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1 2008 中期報告 Interim Report Hong Long Holdings Limited (Incorporated in the Cayman Islands with limited liability) (於開曼群島註冊成立的有限公司) (Stock Code 股份編號: 1383)

2 Content Corporate Information 2 Corporate Development 4 Business Scope 5 Properties Profile 6 Management Discussion and Analysis 8 Independent Review Report 18 Consolidated Income Statement (Unaudited) 20 Consolidated Balance Sheet (Unaudited) 21 Consolidated Statement of Changes in Equity 23 (Unaudited) Condensed Consolidated Cash Flow Statement 24 (Unaudited) Notes to the Unaudited Interim Financial Report 25 Other Information 46 1

3 Corporate Information BOARD OF DIRECTORS 董事會 Executive Directors Mr. ZENG Yunshu (Chairman and President) Dr. HAN Qinchun (Vice Chairman and Co-President) Mr. ZENG Sheng (Vice Chairman and Co-President) Ms. YE Qingdong (Vice President) Mr. OUYANG Junxin Independent Non-Executive Directors Dr. LI Jun Mr. CHEUNG Ngai Lam Ms. LIN Wei Fang AUTHORISED REPRESENTATIVES Mr. ZENG Yunshu Dr. HAN Qinchun COMPANY SECRETARY AND QUALIFIED ACCOUNTANT Mr. CHU Kin Wang, Peleus (FCPA, FCCA, ACIS) (FCPA FCCA ACIS) AUDITORS KPMG COMPLIANCE ADVISER Mega Capital (Asia) Company Limited REGISTERED OFFICE Cricket Square Hutchins Drive P.O. Box 2681 George Town Grand Cayman KY The Cayman Islands Cricket Square Hutchins Drive P.O. Box 2681 George Town Grand Cayman KY The Cayman Islands PRINCIPAL PLACE OF BUSINESS IN THE PRC Level 8, Hong Long Building Nanhai Avenue Nanshan District Shenzhen, Guangdong Province The PRC 8 2 Hong Long Holdings Limited Interim Report 2008

4 Corporate Information PRINCIPAL PLACE OF BUSINESS IN HONG KONG Suite /F, Central Plaza 18 Harbour Road Wanchai Hong Kong PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE IN THE CAYMAN ISLANDS Butterfield Fund Services (Cayman) Limited Butterfield House 68 Fort Street P.O. Box 705 George Town Grand Cayman The Cayman Islands HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE Tricor Investor Services Limited 26th Floor Tesbury Centre 28 Queen s Road East Hong Kong PRINCIPAL BANKERS In Hong Kong: The Hongkong and Shanghai Banking Corporation Limited Bank of China (Hong Kong) Limited Butterfield Fund Services (Cayman) Limited Butterfield House 68 Fort Street P.O. Box 705 George Town Grand Cayman The Cayman Islands In the PRC: China Bank of Communications Agricultural Bank of China Shenzhen Rural Commercial Bank Hua Xia Bank Industrial Bank Co., Ltd. Shanghai Pudong Development Bank INVESTOR RELATIONS For other information relating to the Company, please contact Corporate Communications Department website: ir@hlkg.net ir@hlkg.net 3

5 Corporate Development April: First property development project. Commenced construction for Harbor City 4 May: First move into property leasing business. Acquired 88.95% equity in Hong Long Commercial % September: Completed construction for Harbor City 9 September: First move beyond Shenzhen. Acquired 51% equity in Huizhou Yintaida 9 51% February: Commenced construction for Hong Long Plaza 2 March: Acquired 85.71% equity in Yinghua % June: Commenced construction for Hong Long High Technology Industrial Park 6 April: Acquired further 4.68% equity in Hong Long Commercial % May: Completed the acquisition of 134 shops in Baorun Ornament Materials Mall November: Disposal of Hong Long High Technology Industrial Park 11 December: Grand opening of Hong Long Plaza shopping mall 12 February: First move into international capital market. Listed on the HK Stock Exchange and raised net proceeds of approximately RMB466 million (approximately HK$472 million) 2 466,000, ,000,000 March: Acquired the remaining 6.37% equity interest in Hong Long Commercial and become the indirect wholly-owned subsidiary of the Company % April: Acquired Yifeng Plaza, Shenzhen 4 June: Acquired 50% interest in Nam Fong Garden, Guangzhou and subsequently sold in November 6 50% 11 July: Acquired 100% interest in Grace Garden 7 100% September: First fund raising exercise after listing. Issue of Senior Note and raised net proceeds of approximately RMB645 million (approximately US$86 million) 9 645,000,000 86,000,000 October: Completed the acquisition of remaining 49% equity in Huizhou Yintaida 10 49% November: First move beyond Guangdong. Acquired 100% interest in Xiang Jiang City, Zhangjiakou, Hebei % December: Commenced construction for Ningjiang City in Xingning February: Approval obtained for acquiring additional gross floor area ( GFA ) of approximately 5,719 square meters ( m 2 ) in Yifeng Plaza. 2 5,719 March: Established a 90% owned subsidiary in Dongguan for a potential project. 3 90% March: Entered into agreement for acquiring 100% interest in Zirui Garden % June and July: Further acquire 1,230 m 2 in Yifeng Plaza at a consideration of approximately RMB12,100, : 12,100,000 1, Hong Long Holdings Limited Interim Report 2008

