(1) MAJOR AND CONNECTED TRANSACTION IN RELATION TO …

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult yourstockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or otherprofessional adviser.

If you have sold or transferred all your shares in Cinda International Holdings Limited, you should at once hand thiscircular and the accompanying form of proxy to the purchaser or the transferee or the bank, stockbroker or otheragent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchaseor subscribe for the securities.

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

(Incorporated in Bermuda with limited liability)

(Stock code: 111)

(1) MAJOR AND CONNECTED TRANSACTION

IN RELATION TO

THE ACQUISITION OF 40% ISSUED SHARE CAPITAL OF

SINO-ROCK INVESTMENT MANAGEMENT COMPANY LIMITED

INVOLVING THE ISSUE OF CONSIDERATION SHARES

TO CONNECTED PERSON

AND

(2) REFRESHMENT OF THE GENERAL MANDATE TO ISSUE SHARES

Independent Financial Adviser to the Independent Board Committee

and the Independent Shareholders

A letter from the Board is set out on pages 5 to 17 of this circular. A letter from the Independent Board Committeecontaining its recommendations to the Independent Shareholders is set out on page 18 of this circular.

A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee and theIndependent Shareholders is set out on pages 19 to 31 of this circular.

A notice convening a special general meeting of Cinda International Holdings Limited to be held at 8 : 30 a.m. on11 December 2009 at 45th Floor, COSCO Tower, 183 Queen’s Road Central, Hong Kong is set out on pages 216 to 218of this circular. Form of proxy for use at the special general meeting is enclosed. Whether or not you intend to attendthe meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructionsprinted thereon as soon as possible and in any event not less than 48 hours before the time of the meeting or anyadjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending andvoting at the special general meeting or any adjourned meeting in person should you so wish.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

26 November 2009

Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Appendix I — Financial Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Appendix II — Financial Information on the Target Group . . . . . . . . . . . . . . . . . . . . . . . 151

Appendix III — Pro Forma Financial Information of the Enlarged Group . . . . . . . . . . 204

Appendix IV — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

CONTENTS

– i –

In this circular, the following expressions have the meanings set out below unless the

context requires otherwise:

‘‘Acquisition’’ the acquisition of the Sale Shares by the Purchaser from the

Vendor pursuant to the Sale and Purchase Agreement

‘‘Ample Capital’’ or

‘‘Independent

Financial Adviser’’

Ample Capital Limited, a corporation licensed to carry out type

4 (advising on securities), type 6 (advising on corporate finance)

and type 9 (asset management) regulated activities under the

SFO and the independent financial adviser to the Independent

Board Committee and the Independent Shareholders in relation

to the Acquisition and the grant of the New General Mandate

‘‘Announcement’’ the announcement of the Company dated 11 November 2009 in

relation to, inter alia, the Acquisition and proposed refreshment

of general mandate

‘‘associate(s)’’ has the meaning ascribed to it under the Listing Rules

‘‘Board’’ the board of Directors

‘‘Business Day’’ a day (excluding Saturday and Sunday) on which licensed banks

in Hong Kong are open for business

‘‘Bye-laws’’ the bye-laws of the Company

‘‘CCBIAM’’ CCB International Asset Management Limited

‘‘China Cinda’’ China Cinda Asset Management Corporation, a wholly state-

owned financial enterprise and the ultimate beneficial owner of

the Vendor and Sinoday

‘‘Company’’ Cinda International Holdings Limited, a company incorporated

in Bermuda with limited liability and the Shares of which are

listed on the main board of the Stock Exchange

‘‘Completion’’ completion of the Acquisition

‘‘connected person’’ has the meaning ascribed to it under the Listing Rules

‘‘Consideration’’ HK$110,300,000, being the consideration payable by the

Purchaser to the Vendor under the Sale and Purchase Agreement

‘‘Consideration Shares’’ 27,575,000 new Shares to be issued by the Company to the

Vendor for settlement of part the Consideration pursuant to the

Sale and Purchase Agreement

‘‘Director(s)’’ director(s) of the Company

DEFINITIONS

– 1 –

‘‘Enlarged Group’’ the Group after the Completion

‘‘Existing Supplemental

Agreements’’

the 2 supplemental agreements to the Shareholders’ Agreement

entered into on 5 September 2007 and 6 November 2009

respectively, among the then existing shareholders of Sino-

Rock and Sino-Rock to revise and supplement the Shareholders’

Agreement

‘‘General Mandate’’ the general and unconditional mandate granted to the Directors

by the Shareholders pursuant to ordinary resolution passed at

the Last AGM to exercise the power of the Company to allot,

issue and deal with Shares not exceeding 20% of the issued share

capital of the Company as at the date of the Last AGM

‘‘Group’’ the Company and its subsidiaries

‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC

‘‘Independent Board

Committee’’

the independent board committee of the Company comprising all

the independent non-executive Directors established for the

purpose of advising the Independent Shareholders in relation

to the Acquisition and the grant of the New General Mandate

‘‘Independent

Shareholders’’

Shareholders other than Sinoday and its associates

‘‘Issue Price’’ HK$2.00 per Consideration Share

‘‘Last AGM’’ the annual general meeting of the Company held on 2 June 2009

‘‘Latest Practicable

Date’’

24 November 2009, being the latest practicable date prior to the

printing of this circular for ascertaining certain information for

inclusion in this circular

‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock

Exchange

‘‘New General

Mandate’’

the general mandate proposed to be sought at the SGM to

authorise the Directors to allot, issue and deal with Shares not

exceeding 20% of the issued share capital of the Company as at

the date of the SGM

‘‘New Subscription’’ the conditional subscription by CCBIAM of up to 8,866,000 new

Shares pursuant to the New Subscription Agreement

‘‘New Subscription

Agreement’’

the subscription agreement dated 4 August 2009 between

CCBIAM and the Company

DEFINITIONS

– 2 –

‘‘PRC’’ the People’s Republic of China which, for the purpose of this

circular, excludes Hong Kong, Macau Special Administrative

Region and Taiwan

‘‘Purchaser’’ Cinda International Direct Investment Limited, a wholly-owned

subsidiary of the Company

‘‘Sale and Purchase

Agreement’’

the conditional agreement dated 9 November 2009 entered into

between the Purchaser and the Vendor in relation to the

Acquisition

‘‘Sale Shares’’ 18,000,000 existing ordinary shares of Sino-Rock, representing

40% of the issued share capital of Sino-Rock

‘‘SGM’’ a special general meeting of the Company to be held on

11 December 2009 at 8 : 30 a.m. to consider and approve (i) the

Sale and Purchase Agreement and the transactions contemplated

thereunder; (ii) the grant of the specific mandate for the issue of

the Consideration Shares; and (iii) the New General Mandate

‘‘Share(s)’’ ordinary share(s) of HK$0.10 each in the share capital of the

Company

‘‘Shareholder(s)’’ holder(s) of Shares

‘‘Shareholders’

Agreement’’

the subscription and shareholders’ agreement in relation to Sino-

Rock dated 8 December 2005 entered into between, among

others, the Vendor and Sino-Rock

‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws

of Hong Kong)

‘‘Sinoday’’ Sinoday Limited, the controlling shareholder of the Company

‘‘Sino-Rock’’ Sino-Rock Investment Management Company Limited, a

company incorporated in Hong Kong with limited liability

‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

‘‘Supplemental

Agreement’’

the supplemental agreement to the Shareholders’ Agreement to

be entered into among the Purchaser, Sino-Rock and the existing

shareholders of Sino-Rock (other than the Vendor)

‘‘Target Group’’ Sino-Rock, its subsidiaries and associate companies

‘‘Top-Up Subscription’’ the conditional subscription by Sinoday of up to 75,594,000 new

Shares pursuant to the Top-Up Subscription Agreement

DEFINITIONS

– 3 –

‘‘Top-Up Subscription

Agreement’’

the subscription agreement dated 4 August 2009 between

Sinoday and the Company

‘‘Vendor’’ Well Kent International Holdings Company Limited, a company

incorporated in Hong Kong with limited liability

‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong

‘‘%’’ per cent.

If there is any inconsistency between the Chinese names of PRC entities, departments,

facilities or titles mentioned in this circular and their English translations, the Chinese version

shall prevail.

DEFINITIONS

– 4 –


(Stock code: 111)

Executive Directors:

Mr. Chen Xiaozhou (Chairman)

Mr. Gao Guanjiang (Deputy Chairman)

Mr. Gu Jianguo

Mr. Zhao Hongwei (Managing Director)

Mr. Gong Zhijian

Mr. Lau Mun Chung

Non-executive Director:

Mr. Chow Kwok Wai

Independent Non-executive Directors:

Mr. Wang Tongsan

Mr. Chen Gongmeng

Mr. Hung Muk Ming

Registered Office:

Clarendon House

2 Church Street

Hamilton, HM11

Bermuda

Head Office and Principal Place

of Business in Hong Kong:

45th Floor

COSCO Tower

183 Queen’s Road Central

Hong Kong

26 November 2009

To the Shareholders

Dear Sirs or Madams,

(1) MAJOR AND CONNECTED TRANSACTIONIN RELATION TO

THE ACQUISITION OF 40% ISSUED SHARE CAPITAL OFSINO-ROCK INVESTMENT MANAGEMENT COMPANY LIMITED

INVOLVING THE ISSUE OF CONSIDERATION SHARESTO CONNECTED PERSON

AND(2) REFRESHMENT OF THE GENERAL MANDATE TO ISSUE SHARES

INTRODUCTION

Reference is made to the Announcement, in which the Board announced that on

9 November 2009, the Purchaser entered into the Sale and Purchase Agreement with the

Vendor, pursuant to which the Purchaser has conditionally agreed to acquire the Sale

Shares at the Consideration of HK$110,300,000. To satisfy part of the Consideration, the

Company will issue and allot 27,575,000 Shares as Consideration Shares to the Vendor at

the Issue Price of HK$2.00 per Consideration Share upon Completion.

LETTER FROM THE BOARD

– 5 –

The Acquisition constitutes a connected transaction and major transaction of the

Company under the Listing Rules and will be subject to the approval of the Independent

Shareholders by way of poll in general meeting.

The Directors would also put forward to the Independent Shareholders for approval at

the SGM the grant of the New General Mandate.

The purpose of this circular is to provide you with information regarding (i) the

Acquisition; (ii) the proposed grant of the New General Mandate; (iii) the recommendation

from the Independent Board Committee; (iv) the recommendation from Ample Capital to

the Independent Board Committee and the Independent Shareholders in respect of the

Acquisition and the grant of the New General Mandate; and (v) the notice of the SGM.

THE SALE AND PURCHASE AGREEMENT

Date

9 November 2009

Parties

Purchaser: Cinda International Direct Investment Limited, a wholly-owned subsidiary

of the Company

Vendor: Well Kent International Holdings Company Limited, being a holder of 40%

of the issued share capital of Sino-Rock. It is principally engaged in

securities investment

Assets to be acquired

The Sale Shares represent 40% of the issued share capital of Sino-Rock after

Completion.

Consideration

The Consideration of HK$110,300,000 under the Sale and Purchase Agreement was

arrived at after arm’s length negotiations between the Vendor and the Purchaser with

reference to the unaudited consolidated net asset value of Sino-Rock as at 30 June 2009

being approximately HK$221,900,000 and the earning potential of the Target Group in its

pre-IPO investments and private equity fund management business in the PRC. The

Consideration represents a price to book ratio (‘‘P/B’’) of approximately 1.2 times, which

the Directors consider is comparable to the current P/Bs of the investment companies listed

on the Stock Exchange.

In determining the fairness and reasonableness of the Consideration, the Directors

have taken into account of the amount due from related companies of the Target Group as

well as amount due to/loan from/interest free loan from related companies of the Target

Group amounting to approximately HK$180 million as of 30 June 2009. Besides, the


– 6 –

Directors are well aware that the amount due from related companies of the Target Group

is repayable on demand. As such, the Directors consider that the Consideration is fair and

reasonable.

The Consideration shall be satisfied by the Purchaser in the following manner:

(i) as to HK$55,150,000 shall be satisfied in cash upon Completion; and

(ii) as to HK$55,150,000 shall be satisfied by procuring the Company to allot and

issue 27,575,000 Consideration Shares to the Vendor at the Issue Price of

HK$2.00 per Consideration Share upon Completion.

The Consideration Shares, when issued and allotted, shall rank pari passu in all

respects with the Shares in issue on the date of issue and allotment of the Consideration

Shares including the right to receive all dividends, distributions and other payments

declared to be made on or after the date of such issue and allotment.

Based on the Issue Price, an aggregate of 27,575,000 new Shares would fall to be issued

upon Completion representing:

(i) approximately 5.44% of the issued share capital of the Company as at the Latest

Practicable Date; and

(ii) approximately 5.16% of the total issued share capital of the Company as enlarged

by the issue and allotment of the Consideration Shares.

The Issue Price of HK$2.00 per Consideration Share represents:

(i) a discount of approximately 2.44% to the closing price of HK$2.05 per Share as

quoted on the Stock Exchange on 9 November 2009, being the date of the Sale and

Purchase Agreement;

(ii) a discount of approximately 0.30% to the average closing price of HK$2.006 per

Share as quoted on the Stock Exchange for the five consecutive trading days up to

and including 9 November 2009; and

(iii) a premium of approximately 308.16% over the unaudited net asset value per

Share of approximately HK$0.49 based on the unaudited consolidated net asset

value of the Group of HK$205,005,000 as at 30 June 2009 and a total of

422,303,000 Shares as at that date.

The Issue Price was determined after arm’s length negotiation between the Purchaser

and the Vendor with reference to the recent trading prices of the Shares. The Directors

(including the independent non-executive Directors) consider that the Issue Price is fair and

reasonable.


– 7 –

Application for listing

Application will be made by the Company to the Stock Exchange for the listing of, and

permission to deal in, the Consideration Shares on the Stock Exchange. The Board will seek

approval from the Independent Shareholders at the SGM for the grant of a specific

mandate for the issue of the Consideration Shares.

Conditions precedent

Completion of the Acquisition is, among other things, conditional upon fulfillment or

waiver, as the case may be, of the following conditions:

1. the Purchaser being satisfied in its absolute discretion with the results of the due

diligence review of operations, legal status and financial position of the Target

Group;

2. obtaining all the necessary or appropriate consents, authorisations and other

approvals in relation to the Company as a company listed on the Stock Exchange,

including but not limited to Independent Shareholders’ approval and the approval

by the Listing Committee of the Stock Exchange of the listing of, and permission

to deal in, the Consideration Shares on the Stock Exchange;

3. obtaining all approvals for the consummation of the Acquisition by all other

shareholders of Sino-Rock;

4. obtaining all other necessary agreements, consents, authorisations and other

approvals of any kind which may be required under any existing contractual

arrangements of any members of the Target Group or the Vendor for the

consummation of the Acquisition;

5. obtaining all necessary consents, authorisations or other approvals of any kind

which may be required by any of the members of the Target Group or the Vendor

from any governmental or regulatory authority for the consummation of the

Acquisition and the satisfaction of all legislative and regulatory requirements to

which any of the members of the Target Group or the Vendor is subject to;

6. obtaining a legal opinion issued by a firm of PRC lawyers appointed by the

Purchaser confirming the legal status of the members of the Target Group which

are incorporated in the PRC, the substance of which shall be satisfactory to the

Purchaser at its absolute discretion; and

7. all warranties given by the Vendor remaining true and accurate in all respects and

not misleading up to Completion.

If any of the conditions as set out in the Sale and Purchase Agreement is not fulfilled or

waived on or before 31 December 2009 (or such later date as the Vendor and the Purchaser

may agree), the Sale and Purchase Agreement shall cease to have any effect.


– 8 –

Completion

Completion of the Acquisition is expected to take place on the fifth Business Day (or

such other date as the Vendor and the Purchaser may agree) after all the conditions

precedent set out in the Sale and Purchase Agreement have been fulfilled or waived.

Shareholders’ Agreement and Supplemental Agreement

Upon Completion, the Purchaser will enter into the Supplemental Agreement with the

existing shareholders of Sino-Rock (other than the Vendor) and Sino-Rock, pursuant to

which the Purchaser will take the benefits and obligations under the Shareholders’

Agreement in place of the Vendor as from Completion.

The Shareholders’ Agreement was entered into on 8 December 2005 between, among

others, the Vendor and Sino-Rock, which governs the affairs of Sino-Rock and the

respective rights and obligations of the shareholders of Sino-Rock. Following changes in

the shareholding of Sino-Rock in 2007 and September 2009, the Existing Supplemental

Agreements were entered into between, inter alia, the then existing shareholders of Sino-

Rock to supplement and revise the Shareholders’ Agreement.

Certain substantial terms to the Shareholders’ Agreement (as supplemented and

revised by the Existing Supplemental Agreements), which terms and conditions will be

binding on the Purchaser pursuant to the Supplemental Agreement, are as follows:

(1) Board composition

The board of directors of Sino-Rock shall consist of 7 directors. The Purchaser

shall be entitled to nominate 3 representatives to the board of directors of Sino-Rock

upon Completion, and each of the other 2 existing shareholders of Sino-Rock has the

right to nominate 2 representatives to the board of directors of Sino-Rock. Where the

relative shareholdings of Sino-Rock may be altered in future, the entitlement of each

shareholder to nominate representatives to the board of directors of Sino-Rock shall

be proportionate to their respective shareholdings in Sino-Rock.

(2) Transfer of shares

Shareholder proposing to sell or otherwise dispose of its shares in Sino-Rock is

subject to the right of first refusal of the other shareholders to purchase such shares.

However, such right is not applicable where the transfer is made to a subsidiary,

holding company or any subsidiary of the holding company of the outgoing

shareholder. The outgoing shareholder shall procure its transferee to execute a

supplemental agreement to the Shareholders’ Agreement with Sino-Rock and other

existing shareholders of Sino-Rock in terms and conditions substantially the same with

the Shareholders’ Agreement.


– 9 –

(3) Non-competition

Except for the existing business of that shareholder, each shareholder shall use all

reasonable endeavours to prevent itself and its affiliates from engaging in any

businesses or activities which are in competition with the business of Sino-Rock.

(4) Unanimous consent

Unanimous consent of the shareholders is required, inter alia, for any change in

the shareholding structure of Sino-Rock, for the issue of further shares or the creation

of any options or other rights to subscribe for or acquire shares of Sino-Rock.

(5) Amendments to the Shareholders’ Agreement

The Shareholders’ Agreement may be amended if such amendment is in writing

and is duly signed by all parties to the Shareholders’ Agreement (as supplemented and

revised by the Existing Supplemental Agreements and any other supplemental

agreement which may be executed).

INFORMATION ON THE GROUP

The Group is principally engaged in the provision of financial services in Hong Kong

including the provision of leveraged foreign exchange trading and brokering services,

securities brokering and margin financing services, commodities and futures brokering,

financial planning, asset management and corporate financial advisory services in Hong

Kong.

INFORMATION ON THE TARGET GROUP

Sino-Rock is a company incorporated in Hong Kong with limited liability on 4 June

1992. Since February 2006, Sino-Rock became an associate company of the Vendor. As at

the Latest Practicable Date, Sino-Rock is owned as to 40% by the Vendor and 30% each by

two independent third parties. Upon Completion, Sino-Rock will be owned as to 40% by

the Company through the Purchaser and will become an associate company of the

Company. The original purchase cost of the Sale Shares by the Vendor was approximately

HK$27.3 million.

The Target Group is currently principally engaged in pre-IPO investment and

investment in distressed assets. The principal investment policies of the Target Group

include (i) the industry of the potential investment involved in sees a good potential growth;

(ii) the potential investment is in a leading position in the industry; and (iii) the investment

cost is below the market level. Currently, majority pre-IPO investments held by the Target

Group, which were all unlisted when the Target Group made the relevant investments, are

now listed and/or in the process of application for listing on relevant stock exchanges. The

investments cover the industries of electrical equipment, transportation, financials, building

materials etc. In light of the industry prospects, the operation scale and the investment cost,

the Target Group is confident with the profitability of its investments. The investment in

distressed assets held by the Target Group is also expected with reasonable investment


– 10 –

return as it is made with reasonable investment cost and the Target Group believes a

reasonable return could be achievable upon disposal of the relevant distressed assets. As at

30 June 2009, the audited available-for-sale investments carried by the Target Group was

approximately HK$295.6 million. On top of making its own investment, the Target Group

has been pursuing private equity fund management business in the PRC. The Target Group

has set up a joint venture in the PRC to develop such business.

Set out below is a summary of the audited consolidated financial results of Sino-Rock

for the two financial years ended 31 December 2008 and the six months ended 30 June 2009,

which are extracted from the accountants’ report on the Target Group as set out in

Appendix II to this circular and are prepared in accordance with Hong Kong Financial

Reporting Standards:

Year ended 31 December

Six months

ended 30 June

2007 2008 2009

HK$’000 HK$’000 HK$’000

Turnover 390 15,096 1,013

Gain/(loss) on disposal of available-

for-sale investments 186,593 32,670 (7,691)

Profit before tax 145,011 6,234 3,613

Profit attributable to shareholders 128,728 6,234 2,896

As at 30 June 2009, the audited consolidated net asset value of Sino-Rock was

approximately HK$221.9 million.

REASONS FOR AND BENEFIT OF THE ACQUISITION

Since the change of controlling Shareholder of the Group took place in November

2008, the Group has been endeavoring to expand its business in both Hong Kong and the

PRC and to build up a well-known brand in the financial industry. The Directors consider

that the investments currently held by the Target Group are with good growth potential,

strong future profitability and good prospects, which would provide great value to the

Shareholders.

Being one of its business objectives, the Group has been exploring and analysing new

business opportunities in the asset management business. As mentioned in the 2009 interim

report of the Company, the Group was actively considering resuming the asset management

business, as it is an area of promising profitability. As set out above, the Target Group has

been pursuing private equity fund management services in the PRC. The Acquisition

accordingly provides a stepping stone for the Group to expand its range of financial services

to fund management services. The Acquisition represents a good opportunity for the Group

to participate in private equity fund management business in the PRC and provides a

diversified revenue base. By leveraging on the existing platform of the Target Group, the

Group would establish its reputation in private equity fund management business in the

PRC, which would help to its further development in private equity fund management


– 11 –

business either in local or overseas market. Upon Completion, the Group will develop its

private equity fund management business in the PRC through Sino-Rock. The Directors are

of the view that the non-competition clause in the Shareholders’ Agreement will not affect

the Group’s ability to pursue other equity fund management businesses either in local or

overseas market.

In view of the track record of the Target Group, the Directors expect that the Target

Group will contribute positively to the results of the Group.

The Directors (including the independent non-executive Directors) considered that the

Sale and Purchase Agreement was entered into on normal commercial terms in the ordinary

and usual course of business of the Company after arm’s length negotiation, and the terms

are fair and reasonable, and in the interests of the Company and Shareholders as a whole.

SHAREHOLDING STRUCTURE OF THE COMPANY

The issued share capital of the Company (i) as at the Latest Practicable Date and (ii)

immediately after issue and allotment of the Consideration Shares comprise:

No. of Shares

held as at the

Latest

Practicable

Date

Approximate

percentage of

shareholding

No. of Shares

held

immediately

after issue and

allotment of the

Consideration

Shares

Approximate

percentage of

shareholding

Sinoday 304,721,500 60.13% 304,721,500 57.03%

Vendor — — 27,575,000 5.16%

304,721,500 60.13% 332,296,500 62.19%

Public Shareholders:

— CCBIAM 50,676,000 9.99% 50,676,000 9.48%

— Silver Grant International

Securities Investment Limited 40,022,000 7.90% 40,022,000 7.49%

— Atlantis Investment Management

Limited 30,740,000 6.07% 30,740,000 5.75%

— Other Shareholders 80,603,500 15.91% 80,603,500 15.09%

202,041,500 39.87% 202,041,500 37.81%

Total 506,763,000 100.00% 534,338,000 100.00%

FINANCIAL EFFECT OF THE ACQUISITION

After the Acquisition, Sino-Rock will be accounted for as an associate company of the

Group by using equity method of accounting. The shareholding interest in Sino-Rock will

be recorded as ‘‘interests in associate’’ on the balance sheet, and any profit and loss of Sino-


– 12 –

Rock will be disclosed as ‘‘share of profits and losses of associates’’ in the income statement

of the Company. It is expected that the investments in Sino-Rock will contribute positively

to the results of the Group.

Assets

With reference to the unaudited total assets and net asset value of the Group of

approximately HK$280,165,000 and HK$205,005,000 as at 30 June 2009 and based on the

unaudited pro forma consolidated asset and liabilities of the Enlarged Group as set out in

Appendix III to this circular, the Acquisition will increase the unaudited consolidated total

assets of the Enlarged Group to approximately HK$335,315,000, where the unaudited pro

forma net asset value of the Enlarged Group would be increased to approximately

HK$260,155,000.

Liabilities

The Group recorded unaudited total liabilities of approximately HK$75,160,000 as at

30 June 2009. As set out in the pro forma consolidated asset and liabilities of the Enlarged

Group as set out in Appendix III to this circular, the unaudited pro forma total liabilities of

the Enlarged Group would be approximately HK$75,160,000, which is the same amount

prior to the Acquisition.

PROPOSED REFRESHMENT OF GENERAL MANDATE

Background of the General Mandate

At the Last AGM, the Shareholders passed, among others, an ordinary resolution to

grant to the Directors the General Mandate to allot, issue and deal with a maximum of

84,460,600 Shares, representing 20% of the aggregate nominal amount of the share capital

of the Company in issue as at the date of the Last AGM.

As set out in the announcement of the Company dated 4 August 2009, Sinoday and the

Company entered into the Top-Up Subscription Agreement pursuant to which Sinoday has

conditionally agreed to subscribe for up to 75,594,000 new Shares. Moreover, CCBIAM

and the Company also entered into the New Subscription Agreement pursuant to which

CCBIAM has conditionally agreed to subscribe for up to 8,866,000 new Shares.

As announced by the Company on 14 August 2009, completion of the Top-Up

Subscription and the New Subscription have been taken place on 14 August 2009. An

aggregate of 75,594,000 new Shares have been issued and allotted by the Company to

Sinoday and an aggregate of 8,866,000 new Shares have been issued and allotted by the

Company to CCBIAM. Accordingly, the General Mandate has been substantially utilised

with only 600 Shares can be further issued under the General Mandate as at the Latest

Practicable Date.


– 13 –

Refreshment of the General Mandate since the Last AGM

The Company has not refreshed the General Mandate since the date of the Last AGM

and up to the Latest Practicable Date.

Reasons for and benefits of the refreshment of the General Mandate

The Group is principally engaged in the provision of financial services in Hong Kong,

including the provision of leveraged foreign exchange trading and brokering services,

securities brokering and margin financing services, commodities and futures brokering,

financial planning, asset management and corporate financial advisory services in Hong

Kong.

As the General Mandate has been substantially utilised, the Directors consider it is in

the interests of the Company and the Shareholders as a whole to grant the New General

Mandate by maintaining the financial flexibility necessary for the Company to raise funds

through the issue of new Shares for its future business development.

The Directors consider that equity financing through the use of the New General

Mandate is an important avenue of resources to the Group, as it (i) does not incur any

interest paying obligations on the Group as in bank financing; (ii) is less costly and time-

consuming than raising funds by way of rights issue or open offer; and (iii) provides the

Company with the capability to capture any capital raising or prospective investment

opportunity as and when it arises. For these reasons, the Directors therefore proposed to

seek the approval from the Independent Shareholders at the SGM on the grant of the New

General Mandate.

The Company had an aggregate of 506,763,000 Shares in issue as at the Latest

Practicable Date. Assuming that no Shares will be issued or repurchased by the Company

between the Latest Practicable Date and the date of the SGM and subject to the passing of

the ordinary resolution for the approval of the grant of the New General Mandate, the New

General Mandate (if granted) will empower the Directors to allot, issue or otherwise deal

with up to a maximum of 101,352,600 new Shares. At the SGM, upon the ordinary

resolution relating to the grant of the New General Mandate is approved by the

Independent Shareholders, the General Mandate will be revoked.

Period during which the New General Mandate will remain effective

The New General Mandate will, if granted, remain effective until the earliest of (i) the

date of the next annual general meeting of the Company; (ii) the expiration of the period

within which the next annual general meeting of the Company is required by the

memorandum of association and Bye-laws of the Company or any other applicable laws to

be held; and (iii) the date upon which such authority is revoked or varied by an ordinary

resolution of the Shareholders in a general meeting of the Company.


– 14 –

Capital raising activities of the Company in the preceding 12 months

Date of

announcement

Capital raising

activity Net proceeds

Intended use of

proceeds Actual use of proceeds

4 August 2009 Subscription of

84,460,000 new

Shares

Approximately

HK$164

million

General working

capital

All proceeds have

been used as

general working

capital

Save for the above, the Company has not carried out other capital raising activities in

the twelve months immediately preceding the date of this circular.

IMPLICATIONS UNDER THE LISTING RULES

The Vendor is wholly-owned by China Cinda, which is the ultimate beneficial owner of

Sinoday, the controlling shareholder (as defined in the Listing Rules) of the Company.

Accordingly, the Vendor is regarded as a connected person of the Company pursuant to

Rule 14A.11(4) of the Listing Rules. Pursuant to Rule 14A.13(1), the Acquisition

constitutes a connected transaction of the Company and will be subject to the reporting,

announcement and Independent Shareholders’ approval requirements as set out in Rules

14A.45 to 14A.48 of the Listing Rules.

In addition, as some of the applicable percentage ratios (as defined in the Listing

Rules) exceed 25% but are less than 100%, the Acquisition also constitutes a major

transaction of the Company under Rule 14.06(3) of the Listing Rules.

Pursuant to Rule 13.36(4)(a) of the Listing Rules, any controlling shareholders (within

the meaning of the Listing Rules) and their associates, or where there are no controlling

shareholders, the Directors (excluding independent non-executive Directors) and the chief

executive of the Company and their respective associates shall abstain from voting in favour

of the resolution to approve the grant of the New General Mandate. Any vote of

Shareholders at SGM shall be taken by way of poll. As at the Latest Practicable Date,

Sinoday and its associates beneficially held 304,721,500 Shares, representing approximately

60.13% of the issued share capital of the Company.

A SGM will be convened and held to consider and, if thought fit, to approve (i) the

Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) the grant

of the specific mandate for the issue of the Consideration Shares; and (iii) the New General

Mandate. Sinoday and its associates, being the controlling Shareholders of the Company,

will abstain from voting in the SGM.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprises Mr. Wang Tongsan, Mr. Chen

Gongmeng and Mr. Hung Muk Ming, all being independent non-executive Directors. It

has been established to advise the Independent Shareholders (a) as to whether (i) the terms

of the Sale and Purchase Agreement and the transactions contemplated thereunder

(including but not limited to the issue and allotment of the Consideration Shares); and (ii)

the proposed grant of New General Mandate, are on normal commercial terms, fair and


– 15 –

reasonable and in the interests of the Company and the Shareholders as a whole and (b)

whether to vote in favour of the ordinary resolutions for approving (i) the Sale and

Purchase Agreement and the transactions contemplated thereunder; (ii) the grant of the

specific mandate for the issue of the Consideration Shares; and (iii) the grant of New

General Mandate. Ample Capital has been appointed as the independent financial adviser

to advise the Independent Board Committee and the Independent Shareholders in respect of

(i) the Sale and Purchase Agreements and the transactions contemplated thereunder

(including but not limited to the issue and allotment of the Consideration Shares); and (ii)

the proposed grant of the New General Mandate.

SGM

Set out on pages 216 to 218 of this circular is a notice convening the SGM which will be

held on Friday, 11 December 2009 at 8 : 30 a.m. at 45th Floor, COSCO Tower, 183 Queen’s

Road Central, Hong Kong. At the SGM, ordinary resolutions will be proposed to approve

(i) the Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) the

grant of the specific mandate for the issue of the Consideration Shares; and (iii) the grant of

New General Mandate. Any vote exercised by the Independent Shareholders at the SGM

shall be taken by way of poll.

A form of proxy of the SGM is enclosed with this circular. Whether or not you are able

to attend and vote at the SGM, you are requested to complete and deposited the same to the

Company’s Hong Kong branch share registrar, Tricor Secretaries Limited at 26th Floor,

Tesbury Centre, 28 Queen’s Road East, Hong Kong in accordance with the instructions

printed thereon as soon as possible and in any event not less than 48 hours before the time

appointed for the holding of SGM. Completion and delivery of the form of proxy will not

preclude you from attending and voting at SGM or any adjournment thereof if you so wish.

RECOMMENDATIONS

Your attention is drawn to the letter of advice from the Independent Financial Adviser

set out on pages 19 to 31 of this circular which contains its advice to the Independent Board

Committee and the Independent Shareholders in connection with (i) the Sale and Purchase

Agreement and transactions contemplated thereunder (including but not limited to the issue

and allotment of the Consideration Shares); and (ii) the grant of the New General Mandate

and the letter from the Independent Board Committee set out on page 18 of this circular

which contains its recommendation to the Independent Shareholders in relation to the same

matters.

The Board (including the Independent Board Committee) having taken into account

the advice of the Independent Financial Adviser in relation to the (i) the Sale and Purchase

Agreement and transactions contemplated thereunder (including but not limited to the issue

and allotment of the Consideration Shares); and (ii) the grant of the New General Mandate,

is of the opinion that (i) the Sale and Purchase Agreement and transactions contemplated

thereunder (including but not limited to the issue and allotment of the Consideration

Shares); and (ii) the grant of the New General Mandate, are fair and reasonable so far as the

Independent Shareholders are concerned and are in the interests of the Company and the

Shareholders as a whole as well as the Sale and Purchase Agreement is on normal


– 16 –

commercial terms. Therefore, the Directors (including the independent non-executive

Directors) after taking into account the recommendation of the Independent Financial

Adviser and the Independent Board Committee, recommend the Independent Shareholders

to vote in favour of the ordinary resolutions in relation to (i) the Sale and Purchase

Agreement and the transactions contemplated thereunder (including but not limited to the

issue and allotment of the Consideration Shares); and (ii) the grant of the New General

Mandate.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information as set out in the following

appendices to this circular.

By order of the Board

Cinda International Holdings Limited

Lau Mun Chung

Executive Director


– 17 –


(Stock code: 111)

26 November 2009

To the Independent Shareholders

Dear Sir/Madam,





We refer to the circular issued by the Company to the Shareholders and dated

26 November 2009 (‘‘Circular’’) of which this letter form part.

We have been appointed as the Independent Board Committee to advise the

Independent Shareholders in connection with the Acquisition and the grant of the New

General Mandate, details of which are set out in the Circular. Ample Capital has been

appointed as the independent financial adviser to advise us in this respect. Terms defined in

this Circular have the same meanings when used herein unless the context otherwise

requires.

Having considered the advice of the Independent Financial Adviser in relation thereto

as set out in the Circular, we are of the opinion that the terms of the Acquisition and the

proposed grant of New General Mandate are fair and reasonable and are in the interests of

the Company and the Shareholders as a whole. Accordingly, we recommend the

Independent Shareholders to vote in favour of the relevant ordinary resolutions to be

proposed at the SGM to approve the Acquisition and the proposed grant of the New

General Mandate by way of poll.

Yours faithfully,

For and on behalf of the

Independent Board Committee

Mr. Wang Tongsan Mr. Chen Gongmeng Mr. Hung Muk Ming

Independent non-executive Directors

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 18 –

Ample Capital Limited

Unit A, 14th Floor

Two Chinachem Plaza

135 Des Voeux Road Central

Hong Kong

26 November 2009

To the Independent Board Committee

and the Independent Shareholders

Dear Sirs,





INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent

Board Committee and the Independent Shareholders on the Acquisition and refreshment of

general mandate to allot and issue Shares, details of which are contained in the Letter from

the Board (the ‘‘Letter from the Board’’) contained in the circular (the ‘‘Circular’’) of the

Company to the Shareholders dated 26 November 2009, of which this letter forms part.

Terms used in this letter have the same meanings as defined in the Circular unless the

context otherwise requires.

On 9 November 2009, the Purchaser entered into the Sale and Purchase Agreement

with the Vendor, pursuant to which the Purchaser has conditionally agreed to acquire the

Sale Shares at the Consideration of HK$110,300,000. To satisfy part of the Consideration,

the Company will issue and allot 27,575,000 Shares as Consideration Shares to the Vendor

or its nominee(s) at the Issue Price of HK$2 per Consideration Share upon Completion.

The Vendor is wholly owned by China Cinda, which is the ultimate beneficial owner of

Sinoday, the controlling shareholder (as defined in the Listing Rules) of the Company.

Accordingly, the Vendor is regarded as a connected person of the Company pursuant to

Rules 14A.11(4) of the Listing Rules. Pursuant to Rule 14A.13(1), the Acquisition

constitutes a connected transaction of the Company and will be subject to the reporting,

announcement and Independent Shareholders’ approval requirements as set out in Rules

14A.45 to 14A.48 of the Listing Rules.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 19 –

Pursuant to Rule 13.36(4)(a) of the Listing Rules, the refreshment of general mandate

requires the approval of the Independent Shareholders at the SGM at which the controlling

Shareholders and their associates or if there are no controlling Shareholders, the Directors

(excluding the independent non-executive Directors) and their associates shall abstain from

voting in favour of the resolution to be proposed in respect of the refreshment of the general

mandate.

Sinoday and its associates, being the controlling Shareholders of the Company, will

abstain from voting in the SGM. As at the Latest Practicable Date, Sinoday and its

associates beneficially held 304,721,500 Shares, representing approximately 60.13% of the

issued share capital of the Company.

The Independent Board Committee has been established to advise whether the terms of

the Acquisition and the New General Mandate are fair and reasonable and whether the

Acquisition and the New General Mandate are in the interests of the Company and its

Independent Shareholders as a whole and to advise the Independent Shareholders on how

to vote. The Independent Board Committee comprising Mr. Wang Tongsan, Mr. Chen

Gongmeng and Mr. Hung Muk Ming, all being independent non-executive Directors, has

been formed to advise the Independent Shareholders in this respect.

BASIS OF OUR ADVICE

In arriving at our recommendation, we have relied on the information and facts

provided by the Company and have assumed that any representations made to us are true,

accurate and complete. We have also relied on the statements, information, opinions and

representations contained in the Circular and the information and representations provided

to us by the Directors and management of the Company. We have assumed that all

information, representations and opinions contained or referred to in the Circular and all

information, representations and opinions which have been provided by the Directors and

management of the Company for which they are solely responsible, are true and accurate at

the time they were made and will continue to be accurate at the date of the despatch of the

Circular.

The Directors jointly and severally accept full responsibility for the accuracy of the

information contained in the Circular and confirm, having made all reasonable enquiries,

that to the best of their knowledge and belief, opinions expressed in the Circular have been

arrived at after due and careful consideration and there are no other facts not contained in

the Circular the omission of which would make any such statement contained in the

Circular misleading. We consider that we have been provided with sufficient information on

which to form a reasonable basis for our opinion. We have no reason to suspect that any

relevant information has been withheld, nor are we aware of any fact or circumstance which

would render the information provided and representations and opinions made to us

untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have

further confirmed that, to the best of their knowledge, they believe there are no other facts

or representations the omission of which would make any statement in the Circular,

including this letter, misleading. We have not, however, carried out any independent


– 20 –

verification of the information provided by the Directors and management of the Company,

nor have we conducted an independent investigation into the business and affairs of the

Group.

(I) THE ACQUISITION

Principal Factors taken into Account

The principal factors and reasons that we have taken into consideration in

assessing the terms of the Acquisition and arriving at our opinion are set out as

follows:

1. Background and reason for the Acquisition

(i) Background of the Target Group

Sino-Rock is a company incorporated on 4 June 1992. Since February

2006, Sino-Rock became an associate company of the Vendor. As at the

Latest Practicable Date, Sino-Rock is owned as to 40% by the Vendor and

30% each by two independent third parties. Upon Completion, Sino-Rock

will be owned as to 40% by the Company through the Purchaser and will

become an associate company of the Company.

The Target Group is currently principally engaged in pre-IPO

investment and investment in distressed assets. As at 30 June 2009, the

available-for-sale investments carried by the Target Group was

approximately HK$295.6 million. On top of making its own investment,

the Target Group has been pursuing private equity fund management

business in the PRC. The Target Group has set up a joint venture in the PRC

to develop such business. We understand from the Company that the private

equity fund management business of the Target Group is in its initial stage of

development.


– 21 –

Set out below is a summary of the audited consolidated financial results

of Sino-Rock for the two financial years ended 31 December 2008 and the six

months ended 30 June 2009, which was prepared in accordance with Hong

Kong Financial Reporting Standards and extracted from the accountants’

report of Sino-Rock set out in Appendix II to the Circular:


Six months

ended

30 June

2007 2008 2009

HK$’000 HK$’000 HK$’000

Turnover 390 15,096 1,013

Gain/(loss) on disposal of

available-for-sale

investments 186,593 32,670 (7,691)

Profit before tax 145,011 6,234 3,613

Profit attributable to

shareholders 128,728 6,234 2,896

As at 30 June 2009, the audited consolidated net asset value of Sino-

Rock was approximately HK$221.9 million.

(ii) Reasons for the Acquisition

The Group is principally engaged in the provision of financial services in

Hong Kong including the provision of leveraged foreign exchange trading

and brokering services, securities brokering and margin financing services,

commodities and futures brokering, financial planning, asset management

and corporate financial advisory services in Hong Kong.

Sinoday, which is ultimately owned by China Cinda, became the

controlling shareholder of the Company in late 2008. China Cinda is a wholly

state-owned financial enterprise with the status of an independent legal entity

established on 20 April 1999, with capital of RMB10 billion fully contributed

by the Ministry of Finance of the PRC and is the first financial institution in

management and disposal of non-performing assets in the PRC with the book

value of non-performing assets acquired and under custody by it being over

RMB1,000 billion. We understand from the Company that since the change

of controlling shareholder of the Group, the Group has been endeavoring to

expand its business in both Hong Kong and the PRC and to build up a well-

known brand in the financial industry.

We also understand from the Company that the Group has been

exploring and analysing new business opportunities in the asset management

business. According to the interim report of the Company for the six months

ended 30 June 2009 (‘‘2009 Interim Report’’), the Group was actively


– 22 –

considering resuming the asset management business. As set out above, the

Target Group has been pursuing private equity fund management services in

the PRC. The Acquisition accordingly provides a stepping stone for the

Group to expand its range of financial services to fund management services.

Upon Completion, the Group will develop its private equity fund

management business in the PRC through Sino-Rock. We understand from

the Company that although Sino-Rock will only be an associate company of

the Company, the Group is going to make use of the fund management

platform of Sino-Rock in order to develop the Group’s experience, market

knowledge and reputation in operating such business, which will be beneficial

to the Group’s further development of the fund management business on its

own in the future. Accordingly, the Acquisition is in line with the business

plan of the Group.

