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2 Corporate Information Ugland House South Church Street Post Office Box 309 George Town Grand Cayman Cayman Island British West Indies Director Executive Director Song Lin (Chairman) Wang Yin (Managing director) Non-Executive Director Jiang Wei Yan Biao Liu Yan Jie Xie Sheng Xi Independent Non-Executive Director Wang Shi Ho Hin Ngai, Bosco Paul M.P. Chan Andrew Y. Yan Company Secretary Lee Yip Wah, Peter Auditors Deloitte Touche Tohmatsu Share Registrars Standard Registrars 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 Island British West Indies Head Office Room 4301, China Resources Building 26 Harbour Road, Wanchai, Hong Kong

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 Financial Statements Five Year Financial Summary

4 Group Structure CHINA RESOURCES (HOLDINGS) COMPANY LIMITED 67.07% China Resources Land Limited 100% 100% 100% Strong Foundation Developments Ltd. King Role Limited Boom Go Group Limited 100% 100% 70.4% 21.53% China Resources Land (Shanghai) Ltd. China Resources Land (Chengdu) Ltd. China Resources Land (Beijing) Company Ltd. Beijing China Resources Building Co. Ltd. China Resources Land (Chengdu) Development Ltd. China Resources Land (Chengdu) Industry Ltd. China Resources (Shanghai) Co. Ltd. China Resources Land (Wuhan) Ltd. China Resources Land (Hefei) Ltd. China Resources (Shenzhen) Ltd. China Resources Land (Hunan) Ltd. China Resources Land (Suzhou) Ltd. Beijing China Resources Property Management Co. Ltd. China Resources Land (Ningbo) Ltd. Strong Foundation Land (Shanghai) Ltd. Shenzhen China Resources Property Management Co. Ltd. 2

5 Schedule of Principal Properties Properties held for Attributable Beneficial Interest of Approximate Total Gross Investment or Own Use China Resources Land Limited 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 Mall 133,281 C Lease Office 40,990 O Car Park 55,667 CP No Shennan East Road and No 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 3

6 Schedule of Principal Properties Properties held for Attributable Beneficial Interest of Approximate Total Gross Investment or Own Use China Resources Land Limited Floor Area (m 2 ) Type Lease Term 91.96% 36,184 C Xidan Cultural Centre Medium Term Lease Xidan North Avenue, Xicheng District, Beijing 45.95% 54,214 Huawei Centre R/C Medium Term Lease Xidan North Avenue, Xicheng District, Beijing 15.20% 70,058 Huanan Building C/O Medium Term Lease Xidan North Avenue, Xicheng District, Beijing 91.96% 7,243 Hua Yuan Building O/CP Medium Term 36 Lease No. 36, Nanlishi Road, Xicheng District, Beijing 91.96% 14,105 C Grand Constellation Shopping Mall Medium Term Lease Piku Alley, Xicheng District, Beijing 91.96% 10,685 C U-Space Shopping Mall Medium Term Lease No.1 Shuangjing, Chaoyang District, Beijing 91.96% 17,952 C Jing Tong Shops Medium Term Lease Chao Yang Road, Chaoyang District, Beijing 13.08% 2.31% Note: China Resources Land Limited has 13.08% and 2.31% interests in Huanan Building through Strong Foundation Developments Ltd. and China Resources Land (Beijing) Company Ltd., respectively. C Commercial CP Car Park O Office R Residential 4

7 Schedule of Principal Properties Properties held for Attributable Beneficial Interest of Approximate Total Gross Investment or Own Use China Resources Land Limited Floor Area (m 2 ) Type Lease Term 91.96% 18,069 Guan Hua Building and O/CP Medium Term Affiliated Facilities Lease 118 No. 118 Xizhimennei Avenue, Xicheng District, Beijing 91.96% 7,815 C Majestic Garden Club Medium Term Lease Jian Xiang Qiao, Chaoyang District, Beijing % 4,155 Building 22, Guanyingyuan R/C Medium Term Lease Xinjiekou South Avenue, Xicheng District, Beijing 91.96% 3,926 C Jin Hui Garden Medium Term Lease Daxing District, Beijing 91.96% 7,489 C Phoenix City Commercial Street Medium Term Lease San Yuan Qiao, Chaoyang District, Beijing Note: 193, ,0006, ,866 square metres of the Shenzhen City Crossing Phase 2 under development, 150,000 square metres of commercial of Oak Bay in Beijing and 6,752 square metres of the property for own use were not included. C Commercial CP Car Park O Office R Residential 5

8 Schedule of Principal Properties Approximate Attributable Beneficial Approximate Unsold Estimated Properties under Interest of China Total Site Gross Floor Date of State of Development Resources Land Limited Area (m 2 ) Area (m 2 ) Type Completion Completion 91.96% 106,461 2, La Firenze Phase 1 R Dec/04 Completed Daxing District, Beijing 91.96% 270,700 12, La Firenze Phase 2 R Jul/04 Completed Daxing District, Beijing % 115,158 11, Fortune Island (Daxing Plot 24) R Jun/07 Construction in Progress Daxing District, Beijing 91.96% 47,900 12, Phoenix City Phase 2 R Jul/05 Completed San Yuan Qiao, Chaoyang District, Beijing 91.96% na 18, Phoenix City Phase 2 Car Park CP Jul/05 Completed San Yuan Qiao, Chaoyang District, Beijing C Commercial CP Car Park O Office R Residential La Firenze Phoenix City Phase 2 6

9 Schedule of Principal Properties Approximate Attributable Beneficial Approximate Unsold Estimated Properties under Interest of China Total Site Gross Floor Date of State of Development Resources Land Limited Area (m 2 ) Area (m 2 ) Type Completion Completion 91.96% 58,900 79, Phoenix City Phase 3 R Dec/07 Construction in Progress San Yuan Qiao, Chaoyang District, Beijing 91.96% na 21, Phoenix City Phase 3 Car Park CP Dec/07 Construction in Progress San Yuan Qiao, Chaoyang District, Beijing 91.96% 50, , Phoenix Plaza O/C Dec/09 Construction in Progress San Yuan Qiao, Chaoyang District, Beijing 91.96% 10,668 1, Top Box O/R Oct/04 Completed Jian Xiang Qiao, Chaoyang District, Beijing C Commercial CP Car Park O Office R Residential Phoenix City Phase 3 Phoenix Plaza 7

10 Schedule of Principal Properties Approximate Attributable Beneficial Approximate Unsold Estimated Properties under Interest of China Total Site Gross Floor Date of State of Development Resources Land Limited Area (m 2 ) Area (m 2 ) Type Completion Completion 91.96% na 7, Top Box Car Park CP Oct/04 Completed Jian Xiang Qiao, Chaoyang District, Beijing 91.96% 14,860 91, Majestic Garden Phase 3 O/C Dec/10 Planning in Progress Jian Xiang Qiao, Chaoyang District, Beijing 91.96% 11,663 5, U-Space O/R Jun/04 Completed No.1 Shuangjing, Chaoyang District, Beijing 91.96% na 1, U-Space Car Park CP Jun/04 Completed No.1 Shuangjing, Chaoyang District, Beijing 91.96% 58, , Guanganmen Project R/C Dec/09 Planning 305 in Progress No. 305 Guanganmen Wai Avenue, Xuanwu District, Beijing C Commercial CP Car Park O Office R Residential 8

11 主要物業概要 Schedule of Principal Properties 概約尚未出售 華潤置地 概約 建築面積 有限公司 總地盤面積 平方米 估計 應佔實際權益 平方米 Approximate 落成日期 發展中物業 Attributable Beneficial Approximate Unsold Estimated 落成情況 Properties under Interest of China Total Site Gross Floor 類別 Date of State of Development Resources Land Limited Area (m 2 ) Area (m 2 ) Type Completion Completion 置地星座停車場 91.96% na 3,979 停 05 年 1 月 已完工 Grand Constellation Car Park CP Jan/05 Completed 北京市西城區皮庫胡同 Piku Alley, Xicheng District, Beijing 橡樹灣 95.90% 287, ,269 住 09 年 12 月 興建中 Oak Bay R Dec/09 Construction 北京市海淀區清河 in Progress Qinghe, Haidian District, Beijing 商 - 商業 停 - 停車場 辦 - 辦公室 住 - 住宅 C Commercial CP Car Park O Office R Residential 橡樹灣 Oak Bay 二零零六年度年報 9

12 Schedule of Principal Properties Approximate Attributable Beneficial Approximate Unsold Estimated Properties under Interest of China Total Site Gross Floor Date of State of Development Resources Land Limited Area (m 2 ) Area (m 2 ) Type Completion Completion 100% 26,569 49, The Bund Side Phase 1 R/C Dec/08 Construction in Progress Huangpu District, Puxi, Shanghai 100% na 13, The Bund Side Phase 1 Car Park CP Dec/08 Construction in Progress Huangpu District, Puxi, Shanghai 100% 32, , The Bund Side Phase 2 R/C Dec/09 Planning in Progress Huangpu District, Puxi, Shanghai 100% na 17, The Bund Side Phase 2 Car Park CP Dec/09 Planning in Progress Huangpu District, Puxi, Shanghai 99.60% 144, , Oak Bay R/C Dec/11 Planning 1088 in Progress No. 1088, Zhenghe Road, Shanghai C Commercial CP Car Park O Office R Residential The Bund Side 10

13 Schedule of Principal Properties Approximate Attributable Beneficial Approximate Unsold Estimated Properties under Interest of China Resources Total Site Gross Floor Date of State of Development Land Limited Area (m 2 ) Area (m 2 ) Type Completion Completion 100% 14, , City Crossing Phase 2 R Jun/08 Construction in Progress Baoan Nan Road, Shenzhen 100% 80,015 5, Chengdu Jade City Phase 2 R/C Jun/07 Construction in Progress Jinjiang District, Chengdu 100% na 24, Chengdu Jade City Phase 2 Car Park CP Jun/07 Construction in Progress Jinjiang District, Chengdu 100% 73, , Chengdu Jade City Phase 3 R/C Jun/08 Construction in Progress Jinjiang District, Chengdu 100% na 21, Chengdu Jade City Phase 3 Car Park CP Jun/08 Construction in Progress Jinjiang District, Chengdu 100% 75, , Chengdu Jade City Phase 4 R/C Dec/08 Planning in Progress Jinjiang District, Chengdu 100% na 62, Chengdu Jade City Phase 4 Car Park CP Dec/08 Planning in Progress Jinjiang District, Chengdu C Commercial CP Car Park O Office R Residential 11

14 Schedule of Principal Properties Approximate Attributable Beneficial Approximate Unsold Estimated Properties under Interest of China Total Site Gross Floor Date of State of Development Resources Land Limited Area (m 2 ) Area (m 2 ) Type Completion Completion 100% 106, , Chengdu Jade City Later Phases R/C Dec/09 Planning in Progress Jinjiang District, Chengdu 100% na 73, Chengdu Jade City Later Phases CP Dec/09 Planning Car Park in Progress Jinjiang District, Chengdu 100% 157, , Chengdu Phoenix City R Dec/10 Planning in Progress South Third Ring Road, Chengdu City % 559,880 2,009, Chengdu Twenty-four City R Dec/16 Planning in Progress East Second Ring Road, Chengdu City C Commercial CP Car Park O Office R Residential Chengdu Jade City 12

15 Schedule of Principal Properties Approximate Attributable Beneficial Approximate Unsold Estimated Properties under Interest of China Total Site Gross Floor Date of State of Development Resources Land Limited Area (m 2 ) Area (m2) Type Completion Completion 100% 63,563 66, Wuhan Phoenix City R/C Dec/07 Construction in Progress Ji Yu Qiao, Wucheng District, Wuhan 100% na 8, Wuhan Phoenix City Car Park CP Dec/07 Construction in Progress Ji Yu Qiao, Wucheng District, Wuhan C Commercial CP Car Park O Office R Residential Wuhan Phoenix City 13

16 Schedule of Principal Properties Approximate Attributable Beneficial Approximate Unsold Estimated Properties under Interest of China Total Site Gross Floor Date of State of Development Resources Land Limited Area (m 2 ) Area (m2) Type Completion Completion 100% 144, , Hefei French Annecy R/C Jun/08 Construction in Progress Shu Shan, Gaoxin District, Hefei 100% na 28, Hefei French Annecy Car Park CP Jun/08 Construction in Progress Shu Shan, Gaoxin District, Hefei 100% 96,564 59, Suzhou Pingjiang Project R Dec/10 Planning in Progress Pingjiang District, Suzhou 100% 401,777 1,264, Xing Sha Project R Dec/19 Planning in Progress Changsha town, Changsha 100% 305,601 88, Ningbo Dongqianhu Project R Jun/09 Planning in Progress Dongqianhu District, Ningbo C Commercial CP Car Park O Office R Residential Hefei French Annecy 14

17 Schedule of Principal Properties Approximate Unsold Properties held for Attributable Beneficial Interest of Gross Floor Resettlement/Sales China Resources Land Limited Area (m 2 ) Type Lease Term 91.96% 9,644 Jing Tong Car Park CP Medium Term Lease Chao Yang Road, Chaoyang District, Beijing 45.98% 17,000 Woodland Villa R Medium Term Lease Mapo Village, Shunyi County, Beijing 91.96% 7,971 Xi Luo Yuan R/C Medium Term Lease Fengtai District, Beijing 91.96% 6,591 Dongguanying Western Area R Medium Term Lease Xinjiekou South Avenue, Xicheng District, Beijing 91.96% 9,772 Huilongguan R/C Medium Term Lease Changping District, Beijing % 7,773 Dong Sheng Yuan Phase 2 R/C Medium Term Lease Haidian District, Beijing 91.96% 6,945 Daxing Residential R Medium Term Lease Daxing District, Beijing C Commercial CP Car Park O Office R Residential 15

18 Schedule of Principal Properties Approximate Unsold Properties held for Attributable Beneficial Interest of Gross Floor Resettlement/Sales China Resources Land Limited Area (m 2 ) Type Lease Term 91.96% 6,335 Majestic Garden Phase 1 R/C Medium Term Lease Jian Xiang Qiao, Chaoyang District, Beijing 91.96% 3,144 Jian Gong Xi Li R Medium Term Lease Xuanwu District, Beijing 91.96% 748 Lu Gu New Town R Medium Term Lease Shijingshan District, Beijing 91.96% 2,607 Wan Ming Si Minor District R Medium Term Lease Fuchengmen, Xicheng District, Beijing 91.96% 946 Hong Lian North Village R Medium Term Lease Xicheng District, Beijing 91.96% 2,162 Hua Heng Building R/C Medium Term Lease Lixue Alley, Xicheng District, Beijing 91.96% 5,584 Properties in Various Locations R Medium Term in Beijing Lease 91.96% 39,608 Car Park in Various Locations CP Medium Term in Beijing Lease C Commercial CP Car Park O Office R Residential 16

19 Schedule of Principal Properties Approximate Unsold Properties held for Attributable Beneficial Interest of Gross Floor Resettlement/Sales China Resources Land Limited Area (m 2 ) Type Lease Term 100% 533 Chengdu Jade City Phase 1 R/C Medium Term Lease Jinjiang District, Chengdu 100% 7,384 Chengdu Jade City Phase 1 Car Park CP Medium Term Lease Jinjiang District, Chengdu C Commercial CP Car Park O Office R Residential 17

20 主席報告 Chairman s Statement 本集團各項業務已進入收成期, 展望未來, 我們充滿信心 The Group s various businesses are bearing fruit, we are full of confidence to our promising future. 二零零六年是集團由住宅開發商轉型為綜合性地產商後的首個財政年度, 也是集團取得全面發展 成績斐然的一年 The year 2006 was the first financial year of the Group after transforming from a residential property developer into an integrated real estate company. It was also a fruitful and remarkable year of comprehensive development for the Group. 這一年, 集團實現了住宅開發和出租兩個業務領域並行 高速的業績增長, 確立了集團未來盈利構成中物業開發 租金收入和長期資本增值三足鼎立的增長模式 此外, 集團在二零零六年大幅增加了土地儲備, 進入了一些新城市 除此之外, 集團於二零零六年十二月收購了大股東華潤集團位於成都一幅土地及在北京的一幅土地的權益, 為集團未來持續 健康 快速地發展奠定了更為堅實的基礎 In the year, the Group experienced balanced and rapid growth in terms of the results of residential property development and leasing, and established a future profit-generating model comprising three major elements: property development, rental income and longterm capital appreciation. Through its penetration into some new cities, the Group substantially expanded its land bank in Furthermore, the Group acquired a parcel of land in Chengdu and the interests in a parcel of land in Beijing from CR Holding, our major shareholder, in December All of the above will lay a solid foundation for the continuous, healthy and rapid development of the Group in the future. 本年度, 集團實現綜合營業額及股東應佔溢利分別為港幣 億及 8.59 億, 與二零零五年相比分別增長 45.4% 和 123.3% 期內, 每股盈利為港幣 27.2 仙, 較上年同期增長 11.3% 董事會建議派發末期股息每股港幣 5.1 仙, 加上每股港幣 2 仙的中期股息, 全年每股股息為港幣 7.1 仙, 較二零零五年每股港幣 3.3 仙的全年股息同比增長 115.2% The Group s consolidated turnover and profit attributable to shareholders for the year were HK$3,937 million and HK$859 million respectively, representing an increase of 45.4% and 123.3% over Earnings per share was HK27.2 cents representing a year on year growth of 11.3%. The Board of Directors (the Board ) declared a final dividend of HK5.1 cents, together with the interim dividend of HK2 cents per share, making a total dividend of HK7.1 cents per share for the whole year, representing an increase of 115.2% when compared with the final dividend of HK3.3 cents per share in 二零零六年度年報

