3SBio Inc. — Annual Report 2004

Apr 21, 2005

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HONGKONG CHINESE LIMITED 香港華人有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock code: 655)

FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER, 2004

FINAL RESULTS

The Directors of Hongkong Chinese Limited (the “Company”) announce the audited consolidated final results of the Company and its subsidiaries (together, the “Group”) for the year ended 31st December, 2004 together with the comparative figures for the corresponding period in 2003 as follows:

Note Turnover 2 Cost of sales Gross profit Other revenue Administrative expenses Other operating expenses Write-back of provisions/(Provisions) for bad and doubtful debts relating to: Banking operation Non-banking operations Provisions for impairment losses: An associate Investment securities Net unrealised holding gain/(loss) on other investments in securities Net unrealised gain/(loss) on transfer of investment securities and held-to-maturity securities to other investments in securities Write-back of provision for loss on guaranteed return arrangement for fund management Profit/(Loss) from operating activities 4 Finance costs Share of results of associates Profit/(Loss) before tax Tax 5 Profit/(Loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders	2004 HK$’000 1,177,912 (1,030,090) 147,822 – (70,531) (39,725) 666 (1,203) (16,603) (2,776) (61,303) (7,856) – (51,509) (4,873) (5,309) (61,691) (4,743) (66,434) 1,477 (64,957)	2003 HK$’000 617,246 (455,777) 161,469 4,171 (70,165) (34,422) (3,753) (1,916) – (20,000) 54,926 20,483 10,868 121,661 (4,700) (6,488) 110,473 (5,182) 105,291 776 106,067

* For identification purpose only

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		HK cents	HK cents
Earnings/(Loss) per share	6
Basic		(4.8)	7.9
Diluted		N/A	N/A
Distributions per share
Interim, declared and paid		1.5	1.5
Final, proposed/paid after the balance sheet date		3.0	3.0

Note:

1. Principal accounting policies

The accounting policies and disclosure practices adopted in the preparation of the final results are consistent with those adopted in the year 2003. The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1st January, 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31st December, 2004. The new HKFRSs may result in changes in the future as to how the Group’s financial performance and financial position are prepared and presented.

2.

Turnover

Turnover represents the aggregate of gross rental income, gross income on treasury investment which includes interest income on bank deposits and held-to-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 licensing of software, gross income from fund management, dividend income and net interest income, commissions, dealing income and other revenues from a banking subsidiary.

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

Property investment and development Treasury investment Securities investment Corporate finance and securities broking Banking business Information technology Other	2004 HK$’000 2,056 12,988 1,073,582 65,045 16,198 900 7,143 1,177,912	2003 HK$’000 323 51,461 460,092 56,828 17,263 – 31,279
		617,246

Turnover attributable to banking business represents turnover generated from The Macau Chinese Bank Limited, a licensed credit institution under the Financial System Act of the Macao Special Administrative Region of the People’s Republic of China. Turnover attributable to banking business is analysed as follows:

Interest income Interest expenses Commission income Net dealing income and other revenues	2004 HK$’000 11,247 (1,777) 5,793 935 16,198	2003 HK$’000 12,442 (2,023 5,400 1,444
		17,263

3. Segment information

An analysis of the Group’s segment information by business segment is set out as follows:

• (a) the property investment and development segment includes letting and development of properties;

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

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

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

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

• (f) the information technology segment engages in the development of computer hardware and software; and

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(g) the “other” segment comprises principally money lending, fund management services and skin care services.

