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City e-Solutions Limited
(Stock Code: 557)
ANNUAL REPORT 2010
CONTENTS
2 4 6 7 8 9 9 9 10 10 11 12 Chairman’s Statement Financial Statistics Summary Financial Highlights Corporate Information Products and Services Sceptre Hospitality Resources Shield Source Financial Review Group Performance Cash Flow and Borrowings Treasury Activities 36 38 35 12 13 18 31 32 33 34 Directors and Employees Corporate Governance Report Directors’ Report Auditors’ Report Consolidated Income Statement Statements of Financial Position Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial Statements
8 Richfield Hospitality Services
MISSION STATEMENT
To invest in businesses with high growth potential so as to increase shareholder value
CHAIRMAN’S STATEMENT
On behalf of the Board of Directors, I am pleased to present the Group’s results for the financial year ended 31 December 2010 (“FY2010”). The Group recorded an improvement in revenue to HK$83.7 million, an increase of HK$18.4 million or 28.2% from HK$65.3 million in the previous year. However, net profit attributable to the equity shareholders of the Company of HK$9.0 million declined by 83.9% from HK$55.9 million in the previous corresponding year. Whilst higher dividend income and additional revenue contribution was recorded by the Group’s newly-acquired jointly controlled entity which owns the 279-room Crowne Plaza Syracuse Hotel (formerly known as Renaissance Syracuse Hotel), New York, USA, the Group’s profit was negatively impacted by the net unrealised loss of HK$4.5 million as a result of the revaluation of the Group’s trading securities to fair value as at 31 December 2010 as well as a net realised and unrealised translation exchange loss of HK$3.2 million arising mainly from the Sterling Pound denominated trading security and cash deposit. Consequently, a total net realised and unrealised loss of HK$7.7 million was recorded for FY2010 as compared with a total net realised and unrealised gain of HK$47.8 million reported in the previous corresponding year. Nevertheless, the negative impact was reduced by higher dividend income of HK$31.5 million from one of the Group’s trading securities and, therefore, an ex-dividend markdown for the security has also been reflected in the unrealised loss on trading securities under other net losses. The Group has always been seeking investment opportunities and through the Group’s 50% jointly controlled entity, successfully completed the acquisition of the Crowne Plaza Syracuse Hotel (“Hotel”) in July 2010 at a purchase price of US$10 million (about HK$78 million), representing US$35,842 per key and a 14% yield on FY2009 net operating income. For the year under review, this Hotel contributed additional revenue amounting to HK$14.4 million to the Group’s
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City e-Solutions Limited and its Subsidiaries
CHAIRMAN’S STATEMENT
revenue which more than offset the decrease in the management fee income from the Group’s US hotel management business unit, Richfield. Since the acquisition, this Hotel has performed in line with expectations and a major refurbishment has commenced in FY2010 that will be carried out in phases to minimise disruption on the hotel operations. Although the Hotel had recorded a pre-tax profit before interest and depreciation and amortisation (”EBITDA”) of HK$1.0 million (US$0.13 million), a pretax loss of HK$7.9 million was recognised for the 1st partial year of operation in FY2010 due mainly to the write off of the acquisition-related costs incurred by the jointly-controlled entity in accordance with the Group’s accounting policy. The continuing challenging economic environment has resulted in a decline in the managed hotels’ operating results. This, together with a reduction in the number of managed hotels as compared with the previous corresponding year has adversely affected the management fees recorded by Richfield. Consequently, the revenue for the year under review decreased to HK$34.0 million, down by HK$5.6 million, from HK$39.6 million recorded in the previous corresponding year. However, Richfield has successfully secured new management contracts during the year under review and is operating 23 hotels representing over 4,000 rooms in the US as at 31 December 2010 as compared with 19 hotels with over 3,000 rooms as at 31 December 2009. It is anticipated that Richfield will contribute higher management fees to the Group in year 2011. Following the sale of the remaining two residential properties in the previous corresponding year, no revenue was recorded from this business segment in FY2010 as compared with a revenue and pre-tax profit of HK$12.5 million and HK$0.7 million respectively in the previous corresponding year. Also, for the year under review, the Group recorded profit from discontinued
operations of HK$5.5 million as a result of the deferred consideration received from the disposal of the Group’s 50% equity interest in MindChamps Holdings Pte. Limited (“MindChamps”) on 23 March 2009. Basic earnings per share for the year under review amounted to HK2.35 cents, calculated on the weighted average number of 382,449,524 ordinary shares in issue during the year. The Group’s Net Tangible Assets per share increased slightly to HK$1.49 as at 31 December 2010, up from HK$1.48 as at 31 December 2009. The Board is not proposing a final dividend for the year under review. PROSPECTS The Group continues to hold some trading securities while its cash reserves are in a basket of currencies. From time to time, there could be continued adjustments attributable to unrealised gains or losses arising from the fair value readjustments of the Group’s trading securities and unrealised gains or losses on revaluation of foreign currency cash deposits. The current year will present both challenges and opportunities. Though conditions appear more favourable than this time last year, there are still uncertainties that have yet to be dealt with in the world economy. However we are confident that investment opportunities may become more available in year 2011. On behalf of the Board of Directors, I would like to thank our customers, business partners, shareholders, management and staff for their continued support during this past year.
KWEK LENG BENG
Chairman 22 February 2011
Annual Report 2010 3
FINANCIAL STATISTICS SUMMARY
Consolidated Income Statement
The Group 2010 HK$'000 Continuing Operations Turnover (Loss)/Profit before taxation Income tax Profit/(Loss) from continuing operations Discontinued operations Profit/(Loss) from discontinued operations, net of tax Profit/(Loss) for the year Attributable to: Equity shareholders of the Company Non-controlling interests Profit/(Loss) for the year Dividends payable to equity shareholders of the Company attributable to the year: Final dividend proposed after balance sheet date Earnings/(Losses) per share Basic earnings/(losses) per share (HK cents) Continuing operations Basic earnings/(losses) per share (HK cents) 0.92 13.28 (25.08) 3.08 23.53 2.35 14.61 (36.32) 3.68 23.53 11,494 22,988 8,994 (1,482) 7,512 55,865 538 56,403 (138,991) 313 (138,678) 14,091 2,116 16,207 90,152 5,300 95,452 5,477 7,512 5,105 56,403 (43,005) (138,678) 2,284 16,207 95,452 83,686 (5,267) 7,302 2,035 65,270 51,417 (119) 51,298 75,539 (89,659) (6,014) (95,673) 82,561 17,470 (3,547) 13,923 79,010 74,581 20,871 95,452 2009 HK$'000 2008 Re-presented HK$'000 2007 Re-presented HK$'000 2006 HK$'000
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City e-Solutions Limited and its Subsidiaries
FINANCIAL STATISTICS SUMMARY
Statements of Financial Position
The Group 2010 HK$'000 Property, plant and equipment Intangible Assets Goodwill Interest in an associate Deferred tax assets Current Assets Total Assets Current Liabilities Total Assets less Current Liabilities Interest-bearing loans Net Assets 36,912 * 3,953 1,625 20,337 598,730 661,557 (27,571) 633,986 (23,300) 610,686 2009 HK$'000 2,472 103 12,814 607,699 623,088 (21,007) 602,081 602,081 2008 HK$'000 7,612 3,651 30,039 12,940 538,204 592,446 (47,224) 545,222 545,222 2007 HK$'000 7,626 39,032 10,045 17,906 674,114 748,723 (50,509) 698,214 698,214 2006 HK$'000 6,587 302 21,083 694,649 722,621 (20,271) 702,350 702,350
Capital and Reserves Share Capital Reserves Total Equity Attributable to Equity Shareholders of the Company Non-controlling interests Total Equity
382,450 193,433 575,883 34,803 610,686
382,450 183,368 565,818 36,263 602,081
382,450 127,044 509,494 35,728 545,222
383,126 279,428 662,554 35,660 698,214
383,126 285,794 668,920 33,430 702,350
* Major Property Hotel Crowne Plaza Syracuse Hotel 701 East Genesee Street Syracuse, New York Tenure Fee Simple Site Area (sq. Metres) 4,925.25 Number of Rooms 279 Effective Group Interest (%) 43
Annual Report 2010 5
FINANCIAL HIGHLIGHTS
2010 HK$’000 2009 HK$’000
800
623,088
600
565,818
400
200
65,270 51,417 55,865
0
83,686 (5,267) 8,994 575,883 661,557
-200
*Turnover *(Loss)/Profit before taxation Profit attributable to shareholders of the Company Total share capital and reserves Total assets
2010 Net tangible assets per share (HK$) *Earnings per share (HK cents) *Results of continuing operations $1.49 0.92
2009 $1.48 13.28
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City e-Solutions Limited and its Subsidiaries
CORPORATE INFORMATION
EXECUTIVE DIRECTORS Kwek Leng Beng (Chairman and Managing Director) Kwek Leng Joo Gan Khai Choon Lawrence Yip Wai Lam NON-EXECUTIVE DIRECTOR Chan Bernard Charnwut INDEPENDENT NON-EXECUTIVE DIRECTORS Dr. Lo Ka Shui Lee Jackson @ Li Chik Sin Teoh Teik Kee AUDIT COMMITTEE Teoh Teik Kee Lee Jackson @ Li Chik Sin Chan Bernard Charnwut REMUNERATION COMMITTEE Teoh Teik Kee Lee Jackson @ Li Chik Sin Gan Khai Choon NOMINATION COMMITTEE Dr. Lo Ka Shui Teoh Teik Kee Lee Jackson @ Li Chik Sin Chan Bernard Charnwut Gan Khai Choon CHIEF EXECUTIVE OFFICER Sherman Kwek Eik Tse COMPANY SECRETARY Kwong Seung Chi Jimmy AUDITORS KPMG LLP Public Acountants and Certified Public Accountants 16 Raffles Quay #22-00 Hong Leong Building Singapore 048581
PRINCIPAL BANKER The Hongkong & Shanghai Banking Corporation Limited REGISTRARS Principal Registrar Computershare Hong Kong Investor Services Limited Branch Registrar Maples and Calder, Cayman Islands PRINCIPAL OFFICE 2803, 28th Floor Great Eagle Centre 23 Harbour Road Wanchai Hong Kong SINGAPORE BRANCH 36 Robinson Road #04-01 City House Singapore 068877 BUSINESS ADDRESS 390 Havelock Road #02-01 King’s Centre Singapore 169662 REGISTERED OFFICE C/o Maples and Calder P.O. Box 309, Grand Cayman Cayman Islands British West Indies LEGAL ADVISORS Hong Kong Iu, Lai & Li Solicitors & Notaries Cayman Islands Maples & Calder, Attorneys-at-Law
Annual Report 2010 7
PRODUCTS AND SERVICES
SWAN Holdings Limited Group (“SWAN”) SWAN, a ‘CES’ 85%-owned subsidiary, is a multi-service company providing integrated and affordable solutions to the hospitality industry. SWAN can help hoteliers manage their properties smarter, more competitively, and more cost effectively, all under the banner of one comprehensive service company. The SWAN team offers a host of value-added services and expertise in all facets of hotel operation through its four business divisions: Richfield, Sceptre, Shield and Source. Richfield Hospitality Services (Hotel Management) Richfield is an established independent hotel management company. For over three decades, Richfield has successfully managed and skillfully developed a wide range of hotel assets. We have managed properties of all complexities including premier resorts, full service hotels and limited service properties. As at 31 December 2010, Richfield operated 23 hotels in the US representing in excess of 4,000 rooms under brand names from the leading hotel franchise companies including Hilton, Starwood, Intercontinental and Choice. We also operate several independent (non-brand affiliated) properties. Every client’s property benefits from our senior management’s combined 145 years of experience and industry expertise. Each assignment begins by determining the needs of the owner. We review the property’s prior performance, identify opportunities and assess challenges. Richfield then tailors the appropriate solution to deliver immediate visible improvement in the performance of the property.
