Annual Report 2008 MIANYANG CHENGDU CHONGQING BEIJING HEFEI WUXI WUHAN TIANJIN CHANGSHA XIAMEN SHENZHEN SHENYANG DALIAN SUZHOU SHANGHAI HANGZHOU NINGB

Transcription

1 Annual Report 2008 MIANYANG CHENGDU CHONGQING BEIJING HEFEI WUXI WUHAN TIANJIN CHANGSHA XIAMEN SHENZHEN SHENYANG DALIAN SUZHOU SHANGHAI HANGZHOU NINGBO

2 Corporate Information Ugland House South Church Street Post Office Box 309 George Town Grand Cayman Cayman Islands British West Indies Directors Executive Director Song Lin (Chairman) Wang Yin (Managing director) Non-Executive Director Jiang Wei Yan Biao Liu Yan Jie Li Fuzuo Du Wenmin Ding Jiemin (Appointed on 12 September 2008) Independent Non-Executive Director Wang Shi Chan Mo Po, Paul (Resigned on 1 January 2009) Andrew Y. Yan Ho Hin Ngai, Bosco Wan Kam To, Peter (Appointed on 3 March 2009) Company Secretary Lee Yip Wah, Peter Auditor Deloitte Touche Tohmatsu Share Registrar Tricor Standard Limited 26/F., 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 Room 4301, 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 Governance Report Report of the Directors Independent Auditor s Report Consolidated Income Statement Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements Five Year Financial Summary

4 Group Structure CHINA RESOURCES (HOLDINGS) COMPANY LIMITED 67.30% 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 Beijing Shanghai Shenzhen Hangzhou Wuxi Mainland China Mainland China Beijing Shenyang Dalian Tianjin Hefei Suzhou Chengdu Wuxi Shanghai Hangzhou Ningbo Wuhan Mianyang Chongqing Changsha Xiamen Shenzhen 2 Annual Report 2008

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 (m 2 ) Type Lease Term 100% 65,222 O China Resources Building Medium Term 8 Lease No. 8 Jianguomen North Avenue, Dongcheng District, Beijing 100% 97,139 China Resources Times Square Medium Term Mall 51,190 C Lease Office 36,843 O 500 No. 500 Zhangyang Road, Pudong, Shanghai 100% 229,938 City Crossing Phase 1 Medium Term The MIXc 133,281 C Lease China Resources Buliding 40,990 O Car Park 55,667 CP No Shennan East Road and No.1881 Baoan South Road, Luohu District, Shenzhen 100% 13,789 C Hua Rui Building Medium Term 1001 Lease No Baoan South Road, Luohu District, Shenzhen C Commercial CP Car Park O Office R Residential China Resources Building China Resources Times Square City Crossing Phase I 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 (m 2 ) Type Lease Term 96.07% 36,184 C Xidan Cultural Centre Medium Term 180 Lease No.180 Xidan North Avenue, Xicheng District, Beijing 48.04% 54,214 / Huawei Building R/C Medium Term Lease Xidan North Avenue, Xicheng District, Beijing 15.30% 70,058 / Huanan Building C/O Medium Term Lease Xidan North Avenue, Xicheng District, Beijing 96.07% 16,787 C Grand Constellation Shopping Mall Medium Term Lease Huayuan Street, Xicheng District, Beijing 96.07% 10,685 C U-Space Shopping Mall Medium Term 8 Lease No. 8 Guangqumen Wai Avenue, Chaoyang District, Beijing 96.07% 17,952 C Jing Tong Shops Medium Term Lease Chaoyang Road, Chaoyang District, Beijing C Commercial CP Car Park O Office R Residential 4 Annual Report 2008

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 (m 2 ) Type Lease Term % 4,155 / Building 22, Guanyingyuan R/C Medium Term Lease Xinjiekou South Street, Xicheng District, Beijing 96.07% 3,926 C Jin Hui Garden Medium Term Lease Daxing District, Beijing 96.07% 13,210 C Phoenix City Commercial Street Medium Term Lease Sanyuan Bridge, Chaoyang District, Beijing % 5,681 C Commercial Block No. 49, Jade City, Fortune Island Medium Term Lease Daxing District, Beijing B % 2,007 C Commercial Block No. 1 B2 District of Jade City Medium Term Lease Daxing District, Beijing 34,729 2,690,470 Note: Not including 34,729 square metres of investment properties in Beijing, and another 2,690,470 square metres of investment properties which are currently under construction: Beijing Phoenix Plaza, Beijing Oak Bay Commercial Property, Shenzhen City Crossing Phase 2, Chengdu Jade City Commercial Property, Chengdu Twenty-Four City Commercial Property, Chengdu Oak Bay Commercial Property, Mianyang Project Commercial Property, The MIXc in Hangzhou, Wuxi Taihu International Community Commercial Property, Oriental Xanadu Hotel in Dalian and Chongqing Twenty-Four City Commercial Property. C Commercial CP Car Park O Office R Residential Annual Report

8 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 96.07% 47,900 63, Phoenix City Phase 2 R Jul/05 Completed Sanyuan Bridge, Chaoyang District, Beijing 96.07% na 16, Phoenix City Phase 2 Car Park CP Jul/05 Completed Sanyuan Bridge, Chaoyang District, Beijing 96.07% 58,900 62, Phoenix City Phase 3 R Dec/07 Completed Sanyuan Bridge, Chaoyang District, Beijing 96.07% na 4, Phoenix City Phase 3 Car Park CP Dec/07 Completed Sanyuan Bridge, Chaoyang District, Beijing 96.07% 18,085 92,000 / 11 6 Majestic Garden Phase 3 O/C Jun/11 Planning in Progress Jianxiang Bridge, Chaoyang District, Beijing 96.07% 51, ,538 / 09 6 Eco Living R/C Jun/09 Construction 305 in Progress No.305 Guanganmen Wai Aveune, Xuanwu District, Beijing C Commercial CP Car Park O Office R Residential Beijing Phoenix City Eco Living 6 Annual Report 2008

9 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 98.00% 283, , Beijing Oak Bay R Dec/09 Construction in Progress Qinghe, Haidian District, Beijing % 128, , Daxing Plot 15 R Dec/11 Construction in Progress Daxing District, Beijing 96.07% 201, , Mentougou Project R Dec/11 Planning in Progress Mentougou District, Beijing % 123, , Daxing Plot 17 R Dec/11 Planning in Progress Daxing District, Beijing 100% 26,569 29,081 / The Bund Side Phase 1 R/C Dec/08 Completed Huangpu District, Puxi, Shanghai 100% na 13, The Bund Side Phase 1 Car Park CP Dec/08 Completed Huangpu District, Puxi, Shanghai C Commercial CP Car Park O Office R Residential Beijing Oak Bay The Bund Side Annual Report

10 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 32, ,168 / The Bund Side Phase 2 R/C Dec/09 Construction in Progress Huangpu District, Puxi, Shanghai 100% na 17, The Bund Side Phase 2 Car Park CP Dec/09 Construction in Progress Huangpu District, Puxi, Shanghai 100% 68,215 60,513 / Shanghai Oak Bay Phase 1 R/C Dec/09 Construction in 1088 Progress No.1088, Zhenghe Road, Shanghai 100% 38, ,217 / Shanghai Oak Bay Phase 2 R/C Dec/10 Construction in 1088 Progress No.1088, Zhenghe Road, Shanghai 100% 37, ,402 / Shanghai Oak Bay Phase 3 R/C Dec/11 Planning in 1088 Progress No.1088, Zhenghe Road, Shanghai C Commercial CP Car Park O Office R Residential 1 Shanghai Oak Bay 1 2 Shanghai Oak Bay 2 8 Annual Report 2008

11 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 14, , Shenzhen Park Lane Manor R Jul/09 Construction in Progress Baoan South Road, Shenzhen 100% 301, ,317 / Chengdu Jade City Phase 1 to Phase 4 R/C Dec/08 Completed Jinjiang District, Chengdu 100% na 107, Chengdu Jade City Phase 1 to Phase 4 CP Dec/08 Completed Car Park Jinjiang District, Chengdu 100% 69, ,621 / Chengdu Jade City Phase 5 R/C Dec/10 Planning in Progress Jinjiang District, Chengdu 100% na 73, Chengdu Jade City Phase 5 Car Park CP Dec/10 Planning in Progress Jinjiang District, Chengdu C Commercial CP Car Park O Office R Residential Shenzhen Park Lane Manor Chengdu Jade City Annual Report

12 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 72, , Chengdu Phoenix City Phase 1 R Dec/08 Completed South Third Ring Road, Chengdu 100% 84, , Chengdu Phoenix City Later Phases R Dec/10 Construction in Progress South Third Ring Road, Chengdu 100% 75, , Chengdu Twenty-Four City Phase 1 R Dec/09 Construction in Progress East Second Ring Road, Chengdu 100% 476,445 1,579, Chengdu Twenty-Four City Later Phases R Dec/10 Construction in Progress East Second Ring Road, Chengdu 100% 126, , Chengdu Oak Bay R Dec/09 Construction in Progress Hongguang Town, Pi County, Chengdu 100% 277, , Mianyang Project R Dec/11 Planning in Progress Kechuangyuan District, Mianyang C Commercial CP Car Park O Office R Residential Chengdu Phoenix City Chengdu Twenty-Four City 10 Annual Report 2008

13 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 50,464 30,658 / Wuhan Phoenix City R/C Dec/07 Completed Jiyu Bridge, Wuchang District, Wuhan 100% na 5, Wuhan Phoenix City Car Park CP Dec/07 Completed Jiyu Bridge, Wuchang District, Wuhan 100% 13,744 47,800 / Wuhan Minzhu Road Project R/C Dec/10 Construction in Progress Minzhu Road, Wuchang District, Wuhan 100% 52, ,837 / Wuhan Central Park Phase 1 R/C Dec/09 Construction in Progress Hanyang District, Wuhan 100% 71, , Wuhan Central Park Later Phases CP Dec/10 Planning in Progress Hanyang District, Wuhan C Commercial CP Car Park O Office R Residential Wuhan Phoenix City Wuhan Central Park Annual Report

14 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 144,265 34,896 / 08 6 Hefei French Annecy R/C Jun/08 Completed Shu Shan, Gaoxin District, Hefei 100% na 15, Hefei French Annecy Car Park CP Jun/08 Completed Shu Shan, Gaoxin District, Hefei 100% 76, ,326 / Hefei Park Lane Manor Phase 1 R/C Dec/09 Construction in Progress Crossing of Wangjiang West Road and Hezuohua South Road, Hefei 100% 16,453 97,474 / Hefei Park Lane Manor Phase 2 R/C Dec/11 Planning in Progress Crossing of Wangjiang West Road and Hezuohua South Road, Hefei C Commercial CP Car Park O Office R Residential Hefei French Annecy Hefei Park Lane Manor 12 Annual Report 2008

15 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 60% 23,556 51, Hangzhou MIXc Residence R Dec/09 Construction in 737 No.737, Fuchun Road, Sijiqing Street, Jianggan District, Hangzhou Progress 60% na 92, Hangzhou MIXc Service Apartment R Dec/12 Planning in 701 Progress No.701, Fuchun Road, Sijiqing Street, Jianggan District, Hangzhou 60% 132, , Wuxi Taihu International Community Phase 1 R Dec/09 Construction in Progress 88 No.88, Jinshi Road, Wuxi 60% 101, , Wuxi Taihu International Community Phase 2 R Dec/09 Construction in Progress 88 No.88, Jinshi Road, Wuxi 60% 79, , Wuxi Taihu International Community Phase 3 R Dec/10 Construction in Progress 88 No.88, Jinshi Road, Wuxi 60% 356, , Wuxi Taihu International Community Later Phases R Dec/11 Planning in Progress 88 No.88, Jinshi Road, Wuxi C Commercial CP Car Park O Office R Residential Hangzhou MIXc Residence Hangzhou MIXc Wuxi Taihu International Community Annual Report

16 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 74, , Dalian Maritime Phase 1 R Dec/09 Construction in Progress Binhai New District, Development Zone, Dalian 100% 59, , Dalian Maritime Phase 2 R Dec/11 Planning in Progress Binhai New District, Development Zone, Dalian 100% 323,729 1,032, Dalian Maritime Later Phases R Dec/12 Planning in Progress Binhai New District, Development Zone, Dalian 55% 71,400 95, Dalian Oriental Xanadu Phase 1 R Dec/09 Construction in Progress Xinhaiwan Fourth Road, Shahekou District, Dalian 55% 10,374 77, Dalian Oriental Xanadu Phase 2 R Nov/12 Planning in Progress Xinhaiwan Fourth Road, Shahekou District, Dalian 55% 23,700 34, Dalian Oriental Xanadu Phase 3 R Aug/12 Planning in Progress Xinhaiwan Fourth Road, Shahekou District, Dalian C Commercial CP Car Park O Office R Residential Dalian Maritime Dalian Oriental Xanadu 14 Annual Report 2008

17 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 113,700 57, Ningbo Tuscany Lake Phase 1 R Dec/09 Construction in Progress Dongqianhu District, Ningbo 100% 96,442 68, Ningbo Tuscany Lake Phase 2 R Dec/10 Construction in Progress Dongqianhu District, Ningbo 100% 107,013 54, Ningbo Tuscany Lake Phase 3 R Dec/11 Planning in Progress Dongqianhu District, Ningbo 100% 31,020 30, Ningbo Cixi Central Park Phase 1 R Dec/10 Construction in Progress Kandun Street, Cixi, Ningbo 100% 47, , Ningbo Cixi Central Park Phase 2 R Dec/10 Planning in Progress Kandun Street, Cixi, Ningbo 100% 72, , Ningbo Cixi Central Park Later Phases R Dec/11 Planning in Progress Kandun Street, Cixi, Ningbo C Commercial CP Car Park O Office R Residential 1 Ningbo Tuscany Lake 1 2 Ningbo Tuscany Lake 2 Annual Report

18 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 96, , Suzhou Villa R Jun/10 Construction in Progress Pingjiang District, Suzhou 100% 92, , Changsha Phoenix City Phase 1 R Dec/09 Construction in Progress Changsha County, Changsha 100% 129, , Changsha Phoenix City Phase 2 R Dec/10 Planning in Progress Changsha County, Changsha 100% 162, , Changsha Phoenix City Later Phases R Dec/11 Planning in Progress Changsha County, Changsha 100% 153, , Changsha Wang Jiang Project R Dec/12 Planning in Progress Hanpu Town, Wangcheng County, Changsha C Commercial CP Car Park O Office R Residential Suzhou Villa Changsha Phoenix City 16 Annual Report 2008

19 Schedule of Principal Properties Properties under Development Attributable Beneficial Interest of China Resources Land Limited Approximate Total Site Area (m 2 ) Approximate Unsold Gross Floor Area (m 2 ) Type Estimated Date of Completion State of Completion 100% 171, , Chongqing Qianweichang Project R Dec/12 Planning in Progress Dashiba Street, Jiangbei District, Chongqing 100% 86, , Chongqing Twenty-Four City Phase 1 R Jun/10 Construction in P Progress Section P of Dayangshi, Jiulongpo District, Chongqing 100% 322,082 1,589, Chongqing Twenty-Four City Later Phases R Dec/11 Planning in P Progress Section P of Dayangshi, Jiulongpo District, Chongqing 100% 445,238 1,042, Shenyang Oak Bay R Dec/10 Construction in Progress Dingxiangshi, Yuhong District, Shenyang 100% 94, , Xiamen Oak Bay R Dec/11 Planning in Xingbei Road, Jimei District, Xiamen Progress 100% 105, , Tianjin Xiangweidi R Dec/11 Planning in Progress Jiulong Street,Shuanggang Town, Jinnan District, Tianjin C Commercial CP Car Park O Office R Residential Chongqing Twenty-Four City Shenyang Oak Bay Tianjin Xiangweidi Annual Report

20 Chairman s Statement The Group s various businesses are bearing fruit, we are full of confidence to our promising future. The year of 2008 was an eventful year. Since the outbreak of the US subprime crisis in September 2007, the crisis has been evolving into a global economic crisis in an unprecedented manner and speed, and global credit crunch and demand slump thus resulted has further spread the crisis into real economy, posting a serious threat to fundamental health of global economy. On domestic front, Chinese economy, including its real estate industry, has been negatively impacted in short-term by factors such as the winter storms at the beginning of the year that is the worst in one hundred years, and the Sichuan earthquake catastrophe in May Despite many uncertainties surrounding both domestic and international economy and a challenging operating environment, the Group has timely and effectively adjusted its products and marketing strategies to cope with evolving market conditions. At the same time, the Group has also made great efforts in strengthening its internal management, and reinforcing its cost control measures with an aim to achieve a higher operating efficiency. As a result, the Group achieved a balanced and steady growth in its two core businesses, namely residential property development and property leasing. 18 Annual Report 2008

21 Chairman s Statement % 42.4% % % Annual Results and Dividend Distribution During the year under review, the Group s consolidated turnover and profit attributable to shareholders were HK$9,134 million and HK$2,038 million respectively, representing an increase of 60.8% and 42.4% over the corresponding period of 2007 respectively. As results of a large increase in the sales of residential properties from the same period of 2007, turnover of the residential development business increased to HK$6,949 million, representing a year-on-year growth of 60.4%. For the year of 2008, the business of property leasing and management sustained its growth, with an annual turnover of HK$ 1,131 million, an increase of 14.7% over the same period of %32.5% EBITDA 70% 12.0% For 2008, gross profit margin of the residential development business was 33.7%, representing a slight increase from 32.5% of the corresponding period of The increase was mainly resulted from higher average selling prices for most of our projects and an increased portion of revenue coming from high margin projects. EBITDA profit margin of property leasing business stayed above 70%, while the gross profit margin of value-added services for the full year of 2008 was 12.0% % In consistence with its payout policy, the Group declared a final dividend of HK 8.3 cents per share. Together with the interim dividend of HK 3.4 cents per share, the annual dividend of 2008 reached HK 11.7 cents per share, increased by 19.4% when compared with the annual dividend of HK 9.8 cents per share for the corresponding period of Land Bank In the first half of 2008, the Group acquired new land parcels from its major shareholder China Resources (Holdings) Co., Ltd. ( CR Holdings ) by placing new shares to CR Holdings. The acquired projects began to launch presales from the second half of 2008 onward. By building up a land bank that well matches its national development strategy in terms of its quality and geographic diversity, this acquisition has further solidified the foundation for the Group s sustainable and accelerated growth in the years to come. Annual Report

22 Chairman s Statement Our land bank portfolio is now ideally balanced in its proportion for residential development and investment properties, and in its geographic mix. The size of our land bank is sufficient for our development in the coming years. While upholding its principals to ensure healthy cash flow and balance sheet, and to accelerate development of existing land bank, the Group will only increase its land reserves on a selective basis, and constantly focus on acquiring quality land parcels with relatively low costs. Development Strategy Our long-stated and well-articulated mission is to provide quality and innovative properties and services in mainland China to constantly enhance the productivity along the full value chain of the property business by way of differentiation in product design and provision of comprehensive and integrated services. We are also dedicated to cater for the increasing demand for residential properties from middle-to-high income consumers, the demand for rental premises from brand retailers and that for office space from high-end corporate clients in order to raise the brand awareness of our products and projects. Ultimately, the Group aims to become a competitive and leading integrated provider of quality property products and services in the real estate market in Mainland China, and to become an industry leader both in terms of business scale and in terms of profitability in the coming years (Beijing American Club Co., Ltd.) 80% During the past year, the Group continued to adhere to its mission and strategy. In line with our strategy, we acquired from CR Holdings the furniture manufacturing and sales business in the first half of 2008 for a consideration of HK$197 million, and also 80% equity interest of Beijing American Club Co., Ltd. on 28 November 2008 at the cost of merely HK$1. The above purchases embodied the essence of our business strategies. The acquisition of the furniture manufacturing and sales business further enhanced its uniqueness in the Group s business model of residential development + property investment + value-added customer services. The move allows the Group to further explore integration potential along its value chain of the property business, to strengthen the competitive edge in its differentiated business model and to improve its long-term profitability. 20 Annual Report 2008

