Silkwave Inc — Annual Report 2008

Apr 29, 2009

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South China Holdings Limited
Incorporated in the Cayman Islands with limited liability
Stock Code : 265
ANNUAL REPORT
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Contents

Corporate Information	2
Chairman’s Statement and Management Discussion and Analysis	3
Directors’ Biographical Details	10
Directors’ Report	12
Corporate Governance Report	21
Independent Auditors’ Report	25
Consolidated Income Statement	26
Consolidated Balance Sheet	28
Consolidated Statement of Changes in Equity	30
Consolidated Cash Flow Statement	32
Balance Sheet	34
Notes to the Financial Statements	35
Summary of Financial Information	134
Details of Properties	135

South China Holdings Limited Annual Report 2008

1

Corporate Information

BOARD OF DIRECTORS

Executive Directors

Mr. Ng Hung Sang (Chairman)

Mr. Richard Howard Gorges

Ms. Cheung Choi Ngor Mr. Ng Yuk Fung, Peter

Non-executive Directors

Mr. David Michael Norman Ms. Ng Yuk Mui, Jessica

Independent Non-executive Directors

Mr. David John Blackett Mrs. Tse Wong Siu Yin, Elizabeth Mr. Cheng Hong Kei

AUDIT COMMITTEE

Mr. Cheng Hong Kei (Committee Chairman) Mr. David John Blackett Mrs. Tse Wong Siu Yin, Elizabeth Mr. David Michael Norman

REMUNERATION COMMITTEE

Mrs. Tse Wong Siu Yin, Elizabeth (Committee Chairman) Mr. Cheng Hong Kei Mr. David John Blackett Mr. David Michael Norman

COMPANY SECRETARY

Ms. Cheung Siu Lan

AUDITORS

Ernst & Young Certified Public Accountants

PRINCIPAl BANKERS

The Hongkong and Shanghai Banking Corporation Limited Hang Seng Bank Limited The Bank of East Asia, Limited China Construction Bank Corporation Chong Hing Bank Limited Nanyang Commercial Bank, Limited Standard Chartered Bank (Hong Kong) Limited Industrial and Commercial Bank of China (Asia) Limited DBS Bank (Hong Kong) Limited Bank of Communications Co., Ltd. Bank of China (Hong Kong) Limited Dah Sing Bank, Limited

REGISTERED OFFICE

Scotia Centre 4th Floor, P.O. Box 2804 George Town, Grand Cayman Cayman Islands

PRINCIPAl PlACE OF BUSINESS

28th Floor, Bank of China Tower 1 Garden Road, Central Hong Kong

SHARE REGISTRAR AND TRANSFER OFFICE

Union Registrars Limited Rooms 1901-1902 Fook Lee Commercial Centre Town Place 33 Lockhart Road Wanchai Hong Kong

STOCK CODE

265

WEBSITE

http://www.sctrade.com

South China Holdings Limited Annual Report 2008

2

Chairman’s Statement and Management Discussion and Analysis

I am pleased to report the activities of South China Holdings Limited (the “Company”) and its subsidiaries (collectively, the “Group”) for the year ended 31 December 2008.

FINANCIAL SUMMARY

The Group recorded a turnover of HK$4.4 billion and a loss attributable to the equity holders of the Company of HK$65.1 million for the year ended 31 December 2008. As compared to 2007, turnover decreased by 4% while the annual results turned from profit to loss mainly because of the share of loss from the discontinuing operations of securities and financial services of HK$149.7 million, of which over HK$116.3 million was the write-down on trading and investment portfolio to its fair value at the disposal date.

The profit from the continuing operations was HK$41.5 million for the year ended 31 December 2008. The Group’s principal businesses of trading and manufacturing, property investment and development (before fair value loss), travel and related services and information technology remained profitable and fundamentally sound.

During the year, the Group acquired the controlling stake in certain associates engaging in property holding and manufacturing operations in Nanjing, the PRC, and disposed of its entire equity interest in South China Media Limited (“SCM”) and South China Financial Holdings Limited (“SCF”). The details are shown on the section “Material Acquisitions and Disposals”.

DIVIDEND

The Board proposes the payment of a final dividend of HK0.11 cents (2007: HK$1.4 cents) per share, totaling approximately HK$2 million (2007: HK$25.5 million) in respect of the year ended 31 December 2008 to the shareholders whose names appear on the register of members of the Company on 9 June 2009.

Subject to the approval by the shareholders of the final dividend at the forthcoming annual general meeting of the Company, the final dividend will be paid on or about 10 July 2009.

BUSINESS REVIEW

Trading and Manufacturing

The segment recorded a 9% reduction in turnover to HK$1.9 billion and an operating profit of HK$54.0 million, a decrease of 27% as compared to HK$73.9 million in 2007.

The year 2008 was a very tough year for manufacturers. In the first half of last year, profit margins were eroding by the appreciation of Renminbi, high labour costs and spiraling commodity prices. In the later part of the year, the collapse of the giant financial institutions in the US spiked the downturn of the US consumer market. In face of the unpredictable adverse impacts on both costs and a weaker consumer market, our management team took a more conservative approach in bidding for new products to try to ensure a reasonable gross profit margin and that accounted for the substantial reduction in turnover from our toys segment. As compared to 2007, the turnover of our toys business reduced from HK$1.5 billion to HK$1.2 billion in 2008. Our shoe manufacturing operation, however, had a year-on-year increase in turnover by 14%.

Overall our manufacturing operations of toys, electronics and shoes made reasonable operating profits in spite of the severely adverse market conditions through a series of stringent overhead and material costs control measures during last year. The Group’s other smaller size trading and manufacturing operations in Tianjin and Nanjing are focused on domestic sales and recorded minor losses.

South China Holdings Limited 3 Annual Report 2008

Chairman’s Statement and Management Discussion and Analysis

Property Investment and Development

Investment properties

Early last year, our Group expanded its interests in the PRC by increasing our controlling stake in certain joint ventures that holds sizeable property sites within the central district in Nanjing. The value of net assets attributable to the Group acquired, including investment properties, prepaid land lease payments and leasehold buildings, all being at fair value, exceeds the consideration paid for the acquisition, giving rise to an excess over the cost of business combination of HK$172.8 million recognised.

The 17% rise in turnover from our investment properties was the effect of consolidating the rental income from those subsidiaries after our increase in controlling interests, together with an increase in rental on renewal of tenancies for our local properties. The investment property segment reported a HK$12.1 million rental profit and recognised a fair value loss of HK$23.5 million for the year.

Our share of profits of the Group’s 30% owned principal associate that holds the Grade-A commercial building in Central, The Centrium, reflected a 32% increase in rental income as a result of the great demand for office space in a prime location. The fair value change on the property however was a net loss of HK$18.5 million on revaluation at the year-end (2007: a gain of HK$193.5 million) which rendered the share of results of associates for the year 2008 to a net loss position.

Development properties

The Group’s property development projects are mainly in China and held under South China Land Limited 南華置 地有限公司, a subsidiary listed in the GEM Board. The development projects are all construction in progress at the present stage and have not contributed any turnover or profits to the Group yet.

Shenyang property project

Despite the cooling of the property market in China, the demand for commercial property in Shenyang remains strong, especially in the prime commercial area where we are located. Our major property development project, the building of the upscale 7-storey shopping complex, Fortuna Plaza (formerly known as South China Landmark Plaza ), is well underway. The principal contractor was appointed during the third quarter of 2008 and at the end of 2008 construction up to the ground floor was partially completed. The construction of the upper levels is now progressing on schedule. We have commenced the marketing campaign for the project which looks promising on testing of the market interest so far.

Cangzhou/Hebei property projects

Since signing our first Hebei project in 2007 of 420,000 square metres site area in Zhongjie (中捷), we signed an additional three projects in the Tianjin-Bohai Coastal Economic Development Zone in the year 2008. Specifically, we have a further 866,000 square metres of site area for a high-class commercial/residential development project in Zhongjie, a framework agreement for a development project of 450,000 square metres of site area in the commercial district of Huanghua (黃驊市) and a development project in the commercial district of Nandagang (南大港) for 620,000 square metres of site area.

Our phase one pilot relocation and redevelopment project in Zhongjie performed within expectation last year. The 6,000 square metres of site area was successfully demolished and existing tenants relocated, with 89% of the available units were sold up to the end of December 2008. With the construction work expected to complete in April 2009, we are confident to continue this business model for the remaining areas of the project.

The relocation projects in the commercial district of Nandagang (南大港) have been put on hold as the negotiation with local government regarding the terms of the project is under review. However, we are open to any option to resume the project if the forecasted return meets our expectation.

4 South China Holdings Limited Annual Report 2008

Chairman’s Statement and Management Discussion and Analysis

Chongqing Nanchuan ( 重慶南川 ) property project

During the year, we also signed a preliminary agreement with Chongqing Nanchuan Municipal Government in relation to a property development project that covers up to 13,334,000 square metres of suburban area in Chongqing. The project includes development and construction of new and modern agricultural estates, agricultural related tourism centre, country parks and hot springs holiday resorts. Details of the development plans are still under negotiation.

Travel and Related Services

The rising oil prices in the first half of last year and the slowing down of the world economy in the later half-year had an adverse impact on global air travel. Travel agencies have also faced increasing pressure of higher operating costs with wages and rent in particular. In light of these adverse factors, Fourseas Travel recorded a profit of HK$24.6 million, a 33% decrease compared with the results in 2007 despite a 9% growth in turnover. This was mainly due to the increase in operating costs and the setting up of four branches in Mainland China which the Group sees as a necessary investment for future development. We have already seen satisfactory growth in turnover and customer base from our Mainland branches. More experienced staff have been recruited for the development of global corporate travel business for both Hong Kong and the China markets during the year.

Information Technology

The IT segment reported a decrease of 9% in turnover to HK$72.7 million for the year as compared to 2007. Administrative costs increased in various areas including the cost of retaining key personnel due to market competition for IT people in Chongqing where most of our operations are situated, and also recruiting a new team for setting up a new subsidiary in the high technology industrial park for software development for overseas buyers. The high technology industrial park is a special concession scheme made available by the local government to reputable software developers. Our IT operations in the Mainland recorded a minor profit of around HK$ 1.0 million for the high running costs during the year.

Agriculture and Woods

Our expansion into the forestry business last year has been re-focused on higher quality land that is closer to the populated areas of Chongqing as well as Wuhan and Xi’An. During the financial crisis in the second half of the year, many sizeable competitors for forestry land pulled out of the market, leaving us with a better selection of land available. We continue to face pressure of rising acquisition prices as time goes on despite the financial crisis, and we expect the asking price to continue to increase in the foreseeable future.

Our agricultural business units reported an operating loss of HK$15.5 million for last year, before a fair value gain on revaluation of the biological assets of HK$5.9 million, as they are largely at investment stage. The loss for the year mainly attributable to the initial costs of the newly established Chongqing, Wuhan and Xi’An units. Our first crop in Hebei province of the winter dates plantation was realised in the year producing a minor gross profit margin for the year. Although this is only the first crop of the farm with the majority of the crops in the investment stage, it is a promising indicator for the outlook of the fruit plantation overall.

In view of the increasing demand and rising sales prices for agricultural produce in the Mainland, the segment will be a main growth direction in the foreseeable future as we continue to expand our current portfolio of farmlands and woodlands. Backed by the current government macro policies to transform massive rural area in realisation of its commercial market value in the Mainland, it is expected that our agricultural operations will bring new business opportunities to the Group. In Guangzhou, we are now in the process of negotiating with the local government on the usage conversion of our lychee farmland there. If it was materialised, those farmlands could be converted to development sites (建設用地) for commercial constructions and usage.

South China Holdings Limited 5 Annual Report 2008

Chairman’s Statement and Management Discussion and Analysis

Media and Publications

The Group disposed a substantial part of the media operation early last year. We intend to divest the remaining media and publication business in the near future.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 December 2008 the Group had a current ratio of 1.21 and a gearing ratio of 14.2% (31 December 2007: 1.26 and 10.3% respectively). The gearing ratio is computed by comparing the Group’s total long-term bank borrowings of HK$281.8 million (31 December 2007: HK$233.4 million) to total equity of HK$1,980.5 million (31 December 2007: HK$2,259.0 million). The Group’s operations and investments continue to be financed by internal resources and bank borrowings.

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES AND RELATED HEDGES

As at 31 December 2008, the Group had no significant exposure to fluctuations in foreign exchange rates and any related hedges.

CAPITAL STRUCTURE

The Group had no debt securities or other capital instruments as at 31 December 2008 and up to the date of this Annual Report. As compared to the 2007 Annual Report, there was no material change in the Group’s capital structure. Details of the Group’s debt maturity profile are set out in note 55 to the financial statements.

MATERIAL ACQUISITIONS AND DISPOSALS

During the year, the Group had the following material acquisitions and disposals:

1. In January 2008, the Group acquired the controlling stake in certain associates of the Group at a total cash consideration of RMB55.8 million through the acquisition of the entities set out below:

2. a) the entire interest in 南京第二壓縮機有限公司, which is engaged in property holding and manufacturing of compressor;

3. b) the entire interest in 南京電機有限公司, which is engaged in property holding and trading of flowers; and

4. c) 85% interest in 南京液壓件二廠有限公司, which is engaged in property holding, and has a 49% owned associate engaged in manufacturing of hydraulic press.

The Group recognised an excess over the cost of business combinations of HK$172.8 million on acquisition.

1. In February 2008, the Group disposed of its entire interest in SCM and the shareholders’ loan to Broaden Base Investments Limited, a BVI incorporated company of which a director of the Company is the controlling shareholder, for a consideration of HK$30.0 million payable in cash.

2. The Group recognised a gain of HK$34.5 million on disposal.

3. In December 2008, the Group disposed of its interest in SCF, representing 72.52% of SCF’s issued share capital, by way of distribution in specie. SCF is a company principally engaging in securities and financial related services with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (stock code: 619).

On 16 December 2008, the Group paid a special dividend of approximately HK7 cents to the then shareholders in specie on the basis of two shares of SCF for every share of the Company held by the shareholders on 2 December 2008.

6 South China Holdings Limited Annual Report 2008

Chairman’s Statement and Management Discussion and Analysis

PLEDGES OF ASSETS AND CONTINGENT LIABILITIES

As at 31 December 2008, a significant portion of the short-term borrowings was for normal trading purposes with the level of borrowings depending on the level of trading activities. Certain of the property, plant and equipment and a significant portion of investment properties of the Group are used to secured the long term banking facilities.

Details of the Group’s pledges of assets and contingent liabilities are set out in notes 50 and 49 to the financial statements.

INVESTMENTS

In addition to the transactions disclosed in the section “Material acquisition and disposals”, a significant decrease of financial assets at fair value through profit or loss is recorded during the year ended 31 December 2008. The decrease is jointly attributable to the disposal of SCF and the change in fair value of the investments.

EMPLOYEES

As at 31 December 2008, the total number of employees of the Group was approximately 18,700 (2007:26,400). Employees’ cost (including directors’ emoluments) amounted to approximately HK$724 million for the year (2007: HK$756 million).

In addition to salary, other fringe benefits such as medical subsidies, provident fund and subsidized training programmes are offered to all employees of the Group. Performance of the employees is normally reviewed on an annual basis with adjustment compatible to the market. Individual employees may also receive a discretionary bonus at the end of each year based on performance. The Company adopted a share option scheme which came into effect on 28 June 2002.

PROSPECTS

Trading and Manufacturing

We expect the year 2009 is still a challenging year to the Group’s manufacturing operations. The overall market demand worldwide will be weakened especially in the first half of the year due to poor spending sentiment amidst the lingering economic slump. High-priced products will move much slower as compared to those basic categories. Keener price competition among manufacturers on middle to low-end items may squeeze profit margins.

The Group is cautiously optimistic as to the ongoing performance of our two main manufacturing units Wah Shing Toys (WST) and Tianjin South China Shoes. WST has run an aggressive lean program to rationalise organisation structure and manufacturing activities in improving operational efficiency with the help of implementing the new enterprise resource planning (ERP) system. Late last year, it laid the foundation of original design manufacturing (ODM) business with a few new ventures successfully launched in the market. We hope to capitalise our strength in research and development on expanding our ODM capacity in the creation of new consumer products that will give us greater growth momentum in the coming years. Likewise, our shoe manufacturing unit in Tianjin is anticipated to keep up with its steady growth this year with its strong management team and tight long-term relationship with its customers, of which, one is the biggest consumer product retailer in the world.

Barring unforeseen circumstances, we expect this segment to record better results in 2009 than the previous year.

Property Investment and Development

The acquisition of an equity stake in our Nanjing’s property portfolio is expected to bring further increase in rental income as well as high development value to the Group in the coming years. Given time for renovation and restructuring the tenant mix, it will bring greater returns to the Group in the foreseeable future.

South China Holdings Limited 7 Annual Report 2008

Chairman’s Statement and Management Discussion and Analysis

We anticipate long-term growth in demand in the PRC consumer/retail market, especially in the second tier PRC cities, which will provide excellent investment opportunities to the Group. The demand for commercial properties remains strong and the expected return from the property market of PRC will be promising.

For the development of Fortuna Plaza in Shenyang, the construction progress of the shopping complex is satisfactory and is expected to be completed before the end of 2009. Pre-sale is expected to commence in the first half of 2009. With the continuous increase of spending power in the region, we expect our retail spaces will attract keen interest and the successful launch will provide strong support to the Group’s cash flow in the near future.

In Hebei, our current relocation projects and land redevelopment projects have a total site area of around 1,286,000 square metres in Zhongjie. With the completion of the sales process and legal documentation of the first phase’s property, we anticipate that the project will start to bring revenue contribution to the Group in 2009. Phase two of the relocation project in Zhongjie is expected to be launched in the first half of 2009, which would involve the redevelopment of a residential area covering 9,092 square metres.

For other development projects in Hebei, we are considering very carefully the expected return from relevant projects. Negotiation with the local government regarding the terms of the projects is undergoing. We, however, are confident that the economic growth of the area will bring considerable value to our investments.

Travel and Related Services

Air travel is expected to face even stiffer challenges this year as consumer demand continues to fall due amidst a poor economic environment. Notwithstanding the negative macro economic factors, the management of Fourseas Travel looks to build upon its current market share with the opening up of the Mainland market through the four new branches in the major cities of China. With the steady growth and well established sales network in the Mainland, we shall continue to strengthen its service quality and take advantage of the economic stimulus policies of the Central Government.

Information Technology

It is expected the increase in administrative costs will stabilise and the increase in remuneration of the existing work force will be conducive to the growth in production and profitability this year and going forward.

Agriculture and Woods

The new focus for this year will be on expanding the quality agricultural land in Chongqing, Wuhan and Xi’An as during 2008 we have already identified and negotiated a number of sites suitable for development over the regions. We expect to finalise land acquisition within the year and initiate large-scale production during the later half of this year with a sizeable fruit production base.

Looking ahead, the future of agriculture and forestry is very promising for the Group. The segment is least affected by the global financial meltdown because of the hiking demand for basic commodities. Upon realisation of the macro policies in commercialising rural lands for constructive usage, our agricultural and forestry land bank portfolio in the Mainland will reflect its real and significant economic asset value in the market.

CLOSURE OF REGISTER FOR ENTITLEMENT TO FINAL DIVIDEND

The register of members of the Company will be closed from 4 June 2009 to 9 June 2009, both days inclusive, during which period no share transfers will be registered. To qualify for the final dividend, all transfers accompanied by the relevant share certificates of the Company, must be lodged for registration with the Company’s Share Registrar, Union Registrars Limited of Rooms 1901-02, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong not later than 4:00 p.m. on 3 June 2009.

8 South China Holdings Limited Annual Report 2008

Chairman’s Statement and Management Discussion and Analysis

APPRECIATION

On behalf of the Board, I wish to express my gratitude to our customers and shareholders for their continued support and all our staff members for their hard work and dedicated services.

Ng Hung Sang Chairman

Hong Kong, 21 April 2009

South China Holdings Limited 9 Annual Report 2008

Directors’ Biographical Details

EXECUTIVE DIRECTORS

Mr. Ng Hung Sang , aged 59, is an Executive Director and the Chairman of the Company. Mr. Ng is actively involved in the overall corporate policies, strategic planning and business development of the Group. Mr. Ng is also an executive director and the Chairman of South China Financial Holdings Limited (“SCF”), South China (China) Limited (“SCC”) and South China Land Limited 南華置地有限公司(“SCL”). He holds a Master degree in marketing from Lancaster University in the United Kingdom and is a fellow member of the Chartered Institute of Management Accountants. Mr. Ng was appointed as a Director of the Company on 24 June 1992. Mr. Ng is the father of Ms. Ng Yuk Mui, Jessica, a Non-Executive Director of the Company and Mr. Ng Yuk Fung, Peter, an Executive Director of the Company.

Mr. Richard Howard Gorges , aged 65, is an Executive Director of the Company and SCL. He is also an executive director and a Vice-Chairman of the SCC and SCF. He holds a Master degree in law from University of Cambridge in the United Kingdom. Mr. Gorges was appointed as a Director of the Company on 24 June 1992.

Ms. Cheung Choi Ngor , aged 55, is an Executive Director of the Company and an executive director, the compliance officer and an authorised representative of SCL. Ms. Cheung is an executive director, a Vice-Chairman and Chief Executive Officer of SCC, an executive director and a vice-chairman of SCF. She holds a Master degree in business administration from University of Illinois in the United States of America. Ms. Cheung is a member of the National Committee of the Chinese People’s Political Consultative Conference. Ms. Cheung was appointed as a Director of the Company on 24 June 1992.

Mr. Ng Yuk Fung, Peter , aged 29, is an Executive Director of the Company, SCC and SCL. Mr. Ng holds a Bachelor degree in Law from King’s College London, University of London in the United Kingdom. Mr. Ng is the son of Mr. Ng Hung Sang, the Chairman of the Company, and a brother of Ms. Ng Yuk Mui, Jessica, a Non-Executive Director of the Company. Mr. Ng was appointed as an Executive Director of the Company on 15 September 2003.

NON-EXECUTIVE DIRECTORS

Mr. David Michael Norman , aged 53, is a Non-executive Director of the Company and a partner of the Hong Kong office of an international law firm, Richards Butler in association with Reed Smith LLP. He studied philosophy and psychology at Oxford University in the United Kingdom and was admitted as a solicitor in the United Kingdom in 1981 and in Hong Kong in 1984 respectively. He was appointed as an Independent Non-executive Director of the Company on 16 January 1995 and redesigned as Non-executive Director of the Company on 21 September 2004.

Ms. Ng Yuk Mui, Jessica aged 30, is a Non-Executive Director of the Company, SCC and SCL. Ms. Ng holds a Bachelor degree in Law from King’s College London, University of London in the United Kingdom, and was admitted to the Hong Kong Bar in 2006. Ms. Ng is an associate member of the Chartered Institute of Management Accountants and a member of the Tianjin Municipal Committee of the Chinese People’s Political Consultative Conference. She is the daughter of Mr. Ng Hung Sang, the Chairman of the Company, and the sister of Mr. Ng Yuk Fung, Peter, Executive Director of the Company. Ms. Ng was appointed as an Executive Director of the Company on 15 September 2003 and redesignated as Non-Executive Director of the Company with effect from 1 July 2005.

South China Holdings Limited Annual Report 2008

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Directors’ Biographical Details

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. David John Blackett , aged 58, is an Independent Non-executive Director of the Company and was the Chairman for the Asia Pacific region of the CIT Group Inc. of the United States of America. He studied commerce at The University of Edinburgh and also become a member of the Institute of Chartered Accountants in Scotland. He has extensive experience in investment banking and finance, having previously been the Managing Director of NM Rothschild & Sons (Hong Kong) Limited. He was also a director of Shanghai Chlor-Alkali Chemical Company Limited which is listed on Shanghai Stock Exchange in The People’s Republic of China and retired as a director on 12 December 2006. In 2008, he was appointed as a non-executive director of R.E.A. Holdings plc, a company listed in the UK, principally involved in oil palm plantations in Indonesia. Mr. Blackett was appointed as an Independent Non-executive Director of the Company on 25 May 2000.

Mrs. Tse Wong Siu Yin, Elizabeth , aged 51, is an Independent Non-executive Director of the Company, SCC and SCF, the Chairman of the Hong Kong Flower Retailers Association, a committee member of Skills Upgrading Scheme (Gardening and Floristry) of Labour and Welfare Bureau and the Convenor of Youth Skills Competition in Floristry of Vocational Training Council. Mrs. Tse holds a Bachelor degree in Science from the University of Western Ontario in Canada. Mrs. Tse was appointed as an Independent Non-executive Director of the Company on 21 September 2004.

Mr. Cheng Hong Kei , aged 54, is an Independent Non-Executive Director of the Company. He is also an Independent Non-executive Director of Beauforte Investors Corporation Limited and Sino Resources Group Limited and a cofounding director of Cheng & Cheng Limited, Certified Public Accountants, in Hong Kong. He studied accountancy at Hong Kong Polytechnic (now known as The Hong Kong Polytechnic University) and was admitted as a Certified Public Accountant in Hong Kong in 1991. Mr. Cheng has over 30 years of experience in the accounting field. Prior to establishing of his own practice, he worked as an assessor for the Hong Kong Inland Revenue Department for 12 years. Mr. Cheng is a fellow member of each of the Chartered Association of Certified Accountants, the Taxation Institute of Hong Kong and the Hong Kong Institute of Certified Public Accountants (Practicing). He was appointed as an Independent Non-executive Director of the Company on 28 September 2004.

South China Holdings Limited Annual Report 2008

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Directors’ Report

The directors of the Company (the “Directors”) have pleasure in presenting their report and the audited consolidated financial statements of the Company together with its subsidiaries and associates (the “Group”) for the year ended 31 December 2008.

PRINCIPAL ACTIVITIES

The Company is an investment holding company. Its subsidiaries and associates principally engage in trading and manufacturing, information technology related businesses, property investment and development, the implementation and marketing of software application, magazine publishing businesses, marketing and promotional services, agriculture and woods, sale of airline tickets and the provision of other related services.

RESULTS AND DIVIDENDS

The results of the Group for the year ended 31 December 2008 and the state of affairs of the Company and the Group at that date are set out in the financial statements on pages 26 to 133 of this Annual Report.

The Board propose the payment of a final dividend of HK0.11 cent (2007: HK1.4 cent) per share, totaling approximately HK$2,000,000 (2007: HK$25,528,000) in respect of the year ended 31 December 2008 to the shareholders whose names appear on the register of members of the Company on 9 June 2009. This recommendation has been incorporated in the financial statements as an allocation of retained profits within the equity section of the balance sheet. A special dividend satisfied by distribution in specie of shares in South China Financial Holdings Limited (“SCF Shares”) on the basis of two SCF Shares for every share of the Company held by the Shareholders registered on the register of members of the Company on 2 December 2008 has been paid on 16 December 2008 (please refer to the circular of the Company dated 11 November 2008 for details).

Subject to the approval by the shareholders of the final dividend at the forthcoming annual general meeting of the Company, the final dividend will be paid on or about 10 July 2009.

SUMMARY OF FINANCIAL INFORMATION

A summary of the results and of the assets, liabilities and minority interests of the Group for the last five financial years, as extracted from the audited financial statements and restated/reclassified as appropriate, is set out on page 134 of this Annual Report. The summary does not form part of the audited financial statements.

PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTIES

Details of movements in the property, plant and equipment, and investment properties of the Group during the year are set out in notes 16 and 17 to the financial statements respectively. Further details of the Group’s investment properties and properties under development are set out on pages 135 to 140 of this Annual Report.

SHARE CAPITAL AND SHARE OPTIONS

There were no change in either the authorized capital or the issued capital of the Company during the year. Details of the movement in share capital and share options of the Company during the year are set out in notes 43 and 44 to the financial statements.

South China Holdings Limited Annual Report 2008

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Directors’ Report

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Articles of Association of the Company or the laws of the Cayman Islands.

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

During the year ended 31 December 2008, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the listed securities of the Company.

RESERVES

Details of movements in the reserves of the Company and the Group during the year are set out in note 45 to the financial statements and in the consolidated statement of changes in equity respectively.

DISTRIBUTABLE RESERVES

At 31 December 2008, the Company’s reserves available for distribution, calculated in accordance with the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, amounted to HK$629,897,000.

DIRECTORS

The Directors during the year and up to the date of this report were:

Executive Directors:

Mr. Ng Hung Sang (Chairman) Mr. Richard Howard Gorges Ms. Cheung Choi Ngor Mr. Ng Yuk Fung, Peter

Non-executive Directors:

Mr. David Michael Norman

Ms. Ng Yuk Mui, Jessica

Independent Non-executive Directors:

Mr. David John Blackett Mrs. Tse Wong Siu Yin, Elizabeth Mr. Cheng Hong Kei

In accordance with Article 116 of the articles of association of the Company, Mr. Ng Yuk Fung, Peter, Ms. Ng Yuk Mui, Jessica and Mr. David Michael Norman will retire from office at the forthcoming annual general meeting and, being eligible, offer themselves for re-election.

CONFIRMATION OF INDEPENDENCE OF INDEPENDENT NON-EXECUTIVE DIRECTORS

The Company has received an annual confirmation of his/her independence pursuant to Rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) from each of the Independent Non-executive Directors, namely Mr. David John Blackett, Mrs. Tse Wong Siu Yin, Elizabeth and Mr. Cheng Hong Kei for the year ended 31 December 2008 and as at the date of this report, the Company still considers the Independent Non-executive Directors to be independent.