21 Chairman s Statement 19.4% 14.2% 27.6% 21.8% % % The profit margin of the Group increased significantly in Gross profit margin and net profit margin surged from 19.4% and 14.2% in 2005 to 27.6% and 21.8% in 2006 respectively. With respect to the rental business, the premier large scale rental properties, which were acquired from our major shareholder CR Holding, including Beijing China Resources Building, Shanghai China Resources Times Square, Shenzhen City Crossing Phase 1 and its currently developing Phase 2, have been consolidated into the Group s profit and loss account since 1 January Together with the strong underlying growth of its own rental properties, turnover from rental properties and property management soared to HK$816 million, representing a 411.1% year-on-year increase. Driven by the growth in completion area and selling price for the full year, turnover from residential property development in 2006 increased to HK$3,121 million, representing a year on year growth of 22.5%. Outlook of the Mainland Property Market In the past two years, the PRC government implemented a number of new macro-control measures on the real estate market in terms of land supply, financing, tax and rules and regulations, aiming to further curtail property speculative and investment activities, stabilize property prices and regulate residential property transactions, so as to prevent excessive investment in the property market in certain cities and overshooting of property price. The real estate market in the PRC would benefit from those measures implemented by the PRC government which help maintain an healthy and orderly development. No impact on the sales of our properties in real terms by such austerity measures has been shown since the properties developed by the Group generally target at end users while those measures are targeted to suppress the speculative demand. On the other hand, the Group has a large number of commercial properties which are not affected by the macro-control measures, including the recently implemented land appreciation tax policy. 19

22 Chairman s Statement In the long run, the austerity measures will have positive impacts on the domestic real estate industry and on the Group s overall performance. Firstly, with sustained booming of the domestic economy, increasing disposable income and spending power amongst the community, as well as accelerating urbanization, the population of the middle class will continue to grow, generating increasing demand on residential property market with sufficient purchasing power. Secondly, effect of land appreciation tax on profit and cash flow will be offset partially by the advantages brought by the unification of enterprise income taxes implemented by the PRC government. Further, industry players will be increasingly aware of risk exposure and more capable of mitigating risk under the macro-economic environment, thereby facilitating an orderly real estate industry, which will ultimately create a sustainable and healthy industry landscape. Moreover, the implementation of the austerity measures will bring along an accelerated industry consolidation and an optimized allocation of land resources. Industry players with strong capital base, renowned brand name and competent development capabilities, including the Group, are set to capture this valuable opportunity for further expansions. Strategy and Prospect Our development strategy was further refined in the past year. Devoted to provide quality properties and services in the PRC, the Group will improve the productivity of the value chain of real estates, and promote the corporate image and project brand of China Resources Land by means of differentiation through unique architectural designs and composite services. We aim at becoming a competitive and leading integrated property company, in terms of company scale and return on net assets, in the PRC real estate industry within the coming years, in order to cater for the increasing demand of residential properties from middle-to-high income consumers, as well as leasing demand of operation premises from brand retailers and offices from high-end corporations. 20

23 Chairman s Statement + (organic growth) In accordance with its overall development strategy, the Group will continue to allocate more resources to first-tier cities, relatively developed cities and medium sized projects. The Group will also maintain proper composition of residential and rental properties, accelerate the pace of land bank expansion and foster a strategycomplemented national geographical coverage. With respect to residential properties, our focus will be on low-rise in the suburban area, such as La Firenze, high rise apartments with luxury decoration in the urban area, such as Phoenix City and The Bund Side, and high-end products. Meanwhile, the Group is exploring residential + large shopping mall projects, which target to leverage on large scale residential properties to drive the development of commercial properties. We intend to achieve synergies by combining our ability in developing residential projects and shopping malls. Regarding investment properties, we will focus on the development of cosmopolitan complex projects with shopping malls as the core, and will subsequently replicate these products throughout the country. Our strategy is to expand mainly by ways of independent operation and organic growth, together with the establishment of joint ventures and acquisition and mergers In view of the outstanding results of 2006, the board of directors is confident of the future. The Group s various businesses are bearing fruit. Profit of the Group will grow rapidly in the next couple of years driven by the increases in rental, completion residential area and profit margin. According to the current estimation, the completion area of the Group will reach approximately 620,000 square meters in 2007 and boost to approximately 1,800,000 square meters in Last, on behalf of the Board, I would like to express my sincere appreciation to the shareholders, for their support to the Group s development, and all the staff, for their contribution to the Group s satisfactory results in the past year. Song Lin Chairman 30 March 2007, Hong Kong 21

24 管理層討論與分析 Management Discussion and Analysis 本年內, 集團實現了成功的業務轉型與整合, 各項業務取得了全面 高速增長, 為集團未來持續 快速發展奠定了堅實基礎 This year, the Group underwent successful transformation and business integration, achieved a rapid and comprehensive development in all of its business segments, thus laid a solid foundation for the continuous, healthy and rapid development of the Group in the future. 二零零六年住宅業務回顧 二零零六年, 住宅開發業務在宏觀調控持續並不斷有新的強化措施推出的市場環境下, 仍取得令人滿意的業績 期內, 不僅住宅開發的銷售額較上一年大幅增長, 所有項目的平均銷售價格均較二零零五年的平均售價有幅度不等的提升, 其中北京鳳凰城二期和成都翡翠城二期平均售價均較上年增長 20% 以上 ; 北京鳳凰城三期 北京福提島多層住宅以及武漢鳳凰城一期的年內平均售價則較上年增長 10% 以上 ; 上海灘花園一期二零零六年實現的平均售價也較上年增長接近 10% Review on Residential Property Business in 2006 In 2006, residential property business achieved impressive results under the market condition whereby continuous new austerity measures have been introduced. During the period, sales volume of residential properties rose significantly and increase in the average selling prices of all projects over that of 2005 were recorded. The average selling price of Phase 2 of the Phoenix City in Beijing and Phase 2 of La Firenze in Chengdu recorded a growth of over 20%; Phase 3 of the Phoenix City in Beijing, multi-storey residence of Fortune Island in Beijing and Phase 1 of the Phoenix City in Wuhan grew by over 10%; Bund Side I in Shanghai realized a year on year growth of nearly 10% in 較為理想的銷售量和銷售價格不僅帶動了二零零六年開發業務利潤的大幅增長, 也為本集團二零零七年的利潤結算打下了基礎 截至十二月底, 二零零六年集團銷售房屋合同額達 億元人民幣, 較去年同期上升 25%; 銷售面積達 438,823 平方米, 同比增長 4% 其中, 在二零零六年實現的簽約額中, 將於二零零七年進行結算的金額和建築面積分別達 億元人民幣和 229,459 平方米 The relatively satisfactory sales volume and selling prices have not only substantially increased profit from the development business in 2006, but also set a strong foundation for the Group s profitability in By the end of December, contracted value of our property sales in 2006 increased by approximately 25% year-on-year to RMB3,955 million, while the saleable area grew by 4% year-on-year to approximately 438,823 square metres. Among the contracted value and floor area in 2006, approximately RMB1,740 million and approximately 229,459 square metres will be settled and completed in 二零零六年度年報

25 Management Discussion and Analysis Detailed sales breakdown for 2006 in various cities are set out as follows: City Contract Value Saleable Area '000 % % RMB 000 % Square Metres % Beijing 2,546, , Shanghai 475, , Chengdu 563, , Wuhan 268, , Hefei 100, , Total 3,954, , % 56.71% In 2006, Beijing district remained the most important income source of the Group. Contracted value amounted to RMB2,546 million, and contracted area was 248,847 square metres, accounted for approximately 64.38% and 56.71% of the Group s annual contracted value and contracted area respectively. The major sales contributors in Beijing in 2006 were the Phoenix City, Oak Bay, Fortune Island and Grand Constellation % , A1 The last two blocks of offices out of the eight blocks of Grand Constellation were sold in early 2007 with a contracted value of RMB157 million. Both sales volume and price of Phase 3 of Phoenix City exceeded our expectation, bringing a total contracted value of RMB761 million for the year. The sale of Phase 2 of Phoenix City resumed after obtaining the title certificates in July. Save for the postponed sales of large units for the expected higher sales premium, residential units of Phase 2 of the Phoenix City were basically sold out, representing 93% of all units available for sale and achieved a contracted value of RMB180 million for the year. With the right positioning which targeted end-users, Fortune Island (Phase 5 of the La Firenze Project), a low density residential project in the suburban area, was well-received, achieving an annual sales of RMB259 million. It is basically sold out save for some shops on the ground floor and certain garages. During the period, the Group has entered into a lump-sum sale transaction with Accor Hotel of France for a total area of 31,639 square metres in Phoenix Plaza at RMB380 million. Sale of A1 district of Phase 1 of Oak Bay commenced at the 23

26 Management Discussion and Analysis 800 8,400 end of October and overwhelming responses from users had been received. More than 800 units were sold out within three days with an average selling price of RMB8,400/m 2 which was beyond our preliminary expectation B 87 2/3 In Shanghai, the first 3 blocks of the Bund Side Phase 1 of the Group have been primarily sold out, with an average selling price exceeding RMB19,500 per square metre in the first half of The Group offered one of the three blocks in Lot B of Phase 1 with a total of 87 units for sale at the end of September and two-third of the units were sold within two days. The entire construction site of the Bund Side was cleared by the end of the year % In Chengdu, Phase 2 of Jade City Project had secured an aggregate contracted value of approximately RMB258 million during the year, and 99% of the units had been contracted for sale. Phase 3 of the project, with a gross floor areas of 186,000 square metres, was put on sale in the fourth quarter. Low-rise and upper-level units were put on sale on 26 November and 23 December respectively. By the end of the year, a total of 350 units with contracted areas of 48,000 square metres have been sold, achieving contracted value of RMB303 million , % , %6,393 5,393 It took the Group only 14 months from the land purchasing to the kick off of the pre-sale of the phase 1 of the Wuhan Phoenix City Project, which illustrated the Group s ability to replicate high density urban projects in a speedy manner. By the end of December, 608 out of a total of 634 units of Phase 1 with a total area of 79,775 square metres has been sold, representing a sales ratio of 96%. In particular, two blocks with a total of 223 units were put on sale on 20 May this year, among which 111 units were sold within 10 days, materializing contracted value of approximately RMB69.3 million. The second block with better river-view units was offered for sale on 14 October, and 92 units of the 95 units in total were sold by the end of the year, representing 97% of the sales ratio and materializing sales of RMB63.93 million, and its selling price also went up to RMB5,393/square metre. 24

27 Management Discussion and Analysis A 22034,300 70% 55,000 B 5,41711,534 1,309 The French Annecy Project represents a replication in Hefei of the Group s matured product in suburban featured with low density. Zone A of Phase 1 of the project comprising 220 units with 34,300 square metres, was launched at the beginning of December Within a month up to the end of December 2005, more than 70% of the saleable areas were sold. By the end of 2006, all units were sold out. Zone B of Phase 1 of the project with a total gross floor areas of 55,000 square metres, was gradually put on sale commencing from October. As at the end of December, it has materialized contracted value and contracted areas of RMB54.17 million and 11,534 square metres respectively. Villas of the second phase of the project were offered for sale from December, materializing contracted value of approximately RMB13.09 million within that month. The following table shows the sales details of the Group by projects in 2006: Accumulated Expected area sold as at Saleable area Average selling Location Completion Date Project Type Total GFA 31 December 2006 in 2006 Price in 2006 (Sqm) (Sqm) (RMB/Sqm) La Firenze Phase 1 Beijing Completed Middle-Low Density Residence 62,684 59,893 7,218 5,343 La Firenze Phase 2 Beijing Completed Middle-Low Density Residence 196, ,921 1,328 6,727 Fortune Island Beijing Completed Middle-Low Density Residence 115, ,277 45,004 5,762 Phoenix City Phase 2 Beijing Completed High Density Residence 186, ,436 11,588 15,121 Phoenix City Phase 3 Beijing Completed High Density Residence 171,130 55,739 52,814 14,407 Phoenix Plaza Beijing June 2008 Office/Hotel 231,997 71,639 31,639 11,998 Oak Bay Beijing December 2009 High Density Residence 867,500 84,218 84,218 8,611 Grand Constellation Beijing Completed Office 72,168 43,515 9,558 16,375 Top Box Beijing Completed Commercial/Residential 76,650 58,316 1,463 12,042 25

28 Management Discussion and Analysis Accumulated Expected area sold as at Saleable area Average selling Location Completion Date Project Type Total GFA 31 December 2006 in 2006 Price in 2006 (Sqm) (Sqm) (RMB/Sqm) Other Residence Beijing Completed N/A N/A 1,902 7,119 Car Park Beijing Completed N/A N/A 2,115 5,046 The Bund Side Phase 1 Shanghai Completed High Density Residence 107,426 38,729 22,768 20,869 Chengdu Jade City Phase 2 Chengdu Completed Middle-Low Density Residence 180, ,287 45,300 5,701 Car Park Chengdu Completed Middle-Low Density Residence 25, Chengdu Jade City Phase 3 Chengdu December ,435 48,355 48,355 6,271 Wuhan Phoenix City Phase 1 Wuhan Completed High Density Residence 159,046 75,453 51,443 5,228 French Annecy Residence Hefei June 2008 Middle-Low Density 227,432 48,385 21,555 4,670 Information of the projects completed in 2006 Details of the completed projects and turnover of the Group in 2006 are listed below: At the end of December 2006 Area completed Settled turnover '000 (Sqm) () La Firenze Phase 1 7,218 37,798 La Firenze Phase 2 1,328 8,754 Top Box 1,493 17,424 Grand Constellation 10, ,555 Fortune Island 76, ,943 Phoenix City Phase 2 12, ,516 Phoenix City Phase 3 51, ,883 Others 2,004 7,301 Subtotal in regard to Beijing projects 163,325 1,611,174 The Bund Side 28, ,396 Chengdu Jade City 99, ,513 Wuhan Phoenix City 75, ,592 Hefei French Annecy 34, ,195 Total 400,259 3,120,870 26

29 Management Discussion and Analysis % % 5.9% 20.7% EBITDA 42.9% 63.3% Review on Rental Business in 2006 As at 31 December 2006, total book value of the Group s investment properties amounted to HK$7,620 million. Investment properties accounted for 28.5% of the total asset of the Group. Turnover of the rental business amounted to approximately HK$816 million, representing a significant increase of 411.1% over last year; while the percentage to the Group s total turnover also increased to 20.7% in 2006 from 5.9% last year. Along with the surge of turnover of the rental business, the EBITDA profit margin also soared from 42.9% in 2005 to 63.3% in % In 2006, the substantial improvement in the performance of the leasing business was mainly attributable to two reasons: on one hand, consolidation of and the full year contribution starting from 1 January 2006, from the premium investment properties purchased from CR Holdings in Beijing, Shanghai and Shenzhen were realised; on the other hand, operating performance of key investment properties were on the upward trend. In particular, revenues from Shenzhen City Crossing reached HK$370 million, representing an increase of approximately 49.7% as compared to the corresponding period of last year. The following table sets out the turnover and occupancy rates of the key investment properties: () (%) Investment property company Turnover () Average Occupancy Rate (%) % yoy % yoy % yoy % yoy * Beijing China Resources Building* 121, , * Shanghai CR Times Square* 138,949 92, * Shenzhen City Crossing* 370, , CR Land Beijing 78,303 57, Beijing Property Management 103,197 84, N/A N/A N/A * * The three rental properties have not been included in the Group s consolidated financial statement in