23 Chairman s Statement 80% Beijing American Club Co., Ltd. is the operating entity of the Beijing American Club. The attributable net book value for the 80% equity was HK$3,719,800 as of 31 October Beijing American Club itself is one of the key tenants and clients of Beijing China Resources Building Co., Ltd, which is a subsidiary of the Group. With a diverse and elite membership culled from both local and expatriate communities, Beijing American Club prides itself on having top drawer professionals, entrepreneurs, ambassadors and celebrities by providing them with exclusive and specialized services on food and beverage, meetings and entertainments. This strategic acquisition not only maintains and enhances the importance and the market image of Beijing China Resources Building as a Grade A office building in the industry, but also plays an influential role in its financial performance. Prospects The Group is confident about the sustainability of a steady and rapid growth in China economy and the prospect of the real estate industry. In the second half of 2008, the Chinese government implemented specific measures with an aim to stimulate domestic demand. Correspondingly, the central government adjusted its fiscal policy and adopted a moderately relaxed monetary policy. Since September 2008, most of the local governments also announced and implemented various real-estate specific stimulative policies and measures catering to their respective local market conditions. The entire stimulus package not only is requisite for the sustainable growth of the economy, but also has been and will continue to be effective in spurring and releasing massive underlying demand for quality real estate products. The total contracted value and the contracted area achieved by the Group this year up to 22 March surged to RMB3,058 million and 390,000 square meters, respectively with significant year-on-year growth. Including the contracted value of RMB6,110 million property sales that has been achieved in the course of 2008 but is to be recognized in 2009, the Group has so far locked up total revenue of RMB8,644 million for the residential property development business. Annual Report

24 Chairman s Statement The underlying factors supporting the long-term development of the property market in the PRC, including sustainable economic growth, on-going urbanization and increasing demand for living improvement continue to hold firm. Affordability-backed market demand remains strong. The periodic correction that we are currently experiencing has not and will not alter the fundamentals leading to a promising future for the industry in the long-run. As a major integrated real estate company, the Group enjoys competitive advantages in terms of market reputation, capability and costs of funding. In addition, the Group s land bank is mainly located in prime areas of major cities, and most of our properties are catered for endusers. Furthermore, the Group is relatively less affected by the downturn of residential property market, thanks to its unique business model and its large portfolio of commercial properties. The Board is fully confident of the Group s future development and its performance in Song Lin Chairman 27 March 2009, Hong Kong 22 Annual Report 2008

25 Management Discussion & Analysis The Group persisted in its differentiated business model. This year, it achieved a rapid and comprehensive development in all of its business segments, thus further solidified its foundation for the Group s sustainable, healthy and rapid growth well into the future % 701, % In the year of 2008, residential development of the Group delivered satisfactory performances. Meanwhile, our leasing operations also performed well, contributing steady cash flow and profits to the Group. During the year under review, our projects progressed on schedule, laying down a solid foundation of promising results for 2008 and Review of Residential Development Business in 2008 For the year under review, the contracted value from residential properties amounted to HK$7,995 million, with a contracted sales area of 701,130 square meters (m 2 ), representing an increase of 42.2% and 20.7% respectively over the same period of Details sales breakdown for 2008 by cities are set out as follows: City Contracted Value Area Sold 000 RMB 000 % Sqm % Beijing 753, % 43, % Shanghai 918, % 32, % Chengdu 1,304, % 204, % Wuhan 172, % 23, % Hefei 430, % 79, % Hangzhou 2,653, % 96, % Wuxi 310, % 42, % Ningbo 331, % 23, % Dalian 818, % 77, % Changsha 134, % 41, % Suzhou 21, % % Chongqing 146, % 35, % Total 7,994, ,130 Annual Report

26 Management Discussion & Analysis The following table shows the sales details of the Group by projects in 2008: Accumulated Expected area sold as of Area Sold Average Selling Project Name City Completion Date Project Type Total GFA 31 December 2008 in 2008 Price in 2008 (m 2 ) (m 2 ) (RMB/m 2 ) Phoenix City Phase 2 185, , ,679 Beijing Completed High Density Residential Phoenix City Phase 3 171, ,393 12,500 28,672 Beijing Completed High Density Residential Oak Bay Phase 1 307, ,833 16,621 15,473 Beijing December 2009 High Density Residential Eco Living 283,129 5,591 5,036 15,888 Beijing June 2010 Middle-Low Density Residential Other Residential Projects NA NA 738 9,754 in Beijing Beijing Completed Total of Beijing Car Park NA NA 8,099 5,763 Beijing Completed The Bund Side 107,764 78,683 13,965 33,835 Shanghai Completed High Density Residential Oak Bay Phase 1 79,318 18,805 18,800 23,707 Shanghai December 2009 High Density Residential Jade City Phase 3 189, ,168 3,158 11,655 Chengdu Completed Middle-Low Density Residential Jade City Phase 4 333, ,976 86,730 6,551 Chengdu Completed Middle-Low Density Residential Twenty-Four City Phase 1 362, ,641 62,703 6,514 Chengdu June 2009 High Density Residential Phoenix City Phase 1 394, ,272 39,248 6,139 Chengdu Completed High Density Residential Car Park of Jade City 136,685 29,278 12,391 4,035 Chengdu Completed Phoenix City Phase 2 157, ,642 20,761 7,784 Wuhan Completed High Density Residential 24 Annual Report 2008

27 Management Discussion & Analysis Accumulated Expected area sold as of Area Sold Average Selling Project Name City Completion Date Project Type Total GFA 31 December 2008 in 2008 Price in 2008 (m 2 ) (m 2 ) (RMB/m 2 ) Wuhan Car Park 8,324 2,404 2,404 4,540 Wuhan Completed French Annecy 200, ,607 49,036 5,705 Hefei Completed Middle-Low Density Residential French Annecy Car Park 24,983 9,640 4,684 2,594 Hefei Completed Park Lane Manor Phase 1 264,566 26,240 26,240 5,263 Hefei December 2009 High Density Residential MIXc Residence 147,900 96,260 96,260 27,566 Hangzhou December 2009 High Density Residential Wuxi Taihu International 204,464 95,521 30,758 7,330 Community Phase 1 Wuxi December 2009 Middle-Low Density Residential Wuxi Taihu International 230,859 11,480 11,480 7,438 Community Phase 2 Wuxi December 2009 Middle-Low Density Residential Tuscany Lake Phase 1 77,152 19,898 19,898 14,689 Ningbo December 2009 Low Density Residential Central Park Phase 1 31,832 3,949 3,949 9,475 Cixi December 2010 High Density Residential Oriental Xanadu Phase 1 108,916 13,046 13,046 26,719 Dalian December 2009 Middle-Low Density Residential Maritime Phase 1 244,312 64,864 64,864 7,242 Dalian December 2009 High Density Residential Suzhou Villa 67, ,974 Suzhou June 2010 Low Density Residential Phoenix Phase 1 224,636 41,566 41,566 3,242 Changsha December 2009 High Density Residential Twenty-Four City Phase 1 179,485 35,229 35,229 4,152 Chongqing December 2010 High Density Residential Annual Report

28 Management Discussion & Analysis , % 50.1% Details of the projects completed and booked in 2008 During 2008, the Group s residential development business achieved a turnover of RMB6,949 million with 682,531 m 2 recognized, increased by 60.4% and 50.1% respectively over the corresponding period in Details of the projects booked and turnover of the Group in 2008 are listed below: Project Name Area Booked Turnover Recognized 000 HK$ 000 m 2 Oak Bay 64, ,766 Phoenix City Phase 3 14, ,687 Phoenix Plaza 29, ,463 Others 2,473 81,904 Beijing Subtotal 111,452 1,893,820 The Bund Side 26, ,060 Oak Bay 4, ,914 Shanghai Subtotal 30,945 1,164,974 Jade City 257,798 1,839,003 Phoenix City 103, ,337 Chengdu Subtotal 361,070 2,588,341 Wuhan Phoenix City 23, ,741 Hefei French Annecy 69, ,404 Wuxi Taihu International Community 86, ,123 Total 682,531 6,949, Since the beginning of 2009, the Group s projects have been selling well. As of 22 March 2009, the contracted value of sales was RMB3,058 million with a sold area of 390,000 square meters, both increased significantly over the same period of In Beijing, Eco Living, which is located near western 2nd Ring road of the city, is one of the high-end products the Group offered in The project achieved a contracted value of RMB294 million with 201 units sold. Since 2009, Phoenix City Phase 3, the Group s another high-end product in Beijing, also had satisfactory sales performances contributing a contracted value of RMB172 million with 28 units sold. For the Group s Beijing Oak Bay project, 19,600 square meters were sold adding RMB258 million in contracted value. The Group s business in Beijing had locked in a contracted value of RMB769 million. 26 Annual Report 2008

29 Management Discussion & Analysis In Shanghai, 113 units of Oak Bay were sold, contributing a contracted value of RMB176 million In Chengdu, 798 units of Jade City Phase 4 were sold with a contracted value of RMB420 million; while 638 units of Chengdu Twenty-Four City Phase 1 were sold with a contracted value of RMB360 million; and 137 units of Chengdu Phoenix City Phase 1 were sold with a contracted value of RMB90 million. The whole Chengdu area had secured a contracted value of RMB874 million In Wuhan, 96 units were sold in Central Park and Phoenix City projects together adding a total contracted value of RMB121 million In Hefei, 182 units of French Annecy and Hefei Parklane Manor projects together were sold, achieving a contracted value of RMB99 million In Wuxi, Taihu International Community project had satisfactory sales performances with 476 units sold, and a contracted value of RMB326 million In Ningbo, Tuscany Lake, one of the Group s high-end products, a total of 15 units were sold with a contracted value of RMB87 million. Moreover, Ningbo Cixi Central Park project also achieved a contracted value of RMB53 million In Dalian, Oriental Xanadu and Maritime projects together had a total of 138 units sold, contributing a contracted value of RMB197 million In Changsha, Phoenix City had 452 units sold, with a contracted value of RMB148 million achieved In Suzhou, 9 units of Suzhou Villa project, another high-end project of the Group, were sold, adding a contracted value of RMB69 million In Chongqing, 240 units of Twenty-Four City were sold contributing a contracted value of RMB107 million. Annual Report

30 Management Discussion & Analysis % % EBITDA 70% The satisfactory sales performance achieved in 2009 to date have laid down solid foundation of promising results for the whole year of Together with a contracted value of RMB6,110 million achieved in 2008 that will be recognized in 2009, the Group has so far locked in development revenue of RMB8,644 million. Review of the Leasing Business in 2008 As of 31 December 2008, book value of the investment properties of the Group totaled HK$9,998 million, including a revaluation gain of HK$370 million based on an appraisal conducted by an independent third party during the year. The investment properties accounted for 14.1% of the total assets of the Group. In 2008, the turnover of property leasing and management business amounted to HK$967 million, representing an increase of 12.0% over the corresponding period last year. Along with rising rental income, the EBITDA profit margin of the leased properties remained above 70%. The following table sets out the turnover and occupancy rates of the key investment properties: 000) (%) Investment Property Company Turnover (HK$ 000) Average Occupancy Rate (%) % yoy % yoy Beijing China Resources Building 155, , % 96.4% 100.0% -3.6% CR Land Beijing Others 84,199 92, % 92.4% 94.5% -2.1% CR Times Square 173, , % 95.5% 95.5% 0.0% Shenzhen City Crossing 554, , % 99.7% 99.7% 0.0% Property Management 163, , % N/A N/A N/A 28 Annual Report 2008

31 Management Discussion & Analysis The details of the Group s major leased properties in the PRC are listed below: Interest Attributable Total Attributable Property Name City to the Group GFA GFA Usage (m 2 ) (m 2 ) Shenzhen 100% 229, ,938 Shenzhen City Crossing Phase 1 133, ,281 The MIXc Retail 40,990 40,990 China Resources Building Office 55,667 55,667 Car Park Car Park Shenzhen 100% 13,789 13,789 Hua Rui Building Hotel Shanghai 100% 97,139 97,139 Shanghai CR Times Square 51,190 51,190 Mall Retail 36,843 36,843 Office Office Beijing 100% 65,222 65,222 China Resources Building Office Beijing 96.07% 36,184 34,762 Xidan Cultural Centre Retail Beijing 96.07% 16,787 16,127 Grand Constellation Shopping Mall Retail Beijing 96.07% 10,685 10,265 U-Space Mall Retail Beijing 96.07% 17,952 17,246 Jing Tong Shops Retail Beijing 96.07% 13,210 12,691 Beijing Phoenix City Commercial Street Retail Beijing 48.04% 54,214 26,042 Huawei Centre Residential/Retail Beijing 15.30% 70,058 10,718 Huanan Building Retail/Office 22# Beijing 96.07% 4,155 3,992 Building 22, Guanyingyuan Office Beijing 96.07% 3,926 3,772 Jin Hui Garden Retail 49# Beijing 96.07% 5,681 5,457 Building 49, Fortune Island, La Firenze Retail B2 1# Beijing 96.07% 2,007 1,928 Building 1, Plot B2, La Firenze Retail Beijing 96.07% 34,729 33,364 Others Office/Retail 675, ,453 Total GFA 501, ,549 Comprising: Retail 174, ,903 Office * 2,690,470 * Not including Beijing Phoenix Plaza, Beijing Oak Bay Commercial Property, Shenzhen City Crossing Phase 2, Chengdu Jade City Commercial Property, Chengdu Twenty-Four City Commercial Property, Chengdu Oak Bay Commercial Property, Mianyang Project Commercial Property, The MIXc in Hangzhou, Wuxi Taihu International Community Commercial Property, Oriental Xanadu Hotel in Dalian and Chongqi Twenty-Four City Commercial Property, all of which are currently under construction (2,690,470 square metres in total). Annual Report

32 Management Discussion & Analysis % Review of Value-added Services The acquisition of construction and renovation businesses in 2007, together with the acquisition of both furniture manufacture and supply business in July 2008 from CR Holdings and the Beijing American Club in November 2008, have materially enhanced the Group s project management and customer service system and further reinforced the Group s competitive advantages at project levels. Turnover and gross profit margin of the value-added services in 2008 were HK$1,053 million and 12.0% respectively. Land Bank In July 2008, the Group added 4.29 million square meters to its land bank at a total consideration of HK$9,015 million, which was satisfied by issuing new shares to CR Holdings. Details of the land parcels recently acquired with total area of 4.29 million square meters are set out as follows: Project Name City Total GFA Product Form (m 2 ) 348,048 Beijing Mentougou project Beijing Middle-Low Density Residential 17# 267,115 Beijing Daxing Plot 17 project Beijing Middle-Low Density Residential 423,315 Wuhan Central Park Wuhan Middle-High Density Residential 1,916,011 Chongqing Twenty-Four City Chongqing Middle-High Density Residential 1,025,300 Shenyang Oak Bay Shenyang Middle-Low Density Residential 312,164 Dalian Oriental Xanadu Dalian Landmark comprising hotel, residential, commercial areas 4,291,953 Total 30 Annual Report 2008

33 Management Discussion & Analysis 2,232 After the acquisition, the total land bank of the Group amounts to million square meters in terms of GFA. Details are set out below: City Total GPA (m 2 ) * Beijing* 2,948,630 Shanghai 567,168 Shenzhen 545,805 Chengdu 4,765,851 Wuhan 474,817 Hefei 412,279 * Hangzhou* 808,459 * Wuxi* 1,721,440 Ningbo 556,090 * Dalian* 1,813,295 Changsha 1,984,242 Suzhou 105,961 Chongqing 3,027,258 Shenyang 1,042,150 Mianyang 1,007,000 Xiamen 361,287 Tianjin 177,182 Total 22,318,914 * 98.0% 96.0% 60.0% 55.0% * The Group s interest in Beijing Oak Bay Project is 98.0%, the Group s interest in other Beijing land bank is 96.0%, the Group s interests in land bank in Hangzhou and Wuxi are both 60.0%, while the Group s interest in Dalian Oriental Xanadu is 55.0% A solid foundation for continued growth of the Group has been laid down, with the Group s current portfolio of land bank for its quality and geographic breath. By now, the Group has further extended its geographic reach to 17 cities, up from 16 cities (with the addition of Shenyang). Annual Report

34 Management Discussion & Analysis % Fund-raising through Share Placement, Borrowings and Debt Ratio As of 31 December 2008, the Group had consolidated borrowings of HK$21,093 million, as well as cash and bank balances of HK$5,553 million. The Group s net debt to equity ratio stood at 46.0%. 47.6% 52.4%19.3% 5.4% 6,229 As of 31 December 2008, 47.6% and 52.4% of the Group s borrowings were denominated in Renminbi and HK dollars respectively. Among the total borrowings, approximately 19.3% of the bank borrowings are due within one year while the remaining are long term borrowings. As of 31 December 2008, the weighted average interest rate of its bank loans (including Renminbi and HK dollars) was approximately 5.4% per annum. Employee and Remuneration Policy As of 31 December 2008, the Group employed approximately 6,229 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, work experience and the prevailing market wage level. In addition, performance bonuses are granted on a discretionary basis. Other employee benefits include provident fund, insurance and medical coverage, share option scheme as well as restricted share award scheme. By order of the Board Wang Yin Managing Director 27 March 2009, Hong Kong 32 Annual Report 2008

35 Biographical Details of Directors and Senior Management Executive Directors MR. SONG LIN, aged 46, was appointed Chairman of the Company in February He is concurrently Chairman of China Resources (Holdings) Company Limited and China Resources National Corporation, Chairman of China Resources Enterprise, Limited, China Resources Power Holdings Company Limited as well as China Resources Microelectronics Limited. Mr. Song is the Deputy Chairman of China Vanke Co., Ltd., which is a listed company in China. He is also an Independent Non-Executive Director of Geely Automobile Holdings Limited and The Bank of East Asia (China) Limited. Mr. Song has extensive experience in corporate management and is currently responsible for the overall business development and strategic planning of the Group s business. Mr. Song holds a Bachelor s degree in Solid Mechanics from the University of Tong Ji in Shanghai, China. He joined China Resources (Holdings) Company Limited in MR. WANG YIN, aged 52, was appointed Managing Director of the Company in August He is responsible for the execution of strategies and day-to-day operation of the Group. He is also a Director and a Deputy 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 Annual Report

36 Biographical Details of Directors and Senior Management Non-Executive Directors MR. JIANG WEI, aged 46, was appointed Non-Executive Director of the Company in February Mr. Jiang is currently a Director, Vice President and Chief Financial Officer of China Resources (Holdings) Company Limited and China Resources National Corporation. Mr. Jiang is a Non-Executive Director of China Resources Enterprise, Limited, China Resources Power Holdings Company Limited, China Resources Microelectronics Limited, China Assets (Holdings) Limited and is also an Executive Director of Cosmos Machinery Enterprises Limited and an Independent Non-Executive Director of Greentown China Holdings Limited. He is also a Director of China Vanke Co., Ltd., a listed company in China. Mr. Jiang obtained both his Bachelor s degree in International Trade and Master s degree in International Business and Finance from the University of International Business and Economics in Beijing, China. He joined China Resources (Holdings) Company Limited in MR. YAN BIAO, aged 47, 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. He is also a Non-Executive Director of China Resources Enterprise, Limited and is the Director of Legal Affairs of the China Resources Group. He has a Bachelor of Laws degree from the Peking University, China and an MBA degree from the University of San Francisco in the United States. He joined China Resource (Holdings) Company Limited in MR. LIU YANJIE, aged 51, was appointed Non-Executive Director of the Company in February Mr. Liu is an Assistant President of China Resources (Holdings) Company Limited and General Manager of the personnel department of China Resources (Holdings) Company Limited. He has a Bachelor s degree from Renmin University, China. He joined China Resources (Holdings) Company Limited in Annual Report 2008

37 Biographical Details of Directors and Senior Management MR. LI FUZUO, aged 44, was appointed Non-Executive Director of the Company in August He is currently an Assistant President of China Resources (Holdings) Company Limited and General Manager of its Strategy Management Department. He is also a Non-Executive Director of China Resources Enterprise, Limited, China Resources Gas Group Limited and China Resources Microelectronics Limited. Mr. Li obtained both his Bachelor s and Master s Degrees in Mechanical Manufacturing Engineering from Beijing University of Aeronautics and Astronautics. He joined China Resources (Holdings) Company Limited in MR. DU WENMIN, aged 45, was appointed Non-Executive Director of the Company in August He is also the Chief Auditor, Executive and General Manager of the Internal Audit Department of China Resources (Holdings) Company Limited and Non-Executive Director of China Resources Enterprise, Limited, China Resources Gas Group Limited, and China Resources Microelectronics 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 51, was appointed Non-Executive Director of the Company in September Prof. Ding Jiemin is currently President of the Architectural Design and Research Institute of Tongji University, Assistant to President of Tongji University, Chairman of Shanghai Tongji Science & Technology Industrial Co., Ltd. which is a listed company in China. Prof. Ding is also a Director of the Architectural Design and Research Institute of Tongji University, Deputy Chairman of Shanghai Tongji Science & Technology Park Co., Ltd. and Chairman of Shanghai Tongwen Property Co., Ltd. Prof. Ding has extensive experience in corporate management. He is a Professor of Structural Engineering at the Tongji University, Shanghai. He graduated from Tongji University in Structural Engineering in 1990 with a Ph.D. Professor Ding is a Fellow of the Institution of Structural Engineers and a member of standing committee of China Civil Engineering Society. Annual Report

