Lai Sun Development Company Limited - esun. · PDF fileLai Sun Group which obtained its first listing on the Hong Kong stock exchange in 1972. ... which trades at Chek Lap Kok Airport

Contents

2 Corporate Profile

3 Corporate Information

4 Chairman's Statement

17 Report of the Directors

37 Report of the Auditors

39 Consolidated Profit and Loss Account

40 Consolidated Balance Sheet

41 Consolidated Cash Flow Statement

43 Company Balance Sheet

44 Notes to Financial Statements

110 Notice of Annual General Meeting

LAI SUN DEVELOPMENT ANNUAL REPORT 1998±99

Lai Sun Development Company Limited

11/F Lai Sun Commercial Centre

680 Cheung Sha Wan Road

Kowloon, Hong Kong

Tel (852) 2741 0391 Fax (852) 2785 2775

Internet http://www.laisun.com.hk

E-mail [email protected]

1

Lai Sun Development Company Limited (``the Company'') is a member of the

Lai Sun Group which obtained its first listing on the Hong Kong stock exchange

in 1972. The Company is well-diversified with five business areas: property

development, property investment, China property, hotels and strategic

investments. The Company was listed on The Stock Exchange of Hong Kong

Limited in 1988 following a reorganisation of the Group.

* Listed Companies


2

Corporate Profile

Place of Incorporation

Hong Kong

Directors

Lim Por Yen (Chairman)

Lam Kin Ngok, Peter

(Deputy Chairman and President)

Lau Shu Yan, Julius

Tong Yuk Lun, Paul

Wu Shiu Kee, Keith

Lam Kin Ming

U Po Chu

Chiu Wai

Shiu Kai Wah

David Tang

Law Man Fai

Secretary and Registered Office

Yeung Kam Hoi

11th Floor

Lai Sun Commercial Centre

680 Cheung Sha Wan Road

Kowloon, Hong Kong

Share Registrars

Tengis Limited

1601 Hutchison House

10 Harcourt Road

Central

Hong Kong

Auditors

Ernst & Young

Certified Public Accountants

15th Floor, Hutchison House

10 Harcourt Road

Central

Hong Kong

Solicitors

Woo, Kwan, Lee & Lo

27th Floor, Jardine House

1 Connaught Place

Central

Hong Kong

Vincent T.K. Cheung, Yap & Co.

15th Floor, Alexandra House

16-20 Chater Road

Central

Hong Kong

Lo & Lo

35th Floor, Gloucester Tower

The Landmark,

Central

Hong Kong

Bankers

Citibank, N.A.

Dao Heng Bank Limited

Hang Seng Bank Limited

Standard Chartered Bank

The Hongkong and Shanghai Banking

Corporation Limited

The Bank of Tokyo-Mitsubishi, Limited


3

Corporate Information

Chairman’s Statement

LAI SUN DEVELOPMENT ANNUAL REPORT 1998-99

4

Chairman LIM Por Yen

RESULTS

The Group registered a consolidated net loss attributable to

shareholders of HK$6,832,423,000 for the year ended 31st July,

1999. Basic loss per share was HK$2.26.

The financial year under review witnessed a still difficult

operating environment for the Group despite lower interest rates.

With the consistent priority of cash generation over profitability,

the Group continued to implement an aggressive disposal

program during the period and thus suffered from losses arising

from property sales and disposal of selective long term

investments. In addition, provisions for diminution in the values

of the Group’s properties, notably for the Furama Hotel, together

with significant interest expenses further aggravated the

bottomline.

DIVIDENDS

The Directors do not recommend payment of a dividend for the

current financial year.

BUSINESS REVIEW

After weathering an extremely difficult 1998, the Hong Kong

economy gradually stabilized in 1999 with investor sentiment

and consumer confidence exhibiting mild improvement.

However, deflation remains a major feature of and depressant to



5

the economy; as Hong Kong interest rates remain at moderate

single-digit levels, the local economy continued to suffer from an

unprecedented high real interest rate environment. On the

liquidity front, while banks have in general eased credit, the

focus of lending has been very much on residential mortgages.

Trade finance and syndication activities remained sluggish. On

balance, residential property prices, being fueled by ample bank

liquidity, registered a 10%–15% rebound from their lows; in

contrast, capital values for both office and retail properties have

shown virtually no improvement while the industrial sector

recorded further fall in value, albeit subdued.

Under this economic backdrop, the Group continued to place a

strong emphasis on cash generation in order to improve the

overall debt position. Total debt of the Group, excluding Lai Sun

Hotels and Lai Fung Holdings, has fallen by almost 19% to

HK$7.6 billion as of the end of this financial period.

However, this debt reduction was achieved at the heavy expense

of profitability as stated in the interim results announcement. In

addition, a further decline in recurrent rental income, together

with the absence of contributions from both the hotel and China

divisions also affected the bottomline. Together with higher

interest charges, the Group recorded an operating loss before

exceptional items of HK$1,001 million. In addition, the Group

recorded an exceptional loss of HK$5,691 million representing

provisions for diminution in the values of the Group’s property

development landbank and loss on disposal of investments. In

particular, provisions of HK$2,375 million were taken in respect

of the Group’s investments in the Furama Hotel Hong Kong and

Furama Shenyang, and HK$855 million was taken in respect of

the put options relating to the disposal of the Majestic Hotel;

meanwhile, a provision of HK$874 million was also taken in

respect of the Group’s other properties under development. In

addition, a provision of HK$228 million was taken for loss in

relation to the Group’s 50% interest in Sky Connection Limited,

which trades at Chek Lap Kok Airport under the name “Free

Duty”, and a further HK$729 million of exceptional loss was

represented by loss on disposal and provision in respect of long-

term listed and unlisted investments.



6

Property Investment

Notwithstanding the depressed state of the leasing market, the

Group’s 3.1 million sq.ft. investment property portfolio generated

gross rental and related income of HK$607 million for the year,

representing a drop of 23% from the previous year. Overall

vacancy rates continued to stay at single digit levels thanks to the

resilient commercial and office portfolio; in contrast, the

industrial properties registered further decline in rentals and

occupancy during the period under review. On a breakdown by

type basis, rental revenues derived from office and retail spaces

represented approximately 84% of total, with industrial making

up the balance.

Apart from softened demand conditions, the Group’s decline in

rental was also attributable to the disposal of the Carnarvon

Plaza which alone contributed HK$61 million in the previous

financial year. Looking ahead, it is the Group’s consistent

strategy to review the portfolio in terms of location, tenant mix

and rental prospects from time to time, and decide on whether

further disposals of non-core investment properties will be

appropriate.

Property Development in Hong Kong

Property sales

With the absence of major property disposals during the year

under review, total sales turnover, including the attributable

share of that of the associated companies, more than halved from

the previous year to HK$1,265 million. Some of the key disposal

items are as follows:

Group Attributable

Location Type Interest GFA (sq.ft.)

The Panorama Residential/ 50.0% 154,699

520–526 Castle Peak Road Commercial

Tsuen Wan

New Territories

Hong Kong

Tycoon Place Residential 33.3% 68,327

38 Lo Fai Road

TPTL 119, Area 30

Tai Po, New Territories

Hong Kong



8

Group Attributable


283–297 Shun Ning Road Residential 100.0% 69,285

Kowloon

Hong Kong

Various Lots in DD244 Agricultural 100.0% N.A.

Ho Chung land

Sai Kung

New Territories

Hong Kong

Various Lots in DD106 Agricultural 100.0% N.A.

Kam Sheung Road land

Yuen Long

New Territories

Hong Kong

The size of the Group’s landbank remained at around 1.6 million

sq.ft. On a breakdown by type basis, approximately 80% is

earmarked for residential use, while commercial and industrial

projects constitute the remainder. Looking ahead, in tandem with

the ongoing infrastructural developments in both the New

Territories and traditional industrial areas such as Cheung Sha

Wan, the Group will continue to put emphasis on applications

for plot ratio relaxation and re-zoning of our agricultural land

reserves and selective industrial properties. These activities, if

successful, will enable the Group to expand its landbank and

give greater flexibility when determining development options.

Furama Hotel, Hong Kong

The wholly-owned Furama Hotel, Hong Kong (“Furama Hotel”)

continued to provide meaningful contribution to the Group

despite the sluggish state of the hotel sector. Average occupancy

during the period was around 70% while average room rate

exhibited a 25% retreat to HK$912. Looking ahead, the

likelihood of steady room rates together with implementation of

efficiency enhancement measures is expected to help improve the

earnings prospects of this prime hotel property.



9

As highlighted in the interim results, the Group announced the

plan to redevelop the Furama Hotel into a composite office, retail

and hotel complex and has agreed to dispose of the retail and hotel

portion of the redeveloped complex to its subsidiary Lai Sun

Hotels International Limited (“LSHIL”) for a consideration of

HK$1,900 million. The proposal was approved by the independent

shareholders of both companies on 22nd March, 1999. This

redevelopment plan is consistent with the Group’s stated intention

of unlocking the synergistic value through an alliance with the

adjacent Ritz-Carlton Hotel in which LSHIL has a 65% interest.

Lai Fung Holdings

Strategic partnership with Sun Chung Estate

It has been a year of consolidation for the Group’s 74.49%-owned

subsidiary Lai Fung Holdings Limited (“Lai Fung”) as the overall

property market in the PRC underwent downward adjustment,

varying in severity between sectors. For Lai Fung, the

profitability was affected adversely by a substantial gap in

development earnings as well as a shortfall in actual rentals vis-à-

vis the rental guarantee granted to buyers of the Hong Kong

Plaza service apartments.

From a strategic perspective, however, the Company achieved a

strengthened alliance with Sun Chung Estate Company, Limited

(“Sun Chung”), a property investment arm and wholly-owned

subsidiary of the Bank of China. In April 1999, the Group

granted a call option to Sun Chung whereby the latter has been

offered the right to purchase up to 230,000,000 existing shares in

the issued share capital of Lai Fung at the price of $0.65 per

share. In June 1999, Lai Fung completed a HK$600 million

convertible note issue to Sun Chung, with the majority of the

proceeds raised being utilized to purchase 181 units of Hong

Kong Plaza service apartments from LSHIL.

Sun Chung has been a strategic shareholder of Lai Fung since its

flotation in November 1997 and the Group strongly believes that

this strategic tie will prove beneficial, both in terms of funding

requirements and future acquisitions. In the meantime, the

service apartments’ re-purchase, which removed the rental

guarantee burden, will also enhance earnings.



10

For the coming year, Lai Fung will focus on the completion and

disposal of the Eastern Place Phase II which has already been

50% pre-sold, as well as further improving the occupancy of the

Hong Kong Plaza. As of year-end, the average occupancy rate for

the commercial complex comfortably exceeded 60%. Finally,

construction activities are progressing satisfactorily for the New

Trend Plaza, the flagship Ginza-type project located on

Zhongshanwu Road and atop of the strategic Gongyuanqian Mass

Transit Station. Management expects the project to be

substantially completed by early 2002.

Lai Sun Hotels

Performance of the hotel division, principally operated through

the 52.17% subsidiary LSHIL, was mixed during the period. On

the operating level, the 65%-owned Ritz-Carlton Hotel achieved

an average occupancy rate of 63% versus 55% in the preceding

corresponding period, while average daily rate (“ADR”) exhibited

a year-on-year drop of 14% to HK$1,375. In contrast, the

buoyant state of the US hospitality sector continued to help

support the performance of the 25%-owned Regent Beverly

Wilshire Hotel; both average occupancy and ADR were stable at

66.9% and US$323 respectively.

In March 1999, LSHIL completed the disposal of the Four

Seasons Hotel, New York for a total consideration of US$265

million in which LSHIL had an attributable interest of 49.995%.

The exceptional gain, however, was largely offset by the losses

resulted from the disposal of “The Lions” — a residential

development project in Vancouver in May 1999, and the disposal

of the Hong Kong Plaza service apartments for HK$475 million

in June 1999. Finally, LSHIL has made a provision for the loss

arising from the disposal of the Delta Whistler Resort, Canada, a

transaction which was completed in August 1999.

Despite losses being incurred, these disposal activities have

generated substantial liquidity for the Company, thus allowing it

to focus on opportunities in Asia-Pacific where asset prices

remain attractive.



12

Strategic Investments

The Group’s investments in the television and telecommunication

sectors, while incurring minor losses at the operating level, have

further consolidated their presence in their respective markets.

Asia Television Limited (“ATV”) in which the Group has an 16.7%

interest, recorded an encouraging viewership improvement during

the financial period. Meanwhile, the Group’s 15% stake in

Mandarin Communications Limited (“MCL”) which operates

under the successful brandname “Sunday”, continued to exhibit its

competitiveness amidst the stiffening competition in the mobile

phone market. Given the prevailing bullish sentiment toward high

tech ventures, these strategic investments, in our view, will in due

course add tangible value to the Group.

Elsewhere, flat tourism growth together with initial operational

disruption at the new Chek Lap Kok Airport have cost dearly for

Sky Connection Limited, the Group’s 50%-owned liquor and

tobacco duty-free operator which trades under the name “Free

Duty”. As mentioned earlier, adequate provision in respect of the

business has already been made. Looking ahead, the prospects of

the business will be dependent on strong tourism recovery, and

the potential of securing the arrival duty-free operation in order

to achieve better economies of scale.

PROSPECTS

While it is consensus view that the Hong Kong economy is

gradually emerging from recession, in view of the currency peg

with the US dollar and still high labour costs, the territory’s

competitive advantage relative to its Asian peers remains in

question. Furthermore, the likelihood of prolonged deflation

implies that Hong Kong will continue to suffer from a high real

interest rate environment, which in turn will continue to depress

both consumption and investment sentiment.



14

It is on this basis that the Group remains cautious over the short

term prospects for the overall property market. On the property

investment front, while further rental downturn appears unlikely,

upside potential is also constrained by limited demand and still

ample supply. Nonetheless, the Group’s diversified and well

located investment property portfolio is expected to be able to

maintain high occupancies and generate steady recurrent rental

income for the coming year. Projects earmarked for pre-sale in

Hong Kong for the year ending 31st July, 2000 are as follows:

Group Attributable


DD105 Residential 50% 11,625

Ngau Tam Mei

Yuen Long

(Phase I)

New Territories

Hong Kong

The Waterfront Residential 10% 158,836

1 Austin Road West

Tsim Sha Tsui

Kowloon

Hong Kong

488 Jaffe Court Residential/ 100% 15,713

486–488 Jaffe Road Commercial

Causeway Bay

Hong Kong

51–53 Station Lane and Residential/ 100% 28,964

84–86 Wuhu Street Commercial

Kowloon

Hong Kong

789 Cheung Sha Wan Road Industrial/ 100% 158,155

Kowloon Office

Hong Kong



15

Overall, I am reasonably sanguine over the medium term

prospects of the local property market. In particular, a “gap” in

supply across all sectors is evident due to previous land sales

suspension and developers’ prudence in expanding their

respective landbanks. This, together with a resurgence in take-up

as the economy further recovers, is likely to bring about

reasonable appreciation in capital values. Under this medium

term projection, it is optimal for the Group to retain to its core

property portfolio so as to benefit from this uptrend and

therefore create more shareholder value.

Similarly, despite the short term market uncertainty, the Group’s

intention to proceed with redeveloping the Furama Hotel

remains unchanged. This key project would enable the Group to

fully capitalize on the medium term cyclical upswing, thus

further strengthening the Group’s financial position and asset

backing.

I am guardedly optimistic over developments in China, which is

poised to achieve a 7% GDP growth for the current year, an

enviable achievement by world standards. Looking ahead, the

likelihood of procuring WTO status together with the central

Government’s firm intention to reflate the economy will spur

economic growth. This, coupled with a steadily declining interest

rates should bode well for low-cost housing projects.

With a firm financial footing and a strong residential landbank,

Lai Fung is well positioned to capitalize on this evolving trend.

In addition, exploring future investment opportunities, jointly

with the Bank of China Group should prove beneficial given the

latter’s strong presence in China. I am confident that the

company will be able to provide a stronger contribution to the

Group in the years ahead.

The road of recovery for the Asian hospitality sector is expected

to remain uncertain despite a more stable economic environment.

Stringent cost control and enhanced productivity will be

imperative to generate organic growth, while a firm balance sheet

footing will be necessary for expansion via acquisitions.

Management will adopt these operating principles as the basis for

the Company’s strategy going forward, aspiring to capitalize on

the improving economic conditions in a proactive and prudent

manner.



16

At the time of writing, certain principal lending banks have

indicated their support in principle to grant waivers in respect of

the Group’s failure to maintain loan covenants and, in addition,

to defer repayment of amounts totalling approximately HK$3,545

million to 31st December 2002, subject to all other lending

banks and bondholders also agreeing to a similar repayment

deferral. Discussions with other banks are already underway,

while the convening of bondholders’ meetings will take place as

soon as practicable. The Group is confident that satisfactory

arrangements with all creditor groups will be agreed, which in

turn will give time for the Group, as referred to above, to

reorganize its property portfolio through the disposal of non-core

assets as the basis for it to take advantage of an anticipated

upturn of the Hong Kong property market over the next few

years.

This has been a difficult year for the Group, and I would like to

take this opportunity to thank the shareholders of the Company

for their support to the Group. At the same time, my token of

appreciation also goes to fellow Board colleagues and all staff

members of the Group for their hardwork and contribution

during the year.

Lim Por Yen

Chairman

Hong Kong

12th November, 1999

The directors herein present their report and the audited financial statements of the Company and its

subsidiaries (the `̀ Group'') for the year ended 31st July, 1999.

P R I N C I P A L A C T I V I T I E S

The Company's principal activities have not changed during the year and consisted of property development

for sale, property investment for rental purposes and investment holding.

The Group's principal activities have not changed during the year and consisted of property development for

sale, property investment for rental purposes, investment in and operations of hotels and restaurants and

investment holding.

S E G M E N T E D I N F O R M A T I O N

An analysis of Group turnover and contribution/(absorption) to operating loss by activity and geographical

area for the year ended 31st July, 1999 is as follows:

Turnover

Contribution/

(absorption)

HK$'000 HK$'000

By activity:

Property development and sale of properties 552,318 (5,489,824)

Property rentals 649,321 65,065

Long term investments Ð (729,364)

Hotel, restaurant and other operations 550,454 (537,950)

1,752,093 (6,692,073)

By geographical area:

Hong Kong 1,381,291 (5,316,293)

People's Republic of China (`̀ PRC''), excluding Hong Kong 186,206 (424,374)

Canada 83,768 (404,876)

Others 100,828 (546,530)

1,752,093 (6,692,073)

R E S U L T S A N D D I V I D E N D S

The Group's loss for the year ended 31st July, 1999 and the state of affairs of the Company and the Group as

at that date are set out in the financial statements on pages 39 to 109.

The directors do not recommend the payment of a final ordinary dividend for the year ended 31st July,

1999.

No interim ordinary dividend had been paid by the Company for the year.


17

Report of the Directors

D I R E C T O R S

The directors of the Company who were in office during the year and those at the date of this report are as

follows:

Lim Por Yen (Chairman)

Lam Kin Ngok, Peter (Deputy Chairman and President)

Lau Shu Yan, Julius

Tong Yuk Lun, Paul

Wu Shiu Kee, Keith

Lam Kin Ming

Cheung Wing Sum, Ambrose (resigned on 11th October, 1999)

U Po Chu

Chiu Wai

Shiu Kai Wah

David Tang*

Law Man Fai*

* Independent Non-Executive Directors

In accordance with Article 102 of the Company's Articles of Association, Mr. Lau Shu Yan, Julius, Madam U

Po Chu, Mr. Chiu Wai and Mr. Shiu Kai Wah retire by rotation at the forthcoming Annual General Meeting

and, being eligible, offer themselves for re-election at the said meeting.

D I R E C T O R S ' S E R V I C E C O N T R A C T S

None of the directors proposed for re-election at the forthcoming Annual General Meeting has a service

contract with the Company and/or any of its subsidiaries, which is not determinable by the employing

company within one year without payment of compensation other than that of a statutory nature.

D I R E C T O R S ' I N T E R E S T S I N C O N T R A C T S

Save as disclosed in note 16 to the financial statements, no director had a beneficial interest in any contract

of significance to the business of the Group to which the Company, its holding company, any of its

subsidiaries or fellow subsidiaries was a party during the year.

C O N N E C T E D T R A N S A C T I O N S

The Group has conducted certain connected transactions (the ``Connected Transactions'') the details of

which are included in notes 15, 16, 35 and 37 to the financial statements. The Connected Transactions have

been approved by the Company's directors.

In the opinion of the Company's directors, the Connected Transactions have been entered into by the

Group:

(a) in the ordinary and usual course of its business;

(b) on normal commercial terms and on arm's length basis;


18


C O N N E C T E D T R A N S A C T I O N S ( c o n t i n u e d )

(c) where there are agreements governing such transactions, the transactions have been carried out in

accordance with the terms of the agreements governing such transactions, or if there are no such

agreements, the transactions have been entered into on terms no less favourable than terms available to

or from independent third parties; and

(d) on terms that are fair and reasonable so far as the shareholders of the Company are concerned.

B I O G R A P H I C A L D E T A I L S O F D I R E C T O R S A N D S E N I O R M A N A G E M E N T

Directors

Executive Directors

Mr. Lim Por Yen, Chairman, aged 84, is the founder of the Lai Sun Group. He has been an executive director

of the Company since June 1959. He is also the chairman and managing director of Lai Sun Garment

(International) Limited (`̀ LSG''), the chairman of Crocodile Garments Limited and an executive director of

Lai Sun Hotels International Limited. LSG is the ultimate holding company of the Company. Mr. Lim first

became involved in the property and investment business in the mid-1950's and has over 59 years'

experience in the garment business. He is an honorary citizen of the city of Guangzhou, the city of Swatow,

the city of Xiamen and the city of Zhong Shan. Mr. Lim was also one of the Hong Kong Affairs Advisers to

the People's Republic of China and is a founder member of The Better Hong Kong Foundation.

Mr. Lam Kin Ngok, Peter, Deputy Chairman and President, aged 42, has been an executive director of the

Company since June 1977. He is also the deputy chairman of Lai Sun Garment (International) Limited

(``LSG''), the chairman of Lai Sun Hotels International Limited and Lai Fung Holdings Limited and, an

executive director of Crocodile Garments Limited. LSG is the ultimate holding company of the Company.

Mr. Lam has extensive experience in property and investment business. He is a director of the Real Estate

Developers Association of Hong Kong, a member of the Hong Kong Hotel Owners Association and a council

member of the Anglo Hong Kong Trust. Mr. Lam is a son of Mr. Lim Por Yen and is the younger brother of

Mr. Lam Kin Ming.

Mr. Lau Shu Yan, Julius, aged 43, joined the Company as an executive director in July 1991. Mr. Lau has

over 10 years of experience in the property and securities industries holding senior management positions.

Prior to his current appointment, he had been a director of Jones Lang Wootton Limited and subsequently

Jardine Fleming Broking Limited. Mr Lau is a director and a member of the Executive Committee of Real

Estate Developers Association of Hong Kong.

Dr. Tong Yuk Lun, Paul, aged 58, was appointed as an executive director of the Company in October 1997

and was also appointed as the vice chairman of Lai Fung Holdings Limited in June 1999. Prior to Dr. Tong's

current appointments, he was an executive director and the chief executive officer of Pacific Century

Regional Developments Ltd. for the period from January 1995 to September 1997. From 1978 to 1994, Dr.

