Notes to the Financial Statements - Chinese Estates

Notes to the Financial Statements

For the year ended 31st December, 1998

61

1.

2.

5

20

22

5

12

5

20

33

22

1. GENERAL

The Company is incorporated in Bermuda as an exempted

company with limited liability and its securities are listed

on The Stock Exchange of Hong Kong Limited.

2. ADOPTION OF STATEMENTS OF STANDARD

ACCOUNTING PRACTICE

In the current year, the Group has adopted the following

Statements of Standard Accounting Practice (“SSAPs”)

issued by the Hong Kong Society of Accountants.

SSAP 5 (Revised) Earnings Per Share

SSAP 20 Related Party Disclosures

SSAP 22 Inventories

The adoption of SSAP 5 (Revised) has resulted in some

modifications to the basis of calculation of earnings per

share amounts and to the disclosures presented for earnings

per share (see note 12). Amounts presented for prior years

have been restated to reflect the requirement of SSAP 5.

SSAP 20 requires the disclosure of details of transactions

with specified related parties (See note 33).

SSAP 22 specifies the accounting treatment to be adopted

for inventories. The adoption of this standard has resulted

in some changes in terminology and presentation, but does

not have a material effect on the profit for the current or

prior accounting periods. Accordingly, no prior period

adjustment has been required.



CHINESE ESTATES HOLDINGS LIMITED62

3.3. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies which have been adopted

in preparing these financial statements and which conform

with accounting principles generally accepted in Hong

Kong, are set out below as follows:

Basis of consolidation

The consolidated financial statements incorporate the

financial statements of the Company and its subsidiaries

made up to 31st December each year.

The results of subsidiaries acquired or disposed of during

the year are included in the consolidated profit and loss

account from the effective date of acquisition or up to the

effective date of disposal, as appropriate.

All significant intercompany transactions and balances

within the Group are eliminated on consolidation.

Investments in subsidiaries

A subsidiary company is an enterprise in which the

Company, directly or indirectly, holds more than half of

the issued capital, or controls more than half of the voting

power, or where the Company controls the composition of

its board of directors.

Investments in subsidiaries are included in the Company’s

balance sheet at cost less provision, if necessary for

permanent diminution in value. The results of subsidiaries

are accounted for by the Company on the basis of dividends

received and receivable during the year.

Interests in associated companies

An associated company is an enterprise, in which the

Group has a long-term equity interest and over which the

Group is in a position to exercise significant influence in

management, including participation in f inancial and

operating policy decisions.



63

3.3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Interests in associated companies (continued)

The consolidated profit and loss account includes the

Group’s share of the post-acquisition results of its

associated companies for the year. In the consolidated

balance sheet, interests in associated companies are stated

at the Group’s share of the net assets of the associated

companies.

When the Group transacts with its associated companies,

unrealised profits and losses are eliminated to the extent

of the Group’s interest in the relevant associated company,

except where unrealised losses provide an evidence of an

impairment of the asset transferred.

The results of associated companies are accounted for by

the Company on the basis of dividends received and

receivable during the year. In the Company’s balance sheet

the investment in associated companies are stated at cost

less provision, if necessary, for any permanent diminution

in value

Goodwill

Goodwill represents the excess of the purchase

consideration over the fair value ascribed to the Group’s

share of the net assets at the date of acquisition of a

subsidiary and is written off to reserves immediately on

acquisition. Negative goodwill, which represents the excess

of the fair value ascribed to the Group’s share of the

separable net assets at the date of acquisition of a

subsidiary over the purchase consideration is credited to

reserves.




3.

(i)

(ii)

(iii)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill (continued)

Any premium or discount arising on the acquisition of an

interest in an associated company, representing the excess

or shortfall respectively of the purchase consideration over

the fair value ascribed to the Group’s share of the separable

net assets of the associated company at the date of

acquisition, is dealt with in the same manner as that

described above for goodwill.

On disposal of a subsidiary or an associated company, the

attributable amount of goodwill previously eliminated

against or credited to reserves is included in the

determination of the prof it or loss on disposal of the

subsidiary or associated company.

Investments

(i) Unlisted investments held for long-term purposes are

stated at cost less provision, if necessary, for

permanent diminution in value.

(ii) Listed investments held for long-term purposes are

stated at cost less provisions, if necessary, for

permanent diminution in value.

(iii) Listed investments held for short-term trading

purposes are stated at the lower of cost and market

value on a portfolio basis at the balance sheet date.

Investment properties

Investment properties are completed properties which are

held for their investment potential, any rental income being

negotiated at arm’s length.



65


Investment properties (continued)

Investment properties are stated at valuation on an open

market value basis, based on annual valuation by

professionally qualif ied executive of the group and by

independent valuers at intervals of not more than three

years. Any surplus or deficit arising on the revaluation of

investment properties is credited or charged to the

investment properties revaluation reserve unless the

balance on this reserve is insufficient to cover a deficit,

in which case the excess of the def icit over the balance

on the investment properties revaluation reserve is charged

to the profit and loss account. Where a def icit has

previously been charged to the profit and loss account and

a revaluation surplus subsequently arises, this surplus is

credited to the profit and loss account to the extent of the

deficit previously charged.

On disposal of investment properties, the balance on the

investment properties revaluation reserve attributable to the

properties disposed of is transferred to the profit and loss

account.

No depreciation is provided on investment properties

except where the unexpired term of the relevant lease is

20 years or less.

Properties under development

Land and buildings in the course of development for

production, rental or administrative purposes or for purposes

not yet determined, are carried at cost, less any provision

considered necessary by the Directors. Cost includes

professional fees and borrowing costs capitalised in

accordance with the Group’s accounting policy. Depreciation

of these assets, on the same basis as other property assets,

commences when the assets are ready for their intended use.