38 Biographical Details of Directors and Senior Management Independent Non-Executive Directors MR. WANG SHI, aged 58, 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 and Shanghai Metersbonwe Fashion and Accessories Co., Ltd. He has a Bachelor of Science degree from Lanzhou Railway College in China. II III MR. ANDREW Y. YAN, aged 51, was appointed Independent Non- Executive Director in July He also serves as the Chairman of the Company s Remuneration Committee. Currently, he is the Managing Partner of SAIF Partners III and SB Asia Investment Fund II, and the Executive Managing Director of Softbank Asia Infrastructure Fund (SAIF). Besides, Mr. Yan is also an Independent Non-Executive Director of China Oilfield Service Limited, Digital China Holdings Limited, Fosun International Limited and Stone Group Holdings Limited, all four are listed companies in Hong Kong. Mr. Yan received his first Master s degree in Sociology and Economics from Beijing University in 1986 and second Master s degree from Princeton University in the United States in He obtained his Bachelor s degree in Engineering from Nanjing Aeronautic Institute in the PRC. MR. HO HIN NGAI, BOSCO, aged 64, 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. His various projects can be found in mainland China, Hong Kong, India, South-East Asia and Middle East. 36 Annual Report 2008

39 Biographical Details of Directors and Senior Management MR. WAN KAM TO, PETER, aged 56, 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 partner of PricewaterhouseCoopers Hong Kong and China firm until his retirement on 30 June Mr Wan is currently an Independent Director of Mindray Medical International Limited, a company listed in the New York Stock Exchange, USA and United Commercial Bank (China) Limited in Shanghai, P.R.C. and the Chairman of their respective Audit Committee. He also serves as a director or committee member of a number of non-government organizations and voluntary agencies. He is a Fellow of Hong Kong Institute of Certified Accountants, the Association of Chartered Certified Accountants and the Hong Kong Institute of Directors. Senior Management MR. WU XIANGDONG, aged 41, is the Senior Vice President of the Company and the General Manager of China Resources (Shenzhen) Co., Ltd. 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. MR. CHEN YING, aged 38, is a Vice President of the Company and the General Manager of China Resources Land (Beijing) Company Limited. 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. Annual Report

40 Biographical Details of Directors and Senior Management MR. TANG YONG, aged 37, is a Vice President of the Company and the General Manager of China Resources Land (Chengdu) Limited. Mr. Tang has a Bachelor s degree 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 has worked for China Resources Property Management Limited. Heriott-Watt MR. WANG GUOHUA, aged 46, is the General Manager of Corporate Finance and Planning Department of the Company. Mr. Wang received his Bachelor s degree in Inorganic High-temperature-resistant 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. 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. MS. ZHANG XIAOFENG, aged 39, is the Financial Controller of the Company. Ms. Zhang has a Master s degree in Economics from Capital University of Economics and Business. She is a member of the Hong Kong Institute of Certified Public Accountants (HKICPA), the Association of Chartered Certified Accountants (ACCA), and Chinese Institute of Certified Public Accountants (CICPA). Ms. Zhang worked for a wellknown accounting firm. She joined the Company in Annual Report 2008

41 Corporate Governance Report 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 ). A review of the Company s corporate governance in 2008 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 of the issuer As at 31 December 2008, the Board of the Company comprised 12 directors, including 2 executive directors, 6 non-executive directors and 4 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 non-executive directors, confirming their independence 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. There were six Board meetings held in 2008, the attendance of directors in meetings is detailed as follows: Name of Director Attendance Executive Director Song Lin 3/6 Wang Yin 5/6 Annual Report

42 Corporate Governance Report Name of Director Attendance Non-Executive Director Jiang Wei 1/6 Yan Biao 2/6 Liu Yan Jie 2/6 Li Fuzuo 5/6 Du Wenmin 6/6 Ding Jiemin(appointed on 12 September 2008) 1/2 * Independent Non-Executive Director Wang Shi 1/6 Chan Mo Po, Paul 3/6 Ho Hin Ngai, Bosco 5/6 Andrew Y. Yan 2/6 * Note: * After the date of appointment, there were two Board meetings. All directors have access to advice and services of the Company Secretary, who is responsible for ensuring that Board procedures are complied with; 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 material matter in respect of matters to the consideration of the Board, 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. Deviation: None. 40 Annual Report 2008

43 Corporate Governance Report A.2 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 balanced allocation of power and authority. The posts of Chairman and Managing Director of the Company are held separately by Mr. Song Lin and Mr. Wang Yin 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. A.3 Deviation: None. 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 nonexecutive 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 detailed biographies are set out on pages 33 to 37. All corporate correspondence which sets out names of directors clearly state the identity of each director, including executive director, non-executive director and independent nonexecutive directors. Deviation: None. Annual Report

44 Corporate Governance Report A.4 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. Its duties included those required under Code Provision A.4.5(a) to (d). As at 31 December 2008, members of Nomination Committee included three independent non-executive directors namely, Mr. Chan Mo Po, Paul (Chairman), Mr. Andrew Y. Yan, Mr. Ho Hin Ngai, Bosco, and Mr. Song Lin. 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. 35 On 12 September, 2008, Mr. Ding Jiemin was nominated by the Nomination Committee of the Company through a written resolution and was appointed by the Board at a meeting as nonexecutive director of the Company. The Nomination Committee has assessed the qualification and experience of Mr. Ding before making recommendation to the Board. The detailed biography of Mr. Ding is set out on Page 35. With effect from 1 January 2009, Mr. Chan Mo Po, Paul resigned as independent non-executive director of the Company in order to spend more time on the work of the Legislative Council. At the same time, Mr. Chan also resigned as Chairman of the Audit Committee of the Company, Chairman of the Nomination Committee of the Company, and member of the Remuneration Committee of the Company. 42 Annual Report 2008

45 Corporate Governance Report 37 On 3 March 2009, Mr. Wan Kam To, Peter was nominated by the Nomination Committee of the Company through a written resolution and was appointed by the Board at a meeting as independent non-executive director of the Company. At the same time, Mr. Wan was also appointed as Chairman of the Audit Committee of the Company, member of the Nomination Committee of the Company, and member of the Remuneration Committee of the Company. The Nomination Committee has assessed the qualification and experience of Mr. Wan before making recommendation to the Board. The detailed biography of Mr. Wan is set out on Page The experience and views of independent non-executive directors are held in high regard. The Company has appointed 4 independent non-executive directors, exceeding the minimum requirement under the Listing Rules relating to the appointment of at least three independent non-executive directors. The detailed biographies of directors are set out on pages 36 to 37. Deviation: During the year under review, except independent non-executive directors Mr. Chan Mo Po, Paul and Mr. Andrew Y. Yan have been appointed for a 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. Annual Report

46 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 to 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. A.6 Deviation: None. 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. Deviation: None. 44 Annual Report 2008

47 Corporate Governance Report B.1 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 2008, a majority of the members of the Remuneration Committee of the Company were independent nonexecutive directors. Mr. Andrew Y.Yan was the Chairman and other members included Mr. Ho Hin Ngai, Bosco, Mr. Chan Mo Po, Paul and Mr. Wang Yin Attendance of members of the Remuneration Committee at meetings held in 2008 is detailed as follows: Name of Director Attendance Wang Yin 0/1 Ho Hin Ngai, Bosco 1/1 Chan Mo Po, Paul 0/1 Andrew Y. Yan 1/1 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. Annual Report

48 Corporate Governance Report C.1 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 2008, 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; 2,390,000 In 2008, audit fees were approximately HK$2,390,000 and there was no fees for non-audit related services; 71 The statement of responsibilities expressed by the auditor of the Company is set out in the Independent Auditor s Report on page 71. C.2 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 issuer s assets. Deviation: None. 46 Annual Report 2008

49 Corporate Governance Report C.3 C.3 Audit Committee As at 31 December 2008, all members of the Audit Committee of the Company were independent non-executive directors, including Mr. Chan Mo Po, Paul (Chairman), Mr. Wang Shi, Mr. Ho Hin Ngai, Bosco, and Mr. Andrew Y. Yan, while Mr. Chan Mo Po, Paul held accounting-related professional qualifications; C.3.3(a) (n) 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 three 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; 2008 Attendance of members of the Audit Committee at meetings held in 2008 is detailed as follows: Name of director Attendance Wang Shi 0/3 Ho Hin Ngai, Bosco 2/3 Chan Mo Po, Paul 3/3 Andrew Y. Yan 3/3 Minutes of the meetings of the Audit Committee are kept by a designated secretary and sent to all members of the Board. Deviation: None. Annual Report

50 Corporate Governance Report D.1 D.1 Delegation by the Board 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. 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 projects and business plans of the Company. E.1 Deviation: None. E.1 Effective Communication The Board should endeavour 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 Company s website. 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 roadshows in Hong Kong, Singapore, Dubai, London, New York City and Tokyo organised by Citigroup, J.P. Morgan and Macquarie respectively, covering issues on the results announcement and significant acquisitions and presented to investors operating results, development strategies and latest business status of the Company. 48 Annual Report 2008

51 Corporate Governance Report At the same time, the Company participated in various investment conferences held by UBS, J.P. Morgan, CLSA, Macquarie, Citigroup, Morgan Stanley in Shanghai, Beijing, Guangzhou, Macau, Hong Kong, Singapore 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 investors, so as to enable them to timely understand the latest business development of the Company and the industry environment of the real estate business of China to enhance their understanding and confidence on the Company. 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. Deviation: Due to business trip, Chairman of the Company did not attend the annual general meeting held on 30 May Due to other business commitments or being out of town, all independent non-executive directors did not attend the extraordinary general meeting held on 14 July E.2 E.2 Voting by Poll The issuer should regularly inform shareholders of the procedures for voting by poll and ensure compliance with the requirements about voting by poll contained in the Listing Rules and the constitutional documents of the issuer. Details on the procedures for voting by poll of the Company are set out in the shareholder circular convening the general meeting. When voting on resolutions requiring a poll, the Company engages external scrutineer to ensure proper counting of the votes. Deviation: None. Annual Report

52 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 147 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 73 shows the Group s profit for the year ended 31 December Dividends The Board of Directors recommend the declaration of a final dividend of HK8.3 cents (2007: HK7.4 cents) per share, together with the interim dividend of HK3.4 cents per share, dividends per share for the year amounting to HK11.7 cents. The final dividend is payable on 3 July 2009 to shareholders whose names appear on the Register of Members of the Company on 3 June Property, Plan and Equipment Movements in property, plant and equipment during the year are set out in note 17 to the financial statements. Properties A schedule of the principal properties of the Group is set out on pages 3 to 17. Share Capital Movements in share capital during the year are set out in note 35 to the financial statements. 50 Annual Report 2008

53 Report of the Directors 22 22,594,081,000 16,715,857,000 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 2008 amounted to HK$22,594,081,000 (2007: HK$16,715,857,000). Directors The directors who held office during the year and at the date of this report are: Chairman Mr. Song Lin Managing Director Mr. Wang Yin Non-Executive Directors Mr. Jiang Wei Mr. Yan Biao Mr. Liu Yan Jie Mr. Li Fuzuo Mr. Du Wenmin Mr. Ding Jiemin (Appointed on 12 September 2008) Independent Non-Executive Directors Mr. Wang Shi Mr. Chan Mo Po, Paul (Resigned on 1 January 2009) Mr. Andrew Y. Yan Mr. Ho Hin Ngai, Bosco Mr. Wan Kam To, Peter (Appointed on 3 March 2009) Annual Report

54 Report of the Directors According to Articles 99 and 116 of the Articles of Association of the Company, Mr. Wang Yin, Mr. Yan Biao, Mr. Ho Hin Ngai, Bosco, Mr. Andrew Y. Yan, Mr. Ding Jiemin and Mr. Wan Kam To, Peter 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 33 to 38. Share Option The Company operates share option schemes for the purpose of promoting additional commitment and dedication to the objective of the Company by the participants. During the year under review, the Company operates two share option schemes, namely the New Scheme and the Old Scheme. The Old Scheme refers to the share option scheme which subsisted until 31 January 2002 and was terminated on 31 January Eligible participants of the Old Scheme were the employees of the Company and its subsidiaries (including the directors). The maximum entitlement of each participant did not exceed the maximum limit as permitted by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ( Listing Rules ) applicable before 1st September, The exercise prices of the share options were determined at the entire discretion of the Board of Directors, but did not exceed the maximum discount permitted by the Listing Rules applicable prior to 1 September Annual Report 2008

55 Report of the Directors The New Scheme refers to the share option scheme which was approved by the shareholders in 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, professional 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. 313,138,369 At the Annual General Meeting held on 23rd May, 2006, shareholders approved the ordinary resolution to refresh the mandate limit of the New Scheme, whereby further share options can be granted to subscribe up to 313,138,369 shares. 340,450, % As at the date of this report, the number of shares available for issue under the New Scheme is 340,450,869 shares and represents 7.21% of the issued share capital of the Company. 1 The offer of a grant of share options under both schemes 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 disclosed below and granted on or after 31 January 2002 were issued under the New Scheme while the remaining options were under the Old Scheme. Share options granted under the Old Scheme are exercisable before 27 May 2007, and those under the New 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. Annual Report

56 Report of the Directors Save as disclosed below, no other share options has been granted, exercised, lapsed in accordance with the terms of the relevant share option 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. (a) Directors As at 31 December 2008, the following directors had interests in respect of options to subscribe for shares under both New and Old Schemes of the Company: (1) Price of the Number of share option (1) Company's share HK$ Option Option outstanding Granted Exercised Cancelled Expired Outstanding Date of Exercise at during during during during at Option Option Name Capacity Grant Price 1/1/2008 the year the year the year the year 31/12/2008 granted exercised Song Lin 1/6/ , ,000 Beneficial Owner Liu Yan Jie 1/6/ , ,000 Beneficial Owner Li Fuzuo 1/6/ , ,000 Beneficial Owner Du Wenmin 1/6/ , ,000 Beneficial Owner Notes: Number of share options refers to the number of underlying shares in the Company covered by the share options. 54 Annual Report 2008

57 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) 2 1 Price of Number of share option (1) Company's share (2) HK$ Option Granted Exercised Cancelled Expired Option outstanding during during during during outstanding Option Option Date of Grant Exercise Price at 1/1/2008 the year the year the year the year at 31/12/2008 granted exercised 7/10/ ,200,000 20,000 1,180, /4/ ,295, ,000 2,440, /4/ ,812,500 1,180,000 4,632, /6/ , , , /6/ , , , /1/ ,700,000 6,975,000 17,725, /2/ ,875, ,000 1,625, /6/ ,850,000 2,850,000 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. (ii) (ii) Other participants 2 1 Price of Number of share option (1) Company's share (2) HK$ Option Granted Exercised Cancelled Expired Option outstanding during during during during outstanding Option Option Date of Grant Exercise Price at 1/1/2008 the year the year the year the year at 31/12/2008 granted exercised 4/3/ ,990,000 3,040,000 1,950, /6/ ,350,000 1,725,000 1,625, Notes: 1. Number of share options refers to the number of underlying shares in the Company covered by the share options. 2. 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

58 Report of the Directors XV XV Directors Interest in Securities As at 31 December, 2008, 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 ( 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: (1) (2) Number of Approximate Long position/ Number underlying percentage Name Short position of Shares shares (1) Capacity of interest (2) Song Lin 900, Long position Beneficial owner Wang Yin 5,230, Long position Beneficial owner Jiang Wei 892, Long position Beneficial owner Yan Biao 1,992, Long position Beneficial owner Liu Yan Jie 550, , Long position Beneficial owner Li Fuzuo 750, , Long position Beneficial owner Du Wenmin 790, , Long position Beneficial owner 1 (2) Notes: (1) This refers to underlying shares of the Company covered by share options granted as detailed above under the section headed Share Option Schemes, 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 2008

59 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) Number of Approximate Long position/ Number underlying percentage Name Short position of Shares shares (1) of interest (2) Song Lin 1,700, Long position Wang Yin 28, Long position Jiang Wei 240, Long position Yan Biao 500, Long position Du Wenmin 100, Long position 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

60 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) Number of Approximate Long position/ Number underlying percentage Name Short position of Shares shares (1) of interest (2) Wang Yin 30, Long position Li Fuzuo 51, Long position Du Wenmin 54, Long position Notes: 1 (1) This refers to underlying shares of CR Gas covered by share option granted under the Share Option Scheme of the 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 the CR Gas as at 31 December, Annual Report 2008

61 Report of the Directors (d) Interests in issued ordinary shares and underlying shares of China Resources Power Holdings Limited ( CR Power ), an associated corporation of the Company: (1) (2) Number of Approximate Long position/ Number underlying percentage Name Short position of Shares shares (1) of interest (2) Song Lin 1,260,000 1,340, Long position Wang Yin 346, , Long position Jiang Wei 840, , Long position Yan Biao 560, Long position Liu Yan Jie 320, , Long position Li Fuzuo 480, , Long position Du Wenmin 270, , Long position 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

62 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) Number of Approximate Long position/ Number underlying percentage Name Short position of Shares shares (1) of interest (2) Song Lin 1,245, Long position Wang Yin 540, Long position Jiang Wei 537, Long position Liu Yan Jie 380, Long position Li Fuzuo 918, Long position Du Wenmin 972, Long position 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 2008

63 Report of the Directors Interests in Underlying Shares of Associated Corporation 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 SFO), such options being unlisted physically settled equity derivatives: (a) Options outstanding under the share option schemes of an associated corporation, CR Power: Option outstanding Name Capacity Date of Grant Exercise Price at 31/12/2008 HK$ Song Lin 12/11/2003 (1) ,000 Beneficial owner 18/3/2005 (2) ,000 Wang Yin 12/11/2003 (1) ,000 Beneficial owner 18/3/2005 (2) ,000 Jiang Wei 12/11/2003 (1) ,000 Beneficial owner 18/3/2005 (2) ,000 Yan Biao 12/11/2003 (1) ,000 Beneficial owner 18/3/2005 (2) ,000 Liu Yan Jie 12/11/2003 (1) ,000 Beneficial owner 18/3/2005 (2) ,000 Li Fuzuo 12/11/2003 (1) ,000 Beneficial owner 18/3/2005 (2) ,000 Du Wenmin 12/11/2003 (1) ,000 Beneficial owner 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

64 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 ). 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. 162,241, ,900, % Up to 31 December 2008, under the existing Restricted Share Award Scheme, the Trustee has purchased 19,900,000 shares, representing % of the issued share capital of the Company as at the Adoption Date, from the market at an aggregate consideration of HK$162,241, (including transaction costs). As of the date of this report, the purchased shares have been held in trust by the Trustee. 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 (whether on Stock Exchange or otherwise) during the year ended 31 December Directors Service Contracts As at 31 December 2008, 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. 62 Annual Report 2008

65 Report of the Directors XV Shareholders with Notifiable Interests As at 31 December 2008, 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: Percentage of the aggregate long position in shares to the issued share capital of Nature of the Company as at Name Capacity interest Number of Shares 31 December 2008 Finetex International Finetex International 847,604, LimitedFinetex 1 Limited ( Finetex ) (1) Beneficial owner Beneficial interest China Resources (Holdings) 125,300, Company Limited ( CRH ) (1) Beneficial owner Beneficial interest Gain Ahead Group Limited Gain Ahead Group Limited 2,200,497, Gain Ahead ( Gain Ahead ) Beneficial owner Beneficial interest China Resources (Holdings) 3,048,401, Company Limited ( CRH ) (1) Controlled company s interest Corporation interest CRC Bluesky Limited CRC Bluesky Limited 3,173,401, Bluesky 1 ( Bluesky ) (1) Controlled company s interest Corporation interest China Resources Co., Limited 3,173,401, ( CRC ) (1) Controlled company s interest Corporation interest China Resources National 3,173,401, Corporation ( CRNC ) (1) Controlled company s interest Corporation interest Notes: 1 Finetex 847,604,218Gain Ahead 2,200,497,022 Finetex Gain Ahead 125,300,000Bluesky Bluesky 99.98% Bluesky 3,173,401,240 (1) 847,604,218 and 2,200,497,022 shares of the Company are directly held by Finetex and Gain Ahead respectively, CRH is the sole shareholder of Finetex and Gain Ahead. Moreover, 125,300,000 shares of the Company are directly held by CRH, which is a 100% subsidiary of Bluesky, which is in turn owned as to 100% by CRC. Limited, which is in turn held as to 99.98% by CRNC. Thus, CRH, Bluesky, CRC and CRNC are deemed to be interested in an aggregate of 3,173,401,240 shares in the Company. Annual Report

