Guoco Group Limited — Annual Report 2011

Jun 24, 2011

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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FAR EAST HOTELS AND ENTERTAINMENT LIMITED 遠東酒店實業有限公司

(Incorporated in Hong Kong with limited liability) (Stock Code: 0037)

Announcement Final Results For The Year Ended 31 March 2011

RESULTS

The Board of Directors (the “Board”) of Far East Hotels And Entertainment Limited (the “Company”) announces that the audited consolidated financial results of the Company and its subsidiaries (the “Group”) for the year ended 31 March 2011 are set out as follows:

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31st March 2011

		2011	2010
	Notes	HK$	HK$
Revenue		30,955,911	26,938,036
Cost of sales		(32,327,871)	(30,262,380)
Gross loss		(1,371,960)	(3,324,344)
Other gains and losses		1,814,632	5,019,769
Increase in fair value of investment properties		20,885,416	25,804,748
Administrative expenses		(15,882,972)	(16,122,951)
Finance costs	3	(1,440,157)	(1,632,787)
Share of results of associates		609,767	838,587
Share of result of a jointly controlled entity		1,265,150	(64,492)
Profit before taxation		5,879,876	10,518,530
Taxation	4	(499,194)	(1,806,692)
Profit for the year attributable to owners
of the Company		5,380,682	8,711,838
Other comprehensive income (expense) for	the year
Exchange differences arising on translation
of foreign operations		645,283	(110,446)
Total comprehensive income for the year
attributable to owners of the Company		6,025,965	8,601,392
EARNINGS PER SHARE	5	Cents	Cents
Basic		1.10	1.78
Diluted		1.10	1.78

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION	CONSOLIDATED STATEMENT OF FINANCIAL POSITION	CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31st March 2011		31st March,	31st March,	1st April,
		2011	2010	2009
	Notes	HK$	HK$	HK$
			(restated)	(restated)
Non-current assets
Property, plant and equipment		90,897,768	95,795,688	102,658,087
Investment properties		66,479,120	99,881,420	104,022,140
Interests in associates		1,174,741	1,764,974	1,926,387
Interest in a jointly controlled entity		1,830,336	565,186	-
Loan to a jointly controlled entity		8,706,948	8,432,315	-
Available-for-sale investments		159,188,314	159,188,314	159,188,314
Paintings		4,220,000	4,220,000	3,800,000
		332,497,227	369,847,897	371,594,928
Curent assets
Held-for-trading investments		16,849,965	13,956,410	10,195,070
Inventories		503,829	507,469	414,450
Trade and other receivables	7	1,021,965	305,493	3,407,945
Deposits and prepayment		1,481,896	1,990,008	2,506,804
Deposits for acquisition of properties		-	-	4,844,170
Amount due from an associate		813,562	203,562	203,562
Amount due from a related company		-	-	420,716
Pledged bank deposits		2,118,000	2,135,306	2,132,323
Bank balances and cash		8,865,596	4,145,215	2,040,796
		31,654,813	23,243,463	26,165,836
Investment property held for sale		20,500,000	-	-
		52,154,813	23,243,463	26,165,836
Current liabilities
Trade and other payables	8	8,030,609	9,635,241	7,305,296
Receipt in advance		4,252,190	1,710,991	1,454,053
Rental deposits received		2,722,110	1,754,715	1,699,861
Amounts due to directors		-	-	370,000
Amounts due to associates		823,381	1,200,381	385,381
Amounts due to related companies		592,156	434,516	315,192
Amount due to a non-controlling
shareholder		3,977,205	4,039,599	3,344,671
Provision for onerous contracts		-	-	3,706,000
Bank borrowings - due within one year		12,075,795	9,443,212	11,560,210
Financial liabilities at fair value
through profit or loss		-	-	540,425
		32,473,446	28,218,655	30,681,089
Deposit received for investment property
held for sale		800,000	-	-
		33,273,446	28,218,655	30,681,089
Net current assets (liabilities)		18,881,367	(4,975,192)	(4,515,253)
		351,378,594	364,872,705	367,079,675

