Wang On Group Limited — Annual Report 2007

Jul 18, 2007

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WANG ON GROUP LIMITED （宏安集團有限公司） *

(Incorporated in Bermuda with limited liability)

(Stock Code: 1222)

ANNOUNCEMENT OF ANNUAL RESULTS FOR THE YEAR ENDED 31 MARCH 2007

The board (the “Board”) of directors (the “Directors”) of Wang On Group Limited (the “Company”) announces the audited consolidated result of the Company and its subsidiaries (collectively the “Group”) for the year ended 31 March 2007 together with the comparative figures for the previous year as follows:

CONSOLIDATED INCOME STATEMENT

Year ended 31 March 2007

Notes REVENUE 4 Cost of sales Gross profit Other income and gains Selling and distribution costs Administrative expenses Other expenses Finance costs 5 Gain on disposal of subsidiaries Fair value gains on revaluation of investment properties Excess over the cost of acquisition of an additional interest in an associate Share of profits and losses of associates PROFIT BEFORE TAX 6 Tax 7 PROFIT FOR THE YEAR Attributable to: Equity holders of the parent Minority interests DIVIDENDS 8 Additional final dividend for 2006 Interim Proposed final EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT 9 Basic Diluted	2007 HK$’000 499,488 (380,491) 118,997 37,639 (12,536) (70,684) (1,806) (13,828) 2,524 31,548 – 4,578 96,432 (13,254) 83,178 83,170 8 83,178 126 7,073 19,540 26,739 HK1.76 cents HK1.58 cents	2006 HK$’000 395,557 (313,501) 82,056 27,357 (8,202) (53,789) (12,817) (15,252) 1,221 1,822 99,268 (39,601) 82,063 (9,480) 72,583 72,554 29 72,583 4,608 6,736 15,718 27,062 HK1.56 cents HK1.49 cents

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CONSOLIDATED BALANCE SHEET

31 March 2007

Notes NON-CURRENT ASSETS Property, plant and equipment Investment properties Properties under development Goodwill Interests in associates Other intangible asset Loans receivable Rental deposits paid Other deposits Deferred tax assets Total non-current assets CURRENT ASSETS Properties held for sale Properties under development Financial assets at fair value through profit or loss Inventories Trade receivables 10 Prepayments, deposits and other receivables Tax recoverable Pledged deposits Cash and cash equivalents Total current assets CURRENT LIABILITIES Trade payables 11 Other payables and accruals Deposits received and receipts in advance Interest-bearing bank loans Provisions for onerous contracts Tax payable Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	2007 HK$’000 11,985 315,143 247,869 2,319 321,364 30,300 13,987 5,343 – 2,733 951,043 1,455 222,811 46,767 – 6,596 38,958 – 78,000 388,584 783,171 – 44,341 81,888 389,425 369 15,876 531,899 251,272 1,202,315	2006 HK$’000 8,762 297,500 276,286 4,987 313,831 – 15,087 5,360 10,000 562
		932,375
		135,634 16,936 70,815 65 6,811 22,802 13 13,971 297,902
		564,949
		110 31,734 56,619 305,034 345 6,193
		400,035
		164,914
		1,097,289

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NON-CURRENT LIABILITIES Interest-bearing bank loans Provisions for onerous contracts Convertible notes Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the parent Issued capital Equity component of convertible notes Reserves Proposed final dividend Minority interests Total equity	108,799 – 45,756 5,454 160,009 1,042,306 29,418 5,653 987,223 19,540 1,041,834 472 1,042,306	205,494 1,590 46,860 3,172
		257,116
		840,173
		22,454 6,077 795,460 15,718
		839,709 464
		840,173

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (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, certain derivative financial instruments and equity investments, which have been measured at fair value. These financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise indicated.

2. IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted the following new and revised HKFRSs for the first time for the current year’s financial statements. Except for in certain cases, giving rise to new and revised accounting policies and additional disclosures, the adoption of these new and revised standards and interpretations has had no material effect on these financial statements.