66 Report of the Directors XV ,000,000,000 35% 5 400,000,000 35% 5 Save as aforesaid, as at 31 December 2008, 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 147 to 157. Financial Derivative Instruments During the year under review, the Company timely seized the opportunity of current subdued interest rate level caused by the subprime 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 as disclosed 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, 2008, there was no outstanding balance under the loan agreement and is fully repayable within five years. 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, 2008, there was no outstanding balance under the loan agreement and is fully repayable within five years. 64 Annual Report 2008

67 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, 2008, there was no outstanding balance under the loan agreement and is fully repayable within five years. 500,000,000 35% 50% 5 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, 2008, there was no outstanding balance under the loan agreement and is fully repayable within five 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, 2008, 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, 2008, there was no outstanding balance under the loan agreement and is fully repayable within five years. Annual Report

68 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, 2008, there was no outstanding balance under the loan agreement and is fully repayable within five years. 200,000,000 35% 50% 160,000,000 3 Pursuant to a loan agreement for the amount of HK$200,000,000, 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, 2008, the outstanding loan owed by the Company under the loan agreement amounted to HK$160,000,000 and is fully repayable within three years. 300,000,000 35% 50% 3 Pursuant to a loan agreement for the amount of HK$300,000,000, 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, 2008, there was no outstanding balance under the loan agreement and is fully repayable within three years. 200,000,000 35% 50% 3 Pursuant to another loan agreement for the amount of HK$200,000,000, 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, 2008, there was no outstanding balance under the loan agreement and is fully repayable within three years. 66 Annual Report 2008

69 Report of the Directors 350,000,000 35% 50% 120,000,000 4 Gain Ahead Group LimitedGain Ahead (1) (2) 9,212,170, ,000,000 9,015,170, ,799,850 Gain Ahead 61.87% 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, 2008, the outstanding loan owed by the Company under the loan agreement amounted to HK$120,000,000 and is fully repayable within four years. Connected Transactions and Continuing Connected Transactions On 6 June 2008, the Company entered into an agreement with Gain Ahead Group Limited ( Gain Ahead ) to acquire 100% stake of its wholly-owned subsidiary Smooth Day Group Limited ( Smooth Day ). Smooth Day is an investment holding company and its principal assets are its indirect interests in i) the project sites located in Beijing, Wuhan, Chongqing, Shenyang and Dalian; and ii) the Logic Furniture Group which is engaged in the furniture manufacturing and sale business in the PRC. The consideration was HK$9, million (satisfied as to HK$ million by cash and the remaining HK$9, million by the allotment and issue of 675,799,850 consideration shares at the issue price of HK$13.34 each allotted and issued credited as fully paid up to the vendor), which was determined after arm s length negotiation between the said parties. As Gain Ahead is a wholly-owned subsidiary of CRH, and CRH has a 61.87% interest in the Company, the agreement constituted a major and connected transaction of the Company pursuant to Listing Rules, and was approved by shareholders at a general meeting held on 14 July Annual Report

70 Report of the Directors 14A.37 During the year under review, the Company s wholly-owned subsidiaries, namely Beijing China Resources Building Co. Ltd., China Resources Land (Shanghai) Limited ( CR Shanghai ), China Resources (Shenzhen) Ltd. ( CR Shengzhen ), and members of CRH entered into certain contracts in respect of leasing and concessionaire arrangements, which constituted continuing connected transactions. At the same time, the Company purchased construction and decoration business 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. Pursuant to Rule 14A.37 of the Listing Rules, the Directors (including the independent non-executive directors) have reviewed and confirmed the continuing connected transactions contemplated under this section have been entered into: (i) (i) in the ordinary and usual course of business of the Group; (ii) (ii) on an arm s length basis; (iii) (iii) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than terms available to or from (as appropriate) independent third parties; and (iv) (iv) in accordance with the relevant agreement governing such transactions on terms that are fair and reasonable and in the interests of the shareholders of the Group as a whole. 68 Annual Report 2008

71 Report of the Directors 14A.38 Pursuant to Rule 14A.38 of the Listing Rules, the board of directors engaged the auditor of the Company to perform certain agreed upon procedures in respect of the continuing connected transactions of the Group. The auditor has reported their factual findings on these procedures to the board of directors, and have confirmed that the continuing connected transactions contemplated under this section entered into by the Group for the year ended 31 December 2008: (i) (i) have received the approval of the board of directors; (ii) (ii) are in accordance with the pricing policies of the Company; (iii) (iii) have been entered into in accordance with the terms of the relevant agreements governing such transactions; and (iv) (iv) have not exceed the annual caps disclosed in the relevant announcements/circulars of the Company. 25% 30% 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 out in the Model Code during the year under review. 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. Annual Report

72 Report of the Directors 164 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 164. 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. Wan Kam To, Peter, Mr. Wang Shi, Mr. Ho Hin Ngai, Bosco and Mr. Andrew Y. Yan, 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. 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 Song Lin Chairman Hong Kong, 27 March Annual Report 2008

73 Independent Auditor s Report TO THE SHAREHOLDERS 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 73 to 163 which comprise the consolidated balance sheet as at 31 December 2008, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the consolidated financial statements The directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated financial statements 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. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and the true and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 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 as to whether the consolidated financial statements are free from material misstatement. Annual Report

74 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 and true and fair presentation of the consolidated financial statements 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 of the Company, 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 2008 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 27 March Annual Report 2008

75 Consolidated Income Statement For the year ended 31 December 2008 Notes HK$ 000 HK$ 000 Revenue 6 9,133,605 5,681,095 Cost of sales (5,875,379 ) (3,597,462 ) Gross profit 3,258,226 2,083,633 Gain on changes in fair value of investment properties 308, ,955 Gain on changes in fair value of inventory of properties transferred to investment properties 61,706 Loss on changes in fair value of derivative financial instruments (100,665) Other income 8 384, ,695 Selling and marketing expenses (341,390) (141,504) General and administration expenses (473,216) (275,233) Share of results of associates 97,094 67,715 Finance costs 11 (137,312) (152,827) Profit before taxation 3,056,920 2,771,434 Income tax expense 12 (965,596 ) (1,296,192 ) Profit for the year 13 2,091,324 1,475,242 Attributable to: Equity holders of the Company 2,037,631 1,431,082 Minority interests 53,693 44,160 2,091,324 1,475,242 Dividends 14 Paid 458, ,013 Proposed 391, ,865 Earnings per share Basic HK46.9 cents HK39.8 cents Diluted HK46.5 cents HK39.2 cents Annual Report

76 Consolidated Balance Sheet At 31 December 2008 Notes HK$ 000 HK$ 000 (Restated) Non-current assets Goodwill 16 87,459 50,423 Property, plant and equipment 17 2,263,789 1,273,490 Prepaid lease payments 18 2,876,565 2,399,137 Investment properties 19 9,998,305 8,967,812 Interests in associates , ,600 Amount due from an associate , ,464 Available-for-sale investments , ,220 Deferred taxation assets , ,174 16,805,722 14,092,320 Current assets Inventory of properties 24 38,024,692 22,097,459 Prepaid lease payments 18 75,485 41,686 Other inventories 25 59,363 12,734 Trade receivables, other receivables and deposits paid 26 9,876,713 6,766,924 Amounts due from customers for contract works , ,784 Amounts due from fellow subsidiaries 28 15,598 2,791 Amounts due from immediate holding company 28 7,629 5,026 Tax prepaid 128,731 52,532 Cash and bank balances 29 5,553,441 4,516,801 53,952,581 33,686,737 Current liabilities Trade and other payables 30 4,226,299 2,096,676 Deposits received from pre-sales of properties 31 5,689,910 3,573,992 Amounts due to customers for contract works , ,248 Amounts due to fellow subsidiaries 32 13, Amounts due to minority shareholders , ,084 Bank borrowings due within one year 33 4,062,895 2,712,212 Taxation payable 686, ,635 15,931,976 9,874,272 Net current assets 38,020,605 23,812,465 Total assets less current liabilities 54,826,327 37,904, Annual Report 2008

77 Consolidated Balance Sheet Notes HK$ 000 HK$ 000 (Restated) Capital and reserves Share capital , ,520 Reserves 33,333,600 21,726,941 Equity attributable to equity holders of the Company 33,805,135 22,129,461 Minority interests 2,334,009 1,776,649 36,139,144 23,906,110 Non-current liabilities Bank borrowings due after one year 33 17,030,097 12,721,736 Deferred taxation liabilities 23 1,520,162 1,276,939 Derivative financial instruments ,924 18,687,183 13,998,675 54,826,327 37,904,785 Song Lin Director Wang Yin Director Annual Report

78 Consolidated Statement of Changes in Equity For the year ended 31 December 2008 Attributable to equity holders of the Company Shares held for Restricted Employee Investment Exchange Share share-based Share Share Capital General revaluation translation Award compensation Hedging Retained Minority capital premium reserve reserves reserve reserve Scheme reserve reserve profits Total interests Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ (Note) (Note 37) At 1 January ,281 7,746,812 1,131,520 61, ,581 30,124 1,858,405 11,513, ,817 11,733,174 Exchange translation reserve arising on translation 925, ,606 17, ,801 Fair value gain on available-for-sale investments 11,280 11,280 11,280 Total income recognised directly in equity 11, , ,886 17, ,081 Profit for the year 1,431,082 1,431,082 44,160 1,475,242 Realised gain on disposal of available-for-sale investments (11,280) (11,280) (11,280) Total recognised income for the year 925,606 1,431,082 2,356,688 61,355 2,418,043 Recognition of equity- settled share based payments 14,176 14,176 14,176 Transfer of reserve in subsidiaries 34,555 (34,555) Placement of new shares 40,000 3,881,214 3,921,214 3,921,214 Exercise of share options 3,330 89,639 (16,730) 76,239 76,239 Shares issued 26,909 4,501,891 4,528,800 4,528,800 Acquisition of subsidiaries 1,329,231 1,329,231 Acquisition of additional interest in a subsidiary (128,002) (128,002) Final dividend for 2007 (169,464) (169,464) (169,464) Additional final dividend for prior year (21,517) (21,517) (21,517) Interim dividend for 2008 (90,032) (90,032) (90,032) At 31 December 2007 (as originally stated) 402,520 16,219,556 1,131,520 96,189 1,278,187 27,570 2,973,919 22,129,461 1,482,401 23,611,862 Reallocation of net assets of subsidiaries acquired in 3 prior year (Note 3) 294, ,248 As restated 402,520 16,219,556 1,131,520 96,189 1,278,187 27,570 2,973,919 22,129,461 1,776,649 23,906,110 Exchange translation reserve arising on translation 1,238,975 1,238, ,635 1,373,610 Fair value change on cash flow hedges (36,259) (36,259) (36,259) Total income recognised directly in equity 1,238,975 (36,259) 1,202, ,635 1,337,351 Profit for the year 2,037,631 2,037,631 53,693 2,091,324 Total recognised income for the year 1,238,975 (36,259) 2,037,631 3,240, ,328 3,428, Annual Report 2008

79 Consolidated Statement of Changes in Equity Attributable to equity holders of the Company Shares held for Restricted Employee Investment Exchange Share share-based Share Share Capital General revaluation translation Award compensation Hedging Retained Minority capital premium reserve reserves reserve reserve Scheme reserve reserve profits Total interests Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ (Note) (Note 37) Recognition of equity-settled share based payments 7,835 7,835 7,835 Transfer of reserve in subsidiaries 47,027 (47,027) Purchase of shares under Share Award Scheme (162,242) (162,242) (162,242) Exercise of share options 1,435 45,611 (13,626) 33,420 33,420 Shares issued 67,580 8,947,590 9,015,170 9,015,170 Acquisition of subsidiaries , ,243 Acquisition of additional interest in a subsidiary (15,406) (15,406) Final dividend for 2007 (297,865) (297,865) (4,744) (302,609) Additional final dividend for prior year (758) (758) (758) Interim dividend for 2008 (160,294) (160,294) (160,294) At 31 December ,535 25,212,757 1,131, ,216 2,517,162 (162,242 ) 21,779 (36,259 ) 4,505,606 33,805,135 2,334,009 36,139,144 Note: The Group s general reserves comprise the Group s share of the post acquisition statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve of subsidiaries in the Chinese Mainland. 10% 5% In accordance with the relevant rules and regulations in the PRC and the provision of the articles of association of the Group s subsidiaries established in the PRC, theses subsidiaries were required to appropriate 10% and 5% of the profit for the year after setting off the accumulated losses brought forward (based on the figures reported in the statutory financial statements) to the statutory surplus reserve and the statutory public welfare fund, respectively. 10% The Group s subsidiaries which are established as foreign investment enterprises are required to appropriate 10% of the profit for the year after setting off the accumulated losses brought forward (based on the figures reported in the statutory financial statements) to the statutory reserve fund and a certain percentage of the profit for the year to enterprise expansion fund at the discretion of the board of directors of the respective companies. The statutory surplus reserve and statutory reserve fund can only be used to make good of previous years losses or to increase the capital of respective companies upon the approval of relevant authority, the statutory public welfare fund can only be used in capital expenditure for collective companies or to expand their production scale upon approval by the relevant authorities. Annual Report

80 Consolidated Cash Flow Statement For the year ended 31 December HK$ 000 HK$ 000 OPERATING ACTIVITIES Profit before taxation 3,056,920 2,771,434 Adjustments for: Finance costs 137, ,827 Bank interest income (74,736) (79,694) Imputed interest income in respect of amount due from an associate (12,403) Fair value adjustment of amount due from an associate 24,322 Reversal of impairment for inventory of properties (18,966) Discount on acquisition of additional interests in a subsidiary (2,708) (20,415) Gain on changes in fair value of investment properties (308,098) (799,955) Gain on changes in fair value of inventory of properties transferred to investment properties (61,706) Loss on changes in fair value of derivative financial instruments 100,665 Gain on disposal of available-for-sale investments (765) (17,570) Depreciation of property, plant and equipment 45,000 32,316 Loss on disposal of property, plant and equipment 1,353 Amortisation of prepaid lease payments 1, Impairment loss recognised on other receivables 44,710 28,387 Recognition of equity-settled share based payment 7,835 14,176 Share of results of associates (97,094) (67,715) Operating cash flows before movements in working capital 2,818,435 2,039,036 Increase in inventory of properties (10,087,217) (7,080,456) Decrease in other inventories 1, Decrease (increase) in trade receivables, other receivables and deposits paid 2,750,421 (1,387,146) Increase in amounts due from customers for contract work (7,978) (115,903) (Increase) decrease in amounts due from fellow subsidiaries (11,696) 1,197 Increase in amount due from immediate holding company (2,282) (5,026) Increase (decrease) in trade and other payables 1,907,410 (297,492) Increase in deposits received from pre-sales of properties 1,887,983 1,605,124 Increase in amounts due to customers for contract works 209,791 87,426 Decrease in amounts due to fellow subsidiaries (97,999) (91,286) Cash used in operations (631,246 ) (5,244,198 ) Chinese Mainland Tax paid (1,112,500 ) (236,845 ) Payment for purchase of shares for share award scheme (162,242 ) NET CASH USED IN OPERATING ACTIVITIES (1,905,988 ) (5,481,043 ) 78 Annual Report 2008

81 Consolidated Cash Flow Statement Note HK$ 000 HK$ 000 INVESTING ACTIVITIES Acquisition of subsidiaries (net of cash and cash equivalents acquired) ,789 (20,559) Acquisition of additional interest in a subsidiary (12,698) (107,587) Interest received 74,736 55,372 Proceeds on disposal of property, plant and equipment Proceeds from disposal of available-for-sale investments ,570 Purchases of property, plant and equipment (915,450) (303,164) Purchase of investment properties (21,865) Investment cost in available-for-sale investments refunded 12,237 NET CASH USED IN INVESTING ACTIVITIES (708,851 ) (355,597 ) FINANCING ACTIVITIES New bank loans raised 11,952,090 12,250,853 Repayments of bank loans (7,204,162) (7,104,821) Advance from minority shareholders 62,748 Dividends paid (458,917) (281,013) Interest paid (981,462) (671,154) Proceeds on placement of new shares 3,921,214 Proceeds of issue of shares 33,420 76,239 Repayment to immediate holding company (1,228,300) NET CASH FROM FINANCING ACTIVITIES 3,403,717 6,963,018 NET INCREASE IN CASH AND CASH EQUIVALENTS 788,878 1,126,378 EFFECT OF FOREIGN EXCHANGE RATE CHANGE 247,762 32,795 CASH AND CASH EQUIVALENTS AT 1 JANUARY 4,516,801 3,357,628 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 5,553,441 4,516,801 ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS Cash and bank balances 5,553,441 4,516,801 Annual Report

82 For the year ended 31 December GENERAL 1. 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 as at 31 December 2008 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 Hong Kong 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 result and financial position of the Company and 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 property development, investment and management and construction and decoration services APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS In the current year, the Group has applied, for the first time, the following new interpretations and amendments ( new HKFRSs ) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ), which are effective for the Group s financial year beginning 1 January HKAS 39 & HKFRS 7 (Amendments) HK(IFRIC) Int 11 HK(IFRIC) Int 12 HK(IFRIC) Int 14 Reclassification of Financial Assets HKFRS 2: Group and Treasury Share Transactions Service Concession Arranagements HKAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction The adoption of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required. 80 Annual Report 2008

83 2. 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued) The Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective HKFRSs (Amendments) Improvements to HKFRSs 1 HKAS 1 (Revised) Presentation of Financial Statements 2 HKAS 23 (Revised) Borrowing Costs 2 HKAS 27 (Revised) Consolidated and Separate Financial Statements 3 HKAS 32 & 1 (Amendment) Puttable Financial Instruments and Obligations Arising on Liquidation 2 HKAS 39 (Amendment) Eligible Hedged Items 3 HKFRS 1 & HKAS 27 Cost of an Investment in a Subsidiary, (Amendments) Jointly Controlled Entity or Associate 2 HKFRS 2 (Amendment) Vesting Conditions and Cancellations 2 HKFRS 3 (Revised) Business Combinations 3 HKFRS 7 (Amendment) Improving Disclosures about Financial Instruments 2 HKFRS 8 Operating Segments 2 HK(IFRIC) Int 9 & HKAS 39 Embedded Derivatives 4 (Amendments) HK(IFRIC) Int 13 Customer Loyalty Programmes 5 HK(IFRIC) Int 15 Agreements for the Construction of Real Estate 2 HK(IFRIC) Int 16 Hedges of a Net Investment in a Foreign Operation 6 HK(IFRIC) Int 17 Distributions of Non-cash Assets to Owners 3 HK(IFRIC) Int 18 Transfers of Assets from Customers 7 Annual Report

84 APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued) 1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to HKFRS 5, 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 July Effective for annual periods ending on or after 30 June Effective for annual periods beginning on or after 1 July Effective for annual periods beginning on or after 1 October Effective for transfers on or after 1 July The application of HKFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 July HKAS 27 (Revised) will affect the accounting treatment for changes in a parent s ownership interest in a subsidiary. The application of the amendment to HKAS 40 Investment Property which is contained in HKFRSs (Amendments) Improvement to HKFRS may affect the accounting for property under construction or development for future use as an investment property of the Group. The amendment to HKAS 40 brings such property within the scope of HKAS 40 which, therefore, shall be accounted for under the fair value model in accordance with the Group s accounting policy. Such property is currently accounted for at cost less impairment in accordance with HKAS 16 Property, Plant and Equipment. The amendment is to be applied prospectively and is effective for the Group s financial period beginning 1 January The directors of the Company anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group. 3. REALLOCATION OF THE NET ASSETS OF SUBSIDIARIES ACQUIRED IN PRIOR YEAR During the year, the Group has completed an exercise of assessing the appropriate classification of the assets and liabilities acquired in respect of the acquisition of 100% equity interest of Speedy Gain Investments Limited ( Speedy Gain ) in December The acquisition of Speedy Gain was accounted for as the acquisition of assets in the 2007 financial statements. 2,038,000, ,000,000294,000,000 1,888,000,000 Upon the completion of the above review, the directors of the Company made certain reclassification entries which increased the initial carrying amounts of prepaid lease payment, inventory of properties and minority interests by HK$2,038 million, HK$144 million and HK$294 million, respectively and decreased the initial carrying amount of the construction in progress (included in property, plant and equipment) by HK$1,888 million. The comparative figures in the consolidated balance sheet have been restated accordingly. 82 Annual Report 2008

