Corporate Information Ugland House South Church Street Post Office Box 309 George Town Grand Cayman Cayman Islands British West Indies

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2 Corporate Information Ugland House South Church Street Post Office Box 309 George Town Grand Cayman Cayman Islands British West Indies Directors Executive Director Wang Yin (Chairman) Wu Xiangdong (Managing Director) Non-Executive Director Yan Biao Du Wenmin Ding Jiemin Wei Bin (Appointed on 15 October 2010) Shi Shanbo (Appointed on 15 October 2010) Zhang Haipeng (Appointed on 15 October 2010) Jiang Wei (Resigned on 15 October 2010) Li Fuzuo (Resigned on 15 October 2010) Liu Yan Jie (Resigned on 20 January 2010) Independent Non-Executive Director Wang Shi Andrew Y. Yan Ho Hin Ngai, Bosco Wan Kam To, Peter Frederick Ma Si Hang (Appointed on 8 March 2010) Company Secretary Lo Chi Lik, Peter Auditor Deloitte Touche Tohmatsu Share Registrar Tricor Standard Limited 26th Floor., Tesbury Centre 28 Queen s Road East Wanchai, Hong Kong Registered Office Ugland House South Church Street Post Office Box 309 George Town Grand Cayman Cayman Islands British West Indies Head Office 46th Floor, China Resources Building 26 Harbour Road, Wanchai, Hong Kong Website Address

3 Contents Group Structure Schedule of Principal Properties Chairman s Statement Management Discussion and Analysis Biographical Details of Directors and Senior Management Corporate Social Responsibility Corporate Governance Report Report of the Directors Independent Auditor s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Financial Summary

4 Group Structure CHINA RESOURCES (HOLDINGS) COMPANY LIMITED 65.37% China Resources Land Limited Property Development Investment Property Construction & Decoration Furniture Manufacturing & Sales Beijing Shanghai Shenzhen Chengdu Wuhan Hefei Ningbo Changsha Suzhou Xiamen Tianjin Chongqing Mianyang Hangzhou Wuxi Dalian Shenyang Fuzhou Qingdao Nantong Anshan Zhengzhou Yangzhou Changchun Xuzhou Nanchang Tangshan Wanning Harbin Zibo Taizhou Chengdu Mianyang Chongqing Beijing Shanghai Shenzhen Hangzhou Wuxi Shenyang Chengdu Dalian Suzhou Chongqing Hefei Qingdao Anshan Zhengzhou Changchun Mianyang Wanning Harbin Zibo Taizhou Mainland China Mainland China Harbin Changchun Beijing Shenyang Anshan Tangshan Dalian Tianjin Zhengzhou Qingdao Zibo Hefei Xuzhou Suzhou Nantong Wuxi Shanghai Taizhou Hangzhou Ningbo Yangzhou Wuhan Nanchang Changsha Fuzhou Xiamen Shenzhen Wanning 2 Annual Report 2010

5 Schedule of Principal Properties Properties held for Investment or Own Use Attributable Beneficial Interest of China Resources Land Limited Approximate Total Gross Floor Area Type Lease Term China Resources Building 8 No. 8, Jianguomen North Avenue, Dongcheng District, Beijing Xidan Cultural Centre 180 No.180, Xidan North Avenue, Xicheng District, Beijing 100% 65,222 O Medium Term Lease 96.28% 36,184 C Medium Term Lease Huawei Building Xidan North Avenue, Xicheng District, Beijing Huanan Building Xidan North Avenue, Xicheng District, Beijing 48.14% 54,214 R/C 15.30% 70,058 C/O Medium Term Lease Medium Term Lease Grand Constellation Shopping Mall Hua Yuan Street, Xicheng District, Beijing U-Space Shopping Mall 8 No. 8, Guangqumenwai Avenue, Chaoyang District, Beijing Jing Tong Shops Chaoyang Road, Chaoyang District, Beijing 96.28% 16,787 C Medium Term Lease 96.28% 10,685 C Medium Term Lease 96.28% 17,952 C Medium Term Lease C Commercial CP Car Park O Office R Residential H Hotel Annual Report

6 Schedule of Principal Properties Properties held for Investment or Own Use Attributable Beneficial Interest of China Resources Land Limited Approximate Total Gross Floor Area Type Lease Term 22 Building 22, Guanyingyuan Xinjiekou South Street, Xicheng District, Beijing 96.28% 4,155 R/C Medium Term Lease Jin Hui Garden Daxing District, Beijing 96.28% 3,926 C Medium Term Lease A Phoenix Place Tower A Office Car Park Sanyuanqiao, Chaoyang District, Beijing 96.28% 96.28% 44,031 30,789 13,242 O CP Medium Term Lease Phoenix City Commercial Street Sanyuanqiao, Chaoyang District, Beijing 49 Building 49, Fortune Island, Jade City Daxing District, Beijing B2 1 Building 1, Plot B2, Jade City Daxing District, Beijing 96.28% 13,210 C Medium Term Lease 96.28% 5,681 C Medium Term Lease 96.28% 2,007 C Medium Term Lease Shanghai China Resources Times Square Mall Office Car Park 500 No. 500, Zhangyang Road, Pudong, Shanghai 100% 97,139 51,190 36,843 9,106 C O CP Medium Term Lease C Commercial CP Car Park O Office R Residential H Hotel 4 Annual Report 2010

7 Schedule of Principal Properties Properties held for Investment or Own Use Attributable Beneficial Interest of China Resources Land Limited Approximate Total Gross Floor Area Type Lease Term Hangzhou The MIXc The MIXc Car Park East Qingchun Road, Qianjiang New Town, Jianggan District, Hangzhou 60% 60% 60% 242, ,709 69,136 C CP Medium Term Lease Wuhan Central Park Commercial Car Park West Qintai Road, Hanyang District, Wuhan 100% 100% 100% 9,922 7,456 2,466 C CP Medium Term Lease Chengdu Jade City Commercial Car Park 99 No. 99, East Fifth Section, Second Ring Road, Jinjiang District, Chengdu 100% 100% 100% 42,032 27,276 14,756 C CP Medium Term Lease Shenzhen City Crossing The MIXc China Resources Building Grand Hyatt Car Park No. 5001, Shennan East Road and No.1881, Baoan South Road, Luohu District, Shenzhen 100% 323, ,585 40,990 67,506 55,667 C O H CP Medium Term Lease Shenzhen Hua Rui Building 1001 No. 1001, Baoan South Road, Luohu District, Shenzhen 100% 13,789 C Medium Term Lease C Commercial CP Car Park O Office R Residential H Hotel Annual Report

8 Schedule of Principal Properties Properties held for Investment or Own Use Attributable Beneficial Interest of China Resources Land Limited Approximate Total Gross Floor Area Type Lease Term Le Meridien Shimei Bay Beach Resort & Spa Shimei Bay, Wanning 100% 41,926 H Medium Term Lease C Commercial CP Car Park O Office R Residential H Hotel 34,729 4,213,6983,691,568 Note: Not including Beijing other operational investment properties of 34,729 square meters; and Beijing Phoenix Plaza, Beijing Oak Bay Commercial Property, Shanghai Wuzhong Road Project Commercial Property, Chengdu Twenty-Four City Commercial Property, Chengdu Oak Bay Commercial Property, Chengdu Donglin Project Commercial Property, Mianyang Central Park Commercial Property, Hefei The MIXc, Wuxi Taihu International Community Commercial Property, Hotel in Dalian Oriental Xanadu, Dalian Ganjingzi Huanan Project Commercial Property, Chongqing Twenty-Four City Commercial Property, Shenyang City Crossing, Shenyang CR Plaza, Anshan Park Lane Manor Commercial Property, Qingdao City Crossing, Zhengzhou MIXc Residence Commercial Property,Changchun Southern New District Project Commercial Property, Harbin Songbei Project Commercial Property, Taizhou CR International Community Commercial Property, Zibo Zhangdian Central District Project Commercial Property, Hainan Shimei Bay Project Commercial Property, all of which are currently under construction or planned to be constructed involving a total gross floor area of 4,213,698 square meters and a attributable gross floor area of 3,691,568 square meters. Beijing China Resources Building Shanghai China Resources Times Square Shenzhen MIXc 6 Annual Report 2010

9 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Shengyang Oak Bay Yuhong District, Shenyang 100% 446, ,772 R 15 9 Sep/15 Construction in Progress Shenyang MIXc Residence Heping District, Shenyang 100% 44, ,986 R/C 14 9 Sep/14 Construction in Progress Shenyang The Arch Tiexi District, Shenyang 100% 133, ,703 R/C 14 9 Sep/14 Construction in Progress Shenyang Changqing Project Hunnan New District, Shenyang 51% 169, ,684 R 14 9 Sep/14 Planning in Progress Dalian Maritime Binhai New District, Development Zone, Dalian 100% 121, ,294 R 18 9 Sep/18 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Shenyang Oak Bay Dalian Maritime Annual Report

10 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Dalian Oriental Xanadu Xinhaiwan No.4 Road, Shahekou District, Dalian 55% 105,474 85,331 R 15 6 Jun/15 Construction in Progress Dalian Ganjingzi Huanan Project North Zhonghua Road, Ganjingzi District, Dalian 100% 169, ,000 R/C na Planning in Progress Anshan Park Lane Manor Crossing of Liberation Road and Yuanlin Road, Tiedong District, Anshan 100% 101, ,200 R 16 4 Apr/16 Planning in Progress Anshan Carrefour North Project Crossing of South Shengli Road and Heping Road, Tiedong District, Anshan 100% 54, ,200 R 16 4 Apr/16 Planning in Progress Changchun Southern New Project Southern New Town, Changchun 100% 131, ,100 R/C na Planning in Progress C Commercial CP Car Park O Office R Residential H Hotel Dalian Oriental Xanadu Aushan Park Lane Manor 8 Annual Report 2010

11 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Harbin Songbei Project Songbei District, Harbin 100% 90,000 80,250 R/C na Planning in Progress Majestic Garden Jianxiaoqiao, Chaoyang District, Beijing 96.28% 18,085 50,000 O/C 11 6 Jun/11 Planning in Progress Eco Living 305 No.305 Guanganmenwai Avenue, Xuanwu District, Beijing 96.28% 51,620 74,716 R/C Dec/13 Construction in Progress Beijing Oak Bay Qinghe, Haidian District, Beijing 98.10% 308, ,190 R 15 9 Sep/15 Construction in Progress Mentougou Project Mentougou District, Beijing 100% 201, ,121 R 16 5 May/16 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Eco Living Beijing Oak Bay Annual Report

12 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion 17 Daxing Plot 17 Daxing District, Beijing 100% 123, ,323 R 15 4 Apr/15 Construction in Progress CR Building Phase 2 Dongcheng District, Beijing 100% 17,767 37,344 R/C na Planning in Progress Tianjin Central Park Jiulong Street, Shuanggang Town, Jinnan District, Tianjin 100% 105, ,592 R Dec/13 Construction in Progress Tianjin Konggang Project Konggang District, Tianjin 100% 511, ,630 R 17 9 Sep/17 Planning in Progress Zhengzhou MIXc Residence Crossing of Democracy Road and Liberation Road, Twenty-seven District, Zhengzhou 100% 65, ,000 R/C 17 1 Jan/17 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel 17 Daxing Plot 17 Tianjin Central Park 10 Annual Report 2010

13 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Tangshan Oak Bay Phoenix New Town, Tangshan 100% 185, ,450 R 15 8 Aug/15 Construction in Progress Qingdao City Crossing 10 No.10, Shandong Road, Southern District, Qingdao 100% 135, ,700 R/C Dec/15 Construction in Progress Zibo Zhangdian Central District Project Central Town, Zhangdian District, Zibo 100% 149, ,600 R/C na Planning in Progress Wuxi Taihu International Community 88 No.88, Jinshi Road, Wuxi 60% 1,115, ,598 R 16 7 Jul/16 Construction in Progress Suzhou Villa Pingjiang District, Suzhou 100% 96,564 45,922 R Dec/14 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Wuxi Taihu International Community Suzhou Villa Annual Report

14 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Suzhou Oak Bay Xiangcheng District, Suzhou 100% 170, ,543 R Dec/12 Construction in Progress Suzhou The Bound of Kunyu Hongqiao Road, Kunshan 100% 259, ,987 R Dec/15 Construction in Progress Nantong Oak Bay East Xinkai North Road, Economic Technical Development Zone, Nantong 100% 185, ,923 R Oct/15 Construction in Progress Yangzhou Oak Bay Jiangwang Town, Hanjiang District, Yangzhou 100% 117, ,260 R Dec/13 Planning in Progress Xuzhou The Bound of Yulong Lake Tongshan District, Xuzhou 100% 221, ,928 R 14 6 Jun/14 Planning in Progress C Commercial CP Car Park O Office R Residential H Hotel Suzhou Oak Bay Nantong Oak Bay 12 Annual Report 2010

15 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Taizhou CR International Community Zhoushanhe District, Taizhou 100% 283, ,523 R/C Dec/17 Planning in Progress Shanghai The Bund Side Huangpu District, Puxi, Shanghai 100% 59,504 56,681 R/C Dec/11 Construction in Progress Shanghai Oak Bay 1088 No.1088, Zhenghe Road, Shanghai 100% 144, ,601 R/C Nov/14 Construction in Progress Shanghai Central Park Jiading District, Shanghai 100% 266, ,197 R 17 8 Aug/17 Construction in Progress Shanghai Eternal Palace Songjiang District, Shanghai 100% 121, ,719 R 13 3 Mar/13 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel The Bund Side Shanghai Central Park Annual Report

16 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Shanghai Wuzhong Road Project Wuzhong Road, Shanghai 50% 202,400 50,000 C 15 5 May/15 Planning in Progress Hangzhou MIXc Service Residence 737 No.737, Fuchun Road, Jianggan District, Hangzhou 60% 23,556 4,846 R 10 4 Apr/10 Completed Hangzhou MIXc Service Apartment 737 No.737, Fuchun Road, Jianggan District, Hangzhou 60% na 92,500 R Nov/15 Planning in Progress Hangzhou Zhijiang Project South Zhijiang Road, Zhijiang District, Hangzhou 100% 90, ,280 R 14 9 Sep/14 Planning in Progress Ningbo Tuscany Lake Valley Dongqianhu District, Ningbo 100% 317,155 91,855 R Dec/12 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Hangzhou MIXc Residence Ningbo Tuscany Lake Valley 14 Annual Report 2010

17 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Ningbo Cixi Central Park Kandun Street, Cixi, Ningbo 100% 150, ,151 R Dec/13 Construction in Progress Ningbo Cixi Central Park Beilun District, Ningbo 50% 89, ,062 R Dec/13 Planning in Progress Wuhan Landmark Residence Minzhu Road, Wuchang District, Wuhan 100% 13,744 35,780 R/C Dec/12 Construction in Progress Wuhan Oak Bay Yangyuan Section, Yangzi River Bank, Wuchang District, Wuhan 100% 190, ,592 R 14 6 Jun/14 Construction in Progress Wuhan Central Park Hanyang District, Wuhan 100% 123, ,776 R/C Dec/13 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Ningbo Cixi Central Park Wuhan Central Park Annual Report

18 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Hefei Park Lane Manor Crossing of Wangjiang West Road and Hezuohua South Road, Hefei 100% 76,552 15,298 R/C Dec/10 Completed Hefei Palace Glorious Yangzi River East Avenue, Yaohai District, Hefei 100% 53,600 48,861 R 12 4 Apr/12 Construction in Progress Hefei The Arch Zhengwu District, Hefei 100% 221, ,000 R/C Dec/12 Construction in Progress Hefei No.1 Jiancai Factory Project Luyang District, Hefei 100% 242, ,600 R na Planning in Progress Changsha Phoenix City Changsha County, Changsha 100% 401, ,909 R 15 8 Aug/15 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Hefei Park Lane Manor Changsha Phoenix City 16 Annual Report 2010

19 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Changsha Hanpu Project Hanpu Town, Wangcheng County, Changsha 100% 153, ,296 R 16 6 Jun/16 Planning in Progress Chengdu Jade City Jinjiang District, Chengdu 100% 370,928 16,189 R/C 11 6 Jun/11 Construction in Progress- Chengdu Phoenix City South Third Ring Road, Chengdu 100% 157, ,144 R 13 9 Sep/13 Construction in Progress Chengdu Twenty-Four City East Second Ring Road, Chengdu 100% 559,883 1,313,077 R Dec/15 Construction in Progress Chengdu Oak Bay Hongguang Town, Pi County, Chengdu 100% 132, ,593 R Dec/14 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Chengdu Jade City Chengdu Phoenix City Annual Report

20 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Chengdu Jinyue Bay Qingyang District, Chengdu 100% 112, ,420 R Dec/14 Construction in Progress Chengdu Ginkgo Park Jinniu District, Chengdu 100% 23,567 43,230 R/C 12 4 Apr/12 Construction in Progress Chengdu Donghu Project Jinjiang District, Chengdu 100% 14,266 71,716 R Dec/12 Planning in Progress Chengdu Donglin Project Chenghua District, Chengdu 100% 79, ,756 R Dec/14 Planning in Progress Mianyang Central Park Kechuangyuan District, Mianyang 100% 277, ,875 R Dec/14 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Chengdu Ginkgo Park Chongqing Twenty-Four City 18 Annual Report 2010

21 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area Approximate Unsold Gross Floor Area As of 23 March 2011 Type Estimated Date of Completion State of Completion Chongqing Central Park Dashiba Street, Jiangbei District, Chongqing 100% 171, ,181 R Dec/14 Construction in Progress Chongqing Twenty-Four City P Section P of Dayangshi, Jiulongpo District, Chongqing 100% 408,992 1,307,243 R 16 6 Jun/16 Construction in Progress Fuzhou Oak Bay West Hongwan Road, Cangshan District, Fuzhou 100% 360, ,724 R Dec/15 Construction in Progress Xiamen Oak Bay Xingbei Road, Jimei District, Xiamen 100% 94, ,439 R Oct/16 Construction in Progress Nanchang Central Park Chaoyang New Town, Nanchang 100% 127, ,923 R Dec/15 Planning in Progress Hainan Shimei Bay Project Shimei Bay, Wanning 100% 3,218, ,062 R/C Dec/17 Construction in Progress C Commercial CP Car Park O Office R Residential H Hotel Fuzhou Oak Bay Hainan Shimei Bay Annual Report

22 Chairman s Statement The Group has its vision to promote the value of urban life and to help people fulfill their dreamed living, aims to become the most prominent integrated property company in China and a market leader in mid-to-high end residential and investment property sectors by way of its persistent pursuit of quality excellence and the differentiated competitive strategy and its adoption of unique business model of residential development + property investment + value-added services % 40.0% %; % 2010 Annual Results and Dividend Distribution In 2010, the Group s consolidated turnover and profit attributable to shareholders reached HK$25,729 million and HK$6,026 million respectively, increased by 54.5% and 40.0% over the corresponding period of The residential development business turnover amounted to HK$22,587 million, with a year on year growth of 56.3%; the turnover of investment property business including hotel business amounted to HK$1,777 million, representing a year-on-year growth of 59.6%. 39.4%34.1%5 EBITDA 60.2%69.1% In 2010, residential development business witnessed a substantial enhancement in its gross profit margin with it rising by 5% from 34.1% in 2009 to 39.4%; EBITDA margin of property leasing business recorded a decline from 69.1% in 2009 to 60.2% in 2010, due primarily to Hangzhou MIXc, which came into operation at the end of April 2010, with relatively low first-year rental contribution due to certain rental free periods and relatively high initial operating expenses % % In consistence with its dividend payout policy, the Group declared a final dividend of HK21.5 cents per share, an increase of 17.5% compared to HK18.3 cents per share for the corresponding period of Together with the interim dividend of HK9.5 cents, the annual dividend of 2010 amounted to HK31.0 cents per share. The payout ratio in 2010 was 27.0%, the same level as for Annual Report 2010

23 Chairman s Statement , , Land Bank During 2010, the Group added a total gross floor area of 6.60 million square meters to its land bank. Together with the new land bank acquired in Harbin, Zibo, Hefei, Taizhou and Dalian since the beginning of 2011, as of 23 March 2011, the Group has established its presence in 31 cities nationwide with a total land bank of million square meters in gross floor area, of which land bank for residential development stood at million square meters while that of investment properties under construction and investment properties in operation totaled 4.21 million square meters and 1.15 million square meters respectively. ++ The Group has now established a land bank portfolio that is reasonably balanced in its proportion for residential development and investment properties, ideally located in its geographic reach. Current land bank portfolio represents a strategic match to the Group s long term plan, can largely meet the needs for the Group s development in the coming years. Vision and Development Strategy The Group has its vision to promote the value of urban life and to help people fulfill their dreamed living, aims to become the most prominent integrated property company in China and a market leader in mid-to-high end residential and investment property sectors by way of its persistent pursuit of quality excellence and the differentiated competitive strategy and its adoption of unique business model of residential development + property investment + value-added services. + + The Group s differentiated competitive strategy, unique business model of residential development + property investment + valueadded services along with quality excellence form the core components of the Group s development strategy, which in turn guarantees the Group to achieve its vision and helps to build up long-term core competitiveness. Annual Report

24 Chairman s Statement Rainbow City Series Under guidance of the aforementioned strategies, after years of persistent efforts, the Group has formed six series of residential products, including Park Lane Manor Series, the premium highrise residential products in urban area; Blue Lake City Series, the premium mixed density residential products in suburban area; Central Park Series, the elite high-rise residential products in city centre; Oak Bay Series, the elite mixed density residential products in suburb area; MIXc Residence/The Arc Series, the luxury high rise residential products in city centre; and The Bound Series, the luxury low rise residential products in suburb area. These product lines are tailored for different customer needs ranging from living improvement, quality pursuit to high-end home purchase. At present, the Group s metropolitan complex project City Crossing, which has been highly recognized by the market and industry peers, has been introduced to eight cities in China, two of which have been completed, the other six are under construction. In addition, Regional Commercial Center (named as Rainbow City Series ), currently being piloted in Beijing Oak Bay project, have further broadened our commercial product lines and expanded our geographic presence. The Rainbow City Series have recently been introduced to several cities in China, including Beijing, Shanghai and Zibo. 17 Since its successful trial in Beijing Oak Bay Project, the standardized and serialized storage space, as the first of such value-added services offered to the market, has already been extended to 17 cities; meanwhile, the Group has introduced other value-added services on a trial basis, including in-house developed flexible/ adjustable furniture. Those services were applauded by customers and market when being applied in Beijing Eco Living project and helped the project to achieve better sales and premium in selling prices. 22 Annual Report 2010

25 Chairman s Statement - During the year under review, the Group had reformed its organizational structure and managerial framework to add a layer of regional headquarters between the group headquarter and city companies. Introduction of this new dual-headquarter managerial framework (group headquarter + regional headquarters) represents a major milestone in the evolvement of corporate management structure of the Group, in light of the Group s rapid expansion, by the needs for a more disciplined and systematic product duplication on a basis of well-established standardized product lines, and the needs for a more accelerated asset turnover. It is also aimed to better accommodate the Group s long-stated differentiated business strategy and better serve the Group in its efforts to achieve its strategic goal of high quality, high efficiency and low cost more effectively. We believe this reform will have profound impacts to the Group s future financial performance. Prospects Since April 2010, the Chinese government has launched new rounds of tightening policies towards property sector. The introduction of the tightening measures has effectively reined property prices in China from rising further, the trend seen since the second half of 2009, and has curbed over-speculation in the sector. In the long run, these tightening measures are beneficial and essential for sustainable and healthy development of China s property market. The ultimate purposes of these policies are to avoid the rapid and irrational increases in land cost and property prices, thus to ensure social harmony as well as sustainable development of the industry, while protecting the real economy from potential damage caused by the collapse of asset bubbles. Annual Report

26 Chairman s Statement % Despite the uncertainties in the industry, the Group is fully confident about achieving its target performance in On one hand, there will be substantial increase in both bookable GFA and saleable GFA in 2011; on the other hand, there will be an increased number of cities and projects contributing to revenues and contracted sales, with a bigger proportion from second or third tier cities where enduser demands dominate local markets. Furthermore, a new series of commercial properties, namely Hangzhou MIXc Phase 1 launched last year, Shenyang MIXc Phase 1 and Beijing Oak Bay Commercial (Rainbow City Phase 1) to be launched this year, will also become new growth drivers for our recurrent rental incomes. As of 23 March 2011, the Group has achieved total contracted sales of RMB5,054 million in 2011, representing an increase of 72.5% over the same period of Together with an unrecognized contracted value of RMB21,037 million achieved before 2011, the Group has so far locked in a total unrecognized development revenue of RMB26,091 million as of 23 March 2011, among which, RMB19,296 million will be booked in 2011, thus laying down a solid foundation for sustainable growth and promising financial results of Wang Yin Chairman 25 March 2011, Hong Kong 24 Annual Report 2010

27 Management Discussion and Analysis The Group s differentiated competitive strategy, unique business model of residential development + property investment + value-added services along with quality excellence form the core components of the Group s development strategy, which in turn guarantees the Group to achieve its vision and helps to build up longterm core competitiveness % % Review of Residential Development Business in the Year of 2010 In 2010, the Group s total area sold reached 2,180,651 square meters, a slight increase of 1.3% over the same period of 2009, while total contracted sales was RMB22,263 million, a decline of 11.3% compared with 2009, due to a higher contribution to contracted sales from tier two and tier three cities in comparison with that of Sales breakdown by cities during the year of 2010 are set out as follows: City Contracted Value Area Sold % % RMB 000 % Sqm % Beijing 2,063, % 69, % Shanghai 1,876, % 38, % Shenzhen 49, % 1, % Chengdu 4,854, % 558, % Wuhan 1,032, % 90, % Hefei 1,183, % 173, % Hangzhou 137, % 14, % Wuxi 1,137, % 109, % Ningbo 1,766, % 88, % Dalian 1,971, % 216, % Changsha 1,173, % 261, % Suzhou 321, % 7, % Chongqing 1,809, % 255, % Shenyang 1,188, % 131, % Fuzhou 1,434, % 119, % Mianyang 260, % 45, % Total 22,263, % 2,180, % Annual Report

28 Management Discussion and Analysis Sales breakdown by projects in the year of 2010: Project City Project Type Total GFA Accumulated area sold as of 31 Dec 2010 Area sold in the year of 2010 Average selling price in the year of 2010 (Sqm) (Sqm) (RMB/Sqm) 616, ,817 59,108 30,227 Oak Bay Beijing High density residential 217, ,505 4,181 49,237 Eco Living Beijing Mid-low density residential 189, ,724 5,287 96,325 The Bund Side Shanghai High density residential 230,795 85,856 32,788 41,701 Oak Bay Shanghai High density residential 110, ,003 1,242 40,229 Park Lane Manor Shenzhen High density residential 1,063, , ,955 11,601 Jade City Chengdu Mid-low density residential 1,640, , ,325 10,315 Twenty-Four City Chengdu High density residential 694, , ,094 8,336 Phoenix City Chengdu High density residential 523,511 67,182 67,182 7,252 Oak Bay Chengdu Mid-high density residential 73,059 11,907 11,907 8,343 Ginkgo Park Chengdu Mid-high density residential 346, ,637 89,622 11,472 Central Park Wuhan High density residential 195, ,005 50,776 6,991 Park Lane Manor Hefei High density residential 26 Annual Report 2010

29 Management Discussion and Analysis Project City Project Type Total GFA Accumulated area sold as of 31 Dec 2010 Area sold in the year of 2010 Average selling price in the year of 2010 (Sqm) (Sqm) (RMB/Sqm) 199, , ,283 6,754 Palace Glorious Hefei High density residential 1,017, , ,159 10,420 Taihu International Wuxi Mid-low density residential Community 130, ,869 20,345 32,440 Tuscany Lake Valley Ningbo Low density residential 284, ,756 63,486 16,936 Central Park Cixi High density residential 166,137 65,273 6,879 36,913 Oriental Xanadu Dalian Mid-low density residential 1,309, , ,658 8,458 Maritime Dalian High density residential 67,595 19,723 7,214 44,555 Suzhou Villa Suzhou Low density residential 1,198, , ,654 4,487 Phoenix City Changsha High density residential 1,951, , ,466 7,129 Twenty-Four City Chongqing High density residential 572,665 72,713 72,713 6,992 Central Park Chongqing Mid-high density residential 280, ,804 77,265 8,683 The Arch Shenyang High density residential 890,476 35,394 35,394 10,999 Oak Bay Shenyang Mid-high density residential 603, , ,264 12,040 Oak Bay Fuzhou Mid-low density residential 861,916 45,616 45,616 5,701 Central Park Mianyang Mid-high density residential Annual Report

30 Management Discussion and Analysis % 55.6% 39.4% 34.1% 5.3 Details of the Projects Delivered and Booked in 2010 During 2010, the Group s residential development business achieved a turnover of HK$22,587 million with 1,790,678 square meters recognized, representing a year on year growth of 56.3% and 55.6% respectively. The Group s gross profit margin of the residential development business rose substantially by 5.3% from 34.1% in 2009 to 39.4% in 2010, driven by increased prices for recognized projects and a rise in proportion of high margin projects being recognized in Details of the projects booked and turnover of the Group in 2010 are listed below: Project Name Turnover Area Booked 000 HK$ 000 Sqm Beijing Oak Bay 910,836 54,467 Beijing Eco Living 508,453 29,100 Beijing Others 78,814 4,039 Beijing Subtotal 1,498,103 87,606 The Bund Side 11, Shanghai Oak Bay 1,663,477 35,502 Shanghai Subtotal 1,674,899 35,790 Shenzhen Park Lane Manor 612,078 15,915 Chengdu Jade City 1,268, ,696 Chengdu Phoenix City 1,630, ,190 Chengdu Twenty-Four City 1,475, ,775 Chengdu Oak Bay 59,583 6,631 Chengdu Subtotal 4,433, ,292 Wuhan Phoenix City 5, Wuhan Central Park 1,185, ,270 Wuhan Subtotal 1,191, ,097 Hefei French Annecy 5,260 1,049 Hefei Park Lane Manor 1,168, ,904 Hefei Subtotal 1,173, , Annual Report 2010

