CHINA F DS 8 2 Annual Report Stock code CHINA FOODS LIMITED (Incorporated in Bermuda with limited liability)

Transcription

1 CHINA F DS 8 2 Annual Report Stock code CHINA FOODS LIMITED (Incorporated in Bermuda with limited liability)

2 Contents Business Structure 1 Financial Highlights 2 Highlights in Chairman s Statement 5 Management Discussion and Analysis 7 Directors and Senior Management Profile 16 Social Responsibility Report 19 Corporate Governance Report 21 Report of the Directors 35 Independent Auditors Report 105 Consolidated: Income Statement 107 Balance Sheet 108 Statement of Changes in Equity 110 Cash Flow Statement 112 Company: Balance Sheet 116 Notes to the Financial Statements 117 Five Year Financial Summary 210 Corporate Information

3 100% 100% 65% 100% 100% 100% 100% 100% 100% 90% 100% 100% 100% 100% 100% 80% 55% 100% 100% 80% 80% 75% 75% 50% * 75% * % 53

4 # * 14,240 2% 483 9,743 4% 46% % 6% 6,509 29% 32% 37% 31% 28% 22% 20% ,837 8,992 10,448 3,875 4,559 5, # *

5 % 2 46 SAP APEC

6 3 79 SAP SAP China Momentum Customer Award 2008 SAP ,

7 * % 4.83* 34% % 4.42 *

8

9 % % % % (i) 3.95 (ii) % %

10 Greatwall , , % % %57.3% Greatwall 38%

11 ACNielsen Greatwall % 1, % 221 2, % 2, %

12 % 32% % 21%

13 +52% Coca-Cola China Industries Limited % 35%75% Coca-Cola Bottlers Manufacturing Holdings Limited 21% ,574 22% 2,431 14% 3,007 18% 78% 82% 86%

14 531, % %2008 ACNielsen200757% 70% %10% 2, %

15 Le Conte 16.5% % ,791,383,

16 , , ,477,600 1,769, ,708, Coca-Cola Bottlers Manufacturing Holdings Limited 21% % Coca-Cola China Industries LimitedCCCI CCCI 40% () ( ) (i) E.1.2. (ii)

17

18 Smithfield Foods, Inc %

19

20

21 ,500 71

22

23 E Committee of Sponsoring Organizations of the Treadway Commission SAP 73

24 A. A.1 A.1.1 1/(4) 4/(4) 4/(4) 2/(4) 4/(4) 3/(4) 3/(4) 4/(4) # 1/(1) * 0/(2) 4/(4) # * A.1.2 A.1.3 A.1.4 A

25 A. A.1 A.1.6 A.1.7 A.1.8 A.1.9 A.2 A.2.1 A.2.2 A

26 A. A.3 A A.4 A.4.1 A (A) A.5 A

27 A. A.5 A.5.2 A.5.3 A.1.1 A A.6 A.6.1 A.6.2 A.6.3 A.2.3 A

28 B. B.1 B /(1) 1/(1) 1/(1) B B.1.3 B B

29 C. C.1 C.1.1 C (1) (6) C.1.3 C.2 C.2.1 Committee of Sponsoring Organizations of the Treadway Commission 79

30 C. C.2 SAP C.2.2 C.3.1 C.3 C (2) (2)

31 C. C.3 C.3.1 3/(3) * 1/(2) 3/(3) # 0/(0) * #

32 C. C.3 C C.3.2 C C

33 C. C.3 C , ,073 C.3.6 D. D.1 D

34 D. D.1 D D.2 D.2.1 B.1.1 B.1.3 C.3.1 C.3.3 D

35 E. E.1 E.1.1 E E.2 E.2.1 E.2.2 E

36

37 (i)(ii) (iii) 87

38 3. 10% ,708, % 4. 1% % 67% 100% (a) (b)(c)

39 , , , , , , , , , , , , , , ,017,600 (1,769,600) 13,248, ,477,600 (1,769,600) 18,708, (b) 89

40 ,741,636, ,660,432, % 3% 72% 53% 5% (Mr. Stephen Edward Clark) (A) 111(A) 90

41

42 XV XV (a) 3 880, , % 2 670,000 1,550, % 1 880, , , % 2 800, , % 2 700, , % 2 700, , % 2 700, , % 2 92

43 (a) ,791,383,356 (b) 2 700, , % ,593,906,

44 (a) * Wide Smart Holdings Limited (1) 1,922,550, % Wide Smart COFCO (BVI) No. 108 Limited (1) 140,000, % COFCO BVI (1) 10,138, % (1) (2) 2,062,550, % (1) (3) 2,072,688, % (1) (2) Wide Smart COFCO BVI2,062,550,331Wide Smart COFCO BVI (3) Wide Smart COFCO BVI2,072,688,331Wide Smart COFCO BVI * ,791,383,356 Wide Smart (b)

45 % GreatwallCHINA CLUB ,

46 ,700, %110,000,000 45% 45%49,500, ,539, ,100, ,013,000 96

47 ,000,000, ,409,041, COFCO Wines & Spirits Holdings LimitedCOFCO Wines & Spirits Holdings Limited ,000, ,037,000 9,941, ,600, ,800,000 97

48 ,200, ,151, ,500, ,834, % 40% ,700, ,794,000 98

49 ,100, ,464, Bapton Company Limited ,232, , ,900, ,834, ,200, ,073, , ,

50 ,000,00016,000, ,505,000 9,061, COFCO Wines & Spirits Holdings Limited ,000,00060,000, ,792, ,786,000,000 16,590,000,00021,160,000,

51 ,900,00026,600,00031,100, ,000, ,000,000233,000, ,000, ,000,00040,000, ,000,

52 ,000,000153,000,000183,000, ,500,000,0001,800,000,0002,150,000, ,900,000,0002,900,000,0004,300,000, ,000,000204,000,000209,000, ,000,00035,000,00040,000,

53 ,000, A

54

55 Independent Auditors Report To the shareholders of China Foods Limited (Incorporated in Bermuda with limited liability) We have audited the financial statements of China Foods Limited set out on pages 107 to 209, which comprise the consolidated and company balance sheets as at 31 December 2008, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation and the true and fair presentation of these 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 control relevant to the preparation and the true and fair presentation of 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. AUDITORS RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. 105

56 Independent Auditor s Report (continued) AUDITORS RESPONSIBILITY (CONTINUED) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and true and fair presentation of the 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the 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 financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2008 and of the Group s 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 Ernst & Young Certified Public Accountants 18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong April China Foods Limited Annual Report 2008

57 Consolidated Income Statement Year ended 31 December Notes HK$ 000 HK$ 000 CONTINUING OPERATIONS REVENUE 6 14,240,283 9,743,011 Cost of sales (10,741,784 ) (7,317,697 ) Gross profit 3,498,499 2,425,314 Other income and gains 6 177, ,984 Selling and distribution costs (2,543,377) (1,669,313) Administrative expenses (451,247) (396,380) Other expenses (19,093) (9,252) Finance costs 8 (31,382) (33,078) Share of profits of associates 124,996 49,167 PROFIT BEFORE TAX 7 756, ,442 Tax 11 (136,251 ) (135,792 ) PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 620, ,650 DISCONTINUED OPERATIONS Profit for the year from discontinued operations , ,079 1,037,419 Attributable to: Equity holders of the Company , ,686 Minority interests 136, , ,079 1,037,419 DIVIDENDS ,182 6,359,760 EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY 15 Basic: For profit for the year HK17.32 HK28.36 cents cents For profit from continuing operations HK17.32 HK21.35 cents cents Diluted: For profit for the year N/A HK28.35 cents For profit from continuing operations N/A HK21.34 cents 107

58 Consolidated Balance Sheet 31 December Notes HK$ 000 HK$ 000 NON-CURRENT ASSETS Property, plant and equipment 16 2,434,472 2,082,579 Investment properties 17 69,884 58,000 Prepaid land premiums , ,265 Deposits for purchase of items of property, plant and equipment 33,157 12,653 Goodwill 19 1,409,342 1,332,857 Other intangible assets 20 36,639 17,179 Interests in associates , ,233 Available-for-sale investments and related advances , ,455 Deferred tax assets 31 31,365 25,435 Biological assets 24 86,643 72,070 Total non-current assets 4,881,310 4,089,726 CURRENT ASSETS Inventories 25 2,628,857 1,968,321 Accounts and bills receivable , ,179 Prepayments, deposits and other receivables 479, ,795 Due from fellow subsidiaries ,770 Due from the ultimate holding company 41 5,994 4,567 Due from the immediate holding company Due from associates 22 2,771 Tax recoverable 5,790 4,077 Investments at fair value through profit or loss 27 9,228 16,825 Pledged time deposits 28 3,002 3,477 Cash and cash equivalents 28 1,546,684 1,396,563 Total current assets 5,566,553 4,902,734 CURRENT LIABILITIES Accounts and bills payable , ,315 Other payables and accruals 1,983,809 1,350,289 Due to fellow subsidiaries , ,592 Due to the ultimate holding company 41 13,731 12,040 Due to related companies , ,057 Due to minority shareholders of subsidiaries 41 1,113 Due to associates 22 71,273 Interest-bearing bank and other borrowings , ,960 Tax payable 26,397 50,484 Total current liabilities 4,010,907 3,139,850 NET CURRENT ASSETS 1,555,646 1,762,884 TOTAL ASSETS LESS CURRENT LIABILITIES 6,436,956 5,852, China Foods Limited Annual Report 2008

59 Notes HK$ 000 HK$ 000 TOTAL ASSETS LESS CURRENT LIABILITIES 6,436,956 5,852,610 NON-CURRENT LIABILITIES Interest-bearing bank borrowings ,792 Due to minority shareholders of subsidiaries 41 73,136 75,047 Due to the ultimate holding company 41 22,679 21,358 Deferred income 8,686 9,183 Deferred tax liabilities 31 7,481 6,729 Total non-current liabilities 111, ,109 Net assets 6,324,974 5,633,501 EQUITY Equity attributable to equity holders of the Company Issued capital , ,138 Reserves 34(a) 4,705,973 4,153,901 Proposed final dividend , ,612 5,092,300 4,558,651 Minority interests 1,232,674 1,074,850 Total equity 6,324,974 5,633,501 Qu Zhe Mak Chi Wing, William Director Director 109

60 Consolidated Statement of Changes in Equity Year ended 31 December Attributable to equity holders of the Company Employee share-based compensation Exchange Proposed Share reserve fluctuation final Minority Total Issued premium Capital Reserve reserve Retained dividend interests equity capital account reserve funds profits Total Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January ,138 3,660,432 2,482, , ,427 2,863,932 9,754,408 1,807,721 11,562,129 Exchange realignment 243, ,645 51, ,058 Total income and expense for the year recognised directly in equity 243, ,645 51, ,058 Profit for the year 791, , ,733 1,037,419 Total income and expense for the year 243, ,686 1,035, ,146 1,332,477 Contributions from minority shareholders 46,395 46,395 Transfer from retained profits 30,950 (30,950) Equity-settled share option arrangements 33 3,060 3,060 3,060 Acquisition of subsidiaries , ,636 Release of reserves upon distribution of the Spin-off Group (2,902,104) (98,147) (281,979) 3,282,230 (1,180,386) (1,180,386) Special interim dividend 14 (6,234,148) (6,234,148) (6,234,148) Dividends to minority shareholders (9,662) (9,662) Final 2007 dividend declared (125,612) 125,612 At 31 December ,138 3,660,432 * 3,060 * (419,907)* 126,085 * 237,093 * 547,138 * 125,612 4,558,651 1,074,850 5,633, China Foods Limited Annual Report 2008

61 Attributable to equity holders of the Company Employee share-based compensation Exchange Proposed Share reserve fluctuation final Minority Total Issued premium Capital Reserve reserve Retained dividend interests equity capital account reserve funds profits Total Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January ,138 3,660,432 3,060 (419,907) 126, , , ,612 4,558,651 1,074,850 5,633,501 Exchange realignment 232, ,692 52, ,234 Total income and expense for the year recognised directly in equity 232, ,692 52, ,234 Profit for the year 483, , , ,079 Total income and expense for the year 232, , , , ,313 Contributions from minority shareholders 4,950 4,950 Transfer from retained profits 55,667 (55,667) Equity-settled share option arrangements 33 10,135 10,135 10,135 Cancellation of share premium 34(b) (3,660,432) 3,660,432 Interim 2008 dividend paid (66,993) (66,993) (66,993) Final 2007 dividend paid (125,612) (125,612) (125,612) Proposed 2008 final dividend (107,189) 107,189 Dividends to minority shareholders (36,320) (36,320) At 31 December ,138 * 13,195 * 3,240,525 * 181,752 * 469,785 * 800,716 * 107,189 5,092,300 1,232,674 6,324,974 * These reserve accounts comprise the consolidated reserves of HK$4,705,973,000 (2007: HK$4,153,901,000) in the consolidated balance sheet. * 4,705,973, ,153,901,

62 Consolidated Cash Flow Statement Year ended 31 December Notes HK$ 000 HK$ 000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax: From continuing operations 756, ,442 From discontinued operations ,426 Adjustments for: Finance costs 8 31,382 98,044 Share of profits of associates (124,996) (108,143) Interest income 6 (16,578) (44,037) Dividend income from available-for-sale investments 6 (41,850) (41,004) Dividend income from investments at fair value through profit or loss 6 (92) (164) Fair value loss/(gain) on investments at fair value through profit or loss 6, 7 10,158 (14,587) Net gain arising from changes in fair value of biological assets 7 (12,369) (10,555) Gain on disposal of subsidiaries 6 (394,884) Impairment of receivables 7 4,657 10,781 Equity-settled share option expense 7 10,135 3,060 Amortisation of other intangible assets 7 3, Depreciation 7 208, ,332 Fair value gain on investment properties 6 (4,656) (1,727) Loss on disposal of items of property, plant and equipment 7 4,278 3,261 Impairment of items of property, plant and equipment 7 58,621 Recognition of prepaid land premiums 7 4,654 5,091 Provision against inventories 7 48,618 3,808 Unrealised fair value losses of derivative instrument transactions 7 31,494 Government grants 6 (28,904) (67,711) 852, , China Foods Limited Annual Report 2008

63 HK$ 000 HK$ , ,820 Increase in inventories (571,362) (1,015,519) Decrease in accounts and bills receivable 167,070 54,671 Decrease/(increase) in prepayments, deposits and other receivables 33,293 (401,904) Decrease/(increase) in amounts due from fellow subsidiaries 16,588 (153,840) Decrease/(increase) in amounts due from the ultimate holding company (1,391) 22,705 Increase in amounts due from related companies (6,112) Decrease in amounts due from associates 3,449 Increase/(decrease) in accounts and bills payable (4,714) 197,565 Increase in other payables and accruals 368, ,444 Increase/(decrease) in amounts due to fellow subsidiaries 70,794 (5,889) Increase in amounts due to related companies 67, ,611 Increase/(decrease) in amounts due to the ultimate holding company 918 (9,147) Increase in amounts due to associates 68,192 Decrease in amounts due to the immediate holding company (463) Decrease in amounts due to minority shareholders of subsidiaries (13,225) Government grants received 811 Cash generated from operations 1,071, ,528 Interest received 16,578 44,037 Interest paid (44,871) (103,794) Hong Kong profits tax paid (9) (2,457) Mainland China tax paid (168,061) (156,748) Net cash inflow from operating activities 875, ,

