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Hopson Development Holdings Limited

Notes to the Financial Statement
31st December, 1998
(Amounts expressed in Hong Kong dollars unless otherwise stated)

Note: [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30]

20. LAND PREMIUM PAYABLE

                                          Consolidated          Company
                                         1998       1997      1998  1997
                                        $'000      $'000     $'000 $'000

Repayable within a period of


  -not exceeding one year             204,662    167,931         -     -

  -more than one year, but not
     exceeding two years               98,970     83,348         -     -
  -two to five years                        -     98,970         -     -
________________________________________________________________________
                                      303,632    350,249         -     -
                                                              
Less: amount repayable
   within a year included
   under current
   liabilities (Note 19)             (204,662)  (167,931)        -     -
________________________________________________________________________
                                       98,970    182,318         -     -
                                       ======    =======       ===   ===


21. DEFERRED TAXATION

Movements in deferred taxation were:

                                                  1998          1997
                                                 $'000         $'000

Beginning of year                               82,389        19,011
Provision for net timing difference            217,838        63,378
____________________________________________________________________
End of year                                    300,227        82,389
                                               =======        ======

Deferred taxation represents the tax effect of timing differences arising from (i) the use of different bases of recognition of revenues and expenses for financial reporting and tax purposes and (ii) the provision of PRC land appreciation tax in respect of revaluation surplus of investment properties. There was no material unprovided deferred tax as of 31st December, 1998.


22. SHARE CAPITAL

                                                 1998
                                               Number         Nominal
                                            of shares           value
                                                 '000           $'000

Authorised
  -Ordinary shares of $0.10 each            2,000,000         200,000
                                            =========         =======
Issued and fully paid
  -Ordinary shares of $0.10 each            1,000,000         100,000
                                            =========         =======

The following changes in the Company's share capital occurred during the year:

(i) Upon incorporation of the Company on 24th July, 1997, the authorised share capital was $100,000, consisting of 1,000,000 shares of $0.10 each, all of which were issued nil paid.

(ii) On 4th April, 1998, the authorised share capital of the Company increased from $100,000 to $200,000,000 by the creation of 1,999,000,000 additional shares of $0.10 each.

(iii) On 15th May, 1998, pursuant to the group reorganisation described in Note 1 to the financial statements, the Company issued 749,000,000 ordinary shares of $0.10 each, credited as fully paid, as consideration for the acquisition of the entire issued share capital of Hopson Development International Limited, and also credited as fully paid the 1,000,000 ordinary shares of $0.10 each as set out in (i) above.

(iv) On 27th May, 1998, 25,000,000 ordinary shares of $0.10 each were issued to the public and 225,000,000 shares of $0.10 each were issued under private placement (the "Placing"), all issued at $2.70 each for a total cash consideration of $675,000,000 before the related issue expenses.

A summary of the movements in the authorised and issued share capital of the Company is as follows:

                                                                  Nominal
                                     Number of     Number of     value of
                                        shares        shares       shares
                                    authorised        issued       issued
                                          '000          '000        $'000

Shares issued on incorporation
   as nil paid and
   subsequently credited 
   as fully paid-up                      1,000         1,000          100
Increase in authorised
   share capital                     1,999,000             -            -
Shares issued as consideration
   for the acquisition of
   the entire issued share
   capital of Hopson
   Development
   International Limited                     -       749,000       74,900
_________________________________________________________________________
Pro forma share capital
   at 31st December, 1997            2,000,000       750,000       75,000
New issues on initial
   public offering                           -        25,000        2,500
New issues on
   private placement                         -       225,000       22,500
_________________________________________________________________________
Balance as of                                                     
   31st December, 1998               2,000,000     1,000,000      100,000
                                     =========     =========      =======

The comparative share capital amount as of 31st December, 1997 represents the pro forma issued share capital of the Company after the issue of 1,000,000 ordinary shares on incorporation, and 749,000,000 ordinary shares for the acquisition of the entire share capital in Hopson Development International Limited as if the group reorganisation had been in place as of 31st December, 1997.


