3SBio Inc. - Interim / Quarterly Report 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)

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE, 2005

INTERIM RESULTS

The Directors of Hongkong Chinese Limited (the “Company”) announce the unaudited consolidated interim results of the Company and its subsidiaries (together, the “Group”) for the six months ended 30th June, 2005 together with the comparative figures for the corresponding period in 2004 as follows:

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

Note
Revenue
3
Cost of sales
Gross profit
Administrative expenses
Other operating expenses
Fair value changes on investment properties
Allowance for bad and doubtful debts relating to non-banking
operation
5
Net unrealised holding loss on other investments in securities
Share of results of associates
Finance costs
PROFIT/(LOSS) BEFORE TAX
6
Tax
7
PROFIT/(LOSS) FOR THE PERIOD
ATTRIBUTABLE TO:
Equity holders of the Company
Minority interests
EARNINGS/(LOSS) PER SHARE
8
Basic
Diluted
INTERIM DISTRIBUTION PER SHARE

Six months ended 30th June,
2005
2004
HK$’000
HK$’000
(restated)
617,056
762,178
(545,028)
(671,817)
72,028
90,361
(33,457)
(40,788)
(28,470)
(20,348)
46,349
375
(33,810)
–
–
(72,522)
(413)
(3,496)
(3,317)
(2,068)
18,910
(48,486)
(7,429)
(660)
11,481
(49,146)
12,313
(48,716)
(832)
(430)
11,481
(49,146)
HK cents
HK cents
0.9
(3.6)
N/A
N/A
1.5
1.5

* For identification purpose only

– 1 –

CONDENSED CONSOLIDATED BALANCE SHEET

Note
NON-CURRENT ASSETS
Fixed assets
Investment properties
Properties under development
Goodwill:
Goodwill
Negative goodwill
Interests in associates
Interests in a jointly controlled entity
Available-for-sale financial assets
Investment securities
Financial assets at fair value through profit or loss
Assets less liabilities attributable to banking operation
Deposit paid for long term investment
CURRENT ASSETS
Property held for sale
Available-for-sale financial assets
Financial assets at fair value through profit or loss
Other investments in securities
Loans and advances
Debtors, prepayments and deposits
9
Client trust bank balances
Pledged time deposits
Cash and cash equivalents
CURRENT LIABILITIES
Bank loans
Creditors, accruals and deposits received
10
Tax payable
NET CURRENT ASSETS
TOTAL ASSETS LESS CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax liabilities
CAPITAL AND RESERVES
Equity attributable to equity holders of the Company
Share capital
Reserves
Minority interests

30th June,
31st December,
2005
2004
HK$’000
HK$’000
(restated)
12,607
10,704
391,957
96,144
98,758
99,767
57,697
57,697
–
(1,144)
21,452
27,166
7,313
7,313
177,044
–
–
365,658
195,703
–
191,996
175,411
3,720
–
1,158,247
838,716
10,874
10,140
170,577
–
692,101
–
–
1,144,248
120,227
175,598
118,552
167,496
316,844
389,123
86,116
–
612,471
762,273
2,127,762
2,648,878
141,635
208,761
447,073
539,260
2,965
3,035
591,673
751,056
1,536,089
1,897,822
2,694,336
2,736,538
12,907
1,234
2,681,429
2,735,304
1,346,829
1,346,829
1,304,347
1,358,271
2,651,176
2,705,100
30,253
30,204
2,681,429
2,735,304

Note:

1. Principal accounting policies

The interim results are unaudited, condensed and have been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants. The interim results have been reviewed by the audit committee of the Company.

The accounting policies adopted in the preparation of the interim results are consistent with those adopted in the Group’s audited financial statements for the year ended 31st December, 2004, except as described below.

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The adoption of HKASs 1, 2, 7, 8, 10, 12, 14, 16, 17, 18, 19, 21, 23, 24, 27, 28, 31, 33, 34, 37, 38, HKFRS 2, HK-Int 4 and HK(SIC)-Int 15 has had no material impact on the accounting policies of the Group and the methods of computation in the Group’s interim results. The impact of adopting the other HKFRSs is summarised as follows.