64 Consolidated Cash Flow Statement (continued) Year ended 31 December Notes HK$ 000 HK$ 000 Net cash inflow from operating activities 875, ,566 CASH FLOWS FROM INVESTING ACTIVITIES Decrease in pledged time deposits ,527 Advances from associates 1,902 Repayments from/(advances to) unlisted available-for-sale investments 2,912 (2,838) Dividends from associates 55,073 63,060 Dividends received from available-for-sale investments 41,850 41,004 Dividends received from investments at fair value through profit or loss Proceeds from disposal of items of property, plant and equipment 18,397 15,625 Proceeds from disposal of investments at fair value through profit or loss 105,571 Purchases of investments at fair value through profit or loss (2,561) (59,509) Acquisition of subsidiaries 35 52,589 Acquisition of an associate 22 (161,057) Additional investment in an associate (29,775) Purchase of investment properties 17 (3,394) Disposal of subsidiaries 36 39,585 Spin-off of CAIH 37 (1,291,561) Purchases of items of property, plant and equipment (438,752) (1,170,822) Additions to other intangible assets 20 (21,159) (16,838) Additions to prepaid land premiums 18 (24,776) (14,563) Decrease/(increase) in deposits for purchase of items of property, plant and equipment (20,504) 309,137 Additions to biological assets 24 (2,204) (7,931) Government grants received 27,870 32,377 Net cash outflow from investing activities (557,319) (1,851,521) 114 China Foods Limited Annual Report 2008

65 Notes HK$ 000 HK$ 000 CASH FLOWS FROM FINANCING ACTIVITIES New bank loans 577,652 4,717,973 New other loans 454, ,883 Repayments of bank loans (732,936) (3,160,672) Repayments of other loans (471,129) (2,479,725) Increase in other payables and accruals 164,722 Contributions from minority shareholders 4,950 46,395 Dividends paid (192,605) Dividends paid to minority shareholders of subsidiaries (37,466) (8,549) Increase/(decrease) in amounts due to minority shareholders of subsidiaries (6,354) 34,668 Net cash inflow/(outflow) from financing activities (238,805) 121,973 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 79,508 (1,180,982) Cash and cash equivalents at beginning of year 1,396,563 2,515,973 Effect of foreign exchange rate changes, net 70,613 61,572 CASH AND CASH EQUIVALENTS AT END OF YEAR 1,546,684 1,396,563 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 28 1,523, ,377 Non-pledged time deposits with original maturity 3 of less than three months when acquired 28 22, ,186 1,546,684 1,396,

66 Balance Sheet 31 December NON-CURRENT ASSETS Notes HK$ 000 HK$ 000 Interests in subsidiaries 21 6,004,584 5,164,849 CURRENT ASSETS Prepayments, deposits and other receivables 4, Investments at fair value through profit or loss 27 7,204 14,301 Due from the immediate holding company Tax recoverable 1,715 1,288 Cash and cash equivalents 28 19, ,994 Total current assets 33, ,204 CURRENT LIABILITIES Other payables and accruals 3,726 3,793 NET CURRENT ASSETS 29, ,411 Net assets 6,033,969 5,610,260 EQUITY Issued capital , ,138 Reserves 34(b) 5,647,642 5,205,510 Proposed final dividend , ,612 Total equity 6,033,969 5,610,260 Qu Zhe Mak Chi Wing, William Director Director 116 China Foods Limited Annual Report 2008

67 Notes to the Financial Statements 31 December CORPORATE INFORMATION The Company is a limited liability company incorporated in Bermuda. The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. 1. Clarendon House, 2 Church Street, Hamilton HM11, Bermuda The Company is a subsidiary of COFCO (Hong Kong) Limited ( COFCO (HK) ), a company incorporated in Hong Kong. Based on confirmation by the Company s directors, the ultimate holding company of the Company is COFCO Limited ( COFCO ), which is a state-owned enterprise registered in the People s Republic of China (the PRC ). During the year, the Company and its subsidiaries (collectively referred to as the Group ), was involved in the following principal activities: production, sale and trading of grape wine and other wine products; processing, bottling and distribution of sparkling beverages and distribution of still beverages; distribution of retail packaged cooking oil and other related products; and production and distribution of chocolate and other related products. In 2007, pursuant to a reorganisation scheme (the Reorganisation ), the Group spun off its interests in certain subsidiaries which are engaged in oilseed processing, wheat processing, the production and sale of brewing materials, rice trading and processing and the production and sale of biofuel and biochemicals through a separate listing on The Stock Exchange of Hong Kong Limited (the Spin-off ). In respect of the Spin-off, the Company declared on 8 February 2007 a special interim dividend to distribute the Company s entire interest in the issued share capital of China Agri-Industries Holdings Limited ( CAIH ). The Spin-off and the listing of the shares of CAIH were completed on 21 March Upon the completion of the Spin-off, the Group discontinued its oilseeds processing, wheat processing, the production and sale of brewing materials, rice trading and processing, and the production and sale of biofuel and biochemicals businesses carried out by CAIH and its subsidiaries (the Spin-off Group ). 117

68 Notes to the Financial Statements (continued) 31 December BASIS OF PREPARATION These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for investment properties, biological assets, derivative financial instruments, certain available-for-sale investments and investments at fair value through profit or loss, which have been measured at fair value. These financial statements are presented in Hong Kong dollars ( HK$ ) and all values are rounded to the nearest thousand except when otherwise indicated. 2. As the Spin-off was completed on 21 March 2007, for the presentation of the Group s financial statements for the year ended 31 December 2007, the Spin-off Group was regarded as discontinued operations in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtain control, and continue to be consolidated until the date that such control ceases. All income, expenses and unrealised gains and loses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full The acquisition of certain subsidiaries from COFCO (HK) through the reorganisation scheme of the Group (the 2006 Acquisition ) is accounted for based on the principles of merger accounting in accordance with Accounting Guideline 5 Merger Accounting for Common Control Combinations issued by the HKICPA, as if the 2006 Acquisition had occurred from the date when the subsidiaries acquired through the 2006 Acquisition first came under the control as the Company and the subsidiaries acquired are all ultimately controlled by COFCO before and after the 2006 Acquisition. Further details of the 2006 Acquisition and the Reorganisation are set out in the Company s circular date 28 October China Foods Limited Annual Report 2008

69 2. BASIS OF PREPARATION (CONTINUED) Basis of consolidation (continued) Apart from the 2006 Acquisition, the acquisition of subsidiaries is accounted for using the purchase method of accounting. This method involves allocating the cost of the business combinations to the fair value of the identifiable assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company s subsidiaries. Acquisitions of minority interests are accounted for using the parent entity extension method whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill. 3.1 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS The Group has adopted the following new interpretations and amendments to HKFRSs for the first time for the current year s financial statements. 3.1 HKAS 39 and HKFRS 7 Amendments to HKAS 39 Amendments Financial Instruments: Recognition and Measurement and HKFRS 7 Financial Instruments: Disclosures Reclassification of Financial Assets HK(IFRIC)-Int 11 HK(IFRIC)-Int 12 HK(IFRIC)-Int 14 HKFRS 2 Group and Treasury Share Transactions Service Concession Arrangements HKAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction The adoption of these new interpretations and amendments has had no significant effect on these financial statements and there have been no significant changes to the accounting policies applied in these financial statements. 119

70 Notes to the Financial Statements (continued) 31 December IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements. HKFRS 1 and HKAS 27 Amendments to HKFRS 1 First-time Amendments Adoption of HKFRSs and HKAS 27 Consolidated and Separate Financial Statement Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate 1 HKFRS 2 Amendments Amendments to HKFRS 2 Share-based Payment Vesting Conditions and Cancellations 1 HKFRS 3 (Revised) Business Combinations 2 HKFRS 8 Operating Segments 1 HKAS 1 (Revised) Presentation of Financial Statements 1 HKAS 23 (Revised) Borrowing Costs 1 HKAS 27 (Revised) HKAS 32 and HKAS 1 Amendments HKAS 39 Amendment Consolidated and Separate Financial Statements 2 Amendments to HKAS 32 Financial Instruments: Presentation and HKAS 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising On Liquidation 1 Amendment to HKAS 39 Financial Instrument: Recognition and Measurement Eligible Hedged Items 2 HK (IFRIC)-Int 13 Customer Loyalty Programmes 3 HK (IFRIC)-Int 15 HK (IFRIC)-Int 16 HK (IFRIC)-Int 17 Agreements for the Construction of Real Estate 1 Hedges of a Net Investment in a Foreign Operation 4 Distribution of Non cash Assets to Owners China Foods Limited Annual Report 2008

71 3.2 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (CONTINUED) Apart from the above, the HKICPA has issued Improvements to HKFRSs* which sets out amendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarifying wording. Except for the amendment to HKFRS 5 which is effective for annual periods on or after 1 July 2009, other amendments are effective for annual periods beginning on or after 1 January 2009 although there are separate transitional provisions for each standard. 3.2 * Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 July Effective for annual periods beginning on or after 1 July Effective for annual periods beginning on or after 1 October * Improvements to HKFRSs contains amendments to HKFRS 5, HKFRS 7, HKAS 1, HKAS 8, HKAS 10, HKAS 16, HKAS 18, HKAS 19, HKAS 20, HKAS 23, HKAS 27, HKAS 28, HKAS 29, HKAS 31, HKAS 34, HKAS 36, HKAS 38, HKAS 39, HKAS 40 and HKAS 41. * The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, it has concluded that while the adoption of HKFRS 8 and HKAS 1 (Revised) may result in new or amended disclosures and the adoption of HKFRS 3 (Revised), HKAS 27 (Revised) and HKAS 23 (Revised) may result in changes in accounting policies, these new and revised HKFRSs are unlikely to have a significant impact on the Group s results of operations and financial position

72 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Subsidiaries A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities. 3.3 The results of subsidiaries are included in the Company s income statement to the extent of dividends received and receivable. The Company s interests in subsidiaries are stated at cost less any impairment losses. Joint ventures A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest. The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement. A joint venture is treated as: (a) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture; (a) (b) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture s registered capital and is in a position to exercise significant influence over the joint venture; or (b) 20% (c) an equity investment accounted for in accordance with HKAS 39, if the Group holds, directly or indirectly, less than 20% of the joint venture s registered capital and has neither joint control of, nor is in a position to exercise significant influence (c) 39 20% over, the joint venture. 122 China Foods Limited Annual Report 2008

73 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Associates An associate is an entity, not being a subsidiary, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence % The Group s interests in associates are stated in the consolidated balance sheet at the Group s share of net assets under the equity method of accounting, less any impairment losses. The Group s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group s interests in associates except where unrealised losses provide evidence of an impairment of the asset transfers. Goodwill arising from the acquisition of associates is included as part of the Group s interests in associates. Goodwill Goodwill arising on the acquisition of subsidiaries and associates represents the excess of the cost of the business combination over the Group s interest in the net fair value of the acquirees identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition. Goodwill on acquisitions for which the agreement date is on or after 1 January 2005 Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses. In the case of associates, goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. 123

74 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Goodwill (continued) Goodwill on acquisitions for which the agreement date is on or after 1 January 2005 (continued) Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cashgenerating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Goodwill previously eliminated against consolidated retained profits Prior to the adoption of the HKICPA s Statement of Standard Accounting Practice 30 Business Combinations ( SSAP 30 ) in 2001, goodwill arising on acquisition was eliminated against consolidated retained profits in the year of acquisition. On the adoption of HKFRS 3, such goodwill remains eliminated against consolidated retained profits and is not recognised in the income statement when all or part of the business to which the goodwill relates is disposed of or when a cashgenerating unit to which the goodwill relates becomes impaired. Excess over the cost of business combinations Any excess of the Group s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities over the cost of acquisition of an associate (previously referred to as negative goodwill), after reassessment, is recognised immediately in the income statement The excess for an associate is included in the Group s share of an associate s profit or loss in the period in which the investment is acquired. 124 China Foods Limited Annual Report 2008

75 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of non-financial assets other than goodwill Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, biological assets, financial assets, investment properties, and goodwill), the asset s recoverable amount is estimated. An asset s recoverable amount is the higher of the asset s or cashgenerating unit s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. 3.3 An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises. 125

76 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Related parties A party is considered to be related to the Group if: 3.3 (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group; (a) (i) (ii) (iii) (b) the party is an associate; (b) (c) the party is a member of the key management personnel of the Group or any of its holding companies; (c) (d) the party is a close member of the family of any individual referred to in (a) or (c); (d) (a) (c) (e) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual (e) (c) (d) referred to in (c) or (d); or (f) the party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group. (f) 126 China Foods Limited Annual Report 2008

77 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property, plant and equipment and depreciation Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement. 3.3 Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows: Building 2.8% to 16.2% Plant, machinery and equipment 4.5% to 25% 2.8% 16.2% 4.5% 25% Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each balance sheet date. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset. Construction in progress is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use. 127

78 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investment properties Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance sheet date. 3.3 Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal. Intangible assets (other than goodwill) The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date. Computer software Purchased patents and licences are stated at cost less any impairment losses and are amortised on the straight-line basis over their estimated useful lives of eight years. Biological assets Grape vines are measured at their fair value less estimated point-of sale costs. The fair value of the grape vines is estimated by reference to independent professional valuations using the discounted cash flows of the underlying biological assets. The expected cash flows from the whole life cycle of the grape vines is determined using the market price of the estimated yield of the agricultural produce, being grapes, net of maintenance and harvesting costs and any costs required to bring grape vines to maturity. The estimated yield of the grape vines is affected by the age of the grape trees, the location, soil type and infrastructure. The market price of the grapes is largely dependent on the prevailing market price of the processed products after harvest, being crude grape wine. 128 China Foods Limited Annual Report 2008

79 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Operating leases Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms. 3.3 Prepaid land premiums under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment. Investments and other financial assets Financial assets in the scope of HKAS 39 are classified as investments at fair value through profit or loss, loans and receivables and available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. 39 The Group assesses whether a contract contains an embedded derivative when the Group first becomes a party to it and assesses whether an embedded derivative is required to be separated from the host contract when the analysis shows that the economic characteristics and risks of the embedded derivatives are not closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date. All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. 129