With our resources, processes, systems, and technologies, our results consistently exceed clients’ expectations. The result is increased profitability to the owner and an upgraded and enhanced experience for each guest. For the past 30 years, Richfield has revitalised over 250 properties, ranging from independent, boutique hotels to large, city centre properties and virtually every industry brand. Richfield achieves superior operating results through intense focus on its strong commitment to guests, employees and owners. In managing these hotels, we fully utilise the strength of our company’s resources and years of experience to increase the value of each property, making it better positioned in its market with increased profitability to the owner and an upgraded and enhanced experience for each guest. Services offered by Richfield cover all aspects of hotel management including:  Annual Business Planning  Operations Improvement  Sales & Marketing Consulting  Revenue and Channel Management  Management of Franchise Affiliation  Human Resources Management  Accounting and Budgeting  Asset Management Services Consistent efforts to grow client relationship and maximise profitability of the hotels have culminated in the successful positioning of Richfield as a fundamental component of SWAN.
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City e-Solutions Limited and its Subsidiaries
PRODUCTS AND SERVICES
Sceptre Hospitality Resources (Reservation Distribution) Sceptre is the hospitality industry’s leading expert for reservations connectivity, online channel marketing and revenue/channel management services. By increasing exposure of its client hotels throughout the various electronic channels and optimising its vast channel-marketing reach, Sceptre helps hotels to increase revenues and create greater brand awareness while improving asset value of owners and operators. By creating a customised, strategic e-distribution strategy for its partner hotels, Sceptre maximises sales production and marketing exposure through the various on-line channels and increases each hotel’s presence throughout the globaldistribution systems, the Internet and property direct sources. Sceptre’s e-distribution power and expertise is unsurpassed, utilising state-of-the-art reservations technology and offering a strong commitment to customer service and support. At Sceptre, we distinguish ourselves from our competitors by providing:  Hospitality Experts. Our staff of professionals has an extensive industry background and can fully appreciate the needs of clients.  Customer Service. We provide focused support of each client to ensure maximum production from the various channels.  Monthly Account Analysis. Each month, we analyse and review the performance individual hotels and work with the client to ensure that revenue objectives are met.  Affordable Pricing. With transaction-fixed pricing, the client will enjoy low costs without compromising support.  Flexibility. Our electronic distribution channel can quickly address changes, meeting the needs of the most unique and discerning client.  Personalised Attention. With a ratio of 50:1 clients to Strategic Distribution Managers, our clients’ unique needs are immediately met. For over twenty years, Sceptre continues to exceed hotel expectations by connecting reservations, capturing customer engagement, converting bookings, providing top-line revenue growth, and increasing bottom-line profitability results. The current list of services includes five suites, each focused on maximizing revenues for hotels. 1. Reservations Technology and Connectivity  Distribution Consulting and Analysis  Electronic Marketing and Channel Management  Global Distribution System Representation  Booking Engines  Private-label Voice Reservations Revenue Management Services  Dedicated Revenue Management for Hire  Oversight of Pricing and Inventory Strategies  Demand Forecasting Systems with Revenue Opportunity Modeling Interactive Marketing & eCommerce Services  Hotel Internet Marketing  Hotel Website Design and Optimization  Social Media and Web 2.0  Mobile Marketing  Direct Online Channel Strategies Property-Level Sales & Marketing Expertise  Sales & Marketing Assessments  Hotel Positioning & Business Planning  Hotel Market Segment & Specific Promotions  Direct Sales Activity Online-based Operations Enhancers  Customer Relationship Management (CRM) for Hotels  Guest Loyalty Programs Property Management Systems(PMS) & Point  of Sale Systems (POS)  Sales Force Automation
2.
3.
4.
5.
The combination of Sceptre’s expert assistance, with its array of services and products can greatly enhance its clients’ abilities to achieve significant increases in reservations derived through the various electronic distribution channels. Shield (Risk Management) Shield provides risk management services to hotels. Recognising the unique risk profile of the hotel industry, Shield advises hotel management teams on how to lower its overall cost of insurance through pro-active programmes to mitigate risks at their hotels. Source (Purchasing and Procurement) Source delivers purchasing and procurement services to hotels with focus on delivering lower operating expenses to hotels and higher return on investments to owners. Source offers hoteliers significant cost savings and economies of scale through its extensive number of national account agreements which are organised to support specific areas of need within each hotel such as Food and Beverage, Rooms Operations, Engineering and Energy, Administrative, Furnishings, Fixtures and Equipment.
Annual Report 2010 9
FINANCIAL REVIEW
Group Performance As reported in the Chairman’s statement, the Group reported a higher revenue in the financial year ended 31 December 2010 (“FY2010”) of HK$83.7 million, up by HK$18.4 million or 28.2%, as compared with HK$65.3 million in the previous corresponding year (“FY2009”). However, the net profit attributable to equity shareholders of the Company amounted to HK$9.0 million, down by HK$46.9 million, as compared with HK$55.9 million in FY2009. In FY2010, the Group’s continuing operations are the Investment Holding and Hospitality segments. For the year under review, neither revenue nor cost of sale was recorded by the Property Investment segment as it no longer held property for resale. However, in FY2009, this segment reported a revenue and pre-tax profit of HK$12.5 million and HK$0.7 million respectively from the sale of the remaining two residential properties in Singapore. On the discontinued Education segment, the Group recorded profit of HK$5.5 million (FY2009: HK$5.1 million) as a result of the deferred consideration received from the disposal of the Group’s 50% equity interest in MindChamps on 23 March 2009. The remaining balance of HK$7.9 million is due by March 2011 and would be recorded as additional gains on receipt. The analysis of the Group’s revenue and profit and loss from operations by business segments are set out in the notes to the financial statements.
Investment Holding The Group’s profit for FY2010 was negatively impacted by the total net realised and unrealised loss amounting to HK$7.7 million as a result of the revaluation of the Group’s trading securities to fair value as at 31 December 2010 as well as the net realised and unrealised translation exchange loss arising mainly from the Sterling Pound denominated trading security and cash deposit as compared with a total net realised and unrealised gain of HK$47.8 million in FY2009. Nevertheless, the negative impact was reduced by a dividend income of HK$31.5 million from one of the Group’s trading securities and, therefore, an ex-dividend markdown for the security has also been reflected in the unrealised loss on trading securities under other net losses. Accordingly, in FY2010, the Group recorded higher dividend income amounting to HK$34.2 million as compared with HK$10.3 million in FY2009. On the other hand, lower Group’s interest income of HK$1.1 million was recorded in FY2010 as compared with HK$2.9 million in FY2009. Hospitality The revenue contribution from the Group’s Hospitality segment was boosted by the additional revenue from the Group’s newly-acquired jointly controlled entity (“JV”) which acquired the 279-room Crowne Plaza Syracuse Hotel (“Hotel”), New York, USA in July 2010. In FY2010, this Hotel contributed additional revenue amounting to HK$14.4 million to the Group’s revenue which more than offset the decrease in management
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City e-Solutions Limited and its Subsidiaries
FINANCIAL REVIEW
fee income of HK$5.6 million from the Group’s US hotel management business unit, Richfield. The continuing challenging economic environment has resulted in a decline in the managed hotels’ operating results. This, together with a reduction in the number of managed hotels as compared with the previous corresponding year had adversely affected the management fees recorded by Richfield. Consequently, the Hospitality segment contributed a total revenue of HK$48.6 million in FY2010, up HK$8.3 million, an increase of 20.6% from HK$40.3 million reported in FY2009. Despite the higher revenues, the Hospitality segment incurred losses in FY2010 of HK$20.3 million as compared with a pre-tax profit of HK$1.6 million in FY2009. The losses can be attributed to a loss of HK$7.9 million recognised by the Group’s JV entity for the 1st partial year of operation in FY2010 after accounting for depreciation, interest expense and the write off of HK$6.9 million being acquisition-related costs. Further, the Group’s US hotel management business unit, Richfield, had incurred a loss of HK$12.4 million in FY2010 as compared a pretax profit of HK$1.6 million in FY2009. Besides, the lower management fee income as discussed above, higher operating expenses were incurred mainly to acquire new hotel management contracts resulting in a loss by Richfield. The Hotel is expected to complete its major refurbishment in year 2011. Also, Richfield has reported an increase in management contracts to 23 hotels in the US as at 31 December 2010 compared with 19 hotels as at 31 December 2009. It is therefore, anticipated that the Hospitality segment will contribute favourably to the Group’s results in year 2011. The Group has recognised deferred tax benefits amounting to HK$7.5 million as it is probable that future taxable profits will be generated by the hospitality businesses and will be available to utilise against the benefits as recognised in FY2010. Consequently, the Group profit after tax for FY2010 was HK$7.5 million as compared with HK$56.4 million. Financial Position As at 31 December 2010, the Group’s total assets stood at HK$661.6 million, increased from HK$623.1 million as at 31 December 2009. The Group’s net tangible asset per share was HK$1.49 as at 31 December 2010, higher by 6.7% from HK$1.48 as at 31 December 2009. The Group reports its results in Hong Kong dollars and it is the objective of the Group to preserve its value in terms of Hong Kong dollars. Cash Flow and Borrowings For the year under review, cash used in operations amounted to HK$22.2 million. The Group received cash dividend income of HK$9.4 million, interest income of HK$1.0 million and paid tax amounting to HK$0.9 million. Consequently, net cash used in operating activities amounted to HK$12.7 million. On the investing and financing activities, the Group’s share of the acquisition cost in the JV entity
Annual Report 2010 11
FINANCIAL REVIEW
complied with certain financial covenants agreed with the financial institutions. Treasury Activities Majority of the Group’s cash is held in United States dollar, Sterling Pound and Singapore dollar cash deposits. It is the Group’s view to maximise returns to shareholders and hence a portion of its portfolio is held in various currencies. We will closely monitor the Group’s exposure to currency movement and take the appropriate action when necessary. Directors and Employees As at 31 December 2010, the Group had a total of 47 employees excluding employees from the Hotel, up from 41 as at the end of the last financial year ended 31 December 2009. There were 134 employees from the Hotel as at 31 December 2010. was HK$38.8 million which amount was partially financed with the Group’s share of bank borrowings amounting to HK$23.8 million. The bank loans bear interests fixed at 7.5% during the tenure of the loans and the total bank interest incurred in FY2010 amounted to HK$0.7 million. Overall, there was a decrease of HK$26.2 million in net cash used which together with an unfavourable exchange translation loss of HK$2.6 million resulted in a total Group’s cash and cash equivalents of HK$460.4 million as at 31 December 2010, down from HK$489.2 million as at 31 December 2009. Taking into account of the Group’s bank borrowings of HK$23.8 million, the Group’s was in a net cash position amounting to HK$436.6 million as at 31 December 2010. Hence, the Group’s gearing is zero, which is expressed as a percentage of current and non-current loans and borrowings less cash and cash equivalents over total equity attributable to equity shareholders of the Company. As at 31 December 2010, the Group’s bank borrowings amounted to HK$23.8 million (2009: Nil), of which HK$0.5 million was current, as included in the portion of long-term borrowing repayable within a period of one year, and HK$23.3 million was non-current and will be repayable within a period of more than one year but not exceeding five years. The bank loans of the Group are secured over the freehold land and building with a carrying amount of HK$30.2 million. In addition, as at 31 December 2010, the Group has fully The total payroll costs including the Group’s 50% share of the jointly controlled entity which owned the Hotel was HK$34.9 million as compared with HK$28.3 million in year 2009. The increase in payroll costs can be attributed mainly to the Hotel employees and the replacement of senior management employees for the Hospitality segment. The Group has a competitive wage and benefits package which are critical to maintaining a level of consistent and quality services.
