Mei Ah Entertainment Group Limited — Proxy Solicitation & Information Statement 2003

Apr 4, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about any aspect of this circular or as to the action to be taken, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Chinney Investments, Limited (the “Company”), you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in Hong Kong with limited liability)

MAJOR TRANSACTION

UNDERWRITING OF THE PROPOSED RIGHTS ISSUE OF HON KWOK LAND INVESTMENT COMPANY, LIMITED

A notice convening the EGM (as defined herein) to be held at 10:00 a.m. on Tuesday, 22 April 2003 at Chater Room I, Function Room Level (B1), The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong is set out on pages 114 to 115 of this circular. If you are not able to attend and/ or vote at the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the Company’s share registrar in Hong Kong, Tengis Limited, at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM should you so desire.

4 April 2003

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Appendix II – Financial Information of the Hon Kwok Group . . . . . . . . . . . . . . . . . . . . . . .	64
Appendix III – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	109
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	114

– i –

DEFINITIONS

In this circular, the following expressions have the meanings set out below unless the context otherwise requires:

• “Announcement”

• the joint announcement of the Company and Hon Kwok dated 12 February 2003 relating to, amongst other things, the Hon Kwok Share Consolidation, the Hon Kwok Rights Issue, the major transaction of the Company and the Whitewash Waiver

• “associate(s)” has the same meaning ascribed to that term under the Listing Rules

• “Board” the board of Directors of the Company

• “Bridging Facility”

• the unsecured bridging facility to be provided by the Company to Hon Kwok on 17 April 2003 to partly finance the redemption of the Existing Hon Kwok Convertible Bonds

• “Business Day”

• a day (other than a Saturday or a Sunday) on which commercial banks are open for business in Hong Kong

• “Chinney” or “Company”

• Chinney Investments, Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange and which is the controlling shareholder (as defined under the Listing Rules) of Hon Kwok

• “Chinney Existing Bonds”

• the portion of the Existing Hon Kwok Convertible Bonds subscribed and held by the Company, in the principal amount of HK$141 million

• “Companies Ordinance”

• the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

• “Director(s)”

the director(s) of the Company

• “EGM”

• the extraordinary general meeting of the Company to be convened for the purpose of approving the Underwriting Agreement

• “Excluded Hon Kwok Rights Shares”

• 94,842,711 Hon Kwok Rights Shares that the Company is entitled and has undertaken to subscribe for pursuant to the terms of the Hon Kwok Rights Issue in its capacity as a Hon Kwok Qualifying Shareholder

• “Executive”

the Executive Director of the Corporate Finance Division of the Securities and Futures Commission or any delegate of the Executive Director

• “Existing Hon Kwok Convertible Bonds”

the HK$300 million 10% convertible guaranteed bonds due 18 April 2003 issued by Hon Kwok Land Treasury II Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of Hon Kwok

– 1 –

DEFINITIONS

• “Existing Hon Kwok Share(s)”

• share(s) of HK$0.10 each in the existing share capital of Hon Kwok

• “Group”

the Company and its subsidiaries from time to time

• “HK$”

• Hong Kong dollar(s), the lawful currency of Hong Kong

• “Hong Kong”

• the Hong Kong Special Administrative Region of the People’s Republic of China

• “Hon Kwok”

• Hon Kwok Land Investment Company, Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange

• “Hon Kwok EGM”

• the extraordinary general meeting of Hon Kwok to be convened for the purpose of considering, among other things, the Hon Kwok Share Consolidation, the Hon Kwok Rights Issue and the Whitewash Waiver

• “Hon Kwok Group”

Hon Kwok and its subsidiaries from time to time

• “Hon Kwok Independent Shareholders”

• Hon Kwok Shareholders who are not involved or interested in the Underwriting Agreement and the Whitewash Waiver, being Hon Kwok Shareholders other than the Company, its associates and parties acting in concert with any of them

• “Hon Kwok New Share(s)”

• share(s) of HK$1.00 each in the share capital of Hon Kwok immediately after the Hon Kwok Share Consolidation becomes effective

• “Hon Kwok Overseas Shareholder(s)”

• the Hon Kwok Shareholder(s) whose name(s) appear(s) on the register of members of Hon Kwok on the Record Date and whose registered address(es) on that date is/are outside Hong Kong

• “Hon Kwok Qualifying Shareholder(s)”

• the Hon Kwok Shareholder(s), other than the Hon Kwok Overseas Shareholder(s), whose name(s) appear(s) on the register of members of Hon Kwok on the Record Date

• “Hon Kwok Rights Issue”

• the proposed rights issue of Hon Kwok Rights Shares on the basis of three Hon Kwok Rights Shares for every two Hon Kwok New Shares to Hon Kwok Qualifying Shareholders by way of rights or to holders of nil-paid Hon Kwok Rights Shares at a price of HK$1.00 per Hon Kwok Rights Share, pursuant to the terms and conditions of the rights issue

• “Hon Kwok Rights Issue Documents” the prospectus to be issued by Hon Kwok in relation to the Hon Kwok Rights Issue, the provisional allotment letter and the form of application for excess Hon Kwok Rights Shares

• “Hon Kwok Rights Share(s)”

• 200,123,100 Hon Kwok New Share(s) to be issued by Hon Kwok under the Hon Kwok Rights Issue, on the assumption that no further shares of Hon Kwok are issued prior to the Record Date

– 2 –

DEFINITIONS

• “Hon Kwok Share Consolidation”

• the consolidation of every ten Existing Hon Kwok Shares into one Hon Kwok New Share by Hon Kwok

• “Hon Kwok Shareholder(s)”

shareholder(s) of Hon Kwok

• “Latest Acceptance Date”

• being 4:00 p.m. on 19 May 2003, the latest date upon which provisional allotments of Hon Kwok Rights Shares in nilpaid form may be validly accepted

• “Latest Practicable Date”

• 31 March 2003, being the latest practicable date prior to the printing of this circular for inclusion of certain information in this circular

• “Listing Rules”

• the Rules Governing the Listing of Securities on the Stock Exchange

• “Payment Arrangement Deed”

• a deed dated 12 February 2003 and entered into by the Company, Hon Kwok Land Treasury II Limited and Hon Kwok as amended by the Payment Arrangement Deed Amendment Deed

• “Payment Arrangement Deed Amendment Deed”

• a deed dated 31 March 2003 and entered into by the Company, Hon Kwok Land Treasury II Limited and Hon Kwok which amends the Payment Arrangement Deed

• “Record Date”

• 30 April 2003, being the date for determining the Hon Kwok Qualifying Shareholders for the purpose of the Hon Kwok Rights Issue

• “Redemption Monies”

• the aggregate amount to be received by the Company from Hon Kwok Land Treasury II Limited for the redemption of the Chinney Existing Bonds

• “SDI Ordinance”

• Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong)

• “SFC” Securities and Futures Commission of Hong Kong

• “Shareholder(s)” shareholder(s) of the Company

• “Stock Exchange”

The Stock Exchange of Hong Kong Limited

• “Subscription Price”

• the subscription price of HK$1.00 per Hon Kwok Rights Share

• “Subscription Monies”

the subscription monies which will be payable by the Company to Hon Kwok in respect of the Hon Kwok Rights Shares to be issued to the Company, including the Hon Kwok Rights Shares which will be issued in the event that the Company is required to fulfil its obligation under the Underwriting Agreement

– 3 –

DEFINITIONS

• “subsidiary” or “holding company” has the meaning defined in section 2 of the Companies Ordinance

• “Takeovers Code” The Code on Takeovers and Mergers “Underwriting Agreement” the underwriting agreement dated 12 February 2003 and entered into between the Company and Hon Kwok in relation to the Hon Kwok Rights Issue

• “Whitewash Waiver” a waiver from the Executive pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code in respect of the obligations of the Company and parties acting in concert with it to make a mandatory general offer for all the securities of Hon Kwok not already owned by the Company and parties acting in concert with it which would otherwise arise as a result of the Company subscribing for the Hon Kwok Rights Shares under the terms of the Underwriting Agreement

“%” per cent.

– 4 –

LETTER FROM THE BOARD

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(Incorporated in Hong Kong with limited liability)

Directors:

James Sai-Wing Wong Madeline May-Lung Wong William Chung-Yue Fan[] Herman Man-Hei Fung Roderick Sue-Cheun Wong Frankie Yick-Cheung Lee Clement Kwok-Hung Young[]

Registered office: 18th Floor, Hang Seng Building 77 Des Voeux Road Central Hong Kong

• Independent non-executive Director

4 April 2003

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

UNDERWRITING OF THE PROPOSED RIGHTS ISSUE OF HON KWOK LAND INVESTMENT COMPANY, LIMITED

INTRODUCTION

On 12 February 2003, the Company announced that it had entered into the Underwriting Agreement with Hon Kwok in respect of a proposed rights issue of Hon Kwok of not less than 200,123,100 Hon Kwok Rights Shares on the basis of three Hon Kwok Rights Shares for every two Hon Kwok New Shares to raise approximately HK$200 million before expenses at the Subscription Price of HK$1.00 per Hon Kwok Rights Share. Prior to the Hon Kwok Rights Issue, Hon Kwok proposes to effect a share consolidation whereby every ten Existing Hon Kwok Shares with a nominal value of HK$0.10 each will be consolidated into one Hon Kwok New Share with a nominal value of HK$1.00.

The Company, a substantial shareholder of Hon Kwok holding 47.39% of the existing issued share capital of Hon Kwok, will fully underwrite the Hon Kwok Rights Issue, other than the Excluded Hon Kwok Rights Shares, and has undertaken to fully subscribe for the Excluded Hon Kwok Rights Shares. In the event that the Company is called upon to meet its underwriting commitment under the Underwriting Agreement in full, the aggregate interests of the Company and parties acting in concert with it in Hon Kwok will increase to approximately 78.96% of Hon Kwok’s issued share capital, as enlarged by the issue of the Hon Kwok Rights Shares.

The deemed acquisition by the Company of an interest in Hon Kwok upon the entering into of the Underwriting Agreement constitutes a major transaction of the Company under the Listing Rules. On 3 March 2003, the Board announced that the Company has made an application to the Stock Exchange, and the board of Hon Kwok announced that Hon Kwok has made an application to the Executive, for an extension of time to despatch their respective circulars from 4 March 2003 to a date which is on or before 4 April 2003. The purpose of this circular is to give you further information in relation to the Underwriting Agreement, and to convene the EGM to consider and, if thought fit, to approve the Underwriting Agreement.

– 5 –

LETTER FROM THE BOARD

INFORMATION RELATING TO THE HON KWOK RIGHTS ISSUE

Basis of the Hon Kwok Rights Issue

• : Three Hon Kwok Rights Shares for every two Hon Kwok New Shares (equivalent to twenty Existing Hon Kwok Shares) held on the Record Date

Number of Existing Hon Kwok Shares in issue

• : 1,334,154,019 Existing Hon Kwok Shares as at the Latest Practicable Date

Number of Hon Kwok New Shares in issue : 133,415,401 Hon Kwok New Shares after the Hon Kwok Share Consolidation becomes effective Number of Hon Kwok Rights Shares : 200,123,100 Hon Kwok Rights Shares at the Subscription Price of HK$1.00 per Hon Kwok Rights Share

The 200,123,100 Hon Kwok Rights Shares in nil-paid form proposed to be provisionally allotted represent approximately 150% of Hon Kwok’s issued share capital after the Hon Kwok Share Consolidation becomes effective and approximately 60% of Hon Kwok’s issued share capital as enlarged by the issue of the Hon Kwok Rights Shares.

As at the Latest Practicable Date, Hon Kwok has no outstanding securities or instruments capable of conversion into shares of Hon Kwok.

Subscription Price

Assuming that the Hon Kwok Share Consolidation has become effective, the Subscription Price of HK$1.00 per Hon Kwok Rights Share represents:

• a premium of approximately 4.2% to the adjusted closing price of about HK$0.960 per Hon Kwok New Share as quoted on the Stock Exchange on 31 March 2003, being the Latest Practicable Date;

• a premium of approximately 3.3% to the adjusted average closing price of about HK$0.968 per Hon Kwok New Share for the 10 trading days up to and including 31 March 2003, being the Latest Practicable Date;

• a premium of approximately 1.6% to the theoretical ex-rights price of about HK$0.984 per Hon Kwok New Share based on the adjusted closing price as quoted on the Stock Exchange on 31 March 2003, being the Latest Practicable Date; and

• a discount of approximately 86.7% to the adjusted unaudited consolidated net tangible asset value of approximately HK$7.50 per Hon Kwok New Share, calculated based on the Hon Kwok Group’s unaudited net tangible assets as at 30 September 2002 and adjusted for the revaluation of the Hon Kwok Group’s properties as at 28 February 2003.

Hon Kwok has stated in the Announcement dated 12 February 2003 that the Subscription Price was determined with reference to the market price of Hon Kwok’s shares under prevailing market conditions. In view of the prevailing market conditions and in order to increase the attractiveness of the Hon Kwok Rights Issue to the Hon Kwok Qualifying Shareholders, the directors of Hon Kwok have stated that they consider that a deeper discount on the Subscription Price to the market price of Hon Kwok’s shares at the time of the Announcement is appropriate. The directors of Hon Kwok have stated that they consider the Subscription Price to be fair and reasonable and to be in the interests of Hon Kwok and the Hon Kwok Shareholders as a whole.

– 6 –

LETTER FROM THE BOARD

Listing and dealings in the Hon Kwok Rights Shares

Hon Kwok will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Hon Kwok New Shares and the Hon Kwok Rights Shares in both nil-paid and fully-paid forms. It is expected that dealings in the Hon Kwok Rights Shares in their nil-paid form will take place from 6 May 2003 to 14 May 2003, both days inclusive.

None of the securities of Hon Kwok is listed or dealt with on any other stock exchange other than the Stock Exchange, and no such listing or permission to deal is being or is proposed to be sought.

Conditions of the Hon Kwok Rights Issue

The Hon Kwok Rights Issue is conditional upon the following conditions being fulfilled:

• (a) Hon Kwok despatching the circular to the Hon Kwok Shareholders containing, amongst other things, details of the Hon Kwok Share Consolidation, the Hon Kwok Rights Issue and the Whitewash Waiver, together with proxy form and notice of the Hon Kwok EGM;

• (b) the passing by the Hon Kwok Shareholders at the Hon Kwok EGM of an ordinary resolution to approve the Hon Kwok Share Consolidation;

• (c) the passing by the Hon Kwok Independent Shareholders at the Hon Kwok EGM of an ordinary resolution to approve the Hon Kwok Rights Issue;

• (d) the passing by the Hon Kwok Independent Shareholders by poll at the Hon Kwok EGM of an ordinary resolution to approve the Whitewash Waiver;

• (e) the passing by the Shareholders, other than William Chung-Yue Fan and Herman Man-Hei Fung, at the EGM of an ordinary resolution to approve the Underwriting Agreement;

• (f) the Executive granting to the Company and parties acting in concert with it the Whitewash Waiver and the satisfaction of any condition attached to the Whitewash Waiver imposed by the Executive;

• (g) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Hon Kwok Rights Shares (in both nil-paid and fully-paid forms);

• (h) the filing and registration of all documents relating to the Hon Kwok Rights Issue, which are required by law to be filed or registered with the Registrar of Companies in Hong Kong in accordance with the Companies Ordinance;

• (i) the posting of the Hon Kwok Rights Issue Documents to Hon Kwok Qualifying Shareholders; and

• (j) the obligations of the Company under the Underwriting Agreement becoming unconditional and not being terminated in accordance with the terms of that agreement.

The above conditions of the Hon Kwok Rights Issue cannot be waived by the Company and/or Hon Kwok under the terms of the Underwriting Agreement. If any of the conditions of the Hon Kwok Rights Issue are not fulfilled or cannot be fulfilled on or before the Latest Acceptance Date or if the Underwriting Agreement is terminated as set out in the section headed “Termination of the Underwriting Agreement”, the obligations of the Company and Hon Kwok under the Underwriting Agreement will cease and neither the Company nor Hon Kwok will have any rights nor be subjected to any obligations arising from the Underwriting Agreement, and the Hon Kwok Rights Issue will not proceed.

– 7 –

LETTER FROM THE BOARD

Financing the redemption of the Existing Hon Kwok Convertible Bonds

The Existing Hon Kwok Convertible Bonds, amounting to HK$300 million, will mature on 18 April 2003 and will have to be repaid in full together with accrued interest on the next Business Day following that date (i.e. 22 April 2003). The Company holds a principal amount of HK$141 million of the Existing Hon Kwok Convertible Bonds.

Given the delay in the despatch of the circular of Hon Kwok to the Hon Kwok Shareholders, interim arrangements have been made by Hon Kwok with the Company to partly finance the redemption of the Existing Hon Kwok Convertible Bonds until the completion of the Hon Kwok Rights Issue. As part of the arrangement, the Company has agreed to defer the payment of the Redemption Monies, amounting to an aggregate of HK$141 million. The remaining HK$159 million required for the redemption of the Existing Hon Kwok Convertible Bonds will be financed through the Bridging Facility to be provided by the Company, the Hon Kwok Group’s internal resources and/or external borrowings.

The Bridging Facility will be funded by the Group out of its internal resources and/or available banking facilities.

Reasons for the Hon Kwok Rights Issue and the use of proceeds

The funds to be raised from the Hon Kwok Rights Issue will be used by Hon Kwok solely for the redemption of the outstanding Existing Hon Kwok Convertible Bonds of HK$300 million.

The net proceeds from the Existing Hon Kwok Convertible Bonds issued on 18 April 2001 were used towards the redemption of the then existing convertible bonds of US$60 million issued by Hon Kwok Land Capital Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of Hon Kwok. The US$60 million convertible bonds were issued in July 1996 to raise funds for Hon Kwok’s property development and investment activities and for general working capital requirements.

THE UNDERWRITING AGREEMENT

Information relating to the Underwriting Agreement

Date : 12 February 2003 Underwriter : The Company, a substantial shareholder of Hon Kwok interested in 63,228,475 Hon Kwok New Shares representing approximately 47.39% of the issued share capital of Hon Kwok immediately after the Hon Kwok Share Consolidation Number of shares underwritten : 105,280,389 Hon Kwok Rights Shares at the Subscription Price of HK$1.00 per Hon Kwok Rights Share (Note) Commission : 2.5% of the total issue price of the Hon Kwok Rights Shares underwritten by the Company The maximum commission to be received by the Company will be approximately HK$2.6 million

Note: This figure excludes 94,842,711 Hon Kwok Rights Shares provisionally allotted to the Company in respect of its beneficial shareholding in Hon Kwok which it has undertaken to subscribe for in full.

– 8 –

LETTER FROM THE BOARD

Pursuant to the Underwriting Agreement, Chinney has irrevocably undertaken to apply for, take up and pay for its provisional entitlements in the Excluded Hon Kwok Rights Shares.

The subscription price payable by the Company for the Excluded Hon Kwok Rights Shares is HK$94,842,711. The subscription price payable by the Company if all the underwritten shares are subscribed for by the Company is HK$105,280,389. Accordingly, the Subscription Monies payable by the Company if the Excluded Hon Kwok Rights Shares and all the underwritten shares are subscribed for will be HK$200,123,100.

In the event that the Company is called upon to subscribe for its obligations under the Underwriting Agreement in full, the aggregate shareholding interests of the Company and parties acting in concert with it will increase from 47.39% to approximately 78.96% of Hon Kwok’s issued share capital as enlarged by the issue of the Hon Kwok Rights Shares.

The Underwriting Agreement was determined after arm’s length negotiations between the Company and Hon Kwok. The Directors consider that the terms of the Underwriting Agreement are on normal commercial terms and the Subscription Price is fair and reasonable so far as the Shareholders are concerned.

Reasons for the Underwriting Agreement by the Company

While it is not in the ordinary course of the Company’s business to act as an underwriter, the Directors believe that underwriting the Hon Kwok Rights Issue would enable the Company to maintain and enhance the value of its investment in Hon Kwok, as the underwriting will ensure that the Hon Kwok Rights Issue is fully subscribed, and this in turn will enable the Hon Kwok Group to redeem the Existing Hon Kwok Convertible Bonds and reduce the Hon Kwok Group’s indebtedness. Accordingly, the Directors believe that the entering into of the Underwriting Agreement is in the best interests of the Company and the Shareholders as a whole.

Payment arrangement between the Company and Hon Kwok

Hon Kwok Land Treasury II Limited (a wholly-owned subsidiary of Hon Kwok) will, on 22 April 2003, being the first Business Day after 18 April 2003, redeem all the outstanding Existing Hon Kwok Convertible Bonds of HK$300 million, excluding the outstanding Chinney Existing Bonds of HK$141 million, at 100% of their principal amount together with accrued interest up to and including 17 April 2003, in accordance with the terms and conditions of the Existing Hon Kwok Convertible Bonds.

Pursuant to the Payment Arrangement Deed, the Company, Hon Kwok and Hon Kwok Land Treasury II Limited agree that the Redemption Monies of HK$141 million shall be applied towards payment of part of or the whole of the Subscription Monies, depending on the extent to which the Company may be required to take up the Hon Kwok Rights Shares under the Underwriting Agreement.

In the event that the Company is called upon to subscribe for the Hon Kwok Rights Shares under the Underwriting Agreement in full, the Subscription Monies payable by the Company will be HK$200,123,100. If the Company is not required to subscribe for any Hon Kwok Rights Shares under the Underwriting Agreement, the Subscription Monies will be HK$94,842,711, being the amount payable by the Company in respect of the Excluded Hon Kwok Rights Shares only. To the extent that the Redemption Monies are less than the Subscription Monies due to the fulfilment of the Company’s obligation under the Underwriting Agreement, it is the intention of the Company to fund such a shortfall by internal resources. To the extent that the Redemption Monies are greater than the Subscription Monies, the Company intends to use the money for general working capital purposes.

– 9 –

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

The Underwriting Agreement contains provisions granting the Company, by notice in writing, the ability to terminate its obligations thereunder on the occurrence of certain events. The Company may terminate its commitment under the Underwriting Agreement on or before the Latest Acceptance Date if:

• (a) Hon Kwok is in material breach of any of the warranties as set out in the Underwriting Agreement which cannot be rectified or resolved to the reasonable satisfaction of the Company within a period of seven days of the Company giving notice of such breach to Hon Kwok, provided that such rectification period cannot extend beyond the Latest Acceptance Date;

• (b) any of the conditions to which the obligations of the Company under the Underwriting Agreement are subject to and are not fulfilled or becomes incapable of being fulfilled; or

• (c) there shall have occurred any change in national or international, political, military, diplomatic, financial or economic conditions which in the reasonable opinion of the Company, is or is likely to be materially prejudicial to the business or financial condition of the Hon Kwok Group or the Hon Kwok Rights Issue.

If the Underwriting Agreement is terminated by the Company on or before the aforesaid deadline or does not become unconditional, the Hon Kwok Rights Issue will not proceed.

EFFECTS OF THE UNDERWRITING AGREEMENT

Net Assets

The unaudited consolidated net tangible assets of the Group, calculated based on its consolidated management accounts as at 30 September 2002, was approximately HK$1,149.2 million (equivalent to HK$2.08 per share). The unaudited consolidated net tangible assets of the Hon Kwok Group, based on its unaudited management accounts as at 30 September 2002 and adjusted for independent revaluations of its properties as at 28 February 2003, was approximately HK$1,000.2 million.

In the event that the Company is required to fulfill its obligation under the Underwriting Agreement in full, Hon Kwok would become a 78.96% owned subsidiary of the Company. The pro forma unaudited consolidated net tangible assets of the Group would then be approximately HK$1,279.3 million (equivalent to HK$2.32 per share).

– 10 –

LETTER FROM THE BOARD

Possible changes in the shareholding structure of Hon Kwok

Set out below is a table showing the changes in the shareholding structure of Hon Kwok after the Hon Kwok Share Consolidation and the Hon Kwok Rights Issue:

Chinney (Note) Directors of Hon Kwok William Chung-Yue Fan Herman Man-Hei Fung Chinney and parties acting in concert with it Public shareholders Total	Existing shareholding structure as at the Latest Practicable Date Number of Existing Hon Kwok Shares % 632,284,758 47.39 7,085 0.00 14,171 0.00 632,306,014 47.39 701,848,005 52.61 1,334,154,019 100.00	After the Hon Kwok Rights Issue and if the Company is required Upon the Hon Kwok to take up all Share Consolidation Hon Kwok becoming effective Rights Shares and before pursuant to the the Hon Kwok Underwriting Rights Issue Agreement Number of Number of Hon Kwok Hon Kwok New Shares % New Shares % 63,228,475 47.39 263,351,575 78.96 708 0.00 708 0.00 1,417 0.00 1,417 0.00 63,230,600 47.39 263,353,700 78.96 70,184,801 52.61 70,184,801 21.04 133,415,401 100.00 333,538,501 100.00	After the Hon Kwok Rights Issue and if the Company is not required to take up any Hon Kwok Rights Shares pursuant to the Underwriting Agreement Number of Hon Kwok New Shares % 158,071,186 47.39 1,770 0.00 3,541 0.00 158,076,497 47.39 175,462,004 52.61 333,538,501 100.00	After the Hon Kwok Rights Issue and if the Company is not required to take up any Hon Kwok Rights Shares pursuant to the Underwriting Agreement Number of Hon Kwok New Shares % 158,071,186 47.39 1,770 0.00 3,541 0.00 158,076,497 47.39 175,462,004 52.61 333,538,501 100.00
				47.39 52.61
				100.00

Note: These figures include the deemed interest of Chinney Holdings Limited, James Sai-Wing Wong and Madeline May-Lung Wong in the shares of Hon Kwok which are held through the Company.

Maintaining the listing of Hon Kwok

It is the intention of the Company to maintain the listing of Hon Kwok after the Hon Kwok Rights Issue. Accordingly, the Company and Hon Kwok have jointly undertaken to the Stock Exchange that the Company and Hon Kwok will take appropriate steps, including but not limited to the placing down of the Company’s shareholdings in Hon Kwok to parties who are not connected persons as defined in the Listing Rules, within one month after the completion of the Hon Kwok Rights Issue to ensure not less than 25% of the Hon Kwok New Shares are held by the public at all times in compliance with the minimum public float requirement under Rule 8.08 of the Listing Rules.

The Stock Exchange has stated that, if less than 25% of the issued shares of Hon Kwok are in public hands following the Hon Kwok Rights Issue, or if the Stock Exchange believes that a false market exists or may exist in the trading of the shares or that there are insufficient shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend dealings in the shares of Hon Kwok.

– 11 –

LETTER FROM THE BOARD

WHITEWASH WAIVER

Under Rule 26 of the Takeovers Code, the fulfilment of the Company’s proposed underwriting commitment, and the taking up by parties acting in concert with the Company of their Hon Kwok Rights Shares entitlement together with any excess Hon Kwok Rights Shares, may trigger a mandatory general offer by the Company and parties acting in concert with it, for all the securities of Hon Kwok other than those already owned by the Company and parties acting in concert with it. Application has been made by the Company to the Executive for the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Executive has indicated that it will grant the Whitewash Waiver subject to the approval of the Hon Kwok Independent Shareholders taken on a poll at the Hon Kwok EGM. If the Whitewash Waiver is not approved by the Hon Kwok Independent Shareholders, the Rights Issue will not proceed.

The Company, its associates and parties acting in concert with any of them, will abstain from voting on the resolution to approve the Whitewash Waiver at the Hon Kwok EGM.