South China Holdings Limited Annual Report 2008

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Directors’ Report

DIRECTORS’ BIOGRAPHIES

Biographical details of the Directors are set out on pages 10 and 11 of this Annual Report.

DIRECTORS’ SERVICE CONTRACTS

None of the Directors being proposed for re-election at the forthcoming annual general meeting has a service contract with the Company which is not determinable by the Company within one year without payment of compensation (other than statutory compensation).

DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ANY ASSOCIATED CORPORATION

As at 31 December 2008, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)), as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, were as follows:

(a) The Company

• (i) Long positions in shares

						Approximate
				Number of	Total number of	percentage of
	Name of Director	Capacity		ordinary shares	ordinary shares	shareholding
	Mr. Ng Hung Sang	Beneficial owner		71,652,200	1,344,181,812	73.72%
	(“Mr. Ng”)	Interest of controlled		1,272,529,612
		corporations		(Note a)
	Mr. Richard Howard	Interest of controlled		487,949,760	487,949,760	26.76%
	Gorges (“Mr. Gorges”)	corporations		(Note a)
	Ms. Cheung Choi Ngor	Interest of controlled		487,949,760	487,949,760	26.76%
	(“Ms. Cheung”)	corporations		(Note a)
(ii)	Long positions in underlying shares
						Approximate
				Number of		percentage of
	Name of Director		Capacity	underlying shares		shareholding
	Mr. Gorges		Beneficial owner	18,000,000		0.99%
					(Note b)
	Ms. Cheung		Beneficial owner	18,000,000		0.99%
					(Note b)
	Mr. Ng Yuk Fung, Peter		Beneficial owner	18,000,000		0.99%
					(Note b)
	Ms. Ng Yuk Mui, Jessica		Beneficial owner	18,000,000		0.99%
					(Note b)

South China Holdings Limited Annual Report 2008

14

Directors’ Report

(b) Associated corporations

• (i) Long positions in shares

• (1) South China (China) Limited (“SCC”) (Note c)

			Approximate
		Number of	percentage of
Name of Director	Capacity	ordinary shares	shareholding
Mr. Ng	Interest of controlled	1,983,206,785	74.78%
	corporations	(Note d)

(2)	South China Land Limited南華置地有限公司(“SCL”) (Note c)	South China Land Limited南華置地有限公司(“SCL”) (Note c)	South China Land Limited南華置地有限公司(“SCL”) (Note c)	South China Land Limited南華置地有限公司(“SCL”) (Note c)
					Approximate
				Number of	percentage of
	Name of Director		Capacity	ordinary shares	shareholding
	Mr. Ng		Interest of controlled	353,914,203	69.87%
			corporations	(Note e)
(3)	Prime Prospects Limited		(“Prime Prospects”) (Note f)
					Approximate
				Number of	percentage of
	Name of Director		Capacity	ordinary shares	shareholding
	Mr. Ng		Interest of controlled	30	30%
			corporations
Long	positions in	underlying shares
(1)	SCC
	a)	Warrants
					Approximate
		Name of		Number of	percentage of
		Director	Capacity	underlying shares	shareholding
		Mr. Ng	Interest of controlled	396,641,357	14.96%
			corporations	(Note g)
	b)	Share options
					Approximate
		Name of		Number of	percentage of
		Director	Capacity	underlying shares	shareholding
		Ms. Cheung	Beneficial owner	26,000,000	0.98%
				(Note h)
		Mr. Ng Yuk	Beneficial owner	26,000,000	0.98%
		Fung, Peter		(Note h)

• (ii) Long positions in underlying shares

South China Holdings Limited Annual Report 2008

15

Directors’ Report

• (2) SCL

a) Convertible notes

				Approximate
	Name of		Number of	percentage of
	Director	Capacity	underlying shares	shareholding
	Mr. Ng	Interest of controlled	10,666,666,666	2,105.96%
		corporations	(Note i)
b)	Share options
				Approximate
	Name of		Number of	percentage of
	Director	Capacity	underlying shares	shareholding
	Mr. Ng Yuk	Beneficial owner	5,000,000	0.99%
	Fung, Peter		(Note j)

Notes:

• (a) The 1,272,529,612 shares of the Company held by Mr. Ng through controlled corporations include 371,864,000 shares held by Parkfield Holdings Limited (“Parkfield”), 396,050,252 shares held by Fung Shing Group Limited (“Fung Shing”), 16,665,600 shares held by Ronastar Investments Limited (“Ronastar”), 237,303,360 shares held by Bannock Investment Limited (“Bannock”) and 250,646,400 shares held by Earntrade Investments Limited (“Earntrade”). Parkfield, Fung Shing and Ronastar are all wholly owned by Mr. Ng. Bannock is a wholly-owned subsidiary of Earntrade which is owned as to 60% by Mr. Ng, 20% by Mr. Gorges and 20% by Ms. Cheung, all of whom are considered as parties to an agreement to which Section 317 of the SFO applies. As such, Mr. Ng, Mr. Gorges and Ms. Cheung were deemed to have an interest in 487,949,760 shares held by Bannock and Earntrade.

• (b) These share options were granted on 18 September 2007 at an exercise price of HK$2.00 per share of the Company with exercise period as follows: (i) not more than 1/3 of the total share options granted shall be exercised from the beginning of the second year from the date of grant to the end of the tenth year from the date of grant; (ii) not more than 2/3 of the total share options granted shall be exercised from the beginning of the third year from the date of grant to the end of the tenth year from the date of grant; and (iii) all of the share options granted shall be exercised from the beginning of the fourth year from the date of grant to the end of the tenth year from the date of grant.

• (c) SCC was a 74.78% owned subsidiary of the Company and SCL was a 69.87% owned subsidiary of SCC.

• (d) By virtue of Notes (a) and (c), Mr. Ng was deemed to have interest in those shares of SCC held by certain wholly-owned subsidiaries of the Company.

• (e) By virtue of Notes (a) and (c), Mr. Ng was deemed to have interest in those shares of SCL held by a wholly-owned subsidiary of SCC.

• (f) Prime Prospects was a 70% owned subsidiary of SCC.

• (g) These were warrants of SCC which entitle the holders thereof to subscribe at any time during the period from 7 September 2007 to 6 September 2010 (both days inclusive) for fully paid shares of SCC at an initial subscription price of HK$0.40 per share (subject to adjustments). By virtue of Notes (a) and (c), Mr. Ng was deemed to have interest in those underlying shares of SCC held by certain wholly-owned subsidiaries of the Company.

South China Holdings Limited Annual Report 2008

16

Directors’ Report

• (h) These share options were granted on 18 September 2007 at an exercise price of HK$1.50 per share of SCC with exercise periods as follows: (i) not more than 1/3 of the total share options granted shall be exercised from the beginning of the second year from the date of grant to the end of the tenth year from the date of grant; (ii) not more than 2/3 of the total share options granted shall be exercised from the beginning of the third year from the date of grant to the end of the tenth year from the date of grant; and (iii) all of the share options granted shall be exercised from the beginning of the fourth year from the date of grant to the end of the tenth year from the date of grant.

• (i) Two convertible notes were issued to a wholly-owned subsidiary of SCC with the rights to convert into 5,440,000,000 shares of SCL and 5,226,666,666 shares of SCL respectively at a conversion price of HK$0.075 per share. By virtue of Notes (a) and (c), Mr. Ng was deemed to have interest in those underlying shares of SCL.

• (j) These share options were granted on 14 March 2007 at an exercise price of HK$0.2166 per share of SCL with exercise period as follows: (i) 1/3 of the total share options granted shall be exercised from the beginning of the second year from the date of grant to the end of the third year from the date of grant; (ii) 1/3 of the total share options granted shall be exercised from the beginning of the third year from the date of grant to the end of the fourth year from the date of grant; and (iii) 1/3 share options granted shall be exercised from the beginning of the fourth year from the date of grant to the end of the fifth year from the date of grant.

Save as disclosed above, none of the directors or chief executives of the Company as at 31 December 2008 had registered any interest or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meeting of Part XV of the SFO) as recorded in the register which was required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

SHARE OPTIONS SCHEMES

The Directors and employees of the Company and its subsidiaries are entitled to participate in the share options schemes of the Company and its subsidiaries. Particulars of the share option schemes of the Company and the subsidiaries together with the details of the options granted were set out in note 44 to the financial statements. Certain Directors are entitled to participate in the share option schemes of the Company and its subsidiaries. Details of the options granted by the Company and its subsidiaries to the Directors were set out under the section “Directors’ and Chief Executives’ Interests and Short Position in Shares, Underlying Shares and Debentures of the Company or any Associated Corporation” of this report.

DIRECTORS’ RIGHT TO ACQUIRE SHARES OR DEBENTURES

Save as disclosed under the section “Share Option Schemes”, at no time during the year was the Company, or any of its holding companies, fellow subsidiaries or subsidiaries, a party to any arrangement to enable the Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, and none of the Directors or any of their spouses or children under the age of 18, was granted any right to subscribe for the equity or debt securities of the Company or any other body corporate nor had exercised any such right.

PENSION SCHEME

Details of the pension scheme of the Group are set out in note 2.4 to the financial statements.

DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE

Details of transactions during the year between the Group and other companies in which a director of the Company has beneficial interest are set out in note 53 to the financial statements and the section “Connected and Continuing Connected Transactions” of this report.

Save as disclosed above, no contracts of significance in relation to the business of the Group to which the Company, or any of its holding companies, or any of its subsidiaries or fellow subsidiaries was a party and in which a Director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

South China Holdings Limited Annual Report 2008

17

Directors’ Report

MANAGEMENT CONTRACTS

No contracts for the management and administration of the whole or any substantial part of the business of the Company were entered into or subsisted during the year.

SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS AND SHORT POSITIONS

IN SHARES AND UNDERLYING SHARES

As at 31 December 2008, the following persons, other than the Directors and chief executives of the Company, had interests and short positions in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company pursuant to Section 336 of Part XV of the SFO:

Long positions

Long positions
			Approximate
		Number of	percentage of
Name of Shareholder	Capacity	ordinary shares	shareholding
Earntrade	Beneficial owner and interest of	487,949,760	26.76%
	a controlled corporation	(Note)
Bannock	Beneficial owner	237,303,360	13.01%
		(Note)
Parkfield	Beneficial owner	371,864,000	20.39%
Fung Shing	Beneficial owner	396,050,252	21.72%

Note: Bannock is a wholly-owned subsidiary of Earntrade. The 487,949,760 shares in the Company held by Earntrade include 237,303,360 shares held by Bannock directly.

Save as disclosed above, as at 31 December 2008, no person, other than the Directors or chief executives of the Company whose interests are set out in the section “Directors’ and Chief Executives’ Interests and Short Positions in Shares, Underlying Shares and Debentures of the Company or any Associated Corporation”, had registered any interests or short positions in the shares or underlying shares of the Company that was required to be kept by the Company under Section 336 of Part XV of the SFO.

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

Mr. Ng is the controlling shareholder of South China Media Limited (“SC Media”) and Jessica Publications (BVI) Limited (“Jessica”) and a director of SC Media, and each of Ms. Ng Yuk Mui, Jessica and Mr. Ng Yuk Fung, Peter is a director of SC Media and Jessica. Both SC Media and Jessica are principally engaged in the publication business which are considered as competing businesses of the Group.

Accordingly, each of Mr. Ng, Ms. Ng Yuk Mui, Jessica and Mr. Ng Yuk Fung, Peter is regarded as interested in such competing businesses of the Group.

The Directors are of the view that the Company can carry on its business independently of and at arm’s length from the business of SC Media and Jessica as the Group’s relevant publication business has its own target reader market and contents which are different from those of SC Media and Jessica.

Save as disclosed above, as at 31 December 2008, none of the Directors or any of their respective associates had any interest in any business which causes or may cause any competition with the business of the Group or any conflicts with the interests of the Group.

South China Holdings Limited Annual Report 2008

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Directors’ Report

SUFFICIENCY OF PUBLIC FLOAT

Based on information that is publicly available to the Company and within the knowledge of the Directors, the Company has maintained the amount of public float as required under the Listing Rules as at the date of this Annual Report.

COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES

Details of the compliance by the Company with the Code on Corporate Governance Practices are set out on pages 21 to 24 of this Annual Report.

MODEL CODE FOR SECURITIES TRANSACTIONS

Details of the compliance by the Company with the Model Code for Securities Transactions are set out on page 22 of this Annual Report.

CONNECTED AND CONTINUING CONNECTION TRANSACTIONS

Details of the significant related party transactions undertaken by the Group during the year in the ordinary course of business are set out in note 53 to the financial statements.

During the year, the Group had the following continuing connected transactions, details of which were disclosed in compliance with the requirements of Chapter 14A of the Listing Rules.

• Six Tenancy Agreements dated 6 February 2008 entered between Copthorne Holdings Corp. as landlord, a wholly-owned subsidiary of SCC, in which the Company owns 74.78% and South China Media Management Limited (“SC Management”) as tenant for the leasing of the premises at units A, B and D on 3rd Floor, A, B, C and D on 4th Floor, unit D on 10th Floor and units A, B, C and D on 12th Floor (with a total area of 59,017 sq. ft) together with car parking space nos. 12A, 12B, 13A and 13B of Wah Shing Centre, 5 Fung Yip Street, Chai Wan, Hong Kong at an aggregate monthly rental of HK$307,085 for a period from 6 February 2008 to 31 December 2009.

SC Management is 100% owned by the Chairman and the executive director, Mr. Ng and hence an associate of Mr. Ng. One of the principal activities of the Group is engaged in properties investment and the above rental agreements provided the Group with stable rental income.

The above continuing connected transactions have been reviewed by the Independent Non-executive Directors of the Company who have confirmed that the transactions have been entered into:–

• (1) in the ordinary and usual course of business of the Company;

• (2) on normal commercial terms; and

• (3) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interest of the shareholders of the Company as a whole.

In addition, the Auditors have confirmed to the Board that the continuing connected transactions:–

• (1) have received the approval of the Board;

• (2) have been entered into in accordance with the relevant agreement governing the transactions; and

• (3) have not exceeded the cap disclosed in the announcement dated 28 December 2007.

South China Holdings Limited 19 Annual Report 2008

Directors’ Report

AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference in compliance with the Listing Rules. The audit committee comprises three Independent Non-executive Directors and one Non-executive Director, namely Mr. Cheng Hong Kei (chairman of the audit committee), Mr. David John Blackett, Mrs. Tse Wong Siu Yin, Elizabeth and Mr. David Michael Norman.

The audit committee is satisfied with its review of the audit fees, the independence of the Auditors and recommended to the Board the re-appointment of Auditors in 2009 at the forthcoming annual general meeting.

The Group’s annual results for the year ended 31 December 2008 have been reviewed by the audit committee, which was of the opinion that the preparation of such annual results complied with the applicable accounting standards and requirements and that adequate disclosures were made.

MAJOR CUSTOMERS AND SUPPLIERS

During the year ended 31 December 2008, the sales to the Group’s five largest customers accounted for 30% of the total sales and sales to the largest customer included therein amounted to 18%. Purchases from the Group’s five largest suppliers accounted for 38% of the total purchases and purchases from the largest supplier included therein accounted for 28% of the total purchases.

None of the Directors or any of their associates or any shareholders (which to the knowledge of the Directors, owned more than 5% of the Company’s issued share capital) had a material interest in the Group’s five largest customers and suppliers.

AUDITORS

Messrs. Ernst & Young will retire and, being eligible, will offer themselves for re-appointment at the forthcoming annual general meeting of the Company.

On behalf of the Board

Ng Hung Sang Chairman

Hong Kong, 21 April 2009

South China Holdings Limited Annual Report 2008

20

Corporate Governance Report

The Company is committed to the establishment of good corporate governance practices and procedures. The corporate governance principles of the Company emphasizes accountability and transparency to the shareholders. Periodic review will be made to the corporate governance practices to comply with the regulatory requirements.

CODE ON CORPORATE GOVERNANCE PRACTICES

The Company has complied with all the code provisions set out in the Code on Corporate Governance Practices (the “CG Code”) contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) throughout the year ended 31 December 2008.

BOARD COMPOSITION AND BOARD PRACTICES

As at 31 December 2008, the board of directors of the Company (the “Board”) composed of 9 directors, including the Chairman who is an Executive Director, 3 additional Executive Directors, 2 Non-executive Directors and 3 Independent Non-executive Directors. One-third of the Board is Independent Non-executive Directors. Their biographies and relevant relationships amongst them are set out in the Directors’ Biographical Details on pages 10 to 11 of this Annual Report.

Review will be made regularly on the Board composition to ensure that it has a balance of skills and experience appropriate for the requirement of the business of the Company and its subsidiaries (the “Group”). Also, a balanced composition of Executive Directors and Non-executive Directors is maintained to ensure independence and effective management. The Company has satisfied the relevant provision of the Listing Rules in having one of the Independent Non-executive Directors with appropriate accounting qualifications and expertise to chair the Audit Committee.

Each of the Independent Non-executive Directors has made an annual confirmation of independence pursuant to Rule 3.13 of the Listing Rules. The Company is of the view that all Independent Non-executive Directors meet the independence guidelines set out in Rule 3.13 of the Listing Rules and are independent in accordance with the terms of the guidelines.

The Board has adopted a formal written procedure and policy for the appointment of new directors. When selecting potential candidates for directors, their skills, experience, expertise, devotion of time and conflicts of interests are the key factors for consideration. No nomination committee has been set up, and hence, the nomination and selection process are performed by the Board. The Board meets at least once a year in discussing whether the composition, size and structure of the Board is adequate. The Board met once in 2008 with all the Directors present.

All the directors (including Non-executive Directors) of the Company (the “Directors”) are subject to retirement by rotation at least once every three years in accordance with the Company’s Articles of Association.

The Board is collectively responsible for the formulation of the Group’s strategy, overseeing the management of the business and affairs of the Group.

Daily operation and management of the business of the Group, inter alia, the implementation of strategies are delegated to the Executive Committee, comprising all Executive Directors. They report periodically to the Board their work and business decisions.

There are defined roles in relation to the responsibilities of the Chairman and the chief executive officer of the Company. Their roles are exercised by separate individuals with a view to reinforce their independence and accountability. Mr. Richard Howard Gorges and Ms. Cheung Choi Ngor had been identified as the chief executives of the Company who are jointly responsible for the daily operations of the Company. Key and important decisions are fully discussed at the board meetings. All Directors have been fully consulted about any matters proposed for inclusion in the agenda of regular meetings. The Chairman has delegated the responsibility for drawing up the agenda for each board meeting to the Company Secretary. With the assistance of the Executive Directors and the Company Secretary, the Chairman seeks to ensure that all Directors are properly briefed on issues arising at board meetings and have received adequate and reliable information in a timely manner.

South China Holdings Limited Annual Report 2008

21

Corporate Governance Report

The Board held six meetings in 2008:
	Attendance
Executive Directors
Mr. Ng Hung Sang_(Chairman)_	4/6
Mr. Richard Howard Gorges	6/6
Ms. Cheung Choi Ngor	6/6
Mr. Ng Yuk Fung, Peter	5/6
Non-executive Directors
Mr. David Michael Norman	6/6
Ms. Ng Yuk Mui, Jessica	6/6
Independent Non-executive Directors
Mr. David John Blackett	6/6
Mrs. Tse Wong Siu Yin, Elizabeth	6/6
Mr. Cheng Hong Kei	4/6

Notices of at least fourteen days are given to the Directors for meetings, while Board papers are sent to the Directors not less than three days before the intended date of a board or board committee meeting. With respect to other meetings, Directors are given as much notice as is reasonable and practicable in the circumstances. The Directors can attend meetings in person or through other means of electronic communication in accordance with the Articles of Association of the Company. The Company Secretary ensures that the procedures and all applicable rules and regulations are complied with. Minutes of board meetings and meetings of board committees are kept by the Company Secretary and are available for inspection at any time on reasonable notice by any Directors.

Directors shall have full access to information on the Group and are able to obtain independent professional advice whenever they deem necessary. Memos are issued to Directors from time to time to update them with legal and regulatory changes and matters of relevance to Directors in the discharge of their duties.

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules. In addition, the Board has established similar guidelines for relevant employees who are likely in possession of unpublished price sensitive information in relation to the Group or its securities.

All Directors have confirmed, following specific enquiry by the Company, their compliance with the required standard of dealings and its code of conduct regarding securities transactions by directors throughout the year ended 31 December 2008.

INTERNAL CONTROL

Recognising that a well-designed and effective system of internal control is crucial to safeguard the assets of the Company and the shareholders’ investment and to ensure the reliability of financial reporting as well as compliance with the relevant requirement of the Listing Rules, the Directors also acknowledge that they have overall responsibility for the Company’s internal control, financial control and risk management and shall monitor its effectiveness from time to time. Therefore, a team, comprising qualified accountants, has been organised to carry out the internal audit function of the Company (“IA Team”).

Based on the assessment of risk exposure, the IA Team formulates audit plans quarterly and ensures the audit programs cover key internal control areas of key operating subsidiaries on a rotational basis for the review by the Audit Committee on a regular interval. The scopes and timing of audit review is usually determined according to risk assessment.

South China Holdings Limited Annual Report 2008

22

Corporate Governance Report

Special reviews may also be performed on areas of concern identified by management or the Audit Committee from time to time. Communication channel has been established between the IA Team and the Audit Committee members.

IA Team monitors the internal control procedures and systems of the Group, reports findings and makes recommendations, if any, to Audit Committee on a regular interval. During the year, the internal control of payment cycle of the toys operation, cash segregation system of securities segment, expenditure cycle of travel business, property rental receivable and sales commission cycle of media segment of the Group were reviewed and addressed in the internal control report which was presented by the IA Team to the Audit Committee and the Board for review.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Directors acknowledge their responsibility for preparing the financial statements of the Group. The Directors ensure the preparation of the financial statements of the Group is in accordance with statutory requirements and applicable accounting standards.

The statement of the Auditors of the Company about their reporting responsibilities on the financial statements of the Group is set out in the Independent Auditors’ Report on page 25 of this Annual Report.

AUDITORS’ REMUNERATION

For the year ended 31 December 2008, the Auditors of the Company received approximately HK$800,000 for audit services. No Non-audit services was provided by the Auditors in 2008.

REMUNERATION COMMITTEE

The Remuneration Committee was set up on 21 April 2005 and comprises all the Independent Non-executive Directors, Mrs. Tse Wong Siu Yin, Elizabeth (Chairman of the Remuneration Committee), Mr. Cheng Hong Kei and Mr. David John Blackett and one Non-executive Director, Mr. David Michael Norman.

The Remuneration Committee met once in 2008 and was attended by all Committee members. The policies on the remuneration of Executive Directors were reviewed by the Remuneration Committee. Remuneration, including basic salaries, discretionary performance bonus and other emolument, of the Executive Directors is based on skills, knowledge, involvement in the Company’s affairs and performance of the individual Executive Directors with reference to the Company’s performance and profitability, as well as industry practice. Granting share options is considered as one of the means for giving long-term incentive to and for retaining staff.

The directors’ fees for all Directors are subject to shareholders’ approval at general meeting. Reimbursement packages of the Executive Directors are reviewed by the Remuneration Committee. Reimbursement is allowed for out-of-pocket expenses incurred in connection with the performance of their duties including attendance at board meetings and committee meetings.

AUDIT COMMITTEE

The Audit Committee comprises all Independent Non-executive Directors, Mr. Cheng Hong Kei (Chairman of the Audit Committee), Mr. David John Blackett, Mrs. Tse Wong Siu Yin, Elizabeth and one Non-executive Director, Mr. David Michael Norman. The principal duties of the Audit Committee in accordance with its terms of reference, are substantially the same as the CG Code, include the review of the Group’s financial reporting system and internal control procedures, review of financial information of the Group and review of the relationship with the Auditors of the Group.

South China Holdings Limited Annual Report 2008

23

Corporate Governance Report

The Audit Committee Members held two meetings in 2008 in which representatives of the management were present to review the interim and final results, the interim report and annual report and other financial and internal control matters. The Group’s Auditors were also present in one of the meetings.

	Attendance
Mr. Cheng Hong Kei	2/2
Mr. David John Blackett	2/2
Mrs. Tse Wong Siu Yin, Elizabeth	2/2
Mr. David Michael Norman	2/2

The Audit Committee is satisfied with their review of the audit fees, the independence of the Auditors and recommended to the Board the re-appointment of the Auditors in 2009 at the forthcoming annual general meeting.

The Group’s annual results for the year ended 31 December 2008 were reviewed by the Audit Committee.

South China Holdings Limited Annual Report 2008

24

Independent Auditors’ Report

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To the shareholders of South China Holdings Limited

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements of South China Holdings Limited set out on pages 26 to 133, which comprise the consolidated and Company balance sheets as at 31 December 2008, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the financial statements

The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

auDitors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

opinion

In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2008 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young Certified Public Accountants 18th Floor, Two International Finance Centre

8 Finance Street, Central Hong Kong 21 April 2009

South China Holdings Limited Annual Report 2008

25

Consolidated Income Statement

Year ended 31 December 2008

		2008	2007
	Notes	HK$’000	HK$’000
			(Restated)
CONTINUING OPERATIONS
TURNOVER	5	4,425,327	4,615,990
Cost of sales		(4,055,535)	(4,190,413 )
Gross profit		369,792	425,577
Interest income		1,458	4,635
Other operating income		21,031	56,412
Gain on disposal of subsidiaries	47	34,849	65,956
Gain/(loss) on disposal of financial assets at
fair value through profit or loss		(1,390 )	37,023
Gain on disposal of available-for-sale financial assets		–	82,325
Gain on disposal of investment properties		1,424	–
Excess over the cost of business combinations	46	172,831	–
Fair value gains/(losses) on investment properties		(23,467 )	144,530
Fair value gains on biological assets	15	5,893	6,217
Fair value losses on financial assets at fair value
through profit or loss		(27,771 )	(4,190 )
Selling and distribution costs		(44,595 )	(104,823 )
Other operating expenses		(350,494 )	(340,125 )
Equity-settled share option expenses		(49,373)	(23,876 )
		110,188	349,661
Finance costs	7	(24,359 )	(26,206 )
Share of profits and losses of associates		(823 )	202,180
Impairment of advances to associates, net	22	(28,306)	(10,500 )
PROFIT BEFORE TAX	6	56,700	515,135
Tax	10	(15,190)	(12,223 )
PROFIT FOR THE YEAR FROM
CONTINUING OPERATIONS		41,510	502,912
DISCONTINUED OPERATION
Profit/(loss)for theyear from a discontinued operation	12	(149,736)	75,320
PROFIT/(LOSS) FOR THE YEAR		(108,226 )	578,232
Attributable to:
Equity holders of the Company	11	(65,129 )	416,809
Minorityinterests		(43,097)	161,423
		(108,226 )	578,232

South China Holdings Limited Annual Report 2008

26

Consolidated Income Statement

Year ended 31 December 2008

		2008	2007
	Notes	HK$’000	HK$’000
			(Restated)
DIVIDENDS AND DISTRIBUTION	13
Special interim distribution, declared and paid		127,638	–
Interim		–	25,528
Proposed final		2,006	25,528
EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO
ORDINARY EQUITY HOLDERS OF THE COMPANY	14
Basic
– For profit/(loss) for the year		HK(3.6) cents	HK22.9 cents
– For profit from continuing operations		HK2.4 cents	HK19.9 cents
Diluted
– For profit/(loss) for the year		HK(3.6) cents	HK22.6 cents
– For profit from continuing operations		HK2.4 cents	HK19.9 cents

South China Holdings Limited Annual Report 2008

27

Consolidated Balance Sheet

31 December 2008

		2008	2007
	Notes	HK$’000	HK$’000
NON-CURRENT ASSETS
Property, plant and equipment	16	296,938	356,628
Investment properties	17	1,605,674	1,229,827
Prepaid land lease payments	18	48,323	20,027
Construction in progress	19	27,279	263,444
Interests in associates	22	298,449	304,227
Biological assets	15	84,904	71,000
Loans receivable	20	–	6,913
Available-for-sale financial assets	25	44,741	38,990
Other non-current assets	26	48,165	47,900
Deferred tax assets	41	–	3,255
Goodwill	23	12,041	9,882
Intangible assets	24	–	836
Total non-current assets		2,466,514	2,352,929
CURRENT ASSETS
Properties under development	27	448,734	–
Inventories	28	322,478	290,853
Trade and other receivables	29	410,950	578,052
Loans receivable	20	–	229,711
Financial assets at fair value through profit or loss	30	10,945	241,036
Due from affiliates	39	457	239,203
Advances to minority shareholders of subsidiaries	38	27,480	14,105
Tax recoverable		5,016	8,972
Pledged bank deposits	31	14,342	18,730
Cash held on behalf of clients	32	–	538,546
Cash and cash equivalents	31	193,072	281,881
Total current assets		1,433,474	2,441,089
CURRENT LIABILITIES
Client deposits	33	–	518,718
Trade and other payables	34	644,860	793,015
Interest-bearing bank and other borrowings	35	487,606	590,971
Advances from minority shareholders of subsidiaries	38	22,048	2,128
Due to affiliates	39	2,180	13,207
Taxpayable		29,284	24,642
Total current liabilities		1,185,978	1,942,681
NET CURRENT ASSETS		247,496	498,408
TOTAL ASSETS LESS CURRENT LIABILITIES		2,714,010	2,851,337