As set out in the Interim Report, the Group’s turnover for the 1st half of

2009 declined to HK$31.3 million from HK$57 million for the same period in

2008 while the Group moved from a profit of HK$4.8 million for the 1st half

of 2008 to a loss of HK$22.4 million for the 1st half of 2009. Such a

deteriorating results were mainly attributable to the poor market sentiment

as well as the disposal of certain profitable operations by the Group during

the change in controlling shareholder mentioned above. We are of the view

that it is in the interest of the Group and its Shareholders to diversify the

Group’s business in order to bring into profitable business operation to the

Group and to offer a wider range of financial services to clients. In view of

the track record of the Target Group, we are of the view that the Acquisition

can provide a new source of income to the Group and contribute positively to

its results.

In view of the above, we are of the view that the Acquisition is in the

interest of the Group and the Shareholders as a whole.

2. Terms of the Acquisition

(a) Consideration

The Consideration is HK$110.3 million which was arrived at after arm’s

length negotiations between the Vendor and the Purchaser with reference to

the unaudited consolidated net asset value of Sino-Rock as at 30 June 2009

being HK$221.9 million and the earning potential of the Target Group in its

pre-IPO investments and private equity fund management business in the

PRC.

In assessing the fairness and reasonableness of the Consideration, we

have identified 19 comparable companies (the ‘‘Comparable Companies’’)

being an exhaustive list of investment companies listed on the Stock

Exchange identified by us to our best knowledge. We noticed that all of

the Comparable Companies except one recorded a loss in their latest

published annual accounts. Accordingly, it is not applicable to use the price-


– 23 –

to-earnings ratio to justify the Consideration. In view of that, we resort to

use the price-to-net asset value ratio (‘‘P/B ratio’’) for our analysis. Although

we have not compared the investment portfolio of the Target Company with

that of the Comparable Companies due to the fact that the details of the

investment portfolio held by the Comparable Companies as disclosed in the

published information are limited and it is not possible to compare different

types of portfolio as they are specific in nature, we consider that our analysis,

which includes an exhaustive list of investment companies listed on the Stock

Exchange, provides a reasonable yardstick, to justify the Consideration.

Based on the 40% interest in Sino-Rock to be acquired by the Company and

the audited net assets of the Target Group of approximately HK$221.9

million as at 30 June 2009, the Consideration of HK$110.3 million would

therefore represent a P/B ratio of approximately 1.24 times.

Company name Stock code

P/B ratio

(times)(Note 1)

China Merchants China Direct

Investments Ltd. 133 0.60

Temujin International Investments Ltd. 204 3.27

Prosperity Investment Holdings Ltd. 310 0.80

Earnest Investments Holdings Ltd. 339 0.94

Incutech Investments Ltd. 356 N/A(Note 2)

Harmony Asset Ltd. 428 0.68

China Investment Fund Co. Ltd. 612 1.06

Prime Investments Holdings Ltd. 721 0.96

UBA Investments Ltd. 768 0.70

Shanghai International Shanghai

Growth Investment Ltd. 770 0.09

Opes Asia Development Ltd. 810 4.02

Radford Capital Investment Ltd. 901 0.44

Mastermind Capital Ltd. 905 6.00

Unity Investments Holdings Ltd. 913 0.22

OP Financial Investments Ltd. 1140 0.78

Grand Investment International Ltd. 1160 1.18

Garron International Ltd. 1226 N/A(Note 2)

National Investments Fund Ltd. 1227 1.86

Sino Katalytics Investment Corporation 2324 0.28

Average 1.40

Average

(taking out the

highest and

lowest P/B) 1.19

Median 0.79

Source: www.hkex.com.hk, and the relevant published announcements of the

Comparable Companies.


– 24 –

Notes:

1. P/B is calculated based on (i) market price of the Comparable Companies as at 9

November 2009, the date of the Sale and Purchase Agreement; and (ii) net asset

value of the Comparable Companies extracted from their latest published

announcement.

2. The company recorded net liabilities in its latest published announcement.

As illustrated above, the P/Bs of the Comparable Companies range from

0.09 time to 6.00 times, with an average of 1.19 times (if taking out the

highest and lowest P/B). The P/B of Sino-Rock implied by the Consideration,

being 1.24 times, is therefore within the above range and very closed to the

above average. Although the P/B implied by Sino-Rock is higher than the

median P/B of the Comparable Companies, we consider that a higher P/B is

deserved having taken into consideration that all of the Comparable

Companies (except one) recorded a loss in their latest published accounts

but Sino-Rock recorded a profit of approximately HK$6.2 million in the year

ended 31 December 2008. In view of the above analysis, we consider that the

Consideration is fair and reasonable so far as the Group and the Independent

Shareholders are concerned.

(b) Consideration Shares

The Consideration shall be satisfied as follows:

(i) as to HK$55,150,000 shall be satisfied in cash upon Completion;

and

(ii) as to HK$55,150,000 shall be satisfied by procuring the Company

to allot and issue 27,575,000 Consideration Shares to the Vendor at

the Issue Price of HK$2 per Consideration Share upon Completion.

Based on the Issue Price, an aggregate of 27,575,000 new Shares would

fall to be issued upon Completion representing approximately 5.44% of the

issued share capital of the Company as at the Latest Practicable Date and

approximately 5.16% of the total issued share capital of the Company as

enlarged by the issue and allotment of the Consideration Shares.

The Issue Price of HK$2 per Consideration Share represents:

(i) a discount of approximately 2.44% to the closing price of HK$2.05

per Share as quoted on the Stock Exchange on 9 November 2009,

being the date of the Sale and Purchase Agreement;

(ii) a discount of approximately 0.30% to the average closing price of

approximately HK$2.006 per Share as quoted on the Stock

Exchange for the five consecutive trading days up to and

including 9 November 2009; and


– 25 –

(iii) a premium of approximately 308.16% over the unaudited net asset

value per Share of approximately HK$0.49 based on the unaudited

consolidated net asset value of the Group of HK$205,005,000 as at

30 June 2009 and a total of 422,303,000 Shares as at that date.

In order to evaluate the fairness and reasonableness of the Issue Price,

we have identified, to our best knowledge and as far as we are aware of, the

following connected transactions involving the issue of shares by companies

listed on the Stock Exchange during the three-month period ended 9

November 2009 (the ‘‘Consideration Share Comparables’’). Shareholders

should note that the businesses, operations and prospects of the Company

are not the same as the Consideration Share Comparables and therefore, the

Consideration Share Comparables are only used to provide a general

reference for the common market practice of companies listed on the Stock

Exchange in transactions which involved the issue of consideration shares.

Name of company (stock code)

Date of

announcement

Premium/(discount) of

issue price per

consideration share to

the closing price as at

the last trading day

prior to the release of

the announcement

%

Tianjin Tianlian Public Utilities

Company Limited (8290)

5 November 2009 (15.00)

Hopson Development Holdings

Limited (754)

2 November 2009 3.10

PetroAsian Energy Holdings

Limited (850)

1 November 2009 7.95

Berjaya Holdings (HK) Limited (288) 30 October 2009 (72.97)

China Digital Licensing (Group

Limited (8175)

15 October 2009 (27.69)

Fushan International Energy Group

Limited (639)

23 September 2009 1.20

AMVIG Holdings Limited (2300) 17 September 2009 29.60

China Sciences Conservational

Power Limited (351)

3 September 2009 (66.37)

China Digital Licensing (Group)

Limited (8175)

18 August 2009 (5.05)

Sino Union Petroleum &

Chemical International Limited (346)

14 August 2009 3.4

Minimum (72.97)

Maximum 29.60

Average (14.18)

We note from the above table that the issue prices of the Consideration

Share Comparables ranged from a discount of approximately 72.97% to a

premium of approximately 29.60% to/over the respective closing prices of

their shares as at the last trading days prior to the release of the relevant


– 26 –

announcements. Out of the 10 Consideration Share Comparables, five of

them represented discounts to the closing prices of their shares at the last

trading days prior to the release of the relevant announcements. The Issue

Price, which represented a discount of approximately 2.44% to the closing

price of HK$2.05 per Share as quoted on the Stock Exchange on 9 November

2009, falls within the above market range. Accordingly, we are of the view

that the Issue Price is fair and reasonable so far as the Independent

Shareholders are concerned.

3. Dilution of the shareholding interests in the Company

The table below demonstrates the shareholding structure of the Company

immediately before and after the issue and allotment of the Consideration Shares

assuming that there is no change in the shareholding structure of the Company

from the Latest Practicable Date:

No. of Shares

held as

at the Latest

Practicable Date

Approximate

percentage of

shareholding

No. of Shares

held immediately

after issue and

allotment of the

Consideration

Shares

Approximate

percentage of

shareholding

(%) (%)

Sinoday 304,721,500 60.13% 304,721,500 57.03%

Vendor — — 27,575,000 5.16%

Public Shareholders 202,041,500 39.87% 202,041,500 37.81%

Total 506,763,000 100.00% 534,338,000 100.00%

As shown in the above table, the shareholding interests of the existing public

Shareholders will be decreased from approximately 39.87% to 37.81%

immediately after the issue and allotment of the Consideration Shares,

representing a dilution of approximately 5.17%. After taking into account that

(i) the terms of the Sale and Purchase Agreement were fairly and reasonably set;

(ii) the reasons and benefits of the Acquisition; and (iii) the shareholding interests

of the existing public Shareholders will be diluted in proportion to their respective

shareholdings in the Company, we are of the view that the dilution effect to the

public Shareholders is acceptable.

4. Shareholders’ Agreement and Supplemental Agreement

Upon Completion, the Purchaser will enter into the Supplemental Agreement

with the existing shareholders of Sino-Rock (other than the Vendor) and Sino-

Rock, pursuant to which the Purchaser will take the benefits and obligations

under the Shareholders’ Agreement in place of the Vendor as from Completion.

The Shareholders’ Agreement was entered into on 8 December 2005 between,

inter alia, the then existing shareholders of Sino-Rock, including the Vendor,

which governs the affairs of Sino-Rock and the respective rights and obligations


– 27 –

of the shareholders of Sino-Rock. Following changes in the shareholding of Sino-

Rock in 2007 and September 2009, the Existing Supplemental Agreements were

entered into between, inter alia, the then existing shareholders of Sino-Rock to

supplement and revise the Shareholders’ Agreement.

The key terms to the Shareholders’ Agreement (as supplemented and revised

by the Existing Supplemental Agreements) are disclosed in the Letter from the

Board.

We have reviewed the terms of the Shareholders’ Agreement and noted that

the Shareholders’ Agreement includes the usual terms of a normal agreement in

relation to ownership, management and operations of a company and we are not

aware of any terms which are unusual. Based on the above, we are of the view that

the terms of the Shareholders’ Agreement are fair and reasonable so far as the

Independent Shareholders are concerned.

5. Financial effect of the Acquisition on the Group

(i) Earnings and net asset value

Upon Completion, Sino-Rock will be owned as to 40% by the Company

and will become an associate company of the Company. Accordingly, the

results of Sino-Rock will be equity accounted for in the Company’s accounts.

In view of the track record profitability of the Target Group, the Directors

expect that Sino-Rock will contribute positively to the Group’s results in the

future.

(ii) Net asset value

According to the 2009 Interim Report, the consolidated net assets of

Group were approximately RMB205.0 million as at 30 June 2009. As noted

from the section headed ‘‘Pro Forma financial Information of the Enlarged

Group’’ set out in Appendix III to the Circular, the net asset value of the

Group would increase to approximately HK$260.2 million upon Completion.

Such an increase in net asset value was resulted from the fact that part of the

Consideration will be settled by the issue of the Consideration Shares.

(iii) Liquidity and cash position

Based on the 2009 Interim Report, as at 30 June 2009, the Group’s cash

and cash equivalents was approximately HK$102.3 million. Moreover, the

net proceeds from the New Subscription and the Top-Up Subscription

completed in August 2009 amounted to approximately HK$164 million. The

cash portion of the Consideration of approximately HK$55.2 million

represents approximately 24.4% of the sum of the above cash balance of

the Group. In this regard, we concur with the view of the management of the

Company that the Acquisition has no immediate material adverse impact on

the Group’s working capital position.


– 28 –

Recommendation on the Acquisition

Having taken into account the principal factors and reasons referred to the above,

we are of the opinion that the terms of the Acquisition are normal commercial terms

and are fair and reasonable so far as the Independent Shareholders are concerned and

the Acquisition is entered into in the ordinary course of business of the Group and in

the interests of the Company and the Shareholders as a whole. Accordingly, we advise

the Independent Board Committee to recommend the Independent Shareholders, as

well as the Independent Shareholders, to vote in favour of the ordinary resolution(s) in

respect of approving the Acquisition.

(II) REFRESHMENT OF GENERAL MANDATE

Principal Factors taken into Account

The principal factors and reasons that we have taken into consideration in

assessing the terms of the New General Mandate and arriving at our opinion are set

out as follows:

1. Background and reason for the proposed refreshment of the General Mandate

At the Last AGM, the Shareholders passed an ordinary resolution to grant to

the Directors the General Mandate to allot, issue and deal with a maximum of

84,460,600 Shares, representing 20% of the aggregate nominal amount of the

share capital of the Company in issue as at the date of the Last AGM.

As set out in the announcement of the Company dated 4 August 2009,

Sinoday and the Company entered into the Top-Up Subscription Agreement

pursuant to which Sinoday has conditionally agreed to subscribe for up to

75,594,000 new Shares. Moreover, CCBIAM and the Company also entered into

the New Subscription Agreement pursuant to which CCBIAM has conditionally

agreed to subscribe for up to 8,866,000 new Shares. Completion of the Top-Up

Subscription and the New Subscription have been taken place on 14 August 2009.

An aggregate of 75,594,000 new Shares have been issued and allotted by the

Company to Sinoday and an aggregate of 8,866,000 new Shares have been issued

and allotted by the Company to CCBIAM. Accordingly, the General Mandate has

been substantially utilised with only 600 Shares remaining outstanding under the

General Mandate as at the Latest Practicable Date.

As the General Mandate has been substantially utilised, the Directors

consider it is in the interests of the Company and the Shareholders as a whole to

grant the New General Mandate by maintaining the financial flexibility necessary

for the Company to raise funds through the issue of new Shares for its future

business development.

Based on 506,763,000 Shares in issue as at the Latest Practicable Date and

assuming that no further Shares are repurchased and issued prior to the SGM,

subject to the passing of the relevant ordinary resolution to approve the grant of


– 29 –

the New General Mandate at the SGM, the Directors will be authorized to allot

and issue up to a limit of 101,352,600 new Shares under the New General

Mandate.

The Directors consider that equity financing through the use of the New

General Mandate is an important avenue of resources to the Group, as it (i) does

not incur any interest paying obligations on the Group as in bank financing; (ii) is

less costly and time-consuming than raising funds by way of rights issue or open

offer; and (iii) provides the Company with the capability to capture any capital

raising or prospective investment opportunity as and when it arises. For these

reasons, the Directors therefore proposed to seek the approval from the

Independent Shareholders at the SGM on the grant of the New General Mandate.

We consider that the granting of the New General Mandate could enhance

the financial flexibility of the Company to raise capital and to strengthen the

capital base of the Group, if and when required, through placing of Shares for

further development of the Group. In addition, the increase in the amount of

capital which may be raised under the New General Mandate would improve the

overall financial position of the Group which in turn could provide more options

for financing to the Group when assessing and negotiating potential investments

and/or acquisitions in a timely manner without increasing the liabilities under the

debt financing methods. Accordingly, we are of the view that the granting of the

New General Mandate is in the interest of the Company and the Independent

Shareholders as a whole.

2. Potential dilution to shareholding to the Independent Shareholders

Set out below is a table showing the shareholding structure of the Company

(i) as at the Latest Practicable Date; and (ii) upon full utilization of the New

General Mandate.

No. of Shares

held as

at the Latest

Practicable Date

Approximate

percentage of

shareholding

Upon fully

utilization of the

New General

Mandate

Approximate

percentage of

shareholding

(%) (%)

Sinoday 304,721,500 60.13% 304,721,500 50.11%

Shares to be issued

under the New

General Mandate — — 101,352,600 16.67%

Existing public

Shareholders: 202,041,500 39.87% 202,041,500 33.22%

Total 506,763,000 100.00% 608,115,600 100.00%

As demonstrated in the above table, there are possible dilution effects arising

from the possible placing of new shares under the New General Mandate. The

aggregate shareholding of the existing public Shareholders will decrease from

approximately 39.87% as at the Latest Practicable Date to 33.22% upon fully


– 30 –

utilization of the New General Mandate. Taking into account that the New

General Mandate (i) allows the Company to raise capital by allotment and issue of

new Shares before the next annual general meeting; (ii) provides more flexibility

and options of financing to the Group for further business development as well as

for other potential future investments and/or acquisitions as and when such

opportunities arise; and (iii) the shareholding interests of all the Shareholders will

be decreased in proportion to their respective shareholdings upon any utilization

of the New General Mandate, we consider that such potential decrease in

shareholding of the public Shareholders is acceptable.

Recommendation on the Refreshment of General Mandate

Having taking into the consideration of the above factors and reasons, we are of

the view that the New General Mandate is in the interests of the Company and the

Independent Shareholders as a whole and the terms of the New General Mandate are

fair and reasonable so far as the Independent Shareholders are concerned.

Accordingly, we advise the Independent Board Committee to recommend the

Independent Shareholders, as well as the Independent Shareholders, to vote in

favour of the ordinary resolution(s) in respect of approving the New General Mandate.

Yours faithfully,

For and on behalf of

Ample Capital Limited

H. W. Tang

President


– 31 –

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

The following is a summary of the consolidated results of the Group for the three years

ended 31 December 2008 as extracted from the relevant annual reports of the Company for

the years presented.


2008 2007 2006

HK$’000 HK$’000 HK$’000

Continuing operations

Results

Turnover 100,395 465,761 355,420

Operating (loss)/profit (17,356) 59,855 62,166

(Loss)/profit before taxation (18,872) 53,430 64,108

(Loss)/profit for the year (19,768) 40,359 52,269

As at 31 December

2008 2007 2006

HK$’000 HK$’000 HK$’000

Assets and liabilities

Total assets 292,656 911,687 779,401

Total liabilities 65,274 519,246 423,634

Total equity 227,382 392,441 355,767

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

– 32 –

2. AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR

ENDED 31 DECEMBER 2008

The followings are the audited financial statements of the Group for the year ended 31

December 2008 and the comparative figures for the year ended 31 December 2007, together

with the notes thereto as extracted from the annual report of the Company for the year

ended 31 December 2008.

Consolidated Income Statement

For the year ended 31 December 2008

2008 2007

Note HK$’000 HK$’000

(restated)


Turnover 5 100,395 170,769

Other revenue 5 1,357 1,041

Other net income 5 (2,023) 1,987

99,729 173,797

Staff costs 6 31,838 38,434

Commission expenses 37,562 69,992

Operating leases for land and buildings 10,455 9,283

Other operating expenses 7 37,230 34,847

Total operating expenses 117,085 152,556

Operating (loss)/profit (17,356) 21,241

Finance costs 8 (1,516) (8,417)

(Loss)/profit before taxation (18,872) 12,824

Income tax 9 (896) (2,682)

(Loss)/profit for the year from continuing

operations (19,768) 10,142


– 33 –

2008 2007


(restated)

Discontinued operations

Profit for the period/year from

discontinued operations 10 8,834 30,217

(Loss)/profit for the year (10,934) 40,359

Attributable to:

Equity holders of the Company (11,023) 40,357

Minority interests 89 2

(10,934) 40,359

Dividends attributable to the year:

Interim dividend declared during

the year 12 — 6,213

Final dividend proposed after

the balance sheet date 12 — 10,393

Final dividend paid in respect of

previous year 12 22 —

Distribution in specie 12 133,379 —

133,401 16,606

(Loss)/earnings per share

Basic

— From continuing and

discontinued operations 13(a) (HK2.64 cents) HK9.74 cents

— From continuing operations 13(a) (HK4.74 cents) HK2.45 cents

— From discontinued operations 13(a) HK2.10 cents HK7.29 cents


– 34 –

Consolidated Balance Sheet

As at 31 December 2008

2008 2007


Non-current assets

Intangible assets 14 1,319 6,871

Fixed assets 15 7,752 19,980

Interests in associates 17 — 15,288

Other assets 18 3,600 3,890

Available-for-sale financial assets 19 — 12,293

Deferred income tax assets 20 — 1,549

12,671 59,871

Current assets

Financial assets at fair value through

profit or loss 21 1,397 5,602

Taxation recoverable 177 514

Trade and other receivables 22 90,281 471,516

Bank balances and cash 23 188,130 374,184

279,985 851,816

Current liabilities

Trade and other payables 27 64,768 454,810

Short-term loans and bank overdrafts 28 — 16,692

Current portion of obligations

under finance lease 26 506 537

Taxation payable — 4,006

65,274 476,045

Net current assets 214,711 375,771

Total assets less current liabilities 227,382 435,642


– 35 –

2008 2007


Non-current liabilities

Obligations under finance lease 26 — 506

Deferred income tax liabilities 20 — 170

Loan notes 29 — 42,525

— 43,201

NET ASSETS 227,382 392,441

Capital and reserves

Share capital 24 42,230 41,443

Other reserves 25 136,204 216,639

Retained earnings

Proposed final dividend 25 — 10,393

Others 25 48,948 123,631

Total equity attributable to the equity holders of

the Company 227,382 392,106

Minority interests — 335

TOTAL EQUITY 227,382 392,441


– 36 –

Balance Sheet


2008 2007


(restated)

Non-current assets

Fixed assets 15 — 221

Investment in subsidiaries 3,16 220,009 220,615

220,009 220,836

Current assets

Financial assets at fair value through

profit or loss 21 570 1,379

Other receivables 22 513 8,889

Amounts due from subsidiaries 16(a) 57,656 152,236


69,445 181,697

Current liabilities

Other payables 27 2,237 10,354

Amounts due to subsidiaries 16(a) 31,186 28,772

33,423 39,126





NET ASSETS 256,031 320,882



Other reserves 25 169,116 240,000

Retained earnings

Proposed final dividend 25 — 10,393

Others 25 44,685 29,046

TOTAL EQUITY 256,031 320,882


– 37 –

Consolidated Statement of Changes in Equity


Attributable to equity holders

of the Company

Share

capital

Other

reserves

Retained

earnings

Minority

interests Total

Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Balance at 1 January 2007 41,413 208,262 106,092 — 355,767

Capital contribution from

minority shareholders — — — 310 310

Acquisition of a subsidiary 33(b) — — — 23 23

Shares issued under share

option scheme 24, 25 30 234 — — 264

Share-based payments 25 — 1,802 — — 1,802

Surplus on revaluation of

available-for-sale

financial assets 19 — 2,057 — — 2,057

Exchange difference — 4,284 — — 4,284

Profit for the year — — 40,357 2 40,359

2006 final dividend paid 12 — — (6,212) — (6,212)

2007 interim dividend paid 12 — — (6,213) — (6,213)

Balance at 31 December 2007 41,443 216,639 134,024 335 392,441

Balance at 1 January 2008 41,443 216,639 134,024 335 392,441


option scheme 24, 25 787 6,141 — — 6,928

Share-based payments 25 — (739) — — (739)


immediate holding company 32(b) — 2,372 — — 2,372


former ultimate holding

company 6 — 1,420 — — 1,420

Deficit on revaluation of

available-for-sale

financial assets 19 — (133) — — (133)

Recognised revaluation reserve

as gain on disposal of

available-for-sale

financial assets — (2,558) — — (2,558)

Exchange difference — (17,621) — — (17,621)

(Loss)/profit for the year — — (11,023) 89 (10,934)

2007 final dividend paid 12 — — (10,415) — (10,415)

Distribution in specie 12 — (69,317) (63,638) (424) (133,379)

Balance at 31 December 2008 42,230 136,204 48,948 — 227,382

Included in the consolidated retained earnings at 31 December 2007 are statutory

reserves of HK$203,506 which are required to be held in respect of certain overseas

subsidiaries of the Group.


– 38 –

Consolidated Cash Flow Statement


2008 2007


Net cash (outflow)/inflow from

operating activities 33(a) (11,407) 62,044

Investing activities

Purchase of fixed assets (26,387) (7,279)

Sale of fixed assets 169 8

Sale of financial assets at fair value through

profit or loss 1,206 13,364

Sale of available-for-sale financial assets 12,670 —

Dividends received from listed securities 197 479

Dividends received from available-for-sale

financial assets — 138

Dividends received from an associate 17 1,719 1,637

Purchase of financial assets at fair value

through profit or loss (3,940) (2,769)

Purchase of associates 17 — (1,171)

Loan to an associate 17 (5,000) (5,000)

Purchase of subsidiaries, net of cash and cash

equivalents acquired 33(b) (51) (322)

Net cash outflow from investing activities (19,417) (915)

Financing activities

Dividend paid 12 (10,415) (12,425)

Distribution in specie 33(c) (78,381) —

Interest paid (1,763) (8,472)

Proceeds from capital contribution by

minority shareholders — 310

Proceeds from shares issued under

share option scheme 24 6,928 264

Issue of loan notes — 44,865

Repayment of loan notes (42,525) (2,340)

Advance from finance lease — 1,365

Repayments under finance leases (537) (581)

Advance from mortgage loan 12,798 —

Repayment of mortgage loan (1,517) —

Net cash (outflow)/inflow from

financing activities (115,412) 22,986


– 39 –

2008 2007


(Decrease)/increase in cash and cash equivalents (146,236) 84,115

Cash and cash equivalents at 1 January 334,572 246,879

Effect of foreign exchange rate changes (16,541) 3,578

Cash and cash equivalents at

31 December 23 171,795 334,572

Analysis of balances of cash and

cash equivalents

Bank balances — general accounts

and cash 23 171,795 351,264

Bank overdrafts 23 — (4,692)

Bank loans — unsecured 23 — (12,000)

171,795 334,572


– 40 –

Notes to the Financial Statements

1 GENERAL INFORMATION

The principal activity of the Company is investment holding. The principal activities and other

particulars of the subsidiaries are set out in note 16 to the financial statements.

The Company is a limited liability company incorporated in Bermuda. The address of its registered

office is Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda.

The Company has its primary listing on The Stock Exchange of Hong Kong Limited.

These consolidated financial statements are presented in thousands of units of Hong Kong dollars

(HK$’000) unless otherwise stated. These consolidated financial statements have been approved for issue

by the Board of Directors on 14 April 2009.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Statement of compliance

These financial statements have been prepared in accordance with all applicable Hong Kong

Financial Reporting Standards (‘‘HKFRSs’’), which collective term includes all applicable

individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards

(‘‘HKASs’’) and Interpretations issued by the Hong Kong Institute of Certified Public

Accountants (‘‘HKICPA’’), accounting principles generally accepted in Hong Kong and the

disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also

comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on

The Stock Exchange of Hong Kong Limited.

The HKICPA has issued certain new and revised HKFRSs, that are first effective or available

for early adoption for the current accounting period of the Group. Note 3 provides information on

any changes in accounting policies resulting from initial application of these developments to the

extent that they are relevant to the Group for the current and prior accounting periods reflected in

these financial statements.

2.2 Basis of preparation

The measurement basis used in the preparation of the financial statements is the historical cost

basis except that the following assets are stated at their fair value as explained in the accounting

policies set out below:

— financial instruments classified as available-for-sale or as financial assets at fair value

through profit or loss (see note 2.9)

The preparation of financial statements in conformity with HKFRSs requires management to

make judgements, estimates and assumptions that affect the application of policies and reported

amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are

based on historical experience and various other factors that are believed to be reasonable under the

circumstances, the results of which form the basis of making the judgements about carrying values

of assets and liabilities that are not readily apparent from other sources. Actual results may differ

from these estimates.


– 41 –

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognised in the period in which the estimate is revised if the revision

affects only that period, or in the period of the revision and future periods if the revision affects both

current and future periods.

2.3 Consolidation

The consolidated financial statements include the financial statements of the Company and all

its subsidiaries made up to 31 December.

(a) Subsidiaries and minority interests

Subsidiaries are all entities over which the Group has the power to govern the financial

and operating policies generally accompanying a shareholding of more than one half of the

voting rights. The existence and effect of potential voting rights that are currently exercisable

or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the

Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries

by the Group. The cost of an acquisition is measured as 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. Identifiable assets acquired and liabilities and

contingent liabilities assumed in a business combination are measured initially at their fair

values at the acquisition date, irrespective of the extent of any minority interest. The excess of

the cost of acquisition over the fair value of the Group’s share of the identifiable net assets

acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net

assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between

group companies are eliminated. Unrealised losses are also eliminated unless the transaction

provides evidence of an impairment of the asset transferred. Accounting policies of

subsidiaries have been changed where necessary to ensure consistency with the policies

adopted by the Group.

Minority interests represent the portion of the net assets of subsidiaries attributable to

interests that are not owned by the Company, whether directly or indirectly through

subsidiaries, and in respect of which the Group has not agreed any additional terms with the

holders of those interests which would result in the Group as a whole having a contractual

obligation in respect of those interests that meets the definition of a financial liability.

Minority interests are presented in the consolidated balance sheet within equity, separately

from equity attributable to the equity holders of the Company. Minority interests in the

results of the Group are presented on the face of the consolidated income statement as an

allocation of the total profit or loss for the year between minority interests and the equity

holders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a

subsidiary, the excess, and any further losses applicable to the minority, are charged against

the Group’s interest except to the extent that the minority has a binding obligation to, and is

able to, make additional investment to cover the losses. If the subsidiary subsequently reports

profits, the Group’s interest is allocated all such profits until the minority’s share of losses

previously absorbed by the Group has been recovered.


– 42 –

In the Company’s balance sheet, the investments in subsidiaries are stated at cost less

provision for impairment losses. The results of subsidiaries are accounted by the Company on

the basis of dividends received and receivable.

(b) Associates

Associates are all entities over which the Group has significant influence but not control,

generally accompanying a shareholding of between 20% and 50% of the voting rights.

Investments in associates are accounted for by the equity method of accounting and are

initially recognised at cost. The Group’s investment in associates includes goodwill (net of any

accumulated impairment loss) identified on acquisition (see note 2.7(a)).

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the

consolidated income statement, and its share of post-acquisition movements in reserves is

recognised in reserves. The cumulative post-acquisition movements are adjusted against the

carrying amount of the investment. When the Group’s share of losses in an associate equals or

exceeds its interest in the associate, including any other unsecured receivables, the Group does

not recognise further losses, unless it has incurred obligations or made payments on behalf of

the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to

the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless

the transaction provides evidence of an impairment of the asset transferred. Accounting

policies of associates have been changed where necessary to ensure consistency with the

policies adopted by the Group.

In the Company’s balance sheet the investments in associates are stated at cost less

provision for impairment losses. The results of associates are accounted for by the Company

on the basis of dividends received and receivable.

2.4 Segment reporting

A business segment is a group of assets and operations engaged in providing services that are

subject to risks and returns that are different from those of other business segments. A geographical

segment is engaged in providing services within a particular economic environment that are subject

to risks and returns that are different from those of segments operating in other economic

environments.

In accordance with the Group’s internal financial reporting, the Group has determined that

business segments are presented as the primary reporting format and geographical segments as the

secondary reporting format.

In respect of geographical segment reporting, analysis on consolidated turnover is based on

the country in which the customer is located. Total assets and capital expenditure are where the

assets are located.

2.5 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured

using the currency of the primary economic environment in which the entity operates (‘‘the

functional currency’’). The consolidated financial statements are presented in Hong Kong

Dollars (‘‘HK Dollars’’), which is the Company’s functional and presentation currency.


– 43 –

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the

exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses

resulting from the settlement of such transactions and from the translation at year-end

exchange rates of monetary assets and liabilities denominated in foreign currencies are

recognised in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a

foreign currency are translated using the foreign exchange rates ruling at the transaction dates.

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair

value are translated using the foreign exchange rates ruling at the dates the fair value was

determined.

(c) Group companies

The results and financial position of all the Group entities (none of which has the

currency of a hyperinflationary economy) that have a functional currency different from the

presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing

rate at the date of that balance sheet;

(ii) income and expenses for each income statement are translated at average exchange

rates (unless the average is not a reasonable approximation of the cumulative

effect of the rates prevailing on the transaction dates, in which case income and

expenses are translated at the dates of the transactions); and

(iii) all resulting exchange differences are recognised as a separate component of

equity.

On consolidation, exchange differences arising from the translation of the net

investment in foreign entities, and of borrowings and other currency instruments designated

as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is

sold, such exchange differences are recognised in the income statement as part of the gain or

loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are

treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.6 Fixed assets

Fixed assets are stated at historical cost less accumulated depreciation and impairment losses.

Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,

as appropriate, only when it is probable that future economic benefits associated with the item will

flow to the Group and the cost of the item can be measured reliably. All other repairs and

maintenance are expensed in the income statement during the financial period in which they are

incurred.


– 44 –

Depreciation of fixed assets is calculated using the straight-line method to allocate cost or

revalued amounts to their residual values over their estimated useful lives, as follows:

Freehold land not depreciated

Buildings over the unexpired term of lease or estimated useful life

Leasehold improvements over the lease periods

Furniture and fixtures 20%

Office and computer equipment 20%

Motor vehicles 25%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each

balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the

asset’s carrying amount is greater than its estimated recoverable amount (see note 2.8).

2.7 Intangible assets

(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the

Group’s share of the net identifiable assets of the acquired subsidiaries or associates at the

date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets.

Goodwill on acquisition of associates is included in investments in associates. Goodwill is

tested annually for impairment and carried at cost less accumulated impairment losses. Gains

and losses on the disposal of an entity include the carrying amount of goodwill relating to the

entity sold.

Goodwill is allocated to cash generating units for the purpose of impairment testing.

(b) Trading rights

Trading rights held in The Stock Exchange of Hong Kong Limited and Hong Kong

Futures Exchange Limited (the ‘‘Stock Exchange trading rights’’ and ‘‘Futures Exchange

trading right’’ respectively) are classified as intangible assets. Trading rights have an indefinite

useful life and are carried at cost less accumulated impairment losses.

(c) Membership

The membership of The Chinese Gold & Silver Exchange Society is recognised as an

intangible asset on the balance sheet. The membership has an indefinite useful life and is

carried at cost less accumulated impairment losses.

2.8 Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation, are at least tested

annually for impairment and are reviewed for impairment whenever events or changes in

circumstances indicate that the carrying amount may not be recoverable. Assets that are subject

to amortisation are reviewed for impairment wherever events or changes in circumstances indicate

that the carrying amount may not be recoverable. An impairment loss is recognised for the amount

by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the

higher of an asset’s fair value less costs to sell and value in use. 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 time value of money and the risks specific to the asset. Where


– 45 –

an asset does not generate cash inflows largely independent of those from other assets, the

recoverable amount is determined for the smallest group of assets that generates cash inflows

independently (i.e. a cash-generating unit).

2.9 Investments

The Group classifies its investments in the following categories: financial assets at fair value

through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale

financial assets. The classification depends on the purpose for which the investments are acquired.

Management determines the classification of its investments at initial recognition and re-evaluates

this designation at every reporting date.

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss represents financial assets held for

trading. A financial asset is classified as held for trading if acquired principally for the purpose

of selling in the short term. Derivatives are also categorised as held for trading unless they are

designated as hedges. Assets held for trading are classified as current assets.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable

payments that are not quoted in an active market. They arise when the Group provides money,

goods or services directly to a debtor with no intention of trading the receivable. They are

included in current assets, except for maturities greater than 12 months after the balance sheet

date. These are classified as non-current assets. Loans and receivables are included in trade

and other receivables in the balance sheet (see note 2.10).

(c) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or

determinable payments and fixed maturities that the Group’s management has the positive

intention and ability to hold to maturity. During the year, the Group did not hold any

investments in this category.

(d) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this

category or not classified in any of the other categories. They are included in non-current

assets unless management intends to dispose of the investment within 12 months of the

balance sheet date.

Purchases and sales of investments are recognised on the trade-date — the date on which

the Group commits to purchase or sell the asset. Investments are initially recognised at fair

value plus transaction costs for all financial assets not carried at fair value through profit or

loss. Investments are derecognised when the rights to receive cash flows from the investments

have expired or have been transferred and the Group has transferred substantially all risks and

rewards of ownership. Available-for-sale financial assets and financial assets at fair value

through profit or loss are subsequently carried at fair value. Loans and receivables and held-

to-maturity investments are carried at amortised cost using the effective interest method.

Realised and unrealised gains and losses arising from changes in the fair value of the ‘‘financial

assets at fair value through profit or loss’’ category are included in the income statement in the

period in which they arise. Unrealised gains and losses arising from changes in the fair value of


– 46 –

non-monetary securities classified as available-for-sale are recognised in equity. When

securities classified as available-for-sale are sold or impaired, the accumulated fair value

adjustments are included in the income statement as gains or losses from investment securities.

The fair values of quoted investments are based on current bid prices. If the market for a

financial asset is not active and for unlisted securities, the Group establishes fair value by

using valuation techniques. These include the use of recent arm’s length transactions,

reference to other instruments that are substantially the same, discounted cash flow analysis,

and option pricing models refined to reflect the issuer’s specific circumstances.

The Group assesses at each balance sheet date whether there is objective evidence that a

financial asset or a group of financial assets is impaired. In the case of equity securities

classified as available for sale, a significant or prolonged decline in the fair value of the

security below its cost is considered in determining whether the securities are impaired. If any

such evidence exists for available-for-sale financial assets, the cumulative loss — measured as

the difference between the acquisition cost and the current fair value, less any impairment loss

on that financial asset previously recognised in the income statement — is removed from

equity and recognised in the income statement. Impairment losses recognised in the income

statement on equity instruments are not reversed through the income statement.

2.10 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at

amortised cost using the effective interest method, less provision for impairment, except where the

receivables are interest-free loans made to group companies without any fixed repayment terms or

the effect of discounting would be immaterial. A provision for impairment of trade and other

receivables is established when there is objective evidence that the Group will not be able to collect

all amounts due according to the original terms of receivables. The amount of the provision is the

difference between the asset’s carrying amount and the present value of estimated future cash flows,

discounted at the effective interest rate. The amount of the provision is recognised in the income

statement.

2.11 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-

term highly liquid investments with original maturities of three months or less, and bank overdrafts.

Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

2.12 Trade and other payables

Trade and other payables are initially recognised at fair value. Except for financial guarantee

liabilities measured in accordance with note 2.17, trade and other payables are subsequently stated

at amortised cost unless the effect of discounting would be immaterial, in which case they are stated

at cost.

2.13 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in

equity as a deduction, net of tax, from the proceeds.

Where any Group company purchases the Company’s equity share capital, the consideration

paid, including any directly attributable incremental costs (net of income taxes), is deducted from

equity attributable to the Company’s equity holders until the shares are cancelled, reissued or


– 47 –

disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of

any directly attributable incremental transaction costs and the related income tax effects, is included

in equity attributable to the Company’s equity holders.

2.14 Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and

liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in the

income statement except to the extent that they relate to items recognised directly in equity, in which

case they are recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates

enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in

respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences

respectively, being the differences between the carrying amounts of assets and liabilities for financial

reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and

unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to

the extent that it is probable that future taxable profits will be available against which the asset can

be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax

assets arising from deductible temporary differences include those that will arise from the reversal of

existing taxable temporary differences, provided those differences relate to the same taxation

authority and the same taxable entity, and are expected to reverse either in the same period as the

expected reversal of the deductible temporary difference or in periods into which a tax loss arising

from the deferred tax asset can be carried back or forward. The same criteria are adopted when

determining whether existing taxable temporary differences support the recognition of deferred tax

assets arising from unused tax losses and credits, that is, those differences are taken into account if

they relate to the same taxation authority and the same taxable entity, and are expected to reverse in

a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary

differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or

liabilities that affect neither accounting nor taxable profit (provided they are not part of a business

combination), and temporary differences relating to investments in subsidiaries to the extent that, in

the case of taxable differences, the Group controls the timing of the reversal and it is probable that

the differences will not reverse in the foreseeable future, or in the case of deductible differences,

unless it is probable that they will reverse in the future.

The amount of deferred tax recognised is measured based on the expected manner of

realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted

or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not

discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is

reduced to the extent that it is no longer probable that sufficient taxable profits will be available to

allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it

becomes probable that sufficient taxable profits will be available.

Additional income taxes that arise from the distribution of dividends are recognised when the

liability to pay the related dividends is recognised.


– 48 –

Current tax balances and deferred tax balances, and movements therein, are presented

separately from each other and are not offset. Current tax assets are offset against current tax

liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has

the legally enforceable right to set off current tax assets against current tax liabilities and the

following additional conditions are met:

— in the case of current tax assets and liabilities, the Company or the Group intends either

to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

— in the case of deferred tax assets and liabilities, if they relate to income taxes levied by

the same taxation authority on either:

— the same taxable entity; or

— different taxable entities, which, in each future period in which significant

amounts of deferred tax liabilities or assets are expected to be settled or recovered,

intend to realise the current tax assets and settle the current tax liabilities on a net

basis or realise and settle simultaneously.

2.15 Employee benefits

(a) Employee leave entitlements

Employee entitlement to annual leave is recognised when it accrues to employees. An

accrual is made for the estimated liability for annual leave as a result of services rendered by

employees up to the balance sheet date.

Employee entitlements to sick leave and maternity or paternity leave are not recognised

until the time of leave.

(b) Profit sharing and bonus plan

The expected cost of profit sharing and bonus payments are recognised as a liability

when the Group has a present legal or constructive obligation as a result of services rendered

by employees and a reliable estimate of the obligation can be made.

Liabilities for profit sharing and bonus plans are expected to be settled within 12 months

and are measured at the amounts expected to be paid when they are settled.

(c) Pension obligations

The Group contributes to the mandatory provident fund (‘‘MPF Scheme’’), a defined

contribution plan in Hong Kong, which is available to all employees. The assets of the MPF

Scheme are held separately from the Group in an independently administered fund.

The Group’s contribution to the MPF Scheme is based on 5% of the monthly relevant

income of each employee up to a maximum monthly relevant income of HK$20,000 in

accordance with the Mandatory Provident Fund Schemes Ordinance. The contributions are

recognised as employee benefit expenses when they are due and are reduced by contributions

forfeited by those employees who leave the scheme prior to vesting fully in the contributions.


– 49 –

(d) Share-based payments

The fair value of share options granted to employees and directors is recognised as an

employee cost with a corresponding increase in a capital reserve within equity. The fair value

is measured at grant date using the Black-Scholes model, taking into account the terms and

conditions upon which the options were granted. Where the grantees have to meet vesting

conditions before becoming unconditionally entitled to the options, the total estimated fair

value of the options is spread over the vesting period, taking into account the probability that

the options will vest.