If upon completion of the Hon Kwok Rights Issue, the Company and parties acting in concert with it hold more than 50% of the issued capital of Hon Kwok, the Company and parties acting in concert with it will be allowed under the Takeovers Code to increase their shareholdings in Hon Kwok without incurring any further obligations under Rule 26 of the Takeovers Code to make a mandatory general offer.

INFORMATION RELATING TO HON KWOK

Description of business

Hon Kwok is incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange. The principal activities of the Hon Kwok Group are property development, property investment and property related businesses.

Financial results of Hon Kwok

The consolidated net profit before and after taxation and extraordinary items of the Hon Kwok Group for the year ended 31 March 2002 were approximately HK$30.6 million and HK$3.2 million, respectively. The consolidated net loss before and after taxation and extraordinary items of the Hon Kwok Group for the year ended 31 March 2001 were approximately HK$395.4 million and HK$397.1 million, respectively.

For the six months ended 30 September 2002, the Hon Kwok Group reported a net profit of approximately HK$4.5 million.

EGM

There is set out on pages 114 to 115 of this circular a notice convening the EGM to be held at 10:00 a.m. on Tuesday, 22 April 2003 at Chater Room I, Function Room Level (B1), The RitzCarlton Hong Kong, 3 Connaught Road Central, Hong Kong, at which an ordinary resolution will be proposed to consider and, if thought fit, by the Shareholders to approve the Underwriting Agreement.

– 12 –

LETTER FROM THE BOARD

William Chung-Yue Fan and Herman Man-Hei Fung (each a director in the Company and in Hon Kwok and holding 0.71% and 1.82% of the share capital of the Company, respectively) will abstain from voting on the resolution to approve the Underwriting Agreement.

A form of proxy for use at the EGM is enclosed. If you are not able to attend the EGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the Company’s share registrar in Hong Kong, Tengis Limited, at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM should you so wish.

RECOMMENDATION

The Directors consider that the entering into of the Underwriting Agreement is in the interests of the Company and recommend the Shareholders to vote in favour of the resolution to be proposed at the EGM.

FURTHER INFORMATION

The principal activity of the Company is investment holding. Its subsidiaries are engaged in superstructure construction work, foundation piling, garment manufacturing and trading and general investment.

The consolidated net profit before and after taxation and extraordinary items of the Group for the year ended 31 March 2002 were approximately HK$29.5 million and HK$10.3 million, respectively. The consolidated net loss before and after taxation and extraordinary items of the Group for the year ended 31 March 2001 were approximately HK$98.0 million and HK$105.0 million, respectively.

For the six months ended 30 September 2002, the Group reported a net profit of approximately HK$16.6 million.

Despite the domestic and global economic conditions, as well as uncertainties generated from the war against terrorism and the current war in Iraq, the Directors remain confident of the satisfactory performance of the Group for the financial year ended 31 March 2003.

At present, there are seven directors (including the independent non-executive directors) on the board of each of the Company and Hon Kwok. James Sai-Wing Wong, Madeline May-Lung Wong, William Chung-Yue Fan, Herman Man-Hei Fung and Roderick Sue-Cheun Wong are directors of both companies. William Chung-Yue Fan is a shareholder of both companies. Herman Man-Hei Fung is a shareholder of the Company and has a family interest in the shares of Hon Kwok.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information contained in the Appendices of this circular.

Yours faithfully, For and on behalf of the Board Chinney Investments, Limited James Sai-Wing Wong Chairman

– 13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. THREE YEAR FINANCIAL RESULTS OF THE COMPANY

The following is a summary of the audited consolidated income statement for each of the three years ended 31 March 2002 as extracted from the Company’s annual reports for the respective years.

Turnover Cost of sales Gross profit Other operating income Selling and distribution costs Administrative expenses Profit from operations Finance costs Gain/(loss) on disposals of subsidiaries Gain on disposals of associates Impairment loss on goodwill arising from subsidiaries acquired in prior years Loss on deemed disposal of a subsidiary Gain on deemed disposals of interests in associates Share of results of associates Share of results of jointly-controlled entities Profit/(loss) before taxation Taxation (charge)/credit Profit/(loss) before minority interests Minority interests Net profit/(loss) for the year Dividend Earnings/(loss) per share Basic Diluted	2002 HK$’000 1,744,202 (1,493,472) 250,730 31,904 (48,949) (153,922) 79,763 (21,491) 605 – – – – (33,946) 4,528 29,459 (14,997) 14,462 (4,167) 10,295 11,027 1.87 cents N/A	Year ended 31 March 2001 2000 HK$’000 HK$’000 1,145,221 1,558,014 (895,424) (1,250,895) 249,797 307,119 25,945 23,011 (75,738) (65,163) (133,980) (198,066) 66,024 66,901 (23,284) (52,424) 94,878 (3,382) 1,017 – (45,285) – – (62,542) – 7,402 (195,757) (805) 4,373 6,894 (98,034) (37,956) (6,176) 76,546 (104,210) 38,590 (818) (29,648) (105,028) 8,942 – – (19.05)cents 1.62 cents N/A 1.59 cents

– 14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SUMMARY OF THE AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 MARCH 2002

The followings are the audited financial statements of the Group extracted from the Company’s annual report for the year ended 31 March 2002.

Consolidated Income Statement

For the year ended 31st March, 2002

Notes Turnover 4 Cost of sales Gross profit Other operating income Selling and distribution costs Administrative expenses Profit from operations 6 Finance costs 7 Gain on disposals of subsidiaries Gain on disposals of associates Impairment loss on goodwill arising from subsidiaries acquired in prior years Share of results of associates Share of results of jointly-controlled entities Profit/(loss) before taxation Taxation charge 10 Profit/(loss) before minority interests Minority interests Net profit/(loss) for the year 11 Dividend 12 Earnings/(loss) per share 13 Basic	2002 HK$’000 1,744,202 (1,493,472) 250,730 31,904 (48,949) (153,922) 79,763 (21,491) 605 – – (33,946) 4,528 29,459 (14,997) 14,462 (4,167) 10,295 11,027 1.87 cents	2001 HK$’000 1,145,221 (895,424) 249,797 25,945 (75,738) (133,980) 66,024 (23,284) 94,878 1,017 (45,285) (195,757) 4,373 (98,034) (6,176) (104,210) (818) (105,028) – (19.05)cents

– 15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheets

At 31st March, 2002

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 14 Investment properties 15 Interests in subsidiaries 16 Interests in associates 17 Interests in jointly-controlled entities 18 Permanent export quota entitlements 19 Investments in securities 20 Retention monies receivable after one year Current assets Inventories 21 Amounts due from customers for contract work 22 Retention monies receivable within one year Debtors and prepayments 23 Amounts due from associates 41 Amounts due from jointly- controlled entities 41 Amount due from a subsidiary 41 Dividends receivable Taxation recoverable Investments in securities 20 Pledged bank balances Bank balances and cash	THE 2002 HK$’000 353,375 1,600 – 814,260 4,533 2,185 3,510 16,125 1,195,588 99,444 50,800 54,213 242,599 8,964 22,003 – – 54 1,470 2,000 95,818 577,365	GROUP 2001 HK$’000 145,981 1,700 – 791,212 8,340 5,694 2 1,738 954,667 127,371 2,754 1,421 109,747 13,970 41,963 – – 1,535 53,383 – 104,185 456,329	THE COMPANY 2002 2001 HK$’000 HK$’000 (restated) 7 7 – – 346,383 276,597 697,064 556,064 – – – – – – – – 1,043,454 832,668 – – – – – – 6,535 1,123 – – – – 13 9 18,158 17,437 – – – 51,151 – – 45,203 73,783 69,909 143,503	THE COMPANY 2002 2001 HK$’000 HK$’000 (restated) 7 7 – – 346,383 276,597 697,064 556,064 – – – – – – – – 1,043,454 832,668 – – – – – – 6,535 1,123 – – – – 13 9 18,158 17,437 – – – 51,151 – – 45,203 73,783 69,909 143,503
				832,668
				– – – 1,123 – – 9 17,437 – 51,151 – 73,783
				143,503

– 16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheets (Continued)

At 31st March, 2002

Notes Current liabilities Creditors and accrued charges 24 Amounts due to customers for contract work 22 Amounts due to associates 41 Amounts due to jointly-controlled entities 41 Amounts due to subsidiaries 41 Taxation payable Obligations under hire purchase contracts – due within one year 25 Bank borrowings – due within one year 26 Net current assets/(liabilities) Total assets less current liabilities Non-current liabilities Obligations under hire purchase contracts – due after one year 25 Bank borrowings – due after one year 26 Deferred taxation 27 Amounts due to minority shareholders of a subsidiary 28 Minority interests CAPITAL AND RESERVES Share capital 29 Reserves 30	THE 2002 HK$’000 185,715 86,907 1 5 – 2,440 7,250 255,868 538,186 39,179 1,234,767 4,459 35,461 16,855 32,390 89,165 3,082 1,142,520 137,842 1,004,678 1,142,520	GROUP 2001 HK$’000 86,121 960 8,279 77 – 439 39 159,365 255,280 201,049 1,155,716 138 6,686 148 20,125 27,097 1,788 1,126,831 137,842 988,989 1,126,831	THE COMPANY 2002 2001 HK$’000 HK$’000 (restated) 3,139 3,668 – – – – – – 51,648 51,714 – – – – 115,500 24,200 170,287 79,582 (100,378) 63,921 943,076 896,589 – – 25,500 – – – – – 25,500 – – – 917,576 896,589 137,842 137,842 779,734 758,747 917,576 896,589	THE COMPANY 2002 2001 HK$’000 HK$’000 (restated) 3,139 3,668 – – – – – – 51,648 51,714 – – – – 115,500 24,200 170,287 79,582 (100,378) 63,921 943,076 896,589 – – 25,500 – – – – – 25,500 – – – 917,576 896,589 137,842 137,842 779,734 758,747 917,576 896,589
				79,582
				63,921
				896,589
				– – – –
				–
				–
				896,589
				137,842 758,747
				896,589

– 17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Recognised Gains and Losses

For the year ended 31st March, 2002

Share of exchange reserve of associates attributable to the Group Exchange differences arising on translation of financial statements denominated in foreign currencies Net gains/(losses) not recognised in the consolidated income statement Net profit/(loss) for the year Total recognised gains/(losses) Goodwill eliminated directly against reserves on acquisition of subsidiaries Capital reserve arising from acquisitions of subsidiaries and associates Share of capital reserve of associates attributable to the Group	2002 HK$’000 12 928 940 10,295 11,235 – – – 11,235	2001 HK$’000 (4,354) 2,890 (1,464) (105,028) (106,492) (415) 19,923 6,167 (80,817)

– 18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31st March, 2002

Notes NET CASH INFLOW FROM OPERATING ACTIVITIES 31 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest paid Interest received Dividends received from associates Dividends received from investments in securities NET CASH INFLOW/(OUTFLOW) FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE TAXATION Hong Kong profits tax paid Overseas taxes refunded/(paid) NET CASH OUTFLOW FROM TAXATION INVESTING ACTIVITIES Proceeds from disposals of property, plant and equipment Purchases of property, plant and equipment Acquisitions of subsidiaries – net of cash and cash equivalents acquired 32 Net cash inflows from disposals of subsidiaries 33 Investments in associates Advances to associates Proceeds from disposals of associates Repayments from/(advances to) jointly-controlled entities Purchases of investments in securities Proceeds from disposals of investments in securities Proceeds from disposals of permanent export quota entitlements NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES	2002 HK$’000 103,633 (21,491) 17,490 8,263 363 4,625 (2,591) 129 (2,462) 3,624 (39,130) (129,802) 17,869 (96,039) (4,300) – 19,883 (7,568) 7,909 2,074 (225,480)	2001 HK$’000 74,575 (23,284) 9,416 2,022 – (11,846) (3,176) (483) (3,659) 486 (10,124) 2,595 238,809 (115,452) (4,340) 111,669 (10,285) (67,646) 67,122 – 212,834

– 19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement (Continued)

For the year ended 31st March, 2002

Notes NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING FINANCING 34 New bank borrowings raised Repayments of bank borrowings Repayments of obligations under hire purchase contracts Advances from minority shareholders of a subsidiary Capital contribution from minority shareholders of subsidiaries Increase in pledged bank balances NET CASH INFLOW/(OUTFLOW) FROM FINANCING (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 36	2002 HK$’000 (119,684) 670,505 (564,798) (19,355) 12,265 – (2,000) 96,617 (23,067) 85,422 62,355	2001 HK$’000 271,904 742,905 (909,882) (4,200) 20,125 318 – (150,734) 121,170 (35,748) 85,422

– 20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 31st March, 2002

1. General

The Company is a public limited company incorporated in Hong Kong with its shares listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its ultimate holding company is Lucky Year Finance Limited, an international business company incorporated in the British Virgin Islands.

The Company is an investment holding company. The principal activities of its principal operating subsidiaries, associates and jointly-controlled entities are set out in notes 16, 17 and 18, respectively.

2. Adoption of new and revised statements of standard accounting practice

In the current year, the Group has adopted a number of new and revised Statements of Standard Accounting Practice (“SSAPs”) issued by the Hong Kong Society of Accountants for the first time. Adoption of these SSAPs has led to a number of changes in the Group’s accounting policies. The revised accounting policies are set out in note 3. In addition, the new and revised standards have introduced additional and revised disclosure requirements which have been adopted in these financial statements. Comparative amounts and disclosure for the prior year have been restated in order to achieve a consistent presentation.

The adoption of the new and revised SSAPs described above has resulted in the following changes to the Group’s accounting policies that have affected the amounts and disclosure reported for the current or prior periods.

Dividends proposed or declared after the balance sheet date

In accordance with SSAP 9 (Revised) “Events after the balance sheet date”, dividends proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date, but are disclosed in the notes to the financial statements. This change in accounting policy has no effect to the financial statements.

The adoption of SSAP 9 (Revised) has also resulted in the derecognition of income from proposed final dividends that are declared and approved by the subsidiaries of the Company after the balance sheet date in the Company’s own financial statements in prior years. As a result, the net profit of the Company for the year ended 31st March, 2001 increased by approximately HK$20,813,000 and the shareholders’ funds of the Company as at 1st April, 2000 decreased by approximately HK$20,813,000.

Leases

Disclosures of the Group’s leasing arrangements have been modified so as to comply with SSAP 14 (Revised) “Leases”. Comparative figures and disclosure have been restated in order to achieve a consistent presentation as required under SSAP 14 (Revised).

Segment reporting

SSAP 26 “Segment reporting” has introduced new principles for reporting financial information by segment. Segment disclosures for the year ended 31st March, 2001 have been modified in order to conform with the requirements of the standard.

Goodwill

In the current year, the Group has adopted SSAP 30 “Business combinations” and has elected not to restate goodwill/negative goodwill previously eliminated against/credited to reserves. Accordingly, goodwill/negative goodwill arising on acquisitions prior to 1st April, 2001 is held in reserves and will be charged/credited to the income statement at the time of disposal of the relevant subsidiary or associate, or at such time as the goodwill is determined to be impaired.

Goodwill arising on acquisition after 1st April, 2001 is capitalised and amortised over its estimated useful life. Negative goodwill arising on acquisition after 1st April, 2001 is presented as a deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted.

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. Significant accounting policies

The financial statements have been prepared under the historical cost convention as modified for the revaluation of investment properties and certain investments in securities. The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out below:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”) made up to 31st March each year.

The results of subsidiaries acquired and disposed of during the year are included in the consolidated income statement from or up to their effective dates of acquisition and disposal, respectively.

All significant inter-company transactions and balances within the Group are eliminated on consolidation.

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost less any impairment losses.

Interests in associates

The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognise any identified impairment loss in the value of individual investments.

The results of associates are accounted for by the Company on the basis of dividends received and receivable during the year. In the Company’s balance sheet, investments in associates are stated at cost, as reduced by any identified impairment loss.

Joint ventures

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly-controlled entities.

The Group’s interests in jointly-controlled entities are included in the consolidated balance sheet at the Group’s share of the net assets of the jointly-controlled entities plus the premium paid/less any discount on acquisition in so far as it has not already been written off/amortised/released to income less any identified impairment loss. The Group’s share of the post-acquisition results of its jointly-controlled entities is included in the consolidated income statement.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly-controlled entity at the date of acquisition. Goodwill arising on acquisition after 1st April, 2001 is capitalised and amortised on the straight-line basis over its estimated useful life. Any impairment of goodwill will be recognised as an expense in the income statement immediately. Goodwill arising on acquisition prior to 1st April, 2001 continues to be held in reserves, and will be charged to the income statement at the time of disposal of the relevant subsidiary, associate or jointlycontrolled entity or at such time as the goodwill is determined to be impaired.

Goodwill arising on the acquisition of an associate or a jointly-controlled entity is included within the carrying amount of the associate or jointly-controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.

On disposal of a subsidiary, associate or jointly-controlled entity, the attributable amount of unamortised goodwill is included in the determination of the profit or loss on disposal.

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Negative goodwill

Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly-controlled entity at the date of acquisition over the cost of acquisition.

Negative goodwill arising on acquisition after 1st April, 2001 is presented as a deduction from assets and recognised as income based on an analysis of the circumstances from which the balance resulted.

Negative goodwill arising on acquisition prior to 1st April, 2001 continues to be held in reserves and will be credited to income at the time of disposal of the relevant subsidiary, associate or jointly-controlled entity.

Negative goodwill arising on the acquisition of an associate or a jointly-controlled entity is deducted from the carrying value of that associate or jointly-controlled entity. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and accumulated impairment losses, if any.

The profit or loss arising from disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Depreciation is provided to write off the cost of items of property, plant and equipment, other than leasehold improvements, using the straight-line method, over their estimated useful lives, at the following rates:

Leasehold land	Over the unexpired terms of the leases
Buildings	2% to 5%
Plant and machinery	10% to 30%
Motor vehicles	20% to 30%
Furniture, fixtures and equipment	20% to 33.3%

Depreciation on leasehold improvements is calculated to write off the cost of the leasehold improvements over their expected useful lives or the unexpired duration of the leases, whichever is the shorter.

Assets held under hire purchase contracts are depreciated over their expected useful lives on the same basis as owned assets.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income derived therefrom being negotiated at arm’s length.

Investment properties are stated at their open market value based on annual professional valuation at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance of this reserve is insufficient to cover a deficit, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the income statement.

On disposal of investment properties, the balance on the investment property revaluation reserve attributable to the property disposed of is transferred to the income statement.

No depreciation is provided on investment properties which are held under leases with unexpired terms of more than 20 years.

Permanent export quota entitlements

Permanent export quota entitlements purchased from outside parties are stated at cost less amortisation. The cost of purchased permanent export quota entitlements is amortised on the straight-line method over a period of three to eight years by equal monthly instalments.

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-tomaturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment.

Investments other than held-to-maturity debt securities are classified as investment securities and other investments.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary.

Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the period.

Inventories

Inventories are stated at the lower of cost and net realisable value and is calculated using the first-in, first-out method.

Construction contracts

When the outcome of a construction contract can be estimated reliably, contract revenue and costs associated with the construction contract are recognised as revenue and expenses, respectively, by reference to the stage of completion of the contract activity at the balance sheet date.

When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that is probable will be recoverable and contract costs are recognised as an expense in the period in which they are incurred.

When it is probable that total costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

When a contract covers a number of assets, the construction of each asset is treated as a separate contract when separate proposals have been submitted for each asset, or when each asset has been separately negotiated, or when the costs and revenues of each asset can be separately identified. A group of contracts, performed concurrently or in a continuous sequence, is treated as a single construction contract when the contracts were negotiated as a single package and are so closely inter-related that they constitute a single project with an overall profit margin.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Hire purchase contracts

Under a hire purchase contract, all the risks and rewards of ownership of the asset are substantially transferred to the Group. Assets held under hire purchase contracts are capitalised at their fair values at the dates of inception of the contracts. The corresponding instalments payable, net of interest charges, are shown as obligations of the Group on the balance sheet. The interest charges, or finance costs, which represent the difference between the gross instalments payable and the original principal amount under the hire purchase contract at the date of inception of the contract, are charged to the income statement over the period of the contract at an approximately constant rate.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) sales of goods are recognised when goods are delivered and title has passed;

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) revenue on construction contracts is recognised using the percentage of completion method and determined by reference to the value of the construction work performed;

• (c) rental income from property letting under operating leases, is recognised on the straight-line basis over the term of the relevant lease;

• (d) interest income is recognised on a time basis by reference to the principal outstanding and at the interest rates applicable; and

• (e) dividend income is recognised when the Group’s rights to receive payments have been established.

Capitalisation of borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, namely assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of these assets. Capitalisation of borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised.

All other borrowings costs are expensed in the period in which they are incurred.

Leases

Rentals receivable or payable under operating leases are credited or charged to income on the straight-line basis over the term of the relevant lease.

Taxation

The charge for taxation is based on the results for the year after adjusting for items which are non-assessable or disallowed. Certain items of income and expense are recognised for tax purposes in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or an asset will crystallise in the foreseeable future.

Foreign currencies

Transactions in foreign currencies are translated at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the income statement.

On consolidation, the financial statements of the Group’s overseas operations which are denominated in foreign currencies are translated at the rates ruling on the balance sheet date. All exchange differences arising on consolidation are dealt with in the exchange reserve and are recognised as income or expenses in the period on which the operation is disposed of.

Retirement benefit scheme contributions

The retirement benefit scheme contributions charged to the income statement represent the amount of contributions payable by the Group under defined contribution retirement benefit scheme and defined contribution mandatory provident fund scheme.

4. Turnover

Turnover for the year comprises:

Building construction and foundation piling Sales of consumer goods and provision of maintenance services Others	2002 HK$’000 993,974 748,478 1,750 1,744,202	2001 HK$’000 212,477 924,244 8,500
		1,145,221

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Business and geographical segments

(a) Business segments

For management purposes, the Group is currently organised into four operating divisions including construction activities, garment activities, trading activities and others. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows: Construction activities : Building construction and foundation piling Garment activities : Garment manufacturing and trading Trading activities : Wholesaling of mechanical products and electrical appliances and provision of maintenance services. All the subsidiaries engaged in trading activities were disposed in September, 2001 Others : Investment holding and provision of management services

Segment information about these business is presented below.

Income statement

Construction activities 2002 2001 HK$’000 HK$’000 Turnover 993,974 212,477 Segment results 35,356 4,817 Net income from investments Unallocated corporate expenses Profit from operations Finance costs Gain on disposals of subsidiaries Gain on disposals of associates Impairment loss on goodwill arising from subsidiaries acquired in prior years Share of results of associates (3,338 ) (978 ) Share of results of jointly-controlled entities – – Profit/(loss) before taxation Taxation charge Profit/(loss) before minority interests	Garment activities 2002 2001 HK$’000 HK$’000 690,701 813,706 31,077 54,955 93 (1,175 ) 4,528 4,373	Trading activities 2002 2001 HK$’000 HK$’000 57,777 110,538 975 1,210 – – – –	Others 2002 2001 HK$’000 HK$’000 1,750 8,500 2,124 8,535 (30,701 ) (193,604 ) – –	Consolidated 2002 2001 HK$’000 HK$’000 1,744,202 1,145,221 69,532 69,517 20,497 7,249 (10,266 ) (10,742 ) 79,763 66,024 (21,491 ) (23,284 ) 605 94,878 – 1,017 – (45,285 ) (33,946 ) (195,757 ) 4,528 4,373 29,459 (98,034 ) (14,997 ) (6,176 ) 14,462 (104,210 )

– 26 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Balance sheet

Construction Garment Trading activities activities activities Others Eliminated 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 451,391 – 445,022 441,945 – 62,093 150,009 68,948 (195,114 ) (120,647 Interests in associates – 92,015 3,040 975 – – 811,220 698,222 – – Interests in jointly-controlled entities 5 – 4,528 8,340 – – – – – – Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 387,613 87,932 55,889 57,206 – 35,721 54,788 55,350 (195,114 ) (120,647 Unallocated corporate liabilities Consolidated total liabilities OTHER INFORMATION Additions to property, plant and equipment – The Group 36,677 4,313 4,545 5,734 65 293 3 – – – – Acquired on acquisitions of subsidiaries 222,735 – – – – 124 – – – – Depreciation of property, plant and equipment 33,066 7,110 10,246 10,981 372 922 3 4 – – Amortisation of permanent export quota entitlements – – 2,439 2,659 – – – – – –	Consolidated 2002 2001 HK$’000 HK$’000 ) 851,308 452,339 814,260 791,212 4,533 8,340 102,852 159,105	Consolidated 2002 2001 HK$’000 HK$’000 ) 851,308 452,339 814,260 791,212 4,533 8,340 102,852 159,105
	1,772,953	1,410,996
	) 303,176 327,257	115,562 168,603
	630,433	284,165
	41,290 222,735 43,687 2,439	10,340 124 19,017 2,659

(b) Geographical segments

The following table provided an analysis of the Group’s turnover by geographical market:

Hong Kong North America Europe Others	Turnover 2002 2001 HK$’000 HK$’000 1,072,646 378,331 353,128 386,574 301,571 351,686 16,857 28,630 1,744,202 1,145,221	Contribution to profit from operations 2002 2001 HK$’000 HK$’000 48,054 10,315 13,668 29,664 15,610 23,589 2,431 2,456 79,763 66,024

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is an analysis of the carrying amount of the segment assets and additions to property, plant and equipment analysed by the geographical area in which the assets are located.