31 Management Discussion and Analysis Project Name Turnover Area Booked 000 HK$ 000 Sqm Hangzhou MIXc Residence 3,333, ,098 Wuxi Taihu International Community 1,281, ,273 Ningbo Tuscany Lake Valley 1,126,856 37,461 Dalian Oriental Xanadu 2,382,194 85,875 Dalian Maritime 1,925, ,455 Dalian Subtotal 4,307, ,330 Suzhou Villa 622,469 15,321 Changsha Phoenix City 517, ,426 Chongqing Twenty-Four City 813, ,116 Total 22,586,519 1,790, % 47.3 % Since the beginning of 2011, the Group maintains its momentum in delivering stable and preferable performance in project sales. In 2011, up to 23 March, the Group has achieved contracted value of RMB5,054 million with a contracted GFA of 452,500 square meters, representing year on year growth of 72.5% and 47.3% respectively. As of 23 March 2011, the Group has achieved a total contracted value of RMB26,091 million that are subject to recognition in 2011 and years to come, including contracted value of RMB21,037 million in property sales that was achieved before 2011 but not yet recognized. Specifically, the Group has locked up a total revenue of RMB19,296 million from the residential property development for recognition in 2011, thus laying down a solid foundation for promising financial results of Annual Report

32 Management Discussion and Analysis % ) % Review of Investment Property Business in 2010 As of 31 December 2010, book value of the investment properties of the Group totaled HK$21,953 million, which accounted for 17.5% of the Group s the total assets. In compliance with relevant accounting policies, the Group had conducted an evaluation for its investment properties, including projects under construction, and a revaluation gain of HK$1,758 million (net off taxation and minority interests) was booked during the year based on an appraisal performed by an independent third party. In the year of 2010, the turnover of investment property business including hotel business amounted to HK$1,777 million, representing a year-on-year growth of 59.6%. The following table sets out the turnover and average occupancy rates of the key investment properties in the year of 2010: 000 % Investment Property Turnover (HK$ 000) Average Occupancy Rate (%) (%) (%) yoy(%) yoy(%) Beijing China Resources 164, , % 98.1% 94.4% 3.7% Building CR Land Beijing Others 145, , % 95.8% 96.6% -0.8% Shanghai CR Times Square 207, , % 99.1% 94.5% 4.6% Shenzhen City Crossing 760, , % 97.1% 99.9% -2.8% Hangzhou The MIXc 126,779 2,197 N/A 89.3% N/A N/A Other Rental Income 371,304 10,117 N/A N/A N/A N/A Property Management 287, , % N/A N/A N/A 30 Annual Report 2010

33 Management Discussion and Analysis Details of the Group s major investment properties in the PRC are listed below: (%) Interest Attributable Attributable to the Total GFA GFA Property Name City Group (%) (Sqm) (Sqm) Usage 100.0% 323, ,748 Shenzhen City Crossing Shenzhen 159, ,585 The MIXc Retail 40,990 40,990 CR Building Office 67,506 67,506 Grand Hyatt Hotel Hotel 55,667 55,667 Car Park Car Park 100.0% 13,789 13,789 Huarui Building Shenzhen Hotel 100.0% 97,139 97,139 Shanghai CR Times Square Shanghai 51,190 51,190 Mall Retail 36,843 36,843 Office Office 9,106 9,106 Car Park Car Park 100.0% 65,222 65,222 Beijing CR Building Beijing Office 96.3% 36,184 34,845 Xidan Cultural Centre Beijing Retail 96.3% 16,787 16,166 Grand Constellation Shopping Mall Beijing Retail 96.3% 10,685 10,290 U-space Mall Beijing Retail Annual Report

34 Management Discussion and Analysis (%) Interest Attributable Attributable to the Total GFA GFA Property Name City Group (%) (Sqm) (Sqm) Usage 96.3% 17,952 17,288 Jing Tong Shops Beijing Retail 96.3% 13,210 12,721 Beijing Phoenix City Commercial Street Beijing Retail 48.2% 54,214 26,104 Huawei Centre Beijing Retail 15.3% 70,058 10,722 Huanan Building Beijing Retail % 4,155 4,001 Building 22, Guanyingyuan Beijing Office 96.3% 3,926 3,781 Jin Hui Garden Beijing Retail % 5,681 5,471 Building 49, Fortune Island, Beijing Retail Jade City B % 2,007 1,933 Building 1, Plot B2, Jade City Beijing Retail A 96.3% 30,789 29,650 Block A, Phoenix Plaza, Office Beijing Office A 96.3% 13,242 12,752 Block A, Phoenix Plaza, Car Park Beijing Car Park 96.3% 34,729 33,444 Others Beijing Others 60.0% 242, ,707 Hangzhou The MIXc Ph.1 Hangzhou 173, ,225 The MIXc Retail 69,136 41,482 Car Park Car Park 32 Annual Report 2010

35 Management Discussion and Analysis (%) Interest Attributable Attributable to the Total GFA GFA Property Name City Group (%) (Sqm) (Sqm) Usage 100.0% 41,926 41,926 Hainan Wanning Shimei Bay Wanning Hotel Le Meridien Hotel 100.0% 42,032 42,032 Chengdu Jade City, Retail Chengdu Retail/Others 100.0% 9,922 9,922 Wuhan Central Park, Retail Wuhan Retail/Others 1,150, ,652 Total GFA 649, ,052 Comprising: Retail 177, ,486 Office 123, ,221 Hotel 199, ,893 Others Annual Report

36 Management Discussion and Analysis * 4,213,698 * Not including Beijing Phoenix Plaza, Beijing Oak Bay Commercial Property, Beijing China Resources Building Phase II, Shanghai Bund Side Serviced Apartment, Shanghai Wuzhong Road Project Commercial Property, Chengdu Jade City Commercial Property, Chengdu Twenty-Four City Commercial Property, Chengdu Oak Bay Commercial Property, Mianyang Project Commercial Property, Chengdu Donghu Project Commercial Property, Chengdu Jinsha Project Commercial Property, Chengdu Ginkgo Park Commercial Property, Chengdu Donglin Project Commercial Property, Hefei Park Lane Manor Commercial Property, Hefei MIXc Project, The MIXc Phase II in Hangzhou, Wuxi Taihu International Community Commercial Property, Hotel in Dalian Oriental Xanadu, Dalian Ganjingzi Huanan Project Commercial Property, Changsha Phoenix City Commercial Property, Suzhou Xiangcheng Project Commercial Property, Chongqing Twenty-Four City Commercial Property, The MIXc in Shenyang, Shenyang CR Plaza, Qingdao Submarine School Project Commercial Property, Anshan Education Bureau Project Commercial Property, Zhengzhou Minzhu Road Project, Changchun Southern New District Project Commercial Property, Harbin Songbei Project Commercial Property, Zibo Zhangdian Central District Project Commercial Property, Taizhou Zhoushanhe Project Commercial Property, Hainan Shimei Bay Project Commercial Property, all of which are currently under construction involving a total gross floor area of 4,213,698 square meters. 1-2 In the future, the Group plans to launch one or two investment property projects each year. The stable and recurrent rental income will offer the Group a greater operational resilience to defend against risks of industry fluctuations while optimizing the Group s sustainable profitability. 34 Annual Report 2010

37 Management Discussion and Analysis 17 Review of Value-added Services in 2010 By fully utilizing the Group s traditional advantages on decoration business, the Group rolled out its standardized and serialized storage space total solution system, which was developed after careful study to understand customer needs and have those needs being thoroughly considered and reflected in product R&D, design and product realization. Based on the successful trials of the system at Beijing Oak Bay and Eco Living projects, the Group standardized and modularized the solution system, and implemented it in 17 cities, where it was well received by the market. During the year, the Group extended its value-added service from the storage space solution system to flexible/adjustable furniture. The R&D efforts in flexible/adjustable furniture system was also positively received and recognized by the market as well. Moreover, researches on value-added services on public spaces for residential projects and application of those services in various City Crossing projects have also achieved preliminary results. Annual Report

38 Management Discussion and Analysis , Land Bank In 2010, the Group added 6.60 million square meters to its land bank at an aggregated cost of RMB18,910 million (including HK$7,901 million paid for asset injection from China Resources (Holdings) Company. As of 23 March 2011, the Group has acquired 3.12 million square meters in 2011 at a total cost of RMB5,154 million, with newly entered cities including Taizhou, Harbin, Hefei, Zibo and Dalian. As of 23 March 2011, the total land bank of the Group amounted to million square meters in terms of GFA. Details are set out below: Location Total GFA (Sqm) * Beijing* 1,356,023 * Shanghai* 1,140,057 Chengdu 3,215,329 Wuhan 645,148 Hefei 1,728,759 * Hangzhou* 504,237 * Wuxi* 851,715 * Ningbo* 456,068 * Dalian* 1,755,763 Changsha 1,177,205 Suzhou 694,452 Chongqing 2,013,378 * Shenyang* 2,236,277 Mianyang 719,673 Xiamen 305,439 * Tianjin* 851,222 Fuzhou 469,724 Nantong 401,923 Anshan 586,400 * Qingdao* 745,400 Zhengzhou 464,000 Yangzhou 200, Annual Report 2010

39 Management Discussion and Analysis Location Total GFA (Sqm) Tangshan 463,450 Changchun 327,300 Wanning 1,002,075 Xuzhou 309,928 Nanchang 279,923 Taizhou 992,523 Harbin 198,250 Zibo 570,000 Total 26,661,901 * % 98.1% 96.3% 50.0% 99.8% 100.0% 60.0% 50.0% 100.0% 55.0% 98.1%96.3% 51.0% * The Group s interest is 100.0% in both Beijing Daxing Plot 17 project and Beijing Mentougou project, 98.1% in Beijing Oak Bay Project and 96.3% in all other projects in Beijing. The Group s interest is 50.0% in Shanghai Wuzhong Road Project, 99.8% in Shanghai Oak Bay Project and 100.0% in all other projects in Shanghai. In addition, the Group s interests in Hangzhou The MIXc project and Wuxi projects are both 60.0%. The Group s interest in Ningbo Beilun Project is 50.0%, and the Group s interest in all other projects in Ningbo is 100.0%, while the Group s interest in Dalian Oriental Xanadu is 55.0%. The Group s interests in Tianjin projects are 98.1% and its interest in Qingdao project is 96.3%. The Group also owns a 51.0% interests in Shenyang Changqing project Sufficient land bank laid a solid foundation for the Group s steady growth in the future. The Group s geographic reach has been extended from 22 to 31 cities (with the addition of Yangzhou, Tangshan, Changchun, Wanning, Xuzhou, Nanchang, Taizhou, Harbin and Zibo). Annual Report

40 Management Discussion and Analysis % 36.1% 63.9%22.6% 2.4% Looking forward, the Group will continue to acquire new land bank according to its business development strategies while maintaining prudent financial policies. Future land bank acquisition will be funded by its internal resources together with external financing. Share Placement, Borrowings and Debt Ratio, Asset Mortgage, and Risk of Interest Fluctuation As of 31 December 2010, the Group had a total gross borrowing of HK$37,807 million, cash and bank balance of HK$11,972 million, while the Group s net debt to equity ratio stood at 56.3%. As of 31 December 2010, 36.1% and 63.9% of the Group s borrowings were denominated in Renminbi and HK dollar respectively. Among the total borrowings, approximately 22.6% of the bank borrowings are repayable within one year while the rest are long term borrowings. The Group has maintained its borrowing cost at a relatively low level, the weighted average interest rate of its bank borrowings as at 31 December 2010 was around 2.4% only. 38 Annual Report 2010

41 Management Discussion and Analysis Details of the Group s assets being pledged as of 31 Dec 2010 are listed below: Pledged Project Total Facility Quota Starting Date Ending Date (RMB 000) Beijing CR Building 700, Shanghai CR Times Square 50, Shanghai CR Times Square 500, Shanghai CR Times Square 450, Shenzhen CR Building 400, Shenzhen The MIXc Ph Shenzhen The MIXc Ph.1 1,500, Total 3,600,000 11,228 All of the Group s residential and investment properties are located in mainland China. We do not expect Renminbi appreciation, if any, to have negative impact on the Group s financial position. Employee and Compensation Policy As of 31 December 2010, the Group had approximately 11,228 full time staff in Mainland China and Hong Kong (including its property management and agency subsidiaries). The Group remunerates its employees based on their performance, experience and the prevailing market wage level. In addition, performance bonuses are granted on a discretionary basis. Other employee benefits include provident fund, insurance, medical coverage, share option scheme, and restricted share award scheme, etc. Annual Report

42 Biographical Details of Directors and Senior Management MR. WANG YIN, aged 54 was appointed Chairman of the Company in June He is responsible for the overall business development and strategic planning of the Group's business. He is also a Director and a Vice President of China Resources (Holdings) Co. Ltd. and a Director of China Resources National Corporation. Mr Wang is also a Director of China Vanke Co., Ltd, which is a listed company in China. Mr. Wang has a Bachelor of Economics degree from Shangdong University in China and an MBA degree from the University of San Francisco in the United States. He joined China Resources (Holdings) Company Limited in 1984, and joined the Company in MR. WU XIANGDONG, aged 43 was appointed Managing Director of the Company in June Mr. Wu has a double Bachelor s degree in Architectural Management and Mechanics from Tsinghua University, China and an MBA degree from the University of San Francisco in the United States. Mr. Wu has experience in corporate management and commercial property operation. Mr. Wu joined China Resources (Holdings) Company Limited in 1993 and was the Vice General Manager of China Resources Property Management Limited, and joined the Company in MR. YAN BIAO, aged 49 was appointed Executive Director of the Company in August 1996 and was re-designated as Non-Executive Director in February Mr. Yan is a Director of China Resources (Holdings) Company Limited and China Resources National Corporation and is the Director of Legal Affairs of the China Resources Group. He is also a Non-Executive Director of China Resources Enterprise, Limited. Mr. Yan was appointed Supervisor of China Resources Sanjiu Medical & Pharmaceutical Co., Ltd on 10 November Mr. Yan has a Bachelor of Laws degree from the Peking University, China and an MBA degree from the University of San Francisco, USA. He joined China Resources (Holdings) Company Limited in Annual Report 2010

43 Biographical Details of Directors and Senior Management MR. DU WENMIN, aged 48 was appointed Non-Executive Director of the Company in August Mr. Du is currently a Vice President and Chief Human Resources Officer of China Resources (Holdings) Company Limited. Mr. Du is also the Non-Executive Director of China Resources Enterprise, Limited, China Resources Power Holdings Company, China Resources Cement Holdings Limited, China Resources Gas Group Limited, and China Resources Microelectronics Limited. He is also a Director of China Resources Sanjiu Medical & Pharmaceutical Co., Ltd. Mr. Du has served as a Director of China Resources Construction (Holdings) Limited, and an Audit Controller of China Resources (Holdings) Limited. Mr. Du has an MBA degree from the University of San Francisco, USA. He joined China Resources (Holdings) Company Limited in PROF. DING JIEMIN, aged 53 was appointed Non-Executive Director of the Company in September Prof. Ding is currently the Assistant to the President of Tongji University, the Chairman of Shanghai Tongji Science & Technology Industrial Co., Ltd. (600846), and the President of the Architectural Design and Research Institute of Tongji University. Prof. Ding is also a researcher in structural engineering, an adviser of doctoral students, a China national class 1 registered structural engineer, a registered consultant engineer (in investment), and a senior registered structural engineer in British Royal Institution of Structural Engineers. Prof. Ding Jiemin graduated from Dept. of Building Engineering in Tongji University in He got his master s degree and doctor s degree from Tongji University in 1987 and Prof. Ding is engaged in the research and design in structural engineering. His research direction is super-high and large-span complex structural system. In recent years, he published more than 100 professional articles, and designed dozens of different kinds of buildings, well combining the structural research with the engineering design. Annual Report

44 Biographical Details of Directors and Senior Management MR. WEI BIN, aged 41 was appointed as non executive director of the Company in October Mr. Wei is the Chief Financial Officer of CRH. He is also a non executive director of China Resources Gas Group Limited, China Resources Cement Holdings Limited, China Resources Power Holdings Company Limited, China Resources Microelectronics Limited and China Resources Enterprise, Limited. Mr. Wei holds a Bachelor s degree of Auditing from Zhongnan University of Finance and Economics and a Master s degree of Finance from Jinan University, he joined CRH in MR. SHI SHANBO, aged 45 was appointed Director of the Group in October He is the audit Director of China Resources (Holdings) Company Limited. He is also a Non-executive Director of China Resources Enterprises, Limited, China Resources Power Holdings Company Limited and China Resources Microelectronics Limited. He is also a Director of China Resources Sanjiu Medical & Pharmaceutical Co., Ltd., a company listed on the Shenzhen Stock Exchange. He worked as a Deputy General Manager of the Financial Department of China Resources (Holdings) Company Limited and a General Manager of China Resources Textiles (Holdings) Co., Ltd. He was the Chairman of China Resources Jinhua Co., Ltd., a company listed on the Shenzhen Stock Exchange, from November 2006 to March He was also the Vice Chairman and General Manager of China Resources Cement Holdings Limited which is listed on the Hong Kong Stock Exchange. He holds a Master s degree in Economics from Dongbei University of Finance and Economics. Mr. Shi joined China Resources (Holdings) Company Limited in Annual Report 2010

45 Biographical Details of Directors and Senior Management Goizueta DR. ZHANG HAIPENG, aged 39 was appointed as non executive director of the Company in October Dr. Zhang is the Deputy General Manager of Strategy Management Department of CRH. He is also a Non-executive Director of China Resources Power Holdings Company Limited, China Resources Microelectronics Limited and China Resources Enterprise, Limited, and a Director of China Resources Sanjiu Medical & Pharmaceutical Co., Ltd., a company listed on the Shenzhen Stock Exchange. Prior to joining CRH in July 2009, Dr. Zhang worked with McKinsey & Company for eight years and was a Partner of its Hong Kong Branch, responsible for the strategic planning, merger and acquisition, organizational control, operational management projects for multi-national corporations and domestic companies covering pharmaceutical, petroleum, shipping, real estate and consumer industries. Dr. Zhang also worked at China Merchants Holdings (International) Company Limited as Director of Internal Control and Auditing. China Merchants Holdings (International) Company Limited is listed on the Hong Kong Stock Exchange. Dr. Zhang received a Master's degree in Business and Administration from Goizueta Business School, Emory University in the United States in 2000 and Doctor of Medicine degree from Peking Union Medical College in MR. WANG SHI, aged 60 was appointed Independent Non-Executive Director of the Company in April Mr. Wang is also the Chairman of China Vanke Co., Ltd, which is listed on the Stock Exchange of Shenzhen, China. Mr. Wang is also an Independent Non-Executive Director of SOHU.Com Inc., Central China Real Estate Group Limited, Shanghai Metersbonwe Fashion and Accessories Co., Ltd. and Modern Media Holdings Limited. He has a Bachelor of Science degree from Lanzhou Railway College in China. Annual Report

46 Biographical Details of Directors and Senior Management AIG Sprint International Corporation ANDREW Y. YAN, aged 53 was appointed Independent Non-Executive Director in July He also serves as the Chairman of the Company's Remuneration Committee. Independent Non-Executive Director since March He is currently the Managing Partner of SAIF Partners. Prior to joining SAIF Partners, he was the Managing Director and Head of Hong Kong office of Emerging Markets Partnership, responsible for investment in Northeast Asia and Greater China from 1994 to From 1993 to 1994, he worked at Sprint International Corporation as the Director of Strategic Planning and Business Development for the Asia Pacific Region. From 1990 to 1993, he worked in the World Bank and the Hudson Institute as an Economist and Research Fellow respectively in Washington, DC. From 1984 to 1986, he was a Research Fellow at the State Commission for Economic Restructuring of the State Council of China. From 1982 to 1984, he was the Chief Engineer at the Jianghuai Airplane Corp.. Mr. Yan received a bachelor's degree in engineering from Nanjing Aeronautic Institute in He studied in the Master Program in Department of Sociology of Peking University from and received a Master of Arts' degree from Princeton University in International Political Economy in Mr. Yan also studied MBA courses at the Wharton School of Business from 1996 to ATA Inc., Currently, Mr. Yan is also an Independent Non-executive Director of Fosun International Limited; Non-executive Director of Digital China Holdings Limited, MOBI Development Co., Ltd., NVC Lighting Holding Limited and China Huiyuan Juice Group Limited, all of which are listed on the Main Board of the Stock Exchange. He is also an Independent Director of Giant Interactive Group Inc., (listed on the New York Stock Exchange); Director of Acorn International Inc. (listed on the New York Stock Exchange), ATA Inc. (listed on Nasdaq); Global Education & Technology Group Limited (listed on Nasdaq) and Eternal Asia Supply Chain Management Ltd. (listed on the Small and Medium Enterprise Board of the Shenzhen Stock Exchange). 44 Annual Report 2010

47 Biographical Details of Directors and Senior Management MR. HO HIN NGAI, BOSCO, aged 66 was appointed Independent Non-Executive Director of the Company in September Mr. Ho is a graduate from the Department of Architecture of University of Hong Kong. He worked in several renowned architectural practices in UK and HK before founding Ho & Partners Architects Engineers and Development Consultants Limited in He is Authorized Person (Architect) Hong Kong, Member of Hong Kong Institute of Architects and of Royal Institute of British Architects. The projects he designed can be found in Mainland China, Hong Kong, India, South-East Asia and Middle East. MR. WAN KAM TO, PETER, aged 58 was appointed Independent Non-Executive Director of the Company in March Mr. Wan has been a practicing accountant in Hong Kong for over 30 years and has extensive experience in auditing, finance, advisory and management. He was a former partner of PricewaterhouseCoopers Hong Kong and China firm. Mr Wan is currently an Independent Director of Mindray Medical International Limited (a company listed on the New York Stock Exchange, USA), and RDA Microelectronics, Inc. (a company listed on the NASDAQ), and the Chairman of their Audit Committees. Mr Wan is also an Independent Non-executive Director of The Fairwood Holdings Limited (a company listed on The Stock Exchange of Hong Kong Limited) and the Chairman of its Audit Committee. He is a Fellow of Hong Kong Institute of Certified Accountants and the Association of Chartered Certified Accountants. Annual Report

48 Biographical Details of Directors and Senior Management MR. FREDERICK MA SI HANG, GBS, JP, aged 59 was appointed Independent Non-Executive Director of the Company in March Mr. Ma graduated from the University of Hong Kong in 1973 with a Bachelor of Arts (Honours) degree in economics and history. Mr Ma has held senior management positions in international financial institutions and Hong Kong publicly listed companies in his career. In July 2002, he left the private sector and joined the Government of the Hong Kong Special Administrative Region as the Secretary for Financial Services and the Treasury and assumed the post of Secretary for Commerce and Economic Development in July He resigned from the Government in July 2008 due to medical reasons. In October 2008, he was appointed as an Honorary Professor of the School of Economics and Finance at the University of Hong Kong. In July 2009, he was appointed as a Member of the Intenational Advisory Council of China Investment Corporation. In July 2010, he was appointed as a Director of Husky Energy Inc. In March 2011, he was appointed as an independent non-executive director of Hutchison Port Holdings Management Pte. Limited At present, he is the Chairman and a non-executive director of China Strategic Holdings Limited, a Hong Kong listed company. MR. CHEN YING, aged 40 is a Senior Vice President of the Company and the General Manager of Beijing Region. Mr. Chen has a Bachelor s degree in Architectural Management from Tsinghua University, China and an MBA degree from the University of Oxford. Mr. Chen is also a member of the Hong Kong Institute of Construction Managers. He has experience in property management and corporate management. Mr. Chen joined China Resources (Holdings) Company Limited in 1993, and has worked for China Resources Construction (Holdings) Co., Ltd, and joined the Company in Annual Report 2010

49 Biographical Details of Directors and Senior Management MR. TANG YONG, aged 39 is a Senior Vice President of the Company and the General Manager of Chengdu Region. Mr. Tang has a Bachelor's degree of Engineering in Industrial and Electrical Automation from Tongji Universtity, China and an MBA degree from the University of San Francisco in the United States. Mr. Tang has experience in property management and corporate management. Mr. Tang joined China Resources (Holdings) Company Limited in 1993, and had worked for China Resources Property Management Limited, and joined the Company in MR. WANG HONG KUN, aged 43 was appointed Senior Vice President of the company in January 2011, he is also the General Manager of China Resources Land Hainan Province. Mr. Wang has a Bachelor of Chemical engineering degree and a Master degree in biochemical industry, both from Tianjin University. Mr. Wang joined China Resources (Holdings) Company Limited in 1993 and was the Deputy General Manager of Enterprise Development Dept, and also was Vice President of China Resources Vanguard Co., Ltd, and also was the director of CRC Development & Investment Company Limited, with comprehensive experiences in the management of multi-industries as well as investment management. Heriott-Watt 2006 MR. WANG GUOHUA, aged 47 is the CFO of the Company. Mr. Wang received his Bachelor's degree in Inorganic Refractory Materials Engineering from Wuhan Polytech University and then Master of Science degree in International Banking and Finance from Heriott-Watt University in Edinburgh, the UK, as a recipient of Senior Scholarship of British Foreign Office and the only winner of the Professorial Prize of the Business School of Heriott-Watt University in his academic year. He joined the company in Prior to that, Mr. Wang had worked for over 10 years in Edinburgh, London and Hong Kong respectively with several renowned international investment banks in areas of fund management, equity research and corporate finance. Annual Report

50 Corporate Social Responsibility Construction Quality, Environmental Protection, Energy Conservation and Emission Control As a comprehensive real estate company, CR Land has always persisted in high standards of construction quality, and strictly controlled quality in every aspect of production development. While continuing building up on the principle of the high quality of engineering standard, the Group won the China Construction Engineering Luban Prize (National Prime-quality Projects). The Group considers environmental protection a vital part of corporate social responsibility. Environmentally-conscious ideas are integrated into the different aspects of product development such as planning and designing, usage of construction materials, the design of landscape and forestation, and property management. As the result of the application of environmental friendly construction materials, the Group creates a comfortable and pleasant ecological environment in the community by improving temperature, light, noise and other sectors of environmental systems. We also emphasizes on landscape and forestation in its property planning, employs delicate designing ideas to public space, and endeavors to create indoor and outdoor environment that are equally comfortable and exquisite. 48 Annual Report 2010

51 Corporate Social Responsibility In the future, as a response to the nation s call for a resourceconserving, environmental friendly society, the Group is planning a strategic cooperation with Tongji University in the application of green architecture. By continuing expanding the usage of green/lowcarbon technologies in our projects, the Group strives to mitigate the environmental impacts from real estate development and gradually realize the Group s idea of Green Residence. 8 Eight Major Environmental Friendly & Energy-Conserving Systems being applied in Eco Living Project in Beijing 28 Shanghai Oak Bay project incorporated 28 ecological technologies The Company participated in The Earth One Hour Environmental Protection activity China Construction Engineering Luban Prize Shenzhen City Crossing Phase II Annual Report

52 Corporate Social Responsibility Social Philanthropy The Group promotes the idea of contributing to society and has hosted various community activities at our residential projects. Apart from this, the Group participated in the Hope Village project in Yongle County, Youjiang District, Baise City, Guangxi Province. The Hope Village project is the charity project sponsored by our majority shareholder China Resources (Holdings) Company ( CRH ) and is participated by all subsidiaries of the CRH and other interested parties. The Group leveraged its expertise in real estate development and helped to build public facilities such as school, hospital, community with new concepts, playground, roads and etc for the sponsored community. The project has so far helped to alleviate poverty of and to improve living conditions for about three hundred farmer families. Recently, in coordination with the CRH, the Group has entered the phrase of planning and construction for the newly added Hope Villages located in Hainan Wanning, Hebei Xibaipo, and Hunan Shaoshan. Architectural Effect Pictures of Hope Village Community Hope Village School 50 Annual Report 2010

53 Corporate Social Responsibility 25% 30% Staff Training and Development The competition of modern business boils down to the human resources management. To maintain a solid foundation and sustainable growth in the constantly changing business environment, it mostly depends on whether the company could establish an effective system of staff training and development to identify, train and develop talents. While planning to maintain an average yoy growth rate of 25% 30% for the next five years, the Group understands the fact that human resource is one of the critical factors that could drive a business development. Under the guidance of our HR principle of respecting staff value, discovering staff potential, sublimating staff mind, the Group has established staff capability assessment model for key personnel of various levels, continued optimizing the assessment tools and formed internal assessment team, in order to effectively identify personnel with promising potentials. 70 For talents with promising potentials, the Group s top management training plan and middle management training program help them to sum up the gains and losses of their working experiences and improve the management capacity of their leaderships through face-to-face trainings, cases studies, projects sharing, role rotations, practices coaching and more. Other than satisfying company s demands for management professionals, the Group has also tried to sustain a solid HR foundation and establish a complete system of talents pool through New Employee Orientation a two-months training camp for our newly recruited graduates every year. In the camp, new recruits will be educated on company cultures, management processes, and position requirements. Annual Report

