Final Results

28th Mar 2008 13:47

Asian Growth Properties Limited28 March 2008 28th March, 2008 Asian Growth Properties Limited Immediate Release Results for the year ended 31st December, 2007 Asian Growth Properties Limited (the "Company") (AIM Stock Code: AGP), the HongKong based China property development and investment company, announces itsaudited consolidated results for the year ended 31st December, 2007 as follows: Highlights • Total operating revenue of HK$1,689.0 million (£109.1 million) (2006: HK$123.3 million (£8.1 million)) • Fair value changes on investment properties of HK$830.4 million (£53.6 million) (2006: HK$185.1 million (£12.1 million)) • Profit attributable to the Company's shareholders of HK$605.9 million (£39.1 million) (2006: HK$80.7 million (£5.3 million)) • Earnings per share for profit attributable to the Company's shareholders of HK$0.68 (4.4 pence) (2006: HK$0.21 (1.4 pence)) • Loss per share excluding the net effect of fair value change on investment properties of HK$0.07 (0.47 pence) (2006: loss of HK$0.20 (1.31 pence)) • Equity attributable to the Company's shareholders as at 31st December, 2007 of HK$6,752.5 million (£436.2 million) (31st December 2006: HK$6,069.1 million (£397.8 million)) • Net asset value per share as at 31st December, 2007 of HK$7.62 (49.2 pence) (31st December 2006: HK$6.85 (44.9 pence)) Note: Figures in Pounds Sterling are converted from Hong Kong dollars based uponexchange rates prevailing on the last business day of the respective accountingperiods. Miscellaneous The results included in this announcement are extracted from the auditedconsolidated financial statements of the Company for the year ended 31stDecember, 2007, which have been approved by the Board of Directors on 27thMarch, 2008. The 2007 Annual Report is expected to be posted to shareholders and holders ofdepositary interests in mid / late April 2008. For further information, please contact: Lu Wing Chi Tel: +852 2828 6363Executive Director Asian Growth Properties Limited Richard Gray Tel: +44 207 459 3600Andrew Potts Panmure Gordon (UK) Limited(Nominated Advisor) CHAIRMAN'S REVIEW I am pleased to present the 2007 consolidated results of Asian Growth PropertiesLimited ("AGP" or the "Company") to the shareholders. Figures in Pounds Sterlingare converted from Hong Kong dollars based upon exchange rates prevailing on thelast business day of the respective accounting periods. Results AGP reports a net profit attributable to the Company's shareholders of HK$605.9million (£39.1 million) for the year ended 31 December 2007 (2006: HK$80.7million (£5.3 million)). The reported profit included a revaluation surplus oninvestment properties net of deferred taxation. By excluding the net effect ofsuch surplus, the Group would report a net loss attributable to the Company'sshareholders of HK$64.6 million (£4.2 million) (2006: loss of HK$75.4 million(£4.9 million)). As at 31 December 2007, the Group's equity attributable to the Company'sshareholders amounted to HK$6,752.5 million (£436.2 million), an increase ofHK$683.4 million (£44.1 million) over 31 December 2006. The net asset value pershare as at 31 December 2007 was HK$7.62 (49.2 pence) as compared with HK$6.85(44.9 pence) as at 31 December 2006. Operations During the year, the Group has continued the development of various projects inHong Kong and mainland China. In Hong Kong, most of the residential units ofboth The Morrison and the Royal Green projects have been sold. Pre-sales of TheForest Hills development were launched in September 2007 with satisfactoryresponses from the buyers. The Group's rental income from Dah Sing FinancialCentre benefited from the increased demand resulting in higher occupancy andrental rates. In mainland China, the residential units of the Westmin PlazaPhase II project were delivered to the purchasers in December 2007 and theleasing activities for the office space in Plaza Central and commercial space inWestmin Plaza Phase II continued. Outlook The Board of AGP will continue to concentrate its efforts for expansionprincipally in mainland China and Hong Kong. During 2007, the government inmainland China introduced further macro-economic measures to curb propertyspeculations and stabilise prices. These measures together with credittightening and rising inflationary pressures affected the property sector,notably the residential market, late last year. Although residential prices havesoftened with reduced transaction volume, the current adjustment should beconducive to sustainable and healthy development in the mainland property marketover the long term. The Group will adhere to its focused approach to mainlandbusiness expansion. Dividend The Board does not propose the payment of a final dividend for the year ended 31December 2007 and will retain all earnings to finance further growth. Barringunforeseen adverse circumstances, it is the Board's current intention to make adividend payment for the year ending 31 December 2008 in due course. Acknowledgement The Board would like to take this opportunity to thank the executive andmanagement team for the execution of the Board's strategy and their ongoingsupport. David MathewsonNon-Executive Chairman England, 27 March 2008 EXECUTIVE DIRECTORS' REVIEW FINANCIAL SUMMARY The financial effects resulting from the purchase of the six investment anddevelopment properties by the Group on 5 October 2006 have been fully reflectedin the 2007 financial statements for the year ended 31 December 2007.Accordingly, the financial statements for the year ended 31 December 2006figures are not directly comparable as they only included the post-acquisitionresults of those acquired properties. Turnover for the year ended 31 December 2007 amounted to HK$1,689.0 million(2006: HK$123.3 million). The turnover was principally attributable to therecognition of the sales of residential units in Royal Green and The Morrison inHong Kong and the Westmin Plaza Phase II in mainland China and the rentalcontribution from Dah Sing Financial Centre, Hong Kong. Profit attributable to the Company's shareholders for the year amounted to HK$605.9 million (2006: HK$80.7 million). The reported profit included arevaluation surplus on investment properties net of deferred taxation. Byexcluding the effect of such surplus, the Group would report a net lossattributable to the Company's shareholders of HK$64.6 million (2006: loss ofHK$75.4 million). As at 31 December 2007, the Group's equity attributable to the Company'sshareholders amounted to HK$6,752.5 million (2006: HK$6,069.1 million). The netasset value per share as at 31 December 2007 was HK$7.62 (49.2 pence) ascompared with HK$6.85 (44.9 pence) as at 31 December 2006. BUSINESS REVIEW Property Investment and Development All of the Group's property development and investment projects are located inHong Kong and mainland China and are as listed below: Hong Kong 1. Dah Sing Financial Centre, Gloucester Road, Wanchai The 39-storey commercial building includes offices and shops (total gross floorarea of about 37,171 square metres) and with ancillary car-parking facilitiesfor 137 covered and 27 open car-parking spaces. Gross rental income generatedfor the year was HK$117.6 million. During the year, occupancy rate increasedfrom 88.1% to 90.7% at 31 December 2007 with the average rent per monthincreased from HK$21.2 per square foot to HK$32.5 per square foot owing to thestrong demand for office spaces. 2. Royal Green, Sheung Shui The Group has a 55.0% interest in this private residential developmentcomprising 922 residential units contained in three 40-storey residential towerswith ancillary recreational and car-parking facilities. Turnover for the year,representing completion of the sales of 323 residential units and 91 car-parkingspaces, was HK$900.2 million but a net loss of HK$35.2 million was incurred dueto additional marketing expenses. During the year, a total of 324 residentialunits and 84 car-parking spaces were sold. The marketing campaign for theremaining 8 residential units and 19 car-parking spaces is continuing.Subsequent to 31 December 2007, 6 further residential units have been sold. 3. The Morrison, Wanchai The property is a 30-storey residential and commercial composite building, witha total gross floor area of approximately 5,837 square metres, comprising 104residential units above a club-house floor and a 3-storey commercial podium. Thedevelopment was completed in the fourth quarter of 2007. Turnover for the year,representing completion of the sales of 49 residential units, was HK$212.6million generating a net profit of HK$29.8 million after taking into account theexpenses directly related to the project. During the year, a total of 96 residential units were sold and marketing for theremaining 8 units is continuing. Since mid February 2008, the entire commercialpodium of The Morrison has been successfully leased at a satisfactory rentalyield to an international car manufacturer for showroom purpose for a term ofsix years. 4. The Forest Hills, Diamond Hill The property is being developed into a 48-storey residential and commercialcomposite building, with a total gross floor area of approximately 18,825 squaremetres, comprising 304 residential units above a 7-level retail podium, aclubhouse and car parks. Superstructure construction works are in progress and the development is expected to be completed in the first half of 2008. Pre-sale of the residential units in The Forest Hills was launched in September2007. As at 31 December 2007, nearly half of the units were sold and the saleproceeds will be recognised upon completion of the development targeting in thefirst half of 2008. Marketing for the remaining unsold residential units andretail podium is continuing. 5. Leighton Road, Causeway Bay The project now known as "Crowne Plaza Hong Kong Causeway Bay" is beingdeveloped into a 29-storey hotel comprising 260 guest rooms (gross floor area ofapproximately 14,945 square metres) with ancillary facilities. The Group hassigned a hotel management agreement with a leading international hospitalitycompany to manage the operation of the hotel. Superstructure construction worksare in progress and the whole project is scheduled to be completed in the firsthalf of 2009. 6. Fo Tan, Sha Tin The property with a site area of about 20,092 square metres is currently leasedout as a logistic centre. Rezoning applications with several master layout plansand design schemes have been submitted to the Town Planning Board and relevantparties for consideration. The proposed development will comprise, among otherfacilities, residential units, car parks, educational facilities and a busterminus. It is expected that lengthy negotiations with relevant parties will berequired to obtain the necessary approval. 7. 28/F., 9 Queen's Road Central, Central The property is the entire floor of a 35-storey Grade A commercial building inCentral with a gross floor area of approximately 1,279 square metres. It iscurrently let to a tenant for a term of three years until May 2009. 8. Excelsior Plaza Shop, Causeway Bay The shop with a gross floor area of approximately 39 square metres is let to aretail tenant for a term of two years until June this year. Leasing activitiesfor the shop at a higher rent after expiry of the current lease are in progress. Mainland China 9. Westmin Plaza Phase II, Guangzhou The Westmin Plaza Phase II project, which has a total construction floor area ofabout 118,567 square metres, comprises four residential blocks and one officeblock erected on a six-storey commercial/car-parking podium. A majority of theresidential units pre-sold in 2006 were delivered to the buyers in December2007. Turnover for the year, representing completion of the sale of 595residential units, was HK$412.3 million generating a net profit of HK$1.3million after taking into account the expenses directly related to the project. Leasing campaign for the 14-storey office tower with a total gross floor area ofabout 16,092 square metres is in progress while lease negotiations with aninternational insurance group for more than one-third of the total office spacewith a naming right are at the final stage. In addition, leasing campaign forthe 3-storey shopping arcade with a total gross floor area of about 27,104square metres is in progress. Stable recurrent rental income from this propertyis expected. 