(a) HKAS 32 and HKAS 39 – Financial Instruments Until 31st December, 2004, the Group classified its investments in securities into investment securities and other investments in securities, which were stated in the balance sheet at cost less any impairment losses and at fair value, respectively. Any impairment losses on investment securities and changes in fair value on other investments in securities were recognised in the profit and loss account for the period in which they arise. Loans and receivables were reported on the balance sheet at the total of principal amount outstanding and accrued interest receivable (if applicable) net of provisions for doubtful debts.
From 1st January, 2005 onwards, the Group classifies its investments into the following categories, taking into account the purpose for which the investments are acquired:
(i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading and those designated at fair value through profit or loss at inception. Derivatives are also categorised as held for trading unless they are designated as hedges. They are carried at fair value in the balance sheet. Any change in fair value shall be recognised in the profit and loss account.
(ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recognised initially at fair value and subsequently carried at amortised costs using effective interest method, less any accumulated impairment losses. If the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss shall be reversed to the extent that such reversal shall not result in a carrying amount of the loans and receivables that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of such reversal shall be recognised in the profit and loss account.

Impairment provisions for loans and receivables assessed individually are calculated using a discounted cash flow analysis for the impaired advances. Collective assessment of impairment for individually insignificant items or items where no impairment has been identified on an individual basis is made using formula-based approaches or statistical methods. Impairment provisions for loans and receivables will be presented as individually assessed and collectively assessed instead of specific provisions and general provisions. Loans and receivables are included in loans and advances and debtors, prepayments and deposits in the balance sheet.

(iii) Held-to-maturity financial assets
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. They are carried at amortised costs using effective interest method, less any accumulated impairment losses.
(iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any other categories. They are carried at fair value except for certain available-for-sale financial assets that do not have a published quoted price in an active market and whose fair value cannot be reliably measured, when they are measured at cost less any accumulated impairment losses. The impairment loss is charged to the profit and loss account for the period in which they arise.

For available-for-sale financial assets carried at fair value, any gain or loss arising from the change in fair value shall be recognised directly in equity except for impairment losses, until the financial asset is derecognised at which time the cumulative gain or loss previously recognised in equity shall be recognised in the profit and loss account.

When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity shall be removed from equity and recognised in the profit and loss account. Impairment losses recognised in the profit and loss account on equity instruments shall not be reversed through profit or loss. For debt instruments, impairment losses shall be reversed through profit or loss if the fair value of the debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised.

Interest on available-for-sale financial assets is calculated using the effective interest method and recognised in the profit and loss account and dividends are recognised in the profit and loss account when the Group’s right to receive payment is established.

The fair values of quoted financial assets are based on current bid prices. If the market for a financial asset is not active (and for unlisted financial assets), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions by reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

In accordance with the transitional provisions of HKAS 39, the Group re-designated:

(i) other investments in securities with total carrying amount of HK$950,373,000 and HK$193,875,000 into financial assets at fair value through profit or loss and available-for-sale financial assets on 1st January, 2005, respectively. There is no effect on re-measurement as the accounting policy on measurement of the Group’s other investments in securities as at 31st December, 2004 is the same as that for the financial assets at fair value through profit or loss and the available-for-sale financial assets which are carried at fair value;

– 3 –

(ii) investment securities with total carrying amount of HK$195,672,000 and HK$121,082,000 into financial assets at fair value through profit or loss and available-for-sale financial assets on 1st January, 2005, respectively, resulting in an adjustment of HK$5,062,000 debited to the opening balance of accumulated profit or loss to reflect the difference in fair value; and
(iii) the remaining investment securities with total carrying amount of HK$48,904,000 into available-for-sale financial assets which are carried at cost less any impairment losses. There is no effect on re-measurement as the accounting policy on measurement of the Group’s investment securities as at 31st December, 2004 is the same as that for available-for-sale financial assets which are carried at cost.

In accordance with the transitional provisions of HKAS 39, comparative amounts have not been restated.

(b) HKAS 40 – Investment Property

In prior periods, changes in the fair values of investment properties were dealt with as movements in the investment property revaluation reserve. If the total of this reserve was insufficient to cover a deficit, on a portfolio basis, the excess of the deficit was charged to the profit and loss account. Any subsequent revaluation surplus was credited to the profit and loss account to the extent of the deficit previously charged.

Upon the adoption of HKAS 40, gains or losses arising from changes in the fair values of investment properties are included in the profit and loss account in the period in which they arise. Any gains or losses on the retirement or disposal of an investment property are recognised in the profit and loss account in the period of the retirement or disposal.

The Group has taken advantage of the transitional provisions of HKAS 40 to adjust the effect of adopting the standard to the opening balance of accumulated profit or loss rather than restating the comparative amounts to reflect the changes retrospectively.