54 Corporate Governance Report A4.1 A.1 The Company recognises the importance of maintaining high standards of corporate governance to the long-term stable development of the Group. The Company has adopted the Code on Corporate Governance Practices set out in the Appendix 14 to the Rules Governing the Listing of Securities (the Listing Rules ) on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) and complied with all the Code Provisions therein throughout the year ended 31 December 2010, with the exception of deviation from Code Provisions A4.1. A review of the Company s corporate governance in 2010 is set out as follows: A.1 The Board The Board is responsible for the leadership and control of the issuer and for the overall enhancement of the issuer s business towards success. The Board should make objective decisions to the interests for the issuer. As at 31 December 2010, the Board of the Company comprised 13 directors, including 2 executive directors, 6 non-executive directors and 5 independent non-executive directors. Members of the Board are not related to each other and the Chairman is not related to the members of the Board, including financial, business, family or other significant relationship. In accordance with the requirements of the Listing Rules, the Company has received confirmation from each of the independent nonexecutive directors confirming their independence. 52 Annual Report 2010

55 Corporate Governance Report The Board meets at least four times a year, to review the financial performance of the Company, any major agenda and other matters requiring decision of the Board. Four meetings were held by the Board in The attendance of directors in meetings is detailed as follows: Name of Director Attendance Executive Director Wang Yin (Chairman) 2/4 Wu Xiangdong 2/4 Non-executive Director Yan Biao 4/4 Du Wenmin 4/4 Ding Jiemin 1/ Wei Bin (appointed on 15 October 2010) 1/ Shi Shanbo (appointed on 15 October 2010) 1/ Zhang Haipeng (appointed on 15 October 2010) 1/ Jiang Wei (resigned on 15 October 2010) 0/ Li Fuzuo (resigned on 15 October 2010) 1/ Liu Yan Jie (resigned on 20 January 2010) 0/0 Independent Non-executive Director Wang Shi 1/4 Andrew Y. Yan 3/4 Ho Hin Ngai, Bosco 3/4 Wan Kam To, Peter 4/ Frederick Ma Si Hang (appointed on 8 March 2010) 3/4 All directors have access to advice and services of the Company Secretary, who is responsible for ensuring that Board procedures are complied with; Annual Report

56 Corporate Governance Report Minutes of meetings of the Board and Board Committees are kept by a designated secretary and are available for the inspection of directors upon notice of a reasonable period; The Board has established a policy for directors to seek professional advice, whereby directors may seek independent professional advice after appropriate procedures at the Company s expense; If a substantial shareholder or director has a conflict of interest in a matter to be considered by the Board which the Board has determined to be material, such matter shall not be considered by means of document circulation. Independent non-executive directors who have no significant interests in the transaction shall attend the relevant Board meeting. A.2 Deviation: None A.2 Chairman and Chief Executive Officer Issuer should separate its operating management into two major aspects: management of the Board and day-to-day management of the issuers business. On the Board level, the two aspects must be clearly distinguished to ensure a balance allocation of power and authority. The posts of Chairman and Managing Director of the Company are held separately by Mr. Wang Yin and Mr. Wu Xiangdong respectively. The segregation of duties of the Chairman and the Managing Director ensures a clear distinction in the Chairman s responsibility to manage the Board and the Managing Director s responsibility to manage the Company s day to day business. Deviation: None 54 Annual Report 2010

57 Corporate Governance Report A.3 A.3 Board Composition The board should have a balance of skills and experience appropriate to the requirements of the business of the issuer, and should ensure that any change in composition shall not cause any undue disruption. The Board should have a balanced composition of executive and non-executive directors (including independent non-executive directors) to ensure the adequate independence of the board so that independent judgment can effectively be exercised. There should be a sufficient number of non-executive directors with appropriate skills to reach influential advice Members of the Board and their biographical details are set out on pages 40 to 46. All corporate correspondence which sets out names of directors clearly state the identity of each director, including executive director, non-executive director and independent non-executive directors. A.4 Deviation: None A.4 Appointments, Re-election and Removal The Board should formulate formal, considered and transparent procedures for the appointment of new directors, and establish orderly plans for the succession of directors. All directors should be re-elected regularly and issuer should state reasons for any resignation or removal of directors. A.4.5(a) (d) The Board has set up a Nomination Committee with specific written terms of reference. It duties included those required under Code Provision A.4.5(a) to (d). Annual Report

58 Corporate Governance Report As at 31 December 2010, Members of Nomination Committee include four independent non-executive directors namely Mr. Wan Kam To, Peter, Mr. Andrew Y. Yan, Mr. Ho Hin Ngai, Mr. Frederick Ma Si Hang and Mr. Wang Yin (Chairman). The duties of the Nomination Committee include reviewing the structure, size and composition of the Board and to make recommendation after such review and to assess the suitability and qualification of any proposed director candidate. The recommendations of the Nomination Committee are then put forward for consideration and adoption, when appropriate, by the Board. During the year under review, the nomination committee recommended the Board to appoint Mr. Shi Shanbo, Mr. Wei Bin and Dr. Zhang Haipeng as non-executive directors of the Company. The nomination committee had considered the qualifications and experiences of each candidate before making decision. Decision was made by way of circulation of written resolutions. No meeting was held by the nomination committee during the year The experience and views of independent non-executive directors are held in high regard. The Company has appointed 5 independent non-executive directors, exceeding the minimum requirements under the Listing Rules relating to the appointment of at least three independent non-executive directors. The detailed biographies are set out on pages 43 to 46. Deviation: Except independent non-executive director Mr. Andrew Y. Yan has been appointed for fixed term of three years, all directors of the Company (including executive and non-executive directors) are not appointed for a fixed period, but the articles of the Company stipulate that every director (including executive and non-executive directors) retires and be re-elected at least once every three years. Therefore, the Company has adopted adequate measures to ensure the corporate governance of the Company complies with the same level to that required under the Code. 56 Annual Report 2010

59 Corporate Governance Report A.5 A.5 Responsibilities of Directors All directors are required to keep abreast of their responsibilities as a director and of the conduct, business activities and development of that issuer. Since the Board is an overall group in substance, non-executive and executive directors should equally be required to act in a cautious and skillful manner. Every newly appointed director shall receive a comprehensive and formal induction on the responsibilities of directors and to ensure that the directors understand their duties; A.5.2(a) (d) Non-executive directors of the Company are equipped with adequate experience and skills to fully participate in the Board to perform the functions under Code Provisions A.5.2(a) to (d); Every director shall acknowledge that sufficient time should be contributed to the affairs of the Company; 10 The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules ( Model Code ) as the code of best practices for the securities transactions by directors of the Company. After specific enquiries by the Company, all directors confirm that they have complied with the Model Code throughout the year under review. The Company has also formulated a code of conduct for the securities transactions by relevant officers to govern the securities transactions of officers who come into contact with price-sensitive information due to their office. Deviation: None Annual Report

60 Corporate Governance Report A.6 A.6 Supply of and Access to Information Directors should be provided in a timely manner with appropriate information so as to enable them to make an informed decision and to discharge their duties and responsibilities as a director. Documents of meetings are generally sent to members of the Board or Board Committees three days before the meetings of the Board or Board Committee. B.1 Deviation: None B.1 Remuneration of Directors and Senior Management Issuer shall establish a formal and transparent procedure for setting policies for fixing the remuneration packages of directors. No director shall be involved in deciding his own remuneration. B.1.3(a) (f) The Company has set up a Remuneration Committee with specific written terms of reference. Its duties include those required under Code Provisions B.1.3(a) to (f). As at 31 December 2010, a majority of the members of the Remuneration Committee of the Company are independent non-executive directors. Mr. Andrew Y. Yan is the Chairman and other members include Mr. Ho Hin Ngai, Bosco, Mr. Wan Kam To, Peter, Mr. Frederick Ma Si Hang and Mr. Wang Yin. 58 Annual Report 2010

61 Corporate Governance Report Attendance of members of the Remuneration Committee at meetings held in 2010 is detailed as follows: Name of Director Attendance Wang Yin 0/1 Ho Hin Ngai, Bosco 1/1 Wan Kam To, Peter 1/1 Andrew Y. Yan 1/1 Frederick Ma Si Hang 0/1 C.1 During the year under review, the Remuneration Committee reviewed the incentive mechanism of the Company and approved remuneration of members of the board and senior management. Deviation: None. C.1 Financial Reporting The Board should present a balanced, clear and comprehensible assessment of the issuer s performance, state of affairs and prospects. The directors are responsible for the supervision of the preparation of the financial statements of the Company, to ensure that the financial statements give a true and fair view of the operating and financial status of the Company. In the preparation of the financial statements as at 31 December 2010, the directors of the Company have selected and applied appropriate accounting policies and have made cautious and reasonable judgments and estimates based on the principle of going concern; 1,600,000 In 2010, audit fees were approximately HK$1,600,000 and there was no fees for non-audit related services; Annual Report

62 Corporate Governance Report 95 C.2 C.3 C.3.3(a) (n) The statement of responsibilities expressed by the auditor of the Company is set out in the Independent Auditor s Report on page 95. Deviation: None C.2 Internal Controls The Board should maintain a sound and effective internal controls system to safeguard the shareholders investment and the issuer s assets. The Board is responsible for the internal control system of the Company and conduct regular review on the effectiveness of the internal control system of the Company. During the year under review, the Board believes the current internal control system has been further improved and is sound and effective to safeguard the shareholders investments and the Group s assets. Deviation: None C.3 Audit Committee As at 31 December 2010, all members of the Audit Committee of the Company are independent nonexecutive directors, including Mr. Wan Kam To, Peter (Chairman), Mr. Wang Shi, Mr. Ho Hin Ngai, Bosco, Mr. Andrew Y. Yan and Mr. Frederick Ma Si Hang, while Mr. Wan Kam To, Peter holds accounting-related professional qualifications; Current terms of reference of the Audit Committee of the Company include the duties set out in Code Provisions C.3.3(a) to (n); During the year under review, the Audit Committee held five meetings to review the financial statements of the Company and discussed with the external auditor the impacts of the changes in accounting policies on the Company, the application of accounting standards and of the Listing Rules etc. and made recommendations thereof, as well as advising the management on the enhancement of the level of corporate governance of the Company on an on-going basis; 60 Annual Report 2010

63 Corporate Governance Report : Five meetings were held by the Audit Committee in Attendance of members of the Audit Committee at meetings is detailed as follows: Name of Director Attendance Wan Kam To, Peter 5/5 Wang Shi 4/5 Ho Hin Ngai, Bosco 1/5 Andrew Y. Yan 1/5 Frederick Ma Si Hang 5/5 D.1 Minutes of the meetings of the Audit Committee are kept by a designated secretary and sent to all members of the Board. Deviation: None D.1 Management Functions An issuer should have a formal schedule of matters reserved to the board for its decision and should give clear directions to management as to the matters that must be approved by the Board. The Board is responsible for the formulation of strategies, objectives and business plans for the Company, and to supervise and control the implementation of strategies of the Company and its operations and financial performance, and formulation of appropriate risk control policies and procedures to ensure the achievement of the Company s strategic objectives. In addition, the Board is also responsible for maintaining a high standard of corporate governance of Company. The Board delegates the duties of the implementation of strategies and the decision-making of daily operations to the Managing Director. The Management regularly meets to review the strategic goals, corporate structure, operating procedures, budget implementation, major global charge and business plans of the Company. Deviation: None Annual Report

64 Corporate Governance Report E.1 E.1 Effective Communication The Board should endeavor to maintain an on-going dialogue with shareholders and in particular, use annual general meetings to communicate with shareholders. The Company enhances the communication with Shareholders by means of publication of interim and annual results report and press release and timely publication of information on the website of the Company and the Stock Exchange. The Chairman of the board should attend the annual general meeting. All general meetings where approvals for connected transactions were being sought for had been attended by the chairman of the independent board committee (if any) to address queries from shareholders. The Company also promotes the communication with shareholders through various investor relation activities to provide shareholders with more channels to understand the strategies and the latest development of the Company. During the year under review, the Company participated in road shows in Hong Kong, Singapore, Middle East, Japan and Europe organized by various investment banks, covering issues on the results announcement and significant acquisitions and presented to the investors operating results, development strategies and latest business updates of the Company. At the same time, the Company participated in various investment conferences held in Shanghai, Beijing, Shenzhen, Qingdao, Macau, Hong Kong, Singapore, etc., and frequently met on an one-on-one basis with fund managers and investors in Hong Kong and overseas, as well as arranged on-site visits to the Company s properties to actively create opportunities for communication with the investors, so as to enable them to timely understand the latest business development of 62 Annual Report 2010

65 Corporate Governance Report 2010 the Company and the industry environment of the real estate business of China to enhance their understanding and confidence to the Company. The following is the major investor relations activities of the Company performed in 2010: Month Activities 2009 Announcement of the 2009 annual results March * * Press conference * * Briefing with analysts and fund managers Post Results Roadshow in middle east and Japan April Post Results Roadshow in HK, Singapore, and Europe May June Morgan Stanley HK Summit The 8th BOCI Investors Conference 2010 CLSA China Forum 2010 Shenyin Wanguo Securities HK Investment Conference Nomura Asia Equity Forum Nomura Asia Equity Forum 2010 J.P. Morgan China Conference Credit Suisse China Investment Conference 2010 BofA Merrill Lynch HK/China Property Day RBS China Access conferences DBS Vickers Pulse of Asia Conference July CLSA Property Access Day Deutsche Bank Investor Luncheon 2010 Announcement of the 2010 interim results August * * Press conference * * Briefing with analysts and fund managers Post Results Roadshow in HK and Singapore 2010 UBS Hong Kong/China Property Day 2010 September 17 17th CLSA Investors Forum Roadshow in HK and Singapore for Asset Injection October 2010 CITI Greater China Investor Conference 2010 Annual Report

66 Corporate Governance Report Month Activities November December 2010 Goldman Sachs and Gao Hua China Investment Frontier Conference 2010 Bank of America Merrill Lynch China Investment Summit CLSA Hong Kong/China Property Access Day Standard Chartered Equities REAL ESTATE Corporate Access Days Roadshow in HK for Intra-Group Funding Arrangement CCT Looking ahead, we will continue to improve and perfect the communication with investors and to provide them with more opportunities to understand the business of the Company as well as to enable the management of the Company to have a better understanding of the requirements of the market on the Company, with an aim to continue to enhance the internal management, profitability and governance of the Company. E.2 Deviation: None E.2 Voting by Poll The issuer should ensure that shareholders are familiar with the detailed procedures for conducting a poll. At the annual general meeting held on 1 June 2010, the Chairman of the meeting had explained to the shareholders the detailed procedures for conducting a poll. Deviation: None 64 Annual Report 2010

67 Report of the Directors The directors have pleasure in submitting to shareholders their report and audited financial statements of the Company and the Group for the year ended 31 December Principal Activities The principal activity of the Company is investment holding and the activities of its principal subsidiaries and associates are shown on page 185 to The segment information of the Group is set out in note 7 to the financial statements. Group Profit The consolidated income statement set out on page 97 shows the Group s profit for the year ended 31 December Dividends The Board of Directors recommend the declaration of a final dividend of HK21.5 cents (2009: HK18.3 cents) per share, together with the interim dividend of HK9.5 cents per share, dividends per share for the year amounting to HK31.0 cents. The final dividend is payable on 5 July 2011 to shareholders whose names appear on the Register of Members of the Company on 1 June Property, Plan and Equipment Movements in property, plant and equipment during the year are set out in note 16 to the financial statements. Properties Schedule of the principal properties of the Group is set out on pages 3 to 19. Share Capital Movements in share capital during the year are set out in note 35 to the financial statements. Annual Report

68 Report of the Directors 32,331,326,000 26,805,370,000 Distributable Reserves at the Company The Company s reserves available for distribution represent the share premium and retained profits. Under the Companies Law (Revised) Chapter 22 of the Cayman Islands, the share premium of the Company is available for paying distributions or dividends to shareholders subject to the provisions of its Memorandum and Articles of Association and provided that immediately following the distribution or dividend, the Company is able to pay its debts as they fall due in the ordinary course of business. Reserves of the Company available for distribution to shareholders as at 31 December 2010 amounted to HK$32,331,326,000 (2009: HK$26,805,370,000). Directors The directors who held office during the year and at the date of this report are: Chairman Mr. Wang Yin Managing Director Mr. Wu Xiangdong Non-executive Directors Mr. Yan Biao Mr. Du Wenmin Mr. Ding Jiemin Mr. Wei Bin (Appointed on 15 October 2010) Mr. Shi Shanbo (Appointed on 15 October 2010) Dr. Zhang Haipeng (Appointed on 15 October 2010) Mr. Jiang Wei (Resigned on 15 October 2010) Mr. Li Fuzuo (Resigned on 15 Oct 2010) Mr. Liu Yan Jie (Resigned on 20 January 2010) 66 Annual Report 2010

69 Report of the Directors Independent Non-executive Directors Mr. Wang Shi Mr. Andrew Y. Yan Mr. Ho Hin Ngai, Bosco Mr. Wan Kam To, Peter Mr. Frederick Ma Si Hang (Appointed on 8 March 2010) According to Articles 99 and 116 of the Articles of Association of the Company, Mr. Wang Yin, Mr. Yan Biao, Mr. Ding Jiemin, Mr. Shi Shanbo, Mr. Wei Bin, Dr. Zhang Haipeng, Mr. Andrew Y. Yan and Mr. Ho Hin Ngai, Bosco shall retire and are eligible for re-election at the forthcoming annual general meeting The Company has received the annual confirmation of independence from all the independent non-executive directors, and considers that all the independent non-executive directors are independent of the Company. Biographical Details of Directors and Senior Management Biographical details of the Directors and senior management are set out on pages 40 to 47. Share Option Scheme The Company operates share option scheme (the Scheme ) for the purpose of promoting additional commitment and dedication to the objective of the Company by the participants. Annual Report

70 Report of the Directors The Scheme was approved by the shareholders at the extraordinary general meeting held on 31 January 2002 and shall expire on 31 January The Board of Directors of the Company may grant options to eligible participants including employees, executive or non-executive directors of the Group (or any proposed candidates), any discretionary object of a discretionary trust established by any employee, executive or non-executive director of the Group, any executive or employee (or any proposed candidates) of consultants, professionals and other advisors to the Group, chief executive, substantial shareholders of the Company, associated companies of the Group, associates of directors, chief executive and substantial shareholders of the Company, and employees of substantial shareholders. The maximum entitlement of each participant (including options to be granted to the directors, chief executive or substantial shareholders or any of their respective associates) is equal to the maximum limit permitted under the prevailing Listing Rules. The exercise prices of the share options are determined pursuant to the provision of prevailing Listing Rules. 68 Annual Report 2010

71 Report of the Directors 313,138,369 At the annual general meeting held on 23 May 2006, shareholders approved the ordinary resolution to refresh the mandate limit of the Scheme, whereby further share options can be granted to subscribe up to 313,138,369 shares. 325,120, % As at the date of this report, the number of shares available for issue under the Scheme is 325,120,869 shares and represents 6.03% of the issued share capital of the Company. 1 The offer of a grant of share options under the Scheme may be accepted within 28 days from the date of the offer upon the payment of a nominal consideration of HK$1 in total by the grantee. Share options granted under the Scheme are exercisable for a period of ten years from the date of grant. Certain share options are fully vested or exercisable within ten years from the date of grant while part of them are vested within four years after the date of grant. Save as disclosed below, no other share options has been granted, exercised, lapsed in accordance with the terms of the Scheme during the year in relation to each of the directors, chief executive, substantial shareholders of the Company or their respective associates and employees of substantial shareholders. Annual Report

72 Report of the Directors (a) Directors As at 31 December 2010, the following directors had interests in respect of options to subscribe for shares under the Scheme: Name Capacity Date of grant Exercise price Option outstanding at 1/1/2010 Granted during the year (1) Number of share option Exercised during the year Cancelled during the year Expired during the year Option outstanding at 31/12/2010 (2) Price of Company s share (HK$) Option granted Option exercised Du Wenmin Beneficial Owner 1/6/ , ,000 Notes: Number of share options refers to the number of underlying shares in the Company covered by the share options The price for the Company s share disclosed for the options exercised during the year is the weighted average of the closing prices quoted on the Stock Exchange immediately before the date of exercise of options. 70 Annual Report 2010

73 Report of the Directors (b) Employees and other participants Details of share options granted to the employees (other than directors) of the Group and other participants by the Company are set out below: (i) (i) Employees (Other than directors) Date of Grant Exercise price Option outstanding at 1/1/2010 Granted during the year (1) Number of share option Exercised during the year Cancelled during the year Expired during the year Option outstanding at 31/12/2010 (2) Price of Company s share (HK$) Option granted Option exercised 7/10/ , , , /4/ ,465, , , /4/ ,137, ,500 1,800, /1/ ,535,000 5,885,000 4,650, /2/ ,000, , , /6/ ,850, ,000 1,350, Notes: Number of share options refers to the number of underlying shares in the Company covered by the share options The price for the Company s share disclosed for the options exercised during the year is the weighted average of the closing prices quoted on the Stock Exchange immediately before the date of exercise of options. Annual Report

74 Report of the Directors (ii) (ii) Other participants Date of Grant Exercise price Option outstanding at 1/1/2010 Granted during the year (1) Number of share option Exercised during the year Cancelled during the year Expired during the year Option outstanding at 31/12/2010 (2) Price of Company s share (HK$) Option granted Option exercised 4/3/ ,700, , , /6/ ,025,000* 250,000 1,775, * * Including renumbering due to the resignation and appointment of the directors. Notes: Number of share options refers to the number of underlying shares in the Company covered by the share options The price for the Company s share disclosed for the options exercised during the year is the weighted average of the closing prices quoted on the Stock Exchange immediately before the date of exercise of options. 72 Annual Report 2010

75 Report of the Directors XV XV Directors Interests in Securities As at 31 December 2010, the interests and short positions of the directors and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the SFO )) which have been notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, including interests and short positions which the directors and chief executive of the Company are taken or deemed to have under such provisions of the SFO, or which are required to be recorded in the register maintained pursuant to section 352 of the SFO or as otherwise required to be notified to Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the Model Code ) contained in the Listing Rules, were as follows: (a) Interests in issued ordinary shares and underlying shares of the Company: Name long position/ short position Number of shares (1) Number of underlying shares (1) Capacity (2) Approximate percentage of interest (2) Wang Yin Wu Xiangdong Yan Biao Du Wenmin Shi Shanbo long position long position long position long position long position 3,930,000 Beneficial owner 1,629,000 Beneficial owner 1,992,000 Beneficial owner 790, ,000 Beneficial owner 140,000 Beneficial owner Notes: (1) (2) (1) This refers to underlying shares of the Company covered by share options granted as detailed above under the section headed share Option Scheme, such options being unlisted physically settled equity derivatives. (2) This represents the percentage of the aggregate long positions in shares and underlying shares of the Company to the total issued share capital of the Company as at 31 December Annual Report

76 Report of the Directors (b) Interests in issued ordinary shares and underlying shares of China Resources Enterprise Limited ( CRE ), an associated corporation of the Company: (1) (2) Name long position/ short position Number of shares Number of underlying shares (1) Approximate percentage of interest (2) Yan Biao Du Wenmin long position long position 500, , Notes: (1) (1) This refers to underlying shares of CRE, covered by share option granted under the Share Option Scheme of CRE, such option being unlisted physically settled equity derivatives. (2) (2) This represents the percentage of the aggregate long positions in shares and underlying shares of CRE to the total issued share capital of the CRE as at 31 December Annual Report 2010

77 Report of the Directors (c) Interests in issued ordinary shares and underlying shares of China Resources Gas Group Limited ( CR Gas, previously known as China Resources Logic Limited ), an associated corporation of the Company: (1) (2) Name long position/ short position Number of shares Number of underlying shares (1) Approximate percentage of interest (2) Wu Xiangdong Du Wenmin Shi Shanbo long position long position long position 45, , , Notes: (1) (1) This refers to underlying shares of CR Gas covered by share option granted under the Share Option Scheme of CR Gas, such option being unlisted physically settled equity derivatives. (2) (2) This represents the percentage of the aggregate long positions in shares and underlying shares of CR Gas to the total issued share capital of CR Gas as at 31 December Annual Report

78 Report of the Directors (d) Interests in issued ordinary shares and underlying shares of China Resources Power Holdings Company Limited ( CR Power ), an associated corporation of the Company: (1) (2) Name long position/ short position Number of shares Number of underlying shares (1) Approximate percentage of interest (2) Wang Yin Yan Biao Du Wenmin Shi Shanbo long position long position long position long position 427, , , , , Notes: (1) (1) This refers to underlying shares of CR Power covered by share options granted under the Share Option Scheme of CR Power, such option being unlisted physically settled equity derivatives. (2) (2) This represents the percentage of the aggregate long positions in shares and underlying shares of CR Power to the total issued share capital of the CR Power as at 31 December Annual Report 2010

79 Report of the Directors (e) Interests in issued ordinary shares and underlying shares of China Resources Microelectronics Limited ( CR Microelectronics ), an associated corporation of the Company: (1) (2) Name long position/ short position Number of shares Number of underlying shares (1) Approximate percentage of interest (2) Wu Xiangdong Du Wenmin long position long position 1,215, ,458, Notes: (1) (1) This refers to underlying shares of CR Microelectronics covered by share options granted under the Share Option Scheme of CR Microelectronics, such option being unlisted physically settled equity derivatives. (2) (2) This represents the percentage of the aggregate long positions in shares and underlying shares of CR Microelectronics to the total issued share capital of the CR Microelectronics as at 31 December Annual Report

80 Report of the Directors (f) Interests in issued ordinary shares and underlying shares of China Resources Cement Holdings Limited ( CR Cement ), an associated corporation of the Company: (1) (2) Name long position/ short position Number of shares Number of underlying shares (1) Approximate percentage of interest (2) Shi Shanbo long position 280, Notes: (1) (1) This refers to underlying shares of CR Cement covered by share options granted under the Share Option Scheme of CR Cement, such option being unlisted physically settled equity derivatives. (2) (2) This represents the percentage of the aggregate long positions in shares and underlying shares of CR Cement to the total issued share capital of the CR Cement as at 31 December Annual Report 2010

81 Report of the Directors Interests in Underlying Shares of Associated Corporations As at the same date, certain directors had interests in options to subscribe shares granted under the share option schemes of associated corporations (within the meaning of the SFO), such options being unlisted physically settled equity derivatives: (a) Options outstanding under the share option schemes of an associated corporation, CR Power: Name Capacity Date of grant Exercise Price (HK$) Option outstanding at 31/12/2010 Yan Biao Beneficial owner 12/11/2003 (1) /3/2005 (2) , ,760 Du Wenmin Beneficial owner 12/11/2003 (1) ,240 Notes: (1) 20% (1) Options are exercisable in 5 tranches of 20% each, from 6 October 2004, 2005, 2006, 2007 and 2008 to 5 October (2) 20% (2) Options are exercisable in 5 tranches of 20% each, from 18 March 2006, 2007, 2008, 2009 and 2010 to 17 March (3) 1.00 (3) Consideration for each of the grants mentioned above is HK$1.00 Annual Report

82 Report of the Directors Restricted Share Award Scheme As an incentive to retain and encourage the employees for the continual operation and development of the Group, the Board of the Company resolved to adopt the Restricted Share Award Scheme (the Scheme ) on 30 May 2008 (the Adoption Date ). The Scheme was subsequently amended on 8 December Unless sooner terminated by the Board of Directors, the Scheme shall be effective from the Adoption Date and shall continue in full force and effect for a term of 10 years. According to the Scheme, shares up to 2.5% of the issued share capital of the Company as at the Adoption Date will be purchased by the Trustee from the market out of cash contributed by the Group and be held in trust for the relevant selected employees until such shares are vested with the relevant selected employees in accordance with the provisions of the Scheme. 316,671, ,464, % 21,975,904 10,782,806 21,681,194 Up to 31 December 2010, the Company had through the Trustee purchased 32,464,000 shares of the Company, representing % of the issued share capital of the Company as at the Adoption Date, from the market at an aggregate consideration of HK$316,671, (including transaction costs). During the year ended 31 December 2010, a total of 21,975,904 shares of the Company were awarded to the directors and employees of the Group at no consideration by the Company, of which 10,782,806 shares were vested during the year. The sale proceeds from the vested shares have been and will be distributed to the relevant directors and employees in accordance with the amended provisions of the Scheme. As at the date of this report, a total of 21,681,194 unvested shares have been held in trust by the Trustee. 80 Annual Report 2010

83 Report of the Directors Purchase, Sale or Redemption of Listed Securities Save as disclosed above under Restricted Share Award Scheme, neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company s list securities during the year ended 31 December Directors Service Contracts As at 31 December 2010, none of the Directors has any service contract with the Company or any of its subsidiaries which is not terminable by the employing company within one year without payment of compensation other than statutory compensation. Directors Interests in Contracts No contracts of significance to which the Company or its subsidiaries were a party and in which any director of the Company had a material interest, either directly or indirectly, subsisted at the end of the year or at any time during the year. Annual Report