HKAS 21 Amendment HKAS 39 & HKFRS 4 Amendments

Net Investment in a Foreign Operation Financial Guarantee Contracts

HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 Amendment The Fair Value Option HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies

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The principal changes in accounting policies are as follows:

HKAS 39 Financial Instruments: Recognition and Measurement

• (i) Amendment for financial guarantee contracts

This amendment has revised the scope of HKAS 39 to require financial guarantee contracts issued that are not considered insurance contracts, to be recognised initially at fair value and to be remeasured at the higher of the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue . The adoption of this amendment has had no material impact on these financial statements.

• (ii) Amendment for the fair value option

This amendment has changed the definition of a financial instrument classified as at fair value through profit or loss and has restricted the use of the option to designate any financial asset or any financial liability to be measured at fair value through the income statement. The Group had not previously used this option, and hence the amendment has had no effect on the financial statements.

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

HKAS 1 Amendment	Capital Disclosures
HKAS 23 (Revised)	Borrowing Cost
HKFRS 7	Financial Instruments: Disclosures
HKFRS 8	Operating Segments
HK(IFRIC)-Int 8	Scope of HKFRS 2
HK(IFRIC)-Int 9	Reassessment of Embedded Derivatives
HK(IFRIC)-Int 10	Interim Financial Reporting and Impairment
HK(IFRIC)-Int 11	HKFRS 2 – Group and Treasury Share Transactions
HK(IFRIC)-Int 12	Service Concession Arrangements

The HKAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007. The revised standard will affect the disclosures about qualitative information about the Group’s objective, policies and processes for managing capital; quantitative data about what the Company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 shall be applied for annual periods beginning on or after 1 January 2007. The standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’s financial instruments and the nature and extent of risks arising from those financial instruments.

HKFRS 8 shall be applied for annual periods beginning on or after 1 January 2009. The standard sets out requirements for disclosure of information about an entity’s operating segments and also about the entity’s products and services, the geographical areas in which it operates, and its major customers.

HK(IFRIC)-Int 8, HK(IFRIC)-Int 9, HK(IFRIC)-Int 10, HK(IFRIC)-Int 11, HK(IFRIC)-Int 12 and HKAS 23 (Revised) shall be applied for annual periods beginning on or after 1 May 2006, 1 June 2006, 1 November 2006, 1 March 2007, 1 January 2008 and 1 January 2009, respectively.

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 the HKAS 1 Amendment, HKFRS 7 and HKFRS 8 may result in new or amended disclosures, these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

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		Consolidated	2007 2006	HK$’000 HK$’000			499,488 395,557	– –	60,783 21,678	560,271 417,235			111,507 34,805			(16,753) (5,879)			– 99,268	10,928 8,722	(13,828) (15,252)		4,578 (39,601)	96,432 82,063	(13,254) (9,480)	83,178 72,583
		Eliminations	2007 2006	HK$’000 HK$’000			– –	(9,508) (17,850)	(1,975) –	(11,483) (17,850)			2,089 (7,603)
Unallocated	corporate	and others	2007 2006	HK$’000 HK$’000			43,846 41,923	1,854 7,433	18,773 16,398	64,473 65,754			7,334 4,615
Agricultural	products	wholesaling markets	2007 2006	HK$’000 HK$’000			– –	– –	379 –	379 –			(9,309) –
	Shopping centres	and car parks	2007 2006	HK$’000 HK$’000			27,262 79,037	791 1,535	1,038 1,359	29,091 81,931			3,688 3,286
	Chinese	wet markets	2007 2006	HK$’000 HK$’000			144,048 142,989	4,091 4,080	2,616 1,215	150,755 148,284			31,028 18,255
	Property	investment	2007 2006	HK$’000 HK$’000			42,090 131,608	2,772 4,802	39,945 2,526	84,807 138,936			48,472 25,225
	Property	development	2007 2006	HK$’000 HK$’000			242,242 –	– –	7 180	242,249 180			28,205 (8,973)
		Group			Segment revenue:	Sales to external	customers	Intersegment sales	Other revenue	Total			Segment results			Unallocated expenses	Excess over the cost of	acquisition of an additional	interest in an associate	Interest income	Finance costs	Share of profits and	losses of associates	Profit before tax	Tax	Profit for the year