6 Business Scope The Company s corporate and business structure as of 30 June 2008 was as follows: Corporate and business structure Lehman Brothers Holdings Inc. Founders and directors Public (other institutional and individual investors) 5.83% 57.06% 37.11% Hong Long Holdings Limited Shenzhen/Dongguan Huizhou Meizhou/Xingning Hebei, Zhangjiakou Projects under development/to be developed (planned GFA about 1,545,604 m 2 ) 1,545,604 Yifeng Plaza Yinghua Project Zirui Garden Urban Upstream Grace Garden 77,304 Landscape Villa, Phase 1 186,492 35,649 Urban Upstream Ningjiang City, Phase 1 57,950 Landscape Villa, Phase 2 386, , ,960 Urban Upstream Landscape Villa, Phase 3 315,033 Bauhinia Garden 85,000 Xiang Jiang City 146,748 Old City Renovation on Guangchang North Street Projects under negotiation (planned GFA about 1,246,378 m 2 ) 1,246,378 69,759 Danshui Old City Redevelopment 425,024 Ningjiang City, Phase 2 631,715 Dongguan Qiaotou Project 119,880 Harbor City Hong Long Plaza Property leasing (total leasable GFA about 88,636 m 2 ) 14,959 58,513 Baorun Ornament Materials Mall 15,164 5

7 Properties Profile LIST OF PROPERTIES Property development business Completed projects Interest Actual GFA (m 2 ) Area Commencement/ attributable Site area (m 2 ) sold (m 2 ) completion date to the Group Project name Place Residential Shop Office Others (1) Total (1) Harbor City Shenzhen 19,822 61,252 14,959 19,366 95,577 75, /Q2-2003/Q3 100% Hong Long Plaza Shenzhen 19,832 72,035 64,397 36, , , /Q1-2006/Q4 100% Hong Long High Technology Industrial Park Shenzhen 119, , , , /Q2-2006/Q4 100% Total 158, ,287 79, , , ,090 Properties under development/to be developed Planned Interest Planned GFA (m 2 ) Saleable commencement/ attributable Site area (m 2 ) area (m 2 ) completion date to the Group Project name Place Residential Shop Office Others (1) Total (1) Yifeng Plaza (1st batch) (2) Shenzhen N/A 4,127 8,859 46,857 10,512 70,355 59, /Q2-2009/Q2 100% (2) Yifeng Plaza (2nd batch) (2) Shenzhen N/A 2,221 3,022 1,706 6,949 6, /Q2-2009/Q2 100% (2) Yinghua Project Shenzhen 9,237 48,180 6,980 2,790 57,950 55, /Q4-2009/Q % Zirui Garden Shenzhen 43,538 90,199 5,934 57, ,960 96, /Q1-2010/Q4 100% Urban Upstream Landscape Villa (Phase 1) Huizhou 120, ,405 7,844 33, , , /Q2-2009/Q2 100% 1 Urban Upstream Landscape Villa (Phase 2) Huizhou 301, ,397 28,000 55, , , /Q3-2009/Q4 100% 2 Urban Upstream Landscape Villa (Phase 3) Huizhou 77, ,870 14,406 59, , , /Q2-2010/Q4 100% 3 Grace Garden Meizhou 5,570 30,433 1,118 4,098 35,649 31, /Q4-2009/Q2 100% Ningjiang City Phase 1 Xingning 38,827 90,673 10, , , /Q3-2009/Q1 100% 1 Bauhinia Garden Xingning 28,526 75,500 8,500 1,000 85,000 84, /Q1-2010/Q2 100% Xiang Jiang City (3) Zhangjiakou 152, ,450 9,661 40,000 4, , , /Q3-2009/Q4 100% (3) Total 778,243 1,197, ,399 88, ,330 1,619,747 1,390,417 6 Hong Long Holdings Limited Interim Report 2008

8 Properties Profile LIST OF PROPERTIES (CONTINUED) Projects under negotiation Planned Interest Site Planned GFA (m 2 ) Saleable commencement/ attributable area (m 2 ) area (m 2 ) completion date to the Group Project name Place Residential Shop Office Others (1) Total (1) Old City Renovation on Guangchang North Street Shenzhen 10,636 29,759 20,000 20,000 69,759 49, /Q2-2011/Q2 100% Dongguan Qiaotou Project Dongguan 47,952 95,904 23, , , /Q1-2011/Q1 90% Danshui Old City Redevelopment Danshui 53, ,019 85, , , /Q1-2012/Q1 100% Ningjiang City Phase 2 Xingning 243, ,542 63,173 30, , , /Q3-2012/Q3 100% 2 Total 355,171 1,004, ,154 50,000 1,246,378 1,196,378 Property leasing business 100% owned by the Group 100% Leaseable area (m 2 ) Project name Place Harbor City Shenzhen 3,136 Hong Long Plaza Shenzhen 58,513 Baorun Ornament Materials Mall Shenzhen 7,653 Total 69,302 Property for own use 100% owned by the Group 100% Useable area (m 2 ) Project name Place 8/F, Hong Long Building Shenzhen Notes: (1) Includes club house and car parking spaces. (2) Acquired from external parties. (3) Included 74,143 m 2 sold in 2007 and (1) (2) (3) ,143 7