3.





Fixed assets and depreciation

Fixed assets other than investment properties and properties

under development are stated at cost less depreciation. The

cost of an asset comprises its purchase price and any

directly attributable costs of bringing the asset to its present

working condition and location for its intended use.

Expenditure incurred after the fixed assets have been put

into operation, such as repairs and maintenance and

overhaul costs, are normally charged to the profit and loss

account 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 the fixed assets,

the expenditure is capitalised as an additional cost of the

fixed assets.

The gain or loss arising on the disposal or retirement of

an asset is determined as the difference between the sales

proceeds and the carrying amount of the asset and is

recognised in the prof it and loss account.

Where the recoverable amount of an asset has declined

below its carrying amount, the carrying amount is reduced

to reflect the decline in value. In determining the

recoverable amount of assets, expected future cash flows

are not discounted to their present values.



67


Fixed assets and depreciation (continued)

Depreciation is provided to write off the cost of fixed assets

other than investment properties and properties under

development over their estimated useful lives and after

taking into account their estimated residual value, using

the straight-line method, on the following bases:

Type Basis

Freehold land Nil

Leasehold land Over the term of the lease

Buildings Over the shorter of

the unexpired period of

the lease and 40 years

Furniture, fixtures

and equipment 3 to 10 years

Yacht and motor vehicles 3 to 10 years

Stock of unsold properties

Stock of unsold properties are stated at the lower of cost

and estimated market value. Cost includes land cost and

other direct costs including interest expenses capitalised to

such properties. Estimated market value represents the

estimated selling prices less all further costs to completion

and direct selling expenses, if any.

Equity derivatives

Equity derivative instruments are entered into for trading

purposes and they are carried at fair value. Resulting

realised and unrealised gains and losses are included in

trading profits account — net. Unrealised gains and losses

related to these contracts, including option premium paid

and received, are reported as assets and liabilities on equity

derivatives trading.





Translation of foreign currencies

Transactions in foreign currencies are translated at the rates

ruling on the dates of the transactions or at the contracted

settlement rate. Monetary assets and liabilities

denominated in foreign currencies are retranslated at the

rates ruling on the balance sheet date. Profits and losses

arising on exchange are dealt with in the profit and loss

account.

On consolidation, the financial statements of overseas

subsidiaries maintained in foreign currencies are translated

at rates ruling on the balance sheet date. All exchange

differences arising on consolidation are dealt with in

reserves.

Operating leases

Leases of assets in respect of which substantially all the

rewards and risks of ownership remain with the leasing

company are accounted for as operating leases. Rental

expenses paid or payable under operating leases are

accounted for in the profit and loss account on a straight

line basis over the periods of the respective leases.

Taxation

The charge for taxation is based on the results for the year

as adjusted for items which are non-assessable or

disallowed. Timing differences arise from the recognition

for tax purposes of certain items of income and expense

in a different accounting period from that in which they

are recognised in the f inancial statements. The tax effect

of timing differences, computed using the liability method,

is recognised as deferred taxation in the f inancial

statements to the extent that it is probable that a liability

or asset will crystallise in the foreseeable future.



69

3.

(a)

(b)

(c)

(d)

(e)

(f)

(g)


Revenue recognition

(a) Sales of developed properties are recognised only

when the property or any portion of it contracted for

sale is completed and the relevant licences are granted

by the relevant government authorities.

(b) Rentals receivable under operating leases are credited,

on a straight-line basis, over the lease terms to the

prof it and loss account.

(c) Management fee income is recognised on terms of

respective agreements over the relevant period in

which the services are rendered.

(d) Sales of listed and unlisted investments are

recognised when the title to the investment is

transferred and the buyer takes legal possession of

the investment.

(e) Dividend income from investments is recognised

when the shareholders’ right to receive payment has

been established.

(f) Interest income is recognised in the profit and loss

account as it accrues, except in the case of doubtful

debts where interest is credited to a provision account

which is netted in the balance sheet against the

relevant balances.

(g) Interest income from bank deposits is accrued on a

time proportion basis on the principal outstanding and

at the rate applicable.





Capitalisation of borrowing costs

Borrowing costs directly attributable to the acquisition,

construction or production of qualifying assets, which are

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. 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.

All other borrowing costs are recognised as an expense

in the period in which they are incurred.

Related company

A related company is a company in which one or more

of the Directors or major shareholders of the Company

have a beneficial interest therein or are in a position to

exercise significant influence over the Company.

Cash equivalents

Cash equivalents represent short-term highly liquid

investments which are readily convertible into known

amounts of cash and which were within three months of

maturity when acquired; less advances from banks

repayable within three months from the date of advance.

Retirement benefits scheme

The pension costs charged to the profit and loss account

represents the amount of contributions payable in respect

of the current year to the Group’s defined contribution

scheme.



71

4.

1998 1997

HK$’000 HK$’000

444,289 4,122,545

682,766 846,463

39,387 46,727

3,827,889 11,208,593

(1,674,497) (1,583,259)

9,512 110,044

374,732 314,950

504 4,836

3,704,582 15,070,899

4. TURNOVER

Turnover of the Group represents the aggregate of gross

rental income, interest income, gross proceeds on sales of

properties and property interests, gross proceeds on sales

of equities and commodities, dividend income from listed

and unlisted investments, net trading results on option

contracts, film production and estate management. All

material intra-group transactions are eliminated on

consolidation.