2004 Revenue External Inter-segment Total Segment results Unallocated corporate expenses Loss from operating activities Share of results of associates Loss before tax Tax Loss before minority interests Minority interests Net loss from ordinary activities attributable to shareholders 2003 Revenue External Inter-segment Total Segment results Unallocated corporate expenses Profit from operating activities Share of results of associates Profit before tax Tax Profit before minority interests Minority interests Net profit from ordinary activities attributable to shareholders	Property investment and development HK$’000 2,056 – 2,056 (2,486 ) – Property investment and development HK$’000 323 – 323 (515 ) –	Treasury investment HK$’000 12,988 906 13,894 12,327 – Treasury investment HK$’000 51,461 706 52,167 50,097 –	Securities investment HK$’000 1,073,582 – 1,073,582 (5,263 ) – Securities investment HK$’000 460,092 – 460,092 91,310 –	Corporate finance and securities broking HK$’000 65,045 1,453 66,498 4,077 – Corporate finance and securities broking HK$’000 56,828 1,008 57,836 4,784 –	Banking business HK$’000 16,198 – 16,198 3,972 – Banking business HK$’000 21,434 – 21,434 4,808 –	Information technology HK$’000 900 – 900 (10,817 ) (2,379 ) Information technology HK$’000 – – – (6,422 ) (5,419 )	Other HK$’000 7,143 – 7,143 (2,225 ) (2,930 ) Other HK$’000 31,279 – 31,279 10,573 (1,069 )	Inter- segment elimination HK$’000 – (2,359 ) (2,359 ) – – Inter- segment elimination HK$’000 – (1,714 ) (1,714 ) 706 –	Consolidated HK$’000 1,177,912 – 1,177,912 (415 ) (55,967 ) (56,382 ) (5,309 ) (61,691 ) (4,743 ) (66,434 ) 1,477 (64,957 ) Consolidated HK$’000 621,417 – 621,417 155,341 (38,380 ) 116,961 (6,488 ) 110,473 (5,182 ) 105,291 776 106,067

An analysis of the Group’s segment revenue by geographical segment is set out below:

2004	Hong Kong	Singapore	Japan	Others	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	551,467	216,778	120,181	289,486	1,177,912
2003	Hong Kong	Singapore	Japan	Others	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	323,672	234,896	–	62,849	621,417

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4. Profit/(Loss) from operating activities

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

	2004	2003
	HK$’000	HK$’000
Interest income –Note (a):
Listed investments	19,259	22,301
Unlisted investments	1,171	10,163
Other	12,988	18,997
Dividend income:
Listed investments	16,452	4,745
Unlisted investments	478	–
Provision for impairment losses on unlisted investment securities	(2,776)	(20,000)
Net realised gain on unlisted investment securities	339	–
Net realised and unrealised holding gains/(losses)
on other investments in securities:
Listed	(66,968)	80,649
Unlisted	33,111	16,582
Other unlisted investment income	5,253	–
Net unrealised gain/(loss) on transfer of investment securities
and held-to-maturity securities to other investments in securities:
Listed	(3,766)	12,946
Unlisted	(4,090)	7,537
Depreciation:
Banking operation	(785)	(820 )
Other	(2,586)	(1,610)
Amortisation of goodwill arising from acquisition of subsidiaries –Note (b)	(4,245)	(3,618)
Negative goodwill recognised as income –Note (b)	229	–

Note:

• (a) The amounts exclude income relating to the banking operation of the Group.

(b) The amortisation of goodwill and negative goodwill recognised as income for the year are included under “Other operating expenses” on the face of the consolidated profit and loss account.

5.

Tax

Hong Kong: Underprovision in prior years Overseas: Charge for the year Underprovision in prior years Share of tax attributable to an associate: Hong Kong Total charge for the year	2004 HK$’000 2,059 1,095 381 1,476 1,208 4,743	2003 HK$’000 3,464
		1,329 –
		1,329
		389
		5,182

No provision for Hong Kong profits tax has been made as the Group has available tax losses brought forward from prior years to offset the estimated assessable profits generated during the year. Hong Kong profits tax for the prior year had been provided for at the rate of 17.5 per cent. on the estimated assessable profits arising in Hong Kong during that 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.

There were no material deferred tax assets or liabilities as at 31st December, 2004 (2003 – Nil).

6. Earnings/(Loss) per share

• (a) Basic earnings/(loss) per share

Basic earnings/(loss) per share is calculated based on (i) the net loss from ordinary activities attributable to shareholders of HK$64,957,000 (2003 – profit of HK$106,067,000); and (ii) the weighted average number of 1,346,829,000 shares (2003 – 1,347,972,000 shares) in issue during the year.

• (b) Diluted earnings/(loss) per share

• No diluted earnings/(loss) per share is presented for the years ended 31st December, 2004 and 2003 as there were no dilutive potential ordinary shares during these years.