9 Management Discussion and Analysis FINANCIAL AND OPERATIONAL HIGHLIGHTS: Revenue of the Group in the first half of 2008 was RMB27.1 million, representing a decrease of RMB187.7 million (or 87.4%) over the same period of ,100, ,700, % Profit attributable to equity shareholders of the Company for the first half of 2008 was RMB17.5 million, representing a decrease of RMB44.0 million (or 71.5%) over the same period of ,500, ,000, % Basic earnings per share for the first half of 2008 was RMB1.68 cents, representing a decrease of RMB4.25 cents over the corresponding period of 2007 (or 71.7%) % Strong property portfolio base of the Group (including properties for own use, for investment, for future development, under development and lease) calculated at fair value by independent valuer as at 30 June 2008 is approximately RMB4.25 billion, out of which RMB1.32 billion of investment properties have been stated at fair value in the consolidated balance sheet In addition to the existing developments of approximately 1,546,000 m 2 in GFA, the Group continues to pursuit further expansion in land reserve and is optimistic about the future prospect. 1,546,000 8 Hong Long Holdings Limited Interim Report 2008

10 Management Discussion and Analysis Business Review The Group is principally engaged in the development of midrange residential and commercial properties as well as commercial properties leasing in the Guangdong Province and Hebei Province, the PRC. The Group expanded its business presence in Guangdong, including Shenzhen, Huizhou, Meizhou and Xingning. The Group has further expanded beyond Guangdong by acquiring Xiang Jiang City project in Zhangjiakou of the Hebei Province. The expansion signifies the Group s successful launch of the projects and confidence in second tier cities in the PRC where better living environment is in a great demand. For investment properties portfolio, the Group s leasable GFA increased to approximately 89,000 m 2, out of which, the Group owned approximately 59,000 m 2 Hong Long Plaza following its completion in late Hong Long Plaza generates recurring cash flows supplement to the Group s future investment plan. Capitalizating on its experience on professional property management, the Group will continue to seek opportunity in rendering services to properties developed by other property parties ,000 89,000 Levering on the capital market platform, the Group has a series of acquisitions in 2007 and 2008 that increased the existing properties portfolios up to approximately 1,546,000 m 2 in GFA ,546,000 In April 2007, the Group acquired approximately 70,000 m 2 in Yifeng Plaza by a public auction at a consideration of approximately RMB482 million. Yifeng Plaza is a complex of office, residential units and retail shops located at the prime location in Luohu district, Shenzhen. In February 2008, the Group obtained approval to further acquire area of approximately 5,719 m 2 at a consideration of approximately RMB63 million. In June and July 2008, the Group further acquired approximately 1,230 m 2 at a consideration of approximately RMB12.1 million. The Group is carrying out the renovation works and plans to launch it for pre-sales commencing from the end of this year ,000,000 70, ,000,000 5, ,100,000 1,230 9

11 Management Discussion and Analysis Business Review (Continued) In July 2007, the Group acquired 100% equity interest in a PRC company, which holds a piece of land in Meizhou, at a consideration of RMB11 million. The project, named Grace Garden, consisted of two residential blocks and retail shops of approximately 35,649 m 2 in GFA. The Group obtained pre-sales permit for one block in June 2008 and planned to launch for sales in the 4th quarter of this year ,000, % 35, In October 2007, the Group commenced operation of a newly formed wholly-owned subsidiary in Xingning, for a land mark project, named Ningjiang City. Phase 1 of Ningjiang City mainly consists of residential and commercial complex of approximately 100,748 m 2 in GFA. The Group obtained pre-sale permit for one block in August The Group planned to complete and deliver phase 1 of Ningjiang City in The Group is negotiating with Xingning Municipal government on phase 2 development with site area of approximately 243,455 m 2 and a residential and commercial complex of approximately 631,715 m 2 in GFA , , ,715 In November 2007, the Group completed the acquisition of an intermediate holding company, which holds 100% interest in Xiang Jiang City project in Zhangjiakou of Hebei Province. Xiang Jiang City, is a residential and commercial complex of approximately 220,891 m 2 in GFA. Xiang Jiang City is a developing project upon acquisition by the Group. The Group planned to complete and deliver the rest of Xiang Jiang City by phases in 2008 and % 220, Phase 1 of Urban Upstream Landscape Villa in Huizhou is under development. The Group plans to arrange in-house subscription in the 4th quarter of 2008, and put on sale in the market from end of 2008 to the 2nd quarter of Hong Long Holdings Limited Interim Report 2008

12 Management Discussion and Analysis Business Review (Continued) In 2007, the Group has obtained approval from the Luohu district government, Shenzhen, for an old city renovation on Guangchang North Streetand is currently submitting an application to the land planning authorities of Shenzhen Municipality for the proceeding of the project. The Guangchang North Street project is located at the South of Hongbao Road ( ), the West of Heping Road ( ) and Dongmen Old Street (), the North of Shennan Road East () and Shun Hing Plaza () and the East of Bao an Road South (). The project site is at the commercial district in the central area of Luohu District, Shenzhen. The first phase of the project will occupy a site area of approximately 11,000 m 2 with GFA of approximately 70,000 m ,000 70,000 In October 2007, the Group established a wholly-owned subsidiary in Danshui of Huizhou, namely Huizhou Xing Wo Property Development Limited ( Xingwo ). Xingwo is considering the redevelopment of a site located in the landmark of Danshui. The site area is approximately 53,000 m 2 with residential and commercial complex of approximately 425,000 m 2 in GFA , ,000 In March 2008, the Group entered into an agreement with an independent third party for acquiring the 100% equity interest in Shenzhen City Zirui Real Estate Development Company Limited ( Shenzhen Zirui ) by phases in Shenzhen Zirui is a company which holds the Zirui Garden in Buji County, Shenzhen. Zirui Garden mainly consists of high class villa with GFA of approximately 153,960 m 2. The Group planned to complete and deliver the project by phases in 2009 and % 153, In March 2008, the Group established a 90% owned subsidiary in Dongguan. The Group is considering a residential and commercial complex of approximately 119,880 m 2 in GFA. The Group planned to complete and deliver the project by phases in 2009 and % 119,