During the vesting period, the number of share options that is expected to vest is

reviewed. Any adjustment to the cumulative fair value recognised in prior years is charged/

credited to the profit or loss for the year of the review, unless the original employee expenses

qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On

vesting date, the amount recognised as an expense is adjusted to reflect the actual number of

options that vest (with a corresponding adjustment to the capital reserve) except where

forfeiture is only due to not achieving vesting conditions that relate to the market price of the

Company’s shares. The equity amount is recognised in the capital reserve until either the

option is exercised (when it is transferred to the share premium account) or the option expires

(when it is released directly to retained earnings).

If the Company cancels or settles a grant of equity instruments during the vesting period

(other than a grant cancelled by forfeiture when the vesting conditions are not satisfied), the

Company shall account for the cancellation or settlement as an acceleration of vesting, and

shall therefore recognise immediately the amount that otherwise would have been recognised

for services received over the remainder of the vesting period. Any payment made to the

employees on the cancellation or settlement of the grant shall be accounted for as the

repurchase of an equity interest, as a deduction from equity, except to the extent that the

payment exceeds the fair value of the equity instruments granted, measured at the repurchase

date. Any such excess shall be recognised as an expense.

2.16 Provisions, contingent liabilities and contingent assets

Provisions are recognised when the Group has a present legal or constructive obligation as a

result of past events, it is probable that an outflow of resources will be required to settle the

obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision

to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a

separate asset but only when the reimbursement is virtually certain.

A contingent liability is a possible obligation that arises from past events and whose existence

will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events

not wholly within the control of the Group. It can also be a present obligation arising from past

events that is not recognised because it is not probable that outflow of economic resources will be

required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial statements.

When a change in the probability of an outflow occurs so that outflow is probable, it will then be

recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be

confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly

within the control of the Group.


– 50 –

A contingent asset is not recognised but is disclosed in the notes to the financial statements

when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is

recognised.

2.17 Financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified

payments to reimburse the beneficiary of the guarantee (the ‘‘holder’’) for a loss the holder incurs

because a specified debtor fails to make payment when due in accordance with the terms of a debt

instrument.

Where the Group issues a financial guarantee, the fair value of the guarantee (being the

transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as

deferred income within trade and other payables. Where consideration is received or receivable for

the issuance of the guarantee, the consideration is recognised in accordance with the Group’s

policies applicable to that category of asset. Where no such consideration is received or receivable,

an immediate expense is recognised in profit or loss on initial recognition of any deferred income

(see note 34.2).

The amount of the guarantee initially recognised as deferred income is amortised in profit or

loss over the term of the guarantee as income from financial guarantees issued. In addition,

provisions are recognised in accordance with note 2.16 if and when (i) it becomes probable that the

holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that

claim on the Group is expected to exceed the amount currently carried in trade and other payables in

respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.

2.18 Revenue recognition

Brokerage commission income arising from leveraged foreign exchange transactions, securities

broking, precious metal contracts and commodities and futures broking are recognised and

accounted for on a trade date basis.

Brokerage commission income arising from the brokerage of mutual funds and insurance

products is recognised when services are rendered. An amount, based on a certain percentage of the

commission income and expenses and based on the historical statistics on the occurrence of the

clawback of the brokerage commission income, has been provided for the possible clawback that

may be claimed against the Group.

Net revenue from foreign exchange options trading and broking includes both realised and

unrealised gains less losses from the foreign currency option contracts. Open option contracts are

carried at fair value, with related unrealised gains or losses recognised in the income statement. The

open option contracts are valued using pricing models that consider, among other factors,

contractual and market prices, time value and volatility factors.

All transactions related to precious metal contracts dealings are recorded in the financial

statements based on trade dates. Accordingly, only those transactions which trade dates fall within

the accounting year have been taken into account.

Swap interest and foreign exchange trading revenue include both realised and unrealised gains

less losses. The swap interest and foreign exchange spread in relation to open positions arising from

leveraged foreign exchange transactions are recognised on an accrual basis. The net residual

positions of each foreign currency resulting from broking and trading foreign currencies are carried

at fair value, with related unrealised gains or losses recognised in the income statement.


– 51 –

Underwriting commissions are recognised when the relevant work or service has been

rendered.

Revenue from corporate finance services is recognised in accordance with the terms of

agreement for the underlying transactions.

Management fee and subscription fee on asset management are recognised on an accrual basis.

Interest income is recognised as it accrues using the effective interest method.

Dividend income is recognised when the right to receive payment is established.

2.19 Leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if

the Group determines that the arrangement conveys a right to use a specific asset or assets for an

agreed period of time in return for a payment or a series of payments. Such a determination is made

based on an evaluation of the substance of the arrangement and is regardless of whether the

arrangement takes the legal form of a lease.

(a) Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained

by the lessor are classified as operating leases. Payments made under operating leases are

expensed in the income statement on a straight-line basis over the period of the lease.

(b) Finance lease

Leases of assets where the Group has substantially all the risks and rewards of

ownership are classified as finance leases. Finance leases are capitalised at the lease’s

commencement at the lower of the fair value of the leased property and the present value of

the minimum lease payments. Each lease payment is allocated between the liability and finance

charges so as to achieve a constant rate on the finance balance outstanding. The

corresponding rental obligations, net of finance charges, are included in current and non-

current borrowings. The interest element of the finance cost is recognised in the income

statement over the lease period so as to produce a constant periodic rate of interest on the

remaining balance of the liability for each period.

2.20 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s

financial statements in the period in which the dividends are approved by the Company’s

shareholders.

2.21 Related parties

For the purposes of these accounts, a party is considered to be related to the Group if:

(i) The party has the ability, directly or indirectly through one or more intermediaries, to

control the Group or exercise significant influence over the Group in making financial

and operating policy decisions, or has joint control over the Group;

(ii) The Group and the party are subject to common control;

(iii) The party is an associate of the Group;


– 52 –

(iv) The party is a member of key management personnel of the Group, or a close family

member of such an individual, or is an entity under the control, joint control or

significant influence of such individuals;

(v) The party is a close family member of a party referred to in (i) or is an entity under the

control, joint control or significant influence of such individuals; or

(vi) The party is a post-employment benefit plan which is for the benefit of employees of the

Group or of any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected to

influence, or be influenced by, that individual in their dealings with the entity.

2.22 Finance costs

Finance costs are charged to the income statement in the year in which they are incurred.

2.23 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction

costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a

financial asset or financial liability, including fees and commissions paid to agents, advisors, brokers

and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties.

Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of

transaction costs) and the redemption value is recognised in the income statement over the period of

the borrowings using the effective interest method.

2.24 Off-balance sheet financial instruments

Off-balance sheet financial instruments arising from the leveraged foreign exchange trading

and option transactions are marked to market and the gain or loss thereof is recognised in the

income statement as foreign exchange trading revenue or net premium income from foreign currency

option.

2.25 Fiduciary activities

The Group commonly acts as trustees and in other fiduciary capacities that result in the

holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other

institutions. These assets and income arising thereon are excluded from these financial statements,

as they are not assets of the Group.

2.26 Discontinued operations

A discontinued operation is a component of the Group’s business, the operations and cash

flows of which can be clearly distinguished from the rest of the Group and which represents a

separate major line of business or geographical area of operations, or is part of a single coordinated

plan to dispose of a separate major line of business or geographical area of operations, or is a

subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or if the operation is

abandoned. Where an operation is classified as discontinued, a single amount is presented on the

face of the income statement, which comprises:

— the post-tax profit or loss of the discontinued operation; and


– 53 –

— the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or

on the disposal, of the assets or disposal group(s) constituting the discontinued

operation.

3 CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued the following new Interpretations and an amendment to HKFRSs that are

first effective for the current accounting period of the Group:

. HK(IFRIC) 11, HKFRS 2 — Group and treasury share transactions

. HK(IFRIC) 12, Service concession arrangements

. HK(IFRIC) 14, HKAS 19 — The limit on a defined benefit asset, minimum funding

requirements and their interaction

. Amendment to HKAS39, Financial instruments: Recognition and measurement, and HKFRS

7, Financial instruments: Disclosures — Reclassification of financial assets

On 1 January 2008, the Group adopted HK(IFRIC) 11 ‘‘Group and Treasury Share Transactions’’

(‘‘HK(IFRIC) 11’’). As a result of the adoption of HK(IFRIC) 11, in the separate financial statements of

the Company, the fair value of share options granted to employees and directors of the Company’s

subsidiaries is recognised as an increase in ‘‘investment in subsidiaries’’ with a corresponding increase in

‘‘capital reserves’’. This change in accounting policy has been applied retrospectively with comparable

amounts restated. Accordingly, ‘‘investment in subsidiaries’’ as at 31 December 2008, 31 December 2007

and 1 January 2007 have been increased by HK$1,879,000, HK$2,329,000 and HK$588,000 respectively

and ‘‘capital reserves’’ as at 31 December 2008, 31 December 2007 and 1 January 2007 have been increased

by HK$nil, HK$2,329,000 and HK$588,000 respectively.

Except for the above, other HKFRS developments have no material impact on the Group’s financial

statements as either they were consistent with accounting policies already adopted by the Group or they

were not relevant to the Group’s operations.

The Group has not applied any new standard or interpretation that is not yet effective for the

current accounting period (see note 41).

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and

other factors, including expectations of future events that are believed to be reasonable under the

circumstances.

4.1 Litigation

The Group considers each case involving litigation individually to assess the probability of

any outflow of resources. If in the opinion of the directors, an outflow of resources embodying

economic benefits will be required to settle the litigation, a provision will be made to the extent of

the probable outflow. In other cases, unless the possibility of an outflow of resources embodying

economic benefits is remote, a contingent liability will be disclosed.


– 54 –

5 TURNOVER, OTHER REVENUE, OTHER NET INCOME AND SEGMENT INFORMATION

The Company is an investment holding company. The Group is principally engaged in the provision

of leveraged foreign exchange trading and broking services, securities broking, commodities and futures

broking, provision of corporate financial advisory services, fund management, financial planning and

insurance broking, and trading and broking of precious metal contracts.

Due to the Group Reorganisation, as disclosed in note 10, which constituted discontinued

operations under HKFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’, certain

comparative figures were restated so as to reflect the results for the continuing operations and

discontinued operations. Total revenue recognised during the year is as follows:

2008 2007

HK$’000 HK$’000

(restated)

From continuing operations

Turnover

Fees and commission 68,706 118,934

Net revenue/(loss) from foreign currency option trading 6,358 (570)

Net premium income from insurance broking 528 626

Swap interest and foreign exchange trading revenue 16,698 28,965

Interest income 7,990 20,751

Underwriting commission 78 1,598

Management, subscription and advisory fee income 37 465

100,395 170,769

Other revenue

Dividend income from listed securities 81 59

Other income 1,276 982

1,357 1,041

Other net income

Net exchange (losses)/gains (239) 808

Net realised gains on financial assets at fair value

through profit or loss 183 700

Net unrealised (losses)/gains on financial assets at fair value

through profit or loss (1,967) 479

(2,023) 1,987

99,729 173,797


– 55 –

Period from

1 January 2008 to

27 November

2008 2007

HK$’000 HK$’000

(restated)

From discontinued operations

Turnover


Net revenue from

— foreign currency option trading 3,666 7,070

— bullion trading 83,329 102,804



Management, subscription and advisory fee income 1,827 1,908

249,745 294,992

Other revenue


Dividend income from available-for-sale financial assets — 138

Other income 62 250

178 808

Other net income

Net exchange (losses)/gains (6,317) 6,001

Net realised gains on financial assets at fair value

through profit or loss 7 1,645

Net unrealised losses on financial assets at fair value

through profit or loss (1,099) (3,908)

Profit on disposal of available-for-sale financial assets 3,072 —

(4,337) 3,738

245,586 299,538


– 56 –

Primary reporting format — Business segments

The business of the Group was organised into the following segments during the year:

Continuing operations:

1. Leveraged foreign exchange trading/broking in Hong Kong — provision of dealing and

broking in leveraged forex trading services on the world’s major currencies.

2. Securities broking — provision of broking services in securities, equity linked products, unit

trusts and stock options traded in Hong Kong and selected overseas markets and margin

financing services to those broking clients.

3. Commodities and futures broking — provision of broking services in commodities and futures

contracts traded in Hong Kong and selected overseas markets.

4. Corporate finance — provision of corporate finance and advisory services to companies listed

in Hong Kong.

5. Asset management — managing private funds.

6. Financial planning and insurance broking in Hong Kong — acting as an agent for the sale of

savings plans, unit trusts, general and life insurance and providing advisory services on

securities investment and discretionary fund management.

Discontinued operations:

1. Leveraged foreign exchange trading/broking outside Hong Kong — provision of dealing and


2. Financial planning outside Hong Kong — providing advisory services on securities investment

and discretionary fund management.

3. Precious metal contracts trading/broking — provision of dealing and broking trading services

on selected precious metals contracts.

Secondary reporting format — Geographical segments

Based on the geographical location of the clients, the Group’s business is divided into seven main

geographical areas, including Hong Kong, Greater China (excluding Hong Kong), Oceania,

Switzerland, the United States, United Kingdom and other countries.


– 57 –

Primary reporting format — Business segments

Year ended 31 December 2008

Continuing operations Discontinued operations

Leveraged

foreign

exchange

trading/

broking in

Hong Kong

Securities

broking

Commodities

and futures

broking

Corporate

finance

Asset

Management

Financial

planning/

insurance

broking in

Hong Kong Unallocated

Inter-

segment

elimination Sub-total

Leveraged

foreign

exchange

trading/

broking

outside

Hong Kong

Financial

planning

outside

Hong Kong

Precious metal

contracts

trading/

broking Unallocated

Inter-

segment

elimination Sub-total Consolidated

2008 2008 2008 2008 2008 2008 2008 2008 2008 Period from 1 January 2008 to 27 November 2008 2008

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$’000 HK$’000

Turnover from external

customers 26,380 34,549 10,260 6,766 53 22,321 66 — 100,395 92,021 1,984 153,088 2,652 — 249,745 350,140

Inter-segment turnover — 23 — 600 — — 15,206 (15,829) — 1,014 — 148 7,586 (8,748) — —

Total 26,380 34,572 10,260 7,366 53 22,321 15,272 (15,829) 100,395 93,035 1,984 153,236 10,238 (8,748) 249,745 350,140

Segment results (2,917) 651 (193) (2,491) (946) (766) (10,694) — (17,356) 18,124 (7,034) 8,755 (4,789) — 15,056 (2,300)

Operating (loss)/profit (17,356) 15,056 (2,300)

Finance costs (5) (597) (3) (1) — (2) (908) — (1,516) — — (33) (214) — (247) (1,763)

(18,872) 14,809 (4,063)

Share of profits of associates — — — — — — — — — — — — 2,105 — 2,105 2,105

(Loss)/profit before taxation (18,872) 16,914 (1,958)

Income tax (896) (8,080) (8,976)

(Loss)/profit after taxation (19,768) 8,834 (10,934)

Minority interests — (89) (89)

(Loss)/profit attributable to

equity holders of the

Company (19,768) 8,745 (11,023)

Segment assets 84,423 123,672 32,369 9,936 4,612 13,857 23,610 — 292,479 — — — — — — 292,479

Interests in associates — — — — — — — — — — — — — — — —

Unallocated assets 177 — 177

Total assets 292,656 — 292,656

Segment liabilities 970 43,856 9,876 300 65 6,175 4,032 — 65,274 — — — — — — 65,274

Unallocated liabilities — — —

Total liabilities 65,274 — 65,274

Capital expenditure 191 275 144 53 105 64 1,174 — 2,006 128 — 2,586 22,467 — 25,181 27,187

Depreciation 1,793 479 94 224 38 209 597 — 3,434 591 493 1,843 607 — 3,534 6,968

Impairment loss charged — 282 — 255 — 103 — — 640 104 — 532 399 — 1,035 1,675

Other non-cash expenses (277) 5 — — — 3 (2) — (271) — — 1,004 (68) — 936 665


– 58 –

Year ended 31 December 2007


Leveraged

foreign

exchange

trading/

broking in

Hong Kong

Securities

broking

Commodities

and futures

broking

Corporate

finance

Asset

Management

Financial

planning/

insurance

broking in

Hong Kong Unallocated

Inter-

segment

elimination Sub-total

Leveraged

foreign

exchange

trading/

broking

outside

Hong Kong

Financial

planning

outside

Hong Kong

Precious metal

contracts

trading/

broking Unallocated

Inter-

segment

elimination Sub-total Consolidated

2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007

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$’000 HK$’000

(restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated)


customers 39,464 82,761 10,871 8,446 557 28,186 484 — 170,769 102,915 1,906 189,923 248 — 294,992 465,761

Inter-segment turnover 14 311 — 605 — — 11,084 (12,014) — — — (4) 3,929 (3,925) — —

Total 39,478 83,072 10,871 9,051 557 28,186 11,568 (12,014) 170,769 102,915 1,906 189,919 4,177 (3,925) 294,992 465,761

Segment results 2,073 21,289 416 969 (988) 1,483 (4,001) — 21,241 7,697 (7,596) 41,029 (2,516) — 38,614 59,855

Operating profit 21,241 38,614 59,855

Finance costs (4) (4,849) (1) (1) — (3) (3,559) — (8,417) — — (55) — — (55) (8,472)

12,824 38,559 51,383

Share of profits of associates — — — — — — — — — — — — 2,047 — 2,047 2,047

Profit before taxation 12,824 40,606 53,430

Income tax (2,682) (10,389) (13,071)

Profit after taxation 10,142 30,217 40,359

Minority interests — (2) (2)

Profit attributable to equity

holders of the Company 10,142 30,215 40,357

Segment assets 95,240 210,721 33,545 13,567 5,982 16,158 44,842 — 420,055 197,482 14,487 241,547 20,765 — 474,281 894,336

Interests in associates — — — — — — — — — — — — 15,288 — 15,288 15,288

Unallocated assets 1,499 564 2,063

Total assets 421,554 490,133 911,687

Segment liabilities 1,591 110,301 10,649 264 64 4,893 56,782 — 184,544 260,143 991 68,233 1,159 — 330,526 515,070

Unallocated liabilities 177 3,999 4,176

Total liabilities 184,721 334,525 519,246

Capital expenditure 1,635 735 198 458 85 480 1,840 — 5,431 65 54 1,081 846 — 2,046 7,477

Depreciation 1,661 395 75 156 29 174 737 — 3,227 671 892 1,889 248 — 3,700 6,927

Impairment loss charged — — — — — — — — — 765 — 146 — — 911 911

Other non-cash expenses 57 — — — — 104 207 — 368 1 — 278 247 — 526 894


– 59 –

Secondary reporting format — Geographical segments

Turnover Total assets Capital expenditure

2008 2007 2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(restated) (restated) (restated)


Hong Kong 92,748 85,288 283,770 387,791 2,006 5,305

Greater China (excluding

Hong Kong) 3,483 3,807 284 17,312 — 126

Oceania 3,344 77,576 — 140 — —

Switzerland (850) 4,744 — — — —

United States — 3 — — — —

United Kingdom 1,042 70 8,425 13,903 — —

Other countries 628 (719) — 909 — —

100,395 170,769 292,479 420,055 2,006 5,431


Hong Kong 98,925 87,226 — 164,995 3,963 1,060

Greater China (excluding Hong

Kong) 156,387 278,018 — 41,879 21,050 873

Oceania (680) (76,690) — 13,112 168 48

Switzerland 3,882 (3,464) — 89,314 — 38

United States 103 1,086 — 55,084 — —

United Kingdom 94 1,729 — 73,296 — —

Other countries (8,966) 7,087 — 36,601 — 27

249,745 294,992 — 474,281 25,181 2,046

350,140 465,761 292,479 894,336 27,187 7,477


Unallocated assets 177 1,499


Interests in associates — 15,288

Unallocated assets — 564

— 15,852

Total assets 292,656 911,687


– 60 –

In presenting information on the basis of geographical segments, segment revenue is based on

the geographical location of customers. Segment assets and capital expenditures are based on the

geographical location of the assets.

The total assets in other countries mainly represent margin and other deposits placed with

overseas brokers and financial institutions.

6 STAFF COSTS

Continuing operations Discontinued operations Total

2008 2007

Period from

1 January

2008 to

27 November

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(restated) (restated)

Salaries and allowances

(note (a)) 29,709 36,398 46,330 48,177 76,039 84,575

Equity-settled share-based

payments (note (b)) 1,239 914 394 888 1,633 1,802

Defined contribution plans 890 1,122 1,217 987 2,107 2,109

31,838 38,434 47,941 50,052 79,779 88,486

Note:

(a) During the year, the Company accrued a staff bonus of HK$1,420,050. The former ultimate

holding company, Hantec Holdings Limited, settled this amount in the form of a capital

contribution that was credited to capital reserves of the Company.

(b) Included in equity-settled share-based payment expense were (1) an amount of HK$154,000

being accelerated vesting expense and (2) an amount of HK$1,056,000 being the payment to

option holders in excess of fair value of share options granted resulting from the cancellation

of all outstanding share options, details of which are disclosed in note 32(b).

(c) Staff costs include directors’ emoluments as set out in note 31.


– 61 –

7 OTHER OPERATING EXPENSES

2008 2007

HK$’000 HK$’000

(restated)


Advertising and promotion 1,722 1,665

Auditors’ remuneration 5,122 2,192

Bad debts written off 640 —

Bank charges 289 371

Communication expenses 1,346 1,362

Consultancy fee 525 2,117

Depreciation 3,434 3,227

Entertainment 767 946

Equipment rental expenses 5,948 5,187

Insurance 646 994

Legal and professional fee 6,879 5,265

(Profit)/loss on disposal of fixed assets (271) 264

Miscellaneous expenses 2,517 3,625

Printing and stationery 1,641 1,082

Repairs and maintenance 2,070 606

Staff welfare 550 1,024

Traveling expenses 1,412 2,240

Computer expenses 713 434

Exhibition and seminars 253 924

Postage 526 782

Water and electricity 501 540

37,230 34,847

The auditors’ remuneration for the Group in the year was HK$8.02 million (2007 : HK$4.88

million). Loss on disposal of fixed assets for the Group in the year was HK$666,000 (2007 : HK$793,000).

8 FINANCE COSTS

2008 2007

HK$’000 HK$’000

(restated)


Interest on bank overdrafts 94 724

Interest on bank loans 497 4,102

Interest on other loans 908 3,558

Interest on obligation under finance leases 17 33

1,516 8,417


– 62 –

9 INCOME TAX

Hong Kong profits tax has been provided at the rate of 16.5% (2007 : 17.5%) on the estimated

assessable profits for the year. Taxation on overseas profits has been calculated on the estimated

assessable profits for the year at the rates of taxation prevailing in the countries in which the Group

operates.

The amount of taxation charged to the consolidated income statement:


2008 2007

Period from

1 January

2008 to

27 November

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


Current taxation:

— Hong Kong profits tax — 242 599 7,001 599 7,243

— Overseas taxation — — 7,135 2,646 7,135 2,646

— One-off tax reduction

in respect of prior year (56) — (27) — (83) —

— Under provision in

respect of prior year 43 4 132 357 175 361

Deferred taxation:

— Origination and

reversal of temporary

differences (72) 2,436 245 385 173 2,821

— Write-down of

deferred tax assets

recognised in prior

years 929 — — — 929 —

— Effect of decrease

in tax rate on

deferred tax balances

at 1 January 52 — (4) — 48 —

Taxation expenses 896 2,682 8,080 10,389 8,976 13,071

In February 2008, the Hong Kong Government announced a decrease in the profits tax rate from

17.5% to 16.5% applicable to the Group’s operations in Hong Kong as from the year ended 31 December

2008. This decrease is taken into account in the preparation of the Group’s and the Company’s 2008

financial statements. Accordingly, the provision for Hong Kong profits tax for 2008 is calculated at 16.5%

(2007 : 17.5%) of the estimated assessable profits for the year and the opening balance of deferred tax has

been re-estimated accordingly.


– 63 –

Reconciliation between tax expense and accounting (loss)/profit at applicable tax rates:


2008 2007

Period from

1 January

2008 to

27 November

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


(Loss)/profit before taxation

(excluding share of profits

of associates) (18,872) 12,824 14,809 38,559 (4,063) 51,383

Notional tax on (loss)/profit

before taxation,

calculated at the rate

applicable to profits in

the countries concerned (3,114) 2,244 4,644 7,212 1,530 9,456

Tax effect of income not

subject to taxation

purposes (1,287) (1,247) (482) (698) (1,769) (1,945)

Tax effect of expenses not

deductible for taxation

purposes 515 209 642 822 1,157 1,031

Utilisation of previously

unrecognised tax losses (108) (63) — (10) (108) (73)

Write-down of deferred tax

assets recognised in prior

years 929 — — — 929 —

Effect on opening deferred

tax balances resulting

from a decrease in tax

rate during the period 52 — (4) — 48 —

Tax effect of tax losses not

recognised 3,922 1,535 3,175 2,706 7,097 4,241

One-off tax reduction in

respect of prior year (56) — (27) — (83) —

Under-provision in respect

of prior year 43 4 132 357 175 361

Taxation expenses 896 2,682 8,080 10,389 8,976 13,071

10 GROUP REORGANISATION AND DISCONTINUED OPERATIONS

On 13 August 2008, the Company’s then ultimate holding company, Hantec Holdings Limited

(‘‘HHL’’) entered into a share sale agreement (‘‘Agreement’’) with Sinoday Limited (‘‘Sinoday’’) and Silver

Grant International Securities Investment Limited (‘‘Silver Grant’’), pursuant to which Sinoday and Silver

Grant agreed to acquire 218,650,000 shares and 40,022,000 shares of the Company respectively from

HHL, representing approximately 52.32% and 9.58% of the issued share capital of the Company as at the

date of the Agreement. Completion of the Agreement was subject to, inter alia, approval by independent

shareholders of the Company of a proposal to reorganise the Group (the ‘‘Group Reorganisation’’).


– 64 –

Pursuant to the resolution passed by the independent shareholders in the special general meeting

held on 17 November 2008, a Group Reorganisation was approved. On 27 November 2008, the Group

Reorganisation and the Agreement were completed. As a result, Sinoday acquired 218,650,000 shares of

the Company from HHL and became the holding company of the Company.

Upon completion of the Group Reorganisation, (i) the Company continues to be a public listed

company with its subsidiaries concentrating on carrying on the business of regulated activities under the

SFO in Hong Kong, which include leveraged foreign exchange trading, securities broking and margin

financing services, commodities and futures broking, financial planning, asset management and corporate

finance services in Hong Kong (the ‘‘Retained Business’’); (ii) Hantec Pacific Limited (‘‘HPL’’) and its

subsidiaries (the ‘‘HPL Group’’) continues to carry on the business of trading and broking of precious

metal contracts, provision of financial related services outside of Hong Kong and investment in water

plant business (the ‘‘Distributed Business’’); and (iii) the shareholders of the Company received by way of

a distribution in specie the shares of HPL on the basis of one share of HPL for one share of the Company

held.

Details of the Group Reorganisation are set out in a circular of the Company dated 31 October

2008.

The results of the discontinued operations during the period/year are set out below.

Period from

1 January 2008 to

27 November 2008 2007


Turnover 5 249,745 294,992

Other revenue 5 178 808

Other net income 5 (4,337) 3,738

245,586 299,538

Staff costs 6 47,941 50,052

Commission expenses 121,252 156,517

Operating leases for land and buildings 9,755 7,349

Other operating expenses 51,582 47,006

Total operating expenses 230,530 260,924

Operating profit 15,056 38,614

Finance costs (247) (55)

14,809 38,559

Share of profits of associates 17 2,105 2,047

Profit before taxation 16,914 40,606

Income tax

— Current taxation (7,839) (10,004)

— Deferred taxation 20 (241) (385)

Profit for the period/year 8,834 30,217


– 65 –

The net cash flows from the discontinued operations are as follows:

2008 2007

HK$’000 HK$’000

Operating activities (156,315) 80,583

Investing activities (20,489) 3,677

Financing activities 66,034 1,341

Net cash (outflow)/inflow (110,770) 85,601

11 PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS

The profit attributable to shareholders is dealt with in the financial statements of the Company to

the extent of HK$15,661,000 (2007 : loss of HK$22,196,000).

12 DIVIDENDS

Dividends payable to equity shareholders of the Company attributable to the year:

2008 2007

HK$’000 HK$’000

Interim dividend paid:

Nil cents (2007 : HK1.5 cents) per share — 6,213

Final dividend proposed:

Nil cents (2007 : HK2.5 cents) per share — 10,393

Final dividend paid in respect of the previous financial year on

shares issued under share option schemes subsequent to the

balance sheet date and before the close of the Register of

Members of the Company, of HK2.5 cents (2007 : nil cents)

per share 22 —

Distribution in specie (note (a)) 133,379 —

133,401 16,606

Notes:

(a) Details of the net assets of HPL Group distributed by the Group in the form of a distribution

in specie are set out in note 33(c) to the financial statements.


– 66 –

13 (LOSS)/EARNINGS PER SHARE

(a) Basic (loss)/earnings per share

The calculation of basic (loss)/earnings per share from continuing and discontinued

operations attributable to equity holders of the Company is based on the following data.

2008 2007

HK$’000 HK$’000

(Loss)/earnings

(Loss)/earnings for the year from continuing operations (19,768) 10,142

Earnings for the year from discontinued operations 8,745 30,215

(Loss)/earnings for the year attributable to

equity holders of the Company (11,023) 40,357

2008 2007

Number of shares

Weighted average number of ordinary shares 417,335,626 414,173,835

Basic earnings per share from the discontinued operations is HK2.10 cents (2007 : earnings per

share of HK7.29 cents), which is calculated based on the earnings for the year from discontinued

operations attributable to equity holders of the Company of HK$8,745,000 (2007 : earnings of

HK$30,215,000) and the weighted average number of ordinary shares detailed above.

(b) Diluted earnings per share

2008 2007

Diluted earnings per share

— From continuing and discontinued operations N/A N/A

— From continuing operations N/A N/A

— From discontinued operations HK2.08 cents N/A

Diluted earnings per share for the current year and diluted earnings per share from continuing

operations for the current year have not been disclosed as both the Group and the continuing

operations of the Group sustained a loss for the current year. The diluted earnings per share from

discontinued operations for the current year is calculated based on the adjusted weighted average

number of 419,947,100 ordinary shares which is calculated by adjusting the weighted average

number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary

shares in respect of share options. The calculation is done to determine the number of shares that

could have been acquired at fair value (determined as the average annual market share price of the

Company’s shares) based on the monetary value of the subscription rights attached to outstanding

share options. The number of shares calculated as above is compared with the number of shares that

would have been issued assuming the exercise of the share options.

Diluted earnings per share for the previous year has not been disclosed as the outstanding

share options have no dilutive effects on the basic earnings per share, as their exercise prices were

above the average market price of the shares during the year.


– 67 –

14 INTANGIBLE ASSETS

Group

Note

Stock

Exchange

trading

rights

Futures

Exchange

trading

right

Membership

of The

Chinese

Gold &

Silver

Exchange

Society

Computer

System

Goodwill on

acquisition

of

subsidiaries Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cost

At 1 January 2007 913 406 180 — 4,973 6,472

Acquisition of

a subsidiary 33(b) — — — — 399 399

At 31 December

2007 and

1 January 2008 913 406 180 — 5,372 6,871

Acquisition of

a subsidiary 33(b) — — — — 45 45

Additions — — — 600 — 600

Distribution in

specie 33(c) — — (180) (600) (5,417) (6,197)

At 31 December

2008 913 406 — — — 1,319

Accumulated

impairment losses

At 1 January 2007,

31 December

2007 and

1 January 2008 — — — — — —

Charge for the year — — — — 399 399

Distribution in

specie 33(c) — — — — (399) (399)

At 31 December

2008 — — — — — —

Carrying amount

At 31 December

2008 913 406 — — — 1,319

At 31 December

2007 913 406 180 — 5,372 6,871


– 68 –

15 FIXED ASSETS

Group

Freehold

land and

building

Leasehold

improvements

Furniture

& fixtures

Office &

computer

equipment

Motor

vehicles Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cost

At 1 January 2007 2,325 6,091 4,221 17,938 3,910 34,485

Additions through acquisition

of a subsidiary — — 103 — — 103

Additions — 3,631 2,300 1,348 — 7,279

Disposals — (1,219) (594) (507) — (2,320)

Exchange difference 200 20 157 266 29 672

At 31 December 2007 and

1 January 2008 2,525 8,523 6,187 19,045 3,939 40,219

Additions 20,515 777 377 2,528 2,190 26,387

Disposals — (1,903) (844) (4,165) (460) (7,372)

Distribution in specie (21,020) (3,196) (3,138) (6,382) (3,768) (37,504)

Exchange difference (2,020) (51) (437) (948) (52) (3,508)

At 31 December 2008 — 4,150 2,145 10,078 1,849 18,222

Accumulated depreciation

At 1 January 2007 133 1,981 1,734 8,639 1,983 14,470

Additions through acquisition

of a subsidiary — — 58 — — 58

Charge for the year 37 2,412 973 2,888 617 6,927

Disposals — (907) (309) (304) — (1,520)

Reclassification — — 1 (1) — —

Exchange difference 12 16 66 198 12 304


1 January 2008 182 3,502 2,523 11,420 2,612 20,239

Charge for the year 166 2,221 1,068 2,875 638 6,968

Disposals — (972) (701) (3,804) (460) (5,937)

Distribution in specie (281) (2,439) (1,645) (3,688) (1,550) (9,603)

Exchange difference (67) (66) (296) (722) (46) (1,197)

At 31 December 2008 — 2,246 949 6,081 1,194 10,470

Net book value

At 31 December 2008 — 1,904 1,196 3,997 655 7,752

At 31 December 2007 2,343 5,021 3,664 7,625 1,327 19,980

The Group’s freehold land and building is located outside Hong Kong.


– 69 –

Company

Leasehold

Improvements

Furniture &

fixtures

Office &

computer

equipments Total

HK$’000 HK$’000 HK$’000 HK$’000

Cost

At 1 January 2007 1,226 293 246 1,765

Additions 48 — 78 126

Disposals (1,124) (58) (175) (1,357)


1 January 2008 150 235 149 534

Additions — — — —

Disposals (150) (235) (149) (534)

At 31 December 2008 — — — —

Accumulated depreciation

At 1 January 2007 494 138 80 712

Charge for the year 400 55 53 508

Disposals (812) (32) (63) (907)


1 January 2008 82 161 70 313

Charge for the year 39 14 15 68

Disposals (121) (175) (85) (381)

At 31 December 2008 — — — —

Net book value

At 31 December 2008 — — — —

At 31 December 2007 68 74 79 221

(a) During the year, there were no additions to office and computer equipment of the Group

financed by finance lease (2007 : HK$205,200). At the balance sheet date, the net book value of

office and computer equipment held under finance leases of the Group was HK$861,465

(2007 : HK$1,312,710).

16 INVESTMENT IN SUBSIDIARIES

Company

2008 2007

HK$’000 HK$’000

(restated)

Investment at cost, unlisted shares 220,009 220,615

(a) The amounts due from/(to) subsidiaries are unsecured, interest free and repayable on demand.


– 70 –

(b) The following is a list of subsidiaries at 31 December 2008 :

Name

Place of

incorporation

Principal

activities and

place of operation

Particulars of

issued share

capital

Interest

held

directly

Interest

held

indirectly

Cinda International

FX Limited

(‘‘CIFX’’) (formerly

named Hantec

International

Limited)

Hong Kong Leveraged

foreign

exchange

trading in

Hong Kong

100 ordinary

shares of

HK$1 each,

and

100,000,000

non-voting

deferred shares

of HK$1 each

— 100%

Cinda International

Securities Limited

(‘‘CISL’’) (formerly

named Hantec

International

Finance Group

Limited)

Hong Kong Securities

broking and

margin

financing

services in

Hong Kong

20,000,100

ordinary

shares of

HK$1 each,

and 50,000,000

non-voting

deferred shares

of HK$1 each

— 100%

Cinda International

Futures Limited

(‘‘CIFL’’) (formerly

named HT Futures

Limited)

Hong Kong Commodities and

futures

broking in

Hong Kong

40,000,100

ordinary

shares of

HK$1 each,

and 10,000,000

non-voting

deferred shares

of HK$1 each

— 100%

Cinda International

Investment

Consultant Limited

(‘‘CIIC’’) (formerly

named Hantec

Investment

Consultant Limited)

Hong Kong Financial

planning in

Hong Kong

3,000,100

ordinary

shares of

HK$1 each,

and 5,500,000

non-voting

deferred shares

of HK$1 each

— 100%

Cinda International

Asset Management

Limited (‘‘CIAM’’)

(formerly named

Hantec Asset

Management

Limited)

Hong Kong Asset

management in

Hong Kong

7,000,100

ordinary

shares of

HK$1 each,

and 2,000,000

non-voting

deferred shares

of HK$1 each

— 100%


– 71 –

Name

Place of

incorporation

Principal

activities and

place of operation

Particulars of

issued share

capital

Interest

held

directly

Interest

held

indirectly

Cinda Asset

Management

(Cayman) Limited

(‘‘CAMCL’’)

(formerly named

Hantec Asset

Management

(Cayman) Limited)

Cayman Islands Asset

management in

Hong Kong

1 ordinary share

of US$1 each

— 100%

Cinda International

Capital Limited

(‘‘CICL’’) (formerly

named Hantec

Capital Limited)

Hong Kong Corporate

finance

services in

Hong Kong

100 ordinary

shares of

HK$1 each,

and 21,000,000

non-voting

deferred shares

of HK$1 each

— 100%

Chinacorp Nominees

Limited (‘‘CNL’’)

Hong Kong Provide

administrative

support

services in

Hong Kong

100 ordinary

shares of

HK$1 each

and 10,000

non-voting

deferred shares

of HK$1 each

— 100%

Cinda International

Wealth Management

Advisor Limited

(‘‘CIWM’’)

(formerly named

Hantec Wealth

Management

Advisor Limited)

Hong Kong Financial

planning and

insurance

broking in

Hong Kong

500,000 ordinary

shares of

HK$1 each

— 100%

Cinda Strategic (BVI)

Limited (‘‘CSBVIL’’)

(formerly named

Hantec Strategic

(BVI) Holdings

Limited)

British Virgin

Islands

Investment

holding in

Hong Kong

50,000 ordinary

shares of US$1

each

100% —

Cinda (BVI) Limited

(‘‘CBVIL’’)

(formerly named HT

(BVI) Limited)

British Virgin

Islands

Investment

holding in

Hong Kong

7 ordinary shares

of US$1 each

100% —


– 72 –

(c) Acquisition of subsidiaries

On 21 December 2007, the Company entered into a sale and purchase agreement with the

shareholders of 俊森實業有限公司 (‘‘俊森實業’’), all of whom were independent third parties of the

Company and its connected persons, to acquire 100% of the total issued share capital of 俊森實業

for a consideration of HK$1,304,700. The acquisition was completed in February 2008.

The key business of 俊森實業 is property holding. 俊森實業 contributed HK$688 turnover and

a loss of HK$500,487 to the Group for the period from acquisition date to 27 November 2008.

Management considered the carrying value of net assets acquired from 俊森實業 to be a close

approximation to their fair value and no fair value adjustment is required. The net assets acquired in

the above acquisition and the goodwill arising are stated in note 33(b).

The carrying value of the 100% equity interest in 俊森實業 immediately before the date of

completion was as follows:

HK$’000

Carrying value of 100% equity interest in 俊森實業 1,260

Goodwill arising from the acquisition (note 14, 33(b)) 45

1,305

Satisfied by:

Cash 1,305

If the above acquisitions had occurred on 1 January 2008, total Group turnover would have

been HK$350,139,813 and loss for the year attributable to shareholders of the Company would have

been HK$11,023,456 for the year ended 31 December 2008.

On 27 November 2008, 俊森實業 was distributed upon the completion of the Group

Reorganisation disclosed in note 10.


– 73 –

17 INTERESTS IN ASSOCIATES

Group

2008 2007

HK$’000 HK$’000

Share of net assets at 1 January 9,740 8,401

Share of associates’ results for the year (note 10)

— profit before taxation 3,044 2,947

— taxation (939) (900)

2,105 2,047

11,845 10,448

Acquisition of associates — 1,171

Transfer to available-for-sale financial assets (note 19) (849) —

Dividend income from an associate (1,719) (1,637)

Exchange difference (353) (242)

Share of net assets at 27 November/31 December 8,924 9,740

Loan to an associate 10,000 5,000

Goodwill 548 548

Distribution in specie (note 33(c)) (19,472) —

— 15,288

Share of net assets — 9,740

Loan to an associate — 5,000

Goodwill — 548

— 15,288

The amount of loan to an associate is unsecured, interest free and without any fixed repayment

terms.


– 74 –

The Group’s interests in its principal associates, all of which are unlisted, are as follows:

Name

Particulars of issued

shares held

Country of

incorporation Assets Liabilities Revenue

Profit/

(loss)

% of

interest

held

indirectly

HK$’000 HK$’000 HK$’000 HK$’000

2008

Hantec Jiangdu Riverside

Developing Zone Water

Industry Limited

(‘‘HJRDZWIL’’)#

2,000 ordinary

shares of HK$1

each

Hong Kong — — 703 (1) 20%

元太外匯經紀股份有限公司

(‘‘元太’’)#2,400,000 ordinary

shares of NT$10

each

Taiwan — — 8,999 2,106 20%

— — 9,702 2,105

# From 1 January 2008 to 27 November 2008.

2007

HS Hantec Holdings Limited

(‘‘HSH’’)

1,500,000 common

shares of CAD

0.1 each

Canada 848 — — (309) 25%

Hantec Jiangdu Riverside

Developing Zone Water

Industry Limited

(‘‘HJRDZWIL’’)

2,000 ordinary

shares of HK$1

each

Hong Kong 8,753 8,635 222 3 20%

元太外匯經紀股份有限公司

(‘‘元太’’)

2,400,000 ordinary

shares of NT$10

each

Taiwan 10,357 1,583 9,004 2,353 20%

19,958 10,218 9,226 2,047


– 75 –

18 OTHER ASSETS

Group

2008 2007

HK$’000 HK$’000

Stock Exchange stamp duty deposit 150 250

Stock Exchange Fidelity Fund deposit 100 100

Stock Exchange Compensation Fund deposit 100 100

Guarantee Fund deposits with the Hong Kong Securities

Clearing Company Limited 100 100

Statutory deposits and deposits with the Hong Kong

Futures Exchange Limited (‘‘HKFE’’) 1,500 1,500

Statutory deposits with the Hong Kong Securities and

Futures Commission (‘‘SFC’’) 150 200

Reserve fund deposit with the SEHK Options

Clearing House Limited 1,500 1,640

3,600 3,890

19 AVAILABLE-FOR-SALE FINANCIAL ASSETS

2008 2007

HK$’000 HK$’000

Fair value of listed and unlisted securities held

for non-trading purposes

At 1 January 12,293 10,236

Transfer from interest in an associate (note 17) 849 —

Disposal (12,158) —

Revaluation (deficit)/surplus transferred to equity (note 25) (133) 2,057

Distribution in specie (note 33(c)) (851) —

At 31 December — 12,293

Available-for-sale financial assets include the following:

2008 2007

HK$’000 HK$’000

Unlisted securities

Equity securities of private issuers — 12,293


– 76 –

20 DEFERRED INCOME TAX

Deferred taxation is calculated in full on temporary differences under the liability method using a

principal taxation rate of 16.5% (2007 : 17.5%).