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City e-Solutions Limited and its Subsidiaries
CoRPoRATE GovERnAnCE RepoRt
(a) Corporate governance practices
for the year ended 31 December 2010
The Directors and management are committed to maintaining high standards of corporate governance, in line with the principles set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) – “Code on Corporate Governance Practices” (“Appendix 14”). As good corporate governance, it is the intention of the Company to publish the Group’s financial results quarterly. A “Continuous Disclosure Obligation Procedures” (the “Procedures”) dealing with the Company’s obligations for continuous disclosure under the Listing Rules was adopted by the Company and an executive Director, Mr. Lawrence Yip Wai Lam (“Mr. Yip”), had been appointed as the Designated Director to be responsible for the Procedures. In his role as Designated Director, Mr. Yip will consult with the Chairman of the Board, the Chief Executive Officer and members of the executive management team, including the Company’s legal advisors, with regards the Company’s discharge of its continuous disclosure obligations. In the opinion of the Directors, save as disclosed below, the Company has complied with Appendix 14 throughout the year under review. Under the code provision E.1.2, the Chairman of the Board should attend the annual general meeting. However, for the annual general meeting held on 21 April 2010, our Chairman was unable to attend the meeting as he had to attend to an urgent matter. He appointed Mr. Gan Khai Choon to chair the meeting on his behalf. (b) Directors’ securities transactions The Company has adopted the “Model Code for Securities Transactions by Directors of Listed Issuers” as set out in Appendix 10 of the Listing Rules (“Model Code”). All Directors have confirmed that they have complied with the Model Code throughout the year under review. (c) Board of Directors The Board currently comprises 8 Directors, of which 4 are executive Directors, 1 is a non-executive Director and 3 are independent non-executive Directors. The members of the Board are as follows: Executive Directors Mr. Kwek Leng Beng Mr. Kwek Leng Joo Mr. Gan Khai Choon Mr. Lawrence Yip Wai Lam Non-executive Director Mr. Chan Bernard Charnwut Independent Non-executive Directors Dr. Lo Ka Shui Mr. Lee Jackson @ Li Chik Sin Mr. Teoh Teik Kee
(Chairman and Managing Director)
Annual Report 2010
13
for the year ended 31 December 2010
CoRPoRATE GovERnAnCE RepoRt
(c) Board of Directors (cont’d) The biographical details of the Directors and Senior Management are set out in the Directors section of the Directors’ Report. The Company has received from each independent non-executive Director an annual confirmation of his independence pursuant to Rule 3.13 of the Listing Rules and the Company still considers such Directors to be independent. The Board’s primary functions are to set corporate policy and overall strategy for the Group and to provide effective oversight of the management of the Group’s business and affairs. Apart from its statutory responsibilities, the Board also approves the strategic plans, key operational issues, investments and loans, reviews the financial performance of the Group and evaluates the performance and compensation of senior management. These functions are either carried out directly by the Board or through committees established by the Board. A “Schedule of Matters Reserved for Decision by Board” (the “Schedule”) has been adopted by the Company. The Board shall review the items in the Schedule on a periodic basis to ensure that they remain appropriate to the needs of the Group. The Directors, individually or as a group, are entitled to take independent professional advice, at the expense of the Company, in furtherance of their duties and in the event that circumstances warrant it. A “Guidelines for Seeking Independent Professional Advice” has been adopted by the Board. The Company conducts regular scheduled Board meetings on a quarterly basis. Additional meetings are convened as and when circumstances warrant. The attendance of individual Directors at Board, Audit Committee, Remuneration Committee and Nomination Committee meetings in 2010, as well as the frequency of such meetings, is set out below: Attendance/number of Meetings Audit name of Directors Executive Directors Mr. Kwek Leng Beng Mr. Kwek Leng Joo Mr. Gan Khai Choon Mr. Lawrence Yip Wai Lam Non-executive Director Mr. Chan Bernard Charnwut Independent Non-executive Directors Dr. Lo Ka Shui Mr. Lee Jackson @ Li Chik Sin Mr. Teoh Teik Kee 3/4 4/4 3/4 4/4 4/4 1/1 1/1 1/1 1/1 1/1 3/4 4/4 1/1 4/4 3/4 3/4 4/4 1/1 1/1 Board Committee Remuneration Committee nomination Committee
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City e-Solutions Limited and its Subsidiaries
CoRPoRATE GovERnAnCE RepoRt
(d) Chairman and Chief Executive Officer The Chairman of the Board is Mr. Kwek Leng Beng while the Chief Executive Officer (“CEO”) is Mr. Sherman Kwek Eik Tse. There is a clear division of responsibilities between the Chairman and the CEo, in that the Chairman bears primary responsibility for the workings of the Board, by ensuring its effective function, while the CEo bears executive responsibility for the Company’s business, including management of the Company’s day-to-day operations and implementation of key policies, procedures and business strategies approved by the Board. (e) Non-executive Director The non-executive Director was appointed for a specific term of 3 years, subject to retirement by rotation at annual general meeting and being eligible to offer themselves for re-election. (f) Remuneration Committee (“RC”) The RC was established in May 2005 and comprises 2 independent non-executive Directors and 1 executive Director. The members of the RC are as follows: Mr. Teoh Teik Kee Mr. Lee Jackson @ Li Chik Sin Mr. Gan Khai Choon Chairman (Independent non-executive) Member (Independent non-executive) Member (Executive)
for the year ended 31 December 2010
The primary objective of the RC is to consider management recommendation, and determine the framework or broad policy for remuneration for the Directors and the senior key executives, including the CEo. no Director or any of his associates may be involved in any decisions as to his own remuneration. The duties of the RC also include: (a) To review and recommend the criteria for assessing employee performance which should reflect the Company’s business objectives and targets; and To consider the annual performance bonus for executive Directors, Senior Management, and the general staff, having regard to their achievements against the performance criteria and by reference to market norms, and make recommendation to the Board.
(b)
The Company’s remuneration policy comprises primarily a fixed component (in the form of a base salary) and a variable component (which includes bonus and share option grants), taking into account other factors, the individual performance, the performance of the Company and industry practices. (g) Nomination Committee (“NC”) The nC was established in August 2005 and comprises 3 independent non-executive Directors, 1 non-executive Director and 1 executive Director. The members of the nC are as follows: Dr. Lo Ka Shui Mr. Teoh Teik Kee Mr. Lee Jackson @ Li Chik Sin Mr. Chan Bernard Charnwut Mr. Gan Khai Choon Chairman (Independent non-executive) Member (Independent non-executive) Member (Independent non-executive) Member (non-executive) Member (Executive)
Annual Report 2010
15
for the year ended 31 December 2010
CoRPoRATE GovERnAnCE RepoRt
(g) Nomination Committee (“NC”) (cont’d) The duties of the nC include: a) To review and monitor the structure, size and composition (including the skills, knowledge and experience) of the Board and make recommendations to the Board with regard to any proposed changes; To identify individuals suitably qualified to become Board members and select, or make recommendations to the Board on the selection of, individuals nominated for directorships. To assess the independence of Directors, having regard to the requirements under the Listing Rules; and To make recommendations to the Board on relevant matters relating to the appointment or reappointment of Directors and succession planning for Directors in particular, the Chairman and the CEo.
(b)
(c) (d)
(h) Auditors’ remuneration The Group’s external auditors are KPMG, Singapore (“KPMG”). During the year under review, the Group has engaged KPMG (including any entity that is under common control, ownership or management with KPMG or any entity that a reasonable and informed third party having knowledge of all relevant information would reasonably conclude as part of KPMG nationally or internationally) to provide the following services and their respective fees charged are set out as below: Fees charged Type of services 2010 HK$’000 Audit fee for the Group Taxation services others total (i) Audit Committee (“AC”) The Company has an AC which was established in compliance with Rule 3.21 of the Listing Rules for the purposes of reviewing and providing supervision over the Group’s financial reporting process and internal controls. The AC comprises 2 independent non-executive Directors and 1 non-executive Director of the Company. The members of the AC are as follows: Mr. Teoh Teik Kee Mr. Lee Jackson @ Li Chik Sin Mr. Chan Bernard Charnwut Chairman (Independent non-executive) Member (Independent non-executive) Member (non-executive) 1,297 82 562 1,941 2009 HK$’000 1,030 120 663 1,813
The principal responsibility of the AC is to assist the Board in maintaining a high standard of corporate governance, particularly by providing an independent review of the effectiveness of the Company’s financial reporting process and material internal controls, including financial, operational, compliance and risk management controls. other duties within its written terms of reference include:
16
City e-Solutions Limited and its Subsidiaries
CoRPoRATE GovERnAnCE RepoRt
(i) Audit Committee (“AC”) (cont’d) (a)
for the year ended 31 December 2010
To review with management and, where appropriate, with the external auditors of the quarterly, half-year and annual financial statements before submission to the Board to ensure their completeness, accuracy and fairness; To review, on an annual basis, of the scope and results of the audit and the independence and objectivity of the external auditors; and To review the internal audit programme, ensure co-ordination between the internal and external auditors, and ensure that the internal audit function is adequately resourced and has appropriate standing within the Group.
(b)
(c)
In 2010, the AC held 4 meetings in February 2010, May 2010, August 2010 and november 2010. In the meeting held in February 2010, the Annual Report and Audited Financial Statements for the year ended 31 December 2009 were reviewed together with the external auditors. In the May 2010 meeting, the Unaudited Financial Results for the 3 months ended 31 March 2010 were reviewed. In the August 2010 meeting, the Interim Financial Report for the 6 months ended 30 June 2010 was reviewed. In the november 2010 meeting, the Unaudited Financial Results for the 9 months ended 30 September 2010 were reviewed. The adequacy of internal control was also scheduled to be discussed in these meetings. The AC concluded that there were no major issues which the AC considered that the Board should be informed after the AC meetings. (j) Financial reporting The Directors acknowledge that they are primarily responsible for the preparation of the financial statements which give a true and fair view and that appropriate accounting policies are selected and applied consistently. To the best knowledge of the Directors, there is no uncertainty relating to events or conditions that may cast significantly doubt upon the Company’s ability to continue as a going concern. (k) Internal control The Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. During the year under review, the Board has through the AC reviewed the effectiveness of the Group’s system of internal controls, including financial, operational and compliance controls and risk management functions. Internal Audit was carried out on a systematic rotational basis based on the risk assessments of the operation and controls, and reports were presented to the AC at least twice every year on significant findings on internal control system.
Annual Report 2010
17
DIRECToRS’ RepoRt
for the year ended 31 December 2010 The Directors have pleasure in submitting their annual report together with the audited financial statements for the year ended 31 December 2010. pRINCIpAL pLACe oF BUSINeSS City e-Solutions Limited (the “Company”) is a company incorporated in the Cayman Islands and domiciled in Hong Kong. Its registered office is at P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies and principal place of business is at Room 2803, 28th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong. pRINCIpAL ACtIVItIeS The principal activities of the Company comprise those of investment holding and the provision of consultancy services. The principal activities and other particulars of the subsidiaries are set out in note 17 to the financial statements. The analysis of the principal activities of the operations of the Company and its subsidiaries (the “Group”) during the financial year are set out in note 13 to the financial statements. FINANCIAL StAteMeNtS The profit of the Group for the year ended 31 December 2010 and the state of the Company’s and the Group’s affairs as at that date are set out in the financial statements on pages 32 to 93. tRANSFeR to ReSeRVeS Profit attributable to shareholders, before dividends, of HK$7,512,000 (2009: HK$56,403,000) have been transferred to reserves. Other movements in reserves are set out in the Consolidated Statement of Changes in Equity. The Directors of the Company do not recommend the payment of any final dividend for the year ended 31 December 2010 (2009: HK$nil). no interim dividend was paid for the year ended 31 December 2010 (2009: HK$nil). CHARItABLe DoNAtIoNS During the year, no charitable contributions (2009: HK$nil) were made by the Group. pRopeRtY, pLANt AND eQUIpMeNt Movements in property, plant and equipment are set out in note 14 to the financial statements.