(c) HKFRS 3 – Business Combinations and HKAS 36 – Impairment of Assets In prior periods, goodwill/negative goodwill arising on acquisitions prior to 1st January, 2001 was eliminated against consolidated capital reserve in the year of acquisition and was not recognised in the profit and loss account until disposal or impairment of the acquired business.

Goodwill arising on acquisitions on or after 1st January, 2001 was capitalised and amortised on the straight-line basis over its estimated useful life and was subject to impairment testing when there was any indication of impairment. Negative goodwill was carried in the balance sheet and was recognised in the consolidated profit and loss account on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets, except to the extent it related to expectations of future losses and expenses that were identified in the acquisition plan and that could be measured reliably, in which case, it was recognised as income in the consolidated profit and loss account when the future losses and expenses were recognised.

Upon the adoption of HKFRS 3 and HKAS 36, goodwill arising on acquisitions is no longer amortised but subject to an annual impairment review (or more frequently if events or changes in circumstances indicate that the carrying value may be impaired). Any impairment loss recognised for goodwill is not reversed in a subsequent period.

Any excess of the Group’s interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of the acquisition of subsidiaries and associates (previously referred to as “negative goodwill”), after reassessment, is recognised immediately in the profit and loss account.

The transitional provisions of HKFRS 3 have required the Group to eliminate at 1st January, 2005 the carrying amounts of accumulated amortisation with a corresponding entry to the cost of goodwill and to derecognise the carrying amounts of negative goodwill (including that remaining in consolidated capital reserve) against accumulated profit or loss. Goodwill previously eliminated against consolidated capital reserve remains eliminated against consolidated capital reserve and is not recognised in the profit and loss account when all or part of the business to which the goodwill relates is disposed of or when a cash-generating unit to which the goodwill relates becomes impaired.

In accordance with the transitional provisions of HKFRS 3, comparative amounts have not been restated.

(d) HK(SIC)-Int 21 – Income Taxes – Recovery of Revalued Non-Depreciable Assets In prior periods, deferred tax arising on the revaluation of investment properties was recognised based on the tax rate that would be applicable upon the sale of the investment properties.

Upon the adoption of HK(SIC)-Int 21, deferred tax arising on the revaluation of the Group’s investment properties is determined depending on whether the properties will be recovered through use or through sale. The Group has determined that its investment properties will be recovered through use, and accordingly the current profits tax rate has been applied to the calculation of deferred tax.

The change has been adopted retrospectively and the comparative amounts have been restated to reflect the deferred tax liabilities incurred.

– 4 –

2. Summary of the impact of changes in accounting policies

Following the adoption of the new and revised HKFRSs, the opening balances of the following accounts were adjusted retrospectively. The details of the prior period adjustment and opening adjustments are summarised as follows:

(a) Effect on opening balance of total equity at 1st January, 2005

Effect of new policies (Increase/(Decrease)) Note Prior period adjustment: HK(SIC)-Int 21 Deferred tax arising from revaluation of investment properties 1(d) Net decrease in total equity before opening adjustments Opening adjustments: HKAS 39 Re-designated investment securities as: Available-for-sale financial assets 1(a) Financial asset at fair value through profit or loss 1(a) HKAS 40 Surplus on revaluation of investment properties 1(b) HKFRS 3 Derecognition of negative goodwill 1(c) Total effect at 1st January, 2005	Investment property Distributable revaluation reserves reserve (Note) HK$’000 HK$’000 (1,234) – (1,234) – – (5,145) – 83 (6,227) 6,227 – 1,144 (7,461) 2,309	Minority interests HK$’000 – – – – – – –	Total HK$’000 (1,234) (1,234) (5,145) 83 – 1,144 (5,152)

Note: Distributable reserves of the Group comprised of accumulated losses and other distributable reserves and all the above adjustments were made to accumulated losses.

(b) Effect on opening balance of total equity at 1st January, 2004

The adoption of the HKFRSs has had no material impact on the opening balance of total equity at 1st January, 2004.

The following tables summarise the impact on profit/(loss) and income or expenses recognised directly in equity for the six months ended 30th June, 2005 and 2004 upon the adoption of the new and revised HKFRSs. As no retrospective adjustments have been made for the adoption of HKASs 39, 40 and HKFRS 3, the amounts shown for the six months ended 30th June, 2004 may not be comparable to the amounts shown for the current period.