Sales of properties and

property interests

Rental income

Management fee income

Sales of equities and

commodities

Net trading loss on

option contracts

Dividend income

Interest income

Others




5.1998 1997

HK$’000 HK$’000

1,657 2,20031,726 34,208

123 807

6,926 9579,870

2,450

5,010

5,7322,001 1,432

383,399 395,064

(12,416) (20,743)

370,983 374,321

682,766 846,463

71,772 73,955

610,994 772,508

1,211 103,4568,301 6,588

9,512 110,044

374,732 314,950

64

5. OPERATING PROFIT

Operating profit has beenarrived at after charging:

Auditors’ remunerationDepreciationLoss on disposal of fixed

assetsBad debts written offProvision for bad and

doubtful debtsProvision for diminution in

value of unlisted investmentsProvision for loss in amount due

from an associated companyNet exchange lossRetirement benefits scheme

contributions net offorfeited contributions

Interest expenses:Bank loans, overdrafts and

other loans wholly repayablewithin five years

Less: Amounts capitalised

and after crediting:

Gross rental income frominvestment properties

Less: Outgoings

Income from investments:ListedUnlisted

Interest income

Net exchange gain



73

6.

1998 1997

HK$’000 HK$’000

313,937

(212,275)

388,013 3,266,837

(690,733) (2,260,926)

(21,180) (123,637)

16,026

(177,000)

Evergo China (20,158)

(206,212) 685,116

6. EXCEPTIONAL ITEMS

The following exceptional items have been credited

(charged) in arriving at operating profit:

Profit on disposal of associated

company comprising property

interest

Provision for diminution in value

of properties under development

Profit less loss on disposal of

investment and other properties

Net loss on securities investments

and option contracts and

provision for loss on securities

investments

Provision for diminution in value

of interests in associated

companies

Profit on repurchase of Floating

Rate Notes issued

Deposit for acquisition of

properties written off

Loss on disposal of partial

interests in Evergo China




7.

161

1998 1997

HK$’000 HK$’000

14,900 15,793

45

14,900 15,838

100 100

15,000 15,938

Number of directors

1998 1997

1,000,000 2 2

1,500,001 2,000,000 1

4,000,001 4,500,000 1 1

10,000,001 10,500,000 1 1

7. DIRECTORS’ EMOLUMENTS

The aggregate emoluments of Directors of the Company

disclosed pursuant to Section 161 of the Companies

Ordinance were:

Directors’ emoluments

Executive

Fee

Salaries and other emoluments

Contribution to pension scheme

Independent Non-executive

Emoluments

Emoluments of the Directors were within the following

bands:

HK$ nil – HK$1,000,000

HK$ 1,500,001 – HK$2,000,000

HK$ 4,000,001 – HK$4,500,000

HK$10,000,001 – HK$10,500,000



75

8.

7

1998 1997

HK$’000 HK$’000

4,713 2,817

244 161

4,957 2,978

Number of

employees

1998 1997

1,000,001 1,500,000 1 1

1,500,001 2,000,000 2 1

8. EMPLOYEES’ EMOLUMENTS

Of the five individuals with the highest emoluments in the

Group, two (1997: three) are executive directors whose

emoluments are included in the disclosures in note 7. The

remuneration of the remaining three (1997: two)

individuals disclosed pursuant to Rules Governing The

Listing of Securities on The Stock Exchange of Hong Kong

Limited were as follows:

Salaries and other benefits

Contribution to pension scheme

The emoluments of these employees were within the

following bands:

HK$1,000,001 – HK$1,500,000

HK$1,500,001 – HK$2,000,000




9.

(a)

1998 1997

HK$’000 HK$’000

16,033 64,701

1,769 2,608

17,802 67,309

(126,378) 318,824

(108,576) 386,133

6,754 5,394

754 4,557

7,508 9,951

(101,068) 396,084

16%

16.5%

9. TAXATION

(a) Profits tax

The Company and

subsidiaries:

Profit for the year

Hong Kong

Other jurisdictions

Prior years

Hong Kong

Associated companies:

Hong Kong

Other jurisdictions

Hong Kong Profits Tax is calculated at 16% (1997:

16.5%) on the estimated assessable prof it of each

individual company and associated company of the

Group in Hong Kong for the year. Taxation arising

in other jurisdictions is calculated at the rates

prevailing in the relevant jurisdictions.



77

9.

33%

15%

(b)

THE GROUP THE COMPANY

1998 1997 1998 1997

HK$’000 HK$’000 HK$’000 HK$’000

(151,821) (158,048)

(4,742) 1,326

(156,563) (156,722)

9. TAXATION (continued)

The Group’s joint venture companies in the PRC are

generally required under the Foreign Investment Enterprise

and the Foreign Enterprise Income Tax Law to pay PRC

income tax at a rate of 33%. With respect to those joint

venture companies established in the Special Economic

Zone, they are subject to income tax at the prevailing rate

of 15% or at a rate mutually agreed between the relevant

tax authority and the joint venture companies.

(b) Deferred tax

No provision for deferred tax is required as there are

deferred tax debits which will only be recognised

when they are crystallised.

The major components of deferred tax debits

comprise:

Tax losses not yet utilised

Accelerated depreciation

allowances

No deferred tax is provided on the revaluation surplus

arising on the valuation of investment properties

situated in Hong Kong as future profits arising on

the disposal of these assets would not be subject to

taxation. The revaluation therefore does not constitute

a timing difference for taxation purpose.




10.

514,911,000

916,615,000 16,019,000

240,474,000

46,471,000

38,805,000

11.1998 1997

HK$’000 HK$’000

213,400

0.11

1,939,999,483

193,074

0.10

1,930,743,609

(1,838)

(1,838) 406,474

1998 1997

HK$’000 HK$’000

190,022 287,823

1,214 291,459

191,236 579,282

10. PROFIT ATTRIBUTABLE TO SHAREHOLDERS

Of the Group’s profit attributable to shareholders for the

year of HK$514,911,000 (1997: HK$916,615,000), a profit

of HK$16,019,000 (1997: HK$240,474,000) has been dealt

with in the financial statements of the Company, and a

prof it of HK$46,471,000 (1997: HK$38,805,000) is

retained by the associated companies.