18
City e-Solutions Limited and its Subsidiaries
for the year ended 31 December 2010
DIRECToRS’ RepoRt
SHARe CApItAL The Company did not issue any shares during the financial year. The Company has a share option scheme (the “2005 Scheme”) which was adopted on 27 April 2005 (“Adoption Date”) whereby the directors of the Company are authorised, at their discretion, to invite employees of the Group, including directors of any company in the Group, to take up options to subscribe for shares of the Company. The purpose of the scheme is to provide an opportunity for employees of the Group to acquire an equity participation in the Company and to encourage them to work towards enhancing the value of the Company and its shares for the benefit of the Company and its shareholders as a whole. Under the 2005 Scheme, the maximum number of shares that may be granted by the Directors shall not exceed 10% of the share capital of the Company in issue at the Adoption Date unless the Company obtains a fresh approval from its shareholders. The maximum number of shares which may be issued upon exercise of all outstanding options and yet to be exercised under the 2005 Scheme and any other option scheme(s) of the Company shall not in aggregate exceed 30% of the shares in issue from time to time. The subscription price of shares under the 2005 Scheme shall not be less than the highest of: (i) the official closing price of the shares as stated in daily quotations sheet of The Stock Exchange of Hong Kong Limited (“The Stock Exchange”) on the Offer Date; (ii) the average of the official closing price of the shares as stated in daily quotations sheets of The Stock Exchange for the 5 business days immediately preceding the Offer Date; and (iii) the nominal value of a share. The Executive Share option Scheme (the “1997 Scheme”) adopted by the Company on 11 June 1997 was terminated upon the 2005 Scheme becoming effective. Throughout the financial year, no share option was granted and outstanding. MAJoR CUStoMeRS AND SUppLIeRS During the year, the turnover attributable to the Group’s five largest customers combined was below 30% (2009: below 30%) of the Group’s turnover and the largest customer, included therein accounted for approximately 4% (2009: 6%). The percentage of purchases attributable to the Group’s five largest suppliers combined was about 51% (2009: 35%) and the largest supplier included therein accounted for approximately 40% (2009: 26%). At no time during the year have the directors or any shareholders of the Company (which to the knowledge of the Directors own more than 5% of the Company’s share capital) had any interest in these major suppliers.
Annual Report 2010
19
DIRECToRS’ RepoRt
DIReCtoRS
for the year ended 31 December 2010
The Directors of the Company during the financial year were as follows: Executive Directors Mr. Kwek Leng Beng (Chairman and Managing Director) Mr. Kwek Leng Joo Mr. Gan Khai Choon Mr. Lawrence Yip Wai Lam Non-executive Director Mr. Chan Bernard Charnwut Independent Non-executive Directors Dr. Lo Ka Shui Mr. Lee Jackson @ Li Chik Sin Mr. Teoh Teik Kee In accordance with Article 116 of the Articles of Association of the Company, one third of the present Directors will retire from office by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. pRoFILe oN DIReCtoRS AND SeNIoR MANAGeMeNt Mr. Kwek Leng Beng, aged 70 Chairman and Managing Director Mr. Kwek Leng Beng has been the Chairman and Managing Director of the Company since 1989. He is the Executive Chairman of the Hong Leong Group of Companies Singapore, and also City Developments Limited. He is also Chairman and Managing Director of Hong Leong Finance Limited. He is the Chairman of Millennium & Copthorne Hotels plc and Hong Leong Asia Ltd. Mr. Kwek has extensive experience in the finance business, having grown from day one with the original Hong Leong Finance Limited which has since merged its finance business with Singapore Finance Limited (now known as Hong Leong Finance Limited). He also has vast experience in the real estate business, the hotel industry as well as the trading and manufacturing business. Mr. Kwek’s achievements have also captured the attention of the academic institutions. He was conferred Honorary Doctorate of Business Administration in Hospitality from Johnson & Wales University (Rhode Island, US), where students have an opportunity to pursue career education in business, hospitality, culinary arts or technology; and Honorary Doctorate from Oxford Brookes University (UK) whose citation traced how Mr. Kwek, who joined the family business in the early 1960s, had gone on to establish an international reputation for his leadership of the Hong Leong Group, as well as an active supporter of higher education in Singapore. Mr. Kwek also serves as a Member of the InSEAD East Asia Council. France-based InSEAD is one of the world’s leading and largest graduate business schools which brings together people, cultures and ideas from around the world. Mr. Kwek holds a law degree, LL.B. (London) and is also a fellow of The Institute of Chartered Secretaries and Administrators.
20
City e-Solutions Limited and its Subsidiaries
for the year ended 31 December 2010
DIRECToRS’ RepoRt
Mr. Kwek Leng Beng is the brother of Mr. Kwek Leng Joo, brother-in-law of Mr. Gan Khai Choon and father of Mr. Sherman Kwek Eik Tse. Mr. Kwek Leng Joo, aged 57 executive Director Mr. Kwek Leng Joo was appointed an Executive Director of the Company in 1989. He is the Managing Director of City Developments Limited with extensive experience in property development and investment. Within the Hong Leong Group, he holds directorships in a number of its listed companies, including Hong Leong Finance Limited and Millennium & Copthorne Hotels plc. Mr. Kwek contributes actively to the business community in Singapore through several public appointments including as Honorary President of the Singapore Chinese Chamber of Commerce and Industry, Chairman of the Board of Trustees of national Youth Achievement Award Council and Chairman of Chinese Language & Culture Funds Management Committee. He is also a member of the Board of Trustees of nanyang Technological University, Board of Governors of S. Rajaratnam School of International Studies and The Chinese Heritage Centre. Mr. Kwek holds a diploma in Financial Management. Mr. Kwek Leng Joo is the brother of Mr. Kwek Leng Beng, brother-in-law of Mr. Gan Khai Choon and uncle of Mr. Sherman Kwek Eik Tse. Mr. Gan Khai Choon, aged 64 executive Director Mr. Gan Khai Choon was appointed an Executive Director of the Company in 1989. on 22 April 2009, he was appointed as a member of the Remuneration Committee and nomination Committee of the Company. He is also Managing Director of Hong Leong International (Hong Kong) Limited. Apart from being an Executive Director of the Company, Mr. Gan also holds a number of directorships in other members of the Group. He is also a director of China Yuchai International Limited. He is also an independent non-executive Director of Safety Godown Company Limited and Chairman of its Audit Committee. Mr. Gan was appointed Chairman of HL Global Enterprises Limited in September 2007. He has more than 36 years of experience in banking, real estate investment and development. He has been responsible for overseeing the development of the Grand Hyatt Taipei and other international projects for the Hong Leong Group of companies. Mr. Gan has a Bachelor of Arts degree (Honours) in Economics from the University of Malaya. Mr. Gan Khai Choon is the brother-in-law of Messrs. Kwek Leng Beng and Kwek Leng Joo and uncle of Mr. Sherman Kwek Eik Tse. Mr. Lawrence Yip Wai Lam, aged 55 executive Director Mr. Lawrence Yip was appointed an Executive Director of the Company in December 1998. Apart from being an Executive Director of the Company, Mr. Yip also holds a number of directorships in other members of the Group. Mr. Yip is also a Director of eMpire Investments Limited. He was formerly the General Manager (Finance & Administration) of the Company. He has over 10 years of experience in the Treasury Division of several banks. Prior to joining the Group in April 1990, Mr. Yip held the position of Regional Treasurer with a bank in Singapore.
Annual Report 2010
21
DIRECToRS’ RepoRt
for the year ended 31 December 2010
Mr. Chan Bernard Charnwut, aged 46 Non-executive Director Mr. Chan Bernard Charnwut has been a Director of the Company since 1989 and was appointed a member of the Audit Committee on 18 January 2000. Previously an independent non-executive director of the Company, he was re-designated as a non-executive Director of the Company with effect from 30 September 2004. In 2005, he was appointed a member of the nomination Committee of the Company. Mr. Chan is a Deputy to the national People’s Congress and a former member of both Hong Kong’s Executive and Legislative Councils. He sits on a number of bodies, including as the Chairman of the Council of Lingnan University, the Council for Sustainable Development, the Advisory Committee on Revitalisation of Historic Buildings, the Antiquities Advisory Board, the Hong Kong-Thailand Business Council, the vice Chairperson of the Hong Kong Council of Social Service and the deputy Chairman of the oxfam Hong Kong. He is also an advisor to Bangkok Bank Public Company Limited, Hong Kong Branch. A graduate of Pomona College in California, he is the President of Asia Insurance Co Ltd. Mr. Chan is also an Executive Director and the President of Asia Financial Holdings Limited and an independent non-executive Director of Yau Lee Holdings Limited, Chen Hsong Holdings Limited, Kingboard Laminates Holdings Ltd., China Resources Enterprise Ltd. and a non-executive Director of new Heritage Holdings Limited. * Dr. Lo Ka Shui, aged 64 Director Dr. Lo Ka Shui was appointed to the Board of the Company in 1989. In 2005, he was appointed Chairman of the nomination Committee of the Company. He graduated from McGill University with a Bachelor of Science Degree and from Cornell University with a Doctor of Medicine (M.D.) Degree. He was certified in Internal Medicine and Cardiology. He has more than 30 years’ experience in property and hotel development and investment both in Hong Kong and overseas. Dr. Lo is the Chairman and Managing Director of Great Eagle Holdings Limited and the non-executive Chairman of Eagle Asset Management (CP) Limited (Manager of the publicly listed Champion Real Estate Investment Trust). He is also a non-executive Director of The Hong Kong and Shanghai Banking Corporation Limited and an Independent non-executive Director of Shanghai Industrial Holdings Limited, Phoenix Satellite Television Holdings Limited, China Mobile Limited and some other publicly listed companies in Hong Kong. Dr. Lo is a vice President of The Real Estate Developers Association of Hong Kong, a Trustee of the Hong Kong Centre for Economic Research and a Board Member of the Hong Kong Airport Authority. Dr. Lo has been appointed as the Chairman of The Chamber of Hong Kong Listed Companies with effect from 8 May 2009. Dr. Lo retired as an Independent non-executive Director of Melco International Development Limited on 22 June 2010. * Mr. Lee Jackson @ Li Chik Sin, aged 78 Director Mr. Lee Jackson was appointed a non-executive Director and Chairman of the Audit Committee of the Company in December 1998. In 2005, he was appointed a member of the Remuneration Committee and the nomination Committee of the Company. on 22 April 2009, he stepped down as the Chairman of the Audit Committee of the Company and remains as a member of the Audit Committee. He also sits on the Boards of Hong Fok Corporation Limited and Hong Leong Finance Limited. He was an Independent non-Executive Director of Metro Holdings Limited from July 1983 to 23 July 2009. He was formerly a partner of an international firm of Chartered Accountants and is a member of The Australian Institute of Chartered Accountants.