13 Management Discussion and Analysis Market Review In the first half of 2008, the Chinese economy maintained rapid growth. According to the National Bureau of Statistics of China, gross national product for the first half of 2008 was RMB trillion, a 10.4% growth over the corresponding period last year. Furthermore, total retail sales of consumer goods amounted to RMB trillion, a 21.4% growth over the corresponding period last year, whereas growth in residential sales was 24.0%. Urban and rural residents income continued to grow rapidly and average per capita disposable income amounted to RMB8,065, a 14.4% growth over the corresponding period last year. Further, property investment for the first half of the year amounted to RMB trillion, a 35.1% growth over the corresponding period last year, and 10.9% faster than the corresponding period last year. Such growths demonstrate that urban and rural disposable income have a positive influence to the property market , % 51, % 24.0% 8, % 15, %10.9% The property markets in various provinces recorded stable growth in the first half of As shown by the data issued by the Bureau of Statistics of Guangdong Province, for the first half of the year, the average selling price for commodity housing (including residential properties, offices and shops) in provinces was RMB5,887/m 2, an increase of 18.1% over the corresponding period last year, whereas the average selling price in Guangzhou was RMB7,743/m 2, a growth of 25.8%; in Shenzhen, the average selling price of residential housing was even as high as RMB13,178/m 2, an increase of 42.1%. As shown by the research report data concerning property market of Huizhou in the first half of 2008, average selling price for residential housing in Huizhou increased from RMB4,356/m 2 to RMB4,667/m 2 in the first half of 2008, an increase of 7.1% over the corresponding period last year. As shown by the research report data concerning property market of Meizhou in the first half of 2008, average selling price for residential housing in Meizhou increased from RMB2,200/ m 2 to RMB4,000/m 2 in the first half of 2008, an increase of 81.8% over the corresponding period last year. As shown by the research report data concerning property market of Xingning in the first half of 2008, average selling price for residential housing in Xingning increased from RMB1,550/m 2 to RMB2,500/m 2 in the first half of 2008, an increase of 61.3% over the corresponding period last year. As shown by the research report data concerning property market of Zhangjiakou in the first half of 2008, average selling price for residential housing in Zhangjiakou increased from RMB2,410/m 2 to RMB3,800/m 2 in the first half of 2008, an increase of 57.7% over the corresponding period last year , % 7, % 13, %2008 4, , , , , , , , Hong Long Holdings Limited Interim Report 2008

14 Management Discussion and Analysis Market Outlook In the first half of 2008, the PRC government introduced macroeconomic control measures in response to the concern over the extent of the increase in inflation and the overheating of economic growth. During the period under review, the relevant PRC government authorities started to adopt tight monetary policies and prudent financial policies. The People s Bank of China required that the total incremental credit of financial institutions in 2008 should not exceed the actual incremental credit in 2007, and raised the reserve ratio against Renminbi deposits of deposittaking financial institutions for 5 times to alleviate the inflationary pressure and lower the market liquidity. Despite a decline in May and June, the consumer price index was still hovering at high level. The inflationary pressure lingers. The national economy grew at a slower rate in the 2 nd quarter of 2008 and the macro-economic control measures have taken certain effects. The PRC government adjusted its focus of macro control to maintaining stable and rapid economic growth and controlling the excessive price rises. On specific regulatory measures, it is expected that the PRC government authorities will on one hand maintain the stability and consistency of its policies and on the other hand strengthen the flexibility of austerity measures, while tuning fiscal and monetary policies in due course to secure the macro-economic goals With regard to the property industry, relevant PRC government authorities issued the Notice on Promotion of Economical and Intensive Land Use (Guo Fa [2008] No. 3) during the period under review, which introduces the most stringent land policy into practice and promotes the economical and intensive use of land. In the meantime, loans for the property development were strictly controlled under tight monetary policies. The Group is of the opinion that these policies and measures are addressing macro-economic goal instead of the property industry. The Group expects that the implementation of existing policies and measures issued by the central government will become the major tool in the foreseeable future. The conditions for property industry will remain stable essentially, which is favorable for the sustainable, stable and standardised development of the property industry. [2008]3 13

15 Management Discussion and Analysis Market Outlook (Continued) Looking ahead, despite the complicated global and domestic economic environment, China s property market, being one of the core sectors of the country, has great development potential in the long run, bolstered by stable growth of China s economy and faster pace of urbanization. The Group will monitor closely the market development and apply sales strategies flexibly depending on different cities, regions, as well as the development stages, natures and characteristics of different projects, in an attempt to achieve better sales performance. It will also strengthen its supervision on cost and implement cost control measures, so as to maintain a stable profit margin. Additionally, the Group will proactively seek more financing channels. It will further enhance its strategic management capability to capture the current macroeconomic and industry development trend and seize development opportunities in market consolidation. Leveraging on its clear development strategies, extensive market experience, sufficient land bank and professional management team, we are confident in maintaining its unique competitive edges. The Group is committed to achieving promising returns for its shareholders and becoming the most valuable integrated property operator in China. 14 Hong Long Holdings Limited Interim Report 2008