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MANAGEMENT DISCUSSION AND ANALYSIS

Hong Kong achieved a strong economic growth in 2004 while the global economy expanded by 4 per cent., the best since 2000. The United States, China and Japan were the main contributors to the world economic growth. Amid the remarkable recovery in market activity last year, the Group registered an almost two-fold increase in turnover to HK$1,178 million (2003 – HK$617 million).

In 2004, the Group focused on consolidating its core businesses. Additionally, the Group made several new investments in line with its long term growth strategy, including well over HK$200 million in various property projects in Hong Kong, Singapore and Japan.

However, the Group’s performance was affected by volatile securities market conditions during the year. The investments held by the Group suffered an unrealised holding loss of HK$61.3 million (2003 – gain of HK$54.9 million). As a result, the Group reported a net loss attributable to shareholders of HK$64.9 million, against a profit of HK$106 million for 2003.

Results for the year

Turnover for the year 2004 increased significantly to HK$1,178 million, which was 91 per cent. higher than the HK$617 million recorded in 2003. Turnover attributable to treasury and securities investments rose by 112 per cent. and that from corporate finance and securities broking businesses increased by 14 per cent..

Treasury and securities investments

In 2004, the Group took advantage of the improving equity market conditions to actively realise the investments, resulting in a realised gain of HK$25 million. Of this, over 54 per cent. was earned from Japanese equity market which showed the strongest performance over the year. Also, in anticipation of likely rises in interest rates, the Group took steps to adjust its investment portfolio to mitigate the likely adverse impact by realising bonds and investment funds to a total of HK$433 million (2003 – HK$218 million). However, due to volatile market conditions, the Group recorded an unrealised holding loss on other investments in securities of HK$61.3 million (2003 – gain of HK$54.9 million), representing 5.1 per cent. (2003 – 5.6 per cent.) of the total portfolio. Notwithstanding the volatility of the investment markets, the bond portfolio continued to contribute high and stable interest income to the Group.

Corporate finance and securities broking businesses

Robust local stock market continued into 2004. This benefited the Group’s securities broking business. Turnover increased by 14 per cent. to HK$65 million (2003 – HK$57 million) and a profit of HK$4.1 million (2003 – HK$4.8 million) was recorded.

Banking business

The Group’s banking business continued to generate stable income to the Group. The relative contribution of interest income and non-interest income remained broadly unchanged and accounted for approximately 58 per cent. and 42 per cent. of its turnover respectively. Non-interest income was derived mainly from banking fees and commissions, income from investments and commissions from trade bills. Banking business recorded a profit of HK$4 million (2003 – HK$4.8 million).

Property investment

In order to enhance the recurrent income source, the Group acquired certain properties for rental purpose and participated in well located property development projects in Macau, China, Singapore and Japan. During the year, the Group invested over HK$200 million in property investment.

Financial position

The Group continued to maintain a prudent and strong financial balance sheet in 2004. At the balance sheet date, total borrowings of the Group amounted to HK$209 million (2003 – HK$10 million), comprising an unsecured bank loan of HK$20 million (2003 – HK$10 million) and secured bank loans of HK$189 million (2003 – Nil), which were all denominated in Hong Kong dollars or United States dollars, repayable within one year and carried interest at floating rates. The bank loans were secured by the securities owned by the Group and its margin clients. The gearing ratio stood at a low level of 7.7 per cent. (2003 – 0.4 per cent.). Liquidity ratio measured as current assets to current liabilities remained high at approximately 3.5 to 1 (2003 – 3.9 to 1).

Taking into account the 2003 final and 2004 interim distributions made to the shareholders in a total of HK$60 million (equivalent to HK4.5 cents per share) and the net loss for the year, the net asset value of the Group slightly decreased to HK$2.7 billion (2003 – HK$2.8 billion), equivalent to HK$2.01 (2003 – HK$2.09) per share. The distributions made for the year were the same as those for 2003 and 2002.

The Group monitors the relative foreign exchange position of its assets and liabilities and allocates accordingly to minimize foreign exchange risk. When appropriate, hedging instruments including forward contracts, swap and currency loans would be used to manage the foreign exchange exposure.

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Save as aforesaid, there were no charges on the Group’s assets at the end of the year (2003 – Nil). Other than those relating to the banking operations, the Group had no material contingent liabilities outstanding (2003 – Nil).