22
City e-Solutions Limited and its Subsidiaries
for the year ended 31 December 2010
DIRECToRS’ RepoRt
* Mr. teoh teik Kee, aged 51 Director Mr. Teoh Teik Kee was appointed an independent non-executive Director and a member of the Audit Committee of the Company on 30 September 2004. In 2005, he was appointed Chairman of the Remuneration Committee and a member of the nomination Committee of the Company. on 22 April 2009, he was appointed Chairman of the Audit Committee of the Company. Mr. Teoh is a Lead independent Director of both Luzhou Bio-Chem Technology Limited and Great Group Holdings Limited. Mr. Teoh retired as an executive Director of ecoWise Holdings Limited on 26 February 2010. Mr. Teoh is a Chartered Accountant by training, and worked from 1986 to 1990 with KPMG Peat Marwick McLintock in London and with PricewaterhouseCoopers in Singapore. He has extensive experience in investment banking and corporate financial advisory services when he was with the DBS Group from 1993 to 2001. Mr. Teoh graduated from Aston University, Birmingham, United Kingdom with a Bachelor of Science (Honours) degree in Managerial and Administrative Studies, and is a member of The Institute of Chartered Accountants in England and Wales. He also has a diploma in Corporate Treasury Management awarded by the Association of Corporate Treasurers in the United Kingdom. * Independent non-executive director The non-executive Directors are subject to the same terms of appointment as the other directors of the Company. Fees payable to non-executive Directors are approved by the Board at the end of each financial year. Senior Management Mr Sherman Kwek eik tse, aged 34 Chief Executive Officer Mr. Sherman Kwek Eik Tse was appointed as the Chief Executive Officer of the Company on 1 November 2008. In his most recent role before joining the Company, Mr. Kwek was the Chief Operating Officer of Thakral Corporation Ltd (“Thakral Corp”). At Thakral Corp, he was responsible for running the day-to-day operations and assisting the Board of Directors in setting a strategic direction for the company. Before joining Thakral Corp, Mr. Kwek was a Director of RECAP Investments Limited, a wholly-owned subsidiary of Real Estate Capital Asia Partners, LP., a real estate private equity fund. He assisted the fund in completing deals in Korea and Thailand as well as sourcing for deals in China. Prior to that, he spent several years in new York, starting out as a financial analyst in Telligent Capital, a technology venture capital firm, before progressing on to the Investment Banking Division of Credit Suisse First Boston. Subsequently, he held a hotel management and property development role at the US division of Millennium & Copthorne Hotels plc, where he assisted the regional president in overseeing 20 hotels throughout the US as well as managing several condominium conversion projects. Mr. Kwek is also concurrently the Chief Executive Officer of CDL China Limited, a wholly-owned subsidiary of City Developments Limited, and was appointed to this position on 11 August 2010. As of 12 August 2010, Mr. Kwek ceased to act as the Executive Director of HL Global Enterprises Limited (“HLGE”) and has been re-designated as a non-Executive Director of HLGE.
Annual Report 2010
23
DIRECToRS’ RepoRt
for the year ended 31 December 2010
Mr. Kwek has experience in the areas of finance, mergers and acquisitions, real estate, information technology and hotel management. He graduated from Boston University with a Bachelor of Science in Business Administration, majoring in Finance and Marketing with a minor in Psychology. Mr. Sherman Kwek Eik Tse is the son of Mr. Kwek Leng Beng, the nephew of Messrs. Kwek Leng Joo and Gan Khai Choon. Mr. Man Mang Wo, Derek, aged 55 Chief Financial Officer Mr. Man Mang Wo, Derek joined the Group in 1996 and was appointed Chief Financial Officer of the Company with effect from 1 April 2004. Mr. Man is a member of the Certified General Accountants Association of Canada, a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants and The Institute of Chartered Accountants in England and Wales. He also holds a Bachelor of Business Administration honours degree from a UK university and a Master of Professional Accounting degree from The Hong Kong Polytechnic University. He has over 30 years of experience in the accounting and finance field. Mr. Johnathan Sze, aged 32 Senior Vice president, Investments Mr. Johnathan Sze joined the Company in March 2010 as Senior Vice President, Investments. Mr. Sze has over ten years of experience in real estate finance and investment including acquisition of land, income producing properties, collateralised debt and equity securities, as well as publicly listed companies. Prior to joining the Company, he was an Executive Director at RECAP Investments Limited where he sourced and executed property investments throughout north Asia with a focus on China, Korea, and Japan. He had also been an associate at Westbrook Partners LLC, a multi-billion real estate private equity fund headquartered in New York, where he participated in a number of transactions in the United States and Japan. Mr. Sze began his career as an analyst at Deutsche Bank’s real estate investment banking group in new York. He attended Cornell University and graduated with a Bachelor of Architecture with Honours. Mr. Greg Mount, aged 50 president Mr. Greg Mount joined Richfield Hospitality, Inc. (“Richfield”), a subsidiary of the Company, as its President in november 2009 bringing extensive experience in the hospitality industry spanning more than 25 years. Mr. Mount’s comprehensive background in hotel management, operations, acquisitions and development, sales and marketing, and revenue management is instrumental to his role in spearheading the growth of Richfield. Mr. Mount’s experience includes hospitality leadership positions at Sage Hospitality, Starwood Hotels & Resorts, Interstate Hotels & Resorts and Marriott International. He holds a Bachelor of Science degree in Hotel, Restaurant and Tourism from LaSalle University and has received significant industry recognition throughout his career.
24
City e-Solutions Limited and its Subsidiaries
for the year ended 31 December 2010
DIRECToRS’ RepoRt
DIReCtoRS’ AND CHIeF eXeCUtIVe’S INteReStS IN SHAReS (a) As at 31 December 2010, the interests of the Directors and Chief Executive Officer of the Company in the shares and underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”), were as follows: Name of Director Nature of Interest personal personal personal personal personal Nature of Interest personal personal personal family Nature of Interest personal personal personal family Nature of Interest personal personal family
the Company Kwek Leng Beng Kwek Leng Joo Gan Khai Choon Lawrence Yip Wai Lam Chan Bernard Charnwut
Number of ordinary Shares of HK$1.00 each 3,286,980 1,436,000 1,041,100 520,550 53,850 Number of ordinary Shares 397,226 65,461 100,000 25,000 Number of preference Shares 144,445 100,000 49,925 25,738 Number of ordinary Shares 2,320 1,290 247
City Developments Limited Kwek Leng Beng Kwek Leng Joo Gan Khai Choon
City Developments Limited Kwek Leng Beng Kwek Leng Joo Gan Khai Choon
Hong Leong Investment Holdings pte. Ltd. Kwek Leng Beng Kwek Leng Joo Gan Khai Choon
Annual Report 2010
25
DIRECToRS’ RepoRt
for the year ended 31 December 2010
Name of Chief Executive Officer Hong Leong Investment Holdings pte. Ltd. Sherman Kwek Eik Tse Name of Director
Nature of Interest personal
Number of ordinary Shares 1,174
Millennium & Copthorne Hotels plc Lawrence Yip Wai Lam
Nature of Interest personal Nature of Interest personal
Number of ordinary Shares of 30 pence each 9,759 Number of ordinary Shares 3,000,000
Millennium & Copthorne Hotels New Zealand Limited Kwek Leng Beng
note: Millennium & Copthorne Hotels new Zealand Limited is an indirect subsidiary of Millennium & Copthorne Hotels plc, a subsidiary of City Developments Limited. City Developments Limited is the holding company of the Company. The Directors of the Company consider Hong Leong Investment Holdings Pte. Ltd. to be the Company’s ultimate holding company. (b) Pursuant to Millennium & Copthorne Hotels Long Term Incentive Plan (the “LTIP”) approved by shareholders of Millennium & Copthorne Hotels plc (“M&C”) on 4 May 2006, certain Directors were awarded Performance Share Awards of ordinary shares of 30 pence each as follows: Name of Director Lawrence Yip Wai Lam Number of performance Shares 15,877 42,322 13,933
Date Awarded 25/06/2008 30/03/2009 16/09/2010
Vesting Date 25/06/2011 30/03/2012 16/09/2013
note: Under the terms of the LTIP, M&C is permitted to make both Performance Share Awards and Deferred Share Bonus Awards to an employee (including an executive director) of M&C or its subsidiaries. (c) Save as disclosed herein, as at 31 December 2010, none of the Directors and the Chief Executive Officer of the Company or their associates were interested or had any short position in any shares, underlying shares or debentures of the Company or any of its associated corporations that was required to be recorded under Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange pursuant to the Model Code.
26
City e-Solutions Limited and its Subsidiaries
for the year ended 31 December 2010
DIRECToRS’ RepoRt
SUBStANtIAL SHAReHoLDeRS As at 31 December 2010, the following persons were interested in 5% or more of the issued share capital of the Company as recorded in the register required to be kept under section 336 of the SFO: percentage Holding in the Company 49.82% 52.52% 5.58% 60.37% 60.37% 60.37% 9.94% 9.21% 6.03%
Name of Shareholder eMpire Investments Limited City Developments Limited Hong Leong Holdings Limited Hong Leong Investment Holdings Pte. Ltd. Davos Investment Holdings Private Limited Kwek Leng Kee Arnhold and S Bleichroeder Advisors, LLC Farallon Capital offshore Investors, Inc. Aberdeen Asset Management Asia Ltd. Aberdeen Asset Management Plc and its Associates (together “The AAM Group”) on behalf of accounts managed by The AAM Group noonday G.P. (U.S.), L.L.C. notes: (1)
Number of Shares Held 190,523,819 200,854,743 21,356,085 230,866,817 230,866,817 230,866,817 38,022,000 35,232,850 23,052,000
Notes
(1) (2) (3) (4) (5)
23,052,000 22,321,306
(6)
6.03% 5.84%
Of the 200,854,743 shares beneficially owned by wholly-owned subsidiaries of City Developments Limited (“CDL”) representing approximately 52.52% of the issued share capital of the Company, 190,523,819 shares are held by eMpire Investments Limited. The interests of CDL and Hong Leong Holdings Limited in 200,854,743 shares and 21,356,085 shares respectively, are included in the aggregate number of shares disclosed. The deemed interest of Hong Leong Investment Holdings Pte. Ltd. in 230,866,817 shares, representing approximately 60.37% of the issued share capital of the Company, is included in the aggregate number of shares disclosed. Mr. Kwek Leng Kee is deemed to have an interest in the 230,866,817 shares in which Davos Investment Holdings Private Limited (“Davos”) is deemed to have an interest in, by virtue of his entitlement to exercise or control the exercise of one-third or more of the voting power at general meetings of Davos. Farallon Capital Offshore Investors, Inc is interested in these shares in its capacity as the beneficial owner. Aberdeen Asset Management Plc is interested in these shares in its capacity as the investment manager and includes shares in which wholly owned controlled corporations of Aberdeen Asset Management Plc are interested.
(2)
(3)
(4)
(5) (6)
Save as stated above, no person was interested in or had a short position in the shares or underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO as at 31 December 2010.
Annual Report 2010
27
DIRECToRS’ RepoRt
for the year ended 31 December 2010
DIReCtoRS’ INteReStS IN CoNtRACtS No contracts of significance to which the Company or any of its subsidiaries, fellow subsidiaries or holding companies was a party, and in which a Director of the Company had a material interest, subsisted at the end of the year or at any time during the year. ARRANGeMeNtS to ACQUIRe SHAReS Save as disclosed herein, at no time during the year was the Company or any of its subsidiaries, fellow subsidiaries or holding companies a party to any arrangements to enable any Director of the Company to acquire benefits by means of acquisition of shares in or debentures of the Company or any other body corporate. CoNtRoLLING SHAReHoLDeRS’ INteReSt Save as disclosed herein, apart from transactions carried out in the normal course of business, there were no contracts of significance between the Company or any of its subsidiaries and a controlling shareholder or any of its subsidiaries or any contracts of any significance for the provision of services to the Company or any of its subsidiaries by a controlling shareholder or any of its subsidiaries. CoNNeCteD tRANSACtIoNS provision of property Management Services Property Management Services are provided by the Group to owners of Hotels, being indirect wholly-owned subsidiaries of Millennium & Copthorne Hotels plc (“M&C”). M&C is a subsidiary of the City Developments Limited, a controlling shareholder of the Company. Details of the transactions were set out in the press announcement dated 8 January 2007 as renewed by the press announcement dated 6 January 2010. The cap amount for Property Management Services is HK$5.0 million for each of the three financial years ended 31 December 2010. The total revenue generated from the provision of Property Management Services for the year ended 31 December 2010 amounted to HK$1.9 million (2009: HK$1.8 million). The independent non-executive Directors have reviewed the Property Management Services transactions for the year under review and confirmed that the said transactions were conducted: (i) (ii) in the ordinary and usual course of its business; on normal commercial terms or, if there are no sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available from independent third parties; and in accordance with the management agreements.
