strong economic benefits that were brought about by the relaxation of travel restrictions by the Mainland authority. We anticipate a further escalation of economic activities and financial benefits after the opening of The Disney Land in Lantau Island later this year, and the completion of a number of tourist theme parks and gaming facilities in our neighbouring city Macau between Against these optimisms, there are some underlining worries such as the threat of rising interest rates, the unstable currency movements and the escalating oil price. On the whole, we anticipate that Hong Kong will continue to advance on its recovery path in the coming year, though it may be at a moderate pace after having stridden quickly in the last eighteen months. The Group will continue to regard Hong Kong as a major base for long-term investment. We will continue to strive to preserve and enhance the value of our assets by implementing necessary renovation and improvement programmes in our buildings. The Group will maintain property investment as our core business but will also actively explore opportunities to further broaden our asset base, both in property assets as well as other quality investments with stable recurrent return. We believe suitable diversity of business may spread the investment risks and can yield stable return while sustaining our business growth under whimsical market climate. STAFF At 31 December 2004, the Group employed a total of 30 staff. Staff remuneration is reviewed by the Group from time to time. In addition to salaries, the Group provides staff benefits including medical insurance, life insurance, provident fund and discretionary vocational tuition/training subsidies. Share options and bonuses are also available to employees of the Group at the discretion of the directors and depending upon the financial performance of the Group. 6

8 Annual Report 2004 CHAIRMAN S STATEMENT APPRECIATION I would like to take this opportunity to thank our shareholders and business partners for their continuing support, and the Group s dedicated management and staff for their valuable contributions during the past year. Cheung Chung Kiu Chairman Hong Kong, 11 March

9 Annual Report 2004 DIRECTORS AND SENIOR MANAGEMENT EXECUTIVE DIRECTORS Cheung Chung Kiu, aged 40, was appointed Chairman of the Company on 28 September Mr. Cheung was born and educated in Chongqing, the PRC. He set up Chongqing Industrial Limited in 1985, a company mainly engaged in the trading business in the PRC. He is the founder and chairman of Yugang International Limited ( Yugang ), chairman of The Cross-Harbour (Holdings) Limited ( Cross-Harbour ) and executive director of Qualipak International Holdings Limited ( Qualipak ) and Silver Grant International Industries Limited ( Silver Grant ). All of the above companies are listed on The Stock Exchange of Hong Kong Limited (the Stock Exchange ). He is director of such other companies disclosed in the section headed Substantial Shareholders on page 16. Wong Chi Keung, aged 49, was appointed Managing Director of the Company on 10 January Mr. Wong holds a doctorate degree in business and is member of Hong Kong Institute of Housing, Chartered Institute of Housing, and The Chinese People s Political Consultative Conference, Nanning City, Guangxi, the PRC. He is a fellow of Hong Kong Institute of Real Estate Administration, an honorary fellow of Quangxi Academy of Social Science and an adviser to Hong Kong Auxiliary Medical Services. He has held various senior executive positions with some of Hong Kong s leading property companies and property consultant firms in the past 29 years, and has taken an active role in public and voluntary services. He is an executive director of Cross-Harbour and independent non-executive director of Water Oasis Group Limited. Yuen Wing Shing, aged 58, was appointed Executive Director of the Company on 28 September Mr. Yuen holds a diploma in management studies from The Hong Kong Polytechnic University. Prior to joining the Company, he had held senior management positions with a major bank in Hong Kong for over 20 years. He is managing director of Yugang, executive director of Cross-Harbour and Silver Grant and director of such other companies disclosed in the section headed Substantial Shareholders on page 16 except Palin Holdings Limited and Chongqing Industrial Limited. Tung Wai Lan, Iris, aged 39, was appointed Executive Director of the Company on 28 September Ms. Tung holds a master of philosophy degree from The Chinese University of Hong Kong. She is an executive director of Cross-Harbour. NON-EXECUTIVE DIRECTOR Lee Ka Sze, Carmelo, aged 44, was appointed Independent Non-executive Director of the Company on 28 September 2000 and re-designated Non-executive Director on 30 September Mr. Lee is a partner in Messrs. Woo, Kwan, Lee & Lo, legal advisers to the Company. He received his bachelor of laws degree and postgraduate certificate in laws from The University of Hong Kong. He is non-executive director of China Pharmaceutical Group Limited, Hopewell Holdings Limited, Safety Godown Company, Limited, Termbray Industries International (Holdings) Limited, Yugang and Cross-Harbour, all being listed public companies in Hong Kong. 8