South China Holdings Limited Annual Report 2008

28

31 December 2008

Consolidated Balance Sheet

		2008	2007
	Notes	HK$’000	HK$’000
TOTAL ASSETS LESS CURRENT LIABILITIES		2,714,010	2,851,337
NON-CURRENT LIABILITIES
Interest-bearing bank and other borrowings	35	281,845	235,445
Advances from shareholders	37	7,876	14,529
Advances from minority shareholders of subsidiaries	38	29,226	54,842
Other non-current liabilities	40	85,419	41,259
Promissory notes	42	97,079	95,959
Deferred tax liabilities	41	232,079	150,261
Total non-current liabilities		733,524	592,295
Net assets		1,980,486	2,259,042
EQUITY
Equity attributable to equity holders of the Company
Issued capital	43	45,584	45,584
Reserves	45(a)	1,330,641	1,503,236
Proposed final dividend	13	2,006	25,528
		1,378,231	1,574,348
Minority interests		602,255	684,694
Total equity		1,980,486	2,259,042

Ng Hung Sang Chairman

Richard Howard Gorges Director

South China Holdings Limited Annual Report 2008

29

Consolidated Statement of Changes in Equity

Year ended 31 December 2008

Notes At 1 January 2007 Surplus on revaluation on land and buildings Changes in the fair value of available–for-sale financial assets 25 Transfer to the income statement on disposal of available-for-sale financial assets 25 Exchange realignment	Attributable to equity holders of the Company Available- for-sale financial Share Capital Share Asset asset PRC Exchange Proposed Issued premium redemption Capital Merger option revaluation revaluation statutory fluctuation Retained final Minority Total capital account reserve reserve reserve reserve reserve reserve reserves reserve profits dividend Total interests equity 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 HK$’000 45,584 253,234 56 – 136,648 4,881 9,405 18,015 5,350 9,842 710,879 – 1,193,894 541,470 1,735,364 – – – – – – 6,508 – – – – – 6,508 2,194 8,702 – – – – – – – 66,794 – – – – 66,794 24,339 91,133 – – – – – – – (56,206 ) – – – – (56,206 ) (20,872 ) (77,078 ) – – – – – – – – – 18,408 – – 18,408 26,056 44,464
Total income and expense for the year recognised directly in equity Profit for the year	– – – – – – 6,508 10,588 – 18,408 – – 35,504 31,717 67,221 – – – – – – – – – – 416,809 – 416,809 161,423 578,232
Total income and expense for the year Acquisition of minority interests Adjustment due to adoption of merger accounting Acquisition of subsidiaries 46 Disposal of a subsidiary 47 Capital contribution from minority shareholders of subsidiaries Transfer from retained profits Equity-settled share option arrangements Exercise of share options Interim dividend 2007 13 Dividends paid to minority shareholders of subsidiaries Proposed final dividend 2007 13	– – – – – – 6,508 10,588 – 18,408 416,809 – 452,313 193,140 645,453 – – – – – – – – – – – – – (25 ) (25 ) – – – 3,060 – – – – – – (10,932 ) – (7,872 ) (2,332 ) (10,204 ) – – – – (63,458 ) – – – – – – – (63,458 ) (21,470 ) (84,928 ) – – – – – – – – – – – – – (1,130 ) (1,130 ) – – – – – – – – – – – – – 2,063 2,063 – – – – – – – 468 1,044 – (1,512 ) – – – – – – – – – 25,917 – – – – – – 25,917 5,821 31,738 – – – – – (918 ) – – – – – – (918 ) (347 ) (1,265 ) – – – – – – – – – – (25,528 ) – (25,528 ) – (25,528 ) – – – – – – – – – – – – – (32,496 ) (32,496 ) – – – – – – – – – – (25,528 ) 25,528 – – –
Balance at 31 December 2007	45,584 253,234 56 3,060 73,190 29,880 15,913 29,071 6,394 28,250 * 1,064,188 * 25,528 1,574,348 684,694 2,259,042

South China Holdings Limited Annual Report 2008

30

Consolidated Statement of Changes in Equity

Year ended 31 December 2008

Notes At 1 January 2008 Surplus on revaluation on land and buildings Changes in fair value of available–for-sale financial assets 25 Exchange realignment	Attributable to equity holders of the Company Available– for-sale financial Share Capital Share Asset asset PRC Exchange Proposed Issued premium redemption Capital Merger option revaluation revaluation statutory fluctuation Retained final Minority Total capital account reserve reserve reserve reserve reserve reserve reserves reserve profits dividend Total interests equity 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 HK$’000 45,584 253,234 56 3,060 73,190 29,880 15,913 29,071 6,394 28,250 1,064,188 25,528 1,574,348 684,694 2,259,042 – – – – – – 20,445 – – – – – 20,445 6,895 27,340 – – – – – – – 6,779 – – – – 6,779 2,321 9,100 – – – – – – – – – 40,133 – – 40,133 31,983 72,116
Total income and expense for the year recognised directly in equity Loss for the year	– – – – – – 20,445 6,779 – 40,133 – – 67,357 41,199 108,556 – – – – – – – – – – (65,129 ) – (65,129 ) (43,097 ) (108,226 )
Total income and expense for the year Acquisition of minority interests Acquisition of subsidiaries 46 Increase in minority sharing of a subsidiary Capital contribution from minority shareholders of subsidiaries Transfer from retained profits Equity-settled share option arrangements 2007 final dividend paid 13 Dividends paid to minority shareholders of subsidiaries Effect on distribution in specie 47 Proposed final dividend 2008 13	– – – – – – 20,445 6,779 – 40,133 (65,129 ) – 2,228 (1,898 ) 330 – – – 32 (749 ) 12 – – – 197 – – (508 ) (530 ) (1,038 ) – – – – – – – – – – – – – 11,460 11,460 – – – – – – (4 ) – – – – – (4 ) 42 38 – – – – – – – – – – 18,551 – 18,551 6,257 24,808 – – – – – – – – 692 – (692 ) – – – – – – – – – 46,604 – – – – – – 46,604 6,853 53,457 – – – – – – – – – – – (25,528 ) (25,528 ) – (25,528 ) – – – – – – – – – – – – – (14,945 ) (14,945 ) – – – (1,165 ) – (12,660 ) – (881 ) – – (222,754 ) – (237,460 ) (89,678 ) (327,138 ) – – – – – – – – – – (2,006 ) 2,006 – – –
Balance at 31 December 2008	45,584 253,234 56 1,927 72,441 63,836 36,354 34,969 7,086 68,580 * 792,158 * 2,006 1,378,231 602,255 1,980,486

The merger reserve represents:

• a) the difference between the share capital and share premium account of a subsidiary and the nominal value of the Company’s shares issued in exchange thereof at the time of the group reorganisation in 1992, less a transfer of HK$200,000,000 to retained profits in 2001; and

• b) the difference between the consideration amount for South China Land Limited 南華置地有限公司(‘’SCL’’) and the share capital, share premium and minority interests of SCL.

The Group’s PRC statutory reserves represent reserves required to be appropriated from profit after taxation of the Company’s PRC subsidiaries under the PRC laws and regulations. The amount of the appropriation is at the discretion of the PRC subsidiaries’ boards of directors.

The retained profits and exchange fluctuation reserve of the Group included HK$282,510,000 (2007: HK$262,687,000) and a debit balance of HK$754,000 (2007: HK$862,000), respectively, retained by the associates of the Group.

• These reserve accounts comprise the consolidated reserves of HK$1,330,641,000 (2007: HK$1,503,236,000) in the consolidated balance sheet.

South China Holdings Limited Annual Report 2008

31

Consolidated Cash Flow Statement

Year ended 31 December 2008

		2008	2007
	Notes	HK$’000	HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax:
From continuing operations		56,700	515,135
From a discontinued operation	12	(147,269)	76,855
		(90,569 )	591,990
Adjustments for:
Impairment/(reversal of impairment) of trade
and other receivables, net	6	9,203	(20,394 )
Provision/(reversal of provision) against obsolete inventories	6	(17,357 )	15,504
Decrease in biological assets due to harvest	6	895	217
Depreciation	6	50,592	52,707
Dividend income from listed investments	6	(3,135 )	(896 )
Gain on disposal of available-for-sale financial assets		–	(82,325 )
Excess over the cost of business combinations		(172,831 )	–
Dilution gain on a subsidiary	6	–	(4,209 )
Finance costs	7	28,148	31,865
Interest income		(1,458 )	(4,635 )
Fair value losses/(gains) on investment properties		23,467	(144,530 )
Gain on disposal of investment properties		(1,424 )	–
Fair value gains on biological assets		(5,893 )	(6,217 )
Amortisation of prepaid land lease payments	6	1,484	608
Fair value losses of financial assets at fair value
through profit or loss	6	144,035	16,447
Reversal of impairment of property, plant and equipment		–	(2,569 )
Gain on disposal of items of property,
plant and equipment, net	6	(236 )	(5,109 )
Equity-settled share option expense	6	53,457	31,738
Share of profits and losses of associates		823	(202,180 )
Impairment of advances to associates, net	22	28,306	10,500
Gain on disposal of subsidiaries	47	(34,849)	(65,956 )
		12,658	212,556
Increase in properties under development		(182,164 )	–
Decrease/(increase) in inventories		(6,087 )	26,522
Increase in trade and other receivables		(61,024 )	(72,190 )
Decrease/(increase) in loans receivable		137,827	(1,735 )
Decrease/(increase) in financial assets at fair value through
profit or loss		7,595	(124,987 )
Increase in amounts due from affiliates, net		(11,071 )	(4,852 )
Decrease/(increase) in cash held on behalf of clients		219,475	(175,174 )
Increase/(decrease) in client deposits		(209,957 )	159,132
Decrease in trade and otherpayables		(59,297)	(138,141)
Cash used in operations		(152,045)	(118,869)
Hong Kong profits paid		(4,458 )	(7,935 )
Mainland China taxpaid		(4,509)	(4,350)
Net cash outflow from operatingactivities		(161,012)	(131,154)

South China Holdings Limited Annual Report 2008

32

Consolidated Cash Flow Statement

Year ended 31 December 2008

		2008	2007
	Notes	HK$’000	HK$’000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of items of property, plant and equipment	16	(31,562 )	(49,808 )
Additions to prepaid land lease payments	18	(3,249 )	–
Additions to construction in progress	19	(3,423 )	(39,042 )
Purchase of available-for-sale financial assets		(185 )	–
Cash acquired from/(paid for) acquisition of subsidiaries, net	46	6,198	(1,174 )
Repayment from/(advances to) associates, net		215,552	(30,392 )
Acquisition of minority interests		(2,010 )	(25 )
Cash received/(disposed of) from the disposal of subsidiaries, net	47	(177,234 )	79,970
Proceeds from disposal of available-for-sale financial assets		–	117,384
Interest received		1,458	4,635
Proceeds from disposal of items of property, plant and equipment		841	8,887
Dividends received from listed investments		3,135	896
Acquisition of other non-current assets		(265 )	(442 )
Proceeds from disposal of an investment property		2,559	–
Dividend received from an associate		2,557	–
Net cash inflow from investingactivities		14,372	90,889
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of bank loans		(214,376 )	(331,459 )
Increase/(decrease) in trust receipt loans		(1,039 )	41,339
Repayment to shareholders		(6,653 )	(7,367 )
Advances from/(repayment to) minority shareholders		(12,811 )	4,265
Interest paid		(33,496 )	(31,865 )
Dividends paid to minority shareholders of subsidiaries		(14,945 )	(32,496 )
Dividends paid		(25,528 )	(25,528 )
Capital element of finance lease rental payments		(4,075 )	(8,684 )
New bank loans		392,768	401,829
Capital contribution from minority shareholders of subsidiaries		–	5,007
Decrease of other non-current liabilities		(241)	–
Net cash inflow from financingactivities		79,604	15,041
NET DECREASE IN CASH AND CASH EQUIVALENTS		(67,036 )	(25,224 )
Cash and cash equivalents at beginning of year		264,581	285,765
Effect of foreign exchange rate changes, net		(6,104)	4,040
CASH AND CASH EQUIVALENTS AT END OF YEAR		191,441	264,581
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances	31	193,072	202,337
Time deposits with original maturity of less than
three months when acquired	31	14,342	12,980
Bank overdrafts	35	(15,973 )	(36,030 )
Cash and short term deposits attributable to
a discontinued operation		–	85,294
		191,441	264,581

South China Holdings Limited Annual Report 2008

33

Balance Sheet

31 December 2008

		2008	2007
	Notes	HK$’000	HK$’000
NON-CURRENT ASSETS
Interests in subsidiaries	21	675,490	813,745
CURRENT ASSETS
Cash and bank balances	31	108	141
CURRENT LIABILITIES
Otherpayables and accruals	34	61	11,664
NET CURRENT ASSETS/(LIABILITIES)		47	(11,523 )
NET ASSETS		675,537	802,222
EQUITY
Issued capital	43	45,584	45,584
Reserves	45(b)	627,947	731,110
Proposed final dividend		2,006	25,528
Total equity		675,537	802,222

Ng Hung Sang Chairman

Richard Howard Gorges Director

South China Holdings Limited Annual Report 2008

34

Notes to the Financial Statements

31 December 2008

1. CORPORATE INFORMATION

South China Holdings Limited is incorporated in the Cayman Islands as an exempted limited company. The registered office address of the Company is Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, the Cayman Islands. Its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the ‘’Stock Exchange’’).

The Company is an investment holding company. Its subsidiaries and associates principally engage in trading and manufacturing, information technology related businesses, property investment and development, the implementation and marketing of software applications, magazine publishing businesses, marketing and promotional services, agriculture and woods, sale of airline tickets and the provision of other related services.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and interpretations) issued by the HKICPA, 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 investment properties, available-for-sale financial assets, certain leasehold land and buildings, financial assets at fair value through profit or loss, and biological assets, which have been measured at fair value. These financial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand (“HK$’000”) except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 December 2008. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full.

Acquisitions of businesses under common control are accounted for using merger accounting in accordance with AG 5 issued by the HKICPA. The acquired assets are stated at carrying amounts as if the assets had been held by the Group from the beginning of the earliest period presented.

The acquisition of subsidiaries during the year has been accounted for using the purchase method of accounting. This method involves allocating the cost of the business combinations to the fair value of the identifiable assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries. Acquisitions of minority interests are accounted for using the parent entity extension method whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill or excess over the cost of business combination, whichever being appropriate.

South China Holdings Limited Annual Report 2008

35

Notes to the Financial Statements

31 December 2008

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted the following new interpretations and amendments to HKFRSs for the first time for the current year’s financial statements.

HKAS 39 and HKFRS 7 Amendments to HKAS 39 Financial Instruments: Amendments Recognition and Measurement and HKFRS 7 Financial Instruments: Disclosures – Reclassification of Financial Assets HK(IFRIC)-Int 11 HKFRS 2 – Group and Treasury Share Transactions HK(IFRIC)-Int 12 Service Concession Arrangements HK(IFRIC)-Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The adoption of these new interpretations and amendments has had no significant financial effect on these financial statements, there have been no significant changes to the accounting policies applied in these financial statements.

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

HKFRS 1 and HKAS 27	Amendments to HKFRS 1_First-time Adoption of HKFRSs and_
Amendments	HKAS 27 Consolidated and Separate Financial
	Statements – Cost of an Investment in a Subsidiary,
	_Jointly Controlled Entity or Associate_1
HKFRS 2 Amendments	Amendments to HKFRS 2_Share-based_
	Payment – Vesting Conditions and Cancellations1
HKFRS 3 (Revised)	Business Combinations 2
HKFRS 8	_Operating Segments_1
HKFRS 7 Amendment	Improving Disclosures about Financial Instruments 1
HKAS 1 (Revised)	Presentation of Financial Statements 1
HKAS 27 (Revised)	Consolidated and Separate Financial Statements 2
HKAS 32 and HKAS 1	Amendments to HKAS 32_Financial Instruments: Presentation and_
Amendments	HKAS 1 Presentation of Financial Statements – Puttable
	_Financial Instruments and Obligations Arising on Liquidation_1
HKAS 39 Amendment	Amendment to HKAS 39_Financial Instruments:_
	Recognition and Measurement – Eligible Hedged Items 2
HK(IFRIC)-Int 13	Customer Loyalty Programmes 3
HK(IFRIC)-Int 15	_Agreements for the Construction of Real Estate_1
HK(IFRIC)-Int 16	Hedges of a Net Investment in a Foreign Operation 4
HK(IFRIC)-Int 17	Distribution of Non-cash Assets to Owners 2
HK(IFRIC)-Int 18	_Transfer of Assets from Customers_2

South China Holdings Limited Annual Report 2008

36

Notes to the Financial Statements

31 December 2008

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

Apart from the above, the HKICPA has also issued Improvements to HKFRSs * which sets out amendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarify wording. Except for the amendment to HKFRS 5 which is effective for the annual periods on or after 1 July 2009, other amendments are effective for annual periods beginning on or after 1 January 2009 although there are separate transitional provisions for each standard.

• 1 Effective for annual periods beginning on or after 1 January 2009 2 Effective for annual periods beginning on or after 1 July 2009 3 Effective for annual periods beginning on or after 1 July 2008

• 4 Effective for annual periods beginning on or after 1 October 2008

• Improvements to HKFRSs contains amendments to HKFRS 5, HKFRS 7, HKAS 1, HKAS 8, HKAS 10, HKAS 16, HKAS 18, HKAS 19, HKAS 20, HKAS 23, HKAS 27, HKAS 28, HKAS 29, HKAS 31, HKAS 34, HKAS 36, HKAS 38, HKAS 39, HKAS 40 and HKAS 41.

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, it has concluded that while the adoption of HKFRS 8 and HKAS 1 (Revised) may result in new or amended disclosures and the adoption of HKFRS 3 (Revised) and HKAS 27 (Revised) may result in changes in accounting policies, these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the 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’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 is treated as:

• (a) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture;

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

• (c) an equity investment accounted for in accordance with HKAS 39, if the Group holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture.

South China Holdings Limited Annual Report 2008

37

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the 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 Group’s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interests in the associates, except where unrealised losses provide evidence of an impairment of the asset transferred. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cashgenerating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Goodwill previously eliminated against consolidated retained profits

Prior to the adoption of the HKICPA’s Statement of Standard Accounting Practice 30 “Business Combinations” (“SSAP 30”) in 2001, goodwill arising on acquisition was eliminated against consolidated retained profits in the year of acquisition. On the adoption of HKFRS 3, such goodwill remains eliminated against consolidated retained profits and is not recognised in the income statement when all or part of the business to which the goodwill relates is disposed of or when a cash-generating unit to which the goodwill relates becomes impaired.

South China Holdings Limited Annual Report 2008

38

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Excess over the cost of business combinations

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

Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, biological assets, financial assets, investment properties and goodwill), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cashgenerating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises in those expense categories consistent with the function of the impaired asset, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill and certain financial assets is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but 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 such an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the Group if:

• (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;

• (b) the party is an associate;

• (c) the party is a member of the key management personnel of the Group or its parent;

• (d) the party is a close member of the family of any individual referred to in (a) or (c);

• (e) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (c) or (d).

• (f) the party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group.

South China Holdings Limited Annual Report 2008

39

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment and depreciation

Property, plant and equipment, other than certain land and buildings and construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment 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 items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is 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 item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

Certain land and buildings are stated in the balance sheet at amounts based on revaluations performed prior to 30 September 1995, less any subsequent accumulated depreciation and amortisation and impairment losses.

In accordance with the transitional provisions in paragraph 80A of HKAS 16 Property, Plant and Equipment , the Group’s land and buildings carried at revalued amounts in the financial statements relating to periods ended before 30 September 1995 are not required to make regular revaluations. Accordingly, no revaluation of land and buildings is carried out subsequent to 30 September 1995. In previous years, the revaluation increase arising on the revaluation of these assets was credited to the asset revaluation reserve. Any future decrease in value of these assets will be dealt with as an expense to the extent that they exceed the balance, if any, on the revaluation reserve relating to a previous revaluation of the same asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to retained profits.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land and buildings	2% to 10%, not exceeding the lease terms
Furniture and leasehold improvements	10% to 25%, not exceeding the lease terms
Machinery and equipment	10% to 25%
Moulds and tools	20% to 25%
Motor vehicles and vessels	20% to 33.3%

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at least at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Costs comprise the direct costs of construction during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment or investment properties when completed and ready for use.

South China Holdings Limited Annual Report 2008

40

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance sheet date.

Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal.

For a transfer from investment properties to owner-occupied properties, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If a property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under “Property, plant and equipment and depreciation” up to the date of change in use, and any difference at that date between the carrying amount and the fair value of the property is dealt with as a movement in the asset revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the income statement. On disposal of a revalued asset, the relevant portion of the asset revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

Properties under development

Properties under development represents properties developed for sale or to earn rental income, and are stated at cost less any impairment losses. Cost comprises the prepaid land lease payments, building costs and any other direct costs attributable to the development of the properties. Borrowing costs, professional fees, and other related expenses incurred during the construction or development phase of the property are capitalised as part of the costs of that property.

Properties under development which have been pre-sold or one expected to be completed within one year from the balance sheet date are classified under current asset. On completion, the properties are transferred to properties held for sale or investment properties.

Once the constructions or developments of these properties are completed, these properties are reclassified to the appropriate asset categories.

Biological assets

Biological assets are fruit trees and are measured on initial recognition and at each balance sheet date at their fair value less estimated point-of-sale costs. The fair value of fruit trees is determined based on the present value of expected net cash flows from the fruit trees discounted at a current market-determined pre-tax rate. Fruit trees are perennial plants which have growth cycles of more than one year.

A gain or loss arising on initial recognition of a biological asset at fair value less estimated point-of-sale costs and from a change in fair value less estimated point-of-sale costs of a biological asset is included in the income statement for the period in which it arises.

South China Holdings Limited Annual Report 2008

41

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Agricultural produce

Agricultural produce comprises winter date, lychee and longan fruits of fruit trees.

Winter date, lychee and longan fruits harvested from fruit trees are measured at their fair value less estimated point-of-sale costs at the time of harvest. The fair value of winter date, lychee and longan fruits is determined based on market prices in the local area. Such measurement is the cost at that date when applying HKAS 2 Inventories .

A gain or loss arising on initial recognition of agricultural produce at fair value less estimated point-of-sale costs is included in the income statement for the period in which it arises.

Fair value represents the estimated purchase cost that the Group has to procure such inventories in the market on an arm’s length basis.

Intangible assets (other than goodwill)

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

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

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

South China Holdings Limited Annual Report 2008

42

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

The Group assesses whether a contract contains an embedded derivative when the Group first becomes a party to it and assesses whether an embedded derivative is required to be separated from the host contract when the analysis shows that the economic characteristics and risks of the embedded derivatives are not closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract.

The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Gains or losses on investments held for trading are recognised in the income statement. The net fair value gain or loss recognised in the income statement does not include any dividends or interest earned on these financial assets, which are recognised in accordance with the policies set out for “Revenue recognition” below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or are not classified in any of the other two categories (financial assets at fair value through profit or loss and loans and receivables). After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. Interest and dividends earned are reported as interest income and dividend income, respectively and are recognised in the income statement as “Other income” in accordance with the policies set out for “Revenue recognition” below. Losses arising from the impairment of such investments are recognised in the income statement as “Impairment losses on availablefor-sale financial assets” and are transferred from the available-for-sale financial asset revaluation reserve.

When the fair value of unlisted available-for-sale financial assets cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

South China Holdings Limited Annual Report 2008

43

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments and other financial assets (continued)

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models.

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in the income statement. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice. The carrying amount of the receivables is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

South China Holdings Limited Annual Report 2008

44

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

Available-for-sale financial assets

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. A provision for impairment is made for available-for-sale financial assets when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or ‘’prolonged” requires judgement. In addition, the Group evaluates other factors, such as the share price volatility. Impairment losses on equity instruments classified as available for sale are not reversed through the income statement.

Impairment losses on debt instruments are reversed through the income statement, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

• the rights to receive cash flows from the asset have expired;

• the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset.

Financial liabilities at amortised cost (including interest-bearing loans and borrowings)

Financial liabilities including trade and other payables and interest-bearing loans and borrowings are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost. The related interest expense is recognised within “finance costs” in the income statement.

Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.

Financial guarantee contracts

Financial guarantee contracts in the scope of HKAS 39 are accounted for as financial liabilities. A financial guarantee contract is recognised initially at its fair value less transaction costs that are directly attributable to the acquisition or issue of the financial guarantee contract, except when such contract is recognised at fair value through profit or loss. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the balance sheet date; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue .

South China Holdings Limited Annual Report 2008

45

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the income statement.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheets, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement.

The Group has established a provision for severance payments in accordance with the relevant regulations in Mainland China. Compensation payable to employees upon termination of the employment contracts therewith are charged to the provision when incurred.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

South China Holdings Limited Annual Report 2008

46

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income tax (continued)

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except:

• where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

South China Holdings Limited 47 Annual Report 2008

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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) income from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (b) service income, when the services have been rendered;

• (c) commission and brokerage income, accrued on all broking transactions on a trade date basis;

• (d) profit or loss on the trading of securities, bullion and future contracts, on a trade date accrual basis;

• (e) dividend income, when the shareholders’ right to receive payment has been established;

• (f) rental income, on a time proportion basis over the lease terms; and

• (g) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

Employee benefits

Share-based payment transactions

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a trinomial model, further details of which are given in note 44. In valuing Equity-settled Transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (“market conditions”), if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”). The cumulative expense recognised for equity-settled transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market conditions are satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

South China Holdings Limited Annual Report 2008

48

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Employee benefits (continued)

Share-based payment transactions (continued)

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Pension schemes

The Group operates a defined contribution staff retirement scheme registered under the Occupational Retirement Schemes Ordinance (the “ORSO Scheme”) for its employees (including certain directors), the assets of which are held separately from those of the Group in an independently administered fund. Contributions are made based on a percentage of the eligible employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the ORSO Scheme. When an employee leaves the ORSO Scheme prior to his/her interest in the Group’s employer contributions vesting fully, the ongoing contributions payable by the Group may be reduced by the relevant amount of forfeited contributions.

The Group also operates another defined contribution Mandatory Provident Fund retirement benefit scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance. Contributions to the MPF Scheme are made based on a percentage of the employees’ basic salaries and are charged to the income statement 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 Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

Employees who joined the Group before 1 December 2000 have the option to join either of the schemes. Employees who joined the Group on or after 1 December 2000 are only eligible to join the MPF Scheme.

The employees of the Group’s subsidiaries which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute a percentage of its payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

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. The 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.

Dividends and distributions

Final dividends and distributions proposed by the directors are classified as a separate allocation of distributable reserves within the equity section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends and distributions have been approved by the shareholders and declared, they are recognised as a liability.

South China Holdings Limited Annual Report 2008

49

Notes to the Financial Statements

31 December 2008

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Dividends and distributions (continued)

Interim dividends and distributions are simultaneously proposed and declared because the Company’s memorandum and articles of association and bye-laws grant the directors the authority to declare interim dividends and distributions. Consequently, interim dividends and distributions are recognised immediately as a liability when they are proposed and declared.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the date of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain overseas subsidiaries and associates are currencies other than the Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet date and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Group as lessor

The Group has entered into property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

South China Holdings Limited Annual Report 2008

50

Notes to the Financial Statements

31 December 2008

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Judgements (continued)

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Estimation of recoverable amounts of properties under development

The best evidence of fair value is current prices in an active market for similar lease terms and other contracts. In the absence of such information, the Group considers information from a variety of sources, including (i) by reference to independent valuations; (ii) current prices in an active market for properties of a different nature, condition and location (or subject to different leases or other contracts), adjusted to reflect those differences; (iii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of transactions that occurred at those prices; and (iv) discounted cash flow projections, based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as current market rates for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of cash flows.

The principal assumptions for the Group’s estimation of the fair value include those related to current market rents for similar properties in the same location and condition, appropriate discount rates, expected future market rents and future maintenance costs.

Estimation of total budgeted costs and costs to completion for properties under development

Total budgeted costs for properties under development comprise (i) prepaid land lease payments, (ii) building costs, and (iii) any other direct costs attributable to the development of the properties. In estimating the total budgeted costs for properties under development, management makes reference to information such as (i) current offers from contractors and suppliers, (ii) recent offers agreed with contractors and suppliers, and (iii) professional estimation on construction and material costs.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

South China Holdings Limited Annual Report 2008

51

Notes to the Financial Statements

31 December 2008

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Estimation uncertainty (continued)

Impairment of non-financial assets (other than goodwill)

The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Indefinite life intangible assets are tested for impairment annually and at other times when such indicator exists. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Impairment of available-for-sale financial assets

The Group classifies certain assets as available-for-sale financial assets and recognises movements of their fair values in equity. When the fair value declines, management makes assumptions about the decline in value to determine whether there is an impairment that should be recognised in the income statement. At 31 December 2008, no impairment losses have been recognised for available-for-sale assets (2007: Nil).