(iii)
The auditors have indicated in writing that based on the agreed-upon procedures: (i) The transactions have been approved by the Directors;
28
City e-Solutions Limited and its Subsidiaries
for the year ended 31 December 2010
DIRECToRS’ RepoRt
(ii)
Management has confirmed that they consider the transactions have been entered into in accordance with the terms of the Management Agreements; Where there are signed agreements or written acknowledgements, the auditors have obtained, on a sample basis, signed agreements/written acknowledgements of the service and related fee charges; and The total revenue received by the Group in relation to the Property Management Services transactions for the relevant financial year has not exceeded HK$5.0 million.
(iii)
(iv)
As the above procedures do not constitute either an audit or a review made in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants, the auditors did not express any assurance on the connected transactions for the year ended 31 December 2010. other Related party transactions Other related party transactions are set out in note 27 to the financial statements, which either fall under the definition of “Continuing Connected Transactions” in Chapter 14A of the Listing Rules and are exempted under the Listing Rules or does not fall into the definition of “connected transaction” or “continuing connected transaction”. SeRVICe CoNtRACtS oF DIReCtoRS none of the Directors has a service contract with the Company or its subsidiaries. pRe-eMptIVe RIGHtS Under present Cayman Islands laws and the Articles of Association of the Company, no pre-emptive rights are imposed which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.
pURCHASe, SALe oR ReDeMptIoN oF tHe CoMpANY’S LISteD SeCURItIeS neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year. SUFFICIeNCY oF pUBLIC FLoAt Based on information that is publicly available to the Company and within the knowledge of its directors, the Directors confirm that the Company has maintained the amount of public float as required under the Listing Rules during the year. eMpLoYee RetIReMeNt BeNeFItS Details of the Group’s employee retirement benefits are shown in note 29 to the financial statements.
Annual Report 2010
29
DIRECToRS’ RepoRt
for the year ended 31 December 2010
CoNFIRMAtIoN oF INDepeNDeNCe The Company has received from each of the independent non-executive Directors an annual confirmation of independence pursuant to Rule 3.13 of the Listing Rules and considers all the independent non-executive Directors to be independent. AUDItoRS KPMG LLP retire and, being eligible, offer themselves for re-appointment. A resolution for the re-appointment of KPMG LLP as auditors of the Company is to be proposed at the forthcoming Annual General Meeting. on behalf of the Board
KWeK LeNG BeNG Chairman 22 February 2011
30
City e-Solutions Limited and its Subsidiaries
InDEPEnDEnT AUDItoR’S RepoRt
to the Shareholders of City e-Solutions Limited (incorporated in the Cayman Islands with limited liability) We have audited the consolidated financial statements of City e-Solutions Limited (the “Company”) set out on pages 32 to 93, which comprise the consolidated and Company statements of financial position as at 31 December 2010, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory information. DIReCtoRS’ ReSpoNSIBILItY FoR tHe FINANCIAL StAteMeNtS The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDItoR’S ReSpoNSIBILItY Our responsibility is to express an opinion on these consolidated financial statements based on our audit. This report is made solely to you, as a body, in accordance with section 141 of the Hong Kong Companies ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. opINIoN In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2010 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies ordinance. KpMG LLp Public Accountants and Certified Public Accountants 16 Raffles Quay #22-00 Hong Leong Building Singapore 048581 22 February 2011
Annual Report 2010
31
for the year ended 31 December 2010
ConSoLIDATED INCoMe StAteMeNt
Note the Group 2010 2009 HK$'000 HK$'000
Continuing operations Turnover Cost of sales Gross profit other net (losses)/ income Administrative expenses Finance cost (Loss)/Profit from operations Share of losses of an associate (Loss)/Profit before taxation Income tax Profit from continuing operations Discontinued operations Profit from discontinued operations, net of tax Profit for the year Attributable to: Equity shareholders of the Company non-controlling interests Profit for the year Earnings per share Basic earnings per share Continuing operations Basic earnings per share
3
4 5
6
83,686 (13,560) 70,126 (7,474) (67,198) (721) (5,267) – (5,267) 7,302 2,035
65,270 (18,130) 47,140 49,337 (44,516) – 51,961 (544) 51,417 (119) 51,298
7 5
5,477 7,512
5,105 56,403
10
8,994 (1,482) 7,512 HK cents 2.35
55,865 538 56,403 HK cents 14.61
12
12
0.92
13.28
The notes on pages 38 to 93 form part of these financial statements.
32
City e-Solutions Limited and its Subsidiaries
STATEMEnTS oF FINANCIAL poSItIoN
as at 31 December 2010 Note Non-current assets Property, plant and equipment Intangible assets Goodwill Interests in subsidiaries Deferred tax assets total non-current assets Current assets Trading securities Trade and other receivables Current tax recoverable Cash and cash equivalents Current liabilities Trade and other payables Interest-bearing loans Provision for taxation Net current assets total assets less current liabilities Non-current liabilities Interest-bearing loans Net ASSetS CApItAL AND ReSeRVeS Share capital Reserves total equity attributable to equity shareholders of the Company Non-controlling interests totAL eQUItY 24 the Group 2010 2009 HK$'000 HK$'000 36,912 3,953 1,625 – 20,337 62,827 2,472 103 – – 12,814 15,389 the Company 2010 2009 HK$'000 HK$'000 799 – – 220,859 – 221,658 1,853 – – 220,859 – 222,712
14 15 16 17 19
20 21 6c 22
119,614 18,379 299 460,438 598,730 (26,916) (558) (97) (27,571) 571,159 633,986
95,340 22,745 395 489,219 607,699 (20,127) – (880) (21,007) 586,692 602,081
113,239 2,379 – 267,874 383,492 (19,024) – (97) (19,121) 364,371 586,029
89,140 10,922 – 263,017 363,079 (10,941) – (818) (11,759) 351,320 574,032
23 25 6c
25
(23,300) 610,686
– 602,081
– 586,029
– 574,032
382,450 193,433
382,450 183,368
382,450 203,579
382,450 191,582
575,883 34,803 610,686
565,818 36,263 602,081
586,029 – 586,029
574,032 – 574,032
Approved and authorised for issue by the Board of Directors on 22 February 2011.
.................................................... Kwek Leng Beng Chairman
.................................................... Gan Khai Choon Director
The notes on pages 38 to 93 form part of these financial statements.
Annual Report 2010
33
for the year ended 31 December 2010
ConSoLIDATED StAteMeNt oF CoMpReHeNSIVe INCoMe
Note the Group 2010 2009 HK$'000 HK$'000 7,512 11 1,093 – – – 1,093 8,605 (155) (11) (273) 895 456 56,859 56,403
Profit for the year other comprehensive income for the year (after taxation): Exchange differences on translation of: - financial statements of foreign operations - monetary items forming part of net investment in a foreign operation Exchange differences realised on disposal of discontinued operations Exchange differences realised on disposal of an associate
7
total comprehensive income for the year Attributable to: Equity shareholders of the Company non-controlling interests total comprehensive income for the year
10,065 (1,460) 8,605
56,324 535 56,859
The notes on pages 38 to 93 form part of these financial statements.
34
City e-Solutions Limited and its Subsidiaries
ConSoLIDATED StAteMeNt oF CHANGeS IN eQUItY
for the year ended 31 December 2010 Attributable to equity shareholders of the Group Capital Share Redemption exchange Capital Reserve Reserve HK$’000 HK$’000 HK$’000 Balance at 1 January 2009 Changes in equity for 2009: Profit for the year other comprehensive income Foreign currency translation differences of financial statements of foreign operation Foreign currency translation differences of monetary items forming part of net investment in a foreign operation Exchange differences realised on disposal of discontinued operations Exchange differences realised on disposal of an associate Total comprehensive income for the year Balance at 31 December 2009 and 1 January 2010 Changes in equity for 2010: Profit for the year other comprehensive income Foreign currency translation differences of financial statements of foreign operation Total comprehensive income for the year Balance at 31 December 2010 – – – 8,994 8,994 (1,482) 7,512 – – – 55,865 55,865 538 56,403 382,450 676 614 Revenue Reserves HK$’000 125,754 NonControlling total Interests HK$’000 HK$’000 509,494 35,728 total equity HK$’000 545,222
–
–
(152)
–
(152)
(3)
(155)
–
–
(11)
–
(11)
–
(11)
– – –
– – –
(273) 895 459
– – 55,865
(273) 895 56,324
– – 535
(273) 895 56,859
382,450
676
1,073
181,619
565,818
36,263
602,081
– – 382,450
– – 676
1,071 1,071 2,144
– 8,994 190,613
1,071 10,065 575,883
22 (1,460) 34,803
1,093 8,605 610,686
The notes on pages 38 to 93 form part of these financial statements.
Annual Report 2010
35
ConSoLIDATED CASH FLoW StAteMeNt
for the year ended 31 December 2010 Note the Group 2010 2009 HK$’000 HK$’000
operating activities Profit for the year Income tax Profit before income tax Adjustments for: Amortisation of intangible assets Depreciation of property, plant and equipment Dividend income Gain on disposal of discontinued operations Gain on disposal of property, plant and equipment Gain on disposal of an associate Share of losses of an associate Interest income Interest expenses net foreign exchange losses/(gains) net realised and unrealised losses/(gains) on trading securities 7,512 (7,302) 210 1,507 1,823 (34,241) (5,477) (222) – – (1,041) 721 3,174 4,549 (29,207) (28,997) 56,403 119 56,522 253 2,023 (10,286) (5,663) (216) (819) 544 (2,889) – (15,430) (32,376) (64,859) (8,337)
6
5 5 3 7 4
5 4
operating loss before changes in working capital Changes in working capital Properties held for resale Trade and other receivables Trade and other payables Cash (used in)/generated from operations Interest received Dividend received Tax paid – overseas tax Net cash (used in)/generated from operating activities
– (30) 6,789 (22,238) 1,044 9,450 (908) (12,652)
11,546 9,460 (8,080) 4,589 3,009 – (1,410) 6,188
The notes on pages 38 to 93 form part of these financial statements.
36
City e-Solutions Limited and its Subsidiaries
ConSoLIDATED CASH FLoW StAteMeNt
for the year ended 31 December 2010
Note
the Group 2010 2009 HK$’000 HK$’000
Investing activities Disposal of discontinued operations, net of cash disposed off Acquisition of interest in jointly controlled entity, net of cash acquired Payment for development costs Payment for purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of an associate Proceeds from sale of trading securities Net cash (used in)/generated from investing activities Financing activities Proceeds from loans Interest paid Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January effect of foreign exchange rate changes Cash and cash equivalents at 31 December Significant non-cash transaction During the financial year, the Group received scrip dividends of HK$32,402,000 (2009: HK$836,000) from its investments in equity securities. 7 5,477 (38,780) – (4,775) 537 – 834 (36,707) 582 – (158) (181) 701 30,991 79 32,014
23,858 (721) 23,137 (26,222) 489,219 (2,559) 460,438
– – – 38,202 438,954 12,063 489,219
The notes on pages 38 to 93 form part of these financial statements.