Group Company

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000

Deferred tax assets — (1,549) — —

Deferred tax liabilities — 170 — —

— (1,379) — —

The gross movement on the deferred income tax account is as follows:

Group Company

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000

Beginning of the year (1,379) (4,200) — —

Deferred taxation charged to

income statement

— from continuing

operations (note 9) 909 2,436 — —

— from discontinued

operations (note 10) 241 385 — —

Distribution in specie 229 — — —

End of the year — (1,379) — —

The movement in deferred tax assets and liabilities during the year, without taking into

consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Group

Accelerated tax

depreciation Tax losses Total

HK$’000 HK$’000 HK$’000

At 1 January 2007 1,374 (5,574) (4,200)

Charged to income statement 5 2,816 2,821

At 31 December 2007 1,379 (2,758) (1,379)

(Credited)/charged to income statement (566) 1,716 1,150

Distribution in specie (note 33(c)) (233) 462 229

At 31 December 2008 580 (580) —


– 77 –

Company

Accelerated tax

depreciation Tax losses Total

HK$’000 HK$’000 HK$’000

At 1 January 2007 and 2008 6 (6) —

(Credited)/charged to income statement (6) 6 —

At 31 December 2008 — — —

During 2008, the Group de-recognised deferred tax assets in respect of cumulative tax losses as it is

no longer probable that future taxable profits against which the losses can be utilised will be available.

Unrecognised tax losses as at 31 December 2008 are HK$56,100,685 (2007 : HK$47,943,375). The tax

losses do not expire under current tax legislation. Tax losses of the subsidiaries which have been

distributed in specie under the Group Reorganisation are not included.

21 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Group Company

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000

Listed securities:

Equity securities

— Hong Kong 1,397 5,602 570 1,379

Market value of listed

securities 1,397 5,602 570 1,379

Changes in fair values of financial assets at fair value through profit or loss are recorded in the

income statement.


– 78 –

22 TRADE AND OTHER RECEIVABLES

Group Company

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000

Trade receivables from clients 35,126 105,741 — —

Less: impairment allowance of

trade receivables (note (b)) (283) (394) — —

Margin and other trade related

deposits with brokers and

financial institutions (note (c)) 30,797 247,022 — —

Margin finance loans (note (d)) 8,757 101,248 — —

Trade receivables from clearing

houses 11,018 109 — —

Total trade receivables, net 85,415 453,726 — —

Rental and utilities deposits 3,523 6,076 — 529

Prepayments and other receivables 1,343 11,714 513 8,360

Total trade and other receivables 90,281 471,516 513 8,889

The carrying amounts of trade and other receivables approximate their fair value.

(a) As at 31 December 2008, the aging analysis of the trade receivables was as follows:

2008 2007

HK$’000 HK$’000

Current 85,091 447,349

30–60 days 183 121

Over 60 days 141 6,256

85,415 453,726

(b) The movement in the impairment allowance during the year was as follows:

Group

2008 2007

HK$’000 HK$’000

At 1 January 394 1,327

Impairment loss charged 1,276 911

Uncollectible amounts written off (357) (1,924)

Exchange difference (141) 80

Distribution in specie (889) —

At 31 December 283 394

(c) The Group undertakes foreign exchange transactions and executes client trades on overseas

commodities and futures contracts with recognised counterparties, local or overseas brokers

as appropriate. A recognised counterparty is a counterparty of a licensed leveraged foreign

exchange trader recognised under the Securities and Futures Ordinance which includes

authorised institutions under the Hong Kong Banking Ordinance. Trade receivables at 31

December 2008 and 2007 include margin deposits and floating profits in respect of


– 79 –

transactions and open positions in leveraged foreign exchange and commodities and futures

trading with recognised counterparties and brokers and are considered current. For those cash

securities trading clients, it normally takes two to three days to settle after trade execution.

These outstanding unsettled trades due from clients are reported as trade receivables.

(d) The margin clients of the securities broking business are required to pledge their shares to the

Group for credit facilities for securities trading. The amount of credit facilities granted to

them is determined by the discounted value of shares acceptable by the Group. The fair value

of shares accepted as collateral amounted to HK$69,595,740 (2007 : HK$332,775,826) and the

fair value of collaterals that have been repledged to secure for bank facilities is HK$nil (2007 :

HK$12,160,000).

(e) Credits are extended to other clients on a case-by-case basis in accordance with the financial

status of clients such as their financial conditions, trading records, business profile and

collateral available to the Group. Clients trading in leveraged foreign exchange contracts,

commodities and futures contracts and obtaining securities margin financing from the Group

are required to observe the Group’s margin policies. For leveraged foreign exchange contracts

and commodities and futures contracts, initial margins are normally required before trading

and thereafter clients are normally required to keep the equity position at a prescribed

maintenance margin level.

(f) The Group maintains designated accounts with the SEHK Options Clearing House Limited

(‘‘SEOCH’’) and HKFE Clearing Corporation Limited (‘‘HKFECC’’) as a result of its normal

business transactions. At 31 December 2008, the designated accounts with SEOCH and

HKFECC not otherwise dealt with in these accounts amounted to HK$2,079,030 (2007 :

HK$277,912) and HK$20,780,880 (2007 : HK$30,482,157) respectively.

(g) The Group has no concentration of credit risk with respect to trade receivables and margin

loans, as the Group has a large number of customers, widely dispersed. In addition, margin

and trade related deposits are deposited with high-credit-quality financial institutions.

(h) The effective interest rate charged on trade receivables and margin loans as at the balance

sheet date ranged from 5% to 13% per annum (2007 : 6.75% to 14.75%). The effective interest

rate for margins and other trade related deposits is 0.01% per annum (2007 : 1.20% to 4.18%).


– 80 –

23 BANK BALANCES AND CASH

Group Company

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000

Cash in hand 12 422 — 30

Bank balances

— pledged 16,335 15,706 — —

— general accounts 171,783 358,056 10,706 19,163

188,118 373,762 10,706 19,163

188,130 374,184 10,706 19,193

By maturity:

Bank balances

— current and savings

accounts 171,783 266,755 10,706 19,163

— fixed deposits

(maturing within three

months) 16,335 99,793 — —

— fixed deposits

(maturing over three

months) — 7,214 — —

188,118 373,762 10,706 19,163

As at 31 December 2008, bank deposits amounting to HK$11,707,315 (2007 : HK$11,546,863) have

been pledged to a bank as security for the provision of a HK$22 million (2007 : HK$22 million) securities

broking facility. In addition, bank deposits amounting to HK$4,627,544 (2007 : HK$1,673,659) have been

pledged to financial institutions as security for the provision of leveraged foreign exchange broking.

The subsidiaries of the Group maintained segregated trust accounts with authorised institutions as a

result of their respective business activities. As at 31 December 2008, segregated trust accounts not

otherwise dealt with in these financial statements amounted to HK$100,817,093 (2007 : HK$255,679,278).


– 81 –

Cash and cash equivalents

Group

2008 2007

HK$’000 HK$’000

Cash in hand 12 422

Bank balances

— pledged 16,335 15,706

— general accounts 171,783 358,056

Cash and cash equivalents in the consolidated balance sheet 188,130 374,184

Bank balances

— pledged (16,335) (15,706)

— fixed deposits (maturing over three months) — (7,214)

171,795 351,264

Secured bank overdrafts — (4,674)

Unsecured bank overdrafts — (18)

Unsecured short-term bank loans — (12,000)

Cash and cash equivalents in the consolidated

cash flow statement 171,795 334,572

24 SHARE CAPITAL

2008 2007

No. of shares Nominal value No. of shares Nominal value

’000 HK$’000 ’000 HK$’000

Authorised

Ordinary shares of

HK$0.10 each 1,000,000 100,000 1,000,000 100,000

Issued and fully paid

Ordinary shares of

HK$0.10 each

At 1 January 414,430 41,443 414,130 41,413

Shares issued 7,873 787 300 30

At 31 December 422,303 42,230 414,430 41,443

The holders of ordinary shares are entitled to receive dividends as declared from time to time and

are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with

regard to the Company’s residual assets.

During the year, the subscription rights attached to 7,873,000 share options were exercised at the

subscription price of HK$0.88, resulting in the issue of 7,873,000 shares of HK$0.10 each for a total

consideration, before expenses, of HK$6,928,240. HK$1,590,346 was transferred from capital reserves to

the share premium account.


– 82 –

Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to

continue as a going concern, so that it can continue to provide returns for shareholders and benefits

for other stakeholders, by pricing products and services commensurately with the level of risk and

by securing access to finance at a reasonable cost. In addition, certain subsidiaries of the Group

licensed by the SFC are obliged to meet the regulatory liquid capital requirements under the

Securities and Futures (Financial Resources) Rules (‘‘SF(FR)R’’) at all times.

The Group actively and regularly reviews and manages its capital structure to maintain a

balance between the higher shareholder returns that might be possible with higher levels of

borrowings and the advantages and security afforded by a sound capital position, and make

adjustments to the capital structure in light of changes in economic conditions. For the licensed

subsidiaries, the Group ensures each of them maintains liquid capital level adequate to support the

activities level with sufficient buffer to accommodate the increase in liquidity requirements arising

from potential increases in business activities. SF(FR)R returns are filed to the SFC by the licensed

subsidiaries on monthly or semi-annually basis as required. During the current and prior financial

years, all the licensed subsidiaries complied with the liquid capital requirements under the SF(FR)R.

A subsidiary of the Company is authorized by the China Securities Regulatory Commission (the

‘‘CSRC’’) to deal in ‘B’ shares. The CSRC stipulated a minimum amount of net assets to be

maintained. During the year, the subsidiary maintained net assets over such requirement.

Consistent with industry practice, the Group monitors its capital structure on the basis of a

net debt-to-adjusted capital ratio. For this purpose, the Group defines net debt as total debt (which

includes interest-bearing loans and borrowings, trade and other payables and obligations under

finance leases) plus unaccrued proposed dividends, less cash and cash equivalents. Adjusted capital

comprises all components of equity, less unaccrued proposed dividends.

The net assets of the Group were reduced after the Group Reorganisation. The fixed rate loan

notes have all been redeemed from internal resources in order to save on interest costs. The Group

did not have any loan outstanding as at 31 December 2008, while the net debt-to-adjusted capital

ratio as at 31 December 2007 stood at 49.9%. The Group also strived to maintain highly liquid

assets to prepare for any unexpected sudden changes in the market. As at the balance sheet date, the

current ratio was 428.9% (2007 : 178.9%).


– 83 –

The net debt-to-adjusted capital ratios at 31 December 2008 and 2007 are as follows:

2008 2007


Current liabilities:


Short-term loans and bank overdrafts 28 — 16,692

Obligations under finance leases 26 506 537

65,274 472,039

Non-current liabilities:

Obligations under finance leases 26 — 506


Total debt 65,274 515,070

Add: Proposed dividends 12 — 10,393

Less: Cash and cash equivalents 23 (171,795) (334,572)

(Excess cash and cash equivalents)/net debt (106,521) 190,891

Total equity 227,382 392,441

Less: Proposed dividends 12 — (10,393)

Adjusted capital 227,382 382,048

Net debt-to-adjusted capital ratio N/A 49.9%


– 84 –

25 RESERVES

Group

Share

premium

Capital

reserves

Investment

revaluation

reserve

Exchange

reserve

Retained

earnings Total

Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Balance at 1 January 2007 104,275 100,777 502 2,708 106,092 314,354

Profit for the year — — — — 40,357 40,357

2006 final dividend paid — — — — (6,212) (6,212)

2007 interim dividend paid 12 — — — — (6,213) (6,213)


option scheme 295 (61) — — — 234


transactions — 1,802 — — — 1,802

Surplus on revaluation of

available-for-sale financial

assets 19 — — 2,057 — — 2,057

Exchange difference — — — 4,284 — 4,284

At 31 December 2007 104,570 102,518 2,559 6,992 134,024 350,663

Balance at 1 January 2008,

as per above 104,570 102,518 2,559 6,992 134,024 350,663

Loss for the year — — — — (11,023) (11,023)

2007 final dividend paid 12 — — — — (10,415) (10,415)


option scheme 24 7,731 (1,590) — — — 6,141


transactions 6, 32(b)

— share options vested

in the year — 577 — — — 577

— eliminated on

cancellation — (1,316) — — — (1,316)


immediate holding

company 32(b) — 2,372 — — — 2,372


former ultimate

holding company 6 — 1,420 — — — 1,420

Deficit on revaluation of

available-for-sale financial

assets 19 — — (133) — — (133)

Transfer to profit or loss on

disposal of available-for-

sale financial assets — — (2,558) — — (2,558)

Exchange difference — — — (17,621) — (17,621)

Distribution in specie — (80,078) 132 10,629 (63,638) (132,955)

At 31 December 2008 112,301 23,903 — — 48,948 185,152

At 31 December 2008

Company and subsidiaries 112,301 23,903 — — 48,948 185,152

Associates — — — — — —

112,301 23,903 — — 48,948 185,152

At 31 December 2007

Company and subsidiaries 104,570 102,518 2,559 7,593 130,306 347,546

Associates — — — (601) 3,718 3,117

104,570 102,518 2,559 6,992 134,024 350,663


– 85 –

Company

Share

premium

Capital

reserves

Contributed

surplus

Retained

earnings Total

Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2007 (as previously

reported) 104,275 — 133,101 74,060 311,436

Prior year adjustment 3 — 588 — — 588

As restated 104,275 588 133,101 74,060 312,024

Shares issued under share option

scheme 295 (61) — — 234


transactions, as restated — 1,802 — — 1,802

Loss for the year 11 — — — (22,196) (22,196)

2006 final dividends paid — — — (6,212) (6,212)

2007 interim dividends paid 12 — — — (6,213) (6,213)

At 31 December 2007 (as restated) 3 104,570 2,329 133,101 39,439 279,439

Shares issued under share option

scheme 24 7,731 (1,590) — — 6,141

Equity-settled share-based transactions 6, 32(b)

— share options vested in the year — 577 — — 577

— eliminated on cancellation — (1,316) — — (1,316)

Capital contribution from immediate

holding company 32(b) — 2,372 — — 2,372

Capital contribution from former

ultimate holding company 6 — 1,420 — — 1,420

Profit for the year 11 — — — 15,661 15,661

2007 final dividends paid 12 — — — (10,415) (10,415)

Distribution in specie — — (80,078) — (80,078)

At 31 December 2008 112,301 3,792 53,023 44,685 213,801

(a) Retained earnings are represented as follows:

Group Company

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000

Representing:

Final dividend proposed — 10,393 — 10,393

Others 48,948 123,631 44,685 29,046

Retained earnings as at

31 December 48,948 134,024 44,685 39,439

No retained earnings are required as statutory reserves as overseas subsidiaries have been

disposed of during the year. Included in the consolidated retained earnings at 31 December 2007 are

retained earnings of HK$203,506 which were required as statutory reserves in certain overseas


(b) Capital reserves

The capital reserves of the Group represents (i) capital contribution from the company’s

shareholders, (ii) the difference between the nominal value of the shares issued by the Company in

exchange for the nominal value of the deferred share capital of a subsidiary acquired in 2000 and

(iii) the fair value of the actual or estimated number of unexercised share options granted to

employees of the Company recognised in accordance with the accounting policy adopted for share-

based payments in note 2.15(d).


– 86 –

(c) Contributed surplus

Contributed surplus arose as a result of the Group’s reorganisation in 2000 and represents the

difference between the aggregate net asset value of subsidiaries acquired and the nominal amount of

the Company’s shares issued for the acquisition.

(d) Investment revaluation reserve

The investment revaluation reserve of the Group represents the changes in the fair value of

available-for-sale financial assets.

(e) Distributable reserves

Under the Company Act 1981 of Bermuda (as amended), the contributed surplus account of

the Company is available for distribution. However, the Company cannot declare or pay a dividend,

or make a distribution out of the contributed surplus account if:

(i) it is, or would after the payment be, unable to meet its liabilities as they become due; or

(ii) the realisable value of its assets would thereby be less than the aggregate of its liabilities

and its issued share capital and share premium accounts.

26 OBLIGATIONS UNDER FINANCE LEASE

At 31 December 2008, the Group’s finance lease liabilities are repayable as follows:

2008 2007

HK$’000 HK$’000

Within one year 523 586

After one year but within five years — 523

523 1,109

Future finance charges on finance leases (17) (66)

Present value of finance lease liabilities 506 1,043

The present value of finance lease liabilities is as follows:

2008 2007

HK$’000 HK$’000

Within one year 506 537

After one year but within five years — 506

506 1,043


– 87 –

27 TRADE AND OTHER PAYABLES

Group Company

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000

Trade payable to securities

trading clients 41,563 83,357 — —

Margin and other deposits

payable to clients 9,736 295,318 — —

Trade payable to brokers

and clearing houses arising

from the ordinary course

of business of broking in

securities, commodities

and futures contracts and

leveraged foreign

exchange trading 321 35,595 — —

Total trade payables 51,620 414,270 — —

Accruals and other payables 13,148 40,540 2,237 10,354

Total trade and other

payables 64,768 454,810 2,237 10,354

The carrying amounts of trade and other payables approximate their fair value.

The settlement terms of payable to clearing houses and securities trading clients from the ordinary

course of business of broking in securities range from two to three days after the trade date of those

transactions. Margin deposits received from clients for their trading of leveraged foreign exchange,

commodities and futures contracts, and the balances were payable within one month.

The effective interest rate paid on trade payables as at the balance sheet date is 0.01% per annum

(2007 : 1.20% to 4.90%).

28 SHORT-TERM LOANS AND BANK OVERDRAFTS

Group

2008 2007

HK$’000 HK$’000

Secured bank overdrafts — 4,674

Unsecured bank overdrafts — 18

Unsecured short-term bank loans — 12,000

Total borrowings — 16,692


– 88 –

The exposure of the Group’s borrowings to interest-rate changes and the contractual repricing dates

are as follows:

Group

6 months

or less Total

HK$’000 HK$’000

At 31 December 2008

Total borrowings — —

At 31 December 2007

Total borrowings 16,692 16,692

The effective interest rates at the balance sheet date are as follows:

Group

2008 2007

Secured bank overdrafts — 5.93%–6.50%

Unsecured bank overdrafts — 7.00%

Unsecured short-term bank loans — 5.63%–6.52%

29 LOAN NOTES

In the prior year, the Company issued loan notes to certain overseas and professional investors. The

loan notes were unsecured, mature on the day falling three years after the issue date of the relevant notes

and bore interest of 8.5% per annum on the principal amount. All loan notes have been redeemed during

the year.

2008 2007

HK$’000 HK$’000

At 1 January 42,525 —

Add: Issued — 44,865

Less: Redeemed (42,525) (2,340)

At 31 December — 42,525

30 DEFINED CONTRIBUTION PLANS — MPF SCHEME

The aggregate employer’s contributions, net of forfeited contributions, which have been dealt with

in the income statement for the year amounted to:

2008 2007

HK$’000 HK$’000

Gross employer’s contributions 2,121 2,121

Less: Forfeited contributions utilised to offset employer’s

contribution for the year (14) (12)

Net employer’s contributions charged to income statement 2,107 2,109


– 89 –

31 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ and senior management’s emoluments

The remuneration of the directors for the year ended 31 December 2008 is set out below:

Name of Director Fee Salary

Discretionary

bonuses

Other

benefits

Share-

based

Payment

Employer’s

contribution

to pension

scheme Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Chan Xiaozhou (note 1) 24 — — — — — 24

Gao Guanjiang (note 1) 24 — — — — — 24

Gu Jianguo (note 1) 20 — — — — — 20

Zhao Hongwei (note 1) 24 — — — — — 24

Gong Zhijian (note 1) 20 — — — — — 20

Lau Mun Chung 20 1,094 — — 211 12 1,337

Chow Kwok Wai (note 1) 20 — — — — — 20

Hung Muk Ming (note 1) 20 — — — — — 20

Chen Gongmeng (note 1) 20 — — — — — 20

Wang Tongsan (note 1) 20 — — — — — 20

Tang Yu Lap (note 2) 532 1,676 — — — 11 2,219

Lam Ngok Fung (note 2) 76 1,404 — — 357 11 1,848

Ng Chiu Mui (note 2) — 964 — — 37 11 1,012

Law Kai Yee (note 2) — 906 — — 200 11 1,117

Hwang Wei Ming, Ellen

(note 2) — 1,343 — — 134 11 1,488

Fong Wo, Felix (note 2) 130 — — — — — 130

Yu Man Woon (note 2) 150 — — — — — 150

Cheng Wing Chi (note 2) 130 — — — — — 130

Nyaw Mee Kau (note 2) 130 — — — — — 130

Yu Hon To, David (note 2) 220 — — — — — 220

1,580 7,387 — — 939 67 9,973

Notes:

1. Appointed on 2 December 2008.

2. Resigned on 23 December 2008.


– 90 –

The remuneration of the directors for the year ended 31 December 2007 is set out below:

Name of Director Fee Salary

Discretionary

bonuses

Other

benefits

Share-

based

Payment

Employer’s

contribution

to pension

scheme Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Tang Yu Lap — 1,581 840 — — 12 2,433

Chung Shui Ming, Timpson

(note 1) — 880 — — (106) 5 779

Lam Ngok Fung — 1,285 334 — 262 12 1,893

Ng Chiu Mui 58 903 178 — 49 12 1,200

Law Kai Yee 58 913 140 — 262 12 1,385

Hwang Wei Ming, Ellen

(note 2) — 1,037 275 42 175 10 1,539

Lau Mun Chung (note 2) — 759 154 — 175 10 1,098

Fong Wo, Felix 123 — — — — — 123

Yu Man Woon 143 — — — — — 143

Cheng Wing Chi 123 — — — — — 123

Nyaw Mee Kau 123 — — — — — 123

Yu Hon To, David 213 — — — — — 213

841 7,358 1,921 42 817 73 11,052

Notes:

1. Resigned on 1 June 2007.

2. Appointed on 3 March 2007.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year included

four directors (2007 : five) whose emoluments are reflected in the analysis presented above. The

emoluments payable to the remaining individual during the year are as follows:

2008

HK$’000

Basic salaries, other allowances and benefits in kind 1,116

Bonus 50

Defined contribution plans 12

1,178

The emoluments fell within the following bands:

Number of

individuals

2008

Emolument bands

HK$1,000,001 — HK$1,500,000 1


– 91 –

32 EQUITY-SETTLED SHARE-BASED TRANSACTIONS

The Company has adopted a share option scheme whereby the Board of the Company may at its

discretion grant to any employees, including executive directors, of the Group options to subscribe for

shares of the Company.

(a) The terms and conditions of the grants that existed during the years are as follows:

Number of instruments Vesting conditions

Contractual

life of options

2008 2007

Options granted to

directors

— on 13 November

2006

— 7,190,000 40% to be vested on 1

May 2007, 30% to be

vested on

1 May 2008, 30% to

be vested on

1 May 2009

5 years after

vesting

Options granted to

employees

— on 13 November

2006

— 7,900,000 40% to be vested on 1

May 2007, 30% to be

vested on

1 May 2008, 30% to

be vested on

1 May 2009

5 years after

vesting

Total share options — 15,090,000

(b) The number and weighted average exercise prices of share options are as follows:

2008 2007

Weighted

average

exercise price

Number of

options

Weighted

average

exercise price

Number of

options

HK$ HK$

Outstanding at the beginning

of the period 0.88 15,090,000 0.88 19,390,000

Cancelled due to resignation 0.88 (700,000) 0.88 (4,000,000)

Cancelled due to general

offer 0.88 (6,517,000) — —

Exercised during the period 0.88 (7,873,000) 0.88 (300,000)

Outstanding at the end of

the period — — 0.88 15,090,000

Exercisable at the end of

the period — — 0.88 5,856,000

The weighted average share price at the date of exercise for share options exercised during the

year was HK$0.88 (2007 : HK$0.88).


– 92 –

All options have been cancelled on 23 December 2008 upon acceptance by the option holders

of a cash offer at HK$0.364 per option by the immediate holding company. Upon cancellation of

these options, an amount of HK$154,000 that would have been recognised over the remainder of the

vesting period was immediately expensed (see note 6). Payment made to the option holders on

cancellation was accounted for as a deduction from capital reserves of HK$1,316,000, except to the

extent that payment exceeded the fair value of share options granted being recognised as an expense

of HK$1,056,000 (see note 6). The aggregate payment made by the immediate holding company to

the option holders of HK$2,372,000 was accounted for as a capital contribution from the immediate

holding company (see note 25). The options outstanding at 31 December 2007 had an exercise price

of HK$0.88 and a weighted average remaining contractual life of 5.25 years.

(c) Fair value of share options and assumptions

The fair value of services received in return for share options granted is measured by reference

to the fair value of the share options granted. The estimate of the fair value of the options granted is

measured based on the Black Scholes model. The contractual life of the option is used as an input

into this model.

Fair value of share options and assumptions on grant date

13 November

2006

Fair value HK$0.202

Share price HK$0.88

Exercise price HK$0.88

Expected volatility 30.01%

Option life 5 years

Expected dividends 3.0%

Risk-free interest rate (based on Exchange Fund Notes) 3.754%

The expected volatility is based on the daily stock price return over one year preceding the

grant date, adjusted for any expected changes to future volatility based on publicly available

information. Expected dividends are based on historical dividends. Changes in the subjective input

assumptions could materially affect the fair value estimate.

Share options were granted under a service condition. This condition has not been taken into

account in the grant date fair value measurement of the services received. There were no market

conditions associated with the share option grants.

During the year ended 31 December 2008, no share options were granted.


– 93 –

33 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

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

2008 2007

HK$’000 HK$’000

(Loss)/profit before taxation from continuing operations (18,872) 12,824

Profit before taxation from discontinued operations 16,914 40,606

Operating (loss)/profit before taxation (1,958) 53,430

Depreciation 6,968 6,927

Impairment of goodwill 399 —

Diminution in value of financial assets at fair value

through profit or loss 3,066 3,429

Profit on disposal of financial assets at fair value through

profit or loss (190) (2,346)

Profit on disposal of available-for-sale financial assets (3,072) —

Interest expenses 1,763 8,472

Dividend income from listed securities (197) (479)

Dividend income from available-for-sale financial assets — (138)

Share of profits of associates (2,105) (2,047)

Loss on disposal of fixed assets 666 793

Write back of provision for doubtful debt and clawback (2) (2)

Provision for clawback — 104

Impairment loss for bad and doubtful debts 1,276 911

Equity-settled share-based payment expenses 1,633 1,802

Capital contribution from former ultimate holding

company 1,420 —

Decrease/(increase) in fixed deposits with maturity over

three months 4,885 (7,214)

Increase in pledged deposits (629) (3,017)

Operating profit before working capital changes 13,923 60,625

Decrease in other assets 90 1,312

Decrease/(increase) in trade and other receivables 272,435 (46,057)

(Decrease)/increase in trade and other payables (290,994) 62,205

Cash (outflow)/inflow from operations (4,546) 78,085

Hong Kong profits tax paid (3,982) (10,373)

Overseas tax paid (2,879) (5,668)

Net cash (outflow)/inflow from operating activities (11,407) 62,044


– 94 –

(b) Purchase of subsidiaries:

2008 2007

HK$’000 HK$’000

Net assets acquired

Fixed assets — 45

Trade and other receivables 6 74

Bank balances and cash — general accounts 1,254 309

Trade and other payables — (173)

1,260 255

Share of minority interests — (23)

Goodwill arising on acquisition (note 14, 16(c)) 45 399

Total purchase price 1,305 631

Satisfied by:

Cash 1,305 631

Analysis of the cash outflow on acquisition in respect of the purchase of subsidiaries:

2008 2007

HK$’000 HK$’000

Cash consideration (1,305) (631)

Cash and bank balances acquired 1,254 309

Cash outflow (51) (322)


– 95 –

(c) Discontinued operations:

As disclosed in note 10 to the financial statements, the Group distributed the equity interest in

HPL Group it held in form of a distribution in specie. The net assets and attributable goodwill of

HPL Group at the date of distribution of 27 November 2008 were as follows:

At the date of

distribution

HK$’000

Net assets distributed

Intangible assets 5,798

Fixed assets 27,901

Interests in associates 19,472

Other assets 200

Available-for-sale financial assets 851

Deferred income tax assets 462

Financial assets at fair value through profit or loss 3,723

Taxation recoverable 3,475

Trade and other receivables 107,530

Bank balances and cash 80,710

Trade and other payables (99,046)

Taxation Payable (6,184)

Deferred income tax liabilities (233)

Secured Mortgage loans (11,280)

133,379

Analysis of the cash outflow in respect of the distribution in specie:

At the date of

distribution

HK$’000

Cash and bank balances (80,710)

Fixed deposit (maturing over three months) 2,329

(78,381)

34 CONTINGENT LIABILITIES

34.1 Outstanding litigation cases

The following litigation cases are outstanding up to the date of this report. Under the

Agreement, HHL and the then chairman of the Company undertakes to indemnify and keep

indemnified the Company on a fully indemnity basis of any loss or liability suffered by the Group as

a result of or in connection with the outstanding litigation cases. Therefore no provision has been

made.

(a) A company named Hantec Investment Limited which is unrelated to the Group filed a

writ to the Company on 28 July 2000 seeking for injunction to restrain the Company

from using the plaintiff’s alleged trade name and damages. The plaintiff has not taken

further action after the Company filed a defence.


– 96 –

(b) An indirect wholly owned subsidiary of the Company received a writ of summons dated

25 March 2006 from two clients jointly as plaintiffs claiming for damages against it and

two of its licensed representatives for an amount of HK$20,600,000 together with costs

relating to a number of leverage exchange trading transactions. Defence action has been

commenced and no further development has been made up to the date of this report.

(c) A writ of summons dated 11 July 2006 was served to two indirect wholly owned

subsidiaries and one then subsidiary of the Company by a former account executive

claiming for a total of HK$700,000 as his rightful overriding commissions together with

interest and/or alternatively, damages to be assessed. The plaintiff has been requested to

state clearly his claim. Up to the date of this report, there has been no further

development.

(d) After the year end date, a writ of summons dated 22 January 2009 has been served to the

Company, the then chairman and the then executive director of the Company claiming

for HK$30,000,000 together with all costs, interest and expenses being loss suffered by

the plaintiff as a result of misrepresentation of the defendants. The Company and the

other defendants have applied to the court to strike out the writ on the basis that the

plaintiff is groundless in her claim. Up to the date of this report, the result of the

application is not yet known.


(a) As at the balance sheet date, a subsidiary of the Company engaging in securities broking

and providing securities margin financing has secured banking facilities from certain

authorized institutions for a total amount of HK$257 million (2007 : HK$334 million).

The Company has issued corporate guarantees for a total principal amount of HK$255

million (2007 : HK$322 million) for these facilities. As at 31 December 2008, the

subsidiary utilized HK$nil (2007 : HK$16,678,805) of these aggregate banking facilities.

(b) The Company also issued corporate guarantees to certain financial institutions for

foreign exchange trading facilities granted to subsidiaries engaging in leveraged foreign

exchange trading. The maximum liability is the trading loss and related incidental costs,

in some cases, subject to an overall cap on the amount of the guarantee.

(c) As at the balance sheet date, the directors do not consider it probable that a claim will be

made against the Company under any of the guarantees. The Company has not

recognised any deferred income in respect of the guarantees as their fair value cannot be

reliably measured and the transaction price was nil.


– 97 –

35 LEASE COMMITMENTS

At 31 December 2008, the Group had future aggregate minimum lease payments under non-

cancellable operating leases as follows:

Land and buildings Others

2008 2007 2008 2007

HK$’000 HK$’000 HK$’000 HK$’000

Within one year 9,300 14,231 134 447

After one year but within five years 4,490 17,110 — 183

13,790 31,341 134 630

36 FINANCIAL RISK MANAGEMENT

36.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: foreign exchange risk, price risk,

credit risk, liquidity risk and interest-rate risk. The Group’s overall risk management programme

focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects

on the Group’s financial performance.

Risk management is carried out by a Risk Management Committee (the ‘‘RMC’’) under

policies approved by the Executive Management Committee (the ‘‘EMC’’). The RMC identifies,

evaluates and hedges financial risks in close co-operation with the Group’s operating units. The

RMC also recommends overall risk management policy for the approval of the EMC, covering

specific areas, such as foreign exchange risk, interest-rate risk, credit risk, use of derivative financial

instruments and non-derivative financial instruments, and investing excess liquidity.

(a) Foreign exchange risk

The Group carries out business in foreign exchange trading and therefore is exposed to

foreign exchange risk arising from various currency exposures, primarily with respect to the

Hong Kong Dollars. Foreign exchange risk arises from future commercial transactions,

recognised assets and liabilities.

The Group’s net trading positions are denominated in currencies other than its

functional currency or presentation currency and are subject to fluctuation in foreign

exchange among the different currencies. The treasury function of the Group is responsible for

managing the foreign exchange risk under prudent guidelines on position limits and floating

loss limits. The RMC reviews the limits from time to time to cope with changes in volatility in

the market.


– 98 –

The following table details the Group’s exposure at the balance sheet date to currency

risk arising from forecast transactions or recognised assets or liabilities denominated in a

currency other than the functional currency of the entity to which they relate.

Japanese

Yen

United

States

Dollars Euro

Pound

Sterling

Swiss

Franc Others

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2008

Trade and other receivables 2,751 28,052 1 — — —

Cash and cash equivalents 2 16,910 9,484 — — —

Trade and other payables — (227) (4) — — (13)

Net exposure arising from recognised

assets and liabilities 2,753 44,735 9,481 — — (13)

Notional amounts of leveraged foreign

exchange contracts sales (24,695) — (40,223) (26,660) (13,051) (29,243)


exchange contracts purchases 26,287 — 40,114 25,392 13,381 26,761

Notional amounts of foreign exchange

option contracts sales — — — — — —


option contracts purchases — — — — — —

Net notional amounts of precious metal

trading contracts — — — — — —

Net exposure arising from forecast

transactions 1,592 — (109) (1,268) 330 (2,482)

Overall net exposure 4,345 44,735 9,372 (1,268) 330 (2,495)

At 31 December 2007

Trade and other receivables 2,041 164,353 34 284 784 21,141

Cash and cash equivalents 1,529 204,224 7,986 34 2,384 12,148

Trade and other payables (24,719) (304,979) (854) (1,034) (4,661) (4,872)

Net exposure arising from recognised

assets and liabilities (21,149) 63,598 7,166 (716) (1,493) 28,417


exchange contracts sales (695,314) — (88,160) (684,315) (41,605) (40,287)


exchange contracts purchases 607,675 — 178,368 550,039 73,203 38,455


option contracts sales — — (56,878) (154,619) — —


option contracts purchases — — 56,878 309,239 — —

Net notional amounts of precious metal

trading contracts — 27,945 — — — —

Net exposure arising from forecast

transactions (87,639) 27,945 90,208 20,344 31,598 (1,832)

Overall net exposure (108,788) 91,543 97,374 19,628 30,105 26,585


– 99 –

Sensitivity analysis

The following table indicates the approximate change in the Group’s profit before

tax in response to possible changes in the foreign exchange rates to which the Group has

significant exposure at the balance sheet date.

2008 2007

Appreciation/

depreciation

of foreign

currencies

Effect on

profit before

tax

Appreciation/

depreciation

of foreign

currencies

Effect on

profit before

tax

HK$’000 HK$’000

Japanese Yen +10% 434 +5% (5,439)

–10% (434) –5% 5,439

Euro +10% 937 +5% 4,869

–10% (937) –5% (4,869)

Pound Sterling +10% (127) +5% 981

–10% 127 –5% (981)

Swiss Franc +10% 33 +5% 1,505

–10% (33) –5% (1,505)

The sensitivity analysis has been determined assuming that the change in foreign

exchange rates had occurred at the balance sheet date and had been applied to each of

the Group entities’ exposure to currency risk for both derivative and non-derivative

financial instruments in existence at that date, and that all other variables, in particular

interest rates, remain constant.

The stated changes represent management’s assessment of reasonably possible

changes in foreign exchange rates over the period until the next annual balance sheet

date. In this respect, it is assumed that the pegged rate between the Hong Kong Dollars

and the United States Dollars would be materially unaffected by any changes in

movement in value of the United States Dollars against other currencies. Results of the

analysis as presented in the above table represent an aggregation of the effects on each of

the Group entities’ profit before tax and equity measured in the respective functional

currencies, translated into Hong Kong Dollars at the exchange rate ruling at the balance

sheet date for presentation purposes. The analysis is performed on the same basis for

2007.

The Company is not subject to significant foreign exchange risk as most of the

Company’s assets and liabilities are denominated in Hong Kong Dollar or United States

Dollar.


– 100 –

(b) Price risk

The Group discontinued the trading and broking of precious metal contracts upon

completion of the Group Reorganisation as disclosed in note 10. Therefore the Group is no

longer exposed to price risk on bullion trading.

The following table indicates the approximate change in the Group’s profit before tax in

response to possible changes in bullion price to which the Group have the net positions on

bullion trading at the balance sheet date.

2007

Increase/

decrease in

bullion price

Effect on

profit before

tax

HK$’000

Net notional amounts of precious metal trading

contracts +30% 8,384

–30% (8,384)

(c) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables. It has

policies in place to ensure that credits are granted to customers with an appropriate credit

history and/or collateral deposited with the Group. For leveraged foreign exchange trading

and futures trading, normally an initial margin will be collected before opening of trading

positions. Moreover, the Group has no significant concentration of credit risk as credits are

granted to a large population of clients. Derivative counterparties and cash transactions are

limited to high-credit-quality financial institutions and only brokers having sound credit

ratings will be accepted. The Group has maintained relationship with various financial

institutions, and has policies that limit the amount of credit exposure to any financial

institution. Further quantitative disclosures in respect of the Group’s exposure to credit risk

arising from trade receivables are set out in note 22(a).

The Company’s credit risk is primarily attributable to amounts due from subsidiaries.

The Company manages this risk by assessing the financial positions of subsidiaries on a

regular basis.


– 101 –

(d) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable

securities, and the ability to close out market positions. Due to the dynamic nature of the

underlying businesses, the Group employs a prudent liquidity policy.

The maturity profile of the Group’s financial liabilities as at the balance sheet date,

based on the contracted undiscounted payments, is as follows:

Carrying

amount

Total

contractual

undiscounted

cash flow

Within 1 year

or on demand

After 1 year

but within

5 years

HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2008

Trade and other payables 64,768 64,768 64,768 —

Obligations under

finance leases 506 523 523 —

65,274 65,291 65,291 —

At 31 December 2007

Trade and other payables 455,289 455,289 455,289 —

Short-term loan and

bank overdrafts 16,692 16,867 16,867 —

Obligations under

finance leases 1,043 1,109 586 523

Loan notes 42,525 52,156 3,675 48,481

515,549 525,421 476,417 49,004

The Company’s policy is to regularly monitor its liquidity requirements including

borrowings from subsidiaries, dividend payments to shareholders and accrued payments to

ensure that it maintains sufficient reserves of cash to satisfy its contractual and foreseeable

obligations as they fall due.

(e) Interest rate risk

The Group charged interest on its clients on the basis of its cost of funding plus a mark-

up and paid interest to clients on the basis of the interest the Group earned from financial

institutions less a charge. Financial assets such as trade and other receivables, bank balances

and cash-deposits with regulatory bodies are primarily at floating rates. Financial liabilities

subject to floating interest rates are trade and other payables, bank overdrafts and loans.

Obligations under finance lease are subject to fixed interest rate determined by the inception of

the relevant lease. The Group’s income and operating cash flows are not subject to significant

interest rate risk.


– 102 –

The Interest rate profile of the Group at the balance sheet date.

2008 2007

Effective

interest rate HK$’000

Effective

interest rate HK$’000

Assets

Bank balances 0.01% 131,988 2.30% 221,808

Margin finance loans 5.00%–13.00% 8,757 6.75%–14.75% 101,248

140,745 323,056

Liabilities

Net fixed rate borrowing:

Obligations under finance

leases 6.23%–7.32% 506 6.23%–7.32% 1,043

Loan notes — — 8.50% 42,525

506 43,568

Variable rate borrowings:

Short-term loans — — 5.63%–6.52% 12,000

Bank overdrafts — — 5.93%–7.00% 4,692

— 16,692

Total borrowings 506 60,260

Net fixed rate borrowings

as a percentage of total

net borrowings 100% 72.3%

Sensitivity analysis

Assume interest rate

decreased by 0.01% 0.5%

Profit before tax

decreased by 14 1,532

The sensitivity analysis above has been determined assuming that the change in interest

rates had occurred at the balance sheet date and had been applied to the exposure to interest

rate risk for both derivative and non-derivative financial instruments in existence at that date.

The 1 basis point decrease (2007 : 50 basis points decrease) represents management’s

assessment of a reasonably possible change in interest rates over the period until the next

annual balance sheet date.

36.2 Fair value estimation

The fair value of financial instruments traded in active markets (such as publicly traded

derivatives and trading securities) is based on quoted market prices at the balance sheet date. The

quoted market price used for financial assets held by the Group is the current bid price; the

appropriate quoted market price for financial liabilities is the current ask price.


– 103 –

The fair value of financial instruments that are not traded in an active market (for example,

over-the-counter derivatives and available-for-sale securities) is determined by using valuation

techniques. The Group uses a variety of methods and makes assumptions that are based on market

conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar

instruments are used for long-term debt.

The nominal value less estimated credit adjustments of trade receivables and payables are

assumed to approximate their fair values. The carrying values of other financial assets and liabilities

approximate their fair values.

37 RELATED PARTY AND CONNECTED PARTY TRANSACTIONS

37.1 Related party and connected party transactions

The following is a summary of significant related party and connected party (as defined in the

Listing Rules) transactions which were carried out in the normal course of the Group’s business:

2008 2007

HK$’000 HK$’000

Miscellaneous expenses (note (a)) (213) (225)

Sale of intellectual property (note (b)) 600 —

License fee for software programs (note (c)) (80) —

Maintenance services expenses (note (d)) (47) —

(a) During the year, the Group incurred HK$213,000 (2007 : HK$224,738) to purchase

Chinese paintings as souvenirs from a company in which the former Chairman of the

Company held a 70% equity interest. The amount was charged at normal commercial

terms.