Carrying amount of segment assets 2002 2001 HK$’000 HK$’000 Hong Kong 606,829 229,323 The Republic of Indonesia 198,454 171,660 Others 46,025 51,356 851,308 452,339 Profit from operations Profit from operations has been arrived at after charging: Depreciation: Owned assets Assets held under hire purchase contracts Less: Amount capitalised in contract costs Staff costs (including directors’ emoluments) Less: Amount capitalised in contract costs Amortisation of permanent export quota entitlements Auditors’ remuneration Loss on disposals of property, plant and equipment Minimum lease payment paid in respect of land and buildings Deficit arising from revaluation of investment properties Loss on disposals of investments in securities Unrealised loss on investments in securities and after crediting: Accretion of discount on acquisition of debt securities Bank interest income Interest income from investments in securities Other interest income Gain on disposals of property, plant and equipment Gain on disposals of investments in securities Gain on disposals of permanent export quota entitlements Net rental income		Additions to property, plant and equipment 2002 2001 HK$’000 HK$’000 260,321 6,957 2,759 2,785 945 722 264,025 10,464 2002 2001 HK$’000 HK$’000 39,271 16,903 4,416 2,114 43,687 19,017 3,487 917 40,200 18,100 184,932 139,728 61,753 12,642 123,179 127,086 2,439 2,659 1,899 1,617 – 254 2,450 3,744 100 100 – 2,653 763 3,562 – 4,048 2,776 4,238 13,544 3,972 1,170 1,206 95 – 950 – 1,004 – 846 850	Additions to property, plant and equipment 2002 2001 HK$’000 HK$’000 260,321 6,957 2,759 2,785 945 722 264,025 10,464 2002 2001 HK$’000 HK$’000 39,271 16,903 4,416 2,114 43,687 19,017 3,487 917 40,200 18,100 184,932 139,728 61,753 12,642 123,179 127,086 2,439 2,659 1,899 1,617 – 254 2,450 3,744 100 100 – 2,653 763 3,562 – 4,048 2,776 4,238 13,544 3,972 1,170 1,206 95 – 950 – 1,004 – 846 850	Additions to property, plant and equipment 2002 2001 HK$’000 HK$’000 260,321 6,957 2,759 2,785 945 722 264,025 10,464 2002 2001 HK$’000 HK$’000 39,271 16,903 4,416 2,114 43,687 19,017 3,487 917 40,200 18,100 184,932 139,728 61,753 12,642 123,179 127,086 2,439 2,659 1,899 1,617 – 254 2,450 3,744 100 100 – 2,653 763 3,562 – 4,048 2,776 4,238 13,544 3,972 1,170 1,206 95 – 950 – 1,004 – 846 850
				10,464
				2001 HK$’000 16,903 2,114
				19,017 917
				18,100
				139,728 12,642
				127,086
				2,659 1,617 254 3,744 100 2,653 3,562 4,048 4,238 3,972 1,206 – – – 850

6. Profit from operations

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. Finance costs

Interest on: Bank borrowings wholly repayable within five years Bank borrowings not wholly repayable within five years Other borrowings wholly repayable within five years Hire purchase contracts	2002 HK$’000 18,837 – 153 2,501 21,491	2001 HK$’000 22,181 488 30 585
		23,284

8. Directors’ and employees’ emoluments

(a) Information regarding directors’ emoluments

The emoluments paid to directors of the Company during the year are as follows: Directors’ fees paid to independent non-executive directors Emoluments paid to executive directors – Salaries – Bonuses paid and payable – Retirement benefit scheme contributions The emoluments of directors fall within the following bands: Nil HK$1 to HK$1,000,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000	2002 2001 HK$’000 HK$’000 100 100 4,187 3,188 2,500 2,000 74 72 6,861 5,360 Number of directors 2002 2001 3 3 2 3 1 – 1 2 1 – 8 8	2001 HK$’000 100 3,188 2,000 72
		5,360
		8

(b) Information regarding employees’ emoluments

The five highest paid individuals of the Group in the year include three directors (2001: three directors). The emoluments of the remaining two highest paid individuals, who are not directors, are as follows:

Salaries Bonuses paid and payable Retirement benefit scheme contributions	2002 HK$’000 2,020 1,994 135 4,149	2001 HK$’000 2,129 2,750 171
		5,050

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The emoluments of these two individuals fall within the following bands:

HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$3,000,001 to HK$3,500,000	Number of 2002 – 2 – 2	employees 2001 1 – 1
		2

9. Retirement benefits scheme contributions

The Group operates defined contribution mandatory provident fund schemes (the “MPF Schemes”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate. The MPF Schemes became effective on 1st December, 2000. Contributions are made based on a percentage of the employees’s basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Schemes. The assets of the MPF Schemes are held separately from those of the Group in independently administered funds. The Group’s employer contributions vested fully with the employees when contributed into the MPF Schemes except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully in accordance with the rules of the MPF Schemes.

As an alternative, certain subsidiaries of the Company also operated defined contribution provident fund schemes (the “Provident Funds”) under the Occupational Retirement Schemes Ordinance for those employees who are eligible to participate. Provident Funds operated in a similar way to the MPF Schemes, except that when an employee left the Provident Funds prior to his/her interest in the Group’s employer contributions being vested fully, the ongoing contributions payable by the Group were reduced by the relevant amount of forfeited contributions.

Contributions payable to the Group’s MPF Schemes Contributions payable to the Group’s Provident Funds Less: Forfeited contributions Contributions charged to the income statement	2002 HK$’000 4,986 537 120 417 5,403	2001 HK$’000 623
		2,562 278
		2,284
		2,907

At 31st March, 2002, the forfeited contributions under the Provident Funds, arising from employees leaving the schemes and which are available to reduce the contributions payable by the Group in the future, amounted to approximately HK$33,000 (2001: HK$87,000).

10. Taxation charge

The charge for the year comprises: Hong Kong profits tax Current year Under/(over)-provision in prior years Overseas taxation Deferred taxation charge (note 27) Share of taxation of associates Share of taxation of jointly-controlled entities	2002 HK$’000 4,753 232 4,985 4 3,354 8,343 6,578 76 14,997	2001 HK$’000 3,251 (1,021)
		2,230 26 –
		2,256 3,893 27
		6,176

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Hong Kong profits tax is calculated at 16% (2001: 16%) on the estimated assessable profits of the year.

Overseas taxation is provided on the profits of overseas subsidiaries in accordance with the tax laws of the countries in which the subsidiaries operate.

11. Net profit/(loss) for the year

The Group’s net profit/(loss) for the year includes a net profit of approximately HK$20,987,000 (2001: HK$225,198,000) which has been dealt with in the financial statements of the Company.

12. Dividend

Dividend
			2002	2001
			HK$’000	HK$’000
Proposed final dividend of	2	cents per ordinary share (2001: Nil)	11,027	–

13. Earnings/(loss) per share

The calculation of basic earnings/(loss) per share is based on the net profit for the year of approximately HK$10,295,000 (2001: net loss of HK$105,028,000) and on 551,368,153 (2001: 551,368,153) shares in issue during the year.

No disclosure of diluted earnings per share (2001: loss per share) is presented as the exercise of outstanding options and convertible guaranteed bonds of the associates of the Group would only serve to increase the earnings per share (2001: reduce the loss per share) from the continuing ordinary activities.

14. Property, plant and equipment

THE GROUP COST At 1st April, 2001 Currency realignment Acquired on acquisitions of subsidiaries Eliminated on disposals of subsidiaries Additions Disposals At 31st March, 2002 DEPRECIATION At 1st April, 2001 Currency realignment Acquired on acquisitions of subsidiaries Eliminated on disposals of subsidiaries Eliminated on disposals Provided for the year At 31st March, 2002 NET BOOK VALUES At 31st March, 2002 At 31st March, 2001	Leasehold land and buildings Leasehold Hong Kong Overseas improvements HK$’000 HK$’000 HK$’000 77,734 66,469 11,627 – 1,259 116 14,140 – 880 (10,877) – (816 ) – 556 186 – (360 ) (94 ) 80,997 67,924 11,899 8,853 14,786 9,987 – 130 96 663 – 701 (1,051) – (778 ) – – (84 ) 1,659 1,815 949 10,124 16,731 10,871 70,873 51,193 1,028 68,881 51,683 1,640	Plant and machinery HK$’000 42,239 128 321,073 (318) 37,150 (4,915) 395,357 26,472 119 116,421 (315) (1,944) 33,704 174,457 220,900 15,767	Motor vehicles HK$’000 5,825 6 4,102 (1,180) 1,012 (499) 9,266 4,005 6 2,360 (1,103) (429) 1,573 6,412 2,854 1,820	Furniture, fixtures and equipment HK$’000 20,909 58 9,274 (3,508) 2,386 (924) 28,195 14,719 45 6,589 (2,866) (806) 3,987 21,668 6,527 6,190	Total HK$’000 224,803 1,567 349,469 (16,699 41,290 (6,792
					593,638
					78,822 396 126,734 (6,113 (3,263 43,687
					240,263
					353,375
					145,981

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

All leasehold land and buildings are held under medium-term leases.

Included in the net book value of property, plant and equipment of the Group at 31st March, 2002 is an amount of approximately HK$20,679,000 (2001: HK$176,000) in respect of assets held under hire purchase contracts.

THE COMPANY COST At 1st April, 2001 Additions Disposals At 31st March, 2002 DEPRECIATION At 1st April, 2001 Eliminated on disposals Provided for the year At 31st March, 2002 NET BOOK VALUES At 31st March, 2002 At 31st March, 2001 15. Investment properties VALUATION At 1st April, 2001 Deficit arising from revaluation At 31st March, 2002	Furniture, fixtures and equipment HK$’000 80 3 (11
	72
	73 (11 3
	65
	7
	7
	THE GROUP HK$’000 1,700 (100
	1,600

The Group’s investment properties at 31st March, 2002, which comprise land and buildings situated in Hong Kong held under medium-term leases, were revalued on an open market value basis by Chesterton Petty Limited, a firm of international property consultants. The revaluation resulted in a deficit of HK$100,000 (2001: HK$100,000) which has been charged to the income statement.

All the Group’s investment properties are rented out under operating leases.

16. Interests in subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries (note)	THE 2002 HK$’000 115,192 231,191 346,383	COMPANY 2001 HK$’000 125,192 151,405
		276,597

Note: The amounts are unsecured, non-interest bearing and have no fixed repayment terms. In the opinion of directors, the amounts will not be demanded to repay within twelve months from the balance sheet date.

– 32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of the Company’s principal subsidiaries at 31st March, 2002 are as follows:

				Percentage of
		Nominal value	nominal value of
	Place of	of issued	issued ordinary share/
	incorporation/	ordinary share/	registered capital
Name of subsidiary	establishment	registered capital	held by	the Company	Principal activities
			Directly	Indirectly
Apex Curtain Wall and	Hong Kong	HK$10,000	–	81.58	Contracting of building
Windows Company Limited					aluminium works
Chinney Builders and	Hong Kong	HK$2	–	81.58	Building construction
Foundation Company
Limited
Chinney Construction (BVI)	British Virgin	US$10,000	–	81.58	Investment holding
Limited (Formerly known as	Islands
New Luck Assets Limited)
Chinney Construction Company,	Hong Kong	HK$10,000,000	–	81.58	Building construction
Limited
Chinney Contractors Company	British Virgin	US$20,000	81.58	–	Investment holding
Limited	Islands
Dongguan Chinney Garments	The People’s	HK$22,000,000	–	100.00	Garment manufacture
Limited*	Republic of
	China (“PRC”)
Dongguan Marigold Industry	PRC	HK$50,000,000 **	–	100.00	Property holding and
City Developing Co., Ltd.*					development
DrilTech Geotechnical	Hong Kong	HK$10,000	–	81.58	Drilling, site
Engineering Limited					investigation and
					related ground
					engineering
					construction
DrilTech Ground Engineering	Hong Kong	HK$12,500,000	–	81.58	Drilling, site
Limited					investigation and
					related ground
					engineering
					construction
Gateway Group Holdings	British Virgin	US$2,500,000	100.00	–	Investment holding
Limited	Islands
Gateway Trade and	Hong Kong	HK$9,000,000	–	100.00	Garment trading
Development Company,
Limited
J.L. Chinney (Holdings)	British Virgin	US$1,250,000	100.00	–	Investment holding
Company Limited*	Islands
J.L.Group Company Limited *	Hong Kong	HK$8,000,000	–	100.00	Garment trading
J.L.Investment Company	Hong Kong	HK$10,000	–	100.00	Property and
Limited*					investment holding
J.L. (Overseas) Company	British Virgin	US$50,000	–	100.00	Sourcing agent
Limited*	Islands				for garments
Kin Wing Chinney (BVI)	British Virgin	US$208	–	81.58	Investment holding
Limited	Islands

– 33 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

				Percentage of
		Nominal value	nominal value of
	Place of	of issued	issued ordinary share/
	incorporation/	ordinary share/	registered capital
Name of subsidiary	establishment	registered capital	held by	the Company	Principal activities
			Directly	Indirectly
Kin Wing Engineering	Hong Kong	HK$10,000,000	–	81.58	Foundation piling
Company Limited
Kin Wing Foundations Limited	Hong Kong	HK$10,000	–	81.58	Foundation piling
Kin Wing Machinery &	Hong Kong	HK$100	–	81.58	Equipment and
Transportation Limited					machinery leasing
Marton Trading Limited	British Virgin	US$1	–	100.00	Garment trading
	Islands
Multi-Way Trading Limited	Hong Kong	HK$5,000,000	–	100.00	Garment trading
P T. Prefash Wears Cemerlang*	Republic of	US$500,000	–	100.00	Garment manufacture
	Indonesia				and trading
Royal Treasure Limited	Hong Kong	HK$2	100.00	–	Property holding
					and letting

• These companies were not audited by Deloitte Touche Tohmatsu.

• ** This company is a co-operative joint venture enterprise. Pursuant to an agreement entered into with the joint venture partner, the Group is:

• obliged to contribute 100% of the registered capital of the company

• entitled to 85% of the profit but has to bear all of the losses of the company

• entitled to 100% of the residual net assets of the company upon winding up

All the subsidiaries operate in their respective place of incorporation/establishment.

None of the subsidiaries had issued any debt securities at the end of the year.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of all the subsidiaries would, in the opinion of directors, result in particulars of excessive length.

17. Interests in associates

Listed shares, at cost Investments in securities Share of net assets	THE GROUP 2002 2001 HK$’000 HK$’000 – – 141,000 – 673,260 791,212 814,260 791,212	THE COMPANY 2002 2001 HK$’000 HK$’000 556,064 556,064 141,000 – – – 697,064 556,064	THE COMPANY 2002 2001 HK$’000 HK$’000 556,064 556,064 141,000 – – – 697,064 556,064
			556,064

The investments in securities represented the carrying value of the held-to-maturity debt securities of the 10% convertible guaranteed bonds due April, 2003 issued by a wholly-owned subsidiary of Hon Kwok Land Investment Company, Limited (“Hon Kwok”). Holders of the bonds have the right to convert the bonds into equity shares of Hon Kwok at a conversion price, subject to adjustment in certain events, of HK$0.40 per share.

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The market values of the shares listed on the Stock Exchange held by the Group and the Company at 31st March are as follows:

961,957,982 (2001: 797,447,982) shares of Chinney Alliance Group Limited (“Chinney Alliance”) at a closing price of HK$0.018 (2001: HK$0.042) each 632,284,758 (2001: 632,284,758) shares of Hon Kwok at a closing price of HK$0.185 (2001: HK$0.28 each)	THE GROUP 2002 2001 HK$’000 HK$’000 17,315 33,493 116,973 177,040 134,288 210,533	THE COMPANY 2002 2001 HK$’000 HK$’000 – – 116,973 177,040 116,973 177,040	THE COMPANY 2002 2001 HK$’000 HK$’000 – – 116,973 177,040 116,973 177,040
			177,040

Details of the Group’s principal associates at 31st March, 2002 are as follows:

				Percentage of
		Nominal value	nominal value of
	Place of	of issued	issued ordinary
	incorporation/	ordinary share	share capital held
Name of associate	operation	capital	by	the Company	Principal activities
			Directly	Indirectly
Chinney Alliance Group	Bermuda/	HK$33,059,950	–	29.10	Trading and
Limited	Hong Kong				manufacture of
					industrial products,
					property and
					investment holding
Hon Kwok Land Investment	Hong Kong	HK$133,415,402	47.39	–	Property development,
Company, Limited					property investment
					and investment
					holding

The above companies were not audited by Deloitte Touche Tohmatsu.

The above table lists the associates of the Group which, in the opinion of the directors, principally affected the results or form a substantial portion of the net assets of the Group.

Extracts from the financial statements of Chinney Alliance and Hon Kwok, the two major associates of the Company, are set out in note 42.

18. Interests in jointly-controlled entities

Share of net assets	THE GROUP 2002 2001 HK$’000 HK$’000 4,533 8,340

The Group had 50% equity interest in the issued share capital of it’s principal jointly-controlled entity, SGA Holdings Limited, an investment holding company incorporated in the British Virgin Islands, with its subsidiaries engaged in garment trading activities.

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. Permanent export quota entitlements

COST At 1st April, 2001 Disposals At 31st March, 2002 AMORTISATION At 1st April, 2001 Provided for the year Eliminated on disposals At 31st March, 2002 NET BOOK VALUES At 31st March, 2002 At 31st March, 2001	THE GROUP HK$’000 19,951 (2,195)
	17,756
	14,257 2,439 (1,125)
	15,571
	2,185
	5,694

The permanent export quota entitlements held by the Group are principally for shipments to the United States of America.

20. Investments in securities

THE GROUP Equity securities: Listed shares Unlisted – shares – capital contribution (note (a)) Debt securities: Listed (note (b)) Total: Listed – Hong Kong – outside Hong Kong Unlisted Market value of listed securities Carrying amount analysed for reporting purposes as: Current Non-current THE COMPANY Debt securities: Listed, outside Hong Kong (note (b)) Market value of listed securities	Investment securities 2002 2001 HK$’000 HK$’000 – – – 2 3,510 – 3,510 2 – – – – – – 3,510 2 3,510 2 – – – – 3,510 2 3,510 2 – – – –	Other investments 2002 2001 HK$’000 HK$’000 1,470 2,232 – – – – 1,470 2,232 – 51,151 1,470 2,232 – 51,151 – – 1,470 53,383 1,470 53,383 1,470 53,383 – – 1,470 53,383 – 51,151 – 51,151	Total 2002 2001 HK$’000 HK$’000 1,470 2,232 – 2 3,510 – 4,980 2,234 – 51,151 1,470 2,232 – 51,151 3,510 2 4,980 53,385 1,470 53,383 1,470 53,383 3,510 2 4,980 53,385 – 51,151 – 51,151	Total 2002 2001 HK$’000 HK$’000 1,470 2,232 – 2 3,510 – 4,980 2,234 – 51,151 1,470 2,232 – 51,151 3,510 2 4,980 53,385 1,470 53,383 1,470 53,383 3,510 2 4,980 53,385 – 51,151 – 51,151
				2,234
				51,151
				2,232 51,151 2
				53,385
				53,383
				53,383 2
				53,385
				51,151
				51,151

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

• (a) The capital contribution was stated at carrying value and represented the Group’s 25% equity interest in the registered capital of Gansu Longhai Chinney Construction Engineering Co., Ltd., a company which is established in the PRC. The investee company was not treated as an associate because, in the opinion of the directors, the Group was not in a position to exercise significant influence in the making of commercial or financial policy decisions of the investee company.

• (b) The amounts in 2001 represented the 5.3% convertible guaranteed bonds issued by a wholly-owned subsidiary of Hon Kwok, an associate of the Group.

21. Inventories

Raw materials Work in progress Finished goods	THE GROUP 2002 2001 HK$’000 HK$’000 54,668 79,083 38,313 29,749 6,463 18,539 99,444 127,371	THE GROUP 2002 2001 HK$’000 HK$’000 54,668 79,083 38,313 29,749 6,463 18,539 99,444 127,371
		127,371

Raw materials and finished goods for 2002 were stated at cost. For 2001, raw materials of approximately HK$599,000 and finished goods of approximately HK$1,972,000 were carried at net realisable value. Work in progress was stated at cost for both years.

22. Amounts due from/(to) customers for contract work

Contracts in progress at the balance sheet date comprised: Contract costs incurred Add: Recognised profits less recognised losses Less: Progress billings Represented by: Amounts due from customers shown under current assets Amounts due to customers shown under current liabilities	THE GROUP 2002 2001 HK$’000 HK$’000 4,588,835 56,884 625,670 6,459 5,214,505 63,343 5,250,612 61,549 (36,107) 1,794 50,800 2,754 (86,907) (960 (36,107) 1,794	THE GROUP 2002 2001 HK$’000 HK$’000 4,588,835 56,884 625,670 6,459 5,214,505 63,343 5,250,612 61,549 (36,107) 1,794 50,800 2,754 (86,907) (960 (36,107) 1,794
		63,343 61,549
		1,794
		2,754 (960
		1,794

Staff costs, hiring charges for plant and machinery and depreciation charges of approximately HK$61,753,000 (2001: HK$12,642,000), HK$12,722,000 (2001: Nil) and HK$3,487,000 (2001: HK$917,000), respectively, were included in contract costs. No interest expenses were capitalised in either year.

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. Debtors and prepayments

Included in debtors and prepayments are trade debtors of HK$197,531,000 (2001: HK$87,479,000). The ageing analysis of trade debtors is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days Total	THE GROUP 2002 2001 HK$’000 HK$’000 147,732 59,405 29,448 16,066 4,621 5,000 15,730 7,008 197,531 87,479	THE GROUP 2002 2001 HK$’000 HK$’000 147,732 59,405 29,448 16,066 4,621 5,000 15,730 7,008 197,531 87,479
		87,479

The Group allows an average credit period of 30 days to its trade customers.

24. Creditors and accrued charges

Included in creditors and accrued charges are trade creditors of HK$90,192,000 (2001: HK$42,531,000). The ageing analysis of trade creditors is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days Total	THE GROUP 2002 2001 HK$’000 HK$’000 59,127 32,899 23,573 6,759 3,016 896 4,476 1,977 90,192 42,531	THE GROUP 2002 2001 HK$’000 HK$’000 59,127 32,899 23,573 6,759 3,016 896 4,476 1,977 90,192 42,531
		42,531

25. Obligations under hire purchase contracts

THE GROUP

The maturity of the Group’s obligations under hire purchase contracts is as follows: Within one year Due after one year but within two years Due after two years but within five years Less: Future finance charges Present value of lease obligations Less: Amount due within one year shown under current liabilities Amount due after one year	Minimum lease payments 2002 2001 HK$’000 HK$’000 7,564 58 4,010 58 549 106 12,123 222 414 45 11,709 177	Present value of minimum lease payments 2002 2001 HK$’000 HK$’000 7,250 39 3,919 43 540 95 11,709 177 – – 11,709 177 7,250 39 4,459 138	Present value of minimum lease payments 2002 2001 HK$’000 HK$’000 7,250 39 3,919 43 540 95 11,709 177 – – 11,709 177 7,250 39 4,459 138
			177 –
			177 39
			138

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. Bank borrowings

Unsecured bank loans and overdrafts due within a period of: Less than one year or on demand More than one year but not exceeding two years More than two years but not exceeding five years Secured bank loans and overdrafts due within a period of: Less than one year or on demand More than one year but not exceeding two years More than two years but not exceeding five years After five years Total bank borrowings Less: Amount due within one year or on demand and shown under current liabilities Amount due after one year	THE GROUP 2002 2001 HK$’000 HK$’000 129,917 85,035 5,000 – 2,500 – 137,417 85,035 125,951 74,330 23,424 1,752 4,537 4,304 – 630 153,912 81,016 291,329 166,051 255,868 159,365 35,461 6,686	THE COMPANY 2002 2001 HK$’000 HK$’000 45,000 – 5,000 – 2,500 – 52,500 – 70,500 24,200 18,000 – – – – – 88,500 24,200 141,000 24,200 115,500 24,200 25,500 –	THE COMPANY 2002 2001 HK$’000 HK$’000 45,000 – 5,000 – 2,500 – 52,500 – 70,500 24,200 18,000 – – – – – 88,500 24,200 141,000 24,200 115,500 24,200 25,500 –
			–
			24,200 – – –
			24,200
			24,200 24,200
			–

The secured bank loans and overdrafts of the Group are secured by shares in certain associates and the following assets of the Group with carrying values as follows:

Inventories Investments in securities Trade debtors Amounts due from associates Property, plant and equipment Bank balances	THE GROUP 2002 2001 HK$’000 HK$’000 87,230 99,063 75,000 – 66,286 23,071 1,558 2,818 31,721 18,687 2,000 – 263,795 143,639	THE GROUP 2002 2001 HK$’000 HK$’000 87,230 99,063 75,000 – 66,286 23,071 1,558 2,818 31,721 18,687 2,000 – 263,795 143,639
		143,639

The secured bank loans and overdrafts of the Company are secured by investments in securities with carrying value of HK$75,000,000 and shares in certain associates.

– 39 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

27. Deferred taxation

Balance at the beginning of the year Charge for the year (note 10) Acquired on acquisitions of subsidiaries Eliminated upon disposals of subsidiaries Balance at the end of the year	THE GROUP 2002 2001 HK$’000 HK$’000 148 10,508 3,354 – 13,440 – (87) (10,360) 16,855 148	THE GROUP 2002 2001 HK$’000 HK$’000 148 10,508 3,354 – 13,440 – (87) (10,360) 16,855 148
		148

At the balance sheet date, the major components of the net deferred taxation liability provided for in the financial statements are analysed as follows:

Tax effect on timing differences attributable to: Excess of tax allowances over depreciation Tax losses Net deferred taxation liability provided	THE GROUP 2002 2001 HK$’000 HK$’000 19,302 148 (2,447) – 16,855 148	THE GROUP 2002 2001 HK$’000 HK$’000 19,302 148 (2,447) – 16,855 148
		148

At the balance sheet date, the major components of the net deferred taxation assets not recognised in the financial statements are analysed as follows:

Tax effect on timing differences attributable to: Excess of tax allowances over depreciation Tax losses Others Net deferred taxation asset not recognised	THE 2002 HK$’000 13,569 (15,290) – (1,721)	GROUP 2001 HK$’000 64 (11,630) (627) (12,193)	THE COMPANY 2002 2001 HK$’000 HK$’000 – – (10,602) (9,537) – – (10,602) (9,537)	THE COMPANY 2002 2001 HK$’000 HK$’000 – – (10,602) (9,537) – – (10,602) (9,537)
				(9,537)

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The amount of net unprovided deferred taxation charge/(credit) for the year is analysed as follows:

Excess of tax allowances over depreciation Tax losses Others Net deferred taxation charge/(credit)	THE 2002 HK$’000 13,505 (3,660) 627 10,472	GROUP 2001 HK$’000 (13,326) 5,007 285 (8,034)	THE COMPANY 2002 2001 HK$’000 HK$’000 – – (1,065) (693) – – (1,065) (693)	THE COMPANY 2002 2001 HK$’000 HK$’000 – – (1,065) (693) – – (1,065) (693)
				(693)

No provision for deferred taxation has been made on timing differences attributable to the excess of tax allowances over depreciation as the potential deferred taxation liability is not expected to be reversed in the foreseeable future after taking into consideration for the Group’s medium term financial plans and projections.

A deferred taxation asset is not recognised in the financial statements in respect of tax losses available to offset future profits as it is not certain that the tax losses will be crystallised in the foreseeable future.

Deferred taxation has not been provided on revaluation of investment properties as the profit or loss arising on the disposal of these assets would not be subject to taxation. Accordingly, the valuation does not constitute a timing difference for tax purposes.

28. Amounts due to minority shareholders of a subsidiary

The amounts are unsecured, non-interest bearing and have no fixed repayment terms. As agreed with minority shareholders of subsidiaries, the amount will not be demanded to repay within twelve months from the balance sheet date.

29. Share capital

Ordinary shares of HK$0.25 each: Authorised: At the beginning and the end of the year Issued and fully paid: At the beginning and the end of the year	Number of shares 2002 and 2001 1,000,000,000 551,368,153	Amount 2002 and 2001 HK$’000 250,000
		137,842

There were no changes in authorised and issued shares for both years.

