financial highlights - liu chong hing investment limited · 03 five-year financial highlights...
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FINANCIAL HIGHLIGHTS02 Five-Year Financial Summary
03 Five-Year Financial Highlights Charts
BUSINESS REVIEW AND CORPORATE GOVERNANCE04 Chairman’s Statement
10 Directors’ Report
20 Liu Chong Hing Investment Limited Simplified Organization Chart
21 Remuneration Committee Report
22 Audit Committee Report
23 Summary of Financial Highlights
24 Management Discussion and Analysis
30 Corporate Governance Report
CORPORATE AND SHAREHOLDERS’ INFORMATION40 Corporate Information
42 Biographical Details of Directors and Senior Management
47 Notice of Annual General Meeting
51 Shareholders’ Information
52 Market Price Movement and Market Capitalization Chart
53 Liu Chong Hing Group Simplified Corporate Structure Chart
54 Schedule of Major Properties Held by the Group and Associates
FINANCIAL REPORT56 Auditors’ Report
57 Consolidated Income Statement
58 Balance Sheets
60 Consolidated Statement of Changes in Equity
62 Consolidated Cash Flow Statement
64 Notes to the Financial Statements
FIVE-YEAR FINANCIAL SUMMARY
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2001 2002 2003 2004 2005
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Total assets (adjusted) 9,107,564 8,675,155 8,446,277 8,047,290 8,361,893
Total liabilities (adjusted) 3,619,348 3,586,193 3,166,706 2,669,295 2,785,592
Total net assets (adjusted) 5,488,216 5,088,962 5,279,571 5,377,995 5,576,301
Net assets value per share (adjusted) HK$14.48 HK$13.44 HK$13.95 HK$14.21 HK$14.73
Debt-to-equity ratio* (adjusted) 47% 48% 40% 36% 29%
Profit for the year attributable to
the equity holders of the parent
(adjusted) 182,613 78,089 95,609 109,248 143,451
Basic earnings per share from
continuing and discontinued
operations (adjusted) HK$0.48 HK$0.21 HK$0.25 HK$0.29 HK$0.38
Dividend per share HK$0.20 HK$0.16 HK$0.16 HK$0.17 HK$0.20
Dividend payout ratio (adjusted) 42% 78% 63% 59% 53%
Notes: (1) Total assets, total liabilities, total net assets, net assets value per share, debt-to-equity ratio, profit for the
year attributable to the equity holders of the parent, basic earnings per share from continuing and
discontinued operations and dividend payout ratio were adjusted due to the adoption of HKAS 17 “Leases”,
HKAS 40 “Investment Property”, HKFRS 3 “Business Combinations”, HKAS 32 “Financial Instruments:
Disclosure and Presentation”, HKAS 39 “Financial Instruments: Recognition and Measurement”, and HK(SIC)
– INT 21 “Income Taxes – Recovery of Revalued Non-Depreciable Assets” for the four years ended 31
December 2004.
* Debt-to equity ratio represents bank loans and overdrafts and other long term liabilities, less cash and
deposits with banks divided by Equity which comprises of shareholders’ funds and minority interests.
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FIVE-YEAR FINANCIAL HIGHLIGHTS CHARTS
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TOTAL ASSETS(HK$ IN BILLION)
TOTAL LIABILITIES(HK$ IN BILLION)
TOTAL NET ASSETS(HK$ IN BILLION)
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PROFIT FOR THE YEARATTRIBUTABLE TO THE EQUITYHOLDERS OF THE PARENT(HK$ IN MILLION)
BASIC EARNINGS PER SHAREFROM CONTINUING ANDDISCONTINUED OPERATIONS(HK$)
DIVIDEND PER SHARE(HK$)
CHAIRMAN’S STATEMENT
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I am pleased to report to the shareholders the
operating results of the Company for the year 2005.
BUSINESS RESULTS
For the accounting year ended 31 December 2005,
the audited profits attributable to the equity
holders of the parent amounted to HK$143,451,000
(basic earnings per share from continuing and
discontinued operations is HK$0.38), representing a
rise of 31.3% over the previous year. Although the
global and Hong Kong economy continued to grow
last year, the substantive growth is not able to
maintain, especially in interest sensitive industries
such as banking, property and security due to the
high oil prices coupled with increment in interest
rate.
DIVIDEND
The Board of Directors has proposed to
recommend at the forthcoming Annual General
Meeting to be held on 26 April 2006 Wednesday
and the payment of a final cash dividend of
HK$0.12 per share. Together with the interim cash
dividend of HK$0.08 per share paid on 22
September 2005, the total cash dividend for the
year of 2005 amounted to HK$0.20 per share.
BUSINESS REVIEW
BANKING
Generally, the Hong Kong economy showed a
satisfactory performance in 2005 with continual
growth in external trade and domestic demand.
GDP, therefore, increased to a 7.3% which is the
highest since the return of sovereignty to China.
Besides, due to the improvement on economy and
employment, the unemployment rate decreased to
5.2% in the latest quarter which is the lowest since
Liu Chong Hing Bank Building
For the accounting year ended 31 December 2005, theaudited profits attributable to the equity holders of theparent amounted to HK$143,451,000 (basic earningsper share from continuing and discontinued operationsis HK$0.38), representing a rise of 31.3% over theprevious year.
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2001. The property market increased firstly but
decreased subsequently in the last year where huge
amount of active transaction was recorded in the
first quarter with total transaction value on new and
re-sale properties reached its highest level since
1997. However, the property market became
inactive due to the increment of bank interest rates
and the return of inflation and the threat of bird flu.
In addition, as the property developers postpone
launching new properties, sales fall each month.
The property agency, therefore, entered into an
adjusting period which lead to the substantial
decrease in mortgage business.
The stock market in Hong Kong went up
persistently during last year. A total of HK$170
billion of capital was raised by newly listed shares
and a total turnover amounted to HK$4,100 billion
was recorded for the whole year, which leaded to a
historical new high. Although the subscription on
newly listed shares was highly demanded and the
banks were able to increase their financing clients,
actual earnings were minimal and benefits to the
banks were limited.
In conclusion on the operating environment
of the banking industry, there is abundant
market chances due to the steady market
with abundant capital. The Company is able
to have minimal earnings and operates in a
prudence way due to the rise of interest rate,
the low loans demand and high competition.
The consolidated profit attributable to
shareholders of Liu Chong Hing Bank Limited
(“the Bank”) and its subsidiaries for the year
ended 31 December 2005, after the
deduction of the charge for bad and doubtful
debts and the taxation charge amounted to
HK$398 million, an increase of 10.6%. Total
customers’ deposits amounted to HK$41.506 billion
with a significant increase of 22.3%. Total loans to
customers (after accounting for impairment for bad
and doubtful debt as well as interest accrued)
amounted to HK$24.306 billion, an increase of
21.4%. Total assets reached HK$49.974 billion,
representing an increase of 20.8% which have
already exceeded the minimum asset requirement
for setting up branches in the mainland under the
From top:
Liu Chong Hing BankBuilding on siteconstruction status;Prospective view
CHAIRMAN’S STATEMENT
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Mainland and Hong Kong Closer Economic
Partnership Agreement (CEPA). The consolidated
shareholders’ equity was HK$5.65 billion, an
increase of 4.9% over the restated shareholders’
equity for the preceding year. With the cycle of
increasing interest rates reaches its end, the
property market and stock trading market is
expected to be fluctuated and a higher demand on
loans is expected gradually. Apart from this, as the
economy is stabilizing and the market is turning
better, the bank will be actively developing its
network of branches. The Bank plans to open
approximately 8 to 10 new branches during the
year. Besides, additional efforts will be put into staff
training, strengthening governance, improving
service quality, developing new products and
expanding the clientele.
PROPERTY
The Group’s properties for lease, including Chong
Hing Square in Nathan Road, Mongkok, Western
Harbour Centre in Connaught Road West, Western
District, Chong Yip Shopping Centre in Des Voeux
Road West and Fairview Court in Repulse Bay Road,
achieved further improvement in occupancy.
Among them, Western Harbour Centre and Chong
Yip Shopping Centre were 100% leased out. Sale of
the Belcher’s located in the Western mid-level
district was also encouraging. As at the end of 2005,
682 residential units, representing 99.7% of phase
one and 1,113 units, representing 99.4% of phase
two were sold. The joint venture yielded total sale
proceeds of HK$12.7 billion in cash. The Group
owns 10% of this project.
Above:
IMS Award PresentationCeremony
Below:
Fairview Court;Western Harbour Centre
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REDEVELOPMENT OF BANK HEAD
OFFICE BUILDING
Liu Chong Hing Bank Building situated at 24 Des
Voeux Road Central will be topping out in March
2006 and occupation is expected at the end of the
year. By then, the Bank will be in a fresh look to
cont inue se rv ing the communi ty w i th
comprehensive and quality services.
CHINA OPERATION
1. GUANGZHOU
Le Palais located at No.1 Yong Sheng Shang
Sha, Donghu Road in the prestigious residential
area of Dongshan District in Guangzhou city with
a site area of 139,000 sq.ft., has completed four
blocks of 45-47 storey residential building with a
total of 844 luxurious residential units. These
together with the resident clubhouse, swimming
pool, commercial arcade and car parks have
gross floor area amounting to over 1,500,000
sq.ft making the development one of the most
palatial residential buildings in Guangzhou.
There were 610 units sold, generating HK$632
million cash and 97 units leased, generating
annual rental income of HK$9.60 million in cash
for the Group as at year end.
Left:
IMS Certificates andPresentation
From top:
Grandview Court;Jade Plaza
CHAIRMAN’S STATEMENT
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2. SHANGHAI
The site located at No. 288,
Nanjing Road (W), Huang Pu
District, Shanghai has a site area
of 55,000 sq.ft. It wil l be
developed into a 40-storey
modern commercial building
with gross floor area of approximately
736,000 sq.ft. Total investment in the project
exceeds RMB1 billion. Superstructure work
has commenced and the overall structure is
expected to be ready by the end of this year.
Completion of the whole development is
scheduled for February of next year and is
expected to bring significant return to the
Group. The Group owns 95% of this project
with the remaining 5% owned by Shanghai
Chunshenjiang Industry General Company,
a subsidiary of the municipal government of
Huang Pu District, Shanghai.
INSURANCE
Liu Chong Hing Insurance Company Limited has
been a prudent insurer with over 40 years of
experience in insurance for fire, marine, theft,
accident, motor car, workers’ compensation,
contractors’ all risks, and shipment of import and
export cargoes. It is also an agent for life insurance
and staff retirement provident fund insurance. In
view of the close relationship between insurance
and banking, the Group had its entire interests in
Liu Chong Hing Insurance transferred to Liu Chong
Hing Bank in the middle of last year.
PROPERTY MANAGEMENT
Liu Chong Hing Property Management and Agency
Limited, established in 1976, is a wholly owned
subsidiary of the Company and principally
responsible for managing the commercial and
residential properties developed by the Group.
There has been an expansion into management
service for properties not owned by the Group and
has obtained marked results. The company was
awarded ISO 14001 and OHSAS 18001 Certification
in addition to ISO 9001 award in 2003, the
Company ultimately achieved the Integrated
Management System Certification. Those
certification indicates our management services had
attained the high quality level in the industry.
PROSPECTS
The economy of Hong Kong will be influenced
under the high interest rates and the high oil prices
for most of the year. It is expected that overall
growth will slow down but exports of goods and
services will be able to sustain high growth.
Consumer expenditure will have a fresh impetus
after the adaptation on the rise of interest rates
cycle. It is generally estimated that the full year GDP
will still achieve a growth of 5%.
The local economy in Hong Kong is expected to
have continuous growth due to the solid foundation
Hong Kong has had, a 3 year early release of the
government deficit, the continue launching of
various large-scale infrastructure projects, the
settlement of the dispute regarding the West
Kowloon Development plan, the extension of
The Belchers’ ShoppingCentre
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preferential policy given by the PRC Government,
the integration of Guangdong province, Hong
Kong and Macau, and the cooperation and
development of the Pan-Pearl River Delta Regional
(9+2). Hong Kong, as the leader of the region’s
economic system, should be free from pressure
over the external factors and its prospects are
promising.
It is expected that the prolonged concern over
interest rate increase will be eased in the second
half of this year, thus, bringing back prosperity to
the property and financial sectors. Funds raising in
Hong Kong by the Mainland enterprises will not
cease and the aggregated amount to be raised is
estimated to be HK$200 billion in this year. Hong
Kong will be able to secure its position of the
financing centre in Asia. Furthermore, the further
lifting of the Mainland of limitations on Renminbi
trading by banks in Hong Kong will create infinite
opportunities for the banking sector. Liu Chong
Hing Bank will make use of such chances to
develop its branch network, to further promote its
various services and forge ahead.
Western HarbourCentre:
Grand lobby andexternal view
The Group will continue to keep abreast of
market development and make effort to
expand its operation so as to realize the
best return to shareholders. Finally, on behalf of the
Board of Directors, I would like to express my
heartfelt thanks to all our shareholders and
members of the community for their trust and
support, and to our staff for their dedication and
diligence.
LIU LIT MAN
Chairman
Hong Kong, 10 March 2006
DIRECTORS’ REPORT
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PRINCIPAL ACTIVITIES
The principal activities of the Company are property
investment and investment holding. The principal
activities of the principal subsidiaries and associates
are shown in notes 20 and 21 to the financial
statements respectively. During the financial year of
2005, the Company had disposed of its entire
equity interests in Liu Chong Hing Insurance Co Ltd
to Liu Chong Hing Bank Limited.
RESULTS AND STATE OF AFFAIRS
The results of the Group for the year ended 31
December 2005 and the state of the Company’s
and the Group’s affairs at that date are set out on
pages 57 to 111 of this annual report.
DIVIDENDS
An interim cash dividend of HK$0.08 per share was
paid to shareholders on 22 September 2005. The
Directors recommend a final cash dividend of
HK$0.12 per share making a total cash dividend of
HK$0.20 per share for the year.
RESERVES
Movements in reserves of the Group during the
year are set out in Consolidated Statement of
Changes in Equity and the movements in reserves
of the Company during the year are set out in Note
36 to the financial statements.
INVESTMENT PROPERTIES
Movements in investment properties during the
year are set out in note 17 to the financial
statements.
Shanghai LCH Centre
The Board of Directors of Liu Chong Hing InvestmentLimited (the “Directors”) has pleasure in presenting tothe Shareholders their annual report together withthe audited financial statements for the year ended31 December 2005.
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PROPERTY, PLANT AND EQUIPMENT
Movements in property, plant and equipment
during the year are set out in note 18 to the
financial statements.
PROPERTIES UNDER DEVELOPMENT
Movements in properties under development
during the year are set out in note 19 to the
financial statements.
SHARE CAPITAL
Details of the share capital of the Company are set
out in note 35 to the financial statements.
SHARE OPTION SCHEME
The Company’s share option scheme (the
“Scheme”), was adopted pursuant to a resolution
passed on 25 April 2002, which replace the previous
share option scheme, for the primary purpose of
providing incentives to directors and eligible
employees, and will expire on 24 April 2012. Under
the Scheme, the Company may grant options to
eligible employees, including executive directors of
the Company and its subsidiaries, to subscribe for
shares in the Company. Additionally, the Company
may, from time to time, grant share options to
outside eligible third parties at the discretion of the
Board of Directors.
The total number of shares in respect of which
options may be granted under the Scheme is not
permitted to exceed 10% of the shares of the
Company in issue at any point in time, without prior
approval from the Company’s shareholders. The
number of shares in respect of which options may
be granted to any individual is not permitted to
exceed 10% of the shares of the Company in issue
at any point in time, without prior approval from the
Company’s shareholders.
Options may be exercised at any time from the
date of grant of the share option to the 5th
anniversary of the date of grant. The exercise price
is determined by the directors of the Company, and
will not be less than the higher of the nominal value
of the Company’s share on the date of grant, the
average closing price of the shares for the five
business days immediately preceding the date of
grant, or the closing price of the shares on the date
of grant.
No options have been granted under the above-
mentioned scheme since the Scheme was adopted.
Shanghai LCH Centre, onsite construction status
DIRECTORS’ REPORT
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SUBSIDIARIES AND
ASSOCIATES
Particulars relating to the
subsidiaries and associates are
set out in Notes 20 and 21 to
the financial statements respectively.
GROUP BORROWINGS AND
INTEREST CAPITALISED
Detai ls of bank loans and other
borrowings repayable within five years are
set out in Note 32 to the financial
statements.
Interest capitalised during the year amounted to
HK$25,285,000 (2004: HK$19,577,000).
BOARD OF DIRECTORS
The Directors of the Company during the year and
up to the date of this report are shown on page 40
of this annual report.
The term of office of each director; who has been
longest in office, shall retire by rotation in
accordance with the Company’s Articles of
Association.
Dr. Liu Lit Chung, Mr. Cheng Mo Chi, Moses, Mr. Liu
Chun Ning, Wilfred and Mr. Liu Kam Fai, Winston
shall retire by rotation in accordance with Articles 92
and 99 of the Company’s Articles of Association
and, being eligible, offer themselves for re-election.
The biographical details of directors and senior
management are set out on pages 42 to 46.
The Company has received from each Independent
Non-Executive Director an annual confirmation of
his independent pursuant to rule 3.13 of the Listing
Rules and the Company considered al l
Independent Non-Executive Director are
independent.
CORPORATE GOVERNANCE
The Company is committed to achieving a high
standard of corporate governance practices and
has substantially complied with the Code of Best
Practice, as required under Appendix 14 of the
Listing Rules. Guidelines and the procedures for the
corporate governance of the Company are set out
on pages 30 to 39.
COMPLIANCE OF THE MODEL CODE
FOR DIRECTORS’ SHARE DEALING
All directors have confirmed that they complied
with the required standards set out in the Model
Code for Directors’ Share Dealing as set out in
Appendix 10 to the Listing Rules throughout the
review period.
Chong Yip Shopping Centre:
Entrance and inner view
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(i) Long position in the shares and underlying shares of the Company and its associated
corporations
(a) The Company
Liu Chong Hing Investment Limited
Number of ordinary shares held
Personal Family Corporate Total interests
interests interests interests as approximate
(held as (Interests of (Interests of % of the
beneficial spouse or controlled Total relevant issued
Name of Director owner) child under 18) corporation) interests share capital
Mr. Liu Lit Man, 4,991,200 – 171,600,000 176,591,200 46.65%
Chairman (Note 1)
Dr. Liu Lit Mo, 4,580,000 – 177,600,000 182,180,000 48.12%
Managing Director (Notes 1 and 2)
Mr. Liu Lit Chi 141,668 – 216,723,064 216,864,732 57.28%
(Notes 1 and 3)
Dr. Liu Lit Chung – – 171,600,000 171,600,000 45.33%
(Note 1)
Mr. Andrew Liu 600,000 – – 600,000 0.16%
DIRECTORS’ INTERESTS IN SHARE
CAPITAL OF THE COMPANY AND ITS
ASSOCIATED CORPORATIONS
As at 31 December 2005, the interests/short
positions of each of the directors and chief
executives and their associates in the shares and
underlying shares of the Company or any of the
Company’s associated corporations (within the
meaning of Part XV of the Securities and Future
Ordinance (“SFO”)), as recorded in the register
required to be kept under Section 352 of Part XV of
the SFO, are set out below:
Fairview Court
DIRECTORS’ REPORT
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Notes:
1. 171,600,000 shares in the Company are
beneficially held by Liu’s Holdings
Limited, of which Mr. Liu Lit Man,
Dr. Liu Lit Mo, Mr. Liu Lit Chi and Dr. Liu
L i t C h u n g a r e a m o n g s t i t s
shareholders. The above numbers of
shares are duplicated under the
corporate interests for each of these
directors.
(b) Associate
Liu Chong Hing Bank Limited (the “Bank”)
Number of ordinary shares held
Personal Family Corporate Total interests
interests interests interests as approximate
(held as (Interests of (Interests of % of the
beneficial spouse or controlled Total relevant issued
Name of Director owner) child under 18) corporation) interests share capital
Mr. Liu Lit Man, 3,447,928 – 239,145,628 242,593,556 55.77%
Executive Chairman (Note 1)
Dr. Liu Lit Mo, 1,009,650 – 239,145,628 240,155,278 55.21%
Vice Chairman (Note 1)
Mr. Liu Lit Chi, 313,248 – 241,408,839 241,722,087 55.57%
Managing Director & (Notes 1 and 2)
Chief Executive Officer
Dr. Liu Lit Chung – – 239,145,628 239,145,628 54.98%
(Note 1)
Mr. Andrew Liu 60,000 – – 60,000 0.01%
2. Eternal Wealth Limited, of which Dr. Liu
L i t Mo and h i s assoc ia tes a re
shareholders, beneficially holds 6,000,000
shares in the Company, and thus is
included in the corporate interests of Dr.
Liu Lit Mo.
3. Alba Holdings Limited, of which Mr. Liu
L i t Chi and h is assoc iates are
shareholders, beneficial ly holds
45,123,064 shares in the Company, and
thus is included in the corporate interests
of Mr. Liu Lit Chi.
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Notes:
1. The corporate interests in 239,145,628 shares
are attributed as follows:
(i) 199,145,628 shares held by the Company’s
wholly-owned subsidiary, Liu Chong Hing
Estate Company, Limited (“Liu Chong
Hing Estate”), in which each of Mr. Liu Lit
Man, Dr. Liu Lit Mo, Mr. Liu Lit Chi and Dr.
Liu Lit Chung is deemed under the SFO
to be interested through Liu’s Holdings
Limited, a private company holding
approximately 45% of the Company’s
issued and fully-paid share capital; and
(ii) 40,000,000 shares held by The Bank of
Tokyo-Mitsubishi, Limited (“Bank of Tokyo-
Mitsubishi”). Pursuant to an agreement in
1994, Bank of Tokyo-Mitsubishi has granted
an option to Liu Chong Hing Estate
exercisable at any time during the term of
that agreement to purchase all such shares
and Bank of Tokyo-Mitsubishi is required to
offer to sell all such shares to Liu Chong
Hing Estate in certain circumstances. By
virtue of the interests of Mr. Liu Lit Man, Dr.
Liu Lit Mo, Mr. Liu Lit Chi and Dr. Liu Lit
Chung in Liu Chong Hing Estate through
Liu’s Holdings Limited, each of them is
deemed under the SFO to be interested in
such shares.
2. 2,263,211 shares are held by Alba Holdings
Limited, shareholders of which include Mr. Liu
Lit Chi and his associates. Accordingly, Mr. Liu
Lit Chi is deemed under the SFO to be
interested in such shares.
(ii) Short position in the shares and underlying
shares of the Company and its associated
corporations
Other than as stated above, as at 31 December
2005, no director, chief executive nor their
associates of the Company had any interest or short
position, whether beneficial or non-beneficial, in the
shares or the underlying shares of equity derivatives
of the Company or any of its associated
corporations (within the meaning of Part XV of the
SFO).
INTERESTS OF SUBSTANTIAL
SHAREHOLDERS AND OTHER PERSONS
As at 31 December 2005, the following person
(other than the directors or the chief executives of
the Company), had interests or short positions in
the shares and underlying shares of the Company
as recorded in the register required to be kept by
the Company under section 336 of the SFO or as
otherwise notified to the Company was as follows:
No. of % of the
ordinary issued
Shareholders Capacity shares held share capital
Liu’s Holdings Beneficial 171,600,000 45.33%
Limited owner (Note 1)
Alba Holdings Beneficial 45,123,064 11.92%
Limited owner (Note 2)
Third Avenue Investment 18,912,000 5.00%
Management Manager (Note 3)
LLC
All interests disclosed above represent long
positions in the shares of the Company.
Note 1: Liu’s Holdings Limited, a private company
incorporated in Hong Kong, is wholly owned by
Mr. Liu Lit Man, Dr. Liu Lit Mo, Mr. Liu Lit Chi and
Dr. Liu Lit Chung. Such corporate interests are
also disclosed in the sub-section under
“Directors’ interests in Share Capital of The
Company and its Associated Corporations”.
Note 2: Alba Holdings Limited, a private company
incorporated in Hong Kong, is owned by Mr. Liu
Lit Chi and his associates. Such corporate
interests are also disclosed in the sub-section
under “Directors’ interests in Share Capital of the
Company and its Associated Corporations”.
DIRECTORS’ REPORT
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Note 3: Third Avenue Management LLC (“TAM”), a
Registered Investment Adviser based in the
United States of America, acts as an adviser to
various mutual funds, private partnerships,
institutions and individuals, etc. TAM has
investment advisory authority over 18,912,000
shares in the Company.