10 Annual Report 2004 DIRECTORS AND SENIOR MANAGEMENT INDEPENDENT NON-EXECUTIVE DIRECTORS Wong Wai Kwong, David, aged 47, was appointed Independent Non-executive Director of the Company on 28 September Mr. Wong is a fellow of The Association of Chartered Certified Accountants and a Certified Public Accountant. He has over 25 years of experience in finance, accounting, corporate and taxation affairs. He is independent non-executive director of six other companies, namely Cardlink Technology Group Limited, Upbest Group Limited, UBA Investments Limited, Yugang, Cross-Harbour and Qualipak; non-executive director of Tonic Industries Holdings Limited; and executive director of Incutech Investments Limited, EganaGoldpfeil (Holdings) Limited and Egana Jewellery & Pearls Limited. All of the above companies are listed on the Stock Exchange. Wong Yat Fai, aged 45, was appointed Independent Non-executive Director of the Company on 30 September Mr. Wong graduated from The Hong Kong Polytechnic University, majoring in banking. He has over 13 years of experience working with an international banking group. He is an executive director of 139 Holdings Limited and independent non-executive director of Yugang and Cross-Harbour. Ng Kwok Fu, aged 33, was appointed Independent Non-executive Director of the Company on 30 September Mr. Ng holds a certificate for accounting from Grant MacEwan Community College. He has over 15 years of experience in the marketing, trading, purchasing and developing of construction materials and in technical control, support and management in building projects. He is independent nonexecutive director of Yugang and Cross-Harbour. SENIOR MANAGEMENT Leung Kam Wah, aged 49, joined the Company as General Manager on 7 April 2000 and is responsible for the Group s property division. Mr. Leung received his master of property development and investment degree from University of Greenwich and master of laws in common law degree from City University of Hong Kong. He is a chartered valuation surveyor, a registered professional surveyor (general practice) and member of The Chartered Institute of Building, Royal Institution of Chartered Surveyors and Hong Kong Institute of Surveyors. He has worked with several property companies in private and public sectors, land consultant firms and the Government of the HKSAR in the past 27 years. Vong Veng Kei, aged 44, joined the Company as Financial Controller on 1 February Mr. Vong graduated from University of Hawaii at Manoa, USA, with a master of accounting degree and is a member of the American Institute of Certified Public Accountants and fellow of the Hong Kong Institute of Certified Public Accountants. Prior to joining the Company, he had held senior positions with a number of US and multinational companies where he amassed experience in accounting, corporate finance and taxation. 9

11 Annual Report 2004 REPORT OF THE DIRECTORS The directors submit their report together with the audited financial statements of the Group and of the Company for the year ended 31 December PRINCIPAL ACTIVITIES The Company continued to be an investment holding company. The principal activities of its subsidiaries continued to be property investment, property trading and investment holding. Details of these activities are set out in note 32 to the financial statements. Over 50% of the Group s turnover for the year was derived from its property rental business in Hong Kong. An analysis of the Group s performance for the year by business and geographical segments is set out in note 4 to the financial statements. RESULTS AND APPROPRIATIONS The results of the Group for the year are set out in the consolidated profit and loss account on page 19. The directors recommend the payment of a final dividend of HK2.0 cents per share for the year ended 31 December 2004 which makes a total distribution of approximately HK$16 million for the year ended 31 December 2004 (2003: HK$12 million). Subject to the approval of shareholders at the forthcoming annual general meeting, it is expected that the final dividend will be paid on 9 May 2005 to shareholders registered on 29 April FIXED ASSETS Movements in the fixed assets of the Group during the year are set out in note 14 to the financial statements. PRINCIPAL PROPERTIES Details of the principal properties held by the Group are set out on page 63. Movements in the property held for development during the year are set out in note 16 to the financial statements. SUBSIDIARIES Particulars of the Company s principal subsidiaries are set out in notes 17 and 32 to the financial statements respectively. ASSOCIATES Particulars of the Group s interests in its principal associates are set out in note 18 to the financial statements. 10