16 Management Discussion and Analysis Financial review Turnover: Turnover comprises of sales proceeds of properties delivered and property leasing income. There was substantial drop in revenue, since in the first half of year 2008 we only delivered approximately 508 m 2 residential units in Xiang Jiang City, while in 2007 we delivered approximately 3,743 m 2 of retail shops in Hong Long Plaza where the average selling prices of retail shops are much higher than that of residential units. The substantial decrease in profits was mainly due to the decrease in revenue ,743 Other revenue: the increment was mainly due to the increase in interest income. Other net loss: the increment was mainly due to the increase of exchange loss arising from the translation of time deposits, pledged deposits and trade and other receivables denominated in foreign currencies to RMB and the realised and unrealised loss on trading securities. Selling and distribution expenses: the decrement was mainly due to the decrease in advertisement and promotional expenses incurred during the period. General and administrative expenses: the decrement was mainly due to the decrease in equity-settled share-based payments in respect of share options granted to staff under the share option schemes. Other operating expenses: the increment was mainly due to increase in equity-settled share-based payments in respect of share options granted to consultants under the share option schemes. Segment analysis While principally engaged in the development of mid-range residential and commercial properties in the PRC, the Group expects stronger recurring cash flow from commercial properties leasing in the future. In the first half of year 2008, property development income and property leasing income accounted for approximately 4.8% and 95.2% respectively % 95.2% 15

17 Management Discussion and Analysis Liquidity, Financial Resources and Gearing Cash and cash equivalents and pledged deposits as at 30 June 2008 amounted to approximately RMB220.1 million (31 December 2007: RMB573.5 million) which including RMB58.0 million, USD13.5 million, GBP 3.6 million and HKD23.9 million ,100, ,500,000 58,000,00013,500,000 3,600,000 23,900,000 The Group had total borrowings of approximately RMB1,230.1 million as at 30 June 2008 (31 December 2007: RMB1,175.4 million). As at 30 June 2008, approximately RMB227.2 million was repayable within one year, approximately RMB723.4 million was repayable within one to five years inclusive, and approximately RMB279.5 million was repayable after five years. All of the Group s borrowings carried interest at floating interest rates. The Group s total bank loans and interest-bearing borrowings divided by total assets as at 30 June 2008 was 32.2% (31 December 2007: 33.3%) ,230,100, ,175,400, ,200, ,400, ,500, % % As at 30 June 2008, the Group had current assets of approximately RMB2,467.0 million (31 December 2007: RMB2,250.1 million) and current liabilities of approximately RMB996.2 million (31 December 2007: RMB822.1 million) ,467,000, ,250,100, ,200, ,100,000 Charge on Assets As at 30 June 2008, bank loans of approximately RMB622.5 million were secured by certain bank deposits and investment properties of the Group of approximately RMB138.6 million and RMB1,203.0 million respectively ,500, ,600,000 1,203,000,000 Senior Note For the details of Senior Note, please refer to note 12 of the notes to the unaudited interim financial report Hong Long Holdings Limited Interim Report 2008

18 Management Discussion and Analysis Exposure to Fluctuations in Exchange Rates and Related Hedges The Group s monetary assets, loans and transactions are principally denominated in Renminbi. All of the Group s borrowings are denominated in Renminbi. Except for the Swap Agreement entered into between the Company and a financial institution as disclosed in note 12 of the notes to the unaudited interim financial report, the Group did not engage in any derivative activities and did not commit to any financial instruments to hedge its balance sheet exposure as at 30 June Contingent Liabilities Save for the guarantees given to banks for mortgage facilities (at a maximum of RMB370 million) granted to purchasers of the Group s properties, as details disclosed in note 16 of the notes to the unaudited interim financial report, the Group had no material contingent liabilities as at 30 June Treasury Policies and Capital Structure The Group adopts a prudent approach with respect to treasury and funding policies, with a focus on risk management and transactions that are directly related to the underlying business of the Group. Employees As at 30 June 2008, the Group had a staff force of approximately 304 employees. Of this, most were stationed in the PRC. The remuneration of employees was in line with the market trend and commensurable to the level of pay in the industry. Remuneration of the Group s employees includes basic salaries, bonuses and longterm incentives (such as pre-ipo Share Options and Share Option Scheme). Total staff costs incurred for the six months ended 30 June 2008 was approximately RMB6.2 million. 370,000, ,200,000 Interim Dividend The Board of Directors ( Board ) does not recommend the payment of an interim dividend for the six months ended 30 June 2008 (2007: Nil)

19 Independent Review Report INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF HONG LONG HOLDINGS LIMITED Introduction We have reviewed the interim fi nancial report set out on pages 20 to 45 which comprise the consolidated balance sheet of Hong Long Holdings Limited as of 30 June 2008 and the related consolidated income statement, and consolidated statement of changes in equity and condensed consolidated cash fl ow statement for the six-month period then ended and explanatory notes The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of an interim financial report to be in compliance with the relevant provisions thereof, and to be in compliance with Hong Kong Accounting Standard 34 Interim fi nancial reporting ( HKAS 34 ) issued by the Hong Kong Institute of Certifi ed Public Accountants. The directors are responsible for the preparation and presentation of the interim fi nancial report in accordance with HKAS Our responsibility is to form a conclusion, based on our review, on the interim financial report and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Scope of review We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, Review of interim financial information performed by the independent auditor of the entity issued by the Hong Kong Institute of Certifi ed Public Accountants. A review of the interim financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion Hong Long Holdings Limited Interim Report 2008