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		Consolidated	2007 2006	HK$’000 HK$’000		1,410,117 1,182,918	321,364 313,831	2,733 562	– 13	1,734,214 1,497,324			126,598 90,398	498,224 510,528	15,876 6,193	45,756 46,860	5,454 3,172	691,908 657,151				5,158 10,055	467 8,192	265,402 320,942
		Eliminations	2007 2006	HK$’000 HK$’000		(1,878,458) (1,665,997)							(1,878,458) (1,665,997)									– –	– –	– –
Unallocated	corporate	and others	2007 2006	HK$’000 HK$’000		2,103,447 1,894,635							1,247,362 1,124,605									952 2,647	151 7,730	1,348 851
Agricultural	products	wholesaling markets	2007 2006	HK$’000 HK$’000		54,028 –							68,651 –									6 –	– –	464 –
	Shopping centres	and car parks	2007 2006	HK$’000 HK$’000		52,488 39,703							17,649 31,465									491 1,697	– –	17 133
	Chinese	wet markets	2007 2006	HK$’000 HK$’000		108,870 78,678							131,183 69,715									3,693 5,697	316 462	67,443 522
	Property	investment	2007 2006	HK$’000 HK$’000		394,268 422,286							222,581 274,746									12 12	– –	18,642 114,568
	Property	development	2007 2006	HK$’000 HK$’000		575,474 413,613							317,630 255,864									4 2	– –	177,488 204,868
		Group			Assets and liabilities	Segment assets	Interests in associates	Deferred tax assets	Tax recoverable	Total assets			Segment liabilities	Interest-bearing bank loans	Tax payable	Convertible notes	Deferred tax liabilities	Total liabilities			Other segment information:	Depreciation	Other non-cash expenses	Capital expenditure

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4. REVENUE

Sub-licensing fee income Management fee income Sale of goods Rendering of services Gross rental income Sale of properties	Group 2007 2006 HK$’000 HK$’000 155,084 204,702 16,228 17,767 40,092 38,439 3,752 3,482 10,603 9,378 273,729 121,789 499,488 395,557	Group 2007 2006 HK$’000 HK$’000 155,084 204,702 16,228 17,767 40,092 38,439 3,752 3,482 10,603 9,378 273,729 121,789 499,488 395,557
		395,557

5. FINANCE COSTS

Interest on convertible notes Interest on bank loans and overdrafts Total interest Less: Interest capitalised	Group 2007 2006 HK$’000 HK$’000 2,966 3,948 21,682 17,966 24,648 21,914 (10,820) (6,662) 13,828 15,252

6. PROFIT BEFORE TAX

The profit before tax of the Group and its jointly-controlled entity is arrived at after charging/(crediting):

Auditors’ remuneration Cost of inventories sold Cost of services provided Cost of properties sold Depreciation Gain on disposal of property, plant and equipment (Gain)/Loss on disposal of investment properties Gain on disposal of financial assets at fair value through profit or loss, net Interest Income Property, plant and equipment written off Minimum lease payments under operating leases for land and buildings Provision for impairment of trade receivables Employee benefits expense (including directors’ remuneration): Wages and salaries Pension scheme contributions Equity-settled share option expense Amount released for onerous contracts Net rental income

Group 2007 2006 HK$’000 HK$’000 1,915 1,150 24,522 23,535 139,231 196,248 218,304 99,952 5,158 10,055 (163) (8) (8,000) 241 (4,120) (3,421) (10,928) (8,718) – 8,278 94,697 133,116 467 462 53,907 59,031 1,642 1,974 7,633 – 63,182 61,005 (1,566) (6,234) (10,480) (9,182)

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7. TAX

Hong Kong profits tax has been provided at the rate of 17.5% (2006: 17.5%) on the estimated assessable profits arising in Hong Kong during the year.

Under the relevant PRC Income Tax Law and the respective regulations, the corporate income tax for the jointly-controlled entity is calculated at the rate of 15%, on its estimated assessable profits for the year based on existing legislation, interpretations and practices in respect thereof.

