Guoco Group Limited — Interim / Quarterly Report 2006

Dec 16, 2005

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FAR EAST HOTELS AND ENTERTAINMENT LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0037)

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005

INTERIM RESULTS

The Board of Directors of Far East Hotels And Entertainment Limited (the “Company”) announces the unaudited interim financial results of the Company and its subsidiaries (the “Group”) for the six months ended 30 September 2005 as follows:

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005

Notes Turnover 3 Cost of sales Other operating income Gain on disposal of investment property Administrative expenses Other operating expenses Loss from operations Finance costs 5 Share of results of associates Profit (Loss) before taxation Taxation 6 Profit (Loss) for the period Earnings (Loss) per share 7 – basic – diluted	Six months ende 2005 (unaudited) HK$ 10,820,994 (13,636,137) (2,815,143) 490,165 39,282 (6,715,275) (791,486) (9,792,457) (869,762) 11,701,968 1,039,749 – 1,039,749 Cent 0.21 0.21	d 30 September 2004 (unaudited) (restated) HK$ 12,022,674 (12,005,753) 16,921 2,080 – (7,059,586) (791,486) (7,832,071) (1,987,223) 1,933,852 (7,885,442) – (7,885,442) Cent (1.61) N/A

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CONDENSED CONSOLIDATED BALANCE SHEET

AT 30 SEPTEMBER 2005

Non-current Assets Property, plant and equipment Investment properties Intangible asset Interests in associates Available-for-sale investments/investments in securities Current Assets Financial assets at fair value/investments in securities Inventories Trade and other receivables Deposit for acquisition of properties Amount due from associates Amount due from related companies Pledged bank deposits Bank balances and cash Current Liabilities Trade and other payables Deposits received Amount due to associates Amount due to directors Amount due to related companies Amount due to a minority shareholder Obligation under finance leases – due within 1 year Bank and other borrowings – due within 1 year Net Current Assets (Liabilities) Capital and Reserves Share capital Reserves Non-current Liabilities Deferred tax liabilities Provision for long service payments Obligation under finance leases – due after 1 year Bank and other borrowings – due after 1 year	30/09/2005 (unaudited) HK$ 164,475,676 31,206,357 5,598,900 145,115,699 187,817,795 534,214,427 7,754,412 511,701 7,763,205 7,650,000 208,562 804,430 2,198,316 42,511,310 69,401,936 5,071,654 573,366 58,633,729 – 109,346 1,074,134 188,570 3,255,506 68,906,305 495,631 534,710,058 488,842,675 (7,549,435) 481,293,240 7,519,423 2,164,534 17,234 43,715,627 53,416,818 534,710,058	31/03/2005 (audited) (restated) HK$ 161,864,863 32,038,810 6,541,600 133,386,080 188,291,795 522,123,148 8,334,872 481,263 7,479,543 – 621,294 804,430 2,178,192 12,764,280 32,663,874 26,539,314 520,860 6,142,340 246,109 100,810 962,264 238,190 7,321,375 42,071,262 (9,407,388) 512,715,760 488,842,675 (8,142,835) 480,699,840 7,519,423 2,164,534 108,034 22,223,929 32,015,920 512,715,760

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Preparation

The unaudited condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and should be read in conjunction with the 2005 annual financial statements.

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2. Significant Accounting Policies and Changes in Accounting Policies

The unaudited condensed consolidated financial statements have been prepared under the historical cost basis except for investment properties and available-for-sale investments, which are measured at fair values or revalued amounts, as appropriate.

The accounting policies used in the unaudited condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 March 2005 except as described below:

In current period, the Group applied, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as the “new HKFRSs”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 January, 2005. The adoption of the new HKFRSs has resulted in changes of the Group’s accounting policies in the following areas that have an effect on how the results for the current or prior accounting periods are prepared and presented:

a) Presentation of Financial Statements HKAS 1 “Presentation of Financial Statements” affects certain presentation in the consolidated balance sheet, consolidated income statement and consolidated statement of changes in equity, including the following:

i) tax of jointly-controlled entity and associates attributable to the Group, which were previously included in the tax charge on the consolidated income statement, are now included in the share of profits and losses of jointly-controlled entity and associates, respectively; and

ii) minority interests are now included in the equity section of the balance sheet. The changes in presentation have been applied retrospectively.

b) Lease Premium for Land

The adoption of HKAS 17 “Leases” has resulted in a change in accounting policy relating to leasehold land. Leasehold land and buildings were previously carried at cost less accumulated depreciation and any accumulated impairment losses. In accordance with the provisions of HKAS 17, a lease of land and building should be split into a lease of land and a lease of building in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease. The lease premium for land is stated at cost and amortised over the period of the lease whereas the leasehold building is stated at cost less accumulated depreciation and any accumulated impairment losses.