(b) Pursuant to a Software Assignment Agreement, Cinda International FX Limited

(‘‘CIFX’’), a wholly-owned subsidiary of the Company agreed to sell and Ringus

Solution Enterprise Limited (‘‘Ringus’’) agreed to purchase certain computer systems

owned, co-owned, developed or co-developed by CIFX together with the entire

copyright and all other intellectual property rights attached thereto at a consideration

of HK$600,000.

(c) Pursuant to a Software License Agreement, Ringus agreed to grant a non-exclusive

license to CIFX to use certain computer software programs for its business operation

purposes at its principal place of business and other branch offices in Hong Kong at a

monthly license fee of HK$80,000.

(d) Pursuant to a Software Service and Maintenance Agreement, Ringus agreed to provide

software maintenance services as set out therein and all other computer and IT systems

provided or being maintained by Ringus and from time to time used by the Group to

Chinacorp Nominees Limited, a wholly-owned subsidiary of the Company for a monthly

fee of HK$43,000.

The above transactions of note (b), (c) and (d) constituted connected party transactions as the

then Chairman of the Company was interested in Ringus. The terms of the Software Assignment

Agreement, the Software License Agreement and the Software Service and Maintenance Agreement

are on normal commercial terms.


– 104 –

37.2 Compensation of key management personnel

The remuneration of directors and other members of key management during the year are as

follows:

Group

2008 2007

HK$’000 HK$’000

Salaries and other short-term employee benefits 14,637 17,696

Share-based payments 1,414 1,515

16,051 19,211

The remuneration of directors and key executives are reviewed by the Remuneration

Committee having regard to the performance of individuals and market trends.

38 CAPITAL COMMITMENTS

Capital commitments outstanding and not provided for in the financial statements are as follows:

Group

2008 2007

HK$’000 HK$’000

Contracted but not provided for — 14,807

39 COMPARATIVE FIGURES

Due to the Group Reorganisation, as disclosed in note 10, which constituted discontinued

operations under HKFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued Operations’’, certain

comparative figures were restated so as to present the results for the continuing operations and

discontinued operations.

40 IMMEDIATE AND ULTIMATE HOLDING COMPANY

At 31 December 2008, the directors consider the immediate parent and ultimate controlling party of

the Group to be Sinoday Limited and China Cinda Asset Management Corporation, which are

incorporated in the British Virgin Islands and the People’s Republic of China respectively. These entities

do not produce financial statements available for public use.

41 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS

ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2008

Up to the date of issue of these financial statements, the HKICPA has issued a number of

amendments, new standards and interpretations which are not yet effective for the year ended 31

December 2008 and which have not been adopted in these financial statements.

The Group is in the process of making an assessment of what the impact of these amendments, new

standards and new interpretations is expected to be in the period of initial application. So far it has

concluded that the adoption of them is unlikely to have a significant impact on the Group’s results of

operations and financial position.


– 105 –

In addition, the following developments are expected to result in amended disclosures in the

financial statements, including restatement of comparative amounts in the first period of adoption:

Effective for

accounting

periods beginning

on or after

HKFRS 8, Operating segments 1 January 2009

HKAS 1 (Revised), Presentation of financial statements 1 January 2009


– 106 –

3. INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2009

The followings are the unaudited financial statements of the Group for the six months

ended 30 June 2009 together with accompanying notes extracted from the interim report of

the Company.

Consolidated Income Statement

For the six months ended 30 June 2009

Unaudited

Six months ended 30 June

2009 2008

Note HK$’000 HK$’000(restated)


Turnover 4 31,255 56,964Other revenue 4 99 548Other net income 4 91 319

31,445 57,831

Staff costs 5(a) (19,771) (15,695)Commission expenses (15,760) (21,981)Operating leases for land and buildings (6,022) (7,122)Other operating expenses (12,238) (14,477)

Total operating expenses (53,791) (59,275)

Operating loss (22,346) (1,444)Finance costs 5(c) (31) (1,363)

Loss before taxation (22,377) (2,807)Income tax 6 — (74)

Loss for the period from continuingoperations (22,377) (2,881)

Discontinued operations

Profit for the period from discontinuedoperations 3 — 7,733

(Loss)/profit for the period (22,377) 4,852

Attributable to:Equity holders of the Company (22,377) 4,768Minority interests — 84

(22,377) 4,852


– 107 –

Unaudited


2009 2008

Note HK$’000 HK$’000(restated)

(Loss)/earnings per share

Basic— From continuing and discontinued

operations 8(a) N/A HK1.15 cents— From continuing operations 8(a) (HK5.30 cents) (HK0.69 cents)— From discontinued operations 8(a) N/A HK1.84 cents

Diluted— From continuing and discontinued

operations 8(b) N/A HK1.14 cents— From continuing operations 8(b) N/A N/A— From discontinued operations 8(b) N/A HK1.82 cents


– 108 –

Consolidated Statement of Comprehensive Income


Unaudited


2009 2008

HK$’000 HK$’000

(Loss)/profit for the period (22,377) 4,852

Other comprehensive income for the period:

Available-for-sale financial assets

Change in fair value during the period — (1)

Transfer to profit or loss on disposal — (2,558)

Net movement in investment revaluation reserve — (2,559)

Exchange differences on translation of financial

statements of overseas subsidiaries — 3,219

— 660

Total comprehensive (expense)/income

for the period (22,377) 5,512


attributable to:

Equity holders of the Company (22,377) 5,428

Minority interests — 84


for the period (22,377) 5,512


– 109 –

Consolidated Statement of Financial Position

As at 30 June 2009 and 31 December 2008

Unaudited Audited

30 June 31 December

2009 2008


Non-current assets

Intangible assets 9 1,319 1,319

Fixed assets 9 6,123 7,752

Other assets 3,553 3,600

10,995 12,671

Current assets

Financial assets at fair value


Taxation recoverable 224 177

Trade and other receivables 10 164,686 90,281


269,170 279,985

Current liabilities



under finance lease 246 506

75,160 65,274



NET ASSETS 205,005 227,382



Other reserves 136,204 136,204

Retained earnings 26,571 48,948

TOTAL EQUITY 205,005 227,382


– 110 –

Consolidated Statement of Changes in Equity


Unaudited

Share

capital

Other

reserves

Retained

earnings

Minority

interests Total

Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2009 42,230 136,204 48,948 — 227,382

Total comprehensive

expense for the period — — (22,377) — (22,377)

At 30 June 2009 42,230 136,204 26,571 — 205,005

Unaudited

Share

capital

Other

reserves

Retained

earnings

Minority

interests Total

Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2008 41,443 216,639 134,024 335 392,441

Total comprehensive

income for the period — 660 4,768 84 5,512

Shares issued under

share option scheme 346 3,397 — — 3,743

Equity-settled share-

based payment — (332) — — (332)

Dividends paid

2007 final 7 — — (10,415) — (10,415)

At 30 June 2008 41,789 220,364 128,377 419 390,949

Included in the consolidated retained earnings at 30 June 2008 are statutory

reserves of HK$433,048 which are required to be held in respect of certain overseas



– 111 –

Condensed Consolidated Statement of Cash Flows


Unaudited


2009 2008


Net cash outflow from operating

activities (80,586) (48,844)

Net cash outflow from investing

activities (290) (13,538)

Net cash outflow from financing

activities (291) (21,720)

Net decrease in cash and cash

equivalents (81,167) (84,102)

Cash and cash equivalents at 1 January 171,795 334,572

Effect of foreign exchange rate changes — 2,582

Cash and cash equivalents at 30 June 11 90,628 253,052

Analysis of balances of cash and cash

equivalents:

Bank balances — general accounts

and cash 11 90,628 255,055

Bank overdrafts 11 — (3)

Bank loans — unsecured 11 — (2,000)

90,628 253,052


– 112 –

Notes to the Unaudited Interim Financial Report

1. BASIS OF PREPARATION

This unaudited interim financial report has been prepared in accordance with the applicable

disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange of Hong

Kong Limited, including compliance with Hong Kong Accounting Standard (‘‘HKAS’’) 34, ‘‘Interim

Financial Reporting’’, issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’).

The unaudited interim financial report has been approved for issue by the Board of Directors on 16

September 2009.

The interim financial report contains condensed consolidated financial statements and selected

explanatory notes. The notes include an explanation of events and transactions that are significant to an

understanding of the changes in financial position and performance of the Group since the 2008 annual

financial statements. The condensed consolidated interim financial statements and notes thereon do not

include all of the information required for a full set of financial statements prepared in accordance with

the Hong Kong Financial Reporting Standards (‘‘HKFRSs’’).

The interim financial report is unaudited, but has been reviewed by KPMG in accordance with Hong

Kong Standard on Review Engagements 2410, ‘‘Review of Interim Financial Information Performed by

the Independent Auditor of the Entity’’ issued by the HKICPA. KPMG’s review report to the Board of

Directors is included on page 40.

2. ACCOUNTING POLICIES

The accounting policies and methods of computation used in the preparation of this interim

financial report are consistent with those used in the annual financial statements for the year ended 31

December 2008 except the following changes in accounting policies resulting from initial application of

certain new and revised HKFRSs that are relevant to the Group’s financial statements and first effective

for the current accounting period of the Group:

. HKFRS 8, Operating segments

. HKAS 1 (revised), Presentation of financial statements

. Amendments to HKFRS 7, Financial instruments: Disclosures — improving disclosures about

financial instruments

The amendments to HKFRS 7 do not contain any additional disclosure requirements specifically

applicable to the interim financial report. The impact of the remainder of these developments on the

interim financial report is as follows:

HKFRS 8 requires segment disclosure to be based on the way that the Group’s chief operating

decision maker regards and manages the Group, with the amounts reported for each reportable

segment being the measures reported to the Group’s chief operating decision maker for the purposes

of assessing segment performance and making decisions about operating matters. This contrasts

with the presentation of segment information in prior years which was based on a disaggregation of

the Group’s financial statements into segments based on related products and services and on

geographical areas. The adoption of HKFRS 8 has resulted in the presentation of segment

information in a manner that is more consistent with internal reporting provided to the Group’s

most senior executive management. As this is the first period in which the Group has presented

segment information in accordance with HKFRS 8, additional explanation has been included in the

interim financial report which explains the basis of preparation of the information. Corresponding

amounts have also been provided on a basis consistent with the revised segment information.


– 113 –

As a result of the adoption of HKAS 1 (revised), details of changes in equity during the period

arising from transactions with equity shareholders in their capacity as such have been presented

separately from all other income and expenses in a revised consolidated statement of changes in

equity. All other items of income and expenses are presented in the consolidated income statement,

if they are recognised as part of profit or loss for the period, or otherwise in a new primary

statement, the consolidated statement of comprehensive income. The new format for the

consolidated statement of comprehensive income and the consolidated statement of changes in

equity has been adopted in this interim financial report and corresponding amounts have been

restated to conform to the new presentation. This change in presentation has no effect on reported

profit or loss, total income and expense or net assets for any period presented.

3. GROUP REORGANISATION AND DISCONTINUED OPERATIONS

On 13 August 2008, the Company’s then ultimate holding company, Hantec Holdings Limited

(‘‘HHL’’) entered into a share sale agreement (‘‘Agreement’’) with Sinoday Limited (‘‘Sinoday’’) and Silver

Grant International Securities Investment Limited (‘‘Silver Grant’’), pursuant to which Sinoday and Silver

Grant agreed to acquire 218,650,000 shares and 40,022,000 shares of the Company respectively from

HHL, representing approximately 52.32% and 9.58% of the issued share capital of the Company as at the

date of the Agreement. Completion of the Agreement was subject to, inter alia, approval by independent

shareholders of the Company of a proposal to reorganise the Group (the ‘‘Group Reorganisation’’).

Pursuant to the resolution passed by the independent shareholders in the special general meeting

held on 17 November 2008, the Group Reorganisation was approved. On 27 November 2008, the Group

Reorganisation and the Agreement were completed. As a result, Sinoday acquired 218,650,000 shares of

the Company from HHL and became the holding company of the Company.

Upon completion of the Group Reorganisation, (i) the Company continues to be a public listed

company with its subsidiaries concentrating on carrying on the business of regulated activities under the

SFO in Hong Kong, which include leveraged foreign exchange trading, securities broking and margin

financing services, commodities and futures broking, financial planning, asset management and corporate

finance services in Hong Kong (the ‘‘Retained Business’’); (ii) Hantec Pacific Limited (‘‘HPL’’) and its

subsidiaries (the ‘‘HPL Group’’) continues to carry on the business of trading and broking of precious

metal contracts, provision of financial related services outside of Hong Kong and investment in water

plant business (the ‘‘Distributed Business’’); and (iii) the shareholders of the Company received by way of

a distribution in specie the shares of HPL on the basis of one share of HPL for one share of the Company

held.

Details of the Group Reorganisation are set out in a circular of the Company dated 31 October

2008.

The results of the discontinued operations during the period ended 30 June 2008 are set out below.

The discontinued operations ceased before 1 January 2009 and so there is no result presented for this

current period.


– 114 –

Six months ended

30 June 2008

Note HK$’000

Turnover 4 125,664

Other revenue 4 73

Other net income 4 943

126,680

Staff costs (25,432)

Commission expenses (62,606)

Operating leases for land and buildings (3,272)

Other operating expenses (26,249)

Total operating expenses (117,559)

Operating profit 9,121

Finance costs (84)

9,037

Share of profits of associates 1,407

Profit before taxation 10,444

Income tax

— Current taxation 6 (2,547)

— Deferred taxation 6 (164)

Profit for the period 7,733

4. TURNOVER, OTHER REVENUE, OTHER NET INCOME AND SEGMENT INFORMATION

The Company is an investment holding company. The Group is principally engaged in the provision

of leveraged foreign exchange trading and broking services, securities broking, commodities and futures

broking, provision of corporate financial advisory services, fund management and financial planning and

insurance broking.

Under the Group Reorganisation, as disclosed in note 3, the Distributed Business constituted

discontinued operations under HKFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued

Operations’’. As a result, certain comparative figures were restated so as to present the results for the

continuing operations and discontinued operations.


– 115 –

Total revenue recognised during the period is as follows:


2009 2008

HK$’000 HK$’000

(restated)


Turnover


Net revenue from foreign currency option trading — 5,208

Net premium income from insurance broking 159 203



Underwriting commission 1,096 54

Management, subscription and advisory fee income — 37

31,255 56,964

Other revenue


Other income 78 500

99 548

Other net income

Net exchange (losses)/gains (436) 891

Net realised gains on financial assets at

fair value through profit or loss — 48

Net unrealised gains/(losses) on financial assets at fair value

through profit or loss 527 (620)

91 319

31,445 57,831


– 116 –


2009 2008

HK$’000 HK$’000

(restated)


Turnover

Fees and commission — 28,672

Net revenue from

— foreign currency option trading — 747

— bullion trading — 48,969

Swap interest and foreign exchange trading revenue — 31,561

Interest income — 14,840

Management, subscription and advisory fee income — 875

— 125,664

Other revenue

Dividend income from listed securities — 48

Other income — 25

— 73

Other net income

Net exchange losses — (1,533)

Net realised gains on financial assets at

fair value through profit or loss — 7

Net unrealised losses on financial assets at

fair value through profit or loss — (603)

Profit on disposal of available-for-sale financial assets — 3,072

— 943

— 126,680

Segment information

The Group manages its businesses by divisions. On first-time adoption of HKFRS 8,

Operating segments, and in a manner consistent with the way in which information is reported

internally to the Group’s most senior executive management for the purposes of resource allocation

and performance assessment, the Group has identified the following reportable segments. No

operating segments have been aggregated to form the following reportable segments.

Continuing operations:

1. Securities broking — provision of broking services in securities, equity linked products, unit

trusts and stock options traded in Hong Kong and selected overseas markets and margin

financing services to those broking clients.

2. Corporate finance — provision of corporate finance and advisory services to companies listed

in Hong Kong.

3. Leveraged foreign exchange trading/broking in Hong Kong — provision of dealing and



– 117 –

4. Commodities and futures broking — provision of broking services in commodities and futures

contracts traded in Hong Kong and selected overseas markets.

5. Financial planning and insurance broking in Hong Kong — acting as an agent for the sale of

savings plans, unit trusts, general and life insurance and providing advisory services on

securities investment and discretionary fund management.

6. Asset management — managing private funds.

Discontinued operations:

1. Leveraged foreign exchange trading/broking outside Hong Kong — provision of dealing and


2. Financial planning outside Hong Kong — providing advisory services on securities investment

and discretionary fund management.

3. Precious metal contracts trading/broking — provision of dealing and broking trading services

on selected precious metals contracts.

In accordance with HKFRS 8, segment information has been prepared in a manner consistent

with the information used by the Group’s most senior executive management for the purposes of

assessing segment performance and allocating resources between segments. In this regard, the

Group’s senior executive management monitors the assets and liabilities attributable to each

reportable segment on the following bases:

Segment assets include all tangible, intangible assets and current assets with the

exception of current and deferred tax assets and other corporate assets. Segment liabilities

include trade creditors and accruals attributable to the operating activities of the individual

segments.

The measure used for reporting segment results is earnings before finance costs and

taxes (‘‘EBIT’’). To arrive at EBIT the Group’s earnings are further adjusted for finance costs

and items not specifically attributed to individual segments, such as share of profits less losses

of associates and other head office or corporate administration costs.

Six months ended 30 June 2009


Securities

broking

Corporate

finance

Leveraged

foreign

exchange

trading/

broking in

Hong Kong

Commodities

and futures

broking

Financial

planning/

insurance

broking in

Hong Kong

Asset

Management Sub-total

Leveraged

foreign

exchange

trading/

broking

outside

Hong Kong

Financial

planning

outside

Hong Kong

Precious

metal

contracts

trading/

broking Sub-total Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


customers/reportable

segment turnover 14,707 2,782 7,724 2,589 3,452 — 31,254 — — — — 31,254

Reportable segment results

(EBIT) (5,977) (4,140) (6,182) (1,929) (1,568) (103) (19,899) — — — — (19,899)

Reportable segment assets 159,684 5,957 57,115 27,369 11,866 4,486 266,477 — — — — 266,477

Reportable segment liabilities 67,846 830 1,393 6,959 3,979 20 81,027 — — — — 81,027


– 118 –

Six months ended 30 June 2008


Securities

broking

Corporate

finance

Leveraged

foreign

exchange

trading/

broking in

Hong Kong

Commodities

and futures

broking

Financial

planning/

insurance

broking in

Hong Kong

Asset

Management Sub-total

Leveraged

foreign

exchange

trading/

broking

outside

Hong Kong

Financial

planning

outside

Hong Kong

Precious

metal

contracts

trading/

broking Sub-total Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated)


customers 21,615 2,657 12,974 6,473 13,130 52 56,901 37,129 869 87,515 125,513 182,414

Inter-segment turnover 21 300 — — — — 321 794 — 110 904 1,225

Reportable segment turnover 21,636 2,957 12,974 6,473 13,130 52 57,222 37,923 869 87,625 126,417 183,639

Reportable segment results

(EBIT) 3,919 (1,054) (294) 487 603 (618) 3,043 2,856 (4,010) 8,850 7,696 10,739

Reportable segment assets 123,672 10,236 84,423 32,369 13,857 4,714 269,271 — — — — 269,271

Reportable segment liabilities 45,332 966 3,016 10,030 7,353 145 66,842 — — — — 66,842

Reconciliations of reportable turnover


2009 2008

HK$’000 HK$’000

(restated)

Turnover


Reportable segment turnover 31,254 57,222

Elimination of inter-segment turnover — (321)

Unallocated head office and corporate turnover 1 63

31,255 56,964


Reportable segment turnover — 126,417

Elimination of inter-segment turnover — (904)

Unallocated head office and corporate turnover — 151

— 125,664

Consolidated turnover 31,255 182,628


– 119 –

Reconciliations of reportable results


2009 2008

HK$’000 HK$’000

(restated)

Results


Reportable segment (loss)/profit (19,899) 3,043

Elimination of inter-segment profits — (2,993)

Reportable segment (loss)/profit derived from

group’s external customers (19,899) 50

Finance costs (31) (1,363)

Unallocated head office and corporate expenses (2,447) (1,494)

(22,377) (2,807)


Reportable segment profit — 7,696

Elimination of inter-segment profits — (800)

Reportable segment profit derived from group’s external customers — 6,896

Share of profits less losses of associates — 1,407

Finance costs — (84)

Unallocated head office and corporate revenues — 2,225

— 10,444

Consolidated (loss)/profit before taxation (22,377) 7,637


– 120 –

Reconciliations of reportable assets and liabilities

At

30 June

2009

At

31 December

2008

HK$’000 HK$’000

Assets

Reportable segment assets 266,477 269,271

Elimination of inter-segment receivables (9,323) (6,082)

257,154 263,189

Tax recoverable 224 177

Unallocated head office and corporate assets 22,787 29,290

Consolidated total assets 280,165 292,656

Liabilities

Reportable segment liabilities 81,027 66,842

Elimination of inter-segment payables (9,323) (6,082)

71,704 60,760

Unallocated head office and corporate liabilities 3,456 4,514

Consolidated total liabilities 75,160 65,274

5. (LOSS)/PROFIT BEFORE TAXATION

(Loss)/profit before taxation is arrived after charging:

(a) Staff costs


Six months ended

30 June

Six months ended

30 June

Six months ended

30 June

2009 2008 2009 2008 2009 2008

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


Salaries and allowances 19,335 14,815 — 24,837 19,335 39,652

Equity-settled share-

based payments — 403 — (36) — 367

Defined contribution

plans 436 477 — 631 436 1,108

19,771 15,695 — 25,432 19,771 41,127


– 121 –

(b) Other operating expenses


2009 2008

HK$’000 HK$’000

(restated)


Auditors’ remuneration 1,228 1,356

Bad debts written off — 10

Depreciation of fixed assets 1,938 2,268

(Reversal)/charge for impairment loss on trade receivables (201) 132

Legal and professional fee 702 1,795

Loss on disposal of fixed assets 2 53

(c) Finance costs


2009 2008

HK$’000 HK$’000

(restated)


Interest on bank overdrafts 6 94

Interest on bank loans 13 466

Interest on loan notes — 793

Interest on obligation under finance lease 12 10

31 1,363

6. INCOME TAX

No provision for Hong Kong profits tax has been made for the current period as the Group

sustained a loss for taxation purposes.

Hong Kong profits tax has been provided at the rate of 16.5% on the estimated assessable profits for

the prior period. Taxation on overseas profits has been calculated on the estimated assessable profits at

the rates of taxation prevailing in the countries in which the Group operates.


– 122 –

The amount of taxation charged to the consolidated income statement:


Six months ended

30 June

Six months ended

30 June

Six months ended

30 June

2009 2008 2009 2008 2009 2008

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


Current taxation:

— Hong Kong profits tax — 116 — 1,510 — 1,626

— Overseas taxation — — — 850 — 850

— Under-provision for taxation — 40 — 187 — 227

Deferred taxation:

— Origination and reversal

of temporary differences — (134) — 169 — 35

— Effect of decrease in tax

rate on deferred tax

balances at 1 January — 52 — (5) — 47

— 74 — 2,711 — 2,785

Reconciliation between tax expense and accounting profit at applicable tax rates:


Six months ended

30 June

Six months ended

30 June

Six months ended

30 June

2009 2008 2009 2008 2009 2008

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


(Loss)/profit before taxation

(excluding share of profit of

associates) (22,377) (2,807) — 9,037 (22,377) 6,230

Notional tax on (loss)/profit

before taxation, calculated at

the rate applicable to profits

in the countries concerned (3,692) (463) — 1,297 (3,692) 834

Tax effect of income not subject

to taxation (101) (127) — (715) (101) (842)


deductible for taxation

purposes 37 115 — 120 37 235

Utilisation of previously

unrecognised tax losses (10) (598) — 167 (10) (431)

Effect on opening deferred tax

balances resulting from a

decrease in tax rate during

the period — 52 — (5) — 47


recognised 3,766 1,055 — 1,660 3,766 2,715

Under-provision in respect of

prior year — 40 — 187 — 227

Taxation expense — 74 — 2,711 — 2,785


– 123 –

7. DIVIDENDS

The directors do not recommend the payment of an interim dividend for the six months ended 30

June 2009 (2008 : nil).


2009 2008

HK$’000 HK$’000

Final dividend in respect of the previous financial year, approved

and paid during the period, of nil cents (2008 : HK2.5 cents) per

ordinary share — 10,415

8. (LOSS)/EARNINGS PER SHARE

(a) Basic (loss)/earnings per share

The calculation of basic (loss)/earnings per share from continuing and discontinued

operations attributable to equity holders of the Company is based on the following data.


2009 2008

HK$’000 HK$’000

(Loss)/earnings

Loss for the period from continuing operations (22,377) (2,881)

Earnings for the period from discontinued operations — 7,649

(Loss)/earnings for the period attributable to

equity holders of the Company (22,377) 4,768

2009 2008

Number of shares

Weighted average number of ordinary shares 422,303,000 415,490,054

Basic (loss)/earnings per share is calculated based on the (loss)/earnings attributable to equity

holders of the Company and the weighted average number of ordinary shares detailed above.

(b) Diluted earnings per share


2009 2008

Diluted earnings per share

— From continuing and discontinued operations N/A HK1.14 cents

— From continuing operations N/A N/A

— From discontinued operations N/A HK1.82 cents

Diluted earnings per share for the current period have not been disclosed as the Group did not

have dilutive potential ordinary shares outstanding during the period.

Diluted earnings per share for the previous period and diluted earning per share from

discontinued operations for the previous period is calculated based on the adjusted weighted average

number of 419,212,105 ordinary shares which is calculated by adjusting the weighted average

number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary


– 124 –

shares in respect of share options. The calculation is done to determine the number of shares that

could have been acquired at fair value (determined as the average annual market share price of the

Company’s shares) based on the monetary value of the subscription rights attached to outstanding

share options. The number of shares calculated as above is compared with the number of shares that

would have been issued assuming the exercise of the share options.

Diluted earnings per share from continuing operations for the previous period has not been

disclosed as the continuing operations of the Group sustained a loss for the previous period and the

potential ordinary shares were anti-dilutive.

9. INTANGIBLE AND FIXED ASSETS

Stock

Exchange

trading

rights

Futures

Exchange

trading right

Membership

of The

Chinese Gold

& Silver

Society

Goodwill on

acquisition of

subsidiaries

Total

intangible

assets Fixed assets

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Six months ended

30 June 2009

Net book amount at

1 January 2009 913 406 — — 1,319 7,752

Additions — — — — — 311

Write-off — — — — — (3)

Depreciation charge — — — — — (1,938)

Depreciation written back — — — — — 1

Net book amount at

30 June 2009 913 406 — — 1,319 6,123

Six months ended

30 June 2008

Net book amount at

1 January 2008 913 406 180 5,372 6,871 19,980

Additions — — — 45 45 22,213

Write-off — — — (399) (399) (738)

Exchange difference — — — — — 239

Depreciation charge — — — — — (3,746)

Depreciation written back — — — — — 676

Net book amount at

30 June 2008 913 406 180 5,018 6,517 38,624


– 125 –

10. TRADE AND OTHER RECEIVABLES

Unaudited Audited

30 June

2009

31 December

2008

HK$’000 HK$’000

Trade receivables from clients 49,502 35,126

Less: impairment allowance on trade receivables (82) (283)

Margin and other trade related deposits with brokers and

financial institutions 37,041 30,797

Margin finance loans 51,307 8,757

Trade receivables from clearing houses 22,343 11,018

Total trade receivables 160,111 85,415

Rental and utilities deposits 3,535 3,523

Prepayments and other receivables 1,040 1,343

Total trade and other receivables 164,686 90,281

The carrying amounts of trade and other receivables approximate their fair value.

The Group maintains designated accounts with The SEHK Options Clearing House Limited

(‘‘SEOCH’’) and HKFE Clearing Corporation Limited (‘‘HKFECC’’) as a result of its normal business

transactions. At 30 June 2009, the designated accounts with SEOCH and HKFECC not otherwise dealt

with in these accounts amounted to HK$1,117,288 (31 December 2008 : HK$2,079,030) and

HK$14,744,028 (31 December 2008 : HK$20,780,880) respectively.

As at 30 June 2009, the aging analysis of the trade receivables was as follows:

Unaudited Audited

30 June

2009

31 December

2008

HK$’000 HK$’000

Current 159,702 85,091

30–60 days 92 183

Over 60 days 317 141

160,111 85,415


– 126 –

11. BANK BALANCES AND CASH

Unaudited Audited

30 June

2009

31 December

2008

HK$’000 HK$’000

Cash in hand 14 12

Bank balances

— pledged 11,708 16,335


102,322 188,118

102,336 188,130

By maturity

Bank balances

— Current and savings accounts 90,614 171,783

— Fixed deposits (maturing within three months) 11,708 16,335

102,322 188,118

As at 30 June 2009, bank deposits amounting to HK$11,708,105 (31 December 2008 :

HK$11,707,315) have been pledged to a bank as security for the provision of a HK$22 million (31

December 2008 : HK$22 million) securities broking facility.

The subsidiaries of the Group maintained segregated trust accounts with authorised institutions as a

result of their respective business activities. As at 30 June 2009, segregated trust accounts not otherwise

dealt with in these accounts amounted to HK$162,548,847 (31 December 2008 : HK$100,817,093).

Cash and cash equivalents

Unaudited Unaudited

30 June

2009

30 June

2008

HK$’000 HK$’000

Cash in hand 14 150

Bank balances

— pledged 11,708 19,084


Cash and cash equivalents in the

consolidated statement of financial position 102,336 287,201

Bank balances

— pledged (11,708) (19,084)

— fixed deposits (maturing over three months) — (13,062)

Unsecured bank overdrafts — (3)

Unsecured short-term bank loan — (2,000)

Cash and cash equivalents in the

consolidated statement of cash flows 90,628 253,052


– 127 –

12. TRADE AND OTHER PAYABLES

Unaudited Audited

30 June

2009

31 December

2008

HK$’000 HK$’000

Trade payable to securities trading clients 57,733 41,563

Margin and other deposits payable to clients 5,365 9,736

Trade payable to brokers and clearing houses arising from the

ordinary course of business of broking in securities, commodities

and futures contracts and leveraged foreign exchange trading 1,038 321

Total trade payables 64,136 51,620

Accruals and other payables 10,778 13,148

Total trade and other payables 74,914 64,768

The carrying amounts of trade and other payables approximate their fair value.

The settlement terms of payable to clearing houses and securities trading clients from the ordinary

course of business of broking in securities range from two to three days after the trade date of those

transactions. Margin deposits received from clients for their trading of leveraged foreign exchange,

commodities and futures contracts, and the balances were payable within one month.

13. SHARE CAPITAL

Authorised

Ordinary shares of

HK$0.10 each

No. of shares Nominal value

’000 HK$’000

At 1 January 2008, 2009 and 30 June 2009 1,000,000 100,000

Issued and fully paid

Ordinary shares of

HK$0.10 each

No. of shares Nominal value

’000 HK$’000

At 1 January 2008 414,430 41,443

Shares issued 7,873 787

At 31 December 2008, 1 January 2009 and 30 June 2009 422,303 42,230


– 128 –

14. CONTINGENT LIABILITIES

14.1 Outstanding litigation cases

The following litigation cases are outstanding up to the date of this report. Under the

Agreement, HHL and the previous chairman of the Company undertakes to indemnify and keep

indemnified the Company on a full indemnity basis of any loss or liability suffered by the Group as a

result of or in connection with the outstanding litigation cases. Therefore no provision has been

made.

(a) A company named Hantec Investment Limited which is unrelated to the Group filed a

writ to the Company on 28 July 2000 seeking for injunction to restrain the Company

from using the plaintiff’s alleged trade name and damages. The plaintiff has not taken

further action after the Company filed a defence.

(b) An indirect wholly owned subsidiary of the Company received a writ of summons dated

25 March 2006 from two clients jointly as plaintiffs claiming for damages against it and

two of its licensed representatives for an amount of HK$20,600,000 together with costs

relating to a number of leverage exchange trading transactions. Defence action has been

commenced and no further development has been made up to the date of this report.

(c) A writ of summons dated 11 July 2006 was served to two indirect wholly owned

subsidiaries and one then subsidiary of the Company by a former account executive

claiming for a total of HK$700,000 as his rightful overriding commissions together with

interest and/or alternatively, damages to be assessed. The plaintiff has been requested to

state clearly his claim. Up to the date of this report, there has been no further

development.


(a) As at the end of the reporting period, a subsidiary of the Company engaging in securities

broking and providing securities margin financing has secured banking facilities from

certain authorized institutions for a total amount of HK$257 million (31 December

2008 : HK$257 million). The Company has issued corporate guarantees for a total

principal amount of HK$255 million (31 December 2008 : HK$255 million) for these

facilities. As at 30 June 2009, the subsidiary utilized HK$nil (31 December 2008 :

HK$nil) of these aggregate banking facilities.

(b) The Company also issued corporate guarantees to certain financial institutions for

foreign exchange trading facilities granted to subsidiaries engaging in leveraged foreign

exchange trading. The maximum liability is the trading loss and related incidental costs,

in some cases, subject to an overall cap on the amount of the guarantee.

(c) As at the end of the reporting period, the directors do not consider it probable that a

claim will be made against the Company under any of the guarantees. The Company has

not recognised any deferred income in respect of the guarantees as their fair value

cannot be reliably measured and the transaction price was nil.


– 129 –

15. LEASE COMMITMENTS

At 30 June 2009, the Group had total future aggregate minimum lease payments under non-

cancellable operating leases as follows:

Land and buildings Others

Unaudited Audited Unaudited Audited

30 June

2009

31 December

2008

30 June

2009

31 December

2008

HK$’000 HK$’000 HK$’000 HK$’000

Within one year 9,140 9,300 36 134

After one year but within five years — 4,490 — —

9,140 13,790 36 134

16. MATERIAL RELATED PARTY TRANSACTIONS

The following is a summary of significant related party transactions which were carried out in the

normal course of the Group’s business:


2009 2008

HK$’000 HK$’000

Placing commission income (note (a)) 976 —

Broking commission for securities dealing (note (b)) 51 —

(a) During the period, the Group charged placing commission to the immediate holding company

for providing corporate finance services.

(b) An related company, commonly owned by the ultimate holding company, paid commission to

the Group for securities broking service.

17. CAPITAL COMMITMENTS

The Group did not have any capital commitment at 30 June 2009 and 31 December 2008.

18. SUBSEQUENT EVENT

On 4 August 2009, the Company entered into a top-up placing agreement with CCB International

Capital Limited and Cinda International Capital Limited, a wholly owned subsidiary of the Company

(collectively the ‘‘Placing Agents’’). Under the agreement, the Placing Agents would procure purchasers to

acquire up to 75,594,000 existing shares at HK$2.00 per share from Sinoday Limited, the controlling

shareholder, who entered into another top-up subscription agreement to subscribe for the same amount of

new shares at the same price. On the same date, the Company entered into a subscription agreement with

CCBI International Asset Management Limited (‘‘CCBIAM’’) in which CCBIAM agreed to subscribe for

8,866,000 shares of the Company at an issue price of HK$2.00 per share. Both the top-up subscription

agreement and the subscription agreement were completed on 14 August 2009. The net proceeds totalled

approximately HK$164 million, which will be used to enhance the working capital of the Group.


– 130 –

19. COMPARATIVE FIGURES

As a result of the application of HKAS 1 (revised), Presentation of financial statements, and

HKFRS 8, Operating segments, certain comparative figures have been adjusted to conform to current

period’s presentation and to provide comparative amounts in respect of items disclosed for the first time in

2009. Further details of these developments are disclosed in note 2.

Under the Group Reorganisation, as disclosed in note 3, the Distributed Business constituted

discontinued operations under HKFRS 5 ‘‘Non-current Assets Held for Sale and Discontinued

Operations’’. As a result, certain comparative figures were restated so as to present the results for the

continuing operations and discontinued operations.


– 131 –

4. MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP


Liquidity, capital structure and financial resources

All the licensed corporations complied with the requirements under the Securities

and Futures (Financial Resources) Rules promulgated by the Securities and Futures

Commission (the ‘‘SFC’’) throughout the year. The Group did not have any long-term

borrowings. Trade and other payables were trade payable to securities trading clients,

brokers and clearing houses, deposits or margins payable to clients and accrued

expenses. Bank overdrafts and short-term bank loans were solely utilized for financing

securities trading clients from whom collaterals had been secured. As at 31 December

2006, the Group had cash and bank balances amounted approximately HK$280.6

million while the total assets and net asset were approximately HK$779.4 million and

HK$355.8 million respectively. As at 31 December 2006, the current ratio was 171.1%.

The Group resolved to issue a three-year unsecured fixed rate loan note up to an

aggregate amount of US$10 million, enabling the Group to raise long-term capital for

its future business expansion.

Significant investments held

The Group did not hold any significant investments for the year ended

31 December 2006.

Acquisitions and disposals

During the year, the Group completed the acquisition of the remaining 70%

interest in Cosmos Hantec Investment (NZ) Limited (‘‘CHI’’), an associated company

of the Company, to turn CHI into a wholly-owned subsidiary. The results of CHI has

been consolidated as from October 2006. CHI contributed substantially to the turnover

and profit of the Group with its strong asset backing and profitability.

Segmental information

Leveraged foreign exchange trading

Leveraged foreign exchange trading remained the major contributor to the

revenue of the Group. In view of the buoyant foreign exchange market and additional

revenue resulting from increased shareholding of CHI, turnover has risen from

HK$114.4 million in 2005 to HK$135.7 million, representing approximately one third

of our aggregate turnover. In addition, profit from this segment increased from

HK$18.1 million in 2005 to HK$26.6 million, an increase of 46.9%. Share of leveraged

foreign exchange trading by our subsidiaries in Switzerland and New Zealand was

14.8% and 23%, respectively; representing 12.8% and 10.2% of profit of that segment

respectively.


– 132 –

Bullion Trading

With gold prices remaining high within the range of between US$520.75 and

US$725.75 per ounce, trading volume of bullion achieved satisfactory growth in 2006,

due to the upgraded bullion internet platform and enhanced marketing efforts. More

customers were converted to internet trading after the Group launched a new internet

trading platform in the second half of 2006. Turnover of bullion trading surged from

HK$28.3 million in 2005 to HK$130.2 million, an uplift of 3.6 times. Also, profit

before taxation increased from HK$5.6 million to HK$32 million, an increase of 4.71

times.

Securities Dealing

Increased trading volume of the securities market boosted the growth of our

securities segment, whose turnover increased from HK$24.6 million to HK$38 million,

an increase of 54.5%. Commission income grew from HK$16.9 million last year to

HK$27.9 million. As a result of the increase in margin finance loans by investors,

margin interest income increased from HK$5.6 million to HK$8.5 million.

Trading in futures

Trading in futures remained steady in 2006; turnover was up from HK$16 million

to HK$17 million, an increase of approximately 6.3%. During the year, the on-going

improvement of the existing internet trading platform and the rising general operating

costs explained a slight drop in profit of this segment, from HK$1.2 million to HK$1.1

million. In 2006, Hang Seng Index Futures contracts executed at the Hong Kong

Futures Exchange accounted for approximately one third of the segment’s turnover,

while the remaining two-thirds represented futures contracts on overseas futures

exchanges. The futures contracts executed on overseas exchanges were mainly on crude

oil and metals given relatively volatile prices of both during the year.

Corporate Finance

During the year, Hong Kong’s IPO market was dominated by large-scale H-share

companies with an issue size typically approaching the benchmark of US$1 billion. The

corporate finance business and sponsorships relating to such listing projects were

largely monopolized by international investment banks, while small- to medium-sized

local firms found it difficult to win any share in this market. Meanwhile, growth of the

financial advisory business was curbed by increasing competition from other medium-

scale investment banks. Under such unfavourable business environment, revenue from

the segment of corporate finance decreased from HK$7.7 million to HK$4.8 million,

and this segment turned into a slight loss due to high staff cost. In 2006, 25 corporate

financial advisory service assignments were undertaken.


– 133 –

Asset Management

Performance of the Hantec Balanced Growth Fund, which invests in the

traditional equity market, remained steady. Aggregate revenue of asset management

division (net of commission paid) decreased from HK$3.2 million to HK$1.9 million,

profit before taxation dropped from HK$1 million to HK$0.2 million. Hantec

Balanced Growth Fund delivered a return of 12.8% (2005 : 11.53%), annual return of

Hantec SuperFX Fund was 6.11% (return from 13th July 2005 to 31 December 2005

was 7.02%).

Investment consultancy and wealth management

In view of the increasing loss in the Taiwan business, although the division’s

turnover in the year increased from HK$21 million to HK$24.9 million, the loss

increased from HK$ 4.8 million to HK$ 5.8 million.

Remuneration and human resources development

In order to maintain its competitiveness, the Group had adjusted the salary of its

staff.

As the operational scale expanded, there was a substantial increase in staff

expense. Furthermore, in order to retain staff and executive management, the Group

issued share options to 24 staff members including executive directors enabling them to

subscribe for a total of 19,390,000 shares in the Company within a period of five years

starting from May 2007. During the year, the Group recruited high calibre graduates

from local and overseas universities who became the third group of management

trainees, as well as sponsored two management personnel to enroll in master’s degree

programs.

Fluctuation in foreign exchange

The Group’s assets and liabilities are mainly denominated in Hong Kong Dollars

and United States Dollars to which Hong Kong Dollars is pegged. Other currencies to

which the Group’s assets and liabilities denominated consists of a variety of different

currencies, none of which has a significant impact on the Group.

Charges on assets

As at 31 December 2006, the Group’s bank deposits amounting to HK$11,143,076

have been pledged to a bank as security for the provision of a HK$26 million securities

broking facility. In addition, bank deposits amounting to HK$1,546,202 have been

pledged to a financial institution as security for the provision of leveraged foreign

exchange broking facilities.


– 134 –

Gearing ratio

As at 31 December 2006, the Group’s net debt-to-adjusted capital ratio was

49.5%.

Contingent liabilities

Outstanding litigation cases

The Company received a writ of summons on 28 July 2000, filed by a company

named Hantec Investment Limited which is unrelated to the Group. The plaintiff

sought for injunction to restrain the Company from using the plaintiff’s alleged trade

name and damages. The directors have commenced a defence action and will continue

to defend it. Potential damages, losses, fees, expenses, proceedings and claims which

have been and may be incurred by the Group as a result of the action have been

covered by a joint and several indemnities, given by the ultimate controlling

shareholders and accordingly no provision has been made by the Group as at 31

December 2006.