30 Management Discussion and Analysis The details of the Group s key rental properties in the PRC are set out as follows: Shareholdings attributable Total Attributable Property Name Location to the Group GFA GFA Usage (sq m) (sq m) 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 Carpark 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 91.90% 36,184 33,253 Xidan Cultural Centre Retail Beijing 91.90% 14,105 12,962 Grand Constellation Shopping Area Retail Beijing 91.90% 10,685 9,920 U-Space Mall Retail Beijing 91.90% 17,952 16,498 Jing Tong Shops Retail Beijing 45.95% 54,214 24,911 Huawei Centre Residential/Retail Beijing 15.20% 70,058 10,649 Huanan Building Retail/Office Beijing 91.90% 48,697 44,753 Others Office/Retail 657, ,934 Total GFA 489, ,617 Comprising: Retail 168, ,317 Office * 193, ,0006,752 * 193,866 square metres of the Shenzhen City Crossing Phase 2 under development, 150,000 square meters of commercial of Oak Bay in Beijing and 6,752 square metres of the property for own use were not included. 28

31 Management Discussion and Analysis 2,822,649 Land Bank The Group increased its holding of land bank by 2,822,649 square metres in Details of the Group s newly acquired land bank in 2006 are as follows: Expected completion Total Land Product Time of Project Name Location Total GFA Premium Nature First Phase (RMB million) Chengdu Phoenix City Project 702,558 1, Chengdu Ordinary 2008 Residential Ningbo Dongqianhu Project 122, Ningbo Luxury 2008 Residential Chengsha Xingsha Project 1,377, Changsha Ordinary 2009 Residential Suzhou Pingjiang Project 61, Suzhou Luxury 2008 Residential Beijing Guanganmen Project 280,000 1, Beijing Ordinary 2009 Residential Shanghai New Jiangwan Project 278,490 1, Shanghai Luxury 2008 Apartment Total 2,822,649 5,647 29

32 Management Discussion and Analysis Together with our existing land bank, the aggregate residential land bank of the Group amounts to 8,199,000 square metres in terms of floor area. Details are listed below: Region Property under Development Completed Property Total GFA (Sqm) (Sqm) (Sqm) * Beijing* 1,672, ,096 1,886,138 Shanghai 478, ,802 Shenzhen 222, ,394 Chengdu 3,876,762 7,917 3,884,674 Wuhan 83, ,593 Hefei 193, ,107 Ningbo 122, ,581 Changsha 1,377, ,377,605 Suzhou 61, ,415 Total 7,977, ,013 8,199,214 * 95.9% 91.9% * The Group s effective interest in Oak Bay Project in Beijing is 95.9%, while interest in other Beijing projects is 91.9%. 69 Substantial increase in land bank of the Group has further built up its foundation for continuous growth. The coverage of the Group s business has been extended from 6 cities to 9 cities (newly added cities are Suzhou, Ningbo and Changsha). We have also expanded our product range to include the higher-end property development products such as villas. Land Appreciation Tax Notice on Settlement of Land Appreciation Tax ( LAT ) for Real Estates Enterprises ( ) issued by the State Administration of Taxation on 28 December 2006 was designed to tighten the existing policy on the settlement and collection of the LAT. It is not a newly enacted tax law. The Group prepays and accrues LAT fully in compliance with the relevant tax laws and the Hong Kong Accounting Standards. Besides, a significant portion of our assets are investment properties, which are not affected by the LAT policy and therefore the LAT will have no material impact on our revenue and cash flow. 30

33 Management Discussion and Analysis % % HIBOR 0.34% ,188 Fund-raising through Share Placing, Borrowings and debt ratio In January 2006, the Group raised a net proceed of approximately HK$1.1 billion by placing 300 million new shares at a price of HK$3.725 per share to independent investors. As of 31 December 2006, the Group had consolidated borrowings of HK$9,590 million, as well as cash and bank balances of HK$3,360 million. The Group s net debt to equity ratio stood at 54.1%. As of 31 December 2006, 53.2% and 46.7% of the Group s borrowings were denominated in Renminbi and HK dollars respectively. Among the total borrowings, approximately 35.8% of the bank borrowings are repayable within one year while others are long term borrowings. As of 31 December 2006, all of the Group s borrowings denominated in foreign currencies are interest-bearing at floating interest rates. Although the interest rates of borrowings in HK dollars and US dollars rose during the period, the Group managed to maintain its borrowing cost at relatively low levels. The Group s current borrowing costs for the HK dollars loans were less than 4.7% per annum and that for Renminbi loans stood at 10% below the benchmark interest rate, which is the lowest level permitted by relevant regulations. The average interest rate for bank loans was approximately 5.7% per annum during the year. In order to cope with our future development needs, the Group obtained a 5-year syndicated loan of HK$2.5 billion and a 5-year club loans of HK$2 billion in September 2006 and January 2007 respectively at the same favorable interest rate of HIBOR plus 0.34%, to timely capitalize on the abundant pool of HK dollars in the capital market and the prevailing low-cost opportunity. Employee and Remuneration Policy As of 31 December 2006, the Group employed approximately 2,188 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 as well as share option scheme. By Order of the Board Wang Yin Managing Director 30 March 2007, Hong Kong 31

34 Biographical Details of Directors and Senior Management Executive Directors MR. SONG LIN, aged 44, was appointed Chairman of the Company in February He is Vice Chairman and President of China Resources (Holdings) Company Limited and China Resources National Corporation, Chairman of China Resources Enterprise, Limited as well as the Chairman of China Resources Power Holdings Company Limited. Mr. Song is an Independent Non-Executive Director of Geely Automobile Holdings Limited and the Deputy Chairman of China Vanke Co., Ltd which is a listed company in China. Mr. Song has extensive experience in corporate management and is currently responsible for the overall business development and strategic planning of the Group s businesses. Mr. Song holds a Bachelor s degree in Mechanics from the University of Tong Ji in Shanghai, China. He joined China Resources (Holdings) Company Limited in MR. WANG YIN, aged 51, was appointed Managing Director in 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 a Master of Business Administration degree from the University of San Francisco in the United States. He joined China Resources (Holdings) Company Limited in

35 Biographical Details of Directors and Senior Management Non-Executive Directors MR. JIANG WEI, aged 44, was appointed Non-Executive Director of the Company in February He is a Director and the 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 Logic Limited and China Assets (Holdings) Limited. And also a Independent Non-Executive Director of Greentown China Holding Limited and a Director of China Vanke Company Ltd, which is 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 45, was appointed Executive Director of the Company in 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. 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 50, 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 MR. XIE SHENGXI, aged 45, was appointed Non-Executive Director of the Company in February Mr. Xie is a Non-Executive Director of China Resources Enterprise, Limited. He is also a Director of Shandong Dong EE Jiao Company, Limited, which is a listed company in China. Mr. Xie has a Bachelor s degree in Economics from Shanxi University of Finance and Economics and a MBA degree from the University of South Australia. He is also a qualified accountant in China. He joined China Resources (Holdings) Company Limited in

36 Biographical Details of Directors and Senior Management Independent Non-Executive Directors MR. WANG SHI, aged 56, was appointed Independent Non-Executive Director of the Company in 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.. He has a Bachelor of Science degree from Lanzhou Railway College in China. MR. HO HIN NGAI, BOSCO, aged 61, was appointed Independent Non-Executive Director of the Company in He is Authorized Person-Architect, Hong Kong, Member of Hong Kong Institute of Architects and Associate of Royal Institute of British Architects. I.T. Limited MR. Paul M. P. Chan, aged 52, was appointed Independent Non- Executive Director of the Company in July He also serves as Chairman of the Company s Audit Committee. He is the managing director of PCP CPA Limited. He is also an Independent Non- Executive Director of publicly listed China Communication Services Corporation Limited, Hong Kong Economic Times Holdings Limited, IT Limited, Kingmaker Footwear Holdings Limited and The Wharf (Holdings) Limited. 29 Mr Chan is a graduate of The Chinese University of Hong Kong where he obtained both his bachelor s and master s degrees in Business Administration. Mr Chan is a Practising Certified Public Accountant in Hong Kong and a fellow member of the Hong Kong Institute of Certified Public Accountants ( HKICPA ), the Association of Chartered Certified Accountants ( ACCA ), the Society of Chinese Accountants and Auditors, the Institute of Chartered Secretaries and Administrators, the Taxation Institute of Hong Kong, the Hong Kong Institute of Company Secretaries, and a member of the Macau Society of Certified Practising Accountants. Mr Chan has over 29 years experience in accounting and finance field and is a former president of the HKICPA. He is also a former president of the ACCA Hong Kong. He has been appointed chairman of the Legal Aid Services Council since September

37 Biographical Details of Directors and Senior Management, I I III Mr. Andrew Y. Yan, aged 49, was appointed Independent Nonexecutive Director in July He also serve as 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 that Mr Yan is also an Independent Nonexecutive Director of China Oilfield Service Limited and Stone Group Holdings Ltd which are listed companies in Hong Kong. Mr Yan received a master degree in Sociology and Economics from Beijing University in 1986 and a second master degree from Princeton University in the United States in He obtained his bachelor degree in Engineering from the Nanjing Aeronautic Institute in the PRC. Senior Management MR. WU XIANGDONG, aged 40, 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 a Master s degree in Business Administration 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. MS. BAI HUA, aged 44, is a Vice President of the Company and the General Manager of Beijing China Resources Building Co., Limited. Ms. Bai has a Bachelor s degree in Philosophy from Beijing Normal University, China. Ms. Bai has experience in human resources management and investment property operation. Ms. Bai joined China Resources (Holdings) Company Limited in 1993, and was the General Manager of the research department of China Resources (Holdings) Company Limited. 35

38 Biographical Details of Directors and Senior Management MR. CHEN YING, aged 37, is an Assistant 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 is a member of the Hong Kong Institute of Construction Managers. Mr. Chen 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. MR. CHEN KAI, aged 38, is an Assistant Vice President of the Company and the General Manager of China Resources Land (Shanghai) Limited. Mr. Chen has a Master s degree in Architectural from Zhejiang Universtity, China and is also an Incorporate of the Chartered Institute of Buildings (ICIOB). Mr. Chen has experience in property management and corporate management. Mr Chen joined China Resources (Holdings) Company Limited in 1995, and has worked for China Resources Construction (Holdings) Co., Ltd. MR. TANG YONG, aged 36, is an Assistant 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 a Master s degree in Business Administration 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. MR. WANG GUOHUA, aged 44, is the General Manager of Corporate Finance and Planning Department. Mr. Wang has a Master degree in Finance in the U.K. He worked for several well-known investment banks and has over ten years of experience in securities research and corporate finance. He joined the Company in

39 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 Practice set out in the Appendix 14 to the Rules Governing the Listing of Securities (the Listing Rules ) on The Hong Kong Stock Exchange of Hong Kong Limited. A review of the Company s corporate governance in 2006 is set out as follows: A.1 The Board The Board is responsible for the leadership and control of the issuer and for the overall enhancement of the issuer s business towards success. The Board should make objective decisions to the interests for the issuer As at 31 December 2006, the Board of the Company comprised 10 directors, including 2 executive directors and 8 nonexecutive directors, of which 4 were 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. The attendance of directors in meetings held in 2006 is detailed as follows: Name of Director Attendance Executive Director Song Lin 3/4 Wang Yin 4/4 37

40 Corporate Governance Report Name of Director Attendance Non- executive Director Jiang Wei 1/4 Yan Biao 2/4 Liu Yan Jie 2/4 Xie Sheng Xi 4/4 Independent Non- executive Director Wang Shi 1/4 Paul M. P. Chan (appointed on 13 July 2006) 1/2* Ho Hin Ngai, Bosco 3/4 Andrew Y. Yan (appointed on 13 July 2006) 1/2* * Note: * Since the date of appointment, there are 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. 38

41 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 balance allocation of power and authority. A.3 Since 20 February 2006, 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 Board Composition The board should have a balance of skills and experience appropriate to the requirements of the business of the issuer, and should ensure that any change in composition shall not cause any undue disruption. The Board should have a balanced composition of executive and non-executive directors (including independent nonexecutive 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. 32 Members of the Board and their detailed biographies are set out on Page 32. All corporate comnunications which sets out names of directors clearly state the identity of each director, including executive director, non-executive director and independent non-executive directors. Deviation: None. 39

42 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. It s duties included those required under Code Provision A.4.5(a) to (d). Members of Nomination Committee include three independent non-executive directors namely, Mr. Paul M. P. Chan (Chairman), Mr. Andrew Y. Yan, Mr. Ho Hin Ngai, 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. 32 On 20 February 2006, the Board passed the resolution to appoint Mr. Song Lin, Mr. Jiang Wei, Mr. Liu Yan Jie and Mr. Xie Sheng Xi as directors. The detailed biographies are set out on Page 32. Mr. Lau Pak Shing, Mr. Zhong Yi, Mr. Chen Ying, Mr. Chen Kai, Mr. Tang Yong, Mr. He Zheng Rong and Mr. Ralph Keung Chi Wang resigned as the Company s directors. Among them. Mr. Chen Ying, Mr. Chen Kai and Mr. Tang Yong were appointed as member of management team. The captioned changes in the Board reflects the supports of China Resources (Holdings) Company Ltd to the Company, and also shows the Company s role as the real estate flagship of China Resources (Holdings) Company Ltd. 40

43 Corporate Governance Report 32 On 13 July 2006, independent non-executive director Mr. Wong Kong Chi resigned due to personal reason, on the same day, the Board passed the resolution to appoint Mr. Paul M. P. Chan and Mr. Andrew Y. Yan as independent non-executive directors. The experience and views of independent nonexecutive directors are held in high regard. The Company has appointed 4 independent non-executive directors, exceeding the minimum requirements under the Listing Rules relating to the appointment of at least three independent non-executive directors. The detailed biographies of Mr. Chan and Mr. Yan are set out on Page 32. At the annual general meeting of the Company held on 23 May 2006, non-executive director Mr. Paul Wolansky retired. : The attendance of directors in the abovementioned board meeting is detailed as follows: Name of Director Attendence Executive Director Song Lin 1/1 Wang Yin 2/2 Non- Executive Director Jiang Wei 1/1 Yan Biao 2/2 Liu Yan Jie 1/1 Xie Sheng Xi 1/1 Independent Non-Executive Director Wang Shi 0/2 Ho Hin Ngai, Bosco 0/2 Paul M.P.Chan 0/0 Andrew Y.Yan 0/0 41

44 Corporate Governance Report Except independent non-executive Mr. Paul M. P. Chan and Mr. Andrew Y. Yan have been appointed for fixed term of three years, all directors of the Company (including executive and non-executive directors) are not appointed for a fixed period, but the articles of the Company stipulate that every director (including executive and non-executive directors) retires and be re-elected at least once every three years. Therefore, the Company has adopted adequate measures to ensure the corporate governance of the Company complies to the same level to that required under the Code. A.4.2 A.4.2 A.5 To ensure compliance to Code Provision A.4.2, a resolution has been passed at the annual general meeting held on 23 May 2006 to amend the articles of association of the Company, so that every director appointed to fill a casual vacancy shall retire at the next general meeting. At the annual general meeting to be held on 4 June 2007, a resolution will be put forth to approve the re-election of Mr. Chan Mo Po Paul and Mr. Andrew Y. Yan as directors of the Company. However, according to the code provision A.4.2, all directors appointed to fill a causal vacancy shall be subject to election by shareholders at the first general meeting after their appointment, i.e. the general meeting of the Company held on 20 December 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); 42

45 Corporate Governance Report Every director shall acknowledge that sufficient time should be contributed to the affairs of the Company; 10 The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules ( Model Code ) as the code of best practices for the securities transactions by directors of the Company. After specific enquiries by the Company, all directors confirm that they have complied with the Model Code throughout the year under review. The Company has also formulated a code of conduct for the securities transactions by relevant officers to govern the securities transactions of officers who come into contact with pricesensitive 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. B.1 Deviation: None. B.1 Remuneration of Directors and Senior Management Issuer shall establish a formal and transparent procedure for setting policies for fixing the remuneration packages of directors. No director shall be involved in deciding his own remuneration. B.1.3(a) (f) The Company has set up a Remuneration Committee with specific written terms of reference. Its duties include those required under Code Provisions B.1.3(a) to (f). 43

46 Corporate Governance Report A majority of the members of the Remuneration Committee of the Company are independent non-executive directors. Mr. Andrew Y. Yan is the Chairman and other members include Mr. Wong Kong Chi, Mr. Ho Hin Ngai, Bosco, Mr. Paul M. P. Chan and Mr. Wang Yin. : Attendance of members of the Remuneration Committee at meetings held in 2006 is detailed as follows: Name of Director Attendance Wang Yin 1/1 Wong Kong Chi (Resigned on 13 July 2006) 1/1 Ho Hin Ngai, Bosco 1/1 Paul M. P. Chan(Appointed on 13 July 2006) there was no meeting after his date of appointment Andrew Y. Yan(Appointed on 13 July 2006) there was no meeting after his date of appointment C.1 During the year under review, the Remuneration Committee reviewed the incentive mechanism of the Company and approved remuneration of members of the board and senior management. Deviation: None. C.1 Accountability and Audit The Board should present a balanced, clear and comprehensible assessment of the issuer s performance, state of affairs and prospects. 940, ,000 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 2006, 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; In 2006, audit fees were approximately HK$940,000 and fees for non-audit related services were HK$284,000; 44