12 Annual Report 2004 REPORT OF THE DIRECTORS RESERVES Movements in the reserves of the Group and of the Company during the year are set out in the consolidated statement of changes in equity on pages 21 and 22 and note 26 to the financial statements respectively. DISTRIBUTABLE RESERVES At 31 December 2004, the Company s reserve available for distribution, calculated in accordance with the Companies Act 1981 of Bermuda, amounted to HK$1,371 million (2003: HK$1,383 million), of which HK$16 million (2003: HK$12 million) has been proposed as a final dividend for the year. In addition, the Company s share premium account, in the amount of HK$94.5 million (2003: HK$94.5 million) may be distributed in the form of fully paid bonus shares. BANK LOANS The Group s bank loans, which comprise term loans and revolving credit facilities, are secured by certain properties held by the Group. An analysis of these borrowings is set out in note 23 to the financial statements. FINANCIAL SUMMARY Results, assets and liabilities of the Group for the last five financial years are summarised on page 64. MAJOR SUPPLIERS AND CUSTOMERS The percentages of purchases and turnover for the year attributable to the Group s major suppliers and customers are as follows: % % Purchases - the largest supplier five largest suppliers combined Turnover - the largest customer five largest customers combined None of the directors, their associates or any shareholders (which to the knowledge of the directors owns more than 5% of the Company s issued share capital) had an interest in the suppliers or customers noted above. 11

13 Annual Report 2004 REPORT OF THE DIRECTORS DIRECTORS The directors serving at the date of this report are listed on page 2. With the exception of Mr. Wong Yat Fai and Mr. Ng Kwok Fu, who were appointed independent non-executive directors of the Company on 30 September 2004, all directors held office for the whole year. In addition, Mr. Lee Ka Sze, Carmelo was re-designated non-executive director on 30 September Mr. Wong Yat Fai and Mr. Ng Kwok Fu retire at the forthcoming annual general meeting in accordance with bye-law 86(2) of the Company s bye-laws and, being eligible, offer themselves for re-election. Under the existing bye-laws of the Company, apart from the chairman of the board of directors, managing director and those directors, if any, in respect of whom the provisions of bye-law 86(2) apply, all directors are subject to retirement by rotation at the annual general meeting. In accordance with bye-law 87, Ms. Tung Wai Lan, Iris retires from office this year and, being eligible, offers herself for re-election. Subject to shareholders approval of the relevant amendment to the Company s bye-laws as set out in the notice of annual general meeting, in addition to the manner of retirement by rotation of directors as prescribed under the existing bye-laws, all directors (including those appointed for a specific term but excluding the chairman of the board of directors) are subject to retirement by rotation at least once every three years. Pursuant to two respective ordinary resolutions passed at the annual general meeting of the Company held on 6 May 2004, Mr. Lee Ka Sze, Carmelo and Mr. Wong Wai Kwong, David shall cease to hold office from close of the forthcoming annual general meeting and each of them offers himself for re-election. No director proposed for re-election has a service contract which is not determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation. EMOLUMENTS OF DIRECTORS AND THE FIVE HIGHEST PAID INDIVIDUALS Details of the director s emoluments and those of the five highest paid individuals in the Group are set out in notes 8 and 9 to the financial statements respectively. 12