Tong was employed by the New World Group. He had been an executive director of Hip Hing Construction

Co., Ltd. and the general manager of New World Development Co., Ltd. Dr. Tong holds B.Sc., M.Sc. and

Ph.D. degrees and has extensive experience in civil, structural and geotechnical engineering. He is a member

of Institution of Civil Engineers, London and Hong Kong Institution of Engineers and has also worked with

British and Hong Kong engineering consulting firms.


19



( c o n t i n u e d )

Directors (continued)

Executive Directors (continued)

Mr. Wu Shiu Kee, Keith, aged 36, joined the Lai Sun Group in November 1997 and was appointed as an

executive director of the Company on 1st January, 1998. He has over 12 years' experience in investment

research and asset management. Prior to his appointment with the Lai Sun Group in 1997, Mr. Wu served as

a director and head of Hong Kong/ China Research for Peregrine Brokerage Limited. He holds a Bachelor in

Science degree from the University of Toronto and a Master in Science degree from Stanford University.

Non-Executive Directors

Mr. Lam Kin Ming, aged 62, has been a director of the Company since June 1959. Mr. Lam is also the deputy

chairman of both Crocodile Garments Limited and Lai Sun Garment (International) Limited (`̀ LSG''). He is

an executive director of Lai Fung Holdings Limited and a non-executive director of Lai Sun Hotels

International Limited. LSG is the ultimate holding company of the Company. Mr. Lam has been involved in

the day-to-day management of the garment business since 1958 and is the son of Mr. Lim Por Yen and the

elder brother of Mr. Lam Kin Ngok, Peter.

Madam U Po Chu, aged 74, has been a director of the Company since December 1993. She is also a non-

executive director of Lai Sun Garment (International) Limited (``LSG''), Lai Sun Hotels International Limited

and Crocodile Garments Limited. LSG is the ultimate holding company of the Company. Madam U has over

50 years' experience in the garment manufacturing business and had been involved in the printing business

in the mid-1960's. In the early 1970's, she started to expand the business to fabric bleaching and dyeing,

and became involved in property development and investment in the late 1980's. She is Mr. Lim Por Yen's

wife.

Mr. Chiu Wai, aged 68, has been a director of the Company since December 1993. Mr. Chiu is also an

executive director of Lai Sun Garment (International) Limited (``LSG'') and a non-executive director of Lai

Sun Hotels International Limited and Crocodile Garments Limited. LSG is the ultimate holding company of

the Company. Mr. Chiu has over 40 years' experience in production management and is responsible for the

operation and administration of the garment business of LSG. He has been working for the Lai Sun Group's

garment business since 1955.

Mr. Shiu Kai Wah, aged 67, has been a director of the Company since December 1993. He is also an

executive director of Lai Sun Garment (International) Limited (``LSG'') and a non-executive director of Lai

Sun Hotels International Limited and Crocodile Garments Limited. LSG is the ultimate holding company of

the Company. Mr. Shiu has over 28 years' experience in the management of garment business.

Mr. David Tang, aged 45, is an independent non-executive director of the Company. He is the founder of

The China Clubs in Hong Kong and Peking, Shanghai Tang Stores and The Pacific Cigar Company Ltd. He is

also a director of First Pacific Company Ltd. and FPB Bank Holdings Ltd. In community service, he is the

chairman of The Hong Kong Cancer Fund and president of the Hong Kong Down Syndrome Association. He

holds an Honours Degree in Philosophy and Logic. In 1983/84, he taught at Peking University.


20




Directors (continued)

Non-Executive Directors (continued)

Mr. Law Man Fai, aged 63, is an independent non-executive director of the Company. He had completed his

education specialising in architecture and had served with a reputable local architects firm. He had also

worked for a number of large and well-known local property development companies. He possesses

extensive experience in the building industry.

Senior Management

Miss Nancy S.H. Lin, aged 29, joined the Lai Sun Group as vice president in March 1996. Prior to joining

the Lai Sun Group, Miss Lin was an investment banker at Jardine Fleming Securities Ltd. specializing in

regional transactions.

Mr. Tse Kim Lun, Alan, aged 36, joined the Lai Sun Group in June 1989. Mr. Tse has been the financial

controller of the Company since October 1990. Mr. Tse is a Fellow of the Association of Chartered Certified

Accountants with over 14 years' financial experience.

Mr. Keith Jacobsen, aged 33, joined the Company in May 1996 and is a vice president in the Corporate

Finance Department. He was admitted as a solicitor of Hong Kong in 1992 and previously worked in the

Investment Banking Department of a U.K. securities house before joining the Lai Sun Group.

Mr. Yeung Kam Hoi, aged 50, joined the Company as group company secretary in March 1998. Prior to his

current appointment, Mr Yeung served at various times as the company secretary of a number of listed

companies in Hong Kong for over 10 years. He has been an Associate Member of The Institute of Chartered

Secretaries and Administrators since 1979 and is also an Associate Member of The Hong Kong Institute of

Company Secretaries and a member of Hong Kong Securities Institute.

D I R E C T O R S ' I N T E R E S T S I N S H A R E C A P I T A L O R D E B E N T U R E S

As at 31st July, 1999, the interests of the directors and chief executive of the Company in the equity or debt

securities of the Company and its associated corporations (within the meaning of the Securities (Disclosure

of Interests) Ordinance (the ``SDI Ordinance'')) as recorded in the register required to be kept pursuant to

Section 29 of the SDI Ordinance or as otherwise notified to the Company and The Stock Exchange of Hong

Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the

`̀ Model Code'') were as follows:

(1) the Company

Ordinary Shares

Number of Shares Held

Personal

Interests

Family

Interests

Corporate

Interests

Other

Interests Total

Lim Por Yen 197,859,550 Nil Nil Nil 197,859,550

Lam Kin Ngok, Peter 10,099,585 Nil Nil Nil 10,099,585

U Po Chu 633,400 Nil Nil Nil 633,400

Chiu Wai 195,500 Nil Nil Nil 195,500

Lau Shu Yan, Julius 1,200,000 Nil Nil Nil 1,200,000

Tong Yuk Lun, Paul 135,000 Nil Nil Nil 135,000

Wu Shiu Kee, Keith 200,000 Nil Nil Nil 200,000


21


D I R E C T O R S ' I N T E R E S T S I N S H A R E C A P I T A L O R D E B E N T U R E S ( c o n t i n u e d )

(1) the Company (continued)

Note: Lai Sun Garment (International) Limited (`̀ LSG'') and its wholly-owned subsidiary beneficially owned 1,582,869,192

ordinary shares representing approximately 44.76% of the issued ordinary share capital of the Company. Mr. Lim Por Yen

(together with his spouses) held an interest of approximately 29.8% of the issued share capital of LSG. Mr. Lim Por Yen, Mr.

Lam Kin Ngok, Peter, Mr. Lam Kin Ming, Madam U Po Chu and Madam Lai Yuen Fong were directors of LSG and held an

interest of approximately 42% in aggregate of the issued share capital of LSG, thus controlling collectively more than one-

third of the voting power at LSG's general meetings.

(2) Associated Corporations:

(a) Lai Sun Hotels International Limited (`̀ LSHIL'')

Ordinary Shares (`̀ LSHIL Shares'')

Number of LSHIL Shares Held

Personal

Interests

Family

Interests

Corporate

Interests

Other

Interests Total

Lim Por Yen 5,522,890 Nil Nil Nil 5,522,890


U Po Chu 375,000 Nil Nil Nil 375,000

Lau Shu Yan, Julius 400,000 Nil Nil Nil 400,000

Wu Shiu Kee, Keith 200,000 Nil Nil Nil 200,000

Note: The Company and its wholly-owned subsidiaries beneficially owned 951,709,306 LSHIL Shares. Lai Sun Garment

(International) Limited (`̀ LSG'') together with its wholly-owned subsidiary held an interest of approximately 44.76%

of the issued ordinary share capital of the Company. Mr. Lim Por Yen (together with his spouses) held an interest of

approximately 29.8% of the issued share capital of LSG. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin

Ming, Madam U Po Chu and Madam Lai Yuen Fong were directors of LSG and held an interest of approximately 42%

in aggregate of the issued share capital of LSG, thus controlling collectively more than one-third of the voting power

at LSG's general meetings.

(b) Lai Sun Garment (International) Limited (`̀ LSG'')

Ordinary Shares (`̀ LSG Shares'')

Number of LSG Shares Held

Personal

Interests

Family

Interests

Corporate

Interests

Other

Interests Total

Lim Por Yen 420,381,750 4,451,790 Nil Nil 424,833,540


Lam Kin Ming 64,610,000 Nil Nil Nil 64,610,000

U Po Chu 3,669,000 Nil Nil Nil 3,669,000

Chiu Wai 199,600 Nil Nil Nil 199,600


22


D I R E C T O R S ' I N T E R E S T S I N S H A R E C A P I T A L O R D E B E N T U R E S ( c o n t i n u e d )

(2) Associated Corporations: (continued)

As at 31st July, 1999, none of the directors or chief executive of the Company or their respective associates

had in pursuance of the SDI Ordinance any interest in either Crocodile Garments Limited (`̀ Crocodile'') or

Lai Fung Holdings Limited (``Lai Fung''), the associated corporations of the Company. The interests of

Messrs. Lim Por Yen, Lam Kin Ngok, Peter and Lam Kin Ming and their respective associates and the

respective members of the Lai Sun Group in Crocodile and Lai Fung were as follows:

(i) Lai Fung

The Company beneficially owned 779,958,912 shares in Lai Fung. LSG together with its wholly-

owned subsidiary held an interest of approximately 44.76% of the issued ordinary share capital of the

Company. Mr. Lim Por Yen (together with his spouses) held an interest of approximately 29.8% of the

issued share capital of LSG. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin Ming, Madam U

Po Chu and Madam Lai Yuen Fong were directors of LSG and held an interest of approximately 42% in

aggregate of the issued share capital of LSG, thus controlling collectively more than one-third of the

voting power at LSG's general meetings.

(ii) Crocodile

LSG and its wholly-owned subsidiary beneficially owned 338,982,809 shares in Crocodile. Mr. Lim

Por Yen (together with his spouses) held an interest of approximately 29.8% in the issued share capital

of LSG. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin Ming, Madam U Po Chu and Madam

Lai Yuen Fong were directors of LSG and held an interest of approximately 42% in aggregate of the

issued share capital of LSG, thus controlling collectively more than one-third of the voting power at

LSG's general meetings.

In addition to the above, certain directors held non-beneficial interests in the share capital of some of the

subsidiaries of the Company and of its associated corporations as nominee shareholders, mainly for the

purpose of complying with the statutory requirement for a minimum number of shareholders for those

subsidiaries and associated corporations.

Save as disclosed above, as at 31st July, 1999, none of the directors or chief executive of the Company or

their respective associates had any interest in the equity or debt securities of the Company or of any of its

associated corporations which were required to be notified to the Company and The Stock Exchange of

Hong Kong Limited pursuant to Section 28 of the SDI Ordinance or to the Model Code (including interests

which they were deemed or taken to have under Section 31 or Part 1 of the Schedule to that Ordinance) or

which were required, pursuant to Section 29 of that Ordinance, to be entered in the register referred to

therein.

At no time during the year was the Company, its holding company, or any of its subsidiaries or fellow

subsidiaries a party to any arrangement to enable a director of the Company to acquire benefits by means of

the acquisition of equity or debt securities of the Company or any other body corporate.


23


S U B S T A N T I A L S H A R E H O L D E R S

As at 31st July, 1999, the following parties were interested in 10% or more of the total issued ordinary share

capital of the Company as recorded in the register required to be kept under Section 16(1) of the SDI

Ordinance:

Number of Shares Held

Lai Sun Garment (International) Limited (`̀ LSG'') 1,582,869,192

(Note 1)

Lucky Source Investment Limited (``Lucky Source'') 531,894,335

(Note 2)

Hendon Developments Limited (`̀ Hendon Developments'') 531,894,335

(Notes 2 & 3)

Nan Fung Textiles Consolidated Limited (`̀ Nan Fung'') 852,764,935

(Notes 2, 3 & 4)

Mr. Chen Din Hwa 852,764,935

(Notes 2, 3, 4 & 5)

Notes:

1. LSG and its wholly-owned subsidiary beneficially owned 1,582,869,192 ordinary shares in the Company. Mr. Lim Por Yen

(together with his spouses) held an interest of approximately 29.8% of the issued share capital of LSG. Mr. Lim Por Yen, Mr.

Lam Kin Ngok, Peter, Mr. Lam Kin Ming, Madam U Po Chu and Madam Lai Yuen Fong were directors of LSG and held an

interest of approximately 42% in aggregate of the issued share capital of LSG, thus controlling collectively more than one-third

of the voting power at LSG's general meetings.

2. Lucky Source beneficially owned 531,894,335 ordinary shares in the Company.

3. Hendon Developments was taken to be interested in 531,894,335 ordinary shares in the Company beneficially owned by

Lucky Source due to its corporate interests therein.

4. Nan Fung, by virtue of its corporate interests in its subsidiaries, inter alia, Lucky Source and Hendon Developments, was taken

to be interested in an aggregate of 852,764,935 ordinary shares in the Company.

5. Mr. Chen Din Hwa was taken to be interested in an aggregate of 852,764,935 ordinary shares in the Company by virtue of his

interests in Nan Fung.

P U R C H A S E , S A L E O R R E D E M P T I O N O F L I S T E D S E C U R I T I E S

During the financial year ended 31st July, 1999, there was no purchase, sale or redemption by the

Company, or any of its subsidiaries, of the Company's listed securities.


24


D E T A I L S O F P R O P E R T I E S

The principal investment properties of the Group are as follows:

Location

Group

interest Tenure Use

1. Cheung Sha Wan Plaza,

833 Cheung Sha Wan Road,

Cheung Sha Wan, Kowloon,

Hong Kong (New Kowloon

Inland Lot No. 5955)

100% The property is held

for a term expiring

on 30th June, 2047

Office/

commercial/

carpark

2. Causeway Bay Plaza 1,

489 Hennessy Road,

Causeway Bay,

Hong Kong

(The remaining portion of

Subsection 10 of Section A of

Inland Lot No. 2836 and

Inland Lot Nos. 8659 and 8683)

100% Inland Lot No. 2836

is held for a term

of 99 years

commencing on

30th September, 1929

and renewable for a

further 99 years

Inland Lot Nos. 8659

and 8683 are held

for a term commencing

on 18th June, 1987 and expiring

on 30th June, 2047

Office/

commercial

3. Causeway Bay Plaza 2,

463±483 Lockhart Road,

Causeway Bay, Hong Kong

(Section J and the remaining

portions of Sections D, E, G, H,

K, L, M and O,

Subsection 4 of Section H and

the remaining portion of

Inland Lot No. 2833)

100% The property is

held for a term of

99 years commencing

on 15th April, 1929 and

renewable for a further

term of 99 years

Office/

commercial/

carpark

4. Lai Sun Commercial Centre,

680 Cheung Sha Wan Road,


Hong Kong (New Kowloon Inland

Lot No. 5984)

100% The property is

held for a term of

99 years less the

last 3 days thereof

from 1st July, 1898, and was

renewed for a term of

another 50 years

Office/

commercial/

carpark


25


D E T A I L S O F P R O P E R T I E S ( c o n t i n u e d )

Location

Group

interest Tenure Use

5. Crocodile House 1,

50 Connaught Road,

Central, Hong Kong

(Marine Lot Nos. 384±386)

100% Marine Lot No. 384

is held for a term

of 999 years from

7th December, 1903.

Marine Lot Nos. 385

and 386 are held for a

term of 999 years from

20th November, 1903

Office/

commercial

6. Crocodile House 2,

54±56 Connaught Road,

Central, Hong Kong

(Marine Lot Nos. 387, 388 and

the remaining portion of

Marine Lot No. 389)

100% Marine Lot No. 388

and the remaining

portion of Marine

Lot No. 389 are held

for a term of 999

years from 6th November,

1903. Marine Lot No. 387

is held for a term of 999 years

from 20th November, 1903

Office/

commercial

7. Lai Sun Yuen Long Centre,

27 Wang Yip Street East,

Yuen Long, New Territories,

Hong Kong (Yuen Long Town

Lot No. 362)

100% The property is held for

a term of 99 years less the

last 3 days thereof from

1st July, 1898, and was renewed

for a term of another 50 years

Industrial

8. Garment Centre,

576±586 Castle Peak Road,


Hong Kong (The remaining

portion of Section C

of New Kowloon Inland

Lot No. 1892)

100% The property is held for

a renewed term of 24 years

less the last 3 days thereof from

1st July, 1973, and was renewed

for a term of another 50 years

Industrial

9. Commercial podium and

certain office and service

apartment units of

Hong Kong Plaza,

282 & 283 Huaihaizhong

Road, Luwan District,

Shanghai,

PRC


for a term of 50 years,

commencing on


and expiring on


Office/

commercial/

club/

service

apartments


26



Location

Group

interest Tenure Use

10. 181 service apartment units of

Hong Kong Plaza,

North Tower,

282 & 283 Huaihaizhong Road,

Luwan District,

Shanghai,

PRC


for a term of 50 years,

commencing on


and expiring on


Service

apartments

All the Group's investment properties are situated in Hong Kong or the PRC and are held under medium or

long term leases.

The principal properties under development of the Group are as follows:

Location

Group

interest

Stage of

construction

Expected

completion

date

Expected

use Gross floor area

1. 55±61 Carnarvon Road,

38±40 Kimberley

Street and 24 & 26

Kimberley Road,

Tsim Sha Tsui,

Kowloon,

Hong Kong

50% Demolition

completed

March

2002

Commercial/

service

apartments

The total site area is

960 sq.m. The total

gross floor area will

be 10,610 sq.m.

2. 789 Cheung Sha

Wan Road,

Cheung Sha Wan,

Kowloon,

Hong Kong

100% Foundation

work

completed

December

2000

Industrial/

office


1,224 sq.m.

The total gross

floor area will

be 14,693 sq.m.

3. 488 Jaffe Court,

486±488 Jaffe Road,

Causeway Bay,

Hong Kong

100% Foundation

work

completed

November

2000

Commercial/

residential


159 sq.m. The total

gross floor area will

be 1,506 sq.m.


27



Location

Group

interest

Stage of

construction

Expected

completion

date

Expected


4. The Waterfront

1 Austin Road West,

Tsim Sha Tsui,

Kowloon,

Hong Kong

10% Superstructure

work in

progress

August

2000

Residential The total site area

is 16,815 sq.m.

The total gross

floor area will

be 147,562 sq.m.

5. Lot No. 2087 in

DD105, Ngau Tam Mei,

Yuen Long,

New Territories,

Hong Kong

50% Superstructure

work in

progress

December

1999

Residential The total site area is

5,400 sq.m. The

total gross floor area

will be 2,160 sq.m.

6. Eastern Place,

787 Dong Feng Road

East, Guangzhou,

Guangdong Province,

PRC

75% Phase II

interior

decoration

work in

progress

Phase II

residential

late 1999

Commercial/

residential/

office for the

whole

development

The total site area

for the development

is 52,073 sq.m.

The total gross

floor area for the

development will

be 261,945 sq.m.

7. New Trend Plaza

(previously known as

Rili Shangsha),

32±80

Zhongshanwu Road,

5±15 Guang Da Road

and 3±7 Guangzhou

Yixiang, Yue Xiu

District,

Guangzhou,

Guangdong Province,

PRC

75% Basement

construction

work in

progress

Early 2002 Commercial/

office

The total site area

is 5,782 sq.m.

The total gross

floor area will

be 34,733 sq.m.


28



Location

Group

interest

Stage of

construction

Expected

completion

date

Expected


8. Guangli Building,

Chang Di Main Road,

Yue Xiu District,

Guangzhou,

Guangdong Province,

PRC

75% Resettlement

of original

inhabitants in

progress

2005 Commercial/

office

The total site area

is 8,427 sq.m.

The total gross

floor area will

be 104,500 sq.m.

9. Shanghai Baining

Baba Plaza,

Junction of

Anhua Road

and Kaixuan Road,

Changning District,

Shanghai,

PRC

71% Vacant site

and in

planning stage

2005 Residential/

commercial

The total site area

is 36,149 sq.m.

The total gross

floor area will

be 166,285 sq.m.

10. Zhong Yue Garden,

Xujiahui Road,

Luwan District,

Shanghai,

PRC

63% Phase I

foundation

work in

progress

Late 2000 Commercial/

residential

The total site area

for the whole

development is

21,289 sq.m. The

total gross floor area

for the whole

development will be

106,445 sq.m.

11. Zhabei Plaza

(plot 130±3),

Zhabei,

Shanghai,

PRC

36% Interior

decoration

work in

progress

Late 1999 Commercial/

office


3,222 sq.m. The

total gross area will

be 17,609 sq.m.


29


F I X E D A S S E T S A N D I N V E S T M E N T P R O P E R T I E S

Details of movements in the fixed assets and investment properties of the Company and the Group during

the year are set out in notes 13 and 14, respectively, to the financial statements.

P R O P E R T I E S U N D E R D E V E L O P M E N T

Details of movements in the properties under development of the Company and the Group during the year

are set out in note 15 to the financial statements.

S U B S I D I A R I E S

Details of the Company's principal subsidiaries at the balance sheet date are set out in note 16 to the

financial statements.

A S S O C I A T E D C O M P A N I E S A N D J O I N T L Y C O N T R O L L E D E N T I T I E S

Details of the Company and the Group's principal associated companies and the Group's jointly controlled

entities are set out in notes 19 and 20, respectively, to the financial statements.

B O R R O W I N G S

Details of bank loans, overdrafts and other borrowings of the Company and the Group at the balance sheet

date are set out in notes 24 and 26 to the financial statements.

B O N D S P A Y A B L E

Details of bonds payable of the Group at the balance sheet date are set out in notes 24 and 27 to the financial

statements.

S H A R E C A P I T A L

Details of movements in the share capital of the Company during the year are set out in note 28 to the

financial statements.

R E S E R V E S

Details of movements in the reserves of the Company and of the Group during the year are set out in note 29

to the financial statements.

D I S T R I B U T A B L E R E S E R V E S

At 31st July, 1999, the Company did not have any reserves available for distribution in accordance with the

provisions of Section 79B of the Companies Ordinance.

C O N V E R T I B L E B O N D S

Details of the convertible bonds of the Group at the balance sheet date are set out in note 30 to the financial

statements.

C O N V E R T I B L E N O T E

Details of the convertible note of the Group at the balance sheet date are set out in note 31 to the financial

statements.

D O N A T I O N S

During the year, the Group made charitable or other donations totalling HK$5,367,000.


30


P O S T B A L A N C E S H E E T E V E N T S

Details of the post balance sheet events are set out in note 37 to the financial statements.

I N T E R E S T C A P I T A L I S E D

Interest capitalised by the Group during the year amounted to HK$625,143,000.

S U M M A R Y F I N A N C I A L I N F O R M A T I O N

A summary of the results and of the assets and liabilities of the Group for the last five financial years, as

extracted from the audited financial statements and reclassified as appropriate, is set out below.