Save as disclosed above, the Company had not
been notified by any person (other than the
directors or chief executives of the Company) who
had interests or short positions in the shares and
underlying shares of the Company of 5% or more as
at 31 December 2005 which were required to be
disclosed to the Company under Part XV of the
SFO or which were recorded in the register required
to be kept by the Company under section 336 of
the SFO.
DIRECTORS’ INTERESTS IN CONTRACTS
No contracts of significance in relation to the
Group’s business, to which the Company or any of
the Company’s subsidiaries was a party and in which
a director of the Company had, whether directly or
indirectly, a material interest, subsisted at the end of
the year or at any time during the year.
At no time during the year was the Company or any
of the Company’s subsidiaries a party to any
arrangements to enable the directors of the
Company to acquire benefits by means of the
acquisition of shares, or debentures of, the
Company or any other body corporate.
None of the directors proposed for re-election at
the forthcoming annual general meeting has a
service contract with the Company which is not
terminable within one year without payment of
compensation (other than statutory compensation).
Le Palais Club House
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CONNECTED PARTY TRANSACTIONS
The connected party transactions between the
Group and the Bank and its subsidiaries (the “Bank
Group”) during the year are described as follows:
A. The Bank handled routine banking transactions
for the Group. Services provided by the Bank
are cheque clearing, current, savings and
deposit accounts, remittances and other
banking facilities.
B. Members of the Bank Group provided
securities and futures brokerage, nominee,
data processing services, insurance agency and
underwriting services to members of the
Group.
C. The Bank and its subsidiaries leased several
floors of Western Harbour Centre from the
Company.
D. The Company through Liu Chong Hing Property
Management and Agency Limited, a wholly
owned subsidiary, has provided property
management, property consultant and property
maintenance services to the Bank Group.
E. During the year, the Company disposed of its
entire equity interests in Liu Chong Hing
Insurance Co Ltd to Liu Chong Hing Bank
Limited at a cash consideration of HK$212
million. This transaction recorded a gain on
disposal of this subsidiary amounted to
HK$61,352,000 in the income statement for the
year.
Mr. Liu Lit Man, Dr. Liu Lit Mo, Mr. Liu Lit
Chi, Dr. Liu Lit Chung, Mr. Andrew Liu
are interested, directly or indirectly, in
the respective share capitals of the
Company and/or the Bank.
In the opinion of the directors who do
not have any interest, whether directly or
indirectly, in the above transactions, the
transactions were conducted in the
ordinary course of business of the Group on normal
commercial terms.
MAJOR CUSTOMERS AND SUPPLIERS
During the year, the Group’s purchases
attributable to the Group’s five largest suppliers
and the Group’s turnover attributable to the
Group’s five largest customers were less than 30%
respectively. None of the directors, their associates
or any shareholder (which to the knowledge of the
directors owns more than 5% of the Company’s
issued share capital) has any interest in the Group’s
five largest suppliers or customers.
PURCHASE, SALE OR REDEMPTION OF
SHARES
During the year ended 31 December 2005, the
Company and its subsidiaries have not purchased,
sold or redeemed any of the Shares in the
Company.
Le Palais:
Club House andinterior decoration
DIRECTORS’ REPORT
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SHAREHOLDINGS INFORMATION
TOP 10 LARGEST SHAREHOLDERS
As at 31 December 2005, as per register of
members of the Company.
Number ofShares held %
1. Liu Chong Hing (Nominees) Ltd. 135,870,878 35.89
2. HKSCC Nominees Limited 115,510,492 30.51
3. Bangkok Bank Public Co. Ltd. 41,580,000 10.98
4. Alba Holdings Ltd. 35,000,222 9.25
5. BTM Nominees (HK) Ltd. 10,000,000 2.64
6. Win Ever (Nominees) Ltd. 8,000,000 2.11
7. Lee Lung Poon 2,212,080 0.58
8. HSBC Nominees (HongKong) Limited 2,115,968 0.56
9. Cheng Kee Hong 1,200,000 0.32
10. On Luk Tong Ltd. 1,030,000 0.27
Total 352,519,640 93.11
LOCATION OF SHAREHOLDERS
As at 31 December 2005, as per register of
members of the Company.
Number of
Location of Shareholders shares held %
Hong Kong 377,646,560 99.7525
U.K. 9,380 0.0025
US and Canada 16,860 0.0045
Singapore 16,400 0.0043
Others 894,240 0.2362
Total 378,583,440 100
SUFFICIENCY OF PUBLIC FLOAT
The Group has maintained a sufficient public float
throughout the year ended 31st December, 2005.
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DIRECTORS’ RESPONSIBILITIES FOR THE
FINANCIAL STATEMENTS
The Companies Ordinance requires the directors to
prepare financial statements for each financial year
which give a true and fair view of the state of affairs
of the Company and of the Group as at the end of
the financial year and of their respective profit or
loss for the year then ended. In preparing the
financial statements, the directors are required to
select suitable accounting policies and apply them
on a consistent basis, making judgments and
estimates that are prudent, fair and reasonable;
state the reasons for any significant departure from
accounting standards; prepare the financial
statements on the going concern basis, unless it is
not appropriate to presume that the Company and
the Group will continue in business for the
foreseeable future.
The directors are responsible for keeping proper
accounting records, for safeguarding the assets of
the Company and of the Group and or taking
reasonable steps for the prevention and detection
of fraud and other irregularities.
AUDIT COMMITTEE
The members of the Audit Committee are shown
on page 40. The principal duties of the Audit
Committee are reviewing the internal controls and
the financial reporting requirements of the Group.
The audit committee meeting will normally hold
twice of each financial year immediate before the
board of directors meeting for approving the
interim and final results. The Committee is satisfied
with the Company’s internal control procedures and
the financial reporting disclosures.
COMPLIANCE WITH CODE ON
CORPORATE GOVERNANCE PRACTICES
The Company has complied throughout the year
ended 31 December 2005 with those paragraphs of
the Code of Best Practice as set out in Appendix 14
of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited (“the
Exchange”), with which it is required to report
compliance.
POST BALANCE SHEET EVENT
Details of a significant post balance sheet event are
set out in note 45 to the financial statements.
AUDITORS
The financial statements for the year have been
audited by Messrs. Deloitte Touche Tohmatsu who
have expressed their willingness to continue in
office. Accordingly, a resolution will be submitted to
the forthcoming annual general meeting to re-
appoint Messrs. Deloitte Touche Tohmatsu as
auditors of the Company.
On behalf of the Board
Dr. LIU LIT MO
Managing Director
Hong Kong, 10 March 2006
LIU CHONG HING INVESTMENT LTD SIMPLIFIED ORGANIZATION CHART
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CHAIRMAN
MANAGINGDIRECTOR
BOARD
EXECUTIVEDIRECTORS
Personnel andAdministration
Department
Project andMaintenanceDepartment
SecretarialDepartment
China Division Shanghai/
Guangzhou
PropertyLeasing and
ManagementDepartment
Accounts and Information Technology Department
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REMUNERATION COMMITTEE REPORT
The Remuneration Committee (“RC”) has four members, who are all Independent non-executive Directors.
The main duty of the Committee is to formulate the company’s remuneration policy as well as to make
recommendation to the Board in regards to the structure of remuneration packages for all directors and
senior management. When necessary and appropriate, the Chairman and Managing Director are consulted
for the said issues.
In determining the remuneration package, the RC needs to ensure that the remuneration offered is
appropriate, reasonable and competitive to the current market rate. The terms of reference of the RC
setting out its role, responsibilities and duties are duly authorized by the Board.
The RC has reviewed and discussed the following issues in the meeting:
1. Remuneration policy;
2. Remuneration for Chairman, Independent Non-Executive Directors, Executive Directors and Non-
Executive Directors in the year of 2005;
3. Remuneration for directors and senior management in the year of 2005;
4. Annual performance bonus policy;
5. Existing share option policy;
6. Remuneration for Chairman, Independent Non-Executive Directors, Executive Directors and Non-
Executive Directors in the year of 2006; and
7. Remuneration for directors and senior management in the year of 2006.
The RC is accountable to the Board and minutes of the meeting are circulated to the Board for information.
The RC meets when required but at least once per year and all members have attended the meeting in
2005.
Members of the Remuneration Committee
Dr. Lee Tung Hai, Leo (Chairman)
Mr. Ng Ping Kin, Peter
Mr. Cheng Mo Chi, Moses
Mr. Tong Tsin Ka
Hong Kong, 9 March 2006
AUDIT COMMITTEE REPORT
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The Audit Committee has four members, all of them are independent non-executive directors.
The Committee oversees the financial reporting system and internal control procedures. In this process,
management is principally responsible for the preparation of Group financial statements including the
selection of suitable accounting policies. External auditors are responsible for auditing and attesting to
Group financial statements and will report to the management of the Company from time to time on any
weakness in controls which come to their attention. The Audit Committee oversees the respective work of
management and external auditors to ensure the management has discharged its duty to have an effective
internal control procedures.
The Audit Committee has reviewed and discussed with management and external auditors the 2005
consolidated financial statements included in the 2005 Annual Report. In this regard, the Committee had
discussions with management with regard to new or changes in accounting policies as applied, and
significant judgments affecting the Group financial statements. The Committee also received reports and
met with the external auditors to discuss the general scope of their audit work, their assessment of Group
internal controls.
Based on these review and discussions, and the report of the external auditors, the Audit Committee
recommended to the Board of Directors approval of the consolidated financial statements for the year
ended 31 December 2005 with the Auditors’ Report thereon.
The Committee recommended to the Board that the shareholders be asked to re-appoint Deloitte Touche
Tohmatsu as the Company’s external auditors for 2006.
Members of the Audit Committee
Mr. Tong Tsin Ka (Chairman)
Dr. Lee Tung Hai, Leo
Mr. Ng Ping Kin, Peter
Mr. Cheng Mo Chi, Moses
Hong Kong, 9 March 2006
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SUMMARY OF FINANCIAL HIGHLIGHTS
2005 2004 Change
(restated)
HK$’000 HK$’000 %
Turnover
From continuing operations 548,200 338,644 61.9
From discontinued operation 16,531 36,476 (54.7)
564,731 375,120 50.5
Profit for the year attributable to the equity
holders of the parent 143,451 109,248 31.3
Basic earnings per share from continuing
and discontinued operations HK$0.38 HK$0.29 31.0
Dividend per share
Interim HK$0.08 HK$0.07 14.3
Final HK$0.12 HK$0.10 20.0
Total HK$0.20 HK$0.17 17.6
Dividend payout ratio 53% 59% (6.0)
Net assets value per share HK$14.67 HK$14.14 3.7
MANAGEMENT DISCUSSION AND ANALYSIS
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BANKING OPERATIONFor the year ended 2005, the Group’s bankingassociate, Liu Chong Hing Bank Limited (the“Bank”) reported a profit after taxation of HK$398million, representing an increase of 10.6%.
2005 turned out to be a year of stable growth formost of the global economy. While China continuedto expand and develop at a desirable pace, HongKong also performed well. Looking ahead, webelieve 2006 will continue to be another good yearfor Hong Kong. Despite conflicts in the Middle Eastand the likelihood of continued higher oil prices, wesee no other imminent adverse factors that couldaffect a path of stable growth world wide. As such,we believe the Bank and our Group at large willperform consistently over the coming year.
PROPERTY INVESTMENTThe year 2005 has been a commendable year forHong Kong’s property market. In particular, turnoverand prices have been mostly exhibiting a gradual
The directors announce that the consolidatedprofit for the year attributable to the equity holdersof the parent of 2005 is HK$143,451,000representing an increase of 31.3% over theprevious year.
up trend. Unless interest rates continue to go upmuch higher than the current level, we believe thisfavorable condition will carry over into and over thecourse of 2006.
During the year 2005, the Group’s key investmentproperties have undergone major refurbishment toadapt the changing market demands and conditions.Over this period, overall occupancy rate has fallen by13.6%, while rental revenue decreased by 5.6%. Webelieve both occupancy rate and rental income willpick up over the course of the coming year.
HONG KONG
CHONG HING SQUAREChong Hing Square, a popular ginza-type retaildevelopment situated in the heart of Mongkok,Kowloon, offers 184,000 sq.ft. of retail andrecreational space. This 20-storey building has been76% let, and its rental revenue has decreased by10.6% when compared with last year. Thisdevelopment has undergone major renovationsand is currently re-launched with a new outlook.
Chong Hing Squarefront entrance
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CHONG YIP SHOPPING CENTREFor our Chong Yip Shopping Centre located inWestern District, Hong Kong, rental revenue hasincreased by 12.2%. Well located within theWestern District, this shopping centre has 41,000sq.ft. of retail and recreational area. The property inyear 2005 was 99% let, and we expect it to reach fulloccupancy.
WESTERN HARBOUR CENTREWestern Harbour Centre, an office building at No.181, Connaught Road West, Hong Kong, isconveniently located close to the entrance/exit ofthe Western Harbour Tunnel. This 28-storeybuilding offers 140,000 sq.ft. of office space withstunning harbour view. It has been 97% let, and itsrental revenue has decreased by 4.1% over theprevious year.
FAIRVIEW COURTThe Group also received rental income fromFairview Court, a 6-unit luxury low-rise apartmentbuilding at No. 94, Repulse Bay Road, Hong Kongand 2 out of 5 of units owned by the Group havebeen let at present.
PRC
LE PALAIS, RESIDENTIAL PROJECT INGUANGZHOUIt is one of the prestigious residential projects inGuangzhou. The development provides 844luxurious residential units on 4 blocks 45-47-storeybuilding tower with total gross floor areas over1,500,000 sq.ft. The size of each standard flat unitranges from 1,200 sq.ft. to 1,550 sq.ft. It alsoprovides 22 duplex units with size around 2,800sq.ft. each. Other facilities included residentclubhouse, swimming pool, recreational facilitiesand ancillary carparks. Both the 320-carpark spaces
and commercial areas are intended to beheld for long-term rental purpose.
The project was completed in December2001 and three residential blocks with atotal of 633 flat units were put up for opensale since October 2001. Up to 31December 2005, a total of 610 flat unitswere successfully sold out generating totalsale proceeds of HK$632 million. On theother hand, 72 flat units were let outg e n e r a t i n g m o n t h l y r e n t a l o fapproximately RMB709,000.
The management continued to promotethis project in the year of 2006 and isconfident of the sale prospects of the project inview of their favourable location and high quality ofthe development. After the year end, themanagement had made an upward adjustmentfrom 3-5% of the selling price for the remaining flatunits.
PROPERTY DEVELOPMENT
HONG KONG
LIU CHONG HING BANK BUILDINGLiu Chong Hing Bank building situated at 24 DesVoeux Road, Central had been vacant forredevelopment since April 2003. It plans to rebuilda 28-storey modern office building with total gross
From top:
Chong Hing SquareAdvertising Banner, LiftLobby and Entrance
MANAGEMENT DISCUSSION AND ANALYSIS
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floor areas over 100,000 sq.ft. The
building is scheduled to complete
in the second half of 2006 and will
be used as the head office of Liu
C h o n g H i n g B a n k u p o n
completion. The total investment
cost in this project is about HK$150 million.
The Group owns 45.78% interests in this
project.
PRC
LCH CENTRE, COMMERCIAL PROJECT
IN SHANGHAI
Shanghai LCH Centre located at No. 288,
Nanjing Road (W), Huang Pu District, Shanghai.
This project proposes to build a 40-storey
composite commercial/office tower on the site
of approximately 55,000 sq.ft. Upon completion,
it will provide total office areas approximately 340,000
sq.ft. and retail spaces of 137,000 sq.ft. on a three-
level commercial podium. The floor plate of each
typical office floor is approximately 14,320 sq.ft..
Additional 197 carparking spaces will be situated on
ground floor to 5-level basement. The project is
scheduled to complete in the end of 2006. Upon
completion, this building will be the Group’s flagship
property in Shanghai and will be retained for long
term rental purpose.
Given the prime location of this building and the
present booming situation of Shanghai’s real estate
market, the management has begun preparation
for pre-letting of this development. We believe the
projected rental yield of this building based on the
present assumptions will be quite promising. The
total investment in this project is about HK$1,000
million. The expected open market value upon
completion is RMB1,800 million.
The Group owns 95% interest of this building and
the remaining 5% is owned by Shanghai
Chunshenjiang Industry General Company, a
subsidiary of the Municipal Government of Huang
Pu District, Shanghai.
LIU CHONG HING INSURANCE
BUSINESS
During the financial year of 2005, the Company had
disposed of its entire equity interests in Liu Chong
Hing Insurance Co Ltd to Liu Chong Hing Bank
Limited at a cash consideration of HK$212 million.
This transaction recorded a gain on disposal of this
subsidiary amounted to HK$61,352,000 in the
income statement during the year.
LIU CHONG HING PROPERTY
MANAGEMENT AND AGENCY LTD.
It is a wholly owned subsidiary of Liu Chong Hing
Investment Limited. The main business is to provide
range of comprehensive property management,
agency and maintenance services for commercial,
industrial and residential properties developed by
group and third parties.
This company has always been the objective of
providing quality management services to our client
with the main theme of “Professional Management
Quality Services, Enterprise and Customers’
Satisfaction”.
Property ManagementServices
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During the year, the Company was awarded ISO
14001 and OHSAS 18001 certification in addition to
ISO 9001 award in 2003, the Company ultimately
achieved the Integrated Management System
Certification. These certification indicates our
management services had attained the high quality
level in the industry.
For the year under review, this company had
maintained its business and recorded a turnover of
HK$12.2 million.
CAPITAL STRUCTURE
The Group’s shareholders’ funds as at 31 December
2005 amounted to HK$5,553 million, representing
an increase of HK$201 million when compared with
31 December 2004. The increase in shareholders’
funds was due to the increase in net profit for the
year of HK$140 million; an increase of various
investment and revaluation reserves of HK$91
million and less the dividend of HK$30 million paid
during the period.
FINANCE AND TREASURY OPERATIONS
BANK BORROWINGS MOVEMENT
As at 31 December 2005, the Group’s consolidated
bank borrowings had been increased by HK$71
million, from HK$2,199 million to HK$2,270 million.
The Group’s net borrowings after deducting cash
and deposits was improved from HK$1,945 million
in 2004 to HK$1,592 million.
CHANGE OF CASH FLOW
The Group’s cash flow position has significantly
improved in 2005. The improvement was mainly
due to the net cash inflow from the sale of Le Palais,
Property MaintenanceServices
Guangzhou residential project, the
repayment of shareholders loans from The
Belcher’s and the sale proceeds from the
disposal of insurance business.
The total cash proceeds from the sale and rental
income of Le Palais for the year was HK$244.9
million and HK$10 million respectively.
A total of HK$62.6 million being the repayment of
shareholders loans was returned from the
investment in The Belcher’s.
A total of HK$212 million cash was received from
the disposal of Liu Chong Hing Insurance Co. Ltd.
MAJOR CAPITAL EXPENDITURE
The management believes that the Group’s total
bank debts could be further reduced by the cash
proceeds receiving from the sale of tower one of Le
Palais.
The management is well aware that a higher
gearing level will not only undermine the
Company’s long-term stability but also will restrict
its flexibility for any new business venture. The
management had determined to closely
monitoring the gearing. At the year ended, the
debt-to-equity ratio which had declined to 29%
from 36% in 2004.
MANAGEMENT DISCUSSION AND ANALYSIS
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Chong Hing SquareNew Year activity
BANKING FACILITIES
The total outstanding bank borrowings as
at 31 December 2005 was 88% unsecured
with almost 100% being on committed basis.
In managing the debt portfolio, the Group has
endeavoured to maintain diversified sources to
obtain the required funding. Currently, the major
source of financing is still coming from the banking
sector, in which the Group has bilateral banking
facilities with over 13 banks. Most of these banks
have had a long established relationship with the
Group.
The Group has also raised funding from arranging
syndicated loans in the past. The management will
consider to widen the funding source from capital
market if both of the market conditions and terms
are favourable to the Company.
COST OF FUNDING
In 2005, the borrowing margins were tightening
further given the excessive liquidity in the money
market, the Group renewed banking facilities with
certain key relationship bank. The refinancing
exercise made significant contribution to lower the
Group’s borrowing cost for the year.
Having done that the Group’s weighted average
cost of borrowing had remained unchanged.
LIQUIDITY RISK AND CASH BALANCES
It is the Group’s financial policy to maintain low
leverage and high liquidity. To maintain sufficient
liquidity will not only help the Group’s to fulfill all
short term payment obligation but also to improve
the Group’s working capital.
The liquidity mainly comes from the recurring rental
income of various investment properties, the
cash sale proceeds from various completed
development projects and the committed banking
facilities. The Group’s undrawn committed facilities
stood at HK$606.45 million as at 31 December
2005.
The liquidity risk of the Group has been further
reduced by early refinancing and the improvement
of cash flow. The improvement of cash flow was
mainly due to the net cash inflow from the sale of Le
Palais, Guangzhou residential project, the
repayment of shareholders’ loans from the Belcher’s
and the cash received from the disposal of
insurance business.
LOAN MATURITY ANALYSIS
The liquidity risk could be reduced by extending
the loan tenors. The Group’s debt maturity portfolio
is spread out over a medium term, with more than
42% and 27% of debts becoming due within 2 years
and over 2 but within 5 years respectively. Such a
maturity structure allows the Group taking more
flexibility on refinancing measures.
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Chong Yip ShoppingCentre X’mas Carnival
RISK MANAGEMENT
As almost all of the Group’s borrowings are
denominated in Hong Kong dollars for the
construction projects both in Hong Kong and
Mainland China with the interest rates setting on
floating rate basis, thus managing on interest rate
and currency risk are becoming more important.
In managing interest rate and foreign exchange
exposure, the Group may use certain derivative
instruments such as interest rate swaps, cross
currency swaps, forward rate agreements and
foreign exchange contracts. However, there was no
such derivative instruments unexpired as at the end
of 2005. It is the Group’s policy to allow using
derivatives as hedging purposes only.
With respect to the counterparty risk of the
derivatives, the Group transacts only with financial
institutions with strong investment-grade ratings.
INTEREST RATE EXPOSURE
The volatility and uncertainty of the movement of
interest rate may result in a negative potential
impact to the Group’s financial position. Given that
the Group’s management will actively involve and
review the movement of interest rate so as to
minimize the financial impact. Since the market
indicate that the interest rate will be hiked gradually
with different speeds and magnitudes in the
coming future, the management may consider to
shifting certain percent of bank borrowings from
floating-rate to fixed-rate basis or taking some
derivative instruments to mitigate the exposure.
FOREIGN EXCHANGE
EXPOSURE
It is the Group’s policy to minimize
mismatch in currency and not to
speculate in currency movement. As at
31 December 2005, almost 100% of the
Group’s borrowings were in Hong Kong
dollars except HK$239.55 million
construction loans were converted into
Renminbi for construction payment in
Shanghai project.
Other foreign exchange exposure
related to some major investment in
Guangzhou and Shanghai projects
which all together amounted to the
equivalent of about HK$2,376 million or 41% of the
Group’s assets.
The Management will be closely monitoring the
currency movement of Renminbi as mainland
property development projects denominated in
Renminbi placed a significant portion to the
Group’s total assets. The cash sale proceeds
received from Le Palais, Guangzhou could eliminate
part of the foreign currency exposure against the
payment of construction cost in Shanghai.
EMPLOYEE AND EMOLUMENT POLICY
As at 31 December 2005, the total numbers of
employee of the Group was about 179. The Group’s
remuneration policy, having been advised and
determined by the Remuneration Committee, will
ensure that the pay levels of its employees are
reasonable and competitive in the market and their
total rewards including basis salary and bonus
system are linked with their performance. The
members and the work done of Remuneration
Committee are shown on page 21.
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The Board is committed to maintaining a high
standard of corporate governance. The Company
has substantially complied throughout the year
period with the Code on Corporate Governance
Practices (the “Code on Corporate Governance
Practices”) as set out in the Rules Governing the
Listing of Securities (the “Listing Rules”) on The
Stock Exchange of Hong Kong Limited (“Stock
Exchange”).
GUIDELINES AND PROCEDURES FOR
CORPORATE GOVERNANCE OF THE
COMPANY.
(A) CORPORATE GOVERNANCE CHART
The Board is committed to maintain a high
standard of corporate governance for the
purpose of enhancing long term shareholders
value. Set out below is the corporate
governance chart adopted by the Company.