Effect of new policies (Increase/(Decrease)) Note Effect on profit/(loss) for the period: HKAS 40 Fair value changes on investment properties 1(b) HKFRS 3 Discontinuation of amortisation of goodwill/recognition of negative goodwill 1(c) HK(SIC)-Int 21 Deferred tax arising from revaluation of investment properties 1(d) Total effect for the period Effect on earnings per share: Basic Diluted	Equity holders of the Company *HK$’000* 46,349 1,463 (7,571 ) 40,241 *HK cents* 3.0 N/A	2005 Minority interests *HK$’000* – – – –	Six months ended 30th June, Equity holders of Total the Company *HK$’000* HK$’000 46,349 – 1,463 – (7,571 ) – 40,241 – HK cents N/A N/A	2004 Minority interests HK$’000 – – – –	Total HK$’000 – – – –

– 5 –

(d) Effect on income or expenses recognised directly in equity for the six months ended 30th June, 2005 and 2004

Six months ended 30th June,

Effect of new policies (Increase/(Decrease)) Note HKAS 39 Fair value changes on available- for-sale financial assets 1(a) HKAS 40 Fair value changes on investment properties no longer recognised in reserves 1(b) HK (SIC)-Int 21 Deferred tax arising from revaluation of investment properties 1(d) Total effect for the period	Equity holders of the Company *HK$’000* (18,786 ) (46,349 ) – (65,135 )	2005 Minority interests *HK$’000* – – – –	Total *HK$’000* (18,786 ) (46,349 ) – (65,135 )	Equity holders of the Company HK$’000 – – (459 ) (459 )	2004 Minority interests HK$’000 – – – –	Total HK$’000 – – (459 ) (459 )

3. Revenue/Turnover

All revenue for the period represents turnover generated from the principal activities of the Group, comprising gross rental income, gross income on treasury investment which includes interest income on bank deposits and held-to-maturity securities, gross income from securities investment which includes gross proceeds from sales of investments, dividend income and related interest income, gross income from underwriting and securities broking, interest and other income from money lending business, 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 Other	Six months ended 2005 *HK$’000* 4,291 7,680 569,848 27,260 6,884 1,093 617,056	30th June, 2004 HK$’000 539 6,276 703,688 36,155 9,723 5,797
		762,178

Turnover attributable to banking business represents turnover generated from The Macau Chinese Bank Limited (“MCB”), 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/(expense) and other revenues/(expense)	Six months ended 2005 *HK$’000* 6,822 (786) 907 (59) 6,884	30th June, 2004 HK$’000 5,356 (868 ) 4,577 658 9,723

4. Segment information

Segment information is presented by way of business segment as the primary reporting format. Descriptions of the business segments are as follows:

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

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

(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 provisions of commercial and retail banking services;

(f) the information technology segment engages in the development of computer hardware and software; and
(g) the “other” segment comprises principally money lending and the provision of fund management service.

– 6 –

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

Revenue External Inter-segment Total Segment results Unallocated corporate expenses Share of results of associates Profit before tax Tax Profit for the period Revenue External Inter-segment Total Segment results Unallocated corporate expenses Share of results of associates Loss before tax Tax Loss for the period	Property investment and development *HK$’000* 4,291 – 4,291 46,850 – Property investment and development HK$’000 539 – 539 (927 ) –	Treasury investment *HK$’000* 7,680 631 8,311 7,624 – Treasury investment HK$’000 6,276 507 6,783 6,193 –	Securities investment *HK$’000* 569,848 – 569,848 29,554 – Securities investment HK$’000 703,688 – 703,688 (28,379 ) –	Six months ended 30th June, 2005 Corporate finance and securities Banking Information broking business technology Other *HK$’000* *HK$’000* *HK$’000* *HK$’000* 27,260 6,884 – 1,093 238 – 770 – 27,498 6,884 770 1,093 (33,437 ) 1,901 (2,248 ) (7,980 ) – – – (413 ) Six months ended 30th June, 2004 (restated) Corporate finance and securities Banking Information broking business technology Other HK$’000 HK$’000 HK$’000 HK$’000 36,155 9,723 – 5,797 1,158 – – 163 37,313 9,723 – 5,960 2,579 3,809 (6,301 ) (1,326 ) – – (2,050 ) (1,446 )	Inter- segment elimination Consolidated *HK$’000* *HK$’000* – 617,056 (1,639 ) – (1,639 ) 617,056 (1,220 ) 41,044 (21,721 ) – (413 ) 18,910 (7,429) 11,481 Inter- segment elimination Consolidated HK$’000 HK$’000 – 762,178 (1,828 ) – (1,828 ) 762,178 – (24,352 ) (20,638 ) – (3,496) (48,486 ) (660) (49,146 )

5. Allowance for bad and doubtful debts relating to non-banking operation

Amount represents specific provision made for a loan advanced to a margin client, which has been secured by certain shares in a listed company and a guarantee provided by a director of the client. Currently, both the client and the listed company are under liquidation or provisional liquidation and that the probability for recovery of the loan is uncertain.