85 4. 4. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared on the historical cost basis, except for certain investment properties and financial instruments, which are measured at fair values, as explained in the accounting policies set out below. 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 The Stock Exchange of Hong Kong Limited (the Listing Rules ) and by the Hong Kong Companies Ordinance. 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 income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority s interest in the subsidiary s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. Acquisition of additional interest in a subsidiary is recorded at the Group s book value of the net assets attributable to the interests. The excess of the carrying amounts of net assets attributable to the interest over the cost of acquisition is recognised as discount on acquisition in the profit and loss. Annual Report

86 SIGNIFICANT ACCOUNTING POLICIES (continued) Business combinations The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is 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 meet the conditions for recognition under HKFRS 3 Business Combinations are recognised at their fair values at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is initially measured at the minority s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Goodwill Goodwill arising on an acquisition of businesses for which the agreement date is on or after 1 January 2005 represents the excess of the cost of acquisition over the Group s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant businesses at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses. Capitalised goodwill arising on an acquisition of businesses is presented separately in the consolidated balance sheet. For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cashgenerating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods. On subsequent disposal of the relevant cash generating unit, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal. 84 Annual Report 2008

87 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 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 carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group s share of the net assets of the associate, less any identified impairment loss. 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. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group s interest in the relevant associate. 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, net of discount. Revenue from sale of properties held for sale in the ordinary course of business is recognised when all of the following criteria are met: the significant risks and rewards of ownership of the properties are transferred to buyers, which is when the construction of relevant properties has been completed and collectability of related receivables is reasonably assured; neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the properties are retained; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Annual Report

88 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition (continued) Revenue from sales of furniture goods are recognised when goods are delivered and title has been passed. 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. Property management income and service income are recognised when services are provided. Property, plant and equipment Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes (other than construction in progress) are stated at cost less subsequent accumulated depreciation and impairment losses. Depreciation is provided to write off the cost of items of property, plant and equipment, other than construction in progress, over their estimated useful lives after taking into account of their estimated residual values, using the straight-line method. Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purposes. Property that is being constructed or developed for future use as an investment property is classified as property, plant and equipment and carried at cost less recognised impairment loss until construction or development is complete, at which time it is reclassified to and subsequently accounted for as investment property. Any difference between the fair value of the property at that date and its previous carrying amount is recognised in profit or loss. Construction in progress is carried at cost less any recognised impairment loss. Construction in progress is 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 derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is derecognised. 86 Annual Report 2008

89 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Leasehold land and building under development for future owner-occupied purpose When the leasehold land and buildings are in the course of development for production or for administrative purposes, the leasehold land component is classified as a prepaid lease payment and amortised over a straight-line basis over the lease term. During the construction period, the amortisation charge provided for the leasehold land 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). Investment properties Investment properties are properties held to earn rentals and/or for capital appreciation. On initial recognition, investment properties are 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. 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 the consolidated income statement in the year in which the item is derecognised. Inventory of properties is transferred 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 the consolidated income statement. Annual Report

90 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment losses on tangible and intangible assets other than goodwill (see the accounting policy in respect of goodwill above) At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. 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. Construction contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. 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 balance sheet, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated balance sheet 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 of the assets to the lessee. All other leases are classified as operating leases. 88 Annual Report 2008

91 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Leasing (continued) The Group as lessor Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of leased asset and recognised as an expense on a straight-line basis over the lease term. The Group as lessee Rentals payable under operating leases are charged to profit or loss on a straightline 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. Leasehold land and building The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire contract is generally treated as a finance lease and accounted for as property, plant and equipment. To the extent the allocation of the lease payments can be made reliably, leasehold interests in land are accounted for as operating leases. 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 each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet 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 translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity. Annual Report

92 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 balance sheet date, 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 as a separate component of equity (the exchange translation reserve). Such exchange differences are recognised in profit or loss in the year in which a foreign operation is disposed of. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when 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 year in which they are incurred. Government grant Government grants are recognised as income over the periods necessary to match them with the related costs. Grants related to depreciable assets are presented as a deduction from the carrying amount of the relevant assets and are released to income over the useful lives of the assets. Grants related to expense items are recognised in the same period as those expenses are charged in the consolidated income statement and are reported separately as other income. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement 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 taxation is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. 90 Annual Report 2008

93 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Taxation (continued) Deferred tax is recognised on 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, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which 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 tax liabilities are recognised for taxable temporary differences arising on 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. The carrying amount of deferred tax assets is reviewed at each balance sheet date 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 tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity. Inventory of properties Inventory of properties includes properties under development and properties held for sale which are stated at 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. Other inventories Other inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method. Annual Report

94 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments Financial assets and financial liabilities are recognised on the balance sheet 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 and 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 availablefor-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 on points 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. Income is recognised on an effective interest basis for debt instruments. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade receivables, other receivables and deposits paid, amounts from due an associate, immediate holding company and fellow subsidiaries 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). 92 Annual Report 2008

95 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial assets (continued) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at fair value through profit or loss ( FVTPL ), loans and receivables or held-to-maturity investments. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss (see accounting policy on impairment loss on financial assets below). 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 and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition (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 each balance sheet date. 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 impacted. 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 default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial reorganisation. 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. Annual Report

96 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial assets (continued) Impairment of financial assets (continued) 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 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. Impairment losses on available-for-sale equity investments will not be reversed in profit or loss in subsequent periods. Any increase in fair value subsequent to impairment loss is recognised directly in equity. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. Financial liabilities and equity 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. The Group s financial liabilities represent other financial liabilities. 94 Annual Report 2008

97 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial liabilities and equity (continued) 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 through the expected life of the financial liability, or, where appropriate, a shorter period. Interest expense is recognised on an effective interest basis. Other financial liabilities Other financial liabilities including trade and other payables, amounts due to fellow subsidiaries, amounts due to minority shareholders 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 values at each balance sheet date. 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. Hedge accounting The Group uses derivative financial instruments (primarily interest rate swap) to hedge its exposure against changes in interest rate on bank borrowings. 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 cash flows of the hedged item. Annual Report

98 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Hedge accounting (continued) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as other gain or losses. Amounts deferred in equity are recycled in 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 deferred 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 cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss (i) 37 (ii) 18 Financial guarantee contracts 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 contact 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, 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 directly in equity is recognised in profit or loss. 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. 96 Annual Report 2008

99 4. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Share-based payments 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 and share award reserve respectively. At each balance sheet date, 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 share-based compensation reserve and the share award reserve respectively. 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 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 share award reserve and the amount of the relevant treasury shares 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 consolidated income statement 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. Shares issued for the acquisition of assets Shares issued for the acquisition of assets are measured at the fair values of the assets acquired, unless that fair value cannot be measured reliably in which case the assets acquired are measured by reference to the fair value of the shares issued at the completion date. The shares issued arising from the assets acquired has been reflected in share capital and share premium. 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

100 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 balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 38,024,692,000 22,097,459,000 Impairment loss on inventory of properties Included in the consolidated balance sheet at 31 December 2008 are inventory of properties of HK$38,024,692,000 (2007: HK$22,097,459,000) 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 year. 395,333, ,174, ,767, ,491,000 Deferred tax assets As at 31 December 2008, a deferred taxation asset of HK$395,333,000 (2007: HK$374,174,000) in relation to allowance for bad and doubtful debts, write down of inventory of properties, impairment loss of available-for-sale investments and the provision of Land Appreciation Tax has been recognised in the Group s consolidated balance sheet. No deferred tax asset has been recognised on the tax losses of HK$257,767,000 (2007: HK$180,491,000) due to the unpredictability of future profit streams. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future assessable profits generated are less than or more than expected, a reversal or recognition of the deferred tax assets may arise, which would be recognised in the consolidated income statement for the period in which such a reversal or recognition takes place. 98 Annual Report 2008

101 6. 6. REVENUE Revenue represents income from sale of developed properties, rental income, property management and related services and construction and decoration services as follows: HK$ 000 HK$ 000 Sale of developed properties 6,949,401 4,333,536 Rental income 811, ,957 Property management and related services 319, ,405 Construction and decoration services Construction contracts 920, ,197 Furniture manufacturing and sales 132,740 9,133,605 5,681, (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (a) Business segments Year ended 31 December 2008 Property Sale of investments Construction developed and and decoration properties management services Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 Revenue External sales 6,949,401 1,131,177 1,053,027 9,133,605 Result Segment result 1,814,018 1,021,684 66,368 2,902,070 Unallocated interest income 74,736 Unallocated other income 187,979 Unallocated corporate expenses (67,647) Share of results of associates 97,094 97,094 Finance costs (137,312) Profit before taxation 3,056,920 Taxation (965,596) Profit for the year 2,091,324 Annual Report

102 7. (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) (a) Business segments (continued) Year ended 31 December 2008 (continued) Property Sale of investments Construction developed and and decoration properties management services Unallocated Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Other information Capital additions 530, ,298 71, ,143,040 Depreciation and amortisation 39,686 4,157 1, ,116 Gain on changes of fair value of investment properties 308, ,098 Gain on changes of fair value of inventory of properties transferred to investment properties 61,706 61,706 Exchange gain 168, ,399 At 31 December 2008 Property Sale of investments Construction developed and and decoration properties management services Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 Assets Segment assets 50,572,198 12,083, ,930 63,463,171 Interests in associates 731, ,099 Amount due from an associate 265, ,178 Unallocated corporate assets 6,298,855 Consolidated total assets 70,758,303 Liabilities Segment liabilities 10,020, , ,745 11,271,613 Unallocated corporate liabilities 23,347,546 Consolidated total liabilities 34,619, Annual Report 2008

103 7. (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) (a) Business segments (continued) Year ended 31 December 2007 Property Sale of investments Construction developed and and decoration properties management services Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 Revenue External sales 4,333, , ,197 5,681,095 Result Segment result 1,200,551 1,297,377 13,492 2,511,420 Unallocated interest income 79,694 Unallocated other income 310,001 Unallocated corporate expenses (44,569) Share of results of associates 67,715 67,715 Finance costs (152,827) Profit before taxation 2,771,434 Taxation (1,296,192) Profit for the year 1,475,242 Property Sale of investments Construction developed and and decoration properties management services Unallocated Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 ( ) ( ) ( ) (restated) (restated) (restated) Other information Capital additions 134,058 2,441,061 52, ,628,274 Depreciation and amortisation 26,503 6, ,239 Gain on changes in fair value of investment properties 799, ,955 Exchange gain 267, ,745 Annual Report

104 7. (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) (a) Business segments (continued) At 31 December 2007 Property Sale of investments Construction developed and and decoration properties management services Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 ( ) ( ) (restated) (restated) Assets Segment assets 31,374,291 9,840, ,601 41,799,164 Interests in associates 593, ,600 Amount due from an associate 237, ,464 Unallocated corporate assets 5,148,829 Consolidated total assets 47,779,057 Liabilities Segment liabilities 5,184, , ,344 6,298,425 Unallocated corporate liabilities 17,574,522 Consolidated total liabilities 23,872,947 (b) 90% 90% (b) No geographical segment analysis is shown as more than 90% of the Group s businesses are derived from activities in, and from customers located in, the Chinese Mainland and more than 90% of the carrying values of assets of the Group are situated in the Chinese Mainland. 102 Annual Report 2008

105 8. 8. OTHER INCOME HK$ 000 HK$ 000 Exchange gain 168, ,745 Bank interest income 74,736 79,694 Imputed interest income in respect of amount due from an associate 12,403 Government grants (Note) 53,658 Recovery of other receivable written off in the prior years 17,933 Reversal of allowance for inventory of properties 18,966 Discount on acquisition of additional non-controlling interests in a subsidiary 2,708 20,415 Gain on disposal of available-for-sale investments ,570 Others 34,811 4, , ,695 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

106 DIRECTORS EMOLUMENTS The emoluments paid or payable to each of the 12 (2007: 12) directors were as follows: Liu Ding Du Li Andrew Ho Chan Mo Total 2008 Song Lin Wang Yin Jiang Wei Yan Biao Yan Jie Jie Min Wen Min Fu Zuo Wang Shi Y. Yan Hin Ngai Po, Paul 2008 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 Other emoluments Salaries and other benefits 3,050 3,050 Contribution to retirement benefit schemes Share option expense Total emoluments 3, ,180 Liu Xie Du Li Andrew Ho Chan Mo Total 2007 Song Lin Wang Yin Jiang Wei Yan Biao Yan Jie Sheng Xi Wen Min Fu Zuo Wang Shi Y. Yan Hin Ngai Po, Paul 2007 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 Other emoluments Salaries and other benefits 2,513 2,513 Contribution to retirement benefit schemes Share option expense Total emoluments 2, ,231 Note: During the year, none of the directors have waived the directors emoluments (2007: None). None of the directors have received any inducement pay for joining or upon joining the Company. 104 Annual Report 2008

107 EMPLOYEES EMOLUMENTS Of the five individuals with the highest emoluments in the Group, one (2007: one) was director of the Company whose emoluments are included in the disclosures in note 9 above. The emoluments of the remaining four (2007: four) individuals were as follows: HK$ 000 HK$ 000 Salaries and other benefits 6,546 7,915 Contributions to retirement benefit schemes Performance related incentive payments 2,230 2,813 9,057 10,954 Their emoluments were within the following bands: No. of employees ,000,0012,000,000 HK$1,000,001 to HK$2,000, ,000,0013,000,000 HK$2,000,001 to HK$3,000, ,000,0014,000,000 HK$3,000,001 to HK$4,000, Annual Report

108 FINANCE COSTS HK$ 000 HK$ 000 Interest on bank loans wholly repayable: Within five years (965,188) (659,076) Over five years (16,274) (12,078) Total borrowing cost (981,462) (671,154) Fair value adjustment of amount due from an associate (24,322) Less: Amount capitalised in properties under development for specific bank borrowings 844, ,649 (137,312 ) (152,827 ) INCOME TAX EXPENSE HK$ 000 HK$ 000 The income tax expense comprises: Current tax: Hong Kong Profit Tax (1,894) (410) Chinese Mainland Enterprise Income Tax (512,506) (474,971) (514,400 ) (475,381 ) Land appreciation tax ( LAT ) in the Chinese Mainland (296,581 ) (256,965 ) 23 Deferred taxation (note 23) Current year (154,615 ) (185,520 ) Attributable to changes in tax rates (378,326 ) (154,615 ) (563,846 ) (965,596 ) (1,296,192 ) 106 Annual Report 2008

109 % 16.5% 16.5% 17.5% 63 33% 25% 12. INCOME TAX EXPENSE (continued) On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits Tax has been provided at 16.5% (2007: 17.5%) of the estimated assessable profits for the year. Provision for Chinese Mainland Enterprise Income Tax for both years has been made based on the subsidiaries estimated assessable profits calculated in accordance with the relevant enterprise income tax laws applicable to the subsidiaries in the Chinese Mainland. LAT is calculated at progressive rates on the appreciated value, with certain allowable deductions. On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income tax (the New Law ) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulations of the New Law. The New Law and Implementation Regulations will change the tax rate from 33% to 25% for certain subsidiaries from 1 January The taxation charge for the year can be reconciled to the profit before taxation per the consolidated income statement as follows: HK$ 000 HK$ 000 Profit before taxation 3,056,920 2,771,434 25% 33% Tax charge at domestic tax rate of 25% (2007: 33%) (764,230) (914,573) Tax effect of share of results of associates 24,274 22,346 Tax effect of expenses not deductible for tax purpose (31,974) (51,848) Tax effect of income not taxable for tax purpose 22,495 27,206 Tax effect of tax losses not recognised (30,530) (2,939) Utilisation of tax losses previously not recognised 15,414 50,100 Income taxed at concessionary rate 22, ,886 Effect of different tax rates of subsidiaries (1,141) 15,123 Land appreciation tax (296,581) (256,965) Tax effect of land appreciation tax 74,145 84,798 Effect on opening deferred tax assets and liabilities resulting from changes in applicable tax rates (378,326) Taxation charge for the year (965,596 ) (1,296,192 ) Annual Report

110 PROFIT FOR THE YEAR HK$ 000 HK$ 000 Profit for the year has been arrived at after charging: Directors emoluments Fees Salaries and other emoluments 3,180 3,231 Other staff costs 326, ,550 Retirement benefit cost, excluding amount included in directors emoluments 42,185 24,201 Share option benefits expenses (excluding amount included in directors emoluments) 7,817 13,559 Total staff costs 380, ,465 Less: Amount capitalised in the properties under development (109,520 ) (28,152 ) 271, ,313 Cost of inventories recognised as expense 4,249,726 2,926,697 Auditor s remuneration 1,510 1,250 Amortisation of prepaid lease payments 1, Impairment losses recognised on other receivables 44,710 28,387 Depreciation of property, plant and equipment 45,000 32,316 Loss on disposal of property, plant and equipment 1,353 Share of tax of associates (included in share of results of associates) (30,884) (13,373) and after crediting: Gross rental income from investment properties 811, ,745 Less: Direct operating expenses from investment properties that generated rental income during the year (77,673) (89,037) 734, , ,320,000 94,144,000 Note: Profit of the Company for 2008 amounted to approximately HK$379,320,000 (2007: approximately HK$94,144,000). 108 Annual Report 2008

111 DIVIDENDS HK$ 000 HK$ 000 Dividend paid: Interim dividend paid during the year 3.4 HK3.4 cents (2007: HK2.4 cents) per ordinary share ,294 90,032 Final dividend in respect of 2007, approved and paid 7.4 HK7.4 cents per ordinary share 297,865 Final dividend in respect of 2006, approved and paid 5.1 HK5.1 cents per ordinary share 169,464 Additional final dividend for prior year due to exercise of share options and placement of new shares , , ,013 Dividend proposed: Final dividend proposed for the year 8.3 HK8.3 cents (2007: HK7.4 cents) per ordinary share , , ,715,346, The final dividend of HK8.3 cents per ordinary share in respect of the financial year ended 31 December 2008 has been proposed by the directors of the Company which is based on the latest number of shares of 4,715,346,168 in issue and is subject to approval by the shareholders in the forthcoming general meeting. 15. EARNINGS PER SHARE The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the Company is based on the following data: HK$ 000 HK$ 000 Earnings Earnings for the purpose of basic and diluted earnings per share (profit for the year attributable to equity holders of the Company) 2,037,631 1,431, Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 4,347,896,126 3,599,933,445 Effect of dilutive potential ordinary shares on share options 30,706,426 47,443,349 Weighted average number of ordinary shares for the purposes of diluted earnings per share 4,378,602,552 3,647,376,794 Annual Report

112 GOODWILL HK$ 000 COST At 1 January , Arising on acquisition of a subsidiary (Note 38) 37,036 At 31 December ,459 CARRYING AMOUNTS At 31 December ,459 At 31 December ,423 The Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill have been allocated to the construction and decoration cash generating units (CGUs), including various subsidiaries included in the construction and decoration segment. The carrying amount of goodwill as at 31 December 2008 is allocated as follows: HK$ 000 Construction and decoration business 87,459 During the year ended 31 December 2008, management of the Group determines that there are no impairments of its CGUs containing goodwill. The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are summarised below: 11.4% 10% 2% 2% Construction and decoration business The recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a 5-year period, and discount rate of 11.4% (2007: 10%). Cash flows beyond the 5-year period are extrapolated using a steady 2% (2007: 2%) growth rate. This growth rate is based on the relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Other key assumptions for the value in use calculation relate to the estimation of cash inflows/outflows which include budgeted sales and gross margin, such estimation is based on the unit s past performance and management s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of the CGU of construction and decoration to exceed the aggregate recoverable amount of this CGU. 110 Annual Report 2008

113 PROPERTY, PLANT AND EQUIPMENT Furniture and Motor Construction Buildings equipment vehicles in progress Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (restated) (restated) (Note) COST At 1 January ,402 90,659 21, , ,836 Currency realignment 36,123 10,337 3,115 31,808 81,383 Additions ,874 2, , ,164 Acquired on acquisition of 38 subsidiaries (Note 38) 149 8,626 3, , ,639 Disposal (6,993) (2,835) (9,828) At 31 December , ,503 27, ,542 1,441,194 Currency realignment 35,891 6,839 1,626 41,721 86,077 Additions 14,455 14, , ,450 Acquired on acquisition of 38 subsidiaries (Note 38) 2,358 19,039 4,831 19,549 45,777 Disposal (11,553) (2,116) (5,327) (18,996) At 31 December , ,720 42,363 1,646,797 2,469,502 DEPRECIATION AND AMORTISATION At 1 January ,732 33,945 13, ,005 Currency realignment 3,882 3,233 1,325 8,440 Provided for the year 16,837 11,451 4,028 32,316 Write-off (2,279) (2,056) (4,722) (9,057) At 31 December ,172 46,573 13, ,704 Currency realignment 6,401 2, ,017 Provided for the year 15,053 23,108 6,839 45,000 Eliminated on disposal (10,545) (1,521) (4,942) (17,008) At 31 December ,081 70,942 16, ,713 CARRYING VALUES At 31 December ,541 81,778 25,673 1,646,797 2,263,789 At 31 December ,754 67,930 13, ,542 1,273,490 Note: Construction in progress represents the Group s development in some investment property projects which are intended to be held for earning rentals or for capital appreciation purposes. Annual Report