BOARD
AUDITCOMMITTEE
MANAGEMENT MANAGEMENT MANAGEMENT
REMUNERATIONCOMMITTEE
(B) DIRECTORS
(i) The Board: responsibility for leadership
and control of the Company
• The Board is accountable to the
shareholders for leadership and
s u p e r v i s i o n o f t h e s e n i o r
management for the purpose of
creating long term shareholders value
by sustaining a growing and
successful business.
• The principal task of the Board is to
set objective, formulate strategy and
to monitor the operating and financial
performance.
(ii) Chairman and Managing Director: clear
division of responsibilities
• The responsibilities and functions
between Chairman and Managing
Director are clearly defined.
• Liu Lit Man served as the Chairman.
• Liu Lit Mo served as the Managing
Director and is supported by the
Executive Directors.
• The roles of Chairman and Managing
Director are split. Chairman focuses
on Group’s strategic development
and Board issues.
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• Managing Director assumes overall
responsibility for Group’s operation
and performance by delegating
duties to different executive directors
and senior management to achieve
targeted objectives.
(iii) Board Composition: balance and
independence
• The Board currently comprises five
Executive Directors (Chairman,
Managing Director and three
Executive Directors), four non-
Execut ive Directors and four
Independent Non-Executive Directors
(representing about one-third of the
full Board).
• The Board considers that the
four Independent Non-Executive
Directors are free from any business
or other relationship which might
interfere with the exercise of their
independent judgment.
• The presence of all Independent Non-
Executive Director could ensure that
the Board functions effectively and
independently.
• All of the Independent Non-Executive
Directors are also the Committee
Members of the two corporate
governance committees, namely the
Audit Committee and Remuneration
Committee. In short, both committees
have a majority of Independent Non-
Executive Directors.
• The biographies of the Directors
appear on pages 42 and 46. These
demonstrate diversity of experience
and calibre of the Board in making
management decisions.
(iv) Appointments, Re-election and Removal:
• The Board as a whole is responsible
for the selection and approval of
candidates for appointment to the
Board, and does not therefore
establish a Nomination Committee.
• Under the Company’s articles of
association, all Directors are subject to
retirement by rotation.
• The four Directors who have been
longest in office as at each annual
general meeting will retire from office
and be subjected to re-election.
• For newly appointed directors, they
are required to submit themselves to
shareholders for re-election to the
Board at the first annual general
meeting following their appointment.
(v) Responsibilities of Directors: general
duties, share dealings
• The Directors fully appreciate their
role and duties as directors with
supportive commitment of creating a
healthy corporate governance culture.
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• On appointment, new Directors will be
given an introduction to the Group’s
major business activities, induction into
their responsibilities and duties, and
other regulatory requirements.
• The Company Secretary is responsible
for keeping all Directors updated on
Listing Rules and other relevant
regulatory requirements.
• Throughout the year, Directors
complied with the required standard
set out in the Model Code in
Appendix 10 of the Listing Rules
regarding directors’ dealing in
securities.
(C) BOARD PROCESS
(i) Meetings: matters reserved for full Board
decision and general proceedings
• In order to achieve a high standard of
corporate governance and in
compliance with the new requirement
as mentioned under Appendix 14 -
Code on Corporate Governance
Practice, the Board has performed to
hold full Board meeting at least
quarterly during the year 2005.
• Matters reserved for full Board
decision include material bank
facilities arrangement, material
acquisitions and disposals of assets,
material transactions with connected
parties, significant investments
including large capital projects,
delegation of authority, treasury and
risk management policy, any matters
involving a conflict of interest for a
substantial shareholder or director.
• All Directors have access to the
C o m p a n y S e c re t a r y w h o i s
responsible for ensuring that the
Board procedures are complied with
and advises the Board on corporate
governance and compliance matters.
• The Company Secretary is responsible
for taking minutes of Board and Board
Committee meetings, which should
be sent to Directors within a
reasonable time (generally within 21
days) after each meeting and
generally be made available for
inspection by Directors.
• All Directors are allowed to take
independent professional advice at
Company’s expense.
• There is in place a directors’ and
officers’ liabilities insurance cover.
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• Details of Directors’ 2005 meetings
attendance are set out below:
Attendance (%)
Executive Directors
Liu Lit Man, Chairman (4/4) 100%
Liu Lit Mo, Managing Director (4/4) 100%
Liu Lit Chi (4/4) 100%
Liu Kam Fai, Winston (4/4) 100%
Lee Wai Hung (4/4) 100%
Non-Executive Directors
Liu Lit Chung (0/4) 0%
Andrew Liu (2/4) 50%
Liu Chun Ning, Wilfred (2/4) 50%
Liu Kwun Shing, Christopher (4/4) 100%
Independent Non-Executive Directors
Lee Tung Hai, Leo (3/4) 75%
Ng Ping Kin, Peter (3/4) 75%
Cheng Mo Chi, Moses (3/4) 75%
Tong Tsin Ka (4/4) 100%
(ii) Supply of Information: quality and
timeliness
• The Company attaches great
importance to continually improve on
the quality and timeliness of the
dissemination of information to the
Directors.
• The Chairman is responsible for
ensur ing adequate supply of
information to the Directors.
• The agenda and accompanying
board papers will be sent in full to all
Directors in a timely manner (we aim
to give notice of Board meeting at
least five clear days replacing current
practice of at least three clear days in
advance of meet ing) . Where
appropriate, communications are sent
electronically.
• Executive Directors are currently
provided with two half-year end
comprehensive management reports
of the Group showing the financial
and operating results including but
not limited to financial performance,
financial analysis, rental status, and
cash flow movement details.
• Managing Director is currently
h o l d i n g m o n t h l y i n t e r n a l
management meeting with various
department heads to update
Directors on their lines of business
and to review performance for
delegated assignment.
(D) REMUNERATION OF DIRECTORS
Procedures for Remuneration Committee to
set Directors and senior management’s
remuneration policy
• The Company has set up Remuneration
Committee on 3 March 2005. Its terms of
reference are to review and determine the
remuneration packages for all Directors
and Senior Management.
CORPORATE GOVERNANCE REPORT
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• The Remuneration Committee is chaired
by the Independent Non-Executive
Director, Dr Lee Tung Hai, Leo, with a
majority of Independent Non-Executive
Directors.
• Its other current members are Mr. Ng Ping
Kin, Peter, Mr. Cheng Mo Chi, Moses, Mr.
Tong Tsin Ka, all of them are Independent
Non-Executive Directors.
• The Committee meets at least once per
annum.
• Details of 2005 Remuneration Committee
meeting attendance are set out below:
Attendance (%)
Members of
Remuneration Committee
Lee Tung Hai, Leo, Chairman (1/1) 100%
Tong Tsin Ka (1/1) 100%
Ng Ping Kin, Peter (1/1) 100%
Cheng Mo Chi, Moses (1/1) 100%
Cavior Liu, Secretary (1/1) 100%
• The Committee is authorized by the Board
to oversee and make recommendation on
the remuneration of Executive Directors
and Senior Management.
• No Director is involved in deciding his own
remuneration. On matters other than
those concerning him, the Chairman or
Managing Director may be invited to
Committee meetings to give advices.
• Committee members are allowed under
certain procedures to take independent
professional advice at Company’s
expense for making and determining
the remuneration package proposal.
• The Committee will presents a report to
the Board after each meeting, which
addresses its work and findings.
• T h e C o m m i t t e e w i l l m a k e
recommendation to the Board regarding
the remuneration, comprising directors’
fees for all non-executive directors, for
shareholders approval at the Annual
General Meeting.
• Details on the mandate and summary of
the work by the Remuneration Committee
during the year are set out in the
Remuneration Committee Report on page
21.
• The terms of reference of Remuneration
Committee are avai lable on the
Company’s website.
(E) ACCOUNTABILITY AND AUDIT
(i) Financial Reporting: balanced, clear and
comprehensive assessment of Company’s
performance, position of prospects
• The Board believes that it presents a
comprehensive, balanced and
understandable assessment of the
Group position and prospects in all
shareholder communications.
• The Board fully appreciates its
responsibi l i t ies regarding the
preparation of financial statements.
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(ii) Audit Committee and Auditors: terms of
reference and re lat ionsh ip wi th
management and external auditors
• The Audit Committee is chaired by
the Independent Non-Executive
Director, Mr. Tong Tsin Ka and has a
majority of Independent Non-
Executive Directors.
• Its other current members are Dr. Lee
Tung Hai, Leo, Mr. Ng Ping Kin, Peter
and Mr. Cheng Mo Chi, Moses, all of
them are Independent Non-
Executive Directors. All members
have experience in reviewing and
a n a l y z i n g a u d i t e d f i n a n c i a l
statements of public companies or
major organization.
• The Committee meets not less than
twice per annum. Meetings are also
attended by invitation by the
Managing Director and Executive
Director who is in charge of finance
matters.
• Details of 2005 Audit Committee
meetings attendance are set out
below:
Attendance (%)
Members of
Audit Committee
Tong Tsin Ka, Chairman (2/2) 100%
Lee Tung Hai, Leo (2/2) 100%
Ng Ping Kin, Peter (1/2) 50%
Cheng Mo Chi, Moses (2/2) 100%
Lee Wai Hung, Secretary (2/2) 100%
• Under its terms of reference, the
Committee is required, amongst
other things, to oversee the
relationship with external auditors, to
review the Company’s interim and
annual financial statements, and to
evaluate Group system of internal
controls.
• There is an agreed procedure for
Audit Committee members to take
independent professional advice at
Company’s expense.
CORPORATE GOVERNANCE REPORT
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• Relationship with management and
external auditors:
• the Committee oversees the
financial reporting system and
internal control procedures.
• management is principally
responsible for the preparation of
Group financial statements
including the selection of suitable
accounting policies.
• external auditors are responsible
for auditing and attesting to
Group financial statements and
will report to the management of
the Company from time to time
on any weakness in controls
which come to their attention.
• the Committee oversees the
respective work of management
and external auditors to endorse
the processes and safeguards
employed by them.
• The Committee presents a report or
make advice to the Board after each
meeting, which addresses its work
and findings.
• Details on the mandate and work
performed by the Audit Committee
during the year are set out in
the Audit Committee Report on
page 22.
• The terms of reference of Audit
Committee are available on the
Company’s website.
(iii) Auditor Independence
During the year, the fees paid to the
Company’s external Hong Kong auditors
for non-audit or review related activities
amounted to HK$412,037, comprising tax
representative services fees of HK$75,300
and miscellaneous services fees of
HK$81,346.
(iv) Internal Control: sound and effective
system to safeguard shareholder interests
and Company assets
• Risk management is a crucial part of the
Group’s strategic management to
monitor the Company’s overall financial
position and to protect its assets.
• The Group i s commit ted to
i m p l e m e n t i n g e f f e c t i v e r i s k
management policies and internal
control procedures to identify and
manage the risks that the Group may
be exposed to.
• These policies and procedures are
reviewed regularly by management
together with the assistant by external
auditors during the course of audit to
ensure their effectiveness and
compliance with best practices.
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• The Managing Director and Executive
Director will discuss with external
Auditors in the Audit Committee
meeting at least twice a year on key
issues in relation to internal controls,
audit finding and risk management.
• As conc luded in 2005 Audi t
Committee meeting, no irregularities
and major weakness in control were
found by the Auditors.
(F) DELEGATION BY BOARD
(i) Relationship with management
• The Board and management (include
different departmental heads) fully
appreciate their respective roles with
supportive commitments of creating a
healthy corporate governance culture.
• The Board is responsible for
overseeing the processes that
management (include different
departmental heads) has in place to
identify business opportunities and
risks.
• The Board’s role is not to manage the
business which responsibility remains
vested with management and
different departmental heads.
(ii) Board Committees: specific terms of
reference and report to full Board
• The Board currently has two Board
Committees, namely the Audit
Committee and Remuneration
Committee with specific written terms
of reference.
• The Audit and Remunerat ion
Committee, being corporate
governance committees, each has a
100% non-executive membership with
a majority of Independent Non-
Executive Directors.
• Board Committees present their
respective reports to the Board after
each meeting, which addresses their
work and findings.
(G) COMMUNICATION WITH SHAREHOLDERS
(i) General communication programme with
shareholders
• The Group is committed to maintain a
policy of open and timely disclosure
of relevant information on its activities
to shareholders, subject to applicable
legal requirements.
CORPORATE GOVERNANCE REPORT
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• Communication is made through:
• the Company’s annual and
interim reports, which have been
e n h a n c e d t o p r e s e n t a
comprehensive, balanced and
understandable assessment of
t h e G ro u p p o s i t i o n a n d
prospects.
• notices of and explanatory
memoranda for annual and other
general meetings, which have
been enhanced to provide
shareholders with additional
information in an understandable
manner.
• p ress re leases on ma jo r
developments of the Group.
• d isc losures to the S tock
Exchange and relevant regulatory
bodies.
• inquiries from investors, media or
the public are responded by the
Chief Financial Officer, Company
Secretary or the appropriate
members of senior management.
• Company’s website at http://
www.lchi.com.hk from which
sha reho lder s can access
information on the Group. The
website provides, inter alia,
corporate announcements, press
releases, annual reports, and
corporate information of the
Group.
(ii) S h a r e h o l d e r C o m m u n i c a t i o n s :
constructive use of annual general
meetings, voting and general proceedings
• The Board welcomes moves towards
a more constructive use of Annual
General Meetings and regards the
Annual General Meetings as the
principal opportunity to meet private
shareholders.
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• In 2005, almost all Executive Directors
and a majority of Independent Non-
Executive Directors attended the
Annual General Meeting.
• The Company arranges for the Annual
Report and Financial Statements and
related papers to be posted for
shareholders so as to allow at least 21
days for consideration prior to the
Annual General Meeting.
• All ordinary shares of the Company
have equal voting rights. Annual
General Meeting proceedings are
continually reviewed in the light of
corporate governance best practices.
• separate resolutions are proposed at
the meeting on each substantially
separate issue, including the election
of individual Directors.
• preparation of a comprehensive
Annual General Meeting circular
containing:
• detai led report on voting
procedures including procedures
for demanding a poll; and
• comprehensive information on
each resolution to be proposed.
(iii) Shareholder rights and shareholdings
information
Information on top 10 largest shareholders
and location of shareholders is set out in
Directors’ Report on page 18.
CORPORATE INFORMATION
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BOARD OF DIRECTORS
EXECUTIVE DIRECTORS
Mr. Liu Lit Man, GBS, J.P., F.I.B.A. (Chairman)
Dr. Liu Lit Mo, LLD, MBE, J.P. (Managing Director)
Mr. Liu Lit Chi
Mr. Liu Kam Fai, Winston
Mr. Lee Wai Hung
NON-EXECUTIVE DIRECTORS
Dr. Liu Lit Chung, MBBS (Lon), MRCP(UK), F.R.C.P. (Lon)
Mr. Andrew Liu
Mr. Liu Chun Ning, Wilfred
Mr. Liu Kwun Shing, Christopher
(alternate director to Dr. Liu Lit Chung)
INDEPENDENT NON-EXECUTIVE
DIRECTORSDr. Lee Tung Hai, Leo, GBS, LLD, J.P.
Mr. Ng Ping Kin, Peter, MSc., J.P.
Mr. Cheng Mo Chi, Moses, LLB (HK), J.P.
Mr. Tong Tsin Ka, FCA (AUST.), FCPA, FCIS
Mr. Peter Alan Lee Vine, O.B.E., V.R.D., LLD (Hon), LLB, J.P.
(deceased on 13 April 2005)
COMPANY SECRETARY
Mr. Lee Wai Hung
AUDIT COMMITTEE
Mr. Tong Tsin Ka (Chairman)
Dr. Lee Tung Hai, Leo
Mr. Ng Ping Kin, Peter
Mr. Cheng Mo Chi, Moses
Mr. Lee Wai Hung (Secretary)
REMUNERATION COMMITTEE
Dr. Lee Tung Hai, Leo (Chairman)
Mr. Tong Tsin Ka
Mr. Ng Ping Kin, Peter
Mr. Cheng Mo Chi, Moses
Ms. Cavior Liu (Secretary)
QUALIFIED ACCOUNTANT
Mr. Luk Chi Chung
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CO
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OLD
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S’
I NF
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MA
TI O
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SENIOR MANAGERS AND
DEPARTMENTS
Ms. Eva Liu, project department
Mr. Luk Chi Chung, accounts and I.T.department
Ms. Cavior Liu, personnel &administrationdepartment
Mr. Tian Shao Geng, deputy generalmanager of ShanghaiHuang Pu LiuChong Hing PropertyDevelopment CompanyLimited
MANAGERS AND DEPARTMENTS
Ms. Ngan Luen Hing, property leasingdepartment
Mr. Tong Tse Hon, property leasingdepartment
Mr. Wong Yuk Chi, property managementdepartment
Ms. Law Yuk Ngor, property managementdepartment
Mr. Hung Hiu Fung, project department
Mr. Lam Shiu Cheung, china division
Mr. Wong Tak Kee, china division
Mr. Au Kwok Wah, maintenancedepartment
SOLICITORS
Deacons
Gallant Y.T. Ho & Co.
P.C. Woo & Co.
AUDITORS
Deloitte Touche Tohmatsu
Certified Public Accountants
BANKERS
Liu Chong Hing Bank Limited
ABN � AMRO Bank
Bank of China
Bank of Communications
Citic Ka Wah Bank
Dah Sing Bank
DBS Bank (Hong Kong) Limited
Hang Seng Bank Limited
Industrial and Commercial Bank of
China (Asia) Limited
China Merchants Bank
Nanyang Commercial Bank, Limited
Shanghai Commercial Bank Limited
Standard Chartered Bank (Hong Kong) Limited
The Bank of Tokyo-Mitsubishi, Limited
Wing Hang Bank, Limited
Wing Lung Bank Limited
GUANGZHOU OFFICE
Room 301, Le Palais
1 Yong Sheng Shang Sha,
Dong Hu Road,
Dong Shan District,
Guangzhou, P.R.C.
Tel: 8620-8375 8287
Fax: 8620-8375 8997
SHANGHAI OFFICE
288 Nanjing Road (W),
Shanghai, P.R.C.
Tel: 8621-6359 1000
Fax: 8621-6327 6299
BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
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EXECUTIVE DIRECTORS
MR. LIU LIT MAN
GBS, J.P., F.I.B.A.
aged 76, the Chairman of both Liu Chong Hing
Investment Limited and Chong Hing Insurance
Company Limited since 1972. He is also the
Executive Chairman of Liu Chong Hing Bank
Limited. His other directorships include those in
The Hong Kong and China Gas Company Limited,
Asia Commercial Bank Limited and COSCO
Pacific Limited. Mr. Liu was a Director of Tung Wah
Group of Hospitals, the President of the Hong
Kong Chiu Chow Chamber of Commerce
(presently Permanent Honorary President), as well
as the founder and the first Chairman of Teochew
International Convention (now Permanent
Honorary Chairman). Presently, he is a Permanent
Honorary Chairman of The Chinese General
Chamber of Commerce, Hong Kong. Mr. Liu is
also a founder and a Manager of Liu Po Shan
Memorial College, a Director of New Asia College
of The Chinese University of Hong Kong, and the
founder and a Manager of Chiu Chow Association
Secondary School. In 1975, he was appointed a
Justice of the Peace and was elected Fellow of the
International Banker Association. He had been a
Member of the Consultative Committee for the
Basic Law from 1985 to 1990 and was a Member of
the Selection Committee of the First Government
of the Hong Kong Special Administrative Region
(the “HKSAR”). He is a Member of the First
Election Committee constituted under the Chief
Executive Election Ordinance. He was awarded
The Gold Bauhinia Star by the HKSAR in July
2001.
DR. LIU LIT MO
LLD, MBE, J.P.
aged 68, is the Managing Director of Liu Chong
Hing Investment Limited since 1972. Dr. Liu is also
the Vice Chairman and Executive Director of Liu
Chong Hing Bank Limited. He was a Deputy
Managing Director of Liu Chong Hing Bank
Limited from 1961 to 1973. He is a Director of
China Motor Bus Company Limited. As for
community service, Dr. Liu was the Chairman of
Tung Wah Group of Hospitals in 1967 and is now
serving as an Adviser of the Group. He had also
been President of the Hong Kong Chiu Chow
Chamber of Commerce, Chairman of Hong Kong
Football Association and District Governor of
District 3450, Rotary International. Presently, he is
a member of the Board of Trustees of United
College, The Chinese University of Hong Kong
and a Manager of Liu Po Shan Memorial College.
He was awarded Silver Jubilee Medal by Her
Majesty the Queen in 1977. Dr. Liu was conferred
an Honorary Degree of Doctor of Laws by Lingnan
University in December 2005.
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NON-EXECUTIVE DIRECTORS
MR. LIU LIT CHI
aged 66, is an Executive Director of Liu Chong
Hing Investment Limited and he has been a
Director since 1972. He is also the Managing
Director and Chief Executive Officer of Liu Chong
Hing Bank Limited. Mr. Liu also holds directorships
in a number of other companies in Hong Kong
and overseas. Mr. Liu received his education in
Hong Kong and the United Kingdom.
MR. LIU KAM FAI, WINSTON
BA., MSc.
aged 39, appointed as Director in 1997. He holds
a Master degree from the University of London.
He is in charge of the property department. He is
the son of Dr. Liu Lit Mo.
MR. LEE WAI HUNG
LLB, FCCA, FCPA (Practising), ATIHK, MBA
age 43, is an Executive Director and Company
Secretary of the Company. Mr. Lee holds a
Bachelor of Law degree and a Master of Business
Administration degree. Mr. Lee is a fellow of Hong
Kong Institute of Certified Public Accountants
(Practising) and a fellow member of the
Association of Chartered Certified Accountants.
Before joining the Company, Mr. Lee had worked
in an international accounting firm for over six
years. Mr. Lee has over fifteen years of experience
in corporate finance and accounting. Mr. Lee
joined the Company in 1992 and was appointed
as Director in 1994. Mr. Lee is primarily responsible
for the Company’s finance and secretarial matters.
DR. LIU LIT CHUNG
MBBS (Lon), MRCP (UK), F.R.C.P. (Lon)
aged 56, became a Director in 1979 and also the
Deputy Managing Director of the Company for
over ten years. He holds a Medical degree from
King’s College Hospital, London University and is
a Member of the Royal College of Physicians of
the United Kingdom. He was awarded the
Fellowship of Royal College of Physician of
London for his work in Motor Neuron Disease in
2004. Last Year, he was further awarded the
Honorary Fellowship by the Hong Kong College
of Physicians.
MR. ANDREW LIU
aged 50, has been a Director since 1979. Mr. Liu is
also a Non-Executive Director of Liu Chong Hing
Bank Limited. He is the Chief Executive Officer of
CCMP Capital Asia Pte. Ltd. (formerly known as
“JP Morgan Partners Asia Pte. Ltd.”). Mr. Liu,
holder of a Master of Arts degree from the Oxford
University in England, was a solicitor with
Slaughter and May in London before joining
Morgan Stanley & Co Inc in New York in 1981. Mr.
Liu was promoted to Managing Director in 1990
before relocating to Morgan Stanley Asia Limited
in Hong Kong, where he assumed the position of
President and Managing Director until his
resignation in September 1997. Mr. Liu remains
associated with Morgan Stanley as an Advisory
Director. He is the son of Mr. Liu Lit Man.
BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
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MR. LIU CHUN NING, WILFRED
BSc.
aged 44, appointed as Director in 1997. He holds
a Bachelor’s degree in Economics from University
of Newcastle-upon-Tyne (UK). Mr. Liu is also an
Executive Director of Liu Chong Hing Bank
Limited and is in charge of the securities business
of the Bank.
MR. LIU KWUN SHING, CHRISTOPHER
aged 30, was appointed the alternate director to
Dr. Liu Lit Chung in 2000. He is a qualified solicitor
in both England & Wales and Hong Kong, and a
holder of a Master of Arts degree in
Jurisprudence from the University of Oxford. Mr.
Liu is currently a practising solicitor with Deacons
in Hong Kong, and is also a non-executive director
of Liu Chong Hing Bank Limited. He is the son of
Dr. Liu Lit Chung.