– 7 –

6. Profit/(Loss) before tax

Profit/(Loss) before tax is arrived at after crediting/(charging):

	Six months ended 30th June,	Six months ended 30th June,
	2005	2004
	*HK$’000*	HK$’000
Dividend income:
Listed investments	14,992	6,152
Unlisted investments	625	88
Interest income_(Note(a))_:
Listed investments	9,049	10,315
Unlisted investments	1,328	969
Other	8,022	6,276
Net realised and unrealised holding gain/(loss) on financial assets at fair
value through profit or loss:
Listed	20,112	–
Unlisted	1,166	–
Net realised and unrealised holding gain/(loss) on other investments in
securities:
Listed	–	(48,167)
Unlisted	–	2,092
Net realised loss on disposal of unlisted available-for-sale financial assets	(601)	–
Other investment income:
Unlisted	760	3,602
Depreciation:
Banking operation	(393)	(392 )
Other	(1,417)	(1,070)
Amortisation of goodwill arising on acquisition of subsidiaries_(Note(b))_	–	(2,182)
Provision for impairment losses:
Available-for-sale financial assets	(1,418)	–
Associates	(6,987)	–

Note:

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

(b) The amortisation of goodwill arising on acquisition of subsidiaries for the six months ended 30th June, 2004 is included under “Other operating expenses” on the face of the condensed consolidated profit and loss account.

7. Tax

Charge for the period: Overseas Deferred: Hong Kong Overseas Total tax charge for the period	Six months ended 2005 *HK$’000* 1,396 2,762 3,271 7,429	30th June, 2004 HK$’000 (restated) 660 – –
		660

No provision for Hong Kong profits tax has been made as the Group has available tax losses brought forward from prior periods to offset the estimated assessable profits generated during the period. Overseas taxes have been calculated on the estimated assessable profits for the period at the tax rates prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Share of tax attributable to associates amounting to HK$610,000 for the six months ended 30th June, 2004 is included in “Share of results of associates” on the face of the condensed consolidated profit and loss account.

8. Earnings/(Loss) per share

(a) Basic earnings/(loss) per share

Basic earnings/(loss) per share is calculated based on (i) the consolidated profit attributable to equity holders of the Company of HK$12,313,000 (2004 – loss of HK$48,716,000); and (ii) the weighted average number of 1,346,829,000 shares (2004 – 1,346,829,000 shares) in issue during the period.

(b) Diluted earnings/(loss) per share

No diluted earnings/(loss) per share is presented for the periods ended 30th June, 2005 and 2004 as there were no dilutive potential ordinary shares during these periods.

9. Debtors, prepayments and deposits

Included in the balances are trade debtors with the aged analysis as follows:

Outstanding balances with ages: Repayable on demand Within 30 days	30th June, 31st 2005 *HK$’000* 32,995 61,746 94,741	December, 2004 HK$’000 32,835 95,347
		128,182

– 8 –

Trading terms with customers are either on cash basis or on credit. For those customers who trade on credit, a credit period is allowed according to relevant business practice. Credit limits are set for customers. The Group seeks to maintain tight control over its outstanding receivables in order to minimise credit risk. Overdue balances are regularly reviewed by senior management.

10. Creditors, accruals and deposits received

Included in the balances are trade creditors with the aged analysis as follows:

Creditors, accruals and deposits received Included in the balances are trade creditors with the aged analysis as follows:
Outstanding balances with ages: Repayable on demand Within 30 days	30th June, 31st 2005 *HK$’000* 331,116 86,046 417,162	December, 2004 HK$’000 486,189 21,217
		507,406

The outstanding balances that are repayable on demand include client payable relating to cash balances held on trust for the customers in respect of the Group’s securities broking business. As at 30th June, 2005, total client trust bank balances amounted to HK$316,844,000 (31st December, 2004 – HK$389,123,000).

MANAGEMENT DISCUSSION AND ANALYSIS

After an extended economic boom in 2004, Hong Kong’s economic outlook for 2005 still seems robust though less rosy. Meanwhile, vibrant tourist growth, buoyant property prices, strong pick-up in local consumption helped counteract the effects of rising interest rates. The Group has been taking positive steps to explore the overseas investment markets and diversified into property investment, in addition to its financial services businesses. By the first half of 2005, the Group’s property-related assets have been gradually increased to 22 per cent. (31st December, 2004 – 12 per cent.) of the total assets.