Impairment of trade receivables

The Group maintains an allowance for estimated loss arising from the inability of its customers to make the required payments. The Group makes its estimates based on the ageing of its trade receivable balances, customers’ creditworthiness, and historical write-off experience. If the financial condition of its customers was to deteriorate so that the actual impairment loss might be higher than expected, the Group would be required to revise the basis of making the allowance and its future results would be affected.

Income taxes

Significant management judgements on the future tax treatment of certain transactions are required in determining income tax provisions. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation.

Deferred tax assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The amount of unrecognised tax losses at 31 December 2008 was HK$681,137,000 (2007: HK$1,104,824,000).

South China Holdings Limited Annual Report 2008

52

Notes to the Financial Statements

31 December 2008

4. SEGMENT INFORMATION

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 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 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 the other business segments. Summary details of the business segments are as follows:

• (a) the trading and manufacturing segment involves the trading and manufacturing of merchandise including toys, compressors, shoes and footwear products, leather products, motors, machinery, capacitors and jewellery;

• (b) the securities and financial services segment engages in securities, bullion and commodities brokerage and margin financing, money lending, securities trading, the provision of corporate advisory and underwriting services which was discontinued during the year;

• (c) the travel and related services segment involves in the sale of airline tickets and travel-related services;

• (d) the property investment and development segment engages in property development and investment;

• (e) the media and publications segment engages in the publishing businesses, advertising and promotional services;

• (f) the information technology segment engages in the information technology related business;

• (g) the agriculture and woods segment engages in the cultivation of fruit trees, rearing of livestocks and aquatic products, forestation and sale of relevant agricultural products; and

• (h) the investment holding segment comprises the Group’s management services and other investment holding.

In determining the Group’s geographical segments, turnover 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.

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

South China Holdings Limited 53 Annual Report 2008

Notes to the Financial Statements

31 December 2008

4. SEGMENT INFORMATION (continued)

(a) Business segments

The following tables present turnover, profit/(loss) and certain asset, liability and expenditure information for the Group’s business segments for the years ended 31 December 2008 and 2007.

Group

Year ended 31 December 2008: Segment turnover: External sales	Continuing operations	Discontinued operation Securities and fnancial services Consolidated HK$’000 HK$’000 79,564 4,504,891
	Property Travel investment Trading and and related and Media and Information Agriculture Investment manufacturing services development publications technology and woods holding Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,913,065 2,356,116 48,054 31,994 72,675 3,423 – 4,425,327
Depreciation and amortisation Loss on disposal of financial assets at fair value through profit or loss Gain on disposal of subsidiaries Fair value losses on financial assets at fair value through profit or loss Gain on disposal of an investment property Fair value loss on investment properties Fair value gains on biological assets Reversal of impairment/(impairment) of trade and other receivables, net Excess over the cost of business combinations	94,854 26,461 13,555 (575 ) 4,568 (14,060 ) (126,972 ) (2,169 ) (15,949 ) (18,118 ) (41,591 ) (1,581 ) (1,466 ) (418 ) (2,261 ) (1,450 ) (180 ) (48,947 ) (3,129 ) (52,076 ) – – – – – – (1,390 ) (1,390 ) – (1,390 ) – – – – – – 34,849 34,849 – 34,849 – – – – – – (27,771 ) (27,771 ) (116,264 ) (144,035 ) – – 1,424 – – – – 1,424 – 1,424 – – (23,467 ) – – – – (23,467 ) – (23,467 ) – – – – – 5,893 – 5,893 – 5,893 692 (274 ) (6 ) – (1,355 ) – (122 ) (1,065 ) (8,138 ) (9,203 ) – – – – – – 172,831 172,831 – 172,831
Profit from operations	53,955 24,606 (9,960) (993) 952 (9,617) 51,245 110,188 (143,480) (33,292 )
Finance costs Impairment of advances to an associate Share ofprofits and losses of associates	(28,148 ) (28,306 ) – – – – – – (28,306 ) – (28,306 ) (5,933) 5,209 – – (99) – – (823) – (823 )
Loss before tax Tax	(90,569 ) (17,657)
Loss for theyear	(108,226 )

South China Holdings Limited Annual Report 2008

54

Notes to the Financial Statements

31 December 2008

4. SEGMENT INFORMATION (continued)

(a) Business segments (continued)

Group

Year ended 31 December 2007 (Restated): Segment turnover: External sales	Continuing operations	Discontinued operation Securities and fnancial services Consolidated HK$’000 HK$’000 276,985 4,892,975
	Property Travel investment Trading and and related and Media and Information Agriculture Investment manufacturing services development publications technology and woods holding Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 2,092,199 2,170,221 41,057 230,886 80,228 1,399 – 4,615,990
Depreciation Gain on disposal of available-for-sale financial as Gain on disposal of subsidiaries Fair value losses on financial assets at fair value through profit or loss Fair value gains on investment properties Fair value gains on biological assets Reversal of impairment/(impairment) of trade and loans receivables	112,287 38,240 46,150 (39,593 ) 3,959 (5,490 ) (49,903 ) 105,650 76,257 181,907 (38,706 ) (1,306 ) (2,387 ) (4,540 ) (1,768 ) (602 ) (440 ) (49,749 ) (2,958 ) (52,707 ) sets – – – – – – 82,325 82,325 – 82,325 – – – – – – 65,956 65,956 – 65,956 – – – – – – (4,190 ) (4,190 ) (12,257 ) (16,447 ) – – 144,530 – – – – 144,530 – 144,530 – – – – – 6,217 – 6,217 – 6,217 288 (159) – (680) (527) – – (1,078) 21,472 20,394
Profit from operations	73,869 36,775 188,293 (44,813) 1,664 125 93,748 349,661 82,514 432,175
Finance costs Impairment of advances to an associate Share ofprofits and losses of associates	(31,865 ) (10,500 ) – – – – – – (10,500 ) – (10,500 ) (12,895) – 214,985 – 90 – – 202,180 – 202,180
Profit before tax Tax	591,990 (13,758)
Profit for theyear	578,232

South China Holdings Limited 55 Annual Report 2008

Notes to the Financial Statements

31 December 2008

4. SEGMENT INFORMATION (continued)

(a) Business segments (continued)

Group

At 31 December 2008: Segment assets Interests in associates Unallocated corporate assets	Continuing operations	Discontinued operation Securities and fnancial services Consolidated HK$’000 HK$’000 – 3,596,523 – 298,449 – 5,016
	Property Travel investment Trading and and related and Media and Information Agriculture Investment manufacturing services development publications technology and woods holding Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 890,997 171,847 2,247,631 5,435 70,517 110,605 99,491 3,596,523 (4,079 ) – 301,906 – 622 – – 298,449 5,016
Total assets		3,899,988
Segment liabilities Unallocated corporate liabilities	487,805 101,475 140,225 4,951 29,516 4,014 120,702 888,688 1,030,814	– 888,688 – 1,030,814
Total liabilities		1,919,502
At 31 December 2007: Segment assets Interests in associates Due from associates Unallocated corporate assets	806,028 167,300 1,708,344 60,190 74,180 83,948 138,382 3,038,372 6,920 – 296,698 – 609 – – 304,227 21,192 – 212,853 – – – – 234,045 12,227	1,205,147 4,243,519 – 304,227 – 234,045 – 12,227
Total assets		4,794,018
Segment liabilities Unallocated corporate liabilities	388,184 95,752 249,248 110,172 28,051 1,983 141,845 1,015,235 1,001,319	518,422 1,533,657 – 1,001,319
Total liabilities		2,534,976
Year ended 31 December 2008: Other segment information: Capital expenditure	20,441 1,606 2,416 900 2,101 8,684 41 36,189	2,045 38,234
Year ended 31 December 2007: Other segment information: Capital expenditure	40,384 2,170 38,810 1,603 578 2,041 – 85,586	3,264 88,850

South China Holdings Limited Annual Report 2008

56

Notes to the Financial Statements

31 December 2008

4. SEGMENT INFORMATION (continued)

(b) Geographical segments

The following table provides an analysis of the Group’s sales and results by geographical segment, irrespective of the origins of the goods/services:

	Turnover by	Turnover by	Segment results by	Segment results by
	geographical segment		geographical segment
	2008	2007	2008	2007
	HK$’000	HK$’000	HK$’000	HK$’000
		(Restated)		(Restated)
PRC, including Hong Kong and Macau	2,765,898	2,964,733	(79,705 )	341,475
United States of America	1,144,591	1,260,659	39,616	61,215
Europe	372,747	457,341	3,169	20,201
Japan	15,983	11,898	121	539
Others	205,672	198,344	3,507	8,745
Attributable to a discontinued
operation – PRC, including
HongKongand Macau	(79,564)	(276,985)	143,480	(82,514)
Attributable to
continuingoperations	4,425,327	4,615,990	110,188	349,661

The following is an analysis of the carrying amounts of segment assets and additions to property, plant and equipment, prepaid land lease payments and construction in progress, analysed by geographical area in which the assets are located:

				Capital	Capital
	Segment assets by		expenditure by
	geographical market		geographical market
	2008	2007	2008		2007
	HK$’000	HK$’000	HK$’000		HK$’000
		(Restated)			(Restated)
Hong Kong	1,004,820	2,489,124	9,248		9,595
Other regions of Mainland China	2,566,316	1,728,282	28,986		79,255
Macau	–	13	–		–
Others	25,387	26,100	–		–
Attributable to a discontinued
operation – PRC, including
HongKongand Macau	–	(1,205,147)	(2,045	)	(3,264)
Attributable to continuingoperations	3,596,523	3,038,372	36,189		85,586

South China Holdings Limited 57 Annual Report 2008

Notes to the Financial Statements

31 December 2008

5. TURNOVER

The Group’s turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts; the value of services rendered; commission and brokerage income, profit and loss on the trading of securities, interest income from the provision of financial services, and gross rental income received and receivable from investment properties during the year.

An analysis of turnover is as follows:

An analysis of turnover is as follows:
	2008	2007
	HK$’000	HK$’000
		(Restated)
Turnover
Sale of merchandise from the manufacturing and trading business	1,913,065	2,092,199
Sale of travel-related products	2,356,116	2,170,221
Income from publishing and the provision of related services	31,994	230,886
Service income from the information and technology related business	72,675	80,228
Gross rental income	48,054	41,057
Sale of agriculturalproduce	3,423	1,399
Turnover attributable to continuing operations	4,425,327	4,615,990
Turnover attributable to a discontinued operation(note 12)	79,564	276,985
	4,504,891	4,892,975

South China Holdings Limited Annual Report 2008

58

Notes to the Financial Statements

31 December 2008

6. PROFIT BEFORE TAX

The Group’s profit/(loss) before tax is arrived at after charging/(crediting):

		2008	2007
	Notes	HK$’000	HK$’000
Cost of inventories sold		1,721,240	1,853,722
Cost of services provided		26,266	74,662
Depreciation	16	50,603	52,707
Less: Depreciation capitalised in properties
under development		(11)	–
Depreciation charged to the consolidated income statement		50,592	52,707
Auditors’ remuneration		4,270	5,650
Employee benefit expense
(including directors’ remuneration):	8
Wages and salaries and other benefits
Attributable to a discontinued operation		43,268	57,246
Attributable to continuing operations reported
in the consolidated income statement		607,327	649,999
Less: Wages and salaries capitalised in properties under
development/construction inprogress		(1,179)	–
		649,416	707,245
Equity-settled share option expense
Attributable to a discontinued operation		4,084	7,862
Attributable to continuing operations reported
in the consolidated income statement		49,373	23,876
		53,457	31,738
Pension scheme contributions
Attributable to a discontinued operation		1,643	2,134
Attributable to continuing operations reported
in the consolidated income statement		20,688	15,389
Less: Forfeited contributions		(925)	(134)
Netpension scheme contributions*		21,406	17,389
Total employee benefit expense
Attributable to a discontinued operation		48,995	67,242
Attributable to continuing operations reported
in the consolidated income statement		675,284	689,130
		724,279	756,372

South China Holdings Limited Annual Report 2008

59

Notes to the Financial Statements

31 December 2008

6. PROFIT BEFORE TAX (continued)

		2008	2007
	Notes	HK$’000	HK$’000
Decrease in biological assets due to harvest	15	895	217
Minimum lease payments under operating
leases in respect of land and buildings
Attributable to a discontinued operation		16,403	9,478
Attributable to continuing operations reported
in the consolidated income statement		18,630	15,970
		35,033	25,448
Gross rental income		(48,054 )	(41,057 )
Less: Direct operatingexpenses		4,127	4,181
Net rental income		(43,927)	(36,876 )
Fair value losses of financial assets at fair value through
profit or loss
Attributable to a discontinued operation		116,264	12,257
Attributable to continuing operations reported in the
consolidated income statement		27,771	4,190
		144,035	16,447
Impairment of construction in progress	19	–	1,752
Impairment/(reversal of impairment)
of trade and other receivables, net
Attributable to a discontinued operation		8,138	(21,472 )
Attributable to continuing operations reported in the
consolidated income statement		1,065	1,078
		9,203	(20,394 )
Amortisation of prepaid land lease payments	18	1,484	608
Provision/(reversal of provision) against
obsolete inventories (included in cost of sales)**		(17,357 )	15,504
Gain on disposal of items of property, plant and
equipment, net		(236 )	(5,109 )
Dilution gain on a subsidiary		–	(4,209 )
Interest income from margin financing and
money lending operations attributable to a discontinued
operation		(28,236 )	(67,734 )
Net loss/(gain) from securities, bullion and commodities
trading attributable to a discontinued operation		19,683	(78,021 )
Bank interest income		(1,417 )	(3,573 )
Dividend income from listed investments		(3,135 )	(896 )
Share of profits and losses of associates		823	(202,180 )
Provision for a financial guarantee in respect of an associate	22	14,700	–
Reversal of impairment of property, plant and equipment		–	(2,569 )
Foreign exchange differences, net		6,355	(1,275 )

• At 31 December 2008, the Group had no forfeited contributions available to reduce its contributions to the pension schemes in future years (2007: Nil).

** The amount represents a write-down or reversal of the same to state the inventories at their estimated net realisable values.

South China Holdings Limited Annual Report 2008

60

Notes to the Financial Statements

31 December 2008

7. FINANCE COSTS

FINANCE COSTS
	Group
	2008	2007
	HK$’000	HK$’000
Interest on bank loans, overdrafts and other loans
wholly repayable
– Within five years	29,114	29,434
– Over five years	2,261	1,582
Interest on promissory notes	1,941	74
Interest on finance leases	180	775
	33,496	31,865
Less: Interest capitalised inproperties under development	(5,348)	–
	28,148	31,865
Attributable to a discontinued operation (note 12)	3,789	5,659
Attributable to continuing operations reported
in the consolidated income statement	29,707	26,206
	33,496	31,865
Less: Interest capitalised inproperties under development	(5,348)	–
	28,148	31,865

8. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance, is as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Fees	640	640
Other emoluments:
Salaries, allowances and benefits in kind	5,950	7,361
Discretionary bonuses	–	500
Equity-settled share option expense	39,086	15,361
Pension scheme contributions	274	293
	45,950	24,155

South China Holdings Limited 61 Annual Report 2008

Notes to the Financial Statements

31 December 2008

8. DIRECTORS’ REMUNERATION (continued)

(a) Independent non-executive directors

The fees paid to independent non-executive directors during the year were as follows:

	2008	2007
	HK$’000	HK$’000
Mr. David John Blackett	100	100
Mr. Cheng Hong Kei	50	50
Ms. Tse WongSiu Yin, Elizabeth	150	150
	300	300

There were no other emoluments payable to the independent non-executive directors during the year (2007: Nil).

(b) Executive directors and non-executive directors

		Salaries,
		allowances	Equity-settled	Pension
		and benefits	share option	scheme
	Fees	in kind	expense	contributions
	HK$’000	HK$’000	HK$’000	HK$’000
2008
Executive directors:
Mr. Ng Hung Sang (“Mr. Ng”)	30	1,863	–	92
Ms. Cheung Choi Ngor	30	1,692	13,252	83
Mr. Richard Howard Gorges	30	1,805	6,080	87
Mr. NgYuk Fung, Peter	20	590	14,151	12
	110	5,950	33,483	274
Non-executive directors:
Mr. David Michael Norman	120	–	–	–
Ms. NgYuk Mui, Jessica	110	–	5,603	–
	230	–	5,603	–
	340	5,950	39,086	274

South China Holdings Limited Annual Report 2008

62

Notes to the Financial Statements

31 December 2008

8. DIRECTORS’ REMUNERATION (continued)

(b) Executive directors and non-executive directors (continued)

		Salaries,
		allowances		Equity-settled	Pension
		and benefits	Discretionary	share option	scheme
	Fees	in kind	bonuses	expense	contributions
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
2007
Executive directors:
Mr. Ng	30	1,920	–	–	96
Ms. Cheung Choi Ngor	30	1,740	–	4,666	87
Mr. Richard Howard Gorges	30	1,997	–	2,823	87
Mr. NgYuk Fung, Peter	20	604	500	5,677	12
	110	6,261	500	13,166	282
Non-executive directors:
Mr. David Michael Norman	120	–	–	–	–
Ms. NgYuk Mui, Jessica	110	1,100	–	2,195	11
	230	1,100	–	2,195	11
	340	7,361	500	15,361	293

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

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2007: three) directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining two (2007: two) non-director, highest paid employees for the year are as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Salaries, allowances and benefits in kind	3,430	6,118
Discretionary bonuses	897	500
Equity-settled share option expense	14,151	3,340
Pension scheme contributions	108	36
	18,586	9,994

South China Holdings Limited 63 Annual Report 2008

Notes to the Financial Statements

31 December 2008

9. FIVE HIGHEST PAID EMPLOYEES (continued)

The number of non-director, highest paid employees whose remuneration fell within the following bands is as follows:

	Number of	employees
	2008	2007
HK$3,000,001 to HK$3,500,000	1	–
HK$4,500,001 to HK$5,000,000	–	1
HK$5,000,001 to HK$5,500,000	–	1
HK$15,000,001 to HK$15,500,000	1	–
	2	2

10. TAX

Hong Kong profits tax has been provided at the rate of 16.5% (2007: 17.5%) on the estimated assessable profits arising in Hong Kong during the year. The lower Hong Kong profits tax rate is effective from the year of assessment 2008/09, and so is applicable to the assessable profits arising in Hong Kong for the whole year ended 31 December 2008. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries/jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

	Group
	2008	2007
	HK$’000	HK$’000
Current – Hong Kong
Charge for the year	9,158	2,846
Overprovision in prior years	(1,575 )	(87 )
Current – Elsewhere
Charge for the year	4,428	3,806
Overprovision in prior years	(6 )	(433 )
Deferred(note 41)	5,652	7,626
Tax charge for theyear	17,657	13,758

South China Holdings Limited Annual Report 2008

64

Notes to the Financial Statements

31 December 2008

10. TAX (continued)

A reconciliation of the tax expense applicable to profit/(loss) before tax using the statutory rate for the countries/jurisdictions in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rate, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to the effective tax rate, are as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Profit/(loss) before tax
(including profit/(loss)from a discontinued operation)	(90,569)	591,990
Tax at the statutory tax rate	(14,944 )	103,598
Effect on opening deferred tax rate of decrease in rate	(888 )	–
Effect of different tax rates of subsidiaries operating in
Mainland China and Taiwan	10,589	(24,067 )
Profits and losses attributable to associates	77	(35,388 )
Expenses not deductible for tax	43,152	35,799
Income not subject to tax	(55,550 )	(60,169 )
Tax losses utilised from previous periods	(2,660 )	(20,561 )
Tax losses not recognised	36,697	14,734
Adjustments in respect of current tax of previous periods	(1,581 )	(288 )
Tax losses arising from previous periods recognised	–	–
Others	2,765	100
Total tax charge for theyear	17,657	13,758
Represented by:
Tax charge attributable to a discontinued operation (note 12)	2,467	1,535
Tax charge attributable to continuing operations
reported in the consolidated income statement	15,190	12,223
	17,657	13,758

The share of tax credit attributable to associates amounting to HK$4,743,000 (2007: share of tax charge of HK$46,514,000) is included in “Share of profits and losses of associates” on the face of the consolidated income statement.

11. LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The consolidated loss attributable to equity holders of the Company for the year ended 31 December 2008 includes a loss of HK$16,568,000 (2007: profit of HK$36,696,000) which has been dealt with in the financial statements of the Company (note 45(b)).

South China Holdings Limited 65 Annual Report 2008

Notes to the Financial Statements

31 December 2008

12. DISCONTINUED OPERATION

On 21 October 2008, the Company announced a proposal to declare a special interim distribution to be satisfied by way of a distribution in specie (the ‘’Distribution’’) comprising substantially the Company’s beneficial shareholding of 3,646,802,752 shares of HK$0.025 each in South China Financial Holdings Limited (‘’SCF’’), representing approximately 72.52% of the issued share capital of SCF, held by the Company. SCF is a company engaged in securities and financial related services with its shares listed on the Main Board of the Stock Exchange of Hong Kong Limited (stock code: 619).

On 2 December 2008, the Company announced the decision of its board of directors to declare the Distribution in the proportion of two shares of SCF (‘’ SCF Shares’’) for every one share held by the Company’s shareholders based on the market price of SCF at HK$0.035 per share on 2 December 2008. Details of which are disclosed in the announcement and circular of the Company dated 21 October 2008 and 11 November 2008. Following the Distribution, SCF and its subsidiaries (the ‘’SCF Group’’) ceased to be subsidiaries of the Company and the business of securities and financial services which was solely carried out by the SCF Group became a discontinued operation. Results of the SCF Group ceased to be accounted for in the consolidated financial statements of the Group.

(a) Profit/(loss) for the year from securities and financial services is presented below:

		2008	2007
	Notes	HK$’000	HK$’000
Turnover	5	79,564	276,985
Other income and gains		4,700	3,886
Other operating expenses, net		(227,744 )	(198,357 )
Finance costs	7	(3,789)	(5,659 )
Profit/(loss) before tax		(147,269 )	76,855
Tax	10	(2,467)	(1,535 )
Profit/(loss)for theyear		(149,736)	75,320
		HK cents	HK cents
Earnings/(loss) per share	14
Basic, from a discontinued operation		(6.0)	3.0
Diluted, from a discontinued operation		(6.0)	2.7

South China Holdings Limited Annual Report 2008

66

Notes to the Financial Statements

31 December 2008

12. DISCONTINUED OPERATION (continued)

(b) The net cash flows incurred by securities and financial services are presented below:

The net cash flows incurred by securities and financial services are presented below:
	2008
	HK$’000
Operating activities	90,331
Investing activities	(1,998 )
Financingactivities	(39,966 )
Net cash inflow	48,367

13. DIVIDENDS AND DISTRIBUTION

DIVIDENDS AND DISTRIBUTION
	2008	2007
	HK$’000	HK$’000
Special interim distribution, declared and paid
of SCF Shares per each ordinary share (note 12)	127,638	–
Interim – Nil (2007: HK1.4 cents) per ordinary share	–	25,528
Proposed final – HK 0.11 cents(2007: HK1.4 cents) per ordinaryshare	2,006	25,528
	129,644	51,056

The proposed final dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.

14. EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

The calculation of the basic loss per share for the year is based on the loss for the year attributable to ordinary equity holders of the Company of HK$65,129,000 (2007: profit of HK$416,809,000) and the weighted average number of 1,823,401,000 (2007: 1,823,401,000) ordinary shares in issue during the year.

The calculation of the diluted loss per share amount for the year is based on the loss for the year attributable to ordinary equity holders of the Company. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the year, as used in the basic loss per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

South China Holdings Limited 67 Annual Report 2008

31 December 2008

Notes to the Financial Statements

14. EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY (continued)

The calculations of basic and diluted earnings/(loss) per share are based on:

	2008		2007
	HK$’000	HK$’000
Earnings/(loss)
Profit/(loss) attributable to equity holders of the Company,
used in the basic earnings/(loss) per share calculation	(65,129 )	416,809
Less:
Effect of dilution of dilutive potential ordinary
shares of subsidiaries on earnings/(loss)	–		(5,618 )
Profit/(loss) attributable to equity holders of the Company,
used in the diluted earnings/(loss) per share calculation:
From continuing operations	43,872	361,983
From a discontinued operation	(109,001)		49,208
	(65,129)	411,191
	Number	of shares
	2008		2007
Shares
Weighted average number of ordinary shares in issue during
the year used in the basic and diluted
earnings/(loss) per share calculations	1,823,401,000	1,823,401,000

The Company’s share options have no dilutive effect for the two years ended 31 December 2008 and 2007 because the exercise price of the Company’s share options was higher than the average market price for shares for the two years ended 31 December 2008 and 2007.

South China Holdings Limited Annual Report 2008

68

Notes to the Financial Statements

31 December 2008

15. BIOLOGICAL ASSETS

BIOLOGICAL ASSETS
	Group
	2008	2007
	HK$’000	HK$’000
Lychee fruit trees:
Carrying amount at 1 January	53,563	44,645
Gain/(loss) arising from changes in fair value less
estimated point-of-sale costs	(7,231 )	4,698
Decrease due to harvest	(819 )	(172 )
Exchange realignment	4,437	4,392
Carryingamount at 31 December	49,950	53,563
Longan fruit trees:
Carrying amount at 1 January	17,437	14,575
Gain/(loss) arising from changes in fair value less
estimated point-of-sale costs	(2,354 )	1,519
Decrease due to harvest	(76 )	(45 )
Exchange realignment	1,445	1,388
Carryingamount at 31 December	16,452	17,437
Winter date fruit trees:
Carrying amount at 1 January	–	–
Reclassified from inventories	2,544	–
Transferred from construction in progress (note 19)	110	–
Gain arising from changes in fair value less
estimated point-of-sale costs	15,478	–
Exchange realignment	370	–
Carryingamount at 31 December	18,502	–
Total carryingamount at 31 December	84,904	71,000

South China Holdings Limited 69 Annual Report 2008

Notes to the Financial Statements

31 December 2008

15. BIOLOGICAL ASSETS (continued)

Quantities of fruit trees:

				Group
				2008	2007
				Number	Number
				of trees	of trees
				’000	’000
Lychee	fruit	trees		333	333
Longan	fruit	trees		108	108
Winter	date	fruit	trees	481	–
				922	441

The fair values and saleable output of lychee, longan and winter date fruits at the point of harvest are analysed as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Fair value less estimated point-of-sale costs:
Lychee fruits	819	172
Longan fruits	76	45
Winter date fruits	–	–
	895	217
	Tons	Tons
Saleable output:
Lychee fruits	163	81
Longan fruits	33	14
Winter date fruits	–	–
	196	95

Significant assumptions made in determining the fair values of the biological assets are as follows:

• (a) the fruit trees will continue to be competently managed and remain free from irremediable diseases in their remaining estimated useful lives;

• (b) the expected prices of winter date, lychee and longan fruits are based on the past actual average district prices; and

• (c) the future cash flows have been discounted at the target rate of return on equity of the agriculture and woods segment.