47 Corporate Governance Report 69 The statement of responsibilities expressed by the auditor of the Company is set out in the Auditors Report on page 69. 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 conducts regular review on the effectiveness of the internal control system of the Company. During the year under review, the Board thinks the current internal control system is sound and effective to safeguard the shareholders investments and the issuer s assets. C.3 Deviation: None. C.3 Audit Committee All members of the Audit Committee of the Company are independent non-executive directors, including Mr. Wong Kong Chi (resigned on 13 July 2006), Mr. Wang Shi, Mr. Ho Hin Ngai, Bosco, Mr. Paul M. P. Chan (appointed on 13 July 2007), and Mr. Andrew Y. Yan (appointed on 13 July 2006), while Mr. Paul M. P. Chan holds 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 two 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 ongoing basis; 45

48 Corporate Governance Report Attendance of members of the Audit Committee at meetings held in 2006 is detailed as follows: Name of director Attendence Wong Kong Chi (resigned on 13 July 2006) 1/2 Wang Shi 0/2 Ho Hin Ngai, Bosco 2/ Paul M. P. Chan (appointed on 13 July 2006) 1/ Andrew Y. Yan (appointed on 13 July 2006) 1/1 * Note: *Since the date of appointment, there are two committee meetings. Minutes of the meetings of the Audit Committee are kept by a designated secretary and sent to all members of the Board. D.1 Deviation: None. 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. 46

49 Corporate Governance Report 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 website of the Company and the Stock Exchange. Due to business trip, Chairman of the Company did not attend the annual general meeting held on 23 May All general meetings where approval for connected transactions were being sought for had been attended by independent non-executive directors to address queries from shareholders. The Company also promotes the communication with shareholders through various investor relations 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 and Singapore organised by Deutsche Bank and J P Morgan respectively, covering issues on results announcement and significant acquisitions and presented to investors operating results, development strategies and the latest business status of the Company. 47

50 Corporate Governance Report At the same time, the Company participated in various investment conferences held by CLSA, Citigroup, Macquarie, Morgan Stanley held in Hong Kong, Shanghai, Macau, Singapore, London and New York, and frequently met on an one-on-one basis with fund managers and investors in Hong Kong and overseas, as well as arranged onsite visits to the Company s properties to actively create opportunities for communication with the investors, so as to enable them to timely understand the latest business development of the Company and the industry environment of the real estate business of China to enhance their understanding and confidence to 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. E.2 Deviation: Due to business trip, Chairman of the Company did not attend the annual general meeting held on 23 May 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. 48

51 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 31st 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 126 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 71 shows the Group s profit for the year ended 31st December, Dividends The board of directors recommend the declaration of a final dividend of HK5.1 cents (2005: HK3.3 cents) per share, together with the interim dividend of HK2 cents per share, dividends per share for the year amounting to HK7.1 cents. The final dividend is payable on 3rd July, 2007 to shareholders whose names appear on the Register of Members of the Company on 4th June, Property, Plant and Equipment Movements in property, plant and equipment during the year are set out in note 16 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 32 to the financial statements. 49

52 Report of the Directors 2 2 8,276,601,000 5,822,172,000 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 31st December, 2006 amounted to HK$8,276,601,000 (2004: HK$5,822,172,000). Directors The directors who held office during the year and at the date of this report are: Chairman Mr. Song Lin (Appointed on 20th February, 2006) Managing Director Mr. Wang Yin Directors Mr. Jiang Wei (Non-executive director, appointed on 20th February, 2006) Mr. Yan Biao (Non-executive director) Mr. Liu Yan Jie (Non-executive director, appointed on 20th February, 2006) Mr. Xie Sheng Xi (Non-executive director, appointed on 20th February, 2006) Mr. Paul Wolansky (Non-executive director, retired on 23rd May 2006) Mr. Keung Chi Wang, Ralph (Resigned on 20th February, 2006) Mr. Lau Pak Shing (Resigned on 20th February, 2006) Mr. Zhong Yi (Resigned on 20th February, 2006) Mr. Chen Ying (Resigned on 20th February, 2006) Mr. Chen Kai (Resigned on 20th February, 2006) Mr. Tang Yong (Resigned on 20th February, 2006) Mr. He Zheng Rong (Resigned on 20th February, 2006) 50

53 Report of the Directors Independent Non-executive Directors Mr. Wang Shi Mr. Paul M. P. Chan (Appointed on 13th July 2006) Mr. Ho Hin Ngai, Bosco Mr. Andrew Y. Yan (Appointed on 13th July, 2006) Mr. Wong Kong Chi (Resigned on 13th July, 2006) Mr. Paul M. P. Chan and Mr. Andrew Y. Yan were appointed by the Board as directors on 13th July, According to Article 99 of the Articles of Association of the Company, the terms of office of Mr. Paul M. P. Chan and Mr. Andrew Y. Yan shall expire at the forthcoming general meeting and are eligible for re-election at the general meeting. According to Article 116 of the Articles of Association of the Company, Mr. Wang Yin, Mr. Yan Biao, Mr. Wang Shi and Mr. Ho Hin Ngai, Bosco shall retire and are eligible for reelection at the forthcoming annual general meeting The Company has received the annual confirmation of independence from all the independent non-executive directors, and consider 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 32 to 36. 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 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 31st January, 2002 and was terminated on 31st 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 51

54 Report of the Directors 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 1st September, The New Scheme refers to the share option scheme which was approved by the shareholders in the extraordinary general meeting held on 31st January, 2002 and shall expire on 31st 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 purchase up to 313,138,369 shares. 379,290, % As of the date of this report, the number of shares available for issue under the New Scheme is 379,290,369 shares and represents 11.3% 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 31st January, 2002 were issued under the New Scheme while the remaining 52

55 Report of the Directors options were under the Old Scheme. Share options granted under the Old Scheme are exercisable before 27th 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. 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 of 31st December, 2006, the following directors had interests in options to subscribe for shares under both of the new and the old share option schemes of the Company: (2) (1) Price of the Number of share option (1) Company s share (2) HK$ Outstanding Granted Exercised Cancelled Lapsed Outstanding For For Date of Exercise at during during during during at option option Name Capacity Grant Price 1/1/2006 the period the period the period the period 31/12/2006 granted exercised Song Lin 1/6/ , ,000 Benefical owner Wang Yin 1/3/ ,800,000 4,800, Benefical owner 28/4/ ,500,000 3,500, Jiang Wei 4/3/ , , Benefical owner 1/6/ , , Yan Biao 27/6/ ,300,000 2,300, Benefical owner 20/7/ ,400,000 2,400, /6/ , , Liu Yan Jie 4/3/ , , Benefical owner 1/6/ , ,000 Xie Sheng Xi 4/3/ , , Benefical owner 1/6/ , ,000 (1) Notes: (1) Number of share options refers to the number of underlying shares in the Company covered by the share options. 53

56 Report of the Directors (2) (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. (b) Employees and other participants Details of options granted to employees (other than directors) of the Group and other participants by the Company are set out below: (i) (i) Employee (other than directors) (2) (1) Price of the Number of share option (1) Company s share (2) HK$ Granted Exercised Cancelled Lapsed Outstanding during during during during Outstanding For option For option Date of Grant Exercise Price at 1/1/2006 the period the period the period the period at 31/12/2006 granted exercised 27/6/ ,775,000* 2,057,000 11,718, /7/ ,290,000* 3,300,000 1,990, /3/ ,400,000* 7,400, /4/ ,500,000* 2,540, , /10/ ,748,000 3,398,000 1,350, /4/ ,310,000* 13,105,500 10,204, /4/ ,030, ,000 7,110, /6/ ,000* 500,000 27/6/ , , , /1/ ,700,000 30,700, /2/ ,000,000 2,000, /6/ ,800,000 3,800, * * including renumbering due to the resignation and appointment of directors Notes: (1) (1) Number of share options refers to the number of underlying shares in the Company covered by the share options. (2) (2) The price of the Company s shares disclosed in respect of the options granted represents the closing price quoted at the Stock Exchange on the last trading day prior to the date of grant of the respective options. The price of the Company s shares disclosed in respect 54

57 Report of the Directors of the options exercised represents the weighted average of closing price quoted on the Stock Exchange on the last trading day prior to the date of exercise of the respective options. (ii) (ii) Other participants (2) (1) Price of the Number of share option (1) Company s share (2) HK$ Granted Exercised Cancelled Lapsed Outstanding during during during during Outstanding For option For option Date of Grant Exercise Price at 1/1/2006 the period the period the period the period at 31/12/2006 granted exercised 4/3/ * 24,310,000 13,600,000 10,710, /6/ * 8,400, ,000 7,700, * * Including renumbering due to the resignation and appointment of directors. Notes: (1) (1) Number of share options refers to the number of underlying shares in the Company covered by the share options. (2) (2) The price of the Company s shares disclosed in respect of the options exercised represents the weighted average of closing price quoted at the Stock Exchange on the last trading day prior to the date of exercise of the respective options. 55

58 Report of the Directors XV XV Directors Interest in Securities As of 31st December, 2006, 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) Interest in issued ordinary shares and underlying shares of the Company (1) (2) Number of Aggregate Long positions/ Number underlying percentage Name Short positions 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 2,400, Long position Beneficial Owner Liu Yan Jie 300, , Long position Beneficial Owner Xie Sheng Xi 140, , Long position Beneficial Owner 56

59 Report of the Directors Notes: (1) (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) (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 of 31st December, (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 Aggregate Long positions/ Number of underlying percentage Name Short positions Shares shares (1) of interest (2) Song Lin 1,800, Long position Wang Yin 28, Long position Jiang Wei 240, Long position Yan Biao 2,600, Long position Xie Sheng Xi 180, 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 CRE as of 31st December,

60 Report of the Directors (c) Interests in issued ordinary shares and underlying shares of China Resources Logic Limited ( CR Logic ), an associated corporation of the Company: (1) (2) Number of Aggregate Long positions/ Number of underlying percentage Name Short positions Shares shares (1) of interest (2) Song Lin 3,600,000 8,900, Long position Wang Yin 300, Long position Jiang Wei 720, Long position Yan Biao 6,000, Long position Liu Yan Jie 510, Long position Xie Sheng Xi 450, Long position Notes: (1) (2) (1) This refers to underlying shares of CR Logic covered by share option granted under the Share Option Scheme of the CR Logic, such option being unlisted physically settled equity derivatives. (2) This represents the percentage of the aggregate long positions in shares and underlying shares of CR Logic to the total issued share capital of CR Logic as of 31st December,

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 Aggregate Long positions/ Number of underlying percentage Name Short positions Shares shares (1) of interest (2) Song Lin 2,900, Long position Wang Yin 1,100, Long position Jiang Wei 1,600, Long position Yan Biao 1,000, Long position Liu Yan Jie 550, Long position Xie Sheng Xi 700, Long position Notes: (1) (2) (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) This represents the percentage of the aggregate long positions in shares and underlying shares of CR Power to the total issued share capital of CR Power as of 31st December,

62 Report of the Directors : Interests in Underlying Shares of Associated Corporation As of 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 Logic: Name Capacity Date of Grant Exercise Price Outstanding at 31/12/2006 HK$ Song Lin 21/9/2000 (1) ,900,000 Beneficial Owner 13/1/2004 (1) ,000,000 Jiang Wei 9/4/2002 (2) ,000 Beneficial Owner Yan Biao 4/12/2001 (1) ,000,000 Beneficial Owner Liu Yan Jie 9/4/2002 (2) ,000 Beneficial Owner Xie Sheng Xi 9/4/2002 (2) ,000 Beneficial Owner Notes: (1) (1) Options are exercisable within a period of ten years from the date of grant of the relevant options. (2) 25% (2) Options are exercisable in 4 tranches of 25% each, from 9th April, 2002, 1st January, 2003, 2004 and 2005 to 8th April, (3) 1.00 (3) Consideration for each of the grants mentioned above is HK$

63 Report of the Directors ( ) : (b) Options outstanding under the share option schemes of an associated corporation, CR Power: Name Capacity Date of Grant Exercise Price Outstaning at 31/12/2006 HK$ Song Lin 12/11/2003 (1) 2.8 2,000,000 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) 2.8 1,000,000 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 Xie Sheng Xi 12/11/2003 (1) ,000 Beneficial Owner 18/3/2005 (2) ,000 Notes: (1) 20% (1) Options are exercisable in 5 tranches of 20% each, from 6th October, 2004, 2005, 2006, 2007 and 2008 to 5th October, (2) 20% (2) Options are exercisable in 5 tranches of 20% each, from 18th March, 2006, 2007, 2008, 2009 and 2010 to 17th March, (3) 1.00 (3) Consideration for each of the grants mentioned above is HK$

64 Report of the Directors Directors Service Contracts As of 31st December, 2006, 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

65 Report of the Directors XV Shareholders with Notifiable Interests As of 31st December, 2006, 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 the Nature of Company as at Name Capacity Interest Number of Share 31st December, 2006 Finetex International Finetex International Limited 847,604, Limited Finetex (1) ( Finetex ) (1) Beneficial Owner Beneficial Interest China Resources (Holdings) 125,300, (1) Company Limited ( CRH ) (1) Beneficial Owner Beneficial Interest Gain Ahead Group Limited Gain Ahead Group Limited 1,255,606, Gain Ahead ( Gain Ahead ) Beneficial Owner Beneficial Interest China Resources (Holdings) 2,103,210, (1) Company Limited ( CRH ) (1) Controlled Company s Corporate Interest Interest CRC Bluesky Limited CRC Bluesky Limited 2,228,510, Bluesky (1) ( Bluesky ) (1) Controlled Company s Corporate Interest Interest China Resources Co., Limited 2,228,510, (1) ( CRC ) (1) Controlled Company s Corporate Interest Interest China Resources National 2,228,510, (1) Corporation ( CRNC ) (1) Controlled Company s Corporate Interest Interest Value Partners Limited (2) Value Partners Limited (2) 188,208, Investment Manager Other Interest (2) Cheah Cheng Hye(2) 188,208, Controlled Company s Corporate Interest Interest 63

66 Report of the Directors Notes: (1) Finetex 847,604,218 Gain Ahead 1,255,606,263 Finetex Gain Ahead 125,300,000 Bluesky Bluesky 99.98% Bluesky 2,228,510,481 (1) 847,604,218 and 1,255,606,263 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 wholly-owned subsidiary of Bluesky, which is in turn owned as to 100% by CRC, 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 2,228,510,481 shares in the Company. (2) Value Partners Limited 188,208,000 Value Partners Limited % 188,208,000 (2) Value Partners Limited was interested in 188,208,000 shares in the capacity of investment manager. Mr. Cheah Cheng Hye held 32.77% of the issued share capital of Value Partners Limited and was deemed to have corporate interest in 188,208,000 shares. XV Save as aforesaid, as of 31st December, 2006, 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. 64

67 Report of the Directors ,000,000,000 35% 1,000,000,000 3 Subsidiaries and Associates Particulars regarding the subsidiaries and associates are set out on pages 126 to 131. Purchase, Sale or Redemption of Listed Securities During the year, neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company s listed securities (whether on Stock Exchange or otherwise). Mandatory Obligation of the Controlling Shareholder Pursuant to a loan agreement for the amount of HK$1,000,000,000, CRH is required to maintain the control in the Company s management by directly or indirectly holding not less than 35% beneficial interest in the shares of the Company. As at 31st December, 2006, the outstanding loan owed by the Company under the loan agreement amounted to HK$1,000,000,000 and is fully repayable within three years. 400,000,000 35% 400,000,000 5 Pursuant to a loan agreement for the amount of HK$400,000,000, CRH is required to maintain the control in the Company s management by directly or indirectly holding not less than 35% beneficial interest in the shares of the Company. As at 31st December, 2006, the outstanding loan owed by the Company under the loan agreement amounted to HK$400,000,000 and is fully repayable within five years. 500,000,000 35% 50% 500,000,000 5 Pursuant to a loan agreement amounting to 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 31st December, 2006, the outstanding loan owed by the Company under the loan agreement amounted to HK$500,000,000 and is fully repayable within five years. 65