DR. LEE TUNG HAI, LEO
GBS, LLD, J.P.
aged 84, has been appointed an independent
non-executive director of the Company since
August 1999. Dr. Lee is the Chairman of Tung Tai
Group of Companies and an independent non-
executive director or non-executive director of
several publicly listed companies in Hong Kong,
including Beijing Enterprises Holdings Limited. He
is a member of a number of public services
committees and heads many social service
organizations, including as an adviser of the
Advisory Board of the Tung Wah Group of
Hospitals, chairman of the Association of
Chairmen of the Tung Wah Group of Hospitals,
chairman of Friends of Hong Kong Association
and vice president of the China Overseas
Friendship Association. He served as a Standing
Committee member of the eighth and ninth
National Committee of the Chinese People’s
INDEPENDENT NON-EXECUTIVE
DIRECTORS
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MR. CHENG MO CHI, MOSES
LLB (HK), J.P.
aged 56, was appointed an independent non-
executive director of the Company in August
1999. Mr. Cheng is the Senior Partner of P.C. Woo
& Co., a firm of solicitors and notaries in Hong
Kong. Mr. Cheng was a member of the Legislative
Council of Hong Kong between 1991 and 1995.
He is the Founder Chairman of the Hong Kong
Institute of Directors of which he is now the
Honorary President and Chairman Emeritus. He
also serves on the boards of various listed
companies as an independent non-executive
director.
MR. TONG TSIN KA
FCA (AUST.), FCPA, FCIS
age 67, was appointed an independent non-
executive director of the Company in September
2004. Mr. Tong is a fellow of The Institute of
Chartered Accountants in Australia, The Institute
of Chartered Secretaries and Administrators and
The Hong Kong Institute of Certified Public
Accountants respectively. Mr. Tong previously
joined Pricewaterhouse (as it then was) in 1963
and left in 1968 to commence his own public
accountancy practice. In 1970, he founded his own
accountancy firm, T. K. Tong & Co. (Chartered
Accountants. Certified Public Accountants), and
has remained its principal to date.
Political Consultative Conference; an adviser on
Hong Kong Affairs to the Hong Kong & Macau
Affairs Office of the State Council and Xinhua
News Agency, Hong Kong Branch; a member of
the Preparatory Committee for the Hong Kong
Special Administrative Region; and a member of
the Selection Committee of the First Government
of the Hong Kong Special Administrative Region.
Dr. Lee has been honoured with awards by
different governments, which include Cavaliere di
Gran Croce of Italy, O.B.E. of Great Britain,
Cheval ier Legion d’Honneur of France,
Commandeur de l’Ordre de Leopold II of Belgium
and Gold Bauhinia Star of the Hong Kong Special
Administrative Region Government of the
People’s Republic of China. Dr. Lee has over 40
years of experience in business management.
MR. NG PING KIN, PETER
MSc., J.P.
aged 76, was appointed an independent non-
executive director of the Company since 1972. He
is also a non-executive director and Vice Chairman
of Lam Soon (Hong Kong) Limited. Mr. Ng is an
architect by profession and has held numerous
offices within his profession and in relation to his
public service activities. He was an appointed
Member of the Urban Council for ten years and
served as Chairman of the Food and Food
Premises Select Committee. He was appointed as
District Advisor to the Hong Kong Branch of
Xinhua News Agency in 1994.
BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
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SENIOR MANAGERS
MS. EVA LIU
MA (Cantab), DipArch (Kingston),
MA (City), ARB (UK), RIBA
aged 42, Senior Project Manager. Ms. Liu is a
Chartered Architect (UK), holding Master of Arts
Degrees, in Architecture from the University of
Cambridge, and Property Valuation And Law from
The City University in London. She was in
architectural practice in England before joining
the Company in 1999. She is the daughter of Dr.
Liu Lit Mo.
MR. LUK CHI CHUNG
FCCA, CPA (Practising), MAEB
aged 38, Senior Accounting Manager. Mr. Luk is a
professional accountant, holding Master of Arts
Degree in Electronic Business and has over fifteen
years of experience in finance and accounting. Mr.
Luk joined the Company in 1995 and is in charge
of accounts and I.T. department.
MS. CAVIOR LIU
aged 41, Senior Personnel & Administration
Manager. Ms. Liu holds a Bachelor degree in
Psychology from University of British Columbia.
She joined the Company in 2000 and is in charge
of the personnel & administration department.
She is the daughter of Dr. Liu Lit Mo.
MR. TIAN SHAO GENG
aged 68, the deputy general manager and senior
engineer of Shanghai Huang Pu Liu Chong Hing
Property Development Company Limited. After
graduation from the Dalian University of
Technology, Mr. Tian was deployed to No.3
H a r b o u r B u re a u o f t h e M i n i s t r y o f
Communications of the People’s Republic of
China, with 20 years’ experience in harbour
construction and senior corporate management in
Shanghai. He has been delegated by China
Harbour Engineering Company (Group) of the
Ministry of Communications of the People’s
Republic of China to station in Hong Kong since
1983 for engaging in large construction works and
development of real estate business in Hong
Kong and overseas. He was one of the forerunners
in China to be engaged in real estate business
overseas. He has been the chairman, general
manager of related companies overseas,
responsible for the construction projects such as
the high-end residence in the Mid-level of Hong
Kong, the seaview apartments in Vancouver, the
high-end offices and large-scale luxurious
residential districts in Shanghai and Dalian. He
was the chief representative of Liu Chong Hing
Investment Limited in Shanghai in mid to late
1990s. Mr. Tian is also the member of China Civil
Engineering Society, Chinese Ocean Engineering
Society, Architectural Society of Shanghai China,
Shanghai Hydraulic Engineering Society and
“Chinese Experts and Talents Bank”.
47
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NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the annual
general meeting of Liu Chong Hing Investment
Limited (the “Company”) for the year 2006 will be
held at The Harbour Room on Level 3 of The Ritz-
Carlton at 3 Connaught Road Central, Hong Kong
on Wednesday, 26 April 2006 at 11:30 a.m. for the
following purposes:
1. To receive and consider the audited Financial
Statements together with Reports of the
Directors and Auditors of the Company for
the year ended 31 December 2005.
2. To approve the payment of the final dividend
for the year ended 31 December 2005.
3. To re-e lect Di rectors and f ix the i r
remuneration.
4. To re-appoint Deloitte Touche Tohmatsu as
Auditors for the ensuring year and authorize
the Board of Directors to f ix thei r
remuneration.
As special business to consider and, if thought fit,
pass with or without modifications the following
ordinary resolutions:
ORDINARY RESOLUTION
5. “THAT
(a) subject to paragraph (b) below, the
exercise by the directors of the Company
during the Relevant Period (as hereinafter
defined) of all the powers of the
Company to repurchase shares of the
Company on The Stock Exchange of
Hong Kong Limited (“Stock Exchange”)
or on any other stock exchange on which
the shares of the Company may be listed
and which is recognized by the Securities
and Futures Commission in Hong Kong
and the Stock Exchange for this purpose,
subject to and in accordance with all
applicable laws and the requirements of
the Rules Governing the Listing of
Securities on the Stock Exchange or of
any other stock exchange (as amended
from time to time), be and is hereby
generally and unconditionally approved;
(b) the aggregate nominal amount of the
shares of the Company which the
Company is authorized to repurchase
pursuant to the approval in paragraph (a)
above shall not exceed 10% of the
aggregate nominal amount of the share
capital of the Company in issue as at the
date of passing of this resolution, and the
sa id approva l sha l l be l im i ted
accordingly; and
(c) for the purpose of this resolution:
‘Relevant Period’ means the period from
the passing of this resolution until
whichever is the earliest of:-
(i) the conclusion of the next annual
general meeting of the Company;
(ii) the expiration of the period within
which the next annual general
meeting of the Company is required
by the articles of association of the
Company or the Companies
Ordinance (Chapter 32 of the Laws of
Hong Kong) to be held; or
NOTICE OF ANNUAL GENERAL MEETING
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(iii) the date on which the authority set
out in this resolution is revoked,
renewed or varied by an ordinary
resolution of the shareholders of the
Company in general meeting.”
6. “THAT
(a) subject to paragraph (c) below, the
exercise by the directors of the Company
during the Relevant Period (as hereinafter
defined) of all the powers of the
Company to allot, issue and deal with
additional shares in the capital of the
Company and to make or grant offers,
agreements and options (including
bonds, warrants, debentures, notes and
any securities which carry rights to
subscribe for or are convertible into
shares of the Company) which would or
might require the exercise of such power
be and is hereby general ly and
unconditionally approved;
(b) the approval in paragraph (a) above shall
authorize the directors of the Company
during the Relevant Period (as hereinafter
defined) to make or grant offers,
agreements and options (including
bonds, warrants, debentures, notes and
any securities which carry rights to
subscribe for or are convertible into
shares of the Company) which would or
might require the exercise of such power
after the end of the Relevant Period;
(c) the aggregate nominal amount of share
capital allotted or agreed conditionally or
unconditionally to be allotted (whether
pursuant to an option or otherwise) and
issued by the directors of the Company
pursuant to the approval in paragraph (a)
above, otherwise than pursuant to (i) a
Rights Issue (as hereinafter defined); (ii)
the exercise of any rights of subscription
or conversion under any warrants, bonds,
debentures, notes and any securities of
the Company which carry rights to
subscribe for or are convertible into
shares of the Company; (iii) an issue of
shares of the Company upon the exercise
of the subscription rights attaching to any
options granted under any share option
scheme adopted by the Company; (iv) an
issue of shares as scrip dividends or
similar arrangement providing for the
allotment of shares in lieu of the whole or
part of a dividend on shares of the
Company in accordance with the
Company’s Memorandum and Articles of
Association from time to time; or (v)
specific authority granted by the
shareholders of the Company in general
meeting, shall not exceed 20% of the
aggregate nominal amount of the share
capital of the Company in issue at the
date of passing of this resolution, and the
sa id approva l sha l l be l im i ted
accordingly; and
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(d) for the purpose of this resolution,
‘Relevant Period’ means the period from
the passing of this resolution until
whichever is the earliest of:
(i) the conclusion of the next annual
general meeting of the Company; or
(ii) the expiration of the period within
which the next annual general
meeting of the Company is required
by the articles of association of the
Company or the Companies
Ordinance (Chapter 32 of the Laws of
Hong Kong) to be held; or
(iii) the date on which the authority set
out in this resolution is revoked,
renewed or varied by an ordinary
resolution of the shareholders of the
Company in general meeting; and
“Rights Issue” means an offer of shares
open for a period fixed by the directors of
the Company to holders of shares or any
class of shares of the Company whose
names appear on the register of members
of the Company on a fixed record date in
proportion to their then holdings of such
shares as at that date (subject to such
exclusions or other arrangements as the
directors of the Company may deem
necessary or expedient in relation to
fractional entitlements or having regard to
any restrictions or obligations under the
laws of, or the requirements of any
recognized regulatory body or any stock
exchange in, any territory applicable to
the Company).”
7. “THAT conditional upon Ordinary Resolutions
Nos.5 and 6 set out in the notice convening
this meeting being passed, the general
mandate granted to the directors of the
Company to exercise the powers of the
Company to allot, issue and deal with
additional shares pursuant to Ordinary
Resolution No.6 set out in the notice
convening this meeting be and is hereby
extended by the addition thereto of an
amount representing the aggregate nominal
amount of the share capital of the Company
repurchased by the Company under the
authority granted pursuant to Ordinary
Resolution No.5 set out in the notice
convening this meeting, provided that such
extended amount of shares so repurchased
shall not exceed 10% of the aggregate
nominal amount of the share capital of the
Company in issue at the date of passing of
this resolution.”
8. To transact any other business.
By Order of the Board
DR. LIU LIT MO
Managing Director
Hong Kong, 10 March 2006
NOTICE OF ANNUAL GENERAL MEETING
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Notes:
1. A member of the Company entitled to attend and vote at the meeting is entitled to appoint another person as his proxy toattend and vote in his stead. A member who is the holder of two or more shares may appoint more than one proxy to attend onthe same occasion. A proxy need not be a member of the Company.
2. To be valid, a form of proxy, together with any power of attorney or other authority (if any) under which it is signed, or a notariallycertified copy thereof, must be lodged with the registered office of the Company at 7th Floor, New World Tower Two, 18 Queen’sRoad Central, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
3. The Register of Members of the Company will be closed from Wednesday, 19 April 2006 to Friday, 21 April 2006, (both datesinclusive) during which period no transfer of shares will be effected. In order to qualify for the final dividend, all completedtransfer forms accompanied by the relevant share certificates must be lodged for registration with the Company’s ShareRegistrars, Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen’s Road East, HongKong for registration not later than 4:00 p.m., Tuesday, 18 April 2006.
4. The Company’s Annual Report 2005 (containing, amongst other things, the proposed resolution as described above) will besent to shareholders not later than 31 March 2006.
5. As at the date hereof, the Board of Directors of the Company comprises Executive Directors: Mr. Liu Lit Man (Chairman), Dr. Liu LitMo, Mr. Liu Lit Chi, Mr. Liu Kam Fai, Winston and Mr. Lee Wai Hung; Non-executive Directors: Dr. Liu Lit Chung, Mr. Andrew Liu,Mr. Liu Chun Ning, Wilfred and Mr. Liu Kwun Shing, Christopher (alternate director to Dr. Liu Lit Chung); and IndependentNon-executive Directors: Dr. Lee Tung Hai, Leo, Mr. Ng Ping Kin, Peter, Mr. Cheng Mo Chi, Moses and Mr. Tong Tsin Ka.
51
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SHAREHOLDERS’ INFORMATION
FINANCIAL CALENDAR
As at 10 March 2006
Interim Results : Announced on 17 August 2005
for six-month ended 30 June 2005
Annual Results : Announced on 10 March 2006
for year ended 31 December 2005
Annual General Meeting : To be held on 26 April 2006
Dividends
Interim cash dividend : HK$0.08 per share
Paid on : 22 September 2005
Proposed final cash dividend : HK$0.12 per share
Payable on : 27 April 2006
Ex-dividend date of final dividend : 13 April 2006
Latest time to lodge transfer forms : 4 pm on 18 April 2006
Closure of Register of Members : From 19 April 2006 to 21 April 2006
(both dates inclusive)
Share Registrars and transfer office : Computershare Hong Kong Investor Services Limited
17th Floor, Hopewell Centre, 183 Queen’s Road East
Wanchai, Hong Kong
Share listing : The Company’s shares are listed on
The Stock Exchange of Hong Kong Limited
Stock Code : 0194
Board lot : 2,000 shares
No. of issued ordinary share : 378,583,440 shares
Company’s e-mail address : [email protected]
Investors and Shareholders contact : Attention: Mr. Lee Wai Hung / Ms Nelly Ng
7th Floor, New World Tower Two
18 Queen’s Road Central, Hong Kong
Tel: (852) 2841 7255
Fax: (852) 2868 5294
Website: http://www.lchi.com.hk
MARKET PRICE MOVEMENT AND MARKET CAPITALIZATION
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Closing Price Market CapitalizationLast trading date of each month (HK$) (HK$ in million)
30/01/04 5.900 2,23427/02/04 6.850 2,59331/03/04 6.000 2,27230/04/04 5.300 2,00631/05/04 4.950 1,87430/06/04 4.950 1,87430/07/04 5.000 1,89331/08/04 5.200 1,96930/09/04 5.500 2,08229/10/04 5.700 2,15830/11/04 6.100 2,30931/12/04 6.350 2,404
31/01/05 6.450 2,44228/02/05 7.200 2,72631/03/05 6.950 2,63129/04/05 6.900 2,61231/05/05 7.300 2,76430/06/05 7.550 2,85829/07/05 7.800 2,95331/08/05 7.800 2,95330/09/05 7.650 2,89631/10/05 7.500 2,83930/11/05 7.400 2,80230/12/05 7.700 2,915
5
6
8
7
4
3
2
1
0
2,000
2,400
3,200
2,800
1,600
1,200
800
400
0
31/0
3/20
046.
000
30/0
6/20
044.
950
30/0
9/20
045.
500
31/1
2/20
046.
350
31/0
3/20
056.
950
30/0
6/20
057.
550
30/0
9/20
057.
650
30/1
2/20
057.
700
31/0
3/20
042,
272
30/0
6/20
041,
874
30/0
9/20
042,
082
31/1
2/20
042,
404
31/0
3/20
052,
631
30/0
6/20
052,
858
30/0
9/20
052,
896
30/1
2/20
052,
915
CLOSING PRICE PER SHAREMarch 2004-December 2005
(HK$)
MARKET CAPITALIZATIONMarch 2004-December 2005
(HK$ IN MILLION)
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LIU CHONG HING GROUP SIMPLIFIED CORPORATE STRUCTURE CHART
LIU CHONG HING PROPERTY MANAGEMENT
AND AGENCY LTD.Property Management
and Agency
* The securities of which are listed on The stock Exchange of Hong Kong Limited
100%
100%
16.22%
100% 100%
LIU’S HOLDINGSLIMITED
LIU’S FAMILY
*LIU CHONG HING BANK LIMITED
Banking Business
*LIU CHONG HING INVESTMENT LIMITED
Investment Holding,Property Investment
45.33%
45.78%
100%
LIU CHONG HING FINANCE LIMITED
Deposit Takingand Lending
CHONG HINGSECURITIES LIMITED
Stock Broking
LIU CHONG HING DATA PROCESSING LIMITED
Provision of Electronic Data Processing Services
CHONG HING INSUARANCE CO., LTD.
Insurance Business
GUANGZHOUCHONG HING PROPERTY
DEV. CO., LTD.Property Development
95% 100%60%
SHANGHAI HUANG PU LIU CHONG HING PROPERTY
DEVELOPMENT CO., LTD.Property Development
OTHERSUBSIDIARIESInvestment and Trading Business
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SCHEDULE OF MAJOR PROPERTIES HELD BY THE GROUP AND ASSOCIATES
AS AT 31 DECEMBER 2005
Interest in
the property Approximate Total gross
attributable site area floor area Existing
Description to the Group (sq. ft.) (sq. ft.) use
Hong Kong:
1. Western Harbour Centre 100% 11,500 200,000 O/P
181 – 183 Connaught Road West
2. Chong Yip Shopping Centre 100% 32,400 73,400 C/P
402 – 404 Des Voeux Road West
3. Fairview Court 100% 30,000 26,000 R/P
94 Repulse Bay Road
4. The Belcher’s 10% 324,000 2,446,000 R
Inland Lot No. 8880 215,000 C
Pokfulam 77,600 S
Hong Kong 524,300 P
3,262,900
Kowloon and New Territories:
5. Chong Hing Square 100% 12,300 184,000 C
593 – 601 Nathan Road, Mongkok
6. Fung Shun Commercial Building, 45.78% 2,200 33,000 O
591 Nathan Road, Mongkok
7. Bonsun Industrial Building 100% 18,000 46,860 I/P
364 – 366 Sha Tsui Road, Tsuen Wan
People’s Republic of China:
8. Le Palais 60% 139,000 1,222,962 R
No. 1 Yong Sheng Shang Sha 36,600 C
Donghu Road 138,294 S
Dongshan District 135,626 P
Guangzhou
1,533,482
569,400 5,359,642
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CO
RP
OR
AT
E A
ND
SH
AR
EH
OLD
ER
S’
I NF
OR
MA
TI O
N
Interest in
the property Approximate Total gross Expected
attributable site area floor area Main completion
Description to the Group (sq. ft.) (sq. ft.) usage date Status
Properties under development
Hong Kong:
1. Liu Chong Hing Bank Building 45.78% 7,100 110,000 O/C 2006 Topping
24 Des Voeux Road Central out
2. Chatham Garden Redevelopment 10% 350,000 R 2010 Acquire of
existing units
completed
61,000 C Lease
modification
applied
411,000
People’s Republic of China:
3. LCH Centre 95% 55,000 137,000 C 2006 Super-
No. 288 Nanjing Road (W) 340,000 O structure
Huang Pu District 179,000 P in progress
Shanghai 80,000 T
736,000
62,100 1,257,000
C=Commercial I=Industrial P=Car Park R=Residential O=Office
S=Clubhouse and recreational facilities T=Others
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AUDITORS’ REPORT
TO THE MEMBERS OF LIU CHONG HING INVESTMENT LIMITED(incorporated in Hong Kong with limited liability)
We have audited the financial statements of Liu Chong Hing Investment Limited (the “Company”) and its subsidiaries(the “Group”) from pages 57 to 111 which have been prepared in accordance with accounting principles generallyaccepted in Hong Kong.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Companies Ordinance requires the directors to prepare financial statements which give a true and fair view. Inpreparing financial statements which give a true and fair view it is fundamental that appropriate accounting policiesare selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on those financial statements and toreport our opinion solely to you, as a body, in accordance with section 141 of the Companies Ordinance, and for noother purpose. We do not assume responsibility towards or accept liability to any other person for the contents ofthis report.
BASIS OF OPINION
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Instituteof Certified Public Accountants. An audit includes examination, on a test basis, of evidence relevant to the amountsand disclosures in the financial statements. It also includes an assessment of the significant estimates and judgementsmade by the directors in the preparation of the financial statements, and of whether the accounting policies areappropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considerednecessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financialstatements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy ofthe presentation of information in the financial statements. We believe that our audit provides a reasonable basisfor our opinion.
OPINION
In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of theGroup as at 31 December 2005 and of the profit and cash flows of the Group for the year then ended and have beenproperly prepared in accordance with the Companies Ordinance.