Group: Current – Hong Kong Charge for the year Underprovision/(overprovision) in prior years Current – Mainland China Charge for the year Deferred Total tax charge for the year	2007 HK$’000 15,249 (2,243) 137 111 13,254	2006 HK$’000 6,736 30 – 2,714
		9,480

8.

DIVIDENDS

Additional final dividend for 2006 Interim – HK0.15 cents (2006: HK0.13 cents) per ordinary share Proposed final – HK$0.33 cents (2006: HK0.32 cents) per ordinary share	2007 HK$’000 126 7,073 19,540 26,739	2006 HK$’000 4,608 6,736 15,718
		27,062

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

9. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of basic earnings per share is based on the profit for the year attributable to ordinary equity holders of the parent of HK$83,170,000 (2006: HK$72,554,000), and the weighted average of 4,728,929,500 (2006: 4,663,374,364) ordinary shares in issue during the year, as adjusted to reflect the bonus issue during the year and the share subdivision after the balance sheet date.

The calculation of diluted earnings per share is based on the profit for the year attributable to ordinary equity holders of the parent for the year of HK$83,170,000 (2006: HK$72,554,000) after adjustment for interest saved upon deemed exercise of all convertible notes during the year of HK$2,966,000 (2006: Nil). The weighted average number of ordinary shares used in the calculation is the 4,728,929,500 (2006: 4,663,374,364) ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average of 718,476,800 (2006: 209,028,160) 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, as adjusted for the bonus issue during the year and the share subdivision after the balance sheet date.

The comparative amounts have been adjusted to reflect the bonus issue during the year and the subdivision of the Company’s shares after the balance sheet date.

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10. TRADE RECEIVABLES

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

Within 90 days 91 days to 180 days Over 180 days Less: Provision for impairment	Group 2007 2006 HK$’000 Percentage HK$’000 Percentage 6,278 88 6,478 88 441 6 427 5 425 6 542 7 7,144 100 7,447 100 (548) (636) 6,596 6,811	Group 2007 2006 HK$’000 Percentage HK$’000 Percentage 6,278 88 6,478 88 441 6 427 5 425 6 542 7 7,144 100 7,447 100 (548) (636) 6,596 6,811
		100

The Group’s businesses generally do not grant any credit to customers.

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 that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing.

11. TRADE PAYABLES

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

			Group
			2007	2006
			HK$’000	HK$’000
Within	90	days	–	110

The trade payables are non-interest-bearing and there is generally no credit terms granted by suppliers. The carrying amounts of the trade payables approximated to their fair values.

RESULTS

The Group’s turnover and net profit attributable to shareholders for the year amounted to approximately HK$499.5 million (2006: HK$395.6 million) and approximately HK$83.2 million (2006: HK$72.6 million) respectively.

DIVIDEND

The Board has recommended a final dividend of HK0.33 cents (2006: HK0.32 cents) per ordinary share for the year ended 31 March 2007 to shareholders on the register of members of the Company as of 30 August 2007. The final dividend will be paid on or before 7 September 2007, subject to shareholders’ approval at the forthcoming annual general meeting of the Company to be held on 30 August 2007. Together with the interim dividend of HK0.15 cents (2006: HK0.13 cents) (as adjusted for the share subdivision after the balance sheet date) per ordinary share distributed in January 2007, this represents a total dividend of HK0.48 cents per ordinary share (2006: HK0.45 cents) for the year.

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CLOSURE OF REGISTER

The register of members of the Company will be closed from Wednesday, 29 August 2007 to Thursday, 30 August 2007, both days inclusive, during which no transfer of shares will be registered. To qualify for the proposed final dividend, all shareholders are required to lodge their transfers with the Company’s branch share registrars in Hong Kong, Tengis Limited of 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, for registration by no later than 4:30 p.m. on Tuesday, 28 August 2007.

BUSINESS REVIEW

Following the achievement of historical high net profit last year, the Group surpassed that achievement by posting a new record high net profit of approximately HK$83.2 million for the year ended 31 March 2007, and recorded net assets of over HK$1 billion as at 31 March 2007, the highest level since its listing in 1995.

