'Fu gui wan sui'
Zhao Yi, Qing scholar, meaning richness and longevity
GROUP REORGANISATION AND BASIS OF PRESENTATION
The Company was incorporated in Bermuda on 24th July, 1997 as an exempted company under the Companies Act 1981 of Bermuda. Pursuant to a group reorganisation scheme in connection with the listing of the Company's shares on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"), the Company became the ultimate holding company of the other companies comprising the Group on 27th May, 1998. Details of the group reorganisation and the basis of presentation of the financial statements are set out in Note 1 to the financial statements.
PRINCIPAL ACTIVITIES
The Company is an investment holding company. Its subsidiaries are engaged in investment holding, properties development and properties investment.
The turnover and contribution to profit before taxation of the Group are derived entirely from sale and pre-sale of properties in the People's Republic of China (the "PRC").
MAJOR CUSTOMERS AND SUPPLIERS
Approximately 30% of the Group's turnover were attributable to the Group's five largest customers. Sales to the largest customer amounted to 14% of the Group's turnover for the year.
84% of the Group's purchases were attributable to the Group's five largest suppliers. Purchases from the largest supplier amounted to 52% of the Group's purchases for the year.
According to the knowledge of the directors, none of the directors, their associates or any shareholders who owned more than 5% of the Company's issued share capital had any interest at any time in the year in the Group's five largest customers and suppliers.
RESULTS AND APPROPRIATIONS
Details of the Group's results for the year ended 31st December, 1998 are set out in the consolidated profit and loss account on page 44.
No interim dividend was recommended by the Board of Directors as the Company was only listed on the Stock Exchange on 27th May, 1998. The Board of Directors recommend a final dividend of $0.12 per share for the year ended 31st December, 1998.
SHARE CAPITAL
The changes in the authorised and issued share capital of the Company during the year are set out in Note 22 to the financial statements.
RESERVES
Movements in reserves of the Group and the Company during the year are set out in Note 23 to the financial statements.
DISTRIBUTABLE RESERVES
The total amount of reserves of the Company available for cash distribution was $15,030,000 as of 31st December, 1998 as computed in accordance with The Companies Act 1981 of Bermuda. In addition, the share premium account with a balance of $617,692,000 as at 31st December, 1998 may be distributed in the form of fully paid bonus shares.
SHARE OPTION SCHEME
During the year ended 31st December, 1998, 2,000,000 options under the Company's share option scheme were granted at an exercise price of $1.49 per share. As of 31st December, 1998, none of these options was exercised.
PRE-EMPTIVE RIGHTS
There are no provisions for pre-emptive rights under the Company's Bye-laws or the laws of Bermuda which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.
PURCHASE, REDEMPTION AND SALE OF THE COMPANY'S LISTED SECURITIES
Other than in connection with the Company's initial public offering, neither the Company, nor any of its subsidiaries purchased, redeemed or sold any of the Company's listed securities during the year.
SUBSIDIARIES
Details of the Company's principal subsidiaries as of 31st December, 1998 are set out in Note 15 to the financial statements.
FIXED ASSETS AND INVESTMENT PROPERTIES
Details of the movement in fixed assets and investment properties of the Group are set out in Note 12 and Note 13 to the financial statements.
DIRECTORS
The directors who held office during the year and up to the date of this report are :
Executive Directors
Chu Mang Yee
Tse Sai Tung, Stones
Au Yeung Fu, Anthony
Au Wai Kin
Cheung Fong Wing
Luk Wai Kei
Independent Non-executive Directors
| Yuen Pak Yiu, Philip | (Appointed on 1st January, 1998) |
| Lee Tsung Hei, David | (Appointed on 1st January, 1998) |
| Wong Shing Kay, Oliver | (Appointed on 1st January, 1998) |
In accordance with the Company's Bye-laws, Ms. Luk Wai Kei shall retire by rotation from office and, being eligible, offer herself for re-election.
All directors except for the Chairman, Deputy Chairmen and Managing Director are subject to retirement by rotation at Annual General Meetings of the Company in accordance with the Company's Bye-laws.
DIRECTORS' EMOLUMENTS
Details of directors' emoluments are set out in Note 6 to the financial statements.
DIRECTORS' SERVICE CONTRACTS
All of the executive directors have entered into service contracts with the Company for terms of three years commencing on 1st January, 1998 and will Continued thereafter unless and until terminated by either party with three months' prior notice in writing.
None of the remaining directors has a service contract with the Company or any of its subsidiaries which is not terminable within one year without payment of compensation, other than statutory compensation.
DIRECTORS' INTEREST IN SHARES
As of 31st December, 1998, the interests of Directors in the issued share capital of the Company as recorded in the register maintained by the Company pursuant to Section 29 of the Securities (Disclosure of Interests) Ordinance (the "SDI Ordinance") were as follows:
Number of shares beneficially held Name Notes Personal Corporate Chu Mang Yee (a) - 637,500,000 Au Wai Kin (b) - 37,500,000 Cheung Fong Wing (c) - 75,000,000 Luk Wai Kei (c) - 75,000,000
Notes:
(a) Such shares were held through a corporation which is wholly owned by Mr. Chu Mang Yee and a nominee company.
(b) Such shares were held through a corporation which is wholly owned by Mr. Au Wai Kin.
(c) Such shares were held through a corporation which is 60% owned by Mr. Cheung Fong Wing and 20% owned by Ms. Luk Wai Kei, and their interests as disclosed are duplicated.
Save as disclosed above, the Company has no notice of any other interests to be recorded under Section 29 of the SDI Ordinance as of 31st December, 1998.
