3SBio Inc. — Annual Report 2002

Apr 24, 2003

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HONGKONG CHINESE LIMITED 香港華人有限公司[*]

(Incorporated in Bermuda with limited liability)

FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER, 2002

FINAL RESULTS

The Directors of Hongkong Chinese Limited (the “Company”) announce that the audited consolidated final results of the Company and its subsidiaries (together, the “Group”) for the year ended 31st December, 2002 together with the comparative figures for the corresponding period in 2001 are as follows:

Note Turnover 4 Cost of sales Gross profit Other revenue Administrative expenses Other operating expenses Provisions for bad and doubtful debts relating to: Banking operations Non-banking operations Impairment losses of goodwill Provision for loss on guaranteed return arrangement for fund management 5 Write-back of deficit/(Deficit) on revaluation of investment property Loss on disposal of subsidiaries 6 Loss from operating activities 7 Finance costs Share of results of associates Loss before tax Tax 8 Loss before minority interests Minority interests Net loss from ordinary activities attributable to shareholders	2002 HK$’000 260,287 (117,989) 142,298 — (85,340) (37,995) (4,025) (19,851) (3,330) (88,290) 748 (10,545) (106,330) (4,228) (133) (110,691) (427) (111,118) (250) (111,368)	Restated 2001 HK$’000 893,976 (140,993) 752,983 7,573 (372,199) (104,123) (227,831) (4,675) (137,621) (72,242) (4,800) — (162,935) (19,211) 32 (182,114) (10,191) (192,305) (175) (192,480)

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HK cents

HK cents

Loss per share 9 Basic Diluted Dividend and distributions Interim distribution/dividend, declared and paid Special interim distribution, declared and paid Final distribution, proposed after the balance sheet date	(8.2) N/A HK$’000 20,273 1,959,729 1,980,002 40,496	(14.2) (14.2) HK$’000 20,273 — 20,273 40,546

Note:

1. Basis of presentation

Following the disposal of The Hongkong Chinese Bank, Limited (the “HKCB”) and its subsidiaries, the Group no longer follows the disclosure requirements as set out in the Supervisory Policy Manual “Financial Disclosure by Locally Incorporated Authorized Institutions” issued by the Hong Kong Monetary Authority. The disposal was completed on 17th January, 2002.

On 27th May, 2002, the Group acquired The Macau Chinese Bank Limited (“MCB”), a new banking subsidiary of the Company. MCB is not required to follow the aforesaid disclosure requirements designed for Hong Kong banking industry.

Accordingly, interest income for banking operations during the year was classified under turnover which is newly defined as set out in Note 4 to the final results.

This change resulted in the restatement of the Group’s profit and loss account to conform with the current year’s presentation.

2. Principal accounting policies

Except as disclosed in Note 1 to the final results, the accounting policies and disclosure practices adopted in the preparation of the final results are consistent with those adopted in the year 2001 except the Group has changed certain of its accounting policies and disclosure practices as a result of the adoption of the following Statements of Standard Accounting Practices (“SSAPs”) issued by the Hong Kong Society of Accountants which are effective for accounting periods commencing on or after 1st January, 2002:

SSAP 1 (Revised) : “Presentation of financial statements” SSAP 11 (Revised) : “Foreign currency translation” SSAP 15 (Revised) : “Cash flow statements” SSAP 33 : “Discontinuing operations” SSAP 34 : “Employee benefits”

The adoption of these new and revised SSAPs did not have significant impact on the final results.

3. Segment information

Segment information is presented by way of business segment as the primary reporting format. No analysis of geographical segment which is regarded as the secondary segment is presented as less than 10 per cent. of the Group’s revenue and results are attributable to locations outside Hong Kong.

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Descriptions of the business segments are as follows:

• (a) the treasury investment segment includes investments in cash and bond markets;

• (b) the securities investment segment includes dealings in securities and disposals of investments;

• (c) the money lending segment includes the provision of finance;

• (d) the corporate finance and securities broking segment provides securities and future brokerage, investment banking, underwriting and other related advisory services;

• (e) the banking businesses segment engages in the provision of commercial and retail banking;

• (f) the insurance business segment includes the underwriting of general insurance business and the provision of general insurance agency services;

• (g) the fund management segment includes the provision of fund management services; and

• (h) the “other” segment comprises principally the letting of properties.