10. Plaza Central, Chengdu Plaza Central comprises two 30-storey office blocks erected on a common podiumof six commercial/retail floors and two car-parking floors with a totalconstruction floor area of approximately 91,455 square metres. The office towerI was about 70% let as at 31 December 2007 and leasing campaigns for theremaining area of office towers I and II are continuing. The retail podium witha construction floor area of about 28,758 square metres has been fully letprincipally to a department store. Rental return from this property will benefitfrom the improved occupancy. Working Capital and Loan Facilities As at 31 December 2007, the Group's cash balance was HK$605.6 million (2006:HK$106.3 million) and unutilized facilities were HK$1,431.2 million (2006:HK$869.5 million). Gearing ratio as at 31 December 2007, calculated on the basis of net interestbearing debts minus cash and restricted and pledged deposits as a percentage oftotal property assets, was 15.3% (2006: 16.7%). As at 31 December 2007, maturities of the Group's outstanding borrowings were asfollows: 31 December 31 December 2007 2006 HK$' million HK$' million------------------------------------------------------------------------------Due------------------------------------------------------------------------------ Within 1 year 1,678.5 1,252.51-2 years 44.7 43.03-5 years 610.4 639.3Over 5 years 67.2 81.3------------------------------------------------------------------------------ 2,400.8 2,016.1------------------------------------------------------------------------------ Pledge of Assets For the Company's subsidiaries operating in Hong Kong and mainland China, thetotal bank loans drawn as at 31 December 2007 amounted to HK$2,400.8 million(2006: HK$2,016.1 million), which were secured by properties valued atHK$8,541.4 million (2006: HK$6,437.2 million). Treasury Policies The Group adheres to prudent treasury policies. As at 31 December 2007, all ofthe Group's borrowings were raised through its wholly-owned or substantiallycontrolled subsidiaries on a non-recourse basis. Currently, borrowings areprimarily denominated in Hong Kong dollars and mainly based on floating rateterms. There were no derivative financial instruments employed during the year. International Financial Reporting Standards ("IFRS") The Group has adopted IFRS and the audited consolidated financial statements tobe included in the 2007 annual report for AGP have been prepared in accordancewith IFRS. Outlook 2008 is set to be a challenging year for the global economy in view of thesub-prime mortgage crisis leading to a credit crunch in developed economies andrecent volatility in worldwide equity markets. The mainland Chinese economyfaces rising inflation and the macro-tightening measures (including regulationsrestricting foreign investments in property projects and directions to banks andfinancial institutions to control lending to the property sector) are likely tocontinue for most of 2008. The positive initiatives and tax concessions recentlyintroduced by the Hong Kong Government are expected to support healthy economicgrowth in the territory. In mainland China, though the property market is likely to consolidate for alonger period amid austerity measures, it is believed that the market presentsfuture growth potential for the Group. The Group believes that the continuedeconomic growth, rising incomes, continued capital inflow and abundant liquidityshould generate continued demand for quality residential properties. The Groupwill adhere to its focused approach to mainland business expansion and iscurrently under negotiations in relation to a number of potential residentialdevelopment projects. The Group will also continue its effort to secure qualitytenants for its office space in Plaza Central and commercial space in WestminPlaza Phase II. In Hong Kong, the Group expects that the rental income from Dah Sing FinancialCentre will continue to increase due to tenancy renewals and new leases. It isexpected that the residential property market in Hong Kong will continue toperform well. Rising incomes, stronger affordability for homebuyers and negativereal interest rates should continue to underpin demand for residentialproperties in spite of uncertainty about external economies and volatility ininternational equity markets. The Group will focus on the planned completion of The Forest Hills and thecommercial portion of Westmin Plaza Phase II during 2008. The Group willcontinue its marketing campaign for the sale of about half of the residentialunits of The Forest Hills as well as the remaining unsold units in Royal Green,The Morrison and Westmin Plaza Phase II. Construction of the Causeway Bay hotelis in progress with a grand-opening date targeted in mid 2009. Going forward, the Group will continue to target development and investmentopportunities in mainland China and Hong Kong. On behalf of Executive Directors Lu Wing ChiExecutive DirectorHong Kong, 27 March 2008 CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 December 2007 NOTES 2007 2006 ----- --------- --------- HK$'000 HK$'000 Revenue 7 1,689,015 123,293Investment income 9 30,288 23,983Other income 21,254 5,148Costs:Property and related costs 10 (1,423,158) (233,249)Staff costs (17,061) (7,681)Depreciation (542) (127)Other expenses 11 (120,984) (45,473) (1,561,745) (286,530) --------- ---------Profit (loss) from operations before fairvaluechanges on investment properties 178,812 (134,106)Fair value changes on investment properties 830,355 185,141 --------- ---------Profit from operations after fair valuechangeson investment properties 1,009,167 51,035Recognition of discount on acquisition 12 - 7,484Finance costs 13 (74,290) (14,110) --------- ---------Profit before taxation 14 934,877 44,409Income tax expense 15 (344,964) (27,648) --------- ---------Profit for the year 589,913 16,761 --------- ---------Attributable to:Company's shareholders 605,947 80,722Minority interest (16,034) (63,961) --------- --------- 589,913 16,761 --------- --------- HK$ HK$ Earnings per share for profit attributableto the Company's shareholders - Basic 16 0.68 0.21 --------- ---------Loss per share excluding changes in fairvalue of investment properties net of deferred tax - Basic (0.07) (0.20) --------- --------- CONSOLIDATED BALANCE SHEETAS AT 31 December 2007 NOTES 2007 2006 ----- ---------- ---------- HK$'000 HK$'000Non-current AssetsInvestment properties 18 5,492,690 4,584,860Property, plant and equipment 19 158,879 62,431Prepaid lease payments 20 605,420 615,515Other loans receivable 21 123,517 126,536 ---------- ---------- 6,380,506 5,389,342 ---------- ----------Current AssetsProperties held for sale 22 477,369 892,491Properties under development held for sale 22 2,032,746 2,348,451Prepaid lease payments 20 16,819 16,742Other loans receivable 21 2,044 973Receivables, deposits and prepayments 23 335,651 149,882Income tax recoverable 2,794 14,923Pledged bank deposits 24 317,772 153,487Restricted bank balances and deposits 25 134,240 332,404Bank balances and deposits 26 605,634 106,327 ---------- ---------- 3,925,069 4,015,680 ---------- ----------Current LiabilitiesPayables, deposits received and accrued 27 331,308 320,556chargesSales deposits on properties held for sale 354,332 449,094receivedProvisions 28 15,965 14,881Income tax payable 96,853 31,379Secured bank borrowings - due within one year 29 1,678,475 1,252,499Amount due to a minority shareholder 30 79 36,209 ---------- ---------- 2,477,012 2,104,618 ---------- ----------Net Current Assets 1,448,057 1,911,062 ---------- ---------- 7,828,563 7,300,404 ---------- ---------- NOTES 2007 2006 ----- ---------- ---------- HK$'000 HK$'000Capital and ReservesShare capital 31 345,204 345,204Reserves 6,407,312 5,723,928 ---------- ----------Equity attributable to the Company's 6,752,516 6,069,132shareholdersMinority interest 134,194 408,978 ---------- ----------Total Equity 6,886,710 6,478,110 ---------- ----------Non-current LiabilitiesSecured bank borrowings - due after one year 29 722,359 763,576Deferred taxation 32 219,494 58,718 ---------- ---------- 941,853 822,294 ---------- ---------- 7,828,563 7,300,404 ---------- ---------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 December 2007 Attributable to the Company's shareholders -------------------------------- Share Share Other Translation Retained Minority capital premium reserve reserve profits Total interest Total --------- --------- --------- --------- --------- ------- ---------- ------- HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 At 1 January2006 84,429 1,461,924 - - 24,441 1,570,794 - 1,570,794 Exchangemovementduringthe yearrecogniseddirectlyin equity - - - 10,164 - 10,164 - 10,164 Profit forthe year - - - - 80,722 80,722 (63,961) 16,761 _______ _________ _______ _______ _______ _________ _______ _________Totalrecognisedincome andexpense forthe year - - - 10,164 80,722 90,886 (63,961) 26,925 _______ _________ _______ _______ _______ _________ _______ _________Issue of shares 260,775 3,374,301 294,736 - - 3,929,812 - 3,929,812 Acquisitionof assetsandliabilitiesthroughacquisitionof subsidiaries - - 477,640 - - 477,640 482,380 960,020 Acquisitionofadditionalinterest ina subsidiary - - - - - - (9,441) (9,441) _______ _________ _______ _______ _______ _________ _______ _________At 31December 2006 345,204 4,836,225 772,376 10,164 105,163 6,069,132 408,978 6,478,110 Exchangemovementduringthe periodrecogniseddirectlyin equity - - - 77,437 - 77,437 - 77,437 Profit forthe year - - - - 605,947 605,947 (16,034) 589,913 _______ _________ _______ _______ _______ _________ _______ _________Totalrecognisedincome andexpense forthe year - - - 77,437 605,947 683,384 (16,034) 667,350 _______ _________ _______ _______ _______ _________ _______ _________Dividendpaid to aminorityshareholder - - - - - - (258,750) (258,750) _______ _________ _______ _______ _______ _________ _______ _________At 31December 2007 345,204 4,836,225 772,376 87,601 711,110 6,752,516 134,194 6,886,710 _______ _________ _______ _______ _______ _________ _______ _________ On 5 October 2006, the Group acquired assets and liabilities from the holdingcompany by way of acquisition of subsidiaries, with part of the considerationpaid in form of issuing new shares. The share issue price is in excess of themarket closing price of the shares issued at the amount of HK$294,736,000 andcredited to other reserve (Note 33(b)). In addition, a discount ofHK$477,640,000, which represented the excess of fair value of assets andliabilities acquired through the acquisition of subsidiaries over theconsideration paid or payable is deemed as capital contribution from holdingcompany and credited to other reserve (Note 33). CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 December 2007 NOTE 2007 2006 HK$'000 HK$'000 OPERATING ACTIVITIESProfit before taxation 934,877 44,409Adjustments for:Interest expenses 70,996 13,522Write down of properties held for sale - 120,819Amortization of front-end fee on bank 1,870 -borrowingsDepreciation 542 127Loss on disposal of property, plant and 63 -equipmentFair value changes on investment properties (830,355) (185,141)Interest income (30,288) (23,983)Recognition of discount on acquisition - (7,484) _______ _________Operating cash flows before movements inworkingcapital 147,705 (37,731)Decrease (increase) in properties held forsale/propertiesunder development held for sale 793,358 (121,495)(Increase) decrease in receivables, depositsandprepayments (182,364) 85,156Increase in payables, deposits received andaccrued charges 36,040 29,174(Decrease) increase in sales deposits onproperties heldfor sale received (108,455) 