Results

Year ended 31st July,

1999 1998 1997 1996 1995

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

TURNOVER 1,752,093 3,538,210 3,040,345 2,186,843 2,499,082

PROFIT/(LOSS) BEFORE

TAXATON (6,998,179) 486,251 1,108,411 910,813 931,628

Taxation (45,614) (143,959) (141,671) (141,026) (183,630)

PROFIT/(LOSS) BEFORE

MINORITY INTERESTS (7,043,793) 342,292 966,740 769,787 747,998

Minority interests 211,370 (32,910) (62,048) (3,384) (19,883)

NET PROFIT/(LOSS)

ATTRIBUTABLE TO

SHAREHOLDERS (6,832,423) 309,382 904,692 766,403 728,115


31


S U M M A R Y F I N A N C I A L I N F O R M A T I O N ( c o n t i n u e d )

ASSETS AND LIABILITIES

As at 31st July,

1999 1998 1997 1996 1995

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

Fixed assets 2,014,989 2,338,740 1,742,399 1,716,295 1,650,738

Investment properties 9,954,900 13,259,000 13,668,400 10,211,100 10,031,517

Properties under development 7,886,347 10,994,066 4,954,064 3,484,384 2,185,551

Goodwill Ð 90,012 87,965 28,943 29,804

Deferred pre-operating

expenses 10,718 32,256 6,068 11,331 17,629

Associated companies 1,126,531 2,399,601 2,749,201 2,795,211 2,230,259

Jointly controlled entities 188,572 183,219 79,919 33,088 25,332

Long term investments 1,018,389 2,073,429 2,479,810 899,196 705,346

Long term note receivable 245,000 1,100,000 Ð Ð Ð

Deferred tax assets 216 Ð Ð Ð Ð

Current assets 2,140,135 2,368,064 4,138,726 2,872,901 2,343,549

TOTAL ASSETS 24,585,797 34,838,387 29,906,552 22,052,449 19,219,725

Current liabilities (4,703,058) (4,395,426) (2,942,319) (2,466,938) (1,793,161)

Long term rental deposits

received (102,635) (124,527) (108,868) (97,860) (93,200)

Provision for premium on bond

redemption (249,554) (135,915) (23,023) (87,795) (53,575)

Provision for premium on note

redemption (1,667) Ð Ð Ð Ð

Long term borrowings (3,124,279) (5,314,604) (2,681,221) (2,109,301) (1,862,237)

Long term bonds payable (891,250) (891,250) (1,818,850) (927,600) Ð

Deferred taxation Ð (1,130) (34,401) Ð Ð

TOTAL LIABILITIES (9,072,443) (10,862,852) (7,608,682) (5,689,494) (3,802,173)

MINORITY INTERESTS (4,105,773) (4,682,432) (2,465,560) (1,023,063) (902,130)

CONVERTIBLE BONDS (2,098,581) (2,102,757) (1,158,465) (1,158,465) (1,158,465)

CONVERTIBLE NOTE (600,000) Ð Ð Ð Ð

NET ASSETS 8,709,000 17,190,346 18,673,845 14,181,427 13,356,957

Certain items in the consolidated balance sheets and consolidated profit and loss accounts in prior years

have been restated, as appropriate, to conform with the provisions of Statement of Standard Accounting

Practice 2.121 `Àccounting for Interests in Joint Ventures'' (`̀ SSAP 21''). The adoption of SSAP 21 has no

effect on the amount of the previously reported consolidated results attributable to shareholders or the

aggregate amounts of consolidated equity and retained profits.


32


M A J O R C U S T O M E R S A N D S U P P L I E R S

During the year, the Group's sales to its five largest customers accounted for less than 30% of the Group's

combined sales and the Group's purchases from its five largest suppliers accounted for less than 30% of the

Group's combined purchases.

L I Q U I D I T Y A N D F I N A N C I A L R E S O U R C E S

The Group sustained a consolidated net loss attributable to shareholders of HK$6,832 million for the year

ended 31st July, 1999. As at that date, the Group had consolidated net current liabilities of HK$2,563

million, consolidated accumulated losses of HK$4,194 million and consolidated net assets of HK$8,709

million.

In order to reduce the overall level of indebtedness, the Group gave cash generation priority over

profitability and implemented an aggressive disposal programme during the period thereby suffering losses

arising from property sales and disposals of selective long-term investments.

As at the balance sheet date, the Group's total bank and other borrowings, including amounts outstanding

under bonds and a note, was HK$9,820 million. As a result of the Group's losses and the deterioration in the

Group's financial position, the Group has not complied with certain financial covenants given in relation to

indebtedness amounting to HK$1,664 million. Further, the Group has not maintained financial covenants in

relation to bonds with principal and redemption premium aggregating HK$1,023 million. Accordingly,

certain lending banks and bondholders have the right to require immediate repayment. This, in turn, will

give rise to rights under cross-default provisions exercisable by certain lending banks and bondholders to

serve notice requiring immediate repayment of further amounts aggregating approximately HK$5,139

million.

On the basis of preliminary discussions, certain principal lending banks have indicated their support in

principle to grant waivers in respect of the Group's failure to maintain loan covenants and, in addition, to

defer repayment of amounts totalling approximately HK$3,545 million to 31st December, 2002, subject to

all other lending banks and bondholders also agreeing to a similar repayment deferral.

It is anticipated that further discussions with the Company's lending banks and bondholders will take place

over the next few weeks, with a view to obtaining all necessary waivers in respect of the Group's failure to

maintain the relevant loan covenants and to agreeing the basis on which principal payments will be

deferred.

As part of these discussions, it is proposed to convene, as soon as practicable, meetings of the Group's

bondholders. Further announcements to shareholders and bondholders will be made as and when

appropriate.

The business of the Company is carrying on normally and based on initial discussions with the Company's

principal lending banks, the directors are confident that satisfactory arrangements with all creditor groups

will be agreed.

The Group will continue to reorganise its property portfolio through the disposal of non-core assets as the

basis for the Group to take advantage of an anticipated upturn in the Hong Kong property market in the

medium term.


33


E M P L O Y E E S A N D R E M U N E R A T I O N P O L I C I E S

The Group employs a total of approximately 1,900 employees. Pay rates of employees are maintained at

competitive levels and salary and bonuses are rewarded on a performance related basis. Other staff benefits

include both contributory and defined benefit provident fund schemes, free hospitalisation insurance plan,

subsidised medical care and subsidies for external educational and training programmes.

Y E A R 2 0 0 0 C O M P L I A N C E

The Group has been carrying on the implementation of the Year 2000 compliance program of which the

approach, structure, risk assessment and compliance definition have been well covered in the previous

Annual Report. In this respect, the Group has appointed independent consultants to advise on the

replacement or upgrading of the hardware and related software to ensure compliance.

The systems identified as requiring major upgrades are the accounting and hotel reservation systems. The

compliance program and all necessary Year 2000 compliance projects have been completed. Total cost

incurred was approximately HK$2 million.

The Group has formulated contingency plans to deal with any unforeseen problems that might arise at the

turn of the millennium. They mainly involve the backing up of all electronic data in multiple media at

intervals to enable the restoration of the same later when necessary; the engagement of external consultants

to oversee the transition of the computer systems through the turn of the millennium and having manual

modes of the Group's vital functions ready to enable the continued operation of the Group without the need

of computers.

P R A C T I C E N O T E 1 9 T O T H E L I S T I N G R U L E S

(1) Specific performance obligations on controlling shareholder

A bank loan facility of HK$200 million was granted to the Company for a term of two years (the ``Loan

Agreement'') from 19th February, 1999. The outstanding amount as at 31st July, 1999 was HK$183.9

million. According to the Loan Agreement, Mr. Lim Por Yen and members of the Lim Family (as

defined in the Loan Agreement) should maintain control of Lai Sun Garment (International) Limited

(`̀ LSG''), and LSG should maintain control of the Company.


34


P R A C T I C E N O T E 1 9 T O T H E L I S T I N G R U L E S ( c o n t i n u e d )

(2) Financial assistance and guarantees provided to affiliated companies (including associated

companies and jointly controlled entities)

As at 31st July, 1999, the Company and its subsidiaries (the ``Group'') had given financial assistance

and guarantees to financial institutions for the benefit of its affiliated companies amounting to, in

aggregate, approximately 25.5% of the Group's net asset value. In compliance with Practice Note 19,

the proforma combined balance sheet of affiliated companies as at the balance sheet date is disclosed

as follows:

HK$'000

Fixed assets 1,450,998

Investment properties 143,700

Properties under development 2,780,290

Goodwill 78,732

Deferred expenses 64,531

Associated companies 352,909

Net current liabilities (169,523)

Total assets less current liabilities 4,701,637

Long term borrowings (1,009,172)

Deferred income (87,080)

Amounts due to shareholders (3,328,793)

276,592

CAPITAL AND RESERVES

Share capital 888,433

Capital reserve 64,111

Investment property revaluation reserve 110,311

Exchange fluctuation reserve 8,879

Accumulated losses (775,095)

296,639

Minority interests (20,047)

276,592

(3) Breach of loan agreements

Except for those disclosed in note 1 `̀ Basis of presentation'' to the financial statements, the directors of

the Company are not aware of any breach of the terms of the loan agreements with respect to the

Group's borrowings.


35


C O D E O F B E S T P R A C T I C E

In the opinion of the directors, the Company has complied with the Code of Best Practice as set out in

Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

during the year ended 31st July, 1999. All the non-executive directors of the Company were not appointed

for a specific term as they are subject to retirement by rotation and re-election at the Company's Annual

General Meeting in accordance with the Articles of Association of the Company.

A U D I T O R S

Ernst & Young retire at the forthcoming Annual General Meeting and a resolution for their reappointment as

auditors of the Company will be proposed at the said meeting.

On Behalf of the Board

Lam Kin Ngok, Peter

Deputy Chairman

Hong Kong

12th November, 1999


36


To the members

Lai Sun Development Company Limited

(Incorporated in Hong Kong with limited liability)

We have audited the financial statements on pages 39 to 109 which have been prepared in accordance with

accounting principles generally accepted in Hong Kong.

R E S P E C T I V E R E S P O N S I B I L I T I E S O F D I R E C T O R S A N D A U D I T O R S

The Companies Ordinance requires the directors to prepare financial statements which give a true and fair

view. In preparing financial statements which give a true and fair view it is fundamental that appropriate

accounting policies are selected and applied consistently. It is our responsibility to form an independent

opinion, based on our audit, on those statements and to report our opinion to you.

B A S I S O F O P I N I O N

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong

Society of Accountants. An audit includes an examination, on a test basis, of evidence relevant to the

amounts and disclosures in the financial statements. It also includes an assessment of the significant

estimates and judgements made by the directors in the preparation of the financial statements, and of

whether the accounting policies are appropriate to the Company's and the Group's circumstances,

consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we

considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to

whether the financial statements are free from material misstatement. In forming our opinion we also

evaluated the overall adequacy of the presentation of information in the financial statements. We believe that

our audit provides a reasonable basis for our opinion.

F U N D A M E N T A L U N C E R T A I N T I E S R E L A T I N G T O T H E G O I N G C O N C E R N

B A S I S

In forming our opinion, we have considered the adequacy of the disclosures made in note 1 to the financial

statements which explain the circumstances giving rise to the fundamental uncertainties relating to (1) the

possible outcome of the discussions with the relevant lending banks in respect of borrowings that amounted

to HK$5,525 million at 31st July, 1999 (the ``Bank Discussions'') with a view to obtaining waivers for the

Group's failure to maintain the relevant loan covenants (the `̀ Waivers'') and/or to concluding formal

agreements with them in respect of a deferral of the principal repayments to 31st December, 2002 (the

`̀ Principal Repayment Deferral''); and (2) the possible outcome of the discussions with the bondholders in

respect of bonds payable with an aggregate principal amount of HK$2,052 million and an aggregate

redemption premium of HK$249 million as at 31st July, 1999 (the ``Bondholder Discussions'') with a view to

obtaining the Waivers and/or to securing their agreement to the Principal Repayment Deferral. The financial

statements have been prepared on a going concern basis, the validity of which depends upon the successful


37

Report of the Auditors

outcome of the Bank Discussions and the Bondholder Discussions. The financial statements do not include

any adjustments that would result from the failure of the Bank Discussions and the Bondholder Discussions.

We consider that appropriate disclosures and estimates have been made in the financial statements and our

opinion is not qualified in this respect.

O P I N I O N

In our opinion the financial statements give a true and fair view, in all material respects, of the state of affairs

of the Company and of the Group as at 31st July, 1999 and of the loss and cash flows of the Group for the

year then ended and have been properly prepared in accordance with the Companies Ordinance.

Ernst & Young

Certified Public Accountants

Hong Kong

12th November, 1999


38

Report of the Auditors

1999 1998

Notes HK$'000 HK$'000

TURNOVER 3 1,752,093 3,538,210

OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL

ITEMS 5 (1,000,882) 468,961

Exceptional items 6 (5,691,191) Ð

OPERATING PROFIT/(LOSS) (6,692,073) 468,961

Share of results of associated companies (305,396) 17,290

Share of results of jointly controlled entities (710) Ð

PROFIT/(LOSS) BEFORE TAXATION (6,998,179) 486,251

Taxation 9 (45,614) (143,959)

PROFIT/(LOSS) BEFORE MINORITY INTERESTS (7,043,793) 342,292

Minority interests 211,370 (32,910)

NET PROFIT/(LOSS) ATTRIBUTABLE TO

SHAREHOLDERS 10, 29 (6,832,423) 309,382

Dividend 11 Ð 64,280

EARNINGS/(LOSS) PER SHARE 12

Basic (HK$2.26) HK$0.24

Diluted N/A HK$0.23

For the year ended 31st July, 1999


39

Consolidated Profit and Loss Account

1999 1998Notes HK$'000 HK$'000

FIXED ASSETS 13 2,014,989 2,338,740

INVESTMENT PROPERTIES 14 9,954,900 13,259,000

PROPERTIES UNDER DEVELOPMENT 15 7,886,347 10,994,066

GOODWILL ON CONSOLIDATION OF SUBSIDIARIES 17 Ð 90,012

DEFERRED PRE-OPERATING EXPENSES 18 10,718 32,256

ASSOCIATED COMPANIES 19 1,126,531 2,399,601

JOINTLY CONTROLLED ENTITIES 20 188,572 183,219

LONG TERM INVESTMENTS 21 1,018,389 2,073,429

LONG TERM NOTE RECEIVABLE 22 245,000 1,100,000

DEFERRED TAX ASSETS 23 216 Ð

NET CURRENT LIABILITIES 24 (2,562,923) (2,027,362)

TOTAL ASSETS LESS CURRENT LIABILITIES 19,882,739 30,442,961

LONG TERM RENTAL DEPOSITS RECEIVED (102,635) (124,527)

PROVISION FOR PREMIUM ON BOND REDEMPTION (249,554) (135,915)

PROVISION FOR PREMIUM ON NOTE REDEMPTION (1,667) Ð

LONG TERM BANK LOANS AND OTHER BORROWINGS 26 (3,124,279) (5,314,604)

LONG TERM BONDS PAYABLE 27 (891,250) (891,250)

DEFERRED TAXATION 23 Ð (1,130)

15,513,354 23,975,535

CAPITAL AND RESERVESShare capital 28 1,768,001 803,500Reserves 29 6,940,999 16,386,846

8,709,000 17,190,346

MINORITY INTERESTS 4,105,773 4,682,432

12,814,773 21,872,778

CONVERTIBLE BONDS 30 2,098,581 2,102,757

CONVERTIBLE NOTE 31 600,000 Ð

15,513,354 23,975,535

Lam Kin Ngok, PeterDirector

Lau Shu Yan, JuliusDirector

31st July, 1999


40

Consolidated Balance Sheet

1999 1998Notes HK$'000 HK$'000

NET CASH INFLOW/(OUTFLOW) FROM OPERATINGACTIVITIES 32(a) (407,772) 837,640

RETURNS ON INVESTMENTS AND SERVICING OFFINANCE

Dividends received from associated companies 113,304 18,657Dividends received from listed and unlisted investments 4,456 10,707Dividends paid Ð (208,910)Interest received 174,806 268,783Interest paid on bank loans, overdrafts and other

borrowings (601,173) (787,440)Interest paid on bonds payable (88,582) (120,311)Interest paid on convertible bonds and note (80,759) (110,007)

Net cash outflow from returns on investments and servicingof finance (477,948) (928,521)

TAXATIONHong Kong profits tax paid (76,574) (20,825)Taxes paid outside Hong Kong (18,271) (30,127)

Taxes paid (94,845) (50,952)

INVESTING ACTIVITIESProceeds from disposal of fixed assets 253,887 10,319Proceeds from disposal of investment properties 123,438 910,248Proceeds from disposal of partial interests in subsidiaries Ð 41,827Proceeds from disposal of associated companies 98,423 704,626Proceeds from disposal of long term investments 241,579 148,954Proceeds from disposal of properties under development 116,938 267,140Acquisition of subsidiaries 32(e) 272 (6,568,818)Proceeds from disposal of subsidiaries 32(f) 519,853 1,452,813Capital injection to a jointly controlled entity (5,153) (73,300)Acquisition of additional interests in subsidiaries (169,104) (85,646)Acquisition of additional interests in associated companies (5,846) ÐAcquisition of long term investments (31,059) (366,136)Additions to properties under development (183,149) (1,720,682)Additions to deferred pre-operating expenses (3,090) (1,686)Reorganisation expenses paid Ð (44,024)Additions to investment properties (2,979) (255,610)Purchases of fixed assets (92,395) (95,013)Acquisition of associated companies (42,043) (284,159)Advances from associated companies 264,639 88,401Advances to investee companies (75,730) (100,788)Advances from/(to) jointly controlled entities 1,298 (26,190)Return of capital from an associated company 114,926 46,422Subsidiary excluded from consolidation 32(g) Ð (20,633)

Net cash inflow/(outflow) from investing activities 1,124,705 (5,971,935)

NET CASH INFLOW/(OUTFLOW) BEFORE FINANCINGÐ page 42 144,140 (6,113,768)



41

Consolidated Cash Flow Statement

1999 1998Notes HK$'000 HK$'000

NET CASH INFLOW/(OUTFLOW) BEFORE FINANCINGÐ page 41 144,140 (6,113,768)

FINANCINGProceeds from private placement of shares 32(b) 152,950 ÐProceeds from the issue of rights shares 32(b) 883,999 501,859Share issue expenses 32(b) (25,870) ÐProceeds from the issue of shares upon exercise of warrants 32(b) 19 725Proceeds from the issue of convertible bonds 32(b) Ð 1,161,375Proceeds from the issue of convertible note 32(b) 600,000 ÐBond issue expenses Ð (51,423)Note issue expenses (12,600) ÐRepurchase of convertible bonds 32(b) (3,542) (69,415)Redemption of bonds 32(b) (923,735) ÐRepurchase of bonds 32(b) Ð (3,408)Proceeds from new borrowings 32(b) 1,589,481 4,833,130Release of bank deposits pledged 32(b) 2,214 3,348Repayment of borrowings 32(b) (2,211,062) (1,931,173)Advances from/(repayment to) minority interests 32(b) (19,252) 85,895Capital injection by minority interests of subsidiaries 32(b) Ð 778,632

Net cash inflow from financing 32,602 5,309,545

INCREASE/(DECREASE) IN CASH AND CASHEQUIVALENTS 176,742 (804,223)

Cash and cash equivalents at beginning of year 602,747 1,409,339Exchange realignments (9,057) (2,369)

CASH AND CASH EQUIVALENTS AT END OF YEAR 770,432 602,747

ANALYSIS OF BALANCES OF CASH AND CASHEQUIVALENTS

Cash and bank balances 778,487 650,217Bank deposits pledged Ð (2,214)Restricted cash and bank balances (8,055) (45,256)

770,432 602,747



42

Consolidated Cash Flow Statement

1999 1998


FIXED ASSETS 13 27,539 35,639

INVESTMENT PROPERTIES 14 3,297,200 4,447,200

PROPERTIES UNDER DEVELOPMENT 15 16,063 10,558

SUBSIDIARIES 16 5,008,761 9,447,416

ASSOCIATED COMPANIES 19 263,073 684,592

LONG TERM INVESTMENTS 21 469,773 403,003

NET CURRENT LIABILITIES 24 (1,231,550) (537,536)

TOTAL ASSETS LESS CURRENT LIABILITIES 7,850,859 14,490,872

LONG TERM RENTAL DEPOSITS RECEIVED (42,314) (57,701)

PROVISION FOR PREMIUM ON BOND REDEMPTION (249,554) (135,915)

LONG TERM BANK LOANS 26 (781,118) (1,757,300)

6,777,873 12,539,956

CAPITAL AND RESERVES

Share capital 28 1,768,001 803,500

Reserves 29 5,009,872 11,736,456

6,777,873 12,539,956

Lam Kin Ngok, Peter

Director

Lau Shu Yan, Julius

Director

31st July, 1999


43

Company Balance Sheet

1. B A S I S O F P R E S E N T A T I O N

The Group sustained a net loss attributable to shareholders of HK$6,832 million for the year ended 31st

July, 1999. As at that date, the Group had consolidated net current liabilities of HK$2,563 million,

consolidated accumulated losses of HK$4,194 million and consolidated net assets of HK$8,709 million.

The deterioration in financial position was largely attributable to the provisions made, particularly those

made for diminution in the values of the Group's properties as a result of the continued depressed property

market in Hong Kong.

The Group had consolidated bank and other borrowings of HK$6,230 million and bond and note payables,

which include the Exchangeable Bonds (note 27), the Convertible Bonds 2002, the Lai Fung Convertible

Bonds (note 30), and the Convertible Note (note 31), of HK$3,590 million at 31st July, 1999.

As a result of the Group's losses and the deterioration in the Group's financial position as stated above,

certain financial covenants given by the Group in loan agreements (the `̀ Loan Agreements'') in relation to

bank borrowings totalling HK$1,664 million (the `̀ Loans'') have not been complied with. Further, certain

covenants specified in the trust deed governing the issue of the Exchangeable Bonds (the `̀ Exchangeable

Trust Deed'') were not maintained. The principal and redemption premium in respect of the Exchangeable

Bonds outstanding as at 31st July, 1999 were HK$891 million and HK$132 million, respectively.

Loan agreements with respect to certain other bank loans amounting to HK$3,861 million as at 31st July,

1999 (the `Òther Loans'') and the trust deed governing the issue of the Convertible Bonds 2002 with a

principal of HK$1,161 million and a redemption premium of HK$117 million as at 31st July, 1999 (the

`̀ Convertible Trust Deed'') contain cross default clauses. If any relevant borrowings, including the Loans and

the Exchangeable Bonds, become due and repayable prematurely because of an event of default, the Other

Loans and the Convertible Bonds 2002 will, in turn, become immediately due and repayable if the relevant

lending banks or trustee serve notice to the Group for immediate repayment.

The remaining bank and other loans of HK$705 million, the Lai Fung Convertible Bonds of HK$938 million

and the Convertible Note of HK$600 million were obtained through Lai Fung Holdings Limited (`̀ Lai Fung'')

and Lai Sun Hotels International Limited (``LSHIL''), the two listed subsidiaries of the Group. According to

the respective loan agreements and trust deeds, Lai Fung and LSHIL are subject to different sets of covenants

from those referred to above. Lai Fung and LSHIL have maintained compliance with such covenants as at the

balance sheet date.

Pursuant to the Loan Agreements and Exchangeable Trust Deed, as confirmed by the Company's legal

advisors, upon the breach of any covenants, the respective lending banks or trustee may (in the case of a

trustee, the trustee must if so required by bondholders) serve notice on the Group to declare the Loans or

the Exchangeable Bonds to be immediately due and repayable. However, unless and until such notice is

served by the respective lending banks or the trustee, the Loans and the Exchangeable Bonds remain

repayable in accordance with their original stated maturity dates.

31st July, 1999


44

Notes to Financial Statements

1. B A S I S O F P R E S E N T A T I O N ( c o n t i n u e d )

In addition, with respect to the Other Loans and the Convertible Bonds 2002, the respective lending banks

or trustee may (in the case of a trustee, the trustee must if so required by bondholders) declare an event of

default in respect of the Group's respective borrowings by virtue of the cross default provisions contained in

the respective agreements of the Other Loans or the Convertible Trust Deed.