80 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investments and other financial assets (continued) Investments at fair value through profit or loss Investments at fair value through profit or loss are financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Gains or losses on these financial assets are recognised in the income statement. The net fair value gain or loss recognised in the income statement does not include any dividends on these financial assets, which are recognised in accordance with the policy set out for Revenue recognition below. 3.3 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Available-for-sale investments Available-for-sale investments are non-derivative financial assets in unlisted equity securities that are designated as available-forsale or are not classified in any of the other two categories. After initial recognition, available-for-sale investments are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. Interest and dividends earned are reported as interest income and dividend income, respectively and are recognised in the income statement as Other income in accordance with the policies set out for Revenue recognition below. Losses arising from the impairment of such investments are recognised in the income statement as Impairment losses on available-for-sale financial assets and are transferred from the available-for-sale investment revaluation reserve. When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses. (a) (b) 130 China Foods Limited Annual Report 2008

81 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investments and other financial assets (continued) Fair value The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using a discounted cash flow analysis. Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. 3.3 Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account. The amount of the impairment loss is recognised in the income statement. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. In relation to accounts and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice. The carrying amount of the receivables is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible. 131

82 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of financial assets (continued) Assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed. 3.3 Available-for-sale investments If an available-for-sale investment is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. A provision for impairment is made for available-for-sale investments when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is significant or prolonged requires judgement. Impairment losses on equity instruments classified as available-for-sale are not reversed through the income statement. Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where: the rights to receive cash flows from the asset have expired; the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. (a) (b) 132 China Foods Limited Annual Report 2008

83 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Derecognition of financial assets (continued) Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial liabilities at amortised cost (including interest-bearing loans and borrowings) Financial liabilities including accounts and other payables, amounts due to the group companies, amounts due to minority shareholders of subsidiaries and related companies, and interest-bearing loans and borrowings are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost. The related interest expense is recognised within Finance costs in the income statement. 3.3 Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the income statement. 133

84 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Derivative financial instruments The Group uses derivative financial instruments such as commodity future contracts to hedge its risks associated with price fluctuations in future purchases or sales of the related commodities. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. 3.3 Any gains or losses arising from changes in fair value on derivatives that are taken directly to the income statement as the Group does not adopt hedge accounting. The fair value of commodity future contracts is determined by reference to quoted market prices. Inventories Inventories, other than the agricultural produce which are measured in accordance with the accounting policy for Biological assets above, are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal. Cash and cash equivalents For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group s cash management. 3 For the purpose of the balance sheets, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use. 134 China Foods Limited Annual Report 2008

85 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Provisions A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. 3.3 When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in Finance costs in the income statement. Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. 135

86 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income tax (continued) Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except: 3.3 where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 136 China Foods Limited Annual Report 2008

87 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases: 3.3 (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; (a) (b) rental income, on a time proportion basis over the lease terms; (b) (c) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset; (c) (d) compensation income, when the right to receive payment has been established; (d) (e) dividend income, when the shareholders right to receive payment has been established; (e) (f) proceeds from the sale of investments, on the transaction dates when the relevant contract notes are exchanged; and (f) (g) tax refunds, when the acknowledgement of refunds from the tax bureau has been received. (g) 137

88 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Dividends Final dividends proposed by the directors are classified as a separate allocation of retained profits within the equity section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends are approved by the shareholders and declared, they are recognised as a liability. 3.3 Interim dividends are simultaneously proposed and declared because the Company s memorandum and articles of association and byelaws grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared. Employee benefits Share-based payment transactions The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ( equity-settled transactions ). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using the Black- Scholes-Merton option pricing model, further details of which are given in note 33 to the financial statements. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company ( market conditions ), if applicable. 33 The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date ). The cumulative expense recognised for equitysettled transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period has expired and the Group s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period. 138 China Foods Limited Annual Report 2008

89 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Employee benefits (continued) Share-based payment transactions (continued) No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. 3.3 Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share. The Group has adopted the transitional provisions of HKFRS 2 in respect of equity-settled awards and has applied HKFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested by 1 January 2005 and to those granted on or after 1 January

90 Notes to the Financial Statements (continued) 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Employee benefits (continued) Pension schemes and other retirement benefits Retirement benefits are provided to certain staff employed by the Group. In accordance with the Mandatory Provident Fund Schemes Ordinance, the Group s Hong Kong employees enjoy retirement benefits under either the Mandatory Provident Fund Exempted ORSO Scheme, or the Mandatory Provident Fund Scheme under which employer contributions have to be made. The assets of the schemes are held separately from those of the Group in independently administered funds. The Group s contributions to both schemes are at a maximum of 10% of the monthly salaries of the employees. When an employee leaves employment prior to his or her interest in the Group s employer contributions vesting fully, the ongoing contributions payable by the Group may be reduced by the relevant amount of the forfeited contributions, in accordance with the rules of the Mandatory Provident Fund Exempted ORSO Scheme. However, in respect of the Mandatory Provident Fund Scheme, only the employer voluntary contribution amounts are refundable to the Group when the members leave employment prior to their contributions vesting fully. The Group s mandatory contributions vest fully with the employees when the employees leave employment % The employees of the Group s subsidiaries which operate in Mainland China are required to participate in a central pension scheme which is operated by the relevant authorities or the local municipal governments of the provinces in Mainland China in which the Group s subsidiaries are located. The Group is required to contribute to the central scheme in respect of its employees in Mainland China and such costs are charged to the income statement as incurred. Employment Ordinance long service payments Certain of the Group s employees have completed the required number of years of service to the Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of termination of their employment. The Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the Group. 140 China Foods Limited Annual Report 2008

91 3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The 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 capitalised. Foreign currencies These financial statements are presented in Hong Kong dollars, which is the Company s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 3.3 The functional currencies of certain overseas subsidiaries and associates are currencies other than the Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet date and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year. 141

92 Notes to the Financial Statements (continued) 31 December SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES The preparation of the Group s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future. Judgement Withholding tax arising from the distribution of dividends The Group s determination, as to whether to accrue withholding taxes arising from the distributions of dividends by certain subsidiaries according to the relevant tax rules enacted in the jurisdictions, is subject to judgement on the plan of the distribution of dividends. Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. 4. Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2008 was HK$1,409,342,000 (2007: HK$1,332,857,000). More details are given in note ,409,342, ,332,857, Estimation of fair value of investment properties In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including: (a) current prices in an active market for properties of a different nature, condition or location (or subject to different leases or other contracts), adjusted to reflect those differences; (a) 142 China Foods Limited Annual Report 2008

93 4. SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES (CONTINUED) Estimation uncertainty (continued) Estimation of fair value of investment properties (continued) (b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and 4. (b) (c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing leases and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. (c) The principal assumptions for the Group s estimation of the fair value include those related to current market rents for similar properties in the same location and condition, appropriate discount rates, expected future market rents and future maintenance costs. The carrying amount of investment properties at 31 December 2008 was HK$69,884,000 (2007: HK$58,000,000) ,884, ,000,000 Deferred tax assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The carrying value of deferred tax assets relating to recognised tax losses at 31 December 2008 was HK$6,742,000 (2007: HK$7,174,000). The amount of unrecognised tax losses at 31 December 2008 was HK$253,893,000 (2007: HK$83,772,000). Further details are contained in note 31 to the financial statements ,742, ,174, ,893, ,772,

94 Notes to the Financial Statements (continued) 31 December SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES (CONTINUED) Estimation uncertainty (continued) Impairment of receivables Impairment of receivables is made based on an assessment of the recoverability of accounts and other receivables and the timing of their recovery. The identification of impairment of receivables requires management judgement and estimation. Where the actual outcome or expectation in future is different from the original estimates, such differences will impact on the carrying value of accounts and other receivables and the amount of impairment/write-back of impairment in the periods in which such estimates have been changed. Impairment of receivables of HK$4,657,000 (2007: HK$10,781,000) was recognised in the consolidated income statement for the year. The aggregate carrying amount of accounts and bills receivable, and prepayments, deposits and other receivables as at 31 December 2008 was HK$1,363,837,000 (2007: HK$1,491,974,000). 4. 4,657, ,781, ,363,837, ,491,974,000 Estimation of fair value of biological assets The Group s biological assets are stated at fair value less point-of-sale cost. This requires an independent valuer s assessment of the fair value of the biological assets. Changes in conditions of the biological assets could impact the fair value of the assets. The carrying amount of the Group s biological assets at 31 December 2008 was HK$86,643,000 (2007: HK$72,070,000). More details are given in note SEGMENT INFORMATION Segment information is presented by way of the Group s primary segment reporting basis, by business segment. In determining the Group s geographical segments, revenues are attributed to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets. No further geographical segment information is presented as over 90% of the Group s revenue is derived from customers based in mainland China, and over 90% of the Group s assets are located in mainland China ,643, ,070, % 90% 144 China Foods Limited Annual Report 2008

95 5. SEGMENT INFORMATION (CONTINUED) The Group s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Group s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of the other business segments. Summary details of the business segments are as follows: Continuing operations (a) the wines segment is engaged in the production, sale and trading of grape wine and other wine products; 5. (a) (b) the beverages segment is engaged in the processing, bottling and distribution of sparkling beverages and distribution of still beverages; (b) (c) the consumer-pack edible oil segment is engaged in the distribution of retail packaged cooking oil and other related products; (c) (d) the confectionery segment is engaged in the production and distribution of chocolate and other related products; and (d) (e) the corporate and others segment comprises the Group s corporate income and expense items. (e) Discontinued operations (a) the oilseeds processing segment is engaged in the extraction, refining and trading of edible oil and related businesses; (a) (b) the wheat processing segment is engaged in the production of flour products and related businesses; (b) (c) the brewing materials segment is engaged in the processing and trading of malt; (c) (d) the rice processing and trading segment is engaged in the processing and trading of rice; (d) (e) the biofuel and biochemicals segment is engaged in the production and sale of biofuel and biochemicals and related products; and (e) (f) the others segment comprises the corporate income and expense items of the Spin-off Group. (f) 145

96 Notes to the Financial Statements (continued) 31 December SEGMENT INFORMATION (CONTINUED) Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices. 5. Consumer Corporate pack edible oil and others Year ended 31 December 2008 Wines Confectionery Beverages Eliminations Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Segment revenue: Sales to external customers 2,789, ,591 4,573,520 6,512,193 14,240,283 Other revenue 49,222 14,683 47,468 9,909 (1,868 ) 119,414 Segment results 569,024 (121,199 ) 228,534 4,869 (77,032 ) 604,196 Interest and dividend income 58,520 Finance costs (31,382 ) Share of profits of associates 124, ,996 Profit before tax 756,330 Tax (136,251 ) Profit for the year 620,079 Assets and liabilities Segment assets 3,603, ,662 3,763, ,726 3,789,941 (4,079,900 ) 8,449,071 Interests in associates 411, ,951 Unallocated assets 1,586,841 Total assets 10,447,863 Segment liabilities (2,647,508 ) (265,338 ) (3,290,615 ) (1,364,228 ) (353,267 ) 4,079,900 (3,841,056 ) Unallocated liabilities (281,833 ) Total liabilities (4,122,889 ) Other segment information: Depreciation and amortisation 85,919 18, ,217 1,748 5, ,664 Impairment losses/ (write-back of impairment losses) recognised in the income statement (140 ) 3,169 1, ,657 Capital expenditures 173,428 1, ,838 1,471 16, , China Foods Limited Annual Report 2008

97 5. SEGMENT INFORMATION (CONTINUED) 5. Continuing operations Discontinued operations Consumer- Rice trading Trading of Year ended pack and Biofuel and non-rice 31 December 2007 edible oil Corporate Oilseeds Wheat processing biochemical Brewing foodstuffs 2007 Wines Confectionery Beverages and others Eliminations Total processing processing materials Others Eliminations Total Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Segment revenue: Sales to external customers 2,140, ,398 3,007,261 4,158,068 9,743,011 2,681, , , , ,177 4,594,069 14,337,080 Intersegment sales 19,487 7,977 1,209 (28,673 ) Other revenue 43,386 9,651 21,258 (336 ) 15,926 89,885 54,511 1,292 1,405 42,276 (885 ) 168 (580 ) 98, ,072 Segment results 441,307 (29,983 ) 92,645 (20,847 ) (42,868)* 440, ,716 2,188 80,629 26,348 36,784 (7,239 ) 267, ,680 Interest and dividend income 82,215 2,990 85,205 Gain on disposal of subsidiaries 394, , ,884 Finance costs (33,078 ) (64,966 ) (98,044 ) Share of profits of associates 49,167 49,167 54,656 4,320 58, ,143 Profit before tax 933, ,426 1,197,868 Tax (135,792 ) (24,657 ) (160,449 ) Profit for the year 797, ,769 1,037,419 Assets and liabilities Segment assets 2,926, ,909 3,016, ,313 2,879,024 (2,881,924 ) 7,406,675 7,406,675 Interests in associates 156, , ,233 Unallocated assets 1,429,552 1,429,552 Total assets 8,992,460 8,992,460 Segment liabilities (1,684,737 ) (317,209 ) (2,720,438 ) (1,037,703 ) (31,831 ) 2,881,924 (2,909,994 ) (2,909,994 ) Unallocated liabilities (448,965 ) (448,965 ) Total liabilities (3,358,959 ) (3,358,959 ) Other segment information: Depreciation and amortisation 67,060 17,943 69,948 1,833 1, ,190 49,636 7,001 3,522 13,660 8, , ,695 Impairment losses/ (write-back of impairment losses) recognised in the income statement 2,812 (270 ) 3,206 5,748 59,386 4,268 63,654 69,402 Capital expenditures 270,776 3, ,137 3,249 12, ,904 9,511 9, ,600 21,127 2, ,231 1,191,135 * Included a stamp duty expense of HK$20,771,000 arising from the distribution of the entire share capital of CAIH. * 20,771,

98 Notes to the Financial Statements (continued) 31 December REVENUE, OTHER INCOME AND GAINS Revenue, which is also the Group s turnover, represents the net invoiced value of goods sold, after allowances for returns and trade discounts, during the year. 6. An analysis of other income and gains is as follows: HK$ HK$ 000 Other income Gross rental income 8,573 7,098 Bank interest income 16,578 44,037 Dividend income from available-for-sale investments 41,850 41,004 Dividend income from investments at fair value through profit or loss Government grants* * 28,904 67,711 Compensation income 15,082 13,545 Tax refunds 28,106 37,947 Others 21,975 15, , ,581 Gains Gain on disposal of by-products and scrap items 9,815 11,429 Foreign exchange differences, net 2,303 18,748 Fair value gain on investments at fair value through profit or loss 14,587 Fair value gain on investment properties (note 17) 17 4,656 1,727 Gain on disposal of subsidiaries (note 36) ,884 Others , , , ,161 Represented by: Other income and gains attributable to discontinued operations (note 13) ,177 Other income and gains attributable to continuing operations reported in the consolidated income statement 177, , , ,161 * There are no unfulfilled conditions or contingencies relating to these grants. * 148 China Foods Limited Annual Report 2008