13,077Payment of rehousing compensation - (722) _______ _________Cash generated from (used in) operations 686,284 (32,541)Interest received 24,488 21,703Interest paid on bank borrowings (124,327) (42,545)Hong Kong Profits Tax paid (106,560) (89,687)Taxation paid in other jurisdictions (3,749) (6,574) _______ _________Net cash FROM (USED IN) OPERATINGACTIVITIES 476,136 (149,644) _______ _________ INVESTING ACTIVITIESPurchase of investment properties (4,305) (14,432)Purchase of property, plant and equipment (68,510) (13,055)Additions for leasehold land (7,000) (51,086)Additions of other loans receivable (14,240) (9,658)Repayments of other loans receivable 21,988 6,477Increase in pledged bank deposits (164,285) (53,900)Decrease in restricted bank balances and 214,129 28,280depositsAcquisition of assets and liabilitiesthrough acquisitionof subsidiaries 33 (33,621) (335,129)Acquisition of additional interest in a subsidiary - (1,957) ______ _________ Net cash USED IN INVESTING ACTIVITIES (55,844) (444,460) _______ _________ 2007 2006 HK$'000 HK$'000FINANCING ACTIVITIESRepayments of secured bank borrowings (506,170) (17,300)Proceeds from secured bank borrowings 862,077 154,199Repayments to a minority shareholder (42,419) (65,730)Advance from a minority shareholder 6,289 8,544Dividends paid to a minority shareholder (258,750) - _______ _________NET CASH FROM FINANCING ACTIVITIES 61,027 79,713 _______ _________NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS 481,319 (514,391) CASH AND CASH EQUIVALENTS AT BEGINNINGOF THE YEAR 106,327 619,958Effect of foreign exchange rate changes 17,988 760 _______ _________CASH AND CASH EQUIVALENTS AT END OF THEYEARrepresented by bank balances and deposits 605,634 106,327 _______ _________ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December 2007 1. GENERAL The Company is a public limited company incorporated in the British VirginIslands ("B.V.I.") and listed on the AIM market of London Stock Exchange plc.its parent Company is Charm Action Holdings Limited, a company incorporated inthe B.V.I.. The directors consider that the Company's ultimate holding companyis JCS Limited, a company incorporated in Bermuda, as an exempted company withlimited liability. The addresses of the registered office and principal place ofbusiness of the Company are Portcullis TrustNet Chambers, P.O. Box 3444, RoadTown, Tortola, British Virgin Islands and 25th Floor, Dah Sing Financial Centre,108 Gloucester Road, Wanchai, Hong Kong respectively. The consolidated financial statements are presented in Hong Kong dollars, whichis also the functional currency of the Company. The Company acts as an investment holding company. The activities of itsprincipal subsidiaries are set out in note 40. 2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS In the current year, the Group has applied, for the first time, the followingnew standard, amendment and interpretations ("new IFRSs") issued by theInternational Accounting Standards Board ("the IASB") and the InternationalFinancial Reporting Interpretations Committee of the IASB, which are effectivefor the Group's financial year beginning on 1 January 2007. IAS 1 (Amendment) Capital Disclosures IFRS 7 Financial Instruments: Disclosures IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 8 Scope of IFRS 2 IFRIC 9 Reassessment of Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment The adoption of the new IFRSs had no material effect on how the results andfinancial position for the current or prior accounting periods have beenprepared and presented. Accordingly, no prior period adjustment has beenrequired. The Group has applied the disclosure requirements under IAS 1 (Amendment) andIFRS 7 retrospectively. Certain information presented in prior year under therequirements of IAS 32 has been removed and the relevant comparative informationbased on the requirements of IAS 1 (Amendment) and IFRS 7 has been presented forthe first time in the current year. 2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS -continued The Group has not early adopted the following new standards, amendments andinterpretations that have been issued but are not yet effective. The directorsof the Company are in the process of assessing the potential impact and so farconcluded that the application of these standards, amendments or interpretationswill have no material impact on the results and the financial position of theGroup. IAS 1 (Revised) Presentation of Financial Statements1 IAS 23 (Revised) Borrowing Costs1 IAS 27 (Revised) Consolidated and Separate Financial Statements2 IAS 32 & 1 (Amendment) Puttable Financial Instruments and Obligations Arising on Liquidiation1 IFRS 2 (Amendment) Vesting Conditions and Cancellations1 IFRS 3 (Revised) Business Combinations2 IFRS 8 Operating Segments1 IFRIC 11 IFRS 2: Group and Treasury Share Transactions3 IFRIC 12 Service Concession Arrangements4 IFRIC 13 Customer Loyalty Programmes5 IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction4 1 Effective for annual periods beginning on or after 1 January 2009 2 Effective for annual periods beginning on or after 1 July 2009 3 Effective for annual periods beginning on or after 1 March 2007 4 Effective for annual periods beginning on or after 1 January 2008 5 Effective for annual periods beginning on or after 1 July 2008 3. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards. The consolidated financial statements have been prepared on the historical costbasis except for investment properties, which are measured at fair values, asexplained in the accounting policies set out below. The principal accountingpolicies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries). Controlis achieved where the Company has the power to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring their accounting policies in line with those used by othermembers of the Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. 3. SIGNIFICANT ACCOUNTING POLICIES - continued Basis of consolidation - continued Minority interest in the net assets of consolidated subsidiaries is presentedseparately from the Group's equity therein. Minority interest in the net assetsconsists of the amount of those interests at the date of the original businesscombination and the minority's share of changes in equity since the date of thecombination. Losses applicable to the minority in excess of the minority'sinterest in the subsidiary's equity are allocated against the interests of theGroup except to the extent that the minority has a binding obligation and isable to make an additional investment to cover the losses. Acquisition of additional interests in subsidiaries is recorded at the bookvalue of the net assets attributable to the interests. The excess of thecarrying amounts of net assets attributable to the interests over the cost ofacquisition is recognised as discount on acquisition. Common control combinations The Group has elected to apply principles of uniting of interests (mergeraccounting) in respect of business combination under common control. In applyingmerger accounting, financial statement items of the combining businesses for thereporting period in which the common control combination occurs, and for anycomparative periods disclosed, are included in the consolidated financialstatements of the combined entity as if the combination had occurred from thedate when the combining businesses first came under the control of thecontrolling party or parties. The combined entity recognises the assets,liabilities and equity of the combining businesses at the carrying amounts inthe consolidated financial statements of the controlling party or parties priorto the common control combinations. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods sold in the normal courseof business, net of discounts and sales related taxes. Sales of properties Revenue from sale of properties in the ordinary course of business is recognisedwhen all of the following criteria are met: • the significant risks and rewards of ownership of the properties are transferred to buyers; • neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the properties are retained; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Payments received from purchasers prior to this stage are recorded as salesdeposits under current liabilities. 3. SIGNIFICANT ACCOUNTING POLICIES - continued Revenue recognition - continued Others Rental income, including rentals invoiced in advance from properties let underoperating leases, is recognised on a straight-line basis over the term of therelevant lease. Interest income from a financial asset is accrued on a time basis, by referenceto the principal outstanding and at the effective interest rate applicable,which is the rate that exactly discounts the estimated future cash receiptsthrough the expected life of the financial asset to that asset's net carryingamount. Investment properties investment properties, which are properties held to earn rentals and/or forcapital appreciation, are measured initially at costs, including any directlyattributable expenditure. Subsequent to initial recognition, investmentproperties are measured at their fair values using the fair value model. Gainsor losses arising from changes in the fair value of investment properties areincluded in profit or loss for the period in which they arise. An investment property is derecognised upon disposal or when the investmentproperty is permanently withdrawn from use or no future economic benefits areexpected from its disposal. Any gain or loss arising on derecognition of theasset (calculated as the difference between the net disposal proceeds and thecarrying amount of the asset) is included in the consolidated income statementin the year in which the item is derecognised. Property, plant and equipment Property, plant and equipment other than properties under development are statedat cost less subsequent accumulated depreciation and accumulated impairmentlosses. Depreciation is provided to write off the cost of items of property, plant andequipment other than properties under development over their estimated usefullives and after taking into account of their estimated residual value, using thestraight-line method. An item of property, plant and equipment is derecognised upon disposal or whenno future economic benefits are expected to arise from the continued use of theasset. Any gain or loss arising on derecognition of the asset (calculated as thedifference between the net disposal proceeds and the carrying amount of theitem) is included in the consolidated income statement in the year in which theitem is derecognised. 