84 Report of the Directors XV Shareholders with Notifiable Interests As at 31 December 2010, the following persons (not being a director or chief executive of the Company) had interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provision of Division 2 and 3 of Part XV of the SFO or which were recorded in the register maintained by the Company pursuant to section 336 of the SFO: Name of shareholders Capacity Nature of interest long position/ short position Number of shares Percentage of the aggregate long position in shares to the issued share capital of the Company as of 31/12/2010 Gain Ahead Group Limited ( Gain Ahead ) (1) China Resources (Holdings) Company Limited ( CRH ) CRC Bluesky Limited ( Bluesky ) (1) (1) China Resources Co., Limited ( CRC ) (1) (1) China Resources National Corporation ( CRNC ) (1) Beneficial owner Controlled company s interest Controlled company s interest Controlled company s interest Controlled company s interest JP Morgan Chase & Co. (2) (i) Beneficial owner (ii) Investment manager (iii) Custodian corporation/approved lending agent Beneficial owner Beneficial interest Corporation interest Corporation interest Corporation interest Corporation interest (i) Beneficial interest (ii) Other interest (iii) Other interest Beneficial interest Long Position Long Position Long Position Long Position Long Position Long Position Short Position 3,521,640, % 3,521,642, % 3,521,642, % 3,521,642, % 3,521,642, % 324,739,948 (i)11,724,605 (ii)258,066,888 (iii)54,948, % 3,544, % Notes: (1) Gain AheadCommotra Company Limited 3,521,640,519 2,000 Gain Ahead Commotra Company Limited Bluesky Bluesky Bluesky 3,521,642,519 (1) Gain Ahead and Commotra Company Limited directly held 3,521,640,519 shares and 2,000 shares of the Company resepectively. CRH is the sole shareholder of Gain Ahead and Commotra Company Limited. Moreover, CRH is a wholly-owned subsidiary of Bluesky, which is in turn wholly owned by CRC. CRC is wholly-owned by CRNC. Thus, CRH, Bluesky, CRC and CRNC are deemed to be interested in an aggregate of 3,521,642,519 shares in the Company. 82 Annual Report 2010

85 Report of the Directors (2) JP Morgan Chase & Co. JP Morgan Chase & Co. 100% (2) According to the information disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO, other than the following corporations which were held by JP Morgan Chase & Co. in the manner described below, these shares were held by JP Morgan Chase & Co. and corporations controlled directly or indirectly as to 100% by it: Name of Corporation JP Morgan Chase & Co. Percentage interest (direct or indirect) held by JP Morgan Chase & Co. J.P. Morgan Securities Ltd % China International Fund Management Co Ltd 49% J.P. Morgan Whitefriars 99.99% XV Save as aforesaid, as at 31 December 2010, no other person had any interest or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provision of Division 2 and 3 of Part XV of the SFO or which were recorded in the register kept by the Company under section 336 of the SFO. Subsidiaries and Associates Particulars regarding the subsidiaries and associates are set out on pages 185 to 203. Annual Report

86 Report of the Directors ,000,000,000 35% 5 Financial Derivative Instruments During the year 2008, the Company timely seized the opportunity of current subdued interest rate level caused by the sub-prime mortgage crisis outbreak in the United States, and has fixed the interest costs of a portion of its HK$ loans at relatively low levels by entering into interest rate swap transactions. The swap transactions involved HK$3 billion in total, of which HK$1 billion had a swap period of four years and the rest in a five year period. Due to decreases in swap rates in the market since our transactions, the Company recorded a mark-to-market loss for which a provision was made in full year results in Due to decreases in swap rates in the market since our transactions, the Company recorded a mark-to-market loss for which a provision was made in the annual results. Specific Performance Obligations on Controlling Shareholder Pursuant to a loan agreement for the amount of HK$1,000,000,000, China Resources (Holdings) Company Limited ( CRH ) is required to maintain the control in the Company s management by directly or indirectly holding not less than 35% beneficial interest in the share of the Company. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 400,000,000 35% 5 Pursuant to a loan agreement for the amount of HK$400,000,000, CRH is required to maintain the control in the Company s management by directly or indirectly holding not less than 35% beneficial interest in the share of the Company. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 84 Annual Report 2010

87 Report of the Directors 500,000,000 35% 50% 5 Pursuant to a loan agreement for the amount of HK$500,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% beneficial interest in the shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 500,000,000 35% 50% 3 Pursuant to another loan agreement for the amount of HK$500,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% beneficial interest in the shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within three years. 2,500,000,000 35% 50% 5 Pursuant to a loan agreement for the amount of HK$2,500,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 2,000,000,000 35% 50% 5 Pursuant to a loan agreement for the amount of HK$2,000,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. Annual Report

88 Report of the Directors 3,000,000,000 35% 50% 5 Pursuant to a loan agreement for the amount of HK$3,000,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 200,000,000 35% 50% 3 Pursuant to two loan agreements for the amount of HK$200,000,000 respectively, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreements and is fully repayable within three years. 300,000,000 35% 50% 3 Pursuant to two loan agreements for the amount of HK$300,000,000 respectively, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreements and is fully repayable within three years. 350,000,000 35% 50% 4 Pursuant to a loan agreement for the amount of HK$350,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within four years. 86 Annual Report 2010

89 Report of the Directors 500,000,000 35% 50% 4 Pursuant to another loan agreement for the amount of HK$500,000,000, CRH is required to maintain the control in the Company s management by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within four years. 1,000,000,000 35% 50% 5 Pursuant to another loan agreement for the amount of HK$1,000,000,000, CRH is required to maintain the control in the Company s management by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 2,750,000,000 35% 50% 5 Pursuant to a loan agreement for the amount of HK$2,750,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 3,700,000,000 35% 50% 1,300,000,000 5 Pursuant to a loan agreement for the amount of HK$3,700,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, the outstanding loan owed by the Company under the loan agreement amounted to HK$1,300,000,000 and is fully repayable within five years. Annual Report

90 Report of the Directors 1,000,000,000 35% 50% 5 Pursuant to two loan agreements for the amount of HK$1,000,000,000, CRH is required to maintain the control in the Company s management by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 500,000,000 35% 50% 3 Pursuant to another loan agreement for the amount of HK$500,000,000, CRH is required to maintain the control in the Company s management by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within three years. 100,000,000 35% 50% 5 Pursuant to a loan agreement for the amount of US$100,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31 December 2010, there was no outstanding balance under the loan agreement and is fully repayable within five years. 800,000,000 35% 300,000,000 4 Pursuant to a loan agreement for the amount of HK$800,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company or to have the right to appoint, and terminate the appointment of, the majority of the directors constituting the board of directors of the Company. As at 31 December 2010, the outstanding loan owed by the Company under the loan agreement amounted to HK$300,000,000 and is fully repayable within four years. 88 Annual Report 2010

91 Report of the Directors 195,000, ,000,000 35% 195,000, Pursuant to a bridging loan agreement for the amount of US$195,000,000 (or its equivalent in HK$), and a term loan agreement for the amount of US$195,000,000 (or its equivalent in HK$), CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company. As at 31 December 2010, the two outstanding loans owed by the Company under the loan agreement amounted to US$195,000,000 and is fully repayable within two and five years respectively. 1,000,000,000 35% 1,000,000, Central New Investments Limited Fast Lead Investments Limited 7,901,400,000 5,530,980,000 2,370,420, % Pursuant to a loan agreement for the amount of HK$1,000,000,000, CRH is required to maintain its status as the single largest shareholder of the Company by directly or indirectly holding not less than 35% shares of the Company. As at 31 December 2010, the outstanding loan owed by the Company under the loan agreement amounted to HK$1,000,000,000 and is fully repayable within five years. Connected Transactions and Continuing Connected Transactions Acquisition of Properties On 20 September 2010, the Company entered into an agreement with Central New Investments Limited ( Central New ) to acquire 100% stake of its wholly-owned subsidiary Fast Lead Investments Limited ( Fast Lead ). Fast Lead is an investment holding company and its principal assets were its indirect 100% interests in the project sites which comprised the Hainan Shimei Bay Site, the Wuhan Oak Bay Site and the Suzhou Kunshan Site located in the PRC. The Consideration was HK$7,901,400,000, of which HK$5,530,980,000 was settled by the allotment and issue of consideration shares, HK$2,370,420,000 was paid in cash. As Central New was a whollyowned subsidiary of CRH, and CRH had a 69.89% interest in the Company at that time. Under the Listing Rules, the above transaction constituted a major and connected transaction of the Company and was approved by independent shareholders at the general meeting held on 1 November Annual Report

92 Report of the Directors ,377, % 40% 40% Disposal of Property On 20 September, 2010, Full Best Enterprises Limited ( Full Best ), a wholly owned subsidiary of the Company, and Jetmax Investment Limited ( Jetmax ), an indirect wholly owned subsidiary of Sun Hung Kai Properties Limited ( SHKP ), entered into a transfer agreement pursuant to which Full Best conditionally agreed to sell and Jetmax conditionally agreed to purchase the entire issued share capital of Charmlink Resources Limited ( Charmlink ) and shareholders loan at the consideration of HK$475,377, Full Best and Charmlink held 60% and 40% equity interests in Hangzhou Runhong Real Estate respectively, which owned parcels of land in Hangzhou. SHKP held 40% equity interest of two subsidiaries of the Company. Under the Listing Rules, the above transaction constituted a connected transaction of the Company and was approved by the independent shareholders at the general meeting held on 1 November ) Intra-Group Lending Between Members of the China Resources Group On 22 November 2010, China Resources (Holdings) Company Limited ( CRH ), the holding company of the Company, China Resources Group listed companies (including the Company) and unlisted companies entered into the HK$ and US$ master loan agreement. At the same time, CRH and China Resources Group listed companies (including the Company) entered into the RMB master loan agreement in order to give each China Resources Group listed company greater flexibility in the management of its surplus cash resources by enabling it to lend a portion of its surplus cash resources and those of its subsidiaries to other China Resources Group companies. Under the Listing Rules, the above master loan agreements constituted non-exempt continuing connected transactions and were approved by independent shareholders at the general meeting held on 23 December The above master loan agreements became effective on 1 January Annual Report 2010

93 Report of the Directors 2010 Provision of Property Leasing, Construction Services, Decoration Services, and Furniture Services In the year of 2010, Beijing China Resources Building Company Limited, the wholly owned subsidiary of the Company, China Resources (Shanghai) Limited, and China Recourses (Shenzhen) Limited and members of CRH entered into certain contracts in respect of leasing and concessionaire arrangements, which constituted continuing connected transactions for the Company. On 20 September 2010, the Company entered into the leasing and concessionaire framework agreement with CRH to govern the principal terms of these continuing connected transactions from 20 September 2010 to 31 December At the same time, the Company purchased construction and decoration businesses from CRH on 22 June 2007, together with the furniture business purchased from CRH on 6 June 2008, the services provided by the construction, decoration and furniture subsidiaries of the Company to CRH and its subsidiaries also constituted continuing connected transactions for the Company. On 20 September 2010, the Company entered into the provision of construction services, decoration services and furniture services framework agreement with CRH to govern the principal terms of these continuing connected transactions for the three financial years ending 31 December The 2010 annual cap and the actual amount of the above continuing connected transactions are shown as follow: Unit:HK$ No. Business Type The annual cap in 2010 The actual transaction amount in Leasing 65,000, ,356, Construction 750,000, ,469, Decoration 480,000, ,084, Furniture 24,367, ,313, Annual Report

94 Report of the Directors 14A.37 Pursuant to Rule 14A.37 of the Listing Rules, independent nonexecutive directors have reviewed the above connected transactions and continuing connected transactions and confirmed that: these transactions were in the Company s ordinary course of business; these transactions were entered into on normal commercial terms; these transactions were carried out in accordance with respective agreement terms which were fair and reasonable, and in the interests of the Company and the shareholders as a whole. The Company s auditors Deloitte Touche Thomatsu has provided a letter to the Company s Board of Directors confirming that the above continuing connected transactions: have received the approval of the Company s Board of Directors; are in accordance with the pricing policies of the Company; have been entered into in accordance with the relevant agreement governing the transactions; and have not exceeded the cap disclosed in previous announcement(s). Model Code Regarding Securities Transactions by the Directors The Company has adopted the Model Code set out in Appendix 10 to the Listing Rule as code of conduct regarding securities transactions by the directors. Having made specific enquiry with all directors, the Company confirmed that all directors has complied with the required standard set our in the Model Code during the year under review. 92 Annual Report 2010

95 Report of the Directors 25% 30% 206 Public Float Based on the information that is publicly available to the Company and within the knowledge of the directors, as at the date of this report, there is sufficient public float of not less than 25% of the Company s issued shares as required under the Listing Rules. Major Customers and Suppliers During the year under review, the Group s five largest suppliers and customers together accounted for less than 30% of the Group s purchases and sales respectively. Five Year Financial Summary A summary of the results and of the assets and liabilities of the Group for the past five financial years is set out on page 206. Pre-Emptive Rights There are no provisions for pre-emptive rights under the Company s Articles of Association and there are no restrictions against such rights under the laws in the Cayman Island. Audit Committee The audit committee comprises Mr. Wang Shi, Mr. Andrew Y. Yan, Mr. Ho Hin Ngai, Bosco, Mr. Wan Kam To, Peter, and Mr. Frederick Ma Si Hang, all of them being independent non-executive directors of the Company. The audit committee has reviewed, together with the management and the Company s auditors, the accounting principles and practices adopted by the Group and discussed auditing, internal control and financial reporting matters including the financial statements for the year. Annual Report

96 Report of the Directors Auditors Messrs. Deloitte Touche Tohmatsu will retire at the end of the forthcoming annual general meeting and is eligible for reappointment. By order of the Board Chairman Wang Yin Hong Kong, 25 March Annual Report 2010

97 Independent Auditor s Report TO THE MEMBERS OF CHINA RESOURCES LAND LIMITED (incorporated in the Cayman Islands with limited liability) We have audited the consolidated financial statements of China Resources Land Limited (the Company ) and its subsidiaries (collectively referred to as the Group ) set out on pages 97 to 215 which comprise the consolidated statement of financial position as at 31 December 2010, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors Responsibility for the Consolidated Financial Statements The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal controls as the directors determine are necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion 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. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Annual Report

98 Independent Auditor s Report An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Group s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2010 and of its profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 25 March Annual Report 2010

99 Consolidated Statement of Comprehensive Income For the year ended 31 December 2010 Notes HK$ 000 HK$ 000 (Restated) Revenue 6 25,729,158 16,650,237 Cost of sales (15,576,849) (10,674,195) Gross profit 10,152,309 5,976,042 Gain on changes in fair value of investment properties 2,850,182 2,295,062 Gain on changes in fair value of inventory of properties transferred to investment properties 97,120 67,208 (Loss) gain on changes in fair value of derivative financial instruments (8,963) 2,390 Other income 8 530, ,462 Selling and marketing expenses (721,086) (576,071) General and administration expenses (1,028,893) (870,693) Share of results of associates 48,053 41,481 Finance costs 11 (304,445) (154,389) Profit before taxation 11,614,493 7,030,492 Income tax expense 12 (4,275,759) (2,285,120) Profit for the year 13 7,338,734 4,745,372 Other comprehensive income (expense) Exchange differences arising on translation to presentation currency 2,116,399 (55,758) (Loss) gain on changes in fair value of cash flow hedges (20,435) 11,433 2,095,964 (44,325) Total comprehensive income for the year 9,434,698 4,701,047 Total comprehensive income attributable to: Owners of the Company 7,904,507 4,302,384 Non-controlling interests 1,530, ,663 9,434,698 4,701,047 Profit for the year attributable to: Owners of the Company 6,026,470 4,303,757 Non-controlling interests 1,312, ,615 7,338,734 4,745,372 Earnings per share Basic HK119.8 cents HK88.1 cents Diluted HK119.2 cents HK87.7 cents Annual Report

100 Consolidated Statement of Financial Position At 31 December 2010 Notes HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Non-current assets Property, plant and equipment 16 3,299,277 3,050,933 2,745,744 Prepaid lease payments , , ,917 Investment properties 18 21,953,068 16,742,284 9,998,305 Interests in associates , , ,099 Amount due from an associate , , ,178 Available-for-sale investments , , ,205 Deposit paid for non-current assets 22 2,476,969 Deferred taxation assets , , ,269 30,212,800 22,052,538 15,145,717 Current assets Inventory of properties 24 61,883,161 42,918,048 39,568,189 Prepaid lease payments 17 19,725 17,366 16,608 Other inventories 25 66,712 55,606 64,253 Trade receivables, other receivables and deposits paid 26 19,859,289 15,035,153 9,955,940 Amounts due from customers for contract works , , ,929 Amounts due from fellow subsidiaries 28 65, , ,585 Amount due from immediate holding company ,103 7,629 Taxation prepaid 1,160, , ,731 Cash and bank balances 29 11,972,212 19,873,080 5,808,875 95,425,075 79,134,425 55,918,739 Current liabilities Trade and other payables 30 7,787,114 5,921,958 4,300,824 Deposits received from pre-sales of properties 31 21,750,006 18,943,304 5,689,910 Amounts due to customers for contract works , , ,963 Amounts due to fellow subsidiaries 32 70,693 2,217,090 2,925,893 Amount due to immediate holding company ,043 2,264,473 2,409,043 Amounts due to non-controlling interests , , ,573 Taxation payable 3,386,793 1,849, ,238 Bank borrowings due within one year 33 8,554,849 1,827,206 4,062,895 43,747,368 34,386,097 21,328, Annual Report 2010

101 Consolidated Statement of Financial Position Notes HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Net current assets 51,677,707 44,748,328 34,590,400 Total assets less current liabilities 81,890,507 66,800,866 49,736,117 Capital and reserves Share capital , , ,535 Reserves 45,376,869 37,187,327 29,787,921 Equity attributable to owners of the Company 45,915,593 37,690,328 30,259,456 Non-controlling interests 3,499,060 1,190, ,526 49,414,653 38,880,401 31,057,982 Non-current liabilities Bank borrowings due after one year 33 29,252,389 25,631,576 17,030,097 Deferred taxation liabilities 23 3,070,966 2,165,788 1,511,114 Derivative financial instruments , , ,924 32,475,854 27,920,465 18,678,135 81,890,507 66,800,866 49,736,117 Wang Yin DIRECTOR Wu Xiangdong DIRECTOR Annual Report

102 Consolidated Statement of Changes in Equity For the year ended 31 December 2010 Share capital Share premium Capital reserve General reserves Translation reserve Attributable to owners of the Company Shares held for Restricted Employee Share share-based Award compensation Scheme reserve Merger reserve Hedging reserve Other reserve Retained profits Total Non controlling interests 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 a 36 2 c (Note a) (Note 36) (Note 2) (Note c) Total At 1 January 2009 (audited) 471,535 24,940, , ,600 3,204,919 (162,242) 21,779 (4,710,784) (36,259) 6,170,231 30,263, ,526 31,061,612 Merger accounting restatement 145,541 9,900 (159,071) (3,630) (3,630) At 1 January 2009 (restated) 471,535 24,940, , ,600 3,350,460 (162,242) 21,779 (4,700,884) (36,259) 6,011,160 30,259, ,526 31,057,982 Exchange differences arising on translation to presentation currency (12,806) (12,806) (42,952) (55,758) Fair value change on cash flow hedges 11,433 11,433 11,433 Profit for the year 4,303,757 4,303, ,615 4,745,372 Total comprehensive income for the year (12,806) 11,433 4,303,757 4,302, ,663 4,701,047 b Consideration paid for acquisition of subsidiaries under common control (Note b) (3,680,400) (3,680,400) (3,680,400) Arising from acquisition of subsidiaries under common control 3,251,830 3,251,830 3,251,830 Recognition of equity settled share-based payments 3,033 3,033 3,033 Transfer of reserve in subsidiaries 257,395 (257,395) Purchase of shares under Share Award Scheme (34,494) (34,494) (34,494) Placement of new shares 30,000 4,210,308 4,240,308 4,240,308 Exercise of share options 1,466 52,140 (16,901) 36,705 36,705 Acquisition of additional interest in a subsidiary (7,116) (7,116) Final dividend for 2008 (391,373) (391,373) (391,373) Additional final dividend for prior year (25,543) (25,543) (25,543) Interim dividend for 2009 (271,578) (271,578) (271,578) At 31 December 2009 (restated) 503,001 29,203, , ,995 3,337,654 (196,736) 7,911 (5,129,454) (24,826) 9,369,028 37,690,328 1,190,073 38,880,401 Exchange differences arising on translation to presentation currency 1,898,472 1,898, ,927 2,116,399 Fair value change on cash flow hedges (20,435) (20,435) (20,435) Profit for the year 6,026,470 6,026,470 1,312,264 7,338,734 Total comprehensive income for the year 1,898,472 (20,435) 6,026,470 7,904,507 1,530,191 9,434, Annual Report 2010

103 Consolidated Statement of Changes in Equity Share capital Share premium Capital reserve General reserves Translation reserve Attributable to owners of the Company Shares held for Restricted Employee Share share-based Award compensation Scheme reserve Merger reserve Hedging reserve Other reserve Retained profits Total Non controlling interests 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 a 36 2 c (Note a) (Note 36) (Note 2) (Note c) Total b Consideration paid for acquisition of subsidiaries under common control (Note b) (3,862,682) (3,862,682) (3,862,682) Arising from acquisition of subsidiaries under common control 3,980,794 3,980,794 3,980,794 Recognition of equity settled share-based payments 194, , ,393 Acquisition of a subsidiary 152, ,597 Partial disposal of a subsidiary , ,919 Capital contribution from non-controlling interests 156, ,416 Transfer of reserve in subsidiaries 67,993 (67,993) Share vested under Restricted Share Award Scheme 88,936 (117,543) 28,607 Purchase of shares under Share Award Scheme (119,935) (119,935) (119,935) Shares issued for acquisition of a subsidiary 34,824 1,457,446 1,492,270 1,492,270 Exercise of share options ,909 (8,914) 25,894 25,894 Acquisition of additional interest in a subsidiary 1,485 1,485 (3,335) (1,850) Final dividend for 2009 (920,492) (920,492) (920,492) Additional final dividend for prior year (1,175) (1,175) (1,175) Interim dividend for 2010 (470,595) (470,595) (470,595) At 31 December ,724 30,694, , ,988 5,236,126 (227,735) 75,847 (5,011,342) (45,261) 2,286 13,963,850 45,915,593 3,499,060 49,414,653 a. b ,239,000 2,370,420,000 3,862,682,000 3,980,794,000 3,680,400,000 3,261,730,000 c. Notes: a. The Group s general reserves comprise the Group s share of the statutory surplus reserve of subsidiaries in the Chinese Mainland. b. Central New Investments Limited ( Central New ), a wholly-owned subsidiary of China Resources (Holdings) Company Limited ( CRH ), during 2009 had established a whollyowned subsidiary, Fast Lead Investments Limited ( Fast Lead ). Fast Lead during 2010 and prior to common control combination, had acquired certain subsidiaries which held property development sites in the Chinese Mainland. On 3 November 2010, the Group had acquired Fast Lead and its subsidiaries (the Fast Lead Group ) from Central New through the issuance of 348,239,000 ordinary shares at the price equivalent to HK$4.29 and paid HK$2,370,420,000 cash to CRH totalling HK$3,862,682,000 as the consideration. Prior to the common control combination, the share capital and share premium of Fast Lead was amounted to HK$3,980,794,000. Central New during 2009 and prior to common control combination, had established a whollyowned subsidiary, Day Rejoice Limited ( Day Rejoice ). Day Rejoice during 2009 had acquired certain subsidiaries which held property development sites in the Chinese Mainland. On 3 September 2009, the Group had acquired Day Rejoice and its subsidiaries (the Day Rejoice Group ) from Central New at cash consideration of HK$3,680,400,000. Prior to the common control combination, the share capital and share premium of Day Rejoice acquired was amounted to HK$3,261,730,000. c. Other reserve represents the difference between the amount paid or received for any transaction related to the change of shareholding in a subsidiary without the overall gain or loss of control in that subsidiary and the non-controlling interest being acquired or disposed of. Annual Report

104 Consolidated Statement of Cash Flows For the year ended 31 December HK$ 000 HK$ 000 (Restated) OPERATING ACTIVITIES Profit before taxation 11,614,493 7,030,492 Adjustments for: Finance costs 304, ,389 Bank interest income (166,336) (104,891) Imputed interest income in respect of amount due from an associate (11,401) (9,233) Discount on acquisition of additional interests in a subsidiary (1,696) Gain on changes in fair value of investment properties (2,850,182) (2,295,062) Gain on changes in fair value of inventory of properties transferred to investment properties (97,120) (67,208) Loss (gain) on changes in fair value of derivative financial instruments 8,963 (2,390) Depreciation of property, plant and equipment 242, ,368 Loss on disposal of property, plant and equipment 1,350 1,156 Release of prepaid lease payments 8,249 3,067 Impairment loss recognised on trade and other receivables ,183 Impairment loss recognised on deemed capital contribution in an associate ,057 Reversal of allowance for trade and other receivables (979) Recognition of equity-settled share based payment 194,393 3,033 Share of results of associates (48,053) (41,481) Operating cash flows before movements in working capital 9,202,268 4,937,805 Increase in inventory of properties (16,880,805) (2,508,848) (Increase) decrease in other inventories (9,165) 8,712 Increase in trade receivables, other receivables and deposits paid (4,309,043) (5,103,571) Increase in amounts due from customers for contract works (106,642) (70,451) Decrease (increase) in amounts due from fellow subsidiaries 185,528 (84,833) Increase in trade and other payables 1,600,574 1,625,904 Increase in deposits received from pre-sales of properties 2,145,963 13,259,705 Increase in amounts due to customers for contract works 68,481 32,991 Decrease in amounts due to fellow subsidiaries (31,371) (1,919,617) Cash (used in) from operations (8,134,212) 10,177,797 People s Republic of China ( PRC ) tax paid (2,557,583) (1,118,154) Payment for purchase of shares for Share Award Scheme (119,935) (34,494) NET CASH (USED IN) FROM OPERATING ACTIVITIES (10,811,730) 9,025, Annual Report 2010

105 Consolidated Statement of Cash Flows Notes HK$ 000 HK$ 000 (Restated) INVESTING ACTIVITIES Interest received 166, ,891 Acquisition of a subsidiary (net of cash and cash equivalent acquired) 38 1 (1,578,127) Acquisition of an associate (4,701) Dividend received from an associate 36, ,858 Advance to an associate (14,554) Proceeds on disposal of property, plant and equipment 3,555 28,135 Proceeds from disposal of available-for-sale investment 4,510 Purchases of property, plant and equipment (370,397) (1,148,612) Purchase of prepaid land lease (1,385) (2,477) Purchase of investment properties and addition to investment properties under construction (1,316,994) (2,297,370) Deposit paid for non-current assets (2,476,969) Investment cost in available-for-sale investment refunded 8,500 8,215 NET CASH USED IN INVESTING ACTIVITIES (3,955,261) (4,791,531) FINANCING ACTIVITIES Acquisition of additional interest in a subsidiary (1,850) (5,420) Proceeds on partial disposal of a subsidiary 475,378 New bank loans raised 17,288,974 15,489,584 Repayments of bank loans (7,345,988) (9,122,993) (Repayment to) advance from non-controlling interests (191,362) 77,549 Dividends paid (1,392,262) (688,494) Interest paid (1,106,033) (714,071) Proceeds on placement of new shares 4,240,308 Proceeds on exercise of share options 25,894 36,705 Repayment to immediate holding company (1,394,676) (138,439) (Repayment to) advance from fellow subsidiary (2,192,358) 1,212,215 Payment to CRH for the acquisitions of entities under common control (2,370,420) (3,680,400) Capital contribution by non-controlling interests 156,416 NET CASH FROM FINANCING ACTIVITIES 1,951,713 6,706,544 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12,815,278) 10,940,162 ARISING FROM ACQUISITION OF SUBSIDIARIES UNDER COMMON CONTROL 3,980,794 3,251,830 EFFECT OF FOREIGN EXCHANGE RATE CHANGE 933,616 (127,787) CASH AND CASH EQUIVALENTS AT 1 JANUARY 19,873,080 5,808,875 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 11,972,212 19,873,080 ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS Cash and bank balances 11,972,212 19,873,080 Annual Report

106 For The Year Ended 31 December GENERAL The Company is a public limited company incorporated in the Cayman Islands and its shares are listed on The Stock Exchange of Hong Kong Limited ( Hong Kong Stock Exchange ). The immediate holding company is China Resources (Holdings) Company Limited ( CRH ). The directors regard the ultimate holding company of the Company to be China Resources National Corporation ( CRNC ), a company incorporated in the Chinese Mainland. The addresses of the registered office and principal place of business of the Company are disclosed in the Corporate Information of the annual report. The consolidated financial statements are presented in Hong Kong dollars, which is different from the functional currency of the Company, Renminbi ( RMB ), as the Company is a public company incorporated in Cayman Islands with the shares listed on Hong Kong Stock Exchange, where most of its investors are located in Hong Kong and therefore, the directors consider that Hong Kong dollars is preferable in presenting the operating results and financial position of the Group. The majority of the Company s subsidiaries are operating in the Chinese Mainland with RMB as their functional currency. The principal activities of the Group are sale of developed properties, property investments and management, hotel operations and provision of construction, decoration services and others MERGER ACCOUNTING RESTATEMENT Merger accounting for business combination involving entities under common control The Group acquired Fast Lead Group from a subsidiary of CRH on 3 November 2010, which is considered as business combination involving entities under common control and has been accounted for using merger accounting method, based on the guidance set out in Accounting Guideline 5 Merger Accounting for Common Control Combinations issued by the Hong Kong Institute of Certified Public Accountants ( the HKICPA ) for the year ended 31 December As a result, the comparative consolidated statement of comprehensive income and consolidated statement of cash flows for the year ended 31 December 2009 and consolidated statement of financial position as at 1 January 2009 and 31 December 2009 have therefore been restated, in order to include the results of the combining entities since the date of which first come under common control. 106,126,000105,152,000 The acquisition of Fast Lead Group had resulted in decrease in the Group s total comprehensive income for the year and profit for the year ended 31 December 2009 attributable to the owners of the Company by HK$106,126,000 and HK$105,152,000 respectively. 104 Annual Report 2010