11. DIVIDENDS

Ordinary shares:

No interim dividend

(1997: HK$0.11 per share

on 1,939,999,483 shares)

No proposed final dividend

(1997: HK$0.10 per share

on 1,930,743,609 shares)

Over provision for 1997 f inal

dividend

During the year, share dividend alternative was offered in

respect of the 1997 final dividend. This share dividend

alternative was accepted by the shareholders as follows:

Dividends:

Cash

Share alternative



79

12. EARNINGS PER SHARE

The calculation of the basic earnings per share is based

on the profit attributable to shareholders of the Company

of HK$514,911,000 (1997: HK$916,615,000) and on the

weighted average number of 1,920,754,057 (1997:

1,932,829,213) shares of HK$0.10 each in the Company

in issue during the year.

The calculation of basic and diluted earnings per share is

based on the following data:

Profit attributable to shareholders

for the year

Weighted average number of

ordinary shares for the purposes

of basic earnings per share

Effect of dilutive potential

ordinary shares:

1999 Warrants

2000 Warrants

Weighted average number of

ordinary shares for the purpose

of diluted earnings per share

12.

514,911,000

916,615,000

0.10

1,920,754,057

1,932,829,213

1998 1997

HK$’000 HK$’000

514,911 916,615

1,920,754,057 1,932,829,213

3,225,406

2,419,055

1,926,398,518 1,932,829,213




13.Furniture,

fixtures Yacht andInvestment Land and and motorproperties buildings equipment vehicles Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

16,944,291 79,992 222,396 53,825 17,300,504431,449 431,449

23,562 732 3,152 1,544 28,990(4,553,467) (4,553,467)

(443,498) (71) (9,980) (453,549)(29,800) (29,800)

609,572 609,572

3 (2) 1

12,982,109 80,727 225,475 45,389 13,333,700

4,085 110,724 44,885 159,6941,972 24,619 5,135 31,726

(50) (9,567) (9,617)

6,057 135,293 40,453 181,803

12,982,109 74,670 90,182 4,936 13,151,897

16,944,291 75,907 111,672 8,940 17,140,810

80,727 225,475 45,389 351,59112,982,109 12,982,109

12,982,109 80,727 225,475 45,389 13,333,700

13. FIXED ASSETS

THE GROUP

AT COST ORVALUATION

At 1st January, 1998New subsidiariesAdditionsDeficit on revaluationDisposalsTransfer to stock of

unsold propertiesTransfer from properties

under developmentExchange adjustments

At 31st December, 1998

ACCUMULATEDDEPRECIATION

At 1st January, 1998Charge for the yearEliminated on disposals


NET BOOK VALUEAt 31st December, 1998


Cost or valuationcomprises:

At costAt 1998 professional

valuation



81

13.

Investment properties Others

1998 1997 1998 1997

HK$’000 HK$’000 HK$’000 HK$’000

12,734,400 16,938,390 65,339 66,316

241,480 190

3,352 3,678

9,591

2,877 2,223 9,141

12,982,109 16,944,291 74,670 75,907

Brooke International Limited

25

63,047,000

2,344,130,000

13. FIXED ASSETS (continued)

The net book value of properties shown above comprises:

Land in Hong Kong:

Long lease

Medium-term lease

Land outside Hong Kong:

Freehold

Long lease

Medium-term lease

The investment properties of the Group were revalued at

31st December, 1998 on an open market value basis by

Brooke International Limited, an independent professional

valuer. The deficit arising on revaluation has been debited

to the investment properties revaluation reserve (note 25).

The investment properties of the Group are rented out

under operating leases.

The Group has pledged land and buildings having a net

book value of approximately HK$63,047,000 and

investment properties having a net book value of

approximately HK$2,344,130,000 to secure general

banking facilities granted to the Group.




14.Properties under development held

under long lease in Hong Kong

HK$’000

1,670,699

1,119,543

(609,572)

2,180,670

(212,275)

1,968,395

10.18%

12,416,000

20,743,000

206,478,000

14. PROPERTIES UNDER DEVELOPMENT

THE GROUP

AT COST:

At 1st January, 1998

Additions

Transfer to investment

properties

Provision for diminution

in value


Interest capitalised in properties under development for the

year is approximately HK$12,416,000 (1997:

HK$20,743,000) at a capitalisation rate of 10.18%.

The Group has pledged certain properties under

development amounted to HK$206,478,000 to secure

general banking facilities granted to the Group.



83

15.THE COMPANY

1998 1997

HK$’000 HK$’000

3,559,110 3,949,702

5,563,958 8,327,773

9,123,068 12,277,475

(3,640,508) (6,591,900)

5,482,560 5,685,575

34

15. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost less

provision

Amounts due from subsidiaries

Amounts due to subsidiaries

Particulars of the principal subsidiaries are shown in note

34 to the financial statements.




16.THE GROUP

1998 1997

HK$’000 HK$’000

896,649 960,074

683,026 618,986

1,579,675 1,579,060

1,387,022 1,523,879

(9,913) (18,657)

2,956,784 3,084,282

(170,073) (148,893)

2,786,711 2,935,389

76,871 191,558

Brooke International (China) Limited

35

16. INTERESTS IN ASSOCIATED COMPANIES

Share of net assets of

associated companies

— listed

— unlisted

Advances to associated

companies

Advances from associated

companies

Provision for diminution

in value

Market value of listed shares

The hotel properties and investment properties of the

Group’s principal associated companies were valued by

Brooke International (China) Limited and Messrs. Knight

Frank & Kan, independent professional valuers, based on

an open market value on 31st December, 1998 and 30th

November 1998 respectively. The carrying amount shown

above includes the Group’s attributable share of the

revaluation surplus.