Taking advantage of the continuing increases in property prices in Hong Kong as well as the East Asia, the Group achieved a net profit attributable to shareholders of HK$12.3 million for the six months ended 30th June, 2005 (2004 – loss of HK$48.7 million).

Results for the period

Turnover for the first six months of 2005 totalled HK$617 million, which was 19 per cent. lower than the HK$762 million recorded for the same period of 2004. The decrease in turnover was mainly attributed to the decrease in turnover derived from securities investment as the global investment market increased its volatility due to interest rate rises and soaring oil prices.

Treasury and securities investments

Following the commencement in the cycle of interest rate hikes since the year of 2004, the investment markets in the first half of 2005 were relatively volatile than the same period of last year. Turnover attributable to treasury and securities investments amounted to HK$578 million (2004 – HK$710 million). Despite the lower turnover, the Group achieved a satisfactory return from this segment, contributing a profit of HK$37 million (2004 – loss of HK$22 million). Following the adoption of the new accounting standards in 2005, certain investment gain and loss arising from revaluation were recognised directly in equity. These investments are held for capital appreciation which when, on disposal, such gain or loss will be released to the profit and loss account. During the current period, a net loss of HK$19 million arising from these investments was charged to equity.

Corporate finance and securities broking

Despite the continued pick up in domestic economy, the Hong Kong market for securities broking business remained competitive in the first half of 2005 due to the decreasing profit margins and high operating costs. The Group’s corporate finance and securities broking business has been directly affected. Turnover generated from the corporate finance and securities broking segment for the period was lower, amounting to HK$27 million (2004 – HK$36 million). Taking into account a provision for a loan made to a margin client of HK$34 million, the segment resulted in a net loss of HK$33 million (2004 – profit of HK$2.6 million). Recently, the Group has successfully launched the internet trading system that is expected to help reducing the running costs in the long run.

Banking businesses

The segment continually contributed stable and recurrent income to the Group. Interest income earned by the bank was 27 per cent. higher than that recorded in the last corresponding period as a result of rising interest rates. The bank registered a loan growth of 7.3 per cent. during the period. Management continued to lend conservatively and strive to improve the asset quality. Against this, the commission income decreased during the period and this resulted in a profit derived from this segment of HK$1.9 million for the period (2004 – HK$3.8 million).

Property investment and development

In capturing investment opportunities under the continuing surges in property prices in Macau and East Asia, the Group has been actively making strategic properties investments. In particular, looking for long term

– 9 –

capital appreciation, the Group completed the acquisition of a parcel of land in Macau with a site area of approximately 39,000 square feet in April 2005. The new floor at Lippo Centre, Hong Kong acquired in the second half of last year has contributed rental income to the Group during the period. In addition, the Group has participated in well-located property development projects in China, Singapore and Japan. Benefited from the booming property markets in the region, the Group registered a revaluation gain of HK$46 million during the period. Following the adoption of the revised accounting standards in 2005, such gain was recognised in the profit and loss account.

In June 2005, the Group committed to invest up to HK$1.45 billion in a property fund with the investment objectives of investing in real estate in the East Asia. With the on-going improving economic environment and structural reforms in the East Asia, it is expected that the prospect for real estate investment in the East Asia is encouraging in the coming future. As at 30th June, 2005, no investment has yet been made by the property fund.

Financial position

As at 30th June, 2005, the Group’s total assets slightly reduced to HK$3.3 billion (31st December, 2004 – HK$3.5 billion). Notwithstanding the reduction in total assets, the Group’s financial position remained strong and current ratio (measured as current assets to current liabilities) rose to 3.6 to 1 (31st December, 2004 – 3.5 to 1).

During the period, the Group reduced its investment portfolio by HK$0.3 billion and invested the amount in the property-related assets. At the balance sheet date, the Group maintained a total investment portfolio (excluding property-related assets) of HK$1.0 billion (31st December, 2004 – HK$1.3 billion), comprising debt securities of HK$0.2 billion (31st December, 2004 – HK$0.4 billion), equity securities of HK$0.5 billion (31st December, 2004 – HK$0.4 billion) and investment funds of HK$0.3 billion (31st December, 2004 – HK$0.5 billion). On the other hand, property-related assets increased to HK$0.7 billion (31st December, 2004 – HK$0.4 billion).

