Silkwave Inc — Annual Report 2008

Apr 21, 2009

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

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SOUTH CHINA HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 265)

ANNOUNCEMENT OF ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

GROUP RESULTS

The Board of Directors (the “Board”) of South China Holdings Limited (the “Company”) is pleased to announce the consolidated results of the Company and its subsidiaries (collectively the “Group”) for the year ended 31 December 2008 together with comparative figures for the last financial year as follows:

CONSOLIDATED INCOME STATEMENT

Notes Turnover 2 Cost of sales Gross profit Interest income Other income and gains Gain on disposal of assets and investments_(net) _3 Excess over the cost of business combinations 4 Selling and distribution costs 5 Administrative and operating expenses Non-cash equity share option expense provision Change in fair value of assets 6 Profit from operations 2 Finance costs Share of profits and losses of associates Impairment of advances to an associate 7 Profit before tax 8 Tax 9 Profit for the year from Continuing Operations (Loss)/profit for the year from Discontinued Operation 10 (Loss)/profit for the year	2008 HK$'000 4,425,327 (4,055,535) 369,792 1,458 20,769 35,145 172,831 (44,595) (350,494) (49,373) (45,345) 110,188 (24,359) (823) (28,306) 56,700 (15,190) 41,510 (149,736) (108,226)	2007 HK$'000 (Restated) 4,615,990 (4,190,413)
		425,577 4,635 51,781 189,935 - (104,823) (340,125) (23,876) 146,557
		349,661 (26,206) 202,180 (10,500)
		515,135 (12,223)
		502,912 75,320
		578,232

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Notes Attributable to: - Equity holders of the Company - Minority interests Dividends Special interim distribution 10 Interim dividend Proposed final dividend Earnings per share attributable to ordinary equity holders of the Company 11 -Basic (Loss)/profit for the year From continuing operations -Diluted (Loss)/profit for the year From continuing operations	2008 HK$'000 (65,129) (43,097) (108,226) 127,638 - 2,006 HK(3.6)cents HK2.4 cents HK(3.6)cents HK2.4 cents	2007 HK$'000 (Restated) 416,809 161,423
		578,232
		-
		25,528
		25,528
		HK22.9 cents
		HK19.9 cents
		HK22.6 cents
		HK19.9 cents

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CONSOLIDATED BALANCE SHEET

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

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NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings Advances from shareholders Advances from minority shareholders of subsidiaries Other non-current liabilities Promissory notes Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the Company Issued capital Reserves Minority interests Total equity	As at 31 December 2008 2007 HK$'000 HK$'000 281,845 235,445 7,876 14,529 29,226 54,842 85,419 41,259 97,079 95,959 232,079 150,261 733,524 592,295 1,980,486 2,259,042 45,584 45,584 1,332,647 1,528,764 1,378,231 1,574,348 602,255 684,694 1,980,486 2,259,042	As at 31 December 2008 2007 HK$'000 HK$'000 281,845 235,445 7,876 14,529 29,226 54,842 85,419 41,259 97,079 95,959 232,079 150,261 733,524 592,295 1,980,486 2,259,042 45,584 45,584 1,332,647 1,528,764 1,378,231 1,574,348 602,255 684,694 1,980,486 2,259,042
		592,295
		2,259,042
		45,584 1,528,764
		1,574,348 684,694
		2,259,042

Notes:

1. Principal accounting policies and basis of preparation

The accounting policies and basis of preparation adopted in these financial statements are generally consistent with those adopted in the Group’s audited 2007 annual financial statements. The changes in accounting policies as required by accounting standards which came into effect during the year do not have any significant impact on the Group's financial statements.

Merger accounting

In 2007, the Group acquired 67.69% equity interest in South China Land Limited 南華置地有限公司 (the “SCL”) from a substantial shareholder who is also a director of the Company. In early 2008, the Group acquired an additional 0.79% equity interest in SCL from the same substantial shareholder.

The Company and SCL are ultimately controlled by the substantial shareholder of the Company before and after the acquisition. As such, the acquisitions in 2007 and 2008 have been accounted for by merger accounting in accordance with Accounting Guideline 5 Merger Accounting for Common Control Combinations issued by the Hong Kong Institute of Certified Public Accountants as if the acquisitions had occurred on the date when the combining entities first came under the control of the substantial shareholder.

Certain comparative amounts have been adjusted to conform with the current year’s presentation and to show separately comparative amounts in respect of items disclosed in 2007 in relation to the discontinued operation.

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2. Turnover and segmental information

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts; the value of services rendered and gross rental income received and receivable from investment properties during the year.

An analysis of the Group’s turnover and contribution to profit/(loss) from operations by principal activities and geographical location is as follows:

Continuing operations Trading and manufacturing Property investment and development Travel and related services Information technology Agriculture and woods Media and publications Investment holding Discontinued operation Securities and financial services By geographical location#: The People’s Republic of China (“PRC”, including Hong Kong and Macau) United States of America Europe Japan Others	Turnover 2008 2007 HK$’000 HK$’000 (Restated) 1,913,065 2,092,199 48,054 41,057 2,356,116 2,170,221 72,675 80,228 3,423 1,399 31,994 230,886 - - 4,425,327 4,615,990 79,564 276,985 Turnover 2008 2007 HK$’000 HK$’000 (Restated) 2,765,898 2,964,733 1,144,591 1,260,659 372,747 457,341 15,983 11,898 205,672 198,344 4,504,891 4,892,975	Contribution to profit/(loss) from operations 2008 2007 HK$’000 HK$’000 (Restated) 53,955 73,869 (9,960) 188,293 24,606 36,775 952 1,664 (9,617) 125 (993) (44,813) 51,245 93,748 110,188 349,661 (143,480) 82,514 Contribution to profit/(loss) from operations 2008 2007 HK$’000 HK$’000 (Restated) (79,705) 341,475 39,616 61,215 3,169 20,201 121 539 3,507 8,745 (33,292) 432,175	Contribution to profit/(loss) from operations 2008 2007 HK$’000 HK$’000 (Restated) 53,955 73,869 (9,960) 188,293 24,606 36,775 952 1,664 (9,617) 125 (993) (44,813) 51,245 93,748 110,188 349,661 (143,480) 82,514 Contribution to profit/(loss) from operations 2008 2007 HK$’000 HK$’000 (Restated) (79,705) 341,475 39,616 61,215 3,169 20,201 121 539 3,507 8,745 (33,292) 432,175
			432,175

# Turnover by geographical location is determined on the basis of the location where merchandise is delivered and/or service is rendered.

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3. Gain on disposal of assets and investments (net)

Gain on disposal of interests in subsidiaries (Loss) / gain on disposal of financial assets at fair value through profit or loss Gain on disposal of available-for-sale financial assets Gain on disposal of investment properties Gain on disposal of items of property, plant and equipment	2008 HK$’000 34,849 (1,390) - 1,424 262 35,145	2007 HK$’000 (Restated) 65,956 37,023 82,325 - 4,631
		189,935

4. Excess over the cost of business combinations

Please refer to the section “MATERIAL ACQUISITIONS AND DISPOSALS” for details.

5. Selling and distribution costs

The substantial reduction in the selling and distribution costs was accounted for the disposal of the entire interest in South China Media Limited in early 2008. Please refer to the section “MATERIAL ACQUISITIONS AND DISPOSALS” for details.

6. Changes in fair value of assets

Fair value (loss)/gain on investment properties Fair value gain on biological assets Fair value loss on financial assets at fair value through profit or loss	2008 HK$’000 (23,467) 5,893 (27,771) (45,345)	2007 HK$’000 (Restated) 144,530 6,217 (4,190)
		146,557

7. Impairment of advances to an associate

It included a provision for financial guarantee to the associate for HK$14,700,000.

8. Profit before tax

For the year ended 31 December 2008, profit before tax is arrived at after charging depreciation of approximately HK$50,592,000 (2007: HK$52,707,000) in respect of the Group’s properties, plants and equipments.

9. 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. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates based on existing legislation, interpretations and practices in respect thereof.

10. (Loss) / profit for the year from Discontinued Operation and Special interim distribution

In December 2008, the Group disposed of its interest in South China Financial Holdings Limited (“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).

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On 16 December 2008, the Group paid a special dividend distribution 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.

11. Earnings per share attributable to ordinary equity holders of the Company

The calculation of basic and diluted earnings per share are based on:

Earnings Profit attributable to equity holders of the Company, used in the basic earnings per share calculation: From continuing operations From discontinued operation Less: Effect of dilution of dilutive potential ordinary shares of subsidiaries on earnings Profit attributable to equity holders of the Company, used in the diluted earnings per share calculation: From continuing operations From discontinued operation Shares Number of ordinary shares in issue during the year used in the basic and diluted earnings per share calculation	2008 HK$’000 43,872 (109,001) (65,129) - 43,872 (109,001) (65,129) 2008 1,823,401,376	2007 HK$’000 (Restated) 361,983 54,826
		416,809
		(5,618)
		361,983 49,208
		411,191
		2007 1,823,401,376

12. Construction in progress and Properties under development

During the year, the cost of construction in progress for building of the commercial complex in Shenyang, the PRC was reclassified from Construction in progress to Properties under development to signify the intention of the said property being held for sale.

13. Trade receivables

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 period ranging from period of 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 maintains strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by the senior management and would be handled closely by the credit control department.

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

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

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14. Trade 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 aging analysis based on invoice date is as follows:

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

The trade payables are non-interest-bearing and normally settled on 15 to 210-days’ terms (2007: 2 to 210 days).

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 a gain of HK$172.8 million on acquisition.

1. In February 2008, the Group disposed of its entire interest in South China Media Limited 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.

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

1. 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.

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MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

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 and South China Financial Holdings Limited. The details are shown on the section “Material Acquisitions and Disposals”.

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.

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.

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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.

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.

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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.

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.

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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.

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.

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.

– 12 –

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 re-development 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.

CODE ON CORPORATE GOVERNANCE PRACTICE

The Company has complied with the code provisions as set out in the Code on Corporate Governance Practices containing 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.

PURCHASE, SALE OR REDEMPTION OF SECURITIES

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

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FINAL DIVIDEND

The directors recommend the payment of a final dividend of HK0.11 cents (2007: HK$1.4 cents) per share, which amounted to approximately HK$2.0 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. 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.

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.

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 Group's annual results for the year ended 31 December 2008 were 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.

On behalf of the board of South China Holdings Limited Ng Hung Sang Chairman

Hong Kong, 21 April 2009

As at the date of this announcement, the Board comprises (1) Mr. Ng Hung Sang, Ms. Cheung Choi Ngor, Mr. Richard Howard Gorges, and Mr. Ng Yuk Fung, Peter as executive directors; (2) Mr. David Michael Norman and Ms. Ng Yuk Mui, Jessica as non-executive directors; and (3) Mr. David John Blackett, Mrs. Tse Wong Siu Yin, Elizabeth, and Mr. Cheng Hong Kei as independent non-executive directors.

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