Particulars of the principal associated companies are shown

in note 35 to the financial statements.



85

16.

(a)

HK’000

264,980

1,850

18,231

41,989

(b)

HK’000

4,175,086

1,125,636

(1,691,647)

(1,068,350)

2,540,725

1,137,327

16. INTERESTS IN ASSOCIATED COMPANIES

(continued)

For additional information, the following are the aggregate

results, assets and liabilities of the Group’s significant

associated companies.

(a) Operating results for the year ended 31st December,

1998:

Turnover

Depreciation

Profit from ordinary

activities before taxation

Profit from ordinary

activities before taxation

attributable to the Group

(b) Financial position as at 31st December, 1998

Total non-current assets

Total current assets

Total liabilities

Minority interests

Shareholders’ funds

Shareholders’ funds

attributable to the Group




17.THE GROUP

1998 1997

HK$’000 HK$’000

81,444 81,444

7,357 7,357

88,801 88,801

3,250 3,250

85,551 85,551

18.THE GROUP

1998 1997

HK$’000 HK$’000

2,291 186

294 80

1,997 106

17. LONG-TERM INVESTMENTS

Unlisted investments, at cost

Hong Kong

Other jurisdictions

Less: Provision for

diminution in value

18. LONG-TERM LOANS RECEIVABLE

Total loans receivable, secured

Less: Current portion receivable

within one year



87

19.THE GROUP THE COMPANY

1998 1997 1998 1997HK$’000 HK$’000 HK$’000 HK$’000

25,069 540,25020

48,018 48,018460,426 631,001 28 42

2,872,60427,604 27,604 27,604 27,604

1,377,393 710,174294 80

1824,702 17,048 61

639,728 1,066,444 18,271 41,129

2,603,234 5,913,223 45,903 68,836

497,510 398,039 294 83

198,682 269,045

1,614,774

109,370 432,529193,074 193,074

60,000 50,119 676,624

182,349 92,720

524,683 192,998 20,000

1,572,594 3,939,922 294 193,157

1,030,640 1,973,301 45,609 (124,321)

19. NET CURRENT ASSETS (LIABILITIES)

CURRENT ASSETSListed investments

(note 20)Stock of unsold propertiesDebtors, deposits and

prepaymentsDeposits with brokersAmount due from an

associated companyLoans and advancesCurrent portion of

long-term loansreceivable (note 18)

Tax prepaidTime deposits, cash

and bank balances

CURRENT LIABILITIESCreditors, accruals and

provisionsDeposits and receipts

in advanceLiabilities on equity

derivatives tradingProvision for taxationProposed dividendOther loans

— secured— unsecured

Current portion oflong-term securedbank loans

Bank loans and overdrafts— secured— unsecured

NET CURRENT ASSETS(LIABILITIES)




20.THE GROUP

1998 1997

HK$’000 HK$’000

24,912 540,070

157 180

25,069 540,250

25,069 540,250

20. LISTED INVESTMENTS

At cost less provision:

Listed shares and warrants

in Hong Kong

Other jurisdictions

Market value of listed

shares and warrants



89

21.THE GROUP THE COMPANY

1998 1997 1998 1997

HK$’000 HK$’000 HK$’000 HK$’000

103,603 240,471

411,193 243,892

6,641 7,965

521,437 492,328

647,494 647,695

2,106,719 2,607,053

22

2,754,213 3,254,748

3,275,650 3,747,076

22.

(i)

1.65 (ii) 1.90

21. LONG-TERM LIABILITIES

Secured bank loans

repayable within a

period of:

More than 1 year but

within 2 years

More than 2 years but

within 5 years

Over 5 years

Unsecured bank loans

repayble within a

period of:

More than 2 years but

within 5 years

Floating Rate Notes

due 2002 (note 22)

22. FLOATING RATE NOTES

The Floating Rate Notes, maturing in 2002 and bearing

interest at 3 month Libor plus (i) 1.65 per cent. per annum

for the first three years and (ii) 1.90 per cent. per annum

for the last two years, were issued in March 1997 by a

subsidiary of the Company.




23.Number of

ordinary shares Nominal

of HK$0.10 each value

0.10 HK$’000

2,300,000,000 230,000

1,937,583,609 193,759

819,330 82

21,988 2

(25,224,000) (2,523)

1,913,200,927 191,320

25,224,000

0.10

50,339,541

819,330 1.48

23. SHARE CAPITAL

Authorised:

At 1st January, 1998 and

31st December, 1998

Issued and fully paid:


Issued in lieu of cash dividend

Issued on exercise of warrants

Repurchase and cancellation


During the year, the Company repurchased on The Stock

Exchange of Hong Kong Limited a total of 25,224,000

shares of HK$0.10 each of the Company, at an aggregate

consideration after expenses of HK$50,339,541 which were

subsequently cancelled. The nominal value of the cancelled

shares was credited to capital redemption reserve of the

Company and the aggregate consideration paid was debited

to the contributed surplus account of the Company and the

retained profits of the Group.

On 20th July, 1998, the Company issued and allotted a

total of 819,330 shares of HK$1.48 each in the Company

at par to the shareholders who elected to receive shares

in the Company in lieu of cash for the 1997 final dividends

pursuant to the scrip dividend scheme announced by the

Company on 30th April, 1998. These shares rank pari passu

in all respects with other shares in issue.



91

24.

0.97 1.02

Expiry date

24th November, 24th November,

1999 2000

Total

HK$’000 HK$’000 HK$’000

380,722 185,578 195,144

(22) (11) (11)

380,700 185,567 195,133

HK$0.97 HK$1.02

0.97 1.02

24. WARRANTS

On 16th November, 1998, the shareholders of the Company

approved the bonus issue of 1999 warrants and 2000

warrants on the basis of one 1999 warrant and one 2000

warrant for every ten ordinary shares of the Company held

by shareholders on 30th October, 1998. The 1999 warrant

and 2000 warrant are exercisable at an initial subscription

price per share of HK$0.97 and HK$1.02 (subject to

adjustment) respectively.