68 Report of the Directors 2,500,000,000 35% 50% 2,305,000,000 5 AB 21,427,75344,520,043 99% 65.04% Pursuant to a loan agreement amounting to 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% beneficial interest in the shares of the Company, while the PRC Government s shareholding in CRH shall not be less than 50%. As at 31st December, 2006, the outstanding loan owed by the Company under the loan agreement amounted to HK$2,305,000,000 and is fully repayable within five years. Connected Transactions On 28th March, 2006, China Resources Land (Hefei) Ltd ( CR Hefei ) and China Resources Construction Company Limited ( CR Construction ) entered into two construction agreements to provide various construction services for Zone A and Zone B of Hefei French Annecy for considerations of HK$21,427,753 and HK$44,520,043 respectively, which were determined after arm s length negotiation between both parties. As CR Hefei is a wholly-owned subsidiary of the Company and CR Construction is owned as to 99% by China Resources National Corp., which in turn holds 65.04% interest in the Company through its wholly-owned subsidiary China Resources (Holdings) Company Limited ( CRH ), the construction agreement constituted a connected transaction of the Company pursuant to Listing Rules and the Company has complied with the announcement requirement. Finetex International Limited 2,733,300,000 Finetex International Limited 65.11% On 20th November, 2006, Strong Foundation Developments Ltd. ( Strong Foundation ) and Finetex International Limited ( Finetex ) entered into a sale and purchase agreement to acquire interest in developing certain properties located in Beijing and Chengdu, Mainland China for a consideration of HK$2,733,300,000 which was determined after arm s length negotiation between both parties. As Strong Foundation is a wholly-owned subsidiary of the Company and Finetex is a wholly-owned subsidiary of CRH, which in turn holds 65.11% interest in issued share capital of the Company, the sale and purchase agreement constituted a disclosable and connected transaction of the Company involving the share transaction pursuant to Listing Rules and has obtained shareholder s approval at the general meeting. 66

69 Report of the Directors 14A.37 : During the year of 2006, 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 pursuant to Rule 14A.37 of the Listing Rules. Independent nonexecutive directors have reviewed these transactions and considered that: these transactions were in the Company s ordinary course of business; these transactions were conducted in normal commercial terms; 3. 25% 3. these transactions were carried out in accordance with respective agreement terms which were fair and reasonable, and in the interests of the Company and the shareholders as a whole. 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, all directors confirmed that they have complied with the required standard set out in the Model Code during the period under review. Public Float Based on the information that is publicly available to the Company and within the knowledge of the directors, as of 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. 67

70 Report of the Directors 30% 132 Major Customers and Suppliers During the year, the Group s five largest suppliers and customers together accounted for less than 30% of the Group s purchases and sales respectively. Five Year Financial Summary A summary of the results and of the assets and liabilities of the Group for the past five financial years is set out on page 132. 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. Paul M.P. Chan, 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 Wang Yin Managing Director Hong Kong, 30th March,

71 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 71 to 132 which comprise the consolidated balance sheet as at 31 December 2006, 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 69

72 Independent Auditor s Report 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. 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 2006 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 30 March

73 Consolidated Income Statement For the year ended 31 December 2006 Notes Turnover 6 3,936,730 2,706,886 Cost of sales (2,851,206) (2,181,671) Gross profit 1,085, ,215 Gain on changes in fair value of investment properties 528,551 49,084 Other income 8 202, ,770 Selling and marketing expenses (110,814) (47,026) General and administration expenses (238,324) (108,267) Impairment loss recognised in respect of available-for-sale investments 21 (158,658) (7,299) Allowance for bad and doubtful debts (103,819) Share of results of associates 11,874 15,892 Finance costs 11 (176,919) (67,290) Profit before taxation 1,143, ,260 Taxation 12 (291,778) (46,937) Profit for the year , ,323 Attributable to: Equity holders of the Company 858, ,512 Minority interests (6,800) 53, , ,323 Dividends 14 Paid 166,048 45,280 Proposed 169, ,679 Earnings per share Basic HK27.6 cents HK24.8 cents Diluted HK27.2 cents HK24.4 cents 71

74 Consolidated Balance Sheet At 31 December 2006 Notes Non-current assets Property, plant and equipment , ,035 Prepaid lease payments 17 41,285 42,208 Investment properties 18 7,619,400 6,967,634 Interests in associates , ,664 Amount due from an associate , ,708 Available-for-sale investments , ,266 Deferred taxation assets , ,863 9,779,688 8,848,378 Current assets Inventory of properties 23 9,171,918 5,227,452 Other inventories 24 12,138 10,289 Trade receivables, other receivables and deposits paid 25 4,388,697 1,605,558 Amounts due from fellow subsidiaries 26 3, Tax prepaid 25,511 85,610 Cash and bank balances 27 3,357,628 1,996,881 16,959,627 8,926,325 Current liabilities Trade and other payables 28 1,904,412 1,500,146 Deposits received from pre-sales of properties 1,398,610 1,178,065 Amounts due to fellow subsidiaries 29 85,506 10,649 Advance from a holding company ,913 Amount due to a holding company 29 1,228,300 Bank borrowings due within one year 30 3,434,031 1,842,210 Taxation payable 131,455 10,941 Derivative financial instruments 31 23,456 8,182,314 4,977,380 Net current assets 8,777,313 3,948,945 18,557,001 12,797,323 Capital and reserves Share capital , ,367 Reserves 11,181,076 7,828,919 Equity attributable to equity holders of the Company 11,513,357 8,106,286 Minority interests 219, ,557 11,733,174 8,329,843 Non-current liabilities Bank borrowings due after one year 30 6,157,538 3,959,538 Deferred taxation liabilities , ,942 6,823,827 4,467,480 18,557,001 12,797,323 Song Lin Director Wang Yin Director 72

75 Consolidated Statement of Changes in Equity For the year ended 31 December 2006 Attributable to equity holders of the Company Employee Exchange share-based Share Share Capital General translation compensation Retained Minority capital premium reserve reserves reserve reserve profits Total interests Total (note) At 1 January ,267 2,615, ,961 33,820 3, ,219 3,690, ,973 4,445,849 Exchange translation reserve arising on translation of subsidiaries in Chinese Mainland recognised directly in equity 50,531 50,531 16,498 67,029 Profit for the year 384, ,512 53, ,323 Total recognised income for the year 50, , ,043 70, ,352 Recognition of equity settled share based payments 4,918 4,918 4,918 Transfer of reserve to offset accumulated losses of a subsidiary (99,415 ) 99,415 Transfer of reserve in subsidiaries 10,964 (10,964 ) 34 Acquisition of additional interests in subsidiaries (Note 34) (601,725 ) (601,725 ) Exercise of share options 1,540 16,242 (772 ) 17,010 17,010 Shares issued 125,560 2,746,639 2,872,199 2,872,199 Capital contribution from holding 34 company arising from acquisition of subsidiaries (Note 34) 1,131,520 1,131,520 1,131,520 Final dividend for 2004 (45,280 ) (45,280 ) (45,280 ) At 31 December ,367 5,377,897 1,131,520 23,510 84,351 7,739 1,203,902 8,106, ,557 8,329,843 Exchange translation reserve arising on translation of subsidiaries in Chinese Mainland recognised directly in equity 268, ,230 23, ,906 Profit for the year 858, ,675 (6,800 ) 851,875 Total recognised income for the year 268, ,675 1,126,905 16,876 1,143,781 Recognition of equity settled share based payments 29,352 29,352 29,352 Transfer of reserve in subsidiaries 38,124 (38,124 ) Placement of new shares 30,000 1,064,829 1,094,829 1,094,829 Exercise of share options 6,304 98,644 (6,967 ) 97,981 97,981 Shares issued 18,610 1,552,109 1,570,719 1,570,719 Increase in capital injection 475, ,300 Acquisition of additional interest in subsidiaries (487,967 ) (487,967 ) Capital distribution to holding 34 company arising from acquisition of additional interests in subsidiaries (Note 34) (346,667 ) (346,667 ) (346,667 ) Final dividend for 2005 (103,336 ) (103,336 ) (7,949 ) (111,285 ) Interim dividend for 2006 (62,712 ) (62,712 ) (62,712 ) At 31 December ,281 7,746,812 1,131,520 61, ,581 30,124 1,858,405 11,513, ,817 11,733,174 Note: The Group s general reserves comprises 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. 73

76 Consolidated Cash Flow Statement For the year ended 31 December OPERATING ACTIVITIES Profit before taxation 1,143, ,260 Adjustments for: Dividend income (7,242) Finance costs 176,919 67,290 Interest income (73,656) (28,143) Gain on changes in fair value of investment properties (528,551) (49,084) Gain on changes in fair value of investments held for trading (96,679) Gain on changes in fair value on derivative financial instruments (7,120) (13,742) Depreciation of property, plant and equipment 35,238 19,702 (Gain) loss on disposal of property, plant and equipment (61) 194 Amortisation of prepaid lease payments Allowance for bad and doubtful debts 103,819 Impairment loss on available-for-sale investments 158,658 7,299 Write down inventory of properties 68,156 Recognition of equity-settled share based payment 29,352 4,918 Share of results of associates (11,874) (15,892) Operating cash flows before movements in working capital 991, ,623 Increase in inventory of properties (1,443,682) (161,955) (Increase) decrease in other inventories (1,517) 6,025 Increase in trade receivables, other receivables and deposits paid (2,731,398) (766,484) Increase in trade and other payables 347, ,427 Increase (decrease) in deposits received from pre-sales of properties 182,581 (17,298) Increase in amounts due from fellow subsidiaries (3,183) (535) Increase in amounts due to fellow subsidiaries 74,514 10,649 Cash used in operations (2,583,075) (305,548) Chinese Mainland Enterprise Income Tax paid (82,281) (65,838) NET CASH USED IN OPERATING ACTIVITIES (2,665,356) (371,386) 74

77 Consolidated Cash Flow Statement Notes INVESTING ACTIVITIES Acquisition of subsidiaries (net of cash and cash equivalents acquired) 34 (306,660) 156,009 Interest received 73,656 28,143 Dividends received from investments in securities 7,242 Dividends received from an associate 25,452 Proceeds on disposal of property, plant and equipment 1,051 (Advance to) repayment from an associate (5,000) 3,380 Purchases of property, plant and equipment (275,398) (113,686) Purchase of investment properties (20,267) (3,759) Settlement of derivative financial instruments (18,565) Purchase of available-for-sale investments (51,218) NET CASH (USED IN) FROM INVESTING ACTIVITIES (551,183) 51,563 FINANCING ACTIVITIES New bank loans raised 7,097,580 4,233,559 Repayments of bank loans (3,543,210) (3,681,694) Dividends paid (166,048) (45,280) Interest paid (342,586) (186,413) Capital injections from minority interests 475,300 Proceeds on placement of new shares 1,094,829 Proceeds of issue of shares 97,981 17,010 (Repayment to) advance from a holding company (425,187) 411,913 NET CASH FROM FINANCING ACTIVITIES 4,288, ,095 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,072, ,272 EFFECT OF FOREIGN EXCHANGE RATE CHANGE 288,627 32,017 CASH AND CASH EQUIVALENTS AT 1 JANUARY 1,996,881 1,535,592 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 3,357,628 1,996,881 ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS Cash and bank balances 3,357,628 1,996,881 75

78 Notes to the Financial Statements For the year ended 31 December GENERAL The Company is a public limited company incorporated in the Cayman Islands and its shares are listed on The Stock Exchange of Hong Kong Limited ( Hong Kong Stock Exchange ). The immediate holding company as at 31 December 2006 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 the 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 APPLICATION OF NEW HONG KONG FINANCIAL REPORTING STANDARDS In the current year, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards ( HKFRSs ), Hong Kong Accounting Standards ( HKASs ) and Interpretations (hereinafter collectively referred to as the new HKFRSs ) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ), which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January The adoption of the new HKFRSs had no material effect on how the results for the current or prior accounting periods have been prepared and presented. Accordingly, no prior year adjustment has been required. 76

79 Notes to the Financial Statements APPLICATION OF NEW HONG KONG FINANCIAL REPORTING STANDARDS (continued) The Group has not early applied the following new standards, amendment or interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standards, amendment or interpretations will have no material impact on the results and the financial position of the Group HKAS 1 (Amendment) Capital Disclosures 1 HKFRS 7 Financial Instruments: Disclosures 1 HKFRS 8 Operating Segments 8 HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies 2 HK(IFRIC)-Int 8 Scope of HKFRS 2 3 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives 4 HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment 5 HK(IFRIC)-Int 11 HKFRS 2: Group and Treasury Share Transactions 6 HK(IFRIC)-Int 12 Service Concession Arrangements Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 March Effective for annual periods beginning on or after 1 May Effective for annual periods beginning on or after 1 June Effective for annual periods beginning on or after 1 November Effective for annual periods beginning on or after 1 March Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January

80 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared on the historical cost basis, except for certain 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 HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Hong Kong Stock Exchange (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 (including special purpose 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 dates 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. 3 Business combinations The acquisition of subsidiaries 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. 78

81 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES (continued) Business combinations (continued) 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. Discount on acquisition of subsidiaries from shareholders is treated as capital contribution from shareholders and is recognised in capital reserve. 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 a subsidiary 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 subsidiary at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses. Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the 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 cashgenerating units, that are expected to benefit from the synergies of the acquisition. A cash-generating 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 a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal. 79

82 Notes to the Financial Statements 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 and services provided in the normal course of business, net of discount and sale related taxes. 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; 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. 80

83 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition (continued) 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. Dividend income from investments is recognised when the shareholder s rights to receive payment have been established. Property management income and service income are recognised when services are provided. Property, plant and equipment Property, plant and equipment other than construction in progress are stated at cost less accumulated depreciation and amortisation, and any identified impairment loss. Depreciation and amortisation are 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, rental or administrative purposes. Construction in progress is carried at cost less any recognised impairment loss. Cost includes all construction expenditure and other direct costs, including borrowing costs, attributable to such projects. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. No depreciation and amortisation are provided in respect of construction in progress until it is completed and is ready for its 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. Owner-occupied leasehold interest in land When the owner-occupied leasehold interest in land included the elements of a lease of land and buildings are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. To the extent that the allocation of the lease payments between the land and buildings elements can be made reliably, the leasehold interests in land are accounted for as operating leases. 81

84 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES (continued) Investment properties On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured 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 year in which they arise. Impairment At each balance sheet date, the Group reviews the carrying amount of its 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. Impairment loss is recognised as 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. 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 properties under development comprises the leasehold interest in land together with development expenditure, which includes construction costs and borrowing costs capitalised. Land cost includes land premium and expenditure for demolition. Other inventories Other inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method. 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. 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. 82

85 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES (continued) The Group as lessee Rentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease terms on a straightline basis. 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 nonmonetary 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. For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group s operations denominated in the respective functional currencies are translated into the presentation currency of the Company (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 translation reserve). Such exchange differences are recognised in profit or loss in the year in which the 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. 83

86 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES (continued) Borrowing costs (continued) All other borrowing costs are recognised in profit or loss in the year in which they are incurred. Taxation Income tax expense represents the sum of the tax currently payable and deferred taxation. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated 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. Deferred taxation 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 taxation liabilities are generally recognised for all taxable temporary differences and deferred taxation 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. The carrying amount of deferred taxation 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 taxation 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 taxation 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. Financial instruments Financial assets and financial liabilities are recognised on the consolidated 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. 84

87 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES (continued) Trade and other receivables and amounts due from fellow subsidiaries Trade and other receivables and amounts due from fellow subsidiaries are subsequently measured at amortised cost using the effective interest method. Appropriate allowances for estimated irrecoverable amounts are recognised in consolidated income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the asset s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and bank deposits and are subject to an insignificant risk of changes in value. They are carried at amortised cost in subsequent periods. Available-for-sale investments 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 are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset 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 losses will not reverse in subsequent periods. Bank loans Interest-bearing bank loans are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group s accounting policy for borrowings costs. Trade and other payables, amounts due to fellow subsidiaries, and advance from a holding company Trade and other payables, amounts due to fellow subsidiaries and advance from a holding company are subsequently measured at amortised cost, using the effective interest method. 85

88 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES (continued) Derivative financial instruments Derivative financial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates. Derivatives that do not qualify for hedge accounting are deemed as financial assets held for trading or financial liabilities held for trading. Changes in fair values of such derivatives are recognised directly in profit or loss. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Derecognition Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the 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 is recognised in profit or loss. Share-based payments Share options granted to employees of the Group Equity-settled share-based payments are measured at fair value at the date of grant. The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period, with a corresponding increase in employee sharebased compensation reserve. At each balance sheet date, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the estimates, if any, is recognise in profit or loss, with a corresponding adjustment to share-based compensation reserve. At the time when the share options are exercised, the amount previously recognised in employee share-based compensation 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. 86

89 Notes to the Financial Statements SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 4. KEY SOURCES OF ESTIMATION UNCERTAINTY The key assumption 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 are discussed below: 12,458,628,000 6,068,327,000 68,156,000 Impairment loss on inventory of properties Included in the consolidated balance sheet at 31 December 2006 are inventory of properties of HK$12,458,628,000 (2005: HK$6,068,327,000) 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 are substantially less than expected due to an adverse market condition or other factors, impairment loss on inventory of properties may result. As at 31 December 2006, an impairment loss on inventories of properties of HK$68,156,000 (2005: Nil) was made in the consolidated financial statements. 369,403, ,863,000 Deferred taxation assets As at 31 December 2006, a deferred taxation asset of HK$369,403,000 (2005: HK$248,863,000) in relation to allowance for bad and doubtful debts, write down inventory of properties, impairment loss of available-for-sale investments and the provision of Land Appreciation Tax has been recognised in the Group s balance sheet. The realisability of the deferred taxation asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less than expected, a reversal of the deferred taxation assets may arise, which would be recognised in the consolidated income statement for the period in which such a reversal takes place. 87