14 Annual Report 2004 REPORT OF THE DIRECTORS DIRECTORS INTERESTS IN SECURITIES, the register kept under section 352 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the SFO ) shows that the directors of the Company held the following interests and short positions in the shares, underlying shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO): (a) Interests in the Company Approximate % Name Nature of interest No. of shares of shareholding Cheung Chung Kiu Corporate 273,000,000 (Note 1) 34.25% Wong Chi Keung Personal 2,000,000 (Note 2) 0.25% Ng Kwok Fu Personal/Family 90,000 (Note 3) 0.01% Notes: (1) Mr. Cheung Chung Kiu ( Mr. Cheung ) was deemed to be interested in 273,000,000 shares in the Company by virtue of his indirect shareholding interest in Funrise Limited ( Funrise ) which owned these shares. Funrise was a wholly-owned subsidiary of Yugang International (B.V.I.) Limited ( Yugang International (B.V.I.) ), which was, in turn, a wholly-owned subsidiary of Yugang International Limited ( Yugang ). Mr. Cheung and Chongqing Industrial Limited ( Chongqing Industrial ) owned 0.63% and 37.79% of the issued share capital of Yugang respectively. Chongqing Industrial was owned as to 35% by Mr. Cheung, as to 30% by Prize Winner Limited (a company owned by Mr. Cheung and his associates), as to 30% by Peking Palace Limited ( Peking Palace ) and as to 5% by Miraculous Services Limited ( Miraculous Services ). Peking Palace and Miraculous Services were companies controlled by Palin Discretionary Trust, the objects of which included Mr. Cheung and his family. (2) The reference to 2,000,000 shares relates to options over 2,000,000 shares in the Company. Mr. Wong Chi Keung exercised all of these options subsequent to the year end. Details of these options are set out in the section headed Share Option Scheme on page 15. (3) Mr. Ng Kwok Fu held 50,000 shares in the Company and was deemed to be interested in 40,000 shares in the Company held by his wife. (b) Interests in associate, The Cross-Harbour (Holdings) Limited ( Cross-Harbour ) (i) Interests in shares Nature Approximate % Name of interest No. of shares of shareholding Cheung Chung Kiu Corporate 76,392,358 (Note 3) 27.31% Note (3): Honway Holdings Limited ( Honway, an indirect wholly-owned subsidiary of the Company) owned 76,392,358 shares in Cross-Harbour. By virtue of his deemed interest in the issued share capital of the Company as described in note (1) above, Mr. Cheung was deemed to be interested in these shares. 13

15 Annual Report 2004 REPORT OF THE DIRECTORS (ii) Interests in share options Approximate % Name No. of underlying shares of shareholding Cheung Chung Kiu 52,647,059 (Note 4) 18.82% Note (4): This represents the maximum number of shares issuable upon exercise of the remainder of the options granted to Honway pursuant to the share option agreement dated 9 May 2003 made between Cross-Harbour and Honway. As described in note (3) above, Mr. Cheung was deemed to be interested in these underlying shares by virtue of his deemed interest in Honway. (iii) Interests in equity derivatives Balance of the principal amount of the Approximate Type of equity derivatives and no. % of Name equity derivatives of underlying shares shareholding Cheung Chung Kiu Convertible note HK$80,457,060 convertible 7.38% (Note 5) into 20,630,015 new shares at the conversion price of HK$3.90 per share (Note 6) Notes: (5) Honway held the convertible note with conversion period from 11 June 2002 to 11 June Honway has the right to convert the whole or part of the principal amount of the convertible note into shares at any time and from time to time, from the date of issue of the convertible note up to the third anniversary of the issue of the convertible note in amounts of not less than HK$1 million on each conversion. Mr. Cheung was deemed to be interested in the underlying shares in respect of the convertible note by virtue of his deemed interest in Honway as described in note (3) above. (6) This represents the interest in the underlying shares derived from the convertible note with the outstanding amount of HK$80,457,060. The total number of underlying shares in respect of the convertible note changes throughout the life of the convertible note. The conversion price is HK$3.90 per share for the period from 12 June 2004 to 11 June 2005, subject to adjustment. All the interests disclosed above represent long positions in shares, underlying shares and debentures of the Company or Cross-Harbour. None of the directors of the Company had any short position in shares, underlying shares and debentures of the Company or Cross-Harbour. Save as disclosed herein, there was no interest or short position recorded in the register kept under section 352 of the SFO as at 31 December