An indirect wholly owned subsidiary of the Company, Hantec International

Limited (‘‘HIL’’) received a writ of summons dated 25 March 2006 from two clients

jointly as plaintiffs claiming for damages against HIL and two of its licensed

representatives for an amount of HK$20,600,000 together with costs as a result of a

number of transactions of leveraged foreign exchange trading. The directors of HIL

have commenced defence action and filed a defence. The directors, after considering

the fact and the information available, and after assessing the opinion provided by the

Group’s legal advisors, are of the opinion that no provision is required to be made at

this stage. The directors will closely monitor the development of the case and consider

appropriate treatment in the financial statements should the circumstances became

unfavourable to HIL.

A writ of summons dated 11 July 2006 was served to three subsidiaries of the

Company as defendants by a former account executive claiming (being the plaintiff)

against the three subsidiaries for a total amount of HK$700,000 as his rightful

overriding commissions together with interest and/or alternatively, damages to be

assessed. The subsidiaries have instructed their legal advisors to commence defence on

the claim. The legal advisors have requested the plaintiff to state clearly his claim but

the plaintiff has indicated to the court that he would not answer the same and as such

the legal advisors opine that it is not clear whether the plaintiff will aggressively press

ahead with his claim or he will keep the case in abeyance. Up to the date of this report,

there was no further development.


– 135 –

Financial guarantees issued

As at the balance sheet date, the Company has issued corporate guarantees to

certain banks for credit facilities up to an amount of HK$120,000,000 (2005 :

HK$118,000,000) granted to a subsidiary which engages in securities broking. The

maximum liability is the outstanding amount utilised by the subsidiary plus all

incidental costs.

Prospects

Analysts have suggested that the current account deficit of the U.S. would

continue to increase given high government expenditure necessitated by prolonged

U.S. involvement in Iraq. Trade deficit remains a very serious concern. According to a

former Federal Reserve officer, there would be strong downward pressures on the US

exchange price in the long run if both trade and current account deficits continue to

increase and the reserve of Americans grossly underutilised. In recent years, Europe

has continued to pursue integration proactively and adopt a more open cooperative

economic policy in recent years. It is expected that Europe would achieve steady

growth. The year 2007 marks the tenth anniversary of the return of Hong Kong’s

sovereignty to China. As the Mainland financial sector continues towards convergence

with its world counterparts in accordance with WTO agreements, China remains the

focus of the global economy in the coming years. Given its expertise and experience,

Hong Kong’s financial sector should go a long way contributing to the economic

progress of China and reaping benefits in the process.



The financial position of the Group remains strong throughout the year. Group

members licensed by the SFC have not only fully complied with the financial resources

requirement but also kept a safe buffer to face sudden changes in the market. Fixed

rate loan notes denominated in the United States Dollars have been issued to certain

overseas investors at their request, in order to provide a medium of financing to the

Group and a stable return to the investors. However, after the year end date the Group

has redeemed a major portion of such loan notes from its internal resources in order to

save on interest cost. Banking facilities are secured mainly to finance the securities

margin financing business of the Group. As at 31 December 2007, the Group had cash

and bank balances amounted approximately HK$374.2 million (2006 : HK$280.6

million) while the total assets and net asset were approximately HK$911.7 million

(2006 : HK$779.4 million) and HK$392.4 million (2006 : HK$355.8 million)

respectively. Net debt-to-adjusted capital ratio as at 31 December 2007 was 49.9%

(2006 : 49.5%) and the current ratio was 178.9% (2006 : 171.1%).


The Group did not hold any significant investments for the year ended 31

December 2007.


– 136 –


On 31 March 2007, the Company has entered into a memorandum of co-operation

with 江蘇宏信商貿股份有限公司 (Jiangsu Horizon Trade Co., Ltd) to set up Hantec

Jiangdu Riverside Developing Zone Water Industry Limited and subscribed 20% and

80% of its share capital for HK$5 million and HK$20 million, respectively.

On 12 September 2007, the Company entered into a sale and purchase agreement

with the shareholders of 北京國際經濟技術有限責任公司 (‘‘經濟公司’’), all of whom

were independent third parties of the Company and its connected persons, to acquire

91% of the total issued share capital of 經濟公司 for a consideration of HK$631,476.

The key business of 經濟公司 is to provide business consultancy service.


Leveraged foreign exchange

Leveraged foreign exchange was once our major focus and our largest contributor

to revenue in the early years following the listing of our Group. However, the market

has become extremely competitive, and is no longer as lucrative as has been in the past.

Advanced information technology has made internet trading popular; international

foreign exchange traders and financial institutions are offering clients narrow price and

interest spreads through their internet trading platforms. To survive in such a market

condition, the Group has adopted a low price strategy and provides higher quality

services. Profit contribution has thereby deteriorated. Turnover remained at a similar

level as the previous year at HK$142.4 million (2006 : HK$135.7 million); swap interest

and foreign exchange trading revenue recorded a slight drop from HK$99.1 million to

HK$94.8 million. Segment result dropped from HK$26.6 million to HK$8.7 million as

a result of keen competition.

Securities dealing

Performance of the securities dealing segment has been remarkable. As a broker,

the Group has a tiny equity position of its own. Earnings are a result of an increase in

clients’ trading activities. Major portion of revenue comes from commission and

interest. Turnover was HK$82.8 million (2006 : HK$38.0 million) and profit was

HK$21.3 million (2006 : HK$9.9 million).

Commodities and futures dealing

The booming bullion and equity markets have driven out clients’ appetite in

trading commodities and futures. Acting as a broker, this segment relies solely on

clients’ trading activities. With a lower business volume recorded, revenue and hence

profit decreased sharply. Turnover slipped to HK$10.9 million (2006 : HK$17.0

million) and profit fell to HK$0.4 million (2006 : HK$1.1 million). To improve this

situation, the Group has launched new measures to attract larger sized customers to

replenish the business volume and improve profitability.


– 137 –

Corporate Finance

The Group successfully sponsored a new issuer to list its shares on the Main

Board of the Hong Kong Stock Exchange in the third quarter of the year. Apart from

the IPO, other financial advisory business contributed a major portion of the revenue.

Due to the activity of investment market during the year, performance of this segment

improved. Turnover was HK$8.4 million (2006 : HK$4.8 million), representing an

increase of 75.0% and profit was HK$1.0 million (2006 : loss of HK$0.4 million). The

segment was able to turn around despite the cost of operating the business surged

significantly.

Asset Management

Asset management is another business where the Group is facing difficulties. The

foreign exchange fund managed was liquidated during the year. The equity fund is the

only fund managed by the Group but it posted a less than satisfactory result. As the

fund size decreased, so did management fee income. Turnover was only HK$0.6

million (2006 : HK$1.9 million) and a loss of HK$1.0 million (2006 : profit of HK$0.2

million) was recorded. The Group is currently exploring and analyzing new business

opportunities and hopes to launch new products.

Financial Planning/Insurance Broking

The personal financial advisory and financial planning business has become the

battle field where banks and non-banking financial institutions compete for a limited

number of clients. As a non-banking financial institution, we understand that we must

provide high quality services to our clients. The cost of operation has unavoidably

increased. The economic climate in Taiwan was still on the low side, and our Taiwan

subsidiary could hardly contribute to the Group. Consequently, although turnover

increased to HK$30.1 million from HK$24.9 million, loss slightly increased to HK$6.1

million (2006 : loss of HK$5.8 million). However, this segment plays an important role

in attracting new customers for the Group. Moreover, it is believed that Taiwan’s

economy has the potential to turn around after the presidential election. We hope the

performance of the Taiwan subsidiary can improve in the forthcoming year.

Bullion and precious metal contract trading

The price of gold surged to its historic high and moved within a wide range from a

low of approximately US$608 per ounce to a high of approximately US$841 per ounce

with high volatility during the year. It is believed that the weak United States Dollar

will further boost up the price of gold. High volatility also stimulates investors to

actively participate in the market and as a result bullion trading has been well received

by investors. Business volume has substantially increased. This segment has become

the main contributor to our Group, in both our Hong Kong based subsidiary and our

subsidiaries in Switzerland and New Zealand. Turnover recorded was HK$189.9

million (2006 : HK$130.2 million). Profit was HK$41.0 million (2006 : HK$32.1


– 138 –

million). After the year-end, the Group launched a new user-friendly electronic trading

platform to facilitate clients to obtain market news and place orders. It is expected that

business volume in this segment could be further increased.


The Group has laid down human resources policies to retain staff and attract new

recruits. Share options are granted to management staff and directors to encourage

them to grow with the Group. Fringe benefits include medical subsidies, education

allowance, life insurance, free CPT courses are offered to different level of staff.

During the year, the Group regularly reviews the various benefit packages for different

levels of staff. The Remuneration Committee provides valuable recommendations to

the management in this regard. Well-performed staff are rewarded with bonus and

other incentives. The management trainee program has come to its fourth anniversary.

It aims to identify potential incumbents who can pace their way up to the management.

Account executives are rewarded with competitive commission packages. Bonus and

incentives are provided for out performing pre-determined targets. Introducing

brokers are provided with appropriate support together with competitive terms.


The Group’s assets and liabilities are mainly denominated in Hong Kong Dollars

and United States Dollars to which Hong Kong Dollars is pegged. Other currencies to

which the Group’s assets and liabilities denominated consists of a variety of different

currencies, none of which has a significant impact on the Group.

Charges on assets

As at 31 December 2007, bank deposits amounting to HK$11,546,863 (2006 :

HK$11,143,076) have been pledged to a bank as security for the provision of a HK$22

million (2006 : HK$26 million) securities broking facility. In addition, bank deposits

amounting to HK$1,673,659 (2006 : HK$1,546,202) and HK$2,485,952 (2006 : nil) have

been pledged to financial institutions as security for the provision of leveraged foreign

exchange broking and bullion trading facilities respectively.

Gearing ratio

As at 31 December 2007, the Group’s net debt-to-adjusted capital ratio was

49.9%.



The Company received a writ of summons on 28 July 2000, filed by a company

named Hantec Investment Limited which is unrelated to the Group. The plaintiff

sought for injunction to restrain the Company from using the plaintiff ’s alleged trade

name and damages. The directors have commenced a defence action and will continue


– 139 –

to defend it. Potential damages, losses, fees, expenses, proceedings and claims which

have been and may be incurred by the Group as a result of the action have been

covered by a joint and several indemnity, given by the ultimate controlling

shareholders and accordingly no provision has been made by the Group as at

31 December 2007.

An indirect wholly owned subsidiary of the Company, Hantec International

Limited (‘‘HIL’’) received a writ of summons dated 25 March 2006 from two clients

jointly as plaintiffs claiming for damages against HIL and two of its licensed

representatives for an amount of HK$20,600,000 together with costs as a result of a

number of transactions of leveraged foreign exchange trading. The directors of HIL

have commenced defence action and filed a defence. The directors, after considering

the fact and the information available, and after assessing the opinion provided by the

Group’s legal advisors, are of the opinion that no provision is required to be made at

this stage. The directors will closely monitor the development of the case and consider

appropriate treatment in the financial statements should the circumstances became

unfavourable to HIL.

A writ of summons dated 11 July 2006 was served to three subsidiaries of the

Company as defendants by a former account executive claiming (being the plaintiff)

against the three subsidiaries for a total amount of HK$700,000 as his rightful

overriding commissions together with interest and/or alternatively, damages to be

assessed. The subsidiaries have instructed their legal advisors to commence defence on

the claim. The legal advisors have requested the plaintiff to state clearly his claim but

up to the date of this report the plaintiff has still failed to give an answer. As such the

legal advisors opine that it is not clear whether the plaintiff will aggressively press

ahead with his claim or he will keep the case in abeyance. The directors are of opinion

that it is too early to consider a provision as the case is still in early stage.


As at the balance sheet date, a subsidiary of the Company engaging in securities

broking and providing securities margin financing has secured banking facilities from

certain authorized institutions for a total amount of HK$334 million (2006 : HK$132

million). The Company has issued corporate guarantees for a total principal amount of

HK$322 million (2006 : HK$120 million) for these facilities. As at 31 December 2007,

the subsidiary utilized HK$16,678,805 (2006 : HK$21,048,188) of these aggregate

banking facilities.

The Company also issued corporate guarantees to certain financial institutions for

foreign exchange trading and precious metal contracts trading facilities granted to

subsidiaries engaging in leveraged foreign exchange trading and precious metal

trading. The maximum liability is the trading loss and related incidental costs, in some

cases, subject to an overall cap on the amount of the guarantee.


– 140 –

As at the balance sheet date, the directors do not consider it probable that a claim

will be made against the Company under any of the guarantees. The Company has not

recognized any deferred income in respect of the guarantees as their fair value cannot

be reliably measured and the transaction price was nil.

Prospects

The world’s economy is at a crossroad. The economy of the United States shows

blatant sign of slowing down with severe problems in sub-prime mortgages and

structured products. It is believed that the United States Dollar will continue to

weaken. As a result, China’s export to the United States will unavoidably decrease.

The economy in the Mainland has been over-heated for some time and the government

will further implement cool down policies. Under such an unstable situation, the

Group plans to strengthen its business base by exploring new overseas markets.

Expansion, if considered feasible, will be undertaken in a more conservative manner.

Effort will be concentrated on upgrading certain overseas operations of the Group.


Group reorganisation

On 13 August 2008, the Company’s then controlling shareholder, Hantec

Holdings Limited (‘‘HHL’’) entered into a share sale agreement (the ‘‘Agreement’’)

with Sinoday and Silver Grant International Securities Investment Limited (‘‘Silver

Grant’’). Under the agreement, Sinoday and Silver Grant would acquire 218,650,000

and 40,022,000 shares of the Company from HHL respectively, representing

approximately 52.32% and 9.58% of the issued share capital of the Company at the

time of signing the Agreement. Completion of the Agreement was subject to, inter alia,

approval by the independent shareholders of the Company of a proposal to reorganise

the Group (‘‘the Group Reorganisation’’). Upon approval and implementation, the

results of the Group Reorganisation would be as follows:

(i) The Company would continue to be a listed company, together with its

subsidiaries (the ‘‘Retained Group’’), and concentrate on the business of

carrying out regulated activities under the SFO (‘‘the Retained Business’’);

(ii) Hantec Pacific Limited (‘‘HPL’’) and its subsidiaries (collectively ‘‘the HPL

Group’’) would carry on the businesses of trading and broking of precious

metal contracts, the provision of financial related services outside of Hong

Kong, and investment in water plant business; and

(iii) The shareholders would receive by way of a distribution in specie the shares

of HPL on the basis of one share of HPL for each share of the Company held.

The Group Reorganisation was completed on 27 November 2008. After the

change of the controlling shareholder, the Company changed its name to Cinda

International Holdings Limited and adopted a secondary name 信達國際控股有限公司

on 31 December 2008.


– 141 –


The fixed rate loan notes have all been redeemed from internal resources in order

to save on interest costs. The Group did not have any loan outstanding as at 31

December 2008, while the net debt-to-adjusted capital ratio as at 31 December 2007

stood at 49.9%. As at 31 December 2008, the Group had cash and bank balances

amounted approximately HK$188.1 million (2007 : HK$374.2 million) while the total

assets and net asset were approximately HK$292.7 million (2007 : HK$911.7 million)

and HK$227.4 million (2007 : HK$392.4 million) respectively. The Group also strived

to maintain highly liquid assets to prepare for any unexpected sudden changes in the

market. As at 31 December 2008, the current ratio was 428.9% (2007 : 178.9%).


The Group did not hold any significant investments for the year ended 31

December 2008.


On 21 December 2007, the Company entered into a sale and purchase agreement

with the shareholders of 俊森實業有限公司 (‘‘俊森實業’’), all of whom were

independent third parties of the Company and its connected persons, to acquire

100% of the total issued share capital of 俊森實業 for a consideration of

HK$1,304,700. The acquisition was completed in February 2008. The key business

of 俊森實業 is property holding.

On 6 March 2008, Macro Jess Ltd., a wholly-owned subsidiary of the Company

has entered into an agreement with Mr. Yozo Hasegawa or his nominees(s) to purchase

of 2,160 ordinary shares of Foreland Forex Co., Ltd for a cash consideration of

Japanese Yen 162 million.


Leveraged Foreign Exchange Trading

The leveraged foreign exchange trading in the Retained Group produced a

turnover of HK$26.4 million (2007 : HK$39.5 million). However, it also resulted in a

segment loss of HK$2.9 million (2007 : profit of HK$2.1 million). Swap interest and

foreign exchange trading revenue dropped significantly from HK$29.0 million in 2007

to HK$16.7 million, representing a 42% decrease as a result of the low business

volume. Because of the financial tsunami, some currencies like the Australian Dollar

and Pound Sterling experienced a very sudden decline against the US Dollar. As a

result, investors who suffered losses became more conservative in the market. In

addition, the widespread news on the loss resulted from foreign exchange accumulators

further weakened investors’ confidence.


– 142 –

Securities Dealing

The enthusiasm in the stock market in Hong Kong in 2008 cooled down compared

to the atmosphere in 2007, particularly after the breakout of the financial tsunami in

the second half of the year. Initial public offerings in the third and final quarter of the

year are sparse. Investors turned away from the equity market following the mini-bond

scandal, drop in accumulators and significant fluctuation in the equity market. The

Hang Seng Index hit its lowest at 11,016 points on 27 October 2008. Compared to the

historic high of 31,638 points recorded on 30 October 2007, it dropped more than

65.2%. More importantly, market turnover decreased from an average daily turnover

of 87,781 million in the year of 2007 to 51,557 million in the last quarter of 2008.

During such a hard time, we strived to achieve a turnover of HK$34.6 million (2007 :

HK$82.8 million). The segment recorded a profit before finance cost of HK$0.7

million (2007 : HK$21.3 million). Taking into account the finance cost, the segment

was in a break-even situation.

Commodities and Futures Dealing

Business in commodities and futures dealing in the second half of the year saw a

significant decrease. Turnover recorded in the year was HK$10.3 million (2007 :

HK$10.9 million), but out of this figure, HK$6.5 million (2007 : HK$5.7 million) was

recorded in the first half of the year. During the first half, there were signs that the

market in 2008 would be prosperous. But the economy turned sour in the second half

of the year after the fall in the price of most commodities, especially the heated items as

crude oil, minerals and crops. As a result, the segment suffered a loss of HK$0.2

million (2007 : profit of HK$0.4 million).

Corporate Finance

The wave of IPOs in 2007 has not been repeated this year. The number of IPOs

plunged in the year, especially from the third quarter, and business nearly came to a

halt. However, our corporate finance team has successfully sponsored one IPO on the

Main Board. Revenue had been heavily reliant on consultancy fees from financial

advisory jobs. This segment managed to record a turnover of HK$6.8 million (2007 :

HK$8.4 million). Due to the rise in operational costs, a loss of HK$2.5 million was

recorded (2007 : profit of HK$0.97 million). Although the current sluggish market

situation may last for some time, we are confident that the business in this segment will

improve in the medium term. Driving force in the corporate finance market will come

from the PRC. As the controlling shareholder has strong ties in the PRC, the Group is

optimistic that new business opportunities exist ahead.

Asset Management

Currently the Group’s asset management business is inactive. The equity fund

managed was liquidated during the year because investors holding a significant number

of units redeemed their investment. Subsequent to the redemption, the fund size

became too small to be run efficiently. The Group had no alternative but to liquidate

the remaining units. Turnover was only HK$0.1 million (2007 : HK$0.6 million) and a


– 143 –

loss of HK$1.0 million (2007 : loss HK$1.0 million) was recorded. The Group is

currently exploring and analyzing new business opportunities and hopes to bring the

business back on track.

Financial Planing/Insurance Broking

Competition in the personal financial advisory and financial planning business

remained keen in the first half year of 2008. However, due to the mini-bonds and

accumulators crisis, retail investors totally lost interest in personal financial products.

It is believed that it would take considerable time to rebuild their confidence.

Consequently, turnover in the second half of the year dropped. Turnover of the whole

year was HK$22.3 million (2007 : 28.2 million), while a loss of HK$0.8 million was

recorded (2007 : profit of HK$1.5 million).


The human resource market has been slowing down in line with the downturn of

the economy. It provides a good opportunity for the Group to equip its team at a more

efficient cost. Nevertheless, the Group continues to offer terms which are competitive

in the market to appropriate personnel. Fringe benefits include medical subsidies,

education allowance, life insurance, and free CPT courses which are offered to

different levels of staff. Motivation schemes are in place for staff who perform well.

Account executives are rewarded with commission packages that are commensurate

with their performance.


As an active player in the foreign exchange market, the Group has laid down

policies and maintained position limits and loss limits on its foreign currencies

exposures as a result of its business transactions. The treasury function of the Group is

responsible for implementing such policies. The risk management committee regularly

reviews such policies and its implementation status in order to cope with the market

conditions and the business volume. The Group’s assets and liabilities are mainly

denominated in Hong Kong Dollars and US Dollars to which the Hong Kong Dollars

is pegged.

Charges on assets

As at 31 December 2008, bank deposits amounting to HK$11,707,315 (2007 :

HK$11,546,863) have been pledged to a bank as security for the provision of a HK$22

million (2007 : HK$22 million) securities broking facility. In addition, bank deposits

amounting to HK$4,627,544 (2007 : HK$1,673,659) have been pledged to financial

institutions as security for the provision of leveraged foreign exchange broking.

Gearing ratio

As at 31 December 2008, the Group had no outstanding borrowings.


– 144 –



A few litigation cases are outstanding up to the date of this report. Under the

Agreement, HHL and the then chairman of the Company undertakes to indemnify and

keep indemnified the Company on a fully indemnity basis of any loss or liability

suffered by the Group as a result of or in connection with the outstanding litigation

cases.


As at the balance sheet date, a subsidiary utilized HK$nil (2007 : HK$16,678,805)

of the aggregate banking facilities. The Company has issued corporate guarantees for a

total principal amount of HK$255 million (2007 : HK$322 million) for these facilities.

The Company also issued corporate guarantees to certain financial institutions for

foreign exchange trading facilities granted to a subsidiary engaging in leveraged

foreign exchange trading. The maximum liability is the trading loss and related

incidental costs, in some cases, subject to an overall cap on the amount of the

guarantee.

As at the balance sheet date, the directors do not consider it probable that a claim

will be made against the Company under any of the guarantees.

Prospects

The collapse of certain prominent financial institutions in the United States

caused a far reaching effect which deteriorated the confidence of investors in the major

economies. Market activity reduced significantly, and we saw major setbacks in the

retail, corporate and institutional market. Certain major economies expect to record

negative economic growth in the forthcoming year. China is the only leading nation

that could post a good economic growth in 2008. As mentioned by the Prime Minister,

the central government aims to maintain an annual economic growth of 8% in 2009.

After the Group Reorganisation, the controlling shareholders changed to China Cinda,

the shareholder of which is the Ministry of Finance of the PRC. China Cinda provides

a vast variety of financial services to its clients through its subsidiaries and affiliates in

different sectors of the financial industry. The management will leverage on its

relationship with China Cinda with a hope to provide appropriate financial services to

meet the needs of their clients. New business opportunities in the Mainland are also

being explored by the management. On the cost side, the management has adopted a

conservative approach in order to minimize its operating expenses. The Group has

confidence that it can enhance its stakeholders’ value in the medium term despite the

current difficult economic situation.


– 145 –



In spite of the loss recorded in the first half of 2009, the Group’s financial position

remains healthy. The Group did not borrow any funds as at 30 June 2009. The

subsidiaries licensed by the SFC have complied with the financial resources

requirements. The Company has issued 84,460,000 new ordinary shares to certain

institutional, professional and individual investors to raise approximately HK$164

million for the general working capital of the Group. As at 30 June 2009, the Group

had cash and bank balances amounted approximately HK$102.3 million (31 December

2008 : HK$188.1 million) while the total assets and net asset were approximately

HK$280.2 million (31 December 2008 : HK$292.7 million) and HK$205 million (31

December 2008 : HK$227.4 million) respectively. The current ratio was 358.1% (31

December 2008 : 428.9%).


The Group did not hold any significant investments for the six months ended 30

June 2009.


The Group had not made any acquisition or disposal during the period.


Securities broking

The Hang Seng Index hit 11,344 points on 9 March 2009 which was not much of

an improvement over the low of 10,676 recorded on 27 October 2008 after the financial

crisis intensified. Average daily turnover dropped from 86,979 million to 58,118

million. Despite the decline in both index and turnover, the Group strived to maintain

its share of the market. During an unclear market situation, commission income as well

as interest income slid as the margin loan contracted. Turnover decreased to HK$14.7

million from HK$21.6 million. A loss of HK$6.0 million was recorded (2008 : profit

HK$3.9 million).

Corporate Finance

There were very few business opportunities in corporate finance in the market due

to the financial crisis. There were very few initial public offerings (‘‘IPO’’) and merger

and acquisitions transactions in the period under review. However, the corporate

finance division succeeded in acting as placing agent for both the Company and

another listed company. Acting as compliance advisor and financial advisor for listed

companies remain the usual business, but profitability has deteriorated. Costs


– 146 –

increased as the Group hired new personnel to plan for expansion. Consequently,

turnover was HK$2.8 million (2008 : HK$3.0 million), with losses increasing from

HK$1.1 million to HK$4.1 million.

Leveraged foreign exchange trading

The market was still competitive. During the period under review, the Group

continued its prudent policy in foreign exchange trading as a means to avoid market

risk. Most of the positions held by Group were hedged with financial institutions. In

addition, as interest rate was low during the period, profit on the interest spread

narrowed significantly. As a result, turnover declined to HK$7.7 million (2008 :

HK$13.0 million) and a loss of HK$6.2 million was recorded (2008 : loss HK$0.3

million).

Commodities and futures broking

In the past fluctuations in the market created business volume in this division.

This was not the case in the first half of 2009. Clients could not endure the losses

resulting from the unfavourable positions they held, and instead opted to refrain from

the market. Transaction volume dropped by more than half compared to the

corresponding period last year. Turnover recorded was HK$2.6 million, representing

a decrease of 60% over the HK$6.5 million recorded in the same period last year,

which led to a loss of HK$1.9 million (2008 : profit HK$0.5 million). As competition in

the local futures market is keen, efforts have been made to recruit new customers to

trade in overseas commodities markets.

Financial planning

The default of mini-bonds issued by a leading investment bank in 2008 dampened

investor confidence in financial products. Clients not only stopped putting new money

into these products but also redeemed the funds they already held. Hence, business in

this industry dropped significantly in the first half of the year. In addition, the more

complicated procedures in selling financial products to retail customers as

recommended by the regulatory bodies created more difficulties in the industry. As a

result, turnover dropped over 73% from HK$13.1 million to HK$3.5 million, and a

loss of HK$1.6 million was incurred compared to a profit of HK$0.6 million in the

corresponding period last year.


The Group has laid down human resources policies to retain staff and attract new

recruits. Fringe benefits include medical subsidies, education allowance, life insurance,

free CPT courses are offered to different level of staff.


– 147 –


The assets and liabilities of the Group are mostly denominated in Hong Kong

Dollars and United States Dollars to which the Hong Kong Dollar is pegged. Only

certain foreign exchange positions are denominated in other currencies to which the

Group is exposed to fluctuation in foreign exchange rates. The treasury function of the

Group will manage the risk exposure under the guidelines laid down by management.

Charges on assets

As at 30 June 2009, bank deposits amounting to HK$11,708,105 (31 December

2008 : HK$11,707,315) have been pledged to a bank as security for the provision of a

HK$22 million (31 December 2008 : HK$22 million) securities broking facility.

Gearing ratio

As at 30 June 2009, the Group had no outstanding borrowings.


Except for the guarantees issued by the Company against facilities provided by

certain financial institutions to the subsidiaries of the Group and outstanding

litigation cases which have been indemnified by previous controlling shareholders,

the Group is not exposed to any contingent liabilities.

Prospects

Although the Group suffered considerable losses during the first half of 2009, it is

still optimistic in the medium term. Management has formulated certain business

strategies aimed at improving the present situation. On the brokerage business, the

Group will strengthen the existing client base by satisfying both the needs of clients

and marketing personnel. The Group will further develop into the retail market and

penetrate into the corporate and institutional market. The Group will also seek for

more participation in distribution of shares through cooperation with peers in the

industry. Corporate finance is another business to expand and offers strategic

positions as it can bring opportunities to both the brokerage and asset management

business. On the asset management side, the Group is actively considering resuming

the business, as it is another area of promising profitability. The Group will leverage

on the strong background of its ultimate controlling shareholder in Mainland China to

introduce business opportunities to the corporate finance division. With the recovery

of the market, the Group has managed to participate in the underwriting of an IPO

after the period under review. The Group anticipates that this IPO is one of the hottest

of 2009, and will contribute well to the profit of the corporate finance division. The

Group envisages business opportunities ahead due to the growing economy of

Mainland China. The success in raising funds through placing of new shares after the

interim period end provides an important financial support for the Group to

strengthen and further develop its business. With the new funding, the Group is

capable of looking to other new investments and merger and acquisition opportunities


– 148 –

to expand its business scale. Last but not the least, to develop into a leading financial

institution remains the long term objective of the Group, and management will work

diligently towards achieving this goal.

5. STATEMENT OF INDEBTEDNESS

As at the close of business on 30 September 2009, being the Latest Practicable Date for

the purpose of this indebtedness statement prior to the printing of this circular, the Group

had borrowings amounting to approximately HK$103,650,000 and contingent liabilities,

details of which are as follows:

Borrowings

The following table illustrates the Group’s bank and other borrowings as at 30

September 2009 :

HK$’000

Bank borrowing (unsecured) 103,526

Obligations under finance leases 124

103,650

The bank borrowing of HK$103,526,000 was fully repaid subsequent to 30

September 2009.

Legal contingencies

As at 30 September 2009, the Group was involved in certain lawsuits. While the

outcome of such lawsuits cannot be determined at present, the Directors are of the

opinion that no liabilities resulting from these proceedings will have a material adverse

effect on the Group’s financial position, liquidity or operating results.

Representation

Save as disclosed above and apart from intra-group liabilities, the Group did not

have any loan capital issued and outstanding or agreed to be issued, any loan capital,

bank overdrafts and liabilities under acceptances or other similar indebtedness,

debentures, mortgages, charges or loans or acceptance credits or hire purchase

commitments, guarantees or other material contingent liabilities as at the close of

business on 30 September 2009.


– 149 –

6. WORKING CAPITAL

The Directors are of opinion that, following the completion of the Acquisition, taking

into account the financial resources available to the Group, including the internally

generated funds and the present available banking facilities, the Group will have sufficient

working capital for its present requirements for the next twelve months from the date of this

circular in the absence of unforeseen circumstances.

7. MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, the Directors were not aware of any material adverse

changes in the financial or trading position of the Group since 31 December 2008, the date

to which the latest audited consolidated financial statements of the Group were made up.

8. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Although the Group suffered considerable losses during the first half of 2009, it is still

optimistic in the medium term. Management has formulated certain business strategies

aimed at improving the present situation. On the brokerage business, the Group will

strengthen the existing client base by satisfying both the needs of clients and marketing

personnel. The Group will further develop into the retail market and penetrate into the

corporate and institutional market. The Group will also seek for more participation in

distribution of shares through cooperation with peers in the industry. Corporate finance is

another business to expand and offers strategic positions as it can bring opportunities to

both the brokerage and asset management business. On the asset management side, the

Group is actively considering resuming the business, as it is another area of promising

profitability. The Group will leverage on the strong background of its ultimate controlling

shareholder in Mainland China to introduce business opportunities to the corporate finance

division.

The success in raising funds through placing of new shares pursuant to the Top-UP

Subscription Agreement and the New Subscription Agreement in August 2009 provides an

important financial support for the Group to strengthen and further develop its business.

With the new funding, the Group is capable of looking to other new investments and merger

and acquisition opportunities to expand its business scale. Last but not the least, to develop

into a leading financial institution remains the long term objective of the Group, and

management will work diligently towards achieving this goal.


– 150 –

1. ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of an accountants’ report on Sino-Rock and its subsidiaries,

prepared for the sole purpose of inclusion in this circular, received from the reporting

accountants, Chan & Wat, Certified Public Accountants, Hong Kong.

26 November 2009

The Directors


45th Floor, COSCO Tower,

183 Queen’s Road Central,

Hong Kong

Dear Sirs,

We set out below our report on the financial information (the ‘‘Financial

Information’’) regarding Sino-Rock Investment Management Company Limited (the

‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’),

including the consolidated income statements, the consolidated statements of

comprehensive income, the consolidated statements of changes in equity and the

consolidated cash flow statements for each of the three years ended 31 December 2006,

2007, 2008 and the six months ended 30 June 2009 (the ‘‘Relevant Periods’’) and the

consolidated balance sheets of the Group as at 31 December 2006, 2007, 2008 and 30 June

2009 and the balance sheets of the Company as at 31 December 2006, 2007, 2008 and 30

June 2009 and the notes thereto for inclusion in the circular (the ‘‘Circular’’) of Cinda

International Holdings Limited (‘‘Cinda’’) dated 26 November 2009 in connection with the

proposed acquisition of the 40% equity interest in the Company by a wholly-owned

subsidiary of Cinda.

APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

– 151 –

The Company was incorporated in Hong Kong with limited liability. The Company is

principally engaged in investment holding and provision of capital management and

consultancy services. Particulars of the Company’s subsidiaries, all of which were directly

held by the Company during the Relevant Periods, are as follows:

Name of subsidiaries

Place of establishment/

incorporation

Registered/

issued and fully

paid share

capital

Attributable equity

interest held the Group as at

31 December 30 June

Principal activities2006 2007 2008 2009

Sino-Rock (Guangzhou) Asset

Management Company

Limited (‘‘Sino-Rock

Guangzhou’’)

The People’s Republic

of China

(the ‘‘PRC’’)

HK$10,000,000 100% 100% 100% 100% Investment holding

and provision of

capital

management and

consultancy

services

Sino-Rock International Limited

(‘‘Sino-Rock International’’)

The British Virgin

Islands (‘‘BVI’’)

US$5,000 — 100% 100% — Investment holding

We have audited the consolidated financial statements of the Company for each of the

three years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009

and the financial statements of Sino-Rock International for the period from 5 January 2007

(date of incorporation) to 31 December 2007 and the year ended 31 December 2008 in

accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of

Certified Public Accountants (the ‘‘HKICPA’’).

The financial statements of Sino-Rock Guangzhou for the period from 19 May 2006

(date of establishment) to 31 December 2006, each of the two years ended 31 December

2007 and 2008 and the six months ended 30 June 2009 were prepared in accordance with the

PRC accounting principles and were audited by 北京京都天華會計師事務所有限責任公司, a

firm of certified public accountants registered in the PRC.

No audited financial statements of the companies in the Group have been prepared for

the period subsequent to 30 June 2009.

The Financial Information of the Group and the Company for the Relevant Periods

has been prepared based on the consolidated financial statements of the Company for each

of the three years ended 31 December 2006, 2007 and 2008 and the six months ended 30

June 2009 (the ‘‘Underlying Financial Statements’’) in accordance with Hong Kong

Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA, after making such

adjustments as we consider appropriate for the purpose of preparing our report for

inclusion in the Circular.

We have undertaken an audit of the Underlying Financial Statements in accordance

with Hong Kong Standards on Auditing. We have examined the Underlying Financial

Statements in accordance with Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting

Accountant’’ issued by the HKICPA.

The Underlying Financial Statements are the responsibility of the directors of the

Company who approved their issue. The directors of Cinda are responsible for the contents

of the Circular in which this report is included. It is our responsibility to compile the


– 152 –

Financial Information set out in this report from the Underlying Financial Statements, to

form an independent opinion, based on our examination and review, on the Financial

Information, and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereto gives, for the

purpose of this report, a true and fair view of the state of affairs of the Group and the

Company as at 31 December 2006, 2007, 2008 and 30 June 2009, and of the consolidated

results and cash flows of the Group for the Relevant Periods.

The comparative consolidated income statement, the consolidated statement of

comprehensive income, the consolidated statement of changes in equity and the

consolidated cash flow statement of the Group for the six months ended 30 June 2008

together with the notes thereon (the ‘‘30 June 2008 Financial Information’’) have been

extracted from the Group’s unaudited consolidated financial information for the same

period which were prepared by the directors of the Company solely for the purpose of this

report. We have reviewed the 30 June 2008 Financial Information in accordance with Hong

Kong Standard on Review Engagements 2410 ‘‘Review of Interim Financial Information

Performed by the Independent Auditor of The Entity’’ issued by the HKICPA. Our review

of the 30 June 2008 Financial Information consists of making enquiries, primarily of

persons responsible for financial and accounting matters, and applying analytical and other

review procedures. A review is substantially less in scope than an audit conducted in

accordance with Hong Kong Standards on Auditing and consequently does not enable us to

obtain assurance that we would become aware of all significant matters that might be

identified in an audit. Accordingly, we do not express an audit opinion on the 30 June 2008

Financial Information. Based on our review, for the purpose of this report, nothing has

come to our attention that causes us to believe that the 30 June 2008 Financial Information

is not prepared, in all material respects, in accordance with the accounting policies

consistent with those used in the preparation of the Financial Information, which conform

with HKFRSs.


– 153 –

(I) FINANCIAL INFORMATION

Consolidated Income Statements

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Turnover 7 3,976 390 15,096 13,496 1,013

Cost of main operation (1,658) (1,128) (1,232) (931) —

Gross profit (loss) 2,318 (738) 13,864 12,565 1,013

Gain (loss) on disposal of

available-for-sale investments — 186,593 32,670 32,831 (7,691)

Gain arising from change in fair

value of investments held for

trading — — — — 4,029

Realised gain on investments

held for trading — — — — 2,893

Gain on disposal of a subsidiary 36 — — — — 16,283

Gain on disposal of an associate 17 — — — — 2,323

Other income 977 1,325 1,737 1,163 39

Selling and distribution

expenses (2,936) (7,560) (8,819) (1,213) (1,718)

Administrative expenses (16,212) (26,897) (23,992) (14,911) (8,060)

Share of losses of associates — — — — (327)

Finance costs 9 (1,954) (7,712) (9,226) (4,530) (5,171)

(Loss) profit before taxation (17,807) 145,011 6,234 25,905 3,613

Taxation 10 — (16,283) — (1,394) (717)

(Loss) profit for the year/period 11 (17,807) 128,728 6,234 24,511 2,896

Dividend paid 13 — — 30,000 — —


– 154 –

Consolidated Statements of Comprehensive Income

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

(Loss) profit for the year/period (17,807) 128,728 6,234 24,511 2,896

Other comprehensive income for the

year/period

Gain (loss) on change in fair value of

available-for-sale investments, less

attributable deferred tax 45,343 214,220 (149,044) (121,594) 61,355

Reversal of deferred tax liabilities on

change in fair value of available-

for-sale investments upon a

change in tax rate — — 13,956 13,956 —

Investment revaluation reserve

transferred to consolidated income

statement on disposal of available-

for-sale investments — (45,343) (69,676) (58,820) 7,486

Exchange differences on translation

of financial statements of foreign

operations 180 286 8,058 8,367 (2)

Total comprehensive income for

the year/period 27,716 297,891 (190,472) (133,580) 71,735

Total comprehensive income

attributable to equity holders of

the Company 27,716 297,891 (190,472) (133,580) 71,735


– 155 –

Consolidated Balance Sheets

At 31 December At 30 June

2006 2007 2008 2009

Notes HK$’000 HK$’000 HK$’000 HK$’000

Non-current assets

Investment properties 14 — — — —

Property, plant and equipment 15 3,664 2,867 1,600 1,287

Interests in associates 17 — — 333,692 22,162

Available-for-sale investments 18 164,387 437,144 250,972 295,642

Club membership 19 — 544 544 544

Intangible assets 20 126 46 — —

168,177 440,601 586,808 319,635

Current assets

Investments held for trading 21 — — — 7,797

Trade and other receivables 22 2,626 121,298 12,578 1,451

Deposits and prepayments 2,993 928 1,184 1,129

Amounts due from associates 24 — — 210 8

Amounts due from related companies 25 — 741 140,071 196,200

Bank balances and cash 26 35,604 32,009 7,727 30,041

41,223 154,976 161,770 236,626

Current liabilities

Trade and other payables 27 12,074 16,459 15,453 14,791

Amount due to an associate 29 — — 257,390 —

Amounts due to related companies 30 2,540 — 119,165 119,012

Bank loans 31 — 34,680 — —

Other loans 32 73,737 48,000 92,992 82,989

Taxation payable — 16,283 16,283 —

88,351 115,422 501,283 216,792

Net current (liabilities) assets (47,128) 39,554 (339,513) 19,834

121,049 480,155 247,295 339,469


Share capital 33 45,000 45,000 45,000 45,000

Reserves 27,708 325,599 105,127 176,862

Equity attributable to equity holders of

the Company 72,708 370,599 150,127 221,862


Bank loans 31 — — 33,738 33,734

Other loans 32 48,341 51,989 55,105 55,098

Deferred tax liabilities 35 — 57,567 8,325 28,775

48,341 109,556 97,168 117,607

121,049 480,155 247,295 339,469


– 156 –

Company Balance Sheets


2006 2007 2008 2009

Notes HK$’000 HK$’000 HK$’000 HK$’000

Non-current assets

Investment properties 14 — — — —

Property, plant and equipment 15 2,206 1,638 1,125 908

Investments in subsidiaries 16 10,000 10,039 10,039 10,000

Interests in associates 17 — — 311,200 —

Available-for-sale investments 18 116,046 — — —

Club membership 19 — 544 544 544

Intangible assets 20 126 46 — —

128,378 12,267 322,908 11,452

Current assets

Investments held for trading 21 — — — 7,797

Trade and other receivables 2,112 302 243 260

Deposits and prepayments 733 824 1,047 1,071

Amounts due from subsidiaries 23 1,056 127,844 8,181 6,442

Amounts due from associates 24 — — 91 —

Amounts due from related companies 25 — 691 91,492 173,712

Bank balances and cash 26 29,273 12,064 6,970 10,071

33,174 141,725 108,024 199,353

Current liabilities

Trade and other payables 10,797 14,917 13,768 2,282

Amounts due to subsidiaries 28 60 1,507 55,748 1,764

Amount due to an associate 29 — — 257,390 —

Amounts due to related companies 30 2,273 — — —

Other loans 32 73,737 48,000 70,500 60,500

86,867 64,424 397,406 64,546

Net current (liabilities) assets (53,693) 77,301 (289,382) 134,807

74,685 89,568 33,526 146,259


Share capital 33 45,000 45,000 45,000 45,000

Reserves 34 29,685 44,568 (11,474) 101,259

74,685 89,568 33,526 146,259


– 157 –

Consolidated Statements of Changes in Equity

Share

capital

Share

premium

Investment

revaluation

reserve

Exchange

reserve

(Accumulated

losses)

retained

profits Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2006 1 — — — (9,313) (9,312)


for the year — — 45,343 180 (17,807) 27,716

Issue of shares 44,999 9,305 — — — 54,304

At 31 December 2006 45,000 9,305 45,343 180 (27,120) 72,708

At 1 January 2007 45,000 9,305 45,343 180 (27,120) 72,708


for the year — — 168,877 286 128,728 297,891

At 31 December 2007 45,000 9,305 214,220 466 101,608 370,599

At 1 January 2008 45,000 9,305 214,220 466 101,608 370,599


for the year — — (204,764) 8,058 6,234 (190,472)

Dividend paid — — — — (30,000) (30,000)

At 31 December 2008 45,000 9,305 9,456 8,524 77,842 150,127

At 1 January 2009 45,000 9,305 9,456 8,524 77,842 150,127


for the period — — 68,841 (2) 2,896 71,735

At 30 June 2009 45,000 9,305 78,297 8,522 80,738 221,862

(Unaudited)

At 1 January 2008 45,000 9,305 214,220 466 101,608 370,599


for the period — — (166,458) 8,367 24,511 (133,580)

At 30 June 2008 45,000 9,305 47,762 8,833 126,119 237,019


– 158 –

Consolidated Cash Flow Statements

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Operating activities


Adjustments for:

Share of losses of associates — — — — 327

Amortisation of intangible

assets 33 80 46 40 —

Depreciation of property, plant

and equipment 343 895 801 462 313

Interest income (965) (1,325) (1,201) (787) (34)

Interest expenses 1,954 7,712 9,226 4,530 5,171

(Gain) loss on disposal of

available-for-sale investments — (186,593) (32,670) (32,831) 7,691

Gain on disposal of a subsidiary 36 — — — — (16,283)

Gain on disposal of an associate — — — — (2,323)

Loss on disposal of property,

plant and equipment — — 203 51 —

Unrealised exchange losses

(gains) 179 53 (1,493) (2,537) —

Operating cash flows before

movements in working capital (16,263) (34,167) (18,854) (5,167) (1,525)

Increase in investments held for

trading — — — — (7,797)

(Increase) decrease in trade and

other receivables (2,626) (118,637) 108,758 120,180 11,128

(Increase) decrease in deposits and

prepayments (2,993) 2,150 (250) — 55

(Increase) decrease in amounts due

from associates — — (209) — 202

Increase in amounts due from

related companies — (741) (139,027) (90,711) —

Increase (decrease) in trade and

other payables 12,067 4,289 (1,085) (4,491) (1,124)

(Decrease) increase in amounts

due to related companies (25,028) (2,803) 119,165 93,271 (136)

Decrease in rental deposits

received (198) — — — —

Cash (used in) from operations (35,041) (149,909) 68,498 113,082 803

PRC income tax paid — — — — (252)

Net cash (used in) from operating

activities (35,041) (149,909) 68,498 113,082 551


– 159 –

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Investing activities

Acquisition of property, plant and

equipment (4,007) — (26) (25) —

Proceeds from disposal of

investment properties 18,000 — — — —


property, plant and equipment — — 355 64 —

Acquisition of intangible assets (159) — — — —

Acquisition of club membership — (544) — — —

Investments in associates — — (76,302) (5,180) —

Acquisition of available-for-sale

investments (119,044) (251,231) (158,360) (134,702) —


available-for-sale investments — 395,159 135,859 125,789 36,906

Interest received 965 1,325 1,201 787 34

Net cash (used in) from investing

activities (104,245) 144,709 (97,273) (13,267) 36,940

Financing activities

Proceeds from issue of shares 54,304 — — — —

New bank and other loans raised 122,078 34,680 78,195 33,026 —

Repayments of bank and other

loans — (25,737) (34,680) (34,680) (10,000)

Dividend paid — — (30,000) — —

Interest paid (1,954) (7,712) (9,226) (4,530) (5,171)

Net cash from (used in) financing

activities 174,428 1,231 4,289 (6,184) (15,171)

Net increase (decrease) in cash and

cash equivalents 35,142 (3,969) (24,486) 93,631 22,320

Cash and cash equivalents brought

forward 462 35,604 32,009 32,009 7,727

Effect of foreign exchange rate

changes — 374 204 793 (6)

Cash and cash equivalents carried

forward 35,604 32,009 7,727 126,433 30,041

Analysis of the balances of cash and

cash equivalents

Bank balances and cash 35,604 32,009 7,727 126,433 30,041


– 160 –

Notes to the Financial Information

1. GENERAL

The Company was incorporated in Hong Kong as a limited liability company. The Group is

principally engaged in investment holding and the provision of capital management and consultancy

services.