99 7. PROFIT BEFORE TAX The Group s profit before tax is arrived at after charging/(crediting): # 7. # HK$ HK$ 000 Cost of inventories sold 10,705,535 11,432,837 Provision against inventories 48,618 3,808 Realised fair value losses of derivative instrument transactions 7,789 Unrealised fair value losses of derivative instrument transactions 31,494 Net gain arising from changes in fair value of biological assets (note 24) 24 (12,369) (10,555) Cost of sales 10,741,784 11,465,373 Auditors remuneration 3,985 5,214 Depreciation (note 16) , ,332 Amortisation of other intangible assets (note 20) 20 3, Minimum lease payments under operating leases in respect of land and buildings 81,053 57,790 Recognition of prepaid land premiums (note 18) 18 4,654 5,091 Employee benefit expense (including directors remuneration note 9): 9 Wages and salaries 613, ,062 Pension scheme contributions* * 55,299 36,244 Equity-settled share option expense 10,135 3, , ,366 Other expenses include the following: Loss on disposal of items of property, plant and equipment 4,278 3,261 Fair value loss on investments at fair value through profit or loss 10,158 Impairment of items of property, plant and equipment (note 16) 16 58,621 Impairment of accounts receivable (note 26) 26 2, Impairment of other receivables 2,628 10,508 * At 31 December 2008, the Group had no forfeited contributions available to reduce its contributions to the pension scheme in future years (2007: Nil). * # The disclosures presented in this note include those amounts charged/ credited in respect of discontinued operations. # 149

100 Notes to the Financial Statements (continued) 31 December FINANCE COSTS 8. Group HK$ 000 HK$ 000 Interest on: Bank loans wholly repayable within five years 23,538 73,256 Loans from a fellow subsidiary and a minority shareholder of a subsidiary 12,266 30,251 Others 9, Total interest expense on financial liabilities not at fair value through profit or loss 44, ,794 Less: Interest capitalised (13,489) (5,750) 31,382 98,044 Attributable to discontinued operations (note 13) 13 64,966 Attributable to continuing operations reported in the consolidated income statement 31,382 33,078 31,382 98, China Foods Limited Annual Report 2008

101 9. DIRECTORS REMUNERATION Directors remuneration for the year, disclosed pursuant to the Rules Governing the Listing of Securities on the Stock Exchange and Section 161 of the Hong Kong Companies Ordinance, is as follows: Group HK$ 000 HK$ 000 Fees: Executive directors Independent non-executive directors Non-executive director ,054 1,054 Other emoluments: Salaries, allowances and benefits in kind 5,132 5,893 Discretionary bonuses 1,831 2,599 Equity-settled share option expense 3, Pension scheme contributions ,201 9,487 11,255 10,541 At the balance sheet date, certain directors held share options of the Company, in respect of their services to the Group, further details of which are set out in note 33 to the financial statements. The fair value of the share options which has been recognised in the income statement over the vesting period, was determined as at the date of grant and the amount included in the financial statements for the current year is included in the above directors remuneration disclosures

102 Notes to the Financial Statements (continued) 31 December DIRECTORS REMUNERATION (CONTINUED) (a) Independent non-executive directors The fees paid to independent non-executive directors during the year were as follows: 9. (a) HK$ HK$ 000 Mr. Li Hung-kwan, Alfred 27 Mr. Stephen Edward Clark Mr. Tan Man Kou Mr. Yuen Tin Fan, Francis There were no other emoluments payable to the independent non-executive directors during the year (2007: Nil) (b) Executive directors and non-executive directors (b) Salaries, allowances Equity-settled Pension and benefits share option scheme in kind Discretionary expense contributions Total Fees bonuses remuneration HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ Executive directors: Mr. Ning Gaoning Mr. Qu Zhe 1, ,747 Mr. Mak Chi Wing, William ,191 Ms. Luan Xiuju 2, ,297 Mr. Zhang Zhentao , ,932 1,831 2, ,355 Non-executive director: Mr. Ma Jianping Ms. Wu Wenting , ,132 1,831 3, , China Foods Limited Annual Report 2008

103 9. DIRECTORS REMUNERATION (CONTINUED) (b) Executive directors and non-executive directors (continued) 9. (b) Salaries, allowances Equity-settled Pension and benefits share option scheme in kind Discretionary expense contributions Total Fees bonuses remuneration HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ Executive directors: Mr. Ning Gaoning Mr. Liu Fuchun Mr. Qu Zhe 1, ,388 Mr. Xue Guoping Mr. Liu Yongfu Mr. Ma Jianping 1, ,939 Ms. Luan Xiuju 2, ,921 Mr. Zhang Zhentao ,069 Mr. Yu Xubo Mr. Mak Chi Wing, William ,893 2, ,759 Non-executive director: Ms. Wu Wenting ,893 2, ,941 There was no arrangement under which a director waived or agreed to waive any remuneration during the year. 153

104 Notes to the Financial Statements (continued) 31 December FIVE HIGHEST PAID EMPLOYEES The five highest paid employees during the year included four (2007: four) directors, details of whose remuneration are set out in note 9 above. Details of the remuneration of the remaining one (2007: one) non-director, highest paid employee for the year are as follows: Group HK$ HK$ 000 Salaries, allowances and benefits in kind Discretionary bonuses Equity-settled share option expense Pension scheme contributions 36 1,751 1,341 At the balance sheet date, the non-director, highest paid employee, held share options of the Company, in respect of his services to the Group, further details of which are set out in note 33 to the financial statements. The fair value of the share options, which has been recognised to the income statement over the vesting period, was determined as at the date of grant and the amount included in the financial statements for the current year is included in the above nondirector, highest paid employee s remuneration disclosures. 33 The number of non-director, highest paid employee whose remuneration fell within the following bands is as follows: Number of employees HK$1,000,001 to HK$1,500,000 1,000,0011,500,000 1 HK$1,500,001 to HK$2,000,000 1,500,0012,000, China Foods Limited Annual Report 2008

105 11. TAX Hong Kong profits tax has been provided at the rate of 16.5% (2007: 17.5%) on the estimated assessable profits arising in Hong Kong during the year. The lower Hong Kong profits tax rate is effective from the year of assessment 2008/2009, and so is applicable to the assessable profits arising in Hong Kong for the whole year ended 31 December Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof % % HK$ 000 HK$ 000 Group: : Current Hong Kong Charge for the year 9 2,457 Current Elsewhere in the PRC Charge for the year 154, ,100 Overprovision in prior years (514) (3,063) Investment tax credits (13,872) (31,195) Deferred (note 31) 31 (3,901) (23,850) Total tax charge for the year 136, ,449 Represented by: Tax charge attributable to discontinued operations (note 13) 13 24,657 Tax charge attributable to continuing operations reported in the consolidated income statement 136, , , ,

106 Notes to the Financial Statements (continued) 31 December TAX (CONTINUED) A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the jurisdictions in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rates, and a reconciliation of the applicable rates (i.e., the statutory tax rates) to the effective tax rates, are as follows: 11. Group Hong Kong Mainland China Total HK$ 000 % HK$ 000 % HK$ 000 % Profit before tax 10, , ,330 Tax at the statutory tax rates 1, , , Lower tax rate for specific provinces or enacted by local authority * * (2,441 ) (0.3 ) (2,441 ) (0.3 ) Profit not subject to tax due to concessions ** ** (31,265 ) (4.2 ) (31,265 ) (4.1 ) Profits attributable to associates (31,249 ) (4.2 ) (31,249 ) (4.1 ) Income not subject to tax (12,939 ) (126.0 ) (25,378 ) (3.4 ) (38,317 ) (5.1 ) Expenses not deductible for tax 11, , , Adjustment in closing deferred tax due to change in deferred tax rate (94 ) (94 ) Tax rebates (13,872 ) (1.9 ) (13,872 ) (1.8 ) Tax losses utilised from previous periods (8,846 ) (1.2 ) (8,846 ) (1.2 ) Tax losses not recognised 43, , Tax charge at the Group s effective rate , , China Foods Limited Annual Report 2008

107 11. TAX (CONTINUED) Group Hong Kong Mainland China Total HK$ 000 % HK$ 000 % HK$ 000 % Profit before tax # # 432, ,564 1,197,868 Tax at the statutory tax rates 75, , , Lower tax rate for specific provinces or enacted by local authority * * (55,618 ) (7.3 ) (55,618 ) (4.6 ) Profit not subject to tax due to concessions ** ** (22,602 ) (3.0 ) (22,602 ) (1.8 ) Tax credit utilised during the year (3,251 ) (0.4 ) (3,251 ) (0.3 ) Profits attributable to associates (35,536 ) (4.6 ) (35,536 ) (3.0 ) Income not subject to tax (83,197 ) (19.2 ) (3,939 ) (0.5 ) (87,136 ) (7.3 ) Expenses not deductible for tax 10, , , Effect on deferred tax of change in rates (898 ) (0.1 ) (898 ) (0.1 ) Adjustment in respect of current tax of previous periods (3,063 ) (0.4 ) (3,063 ) (0.3 ) Tax rebates (31,195 ) (4.1 ) (31,195 ) (2.6 ) Tax losses utilised from previous periods (1,550 ) (0.2 ) (1,550 ) (0.1 ) Tax losses not recognised 27, , Tax charge at the Group s effective rate 2, , , * Under the PRC income tax laws, enterprises are subject to corporate income tax ( CIT ) at rate of 25%. However, certain of the Group s subsidiaries are operating in specific development zones in Mainland China, and the relevant authorities have granted these subsidiaries a preferential CIT rate of 18% (2007: rates ranging from 15% to 30%). ** In addition to the preferential CIT rates granted to the Group s certain subsidiaries in Mainland China, tax holidays were also granted by the relevant authorities to these subsidiaries, where CIT is exempted for the first two profitable years of the subsidiaries and is chargeable at half of the applicable rates for the subsequent three years. # Included profit before tax from discontinued operations. * 25% 18% % 30% ** # The share of tax attributable to associates amounting to HK$13,002,000 (2007: HK$17,152,000) is included in Share of profits of associates on the face of the consolidated income statement. 13,002, ,152,

108 Notes to the Financial Statements (continued) 31 December PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY The consolidated profit attributable to equity holders of the Company for the year ended 31 December 2008 includes a loss of HK$38,430,000 (2007: HK$12,297,000) which has been dealt with in the financial statements of the Company. 13. DISCONTINUED OPERATIONS The results of the Spin-off Group for the year of 2007 are presented below: ,430, ,297, HK$ 000 Revenue 4,594,069 Cost of sales (4,147,676) Gross profit 446,393 Other income and gains 101,177 Expenses (277,154) Finance costs (64,966) Share of profits of associates 58,976 Profit before tax from the discontinued operations 264,426 Tax related to pre-tax profit (24,657) Profit for the year from the discontinued operations 239,769 Attributable to: Equity holders of the Company 195,832 Minority interests 43, , China Foods Limited Annual Report 2008

109 13. DISCONTINUED OPERATIONS (CONTINUED) The net cash flows incurred by the Spin-off Group are as follows: HK$ 000 Operating activities 31,667 Investing activities (375,340) Financing activities 325,417 Net cash outflow (18,256) Earnings per share Basic from discontinued operations HK7.02 cents Diluted from discontinued operations HK7.01 cents The calculation of basic and diluted earnings per share from discontinued operations was based on: Profit attributable to ordinary equity holders of the Company from discontinued operations HK$195,832,000 Weighted average number of ordinary shares in issue during the year used in the basic earnings per share calculation 2,791,383,356 Weighted average number of ordinary shares used in the diluted earnings per share calculation 2,792,103,

110 Notes to the Financial Statements (continued) 31 December DIVIDENDS HK$ 000 HK$ 000 Interim HK2.4 cents (2007: Nil) 2.4 per ordinary share ,993 Proposed final HK3.84 cents 3.84 (2007: HK4.5 cents) per ordinary share , ,612 Special interim (notes 1 and 37) ,234, ,182 6,359,760 At a meeting held on 9 April 2009, the board proposed a final dividend of HK3.84 cents per share for the year. This recommended dividend is subject to the approval of the shareholders at the forthcoming general meeting and it is not reflected as dividend payable in these accounts, but will be paid out of the Company s contributed surplus. 15. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY The calculation of basic earnings per share amount for the year is based on the profit for the year attributable to ordinary equity holders of the Company of HK$483,427,000 (2007: HK$791,686,000) and the weighted average number of 2,791,383,356 ordinary shares (2007: 2,791,383,356) in issue during the year. The calculation of basic earnings per share amount from continuing operations for the year is based on the profit for the year attributable to ordinary equity holders of the Company of HK$483,427,000 (2007: HK$595,854,000) and the weighted average number of 2,791,383,356 ordinary shares (2007: 2,791,383,356) in issue during the year. No amount of diluted earnings per share for the year has been disclosed as no diluting effect existed during the year. The calculation of diluted earnings per share amount for the year ended 31 December 2007 is based on the profit for that year attributable to ordinary equity holders of the Company of HK$791,686,000. The calculation of diluted earnings per share amount from continuing operations for the year ended 31 December 2007 was based on the profit for that year attributable to ordinary equity holders of the Company of HK$595,854,000. The weighted average number of 2,792,103,066 ordinary shares used in the calculations is the number of 2,791,383,356 ordinary shares in issue during that year, as used in the basic earnings per share calculation, and the weighted average number of 719,710 ordinary shares assumed to have been issued at no consideration on the deemed exercise of all dilutive potential ordinary shares into ordinary shares ,427, ,686,000 2,791,383, ,791,383, ,427, ,854,000 2,791,383, ,791,383, ,686, ,854,000 2,792,103,066 2,791,383, , China Foods Limited Annual Report 2008

111 16. PROPERTY, PLANT AND EQUIPMENT 16. Group Company Plant, machinery and equipment Construction Plant and Buildings in progress Total equipment HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ December At 31 December 2007 and at 1 January 2008: ,178,053 2,149,177 42,294 3,369,524 1,814 Cost Accumulated depreciation and impairment (270,675) (1,016,270) (1,286,945) (1,814) Net carrying amount 907,378 1,132,907 42,294 2,082,579 At 1 January 2008, net of accumulated depreciation and impairment 907,378 1,132,907 42,294 2,082,579 Additions 39, , , ,241 Disposals (7,558) (15,117) (22,675) Depreciation provided during the year (36,027) (172,671) (208,698) Transfers 35,417 53,487 (88,904) Exchange realignment 53,808 70,877 6, ,025 At 31 December 2008, net of accumulated depreciation and impairment 992,646 1,274, ,677 2,434,472 At 31 December 2008: Cost 1,291,911 2,515, ,677 3,975,240 1,814 Accumulated depreciation and impairment (299,265) (1,241,503) (1,540,768) (1,814) Net carrying amount 992,646 1,274, ,677 2,434,