107 2. 2. MERGER ACCOUNTING RESTATEMENT (continued) Merger accounting for business combination involving entities under common control (continued) The effect of the merger accounting restatement described above on the consolidated statement of comprehensive income for the year ended 31 December 2009 by line items is as follows: Year ended 31 December 2009 Merger accounting restatement Year ended 31 December 2009 HK$ 000 HK$ 000 HK$ 000 (Originally stated) (Restated) Revenue 16,601,348 48,889 16,650,237 Cost of sales (10,662,798) (11,397) (10,674,195) Gross profit 5,938,550 37,492 5,976,042 Gain on changes in fair value of investment properties 2,295,062 2,295,062 Gain on changes in fair value of inventory of properties transferred to investment properties 67,208 67,208 Gain on changes in fair value of derivative financial instruments 2,390 2,390 Other income 248,252 1, ,462 Selling and marketing expenses (547,249) (28,822) (576,071) General and administration expenses (755,990) (114,703) (870,693) Share of results of associates 41,481 41,481 Finance costs (153,961) (428) (154,389) Profit before taxation 7,135,743 (105,251) 7,030,492 Income tax expense (2,285,219) 99 (2,285,120) Profit for the year 4,850,524 (105,152) 4,745,372 Other comprehensive income Exchange differences arising on translation to presentation currency (54,784) (974) (55,758) Gain on changes in fair value of cash flow hedge 11,433 11,433 Total comprehensive income for the year 4,807,173 (106,126) 4,701,047 Total comprehensive income attributable to: Owners of the Company 4,408,510 (106,126) 4,302,384 Non-controlling interests 398, ,663 4,807,173 (106,126) 4,701,047 Profit for the year attributable to: Owners of the Company 4,408,909 (105,152) 4,303,757 Non-controlling interests 441, ,615 4,850,524 (105,152) 4,745,372 Earnings per share 90.2 (2.1) 88.1 Basic HK90.2 cents HK(2.1) cents HK88.1 cents 89.8 (2.1) 87.7 Diluted HK89.8 cents HK(2.1) cents HK87.7 cents Annual Report

108 2. 2. MERGER ACCOUNTING RESTATEMENT (continued) Merger accounting for business combination involving entities under common control (continued) The effects of the merger accounting restatement described above on the consolidated statement of financial position as at 1 January 2009 and 31 December 2009 by line items are as follows: 1 January 2009 Merger accounting restatement 1 January December 2009 Merger accounting restatement 31 December 2009 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Originally (Restated) (Originally (Restated) stated) stated) Non-current assets Property, plant and equipment 2,274, ,315 2,745,744 2,578, ,083 3,050,933 Prepaid lease payments 631, , , , , ,812 Investment properties 9,998,305 9,998,305 16,742,284 16,742,284 Interests in associates 731, , , ,666 Amount due from an associate 265, , , ,614 Available-for-sale investments 187,994 19, , ,772 14, ,473 Deferred taxation assets 398, , , ,756 14,487, ,154 15,145,717 21,332, ,262 22,052,538 Current assets Inventory of properties 38,149,775 1,418,414 39,568,189 40,827,522 2,090,526 42,918,048 Prepaid lease payments 12,898 3,710 16,608 11,188 6,178 17,366 Other inventories 61,387 2,866 64,253 55,606 55,606 Trade receivables, other receivables and deposits paid 9,884,625 71,315 9,955,940 13,751,430 1,283,723 15,035,153 Amounts due from customers for contract works 210, , , ,615 Amounts due from fellow subsidiaries 15, , ,585 99, , ,435 Amount due from immediate holding company 7,629 7,629 4,103 4,103 Taxation prepaid 128, , , ,019 Cash and bank balances 5,658, ,354 5,808,875 19,513, ,504 19,873,080 54,130,093 1,788,646 55,918,739 75,252,058 3,882,367 79,134,425 Current liabilities Trade and other payables 4,258,280 42,544 4,300,824 5,657, ,698 5,921,958 Deposits received from pre-sales of properties 5,689,910 5,689,910 18,943,304 18,943,304 Amounts due to customers for contract works 341, , , ,575 Amounts due to fellow subsidiaries 1,945, ,142 2,925,893 23,976 2,193,114 2,217,090 Amount due to immediate holding company 981,299 1,427,744 2,409,043 2,264,473 2,264,473 Amounts due to non-controlling interests 911, , , ,111 Taxation payable 686, ,238 1,849,380 1,849,380 Bank borrowings due within one year 4,062,895 4,062,895 1,827,206 1,827, Annual Report 2010

109 2. 2. MERGER ACCOUNTING RESTATEMENT (continued) Merger accounting for business combination involving entities under common control (continued) 1 January 2009 Merger accounting restatement 1 January December 2009 Merger accounting restatement 31 December 2009 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Originally (Restated) (Originally (Restated) stated) stated) 18,877,909 2,450,430 21,328,339 29,663,812 4,722,285 34,386,097 Net current assets 35,252,184 (661,784) 34,590,400 45,588,246 (839,918) 44,748,328 Total assets less current liabilities 49,739,747 (3,630) 49,736,117 66,920,522 (119,656) 66,800,866 Capital and reserves Share capital 471, , , ,001 Reserves 29,791,551 (3,630) 29,787,921 37,306,983 (119,656) 37,187,327 Equity attributable to owners of the Company 30,263,086 (3,630) 30,259,456 37,809,984 (119,656) 37,690,328 Non-controlling interests 798, ,526 1,190,073 1,190,073 31,061,612 (3,630) 31,057,982 39,000,057 (119,656) 38,880,401 Non-current liabilities Bank borrowings due after one year 17,030,097 17,030,097 25,631,576 25,631,576 Deferred taxation liabilities 1,511,114 1,511,114 2,165,788 2,165,788 Derivative financial instruments 136, , , ,101 18,678,135 18,678,135 27,920,465 27,920,465 49,739,747 (3,630) 49,736,117 66,920,522 (119,656) 66,800,866 Annual Report

110 2. 2. MERGER ACCOUNTING RESTATEMENT (continued) Merger accounting for business combination involving entities under common control (continued) The effects of the merger accounting restatement described above to the Group s equity on 1 January 2009 and 31 December 2009 are as follows: Merger Merger 1 January accounting 1 January 31 December accounting 31 December 2009 restatement restatement 2009 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Originally (Restated) (Originally (Restated) stated) stated) Share capital 471, , , ,001 Share premium 24,940,740 24,940,740 29,203,188 29,203,188 Capital reserve 204, , , ,567 General reserves 158, , , ,995 Translation reserve 3,204, ,541 3,350,460 3,193, ,567 3,337,654 Share held for Restricted Share Award Scheme (162,242) (162,242) (196,736) (196,736) Employee share-based compensation reserve 21,779 21,779 7,911 7,911 Merger reserve (4,710,784) 9,900 (4,700,884) (5,129,454) (5,129,454) Hedging reserve (36,259) (36,259) (24,826) (24,826) Retained profits 6,170,231 (159,071) 6,011,160 9,633,251 (264,223) 9,369,028 Non-controlling interests 798, ,526 1,190,073 1,190,073 31,061,612 (3,630) 31,057,982 39,000,057 (119,656) 38,880, Annual Report 2010

111 3. 3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS In the current year, the Group has applied the following new and revised standards and interpretations issued by the HKICPA HKFRS 2 (Amendments) Group Cash-settled Share-based Payment Transactions HKFRS 3 (as revised in 2008) Business Combinations HKAS 27 (as revised in 2008) Consolidated and Separate Financial Statements HKAS 39 (Amendments) Eligible Hedged Items HKFRSs (Amendments) Improvements to HKFRSs issued in 2009 HKFRSs (Amendments) Amendments to HKFRS 5 as part of Improvements to HKFRSs issued in 2008 HK(IFRIC) Int 17 Distributions of Non-cash Assets to Owners HK Int 5 Presentation of Financial Statements Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause Except as described below, the application of the new and revised standards and interpretations in the current year has had no material effect on the amounts reported in these consolidated financial statements and/ or disclosures set out in these consolidated financial statements. Annual Report

112 APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued) HKFRS 3 (as revised in 2008) Business Combinations HKFRS 3 (as revised in 2008) has been applied in the current year prospectively to business combinations of which the acquisition date is on or after 1 January 2010 in accordance with the relevant transitional provisions. Its application has affected the accounting for business combinations in the current year. 3 HKFRS 3 (as revised in 2008) allows a choice on a transaction-bytransaction basis for the measurement of non-controlling interests at the date of acquisition (previously referred to as minority interests) either at fair value or at the non-controlling interests share of recognised identifiable net assets of the acquiree HKFRS 3 (as revised in 2008) changes the recognition and subsequent accounting requirements for contingent consideration. Previously contingent consideration was recognised at the acquisition date only if payment of the contingent consideration was probable and it could be measured reliably; any subsequent adjustments to the contingent consideration were always made against the cost of the acquisition. Under the revised standard, contingent consideration is measured at fair value at the acquisition date; subsequent adjustments to the consideration are recognised against the cost of acquisition only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the acquisition date. All other subsequent adjustments to contingent consideration classified as an asset or a liability are recognised in profit or loss. 3 HKFRS 3 (as revised in 2008) requires the recognition of a settlement gain or loss when the business combination in effect settles a pre-existing relationship between the Group and the acquiree. 3 HKFRS 3 (as revised in 2008) requires acquisition-related costs to be accounted for separately from the business combination, generally leading to those costs being recognised as an expense in profit or loss as incurred, whereas previously they were accounted for as part of the cost of the acquisition. 3 The adoption of HKFRS 3 (as revised in 2008) has had no material impact on the reported results or financial position of the Group for the current accounting period. 110 Annual Report 2010

113 APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued) HKAS 27 (as revised in 2008) Consolidated and Separate Financial Statements The application of HKAS 27 (as revised in 2008) has resulted in changes in the Group s accounting policies for changes in ownership interests in subsidiaries of the Company. 27 Specifically, the revised standard has affected the Group s accounting policies regarding changes in the Company s ownership interests in its subsidiaries that do not result in loss of control. In prior years, in the absence of specific requirements in HKFRSs, increases in interests in existing subsidiaries were treated in the same manner as the acquisition of subsidiaries, with goodwill or a bargain purchase gain being recognised, when appropriate; for decreases in interests in existing subsidiaries that did not involve a loss of control, the difference between the consideration received and the adjustment to the noncontrolling interests was recognised in profit or loss. Under HKAS 27 (as revised in 2008), all such increases or decreases are dealt with in equity, with no impact on goodwill or profit or loss. When control of a subsidiary is lost as a result of a transaction, event or other circumstance, the revised standard requires the Group to derecognise all assets, liabilities and non-controlling interests at their carrying amounts and to recognise the fair value of the consideration received. Any retained interest in the former subsidiary is recognised at its fair value at the date control is lost. The resulting difference is recognised as a gain or loss in profit or loss. 27 2,286, These changes have been applied prospectively from 1 January 2010 in accordance with the relevant transitional provisions. The application of HKAS 27 (as revised in 2008) has resulted in a decrease in both the profit for the year and total comprehensive income attributable to owners of the Company for the year ended 31 December 2010 by HK$2,286,000 and a decrease in both the basic and diluted earnings per share by HK0.05 cent. 27 In addition, under HKAS 27 (as revised in 2008), the definition of noncontrolling interest has been changed. Specifically, under the revised standard, non-controlling interest is defined as the equity in a subsidiary not attributable, directly or indirectly, to a parent. Annual Report

114 ,420, APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued) HKAS 27 (as revised in 2008) Consolidated and Separate Financial Statements (continued) The revised standard has specified that changes in ownership interests in a subsidiary that do not result in a gain or loss of control, such as the subsequent purchase or sale by a parent of a subsidiary s equity instruments in 2009, are accounted for as equity transactions. Accordingly, the resulting cash flows are classified as financing activity. This change has been applied retrospectively. Specifically, in 2009, the amount paid for the acquisition of additional interest of a subsidiary amounting to HK$5,420,000 is included in investing activities in the consolidated statement of cash flows, which has been reclassified from investing to financing activities in the consolidated statement of cash flows accordingly. Amendments to HKAS 17 Leases As part of Improvements to HKFRSs issued in 2009, HKAS 17 Leases has been amended in relation to the classification of leasehold land. Before the amendments to HKAS 17, the Group was required to classify leasehold land as operating leases and to present leasehold land as prepaid lease payments in the consolidated statement of financial position. The amendments to HKAS 17 have removed such a requirement. The amendments require that the classification of leasehold land should be based on the general principles set out in HKAS 17, that is, whether or not substantially all the risks and rewards incidental to ownership of a leased asset have been transferred to the lessee In accordance with the transitional provisions set out in the amendments to HKAS 17, the Group reassessed the classification of unexpired leasehold land as at 1 January 2010 based on information that existed at the inception of the leases and considered that the application of the amendments to HKAS 17 has no material impact to the Group for the current and prior years. Hong Kong Interpretation 5 Presentation of Financial Statements Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause Hong Kong Interpretation 5 Presentation of Financial Statements Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause ( HK Int 5 ) clarifies that term loans that include a clause that gives the lender the unconditional right to call the loans at any time ( repayment on demand clause ) should be classified by the borrower as current liabilities. The Group has applied HK Int 5 for the first time in the current year. HK Int 5 requires retrospective application. 5 The Group reassessed the repayment clauses of outstanding term loans as at 1 January 2009, 31 December 2009 and 31 December 2010 and considered that the application of which had no material impact on the financial position of the Group for the current or prior accounting periods. 112 Annual Report 2010

115 3. 3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued) New and Revised Standards and Interpretations Issued but not yet Effective The Group has not early adopted the following new and revised standards and interpretations that have been issued but are not yet effective HKFRSs (Amendments) Improvements to HKFRSs issued in HKFRS 7 (Amendments) Disclosures Transfers of Financial Assets 7 HKFRS 9 Financial Instruments 4 HKAS 12 (Amendments) Deferred Tax: Recovery of Underlying Assets 5 HKAS 24 (as revised in 2009) Related Party Disclosures 3 HKAS 32 (Amendments) Classification of Rights Issues 6 HK(IFRIC) Int 14 (Amendments) Prepayments of a Minimum Funding Requirement 3 HK(IFRIC) Int 19 Extinguishing Financial Liabilities with Equity Instruments Effective for annual periods beginning on or after 1 July 2010 or 1 January 2011, as appropriate. 2 Effective for annual periods beginning on or after 1 July Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 February Effective for annual periods beginning on or after 1 July Annual Report

116 APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued) New and Revised Standards and Interpretations Issued but not yet Effective (continued) HKFRS 9 Financial Instruments (as issued in November 2009) introduces new requirements for the classification and measurement of financial assets. HKFRS 9 Financial Instruments (as revised in November 2010) adds requirements for financial liabilities and for derecognition Under HKFRS 9, all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at either amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under HKFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability s credit risk are not subsequently reclassified to profit or loss. Previously, under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss. 9 HKFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted. 9 The directors anticipate that HKFRS 9 that will be adopted in the Group s consolidated financial statements for financial year ending 31 December 2013 and that the application of the new standard may impact on amounts reported in respect of the Groups available-for-sale investment, which is currently stated at cost less impairment and will be measured at fair value upon adoption. 114 Annual Report 2010

117 APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued) New and Revised Standards and Interpretations Issued but not yet Effective (continued) The amendments to HKAS 12 titled Deferred Tax: Recovery of Underlying Assets mainly deal with the measurement of deferred taxation for investment properties that are measured using the fair value model in accordance with HKAS 40 Investment Property. Based on the amendments, for the purposes of measuring deferred taxation liabilities and deferred taxation assets for investment properties measured using the fair value model, the carrying amounts of the investment properties are presumed to be recovered through sale, unless the presumption is rebutted in certain circumstances. The directors anticipate that the application of the amendments to HKAS 12 may have a significant impact on deferred taxation recognised for investment properties that are measured using the fair value model. 4. The directors anticipate that the application of the other new and revised standards and interpretations will have no material impact on the consolidated financial statements. 4. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on Hong Kong Stock Exchange of (the Listing Rules ) and by the Hong Kong Companies Ordinance. The consolidated financial statements have been prepared on the historical cost basis, except for investment properties and certain financial instruments, which are measured at fair values, as explained in the accounting policies set out below. The principal accounting policies are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal (except for subsidiaries under common control which are accounted for using the principles of merger accounting), as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Annual Report

118 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation (continued) Non-controlling interests in subsidiaries are presented separately from the Group s equity therein. Allocation of total comprehensive income to non-controlling interests Total comprehensive income and expense of a subsidiary is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Prior to 1 January 2010, losses applicable to the non-controlling interests in excess of the non-controlling interests in the subsidiary s equity were allocated against the interests of the Group except to the extent that the non-controlling interests had a binding obligation and were able to make an additional investment to cover the losses. Changes in the Group s ownership interests in existing subsidiaries Changes in the Group s ownership interests in existing subsidiaries on or after 1 January 2010 Changes in the Group s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. (i) (ii) 39 When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill) and liabilities of the subsidiary and any non-controlling interests. Where certain assets of the subsidiary are measured at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Group had directly disposed of the related assets (i.e. reclassified to profit or loss or transferred directly to retained profits). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity. 116 Annual Report 2010

119 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation (continued) Changes in the Group s ownership interests in existing subsidiaries (continued) Changes in the Group s ownership interests in existing subsidiaries prior to 1 January 2010 Increases in interests in existing subsidiaries were treated in the same manner as the acquisition of subsidiaries, with goodwill or a bargain purchase gain being recognised where appropriate. For decreases in interests in subsidiaries, regardless of whether the disposals would result in the Group losing control over the subsidiaries, the difference between the consideration received and the adjustment to the non-controlling interests was recognised in profit or loss. Business combinations that took place on or after 1 January 2010 Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: deferred taxation assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively; 2 liabilities or equity instruments related to share-based payment transactions of the acquiree or the replacement of an acquiree s sharebased payment transactions with share-based payment transactions of the Group are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date; and 5 assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. Annual Report

120 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation (continued) Business combinations that took place on or after 1 January 2010 (continued) Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer s previously held interest in the acquire (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity s net assets in the event of liquidation may be initially measured either at fair value or at the noncontrolling interests proportionate share of the recognised amounts of the acquiree s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at their fair value or another measurement basis required by another standard. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. 118 Annual Report 2010

121 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation (continued) Business combinations that took place prior to 1 January 2010 Acquisition of businesses was accounted for using the purchase method. The cost of the acquisition was measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree s identifiable assets, liabilities and contingent liabilities that met the relevant conditions for recognition were generally recognised at their fair value at the acquisition date. Goodwill arising on acquisition was recognised as an asset and initially measured at cost, being the excess of the cost of the acquisition over the Group s interest in the recognised amounts of the identifiable assets, liabilities and contingent liabilities recognised. If, after assessment, the Group s interest in the recognised amounts of the acquiree s identifiable assets, liabilities and contingent liabilities exceeded the cost of the acquisition, the excess was recognised immediately in profit or loss. The non-controlling interest in the acquiree was initially measured at the noncontrolling interests proportionate share of the recognised amounts of the assets, liabilities and contingent liabilities of the acquiree. Contingent consideration was recognised, if and only if, the contingent consideration was probable and could be measured reliably. Subsequent adjustments to contingent consideration were recognised against the cost of the acquisition. Business combinations achieved in stages were accounted for as separate steps. Goodwill was determined at each step. Any additional acquisition did not affect the previously recognised goodwill. Annual Report

122 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Merger accounting for business combination involving entities under common control The consolidated financial statements incorporate the financial statement items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party. The net assets of the combining entities or businesses are consolidated using the existing book values from the controlling party s perspective. No amount is recognised in respect of goodwill or excess of acquirer s interest in the net fair value of acquiree s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party s interest. The consolidated statement of comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination. The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the end of the previous reporting period or when they first came under common control, whichever is shorter. Investments in associates An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group s share of the profit or loss and other comprehensive income of the associates. When the Group s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate. 120 Annual Report 2010

123 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Investments in associates (continued) Any excess of the cost of acquisition over the Group s share of the net fair value of the identifiable assets and liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases. 39 From 1 January 2010 onwards, upon disposal of an associate that results in the Group losing significant influence over that associate, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with HKAS 39. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses significant influence over that associate. When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group consolidated financial statements only to the extent of interests in the associate that are not related to the Group. Annual Report

124 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business. Revenue from sale of properties held for sale in the ordinary course of business is recognised when all the following conditions are satisfied: the Group has transferred to the buyer the significant risks and rewards of ownership of the properties which is when the construction of relevant properties has been completed, upon delivery, and collectability of related receivables is reasonably assured; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the properties are sold; 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. Deposits and instalments received from purchasers prior to meeting the above criteria for revenue recognition are included in the consolidated statement of financial position under current liabilities. Revenue from room rental, food and beverage sales and other ancillary services in the hotel are recognised when the relevant services have been rendered. Revenue from sale of goods (including furnitures and other inventories) are recognised when goods are delivered and title has passed. Property management income and service income are recognised when services are rendered. Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount on initial recognition. 122 Annual Report 2010

125 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or for administrative purposes (other than properties under construction as described below) are stated at cost less subsequent accumulated depreciation and impairment losses, if any. Depreciation is recognised so as to write off the cost of items of property, plant and equipment, other than construction in progress less their estimates residual values, over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Properties in the course of construction for production, supply or administrative purposes are carried at cost less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing cost capitalised in accordance with the Group s accounting policy. Such properties are classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Building under development for future owner-occupied purpose When buildings are in the course of development for production or for administrative purposes, the release of prepaid lease payments provided during the construction period is included as part of costs of buildings under construction. Buildings under construction are carried at cost, less any identified impairment losses. Depreciation of buildings commences when they are available for use (i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by management). Annual Report

126 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Investment properties Investment properties are properties held to earn rentals and/or for capital appreciation including properties under construction for such purposes. Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair values using the fair value model. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss for the period in which they arise. Construction costs incurred for investment properties under construction are capitalised as part of the carrying amount of the investment properties under construction. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the assets (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year in which the item is derecognised. Inventory of properties is transferred from properties held for sale to investment property when it is evidenced by the commencement of an operating lease to another party. The difference between the fair value and the carrying amount at the date of transfer is recognised in profit or loss. Impairment losses on tangible assets At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately. 124 Annual Report 2010

127 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Construction contracts Where the outcome of a construction contract (including decoration contract) can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of reporting period, as measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as amounts due to customers for contract work. Amounts received before the related work is performed are included in the consolidated statement of financial position, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated statement of financial position under trade receivables, other receivables and deposits paid. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of 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 profit or loss on a straight-line basis over the term of the relevant lease. The Group as lessee Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis. Annual Report

128 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Leasehold land and building When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group. Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between the land and building elements in a proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease. To the extent the allocation of the lease payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as prepaid lease payments in the consolidated statement of financial position and is released over the lease term on a straight-line basis except for those that are classified and accounted for as investment properties under the fair value model. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease and accounted for as property, plant and equipment, unless it is clear that both elements are operating leases, in which case the entire lease is classified as an operating lease. Foreign currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e., the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign 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 retranslation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of nonmonetary items carried at fair value are included in profit or loss for the period except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in other comprehensive income, in which cases, the exchange differences are also recognised directly in other comprehensive income. 126 Annual Report 2010

129 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currencies (continued) For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group s entities are translated into the presentation currency of the Group (i.e., Hong Kong dollars) at the rate of exchange prevailing at the end of the reporting period, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the year, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (the translation reserve). Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending 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. Government grant Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses that the related costs for which the grants are intended to compensate. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. Taxation Income tax expense represents the sum of the tax currently payable and deferred taxation. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Annual Report

130 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Taxation (continued) Deferred taxation is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred taxation liabilities are generally recognised for all taxable temporary differences. Deferred taxation assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred taxation liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred taxation assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred taxation assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred taxation assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred taxation liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred taxation is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred taxation is also recognised in other comprehensive income or directly in equity respectively. Inventory of properties Inventory of properties includes properties under development and properties held for sale which are stated at the lower of cost and net realisable value. The carrying value of inventory of properties comprises the leasehold interest in land together with development expenditure, which includes construction costs and borrowing costs capitalised. 128 Annual Report 2010

131 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Other inventories Other inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method. Financial instruments Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted 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 through profit or loss are recognised immediately in profit or loss. Financial assets The Group s financial assets are classified into loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest income is recognised on an effective interest basis for debt instruments. Annual Report

132 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial assets (continued) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade receivables, other receivables, amounts due from an associate, fellow subsidiaries, immediate holding company and cash and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below). Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at fair value through profit or loss ( FVTPL ), loans and receivables or held-to-maturity investments. For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at the end of the reporting period (see accounting policy on impairment loss on financial assets below). Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or breach of contract, such as default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or the disappearance of an active market for that financial asset because of financial difficulties. 130 Annual Report 2010

133 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial assets (continued) Impairment of financial assets (continued) For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables and other receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable or other receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss. For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Annual Report

134 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial liabilities and equity instruments Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual 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 all of its liabilities. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis. Financial liabilities Financial liabilities including trade and other payables, amounts due to fellow subsidiaries, amount due to immediate holding company, amounts due to non-controlling interests and bank borrowings are subsequently measured at amortised cost, using the effective interest method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Derivative financial instruments and hedging Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. 132 Annual Report 2010

135 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Hedge accounting The Group uses derivative financial instruments (primarily interest rate swap) as hedges of the floating rate bank borrowing. At the inception of the hedging relationship the entity documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts previously recognised in other comprehensive income and accumulated in equity (hedging reserve) are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss. Annual Report

136 4. (i) 37 (ii) SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial Guarantee Contract A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract issued by the Group and not designated as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue. Derecognition Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset in its entirety, the difference between the asset s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset or retains a residual interest that does not result in the retention of substantially all the risks and rewards of ownership and the Group retains control), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. 134 Annual Report 2010

137 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Share-based payment transactions Share options/awarded shares granted to employees after 7 November 2002 and vested on or after 1 January 2005 The fair value of services received determined by reference to the fair value of share options and awarded shares granted at the grant date is expensed as staff costs on a straight-line basis over the vesting period, with a corresponding increase in employee share-based compensation reserve. At the end of the reporting period, the Group revises its estimates of the number of options and the awarded shares that are expected to ultimately vest. The impact of the revision of the estimates during the vesting period, if any, is recognised in profit or loss, with a corresponding adjustment to employee sharebased compensation reserve. At the time when the share options are exercised, the amount previously recognised in employee share-based compensation reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in employee share-based compensation reserve will be transferred to retained profits. At the time when the awarded shares are vested, the amount previously recognised in shares held for restricted share award scheme reserve and the amount recognised in employee share-based compensation reserve will be transferred to retained profits. Share options granted to employees on or before 7 November 2002, or granted after 7 November 2002 and vested before 1 January 2005 The financial impact of share options granted is not recorded in the consolidated financial statements until such time as the options are exercised, and no charge is recognised in the profit or loss in respect of the value of options granted. Upon the exercise of the share options, the resulting shares issued are recorded as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded as share premium. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options. Retirement benefit contributions Payment to defined contribution retirement benefit schemes are charged as an expense when employees have rendered service entitling them to the contributions. Annual Report

138 KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group s accounting policies, which are described in Note 4, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 910,997, ,236, ,613, ,661, Estimated allowance for doubtful debts The Group makes allowance for doubtful debts based on an assessment of the recoverability of trade and other receivables taking into consideration the estimation of future cash flows. The allowance is measured as the difference between the carrying amount of the assets and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Allowances are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgement and estimates. Where the expectation on the recoverability of trade and other receivables is different from the original estimate, such difference will impact carrying value of trade and other receivables and doubtful debt expenses in the years in which such estimate has been changed. As at 31 December 2010, the carrying amount of trade receivables was HK$910,997,000 (net of allowance for doubtful debts of HK$359,236,000) (2009: HK$822,613,000 (net of allowance for doubtful debts of HK$349,661,000)). Fair value of investment properties Investment properties, including those completed investment properties and investment properties under construction, are carried in the consolidated statement of financial position at 31 December 2010 at their fair value, details of which are disclosed in Note 18. The fair value of the investment properties was determined by reference to valuations conducted on these properties by independent firms of property valuers using property valuation techniques which involve certain assumptions of prevailing market conditions. Favourable or unfavourable changes to these assumptions may result in changes in the fair value of the Group s investment properties included in the consolidated statement of financial position and corresponding adjustments to the changes in fair value reported in the consolidated statement of comprehensive income. 136 Annual Report 2010

139 5. 152,499, ,101,000 61,883,161,000 42,918,048,000 3,299,277,000 3,050,933, ,281, ,756, ,591, ,852, KEY SOURCES OF ESTIMATION UNCERTAINTY (continued) Fair value of derivative financial instruments The directors use their judgement in selecting an appropriate valuation technique for financial instrument not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. For derivative financial instrument, assumptions are made based on quoted market rates adjusted for specific features of the instrument. The fair value of the derivative financial instrument as at 31 December 2010 was estimated at a liability of HK$152,499,000 (2009: HK$123,101,000). Impairment loss on inventory of properties Included in the consolidated statement of financial position at 31 December 2010 are inventory of properties of HK$61,883,161,000 (2009: HK$42,918,048,000) which are carried at the lower of cost and net realisable value. Management conducts assessments on the net realisable value of inventories by reference to their estimated net selling price and other economic conditions of the markets in which the Group s properties are situated. If the actual selling prices of inventory of properties are substantially less than expected due to an adverse market condition or other factors, impairment loss on inventory of properties may result. No impairment loss was made in the current and prior year. Useful lives of property, plant and equipment In applying the accounting policy on property, plant and equipment with respect to depreciation, management estimates the useful lives of various categories of property, plant and equipment according to the industrial experiences over the usage of property, plant and equipment and also by reference to the relevant industrial norm. If the actual useful lives of property, plant and equipment is less than the original estimate useful lives due to changes in commercial and technological environment, such difference will impact the depreciation charge for the remaining useful life. As at 31 December 2010, the carrying amount of property, plant and equipment was HK$3,299,277,000 (2009: HK$3,050,933,000). Deferred taxation assets As at 31 December 2010, a deferred taxation asset of HK$482,281,000 (2009: HK$471,756,000) in relation to allowance for doubtful debts, write down of inventory of properties, impairment loss of available-for-sale investments, the provision for Land Appreciation Tax and certain amount of tax losses has been recognised in the Group s consolidated statement of financial position. No deferred taxation asset has been recognised on the tax losses of HK$517,591,000 (2009: HK$442,852,000) due to the unpredictability of future profit streams. The realisability of the deferred taxation asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are more or less than expected, a material recognition or reversal of deferred taxation assets may arise, respectively which would be recognised in profit or loss for the period in which such changes takes place. Annual Report