For the year ended 31 March 2007, the Group’s turnover was approximately HK$499.5 million (2006: approximately HK$395.6 million), representing an increase of approximately 26.3% over the previous year. Such increase of turnover was mainly due to the increase in Group turnover in property development in light of the improved economy in Hong Kong during the year under review.

Agricultural Products Wholesale Market

During the year under review, the Group actively explored the development of agricultural products wholesale distribution centres in the PRC. The PRC government has been supportive to agricultural development. To capture this opportunity, the Group formed a joint venture company in Yulin, the PRC, in December 2006 for the development, operation and management of the agricultural by-products wholesaling marketplace and related facilities at Yulin, the PRC, and the related sale and rental of properties. The site area is about 3.3 million square feet and the facilities are, when completed, expected to have a total gross floor area of about 2.3 million square feet. Up to date, the Group contributed approximately HK$59 million of capital to the joint venture company and is entitled to share 65% of the profit of the joint venture. The site has been acquired by the joint venture company in June 2007 and the construction work will commence soon.

In January 2007, the Group entered into an agreement to acquire a 51% equity interest in an existing agricultural distribution centre in Xuzhou for approximately RMB35.7 million. The site has an area of approximately 2 million square feet and the centre has about 250 tenants doing wholesale business in this market. This market has been in operation since 1997.

In March 2007, the Group entered into an agreement to form another joint venture company for the development of agricultural by-products wholesaling market in Changzhou, the PRC. The entire site occupies an area of approximately 0.6 million square feet. The Group contributed US$8 million of capital to the joint venture company and is entitled to share 40% of the profit of the joint venture. The land was acquired in June 2007 and the construction work will commence in the last quarter of 2007.

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In July 2007, the Group entered into a conditional agreement for the acquisition of 20% equity interest in an agricultural products distribution centre in Dongguan, the PRC, for a consideration of approximately HK$73 million. This distribution centre is principally engaged in the investment and management and provision of logistics services to owners and tenants of an agricultural products distribution centre situated in Dongguan, the PRC. The site area is over 600 mu (approximately 4.3 million square feet) on which the distribution centre is located and is being developed under two phases into a total gross floor area of approximately 4.2 million square feet. The first phase of the project has been completed and the second phase of the project is expected to be completed by the end of 2007.

Other than the various investments in the PRC during the year, in Hong Kong the Group was successful in securing the management contract for the operation and management of North District Temporary Wholesale Market for Agricultural Products at Fanling in March 2007. This is one of the 3 principal wholesale marketplaces for the trading of agricultural products in Hong Kong. This wholesale market will not only provide a steady income but also growth potential to the Group upon the introduction and implementation of state-of-art management systems.

The new investment signifies not only our enhanced involvement in the “Vegetable Basket Project”, but also a further integration of our agricultural products distribution operations, which include wholesale centres, logistic services and Chinese wet markets in Hong Kong and the PRC.

Management and Sub-licensing of Chinese Wet Markets

The Group is currently the single largest operator of Chinese wet markets in Hong Kong managing a portfolio of more than 850 stalls with an area of over 250,000 square feet in 13 Chinese wet markets. During the year under review, this business performed in line with the trend established in 2005. Turnover reached HK$144 million (2006: HK$143 million), representing a slight increase of approximately 0.7% compared with the previous year as a result of minor tenant mix change in the portfolio.

Given the Group’s extensive expertise and experience in the management of Chinese wet markets, the Directors are optimistic that it will be in a strong position to secure more business opportunities with markets owned by the Link Real Estate Investment Trust and from other business sources.

In November 2006, the Group acquired 50% equity interest in the registered capital of a agricultural products market in Shenzhen, the PRC at a consideration of RMB65.5 million. The market is principally engaged in the operation and management of 20 traditional Chinese wet markets with a total of 1,700 stalls in various districts in Shenzhen, the PRC and occupied a total gross floor area of approximately 340,000 square feet. This acquisition represented a major strategic move and a milestone of the Group’s presence in the PRC Chinese wet market.

The Group will continue to look for new markets with great potential both in Hong Kong and the PRC. We plan to use our management’s professionalism and experience in developing and promoting modern Chinese wet markets so as to maximize our investment returns.