3. SIGNIFICANT ACCOUNTING POLICIES - continued Prepaid lease payments/properties under development When the leasehold land and buildings are in the course of development forproduction, rental or for administrative purposes, the leasehold land componentis classified as a prepaid lease payment and amortised over a straight-linebasis over the lease term. During the construction period, the amortisationcharge provided for the leasehold land is included as part of costs of buildingsunder construction. Buildings under construction are carried at cost, less anyidentified impairment losses. Cost comprises property development costsincluding attributable borrowing costs and directly attributable costscapitalised during the development period. Depreciation of buildings commenceswhen they are available for use (i.e. when they are in the location andcondition necessary for them to be capable of operating in the manner intendedby management). Properties held for sale/properties under development held for sale Properties held for sale and properties under development held for sale in theordinary course of business are classified under current assets and are statedat the lower of cost and net realisable value. Cost comprises property interestin leasehold land and development costs including attributable borrowings costsand directly attributable costs capitalised during the development period thathave been incurred in bringing the properties held for sale/properties underdevelopment held for sale to their present location and condition. Netrealisable value represents the estimated selling price less all anticipatedcosts of completion and costs to be incurred in marketing, selling anddistribution. Impairment on assets At each balance sheet date, the Group reviews the carrying amounts of its assetsto determine whether there is any indication that those assets have suffered animpairment loss. If the recoverable amount of an asset is estimated to be lessthan its carrying amount, the carrying amount of the asset is reduced to itsrecoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the assetis increased to the revised estimate of its recoverable amount, but so that theincreased carrying amount does not exceed the carrying amount that would havebeen determined had no impairment loss been recognised for the asset in prioryears. A reversal of an impairment loss is recognised as income immediately. Borrowing costs Borrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, are capitalised as part of the cost of thoseassets. Capitalisation of such borrowing costs ceases when the assets aresubstantially ready for their intended use or sale. Investment income earned onthe temporary investment of specific borrowings pending their expenditure onqualifying assets is deducted from the borrowing costs eligible forcapitalisation. All other borrowing costs are recognised in profit or loss in the period inwhich they are incurred. 3. SIGNIFICANT ACCOUNTING POLICIES - continued Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event, and it is probable that the Group will be required to settle thatobligation. Provisions are measured at the directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. Leasing Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. The Group as lessor Rental income from operating leases is recognised in the consolidated incomestatement on a straight-line basis over the term of the relevant lease. The Group as lessee Rentals payable under operating leases are charged to profit or loss on astraight-line basis over the term of the relevant lease. Benefits received andreceivable as an incentive to enter into an operating lease are recognised as areduction of rental expense over the lease term on a straight-line basis. Leasehold land and building The land and building elements of a lease of land and building are consideredseparately for the purpose of lease classification, unless the lease paymentscannot be allocated reliably between the land and building elements, in whichcase, the entire lease is generally treated as a finance lease and accounted foras property, plant and equipment. To the extent the allocation of the leasepayments can be made reliably, leasehold interests in land are accounted for asoperating leases. Financial instruments Financial assets and financial liabilities are recognised in the consolidatedbalance sheet when a group entity becomes a party to the contractual provisionsof the instrument. Financial assets and financial liabilities are initiallymeasured at fair value. Financial assets The Group's financial assets are all classified as loans and receivables. Effective interest method The effective interest method is a method of calculating the amortised cost of afinancial asset and of allocating interest income over the relevant period. Theeffective interest rate is the rate that exactly discounts estimated future cashreceipts (including all fees on points paid or received that form an integralpart of the effective interest rate, transaction costs and other premiums ordiscounts) through the expected life of the financial asset, or, whereappropriate, a shorter period. Interest income is recognised on an effective interest basis for debtinstruments. 3. SIGNIFICANT ACCOUNTING POLICIES - continued Financial instruments - continued Financial assets - continued Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. At each balancesheet date subsequent to initial recognition, loans and receivables (includingreceivables, pledged bank deposits, restricted bank deposits, bank balances andother loans receivables) are carried at amortised cost using the effectiveinterest method, less any identified impairment losses (see accounting policy onimpairment loss on financial assets below). Impairment of financial assets Financial assets are assessed for indicators of impairment at each balance sheetdate. Financial assets are impaired where there is objective evidence that, as aresult of one or more events that occurred after the initial recognition of thefinancial asset, the estimated future cash flows of the financial assets havebeen impacted. objective evidence of impairment could include: • significant financial difficulty of the issuer or counterparty; or • default or delinquency in interest or principal payments; or • it becoming probable that the borrower will enter bankruptcy or financial re-organisation. Financial assets that are assessed not to be impaired individually aresubsequently assessed for impairment on a collective basis. Objective evidenceof impairment for a portfolio of receivables could include the Group's pastexperience of collecting payments, as well as observable changes in national orlocal economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, an impairment is recognised inprofit or loss when there is objective evidence that asset is impaired, and theamount of the impairment is the difference between the asset's carrying amountand the present value of estimated future cash flows, discounted at thefinancial asset's original effective interest rate. The carrying amount of the financial asset is reduced by the impairment lossdirectly for all financial assets with the exception of receivables and otherloan receivables, where the carrying amount is reduced through the use of anallowance account. Changes in the carrying amount of the allowance account arerecognised in profit or loss. When a receivable is considered uncollectible, itis written off against the allowance account. Subsequent recoveries of amountspreviously written off are credited to profit or loss. For financial assets measured at amortised cost, if, in a subsequent period, theamount of the impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment loss was recognised, thepreviously recognised impairment loss is reversed through profit or loss to theextent that the carrying amount of the asset at the date the impairment isreversed does not exceed what the amortised cost would have been had theimpairment not been recognised. 3. SIGNIFICANT ACCOUNTING POLICIES - continued Financial instruments - continued Financial liabilities and equity Financial liabilities and equity instruments issued by a group entity areclassified according to the substance of the contractual arrangements enteredinto and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in theassets of the group after deducting all of its liabilities. Effective interest method The effective interest method is a method of calculating the amortised cost of afinancial liability and of allocating interest expense over the relevant period.The effective interest rate is the rate that exactly discounts estimated futurecash payments through the expected life of the financial liability, or, whereappropriate, a shorter period. Interest expense is recognised on an effective interest basis. financial liabilities Other financial liabilities including payables and accrued charges, amount dueto a minority shareholder and bank borrowings are subsequently measured atamortised cost, using the effective interest method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Derecognition Financial assets are derecognised when the rights to receive cash flows from theassets expire or, the financial assets are transferred and the Group hastransferred substantially all the risks and rewards of ownership of thefinancial assets. On derecognition of a financial asset, the difference betweenthe asset's carrying amount and the sum of the consideration received andreceivable and the cumulative gain or loss that had been recognised directly inequity is recognised in profit or loss. Financial liabilities are derecognised when the obligation specified in therelevant contract is discharged or cancelled or expires. The difference betweenthe carrying amount of the financial liability derecognised and theconsideration paid and payable is recognised in profit or loss. 3. SIGNIFICANT ACCOUNTING POLICIES - continued Taxation Income tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from profit as reported in the consolidated income statementbecause it excludes items of income or expense that are taxable or deductible inother years, and it further excludes items that are never taxable or deductible.The Group's liability for current tax is calculated using tax rates that havebeen enacted or substantively enacted by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assetsand liabilities in the consolidated financial statements and the correspondingtax bases used in the computation of taxable profit, and is accounted for usingthe balance sheet liability method. Deferred tax liabilities are generallyrecognised for all taxable temporary differences and deferred tax assets arerecognised to the extent that it is probable that taxable profits will beavailable against which deductible temporary differences can be utilised. Suchassets and liabilities are not recognised if the temporary difference arisesfrom goodwill or from the initial recognition (other than in a businesscombination) of other assets and liabilities in a transaction that affectsneither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited to the consolidated income statement, except when it relatesto items charged or credited directly to equity, in which case the deferred taxis also dealt with in equity. Foreign currencies In preparing the financial statements of each individual group entity,transactions in currencies other than the functional currency of that entity(foreign currencies) are recorded in its functional currency (i.e. the currencyof the primary economic environment in which the entity operates) at the ratesof exchanges prevailing on the dates of the transactions. At each balance sheetdate, monetary items denominated in foreign currencies are retranslated at therates prevailing on the balance sheet date. Non-monetary items carried at fairvalue that are denominated in foreign currencies are retranslated at the ratesprevailing on the date when the fair value was determined. Non-monetary itemsthat are measured in terms of historical cost in a foreign currency are notretranslated. Exchange differences arising on the settlement of monetary items, and on thetranslation of monetary items, are recognised in profit or loss in the period inwhich they arise. Exchange differences arising on the retranslation ofnon-monetary items carried at fair value are included in profit or loss for theperiod. 3. SIGNIFICANT ACCOUNTING POLICIES - continued Foreign currencies - continued For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated into thepresentation currency of the Group (Hong Kong dollars) using exchange ratesprevailing at the balance sheet date. Income and expense items are translated atthe average exchange rates for the year, unless exchange rates fluctuatesignificantly during that year, in which case the exchange rates prevailing atthe dates of the transactions are used. Exchange differences arising, if any,are recognised as a separate component of entity translation reserve. Suchtranslation differences are recognised in profit or loss in the period in whichthe foreign operation is disposed of. Retirement benefit costs Payments to defined contribution retirement benefit plans/state-managedretirement benefit scheme/the Mandatory Provident Fund Scheme are charged as anexpense when employees have rendered service entitling them to thecontributions. 