16 Annual Report 2004 REPORT OF THE DIRECTORS SHARE OPTION SCHEME There was no share option scheme of the Company at the year end. The share option scheme previously adopted for the Company on 22 December 1993 (the Scheme ), prior to the amendments to Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ) taking effect on 1 September 2001, expired on 21 December According to the Listing Rules as amended, the Company cannot grant any further options under the Scheme unless it complies with the new requirements of Chapter 17. However, all options granted prior to 1 September 2001 shall remain in full force and effect. The purpose of the Scheme is to provide incentive or reward to executive management and employees. The exercise price is the higher of: (a) 80% of the average closing price of the existing shares of the Company on The Stock Exchange of Hong Kong Limited on the five trading days immediately preceding the date of offer of such option; and (b) the nominal value thereof. Particulars of outstanding options at the beginning and at the end of the year and of options granted under the Scheme are as follows: No. of outstanding options at the beginning Exercise Type of and at the Date of Vesting Exercise price participant end of the year grant period period per share Director Wong Chi Keung 2,000,000 3 Apr Apr Apr 2000 HK$ to 2 Apr 2004 to 2 Apr 2010 Other employees 100, Jul Jul Jan 1997 HK$ to 16 Jul 1999 to 15 Jul ,000 3 Apr Apr Apr 2000 HK$ to 2 Apr 2004 to 2 Apr 2010 Notes: (1) The consideration paid by each participant for the grant of such number of options set opposite his/her name is HK$10. (2) All of the above options were exercised in full on 24 February Accordingly, there were no shares available for issue under the Scheme as at the date of this report. Save as disclosed herein, no options lapsed and no options were granted, exercised or cancelled during the year. 15

17 Annual Report 2004 REPORT OF THE DIRECTORS DIRECTORS RIGHTS TO ACQUIRE SECURITIES Save for the Scheme noted above, at no time during the year was the Company or any of its holding company, subsidiaries or fellow subsidiaries, a party to any arrangement whose objects are, or one of whose objects is, to enable directors of the Company to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate. DIRECTORS INTERESTS IN CONTRACTS No contracts of significance in relation to the Group s business to which the Company, or its subsidiaries, or its fellow subsidiaries, or its holding company was a party, and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. Mr. Lee Ka Sze, Carmelo, is a partner in Messrs. Woo, Kwan, Lee & Lo and as such has an interest in the normal remuneration paid by the Company to that firm for the professional services rendered to the Company. SUBSTANTIAL SHAREHOLDERS, the interests or short positions of the persons, other than directors of the Company, in the shares and underlying shares of the Company as recorded in the register kept under section 336 of the SFO were as follows: Approximate % Name No. of shares of shareholding (Note) Palin Holdings Limited 273,000, % Chongqing Industrial 273,000, % Yugang 273,000, % Yugang International (B.V.I.) 273,000, % Funrise 273,000, % Chan Chun Wai 123,293, % Note: The 273,000,000 shares set out in this column refer to the same block of shares beneficially owned by Funrise and are duplicated in Mr. Cheung s interest in the Company as disclosed in the section headed Directors Interests in Securities on page 13. All the interests disclosed herein represent long position in shares, underlying shares and debentures of the Company. Save as disclosed herein, there was no person known to the directors of the Company, other than a director of the Company, who, as at 31 December 2004, had an interest or a short position in the shares and underlying shares of the Company as recorded in the register kept under section 336 of the SFO. 16