90 Notes to the Financial Statements 5. a. 5. FINANCIAL INSTRUMENTS a. Financial Risk Management Objectives and Policies The Group s major financial instruments include available-for-sale investments, trade and other receivables, cash and bank balances, trade and other payables, amounts due to fellow subsidiary/holding company, bank balances and bank loans. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. Market risk Currency risk The Group collects all of its revenue in RMB and most of the expenditures including expenditures incurred in property sales as well as capital expenditures are also denominated in RMB. Dividends receivable by the Group from the associates were also collected in RMB. 30 However, certain borrowings of the Group are denominated in HKD (see note 30) and hence the Group is exposed to the currency risk of HKD. 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. Price risk The Group exposed to equity price risk through its investment in available-for-sale investments. The management monitor the risk by investing over a number of different investments. Cash flow interest rate risk The Group manages its interest rate exposure based on interest rate level and outlook as well as potential impact on the Group s financial position arising from volatility. The Group is exposed to cash flow interest rate risk in respect of the bank balances and borrowings at market interest rates. It also exposes to fair value interest rate risk in respect of the amount due to a holding company and the fixed rate borrowings. 30 The Group s policy is to maintain an appropriate level of borrowings in fixed rates and variable rates. The interest rates and terms of repayment of bank borrowings are disclosed in note

91 Notes to the Financial Statements 5. a FINANCIAL INSTRUMENTS (continued) a. Financial Risk Management Objectives and Policies (continued) Credit risk The Group s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 December 2006 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet and financial guarantees given by the Group to property buyers as disclosed in note 37. The recoverability of each individual receivable and the Group s credit risk exposure are regularly reviewed to ensure that adequate provisions are made for impairment losses. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt 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. For properties that are still under construction, the Group typically provide guarantees to banks in connection with the customers borrowing of mortgage loans to finance their purchase of the properties. If a purchaser defaults on the payment of its mortgage during the term of the guarantee, the bank holding the mortgage may demand the Group to repay the outstanding amount under the loan and any accrued interest thereon. Under such circumstances, the Group are able to retain the customer s deposit and sell the property to recover any amounts paid by the Group to the bank. In this regards, the directors of the Company consider that the Group s credit risk is significantly reduced. The credit risk on liquid funds is limited because the counterparties and banks with high credit ratings. The Group has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers. b. b. Fair Value The fair value of derivative instruments, is calculated using quoted prices or provided by financial institutions. The directors of the Company consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values. 89

92 Notes to the Financial Statements TURNOVER Turnover represents income from sale of developed properties, rental income, property management and related services as follows: Sale of developed properties 3,120,870 2,547,266 Rental income 587,087 68,101 Property management and related services 228,773 91,519 3,936,730 2,706, (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (a) Business segments Year ended 31 December 2006 Property investments Sale of developed and properties management Consolidated Turnover External sales 3,120, ,860 3,936,730 Result Segment result 579, ,096 1,464,868 Unallocated interest income 73,656 Unallocated other income 1,927 Income from investments 7,120 Unallocated corporate expenses (80,215) Impairment loss recognised in respect of available-for-sale investments (158,658) Share of results of associates 11,874 11,874 Finance costs (176,919) Profit before taxation 1,143,653 Taxation (291,778) Profit for the year 851,875 90

93 Notes to the Financial Statements 7. (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) (a) Business segments (continued) Year ended 31 December 2006 (continued) Property investments Sale of developed and properties management Unallocated Consolidated Other information Capital additions 4, , ,665 Depreciation of property, plant and equipment 24,546 10, ,238 Write down inventory of properties included in cost of sales 68,156 68,156 Impairment loss recognised in respect of available-for-sale investments 158, ,658 At 31 December 2006 Property investments Sale of developed and properties management Consolidated Assets Segment assets 14,050,187 7,999,533 22,049,720 Interests in associates 489, ,394 Amount due from an associate 245, ,070 Unallocated corporate assets 3,955,131 Consolidated total assets 26,739,315 Liabilities Segment liabilities 4,149, ,833 4,549,720 Unallocated corporate liabilities 10,456,421 Consolidated total liabilities 15,006,141 91

94 Notes to the Financial Statements 7. (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) (a) Business segments (continued) Year ended 31 December 2005 Property investments Sale of developed and properties management Consolidated Turnover External sales 2,547, ,620 2,706,886 Result Segment result 335,976 73, ,035 Unallocated interest income 28,143 Unallocated other income 13,742 Income from investments 103,921 Unallocated corporate expenses (18,183) Share of results of associates 15,892 15,892 Finance costs (67,290) Profit before taxation 485,260 Taxation (46,937) Profit for the year 438,323 92

95 Notes to the Financial Statements 7. (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) (a) Business segments (continued) Year ended 31 December 2005 (continued) Property investments Sale of developed and properties management Unallocated Consolidated Other information Capital additions 109,688 6,008, ,118,115 Depreciation of property, plant and equipment 14,377 5, ,702 Allowance for bad and doubtful debts 101,759 2, ,819 Impairment loss recognised in respect of available-for-sale investments 7,299 7,299 Loss on disposal of property, plant and equipment

96 Notes to the Financial Statements 7. (a) 7. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) (a) Business segments (continued) At 31 December 2005 Property investments Sale of developed and properties management Consolidated Assets Segment assets 7,289,980 7,091,961 14,381,941 Interests in associates 458, ,664 Amount due from an associate 230, ,708 Unallocated corporate assets 2,703,390 Consolidated total assets 17,774,703 Liabilities Segment liabilities 2,540, ,206 3,061,006 Unallocated corporate liabilities 6,387,854 Consolidated total liabilities 9,444,860 (b) (b) No geographical segment analysis is shown as the Group s operating business is solely carried out in the Chinese Mainland. All the assets of the Group are situated in the Chinese Mainland OTHER INCOME Dividend income from listed securities 7,242 Exchange gain 113,359 70,064 Interest income 73,656 28,143 Gain on changes in fair value of investments held for trading 96,679 Gain on changes in fair value on derivative financial instruments 7,120 13,742 Others 8,284 12, , ,770 94

97 Notes to the Financial Statements DIRECTORS EMOLUMENTS The emoluments paid or payable to each of the 19 (2005: 14) directors were as follows: Keung Liu Xie Paul Chi Wang, Lau Tang He Wong Andrew Ho Chan Mo Total 2006 Song Lin Wang Yin Jiang Wei Yan Biao Yan Jie Sheng Xi Wolansky Ralph Pak Shing Zhong Yi Chen Ying Chen Kai Yong Zheng Rong Wang Shi Kong Chi Y. Yan Hin Ngai Po, Paul 2006 Fees Executive directors Non-executive directors Independent non-executive directors Other emoluments Salaries and other benefits 2,363 1,624 1,576 1, ,996 Contribution to retirement benefit schemes Total emoluments 2,461 1,705 1,657 1, ,382 Keung Lau He Paul Chi Wang, Wong Ho Shi Total 2005 Wang Yin Yan Biao Pak Shing Zhong Yi Chen Ying Chen Kai Tang Yong Zheng Rong Wolansky Ralph Wang Shi Kong Chi Hin Ngai Wing Ching 2005 H\K$ 000 Fees Executive directors Non-executive directors Independent non-executive directors ,000 Other emoluments Salaries and other benefits ,036 Share option expense Contribution to retirement benefit schemes Total emoluments , , ,033 95

98 Notes to the Financial Statements EMPLOYEES EMOLUMENTS Of the five individuals with the highest emoluments in the Group, one (2005: three) was director of the Company whose emoluments are included in the disclosures in note 9 above. The emoluments of the remaining four (2005: two) individuals were as follows: Salaries and other benefits 8,328 2,314 Contributions to retirement benefit schemes Performance related incentive payments 8, ,659 2,551 Their emoluments were within the following bands: No. of employees ,000,000 Nil to HK$1,000, ,000,0012,000,000 HK$1,000,001 to HK$2,000, ,000,0014,000,000 HK$3,000,001 to HK$4,000, ,000,0015,000,000 HK$4,000,001 to HK$5,000, ,000,0016,000,000 HK$5,000,001 to HK$6,000, FINANCE COSTS Interest on bank loans wholly repayable within five years (342,586) (186,413) Less: Amount capitalised in properties under development 165, ,123 (176,919) (67,290) 4% 4% Borrowing costs capitalised during the year arose on the general borrowing pool and are calculated by applying a capitalisation rate of 4% (2005: 4%) to expenditure on qualifying assets. 96

99 Notes to the Financial Statements TAXATION The charge comprises: Current tax: Chinese Mainland Enterprise Income Tax charged (213,458) (50,661) (Under) overprovision in prior years: Chinese Mainland Enterprise Income Tax charged (51,751) 24,202 (265,209) (26,459) 22 Deferred taxation (note 22) (26,569) (20,478) (291,778) (46,937) Provision for Chinese Mainland Enterprise Income Tax for both years has been made based on the Group s estimated assessable profits calculated in accordance with the relevant enterprise income tax laws applicable to the subsidiaries in the Chinese Mainland. No provision for Hong Kong Profits Tax has been made in the consolidated financial statements as the Group did not have any assessable profits for both years. 97

100 Notes to the Financial Statements TAXATION (continued) The taxation charge for the year can be reconciled to the profit before taxation per the consolidated income statement as follows: Profit before taxation 1,143, ,260 Less: Share of results of associates (11,874) (15,892) Profit before taxation attributable to the Company and its subsidiaries 1,131, ,368 33% 33% Tax charge at domestic tax rate of 33% (2005: 33%) (373,487) (154,891) Tax effect of expenses not deductible for tax purpose (12,698) (20,073) Tax effect of income not taxable for tax purpose 23,859 47,512 Tax effect of tax losses not recognised (29,838) (6,897) Utilisation of tax losses previously not recognised 7,386 7,431 Tax effect of income under different tax base (Note) 55,779 Effect of different tax rates of subsidiaries 144,751 (Under) overprovision in prior years (51,751) 24,202 Taxation charge for the year (291,778) (46,937) 1 0% Note: Prior year amount represents income tax charged on subsidiaries based on 10% of turnover as deemed profits. 98

101 Notes to the Financial Statements PROFIT FOR THE YEAR Profit for the year has been arrived at after charging: Directors emoluments Fees 895 1,000 Salaries and other emoluments 7,102 5,033 Other staff costs 114,638 66,498 Retirement benefit cost, excluding amount included in directors emoluments 12,554 8,910 Other share option benefits expenses (excluding amount included in directors emoluments) 29,352 4,112 Total staff costs 164,541 85,553 Less: Amount capitalised in the properties under development (18,621) (11,381) 145,920 74,172 Cost of inventories recognised as expense 2,384,377 2,133,519 Auditors remuneration 1,589 2,110 Amortisation of prepaid lease payments Write down inventory of properties included in cost of sales 68,156 * Land Appreciation Tax included in cost of sales* 188,833 14,068 Depreciation of property, plant and equipment 35,238 19,702 (Gain) loss on disposal of property, plant and equipment (61) 194 Share of tax of associates (included in share of results of associates) 3,994 8,454 and after crediting: Gross rental income from investment properties 587,087 68,101 Less: Direct operating expenses from investment properties that generated rental income during the year (106,648) (48,152) 480,439 19,949 * 117,255,000 * Land Appreciation Tax of approximately HK$117,255,000 is related to sale of properties in 2006 while the remaining balance is related to sale of properties in prior years. 95,105, ,492,000 Note: Loss of the Company for 2006 amounted to approximately HK$95,105,000 (2005: profit of approximately HK$295,492,000). 99

102 Notes to the Financial Statements DIVIDENDS Dividend paid: Interim dividend paid during the year 2.0 HK2.0 cents (2005: nil) per ordinary share 62,712 Final dividend in respect of 2005, approved and paid 3.3 HK3.3 cents per ordinary share 102,679 Final dividend in respect of 2004, approved and paid 3.0 HK3.0 cents per ordinary share 45,080 Additional final dividend for prior year due to exercise of share options ,048 45,280 Dividend proposed: Final dividend proposed for the year 5.1 HK5.1 cents (2005: HK3.3 cents) 3.3 per ordinary share 169, , ,322,815,409 The final dividend of HK5.1 cents per ordinary share has been proposed by the directors of the Company which is based on the latest number of shares of 3,322,815,409 in issue and is subject to approval by the shareholders in the forthcoming general meeting 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: Earnings Earnings for the purpose of basic and diluted earnings per share (profit for the year attributable to equity holders of the Company) 858, ,512 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 3,109,038,980 1,552,007,867 Effect of dilutive potential ordinary shares on share options 49,720,439 25,016,462 Weighted average number of ordinary shares for the purposes of diluted earnings per share 3,158,759,419 1,577,024,

103 Notes to the Financial Statements PROPERTY, PLANT AND EQUIPMENT Furniture Construction and Motor in Buildings equipment vehicles progress Total COST At 1 January ,141 18,222 13, ,716 Currency realignment 10, ,454 Additions 82,976 29,034 1, ,686 Acquired on acquisition of subsidiaries 8,768 16,865 4,757 18,903 49,293 Disposals (678) (1,354) (2,032) At 31 December ,658 63,825 18,731 18, ,117 Currency realignment 25,744 3,413 1,036 11,609 41,802 Additions 26,025 2, , ,398 Write-off (2,604) (877) (3,481) At 31 December ,402 90,659 21, , ,836 DEPRECIATION AND AMORTISATION At 1 January ,772 11,682 10,688 79,142 Currency realignment 1, ,076 Provided for the year 13,923 4,597 1,182 19,702 Eliminated on disposals (484) (1,354) (1,838) At 31 December ,298 16,012 10,772 99,082 Currency realignment 2,027 1, ,176 Provided for the year 14,407 18,193 2,638 35,238 Write-off (1,705) (786) (2,491) At 31 December ,732 33,945 13, ,005 CARRYING VALUES At 31 December ,670 56,714 7, , ,831 At 31 December ,360 47,813 7,959 18, ,035 Buildings are located in the Chinese Mainland and are held under mediumterm leases. 101

104 Notes to the Financial Statements PROPERTY, PLANT AND EQUIPMENT (continued) 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 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 50 years. 18. INVESTMENT PROPERTIES FAIR VALUE At 1 January ,800 Currency realignment 9,848 Acquisition of subsidiaries 5,951,377 Additions 3,759 Transferred from inventory of properties (Note) 549,787 Increase in fair value recognised in consolidated income statement 12,063 At 31 December ,967,634 Currency realignment 66,717 Additions 20,267 Transferred from inventory of properties (Note) 62,230 Increase in fair value recognised in consolidated income statement 502,552 At 31 December ,619,400 25,999,000 37,021,000 Note: Amount included an increase in fair value of certain inventory of properties upon the transfer to investment properties of approximately HK$25,999,000 (2005: HK$37,021,000). The fair value of the Group s investment properties at 31 December 2006 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. CB Richard Ellis Limited has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation, which conforms to International Valuation Standards, was arrived at by reference to market evidence of transaction prices for similar properties. 102

105 Notes to the Financial Statements 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. 2,473,000,000 2,289,102, The Group has pledged investment properties of approximately HK$2,473,000,000 at 31 December 2006 (2005: HK$2,289,102,000) to secure general banking facilities granted to the Group (see note 30) INTERESTS IN ASSOCIATES Cost of unlisted investments in associates 65,831 65,831 Share of post-acquisition profits, net of dividend received 423, , , ,664 Summarised financial information in respect of the Group s associates is set out below: Total assets 1,847,449 1,765,474 Total liabilities (868,334) (777,698) Net assets 979, ,776 Group s share of net assets of associates 489, ,664 Revenue 118, ,012 Profit for the year 24,011 34,225 Group s share of results of associates for the year 11,874 15,892 42(b) Particulars of the Group s associates are set out in note 42(b) 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 non-current. 103

106 Notes to the Financial Statements AVAILABLE-FOR-SALE INVESTMENTS Available-for-sale investments comprise: Unlisted equity securities in the Chinese Mainland 371, ,908 Currency realignment (8,646) (5,343) Less: Impairment losses (165,957) (7,299) 197, ,266 The above 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. 19.6% 158,658,000 During the year, the directors have reviewed the recoverable amount of the Group s available-for-sale investments in a property development company in Beijing with reference to the current market conditions. The Group held a 19.6% minority stake in the company as long term investment. Operating environment of the company has deteriorated in 2006 and the company is currently facing liquidity or potential dissolution issue. Therefore, the Group has recognised full impairment loss of HK$158,658,000 in the consolidated income statement to fully provide for such long term investment. 7,299,000 Last year, the Group has recognised an impairment loss of HK$7,299,000 in respect of such available-for-sale investments on similar basis. 104