Warrants issued on

23rd November, 1998

Exercised during the year

Warrants outstanding at

31st December, 1998

Exercise price per share

(subject to adjustment)




24.

382,613,798 0.10

380,700,000

25.

Investment Hotel

properties property Assets Capital

revaluation revaluation revaluation redemption

Share Contributed Capital reserve reserve reserve reserve Retained

premium surplus reserve profits Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$000

2,027,026 2,928,464 12,489,106 74,014 56,378 2,255,066 19,830,054

2,523 (50,340 ) (47,817 )

(82 ) 1,214 1,132

20 20

60,393 60,393

(4,553,467 ) (4,553,467 )

31,880 31,880

(333,276 ) (333,276 )

(341 ) (341 )

516,749 516,749

(152,635 ) (39,909 ) 212,488 19,944

2,034 2,034

2,026,964 2,988,857 7,481,267 34,105 212,488 58,901 2,724,723 15,527,305

24. WARRANTS (continued)

The exercise in full of the subscription rights attached to

those warrants outstanding at the balance sheet date would

have resulted in the issue of 382,613,798 ordinary shares

of HK$0.10 each of the Company and the receipt by the

Company of subscription monies in the total sum of

approximately HK$380,700,000 before expenses.

25. RESERVES

THE GROUP


Cancellation on repurchase

of own shares

Shares issue in lieu of cash

dividend

Shares issue on exercise

of warrants

Reserve on consolidation

Deficit on revaluation

Share of revaluation

deficit by minority

interest

Surplus realised

on disposals

Surplus realised on disposal

of investment properties

of associated company

Profit for the year retained

Share of associated

companies’ reserves

movement during the year

Exchange adjustments




93

25.

Investment Hotel






31,012 225,807 74,014 148,122 478,955

(152,635 ) (39,909 ) 212,488 19,944

54,245 54,245

(341 ) (467 ) (808 )

(7,774 ) (7,774 )

2,422 2,422

(11,714 ) (2,258 ) (13,972 )

31,012 61,117 34,105 212,488 194,290 533,012

Investment Hotel






2,027,026 1,570,847 56,378 1,713,244 5,367,495

(50,340 ) 2,523 (47,817 )

(82 ) 1,214 1,132

20 20

16,019 16,019

2,026,964 1,520,507 58,901 1,730,477 5,336,849

25. RESERVES (continued)

Included in the above is the Group’s share of post-

acquisition reserves of its associated companies, as follows:


Share of associated

companies’reserve

movements during the year

Profit for the year, retained

Disposal during the year

Dividend


Effect of change of

associated companies

to subsidiaries


THE COMPANY


Cancellation on repurchase

of own shares

Shares issue in lieu of cash

dividend

Shares issue on exercise

of warrants

Profit for the year





25.

1,520,507,000

1,570,847,000

1,730,477,000

1,713,244,000

26.

25. RESERVES (continued)

The contributed surplus represents the difference between

the underlying net assets of the subsidiaries at the date

on which they were acquired by the Company and the

nominal value of the Company’s share capital issued for

the acquisition at the time of the group reorganization prior

to the listing of the Company’s shares in 1989. Under the

Companies Act 1981 of Bermuda, the contributed surplus

of the Company is available for distribution.

In the opinion of the Directors, as at 31st December, 1998,

the Company’s reserves available for distribution consisted

of contributed surplus of HK$1,520,507,000 (1997:

HK$1,570,847,000) and retained prof i ts of

HK$1,730,477,000 (1997: HK$1,713,244,000).

26. SHARE OPTION SCHEME

The share option scheme of the Company provides that

the Directors may offer to any employees (including the

executive directors) of the Company and any of its

subsidiaries options to subscribe for shares in the Company

in accordance with the terms of the share option scheme.

However, no options were granted during the year or

outstanding at the balance sheet date.



95

27.

1998 1997HK$’000 HK$’000

344,671 1,266,748370,983 374,321

31,726 34,208(388,013) (3,266,837)

123 807(313,937)

708(16,026)

2,450

21,180 123,637

177,000

Evergo China 20,158

5,010

212,275

515,181 554,66429,800

(402,675)(8,744) (1,081,341)

(43,541) 38,240

(1,614,774) 1,614,774

(5,975)

8,404(667,219) (209,059)427,340 (789,373)

2,872,604 (2,764,219)(1,146,786) 8,018

(80,648) 9,678

546,903 (4,281,362)

27. RECONCILIATION OF OPERATING PROFIT TONET CASH INFLOW (OUTFLOW) FROMOPERATING ACTIVITIES

Operating profitInterest expensesDepreciationProfit less loss on disposal of investment

properties and other propertiesLoss on disposal of fixed assetsProfit on disposal of associated

company comprising property interestLoss on disposal of associated companiesProfit on repurchase of Floating Rate Notes

issuedProvision for diminution in value of

unlisted investmentsProvision for diminution in value of

interests in associated companiesDeposit for acquisition of properties

written offLoss on disposal of partial interests

in Evergo ChinaProvision for loss in amount due from

an associated companyProvision for diminution in value of

properties under developmentDecrease in listed investmentDecrease in stock of unsold propertiesDecrease in customers’ depositsDecrease in advance due from associated

companies(Increase) decrease in advances to associated

companies(Decrease) increase in liabilities on

equity derivatives tradingIncrease in properties under development

for saleIncrease in debentureIncrease in loans and advancesDecrease (increase) in debtors, deposits

and prepaymentsDecrease (increase) in deposits with brokers(Decrease) increase in creditors,

accruals and provision(Decrease) increase in deposits and receipts

in advance

Net cash inflow (outflow) fromoperating activities




28.