114 PROPERTY, PLANT AND EQUIPMENT (continued) 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: Buildings Furniture and equipment Motor vehicles 40 years or over the unexpired term of lease, whichever is shorter 5 years 5 years ,274, ,000 42,158, 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 amortised over their lease terms of 39 to 50 years. The amortisation for the year is HK$43,274,000 (2007: HK$923,000), of which HK$42,158,000 (2007: HK$Nil) is capitalised in construction in progress included in property, plant and equipment. 19. INVESTMENT PROPERTIES HK$ 000 FAIR VALUE At 1 January ,619,400 Currency realignment 548,457 Increase in fair value recognised in consolidated income statement 799,955 At 31 December ,967,812 Currency realignment 576,911 Transfer from inventory of properties (Note) 123,619 Additions 21,865 Increase in fair value recognised in consolidated income statement 308,098 At 31 December ,998,305 61,706,000 Note: The amount includes an increase in fair value of certain inventory of properties upon the transfer to investment properties of approximately HK$61,706,000. The fair value of the Group s investment properties at 31 December 2008 have been arrived at on the basis of a valuation carried out as of that date by CB Richard Ellis Limited, independent qualified professional valuers not connected with the Group. CB Richard Ellis Limited has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation was arrived at by reference to net rental income allowing for reversionary income potential using the applicable market yields for the respective locations and types of properties as the discount rates. 112 Annual Report 2008

115 INVESTMENT PROPERTIES (continued) All of the Group s property interests in leasehold land and building to earn rentals or for capital appreciation purposes are measured using the fair value model and are classified and accounted for as investment properties. 20. The investment properties are located in the Chinese Mainland under medium-term lease. 20. INTERESTS IN ASSOCIATES HK$ 000 HK$ 000 Cost of unlisted investments in associates 74,777 70,294 Share of post-acquisition profits, net of dividend received 656, , , ,600 Summarised financial information in respect of the Group s associates is set out below: HK$ 000 HK$ 000 Total assets 1,695,948 2,067,574 Total liabilities (385,624 ) (880,025 ) Net assets 1,310,324 1,187,549 Group s share of net assets of associates 627, ,600 Revenue 337, ,896 Profit for the year 203, ,114 Group s share of results of associates for the year 97,094 67,715 46(c) Particulars of the Group s associates are set out in note 46(c). Annual Report

116 21. 5% 5% 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, and accordingly, it is shown as noncurrent. The effective imputed interest rate per annum on the non-current balances is 5% (2007: 5%). The Group assessed the credit quality of the amount due from an associate regularly based on its financial position and considered no allowance for the amount from an associate should be provided at the balance sheet date. 22. AVAILABLE-FOR-SALE INVESTMENTS HK$ 000 HK$ 000 Available-for-sale investments comprise: Unlisted equity securities in the Chinese Mainland, at cost 435, ,627 Less: Impairment losses (247,147) (235,407) 187, ,220 The above available-for-sale investments were stated at cost less impairment at each balance sheet date 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. 12,237, ,000 In the current year, the Group s investment cost in an unlisted equity investment had been refunded in the amount of HK$12,237,000. The Group had also disposed of certain unlisted equity investments with carrying amount of nil, which had been carried at cost less impairment before the disposal. A gain on disposal of HK$765,000 has been recognised in profit or loss in the current year. The Group s remaining available-for-sale investments represent certain unlisted equity securities in a property investment company incorporated in Beijing. 114 Annual Report 2008

117 DEFERRED TAXATION ASSETS (LIABILITIES) The followings are the major deferred taxation assets (liabilities) recognised and movements thereon during the current and prior years. Other Allowance Land temporary Investment for doubtful Appreciation differences properties debts Tax (Note) Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January 2007 (666,289) 217,573 54,752 97,078 (296,886) Currency realignment (67,394) 9,791 6,910 7,380 (43,313) Acquisition of subsidiaries 1,308 (28) 1,280 (Charge) credit to consolidated income statement for the year (256,858) 7,097 64,241 (185,520) Effect of changes in tax rate (286,398) (53,438) (13,909) (24,581) (378,326) At 31 December 2007 (1,276,939) 182, ,994 79,849 (902,765) Currency realignment (80,886) 11,890 6,817 3,780 (58,399) Acquisition of subsidiaries (9,050) (9,050) (Charge) credit to consolidated income statement for the year (153,289) 19,406 (24,204) 3,472 (154,615) At 31 December 2008 (1,511,114 ) 213,627 94,607 78,051 (1,124,829 ) Note: Other temporary differences mainly represent the deductible temporary differences arising from the write down of inventory of properties and impairment loss of available-for-sale investments. Analysis of the deferred taxation balances at the balance sheet date is as follows: HK$ 000 HK$ 000 Deferred taxation assets 395, ,174 Deferred taxation liabilities (1,520,162 ) (1,276,939 ) (1,124,829 ) (902,765 ) Annual Report

118 ,767, ,491, DEFERRED TAXATION ASSETS (LIABILITIES) (continued) No deferred taxation asset has been recognised in respect of estimated tax losses of HK$257,767,000 (2007: HK$180,491,000) as, in the opinion of the directors of the Company, the future profit streams of these subsidiaries are uncertain. The tax loss could be carried forward for a maximum of five years ,807, According to a joint circular of the Ministry of Finance and State Administration of Taxation Cai Shui 2008 No. 1, dividend distributed out of the profits generated since 1 January 2008 shall be subject to PRC Enterprise Income Tax and which held by the PRC entity pursuant to Articles 3 and 27 of the Income Tax Law Concerning Foreign Investment Enterprises and Foreign Enterprises and Article 91 of the Detailed Rules for the Implementation of the Income Tax Law for Enterprises with Foreign Investment Enterprises and Foreign Enterprises. Deferred taxation has not been provided for in the consolidated financial statements in respect of temporary differences attributable to accumulated profits of the PRC subsidiaries amounting to HK$1,807,000,000 (2007: nil) as the Group is able to control the timing of the reversal of the temporary differences and it is possible that the temporary differences will not reverse in the foreseeable future. 24. INVENTORY OF PROPERTIES HK$ 000 HK$ 000 (restated) Properties under development 33,374,389 20,304,679 Properties held for sale 4,650,303 1,792,780 38,024,692 22,097,459 30,716,194,000 18,239,072,000 The inventory of properties was located in the Chinese Mainland under mediumterm lease. Inventory of properties which are expected to be recovered in more than twelve months after the balance sheet date are classified under current asset 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 balance sheet date are HK$30,716,194,000 (2007: HK$18,239,072,000). 116 Annual Report 2008

119 OTHER INVENTORIES HK$ 000 HK$ 000 Raw materials 55,853 1,661 Consumables and others 3,510 11,073 59,363 12, TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID HK$ 000 HK$ 000 Trade receivables 1,188, ,084 Less: Accumulated impairments (349,888 ) (328,696 ) 838, ,388 Deposits paid for acquisition of land use rights (Note) 8,090,094 5,509,152 Other receivables 771, ,441 Less: Accumulated impairments (320,200 ) (258,442 ) 451, ,999 Prepayments and deposits 496, ,385 9,876,713 6,766,924 2,236,112,000 3,412,596,000 Note: The amount represents the partial payments made by the Group for the acquisition of land use right in the Chinese Mainland for property development. The land use right certificates have not yet been obtained by the Group at the balance sheet date. The management expects the deposits paid that they would obtain the land use right certificates in the coming twelve months after the balance sheet date are HK$2,236,112,000 (2007: HK$3,412,596,000). 30 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 sales 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. Annual Report

120 26. 73,846,000 16,815, TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID (continued) Retention receivables included in trade receivables amounted to HK$73,846,000 (2007: HK$16,815,000) are interest-free and receivable at the end of the retention period of individual construction contracts. Before accepting any customers, the Group uses an internal credit assessment system to assess the potential customers credit quality and defines credit limits by customer, and considers adequate allowance has been made at the balance sheet date. The followings are the aged analysis of trade receivables at the balance sheet date: Aged analysis of trade receivables net of impairment HK$ 000 HK$ 000 Within one year 632, ,848 Over one year 206, , , ,388 Aged analysis of trade receivables which are past due but not impaired HK$ 000 HK$ 000 Within one year 145,245 10,061 Over one year 96,905 90, , , ,150,000100,975,000 Included in the Group s trade receivable balance are debtors with aggregate carrying amount of HK$242,150,000 (2007: HK$100,975,000) which are past due at the reporting date 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 balance sheet date. The aged analysis of other receivables net of impairment presented below should be the same as the ageing of other receivables past due but not impaired. 118 Annual Report 2008

121 TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID (continued) The following is an aged analysis of other receivables net of impairments at the balance sheet date: Other receivables HK$ 000 HK$ 000 Within one year 250, ,288 Over one year 201,105 65, , , ,888, ,200, ,696,000258,442,000 Included in the allowance for doubtful debts are individually impaired trade receivables and other receivables of HK$349,888,000 and HK$320,200,000 (2007: HK$328,696,000 and HK$258,442,000) respectively, which have been in severe financial difficulties and irrecoverable. The Group does not hold any collateral over these balances. The followings are the movement in the accumulated impairments for trade receivables and other receivables. Movement in the accumulated impairments for trade receivables HK$ 000 HK$ 000 Balance at beginning of the year 328, ,913 Exchange realignment 21,192 19,783 Balance at the end of the year 349, ,696 Movement in the accumulated impairments for other receivables: HK$ 000 HK$ 000 Balance at beginning of the year 258, ,301 Exchange realignment 17,048 16,754 Impairment losses recognised on other receivables (Note) 44,710 28,387 Balance at the end of the year 320, ,442 Note: The amount represents the partial impairment made for the loan advance to an outsider after considering its financial position and ability to repay during the year. Annual Report

122 AMOUNTS DUE FROM (TO) CUSTOMERS FOR CONTRACT WORK HK$ 000 HK$ 000 Contracts in progress at the balance sheet date Contract costs incurred plus recognised profits less recognised losses 4,458,873 2,833,692 Less: progress billings (4,589,907) (2,767,156) (131,034 ) 66,536 Analysed for reporting purposes as: Amounts due from customers for contract works 210, ,784 Amounts due to customers for contract works (341,963) (124,248) (131,034 ) 66,536 73,846,000 16,815,000 64,662,000 21,128, At 31 December 2008, retentions held by customers for contract works included in trade receivables amounted to HK$73,846,000 (2007: HK$16,815,000). Advances received from customers for contract work included in other payables amounted to HK$64,662,000 (2007: HK$21,128,000). In both 2008 and 2007, 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 balance sheet date. 28. AMOUNTS DUE FROM FELLOW SUBSIDIARIES/IMMEDIATE HOLDING COMPANY The amounts are unsecured, trade in nature and recoverable within 12 months after the balance sheet date. 120 Annual Report 2008

123 CASH AND BANK BALANCES Cash and bank balances comprise short-term bank deposits carry interest at market rates which range from 0.36% to 3.25% (2007: 0.72% to 3.33%) per annum. 4,469,038,000 5,076,380,000 3,652,077,000 3,899,689,000 Included in cash and bank balances, there is a total balance amounting to RMB4,469,038,000 (equivalent to HK$5,076,380,000) (2007: RMB3,652,077,000 (equivalent to HK$3,899,689,000) denominated in RMB which is not a freely convertible currency. The cash and bank balances are denominated in the following currencies: HK$ 000 HK$ 000 Hong Kong dollar (foreign currency of the relevant group entity) 465, ,546 Renminbi 5,076,380 3,899,689 United States Dollar 10,543 20,511 Others 1,269 4,055 5,553,441 4,516, TRADE AND OTHER PAYABLES HK$ 000 HK$ 000 Trade payables 2,467,300 1,199,422 Other payables and accrued charges 1,758, ,254 4,226,299 2,096,676 The following is an aged analysis of trade payables at the balance sheet date: HK$ 000 HK$ 000 Within one year 927, ,789 Over one year 1,539, ,633 2,467,300 1,199,422 Annual Report

124 31. 5,382,301,000 3,240,149, DEPOSITS RECEIVED FROM PRE-SALES OF PROPERTIES The amounts which are expected to be realised in more than twelve months after the balance sheet date are 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 in the coming twelve months after the balance sheet date are HK$5,382,301,000 (2007: HK$3,240,149,000). 32. AMOUNTS DUE TO FELLOW SUBSIDIARIES/MINORITY SHAREHOLDERS The amounts due to fellow subsidiaries are trade in nature. The amounts are unsecured, interest free and repayable on demand. The amounts due to minority shareholders represent mainly the loan advances from the minority shareholder, and which are unsecured, interest free and repayable on demand. 33. BANK BORROWINGS HK$ 000 HK$ 000 Secured 4,477,710 2,338,782 Unsecured 16,615,282 13,095,166 21,092,992 15,433,948 Carrying amount repayable: On demand or within one year 4,062,895 2,712,212 More than one year but not exceeding two years 1,240,762 3,167,660 More than two years but not more than five years 15,583,453 9,307,147 More than five years 205, ,929 21,092,992 15,433,948 Less: Amounts due within one year shown under current liabilities (4,062,895) (2,712,212) 17,030,097 12,721, Annual Report 2008

125 BANK BORROWINGS (continued) 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 Hong Kong dollars 11,180,000 8,236, ,912,992,000 7,197,272, ,180,000,000 8,236,676,000 Amount included fixed-rate bank borrowings of HK$9,912,992,000 (2007: HK$7,197,272,000) which carry interest at average fixed rate of 6.46% per annum (2007: 6.1% per annum) and variable-rate borrowings of HK$11,180,000,000 (2007: HK$8,236,676,000) which carried effective interest at 2.94% (2007: 3.78%) per annum and contractual interest at HIBOR plus a certain percentage ranging from 0.28% to 0.83% (2007: HIBOR plus 0.34%) per annum. The borrowings are repayable by instalments or in a lump sum upon maturity in accordance with the terms set out in the respective loan agreements. 64,068,000 36,000,000 60,000,000 10,670,000,000 7,327,500,000 35% Included in the borrowings of the Group above are unsecured loans amounting to HK$Nil (2007: HK$64,068,000) and HK$36,000,000 (2007: HK$60,000,000) which were guaranteed by CRNC and CRH respectively. Also, in respect of bank borrowings of the Group amounted to HK$10,670,000,000 (2007: HK$7,327,500,000), 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. Annual Report

126 DERIVATIVE FINANCIAL INSTRUMENTS Derivatives under hedge accounting HK$ 000 HK$ 000 Cash flow hedges interest rate swaps (Note) (42,832 ) Other interest rate swaps (94,092 ) (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. 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 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 interest rate swaps are set out below: 2008 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 Asset Appraisal Limited Asset Appraisal Limited Note: The measurement and assessment of the effectiveness of the above hedges as at and for the period ended 31 December 2008 have been carried out by Asset Appraisal Limited, independent qualified professional valuers not connected with the Group. Asset Appraisal Limited has 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. 124 Annual Report 2008

127 DERIVATIVE FINANCIAL INSTRUMENTS (continued) Other interest rate swaps The terms of other interest rate swaps 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% 36,259,000 6,573,000 94,092, ,665,000 As at 31 December 2008, the effective portion of the loss on changes in fair value of the interest rate swaps under cash flow hedge amounted to HK$36,259,000 (2007: nil) has been deferred in equity. 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$6,573,000 (2007: nil) together with the loss on changes in fair value of other interest rate swaps of HK$94,092,000 (2007: nil), totalling HK$100,665,000 is recognised in profit or loss. Annual Report

128 SHARE CAPITAL Number of shares Share capital HK$ 000 HK$ Ordinary shares of HK$0.10 each Authorised: At the beginning of the year 5,000,000,000 5,000,000, , ,000 Increase on 14 July 2008 a (Note a) 2,000,000, ,000 At the end of the year 7,000,000,000 5,000,000, , ,000 Issued and fully paid At the beginning of the year 4,025,201,318 3,322,815, , ,281 b Placement of new shares (Note b) 400,000,000 40,000 c Exercise of share options (Note c) 36 (see Note 36) 14,345,000 33,295,000 1,435 3,330 Issued in consideration for the d acquisition of subsidiaries (Note d) 675,799, ,090,909 67,580 26,909 At the end of the year 4,715,346,168 4,025,201, , ,520 Notes: (a) 2,000,000, ,000, ,000,000 (a) On 14 July 2008, an ordinary resolution of the Company was passed to increase the authorised share capital of the Company from HK$500,000,000 to HK$700,000,000 by the creation of 2,000,000,000 new ordinary shares of HK$0.10 each. Such new shares rank pari passu in all respects with the existing shares of the Company. (b) ,000, (b) On 8 May 2007, the Company issued and allotted 400,000,000 ordinary shares of HK$0.1 each for consideration of HK$9.81 per share to finance the Group s working capital. The new ordinary shares rank pari passu with the existing shares in all aspect. (c) 14,345,000 33,295, (c) During the year, the Company issued 14,345,000 (2007: 33,295,000) ordinary shares of HK$0.1 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 (2007: HK$0.96 to HK$4.59) per share. The new ordinary shares rank pari passu with the existing shares in all aspect. (d) 675,799, ,090, (d) On 16 July 2008, 675,799,850 ordinary shares of HK$0.1 each (Note 38) were issued for the acquisition of the Property Group of Smooth Day Group Limited. On 28 December 2007, 269,090,909 ordinary shares of HK$0.1 each (Note 38) were issued for the acquisition of Speedy Gain Investments Limited ( Speedy Gain ). 126 Annual Report 2008

129 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 Old Scheme and the New Scheme. The Old Scheme refers to the share option scheme adopted by the Company pursuant to a board resolution passed on 20 July 2000, which subsisted until 31 January On 31 January 2002, the shareholders of the Company approved the termination (to the effect that no further options shall be offered) of the Old Scheme. Eligible participants of the Old Scheme were the employees of the Company and the subsidiaries (including directors of the Company). The exercise price of the share option under the Old Scheme is determined by the directors of the Company. The exercise price will not exceed the maximum discount permitted by the Listing Rules applicable prior to 1 September 2001 and not less than the nominal value of the Company s shares. The maximum number of shares issued and permitted to be issued on the exercise of options under the Old Scheme and to be granted to each participant does not exceed the maximum limit as permitted by the Listing Rules applicable before 1 September 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 nonexecutive directors of the Company, any discretionary object of a discretionary trust established by any employee, 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. Annual Report

130 ,027,500 50,372,500 0% 0.76% 0% 1.25% 36. SHARE OPTION SCHEMES (continued) The offer of a grant of share options under both schemes may be accepted within 28 days from the date of the offer together with the payment of HK$1 in total by the grantee. The vesting and exercise period of the share options granted is determinable at the entire discretion of the board of directors with the vesting period not exceeding four years and the exercise period will not exceed a period of ten years immediately after acceptance of grant. Options are lapsed if the employee leaves the Group before the options vest. At 31 December 2008, the number of shares in respect of which options had been granted and remained outstanding under the Old Scheme and the New Scheme were nil and 36,027,500 (2007: nil and 50,372,500) shares, representing 0% and 0.76% (2007: 0% and 1.25%), respectively, to the shares of the Company in issue at that date. The following tables disclose details of the Company s share options held by employees (including directors) and movements in such holdings during the year: Number of share options Exercise Granted Exercised Lapsed price Exercisable Outstanding during during during Outstanding Date of grant per share period at the year the year the year at HK$ 04/03/ /03/2002 to 03/03/2012 4,990,000 3,040,000 1,950,000 New Scheme 07/10/ /10/2002 to 06/10/2012 1,200,000 20,000 1,180,000 28/04/ /04/2004 to 27/04/2014 3,295, ,000 2,440,000 29/04/ /04/2005 to 28/04/2015 5,812,500 1,180,000 4,632,500 01/06/ /06/2005 to 31/05/2015 5,000,000 1,725,000 3,275,000 02/06/ /06/2005 to 01/06/ , , ,000 27/06/ /06/2005 to 26/06/ , , ,000 03/01/ /01/2006 to 02/01/ ,700,000 6,975,000 17,725,000 17/02/ /02/2006 to 16/02/2016 1,875, ,000 1,625,000 26/06/ /06/2006 to 25/06/2016 2,850,000 2,850,000 50,372,500 14,345,000 36,027,500 Exercisable at the end of the year 14,595,000 Weighted average exercise price Annual Report 2008