As at the current date, certain principal lending banks of the Loans and the Other Loans have indicated their

support in principle to waive any breach of covenants and to defer the repayment of the respective loan

principals to 31st December, 2002 (the `̀ Principal Repayment Deferral'') provided that all other lending

banks and the bondholders of the Exchangeable Bonds and the Convertible Bonds 2002 also agree to the

same waiver and deferral terms. The amounts due to these principal lending banks as at 31st July 1999

amounted to HK$3,545 million in aggregate.

With regard the other lending banks, the directors of the Company (the ``Directors'') are confident that

waivers in respect of the Group's breach of certain loan covenants (the ``Waivers'') and/or the Principal

Repayment Deferral can be arranged. Accordingly, the Directors consider it appropriate to continue

classifying the Loans and Other Loans as current or long term liabilities according to their original maturity

terms under the respective loan agreements as at 31st July 1999.

The Group will shortly conduct meetings with the bondholders of the Exchangeable Bonds and the

Convertible Bonds 2002 with a view to obtaining the Waivers and/or to secure their agreement to the

Principal Repayment Deferral (the ``Discussions''). The Directors are optimistic that the Discussions will be

successful. On such basis, the Directors consider it appropriate to continue classifying the Exchangeable

Bonds and the Convertible Bonds 2002 as long term liabilities according to their respective original maturity

dates.

On the bases that formal agreements with banks on the Waivers and/or the Principal Repayment Deferral

can be arranged and the Discussions are successful, the Directors are satisfied that it is appropriate to

prepare the financial statements on a going concern basis.

If the going concern basis is not appropriate, adjustments would have to be made to restate the values of the

assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify

non-current assets and liabilities as current assets and current liabilities, respectively.

2. S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries

for the year ended 31st July, 1999, except for LSHIL and Furama Hotel Enterprises Limited (``Furama''),

which prepared their statutory consolidated accounts based on the financial years ended 31st December and

31st March, respectively, of which the management accounts for the year ended 31st July, 1999, after

making appropriate adjustments, were included. The results of subsidiaries acquired or disposed of during

the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All

significant intercompany transactions and balances within the Group are eliminated on consolidation.

31st July, 1999


45


2. S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( c o n t i n u e d )

Subsidiaries

A subsidiary is a company in which the Company, directly or indirectly, controls more than 50% of its

voting power or controls the composition of its board of directors.

Interests in subsidiaries are stated in the Company's balance sheet at cost unless, in the opinion of the

directors, there have been permanent diminutions in values, when they are written down to values

determined by the directors.

Associated companies

An associated company is a company, not being a subsidiary or a jointly controlled entity, in which the

Group has a long term interest of not less than 20% of the equity voting rights and over which it is in a

position to exercise significant influence.

The Group's share of the post-acquisition results and reserves of associated companies is included in the

consolidated profit and loss account and consolidated reserves, respectively. The Group's investments in

associated companies are stated in the consolidated balance sheet at the Group's share of net assets under

the equity method of accounting less any provisions for permanent diminutions in values deemed necessary

by the directors, other than goodwill which is recorded in the associated company's own financial

statements, plus goodwill arising on the acquisition of interests in the associated companies in so far as it

has not already been written off or amortised.

The results of associated companies are included in the Company's profit and loss account to the extent of

dividends received. The interests in associated companies in the Company's balance sheet are stated at cost

unless, in the opinion of the directors, there have been permanent diminutions in values, when they are

written down to the directors' valuations.

Certain interest on loans borrowed for investments in associated companies engaging in property

development is capitalised in the Group's share of the net assets of the associated companies.

Jointly controlled entities

A jointly controlled entity is a joint venture which involves the establishment of a corporation, partnership

or other form of entity in which each venturer has an interest. The jointly controlled entity operates in the

same way as other enterprises, except that a contractual arrangement between the venturers establish joint

control over the economic activities of the entity.

The Group's share of the post-acquisition results and reserves of jointly controlled entities is included in the

consolidated profit and loss account and consolidated reserves, respectively. Where the profit sharing ratios

are different from the Group's equity interests therein, the share of post-acquisition results of the jointly

controlled entities is determined based on the agreed profit sharing ratios. The Group's interests in jointly

controlled entities are stated in the consolidated balance sheet at the Group's share of net assets under the

equity method of accounting less any provisions for diminutions in values, other than temporary in nature,

deemed necessary by the directors.

31st July, 1999


46



Jointly controlled entities (continued)

In prior years, jointly controlled entities were accounted for and disclosed as subsidiaries or associated

companies. The change in accounting policy has resulted from the adoption of Statement of Standard

Accounting Practice No. 2.121 `̀ Accounting for Interests in Joint Ventures'' (`̀ SSAP 21'') issued by the Hong

Kong Society of Accountants (`̀ HKSA'') in March 1998. The change in accounting policy has been applied

retrospectively, and accordingly the comparative amounts have been restated to conform with the current

year's presentation. The change in accounting policy resulted in deconsolidation of two entities with an

aggregate net asset value of HK$140,971,000 at 31st July, 1998 and their restatement as jointly controlled

entities; and the reclassification of HK$42,248,000 at 31st July, 1998 from associated companies to jointly

controlled entities. The adoption of SSAP 21 had no effect on the Group's consolidated results attributable

to shareholders for the year ended 31st July, 1998 or the consolidated net assets as at 31st July, 1998.

Certain interest on loans borrowed for investments in jointly controlled entities engaging in property

development is capitalised in the Group's share of net assets of the jointly controlled entities.

Goodwill

Goodwill arising on consolidation of subsidiaries and on acquisition of associated companies represents the

excess of the purchase consideration paid for subsidiaries/associated companies over the fair values ascribed

to the net underlying assets acquired at the date of acquisition.

Goodwill arising on the acquisition of three subsidiaries, Chains International Hotels Management Limited,

Century International Hotels Limited and Delta Asia Limited, and of associated companies is amortised on

the straight-line basis over a period of forty years. Such goodwill is stated at amortised balance adjusted for

any permanent impairment in value considered necessary by the directors.

Goodwill arising on the acquisition of other subsidiaries is eliminated against reserves at the time of

acquisition.

Capital reserve

The capital reserve arising on consolidation of subsidiaries and on acquisition of associated companies

represents the excess of the fair values ascribed to the net underlying assets of subsidiaries/associated

companies acquired at the date of acquisition over the purchase consideration paid for subsidiaries/

associated companies.

31st July, 1999


47



Fixed assets and depreciation

No depreciation is provided for freehold land, hotel and investment properties, and construction in

progress. Other fixed assets are stated at cost less accumulated depreciation.

The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to

its working condition and location for its intended use. Expenditure incurred after the fixed assets have

been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account

in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure

has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed

assets, the expenditure is capitalised as an additional cost of the fixed assets.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated

useful life. The principal annual rates used for this purpose are as follows:

Leasehold land Over the unexpired lease terms

Buildings 2.5% ± 5%

Leasehold improvements 2.5% ± 20%

Furniture, fixtures and equipment 5% ± 20%

Motor vehicles 10% ± 25%

Computers 10% ± 25%

Motor vessels 25%

Hotel properties are interests in land and buildings and their integral fixed plant which are collectively used

in the operation of hotels, and are stated at cost. It is the Group's policy to maintain the hotel properties in

such condition that their residual values are not currently diminished by the passage of time and, therefore,

any element of depreciation is insignificant. Accordingly, the directors consider that it is not necessary for

depreciation to be charged in respect of the hotel properties. The related maintenance and repairs are

charged to the profit and loss account in the year in which they are incurred and the costs of significant

improvements are capitalised.

Construction in progress is not depreciated until such time when the relevant assets are completed and put

into use.

The gain or loss on disposal or retirement of a fixed asset, other than investment properties, recognised in

the profit and loss account is the difference between the net sales proceeds and the carrying amount of the

relevant asset.

31st July, 1999


48



Investment properties

Investment properties are interests in land and buildings in respect of which construction work and

development have been completed and which are intended to be held on a long term basis for their

investment potential. Such properties are not depreciated and are stated at their open market values on the

basis of annual professional valuations. Changes in the values of investment properties are dealt with as

movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover

a deficit, on a portfolio basis, the excess of the deficit is charged to the profit and loss account.

Where a deficit has previously been charged to the profit and loss account and a revaluation surplus

subsequently arises, this surplus is credited to the profit and loss account to the extent of the deficit

previously charged.

Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in

respect of previous valuations is released to the profit and loss account.

Properties under development

Properties under development intended to be held for rental purposes are stated at their open market values

on the basis of annual professional valuations.

Changes in the values of properties under development which have been revalued are dealt with as

movements in the revaluation reserve for properties under development held for rental purposes. If this

reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the profit

and loss account.

Upon the disposal of a property under development which has been revalued, the relevant portion of the

revaluation reserve for properties under development held for rental purposes realised in respect of previous

valuations is released to the profit and loss account.

Properties under development held for purposes other than rental are stated at cost less any provisions for

permanent diminutions in values considered necessary by the directors. Cost includes the cost of land,

construction, financing and other related expenses.

Where pre-sale profit is recognised, the attributable profit on the pre-sold portion of the properties under

development is recognised over the course of the development after taking into account all further costs to

completion and due allowances for contingencies and, is calculated on each project by reference to the lower

of:

(i) the percentage which results from the proportion of the total construction cost incurred to the total

estimated construction costs to completion; and

(ii) the proportion of the actual cash received to the total sales consideration.

31st July, 1999


49



Completed properties for sale

Completed properties for sale are stated at the lower of cost and net realisable value. Net realisable value is

estimated by the directors based on prevailing market conditions. Cost includes all development

expenditure, applicable borrowing costs and other direct costs attributable to such properties. Cost is

determined by an apportionment of the total land and building costs attributable to unsold properties.

Deferred pre-operating expenses

Deferred pre-operating expenses represent expenses incurred prior to the commencement of operations of

certain subsidiaries. The pre-operating expenses are capitalised at cost and amortised on the straight-line

basis over a period of three to five years from the date of commencement of the operations of the relevant

subsidiaries.

Investments

Investments held on a long term basis are stated at cost less provisions for any permanent diminutions in

values considered necessary by the directors.

Short term investments comprise listed and unlisted investments. Listed investments are stated at the lower

of cost and market value at the balance sheet date. Unlisted investments are stated at cost less provisions for

diminutions in values considered necessary by the directors.

Cetain interest on loans borrowed for long term investments engaging in property development is

capitalised.

Stocks

Stocks are stated at the lower of cost and net realisable value after making due allowance for obsolete or

slow-moving items. Cost for food, beverages, cutlery, linen and supplies is determined on the first-in, first-

out basis. Cost for flour is determined on the weighted average basis and comprises materials, direct labour

and an appropriate proportion of all production overhead expenditure. Net realisable value is determined

on the basis of anticipated sales proceeds less estimated selling expenses.

Leased assets

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than

legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the asset is

capitalised at the present value of the minimum lease payments and recorded together with the obligation,

excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance

leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated

useful lives of the assets. The finance costs of such leases are charged to the profit and loss account so as to

produce a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company

are accounted for as operating leases. Rentals applicable to such operating leases are charged to the profit

and loss account on the straight-line basis over the lease terms.

31st July, 1999


50



Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the

revenue can be measured reliably, on the following bases:

(a) sales of completed properties developed for sale, upon the establishment of a binding contract in

respect of the sale of properties, or upon the issue of an occupation permit by the Hong Kong

Government or a completion certificate by the relevant government authorities, whichever is the later;

(b) income from pre-sale of certain properties under development, when the construction work has

reached a stage where the ultimate realisation of profit can be reasonably determined on the basis set

out under the heading ``Properties under development'' above;

(c) sales of investment properties, when all the conditions of a sale have been met and the risks and

rewards of ownership have been transferred to the buyer;

(d) rental and property management fee income, in the period in which the properties are let out and on

the straight-line basis over the lease terms;

(e) hotel and restaurant operations and other related service income, in the period in which such services

are rendered;

(f) dealing of securities and sales of investments, on the transaction date when the relevant contract is

entered into;

(g) interest income, on a time proportion basis, taking into account the principal outstanding and the

effective interest rate applicable; and

(h) dividend income, when the shareholders' right to receive payment is established.

Borrowing costs

Borrowing costs directly attributable to the acquisition or construction of an asset which takes a substantial

period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. The

capitalisation rate for the year is based on the weighted average of the attributable borrowing cost of the

borrowings. All other borrowing costs are charged to the profit and loss account in the period in which they

are incurred.

Pension costs

The Group operates defined contribution pension schemes and a defined benefit retirement scheme for its

employees, the assets of which are held separately from those of the Group in independently administered

funds.

31st July, 1999


51



Pension costs (continued)

Contributions to the defined contribution pension schemes are made based on a percentage of the eligible

employees' salaries and are charged to the profit and loss account as they become payable in accordance

with the rules of the schemes. When an employee leaves the scheme prior to his/her interest in the Group

employer contributions vesting fully, the ongoing contributions payable by the Group may be reduced by

the relevant amount of forfeited contributions.

Contributions to the defined benefit retirement scheme are charged to the profit and loss account so as to

charge the cost of the retirement benefits over the eligible employees' working lives within the Group. The

contribution rate is recommended by independent qualified actuaries on the basis of triennial valuations,

using the aggregate method.

Foreign currencies

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction

dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are

translated at the applicable rates of exchange ruling at that date. Exchange differences are dealt with in the

profit and loss account.

On consolidation, the financial statements of subsidiaries, associated companies and jointly controlled

entities outside Hong Kong are translated to Hong Kong dollars at the applicable rates of exchange ruling at

the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

Deferred taxation

Deferred taxation is provided, using the liability method, on all significant timing differences to the extent it

is probable that the liability will crystallise in the foreseeable future. A deferred tax asset is not recognised

until its realisation is assured beyond reasonable doubt.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other

party, or exercise significant influence over the other party in making financial and operating decisions.

Parties are also considered to be related if they are subject to common control or common significant

influence.

Cash equivalents

Cash equivalents represent short term highly liquid investments which are readily convertible into known

amounts of cash and which are within three months of maturity when acquired, less advances from banks

repayable within three months from the date of the advance.

31st July, 1999


52


3. T U R N O V E R

Turnover comprises proceeds from the sales of properties, rental income, and income from hotel, restaurant

and other operations. Revenue from the following activities has been included in turnover.

Group

1999 1998

HK$'000 HK$'000

Sales of properties 552,318 2,042,298

Property rentals 649,321 776,379

Hotel, restaurant and other operations 550,454 719,533

1,752,093 3,538,210

4. R E L A T E D P A R T Y T R A N S A C T I O N S

In addition to the related party transactions and balances detailed elsewhere in the financial statements, the

Group had the following material transactions with related parties during the year.

Group

1999 1998


Interest income received from associated companies (i) 66,892 123,167

Rental income received from a fellow subsidiary (ii) 19,321 32,507

Rental income received from the ultimate holding company (ii) 2,003 2,902

Project management and consultancy fees received from an

associated company (iii) Ð 30,400

(i) Interest income received from associated companies arose from advances thereto. Interest is charged at the prevailing market rates.

(ii) Rental income received are pursuant to the terms in the respective lease agreements with reference to the then prevailing market

rentals.

(iii) The project management and consultancy fees received from an associated company were based on terms mutually agreed.

31st July, 1999


53


5. O P E R A T I N G P R O F I T / ( L O S S ) B E F O R E E X C E P T I O N A L I T E M S

This is arrived at after charging/(crediting):

Group

1999 1998

HK$'000 HK$'000

Rental income (649,321) (776,379)

Less: Outgoings 88,375 83,680

Net rental income (560,946) (692,699)

Interest from bank deposits (52,310) (71,030)

Other interest income (102,465) (208,626)

Gain on disposal of investment properties Ð (463,231)

Gain on disposal of properties under development Ð (467)

Gain on disposal of subsidiaries (13,923) Ð

Gain on deemed disposal of a subsidiary Ð (56,871)

Gain on disposal of interests in associated companies Ð (158,893)

Gain on disposal of associated companies (15,138) Ð

Dividend income from listed investments (4,256) (1,820)

Dividend income from unlisted investments (200) (8,887)

Gain on cancellation of convertible bonds (17,718) Ð

Write back of provision for premium on convertible bond redemption Ð (121,922)

Interest on bank loans, overdrafts and other borrowings:

Wholly repayable within five years 609,679 756,113

Not wholly repayable within five years 255 16,853

609,934 772,966

Interest on bonds payable 102,670 128,421

Interest on convertible bonds and note 107,887 110,007

Less: Amounts capitalised in properties under development (589,481) (611,423)

Amounts capitalised in construction in progress Ð (1,245)

Amounts capitalised in associated companies engaged in property

development (33,837) (48,229)

Amounts capitalised in long term investments engaged in property

development Ð (21,543)

Amount capitalised as acquisition cost of a subsidiary Ð (212,491)

Amounts capitalised in jointly controlled entities engaged in

property development (1,825) (3,684)

195,348 112,779

31st July, 1999


54




Group

1999 1998

HK$'000 HK$'000

Provision for premium on bond redemption 113,639 112,892

Provision for premium on note redemption 1,667 Ð

Amortisation of goodwill on acquisition of:

Subsidiaries 1,419 2,397

Associated companies 1,396 6,161

Write off of goodwill 54,182 Ð

Write off of deferred pre-operating expenses 18,974 Ð

Amortisation of deferred pre-operating expenses 5,690 8,540

Auditors' remuneration 5,020 5,027

Depreciation:

Owned fixed assets 63,547 70,647

Leased fixed assets 92 187Provisions for diminutions in values of short term listed and unlisted

investments 2,514 3,391

Provisions for diminutions in values of properties under development

to net realisable value 9,527 155,874

Provisions for diminutions in values of completed properties for sale

to net realisable value 128,931 20,930

Provision for/(write back of) diminution in value of an associated

company holding completed properties for sale (110,910) 110,910

Provisions for diminutions in values of, and advances to, associated

companies and investee companies engaged in hotel operations 42,487 Ð

Provisions for debtors and deposits paid for acquisition of properties Ð 91,913

Loss on disposal of fixed assets 155,336 2,377

Loss on disposal of properties under development 158,153 Ð

Loss on disposal of investment properties 153,940 Ð

Loss on disposal of subsidiaries Ð 131,339

Loss on dissolution of associated companies 1,808 Ð

Loss on disposal of partial interests in subsidiaries Ð 2,752

Loss on disposal of short term listed investments 10,527 194,702

Loss on disposal of short term unlisted investments 112,375 2,901

Loss on disposal of long term unlisted investments 431 Ð

Operating lease rentals in respect of land and buildings 2,655 4,519

Foreign exchange losses, net 4,779 13,683

31st July, 1999


55




The operating loss before exceptional items for the year includes costs of properties sold and services

provided for property rentals, hotel, restaurant and other operations of HK$1,341,089,000 (1998 :

HK$1,465,122,000 included in operating profit before exceptional items).

Such amount has not included provisions for diminutions in values of completed properties for sale to net

realisable value of HK$128,931,000 (1998 : HK$20,930,000) or the provisions for diminutions in values of

properties under development of HK$9,527,000 (1998 : HK$155,874,000).

6. E X C E P T I O N A L I T E M S

Group

1999 1998

HK$'000 HK$'000

Provisions for diminutions in values of properties under development 2,937,127 Ð

Provisions for diminutions in values of associated companies holding

properties under development 311,000 Ð

Provisions for deposits paid for acquisition of properties 452,500 Ð

Provision for contingent loss in respect of the Put Options (note 22) 855,000 Ð

Provisions for contingent losses in respect of profit guarantees(1) 178,200 Ð

Provision for contingent loss in respect of a guarantee given to a bank(2) 228,000 Ð

Loss on disposal of a long term listed investment 302,382 Ð

Provisions for diminutions in values of long term unlisted investments 426,982 Ð

5,691,191 Ð

(1) These relate to certain guaranteed returns given to the respective independent third parties in connection with the disposal of

certain investment properties and a subsidiary in prior years.

(2) This relates to a guarantee given to provide counter-indemnity to a bank for facilities granted by it to an associated company

engaged in the operations of duty free merchandise.

7. D I R E C T O R S ' A N D E M P L O Y E E S ' E M O L U M E N T S

(a) Directors' emoluments

Group

1999 1998

HK$'000 HK$'000

Fees 260 260

Basic salaries, housing and other allowances and benefits in kind 34,183 39,505

Bonuses paid and payable Ð 4,800

Inducement fee Ð 5,000

34,443 49,565

31st July, 1999


56


7. D I R E C T O R S ' A N D E M P L O Y E E S ' E M O L U M E N T S ( c o n t i n u e d )

(a) Directors' emoluments (continued)

Directors' emoluments paid to independent non-executive directors during the year were HK$260,000

(1998 : HK$260,000).

The emoluments of the directors fell within the following bands.

Group

1999 1998

Number of

directors

Number of

directors

HK$Nil ± HK$1,000,000 6 6

HK$2,000,001 ± HK$2,500,000 2 1

HK$3,000,001 ± HK$3,500,000 1 Ð

HK$3,500,001 ± HK$4,000,000 Ð 1

HK$4,000,001 ± HK$4,500,000 1 Ð

HK$5,500,001 ± HK$6,000,000 1 Ð

HK$6,500,001 ± HK$7,000,000 Ð 1

HK$8,500,001 ± HK$9,000,000 Ð 2

HK$15,500,001 ± HK$16,000,000 1 Ð

HK$19,000,001 ± HK$19,500,000 Ð 1

12 12

There were no arrangements under which a director waived or agreed to waive any emoluments.

(b) Employees' emoluments

The five highest paid employees during the year included 2 (1998 : 4) directors, details of whose

emoluments are set out above. The details of the emoluments of the remaining 3 (1998 : 1) non-director,

highest paid employees are set out below.

Group

1999 1998

HK$'000 HK$'000

Basic salaries, housing and other allowances and benefits in kind 27,755 5,437

Bonuses paid and payable Ð 472

27,755 5,909

31st July, 1999


57


7. D I R E C T O R S ' A N D E M P L O Y E E S ' E M O L U M E N T S ( c o n t i n u e d )

(b) Employees' emoluments (continued)

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

Group

1999 1998

Number of

individuals

Number of

individuals

HK$5,000,001 ± HK$5,500,000 1 Ð

HK$5,500,001 ± HK$6,000,000 Ð 1

HK$6,000,001 ± HK$6,500,000 1 Ð

HK$16,000,001 ± HK$16,500,000 1 Ð

3 1

8. P E N S I O N C O S T S

Group

1999 1998

HK$'000 HK$'000

Gross employer's contributions 6,010 9,306

Less: Forfeited contributions utilised to offset employer's

contributions for the year (1,684) (685)

4,326 8,621

At 31st July, 1999, there were forfeited contributions of HK$141,000 (1998 : HK$39,000) available to the

Group to reduce its contributions to the pension scheme in future years.

31st July, 1999


58


9. T A X A T I O N

Hong Kong profits tax has been provided at the rate of 16% (1998 : 16%) on the estimated assessable profits

arising in Hong Kong during the year.