– 41 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

30. Reserves

THE GROUP At 1st April, 2000 Released on disposals of associates Released on disposals of subsidiaries Capital reserve arising on acquisitions of subsidiaries Capital reserve arising on acquisitions of associates Goodwill arising on additional investment in a subsidiary Share of reserves of associates attributable to the Group Exchange differences arising on translation of financial statements denominated in foreign currencies Impairment loss on goodwill arising from subsidiaries acquired in prior years Net loss for the year At 31st March, 2001 Attributable to: The Company and subsidiaries Associates Jointly-controlled entities At 31st March, 2001 At 1st April, 2001 Released on disposals of subsidiaries Share of reserves of associates attributable to the Group Exchange differences arising on translation of financial statements denominated in foreign currencies Net profit for the year Proposed final dividend At 31st March, 2002 Attributable to: The Company and subsidiaries Associates Jointly-controlled entities At 31st March, 2002	Share premium HK$’000 267,569 – – – – – – – – – 267,569 267,569 – – 267,569 267,569 – – – – – 267,569 267,569 – – 267,569	Investment property revaluation reserve HK$’000 756 (756 ) – – – – – – – – – – – – – – – – – – – – – – – –	Exchange reserve HK$’000 (44,690) 609 – – – – (4,354) 2,890 – – (45,545) 652 (46,197) – (45,545) (45,545) – 12 928 – – (44,605) 1,581 (46,186) – (44,605)	Capital/ (goodwill) reserve HK$’000 (115,355) 30,459 (732) 485 19,438 (415) 6,167 – 45,285 – (14,668) (6,188) (8,480) – (14,668) (14,668) (489) 4,943 – – – (10,214) (6,670) (3,544) – (10,214)	Dividend reserve HK$’000 – – – – – – – – – – – – – – – – – – – – 11,027 11,027 11,027 – – 11,027	Retained profits HK$’000 886,661 – – – – – – – – (105,028) 781,633 656,904 116,466 8,263 781,633 781,633 – – – 10,295 (11,027) 780,901 693,552 82,898 4,451 780,901	Total HK$’000 994,941 30,312 (732 ) 485 19,438 (415 ) 1,813 2,890 45,285 (105,028) 988,989 918,937 61,789 8,263 988,989 988,989 (489 ) 4,955 928 10,295 – 1,004,678 967,059 33,168 4,451 1,004,678

– 42 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

THE COMPANY At 1st April, 2000 As previously reported Prior period adjustment: – Derecognition of final dividend from subsidiaries As restated Net profit for the year At 31st March, 2001 Net profit for the year Proposed final dividend At 31st March, 2002	Share premium HK$’000 267,569 – 267,569 – 267,569 – – 267,569	Investment property revaluation reserve HK$’000 – – – – – – – –	Exchange reserve HK$’000 – – – – – – – –	Capital/ (goodwill) reserve HK$’000 – – – – – – – –	Dividend reserve HK$’000 – – – – – – 11,027 11,027	Retained profits HK$’000 286,793 (20,813) 265,980 225,198 491,178 20,987 (11,027) 501,138	Total HK$’000 554,362 (20,813) 533,549 225,198 758,747 20,987 – 779,734

In addition to the retained profits of the Company which are distributable to shareholders, the share premium account of the Company can be applied under the Companies Ordinance to pay up bonus shares issuable to shareholders of the Company.

31. Reconciliation of profit/(loss) before taxation to net cash inflow from operating activities

Profit/(loss) before taxation Share of results of associates and jointly-controlled entities Interest income Interest expenses Depreciation Amortisation of permanent export quota entitlements Gain on disposals of permanent export quota entitlements Accretion of discount on acquisition of debt securities (Gain)/loss on disposals of property, plant and equipment Gain on disposals of subsidiaries Gain on disposals of associates Unrealised loss on investments in securities Impairment loss on goodwill arising on subsidiaries acquired in prior years (Gain)/loss on disposals of investments in securities Deficit arising from revaluation of investment properties Decrease in inventories Decrease/(increase) in amounts due from customers for contract work Decrease/(increase) in retention monies receivable (Increase)/decrease in debtors and prepayments Decrease in creditors and accrued charges Increase in amounts due to customers for contract work Exchange differences Net cash inflow from operating activities	2002 HK$’000 29,459 29,418 (17,490) 21,491 40,200 2,439 (1,004) – (95) (605) – 763 – (950) 100 6,590 28,054 4,813 (17,459) (40,418) 18,570 (243) 103,633	2001 HK$’000 (98,034) 191,384 (9,416) 23,284 18,100 2,659 – (4,048) 254 (94,878) (1,017) 3,562 45,285 2,653 100 14,172 (798) (4,090) 23,776 (54,804) 15,312 1,119 74,575

– 43 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

32. Acquisitions of subsidiaries

Net assets acquired: Property, plant and equipment Investments in securities Interests in an associate Investment in a jointly-controlled entity Retention monies receivable after one year Amounts due from customers for contract work Inventories Debtors and prepayments Retention monies receivable within one year Amounts due from associates Dividend receivable Taxation recoverable Bank balances and cash Creditors and accrued charges Amounts due to customers for contract work Obligations under hire purchase contracts – due within one year Amounts due to associates Amount due to a jointly-controlled entity Bank loans – due within one year Bank overdrafts Obligations under hire purchase contracts – due after one year Bank loans – due after one year Deferred taxation Taxation payable Minority interests Capital reserve arising on acquisitions attributable to the Group Consideration given Satisfied by: Cash Interests in associates	2002 HK$’000 222,735 2,802 5 5 18,598 80,275 – 137,569 57,022 1 363 47 6,209 (165,895) (69,959) (12,315) (5) (5) (18,891) (48,011) (16,412) (4,021) (13,440) – – 176,677 – 176,677 88,000 88,677 176,677	2001 HK$’000 124 – – – – – 4,054 1,902 – 7,453 – – 3,298 (8,891) – – (6,399) – – – – – – (133) (220) 1,188 (485) 703 703 – 703

Analysis of net (outflow)/inflow of cash and cash equivalents in connection with the acquisitions of subsidiaries:

Cash consideration paid Bank balances and cash acquired Bank overdrafts acquired	2002 HK$’000 (88,000) 6,209 (48,011) (129,802)	2001 HK$’000 (703) 3,298 – 2,595

The subsidiaries acquired during the year contributed approximately HK$112,171,000 of the Group’s net operating cash flows, paid approximately HK$4,399,000 in respect of net returns on investments and servicing of finance, paid approximately HK$863,000 in respect of taxation, utilised approximately HK$38,681,000 for investment activities,

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

utilised approximately HK$20,713,000 in respect of financing activities and contributed a profit of approximately HK$30,570,000 to Group’s profit before taxation for the current year.

The subsidiaries acquired during the year ended 31st March, 2001 did not contribute significantly to the Group’s cash flows or operating results.

33. Disposals of subsidiaries

	2002		2001
	HK$’000		HK$’000
Net assets disposed of:
Property, plant and equipment	10,586		179,472
Interests in associates	–		6
Investments in securities	–		2,802
Retention monies receivable after one year	2,286		12,538
Amounts due from customers for contract work	7,662		103,498
Amounts due from associates	9,766		–
Inventories	21,337		–
Debtors and prepayments	23,049		115,784
Retention monies receivable within one year	1,342		52,481
Taxation recoverable	177		543
Bank balances and cash	580		2,419
Creditors and accrued charges	(27,946)		(129,947)
Amounts due to customers for contract work	(2,582)		(42,688)
Obligations under hire purchase contracts
– due within one year	–		(10,044)
Amounts due to associates	(8,742)		(7)
Taxation payable	(47)		–
Deferred taxation	(87)		(10,360)
Bank loans – due within one year	(15,545)		(30,220)
Bank overdrafts	(8,580)		(35,573)
Obligations under hire purchase contracts
– due after one year	–		(12,691)
Bank loans – due after one year	(2,496)		(5,191)
Capital reserve attributable to the Group	(489)		(732)
Minority interests	(1,007)		(81,313)
	9,264		110,777
Transaction costs incurred in disposals of subsidiaries	–		2,547
Gain on disposals of subsidiaries	605		94,878
	9,869		208,202
Satisfied by:
Cash consideration	9,869		208,202
Analysis of net cash inflow of cash and cash equivalents in respect of the disposals of subsidiaries:

Cash consideration Transaction costs incurred in disposals of subsidiaries Bank overdrafts disposed of Bank balances and cash disposed of	2002 HK$’000 9,869 – 8,580 (580) 17,869	2001 HK$’000 208,202 (2,547) 35,573 (2,419) 238,809

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The subsidiaries disposed of during the year paid approximately HK$7,042,000 of the Group’s net operating cash flows, paid approximately HK$760,000 in respect of net returns on investments and servicing of finance, paid approximately HK$449,000 in respect of taxation, utilised approximately HK$2,501,000 for investing activities, received approximately HK$6,840,000 in respect of financing activities and contributed profit of approximately HK$215,000 to the Group’s profit before taxation in current year.

The subsidiaries disposed of during the year ended 31st March, 2001 contributed approximately HK$16,295,000 of the Group’s net operating cash flows, paid approximately HK$2,159,000 in respect of net returns on investments and servicing of finance, received approximately HK$2,069,000 in respect of taxation, utilised approximately HK$3,992,000 for investing activities, utilised approximately HK$7,289,000 in respect of financing activities and contributed profit of approximately HK$2,599,000 to the Group’s loss before taxation in that year.

34. Analysis of changes in financing during the year

At 1st April, 2000 Currency realignment New bank borrowings raised Repayments during the year Advances from minority shareholders of a subsidiary Capital contributions from minority shareholders of subsidiaries Inception of a hire purchase contract (note 35(a)) Acquisitions of subsidiaries Disposals of subsidiaries Share of results attributable to minority interests Share of reserves attributable to minority interests At 31st March, 2001 New bank borrowings raised Repayments during the year Advances from minority shareholders of a subsidiary Inception of hire purchase contracts (note 35(a)) Acquisitions of subsidiaries Disposals of subsidiaries Additional investment in a subsidiary Share of results attributable to minority interests Dividend attributable to minority shareholders of a subsidiary At 31st March, 2002	Share capital and share premium HK$’000 405,411 – – – – – – – – – – 405,411 – – – – – – – – – 405,411	Bank borrowings HK$’000 349,292 384 742,905 (909,882) – – – – (35,411) – – 147,288 670,505 (564,798) – – 22,912 (18,041) – – – 257,866	Obligations under hire purchase contracts HK$’000 26,896 – – (4,200) – – 216 – (22,735) – – 177 – (19,355) – 2,160 28,727 – – – – 11,709	Amounts due to minority shareholders Minority of a interests subsidiary HK$’000 HK$’000 80,217 – – – – – – – – 20,125 318 – – – 220 – (81,313) – 818 – 1,528 – 1,788 20,125 – – – – – 12,265 – – – – (1,007) – (24) – 4,167 – (1,842) – 3,082 32,390	Amounts due to minority shareholders Minority of a interests subsidiary HK$’000 HK$’000 80,217 – – – – – – – – 20,125 318 – – – 220 – (81,313) – 818 – 1,528 – 1,788 20,125 – – – – – 12,265 – – – – (1,007) – (24) – 4,167 – (1,842) – 3,082 32,390
					20,125 – – 12,265 – – – – – –
					32,390

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. Major non-cash transactions

• (a) During the year, the Group entered into hire purchase arrangements in respect of plant and machinery with a total capital value at the inception of the contracts of approximately HK$2,160,000 (2001: HK$216,000).

• (b) The Company was allotted a principal sum of HK$141 million of the 10% convertible guaranteed bonds issued by a wholly-owned subsidiary of Hon Kwok on 18th April, 2001. The subscription monies were satisfied by Hon Kwok repurchasing the Group’s holding of the 5.3% convertible guaranteed bonds issued by a wholly-owned subsidiary of Hon Kwok valued at approximately HK$51 million and cash payment of approximately HK$90 million.

36. Analysis of the balance of cash and cash equivalents

Bank balances and cash Bank overdrafts 37. Contingent liabilities (a) Extent of general banking facilities guaranteed by the Group/Company which were utilised at the balance sheet date by: – subsidiaries – jointly-controlled entities Bills discounted with recourse	THE 2002 HK$’000 – 35,374 5,160 40,534	GROUP 2001 HK$’000 – – 7,198 7,198		2002 2001 HK$’000 HK$’000 95,818 104,185 (33,463) (18,763) 62,355 85,422 THE COMPANY 2002 2001 HK$’000 HK$’000 32,341 19,410 – – – – 32,341 19,410	2001 HK$’000 104,185 (18,763)	2001 HK$’000 104,185 (18,763)
					85,422
						19,410

• (b) Certain subsidiaries of Chinney Contractors Company Limited (“Chinney Contractors”) were involved in legal proceedings or claims against them in the ordinary course of their respective business activities. The aggregate amount of claims, including estimated legal costs, resulting from such contingent liabilities was approximately HK$66,586,000 as at 31st March, 2002 (2001: HK$5,023,000). The directors of Chinney Contractors consider that, after taking into account of the legal advices obtained, these proceedings and claims were made without valid grounds and accordingly, no provision for any potential liabilities is considered necessary.

• (c) On 20th April, 1996, a writ was filed against a wholly-owned subsidiary of Hon Kwok, Joint Peace Investment Limited (“Joint Peace”), regarding an alleged disparity between the pavement and the ground floor level of the building at 18-22 Percival Street, junction of Jaffe Road, Causeway Bay, Hong Kong. The amount claimed, excluding minor construction and related costs, was either HK$41,000,000 or HK$69,300,000, representing the claim for loss of rental income or loss of interest on the purchase price, over a period of 12 months. A defence to contest this claim was filed on 22nd July, 1996.

On 2nd December, 1997, the plaintiff of this claim was allowed to amend the Writ of Summons and the Statement of Claim dated 20th April, 1996. Under advice by its solicitors, an Amended Defence in respect thereof was filed by Joint Peace on 30th December, 1997. On the same date, a Request for Further and Better Particulars of the Amended Statement of Claim was sent by Joint Peace’s solicitors to the plaintiff’s solicitors.

Following consultation with Hon Kwok’s legal advisers (in their capacity as the legal advisers of Joint Peace), the directors of Hon Kwok formed the view that the amended claim was unlikely to succeed and were therefore of the opinion that no provision regarding this claim is necessary in the Hon Kwok’s financial statements. There has been no further progress of the claim so far up to the date of this report.

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. Operating lease commitments

At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due:

Within one year In the second to fifth year inclusive	THE GROUP 2002 2001 HK$’000 HK$’000 (restated) 1,143 1,717 355 54 1,498 1,771	THE GROUP 2002 2001 HK$’000 HK$’000 (restated) 1,143 1,717 355 54 1,498 1,771
		1,771

The Company had no operating lease commitments at the balance sheet date.

At 31st March, 2002, a jointly-controlled entity had annual commitments payable under non-cancellable operating leases for land and buildings falling due within one year and in the second to fifth year inclusive amounting to approximately HK$697,000 (2001: HK$576,000) and HK$1,103,000 (2001: HK$1,459,000), respectively. The Group’s share of these operating lease commitments amounted to approximately HK$349,000 (2001: HK$288,000) and HK$552,000 (2001: HK$730,000), respectively.

Operating lease payments represent rental payable by the Group for certain land and buildings. Leases are negotiated for an average term of not more than two years.

39. Capital commitments

The Group and the Company had no capital commitments as at 31st March, 2002.

At 31st March, 2001, the Group had capital commitments contracted but not provided for in respect of expenditure on acquisition of property, plant and equipment amounting to approximately HK$252,000. The Company had no capital commitments as at that date.

40. Financial commitments

The Group and the Company had no financial commitments as at 31st March, 2002.

At 31st March, 2001, the Group had entered into forward exchange contract commitments amounting to approximately HK$13,188,000. The Company had no financial commitments as at that date.

41. Related party transactions

• (a) Set out below are the significant transactions between the Group and other related parties during the year:

	2002	2001
	HK$’000	HK$’000
Construction work carried out for an associate	49,678	22,535
Net interest received from jointly-controlled entities	519	798
Management fee income received from associates	1,750	8,500

In the opinion of the directors, the construction work for the associate was carried out at prices determined on the cost plus a percentage mark-up basis, and the other transactions were carried out at market prices or at market rates.

• (b) The Company was allotted a principal sum of HK$141 million of the 10% convertible guaranteed bonds issued by a wholly-owned subsidiary of Hon Kwok on 18th April, 2001. The subscription monies were satisfied by Hon Kwok repurchasing the Company’s holding of the 5.3% convertible guaranteed bonds issued by a wholly-owned subsidiary of Hon Kwok valued at approximately HK$51 million and cash payment of approximately HK$90 million.

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (c) On 3rd September, 2001, the Company disposed of its entire interest in Jackson Mercantile Trading Company Limited (“Jackson Mercantile”), a then wholly-owned subsidiary of the Company, to Chinney Alliance at a cash consideration of approximately HK$9,869,000. The consideration was arrived at after arm’s length negotiation and determined by reference to the unaudited pro forma consolidated net tangible assets of Jackson Mercantile and its subsidiaries of HK$9,869,000 as at 30th June, 2001.

• (d) On 8th January, 2002, Multi-Investment Group Limited entered into an agreement with Chinney Alliance for the subscription of 550,000,000 new shares in Chinney Alliance at HK$0.025 per share. The transaction was completed on 22nd January, 2002.

• (e) The amounts due from/to subsidiaries and associates are unsecured, non-interest bearing and are repayable on demand in both years.

• The amounts due from/to jointly-controlled entities are unsecured, bear interest at the prevailing market rates and are repayable on demand in both years.

42. Extracts from the financial statements of the group’s major associates

The following information is extracted from the most recent published audited financial statements of the Group’s major associates:

(a) Chinney Alliance Group Limited

Consolidated income statement

For the year ended 31st December, 2001

Turnover Operating loss Share of profits less losses of associates Loss before tax Tax Loss before minority interests Minority interests Net loss attributable to shareholders Consolidated balance sheet At 31st December, 2001	2001 HK$’000 687,671 (109,840) (18,789) (128,629) (1,136) (129,765) 713 (129,052)	2000 HK$’000 614,189 (18,795) 2,374 (16,421) (5,411) (21,832) (720) (22,552)

Fixed assets Goodwill Interests in associates Long term investments Other non-current assets Current assets Current liabilities Non-current liabilities Minority interests Net assets	2001 HK$’000 37,066 1,208 41,534 – 4,578 395,654 (280,120) (18,204) (1,797) 179,919	2000 HK$’000 42,970 – 53,877 43,443 1,220 448,837 (243,271) (49,020) (1,503) 296,553

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Hon Kwok Land Investment Company, Limited

Consolidated income statement

For the year ended 31st March, 2002

Turnover Operating profit/(loss) Share of profits less losses of jointly-controlled entities Profit/(loss) before tax Tax Profit/(loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders Consolidated balance sheet At 31st March, 2002 Fixed assets Properties under development Investment properties Deferred charges Interests in jointly-controlled entities Interests in associates Current assets Current liabilities Non-current liabilities Minority interests Net assets	2002 HK$’000 640,031 26,072 4,575 30,647 (13,186) 17,461 (14,305) 3,156 2002 HK$’000 6,221 724,571 893,150 4,404 33,802 14,857 1,117,318 (570,100) (911,397) (17,355) 1,295,471	2001 HK$’000 322,491 (323,266) (72,176) (395,442) (1,339) (396,781) (320) (397,101) 2001 HK$’000 7,198 957,674 888,150 782 33,385 14,857 1,006,855 (1,001,425) (612,168) (3,050) 1,292,258

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED CONSOLIDATED RESULTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002

The followings are the unaudited consolidated financial statements of the Group extracted from the Company’s interim report for the six months ended 30 September 2002.

Condensed Consolidated Income Statement

		Six months ended	Six months ended
		30th September,
		2002	2001
		(Unaudited)	(Unaudited)
	Notes	HK$’000	HK$’000
Turnover		701,877	871,511
Cost of sales		(593,919) (748,743)
Gross profit		107,958	122,768
Other operating income		14,710	16,608
Selling and distribution costs		(22,573) (24,171)
Administrative expenses		(69,956) (79,133)
Profit from operations	3	30,139	36,072
Finance costs	4	(7,323) (11,817)
Gain on disposals of subsidiaries		–	605
Share of results of associates		2,488	(33,186)
Share of results of jointly-controlled entities		3,607	3,089
Profit/(loss) before taxation		28,911	(5,237)
Taxation charge	5	(10,193) (4,611)
Profit/(loss) before minority interests		18,718	(9,848)
Minority interests		(2,166) (949)
Net profit/(loss) attributable to shareholders		16,552	(10,797)
Earnings/(loss) per share	6
Basic		3.00 cents	(1.96 cents)
Diluted		2.89 cents	N/A

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

As at 30th September, 2002 (Unaudited) Notes HK$’000 ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 7 333,684 Investment properties 1,600 Interests in associates 8 813,605 Interests in jointly-controlled entities 8,090 Permanent export quota entitlements 1,283 Investments in securities 3,510 Retention monies receivable after one year 15,846 1,177,618 Current assets Inventories 100,987 Amounts due from customers for contract work 60,508 Retention monies receivable within one year 43,924 Debtors and prepayments 9 204,346 Amounts due from associates 9,609 Amounts due from jointly-controlled entities 16,214 Taxation recoverable 35 Investments in securities 806 Pledged bank balances 2,814 Bank balances and cash 162,145 601,388	As at 31st March, 2002 (Audited) HK$’000 353,375 1,600 814,260 4,533 2,185 3,510 16,125
	1,195,588
	99,444 50,800 54,213 242,599 8,964 22,003 54 1,470 2,000 95,818
	577,365

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet (Continued)

As at 30th September, 2002 (Unaudited) Notes HK$’000 Current liabilities Creditors and accrued charges 10 143,750 Amounts due to customers for contract work 128,610 Amounts due to associates – Amounts due to jointly-controlled entities – Taxation payable 8,328 Dividend payable 88 Obligations under hire purchase contracts – due within one year 5,601 Bank borrowings – due within one year 274,148 560,525 Net current assets 40,863 Total assets less current liabilities 1,218,481 Non-current liabilities Obligations under hire purchase contracts – due after one year 2,037 Bank borrowings – due after one year 12,287 Deferred taxation 17,280 Amounts due to minority shareholders of a subsidiary 32,390 63,994 Minority interests 5,248 1,149,239 CAPITAL AND RESERVES Share capital 11 137,842 Reserves 12 1,011,397 1,149,239	As at 31st March, 2002 (Audited) HK$’000 185,715 86,907 1 5 2,440 – 7,250 255,868
	538,186
	39,179
	1,234,767
	4,459 35,461 16,855 32,390
	89,165
	3,082
	1,142,520
	137,842 1,004,678
	1,142,520

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

Net cash inflow from operating activities Net cash inflow/(outflow) from investing activities Net cash (outflow)/inflow from financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Analysis of the balances of cash and cash equivalents Bank balances and cash Bank overdrafts	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 86,131 48,865 10,080 (196,650) (26,935) 141,023 69,276 (6,762) 62,355 85,422 131,631 78,660 162,145 120,963 (30,514) (42,303) 131,631 78,660

Condensed Consolidated Statement of Changes in Equity

Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 Total shareholders’ equity as at 1st April 1,142,520 1,126,831 Exchange differences arising on translation of financial statements denominated in foreign currencies 1,027 1,504 Share of exchange reserve of associates attributable to the Group 167 (47) Net gains not recognised in the consolidated income statement 1,194 1,457 Net profit/(loss) for the period 16,552 (10,797) Release of negative goodwill previously eliminated against reserves upon disposals of subsidiaries – (488) Share of capital reserve of associates attributable to the Group – 2,662 Final dividend in respect of previous financial year (11,027) – Total shareholders’ equity as at 30th September 1,149,239 1,119,665	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 Total shareholders’ equity as at 1st April 1,142,520 1,126,831 Exchange differences arising on translation of financial statements denominated in foreign currencies 1,027 1,504 Share of exchange reserve of associates attributable to the Group 167 (47) Net gains not recognised in the consolidated income statement 1,194 1,457 Net profit/(loss) for the period 16,552 (10,797) Release of negative goodwill previously eliminated against reserves upon disposals of subsidiaries – (488) Share of capital reserve of associates attributable to the Group – 2,662 Final dividend in respect of previous financial year (11,027) – Total shareholders’ equity as at 30th September 1,149,239 1,119,665	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 Total shareholders’ equity as at 1st April 1,142,520 1,126,831 Exchange differences arising on translation of financial statements denominated in foreign currencies 1,027 1,504 Share of exchange reserve of associates attributable to the Group 167 (47) Net gains not recognised in the consolidated income statement 1,194 1,457 Net profit/(loss) for the period 16,552 (10,797) Release of negative goodwill previously eliminated against reserves upon disposals of subsidiaries – (488) Share of capital reserve of associates attributable to the Group – 2,662 Final dividend in respect of previous financial year (11,027) – Total shareholders’ equity as at 30th September 1,149,239 1,119,665	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 Total shareholders’ equity as at 1st April 1,142,520 1,126,831 Exchange differences arising on translation of financial statements denominated in foreign currencies 1,027 1,504 Share of exchange reserve of associates attributable to the Group 167 (47) Net gains not recognised in the consolidated income statement 1,194 1,457 Net profit/(loss) for the period 16,552 (10,797) Release of negative goodwill previously eliminated against reserves upon disposals of subsidiaries – (488) Share of capital reserve of associates attributable to the Group – 2,662 Final dividend in respect of previous financial year (11,027) – Total shareholders’ equity as at 30th September 1,149,239 1,119,665	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 Total shareholders’ equity as at 1st April 1,142,520 1,126,831 Exchange differences arising on translation of financial statements denominated in foreign currencies 1,027 1,504 Share of exchange reserve of associates attributable to the Group 167 (47) Net gains not recognised in the consolidated income statement 1,194 1,457 Net profit/(loss) for the period 16,552 (10,797) Release of negative goodwill previously eliminated against reserves upon disposals of subsidiaries – (488) Share of capital reserve of associates attributable to the Group – 2,662 Final dividend in respect of previous financial year (11,027) – Total shareholders’ equity as at 30th September 1,149,239 1,119,665
	1,027 167			1,504 (47)
			1,457 (10,797) (488) 2,662 – 1,119,665

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Condensed Consolidated Financial Statements

1. Basis of preparation and accounting policies

The unaudited condensed consolidated interim financial statements are prepared in accordance with the requirements of Appendix 16 of the Listing Rules and the Hong Kong Statement of Standard Accounting Practice (“SSAP”) No. 25 “Interim Financial Reporting”.

The condensed consolidated interim financial statements should be read in conjunction with the 2001/2002 annual financial statements.

The accounting policies and basis of preparation used in the preparation of the interim financial statements are consistent with those used in the annual financial statements for the year ended 31st March, 2002, except that the Group has adopted the following SSAPs issued by the Hong Kong Society of Accountants which are effective for accounting periods commencing on or after 1st January, 2002:

SSAP 1 (revised) : Presentation of financial statements SSAP 11 (revised) : Foreign currency translation SSAP 15 (revised) : Cash flow statements SSAP 34 : Employee benefits

The adoption of these new or revised SSAPs has no significant effect on the results of the Group for the current or prior accounting period, other than a change in the format of presentation of the cash flow statement and the requirement to present a statement of changes in equity.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. Segment information

An analysis of the Group’s turnover and results by business and geographical segments is as follows:

Business segments

Turnover Segment results Net income from investments Unallocated corporate expenses Profit from operations Finance costs Gain on disposals of subsidiaries Share of results of associates Share of results of jointly-controlled entities Profit/(loss) before taxation Taxation charge Profit/(loss) before minority interests Geographical segments Hong Kong North America Europe Others	Construction activities Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 437,917 485,890 16,874 13,610 – (3,338 – –	Construction activities Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 437,917 485,890 16,874 13,610 – (3,338 – –	Garment activities Trading activities Other activities Consolidated Six months ended Six months ended Six months ended Six months ended 30th September, 30th September, 30th September, 30th September, 2002 2001 2002 2001 2002 2001 2002 2001 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 263,960 327,844 – 57,777 – – 701,877 871,511 9,128 13,565 – 975 – 298 26,002 28,448 8,162 10,763 (4,025 ) (3,139 ) 30,139 36,072 (7,323 ) (11,817 ) – 605 ) (296 ) – – – 2,784 (29,848 ) 2,488 (33,186 ) 3,607 3,089 – – – – 3,607 3,089 28,911 (5,237 ) (10,193 ) (4,611 ) 18,718 (9,848 ) Contribution to Turnover profit from operations Six months ended Six months ended 30th September, 30th September, 2002 2001 2002 2001 (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 442,967 555,153 21,337 21,777 153,006 161,588 1,328 7,591 103,262 141,403 7,149 5,790 2,642 13,367 325 914 701,877 871,511 30,139 36,072
		13,610
		(3,338 –

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. Profit from operations

Profit from operations is arrived at after charging/(crediting):

Depreciation of property, plant and equipment: Owned assets Assets held under hire purchase contracts Less: Amount capitalised in contract costs Staff costs (including directors’ emoluments) Less: Amount capitalised in contract costs Amortisation of permanent export quota entitlements Loss on disposal of investments in securities Unrealised loss on investments in securities Interest income from debt securities Bank interest income Other interest income Dividend income from investment in securities	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 22,050 17,880 1,487 2,405 23,537 20,285 1,860 2,303 21,677 17,982 85,554 86,837 27,825 26,198 57,729 60,639 902 1,329 – 98 664 839 (7,050) (6,494 (869) (1,289 (471) (1,096 (436) –	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 22,050 17,880 1,487 2,405 23,537 20,285 1,860 2,303 21,677 17,982 85,554 86,837 27,825 26,198 57,729 60,639 902 1,329 – 98 664 839 (7,050) (6,494 (869) (1,289 (471) (1,096 (436) –
		20,285 2,303
		17,982
		86,837 26,198
		60,639
		1,329 98 839 (6,494 (1,289 (1,096 –

4. Finance costs

Interest on: Bank borrowings wholly repayable within five years Hire purchase contracts	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 7,140 10,980 183 837 7,323 11,817	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 7,140 10,980 183 837 7,323 11,817
		11,817

5. Taxation charge

Hong Kong Overseas Deferred taxation Share of taxation of associates Share of taxation of jointly-controlled entities	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 6,201 3,064 – 4 424 800 6,625 3,868 3,517 743 51 – 10,193 4,611	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 6,201 3,064 – 4 424 800 6,625 3,868 3,517 743 51 – 10,193 4,611
		3,868 743 –
		4,611

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Hong Kong profits tax is calculated at 16% (2001: 16%) on the estimated assessable profits of the period. Overseas taxation is provided on the profits of overseas subsidiaries in accordance with the tax laws of the countries in which the subsidiaries operate.