Staff and remuneration

The Group had 161 (2003 – 135) employees as at 31st December, 2004. Total staff costs amounted to HK$57 million which was slightly lower than the HK$58 million recorded in 2003. The Group offers competitive remuneration packages to its employees. Currently, there is no share option scheme for employees.

Outlook

The Group is cautiously optimistic about the global and regional economic prospects and is confident that it would be able to take advantage of investment opportunities in Hong Kong and neighbouring countries in its pursuit to enhance shareholders’ value. The Group will continue to adopt a cautious and prudent approach in assessing new investment opportunities and look into property markets in Asia.

BUSINESS REVIEW AND PROSPECTS

Business review

The Hong Kong economy grew at an impressive rate of 8.1 per cent. in 2004, the highest rate in four years, providing firm indication that the local economy is well on an upward track following the temperate performance in the previous few years. The external trade in 2004 remained buoyant while private consumption and consumer spending increased significantly amidst improving market sentiment. Property values rebounded strongly, resulting in a drastic fall in the number of homeowners with negative equity. With economic recovery, the local unemployment rate fell steadily during the year. Closer economic ties with Mainland China also provided momentum for local economic recovery and in particular, the local economy benefited much from the Mainland Individual Traveler Scheme and the Closer Economic Partnership Arrangements (“CEPA”). However, expectations of rising interest rates, high oil prices and the fluctuating global securities markets have dampened the global economic outlook. In China, the macro-economic tightening measure is expected to have a dampening effect on an overheated economy.

Against this background, the Group recorded a consolidated loss attributable to shareholders of HK$64.9 million for the year ended 31st December, 2004, as compared to a profit of HK$106 million in 2003. The loss was mainly caused by the provisions made for the unrealised holding loss on other investments in securities totalling HK$61.3 million.

The performance of the Hong Kong economy directly affects the business turnover and performance of Lippo Securities Holdings Limited, a wholly-owned subsidiary of the Company, and its subsidiaries (the “LS Group”), which are principally engaged in underwriting, securities brokerage, corporate finance, investment advisory and other related financial services. The performance of the LS Group benefited from the active local stock market during the year.

The Macau Chinese Bank Limited (“MCB”), an 85 per cent. subsidiary of the Company, continues to be a net income contributor to the Group. The Macau economy experienced a strong recovery in 2004, and this was reflected in the booming tourist arrivals and rising property prices. Reflecting the improving economy, business turnover picked up and the quality of MCB’s loan book further improved. The convenient location of Macau will open up opportunities for MCB to extend its financial services into Mainland China, especially in the Pearl River Delta region. To prepare for the expansion, MCB has purchased a commercial building at Avenida da Praia Grande No. 101, Macau (now renamed as “The Macau Chinese Bank Building”) for use as its headquarter.

During the year, the Group increased its interest in the Convoy Group which is one of the largest independent financial planning service groups in Hong Kong. The improving local economy has helped to improve the business performance and profitability of the Convoy Group in 2004.

The Group continues to explore new market opportunities and income sources and seek potential acquisition and alliance opportunities that are in line with its long term growth strategy.

A wholly-owned subsidiary of the Company had entered into an agreement with北京經濟技術投資開發總 公司 (Beijing Economic & Technological Investment Development Corp.) and中國技術創新有限公司 (China Technology Innovation Corporation) to invest US$19.2 million to jointly develop a site located in北京 經濟技術開發區 (Beijing Economic-Technological Development Area) with a total area of approximately 50,745 square metres (the “Project”). The Project is located in the only state-level economic-technological development area in Beijing and approximately ten miles south east of Beijing city center. A number of the Fortune 500 companies and multinational corporations have presence in the neighbourhood and the Group sees significant long term potential of the Project especially in the run up to the 2008 Olympics which will be held in Beijing.

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To enhance its asset portfolio, the Group has been exploring the opportunity of acquiring quality property interests in Hong Kong and elsewhere in Asia. In December 2004, the Group completed the purchase of the entire 7th Floor of Tower One, Lippo Centre, 89 Queensway, Hong Kong for a purchase price of HK$68.3 million.