An analysis of the Group’s segment revenue and segment results by business segment is set out below:

2002

Treasury investment HK$’000 Revenue External 55,257 Inter-segment 759 Total 56,016 Segment results 55,830 Unallocated corporate expenses Share of results of associates — Loss before tax Tax Loss before minority interests Minority interests Net loss from ordinary activities attributable to shareholders	Securities investment HK$’000 59,261 — 59,261 (5,766 ) —	Money lending HK$’000 6,979 41 7,020 161 —	Corporate finance and securities broking HK$’000 55,020 — 55,020 (30,846 ) 82	Banking businesses HK$’000 31,225 277 31,502 1,244 —	Insurance Fund business management HK$’000 HK$’000 48,227 2,783 — — 48,227 2,783 64 (89,295 ) — —	Other HK$’000 1,535 58 1,593 1,147 (215 )	Inter- segment elimination Consolidated HK$’000 HK$’000 — 260,287 (1,135 ) — (1,135 ) 260,287 293 (67,168 ) (43,390 ) — (133 ) (110,691 ) (427 ) (111,118 ) (250 ) (111,368 )

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2001

Treasury investment HK$’000 Revenue External 15,686 Inter-segment 29,462 Total 45,148 Segment results 31,836 Unallocated corporate expenses_(Note)_ Share of results of associates — Loss before tax Tax Loss before minority interests Minority interests Net loss from ordinary activities attributable to shareholders	Securities investment HK$’000 84,284 — 84,284 (15,627 ) —	Money lending HK$’000 222,202 2,465 224,667 63,636 —	Corporate finance and securities broking HK$’000 68,916 — 68,916 9,460 —	Banking businesses HK$’000 443,988 21,433 465,421 41,391 —	Insurance Fund business management HK$’000 HK$’000 48,510 2,861 — — 48,510 2,861 124 (71,765 ) — —	Other HK$’000 15,102 — 15,102 13,645 32	Inter- segment elimination Consolidated HK$’000 HK$’000 — 901,549 (53,360 ) — (53,360 ) 901,549 140 72,840 (254,986 ) — 32 (182,114 ) (10,191 ) (192,305 ) (175 ) (192,480 )

Note : Amount includes impairment losses of HK$137,621,000 relating to goodwill arising on acquisition of certain subsidiaries as a result of the disposal of HKCB and its subsidiaries.

4. Turnover

Turnover represents the gross income on treasury investment which includes interest income on bank deposits and heldto-maturity securities, gross proceeds from sales of investments, gross income from underwriting and securities broking, interest and other income from money lending business, gross income from fund management, gross premiums from insurance business, dividend income and net interest income, commissions, dealing income and other revenues from banking subsidiaries.

An analysis of the turnover of the Group by principal activity is as follows:

Treasury investment Securities investment Interest and other income from money lending business Corporate finance and securities broking Banking businesses_(Note)_ Insurance business Fund management Other	2002 HK$’000 55,257 59,261 6,979 55,020 31,225 48,227 2,783 1,535 260,287	Restated 2001 HK$’000 15,686 84,284 222,202 68,916 443,128 48,510 2,861 8,389
		893,976

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Note : Turnover attributable to banking businesses during the year represents turnover generated from MCB since its acquisition by the Group in May 2002 and HKCB up to its disposal by the Group in January 2002 (2001 — HKCB). Turnover attributable to banking businesses is analysed as follows:

Interest income Interest expenses Commission income Commission expenses Net dealing income and other revenues	2002 HK$’000 40,718 (14,918) 3,847 (274) 1,852 31,225	Restated 2001 HK$’000 1,042,780 (680,772 ) 46,147 (6,612 ) 41,585 443,128

5. Provision for loss on guaranteed return arrangement for fund management

A subsidiary of the Group has been appointed as an investment manager for a fund. In accordance with the management agreement, such fund was managed on a discretionary basis with a fixed annual guaranteed return provided by the Company. During the current and prior years, the performance of the fund was adversely affected by the volatile stock markets and uncertain economic environment. As a result, a provision has been made for the guarantee arrangement. Notice has been given by the Group to terminate the management agreement and the return guarantee with effect from June 2003.

6. Loss on disposal of subsidiaries

On 17th January, 2002, the Group completed the disposal of its entire interest in HKCB and its subsidiaries for a total consideration of HK$4.2 billion, which gave rise to a net loss on disposal of subsidiaries of HK$10,545,000. HKCB and its subsidiaries contributed turnover of HK$30,194,000 (2001 — HK$660,106,000), profit before tax of HK$10,929,000 (2001 — HK$30,848,000) and profit after tax of HK$10,721,000 (2001 — HK$29,337,000) to the Group during the year.