6. Earnings/(loss) per share

The calculation of basic earnings/(loss) per share is based on the net profit for the period of approximately HK$16,552,000 (2001: net loss of HK$10,797,000) and on 551,368,153 (2001: 551,368,153) shares in issue during the period.

The calculation of diluted earnings per share for the six months ended 30th September, 2002 is based on the following data:

Earnings Earnings for the purpose of calculating the basic earnings per share Adjustment to earnings based on dilution effect of the earnings per share of associates Earnings for the purpose of calculating the diluted earnings per share Number of shares Number of shares in issue during the six months ended 30th September, 2002 for the purpose of calculating the diluted earnings per share	(Unaudited) HK$’000 16,552 (632
	15,920
	551,368,153

No diluted loss per share for the six months ended 30th September, 2001 is presented as the exercise of the outstanding options and convertible guaranteed bonds of the associates of the Group would only serve to reduce the loss per share from the continuing ordinary activities.

7. Property, plant and equipment

During the current interim period, the Group acquired property, plant and equipment at a cost of approximately HK$3,723,000. The Group disposed property, plant and equipment with a net book value of approximately HK$60,000.

8. Interests in associates

Included in interests in associates are held-to-maturity debt securities of HK$141,000,000 (as at 31st March, 2002: HK$141,000,000) of the 10% convertible guaranteed bonds due April 2003 issued by a wholly-owned subsidiary of Hon Kwok. Holders of the bonds have the right to convert the bonds into equity shares of Hon Kwok at a conversion price, subject to adjustment in certain events, of HK$0.40 per share.

9. Debtors and prepayments

Included in debtors and prepayments are trade debtors of HK$137,426,000 (as at 31st March, 2002: HK$197,531,000). The ageing analysis of trade debtors is as follows:

As at 30th September, 2002 (Unaudited) HK$’000 Current to 30 days 104,824 31 to 60 days 13,048 61 to 90 days 2,723 Over 90 days 16,831 Total 137,426	As at 31st March, 2002 (Audited) HK$’000 147,732 29,448 4,621 15,730
	197,531

The Group allows an average credit period of 30 days to its trade customers.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Creditors and accrued charges

Included in creditors and accrued charges are trade creditors of HK$74,282,000 (as at 31st March, 2002: HK$90,192,000). The ageing analysis of trade creditors is as follows:

As at 30th September, 2002 (Unaudited) HK$’000 Current to 30 days 49,652 31 to 60 days 12,990 61 to 90 days 5,524 Over 90 days 6,116 Total 74,282	As at 31st March, 2002 (Audited) HK$’000 59,127 23,573 3,016 4,476
	90,192

11. Share capital

There were no movements in the authorised, issued and fully paid share capital of the Company in both interim periods.

12. Reserves

At 1st April, 2001 Released on disposals of subsidiaries Share of reserves of associates attributable to the Group Exchange differences arising on translation of financial statements denominated in foreign currencies Net loss for the period At 30th September, 2001 At 1st April, 2002 Share of reserve of associates attributable to the Group Exchange differences arising on translation of financial statements denominated in foreign currencies Net profit for the period Final dividend in respect of previous financial year At 30th September, 2002	Share premium (Unaudited) HK$’000 267,569 – – – – 267,569 267,569 – – – – 267,569	Exchange reserve (Unaudited) HK$’000 (45,545) – (47) 1,504 – (44,088) (44,605) 167 1,027 – – (43,411)	Capital/ (goodwill) reserve (Unaudited) HK$’000 (14,668) (488) 2,662 – – (12,494) (10,214) – – – – (10,214)	Dividend reserve (Unaudited) HK$’000 – – – – – – 11,027 – – – (11,027) –	Retained profits (Unaudited) HK$’000 781,633 – – – (10,797) 770,836 780,901 – – 16,552 – 797,453	Total (Unaudited) HK$’000 988,989 (488 2,615 1,504 (10,797
						981,823
						1,004,678 167 1,027 16,552 (11,027
						1,011,397

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. Acquisitions and disposals of subsidiaries

• (a) Acquisitions of subsidiaries

The subsidiaries acquired during the prior interim period have the following effect on the Group’s net assets:

Net assets acquired Satisfied by: Cash consideration Interests in associates Analysis of net outflow of cash and cash equivalent in respect of the acquisitions: Cash consideration Bank overdrafts (net of bank balances and cash) acquired	(Unaudited) HK$’000 176,677
	88,000 88,677
	176,677
	88,000 41,802
	129,802

(b) Disposals of subsidiaries

The effect on the Group’s net assets on the disposals of subsidiaries during the prior interim period is as follows:

Net assets disposed of Minority interests Reserves attributable to the Group and released upon disposal Gain on disposals of subsidiaries Cash consideration Analysis of net inflow of cash and cash equivalents in respect of the disposals: Cash consideration Bank overdrafts (net of bank balances and cash) disposed of	(Unaudited) HK$’000 10,759 (1,007) (488)
	9,264 605
	9,869
	9,869 8,000
	17,869

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Operating lease commitments

As at 30th September, 2002, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due:

As at 30th September, 2002 (Unaudited) HK$’000 Within one year 765 In the second to fifth year inclusive 286 1,051	As at 31st March, 2002 (Audited) HK$’000 1,143 355
	1,498

As at 30th September, 2002, a jointly-controlled entity had commitments payable under non-cancellable operating leases for land and buildings falling due within one year and in the second to fifth year inclusive amounting to approximately HK$487,000 (as at 31st March, 2002: HK$697,000) and HK$965,000 (as at 31st March, 2002: HK$1,103,000), respectively. The Group’s share of these operating lease commitments amounted to approximately HK$244,000 (as at 31st March, 2002: HK$349,000) and HK$483,000 (as at 31st March, 2002: HK$552,000), respectively.

Operating lease payments represent rental payable by the Group for certain land and buildings. Leases are negotiated for an average term of not more than two years.

15. Related party transactions

• (a) Set out below are the significant transactions between the Group and other related parties during the period:

Construction work carried out for an associate Net interest received from jointly-controlled entities Interest received from an associate	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 9,684 27,284 422 672 7,050 6,384

In the opinion of the directors, the construction work for the associate was carried out at prices determined on the cost plus a percentage mark-up basis, and the interest received from jointly-controlled entities was charged at market rates. The interest received from an associate represented interest income on convertible guaranteed bonds with a fixed coupon rate of 10% per annum.

• (b) The Company was allotted a principal sum of HK$141 million of the 10% convertible guaranteed bonds issued by a wholly-owned subsidiary of Hon Kwok on 18th April, 2001. The subscription monies were satisfied by Hon Kwok repurchasing the Company’s holding of the 5.3% convertible guaranteed bonds issued by a wholly-owned subsidiary of Hon Kwok valued at approximately HK$51 million and cash payment of approximately HK$90 million.

• (c) On 3rd September, 2001, the Company disposed of its entire interest in Jackson Mercantile, a then whollyowned subsidiary of the Company, to Chinney Alliance at a cash consideration of approximately HK$9,869,000. The consideration was arrived at after arm’s length negotiation and determined by reference to the unaudited pro-forma consolidated net tangible assets of Jackson Mercantile and its subsidiaries of HK$9,869,000 as at 30th June, 2001.

• (d) The amounts due from/to associates are unsecured, non-interest bearing and are repayable on demand in both interim periods.

The amounts due from/to jointly-controlled entities are unsecured, bear interest at the prevailing market rates and are repayable on demand in both interim periods.

16. Approval of the interim financial statements

These condensed interim financial statements were approved and authorised for issue by the board of directors on 12th December, 2002.

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. STATEMENT OF PRO FORMA UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following is a statement of the pro forma unaudited adjusted consolidated net tangible assets of the Group, based on the unaudited consolidated net tangible assets of the Group and the Hon Kwok Group as at 30 September 2002, adjusted for the full effect of the underwriting commitments of the Company under the Underwriting Agreement, the revaluation of the Hon Kwok Group’s properties by independent property valuers as at 28 February 2003 and the subscription by the Company of the Excluded Hon Kwok Rights Shares.

Unaudited consolidated net tangible assets of the Group as at 30 September 2002 Pro forma unaudited adjusted consolidated net tangible assets of the Hon Kwok Group immediately following the Hon Kwok Rights Issue Less: Minority interests Share of the pro forma unaudited adjusted consolidated net tangible assets of the Hon Kwok Group immediately following the Hon Kwok Rights Issue by the Company Less: Share of unaudited consolidated net tangible assets of the Hon Kwok Group as at 30 September 2002 Increase in share of unaudited consolidated net tangible assets of the Hon Kwok Group immediately after the Hon Kwok Rights Issue on the assumption that the Company subscribed for all the Hon Kwok Rights Shares Subscription monies payable for the 200,123,100 Hon Kwok Rights Shares Underwriting commission receivable from Hon Kwok Pro forma unaudited adjusted consolidated net tangible assets of the Group immediately following the Hon Kwok Rights Issue Unaudited consolidated net tangible assets value per share as at 30 September 2002 immediately before the Hon Kwok Rights Issue_(Note) Pro forma unaudited adjusted consolidated net tangible assets value per share immediately following the Hon Kwok Rights Issue(Note)_	HK$’000 1,195,210 251,472 943,738 616,230	HK$’000 1,149,239 327,508 (200,123) 2,632 1,279,256 HK$2.08 HK$2.32

Note: Based on the total number of 551,368,153 shares of the Company in issue as at the Latest Practicable Date.

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. INDEBTEDNESS

At the close of business on 31 January 2003, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$207.4 million comprising secured bank borrowings of approximately HK$80.6 million, unsecured bank borrowings of approximately HK$121.5 million and obligations under hire purchase contracts of approximately HK$5.3 million.

The Group’s bank borrowings were secured by shares in certain associates, charges on certain inventories, investments in securities, trade debtors, trade debts due from associates, bank balances and fixed charges on certain leasehold properties and machineries of the Group.

The Group had contingent liabilities of approximately HK$72.0 million as at 31 January 2003 in respect of guarantees of approximately HK$53.0 million provided for banking facilities utilised by jointly-controlled entities and approximately HK$19.0 million in respect of bills discounted with recourse.

Details of the Group’s contingent liabilities in respect of potential losses arising from litigation amounting to approximately HK$65 million as at 31 January 2003 are set out in Appendix III of this circular under the section headed “Litigation”.

Save as aforesaid and apart from intra-group liabilities, the Group did not have, at the close of business on 31 January 2003, any outstanding mortgages, charges, debentures or other loan capital, bank loans and overdrafts or other similar indebtedness, liabilities under acceptance credits, obligations under hire purchase contracts or finance leases, guarantees or other material contingent liabilities.

6. MATERIAL CHANGES

As a result of the obligations of the Company under the Underwriting Agreement, the Company may take up the Hon Kwok Rights Shares not subscribed by other Hon Kwok Shareholders. The shareholding of the Company in Hon Kwok may therefore increase from the existing 47.39% to more than 50% upon completion of the Hon Kwok Rights Issue. Under generally accepted accounting practice, Hon Kwok would then be accounted for as a subsidiary instead of an associate in the consolidated financial statements of the Group.

In March 2003, the Group obtained a term loan of HK$120 million from a syndicate of banks. The term loan is secured by first legal charges on certain machineries of the Group.

Save as aforesaid, the Directors are not aware of any circumstances or events as at the Latest Practicable Date that may give rise to a material change in the financial or trading condition or prospects of the Group since 31 March 2002, being the date to which the latest published audited financial statements of the Group were made up.

7. WORKING CAPITAL

Taking into account the Group’s internal resources and available borrowing facilities, the Directors are of the opinion that the Group, assuming Hon Kwok becomes a subsidiary of the Company, has sufficient working capital for its present requirements, in the absence of unforeseeable circumstances.

– 63 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

1. THREE YEAR FINANCIAL RESULTS OF THE HON KWOK GROUP

The following is a summary of the audited consolidated income statement for each of the three years ended 31 March 2002 as extracted from Hon Kwok’s annual reports for the respective years.

Turnover Profit/(loss) from operating activities Gain on disposals of interests in subsidiaries Gain on disposals of a jointly-controlled entity Finance costs Share of profits less losses of jointly-controlled entities Profit/(loss) before tax Tax credit/(charge) Profit/(loss) before minority interests Minority interests Net profit/(loss) attributable to shareholders Earnings/(loss) per share Basic

Year ended 31 March 2002 2001 2000 HK$’000 HK$’000 HK$’000 640,031 322,491 166,050 72,292 (383,295) 22,684 – 108,459 4,634 – 11,330 – (46,220) (59,760) (77,978) 4,575 (72,176) 19,251 30,647 (395,442) (31,409) (13,186) (1,339) 82,110 17,461 (396,781) 50,701 (14,305) (320) (375) 3,156 (397,101) 50,326 0.24 cent (29.8)cents 4.3 cents

– 64 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

2. SUMMARY OF THE AUDITED FINANCIAL STATEMENTS OF THE HON KWOK GROUP FOR THE YEAR ENDED 31 MARCH 2002

The followings are the audited financial statements of the Hon Kwok Group extracted from Hon Kwok’s annual report for the year ended 31 March 2002.

Consolidated Profit and Loss Account

For the year ended 31st March, 2002

Notes TURNOVER 5 Cost of sales Gross profit/(loss) Other revenue 5 Administration expenses Other operating income/(expenses), net PROFIT/(LOSS) FROM OPERATING ACTIVITIES 7 Gain on disposals of interests in subsidiaries Gain on disposal of a jointly-controlled entity Finance costs 8 Share of profits less losses of jointly-controlled entities 18 PROFIT/(LOSS) BEFORE TAX Tax 11 PROFIT/(LOSS) BEFORE MINORITY INTERESTS Minority interests NET PROFIT/(LOSS) FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 12 & 28 EARNINGS/(LOSS) PER SHARE Basic 13	2002 HK$’000 640,031 (545,483) 94,548 10,744 (35,431) 2,431 72,292 – – (46,220) 4,575 30,647 (13,186) 17,461 (14,305) 3,156 0.24 cents	2001 HK$’000 322,491 (365,294) (42,803) 14,342 (52,852) (301,982) (383,295) 108,459 11,330 (59,760) (72,176) (395,442) (1,339) (396,781) (320) (397,101) (29.8 cents)

– 65 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Consolidated Statement of Recognised Gains and Losses

For the year ended 31st March, 2002

Note Exchange differences on translation of the financial statements of foreign entities and gain/(loss) not recognised in the consolidated profit and loss account 28 Net profit/(loss) from ordinary activities attributable to shareholders Total recognised gains/(losses) Capital reserve arising on the issue of shares of a subsidiary 28	2002 HK$’000 25 3,156 3,181 – 3,181	2001 HK$’000 (9,174) (397,101) (406,275) 3,500 (402,775)

– 66 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Balance Sheets

31st March, 2002

Notes NON-CURRENT ASSETS Fixed assets 14 Properties under development 15 Investment properties 16 Deferred charges Interests in subsidiaries 17 Interests in jointly-controlled entities 18 Interests in associates 19 CURRENT ASSETS Prepaid tax Properties held for sale 20 Short term investment 21 Prepayments, deposits and other receivables 22 Pledged time deposits Time deposits Cash and bank balances CURRENT LIABILITIES Amounts due to related companies 6 Accounts payable and accrued liabilities 23 Customer deposits Tax payable Convertible guaranteed bonds 24 Interest-bearing bank loans 25 NET CURRENT ASSETS/ (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES	Group 2002 2001 HK$’000 HK$’000 6,221 7,198 724,571 957,674 893,150 888,150 4,404 782 – – 33,802 33,385 14,857 14,857 1,677,005 1,902,046 322 823 861,809 801,508 – 7,455 64,288 47,964 25,000 38,000 37,161 57,193 128,738 53,912 1,117,318 1,006,855 12,414 8,253 86,822 103,270 8,118 9,947 11,943 586 – 496,176 450,803 383,193 570,100 1,001,425 547,218 5,430 2,224,223 1,907,476	Company 2002 2001 HK$’000 HK$’000 2,131 3,395 – – – – – – 1,340,175 1,237,396 3,873 3,873 – – 1,346,179 1,244,664 – – – – – – 3,190 2,311 – – 29,500 30,808 1,867 10,247 34,557 43,366 – – 2,220 2,228 – – – – – – 20,000 78,000 22,220 80,228 12,337 (36,862) 1,358,516 1,207,802

– 67 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Balance Sheets (Continued) 31st March, 2002

Notes NON-CURRENT LIABILITIES Convertible guaranteed bonds 24 Interest-bearing bank loans 25 Loans from minority interests 26 MINORITY INTERESTS CAPITAL AND RESERVES Issued capital 27 Reserves 28	Group 2002 2001 HK$’000 HK$’000 300,000 – 553,331 560,263 58,066 51,905 911,397 612,168 17,355 3,050 1,295,471 1,292,258 133,415 133,415 1,162,056 1,158,843 1,295,471 1,292,258	Company 2002 2001 HK$’000 HK$’000 – – 150,000 – – – 150,000 – – – 1,208,516 1,207,802 133,415 133,415 1,075,101 1,074,387 1,208,516 1,207,802	Company 2002 2001 HK$’000 HK$’000 – – 150,000 – – – 150,000 – – – 1,208,516 1,207,802 133,415 133,415 1,075,101 1,074,387 1,208,516 1,207,802
			–
			–
			1,207,802
			133,415 1,074,387
			1,207,802

– 68 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Consolidated Cash Flow Statement

For the year ended 31st March, 2002

Note NET CASH INFLOW FROM OPERATING ACTIVITIES 29(a) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest paid Interest received Net cash outflow from returns on investments and servicing of finance TAX Hong Kong profits tax paid Overseas profits tax paid Taxes paid INVESTING ACTIVITIES Purchases of fixed assets Additions to properties under development Additions to investment properties Proceeds from disposal of investment properties Proceeds from disposal of long term investments Proceeds from disposal of short term investment Decrease in pledged time deposits Additions to long term investments Additions to investment deposits Acquisition of a subsidiary Disposals of subsidiaries Disposal of a jointly-controlled entity Repayment from jointly-controlled entities Advances to associates Net cash inflow/(outflow) from investing activities NET CASH INFLOW BEFORE FINANCING ACTIVITIES – Page 70	2002 HK$’000 343,591 (81,008) 3,686 (77,322) (103) (1,225) (1,328) (1,141) (93,324) (2,569) – – 11,253 13,000 – – – – – 4,158 – (68,623) 196,318	2001 HK$’000 81,192 (110,649) 9,006 (101,643) (81) (1,198) (1,279) (6,197) (58,250) (26,704) 198,000 13,129 – – (8,800) (14,835) (5,000) 149,995 41,060 163,256 (8,701) 436,953 415,223

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Consolidated Cash Flow Statement (Continued)

For the year ended 31st March, 2002

Note NET CASH INFLOW BEFORE FINANCING ACTIVITIES – Page 69 FINANCING ACTIVITIES 29(b) Net proceeds from issue of convertible guaranteed bonds Proceeds from exercise of warrants Increase in bank loans Repayment of bank loans Increase in loans from minority interests Repurchase of convertible guaranteed bonds Redemption of convertible guaranteed bonds Net cash outflow from financing activities INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Non-pledged time deposits with original maturity of less than three months when acquired Cash and bank balances	2002 HK$’000 196,318 291,589 – 377,100 (316,422) 6,161 (66,536) (433,416) (141,524) 54,794 111,105 165,899 37,161 128,738 165,899	2001 HK$’000 415,223 – 5 290,727 (399,385) 2,603 (107,448) (277,914) (491,412) (76,189) 187,294 111,105 57,193 53,912 111,105

– 70 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Notes to the Financial Statements

31st March, 2002

1. Corporate information

The registered office and the principal place of business of Hon Kwok is located at 18th Floor, Hang Seng Building, 77 Des Voeux Road Central, Hong Kong.

During the year, the Hon Kwok Group was involved mainly in property development and property investment.

2.

Impact of new and revised Statements of Standard Accounting Practice (“SSAPs”)

The following recently-issued and revised SSAPs and related Interpretations are effective for the first time for the current year’s financial statements:

SSAP 9 (Revised)	:	“Events after the balance sheet date”
SSAP 14 (Revised)	:	“Leases”
SSAP 18 (Revised)	:	“Revenue”
SSAP 26	:	“Segment reporting”
SSAP 28	:	“Provisions, contingent liabilities and contingent assets”
SSAP 29	:	“Intangible assets”
SSAP 30	:	“Business combinations”
SSAP 31	:	“Impairment of assets”
SSAP 32	:	“Consolidated financial statements and accounting for investments in subsidiaries”
Interpretation 12	:	“Business combinations – subsequent adjustment of fair values and goodwill
		initially reported”
Interpretation 13	:	“Goodwill – continuing requirements for goodwill and negative goodwill previously
		eliminated against/credited to reserves”

These SSAPs prescribe new accounting measurement and disclosure practices. The major effects on the Hon Kwok Group’s accounting policies and on the amounts disclosed in these financial statements of the new SSAPs and Interpretations which have had a significant effect on the financial statements, are summarised as follows:

SSAP 9 (Revised) prescribes which type of events occurring after the balance sheet date require adjustment to the financial statements, and which require disclosure, but no adjustment. Its principal impact is that a proposed final dividend which is not declared and approved until after the balance sheet date, is no longer recognised as a liability at the balance sheet date, but is disclosed as an allocation of retained earnings on a separate line within the capital and reserves section of the balance sheet. The adoption of this revised SSAP has had no impact on the financial statements as there was no final dividend proposed for the years reported.

SSAP 14 (Revised) prescribes the basis for lessor and lessee accounting for finance and operating leases, and the required disclosures in respect thereof. Certain amendments have been made to the previous accounting measurement treatments, which may be accounted for retrospectively or prospectively, in accordance with the requirements of the SSAP. The revised SSAP requirements have not had a material effect on the amounts previously recorded in the financial statements, therefore no prior year adjustment has been required. The disclosure changes under this SSAP have resulted in changes to the detailed information disclosed for operating leases, which are further detailed in note 30 to the financial statements.

SSAP 26 prescribes the principles to be applied for reporting financial information by segment. It requires that management assesses whether the Hon Kwok Group’s predominant risks or returns are based on business segments or geographical segments and determines one of these bases to be the primary segment information reporting format, with the other as the secondary segment information reporting format. The impact of the SSAP is the inclusion of significant additional segment reporting disclosures which are set out in note 4 to the financial statements.

SSAP 30 prescribes the accounting treatment for business combinations, including the determination of the date of acquisition, the method for determining the fair values of the assets and liabilities acquired, and the treatment of goodwill or negative goodwill arising on acquisition. The SSAP requires the disclosure of goodwill in the non-current assets section of the consolidated balance sheet. It requires that goodwill is amortised to the consolidated profit and loss account over its estimated useful life. Negative goodwill is recognised in the consolidated profit and loss account depending on the circumstances from which it arose. Interpretation 13 prescribes the application of SSAP 30 to goodwill arising from acquisitions in previous years which remains eliminated against consolidated reserves. The effect of the adoption of this SSAP and Interpretation is explained in the “Goodwill” accounting policy in note 3 and in note 28.

SSAP 31 prescribes the recognition and measurement criteria for impairments of assets. The SSAP is required to be applied prospectively and therefore, has had no effect on amounts previously reported in prior year financial statements.

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

3. Summary of significant accounting policies

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the periodic remeasurement of investment properties and short term investments, as further explained below.

Basis of consolidation

The consolidated financial statements include the financial statements of Hon Kwok and its subsidiaries for the year ended 31st March, 2002, together with the Hon Kwok Group’s share of the post-acquisition results of its jointlycontrolled entities and associates on the basis as set out below. The results of subsidiaries, jointly-controlled entities and associates acquired or disposed of during the year are consolidated or equity accounted for from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Hon Kwok Group are eliminated on consolidation.

Subsidiaries

A subsidiary is a company, other than a jointly-controlled entity, in which Hon Kwok, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors.

Hon Kwok’s interests in subsidiaries are stated at cost less any impairment losses.

Joint venture companies

A joint venture company is a company set up by contractual arrangement, whereby the Hon Kwok Group and other parties undertake an economic activity. The joint venture company operates as a separate entity in which the Hon Kwok Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture company’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture company is treated as:

• (a) a subsidiary, if Hon Kwok has unilateral control over the joint venture company;

• (b) a jointly-controlled entity, if Hon Kwok does not have unilateral control, but has joint control over the joint venture company;

• (c) an associate, if Hon Kwok does not have unilateral or joint control, but holds generally not less than 20% of the joint venture company’s registered capital and is in a position to exercise significant influence over the joint venture company; or

• (d) a long term investment, if Hon Kwok holds less than 20% of the joint venture company’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture company.

Jointly-controlled entities

A jointly-controlled entity is a joint venture company which is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.

The Hon Kwok Group’s share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated profit and loss account and consolidated reserves, respectively. The Hon Kwok Group’s interests in jointly-controlled entities are stated in the consolidated balance sheet at the Hon Kwok Group’s share of net assets under the equity method of accounting, less any impairment losses.

The results of jointly-controlled entities are included in Hon Kwok’s profit and loss account to the extent of dividends received and receivable. Hon Kwok’s interests in jointly-controlled entities are treated as long term assets and are stated at cost less any impairment losses.

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Associates

An associate is a company, not being a subsidiary or a jointly-controlled entity, in which the Hon Kwok Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Hon Kwok Group’s share of the post-acquisition results and reserves of associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Hon Kwok Group’s interests in associates are stated in the consolidated balance sheet at the Hon Kwok Group’s share of net assets under the equity method of accounting, less any impairment losses.

The results of associates are included in Hon Kwok’s profit and loss account to the extent of dividends received and receivable. Hon Kwok’s interests in associates are treated as long term assets and are stated at cost less any impairment losses.