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued) As at 31st March 2011 31st March, 31st March, 2011 2010 Notes HK$ HK$ (restated) Capital and reserves Share capital 9 48,884,268 48,884,268 Reserves 253,411,365 247,385,400 302,295,633 296,269,668 Non-current liabilities Deferred taxation 8,696,948 8,197,754 Provision for long service payments 2,055,013 2,055,013 Bank borrowings - due after one year 38,331,000 58,350,270 49,082,961 68,603,037 351,378,594 364,872,705	1st April, 2009 HK$ (restated) 48,884,268 237,350,345
	286,234,613
	6,391,062 2,055,013 72,398,987
	80,845,062
	367,079,675

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Notes

1. Application of New and Revised Hong Kong Financial Reporting Standards

In the current year, the Group has applied the following new and revised standards, amendments and interpretations ("new and revised HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA").

HKFRSs (Amendments)	Improvements to HKFRSs issued in 2009
HKFRSs (Amendments)	Amendments to HKFRS 5 as part of Improvements to
	HKFRSs issued in 2008
HKFRS 2 (Amendments)	Group Cash-settled Share-based Payment
	Transactions
HKFRS 3 (revised in 2008)	Business Combinations
HKAS 27 (revised in 2008)	Consolidated and Separate Financial Statements
HKAS 39 (Amendments)	Eligible Hedged Items
HK(IFRIC) - Int 17	Distributions of Non-cash Assets to Owners
HK - Int 5	Presentation of Financial Statements - Classification
	by the Borrower of a Term Loan that Contains a
	Repayment on Demand Clause

Except as disclosed below, the adoption of the new and revised HKFRSs in the current year has had no material effect on the consolidated financial statements of the Group for the current or prior accounting periods.

Amendments to HKAS 17

As part of the improvements to HKFRSs issued in 2009, HKAS 17 Leases has been amended in relation to the classification of leasehold land. Before the amendments to HKAS 17, the Group was required to classify leasehold land as operating leases and to present leasehold land as prepaid lease payments in the consolidated statement of financial position. The amendments to HKAS 17 have removed such a requirement. The amendments require that the classification of leasehold land should be based on the general principles set out in HKAS 17, that is, whether or not substantially all the risks and rewards incidental to ownership of a leased asset have been transferred to the lessee.

In accordance with the transitional provisions set out in the amendments to HKAS 17, the Group reassessed the classification of unexpired leasehold land as at 1st April 2010 based on information that existed at the inception of the leases. Leasehold land that qualifies for finance lease classification has been reclassified from prepaid lease payments to property, plant, and equipment retrospectively. As a result of the reclassification of prepaid lease payments with pervious carrying amounts of HK$1,029,464 and HK$1,001,448 as at 1st April 2009 and 31st March 2010 respectively to property, plant and equipment, the carrying amounts of property, plant and equipment are increased by the same amount from HK$101,628,623 and HK$94,794,240 to HK$102,658,087 and HK$95,795,688 as at 1st April, 2009 and 31st March, 2010 respectively. The carrying amount of HK$973,432 of such leasehold land at 31st March, 2011 that qualifies for finance lease classification has been included in property, plant and equipment. The application of the amendments to HKAS 17 has had no impact on the reported profit or loss for the current and prior years.

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Hong Kong Interpretation 5

Hong Kong Interpretation 5 "Presentation of Financial Statements - Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause" ("HK Int 5") clarifies that term loans that include a clause that gives the lender the unconditional right to call the loans at any time ("repayment on demand clause") should be classified by the borrower as current liabilities. In the past, the classification of such term loans were determined based on the agreed scheduled repayment dates set out in the loan agreements. The Group has applied HK Int 5 for the first time in the current year. Hong Kong Interpretation 5 requires retrospective application.