Annual Report 2010
37
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 These notes form an integral part of the financial statements. 1. (a) SIGNIFICANt ACCoUNtING poLICIeS Statement of Compliance These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (HKFRSs), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange. A summary of the significant accounting policies adopted by the Group is set out below. The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. note 2 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements. (b) Basis of Preparation of the Financial Statements The consolidated financial statements for the year ended 31 December 2010 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in a jointly controlled entity. The measurement basis used in the preparation of the financial statements is the historical cost basis except that the following assets and liabilities are stated at their fair value as explained in the accounting policies set out below: • • financial instruments classified as trading securities (see note (g)); and derivative financial instruments (see note (h)).
The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and major sources of estimation uncertainties are discussed in note 31.
38
City e-Solutions Limited and its Subsidiaries
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 1. (c) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Subsidiaries and Non-Controlling Interest Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from their activities. In assessing control, potential voting rights that presently are exercisable are taken into account. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. Non-controlling interests (previously known as “minority interests”) represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at their proportionate share of the subsidiary’s net identifiable assets. Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statement of financial position. Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised. When the group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or jointly controlled entity. In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see note (l)). (d) Associate An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.
Annual Report 2010
39
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 1. (d) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Associate (cont’d) An investment in an associate is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost and adjusted thereafter for the post-acquisition change in the Group’s share of the associate’s net assets. The consolidated income statement includes the Group’s share of the post-acquisition, post-tax results of the associate for the year. When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. For this purpose, the Group’s interest in the associate is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate. Unrealised profits and losses resulting from transactions between the Group and its associate is eliminated to the extent of the Group’s interest in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss. In the Company’s statement of financial position, its investment in an associate is stated at cost less impairment losses (see note (l)). (e) Jointly Controlled Entity A jointly controlled entity is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement established that the Group or one or more of the other parties share joint control over the economic activity of the entity. The Group recognises its interest in the jointly controlled entity using proportionate consolidation. The Group combines its share of each of the assets, liabilities, income and expenses of the jointly controlled entity with similar items on a line by line basis. Consistent accounting policies are applied for like transactions and events in similar circumstances. An investment in a jointly controlled entity is proportionately consolidated into the consolidated financial statements from the date that joint control commences until the date on which the Group ceases to have joint control over the jointly controlled entity. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated to the extent of the Group’s interest in the jointly controlled entity in preparing the consolidated financial statements. Unrealised losses resulting from intragroup transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. (f) Goodwill Goodwill represents the excess of: (i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over the Group’s interest in the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.
(ii)
40
City e-Solutions Limited and its Subsidiaries
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 1. (f) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Goodwill (cont’d) When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase. Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash-generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note (l)). on disposal of a cash-generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal. (g) Other Investments in Debt and Equity Securities The Group’s and the Company’s policies for investments in debt and equity securities, other than investments in subsidiaries, associate and jointly controlled entity are as follows: Investments in debt and equity securities are initially stated at cost, which is their transaction price unless fair value can be more reliably estimated using valuation techniques whose variables include only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognised in profit or loss as incurred. At each reporting date the fair value is remeasured, with any resultant gain or loss being recognised in profit or loss. The net gain or loss recognised in profit or loss does not include any dividends or interest earned on these investments as these are recognised in accordance with the policies set out in note (t)(iv) and (v). Investments are recognised/derecognised on the date the Group commits to purchase/sell the investments or they expire. (h) Derivative Financial Instruments Derivative financial instruments are recognised initially at fair value. At the end of each reporting period, the fair value is remeasured. The gain or loss on remeasurement to fair value is charged immediately to profit or loss. (i) Property, Plant and Equipment Property, plant and equipment are stated in the statement of financial position at cost less accumulated depreciation and impairment losses (see note (l)). Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.
Annual Report 2010
41
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 1. (i) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Property, Plant and Equipment (cont’d) Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows: Building Plant, machinery and equipment (comprising principally furniture and fixtures and office equipment) Motor vehicles no depreciation is provided on freehold land. Both the useful life of an asset and its residual value, if any, are reviewed annually. (j) Intangible Assets (Other Than Goodwill) Intangible assets that are acquired by the Group are stated in the statement of financial position at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note (l)). Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources and the intention to complete development. The expenditure capitalised includes direct labour. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses (see note (l)). other development expenditure is recognised as an expense in the period in which it is incurred. Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows: Capitalised development costs Trademarks Profit from advance bookings Tax benefits Trade name 2 years 15 years 2 years 5 years 1 year 2.6% 6% to 33.33%
-
20%
Both the period and method of amortisation are reviewed annually.
42
City e-Solutions Limited and its Subsidiaries
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 1. (k) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Leased Assets An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. (i) Classification of assets leased to the Group Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. (ii) Operating lease charges Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred. (l) Impairment of Assets (i) Impairment of receivables Current and non-current receivables that are stated at cost or amortised cost are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events: significant financial difficulty of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.
-
Annual Report 2010
43
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 1. (l) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Impairment of Assets (cont’d) (i) Impairment of receivables (cont’d) If any such evidence exists, any impairment loss is determined and recognised as follows: For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.
-
Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade receivables included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade receivables directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss. (ii) Impairment of other assets Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased: property, plant and equipment; intangible assets; investments in subsidiaries, associate and jointly controlled entity; and goodwill.
If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.
44
City e-Solutions Limited and its Subsidiaries
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 1. (l) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Impairment of Assets (cont’d) (ii) Impairment of other assets (cont’d) Calculation of recoverable amount The recoverable amount of an asset is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). Recognition of impairment losses An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the others assets in the unit (or group of units) on a pro-rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable. Reversal of impairment losses In respect of other assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised. (iii) Interim financial reporting and impairment Under the Rules Governing the Listing of Securities on The Stock Exchange, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim Financial Reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see notes (l)(i) and (ii)). Impairment losses recognised in an interim period in respect of goodwill are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates.
Annual Report 2010
45
noTES to tHe FINANCIAL StAteMeNtS
31 December 2010 1. (m) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Trade and Other Receivables Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note (l)), except where the receivables are interestfree loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts (see note (l)). (n) Trade and Other Payables Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost. (o) Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. (p) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method. (q) Employee Benefits (i) Short-term employee benefits and contributions to defined contribution retirement plans Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. (ii) Termination benefits Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal. (r) Liability for Unpaid Insurance Claims Liability for unpaid insurance claims are based on claims filed and estimates for claims incurred but not reported.
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31 December 2010 1. (s) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Income Tax Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to a business combination, or items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity respectively. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised. The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available. Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.
Annual Report 2010
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31 December 2010 1. (s) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Income Tax (cont’d) Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities if, the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met: in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either: the same taxable entity; or different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.
-
(t)
Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the profit or loss as follows: (i) Hotel management revenue Revenue arising from hotel management services, reservation distribution and payroll services is recognised when the relevant services are delivered. (ii) Hotel operations Revenue from hotel operations is recognised on an accrual basis, upon rendering of the relevant services. (iii) Insurance and risk management revenue Revenue arising from insurance and risk management services, where the Group acts as an agent and does not assume underwriting risk, is recognised based on the net amount retained or the amount billed to the customers less the amount paid to suppliers. For risk management services where the Company acts as an agent and does not assume any underwriting risk, revenue is recorded as the net amount earned as fees rather than the gross amount of insurance premiums and related costs.
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31 December 2010 1. (t) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Revenue Recognition (cont’d) (iv) Dividends Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend. (v) Interest income Interest income is recognised as it accrues using the effective interest method. (vi) Sale of properties Revenue arising from sale of properties held for sale is recognised upon the signing of the sale and purchase agreement or the issue of an occupation permit by the relevant government authorities, whichever is the later. Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the statement of financial position under forward sales deposits and instalments received. (u) Translation of Foreign Currencies (i) Foreign currency transactions Foreign currency transactions during the year are translated at the foreign exchange rates ruling on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss. (ii) Translation of foreign currencies non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined. The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items, including goodwill arising on consolidation of foreign operations acquired on or after 1 January 2005, are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in exchange reserve. Goodwill arising on consolidation of a foreign operation acquired before 1 January 2005 is translated at the foreign exchange rate that applied at the date of acquisition of the foreign operation. on disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised.
Annual Report 2010
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31 December 2010 1. (u) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Translation of Foreign Currencies (cont’d) (iii) net investment in a foreign operation Exchange differences arising from monetary items that in substance form part of the Company’s net investment in a foreign operation are recognised in the Company’s income statement. Such exchange differences are reclassified to equity in the consolidated financial statements. When the foreign operation is disposed of, the cumulative amount in equity is transferred to the income statement as an adjustment to the profit or loss arising on disposal. (v) Discontinued Operations A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. It also occurs if the operation is abandoned. Where an operation is classified as discontinued, a single amount is presented on the face of the income statement, which comprises: the post-tax profit or loss of the discontinued operation; and the post-tax gain or loss realised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.
(w)
Related Parties For the purpose of these financial statements, a party is considered to be related to the Group if: (i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group; the Group and the party are subject to common control; the party is an associate of the Group or a joint venture in which the Group is a venturer; the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals; the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(ii) (iii) (iv)
(v)
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31 December 2010 1. (w) SIGNIFICANt ACCoUNtING poLICIeS (cont’d) Related Parties (cont’d) (vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.
Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. (x) Segment Reporting Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. operating segments which are not individually material may be aggregated if they share a majority of these criteria. 2. CHANGeS IN ACCoUNtING poLICIeS The Hong Kong Institute of Certified Public Accountants (HKICPA) has issued two revised Hong Kong Financial Reporting Standards (“HKFRSs”), a number of amendments to HKFRSs and two new Interpretations that are first effective for the current accounting period of the Group and the Company. Of these, the following developments are relevant to the Group’s financial statements: HKFRS 3 (revised 2008), Business combinations Amendments to HKAS 27, Consolidated and separate financial statements Amendments to HKFRS 5, Non-current assets held for sale and discontinued operations – plan to sell the controlling interest in subsidiary Amendment to HKAS 39, Financial instuments: Recognition and measurement – eligible hedged items Improvements to HKFRSs (2009) HK(IFRIC) 17, Distributions of non-cash assets to owners
-
-
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.
Annual Report 2010
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31 December 2010 2. CHANGeS IN ACCoUNtING poLICIeS (cont’d) The amendment to HKAS 39 has had no material impact on the Group’s financial statements as the amendment was consistent with policies already adopted by the Group. The other developments resulted in changes in accounting policy but none of these changes in policy have a material impact on the current or comparative periods, for the following reasons: • The impact of the majority of the revisions to HKFRS 3, HKAS 27, HKFRS 5 and HK(IFRIC) 17 have not yet had a material effect on the Group’s financial statements as these changes will first be effective as and when the Group enters into a relevant transaction (for example, a business combination, a disposal of a subsidiary or a non-cash distribution) and there is no requirement to restate the amounts recorded in respect of previous such transactions. The impact of the amendments to HKFRS 3 (in respect of recognition of acquiree’s deferred tax assets) and HKAS 27 (in respect of allocation of losses to non-controlling interests (previously known as the “minority interests”) in excess of their equity interest) have had no material impact as there is no requirement to restate amounts recorded in previous periods and no such deferred tax assets or losses arose in the current period. The amendment introduced by the Improvements to HKFRSs (2009) omnibus standard in respect of HKAS 17, Leases, had no impact to the Group’s financial statements as the Group does not have any leasehold land interest.