Goodwill

Goodwill arising on the acquisition of subsidiaries, associates and jointly-controlled entities represents the excess purchase consideration paid for subsidiaries, associates or jointly-controlled entities over the Hon Kwok Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life. In the case of associates and jointly-controlled entities, any unamortised goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet.

In prior years, goodwill arising on acquisitions was eliminated against consolidated reserves in the year of acquisition. The Hon Kwok Group has adopted the transitional provision of SSAP 30 that permits goodwill on acquisitions which occurred prior to 1st April, 2001, to remain eliminated against consolidated reserves. Goodwill on subsequent acquisitions is treated according to the new accounting policy above.

On disposal of subsidiaries, associates or jointly-controlled entities, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate. Any attributable goodwill previously eliminated against consolidated reserves at the time of acquisition is written back and included in the calculation of the gain or loss on disposal.

The carrying amount of goodwill, including goodwill remaining eliminated against consolidated reserves, is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/ amortisation), had no impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Fixed assets and depreciation

Fixed assets, other than investment properties, are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repair and maintenance, is normally charged to the profit and loss account in the year in which incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an asset, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost less any residual value of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land and buildings 5% or over the unexpired terms of the leases Leasehold improvements 5% and 20% Furniture and equipment 20%

The gain or loss on disposal of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Properties under development

Properties under development are stated at cost and include the cost of land, construction, financing and other related expenses, less any impairment losses.

Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are intended to be held on a long term basis for their investment potential, any rental income being negotiated at arm’s length. Such properties are not depreciated and are stated at their open market value on the basis of annual professional valuations performed at the end of each financial year. Changes in the value of investment properties are dealt with as movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged.

On the disposal of an investment property, the relevant portion of the investment property revaluation reserve realised in respect of previous valuations is released to the profit and loss account.

Short term investments

Short term investments are investments in listed equity securities held for trading purposes and are stated at their fair values on the basis of their quoted market prices at the balance sheet date on an individual investment basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the profit and loss account in the period in which they arise.

Properties held for sale

Properties held for sale, consisting of completed properties and properties under development in respect of which the Hon Kwok Group has undertaken pre-sale programmes, are classified under current assets and are stated at the lower of cost and net realisable value. Cost includes all development expenditure, applicable borrowing costs and other direct costs attributable to such properties. Net realisable value is determined by reference to management estimates based on prevailing market conditions, on an individual property basis.

Profit arising on the pre-sale of properties under development is recognised over the course of the development and is calculated on each project as a proportion of the total estimated profit to completion, after taking into account further costs to completion. The proportion used is the estimated construction costs of pre-sold units over the total estimated construction costs of the property under development. The profit per pre-sold unit so recognised is restricted to the amount of instalments received and receivable under legally binding contracts at the balance sheet date.

– 74 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised.

Convertible guaranteed bonds

Convertible guaranteed bonds are stated at cost, and are adjusted for the accretion of premiums on redemption on a straight-line basis over the period of the bonds’ existence.

Deferred charges

Deferred charges relating to expenses incurred for bond issues are deferred and amortised, using the straight-line method, over the period of the bonds’ existence.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Hon Kwok Group and when the revenue can be measured reliably, on the following bases:

• (a) income from the sale of completed properties is recognised when a legally binding sale and purchase contract is signed. Income from the pre-sale of properties under development is recognised over the course of development (as more fully described under “Properties held for sale”);

• (b) rentals receivable from land and buildings held for use under operating leases are accounted for on a straightline basis over the respective periods of the leases;

• (c) property management income is recognised in the period in which services are rendered;

• (d) interest is recognised on a time proportion basis, taking into account the principal outstanding and the effective interest rate applicable; and

• (e) dividends are recognised when the shareholders’ right to receive payment has been established.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Hon Kwok Group is the lessor, assets leased by the Hon Kwok Group under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the profit and loss account on the straight-line basis over the lease terms. Where the Hon Kwok Group is the lessee, rentals payable under such operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.

Retirement benefits scheme

The Hon Kwok Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its eligible employees. The MPF Scheme became effective on 1st December, 2000. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Hon Kwok Group in independently administered funds. The Hon Kwok Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme except for the Hon Kwok Group’s employer voluntary contributions, which are refunded to the Hon Kwok Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

Deferred tax

Deferred tax is provided, using the liability method, on all significant timing differences to the extent that it is probable that the liability will crystallise in the foreseeable future. A deferred tax asset is not recognised until its realisation is assured beyond reasonable doubt.

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Foreign currencies

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries, jointly-controlled entities and associates are translated to Hong Kong dollars at the applicable rates of exchange ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

With respect to investments in certain overseas subsidiaries which are financed by way of loans that are not repayable in the foreseeable future, rather than equity, the resulting exchange differences on translation are included in the exchange fluctuation reserve. In the opinion of the directors of Hon Kwok, such loans are for practical purposes as permanent as equity and, accordingly, are treated as part of Hon Kwok’s net investment in the enterprises.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Cash equivalents

For the purpose of the consolidated cash flow statement, cash equivalents represent short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance. For the purpose of balance sheet classification, cash and bank balances and time deposits represent assets which are not restricted as to use.

4. Segment information

SSAP 26 was adopted during the year, as detailed in note 2 to the financial statements. Under SSAP 26, segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Hon Kwok Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Hon Kwok Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of other business segments. Summary details of the business segments are as follows:

• (a) the property development segment is a property developer;

• (b) the property investment segment is a holder of investment properties and let out for the generation of rental income;

• (c) the property management segment is a service provider in providing property management services; and

• (d) the financing activities segment provides mortgage services.

In determining the Hon Kwok Group’s geographical segments, revenues and results are attributed to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets.

During the current and prior years, there were no intersegment transactions.

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

(a) Business segments

The following tables present revenue, profit/(loss) and certain asset, liability and expenditure information for the Hon Kwok Group’s business segments.

Property development 2002 2001 HK$’000 HK$’000 Segment revenue: Sales to external customers 585,149 277,318 Segment results 55,382 (262,703) Interest and investment income Unallocated gains Unallocated expenses Profit/(loss) from operating activities Gain on disposals of interests in subsidiaries Gain on disposal of a jointly-controlled entity Interest expenses Amortisation of bond issue expenses Share of profits less losses of jointly-controlled entities 4,642 (73,973) Profit/(loss) before tax Tax Profit/(loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders	Property investment 2002 2001 HK$’000 HK$’000 44,319 34,256 32,138 (70,165) – –	Property investment 2002 2001 HK$’000 HK$’000 44,319 34,256 32,138 (70,165) – –	Property management 2002 2001 HK$’000 HK$’000 3,674 3,664 107 770 – –	Financing activities 2002 2001 HK$’000 HK$’000 738 1,093 460 801 – –	Others 2002 2001 HK$’000 HK$’000 6,151 6,160 2,595 2,598 (67) 1,797	Consolidated 2002 2001 HK$’000 HK$’000 640,031 322,491 90,682 (328,699) 2,212 9,110 5,586 487 (26,188) (64,193) 72,292 (383,295) – 108,459 – 11,330 (44,921) (59,760) (1,299) – 4,575 (72,176) 30,647 (395,442) (13,186) (1,339) 17,461 (396,781) (14,305) (320) 3,156 (397,101)	Consolidated 2002 2001 HK$’000 HK$’000 640,031 322,491 90,682 (328,699) 2,212 9,110 5,586 487 (26,188) (64,193) 72,292 (383,295) – 108,459 – 11,330 (44,921) (59,760) (1,299) – 4,575 (72,176) 30,647 (395,442) (13,186) (1,339) 17,461 (396,781) (14,305) (320) 3,156 (397,101)
		(70,165)					(328,699) 9,110 487 (64,193)
		–
							(383,295) 108,459 11,330 (59,760) – (72,176)
							(395,442) (1,339)
							(396,781) (320)
							(397,101)

– 77 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

			Property	Property	Property		Property		Financing
		development		investment		management			activities		Others	Eliminations			Consolidated
		2002	2001	2002	2001	2002	2001	2002	2001	2002	2001	2002	2001		2002		2001
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000		HK$’000
Segment assets	1,785,024		1,848,742	898,084	895,678	3,874	4,051	18,006	17,532	1,887,639	2,196,444	(1,847,285)	(2,110,066)		2,745,342		2,852,381
Interests in jointly-
controlled entities		33,802	33,385	–	–	–	–	–	–	–	–	–	–		33,802		33,385
Interests in associates		14,857	14,857	–	–	–	–	–	–	–	–	–	–		14,857		14,857
Unallocated assets		–	–	247	789	30	–	40	34	5	7,455	–	–		322		8,278
Total assets															2,794,323		2,908,901
Segment liabilities	1,385,068		1,389,962	525,646	799,503	2,675	2,634	7,223	7,223	21,613	23,961	(1,847,285)	(2,110,066)		94,940		113,217
Unallocated liabilities		709,647	966,198	508,594	360,555	–	24	7,207	7,015	178,464	169,634	–	–		1,403,912		1,503,426
Total liabilities															1,498,852		1,616,643
Other segment
information:
Depreciation and
amortisation		4,129	3,608	1,309	14	62	7	–	–	1,407	2,154	–	–		6,907		5,783
Impairment losses
recognised in the
profit and loss
account		–	188,000	–	–	–	–	–	–	–	–	–	–		–		188,000
Revaluation
(surplus)/deficit		–	–	(2,431)	90,854	–	–	–	–	–	–	–	–		(2,431)		90,854
Other non-cash
expenses/(gain)		75	–	191	(61)	–	–	–	–	–	–	–	–		266		(61)
Capital expenditure		715	487	9	1	186	25	–	–	231	5,684	–	–		1,141		6,197

(b) Geographical segments

The following tables present revenue, profit/(loss) and certain asset and expenditure information for the Hon Kwok Group’s geographical segments.

Hong 2002 HK$’000 Segment revenue: Sales to external customers 281,854 Segment results (2,232) Other segment information: Segment assets 2,400,010 Capital expenditure 249	Kong 2001 HK$’000 224,714 (327,337) 2,573,077 5,709	Mainland China 2002 2001 HK$’000 HK$’000 341,690 80,943 85,445 2,697 581,714 535,876 883 487	Mainland China 2002 2001 HK$’000 HK$’000 341,690 80,943 85,445 2,697 581,714 535,876 883 487	Malaysia 2002 2001 HK$’000 HK$’000 11,405 11,891 5,862 (5,430) 215,542 215,583 9 1	Canada 2002 2001 HK$’000 HK$’000 5,082 4,943 1,607 1,371 99,946 92,066 – –	Eliminations 2002 2001 HK$’000 HK$’000 – – – – (551,870) (564,221) – –	Consolidated 2002 2001 HK$’000 HK$’000 640,031 322,491 90,682 (328,699) 2,745,342 2,852,381 1,141 6,197	Consolidated 2002 2001 HK$’000 HK$’000 640,031 322,491 90,682 (328,699) 2,745,342 2,852,381 1,141 6,197
			2,697					(328,699)
			535,876 487					2,852,381 6,197

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

5. Turnover and other revenue

Turnover represents income from the sale of properties, gross rental income earned, property management income and interest income from mortgages.

An analysis of turnover and other revenue is as follows:

Turnover Sale of properties Gross rental income Property management income Interest income from mortgages Other revenue Interest income from bank deposits Income from unlisted long term investments Gain on disposal of listed short term investment Gain on repurchase of convertible guaranteed bonds Others	Group 2002 2001 HK$’000 HK$’000 585,149 277,318 50,470 40,416 3,674 3,664 738 1,093 640,031 322,491 2,212 7,764 – 1,346 3,798 – – 2,454 4,734 2,778 10,744 14,342	Group 2002 2001 HK$’000 HK$’000 585,149 277,318 50,470 40,416 3,674 3,664 738 1,093 640,031 322,491 2,212 7,764 – 1,346 3,798 – – 2,454 4,734 2,778 10,744 14,342
		322,491
		7,764 1,346 – 2,454 2,778
		14,342

6. Related party transactions

• (a) During the year, the Hon Kwok Group had transactions with companies in which James Sai-Wing Wong, Madeline May-Lung Wong, William Chung-Yue Fan and Herman Man-Hei Fung, directors of Hon Kwok, had beneficial interests. The significant transactions are summarised below.

			Group
		2002	2001
	Notes	HK$’000	HK$’000
Construction costs paid to related companies	(i)	55,125	86,493
Management fees paid to a related company	(ii)	–	6,000
Legal and professional fees paid to a
solicitor’s firm in which a director of
Hon Kwok is a consultant	(iii)	957	2,264

Notes:

• (i) Construction costs paid to related companies were agreed on an individual contract basis between the respective parties. Such costs were negotiated and charged on bases similar to those under contracts with third parties.

• (ii) Last year’s management fees were based on the underlying costs incurred by the related company.

• (iii) The directors consider that the provision of legal and professional services was made according to the standard prices and conditions similar to those offered to other clients of the solicitor’s firm.

• (b) In April, 2001, the Hon Kwok Group issued 10% convertible guaranteed bonds due April, 2003 with a principal sum of HK$300 million (the “B Bonds”). Chinney Investments, Limited (“Chinney Investments”), as a substantial shareholder, and Patrick Yen-Tse Tsai, as a director of Hon Kwok, subscribed for the B Bonds in the principal amount of HK$141 million and HK$2 million respectively. The subscriptions together with the Hon Kwok Group’s repurchase of the principal amount of US$5,625,000 of the 5.3% convertible guaranteed bonds due July, 2001 held by Chinney Investments were approved by the independent shareholders of Hon Kwok on 9th April, 2001. The B Bonds were issued and allotted to Chinney Investments and Patrick Yen-Tse Tsai under the same terms and conditions as other independent bondholders.

– 79 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

• (c) In May, 2001, the Hon Kwok Group obtained bank loan facilities of HK$150 million through cash collaterals provided by Lucky Year Finance Limited (“Lucky Year”), a substantial shareholder of Hon Kwok. In consideration of Lucky Year’s provision of the cash security, the Hon Kwok Group agreed to pay a commission of 1.75% per annum on the average principal amount of the cash security outstanding during the term of the bank loans to Lucky Year and counter-indemnify Lucky Year in respect of the cash security. As security for the counter-indemnity, the Hon Kwok Group mortgaged the entire issued share capital of two of its subsidiaries and assigned shareholders’ loans in an aggregate amount of HK$220,245,000 to Lucky Year. The connected financing arrangement was approved by the independent shareholders of Hon Kwok on 28th June, 2001.

• (d) The balances with the related companies are unsecured, interest-free, and have no fixed terms of repayment.

7. Profit/(loss) from operating activities

The Hon Kwok Group’s profit/(loss) from operating activities is arrived at after charging/(crediting):

Auditors’ remuneration Depreciation Minimum lease payments under operating leases on land and buildings Provision/(write back of provision) against rental receivables Deficit/(surplus) on revaluation of investment properties Impairment of properties held for sale Staff costs (including directors’ remuneration – note 9): Salaries and bonuses Pension scheme contributions Less: Forfeited contributions utilised Gross rental income Less: Outgoing expenses Loss on disposal of fixed assets Exchange losses, net

Group 2002 2001 HK$’000 HK$’000 1,063 1,196 2,118 2,653 2,605 2,707 266 (61) (2,431) 90,854 – 188,000 14,700 22,772 959 1,256 – (282) 959 974 15,659 23,746 (50,470) (40,416) 16,187 15,873 (34,283) (24,543) – 2,636 – 20,491

At the balance sheet date, the amount of forfeited pension contributions available for future utilisation was not significant.

• The deficit/(surplus) on revaluation of investment properties and impairment of properties held for sale is included in “Other operating income/(expenses), net” on the face of the consolidated profit and loss account.

– 80 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

8. Finance costs

Interest on: Bank loans wholly repayable within five years Bank loans wholly repayable after five years Convertible guaranteed bonds Bank overdrafts Less: Amounts capitalised under property development projects Accretion of convertible bond premium on redemption Less: Amounts capitalised under property development projects Amortisation of bond issue expenses Less: Amounts capitalised under property development projects Total finance costs 9. Directors’ remuneration Fees Salaries, allowances and benefits in kind Pension scheme contributions Included in the above were the following payments to independent non-executive Fees The remuneration of the above directors fell within the following bands: Nil HK$1 – HK$1,000,000 HK$2,500,001 – HK$3,000,000

Group 2002 2001 HK$’000 HK$’000 (33,302) (72,181) (18,282) – (33,832) (33,266) (43) (82) (85,459) (105,529) 40,538 45,769 (44,921) (59,760) (3,776) (14,440) 3,776 14,440 – – (4,789) (3,130) 3,490 3,130 (1,299) – (46,220) (59,760) Group 2002 2001 HK$’000 HK$’000 100 100 2,340 2,340 162 162 2,602 2,602 directors: Group 2002 2001 HK$’000 HK$’000 100 100 Number of directors 2002 2001 4 4 2 2 1 1 7 7

There were no arrangements under which a director waived or agreed to waive any remuneration during the year.

– 81 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

10. Senior executives’ emoluments

The five highest paid employees during the year included one (2001: one) director, details of whose remuneration are set out in note 9 above. The details of the remuneration of the remaining four (2001: four) non-director, highest paid employees are set out below:

Salaries, allowances and benefits in kind Pension scheme contributions	Group 2002 2001 HK$’000 HK$’000 3,581 5,567 247 298 3,828 5,865	Group 2002 2001 HK$’000 HK$’000 3,581 5,567 247 298 3,828 5,865
		5,865

The remuneration of the above non-director, highest paid employees fell within the following bands:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000	Number of 2002 2 2 – 4	individuals 2001 – 2 2
		4

11. Tax

Hong Kong profits tax has been provided at the rate of 16% (2001: 16%) on the estimated assessable profits arising in Hong Kong during the year. Tax on the profits of subsidiaries operating outside Hong Kong has been calculated at the rates of tax prevailing in their respective jurisdictions.

Group: Hong Kong Elsewhere Jointly-controlled entities in Hong Kong Tax charge for the year	Group 2002 2001 HK$’000 HK$’000 (48) (93 (13,138) (729 (13,186) (822 – (517 (13,186) (1,339	Group 2002 2001 HK$’000 HK$’000 (48) (93 (13,138) (729 (13,186) (822 – (517 (13,186) (1,339
		(822 (517
		(1,339

Deferred tax has not been provided as there were no significant timing differences in the recognition of revenue and expenses for tax and financial reporting purposes at the balance sheet date. The revaluation of the Hon Kwok Group’s properties is not considered to be a timing difference.

A deferred tax asset of HK$78,602,000 (2001: HK$68,185,000), related primarily to the Hon Kwok Group’s unutilised tax losses, has not been recognised in the financial statements.

12. Net profit/(loss) from ordinary activities attributable to shareholders

The net profit from ordinary activities attributable to shareholders dealt with in the financial statements of Hon Kwok is HK$714,000 (2001: net loss of HK$254,044,000).

– 82 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

13. Earnings/(loss) per share

The calculation of the basic earnings/(loss) per share is based on the net profit from ordinary activities attributable to shareholders of HK$3,156,000 (2001: net loss of HK$397,101,000) and on 1,334,154,019 (2001: weighted average of 1,334,149,660) shares of Hon Kwok in issue during the year.

The diluted earnings per share for the year ended 31st March, 2002 has not been shown as all convertible guaranteed bonds and share options outstanding during the year had an anti-dilutive effect on the basic earnings per share for the year (2001: anti-dilutive impact on the basic loss per share).

14. Fixed assets

Group

Cost: At 1st April, 2001 Additions At 31st March, 2002 Accumulated depreciation: At 1st April, 2001 Provided during the year At 31st March, 2002 Net book value: At 31st March, 2002 At 31st March, 2001	Leasehold land and buildings HK$’000 2,531 – 2,531 161 114 275 2,256 2,370	Leasehold improvements HK$’000 5,634 398 6,032 3,645 959 4,604 1,428 1,989	Furniture and equipment HK$’000 8,229 743 8,972 5,390 1,045 6,435 2,537 2,839	Total HK$’000 16,394 1,141
				17,535
				9,196 2,118
				11,314
				6,221
				7,198

The leasehold land and buildings are situated in The People’s Republic of China and are held under long term leases.

Company

Cost: At 1st April, 2001 Additions At 31st March,2002 Accumulated depreciation: At 1st April, 2001 Provided during the year At 31st March, 2002 Net book value: At 31st March, 2002 At 31st March, 2001	Leasehold improvements HK$’000 5,347 – 5,347 3,431 792 4,223 1,124 1,916	Furniture and equipment HK$’000 5,595 63 5,658 4,116 535 4,651 1,007 1,479	Total HK$’000 10,942 63
			11,005
			7,547 1,327
			8,874
			2,131
			3,395

– 83 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

15. Properties under development

Group

At cost Development expenditure	2001 HK$’000 625,176 332,498 957,674	Additions HK$’000 – 140,601 140,601	Reclassified to properties held for sale HK$’000 (178,079) (195,625) (373,704)	2002 HK$’000 447,097 277,474
				724,571

The additions to development expenditure included interest expenses and other borrowing costs totalling HK$42,047,000 (2001: HK$46,000,000) incurred and capitalised during the year.

Details of the properties under development are as follows:

Medium term leases: Hong Kong The People’s Republic of China Freehold property in Canada	2002 HK$’000 286,356 339,638 98,577 724,571	2001 HK$’000 568,048 299,020 90,606
		957,674

Certain of the Hon Kwok Group’s properties under development were pledged to the Hon Kwok Group’s bankers to secure the banking facilities detailed in note 25.

16. Investment properties

At 1st April Additions, at cost Disposal during the year Revaluation surplus/(deficit) arising during the year At 31st March, at valuation Analysis by type and location: Long term leasehold land and buildings in Hong Kong Medium term leasehold land and buildings in Hong Kong Freehold land and buildings in Malaysia	Group 2002 2001 HK$’000 HK$’000 888,150 1,150,300 2,569 26,704 – (198,000) 2,431 (90,854) 893,150 888,150 500,000 495,000 180,000 180,000 213,150 213,150 893,150 888,150	Group 2002 2001 HK$’000 HK$’000 888,150 1,150,300 2,569 26,704 – (198,000) 2,431 (90,854) 893,150 888,150 500,000 495,000 180,000 180,000 213,150 213,150 893,150 888,150
		888,150
		495,000 180,000 213,150
		888,150

At the balance sheet date, all of the investment properties were revalued on the basis of their open market values by Knight Frank or Henry Butcher, Lim & Long Sdn. Bhd. (chartered surveyors). The investment properties are leased to third parties under operating leases, further summary details of which are included in note 30 to the financial statements.

All the Hon Kwok Group’s investment properties were pledged to the Hon Kwok Group’s bankers to secure the banking facilities detailed in note 25.

– 84 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

17. Interests in subsidiaries

Unlisted shares, at cost Due from subsidiaries Provision for impairment Due to subsidiaries	Company 2002 2001 HK$’000 HK$’000 8 23 2,563,518 2,537,581 (297,137) (253,821 2,266,389 2,283,783 (926,214) (1,046,387 1,340,175 1,237,396	Company 2002 2001 HK$’000 HK$’000 8 23 2,563,518 2,537,581 (297,137) (253,821 2,266,389 2,283,783 (926,214) (1,046,387 1,340,175 1,237,396
		2,283,783 (1,046,387
		1,237,396

The amounts due from/(to) subsidiaries are unsecured, interest-free, and have no fixed terms of repayment, except for an amount due from a subsidiary of HK$162,166,000 (2001: HK$156,837,000) which is not repayable in the foreseeable future.

The directors of Hon Kwok are of the opinion that a complete list of the particulars of all subsidiaries would be of excessive length and therefore, the following list contains only the particulars of subsidiaries which materially affected the results or assets and liabilities of the Hon Kwok Group.

Particulars of the principal subsidiaries are as follows:

		Nominal value
		of issued
	Place of	ordinary/		Percentage of
	incorporation/	registered	equity attributable		Principal
Name	registration	share capital		to Hon Kwok	activities
			Direct	Indirect
Champion Fine	British Virgin	US$1	–	100	Investment
International	Islands				holding
Investment Limited*
Champion Fine	Canada	C$1	–	100	Property
International					development
Investments Inc.*
Chinney Property	Hong Kong	HK$100	–	100	Property
Management Limited					management
Cosmos Star	Hong Kong	HK$100	–	55	Property
Development Limited					development
Cosmos Wealth	Hong Kong	HK$1,000	–	100	Property
Development Limited					development
Crown Honour	Hong Kong	HK$2	100	–	Financing
Developments Limited					and nominee
					services
Debest Development	Hong Kong	HK$2	–	100	Property
Limited					development
Eagle Strong	Hong Kong	HK$10	–	100	Property
Company Limited					development
Golden Country	Hong Kong	HK$2	–	100	Property
Development Limited					development

– 85 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

		Nominal value
		of issued
	Place of	ordinary/		Percentage of
	incorporation/	registered	equity attributable		Principal
Name	registration	share capital		to Hon Kwok	activities
			Direct	Indirect
Hon Cheong Limited	Hong Kong	HK$2	–	100	Property
					development
Hon Kwok Land	British Virgin	US$1	100	–	Financing
Capital Limited	Islands
Hon Kwok Land Investment	Hong Kong	HK$2	100	–	Investment
(China) Limited					holding
Hon Kwok Land Investment	The People’s	HK$30,000,000	–	100	Property
(Shenzhen) Co., Ltd.*	Republic of				development
	China
Hon Kwok Land	British Virgin	US$1	100	–	Financing
Treasury II Limited	Islands
Hon Kwok Project	Hong Kong	HK$2	100	–	Project
Management Limited					management
Honbest Investment	Hong Kong	HK$2	–	100	Property
Limited					development
Honour Well Development	Hong Kong	HK$2	–	100	Property
Limited					holding
					and letting
Kensen Properties Limited	Hong Kong	HK$100	–	55	Property
					development
King Champion Limited	Hong Kong	HK$2	–	100	Property
					holding
					and letting
Nanhai Xin Da Real Estate	The People’s	HK$90,480,000	–	80	Property
Development Co., Ltd.*	Republic of				development
	China
Pacific Corporate	Hong Kong	HK$2	100	–	Provision of
Services Limited					corporate
					services
Prime Best Development	Hong Kong	HK$2	–	100	Property
Limited					development
Rich Winner Development	Hong Kong	HK$100	–	55	Property
Limited					development
Shenzhen Honkwok Huaye	The People’s	RMB30,000,000	–	80	Property
Development Co., Ltd.*	Republic of				development
	China
Spark Eagle Development	Hong Kong	HK$2	100	–	Property
Limited					holding
					and letting
Star World Property	Hong Kong	HK$2	–	100	Property
Limited					development
Sunny Land Sdn Bhd	Malaysia	M$2	100	–	Property
					management

– 86 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

		Nominal value
		of issued
	Place of	ordinary/		Percentage of
	incorporation/	registered	equity attributable		Principal
Name	registration	share capital		to Hon Kwok	activities
			Direct	Indirect
Victory Venture	Hong Kong	HK$2	–	100	Property
Development Limited					development
Wide Fame	Hong Kong	HK$2	–	100	Property
Investment Limited					development
Wise Pacific	Hong Kong	HK$10,000	–	60	Money lending
Investment Limited

• Not audited by Ernst &Young Hong Kong or other Ernst &Young International member firms.

The subsidiaries operate in their place of incorporation/registration, except for Spark Eagle Development Limited which operates in Malaysia.

Except for Hon Kwok Land Capital Limited and Hon Kwok Land Treasury II Limited, none of the subsidiaries had any loan capital outstanding at the balance sheet date or at any time during the year.