Property Development

For the year under review, the construction work for both the Shatin Heights and Meister House projects have been substantially completed and the respective occupation permits have been issued. In December 2006, 9 villas with sales value of nearly HK$200 million out of a total of 16 villas at the Meister House project were pre-sold and completion is expected to take place by the end of September 2007. The remaining 7 villas will be offered for sale later this year.

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As at June 2007, the Group’s property development portfolio was as follows:

Property Name Location 8 Shatin Heights Road Shatin Town Lot No. 465 Meister House 1 Fairview Park Boulevard, Yuen Long Total	Approximate Anticipated Site Area Development Plan Completion (sq ft) 49,100 Low density residential area Last quarter with 11 villas of 2007 154,800 Low density residential and 9/2007 commercial area with 16 luxury villas, 6 shops and club house 203,900

Given the notable improvement in the local employment climate and robust retail trade, as well as a boost in consumer spending, the Directors expect that the Hong Kong property market will benefit from the improved economy. The Group is currently locating suitable sites both in Hong Kong and the PRC for the replenishment of land rescuer which can accommodate its development plans and generate handsome returns to the Group for the next year.

Property Investment

As at 31 March 2007, the Group maintained an investment property portfolio with a net book value of approximately HK$315.1 million (2006: approximately HK$297.5 million), providing an annual gross rental income of approximately HK$10.6 million, representing a 12.8% increase over the HK$9.4 million recorded last year. This portfolio is maintained by the Group for capital appreciation and for steady income.

The Group will continue to look for suitable retail shops for the long term growth of the Group’s investment property portfolio. The Directors believe that this strategy can on the one hand provide stable income to the Group and, on the other hand, benefit from capital appreciation in the years to come.

Management and Sub-licensing of Shopping Centres and Car Parks

During the year under review, turnover of the management and sub-licensing of shopping centres and car parks was substantially reduced to HK$27.3 million (2006: HK$79.0 million), a decrease of 65% over last year. During the year, the Group scaled down the operation of car parks and it continues to be the Group’s strategy to re-allocate its resources in order to focus on other business areas with potential for higher returns.

Investment in Pharmaceutical and Health Products Related Business

The results of our pharmaceutical and health products related business improved during the year with a total turnover of HK$381.3 million, representing a 17.4% increase over the HK$324.8 million recorded last year. Profit for the year amounted to HK$9.9 million compared with a loss of HK$106.2 million in the previous year.

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As at the date of this annual report, there were 55 retail shops and 25 concession counters in operation in Hong Kong and the PRC respectively, selling pharmaceutical and health products under the name of “Wai Yuen Tong”. In addition, 45 out of the 55 retail shops in Hong Kong provide consultant services by registered Chinese medical practitioners.

The Group expects that the performance of our pharmaceutical and health products related business will further improve in light of the healthy economy in both the PRC and Hong Kong and the increasing awareness of personal health.

FUND RAISING

With a view to enlarging the Company’s shareholder base and strengthening the financial position of the Company, the Company issued a total of 64,500,000 new shares of HK$0.10 each at the issue price of HK$2.8 per share, for cash, in March 2007. Part of the total net proceeds of approximately HK$175.3 million from the placing have been, and the balance is intended to be, used for financing the development and management of agricultural by-products wholesaling business and the expansion and development of Chinese wet market business of the Group both in Hong Kong and the PRC and other potential investment opportunities.

Subsequent to the year end, unlisted warrants to subscribe for 200 million shares of the Company at an initial subscription price of HK$0.45 per share were issued in May 2007 at a total warrants issue price of HK$4.5 million. The net proceeds of approximately HK$4 million will be utilized by the Group as general working capital. In the event that all the subscription rights attaching to the warrants are exercised at the initial subscription price of HK$0.45 per share, the Company will raise additional capital of approximately HK$90 million, which is also intended to be used for financing the development and management of agricultural by-products wholesaling and Chinese wet market businesses of the Group.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 March 2007, the Group had cash resources and short term investments of HK$513.4 million (2006: HK$382.7 million). The aggregate borrowings as at 31 March 2007 amounted to HK$544.0 million (2006: HK$557.4 million).