131 SHARE OPTION SCHEMES (continued) Number of share options Exercise Granted Exercised Lapsed price Exercisable Outstanding during during during Outstanding Date of grant per share period at the year the year the year at HK$ 27/06/ /06/1997 to 27/05/ ,718,000 (5,793,000) (5,925,000) Old Scheme 20/07/ /07/2000 to 27/05/2007 1,990,000 (340,000) (1,650,000) 13,708,000 (6,133,000 ) (7,575,000 ) 04/03/ /03/2002 to 03/03/ ,710,000 (5,720,000) 4,990,000 New Scheme 15/04/ /04/2002 to 14/04/ ,000 (960,000) 07/10/ /10/2002 to 06/10/2012 1,350,000 (150,000) 1,200,000 28/04/ /04/2004 to 27/04/ ,204,500 (6,909,500) 3,295,000 29/04/ /04/2005 to 28/04/2015 7,110,000 (1,297,500) 5,812,500 01/06/ /06/2005 to 31/05/2015 9,600,000 (4,600,000) 5,000,000 02/06/ /06/2005 to 01/06/ ,000 (250,000) 250,000 27/06/ /06/2005 to 26/06/ ,000 (200,000) 400,000 03/01/ /01/2006 to 02/01/ ,700,000 (6,000,000) 24,700,000 17/02/ /02/2006 to 16/02/2016 2,000,000 (125,000) 1,875,000 26/06/ /06/2006 to 25/06/2016 3,800,000 (950,000) 2,850,000 77,534,500 (27,162,000 ) 50,372,500 91,242,500 (33,295,000 ) (7,575,000 ) 50,372,500 Exercisable at the end of the year 7,382,500 Weighted average exercise price Annual Report

132 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: Number of share options Exercise Granted Exercised Lapsed price Exercisable Outstanding during during during Outstanding Date of grant per share period at the year the year the year Reallocation at HK$ (Note 1) New Scheme 01/06/ /06/2005 to 31/05/2005 1,650,000 1,650,000 Exercisable at the end of the year 1,275,000 Weighted average exercise price Number of share options Exercise Granted Exercised Lapsed price Exercisable Outstanding during during during Outstanding Date of grant per share period at the year the year the year Reallocation at HK$ (Note 1) 04/03/ /02/2002 to 28/02/2012 (540,000 ) 540,000 New Scheme 01/06/ /06/2005 to 31/05/2005 1,900,000 (750,000 ) (500,000 ) 1,000,000 1,650,000 1,900,000 (1,290,000 ) (500,000 ) 1,540,000 1,650,000 Exercisable at the end of the year Weighted average exercise price Note: The reallocation of options arose when the option holders changed their positions in the Company from employees to directors or vice versa during the year. The options were granted to them in previous years. 130 Annual Report 2008

133 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$12.90 (2007: HK$10.97). The total estimated fair values of the option determined at the date of grant on 3 January 2006, 17 February 2006 and 26 June 2006 were calculated using the Black- Scholes pricing model. The inputs into the model were as follows: Weighted average share price HK$3.23 HK$3.93 HK$3.53 Exercise price HK$3.23 HK$3.97 HK$3.58 Expected life 7 years 7 years 7 years Risk-free rate 4.105% 4.25% 4.806% Expected dividend yield 1.86% 1.529% 1.702% Fair values of option at grant date HK$1.72 HK$2.15 HK$1.87 Closing share price immediately before date of grant HK$3.22 HK$4.00 HK$3.48 Note: Because the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the volatility of share price, changes in subjective input assumptions can materially affect the fair value estimate. All options were under the graded vesting period between one to four years. 40% 260 The expected volatility measured at the standard derivation of expected share price returns of 40% is used, which is based on average of 260 day historical volatility. The expected life used in the model has been adjusted, based on management s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations. 7,835,00014,176,000 The Group recognised the total expense of approximately HK$7,835,000 for the year ended 31 December 2008 (2007: HK$14,176,000) in relation to share options granted by the Company. Annual Report

134 ,900, ,242, (i) 9,212,170,000 Gain Ahead Group Limited (i) (ii) 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, BOCI Prudential Trustee Limited, for the purpose of administering the Scheme and holding the shares. Under the Scheme, a total of 19,900,000 issued shares amounting to HK$162,242,000 were purchased by the Trustee from market and no shares reward have been granted to employees or any other eligible participants up to the year end. 38. ACQUISITION OF SUBSIDIARIES For the year ended 31 December 2008 (i) Acquisition of Smooth Day Group Limited ( Smooth Day ) On 16 July 2008, the Company acquired 100% of the entire issued share capital of Smooth Day for a total consideration of HK$9,212,170,000 from Gain Ahead Group Limited, a wholly-owned subsidiary of CRH. Smooth Day Group Limited is an investment holding company and its principal assets are its indirect interests in (i) the property development sites which comprise of the Beijing Mentougou Site, the Beijing Daxing Site, the Wuhan Site, the Chongqing Site, the Shenyang Dingxianghu Site and the Dalian Xinghaiwan Site located in the Mainland Chinese (the Property Group ); and (ii) the furniture manufacturing and sale business in the Mainland Chinese (the Furniture Group ). 9,212,170,000 9,015,170, ,799, ,000,000 The consideration for the acquisition of Smooth Day Group of HK$9,212,170,000 was satisfied as to HK$9,015,170,000 by the allotment and issue of 675,799,850 Consideration Shares at the issue price of HK$13.34 each which were allotted, issued and credited as fully paid up the acquisition of the Property Group and the remaining HK$197,000,000 by cash for the acquisition of the Furniture Business. 132 Annual Report 2008

135 38. (i) 38. ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2008 (continued) (i) Acquisition of Smooth Day Group Limited ( Smooth Day ) (continued) Acquisition of the Property Group Since the main tangible asset of the Property Group is property development sites in the PRC, the acquisition of the Property Group has been accounted for as the acquisition of assets. The net assets acquired in the transaction are as follows: HK$ 000 Net assets acquired: Property, plant and equipment 31,223 a Prepaid lease payments (Note a) 473,180 a Inventory of properties (Note a) 3,629,526 Trade receivables, other receivables and 5,385,225 deposits paid Amounts due from fellow subsidiaries 294 Cash and bank balances 321,703 Trade and other payables (27,222) Amounts due to fellow subsidiaries (100,665) Amount due to a minority shareholder of a subsidiary (308,912) Net assets acquired 9,404,352 Minority interests (389,182) 9,015,170 Total consideration satisfied by: b Shares issued (Note b) 9,015,170 Net cash inflow arising on acquisition: Cash and bank balances acquired 321,703 Notes: (a) (a) The total fair value of the above-mentioned prepaid lease payments and inventory of properties acquired at acquisition date have been arrived at on the basis of a valuation carried out by CB Richard Ellis Limited, independent qualified professional valuers not connected with the Group after certain adjustments for the transaction. CB Richard Ellis Limited has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. The total fair value of each site is then allocated to the prepaid lease payments and inventory of properties based on the gross floor areas of the respective portion of each site. (b) ,799, (b) As the consideration for the acquisition of Smooth Day Group, 675,799,850 ordinary shares of the Company with par value of HK$0.1 each and issue price of HK$13.34 each were issued. Annual Report

136 38. (i) 37,036, ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2008 (continued) (i) Acquisition of Smooth Day Group Limited ( Smooth Day ) (continued) Acquisition of the Furniture Group This acquisition has been accounted for using the purchase method. The amount of goodwill arising as a result of the acquisition was HK$37,036,000. The net assets acquired in the transaction, and the goodwill arising, are as follows: a Acquiree s Fair value carrying amount adjustments before combination (Note a) Fair value HK$ 000 HK$ 000 HK$ 000 Net assets acquired: Property, plant and equipment 14,181 14,181 Prepaid lease payments 27,125 36,198 63,323 Other inventories 47,428 47,428 Trade and other receivables 86,683 86,683 Cash and bank balances 27,727 27,727 Trade and other payables (58,882) (58,882) Amounts due to fellow subsidiaries (9,980) (9,980) Taxation payable (1,466) (1,466) Deferred taxation liabilities (9,050) (9,050) 132,816 27, , Goodwill arising on acquisition (Note 16) 37, ,000 Total consideration satisfied by: Cash consideration paid 197,000 Net cash outflow arising on acquisition: Cash consideration paid (197,000) Cash and bank balances acquired 27,727 (169,273 ) 134 Annual Report 2008

137 38. (i) 5,063, ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2008 (continued) (i) Acquisition of Smooth Day Group Limited ( Smooth Day ) (continued) Acquisition of the Furniture Group (continued) The post-acquisition result of the Furniture Group accounted for a profit of HK$5,063,000 between the date of acquisition and the balance sheet date. In the opinion of the directors, the goodwill arising from the acquisition represents the synergy in areas such as resources sharing, cost control and quality assurance of its projects. Note: (a) (a) The total fair value of the above-mentioned prepaid lease payments acquired at acquisition date have been arrived at on the basis of a valuation carried out by CB Richard Ellis Limited, independent qualified professional valuers not connected with the Group. CB Richard Ellis Limited has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. 23,200,000 23,955,000 (ii) Bridge Win Investments Limited (ii) Acquisition of Bridge Win Investments Limited ( Bridge Win ) Bridge Win On 28 November 2008, the Company acquired 100% of the entire issued 1 Central Investments share capital of Bridge Win for a consideration of HK$1 from Central New Limited Investments Limited, a wholly-owned subsidiary of CRH. Bridge Win is an Bridge WinBridge Win investment holding company and its principal asset is its indirect 80% equity interests in Beijing American Club Co., Ltd., which is currently inactive and Beijing American Club Co., Ltd. 80% its principal activity in the future will run the business of entertainment. Beijing American Club Co., Ltd. This acquisition has been accounted for using the purchase method. The 61,000 amount of discount arising as a result of acquisition was HK$61,000. Annual Report

138 38. (ii) Bridge Win Investments Limited Bridge Win 38. ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2008 (continued) (ii) Acquisition of Bridge Win Investments Limited ( Bridge Win ) (continued) The net assets acquired in the transaction, and the discount on acquisition arising, are as follows: Acquiree s carrying amounts and fair value before combination HK$ 000 Net assets acquired: Property, plant and equipment 373 Other inventories 275 Trade and other receivables 1,445 Cash and bank balances 359 Trade and other payables (2,391) Discount on acquisition credited to capital reserve (61 ) 61 Net cash inflow arising on acquisition: Cash and bank balances acquired 359 Bridge Win 357,000 The post-acquisition result of the Bridge Win accounted for a loss of HK$357,000 between the date of acquisition and the balance sheet date. Bridge Win 9,312,060,000 2,080,320,000 If the acquisition of the Furniture Group of Smooth Day and Bridge Win had been completed on 1 January 2008, total group revenue for the period would have been HK$9,312,060,000, and profit for the year would have been by HK$2,080,320,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2008, nor is it intended to be a projection of future results. 136 Annual Report 2008

139 38. (i) 170,000,000 Toprun Investments Limited Toprun Toprun 50,423, ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2007 (i) On 30 July 2007, the Group acquired 100% of the issued share capital of Toprun Investments Limited ( Toprun ) from its immediate holding company for a cash consideration of HK$170,000,000. This acquisition has been accounted for using the purchase method. The major activities of Toprun and its subsidiaries are the decoration and construction business in Hong Kong and the PRC. The amount of goodwill arising as a result of this acquisition was HK$50,423,000. The net assets acquired in the transaction, and the goodwill arising, are as follows: Acquiree s carrying amounts and fair value before combination HK$ 000 Net assets acquired: Property, plant and equipment 5,278 Deferred taxation asset 1,280 Other inventories 43 Trade receivables, other receivables 152,884 and deposits paid Amounts due from customers for contract works 74,881 Tax prepaid 86 Cash and bank balances 83,260 Trade and other payables (122,905) Amounts due to customers for contract works (36,822) Amounts due to related companies (408) Bank borrowings (38,000) Net assets acquired 119,577 Goodwill arising on acquisition 50, ,000 Satisfied by: Cash consideration 170,000 Net cash (outflow) inflow arising on acquisition: Cash consideration (170,000) Cash and bank balances acquired 83,260 (86,740 ) Annual Report

140 38. (i) 353,000,000 19,000, ,000,000 14,000, ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2007 (continued) (i) (continued) In the opinion of the directors, the goodwill arising from the acquisition represents the synergy in areas such as resources sharing, cost control and quality assurance of its projects. If the acquisition had been completed on 1 January 2007, total consolidated revenue for the year would have been increased by HK$353 million, and profit for the year would have been HK$19 million. The pro forma information is for illustrative purposes only and is not necessarily an indication of turnover and results of the Group that actually would have been achieved had the acquisition been completed on 1 January 2007, nor is it intended to be a projection of future results. The turnover and profit contributed by the subsidiaries acquired to the Group from the acquisition date was HK$361 million and HK$14 million respectively. (ii) 462,859,000 (ii) On 19 September 2007, the Group acquired 100% of the issued share capital of ( ) for a total consideration of RMB462,859,000. The major activity of is property development in Chongqing, PRC, and accordingly, the transaction has been accounted for as the acquisition of assets. HK$ 000 Net assets acquired: Property, plant and equipment 698 Other inventories 58 Progress payments for the purchase of land use rights 714,805 Cash and bank balances 2,877 Trade and other payables (243,128) Net assets acquired 475,310 Satisfied by: Cash consideration 321,275 Deferred consideration (included in trade and other payables) 154, ,310 Net cash (outflow) inflow arising on acquisition: Cash consideration paid (321,275) Cash and bank balances acquired 2,877 (318,398 ) 138 Annual Report 2008

141 38. (iii) 269,090, ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2007 (continued) (iii) On 28 December 2007, the Group acquired 100% of the issued share capital of Speedy Gain from its immediate holding company by issuing a total of 269,090,909 shares of the Company to be allotted and issued to the vendor. The major activities of Speedy Gain and its subsidiaries are property development and investment in Hangzhou, Wuxi and Dalian, PRC, and accordingly, the transaction has been accounted for as the acquisition of assets. A wholly owned subsidiary of Speedy Gain, Fortune Achieve Investments Limited, holds 100% direct interest in China Resources (Dalian) Real Estate Co., Ltd ( CR Dalian ). CR Dalian is a wholly owned foreign enterprise ( WOFE ) incorporated in the Chinese Mainland and engaged in the property development activities. The main tangible asset of the Company is a property development site in Dalian, the Chinese Mainland. Vikwood Investments Limited 60% Another wholly owned subsidiary of Speedy Gain, Vikwood Investments Limited, holds 60% indirect interest in China Resources Sun Hung Kai Properties (Hangzhou) Co., Ltd ( CR Hangzhou ). CR Hangzhou is a WOFE incorporated in the Chinese Mainland and engaged in the property development activities. The main tangible asset of the Company is a property development site in Hangzhou, the Chinese Mainland. Complete Power Holdings Limited 60% Another wholly owned subsidiary of Speedy Gain, Complete Power Holdings Limited, holds 60% indirect interest in China Resources Sun Hung Kai Properties (Wuxi) Limited ( CR Wuxi ). CR Wuxi is a WOFE incorporated in the Chinese Mainland and engaged in the property development activities. The main tangible asset of the Company is a property development site in Wuxi, the Chinese Mainland. Annual Report

142 38. (iii) 38. ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2007 (continued) (iii) (continued) Fair value HK$ 000 (restated) Net assets acquired: a Property, plant and equipment (Note a) 106,663 a Prepaid lease payments (Note a) 2,362,950 a Inventory of properties (Note a) 4,680,580 Trade receivables, other receivables and deposits paid 8,260 Cash and bank balances 384,579 Trade and other payables (71,622) Deposits received from pre-sales of properties (475,432) Amount due to a minority shareholder (503,084) Amounts due to related companies (100,148) Bank borrowings (240,467) Net assets acquired 6,152,279 Minority interest (1,623,479 ) Net assets acquired 4,528,800 Satisfied by: c Shares issued (Note c) 4,528,800 Net cash inflow arising on acquisition: Cash and bank balances acquired 384, Annual Report 2008

143 38. (iii) 38. ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2007 (continued) (iii) (continued) Notes: (a) (a) The total fair value of the Group s properties under development for investment purpose (included in property, plant and equipment), prepaid lease payments and inventory of properties acquired at acquisition date have been arrived at on the basis of a valuation carried out on that date by CB Richard Ellis Limited, independent qualified professional valuers not connected with the Group after certain adjustments for the transaction. CB Richard Ellis Limited has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. The total fair value of each site is then allocated to the properties under development for investments purpose, prepaid lease payments and inventory of properties based on the gross floor areas of the respective portion of each site. (b) (b) During the year, the Group has completed an exercise of assessing the appropriate classification of the assets and liabilities acquired in respect of the acquisition of 100% equity interest of Speedy Gain Investments Limited ( Speedy Gain ) in December The acquisition of Speedy Gain was accounted for as the acquisition of assets in last year s financial statements. 2,038,000, ,000, ,000,000 1,888,000,000 Upon the completion of the above review, the directors of the Company made certain reclassification entries which increased the initial carrying amounts of prepaid lease payments, inventory of properties and minority interests by HK$2,038 million, HK$144 million and HK$294 million, respectively and decreased the initial carrying amount of the construction in progress (included in property, plant and equipment) by HK$1,888 million. The comparative figures in the consolidated balance sheet have been restated accordingly. (c) 269,090, (c) As the consideration for the acquisition of Speedy Gain, 269,090,909 ordinary shares of the Company with par value of HK$0.1 each were issued (note 35). The fair value of the assets acquired by the Company, determined with reference to the market evidence of transaction prices for similar properties at the date of the acquisition MAJOR NON-CASH TRANSACTIONS Part of the considerations for the purchases of subsidiaries that occurred during the year comprised issuance of shares of the Company. Further details of the acquisition are set out in note 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. In the opinion of directors, the fair value of the financial guarantee contracts is not significant. Annual Report

144 COMMITMENTS HK$ 000 HK$ 000 Capital and development expenditure in respect of the acquisition of construction in progress and inventory of properties: Contracted for but not provided in the consolidated financial statements 1,625, ,856 Other commitment in respect of the acquisition of land use rights 4,975,680 6,450, ,097,000 3,965, OPERATING LEASE COMMITMENT The Group as lessee Minimum lease payments paid under operating leases during the year in respect of office premises was HK$9,097,000 (2007: HK$3,965,000). At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: HK$ 000 HK$ 000 Within one year 12,751 6,926 In the second to fifth year inclusive 18,962 9,134 Over five years 2,681 3,519 34,394 19,579 Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases are negotiated mainly for an average term of one year to five years and rentals are fixed for an average of two years. 142 Annual Report 2008

145 ,683, ,957,000 76,389,000 64,511, OPERATING LEASE COMMITMENT (continued) The Group as lessor Property rental income earned during the year was HK$811,683,000 (2007: HK$738,957,000). Included above, there was contingent rental income of HK$76,389,000 (2007: HK$64,511,000). The contingent rental for certain properties was determined by a certain percentage of turnover. The properties held by the Group for rental purpose have committed tenants for periods which ranged from one to seven years. At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: HK$ 000 HK$ 000 Within one year 500, ,508 In the second to fifth year inclusive 514, ,860 After five years 999, ,270 2,015,263 1,553, PLEDGE OF ASSETS At the balance sheet date, 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 8,208,013 6,509,308 Prepaid lease payments 439,196 Property, plant and equipment 308,443 Inventory of properties 2,400,921 11,356,573 6,509,308 Annual Report

146 44. (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$1,000 per employee per month. The assets of MPF Scheme are held separately from those of the group companies in an independently administered fund. During the year, the total amounts contributed by the Group to the scheme in Hong Kong and charged to the consolidated income statement represent contributions payable to the scheme by the Group at rates specified in the rules of the scheme are as follows: HK$ 000 HK$ 000 Amount contributed and charged to the consolidated income statement 1, (b) (b) Chinese Mainland The employees of the Group in the Chinese Mainland are members of statemanaged 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 the consolidated income statement in respect of the above-mentioned schemes in the Chinese Mainland during each of the years are as follows: HK$ 000 HK$ 000 Amount contributed and charged to the consolidated income statement 41,239 23, Annual Report 2008