107 Notes to the Financial Statements DEFERRED TAXATION ASSETS (LIABILITIES) The followings are the major deferred taxation assets (liabilities) recognised and movements thereon during the current and prior years. Other Fair value Allowance temporary adjustment for bad and Land differences of investment doubtful Appreciation properties debts Tax (Note) Total At 1 January 2005 (4,072) 204,475 38, ,797 Currency realignment (91) 4, ,335 (Charge) credit to income for the year (21,046) (2,759) 3,327 (20,478) Arising from acquisition of subsidiaries (482,733) (482,733) At 31 December 2005 (507,942) 206,284 42,579 (259,079) Currency realignment (23,369) 11, (11,238) (Charge) credit to income for the year (134,978) 54,752 53,657 (26,569) At 31 December 2006 (666,289) 217,573 54,752 97,078 (296,886) Note: Other temporary differences mainly represent the deductible temporary differences arising from the write down inventory of properties and impairment loss of availablefor-sale investments. Analysis of the deferred taxation balances at the balance sheet date is as follows: Deferred taxation assets 369, ,863 Deferred taxation liabilities (666,289) (507,942) (296,886) (259,079) 356,186,000288,150,000 No deferred taxation assets has been recognised in respect of estimated tax losses of HK$356,186,000 (2005: HK$288,150,000) as, in the opinion of the directors of the Company, it is uncertain that the tax losses can be utilised to offset future taxable profit under local tax jurisdictions. The tax loss could be carried forward for a maximum of five years. 105

108 Notes to the Financial Statements INVENTORY OF PROPERTIES Properties under development 7,656,915 4,156,898 Properties held for sale 1,515,004 1,070,554 9,171,918 5,227,452 The inventory of properties were located in the Chinese Mainland under medium-term lease. Inventory of properties which are expected to be recovered in more than twelve months after the balance sheet date are classified under current asset as it is expected to be realised in the Group s normal operating cycle OTHER INVENTORIES Raw materials 1, Consumables and others 11,070 9,844 12,138 10, TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID Trade receivables 574, ,955 Deposits paid for acquisition of land use rights 3,286, ,875 Other receivables, prepayments and other deposits 1,049, ,576 Less: Accumulated impairments (522,214) (501,848) 4,388,697 1,605,558 Due to the nature of business of the Group, the Group generally grants no credit period to property buyers. 106

109 Notes to the Financial Statements TRADE RECEIVABLES, OTHER RECEIVABLES AND DEPOSITS PAID (continued) The following is an aged analysis of trade receivables at the balance sheet date: Within one year 135, ,554 Over one year 130,756 70, , , AMOUNTS DUE FROM FELLOW SUBSIDIARIES The amounts are unsecured, interest-free and repayable on demand. The whole balance is trade in nature and being aged within one year. 27. CASH AND BANK BALANCES Cash and bank balances comprise short-term bank deposits carry interest at market rates which range from 2.5% to 2.95% (2005: 2.0% to 2.4%) per annum. 2,312,470,000 2,312,470,000 2,029,791,000 1,957,183,000 Included in cash and bank balances, there is a total balance amounting to RMB2,312,470,000 (equivalent to HK$2,312,470,000) (2005: RMB2,029,791,000 (equivalent to HK$1,957,183,000)) accumulated in RMB which is not a freely convertible currency TRADE AND OTHER PAYABLES Trade payables 902,371 1,094,841 Other payables and accrued charges 1,002, ,305 1,904,412 1,500,146 The following is an aged analysis of trade payables at the balance sheet date: Within one year 475, ,938 Over one year 427, , ,371 1,094,

110 Notes to the Financial Statements AMOUNTS DUE TO FELLOW SUBSIDIARIES/ADVANCE FROM A HOLDING COMPANY/AMOUNT DUE TO A HOLDING COMPANY The amounts are unsecured and repayable on demand. The amounts due to fellow subsidiaries are interest-free, trade in nature and being aged within one year. The advance from a holding company in prior year, which is interestfree, has been subsequently converted into capital investment in a subsidiary of the Company. C osmart Enterprise LimitedCosmart The amount due to a holding company representing the consideration payable for the acquisition of Cosmart Enterprise Limited ( Cosmart ) (see note 34) is interest bearing at Hong Kong Interbank Offered Rate ( HIBOR ) plus 0.5% per annum BANK BORROWINGS Secured 1,250,000 1,345,400 Unsecured 8,341,569 4,456,348 9,591,569 5,801,748 Carrying amount repayable: On demand or within one year 3,434,031 1,842,210 More than one year but not exceeding two years 1,370,000 1,047,490 More than two years but not more than five years 4,787,538 2,912,048 9,591,569 5,801,748 Less: Amounts due within one year shown under current liabilities (3,434,031) (1,842,210) 6,157,538 3,959,

111 Notes to the Financial Statements 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: Hong Kong dollars 4,485, ,000 United States dollars 218,224 4,485, , ,106,569,000 3,507,546, ,485,000,000 2,294,202,000 Amount included fixed-rate bank borrowings of HK$5,106,569,000 (2005: HK$3,507,546,000) which carry interest at average fixed rate of 5.6% (2005: 4.9%) and variable-rate borrowings of HK$4,485,000,000 (2005: HK$2,294,202,000) which carried interest at HIBOR % (2005: HIBOR % and LIBOR %) 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. 1,063,971,000 2,280,336, ,223,000 1,400,000, ,000,000 35% Included in the borrowings of the Group above are unsecured loans amounting to HK$1,063,971,000 (2005: HK$2,280,336,000) and nil (2005: HK$218,223,000) which were guaranteed by CRNC and CRH respectively. Also, in respect of bank borrowings of the Group amounted to HK$1,400,000,000 (2005: HK$819,000,000), in accordance with the terms of the respective loan agreements, CRH is required to hold not less than 35% of the issued share capital of the Company at any time during the period of the loans. 109

112 Notes to the Financial Statements DERIVATIVE FINANCIAL INSTRUMENTS Currency swap (23,456) 538,031,00065,000,000 On 30 June 2003, the Group has entered into a currency rate swap with a bank of which, the Group acted as the fixed rate payer of RMB538,031,000 and the bank as the fixed rate payer of US$65,000,000. The transaction was settled in net on 30 June The above derivative was measured at fair value at prior year s balance sheet date. Its fair value was determined based on the quoted market prices for equivalent instruments at the balance sheet date. 32. SHARE CAPITAL Number of shares Share capital Ordinary shares of HK$0.10 each Authorised: At the beginning of the year 5,000,000,000 2,000,000, , ,000 Increase on 27 June 2005 (Note) 3,000,000, ,000 At the end of the year 5,000,000,000 5,000,000, , ,000 Issued and fully paid At the beginning of the year 2,773,670,691 1,502,667, , ,267 Placement of new shares 300,000,000 30,000 Exercise of share options 33 (see note 33) 63,040,500 15,397,000 6,304 1,540 Issued in consideration for the acquisition of additional interests in a subsidiaries 186,104,218 1,255,606,263 18, ,560 3,322,815,409 2,773,670, , ,

113 Notes to the Financial Statements 32. 3,000,000, ,000, ,000, SHARE CAPITAL (continued) Note: Pursuant to a written resolution passed by the shareholders on 27 June 2005, the authorised share capital of the Company was increased from HK$200,000,000 to HK$500,000,000 by the creation of an additional 3,000,000,000 shares of HK$0.1 each, which rank pari passu in all respects with the then existing shares. Cosmart186,104, Cosmart 49% On 20 December 2006, 186,104,218 ordinary shares of HK$0.1 each (Note 34) were issued for the acquisition of Cosmart. Cosmart owns 49% equity interests in Beijing China Resources Xin Zhen Property Co., Ltd. Cosmart ( )346,667, The acquisition in Cosmart gives rise to a deemed capital distribution (consolidated statement of changes in equity) to the controlling shareholder of HK$346,667, 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

114 Notes to the Financial Statements SHARE OPTION SCHEMES (continued) The New Scheme refers to the share option scheme adopted by the Company which was approved by the shareholders in general meeting on 31 January The board of directors may grant options to eligible participants, including executive or non-executive directors of the Company, any discretionary object of a discretionary trust established by any employee, executive or non-executive directors of the Company, any executives and employees of consultants, professional and other advisors to the Group, chief executive, substantial shareholder of the Company, associate companies of the Group, associates of directors, chief executive and substantial shareholder of the Company, and employees of substantial shareholder. The exercise price of the share option under the New Scheme is determined by the directors of the Company, and will not be less than the higher of the closing price of the Company s shares on the date of grant, the average closing price of the shares for the five business days immediately preceding the date of grant, and the nominal value of the share. The total number of shares that may be issued upon the exercise of all options granted and yet to be exercised under the New Scheme and the maximum number of shares that may be issued upon exercise of all options to be granted thereunder and the maximum entitlement of each participant under the New Scheme is respectively, equivalent to the maximum limit permitted under the prevailing Listing Rules. 1 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. 13,708,00077,534,000 23,765,00094,018, % 2.33% 0.86% 3.39% At 31 December 2006, the number of shares in respect of which options had been granted and remained outstanding under the Old Scheme and the New Scheme were 13,708,000 and 77,534,000 (2005: 23,765,000 and 94,018,000) shares, representing 0.41% and 2.33% (2005: 0.86% and 3.39%), respectively, to the shares of the Company in issue at that date. 112

115 Notes to the Financial Statements SHARE OPTION SCHEMES (continued) The following tables disclose details of the Company s share options held by employees (including directors) and movements in such holdings during the year: Number of share options Subscription Outstanding Granted Exercised Lapsed Outstanding price Exercisable at during during during at Date of grant per share period the year the year the year HK$ 27/06/ /06/1997 to 16,075,000 (4,357,000) 11,718,000 Old Scheme 27/05/ /07/ /07/2000 to 7,690,000 (5,700,000) 1,990,000 27/05/ ,765,000 (10,057,000) 13,708,000 01/03/ /03/2002 to 12,200,000 (11,240,000) 960,000 New Scheme 28/02/ /03/ /03/2002 to 25,730,000 (15,020,000) 10,710,000 03/03/ /04/ /04/2002 to 3,500,000 (3,500,000) 15/04/ /10/ /10/2002 to 4,748,000 (3,398,000) 1,350,000 06/10/ /04/ /04/2004 to 26,810,000 (16,605,500) 10,204,500 27/04/ /04/ /04/2005 to 8,030,000 (920,000) 7,110,000 28/04/ /06/ /06/2005 to 11,000,000 (1,400,000) 9,600,000 31/05/ /06/ /06/2005 to 1,200,000 (700,000) 500,000 01/06/ /06/ /06/2005 to 800,000 (200,000) 600,000 26/06/ /01/ /01/2006 to 30,700,000 30,700,000 02/01/ /02/ /02/2006 to 2,000,000 2,000,000 16/02/ /06/ /06/2006 to 3,800,000 3,800,000 25/06/ ,018,000 36,500,000 (52,983,500) 77,534, ,783,000 36,500,000 (63,040,500) 91,242,

116 Notes to the Financial Statements SHARE OPTION SCHEMES (continued) Number of share options Lapsed during Subscription Outstanding Granted Exercised the year Outstanding price Exercisable at during during 1 at Date of grant per share period the year the year (Note 1) HK$ 27/06/ /06/1997 to 16,075,000 16,075,000 Old Scheme 27/05/ /07/ /07/2000 to 13,540,000 (5,850,000) 7,690,000 27/05/ ,615,000 (5,850,000) 23,765,000 01/03/ /03/2002 to 12,200,000 12,200,000 New Scheme 28/02/ /03/ /03/2002 to 28,170,000 (1,840,000) (600,000) 25,730,000 03/03/ /04/ /04/2002 to 4,400,000 (900,000) 3,500,000 15/04/ /10/ /10/2002 to 9,350,000 (4,602,000) 4,748,000 06/10/ /04/ /04/2004 to 28,640,000 (1,505,000) (325,000) 26,810,000 27/04/ /04/ /04/2005 to 8,580,000 (550,000) 8,030,000 28/04/ /06/ /06/2005 to 11,700,000 (700,000) 11,000,000 31/05/ /06/ /06/2005 to 1,200,000 1,200,000 01/06/ /06/ /06/2005 to 800, ,000 26/06/ ,760,000 22,280,000 (9,547,000) (1,475,000) 94,018, ,375,000 22,280,000 (15,397,000) (1,475,000) 117,783,000 Note: Options are lapsed if the employee leaves the Group before the options rest. 114

117 Notes to the Financial Statements 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 Subscription Outstanding Granted Exercised Lapsed Reallocation Outstanding price Exercisable at during during during 1 at Date of grant per share period the year the year the year (Note 1) HK$ 27/06/ /06/1997 to 4,300,000 (2,300,000) (2,000,000) Old Scheme 27/05/ /07/ /07/2000 to 5,700,000 (2,400,000) (3,300,000) 27/05/ ,000,000 (4,700,000) (5,300,000) 01/03/ /03/2002 to 8,400,000 (4,800,000) (3,600,000) New Scheme 28/02/ /03/ /02/2002 to 120,000 (1,420,000) 1,300,000 28/02/ /04/ /04/2002 to 1,600,000 (1,600,000) 28/02/ /04/ /04/2004 to 11,500,000 (3,500,000) (8,000,000) 27/04/ /06/ /06/2005 to (700,000) 2,600,000 1,900,000 31/05/ /06/ /06/2005 to 1,200,000 (700,000) (500,000) 01/06/ ,820,000 (11,120,000) (9,800,000) 1,900,000 32,820,000 (15,820,000) (15,100,000) 1,900,

118 Notes to the Financial Statements SHARE OPTION SCHEMES (continued) Number of share options Subscription Outstanding Granted Exercised Lapsed Reallocation Outstanding price Exercisable at during during during 1 at Date of grant per share period the year the year the year (Note 1) HK$ 27/06/ /06/1997 to 6,800,000 (2,500,000) 4,300,000 Old Scheme 27/05/ /07/ /07/2000 to 8,200,000 (2,500,000) 5,700,000 27/05/ ,000,000 (5,000,000) 10,000,000 01/03/ /03/2002 to 8,400,000 8,400,000 New Scheme 28/02/ /03/ /02/2002 to 120, ,000 28/02/ /04/ /04/2002 to 1,600,000 1,600,000 28/02/ /04/ /04/2004 to 11,500,000 11,500,000 27/04/ /06/ /06/2005 to 1,200,000 1,200,000 01/06/ ,620,000 1,200,000 22,820,000 36,620,000 1,200,000 (5,000,000) 32,820,000 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. 116

119 Notes to the Financial Statements 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$1.55 (2005: HK$1.23). During the year ended 31 December 2006, options were granted on 3 January, 17 February and 26 June. The estimated fair values of the options granted were calculated using the Black-Scholes pricing model. The inputs into the model were as follows: Weighted average share price HK$0.98 HK$1.23 HK$1.27 HK$1.31 HK$3.23 HK$3.93 HK$3.53 Exercise price HK$1.42 HK$1.23 HK$1.27 HK$1.35 HK$3.23 HK$3.97 HK$3.58 Expected life years 7 years 7 years 7 years 7 years 7 years 7 years Risk-free rate 4.00% 4.71% 3.491% 3.409% 4.105% 4.25% 4.806% Expected dividend yield 2.76% 3.48% 4.56% 4.58% 1.86% 1.529% 1.702% Fair values of option at grant date HK$0.259 HK$0.334 HK$0.352 HK$0.352 HK$1.72 HK$2.15 HK$1.87 Closing share price immediately before date of grant HK$1.38 HK$1.25 HK$1.23 HK$1.34 HK$3.22 HK$4.00 HK$3.48 Vesting period years 4 years 4 years 4 years 4 years 4 years 4 years 1 4 All options were under the graded vesting period between one to four years. 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. 40% 2 60 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 behavioral considerations. 29,352,0004,918,000 The Group recognised the total expense of approximately HK$29,352,000 for the year ended 31 December 2006 (2005: HK$4,918,000) in relation to share options granted by the Company. 117