The gearing ratio was 7.4% (2006: 29.2%), calculate with reference to the Group’s total borrowing’s net of cash and cash equivalents and equity attributable to equity holders of the Company of approximately HK$77.4 million and HK$1,041.8 million respectively.

As at 31 March 2007, the Group’s investment properties, with a carrying amount of HK$252.5 million (2006: HK$297.5 million), and certain rental income generated therefrom were pledged to secure the Group’s general banking facilities, HK$89.4 million (2006: HK$217.1 million) of which was utilized as at 31 March 2007.

The Group’s capital commitment as at 31 March 2007 amounted to approximately HK$31.7 million (2006: approximately HK$239 million).

Management is of the opinion that existing financial resources will be sufficient for the Group’s future expansion plans.

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EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2007, the Group had 231 full time employees, around 96% of whom were located in Hong Kong.

The Group remunerates its employees mainly based on industry practices and individual performance and experience. On top of the regular remuneration, discretionary bonus and share options may be granted to selected staff by reference to the Group’s performance as well as the individual’s performance. Other benefits, such as medical and retirement benefits and structured training programs, are also provided.

PROSPECTS

In conclusion, our business recorded encouraging results for the year under review. We will strengthen our management to facilitate our further development in every aspect of our business to maximize value for our shareholders.

We believe that a well-developed, operated and managed marketplace provides the type of qualify guarantee for the agricultural by-products sold, which the public in the PRC, with their increasing awareness of food hygiene and demand for quality food demands. Also, in view of the large population and the explosion in consumer spend power in the PRC and the indications that each typical Chinese family will spend one third of their disposable household income on food and beverages, we are particularly optimistic of the PRC agricultural by-products wholesale markets and traditional Chinese wet markets and will put additional resources into the exploration and development of such markets in future.

CORPORATE GOVERNANCE PRACTICES

In the opinion of the Board, the Company has complied with the code provisions set out in the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities (“Listing Rules”) on The Stock Exchange of Hong Kong Limited (“Stock Exchange”) throughout the year ended 31 March 2007. Further details of the Company’s corporate governance practices will be described in the corporate governance report to be contained in the Company’s 2007 Annual Report.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 of the Listing Rules as the Company’s code of conduct for dealings in securities of the Company by the Directors. Having made specific enquiries of all the Directors, the Company confirmed that all Directors have complied with the required standard set out in the Model Code throughout the financial year under review.

AUDIT COMMITTEE

The Company has an audit committee, which was established in accordance with the requirements of the Listing Rules, for the purposes of reviewing and providing supervision over the Group’s financial reporting processes and internal controls. The audit committee, comprising the three independent non-executive Directors, Mr. Siu Yim Kwan, Sidney (Chairman), Mr. Wong Chun, Justein and Mr. Siu Kam Chau, has reviewed the audited consolidated financial statements for the year ended 31 March 2007.

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PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

During the year under review, the Company has on various occasions repurchased a total of 19,300,000 shares on the Stock Exchange for the aggregate consideration of HK$44,856,500 before expenses. The highest and lowest price per share paid for such repurchases were HK$2.53 and HK$2.25 respectively. Other than that, neither the Company nor any of its subsidiaries have purchased, sold or redeemed any of the Company’s listed securities during the year.

PUBLICATION OF RESULTS ANNOUNCEMENT AND ANNUAL REPORT

This annual results announcement is available for viewing on the website of the Stock Exchange at www.hkex.com.hk and at the website of the Company at www.wangon.com. An annual report for the year ended 31 March 2007 containing all the information required by the Listing Rules will be despatched to the Company’s shareholders and available on the above websites in due course.

By Order of the Board Tang Ching Ho Chairman

Hong Kong, 18 July 2007

As at the date hereof, the Directors of the Company comprises of three executive Directors, namely Mr. Tang Ching Ho, Ms. Yau Yuk Yin and Mr. Chan Chun Hong, Thomas, and four independent non-executive Directors, namely Dr. Lee Peng Fei, Allen, Mr. Wong Chun, Justein, Mr. Siu Yim Kwan, Sidney and Mr. Siu Kam Chau.

• For identification purpose only

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