South China Holdings Limited Annual Report 2008

70

Notes to the Financial Statements

31 December 2008

16. PROPERTY, PLANT AND EQUIPMENT

Group

		Furniture			Motor
	Leasehold	and	Machinery	Moulds	vehicles
	land and	leasehold	and	and	and
	buildings	improvements	equipment	tools	vessels	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
31 December 2008
At 31 December 2007 and
at 1 January 2008:
Cost or valuation	293,177	284,051	266,644	10,852	29,472	884,196
Accumulated depreciation
and impairment	(51,075)	(244,487)	(200,143)	(8,541)	(23,322)	(527,568 )
Net carryingamount	242,102	39,564	66,501	2,311	6,150	356,628
At 1 January 2008,
net of accumulated
depreciation and impairment	242,102	39,564	66,501	2,311	6,150	356,628
Additions	59	16,449	10,178	1,662	3,214	31,562
Acquisition of subsidiaries
(note 46)	37,745	–	532	–	961	39,238
Disposals	–	(62 )	(239 )	–	(304 )	(605 )
Disposal of subsidiaries (note 47)	–	(6,956 )	(7,008 )	–	(40 )	(14,004 )
Reclassification	–	(71 )	(148 )	–	219	–
Depreciation provided
during the year	(12,333 )	(16,797 )	(18,086 )	(1,130 )	(2,257 )	(50,603 )
Transfer to investment properties,
net (note 17)	(100,087 )	–	–	–	–	(100,087 )
Fair value adjustment	27,340	–	–	–	–	27,340
Transfer from construction
in progress (note 19)	–	547	–	–	–	547
Exchange realignment	4,142	233	2,342	–	205	6,922
At 31 December 2008,
net of accumulated
depreciation and impairment	198,968	32,907	54,072	2,843	8,148	296,938
At 31 December 2008:
Cost or valuation	272,147	233,056	260,993	10,548	30,097	806,841
Accumulated depreciation
and impairment	(73,179)	(200,149)	(206,921)	(7,705)	(21,949)	(509,903 )
Net carryingamount	198,968	32,907	54,072	2,843	8,148	296,938
Analysis of cost or valuation:
At cost	224,638	233,056	260,993	10,548	30,097	759,332
At 31 December 1988 valuation	31,112	–	–	–	–	31,112
At 31 December 1989 valuation	5,220	–	–	–	–	5,220
At 31 December 1992 valuation	204	–	–	–	–	204
At 31 December 1994 valuation	10,973	–	–	–	–	10,973
	272,147	233,056	260,993	10,548	30,097	806,841

South China Holdings Limited Annual Report 2008

71

Notes to the Financial Statements

31 December 2008

16. PROPERTY, PLANT AND EQUIPMENT (continued)

Group

Group
		Furniture			Motor
	Leasehold	and	Machinery	Moulds	vehicles
	land and	leasehold	and	and	and
	buildings	improvements	equipment	tools	vessels	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
31 December 2007
At 31 December 2006 and
at 1 January 2007:
Cost or valuation	251,784	269,774	252,940	20,085	27,578	822,161
Accumulated depreciation
and impairment	(22,147)	(226,813)	(174,517)	(11,457)	(22,906)	(457,840 )
Net carryingamount	229,637	42,961	78,423	8,628	4,672	364,321
At 1 January 2007,
net of accumulated
depreciation and impairment	229,637	42,961	78,423	8,628	4,672	364,321
Additions	7,019	17,805	19,734	867	4,383	49,808
Acquisition of subsidiaries (note 46)	4,244	–	738	–	74	5,056
Disposals	(465 )	(650 )	(2,179 )	(4 )	(480 )	(3,778 )
Disposal of subsidiaries (note 47)	(2,116 )	(1,998 )	(10,307 )	(6,070 )	(75 )	(20,566 )
Reclassification	–	(504 )	504	–	–	–
Depreciation provided
during the year	(8,934 )	(18,144 )	(21,976 )	(1,110 )	(2,543 )	(52,707 )
Transfer to investment properties,
net (note 17)	(6,010 )	–	–	–	–	(6,010 )
Fair value adjustment	11,602	–	–	–	–	11,602
Write-back of impairment	2,569	–	–	–	–	2,569
Exchange realignment	4,556	94	1,564	–	119	6,333
At 31 December 2007,
net of accumulated
depreciation and impairment	242,102	39,564	66,501	2,311	6,150	356,628
At 31 December 2007:
Cost or valuation	293,177	284,051	266,644	10,852	29,472	884,196
Accumulated depreciation
and impairment	(51,075)	(244,487)	(200,143)	(8,541)	(23,322)	(527,568 )
Net carryingamount	242,102	39,564	66,501	2,311	6,150	356,628
Analysis of cost or valuation:
At cost	245,668	284,051	266,644	10,852	29,472	836,687
At 31 December 1988 valuation	31,112	–	–	–	–	31,112
At 31 December 1989 valuation	5,220	–	–	–	–	5,220
At 31 December 1992 valuation	204	–	–	–	–	204
At 31 December 1994 valuation	10,973	–	–	–	–	10,973
	293,177	284,051	266,644	10,852	29,472	884,196

72 South China Holdings Limited Annual Report 2008

Notes to the Financial Statements

31 December 2008

16. PROPERTY, PLANT AND EQUIPMENT (continued)

The Group’s land and buildings are situated in Hong Kong, Taiwan and Mainland China and are held under the following lease terms:

	Group
	2008	2007
	HK$’000	HK$’000
Hong Kong
Medium term leases	62,170	108,692
Long term leases	–	28,497
Mainland China
Medium term land use rights	65,225	70,388
In theprocess of applyingland use rights*	71,573	34,525
	198,968	242,102

• As at 31 December 2008, the Group was in the process of applying the land use right certificates in respect of the Group’s certain leasehold properties amounting to approximately HK$71,573,000 (2007: HK$34,525,000). The directors do not expect any legal obstacle for the Group in obtaining the relevant title certificates.

During the year, the Group transferred certain leasehold land and buildings of HK$100,087,000 (2007: HK$6,010,000), at fair value, to investment properties. The resulting fair value gain of HK$27,340,000 (2007: HK$8,702,000) has recorded in the asset revaluation reserve upon transfer.

The net book value of the Group’s machinery and equipment and motor vehicles held under finance leases and hire purchase contracts included in the total amount of machinery and equipment and motor vehicles at 31 December 2008 amounted to HK$3,192,000 (2007: HK$14,240,000).

Certain of the Group’s land and buildings were revalued on and before 31 December 1994. The land and buildings were revalued at open market value, based on their existing use. Since 1995, no further revaluations of the Group’s land and buildings have been carried out, as the Group has relied upon the exemption granted under the transitional provisions in paragraph 80A of HKAS 16, from the requirement to carry out future revaluations of property, plant and equipment which were stated at valuation at that time.

Had all land and buildings been carried at cost less accumulated depreciation and impairment losses, the net book value of the Group’s land and buildings at 31 December 2008 would have been approximately HK$195,518,000 (2007: HK$238,652,000).

At 31 December 2008, certain of the Group’s leasehold land and buildings and machinery and equipment with a net book value of approximately HK$78,866,000 (2007: HK$81,551,000), were pledged to secure banking facilities granted to the Group (note 35).

South China Holdings Limited Annual Report 2008

73

Notes to the Financial Statements

31 December 2008

17. INVESTMENT PROPERTIES

	Group
	2008	2007
	HK$’000	HK$’000
Carrying amount at 1 January	1,229,827	950,618
Disposal	(1,135 )	–
Acquisition of subsidiaries (note 46)	404,128	35,270
Disposal of subsidiaries (note 47)	(161,700 )	–
Net profit/(loss) from a fair value adjustment	(23,467 )	144,530
Transfer from leasehold land and buildings (note 16)	100,087	6,010
Transfer from non-current assets classified
as held for sale	–	53,300
Transfer from prepaid land lease payments (note 18)	–	8,223
Exchange realignment	57,934	31,876
Carryingamount at 31 December	1,605,674	1,229,827

The Group’s investment properties are situated in Hong Kong, Taiwan and Mainland China, and are held under the following lease terms:

	Group
	2008	2007
	HK$’000	HK$’000
Hong Kong
Medium term leases	217,200	256,864
Longterm leases	247,038	302,350
	464,238	559,214
Mainland China
Short term leases	–	2,385
Medium term leases	1,116,049	642,128
	1,116,049	644,513
Taiwan
Freehold	25,387	26,100
	1,605,674	1,229,827

South China Holdings Limited Annual Report 2008

74

Notes to the Financial Statements

31 December 2008

17. INVESTMENT PROPERTIES (continued)

The Group’s investment properties were revalued on 31 December 2008 by BMI Appraisals Limited, independent professionally qualified valuers, at HK$1,605,674,000 (2007: HK$1,229,827,000) on an open market, existing use basis. Certain investment properties are leased to third parties under operating leases. Further summary details of which are included in note 51(a) to the financial statements.

At 31 December 2008, the Group’s investment properties with a value of HK$478,237,000 (2007: HK$633,719,000) were pledged to secure general banking facilities granted to the Group (note 35).

At 31 December 2008, the Group was in the process of applying the land use rights certificates in respect of the Group’s certain investment properties located in Mainland China to approximately HK$1,010,727,000 (2007: HK$547,032,000). The directors do not expect any legal obstacle for the Group in obtaining the relevant title certificates.

Further particulars of the Group’s investment properties are included on pages 135 to 140.

18. PREPAID LAND LEASE PAYMENTS

	Group
	2008	2007
	HK$’000	HK$’000
Carrying amount at 1 January	20,513	31,973
Additions	3,249	–
Acquisition of subsidiaries (note 46)	26,261	329
Disposal of subsidiaries (note 47)	–	(3,119 )
Transfer to investment properties, net (note 17)	–	(8,223 )
Recognised during the year	(1,484)	(608 )
Exchange realignment	1,269	161
Carrying amount at 31 December	49,808	20,513
Currentportion included in other receivables	(1,485)	(486 )
Non-currentportion	48,323	20,027

The leasehold land is held under medium term leases and is situated in Mainland China.

19. CONSTRUCTION IN PROGRESS

CONSTRUCTION IN PROGRESS
	Group
	2008	2007
	HK$’000	HK$’000
Carrying amount at 1 January	263,444	208,737
Exchange realignment	1,226	15,665
Acquisition of subsidiaries (note 46)	1,352	–
Additions	3,423	39,042
Transfer to properties under development (note 27)	(241,509 )	–
Transfer to property, plant and equipment (note 16)	(547 )	–
Transfer to biological assets(note 15)	(110)	–
Carryingamount at 31 December	27,279	263,444

South China Holdings Limited Annual Report 2008

75

Notes to the Financial Statements

31 December 2008

20. LOANS RECEIVABLE

The Group’s loans receivable arose from margin financing and money lending operations during the year.

The Group allows a credit period mutually agreed with the contracting parties. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding loans receivable and has a credit control department to minimise the credit risk. Loans for margin financing are secured by the pledge of customers’ securities as collateral. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s loans and advances relate to a large number of diversified customers, there is no significant concentration of credit risk. Loans receivable bear interest at the rate mutually agreed with the contracting parties.

	Group
	2007
	HK$’000
Loans receivable	267,845
Impairment	(31,221 )
	236,624
Portion classified as current assets	(229,711 )
Portion classified as non-current assets	6,913
Market value of collateral at 31 December	1,509,118

At 31 December 2007, certain listed equity securities provided by certain subsidiaries and clients of approximately of HK$145,884,000 as collateral were pledged to banks to secure banking facilities granted to the Group (note 35). The carrying amounts of the Group’s loans receivable approximate to their fair values.

The loans receivable at the balance sheet date are analysed by the remaining periods to their contractual maturity dates as follows:

	Group
	2007
	HK$’000
Repayable:
On demand	203,353
Within 3 months	9,081
3 months to 1 year	17,277
1year to 5years	6,913
	236,624
Portion classified as current assets	(229,711 )
Portion classified as non-current assets	6,913

South China Holdings Limited Annual Report 2008

76

Notes to the Financial Statements

31 December 2008

20. LOANS RECEIVABLE (continued)

The movements in the provision for impairment of loans receivable are as follows:

	Group
	2008	2007
	HK$’000	HK$’000
At 1 January	31,221	139,807
Impairment losses recognised	6,810	6,195
Impairment losses reversed	(3,884 )	(27,379 )
Amount written off as uncollectible, net	–	(87,402 )
Disposal of a subsidiary	(34,147)	–
At 31 December	–	31,221

At 31 December 2007, included in the above provision for impairment of loans receivable was a provision for individually impaired loans receivable of HK$28,238,000 with a carrying amount of HK$38,887,000. The individually impaired loans receivable relate to customers that were in default or delinquency in payments and only a portion of the receivables is expected to be recovered. The Group holds certain listed equity securities of clients as collateral over these individually impaired loans receivable.

The aged analysis of the loans receivable that are neither individually nor collectively considered to be impaired is as follows:

	Group
	2007
	HK$’000
Neither past due nor impaired	216,938
Less than 1 month past due	493
1 to 3 months past due	222
3 to 12 monthspast due	1,081
	218,734

Loans receivable that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

Loans receivable that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group holds certain listed equity securities of clients as collateral over these loans receivable.

South China Holdings Limited Annual Report 2008

77

Notes to the Financial Statements

31 December 2008

21. INTERESTS IN SUBSIDIARIES

INTERESTS IN SUBSIDIARIES
	Company
	2008	2007
	HK$’000	HK$’000
Unlisted shares, at cost	527,702	527,702
Due from a subsidiary	147,788	286,043
	675,490	813,745

The amount due from a subsidiary is unsecured, interest-free and has no fixed terms of repayment. In the opinion of the directors, the amount due from a subsidiary is not repayable within 12 months from the balance sheet date and is therefore shown in the balance sheet as non-current. In the opinion of the directors, the amount due from a subsidiary approximates to its fair value.

Details of the Company’s principal subsidiaries are set out in note 58 to the financial statements.

22. INTERESTS IN ASSOCIATES

INTERESTS IN ASSOCIATES
	Group
	2008	2007
	HK$’000	HK$’000
Share of net assets:
Unlisted associates	296,837	292,172
Advances to associates	41,748	23,255
Provision for impairment#	(25,436)	(11,200)
	16,312	12,055
Provision for financialguaranteeprovided in respect of an associate	(14,700)	–
	298,449	304,227

An impairment was recognised for the advances to an associate as the associate has incurred recurring losses in prior year and its future profit stream is expected uncertain.

As at 31 December 2008, the Group has given a guarantee in an amount of HK$396,000,000 (2007: HK$210,000,000) to secure banking facilities granted to Firm Wise Investment Limited (“FWIL”) of which HK$379,800,000 (2007: HK$191,850,000) was utilised. The banking facilities are due to be mature in November 2012. The guarantees given were used on refinancing an investment property in Hong Kong.

As at 31 December 2008, the Group has given a guarantee in an amount of HK$20,000,000 (2007: HK$20,000,000) to secure banking facilities granted to Nority Limited (“Nority”) of which HK$14,700,000 (2007: HK$11,714,000) was utilised as at 31 December 2008. The banking facilities are due on demand. The advances to Nority were used and the banking facilities were utilised to finance its trading and manufacturing operation. In the opinion of the directors, Nority’s financial ability to repay the loans drawn under the banking facilities was uncertain. As such, a provision of HK$14,700,000 was made for the Group’s liability under the abovementioned guarantee which has been included in “impairment of advances to associates, net” as disclosed in the consolidated income statement.

78 South China Holdings Limited Annual Report 2008

Notes to the Financial Statements

31 December 2008

22. INTERESTS IN ASSOCIATES (continued)

The movement in the provision for impairment of advances to associates is as follows:

	Group
	2008	2007
	HK$’000	HK$’000
At 1 January	11,200	700
Impairment losses recognised	14,236	10,500
At 31 December	25,436	11,200

Except for the amount due from an associate of HK$212,853,000 as at 31 December 2007 which carries interest at 0.5% per annum, the amounts due from associates are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the directors, advances to associates of HK$41,748,000 (2007: HK$23,255,000) are not repayable within twelve months from the balance sheet date and are classified in the balance sheet as non-current accordingly. The carrying amounts of the balances with associates are approximate to their fair values.

During the year, certain wholly-owned subsidiaries of South China (China) Limited, the 74.8% owned subsidiary of the Group (the “Subsidiary of SCC”), completed the following acquisitions:

• (a) acquired an additional 41.7% interest in Nanjing South China Santa Machinery Co., Ltd. (“SC Santa”), a then 51%-owned associate of the Subsidiary of SCC, indirectly through the acquisition of an 85% interest in 南京液壓件二廠有限公司 (“Nanjing Hydraulic Press”). Subsequent to the acquisition, SC Santa becomes an indirectly-owned subsidiary of the Company;

• (b) acquired an additional 49% interest in Nanjing South China Hua Guan Compressor Ltd. (“SC Hua Guan”), a then 51%-owned associate of the Subsidiary of SCC, indirectly through the acquisition of the entire interest in 南京第二壓縮機有限公司 (“Nanjing Compressor”). Subsequent to the acquisition, SC Hua Guan becomes an indirectly-owned subsidiary of the Company; and

• (c) acquired an additional 49% interest in Nanjing South China Sanda Motor Co., Ltd. (“SC Sanda”), a then 51%-owned associate of the Subsidiary of SCC, indirectly through the acquisition of the entire interest in 南京電機有限公司 (“Nanjing Power Machinery”). Subsequent to the acquisition, SC Sanda becomes an indirectly-owned subsidiary of the Company.

Further details of the acquisition are included in note 46 to the financial statements.

The following table illustrates the summarised financial information of FWIL, extracted from its management accounts as adjusted for the fair value of the investment property based on the valuation performed by BMI Appraisals Limited.

	2008	2007
	HK$’000	HK$’000
Assets	2,551,759	2,617,367
Liabilities	1,545,404	1,628,377
Turnover	137,220	113,002
Profit	5,209	705,187

South China Holdings Limited Annual Report 2008

79

Notes to the Financial Statements

31 December 2008

22. INTERESTS IN ASSOCIATES (continued)

The following table illustrates the summarised financial information of the Group’s other associates extracted from their management accounts.

Other associates

Other associates
	2008	2007
	HK$’000	HK$’000
Assets	92,580	114,505
Liabilities	82,518	123,524
Turnover	165,907	89,170
Loss	(16,761)	(34,940 )

Details of the principal associates are set out in note 59 to the financial statements.

23. GOODWILL

GOODWILL
	Group
	2008	2007
	HK$’000	HK$’000
At 1 January:
Cost	10,507	22,070
Accumulated impairment	(625)	(625)
Net carryingamount	9,882	21,445
Carrying amount at 1 January	9,882	21,445
Acquisition of subsidiaries (note 46)	–	2,010
Acquisition of minority interest in a subsidiary	2,130	–
Disposal of subsidiaries (note 47)	–	(13,573 )
Exchange realignment	29	–
Carryingamount at 31 December	12,041	9,882
At 31 December:
Cost	12,666	10,507
Accumulated impairment	(625)	(625)
Net carryingamount	12,041	9,882

The amount of goodwill remaining in the consolidated reserves, arising from the acquisition of subsidiaries prior to the adoption of SSAP 30 in 2001, was HK$1,238,000 (2007: HK$1,238,000) as at 31 December 2008.

South China Holdings Limited Annual Report 2008

80

Notes to the Financial Statements

31 December 2008

23. GOODWILL (continued)

Impairment testing of goodwill

Goodwill acquired through business combinations have been allocated to the following cash generating units, which are reportable segments, for impairment testing:

• Property investment and development cash-generating unit;

• Toy cash-generating unit;

• Travel business cash-generating unit; and

• • Information technology business cash-generating unit.

Property investment and development cash-generating unit

The recoverable amount of the property investment and development cash-generating unit has been determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to cash flow projections is 10% (2007:16%) and cash flows beyond the five-year period are extrapolated using a growth rate of 5% (2007: 5%) which is the same as the long term average growth rate of the property investment and development industry.

Toy manufacturing cash-generating unit

The recoverable amount of the toy manufacturing cash-generating unit has been determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to cash flow projections is 17% (2007: 16%) and cash flows beyond the five-year period are extrapolated using a growth rate of 2% (2007: 7%) which is the same as the long term average growth rate of the toy products industry.

Travel business cash-generating unit

The recoverable amount of the travel business cash-generating unit is also determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to the cash flow projections is 9% (2007: 10%). The growth rate used to extrapolate the cash flows of the travel business unit beyond the five-year period is 3% (2007: 4%) which is the same as the long term average growth rate of the travel business industry.

Information technology business cash-generating unit

The recoverable amount of the information technology business cash-generating unit is also determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to the cash flow projections is 11% (2007: 10%). The growth rate used to extrapolate the cash flows of the information technology business unit beyond the five-year period is 5% (2007: 4%) which is the same as the long term average growth rate of the information technology business industry.

The carrying amount of goodwill allocated to each of the cash-generating units is as follows:

	2008	2007
	HK$’000	HK$’000
Cash-generating units:
Property investment and development	4,140	2,010
Toy manufacturing	1,374	1,374
Travel business	2,994	2,994
Information technologybusiness	3,533	3,504
	12,041	9,882

South China Holdings Limited Annual Report 2008

81

Notes to the Financial Statements

31 December 2008

23. GOODWILL (continued)

Impairment testing of goodwill (continued)

Key assumptions were used in the value in use calculation of the property investment and development business, toy manufacturing, travel business and information technology business cash-generating units for 31 December 2008 and 31 December 2007. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

Budgeted gross margins – The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budget year, increased for expected efficiency improvements, and expected market development.

Discount rates – The discount rates used are before tax and reflect specific risks relating to the relevant units.

24. INTANGIBLE ASSETS

	Group
	2008	2007
	HK$’000	HK$’000
Cost at 1 January and at 31 December,
net of accumulated amortisation	836	836
Carrying amount at 1 January	836	836
Disposal of subsidiaries(note 47)	(836)	–
Carryingamount at 31 December	–	836
At 31 December:
Cost	–	1,619
Accumulated amortisation	–	(783 )
Net carryingamount	–	836

Intangible assets are Trading Rights that have no expiry date and, in the opinion of the directors, are having indefinite useful lives.

Pursuant to the restructuring of the Stock Exchange and the Hong Kong Futures Exchange Limited (the “Futures Exchange”), effective on 6 March 2000, the Group received four Stock Exchange Trading Rights, five Futures Exchange Trading Rights and 10,187,500 ordinary shares of HK$1 each in Hong Kong Exchanges and Clearing Limited (the “HKEC Shares”) in exchange for its four shares previously held in the Stock Exchange and five shares previously held in the Futures Exchange.

The carrying costs of the previously held shares in the Stock Exchange and the Futures Exchange have been apportioned to the Stock Exchange Trading Rights, the Futures Exchange Trading Rights and the HKEC Shares on the basis of the respective estimated fair values on 6 March 2000.

The Stock Exchange Trading Rights and the Futures Exchange Trading Rights have been classified as intangible assets as disclosed above and have been treated under the accounting policy as set out in note 2.4 to the financial statements.

South China Holdings Limited Annual Report 2008

82

Notes to the Financial Statements

31 December 2008

25. AVAILABLE-FOR-SALE FINANCIAL ASSETS

AVAILABLE-FOR-SALE FINANCIAL ASSETS
	Group
	2008	2007
	HK$’000	HK$’000
Club debentures and membership	44,216	36,686
Unlisted equityinvestments, at cost	525	2,304
	44,741	38,990

During the year, the fair value gain of the Group’s listed equity securities recognised directly in equity amounting to HK$6,779,000 (2007: HK$66,794,000) of which nil (2007: HK$56,206,000) was removed from equity and recognised in the income statement and no impairment of the Group’s debentures was recognised in the income statement (2007: Nil).

The above investments consist of investments in unlisted equity securities, club debentures and memberships which have no fixed maturity date or coupon rate.

The fair values of listed equity investments are based on quoted market prices. The fair values of club debentures and membership have been estimated using a valuation technique based on assumptions that are not supported by observable market prices or rates. The valuation requires the directors to make estimates about the expected future cash flows including expected proceeds on subsequent disposal. The directors believe that the estimated fair values resulting from the valuation technique, which are recorded in the consolidated balance sheet, and the related changes in fair values, which are recorded in the consolidated statement of changes in equity, are reasonable, and that they were the most appropriate values at the balance sheet date.

The directors consider that the fair value of the unlisted equity investments cannot be measured reliably given the absence of market information for companies of similar nature and scale and that the probabilities of the various estimates to be used in estimating fair value cannot be reasonably assessed. As such, the unlisted equity investments are carried at cost.

26. OTHER NON-CURRENT ASSETS

OTHER NON-CURRENT ASSETS
	Group
	2008	2007
	HK$’000	HK$’000
Membership in Chinese Gold and Silver Exchange	–	1,280
Statutory deposits in respect of securities and commodities dealings	–	4,445
Deposit for acquisition of properties	6,622	6,622
Land development costs	19,994	18,887
Berths	16,666	16,666
Others	4,883	–
	48,165	47,900

South China Holdings Limited Annual Report 2008

83

Notes to the Financial Statements

31 December 2008

27. PROPERTIES UNDER DEVELOPMENT

PROPERTIES UNDER DEVELOPMENT
		Group
		2008	2007
	Note	HK$’000	HK$’000
Carrying amount at 1 January		–	–
Additions		182,175	–
Interest capitalised in properties under development	7	5,348	–
Transferred from construction in progress	19	241,509	–
Exchange realignment		19,702	–
Carrying amount at 31 December		448,734	–
Portion classified as current assets		(448,734)	–
Non-currentportion		–	–

All properties under development are situated in Mainland China. An analysis by lease term of the carrying value of the properties under development is as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Medium term leases	448,734	–

At 31 December 2008, certain properties under development with an aggregate carrying value of HK$154,632,000 (2007: Nil) were pledged to banks to secure banking facilities granted to the Group as further set out in note 35 to the financial statements.

At 31 December 2008, leasehold interests in land located in Mainland China with net carrying amount of approximately HK$3,134,000 (2007: Nil) is in the process of applying for the land use right certificate up to the approval date of these financial statements. The directors do not expect any legal obstacle for the Group in obtaining the relevant title certificate.

Further particulars of the Group’s properties under development are included on page 140.

South China Holdings Limited Annual Report 2008

84

Notes to the Financial Statements

31 December 2008

28. INVENTORIES

INVENTORIES
	Group
	2008	2007
	HK$’000	HK$’000
Raw materials	168,270	171,438
Work in progress	99,086	108,832
Finishedgoods	109,012	86,237
	376,368	366,507
Provision against obsolete inventories	(53,890)	(75,654)
	322,478	290,853

At 31 December 2008, the Group’s inventories with a value of HK$152,917,000 (2007: HK$144,027,000) were pledged to secure general banking facilities granted to the Group (note 35).

29. TRADE AND OTHER RECEIVABLES

	Group
	2008	2007
	HK$’000	HK$’000
Trade receivables	356,762	456,979
Impairment	(61,683)	(73,975)
	295,079	383,004

Included in trade and other receivables of the Group are trade receivables of HK$295,079,000 (2007: HK$383,004,000). The Group’s trading terms with its customers are on credit with credit periods ranging from one to three months (2007: two days to three months), depends on a number of factors including trade practices, collection history and location of customers. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk.

The carrying amounts of the Group’s trade and other receivables approximate to their fair values. None of the other receivables is either past due or impaired. The financial assets included in these balances relate to receivables for which there was no recent history of default.

South China Holdings Limited Annual Report 2008

85

Notes to the Financial Statements

31 December 2008

29. TRADE AND OTHER RECEIVABLES (continued)

At 31 December 2007, trade receivables with a carrying value of HK$17,021,000 were pledged to secure general banking facilities granted to the Group (note 35).

An aged analysis of the trade receivables as at the balance sheet date, based on the invoice date, is as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Within 90 days	263,901	345,839
91 to 180 days	21,505	29,819
181 to 365 days	4,395	3,434
Over 365 days	5,278	3,912
	295,079	383,004

The movements in provision for impairment of trade receivables are as follows:

	Group
	2008	2007
	HK$’000	HK$’000
At 1 January	73,975	86,317
Impairment losses recognised	7,340	10,898
Impairment losses reversed	(1,063 )	(10,108 )
Amount written off as uncollectible	(66 )	(12,355 )
Exchange realignment	171	222
Disposal of subsidiaries	(18,674)	(999 )
	61,683	73,975

Included in the above provision for impairment of trade receivables is a provision for individually impaired trade receivables of HK$61,683,000 (2007: HK$73,975,000) with a carrying amount of HK$61,683,000 (2007: HK$75,493,000). The individually impaired trade receivables relate to customers that were in financial difficulties and only a portion of the receivables is expected to be recovered. The Group holds certain listed equity securities of clients as collateral over these individually impaired trade receivables.

South China Holdings Limited Annual Report 2008

86

Notes to the Financial Statements

31 December 2008

29. TRADE AND OTHER RECEIVABLES (continued)

The aged analysis of the trade receivables that are neither individually nor collectively considered to be impaired is as follows:

impaired is as follows:
	Group
	2008	2007
	HK$’000	HK$’000
Within 90 days	273,677	350,908
91 to 180 days	12,015	23,018
181 to 365 days	4,109	5,164
Over 365 days	5,278	2,396
	295,079	381,486

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group holds certain listed equity securities of clients as collateral over these individually impaired trade receivables.

30. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

	Group
	2008	2007
	HK$’000	HK$’000
Equity investments, at market value listed in:
Hong Kong	10,245	241,036
Mainland China	700	–
	10,945	241,036

The above financial assets at 31 December 2008 were classified as held for trading. At 31 December 2007, approximately HK$127,096,000 of the above financial assets were pledged to banks to secure banking facilities granted to the Group (note 35).

The market value of the Group’s listed equity investments at the date of approval of these financial statements was approximately HK$13,506,000.

South China Holdings Limited Annual Report 2008

87

Notes to the Financial Statements

31 December 2008

31. CASH AND CASH EQUIVALENTS AND PLEDGED BANK DEPOSITS

		Group	Group	Company	Company
		2008	2007	2008	2007
	Note	HK$’000	HK$’000	HK$’000	HK$’000
Cash and bank balances		193,072	281,881	108	141
Time deposits		14,342	18,730	–	–
		207,414	300,611	108	141
Less: Pledged time deposits:
Pledged for a guarantee provided
to Hong Kong Exchanges
and Clearing Limited for
commodities dealings		–	(5,000 )	–	–
Pledged for a guarantee provided
to Hong Kong Exchanges
and Clearing Limited for
securities dealings		–	(500 )	–	–
Pledged for bank overdraft facilities	35	(14,342)	(13,230)	–	–
		(14,342)	(18,730)	–	–
Cash and cash equivalents		193,072	281,881	108	141

At the balance sheet date, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to HK$92,150,000 (2007: HK$57,626,000). The RMB is not freely convertible into other currencies. However, under the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default.

South China Holdings Limited Annual Report 2008

88

Notes to the Financial Statements

31 December 2008

32. CASH HELD ON BEHALF OF CLIENTS

The Group maintains segregated trust accounts with licensed banks to hold clients’ monies arising from its normal course of business. The Group has classified the clients’ monies as cash held on behalf of clients under the current assets section of the balance sheet and recognised the corresponding accounts payable to the respective clients on the grounds that it is liable for any loss or misappropriation of clients’ monies. The Group is not allowed to use the clients’ monies to settle its own obligations.

33. CLIENT DEPOSITS

The Group’s client deposits arose from securities, bullion and commodities dealings.

At 31 December 2007, The client deposits are unsecured, bear interest at the bank deposit savings rate and are repayable on demand.