23. RESERVES

                                                      1998                                              1997
_________________________________________________________________________________________________       ____
                                                    Enterprise     Retained
                                                     expansion       profit
                                                           and (Accumulated     Exchange
                                   Share Revaluation   reserve      deficit) translation
                                 premium     reserve      fund                   reserve     Total     Total
                                   $'000       $'000     $'000        $'000        $'000     $'000     $'000

Consolidated
Beginning of year                      -           -     4,123      125,743          245    130,111   84,588
Issue of ordinary shares         650,000           -         -            -            -    650,000        -
Expenditure on
   issue of shares               (32,308)          -         -            -            -    (32,308)       -
Transfer in                            -           -    10,480            -            -     10,480    1,364
Transfer out                           -           -      (779)           -            -       (779)       -
Surplus arising
   on revaluation
  of properties                        -     254,866         -            -            -    254,866        -
Deferred taxation
   provided on surplus on
   revaluation of properties           -     (76,460)        -            -            -    (76,460)       -
Profit for the year                    -           -         -      310,678            -    310,678  119,554
Dividends for the year                 -           -         -     (120,000)           -   (120,000)       -
Effect of group
   reorganisation                      -           -         -            -            -          -  (74,883)
Translation differences
  during the year                      -           -         -            -          690       690      (512)
_____________________________________________________________________________________________________________
End of year                      617,692     178,406     13,824     316,421          935  1,127,278  130,111
                                 =======     =======     ======     =======          ===  =========  =======
Company
Beginning of year                      -           -          -         (44)           -        (44)       -
Issue of ordinary shares         650,000           -          -           -            -    650,000        -
Expenditure on
   issue of shares               (32,308)          -          -           -            -    (32,308)       -
Profit (Loss) for the year             -           -          -      15,074            -     15,074      (44)
_____________________________________________________________________________________________________________
End of year                      617,692           -          -      15,030            -    632,722      (44)
                                 =======     =======     ======     =======          ===  =========   =======

Effect of group reorganisation represents the difference between the nominal amount of the Company's shares issued for the acquisition of subsidiaries and the nominal amount of the share capital of the subsidiaries.

The enterprise expansion and reserve fund is a statutory reserve as stipulated by the relevant laws and regulations for joint venture enterprises. Appropriation to such statutory reserve is made out of profit after taxation as shown on the statutory accounts of the PRC subsidiaries. The amounts and allocations are decided by its Board of Directors annually. The PRC subsidiaries are required to reflect the reserve separately in their statutory accounts.


24. BANKING FACILITIES AND PLEDGE OF ASSETS

As of 31st December, 1998, the Group had banking facilities of approximately $165 million for short-term bank loans and trade financing. As of that date, all banking facilities were utilised by the Group.

These facilities were secured by:

a. investment properties with an aggregate carrying amount of $243 million (1997 - Nil) (Note 13);

b. properties under development for long-term investment of approximately $52 million (1997 - $49 million) (Note 14); and

c. bank deposits of approximately $43 million (1997 - Nil) (Note 18.a).


25. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

a. Reconciliation of profit before taxation to net cash inflow from operating activities:

                                                       1998       1997
                                                      $'000      $'000

Profit before taxation                              485,196    198,181
Depreciation of fixed assets                          1,688        890
Interest income                                     (19,183)    (1,987)
Interest expenses                                     4,922      1,763
Increase in properties under
   development for sale                             (42,273)  (484,805)
Increase in completed
   properties for sale                              (15,890)         -
Increase in accounts receivable                    (276,930)   (12,413)
(Increase) Decrease in
   prepayments and other assets                      (1,910)    21,471
Increase in advances to
   associated company                                (2,090)    (3,879)
Decrease in amounts
   due from directors                                     -      1,019
Decrease in amounts due
   from a related company                                 -      3,342
Increase in amount due from
   a joint venture partner                           (6,702)         -
Increase in accounts payable                        104,655    114,608
Increase in bills payable                            36,449          -
Increase (Decrease) in other
   payable and accruals                              32,723    (71,414)
Decrease in amount due to
   a joint venture partner                          (60,911)   (26,827)
(Decrease) Increase in
   land premium payable                             (46,617)   288,862
Effect of foreign
   exchange translation                                 690       (512)
______________________________________________________________________
Net cash inflow from
   operating activities                             193,817     28,299
                                                    =======     ======

b. Analysis of changes in financing during the years was as follows:

                             Share  Enterprise
                           capital   expansion
                               and and reserve             Long-term     Due to
                             share        fund  Short-term      bank    related    Due to
                           premium                   loans     loans  companies directors
                             $'000       $'000       $'000     $'000      $'000     $'000

1st January, 1997                -       2,759       8,384     2,325     73,595    45,181
Issue of ordinary shares    75,000           -           -         -          -         -
Increase in enterprise
   expansion and
   reserve fund                  -       1,364           -         -          -         -
Repayment of long-term  
   bank loans                    -           -           -    (2,325)         -         -
Inception of
   short-term loans              -           -      32,056         -          -         -
Repayment of 
   short-term loans              -           -      (8,384)        -          -         -
Decrease in amounts
   due to related
   companies                     -           -           -         -    (25,566)        -
Increase in amounts 
   due to directors              -           -           -         -          -     3,486
_________________________________________________________________________________________
31st December, 1997         75,000       4,123      32,056         -     48,029    48,667
Issue of ordinary shares   675,000           -           -         -          -         -
   Share issuance
   expenditures            (32,308)          -           -         -          -         -
Increase in enterprise
   expansion and
   reserve fund                  -      10,480           -         -          -         -
Decrease in enterprise
   expansion and
   reserve fund                  -        (779)          -         -          -         -
Inception of 
   short-term loans              -           -     128,972         -          -         -
Repayment of
   short-term loans              -           -     (32,056)        -          -         -
Decrease in amounts
   due to related
   companies                     -           -           -         -    (41,221)        -
Decrease in amounts
   due to directors              -           -           -         -          -   (42,036)
_________________________________________________________________________________________
31st December, 1998        717,692      13,824     128,972         -      6,808     6,631
                           =======      ======     =======       ===      =====     =====


26. COMMITMENTS

a. Capital commitments

As of 31st December, 1998, the Group had authorised and contracted capital commitments of approximately $362 million (1997 - $454 million) and $806 million (1997 - $744 million ) for capital contribution to PRC joint ventures and property development projects respectively.

b. Operating lease commitments

Total rental commitments as of 31st December, 1998 amounted to approximately $955,000 (1997 - $823,000). All (1997 - $714,000) of these obligations were payable in the coming year and were as follows:

                                                         Consolidated
                                                     1998            1997
                                                    $'000           $'000

Leases expiring
  -within one year                                    955             495
  -within two to five years                             -             219
_________________________________________________________________________
                                                      955             714
                                                      ===             ===


27. CONTINGENT LIABILITIES

In respect of certain of the Group's properties under development, several subsidiary companies of the Group; Tonking International Limited, an associated company; and Guangdong Zhujiang Investment Company, a related company; and Mr. Chu Mang Yee, Mr. Au Wai Kin, directors of the Company had provided guarantees as security for mortgage facilities provided by various banks to the buyers of the Group's properites.

The outstanding amount of the abovementioned mortgage facilities utilised as of 31st December, 1998 amounted to approximately $379 million (1997 - $108 million).


28. SHARE OPTION SCHEME

The Company adopted a share option scheme under which the directors may, at their discretion, invite any executive and/or employee of the Company and/or its subsidiaries to take up options to subscribe for shares.

The subscription price is determined by the directors and will not be less than 80 per cent of the average of the closing prices of the shares on the Stock Exchange for the five trading days immediately preceding the date of grant of the option or the nominal value of the shares, whichever is the higher.

Movements of share options during the year were as follows:

                                                    Number of Shares
                         __________________________________________________
Subscription                          Granted  Exercised Cancelled
       price    Exercise   Beginning   during     during    during   End of
   per share      period of the year the year   the year  the year the year

                                '000     '000       '000      '000     '000
       $1.49   4th July,
                 1998 to
              13th July,
                    2003           -    2,000          -         -    2,000
                                 ===    =====        ===       ===    =====


29. SUBSEQUENT EVENT

In January, 1999, the Company granted 1,000,000 share option at an exercise price of $0.61 per share.


30. DATE OF APPROVAL

The financial statements set out on pages 44 to 83 were approved by the Board of Directors on 22nd March, 1999.


Source: Hopson Development Holdings Limited
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