147 45. (a) 45. 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 company and fellow subsidiaries during the year: Rental and Construction management fees received cost received Relationship HK$ 000 HK$ 000 HK$ 000 HK$ 000 China Resources (Holdings) Limited Holding company 10,665 3,449 China Resources Construction Corporation Fellow subsidiary 172,237 China Resources Power Holdings Company Limited Fellow Subsidiary 4,420 3,895 China Resources Textiles Holdings Limited Fellow Subsidiary 3,970 3,391 China Resources Vanguard Company Limited Fellow Subsidiary 7,246 6,709 Shenzhen Kapok Hotel Fellow Subsidiary 6,106 5,606 China Resources Breweries Limited Fellow Subsidiary 3,078 3,522 Gain Ahead Group Limited 38 During the year ended 31 December 2008, the Group has acquired certain subsidiaries from its fellow subsidiary, Gain Ahead Group Limited, through cash payments and issue of shares respectively as consideration. As a result of the acquisitions, the Group has acquired the Furniture Group and obtained the property interest of pieces of land in Beijing, Wuhan, Chongqing, Shenyang and Dalian, the Chinese Mainland (see note 38). 38 During the year ended 31 December 2007, the Group has acquired certain subsidiaries from its immediate holding company, CRH, through cash payments and issue of shares respectively as consideration. As a result of the acquisitions, the Group has acquired the construction and decoration business and obtained the property interest of pieces of land in Wuxi, Hangzhou and Dalin, the Chinese Mainland (see note 38). Annual Report

148 45. (b) 45. 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 6,120 7,150 Post-employment benefits Share-based payment ,755 8,320 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 statedcontrolled 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 statecontrolled entities. 146 Annual Report 2008

149 46. (a) 46. SUBSIDIARIES AND ASSOCIATES (a) Particulars of the Company s principal subsidiaries as at 31 December 2008 and 2007 are set out as follows: Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries , % 100% Strong Foundation Developments Limited US$76,000 Investment holding ( Strong Foundation ) Boom Go Group Limited Boom Go % 100% US$11 Investment holding Best Hope Group Limited Best Hope 1 100% 100% US$1 Investment holding Big Leap Group Limited Big Leap 1 100% 100% US$1 Investment holding Direct Win Group Limited Direct Win 1 100% 100% US$1 Investment holding Bright Choice Group Limited 1 100% 100% Bright Choice US$1 Investment holding King Role Limited King Role 3 100% 100% US$3 Investment holding Cosmart Resources Limited Cosmart 2 100% 100% US$2 Investment holding Kennex Enterprises Limited Kennex 1 100% 100% US$1 Investment holding Charmlink Enterprises Limited Charmlink 1 100% 100% US$1 Investment holding Annual Report

150 SUBSIDIARIES AND ASSOCIATES (continued) Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries Megapower Resources Limited Megapower 1 100% 100% US$1 Investment holding d 12,000, % 100% Beijing China Resources Building Company US$12,000,000 Properties investment Limited (note d) d 370, % 100% Beijing China Resources Property Management US$370,000 Property management Company Limited (note d) 96.07% 95.62% a 1,300,000,000 Investment holding and China Resources Land (Beijing) Co., Ltd. (note a) RMB1,300,000,000 property development 96.07% 95.62% b 5,000,000 Property management China Resources Land (Beijing) Property RMB5,000,000 Management Co., Ltd. (note b) 96.07% 95.62% b 264,329,360 Property development Beijing China Resources Jingtong Property RMB264,329,360 Development Company Limited (note b) 96.07% 95.62% b 180,000,000 Property development Beijing China Resources Shuguang Real Estate RMB180,000,000 Development Co., Ltd. (note b) b 10,000, % 95.62% Beijing China Resources Jian Xiang Real Estate US$10,000,000 Property development Development Co., Ltd. (note b) b 96.07% 95.62% Beijing Huazhao Electrical 2,000,000 Electrical engineering Equipment Co., Ltd. (note b) RMB2,000, Annual Report 2008

151 SUBSIDIARIES AND ASSOCIATES (continued) Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries b 96.07% 95.62% Beijing China Resources Property Agent 500,000 Property agency Co., Ltd. (note b) RMB500, % 95.62% b 1,000,000,000 Property development Beijing China Resources Xin Zhen Property RMB1,000,000,000 Co., Ltd. (note b) 76.86% % c 28,000,000 Property development Beijing Zhongchengxin Property Development RMB28,000,000 Co., Ltd. (note c) d 40,000, % 100% China Resources Shanghai Company US$40,000,000 Properties investment Limited (note d) d 21,000, % 100% China Resources Land (Shanghai) US$21,000,000 Property development Limited (note d) Strong Foundation Land 99.8% 99.8% (Shanghai) Limited b (note b) 900,000,000 Property management RMB900,000,000 China Resources Land (Shanghai) 150, % 100% Management Co., Ltd. d (note d) US$150,000 Property management d 400,000, % 100% China Resources (Shenzhen) Company HK$400,000,000 Properties investment Limited (note d) Annual Report

152 SUBSIDIARIES AND ASSOCIATES (continued) Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries d 100% 100% Shenzhen China Resources Property 5,000,000 Property management Management Company Limited (note d) RMB5,000, ,000, % 100% d HK$756,000,000 Property development 64,000, % 100% d US$64,000,000 Property development d 42,000, % 100% China Resources Land( Chengdu) Limited US$42,000,000 Property development (note d) China Resources Land (Mian Yang) Ltd. 96,000, % US$96,000,000 Property management b 100% 100% (note b) 1,000,000 Property management RMB1,000,000 China Resources Land (Wuhan) 62,240, % 100% Co., Ltd. d (note d) HK$62,240,000 Property development China Resources Land (Wuhan) 500, % 100% Management Co., Ltd. d (note d) US$500,000 Property management China Resources Land (Hefei) Co., Ltd. 9,600, % 100% d (note d) US$9,600,000 Property development China Resources Land (Hefei) 100, % 100% Management Co., Ltd. d US$100,000 Property management (note d) 150 Annual Report 2008

153 SUBSIDIARIES AND ASSOCIATES (continued) Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries China Resources Land (Ningbo) 385,000, % 100% Co., Ltd. d (note d) HK$385,000,000 Property development China Resources Land (Hunan) 240,000, % 100% Co., Ltd. d (note d) HK$240,000,000 Property development China Resources Land (Ningbo) 74,000, % 100% Development Co. Ltd. HK$74,000,000 Property development d 50,000, % 100% China Resources Land (Suzhou) Ltd. (note d) US$50,000,000 Property development China Resources Land (Xiamen) 1,454,792, % 100% Ltd. d (note d) HK$1,454,792,739 Property development China Resources Land (Xiamen) 770,000, % 100% Developments Ltd. d (note d) HK$770,000,000 Property development b 20,000, % 100% (note b) RMB20,000,000 Property development China Resources Land (Hunan) 700,000, % 100% Developments Ltd. d HK$700,000,000 Property development (note d) China Resources Land (Hefei) 700,000, % 100% Industrial Ltd. d (note d) HK$700,000,000 Property development d 85,000, % 100% China Resources (Dalian) Real Estate Co., Ltd. HK$85,000,000 Property development (note d) d 385,000, % 100% China Resources (Dalian) Realty Co. Ltd. HK$385,000,000 Property development (note d) Annual Report

154 SUBSIDIARIES AND ASSOCIATES (continued) Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries ,000,000 60% 60% d HK$490,000,000 Property development China Resources Sun Hung Kai Properties (Hangzhou) Co. Ltd. (note d) 71,990,000 60% 60% d US$71,990,000 Property development China Resources Sun Hung Kai Properties (Wuxi) Limited (note d) 3,000,000 60% 60% b US$3,000,000 Property development China Resources Sun Hung Kai Properties Management (Wuxi) Limited (note b) 2 100% 100% Speedy Gain Investments Limited ( Speedy Gain ) US$2 Investment holding 1 100% 100% Fortune Achieve Investments Limited US$1 Investment holding ( Fortune Achieve ) Complete Power Holdings Limited 1 100% 100% Complete Power US$1 Investment holding 500,000,000 60% 60% Brilliant Palace Limited HK$500,000,000 Investment holding ( Brilliant Palace ) Vikwood Investment Limited 1 100% 100% Vikwood US$1 Investment holding % 60% Wellview Investment Limited ( Wellview ) US$100 Investment holding 152 Annual Report 2008

155 SUBSIDIARIES AND ASSOCIATES (continued) Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries Toprun Investments Limited 2 100% 100% Toprun US$2 Investment holding Upper Able Investments Limited 2 100% 100% Upper Able US$2 Investment holding Uconia LimitedUconia e (note e) 10, % 100% HK$10,000 Decoration service Shanghai Uconia Building Decoration 2,000, % 100% Co., Ltd. d (note d) US$2,000,000 Decoration service Beijing Uconia Decoration Engineering 2,000, % 100% Co., Ltd. d (note d) US$2,000,000 Decoration service 500, % 100% b (note b) RMB500,000 Decoration service b 50,000, % 100% China Resources Construction Corporation RMB50,000,000 Construction (note b) 50, % Smooth Day Group Limited ( Smooth Day ) US$50,000 Investment holding Grace Truth Holdings Limited 50, % Grace Truth US$50,000 Investment holding 400,000,000 55% Richgem Investment Limited ( Richgem ) HK$400,000,000 Investment holding a (note a) 570,000,000 55% HK$570,000,000 Property development Annual Report

156 SUBSIDIARIES AND ASSOCIATES (continued) Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries , % Winning Profit Investments Limited US$50,000 Investment holding 990,000, % a (note a) HK$990,000,000 Property development 1,150,000, % b (note b) RMB1,150,000,000 Property development 1,150,000, % b (note b) RMB1,150,000,000 Property development 50, % Upadvance Investments Limited US$50,000 Investment holding ( Upadvance ) a (note a) 350,000, % RMB350,000,000 Property development 50, % Rising Bright Investments Limited US$50,000 Investment holding ( Rising Bright ) 380,000, % a (note a) HK$380,000,000 Property development 500, % b (note b) RMB500,000 Property development 50, % Merry Crest Investments Limited US$50,000 Investment holding ( Merry Crest ) 500, % a (note a) RMB500,000 Property development 154 Annual Report 2008

157 SUBSIDIARIES AND ASSOCIATES (continued) Nominal value of issued Proportion of nominal share capital/ value of issued share capital/ Name of subsidiary registered capital registered capital held by Principal activities Company Subsidiaries Company Subsidiaries , % Zelin Investments Limited ( Zelin ) US$50,000 Investment holding e 10, % Wealthy Growth Investments Limited HK$10,000 Investment holding ( Wealthy Growth ) (note e) 199,800, % d (note d) US$199,800,000 Property development 50, % Green Grace Investments Limited US$50,000 Investment holding ( Green Grace ) 10, % e HK$10,000 Investment holding Logic Furniture (Hong Kong) Limited ( Logic Furniture ) (note e) 75,000, % a (note a) HK$75,000,000 Furniture manufacturing and trading Bridge Win Investments Limited 50, % Bridge Win US$50,000 Investment holding Linfull Investments Limited Linfull 10, % HK$10,000 Investment holding Beijing American Club Co., Limited 4,500,000 80% Beijing American US$4,500,000 Entertainment Annual Report

158 SUBSIDIARIES AND ASSOCIATES (continued) 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. (b) (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. Boom Go Best Hope Big All the subsidiaries listed above are established and operating in the Chinese Leap Direct Win Bright Choice King Mainland except for Strong Foundation, Boom Go, Best Hope, Big Leap, Role Cosmart Kennex Charmlink Direct Win, Bright Choice, King Role, Cosmart, Kennex, Charmlink, Megapower Complete Megapower, Speedy Gain, Fortune Achieve, Complete Power, Brilliant Palace, PowerVikwood Vikwood, Wellview, Toprun, Upper Able, Smooth Day, Grace Truth, Richgem, Toprun Upper Able Grace Winning Profits, Upadvance, Rising Bright, Merry Crest, Zelin, Green Grace Truth and Bridge Win which are registered in the British Virgin Islands and their Bridge Win place of operation is in Hong Kong. No debt securities have been issued by the subsidiaries. 156 Annual Report 2008

159 46. (c) 46. SUBSIDIARIES AND ASSOCIATES (continued) (c) Particulars of the Group s associates as at 31 December 2008 and 2007 are set out as follows: Nominal value of Attributable issued share capital/ interest held by Name of associate registered capital the Group Principal activities a 12,920, % 47.81% Beijing Hua Wei Center Co., Ltd. (note a) US$12,920,000 Property investment and management b 350, % 35.86% Beijing Hua Jiade Decoration Engineering US$350,000 Provision of exterior Company Limited (note b) decoration services Notes: (a) (a) The associate is a Sino-foreign equity joint venture established in the Chinese Mainland. (b) (b) The associate is a domestic enterprise established in the Chinese Mainland. All the associates are established and operating in the Chinese Mainland 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 stakeholders through the optimisation of the debt and equity balance. 33 The capital structure of the Group consists of net debt, which includes the bank borrowings disclosed in note 33, bank balances and cash, and equity attributable to equity holders of the Company, comprising issued share capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity. 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. The Group s overall strategy remains unchanged from prior year. Annual Report

160 48. (a) 48. FINANCIAL INSTRUMENTS (a) Categories of financial instruments THE GROUP HK$ 000 HK$ 000 Financial assets Loans and receivables (including cash and cash equivalents) 7,131,797 5,684,469 Available-for-sale financial assets 187, ,220 7,319,791 5,880,689 Financial liabilities Derivative financial instruments (136,924) Amortised cost (26,243,962) (18,034,133) (26,380,886 ) (18,034,133 ) (b) (b) Financial risk management objectives 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 (Department of Corporate policies. The Department of Corporate Finance and Planning of the Group Finance and Planning) 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 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 market risks or the manner in which it manages and measures. 158 Annual Report 2008

161 48. (b) 48. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives (continued) 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 and interest rate risk) credit risk and liquidity risk. 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 amount of the Group s Hong Kong dollars denominated monetary assets and monetary liabilities at the reporting date is as follows: Assets Liabilities HK$ 000 HK$ 000 HK$ 000 HK$ 000 Hong Kong dollars 465, ,546 11,180,000 8,236,676 10% 10% 10% 10% Foreign currency sensitivity The following table details the Group s sensitivity to a 10% increase and decrease in the Renminbi, the functional currency of the Company and subsidiaries operating in the PRC, against Hong Kong dollars. 10% 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. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number indicates an increase in profit for the year where the Renminbi strengthens against Hong Kong dollar. For a 10% weakening of Renminbi against Hong Kong dollar, there would be equal but opposite impact on the profit for the year HK$ 000 HK$ 000 Profit for the year 836, ,758 Annual Report

162 48. (b) FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives (continued) Market risk (continued) Interest rate risk management The Group is exposed to fair value interest rate risk in relation to fixed-rate bank balances and borrowings. The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank borrowings and other interest rate swaps (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 variable-rate bank borrowings and other interest rate swaps at the balance sheet date and assuming the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. A 100 basis point increase or 50 basis point decrease is used when reporting interest rate risk internally to key management personnel and represents management s assessment of the possible change in interest rate ,940,000 51,479, ,847,000 25,740,000 If interest rates had been 100 basis points higher and all other variables were held constant, the Group s profit for the year ended 31 December 2008 would decrease by HK$30,940,000 (2007: decrease by HK$51,479,000). If interest rates had been 50 basis points lower and all other variables were held constant, the Group s profit for the year ended 31 December 2008 would increase by HK$13,847,000 (2007: increase by HK$25,740,000). This is mainly attributable to the Group s exposure to interest rates on its variable-rate bank borrowings and other interest rate swaps. The Group s sensitivity to interest rates has increased during the current year mainly due to the addition in variable-rate debt instruments and other interest rate swap. 11,180,000, ,913,000,000 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 the borrowings amounting to HK$11,180 million issued at floating rates (see Note 33 for details). Interest rate swaps designated as cash flow hedge and fixed rate bank borrowings expose the Group to fair value interest rate risk. At 31 December 2008, bank borrowings of approximately HK$9,913 million were at fixed rates. 160 Annual Report 2008

163 48. (b) 48. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives (continued) Credit risk management As at 31 December 2008, 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 balance sheet; and 40 the amount of contingent liabilities in relation to the financial guarantees as disclosed in note 40. 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 are taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt and debt investments at each balance sheet date 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. Other than the amount due from an associate, the Group has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers. 33 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 ensure compliance with loan covenants. Details of the Group s borrowings are set out in Note 33. Annual Report

164 48. (b) 48. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives (continued) Liquidity and interest risk tables The following tables detail the Group s remaining contractual maturity for its non-derivative and 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 table includes both interest and principal cash outflows. THE GROUP Weighted average 12 5 Total Carrying effective Over undiscounted amount at interest rate 12 months or less 1-2 years 2-5 years 5 years cash flows % % HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ Non-derivative financial liabilities Non-interest bearing Trade and other payables 4,226,299 4,226,299 4,226,299 Amounts due to fellow subsidiaries 13,098 13,098 13,098 Amounts due to minority shareholders 911, , ,573 Fixed interest rate instruments Bank borrowings ,254,271 1,651,774 5,096, ,882 11,290,020 9,912,992 Variable interest rate instruments Bank borrowings , ,018 11,230,646 11,645,383 11,180,000 9,672,960 1,798,792 16,326, ,882 28,086,373 26,243,962 Derivative net settlement Interest rate swap 55, ,300 59, , , Annual Report 2008

165 48. (b) 48. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives (continued) Liquidity and interest risk tables (continued) Weighted average 12 5 Total Carrying effective Over undiscounted amount at interest rate 12 months or less 1-2 years 2-5 years 5 years cash flows % % HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ Non-derivative financial liabilities Non-interest bearing Trade and other payables 2,096,676 2,096,676 2,096,676 Amounts due to fellow subsidiaries Amount due to a minority shareholder 503, , ,084 Fixed interest rate instruments Bank borrowings 6.1% 3,107,598 3,166,505 1,494, ,083 8,082,632 7,197,272 Variable interest rate instruments Bank borrowings 3.78% 415, ,455 8,930,911 9,896,174 8,236,676 6,123,591 3,715,960 10,425, ,083 20,578,991 18,034,133 (c) (c) Fair value of financial instruments The fair value of financial assets and financial liabilities are determined as follows: the fair value of financial assets with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices; and the fair value of derivative 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 option pricing models for optional derivatives. The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values APPROVAL OF FINANCIAL STATEMENTS The financial statements set out on pages 73 to 163 were approved and authorised for issue by the Board of Directors on 27 March Annual Report

166 FIVE YEAR FINANCIAL SUMMARY Group s results HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Revenue 9,133,605 5,681,095 3,936,730 2,706,886 1,889,680 Profit before taxation 3,056,920 2,771,434 1,332, ,260 79,622 Income tax expense (965,596) (1,296,192) (480,611) (46,937) (108,676) Profit for the year 2,091,324 1,475, , ,323 (29,054 ) Attributable to: Equity holders of the Company 2,037,631 1,431, , ,512 21,361 Minority interests 53,693 44,160 (6,800) 53,811 (50,415) 2,091,324 1,475, , ,323 (29,054 ) Group s assets and liabilities HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 ( ) (restated) Goodwill 87,459 50,423 Property, plant and equipment 2,263,789 1,273, , , ,574 Prepaid lease payments 2,876,565 2,399,137 40,362 42,208 43,131 Investment properties 9,998,305 8,967,812 7,619,400 6,967, ,800 Deferred taxation assets 395, , , , ,869 Long-term investments 919, , , , ,534 Amount due from an associate 265, , , , ,149 Current assets 53,952,581 33,686,737 16,960,550 8,926,325 8,250,651 Total assets 70,758,303 47,779,057 26,739,315 17,774,703 10,374,708 Current liabilities 15,931,976 9,874,272 8,182,314 4,977,380 4,074,570 Long-term liabilities 17,030,097 12,721,736 6,157,538 3,959,538 1,813,019 Deferred taxation liabilities 1,520,162 1,276, , ,942 4,072 Derivative financial instruments 136,924 Total liabilities 34,619,159 23,872,947 15,006,141 9,444,860 5,891,661 36,139,144 23,906,110 11,733,174 8,329,843 4,483,047 Equity attributable to equity holders of the Company 33,805,135 22,129,461 11,513,357 8,106,286 3,728,074 Minority interests 2,334,009 1,776, , , ,973 36,139,144 23,906,110 11,733,174 8,329,843 4,483, Annual Report 2008

167