1998 1997

HK$’000 HK$’000

431,449 26,672

899,776 345,385

190,000

256,765 67

34,122 27

(1,242,477) (174,622)

(10,285) (103)

(682)

(170,000) (12,940)

(3)

198,668 374,483

(7,042)

(67,572)

(60,393)

(35,238)

35,465 367,441

(35,465) (367,441)

34,122 27

(1,343) (367,414)

28. ACQUISITION OF SUBSIDIARIES

Summary of the effects of acquisitions of subsidiaries

during the year

NET ASSETS ACQUIRED

Fixed assets

Properties under development

Interest in an associated company

Debtors, deposits and prepayments

Cash and bank balances

Creditors, accruals and provisions

Deposits and receipts in advance

Provision for taxation

Long-term secured bank loans

Minority interests

Excess of attributable net assets

acquired over cost of

investment in subsidiaries

Carrying value of interests in

associated companies which

became subsidiaries during

the year

Capital reserve on acquisition

Contribution from minority

interests

Analysis of net outflow of cash

and cash equivalents

in respect of the acquisition

of subsidiary undertakings

Cash paid

Cash and bank balances acquired

Net outflow of cash and cash

equivalents



97

29.

RepurchaseShare of own

capital, shares paidpremium and out of

capital Bank loans retainedredemption and other profits

reserve loans Floating MinorityRate Notes interest

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

2,277,163 2,163,486 2,607,053 34,967

22 (397,523 ) (483,592 ) (50,340)

50,340

(7,419)(31,880)

170,000 35,238

(16,026 )

(716) 10

2,277,185 1,935,963 2,106,719 30,916

30.

609,572,000

29,800,000

29. ANALYSIS OF CHANGES IN FINANCING

DURING THE YEAR

Balance at 1st January,1998

Net cash inflow (outflow)from financing

Cancellation on repurchaseof own shares

Share of lossShare of revaluation

deficit by minorityinterest

Acquisition of newsubsidiaries

Profit arising on repurchaseof Floating Rate Notes


Balance at 31stDecember, 1998

30. MAJOR NON-CASH TRANSACTION

During the year, part of the Group’s properties under

development amounting to HK$609,572,000 was

transferred to investment properties.

During the year, the Group’s investment properties

amounting to HK$29,800,000 was transferred to stock of

unsold properties and disposed of during the year.




31.

2,648,000,000

4,068,000,000

1,453,000,000

1,555,000,000

1,288,000,000

1,105,000,000

31. PLEDGE OF ASSETS

At the balance sheet date, the Group’s investment

properties, land and building, property under development

and time deposits with an aggregate book value of

approximately HK$2,648 million (1997: HK$4,068

million) were pledged to secure banking facilities made

available to the Group amounting to approximately

HK$1,453 million (1997: HK$1,555 million). The facilities

made available to the Group were utilised to the extent

of approximately HK$1,288 million (1997: HK$1,105

million).



99

32.

THE GROUP THE COMPANY

1998 1997 1998 1997

HK$’000 HK$’000 HK$’000 HK$’000

91,490 98,012

2,268,325 1,337,109

4,209,779 4,201,013

317,500 567,500 317,500 567,500

110,000 110,000

317,500 677,500 4,527,279 4,878,513

32. CAPITAL COMMITMENTS AND CONTINGENT

LIABILITIES

At the balance sheet date, there were capital commitments

and contingent liabilities, so far as not provided for in the

financial statements, in respect of:

Capital commitments:

Authorised and

contracted for:

Development

expenditure of

properties

Authorised but not

contracted for:

Development

expenditure of

properties

Guarantees given to bank,

in respect of banking

facilities utilised by:

Subsidiaries

Associated companies

Other company

The Company has given unlimited guarantees to securities

dealers to secure credit facilities granted to its subsidiaries.




33.

(a)

27,604,000

(b)

1998 1997

HK$’000 HK$’000

291 182

2,464 1,683

497 490

(b)

128,113,000

33. RELATED PARTIES TRANSACTIONS

(a) The Group has made non-interest bearing loans to

Evergo China amounting to HK$27,604,000 in 1996

for the development of various deferred projects in

the PRC. These non-interest bearing loans which were

originally scheduled to be capitalised on or before

28th October, 1998 will be extended for another 24

months upon obtaining of the relevant approval.

(b) During the year, the Group and Evergo China and

its subsidiaries (“Evergo China Group”) had entered

into the following transactions:

Amounts received from

Evergo China Group

Building management fee

Office rental

Secretarial fee

(c) During the year, the Group received HK$128,113,000

from the associated companies. These advances are

interest free, unsecured and with no fixed terms of

repayment.

In the opinion of the Directors of the Company, the

transactions with the above related parties were carried out

in normal commercial terms and in the ordinary course

of business.



101

34.

Place of Issued and fully paid

incorporation/ ordinary share capitaloperation except otherwise stated

Name of subsidiary / Principal activity

Arubasey Limited Hong Kong Property development HK$2

2

Barker Road Investments Limited Hong Kong Property development HK$2

2

China Entertainment and Land Hong Kong Investment holding HK$1,000

Investment Company, Limited 1,000

China Entertainment and Land Bermuda/ Investment holding HK$138,365,535

Investments Holdings Limited Hong Kong 138,365,535

/

Copper King Investment Limited British Virgin Investment holding US$1

(direct subsidiary) Islands/ 1

Hong Kong

/

China Entertainment Strategic Hong Kong Investment holding HK$1,000

Investments Limited 1,000

Chinese Estates (Harcourt Hong Kong Property investment HK$200

House) Limited 200

Chinese Estates, Limited Hong Kong Investment holding HK$1,000

(direct subsidiary) 1,000

34. PARTICULARS OF PRINCIPAL SUBSIDIARIES

The Directors are of the opinion that a complete list of

the particulars of all subsidiaries would be of excessive

length and therefore the following list contains only the

subsidiaries which principally affect the results or assets

of the Group during the year. All subsidiaries are indirectly

held and wholly owned private limited companies except

otherwise stated.