The Group did not, as at the end of the current and previous reporting periods, have any non-current bank loans that will be demanded for immediate repayment and therefore reclassification of non-current bank loans to current liabilities is not required. The application of HK Int 5 has had no impact on the reported profit or loss for the current and prior years.

The Group has not early applied the new and revised standards, amendments or interpretations hat have been issued but are not yet effective.

HKFRS 9

HKFRS 9 "Financial Instruments" which was issued in November 2009 introduces new requirements for the classification and measurement of financial assets. HKFRS 9 Financial Instruments (as revised in November 2010) adds requirements for financial liabilities and for derecognition.

• Under HKFRS 9, all recognised financial assets that are within the scope of HKAS 39 "Financial Instruments: Recognition and Measurement" are subsequently measured at either amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

• In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under HKFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. Previously, under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.

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HKFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

The directors anticipate that the application of HKFRS 9 may have an impact on measurement and classification of the Group’s available-for-sale investments, which will be measured at fair value. However, it is not practicable to provide a reasonable estimate of that effect until a detail review has been completed.

Amendment to HKAS 12

The amendments to HKAS 12 "Deferred Tax: Recovery of Underlying Assets" mainly deal with the measurement of deferred tax for investment properties that are measured using the fair value model in accordance with HKAS 40 "Investment Property". Based on the amendments, for the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties measured using the fair value model, the carrying amounts of the investment properties are presumed to be recovered through sale, unless the presumption is rebutted in certain circumstances. The directors of the Company anticipate that the application of the amendments to HKAS 12 may have a significant impact on deferred tax recognised for investment properties that are measured using the fair value model. Had the amendments been adopted for the year ended 31st March, 2011 with the presumption to recover through sale, the deferred tax liabilities in respect of the revaluation on investment properties would have been eliminated. The profit for the current year and prior year would have been increased. In addition, the Group's share of result of and the interest in the jointly controlled entity will also be increased due to the elimination of deferred tax impact in respect of revaluation on the investment property of the jointly controlled entity.

Except as disclosed above, the directors of the Company anticipate that the application of other new and revised standards, amendments or interpretations will have no material impact on the consolidated financial statements to the Group.

2. Segment information

The Group's operating and reportable segments are as follows:

1. Hotel operation in Hong Kong

2. Hotel operation and property letting in the People's Republic of China, excluding Hong Kong ("PRC")

3. Property investment in Hong Kong

4. Securities investment and trading

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The following is an analysis of the Group's revenue and profit (loss) by operating segments:

Hotel Hotel operation operation in and property Hong Kong letting in PRC HK$ HK$ 2011 Revenue 17,064,613 13,891,298 Segment profit (loss) 1,856,330 (2,492,990) Unallocated gains and losses Unallocated expenses Unallocated finance costs Share of results of associates Profit before taxation Taxation Profit for the year 2010 Revenue 15,882,688 10,741,671 Segment profit (loss) 648,258 (4,046,439) Unallocated gains and losses Unallocated expenses Unallocated finance costs Share of results of associates Profit before taxation Taxation Profit for the year Geographical information Hong Kong PRC	Property Securities investment in investment Hong Kong and trading HK$ HK$ - - 21,374,691 985,030 313,677 - 25,168,302 4,654,532 Revenue from external customers 2011 2010 HK$ HK$ 17,064,613 16,196,365 13,891,298 10,741,671 30,955,911 26,938,036	Total HK$ 30,955,911
		21,723,061 4,499 (15,433,613) (1,023,838) 609,767
		5,879,876 (499,194)
		5,380,682
		26,938,036
		26,424,653 302,083 (16,122,951) (923,842) 838,587
		10,518,530 (1,806,692)
		8,711,838

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3. Finance costs

Interests on bank borrowings: Wholly repayable within five years Not wholly repayable within five years	2011 2010 HK$ HK$ 784,951 140,612 655,206 1,492,175 1,440,157 1,632,787

4. Taxation

Tax charge for both years represents deferred tax.