Taxes on profits assessable elsewhere have been calculated at the rates of taxation prevailing in the places in

which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Group

1999 1998

HK$'000 HK$'000

Provision for taxation for the year:

Hong Kong 33,062 89,837

Outside Hong Kong 11,196 86,221

Deferred Ð note 23 (5,403) (33,651)

38,855 142,407

Prior year overprovision:

Hong Kong (2,315) (6,619)

36,540 135,788

Rebate received relating to prior year provision in Hong Kong (9,983) Ð

26,557 135,788

Associated companies:

Hong Kong 16,563 1,779


19,057 8,171

Taxation charge for the year 45,614 143,959

10. N E T P R O F I T / ( L O S S ) A T T R I B U T A B L E T O S H A R E H O L D E R S

Net loss attributable to shareholders dealt with in the financial statements of the Company is

HK$5,626,044,000 (1998 : net profit of HK$31,174,000).

The Group's share of aggregate profits less losses retained by the associated companies for the year

amounted to losses of HK$437,757,000 (1998 : HK$9,538,000).

31st July, 1999


59


11. D I V I D E N D

1999 1998

HK$'000 HK$'000

Interim dividend Ð 64,280

Interim dividend per ordinary share Ð 6 cents

12. E A R N I N G S / ( L O S S ) P E R S H A R E

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

1999 1998

HK$'000 HK$'000

Earnings/(loss)

Earnings/(loss) used in basic earnings/(loss) per share calculation (6,832,423) 309,382

Adjustment for the dilutive effect of Lai Fung Convertible Bonds N/A (10,740)

Earnings/(loss) used in diluted earnings/(loss) per share calculation(2) N/A 298,642

1999 1998

'000 '000

Number of shares

Weighted average number of ordinary shares in issue during the year used

in basic and diluted earnings/(loss) per share calculation(1) 3,016,739 1,301,356

(1) The weighted average number of ordinary shares of the Company in issue during the year is arrived at by adjusting the number of

ordinary shares in issue prior to the rights issue of 3rd February, 1999 with a factor of 1.2063. The weighted average number of

ordinary shares of the Company in issue during 1998 is arrived at by adjusting the number of ordinary shares in issue prior to the

rights issue of 27th July, 1998 with a factor of 1.007 and then by a factor of 1.2063 to reflect the rights issue of 3rd February, 1999.

(2) Diluted loss per share for current year has not been shown as the warrants, convertible bonds and convertible note of the Group

outstanding during the year have an anti-dilutive effect on the basic loss per share.

Diluted earnings per share for the year ended 31st July, 1998 has been restated in accordance with the provisions of the Statement

of Standard Accounting Practice No. 5 (Revised) issued by HKSA in May 1998.

31st July, 1999


60


13. F I X E D A S S E T S

Group

31st July,

1998 Additions

Transfer from

investment in

Whistler

Mountain Inn,

Limited

Partnership

(note 19) Disposals

Arising on

disposal of

subsidiaries

Exchange

realignments

31st July,

1999

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

Cost:

Hotel properties 1,940,297 43,270 Ð (253,272) Ð (2,455) 1,727,840

Freehold land and buildings 5,546 Ð Ð Ð Ð Ð 5,546

Leasehold land and buildings 108,801 403 Ð (28,535) (17,132) 49 63,586

Leasehold improvements 48,066 9,476 2,358 (19,188) (78) 66 40,700

Construction in progress 1,975 320 Ð (380) (1,915) Ð Ð

Furniture, fixtures and equipment 383,529 35,387 3,887 (30,714) (32,274) (610) 359,205

Motor vehicles 33,910 264 Ð (1,362) (315) 4 32,501

Computers 11,426 3,272 Ð (1,013) (606) (32) 13,047

Motor vessels 34,198 3 Ð Ð Ð Ð 34,201

2,567,748 92,395 6,245 (334,464) (52,320) (2,978) 2,276,626

Accumulated depreciation:

Freehold buildings 2,218 222 Ð Ð Ð Ð 2,440

Leasehold land and buildings 11,835 2,268 Ð (1,794) (1,821) 5 10,493

Leasehold improvements 31,297 3,485 Ð (2,610) (16) (1) 32,155

Furniture, fixtures and equipment 141,280 43,050 Ð (16,165) (6,295) (40) 161,830

Motor vehicles 18,940 4,377 Ð (997) (243) 10 22,087

Computers 5,489 2,124 Ð (763) (278) (2) 6,570

Motor vessels 17,949 8,113 Ð Ð Ð Ð 26,062

229,008 63,639 Ð (22,329) (8,653) (28) 261,637

Net book value 2,338,740 2,014,989

31st July, 1999


61


13. F I X E D A S S E T S ( c o n t i n u e d )

The net book value of assets held under finance leases included in the total amount of fixed assets at 31st

July, 1999 amounted to HK$238,000 (1998 : HK$716,000). The depreciation charge for the year in respect

of such assets amounted to HK$92,000 (1998 : HK$187,000).

Certain land and buildings were pledged to banks to secure banking facilities granted to the Group.

The Group's land and buildings as stated above are held under the following lease terms:

Hong

Kong

Outside

Hong Kong Total

HK$'000 HK$'000 HK$'000

Freehold Ð 5,546 5,546

Medium term 1,104,102 656,571 1,760,673

Long term 30,753 Ð 30,753

1,134,855 662,117 1,796,972

Company

31st July,

1998 Additions Disposals

31st July,

1999

HK$'000 HK$'000 HK$'000 HK$'000

Cost:

Freehold land and buildings 5,546 Ð Ð 5,546

Leasehold land and buildings 11,139 Ð (607) 10,532

Leasehold improvements 12,965 Ð Ð 12,965

Furniture, fixtures and equipment 42,057 1,434 (20) 43,471

Motor vehicles 20,974 Ð Ð 20,974

Computers 3,083 225 Ð 3,308

95,764 1,659 (627) 96,796

Accumulated depreciation:

Freehold buildings 2,218 222 Ð 2,440

Leasehold land and buildings 3,354 421 (24) 3,751

Leasehold improvements 12,817 87 Ð 12,904

Furniture, fixtures and equipment 26,793 5,272 (18) 32,047

Motor vehicles 12,526 2,807 Ð 15,333

Computers 2,417 365 Ð 2,782

60,125 9,174 (42) 69,257

Net book value 35,639 27,539

31st July, 1999


62


13. F I X E D A S S E T S ( c o n t i n u e d )

The Company's freehold land and buildings are situated outside Hong Kong. The Company's leasehold land

and buildings are situated in Hong Kong and are held under medium term leases.

14. I N V E S T M E N T P R O P E R T I E S

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

At beginning of year, at valuation 13,259,000 13,668,400 4,447,200 5,654,600

Additions, at cost 2,979 313,154 2,979 12,113

Disposals (190,430) (1,627,970) (2,000) (114,000)

Arising on acquisition of subsidiaries Ð 701,472 Ð Ð

Transfer from/(to) completed properties for sale (244,961) 665,005 (10,361) Ð

Transfer from properties under development Ð 1,943,241 Ð Ð

Deficits on revaluation (2,871,688) (1,904,209) (1,140,618) (1,105,513)

Arising on disposal of subsidiaries Ð (500,093) Ð Ð

At end of year, at valuation 9,954,900 13,259,000 3,297,200 4,447,200

The analysis by lease terms of the carrying value of the investment properties is as follows:

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Long term, situated in Hong Kong 2,113,300 3,151,900 Ð Ð

Medium term:

Situated in Hong Kong 4,885,600 6,870,100 3,297,200 4,447,200

Situated outside Hong Kong 2,956,000 3,237,000 Ð Ð

9,954,900 13,259,000 3,297,200 4,447,200

At 31st July, 1999, the investment properties were revalued by Chesterton Petty Limited, independent

chartered surveyors, on an open market value basis.

Certain investment properties were pledged to banks to secure banking facilities granted to the Group.

31st July, 1999


63


15. P R O P E R T I E S U N D E R D E V E L O P M E N T

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Properties under development held for rental

purposes, at cost/valuation:

At beginning of year 2,855,400 1,222,094 Ð Ð

Interest capitalised, net 21,025 37,707 Ð Ð

Other additions, at cost 94,445 427,608 Ð Ð

Reclassified from properties under development

held for purposes other than rental, at cost Ð 863,430 Ð Ð

Reclassified to properties under development

held for purposes other than rental, at cost Ð (14,995) Ð Ð

Transfer to investment properties Ð (1,679,335) Ð Ð

Surplus/(deficits) on revaluation (55,340) 1,997,221 Ð Ð

Exchange realignments 5,924 1,670 Ð Ð

At end of year 2,921,454 2,855,400 Ð Ð

Properties under development held for purposes

other than rental, at cost:

At beginning of year 8,138,666 3,731,970 10,558 73,363

Interest capitalised, net 568,456 573,716 1,204 5,767

Other additions, at cost 88,704 1,293,074 4,301 57,410

Arising on acquisition of subsidiaries 236,590 6,033,998 Ð Ð

Transfer to completed properties for sale (160,059) (410,488) Ð (125,982)

Transfer to investment properties Ð (263,906) Ð Ð

Transfer of hotel properties to fixed assets Ð (367,918) Ð Ð

Disposals (275,091) (266,673) Ð Ð

Arising on disposal of subsidiaries (697,377) (1,161,159) Ð Ð

Reclassified from properties under development

held for rental purposes, at cost Ð 14,995 Ð Ð

Reclassified to properties under development

held for rental purposes, at cost Ð (863,430) Ð Ð

Exchange realignments 11,658 (19,639) Ð Ð

7,911,547 8,294,540 16,063 10,558

Provisions for diminutions in values (2,946,654) (155,874) Ð Ð

At end of year 4,964,893 8,138,666 16,063 10,558

Total balance at end of year 7,886,347 10,994,066 16,063 10,558

31st July, 1999


64


15. P R O P E R T I E S U N D E R D E V E L O P M E N T ( c o n t i n u e d )

The analysis by lease terms of the carrying value of the properties under development held for rental

purposes and held for purposes other than rental is as follows:

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Properties under development held for rental

purposes, at valuation:

Long term, situated outside Hong Kong 1,729,827 1,682,400 Ð Ð

Medium term, situated outside Hong Kong 1,191,627 1,173,000 Ð Ð

2,921,454 2,855,400 Ð Ð

Properties under development held for purposes

other than rental, at cost:Long term:

Situated in Hong Kong 3,620,791 5,581,159 Ð Ð

Situated outside Hong Kong 703,810 1,108,775 Ð ÐMedium term:

Situated in Hong Kong 527,381 692,346 16,063 10,558

Situated outside Hong Kong 112,911 756,386 Ð Ð

4,964,893 8,138,666 16,063 10,558

7,886,347 10,994,066 16,063 10,558

At 31st July, 1999, properties under development held for rental purposes were revalued by Chesterton

Petty Limited, independent chartered surveyors, on an open market value basis.

Properties under development held for purposes other than rental which are carried at net realisable value

and included in the above balance amounted to HK$703,810,000 (1998 : HK$174,677,000).

Certain properties under development were pledged to banks to secure banking facilities granted to the

Group.

31st July, 1999


65


15. P R O P E R T I E S U N D E R D E V E L O P M E N T ( c o n t i n u e d )

On 18th November, 1998, Winfield Properties Limited (`̀ Winfield'') and Faith Lot Limited (``Faith Lot'),

both wholly-owned subsidiaries of the Group, entered into a provisional sales and purchase agreement (the

`̀ Agreement'') with Fine Smart Development Limited ('Fine Smart'), a wholly-owned subsidiary of Nan Fung

Textiles Consolidated Limited (`̀ Nan Fung''), pursuant to which Winfield and Faith Lot would sell to Fine

Smart two pieces of adjacent land located at Section E, F, G, H, I, J, K and the Remaining Portion of New

Kowloon Inland Lot No. 2855 (the ``Properties'') for a total consideration of approximately HK$88.7 million.

The consideration was arrived at based on negotiations between the Group and Nan Fung. The book value

of the Properties was approximately HK$242 million. The disposal resulted in a loss of approximately

HK$153 million. The transaction was completed during the year.

The net proceeds from the disposal were used by the Group for repayment of bank borrowings and for its

general working capital purposes.

As at 18th November, 1998, Nan Fung owned approximately 18.18% of the issued share capital of the

Company. By virtue of the interest of Nan Fung in the Agreement and its shareholdings in the Company, the

transaction constituted a connected transaction for the Company as defined under the Rules Governing the

Listing of Securities (`̀ Listing Rules'') on The Stock Exchange of Hong Kong Limited.

16. S U B S I D I A R I E S

Company

1999 1998

HK$'000 HK$'000

Shares listed in Hong Kong, at cost 3,519,386 3,518,086

Unlisted shares, at cost 1,174,064 1,183,903

4,693,450 4,701,989

Amounts due from subsidiaries 12,077,329 13,091,609

Amounts due to subsidiaries (5,921,963) (8,004,528)

10,848,816 9,789,070

Provisions for diminutions in values (5,840,055) (341,654)

5,008,761 9,447,416

Market value of listed shares at the balance sheet date 1,342,307 790,826

The balances due are unsecured, interest-free and have no fixed terms of repayment, except for a sum of

HK$7,848,550,000 (1998 : HK$6,450,927,000) due from subsidiaries and a sum of HK$1,517,640,000

(1998 : HK$2,093,646,000) due to subsidiaries which bear interest at the prevailing market rates.

31st July, 1999


66


16. S U B S I D I A R I E S ( c o n t i n u e d )

Details of the principal subsidiaries are as follows:

Name of company

Place of

incorporation

or registration/

place of

operations

Issued/

registered

capital

Class of

shares

held

Equity interest

attributable

to the Company Principal

activitiesDirect Indirect

(%) (%)

Centico Investment

Limited

Hong Kong HK$2 Ordinary 100.00 Ð Property

investment

Chains Caravelle

Hotel Joint

Venture Company

Limited

Vietnam US$16,326,000 * Ð 13.74 Hotel

investment

Chains International

Hotels

Management

Limited

Hong Kong HK$3,000,000 Ordinary Ð 52.17 Hotel

management

Concrest Limited British Virgin

Islands

US$1 Ordinary Ð 100.00 Investment

holding

Crocodile

Development

Limited

Hong Kong HK$9,996

HK$4

Ordinary

Deferred

Ð 100.00 Property

investment

Delta Asia Limited Cayman Islands US$70 Class A Ð 52.17 Hotel

management

Diamond String

Limited

Hong Kong HK$10,000 Ordinary Ð 33.91 Hotel

investment

and

restaurant

operations

Euroscot Enterprises

Limited

British

Virgin Islands/

Hong Kong

US$10 Ordinary Ð 100.00 Property

investment

31st July, 1999


67



Name of company

Place of

incorporation

or registration/

place of

operations

Issued/

registered

capital

Class of

shares

held

Equity interest

attributable



(%) (%)

Faith Lot Limited Hong Kong HK$2 Ordinary 100.00 Ð Property

development

Faithful Properties

Limited

Hong Kong HK$10,000 Ordinary Ð 100.00 Property

investment

Fordspace

Development

Limited

Hong Kong HK$2 Ordinary 100.00 Ð Investment

holding

Franklin

Development

Limited

Hong Kong HK$700 Ordinary Ð 100.00 Property

investment

Furama Hotel

Enterprises

Limited

Bermuda HK$102,880,454 Ordinary Ð 100.00 Hotel

operation

Gilroy Company

Limited

Hong Kong HK$10,000 Ordinary 100.00 Ð Property

investment

Global Planner

Investment

Limited


investment

Good Strategy

Limited

British Virgin

Islands


holding

Guangzhou Jieli

Real Estate

Development

Company Limited

People's

Republic of

China

HK$168,000,000 * Ð **59.47 Property

development

and

investment

31st July, 1999


68



Name of company

Place of

incorporation

or registration/

place of

operations

Issued/

registered

capital

Class of

shares

held

Equity interest

attributable



(%) (%)

Guangzhou Guong

Bird Property

Development

Limited

People's

Republic of

China

US$14,600,000 * Ð **74.68 Property

development

and

investment

Guangzhou Grand

Wealth Properties

Limited

People's

Republic of

China

HK$128,000,000 * Ð **74.68 Property

development

and

investment

Heathfield Limited British Virgin

Islands/

Canada

US$100 Ordinary Ð 52.17 Hotel

investment

JSP Limited British Virgin

Islands


holding

Kenjacky Limited British Virgin

Islands


holding

Kolot Property

Services Limited


management

Lai Fung Holdings

Limited

Cayman

Islands

HK$104,447,379 Ordinary 74.68 Ð Investment

holding

Lai Fung Overseas

Finance Limited

Cayman Islands HK$0.2 Ordinary Ð 74.68 Bond issue

Lai Sun Hotels

International

Limited

Bermuda HK$182,413,136 Ordinary 46.44 5.73 Investment

holding

Lai Sun International

Finance Limited

Cayman Islands US$2 Ordinary 100.00 Ð Bond issue

31st July, 1999


69



Name of company

Place of

incorporation

or registration/

place of

operations

Issued/

registered

capital

Class of

shares

held

Equity interest

attributable



(%) (%)


Finance (Cayman

Islands) Limited



Finance (1997)

Limited


Lai Sun Real Estate

Agency Limited


management

and real estate

agency

Lucky Strike

Investment

Limited


investment

Lycon Investment

Limited

Hong Kong HK$2 Ordinary 100.00 Ð Investment

holding

Maxgear Investment

Limited


investment

Main Crown

Development

Limited


investment

Milirich Investment

Limited


investment

New Page Limited British Virgin

Islands


holding

Richman

International

Limited

British Virgin

Islands

US$1 Ordinary 100.00 Ð Investment

holding

31st July, 1999


70



Name of company

Place of

incorporation

or registration/

place of

operations

Issued/

registered

capital

Class of

shares

held

Equity interest

attributable



(%) (%)

Real Genius

Company Limited


development

Shanghai Li Xing

Real Estate

Development

Company Limited

People's

Republic of

China

US$36,000,000 * Ð 44.60 Property

investment

Shanghai Wa Yee

Real Estate

Development Co.,

Ltd.

People's

Republic of

China

US$10,000,000 * Ð 70.95 Property

development

and

investment

Sinoking Investment

Limited


investment

Smart Leader

Limited

British Virgin

Islands

US$1 Ordinary 100.00 Ð Investment

holding

Sonics Development

Limited


development

Sunlite Investment

Limited

Hong Kong HK$2 Ordinary Ð 68.62 Investment

holding

Surearn Profits

Limited

British Virgin

Islands


holding

Target Power

Limited


investment

Tiger Hill Limited British Virgin

Islands

US$1 Ordinary 100.00 Ð Real estate

agency

31st July, 1999


71



Name of company

Place of

incorporation

or registration/

place of

operations

Issued/

registered

capital

Class of

shares

held

Equity interest

attributable



(%) (%)

Top Town

Enterprises

Limited


investment

Transtrend Canada

Limited

Canada C$37,500,000 Ordinary Ð 52.17 Hotel

investment

Village Gate Resorts

Limited

Canada C$100 Ordinary Ð 52.17 Investment

holding

Winfield Properties

Limited


development

Winpet Investment

Limited


development

World Classic

Development

Limited


investment

World Trend

Development

Limited


development

* These subsidiaries have registered rather than issued share capital.

** These subsidiaries are co-operative joint ventures of which the partners' profit sharing ratios and the distribution of net assets upon

the expiration of the joint venture periods are not in proportion to their equity ratios but are as defined in the joint venture

contracts.

31st July, 1999


72



The above table lists the subsidiaries of the Group which, in the opinion of the directors, principally affected

the results of the year or formed a substantial portion of the net assets of the Group at the balance sheet date.

To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive

length.

The subsidiaries acquired and disposed of during the year did not have any material effect on the Group's

turnover or loss after taxation.

The shares of certain subsidiaries held by the Group have been pledged to banks to secure banking facilities.

Certain of the Group's subsidiaries had the following transactions during the year and subsequent to the

year end date.

(1) On 11th February, 1999, the Company and its wholly-owned subsidiary, Furama, entered into an

agreement (the `̀ Furama Agreeement'') with LSHIL and its wholly-owned subsidiary, Golden Pool

Enterprises Limited (`̀ GPEL''), with respect to the redevelopment of the Furama Hotel, which is a

property situated in Hong Kong. Pursuant to the Furama Agreement, the Furama Hotel will be

redeveloped into a composite retail, hotel and office building (the ``New Building'') which is expected

to be completed in or around May 2004.

Upon the completion of the redevelopment of the New Building, GPEL will purchase the hotel

portions (the `̀ Hotel Portions'') from Furama for a consideration of HK$1,900 million. The

consideration for the Hotel Portions was determined by reference to valuations of independent

valuers. In addition, GPEL may request the Company to carry out the possible fitting out works of the

Hotel Portions for a consideration of HK$250 million, subject to the Company's agreeing to carry out

such works.

The Furama Agreement provided that upon the occurrence of certain events, if Furama notifies GPEL

in writing that it does not intend to carry out the redevelopment works or the progress of the

redevelopment is not in accordance with the timetable as stated in the Furama Agreement, at a

consideration of HK$10, Furama will grant to GPEL an option to purchase the Furama Hotel (the

`̀ Furama Option''). The Furama Option will only be valid for a period of six months commencing from

the date on which the relevant events occur. The purchase price will be equaled to the open market

value of the Furama Hotel as at the date of exercise of the Furama Option, as determined by

independent valuers who will be appointed jointly by GPEL and Furama. The exercise of the Furama

Option is subject to the approval of the independent shareholders of the respective companies as

required under the Listing Rules.

The acquisition of the Hotel Portions by GPEL has been approved by the independent shareholders of

the Company, Lai Sun Garment (International) Limited (`̀ LSG'') and LSHIL in their respective special

general meetings held on 22nd March, 1999. The consideration for the Hotel Portions has been fully

paid by GPEL to Furama in the form of a deposit of approximately HK$965 million (the `̀ Deposit'') and

a prepayment of approximately HK$935 million (the `̀ Prepayment'') as at the balance sheet date.

According to the Furama Agreement, the prepaid consideration is interest bearing with interest

charged at the higher of 8% or LIBOR plus 2% per annum for the Deposit, and at the three month

deposit rate offered by LSHIL's principal bank plus 1% per annum for the Prepayment.

31st July, 1999


73



In the opinion of the Company's directors, the disposal of the Hotel Portions by Furama to LSHIL will

create synergy and efficiencies of scale upon the integration and joint operation of the Hotel Portions

with the Ritz-Carlton Hotel held by LSHIL. As such, the value of LSHIL's investments in the Hotel

Portions and the Ritz-Carlton Hotel will be enhanced, which will ultimately be beneficial to the

Company as a major shareholder of LSHIL. Part of the prepaid consideration was used by the

Company to release its obligation to reimburse LSHIL the repayment of certain of LSHIL's bank loans

which arose from the Group's asset restructuring in 1997. The remaining balance of the prepaid

consideration was used as general working capital of the Group.

As at 3rd March, 1999, Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter and Mr. Lam Kin Ming and their

respective associates (together the `̀ Lim Family'') owned approximately 42.00% of the issued share

capital of LSG; LSG, in turn, owned approximately 44.76% of the issued share capital of the Company;

and the Company owned approximately 52.17% of the issued share capital of LSHIL. The Lim Family

also directly owned approximately 5.94% of the issued share capital of the Company and

approximately 0.95% of the issued share capital of LSHIL. The transaction therefore constituted a

connected transaction of the Company, LSG and LSHIL as defined under the Listing Rules.

(2) On 7th April, 1999, the Company entered into an option agreement, supplemented on 12th April,

1999 by a supplemental agreement (collectively the `̀ Option Agreement'') with Sun Chung Estate

Company, Limited (``Sun Chung''), a wholly-owned subsidiary of the Bank of China. Pursuant to the

Option Agreement, the Company, at a consideration of HK$10, granted a right (the `Òption'') to Sun

Chung to purchase 230,000,000 shares (the `̀ Option Shares'') in Lai Fung held by the Company.