4. KEY SOURCES OF ESTIMATION UNCERTAINTY In the process of applying the Group's accounting policies, which are describedin note 3, management has made the following estimation that have a significantrisk of causing a material adjustment to the carrying amounts of assets andliabilities within next financial year. Income tax No deferred tax asset has been recognised in respect of tax losses ofHK$391,609,000 (2006: HK$401,718,000) due to the unpredictability of futureprofit streams. The realisability of the deferred tax asset mainly depends onwhether sufficient future profits or taxable temporary differences will beavailable in the future. In cases where the actual future profits generated aremore than expected, additional recognition of deferred tax assets may arise,which would be recognised in the consolidated income statement for the period inwhich it takes place. 5. CAPITAL RISK MANAGEMENT The Group manages its capital to ensure that entities in the Group will be ableto continue as a going concern while maximising the return to shareholdersthrough the optimisation of the debt and equity balance. The Group's overallstrategy remains unchanged from prior year. The capital structure of the Group consists of secured bank borrowings, which isdisclosed in note 29, cash and cash equivalents and equity attributable to theCompany's shareholders, comprising issued share capital and reserves. The directors of the Company review the capital structure periodically. As partof this review, the directors consider the cost of capital and the risksassociates with each class of capital. Based on recommendations of thedirectors, the Group will balance its overall capital structure through thepayment of dividends, new share issues and share buy-backs as well as the issueof new debt or the repayment of existing debt. 6. FINANCIAL INSTRUMENTS (a) Categories of financial instruments 2007 2006 ------------- ----------- HK$'000 HK$'000 Financial assets Loans and receivables (including cash and cash equivalents) 1,400,359 811,345 _________ _________ Financial liabilities At amortised costs 2,630,187 2,295,651 _________ _________ (b) Financial risk management objectives and policies The directors of the Company have overall responsibility for the establishmentand oversight of the Group's risk management framework. The Group's riskmanagement policies are established to identify and analyse the risks faced bythe Group, to set appropriate risk limits and controls to monitor risks andadherence to market conditions and the Group's activities. The Group, throughits training and management standards and procedures, aims to develop aconstructive control environment in which all employees understand their rolesand obligations. The directors of the Company monitor and manage the financial risks relating tothe operations of the Group to ensure appropriate measures are implemented on atimely and effective manner. These risks include market risk (including currencyrisk and cash flow interest rate risk), credit risk and liquidity risk. The Group does not enter into or trade any financial instruments, includingderivative financial instruments, for hedging or speculative purpose. Market risk (i) Foreign currency risk Certain subsidiaries of the Company have foreign currency denominated monetaryassets and monetary liabilities, which expose the Group to foreign currencyrisk. The Group currently does not have a foreign currency hedging policy inrespect of foreign currency exposure. However, the management monitors therelated foreign currency exposure closely and will consider hedging significantforeign currency exposure should the need arise. The carrying amounts of those foreign currency denominated monetary assets andmonetary liabilities at the balance sheet date are as follows: Assets Liabilities -------- ------------- 2007 2006 2007 2006 ------ ------ ------ ------ HK$'000 HK$'000 HK$'000 HK$'000 Hong Kong dollars - - 80,000 80,000 United States 133,472 - - - dollars _______ _______ _______ _______ 6. FINANCIAL INSTRUMENTS - continued (b) Financial risk management objectives and policies - continued Market risk - continued (i) Foreign currency risk - continued Sensitivity analysis The following table details the Group's sensitivity to a 5% increase anddecrease in Hong Kong dollars and United States dollars relative to Renminbi,which are the functional currency of the subsidiaries. Sensitivity rate of 5%represents management's assessment of the reasonably possible change in foreignexchange rates. The sensitivity analysis includes only outstanding foreigncurrency denominated monetary items and adjusts their translation at the yearend for a 5% change in foreign currency rates. A positive (negative) numberbelow indicates an increase (decrease) in profit for the year where Renminbistrengthens 5% against the relevant currencies. There would be an equal andopposite impact on the profit for the year below where the Renminbi weakens 5%against the relevant currency. 2007 2006 ------ ------ HK$'000 HK$'000 Hong Kong dollars 4,000 4,019United States dollars (6,674) - _______ _______ (ii) Cash flow and fair value interest rate risk The Group is exposed to cash flow interest rate risk in relation tovariable-rate borrowings (see note 29 for details of bank borrowings) and otherloans receivable (see note 21 for details of other loans receivable). It is theGroup's policy to keep its bank borrowings and other loans receivable atfloating rate of interests so as to minimise the cash flow interest rate risk.The Group's cash flow interest rate risk is mainly concentrated on thefluctuation of Hong Kong Interbank Money Market Offer Rate, Hong Kong Prime Rateand People's Bank of China lending rate on the secured bank borrowings (note29), and Hong Kong Prime Rate on other loans receivable (note 21). The Group is also exposed to fair value interest rate risk in relation to fixedrate restricted bank balances and deposits and pledged bank deposits. The Groupcurrently does not have an interest rate swap hedging policy. However, themanagement monitors interest exposure and will consider hedging interest raterisk exposure should the need arise. 6. FINANCIAL INSTRUMENTS - continued (b) Financial risk management objectives and policies - continued Market risk - continued (ii) Cash flow and fair value interest rate risk - continued Sensitivity analysis The sensitivity analyses below have been determined based on the exposure tointerest rates in relation to the Group's variable rate bank borrowings andother loans receivable at the balance sheet date. The analysis is preparedassuming the amount of asset and liability outstanding at the balance sheet datewas outstanding for the whole year. A 50 basis point increase or decreaserepresents management's assessment of the reasonably possible change in interestrates. If interest rates had been 50 basis points higher/lower and all other variableswere held constant, the Group's profit for the year ended 31 December 2007 woulddecrease/increase by HK$9,804,000 (2006: decrease/increase by HK$8,680,000). Credit risk The Group's maximum exposure to credit risk in the event of the counterparties'failure to perform their obligations at the balance sheet date in relation toeach class of recognised financial assets is the carrying amount of those assetsas stated in the consolidated balance sheet. In order to minimise the creditrisk, the management of the Group has monitoring procedures to ensure thatfollow-up action is taken to recover overdue debts. In addition, the Groupreviews the recoverable amount of each individual debt at each balance sheetdate to ensure that adequate impairment losses are made for irrecoverableamounts. In this regard, the directors of the Company consider that the Group'scredit risk is significantly reduced. Although the bank balances are concentrated on certain counterparties, thecredit risk on liquid funds is limited because the counterparties are licensedbanks. The Group has no other significant concentration of credit risk with exposurespread over a number of counterparties and customers. 6. FINANCIAL INSTRUMENTS - continued (b) Financial risk management objectives and policies - continued Liquidity risk Ultimate responsibility for liquidity risk management rests with the directorsof the Company, which has built an appropriate liquidity risk managementframework for the management of the Group's short, medium and long-term fundingand liquidity management requirements. The Group manages liquidity risk bymaintaining adequate reserves, banking facilities, by continuously monitoringforecast and actual cash flows. The following table details the Group's remaining contractual maturity for itsfinancial liabilities. The table has been drawn up based on the undiscountedcash flows of financial liabilities based on the earliest date on which theGroup can be required to pay. The table includes both interest and principalcash flows. Weighted Total average 4 months 7 months 10 months undiscounted effective Less than to to to cash Carrying interest rate 3 months 6 months 9 months 12 months Over 1 year flows values ------------ ---------- ---------- ---------- ----------- ----------- ------- -------- % HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000At 31.12.2007 Payablesand accrued charges - 229,274 - - - - 229,274 229,274 Amount due to aminority shareholder - 79 - - - - 79 79 Variable rates bankborrowings 4.7 - 6.2 1,237,678 444,286 18,955 18,865 820,273 2,540,057 2,400,834 _______ _______ _______ _______ _______ _______ _______ 1,467,031 444,286 18,955 18,865 820,273 2,769,410 2,630,187 _______ _______ _______ _______ _______ _______ _______ Weighted Total average 4 months 7 months 10 months undiscounted effective Less than to to to cash Carrying interest rate 3 months 6 months 9 months 12 months Over 1 year flows values ------------ ---------- ---------- ---------- ----------- ----------- ------- -------- % HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000At 31.12.2006 Payablesand accrued charges - 243,367 - - - - 243,367 243,367 Amount due to aminority shareholder - - - 36,209 - - 36,209 36,209 Variablerates bankborrowings 4.5 - 5.9 193,965 176,490 323,798 638,554 859,966 2,192,773 2,016,075 _______ _______ _______ _______ _______ _______ _______ 437,332 176,490 360,007 638,554 859,966 2,472,349 2,295,651 _______ _______ _______ _______ _______ _______ _______ 6. FINANCIAL INSTRUMENTS - continued (c) Fair values of financial instruments the fair values of financial assets and financial liabilities are determined inaccordance with generally accepted pricing model which is based on discountedcash flows analysis using the relevant prevailing market rates as input. The directors consider that the carrying amounts of financial assets andfinancial liabilities recorded at amortised cost in the consolidated financialstatements approximate their fair values. 