34.

Place of Issued and fully paidincorporation/ ordinary share capital

operation except otherwise statedName of subsidiary / Principal activity

Chinese Estates (Windsor Hong Kong Property investment HK$100 and non-voting

House) Limited deferred share capital

of HK$2

100

2

Conduit Road Development Hong Kong Property development HK$10,000

Limited (70% owned subsidiary) 10,000

70%

Crystal Plan Limited Hong Kong Property investment HK$2

2

Dollar Union Limited Hong Kong Property development HK$100

(75% owned subsidiary) & trading 100

75%

Evergo International Holdings Bermuda/ Investment holding HK$200,000

Company Limited Hong Kong 200,000

(direct subsidiary) /

Evergo Holdings Company Limited Hong Kong Investment holding HK$1,000

1,000

Fame Winner Limited Hong Kong Property development HK$2

2

Fujian Zhongxing Investment Co. Ltd The People’s Project investment HK$100,000,000 *

(68% owned subsidiary) Republic of 100,000,000 *

China

68%

Geneva Developments Limited Hong Kong Property investment HK$2

2


(continued)



103

34.



Good Top Finance Limited British Virgin Investment holding US$1

(Corporate name: Good Islands/ 1

Top Limited) Hong Kong

Good Top Limited /

Grandhall Secretarial Services Limited Hong Kong Secretarial services HK$10,000

10,000

Groupluck Company Limited Hong Kong Money lending HK$2

2

Jade Luck Holdings Limited Hong Kong Property investment HK$10,000

10,000

Modern City Investment Limited Hong Kong Property investment HK$4

(75% owned subsidiary) 4

75%

Onpeace Limited (public company) Hong Kong Money lending HK$2

2

Oriental Ford Finance Limited Hong Kong Money lending HK$2

2

Oriental Master Ltd. British Virgin Investment holding US$1

(direct subsidiary) Islands/ 1

Hong Kong

/

Paul Y. Holdings Company Cayman Islands/ Investment holding HK$70,715,006

Limited Hong Kong 70,715,006

/

Paul Y. International Bermuda/ Investment holding HK$46,310,288

Group Limited Hong Kong 46,310,288

/


(continued)




34.



Paul Y. (New Tunnel) Limited Hong Kong Investment holding HK$2

2

Perfect King Investments Hong Kong Securities investment HK$2 and non-voting

Limited preferred share

capital of HK$2

2

2

Perfect World Company Limited Hong Kong Estate management HK$10,000

10,000

Pioneer Time Investment British Virgin Property investment US$1

Limited Islands/ 1

Hong Kong

/

September Investment Ltd. Liberia/Hong Kong Property investment US$1

/ 1

Silvercord Limited Hong Kong Property investment HK$14,600

14,600

Spark Dragon Limited Hong Kong Money lending HK$10,000

(public company) 10,000

Success Town Development Hong Kong Property investment HK$2 and non-voting

Limited deferred share

capital of HK$2

2

2

Sun Power Investments Ltd British Virgin Securities investment US$1

Islands/ 1

Hong Kong

/


(continued)



105

34.



Superford Financial Holdings Bermuda/ Investment holding HK$54,657,722

Limited Hong Kong 54,657,722

/

Tradewise Investment Liberia/Hong Kong Investment HK$20

Limited (direct subsidiary) / 20

View Success Investments Limited Hong Kong Property investment HK$2

and trading 2

* paid up registered capital

*


(continued)




35.

Issued and PercentagePlace of fully paid of equityincorporation/ ordinary attributable

Name of operation share capital to the Group Principalassociated company / activity

Canaria Holding Limited British Virgin US$2 50% InvestmentIslands/ 2 holdingHong Kong

/

Healthy Point Limited Hong Kong HK$2 and 50% Propertynon-voting investmentpreferred sharecapital of HK$12

1

Strongplus Limited British Virgin US$2 50% InvestmentIslands/ 2 holdingHong Kong

/

Super Location Limited Hong Kong HK$2 50% Property2 development

and trading

# Evergo China Bermuda/ HK$144,000,000 43.76% InvestmentHoldings Limited Hong Kong 144,000,000 holding

/

Primasia Securities Company Taiwan NT$1,060,000,000 33.76% SecuritiesLimited (formerly known 1,060,000,000 brokingas Peregrine Securities(Taiwan) Limited)

35. PARTICULARS OF PRINCIPAL ASSOCIATED

COMPANIES

The Directors are of the opinion that a complete list of

the particulars of all associated companies would be of

excessive length and therefore the following list contains

only the associated companies which principally affect the

results or assets of the Group during the year.



107

35.

Issued and PercentagePlace of fully paid of equityincorporation/ ordinary attributable

Name of operation share capital to the Group Principalassociated company / activity

Finedale Industries Hong Kong HK$9,999 33.33% PropertyLimited 9,999 investment

# The Kwong Sang Hong Bermuda/ HK$245,398,566 32.15% InvestmentInternational Limited Hong Kong 245,398,566 holding

/

36.

35. PARTICULARS OF PRINCIPAL ASSOCIATED

COMPANIES (continued)

* registered capital

# listed company in Hong Kong

36. COMPARATIVE FIGURES

Certain comparative f igures have been reclassif ied to

conform with the current year’s presentation.

Notes to the Financial Statements - Chinese Estates

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