18 Annual Report 2004 REPORT OF THE DIRECTORS PURCHASE, SALE OR REDEMPTION OF SHARES During the year under review, neither the Company nor any of its subsidiaries purchased, sold or redeemed any shares in the Company. PRE-EMPTIVE RIGHTS There is no provision for pre-emptive rights under the Company s bye-laws, and there is no restriction against such rights under the laws of Bermuda, which would oblige the Company to offer shares on a pro rata basis to existing shareholders. CODE OF BEST PRACTICE None of the directors is aware of information that would reasonably indicate that the Company is not, or was not, for any part of the accounting year covered by the annual report, in compliance with the Code of Best Practice as set out in Appendix 14 to the then Listing Rules. AUDIT COMMITTEE The audit committee comprises three independent non-executive directors, namely Messrs. Wong Wai Kwong, David, Wong Yat Fai and Ng Kwok Fu, and one non-executive director, Mr. Lee Ka Sze, Carmelo. The function of the audit committee is to assist the board of directors in providing an independent review of effectiveness of the financial reporting process and internal control system of the Company. AUDITORS The financial statements for the year have been audited by Ernst & Young, Certified Public Accountants, who retire and, being eligible, offer themselves for reappointment. A resolution for the reappointment of Ernst & Young as auditors of the Company will be proposed at the forthcoming annual general meeting. On behalf of the board Cheung Chung Kiu Chairman Hong Kong, 11 March

19 Annual Report 2004 REPORT OF THE AUDITORS To the members (Incorporated in Bermuda with limited liability) We have audited the financial statements on pages 19 to 62 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 financial statements and to report our opinion solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. BASIS OF OPINION We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public 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 December 2004 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, 11 March

20 Annual Report 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2004 Notes HK$ 000 HK$ 000 TURNOVER 5 89, ,640 Direct outgoings (5,660) (5,389) Cost of properties sold (4,462) (10,659) 79,721 89,592 Other revenue and gains (net of direct outgoings) 5 7,912 8,643 Administrative expenses (17,309) (15,225) Other operating expenses 6 (35,978) (17,827) Finance costs 7 (13,002) (23,052) Surplus/(deficit) arising on revaluation of investment properties 70,261 (26,656) Write back of provision for impairment loss on a property held for development 9,562 Reversal of write down/(write down) of properties held for sale 70 (106) (Impairment loss)/write back of impairment loss on non-trading investments (669) 853 OPERATING PROFITS 6 91,006 25,784 Share of results of associates 47,839 29,566 Amortisation of goodwill on acquisition of an associate (12,707) (13,236) PROFIT BEFORE TAX 126,138 42,114 Tax 10 (23,252) (13,709) NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS ,886 28,405 DIVIDEND 12 15,991 11,957 Per share information: Basic earnings per share 13 HK12.9 cents HK3.6 cents Dividend per share HK2.0 cents HK1.5 cents The notes on pages 25 to 62 form an integral part of these financial statements. 19

21 Annual Report 2004 CONSOLIDATED BALANCE SHEET Notes HK$ 000 HK$ 000 NON-CURRENT ASSETS Fixed assets ,424 Investment properties 15 1,747,770 1,767,370 Property held for development 16 63,434 Interests in associates , ,673 Non-trading investments 19 1,468 1,913 2,562, ,631, CURRENT ASSETS Properties held for sale 20 1,960 6,300 Trade debtors 21 1,111 9,293 Other debtors, deposits and prepayments 14,185 52,725 Cash and bank balances 51,956 40,146 69, , CURRENT LIABILITIES Trade creditors ,359 Other payables and accrued expenses 53,620 53,472 Bank loans, secured , ,000 Tax payable 1,798 1, , , NET CURRENT LIABILITIES (183,625) (303,804) TOTAL ASSETS LESS CURRENT LIABILITIES 2,379, ,328, NON-CURRENT LIABILITIES Bank loans, secured , ,000 Deferred tax 24 18,308 9, , , ,961,842 1,835,209 CAPITAL AND RESERVES Issued share capital 25 79,716 79,716 Reserves 1,866,135 1,743,536 Proposed final dividend 12 15,991 11,957 On behalf of the board 1,961,842 1,835,209 Yuen Wing Shing Director Wong Chi Keung Director The notes on pages 25 to 62 form an integral part of these financial statements. 20