The address of the registered office and principal place of business of the Company is Rooms

3001–03, 30th Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Wanchai, Hong Kong.

The Financial Information is presented in Hong Kong dollar, which is the same as the functional

currency of the Company.

2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted all the new and revised Hong Kong Financial Reporting Standards issued

by the HKICPA that are effective for the Group’s financial period beginning on or prior to 1 January 2009

in the preparation of the Financial Information throughout the Relevant Periods.

At the date of this report, the HKICPA has issued the following new and revised standards,

amendments and interpretations that are not yet effective in respect of the Relevant Periods. The Group

has not yet early applied these standards, amendments and interpretations in the preparation of the

Financial Information.

HKFRSs (Amendments) Amendment to HKFRS 5 as part of improvements to

HKFRSs issued in 20081

HKFRSs (Amendments) Improvements to HKFRSs 20092

HKAS 27 (Revised) Consolidated and Separate Financial Statements1

HKAS 39 (Amendment) Eligible Hedged Items1

HKFRS 1 (Amendment) Additional Exemptions for First-time Adopters3

HKFRS 2 (Amendment) Group Cash-settled Share-based Payment Transactions3

HKFRS 3 (Revised) Business Combinations1

HK(IFRIC) — Int 17 Distribution of Non-cash Assets to Owners1

HK(IFRIC) — Int 18 Transfers of Assets from Customers4

1 Effective for annual periods beginning on or after 1 July 20092 Effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as

appropriate3 Effective for annual periods beginning on or after 1 January 20104 Effective for transfers on or after 1 July 2009

The application of HKFRS 3 (Revised) may affect the Group’s accounting for business

combinations for which the acquisition date is on or after the beginning of the first annual reporting

period beginning on 1 July 2009. HKAS 27 (Revised) will affect the accounting treatment for changes in

the Group’s ownership interest in a subsidiary.

The directors of the Company are in the process of assessing the potential impact and, so far,

anticipate that the application of the other new and revised standards, amendments or interpretations will

have no material impact on the results and the financial position of the Group.


– 161 –

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis except for certain financial

instruments and investment properties, which are measured at fair values, as explained in the accounting

policies set out below.

The Financial Information has been prepared in accordance with the applicable HKFRSs issued by

the HKICPA. In addition, the Financial Information includes applicable disclosures required by the Rules

Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong

Companies Ordinance.

The principal accounting policies adopted are as follows:

Basis of consolidation

The Financial Information incorporates the financial statements of the Company and entities

controlled by the Company (its subsidiaries). Control is achieved where the Company has the power

to govern the financial and operating policies of an entity so as to obtain benefit from its activities.

The results of subsidiaries acquired or disposed of during the period are included in the

consolidated income statement from the effective date of acquisition or up to the effective date of

disposal, as appropriate.

Where necessary, adjustments are made to the financial information of subsidiaries to bring

their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the

acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given,

liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control

of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s

identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under

HKFRS 3 ‘‘Business Combinations’’ are recognised at their fair values at the acquisition date.

Investments in subsidiaries

Investments in subsidiaries are stated at cost less any identified impairment loss in the

Company’s balance sheet.

Interests in associates

An associate is an entity over which the Group has significant influence and that is neither a

subsidiary nor an interest in a jointly controlled entity. Significant influence is the power to

participate in the financial and operating decision of the investee but is neither control nor joint

control over those policies.

The results and assets and liabilities of associates are incorporated in the Financial

Information using the equity method of accounting. Under the equity method, interests in

associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition

changes in the Group’s share of the net assets of the associate, less any identified impairment loss.

When the Group’s share of losses of an associate equals or exceeds its interest in that associate

(which includes any long-term interests that, in substance, form part of the Group’s net investment


– 162 –

in the associate), the Group discontinues recognising its share of further losses. An additional share

of losses is provided for and a liability is recognised only to the extent that the Group has incurred

legal or constructive obligations or made payments on behalf of that associate.

Where a group entity transacts with an associate of the Group, unrealised profits and losses

are eliminated to the extent of the Group’s interest in the associate, except to the extent that

unrealised losses provided evidence of an impairment of the asset transferred, in which case, the full

amount of losses is recognised.

Investments in associates are included in the Company’s balance sheet at cost less any

identified impairment loss.

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

On initial recognition, investment properties are measured at cost, including any directly

attributable expenditure. Subsequent to initial recognition, investment properties are measured

using the fair value model. Gains or losses arising from changes in the fair value of investment

property are included in profit or loss for the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is

permanently withdrawn from use and no future economic benefits are expected from its disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net

disposal proceeds and the carrying amount of the asset) is included in the consolidated income

statement in the period in which the item is derecognised.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and

accumulated impairment loss.

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 improvement 20%

Furniture and fixtures 20%

Office equipment 20%

Computer equipment 50%

Motor vehicles 20%

An item of property, plant and equipment is derecognised upon disposal or when no future

economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising

on derecognition of the asset (calculated as the difference between the net disposal proceeds and the

carrying amount of the item) is included in the consolidated income statement in the period in which

the item is derecognised.

Intangible assets

Intangible assets represent acquired computer software licences which are capitalised on the

basis of the costs incurred to acquire and bring to use the specific software. These costs are

amortised over their estimated useful lives of two years.


– 163 –

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group

entity becomes a party to the contractual provisions of the instruments. Financial assets and

financial liabilities are initially measured at fair value. Transaction costs that are directly

attributable to the acquisition or issue of financial assets and financial liabilities (other than

financial assets and financial liabilities at fair value through profit or loss) are added to or deducted

from the fair value of the financial assets or financial liabilities, as appropriate, on initial

recognition. Transaction costs directly attributable to the acquisition of financial assets or financial

liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into three categories, including ‘‘loans and

receivables’’, ‘‘financial assets at fair value through profit or loss’’ and ‘‘available-for-sale

investments’’. All regular way purchases or sales of financial assets are recognised and

derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of

financial assets that require delivery of assets within the time frame established by regulation or

convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset

and of allocating interest income over the relevant period. The effective interest rate is the rate that

exactly discounts estimated future cash receipts (including all fees paid or received that form an

integral part of the effective interest rate, transaction costs and other premiums or discounts)

through the expected life of the financial asset, or, where appropriate, a shorter period.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. At each balance sheet date subsequent to initial recognition,

loans and receivables (including trade and receivables, amounts due from subsidiaries, associates

and related companies, and bank balances) are carried at amortised cost using the effective interest

method, less any identified impairment losses.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss represent investments held for trading.

At each balance sheet date subsequent to initial recognition, financial assets at fair value

through profit or loss are measured at fair value, with changes in fair value recognised directly in

profit or loss in the period in which they arise.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not

classified as loans and receivables, financial assets at fair value through profit or loss or held-to-

maturity investments. At each balance sheet date subsequent to initial recognition, available-for-sale

financial assets, which represent available-for-sale investments, are measured at fair value. Changes

in fair value are recognised in equity, until the financial asset is disposed of or is determined to be

impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from

equity and recognised in profit or loss.


– 164 –

For available-for-sale equity investments that do not have a quoted market price in an active

market and whose fair value cannot be reliably measured and derivatives that are linked to and must

be settled by delivery of such unquoted equity instruments, they are measured at cost less any

identified impairment losses at each balance sheet date subsequent to initial recognition.

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for

indicators of impairment at each balance sheet date. Financial assets are impaired where there is

objective evidence that, as a result of one or more events that occurred after the initial recognition of

the financial asset, the estimated future cash flows of the financial asset have been impacted.

For an available-for-sale equity investment, a significant or prolonged decline in the fair value

of that investment below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty;

. default or delinquency in interest or principal payments; or

. it becoming probable that the borrower will enter bankruptcy or financial re-

organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not

to be impaired individually are subsequently assessed for impairment on a collective basis. Objective

evidence of impairment for a portfolio of receivables could include the Group’s past experience of

collecting payments, an increase in the number of delayed payments in the portfolio, as well as

observable changes in national or local economic conditions that correlate with default on

receivables and deteriorated value in collateral assets.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss

when there is objective evidence that the asset is impaired and is measured as the difference between

the asset’s carrying amount and the present value of estimated future cash flows discounted at the

original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the

difference between the asset’s carrying amount and the present value of the estimated future cash

flows discounted at the current market rate of return for a similar financial asset. Such impairment

loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all

financial assets with the exception of trade receivables, where the carrying amount is reduced

through the use of an allowance account. When a trade receivable is considered uncollectible, it is

written off against the allowance account. Subsequent recoveries of amounts previously written off

are credited against the allowance account. Changes in the carrying amount of the allowance

account are recognised in profit or loss.

For financial assets measured at amortised cost, 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 through profit or

loss to the extent that the carrying amount of the asset at the date the impairment is reversed does

not exceed what the amortised cost would have been had the impairment not been recognised.


– 165 –

In respect of available-for-sale equity investments carried at fair value, impairment losses

previously recognised through profit or loss are not reversed through profit or loss. Any increase in

fair value subsequent to an impairment loss is recognised directly in equity.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the group entity are classified according

to the substance of the contractual arrangements entered into and the definitions of a financial

liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the

Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded

at the proceeds received, net of direct issue costs.

Financial liabilities (including trade and other payables, amounts due to subsidiaries, an

associate and related companies, and bank and other loans) are subsequently measured at amortised

cost, using the effective interest method.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial

liability and of allocating interest expense over the relevant period. The effective interest rate is the

rate that exactly discounts estimated future cash payments through the expected life of the financial

liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire

or, the financial assets are transferred and the Group has transferred substantially all the risks and

rewards of ownership of the financial assets. On derecognition of a financial asset, the difference

between the asset’s carrying amount and the sum of the consideration received and receivable and

cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is

discharged, cancelled or expired. The difference between the carrying amount of the financial

liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment on assets

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine

whether there is any indication that those assets have suffered an impairment loss. If the recoverable

amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset

is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased

to the revised estimate of its recoverable amount, but so that the increased carrying amount does not

exceed the carrying amount that would have been determined had no impairment loss been

recognised for the asset in prior years. A reversal of an impairment loss is recognised as income

immediately.


– 166 –

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.

Dividend income

Dividend from investments is recognised when the Group’s right to receive payment has been

established.

Consultancy fee income

Consultancy fee income is recognised when the relevant services are rendered.

Interest income

Interest income is recognised on a time proportion basis, taking into account the principal

outstanding and the effective interest rate applicable.

Rental income

Rental income is recognised on a straight line basis over the terms of the lease.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the

lessor are accounted for as operating leases.

Rentals payable under the operating leases are charged to the consolidated income statement

on the straight-line basis over the lease term.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of

qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing

costs ceases when the assets are substantially ready for their intended use or sale. Investment income

earned on the temporary investment of specific borrowing pending their expenditure on qualifying

assets is deducted from the borrowing cost eligible for capitalisation.

All other borrowing costs are recognised as an expense in the period in which they are

incurred.

Retirement benefits schemes

Payments to the Mandatory Provident Fund Scheme and other state-managed retirement

benefits schemes are charged as an expense when employees have rendered service entitling them to

the contributions.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in

currencies other than the functional currency of that entity (foreign currencies) are recorded in its

functional currency (i.e. the currency of the primary economic environment in which the entity

operates) at the rates of exchange prevailing on the dates of the transactions. At each balance sheet

date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the


– 167 –

balance sheet date. Non-monetary items carried at fair value that are denominated in foreign

currencies are retranslated at the rates prevailing on the date when the fair value was determined.

Non-monetary items that are measured in terms of historical cost in a foreign currency are not

retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of

monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the Financial Information, the assets and liabilities of the

Group’s foreign operations are translated into the presentation currency of the Company (i.e. Hong

Kong dollar) at the rates of exchange prevailing at the balance sheet date, and their income and

expenses are translated at the average exchange rates for the period, unless exchange rates fluctuate

significantly during the period, in which case, the exchange rates prevailing at the dates of

transactions are used. Exchange differences arising, if any, are recognised as a separate component

of equity (the exchange reserve). Such exchange differences are recognised in profit or loss in the

period in which the foreign operation is disposed of.

Taxation

Taxation represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from

profit as reported in the consolidated income statement because it excludes items of income and

expense that are taxable or deductible in other years and it further excludes items that are never

taxable or deductible. The Group’s liability for current tax is calculated using the tax rates that have

been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the

carrying amounts of assets and liabilities in the consolidated balance sheet and the corresponding

tax bases used in the computation of taxable profit, and is accounted for using the balance sheet

liability method. Deferred tax liabilities are generally recognised for all taxable temporary

differences, and deferred tax assets are recognised to the extent that it is probable that taxable

profits will be available against which deductible temporary differences can be utilised. Such assets

and liabilities are not recognised if the temporary difference arises from goodwill or from the initial

recognition (other than in a business combination) of other assets and liabilities in a transaction that

affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments

in subsidiaries and associates, except where the Group is able to control the reversal of the

temporary difference and it is probable that the temporary difference will not reverse in the

foreseeable future.

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 asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the

liability is settled or the asset is realised. Deferred tax is charged or credited in the consolidated

income statement, except when it relates to items charged or credited directly to equity, in which

case the deferred tax is also dealt with in equity.


– 168 –

4. KEY SOURCES OF 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 giving rise to a material adjustment to the carrying

amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of assets

In determining whether an asset is impaired or whether the event previously causing the

impairment no longer exists, the Group has to exercise judgement in the area of asset impairment,

particularly in assessing: (1) whether an event has occurred that may affect the asset value, or such

event affecting the asset value has not been in existence; (2) whether the carrying value of an asset

can be supported by the net present value of future cash flows, which are estimated based upon the

continued use of the asset or derecognition; and (3) the appropriate key assumptions to be applied in

preparing cash flow projections including whether these cash flow projections are discounted using

an appropriate rate. Changing the assumptions selected by management to determine the level of

impairment, including the discount rates or the growth rate assumptions in the cash flow

projections, could have a material effect on the net present value used in the impairment test.

Deferred tax assets

Deferred tax assets are recognised for unused tax losses carried forward to the extent it is

probable (i.e. more likely than not) that future taxable profits will be available against which the

unused tax losses can be utilised, based on all available evidence. Recognition primarily involves

judgement regarding the future performance of the particular legal entity or tax group in which the

deferred tax asset has been recognised. A variety of other factors are also evaluated in considering

whether there is convincing evidence that is probable that some portion or all of the deferred tax

assets will ultimately be realised, such as the existence of taxable temporary differences, group relief,

tax planning strategies and the periods in which estimated tax losses can be utilised. No deferred tax

assets have been recognised at each of the balance sheet dates.

5. CAPITAL RISK MANAGEMENT

The objectives of the Group when managing capital are to safeguard the Group’s ability to continue

as a going concern, so that it can continue to maximise its return to shareholders. The Group’s overall

strategy remains unchanged from that of prior years.

The capital structure of the Company consists of equity attributable to equity holders of the

Company, comprising issued share capital and reserves.

The Group manages the capital structure and makes adjustments to it in the light of changes in

economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust

the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new

shares and debt, and repay its existing debt.


– 169 –

6. FINANCIAL INSTRUMENTS

Categories of financial instruments

The Group


2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Financial assets

Available-for-sale investments 164,387 437,144 250,972 295,642

Investments held for trading — — — 7,797

Loans and receivables (including cash

and cash equivalents) 38,230 154,048 160,586 227,700

Financial liabilities

Financial liabilities at amortised cost 136,692 151,128 573,843 305,624

The Company


2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Financial assets

Available-for-sale investments 116,046 — — —

Investments held for trading — — — 7,797

Loans and receivables (including cash

and cash equivalents) 32,441 140,901 106,977 190,485

Financial liabilities

Financial liabilities at amortised cost 86,867 64,424 397,406 64,546

Financial risk management objectives and policies

The Group’s major financial instruments include available-for-sale investments, investments

held for trading, trade and other receivables, amounts due from related companies and associates,

deposits with banks, trade and other payables, amounts due to related companies and an associate,

and bank and other loans. Details of these financial instruments are disclosed in the respective

notes. The risks associated with these financial instruments and the policies on how to mitigate these

risks are set out below. The management manages and monitors these exposures to ensure that

appropriate measures are implemented on a timely and effective manner.

(i) Market risk

Interest rate risk

The Group is exposed to cash flow interest rate risk primarily to the Group’s floating

rate borrowings. The Group does not have an interest rate hedging policy. However, the

management monitors the related cash flow interest rate risk exposure closely and will

consider hedging significant cash flow interest rate risk exposure should the need arise.


– 170 –

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest

rates for its variable-rate bank balances and bank and other loans at the balance sheet date.

For variable-rate borrowings, the analysis is prepared assuming the amount of liability

outstanding at the balance sheet date was outstanding for the whole period. A 100 basis point

increase or decrease is used when reporting interest rate risk internally to key management

personnel and represents management’s assessment of the reasonably possible change in

interest rates.

At the respective balance sheet dates, if interest rates had been increased/decreased by

100 basis points and all other variables were held constant, the Group’s loss for the year would

increase/decrease by HK$870,000 for the year ended 31 December 2006, and the Group’s

profit for the year/period would decrease/increase by approximately HK$680,000,

HK$699,000 and HK$475,000 for the years ended 31 December 2007 and 2008 and the six

months ended 30 June 2009 respectively.

Foreign currency risk

The Group is exposed to currency risk primarily through transactions that are

denominated in a currency other than the functional currency of the operations to which

they relate.

The Group’s exposure to currency risk arising from financial assets and financial

liabilities are insignificant as main transactions of the group entities are in their functional

currency either in Hong Kong dollar or Renminbi.

Other price risk

The Group is exposed to equity securities price risk because the Group’s listed available-

for-sale investments and investments held for trading are carried at fair value. Details of these

financial assets are set out in the respective notes.

The following tables show the sensitivity to equity price risk on the listed available-for-

sale investments and investments held for trading at each balance sheet date while all other

variables were held constant. 10% is the sensitivity rate used when reporting equity price risk

internally to key management personnel and represents management’s assessment of the

reasonably possible change in equity price. The sensitivity analyses below have been

determined based on the exposure to equity price risks at the reporting date. If the equity

prices of the respective listed securities had been 10% higher, the results of the Group for the

Relevant Periods and the Group’s other reserves at the respective balance sheet dates would

have been affected as follows:

For the year ended

31 December

Six months

ended

30 June

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Increase in profit for the

year/period — — — 780


– 171 –


2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Increase in investment

revaluation reserve 11,605 36,242 9,216 12,765

There would be an equal and opposite impact on the results and the investment

revaluation reserve of the Group if the equity prices of the listed securities had been 10%

lower.

(ii) Credit risk

At each balance sheet date, the Group’s and the Company’s maximum exposure to credit risk

which will cause a financial loss to the Group and the Company due to failure to discharge an

obligation by the counterparties are arising from the respective recognised financial assets as stated

in the consolidated balance sheet and the Company’s balance sheet. In order to minimise the credit

risk, management of the Group has delegated a team responsible for determination of credit limits,

credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover

overdue debts. In addition, the Group reviews the recoverable amount of each individual debt at

each balance sheet date to ensure that adequate impairment losses are made for irrecoverable

amounts. In this regard, the directors of the Company consider that the Group’s credit risk is

significantly reduced.

Other than the amounts due from related companies, the Group has no significant

concentration of credit risk. The Group closely reviews the financial position of these related

companies to ensure that adequate impairment losses are made for any irrecoverable amounts.

The credit risk for bank balances is limited because the counterparties are banks or financial

institutions with high credit ratings.

(iii) Liquidity risk

The companies in the Group are responsible for their own cash management, including the

short term investment of cash surpluses and the raising of loans to cover expected cash demands,

subject to approval by the directors of the relevant entities. The Group’s policy is to regularly

monitor its liquidity requirements and its compliance with lending covenants, to ensure that it

maintains sufficient reserves of cash and readily realisable marketable securities and adequate

committed lines of funding from authorised financial institutions to meet its liquidity requirements

in the short and longer term.


– 172 –

The following table details the Group’s contractual maturity for its non-derivative financial

liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities

based on the earliest date on which the Group can be required to pay. The table includes both

interest and principal cash flows.

The Group

Within

one year

One to

three

years

Over

three

years Total

Carrying

amount

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2006

Trade and other payables 12,074 — — 12,074 12,074

Amount due to an associate — — — — —

Amounts due to related companies 2,540 — — 2,540 2,540

Bank and other loans 80,271 9,298 52,130 141,699 122,078

94,885 9,298 52,130 156,313 136,692

At 31 December 2007



Amounts due to related companies — — — — —

Bank and other loans 89,029 61,720 — 150,749 134,669

105,488 61,720 — 167,208 151,128

At 31 December 2008


Amount due to an associate 257,390 — — 257,390 257,390



496,347 96,447 — 592,794 573,843

At 30 June 2009





226,622 90,912 — 317,534 305,624


– 173 –

The Company

Within

one year

One to

three

years

Over

three

years Total

Carrying

amount

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2006


Amounts due to subsidiaries 60 — — 60 60



Other loans 76,458 — — 76,458 73,737

89,588 — — 89,588 86,867

At 31 December 2007


Amounts due to subsidiaries 1,507 — — 1,507 1,507



Other loans 49,928 — — 49,928 48,000

66,352 — — 66,352 64,424

At 31 December 2008



Amount due to an associate 257,390 — — 257,390 257,390


Other loans 72,618 — — 72,618 70,500

399,524 — — 399,524 397,406

At 30 June 2009





Other loans 61,127 — — 61,127 60,500

65,173 — — 65,173 64,546

Fair value of financial instruments

The fair values of financial assets and financial liabilities are determined as follows:

— the fair value of listed available-for-sale investments and investments held for trading

with standard terms and conditions and traded on active liquid markets are determined

with reference to quoted market bid prices.

— the fair value of other financial assets and financial liabilities are determined (i) in

accordance with generally accepted pricing models based on discounted cash flow

analysis using prices from observable current market transactions or (ii) with reference

to quoted market bid prices of comparable financial assets.

The directors consider that the carrying amounts of financial assets and financial liabilities

recorded at amortised cost in the Financial Information approximate their fair values.


– 174 –

7. TURNOVER

Turnover of the Group is analysed as follows:

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Dividend from listed investments — 390 782 — 1,013

Consultancy fee income 3,947 — 14,314 13,496 —

Rental income 29 — — — —

3,976 390 15,096 13,496 1,013

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

No business segment information is presented as the directors consider that the Group has one

business segment during the Relevant Periods.

Geographical segments

A geographical analysis of the Group’s turnover by location of the customers and listing of

investments is as follows:

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Hong Kong 29 390 1,036 880 —

Other regions in the

People’s Republic of

China (‘‘PRC’’) 3,947 — 14,060 12,616 1,013

3,976 390 15,096 13,496 1,013


– 175 –

The following is an analysis of the carrying amount of the Group’s total assets by geographicalarea in which the assets are located:


2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Non-current assets (excluding

financial instruments)Hong Kong 2,331 1,684 1,125 908Other regions in the PRC 1,459 1,773 334,711 23,085

3,790 3,457 335,836 23,993

Other assetsHong Kong 148,164 361,671 163,347 193,455Other regions in the PRC 57,446 230,449 249,395 338,813

205,610 592,120 412,742 532,268

209,400 595,577 748,578 556,261

9. FINANCE COSTS

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Interests on loans wholly

repayable within five years:

Bank loans and overdrafts — 107 1,824 941 1,265

Loans from related companies

(Note 32) 1,954 7,605 7,402 3,589 3,222

Other short-term loan

(Note 32) — — — — 684

1,954 7,712 9,226 4,530 5,171

10. TAXATION

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

The taxation charge comprises:

Current year

Hong Kong Profits Tax — 16,283 — — —

PRC income tax — — — 1,394 717

— 16,283 — 1,394 717


– 176 –

Hong Kong Profits Tax for the year ended 31 December 2007 is calculated at 17.5% on the

estimated assessable profit for that year. PRC income tax for the six months ended 30 June 2008 and 30

June 2009 is calculated at 25% on the estimated assessable profits for those periods. No provision for

Hong Kong Profits Tax has been made for the other periods in the Relevant Periods as the Group has no

assessable profits for these periods.

Details of the deferred taxation are set out in note 35.

The taxation charge for the Relevant Periods can be reconciled to (loss) profit before taxation per

the consolidated income statements as follows:

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)


Tax at the applicable tax rates (3,116) 25,377 1,029 4,274 596


deductible for tax purpose 418 1,402 1,636 1,321 1,941

Tax effect of income not taxable

for tax purpose (161) (15,562) (5,500) (5,468) (3,070)


recognised 2,896 4,970 3,817 1,484 452

Utilisation of tax losses

previously not recognised — — (888) (877) —

Effect of different tax rates

applicable to subsidiaries

operating in the PRC — — — 283 —

Tax effect of share of results of

associates — — — — 54

Others (37) 96 (94) 377 744

— 16,283 — 1,394 717


– 177 –

11. (LOSS) PROFIT FOR THE YEAR/PERIOD

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

(Loss) profit for the year/period

has been arrived at after

charging:

Amortisation of intangible assets 33 80 46 40 —

Depreciation of property, plant

and equipment 343 895 801 462 313

Auditors’ remuneration 67 100 154 65 71

Directors’ remuneration and

other staff costs 13,239 23,407 19,042 9,537 4,323

Loss on disposal of property,

plant and equipment — — 203 51 —

Rentals in respect of properties

under operating leases 1,271 2,009 2,551 1,146 1,327

and after crediting:

Bank interest income 965 1,325 1,201 787 34

12. DIRECTORS’ AND FIVE HIGHEST PAID EMPLOYEES’ REMUNERATION

Directors’ remuneration

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Directors’ fees — — — — —

Salaries and other benefits 3,286 5,935 9,144 2,674 1,111

Contribution to retirement

benefits scheme 18 19 28 6 18

3,304 5,954 9,172 2,680 1,129


– 178 –

Five highest paid employees’ remuneration

Of the five individuals with the highest emoluments in the Group, one, one, two, one and two

were directors in respect of each of the years ended 31 December 2006, 2007 and 2008 and each of

the six months ended 30 June 2008 and 2009 respectively whose emoluments for the Relevant

Periods are disclosed above. The emoluments of the remaining individuals were as follows:

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Salaries and other benefits 7,170 12,654 6,435 5,349 1,823

Contributions to retirement

benefits scheme 110 133 89 49 26

7,280 12,787 6,524 5,398 1,849

Their emoluments were within the following bands:

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

Number of

employees

Number of

employees

Number of

employees

Number of

employees

Number of

employees

(unaudited)

HK$Nil to HK$1,000,000 — — — 1 3

HK$1,000,001 to

HK$1,500,000 1 — — 2 —

HK$1,500,001 to

HK$2,000,000 2 1 1 1 —

HK$2,000,001 to

HK$2,500,000 — — 1 — —

HK$2,500,001 to

HK$3,000,000 1 — 1 — —

HK$3,000,001 to

HK$3,500,000 — 2 — — —

HK$4,500,001 to

HK$5,000,000 — 1 — — —

4 4 3 4 3

No emolument was paid to the directors and the above highest paid individuals as an

inducement to join or upon joining the Group or as compensation for loss of office for the Relevant

Periods.


– 179 –

13. DIVIDEND PAID

Year ended

31 December

Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Final dividend for the year ended

31 December 2007 of HK$0.67

per share paid — — 30,000 — —

14. INVESTMENT PROPERTIES

The Group and the Company


2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

FAIR VALUE

At beginning of the year/period 18,000 — — —

Disposals (18,000) — — —

At end of the year/period — — — —


– 180 –

15. PROPERTY, PLANT AND EQUIPMENT

The Group

Leasehold

improvement

Furniture

and

fixtures

Office

equipment

Computer

equipment

Motor

vehicles Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

COST

At 1 January 2006 91 — — — — 91

Additions 1,812 395 482 302 1,016 4,007

Disposals (91) — — — — (91)

At 31 December 2006 1,812 395 482 302 1,016 4,007

Exchange adjustments 26 13 1 1 77 118

Reclassification 29 — — (29) — —

At 31 December 2007 1,867 408 483 274 1,093 4,125

Exchange adjustments 23 11 1 1 57 93

Additions — — 2 24 — 26

Disposals — — — — (872) (872)

At 31 December 2008 and at

30 June 2009 1,890 419 486 299 278 3,372

DEPRECIATION

At 1 January 2006 91 — — — — 91

Provided for the year 159 36 40 56 52 343

Eliminated on disposals (91) — — — — (91)

At 31 December 2006 159 36 40 56 52 343

Exchange adjustments 5 3 — — 12 20


At 31 December 2007 536 119 136 193 274 1,258

Exchange adjustments 8 4 — — 15 27


Eliminated on disposals — — — — (314) (314)

At 31 December 2008 921 207 233 282 129 1,772

Provided for the period 189 42 48 6 28 313

At 30 June 2009 1,110 249 281 288 157 2,085

CARRYING VALUES

At 31 December 2006 1,653 359 442 246 964 3,664

At 31 December 2007 1,331 289 347 81 819 2,867

At 31 December 2008 969 212 253 17 149 1,600

At 30 June 2009 780 170 205 11 121 1,287


– 181 –

The Company

Leasehold

improvement

Furniture

and fixtures

Office

equipment

Computer

equipment Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

COST

At 1 January 2006 91 — — — 91

Additions 1,485 223 471 264 2,443

Disposals (91) — — — (91)

At 31 December 2006, 31 December

2007, 31 December 2008 and

30 June 2009 1,485 223 471 264 2,443

DEPRECIATION

At 1 January 2006 91 — — — 91

Provided for the year 124 19 39 55 237

Eliminated on disposals (91) — — — (91)

At 31 December 2006 124 19 39 55 237


At 31 December 2007 421 64 133 187 805


At 31 December 2008 718 109 227 264 1,318

Provided for the period 148 22 47 — 217

At 30 June 2009 866 131 274 264 1,535

CARRYING VALUES

At 31 December 2006 1,361 204 432 209 2,206

At 31 December 2007 1,064 159 338 77 1,638

At 31 December 2008 767 114 244 — 1,125

At 30 June 2009 619 92 197 — 908

16. INVESTMENTS IN SUBSIDIARIES

The Company


2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Unlisted investments, at cost 10,000 10,039 10,039 10,000


– 182 –

17. INTERESTS IN ASSOCIATES

The Group


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Unlisted investments, at cost — — 333,692 22,492

Share of post-acquisition reserves — — — (330)

— — 333,692 22,162

Particulars regarding the associates are as follows:

Name of associates

Country of

establishment/

incorporation

and

operations

Registered/issued

share capital

Attributable equity

interest held the Group as at

Principal activities

31 December 30 June

2006 2007 2008 2009

Sino-Rock Strategic

Investments Limited

(‘‘Sino-Rock

Strategic’’)

BVI US$100,000,000 — — 40% — Investment holding

Sino-Rock Strategic

Investment (Hong

Kong) Limited

(‘‘Sino-Rock Hong

Kong’’)

Hong Kong HK$50,000,000 — — 40% — Investment holding

信達資本管理

有限公司

PRC RMB

100,000,000

— — 40% 40% Investment holding

and provision of

capital and fund

management

and consultancy

services

The sole asset of Sino-Rock Strategic, through its subsidiary, Sino-Rock Hong Kong, is

investment in a jointly controlled entity namely 連雲港鑫聯散貨碼頭有限公司 which was established

in the PRC on 24 November 2005. The operating period of the jointly controlled entity is 50 years

which can be extended subject to the approval by the relevant authorities. The principal activities of

the jointly controlled entity are the development and operation of a port and the related facilities in

Lianyungang, the PRC.

During the six months ended 30 June 2009, the Group disposed of its interest in Sino-Rock

Strategic to a related company, which is the other shareholder of Sino-Rock Strategic, for an

aggregate consideration of HK$313,523,000, which gave rise to a gain on disposal of HK$2,323,000

recognised in the consolidated income statement for that period. The consideration receivable, after

deducting the amount due by the Group to such associate of approximately HK$257,390,000, has

been included in amounts due from related companies in the consolidated balance sheet as at 30

June 2009.


– 183 –

The summarised financial information in respect of the associates is set out below:


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Total assets — — 834,351 55,481

Total liabilities — — (121) (76)

Net assets — — 834,230 55,405

Group’s share of net assets — — 333,692 22,162

Year ended 31 December At 30 June

20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Revenue — — — 110

Loss for the year/period — — — (818)

Group’s share of losses of

associates for the year/period — — — (327)

The Company


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Unlisted investments, at cost — — 311,200 —

18. AVAILABLE-FOR-SALE INVESTMENTS

The Group


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Equity securities listed:

In Hong Kong 116,046 210,710 25,862 —

The PRC — 226,434 88,403 170,198

116,046 437,144 114,265 170,198

Unlisted equity investments 48,341 — 114,215 102,955

Other unlisted investment — — 22,492 22,489

164,387 437,144 250,972 295,642


– 184 –

The Company


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Equity securities listed in Hong Kong 116,046 — — —

Note:

The available-for-sale investments are stated at fair value, except for the unlisted equity

investments and other unlisted investment where their fair values cannot be measured reliably are

stated at cost less impairment loss.

The fair values of equity securities listed in Hong Kong are determined by reference to bid

prices quoted on The Stock Exchange of Hong Kong Limited.

The equity securities listed in the PRC represent the Group’s 4.19% interest in the issued

capital of 江蘇連雲港港口股份有限公司 (‘‘江蘇連雲港’’) at 31 December 2007, 31 December 2008

and 30 June 2009. 江蘇連雲港 is a company established in the PRC with its shares listed on the

Shanghai Stock Exchange. The sale of these equity securities is subject to restriction for a period of

three years up to 25 September 2009. The Group’s investment in the equity securities is carried at

their fair value by reference to the valuations using the discounted market price approach. The

valuations are arrived at based on the market price of the freely tradable shares of 江蘇連雲港 as at

31 December 2007, 31 December 2008 and 30 June 2009 discounted by 18.08%, 15.50% and 7.82%

respectively to take account of the effect of the restriction on sale at those dates.

Other than the Group’s investment in 江蘇連雲港 as detailed above, set out below are the

Group’s investments in equity securities with an individual carrying amount exceeding 10% of that

of the Group’s total assets at the respective reporting dates:

Name of investee

Attributable

equity interest held

by the Group

Country of

establishment


江蘇連雲港 6.30% the PRC

China BlueChemical Ltd. 0.799% the PRC


China Railway Group Limited 0.35% the PRC

China National Materials Company Limited 0.033% the PRC


中國西電電氣股份有限公司 0.765% the PRC

As at 30 June 2009

中國西電電氣股份有限公司 0.765% the PRC


– 185 –

19. CLUB MEMBERSHIP



20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Club membership, at cost — 544 544 544

20. INTANGIBLE ASSETS


Acquired

computer

software

HK$’000

COST

At 1 January 2006 —

Additions 159

At 31 December 2006, 31 December 2007

31 December 2008 and 30 June 2009 159

AMORTISATION

At 1 January 2006 —

Provided for the year 33





At 31 December 2008

and at 30 June 2009 159

CARRYING AMOUNT



At 31 December 2008 —

At 30 June 2009 —


– 186 –

21. INVESTMENTS HELD FOR TRADING



20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Equity securities listed in Hong Kong,

at market value — — — 7,797

22. TRADE AND OTHER RECEIVABLES

The following is analysis of trade and other receivables at the balance sheet dates:

The Group


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Trade receivables, aged

0–60 days — 120,409 10,015 —

Other receivables 2,626 889 2,563 1,451

2,626 121,298 12,578 1,451

The Group has insignificant trade receivable balances which are past due at each reporting date.

23. AMOUNTS DUE FROM SUBSIDIARIES

The Company

The amounts due from subsidiaries are unsecured, interest free and repayable on demand.

24. AMOUNTS DUE FROM ASSOCIATES


The amounts due from associates are unsecured, interest free and repayable on demand.

25. AMOUNTS DUE FROM RELATED COMPANIES


The amounts due from related companies, which are companies affiliated with the

shareholders of the Company, are unsecured, interest free and repayable on demand.


– 187 –

26. BANK BALANCES AND CASH


Bank balances and cash of the companies in the Group mainly represent deposits with banks

denominated in the functional currencies of the respective group companies other than a bank

deposit of US$3,353,000 made by the Company as at 31 December 2006.

27. TRADE AND OTHER PAYABLES

The following is an analysis of trade and other payables at the balance sheet dates:

The Group


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Trade payables, aged

0–60 days 2,066 1,604 641 13,224

61–90 days 87 34 1,899 74

Over 90 days 9,701 14,703 12,279 832

11,854 16,341 14,819 14,130

Other payables 220 118 634 661

12,074 16,459 15,453 14,791

28. AMOUNTS DUE TO SUBSIDIARIES

The Company

The amounts due to subsidiaries are unsecured, interest free and repayable on demand.

29. AMOUNT DUE TO AN ASSOCIATE


The amount due to an associate represents capital contribution payable to the associate. Such

amount was unsecured, interest free and repayable on demand.

30. AMOUNTS DUE TO RELATED COMPANIES


The amounts due to related companies, which are companies affiliated with the shareholders

of the Company, are unsecured, interest free and repayable on demand.


– 188 –

31. BANK LOANS

The Group


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Bank loans

Unsecured — — 33,738 33,734

Secured — 34,680 — —

— 34,680 33,738 33,734

The bank loans are repayable as

follows:

Within one year — 34,680 — —

More than one year but not

exceeding two years — — — 33,734

More than two years but not

exceeding three years — — 33,738 —

— 34,680 33,738 33,734

Less: Amount due within one

year included in current

liabilities — (34,680) — —

Amount due after one year — — 33,738 33,734

The Group’s bank loans carried interests at fixed rates. The effective interest rates on the

Group’s bank borrowings are 5.21%, 7.56% and 7.56% for the year ended 31 December 2007, 2008

and the six months ended 30 June 2009 respectively.