112 Notes to the Financial Statements (continued) 31 December PROPERTY, PLANT AND EQUIPMENT (CONTINUED) 16. Group Company Plant, machinery and equipment Construction Plant and Buildings in progress Total equipment HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ December At 31 December 2006 and at 1 January 2007: Cost 3,062,946 4,862,731 1,163,572 9,089,249 1,814 Accumulated depreciation and impairment (597,520 ) (1,708,468 ) (2,305,988 ) (1,774 ) Net carrying amount 2,465,426 3,154,263 1,163,572 6,783, At 1 January 2007, net of accumulated depreciation and impairment 2,465,426 3,154,263 1,163,572 6,783, Additions 12, ,323 1,029,217 1,176,572 Acquisition of subsidiaries (note 35) , , ,988 Impairment (13,085 ) (45,536 ) (58,621 ) Disposals (2,150 ) (15,046 ) (1,690 ) (18,886 ) Disposal of subsidiaries (note 36) 36 (48,991 ) (44,676 ) (104 ) (93,771 ) Spin-off of CAIH (note 37) 37 (2,007,602 ) (2,355,363 ) (1,684,584 ) (6,047,549 ) Depreciation provided during the year (41,235 ) (194,097 ) (235,332 ) (40 ) Transfers 257, ,773 (486,633 ) Exchange realignment 84,820 92,581 22, ,917 At 31 December 2007, net of accumulated depreciation and impairment 907,378 1,132,907 42,294 2,082,579 At 31 December 2007: Cost 1,178,053 2,149,177 42,294 3,369,524 1,814 Accumulated depreciation and impairment (270,675 ) (1,016,270 ) (1,286,945 ) (1,814 ) Net carrying amount 907,378 1,132,907 42,294 2,082, China Foods Limited Annual Report 2008

113 16. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) All of the Group s buildings are held outside Hong Kong under medium term leases. 16. At 31 December 2008, certain of the Group s buildings with a net book value of approximately HK$19,623,000 (2007: HK$45,680,000) were pledged to secure general banking facilities granted to the Group (note 30) ,623, ,680, As at 31 December 2008, certificates of ownership in respect of certain buildings of the Group in Mainland China with an aggregate net book value of HK$243,106,000 (2007: HK$29,521,000) had not been issued by the relevant PRC authorities. The directors anticipate that these certificates will be issued in the near future ,106, ,521,000 For the year ended 31 December 2007, impairment was recognised in the income statement in respect of certain items of property, plant and equipment as a result of the closure of a production line. The recoverable amount was estimated based on those items scrap values. 17. INVESTMENT PROPERTIES Group HK$ 000 HK$ 000 Carrying amount at 1 January ,000 52,389 Additions 3,394 Net profit from a fair value adjustment 4,656 1,727 Exchange realignment 3,834 3,884 Carrying amount at 31 December ,884 58,000 All of the Group s investment properties are held outside Hong Kong under medium term leases. 163

114 Notes to the Financial Statements (continued) 31 December INVESTMENT PROPERTIES (CONTINUED) The Group s investment properties were revalued on 31 December 2008 by Savills Valuation and Professional Services Limited, independent professionally qualified valuers, at HK$69,884,000 (2007: HK$58,000,000) on an open market, existing use basis. The investment properties are leased to third parties under operating leases, further summary details of which are included in note 39(a) to the financial statements ,884, ,000, a) At 31 December 2008, the Group s investment properties with a carrying value of HK$65,767,000 (2007: HK$58,000,000) were pledged to secure banking facilities granted to the Group (note 30). 18. PREPAID LAND PREMIUMS ,767, ,000, Group HK$ 000 HK$ 000 Carrying amount at 1 January , ,516 Additions 24,776 14,563 Acquisition of subsidiaries (note 35) 35 11,058 Disposal of subsidiaries (note 36) 36 (4,638) Spin-off of CAIH (note 37) 37 (375,663) Recognised during the year (4,654) (5,091) Exchange realignment 8,512 13,414 Carrying amount at 31 December , ,159 Current portion included in prepayments, deposits and other receivables (4,291) (12,894) Non-current portion 156, ,265 The leasehold land is held under medium term leases and is situated in Mainland China. As at 31 December 2008, certificates of land use rights in respect of certain land of the Group in Mainland China with an aggregate net book value of HK$16,881,000 (2007: HK$15,920,000) had not been issued by the relevant PRC authorities. The directors anticipate that these certificates will be issued in the near future ,881, ,920, China Foods Limited Annual Report 2008

115 19. GOODWILL 19. Group HK$ 000 HK$ 000 At 1 January: 1 1 Cost 1,332,857 1,477,691 Accumulated impairment Net carrying amount 1,332,857 1,477,691 Cost at 1 January, net of accumulated impairment 1 1 1,332,857 1,477,691 Acquisition of subsidiaries (note 35) ,014 Spin-off of CAIH (note 37) 37 (574,268) Exchange realignment 76,485 15,420 At 31 December ,409,342 1,332,857 At 31 December: Cost 1,409,342 1,332,857 Accumulated impairment Net carrying amount 1,409,342 1,332,857 The amount of the goodwill remaining in the consolidated reserves, arising from the acquisition of subsidiaries and associates prior to the adoption of SSAP 30 in 2001, was HK$89,540,000 as at 31 December 2007 and The amount of goodwill is stated at its cost of HK$261,897,000, less cumulative impairment of HK$172,357,000 which arose in prior years. Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to the following cash-generating units, which are reportable segments, for impairment testing: ,540, ,897,000172,357,000 Wines cash-generating unit; Confectionery cash-generating unit; and Beverages cash-generating unit. 165

116 Notes to the Financial Statements (continued) 31 December GOODWILL (CONTINUED) Impairment testing of goodwill (continued) The recoverable amount of each of the above cash-generating units is determined based on a value in use calculation using cash flow projections based on financial budgets covering periods ranging from one to five years approved by senior management. The discount rates applied to the cash flow projections ranged from 10% to 14% and cash flows beyond the five-year period are extrapolated using a growth rate of 2% 3% in perpetuity because of the long-term perspective within the Group of the business unit. The carrying amount of goodwill allocated to each of the cashgenerating units is as follows: % 14% 2% 3% Group HK$ HK$ 000 Wines 440, ,306 Confectionery 11,610 11,610 Beverages 957, ,941 1,409,342 1,332,857 Key assumptions were used in the value in use calculation of the cash-generating units for 31 December 2008 and 31 December The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill. Budgeted gross margins The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budget year, increased for expected efficiency improvements and expected market development Discount rates The discount rates used are before tax and reflect specific risks relating to the relevant units. Raw materials price inflation The basis used to determine the value assigned to raw materials price inflation is the forecast price indices during the budget year for countries from where raw materials are sourced. The values assigned to key assumptions are consistent with external information sources. 166 China Foods Limited Annual Report 2008

117 20. OTHER INTANGIBLE ASSETS Group 20. Software HK$ December Cost at 1 January 2008, net of accumulated amortisation ,179 Additions 21,159 Amortisation provided during the year (3,312) Exchange realignment 1,613 At 31 December ,639 At 31 December 2008: Cost 37,997 Accumulated amortisation and exchange realignment (1,358) Net carrying amount 36, December Additions 16,838 Amortisation provided during the year (272) Exchange realignment 613 At 31 December ,179 At 31 December 2007: Cost 16,838 Accumulated amortisation and exchange realignment 341 Net carrying amount 17,

118 Notes to the Financial Statements (continued) 31 December INTERESTS IN SUBSIDIARIES 21. Company HK$ HK$ 000 Unlisted shares, at cost 2,106,712 2,749,426 Due from subsidiaries 4,432,770 3,060,153 Due to subsidiaries (534,898) (503,906) 6,004,584 5,305,673 Impairment (140,824) 6,004,584 5,164,849 The balances with subsidiaries are unsecured, interest-free and not expected to be repaid within the next 12 months. The carrying amounts of these amounts due from/to subsidiaries approximate to their fair values. Certain subsidiaries were disposed of during the year. 12 The value of the unlisted shares is based on: (a) the book values of the underlying net assets of the subsidiaries attributable to the Group as at the date when the Company became the holding company of the Group pursuant to the group reorganisation in 1991; and (a) 1991 (b) the costs of acquisitions of certain subsidiaries in 2001 and (b) Particulars of the Company s principal subsidiaries as at 31 December 2008 are set out in note 42 to the financial statements China Foods Limited Annual Report 2008

119 22. INTERESTS IN ASSOCIATES 22. Group HK$ 000 HK$ 000 Share of net assets 411, ,195 Due from associates 5,958 Due to associates (920) 411, ,233 The above balances with associates were unsecured, interest-free and had no fixed terms of repayment. The carrying amounts of these balances approximate to their fair values. The balances with associates included in current assets and current liabilities are unsecured, interest-free and repayable within one year. The following table illustrates the summarised financial information of the Group s associates extracted from their financial statements, or where appropriate, management accounts: HK$ 000 HK$ 000 Assets 5,925,945 2,032,501 Liabilities 3,918,961 1,333,586 Revenue 10,119,973 4,469,119 Profit 393, ,511 Particulars of the Group s associates as at 31 December 2008 are set out in note 43 to the financial statements

120 Notes to the Financial Statements (continued) 31 December INTERESTS IN ASSOCIATES (CONTINUED) On 31 January 2008, the Group entered into a sale and purchase agreement with a connected party, Coca-Cola South Asia Holdings, Inc., to acquire a 21% share interest in Coca-Cola Bottlers Manufacturing Holdings Limited ( CCBMH ), at a cash consideration of RMB148,280,000 (approximately HK$161,057,000). CCBMH holds a 100% equity interest in Coca-Cola Bottlers Manufacturing (Dongguan) Co., Ltd., which is principally engaged in the production of still beverages under the trademarks of The Coca-Cola Company and its affiliates. The acquisition was completed on 21 February Further details of this acquisition are set out in the Company s circular dated 21 February Coca- Cola South Asia Holdings, Inc. 148,280, ,057,000Coca-Cola Bottlers Manufacturing Holdings LimitedCCBMH 21%CCBMH 100% The Group s share of the fair values of the identifiable assets and liabilities of CCBMH as at the date of acquisition is HK$201,959,000, which resulted in an excess of fair value of net assets acquired over cost of HK$40,902,000 recognised as an income included in the share of profits of associates on the face of the consolidated income statement. 23. AVAILABLE-FOR-SALE INVESTMENTS AND RELATED ADVANCES CCBMH 201,959,000 40,902, Group HK$ 000 HK$ 000 Unlisted equity investments elsewhere than Hong Kong, at fair value 11,672 8,707 Unlisted equity investments elsewhere than Hong Kong, at cost 198, ,782 Amount due from investee companies 901 5, , ,455 The amounts due from investee companies are unsecured, interestfree and have no fixed terms of repayment. The carrying amounts of the amounts due from investee companies approximate to its fair value. Certain unlisted equity investments were stated at cost less impairment because the directors are of the opinion that their fair value cannot be measured reliably. 170 China Foods Limited Annual Report 2008

121 24. BIOLOGICAL ASSETS 24. Group HK$ 000 HK$ 000 At 1 January ,070 53,584 Decrease due to harvest (15,133) (13,593) Additions during the year 2,204 7,931 Gains arising from changes in fair value attributable to physical changes 27,502 24,148 At 31 December ,643 72,070 (a) Analysis of biological assets At the end of the financial year, the Group s total planted area of mature plantations is as follows: (a) Group HK$ 000 HK$ 000 Matured planted area: 86,643 72,070 Group Hectares Hectares Matured planted area:

122 Notes to the Financial Statements (continued) 31 December BIOLOGICAL ASSETS (CONTINUED) (b) Analysis of grape production During the financial year, the Group harvested approximately 3,771,900 kilograms (2007: 4,218,572 kilograms) of grape, which had a fair value less estimated point-of-sale costs of HK$15,133,000 (2007: HK$13,593,000). The fair value of grape was determined by considering the present value of expected net cash flow from the grape vines. 24. (b) 3,771, ,218,572 15,133, ,593,000 Significant assumptions made in determining the fair value of the biological assets are as follows: (i) the grape vines will continue to be competently (i) managed and remain free from irremediable diseases in the remaining estimated useful lives; (ii) the expected prices of grapes are based on the past (ii) actual average district prices; and (iii) the future cash flows have been discounted at the (iii) target rate of return on equity of the Wines segment. 25. INVENTORIES 25. Group HK$ 000 HK$ 000 Raw materials 1,283, ,801 Work in progress 2,024 2,704 Finished goods 1,343,145 1,129,816 2,628,857 1,968, China Foods Limited Annual Report 2008

123 26. ACCOUNTS AND BILLS RECEIVABLE 26. Group HK$ 000 HK$ 000 Accounts and bills receivable 913,826 1,022,850 Impairment (29,327) (25,671) 884, ,179 The Group s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is generally for 30 to 90 days. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group s accounts receivable relate to a large number of diversified customers, there is no significant concentration of credit risk. Accounts and bills receivable are non-interest-bearing and are normally settled within one to three months and one to six months, respectively An aged analysis of the accounts and bills receivable as at the balance sheet date, based on the invoice date and net of impairment, is as follows: Group HK$ 000 HK$ 000 Outstanding balances with ages: Within 3 months 588, ,103 3 to 12 months 291, ,641 1 to 2 years 4,182 4,430 Over 2 years 5 884, ,

124 Notes to the Financial Statements (continued) 31 December ACCOUNTS AND BILLS RECEIVABLE (CONTINUED) The movements in the provision for impairment of accounts receivable are as follows: 26. Group HK$ 000 HK$ 000 At 1 January ,671 38,479 Acquisition of subsidiaries 1,032 Impairment losses recognised (note 7) 7 2, Amount written off as uncollectible (22) (13,678) Spin-off of CAIH (2,637) Exchange realignment 1,649 2,202 At 31 December ,327 25,671 The individually impaired accounts receivable relate to customers that were in financial difficulties and only a portion of the receivables is expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances. The aged analysis of the accounts and bills receivable that are not considered to be impaired is as follows: Group HK$ HK$ 000 Outstanding balances with ages: Neither past due nor impaired 740, ,774 Less than 1 month past due 1 15,487 16,441 1 to 3 months past due ,462 49,323 More than 3 months but less than 12 months past due ,620 86, , , China Foods Limited Annual Report 2008

125 26. ACCOUNTS AND BILLS RECEIVABLE (CONTINUED) Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default. 26. Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral or other credit enhancements over these balances. 27. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS 27. Group Company HK$ 000 HK$ 000 HK$ 000 HK$ 000 Listed equity securities in Hong Kong, at fair value 9,228 16,825 7,204 14,301 The above investments at 31 December 2007 and 2008 were classified as held for trading. 28. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS Group Company Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cash and bank balances 1,523, ,377 19,968 2,815 Time deposits 25, , ,179 1,549,686 1,400,040 19, ,994 Less: Time deposits pledged for short term bank loans 30 (3,002) (3,477) Cash and cash equivalents 1,546,684 1,396,563 19, ,

126 Notes to the Financial Statements (continued) 31 December CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS (CONTINUED) At the balance sheet date, the cash and cash equivalents and pledged deposits of the Group denominated in Renminbi ( RMB ) amounted to HK$1,449,719,000 (2007: HK$719,406,000). The RMB is not freely convertible into other currencies, however, under Mainland China s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business ,449,719, ,406,000 Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default. 29. ACCOUNTS AND BILLS PAYABLE An aged analysis of the accounts and bills payable as at the balance sheet date, based on the invoice date, is as follows: 29. Group HK$ HK$ 000 Outstanding balances with ages: Within 3 months 827, ,303 3 to 12 months 25,540 98,024 1 to 2 years 7,224 7,744 Over 2 years 605 1, , ,315 Accounts and bills payable are non-interest-bearing and are normally settled on one to three months, and one to six months, respectively. 176 China Foods Limited Annual Report 2008