Included in client deposits were deposits from directors of a subsidiary of HK$73,163,000 as at 31 December 2007, which were subject to similar terms to those offered by the Group to its major clients.

The carrying amounts of the Group’s client deposits approximate to their fair values.

34. TRADE AND OTHER PAYABLES

Included in trade and other payables of the Group are trade payables of HK$362,374,000 (2007: HK$529,948,000) and their aged analysis based on the invoice date is as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Within 90 days	281,295	428,172
91 to 180 days	26,534	54,970
181 to 365 days	3,166	26,834
Over 365 days	51,379	19,972
	362,374	529,948

The trade payables are non-interest-bearing and are normally settled on 15 to 210 days’ terms (2007: 2 to 210 days). At 31 December 2007, the trade payables related to securities, bullion and commodities dealings are non-interest-bearing and payable on the settlement dates of the relevant trades or upon demand of customers. The carrying amounts of the trade and other payables approximate to their fair values.

Other payables are non-interest-bearing and have an average term of three months. The Group’s and the Company’s other payables approximate to their fair values.

South China Holdings Limited Annual Report 2008

89

Notes to the Financial Statements

31 December 2008

35. INTEREST-BEARING BANK AND OTHER BORROWINGS

	Effective		Group
	Interest		2008	2007
	rate (%)	Maturity	HK$’000	HK$’000
Current
Finance lease payables (note 36)	1.8-5.3	2009	1,439	5,642
Bank overdrafts – unsecured	4.8-5.5	On demand	15,100	19,582
Bank overdrafts – secured	5.3-6.3	On demand	873	16,448
Bank loans – unsecured	3.8-9.6	2009	63,371	107,385
Bank loans – secured	1.1-9.3	2009	263,835	297,887
Trust receipt loans	1.9-5.7	2009	142,988	144,027
			487,606	590,971
Non-current
Finance lease payables (note 36)	–	–	–	2,055
Bank loans – unsecured	–	–	–	2,691
Bank loans – secured	1.1-7.7	2010-2017	281,845	230,699
			281,845	235,445
			769,451	826,416
Analysed into:
Bank loans and overdrafts repayable:
Within one year or on demand			486,167	585,329
In the second year			141,823	84,229
In the third to fifth years, inclusive			104,106	61,988
Over fiveyears			35,916	87,173
			768,012	818,719
Other borrowings repayable:
Within one year or on demand			1,439	5,642
In the second year			–	2,011
In the third to fifthyears, inclusive			–	44
			1,439	7,697
			769,451	826,416

South China Holdings Limited Annual Report 2008

90

Notes to the Financial Statements

31 December 2008

35. INTEREST-BEARING BANK AND OTHER BORROWINGS (continued)

Notes:

• (a) At the balance sheet date, the Group’s overdraft facilities amounting to approximately HK$16,000,000 (2007: HK$99,447,000) and bank loans facilities amounting to approximately HK$1,022,810,000 (2007: HK$1,139,427,000) are secured by:

• (i) a charge over the Group’s investment properties situated in Hong Kong and Mainland China, which had an aggregate carrying value at the balance sheet date of approximately HK$478,237,000 (2007: HK$633,719,000) (note 17);

• (ii) pledges over the Group’s inventories which had an aggregate carrying value at the balance sheet date of approximately HK$152,917,000 (2007: HK$144,027,000) (note 28);

• (iii) a charge over the Group’s certain leasehold land and buildings and machinery and equipment which had an aggregate carrying value at the balance sheet date of approximately HK$78,866,000 (2007: HK$81,551,000) (note 16);

• (iv) the pledge of certain of the Group’s time deposits amounting to HK$14,342,000 (2007: HK$13,230,000) (note 31);

• (v) pledges over the Group’s properties under development situated in Mainland China with net carrying amounts of approximately HK$154,632,000 (2007:Nil) (note 27);

• (vi) at 31 December 2007, certain of the Group’s trade receivables amounting to HK$17,021,000 were pledged (note 29);

• (vii) at 31 December 2007, listed equity investments belonging to the Group and clients totalling approximately HK$272,980,000 (notes 20 and 30).

• (b) All other borrowings are in Hong Kong dollars, except:

• (i) secured bank loans of HK$69,676,000 (2007: HK$19,436,000) which are denominated in Renminbi; and

• (ii) no bank loans (2007: HK$16,116,000) which is denominated in United States dollars.

The carrying amounts of the Group’s bank and other borrowings approximate to their fair values. The fair values of the bank and other borrowings are the present values of future cash flows, discounted at prevailing interest rates at 31 December 2008.

South China Holdings Limited 91 Annual Report 2008

Notes to the Financial Statements

31 December 2008

36. FINANCE LEASE PAYABLES

The Group leases certain of its plant and machinery and motor vehicle for its manufacturing businesses. These leases are classified as finance leases and have remaining lease terms within one year.

At 31 December 2008, the total future minimum lease payments under finance leases and their present values were as follows:

Minimum lease payments Group 2008 2007 HK$’000 HK$’000 Amounts payable: Within one year 1,460 5,914 In the second year – 2,073 In the thirdyear to fifthyears, inclusive – 59	Present value of minimum lease payments 2008 2007 HK$’000 HK$’000 1,439 5,642 – 2,011 – 44
Total minimum finance lease payments 1,460 8,046 Future finance charges (21) (349)	1,439 7,697
Total net finance lease payables 1,439 7,697 Portion classified as current liabilities (1,439) (5,642)
Non-currentportion – 2,055

37. ADVANCES FROM SHAREHOLDERS

The advances from shareholders are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the directors, the amounts will not be repayable within 12 months from the balance sheet date and are therefore shown in the balance sheet as non-current. The carrying amounts of the Group’s advances from shareholders approximate to their fair values.

38. ADVANCES FROM/TO MINORITY SHAREHOLDERS OF SUBSIDIARIES

The advances from/to minority shareholders of subsidiaries are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the directors, the advances from minority shareholders of subsidiaries amounted to HK$29,226,000 (2007: HK$54,842,000) will not be repayable within 12 months from the balance sheet date and are therefore shown in the balance sheet as non-current. The carrying amounts of the Group’s advances from/to minority shareholders approximate to their fair values.

South China Holdings Limited Annual Report 2008

92

Notes to the Financial Statements

31 December 2008

39. DUE FROM/TO AFFILIATES

Due from affiliates

	Group
	2008	2007
	HK$’000	HK$’000
Due from related companies#	457	5,158
Due from associates(note 22)	–	234,045
	457	239,203

Due to affiliates

	Group
	2008	2007
	HK$’000	HK$’000
Due to related companies#	(334 )	(13,207 )
Due to an associate(note 22)	(1,846)	–
	(2,180)	(13,207)

Certain directors of the related companies are also the directors of the Company.

The amounts due from/to related companies are unsecured, interest-free and are repayable on demand. The carrying values of the amounts due from/to related companies are approximate to their fair values.

40. OTHER NON-CURRENT LIABILITIES

	Group
	2008	2007
	HK$’000	HK$’000
Provision for severance payments	76,866	41,259
Others	8,553	–
	85,419	41,259

The movement in the provision for severance payments is as follows:

	Group
	2008	2007
	HK$’000	HK$’000
At 1 January	41,259	32,601
Acquisition of subsidiaries (note 46)	31,856	7,500
Amounts utilised during the year	(623 )	(1,273 )
Exchange realignment	4,374	2,431
At 31 December	76,866	41,259
Portion classified as current liabilities	–	–
Non-currentportion	76,866	41,259

The provision for severance payments arose from the acquisition of certain PRC subsidiaries under the relevant regulations in Mainland China.

South China Holdings Limited Annual Report 2008

93

Notes to the Financial Statements

31 December 2008

41. DEFERRED TAX

The movements of deferred tax liabilities and assets during the year are as follows:

Group Deferred tax liabilities

		2008
		Depreciation
	Losses available	allowance in
	for offsetting	excess of
	against future	related	Revaluation
	taxable profits	depreciation	of properties	Total
	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2008	(14,889 )	15,749	149,401	150,261
Deferred tax debited/(credited) to the
income statement during the year (note 10)	10,350	(2,326 )	(5,617 )	2,407
Acquisition of subsidiaries (note 46)	–	–	74,947	74,947
Disposal of a subsidiary (note 47)	4,863	(3,973 )	(6,888 )	(5,998 )
Exchange realignment	–	(449)	10,911	10,462
At 31 December 2008	324	9,001	222,754	232,079

Deferred tax assets

	2008
		Depreciation
Losses available		allowance in
for offsetting		excess of
against future		related
taxable profits	Provision	depreciation	Total
HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2008 473	2,765	17	3,255
Deferred tax debited to the
income statement during the year (note 10) (473 )	(2,765 )	(7 )	(3,245 )
Disposal of a subsidiary (note 47) –	–	(10)	(10 )
At 31 December 2008 –	–	–	–

South China Holdings Limited Annual Report 2008

94

Notes to the Financial Statements

31 December 2008

41. DEFERRED TAX (continued)

Group Deferred tax liabilities

Group Deferred tax liabilities
		2007
		Depreciation
	Losses available	allowance in
	for offsetting	excess of
	against future	related	Revaluation
	taxable profits	depreciation	of properties	Total
	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2007	(12,129 )	8,780	143,104	139,755
Deferred tax debited/(credited) to the
income statement during the year (note 10)	(2,760 )	7,165	(3,300 )	1,105
Deferred tax debited to equity during the year	–	–	2,900	2,900
Exchange realignment	–	(196)	6,697	6,501
At 31 December 2007	(14,889)	15,749	149,401	150,261

Deferred tax assets

Deferred tax assets
		2007
			Depreciation
	Losses available		allowance in
	for offsetting		excess of
	against future		related
	taxable profits	Provision	depreciation	Total
	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2007	6,989	2,765	22	9,776
Deferred tax debited to the
income statement duringtheyear(note 10)	(6,516)	–	(5)	(6,521)
At 31 December 2007	473	2,765	17	3,255

South China Holdings Limited 95 Annual Report 2008

31 December 2008

Notes to the Financial Statements

41. DEFERRED TAX (continued)

Deferred tax assets have not been recognised in respect of the following items:

	Group	Group	Company	Company
	2008	2007	2008		2007
	HK$’000	HK$’000	HK$’000	HK$’000
Tax losses	574,795	1,006,762	5,621		5,621
Deductible temporarydifferences	–	2,905	–		–
	574,795	1,009,667	5,621		5,621

The above tax losses are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose.

The Group also has tax losses arising in Mainland China of HK$106,342,000 (2007: HK$98,062,000) that will expire in one to five years for offsetting against future taxable profit. Deferred tax assets have not been recognised in respect of the above items as it is not considered probable that taxable profits will be available against which the above items can be utilised.

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between China and jurisdiction of the foreign investors. For the Group, the applicable rate is 5%. The Group is therefore liable to withholding taxes on dividends distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008.

At 31 December 2008, no deferred tax has been recognised for withholding taxes that would be payable on the unremitted earnings, that are subject to withholding taxes of the Group’s subsidiaries established in Mainland China. Up to the date of this report, the Group’s subsidiaries operating in Mainland China have not declared any dividend in respect of their earnings incurred after 1 January 2008. The aggregate amount of temporary differences arising from the above unremitted earnings of the subsidiaries in Mainland China for which deferred tax liabilities have not been recognised as deferred tax liability is considered to be insignificant as at 31 December 2008.

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

42. PROMISSORY NOTES

PROMISSORY NOTES
		Group
	Effective	2008	2007
	interest rate (%)	HK$’000	HK$’000
Issued to a substantial shareholder	2.0	97,079	95,959

During the year, the Group issued an additional promissory note with a principal amount of HK$1,120,000 (2007: HK$95,959,000) to a substantial shareholder of the Group in respect of the acquisition of an additional 0.79% (2007: 67.66%) equity interest in a subsidiary. The promissory notes are unsecured, bears interest at 2% per annum and are wholly repayable on 17 June 2010 and 8 July 2010. The carrying amount of the promissory notes are approximate to their fair values.

96 South China Holdings Limited Annual Report 2008

Notes to the Financial Statements

31 December 2008

43. SHARE CAPITAL

Shares

Shares
	2008	2007
	HK$’000	HK$’000
Authorised:
4,000,000,000 (2007: 4,000,000,000) ordinary
shares of HK$0.025(2007: HK$0.025)each	100,000	100,000
Issued and fully paid:
1,823,401,376 (2007: 1,823,401,376) ordinary
shares of HK$0.025(2007: HK$0.025)each	45,584	45,584

Share options

Details of the Company’s share option scheme and the share options issued under the scheme are included in note 44 to the financial statements.

44. SHARE OPTION SCHEMES

The directors and employees of the Company and its subsidiaries are entitled to participate in share option schemes operated by the Group (the “Share Option Schemes”). Details of the Share Option Schemes are as follows:

(a) Purpose of the Share Option Schemes

In order to provide the Company, SCC, SCL and SCF (collectively the “Companies”) with a flexible means of giving incentives to or rewarding the participants for their contribution to the Companies and to enable the Companies to attract and retain employees of appropriate qualifications and with necessary experience to work for the Companies and any entity in which any member of the Group holds equity interests (the “Invested Entity”), the shareholders of each of the Company, SCC and SCF approved the adoption of the share option schemes of the Company, SCC and SCF at the respective annual general meetings held on 31 May 2002 while the share option scheme of SCL was approved by the shareholders of SCL on 24 June 2002.

SCF ceased to be a subsidiary of the Company after the Distribution as stated in note 12 to the financial statements.

South China Holdings Limited 97 Annual Report 2008

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

(b) Participants of the Share Option Schemes

• (1) For the share option schemes of the Company, SCC and SCF

• (i) any executive director, employee or proposed employee (whether full time or part time) of any member of the relevant group or any Invested Entity or substantial shareholder;

• (ii) any non-executive director (including any independent non-executive director) of any member of the relevant group or any Invested Entity or substantial shareholder;

• (iii) any individual for the time being seconded to work for any member of the relevant group or any Invested Entity or substantial shareholder;

• (iv) any shareholder of any member of the relevant group or any Invested Entity or substantial shareholder or any holder of any securities issued by any member of the relevant group or any Invested Entity or substantial shareholder;

• (v) any business partner, consultant or contractor of any member of the relevant group or any Invested Entity or substantial shareholder;

• (vi) any supplier of goods or services to any member of the relevant group or any Invested Entity or substantial shareholder;

• (vii) any customer of any member of the relevant group or any Invested Entity or substantial shareholder;

• (viii) any person or entity that provides research, development or other technological support or any advisory, consultancy, professional or other services to any member of the relevant group or any Invested Entity or substantial shareholder; and

• (ix) any company wholly owned by one or more persons belonging to any of the above classes of participants.

• (2) For the share option scheme of SCL

Any full time or part time employee (including any executive and non-executive director or proposed executive and non-executive director) of SCL and its subsidiaries (the “SCL Group”), adviser, consultant, contractor, client or supplier who has contributed to the SCL Group.

South China Holdings Limited Annual Report 2008

98

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

(c) Total number of shares available for issue under the Share Option Schemes

As at the date of this Annual Report, the total number of shares available for issue under the Share Option Schemes of the Companies are as follows:

• (i) A total of 182,340,137 shares of the Company are available for issue under the Company’s share option scheme, which represents 10% of the issued share capital of the Company as at the date of this Annual Report.

• (ii) A total of 265,167,371 shares of SCC are available for issue under SCC’s share option scheme, which represents 10% of the issued share capital of SCC as at the date of this Annual Report

• (iii) A total of 50,649,834 shares of SCL are available for issue under SCL’s share option scheme, which represents 10% of the issued share capital of SCL as at the date of this Annual Report.

• (iv) Since SCF ceased to be a subsidiary of the Company as at the date of this Annual Report, no information of SCF for this section is provided.

(d) Maximum entitlement of each participant

No participant shall be granted an option if the total number of shares issued and to be issued upon exercise of the options granted and to be granted under the Share Option Schemes (including both exercised and outstanding options) in any 12-month period up to the date of grant to such participant would exceed 1% of the shares for the time being in issue unless the proposed grant has been approved by the shareholders of the respective companies in general meetings with the proposed participant and his associates (as defined in the Listing Rules and the GEM Listing Rules) abstaining from voting.

(e) Period within which the shares must be taken up under an option

The respective boards of the Companies may, at its absolute discretion, determine the period during which a share option may be exercised, and such period should expire no later than 10 years from the date of grant. The respective board may also impose restrictions on the exercise of a share option during the exercise period.

(f) Minimum period, if any, for which an option must be held before it can be exercised

There is no specific requirement under the respective share option scheme that an option must be held for any minimum period before it can be exercised, but the terms of the respective share option scheme provide that the board has the discretion to specify a minimum period at the time of grant of any particular option.

(g) Amount payable upon acceptance of the option and the period within which payment must be made

An amount of HK$1 for each lot of share options granted is payable upon acceptance of the options within five business days from the date of offer of grant of share options.

(h) Basis of determining the exercise price options

The exercise price is determined by the respective boards of the Companies, and shall be at least the highest of: (i) the closing price of the respective company’s shares as stated in the Stock Exchange’s daily quotation sheet on the date of offer; (ii) the average closing price of the respective company’s shares as stated in the Stock Exchange’s daily quotation sheets for the five business days immediately preceding the date of offer of grant; and (iii) the nominal value of the respective company’s shares.

South China Holdings Limited Annual Report 2008

99

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

(i) Remaining life of the Share Option Schemes

Subject to early termination of the Share Option Schemes pursuant to the terms thereof, the share option schemes for the Company SCC, SCL and SCF will be valid and effective for a period of 10 years commencing on the date on which they became unconditional on 28 June 2002, 18 June 2002, 18 July 2002, and 28 June 2002 respectively.

Save as disclosed above, Nority International Group Limited (“NIG”) (now known as “Wai Chun Mining Industry Group Company Limited”), a then subsidiary of the Group had been disposed of during the year ended 31 December 2007 and the Group had withdrawn from the NIG’s share option scheme.

Share option scheme of the Company

The following share options were outstanding under the share option scheme of the Company during the year:

		2008			2007
	Weighted			Weighted
	average			average
	exercise		Number	exercise	Number
	price	of	options	price	of options
	HK$		’000	HK$	’000
	per share			per share
At 1 January	2		103,800	–	–
Granted during the year	–		–	2	103,800
Forfeited during the year	2		(2,000 )	–	–
Exercised duringtheyear	–		–	–	–
At 31 December	2		101,800	2	103,800

South China Holdings Limited Annual Report 2008

100

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

Share option scheme of the Company (continued)

The following share options were outstanding under the share option scheme of the Company during the year:

Name or category of participant Directors of the Company Ms. Cheung Choi Ngor Mr. Richard Howard Gorges Ms. Ng Yuk Mui, Jessica Mr. Ng Yuk Fung, Peter	Number of share options Outstanding Subscription Outstanding as Granted Exercised Lapsed Cancelled as at price per at 1 January during during during during 31 December Date of grant Exercise period share 2008 the year the year the year the year 2008 share options *of share options HK$ (DD/MM/YYYY) (DD/MM/YYYY) 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2008 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2009 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2010 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2008 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2009 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2010 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2008 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2009 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2010 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2008 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2009 – 17/09/2017 2.00 6,000,000 – – – – 6,000,000 18/09/2007 18/09/2010 – 17/09/2017 2.00 72,000,000 – – – – 72,000,000 10,599,998 – – 666,666 – 9,933,332 18/09/2007 18/09/2008 – 17/09/2017 2.00 10,599,999 – – 666,666 – 9,933,333 18/09/2007 18/09/2009 – 17/09/2017 2.00 10,600,003 – – 666,668 – 9,933,335 18/09/2007 18/09/2010 – 17/09/2017 2.00 31,800,000 – – 2,000,000 – 29,800,000 103,800,000 – – 2,000,000 – 101,800,000
Sub-total
Employees of the Group In aggregate
Sub-total
Total

South China Holdings Limited 101 Annual Report 2008

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

Share option scheme of the Company (continued)

Notes:

• All share options granted are subject to a vesting period and become exercisable in the following manner:

From the date of grant of share options	Exercisable percentage
	%
Within 12 months	Nil
13th month – 120th month	not more than 331/3
25th month – 120th month	not more than 662/3
37th month – 120th month	100

The unexercised share options of each exercise period shall lapse at the end of the respective exercise period.

** The subscription price of the share options is subject to adjustment in the case of rights or bonus issues, or other alteration in the capital structure of the Company.

The fair value of the share options of the Company granted during the year ended 31 December 2007 was HK$63,725,000. The Company recognised a share option expense of HK$27,840,000 (2007: HK$11,138,000) during the year ended 31 December 2008.

The fair value of equity-settled share options granted during the year ended 31 December 2007 was estimated as at the date of grant using a trinomial model, taking into account the terms and conditions upon which the options were granted. No share option was granted during the year. The following table lists the inputs to the model used:

	2007
Dividend yield (%)	0.00
Average expected volatility (%)	68.57
Average historical volatility (%)	68.57
Average risk-free interest rate (%)	3.96
Expected life of options (year)	3 – 5
Weighted average share price (HK$)	1.374

The expected life of the options is based on the contractual life and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

At the balance sheet date, the Company had 101,800,000 share options outstanding under the scheme. The exercise in full of the remaining share options would, under the present capital structure of the Company, result in the issue of 101,800,000 additional ordinary shares of the Company with additional share capital of HK$2,545,000 and share premium of HK$201,055,000 (before issue expenses).

South China Holdings Limited Annual Report 2008

102

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

Share option scheme of SCC

The following share options were outstanding under the share option scheme of SCC during the year:

		2008			2007
	Weighted			Weighted
	average			average
	exercise		Number	exercise	Number
	price	of	options	price	of options
	HK$		’000	HK$	’000
	per share			per share
At 1 January	1.5		114,500	–	–
Granted during the year	–		–	1.5	115,100
Forfeited during the year	1.5		(12,700 )	1.5	(600 )
Exercised duringtheyear	–		–	–	–
At 31 December	1.5		101,800	1.5	114,500

The following share options were outstanding under the share option scheme of SCC during the year:

Name or category of participant Directors of the Company Ms. Cheung Choi Ngor Mr. Ng Yuk Fung, Peter	Number of share options Outstanding Subscription Outstanding as Granted Exercised Lapsed Cancelled as at price per at 1 January during during during during 31 December Date of grant Exercise period share 2008 the year the year the year the year 2008 share options *of share options HK$ (DD/MM/YYYY) (DD/MM/YYYY) 8,666,666 – – – – 8,666,666 18/09/2007 18/09/2008 – 17/09/2017 1.50 8,666,667 – – – – 8,666,667 18/09/2007 18/09/2009 – 17/09/2017 1.50 8,666,667 – – – – 8,666,667 18/09/2007 18/09/2010 – 17/09/2017 1.50 8,666,666 – – – – 8,666,666 18/09/2007 18/09/2008 – 17/09/2017 1.50 8,666,667 – – – – 8,666,667 18/09/2007 18/09/2009 – 17/09/2017 1.50 8,666,667 – – – – 8,666,667 18/09/2007 18/09/2010 – 17/09/2017 1.50 52,000,000 – – – – 52,000,000 1,399,999 – – – – 1,399,999 18/09/2007 18/09/2008 – 17/09/2017 1.50 1,399,999 – – – – 1,399,999 18/09/2007 18/09/2009 – 17/09/2017 1.50 1,400,002 – – – – 1,400,002 18/09/2007 18/09/2010 – 17/09/2017 1.50 4,200,000 – – – – 4,200,000 15,599,997 – – 3,933,332 – 11,666,665 18/09/2007 18/09/2008 – 17/09/2017 1.50 15,599,998 – – 3,933,332 – 11,666,666 18/09/2007 18/09/2009 – 17/09/2017 1.50 15,600,005 – – 3,933,336 – 11,666,669 18/09/2007 18/09/2010 – 17/09/2017 1.50 3,833,332 – – 300,000 – 3,533,332 25/09/2007 25/09/2008 – 24/09/2017 1.50 3,833,332 – – 300,000 – 3,533,332 25/09/2007 25/09/2009 – 24/09/2017 1.50 3,833,336 – – 300,000 – 3,533,336 25/09/2007 25/09/2010 – 24/09/2017 1.50 58,300,000 – – 12,700,000 – 45,600,000 114,500,000 – – 12,700,000 – 101,800,000
Sub-total
Consultants In aggregate
Sub-total
Employees In aggregate
Sub-total
Total

South China Holdings Limited Annual Report 2008

103

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

Share option scheme of SCC (continued)

Notes:

• All share options granted are subject to a vesting period and become exercisable in the following manner:

From the date of grant of share options	Exercisable percentage
	%
Within 12 months	Nil
13th month – 120th month	not more than 331/3
25th month – 120th month	not more than 662/3
37th month – 120th month	100

The unexercised share options of each exercise period shall lapse at the end of the respective exercise period.

** The subscription price of the share options is subject to adjustment in the case of rights or bonus issues, or other alteration in the capital structure of SCC.

The fair value of the share options of SCC granted during the year ended 31 December 2007 was HK$62,481,000. SCC recognised a share option expense of HK$20,219,000 (2007: HK$10,787,000) during the year ended 31 December 2008.

The fair value of equity-settled share options granted during the year ended 31 December 2007 was estimated as at the date of grant using a trinomial model, taking into account the terms and conditions upon which the options were granted. No share option was granted during the year. The following table lists the inputs to the model used:

	2007
Dividend yield (%)	3.00
Average expected volatility (%)	101.01
Average historical volatility (%)	101.01
Average risk-free interest rate (%)	3.96
Expected life of options (year)	3 – 5
Weighted average share price (HK$)	0.88

The expected life of the options is based on the contractual life and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

104 South China Holdings Limited Annual Report 2008

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

Share option scheme of SCL

The following share options were outstanding under the share option scheme of SCL during the year:

							2008			2007
						Weighted			Weighted
						average			average
						exercise		Number	exercise		Number
							price of	options	price	of	options
							HK$	’000	HK$		’000
						per	share		per share
At 1 January						0.247		16,000	–		–
Granted during the year							–	–	0.247		16,000
Forfeited during the year							–	–	–		–
Exercised duringtheyear							–	–	–		–
At 31 December						0.247		16,000	0.247		16,000
The following share options		were outstanding		under	the share option scheme of SCL during the year:
			Number of share options
							Outstanding				Subscription
	Outstanding as	Granted	Exercised	Lapsed		Cancelled	as at				price per
Name or	at 1 January	during	during	during		during	31 December	Date of grant	Exercise period		share **
category of participant	2008	the year	the year	the year		the year	2008	share options*	of share	options	HK$
							(DD/MM/YYYY)		(DD/MM/YYYY)
Director of the Company
Mr. NgYuk Fung, Peter	5,000,000	–	–	–		–	5,000,000	14/03/2007	14/03/2008 – 13/03/2012		0.2166
	5,000,000	–	–	–		–	5,000,000
Others
In aggregate	6,000,000	–	–	–		–	6,000,000	14/03/2007	14/03/2008 – 13/03/2012		0.2166
	3,000,000	–	–	–		–	3,000,000	02/04/2007	02/04/2008 – 01/04/2012		0.3150
	2,000,000	–	–	–		–	2,000,000	10/05/2007	10/05/2008 – 09/05/2012		0.3100
	11,000,000	–	–	–		–	11,000,000
	16,000,000	–	–	–		–	16,000,000

South China Holdings Limited 105 Annual Report 2008

31 December 2008

Notes to the Financial Statements

44. SHARE OPTION SCHEMES (continued)

Share option scheme of SCL (continued)

Notes:

• All share options granted are subject to a vesting period and become exercisable in the following manner:

From the date of grant of share options	Exercisable percentage
	%
Within 12 months	Nil
13th month – 36th month	331/3
25th month – 48th month	331/3
37th month – 60th month	331/3

The unexercised share options of each exercise period shall lapse at the end of the respective exercise period.

** The subscription price of the share options is subject to adjustment in the case of rights or bonus issues, or other alteration in the capital structure of SCL.

The fair value of the share options of SCL granted during the year ended 31 December 2007 was HK$3,765,000. SCL recognised a share option expense of HK$1,314,000 (2007: HK$1,951,000) during the year ended 31 December 2008.

The fair value of equity-settled share options granted during the year ended 31 December 2007 was estimated as at the date of grant using Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. No share option was granted during the year. The following table lists the inputs to the model used:

the inputs to the model used:
	2007
Dividend yield (%)	0.00
Average expected volatility (%)	464.00
Average historical volatility (%)	464.00
Average risk-free interest rate (%)	4.2
Expected life of options (year)	5
Weighted average share price (HK$)	0.228

The expected life of the options is based on the contractual life and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

Share option scheme of SCF

The following share options were outstanding under the share option scheme of SCF during the year:

		2008		2007
	Weighted		Weighted
	average		average
	exercise	Number	exercise	Number
	price	of options	price	of options
	HK$	’000	HK$	’000
	per share		per share
At 1 January	0.149	319,250	0.128	238,000
Granted during the year	–	–	0.164	202,000
Forfeited during the year	0.149	(42,750 )	0.134	(97,250 )
Exercised duringtheyear	–	–	0.128	(23,500 )
At 31 December	0.149	276,500	0.149	319,250

• SCF ceased to be a subsidiary of the Group after the Distribution as stated in note 12 to the financial statements.