20 Independent Review Report Conclusion Based on our review, nothing has come to our attention that causes us to believe that the interim fi nancial report as at 30 June 2008 is not prepared, in all material respects, in accordance with HKAS KPMG Certifi ed Public Accountants 8th Floor, Prince s Building 10 Chater Road Central, Hong Kong September

21 Consolidated Income Statement (Unaudited) For the six months ended 30 June (Expressed in Renminbi Thousand Yuan) Six months ended 30 June Note RMB 000 RMB 000 Turnover 2 27, ,796 Cost of sales (9,173) (24,724) Gross profit 17, ,072 Net increase in fair value of investment properties 62,508 90,415 Other revenue 3 20,710 17,242 Other net loss 4 (20,641) (2,796) Selling and distribution expenses (1,881) (5,808) General and administrative expenses (13,357) (25,974) Other operating expenses (12,077) (3,830) Profit from operations 53, ,321 Net change in fair value of derivative financial instruments 39,070 (49,544) Finance costs 5 (42,906) (29,605) Profit before taxation 5 49, ,172 Income tax 6 (31,894) (118,779) Profit for the period 17,418 61,393 Attributable to: Equity shareholders of the Company 17,509 61,459 Minority interests (91) (66) Profit for the period 17,418 61,393 Dividends per share 7 Nil Nil Earnings per share (RMB cents) 8 Basic Diluted The notes on pages 25 to 45 form part of this interim financial report Hong Long Holdings Limited Interim Report 2008

22 Consolidated Balance Sheet (Unaudited) At 30 June (Expressed in Renminbi Thousand Yuan) At At 30 June 31 December Note RMB 000 RMB 000 Non-current assets Property, plant and equipment 10,405 9,772 Investment properties 9 1,319,994 1,257,486 Deferred tax assets 18,225 14,744 1,348,624 1,282,002 Current assets Inventories 1,446, ,860 Trade and other receivables , ,306 Prepaid land costs 220, ,620 Trading securities 2,636 3,733 Pledged deposits 147, ,433 Cash and cash equivalents 11 73, ,101 2,466,961 2,250,053 Current liabilities Bank loans 227, ,019 Trade and other payables, and accruals , ,578 Receipts in advance 69,922 34,652 Rental and other deposits 11,099 10,944 Taxation payable 235, , , ,079 Net current assets 1,470,760 1,427,974 Total assets less current liabilities 2,819,384 2,709,976 Non-current liabilities Interest-bearing borrowings 12 1,002, ,386 Deferred tax liabilities 147, ,864 1,150,731 1,070,250 Net assets 1,668,653 1,639,726 The notes on pages 25 to 45 form part of this interim financial report

23 Consolidated Balance Sheet (Unaudited) At 30 June (Expressed in Renminbi Thousand Yuan) At At 30 June 31 December Note RMB 000 RMB 000 Equity Share capital 14 10,296 10,296 Reserves 1,645,180 1,617,162 Total equity attributable to equity shareholders of the Company 1,655,476 1,627,458 Minority interests 13,177 12,268 Total equity 1,668,653 1,639,726 Approved and authorised for issue by the board of directors on 26 September The notes on pages 25 to 45 form part of this interim financial report Hong Long Holdings Limited Interim Report 2008

24 Consolidated Statement of Changes in Equity (Unaudited) For the six months ended 30 June (Expressed in Renminbi Thousand Yuan) Statutory Minority Share Share Merger reserve Capital Retained interests Total capital premium reserve fund reserve profits Total equity RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 At 1 January ,979 34, , ,332 23, ,423 Profit for the period 61,459 61,459 (66) 61,393 Transfer to statutory reserve fund 7,232 (7,232) Arising from reorganisation 752 (752) Capitalisation issue 5,941 (5,941) Shares issued pursuant to the global offering and upon the exercise of the over- allotment option, net of share issuing costs 2, , , ,599 Conversion of convertible note , , ,624 Equity-settled share-based payments 17,869 17,869 17,869 Acquisition of additional interest in a subsidiary (1,115) (680) At 30 June , ,797 24,227 41,354 17, ,813 1,484,318 21,910 1,506,228 At 1 January , ,466 24,227 42,488 41, ,650 1,627,458 12,268 1,639,726 Profit for the period 17,509 17,509 (91) 17,418 Transfer to statutory reserve fund 1,414 (1,414) Equity-settled share-based payments 10,509 10,509 10,509 Establishment of a subsidiary in the PRC 1,000 1,000 Share options forfeited (3,097) 3,097 At 30 June , ,466 24,227 43,902 48, ,842 1,655,476 13,177 1,668,653 The notes on pages 25 to 45 form part of this interim financial report