7. REVENUE 2007 2006 ------ ------ HK$'000 HK$'000 Gross rental income 163,858 47,679Gross proceeds from sale of properties 1,525,157 75,614 _________ _______ 1,689,015 123,293 _________ _______ 8. GEOGRAPHICAL AND BUSINESS SEGMENTS Geographical segments The operations of the Group are currently located in Hong Kong and the otherregions of the People's Republic of China (the "PRC"). The correspondinggeographical locations of the Group's assets are the basis on which the Groupreports its primary segment information. Consolidated Income statement for the year ended 31 December 2007 Hong Kong PRC Consolidated ----------- ----- -------------- HK$'000 HK$'000 HK$'000REVENUEExternal sales 1,235,957 453,058 1,689,015 _________ _______ _________RESULTSegment profit 692,711 295,628 988,339 _______ _______Investment income 30,288Unallocated corporate expenses (9,460)Finance costs (74,290) _______Profit before taxation 934,877Income tax expense (344,964) _______Profit for the year 589,913 _______ 8. GEOGRAPHICAL AND BUSINESS SEGMENTS - continued Geographical segments - continued Consolidated Balance Sheet at 31 December 2007 Hong Kong PRC Consolidated ----------- ----- -------------- HK$'000 HK$'000 HK$'000ASSETSSegment assets 7,436,871 1,808,264 9,245,135Restricted bank balances and deposits - 134,240 134,240Income tax recoverable 2,794Unallocated corporate assets 923,406 __________Consolidated total assets 10,305,575 __________LIABILITIESSegment liabilities 543,575 158,030 701,605Bank borrowings 2,400,834Income tax payable 96,853Amount due to a minority shareholder 79Deferred taxation 219,494 __________Consolidated total liabilities 3,418,865 __________ Other information for the year ended 31 December 2007 Hong Kong PRC Consolidated ----------- ----- -------------- HK$'000 HK$'000 HK$'000 Capital additions 79,278 4,917 84,195Depreciation 18 524 542Fair value changes on investment 629,000 201,355 830,355propertiesLoss on disposal of property, plant andequipment - 63 63 _______ _______ _________ Consolidated Income statement for the year ended 31 December 2006 Hong Kong PRC Consolidated ----------- ----- -------------- HK$'000 HK$'000 HK$'000REVENUEExternal sales 115,546 7,747 123,293 _______ _______ _________RESULTSegment profit (loss) 54,426 (5,235) 49,191 _______ _______Investment income 23,983Recognition of discount on acquisition 7,484Unallocated corporate expenses (22,139)Finance costs (14,110) _________Profit before taxation 44,409Income tax expense (27,648) _________Profit for the year 16,761 _________ 8. GEOGRAPHICAL AND BUSINESS SEGMENTS - continued Geographical segments - continued Consolidated Balance Sheet at 31 December 2006 Hong Kong PRC Consolidated ----------- ----- -------------- HK$'000 HK$'000 HK$'000ASSETSSegment assets 7,112,983 1,684,898 8,797,881Restricted bank balances and deposits - 332,404 332,404Income tax recoverable 14,923Unallocated corporate assets 259,814 __________Consolidated total assets 9,405,022 __________LIABILITIESSegment liabilities 261,435 523,096 784,531Bank borrowings 2,016,075Income tax payable 31,379Amount due to a minority shareholder 36,209Deferred taxation 58,718 __________Consolidated total liabilities 2,926,912 __________ Other information for the year ended 31 December 2006 Hong Kong PRC Consolidated ----------- ----- -------------- HK$'000 HK$'000 HK$'000 Capital additions 3,503,802 883,262 4,387,064Depreciation 6 121 127Fair value changes on investment 186,000 (859) 185,141propertiesWrite down of properties held for sale 120,819 - 120,819 _________ _______ __________ Business segments The Group is currently organised into two operating divisions - propertyinvestment and property development. Principal activities are as follows: Property investment - rental of properties Property development - development of properties Both divisions above are operating in Hong Kong and the PRC. 8. GEOGRAPHICAL AND BUSINESS SEGMENTS - continued Business segments - continued The following table provides an analysis of the Group's sales revenue bybusiness segment: Sales revenue by business segment 2007 2006 HK$'000 HK$'000 Property investment 163,858 34,719Property development 1,525,157 88,574 _________ _______ 1,689,015 123,293 _________ _______ The following is an analysis of the carrying amount of segment assets, andadditions to investment properties and property, plant and equipment analysed bybusiness segments: Additions to Carrying investment properties amount of and property, plant segment assets and equipment ---------------- --------------- 2007 2006 2007 2006 ------ ------ ------ ------ HK$'000 HK$'000 HK$'000 HK$'000 Property investment 5,538,886 4,610,291 4,305 4,328,208Property development 2,927,272 3,494,891 612 2,079Unallocated corporate assets 1,839,417 1,299,840 79,278 56,777 _________ _________ _______ _________ 10,305,575 9,405,022 84,195 4,387,064 _________ _________ _______ _________ 9. INVESTMENT INCOME 2007 2006 ------ ------ HK$'000 HK$'000 Interest on other loans receivables 7,690 2,669Interest on bank deposits 22,598 21,314 _______ _______ 30,288 23,983 _______ _______ 10. PROPERTY AND RELATED COSTS 2007 2006 ------ ------ HK$'000 HK$'000 Changes in properties held for sale/properties under development held for sale (730,827) 1,800,217Costs incurred on properties held for sale/properties under development held for sale (436,057) (1,878,717)Write down of properties held for sale - (120,819)Selling and marketing expenses (232,031) (23,436)Direct operating expenses from investment propertiesthat generate rental income (24,243) (10,494) _________ _________ (1,423,158) (233,249) _________ _________ Certain property related costs previously classified as other expenses ordisclosed separately in the consolidated income statement have been reclassifiedto conform with the current year's presentation and are summarised as below: As originally stated Reclassifications As restated -------- ------------------- ------------- HK$'000 HK$'000 HK$'000 Property and related costs 78,500 154,749 233,249Other expenses 79,403 (33,930) 45,473Write down of properties heldfor sale 120,819 (120,819) - _______ _______ _______ 278,722 - 278,722 _______ _______ _______ 11. OTHER EXPENSES 2007 2006 ------ ------ HK$'000 HK$'000Included in other expenses are: Legal and professional fees in respect of listing andre-admission to AIM 399 16,943Management fee paid to a related company 95,042 24,938Other legal and professional fees 11,864 1,442 _______ _______ 12. RECOGNITION OF DISCOUNT ON ACQUISITION In December 2006, the Group acquired 3% additional interest in Chengdu HuashangHouse Development Co., Ltd. from another shareholder of that company. Sincethen, that company had become a wholly owned subsidiary of the Group. Thedirectors considered the acquisition was conducted at arm's length. 13. FINANCE COSTS 2007 2006 ------ ------ HK$'000 HK$'000Interest on:Bank borrowings wholly repayable within 5 years 117,996 40,289Other bank borrowings 6,331 2,256 _______ _______ 124,327 42,545Less: Amounts capitalised to property development projects (53,331) (29,225) _______ _______ 70,996 13,320 _______ _______Facilities charges 3,294 588Imputed interest on amount due to a minority shareholder - 202 _______ _______ 3,294 790 _______ _______ 74,290 14,110 _______ _______ Borrowing costs capitalised during the year arose on the general borrowing pooland are calculated by applying a capitalisation rate of 9.2% (2006: 11.9%) perannum to expenditure on qualifying assets. 14. PROFIT BEFORE TAXATION 2007 2006 ------ ------ HK$'000 HK$'000Profit before taxation has been arrived at after charging: Auditor's remunerationCurrent year 1,606 1,248Overprovision in prior year 200 -Directors' emoluments 8,284 5,905Loss on disposal of property, plant and equipment 63 -Minimum lease payments under operating leases and crediting: 3,909 43 Gross rental income from investment properties 163,858 34,719Less: direct operating expenses from investment propertiesthat generate rental income during the year (24,243) (10,494) Net rental income from investment properties 139,615 24,225 _______ _______ 15. INCOME TAX EXPENSE 2007 2006 ------ ------ HK$'000 HK$'000The charge comprise: Current taxHong Kong 76,690 7,191PRC Enterprise Income Tax 40,095 -PRC Land Appreciation Tax 66,875 - _______ _______ 183,660 7,191 _______ _______Under(over)provision in prior yearsHong Kong - 552PRC Enterprise Income Tax 1,290 (7,439) _______ _______ 1,290 (6,887) _______ _______Deferred taxCurrent year 160,589 27,344Attributable to a change in tax rate (575) - _______ _______ 344,964 27,648 _______ _______ Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profitfor both years. Taxation arising in other jurisdictions is calculated at the rates prevailing inthe relevant jurisdictions. On 16 March 2007, the PRC government promulgated the Law of the People'sRepublic of China on Enterprise Income Tax (the "New Law") by Order No. 63. On6 December 2007, the State Council of the PRC issued Implementation Regulationsof the New Law. The New Law and Implementation Regulations will change the taxrate from 33% to 25% for subsidiaries in the PRC from 1 January 2008. Thedeferred tax balance has been adjusted to reflect the tax rates that areexpected to apply to the respective periods when the asset is realised or theliability is settled. Details of deferred taxation are set out in note 32. The income tax expense for the year can be reconciled from profit beforetaxation per the consolidated income statement as follows: 2007 2006 ------ ------ HK$'000 HK$'000 Profit before taxation 934,877 44,409 _______ _______Tax at the domestic income tax rate of 17.5% (2006: 17.5%) 163,603 7,772Tax effect of expenses not deductible for tax purpose 95,124 29,771Tax effect of income not taxable for tax purpose (3,180) (1,280)Under(over)provision in prior years, net 1,290 (6,887)Utilisation of tax losses previously not recognised (1,769) -Tax effect of tax losses not recognised - 567Utilisation of deferred tax assets on deductible temporarydifferences unrecognised (12,015) (1,897)Tax effect of PRC Land Appreciation Tax 66,875 -Effect of change in tax rate (575) -Effect of different tax rates of subsidiaries operated inother jurisdictions 35,407 (146)Others 204 (252) _______ _______Income tax expense for the year 344,964 27,648 _______ _______ 16. EARNINGS PER SHARE The calculation of the basic earnings per share attributable to the Company'sshareholders is based on the following data: 2007 2006 ------ ------ HK$'000 HK$'000 Earnings for the purpose of basic earnings per share 605,947 80,722 _______ _______ Number of shares ------------------ 2007 2006 ------ ------Weighted average number of ordinary shares forthe purpose of basic earnings per share 886,347,812 377,071,754 ___________ __________ For the purpose of assessing the performance of the Group, management is of theview that the profit for the year should be adjusted for fair value changes oninvestment properties and related deferred taxation in arriving at "lossattributable to Company's shareholders". A reconciliation of profits is asfollows: 2007 2006 ------ ------ HK$'000 HK$'000 Profit attributable to Company's shareholders as shownin the consolidated income statement 605,947 80,722Increase in fair value of investment properties (830,355) (185,141)Deferred tax on changes in fair value of investmentproperties 160,414 29,065Effect of change in tax rate (575) - _______ _______Loss attributable to Company's shareholders (64,569) (75,354) _______ _______ 2007 2006 ------ ------ HK$ HK$Loss per share excluding change in fairvalue of investment properties net ofdeferred tax - basic (0.07) (0.20) _______ _______ 17. DIVIDENDS No dividend was paid or proposed during the two years ended 31 December 2007,nor has any dividend been proposed since the balance sheet date. 18. INVESTMENT PROPERTIES Hong Kong Hong Kong held under PRC held held under medium- under long long leases term leases leases Total ------------- ------------- -------- ------- HK$'000 HK$'000 HK$'000 HK$'000AT FAIR VALUESAt 1 January 2006 56,000 - - 56,000Exchange adjustments - - 15,511 15,511Acquisition of assetsthrough acquisition ofsubsidiaries 197,000 3,250,000 866,776 4,313,776Additions - - 14,432 14,432increase (decrease) infair 6,000 180,000 (859) 185,141value _______ _________ _________ _________At 31 December 2006 259,000 3,430,000 895,860 4,584,860Exchange adjustments - - 73,170 73,170Additions - - 4,305 4,305increase in fair value 59,000 570,000 201,355 830,355 _______ _________ _________ _________At 31 December 2007 318,000 4,000,000 1,174,690 5,492,690 _______ _________ _________ _________ All of the Group's property interests held under operating leases to earnrentals or for capital appreciation purpose are measured using the fair valuemodel and are classified and accounted for as investment properties. The fair value of the Group's investment properties at 31 December 2007 havebeen arrived at on the basis of valuation carried out at that date by SavillsValuation and Professional Services Limited ("Savills"), a firm of CharteredSurveyors not connected with the Group. Savills recognised by The Hong KongInstitute of Surveyors has appropriate qualifications and recent experiences inthe valuation of properties in the relevant locations. The valuation, whichconforms to the appropriate sections of both the current Practice Statements,and United Kingdom Practices Statements contained in the RICS ValuationStandards (January 2008), 6th Edition published by the Royal Institution ofChartered Surveyors in the United Kingdom (the "RICS") as well as the AIM Rulesfor Companies and Listing Rules published by London Stock Exchange Plc. Certain of the Group's investment properties are rented out under operatingleases. 