127 30. INTEREST-BEARING BANK AND OTHER BORROWINGS Group Effective Effective interest interest rate (%) Maturity HK$ 000 rate (%) Maturity HK$ 000 (%) (%) Current Bank loans secured , ,019 Bank loans unsecured , ,704 Other loans unsecured , , , ,960 Non-current Bank loans unsecured , , ,752 Analysed into: Bank loans repayable: Within one year or on demand 101, ,723 In the third to fifth years, inclusive 106, , ,515 Other loans repayable: Within one year or on demand 146, , , ,

128 Notes to the Financial Statements (continued) 31 December INTEREST-BEARING BANK AND OTHER BORROWINGS (CONTINUED) (a) Certain of the Group s bank loans are secured by: 30. (a) (i) certain of the Group s investment properties held (i) outside Hong Kong with a carrying value at the 65,767, balance sheet date of HK$65,767,000 (2007: 58,000,000 HK$58,000,000) (note 17); 17 (ii) certain of the Group s property, plant and (ii) equipment with a net book value of approximately 19,623, HK$19,623,000 (2007: HK$45,680,000) (note 16); 45,680,000 and 16 (iii) the pledge of certain of the Group s time deposits (iii) amounting to HK$3,002,000 (2007: HK$3,477,000) 3,002, (note 28). 3,477, (b) For the year ended 31 December 2008, except for certain (b) bank loans of HK$5,294,000 denominated in Pounds Sterling, 5,294,000 all other borrowings are denominated in RMB. For the year ended 31 December 2007, except for certain bank loans of HK$2,068,000 which are denominated in United States 2,068,000 dollars, all other borrowings are denominated in RMB. In addition, the Company s ultimate holding company had guaranteed certain of the Group s bank loans amounting to HK$65,143,000 as at 31 December ,143,000 The other loans represent loans totalling HK$146,277,000 (2007: HK$145,237,000) from a financial institution in the COFCO group. 146,277, ,237,000 The carrying amounts of the Group s bank and other borrowings approximate to their fair values at the balance sheet date. On 10 December 2008, the Group obtained a non-secured banking facility of HK$500,000,000 to strengthen the general working capital of the Group. The banking facility had not been utilised at the balance sheet date ,000, China Foods Limited Annual Report 2008

129 31. DEFERRED TAX The movements in deferred tax liabilities and assets during the year are as follows: Deferred tax liabilities 31. Group Accelerated tax Deferred depreciation income Others Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January ,368 (715 ) 15,729 29,382 Deferred tax charged to the income statement during the year (note 11) 11 6,970 6,970 Spin-off of CAIH (note 37) 37 (14,563) 725 (16,570) (30,408) Exchange realignment 195 (10) At 31 December 2007 and at 1 January ,729 6,729 Deferred tax charged to the income statement during the year (note 11) Exchange realignment At 31 December ,481 7,

130 Notes to the Financial Statements (continued) 31 December DEFERRED TAX (CONTINUED) Deferred tax assets Group 31. Unrealised loss on derivative Impairment financial Provision of instruments against receivables inventories Others Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January ,844 10,338 15,565 Deferred tax credited/(charged) to the income statement during the year (note 11) (113 ) 10,054 20,857 30,820 Spin-off of CAIH (note 37) 37 (92 ) (10,090 ) (12,230 ) (22,412 ) Exchange realignment ,053 1,462 At 31 December 2007 and at 1 January ,983 20,018 25,435 Deferred tax credited to the income statement during the year (note 11) ,292 1,747 4,227 Exchange realignment ,291 1,703 At 31 December ,654 23,056 31,365 The Group has tax losses arising in Mainland China of HK$253,893,000 (2007: HK$83,772,000) that are available for offsetting against future taxable profits to a maximum period of five years of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profits will be available against which the tax losses can be utilised. Pursuant to the new corporate income tax law in the PRC, a 10% withholding tax is levied on dividends declared to foreign investors by foreign investment enterprises established in mainland China (the FIEs ). The requirement became effective on 1 January 2008 and applies to earnings generated by the FIEs from 1 January 2008 onwards (the FIE Earnings since 2008 ). A lower withholding tax rate of 5% is applied if there is a tax treaty between the PRC and the jurisdiction of the foreign investors. 253,893, ,772,000 10% % 180 China Foods Limited Annual Report 2008

131 31. DEFERRED TAX (CONTINUED) Deferred tax assets (continued) At 31 December 2008, no deferred tax was recognised by the Group for withholding taxes that would be accrued for the FIE Earnings since 2008 by the Group s certain subsidiaries established in the mainland China, if any. In the opinion of the directors, it is not probable that such subsidiaries will distribute the FIE Earnings since 2008 in the foreseeable future. The aggregate amount of temporary differences associated with the FIE Earnings since 2008 for which deferred tax liabilities have not been recognised amounted to approximately HK$31,575,000 at 31 December 2008 (2007: Nil) based on the tax rates of 5% or 10% applicable to such subsidiaries % 10% ,575, There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders. 32. SHARE CAPITAL Shares HK$ 000 HK$ 000 Authorised: 4,000,000,000 ordinary shares 0.10 of HK$0.10 each 4,000,000, , ,000 Issued and fully paid: 2,791,383,356 ordinary shares 0.10 of HK$0.10 each 2,791,383, , ,138 There were no movements in the Company s share capital during the years ended 31 December 2008 and 31 December Share options Details of the Company s share option scheme and the share options issued under the scheme are included in note 33 to the financial statements

132 Notes to the Financial Statements (continued) 31 December SHARE OPTION SCHEMES Pursuant to an ordinary resolution passed on 21 November 2006, the Company conditionally adopted a share option scheme (the Scheme ). The Scheme became effective on 21 November 2006 (the Effective Date ) and unless otherwise cancelled or amended, will remain in force for 10 years from that date The purpose of the Scheme is to provide incentives and rewards to eligible participants who contribute to the success of the Group s operations. Eligible participants of the Scheme include the Company s directors (other than independent non-executive directors) and other employees of the Group. The maximum number of unexercised share options currently permitted to be granted under the Scheme is an amount equivalent, upon their exercise, to 10% of the issued shares of the Company at the date of the adoption of the Scheme. The maximum number of shares issuable under share options granted to each eligible participant pursuant to the Scheme within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders approval in a general meeting. 10% 1% Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by independent non-executive directors. In addition, any share options granted to a substantial shareholder of the Company, or to any of its associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company s shares at the date of grant) in excess of HK$5,000,000, within any 12-month period, are subject to shareholders approval in advance in a general meeting. 0.1% 5,000,000 The offer of a grant of share options may be accepted within 28 days from the date of offer. The exercise periods of the share options granted commence after applicable vesting periods and in any event end on a date which is not later than seven years from the date of acceptance of the share options, subject to early termination thereof as provided in the Schemes The exercise price of share options is determinable by the directors, but may not be less than the higher of (i) the Stock Exchange closing price of the Company s shares on the date of offer of the share options; and (ii) the average Stock Exchange closing price of the Company s shares for the five trading days immediately preceding the date of offer; or (iii) the nominal value of a share. (i) (ii) (iii) 182 China Foods Limited Annual Report 2008

133 33. SHARE OPTION SCHEMES (CONTINUED) Share options do not confer rights on the holders to dividends or to vote at shareholders meetings. 33. On 27 September 2007, a total of 20,619,000 share options were granted to certain directors and employees of the Group in respect of their services to the Group in the forthcoming year. These share options shall be vested during the period from 27 September 2007 to 26 September 2011 with an exercise price of HK$4.952 per share and an exercise period from 27 September 2009 to 26 September The price of the Company s shares at the date of grant was HK$4.95 per share ,619, The following share options were outstanding under the Scheme during the year: Weighted Weighted average Number average Number exercise price of options exercise price of options HK$ per share 000 HK$ per share 000 At 1 January ,478 Granted during the year ,619 Cancelled during the year (1,770) (141 ) At 31 December , ,478 The vesting periods, exercise prices and exercise periods of the share options outstanding as at 31 December 2008 are as follows: Number of options granted to Exercise Directors Employees Total Vesting period price per share Exercise period HK$ 1,820 4,416 6, ,820 4,416 6, ,820 4,416 6, ,460 13,248 18,

134 Notes to the Financial Statements (continued) 31 December SHARE OPTION SCHEMES (CONTINUED) The fair value of the share options of the Scheme granted during the year ended 31 December 2007 was HK$32,227,000 (HK$1.563 each) of which the Company recognised a share option expense of HK$10,135,000 during the year ended 31 December 2008 (2007: HK$3,060,000) ,227, ,135, ,060,000 The fair value of equity-settled share options granted in 2007 was estimated as at the date of grant, using the Black-Scholes-Merton option pricing model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used: 2007 Dividend yield (%) 0.8 Expected volatility (%) Historical volatility (%) Risk-free interest rate (%) Expected life of options (year) 5 Weighted average share price (HK$) (%) 0.8 (%) (%) (%) The expected life of the options is determined with reference to the vesting term and original contractual term of the Scheme and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other feature of the options granted was incorporated into the measurement of fair value. As at 31 December 2008, the Company had 18,708,000 (2007: 20,478,000) share options outstanding under the Scheme. The option outstanding at 31 December 2008 had a remaining contractual life of 5.74 years (2007: 6.74 years). The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 18,708,000 (2007: 20,478,000) additional ordinary shares of the Company and additional share capital of approximately HK$1,871,000 (2007: approximately HK$2,048,000) and share premium of approximately HK$90,771,000 (2007: approximately HK$99,359,000) (before share issuance expenses) ,708, ,478, ,708, ,478,000 1,871, ,048,000 90,771, ,359,000 At the date of the approval of these financial statements, the shares issuable from the above outstanding share options represented approximately 0.67% (2007: 0.73%) of the Company s shares in issue as at that date. 0.67% % 184 China Foods Limited Annual Report 2008

135 34. RESERVES (a) The Group The amounts of the Group s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity. 34. (a) Pursuant to the relevant laws and regulations for Sino-foreign joint venture enterprises, a portion of the profits of certain of the Company s subsidiaries and associates in Mainland China has been transferred to reserve funds which are restricted as to use. The Group s capital reserve includes the contributed surplus which represents: (i) the excess value of the shares acquired over the nominal value of the Company s shares issued in exchange therefor under the group reorganisation in 1991, less the goodwill arising on the acquisition of subsidiaries and associates which remains eliminated against the capital reserve, as explained in note 19 to the financial statements; and (i) (ii) the excess value of the shares acquired over the nominal value of the Company s shares issued in exchange therefor under the Reorganisation, as explained in note 1 to the financial statements. (ii) 1 185

136 Notes to the Financial Statements (continued) 31 December RESERVES (CONTINUED) (b) The Company 34. (b) Employee share-based Share compensation premium reserve account Contributed Proposed Retained surplus dividend profit Total Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January ,660,432 5,028, ,796 9,111,038 Equity-settled share option arrangements 7 3,060 3,060 Profit for the year 1,866,157 1,866,157 Final 2007 dividend proposed ,612 (125,612 ) Special interim dividends (3,517,400 ) (2,131,733 ) (5,649,133 ) At 31 December 2007 and January ,660,432 * 3,060 * 1,511,410 * 125,612 30,608 * 5,331,122 Equity-settled share option arrangements 7 10,135 10,135 Profit for the year 606, ,179 Cancellation of share premium (3,660,432 ) 3,660,432 Final 2007 dividend paid (125,612 ) (125,612 ) 2008 interim dividend paid (66,993 ) (66,993 ) Final 2008 dividend proposed (107,189 ) 107,189 At 31 December * 13,195 * 5,064,653 * 107, ,794 * 5,754,831 * These reserve accounts comprise the reserves of HK$5,647,642,000 in the Company s balance sheet (2007: HK$5,205,510,000). * 5,647,642, ,205,510,000 The contributed surplus of the Company represents: (i) the difference between the underlying net assets of subsidiaries and the nominal value of the Company s shares issued in exchange therefor under a group reorganisation in 1991; and (i) 1991 (ii) the difference between the consideration payable in respect of the Acquisition and the nominal value of the Company s shares issued in exchange therefor under the Reorganisation. (ii) 186 China Foods Limited Annual Report 2008

137 34. RESERVES (CONTINUED) (b) The Company (continued) On 15 April 2008, the board of directors passed a resolution in relation to a share premium cancellation pursuant to section 46 of the Companies Act 1981 of Bermuda, which was approved by shareholders on a special resolution on 19 May 2008, and was later approved by the registrar of companies of Bermuda on 3 June Accordingly, the share premium account of approximately HK$3,660,432,000 was transferred to contributed surplus during the year. 34. (b) ,660,432,000 The employee share-based compensation reserve comprises the fair value of share options granted which are yet to be exercised, as further explained in the accounting policy for share-based payment transactions in note 3.3 to the financial statements. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to retained profits should the related options expire or be cancelled. 3.3 In addition to the retained profits of the Company, under the Companies Act 1981 of Bermuda, the contributed surplus of the Company is also available for distribution to its shareholders. However, the Company cannot declare or pay a dividend, or make a distribution out of its contributed surplus, if: 1981 (a) the Company is, or would after the payment be, unable to pay its liabilities as they become due; or (a) (b) the realisable value of the Company s assets would thereby be less than the aggregated realisable value of its liabilities and its issued share capital and share premium account. (b) 187

138 Notes to the Financial Statements (continued) 31 December BUSINESS COMBINATION Business combination in 2007 On 6 August 2007, COFCO Coca-Cola Beverages Limited ( CBL ), a 65%-owned subsidiary of the Company, entered into a conditional share transfer master agreement with Coca-Cola China Industries Limited ( CCCI ), a connected person of the Company, pursuant to which: % Coca-Cola China Industries LimitedCCCI (i) CBL will transfer to CCCI all the issued share capital in, and (i) CCCI all the outstanding shareholder s loans owed by, COFCO Beverages (Chengdu) Limited, COFCO Beverages (Harbin) Limited, COFCO Beverages (Kunming) Limited, COFCO Beverages (Taiyuan) Limited, COFCO Beverages (Wuhan) Limited, and COFCO Beverages (Jilin) Limited (collectively the CBL Companies ), all being wholly-owned subsidiaries of CBL, for an aggregate consideration of RMB571,000,000 (approximately HK$591,710,000) (the Disposal ); 571,000, ,710,000 (ii) CCCI will transfer to CBL all the issued share capital in, and (ii) CCCI Coca- all the outstanding shareholder s loans owed by, Coca- Cola China Industries Beverages Cola China Industries Beverages (Qingdao) Ltd. ( CCCI (Qingdao) Ltd.CCCI Qingdao Qingdao ), a wholly-owned subsidiary of CCCI, for an CCCI aggregate consideration of RMB521,000,000 (approximately HK$539,910,000) (the Acquisition ); and 521,000, ,910,000 (iii) CBL will acquire from CCCI all the issued share capital in, and (iii) CCCI Coca- all the outstanding shareholder s loans owed by, Coca-Cola Cola China Industries (Beijing) China Industries (Beijing) Limited ( CCCI Beijing ), a wholly- LimitedCCCI BeijingCCCI owned subsidiary of CCCI, for an aggregate consideration of RMB270,000, ,000, China Foods Limited Annual Report 2008