– 189 –

32. OTHER LOANS

The Group


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Loans from related companiesUnsecured 25,737 48,000 70,500 60,500Secured 96,341 51,989 55,105 55,098

122,078 99,989 125,605 115,598Other short-term loan — — 22,492 22,489

122,078 99,989 148,097 138,087

Analysed as:

Loans from related companies

Interest free 25,737 — 22,500 22,500Interest bearing at:

Hong Kong Prime Rate 48,000 48,000 — —Interest rate which is the same as

that for bank loans with similarterms as quoted by the People’sBank of China, plus a margin of

10% per annum 48,341 51,989 55,105 55,098Fixed rate of 7% per annum — — 48,000 38,000

122,078 99,989 125,605 115,598Other short-term loan

Interest bearing at the interest ratewhich is the same as that for bank

loans with similar terms as quotedby the People’s Bank of China — — 22,492 22,489

122,078 99,989 148,097 138,087

The other loans are repayable as follows:

Loans from related companiesWithin one year 73,737 48,000 70,500 60,500More than one year but not

exceeding two years — — 55,105 55,098More than two years but not

exceeding three years — 51,989 — —More than three years but not

exceeding four years 48,341 — — —

122,078 99,989 125,605 115,598

Other short term loan repayablewithin one year — — 22,492 22,489

122,078 99,989 148,097 138,087Less: Amount due within one year

included in current liabilities (73,737) (48,000) (92,992) (82,989)

Amount due after one year 48,341 51,989 55,105 55,098


– 190 –

The Company


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Loans from related companies,

repayable within one year:

Secured and interest bearing at Hong

Kong Prime Rate 48,000 — — —

Unsecured and interest free 25,737 — 22,500 22,500

Unsecured and interest bearing at:

— Hong Kong Prime Rate — 48,000 — —

— fixed rate of 7% per annum — — 48,000 38,000

73,737 48,000 70,500 60,500

The related companies represent companies affiliated with the shareholders of the Company.

33. SHARE CAPITAL


Number

of shares

Nominal

amount

’000 HK$’000

Ordinary shares of HK$1 each:

Authorised:

At 31 December 2006, 31 December 2007,

31 December 2008 and 30 June 2009 200,000 200,000

Issued and fully paid:

At 1 January 2006 1 1

Issue of new shares 44,999 44,999

At 31 December 2006, 31 December 2007,

31 December 2008 and 30 June 2009 45,000 45,000

Changes in the issued share capital of the Company during the Relevant Periods are as

follows:

(a) On 18 January 2006, the Company issued 17,999,000 ordinary shares of HK$1 each for a

cash consideration of HK$27,304,000.

(b) On 17 February 2006, the Company issued 27,000,000 ordinary shares of HK$1 each for

a cash consideration of HK$27,000,000.

All the shares issued rank pari passu in all respects with the existing shares.


– 191 –

34. RESERVES OF THE COMPANY

Share

premium

Investment

revaluation

reserve

(Accumulated

losses)

retained

profits Total

HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2006 — — (9,313) (9,313)

Issue of shares at premium 9,305 — — 9,305

Gain on change in fair value of

available-for-sale investments — 45,343 — 45,343

Loss for the year — — (15,650) (15,650)

At 31 December 2006 9,305 45,343 (24,963) 29,685

At 1 January 2007 9,305 45,343 (24,963) 29,685

Transferred to income statement

on disposal of available-for-sale

investment — (45,343) — (45,343)

Profit for the year — — 60,226 60,226

At 31 December 2007 9,305 — 35,263 44,568

At 1 January 2008 9,305 — 35,263 44,568

Loss for the year — — (26,042) (26,042)

Dividend paid — — (30,000) (30,000)

At 31 December 2008 9,305 — (20,779) (11,474)

At 1 January 2009 9,305 — (20,779) (11,474)

Profit for the period — — 112,733 112,733

At 30 June 2009 9,305 — 91,954 101,259


– 192 –

35. DEFERRED TAX LIABILITIES

The deferred tax liabilities recognised by the Group are attributable to the gain on change in fair

value of available-for-sale investments. Movements of the deferred tax liabilities during the Relevant

Periods are as follows:

HK$’000

At 1 January 2006 and 31 December 2006 —

Charged to equity

Arising on gain on changes in fair value of available-for-sale investments 57,567

At 31 December 2007 57,567

Exchange adjustments 2,677

Reversed during the year

Effect of a change in tax rate (13,956)

Arising on loss on changes in fair value of available-for-sale investments (37,963)

At 31 December 2008 8,325

Exchange adjustments (1)

Charged to equity

Arising on gain on changes in fair value of available-for-sale investments 20,451

At 30 June 2009 28,775

At 31 December 2006, 2007, 2008 and 30 June 2009, the Group has unused tax losses of

HK$26,457,000, HK$56,200,000, HK$71,113,000 and HK$73,850,000 available to offset against future

profits respectively and the Company has unused tax losses of HK$26,457,000, HK$50,819,000,

HK$71,113,000 and HK$71,196,000 available to offset against future profits respectively. No deferred

tax asset has been recognised in respect of the unused tax losses due to unpredictability of future profits

stream. Substantially all of the tax losses, which have not yet been agreed by the Inland Revenue

Department, may be carried forward indefinitely.


– 193 –

36. DISPOSAL OF A SUBSIDIARY

On 15 April 2009, the Company disposed of its entire interest in a subsidiary, Sino-Rock

International Limited (‘‘Sino-Rock International’’). The principal activity of Sino- Rock International was

investment holding. The net assets of the subsidiary disposed at the date of disposal are as follows:

HK$’000

Net assets disposed of:

Amount due from a related company 26,088

Amount due from the Company 86,111

Taxation payable (16,283)

95,916

Gain on disposal of a subsidiary 16,283

112,199

Satisfied by:

Sale consideration 112,199

Net cash inflow arising on disposal:

Sale consideration receivable 112,199

Less: Portion set off against the amount due by the Company to

Sino-Rock International (86,111)

Amount taken up by a related company (26,088)

Net cash inflow arising on disposal of the subsidiary —

37. ASSETS SECURED

The Group

Certain available-for-sale investments of the Group with an aggregate carrying amount of

approximately HK$48 million, HK$226 million, HK$88 million and HK$170 million at 31

December 2006, 31 December 2007, 31 December 2008 and 30 June 2009 respectively have been

applied as security for the guarantee given by the Group in respect of the repayment of a loan

granted by a related company (Note 32).

In addition, certain available-for-sale investments of the Group with carrying amounts of

approximately HK$116 million and HK$129 million at 31 December 2006 and 31 December 2007

respectively were pledged to secure bank and other loans granted to the Group. No such pledge of

investments were outstanding at 31 December 2008 and 30 June 2009.

The Company

Certain available-for-sale investments of the Company with an aggregate carrying amount of

approximately HK$116 million at 31 December 2006 were pledged to secure a loan granted by a

related company to the Company. No such pledge of investments were outstanding at 31 December

2007, 31 December 2008 and 30 June 2009.


– 194 –

38. CAPITAL COMMITMENTS

The Group


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Capital contribution contracted

but not provided for in the

Financial Information in respect

of investment in an associate — — 22,492 22,489

39. OPERATING LEASE ARRANGEMENTS

The Group as lessee:

The Group had commitments for minimum lease payments in respect of properties under non-

cancellable operating leases which fall due as follows:


20092006 2007 2008

HK$’000 HK$’000 HK$’000 HK$’000

Within one year 1,936 532 2,622 2,554

In the second to fifth years

inclusive 523 — 3,051 1,763

2,459 532 5,673 4,317

Leases are negotiated and rentals are fixed for terms of two to three years.

40. RELATED PARTY TRANSACTIONS

The Group’s available-for-sale investments are held under the names of companies affiliated with a

shareholder of the Company on behalf of the Group.

Apart from those disclosed above and other notes to this report, during the Relevant Periods, the

Group entered into the following transactions with related parties:

Related party

Nature of

transactions


Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

A company affiliated

with a shareholder

of the Company

Disposal of

investment

properties 18,000 — — — —

A company affiliated

with a shareholder

of the Company

Payment for

service fees — — 202 — 337


– 195 –

Compensation of key management personnel

The remuneration of directors and other members of key management during the Relevant

Periods was as follows:


Six months ended

30 June

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Short-term benefits 12,274 21,495 16,519 8,477 2,951

The remuneration of directors and key executives is determined having regard to the

performance of individuals and market trends.

41. RETIREMENT BENEFITS SCHEMES

The Group operates a Mandatory Provident Fund Scheme (‘‘the MPF Scheme’’) for all qualifying

employees in Hong Kong under the rules and regulations of the Mandatory Provident Fund Authority.

The assets of the MPF Scheme are held separately from those of the Group, in funds under the control of

trustees. Contributions are made based on a percentage of the participating employees’ relevant income

from the Group and are charged to the consolidated income statement as they become payable in

accordance with the rules of the MPF Scheme. When an employee leaves the MPF Scheme, the mandatory

contributions are fully vested with the employee. The retirement benefits scheme contributions charged to

consolidated income statement amounted to HK$125,000, HK$142,000, HK$91,000, HK$49,000 and

HK$42,000 for the year ended 31 December 2006, 2007, 2008 and the six months ended 30 June 2008 and

2009 respectively.

According to the relevant laws and regulations in the PRC, the PRC subsidiary is required to

contribute a certain percentage of the salaries of their employees to the state-managed retirement benefit

scheme. The only obligation of the Group with respect to the retirement benefit scheme is to make the

required contributions under the scheme. The retirement benefits scheme contributions charged to

consolidated income statement amounted to HK$43,000, HK$65,000, HK$78,000, HK$39,000 and

HK$20,000 for the year ended 31 December 2006, 2007, 2008 and the six months ended 30 June 2008 and

2009 respectively.


– 196 –

(II) SUBSEQUENT EVENT

No significant events took place subsequent to 30 June 2009.

(III) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company and its

subsidiaries in respect of any period subsequent to 30 June 2009.

Yours faithfully,

Chan & Wat

Certified Public Accountants

Hong Kong


– 197 –

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Sino-Rock is a company incorporated in Hong Kong with limited liability on 4 June

1992. The Target Group is currently principally engaged in pre-IPO investment and

investment in distressed assets. On top of making its own investment, the Target Group has

been pursuing private equity fund management business in the PRC.

Set out below is the management discussion and analysis of financial position of the

Target Group for the three years ended 31 December 2006, 2007 and 2008 and the six

months ended 30 June 2009.

Financial Performance

(i) For the year ended 31 December 2006

For the year ended 31 December 2006, the Target Group recorded a turnover of

approximately HK$4.0 million and a net loss of approximately HK$17.8 million.

(ii) For the year ended 31 December 2007


approximately HK$390,000, representing a decrease of approximately 90.2%

compared with the turnover recorded in the previous year. The decrease in turnover

was mainly due to nil consultancy fee income reported during the year 2007.

Nevertheless, the Target Group recorded a net profit of approximately HK$128.7

million mainly due to gain on disposal of available-for-sale investments of


(iii) For the year ended 31 December 2008


approximately HK$15.1 million, representing a substantial increase of approximately

37.7 times as compared with the turnover recorded in the previous year. The

substantial increase in turnover was mainly due to consultancy fee income of

approximately HK$14.3 million reported during the year 2008. Net profit decreased

by 95.2%, compared with net profit recorded in the previous year, to approximately

HK$6.2 million. The decrease in net profit was mainly due to decrease in gain on

disposal of available-for-sale investments to approximately HK$32.7 million.

(iv) For the six months ended 30 June 2009

For the six months ended 30 June 2009, the Target Group recorded a turnover of

approximately HK$1.0 million. The decrease in turnover as compared with the same

period of last year was mainly due to decrease in consultancy fee income to nil. Net

profit decreased by 88.2%, compared with net profit recorded during the same period

of the previous year, to approximately HK$2.9 million. The decrease in net profit was

mainly due to decrease in turnover of approximately HK$12.5 million and loss

reported on disposal of available-for-sale investments.


– 198 –

Liquidity, Financial Resources and Capital Structure

As at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009,

the net assets of the Target Group were approximately HK$72.7 million, HK$370.6

million, HK$150.1 million and HK$221.9 million, respectively.

The Target Group’s daily operations have been funded by cash generated from its

operations and bank and other borrowings. As at 31 December 2006, 31 December

2007, 31 December 2008 and 30 June 2009, the Target Group had bank balances and

cash of approximately HK$35.6 million, HK$32.0 million, HK$7.7 million and

HK$30.0 million, respectively, which are mainly denominated in Hong Kong dollar

and Renminbi except that the bank balances at 31 December 2006 include a bank

deposit of US$3,353,000. As at 31 December 2006, 31 December 2007, 31 December

2008 and 30 June 2009, the Target Group had bank loans of nil, approximately

HK$34.7 million, HK$33.7 million and HK$33.7 million, respectively and other loans

of approximately HK$122.1 million, HK$100.0 million, HK$148.1 million and

HK$138.1 million, respectively.

The currency and interest rate structure of the total borrowings of the Target

Group as at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June

2009 were as follows:


2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Bank loans

HKD loans at fixed rate of 5.207% per

annum — 34,680 — —

RMB loans at fixed rate of 7.56% per annum — — 33,738 33,734

— 34,680 33,738 33,734

Other loans

HKD loans at interest free 25,737 — 22,500 22,500

Interest bearing loans at:

HKD loans at Hong Kong Prime Rate 48,000 48,000 — —

RMB loans at the interest rate quoted by

the People’s Bank of China, plus

a margin of 10% per annum 48,341 51,989 55,105 55,098

HKD loans at fixed rate of 7% per annum — — 48,000 38,000

RMB loans at the interest rate quoted by

the People’s Bank of China — — 22,492 22,489

122,078 99,989 148,097 138,087

122,078 134,669 181,835 171,821


– 199 –

The maturity profile of the total borrowings of the Target Group as at each of the

dates indicated below was as follows:

At 31 December

At

30 June

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Bank loans

Within one year — 34,680 — —

More than one year but not

exceeding two years — — — 33,734

More than two years but not

exceeding three years — — 33,738 —

— 34,680 33,738 33,734

Other loans

Within one year 73,737 48,000 92,992 82,989

More than one year but

not exceeding two years — — 55,105 55,098

More than two years but

not exceeding three years — 51,989 — —

More than three years but

not exceeding four years 48,341 — — —

122,078 99,989 148,097 138,087

122,078 134,669 181,835 171,821


the Target Group’s current ratio (calculated by total current assets divided by total

current liabilities) was 46.7%, 134.3%, 32.3% and 109.1% respectively.


– 200 –

Significant Investment

Set out below are the Target Group’s available-for-sale investments in equity

securities with an individual carrying amount exceeding 10% of that of the Target

Group’s total assets at the respective reporting dates:

Name of investee

Attributable

equity interest

held by the

Target Group

Country of

establishment Industry


江蘇連雲港港口股份有限公司 6.30% the PRC Transportation

China BlueChemical Ltd. 0.799% the PRC Basic Materials



China Railway Group Limited 0.35% the PRC Construction

China National Materials

Company Limited

0.033% the PRC Industrial

Goods



中國西電電氣股份有限公司 0.765% the PRC Industrial

Goods

As at 30 June 2009


中國西電電氣股份有限公司 0.765% the PRC Industrial

Goods

Save as disclosed above, the Target Group did not have any significant investment

for the three years ended 31 December 2006, 2007 and 2008 and the six months ended

30 June 2009.

Material Acquisitions and Disposals

On 15 April 2009, Sino-Rock disposed of its entire interest in a subsidiary, Sino-

Rock International Limited (‘‘Sino-Rock International’’), for a consideration of



– 201 –

On 18 June 2009, Sino-Rock disposed of its entire interest in an associated

company, Sino-Rock Strategic Investments Limited (‘‘Sino-Rock Strategic’’), to

another shareholder of Sino-Rock Strategic for an aggregate consideration of

approximately HK$313.5 million. After deducting the amount due by Sino-Rock to

Sino-Rock Strategic of approximately HK$257.4 million, the consideration receivable

was approximately HK$56.1 million.

Save as disclosed above, the Target Group did not engage in material acquisitions

and disposals of subsidiaries and associated companies for the three years ended 31

December 2008 and the six months ended 30 June 2009.

Segmental Information

The Target Group has operated in the sole segment of pre-IPO investment,

investment in distressed assets and private equity fund management business in the

PRC. As equity investment is the principal business activity of the Target Group, the

Directors consider a segmental discussion of its business is not necessary.

Employees and Remuneration Policies

The total number of employees of the Target Group remained around 10 as at

each of 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009.

The directors’ remuneration and other staff costs of the Target Group was

approximately HK$13.2 million, HK$23.4 million, HK$19.0 million and HK$4.3

million, respectively, for each of the three years ended 31 December 2006, 2007 and

2008 and the six months ended 30 June 2009. Employees of the Target Group were

remunerated on the basis of the Target Group’s operating results and the performance

of the individual employees after taking into account the prevailing market levels.

Charges on Assets


certain available-for-sale investments with an aggregate carrying value of

approximately HK$48 million, HK$226 million, HK$88 million and HK$170 million

respectively have been applied as security for the guarantee given by the Target Group

in respect of the repayment of a loan granted by a related company of the Target

Group.

In addition, certain available-for-sale investments of the Target Group with

carrying amounts of approximately HK$116 million and HK$129 million at 31

December 2006 and 31 December 2007 respectively were pledged to secure bank and

other loans granted to the Target Group.

Future Plans for Material Investment

The Target Group has set up a joint venture in the PRC in 2008 to pursue private

equity fund management business in the PRC. Currently, the Target Group is

exploring business opportunity in such business.


– 202 –

Gearing Ratio


the gearing ratios (calculated by net borrowings divided by net assets) of Target Group

were approximately 118.9%, 27.7%, 116.0% and 63.9% respectively.

Foreign Exchange Exposure

For the three years ended 31 December 2006, 2007 and 2008 and the six months

ended 30 June 2009, the Target Group’s exposure to currency risk arising from

financial assets are insignificant as main transactions of the Target Group are in its

functional currency either in Hong Kong Dollars or Renminbi. Since the impact of

foreign exchange exposure is not material, no hedging against foreign currency

exposure has been carried out by the Target Group.

Capital Commitments

The Target Group had capital commitments of approximately HK$22.5 million

and HK$22.5 million for capital contribution contracted but not provided for in

respect of investment in an associate as at 31 December 2008 and 30 June 2009

respectively.

Contingent Liabilities

The Target Group did not have any material contingent liabilities as at 31

December 2006, 31 December 2007, 31 December 2008 and 30 June 2009 respectively.


– 203 –

1. INTRODUCTION TO THE UNAUDITED PRO FORMA NET ASSETS

STATEMENT OF THE ENLARGED GROUP

The following is the unaudited pro forma net assets statement of of the Enlarged

Group prepared in accordance with the Listing Rules for the purpose of illustrating the

effect of the Acquisition on the financial position of the Enlarged Group.

The unaudited pro forma net assets statement of the Enlarged Group is prepared based

on the unaudited consolidated statement of financial position of the Group as at 30 June

2009 extracted from the published interim financial report of the Group as set out in section

3 of Appendix I to this circular, after making pro forma adjustments that are (i) directly

attributable to the transactions; and (ii) factually supportable as if the Acquisition had been

completed on 30 June 2009.

The unaudited pro forma net assets statement of the Enlarged Group is prepared by

the Directors to provide information on the Enlarged Group as a result of the Acquisition.

As it is prepared for illustrative purpose only, and because of its nature, it does not purport

to give a true picture of the financial position of the Enlarged Group as at 30 June 2009 or

any other future date.

APPENDIX III PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

– 204 –

Unaudited Pro Forma Net Assets Statement of the Enlarged Group as at 30 June 2009

The Group

Pro forma

adjustments

Pro forma

Enlarged

Group

HK$’000 HK$’000 HK$’000

(Unaudited) (Unaudited) (Unaudited)

Non-current assets

Intangible assets 1,319 1,319

Fixed assets 6,123 6,123

Interests in associates — 110,300(Note) 110,300

Other assets 3,553 3,553

10,995 121,295

Current assets

Financial assets at fair value


Tax recoverable 224 224

Trade and other receivables 164,686 164,686

Bank balances and cash 102,336 (55,150)(Note) 47,186

269,170 214,020

Current liabilities

Trade and other payables 74,914 74,914


under finance lease 246 246

75,160 75,160



Net assets 205,005 260,155

Note: Being the adjustments for the acquisition of 40% equity interest in Sino-Rock for a consideration

of HK$110,300,000, which is to be satisfied by (i) payment of HK$55,150,000 in cash and (ii) issue

of 27,575,000 Consideration Shares at the Issue Price of HK$2 per Consideration Share.


– 205 –

2. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA NET ASSETS

STATEMENT OF THE ENLARGED GROUP

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA NET ASSETS

STATEMENT OF THE GROUP

TO THE DIRECTORS OF CINDA INTERNATIONAL HOLDINGS LIMITED

We report on the unaudited pro forma net assets statement of Cinda International

Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to

as the ‘‘Group’’), which has been prepared by the directors of the Company for illustrative

purposes only, to provide information about how the acquisition of 40% equity interest in

Sino-Rock Investment Management Company Limited (the ‘‘Acquisition’’) might have

affected the financial information presented, for inclusion in Appendix III of the circular

dated 26 November 2009 (the ‘‘Circular’’). The basis of preparation of the unaudited pro

forma net assets statement is set out on page 204 to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited

pro forma net assets statement in accordance with paragraph 29 of Chapter 4 of the Rules

Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the

‘‘Listing Rules’’) and with reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma

Financial Information for Inclusion in Investment Circulars’’ issued by the Hong Kong

Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4

of the Listing Rules, on the unaudited pro forma net assets statement and to report our

opinion to you. We do not accept any responsibility for any reports previously given by us

on any financial information used in the compilation of the unaudited pro forma net assets

statement beyond that owed to those to whom those reports were addressed by us at the

dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on

Investment Circular Reporting Engagements 300 ‘‘Accountants’ Reports on Pro Forma

Financial Information in Investment Circulars’’ issued by the Hong Kong Institute of

Certified Public Accountants. Our work consisted primarily of comparing the unadjusted


– 206 –

financial information with source documents, considering the evidence supporting the

adjustments and discussing the unaudited pro forma net assets statement with the directors

of the Company. This engagement did not involve independent examination of any of the

underlying financial information.

We planned and performed our work so as to obtain the information and explanations

we considered necessary in order to provide us with sufficient evidence to give reasonable

assurance that the unaudited pro forma net assets statement has been properly compiled by

the directors of the Company on the basis stated, that such basis is consistent with the

accounting policies of the Group and that the adjustments are appropriate for the purposes

of the unaudited pro forma net assets statement as disclosed pursuant to paragraph 29(1) of

Chapter 4 of the Listing Rules.

The unaudited pro forma net assets statement is for illustrative purposes only, based

on the judgments and assumptions of the directors of the Company, and, because of its

hypothetical nature, does not provide any assurance or indication that any event will take

place in the future and may not be indicative of the financial position of the Group as at 30

June 2009 or any future date.

Opinion

In our opinion:

(a) the unaudited pro forma net assets statement has been properly compiled by the

directors of the Company on the basis stated;

(b) such basis is consistent with the accounting policies of the Group so far as such

policies relate to the Acquisition; and

(c) the adjustments are appropriate for the purposes of the unaudited pro forma net

assets statement disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing

Rules.

Chan & Wat


Hong Kong

26 November 2009


– 207 –

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the

purpose of giving information with regard to the Group. The Directors collectively and

individually accept full responsibility for the accuracy of the information contained in this

circular and confirm, having made all reasonable enquiries, that to the best of their

knowledge and belief, there are no other facts the omission of which would make any

statement contained herein misleading.

2. SHARE CAPITAL

The authorised and issued capital of the Company as at the Latest Practicable Date

were as follows:

Authorised capital: HK$

1,000,000,000 ordinary shares of HK$0.10 each 100,000,000

Issued and fully paid or credited as fully paid:

As at the Latest Practicable Date:

506,763,000 ordinary shares of HK$0.10 each 50,676,300

All Shares (when issued) rank pari passu in respect of capital, dividends and voting.

3. DISCLOSURE OF INTERESTS

(a) Interests and short positions of the Directors and chief executive of the Company

As at the Latest Practicable Date, none of the Directors or chief executive of the

Company and/or any of their respective associates had or was deemed to have any

interests or short position in the Shares, underlying Shares or debentures of the

Company or any of its associated corporations (within the meaning of Part XV of the

SFO) (i) which were required to be notified to the Company and the Stock Exchange

pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short

positions which they were taken or deemed to have taken under such provisions of the

SFO); or (ii) which were required, pursuant to Section 352 of the SFO, to be entered in

the register referred to therein; or (iii) which were required to be notified to the

Company and the Stock Exchange pursuant to the Model Code for Securities

Transactions by Directors of Listed Companies contained in the Listing Rules.

APPENDIX IV GENERAL INFORMATION

– 208 –

(b) Interests and short positions of substantial shareholders under the SFO

As at the Latest Practicable Date, so far as was known to the Directors and the

chief executive of the Company, the following are details of the persons (other than

Directors or chief executive of the Company) who had, or were deemed to have,

directly or indirectly interests or short positions in the Shares or underlying Shares

which would fall to be disclosed to the Company and the Stock Exchange under the

provisions of Divisions 2 and 3 of Part XV of the SFO or were, directly or indirectly,

interested in 10% or more of the nominal value of any class of share capital carrying

rights to vote in all circumstances at general meetings of any member of the Group:

Name of substantial

Shareholder Capacity

Number of

Shares held

Approximate

percentage of

the Company’s

issued share

capital

Sinoday Limited

(‘‘Sinoday’’)

Beneficial owner 304,721,500 60.13%

Well Kent International

Investment Company

Limited (‘‘WKII’’)

Interest through

a controlled

corporation

304,721,500

(Note 1)

60.13%

China Cinda Asset

Management Corporation

(‘‘China Cinda’’)

Interest through

a controlled

corporation

332,296,500

(Note 1 & 5)

65.57%

Silver Grant International

Securities Investment

Limited (‘‘Silver Grant’’)


Silver Grant Securities

Investment (BVI) Limited

(‘‘Silver Grant BVI’’)

Interest through

a controlled

corporation

40,022,000

(Note 2)

7.9%

Silver Grant International

Industries Limited

(‘‘Silver Grant

International’’)

Interest through

a controlled

corporation

40,022,000

(Note 2)

7.9%

CCB International Asset

Management Limited

(‘‘CCBIAM’’)



– 209 –

Name of substantial

Shareholder Capacity

Number of

Shares held

Approximate

percentage of

the Company’s

issued share

capital

CCB International Assets

Management

(Cayman) Limited

Interest through

a controlled

corporation

50,676,000

(Note 3)

9.99%

CCB International

(Holdings) Limited

Interest through

a controlled

corporation

50,676,000

(Note 3)

9.99%

CCB Financial Holdings

Limited

Interest through

a controlled

corporation

50,676,000

(Note 3)

9.99%

CCB International Group

Holdings Limited

Interest through

a controlled

corporation

50,676,000

(Note 3)

9.99%

China Construction Bank

Corporation

Interest through

a controlled

corporation

50,676,000

(Note 3)

9.99%

Central Huijin Investment

Limited

Interest through

a controlled

corporation

50,676,000

(Note 3)

9.99%

Atlantis Investment

Management Limited


Well Kent International

Holdings Company

Limited (‘‘the Vendor’’)

Beneficial owner

(Note 4)

27,575,000 5.44%

Notes:

(1) These Shares were held by Sinoday. The issued share capital of Sinoday was wholly-owned by

WKII, a wholly-owned subsidiary of China Cinda. By virtue of the provisions of the SFO,

WKII and China Cinda were deemed to be interested in all the Shares in which Sinoday was

interested.

(2) These Shares were held by Silver Grant. The issued share capital of Silver Grant was wholly-

owned by Silver Grant BVI, a wholly-owned subsidiary of Silver Grant International. By

virtue of the provisions of the SFO, Silver Grant BVI and Silver Grant International were

deemed to be interested in all the Shares in which Silver Grant was interested.


– 210 –

(3) These Shares were held by CCBIAM. CCBIAM is controlled by CCB International Assets

Management (Cayman) Limited, CCB International (Holdings) Limited, CCB Financial

Holdings Limited, CCB International Group Holdings Limited, China Construction Bank

Corporation and Central Huijin Investment Limited and by virtue of the provisions of the

SFO, they were deemed to be interested in all the Shares in which CCBIAM was interested.

(4) These Shares represent the Consideration Shares. The Vendor was interested in these Shares as

a result of the entering into the Sale and Purchase Agreement.

(5) These Shares were held by Sinoday and the Vendor as to 304,721,500 Shares and 27,575,000

Shares respectively. As China Cinda is the indirectly holding company of Sinoday and the

holding company of the Vendor, by virtue of the provisions of the SFO, China Cinda was

deemed to be interested in all the Shares in which Sinoday and the Vendor held.

Save as disclosed above, the Directors and the chief executive of the Company are

not aware of any person (other than a Director or chief executive of the Company)

who, as at the Latest Practicable Date, had any interest or short position in the Shares

or underlying Shares which would fall to be disclosed to the Company under the

provisions of Divisions 2 and 3 of Part XV of the SFO or, who was, directly or

indirectly, interested in 10% or more of the nominal value of the issued share capital

carrying rights to vote in all circumstances at general meetings of any other member of

the Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed

service contract with any member of the Group (excluding contracts expiring or

determinable by the employer within one year without payment of compensation (other

than statutory compensation)).

5. LITIGATION

The following litigation cases are outstanding as at the Latest Practicable Date. Under

the agreement entered into between the Company’s then ultimate holding company, Hantec

Holdings Limited (‘‘HHL’’), Sinoday and Silver Grant International Securities Investment

Limited on 13 August 2008, HHL and the previous chairman of the Company undertakes to

indemnify and keep indemnified the Company on a full indemnity basis of any loss or

liability suffered by the Group as a result of or in connection with the outstanding litigation

cases.

(a) A company named Hantec Investment Limited which is unrelated to the Group

filed a writ to the Company on 28 July 2000 seeking for an injunction to restrain

the Company from using the plaintiff’s alleged trade name and damages. The

plaintiff has not taken any further action after the Company filed a defence.

(b) An indirect wholly-owned subsidiary of the Company received a writ of summons

dated 25 March 2006 from two clients jointly as plaintiffs claiming for damages

against it and two of its licensed representatives for an amount of HK$20,600,000


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together with costs relating to a number of leverage exchange trading

transactions. Defence action has been commenced and no further development

has been made up to the date of this circular.

(c) A writ of summons dated 11 July 2006 was served to two indirect wholly-owned

subsidiaries and one then subsidiary of the Company by a former account

executive claiming for a total of HK$700,000 as his rightful overriding

commissions together with interest and/or alternatively, damages to be assessed.

The plaintiff has been requested to state clearly his claim. Up to the date of this

circular, there has been no further development.

Save as disclosed above, neither the Company nor any of its subsidiaries is engaged in

any litigation or arbitration of material importance and no litigation or claim of material

importance is known to the Directors to be pending or threatened against the Company or

any of its subsidiaries.

6. COMPETING INTERESTS OF DIRECTORS AND ASSOCIATES

As at the Latest Practicable Date, none of the Directors and their respective associates

was considered to have interests in any business which competes or may compete, either

directly or indirectly, with the businesses of the Group or have or may have any other

conflicts of interest with the Group pursuant to the Listing Rules.

7. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect

interest in any assets which had been acquired or disposed of by or leased to any member of

the Group or were proposed to be acquired or disposed of by or leased to any member of

the Group since 31 December 2008, being the date to which the latest published audited

consolidated financial statements of the Company were made up.

None of the Directors was materially interested in any contract or arrangement entered

into by any member of the Group subsisting at the Latest Practicable Date which was

significant in relation to the business of the Group.

8. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in ordinary course of

business of the Group, have been entered into by members of the Group within the two

years preceding the date of this circular and are or may be material:

(a) an agreement dated 21 December 2007 between (i) 吳俊良 (Wu Chun-Liang) and

陳淑燕 (Chen Shu-Yen) (as vendors); and (ii) Hantec Taiwan Investments

Limited, a then wholly-owned subsidiary of the Company, (as purchaser),

relating to the sale and purchase of all equity capital in 俊森實業有限公司 for a

total cash consideration of NT$5,400,000;


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(b) an agreement dated 6 March 2008 between (i) Macro Jess Ltd., a then wholly-

owned subsidiary of the Company (as vendor); and (ii) Mr. Yozo Hasegawa or his

nominee(s) (as purchaser) relating to the sale and purchase of 2,160 ordinary

shares of Foreland Forex Co., Ltd for a cash consideration of Japanese Yen 162

million;

(c) an agreement dated 9 July 2009 between the Company, Well Kent International

Investment Company Limited (‘‘WKII’’) and the Vendor in relation to the

provision by the Group of certain financial services to the WKII and the Vendor

and the companies in which each of WKII or the Vendor is directly or indirectly

interested so as to exercise or control the exercise of 30% or more of the voting

power at general meetings, or to control the composition of a majority of the

board of directors and vice versa;

(d) a placing agreement dated 4 August 2009 between Sinoday, CCB International

Capital Limited, Cinda International Capital Limited and the Company pursuant

to which CCB International Capital Limited and Cinda International Capital

Limited have agreed to, as agent of Sinoday and on a best effort basis, procure

purchasers to acquire, and Sinoday has agreed to sell up to 75,594,000 existing

Shares at a placing price of HK$2.00 per Share;

(e) the Top-Up Subscription Agreement, dated 4 August 2009 between Sinoday and

the Company pursuant to which Sinoday has conditionally agreed to subscribe for

up to 75,594,000 new Shares;

(f) the New Subscription Agreement, dated 4 August 2009 between CCBIAM and the

Company pursuant to which CCBIAM has conditionally agreed to subscribe for

up to 8,866,000 new Shares; and

(g) the Sale and Purchase Agreement dated 9 November 2009 entered into between

the Purchaser and the Vendor in relation to the acquisition of 40% of the issued

share capital of Sino-Rock for a total consideration of HK$110,300,000.

9. QUALIFICATION AND CONSENT OF EXPERTS

The following are the experts, and their qualifications, who have given opinion

contained in this circular:

Name Qualification

Ample Capital A corporation licensed to carry out types 4, 6 and

9 (advising on securities, advising on corporate

finance and asset management) regulated

activities under the SFO

Chan & Wat, Certified Public

Accountants (‘‘Chan & Wat’’)



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Each of Ample Capital and Chan & Wat has given and has not withdrawn its written

consent to the inclusion of its report or opinion as set out in this circular and references to

its name in the form and context in which they respectively appear and issue of this circular.

As at the Latest Practicable Date, each of Ample Capital and Chan & Wat was not

beneficially interested in the share capital of any member of the Group, nor did it have any

right (whether legally enforceable or not) to subscribe for or to nominate persons to

subscribe for securities in any member of the Group, nor did it have any direct or indirect

interest in any assets which were, since 31 December 2008 (being the date to which the latest

published audited consolidated financial statements of the Group were made up), acquired

or disposed of by or leased to any member of the Group, or proposed to be acquired or

disposed of by or leased to, any member of the Group.

10. MISCELLANEOUS

(a) The registered office of the Company is situated at Clarendon House, 2 Church

Street, Hamilton, HM 11, Bermuda.

(b) The principal place of business of the Company in Hong Kong is 45th Floor,

COSCO Tower, 183 Queen’s Road Central, Hong Kong.

(c) The company secretary of the Company is Mr. Lau Mun Chung. He graduated

from the University of Hong Kong with a degree of Bachelor of Social Science

and is a fellow member of the Association of Chartered Certified Accountants, an

associate member of the Hong Kong Institute of Certified Public Accountants and

a graduate of The Hong Kong Institute of Chartered Secretaries.

(d) The Hong Kong branch share registrar and transfer office of the Company is

Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East,

Hong Kong.

(e) The English text of this circular and the accompanying form of proxy shall prevail

over the Chinese text in the case of any inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal

place of business in Hong Kong at 45th Floor, COSCO Tower, 183 Queen’s Road Central,

Hong Kong during normal business hours.

(a) the memorandum of association and the bye-laws of the Company;

(b) the annual reports of the Company for each of the two financial years ended

31 December 2007 and 2008;

(c) the letter from the Independent Board Committee as set out on page 18 of this

circular;


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(d) the letter from the Independent Financial Adviser, the text of which is set out on

pages 19 to 31 of this circular;

(e) the accountants’ report on the Target Group, the text of which is set out in

Appendix II to this circular;

(f) the report on the unaudited pro forma net assets statement on the Enlarged Group

from Chan & Wat, the text of which is set out in Appendix III to this circular;

(g) the written consents referred to the paragraph headed ‘‘Qualifications and consent

of experts’’ in this appendix;

(h) the material contracts entered into by the Group, as referred to in the paragraph

headed ‘‘Material Contracts’’ in this appendix; and

(i) a copy of this circular.


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(Stock code: 111)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the ‘‘SGM’’) of theshareholders of Cinda International Holdings Limited (the ‘‘Company’’) will be held at 45thFloor, COSCO Tower, 183 Queen’s Road Central, Hong Kong on 11 December 2009 at8 : 30 a.m. for the purpose of considering and, if thought fit, passing, with or withoutamendments, the following ordinary resolutions:

AS ORDINARY RESOLUTIONS

1. ‘‘THAT:

(i) the sale and purchase agreement dated 9 November 2009 (the ‘‘Sale and

Purchase Agreement’’) (a copy of which is produced to the SGM marked ‘‘A’’and initialed by the chairman of the SGM for the purpose of identification)entered into between Well Kent International Holdings Company Limited(the ‘‘Vendor’’) and Cinda International Direct Investment Limited (the‘‘Purchaser’’), a wholly-owned subsidiary of the Company, in relation to anacquisition by the Purchaser of 18,000,000 ordinary shares in the sharecapital of Sino-Rock Investment Management Company Limited (‘‘Sino-Rock’’), representing 40% of the issued share capital of Sino-Rock at aconsideration of HK$110,300,000, which will be satisfied by (a) a cashconsideration of HK$55,150,000 and (b) the allotment and issue of27,575,000 ordinary shares in the Company (the ‘‘Consideration Shares’’) tothe Vendor at an issue price of HK$2.00 per Consideration Share, and thetransaction contemplated thereunder, be and are hereby approved, confirmedand ratified;

(ii) subject to completion of the Sale and Purchase Agreement and conditionalupon the Listing Committee of The Stock Exchange of Hong Kong Limitedgranting the listing of, and the permission to deal in, the ConsiderationShares, the directors of the Company (the ‘‘Directors’’) be and are herebyspecifically authorised to allot and issue the Consideration Shares, creditedas fully paid, to the Vendor in accordance with the terms and conditions ofthe Sale and Purchase Agreement; and

(iii) any one of the Directors be and is hereby authorised to execute all such otherdocuments, instruments under hand (and, where required, under the commonseal of the Company together with such other Director or person authorisedby the board of Directors) and to do such acts and things or take such stepsas he or they may consider necessary, appropriate, desirable or expedient toimplement or give effect to the Sale and Purchase Agreement and alltransactions contemplated thereunder and all other matters incidentalthereto or in connection therewith.’’

NOTICE OF SGM

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2. ‘‘THAT:

(i) the general mandate granted to the Directors to exercise the powers of the

Company to allot, issue and deal with the additional shares in the capital of

the Company as approved by the shareholders of the Company at the annual

general meeting held on 2 June 2009 (to the extent not already exercised by

the Directors), be and is hereby revoked (but without prejudice to any valid

exercise of such general mandate prior to the passing of this resolution);

(ii) subject to paragraph (iv) below and pursuant to the Rules Governing the

Listing of Securities on The Stock Exchange of Hong Kong Limited (‘‘Listing

Rules’’), the exercise by the Directors during the Relevant Period (as defined

in paragraph (v) of this resolution) of all the powers of the Company to allot,

issue and deal with additional shares in the capital of the Company and to

make or grant offers, agreements and options and issue other securities

convertible into shares which would or might require the exercise of such

power be and is hereby generally and unconditionally approved;

(iii) the approval in paragraph (ii) of this resolution shall authorise the Directors

during the Relevant Period (as defined in paragraph (v) of this resolution) to

make or grant offers, agreements and options and issue other securities

convertible into shares which would or might require the exercise of such

power during or after the end of the Relevant Period;

(iv) the aggregate nominal amount of share capital allotted or agreed

conditionally or unconditionally to be allotted (whether pursuant to an

option or otherwise) and issued by the Directors pursuant to the approval in

paragraphs (ii) and (iii) of this resolution, otherwise than pursuant to (a) a

Rights Issue (as defined in paragraph (v) of this resolution), or (b) the

exercise of rights of subscription or conversion under the terms of any

warrants issued by the Company or any securities which are convertible into

shares of the Company, or (c) an issue of shares under any option scheme or

similar arrangement for the time being adopted for the grant or issue to

officers and/or employees of the Company and/or any of its subsidiaries of

shares or rights to acquire shares of the Company, or (d) any scrip dividend

or similar arrangement providing for the allotment of shares in lieu of the

whole or part of a dividend on shares of the Company, shall not exceed the

aggregate of (1) 20% of the total nominal amount of the share capital of the

Company in issue on the date of the passing of this resolution and (2) (if the

Directors are so authorised by a separate ordinary resolution of the

shareholders of the Company) the aggregate nominal amount of the share

capital of the Company repurchased by the Company subsequent to the

passing of such resolution (up to a maximum amount equivalent to 10% of

the aggregate nominal amount of the share capital of the Company in issue

on the date of the passing of this resolution) and the said approval to the

Directors in paragraphs (ii) and (iii) above shall be limited accordingly; and

NOTICE OF SGM

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(v) for the purpose of this resolution:

‘‘Relevant Period’’ means the period from the passing of this resolution until

whichever is the earliest of:

(a) the conclusion of the next annual general meeting of the Company;

(b) the expiration of the period within which the next annual general

meeting of the Company is required by the bye-laws of the Company or

any applicable law of Bermuda to be held; or

(c) the date on which the authority set out in this resolution is revoked or

varied by an ordinary resolution of the Company in general meeting;

and

‘‘Rights Issue’’ means an offer of shares open for a period fixed by the

directors of the Company to the holders of shares on the register on a fixed

record date in proportion to their then holdings of such shares (subject to

such exclusions or other arrangements as the Directors may deem necessary

or expedient in relation to fractional entitlements or having regard to any

restrictions or obligations under the laws of, or the requirement of any

recognised regulatory body or any stock exchange in any territory outside

Hong Kong).’’

By order of the Board


Lau Mun Chung

Executive Director

Hong Kong, 26 November 2009

Notes:

(1) A member entitled to attend and vote at the meeting convened by the above notice is

entitled to appoint one or more proxies to attend and, in the event of a poll, vote in his

stead. A proxy need not be a member of the Company. If more than one proxy is so

appointed, the appointment shall specify the number of shares in respect of which each

such proxy is so appointed.

(2) A form of proxy for the SGM is enclosed. In order to be valid, the form of proxy must

be duly completed and deposited at the Company’s branch share registrar in Hong

Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road

East, Hong Kong, together with a power of attorney or other authority, if any, under

which it is signed or a certified copy of that power of attorney or authority, no later

than 48 hours before the time for holding the meeting or adjourned meeting.

(3) Completion and delivery of the form of proxy shall not preclude a member of the

Company from attending and voting in person at the meeting convened by the above

notice or at any adjourned meeting thereof (as the case may be) should they so wish,

and in such event, the form of proxy shall be deemed to be revoked.

NOTICE OF SGM

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Documents

(1) MAJOR AND CONNECTED TRANSACTION IN RELATION TO …