Deloitte Touche TohmatsuCertified Public Accountants
Hong Kong10 March 2006
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BALANCE SHEETS AS AT 31 DECEMBER 2005
THE GROUP THE COMPANY
2005 2004 2005 2004Notes HK$’000 HK$’000 HK$’000 HK$’000
(restated) (restated)
Non-current assets
Investment properties 17 3,092,762 3,224,050 660,000 680,000
Property, plant and equipment 18 52,584 81,534 1,632 1,877
Properties under development 19 1,012,918 802,693 – –
Investments in subsidiaries 20 – – 309,095 252,041
Interests in associates 21 2,613,153 2,511,382 3 3
Investments in securities 22 – 438,944 – 148,496
Available-for-sale investments 23 269,212 – 107,559 –
Prepaid lease payments 24 33,988 34,881 – –
Amounts due from subsidiaries 25 – – 2,178,389 2,644,638
Advances to investee companies 26 167,641 264,688 – –
Loans receivable –due after one year 27 68,259 3,489 66,281 –
7,310,517 7,361,661 3,322,959 3,727,055
Current assets
Inventories 28 9,541 8,333 – –
Properties held for sale 252,870 274,380 2,808 2,808
Trade and other receivables 29 84,984 129,246 13,714 27,621
Investments in securities 22 – 11,680 – 11,680
Investments held for trading 30 2,794 – 2,794 –
Prepaid lease payments 24 894 894 – –
Loans receivable –due within one year 27 21,080 6,138 – –
Taxation recoverable 905 1,070 – –
Bank accounts with Liu Chong HingBank Limited and its subsidiaries 275,417 70,646 236,411 11,699
Other bank balances and cash 402,891 183,242 73,001 10,685
1,051,376 685,629 328,728 64,493
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THE GROUP THE COMPANY
2005 2004 2005 2004Notes HK$’000 HK$’000 HK$’000 HK$’000
(restated) (restated)
Current liabilities
Trade and other payables 31 129,491 116,722 14,763 16,591
Borrowings – due within one year 32 703,863 1,045,000 703,863 1,045,000
833,354 1,161,722 718,626 1,061,591
Net current assets (liabilities) 218,022 (476,093) (389,898) (997,098)
Total assets less current liabilities 7,528,539 6,885,568 2,933,061 2,729,957
Non-current liabilities
Borrowings – due after one year 32 (1,566,262) (1,154,207) (1,309,876) (1,095,211)
Deferred taxation 33 (385,976) (353,366) (57,163) (58,491)
Non-interest bearing advances
from subsidiaries 34 – – (124,207) (49,158)
(1,952,238) (1,507,573) (1,491,246) (1,202,860)
Net assets 5,576,301 5,377,995 1,441,815 1,527,097
Capital and reserves
Share capital 35 378,583 378,583 378,583 378,583
Reserves 36 5,174,826 4,973,718 1,063,232 1,148,514
Equity attributable to equityholders of parents 5,553,409 5,352,301 1,441,815 1,527,097
Minority interests 22,892 25,694 – –
Total equity 5,576,301 5,377,995 1,441,815 1,527,097
The financial statements on pages 57 to 111 were approved and authorised for issue by the Board of Directors on 10March 2006 and are signed on its behalf by:
Liu Lit Man Tong Tsin KaCHAIRMAN DIRECTOR
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005
Attributable to equity holders of the parent
Investment Otherproperty property Investment Capital
Share Capital General Special Regulatory revaluation revaluation revaluation redemption Exchange Dividend Accumulated Minoritycapital reserve reserve reserve reserve reserve reserve reserve reserve reserve reserve profits Total interests Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2004as originally stated 378,583 430,600 783,495 – – 291,139 1,972,462 33,596 2,952 (9,757) 37,858 1,888,290 5,809,218 25,606 5,834,824
Effects of changesin accountingpolicies (Note 3) – – – – – (50,755 ) (519,098) – – – – 247 (569,606) – (569,606)
At 1 January 2004as restated 378,583 430,600 783,495 – – 240,384 1,453,364 33,596 2,952 (9,757) 37,858 1,888,537 5,239,612 25,606 5,265,218
Special reserve arisingon acquisition ofadditional interest ina subsidiary (Note ii) – – – 75,747 – – – – – – – – 75,747 – 75,747
Deficit on revaluation – – – – – (34,100 ) (5,658) – – – – – (39,758 ) – (39,758)
Reversal of deferred taxliabilities arising onrevaluation of properties – – – – – 525 1,867 – – – – – 2,392 – 2,392
Share of surplus onrevaluation of propertiesof associates – – – – – 2,271 – – – – – – 2,271 – 2,271
Share of deferred taxliabilities of associatesarising on revaluationof properties – – – – – (278 ) – – – – – – (278) – (278)
Share of surplus onrevaluation ofinvestments ofassociates – – – – – – – 23,816 – – – – 23,816 – 23,816
Exchange differencesarising on translationof overseas operations – – – – – – – – – 3,157 – – 3,157 2,012 5,169
Share of exchangereserve of associates – – – – – – – – – 437 – – 437 – 437
Net income (expenses)recognised directly inequity – – – 75,747 – (31,582 ) (3,791) 23,816 – 3,594 – – 67,784 2,012 69,796
Share of release ofreserves of associates upon disposal – – – – – – – 1,637 – (1,621) – – 16 – 16
Profit for the year – – – – – – – – – – – 109,248 109,248 38 109,286
Total recognised income andexpenses for the year – – – 75,747 – (31,582 ) (3,791) 25,453 – 1,973 – 109,248 177,048 2,050 179,098
Acquisition of additionalinterest in a subsidiary – – – – – – – – – – – – – (1,962 ) (1,962)
Dividend declared – – – – – – – – – – 64,359 (64,359 ) – – –
Dividend paid – – – – – – – – – – (64,359) – (64,359 ) – (64,359)
At 31 December 2004 378,583 430,600 783,495 75,747 – 208,802 1,449,573 59,049 2,952 (7,784) 37,858 1,933,426 5,352,301 25,694 5,377,995
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Attributable to equity holders of the parent
Investment Otherproperty property Investment Capital
Share Capital General Special Regulatory revaluation revaluation revaluation redemption Exchange Dividend Accumulated Minoritycapital reserve reserve reserve reserve reserve reserve reserve reserve reserve reserve profits Total interests Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2005as restated 378,583 430,600 783,495 75,747 – 208,802 1,449,573 59,049 2,952 (7,784) 37,858 1,933,426 5,352,301 25,694 5,377,995
Effects of changes inaccounting policies(Note 3) – (430,600 ) – – – (208,802 ) – – – – – 689,299 49,897 – 49,897
Earmark of accumulatedprofit as regulatoryreserve of an associate(Note iii) (Note 3) – – – – 47,558 – – – – – – (47,558 ) – – –
At 1 January 2005as restated 378,583 – 783,495 75,747 47,558 – 1,449,573 59,049 2,952 (7,784) 37,858 2,575,167 5,402,198 25,694 5,427,892
Surplus on revaluation – – – – – – 8 10,340 – – – – 10,348 – 10,348
Share of surplus onrevaluation ofinvestments of associates – – – – – – – 25,635 – – – – 25,635 – 25,635
Exchange differencesarising on translationof overseas operations – – – – – – – – – 51,469 – – 51,469 1,087 52,556
Share of exchange reserveof associates – – – – – – – – – (762) – – (762) – (762)
Net income recogniseddirectly in equity – – – – – – 8 35,975 – 50,707 – – 86,690 1,087 87,777
Release of reserve upondisposal of a subsidiary – – (45,000) – – – – – – – – 45,000 – – –
Share of release ofreserve of associates – – – – – – – (10,785) – – – – (10,785 ) – (10,785)
Profit for the year – – – – – – – – – – – 143,451 143,451 (3,889 ) 139,562
Total recognised incomeand expenses for the year – – (45,000) – – – 8 25,190 – 50,707 – 188,451 219,356 (2,802 ) 216,554
Earmark of accumulatedprofit as regulatoryreserve of an associate – – – – 8,677 – – – – – – (8,677 ) – – –
Dividend declared – – – – – – – – – – 75,717 (75,717 ) – – –
Dividend paid – – – – – – – – – – (68,145) – (68,145 ) – (68,145)
At 31 December 2005 378,583 – 738,495 75,747 56,235 – 1,449,581 84,239 2,952 42,923 45,430 2,679,224 5,553,409 22,892 5,576,301
Notes:
(i) General reserve represents distributable reserve set aside by associates of the Group for future developments.
(ii) The special reserve represents the difference between the consideration paid and the carrying values of the underlying assets and liabilities attributableto the additional interest in a subsidiary acquired during the year ended 31 December 2004.
(iii) In compliance with Hong Kong Monetary Authority’s requirements, the Group’s share of accumulated profits of an associate of HK$47,558,000 hasbeen transferred to regulatory reserve at 1 January 2005. The regulatory reserve is distributable to equity holders of the associate subject to consultationwith the Hong Kong Monetary Authority.
(iv) The accumulated profits of the Group included HK$1,095,435,000 (2004: HK$926,427,000 as restated) attributable to the associates of the Group.
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CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005
2005 2004Notes HK$’000 HK$’000
(restated)
OPERATING ACTIVITIES
Profit before taxation 183,691 133,255
Adjustments for:
Impairment of advance to an investee company 1,350 –
Impairment of bad and doubtful debts 15,418 –
Write-down of properties held for sale to net realisable value 10,000 10,000
Deficit on revaluation of leasehold land and buildings 38,673 19,912
Depreciation and amortisation 13,069 7,091
Fair value gain on investment properties (53,802) –
Gain on disposal of interest in a subsidiary (61,352) –
Finance costs 60,694 22,176
Impairment loss recognised in respect ofavailable-for-sale investments 37,005 –
Impairment loss recognised in respect ofinvestment securities – 20,000
Imputed interest income on non-current interest-freeloans to investee companies (3,193) –
Interest income (15,207) (12,700)
Loss on disposal of available-for-sale investments 1,730 –
Loss on disposal of property, plant and equipment 5,195 35
Share of results of associates (184,113) (163,280)
Unrealised holding gain on other investments – (34,606)
Unrealised holding loss on investments held for trading 829 –
Operating cash flows before movements in working capital 49,987 1,883
Increase in properties under development (167,705) (61,816)
Decrease in other investments – 13,006
(Increase) decrease in loans receivable (13,431) 20,540
Increase in inventories (1,208) (2,665)
Decrease in properties held for sale 238,928 170,024
Decrease (increase) in trade and other receivables 19,371 (5,458)
Increase in trade and other payables 21,860 7,042
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2005 2004Notes HK$’000 HK$’000
(restated)
Cash generated from operations 147,802 142,556
Hong Kong Profits Tax paid (12,495) (17,384)
Hong Kong Profits Tax refunded 1,440 395
Interest received 15,207 12,700
Dividend paid (68,145) (64,359)
NET CASH FROM OPERATING ACTIVITIES 83,809 73,908
INVESTING ACTIVITIES
Proceeds from disposal of interest in a subsidiary 37 121,590 –
Dividend received from an associate 114,952 103,241
Repayment from investee companies 87,167 189,870
Proceeds from disposal of available-for-sale investments 81,619 –
Increase in bank deposits with more than three months to
maturity when raised (124,964) –
Purchase of available-for-sale investments (25,485) –
Purchase of property, plant and equipment (23,245) (3,589)
Acquisition of additional interest in an associate (16,576) (11,985)
Purchase of investments in securities – (14,894)
Acquisition of additional interest in a subsidiary – (5)
NET CASH FROM INVESTING ACTIVITIES 215,058 262,638
FINANCING ACTIVITIES
Repayments of borrowings (498,991) (1,734,071)
Interest paid (77,449) (41,918)
New borrowings raised 569,909 1,283,009
NET CASH USED IN FINANCING ACTIVITIES (6,531) (492,980)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 292,336 (156,434)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 253,888 405,155
EFFECT OF FOREIGN EXCHANGE RATE CHANGES 7,120 5,167
CASH AND CASH EQUIVALENTS AT END OF THE YEAR 553,344 253,888
Cash and cash equivalents at end of the year,
represented by:
Bank balances and cash 678,308 253,888
Less: Bank deposits with more than three months
to maturity when raised 124,964 –
553,344 253,888
NOTES TO THE FINANCIAL STATEMENTS
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FOR THE YEAR ENDED 31 DECEMBER 2005NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
1. GENERAL
The Company is a public listed limited company incorporated in Hong Kong and its shares are listed on The StockExchange of Hong Kong Limited. The address of the registered office and principal place of business of the Companyis 7/F., New World Tower 2, 18 Queen’s Road Central, Hong Kong.
The financial statements are presented in Hong Kong dollars, which is also the functional currency of the Company.
The principal activities of the Company are property investment and investment holding. The principal activities ofthe principal subsidiaries and associates are shown in notes 20 and 21, respectively.
2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES INACCOUNTING POLICIES
In the current year, the Group and the Company have applied, for the first time, a number of new Hong KongFinancial Reporting Standards (“HKFRS(s)”), Hong Kong Accounting Standards (“HKAS(s)”) and Interpretations(hereinafter collectively referred to as “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants(the “HKICPA”) that are effective for accounting periods beginning on or after 1 January 2005. The application ofthe new HKFRSs has resulted in a change in the presentation of the consolidated income statement, balance sheetsand consolidated statement of changes in equity. In particular, the presentation of minority interests and share oftaxation of associates have been changed. The changes in presentation have been applied retrospectively. Theadoption of the new HKFRSs has resulted in changes to the Group’s and the Company’s accounting policies in thefollowing areas that have an effect on how the results for the current and/or prior accounting periods are preparedand presented:
BUSINESS COMBINATIONS
In the current year, the Group has applied HKFRS 3 “Business Combinations” which is effective for businesscombinations for which the agreement date is on or after 1 January 2005. The principal effects of the application ofHKFRS 3 to the Group are summarised below:
GOODWILL
In previous years, goodwill arising on acquisitions prior to 1 January 2001 was held in reserves, and goodwill arisingon acquisitions after 1 January 2001 was capitalised and amortised over its estimated useful life. The Group hasapplied the relevant transitional provisions in HKFRS 3. Goodwill previously recognised in capital reserve of HK$9,833,000has been transferred to the accumulated profits of the Group on 1 January 2005. Comparative figures for 2004 havenot been restated.
EXCESS OF THE GROUP’S INTEREST IN THE NET FAIR VALUE OF ACQUIREE’S IDENTIFIABLEASSETS, LIABILITIES AND CONTINGENT LIABILITIES OVER COST (PREVIOUSLY KNOWN AS“NEGATIVE GOODWILL”)
In accordance with HKFRS 3, any excess of the Group’s interest in the net fair value of acquiree’s identifiable assets,liabilities and contingent liabilities over the cost of acquisition (“discount on acquisition”) is recognised immediatelyin profit or loss in the period in which the acquisition takes place. In previous years, negative goodwill arising onacquisitions prior to 1 January 2001 was held in reserves, and negative goodwill arising on acquisitions after 1January 2001 was presented as a deduction from assets and released to income based on an analysis of thecircumstances from which the balance resulted. In accordance with the relevant transitional provisions in HKFRS 3,the Group has derecognised all negative goodwill on 1 January 2005 (of which negative goodwill of HK$440,433,000,which was previously recorded in capital reserve, and of HK$8,670,000, which was previously included in interests inassociates), with a corresponding increase to accumulated profits. Also, an adjustment of HK$239,000 has beenmade to increase the share of net assets of associates after the application of HKFRS 3 by the associates of theGroup. In addition, a discount on acquisition at an amount of HK$3,710,000 had been recognised by the Groupduring the year in respect of acquisition of additional interest in an associate.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
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2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES INACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
In the current year, the Group has applied HKAS 32 “Financial Instruments: Disclosure and Presentation” and HKAS39 “Financial Instruments: Recognition and Measurement”. HKAS 32 requires retrospective application and theadoption of HKAS 32 has had no material effect on how the results for the current or prior accounting years areprepared. HKAS 39, which is effective for annual periods beginning on or after 1 January 2005, generally does notpermit recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. Theprincipal effects resulting from the implementation of HKAS 39 are summarised below:
Classification and measurement of financial assets and financial liabilities
The Group has applied the relevant transitional provisions in HKAS 39 with respect to classification and measurementof financial assets and financial liabilities that are within the scope of HKAS 39.
Debt and equity securities previously accounted for under the benchmark treatment of SSAP 24
Up to 31 December 2004, the Group classified and measured its investments in debt and equity securities inaccordance with the benchmark treatment of Statement of Standard Accounting Practice 24 “Accounting forInvestments in Securities” issued by the HKICPA (“SSAP 24”). Under SSAP 24, investments in debt or equity securitiesare classified as “investment securities”, “other investments” or “held-to-maturity investments” as appropriate.“Investment securities” are carried at cost less impairment losses (if any) while “other investments” are measured atfair value, with unrealised gains or losses included in the profit or loss. Held-to-maturity investments are carried atamortised cost less impairment losses (if any). From 1 January 2005 onwards, the Group classified and measured itsdebt and equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as “financialassets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables”, or “held-to-maturity financial assets”. “Financial assets at fair value through profit or loss” and “available-for-sale financialassets” are carried at fair value, with changes in fair values recognised in profit or loss and equity, respectively.“Loans and receivables” and “held-to-maturity financial assets” are measured at amortised cost using the effectiveinterest method after initial recognition.
On 1 January 2005, the Group classified and measured its investments in debt and equity securities in accordance withthe transitional provision of HKAS 39. Investments in securities of the Group at an aggregate amount of HK$450,624,000have been reclassified to available-for-sale investments, investments held for trading and loan receivable at an amountof HK$380,463,000, HK$3,880,000 and HK$66,281,000, respectively.
Investments in securities of the Company with an aggregate amount HK$160,176,000 have been reclassified toavailable-for-sale investment, investment held for trading and loans receivable in the amounts of HK$90,015,000,HK$3,880,000 and HK$66,281,000, respectively, at 1 January 2005.
Financial assets and financial liabilities other than debt and equity securities
From 1 January 2005 onwards, the Group classifies and measures its financial assets and financial liabilities otherthan debt and equity securities (which were previously outside the scope of SSAP 24) in accordance with therequirements of HKAS 39. As mentioned above, financial assets under HKAS 39 are classified as “financial assets atfair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables” or “held-to-maturityfinancial assets”. Financial liabilities are generally classified as “financial liabilities at fair value through profit orloss” or “other financial liabilities”. “Financial liabilities at fair value through profit or loss” are measured at fairvalue, with changes in fair value being recognised in profit or loss directly. “Other financial liabilities” are carried atamortised cost using the effective interest method after initial recognition.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES INACCOUNTING POLICIES (CONTINUED)
Financial assets and financial liabilities other than debt and equity securities (Continued)
In addition, an adjustment of HK$44,127,000 has been made to increase the share of net assets of associates after theapplication of HKAS 39 by the associates. As a result of the changes with respect to the impairment policy of theloans and receivables of an associate, the carrying amount of the loans and receivables of the associate increased.On the other hand, a regulatory reserve has been set up by an associate in order to be in compliance with Hong KongMonetary Authority’s requirements by setting aside an amount upon the application of HKAS 39 on 1 January 2005.The Group’s share of this amount at 1 January 2005 amounted to HK$47,558,000 (see note 3 to the financial impact).
Prior to the application of HKAS 39, non-current interest-free advances to investee companies were stated at thenominal amount. HKAS 39 requires all financial assets and financial liabilities to be measured at fair value on initialrecognition. Such interest-free advances are measured at amortised cost determined using the effective interestmethod at subsequent balance sheet dates. The Group has applied the relevant transitional provisions in HKAS 39.As a result of this change in the accounting policy, the carrying amount of the advances and the Group’s accumulatedprofits as at 1 January 2005 has been decreased by HK$3,193,000, respectively, in order to state the advances atamortised cost in accordance with HKAS 39.
Also, prior to the application of HKAS 39, the Company’s non-current interest-free advances to and from subsidiarieswere stated at the nominal amount. The Company has applied the relevant transitional provisions in HKAS 39. As aresult of this change in the accounting policy, an adjustment of HK$13,489,000 had also been made on 1 January2005 to increase the Company’s investments in subsidiaries and to reduce the balance of amounts due from subsidiariesby the same amount, which represents the deemed capital contribution to subsidiaries upon initial recognition ofadvances made to them. In addition, an adjustment of HK$593,000 had been made to decrease the amounts due tosubsidiaries and to increase the Company’s accumulated profits, respectively, which represents the deemed capitaldistribution from subsidiaries upon initial recognition of the advances made form them to the Company.
OWNER-OCCUPIED LEASEHOLD INTEREST IN LAND
In previous years, owner-occupied leasehold land and buildings were included in property, plant and equipmentmeasured using the revaluation model and leasehold land and buildings under construction were included inproperties under development measured using the cost model. In the current year, the Group has applied HKAS 17“Leases”. Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separatelyfor the purposes of lease classification, unless the lease payments cannot be allocated reliably between the landand buildings elements, in which case, the entire lease is generally treated as a finance lease. To the extent that theallocation of the lease payments between the land and buildings elements can be made reliably, the leaseholdinterests in land are reclassified to prepaid lease payments under operating leases, which are carried at cost andamortised over the lease term on a straight-line basis. This change in accounting policy has been applied retrospectively.As at 31 December 2004, an amount of HK$35,775,000 previously classified under properties under developmenthad been reclassified to prepaid lease payments. Alternatively, where the allocation between the land and buildingselements cannot be made reliably, the leasehold interests in land continue to be accounted for as property, plantand equipment or properties under development. In addition, the Group’s other property revaluation reserve andaccumulated profits as at 31 December 2004 had been decreased by HK$290,423,000 and HK$2,957,000, respectively,after the application of HKAS 17 by the associates of the Group. The associates’ leasehold interests in land previouslystated at valuation were reclassified to prepaid lease payments which are now carried at cost less amortisation withretrospective effect (see note 3 for the financial impact).
INVESTMENT PROPERTIES
In the current year, the Group and the Company have, for the first time, applied HKAS 40 “Investment Property”.The Group and the Company have elected to use the fair value model to account for its investment propertieswhich requires gains or losses arising from changes in the fair value of investment properties to be recogniseddirectly in the profit or loss for the year in which they arise. In previous years, investment properties under thepredecessor Standard were measured at open market values, with revaluation surplus or deficits credited or chargedto investment property revaluation reserve unless the balance on this reserve was insufficient to cover a revaluationdecrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluationreserve was charged to the income statement. Where a decrease had previously been charged to the incomestatement and a revaluation surplus subsequently arose, that increase was credited to the income statement to theextent of the decrease previously charged. The Group and the Company have applied the relevant transitionalprovisions in HKAS 40 and elected to apply HKAS 40 from 1 January 2005 onwards. The amount held in the investmentproperty revaluation reserve at 1 January 2005 of HK$208,802,000 and HK$251,606,000 had been transferred to theGroup’s and the Company’s accumulated profits, respectively (see note 3 for the financial impact).
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2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES INACCOUNTING POLICIES (CONTINUED)
DEFERRED TAXES RELATED TO INVESTMENT PROPERTIES
In previous years, deferred tax consequences in respect of revalued investment properties were assessed on thebasis of the tax consequence that would follow from recovery of the carrying amount of the properties through salein accordance with the predecessor Interpretation. In the current year, the Group has applied HK(SIC) Interpretation21 “Income Taxes – Recovery of Revalued Non-Depreciable Assets” which removes the presumption that thecarrying amount of investment properties is to be recovered through sale. Therefore, the deferred tax consequencesof the investment properties are now assessed on the basis that reflect the tax consequences that would followfrom the manner in which the Group expects to recover the property at each balance sheet date. In the absence ofany specific transitional provisions in HK(SIC) Interpretation 21, this change in accounting policy has been appliedretrospectively. The balances on the Group’s investment property revaluation reserve and other property revaluationreserve at 31 December 2004 have been decreased by HK$60,966,000 and HK$261,366,000, respectively. Concurrently,the Group’s share of investment property revaluation reserve of associates at 31 December 2004 has been decreasedby HK$2,418,000. (see note 3 for the financial impact).
In addition, the balance on the Company’s investment property revaluation reserve at 31 December 2004 has beendecreased by HK$44,781,000.
3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES
The effects of the changes in the accounting policies described above on the results for the current and prior yearare as follows:
Year ended 31 December
2005 2004HK$’000 HK$’000
Recognition of discount on acquisition of additional interestin an associate directly in profit or loss 3,710 –
Decrease in release of negative goodwill arising on acquisitionof an associate (456) –
Decrease in gains arising from changes in fair value ofinvestments in securities (designated as available-for-saleinvestments on 1 January 2005) (10,340) –
Imputed interest income and expenses on non-currentinterest-free loans (5,337) –
Gains arising from changes in fair value of investment properties 53,802 –
Increase in deferred taxation relating to investment properties (45,133) –
Increase in share of results of associates due to the adoptionof new HKFRSs 7,980 4,897
Increase in profit for the year 4,226 4,897
Analysis of increase in profit for the year by line items presented according to their function:
Year ended 31 December
2005 2004HK$’000 HK$’000
Increase in other income 3,193 –
Decrease in gains arising from changes in fair value ofinvestments in securities (designated as available-for-saleinvestments on 1 January 2005) (10,340) –
Increase in fair value gain of investment properties 53,802 –
Decrease in share of results on associates (21,094) (26,902)
Increase in finance costs (8,530) –
(Increase) decrease in income tax expense (12,805) 31,799
Increase in profit for the year 4,226 4,897
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3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (CONTINUED)
The cumulative effects of the application of the new HKFRSs as at 31 December 2004 and 1 January 2005 aresummarised below:
THE GROUP
As at31 December As at As at
2004 Effect of 31 December 1 January(originally Effect of Effect of HK(SIC) – 2004 Effect of Effect of Effect of 2005
stated) HKAS 1 HKAS 17 INT 21 (restated) HKFRS 3 HKAS 39 HKAS 40 (restated)HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Balance sheet items
Properties under development 838,468 – (35,775 ) – 802,693 – – – 802,693
Prepaid lease payments– non-current portion – – 34,881 – 34,881 – – – 34,881
Prepaid lease payments– current portion – – 894 – 894 – – – 894
Interests in associates 2,801,217 – (287,466 ) (2,369 ) 2,511,382 8,963 44,127 – 2,564,472
Investments in securities 450,624 – – – 450,624 – (450,624 ) – –
Available-for-sale investments – – – – – – 380,463 – 380,463
Investments held for trading – – – – – – 3,880 – 3,880
Advances to investee companies 264,688 – – – 264,688 – (3,193 ) – 261,495
Loans receivable 9,627 – – – 9,627 – 66,281 – 75,908
Deferred taxation (31,034 ) – – (322,332 ) (353,366 ) – – – (353,366 )
Other assets and liabilities 1,656,572 – – – 1,656,572 – – – 1,656,572
5,990,162 – (287,466 ) (324,701 ) 5,377,995 8,963 40,934 – 5,427,892
Share capital 378,583 – – – 378,583 – – – 378,583
Capital reserve 430,600 – – – 430,600 (430,600 ) – – –
Regulatory reserve – – – – – – 47,558 – 47,558
Investment property revaluationreserve 272,186 – – (63,384 ) 208,802 – – (208,802 ) –
Other property revaluation reserve 2,001,362 – (290,423 ) (261,366 ) 1,449,573 – – – 1,449,573
Accumulated profits 1,930,420 – 2,957 49 1,933,426 439,563 (6,624 ) 208,802 2,575,167
Minority interests – 25,694 – – 25,694 – – – 25,694
Other reserves 951,317 – – – 951,317 – – – 951,317
5,964,468 25,694 (287,466 ) (324,701 ) 5,377,995 8,963 40,934 – 5,427,892
Minority interests 25,694 (25,694 ) – – – – – – –
5,990,162 – (287,466 ) (324,701 ) 5,377,995 8,963 40,934 – 5,427,892
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3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (CONTINUED)
THE COMPANY
As at31 December As at As at
2004 Effect of 31 December 1 January(originally HK(SIC) – 2004 Effect of Effect of 2005
stated) Reclassification INT 21 (restated) HKAS 39 HKAS 40 (restated)HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Balance sheet items
Interests in subsidiaries 2,896,679 (2,896,679 ) – – – – –
Investments in subsidiaries – 252,041 – 252,041 13,489 – 265,530
Investments in securities 160,176 – – 160,176 (160,176 ) – –
Available-for-sale investments – – – – 90,015 – 90,015
Amounts due from subsidiaries – 2,644,638 – 2,644,638 (13,489 ) – 2,631,149
Loans receivable – – – – 66,281 – 66,281
Investments held for trading – – – – 3,880 – 3,880
Deferred taxation (13,710 ) – (44,781 ) (58,491 ) – – (58,491 )
Non-interest bearing advances fromsubsidiaries (49,158 ) – – (49,158 ) 593 – (48,565 )
Other assets and liabilities (1,422,109 ) – – (1,422,109 ) – – (1,422,109 )
1,571,878 – (44,781 ) 1,527,097 593 – 1,527,690
Share capital 378,583 – – 378,583 – – 378,583
Investment property revaluationreserve 296,387 – (44,781 ) 251,606 – (251,606 ) –
Accumulated profits 855,895 – – 855,895 593 251,606 1,108,094
Other reserves 41,013 – – 41,013 – – 41,013
1,571,878 – (44,781 ) 1,527,097 593 – 1,527,690
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (CONTINUED)
The financial effects of the application of the new HKFRSs to the Group’s and the Company’s equity attributable toequity holders of parent at 1 January 2004 are summarised below:
THE GROUP
As originallystated Adjustments As restated
HK$’000 HK$’000 HK$’000
Investment property revaluation reserve 291,139 (26,086) 265,053
Other property revaluation reserve 1,972,462 (550,359) 1,422,103
Accumulated profits 1,888,290 247 1,888,537
Other reserves 1,657,327 – 1,657,327
5,809,218 (576,198) 5,233,020
THE COMPANY
As originallystated Adjustments As restated
HK$’000 HK$’000 HK$’000
Investment property revaluation reserve 296,387 (44,781) 251,606
Other reserves 878,712 – 878,712
1,175,099 (44,781) 1,130,318
The Group has not early applied the following new standard, amendments and interpretations that have beenissued but are not yet effective.