At the end of June 2005, total bank loans decreased significantly to HK$142 million (31st December, 2004 – HK$209 million), of which secured and unsecured portions amounted to HK$132 million (31st December, 2004 – HK$189 million) and HK$10 million (31st December, 2004 – HK$20 million), respectively. The loans were all denominated in Hong Kong dollars or United States dollars, repayable within one year and carried interest at floating rates. The secured bank loans were secured by certain securities and time deposits owned by the Group and certain securities owned by its margin clients. Gearing ratio (measured as total borrowings to shareholders’ funds) remained at a very low level of 5.3 per cent. (31st December, 2004 – 7.7 per cent.). Taking into account the 2004 final distribution of HK$0.03 per share made to the shareholders in June 2005, the net asset value of the Group reduced slightly to HK$2.65 billion (31st December, 2004 – HK$2.71 billion), equivalent to HK$1.97 (31st December, 2004 – HK$2.01) per share.

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.

Save as aforesaid, there were no charges on the Group’s assets at the end of the period (31st December, 2004 – Nil). Other than those arising from the normal course of the Group’s banking operation, it had no material contingent liabilities outstanding (31st December, 2004 – Nil).

Changes in accounting policies

The Group adopted the new and revised accounting standards which came into effect for accounting period commencing on 1st January, 2005. The resulting changes in accounting treatment and presentation of various profit and loss and balance sheet items may render certain comparative figures not strictly comparable. Details of the changes and the summary of the effect of the changes are described in the Notes 1 and 2 to the interim results.

Staff and remuneration

The Group had approximately 168 employees as at 30th June, 2005 (2004 – 163 employees). Total staff costs (including directors’ emoluments) amounted to HK$24 million which was 28 per cent. lower than the HK$34 million recorded in last corresponding period. The Group ensures that its employees are offered competitive remuneration packages. Currently, there are no share option schemes for its employees.

Outlook

The global economy has been rather resilient in absorbing the impacts from the soaring oil prices and the rising interest rates. The growth impetus continues to depend on the developments in the United States and Mainland China. Operating environment is still challenging. While dedicating to improve internal operational efficiencies, the Group will continue to refine its existing core businesses and capture new investment opportunities with long-term growth potential. The Group is cautiously optimistic about the global and regional economic prospects in the future year. Given its own strong financial position, the Group is confident to take advantage of any strategic opportunities in pursuit of enhancing shareholders’ value.

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BUSINESS REVIEW AND PROSPECTS Business review

The Hong Kong economy continued to improve in the first half of 2005. GDP grew solidly, underpinned by continuing strong domestic consumption. Unemployment rate fell steadily. Rising business and consumer confidence provided a strong momentum to the local economic growth. The local economy also benefited much from the Mainland Individual Traveler Scheme and the Closer Economic Partnership Arrangements (“CEPA”). According to the figures recently released by the Government, the local GDP growth in the second quarter of 2005 was 6.8 per cent. while the GDP growth was 6.5 per cent. in the first half of 2005. However, rising interest rates and surging oil prices have dampened the global economic outlook. In China, the macro-economic tightening measures are expected to have a dampening effect on an overheated economy.

The Group recorded an unaudited consolidated profit attributable to equity holders of HK$12.3 million for the six months ended 30th June, 2005 compared to a loss of HK$48.7 million in the first six months of 2004.

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 continued to grow firmly in the first half of 2005. The improving economy has enabled MCB’s business turnover to pick up and the quality of its loan book to further improve. Macau’s strategic location will open opportunities for MCB to extend its financial services into Mainland China, especially in the Pearl River Delta region. The renovation of The Macau Chinese Bank Building which will be the new headquarters of MCB, is expected to be completed soon and be opened within the second half of this year.

The Group has a 34.34 per cent. 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 the first half of 2005.

The local stock market performed well in the first half of 2005. However, the securities brokerage business in Hong Kong remains competitive due to decreasing profit margin and high operating costs. This affected the performance of Lippo Securities Holdings Limited, a wholly-owned subsidiary of the Company, and its subsidiaries (“LSL Group”), which are principally engaged in underwriting, securities brokerage, corporate finance, investment advisory and other related financial services. Recently, the LSL Group has successfully launched the internet trading system which will help its business in the long run.

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

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$68.34 million.

In April 2005, a wholly-owned subsidiary of the Company completed the acquisition of the land (with a site area of approximately 39,000 square feet) located at 83 Estrada de Cacilhas, Macau at a purchase price of HK$238 million.