19. PROPERTY, PLANT AND EQUIPMENT Properties under development in Hong Kong Furniture, held under fixtures medium-term and Motor Leasehold leases equipment vehicles improvements Total -------- ----------- ---------- -------------- ------- HK$'000 HK$'000 HK$'000 HK$'000 HK$'000COSTAt 1 January 2006 - - - - -Exchange adjustments - 35 2 - 37Acquisition of assetsthroughacquisition ofsubsidiaries 41,251 1,721 136 37 43,145Additions 15,526 185 - - 15,711Amortisation of prepaidleasepayments capitalised 3,665 - - - 3,665 _______ _______ _______ _______ _______ At 31 December 2006 60,442 1,941 138 37 62,558Exchange adjustments - 140 31 3 174Additions 79,278 69 543 - 79,890Disposals - (64) - - (64)Amortisation of prepaid leasepayments capitalised 17,018 - - - 17,018 _______ _______ _______ _______ _______At 31 December 2007 156,738 2,086 712 40 159,576 _______ _______ _______ _______ _______ DEPRECIATIONAt 1 January 2006 - - - - -Provided for the year - 95 18 14 127 _______ _______ _______ _______ _______At 31 December 2006 - 95 18 14 127Exchange adjustments - 21 6 2 29Provided for the year - 397 121 24 542Eliminated on disposals - (1) - - (1) _______ _______ _______ _______ _______At 31 December 2007 - 512 145 40 697 _______ _______ _______ _______ _______CARRYING VALUES At 31 December 2007 156,738 1,574 567 - 158,879 _______ _______ _______ _______ _______At 31 December 2006 60,442 1,846 120 23 62,431 _______ _______ _______ _______ _______ The above items of property, plant and equipment are depreciated on astraight-line basis at the following rates per annum and after taking intoaccount their estimated residual values: Furniture, fixtures and equipment 25% Motor vehicles 25% Leasehold improvements 25% 20. PREPAID LEASE PAYMENTS 2007 2006 ------ ------ HK$'000 HK$'000Leasehold land in Hong Kong held undermedium-term lease 622,239 632,257 _______ _______ Analysed for reporting purposes as:Current 16,819 16,742Non-current 605,420 615,515 _______ _______ 622,239 632,257 _______ _______ Amortisation of prepaid lease payments during the year amounting toHK$17,018,000 (2006: HK$3,665,000) was capitalised to properties underdevelopment. 21. OTHER LOANS RECEIVABLE 2007 2006 ------ ------ HK$'000 HK$'000Carrying amount analysed for reporting purposes:Current assets (receivable within 12 months fromthe balance sheet date) 2,044 973Non-current assets (receivable after 12 months fromthe balance sheet date) 123,517 126,536 _______ _______ 125,561 127,509 _______ _______ The other loans receivable are secured by certain leasehold properties, carryinterest at Hong Kong prime rate and are repayable in accordance with theirrespective repayment terms. The Group does not have any other loan receivableswhich are past due at the balance sheet date. The loans are recoverable as follows: 2007 2006 ------ ------ HK$'000 HK$'000 Within one year 2,044 973In more than one year but not more than two years 4,311 2,548In more than two years but not more than three years 4,940 4,221In more than three years but not more than four years 5,274 4,558In more than four years but not more than five years 5,629 4,923In more than five years 103,363 110,286 _______ _______ 125,561 127,509 _______ _______ The interest rate of the other loans receivable is at Hong Kong Prime Rate. Theaverage effective interest rates of other loans receivable are 6.5% (2006: 8%)per annum. 22. PROPERTIES HELD FOR SALE/PROPERTIES UNDER DEVELOPMENT HELD FOR SALE The Group's properties held for sale of HK$452,014,000 (2006: HK$892,491,000)and HK$25,355,000 (2006: Nil) are situated in Hong Kong and the PRCrespectively. The Group's properties under development held for sale of HK$1,494,414,000(2006: HK$1,624,203,000) and HK$538,332,000 (2006: HK$724,248,000) are situatedin Hong Kong and the PRC respectively. Both the Group's properties held for sale and properties under development heldfor sale are held under medium or long term leases. Included in the Group's properties under development held for sale areHK$588,275,000 (2006: HK$579,058,000) which are expected to be recovered in morethan twelve months after the balance sheet date. 23. RECEIVABLES, DEPOSITS AND PREPAYMENTS 2007 2006 ------ ------ HK$'000 HK$'000 Trade receivables 2,302 14,058Other receivables, deposits and prepayments 333,349 135,824 _______ _______ 335,651 149,882 _______ _______ The Group allows an average credit period of 60 days to its trade customers. Alltrade receivables at the balance sheet date are aged less than 60 days. The Group does not have significant trade receivables which are past due but notimpaired at the balance sheet date. 24. PLEDGED BANK DEPOSITS The amount represents deposits pledged to banks to secure short-term bank loansand are therefore classified as current assets. The deposits carry fixed interest rates ranging from 4.0% to 4.7% (2006: 3.6% to4.4%) per annum. The pledged bank deposits will be released upon the settlementof relevant bank borrowings. 25. RESTRICTED BANK BALANCES AND DEPOSITS Bank deposits of HK$134,240,000 (2006: HK$332,404,000) being proceeds receivedupon the pre-sale of certain units of a property are placed in several banks andto be used solely for tax payment and settlement of the construction cost of therelated property. The bank deposits carry fixed interest rates ranging from 0.7%to 1.5% (2006: 0.7% to 1.4%) per annum. 26. BANK BALANCES AND DEPOSITS Bank balances and deposits comprise cash held by the Group and short-term bankdeposits which carry fixed interest rates ranging from 3.8% to 4.0% (2006: 3.5%to 4.1%) per annum with an original maturity of three months or less. The Group's bank balance and cash that are denominated in currencies other thanthe functional currencies of the relevant group entities are set out below: United States dollars --------- HK$'000 As at 31 December 2007 133,472 _______ As at 31 December 2006 - _______ 27. PAYABLES, DEPOSITS RECEIVED AND ACCRUED CHARGES 2007 2006 ------ ------ HK$'000 HK$'000 Trade payables 69,762 31,560Other payables, deposits received and accrued charges 261,546 288,996 _______ _______ 331,308 320,556 _______ _______ 28. PROVISIONS HK$'000 At 1 January 2006 -Acquisition of liabilities through acquisition of subsidiaries 15,332Exchange adjustments 271Payment for the year (722) _______At 31 December 2006 14,881Exchange adjustments 1,084 _______At 31 December 2007 15,965 _______ The provisions for rehousing compensation represent the compensation for thedelay in handover of rehousing properties to the former commercial unit owners("Affected Owners") whose properties have been demolished due to theconstruction of a property developed for sale in the PRC and the estimated costfor the permanent relocation of certain Affected Owners who will not haverehousing properties allocated under management's plan. Such provisions areestimated based on management's best estimate by reference to the PRC statutoryrequirements. During last year, some of the compensation arrangements have beensettled with the Affected Owners. In the opinion of the directors, the remainingcompensation is expected to be paid within one year, depending on the progressof negotiation with the Affected Owners. 29. SECURED BANK BORROWINGS 2007 2006 ------ ------ HK$'000 HK$'000The bank borrowings are repayable as follows: On demand or within one year 1,678,475 1,252,499More than one year, but not exceeding two years 44,730 43,027More than two years, but not exceeding three years 47,129 46,441More than three years, but not exceeding fouryears 551,478 48,873More than four years, but not exceeding five years 11,845 543,912More than five years 67,177 81,323 _________ _________ 2,400,834 2,016,075Less: Amounts due for settlement within 12 monthsshown under current liabilities (1,678,475) (1,252,499) _________ _________Amounts due for settlement after 12 months 722,359 763,576 _________ _________ The average effective interest rates of the borrowings are ranging from 4.7% to6.2% (2006: 4.5% to 5.9%) per annum. The carrying amounts of the Group's borrowings are analysed as follows: Denominated in 2007 2006 Interest rate---------------- ------ ------ --------------- HK$'000 HK$'000 Hong Kong dollars 1,982,809 1,668,709 Hong Kong Interbank Money Market Offer Rate plus 0.5% to 0.67% 80,000 80,000 Hong Kong Prime Rate minus 2% _________ _________ 2,062,809 1,748,709Renminbi 273,951 267,366 10% discount on People's Bank of China lending rate 64,074 - People's Bank of China lending rate _________ _________ 2,400,834 2,016,075 _________ _________ The Group's bank borrowings that are denominated in currencies other than thefunctional currency of the relevant group entities are set out below: Hong Kong dollars --------- HK$'000 As at 31 December 2007 80,000 _______ As at 31 December 2006 80,000 _______ 30. AMOUNT DUE TO A MINORITY SHAREHOLDER The balance is unsecured, interest-free and repayable within twelve months frombalance sheet date. 31. SHARE CAPITAL Movements during the year in the share capital of the Company were as follows: Number of shares Nominal value ------------------ --------------- 2007 2006 2007 2006 ------ ------ ------ ------ US$'000 US$'000 Ordinary sharesof US$0.05 each: Authorised:At beginning of the year 1,300,000,000 500,000,000 65,000 25,000Increase for the year - 800,000,000 - 40,000 ____________ ____________ _______ _______At end of the year 1,300,000,000 1,300,000,000 65,000 65,000 ____________ ____________ _______ _______Issued and fully paid:At beginning of the year 886,347,812 217,693,995 44,317 10,885Shares issued - 668,653,817 - 33,432 ____________ ____________ _______ _______At end of the year 886,347,812 886,347,812 44,317 44,317 ____________ ____________ _______ _______ Shown in the consolidated financial statements as 2007 2006 HK$'000 HK$'000 Issued and fully paid capital at end of the year 345,204 345,204 _______ _______ On 4 October 2006, the Company increased its authorised capital to 1,300,000,000ordinary shares by the creation of 800,000,000 ordinary shares with a par valueof US$0.05 each. On 5 October 2006, the Company issued 668,653,817 ordinary shares to awholly-owned subsidiary of S E A Holdings Limited ("SEA"), which in turn is theCompany's intermediate holding company, at US$0.753 (equivalent to HK$5.8772)per share, with a total amount of approximately HK$3,929,812,000 as part of theconsideration for acquiring assets and liabilities through acquisition ofcertain subsidiaries from SEA. Details for such acquisition are disclosed innote 33. All ordinary shares rank equally with one vote attached to each fully paidordinary share. 