The Option is exerciseable in whole or in part, and from time to time, upon Sun Chung giving the

Company at least seven days' notice during the period commencing on 7th April, 1999 and ending on

7th October, 2002, at a price of HK$0.65 per Option Share, subject to adjustments in certain events as

defined in the Option Agreement.

(3) On 11th May, 1999, Goldthorpe Limited (``Goldthorpe''), a wholly-owned subsidiary of Lai Fung,

entered into a conditional sales and purchase agreement (the `̀ Acquisition Agreement'') with LSHIL

whereby Goldthrope would acquire from LSHIL the entire interest in Good Strategy Limited at a

consideration of HK$475 million. The principal assets held by Good Strategy Limited are the 181

service apartment units at the North Tower of Hong Kong Plaza in Shanghai, the People's Republic of

China. The consideration was determined by reference to the valuations of the said properties

performed by independent property valuers.

This transaction allowed Lai Fung to consolidate its interests in Hong Kong Plaza, thereby enhancing

its position in generating recurring rental income. In addition, LSHIL was able to realise its interest in

the Hong Kong Plaza units with the net proceeds used as its general working capital and as additional

funding to capture any potential investment opportunities.

31st July, 1999


74



As at 27th May, 1999, the Lim Family owned approximately 42.00% of the issued share capital of LSG;

LSG owned approximately 44.76% of the issued share capital of the Company; and the Company

owned approximately 52.17% of the issued share capital of LSHIL and approximately 74.67% of the

issued share capital of Lai Fung. The Lim Family also directly owned approximately 5.94% of the

issued share capital of the Company and 0.95% of the issued share capital of LSHIL. As such, this

transaction constituted a connected transaction of the Company, LSG, Lai Fung and LSHIL under the

Listing Rules. The transaction was approved by the independent shareholders of the Company, LSG,

LSHIL and Lai Fung at their respective extraordinary general meetings held on 22nd June, 1999 and

was completed on 2nd July, 1999.

(4) On 11th May, 1999, Lycon Investment Limited (``LIL''), a wholly-owned subsidiary of the Company,

entered into a conditional agreement with Lai Fung Overseas Finance Limited (`̀ LFO''), a wholly-

owned subsidiary of Lai Fung, whereby LIL would sell certain Lai Fung Convertible Bonds (as defined

in note 30), with an aggregate principal amount of US$11,700,000 (approximately HK$90,675,000) to

LFO at a consideration of HK$50,000,000. The consideration represented a discount of approximately

45% on the initial issue price of the bonds.

With the repurchase and cancellation of these bonds, the Group would have an annual saving of the

bond interest expense. In addition, the Company would cease to be liable to redeem or mandatorily

convert the bonds upon maturity.

As at 27th May, 1999, the Lim Family owned approximately 42.00% of the issued share capital of LSG;

LSG owned approximately 44.76% of the issued share capital of the Company; and the Company

owned approximately 52.17% of the issued share capital of LSHIL and approximately 74.67% of the

issued share capital of Lai Fung. Accordingly, this transaction constituted a connected transaction for

the Company, LSG and Lai Fung under the Listing Rules. The transaction was approved by the

independent shareholders of the Company, LSG and Lai Fung at their respective extraordinary general

meetings held on 22nd June, 1999. The transaction was completed during the year. The related bonds

were cancelled upon repurchase, resulting in a profit before minority interests of HK$17,718,000.

(5) On 8th June, 1999, the Company entered into another option agreement (the `̀ Second Option

Agreement'') with a third party (the `̀ Optionholder''). Pursuant to the Second Option Agreement, the

Company, at a consideration of HK$10, granted a right (the ``Second Option'') to the Optionholder to

purchase 20,000,000 ordinary shares in Lai Fung (the `̀ Second Option Shares'') held by the Company.

The Second Option is exercisable in whole or in part, and from time to time, upon the Optionholder

giving the Company at least seven days' notice during the period from 1st December, 2000 to 8th

September, 2002, at a price of HK$0.63 per Second Option Share, subject to adjustments in the

occurrence of certain events as defined in the Second Option Agreement.

31st July, 1999


75



(6) In connection with the spin off of Lai Fung, the Company entered into an agreement with Lai Fung on

12th November, 1997 which stated, inter alia, that for any of the Property Interests (as defined in note

23) valued in the Valuation (as defined in note 23), if, within two years of Lai Fung's date of Listing (as

defined in note 23) the land use rights certificate of these Property Interests or the business licence

which is required to set up a company for the purposes of developing these Property Interests have not

been obtained, Lai Fung, within six months after the second anniversary of the date of Listing, is

entitled to require the Company to buy back all direct or indirect interests of Lai Fung in these

Property Interests. The buy back consideration would be in cash, equal to the net asset value of these

Property Interests based on the Valuation, discounted to the same extent as the discount applied to the

net asset value of Lai Fung under the initial public offer of its shares.

(7) During the year, the Group advanced approximately HK$130,137,000 (1998 : HK$210,435,000) to

Shanghai Li Xing Real Estate Development Company Limited (``Li Xing''), a 44.80% owned subsidiary

of the Group, as working capital. The Group had not made any advances to other unrelated minority

shareholders of Li Xing during the year (1998 : HK$10,680,000). The above advances are unsecured,

interest-bearing with interest charged at various rates ranging from 10% to 14% per annum, and have

no fixed terms of repayment. Interest income received from the minority shareholders with respect to

these advances was HK$10,632,000 for the year (1998 : HK$9,651,000).

(8) Pursuant to an agreement dated 3rd September, 1997, the Company leased certain units of Lai Sun

Commercial Centre, a property situated in Hong Kong, to Lai Fung and its subsidiaries for a term of

two years which commenced on 11th March, 1997 and expired on 10th March, 1999. The lease

agreement was not renewed upon its expiry on 10th March, 1999.

Pursuant to a licence agreement dated 16th March, 1997, Crocodile Development Limited, a wholly-

owned subsidiary of the Company, leased certain units of Crocodile House 1, a property situated in

Hong Kong, to Lai Fung and its subsidiaries. The licence had no fixed term and was terminated during

the year.

The rentals in relation to these properties were calculated on the basis determined by reference to the

floor area of the properties. The aggregate rental and management charges from these properties

amounted to HK$1,249,000 for the year ended 31st July, 1999 (1998 : HK$1,259,000).

(9) On 27th August, 1999, Lai Fung and Li Xing entered into the following agreements (collectively the

`̀ Rental Agreements'') with the Bank of China (`̀ BOC'').

(i) BOC leases certain units of the Bank of China Tower, a property situated in Hong Kong, to Lai

Fung for a term of three years commencing on 1st September, 1999 and expiring on 31st August,

2002. The rental and service charges are approximately HK$177,000 per month.

(ii) BOC leases certain car parking spaces of the Bank of China Tower to Lai Fung on a month-to-

month basis commencing on 1st September, 1999. The licence agreement can be terminated

upon one month's written notice by either party. The licence fee is HK$15,000 per month.

31st July, 1999


76



(iii) Li Xing leases certain units of the North Tower of Hong Kong Plaza, a property situated in

Shanghai, PRC, to BOC for a term of ten years commencing on 1st November, 1999 and expiring

on 31st October, 2009. The rental is US$19,503 per month and the service charge is initially

US$6,999 per month. The rental income will increase by 10% in the fourth year and again in the

seventh year of the tenancy or otherwise agreed between Li Xing and BOC.

The Rental Agreements were entered into based on negotiations between Lai Fung/Li Xing and BOC.

The leased properties are used by the respective parties as office premises or for business use.

In the opinion of the Company's directors, BOC is deemed to be a connected person of the Company

and Lai Fung under the Listing Rules. Accordingly, the above transactions constituted connected

transactions of the Company, LSG and Lai Fung under the Listing Rules.

17. G O O D W I L L O N C O N S O L I D A T I O N O F S U B S I D I A R I E S

Group

1999 1998

HK$'000 HK$'000

Cost:

At beginning of year 101,799 97,355

Additions during the year Ð 4,444

Written off during the year (54,182) Ð

Release on disposal of a subsidiary (37,629) Ð

9,988 101,799

Accumulated amortisation:


Charge for the year 1,419 2,397

Release on disposal of a subsidiary (3,218) Ð

9,988 11,787

Net book value Ð 90,012

31st July, 1999


77


18. D E F E R R E D P R E - O P E R A T I N G E X P E N S E S

Group

1999 1998

HK$'000 HK$'000

Cost:


Additions during the year 3,090 1,686

Arising on acquisition of subsidiaries Ð 36,889

Written off during the year (18,974) Ð

Exchange realignments 49 2

51,743 67,578

Accumulated amortisation:


Charge for the year 5,690 8,540

Arising on acquisition of subsidiaries Ð 3,846

Exchange realignments 13 3

41,025 35,322

Net book value 10,718 32,256

19. A S S O C I A T E D C O M P A N I E S

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Unlisted shares, at cost Ð Ð 18,634 18,634

Share of net assets other than goodwill 63,563 831,060 Ð Ð

Unamortised goodwill 31,741 43,693 Ð Ð

95,304 874,753 18,634 18,634

Amounts due from associated companies 1,477,255 1,776,417 479,049 777,568

Amounts due to associated companies (102,805) (140,659) Ð Ð

1,469,754 2,510,511 497,683 796,202

Provisions for diminutions in values (343,223) (110,910) (234,610) (111,610)

1,126,531 2,399,601 263,073 684,592

31st July, 1999


78


19. A S S O C I A T E D C O M P A N I E S ( c o n t i n u e d )

The balances due are unsecured, interest-free and have no fixed terms of repayment, except for amounts

aggregating HK$377,168,000 (1998 : HK$1,135,800,000) due from associated companies which bear

interest at the prevailing market rate.

Details of the principal associated companies are as follows:

Name of company

Place of

incorporation/

registration

Class of

shares

held

Percentage

of capital

held Principal activities

B.W. Hotel Limited Liability

Company#

United States of

America

* 13.04 Investment in and

operation of

hotel

Barnwood Limited British Virgin

Islands

Ordinary 50.00 Investment holding

Besto Investments Limited Hong Kong Ordinary 18.59 Investment holding

Bushell Limited Hong Kong Ordinary 50.00 Property

investment

Eagle Capital Investment Limited# British Virgin

Islands


Easlin Corporation# British Virgin

Islands


Giant Riches Limited Hong Kong Ordinary 50.00 Property

development

Hankey Development Limited Hong Kong Ordinary 37.17 Investment holding

Lai Sun Textiles Company Limited Hong Kong Ordinary 33.33 Property

investment

Naples Investment Limited British Virgin

Islands


Omicron International Limited British Virgin

Islands


31st July, 1999


79


19. A S S O C I A T E D C O M P A N I E S ( c o n t i n u e d )

Name of company

Place of

incorporation/

registration

Class of

shares

held

Percentage

of capital

held Principal activities

P.S. Development Group of

Companies Limited

Thailand Ordinary 49.00 Investment in and

operation of

hotel

Pengkalen Heights Sdn. Bhd.# Malaysia Ordinary 30.00 Hotel operations

and property

investment

Philippine Dream Company, Inc. Philippines Common 36.00 Hotel investment

Rich Vision Limited British Virgin

Islands


Sky Connection Limited Hong Kong Ordinary 50.00 Retail

# Audited by public accountants other than Ernst & Young.

* This company has no issued share capital. The Group's capital contribution and profit sharing ratio are not in proportion to its

interest in this company but are as defined by mutual agreement among the owners.

The above table lists the associated companies of the Group which, in the opinion of the directors,

principally affected the results of the year or formed a substantial portion of the net assets of the Group. To

give details of other associated companies would, in the opinion of the directors, result in particulars of

excessive length.

The shares of certain associated companies held by the Group have been pledged to banks to secure banking

facilities granted to the Group.

Included in the balance of `̀ Share of net assets other than goodwill'' is interest capitalised of approximately

HK$134,082,904 (1998 : HK$100,251,619) on loans borrowed for investments in associated companies

engaged in property development.

Pursuant to a judgement rendered by the Court of Appeal of British Columbia in November 1997, the court

allowed the meeting to vote on the dissolution of Whistler Mountain Inn Limited Partnership (the

`̀ Partnership'') of which Village Gate Resorts Limited, a subsidiary of the Group, is a general partner, to

proceed. On 14th November, 1997, the limited partners passed an extraordinary resolution to dissolve the

Partnership. The Partnership was put under receivership from 15th November,1997. The Partnership was

effectively dissolved on 31st December, 1998. During the period of the receivership, the Group's investment

in the Partnership was accounted for using the equity method of accounting. Subsequent to the dissolution

on 31st December, 1998, the Group received its share of the Partnership's fixed assets of HK$6,245,000

(note 13) and a distribution of the remaining other assets of HK$20,679,000 for the dissolution of the

Partnership.

31st July, 1999


80


20. J O I N T L Y C O N T R O L L E D E N T I T I E S

Group

1999 1998

HK$'000 HK$'000

Share of net assets 145,333 138,682

Amounts due from jointly controlled entities 44,276 44,537

Amount due to a jointly controlled entity (1,037) Ð

188,572 183,219

The balances with jointly controlled entities are unsecured, interest-free and have no fixed terms of

repayment.

Details of the jointly controlled entities are as follows:

Name of company

Business

structure

Place of

registration

Registered

capital

Equity

interest

Profit

sharing

Principal

activities

Qingyuan Grace Snow

Properties Ltd.

Corporate PRC US$5,000,000 74.68% 53.77% Property

development

Shanghai Zhong Yue

Real Estate

Development Co.,

Ltd.

Corporate PRC US$8,000,000 63.48% 63.48% Property

development

Zhong Shan Li Shan

Properties

Development Limited

Corporate PRC RMB75,000,000 37.34% 37.34% Property

development

Included in the balance of `̀ Share of net assets'' is interest capitalised of approximately HK$18,503,000

(1998 : HK$16,678,000) on borrowings for investments in jointly controlled entities engaged in property

development.

31st July, 1999


81


21. L O N G T E R M I N V E S T M E N T S

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Listed investments, at cost:

In Hong Kong Ð 461,473 Ð Ð

Outside Hong Kong 5,000 5,000 5,000 5,000

Unlisted investments, at cost 333,411 568,657 12,718 12,164

Deposits paid Ð 325,000 Ð Ð

Advances 679,978 713,299 452,055 385,839

1,018,389 2,073,429 469,773 403,003

Market value of listed investments

at balance sheet date 2,926 105,646 2,926 6,166

22. L O N G T E R M N O T E R E C E I V A B L E

On 18th December, 1997, a sales and purchase agreement (the `̀ Majestic Agreement'') was entered into

between Furama and independent third parties (the ``Majestic Purchasers'') pursuant to which Furama

agreed to sell the entire issued share capital of Fortune Sign Venture Inc. (``Fortune Sign''), a then wholly-

owned subsidiary of Furama, and to assign the shareholder's loan due from Fortune Sign of approximately

HK$82 million to the Majestic Purchasers at a total consideration of HK$2,030 million. The major assets

held by Fortune Sign are the properties, namely the Majestic Hotel and the Majestic Centre (the `̀ Majestic

Properties''), which are situated in Hong Kong. The transaction was satisfied by cash of HK$930 million and

a note of HK$1,100 million (the `̀ Note'').

In accordance with the terms of the Majestic Agreement, the Note is interest-free, repayable on the earlier of

31st March, 2001 or the lapse of the Put Options as detailed in note 34, and is secured by a charge over the

Majestic Properties.

In the opinion of the directors, due to the diminution in value of the Majestic Properties, the Majestic

Purchasers will probably exercise the Put Options. Accordingly, a provision for the contingent loss for the

Note receivable to its net realisable value of HK$855 million has been made.

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23. D E F E R R E D T A X A S S E T S / D E F E R R E D T A X A T I O N

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

At beginning of year (1,130) (34,401) Ð Ð

Arising on acquisition of subsidiaries Ð (1,780) Ð Ð

Arising on disposal of subsidiaries (4,096) 1,400 Ð Ð

Taxation Ð note 9 5,403 33,651 Ð Ð

Exchange realignment 39 Ð Ð Ð

At end of year 216 (1,130) Ð Ð

The principal components of the deferred tax assets/(liabilities) are as follows:

Group

Provided Not provided

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Accelerated capital allowances on fixed assets (1,130) (1,130) (7,106) (11,969)

Tax losses 1,346 Ð 51,941 83,633

Revaluation of investment properties in the PRC Ð Ð (255,410) (342,388)

Revaluation of properties under development in

the PRC Ð Ð (592,942) (1,073,240)

Other timing differences Ð Ð (952) (800)

216 (1,130) (804,469) (1,344,764)

Company

Provided Not provided

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Accelerated capital allowances on fixed assets Ð Ð (1,495) (2,007)

The revaluation of the Group's investment properties in Hong Kong does not constitute a timing difference

and, consequently, the amount of potential deferred tax thereon has not been quantified.

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23. D E F E R R E D T A X A S S E T S / D E F E R R E D T A X A T I O N ( c o n t i n u e d )

The unprovided deferred tax liabilities at the balance sheet date which arise from the revaluation of the

Group's investment properties and properties under development in the PRC in respect of land appreciation

tax (`̀ LAT'') and income tax are set out above. In the opinion of the directors, the deferred tax liabilities are

not expected to crystallise in the foreseeable future since the Group has no intention to dispose of these

revalued properties.

Pursuant to the indemnity deeds dated 12th November, 1997 entered into between the Company and Lai

Fung, the Company has undertaken to indemnify Lai Fung in respect of certain potential PRC income taxes

and LAT payable or shared by Lai Fung in consequence of the disposal of any of the property interests

attributable to Lai Fung through its subsidiaries and its associated companies as at 31st October, 1997

(``Property Interests''). These taxation indemnities given by the Company apply in so far as such taxation is

applicable to the difference between (i) the value of the Property Interests in the valuation thereon by

Chesterton Petty Limited as at 31st October, 1997 (the ``Valuation''), and (ii) the aggregate costs of such

Property Interests incurred up to 31st October, 1997 together with the amount of unpaid land costs, unpaid

land premium and unpaid costs of resettlement, demolition and public utilities and other deductible costs in

respect of the Property Interests. The indemnity deeds assume that the Property Interests are disposed of at

the values attributed to them in the Valuation, computed by reference to the rates and legislation governing

PRC income tax and LAT prevailing at the time of the Valuation.

The indemnities given by the Company do not cover (i) new properties acquired by Lai Fung subsequent to

the listing of the shares of Lai Fung on the Stock Exchange of Hong Kong Limited (the ``Listing''); (ii) any

increase in the relevant tax which arises due to an increase in tax rates or changes to the legislation

prevailing at the time of the Listing; and (iii) any claim to the extent that provision for deferred taxation on

the revaluation surplus has been made in the calculation of the adjusted net tangible asset value of Lai Fung

as set out in Lai Fung's prospectus dated 18th November, 1997.

Lai Fung had no LAT payable during the year. No income tax payable by Lai Fung was indemnifiable by the

Company during the year.

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24. N E T C U R R E N T L I A B I L I T I E S

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Current assets:

Cash and bank balances Ð note 36 778,487 650,217 323,316 36,484

Short term investments Ð note 25 43,587 34,306 Ð Ð

Debtors and deposits 1,082,634 1,547,852 50,261 129,517

Completed properties for sale* 218,145 95,647 5,973 574

Stocks 17,282 40,042 Ð Ð

2,140,135 2,368,064 379,550 166,575

Current liabilities:

Bank loans and other borrowings

due within one year Ð note 26 3,105,637 1,790,550 1,482,867 549,641

Bonds payable due within one year

Ð note 27 Ð 923,735 Ð Ð

Creditors, deposits received and accruals 1,386,348 1,394,045 90,176 83,497

Taxation 211,073 287,096 38,057 70,973

4,703,058 4,395,426 1,611,100 704,111

Net current liabilities (2,562,923) (2,027,362) (1,231,550) (537,536)

* Completed properties for sale which are carried at net realisable value and included in the above balance amounted to

HK$186,478,000 (1998 : HK$54,706,000).

Last year's debtors and deposits included balances of HK$471,401,000 due from associated companies

which arose from the ordinary course of business of the Group. Such balances were settled during the year.

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25. S H O R T T E R M I N V E S T M E N T S

Group

1999 1998

HK$'000 HK$'000

Listed investments, at cost:

In Hong Kong 70,653 72,595


73,752 75,694

Less: Provisions for diminutions in values (39,999) (51,222)

33,753 24,472

Unlisted investments, at cost 26,102 26,102

Less: Provisions for diminutions in values (16,268) (16,268)

9,834 9,834

43,587 34,306

Market value of listed investments

at the balance sheet date 34,656 31,283

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26. B A N K L O A N S A N D O T H E R B O R R O W I N G S

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Bank loans:

Secured 6,223,210 7,067,096 2,263,985 2,306,941

Unsecured 4,688 36,044 Ð Ð

6,227,898 7,103,140 2,263,985 2,306,941Other loan:

Secured Ð 1,558 Ð Ð

Unsecured 1,875 Ð Ð Ð

6,229,773 7,104,698 2,263,985 2,306,941

Obligations under finance leases 143 456 Ð Ð

6,229,916 7,105,154 2,263,985 2,306,941

Portion due within one year classified as current

liabilities Ð note 24 (3,105,637) (1,790,550) (1,482,867) (549,641)

Long term portion 3,124,279 5,314,604 781,118 1,757,300

The long term portion of bank loans and other

borrowings are repayable within periods of:More than one year but not exceeding

two years 1,096,994 2,575,949 659,264 1,397,300More than two years but not exceeding

five years 1,996,185 2,118,895 90,754 360,000

More than five years 31,100 619,760 31,100 Ð

3,124,279 5,314,604 781,118 1,757,300

The secured bank loans are secured by fixed charges on certain properties and assets and floating charges on

certain assets held by the Group.

The unsecured other loan is interest bearing with interest charged at 7.67% per annum and is repayable

within one year.

Obligations under finance leases are repayable in various installments up to the year 2000. Interest is

charged on the outstanding balances at rates ranging from 6.25% to 7.7% per annum.

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26. B A N K L O A N S A N D O T H E R B O R R O W I N G S ( c o n t i n u e d )

As more fully explained in note 1, at the balance sheet date, certain financial covenants given by the Group

in the Loan Agreements in relation to the Loans have not been complied with. Pursuant to the Loan

Agreements, as confirmed by the Company's legal advisors, upon the breach of any covenants, the respective

lending banks may serve notice on the Group to declare the Loans to be immediately due and repayable.

However, unless and until such notice is served by the respective lending banks, the Loans remain repayable

in accordance with their original stated maturity dates.

Loan agreements with respect to the Other Loans contain cross default clauses. As explained in note 1, if any

relevant borrowings, including the Loans and the Exchangeable Bonds, become due and repayable

prematurely because of an event of default, the Other Loans will, in turn, become immediately due and

repayable if the relevant lending banks serve notice to the Group for immediate repayment. The respective

lending banks of the Other Loans have not to date declared an event of default in respect of any of the

Group's borrowings by virtue of the cross default provisions contained in the respective agreements of the

Other Loans.

For the reasons set out in note 1, the Loans and the Other Loans have not become immediately due and

repayable. Accordingly, the Loans and the Other Loans have continued to be classified as current or long

term liabilities according to their original maturity dates under the respective loan agreements.