No provision for Hong Kong Profits Tax is required as the individual companies comprising the Group either incurred a loss or has tax losses to offset the assessable profits.

No provision for PRC Enterprise income tax is required as the subsidiary operating in the PRC did not have any assessable profits for both years.

5. Earnings per share

The calculation of basic and diluted earnings per share is based on the profit for the year of HK$5,380,682 (2010: HK$8,711,838) and the number of shares as calculated below.

Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares from share options Weighted average number of ordinary shares for the purpose of diluted earnings per share	2011 488,842,675 1,357 488,844,032	2010 488,842,675 7,926
		488,850,601

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6 . Profit before taxation

Profit before taxation has been arrived at after charging: Depreciation of property, plant and equipment Auditor's remuneration Directors' remuneration & other staff costs Salaries, bonus and allowances Retirement benefits cost Share-based payment expenses Operating lease rentals in respect of rental premises Share of taxation of associates (included in share of results of associates) Share of taxation of a jointly controlled entity (included in share of result of a jointly controlled entity) Cost of inventories recognised as an expense and crediting: Net rental income from properties	2011 HK$ 8,482,321 978,953	2011 HK$ 8,482,321 978,953	2010 HK$ (restated) 8,382,258 903,000
	11,766,922 884,809 -		12,019,337 754,691 1,433,663
	12,651,731 5,920,259 121,545 305,216 3,894,564 3,625,181		14,207,691 5,813,912 166,260 - 3,884,626 1,481,722

7. Trade and other receivables

The Group allows an average credit period of not more than 30 days to travel agents and corporate customers.

The following is an aged analysis of trade debtors based on invoice date:

0 - 30 days 31 - 60 days Over 60 days	2011 2010 HK$ HK$ 87,512 129,927 8,408 2,137 21,317 19,025 117,237 151,089 THE GROUP

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8. Trade and other payables

The following is an aged analysis of trade creditors based on invoice date:

0 - 30 days 31 - 60 days Over 60 days Share capital Authorised: 750,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 488,842,675 ordinary shares of HK$0.10 each		2011 2010 HK$ HK$ 442,736 533,148 551,488 685,786 3,552,012 3,564,693 4,546,236 4,783,627 THE GROUP 2011 2010 HK$ HK$ 75,000,000 75,000,000 48,884,268 48,884,268	2011 2010 HK$ HK$ 442,736 533,148 551,488 685,786 3,552,012 3,564,693 4,546,236 4,783,627 THE GROUP 2011 2010 HK$ HK$ 75,000,000 75,000,000 48,884,268 48,884,268	2011 2010 HK$ HK$ 442,736 533,148 551,488 685,786 3,552,012 3,564,693 4,546,236 4,783,627 THE GROUP 2011 2010 HK$ HK$ 75,000,000 75,000,000 48,884,268 48,884,268
		4,546,236		4,783,627
		2011 HK$ 75,000,000 48,884,268		2010 HK$ 75,000,000
				48,884,268

9. Share capital

DIVIDENDS

The Board does not recommend the payment of any dividend for the year.

REVIEW OF OPERATIONS AND PROSPECTS

The overall turnover of Cheung Chau Warwick Hotel has increased by 7% compared with the last corresponding year. The room revenue has increased by 19% and the food and beverage revenue has remained stable. This increase was mainly due to the continued growth of tourist from mainland China and various festival promotions such as Easter promotion in 2010. Our Sales team will continue to explore and develop the China market as well as existing local and foreign markets.

The turnover of Beijing Warwick Suite Hotel has increased by 29% compared with last corresponding year. This increase was mainly due to leasing out of several floors to a local China company in November 2010.

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Further, at the end of the reporting period, there was an increase of approximately HK$20,890,000 in fair value of investment properties.