As announced earlier, a wholly-owned subsidiary of the Company has entered into contract to invest, as a founding limited partner, up to HK$1.45 billion in Lippo ASM Asia Property LP (“LAAP”), a limited partnership recently established, with the investment objective of investing in real estate in the East Asia region, in particular in Singapore, Malaysia, Thailand, Indonesia, China (including Hong Kong and Macau) and Japan. It is intended that LAAP will seek long-term capital growth through a well-diversified portfolio of investments in income producing property projects including commercial and residential usages, direct investments in high potential properties and green field development projects as well as listed and/or unlisted equity, bonds and/or equity equivalent securities of companies invested predominantly in real estate. Other sophisticated professional investors will be invited to invest, as additional limited partners, in LAAP up to its maximum fund size of HK$3.5 billion. The Directors consider that participation in LAAP will provide an effective medium for the Group to invest and capture business opportunities in the Asian property markets. The addition of prospective limited partners as co-investors will increase LAAP’s ability to network and tackle larger projects.

Prospects

The general prospects for the Hong Kong economy for the remainder of 2005 look promising. A continuing pick up in consumer spending and return of investor confidence are expected to support the local economy during the rest of the year. The grand opening of the Hong Kong Disneyland, extension of the Mainland Individual Traveler Scheme and implementation of Phase 2 of CEPA are expected to provide further momentum to local economic growth. While the general prospects look good, there are some uncertainties on the global economic front, in particular, concerns about the pace of economic growth in the United States, rising interest rates, high oil prices and slowing down of the Mainland economy.

Overall, we see an optimistic outlook for the Group’s business. 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

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explore suitable investment opportunities, especially in the financial and investment sectors and look into property markets in the Asian Region. Management will continue to adopt a cautious and prudent approach when assessing new investment opportunities.

INTERIM DISTRIBUTION

The Directors have resolved to declare the payment of an interim distribution of HK1.5 cents (2004 – HK1.5 cents) per share for the six months ended 30th June, 2005, which will be paid on Friday, 21st October, 2005 to the shareholders whose names appear on the Company’s Register of Members on Friday, 14th October, 2005.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from Friday, 7th October, 2005 to Friday, 14th October, 2005 (both dates inclusive) during which period no transfers of shares will be registered. In order to qualify for the interim distribution for the six months ended 30th June, 2005, 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, 6th October, 2005. Warrants in respect of the interim distribution will be dispatched to the shareholders on or about Friday, 21st October, 2005.

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

During the six months ended 30th June, 2005, 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 unaudited interim financial statements for the six months ended 30th June, 2005.

CODE ON CORPORATE GOVERNANCE PRACTICES

The Company has always recognised the importance of shareholders’ transparency and accountability. The Directors believe that shareholders can maximise their benefits from good corporate governance. Therefore, the Company continuously reviews its corporate governance framework to ensure that it aligns with generally acceptable practices and standards.

During the six months ended 30th June, 2005, the Company has met the code provisions (those applicable to accounting periods commencing on or after 1st January, 2005) set out in the Code on Corporate Governance Practices (the “Code”) contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, except for the following deviations from code provisions A.4.1 and A.4.2:

(i) Not all non-executive Directors (other than two independent non-executive Directors appointed in September 2004 with a term of two years) were appointed for a specific term as required by the Code. However, they are subject to retirement by rotation and re-election at the Company’s annual general meetings in accordance with the Company’s Bye-laws, save for Dr. Mochtar Riady who is also the Chairman of the Company, was not subject to retirement by rotation and re-election at the Company’s last annual general meeting held on 3rd June, 2005 (“2005 AGM”).
(ii) Prior to the amendment of the Company’s Bye-laws in the 2005 AGM, Directors were not required to retire by rotation at least once every three years. According to the Company’s existing Bye-laws, any director appointed to fill a casual vacancy shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election at that meeting.

To comply with the Code, discussions will be made with the non-executive Directors about their terms of appointment. The Company’s Bye-laws have been amended on 3rd June, 2005 to provide, inter alia, that every director shall be subject to retirement by rotation at least once every three years. It is intended that relevant amendment will be made to the Company’s Bye-laws in order that all directors appointed to fill a casual vacancy should be subject to election by shareholders at the first general meeting after their appointment.

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

Hong Kong, 21st September, 2005

As at the date of this announcement, the Board of Directors of the Company comprises eight directors, of which Dr. Mochtar Riady (Chairman) and Mr. Leon Chan Nim Leung as non-executive Directors, Messrs. Stephen Riady (Chief Executive Officer), John Lee Luen Wai 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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