27. B O N D S P A Y A B L E

Group

1999 1998

HK$'000 HK$'000

1999 Bonds Ð 923,735

Exchangeable Bonds 891,250 891,250

891,250 1,814,985

Portion due within one year classified

as current liabilities Ð note 24 Ð (923,735)

Long term portion 891,250 891,250

(1) US$120,000,000 guaranteed bonds (the ``1999 Bonds'') were issued on 10th April, 1996 by a wholly-

owned subsidiary of the Company, Lai Sun International Finance Limited. The 1999 Bonds were

unconditionally and irrevocably guaranteed by the Company.

In the prior year, part of the 1999 Bonds with a principal value of US$50,000 was repurchased and

cancelled. The remaining balance of the 1999 Bonds was fully redeemed on 10th April, 1999 at 100%

of the principal amount.

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27. B O N D S P A Y A B L E ( c o n t i n u e d )

(2) US$115,000,000 exchangeable bonds (the `Èxchangeable Bonds'') were issued on 28th February,

1997 by a wholly-owned subsidiary of the Company, Lai Sun International Finance (Cayman Islands)

Limited (the `Ìssuer''). The Exchangeable Bonds are unconditionally and irrevocably guaranteed by the

Company.

The Exchangeable Bonds bear interest from 24th February, 1997 at the rate of 5% per annum. Interest

is payable semi-annually in arrears on 28th February and 28th August in each year.

Unless previously redeemed or purchased and cancelled, each Exchangeable Bond will, at the option

of the holder, be exchangeable for a pro rata share of the Exchange Property (as defined below) on or

after the date which falls 90 days after the IPO listing date of Asia Television Limited (`̀ ATV'') as

defined in the related bond document, up to and including 30th January, 2004 or, if the Exchangeable

Bonds have been called for redemption before then, up to the close of business on a date not later than

five business days prior to the date fixed for redemption thereof. Upon electing to exchange, each

bondholder shall have the right to require the redemption of all or any of its Exchangeable Bonds at

their Early Redemption Price as defined in the related bond document and have that amount applied

on its behalf in acquiring a pro rata share of such number of the equity shares in the capital of ATV as

represents one-sixth of the total shares outstanding as at the IPO listing date from time to time for

exchange (the `̀ Exchange Property'').

Unless previously redeemed, purchased and cancelled or exchanged, the Exchangeable Bonds will be

redeemed at 142.9171% of their principal amount on 28th February, 2004. The Exchangeable Bonds

may be redeemed at the option of the relevant holders on 8th June, 2001 at 120.6984% of the

principal amount in the event that either ATV's current licence to broadcast is not renewed or a

complying IPO as defined in the related bond document has not occurred on or before 1st June, 2001.

The Exchangeable Bonds may be redeemed at the option of the relevant holders on 28th February,

2002 at 125.4520% of their principal amount. The Exchangeable Bonds may also be redeemed at any

time during the period from 28th February, 1997 to 28th February, 2004 on the occurrence of any of

certain other events as defined in the related bond document at various pre-determined rates ranging

from 100% to 142.9171% of the principal amount.

The Exchangeable Trust Deed contains specific covenants that the Group is to comply with. At the

balance sheet date, the Group had not complied with certain of these covenants. As more fully

explained in note 1, the terms of the Exchangeable Trust Deed stipulate that upon the breach of any

covenants, the trustee may (the trustee must if so required by the bondholders) serve a notice to the

Group to declare the bonds to be immediately due and repayable. However, unless and until such

notice is served by the trustee, the Exchangeable Bonds remain repayable in accordance with their

original stated maturity dates. For the reasons set out in note 1, the Directors consider that it is

appropriate to continue classifying the Exchangeable Bonds as long term liabilities in accordance with

the original maturity terms under the Exchangeable Trust Deed.

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28. S H A R E C A P I T A L

Number of

shares

Nominal

value

Number of

shares

Nominal

value

1999 1999 1998 1998

'000 HK$'000 '000 HK$'000

Authorised:

Ordinary shares of HK$0.50 each 10,000,000 5,000,000 5,000,000 2,500,000

Preference shares of HK$1 each 1,200,000 1,200,000 1,200,000 1,200,000

6,200,000 3,700,000

Issued and fully paid:

Ordinary shares of HK$0.50 each 3,536,002 1,768,001 1,606,999 803,500

(1) During the year, the authorised ordinary share capital of the Company was increased from

HK$2,500,000,000 to HK$5,000,000,000 by the creation of an additional 5,000,000,000 ordinary

shares of HK$0.5 each, ranking pari passu in all respects with the existing ordinary shares of the

Company.

(2) On 14th August, 1998, the Company allotted and issued 161,000,000 new ordinary shares of

HK$0.50 each to Lucky Source Investment Limited, a wholly-owned subsidiary of Nan Fung, at a

subscription price of HK$0.95 per ordinary share. The net proceeds of approximately HK$152 million

was used as general working capital of the Group. Immediately following the placement, Nan Fung

was interested in approximately 18.01% of the Company's share capital and became a substantial

shareholder of the Company.

(3) On 3rd February, 1999, the Company completed a rights issue of 1,767,999,209 ordinary shares of

HK$0.50 each (`̀ Rights Shares'') on the basis of one Rights Share for every existing share of the

Company at the subscription price of HK$0.50 per Rights Share. The net proceeds of approximately

HK$859 million was used to repay the Group's borrowings. As a result of the rights issue, the

subscription price of the warrants was adjusted from HK$6.81 to HK$4.83 per share with effect from

7th January, 1999.

(4) As a result of the exercise of warrants with an aggregate amount of HK$18,847 during the year, 3,902

ordinary shares were issued at HK$4.83 per share. All the Company's remaining warrants expired on

23rd March, 1999.

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29. R E S E R V E S

Group

Share

premium

account

Warrant

subscription

reserve

Investment

property

revaluation

reserve

Revaluation

reserve for

properties

under

development

held for

rental

purposes

Capital

redemption

reserve

Capital

reserve

General

reserve

Exchange

fluctuation

reserve

Retained

profits/

(accumulated

losses) Total

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

At beginning of year 5,766,933 44,627 5,225,871 1,458,651 1,200,000 102,566 322 (6,072) 2,593,948 16,386,846

Arising on exercise of

warrants 17 Ð Ð Ð Ð Ð Ð Ð Ð 17

Arising on private placement

of shares 72,450 Ð Ð Ð Ð Ð Ð Ð Ð 72,450

Share issue expenses (25,870) Ð Ð Ð Ð Ð Ð Ð Ð (25,870)

Release upon disposal of

investment properties Ð Ð 86,948 Ð Ð Ð Ð Ð Ð 86,948

Release upon transfer of

investment properties to

completed properties for

sale Ð Ð 52,688 Ð Ð Ð Ð Ð Ð 52,688

Deficits on revaluation of

investment properties Ð Ð (2,716,631) Ð Ð Ð Ð Ð Ð (2,716,631)

Deficits on revaluation of

properties under

development Ð Ð Ð (41,140) Ð Ð Ð Ð Ð (41,140)

Share of revaluation deficits

of associated companies Ð Ð (14,493) (26,162) Ð Ð Ð Ð Ð (40,655)

Share of reserve in associated

companies Ð Ð Ð Ð Ð Ð (322) Ð Ð (322)

Exchange realignments:

Subsidiaries Ð Ð Ð Ð Ð Ð Ð 6,145 Ð 6,145

Associated companies Ð Ð Ð Ð Ð Ð Ð 2,470 Ð 2,470

Jointly controlled entities Ð Ð Ð Ð Ð Ð Ð 285 Ð 285

Elimination of goodwill

arising on acquisition of

associated companies Ð Ð Ð Ð Ð (28,000) Ð Ð Ð (28,000)

Elimination of goodwill

arising on acquisition of

additional interests in

subsidiaries Ð Ð Ð Ð Ð (39,284) Ð Ð Ð (39,284)

Release upon disposal of fixed

assets Ð Ð Ð Ð Ð Ð Ð 50,651 Ð 50,651

Release upon expiry of

warrants Ð (44,627) Ð Ð Ð Ð Ð Ð 44,627 Ð

Release upon disposal of

subsidiaries Ð Ð Ð Ð Ð 9,756 Ð 14,152 Ð 23,908

Release upon cancellation of

Lai Fung Convertible

Bonds Ð Ð Ð Ð Ð (17,084) Ð Ð Ð (17,084)

Net loss for the year Ð Ð Ð Ð Ð Ð Ð Ð (6,832,423) (6,832,423)

At end of the year 5,813,530 Ð 2,634,383 1,391,349 1,200,000 27,954 Ð 67,631 (4,193,848) 6,940,999

Reserves retained by:

Company and

subsidiaries 5,813,530 Ð 2,520,052 1,390,011 1,200,000 27,954 Ð 68,124 (3,769,365) 7,250,306

Associated companies Ð Ð 114,331 1,338 Ð Ð Ð 1,236 (423,955) (307,050)

Jointly controlled entities Ð Ð Ð Ð Ð Ð Ð (1,729) (528) (2,257)

5,813,530 Ð 2,634,383 1,391,349 1,200,000 27,954 Ð 67,631 (4,193,848) 6,940,999

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91


29. R E S E R V E S ( c o n t i n u e d )

Company

Share

premium

account

Warrant

subscription

reserve

Investment

property

revaluation

reserve

Capital

redemption

reserve

Retained

profits/

(accumulated

losses) Total

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

At beginning of year 5,766,933 44,627 3,541,281 1,200,000 1,183,615 11,736,456

Arising on exercise of warrants 17 Ð Ð Ð Ð 17

Arising on private placement of shares 72,450 Ð Ð Ð Ð 72,450

Share issue expenses (25,870) Ð Ð Ð Ð (25,870)

Release upon transfer of investment

properties to completed properties

for sale Ð Ð (4,749) Ð Ð (4.749)

Release upon expiry of warrants Ð (44,627) Ð Ð 44,627 Ð

Release upon disposal of investment

properties Ð Ð (1,770) Ð Ð (1,770)

Deficits on revaluation of investment

properties Ð Ð (1,140,618) Ð Ð (1,140,618)

Net loss for the year Ð Ð Ð Ð (5,626,044) (5,626,044)

At end of year 5,813,530 Ð 2,394,144 1,200,000 (4,397,802) 5,009,872

30. C O N V E R T I B L E B O N D S

Group

1999 1998


Lai Fung Convertible Bonds: (1)

At the beginning of year 941,382 1,158,465

Converted during the year Ð (130,584)

Repurchased during the year (4,176) (86,499)

937,206 941,382

Convertible Bonds 2002 : (2)

At beginning of year 1,161,375 Ð

Issued during the year Ð 1,161,375

1,161,375 1,161,375

At end of year 2,098,581 2,102,757

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30. C O N V E R T I B L E B O N D S ( c o n t i n u e d )

(1) Lai Fung Convertible Bonds

On 5th January, 1994, a subsidiary of the Group, LFO, issued US$150,000,000 (HK$1,158,465,000)

of convertible guaranteed bonds (``Lai Fung Convertible Bonds''). The Lai Fung Convertible Bonds

were unconditionally guaranteed by the Company up to 28th November, 1997, the date of the Listing,

and thereafter by Lai Fung.

The Lai Fung Convertible Bonds bear interest at the rate of 5.25% per annum payable in arrears on 5th

January, 1995, 5.5% per annum payable in arrears on 5th January, 1996 and 5.75% per annum

payable in arrears on 5th January, 1997, and each 5th January thereafter.

Unless previously redeemed or purchased and cancelled, the Lai Fung Convertible Bonds are

convertible into fully paid ordinary shares of Lai Fung at the option of the holders on or after the date

falling three calendar months after the date of Listing up to the close of business on the date seven days

prior to the third anniversary of the date of Listing. Upon conversion, the Lai Fung Convertible Bonds

will be convertible into a number of shares determined by dividing the principal amount of such

bonds by HK$2.94, being 105% of the initial public offer price of the shares of Lai Fung.

On the third anniversary of the date of Listing, LFO may elect to redeem the outstanding Lai Fung

Convertible Bonds in cash at their principal amount, or to mandatorily convert the outstanding Lai

Fung Convertible Bonds into shares of Lai Fung at a conversion price that is equal to the average

closing price of the shares over a period of 30 consecutive dealing days prior to such date.

Subsequent to the date of Listing, the Lai Fung Convertible Bonds may also be redeemed at their

principal amount at any time on the occurrence of any of the events of default as defined in the related

bond document. LFO may also elect to redeem the outstanding Lai Fung Convertible Bonds at any

time in whole, but not in part, in the event of certain changes relating to the Cayman Islands or Hong

Kong taxation at their principal amount multiplied by 103%.

Subsequent to the balance sheet date, 2,639,795 ordinary shares of HK$0.10 each in the share capital

of Lai Fung were issued upon the conversion of the Lai Fung Convertible Bonds with a principal value

of US$1,000,000 (approximately HK$7,748,000) by certain bondholders at a conversion rate of

HK$2.94 per share.

(2) Convertible Bonds 2002

US$150,000,000 4% convertible guaranteed bonds due in 2002 (``Convertible Bonds 2002'') were

issued on 4th August, 1997 by Lai Sun International Finance (1997) Limited (`̀ LSIF 1997''), a wholly-

owned subsidiary of the Company. The Convertible Bonds 2002 are unconditional and irrevocably

guaranteed by the Company.

The Convertible Bonds 2002 were issued at 100% of their principal amount and bear interest at a rate

of 4% per annum payable annually in arrears on 4th August of each year.

31st July, 1999


93



(2) Convertible Bonds 2002 (continued)

Unless previously redeemed, purchased and cancelled or converted, the Convertible Bonds 2002 are

convertible into fully paid ordinary shares of HK$0.50 each of the Company at the option of the holder

at a conversion price of, initially, HK$11.50 per share at a fixed rate of exchange on conversion of

HK$7.751 = US$1.00, at any time from 4th September, 1997 to 24th June, 2002, both dates inclusive.

In the event that the average of the closing price of the ordinary shares of the Company for the 30

dealing days ending on the dealing day prior to 4th August, 1998 or the dealing day immediately

preceding the day falling 30 days prior to 4th August, 2000 is less than the conversion price, then in

effect the conversion price will be reduced, with effect from 4th August, 1998 or 4th August, 2000, as

the case may be, to such average price, or if higher, a price equal to 90% of the then conversion price.

The conversion price will be subject to adjustment upon the occurrence of certain events as defined in

the document pertaining to the issue of the Convertible Bonds 2002.

As a result of the rights issue completed on 27th July, 1998, the conversion price was adjusted from

HK$11.50 to HK$10.64 per share with effect from 27th July, 1998.

Pursuant to the terms of the related bond document, the conversion price was reset from HK$10.64

per share to HK9.50 per share with effect from 4th August, 1998.

As a result of the rights issue completed on 3rd February, 1999, the conversion price was adjusted

from HK$9.50 per share to HK$6.70 per share with effect from 3rd February, 1999.

Unless previously redeemed, purchased and cancelled or converted, LSIF 1997, under certain

conditions as defined in the related documents, may redeem all or some of the Convertible Bonds

2002, on or at any time after 4th August, 1999 at their Early Redemption Price together with accrued

interest with the calculation based on a formula as defined in the related bond document.

Unless previously redeemed, purchased and cancelled or converted, the Convertible Bonds 2002 may

be redeemed at the option of the holders, on 4th August, 2000 at 115.2249% of their principal

amount plus accrued interest.

Unless previously redeemed, purchased and cancelled or converted, the Convertible Bonds 2002 will

be redeemed at their principal amount plus accrued interest on 4th August, 2002.

The Convertible Bonds 2002 may also be redeemed at any time upon the occurrence of any of the

events as defined in the document pertaining to the issue of the bonds, at their Early Redemption Price

plus accrued interest.

31st July, 1999


94



(2) Convertible Bonds 2002 (continued)

As stated in notes 26 and 27, at the balance sheet date, the Group had not complied with certain loan

covenants in respect of the Loans and the Exchangeable Bonds. As more fully explained in note 1, the

Convertible Trust Deed contains a cross default clause to the effect that if any relevant borrowings,

including the Loans and the Exchangeable Bonds, become due and repayable prematurely by reason of

an event of default, the Convertible Bonds 2002, in turn, will become immediately due and repayable,

if the trustee serves notice to the Group for immediate repayment. The trustee (the trustee must if so

required by the bondholders) has not to date declared an event of default in respect of any of the

Group's borrowings by virtue of the cross default provisions contained in the Convertible Trust Deed.

For reasons set out in note 1, the Convertible Bonds 2002 have not become immediately due and

repayable and have continued to be classified as long term liabilities according to their original

maturity terms.

31. C O N V E R T I B L E N O T E

On 11th May, 1999, Lai Fung entered into a conditional subscription agreement (the `̀ Note Agreement'')

with Sunny Group Investment Limited (``Sunny Group''), a wholly-owned subsidiary of Sun Chung which in

turn is wholly-owned by the Bank of China, whereby Lai Fung would issue a HK$600 million convertible

note (the `̀ Convertible Note'') to the Sunny Group. The transaction was approved by the shareholders of the

Company, LSG and Lai Fung at their respective extraordinary general meetings on 22nd June, 1999. The

Convertible Note was issued on 2nd July, 1999.

The Convertible Note was issued at 100% of its principal amount and bears interest at the rate of 5% per

annum payable quarterly in arrears on 2nd January, 2nd April, 2nd July and 2nd October of each year.

Pursuant to the Note Agreement, unless previous redeemed, the Convertible Note is convertible at 105% of

the principal amount, in whole or in part, into fully paid ordinary shares of HK$0.10 each of Lai Fung at a

conversion price of HK$0.65 per share (the `̀ Conversion Price''), at any time from 1st December, 2000 to

2nd July, 2002, being the third anniversary of the date of the issue of the Convertible Note. The Conversion

Price is subject to certain adjustments as defined in the Note Agreement.

Unless previously redeemed or converted, the Convertible Note will be redeemed at 110% of the principal

amount plus accrued interest on 2nd July, 2002. The Convertible Note may also be redeemed at any time

upon the occurrence of any of the events as defined in the Note Agreement at 110% of the principal amount

plus accrued interest up to and including the date of repayment.

31st July, 1999


95


32. N O T E S T O T H E C O N S O L I D A T E D C A S H F L O W S T A T E M E N T

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

1999 1998

HK$'000 HK$'000

Operating profit/(loss) (6,692,073) 468,961

Interest expense 195,348 112,779

Interest income (154,775) (279,656)

Bond issue expenses Ð 51,423

Gain on disposal of interests in associated companies Ð (158,893)

Loss on disposal of partial interests in subsidiaries Ð 2,752

Dividend income from listed investments (4,256) (1,820)

Dividend income from unlisted investments (200) (8,887)

Depreciation 63,639 70,834

Amortisation of goodwill on acquisition of subsidiaries and associated

companies 2,815 8,558

Amortisation of deferred pre-operating expenses 5,690 8,540

Provision for premium on bond redemption 113,639 112,892

Provision for premium on note redemption 1,667 Ð

Gain on cancellation of convertible bonds (17,718) Ð

Loss/(gain) on disposal of long term listed investments 302,382 (10,019)

Loss on disposal of long term unlisted investments 431 Ð

Loss on dissolution of associated companies 1,808 Ð

Loss on disposal of fixed assets 155,336 2,377

Loss/(gain) on disposal of subsidiaries (13,923) 131,339

Loss/(gain) on disposal of properties under development 158,153 (467)

Loss/(gain) on disposal of investment properties 153,940 (463,231)

Gain on deemed disposal of a subsidiary Ð (56,871)

Gain on disposal of associated companies (15,138) Ð

Provisions for diminutions in values of properties under development 2,946,654 155,874

Provisions for diminutions in values of completed properties for sale to

net realisable value 128,931 20,930

Provisions for diminutions in values of long term unlisted investments 426,982 Ð

Provisions for contingent losses in respect of profit guarantees 178,200 Ð

Provision for potential loss arising from exercise of Put Option 855,000 Ð

Provision for contingent loss in respect of a guarantee given to a bank 228,000 Ð

Provisions for debtors and deposits paid for acquisition of properties 452,500 91,913

Provisions for diminutions in values of associated companies holding

properties under development 311,000 Ð

31st July, 1999


96


32. N O T E S T O T H E C O N S O L I D A T E D C A S H F L O W S T A T E M E N T ( c o n t i n u e d )

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

(continued)

1999 1998

HK$'000 HK$'000

Provision for/(write back of) diminution in value of an associated

company holding completed properties for sale (110,910) 110,910

Provisions for diminutions in values of, and advances to, associated

companies and investee companies engaged in hotel operations 42,487 Ð

Write off of deferred pre-operating expenses 18,974 Ð

Write off of goodwill 54,182 Ð

Write back of provision for premium on convertible bond redemption Ð (121,922)

Discount on repurchase of bonds Ð (457)

Decrease/(increase) in restricted cash and bank balances 37,201 (45,256)

Decrease/(increase) in short term investments (9,281) 385,606

Decrease in stocks 16,565 15,440

Decrease in completed properties for sale 206,279 471,023

Decrease/(increase) in debtors and deposits 17,928 (399,363)

Increase/(decrease) in creditors, deposits received and accruals (465,229) 162,331

Net cash inflow/(outflow) from operating activities (407,772) 837,640

31st July, 1999


97



(b) Analysis of changes in financing during the year

Share

capital and

premium

Bank loans,

other

borrowings

and deposits

pledged

Convertible

bonds

Convertible

note

Bonds

payable

Minority

interests

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

Balance at 1st August, 1997 6,067,849 4,322,178 1,158,465 Ð 1,818,850 2,465,560

Net cash inflow/(outflow) from financing 502,584 2,905,305 1,091,960 Ð (3,408) 864,527

Share of net profit for the year Ð Ð Ð Ð Ð 32,910

Share of surplus on revaluation of

investment properties Ð Ð Ð Ð Ð 655,459


properties under development held

for rental purposes Ð Ð Ð Ð Ð 566,070


properties under development of

associated companies Ð Ð Ð Ð Ð 9,492

Share of capital reserve Ð Ð Ð Ð Ð 3,162

Purchases of fixed assets under finance

leases Ð 416 Ð Ð Ð Ð

Arising on acquisition of subsidiaries Ð 295,401 Ð Ð Ð 198,413

Arising on acquisition of additional

interest in a subsidiary Ð Ð Ð Ð Ð (159,925)

Disposal of partial interests in

subsidiaries Ð Ð Ð Ð Ð 44,579

Arising on deemed disposal of a

subsidiary Ð Ð Ð Ð Ð (100,174)

Disposal of subsidiaries Ð (409,552) Ð Ð Ð Ð

Subsidiary excluded from consolidation Ð Ð Ð Ð Ð (10,101)

Conversion of convertible bonds Ð Ð (130,584) Ð Ð 130,584

Discount on repurchase of convertible

bonds Ð Ð (17,084) Ð Ð Ð

Discount on repurchase of bonds Ð Ð Ð Ð (457) Ð

Exchange realignments Ð (10,808) Ð Ð Ð (18,124)

Balance at 31st July, 1998 and 1st

August, 1998 Ð page 99 6,570,433 7,102,940 2,102,757 Ð 1,814,985 4,682,432

31st July, 1999


98



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

Share

capital and

premium

Bank loans,

other

borrowings

and deposits

pledged

Convertible

bonds

Convertible

note

Bonds

payable

Minority

interests

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

Balance at 1st August, 1998 Ð page 98 6,570,433 7,102,940 2,102,757 Ð 1,814,985 4,682,432

Net cash inflow/(outflow) from financing 1,011,098 (619,367) (3,542) 600,000 (923,735) (19,252)

Share of net loss for the year Ð Ð Ð Ð Ð (211,370)

Share of deficits on revaluation of

investment properties Ð Ð Ð Ð Ð (155,057)

Share of deficits on revaluation of

properties under development held for

rental purposes Ð Ð Ð Ð Ð (23,230)

Share of general reserve Ð Ð Ð Ð Ð (276)

Arising on acquisition of additional

interest in a subsidiary Ð Ð Ð Ð Ð (86,421)

Disposal of subsidiaries Ð (258,007) Ð Ð Ð (72,530)

Share of goodwill arising on acquisition

of associated companies Ð Ð Ð Ð Ð (32,846)

Share of goodwill arising on acquisition

of additional interests in subsidiaries Ð Ð Ð Ð Ð (43,399)

Share of exchange fluctuation reserve on

disposal of fixed assets Ð Ð Ð Ð Ð 46,437

Share of goodwill released from disposal

of subsidiaries Ð Ð Ð Ð Ð 8,944

Share of exchange fluctuation reserve

released from disposal of subsidiaries Ð Ð Ð Ð Ð 12,974

Discount on repurchase of convertible

bonds Ð Ð (634) Ð Ð Ð

Exchange realignments Ð 4,350 Ð Ð Ð (633)

Balance at 31st July, 1999 7,581,531 6,229,916 2,098,581 600,000 891,250 4,105,773

(c) Major non-cash transactions

Part of the considerations for the disposal of subsidiaries during the year with an amount of

HK$165,208,000 was satisfied by receivables.