In January 2005, a wholly-owned subsidiary of the Company entered into a contract to acquire the land located at 83 Estrada de Cacilhas, Macau for redevelopment purpose for a purchase price of HK$238 million. The total site area is approximately 3,623 square metres and can be used for residential and/or commercial purpose.

In February 2005, a wholly-owned subsidiary of the Company entered into a contract to acquire the property in Singapore known as Newton Heights for redevelopment purpose for an aggregate purchase price of S$43.6 million. The property, which comprises 30 apartment units, is with a site area of approximately 3,213 square metres.

Prospects

Looking ahead, the general prospects for the Hong Kong economy for the coming year look promising with an official forecast of a 4 per cent. GDP growth in 2005. The extension of the Individual Traveler Scheme and signing of Phase 2 of the CEPA with Mainland China will provide further momentum to local economic growth. While the general prospects look good, there are some uncertainties on the global economic front, reflecting concerns over the pace of economic growth in the United States, increasing interest rate, high oil prices and slowing down of the Mainland economy.

Overall, we maintain an optimistic outlook for the Group’s business in the future. With its strong and healthy financial position, the Group is in an excellent position to benefit from the economic growth in Asia. The Group will continue to explore suitable investment opportunities, especially in the financial and investment sectors and look into properties markets in the Asian Region. Management will continue to adopt a cautious and prudent approach when assessing new investment opportunities.

DISTRIBUTIONS

The Directors have recommended the payment of final distribution of HK$40.4 million (2003 – HK$40.4 million), equivalent to HK3 cents (2003 – HK3 cents) per share, for the year ended 31st December, 2004, which will be paid on Tuesday, 28th June, 2005 to the shareholders whose names appear on the Company’s Register of Members on Friday, 10th June, 2005. Together with the interim distribution of HK$20.2 million (2003 – HK$20.2 million), equivalent to HK1.5 cents (2003 – HK1.5 cents) per share paid, total distribution for the year ended 31st December, 2004 will amount to HK$60.6 million (2003 – HK$60.6 million), equivalent to HK4.5 cents (2003 – HK4.5 cents) per share.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from Friday, 3rd June, 2005 to Friday, 10th June, 2005 (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, 2004, all transfers of shares accompanied by the relevant share certificates and transfer forms must be lodged with Tengis Limited, the Company’s Branch Share 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 Thursday, 2nd June, 2005. Warrants in respect of the final distribution will be dispatched to the shareholders on or about Tuesday, 28th June, 2005.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the year ended 31st December, 2004, there was no purchase, sale or redemption of the Company’s listed securities by the Company or any of its subsidiaries.

AUDIT COMMITTEE

The audit committee of the Company has reviewed with the management of the Company the accounting principles and practices adopted by the Group and financial reporting matters including the review of the audited financial statements for the year ended 31st December, 2004.

CODE OF BEST PRACTICE

In the opinion of the Directors, the Company has complied with the Code of Best Practice (the “Code”) as set out in Appendix 14 of the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) throughout the year ended 31st December, 2004, except that non-executive Directors (other than the two independent non-executive Directors appointed during the year with a term of two years) were not appointed for a specific term as required by paragraph 7 of the Code. Save for Dr. Mochtar Riady who is the Chairman of the Company, all the non-executive Directors are subject to retirement by rotation and re-election at the Company’s annual general meetings in accordance with the Bye-laws of the Company.

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ANNUAL REPORT

The annual report of the Company for the year ended 31st December, 2004 containing all the information required by paragraphs 45(1) to 45(3) of Appendix 16 of the Listing Rules in force prior to 31st March, 2004, which remains applicable to results announcements in respect of accounting periods commencing before 1st July, 2004 under the transitional arrangements, will be published on the Stock Exchange’s website in due course.

By Order of the Board Hongkong Chinese Limited John Lee Luen Wai Director

Hong Kong, 20th April, 2005

As at the date of this announcement, the Board of Directors of the Company comprises nine directors, of which Dr. Mochtar Riady and Mr. Leon Chan Nim Leung as non-executive Directors, Messrs. Stephen Riady, John Lee Luen Wai, Jesse Leung Nai Chau and Kor Kee Yee as executive Directors and Messrs. Albert Saychuan Cheok, Victor Yung Ha Kuk and Tsui King Fai as independent non-executive Directors.

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

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