The change in accounting policy has been adopted retrospectively, but no adjustment was made to the opening balance of retained earnings as at 1 April 2005 as the effect resulted from the change in accounting policy is not significant to the Group’s results of operations and financial position.

c) Financial Assets and Liabilities

The adoption of HKAS 32 “Financial Instruments: Disclosure and Presentation” and HKAS 39 “Financial Instruments: Recognition and Measurement” has resulted in a change in the accounting policy relating to the classification of financial assets and liabilities and their measurement.

In accordance with the provisions of HKAS 39, the investments have been classified into available-for-sale investments and financial assets at fair value. The classification depends on the purpose for which the investments were held. As a result of the adoption of HKAS 39, all the investments are now stated at fair value in balance sheet, except for certain available-for-sale investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, when they are measured at cost less any accumulated impairment losses. In addition, all the investments as at 31 March 2005 that should be measured at fair value on adoption of HKAS 39 should be remeasured at 1 April 2005 and any adjustment of the previous carrying value amount should be recognized as an adjustment of the balance of revaluation reserves at 1 April 2005. The revaluation reserves at 1 April 2005 and 30 September 2005 have been increased by HK$4,562,250 and decreased by HK$474,000 respectively. Comparative figures have not been restated.

Available-for-sale investments are carried at fair value with any unrealised gains and losses recognised in equity. Financial assets at fair value with any fair value change are included in the income statement. Available-for-sale investments and financial assets at fair value were previously classified as investments in securities (non-current assets) and investments in securities (current assets).

Borrowings are now recognised initially at fair value, net of transaction costs incurred. They are subsequently stated at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value recognised in the income statement over the period of the borrowing using the effective interest method or at fair value through profit and loss. Borrowings were previously carried at cost.

d) Investment Properties

Following the adoption of HKAS 40 “Investment Property”, changes in the fair values of investment properties are included in the income statement. Previously the Group had recorded such fair value changes in the property valuation reserve. The adoption of new HKAS 40 has been applied retrospectively and comparative figures presented have been restated to conform to the changed policy. Opening deficit at 1 April 2004 has been decreased by HK$5,372,809.

e) Deferred Taxes Related to Investment Properties

In addition, Hong Kong Accounting Standard Interpretation (“HKAS-Int”) 21 now requires deferred tax to be calculated using profits tax rates on these surpluses and deficits. The applied HKAS-Int 21 does not have any material effect on the financial statements for the current period. Comparative figures have not been restated.

f) Employee Share Option Scheme (HKFRS 2, Share-based payment)

In prior years, no amounts were recognised when employees (which term includes directors) were granted share options over shares in the company. If the employees chose to exercise the options, the nominal amount of share capital and share premium were credited only to the extent of the option’s exercise price receivable.

With effect from 1 January 2005, in order to comply with HKFRS 2, the Group recognises the fair value of such share options as an expense in the income statement, or as an asset, if the cost qualifies for recognition as an asset under the Group’s accounting policies. A corresponding increase is recognised in a capital reserve within equity.

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3. Business and Geographical Segments

Where the employees are required to meet vesting conditions before they become entitled to the options, the Group recognises the fair value of the options granted over the vesting period. Otherwise, the Group recognises the fair value in the period in which the options are granted.

If an employee chooses to exercise options, the related capital reserve is transferred to share capital and share premium, together with the exercise price. If the options lapse unexercised the related capital reserve is transferred directly to retained earnings.

The new accounting policy has not been applied retrospectively with comparatives restated in accordance with HKFRS 2 as the Group has taken advantage of the transitional provisions set out in paragraph 53 of HKFRS 2 under which the new recognition and measurement policies have not been applied to the following grants of options:

(a) all options granted to employees on or before 7 November 2002; and

• (b) all options granted to employees after 7 November 2002 but which had vested before 1 January 2005.