139 35. BUSINESS COMBINATION (CONTINUED) Business combination in 2007 (continued) The consideration for the Disposal was settled by the Acquisition plus RMB50,000,000 (approximately HK$51,800,000) paid by CCCI in cash at completion on 26 October CCCI ,000,000 ( 51,800,000) The CBL Companies, CCCI Qingdao and CCCI Beijing are all investment holding companies with equity interests in subsidiaries or long-term investments engaged in the production, bottling, sale and distribution of Coca-Cola beverages in certain areas of the PRC. CCCI Qingdao CCCI Beijing Details of the above transactions were disclosed by the Company in an announcement dated 6 August 2007 and a circular dated 27 August

140 Notes to the Financial Statements (continued) 31 December BUSINESS COMBINATION (CONTINUED) Business combination in 2007 (continued) A summary of the fair values of the identifiable assets and liabilities of CCCI Qingdao as at the date of the Acquisition and the corresponding carrying amounts immediately before the Acquisition was as follows: CCCI Qingdao Fair value recognised on acquisition HK$ 000 Carrying amount HK$ 000 Property, plant and equipment (note 16) , ,004 Prepaid land premiums (note 18) 18 11,058 11,058 Inventories 92,714 92,714 Accounts and bills receivable 33,189 33,189 Prepayments, deposits and other receivables 31,995 31,995 Cash and bank balances 52,589 52,589 Accounts and bills payable (194,267) (194,267) Other payables and accruals (113,448) (113,448) Interest-bearing bank and other borrowings (34,707) (34,707) Minority interests (113,636) (93,233) 142, ,894 Reclassification of available-for-sale investments (16,579) Goodwill on acquisition (note 19) , ,910 Satisfied by: Consideration payable (note 36) ,710 Cash received (note 36) 36 (51,800) 539,910 An analysis of the net inflow of cash and cash equivalents in respect of the Acquisition is as follows: HK$ 000 Cash and bank balances acquired and net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries 52, China Foods Limited Annual Report 2008

141 36. DISPOSAL OF SUBSIDIARIES On 26 October 2007, the Group disposed of certain subsidiaries as part of the consideration for a business combination An analysis of the assets and liabilities of the disposal is as follows: HK$ 000 Net assets disposed of: Property, plant and equipment (note 16) 16 93,771 Prepaid land premiums (note 18) 18 4,638 Available-for-sale investments and related loans 154,681 Accounts receivable 5,727 Prepayments, deposits and other receivables 44,047 Due from fellow subsidiaries 8,074 Cash and bank balances 12,215 Accounts payable (26,766) Other payables and accruals (27,703) Due to fellow subsidiaries (71,858) 196,826 Gain on disposal of subsidiaries (note 6) 6 394, ,710 Satisfied by: Cash (note 35) 35 51,800 Consideration receivable (note 35) , ,710 An analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiaries is as follows: HK$ 000 Cash consideration 51,800 Cash and bank balances disposed of (12,215) Cash and bank balances disposed of and net inflow of cash and cash equivalents in respect of the disposal of subsidiaries 39,

142 Notes to the Financial Statements (continued) 31 December SPIN-OFF OF CAIH Pursuant to the Reorganisation as set out in note 1 to the financial statements, the Company spun off the Spin-off Group by way of a special interim dividend where the Company s interest in CAIH, representing the entire issued share capital of CAIH, was distributed to the shareholders of the Company. Further details of the Spin-off are set out in note 1 to the financial statements A summary of the assets and liabilities of the Spin-off Group distributed by the Company as a result of the Spin-off is as follows: HK$ 000 Net assets distributed: Property plant and equipment (note 16) 16 6,047,549 Prepaid land premiums (note 18) ,663 Deposits for purchase of items of property, plant and equipment 15,692 Goodwill (note 19) ,268 Interests in associates 1,137,559 Available-for-sale investments 2,625 Deferred tax assets (note 31) 31 22,412 Inventories 4,161,112 Accounts and bills receivable 607,827 Prepayments, deposits and other receivables 1,744,229 Due from fellow subsidiaries 334,757 Due from the ultimate holding company 2,192 Tax recoverable 120 Derivative financial instruments (31,609) Cash and bank balances 1,291,561 Accounts and bills payable (984,840) Other payables and accruals (1,098,999) Due to fellow subsidiaries (171,696) Due to related companies (575,400) Due to the immediate holding company (2) Due to the ultimate holding company (83) Due to minority shareholders of subsidiaries (114,878) Interest-bearing bank and other borrowings (5,767,829) Deferred income (59,449) Tax payable (67,839) Deferred tax liabilities (note 31) 31 (30,408) Minority interests (1,180,386) Special interim dividend (note 14) 14 6,234, China Foods Limited Annual Report 2008

143 37. SPIN-OFF OF CAIH (CONTINUED) An analysis of the net outflow of cash and cash equivalents in respect of the distribution of the Spin-off Group is as follows: 37. HK$ 000 Cash and bank balances distributed and net outflow of cash and cash equivalents in respect of the distribution of the Spin-off Group (1,291,561) 38. CONTINGENT LIABILITIES At the balance sheet date, neither the Group nor the Company had any significant contingent liabilities. 39. OPERATING LEASE ARRANGEMENTS (a) As lessor The Group leases its investment properties (note 17) under operating lease arrangements, with leases negotiated for terms ranging from one to ten years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions (a) 17 At 31 December 2008, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows: Group HK$ 000 HK$ 000 Within one year 7,621 4,514 In the second to fifth years, inclusive 3,260 3,497 10,881 8,

144 Notes to the Financial Statements (continued) 31 December OPERATING LEASE ARRANGEMENTS (CONTINUED) (b) As lessee The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to ten years. 39. (b) At 31 December 2008, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows: Group HK$ 000 HK$ 000 Within one year 37,954 27,128 In the second to fifth years, inclusive 46,875 31,407 After five years 98,031 69, , , CAPITAL COMMITMENTS In addition to the operating lease commitments detailed in note 39 above, the Group had the following capital commitments at the balance sheet date: Group HK$ 000 HK$ 000 Capital commitments in respect of: Property, plant and equipment: Contracted, but not provided for 49,250 10,132 Acquisition of additional interest in an associate: Contracted, but not provided for 306, , , , China Foods Limited Annual Report 2008

145 41. CONNECTED AND RELATED PARTY TRANSACTIONS (a) Apart from the transactions and balances disclosed elsewhere in the financial statements, the Group had the following material transactions with related parties during the year: 41. (a) Group Notes HK$ 000 HK$ 000 Transactions with fellow subsidiaries: Sales of goods* * (i) 10, ,043 Purchases of goods* * (i) 3,621,284 2,582,770 Operating lease rentals paid* * (i) 10,453 9,254 Interest expenses (ii) 8,512 30,251 Commission paid (i) 191 Transactions with the ultimate holding company: Sales of goods* * (i) 6,298 Management fee paid* * (i) 755 Transactions with associates: Sales of goods (i) 3,646 23,679 Purchases of goods* * (i) 716, ,018 Transactions with related companies: # # Sales of goods (i) 13,566 Purchases of goods * * (i) 2,392,745 3,079,746 * These related party transactions also constituted connected transactions disclosable in accordance with the Listing Rules. * # Related companies are companies under significant influence of the Group s ultimate holding company. # 195

146 Notes to the Financial Statements (continued) 31 December CONNECTED AND RELATED PARTY TRANSACTIONS (CONTINUED) (a) (continued) Notes: 41. (a) (i) These transactions were carried out with reference to the prevailing market prices or, where no market prices were available, at cost plus a percentage of profit mark-up. (i) (ii) Interest expenses arose from the loans from COFCO Finance Corporation Limited ( COFCO Finance ), a wholly-owned subsidiary of COFCO, which are unsecured, bear interest at rates ranging from 5.04% to 6.57% (2007: 5.02% to 5.83%) per annum and of which HK$146,277,000 (2007: HK$145,237,000) is repayable within one year. (ii) ,277, ,237,000 (b) Transaction with a related party Pursuant to certain licensing agreements entered into between the Group and a related party, the Group was granted the exclusive rights to use certain trademarks for its edible oil, soybean meal and related products businesses. The licensing fees for the current year and the prior year were waived by the related party. (b) (c) Outstanding balances with related parties Except for (1) the loans of HK$146,277,000 (2007: HK$145,237,000) from COFCO Finance, the terms of which are detailed in note 30 to the financial statements, (2) the amounts due to minority shareholders of the Group s subsidiaries of HK$73,136,000 (2007: HK$75,047,000) which are not repayable within one year from the balance sheet date and bearing an interest prevailing at the market rate, and (3) an amount due to the ultimate holding company of HK$22,679,000 (2007: HK$21,358,000), which is not repayable within one year from the balance sheet date, the remaining balances with the holding companies, fellow subsidiaries, related companies and minority shareholders of the Group s subsidiaries are unsecured, interest-free and have no fixed terms of repayment. (c) (1) 146,277, ,237,000 30(2) 73,136, ,047,000(3) 22,679, ,358, China Foods Limited Annual Report 2008

147 41. CONNECTED AND RELATED PARTY TRANSACTIONS (CONTINUED) (d) Compensation of key management personnel of the Group 41. (d) Group HK$ 000 HK$ 000 Salaries, allowances and benefits in kind 8,622 6,635 Discretionary bonuses 3,270 3,094 Equity-settled share option expense 4, Pension scheme contributions Total compensation paid to key management personnel 16,826 10,828 (e) Transactions with other state-owned enterprises The Group operates in an economic environment predominated by enterprises directly or indirectly owned or controlled by the PRC government through its numerous authorities, affiliates or other organisations (collectively State-owned Enterprises ). During the year, the Group had transactions with State-owned Enterprises including, but not limited to, sales and purchases of processed foodstuffs and raw materials. The directors consider that transactions with other State-owned Enterprises are activities in the ordinary course of the business, and that dealings of the Group have not been significantly or underlying affected by the fact that the Group and those State-owned Enterprises are ultimately controlled or owned by the PRC government. The Group has also established pricing policies for products and services, and such policies do not depend on whether or not the customers are State-owned Enterprises. Having due regard to the substance of the relationships, the directors of the Company are of the opinion that none of these transactions is a material related party transaction that require separate disclosure. (e) 197

148 Notes to the Financial Statements (continued) 31 December PARTICULARS OF PRINCIPAL SUBSIDIARIES Particulars of the Company s principal subsidiaries as at 31 December 2008 are as follows: Places of Percentage incorporation/ Nominal value of equity registration of ordinary issued/ attributable to and operation registered capital the Company Name Principal activities China Great Wall Wine Co., Ltd.* the PRC/ RMB180,000, Production and sale of * mainland China 180,000,000 wine and beverage products Yantai Greatwall Wines and the PRC/ RMB1,000, Wholesale of grape wines Spirits Co., Ltd.* mainland China 1,000,000 * Qinhuangdao Huaxia Greatwall the PRC/ RMB1,000, Wholesale of grape wines Wines and Spirits Co., Ltd. mainland China 1,000,000 COFCO Greatwall Winery (Yantai) the PRC/ RMB108,000, Production and sale of Co., Ltd.* mainland China 108,000,000 grape wines * COFCO Huaxia Great Wall the PRC/ RMB200,000, Production and sale of Wine Co., Ltd.* mainland China 200,000,000 grape wines * COFCO Huaxiahong Wines & the PRC/ RMB3,000, Wholesale of grape wines Spirits (Shenzhen) Co., Ltd.** mainland China 3,000,000 ** COFCO Junding Vineyard Co., Ltd.** the PRC/ RMB140,000, Production and sale of ** mainland China 140,000,000 grape wines COFCO & Arrive Vine Plant the PRC/ EUR353, Plantation of vine and (Yantai) R&D Co., Ltd.* mainland China 353,100 production of related products * 198 China Foods Limited Annual Report 2008

149 42. PARTICULARS OF PRINCIPAL SUBSIDIARIES (CONTINUED) 42. Places of Percentage incorporation/ Nominal value of equity registration of ordinary issued/ attributable to and operation registered capital the Company Name Principal activities COFCO Wines and Spirits Co., Ltd.* the PRC/ RMB11,760, Wholesale of grape wines * mainland China 11,760,000 COFCO Food Penglai Co., Ltd. the PRC/ RMB1,000, Wholesale of grape wines mainland China 1,000,000 Shandong COFCO Junding World the PRC/ RMB10,000, Wholesale of grape wines Famous Chateaus Club Co., Ltd. mainland China 10,000,000 Zhangjiakou Jin Guan Wines the PRC/ RMB1,000, Wines processing and Co., Ltd. mainland China 1,000,000 bottling, sale and distribution of wine products COFCO Shaoxing Winery the PRC/ RMB68,670, Production and sale of Co., Ltd.* mainland China 68,670,000 Chinese yellow rice wines * Shenzhen Le Conte Marketing the PRC/ RMB15,000, Distribution of chocolate Services Co., Ltd.** mainland China 15,000,000 products ** COFCO Le Conte Food the PRC/ US$15,000, Production and distribution (Shenzhen) Co., Ltd.* mainland China 15,000,000 of chocolate products * COFCO Coca-Cola Beverages Hong Kong Ordinary Investment holding Limited HK$2,463,217,002 2,463,217,

150 Notes to the Financial Statements (continued) 31 December PARTICULARS OF PRINCIPAL SUBSIDIARIES (CONTINUED) 42. Places of Percentage incorporation/ Nominal value of equity registration of ordinary issued/ attributable to and operation registered capital the Company Name Principal activities COFCO Coca-Cola Beverages the PRC/ US$30,000, Investment holding (China) Investment Limited* mainland China 30,000,000 * Tianjin Coca-Cola Beverages the PRC/ US$15,500, Beverages processing Co., Ltd** mainland China 15,500,000 ** Hainan COFCO Coca-Cola the PRC/ US$11,700, Beverages processing Beverages Limited* mainland China 11,700,000 * Hunan COFCO Coca-Cola the PRC/ US$8,000, Beverages processing Beverage Co.,Ltd.* mainland China 8,000,000 * Zhanjiang COFCO Coca-Cola the PRC/ RMB23,000, Beverages processing Beverages Limited* mainland China 23,000,000 * Gansu COFCO Coca-Cola the PRC/ US$5,000, Beverages processing Beverages Co., Ltd* mainland China 5,000,000 * COFCO Coca-Cola Beverages the PRC/ RMB40,000, Beverages processing (Xinjiang) Limited** mainland China 40,000,000 ** COFCO Coca-Cola Commerce & the PRC/ RMB3,000, Sale of beverage products Trade (Xinjiang) Limited** mainland China 3,000,000 ** COFCO Coca-Cola Beverages the PRC/ RMB40,000, Beverages processing (Jiangxi) Limited* mainland China 40,000,000 * 200 China Foods Limited Annual Report 2008