South China Holdings Limited Annual Report 2008

106

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

Share option scheme of SCF (continued)

The following share options were outstanding under the share option scheme of SCF during the year:

Name or category of participant Directors Ms. Cheung Choi Ngor Mr. Richard Howard Gorges Mr. Ng Yuk Fung, Peter	Number of share options Outstanding Subscription Outstanding as Granted Exercised Lapsed Cancelled as at price per at 1 January during during during during 31 December Date of grant Exercise period share 2008 the year the year the year the year 2008 share options *of share options HK$ (DD/MM/YYYY) (DD/MM/YYYY) 10,000,000 – – – – 10,000,000 16/03/2006 16/03/2008 – 15/03/2010 0.128 10,000,000 – – – – 10,000,000 16/03/2006 16/03/2009 – 15/03/2011 0.128 10,000,000 – – – – 10,000,000 16/03/2006 16/03/2007 – 15/03/2009 0.128 10,000,000 – – – – 10,000,000 16/03/2006 16/03/2008 – 15/03/2010 0.128 10,000,000 – – – – 10,000,000 16/03/2006 16/03/2009 – 15/03/2011 0.128 10,000,000 – – – – 10,000,000 16/03/2006 16/03/2007 – 15/03/2009 0.128 10,000,000 – – – – 10,000,000 16/03/2006 16/03/2008 – 15/03/2010 0.128 10,000,000 – – – – 10,000,000 16/03/2006 16/03/2009 – 15/03/2011 0.128 6,666,667 – – – – 6,666,667 26/04/2006 26/04/2007 – 25/04/2009 0.128 6,666,667 – – – – 6,666,667 26/04/2006 26/04/2008 – 25/04/2010 0.128 6,666,666 – – – – 6,666,666 26/04/2006 26/04/2009 – 25/04/2011 0.128 100,000,000 – – – – 100,000,000 1,000,000 – – – – 1,000,000 10/07/2007 10/07/2008 – 09/07/2010 0.172 1,000,000 – – – – 1,000,000 10/07/2007 10/07/2009 – 09/07/2011 0.172 1,000,000 – – – – 1,000,000 10/07/2007 10/07/2010 – 09/07/2012 0.172 3,000,000 – – – – 3,000,000 13,500,000 – – – – 13,500,000 16/03/2006 16/03/2007 – 15/03/2009 0.128 25,000,000 – – (2,000,000) – 23,000,000 16/03/2006 16/03/2008 – 15/03/2010 0.128 25,000,000 – – (2,000,000) – 23,000,000 16/03/2006 16/03/2009 – 15/03/2011 0.128 6,666,667 – – – – 6,666,667 26/04/2006 26/04/2007 – 25/04/2009 0.128 6,666,667 – – – – 6,666,667 26/04/2006 26/04/2008 – 25/04/2010 0.128 6,666,666 – – – – 6,666,666 26/04/2006 26/04/2009 – 25/04/2011 0.128 27,083,328 – – (4,916,666) – 22,166,662 12/04/2007 12/04/2008 – 11/04/2010 0.161 27,083,328 – – (4,916,666) – 22,166,662 12/04/2007 12/04/2009 – 11/03/2011 0.161 27,083,344 – – (4,916,668) – 22,166,676 12/04/2007 12/04/2010 – 11/04/2012 0.161 1,000,000 – – – – 1,000,000 17/04/2007 17/04/2008 – 16/04/2010 0.161 1,000,000 – – – – 1,000,000 17/04/2007 17/04/2009 – 16/04/2011 0.161 1,000,000 – – – – 1,000,000 17/04/2007 17/04/2010 – 16/04/2012 0.161 1,333,334 – – – – 1,333,334 23/04/2007 23/04/2008 – 22/04/2010 0.161 1,333,334 – – – – 1,333,334 23/04/2007 23/04/2009 – 22/04/2011 0.161 1,333,332 – – – – 1,333,332 23/04/2007 23/04/2010 – 22/04/2012 0.161 4,833,333 – – – – 4,833,333 10/07/2007 10/07/2008 – 09/07/2010 0.172 4,833,333 – – – – 4,833,333 10/07/2007 10/07/2009 – 09/07/2011 0.172 4,833,334 – – – – 4,833,334 10/07/2007 10/07/2010 – 09/07/2012 0.172 2,000,000 – – – – 2,000,000 10/09/2007 10/09/2008 – 09/09/2010 0.227 2,000,000 – – – – 2,000,000 10/09/2007 10/09/2009 – 09/09/2011 0.227 2,000,000 – – – – 2,000,000 10/09/2007 10/09/2010 – 09/09/2012 0.227 8,000,000 – – (8,000,000) – – 17/10/2007 17/10/2008 – 16/10/2010 0.227 8,000,000 – – (8,000,000) – – 17/10/2007 17/10/2009 – 16/10/2011 0.227 8,000,000 – – (8,000,000) – – 17/10/2007 17/10/2010 – 16/10/2012 0.227 216,250,000 – – (42,750,000) – 173,500,000 319,250,000 – – (42,750,000) – 276,500,000
Consultants In aggregate
Employees In aggregate

South China Holdings Limited Annual Report 2008

107

Notes to the Financial Statements

31 December 2008

44. SHARE OPTION SCHEMES (continued)

Share option scheme of SCF (continued)

Notes:

• All share options granted are subject to a vesting period and become exercisable in the following manner:

From the date of grant of share options	Exercisable percentage
	%
Within 12 months	Nil
13th month – 36th month	331/3
25th month – 48th month	331/3
37th month – 60th month	331/3

The unexercised share options of each exercise period shall lapse at the end of the respective exercise period.

** The subscription price of the share options is subject to adjustment in the case of rights or bonus issues, or other alteration in the capital structure of SCF.

No share options have been granted, exercise or cancelled during the year ended 31 December 2008. The fair value of the share options of SCF granted during the year ended 31 December 2007 was HK$15,760,000. SCF recognised a share option expense of HK$4,383,000 (2007: HK$1,951,000) during the year ended 31 December 2008.

The fair value of equity-settled share options granted during the year ended 31 December 2007 was estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

	2007
Dividend yield (%)	1.19
Average expected volatility (%)	77.04
Average historical volatility (%)	77.04
Average risk-free interest rate (%)	4.11
Expected life of options (year)	3-5
Weighted average shareprice(HK$)	0.155

The expected life of the options is based on the contractual life and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

108 South China Holdings Limited Annual Report 2008

Notes to the Financial Statements

31 December 2008

45. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on pages 30 to 31 of the financial statements.

(b) Company

Company
	Share	Capital		Share
	premium	redemption	Contributed	option	Retained
	account	reserve	surplus	reserve	profits	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2007	253,234	56	286,429	–	194,613	734,332
Equity-settled share option
arrangements	–	–	–	11,138	–	11,138
Profit for the year	–	–	–	–	36,696	36,696
Interim 2007 dividend	–	–	–	–	(25,528 )	(25,528 )
Proposed final 2007 dividend	–	–	–	–	(25,528)	(25,528)
At 31 December 2007	253,234	56	286,429	11,138	180,253	731,110
Equity-settled share option
arrangements	–	–	–	27,840	–	27,840
Loss for the year	–	–	–	–	(16,568 )	(16,568 )
Effect in distribution of spiece	–	–	–	–	(112,429 )	(112,429 )
Proposed final 2008 dividend	–	–	–	–	(2,006)	(2,006)
At 31 December 2008	253,234	56	286,429	38,978	49,250	627,947

The contributed surplus represents the difference between the consolidated shareholders’ funds of the subsidiaries at the date on which they were acquired by the Company and the nominal value of the Company’s shares issued for the acquisition at the time of the group reorganisation in 1992.

The Company’s reserves available for distribution represent the share premium account, contributed surplus, share option reserve and retained profits. Under the Companies Law (Revised) Chapter 22 of the Cayman Islands, the share premium of the Company is available for paying distributions or dividends to shareholders subject to the provisions of its Memorandum or Articles of Association and provided that immediately following the distribution or dividend, the Company is able to pay its debts as they fall due in the ordinary course of business. Accordingly, the Company’s reserves available for distribution to shareholders as at 31 December 2008 amounted to approximately HK$629,897,000 (2007: HK$756,582,000).

South China Holdings Limited 109 Annual Report 2008

Notes to the Financial Statements

31 December 2008

46. BUSINESS COMBINATIONS

On 15 January 2008, the Subsidiary of SCC completed the following acquisitions:

• (a) acquired a 85% interest in Nanjing Hydraulic Press from the holding company of a joint venture partner of SC Sanda, a former 51%-owned associate. Nanjing Hydraulic Press holds certain properties, and is engaged in property investment and manufacturing of hydraulic press. The purchase consideration for the acquisition was in the form of cash of RMB1,994,000 which was paid in December 2007. Subsequent to the acquisition, the Subsidiary of SCC has control on SC Santa with an effective interest of 92.7%.

• (b) acquired the entire interest in Nanjing Compressor from the holding company of a joint venture partner of SC Hua Guan, a former 51%-owned associate. Nanjing Compressor holds certain properties, and is engaged in property investment and manufacturing of compressor. The purchase consideration for the acquisition was in the form of cash of RMB28,528,000 which was paid in December 2007. Subsequent to the acquisition, the SC Hua Guan becomes a wholly-owned subsidiary of the Subsidiary of SCC.

• (c) acquired the entire interest in Nanjing Power Machinery from the holding company of a joint venture partner of SC Sanda, a former 51%-owned associate. Nanjing Power Machinery holds certain properties, and is engaged in property investment and trading of flowers. The purchase consideration for the acquisition was in the form of cash of RMB25,261,000 which was paid in December 2007. Subsequent to the acquisition, SC Sanda becomes a wholly-owned subsidiary of the Subsidiary of SCC.

South China Holdings Limited Annual Report 2008

110

Notes to the Financial Statements

31 December 2008

46. BUSINESS COMBINATIONS (continued)

The fair values of the identifiable assets and liabilities of Nanjing Compressor, Nanjing Power Machinery and Nanjing Hydraulic Press (the “Acquired Entities”) as at the dates of acquisition and their corresponding carrying amounts immediately before their acquisitions were as follows:

		Fair value	Fair value
Fair value		recognised	recognised
recognised		on	on			Carrying	Carrying
	on	acquisition	acquisition		Carrying	amount	amount
acquisition		of Nanjing	of Nanjing		amount	Nanjing	Nanjing
of Nanjing		Power	Hydraulic		Nanjing	Power	Hydraulic
Compressor		Machinery	Press	Total	Compressor	Machinery	Press
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Property, plant and equipment (note 16)	340	5,853	33,045	39,238	2,002	2,274	23,377
Investment properties (note 17)	110,959	155,902	137,267	404,128	26,031	43,610	34,697
Prepaid land lease payments (note 18)	–	10,196	16,065	26,261	–	10,790	4,755
Construction in progress (note 19)	–	–	1,352	1,352	–	–	1,352
Interests in associates	11,929	–	–	11,929	11,929	–	–
Available-for-sale financial assets	471	–	–	471	471	–	–
Inventories	4,414	26	6,285	10,725	9,538	26	7,464
Financial assets at fair value
through profit or loss	–	–	1,599	1,599	–	–	1,599
Trade receivables	707	16	5,929	6,652	4,273	16	8,420
Prepayments, deposits and
other receivables	9,751	127	720	10,598	22,275	338	1,152
Amounts due from fellow
subsidiaries	2,083	–	–	2,083	2,083	–	–
Amount due from/(to) a minority
shareholder	6,781	(3,958 )	(21,371 )	(18,548 )	6,781	(3,958 )	(21,371 )
Cash and bank balances	4,449	1,523	226	6,198	4,449	1,523	226
Trade payables	(10,422 )	(35 )	(34,111 )	(44,568 )	(10,422 )	(35 )	(34,111 )
Other payables and accruals	(12,644 )	(17,189 )	(33,151 )	(62,984 )	(12,644 )	(17,189 )	(33,151 )
Amount due to a fellow subsidiary	(3,649 )	(1,615 )	(15,159 )	(20,423 )	(3,649 )	(1,615 )	(15,159 )
Amount due to an intermediate
holding company	(4,115 )	–	–	(4,115 )	(4,115 )	–	–
Interest-bearing bank and
other borrowings	–	(652 )	(543 )	(1,195 )	–	(652 )	(543 )
Tax payable	(5,560 )	–	–	(5,560 )	(5,560 )	–	–
Provision for severance payments
(note 40)	(8,327 )	(11,196 )	(12,333 )	(31,856 )	(8,327 )	(11,196 )	(12,333 )
Other non-current liabilities	(570 )	–	(7,602 )	(8,172 )	(570 )	–	(7,602 )
Deferred tax liabilities (note 41)	(21,232 )	(28,073 )	(25,642 )	(74,947 )	–	–	–
Minorityinterests	(489)	–	(10,971)	(11,460)	(489)	–	4,811
	84,876	110,925	41,605	237,406	44,056	23,932	(36,417)
Excess over the cost of business
combinations	(49,531)	(83,833)	(39,467)	(172,831)
	35,345	27,092	2,138	64,575
Satisfied by:
Prepayment for acquisition of
subsidiaries	30,595	27,092	2,138	59,825
Reclassification from interests in associate
to interests in subsidiaries	4,750	–	–	4,750
	35,345	27,092	2,138	64,575

South China Holdings Limited Annual Report 2008

111

31 December 2008

Notes to the Financial Statements

46. BUSINESS COMBINATIONS (continued)

An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries is as follows:

		Nanjing	Nanjing
	Nanjing	Power	Hydraulic
	Compressor	Machinery	Press	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Cash and bank balances acquired and net
inflow of cash and cash equivalents in respect
of the acquisition of a subsidiaries	4,449	1,523	226	6,198

The Acquired Entities’ investment properties, prepaid land lease payments and leasehold buildings were revalued on 15 January 2008 by BMI Appraisals Limited, on an open market, existing use basis.

• (i) Since the acquisition on 15 January 2008, Nanjing Compressor’ contributed a loss of HK$5,731,000 to the Group’s consolidated loss for the year ended 31 December 2008.

• (ii) Since the acquisition on 15 January 2008, Nanjing Power Machinery contributed a loss of HK$5,252,000 to the Group’s consolidated loss for the year ended 31 December 2008.

• (iii) Since the acquisition on 15 January 2008, Nanjing Hydraulic Press contributed a loss of HK$9,320,000 to the Group’s consolidated loss for the year ended 31 December 2008.

In prior year, the Group had the following business combinations:

On 16 April 2007, the Subsidiary of SCC acquired an 85% interest in 南京電力電容器有限公司 (“Power Capacitors”) from a holding company of the joint venture partner of a former 51%-owned associate. Power Capacitors is engaged in property investment and manufacturing of power capacitors. The purchase consideration for the acquisition was in the form of cash of RMB1,211,500. Subsequent to the acquisition, the Subsidiary of SCC has control on Nanjing South China Power Capacitors Co. Ltd, the above mentioned former associate with an effective interest of 92.7% held by SCC.

On 17 April 2007, the Group acquired the entire interest in Grandbase Universal Limited (“Grandbase”) at the cash consideration of HK$2. Grandbase is engaged in property investment and development.

South China Holdings Limited Annual Report 2008

112

Notes to the Financial Statements

31 December 2008

46. BUSINESS COMBINATIONS (continued)

The fair values of the identifiable assets and liabilities of Power Capacitors and Grandbase as at the dates of acquisition and their corresponding carrying amounts immediately before their acquisitions were as follows:

	Fair value
	recognised	Fair value
	on	recognised		Carrying
	acquisition		on	amount	Carrying
	of Power	acquisition		Power	amount
	Capacitors	of Grandbase		Capacitors	Grandbase
	HK$’000	HK$’000		HK$’000	HK$’000
Property, plant and equipment (note 16)	5,056		–	5,056	–
Investment properties (note 17)	35,270		–	30,887	–
Prepaid land lease payments (note 18)	329		–	329	–
Available-for-sale financial assets	20		–	20	–
Inventories	512		–	512	–
Trade receivables	548		–	548	–
Prepayments, deposits and
other receivables	731		–	731	–
Amount due from an equity holder	2,752		–	2,752	–
Amount due from a subsidiary	–	2,521		–	2,521
Amount due from a minority shareholder	246		–	246	–
Cash and bank balances	54		3	54	3
Trade payables	(1,622 )		–	(1,622 )	–
Other payables and accruals	(10,726 )		–	(10,726 )	–
Amount due to a fellow subsidiary	(102 )		–	(102 )	–
Amount due to an intermediate
holding company	(2,033 )		–	(2,033 )	–
Amount due to a related party	–	(2,897 )		–	(2,897 )
Interest-bearing bank and other borrowings	(17,789 )		–	(17,789 )	–
Tax payable	(3 )		–	(3 )	–
Provision for severance payments (note 40)	(7,500 )		–	(7,500 )	–
Minorityinterests	130		–	130	–
	5,873	(373 )		1,490	(373 )
Goodwill on acquisition(note 23)	1,637	373
	7,510	–
Satisfied by:
Cash	1,231	–
Reclassification from interests in associate
to interests in subsidiary	6,279	–
	7,510	–

South China Holdings Limited Annual Report 2008

113

31 December 2008

Notes to the Financial Statements

46. BUSINESS COMBINATIONS (continued)

An analysis of the net outflow/(inflow) of cash and cash equivalents in respect of the acquisition of subsidiaries is as follows:

	Power Capacitors	Grandbase
	HK$’000	HK$’000
Cash consideration	1,231	–
Cash and bank acquired	(54)	(3 )
Net outflow/(inflow) of cash and cash equivalents
in respect of the acquisition of subsidiaries	1,177	(3 )

• (a) Power Capacitors’ investment properties, prepaid land lease payments and leasehold buildings were revalued on 31 December 2007 by BMI Appraisals Limited on an open market, existing use basis.

• Since the acquisition on 16 April 2007, Power Capacitors contributed a profit of HK$3,266,000 to the Group’s consolidated profit for the year ended 31 December 2007.

• (b) Since the acquisition on 17 April 2007, Grandbase contributed a loss of HK$518,000 to the Group’s consolidated profit for the year ended 31 December 2007.

47. DISPOSAL OF INTERESTS IN SUBSIDIARIES

In February 2008, the Group disposed of its entire interest in South China Media Limited (“SCM”) and the shareholders’ loan to Broaden Base Investments Limited (“BBIL”), a BVI incorporated company of which a director of the Company is the controlling shareholder, for a consideration of HK$30 million payable in cash. Details of which are disclosed in the circular of the Company dated 16 January 2008.

Further to note 12 to the financial statements, the Group disposed of its interest in SCF after the Distribution in December 2008.

During the year, SCC disposed of its entire interest in Sino Cosmo International Ltd. (“Sino Cosmo”) and 南 京大地水射流有限公司“水射流”( ) to outside third parties.

In January 2007, the Group disposed of its entire interest in NIG and a 65% interest in Nority Limited (collectively the “Nority Group”), a wholly-owned subsidiary of NIG to an independent third party for a cash consideration of HK$102 million. NIG is a listed company on the Main Board of the Stock Exchange and is engaged in the manufacturing of shoes and footwear products.

South China Holdings Limited Annual Report 2008

114

Notes to the Financial Statements

31 December 2008

47. DISPOSAL OF INTERESTS IN SUBSIDIARIES (continued)

			2008			2007
	Sino Cosmo	水射流	SCM	SCF	Total	NIG
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Net assets/(liabilities) disposed of:
Property, plant and equipment (note 16)	–	–	10,040	3,964	14,004	20,566
Prepaid land lease payments (note 18)	–	–	–	–	–	3,119
Goodwill (note 23)	–	–	–	–	–	13,573
Investment properties (note 17)	–	–	–	161,700	161,700	–
Intangible assets (note 24)	–	–	–	836	836	–
Available-for-sale financial assets	–	2,435	–	1,570	4,005	228
Loans receivable	–	–	–	90,659	90,659	–
Deferred tax assets (note 41)	–	–	–	10	10	–
Financial assets at fair value
through profit or loss	–	–	–	80,060	80,060	–
Trade and other receivables	13	1,059	38,844	147,652	187,568	16,373
Due from related companies	–	–	4,940	–	4,940	–
Pledged deposits	–	–	–	5,750	5,750	–
Cash held on behalf of clients	–	–	–	319,071	319,071	–
Cash and bank balances	–	–	7,327	127,911	135,238	21,935
Inventories	–	–	–	–	–	28,916
Interest-bearing bank and
other borrowings	–	–	(24,658 )	(186,723 )	(211,381 )	–
Client deposits	–	–	–	(308,761 )	(308,761 )	–
Trade, accruals and
other payables	(9 )	(204 )	(110,172 )	(110,563 )	(220,948 )	(40,713 )
Tax payable	–	–	–	–	–	(1,005 )
Due to related companies	–	–	(22,744 )	–	(22,744 )	–
Deferred tax liabilities (note 41)	–	–	–	(5,998 )	(5,998 )	–
Minority interests	–	–	–	(89,678 )	(89,678 )	(1,130 )
Release of available-for-sale financial
asset revaluation reserve	–	–	–	(881 )	(881 )	–
Release of share option reserve	–	–	–	(12,660 )	(12,660 )	–
Release of capital reserve	–	–	–	(1,165 )	(1,165 )	–
Release of accumulated losses	–	–	–	28,915	28,915	–
	4	3,290	(96,423 )	251,669	158,540	61,862
Exchange reserve realised	–	(515 )	–	–	(515 )	–
Gain/(loss) on disposal of subsidiaries	996	(677 )	34,530	–	34,849	65,956
Excess of the net assets value over
the fair value of SCF	–	–	–	(124,031)	(124,031)	–
	1,000	2,098	(61,893)	127,638	68,843	127,818

South China Holdings Limited Annual Report 2008

115

Notes to the Financial Statements

31 December 2008

47. DISPOSAL OF INTERESTS IN SUBSIDIARIES (continued)

			2008			2007
	Sino Cosmo	水射流	SCM	SCF	Total	NIG
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Satisfied by:
Cash consideration	1,000	2,098	30,000	–	33,098	101,905
Non-interest-bearing loan to NIG	–	–	–	–	–	10,000
Amount due from NIG	–	–	–	–	–	14,988
Interests in associates	–	–	–	–	–	925
Liabilities of SCM undertaken
by the Group	–	–	(69,344 )	–	(69,344 )	–
Assignment of shareholders’ loan	–	–	(17,549 )	–	(17,549 )	–
Liabilities undertaken by the
controlling shareholder of BBIL	–	–	(5,000 )	–	(5,000 )	–
Special interim distribution(note 13)	–	–	–	127,638	127,638	–
	1,000	2,098	(61,893)	127,638	68,843	127,818

An analysis of the net inflow/(outflow) of cash and cash equivalents in respect of the disposal of interests in subsidiaries is as follows:

			2008			2007
	Sino Cosmo	水射流	SCM	SCF	Total	NIG
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Cash consideration	1,000	2,098	30,000	–	33,098	101,905
Liabilities of SCM settled by the Group	–	–	(69,344 )	–	(69,344 )	–
Cash and bank balances disposed of	–	–	(7,327)	(133,661)	(140,988)	(21,935 )
Net inflow/(outflow) of cash and
cash equivalents in respect of
the disposal of subsidiaries	1,000	2,098	(46,671)	(133,661)	(177,234)	79,970

Prior to the disposal, SCF contributed a loss of HK$149,736,000 to the Group’s consolidated loss for the year ended 31 December 2008.

Prior to the disposal, the contribution from SCM and its subsidiaries, Sino Cosmo, 水射流 and the Nority Group to the Group’s consolidated results for the year ended 31 December 2008 and 31 December 2007, respectively, were insignificant.

48. NOTES TO CONSOLIDATED CASH FLOW STATEMENT

Major Non-cash Transactions

• (i) During the year ended 31 December 2008, promissory notes of HK$1,120,000 (2007: HK$95,959,000) were issued for the acquisition of an additional equity interest of 0.79% (2007: 67.66%) in SCL.

• (ii) As further detailed in notes 12 and 47 to these financial statements, the Company disposed of SCF through the Distribution on 2 December 2008.

South China Holdings Limited Annual Report 2008

116

Notes to the Financial Statements

31 December 2008

49. CONTINGENT LIABILITIES

At the balance sheet date, contingent liabilities not provided for in the financial statements were as follows:

	Group		Comapny
	2008	2007	2008	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Guarantees given to banks in connection
with banking facilities granted to:
FWIL	396,000	210,000	–	–
Nority	5,300	20,000	–	–
Subsidiaries	–	–	160,500	192,500
Undertaking given to a former associate for
bankingfacilities utilised bythe former associate	13,526	13,526	–	–
	414,826	243,526	160,500	192,500

As at 31 December 2008, the banking facilities granted to the subsidiaries subject to guarantees given to the banks by the Company were utilised to the extent of approximately HK$111,366,000 (2007: HK$118,629,000).

The banking facilities guaranteed by the Group to FWIL and Nority were utilised to the extent of approximately HK$379,800,000 (2007: HK$191,850,000) and HK$14,700,000 (2007: HK$11,714,000), respectively, of which HK$14,700,000 (2007: Nil) has been provided for. Further details are set out in note 22 to the financial statements.

50. PLEDGES OF ASSETS

At the balance sheet date, certain of the Group’s assets were pledged to secure the banking facilities granted to the Group and are analysed as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Net book values of the pledged assets:
Investment properties	478,237	633,719
Properties under development	154,632	–
Property, plant and machinery	78,866	81,551
Inventories	152,917	144,027
Financial assets at fair value through profit or loss	–	127,096
Bank deposits	14,342	13,230
Trade receivables	–	17,021
	878,994	1,016,644

South China Holdings Limited Annual Report 2008

117

Notes to the Financial Statements

31 December 2008

51. OPERATING LEASES ARRANGEMENTS

(a) As lessor

The Group leases its investment properties (note 17 to the financial statements) under operating lease arrangements, with leases negotiated for terms ranging from one to ten 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 31 December 2008, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Within one year	49,506	32,286
In the second to fifth years, inclusive	89,667	74,216
Over fiveyears	10,169	17,279
	149,342	123,781

(b) As lessee

The Group leases certain of its factory premises and office properties under operating lease arrangements. Leases for these factory premises are negotiated for terms ranging from one to ten years, and those for office properties are for terms ranging from one to two years.

At 31 December 2008, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

	Group
	2008	2007
	HK$’000	HK$’000
Within one year	15,053	19,574
In second to fifth years, inclusive	33,387	41,797
Over fiveyears	55,219	61,492
	103,659	122,863

South China Holdings Limited Annual Report 2008

118

Notes to the Financial Statements

31 December 2008

52. CAPITAL COMMITMENTS

In addition to the operating lease commitments detailed in note 51(b) above, the Group had the following capital commitments at the balance sheet date:

	Group
	2008	2007
	HK$’000	HK$’000
Contracted, but not provided for:
Machinery and equipment	5,699	9,089
Land use rights	3,099	2,927
Construction in progress	–	18,588
Investment in equityinterest	–	15,977
	8,798	46,581
Authorised, but not contracted for:
Property,plant and equipment	478	1,702

At the balance sheet date, the Company did not have any significant capital commitments (2007: Nil).

53. RELATED PARTY TRANSACTIONS

• (a) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following transactions with related parties during the year:

Name of related party	Nature of transaction	Notes	2008	2007
			HK$’000	HK$’000
Associate	Interest income	(ii)	(40)	(1,062)
Associate	Rental income	(iii)	(2,981)	(2,719)
Honbridge Management	Administrative fee
Limited*	income received	(i)	–	(985 )
	Colour separation and photo
	processing income received	(i)	–	(425 )
	Rental income received	(i)	–	(306 )
South China Media	Photo processing income	(i)	193	–
Limited/*	Rental income	(iii)	(3,483)	–
Directors and companies	Commission, interest and
in which certain	brokerage fee income received
directors have	from directors and companies
beneficial interests	in which certain directors have
	beneficial interests	(iv)	(837)	(7,453 )

South China Holdings Limited Annual Report 2008

119

Notes to the Financial Statements

31 December 2008

53. RELATED PARTY TRANSACTIONS (continued)

(a) (continued)

• The directors of the Company, are also the directors of the related companies.

• ** The related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. Further details of the transactions are disclosed in the section headed “Connected and Continuing Connected Transactions” in the Report of the Directors.

Notes:

• (i) These transactions were carried out on terms determined and agreed by both parties.

• (ii) The interest was charged at a rate of 0.5% (2007: 0.5%) per annum on the outstanding advances to FWIL.

• (iii) The rental income arose from the letting of properties of the Group to an associate and SCM in accordance with the tenancy agreements.

• (iv) The commission and brokerage income relates to the Group’s securities broking business and was calculated by reference to commission and brokerage charged to third party clients. The interest income relates to the Group’s margin financing business and was calculated at 4% over the Hong Kong Dollar Prime Rate (2007: 4% over the Hong Kong Dollar Prime Rate) per annum.

(b) Other transactions with related parties:

• (i) During the year, the Group issued an additional promissory note with a principal amount of HK$1,120,000 (2007: HK$95,959,000) to a substantial shareholder of the Group in respect of acquisition of an additional equity interest of 0.79% (2007: 67.66%) in a subsidiary, SCL. Details are set out in note 42 to the financial statements.

• (ii) Details of the guarantees given by the Group to FWIL and Nority are set out in notes 22 and 49 to the financial statements.