The subsidiaries disposed of during the current and prior years did not have any significant impact on the Hon Kwok Group’s turnover and results.

The entire issued share capital in Champion Fine International Investment Limited and Spark Eagle Development Limited were pledged to Lucky Year, a substantial shareholder of Hon Kwok, as a counter-indemnity for certain banking facilities detailed in note 25.

18. Interests in jointly-controlled entities

Share of profits less losses of jointly-controlled entities:

Operating profits/(losses) Impairment of properties under development Impairment of properties held for sale Group 2002 2001 HK$’000 HK$’000 Unlisted shares, at cost – – Share of net assets less liabilities, other than goodwill (98,350) (102,925) (98,350) (102,925) Due from jointly-controlled entities, net 132,152 136,310 33,802 33,385	Group 2002 2001 HK$’000 HK$’000 4,575 (48,676 – (14,500 – (9,000 4,575 (72,176 Company 2002 2001 HK$’000 HK$’000 – – – – – – 3,873 3,873 3,873 3,873	Group 2002 2001 HK$’000 HK$’000 4,575 (48,676 – (14,500 – (9,000 4,575 (72,176 Company 2002 2001 HK$’000 HK$’000 – – – – – – 3,873 3,873 3,873 3,873
		– 3,873
		3,873

The Hon Kwok Group’s share of the post-acquisition accumulated losses of the jointly-controlled entities at 31st March, 2002 was HK$143,345,000 (2001: HK$147,920,000).

– 87 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

The amounts due from the jointly-controlled entities are unsecured, interest-free, and have no fixed terms of repayment.

Particulars of the principal jointly-controlled entities are as follows:

		Place of		Percentage of
	Business	incorporation	Ownership	Voting	Profit	Principal
Name	structure	and operation	interest	power	sharing	activities
Cenford Investments	Corporate	Hong Kong	50	50	50	Property
Limited						development
Global Wealth	Corporate	Hong Kong	50	50	50	Property
Development Limited						development
Hunnewell Limited	Corporate	Hong Kong	50	50	50	Property
						development
King Success Limited	Corporate	Hong Kong	50	50	50	Property
						development

The above table includes the jointly-controlled entities of the Hon Kwok Group which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Hon Kwok Group. To give details of other jointly-controlled entities would, in the opinion of the directors of Hon Kwok, result in particulars of excessive length.

Extracts of the financial statements as at 31st March, 2002 of the above principal jointly-controlled entities are as follows:

Cenford Investments Limited Current assets Current liabilities Non-current liabilities Income Impairment of properties held for sale Net profit/(loss) for the year Global Wealth Development Limited Current assets Current liabilities Non-current liabilities Income Impairment of properties held for sale Net profit/(loss) for the year Hunnewell Limited Non-current assets Current assets Current liabilities Income Net loss for the year	2002 HK$’000 492 (7,248) (122,888) 91,625 – 1,674 2,580 (7,778) (11,080) 8,500 – 4,257 9,567 10,224 (1,386) 1,448 (177)	2001 HK$’000 104,683 (94,601 (141,401 392,473 (11,000 (92,085
		10,177 (12,299 (21,414 10,528 (7,000 (7,600
		11,176 9,234 (1,827 22,974 (9,698

– 88 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

	2002	2001
	HK$’000	HK$’000
King Success Limited*
Non-current assets	–	117,974
Current assets	74,923	1,227
Current liabilities	(30)	(31)
Non-current liabilities	(125,909)	(173,928)
Income	124,652	9
Impairment of properties under development	–	(29,000)
Net profit/(loss) for the year	3,741	(28,957)

• The financial year end of this company is 31st December

19. Interests in associates

Unlisted shares, at cost Share of net assets Due from associate	Group 2002 2001 HK$’000 HK$’000 – – 6,156 6,156 8,701 8,701 14,857 14,857	Group 2002 2001 HK$’000 HK$’000 – – 6,156 6,156 8,701 8,701 14,857 14,857
		14,857

The amount due from associate is unsecured, interest-free, and has no fixed terms of repayment.

Particulars of the associate are as follows:

			Percentage of
			ownership
			interest
		Place of	attributable
	Business	registration	to the Hon Kwok	Principal
Name	structure	and operation	Group	activities
Guangzhou Li Du	Corporate	The People’s	49	Property
Property Development		Republic of China		development
Co., Ltd.

20. Properties held for sale

The carrying amount of properties held for sale carried at net realisable value is HK$759,439,000 (2001: HK$630,139,000).

Properties held for sale included interest expenses and other borrowing costs totalling HK$5,757,000 (2001: HK$17,339,000) incurred and capitalised during the year.

Certain of the Hon Kwok Group’s properties held for sale were pledged to the Hon Kwok Group’s bankers to secure the banking facilities detailed in note 25.

21. Short term investment

		Group
	2002	2001
	HK$’000	HK$’000
Listed equity investment in Hong Kong, at market value	–	7,455

– 89 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

22. Prepayments, deposits and other receivables

Included in prepayments, deposits and other receivables are trade receivables of HK$40,935,000 (2001: HK$16,282,000). An aged analysis of trade receivables is as follows:

Current to 30 days 31-60 days 61-90 days Over 90 days Total	Group 2002 2001 HK$’000 HK$’000 39,270 15,201 589 417 428 266 648 398 40,935 16,282	Group 2002 2001 HK$’000 HK$’000 39,270 15,201 589 417 428 266 648 398 40,935 16,282
		16,282

Monthly rent in respect of leased properties is payable in advance by the tenants pursuant to the terms of the tenancy agreements. The balance of consideration in respect of sold properties is payable by the purchasers pursuant to the terms of the sale and purchase agreements. Overdue trade debts are followed up closely by management and provided in full in case of non-recoverability.

Hon Kwok had no trade receivables included in prepayments, deposits and other receivables.

23. Accounts payable and accrued liabilities

Included in accounts payable and accrued liabilities are trade payables of HK$18,036,000 (2001: HK$2,272,000). An aged analysis of trade payables is as follows:

				Group
			2002	2001
			HK$’000	HK$’000
Current to	30	days	18,036	2,272

Hon Kwok had no trade payables included in accounts payable and accrued liabilities.

24. Convertible guaranteed bonds

At 1st April Issue of B Bonds Accretion of premium on redemption Repurchase of bonds Redemption of bonds upon maturity Currency realignment At 31st March Analysis of convertible guaranteed bonds: Due 2001 Due 2003 Portion classified as current liabilities Non-current portion	Group 2002 2001 HK$’000 HK$’000 496,176 860,968 300,000 – 3,776 14,440 (66,536) (109,902) (433,416) (277,914) – 8,584 300,000 496,176 – 496,176 300,000 – 300,000 496,176 – (496,176) 300,000 –	Group 2002 2001 HK$’000 HK$’000 496,176 860,968 300,000 – 3,776 14,440 (66,536) (109,902) (433,416) (277,914) – 8,584 300,000 496,176 – 496,176 300,000 – 300,000 496,176 – (496,176) 300,000 –
		496,176
		496,176 –
		496,176 (496,176)
		–

– 90 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

(a) 5.30% convertible guaranteed bonds due 2001 (the “A Bonds”)

On 5th July, 1996, the Hon Kwok Group, through a wholly-owned subsidiary, issued A Bonds, which were listed in Luxembourg, with a principal sum of US$55,000,000. An option to subscribe for an additional US$5,000,000 bonds was exercised by the managers of the bond issue on 11th July, 1996, thus aggregating the principal sum of A Bonds to US$60,000,000. The A Bonds were unconditionally and irrevocably guaranteed by Hon Kwok and bore interest at the rate of 5.30% per annum. The bondholders had the right, at any time on or after 5th September, 1996, up to and including 21st June, 2001, to convert the A Bonds into equity shares of Hon Kwok with a nominal value of HK$0.10 (2001: HK$0.10) at a conversion price, subject to adjustment in certain events, of HK$2.44 (2001: HK$2.44) per share, with a fixed rate of exchange of US$1 to HK$7.7415.

During the year, the Hon Kwok Group repurchased a total nominal amount of US$7,325,000 of the A Bonds at premiums ranging from 16.36% to 17.20%. The remaining outstanding principal of US$47,090,000 A Bonds was redeemed at 118% of their principal amount on 5th July, 2001.

(b) 10% convertible guaranteed bonds due 2003 (the “B Bonds”)

On 18th April, 2001, the Hon Kwok Group, through another wholly-owned subsidiary, issued unlisted B Bonds with a principal sum of HK$300 million. The B Bonds are unconditionally and irrevocably guaranteed by Hon Kwok and bear interest at the rate of 10% per annum. The bondholders have the right, at any time on or after 18th April, 2001, up to and including 19th March, 2003, to convert the B Bonds into equity shares of Hon Kwok with a nominal value of HK$0.10 at a conversion price, subject to adjustment in certain events, of HK$0.40 per share.

Unless previously purchased and cancelled, redeemed or converted, the B Bonds are to be redeemed at 100% of their principal amount on 18th April, 2003. The exercise in full of the conversion rights of the outstanding principal of HK$300,000,000 B Bonds by the bondholders would have, under the present share structure of Hon Kwok as at the balance sheet date, resulted in the issue of an additional 750,000,000 new shares of HK$0.10 each. No exercise of the conversion rights was made during the year.

25. Interest-bearing bank loans

Bank loans: Secured Unsecured Bank loans repayable: Within one year or on demand In the second year In the third to fifth years, inclusive Beyond five years Portion classified as current liabilities Non-current portion	Group 2002 2001 HK$’000 HK$’000 984,134 903,456 20,000 40,000 1,004,134 943,456 450,803 383,193 182,066 208,682 108,765 351,581 262,500 – 1,004,134 943,456 (450,803) (383,193) 553,331 560,263	Company 2002 2001 HK$’000 HK$’000 150,000 38,000 20,000 40,000 170,000 78,000 20,000 78,000 150,000 – – – – – 170,000 78,000 (20,000) (78,000) 150,000 –

Certain bank loans are secured by mortgages on certain investment properties, properties under development and properties held for sale, with a carrying value of approximately HK$1,907 million (2001: HK$2,080 million), and assignments of rental income. In addition, certain other bank loans are secured by time deposits of the Hon Kwok Group amounting to HK$25 million (2001: HK$38 million) and cash deposits provided by a substantial shareholder of Hon Kwok.

– 91 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Irrevocable and unconditional guarantees have been given by Hon Kwok in respect of certain subsidiaries’ borrowings. In addition, Hon Kwok has subordinated its loans to certain subsidiaries in favour of the relevant lending banks.

26. Loans from minority interests

The amounts due to minority shareholders of subsidiaries are unsecured, interest-free, and have no fixed terms of repayment.

27. Share capital

Shares

Authorised: 17,500,000,000 shares of HK$0.10 each Issued and fully paid: 1,334,154,019 shares of HK$0.10 each	Company 2002 2001 HK$’000 HK$’000 1,750,000 1,750,000 133,415 133,415	Company 2002 2001 HK$’000 HK$’000 1,750,000 1,750,000 133,415 133,415
		133,415

Pursuant to a court order dated 17th October, 2000, the nominal value of the shares of Hon Kwok was adjusted from HK$0.50 to HK$0.10 by way of capital reduction. The authorised share capital of Hon Kwok was restored to the original amount of HK$1,750,000,000 by the creation of an additional 14,000,000,000 new shares of HK$0.10 each.

As a result of the capital reduction, a credit of HK$533,658,876.40 based on the 1,334,147,191 shares of Hon Kwok then in issue was transferred from the share capital account to a special capital reserve account. Hon Kwok has undertaken that the special capital reserve:

• (a) shall not be treated as realised profit; and

• (b) shall, for so long as Hon Kwok remains a listed company (as defined in the Companies Ordinance), be treated as an undistributable reserve of Hon Kwok for the purposes of Section 79C of the Companies Ordinance or any statutory re-enactment or modification thereof

provided always that the amount standing to the credit of the special capital reserve may be reduced by (i) the aggregate of any increase in the issued capital or in the share premium account of Hon Kwok resulting from an issue of shares for cash or other new consideration; or (ii) upon a capitalisation of distributable reserves after the capital reduction.

Warrants

On 15th October, 1999, a bonus issue of 242,820,245 warrants on the basis of one warrant for every five shares held on 15th October, 1999 was approved by the shareholders of Hon Kwok. The warrants were exercisable at any time from 28th October, 1999 to 27th October, 2000, both dates inclusive, at an initial subscription price of HK$0.61 per share (subject to adjustment).

Last year, Hon Kwok received subscription monies amounting to approximately HK$4,740 converting 7,770 warrants into 7,770 new shares of Hon Kwok. The remaining 242,767,452 warrants were unexercised and lapsed on 28th October, 2000.

Share options

Hon Kwok operates a share option scheme, further details of which are set out under the heading “Share Option Scheme” in Report of the Directors of Hon Kwok’s annual report for the year ended 31st March, 2002.

Pursuant to Hon Kwok’s share option scheme, the outstanding share options granted as at 31st March, 2002 were 12,000,000 (2001: 12,000,000). The options entitle the holder to subscribe for 12,000,000 shares in Hon Kwok and are exercisable at a price of HK$0.70 per share (subject to adjustment). Unless otherwise exercised, these options will lapse on 16th March, 2003. No options were exercised during the year.

– 92 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

28. Reserves

Group

At 1st April, 2000 Arising on reduction of share capital Arising on consolidation Arising on the exercise of subscription rights of warrants Issue of shares of a subsidiary Disposals of subsidiaries Disposal of a jointly-controlled entity Loss for the year At 31st March, 2001 and 1st April, 2001 Impairment loss of goodwill arising from subsidiaries acquired in prior years Arising on consolidation Profit for the year At 31st March, 2002 Reserves retained by: Company and subsidiaries Jointly-controlled entities Minority interests At 31st March, 2002 Company and subsidiaries Jointly-controlled entities Minority interests At 31st March, 2001	Share premium account HK$’000 126,624 – – 4 – – – – 126,628 – – – 126,628 126,628 – – 126,628 126,628 – – 126,628	Special capital reserve HK$’000 – 533,659 – – – – – – 533,659 – – – 533,659 533,659 – – 533,659 533,659 – – 533,659	Capital reserve HK$’000 (29,551) – – – 3,500 (3,500) 29,519 – (32) 32 – – – – – – – (32) – – (32)	Capital redemption reserve HK$’000 10 – – – – – – – 10 – – – 10 10 – – 10 10 – – 10	Exchange fluctuation reserve HK$’000 (72,933) – (9,174) – – – – – (82,107) – 25 – (82,082) (82,082) – – (82,082) (82,107) – – (82,107)	Retained profits HK$’000 977,786 – – – – – – (397,101) 580,685 – – 3,156 583,841 715,450 (143,345) 11,736 583,841 731,174 (147,920) (2,569) 580,685	Total HK$’000 1,001,936 533,659 (9,174) 4 3,500 (3,500) 29,519 (397,101) 1,158,843 32 25 3,156 1,162,056 1,293,665 (143,345) 11,736 1,162,056 1,309,332 (147,920) (2,569) 1,158,843

– 93 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Company

At 1st April, 2000 Arising on reduction of share capital Arising on the exercise of subscription rights of warrants Loss for the year At 31st March, 2001 and 1st April, 2001 Profit for the year At 31st March, 2002	Share premium account HK$’000 126,624 – 4 – 126,628 – 126,628	Special capital reserve HK$’000 – 533,659 – – 533,659 – 533,659	Capital reserve HK$’000 647 – – – 647 – 647	Capital redemption reserve HK$’000 10 – – – 10 – 10	Retained profits HK$’000 667,487 – – (254,044) 413,443 714 414,157	Total HK$’000 794,768 533,659 4 (254,044) 1,074,387 714 1,075,101

As detailed in note 3 to the financial statements, the Hon Kwok Group has adopted the transitional provision of SSAP 30 which permits goodwill/negative goodwill in respect of acquisitions which occurred prior to 1st April, 2001, to remain eliminated against/credited to consolidated reserves.

Due to the adoption of SSAP 31, the Hon Kwok Group has adopted a policy to assess goodwill eliminated against consolidated reserves for impairment. Following this assessment, the directors of Hon Kwok are of the opinion that the goodwill previously included in capital reserve is fully impaired, as detailed below.

The amounts of goodwill and negative goodwill remaining in consolidated reserves, arising from the acquisition of subsidiaries, are as follows:

Group

	Goodwill included in
	capital reserve
	HK$’000
Cost:
At 1st April, 2001 and 31st March, 2002	(32)
Accumulated impairment:
At 1st April, 2001	–
Impairment provided during the year	32
At 31st March, 2002	32
Net amount:
At 31st March, 2002	–
At 31st March, 2001	(32)

– 94 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

29. Notes to the consolidated cash flow statement

(a) Reconciliation of profit/(loss) from operating activities to net cash inflow from operating activities.

Profit/(loss) from operating activities Depreciation Interest income Income from unlisted long term investments Impairment loss of goodwill arising from subsidiaries acquired in prior years Gain on repurchase of convertible guaranteed bonds Gain on disposal of listed short term investment Loss on disposal of fixed assets Deficit/(surplus) on revaluation of investment properties Impairment of properties held for sale Provision/(write back of provision) against rental receivables Decrease in an amount due from a related company Decrease in properties held for sale Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in accounts payable and accrued liabilities Decrease in customer deposits Exchange differences Net cash inflow from operating activities	2002 HK$’000 72,292 2,118 (2,212) – 32 – (3,798) – (2,431) – 266 – 318,091 (18,064) (20,899) (1,829) 25 343,591	2001 HK$’000 (383,295 2,653 (7,764 (1,346 – (2,454 – 2,636 90,854 188,000 (61 2,040 151,763 10,320 20,366 (1,466 8,946
		81,192

(b) Analysis of changes in financing during the year.

Issued capital (including share premium account and special capital reserve) HK$’000 At 1st April, 2000 793,697 Cash inflow from exercise of subscription rights of warrants 5 Cash outflow from financing activities, net – Accretion of convertible bond premium on redemption – Gain on repurchase of convertible guaranteed bonds – Currency realignment – Share of profits for the year – At 31st March, 2001 and 1st April, 2001 793,702 Cash outflow from financing activities, net – Bond issue expenses – Accretion of convertible bond premium on redemption – Share of profits for the year – At 31st March, 2002 793,702	Loans and convertible guaranteed bonds HK$’000 1,961,831 – (491,417) 14,440 (2,454) 9,137 – 1,491,537 (141,524) 8,411 3,776 – 1,362,200	Minority interests HK$’000 2,730 – – – – – 320
		3,050 – – – 14,305
		17,355

– 95 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

30. Operating lease arrangements

• (a) As lessor

The Hon Kwok Group leases its investment properties (note 16 to the financial statements) under operating lease arrangements, with leases negotiated for terms ranging from one month to five years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

At 31st March, 2002, the Hon Kwok Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2002 2001 HK$’000 HK$’000 23,393 23,981 10,044 15,936 33,437 39,917	Group 2002 2001 HK$’000 HK$’000 23,393 23,981 10,044 15,936 33,437 39,917
		39,917

(b) As lessee

The Hon Kwok Group leases its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to three years.

At 31st March, 2002, the Hon Kwok Group and Hon Kwok had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2002 2001 HK$’000 HK$’000 2,582 2,931 3,864 793 6,446 3,724	Company 2002 2001 HK$’000 HK$’000 2,423 1,441 3,864 – 6,287 1,441	Company 2002 2001 HK$’000 HK$’000 2,423 1,441 3,864 – 6,287 1,441
			1,441

SSAP 14 (Revised), which was adopted during the year, requires lessors under operating leases to disclose the total future minimum operating lease receivables under non-cancellable operating leases, as detailed in note (a) above. This disclosure was not previously required. SSAP 14 (Revised) also requires lessees under operating leases to disclose the total future minimum operating lease payments, rather than only the payments to be made during the next year as was previously required. Accordingly, the prior year comparative amounts for operating leases as lessee in note (b) above, have been restated to accord with the current year’s presentation.

There are no amounts relating to jointly-controlled entities included in the above annual commitments under non-cancellable operating leases in respect of land and buildings (2001: Nil).

31. Capital commitments

In addition to the operating lease commitments detailed in note 30 above, the Hon Kwok Group had authorised and contracted capital commitments in respect of property development expenditure amounting to approximately HK$227,916,000 (2001: HK$260,940,000) at the balance sheet date.

Authorised and contracted capital commitments in respect of property development expenditure relating to jointlycontrolled entities included in the above amounted to approximately HK$5,622,000 (2001: HK$26,788,000).

At the balance sheet date, the Hon Kwok Group had no commitments in respect of foreign exchange contracts (2001: one such contract amounting to HK$436,700,000). Hon Kwok had no commitments in respect of foreign exchange contracts at the balance sheet date (2001: Nil).

– 96 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

32. Contingent liabilities

(a)

Extent of general bank facilities guaranteed by the Hon Kwok Group/ Hon Kwok utilised at the balance sheet date by: – subsidiaries – jointly-controlled entities	Group 2002 2001 HK$’000 HK$’000 – – – 66,455 – 66,455	Company 2002 2001 HK$’000 HK$’000 834,134 865,456 – 66,455 834,134 931,911	Company 2002 2001 HK$’000 HK$’000 834,134 865,456 – 66,455 834,134 931,911
			931,911

• (b) On 20th April, 1996, a writ was filed against a wholly-owned subsidiary of the Hon Kwok Group, Joint Peace Investment Limited (“Joint Peace”), regarding an alleged disparity between the pavement and the ground floor level of the building at 18-22 Percival Street, junction of Jaffe Road, Causeway Bay, Hong Kong. The amount claimed, excluding minor construction and related costs, was either HK$41,000,000 or HK$69,300,000, representing the claim for loss of rental income or loss of interest on the purchase price, over a period of 12 months. A defence to contest this claim was filed on 22nd July, 1996.

On 2nd December, 1997, the plaintiff of this claim was allowed to amend the Writ of Summons and the Statement of Claim dated 20th April, 1996. Under advice by its solicitors, an Amended Defence in respect thereof was filed by Joint Peace on 30th December, 1997. On the same date, a Request for Further and Better Particulars of the Amended Statement of Claim was sent by Joint Peace’s solicitors to the plaintiff’s solicitors.

Following consultation with its legal advisers (in their capacity as the legal advisers of Joint Peace), the directors of Hon Kwok formed the view that the amended claim was unlikely to succeed and were therefore of the opinion that no provision regarding this claim is necessary in the Hon Kwok Group’s financial statements. There has been no further progress of the claim so far up to the date of this report.

33. Comparative amounts

As further explained in note 2 to the financial statements, due to the adoption of certain new and revised SSAPs during the current year, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, certain comparative amounts have been reclassified to conform with the current year’s presentation.

34. Approval of the financial statements

The financial statements were approved and authorised for issue by the board of directors of Hon Kwok on 11th July, 2002.

– 97 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

3. UNAUDITED CONSOLIDATED RESULTS OF THE HON KWOK GROUP FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002

The followings are the unaudited consolidated financial statements of the Hon Kwok Group extracted from Hon Kwok’s interim report for the six months ended 30 September 2002.

Condensed Consolidated Income Statement

Condensed Consolidated Income Statement
		Six months ended
		30th September,
		2002	2001
		(Unaudited)	(Unaudited)
	Notes	HK$’000	HK$’000
Turnover		309,245	316,529
Cost of sales		(262,284) (303,112)
Gross profit		46,961	13,417
Other revenue	3	1,410	7,931
Administrative expenses		(15,630) (16,613)
Profit from operating activities	4	32,741	4,735
Finance costs	5	(16,319) (28,175)
Share of profits less losses of
jointly-controlled entities		2,805	(5,033)
Profit/(loss) before tax		19,227	(28,473)
Tax	6	(6,712) (1,093)
Profit/(loss) before minority interests		12,515	(29,566)
Minority interests		(7,996) (146)
Net profit/(loss) from ordinary activities
attributable to shareholders		4,519	(29,712)
Earnings/(loss) per share	7
Basic		0.34 cent	(2.23 cents)
Diluted		0.24 cent	N/A

Note: For the six months ended 30 September 2001 and 30 September 2002, there were no extraordinary items and no dividends declared or paid by the Hon Kwok Group.

– 98 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Condensed Consolidated Balance Sheet

As at 30th September, 2002 (Unaudited) Notes HK$’000 NON-CURRENT ASSETS Fixed assets 5,647 Properties under development 770,066 Investment properties 893,150 Deferred charges 2,301 Interests in jointly-controlled entities 610 Interests in associates 14,857 1,686,631 CURRENT ASSETS Prepaid tax 30 Properties held for sale 778,456 Prepayments, deposits and other receivables 8 93,850 Pledged time deposits – Time deposits 80,944 Cash and bank balances 73,088 1,026,368 CURRENT LIABILITIES Amounts due to related companies 8,663 Accounts payable and accrued liabilities 9 89,859 Customer deposits 8,954 Tax payable 15,850 Convertible guaranteed bonds 300,000 Interest-bearing bank loans 381,935 805,261 NET CURRENT ASSETS 221,107 TOTAL ASSETS LESS CURRENT LIABILITIES 1,907,738	As at 31st March, 2002 (Audited) HK$’000 6,221 724,571 893,150 4,404 33,802 14,857
	1,677,005
	322 861,809 64,288 25,000 37,161 128,738
	1,117,318
	12,414 86,822 8,118 11,943 – 450,803
	570,100
	547,218
	2,224,223

– 99 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Condensed Consolidated Balance Sheet (Continued)

As at 30th September, 2002 (Unaudited) Notes HK$’000 NON-CURRENT LIABILITIES Convertible guaranteed bonds – Interest-bearing bank loans 507,923 Loans from minority interests 74,121 582,044 MINORITY INTERESTS 25,351 1,300,343 CAPITAL AND RESERVES Issued capital 10 133,415 Reserves 11 1,166,928 1,300,343	As at 31st March, 2002 (Audited) HK$’000 300,000 553,331 58,066
	911,397
	17,355
	1,295,471
	133,415 1,162,056
	1,295,471

– 100 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

Condensed Consolidated Cash Flow Statement

	Six months ended	Six months ended	Six months ended
	30th September,
	2002		2001
	(Unaudited)	(Unaudited)
	HK$’000		HK$’000
Net cash inflow from operating activities	114,099		129,893
Net cash inflow/(outflow) from investing activities	5,074		(4,108)
Net cash outflow from financing activities	(131,040)		(177,221)
Decrease in cash and cash equivalents	(11,867)		(51,436)
Cash and cash equivalents at the beginning of the period	165,899		111,105
Cash and cash equivalents at the end of the period	154,032		59,669
Analysis of the balances of cash and cash equivalents
Cash and bank balances	73,088		22,571
Non-pledged time deposits	80,944		37,098
	154,032		59,669

Condensed Consolidated Statement of Changes in Equity

	Six months ended	Six months ended
	30th	September,
	2002	2001
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Total shareholders’ equity as at 1st April	1,295,471	1,292,258
Exchange differences on translation of the
financial statements of foreign entities	353	(100)
Net profit/(loss) for the period	4,519	(29,712)
Total shareholders’ equity as at 30th September	1,300,343	1,262,446

– 101 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation and accounting policies

The unaudited condensed consolidated interim financial statements are prepared in accordance with the requirements of Appendix 16 of the Listing Rules and the Hong Kong Statement of Standard Accounting Practice (“SSAP”) No. 25 “Interim Financial Reporting”.

The condensed consolidated interim financial statements should be read in conjunction with the 2001/2002 annual financial statements.