22 Annual Report 2004 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2004 Non-trading Investment investment Issued Share Capital property revaluation Proposed share premium redemption Capital revaluation Contributed reserve of Retained final Note capital account reserve reserve reserve surplus associates profits dividend Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January ,716 94,535 1,350 1,800 1,321,935 (16,229 ) 298,848 11,957 1,793,912 Payment of 2002 final dividend (11,957 ) (11,957 ) Share of non-trading investment revaluation reserve of associates 22,990 22,990 Net gains and losses not recognised in the consolidated profit and loss account , , Share of non-trading investment impairment loss charged to the profit and loss account of associates 1,859 1,859 Net profit for the year 28,405 28,405 Proposed 2003 final dividend 12 (11,957 ) 11,957 At 31 December ,716 94,535* 1,350* 1,800* * 1,321,935* 8,620* 315,296* 11,957 1,835,209 Retained by: Company and subsidiaries 79,716 94,535 1,350 1,800 1,321, ,123 11,957 1,764,416 Associates 8,620 62,173 70,793 79,716 94,535 1,350 1,800 1,321,935 8, ,296 11,957 1,835,209 The notes on pages 25 to 62 form an integral part of these financial statements. 21

23 Annual Report 2004 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued) For the year ended 31 December 2004 Non-trading Investment investment Issued Share Capital property revaluation Proposed share premium redemption Capital revaluation Contributed reserve of Retained final Note capital account reserve reserve reserve surplus associates profits dividend Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January ,716 94,535 1,350 1,800 1,321,935 8, ,296 11,957 1,835,209 Payment of 2003 final dividend (11,957 ) (11,957 ) Share of non-trading investment revaluation reserve of associates 31,166 31,166 Surplus on revaluation 4,175 4,175 Net gains and losses not recognised in the consolidated profit and loss account , , , Share of non-trading investment impairment loss charged to the profit and loss account of associates Net profit for the year 102, ,886 Proposed 2004 final dividend 12 (15,991 ) 15,991 At 31 December ,716 94,535* 1,350* 1,800* 4,175* 1,321,935* 40,149* 402,191* 15,991 1,961,842 Retained by: Company and subsidiaries 79,716 94,535 1,350 1,800 4,175 1,321, ,194 15,991 1,820,696 Associates 40, , ,146 79,716 94,535 1,350 1,800 4,175 1,321,935 40, ,191 15,991 1,961,842 * These reserve accounts comprise the consolidated reserves of HK$1,866,135,000 (2003: HK$1,743,536,000) in the consolidated balance sheet. The notes on pages 25 to 62 form an integral part of these financial statements. 22

24 Annual Report 2004 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2004 Notes HK$ 000 HK$ 000 CASH FLOWS FROM OPERATING ACTIVITIES Net cash inflow generated from operations 27(a) 109,866 92,592 Interest paid (13,029) (22,334) Hong Kong profits tax paid (5,752) (8,514) Hong Kong profits tax refunded Net cash inflow from operating activities 91,478 61, CASH FLOWS FROM INVESTING ACTIVITIES Interest received 3,608 4,879 Capital return from non-trading investments 516 Dividends received from an associate 14,910 10,356 Investment in an associate (30,000) Loan granted to an associate (20,000) Additions to investment properties (1,895) (696) Purchases of fixed assets (43) (44) Payment for development expenditure for a property held for development (16) (5,872) Proceeds from disposal of an investment property 96,000 Additions to non-trading investments (740) Proceeds from disposal of a subsidiary 27(b) 63,449 Proceeds from disposal of non-trading investments 4,311 Net cash inflow/(outflow) from investing activities 175,789 (37,066) Net cash inflow before financing activities 267,267 24, CASH FLOWS FROM FINANCING ACTIVITIES New bank loans 65,000 Repayment of bank loans (243,500) (69,000) Dividend paid (11,957) (11,957) Net cash outflow from financing activities (255,457) (15,957) Net increase in cash and cash equivalents 11,810 8,745 Cash and cash equivalents as at 1 January 40,146 31,401 Cash and cash equivalents as at 31 December 51,956 40,146 The notes on pages 25 to 62 form an integral part of these financial statements. 23