(c) Outstanding balances with related parties:

Details of the balances with related parties at the balance sheet date are included in notes 22, 37, 38 and 39 to the financial statements.

(d) Compensation of key management personnel of the Group:

The executive directors and the non-executive directors are the key management personnel of the Group. Details of their remuneration are disclosed in note 8 to the financial statements.

South China Holdings Limited Annual Report 2008

120

Notes to the Financial Statements

31 December 2008

54. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the balance sheet date are as follows:

2008		Group
Financial assets
	Financial assets at		Available-
	fair value through		for-sale
	profit or loss	Loans and	financial
	– held for trading	receivables	assets	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Advances to associates (note 22)	–	41,748	–	41,748
Available-for-sale financial assets	–	–	44,741	44,741
Trade and other receivables	–	410,950	–	410,950
Financial assets at fair value through
profit or loss	10,945	–	–	10,945
Due from affiliates	–	457	–	457
Advances to minority shareholders
of subsidiaries	–	27,480	–	27,480
Pledged bank deposits	–	14,342	–	14,342
Cash and cash equivalents	–	193,072	–	193,072
	10,945	688,049	44,741	743,735

Financial liabilities

Financial liabilities
	Financial
	liabilities at
	amortised
	cost
	HK$’000
Trade and other payables	644,860
Interest-bearing bank and other borrowings	769,451
Advances from shareholders	7,876
Advances from minority shareholders of subsidiaries	51,274
Promissory notes	97,079
Due to affiliates	2,180
	1,572,720

South China Holdings Limited 121 Annual Report 2008

Notes to the Financial Statements

31 December 2008

54. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

The carrying amounts of each of the categories of financial instruments as at the balance sheet date are as follows (continued) :

2007 Financial assets

Financial assets
		Group
	Financial assets		Available-
	at fair value through		for-sale
	profit or loss	Loans and	financial
	– held for trading	receivables	assets	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Advances to associates (note 22)	–	23,255	–	23,255
Available-for-sale financial assets	–	–	38,990	38,990
Trade and other receivables	–	578,052	–	578,052
Loans receivable	–	236,624	–	236,624
Financial assets at fair value through
profit or loss	241,036	–	–	241,036
Due from affiliates	–	239,203	–	239,203
Advances to minority shareholders
of subsidiaries	–	14,105	–	14,105
Pledged bank deposits	–	18,730	–	18,730
Cash held on behalf of clients	–	538,546	–	538,546
Cash and cash equivalents	–	281,881	–	281,881
	241,036	1,930,396	38,990	2,210,422

Financial liabilities
	Financial
	liabilities at
	amortised
	cost
	HK$’000
Client deposits	518,718
Trade and other payables	793,015
Interest-bearing bank and other borrowings	826,416
Advances from shareholders	14,529
Advances from minority shareholders of subsidiaries	56,970
Promissory notes	95,959
Due to affiliates	13,207
	2,318,814

South China Holdings Limited Annual Report 2008

122

Notes to the Financial Statements

31 December 2008

54. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

The carrying amounts of each of the categories of financial instruments as at the balance sheet date are as follows (continued) :

Company

Financial assets
	Loans and receivables
	2008	2007
	HK$’000	HK$’000
Due from a subsidiary (note 21)	147,788	286,043
Cash and bank balances	108	141
	147,896	286,184
Financial liabilities
	At amortised cost
	2008	2007
	HK$’000	HK$’000
Otherpayables	61	11,638

55. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise bank loans and overdrafts, other interest-bearing loans, equity securities, finance leases, and cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk, liquidity risk and equity price risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s net debt obligations with a floating interest rate. The majority of the bank borrowings bear interest at interest rates with reference to the HIBOR whereas loans to customers bear interest at interest rates with reference to the prime rate. As the prime rate in Hong Kong basically changes in line with the HIBOR, the Group’s exposure to the risk of changes in market interest rates is minimal.

South China Holdings Limited 123 Annual Report 2008

Notes to the Financial Statements

31 December 2008

55. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Interest rate risk (continued)

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate net borrowings).

	Group
		Increase/
		(decrease)
	Increase in	in profit
	basis points	before tax
		HK$’000
2008
RMB	50	112
United States dollar	50	–
HongKongdollar	50	(2,915 )
2007
RMB	50	191
United States dollar	50	(81 )
HongKongdollar	50	(1,419 )

Foreign currency risk

The Group operates in Hong Kong and Mainland China and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Renminbi and United States dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in operations in Mainland China. The directors consider that the exchange rates of the Hong Kong dollar against the Renminbi and United States dollar in the foreseeable future are expected to be relatively stable and the appreciation in Renminbi against Hong Kong dollars is expected to be mild. There is no significant exposure to fluctuations in foreign exchange rates and any related hedges.

The Group has certain investments in operations in Mainland China, whose net assets are exposed to translation risk. Management does not expect any material adverse impact on the foreign exchange fluctuation, as expected and mild appreciation in Renminbi will further benefit the Group’s net assets position in Mainland China.

South China Holdings Limited Annual Report 2008

124

Notes to the Financial Statements

31 December 2008

55. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Foreign currency risk (continued)

The following table demonstrates the sensitivity at the balance sheet date to a reasonably possible change in the Renminbi exchange rate, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities).

	Group
		Increase/
	Change	(decrease)
	in foreign	in profit
	currency rate	before tax
	%	HK$’000
2008
If Hong Kong dollar weakens against:
RMB	5%	(3,396 )
If Hong Kong dollar strengthens against:
RMB	5%	3,396
2007
If Hong Kong dollar weakens against:
RMB	5%	(6,318 )
If Hong Kong dollar strengthens against:
RMB	5%	6,318

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of the Head of Credit Control.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, available-forsale financial assets, equity investments at fair value through profit or loss and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments. The Company is also exposed to credit risk through the granting of financial guarantees, further details of which are disclosed in note 49 to the financial statements.

The Group’s concentration of credit risk is mainly in Hong Kong and Mainland China by geographical location. The Group’s credit risk exposure is spread over a number of counterparties and customers. Hence, it has no significant concentration of credit risk by a single debtor.

Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are disclosed in note 29 to the financial statements.

South China Holdings Limited Annual Report 2008

125

31 December 2008

Notes to the Financial Statements

55. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g., trade receivables) and projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, finance leases and other interest-bearing loans. The Group’s policy is that not more than 80% of borrowings should mature in any 12-month period. 63% of the Group’s debts would mature in less than one year as at 31 December 2008 (2007: 72%) based on the carrying value of borrowings reflected in the financial statements.

The maturity profile of the Group and the Company’s financial liabilities as at the balance sheet date, based on the contractual undiscounted payments, was as follows:

Group			2008
			3 to
		Less than	less than	1 to 5	Over
	On demand	3 months	12 months	years	5 years	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Trade and other payables	74,377	390,049	180,434	–	–	644,860
Interest-bearing bank
and other borrowings	24,344	317,159	146,103	245,929	35,916	769,451
Advances from shareholders	–	–	–	7,876	–	7,876
Advances from minority
shareholders of subsidiaries	2,149	–	19,899	29,226	–	51,274
Promissory notes	–	–	–	97,079	–	97,079
Due to an affiliates	2,180	–	–	–	–	2,180
	103,050	707,208	346,436	380,110	35,916	1,572,720
Group			2007
			3 to
		Less than	less than	1 to 5	Over
	On demand	3 months	12 months	years	5 years	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Client deposits	518,718	–	–	–	–	518,718
Trade and other payables	82,984	700,970	9,061	–	–	793,015
Interest-bearing bank
and other borrowings	36,088	535,207	19,676	154,822	80,623	826,416
Advances from shareholders	–	–	–	14,529	–	14,529
Advances from minority
shareholders of subsidiaries	–	2,128	–	54,842	–	56,970
Promissory notes	–	–	–	95,959	–	95,959
Due to affiliates	–	–	13,207	–	–	13,207
	637,790	1,238,305	41,944	320,152	80,623	2,318,814

126 South China Holdings Limited Annual Report 2008

Notes to the Financial Statements

31 December 2008

55. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Liquidity risk (continued)

Liquidity risk(continued)
Company	Less than	3 months
	2008	2007
	HK$’000	HK$’000
Otherpayables	61	11,638

Equity price risk

The market equity indices for the following stock exchanges, at the close of business of the nearest trading day in the year to the balance sheet date, and their respective highest and lowest points during the year were as follows:

31	December	High/low	31	December	High/low
	2008	2008		2007	2007
Hong Kong – Hang Seng Index	14,387	27,615/		27,813	31,958/
		11,015			18,659

The following table demonstrates the sensitivity to every 10% change in the fair values of the equity investments, with all other variables held constant and before any impact on tax, based on their carrying amounts at the balance sheet date.

	Carrying amount	Change
	of equity	in profit
	investments	before tax
	HK$’000	HK$’000
2008
Investments listed in:
Hong Kong – Held-for-trading	10,945	1,095
2007
Investments listed in:
Hong Kong – Held-for-trading	241,036	24,104

South China Holdings Limited Annual Report 2008

127

Notes to the Financial Statements

31 December 2008

55. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Capital management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No Changes were made in the objective, policies or processes for managing capital during the two years ended 31 December 2008 and 2007.

The Group monitors capital using a gearing ratio, which is net debt divided by capital plus net debt. The Group’s policy is to maintain the gearing ratio below 50%. Net debt includes interest-bearing bank less cash and cash equivalents. Capital includes total equity. The gearing ratios as at the balance sheet dates were as follows:

Group

	2008	2007
	HK$’000	HK$’000
Interest-bearing bank borrowings	768,012	818,719
Less: Cash and cash equivalents	(193,072)	(281,881)
Net debt	574,940	536,838
Capital	1,980,486	2,259,042
Capital and net debt	2,555,426	2,795,880
Gearingratio	22.5%	19.2%

56. COMPARATIVE AMOUNTS

The comparative income statement has been re-presented as if the operation discontinued during the current year had been discontinued at the beginning of the comparative period (note 12).

57. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors of the Company on 21 April 2009.

South China Holdings Limited Annual Report 2008

128

Notes to the Financial Statements

31 December 2008

58. PARTICULARS OF PRINCIPAL SUBSIDIARIES

Particulars of the Company’s principal subsidiaries at 31 December 2008 are as follows:

		Nominal value
	Place of	of issued	Percentage
	incorporation/	ordinary/	of equity
	registration	registered	attributable to	Principal
Name	and operations	share capital	the Company	activities
Chongqing Fortuna	The PRC/	RMB3,330,000	80.80%	Information
Information Technology	Mainland China			technology
Co. Ltd. (note d)				related business
Chongqing South China	The PRC/	RMB20,000,000	60%	Information
Zenith Information	Mainland China			technology
Technology Co. Ltd.				related business
(note d)
Copthorne Holdings Corp.	Republic	US$200	74.78%	Property investment
	of Panama/
	Hong Kong
Eastand Investments Limited	Hong Kong	HK$2	74.78%	Investment holding
Ever Talent Limited*	Hong Kong	HK$1	52.25%	Investment holding
Everwin Toys (Donguan)	The PRC/	HK$25,340,000	74.78%	Manufacturing
Co. Ltd. (note c)	Mainland China			of toys
Glad Light Investment	Hong Kong	HK$10,000	100%	Property investment
Limited
Guang Dong Huaxin Fruit	The PRC/	US$7,500,000	74.78%	Fruit plantation
Development Co. Ltd.	Mainland China
(note c)
Hong Kong Four Seas	Hong Kong	HK$20,800,000 ordinary	100%	Sale of airline tickets
Tours Limited		HK$1,200,000		and provision
		Non-voting		of travel
		deferred (note b)		related services
Jadeland Investment	Hong Kong	HK$2	100%	Property investment
Limited

South China Holdings Limited Annual Report 2008

129

Notes to the Financial Statements

31 December 2008

58. PARTICULARS OF PRINCIPAL SUBSIDIARIES (Continued)

		Nominal value
	Place of	of issued	Percentage
	incorporation/	ordinary/	of equity
	registration	registered	attributable to	Principal
Name	and operations	share capital	the Company	activities
遼寧大發房地產有限責任公司*	The PRC/	RMB202,000,000	41.80%	Real estate
(note d)	Mainland China			development
Micon Limited	Hong Kong	HK$2	74.78%	Investment holding
Nanjing South China	The PRC/	RMB77,550,000	70.02%	Property investment
Dafang Electric Co., Ltd.	Mainland China
(note d)
Nanjing South China Santa	The PRC/	RMB54,900,000	69.28%	Property investment
Machinery Co., Ltd. (note d)	Mainland China
Nanjing South China Hua Guan	The PRC/	RMB61,230,000	74.78%	Property investment
Compressor Ltd. (note d)	Mainland China
Nanjing South China Sanda	The PRC/	RMB18,940,000	74.78%	Property investment
Motor Co., Ltd. (note d)	Mainland China
南京液壓件二廠有限公司	The PRC/	RMB2,345,600	63.56%	Property investment
(note d)	Mainland China
南京第二壓縮機有限公司	The PRC/	RMB16,756,800	74.78%	Property investment
(note c)	Mainland China
南京電機有限公司	The PRC/	RMB25,261,300	74.78%	Property investment
(note c)	Mainland China
南京微分電機有限公司	The PRC/	RMB29,035,500	65.06%	Property investment
(note d)	Mainland China
Nority Development	British Virgin Islands	US$2	74.78%	Property investment
Limited
Prime Prospects Limited	Hong Kong	HK$100,000	52.35%	Property investment
Shenyang Shenglian	The PRC/	RMB4,000,000	70%	Information
Electronic Science &	Mainland China			technology
Technology Ltd. (note d)				related business
Shineway Footwear	Hong Kong	HK$500,000	74.78%	Trading of shoes
Limited
Skychance Group Limited	British Virgin	US$1	74.78%	Investment holding
	Islands

South China Holdings Limited Annual Report 2008

130

Notes to the Financial Statements

31 December 2008

58. PARTICULARS OF PRINCIPAL SUBSIDIARIES (Continued)

		Nominal value
	Place of	of issued	Percentage
	incorporation/	ordinary/	of equity
	registration	registered	attributable to	Principal
Name	and operations	share capital	the Company	activities
South China (China)	Cayman Islands/	HK$53,039,509	74.78%	Investment holding
Limited (Listed on	Hong Kong
Main Board of
Stock Exchange)
South China Industries	British Virgin Islands	US$1,000	74.78%	Investment holding
(BVI) Limited
South China Land Limited*	Cayman Islands/	HK$5,064,983	52.25%	Investment holding
南華置地有限公司	Hong Kong
(Listed on the GEM of
Stock Exchange)
South China Shoes Products	Hong Kong	HK$500,000	74.78%	Trading of shoes
Company Limited
South China Strategic Limited	Hong Kong	HK$308,593,789	74.78%	Investment holding
South China Strategic	Hong Kong	HK$5,000,000	74.78%	Property
Property Development				development
Limited				and investment
				holding
Spark-Inn Investments Limited	Hong Kong	HK$2	74.78%	Property investment
Strategic Finance Limited	Hong Kong	HK$2	74.78%	Provision of
				financing services
Tek Lee Finance And	Hong Kong	HK$287,498,818	100%	Investment
Investment Corporation				holding
Limited
TianJin NanHua Real	The PRC/	RMB43,000,000	51%	Property development
Estate Development	Mainland China
Co. Ltd. (note d)
Tianjin South China Leather	The PRC/	RMB20,516,500	59.82%	Manufacturing
Chemical Products	Mainland China			of leather chemical
Co., Ltd. (note d)				products
Tianjin South China	The PRC/	RMB10,213,600	59.82%	Manufacturing
Leesheng Sporting Goods	Mainland China			of sports
Co., Ltd. (note d)				products
Tianjin South China Shoes	The PRC/	RMB36,100,200	59.82%	Manufacturing of
Products Co., Ltd. (note d)	Mainland China			footwear
				products

South China Holdings Limited Annual Report 2008

131

Notes to the Financial Statements

31 December 2008

58. PARTICULARS OF PRINCIPAL SUBSIDIARIES (Continued)

		Nominal value
	Place of	of issued	Percentage
	incorporation/	ordinary/	of equity
	registration	registered	attributable to	Principal
Name	and operations	share capital	the Company	activities
Wah Heng Toys	The PRC/	US$8,000,000	74.78%	Manufacturing
(Shenzhen) Co., Ltd. (note c)	Mainland China			of toys
Wah Shing Electronics	Hong Kong/	HK$571,500	52.35%	Manufacturing
Company Limited	Mainland China			and trading of toys
Wah Shing Toys	Hong Kong	HK$2 ordinary	74.78%	Trading of toys
Company Limited		HK$3,020,002
		Non-voting
		deferred (note b)
Winfound Investments Limited	Hong Kong	HK$2	100%	Property investment

• Not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

Notes:

• (a) The above principal subsidiaries are all held indirectly by the Company.

• (b) The non-voting deferred shares have no voting rights and practically no entitlement to dividend of profit or distribution on winding up.

• (c) These are wholly-foreign-owned equity enterprises established in the PRC.

• (d) These are Sino-foreign equity joint ventures established in the PRC.

The above summary lists only the subsidiaries of the Group which, in the opinion of the Company’s directors, principally affected the results for the year or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

Save as aforesaid, none of the subsidiaries had any debt securities in issue at any time during the year or at the end of the year.

South China Holdings Limited Annual Report 2008

132

Notes to the Financial Statements

31 December 2008

59. PARTICULARS OF PRINCIPAL ASSOCIATES

Particulars of the Group’s principal associates at 31 December 2008 are as follows:

			Percentage of
	Place of		equity interest
	incorporation	Class of	indirectly held	Principal
Name	and operations	shares held	by the Group	activities
FWIL*	Hong Kong	Ordinary	30%	Property
				investment
Nority Limited*	Hong Kong/	Ordinary	35%	Manufacturing
	Mainland			of footwear
	China			products

The financial statements of the associates are coterminous with those of the Group, except for FWIL which has a financial year end date of 30 June.

The Group’s shareholdings in the associates all comprise equity shares held through wholly-owned subsidiaries of the Company.

The above summary lists only the associates of the Group which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of the other associates would, in the opinion of the directors, result in particulars of excessive length.

• Not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

South China Holdings Limited 133 Annual Report 2008

Summary Financial Information

A summary of the results and of the assets, liabilities and minority interests of the Group for the last five financial years, as extracted from the published audited financial statements, is set out below.

RESULTS

RESULTS
		Year	ended 31 December
	2008	2007	2006	2005	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	4,504,891	4,892,975	4,444,372	4,305,120	3,785,632
Profit/(loss) before tax	(90,569 )	591,990	306,744	212,651	193,367
Tax	(17,657)	(13,758)	(24,648)	(31,796)	(7,432)
Profit/(loss)for theyear	(108,226)	578,232	282,096	180,855	185,935
Attributable to:
Equity holders of the Company	(65,129 )	416,809	205,318	96,574	124,201
Minorityinterests	(43,097)	161,423	76,778	84,281	61,734
	(108,226)	578,232	282,096	180,855	185,935

ASSETS AND LIABILITIES

ASSETS AND LIABILITIES
			At 31 December
	2008	2007	2006	2005	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Total assets	3,899,988	4,794,018	4,126,475	3,027,521	2,773,186
Total liabilities	**(1,919,502) **	(2,534,976)	(2,391,111)	(1,487,028)	(1,405,166)
Total equity	1,980,486	2,259,042	1,735,364	1,540,493	1,368,020
Attributable to:
Equity holders of the Company	1,378,231	1,574,348	1,193,894	972,429	872,403
Minorityinterests	602,255	684,694	541,470	568,064	495,617
	1,980,486	2,259,042	1,735,364	1,540,493	1,368,020

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Details of Properties

A.	INVESTMENT PROPERTIES	INVESTMENT PROPERTIES
	Location		Group’s interest	Existing use
	(1)	Hong Kong
		The Centrium	22.43%	Commercial
		No. 60 Wyndham Street
		Central
		Hong Kong
		Units A, B, C and D on 2nd Floor	74.78%	Industrial and
		Units A, B, C and D on 3rd Floor		carparking
		Units A, B, C and D on 4th Floor
		Unit C on 6th Floor
		Units A and D on 10th Floor
		Units A, B, C and D on 12th Floor
		Unit C and D on 13th Floor
		Car Parking Space Nos. 7, 17, 18 and 19
		and Lorry Parking Space
		Nos 3, 12, 13, 15, 21, 25 and 26
		Wah Shing Centre
		5 Fung Yip Street
		Chaiwan, Hong Kong
		Units J and L on 2nd Floor	74.78%	Industrial and
		Private Car Parking Space		carparking
		Nos. G20 and G22 and
		Lorry Parking Space Nos. L3
		and L4 on Ground Floor
		Kaiser Estate 2nd Phase
		Nos. 47-53 Man Yue Street
		Nos. 20-28 Man Lok Street
		Hunghom, Kowloon, Hong Kong
		Unit A and B, Ground Floor	74.78%	Commercial
		Cheung Wah Industrial Building		and industrial
		Nos. 10-12 Shipyard Lane
		Quarry Bay
		Hong Kong
		1st Floor of Block G	74.78%	Commercial
		Kimberley Mansion		and residential
		No. 15 Austin Avenue
		Tsimshatsui
		Kowloon
		Hong Kong
		Unit 14 on 6th Floor	74.78%	Commercial
		Nan Fung Commercial Centre
		No. 19 Lam Lok Street
		Kowloon Bay, Kowloon
		Hong Kong

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135

Details of Properties

A.	INVESTMENT PROPERTIES(Continued)	INVESTMENT PROPERTIES(Continued)
	Location		Group’s interest	Existing use
	(1)	Hong Kong(Continued)
		Flats A, B, C and D on 1st Floor	74.78%	Commercial
		Fu Fung Building
		Nos. 5-7 Tsing Fung Street
		North Point
		Hong Kong
		Unit A on Ground Floor	74.78%	Commercial
		Mai Luen Industrial Building		and industrial
		Nos. 23-31 Kung Yip Street
		Kwai Chung
		New Territories
		Hong Kong
		2nd Floor	74.78%	Residential
		No. 10A Austin Avenue
		Tsim Sha Tsui
		Kowloon
		Hong Kong
		Units A, B and C on 7th Floor and	74.78%	Commercial
		the three lavatories thereof
		Century House
		Nos. 3-4 Hanoi Road
		Tsim Sha Tsui
		Kowloon
		Hong Kong
		Unit A, B and C on 8th Floor and	74.78%	Commercial
		the three lavatories thereof
		Century House
		Nos. 3-4 Hanoi Road
		Tsim Sha Tsui
		Kowloon
		Hong Kong
		Unit No. 78 on 2nd Floor	74.78%	Commercial
		Units Nos. 4, 5, 6, 7 and 8
		on 3rd Floor
		Houston Centre
		No. 63 Mody Road
		Tsim Sha Tsui
		Kowloon
		Hong Kong
		The Second Floor and External Walls	74.78%	Commercial
		Metropole Building
		Nos. 53-63 Peking Road and
		Nos. 12, 12A, 12B & 12C Hankow Road
		Tsim Sha Tsui
		Kowloon
		Hong Kong

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Details of Properties

A.	INVESTMENT PROPERTIES(Continued)	INVESTMENT PROPERTIES(Continued)
	Location		Group’s interest	Existing use
	(1)	Hong Kong(Continued)
		Unit No 1022 on 10th Floor, Nan Fung Centre	74.78%	Commercial
		Nos. 264-298 Castle Peak Road and
		Nos. 64-98 Sai Lau Kok Road
		Tsuen Wan
		New Territories
		Hong Kong
		Four Seas Jade Centre	74.78%	Commercial
		Nos. 530, 532, 534 and
		536 Canton Road
		Yau Ma Tei
		Kowloon
		Hong Kong
		The Whole of 4th Floor	74.78%	Commercial
		McDonald’s Building
		Nos. 46-54 Yee Wo Street
		Causeway Bay
		Hong Kong
		Ground Floor to 5th Floor (The Whole Block)	74.78%	Residential/
		Nos. 18-20 Ming Fung Street		commercial
		Wong Tai Sin
		Kowloon
		Hong Kong
		Lot Nos. 116-121	100%	Agricultural
		123-126, 127A
		127P.R., 129-135
		136A, 136R. P.
		137, 140, 141A
		141B, 141C, 143
		144, 145, 146A
		146R.P., 148 in
		D.D. No. 236
		Tai Wan Tau
		Clearwater Bay
		New Territories
		Hong Kong
	(2)	Mainland China
		Various buildings and a land parcel located at	65.06%	Commercial
		No. 28 Yunan North Road
		No. 2 Shi Zi Qiao, Gulou District
		Nanjing City, Jiangsu Province
		The PRC

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Details of Properties

A.	INVESTMENT PROPERTIES(Continued)	INVESTMENT PROPERTIES(Continued)
	Location		Group’s interest	Existing use
	(2)	Mainland China(Continued)
		A building and a land parcel located at	65.06%	Commercial
		No. 32 Shi Zi Qiao, Gulou District
		Nanjing City, Jiangsu Province
		The PRC
		Various buildings and two land parcels located at	65.06%	Commercial
		No. 36 Zhe Fang Road
		Baixia District
		Nanjing City
		Jiangsu Province
		The PRC
		Various buildings erected upon	74.78%	Commercial
		a land parcel located at
		No. 166 Yingtian West Road,
		Jianye District, Nanjing City,
		Jiangsu Province,
		the PRC
		A building and	74.78%	Industrial
		a land parcel located at
		No. 178 Baixia Road,
		Baixia Zone, Nanjing City,
		Jiangsu Province,
		the PRC
		4th Floor	74.78%	Commercial
		No. 64 Ertiao Lane
		Baixia District,
		Nanjing City,
		Jiangsu Province,
		the PRC
		Various buildings and	74.78%	Commercial
		two land parcels
		located at No. 104 & 160
		Fenghuang East Road,
		Luhe District,
		Nanjing City,
		Jiangsu Province,
		the PRC
		Various buildings and	74.78%	Commercial
		a land parcel located at
		No. 262 Yuhua West Road,
		Yuhuatai District,
		Nanjing City,
		Jiangsu Province,
		the PRC

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Details of Properties

A.	INVESTMENT PROPERTIES(Continued)	INVESTMENT PROPERTIES(Continued)
	Location		Group’s interest	Existing use
	(2)	Mainland China(Continued)
		Various buildings and	74.78%	Commercial/
		four land parcels		Industrial
		located at No. 145 Yuhua West Road,
		Yuhuatai District, Nanjing City,
		Jiangsu Province,
		the PRC
		Various buildings and	69.28%	Commercial
		a land parcel located
		at No. 160 Honghua Village,
		Honghua Town, Qinhuai District,
		Nanjing City,
		Jiangsu Province,
		the PRC
		A building and	69.28%	Commercial
		land parcel located at
		No. 2 Tuoyuan, Nanhu Street,
		Jianye Zone,
		Nanjing City,
		Jiangsu Province,
		the PRC
		A land parcel located at	63.56%	Commercial
		No. 292 Sheng Zhou Road
		Jianye District
		Nanjing City
		Jiangsu Province
		The PRC
		Various buildings erected upon a land parcel located at	69.28%	Commercial
		No. 292 Sheng Zhou Road
		Jianye District
		Nanjing City
		Jiangsu Province
		The PRC
		Nority Industrial Building
		No. 4 Xiaobian Industrial District	74.78%	Industrial
		Changan Town
		Dougguan City
		Guangdong Province
		The PRC
		Unit C on 15th Floor	74.78%	Commercial
		World Trade Plaza
		Wusi Road
		Fuzhou, Fujian Province
		The PRC

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Details of Properties

A.	INVESTMENT PROPERTIES(Continued)	INVESTMENT PROPERTIES(Continued)
	Location		Group’s interest	Existing use
	(2)	Mainland China(Continued)
		Grand Hotel Four Seas	74.78%	Commercial
		Kai Cheung Da Dao
		Danshui
		Huiyang City, Guangdong Province
		The PRC
		Unit 23B of Tower 2	74.78%	Residential and
		and 16 Car Parking Spaces		carparking
		La SeVilla, Fahuazhen Lu
		Changning District, Shanghai
		The PRC
	(3)	Taiwan
		Unit 2 on Level 15	74.78%	Commercial
		Unit 1 on Level 24 and portion of Basement 2
		No. 303 Zhong Ming Road South
		West District
		Taichung City
		Taiwan
		No. 1-1 Mokeng Lane	74.78%	Industrial
		Mingjian Township
		Nantou County
		Taiwan
		Level 1, Unit 2 on Level 2	74.78%	Commercial and
		One carparking space and		carparking
		one motorcycle parking space
		in Basement 2, No. 28-5 Section 1 Zhiyou Road
		West District
		Taichung City
		Taiwan

B. PROPERTIES UNDER DEVELOPMENT

			Anticipated	Group’s	Approximate
		Stage of	completion	attributable	gross	Approximate
Location	Type	completion	date	interest	floor area	site area
Fortuna Plaza (Formerly known as	Commercial	Superstructure	2009	41.8%	117,200 sq. m.	21,893.5 sq. m.
“South China Landmark Plazza”),		works in progress
a development site located at the
Western side of Zhaoyang Street,
Shenhe District, Sheyang, Liaoaning
Province, the PRC
Relocation project in Zhongjie	Residential	Main body	2009	36.58%	9,956 sq.m.	6,147 sq.m.
		of building

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