Accordingly, no adjustment was made to the Group’s opening balance of retained earnings and capital reserves as at 1 April 2005.

Business segments

2005 REVENUE Turnover RESULTS Segment results Bank interest income Dividend income Gain on disposal of investment property Unallocated administrative expenses Other operating expenses Loss from operations Finance costs Share of results of associates Profit before taxation Taxation Profit for the period 2004 REVENUE Turnover RESULTS Segment results Bank interest income Dividend income Gain on disposal of investment property Unallocated administrative expenses Other operating expenses Loss from operations Finance costs Share of results of associates Loss before taxation Taxation Loss for the period	Hotel operation HK$ 5,946,196 (93,727) – – – – 6,328,355 636,355 – – – –	Property letting HK$ Si 3,398,094 (1,245,016) – 39,282 (791,486) – Six mo 3,937,218 (1,253,862) – – (791,486) 213,941	Securities investment and trading HK$ x months end 845,636 (2,107,468) 163,475 – – – nths ended 30 1,104,331 (18,342) 180 – – –	Loan Investment financing holding Others HK$ HK$ HK$ ed 30 September (unaudited) – 631,068 – – 631,068 – – – – – – – – – – 11,699,063 – 2,905 September (unaudited & restated) 39,561 613,209 – 39,561 613,209 – – – – – – – – – – 7,901,781 – (6,181,870)	Consolidated HK$ 10,820,994
					(2,815,143) 326,690 163,475 39,282 (6,715,275) (791,486)
					(9,792,457) (869,762) 11,701,968
					1,039,749 –
					1,039,749
					12,022,674
					16,921 1,900 180 – (7,059,586) (791,486)
					(7,832,071) (1,987,223) 1,933,852
					(7,885,442) –
					(7,885,442)

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Geographical segments

Hong Kong Other regions in the People’s Republic of China	Sales revenue by geographical market 2005 2004 (unaudited) (unaudited) HK$ HK$ 7,431,300 9,334,056 3,389,694 2,688,618 10,820,994 12,022,674	Segment results profit (loss) 2005 2004 (unaudited) (unaudited) HK$ HK$ (1,707,787) 2,075,362 (1,107,356) (2,058,441) (2,815,143) 16,921	Segment results profit (loss) 2005 2004 (unaudited) (unaudited) HK$ HK$ (1,707,787) 2,075,362 (1,107,356) (2,058,441) (2,815,143) 16,921
			16,921

4. Depreciation and Amortisation

During the period, depreciation of HK$2,586,915 (2004: HK$2,528,340) was charged in respect of the Group’s property, plant and equipment.

During the period, amortisation of HK$942,700 (2004: HK$942,700) was charged in respect of the Group’s intangible assets.

5. Finance Costs

Interest on bank and other borrowings: Wholly repayable within 5 years Not wholly repayable within 5 years Interest on finance leases	Six months ende 2005 (unaudited) HK$ 24,521 829,820 15,421 869,762	d 30 September 2004 (unaudited) HK$ 1,782,602 180,686 23,935
		1,987,223

6. Taxation

No provision for Hong Kong Profits Tax has been made in the financial statements as the Company and its subsidiaries have no assessable profit in both periods.

7. Earnings (Loss) Per Share

• (a) Basic earnings (loss) per share

The calculation of basic earnings (loss) per share is based on the profit for the period of HK$1,039,749 (2004: loss of HK$7,885,442) and 488,842,675 (2004: 488,842,675) ordinary shares in issue during the period.

(b) Diluted earnings (loss) per share The computation of diluted earnings per share has not assumed the exercise of the outstanding share options of the Company since their exercise prices were greater than the average market price of shares for the period.

No diluted loss per share is presented as the exercise of the potential dilutive ordinary shares would result in a reduction in loss per share in year 2004.

OVERALL RESULTS

For the six months ended 30 September 2005, the Group recorded an unaudited consolidated net profit attributable to shareholders of HK$1,039,749 (30/09/2004: net loss of HK$7,885,442).