151 42. PARTICULARS OF PRINCIPAL SUBSIDIARIES (CONTINUED) 42. Places of Percentage incorporation/ Nominal value of equity registration of ordinary issued/ attributable to and operation registered capital the Company Name Principal activities Qingdao Coca-Cola Beverage the PRC/ US$12,500, Beverages processing Co., Ltd.** mainland China 12,500,000 ** Jinan Coca-Cola Beverage the PRC/ US$5,000, Beverages processing Co., Ltd.** mainland China 5,000,000 ** COFCO Foods Sales and the PRC/ RMB100,000, Distribution of retail Distribution Co., Ltd.* mainland China 100,000,000 package cooking oil * COFCO Foods Management the PRC/ US$10,000, Research and development Co., Ltd* mainland China 10,000,000 in food, wines and * beverages, management and consulting services * Wholly-foreign-owned enterprises ** Sino-foreign equity joint ventures * ** All of the above principal subsidiaries are indirectly held by the Company. The statutory audits of the above subsidiaries were not performed by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network. The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length. 201

152 Notes to the Financial Statements (continued) 31 December PARTICULARS OF ASSOCIATES Particulars of the Group s associates as at 31 December 2008 are as follows: Percentage of ownership Nominal value Place of interest of ordinary issued/ incorporation/ attributable registered capital registration to the Group Name Principal activities Nanjing BC Foods Company Ltd. US$19,000,000 the PRC Beverages processing 19,000,000 Hangzhou BC Foods Co., Ltd. US$20,000,000 the PRC Beverages processing 20,000,000 Beijing Coca-Cola Beverages US$19,500,000 the PRC Beverages processing Co., Ltd. 19,500,000 CBPC Limited Ordinary Hong Kong Procurement of raw HK$10,000 materials for Coca-Cola bottlers in mainland China 10,000 Coca-Cola Bottlers Manufacturing Ordinary Hong Kong 13.7 Investment holding Holdings Limited HK$20,000 20,000 Swire Coca-Cola RMB49,800,000 the PRC Beverages processing Beverages Wenzhou Limited 49,800,000 Hangzhou BC Warehousing and RMB3,300,000 the PRC Provision of warehousing Transportation Co., Ltd. 3,300,000 and transportation services 202 China Foods Limited Annual Report 2008

153 43. PARTICULARS OF ASSOCIATES (CONTINUED) In the opinion of the directors, the Group is able to exercise significant influence over the above companies as the boards of directors of these companies comprise representatives of the Group, who participate in the policy-making processes. Accordingly, they are accounted for as associates of the Group. 43. All of the above associates are indirectly held by the Company. 44. FINANCIAL INSTRUMENTS BY CATEGORY The financial assets of the Group are classified as financial assets at fair value through profit or loss, loans and receivables and availablefor-sale investments. 44. The carrying amount of financial assets at fair value through profit or loss of the Group with an aggregate amount of HK$95,871,000 (2007: HK$88,895,000) representing biological assets, and listed investments, has been disclosed on the consolidated balance sheet and relevant notes to the financial statements. 95,871, ,895,000 The carrying amount of financial assets at fair value through profit or loss of the Company amounts to HK$7,204,000 (2007: HK$14,301,000) representing the listed investments, has been disclosed on the Company s balance sheet and relevant note to the financial statements. 7,204, ,301,000 The carrying amount of loans and receivables of the Group with an aggregate amount of HK$2,670,827,000 (2007: HK$2,691,629,000) including due from associates, accounts and bills receivable, an aggregate amount of HK$226,586,000 (2007: HK$260,989,000) included in prepayments, deposits and other receivables, amounts due from fellow subsidiaries, amount due from the ultimate holding company, amount due from the immediate holding company, pledged deposits, and cash and cash equivalents, has been disclosed on the consolidated balance sheet and relevant notes to the financial statements. 2,670,827, ,691,629, ,586, ,989,000 The carrying amount of loans and receivables of the Company with an aggregate amount of HK$4,452,903,000 (2007: HK$3,493,312,000) including, amounts due from subsidiaries, loans to subsidiaries, amount due from a fellow subsidiary, amount due from the immediate holding company and cash and cash equivalents, has been disclosed on the Company s balance sheet and relevant notes to the financial statements. 4,452,903, ,493,312,

154 Notes to the Financial Statements (continued) 31 December FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED) The carrying amount of available-for-sale investments of the Group amounts to HK$210,454,000 (2007: HK$207,489,000) representing certain of unlisted investments, has been disclosed on the consolidated balance sheet and relevant note to the financial statements ,454, ,489,000 The financial liabilities of the Group are classified as financial liabilities at amortised cost. The carrying amount of financial liabilities at amortised cost of the Group with an aggregate amount of HK$3,221,298,000 (2007: HK$2,633,493,000) including, accounts and bills payable, an aggregate amount of HK$1,124,782,000 (2007: HK$690,299,000) included in other payables and accruals, interest-bearing bank and other borrowings, amounts due to fellow subsidiaries, amount due to the ultimate holding company, amounts due to related companies, amounts due to minority shareholders of subsidiaries, and amounts due to associates, has been disclosed on the consolidated balance sheet and relevant notes to the financial statements. 3,221,298, ,633,493,000 1,124,782, ,299,000 The carrying amount of financial liabilities at amortised cost of the Company with an aggregate amount of HK$538,624,000 (2007: HK$507,699,000) including other payables and accruals and amounts due to subsidiaries, has been disclosed on the Company s balance sheet and relevant notes to the financial statements. 45. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group s principal financial instruments, other than derivatives, comprise interest-bearing bank loans and other loans, and cash and bank balances and time deposits. The main purpose of these financial instruments is to raise finance for the Group s operations. The Group has various other financial assets and liabilities such as accounts receivable and accounts payable, which arise directly from its operations. 538,624, ,699, The Group enters into derivative transactions, including principally future contracts of soybean and soybean meal. The purpose of entering into future contracts of soybean meal is to manage the market price risk arising from the Group s edible oil, soybean meal and related products operation. The accounting policies in relation to derivatives are set out in note 3.3 to the financial statements China Foods Limited Annual Report 2008

155 45. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) The main risks arising from the Group s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Group s overall risk management programme focuses on minimising potential adverse effects of these risks, with material impact, on the Group s financial performance. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below. Interest rate risk The Group s exposure to the risk of changes in market interest rates relates primarily to the Group s long term interest-bearing bank loans and other borrowings with a floating interest rate. The effective interest rates and terms of repayment of the interest-bearing bank loans and other borrowings of the Group are disclosed in note 30. The Group has not used any derivative to hedge its exposure to interest rate risk The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group s profit before tax (through the impact on floating rate borrowings) and the Group s equity. Increase/ Increase/ (decrease) in (decrease) Increase/ basis in profit (decrease) points before tax in equity HK$ 000 HK$ (1,161 ) (951 ) , (6,438 ) (5,575 ) ,438 5,

156 Notes to the Financial Statements (continued) 31 December FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Foreign currency risk The Group mainly operates in the PRC with most of the Group s monetary assets, liabilities and transactions principally denominated in Hong Kong dollars and Renminbi. The Group has not used any derivative to hedge its exposure to foreign currency risk. 45. The following table indicates the approximate change in the Group s profit before tax and equity in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date. Increase/ Increase/ (decrease) in (decrease) Increase/ HK$/US$ in profit (decrease) rate before tax in equity * * % HK$ 000 HK$ If Renminbi weakens against Hong Kong dollar 5 (125,919 ) If Renminbi strengthens against Hong Kong dollar (5 ) 125,919 If Renminbi weakens against United States dollar 5 (1,333 ) (1,093 ) If Renminbi strengthens against United States dollar (5 ) 1,333 1, If Renminbi weakens against Hong Kong dollar 5 (230,595 ) If Renminbi strengthens against Hong Kong dollar (5 ) 230,595 If Renminbi weakens against United States dollar 5 (20,351 ) (17,298 ) If Renminbi strengthens against United States dollar (5 ) 20,351 17,298 * Excluding retained earnings * Results of the analysis as presented in the above table represent an aggregation of the effects on each of the Group entities profit before tax and equity measured in the respective functional currencies, translated into Hong Kong dollars at the exchange rate ruling at the balance sheet date for presentation purpose. 206 China Foods Limited Annual Report 2008

157 45. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk The Group has no significant concentration of credit risk. The carrying amount of the accounts receivable represents the Group s maximum exposure to credit risk in relation to its financial assets. The Group has policies in place to ensure that sales are made to customers with an appropriate credit history. Liquidity risk The Group s policy is to maintain sufficient cash and cash equivalents and have available funding through bank and other borrowings to meet its working capital requirements. 45. The contractual maturities of financial liabilities of the Group including interest-bearing bank and other borrowings, amounts due to fellow subsidiaries, amount due to the ultimate holding company, amount due to the immediate holding company, amounts due to related companies, amounts due to minority shareholders of subsidiaries, and amounts due to associates, have been disclosed in notes 22, 30 and 41, to the financial statements. For accounts and bills payable, they are generally on credit terms of one to three months after the invoice date or the date of the six months after the bills were issued. For the financial liabilities amounted to HK$1,124,782,000 (2007: HK$690,299,000) included in other payables and accruals disclosed on the consolidated balance sheet, there are generally no specified contractual maturities for these liabilities, and they are paid on a regular basis or upon counterparty s formal notification ,124,782, ,299,000 Market price risk The raw materials costs and product selling prices of the Group s operation of edible oil, soybean meal and related products are substantially correlated to the prices of future commodities markets. Market price risk arises from price fluctuations of raw materials costs and product selling prices during the delivery, production and storage processes. To minimise the Group s market price risk exposure, the Group enters into future contracts of soybean and soybean meal. 207

158 Notes to the Financial Statements (continued) 31 December FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Capital management The primary objective of the Group s capital management is to safeguard the Group s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholder value. 45. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2008 and 31 December The Group monitors capital using a gearing ratio, which is net debt divided by the total capital plus net debt. Net debt includes interestbearing bank and other borrowings less cash and cash equivalents, and pledged deposits. Capital represents total equity. The gearing ratios as at the balance sheet dates were as follows: Group HK$ HK$ 000 Interest-bearing bank and other borrowings 247, ,752 Less: Cash and cash equivalents (1,546,684) (1,396,563) Pledged deposits (3,002) (3,477) Net assets (1,301,731) (1,008,288) Total capital 6,324,974 5,633,501 Capital and net debt 5,023,243 4,625,213 Gearing ratio N/A N/A 208 China Foods Limited Annual Report 2008

159 46. POST BALANCE SHEET EVENTS The transaction mentioned in note 35(iii) above was completed on 9 January Furthermore, to determine the fair value of assets acquired at the date of completion, the Group has appointed an external valuer to carry a valuation of CCCI Beijing at the date of completion. As at the date of this report, the valuation has not yet completed. Therefore, it is not practicable to disclose further details about this transaction. 47. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved and authorised for issue by the board of directors on 9 April (iii) CCCI Beijing

160 Five Year Financial Summary A summary of the results and of the assets, liabilities and minority interests of the Group for the last five financial years, as extracted from the published audited consolidated financial statements and restated and reclassified as appropriate, is set out below: Year ended 31 December HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Restated) (Restated) (Restated) CONTINUING OPERATIONS TURNOVER 14,240,283 9,743,011 6,497,453 5,210,772 2,630,152 PROFIT FROM OPERATING ACTIVITIES 662, , , , ,827 Finance costs (31,382 ) (33,078 ) (45,426 ) (33,758 ) (14,974 ) Share of profits of associates 124,996 49,167 49,624 55,429 PROFIT BEFORE TAX 756, , , , ,853 Tax (136,251 ) (135,792 ) (105,877 ) (81,967 ) (49,525 ) PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 620, , , , ,328 DISCONTINUED OPERATIONS Profit for the year from discontinued operations 239, , , , ,079 1,037,419 1,224, , ,263 Attributable to: Equity holders of the Company 483, , , , ,103 Minority interests 136, , , ,394 54, ,079 1,037,419 1,224, , ,263 ASSETS, LIABILITIES AND MINORITY INTERESTS TOTAL ASSETS 10,447,863 8,992,460 21,798,297 15,618,988 13,185,083 TOTAL LIABILITIES (4,122,889 ) (3,358,959 ) (10,236,168 ) (8,144,552 ) (6,393,372 ) MINORITY INTERESTS (1,232,674 ) (1,074,850 ) (1,807,721 ) (1,644,509 ) (1,551,688 ) 5,092,300 4,558,651 9,754,408 5,829,927 5,240, China Foods Limited Annual Report 2008

161 Corporate Information DIRECTORS Executive Directors Mr. Ning Gaoning (Chairman) Mr. Qu Zhe (Managing Director) Mr. Mak Chi Wing, William Mr. Zhang Zhentao Ms. Luan Xiuju Non-executive Directors Mr. Ma Jianping Ms. Wu Wenting Independent Non-executive Directors Mr. Stephen Edward Clark Mr. Li Hung Kwan, Alfred Mr. Yuen Tin Fan, Francis AUDIT COMMITTEE Mr. Stephen Edward Clark (Committee Chairman) Mr. Li Hung Kwan, Alfred Mr. Yuen Tin Fan, Francis REMUNERATION COMMITTEE Mr. Yuen Tin Fan, Francis (Committee Chairman) Mr. Stephen Edward Clark Mr. Qu Zhe COMPANY SECRETARY Ms. Liu Kit Yee, Linda SOLICITORS Conyers, Dill & Pearman Conyers, Dill & Pearman AUDITORS Ernst & Young 211

162 Corporate Information (continued) PRINCIPAL BANKERS Bank of China (Hong Kong) Limited Bank of Communications Company Limited Hang Seng Bank Limited The Bank of Tokyo-Mitsubishi UFJ, Ltd., Hong Kong Branch BNP Paribas Hong Kong Branch ING Bank NV., Hong Kong Branch UFJ ING Bank NV., Hong Kong Branch REGISTERED OFFICE Clarendon House 2 Church Street Hamilton HM 11 Bermuda Clarendon House 2 Church Street Hamilton HM 11 Bermuda HEAD OFFICE 33/F Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong BRANCH SHARE REGISTRAR AND TRANSFER OFFICE IN HONG KONG Tricor Progressive Limited 26/F Tesbury Tower 28 Queen s Road East Hong Kong China Foods Limited Annual Report 2008

163 China Foods Limited 33 rd Floor, Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong Tel Fax Certain parts of this report is printed on environmental friendly paper Concept, design and printing: ione Financial Press Limited