In securities investment and trading, the Group has recorded a profit of approximately HK$1,000,000.

During the year, the Group disposed of two of its investment properties with completion dates on 1 December 2010 and 26 April 2011 respectively. The net proceeds of approximately HK$31,400,000 from the disposals are intended to be used for working capital purpose of the Group.

In early September 2010, Mr. Duncan Chiu (a non-executive director of the Company) was charged by the Commercial Crime Bureau of the Hong Kong Police Force in respect of alleged offences including section 157H (2)(a) of the Companies Ordinance, Cap. 32 of the Laws of Hong Kong, in relation to the business operations of Far East Holdings International Limited (Stock Code: 0036). Based on the information so far available to the Board, Mr. Duncan Chiu is now still on bail. The Board believes that the above matter will not have any impact on the Company.

The Group will from time to time seek for investment opportunity that can provide investment potential and broaden the income base of the Group.

EMPLOYEES

The Group has approximately 100 employees. Employees are remunerated in accordance with nature of the job and market conditions. Staff incentive bonus would be granted to reward and motivate those well-performed employees.

FINANCE ACTIVITIES

At 31 March 2011, there were outstanding bank loans of HK$50,406,795 (2010: HK$67,793,482) and unutilised overdraft facilities of HK$4,000,000 (2010: HK$4,000,000) available to the Group.

At 31 March 2011, the Group did not have any foreign exchange contracts, interest or currency swaps or other financial derivatives.

Shareholders’ funds at 31 March 2011 amounted to approximately HK$302 million (2010: approximately HK$296 million). Accordingly, the Group’s gearing ratio (total bank borrowings to shareholders’ funds) at 31 March 2011 is 17% (2010: 23%).

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

During the year ended 31 March 2011, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities.

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MODEL CODE FOR DIRECTORS’ SECURITIES TRANSACTIONS

The Board has adopted a new code of conduct regarding Directors’ securities transactions on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules. The Directors confirmed that there were not any non-compliance with the standard set out in the Model Code and the Company’s code of conduct regarding Directors’ securities transactions during the year ended 31 March 2011.

CORPORATE GOVERNANCE

The Company has complied with the Code as set out in Appendix 14 of the Listing Rules throughout the year ended 31 March 2011, with deviations from code provision A.4.1 of the Code in respect of the service term of Directors.

None of the existing Non-executive Directors of the Company is appointed for a specific term. This constitutes a deviation from code provision A.4.1 of the Code. However, all Directors of the Company are subject to the retirement by rotation at each annual general meeting under Articles 78 and 79 of the Company’s Articles of Association. As such, the Company considers that sufficient measures have been taken to ensure that the Company’s Corporate Governance Practices are no less exacting than those in the Code.

AUDIT COMMITTEE

The Audit Committee has reviewed with management the accounting principles and practices adopted by the Group and discussed auditing, internal controls, and financial reporting matters including the review of the audited financial statements for the year ended 31 March 2011 approved by the Board.

REMUNERATION COMMITTEE

The Company has established a Remuneration Committee with written terms of reference pursuant to the provisions set out in the Code. The Remuneration Committee is principally responsible for formulation and making recommendation to the Board on the Group’s policy and structure for all remuneration of directors and senior management.

On behalf of the Board Far East Hotels And Entertainment Limited Derek Chiu Managing Director & Chief Executive

Hong Kong, 24 June 2011

As at the date of this announcement, the executive Directors are Mr. Deacon Te Ken Chiu, Mr. Derek Chiu, Mr. Desmond Chiu, Ms. Margaret Chiu; the non-executive Directors are Mrs. Chiu Ju Ching Lan, Mr. Dick Tat Sang Chiu, Mr. David Chiu, Mr. Dennis Chiu, Mr. Duncan Chiu; the independent non-executive Directors are Mr. Ip Shing Hing, Mr. Ng Wing Hang Patrick, Mr. Choy Wai Shek Raymond.

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