7. Loss from operating activities

Loss from operating activities is arrived at after crediting/(charging):

		Restated
	2002	2001
	HK$’000	HK$’000
Interest income:(Note)
Listed investments	9,579	301
Unlisted investments	2,353	—
Other	43,399	15,686
Dividend income from listed investments	181	2,422
Provision for impairment losses on held-to-maturity securities:
Listed	—	(1,802 )
Unlisted	(273)	(5,518 )
Net realised and unrealised holding gains/(losses)
on other investments in securities:
Listed	(3,771)	8,717
Unlisted	911	(769 )
Depreciation:
Banking operations	(2,146)	(44,836 )
Other	(2,479)	(2,631 )
Amortisation of goodwill arising from acquisition of subsidiaries	(2,094)	—

Note : The amounts exclude income relating to banking operations of the Group.

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8. Tax

The Company and its subsidiaries: Provision for the year: Hong Kong Overseas Under/(Over) provisions for prior years: Hong Kong Overseas Tax charge for the year	2002 HK$’000 203 5 208 219 — 219 427	2001 HK$’000 10,192 — 10,192 259 (260 ) (1 ) 10,191

Hong Kong profits tax has been provided for at the rate of 16 per cent. (2001 — 16 per cent.) on the estimated assessable profits arising in Hong Kong for the year. Overseas taxes have been calculated on the estimated assessable profits for the year at the tax rates prevailing in the countries in which the Group operates based on existing legislation, interpretations and practices in respect thereof.

No provision for deferred tax has been made because the net effect of timing differences was not material at the balance sheet date (2001 — Nil). As at 31st December, 2002, the Group had no material unrecognised deferred tax assets (2001 — HK$92 million) in respect of tax losses and unabsorbed capital allowances.

9. Loss per share

• (a) Basic loss per share

Basic loss per share is calculated based on (i) the net loss from ordinary activities attributable to shareholders of HK$111,368,000 (2001 — HK$192,480,000); and (ii) the number of 1,351,537,000 shares (2001 — 1,351,537,000 shares) in issue during the year.

• (b) Diluted loss per share

No diluted loss per share is presented for the year ended 31st December, 2002 as there were no dilutive potential ordinary shares. The diluted loss per share for the year ended 31st December, 2001 was calculated based on (i) the net loss from ordinary activities attributable to shareholders of HK$192,480,000; and (ii) the adjusted weighted average number of 1,351,659,000 shares after taking into account the weighted average number of 122,000 ordinary shares which are deemed to have been issued at no consideration on exercise of the share options at the beginning of the year.

MANAGEMENT DISCUSSION AND ANALYSIS

2002 was a year of structural change for the Group. The disposal (the “Disposal”) of The Hongkong Chinese Bank, Limited (“HKCB”) increased the Group’s net assets by HK$0.8 billion and released funds of over HK$3.3 billion. Following the Disposal, HK$2 billion was distributed to the shareholders of the Company, leaving behind net assets of the Group of HK$2.8 billion.

During the year, the Group continued to engage in various financial services businesses, including banking, treasury and securities investments, corporate finance, securities brokerage, fund management and other related services but restructured to reduce its reliance on banking business. The Disposal took place at an opportune time in view of the subsequent further deterioration of asset quality and narrowing of interest margins suffered by the banking industry in Hong Kong in 2002. However, the downturn in the local stock markets adversely affected the Group’s results. The Group recorded a net loss attributable to shareholders for the year of HK$111 million, representing a reduction of 42 per cent. from last year’s loss of HK$192 million.

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Turnover

Turnover for the year dropped to HK$260 million (2001 — HK$894 million) due mainly to the decrease attributable to banking and money lending businesses as a result of the Disposal. Turnover contributions from treasury and securities investments, banking and money lending businesses, and corporate finance and securities brokerage represented 44 per cent. (2001 — 11 per cent.), 15 per cent. (2001 — 75 per cent.) and 21 per cent. (2001 — 8 per cent.) respectively of the total turnover. Turnover generated from banking and money lending businesses for the year included the results from HKCB and its subsidiaries up to the Disposal in January 2002 and The Macau Chinese Bank Limited (formerly known as Finibanco (Macau), S.A.R.L.) since its acquisition by the Group in May 2002.