120 Notes to the Financial Statements 34. 3,105,680,000 Cosmart 346,667, ACQUISITION OF SUBSIDIARIES For the year ended 31 December 2006 On 21 December 2006, the Group acquired 100% of the issued share capital of Cosmart for consideration of HK$3,105,680,000. This acquisition has been accounted for using the purchase method. The premium on acquisition of HK$346,667,000 arising as a result of the acquisition was deemed as capital distribution to holding company and debited against share premium. Cosmart Charmlink Enterprises Limited 49% 46.9% 95.9% A wholly owned subsidiary of Cosmart, Charmlink Enterprises Limited, holds 49% interest in Beijing China Resources Xin Zhen Property Co., Ltd. ( Xin Zhen ). Xin Zhen was a non-wholly owned subsidiary of the Group. As a result of the acquisition, the Group s effective interest in Xin Zhen increased from 46.9% to 95.9%. Cosmart K ennex Enterprises Limited () Another wholly owned subsidiary of Cosmart, Kennex Enterprises Limited, holds 100% interest in China Resources Land (Chengdu) Development Company Limited ( Chengdu Development ). Chengdu Development is a company established in the Chinese Mainland and engaged in the property development activities. The main tangible asset of the Company is a property development site in Chengdu, the Chinese Mainland. Carrying amount and fair value Net assets acquired: Interest in associate 487,967 Inventory of properties 2,271,045 2,759,012 Satisfied by: Shares issued (Note) 1,570,719 Cash consideration 306,660 Deferred considerations (included in amount due to a holding company) 1,228,300 3,105,679 Capital distribution to holding company arising from acquisition of additional interests in subsidiaries (included in share premium) (346,667) 2,759,012 Cosmart 186,104, (32) 1,570,719, Note: As part of the consideration for the acquisition of Cosmart, 186,104,218 ordinary shares of the Company with par value of HK$0.1 each were issued (Note 32). The fair value of the ordinary shares of the Company, determined using the published price available at the date of the acquisition, amounted to HK$1,570,719,000, representing HK$8.44 per share. 118

121 Notes to the Financial Statements 34. 3,207,315,387Boom Go Group Limited King Role Limited 1,131,520,000 King Role Limited 21.53% % 91.96% 34. ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2005 On 20 December 2005, the Group acquired 100% of the issued share capital of Boom Go Group Limited and King Role Limited for consideration of HK$3,207,315,387. This acquisition has been accounted for using the purchase method. The discount on acquisition of HK$1,131,520,000 arising as a result of the acquisition was deemed as capital contribution from holding company and credited against capital reserve. King Role Limited holds 21.53% of China Resources Land (Beijing) Co. Ltd. ( CRL Beijing ). As a result of the acquisition, the Group s interest in CRL Beijing increased from 70.43% to 91.96%. The carrying amount of net assets acquired approximates to the fair values, and the discount arising, are as follows: Acquirees carrying amount and fair value before combination Net assets acquired: Property, plant and equipment 49,293 Investment properties 5,951,377 Interest in associates 601,725 Available-for-sale investment 917 Inventories 9,392 Trade and other receivables 25,149 Cash and bank balances 168,051 Trade and other payables (530,997) Taxation payable (2,229) Bank loans (1,451,110) Deferred taxation liabilities (482,733) 4,338,835 Discount on acquisition (1,131,520) 3,207,315 Total consideration satisfied by: Shares issued (Note) 2,872, Disposal of a subsidiary (note 35) 323,074 Direct cost attributable to the acquisition 12,042 3,207,315 Net cash inflow arising on acquisition: Cash and cash equivalents acquired 168,051 Cash consideration paid (12,042) Net inflow of cash and cash equivalents in respect of the purchase of subsidiaries 156,

122 Notes to the Financial Statements 34. Boom Go Group Limited King Role Limited 1,255,606, ,872,199, ACQUISITION OF SUBSIDIARIES (continued) For the year ended 31 December 2005 (continued) Note: As part of the consideration for the acquisition of Boom Go Group Limited and King Role Limited, 1,255,606,263 ordinary shares of the Company with par value of HK$0.1 each were issued (Note 33). The fair value of the ordinary shares of the Company, determined using the published price available at the date of the acquisition, amounted to HK$2,872,199,327, representing HK$2.29 per share. 3,158,000,000 2,433,000, Full Knowledge Investments Limited Boom Go Group Limited King Role LimitedFull Knowledge Investments Limited If the acquisition had been completed on 1 January 2005, total group turnover for the period would have been HK$3,158 million, and profit for the year would have been HK$2,433 million. The proforma 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 2005, 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 insignificant. 35. DISPOSAL OF A SUBSIDIARY For the year ended 31 December 2005 On 20 December 2005, the Group disposed of its subsidiary, Full Knowledge Investments Limited as part of the consideration for the acquisition of Boom Go Group Limited and King Role Limited. The net assets of Full Knowledge Investments Limited at the date of disposal were as follows: NET ASSETS DISPOSED OF Investments held for trading 323,074 Consideration for acquisition 323,074 No cash flow effect arising on the disposal. 120

123 Notes to the Financial Statements MAJOR NON-CASH TRANSACTIONS Part of the considerations for the purchases of subsidiaries that occurred during the year comprised shares and cash payments. Further details of the acquisition are set out in note CONTINGENT LIABILITIES Guarantees are given to banks with respect to leases 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 and completion of the registration the relevant mortgage properties registration. In the opinion of directors, the fair value of the financial guarantee contracts is not significant. 38. COMMITMENTS Capital expenditure in respect of the acquisition of construction in progress: Contracted for but not provided in the consolidated financial statements 55,866 28,878 Other commitment in respect of the acquisition of land use rights 2,759,880 1,624,

124 Notes to the Financial Statements 39. 2,582, , OPERATING LEASE COMMITMENT The Group as lessee Minimum lease payments paid under operating leases during the year in respect of office premises was HK$2,582,000 (2005: HK$937,000). At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: Within one year 2,081 2,290 In the second to fifth year inclusive 2,667 4,572 After five years 11 4,748 6,873 Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases are negotiated for an average term of one year to five years and rentals are fixed for an average of two years. 587,087,000 68,101,000 9,973, The Group as lessor Property rental income earned during the year was HK$587,087,000 (2005: HK$68,101,000). Included above, there was contingent rental income of HK$9,973,000 (2005: Nil). 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 an average ranged from one to seven years. At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: Within one year 426, ,456 In the second to fifth year inclusive 840, ,530 After five years 284, ,058 1,552,059 1,427,

125 Notes to the Financial Statements 40. (a) 40. RETIREMENT BENEFIT PLANS (a) Hong Kong The Group participates in a pension scheme, which was registered under the Mandatory Provident Fund Scheme Ordinance (the MPF Ordinance ), for all its employees in Hong Kong. The scheme is a defined contribution scheme and is funded by contributions from employers and employees according to the provisions of the MPF Ordinance. 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: Amount contributed and charged to the consolidated income statement (b) (b) Chinese Mainland The employees of the Group in the Chinese Mainland are members of state-managed retirement benefit schemes operated by the respective local government in the Chinese Mainland. The Group is required to contribute a specified percentage of payroll costs to the schemes to fund the benefits. The only obligation of the Group with respect to these schemes is to make the specified contributions. The total cost charged to the consolidated income statement in respect of the above-mentioned schemes in the Chinese Mainland during each of the years are as follows: Amount contributed and charged to the consolidated income statement 12,840 9,

126 Notes to the Financial Statements 41. (i) / 41. RELATED PARTY TRANSACTIONS (i) Transactions with fellow subsidiaries/holding companies The following is a summary of the significant related party transactions entered into by the Group with its fellow subsidiaries during the year: Rental and Construction management fees received cost received Relationship China Resources (Holdings) Limited Holding company 7,013 China Resources Construction Company Limited Fellow subsidiary 161, ,842 China Resources Management Limited Fellow subsidiary China Resources Power Holdings Company Limited Fellow Subsidiary 3,813 China Resources Textiles Holdings Limited Fellow Subsidiary 3,267 China Resources Vanguard Company Limited Fellow Subsidiary 2,851 Shenzhen Kapok Hotel Fellow Subsidiary 5,808 China Resources Breweries Limited Fellow Subsidiary 2,365 Gain Ahead Group Limited 34 For the year ended 31 December 2005, the Group also acquired subsidiaries from its holding company, Gain Ahead Group Limited through issue of shares as consideration. As a result of the acquisition, the Group has obtained additional interest in CRL Beijing (see note 34). C osmart Resources Limited 34 During the year ended 31 December 2006, the Group also acquired subsidiaries from its holding company, Cosmart Resources Limited through issue of shares and cash payments as consideration. As a result of the acquisition, the Group has obtained additional interest in Beijing China Resources Xin Zhen Property Co., Ltd. and the property interest of a piece of land in Chengdu, the Chinese Mainland (see note 34). 124

127 Notes to the Financial Statements 41. (ii) 41. RELATED PARTY TRANSACTIONS (continued) (ii) Compensation of key management personnel The remuneration of directors of the Company and other members of key management during the year was as follows: Short-term benefits 8,108 5,036 Post-employment benefits Share-based payments 4, ,228 6,033 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. (iii) / (iii) 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. ( i) Apart from the disclosure in (i) above, the Group also conducts business with other state-controlled entities as follows: (a) (a) The Group has certain deposits placements, borrowings and other general banking facilities, with certain banks 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. (b) (b) The Group has sales and purchases transactions with customers and suppliers, in which the directors of the Company are of the opinion that it is impracticable to ascertain the identity of the counterparties and accordingly whether the transactions are with other state-controlled entities. The directors of the Company consider those state-controlled entities are independent third parties as far as the Group s business with them are concerned. 125

128 Notes to the Financial Statements 42. (a) 42. SUBSIDIARIES AND ASSOCIATES (a) Particulars of the Company s principal subsidiaries as at 31 December 2006 are set out as follows: Proportion of nominal value of issued share capital/ Nominal value registered capital held by of issued share capital/ Name of subsidiary registered capital Company subsidiaries Principal activities 76, % Strong Foundation Developments Limited US$76,000 Investment holding ( Strong Foundation ) Boom Go Group Limited % ( Boom Go ) US$11 Investment holding Best Hope Group Limited 1 100% ( Best Hope ) US$1 Investment holding Big Leap Group Limited 1 100% ( Big Leap ) US$1 Investment holding Direct Win Group Limited 1 100% ( Direct Win ) US$1 Investment holding Bright Choice Group Limited 1 100% ( Bright Choice ) US$1 Investment holding King Role Limited 3 100% ( King Role ) US$3 Investment holding Cosmart Resources Limited 2 100% ( Cosmart ) US$2 Investment holding Kennex Enterprises Limited 1 100% ( Kennex ) US$1 Investment holding Charmlink Enterprises Limited 1 100% ( Charmlink ) US$1 Investment holding Megapower Resources Limited 1 100% ( Megapower ) US$1 Investment holding 126

129 Notes to the Financial Statements SUBSIDIARIES AND ASSOCIATES (continued) Proportion of nominal value of issued share capital/ Nominal value registered capital held by of issued share capital/ Name of subsidiary registered capital Company subsidiaries Principal activities d 12,000, % Beijing China Resources Building US$12,000,000 Properties investment Company Limited (note d) d 370, % Beijing China Resources Property US$370,000 Property management Management Company Limited (note d) 1,300,000, % a RMB1,300,000,000 Investment holding China Resources Land (Beijing) Co., Ltd. and property (note a) development 5,000, % b RMB5,000,000 Property management China Resources Land (Beijing) Property Management Co., Ltd. (note b) 264,329, % b RMB264,329,360 Property development Beijing China Resources Jingtong Property Development Company Limited (note b) 180,000, % b RMB180,000,000 Property development Beijing China Resources Shuguang Real Estate Development Co., Ltd. (note b) b 10,000, % Beijing China Resources Jian Xiang Real Estate US$10,000,000 Property development Development Co., Ltd. (note b) 127

130 Notes to the Financial Statements SUBSIDIARIES AND ASSOCIATES (continued) Proportion of nominal value of issued share capital/ Nominal value registered capital held by of issued share capital/ Name of subsidiary registered capital Company subsidiaries Principal activities b 2,000, % Beijing Huazhao Electrical Equipment RMB2,000,000 Electrical engineering Co., Ltd. (note b) b 500, % Beijing China Resources Property Agent RMB500,000 Property agency Co., Ltd. (note b) c 1,000,000, % Beijing China Resources Xin Zhen RMB1,000,000,000 Property development Property Co., Ltd. (note c) c 28,000,000 80% Beijing Zhongchengxin Property RMB28,000,000 Property development Development Co., Ltd. (note c) d 40,000, % China Resources Shanghai US$40,000,000 Properties investment Company Limited (note d) d 21,000, % China Resources Land (Shanghai) US$21,000,000 Property development Limited (note d) China Resources Land (Shanghai) 150, % Management Co., Ltd. d (note d) US$150,000 Property management d 400,000, % China Resources (Shenzhen) HK$400,000,000 Properties investment Company Limited (note d) d 5,000, % Shenzhen China Resources Property RMB5,000,000 Property management Management Company Limited (note d) 128

131 Notes to the Financial Statements SUBSIDIARIES AND ASSOCIATES (continued) Proportion of nominal value of issued share capital/ Nominal value registered capital held by of issued share capital/ Name of subsidiary registered capital Company subsidiaries Principal activities 756,000, % (note d) HK$756,000,000 Property Development 64,000, % (note d) US$64,000,000 Property Development d 42,000, % China Resources Land (Chengdu) US$42,000,000 Property development Limited (note d) 1,000, % b (note b) RMB1,000,000 Property management China Resources Land (Wuhan) Co., Ltd. 62,240, % d (note d) HK$62,240,000 Property development China Resources Land (Wuhan) Management 500, % Co., Ltd. d (note d) US$500,000 Property management China Resources Land (Hefei) Co., Ltd. 9,600, % d (note d) US$9,600,000 Property development China Resources Land (Hefei) Management 100, % Co., Ltd. d (note d) US$100,000 Property Management China Resources Land (Ningbo) Co., Ltd. 385,000, % d (note d) HK$385,000,000 Property Development China Resources Land (Hunan) Co., Ltd. 240,000, % d (note d) HK$240,000,000 Property Development 129

132 Notes to the Financial Statements 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. 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 Leap Direct Win Bright Choice King Role Cosmart Kennex Chamlink Megapower All the subsidiaries listed above are established and operating in the Chinese Mainland except for Strong Foundation, Boom Go, Best Hope, Big Leap, Direct Win, Bright Choice, King Role, Cosmart, Kennex, Chamlink and Megapower which are registered in the British Virgin Islands. No loan capital has been issued by the subsidiaries. (b) (b) Particulars of the Group s associates as at 31 December 2006 are set out as follows: Attributable Nominal value of issued interest held by Name of associate share capital/registered capital CR (Beijing) Principal activities a 11,000,000 50% Beijing Huazhongyuan Property US$11,000,000 Property investment Development Co., Ltd. (note a) and management b 12,920,000 50% Beijing Hua Wei Center Co., Ltd. US$12,920,000 Property investment (note b) and management a 350, % Beijing Hua Jiade Decoration Engineering US$350,000 Provision of exterior Company Limited (note a) decoration services 130

133 Notes to the Financial Statements SUBSIDIARIES AND ASSOCIATES (continued) Notes: (a) (a) The associate is a domestic enterprise established in the Chinese Mainland. (b) (b) The associate is a Sino-foreign equity joint venture established in the Chinese Mainland. All the associates are established and operating in the Chinese Mainland APPROVAL OF FINANCIAL STATEMENTS The financial statements set out on pages 71 to 132 were approved and authorised for issue by the Board of Directors on 30 March

134 Five Year Financial Summary GROUP S RESULTS Turnover 3,936,730 2,706,886 1,889, ,372 1,130,158 Profit (loss) before taxation 1,143, ,260 79,622 (7,428) (4,316) Taxation (291,778) (46,937) (108,676) (18,187) 74,079 Profit (loss) for the year 851, ,323 (29,054) (25,615) 69,763 Attributable to: Equity holders of the Company 858, ,512 21,361 15, ,636 Minority interests (6,800) 53,811 (50,415) (41,368) (35,873) 851, ,323 (29,054) (25,615) 69,763 GROUP S ASSETS AND LIABILITIES Property, plant and equipment 817, , , , ,132 Prepaid lease payments 41,285 42,208 43,131 44,054 Investment properties 7,619,400 6,967, ,800 Deferred taxation assets 369, , , , ,491 Long-term investments 686, , , , ,397 Amount due from an associate 245, , , , ,892 Current assets 16,959,627 8,926,325 8,250,651 7,783,224 6,324,315 Total assets 26,739,315 17,774,703 10,374,708 9,423,731 7,994,227 Current liabilities 8,182,314 4,977,380 4,074,570 2,693,243 1,512,810 Long-term liabilities 6,157,538 3,959,538 1,813,019 2,181,163 1,505,314 Deferred taxation liabilities 666, ,942 4,072 34,451 Total liabilities 15,006,141 9,444,860 5,891,661 4,874,406 3,052,575 11,733,174 8,329,843 4,483,047 4,549,325 4,941,652 Equity attributable to equity holders of the Company 11,513,357 8,106,286 3,728,074 3,743,937 3,940,956 Minority interests 219, , , ,388 1,000,696 11,733,174 8,329,843 4,483,047 4,549,325 4,941,

135