25 Annual Report 2004 BALANCE SHEET Notes HK$ 000 HK$ 000 NON-CURRENT ASSETS Interests in subsidiaries 17 1,545,276 1,556,864 CURRENT ASSETS Other receivables Tax recoverable Cash and bank balances CURRENT LIABILITIES Other payables Tax payable NET CURRENT LIABILITIES (360) (49) ,544,916 1,556,815 CAPITAL AND RESERVES Issued share capital 25 79,716 79,716 Reserves 26 1,449,209 1,465,142 Proposed final dividend 12 15,991 11,957 1,544,916 1,556,815 On behalf of the board Yuen Wing Shing Director Wong Chi Keung Director The notes on pages 25 to 62 form an integral part of these financial statements. 24

26 Annual Report CORPORATE INFORMATION During the year, the Group was involved in the following principal activities: (a) (b) Property trading and investments; and Provision of property management and related services. 2 IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1 January The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 December The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (which also include Statements of Standard Accounting Practice ( SSAP ) and Interpretations), issued by the Hong Kong Institute of Certified Public Accountants, 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 periodic remeasurement of investment properties and certain equity investments, as further explained below. (b) Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December The results of 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. Minority interests represent the interests of outside shareholders in the results and net assets of the Company s subsidiaries. 25

27 Annual Report SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Subsidiaries A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities. The results of subsidiaries are included in the Company s profit and loss account to the extent of dividends received and receivable. The Company s interests in subsidiaries are stated at cost less any impairment losses. (d) Associates An associate is a company, not being a subsidiary or a jointly-controlled entity, 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 associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group s interests in associates are stated in the consolidated balance sheet at the Group s share of net assets under the equity method of accounting, less any impairment losses. Goodwill or negative goodwill arising from the acquisition of associates is included as part of the Group s interests in associates. (e) 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. (f) Goodwill Goodwill arising on the acquisition of associates represents the excess of the cost of the acquisition over the Group s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition. Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of 20 years. In the case of associates, any unamortised goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet. 26

28 Annual Report SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Goodwill (continued) On disposal of associates, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised. The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event. (g) Negative goodwill Negative goodwill arising on the acquisition of subsidiaries represents the excess of the Group s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition, over the cost of the acquisition. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the acquisition plan and that can be measured reliably, but which do not represent identifiable liabilities as at the date of acquisition, that portion of negative goodwill is recognised as income in the consolidated profit and loss account when the future losses and expenses are recognised. To the extent that negative goodwill does not relate to identifiable expected future losses and expenses as at the date of acquisition, negative goodwill is recognised in the consolidated profit and loss account on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets. The amount of any negative goodwill in excess of the fair values of the acquired non-monetary assets is recognised as income immediately. Prior to the adoption of SSAP 30 Business combinations in 2001, negative goodwill arising on acquisitions was credited to the capital reserve in the year of acquisition. On the adoption of SSAP 30, the Group applied the transitional provisions of the SSAP that permitted such negative goodwill to remain credited to the capital reserve. Negative goodwill on acquisitions subsequent to the adoption of the SSAP is treated according to the SSAP 30 negative goodwill accounting policy above. On disposal of subsidiaries, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of negative goodwill which has not been recognised in the consolidated profit and loss account and any relevant reserves as appropriate. Any attributable negative goodwill previously credited to the capital reserve at the time of acquisition is written back and included in the calculation of the gain or loss on disposal. 27