140 6. 6. REVENUE Revenue represents income from sale of developed properties, rental income, provision of property management and related services, hotel operations and provision of construction and decoration services for the year. An analysis of the Group s revenue for the year is as follows: HK$ 000 HK$ 000 (Restated) Sale of developed properties 22,586,519 14,450,366 Rental income 1,211, ,323 Property management and related services 500, ,820 Hotel operations 352,149 44,423 Construction, decoration services and others Construction contract 329, ,387 Decoration services 382, ,104 Furniture manufacturing and sales 326, ,632 Others 40,359 11,182 25,729,158 16,650, SEGMENT INFORMATION Information reported to the Board of Directors of the Company, being the chief operating decision maker, for the purpose of resource allocation and assessment of performance focused on the segment of sale of developed properties, property investments and management, hotel operations, construction, decoration services and others. These divisions are the basis on which the Group reports its segment information under HKFRS 8 Operating Segments. 138 Annual Report 2010

141 7. (a) 7. SEGMENT INFORMATION (continued) (a) Segment revenues and results The following is an analysis of the Group s revenue and results by reportable segment. Year ended 31 December 2010 Property Construction, Sale of investments decoration developed and Hotel services properties management operations and others Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Revenue External sales 22,586,519 1,711, ,149 1,078,828 25,729,158 Result Segment result 7,983, ,961 (119,332) 30,415 8,678,680 Unallocated other income 530,216 Gain on changes in fair value of investment properties 2,947,302 Unallocated expenses (285,313) Share of results of associates 48,053 Finance costs (304,445) Profit before taxation 11,614,493 Annual Report

142 7. (a) 7. SEGMENT INFORMATION (continued) (a) Segment revenues and results (continued) Year ended 31 December 2009 Property Construction, Sale of investments decoration developed and Hotel services properties management operations and others Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) (Restated) (Restated) (Restated) Revenue External sales 14,450,366 1,292,143 44, ,305 16,650,237 Result Segment result 4,126, ,260 (86,950) 19,905 4,632,780 Unallocated other income 249,462 Gain on changes in fair value of investment properties 2,362,270 Unallocated expenses (101,112) Share of results of associates 41,481 Finance costs (154,389) Profit before taxation 7,030,492 4 Except for investment properties which were reviewed based on cost, the accounting policies of the operating segments are the same as the Group s accounting policies described in Note 4. Segment result represents the profit earned or loss incurred by each segment without allocation of incomes or expenses which are not recurring in nature and unrelated to the Group s operating performance, fair value changes on investment properties, central administration costs, directors salaries, share of results of associates and finance costs. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and performance assessment. 140 Annual Report 2010

143 7. (b) 7. SEGMENT INFORMATION (continued) (b) Segment assets and liabilities Segment assets The following is an analysis of the Group s assets by reportable segment: HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Segment assets Sale of developed properties 82,536,185 57,620,710 49,597,186 Property investments and management 16,486,279 14,375,153 11,066,681 Hotel operations 2,706,153 2,676,710 1,081,481 Construction, decoration services and others 2,731, , ,225 Total segment assets 104,460,386 75,577,499 62,597,573 Changes in fair value of investment properties 7,057,034 4,109,732 1,747,462 Unallocated 14,120,455 21,499,732 6,719,421 Consolidated assets 125,637, ,186,963 71,064,456 For the purposes of monitoring segment performances and allocating resources between segments: all assets are allocated to operating segments other than amount due from an associate, interests in associates, deferred taxation assets, available-for-sale investments, amounts due from fellow subsidiaries and immediate holding company, taxation prepaid, cash and bank balances and other corporate assets. The investment properties included in segment assets are stated at cost when assessed by the chief operating decision maker. Segment liabilities The chief operating decision maker mainly reviews the segment assets for the purposes of resource allocation and performance assessment, the analysis of the Group s liabilities is not regularly reviewed by the chief operating decision maker and hence, the relevant information is not presented accordingly. Annual Report

144 7. (c) 7. SEGMENT INFORMATION (continued) (c) Other segment information 2010 Sale of developed properties Property investments and management Hotel operations Construction, decoration services and others Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Amount included in the measure of segment profit or segment assets: * Capital additions* 493,603 1,039, ,440 52,129 1,700,711 Depreciation 37,857 61, ,116 7, , Sale of developed properties Property investments and management Hotel operations Construction, decoration services and others Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) (Restated) (Restated) (Restated) Amount included in the measure of segment profit or segment assets: * Capital additions* 171,107 1,096,901 1,665, ,453 3,513,102 Depreciation 47,516 58,605 63,336 5, ,369 * * Capital additions include addition to property, plant and equipment, investment properties and prepaid lease payments in both years. 142 Annual Report 2010

145 7. (d) 6 7. SEGMENT INFORMATION (continued) (d) Revenue from major products and services The analysis of the Group s revenue from its major products and services is set out in Note 6. (e) 90% 90% 29,281,813,000 21,147,695,000 (e) No geographical segment analysis is shown as more than 90% of the Group s revenue are derived from activities in, and from customers located in the Chinese Mainland and more than 90% of the carrying values of the Group s non-current assets excluding financial instruments and deferred taxation assets amounting to HK$29,281,813,000 (2009: HK$21,147,695,000) are situated in the Chinese Mainland. (f) 10% (f) The Group does not have major customers as no single customer contributes more than 10% of the Group s turnover of respective year OTHER INCOME HK$ 000 HK$ 000 (Restated) Exchange gain, net 101,472 4,420 Bank interest income 166, ,891 Imputed interest income in respect of amount due from an associate 11,401 9,233 Government grants (Note) 144,172 94,696 Reversal of allowance for trade and other receivables 979 Discount on acquisition of additional interests in a subsidiary 1,696 Others 106,835 33, , ,462 Note: The amount represents mainly the compensations, subsidies and refunds of various taxes as incentives by the government authorities in various cities of the Chinese Mainland. Annual Report

146 DIRECTORS EMOLUMENTS The emoluments paid or payable to each of the 15 (2009: 13) directors were as follows: 2010 Wang Yin Jiang Wei Yan Biao Ding Jie Min Du Wen Min Li Fu Zuo Wang Shi Andrew Y. Yan Ho Hin Ngai Wu Xiang Dong Wan Kam To Peter Shi Shan Bo Wei Bin Zhang Hai Peng Frederick Ma Si Hang Total 2010 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 HK$ 000 Fees Executive directors Non-executive directors Independent non-executive directors ,480 Other emoluments Salaries and other benefits 2,469 2,158 4,627 Contribution to retirement benefit schemes Share-based payments 7,764 5,443 13,207 Total emoluments 10,355 7,723 18, Song Lin Wang Yin Jiang Wei Yan Biao Liu Yan Jie Ding Jie Min Du Wen Min Li Fu Zuo Wang Shi Andrew Y. Yan Ho Hin Ngai Wu Xiang Dong Wan Kam To Peter Total 2009 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 Fees Executive directors Non-executive directors Independent non-executive directors ,110 Other emoluments Salaries and other benefits 2,867 2,565 5,432 Contribution to retirement benefit schemes Share-based payments Total emoluments 2,986 2,672 5,658 Note: During the year, none of the directors have waived the directors emoluments (2009: None). None of the directors have received any inducement pay for joining or upon joining the Company. 144 Annual Report 2010

147 EMPLOYEES EMOLUMENTS Of the five individuals with the highest emoluments in the Group, two (2009: two) were directors of the Company whose emoluments are included in the disclosures in Note 9 above. The emoluments of the remaining three (2009: three) individuals were as follows: HK$ 000 HK$ 000 Salaries and other benefits 5,952 7,467 Contributions to retirement benefit schemes Share-based payments 13,212 19,480 7,689 Their emoluments were within the following bands: No. of employees ,000,0012,500,000 HK$2,000,001 to HK$2,500, ,500,0013,000,000 HK$2,500,001 to HK$3,000, ,000,000 Over HK$3,000, FINANCE COSTS HK$ 000 HK$ 000 (Restated) Interest on bank loans wholly repayable: Within five years (833,892) (707,022) Over five years (272,141) (7,049) Total borrowing cost (1,106,033) (714,071) Less: Amount capitalised in properties under development, properties under construction held for investment and construction in progress 801, ,682 (304,445) (154,389) Annual Report

148 INCOME TAX EXPENSE HK$ 000 HK$ 000 (Restated) Current tax: Hong Kong Profits Tax (534) (229) PRC Enterprise Income Tax (1,752,440) (949,679) (1,752,974) (949,908) Land appreciation tax ( LAT ) in the PRC (1,711,422) (752,134) Deferred taxation: 23 Current year (Note 23) (811,363) (583,078) (4,275,759) (2,285,120) 16.5% Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years. 25% 15%25% Pursuant to the PRC Enterprise Income Tax law (the EIT Law ) and its detailed implementation rules promulgated on 16 March 2007 and 6 December 2007 respectively, for those subsidiaries without preferential tax rates, the new tax rate for domestic and foreign enterprises was unified at 25% and had become effective from 1 January For those subsidiaries enjoying a preferential tax rate, the new tax rate would increase from 15% over 5 years to 25% as a result of the grandfathering provisions. 146 Annual Report 2010

149 INCOME TAX EXPENSE (continued) The income tax expense for the year can be reconciled to the profit before taxation per the consolidated statement of comprehensive income as follows: HK$ 000 HK$ 000 (Restated) Profit before taxation 11,614,493 7,030,492 25% 25% Tax charge at domestic tax rate of 25% (2009: 25%) (2,903,623) (1,757,623) Tax effect of share of results of associates 12,013 10,370 Tax effect of expenses not deductible for tax purpose (163,980) (72,002) Tax effect of income not taxable for tax purpose 55,936 12,142 Tax effect of tax losses not recognised (41,638) (59,865) Utilisation of tax losses previously not recognised 11,887 44,222 Income taxed at concessionary rate 24,280 68,750 Effect of different tax rates of subsidiaries 275 (198) Recognition of tax losses previously not recognised 12,657 33,184 Land appreciation tax (1,711,422) (752,134) Tax effect of land appreciation tax 427, ,034 Income tax expense for the year (4,275,759) (2,285,120) Annual Report

150 PROFIT FOR THE YEAR HK$ 000 HK$ 000 (Restated) Profit for the year has been arrived at after charging: Directors emoluments Fees 1,480 1,110 Salaries, other emoluments and retirement benefit cost 4,871 5,658 Share-based payments 13,207 Other staff costs Salaries and other benefits 773, ,195 Retirement benefit cost (excluding amount included in directors emoluments) 66,018 62,848 Share-based payments (excluding amount included in directors emoluments) 181,186 3,033 Total staff costs 1,040, ,844 Less: Amount capitalised in the properties under development, properties under construction held for investment and construction in progress (290,931) (140,291) 749, ,553 Cost of inventories recognised as expense 12,523,935 9,618,520 Auditor s remuneration 1,600 1,510 Release of prepaid lease payments 8,249 3,067 Impairment losses recognised on trade and other receivables ,183 Impairment losses recognised on deemed capital contribution in an associate ,057 Depreciation of property, plant and equipment 242, ,368 Loss on disposal of property, plant and equipment 1,350 1,156 Share of tax of associates (included in share of results of associates) (15,968) (12,244) and after crediting: Gross rental income from investment properties 1,211, ,323 Less: Direct operating expenses from investment properties that generated rental income during the year (142,904) (108,427) 1,068, ,896 1,592,449, ,335,000 Note: Profit of the Company for 2010 amounted to approximately HK$1,592,449,000 (2009: HK$637,335,000). 148 Annual Report 2010

151 DIVIDENDS HK$ 000 HK$ ) ) Dividends recognised as distribution during the year: 2010 Interim HK9.5 cents (2009: 2009 Interim HK5.4 cents) per share 470, , Final HK18.3 cents (2009: 2008 Final HK8.3 cents) per share 920, ,373 Additional final dividend for prior year due to exercise of share options and placement of new shares 1,175 25,543 1,392, , ) Dividend proposed: Final dividend proposed for the year 2010 Final HK21.5 cents (2009: 2009 Final HK18.3 cents) per share 1,158, , The final dividend of HK21.5 cents per ordinary share in respect of the year ended 31 December 2010 (2009: final dividend of HK18.3 cents per ordinary share in respect of the year ended 31 December 2009) has been proposed by the directors and is subject to approval by the shareholders in the forthcoming general meeting. Annual Report

152 EARNINGS PER SHARE The calculation of the basic and diluted earnings per share attributable to the ordinary owners of the Company is based on the following data: HK$ 000 HK$ 000 (Restated) Earnings Earnings for the purposes of basic and diluted earnings per share (profit for the year attributable to owners of the Company) 6,026,470 4,303, Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share 5,030,169,590 4,886,605,294 Effect of dilutive potential ordinary shares on Share options 12,945,886 21,744,572 Awarded shares unvested 12,027,047 Weighted average number of ordinary shares for the purpose of diluted earnings per share 5,055,142,523 4,908,349,866 21,681,000 23,958,000 The weighted average number of ordinary shares shown above has been arrived at after deducting the effect on 21,681,000 shares (2009: 23,958,000 shares) held by BOCI Prudential Trustee Limited, a trustee company for the Company s Restricted Share Award Scheme. 150 Annual Report 2010

153 PROPERTY, PLANT AND EQUIPMENT Hotel properties Buildings Leasehold improvements, furniture and equipment Motor vehicles Construction in progress Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) (Restated) (Restated) (Restated) (Note) COST At 1 January 2009 (originally stated) 901, ,225 61,232 1,557,581 2,867,121 Merger accounting restatement 61,482 20,837 8, , ,355 At 1 January 2009 (Restated) 962, ,062 69,816 1,951,033 3,351,476 Currency realignment (135) (52) (9) (291) (487) Additions 49, ,026 6, ,625 1,158,078 Transfer 1,472, , (2,009,497) Acquired on acquisition of a subsidiary Reclassified to investment properties (Note 18) (648,815) (648,815) Disposal (31,242) (14,594) (3,442) (49,278) At 31 December 2009 (Restated) 1,472, ,723 1,005,919 74, ,055 3,811,963 Currency realignment 51,118 34,058 34,932 2,539 17, ,674 Additions 79,289 48,766 27, , ,331 Transfer 63,151 (63,151) Disposal (13,877) (8,291) (22,168) At 31 December ,523,146 1,157,221 1,075,740 95, ,972 4,311,800 ACCUMULATED DEPRECIATION At 1 January 2009 (originally stated) 344, ,748 27, ,692 Merger accounting restatement 5,837 5,366 1,837 13,040 At 1 January 2009 (Restated) 350, ,114 29, ,732 Currency realignment (48) (31) (4) (83) Provided for the year 80,328 85,765 9, ,368 Eliminated on disposal (3,993) (13,367) (2,627) (19,987) At 31 December 2009 (Restated) 426, ,481 35, ,030 Currency realignment ,417 10, ,163 Provided for the year 71,637 32, ,563 13, ,675 Eliminated on disposal (11,586) (5,759) (17,345) At 31 December , , ,860 44,515 1,012,523 CARRYING VALUES At 31 December ,451, , ,880 51, ,972 3,299,277 At 31 December 2009 (Restated) 1,472, , ,438 38, ,055 3,050,933 At 1 January 2009 (Restated) 612, ,948 40,711 1,951,033 2,745,744 Note: The amount for the year ended 2009 and 2010 mainly represented the hotel properties which are under construction. Annual Report 2010 Annual Report

154 PROPERTY, PLANT AND EQUIPMENT (continued) Hotel properties and buildings are located in the Chinese Mainland and are situated on land held under medium-term leases. The above items of property, plant and equipment, other than construction in progress, are depreciated on a straight-line basis with the following estimated useful lives: Hotel properties and buildings Leasehold improvements, furniture and equipment Motor vehicles years or over the unexpired term of lease, whichever is shorter 5 years 5 years ,183,000 11,861,000 11,934,0008,794, PREPAID LEASE PAYMENTS The Group s prepaid lease payments are situated in the Chinese Mainland and held under medium-term leases. The prepaid lease payments are released over their lease terms of 39 to 50 years on a straight-line basis. The release for the year is HK$20,183,000 (2009: HK$11,861,000), of which HK$11,934,000 (2009: HK$8,794,000) is capitalised in construction in progress included in property, plant and equipment. 152 Annual Report 2010

155 INVESTMENT PROPERTIES Completed investment properties Investment properties under construction Total HK$ 000 HK$ 000 HK$ 000 FAIR VALUE At 1 January ,998,305 9,998,305 a Reclassified from construction in progress for investment properties previously included in property, plant and equipment at 1 January 2009 (Note a) 648, ,815 a Reclassified from prepaid lease payments for land at 1 January 2009 (Note a) 238, ,274 Increase in fair value at 1 January 2009 recognised in profit or loss 1,093,921 1,093,921 Currency realignment (780) 2,384 1,604 Additions 63,080 2,234,290 2,297,370 b Reclassified from properties under development included in inventory of properties (Note b) 1,262,854 1,262,854 Increase in fair value recognised in profit or loss 306, ,665 1,201,141 Transfer to completed investment properties 1,089,469 (1,089,469) At 31 December ,456,550 5,285,734 16,742,284 Currency realignment 521, , ,162 Additions 1,316,994 1,316,994 c Reclassified from properties held for sale included in inventory of properties (Note c) 341, ,446 Increase in fair value recognised in profit or loss 2,078, ,335 2,850,182 Transfer to completed investment properties 2,110,812 (2,110,812) At 31 December ,508,812 5,444,256 21,953,068 Annual Report

156 INVESTMENT PROPERTIES (continued) Notes: a ,815, ,274,000 a. At 1 January 2009, the building and land elements of properties under construction for future use as investment properties amounting to HK$648,815,000 included in property, plant and equipment and HK$238,274,000 included in prepaid lease payments for land respectively were reclassified to investment properties pursuant to the application of the amendments to HKAS 40 Investment Property. b. 67,208,000 b. This amount represents the portion of investment properties under construction in residential and commercial complex. As at 31 December 2008, the cost of these investment properties under construction was not reliably determinable and was included in inventory of properties as the residential and commercial complex was mainly developed for sales purpose. In 2009, the cost attributable to these investment properties under construction could be reliably determinable and accordingly the amount was reclassified to investment properties under construction. On the date of reclassification, the amount included an increase in fair value in respect of investment properties under construction of approximately HK$67,208,000. c. 97,120,000 c. During the year, the Group has changed the use of certain properties, of which has commenced the operating lease to outsiders. Accordingly, it results in a transfer from inventories of property to investment properties. On the date of reclassification, the amount includes an increase in fair value upon transfer to completed investment properties of approximately HK$97,120,000. The fair value of the Group s investment properties on the dates of reclassification, at 1 January 2009, 31 December 2009 and 2010 have been arrived at on the basis of a valuation carried out as of those dates by an independent qualified professional valuers who are not connected with the Group. The valuers have appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The fair values of the investment properties were determined by the valuers on the following basis: Vacant properties by reference to market evidence of transaction prices for similar properties in the similar locations ( ) Occupied properties by reference to capitalised income to be derived from the existing tenancies and the reversionary income potential of the properties or, where appropriate, by reference to market evidence of transaction prices for similar properties in the similar locations and conditions Properties under construction by reference to market evidence of transaction prices for similar properties in the similar locations, less estimated costs to completion and investors return The investment properties are situated in the Chinese Mainland under medium term leases. All of the Group s leasehold interests in land, in respect of the investment properties, held under operating leases to earn rentals or for capital appreciation purposes are classified as investment properties and are accounted for using the fair value model. 154 Annual Report 2010

157 INTERESTS IN ASSOCIATES HK$ 000 HK$ 000 HK$ 000 Cost of unlisted investments in associates 82,064 74,766 74,777 Share of post-acquisition profits, net of dividend received 626, , , , , ,099 The summarised financial information in respect of the Group s associates is set out below: HK$ 000 HK$ 000 HK$ 000 Total assets 2,249,030 2,172,758 1,695,948 Total liabilities (794,704) (784,547) (385,624) Net assets 1,454,326 1,388,211 1,310,324 Group s share of net assets of associates 708, , ,099 Revenue 191, , ,937 Profit for the year 93,464 82, ,925 Group s share of profits of associates for the year 48,053 41,481 97,094 45(c) Particulars of the Group s associates are set out in Note 45(c). Annual Report

158 20. 5% 5% 172,000 50,057, AMOUNT DUE FROM AN ASSOCIATE The amount due from an associate is unsecured, interest-free and does not have fixed terms of repayment. In the opinion of the directors of the Company, the amount will not be repayable in the next twelve months after the end of the reporting period, and accordingly, it is shown as non-current. The effective imputed interest rate per annum on the non-current balance is 5% (2009: 5%). During the year, the amount of fair value adjustment of HK$172,000 (2009: HK$50,057,000) is deemed as the capital contribution in an associate, which has been fully impaired and charged to profit or loss. The Group assessed the credit quality of the associate regularly based on its financial position and considered no allowance for the amount due from an associate should be provided at the end of the reporting period. 21. AVAILABLE-FOR-SALE INVESTMENTS HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Available-for-sale investments comprise: Unlisted equity securities in the Chinese Mainland, at cost 442, , ,352 Less: Impairment losses (253,980) (247,119) (247,147) 188, , ,205 The above available-for-sale investments were measured at cost less impairment at the end of the reporting period since the equity investments do not have a quoted market price in an active market and the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that the fair value cannot be reliably measured. 8,500,000 8,215,000 In the current year, the Group s investment cost in one of the unlisted equity investments had been refunded in the amount of HK$8,500,000 (2009: HK$8,215,000). The Group s remaining available-for-sale investments represent mainly certain unlisted equity securities held by a property investment subsidiary established in Beijing and Hainan. 156 Annual Report 2010

159 DEPOSIT PAID FOR NON-CURRENT ASSETS HK$ 000 HK$ 000 HK$ 000 a b Deposit paid for an equity investment (Note a) 519,229 Deposits paid for acquisition of land use rights (Note b) 1,957,740 2,476,969 Notes: a. 50% 1,008,180,000 1,184,793,000 a. During the year, the Group entered into a provisional share transfer agreement with an outsider to acquire 50% equity interest of ( ) at a cash consideration of RMB1,008,180,000 (equivalent to HK$1,184,793,000). is a property development company engaged in the property development business in Shanghai. 452,454, ,229, At the end of the reporting period, deposit of RMB452,454,000 (equivalent to HK$519,229,000) had been paid and the remaining balance was disclosed as capital commitment as set out in Note 40. The acquisition is expected to complete in b. 1,957,740,000 b. The amount represents the partial payments made by the Group for the acquisition of land use rights in the Chinese Mainland for the development of investment properties. The land use right certificates have not yet been obtained by the Group at the end of the reporting period. The management expects the deposits paid that they would obtain the land use right certificates in the coming twelve months after the end of the reporting period are HK$1,957,740, DEFERRED TAXATION ASSETS (LIABILITIES) For the purpose of presentation in the consolidated statement of financial position, certain deferred taxation assets and liabilities have been offset. The following is the analysis of the deferred taxation balances at the end of the reporting period: HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Deferred taxation assets 482, , ,269 Deferred taxation liabilities (3,070,966) (2,165,788) (1,511,114) (2,588,685) (1,694,032) (1,111,845) Annual Report

160 D EFERRED TAXATION ASSETS (LIABILITIES) (continued) The followings are the major deferred taxation assets (liabilities) recognised and movements thereon during the current and prior years. Investment properties Allowance for doubtful debts Land Appreciation Tax Tax losses Other temporary differences (Note) Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) At 1 January 2009 (originally stated) (1,511,114) 212,236 94,607 5,123 86,668 (1,112,480) Merger accounting restatement At 1 January 2009 (Restated) (1,511,114) 212,236 94,607 5,758 86,668 (1,111,845) Currency realignment (335) (21) (17) 46 (3) (330) Acquisition of a subsidiary 1,221 1,221 (Charge) credit to profit or loss (654,339) 10,710 (4,006) 56,584 7,973 (583,078) At 31 December 2009 (Restated) (2,165,788) 222,925 90,584 63,609 94,638 (1,694,032) Currency realignment (100,371) 7,741 3,146 2,186 4,008 (83,290) Charge to profit or loss (804,807) (6,294) (262) (811,363) At 31 December 2010 (3,070,966) 230,666 93,730 59,501 98,384 (2,588,685) Note: Other temporary differences mainly represent the deductible temporary differences arising from the write down of inventory of properties, impairment loss of availablefor-sale investments and other expenses. 755,595, ,288, ,004, ,436, ,591,000442,852,000 At 31 December 2010, the Group had unused tax losses of HK$755,595,000 (2009: HK$697,288,000) available for offset against future profits. HK$238,004,000 (2009: HK$254,436,000) tax losses has been recognised as deferred taxation assets. No deferred taxation asset has been recognised on the remaining tax losses of HK$517,591,000 (2009: HK$442,852,000), as in the opinion of the directors of the Company, the future profit streams of these subsidiaries are uncertain. The tax losses could be carried forward for a maximum of five years. 158 Annual Report 2010

161 INVENTORY OF PROPERTIES HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Properties under development 57,439,056 40,054,784 34,917,887 Properties held for sale 4,444,105 2,863,264 4,650,302 61,883,161 42,918,048 39,568,189 53,162,214,000 The inventory of properties were located in the Chinese Mainland under medium-term lease. Inventory of properties which are expected to be recovered in more than twelve months after the end of the reporting period are classified under current assets as it is expected to be realised in the Group s normal operating cycle. The amounts of inventory of properties that are expected by the management to be realised after more than twelve months after the end of the reporting period are HK$53,162,214, OTHER INVENTORIES HK$ 000 HK$ 000 HK$ 000 (Restated) Raw materials 17,308 52,677 57,877 Consumables and others 49,404 2,929 6,376 66,712 55,606 64,253 Annual Report

162 TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Trade receivables 1,270,233 1,172,274 1,196,111 Less: allowance for doubtful debts (359,236) (349,661) (349,888) 910, , ,223 ) Deposits paid for acquisition of land use rights (Note) 16,183,270 12,209,309 8,090,094 Other receivables 1,079,073 1,497, ,439 Less: allowance for doubtful debts (375,182) (362,577) (320,200) 703,891 1,134, ,239 Prepayments and deposits 2,061, , ,384 19,859,289 15,035,153 9,955,940 16,183,270,000 Note: The amount represents the partial payments made by the Group for the acquisition of land use rights in the Chinese Mainland for property development for sale. The land use right certificates have not yet been obtained by the Group at the end of the reporting period. The management expects the deposits paid that they would obtain the land use right certificates in the coming twelve months after the end of reporting period are HK$16,183,270, Proceeds receivable in respect of sales of properties are settled in accordance with the terms stipulated in the sale and purchase agreements. Generally, purchasers of properties are required to settle the balance within 30 days as specified in the sale and purchase agreements or not granted with any credit period. 45 Except for the proceeds receivable from sales of properties, rental income from lease of properties and proceeds from construction contracts which are payable in accordance with the terms of the relevant agreements, the Group generally allows a credit period of not exceeding 45 days to its customers. 160 Annual Report 2010

163 26. 4,090,000 1,798, TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID (continued) Retention receivables included in trade receivables amounted to HK$4,090,000 (2009: HK$1,798,000) are interest-free and receivable at the end of the retention period of individual construction contracts. Before accepting any customers, the Group uses an internal credit assessment system to assess the potential customers credit quality and defines credit limits by customer, and considers adequate allowance has been made at the end of the reporting period. Balances which are neither past due nor impaired are all with good credit quality. The followings are the aged analysis of trade receivables at the end of the reporting period: Aged analysis of trade receivables net of impairment HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Within one year 713, , ,053 Over one year 197, , , , , ,223 Aged analysis of trade receivables which are past due but not impaired HK$ 000 HK$ 000 HK$ 000 Within one year 145,245 Over one year 169, ,468 96, , , ,150 Annual Report

164 ,330,000153,468, TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID (continued) Included in the Group s trade receivable balance are debtors with aggregate carrying amount of HK$169,330,000 (2009: HK$153,468,000) which are past due at the end of the reporting period for which the Group has not provided for impairment loss. The Group has retained the legal ownership of the property sold to the property buyer for overdue debtor balances. There are no fixed repayment term for other receivables and the Group considers they are repayable on demand and will be recovered in one year from the date of advance. The Group assessed the credit quality of trade and other receivables based on historical default rates and the repayment records and considered adequate allowance has been made at the end of the reporting period. The following is an aged analysis of other receivables net of impairments at the end of the reporting period: Other receivables HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Within one year 511, , ,703 Over one year 192, , , ,891 1,134, , ,236, ,182,000349,661, ,577,000 Included in the allowance for doubtful debts are individually impaired trade receivables and other receivables of HK$359,236,000 and HK$375,182,000 (2009: HK$349,661,000 and HK$362,577,000) respectively, which have been in severe financial difficulties and irrecoverable. The Group does not hold any collateral over these balances. The followings are the movement in the accumulated impairments for trade receivables and other receivables. 162 Annual Report 2010