Operating results for the year

Despite interest rate reducing further in 2002, the Group was able to diversify into better yielding investments and achieved satisfactory results. The bond portfolio of the Group acquired during the year produced an average return of over 6 per cent. per annum. Net income contributed from treasury and securities investments increased to HK$50 million (2001 — HK$16 million). However, the continuing contraction and weakness of the local stock market adversely affected the corporate finance and securities brokerage businesses, resulting in a loss of HK$31 million (2001 — gain of HK$9 million). The adverse conditions in the stock market also led to a provision of HK$88 million (2001 — HK$72 million) being made for fund management activities in respect of a guaranteed return arrangement provided by the Company. In view of the continuing uncertainty of the stock markets during the year, notice has been given by the Group to terminate the management agreement and the return guarantee with effect from June 2003.

Following the Disposal, net income from banking and money lending businesses no longer constituted a major source of income of the Group and income from this source reduced significantly to HK$12 million (2001 — HK$105 million) before accounting for the loss on the Disposal of HK$11 million.

Financial position

As at 31st December, 2002, the net asset value of the Group dropped HK$1.3 billion to HK$2.8 billion (2001 — HK$4.1 billion) after accounting for the distribution to shareholders totalling HK$2 billion and the increase in net assets upon the Disposal of HK$0.8 billion. Most of the assets held by the Group were denominated in Hong Kong dollars or United States dollars. Exposure to exchange rate risk was minimal. Net asset value per share stood at HK$2.06 (2001 — HK$1.53 per share, after deducting the total distribution paid during the year of HK$1.495 per share which consisted of final distribution for 2001 of HK3 cents per share and special interim distribution and interim distribution for 2002 of HK$1.45 per share and HK1.5 cents per share, respectively). Despite the payment of the distribution, the Group’s financial position strengthened over the year with liquidity ratio increased to 3.9:1 (2001 — 2.4:1).

Gearing ratio (total borrowings to shareholders’ funds) of the Group was extremely low at less than 2 per cent. throughout the year. Total borrowings (excluding liabilities relating to banking operations) of the Group at the end of the year of HK$21 million (2001 — HK$69 million) were all bank loans, of which HK$11 million (2001 — Nil) was secured by certain collateral of the clients of the Group placed on margin accounts with the Group’s securities and commodities brokerage business. These collaterals had an aggregate quoted market value of HK$67 million as at 31st December, 2002. The remaining balance of the bank loans of HK$10 million (2001 — HK$69 million) was unsecured. All the bank loans were denominated in Hong Kong dollars, repayable within one year and carried interest at floating rates.

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As at 31st December, 2002, there were no charges on the Group’s assets (2001 — Nil). Other than those attributable to banking operations, the Group had no material capital commitments or contingent liabilities outstanding at the balance sheet date (2001 — Nil).

Changes in disclosure practices and accounting policies

Following the Disposal, the Group no longer follows the disclosure requirements as set out in the Supervisory Policy Manual “Financial Disclosure by Locally Incorporated Authorized Institutions” issued by the Hong Kong Monetary Authority. This change resulted in the restatement of the Group’s profit and loss account to conform with the current year’s presentation with details as set out in Note 1 to the final results.

In addition, certain accounting policies of the Group and disclosure practices were changed as a result of the adoption of the new and revised accounting standards issued by the Hong Kong Society of Accountants with details as set out in Note 2 to the final results. These had no material impact on the results nor net asset value of the Group.

Staff and remuneration

As at 31st December, 2002, the Group had 115 employees (2001 — 670 employees). Total staff costs incurred during the year amounted to HK$68 million (2001 — HK$269 million). The Group offers competitive remuneration packages to its employees. Certain employees were granted options under a share option scheme implemented in 1992. The scheme expired on 21st September, 2002.

Outlook

Looking ahead, we expect that 2003 would be another challenging and difficult year to the Group in view of the weak and uncertain economic environment. However, with its strong and healthy financial position, the Group is well placed to actively but prudently explore investment opportunities in the financial services-related sectors in the region.

BUSINESS REVIEW

2002 was a difficult and challenging year for Hong Kong. Deflation prevailed throughout the year. As Hong Kong moved further into closer economic convergence with the cheaper neighbouring provinces of China, the year saw further migration of businesses across the border as well as further downward pressure on key asset prices in Hong Kong, including properties and stocks. Prospects of an early economic recovery were further hindered by the spreading uncertainties and slowdown on the global economic front. The result was a weak Hong Kong economy characteristised by poor market sentiment and low consumer confidence. This was reflected in the continuing sluggishness of both the property and stock markets. Unemployment rate and personal bankruptcy cases rose sharply. In common with other companies in the investment banking and financial services sector, the Group faced a difficult business environment in 2002.

Against this background, the Group recorded a consolidated loss of HK$111,368,000 for the year ended 31st December, 2002, representing a reduction of 42 per cent. as compared to a loss of HK$192,480,000 in 2001.