The accounting policies and basis of preparation used in the preparation of the interim financial statements are consistent with those used in the annual financial statements for the year ended 31st March, 2002, except that the Hon Kwok Group has adopted the following SSAPs issued by the Hong Kong Society of Accountants which are effective for accounting periods commencing on or after 1st January, 2002:

SSAP 1 (revised) : Presentation of financial statements SSAP 11 (revised) : Foreign currency translation SSAP 15 (revised) : Cash flow statements SSAP 34 : Employee benefits

The adoption of these new or revised SSAPs has no significant effect on the results of the Hon Kwok Group in both accounting periods, other than a change in the format of presentation of the cash flow statement and the requirement to present a statement of changes in equity.

– 102 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

2. Segment information

The Hon Kwok Group is principally engaged in property development, property investment and property related activities. An analysis of the Hon Kwok Group’s revenue and results by business and geographical segments is as follows:

Business segments

	Property	Property			Property	Property		Property	Property	Property
	development				investment			management				Others				Consolidated
	Six months ended				Six months ended			Six months ended				Six months ended				Six months ended
	30th September,				30th September,			30th September,				30th September,				30th September,
	2002		2001		2002		2001	2002			2001	2002		2001		2002			2001
	**(Unaudited) **	**(Unaudited) **			**(Unaudited) **	**(Unaudited) **		**(Unaudited) **		**(Unaudited) **		**(Unaudited) **	**(Unaudited) **			**(Unaudited) **	(Unaudited)
	HK$’000	HK$’000			HK$’000	HK$’000		HK$’000		HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
Segment revenue:
Sales to external customers	280,739	287,857			22,084	22,838		3,285			2,894	3,137		2,940		309,245		316,529
Segment results	28,032		(7,082	)	16,839	15,511		445			607	824		664		46,140			9,700
Interest income																388			2,538
Unallocated gains																308			4,753
Unallocated expenses																(14,095	)	(12,256		)
Profit from operating activities																32,741			4,735
Interest expenses																(15,742	)	(27,356		)
Amortisation of bond
issue expenses																(577	)		(819	)
Share of profits less
losses of jointly-
controlled entities	2,826		(5,012	)	–		–		–		–	(21	)	(21	)	2,805			(5,033	)
Profit/(loss) before tax																19,227		(28,473		)
Tax																(6,712	)		(1,093	)
Profit/(loss) before
minority interests																12,515		(29,566		)
Minority interests																(7,996	)		(146	)
Net profit/(loss) from
ordinary activities
attributable to
shareholders																4,519		(29,712		)
Geographical segments
	Hong Kong				Mainland China			Malaysia				Canada				Consolidated
	Six months ended				Six months ended			Six months ended				Six months ended				Six months ended
	30th September,				30th September,			30th September,				30th September,				30th September,
	2002		2001		2002		2001	2002			2001	2002		2001		2002			2001
	**(Unaudited) **	**(Unaudited) **			**(Unaudited) **	**(Unaudited) **		**(Unaudited) **		**(Unaudited) **		**(Unaudited) **	**(Unaudited) **			**(Unaudited) **	(Unaudited)
	HK$’000	HK$’000			HK$’000	HK$’000		HK$’000		HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
Segment revenue:
Sales to external customers	60,212	210,787			240,472	97,534		5,986			5,736	2,575		2,472		309,245		316,529
Segment results	(3,105	)	(1,877	)	45,650	8,290		3,309			3,087	286		200		46,140			9,700

– 103 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

3. Other revenue

Interest income from bank deposits Interest income from mortgages Gain on disposal of listed short term investment Others	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 115 2,063 273 475 – 3,798 1,022 1,595 1,410 7,931	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 115 2,063 273 475 – 3,798 1,022 1,595 1,410 7,931
		7,931

4. Profit from operating activities

Profit from operating activities is arrived at after charging:

	Six months ended	Six months ended
	30th	September,
	2002	2001
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Depreciation	1,092	1,050
Staff costs (including directors’ emoluments)	9,044	7,197

5. Finance costs

Interest on: Bank loans wholly repayable within five years Bank loans wholly repayable after five years Convertible guaranteed bonds Bank overdrafts Less: Amounts capitalised under property development projects Accretion of convertible bond premium on redemption Less: Amounts capitalised under property development projects Amortisation of bond issue expenses Less: Amounts capitalised under property development projects Total finance costs	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 10,290 27,298 6,943 756 15,000 18,832 – 40 32,233 46,926 16,491 19,570 15,742 27,356 – 3,776 – 3,776 – – 2,103 2,686 1,526 1,867 577 819 16,319 28,175	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 10,290 27,298 6,943 756 15,000 18,832 – 40 32,233 46,926 16,491 19,570 15,742 27,356 – 3,776 – 3,776 – – 2,103 2,686 1,526 1,867 577 819 16,319 28,175
		46,926 19,570
		27,356
		3,776 3,776
		–
		2,686 1,867
		819
		28,175

– 104 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

6. Tax

Group: Hong Kong Elsewhere	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 40 36 6,672 1,057 6,712 1,093	Six months ended 30th September, 2002 2001 (Unaudited) (Unaudited) HK$’000 HK$’000 40 36 6,672 1,057 6,712 1,093
		1,093

The Hon Kwok Group companies provide for tax on the basis of their income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes.

Hong Kong profits tax has been provided at the rate of 16% (2001: 16%) on the estimated assessable profits arising in Hong Kong during the period. Tax on the profits of subsidiaries operating elsewhere has been calculated at the rates of tax prevailing in their respective jurisdictions.

7. Earnings/(loss) per share

The calculation of the basic earnings/(loss) per share is based on the net profit from ordinary activities attributable to shareholders of HK$4,519,000 (2001: net loss of HK$29,712,000) and on 1,334,154,019 (2001: 1,334,154,019) shares of Hon Kwok in issue during the period.

The calculation of diluted earnings per share for the period ended 30th September, 2002 is based on the net profit from ordinary activities attributable to shareholders of HK$5,017,000 as adjusted for the interest saving less deferred charges expensed on the conversion of the convertible guaranteed bonds into ordinary shares of Hon Kwok. The weighted average number of ordinary shares used in the calculation is the sum of the number of ordinary shares in issue during the period used in the basic earnings per share calculation of 1,334,154,019 and the number of 750,000,000 ordinary shares assumed to have been issued at no consideration on the deemed conversion of all convertible guaranteed bonds into ordinary shares of Hon Kwok during the period. The share options outstanding during the period ended 30th September, 2002 had no dilutive effect on the basic earnings per share for the period.

The diluted loss per share for the period ended 30th September, 2001 had not been shown as all convertible guaranteed bonds and share options outstanding during the period had an anti-dilutive effect on the basic loss per share for that period.

8. Prepayments, deposits and other receivables

Included in prepayments, deposits and other receivables are trade receivables of HK$64,366,000 (as at 31st March, 2002: HK$40,935,000). An aged analysis of trade receivables is as follows:

As at 30th September, 2002 (Unaudited) HK$’000 Current to 30 days 62,599 31-60 days 587 61-90 days 251 Over 90 days 929 Total 64,366	As at 31st March, 2002 (Audited) HK$’000 39,270 589 428 648
	40,935

Monthly rent in respect of leased properties is payable in advance by the tenants pursuant to the terms of the tenancy agreements. The balance of consideration in respect of sold properties is payable by the purchasers pursuant to the terms of the sale and purchase agreements. Overdue trade debts are followed up closely by management and provided in full in case of non-recoverability.

– 105 –

APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

9. Accounts payable and accrued liabilities

Included in accounts payable and accrued liabilities are trade payables of HK$5,131,000 (as at 31st March, 2002: HK$18,036,000). An aged analysis of trade payables is as follows:

			As at	As at
			30th September,	31st March,
			2002	2002
			(Unaudited)	(Audited)
			HK$’000	HK$’000
Current to	30	days	5,131	18,036

10. Share capital

There were no movements in the authorised, issued and fully paid share capital of Hon Kwok in the current interim period.

11. Reserves

At 1st April, 2001 Exchange realignments Loss for the period At 30th September, 2001 At 1st April, 2002 Exchange realignments Profit for the period At 30th September, 2002	Share premium account (Unaudited) HK$’000 126,628 – – 126,628 126,628 – – 126,628	Special capital reserve (Unaudited) HK$’000 533,659 – – 533,659 533,659 – – 533,659	Capital reserve (Unaudited) HK$’000 (32 ) – – (32 ) – – – –	Capital redemption reserve (Unaudited) HK$’000 10 – – 10 10 – – 10	Exchange fluctuation reserve (Unaudited) HK$’000 (82,107) (100) – (82,207) (82,082) 353 – (81,729)	Retained profits (Unaudited) HK$’000 580,685 – (29,712) 550,973 583,841 – 4,519 588,360	Total (Unaudited) HK$’000 1,158,843 (100 (29,712
							1,129,031
							1,162,056 353 4,519
							1,166,928

As a result of the capital reduction of Hon Kwok effected on 17th October, 2000, a credit of HK$533,658,876.40 was transferred from the share capital account to a special capital reserve account. Hon Kwok has undertaken that the special capital reserve:

• (a) shall not be treated as realised profit; and

• (b) shall, for so long as Hon Kwok remains a listed company (as defined in the Companies Ordinance), be treated as an undistributable reserve of Hon Kwok for the purposes of Section 79C of the Companies Ordinance or any statutory re-enactment or modification thereof

provided always that the amount standing to the credit of the special capital reserve may be reduced by (i) the aggregate of any increase in the issued capital or in the share premium account of Hon Kwok resulting from an issue of shares for cash or other new consideration; or (ii) upon a capitalisation of distributable reserves after the capital reduction.

12. Commitments

(a) Capital commitments

As at 30th September, 2002, the Hon Kwok Group had authorised and contracted capital commitments in respect of property development expenditure and acquisition of properties amounting to approximately HK$182,673,000 (as at 31st March, 2002: HK$227,916,000) and HK$49,500,000 (as at 31st March, 2002: nil) respectively.

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

There are no amounts relating to jointly-controlled entities included in the above (as at 31st March, 2002: property development expenditure amounted to HK$5,622,000).

(b) Lease commitments

The Hon Kwok Group leases its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to three years.

As at 30th September, 2002, the Hon Kwok Group had total future minimum lease payments under noncancellable operating leases falling due as follows:

As at 30th September, 2002 (Unaudited) HK$’000 Within one year 2,904 In the second to fifth years, inclusive 2,620 5,524	As at 31st March, 2002 (Audited) HK$’000 2,582 3,864
	6,446

13. Related party transactions

• (a) During the period, the Hon Kwok Group had transactions with companies in which James Sai-Wing Wong, Madeline May-Lung Wong, William Chung-Yue Fan and Herman Man-Hei Fung, directors of Hon Kwok, had beneficial interests. The significant transactions are summarised below.

		Six months ended	Six months ended
		30th	September,
		2002	2001
		(Unaudited)	(Unaudited)
	Notes	HK$’000	HK$’000
Construction costs paid to related companies	(i)	9,170	29,733
Interests paid to a substantial shareholder	(ii)	7,050	6,384
Commissions paid to a substantial shareholder	(iii)	1,313	642
Legal and professional fees paid to a
solicitor’s firm in which a director of
Hon Kwok is a consultant	(iv)	298	1,307

Notes:

• (i) Construction costs paid to related companies were agreed on an individual contract basis between the respective parties. Such costs were negotiated and charged on bases similar to those under contracts with third parties.

• (ii) The interests were paid to the substantial shareholder at a fixed coupon rate of 10% per annum for the convertible guaranteed bonds issued to the substantial shareholder as more fully described in paragraph (b) below.

• (iii) The commissions were paid to the substantial shareholder for provision of cash security for certain bank loans granted to Hon Kwok and were agreed and charged on bases taking into consideration the average borrowing cost of the Hon Kwok Group. Please refer to paragraph (c) below for details.

• (iv) The directors consider that the provision of legal and professional services was made according to the standard prices and conditions similar to those offered to other clients of the solicitor’s firm.

• (b) In April 2001, the Hon Kwok Group issued 10% convertible guaranteed bonds due April 2003 with a principal sum of HK$300 million (the “Bonds”). Chinney Investments, as a substantial shareholder, and Patrick Yen-Tse Tsai, as a director of Hon Kwok, subscribed for the Bonds in the principal amount of HK$141 million and HK$2 million respectively. The subscriptions together with the Hon Kwok Group’s repurchase of the principal amount of US$5,625,000 of the 5.3% convertible guaranteed bonds due July 2001 held by Chinney Investments were approved by the independent shareholders of Hon Kwok on 9th April, 2001. The Bonds were issued and allotted to Chinney Investments and Patrick Yen-Tse Tsai under the same terms and conditions as other independent bondholders.

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APPENDIX II FINANCIAL INFORMATION OF THE HON KWOK GROUP

• (c) In May 2001, the Hon Kwok Group obtained bank loan facilities of HK$150 million through cash collaterals provided by Lucky Year, a substantial shareholder of Hon Kwok. In consideration of Lucky Year’s provision of the cash security, the Hon Kwok Group agreed to pay a commission of 1.75% per annum on the average principal amount of the cash security outstanding during the term of the bank loans to Lucky Year and counter-indemnify Lucky Year in respect of the cash security. As security for the counter-indemnity, the Hon Kwok Group mortgaged the entire issued share capital of two of its subsidiaries and assigned shareholders’ loans in an aggregate amount of HK$220,245,000 to Lucky Year. The connected financing arrangement was approved by the independent shareholders of Hon Kwok on 28th June, 2001.

14. Comparative figures

Certain comparative figures have been reclassified to conform with the current period’s presentation.

15. Approval of the interim financial statements

These condensed interim financial statements were approved and authorised for issue by the board of directors of Hon Kwok on 12th December, 2002.

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GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

• (a) As at the Latest Practicable Date, the interests of the Directors (including their respective spouses, infant children, related trusts and companies controlled by them) in the equity and debt securities of the Company or any associated corporations (within the meaning of the SDI Ordinance) which require notification to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which they were taken or deemed to have under Section 31 of, or Part 1 of the Schedule to, the SDI Ordinance) or which were required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, are as follows:

• (i) The Company

				Percentage
				of the total
				issued
		Nature of	Number of	ordinary
Name of Director	Note	interest	shares held	share capital
James Sai-Wing Wong	1	Corporate	296,919,324	53.85
Madeline May-Lung Wong	1	Corporate	296,919,324	53.85
William Chung-Yue Fan		Personal	3,918,285	0.71
Herman Man-Hei Fung		Personal	10,040,000	1.82

• (ii) Associated Corporations

				Number/face
		Name of associated	Nature of	value of
Name of director	Notes	corporation	interest	securities held	Type of securities
James Sai-Wing Wong	2	Hon Kwok	Corporate	632,284,758	Ordinary shares
	2	Chinney Alliance Group Limited	Corporate	961,957,982	Ordinary shares
	2	Hon Kwok Land	Corporate	HK$141,000,000	10% convertible
		Treasury II Limited			guaranteed bonds
Madeline May-Lung Wong	2	Hon Kwok	Corporate	632,284,758	Ordinary shares
	2	Chinney Alliance Group Limited	Corporate	961,957,982	Ordinary shares
	2	Hon Kwok Land	Corporate	HK$141,000,000	10% convertible
		Treasury II Limited			guaranteed bonds
William Chung-Yue Fan		Hon Kwok	Personal	7,085	Ordinary shares
		Hon Kwok Land	Personal	HK$2,000,000	10% convertible
		Treasury II Limited			guaranteed bonds
Herman Man-Hei Fung		Hon Kwok	Family	14,171	Ordinary shares
	3	Chinney Alliance Group Limited	Personal	8,000,000	Share options

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GENERAL INFORMATION

APPENDIX III

Notes:

1. These shares are beneficially held by Chinney Holdings Limited. More than one-third of the equity capital of Chinney Holdings Limited is owned by Lucky Year Finance Limited, of which James Sai-Wing Wong and Madeline May-Lung Wong are directors and shareholders.

2. James Sai-Wing Wong and Madeline May-Lung Wong are deemed to have beneficial interests in these shares and bonds held by the Company or its wholly-owned subsidiary by virtue of their respective interest in the equity capital of Lucky Year Finance Limited as described in note 1.

3. These share options can be exercised up to 12 July 2009 at an exercise price of HK$0.07 per share, subject to adjustment.

Save as disclosed above and other than certain nominee shares in subsidiaries of the Company held by James Sai-Wing Wong in trust for the Group, none of the Directors, chief executive of the Company or their respective associates had any interests in the equity or debt securities of the Company or any of its associated corporations which are required to be disclosed under paragraph 38(1) of Appendix 1B of the Listing Rules as at the Latest Practicable Date.

• (b) As at the Latest Practicable Date, the following persons, other than a Director or chief executive of the Company, are interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of members of the Group or in any options in respect of such share capital:

		Percentage of
Name of shareholder	Name of subsidiary	shareholding
Yuen-Keung Chan	Chinney Contractors	13.95
	Company Limited
Kenneth Kwok-Ping Li	Kin Ping Contractors Limited	25.00
Metro Corporation	Metro Gateway Concept	49.00
Indonesia Limited	(HK) Limited

Save as disclosed above, no person, other than a Director or chief executive of the Company, is interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of members of the Group or in any options in respect of such share capital as at the Latest Practicable Date.

• (c) Certain subsidiaries of the Group acted as contractors for property development projects undertaken by subsidiaries of Hon Kwok. In addition, the Company received management fees from Chinney Alliance Group Limited for the provision of administration and general services.

James Sai-Wing Wong, Madeline May-Lung Wong and Roderick Sue-Cheun Wong are directors of Hon Kwok. William Chung-Yue Fan is a director of and a shareholder of Hon Kwok. Herman Man-Hei Fung is a director of and has a family interest in the shares of Hon Kwok.

James Sai-Wing Wong is a director of Chinney Alliance Group Limited. Herman ManHei Fung is a director of, and has a personal interest in the share options of, Chinney Alliance Group Limited.

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GENERAL INFORMATION

APPENDIX III

• (d) Save as disclosed herein:

• (i) As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement entered into by any member of the Group which is significant in relation to the business of the Group.

• (ii) As at the Latest Practicable Date, none of the Directors has, or has had, any direct or indirect interest in any assets which have been, since 31 March 2002 (being the date to which the latest published audited financial statements of the Company were made up), acquired, disposed of by or leased to or which are proposed to be acquired, disposed of by or leased to any member of the Group.

• (e) As at the Latest Practicable Date, none of the Directors have entered, or are proposing to enter, into any service contract with the Company or any of its subsidiaries or associated companies which is not expiring or determinable by the Group within twelve months without payment of compensation (other than statutory compensation), or which has been entered into or amended within six months before the date of the Announcement.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as the Directors or chief executive of the Company are aware, according to the register of interests required to be kept by the Company pursuant to Section 16(1) of the SDI Ordinance, the Shareholders who were directly or indirectly beneficially interested in 10% or more of the voting power at any general meeting of the Company were as follows:

		Percentage of the total
		issued ordinary
Name of shareholder	Number of shares held	share capital
Chinney Holdings Limited	296,919,324	53.85
Lucky Year Finance Limited	296,919,324	53.85
Madeline May-Lung Wong	296,919,324	53.85
James Sai-Wing Wong	296,919,324	53.85

James Sai-Wing Wong, Madeline May-Lung Wong, Lucky Year Finance Limited and Chinney Holdings Limited are deemed to be interested in the same parcel of shares by virtue of Section 8(2) of the SDI Ordinance.

Save as disclosed above and so far as the Directors are aware, there is no other person who was directly or indirectly beneficially interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group as at the Latest Practicable Date.

4. LITIGATION

• (a) In January 2002, a writ was filed against Chinney Construction Company, Limited, a 86.05% subsidiary of the Company as at the Latest Practicable Date, as the main contractor of a maintenance term contract, for wrongful termination of an alleged contract between the plaintiff and Chinney Construction Company, Limited. The amount claimed for loss and damage was approximately HK$62.9 million. A defense was filed by Chinney Construction Company, Limited to contest this claim in April 2002. Witness statements of the plaintiff and Chinney Construction Company, Limited were exchanged in March 2003. Following consultation with its legal advisors, the directors of Chinney Construction Company, Limited formed the view that no provision regarding this claim was necessary as no contractual relationship was considered to exist between the plaintiff and Chinney Construction Company, Limited.

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GENERAL INFORMATION

APPENDIX III

• (b) In October 2002, a sub-contractor submitted an application for the appointment of an arbitrator for the settlement of dispute in amount allegedly due by Chinney Construction Company, Limited, as the main contractor of a construction contract, in respect of subcontracting work undertaken by the sub-contractor. The amount in dispute was approximately HK$2.1 million. An arbitrator was appointed in December 2002 and there has been no further progress of the claim so far. Following consultation with its legal advisors, the directors of Chinney Construction Company, Limited formed the view that no provision regarding this claim was necessary as a substantial part of the subcontracting work was considered to be carried out by third parties other than the subcontractor.

Save as disclosed above, none of the members of the Group are engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group as at the Latest Practicable Date.

5. MISCELLANEOUS

• (a) The registered office of the Company is at 18th Floor, Hang Seng Building, 77 Des Voeux Road Central, Hong Kong.

• (b) The share registrar of the Company is Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (c) The secretary of the Company is Wendy Yuk-Ying Chan, FCS, FCIS.

• (d) The English text of this document shall prevail over the Chinese text for the purpose of interpretation.

6. MATERIAL CONTRACTS

During the two years immediately preceding the Latest Practicable Date prior to the issue of this circular, the following contracts, not being contracts entered into in the ordinary course of business, have been entered into by the Group and are or may be material:

• (a) the agreement for the Bridging Facility;

• (b) the Payment Arrangement Deed Amendment Deed;

• (c) the Underwriting Agreement, including the irrevocable undertaking from the Company of acceptance of its entitlement to the Hon Kwok Rights Issue as a Hon Kwok Qualifying Shareholder and the underwriting commission payable by Hon Kwok to the Company referred to under the section headed “Information relating to the Underwriting Agreement” in the Letter from the Board;

• (d) the Payment Arrangement Deed;

• (e) Placing Agreement dated 8 January 2002 entered into between Multi-Investment Group Limited, a wholly-owned subsidiary of the Company, and DBS Vickers (Hong Kong) Limited as the placing agent in relation to the placing of 390,000,000 shares of HK$0.01 each in the capital of Chinney Alliance Group Limited. The placing proceeds of HK$9,750,000 (before expenses) were paid by DBS Vickers (Hong Kong) Limited to Multi-Investment Group Limited;

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GENERAL INFORMATION

APPENDIX III

• (f) Subscription Agreement dated 8 January 2002 entered into between Multi-Investment Group Limited and Chinney Alliance Group Limited in relation to the subscription of 550,000,000 new shares of HK$0.01 each in the capital of Chinney Alliance Group Limited. The subscription monies of HK$13,750,000 were paid by Multi-Investment Group Limited to Chinney Alliance Group Limited; and

• (g) Agreement dated 27 August 2001 entered into between the Company as vendor, Chinney Alliance Trading (BVI) Limited as purchaser and Chinney Alliance Group Limited as guarantor in relation to the sale of the entire issued share capital of Best Treasure Limited for a cash consideration of HK$9,868,789.

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on Business Days at the registered office of the Company at 18th Floor, Hang Seng Building, 77 Des Voeux Road Central, Hong Kong from the date of this circular up to and including the date of the EGM (and any adjournment thereof):

• (a) this circular;

• (b) the memorandum and articles of association of the Company and the memorandum and articles of association of Hon Kwok;

• (c) the material contracts referred to under the section headed “Material Contracts” in this appendix;

• (d) the annual reports of the Company and Hon Kwok for the two years ended 31 March 2001 and 31 March 2002; and

• (e) the interim reports of the Company and Hon Kwok for the six months ended 30 September 2002.

– 113 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [35 x 63] intentionally omitted <==

==> picture [191 x 40] intentionally omitted <==

(Incorporated in Hong Kong with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Chinney Investments, Limited (the “Company”) will be held on Tuesday, 22 April 2003 at 10:00 a.m. at Chater Room I, Function Room Level (B1), The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions which will be proposed as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT subject to and conditional upon (a) the passing by the independent shareholders at an extraordinary general meeting of Hon Kwok Land Investment Company, Limited (“Hon Kwok”) of an ordinary resolution to approve the Hon Kwok Rights Issue (as defined in the circular to the Company’s shareholders dated 4 April 2003 (“Circular”)); (b) the passing by the independent shareholders at an extraordinary general meeting of Hon Kwok of an ordinary resolution to approve the waiver pursuant to Note 1 on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers waiving any obligation on the part of the Company and parties acting in concert with it to make a mandatory general offer to the shareholders of Hon Kwok to acquire shares in Hon Kwok other than those already owned by the Company and parties acting in concert with it (“Whitewash Waiver”); and (c) the Executive Director of the Corporate Finance Division of the Securities and Futures Commission or any delegate of the Executive Director (“Executive”) granting to the Company and parties acting in concert with it the Whitewash Waiver and the satisfaction of any condition attached to the Whitewash Waiver imposed by the Executive, the underwriting by the Company of the Hon Kwok Rights Issue be and is hereby approved, including without limitation, the underwriting agreement dated 12 February 2003 (“Underwriting Agreement”) entered into between the Company and Hon Kwok pursuant to which, inter alia, the Company agreed to underwrite the Hon Kwok Rights Shares (as defined in the Circular) other than the Excluded Hon Kwok Rights Shares (as defined in the Circular) and agreed to take up the Excluded Hon Kwok Rights Shares, subject to the terms and conditions as set out in the Circular (a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification) and all transactions contemplated thereby be and are hereby approved and that the directors of the Company be and are hereby authorised for and on behalf of the Company to sign, seal, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as they may in their discretion consider necessary or desirable or expedient for the purposes of, or in connection with, the Underwriting Agreement and all transactions contemplated thereby and to make and agree to make such variations in the terms of the Underwriting Agreement as they may in their discretion consider to be desirable and in the interests of the Company.”

2. “ THAT the provision by the Company of the Bridging Facility (as described in the Circular referred to in the ordinary resolution numbered 1 as set out in the notice convening this meeting) to Hon Kwok Land Investment Company, Limited be and is hereby approved, including without limitation, that the agreement for the Bridging Facility be and is hereby approved and all transactions contemplated thereby be and are hereby approved and that the directors of the Company be and are hereby authorised for and on behalf of the Company to

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NOTICE OF EXTRAORDINARY GENERAL MEETING

sign, seal, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable or expedient for the purposes of, or in connection with, the Bridging Facility and all transactions contemplated thereby and to make and agree to make any variations in the terms of the agreement for the Bridging Facility as they may in their discretion consider to be desirable and in the interests of the Company.”

By Order of the Board Wendy Yuk-Ying Chan Company Secretary

Dated this 4 April 2003

Registered office:

18th Floor, Hang Seng Building 77 Des Voeux Road Central Hong Kong

Notes:

1. A shareholder of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote in his stead in accordance with the articles of association of the Company. A proxy need not be a shareholder of the Company.

2. A form of proxy for use at the meeting is enclosed.

3. To be valid, the form of proxy, together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power of attorney or authority must be deposited at the share registrar of the Company, Tengis Limited, at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time for holding the meeting (or any adjourned meeting thereof) and in default the form of proxy shall not be treated as valid. Completion and return of the form of proxy will not preclude shareholders of the Company from attending and voting in person at the meeting (or any adjourned meeting thereof) should they so wish.

4. Where there are joint registered holders of a share in the Company, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders shall be present at the meeting personally or by proxy, that one of the holders so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.

– 115 –