32. DEFERRED TAXATION The following are the major deferred tax liabilities (assets) recognised andmovements thereon during the current and prior reporting periods: Other temporary difference in respect of fair value Accelerated Revaluation adjustments on tax on acquisition of Tax depreciation properties subsidiaries losses Total -------------- ------------ -------------- -------- ------- HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 At 1 January 2006 - 3,127 26,000 - 29,127 Exchangeadjustments - 2,247 - - 2,247 Charge(credit) toconsolidatedincomestatement for the year 1,174 29,065 - (2,895) 27,344 _______ _______ _______ _______ _______At 31December 2006 1,174 34,439 26,000 (2,895) 58,718 Exchangeadjustments - 762 - - 762 Charge(credit) toconsolidatedincomestatement for the year 1,769 160,414 - (1,594) 160,589 Effect ofchange in tax rate - (575) - - (575) _______ _______ _______ _______ _______At 31December 2007 2,943 195,040 26,000 (4,489) 219,494 _______ _______ _______ _______ _______ For the purposes of balance sheet presentation, deferred tax assets andliabilities above have been offset and shown under non-current liabilities. At 31 December 2007, the Group has unused tax losses of HK$417,260,000 (2006:HK$418,260,000) available for offset against future profits. A deferred taxasset has been recognised in respect of HK$25,651,000 (2006: HK$16,542,000) ofsuch losses. No deferred tax asset has been recognised in respect of theremaining HK$391,609,000 (2006: HK$401,718,000) due to the unpredictability offuture profit streams. At 31 December 2007, the Group has deductible temporary differences in respectof properties of HK$40,133,000 (2006: HK$108,792,000). No deferred tax asset hasbeen recognised in relation to such deductible temporary difference as it is notprobable that taxable profit will be available against which the deductibletemporary can be utilised. 33. ACQUISITION OF ASSETS AND LIABILITIES THROUGH ACQUISITION OF SUBSIDIARIES On 5 October 2006, the Group had acquired a portfolio of six investment anddevelopment properties in Hong Kong and the PRC and its related assets andliabilities (the "Acquisition"), at a consideration of approximately HK$4,463million from SEA. The purchase was by way of acquisition of the entire issuedshare capital of Giant Well Enterprises Limited. This transaction has beenreflected as a purchase of assets and liabilities. HK$'000Net assets acquired: Investment properties 4,313,776Property, plant and equipment 43,145Prepaid lease payments 584,836Other loans receivable 122,048Properties held for sales 1,089,117Properties under development held for sale 678,057Receivables, deposits and prepayments 231,302Income tax recoverable 8,357Pledged bank deposits 99,587Restricted bank deposits 354,644Bank balances and cash 164,871Payables, deposits received and accrued charges (245,971)Sales deposits on properties held forsales received (428,416)Provisions (15,332)Income tax payable (119,773)Bank borrowings (1,363,400)Amount due to a minority shareholder (93,395) _________ 5,423,453Minority interest (482,380) _________ 4,941,073Discount on acquisition of assets and liabilities throughacquisition of subsidiaries recognised in equity (477,640) _________ 4,463,433 _________Total consideration satisfied by: Cash consideration 500,000Consideration payable (Note a) 33,621Shares issued (Note b) 3,929,812 _________ 4,463,433 _________Net cash outflow arising on acquisition:Bank balances and cash acquired 164,871Cash consideration paid (500,000) _________ (335,129) _________ 33. ACQUISITION OF ASSETS AND LIABILITIES THROUGH ACQUISITION OF SUBSIDIARIES - continued Notes: (a) At 31 December 2006, consideration payable of HK$33,621,000 was included inpayable, deposits and accrued charges. This amount was fully paid during theyear. (b) As part of the consideration, 668,653,817 ordinary shares of the Companywith par value of US$0.05 each were issued at US$0.753 (equivalent to HK$5.8772)per share at the date of the Acquisition (the 'new shares'), with a total amountof HK$3,929,812,000. The share issue price is in excess of the market closingprice of the shares issued at the amount of HK$294,736,000 and credited to otherreserve. In addition, a discount of HK$477,640,000, which represented the excessof fair value of assets and liabilities acquired through the acquisition ofsubsidiaries over the consideration paid or payable is deemed as capitalcontribution from holding company and credited to other reserve. 34. MAJOR NON-CASH TRANSACTIONS As disclosed in note 33, the Company issued 668,653,817 ordinary shares to awholly-owned subsidiary of SEA with a total amount of HK$3,929,812,000 as partof the consideration for acquiring assets and liabilities through acquisition ofcertain subsidiaries from SEA during the year ended 31 December 2006. 35. OPERATING LEASE ARRANGEMENTS The Group as lessee At the balance sheet date, the Group had commitments for future minimum leasepayment under non-cancellable operating leases in respect of rented premiseswhich fall due as follows: 2007 2006 ------ ------ HK$'000 HK$'000 Within one year 4,082 288In the second to fifth years inclusive 643 - _______ _______ 4,725 288 _______ _______ Leases are negotiated for a term of 1 to 2 years with fixed monthly rentals. 35. OPERATING LEASE ARRANGEMENTS - continued The Group as lessor Certain of the Group's investment properties were leased out under operatingleases. Properties under development held for sale are temporarily leased. At the balance sheet date, the Group had contracted with tenants for thefollowing future minimum lease payments: 2007 2006 ------ ------ HK$'000 HK$'000 Within one year 167,211 142,919In the second to fifth years inclusive 400,412 292,800Over five years 446,493 444,377 _________ _______ 1,014,116 880,096 _________ _______ one of the leases entered with tenants is subject to additional rental based onspecified percentage of revenue recognised by the tenant in accordance withlease agreement over the annual minimum lease payments. The remaining lease terms of the leased properties ranging from 1 to 19 years(2006: 1 to 20 years). 36. CAPITAL COMMITMENTS At the balance sheet date, the Group had capital commitments in respect of thefollowings: 2007 2006 ------ ------ HK$'000 HK$'000(a) Expenditure to be incurred on properties Authorised but not contracted for in Hong Kong 142,780 349,634 _______ _______ Contracted for but not provided for in the consolidated financial statements in Hong Kong 278,703 21,041 _______ _______ (b) Acquisition of equipments Contracted for but not provided in the consolidated financial statements in the PRC - 998 _______ _______ 37. PLEDGE OF ASSETS At 31 December 2007, the Group had the following mortgages and/or pledges overits assets to secure banking facilities granted to the Group. (a) Fixed and floating charges on investment properties with an aggregatecarrying value of HK$5,492,690,000 (2006: HK$4,584,860,000). (b) Fixed and floating charges on properties under development held for salewith an aggregate carrying value of HK$2,032,746,000 (2006: HK$1,210,706,000). (c) Fixed and floating charges on properties held for sale with an aggregatecarrying value of HK$293,484,000 (2006: Nil). (d) Fixed and floating charges on properties under development included inproperty, plant and equipment with an aggregate carrying value of HK$156,738,000(2006: HK$60,442,000). (e) Prepaid lease payments with an aggregate carrying value of HK$565,707,000(2006: HK$581,172,000). (f) Bank deposits of HK$317,772,000 (2006: HK$153,487,000). (g) Unlisted shares of certain subsidiaries with assets principally comprised ofinvestment properties, properties under development held for sale, propertiesunder development and prepaid lease payments included in (a), (b), (c), (d) and(e) above. 38. RETIREMENT BENEFIT PLANS The Group participates in a defined contribution scheme which is registeredunder a Mandatory Provident Fund Schemes (the "MPF Scheme") established underthe Mandatory Provident Fund Schemes Ordinance of Hong Kong in December 2000 foreligible employees in Hong Kong. The assets of the MPF Scheme are heldseparately from those of the Group, in funds under the control of trustees. For members of the MPF Scheme, the Group contributes 5% to 15% of relevantpayroll costs on HK$1,000 per month to the scheme which contribution is matchedby the employee, depending on the length of service with the Group. The employees of the Group's subsidiaries in the PRC are members ofstate-managed retirement benefit scheme operated by the Government of the PRC. The total cost charged to consolidated income statement of HK$704,000 (2006:HK$127,000) represents contribution paid to the retirement benefit schemes bythe Group in respect of the current year. The only obligation of the Group withrespect to the retirement benefit scheme is to make the specified contributions. 39. RELATED PARTY TRANSACTIONS The Group had the following transactions with a related company, a wholly-ownedsubsidiary of SEA during the year: (a) Rental income received of HK$6,902,000 (2006: HK$1,665,000); and (b) Management fees paid/payable of HK$128,784,000 (2006: HK$38,990,000) inrespect of investment property and development project management services ofthe Group's property portfolio provided by this related company. There was nounsettled management fees at 31 December 2007 (2006: unsettled management fee ofHK$12,030,000 was included in payable, deposits received and accrued charges). 40. PRINCIPAL SUBSIDIARIES Details of the principal subsidiaries, all of which are companies with limitedliabilities, at 31 December 2007 are set out below. Issued share Place/country of Issued and paid capital/registered incorporation/ up share capital/ capital held ubsidiary operation registered capital by the Company Principal activities-------------------- ----------- -------------------- ---------------- --------------------Direct subsidiary % Benefit StrongGroup Limited B.V.I./Hong Kong 1 ordinary share 100 Investment holding of HK$1Indirect subsidiary AGP Hong KongLimited Hong Kong 2 ordinary shares 100 Property investment of HK$1 eachAGP (DiamondHill) Limited Hong Kong 2 ordinary shares 100 Property development of HK$1 eachAGP (Sha Tin)Limited Hong Kong 1 ordinary share 100 Property development of HK$1AGP (Wanchai)Limited Hong Kong 2 ordinary shares 100 Property development of HK$1 eachConcord WayLimited Hong Kong 100 ordinary shares 100 Property investment of HK$1 eachGiant WellEnterprisesLimited B.V.I./Hong Kong 1 ordinary share 100 Investment holding of US$1Grace ArtDevelopmentLimited Hong Kong 1 ordinary share 100 Treasury of HK$1Handy ViewCompanyLimited Hong Kong 2 ordinary shares 100 Property investment of HK$1 eachHarvest HillLimited Hong Kong 2 ordinary shares 100 Financing of HK$1 eachKingstonPacificInvestment B.V.I./Hong Kong 100 ordinary shares 55 Property developmentLimited of US$1 each 40. PRINCIPAL SUBSIDIARIES - continued Issued share Place/country of Issued and paid capital/registered incorporation/ up share capital/ capital heldName of subsidiary operation registered capital by the Company Principal activities-------------------- ----------- -------------------- ---------------- -------------------Indirect subsidiary % SEA GroupTreasuryLimited Hong Kong 10,000,000 ordinary 100 Property development shares of HK$1 each and financing Shine ConcordInvestments Hong Kong 1 ordinary share of 100 Property investmentLimited HK$1 ShinningWorldwideLimited B.V.I./Hong Kong 1,000 ordinary 55 Property development shares of US$1 each Sky TrendInvestmentsLimited Hong Kong 2 ordinary shares 100 Property investment of HK$1 each SunfoldDevelopmentLimited Hong Kong 1 ordinary share 100 Property investment of HK$1 Wing SiuCompanyLimited Hong Kong 2 ordinary shares 100 Property investment of HK$1 each ChengduHuashang House PRC RMB136,000,000 100 Property investmentDevelopment Co., registered capitalLtd. GuangzhouYingfat HouseProperty PRC US$20,110,000 100 Property developmentDevelopment Co., registered capitalLtd. ("Yingfat")* * Yingfat was incorporated in the form of sino-foreign co-operative jointventure. According to the shareholder's agreement of Yingfat, the PRC partner isentitled to the higher of a fixed sum of return or 5% of the profit generatedfrom the related property development project as defined in the agreement . TheGroup has the full entitlement to the remaining of the profit generated. The directors are of the opinion that a complete list of the particulars of allsubsidiaries of the Group will be of excessive length and therefore the abovelist contains only the particulars of subsidiaries which principally affect theresults or assets of the Group. This information is provided by RNS The company news service from the London Stock Exchange

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