INTERIM DIVIDEND

The Board has resolved not to declare any interim dividend in respect of the six months ended 30 September 2005 (2004: Nil).

REVIEW OF OPERATIONS AND PROSPECTS

The turnover of Cheung Chau Warwick Hotel has decreased by 6% compared with last corresponding period. During the period under review, the Hotel carried out the upgrading works so that certain rooms were temporarily suspended from sale. This resulted in a decrease in room revenue. With currently 55 rooms fully renovated and the last phase of renovation being expected to be finished by the end of 2006, the management believes that both the occupancy rate and room rate will further improve.

With the completion of Phase II’s renovation of Beijing Warwick International Apartments, above 50% of rooms of East Wing are upgraded. Good comments were received from customers concerning our service provided and the newly renovated rooms. To increase the flexibility and convenience, customers can now make booking through several appointed travel agents via Internet. The turnover of Beijing Warwick International Apartments has increased by 26% compared with last corresponding period. Further, the management intends to fully renovate Beijing Warwick International Apartments so as to cope with the benefit of 2008 Olympic Games event as more travellers will come to Beijing.

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.

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FINANCE ACTIVITIES

At 30/9/2005, the Group had bank loan and overdraft facilities amounting to approximately HK$53,875,000 (31/3/2005: HK$31,734,000), of which approximately HK$46,971,000 (31/3/2005: HK$29,545,000) were utilised. These facilities were secured by legal mortgages over the Group’s properties and deposits.

At 30/9/2005, the Group had no material exposure under foreign exchange contracts, interest or currency swaps or other financial derivatives.

Shareholders’ funds at 30/9/2005 amounted to approximately HK$481 million (31/3/2005: approximately HK$481 million). Accordingly, the Group’s gearing ratio (total bank and other borrowings facilities utilised to shareholders’ funds) at 30/9/2005 is 10% (31/3/2005: 6%).

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

During the period, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

AUDIT COMMITTEE

The audit committee has reviewed with management the accounting principles and practices adopted by the Group, and discussed financial reporting matters, including a review of the unaudited interim financial statements for the six months ended 30 September 2005.

CORPORATE GOVERNANCE

The Company has complied with Code on Corporate Governance Practices (the “Code”) as set out in Appendix 14 of the Listing Rules throughout the six months ended 30 September 2005, with deviations from code provision A.4.1 and A.4.2 of the Code in respect of the service term and rotation of directors.

None of the existing non-executive director of the Company is appointed for a specific term and managing director is not subject to re-election by rotation by the Company’s articles of association (the “Articles”) 76. This constitutes a deviation from code provision A.4.1 and A.4.2 of the Code. However, all Directors of the Company excluding Managing Director are subject to the retirement by rotation at each annual general meeting under Articles 78 and 79 of the Company. In view of good Corporate Governance Practices, Managing Director voluntarily retires from his office at the forthcoming annual general meeting of the Company notwithstanding that he is not required to do so by the Company’s Article 76. 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.

REMUNERATION COMMITTEE

The Company had established a Remuneration Committee with written terms of reference pursuant to the provisions set out in the Code. The committee comprised two independent non-executive directors, namely Mr. Ng Wing-hang Patrick and Mr. Choy Wai-shek and the Managing Director, Mr. Derek Chiu of the Company. 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.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) set out in Appendix 10 of the Listing Rules.

All directors of the Company have confirmed, following specific enquiry by the Company, that they complied with the required standard set out in the Model Code throughout the six months ended 30 September 2005.

DISCLOSURE OF INFORMATION ON THE WEBSITE OF THE STOCK EXCHANGE

The financial and other information of the Company required by Appendix 16 of the Listing Rules will be published on the website of the Stock Exchange in due course.

On behalf of the Board Derek Chiu Managing Director & Chief Executive

Hong Kong, 16 December 2005

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 Tatcheong Chiu, Mr. Dennis Tat-shing Chiu, Mr. Duncan Chiu; the independent non-executive Directors are Mr. Ip Shinghing, Mr. Ng Wing-hang Patrick, Mr. Choy Wai-shek Raymond; and the alternate Directors are Mr. Chan Chi-hing (alternate Director to Mr. Deacon Te-ken Chiu) and Mr. Tang Sung-ki (alternate Director to Mr. Desmond Chiu).

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

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