HKAS 1 (Amendment) Capital disclosures1
HKAS 19 (Amendment) Actuarial gains and losses, group plans and disclosures2
HKAS 21 (Amendment) Net investment in a foreign operation2
HKAS 39 (Amendment) Cash flow hedge accounting of forecast intragroup transactions2
HKAS 39 (Amendment) The fair value option2
HKAS 39 & HKFRS 4 (Amendments) Financial guarantee contracts2
HKFRS 6 Exploration for and evaluation of mineral resources2
HKFRS 7 Financial instruments: Disclosures1
HK(IFRIC) – INT 4 Determining whether an arrangement contains a lease2
HK(IFRIC) – INT 5 Rights to interests arising from decommissioning, restoration andenvironmental rehabilitation funds2
HK(IFRIC) – INT 6 Liabilities arising from participating in a specific market, waste electricaland electronic equipment3
HK(IFRIC) – INT 7 Applying the restatement approach under HKAS 29 Financial Reportingin Hyperinflationary Economies4
1 Effective for annual periods beginning on or after 1 January 2007.
2 Effective for annual periods beginning on or after 1 January 2006.
3 Effective for annual periods beginning on or after 1 December 2005.
4 Effective for annual periods beginning on or after 1 March 2006.
The Group is in the process of assessing the impact of these new standards, amendments and interpretations in theperiod of initial application. The Group is not yet in a position to determine whether the adoption of these newHKFRSs would have a significant impact on the results of its operations and its financial position.
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4. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared on the historical cost basis except for certain properties and financialinstruments, which are measured at revalued amounts or fair values, as explained in the accounting policies set outbelow.
The financial statements have been prepared in accordance with HKFRSs. In addition, the financial statementsinclude applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange ofHong Kong Limited and by the Companies Ordinance.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statementfrom the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policiesinto line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equitytherein. Minority interests in the net assets consist of the amount of those interests at the date of the originalbusiness combination and the minority’s share of changes in equity since the date of the combination. Lossesapplicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against theinterests of the Group except to the extent that the minority has a binding obligation and is able to make anadditional investment to cover the losses.
GOODWILL
Goodwill arising on acquisitions prior to 1 January 2005
Goodwill arising on an acquisition of a subsidiary or an associate for which the agreement date is before 1 January2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiableassets and liabilities of the relevant subsidiary or associate at the date of acquisition.
As explained in note 2 above, all goodwill as at 1 January 2005 has been transferred to the accumulated profits ofthe Group.
Goodwill arising on acquisitions on or after 1 January 2005
Goodwill arising on an acquisition of a subsidiary or an associate for which the agreement date is on or after 1January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of theidentifiable assets, liabilities and contingent liabilities of the relevant subsidiary or associate at the date of acquisition.Such goodwill is carried at cost less any accumulated impairment losses.
Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the balance sheet. Capitalisedgoodwill arising on an acquisition of an associate (which is accounted for using the equity method) is included in thecost of the investment of the relevant associate.
For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevantcash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of theacquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, andwhenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financialyear, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of thatfinancial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit,the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and thento the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairmentloss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed insubsequent periods.
On subsequent disposal of a subsidiary or an associate, the attributable amount of goodwill capitalised is includedin the determination of the amount of profit or loss on disposal.
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4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXCESS OF AN ACQUIRER’S INTEREST IN THE NET FAIR VALUE OF AN ACQUIREE’S IDENTIFIABLEASSETS, LIABILITIES AND CONTINGENT LIABILITIES OVER COST (“DISCOUNT ON ACQUISITIONS”)
A discount on acquisition arising on an acquisition of a subsidiary or an associate for which the agreement date ison or after 1 January 2005 represents the excess of the net fair value of an acquiree’s identifiable assets, liabilitiesand contingent liabilities over the cost of the business combination. Discount on acquisition is recognised immediatelyin profit or loss. A discount on acquisition arising on an acquisition of an associate (which is accounted for using theequity method) is included as income in the determination of the investor’s share of results of the associate in theperiod in which the investment is acquired.
As explained in note 2 above, all negative goodwill as at 1 January 2005 has been derecognised with a correspondingadjustment to the Group’s accumulated profits.
INVESTMENT PROPERTIES
Starting from 1 January 2005, on initial recognition, investment properties are measured at cost, including anydirectly attributable expenditure. Subsequent to initial recognition, investment properties are measured using thefair value model. Gains or losses arising from changes in the fair value of investment property are included in profitor loss for the period in which they arise.
Prior to January, 2005, investment properties were stated at their open market value. Any revaluation surplus ordeficit arising on the revaluation of investment properties was credited or charged to the investment propertyrevaluation reserve unless the balance of the reserve was insufficient to cover a revaluation deficit, in which case theexcess of the revaluation deficit over the balance on the investment property revaluation reserve was charged tothe income statement. Where a deficit has previously been charged to the income statement and a revaluationsurplus subsequently arises, this surplus was credited to the income statement to the extent of the deficit previouslycharged.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (other than properties under development) are stated at cost or fair value lesssubsequent accumulated depreciation and accumulated impairment losses.
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, arestated in the balance sheet at their revalued amount, being the fair value at the date of revaluation less any subsequentaccumulated depreciation and amortisation and any subsequent accumulated impairment losses. Revaluations areperformed with sufficient regularity such that the carrying amount does not differ materially from that which wouldbe determined using fair values at the balance sheet date.
Any revaluation increase arising on revaluation of land and buildings is credited to the other property revaluationreserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as anexpense, in which case the increase is credited to the income statement to the extent of the decrease previouslycharged. A decrease in net carrying amount arising on revaluation of an asset is dealt with as an expense to theextent that it exceeds the balance, if any, on the other property revaluation reserve relating to a previous revaluationof that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus istransferred to accumulated profits.
Depreciation is provided to write off the cost or fair value of items of property, plant and equipment other thanproperties under development over their estimated useful lives and after taking into account of their estimatedresidual value, using the straight-line method.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits areexpected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset(calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included inthe income statement in the year in which the item is dereognised.
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4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Leasehold land and buildings under development
When the leasehold land and buildings are in the course of development for production, rental or for administrativepurposes, the leasehold land component is classified as a prepaid lease payment and amortised over a straight-linebasis over the lease term. During the construction period, the amortisation charge provided for the leasehold landis included as part of costs of buildings under construction. Buildings under construction are carried at cost, lessany identified impairment losses. Depreciation of buildings commences when they are available for use (i.e. whenthey are in the location and condition necessary for them to be capable of operating in the manner intended bymanagement).
INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are included in the Company’s balance sheet at cost, less any identified impairmentloss.
INTERESTS IN ASSOCIATES
The results and assets and liabilities of associates are incorporated in these financial statements using the equitymethod of accounting. Under the equity method, investments in associates are carried in the consolidated balancesheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes inequity of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equalsor exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of theGroup’s net investment in the associate), the Group discontinues recognising its share of further losses. An additionalshare of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal orconstructive obligations or made payments on behalf of that associate.
Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of theGroup’s interest in the relevant associate.
The results of associates are accounted for by the Company on the basis of dividends received and receivableduring the year. In the Company’s balance sheet, investments in associates are stated at cost, as reduced by anidentified impairment loss.
PROPERTIES HELD FOR SALE
Properties held for sale are stated at the lower of cost and the estimated market value.
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using weighted average costmethod.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party tothe contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fairvalue. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financialliabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to ordeducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value throughprofit or loss are recognised immediately in profit or loss.
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4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS (CONTINUED)
Financial assets
The Group’s financial assets are classified into one of the four categories, including financial assets at fair valuethrough profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. Allregular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regularway purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frameestablished by regulation or convention in the marketplace. The accounting policies adopted in respect of eachcategory of financial assets are set out below.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss has two subcategories, including financial assets held for tradingand those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequentto initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes infair value recognised directly in profit or loss in the period in which they arise.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quotedin an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (includingtrade and other receivables, loans receivable, advances to investee companies, bank accounts with Liu Chong HingBank Limited and its subsidiaries, other bank balances and amounts due from subsidiaries for the Company) arecarried at amortised cost using the effective interest method, less any identified impairment losses. An impairmentloss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured asthe difference between the asset’s carrying amount and the present value of the estimated future cash flows discountedat the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in theasset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised,subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceedwhat the amortised cost would have been had the impairment not been recognised.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixedmaturities that the Group’s management has the positive intention and ability to hold to maturity. At each balancesheet date subsequent to initial recognition, held-to-maturity investments are measured at amortised cost usingthe effective interest method, less any identified impairment losses. An impairment loss is recognised in profit orloss when there is objective evidence that the asset is impaired, and is measured as the difference between theasset’s carrying amount and the present value of estimated future cash flows discounted at the effective interestrate computed on initial recognition. Impairment losses are reversed in subsequent periods when an increase in theinvestment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised,subject to the restriction that the carrying amount of the asset at the date the impairment is reversed does notexceed what the amortised cost would have been had the impairment not been recognised.
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4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS (CONTINUED)
Financial assets (continued)
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the othercategories (set out above). At each balance sheet date subsequent to initial recognition, available-for-sale financialassets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposedof or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity isremoved from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assetsare recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in profitor loss in subsequent periods. For available-for-sale debt investments, impairment losses are subsequently reversedif an increase in the fair value of the investment can be objectively related to an event occurring after the recognitionof the impairment loss.
For available-for-sale equity investments that do not have a quoted market price in an active market and whose fairvalue cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquotedequity instruments, they are measured at cost less any identified impairment losses at each balance sheet datesubsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidencethat the asset is impaired. The amount of the impairment loss is measured as the difference between the carryingamount of the asset and the present value of the estimated future cash flows discounted at the current market rateof return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.
Financial liabilities and equity
Financial liabilities and equity instruments issued by a group entity are classified according to the substance of thecontractual arrangements entered into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting allof its liabilities. The Group’s financial liabilities are classified as other financial liabilities. The accounting policiesadopted in respect of financial liabilities and equity instruments are set out below.
Other financial liabilities
Other financial liabilities including bank and other borrowings, trade and other payables and amounts due tosubsidiaries for the Company are subsequently measured at amortised cost, using the effective interest rate 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 the assets expire or, the financialassets are transferred and the Group has transferred substantially all the risks and rewards of ownership of thefinancial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and thesum of the consideration received and the cumulative gain or loss that had been recognised directly in equity isrecognised in profit or loss.
For financial liabilities, they are removed from the Group’s balance sheet (i.e. when the obligation specified in therelevant contract is discharged, cancelled or expires). The difference between the carrying amount of the financialliability derecognised and the consideration paid or payable is recognised in profit or loss.
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4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT LOSSES
At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is anyindication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated tobe less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairmentloss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount underanother standard, in which case the impairment loss is treated as a revaluation decrease under that standard.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revisedestimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amountthat would have been determined had no impairment loss been recognised for the asset in prior years. A reversal ofan impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amountunder another standard, in which case the reversal of the impairment loss is treated as a revaluation increase underthat other standard.
REVENUE RECOGNITION
(i) Property development
Revenue from sale of properties in the ordinary course of business is recognised when all of the followingcriteria 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 effectivecontrol 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.
(ii) Premium income
Premium is recognised on an accrual basis.
(iii) Return on investments
Dividend from investments is recognised when the Group’s rights to receive the relevant payments have beenestablished, whilst interest income from a financial asset is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimatedfuture cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
(iv) Sales of goods
Sales of goods are recognised when goods are delivered and title has passed.
(v) Management fee
Management fee income is recognised when services are rendered.
(vi) Agency fee
Agency fee income is recognised when services are rendered.
(vii) Sales of securities
Sales of investments in securities are recognised on trade date basis.
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4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TAXATION
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in theincome statement because it excludes items of income or expense that are taxable or deductible in other years andit further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated usingtax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxable profit, and is accounted for usingthe balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable that taxable profits will be available againstwhich deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in a business combination) of other assetsand liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries andassociates, except where the Group is able to control the reversal of the temporary difference and it is probablethat the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that itis no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or theasset is realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged orcredited directly to equity, in which case the deferred tax is also dealt with in equity.
BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalisedas part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantiallyready for their intended use or sale. Investment income earned on the temporary investment of specific borrowingspending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
RETIREMENT BENEFITS SCHEME
The Group operates a defined contribution retirement benefits scheme (the “ORSO Scheme”) for qualifying staffof certain companies in the Group, the assets of which are held in a separate trustee administered fund. Paymentsto the scheme are charged as an expense as they fall due.
Certain of the Group’s employees have been enrolled in a Mandatory Provident Fund Scheme (“MPF Scheme”).The contributions payable in respect of the current year to the fund are charged as an expense as they fall due.
LEASING
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewardsof ownership to the lessee. All other leases are classified as operating leases.
The Group as lessor
Rental income from operating leases is recognised in the income statement on a straight-line basis over the term ofthe relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to thecarrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.
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4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASING (CONTINUED)
The Group as lessee
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of therelevant lease. Benefits received and receivable 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.
FOREIGN CURRENCIES
In preparing the financial statements of each individual group entity, transactions in currencies other than thefunctional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of theprimary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates ofthe transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated atthe rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated inforeign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, arerecognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetaryitem that forms part of the Group’s net investment in a foreign operation, in which case, such exchange differencesare recognised in equity in the consolidated financials statements. Exchange differences arising on the retranslationof non-monetary items carried at fair value are included in profit or loss for the period except for differences arisingon the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, inwhich cases, the exchange differences are also recognised directly in equity.
For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’sforeign operations are translated into the presentation currency of the Company (i.e. Hong Kong dollars) at the rateof exchange prevailing at the balance sheet date, and their income and expenses are translated at the averageexchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, theexchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognisedas a separate component of equity (the exchange reserve). Such exchange differences are recognised in profit orloss in the period in which the foreign operation is disposed of.
5. KEY SOURCES OF ESTIMATION UNCERTAINTY
In the process of applying the Group’s accounting policies, management makes various estimates based on pastexperiences, expectations of the future and other information. The key sources of estimation uncertainty that maysignificantly affect the amounts recognised in the financial statements are disclosed below:
ESTIMATED IMPAIRMENT ON TRADE RECEIVABLES, LOANS RECEIVABLE AND ADVANCES TOINVESTEE COMPANIES
Management regularly reviews the recoverability and/or aging of the trade receivables, loans receivables andadvances to investee companies. Appropriate impairment for estimated irrecoverable amounts are recognised inprofit and loss when there is objective evidence that the asset is impaired.
In determining whether impairment for bad and doubtful debts is required, the Group takes into consideration theaging status and likelihood of collection. Specific allowance is only made for receivables that are unlikely to becollected and is recognised on the difference between the estimated future cash flow expected to receive discountedusing the original effective interest rate and its carrying value.
ALLOWANCE FOR PROPERTIES HELD FOR SALE
Management exercises its judgement in making allowance for properties held for sale with reference to the existingmarket environment, the sales performance in previous years and estimated market value of the properties, i.e. theestimated selling price, less estimated costs of selling expenses. A specific allowance for properties held for sale ismade if the estimated market value of the properties is lower than its carrying value.
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5. KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)
ESTIMATED IMPAIRMENT ON PROPERTIES UNDER DEVELOPMENT
Management regularly reviews the recoverability of the Group’s properties under development with reference to itsintended use and current market environment. Appropriate impairment for estimated irrecoverable amounts arerecognised in profit and loss when there is objective evidence that the asset is impaired.
In determining whether impairment on properties under development is required, the Group takes into considerationthe intended use of the properties, the current market environment, the estimated market value of the propertiesand/or the present value of future cash flow expected to receive. Impairment is recognised based on the higher ofestimated future cash flow and estimated market value.
6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s major financial instruments include investments in equity and debt securities, advances to investeescompanies, trade and other receivables, trade and other payables, borrowings bank balances with Liu Ching HingBank Limited and its subsidiaries and other bank balances. Details of these financial instruments are disclosed inrespective notes. The risks associated with these financial instruments and the policies on how to mitigate theserisks are set out below. Management manages and monitors these exposures to ensure appropriate measures areimplemented on a timely and effective manner.
MARKET RISK
(i) Currency risk
Certain trade and other receivables and loans receivable of the Group are denominated in foreign currencies.The Group currently does not have a foreign currency hedging policy. However, management monitors foreignexchange exposure and will consider hedging significant foreign currency exposure should the need arises.
(ii) Interest rate risk
The Group’s income and operating cash flows are substantially independent of changes in market interest ratesas the Group has no significant interest-bearing assets. The Group’s exposure to changes in interest rates ismainly attributable to its bank borrowings. Bank loans at variable rates expose the Group to cash flow interest-rate risk. Details of the Group’s bank borrowings have been disclosed in note 31.
The Group currently does not have an interest rate hedging policy. However, management monitors interestrate exposure and will consider hedging significant interest rate exposure should the need arises.
(iii) Other price risk
The Group’s available-for-sale investments and investments held for trading are measured at fair value at eachbalance sheet date. Therefore, the Group is exposed to equity security price risk. Management manages thisexposure by maintaining a portfolio of investments with different risk profiles.
CREDIT RISK
The Group’s principal financial assets include trade receivables, loans receivable, advances to investee companiesand cash and cash equivalents. The Group’s maximum exposure to credit risk in the event of counterparties’ failureto perform their obligations as at 31 December 2005 in relation to each class of recognised financial assets is thecarrying amount of those assets as stated in the consolidated balance sheet. In order to minimise the credit risk, themanagement of the Group has delegated a team responsible for determination of credit limits, credit approvalsand other monitoring procedures to ensure that follow-up action is taken to recover overdue debts.
In addition, the Group reviews the recoverable amount of each individual receivable at each balance sheet date toensure that adequate impairment losses are recognised for irrecoverable amounts. In this regards, the directors ofthe Group consider that the Group’s exposure to bad debts is minimal.
The credit risk on bank accounts with Liu Chong Hing Bank Limited and its subsidiaries and other bank balances islimited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
CREDIT RISK (CONTINUED)
With respect of credit risk arising from other major financial assets of the Group, the Group’s exposure to credit riskarising from default of counterparties is limited as the counterparties have good credit standing and the Groupdoes not expect any significant loss for uncollected advances/deposits from these entities.
The Group has no significant concentration of credit risk, with exposure spread over a number of counterparties.
7. REVENUE
Revenue represents the aggregate of the following amounts received and receivable during the year. An analysis ofthe Group’s revenue for the year, for both continuing and discontinued operations, is as follows:
2005 2004HK$’000 HK$’000
Continuing operations
Proceeds from disposal of properties 222,870 159,391
Gross rental income 96,074 101,749
Proceeds from disposal of listed investments 81,619 10,628
Sales of goods 30,579 29,118
Interest income 18,798 12,700
Property management and agency fees 12,296 13,876
Dividend income from unlisted investments 3,602 8,264
Dividend income from listed investments 628 2,918
Other income (Note) 81,734 –
548,200 338,644
Discontinued operation
Gross insurance premium 16,531 36,476
564,731 375,120
Note: During the year, Chong Yip Finance Limited (“CYFL”), a wholly-owned subsidiary of the Company entered into an agreement with anindependent third party under which CYFL advanced a loan of US$20 million (approximately HK$155,124,000) to that third party at prevailingmarket interest rate. Under this agreement, the third party would use the amount borrowed to subscribe for shares in a listed companyand 50% of any profit arising from the subsequent sale of such shares would be shared by CYFL. The sale of the above shares wascompleted prior to the balance sheet date and a profit of approximately HK$81,734,000 was recorded by CYFL. CYFL received full repaymentof the loan together with interest thereon, and the above profit from that independent third party prior to the balance sheet date.
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8. BUSINESS AND GEOGRAPHICAL SEGMENTS
BUSINESS SEGMENTS
For management purposes, the Group is currently organised in five operating divisions – property investment,property development, property management, treasury investment and banking and trading and manufacturing.These divisions are the basis on which the Group reports its primary segment information.
The Group was also involved in the insurance business which was discontinued on 29 June 2005, details are set outin note 12.
Segment information about these businesses is presented below:
Year ended 31 December 2005
DiscontinuingContinuing operations operation
TreasuryProperty Property Property investment Trading and Insurance
investment development management and banking manufacturing business Eliminations ConsolidatedHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
REVENUE
External sales 96,074 222,870 12,296 186,381 30,579 16,531 – 564,731
Inter-segment sales 432 – 4,472 182,952 – 464 (188,320 ) –
Total revenue 96,506 222,870 16,768 369,333 30,579 16,995 (188,320 ) 564,731
Inter-segment sales are charged at prevailing market rates.
RESULT
Segment result 116,938 (124,985 ) (976 ) 65,907 783 2,605 – 60,272
Finance costs (60,694 )
Share of results of associates 90 – – 184,023 – – – 184,113
Profit before taxation 183,691
Income tax expense (44,129 )
Profit for the year 139,562
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
8. BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
BALANCE SHEETAs at 31 December 2005
DiscontinuingContinuing operations operation
TreasuryProperty Property Property investment Trading and Insurance
investment development management and banking manufacturing business ConsolidatedHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
ASSETS
Segment assets 3,144,956 1,824,635 1,615 670,408 51,425 – 5,693,039
Interests in associates 1,945 – – 2,620,183 – – 2,622,128
Taxation recoverable 905
Unallocated corporate assets 54,796
Consolidated total assets 8,370,868
LIABILITIES
Segment liabilities 12,747 103,273 2,886 4,723 2,813 – 126,442
Deferred taxation 385,976
Unallocated corporate liabilities 2,273,174
Consolidated total liabilities 2,785,592
OTHER INFORMATIONYear ended 31 December 2005
DiscontinuingContinuing operations operation
TreasuryProperty Property Property investment Trading and Insurance
investment development management and banking manufacturing Others business ConsolidatedHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Impairment of advance toan investee company – – – 1,350 – – – 1,350
Impairment of bad anddoubtful debts – 15,418 – – – – – 15,418
Write-down of propertiesheld for sale to netrealisable value – 10,000 – – – – – 10,000
Capital additions 23,245 210,225 – – – – – 233,470
Deficit on revaluation ofleasehold land andbuildings charged tothe income statement – 38,673 – – – – – 38,673
Depreciation and amortisation 5,646 3,851 – – 2,670 782 120 13,069
Impairment loss recognisedin respect of available-for-saleinvestment – – – 37,005 – – – 37,005
Loss on disposal of property,plant and equipment – – – – – – 5,195 5,195
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8. BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
Year ended 31 December 2004
DiscontinuingContinuing operations operation
TreasuryProperty Property Property investment Trading and Insurance
investment development management and banking manufacturing business Eliminations ConsolidatedHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
(restated)
REVENUE
External sales 101,749 159,391 13,876 34,510 29,118 36,476 – 375,120
Inter-segment sales 864 – 4,635 247,242 – 822 (253,563 ) –
Total revenue 102,613 159,391 18,511 281,752 29,118 37,298 (253,563 ) 375,120
Inter-segment sales are charged at prevailing market rates.