(d) Exceptional items

The exceptional items for the year resulted in a cash inflow from investing activities of HK$159,091,000

(1998 : Nil).

31st July, 1999


99



(e) Acquisition of subsidiaries

1999 1998

HK$'000 HK$'000

Net assets acquired:

Fixed assets Ð 1,811,893

Investment properties Ð 701,472

Properties under development 236,590 6,033,998

Deferred pre-operating expenses Ð 33,043

Associated companies Ð 21,223

Long term investments Ð 3,413

Cash and bank balances 272 191,031

Short term investments Ð 11,502

Debtors and deposits 105 85,252

Completed properties for sale Ð 4,908

Stocks Ð 9,568

Bank loans and other borrowings Ð (295,401)

Creditors, deposits received and accruals (123,787) (416,049)

Taxation Ð (32,956)

Deferred taxation Ð (1,780)

Minority interests Ð (198,413)

113,180 7,962,704

Goodwill Ð (9,921)

113,180 7,952,783

Carrying value of interests in subsidiaries

acquired originally held by the Group as:

Interests in associated companies (113,180) (167,209)

Interests in long term investments Ð (813,234)

Ð 6,972,340

Satisfied by:

Cash Ð 6,972,340

31st July, 1999


100



(e) Acquisition of subsidiaries (continued)

The subsidiaries acquired during the year utilised HK$1,223,000 (1998 : HK$14,211,000) of the Group's

net operating cash flows, paid HK$5,825,000 (1998 : HK$31,358,000) in respect of the net returns on

investments and servicing of finance, no amount was paid in respect of taxation (1998 : HK$33,692,000),

contributed HK$88,700,000 (1998 : HK$852,799,000) for investing activities, and utilised HK$81,926,000

(1998 : HK$193,780,000) for financing activities.

Analysis of net outflow/(inflow) of cash and cash equivalents in respect of the acquisition of subsidiaries:

1999 1998

HK$'000 HK$'000

Cash consideration Ð 6,972,340

Cash and bank balances acquired (272) (191,031)

Interest capitalised as acquisition costs of a subsidiary Ð (212,491)

Net outflow/(inflow) of cash and cash equivalents in respect of the

acquisition of subsidiaries (272) 6,568,818

31st July, 1999


101



(f) Disposal of subsidiaries

1999 1998

HK$'000 HK$'000

Net assets disposed of:

Fixed assets 43,667 1,563,699

Investment properties Ð 500,093

Properties under development 697,377 1,161,159

Goodwill 34,411 Ð

Interests in associated companies 311,735 Ð

Long term investments Ð 140,081

Cash and bank balances 9,349 839

Debtors and deposits 27,055 17,283

Stocks 5,702 1,658

Bank loans and other borrowings (258,007) (409,552)

Creditors, deposits received and accruals (157,356) (51,249)

Taxation (10,838) (7,930)

Deferred taxation 4,096 (1,400)

Minority interests (72,530) Ð

Release of investment property revaluation reserve Ð (25,234)

Release of exchange reserve 27,126 Ð

Release of capital reserve 18,700 Ð

680,487 2,889,447

Profit/(loss) on disposal 13,923 (131,339)

694,410 2,758,108

Reclassification of carrying value of interests in

subsidiaries disposed of as interests in

associated companies Ð (204,456)

694,410 2,553,652

Satisfied by:

Cash 529,202 1,453,652

Promissory note Ð 1,100,000

Receivables 165,208 Ð

694,410 2,553,652

31st July, 1999


102



(f) Disposal of subsidiaries (continued)

The subsidiaries disposed of during the year utilised HK$13,346,000 (1998 : contributed HK$10,017,000)

of the Group's net operating cash flows, paid HK$1,537,000 (1998 : HK$28,234,000) in respect of returns

on investments and servicing of finance, paid HK$13,640,000 (1998 : HK$1,115,000) in respect of taxation,

utilised HK$28,924,000 (1998 : HK$54,466,000) for investing activities and utilised HK$9,207,000 (1998 :

contributed HK$396,075,000) for financing activities.

Analysis of net inflow of cash and cash equivalents in respect of the disposal of subsidiaries:

1999 1998

HK$'000 HK$'000

Cash consideration received 529,202 1,453,652

Cash and bank balances disposed of (9,349) (839)

Net inflow of cash and cash equivalents in respect of the disposal of

subsidiaries 519,853 1,452,813

(g) Subsidiary excluded from consolidation

1999 1998

HK$'000 HK$'000

Net assets excluded from consolidation:

Fixed assets Ð 7,923

Cash Ð 20,633

Debtors and deposits Ð 4,553

Stocks Ð 2,924

Creditors, deposits received and accruals Ð (6,021)

Minority interests Ð (10,101)

Ð 19,911

Satisfied by:

Reclassification to interests in associated companies Ð 19,911

Analysis of the net outflow of cash and cash equivalents in respect of exclusion of the subsidiary from

consolidation:

1999 1998

HK$'000 HK$'000

Cash balances being excluded from consolidation and the net outflow of

cash and cash equivalents in respect of the exclusion of the subsidiary

from consolidation Ð 20,633

31st July, 1999


103


33. L I T I G A T I O N

An action was commenced in December 1998 against certain Group companies and the other shareholders

of Hotel 57 LLC (the `̀ Shareholders'') by Art 57 Properties, Inc. (the `̀ Plaintiff'') in the Supreme Court of the

state of New York (the `̀ New York Court''), alleging breach of contract, fraud and promissory estoppel. The

Plaintiff's case was based on a claim that it had made a down payment of US$2 million and signed a letter of

intent to purchase the Four Seasons Hotel, New York (`̀ FSNY''). By way of relief, the Plaintiff sought specific

performance requiring the sale of shares (the ``FSNY Shares'') in the ownership entities, the effect of which

would convey beneficial ownership of the FSNY to the Plaintiff or, in the alternative, damages in an amount

of not less than US$80 million. Simultaneously, the Plaintiff filed a motion for a preliminary injunction

seeking to prevent the sale of the FSNY Shares, or to attach the proceeds from any sale of the FSNY Shares

pending final disposition of the case.

In early 1999, the Plaintiff applied to discontinue the New York proceedings and commenced a separate suit

in the United States District Court in Texas (the `̀ Texas Court'') against Milewood International Inc.

(``Milewood''), a subsidiary of the Group, the other shareholders of FSNY and 57 BB Property, LLC, the

purchaser of FSNY, for similar claims as above.

In February 1999, the New York Court denied the motion to discontinue the New York proceedings and

dismissed all claims against the companies of the Group, except for Milewood and certain shareholders of

FSNY. In March 1999, the Texas Court dismissed all claims against all defendants. An appeal has been filed

by the Plaintiff.

In March 1999, the Group's interest in FSNY was disposed of to 57 BB Property LLC.

Having regard to the advice from legal counsel, the directors consider that the Group has substantive

defences to the current litigation such that they consider the remaining claims should be dismissed and that

the litigation should have no material adverse effect on the Group.

31st July, 1999


104


34. C O M M I T M E N T S

Commitments not provided for in the financial statements at the balance sheet date were as follows:

(a)

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Authorised capital expenditure:Contracted, but not provided for

Subsidiaries 692,175 1,053,796 Ð Ð

Jointly controlled entities 141,816 151,381 Ð Ð

833,991 1,205,177 Ð Ð

Not contracted for

Subsidiaries 138,211 Ð Ð Ð

972,202 1,205,177 Ð Ð

Annual commitments payable in the following year

under non-cancellable operating leases in

respect of land and buildings expiring:

Within one year 107 1,147 Ð Ð

Within two to five years 257 550 Ð Ð

After five years 1,587 1,588 Ð Ð

1,951 3,285 Ð Ð

(b) Pension commitments

The Group operates a defined benefit retirement scheme for the eligible employees of Furama which is non-

contributory. The assets of the scheme are held separately from those of the Group in an independently

administered fund.

The contributions to the scheme are determined with the advice of independent, qualified actuaries on the

basis of triennial valuations, being the minimum requirement under the Occupational Retirement Schemes

Ordinance, using the aggregate method. Based on the most recent valuation carried out on 30th September,

1998 by Watson Wyatt Hong Kong Limited, qualified consulting actuaries, the level of funding ranges from

0% to 8.3% of employee costs with no material surplus or deficiency.

The principal assumption used by the actuaries was that the average salary inflation and the average return

on investments would be 8% and 9% per annum, respectively. The differences between the market value of

the scheme's assets and the present value of the past service liabilities on an on-going basis at the date of the

actuarial valuation, are taken into consideration when determining future funding rates in order to ensure

that the scheme will be able to meet these liabilities as they become due. The current funding rates are those

recommended by the actuaries to ensure that the scheme will be able to meet its future liabilities.

31st July, 1999


105


34. C O M M I T M E N T S ( c o n t i n u e d )

(c) Grant of put options

Upon the completion of the sales and purchase agreement of Fortune Sign (the `̀ Completion'') as further

detailed in note 22, Furama entered into an option deed (the `Òption Deed'') with the Majestic Purchasers,

pursuant to which Furama granted a share put option and a loan put option (together the ``Put Options'') to

the Majestic Purchasers to require Furama to acquire the entire issued share capital of Fortune Sign and the

related shareholder's loan owing from Fortune Sign, respectively, at a total consideration of approximately

HK$1,930 million. The Put Options cannot be exercised by the Majestic Purchasers unless they are

exercised simultaneously.

The Put Options are each for a term of approximately 3 years commencing from the date of the Completion

and expiring on 28th February, 2001 (both dates inclusive) (the `Òption Period'') and may be exercised at

any time and from time to time, during the period from 1st February, 2001 to 28th February, 2001 (both

dates inclusive) (the `̀ Exercise Period''), by the Majestic Purchasers giving notice in writing to Furama of

their intention to do so.

At any time before the Exercise Period, upon the occurrence of certain events specified in the Option Deed,

inter alia, the Lim Family ceases to beneficially own, whether directly or indirectly, at least 35% of the issued

share capital of LSG from time to time, or LSG, together with the Lim Family, cease to beneficially own,

whether, directly or indirectly, at least 35% of the issued share capital of the Company from time to time,

the Majestic Purchasers shall be entitled to exercise the Put Options by giving notice in writing to Furama of

their intention to do so within one month after the occurrence of such events.

The Put Options will lapse automatically and will not be exercisable upon the earlier of the expiry of the

Option Period, or the occurrence of certain events specified in the Option Deed.

Furama will be entitled to set off the outstanding principal amount of the Note against the total

consideration payable to the Majestic Purchasers upon exercise of the Put Options.

31st July, 1999


106


35. C O N T I N G E N T L I A B I L I T I E S

Contingent liabilities not provided for in the financial statements at the balance sheet date were as follows:

Group Company

1999 1998 1999 1998

HK$'000 HK$'000 HK$'000 HK$'000

Guarantees given to banks in connection with

facilities granted to:

Subsidiaries Ð Ð 3,261,269 4,403,800

Associated companies 295,935 631,600 295,935 679,300

Investee companies 278,613 307,900 278,613 307,900

574,548 939,500 3,835,817 5,391,000

Guarantee given in connection with

the issue of convertible bonds Ð Ð 1,161,375 1,161,375

Guarantees given in connection with

the issue of bonds Ð Ð 891,250 1,814,985

574,548 939,500 5,888,442 8,367,360

In additions to the above, as at 31st July, 1999, the Group has the following contingent liabilities:

(1) A guarantee of HK$771,000 (1998 : HK$1,531,000) has been given to third parties in connection with

the Group's restaurant operations.

(2) A guarantee of interest payment has been given to banks on attributable share of bank loans in the

amount of US$25,662,000 (1998 : US$76,900,000) in an associated company.

(3) Guaranteed rental returns (`̀ Rental Guarantees'') of 13% per annum, calculated based on the sale

consideration, have been given to certain purchasers of the Hong Kong Plaza office and serviced

apartment units. The Rental Guarantees are effective for two years commencing in the fourth month

after the month in which the notice of occupation of the Hong Kong Plaza is issued.

(4) Under a mortgage loan facility provided by a bank to the end-buyers of the office and apartment units

of the Hong Kong Plaza, Lai Fung had agreed to guarantee up to 95% of the liability of Li Xing for the

due performance of its undertaking to buy back the relevant properties in case of default by the

borrowers.

(5) Under a mortgage loan facility provided by another bank to the end-buyers of Eastern Place Phase I

and Phase II, the Group has agreed to provide guarantees to the bank to buy back the relevant

properties in case of default by the borrowers.

31st July, 1999


107


36. R E S T R I C T E D C A S H A N D B A N K B A L A N C E S

As at 31st July, 1999, approximately HK$8,055,000 (1998 : HK$45,256,000) included in the Group's cash

and bank balances were pledged to banks to secure mortgage loans granted by banks to certain end-buyers

of the Group's completed properties for sale. The pledge of such balance will be released upon the

completion of the relevant mortgage arrangements.

37. P O S T B A L A N C E S H E E T E V E N T S

On 14th October, 1999, Lai Fung announced the following matters which constitute connected transactions

and required the approval by the independent shareholders.

(1) Li Xing entered into a conditional loan agreement (``Loan Arrangement'') with BOC on 30th September,

1999, whereby BOC agreed to extend a loan in an amount of RMB80,000,000 to Li Xing for its

repayment of bank borrowings and settlement of construction costs. The Loan Arrangement is secured

by the first four floors of the North Tower of Hong Kong Plaza, which is valued at approximately

RMB407,000,000.

Such security is provided with the intention that a new bank loan of approximately RMB150,000,000

will be granted by BOC in replacement of the said loan of RMB80,000,000 in the near future.

(2) BOC, being one of the principal banks of Lai Fung, is expected to continue to provide secured loan

financing (the ``Financing Transaction'') and other financial and banking services (the `̀ Other

Transactions'') to Lai Fung. Such transactions, if entered into, may constitute connected transactions

for Lai Fung in accordance with the Listing Rules (by reasons detailed below), and may need full

disclosure and/or prior approval of the shareholders of the Company, Lai Fung and LSG.

On this basis, it is proposed that Lai Fung's entering into any future Financing Transactions or Other

Transactions with BOC which are expected to be entered into in the ordinary course of business of Lai

Fung and on normal commercial terms, to be subject to the following maximum limits:

(i) the aggregate amount of all loans outstanding under any Financing Transactions not to exceed

70% of the consolidated net tangible assets of Lai Fung as published in its latest audited

accounts; and

(ii) the aggregate amount of all fees payable by Lai Fung in respect of any Other Transactions in any

financial year of Lai Fung not to exceed 3% of the consolidated net tangible assets of Lai Fung as

published in its latest audited accounts.

31st July, 1999


108


37. P O S T B A L A N C E S H E E T E V E N T S ( c o n t i n u e d )

On 7th April, 1999, the Company entered into an option agreement with Sun Chung, a wholly-owned

subsidiary of BOC, which was supplemented by a supplemental agreement dated 12th April, 1999 (the

`̀ Option Agreement''). Pursuant to the Option Agreement, the Company granted the right (the

`̀ Option'') to Sun Chung to purchase 230,000,000 shares in Lai Fung held by the Company. As

detailed in note 31, Lai Fung issued the Convertible Note to the Sunny Group. Upon the exercise in

full, the Convertible Note is convertible into approximately 969,000,000 shares in Lai Fung. As Sun

Chung and the Sunny Group are both wholly-owned subsidiaries of BOC, in the opinion of the

directors, the BOC Group is deemed to be a connected person of the Company, Lai Fung and LSG.

Accordingly, the above transactions constitute connected transactions for the Company, Lai Fung and

LSG pursuant to the Listing Rules.

The above two matters were approved by independent shareholders in the respective extraordinary

meetings of the Company, Lai Fung and LSG on 30th October, 1999.

38. C O M P A R A T I V E A M O U N T S

Certain comparative amounts have been reclassified to conform with the current year's presentation. In

particular, as detailed in note 2 under `̀ Jointly controlled entities'', the jointly controlled entities were

accounted for as subsidiaries or associated companies in previous years.

39. U L T I M A T E H O L D I N G C O M P A N Y

In the opinion of the directors, the ultimate holding company is Lai Sun Garment (International) Limited,

which is incorporated in Hong Kong.

40. A P P R O V A L O F T H E F I N A N C I A L S T A T E M E N T S

The financial statements were approved by the board of directors on 12th November, 1999.

31st July, 1999


109


NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Members of the Company will be held

at Victoriana Room, 4th Floor, Furama Hotel, Hong Kong, 1 Connaught Road, Central, Hong Kong on

Thursday, 23rd December, 1999 at 11 : 00 a.m. for the following purposes:

1. To receive and consider the audited Financial Statements and the Reports of the Directors and of the

Auditors for the year ended 31st July, 1999;

2. To re-elect retiring Directors and to fix Directors' remuneration;

3. To appoint Auditors and to authorise the Directors to fix their remuneration; and

4. As special business, to consider and, if thought fit, pass with or without amendments, the following

resolutions as Ordinary Resolutions:

(A) ``THAT:

(a) subject to paragraph (b) of this Resolution, the exercise by the Directors during the

Relevant Period (as hereinafter defined) of all the powers of the Company to purchase

ordinary shares of HK$0.50 each in the ordinary share capital of the Company on The

Stock Exchange of Hong Kong Limited (`̀ the Stock Exchange'') or on any other stock

exchange on which the ordinary shares of the Company may be listed and recognised by

the Securities and Futures Commission and the Stock Exchange for this purpose, subject to

and in accordance with all applicable laws and the requirements of the Rules Governing the

Listing of Securities on the Stock Exchange or any other stock exchange as amended from

time to time, be and is hereby generally and unconditionally approved;

(b) the aggregate nominal amount of the ordinary shares to be purchased pursuant to the

approval in paragraph (a) of this Resolution shall not exceed 10% of the aggregate nominal

amount of the ordinary share capital of the Company in issue as at the date of this

Resolution, and the said approval shall be limited accordingly;

(c) for the purposes of this Resolution, `̀ Relevant Period'' means the period from the passing of

this Resolution until whichever is the earlier of:

(i) the conclusion of the next Annual General Meeting of the Company;

(ii) the revocation or variation of the authority given under this Resolution by an

ordinary resolution of the shareholders of the Company in general meeting; or

(iii) the expiration of the period within which the next Annual General Meeting of the

Company is required by law to be held.''


110

Notice of Annual General Meeting

(B) ``THAT:

(a) subject to paragraph (c) of this Resolution, the exercise by the Directors during the

Relevant Period (as hereinafter defined) of all the powers of the Company to issue, allot

and deal with additional ordinary shares in the Company, and to make or grant offers,

agreements and options (including warrants, bonds, debentures, notes and any securities

which carry rights to subscribe for or are convertible into ordinary shares in the Company)

which would or might require the exercise of such power be and is hereby generally and

unconditionally approved;

(b) the approval in paragraph (a) of this Resolution shall authorise the Directors during the

Relevant Period to make or grant offers, agreements and options (including warrants,

bonds, debentures, notes and any securities which carry rights to subscribe for or are

convertible into ordinary shares in the Company) which would or might require the

exercise of such power after the end of the Relevant Period;

(c) the aggregate nominal amount of ordinary 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 paragraph (a) of this Resolution, otherwise than

pursuant to (i) a Rights Issue (as hereinafter defined); or (ii) an issue of ordinary shares in

the Company upon the exercise of rights of subscription or conversion under the terms of

any of the warrants or securities of the Company; or (iii) an issue of ordinary shares in the

Company as scrip dividends pursuant to the Articles of Association of the Company from

time to time; or (iv) an issue of ordinary shares in the Company under any option scheme

or similar arrangement for the grant or issue to employees of the Company and/or any of its

subsidiaries of ordinary shares in the Company or rights to acquire ordinary shares in the

Company, shall not exceed 20% of the aggregate nominal amount of the issued ordinary

share capital of the Company at the date of this Resolution, and the said approval shall be

limited accordingly; and

(d) for the purposes of this Resolution:

``Relevant Period'' shall have the same meaning as those ascribed to it under paragraph (c)

of the Ordinary Resolution No. 4(A) in the Notice convening this Meeting; and

``Rights Issue'' means an offer of ordinary shares of the Company, open for a period fixed by

the Directors to the holders of ordinary shares, whose names appear on the Register of

Members of the Company on a fixed record date in proportion to their then holdings of

such ordinary shares as at that date (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 requirements of

any recognised regulatory body or any stock exchange in, any territory applicable to the

Company).''


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(C) ``THAT subject to the passing of the Ordinary Resolutions Nos. 4(A) and 4(B) in the Notice

convening this Meeting, the general mandate granted to the Directors and for the time being in

force to exercise the powers of the Company to allot ordinary shares and to make or grant offers,

agreements and options which might require the exercise of such powers be and is hereby

extended by addition thereto of an amount representing the aggregate nominal amount of

ordinary shares in the capital of the Company which has been purchased by the Company since

the granting of such general mandate pursuant to the exercise by the Directors of the powers of

the Company to purchase such ordinary shares, provided that such amount shall not exceed 10%

of the aggregate nominal amount of the ordinary share capital of the Company in issue as at the

date of this Resolution.''

By Order of the Board

Yeung Kam Hoi

Company Secretary

Hong Kong, 12th November, 1999

Notes:

1. A Member entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more

proxies to attend and, on a poll, vote on his behalf. A proxy need not be a Member of the Company.

2. To be valid, a form of proxy and the power of attorney or other authority, if any, under which it is

signed, or a notarially certified copy of such power or authority, must be lodged with the Company's

Registrars, Tengis Limited, at 1601 Hutchison House, 10 Harcourt Road, Central, Hong Kong, not less

than 48 hours before the time appointed for holding the Annual General Meeting or adjourned

meeting (as the case may be). Completion and return of the form of proxy shall not preclude members

from attending and voting in person at the Annual General Meeting or at any adjourned meeting

should they so wish.

3. A circular containing details regarding the Ordinary Resolutions Nos. 4(A) to 4(C) above will be sent

to shareholders together with the 1998/1999 Annual Report.


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Lai Sun Development Company Limited - esun. · PDF fileLai Sun Group which obtained its first listing on the Hong Kong stock exchange in 1972. ... which trades at Chek Lap Kok Airport