25 Condensed Consolidated Cash Flow Statement (Unaudited) For the six months ended 30 June (Expressed in Renminbi Thousand Yuan) Six months ended 30 June RMB 000 RMB 000 Cash used in operations (254,670) (478,555) PRC income tax paid (8,878) (27,508) Net cash used in operating activities (263,548) (506,063) Net cash used in investing activities (77,913) (441,385) Net cash generated from financing activities 22, ,296 Net (decrease)/increase in cash and cash equivalents (319,278) 11,848 Cash and cash equivalents 1 1 at 1 January 397,101 31,540 Effect of foreign exchange rates changes (4,770) 3,108 Cash and cash equivalents 6 30 at 30 June 73,053 46,496 The notes on pages 25 to 45 form part of this interim financial report Hong Long Holdings Limited Interim Report 2008

26 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 1 ORGANISATION AND BASIS OF PREPARATION 1. (a) The Company and the principal place of business (a) Hong Long Holdings Limited (the Company ) is a company incorporated and domiciled in the Cayman Islands. Its principal place of business is at 8/F., Hong Long Building, Nanhai Avenue, Nanshan District, Shenzhen, , the People s Republic of China (the PRC ) and has its registered office at Cricket Square, Hutchins Drive, PO Box 2681, George Town, Grand Cayman KY1-1111, the Cayman Islands Cricket Square, Hutchins Drive, PO Box 2681, George Town, Grand Cayman KY1-1111, the Cayman Islands (b) Basis of preparation (b) Pursuant to a reorganisation of the Company and its subsidiaries (collectively referred to as the Group ) which was completed on 31 January 2007 to rationalise the Group s structure in preparation for the public listing of the Company s shares on the Main Board of the Stock Exchange of Hong Kong Limited (the Stock Exchange ), the Company became the holding company of the subsidiaries comprising the Group. The shares of the Company were listed on the Stock Exchange on 22 February Details of the reorganisation are set out in the prospectus dated 8 February 2007 issued by the Company This interim financial report for the six months ended 30 June 2008 has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange, including compliance with Hong Kong Accounting Standard 34 Interim financial reporting ( HKAS 34 ) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). It was authorised for issuance on 26 September The interim financial report has been prepared in accordance with the same accounting policies adopted in the preparation of the Company s 2007 annual financial statements

27 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 1 ORGANISATION AND BASIS OF PREPARATION (CONTINUED) 1. (b) Basis of preparation (continued) (b) The preparation of an interim financial report in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year-to-date basis. Actual results may differ from these estimates. 34 This interim financial report contains condensed consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2007 annual financial statements. The condensed consolidated financial statements and notes thereon do not include all of the information required for full set of financial statements prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) issued by the HKICPA The interim financial report is unaudited, but has been reviewed by the Company s audit committee and by the Company s auditor, KPMG in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information performed by the Independent Auditor of the Entity, issued by the HKICPA. KPMG s independent review report to the Board is included on page The financial information relating to the financial year ended 31 December 2007 that is included in the interim financial report as being previously reported information does not constitute the Company s statutory financial statements for that financial year but is derived from those financial statements. Statutory financial statements for the year ended 31 December 2007 are available from the Company s registered office. The auditors have expressed an unqualified opinion on those financial statements in their report dated 18 April Hong Long Holdings Limited Interim Report 2008

28 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 2 SEGMENT REPORTING Segment information is presented in respect of the Group s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group s internal financial reporting. No segment information is presented in respect of the Group s geographical segments as the Group s principal activities are largely carried out in the PRC. Business segments The Group comprises the following main business segments: 2. Property development : development and sale of properties Property leasing : leasing of investment properties and sub-leased properties and provision of related management service Property Property development leasing Consolidated RMB 000 RMB 000 RMB 000 (Six months ended 30 June 2008) Revenue from external customers 1,291 25,768 27,059 Segment results (885) 15,642 14,757 Net increase in fair value of investment properties 62,508 62,508 Unallocated operating income and expenses (24,117) Profit from operations 53,148 Net change in fair value of derivative financial instruments 39,070 Finance costs (42,906) Profit before taxation 49,312 Income tax (31,894) Profit for the period 17,418 Amortisation and depreciation 1,

29 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 2 SEGMENT REPORTING (CONTINUED) 2. Business segments (continued) Property Property development leasing Consolidated RMB 000 RMB 000 RMB 000 (Six months ended 30 June 2007) Revenue from external customers 191,262 23, ,796 Segment results 170,439 8, ,753 Net increase in fair value of investment properties 90,415 90,415 Unallocated operating income and expenses (9,847) Profit from operations 259,321 Net change in fair value of derivative financial instruments (49,544) Finance costs (29,605) Profit before taxation 180,172 Income tax (118,779) Profit for the period 61,393 Amortisation and depreciation 1, OTHER REVENUE 3. Six months ended 30 June RMB 000 RMB 000 Interest income 20,370 17,176 Others ,710 17, Hong Long Holdings Limited Interim Report 2008

30 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 4 OTHER NET LOSS 4 Six months ended 30 June RMB 000 RMB 000 Net exchange losses 17,098 2,796 Loss on disposal of property, plant and equipment 67 Net realised and unrealised loss on trading securities 3,476 20,641 2,796 5 PROFIT BEFORE TAXATION Profit before taxation is arrived at after charging/(crediting): 5. Six months ended 30 June RMB 000 RMB 000 Interest on borrowings 63,527 34,581 Less: interest expense capitalised as properties under development for sale (20,621) (4,976) Finance costs 42,906 29,605 Amortisation of leasehold land 642 1,077 Less: amounts capitalised as properties under development for sale (488) Depreciation 1,267 1,017 Less: amounts capitalised as properties under development for sale (451) 816 1,017 Total amortisation and depreciation 1,458 1,606 29