RESULT
Segment result 78,172 (69,532 ) 2,882 (22,853 ) 234 3,248 – (7,849 )
Finance costs (22,176 )
Share of results of associates 42 – – 163,238 – – – 163,280
Profit before taxation 133,255
Income tax expense (23,969 )
Profit for the year 109,286
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
8. BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
BALANCE SHEET
As at 31 December 2004
DiscontinuingContinuing operations operation
TreasuryProperty Property Property investment Trading and Insurance
investment development management and banking manufacturing business ConsolidatedHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
(restated)
ASSETS
Segment assets 3,302,505 1,298,834 1,750 841,823 52,653 11,851 5,509,416
Interests in associates 1,853 – – 2,509,529 – – 2,511,382
Taxation recoverable 1,070
Unallocated corporate assets 25,422
Consolidated total assets 8,047,290
LIABILITIES
Segment liabilities 38,415 38,343 2,924 1,290 6,568 29,182 116,722
Deferred taxation 353,366
Unallocated corporate liabilities 2,199,207
Consolidated total liabilities 2,669,295
OTHER INFORMATION
Year ended 31 December 2004
DiscontinuingContinuing operations operation
TreasuryProperty Property Property investment Trading and Insurance
investment development management and banking manufacturing Others business ConsolidatedHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Write-down of for propertiesheld for sale to netrealisable value – 10,000 – – – – – 10,000
Capital additions 135 84,172 – – – 616 59 84,982
Deficit on revaluation ofleasehold land andbuildings charged tothe income statement – 19,912 – – – – – 19,912
Depreciation and amortisation 1,584 3,495 – – 1,179 730 103 7,091
Impairment loss recognisedin respect of investmentsecurities – – – 20,000 – – – 20,000
Loss on disposal of property,plant and equipment – 35 – – – – – 35
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8. BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
GEOGRAPHICAL SEGMENTS
The Group’s operations are located in Hong Kong and other parts of the People’s Republic of China (the “PRC”).Certain of the Group’s property development and trading and manufacturing business are located in the PRC.Others are located in Hong Kong.
The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin ofthe goods/services:
Sales revenue by Contribution togeographical market profit before taxation
Year ended Year ended Year ended Year ended31.12.2005 31.12.2004 31.12.2005 31.12.2004
HK$’000 HK$’000 HK$’000 HK$’000(restated)
Hong Kong 300,800 175,438 79,897 54,437
PRC 263,931 199,682 (80,319) (84,462)
564,731 375,120 (422) (30,025)
Share of results of associates 184,113 163,280
Profit before taxation 183,691 133,255
Revenue from the Group’s discontinued insurance business was derived principally from Hong Kong (2005:HK$16,531,000, 2004: HK$36,476,000).
The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipmentand properties under development, analysed by the geographical area in which the assets are located:
Additions to property,plant and equipment
Carrying amount and propertiesof segment assets under development
As at As at As at As at31.12.2005 31.12.2004 31.12.2005 31.12.2004
HK$’000 HK$’000 HK$’000 HK$’000
Hong Kong 3,382,671 3,381,480 22,820 810
PRC 2,375,620 2,126,755 210,650 84,172
Others 684 1,181 – –
5,758,975 5,509,416 233,470 84,982
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
9. FINANCE COSTS
2005 2004HK$’000 HK$’000
Interest on borrowings wholly repayable within five years:
Bank loans 72,285 33,400
Other borrowings 13,694 8,353
85,979 41,753
Less: Amount capitalised as cost of properties underdevelopment at a capitalisation rate of 2.79%(2004: 2.45%) per annum (25,285) (19,577)
60,694 22,176
10.SHARE OF RESULTS OF ASSOCIATES
2005 2004HK$’000 HK$’000
(restated)
Share of results of associates comprise:
Share of results of associates 212,731 194,623
Share of taxation of associates (32,328) (31,799)
Discount on acquisition of additional interest in an associate 3,710 –
Release of negative goodwill arising on acquisition of an associate – 456
184,113 163,280
11. INCOME TAX EXPENSE
Continuing Discontinuedoperations operations Consolidated
2005 2004 2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
(restated)
The charge comprises:
Hong Kong Profits Tax
Current year 11,519 11,556 – 513 11,519 12,069
Overprovision inprior years – (3 ) – – – (3 )
11,519 11,553 – 513 11,519 12,066
Deferred taxation
Current year 32,610 11,903 – – 32,610 11,903
44,129 23,456 – 513 44,129 23,969
Hong Kong Profits Tax is calculated at 17.5% (2004: 17.5%) of the estimated assessable profit for the year.
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11. INCOME TAX EXPENSE (CONTINUED)
The tax charge for the year can be reconciled to the profit per the income statement as follows:
2005 2004HK$’000 HK$’000
(restated)
Profit before taxation
– Continuing operations 181,086 130,007
– Discontinued operation 2,605 3,248
183,691 133,255
Hong Kong Profits Tax at the rate of 17.5% 32,146 23,320
Tax effect of share of results of associates (31,571) (28,575)
Tax effect of expenses not deductible for tax purpose 60,618 36,163
Tax effect of income not taxable for tax purpose (27,375) (6,536)
Overprovision in respect of prior years – (3)
Tax effect of tax losses not recognised 10,404 29
Tax effect of utilisation of tax losses previously not recognised (93) (1,593)
Tax effect of different tax rates of subsidiaries operating inother jurisdictions – 1,164
Tax charge for the year 44,129 23,969
12.DISCONTINUED OPERATION
On 3 March 2005, the Company and Liu Chong Hing Bank Limited (“LCH Bank”), an associate of the Company,entered into a conditional sale and purchase agreement pursuant to which LCH Bank agreed to acquire from theCompany the entire issued share capital of a wholly-owned subsidiary of the Company, Liu Chong Hing InsuranceCompany Limited (“LCH Insurance”) for a total consideration of HK$212 million. The disposal was completed on 29June 2005 and LCH Insurance became a wholly-owned subsidiary of LCH Bank.
The results of LCH Insurance represent the Group’s entire results of insurance business and a portion of results oftreasury investment and banking business. The results of insurance business for the period from 1 January 2005 to29 June 2005, were as follows:
Period Yearended ended
29.6.2005 31.12.2004HK$’000 HK$’000
Revenue 16,995 37,298
Direct costs (14,390) (34,050)
Profit before taxation 2,605 3,248
Income tax expense – (513)
Profit for the period/year 2,605 2,735
During the year, LCH Insurance contributed approximately HK$2,605,000 (2004: HK$2,735,000) to the Group’s profitfor the year and approximately HK$4,071,000 (2004: HK$2,435,000) to the Group’s cash flows.
The carrying amounts of the assets and liabilities of LCH Insurance at the date of disposal are disclosed in note 37.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
13.PROFIT FOR THE YEAR
Continuing Discontinuedoperations operation Consolidated
2005 2004 2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Profit for the year has beenarrived at after charging:
Directors’ emoluments(Note 14) 15,518 15,121 – – 15,518 15,121
Other staff costs 15,592 8,724 3,119 6,097 18,711 14,821
Staff retirement schemecontributions, net ofHK$187,000 (2004:HK$161,000) forfeitedcontributions 1,139 341 226 493 1,365 834
Total staff costs 32,249 24,186 3,345 6,590 35,594 30,776
Impairment of advance toan investee company 1,350 – – – 1,350 –
Write-down of propertiesheld for sale to netrealisable value 10,000 10,000 – – 10,000 10,000
Impairment of bad anddoubtful debts 15,418 – – – 15,418 –
Auditors’ remuneration 1,796 1,163 101 162 1,897 1,325
Depreciation andamortisation 12,949 6,988 120 103 13,069 7,091
Loss on disposal of property,plant and equipment 5,174 35 21 – 5,195 35
Operating lease rentalsin respect of land andbuildings 2,549 712 396 770 2,945 1,482
Realised loss on disposalof available-for-saleinvestments 1,730 – – – 1,730 –
and after crediting:
Imputed interest incomeon non-currentinterest-free loans toinvestee companies 3,193 – – – 3,193 –
Gross rental income frominvestment properties 96,074 101,749 – – 96,074 101,749
Less: direct operatingexpenses frominvestment propertiesthat generate rentalincome during the year 16,810 13,442 – – 16,810 13,442
direct operatingexpenses frominvestment propertiesthat did not generaterental income duringthe year 136 11 – – 136 11
79,128 88,296 – – 79,128 88,296
Realised gain on disposalof other investments – 3,745 – – – 3,745
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14.DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS
(a) Directors’ emoluments
The emoluments paid or payable to each of the 14 (2004: 16) directors were as fellows:
2005 2004Other emoluments: Other emoluments:
Salaries and Retirement Salaries and Retirementother scheme Total other scheme Total
Fees benefits contributions emoluments Fees benefits contributions emolumentsHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Liu Lit Man 80 – – 80 80 – – 80
Liu Lit Mo 40 7,493 183 7,716 40 6,603 183 6,826
Liu Lit Chi 40 – – 40 40 – – 40
Liu Kam Fai, Winston 40 2,491 114 2,645 40 2,522 105 2,667
Lee Wai Hung 40 1,491 149 1,680 40 1,431 143 1,614
Liu Lit Chung 40 2,171 59 2,270 40 2,347 59 2,446
Andrew Liu 40 – – 40 40 – – 40
Liu Chun Ning, Wilfred 40 560 47 647 40 560 44 644
Liu Kwun Shing, Christopher – – – – – – – –
The Hon. Woo Pak Chuen*** – – – – 120 – – 120
Lee Tung Hai, Leo 80 – – 80 80 – – 80
Peter Alan Lee Vine** 80 – – 80 80 – – 80
Ng Ping Kin, Peter 80 – – 80 80 – – 80
Cheng Mo Chi, Moses 80 – – 80 80 – – 80
Tong Tsin Ka* 80 – – 80 – – – –
Wai Chun Sing, Terence**** – – – – – 201 123 324
Total 760 14,206 552 15,518 800 13,664 657 15,121
* Tong Tsin Ka was appointed on 17 September 2004
** Peter Alan Lee Vine was deceased on 13 April 2005
*** The Hon. Woo Pak Chuen was resigned on 11 June 2004
**** Wai Chun Sing, Terence was resigned on 31 January 2004
(b) Emoluments of highest paid individuals
Of the five individuals with the highest emoluments in the Group, four (2004: four) individuals were directors ofthe Company whose emoluments are included in the disclosure set out in note (a) above. The emoluments ofthe remaining highest paid individual were as follows:
2005 2004HK$’000 HK$’000
Salaries and other benefits 1,527 1,485
Retirement scheme contributions 71 62
1,598 1,547
(c) During the year, no emoluments were paid by the Group to any of the directors or the five highest paid individuals(including directors and employees) as an inducement to join or upon joining the Group or as compensation forloss of office. None of the directors have waived any emoluments during the year.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
15.DIVIDENDS
2005 2004HK$’000 HK$’000
Interim dividend paid at HK$0.08 (2004: HK$0.07) per share 30,287 26,501
Proposed final dividend at HK$0.12 (2004: HK$0.10) per share 45,430 37,858
75,717 64,359
The final cash dividend of HK$0.12 (2004: HK$0.10) per share has been proposed by the directors and is subject toapproval by the shareholders in the forthcoming general meeting.
16.BASIC EARNINGS PER SHARE
FROM CONTINUING AND DISCONTINUED OPERATIONS
The calculation of the basic earnings per share attributable to the equity holders of the parent is based on the profitfor the year attributable to equity holders of the parent of HK$143,451,000 (2004: HK$109,248,000) and on 378,583,440(2004: 378,583,440) ordinary shares in issue during the year.
FROM CONTINUING OPERATIONS
The calculation of the basic earnings per share from continuing operations attributable to the equity holders of theparent is based on the following information:
Year ended 31 December
2005 2004HK$’000 HK$’000
(restated)
Earnings for the year attributable to equity holders of the parent 143,451 109,248
Less: Earnings for the year from discontinued operation (2,605) (2,735)
Earnings for the purpose of basic earnings per sharefrom continuing operations 140,846 106,513
The denominators used are the same as those detailed above for basic earnings per share from continuing anddiscontinued operations.
FROM DISCONTINUED OPERATION
Basic earnings per share for discontinued operation is HK0.69 cent (2004: HK0.72 cent) which is calculated based onthe profit for the year from discontinued operation of HK$2,605,000 (2004: HK$2,735,000). The denominators usedare the same as those detailed above for basic earnings per share from continuing and discontinued operations.
The adjustment to comparative basic earnings per share, arising from changes in accounting policies set out innote 2 above, is as follows:
Reconciliation of basic earnings per share for the year ended 31 December 2004
HK$
Reported figures before adjustments 0.28
Adjustments arising from changes in accounting policies 0.01
As restated 0.29
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17. INVESTMENT PROPERTIES
THE THEGROUP COMPANYHK$’000 HK$’000
FAIR VALUE
At 1 January 2004 3,258,150 680,000
Deficit on revaluation recognised in equity (34,100) –
At 31 December 2004 3,224,050 680,000
Currency realignment 27,910 –
Transfer to properties held for sale (213,000) –
Net increase (decrease) in fair value recognised in theincome statement 53,802 (20,000)
At 31 December 2005 3,092,762 660,000
During the year ended 31 December 2005, investment properties at fair values of approximately HK$213,000,000have been transferred to properties held for sale upon the change of intention of the management. The fair valuesof the Group’s investment properties at 31 December 2005 and upon the transfer to properties held for sale havebeen arrived at on the basis of a valuation carried out on that day by Vigers Appraisal & Consulting Ltd., anindependent firm of professional valuers not connected with the Group. Vigers Appraisal & Consulting Ltd. ismember of the Institute of Valuers, and have appropriate qualifications and recent experiences in the valuation ofsimilar properties in the relevant locations. The valuation, which conforms to International Valuation Standards, wasarrived at by reference to market evidence of transaction prices for similar properties.
All the Group’s leasehold lands on investment properties are held under operating leases.
A summary of the carrying values of investment properties is as follows:
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
Held under:
Long leases in Hong Kong 2,880,300 2,616,749 660,000 680,000
Long-term land use right in the PRC 188,462 588,301 – –
Medium-term leases in Hong Kong 24,000 19,000 – –
3,092,762 3,224,050 660,000 680,000
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
18.PROPERTY, PLANT AND EQUIPMENT
Furniture,fixtures,
Leasehold motor vehiclesland and Plant and and computerbuildings machinery equipment TotalHK$’000 HK$’000 HK$’000 HK$’000
THE GROUP
COST OR VALUATION
At 1 January 2004 83,968 27,309 33,428 144,705
Additions – – 3,589 3,589
Disposals – – (828) (828)
Deficit on revaluation (27,784) – – (27,784)
At 31 December 2004 56,184 27,309 36,189 119,682
Currency realignment 2,792 2,284 1,311 6,387
Additions – 56 23,189 23,245
Disposal of a subsidiary – – (4,563) (4,563)
Disposals – – (9,480) (9,480)
Deficit on revaluation (41,374) – – (41,374)
At 31 December 2005 17,602 29,649 46,646 93,897
Comprising:
At cost – 29,649 46,646 76,295
At valuation – 2005 17,602 – – 17,602
17,602 29,649 46,646 93,897
DEPRECIATION AND AMORTISATION
At 1 January 2004 – 11,237 22,827 34,064
Charged for the year 2,214 1,179 3,698 7,091
Eliminated on disposals – – (793) (793)
Deficit on revaluation (2,214) – – (2,214)
At 31 December 2004 – 12,416 25,732 38,148
Currency realignment – 733 152 885
Charged for the year 2,709 2,670 7,690 13,069
Disposal of a subsidiary – – (3,795) (3,795)
Eliminated on disposals – – (4,285) (4,285)
Deficit on revaluation (2,709) – – (2,709)
At 31 December 2005 – 15,819 25,494 41,313
CARRYING VALUES
At 31 December 2005 17,602 13,830 21,152 52,584
At 31 December 2004 56,184 14,893 10,457 81,534
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18.PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Land and Furniture,building held fixtures,
in the PRC motor vehiclesunder a long-term and computer
use right equipment TotalHK$’000 HK$’000 HK$’000
THE COMPANY
COST OR VALUATION
At 1 January 2004 364 10,488 10,852
Additions – 617 617
Disposals – (387) (387)
At 31 December 2004 364 10,718 11,082
Additions – 530 530
At 31 December 2005 364 11,248 11,612
Comprising:
At cost – 11,248 11,248
At valuation – 2005 364 – 364
364 11,248 11,612
DEPRECIATION AND AMORTISATION
At 1 January 2004 – 8,870 8,870
Charged for the year 8 721 729
Eliminated on disposals – (386) (386)
Surplus on revaluation (8) – (8)
At 31 December 2004 – 9,205 9,205
Charged for the year 8 775 783
Surplus on revaluation (8) – (8)
At 31 December 2005 – 9,980 9,980
CARRYING VALUES
At 31 December 2005 364 1,268 1,632
At 31 December 2004 364 1,513 1,877
The above items of property, plant and machinery are depreciated on a straight-line basis at he following rates perannum:
Leasehold land and buildings Over the shorter of the term of the lease or 3%
Plant and machinery 10%
Furniture, fixtures, motor vehicles andcomputer equipment 10 – 20%
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
18.PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
A summary of the carrying values of land and buildings held by the Group, which are all situated in the PRC, is asfollows:
2005 2004HK$’000 HK$’000
Held under:
Long-term land use rights 14,364 52,674
Medium-term land use rights 3,238 3,510
17,602 56,184
The leasehold land and buildings of the Group were valued on 31 December 2005 by Vigers Appraisal & ConsultingLtd., an independent firm of professional valuers, on an open market value basis. Vigers Appraisal & ConsultingLtd., is not connected with the Group.
The resulting deficit arising on revaluation of the Group amounting to approximately HK$38,665,000 (2004:HK$25,570,000) has been dealt with as follows:
(i) a deficit of approximately HK$38,673,000 (2004: HK$19,912,000) has been charged to the income statement;and
(ii) a surplus of approximately HK$8,000 has been credited to the other property revaluation reserve (2004: a deficitof approximately HK$5,658,000 has been charged to the other property revaluation reserve).
The resulting surplus arising on revaluation of the Company amounting to HK$8,000 (2004: HK$8,000) has beencredited to other property revaluation reserve.
The amount of land and buildings of the Group and of the Company that would have been included in the financialstatements at the balance sheet date had the assets been carried at historical cost less accumulated depreciationand accumulated impairment loss is approximately HK$17,602,000 and HK$173,000 (2004: HK$56,184,000 andHK$177,000) respectively.
19.PROPERTIES UNDER DEVELOPMENT
2005 2004HK$’000 HK$’000
COST
At beginning of the year 802,693 720,406
Currency realignment 16,342 –
Additions 193,883 82,287
At end of the year 1,012,918 802,693
Included in properties under development is net interest capitalised of approximately HK$271,347,000 (2004:HK$246,062,000). The properties are developed for future use as investment properties.
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20. INVESTMENT IN SUBSIDIARIES
THE COMPANY
2005 2004HK$’000 HK$’000
Cost of unlisted shares/capital contribution 319,095 286,413
Less: Impairment loss recognised (10,000) (34,372)
309,095 252,041
Particulars of the Company’s principal subsidiaries as at 31 December 2005 are as follows:
Proportion ofnominal value
Place of Issued of issuedincorporation or ordinary capital/registeredestablishment/ share capital/ capital held
Name of subsidiary operations registered capital by the Company Principal activitiesDirectly Indirectly
% %
Liu Chong Hing Estate Hong Kong HK$10,000,000 100 – Investment holdingCompany, Limited
Liu Chong Hing Godown Hong Kong HK$72,000,000 100 – Property investmentCompany, Limited
Liu Chong Hing Property Hong Kong HK$1,000,000 100 – Property managementManagement and and agencyAgency Limited
Abaleen Enterprises Limited Hong Kong HK$100,000 100 – Property investment
Alain Limited (“Alain”) Hong Kong HK$9,500 100 – Investment holding
Bonsun Enterprises Limited Hong Kong HK$2,000,000 100 – Property investment
Chong Yip Finance Limited Hong Kong HK$1,000,000 100 – Money lending
Devon Realty Limited Hong Kong HK$200 100 – Property investment
Donington Company Limited Hong Kong HK$200 100 – Property investment
Gem Gain Enterprises Hong Kong HK$30 100 – Investment holdingLimited
Great Earnest Limited Hong Kong HK$200 100 – Property investment
Heng Kin Investment Limited Hong Kong HK$2 100 – Property investment
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20. INVESTMENT IN SUBSIDIARIES (CONTINUED)
Proportion ofnominal value
Place of Issued of issuedincorporation or ordinary capital/registeredestablishment/ share capital/ capital held
Name of subsidiary operations registered capital by the Company Principal activitiesDirectly Indirectly
% %
Jacot Limited Hong Kong HK$2 100 – Investment holding
Ko Yew Company Limited Hong Kong HK$200 100 – Property investment
Luxpolar Limited Hong Kong HK$2 – 100 Property investment
Marble Kingdom Limited Hong Kong HK$2 100 – Investment holding
Queen Profit International Hong Kong HK$61,540 83.75 – Investment holdingInvestment Limited
Speed World Investment Hong Kong HK$100 – 60 Investment holdingLimited
Top Team Limited Hong Kong HK$200 100 – Investment holding
Wealth Good Investment Hong Kong HK$2 100 – Investment holdingLimited
Yue Tung Ching Kee Hong Kong HK$2,000,000 100 – Property investmentCompany Limited
Guangzhou Chong Hing PRC RMB170,000,000 – 60 Property developmentProperty DevelopmentCompany Limited(“Guangzhou Chong Hing”)
Maanshan Gaoke PRC RMB41,000,000 – 51.5 Manufacturing ofMagnetic Material magnetic materialsCompany Limited(“Maanshan Gaoke”)
Shanghai Huang Pu PRC US$27,000,000 – 95 Property developmentLiu Chong HingProperty DevelopmentCompany Limited(“Shanghai Huang Pu”)
China Link Technologies British Virgin US$100 100 – Investment holdingLimited Islands/
Hong Kong
Determined Resources British Virgin US$1,000 100 – Share investmentLimited Islands/
Hong Kong
Terryglass Limited British Virgin US$1,000 100 – Investment holdingIslands/Thailand
Guangzhou Chong Hing is a sino-foreign cooperative enterprise while Maanshan Gaoke and Shanghai Huang Puare sino-foreign equity joint ventures established in the PRC.
None of the subsidiaries had issued any debt securities at the end of the year.
The above table lists the subsidiaries of the Group which, in the opinion of the directors, principally affected theresults or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result inparticulars of excessive length.
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21. INTERESTS IN ASSOCIATES
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
(restated)
Cost of investments in associates
– Listed in Hong Kong 235,058 209,812 – –
– Unlisted 3 3 3 3
Share of post-acquisition reserves,net of dividends received 2,378,092 2,301,567 – –
2,613,153 2,511,382 3 3
Fair value of listed investments 2,449,491 2,323,734 – –
Negative goodwill with carrying amount of approximately HK$8,670,000 as at 31 December 2004 was presented asa deduction from the cost of investments in associates. In prior years, negative goodwill was released to income ona straight-line basis of 20 years, representing the remaining weighted average useful life of the depreciable assetsacquired. The amount of negative goodwill released to the income statement for the year ended 31 December2004 was approximately HK$456,000. All negative goodwill was derecognised on 1 January 2005 upon the applicationof HKFRS 3 (see note 3). The movement of negative goodwill is set out below.