165 TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID (continued) Movements in the allowance for doubtful debts for trade receivables HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Balance at the beginning of the year 349, , ,707 Exchange realignment 12,143 (49) 21,181 Impairment losses recognised for the year Impairment losses reversed (520) Written off during the year (3,127) Balance at the end of the year 359, , ,888 Movements in the allowance for doubtful debts for other receivables HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Balance at the beginning of the year 362, , ,445 Exchange realignment 12,591 (5) 17,045 ) Impairment losses recognised for the year (Note) 61 42,841 44,710 Impairment losses reversed (47) (459) Balance at the end of the year 375, , ,200 Note: The amount represents the partial impairment made for the loan advance to an outsider after considering its financial position and ability to repay. Annual Report

166 AMOUNTS DUE FROM (TO) CUSTOMERS FOR CONTRACT WORKS HK$ 000 HK$ 000 HK$ 000 Contracts in progress at the end of the reporting period Contract costs incurred plus recognised profits less recognised losses 8,101,292 5,849,879 4,458,873 Less: progress billings (8,159,332) (5,942,839) (4,589,907) (58,040) (92,960) (131,034) Analysed for reporting purposes as: Amounts due from customers for contract works 398, , ,929 Amounts due to customers for contract works (456,121) (374,575) (341,963) (58,040) (92,960) (131,034) 4,090,0001,798,000 67,912,000 52,021,000 At 31 December 2010, retentions held by customers for contract works included in trade receivables amounted to HK$4,090,000 (2009: HK$1,798,000). Advances received from customers for contract work included in other payables amounted to HK$67,912,000 (2009: HK$52,021,000). At 31 December 2010 and 2009, the management expects both the retentions held by customers for contract works and advances received from customers for contract works will be realised within twelve months after the end of the reporting period AMOUNTS DUE FROM FELLOW SUBSIDIARIES/ IMMEDIATE HOLDING COMPANY The amounts due from fellow subsidiaries are unsecured, trade in nature and recoverable within twelve months after the end of the reporting period. The amount due from immediate holding company is unsecured, interest-free and repayable on demand, which is recoverable within twelve months after the end of the reporting period. 164 Annual Report 2010

167 CASH AND BANK BALANCES Cash and bank balances comprise short-term bank deposits carry interest at prevailing deposit rates which range from 0.01% to 1.35% (2009: 0.08% to 1.35%) per annum. 8,569,349,000 10,070,527,000 16,045,223,000 18,223,202,000 Included in cash and bank balances, there is a total balance amounting to RMB8,569,349,000 (equivalent to HK$10,070,527,000) (2009: RMB16,045,223,000 (equivalent to HK$18,223,202,000)) denominated in RMB which is not a freely convertible currency. The cash and bank balances are denominated in the following currencies: HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Hong Kong dollar (foreign currency of the relevant group entity) 1,237, , ,917 Renminbi 10,070,527 18,223,202 5,209,145 United States Dollar 662,893 1,160,586 10,545 Others 1,583 1,473 1,268 11,972,212 19,873,080 5,808, TRADE AND OTHER PAYABLES HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Trade payables 5,419,815 4,128,648 2,508,556 Other payables and accrued charges 2,367,299 1,793,310 1,792,268 7,787,114 5,921,958 4,300,824 Annual Report

168 TRADE AND OTHER PAYABLES (continued) The following is an aged analysis of trade payables at the end of the reporting period: HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Within one year 3,738,053 2,378, ,794 Over one year 1,681,762 1,750,272 1,544,762 5,419,815 4,128,648 2,508, ,676,368, DEPOSITS RECEIVED FROM PRE-SALES OF PROPERTIES The amounts which are expected to be realised in more than twelve months after the end of the reporting period are also classified under current liabilities as it is within the Group s normal operating cycle. The amounts that are expected by the management to be realised by more than twelve months after the end of the reporting period are HK$3,676,368, AMOUNTS DUE TO FELLOW SUBSIDIARIES/IMMEDIATE HOLDING COMPANY/NON-CONTROLLING INTERESTS The amounts due to fellow subsidiaries are trade in nature. The amounts are unsecured, interest free and repayable on demand. The amounts due to immediate holding company and non-controlling interests represent mainly the loan advances which are unsecured, interest free and repayable on demand. 166 Annual Report 2010

169 BANK BORROWINGS HK$ 000 HK$ 000 HK$ 000 Secured 2,089,861 3,045,486 4,477,710 Unsecured 35,717,377 24,413,296 16,615,282 37,807,238 27,458,782 21,092,992 Carrying amount repayable: On demand or within one year 8,554,849 1,827,206 4,062,895 More than one year but not exceeding two years 15,876,547 9,005,618 1,240,762 More than two years but not more than five years 12,381,640 16,052,409 15,583,453 More than five years 994, , ,882 37,807,238 27,458,782 21,092,992 Less: Amounts due within one year shown under current liabilities (8,554,849) (1,827,206) (4,062,895) 29,252,389 25,631,576 17,030,097 The Group s borrowings that are denominated in currencies other than the functional currencies of the relevant group entities are set out below: HK$ 000 HK$ 000 HK$ 000 Hong Kong dollars 24,050,000 13,320,000 11,180,000 United States dollars 780,450 Annual Report

170 ,976,788,000 14,138,782, ,830,450,000 13,320,000, BANK BORROWINGS (continued) Bank borrowings include fixed-rate borrowings of HK$12,976,788,000 (2009: HK$14,138,782,000) which carry interest at average fixed rate of 4.88% per annum (2009: 5% per annum) and variable-rate borrowings of HK$24,830,450,000 (2009: HK$13,320,000,000) which carried effective interest rate at 0.97% (2009: 0.61%) per annum and contractual interest at HIBOR plus a certain percentage ranging from 0.33% to 1.3% (2009: HIBOR plus from 0.275% to 1.05%) per annum. The borrowings are repayable by instalments or in a lump sum upon maturity in accordance with the terms set out in the respective loan agreements. 20,980,450,000 10,570,000,000 35% 34. In respect of bank borrowings of the Group amounted to HK$20,980,450,000 (2009: HK$10,570,000,000), in accordance with the terms of the respective loan agreements, CRH is required to hold not less than 35% of the issued share capital of the Company at any time during the period of the loans. 34. DERIVATIVE FINANCIAL INSTRUMENTS Derivatives under hedge accounting HK$ 000 HK$ 000 HK$ 000 Cash flow hedges interest rate swaps (Note) (51,947) (29,779) (42,832) Other interest rate swaps (100,552) (93,322) (94,092) (152,499) (123,101) (136,924) The above derivatives are measured at fair value which is estimated using valuation technique with reference to interest yield and discounted cash flow analysis. 168 Annual Report 2010

171 DERIVATIVE FINANCIAL INSTRUMENTS (continued) Cash flow hedges The Group uses interest rate swaps (net quarterly settlement) to minimise its exposure to interest expenses of its floating-rate Hong Kong Dollar bank borrowings by swapping a partial amount of the bank borrowings from floating interest rates to fixed interest rates. The interest rate swaps and the corresponding bank borrowings have the similar settlement periods and the directors of the Company considered that the interest rate swaps are highly effective hedging instruments. Major terms of the two interest rate swaps in both 2010 and 2009 are set out below: Notional amount Maturity Swaps Hedged item 500,000, ,000,000 HK$500,000, September 2013 From HIBOR to 2.95% Bank borrowings of HK$610,000, ,000, ,000,000 HK$500,000, September 2013 From HIBOR to 3.00% Bank borrowings of HK$520,000,000 Note: The measurement and assessment of the effectiveness of the above hedges as at and for the year ended 31 December 2010 and 2009 have been carried out by independent qualified professional valuers who are not connected with the Group with appropriate qualifications and recent experiences in the valuation of similar hedge effectiveness of derivatives. The hedge effectiveness was arrived at on the basis of the measurement and assessment of the ability of the derivatives to offset changes in cash flows attributable to the interest rate risk. Annual Report

172 DERIVATIVE FINANCIAL INSTRUMENTS (continued) Other interest rate swaps The terms of other interest rate swaps in both 2010 and 2009 that are not qualified for hedge accounting are disclosed below. Notional amount Maturity Swaps 500,000, HK$500,000,000 9 May 2013 From HIBOR to 3.40% 500,000, HK$500,000,000 9 May 2012 From HIBOR to 3.30% 500,000, HK$500,000,000 6 May 2012 From HIBOR to 3.38% 500,000, HK$500,000, April 2013 From HIBOR to 2.98% 20,435,000 11,433,000 1,733,000 1,620,000 7,230, ,000 8,963,000 2,390,000 As at 31 December 2010, the effective portion of the loss on changes in fair value of the interest rate swaps under cash flow hedge amounted to HK$20,435,000 (2009: the effective portion of the gain on changes in fair value of the interest rate swaps under cash flow hedge amounted to HK$11,433,000) has been recognised in other comprehensive income and accumulated in hedging reserve. During the year, the loss on changes in fair value of the ineffective portion of the interest rate swaps designated as cash flow hedge of HK$1,733,000 (2009: gain on changes in fair value of the ineffective portion of the interest rate swaps designated as cash flow pledge of HK$1,620,000) together with the loss on changes in fair value of other interest rate swaps of HK$7,230,000 (2009: loss on changes in fair value of other interest rate swaps of HK$770,000), totalling HK$8,963,000 (2009: gain on changes in fair value totalling HK$2,390,000) is charged (2009: credited) to profit or loss. 170 Annual Report 2010

173 SHARE CAPITAL Number of shares Share capital HK$ 000 HK$ 000 HK$ Ordinary shares of HK$0.10 each Authorised: At the beginning of the year 7,000,000,000 7,000,000,000 5,000,000, , , ,000 Increase on 14 July ,000,000, ,000 At the end of the year 7,000,000,000 7,000,000,000 7,000,000, , , ,000 Issued and fully paid At the beginning of the year 5,030,011,168 4,715,346,168 4,025,201, , , ,520 a Placement of new shares (Note a) 300,000,000 30,000 b 36 Exercise of share options (Note b) (see Note 36) 8,990,000 14,665,000 14,345, ,466 1,435 c Issued in consideration for the business combination involving entities under common control (Note c) 348,239, ,799,850 34,824 67,580 At the end of the year 5,387,240,447 5,030,011,168 4,715,346, , , ,535 Notes: (a) 300,000, (a) On 26 May 2009, the Company issued 300,000,000 ordinary shares of HK$0.10 to finance the Group s working capital. The new ordinary shares rank pari passu with the existing shares in all aspects. (b) 8,990,00014,665, (b) During the year, the Company issued 8,990,000 (2009: 14,665,000) ordinary shares of HK$0.10 each upon exercise of share options. The exercise price of the share options during the period ranges from HK$0.96 to HK$3.97 (2009: HK$0.96 to HK$3.97) per share. The new ordinary shares rank pari passu with the existing shares in all aspects. (c) 44(a)348,239, (c) On 2010, 348,239,279 ordinary shares of HK$0.10 each were issued for the acquisition of the Fast Lead Group (see Note 44(a) for details), a group of combining entities under common control, from CRH. Annual Report

174 SHARE OPTION SCHEMES The Company operates share option schemes for the purpose of promoting additional commitment and dedication to the objectives of the Company by participants, namely the New Scheme. The New Scheme refers to the share option scheme adopted by the Company which was approved by the shareholders in general meeting on 31 January The board of directors may grant options to eligible participants, including executive or non-executive directors of the Company, any discretionary object of a discretionary trust established by any employee of the Group, executive or non-executive directors of the Company, any executives and employees of consultants, professional and other advisors to the Group, chief executive, substantial shareholder of the Company, associate companies of the Group, associates of directors, chief executive and substantial shareholder of the Company, and employees of substantial shareholder. The exercise price of the share option under the New Scheme is determined by the directors of the Company, and will not be less than the higher of the closing price of the Company s shares on the date of grant, the average closing price of the shares for the five business days immediately preceding the date of grant, and the nominal value of the share. The total number of shares that may be issued upon the exercise of all options granted and yet to be exercised under the New Scheme and the maximum number of shares that may be issued upon exercise of all options to be granted thereunder and the maximum entitlement of each participant under the New Scheme is respectively, equivalent to the maximum limit permitted under the prevailing Listing Rules. 1 12,372,500 21,362, % 0.45% The offer of a grant of share options under the New Scheme may be accepted within 28 days from the date of the offer together with the payment of HK$1 in total by the grantee. The vesting and exercise period of the share options granted is determinable at the entire discretion of the board of directors with the vesting period not exceeding four years and the exercise period will not exceed a period of ten years immediately after acceptance of grant. Options are lapsed if the employee leaves the Group before the options vest. At 31 December 2010, the number of shares in respect of which options had been granted and remained outstanding under the New Scheme was 12,372,500 (2009: 21,362,500) shares, representing 0.23% (2009: 0.45%), respectively, to the shares of the Company in issue at that date. 172 Annual Report 2010

175 SHARE OPTION SCHEMES (continued) The following tables disclose details of the Company s share options held by employees (including directors) and movements in such holdings during the year: Number of share options Exercise Granted Exercised Lapsed price Vesting Exercisable Outstanding during during during Outstanding Date of grant per share period period at the year the year the year at HK$ 04/03/ /03/2002 to 04/03/2002 to 1,700,000 (780,000) 920,000 New Scheme 01/01/ /03/ /10/ /10/2002 to 07/10/2002 to 650,000 (100,000) 550,000 05/01/ /10/ /04/ /04/2004 to 28/04/2004 to 1,465,000 (512,500) 952,500 01/01/ /04/ /04/ /04/2006 to 29/04/2005 to 2,137,500 (337,500) 1,800,000 29/04/ /04/ /06/ /06/2005 to 01/06/2005 to 2,025,000 (250,000) 1,775,000 01/06/ /05/ /01/ /01/2007 to 03/01/2006 to 10,535,000 (5,885,000) 4,650,000 03/01/ /01/ /02/ /02/2007 to 17/02/2006 to 1,000,000 (625,000) 375,000 17/02/ /02/ /06/ /06/2007 to 26/06/2006 to 1,850,000 (500,000) 1,350,000 26/06/ /06/ ,362,500 (8,990,000) 12,372,500 Exercisable at the end of the year 14,037,500 Weighted average exercise price Annual Report

176 SHARE OPTION SCHEMES (continued) Number of share options Exercise price Vesting Exercisable Outstanding Granted during Exercised during Lapsed during Outstanding Date of grant per share period period at the year the year the year at HK$ 04/03/ /03/2002 to 04/03/2002 to 1,950,000 (250,000) 1,700,000 New Scheme 01/01/ /03/ /10/ /10/2002 to 07/10/2002 to 1,180,000 (530,000) 650,000 05/01/ /10/ /04/ /04/2004 to 28/04/2004 to 2,440,000 (975,000) 1,465,000 01/01/ /04/ /04/ /04/2006 to 29/04/2005 to 4,632,500 (2,495,000) 2,137,500 29/04/ /04/ /06/ /06/2005 to 01/06/2005 to 3,275,000 (1,250,000) 2,025,000 01/06/ /05/ /06/ /06/2005 to 02/06/2005 to 150,000 (150,000) 02/06/ /06/ /06/ /06/2006 to 27/06/2005 to 200,000 (200,000) 27/06/ /06/ /01/ /01/2007 to 03/01/2006 to 17,725,000 (7,190,000) 10,535,000 03/01/ /01/ /02/ /02/2007 to 17/02/2006 to 1,625,000 (625,000) 1,000,000 17/02/ /02/ /06/ /06/2007 to 26/06/2006 to 2,850,000 (1,000,000) 1,850,000 26/06/ /06/ ,027,500 (14,665,000) 21,362,500 Exercisable at the end of the year 14,037,500 Weighted average exercise price Annual Report 2010

177 SHARE OPTION SCHEMES (continued) Details of the movements of the share options during the year held by the directors of the Company included in the above table are as follows: Date of grant Exercise price per share Vesting period Exercisable period Outstanding at Granted during the year Number of share options Exercised Lapsed during during the year the year Reallocation Outstanding at HK$ (Note) New Scheme 01/06/ /06/2005 to 01/06/2005 to 500,000 (250,000) 250,000 01/06/ /05/2015 Exercisable at the end of the year 250,000 Weighted average exercise price Date of grant Exercise price per share Vesting period Exercisable period Outstanding at Granted during the year Number of share options Exercised Lapsed during during the year the year Reallocation Outstanding at HK$ (Note) New Scheme 01/06/ /06/2005 to 01/06/2005 to 1,650,000 (250,000) (900,000) 500,000 01/06/ /05/2015 Exercisable at the end of the year 500,000 Weighted average exercise price Note: The reallocation of options arose when the option holders changed their positions in the Company from directors to employees or vice versa in the year. These options were granted to them in previous years. Annual Report

178 % 50% 36. SHARE OPTION SCHEMES (continued) In respect of the share options exercised during the year, the weighted average share price at the dates of exercise is HK$15.75 (2009: HK$14.29). All options were granted with a vesting period of three to four years and 20% to 50% of which would be vested annually after the grant date. 224,0003,033, ,506,000 21,681,00023,958, ,735, ,736,000 The Group recognised the total expense of approximately HK$224,000 (2009: HK$3,033,000) for the year ended 31 December 2010 in relation to share options granted by the Company. 37. SHARES HELD FOR RESTRICTED SHARE AWARD SCHEME On 30 May 2008 (the Adoption Date ), a Restricted Share Award Scheme (the Scheme ) was adopted by the Company. The Scheme shall be valid and effective for a period of 10 years commencing from the Adoption Date. Pursuant to the rules of the Scheme, the Company has set up a trust with a trustee company, BOCI Prudential Trustee Limited, for the purpose of administering the Scheme and holding the shares. During the year, the Group purchased 8,506,000 shares of its shares for the share award scheme at weighted average price of HK$ Under the Scheme, there were total unvested shares of 21,681,000 (2009: 23,958,000) amounting to HK$227,735,000 (2009: HK$196,736,000) held by the trustee at the end of the reporting period. Details of the movements of shares of the Company awarded to employees and directors of the Company during the year are as follows: Number of awarded shares Outstanding at 1 January 2010 Awarded during the year 21,975,904 Vested during the year (10,782,806) Outstanding at 31 December ,193,098 21,975, ,711,000194,169,000 For the year ended 31 December 2010, a total of 21,975,904 shares of the Company had been awarded to the directors of the Company and employees of the Group at no consideration, with an average vesting period ranging from 6 months to 23 months. The total fair value of the awarded shares determined at the date of grant was HK$219,711,000, of which HK$194,169,000 (2009: nil) was recognised as an expense for the period. 176 Annual Report 2010

179 SHARES HELD FOR RESTRICTED SHARE AWARD SCHEME (continued) The weighted average closing price of the Company s shares immediately before the date on which the restricted shares were vested was HK$ The fair value of the awarded shares was determined by reference to the closing share price at the date of grant after deductions of the present value of foregone dividend during the vesting period and the fair value of put option in relation to the restricted period of the shares which was determined by using the Black- Scholes option pricing model. The following assumptions were used to calculate the fair values of the put option in relation to the restricted period of the awarded shares: Closing Expected share price Exercise Expected dividend Risk-free Grant date at date of grant price volatility Option life yield interest rate HK$ HK$ Tranche January % 0.5 year 1.58% 0.08% Tranche January % 1.5 years 1.58% 0.22% The variables and assumptions used in computing the fair value of the awarded shares are based on the directors best estimate. The value of awarded shares varies with different variables of certain subjective assumptions. At the end of each reporting period, the Group revises its estimates of the number of awarded shares that are expected to ultimately vest. The impact of the revision of estimates, if any, is recognised in profit or loss, with a corresponding adjustment to the employee share-based compensation reserve. 20% 80% 20% 20% 60% 10,782,806 On 15 September 2010, the Group revised the vesting period of the shares which have been awarded in According to the Scheme, the awarded shares will be vested (subject to certain performance conditions necessary to be achieved) in tranches of 20% in the first anniversary and 80% in the third anniversary after the Adoption Date. Under the new terms of the Scheme, the awarded shares will be vested (subject to certain performance conditions necessary to be achieved) in tranches of 20% in the first anniversary, 20% in the second anniversary and 60% in the third anniversary after the Adoption Date. As 10,782,806 shares of awarded shares which were granted during the year was related to past services and relevant performance conditions were achieved, these shares became vested in 2010 accordingly. Annual Report

180 ,826, ,597, ,423,000 51% 38. ACQUISITION OF A SUBSIDIARY For the year ended 31 December 2010 On 28 December 2010, the Group injected HK$158,826,000 as capital contribution in ( ), accordingly, the total registered and paid up capital of increased from HK$152,597,000 to HK$311,423,000 which then became a 51% owned subsidiary of the Company. is a property development company engaged in the property development in Shenyang. Since the main tangible asset of is a property development site in Shenyang, the acquisition of which has been accounted for as acquisition of assets. The assets and liabilities recognised at the date of acquisition were as follows: HK$ 000 Inventories of properties 211,354 Cash and bank balances 158,827 Other payables (58,758) Less: Non-controlling interest (Note) (152,597) 311, ,826 Total consideration satisfied by: Cash consideration paid as capital injection 158,826 Net cash outflow arising on acquisition: Cash consideration paid as capital injection (158,826) Cash and bank balances acquired (158,827) 1 Note: The non-controlling interest in recognised at the acquisition date was measured at the non-controlling interest s proportionate share of the recognised amounts of the identifiable net assets of. 178 Annual Report 2010

181 38. 1,578,864, ,255,000 1,229,609, ACQUISITION OF A SUBSIDIARY (continued) For the year ended 31 December 2009 On 30 November 2009, the Group acquired 100% of the entire issued share capital of ( ) from an independent third party for a total consideration of HK$1,578,864,000 including the cash payment of HK$349,255,000 and the settlement of the acquiree s liabilities of HK$1,229,609,000. is a property development company engaged in the property development business in Beijing. Since the main tangible asset of is a property development site in Beijing, the acquisition of which has been accounted for as acquisition of assets. The assets and liabilities recognised at the date of acquisition were as follows: HK$ 000 Property, plant and equipment 989 Deferred taxation assets 1,221 Inventory of properties 1,569,176 Other receivables 6,803 Cash and bank balances 737 Taxation payable (62) 1,578,864 Total consideration satisfied by: Cash consideration paid 1,578,864 Net cash outflow arising on acquisition: Cash consideration paid (1,578,864) Cash and bank balances acquired 737 (1,578,127) CONTINGENT LIABILITIES Guarantees are given to banks with respect to loans procured by the purchasers of the Group s properties. Such guarantees will be released by banks upon the delivery of the properties to the purchasers or completion of the relevant mortgage properties registration, whichever is later. In the opinion of directors, the fair value of the financial guarantee contracts is not significant. Annual Report

182 COMMITMENTS HK$ 000 HK$ 000 Capital and development expenditure in respect of construction in progress: Contracted for but not provided in the consolidated financial statements 265,502 1,129,389 Other commitment in respect of the acquisition of land use rights 10,619,052 3,724,089 Other commitment in respect of the acquisition of an equity investment 653, ,316,000 11,928, OPERATING LEASE COMMITMENT The Group as lessee Minimum lease payments paid under operating leases during the year in respect of office premises was HK$47,316,000 (2009: HK$11,928,000). At the end of the reporting period, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: HK$ 000 HK$ 000 Within one year 17,495 13,323 In the second to fifth year inclusive 27,138 21,361 Over five years 3,399 1,340 48,032 36,024 Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases are negotiated mainly for an average term from one year to ten years and rentals are fixed for an average of two years. 180 Annual Report 2010

183 41. 1,211,318, ,323, ,267,000 94,407, OPERATING LEASE COMMITMENT (continued) The Group as lessor Property rental income earned during the year was HK$1,211,318,000 (2009: HK$909,323,000). Included above, there was contingent rental income of HK$147,267,000 (2009: HK$94,407,000). The contingent rental for certain properties was determined by a certain percentage of turnover. The properties held by the Group for rental purpose have committed tenants for periods which ranged from one to seven years. At the end of the reporting period, the Group had contracted with tenants for the following future minimum lease payments: HK$ 000 HK$ 000 Within one year 1,110, ,395 In the second to fifth year inclusive 1,074,596 1,108,382 Over five years 1,043,690 1,147,673 3,228,415 2,929, PLEDGE OF ASSETS At the end of reporting period, the Group had pledged the following assets to banks as securities against general banking facilities granted to the Group: HK$ 000 HK$ 000 Investment properties 9,535,411 10,898,561 Inventory of properties 2,900,054 9,535,411 13,798,615 Annual Report

184 43. (a) 5% 1, RETIREMENT BENEFIT PLANS (a) Hong Kong The Group participate in a mandatory provident fund scheme ( MPF Scheme ) for its employees in Hong Kong. MPF Scheme is a defined contribution scheme in accordance with the Mandatory Provident Fund Scheme Ordinance. Under the rules of MPF Scheme, the employer and its employees are required to contribute 5% of the employees salaries, up to a maximum of HK$1,000 per employee per month. The assets of MPF Scheme are held separately from those of the group companies in an independently administered fund. During the year ended 31 December 2010, the total amounts contributed by the Group to the scheme in Hong Kong and charged to profit or loss represent contributions to the scheme by the Group at rates specified in the rules of the scheme are as follows: HK$ 000 HK$ 000 Amount contributed and charged to profit or loss 1,711 1,055 (b) (b) Chinese Mainland The employees of the Group in the Chinese Mainland are members of state-managed retirement benefit schemes operated by the respective local government in the Chinese Mainland. The Group is required to contribute a specified percentage of payroll costs to the schemes to fund the benefits. The only obligation of the Group with respect to these schemes is to make the specified contributions. The total cost charged to profit or loss in respect of the above-mentioned schemes in the Chinese Mainland during each of the years are as follows: HK$ 000 HK$ 000 (Restated) Amount contributed and charged to profit or loss 64,551 62, Annual Report 2010

185 44. (a) 44. RELATED PARTY TRANSACTIONS (a) Transactions with fellow subsidiaries/holding companies The following is a summary of the significant related party transactions entered into by the Group with its holding companies and fellow subsidiaries during the year: Rental and management fees received Relationship HK$ 000 HK$ 000 China Resources (Holdings) Company Limited Immediate holding company China Resources Company Limited Intermediate holding company China Resources Power Holdings Company Limited Fellow subsidiary China Resources Textiles (Holdings) Company Limited Fellow subsidiary China Resources Vanguard Company Limited Fellow subsidiary Shenzhen Kapok Hotel Fellow subsidiary China Resources Snow Breweries Limited Fellow subsidiary Chinese Arts & Crafts (H.K.) Limited Fellow subsidiary 4,749 4,454 6,353 6,579 6,882 6,252 4,497 4,258 13,764 7,837 6,253 6,182 3,630 3,424 5,399 2,370,420, ,239,279 ( 3,862,682,000) On 3 November 2010, the Group acquired 100% of the entire issued share capital of Fast Lead Group, a group of combining entities under common control, from Central New, a wholly-owned subsidiary of CRH, through cash payments of HK$2,370,420,000 and issue of 348,239,279 ordinary shares at the price equivalent to HK$4.29 (totalling HK$3,862,682,000,) which was equivalent to the net asset value of Fast Lead Group as consideration. Fast Lead is an investment holding company and its principal assets are its indirect interest in the project sites which comprised the Hainan Shimei Bay Site, the Wuhan Oak Bay Site and the Suzhou Kunshan Site located in the PRC. 3,680,400,000 On 3 September 2009, the Group acquired 100% of the entired issued share capital of Day Rejoice and its subsidiaries, a group of combining entities under common control, from Central New, a wholly-owned subsidiary of CRH, (through cash payments of HK$3,680,400,000 as consideration.) Day Rejoice is an investment holding company and its principal assets are its indirect interest in the project sites which comprised the Shenyang City Crossing Site, Shenyang Tiexi Site, Beijing China Resources Hotel Site and Fuzhou Hongwan Site located in the PRC. Annual Report

186 44. (b) 44. RELATED PARTY TRANSACTIONS (continued) (b) Compensation of key management personnel The remuneration of directors of the Company and other members of key management during the year was as follows: HK$ 000 HK$ 000 Short-term employee benefits 10,739 10,377 Post-employment benefits Share-based payment 26,419 37,718 10,813 The remuneration of directors of the Company and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends. (c) (c) Transactions/balances with other state-controlled entities in the Chinese Mainland The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government ( state-controlled entities ). In addition, the Group itself is part of a larger group of companies under CRNC which is controlled by the PRC government. (a) Apart from the disclosure in (a) above, the Group also conducts business with other state-controlled entities. The directors consider those state- controlled entities are independent third parties so far as the Group s business transactions with them are concerned. (i) (i) The Group has entered into various transactions, including certain deposits placements, borrowings and other general banking facilities, with certain banks and financial institutions which are state-controlled entities in its ordinary course of business. In view of the nature of those banking transactions, the directors of the Company are of the opinion that separate disclosure would not be meaningful. (ii) (ii) The Group has sales and purchases transactions with customers and suppliers, in which the directors of the Company are of the opinion that it is impracticable to ascertain the identity of the counterparties and accordingly whether the transactions are with other state-controlled entities. 184 Annual Report 2010