DIRECTORS' INTERESTS IN CONTRACTS
No contract, commitment or agreement of significance in relation to the Company's business, to which the Company or any of its subsidiaries was a party and in which any of the Company's directors had a material interest, either directly or indirectly, subsisted at the end of the year or at any time during the year.
DIRECTORS' RIGHTS TO PURCHASE SHARES OR DEBENTURES
The Company has a share option scheme, under which it may grant options to employees (including executive Directors) of the Group to subscribe for shares in the Company. Details of the scheme are set out in Note 28 to the financial statements.
On 14th July, 1998, 2,000,000 share options with right to subscribe for shares in the Company were granted.
All of the options are exercisable at any time during the period from 14th July, 1998 to 13th July, 2003 at a subscription price of $1.49 per share. Particulars of the options granted to Directors were as follows:
Share options granted and
Name of Director outstanding as of 31st December, 1998
Mr. Tse Sai Tung, Stones 2,000,000
Save as disclosed above and other than in connection with the Company's initial public offering, at no time during the year was the Company or its subsidiaries a party to any arrangements to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, or debt securities (including debentures) of, the Company or any other body corporate.
SUBSTANTIAL SHAREHOLDERS' INTERESTS
As of 31st December, 1998, the following entity had registered an interest in 10% or more of the issued share capital of the Company:
Number of Percentage
Name issued shares holding
*Sounda Properties Limited 637,500,000 63.75%
*ICEA (Nominees) Limited 60,000,000 6%
* The Shares held by Sounda Properties Limited and ICEA (Nominees) Limited are duplicated.
Save as disclosed above, no other person was recorded in the register kept by the Company under section 16(1) of the SDI Ordinance as having an interest of 10% or more of the issued share capital of the Company.
CODE OF BEST PRACTICE
In the opinion of the Directors, the Company had complied with the Code of Best Practice as set out in Appendix 14 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Code of Best Practice") throughout the accounting period covered by the Annual Report, except that the independent non-executive Directors of the Company are not appointed for specific terms. All Directors except for the Chairman, Deputy Chairmen and Managing Director are subject to retirement by rotation at Annual General Meetings of the Company in accordance with the Company's Bye-laws.
AUDIT COMMITTEE
The Stock Exchange has recently revised the Code of Best Practice requiring listed companies to establish an audit committee with written terms of reference which deal clearly with its authority and duties. Amongst the committee's principal duties will be to review and supervise the listed company's financial reporting process and internal controls. The Company has approved the establishment of an Audit Committee comprising all non-executive directors and is in the course of finalising the Committee's written terms of reference in accordance with the requirements of the Stock Exchange.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with existing computer systems as the new millennium approaches. The Year 2000 Problem arises from the inability of some computer systems to make proper transition from the year 1999 to the year 2000 resulting in inaccurate data processing and information recording. To be Year 2000 compliant, systems must be able to properly recognise date information and do not produce erroneous data when the year changes to 2000 and beyond. The computer systems of the Group are primarily used for office automation and are not complex. Given the nature of the operations of the Group, the Directors consider that the millennium issue will not have any material adverse effect on the Group's operations at and after the turn of the year 2000. Nevertheless, the Company has carried out a review of the impact of the Year 2000 Problem on the Group's entire systems and relevant products provided by third parties to ensure that all computer systems, applications, software and hardware systems used by the Group are or will be Year 2000 compliant. Following the review, the Company has established a project team and compiled a detailed inventory list of computer hardware and software systems, and products with electronic devices in the Group. Resources are being utilised to test the systems of the Group and to identify and, where necessary, correct or replace the systems that are not Year 2000 compliant. The Company believes that with modifications to existing software and conversion to new software, the millennium issue will not disrupt proper business operations or create uncertainties unless unforeseeable situations outside the control of the Group emerge.
In addition, confirmations are being obtained from suppliers of computer services and relevant products that their services and products are Year 2000 compliant. Contingency plans are also being put in place to minimise the impact of potential disruptions to business and operations in the unlikely event that any of the Group's critical systems should fail.
The total costs of the Year 2000 compliance project are estimated to be in the region of $300,000. The costs will be charged in the financial year in which they are incurred and the amount expended in 1998 was considered immaterial. The aggregate amount of commitments authorised by the directors and contracted for as of 31st December, 1998 has been fully provided for in the financial statements while the amount not yet contracted for is approximately $140,000. The Year 2000 compliance project is on schedule as of 31st December, 1998 with 20% of the project completed and the Directors anticipate that all modifications and upgrades for the project to be completed by the end of June 1999.
SUMMARY OF FINANCIAL INFORMATION
A summary of the Group's financial information is set out on page 84 of this Annual Report.
USE OF PROCEEDS
The proceeds from the new shares issued for the listing on the Stock Exchange, after deduction of related expenses, amounted to $642,692,000 and have been applied as follows:
Amount utilised
up to 31st
Original planned* December, 1998
$ million $ million
Expenditures and investments
in the Group’s development projects 401 201
Payment of scheduled land premium costs 160 -
Repayment of amounts due
to related companies 42 42
Repayment of short-term bank loans
and other short-term loans 39 39
Discharge of finance lease obligations 1 1
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643 283
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The unused proceeds at the end of the financial year amounted to approximately $360 millon will mainly be used as expenditures and investments in the Group's development projects and payment of land premium costs.
* Amounts extracted from the Company's prospectus dated 18th May, 1998 issued for the listing of the Company's shares on the Stock Exchange.
AUDITORS
The financial statements were audited by Messrs. Arthur Andersen & Co. A resolution for their re-appointment as auditors for the ensuing year is to be proposed at the forthcoming annual general meeting.
On behalf of the Board of Directors,
CHU MANG YEE
Chairman
Hong Kong,
22nd March, 1999.
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