The sluggish local stock market has adversely affected the business and performance of Lippo Securities Holdings Limited, a wholly-owned subsidiary of the Company, and its subsidiaries, which are principally engaged in underwriting, securities brokerage, corporate finance, investment advisory and other related financial services.

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On 17th January, 2002, the Company successfully completed the disposal of The Hongkong Chinese Bank, Limited and its subsidiaries to CITIC Ka Wah Bank Limited at an aggregate consideration of HK$4.2 billion. A special interim distribution of HK$1.45 per share, totalling approximately HK$2 billion, was made to the shareholders on 28th January, 2002. On 8th February, 2002, the name of the Company was changed from “The HKCB Bank Holding Company Limited” to “Hongkong Chinese Limited”.

On 27th May, 2002, the Group successfully acquired an 85 per cent. equity interest in Finibanco (Macau), S.A.R.L., a licensed bank in Macau, for MOP190 million (equivalent to approximately HK$185 million). The bank was renamed “The Macau Chinese Bank Limited” (“MCB”) on 8th January, 2003. This acquisition is in line with the Company’s objective of creating further value for shareholders and building up its role in the investment banking and financial services sector. China’s accession to the World Trade Organization and Macau’s close proximity to the Pearl River Delta are expected to substantially enhance Macau’s position as a key regional commercial and financial centre in the region. MCB will offer a platform for the Company to extend its financial services at an important traffic and commercial hub at the mouth of the Pearl River Delta and provide a good opportunity for the Company to expand into the Chinese financial services market.

On 28th May, 2002, the Group acquired an 85 per cent. equity interest in ImPac Asset Management (Holdings) Ltd. which, through its subsidiaries, provides investment and management advisory services in relation to mutual funds in Hong Kong and Asia. The acquisition has established a firm presence for the Group in the fund management business.

OUTLOOK

The outlook for the economy in 2003 is clouded by the turbulent international political situation, particularly arising from the war in Iraq. The concerns have generated an uncertain economic atmosphere for 2003, both globally and regionally. Locally, the concerns have been exacerbated by the recent outbreak of Atypical Pneumonia in Hong Kong and neighbouring countries. Against this background, we expect that the Hong Kong economy will remain weak for 2003.

Despite the challenging business environment, the Group remains optimistic about the long term prosperity of Hong Kong and the Pearl River Delta region. Accordingly, the Group will explore new market opportunities and new income sources which are compatible with its long term growth strategy. It will continue to seek potential acquisitions and alliances. With its strong and healthy financial position, the Group is well positioned to explore investment opportunities in the financial and investment sectors.

On 30th January, 2003, the Group acquired a 20 per cent. interest in the Convoy Group which is providing independent financial planning services in Hong Kong. Through this alliance, Convoy Group will be able to leverage on the diversified financial services and extensive business network of the Lippo Group and strengthen further its leading position in the independent financial planning industry. The Group’s interest in the Convoy Group has subsequently increased to approximately 23 per cent..

Given the present uncertain economic environment, management will adopt a cautious and prudent approach in assessing new investment opportunities.

FINAL DISTRIBUTION

The Directors have recommended the payment of a final distribution of HK3 cents (2001 — HK3 cents) per share for the year ended 31st December, 2002, which will be paid on Thursday, 19th June, 2003 to the shareholders whose names appear on the Company’s Register of Members on Wednesday, 28th May, 2003.

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CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from Thursday, 22nd May, 2003 to Wednesday, 28th May, 2003 (both dates inclusive) during which period no transfer of shares will be registered. In order to qualify for the final distribution for the year ended 31st December, 2002, all transfers of shares accompanied by the relevant share certificates and transfer forms must be lodged with Tengis Limited, the Company’s Branch Registrars in Hong Kong, at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 4:30 p.m. on Wednesday, 21st May, 2003. Warrants in respect of the final distribution will be dispatched to the shareholders on or about Thursday, 19th June, 2003.

PURCHASE, SALE OR REDEMPTION OF SECURITIES

During the year ended 31st December, 2002, there was no purchase, sale or redemption of securities of the Company by the Company or any of its subsidiaries.

ANNUAL REPORT

The annual report of the Company for the year ended 31st December, 2002 containing all the information required by paragraphs 45(1) to 45(3) of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) will be published on the Stock Exchange’s website in due course.

By Order of the Board Hongkong Chinese Limited Dr. Mochtar Riady Chairman

23rd April, 2003

* For identification purpose only

Please also refer to the published version of this announcement in The Standard.

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