187 45. (a) 45. SUBSIDIARIES AND ASSOCIATES (a) Particulars of the Company s principal subsidiaries as at 31 December 2010 and 2009 are set out as follows: Nominal value of issued share capital/ Proportion of nominal value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) Strong Foundation Developments Limited ( Strong Foundation ) 76,000 US$76, % 100% Investment holding c (Note c) 900,000,000 RMB900,000, % 99.8% Property development Boom Go Group Limited ( Boom Go ) 11 US$11 100% 100% Investment holding f Best Hope Group Limited ( Best Hope ) (Note f) 1 US$1 100% Investment holding Big Leap Group Limited ( Big Leap ) 1 US$1 100% 100% Investment holding Direct Win Group Limited ( Direct Win ) f (Note f) 1 US$1 100% Investment holding f Bright Choice Group Limited ( Bright Choice ) (Note f) 1 US$1 100% Investment holding King Role Limited ( King Role ) f (Note f) 3 US$3 100% Investment holding Cosmart Resources Limited ( Cosmart ) 2 US$2 100% 100% Investment holding f Kennex Enterprises Limited ( Kennex ) (Note f) 1 US$1 100% Investment holding Annual Report

188 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) f Charm Oak Enterprises Limited ( Charm Oak ) (Note f) 1 US$1 100% Investment holding Charmlink Resources Limited ( Charmlink ) 1 HK$1 100% Investment holding f Megapower Resources Limited ( Megapower ) (Note f) 1 US$1 100% Investment holding d (Note d) 12,000,000 US$12,000, % 100% Properties investment d (Note d) 370,000 US$370, % 100% Property management a (Note a) 1,300,000,000 RMB1,300,000, % 96.24% Investment holding and property development b (Note b) 5,000,000 RMB5,000, % 96.24% Property management b (Note b) 264,329,360 RMB264,329, % 96.24% Property development b (Note b) 180,000,000 RMB180,000, % 96.24% Property development 186 Annual Report 2010

189 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) b (Note b) 10,000,000 US$10,000, % 96.24% Property development b (Note b) 2,500,000 RMB2,500, % 96.24% Electrical engineering b (Note b) 500,000 RMB500, % 96.24% Property agency c (Note c) 1,000,000,000 RMB1,000,000, % 96.24% Property development b (Note b) 28,000,000 RMB28,000, % 96.24% Property development d (Note d) 40,000,000 US$40,000, % 100% Properties investment d (Note d) 21,000,000 US$21,000, % 100% Property development d (Note d) 150,000 US$150, % 100% Property management Annual Report

190 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) d (Note d) 400,000,000 HK$400,000, % 100% Properties investment d (Note d) 5,000,000 RMB5,000, % 100% Property management d (Note d) 756,000,000 HK$756,000, % 100% Property development d (Note d) 64,000,000 US$64,000, % 100% Property development d (Note d) 141,000,000 US$141,000, % 100% Property development d (Note d) 48,000,000 US$48,000, % 100% Property development b (Note b) 5,000,000 RMB5,000, % 100% Property management d (Note d) 62,240,000 HK$62,240, % 100% Property development d (Note d) 3,500,000 HK$3,500, % 100% Property management 188 Annual Report 2010

191 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) d (Note d) 9,600,000 US$9,600, % 100% Property development d (Note d) 100,000 US$100, % 100% Property management d (Note d) 735,000,000 HK$735,000, % 100% Property development d (Note d) 240,000,000 HK$240,000, % 100% Property development d (Note d) 740,000,000 HK$740,000, % 100% Property development d (Note d) 50,000,000 US$50,000, % 100% Property development d (Note d) 1,540,000,000 HK$1,540,000, % 100% Property development d (Note d) 770,000,000 HK$770,000, % 100% Property development b (Note b) 200,000,000 RMB200,000, % 100% Property development Annual Report

192 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) d (Note d) 700,000,000 HK$700,000, % 100% Property development d (Note d) 700,000,000 HK$700,000, % 100% Property development d (Note d) 815,000,000 HK$815,000, % 100% Property development d (Note d) 385,000,000 HK$385,000, % 100% Property development d (Note d) 990,000,000 HK$990,000,000 60% 60% Property development d (Note d) 121,790,000 US$121,790,000 60% 60% Property development b (Note b) 3,000,000 US$3,000,000 60% 60% Property management Speedy Gain Investments Limited ( Speedy Gain ) 2 US$2 100% 100% Investment holding 190 Annual Report 2010

193 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) f Fortune Achieve Investments Limited ( Fortune Achieve ) (Note f) 1 US$1 100% Investment holding Complete Power Holdings Limited ( Complete Power ) f (Note f) 1 US$1 100% Investment holding Brilliant Palace Limited ( Brilliant Palace ) 500,000,000 HK$500,000,000 60% 60% Investment holding Vikwood Investment Limited ( Vikwood ) f (Note f) 1 US$1 100% Investment holding Wuxi International Investment Limited ( Wuxi International ) (Formally known as Wellview Investment Limited) 100 US$100 60% 60% Investment holding Toprun Investments Limited ( Toprun ) 2 US$2 100% 100% Investment holding Upper Able Investments Limited ( Upper Able ) 2 US$2 100% 100% Investment holding e Uconia Limited (Note e) 10,000 HK$10, % 100% Decoration service d (Note d) 2,000,000 US$2,000, % 100% Decoration service d (Note d) 2,000,000 US$2,000, % 100% Decoration service Annual Report

194 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) c (Note c) 5,000,000 RMB5,000, % 100% Decoration service b (Note b) 50,000,000 RMB50,000, % 100% Construction Smooth Day Group Limited ( Smooth Day ) 50,000 US$50, % 100% Investment holding Grace Truth Holdings Limited ( Grace Truth ) f (Note f) 50,000 US$50, % Investment holding Richgem Investment Limited ( Richgem ) 400,000,000 HK$400,000,000 55% 55% Investment holding d (Note d) 774,303,000 HK$774,303,000 55% 55% Property development f Winning Profit Investments Limited ( Winning Profit ) (Note f) 50,000 US$50, % Investment holding (Note d) d 990,000,000 HK$990,000, % 100% Property development b (Note b) 1,150,000,000 RMB1,150,000, % 100% Property development b (Note b) 1,150,000,000 RMB1,150,000, % 100% Property development 192 Annual Report 2010

195 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) f Upadvance Investments Limited ( Upadvance ) (Note f) 50,000 US$50, % Investment holding d (Note d) 641,060,000 RMB641,060, % 100% Property development f Rising Bright Investments Limited ( Rising Bright ) (Note f) 50,000 US$50, % Investment holding d (Note d) 534,300,000 HK$534,300, % 100% Property development b (Note b) 3,000,000 RMB3,000, % 100% Property development f Merry Crest Investments Limited ( Merry Crest ) (Note f) 50,000 US$50, % Investment holding d (Note d) 312,213,000 HK$312,213, % 100% Property development Zelin Investments Limited ( Zelin ) 50,000 US$50, % 100% Investment holding e Wealthy Growth Investments Limited (Note e) 10,000 HK$10, % 100% Investment holding d (Note d) 199,800,000 US$199,800, % 100% Property development Annual Report

196 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) f Green Grace Investments Limited ( Green Grace ) (Note f) 50,000 US$50, % Investment holding e Logic Furniture (Hong Kong) Limited (Note e) 1 HK$1 100% 100% Investment holding d (Note d) 91,942,000 HK$91,942, % 100% Furniture manufacturing and trading Bridge Win Investments Limited ( Bridge Win ) 50,000 US$50, % 100% Investment holding Linfull Investments Limited e (Note e) 10,000 HK$10, % 100% Investment holding c (Note c) 4,500,000 US$4,500,000 80% 80% Entertainment e Full Best Enterprises Limited ( Full Best ) (Note e) 1 HK$1 100% 100% Investment holding d (Note d) 682,750,000 RMB682,750, % 100% Investment holding e Probest Resources Limited ( Probest ) (Note e) 1 HK$1 100% 100% Investment holding Day Rejoice Limited ( Day Rejoice ) 3 US$3 100% 100% Investment holding 194 Annual Report 2010

197 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) Joy Pearl Investments Limited ( Joy Pearl ) 100 US$ % 100% Investment holding f United Goal Enterprises Limited ( United Goal ) (Note f) 1 US$1 100% Investment holding f Precious Gain Enterprises Limited ( Precious Gain ) (Note f) 100 US$ % Investment holding Gold First Limited ( Gold First ) 1 HK$1 100% 100% Investment holding e Whole Chance Limited (Note e) 1 HK$1 100% 100% Investment holding e Data Century Investment Limited (Note e) 1 US$1 100% 100% Investment holding d (Note d) 770,000,000 HK$770,000, % 100% Property development d (Note d) 970,000,000 HK$970,000, % 100% Property development d (Note d) 666,378,614 RMB666,378, % 100% Property development d (Note d) 1,102,184,000 RMB1,102,184, % 100% Property development Annual Report

198 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) d (Note d) 202,800,000 HK$202,800, % 100% Hotel Business e Grandnice Resources Limited (Note e) 1 HK$1 100% 100% Investment holding c (Note c) 5,000,000 RMB5,000, % 100% Decoration service b (Note b) 5,000,000 RMB5,000,000 60% 60% Property management b (Note b) 3,000,000 RMB3,000, % 100% Property management b (Note b) 3,000,000 RMB3,000, % 100% Property management b (Note b) 50,000,000 RMB50,000, % 100% Property development b (Note b) 2,275,200 RMB2,275, % 100% Property management Leeds Resources Limited ( Leeds ) 1 US$1 100% 100% Investment holding e Super Talent Resources Limited ( Super Talent ) (Note e) 1 HK$1 100% 100% Investment holding 196 Annual Report 2010

199 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) b (Note b) 800,000 RMB800, % 100% Property management b (Note b) 1,500,000 RMB1,500, % 100% Property management f (Note f) 100,000,000 HK$100,000, % Property development d (Note d) 16,500,000 US$16,500, % 100% Property development c (Note c) 1,600,000,000 HK$1,600,000, % 100% Property development c (Note c) 730,000,000 RMB730,000, % 100% Property development b (Note b) 500,000 RMB500, % 100% Property management d (Note d) 21,000,000 US$21,000, % 100% Property development d (Note d) 12,000,000 US$12,000, % 100% Property development d (Note d) 646,000,000 RMB646,000, % 100% Property development Annual Report

200 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) b (Note b) 10,000,000 RMB10,000, % 100% Property development b (Note b) 5,000,000 RMB5,000, % 100% Property management c (Note c) 149,970,000 US$149,970,000 60% 100% Property development c (Note c) 265,000,000 RMB265,000,000 51% Property development b (Note b) 100,000,000 RMB100,000, % Property development d (Note d) 99,960,000 US$99,960, % 100% Property development e Creative City Enterprises Limited (Note e) 1 HK$1 100% Investment holding e Meiji Investment Limited (Note e) 1 HK$1 100% Investment holding Onway Resources Limited ( Onway ) 1 US$1 100% 100% Investment holding e Dragon Fountain Enterprises Limited (Note e) 1 HK$1 100% Investment holding Rebound Capital Limited ( Rebound Capital ) 1 US$1 100% Investment holding 198 Annual Report 2010

201 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) e Winner Well Enterprises Limited (Note e) 1 HK$1 60% 60% Investment holding b (Note b) 63,187,000 RMB63,187, % 96.24% Property development b (Note b) 10,000,000 RMB10,000, % 96.24% Property development b (Note b) 20,000,000 RMB20,000, % 96.24% Property development b (Note b) 10,000,000 RMB10,000, % 96.24% Property development b (Note b) 10,000,000 RMB10,000, % 96.24% Property development e Supreme Way Investment Limited (Note e) 1 HK$1 60% 60% Investment holding d (Note d) 600,000,000 RMB600,000, % Property development Annual Report

202 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) c (Note c) 3,000,000 RMB3,000,000 55% 55% Decoration service b (Note b) 500,000 RMB500, % 100% Property management d (Note d) 372,966,000 RMB372,966, % Property development d (Note d) 41,820,000 US$41,820, % Property development c (Note c) 3,400,000,000 HK$3,400,000, % 100% Property development Fast Lead Investments Limited ( Fast Lead ) 2 US$2 100% 100% Investment holding () d (Note d) 1,760,000,000 HK$1,760,000, % 100% Property development Rainbow Fit Limited ( Rainbow Fit ) 1 US$1 100% 100% Investment holding e Capital Fountain Limited (Note e) 1 HK$1 100% 100% Investment holding () d (Note d) 1,231,000,000 HK$1,231,000, % Property development Bloom World Inc ( Bloom World ) 2 US$2 100% 100% Investment holding e Hugo Sun Limited ( Hugo Sun ) (Note e) 2 HK$2 100% 100% Investment holding 200 Annual Report 2010

203 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) d (Note d) 6,950,000 RMB6,950, % 100% Property development d (Note d) 11,150,000 RMB11,150, % 100% Property development d (Note d) 366,900,000 RMB366,900, % 100% Property development Bojet Investment Limited ( Bojet ) 1 US$1 100% 100% Investment holding e Now Rich Limited (Note e) 2 HK$2 100% 100% Investment holding d (Note d) 330,000,000 RMB330,000, % 100% Property development Panway Investment Limited ( Panway ) 1 US$1 100% 100% Investment holding e Sky Flag Limited (Note e) 2 HK$2 100% 100% Investment holding d (Note d) 243,125,000 RMB243,125, % 100% Hotel business Bonwing Investment Limited ( Bonwing ) 1 US$1 100% 100% Investment holding Annual Report

204 SUBSIDIARIES AND ASSOCIATES (continued) Name of subsidiary Nominal value of issued share capital/ registered capital Proportion of nominal value of issued share capital/ registered capital held by Principal activities Company Subsidiaries Company Subsidiaries (Restated) (Restated) e High Respect Limited (Note e) 2 HK$2 100% 100% Investment holding d (Note d) 33,770,000 RMB33,770, % 100% Property development d (Note d) 5,000,000 RMB5,000, % 100% Property management Notes: (a) (a) The subsidiary is a joint stock limited company established in the Chinese Mainland. (b) (b) The subsidiary is a domestic wholly owned enterprise established in the Chinese Mainland. (c) (c) The subsidiary is an equity joint venture established in the Chinese Mainland. (d) (d) The subsidiary is a wholly foreign owned enterprise established in the Chinese Mainland. (e) (e) The subsidiary is incorporated and has major operations in Hong Kong. (f) (f) The company is deregistered during the year. 202 Annual Report 2010

205 45. (b) Rebound Capital Boom Go Big Leap Cosmart Toprun Upper Able 45. SUBSIDIARIES AND ASSOCIATES (continued) (b) The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors of the Company, result in particulars of excessive length. All the subsidiaries listed above are established and operating in the Chinese Mainland except for Strong Foundation, Leeds, Onway, Rebound Capital, Wuxi International, Boom Go, Big Leap, Cosmart, Speedy Gain, Brilliant Palace, Toprun, Upper Able, Smooth Day, Richgem, Zelin, Bridge Win, Day Rejoice, Joy Pearl, Gold First, Fast Lead, Rainbow Fit, Bloom World, Bojet, Panway and Bonwing which are registered in the British Virgin Islands and their place of operation is in Hong Kong. No debt securities have been issued by the subsidiaries as at 31 December 2010 and (c) (c) Particulars of the Group s associates as at 31 December 2010 and 2009 are set out as follows: Name of associate Nominal value of issued share capital/ registered capital Attributable interest indirectly held by the Group Principal activities i (Note i) 12,920,000 US$12,920, % 48.12% Property investment and management ii (Note ii) 350,000 US$350, % 36.09% Provision of exterior decoration services ii (Note ii) 20,000,000 RMB20,000,000 20% Provision of tourism and travelling services Notes: (i) (i) The associate is a Sino-foreign equity joint venture established in the Chinese Mainland. (ii) (ii) The associate is a domestic enterprise established in the Chinese Mainland. All the associates are established and operating in the Chinese Mainland. Annual Report

206 CAPITAL RISK MANAGEMENT The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group s overall strategy remains unchanged from prior year. 33 The capital structure of the Group consists of net debt, which includes the bank borrowings disclosed in Note 33, net of cash and cash equivalents, and equity attributable to owners of the Company, comprising issued share capital, reserves and retained profits. The directors of the Company review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associates with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt. 47. (a) 47. FINANCIAL INSTRUMENTS (a) Categories of financial instruments THE GROUP HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) Financial assets Loans and receivables (including cash and cash equivalents) 13,912,702 22,315,404 7,585,729 Available-for-sale investments 188, , ,205 14,101,664 22,509,877 7,792,934 Financial liabilities Derivative financial instruments held for trading (100,552) (93,322) (94,092) Derivative financial instruments in designated hedge accounting relationships (51,947) (29,779) (42,832) Amortised cost (47,406,837) (38,850,414) (31,640,325) (47,559,336) (38,973,515) (31,777,249) 204 Annual Report 2010

207 47. (b) 47. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies The Board of Directors has overall responsibility for the establishment and oversight of the Group s risk management framework. The Board is responsible for developing and monitoring the Group s risk management policies. The Department of Corporate Finance and Planning of the Group reports regularly to the Board of Directors on its activities. The Group s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Group s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group s audit committee oversees how management monitors compliance with the Group s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group s audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee. There has been no change to the Group s exposure to financial risks or the manner in which it manages and measures. The Board of Directors of the Company monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyses exposures by degree and magnitude of risks. These risks include market risk (including foreign currency risk, interest rate risk and other price risk) credit risk and liquidity risk. Annual Report

208 47. (b) 47. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) Market risk Foreign currency risk management The Group conducts its treasury functions and maintain certain cash and bank balances and bank borrowings in foreign currencies, hence is exposed to foreign currency risk. The Group manages its foreign currency risk by closely monitoring the movements of the foreign currency exchange rates. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises. The carrying amounts of the Group s Hong Kong dollar and United States dollar denominated monetary assets and monetary liabilities at the end of the reporting period are as follows: Assets Liabilities HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) Hong Kong dollars 1,237, ,819 24,050,000 13,320,000 United States dollars 662,893 1,160, , Annual Report 2010

209 47. (b) 47. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) Market risk (continued) Foreign currency risk management (continued) Foreign currency sensitivity analysis The Group is mainly exposed to the currency of Hong Kong dollar and the currency of United States dollar. 5% 5%5% 5% 5% 5% 5% 5% 5% The following table details the Group s sensitivity to a 5% (2009: 5%) increase and decrease in the Renminbi (the functional currency of the Company and subsidiaries operating in the PRC), against Hong Kong dollar and United States dollar. 5% (2009: 5%) is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management s assessment of the reasonably possible change in foreign exchange rates. As a result of the volatile financial market in 2010, the management use the sensitivity rate of 5% for the purpose of assessing foreign currency risk. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the reporting period for a 5% (2009: 5%), change in foreign currency rates. A positive number below indicates an increase in post-tax profit where the Renminbi strengthens against Hong Kong dollar and United States dollar. For a 5% (2009: 5%), weakening of Renminbi against Hong Kong dollar and United States dollar, there would be an equal and opposite impact on the profit and the balances below would be negative HK$ 000 HK$ 000 (Restated) Post-tax profit for the year Hong Kong dollar 888, ,707 United States dollar 4,580 (45,376) 893, ,331 Annual Report

210 47. (b) FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) Market risk (continued) Interest rate risk management The Group is exposed to fair value interest rate risk in relation to fixedrate bank borrowings. The Group is also exposed to cash flow interest rate risk in relation to bank balances, variable-rate bank borrowings and has entered into interest rate swaps to hedge against its exposures to change in cash flows (see Notes 33 and 34 for details). The Group s exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for bank balances, variable-rate bank borrowings together with the effect from interest rate swaps designated as cash flow hedge. The analysis is prepared assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year. A 100 basis point (2009: 100 basis point) increase or 50 basis point (2009: 50 basis point) decrease is used for variable-rate bank borrowings and interest rate swaps designated as cash flow hedge and a 10 basis point (2009: 10 basis point) increase or decrease is used for bank balances when reporting interest rate risk internally to key management personnel and represents management s assessment of the reasonably possible change in interest rate. 24,830,450,000 13,320,000, ,976,788,000 14,138,782,000 In order to keep borrowings at fixed rate and to minimise the cash flow interest rate risk, the Group uses floating to fixed interest rate swaps to manage the cash flow interest rate risk exposure associated with certain amount of borrowings issued at floating rates (i.e., HIBOR plus certain percentage) totalling HK$24,830,450,000 (2009: HK$13,320,000,000) (see Note 33 for details). In addition, fixed rate bank borrowings expose the Group to fair value interest rate risk. At 31 December 2010, bank borrowings of approximately HK$12,976,788,000 (2009: HK$14,138,782,000) were at fixed rates. 208 Annual Report 2010

211 47. (b) ,482, ,156, ,741,000 52,078, FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) Market risk (continued) Interest rate risk management (continued) Interest rate sensitivity analysis (continued) If interest rates had been 100 basis points (2009: 100 basis points) higher and all other variables were held constant, the Group s post-tax profit derived from variable-rate bank borrowings for the year ended 31 December 2010 would decrease by HK$193,482,000 (2009: decrease by HK$104,156,000). If interest rates had been 50 basis points (2009: 50 basis points) lower and all other variables were held constant, the Group s post-tax profit for the year ended 31 December 2010 would increase by HK$96,741,000 (2009: increase by HK$52,078,000) ,329,000 15,541, If the interest rates for bank balances had been 10 basis points (2009: 10 basis points) higher and all other variables were held constant, the Group s post-tax profit for the year ended 31 December 2010 would increase by HK$9,329,000 (2009: increase by HK$15,541,000). If interest rates had been 10 basis points (2009: 10 basis points) lower and all other variables were held constant, there would have been equal but opposite impact on the profit for the year ,554,000 45,456,000 16,013,000 20,505,000 The Group s sensitivity to interest rates has increased during the current year mainly due to the increase in variable rate debt instruments. Other price risks The Group is exposed to equity price risk through its investments in unquoted equity securities and other interest rate swaps. No sensitivity analysis of the other price risk of the Group s investments in these unquoted equity securities as they are measured at cost less any identified impairment losses at the end of each reporting period. In respect of other price risks of those other interest rate swaps not for hedging, if interest rates had been 100 basis points higher or 50 basis points lower in relation with all other variable held constant, the Group s post-tax profit for the year ended 31 December 2010 would increase by HK$31,554,000 (2009: HK$45,456,000) or decrease by HK$16,013,000 (2009: HK$20,505,000) respectively. Annual Report

212 47. (b) 47. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) Credit risk management As at 31 December 2010, the Group s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Group is arising from: the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position; and 39 the amount of contingent liabilities in relation to the financial guarantees issued by the Group as disclosed in Note 39. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and 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 trade and other receivables at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group s credit risk is significantly reduced. The credit risk on bank deposits is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies or state-owned banks in the PRC. With respect to the amounts due from fellow subsidiaries and immediate holding company, the directors of the Company consider the credit risk is limited because they have strong financial positions. Other than the amount due from an associate, the Group does not have any other significant concentration of credit risk, with exposure spread over a number of counterparties and customers. The Group has concentration of credit risk of the amount due from an associate, because there is only one associate who operated in the Chinese Mainland in both 2009 and Annual Report 2010

213 47. (b) FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) Liquidity risk management In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and ensures compliance with loan covenants. Details of the Group s borrowings are set out in Note 33. Liquidity and interest risk tables The following tables detail the Group s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The maturity dates for other non-derivative financial liabilities are based on the agreed repayment dates. The table includes both interest and principal cash outflows. To the extent that interest flows are floating rate, the undiscounted amount is derived from weighted average interest rate by reference to the HIBOR of the Group s variable-rate financial liabilities at the end of the reporting period. In addition, the following tables detail the Group s liquidity analysis for its derivative financial instruments. The tables have been drawn up based on the undiscounted contractual net cash outflows on derivative instruments that settle on a net basis. When the amount payable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the HIBOR and the terms stipulated in the contract of derivative financial instruments existing at the end of the reporting period. The liquidity analysis for the Group s derivative financial instruments are prepared based on the contractual maturities as the management consider that the contractual maturities are essential for an understanding of the timing of the cash flows of derivatives. Annual Report

214 47. (b) 47. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) Liquidity risk management (continued) Liquidity and interest risk tables (continued) THE GROUP Weighted average interest rate 1 On demand or less than 1 month months years years 5 Over 5 years Total undiscounted cash flows Carrying amount at % HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ Non-derivative financial liabilities Non-interest bearing Trade and other payables 7,787,114 7,787,114 7,787,114 Amount due to immediate holding company 945, , ,043 Amounts due to fellow subsidiaries 70,693 70,693 70,693 Amounts due to non-controlling interests 796, , ,749 Fixed interest rate instruments Bank borrowings ,424,523 6,494,203 1,622,819 1,788,563 14,330,108 12,976,788 Variable interest rate instruments Bank borrowings ,930,966 9,883,928 10,703,498 25,518,392 24,830,450 Financial guarantee contracts 748,627 2,317, , ,605 4,018,374 1,812,485 17,891,230 18,695,729 13,088,861 1,978,168 53,466,473 47,406,837 Derivative net settlement Interest rate swaps 86,671 66,777 28, , , Annual Report 2010

215 47. (b) 47. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) Liquidity risk management (continued) Liquidity and interest risk tables (continued) THE GROUP (continued) Weighted average interest rate 1 On demand or less than 1 month months years years 5 Over 5 years Total undiscounted cash flows Carrying amount at % HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) (Restated) (Restated) 2009 Non-derivative financial liabilities Non-interest bearing Trade and other payables 5,921,958 5,921,958 5,921,958 Amounts due to fellow subsidiaries 2,217,090 2,217,090 2,217,090 Amount due to immediate holding company 2,264,473 2,264,473 2,264,473 Amounts due to noncontrolling interests 988, , ,111 Fixed interest rate instruments Bank borrowings ,426,548 4,736,160 7,773, ,175 15,728,022 14,138,782 Variable interest rate instruments Bank borrowings ,593 4,822,611 8,565,737 13,518,941 13,320,000 Financial guarantee contracts 1,930, , ,928 18,961 3,061,474 5,469,674 10,409,527 10,367,928 16,641, ,136 43,700,069 38,850,414 Derivative net settlement Interest rate swaps 90,850 90,550 99, , ,101 The amounts included above for financial guarantee contracts are the maximum amounts the Group could be required to settle under the arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantee for loans procured by the purchasers of the Group s properties. Based on expectations at the end of the reporting period, the Group considers that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses. The amounts included above for variable interest rate instruments for nonderivative financial liabilities is subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period. Annual Report

216 47. (c) 47. FINANCIAL INSTRUMENTS (continued) (c) Fair value of financial instruments The fair value of financial assets and financial liabilities are determined as follows: the fair value of derivative financial instruments is calculated based on discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives; and the fair value of other financial assets and financial liabilities (excluding derivative financial instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate to their fair values. 51,947, ,552,000 3 Fair value measurements recognised in the consolidated statement of financial position The derivative financial instruments liabilities including the interest rate swaps under cash flow hedge of HK$51,947,000 and other interest rate swaps of HK$100,552,000 are measured subsequent to initial recognition at fair value which are grouped into Level 3 fair value measurements. 3 Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). 214 Annual Report 2010

217 47. (c) FINANCIAL INSTRUMENTS (continued) (c) Fair value of financial instruments (continued) Reconciliation of Level 3 fair value measurements of financial liabilities Financial liabilities Cash flow hedge-interest rate swaps Other interest rate swaps Total HK$ 000 HK$ 000 HK$ 000 At the beginning of the year 29,779 93, ,101 Total losses: in profit or loss 1,733 7,230 8,963 in other comprehensive expense 20,435 20,435 At the end of the year 51, , ,499 Note: The total losses charged to profit or loss for the year represented the unrealised loss in respect to the derivative financial instruments APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements set out on pages 97 to 215 were approved and authorised for issue by the Board of Directors on 25 March Annual Report

218 Financial Summary Group s results HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) (Restated) (Restated) Revenue 25,729,158 16,650,237 9,377,717 6,281,591 4,887,242 Profit before taxation 11,614,493 7,030,492 2,941,331 2,697,877 1,186,398 Income tax expense (4,275,759) (2,285,120) (966,906) (1,297,992) (297,292) Profit for the year 7,338,734 4,745,372 1,974,425 1,399, ,106 Attributable to: Owners of the Company 6,026,470 4,303,757 1,930,404 1,377, ,394 Non-controlling interests 1,312, ,615 44,021 22,389 (12,288) 7,338,734 4,745,372 1,974,425 1,399, ,106 Group s assets and liabilities HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) (Restated) (Restated) Property, plant and equipment 3,299,277 3,050,933 2,745,744 1,533,835 1,279,584 Prepaid lease payments 843, , , , ,790 Investment properties 21,953,068 16,742,284 9,998,305 8,967,812 7,619,400 Deferred taxation assets 482, , , , ,683 Long-term investments 3,374, , , , ,220 Amount due from an associate 259, , , , ,071 Current assets 95,425,075 79,134,425 55,918,739 38,495,458 20,323,263 Total assets 125,637, ,186,963 71,064,456 51,052,680 30,704,011 Current liabilities 43,747,368 34,386,097 21,328,339 15,959,230 11,658,084 Long-term liabilities 29,252,389 25,631,576 17,030,097 12,748,212 6,480,753 Deferred taxation liabilities 3,070,966 2,165,788 1,511,114 1,276, ,289 Derivative financial instruments 152, , ,924 Total liabilities 76,223,222 62,306,562 40,006,474 29,984,381 18,805,126 49,414,653 38,880,401 31,057,982 21,068,299 11,898,885 Equity attributable to owners of the Company 45,915,593 37,690,328 30,259,456 20,448,701 11,276,698 Non-controlling interests 3,499,060 1,190, , , ,187 49,414,653 38,880,401 31,057,982 21,068,299 11,898, Annual Report 2010

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