31 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 6 INCOME TAX 6. Six months ended 30 June RMB 000 RMB 000 Current tax Provision for PRC Enterprise Income Tax 1,351 12,848 Provision for Land Appreciation Tax 92,369 Deferred tax Effect of changes in tax rate on opening balances of deferred tax 19,292 Origination and reversal of temporary differences 11,251 13,562 31, ,779 Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands ( BVI ), the Group is not subject to any income tax in the Cayman Islands and the BVI. No Hong Kong Profits Tax has been provided for as the Group does not have estimated assessable profits in Hong Kong. The provision for the PRC Enterprise Income Tax is based on a statutory rate of 25% of the taxable profits determined in accordance with the relevant income tax rules and regulations in the PRC for the six months ended 30 June 2008, except for certain subsidiaries of the Company located within the special economic zones in the PRC, which were previously taxed at preferential rate of 15% in 2007, for which the applicable preferential tax rate is 18% for The preferential tax rate will be gradually increased to 20%, 22%, 24% and 25% for the years ending 31 December 2009, 2010, 2011 and 2012, respectively. Accordingly, the deferred tax of the Group is recognised based on tax rates that are expected to apply to the period when the asset is realised or the liability is settled % % % % 22% 24% 25% 30 Hong Long Holdings Limited Interim Report 2008

32 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 6 INCOME TAX (CONTINUED) 6. Land Appreciation Tax is levied on properties developed by the Group for sale, at progressive rates ranging from 30% to 60% on the appreciation of land value, which under the applicable regulations is calculated based on the proceeds of sales of properties less deductible expenditures including lease charges of land use rights, borrowing costs and all property development expenditures. 30% 60% 7 DIVIDENDS 7. The board of directors does not recommend the payment of an interim dividend for the six months ended 30 June 2008 (2007: Nil) No dividend payable to equity shareholders of the Company attributable to the previous financial year, has been approved or paid during the current period. 8 EARNINGS PER SHARE 8. (a) Basic earnings per share (a) The calculation of basic earnings per share for the six months ended 30 June 2008 is based on the profit attributable to equity shareholders of the Company of RMB17,509,000 (2007: RMB61,459,000) and the weighted average number of shares in issue during the period of 1,040,250,000 shares (2007: 1,036,100,000 shares) during the period. The weighted average number of shares in issue for the six months ended 30 June 2007 is based on the assumption that 1,036,100,000 ordinary shares were in issue throughout that period ,509, ,459,000 1,040,250, ,036,100, ,036,100,000 31

33 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 8 EARNINGS PER SHARE (CONTINUED) 8. (b) Diluted earnings per share (b) The calculation of diluted earnings per share for the six months ended 30 June 2008 is based on the profit attributable to equity shareholders of the Company of RMB17,509,000 (2007: RMB61,459,000) and the weighted average number of shares of 1,051,679,000 shares (2007: 1,048,862,000 shares), calculated as follows: ,509, ,459,000 1,051,679, ,048,862,000 Six months ended 30 June Weighted average number of shares (diluted) Weighted average 1 1 number of shares at 1 January 1,040,250 1,036,100 Deemed issue of ordinary shares under share option scheme for nil consideration 11,429 12,762 Weighted average 6 30 number of shares (diluted) at 30 June 1,051,679 1,048,862 There is no dilutive effect on earnings per share upon deemed exercise of the Warrants granted in Hong Long Holdings Limited Interim Report 2008

34 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 9 INVESTMENT PROPERTIES All investment properties of the Group were revalued as at 30 June 2008 by an independent firm of surveyors, Knight Frank Petty Limited, who has among their staff Fellows of the Hong Kong Institute of Surveyors with recent experience in the location and category of property being valued, on an open market value basis calculated by reference to net rental income allowing for reversionary income potential. 10 TRADE AND OTHER RECEIVABLES At At 30 June 31 December RMB 000 RMB 000 Trade receivables 6,358 8,821 Other receivables 106,862 80,552 Loans and advances 230, ,106 Loans and receivables 343, ,479 Derivative financial instruments 1,118 1,400 Prepayments and deposits 232, , , ,306 Ageing analysis of trade receivables is as follows: At At 30 June 31 December RMB 000 RMB to 90 days ,305 8, days to 180 days days to 365 days ,358 8,821 33

35 Notes to the Unaudited Interim Financial Report (Expressed in Renminbi Yuan unless otherwise indicated) 10 TRADE AND OTHER RECEIVABLES (CONTINUED) 10. Trade receivables are due within 30 to 90 days from the date of billing The Group has a defined credit policy. In respect of rental receivables from property leasing activities, monthly rentals are received in advance and sufficient rental deposits are held to cover potential exposure to credit risk. The Group has no other collateral from its customers. 11 CASH AND CASH EQUIVALENTS 11 At At 30 June 31 December RMB 000 RMB 000 Deposits with banks and other financial institutions 36, ,331 Cash at bank and in hand 36, ,770 73, , INTEREST-BEARING BORROWINGS 12 The analysis of the carrying amounts of interest-bearing borrowings is as follows: At At 30 June 31 December RMB 000 RMB 000 Bank loans 435, ,678 Senior Note 567, ,708 1,002, , Hong Long Holdings Limited Interim Report 2008