HK$’000
GROSS AMOUNT
Arising on acquisition of additional interest in an associateduring the year and at 31 December 2004 9,126
Derecognised upon the application of HKFRS 3 (see note 2) (9,126)
At 31 December 2005 –
RELEASED TO INCOME
Released for the year and at 31 December 2004 (456)
Derecognised upon the application of HKFRS 3 (see note 2) 456
At 31 December 2005 –
CARRYING AMOUNT
At 31 December 2005 –
At 31 December 2004 8,670
During the year, a discount on acquisition of approximately HK$3,710,000 arising on the acquisition of additionalinterest in LCH Bank has been included as income in the determination of the Group’s share of results of associates.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
21. INTERESTS IN ASSOCIATES (CONTINUED)
The summarised financial information in respect of the Group’s associates is set out below:
2005 2004HK$’000 HK$’000
(restated)
Total assets 49,977,669 41,366,145
Total liabilities (44,140,647) (35,802,788)
Net assets 5,837,022 5,563,357
The Group’s share of net assets of associates 2,664,207 2,520,052
Revenue 1,719,629 990,985
Profit for the year 398,163 359,940
The Group’s share of results of associates for the year 180,403 162,824
Particulars of the Group’s principal associates as at 31 December 2005 are as follows:
Proportionof nominal value
Form of Place of of issued Proportionbusiness incorporation/ Class of capital held of voting
Name of associate structure operations share held by the Group power held Principal activity
LCH Bank Incorporated Hong Kong Ordinary 45.8% 45.8% Banking business(listed in Hong Kong)
Falconmate Limited Incorporated Hong Kong Ordinary 50% 50% Property investment
The above table lists the associates of the Group which, in the opinion of the directors, principally affected theresults of the year or form a substantial portion of the net assets of the Group. To give details of other associateswould, in the opinion of the directors, result in particulars of excessive length.
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22. INVESTMENTS IN SECURITIES
Investments in securities as at 31 December 2004 are set out below. Upon the application of HKAS 39 on 1 January2005, investments in securities have been reclassified to appropriate categories under HKAS 39 (see note 3 fordetails).
Held-to-maturity Investment Other
securities securities investments TotalHK$’000 HK$’000 HK$’000 HK$’000
THE GROUP
Equity securities:
Listed in Hong Kong – – 72,686 72,686
Listed overseas – – 1,181 1,181
Unlisted – 62,309 248,168 310,477
– 62,309 322,035 384,344
Unlisted debt securities 66,280 – – 66,280
Total:
Listed in Hong Kong – – 72,686 72,686
Listed overseas – – 1,181 1,181
Unlisted 66,280 62,309 248,168 376,757
66,280 62,309 322,035 450,624
Market value of listed securities:
Listed in Hong Kong – – 72,686 72,686
Listed overseas – – 1,181 1,181
– – 73,867 73,867
Carrying amount analysedfor reporting purposes as:
Current 7,800 – 3,880 11,680
Non-current 58,480 62,309 318,155 438,944
66,280 62,309 322,035 450,624
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
22. INVESTMENTS IN SECURITIES (CONTINUED)
Held-to–maturity Investment Other
securities securities investments TotalHK$’000 HK$’000 HK$’000 HK$’000
THE COMPANY
Equity securities:
Listed in Hong Kong – – 3,880 3,880
Listed overseas – – 241 241
Unlisted – 2,715 87,060 89,775
– 2,715 91,181 93,896
Unlisted debt securities 66,280 – – 66,280
Total:
Listed in Hong Kong – – 3,880 3,880
Listed overseas – – 241 241
Unlisted 66,280 2,715 87,060 156,055
66,280 2,715 91,181 160,176
Market value of listed securities:
Listed in Hong Kong – – 3,880 3,880
Listed overseas – – 241 241
– – 4,121 4,121
Carrying amount analysedfor reporting purposes as:
Current 7,800 – 3,880 11,680
Non-current 58,480 2,715 87,301 148,496
66,280 2,715 91,181 160,176
23.AVAILABLE-FOR-SALE INVESTMENTS
Available-for-sale investments as at 31 December 2005 comprise:
THE THEGROUP COMPANYHK$’000 HK$’000
Equity securities listed outside Hong Kong, at fair value 686 139
Unlisted equity securities, at fair value 241,787 80,681
Unlisted equity securities, at cost less impairment 26,739 26,739
269,212 107,559
As at the balance sheet date, except for those unlisted equity investments of which their fair values cannot bemeasured reliably, all available-for-sale investments are stated at fair value. Fair values of those investments havebeen determined by reference to bid prices quoted in active markets or by reference to present value of estimatedfuture cash flows discounted at effective interest rate computed at initial recognition.
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23.AVAILABLE-FOR-SALE INVESTMENTS (CONTINUED)
The above unlisted investments stated at cost less impairment represent investments in unlisted equity securitiesissued by private entities incorporated in Hong Kong. They are measured at cost less impairment at each balancesheet date because the range of reasonable fair value estimates is so wide that the directors of the Company are ofthe opinion that their fair values cannot be measured reliably.
During the year, the directors have reviewed the carrying value of the Group’s available-for-sale investments anddetermined that the recoverable amount of certain available-for-sale investments is below their carrying value withreference to present value of estimated future cash flows discounted at the effective interest rate computed atinitial recognition. Accordingly, an impairment loss at the amount of approximately HK$37,005,000 had been chargedto the income statement.
24.PREPAID LEASE PAYMENTS
2005 2004HK$’000 HK$’000
The Group’s prepaid lease payments comprises:
Leasehold land held under medium-term land use right in the PRC 34,882 35,775
Analysed for reporting purposes as:
Current assets 894 894
Non-current assets 33,988 34,881
34,882 35,775
25.AMOUNTS DUE FROM SUBSIDIARIES
THE COMPANY
The amounts due from subsidiaries are unsecured and have no fixed repayment terms. Of the amounts, approximatelyHK$1,350,991,000 (2004: HK$1,404,317,000) bears interest at prevailing market rate (repricing semi-annually) andthe remaining balance is non-interest bearing. In the opinion of the Company’s directors, the amounts due fromsubsidiaries will not be repayable in the next twelve months of the balance sheet date and, accordingly, the amountshave been classified as non-current assets.
The fair values of the Company’s amounts due from subsidiaries at the balance sheet date, determined based onthe present value of the estimated future cash flows discounted using the prevailing market rate at the balancesheet date, approximate the corresponding carrying amounts.
26.ADVANCES TO INVESTEE COMPANIES
The advances are unsecured and have no fixed repayment terms. Of the advances, HK$5,500,000 (2004: HK$4,927,000)bears interest at prevailing market interest rate and the remaining balance is non-interest bearing. In the opinion ofthe Company’s directors, the investee companies will not fully repay the advances in the next twelve months of thebalance sheet date and, accordingly, the advances have been classified as non-current assets.
The fair values of the Group’s advances to investee companies at the balance sheet date, determined based on thepresent value of the estimated future cash flows discounted using the prevailing market rate at the balance sheetdate, approximate the corresponding carrying amounts.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
27.LOANS RECEIVABLE
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
Fixed-rate loan receivable 20,000 – – –
Variable-rate loans receivable 69,339 9,627 66,281 –
89,339 9,627 66,281 –
Carrying amount analysed forreporting purposes:
Current assets (receivable within 12months from the balance sheet date) 21,080 6,138 – –
Non-current assets (receivable after12 months from the balancesheet date) 68,259 3,489 66,281 –
89,339 9,627 66,281 –
Loan receivables comprise:
Effective Carrying amountMaturity date Collateral interest rate 2005 2004
HK$’000 HK$’000
HK$20,000,000 fixed-rate 30 June 2006 Listed equity 10% 20,000 –loan receivable securities in
Hong Kong
US$3,000,000 5 years 5 March 2009 – 4.30% and repricing 23,400 –variable-rate loan receivable semi-annually
US$2,000,000 10 years 8 August 2013 – 1.51% and 15,600 –variable-rate loan receivable repricing quarterly
US$1,000,000 3 years 12 April 2008 – 4.55% and repricing 7,800 –variable-rate loan receivable semi-annually
US$1,000,000 31/2 years 11 January 2009 – 3.55% and 7,800 –variable-rate loan receivable repricing quarterly
US$997,500 7 yearsvariable-rate loan receivable 27 May 2011 – 4.55% and repricing 7,781 –
semi-annually
Others 6,958 –
89,339 –
The Group’s loans receivable that are denominated in currencies other than the functional currency of the relevantgroup entities are set out below:
Denominated in US$HK$’000
As at 31 December 2005 66,281
As at 31 December 2004 –
The directors consider that the carrying amounts of loans receivable approximate their fair value.
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28. INVENTORIES
THE GROUP
2005 2004HK$’000 HK$’000
Raw materials 7,223 1,710
Work in progress 1,178 845
Finished goods 1,140 5,778
9,541 8,333
The cost of inventories recognised as an expense during the year amounted to approximately HK$26,240,000(2004: HK$25,458,000).
29.TRADE AND OTHER RECEIVABLES
The Group operates a controlled credit policy and allows an average credit period of 30 – 90 days to its tradecustomers, other than customers for sales of properties, who satisfy the credit evaluation. Proceeds receivable forsales of properties are receivable according to the terms of sale and purchase agreements. The aged analysis oftrade receivables of HK$57,742,000 (2004: HK$70,117,000) which are included in trade and other receivables is asfollows:
2005 2004HK$’000 HK$’000
Within 30 days 42,877 61,111
Between 31 days to 90 days 12,114 3,612
Over 90 days 2,751 5,394
57,742 70,117
The Company has no trade receivables at the balance sheet date.
The fair values of the Group’s and of the Company’s trade and other receivables at the balance sheet date approximatethe corresponding carrying amounts.
30. INVESTMENTS HELD FOR TRADING
THE GROUP AND THE COMPANY
Investments held for trading as at 31 December 2005 represents equity securities listed in Hong Kong which aredetermined based on the quoted market bid prices available on The Stock Exchange of Hong Kong Limited.
31.TRADE AND OTHER PAYABLES
At the balance sheet date, included in trade and other payables are trade payables of HK$21,817,000 (2004:HK$36,615,000) and the aged analysis is as follows:
2005 2004HK$’000 HK$’000
Within 30 days 14,616 19,375
Between 31 days to 90 days 1,278 2,620
Over 90 days 5,923 14,620
21,817 36,615
The Company has no trade payables at the balance sheet date.
The fair values of the Group’s and of the Company’s trade and other payables at the balance sheet date approximatethe corresponding carrying amounts.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
32.BORROWINGS
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
Bank loans
Secured 357,450 221,050 117,900 178,000
Unsecured 1,895,619 1,961,000 1,895,619 1,961,000
Total bank borrowings 2,253,069 2,182,050 2,013,519 2,139,000
Amounts due to associates (note (i)) 220 1,211 220 1,211
Amounts due to minorityshareholders (note (ii)) 16,836 15,946 – –
2,270,125 2,199,207 2,013,739 2,140,211
The maturity of borrowings is as follows:
Bank borrowings
On demand or within one year 703,863 1,045,000 703,863 1,045,000
More than one year but notexceeding two years 949,349 552,000 709,799 552,000
More than two years but notexceeding five years 599,857 585,050 599,857 542,000
Total bank borrowings 2,253,069 2,182,050 2,013,519 2,139,000
Less: Amount due within one yearshown under current liabilities (703,863) (1,045,000) (703,863) (1,045,000)
1,549,206 1,137,050 1,309,656 1,094,000
Amounts due to associates (note (i)) 220 1,211 220 1,211
Amounts due to minorityshareholders (note (ii)) 16,836 15,946 – –
Amounts due after one year 1,566,262 1,154,207 1,309,876 1,095,211
Notes:
(i) These borrowings are unsecured, bear interest at prevailing market rates (repricing monthly) and have no fixed repayment terms. The amountwill not be repaid in the next twelve months of the balance sheet date and, accordingly, the amounts have been classified as non-currentliabilities.
(ii) These borrowings are unsecured, non-interest bearing and have no fixed repayment terms. The amount will not be repaid in the nexttwelve months of the balance sheet date and, accordingly, the amounts have been classified as non-current liabilities.
All of the bank loans are variable-rate borrowings which carry interest ranging from 4.77% to 5.32% (2004: 0.67% to1.17%). Interest rates are repricing monthly. Details of assets pledged are set out in note 40.
The directors consider that the carrying amounts of bank borrowings approximate their fair value.
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33.DEFERRED TAXATION
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereonduring the current and prior reporting periods.
THETHE GROUP COMPANY
OtherAccelerated taxable Revaluation Accelerated
tax temporary of taxdepreciation differences properties Tax losses Total depreciation
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2004, as originally stated 19,131 17,481 14,743 (17,481) 33,874 11,478
Effects of changes in accountingpolicies (Note 3) – – 309,981 – 309,981 44,781
At 1 January 2004, as restated 19,131 17,481 324,724 (17,481) 343,855 56,259
Charge (credit) to income statementfor the year 2,933 9,651 – (681) 11,903 2,232
Credit to equity for the year – – (2,392) – (2,392) –
At 31 December 2004 22,064 27,132 322,332 (18,162) 353,366 58,491
Charge (credit) to income statement for the year 275 (26,119) 45,133 13,321 32,610 (1,328)
At 31 December 2005 22,339 1,013 367,465 (4,841) 385,976 57,163
For the purposes of balance sheet presentation, certain deferred tax assets and liabilities have been offset. Thefollowing is the analysis of the deferred tax balances for financial reporting purposes:
THE GROUP
2005 2004HK$’000 HK$’000
(restated)
Deferred tax liabilities (390,817) (371,528)
Deferred tax assets 4,841 18,162
(385,976) (353,366)
At the balance sheet date, the Group had unused tax losses of HK$294 million (2004: HK$313 million) available foroffset against future profits. A deferred tax asset has been recognised in respect of HK$12 million (2004: HK$55million) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$282 million (2004:HK$258 million) due to the unpredictability of future profit streams.
The Company has no unused tax losses at the balance sheet date.
34.NON-INTEREST BEARING ADVANCES FROM SUBSIDIARIES
The amounts are unsecured, non-interest bearing and have no fixed repayment terms. The amount will not bedemanded for repayment in the next twelve months of the balance sheet date and, accordingly, the amounts havebeen classified as non-current liabilities.
The fair values of the Company’s amounts due to subsidiaries at the balance sheet date, determined based on thepresent value of the estimated future cash flows discounted using the prevailing market rate at the balance sheetdate, approximate the corresponding carrying amounts.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
35.SHARE CAPITAL
2005 & 2004HK$’000
Ordinary shares of HK$1 each
Authorised:
At 1 January and 31 December 600,000
Issued and fully paid:
At 1 January and 31 December 378,583
36.RESERVES
Investment Otherproperty property Investment Capital
revaluation revaluation revaluation redemption Dividend Accumulatedreserve reserve reserve reserve reserve profits Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
THE COMPANY
At 1 January 2004 as originally stated 296,387 192 – 2,955 37,858 837,707 1,175,099
Effects of changes in accountingpolicies (Note 3) (44,781 ) – – – – – (44,781 )
At 1 January 2004 as restated 251,606 192 – 2,955 37,858 837,707 1,130,318
Surplus on revaluation recogniseddirectly in equity – 8 – – – – 8
Profit for the year – – – – – 82,547 82,547
Total recognised income for the year – 8 – – – 82,547 82,555
Dividend declared – – – – 64,359 (64,359 ) –
Dividend paid – – – – (64,359 ) – (64,359 )
At 31 December 2004 as restated 251,606 200 – 2,955 37,858 855,895 1,148,514
Effects of changes in accountingpolicies (Note 3) (251,606 ) – – – – 252,199 593
At 1 January 2005 as restated – 200 – 2,955 37,858 1,108,094 1,149,107
Surplus on revaluation recogniseddirectly in equity – 8 10,733 – – – 10,741
Profit for the year – – – – – (28,471 ) (28,471 )
Total recognised income for the year – 8 10,733 – – (28,471 ) (17,730 )
Dividend declared – – – – 75,717 (75,717 ) –
Dividend paid – – – – (68,145 ) – (68,145 )
At 31 December 2005 – 208 10,733 2,955 45,430 1,003,906 1,063,232
The Company’s reserves available for distribution to shareholders at 31 December 2005 amounted to HK$1,049,336,000(2004: HK$893,753,000), being its accumulated profits and dividend reserve at that date.
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37.DISPOSAL OF A SUBSIDIARY
As explained in note 12, on 29 June 2005, the Group discontinued its insurance business at the time of disposal ofits subsidiary, LCH Insurance. The net assets of LCH Insurance at the date of disposal and at 31 December 2004were as follows:
29.6.2005 31.12.2004HK$’000 HK$’000
NET ASSETS DISPOSED OF
Property, plant and equipment 768 176
Available-for-sale investments 26,722 109,051
Investments held for trading 257 257
Trade and other receivables 9,473 11,675
Trade and other payables (27,827) (29,182)
Taxation payable (299) (299)
Bank balances and cash 90,410 74,452
99,504 166,130
Unrealised gain on disposal included in interests in associates (Note i) 51,144
Gain on disposal of interest in a subsidiary (Note ii) 61,352
Total consideration 212,000
Satisfied by:
Cash 212,000
Net cash inflow arising on disposal:
Cash consideration 212,000
Bank balances and cash disposed of (90,410)
121,590
The impact of LCH Insurance on the Group’s results and cash flows in the current and prior year is disclosed in note 12.
Notes:
(i) Unrealised gain on disposal represents the unrealised gain resulting from the disposal of interest in LCH Insurance to LCH Bank to theextent of the Group’s interests in LCH Bank, which was included in interests in associates.
(ii) The gain on disposal of interest in a subsidiary represents the disposal of the Group’s interests in its insurance business, which was discontinuedduring the year ended 31 December 2005, and a portion of its business included in the Group’s treasury investment and banking segment.The full amount has been disclosed under the continuing operations of the Group as, in the opinion of the directors, it is not practicableto quantify the relevant gain attributable to the respective business activities.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
38.MAJOR NON-CASH TRANSACTION
During the year ended 31 December 2005, investment properties at the amount of approximately HK$213,000,000(2004: Nil) were transferred to properties held for sale.
39.SHARE OPTION SCHEME
The Company’s share option scheme (the “Scheme”), was adopted pursuant to a resolution passed on 25 April2002, which replaced the previous share option scheme, for the primary purpose of providing incentives to directorsand eligible employees, and will expire on 24 April 2012. Under the Scheme, the Company may grant options toeligible employees, including executive directors of the Company and its subsidiaries, to subscribe for shares in theCompany at HK$10 per option. Additionally, the Company may, from time to time, grant share options to outsideeligible third parties at the discretion of the Board of Directors.
The total number of shares in respect of which options may be granted under the Scheme is not permitted toexceed 10% of the shares of the Company in issue at any point in time, without prior approval from the Company’sshareholders. The number of shares in respect of which options may be granted to any individual is not permittedto exceed 10% of the shares of the Company in issue at any point in time, without prior approval from the Company’sshareholders.
Options may be exercised at any time from the date of grant of the share option to the 5th anniversary of the date ofgrant. The exercise price is determined by the directors of the Company, and will not be less than the higher of thenominal value of the Company’s share on the date of grant, the average closing price of the shares for the fivebusiness days immediately preceding the date of grant, or the closing price of the shares on the date of grant.
No options have been granted under the above-mentioned scheme since the Scheme was adopted.
40.PLEDGE OF ASSETS
THE GROUP
At the balance sheet date, certain investment properties of the Group with an aggregate carrying value ofHK$925,000,000 (2004: HK$1,109,000,000) were pledged to banks to secure general banking facilities granted tothe Group.
THE COMPANY
At the balance sheet date, the investment properties of the Company with an aggregate carrying value ofHK$660,000,000 (2004: HK$680,000,000) were pledged to banks to secure general banking facilities made availableto the Company. In addition, the Company also pledged the shares of a subsidiary in favour of a bank againstfacilities granted to that subsidiary.
41.CAPITAL COMMITMENTS
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
Capital expenditure in respect ofproperty development expenditurecontracted for but not provided inthe financial statements 506,611 582,566 – –
Capital expenditure in respect of thecontributions to the capital of aninvestee contracted for but notprovided in the financial statements 119,401 20,147 119,401 20,147
626,012 602,713 119,401 20,147
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42.OPERATING LEASE COMMITMENTS
THE GROUP AS LESSEE
At the balance sheet date, the Group and the Company had commitments for future minimum lease paymentsunder non-cancellable operating leases in respect of land and buildings which fall due as follows:
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
Within one year 80 192 80 192
In the second to fifth year inclusive – 80 – 80
80 272 80 272
Operating lease payments represent rentals payable for certain of its office properties. Leases are negotiated for anaverage term of two years and rentals are fixed throughout the leases period.
THE GROUP AS LESSOR
Property rental income earned by the Group during the year amounted to approximately HK$96 million (2004:HK$102 million). Most of the properties held have committed tenants for the next one to five years.
At the balance sheet date, the Group and the Company had contracted with tenants for the following futureminimum lease payments:
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
Within one year 54,828 73,354 12,858 14,324
In the second to fifth year inclusive 39,015 45,521 11,351 9,400
93,843 118,875 24,209 23,724
43.RETIREMENT BENEFITS SCHEME
The Group operates an ORSO Scheme for the qualifying employees of certain companies in the Group and inDecember 2000, enrolled all other eligible employees into the MPF Scheme. The ORSO Scheme is registeredunder the Occupational Retirement Scheme Ordinance. The assets of both schemes are held separately from thoseof the Group, in funds under the control of trustees.
The contributions payable to the fund by the Group are charged to income statement at rates specified in the rulesof the ORSO Scheme. Where there are employees who leave the ORSO Scheme prior to vesting fully in thecontributions, the contributions payable by the Group are reduced by the amount of forfeited contributions. At thebalance sheet date, HK$187,000 (2004: HK$161,000) forfeited contributions arising upon employees leaving theORSO Scheme are available to reduce the contributions payable in the future years.
The retirement benefits cost for the MPF charged to the income statement represents contributions payable to thefund by the Group at rates specified in the rules of the MPF Scheme.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005
44. RELATED PARTY DISCLOSURES
(a) Related party transactions
During the year, the Group and the Company entered into the following significant transactions with relatedparties:
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
Income receive and receivable froman associateRental income 8,259 7,728 8,259 7,728
Management and other service feeincome 4,370 4,071 4,370 4,071
Interest income 1,882 53 1,882 53
14,511 11,852 14,511 11,852
Income received and receivable fromsubsidiariesRental income – – 432 864
Management and other service feeincome – – 1,604 1,767
Interest income – – 74,987 47,113
– – 77,023 49,744
Expenses paid and payable toan associateInterest expenses 47 322 47 322
Rental expenses 1,334 1,334 1,334 1,334
1,381 1,656 1,381 1,656
Expenses paid and payable tosubsidiaries Management feeexpenses – – 240 240
As set out in note 12, pursuant to a sale and purchase agreement entered into between the Companyand LCH Bank on 3 March 2005, LCH Bank acquired from the Company the entire issued share capital ofLCH Insurance for a total consideration of HK$212 million. Details of this disposal are set out in the Company’sannouncement dated 14 March 2005.
Also, pursuant to a sale and purchase agreement entered into between the Company and LCH Bank on 16March 2004, the Company acquired from LCH Bank approximately 47.37% of the issued share capital of Alain,which was held as to approximately 52.63% by the Company and 47.37% by LCH Bank and a shareholder’s loanof approximately HK$130 million advanced by LCH Bank to Alain together with interest accrued thereon, at aconsideration of HK$132 million. Details of this acquisition are set out in the Company’s announcement dated16 March 2004.
Furthermore, at 31 December 2004, certain investment properties of the Group with an aggregate net bookvalue of HK$429 million had been pledged to LCH Bank Group to secure banking facilities granted to theGroup. This security was released during the year ended 31 December 2005.
(b) Related party balances
Details of the Group’s outstanding balances with related parties, including bank accounts with Liu Chong HingBank Limited and its subsidiaries, at 31 December 2005, are set out in the balance sheets and notes 25, 32 and34.
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44. RELATED PARTY DISCLOSURES (CONTINUED)
(c) Compensation of key management personnel
The emoluments of directors and other members of key management of the Group and of the Company duringthe year was as follows:
THE GROUP THE COMPANY
2005 2004 2005 2004HK$’000 HK$’000 HK$’000 HK$’000
Short-term benefits 14,966 14,464 14,966 14,464
Post-employment benefits 552 657 552 657
15,518 15,121 15,518 15,121
The emoluments of directors and key executives is determined by the remuneration committee having regardto the performance of individuals and market trends.
45.POST BALANCE SHEET EVENT
On 3 March 2006, the Company and LCH Bank entered into a sale and purchase agreement for the disposal of aninvestment property to LCH Bank at a consideration of HK$13,750,000. The fair value of the investment property asat the balance sheet date amounted to HK$13,700,000.