•
•
Further details of these changes in accounting policy are as follows: • As a result of the adoption of HKFRS 3 (revised 2008), any business combination acquired on or after 1 January 2010. Transaction costs that the Group incurred in connection with a business combination, such as finder’s fees, legal fees, due diligence fees and other professional and consulting fees, will be expensed as incurred, whereas previously they were accounted for as part of the cost of the business combination and therefore impacted the amount of goodwill recognised. If the Group holds interests in the acquiree immediately prior to obtaining control, these interests will be treated as if disposed of and re-acquired at fair value on the date of obtaining control. Previously, the step-up approach would have been applied, whereby goodwill was computed as if accumulated at each stage of the acquisition. Contingent consideration will be measured at fair value at the acquisition date. Subsequent changes in the measurement of that contingent consideration unrelated to facts and circumstances that existed at the acquisition date will be recognised in profit or loss, whereas previously these changes were recognised as an adjustment to the cost of the business combination and therefore impacted the amount of goodwill recognised. If the acquiree has accumulated tax losses or other temporary deductible differences and these fail to meet the recognition criteria for deferred tax assets at the date of acquisition, then any subsequent recognition of these assets will be recognised in profit or loss, rather than as an adjustment to goodwill as was the policy previously.
-
-
-
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31 December 2010 2. CHANGeS IN ACCoUNtING poLICIeS (cont’d) In addition to the Group’s existing policy of measuring the non-controlling interests (previously known as the “minority interests”) in the acquiree at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets, in future the Group may elect, on a transaction by transaction basis, to measure the non-controlling interest at fair value. In accordance with the transitional provisions in HKFRS 3 (revised 2008), these new accounting policies will be applied prospectively to any business combinations in the current or future periods. The new policy in respect of recognition in the movement of deferred tax assets will also be applied prospectively to accumulated tax losses and other temporary deductible differences acquired in previous business combinations. No adjustments have been made to the carrying values of assets and liabilities that arose from business combinations whose acquisition dates preceded the application of this revised standard.
-
•
As a result of the adoption of HKAS 27 (amended 2008), the following changes in policies will be applied as from 1 January 2010: If the Group acquires an additional interest in a non-wholly owned subsidiary, the transaction will be accounted for as a transaction with equity shareholders (the non- controlling interests) in their capacity as owners and therefore no goodwill will be recognised as a result of such transactions. Similarly, if the Group disposes of part of its interest in a subsidiary but still retains control, this transaction will also be accounted for as a transaction with equity shareholders (the non-controlling interests) in their capacity as owners and therefore no profit or loss will be recognised as a result of such transactions. Previously the Group treated such transactions as step-up transactions and partial disposals, respectively. If the Group loses control of a subsidiary, the transaction will be accounted for as a disposal of the entire interest in that subsidiary, with any remaining interest retained by the Group being recognised at fair value as if reacquired. In addition, as a result of the adoption of the amendment to HKFRS 5, if at the end of reporting period the Group has the intention to dispose of a controlling interest in a subsidiary, the entire interest in that subsidiary will be classified as held for sale (assuming that the held for sale criteria in HKFRS 5 are met) irrespective of the extent to which the Group will retain an interest. Previously such transactions were treated as partial disposals. In accordance with the transitional provisions in HKAS 27, these new accounting policies will be applied prospectively to transactions in current or future periods and therefore previous periods have not been restated.
-
-
•
In order to be consistent with the above amendments to HKFRS 3 and HKAS 27, and as a result of amendments to HKAS 28, Investments in associates, and HKAS 31, Interests in joint ventures, the following policies will be applied as from 1 January 2010: If the Group holds interests in the acquiree immediately prior to obtaining significant influence or joint control, these interests will be treated as if disposed of and reacquired at fair value on the date of obtaining significant influence or joint control. Previously, the step-up approach would have been applied, whereby goodwill was computed as if accumulated at each stage of the acquisition.
Annual Report 2010
53
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31 December 2010 2. CHANGeS IN ACCoUNtING poLICIeS (cont’d) If the Group loses significant influence or joint control, the transaction will be accounted for as a disposal of the entire interest in that investee, with any remaining interest being recognised at fair value as if reacquired. Previously such transactions were treated as partial disposals. Consistent with the transitional provisions in HKFRS 3 and HKAS 27, these new accounting policies will be applied prospectively to transactions in current or future periods and therefore previous periods have not been restated.
-
•
As a result of the amendments to HKAS 27, as from 1 January 2010 any losses incurred by a nonwholly owned subsidiary will be allocated between the controlling and non-controlling interests in proportion to their interests in that entity, even if this results in a deficit balance within consolidated equity being attributed to the non-controlling interests. Previously, if the allocation of losses to the non-controlling interests would have resulted in a deficit balance, the losses were only allocated to the non-controlling interests if the non-controlling interests were under a binding obligation to make good the losses. In accordance with the transitional provisions in HKAS 27, this new accounting policy is being applied prospectively and therefore previous periods have not been restated.
3.
tURNoVeR The principal activities of the Company comprise those of investment holding and the provision of consultancy services. Turnover of the Group comprises revenue from hospitality related services, provision of education and learning related services, dividend income and interest income. The amount of each significant category of revenue recognised in turnover during the year is as follows: the Group 2010 2009 HK$’000 HK$’000 Continuing operations Investment holding Hospitality Property investment Interest income Discontinued operations Education
34,241 48,404 – 82,645 1,041 83,686 – 83,686
10,286 39,553 12,547 62,386 2,884 65,270 7,842 73,112
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31 December 2010 3. tURNoVeR (cont’d) the Group 2010 2009 HK$’000 HK$’000 Included in turnover (continuing operations) above is: Dividend income: - listed securities - unlisted securities Interest income: - cash deposits
887 33,354 34,241 1,041
836 9,450 10,286 2,884
Further details regarding the Group’s principal activities are disclosed in note 17 to these financial statements. 4. otHeR Net (LoSSeS)/INCoMe the Group 2010 2009 HK$’000 HK$’000 net realised and unrealised (losses)/gains on trading securities net realised and unrealised foreign exchange (losses)/gains Gain on disposal of an associate Gain on disposal of property, plant and equipment others (4,549) (3,174) – 222 27 (7,474) 32,376 15,452 819 216 474 49,337
5.
pRoFIt FoR tHe YeAR Profit for the year is arrived at after charging/(crediting): the Group 2010 2009 HK$’000 HK$’000 Finance costs Interest on bank borrowings wholly repayable within 5 years Staff costs Contributions to defined contribution retirement plan Salaries, wages and other benefits – 36,503 36,503 365 32,060 32,425 721 –
Annual Report 2010
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31 December 2010 5. pRoFIt FoR tHe YeAR (cont’d) the Group 2010 2009 HK$’000 HK$’000 Other items Amortisation of intangible assets Auditors' remuneration audit services tax services other services Depreciation of property, plant and equipment Gain on disposal of discontinued operation Gain on disposal of an associate Impairment losses on trade receivables operating lease charges 6. INCoMe tAX (a) taxation in the consolidated income statement represents: the Group 2010 2009 HK$’000 HK$’000 Current tax - overseas Provision for the year Under/(over) provision in respect of prior years 1,507 1,297 82 562 1,823 (5,477) – 1,733 1,174 253 1,030 120 663 2,023 (5,663) (819) 364 2,708
180 34 214
173 (179) (6)
Deferred tax origination of temporary differences Utilisation of deferred tax assets previously recognised
(7,516) – (7,516) (7,302)
(1,089) 1,214 125 119
Income tax expense from continuing operations
The provision for Hong Kong Profits Tax for 2010 is calculated at the rate of 16.5% (2009: 16.5%) of the estimated assessable profits for the year. Taxation for overseas subsidiaries has been provided on estimated assessable profits at the rates of taxation ruling in the relevant countries. The Company is exempted from taxation in the Cayman Islands for a period of twenty years from 1989 under the provisions of Section 6 of the Tax Concessions Law (Revised) of the Cayman Islands. The tax concession was renewed for a further period of twenty years from 2 June 2009.
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31 December 2010 6. INCoMe tAX (cont’d) (a) taxation in the consolidated income statement represents: (cont’d) As at 31 December 2010, the Group had not recognised deferred tax assets in respect of tax losses of approximately HK$4.1 million (31 December 2009: HK$4.0 million) as it is not probable that there will be sufficient future taxable profits against which the Group can utilise the benefits. The tax losses do not expire under the current tax legislations. (b) Reconcilliation between tax expense and accounting profit at applicable tax rates: 2010 HK$’000 Profit for the year Income tax Profit before income tax Income tax using Hong Kong tax rates Tax effect of non-taxable income Tax effect of non-deductible expenses Effect of tax rates in foreign jurisdictions Tax incentives Current year’s deferred tax assets not recognised Under/(over) provision in respect of prior years Actual tax expense (c) Current taxation in the statement of financial position represents: the Group 2010 2009 HK$'000 HK$'000 Provisional overseas Tax paid Provision for the year - overseas Tax Balance of provision relating to prior years - overseas Tax 299 395 the Company 2010 2009 HK$'000 HK$'000 – – 7,512 (7,302) 210 35 (7,791) 4,110 (3,700) – 10 34 (7,302) 2009 HK$’000 56,403 119 56,522 9,326 (11,177) 1,511 766 (136) 8 (179) 119
(34)
(71)
(34)
(9)
(63) (97)
(809) (880)
(63) (97)
(809) (818)
7.
DISCoNtINUeD opeRAtIoNS on 13 March 2009, the Group entered into an agreement to dispose of its 50% shareholding interest in MindChamps Holdings Pte. Limited (“MindChamps”), a jointly controlled entity for a total consideration of S$3.5 million (about HK$19.0 million). The disposal was completed on 23 March 2009.
Annual Report 2010
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31 December 2010 7. DISCoNtINUeD opeRAtIoNS (cont’d) The total consideration of S$3.5 million (about HK$19.0 million) shall be settled by cash in the following manner: (a) (b) S$0.75 million (HK$3.84 million) paid on 23 March 2009; S$0.25 million (HK$1.33 million) by 5 equal monthly instalments of S$0.05 million (HK$0.27 million) each payable on or before the 4th business day of each month, with the first instalment paid in May 2009; and The remaining S$2.5 million (about HK$13.8 million) in March 2011.
(c)
Pursuant to the agreement dated 13 March 2009, the Group had received a total of S$1.0 million (HK$5.17 million) during the year 2009. Following a settlement arrangement in December 2009, the remaining balance of S$2.5 million (about HK$13.8 million), was received/will be received by the Group in the following manner: (a) (b) (c) US$0.05 million (about HK$0.39 million) was received in December 2009; US$1.05 million (about HK$8.14 million) payable by 14 December 2010; and The remaining of about HK$5.27 million due by March 2011.
For the year under review, US$0.7 million (HK$5.48 million) was received. The remaining balance of HK$7.93 million is due by March 2011. The Group would record additional gains as and when the deferred consideration is received. The results of the discontinued operations are set out below: Note 2010 HK$'000 – – – – – 5,477 5,477 12 1.43 2009 HK$'000 7,842 (8,400) (558) – (558) 5,663 5,105 1.33
Turnover Expenses Loss before taxation Income tax Loss after taxation Gain on disposal of discontinued operations Profit from discontinued operations Basic earnings per share (cents) Cash flows used in discontinued operations operating activities Investing activities
– – –
(3,592) 403 (3,189)
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31 December 2010 7. DISCoNtINUeD opeRAtIoNS (cont’d) The effect of the disposal on the assets and liabilities of the Group was as follows: 2009 HK$'000 non-current assets Current assets Current liabilities Net identifiable assets and liabilities Gain on disposal of discontinued operations Realisation of exchange differences arising from the disposal of discontinued operations Cash consideration received, satisfied in cash (net of expenses incurred) (1) Cash disposed of Net cash flows
(1)
(5,972) (8,715) 15,480 793 (5,663) 273 (4,597) 4,015 (582)
This represents the cash consideration received in 2009 of HK$5,561,000, net of expenses incurred of HK$964,000.
8.
DIReCtoRS’ ReMUNeRAtIoN Directors’ remuneration disclosed pursuant to section 161 of the Hong Kong Companies ordinance is as follows: Salaries, allowances and benefits in kind HK$'000
2010 executive Directors Kwek Leng Beng Kwek Leng Joo Gan Khai Choon Lawrence Yip Wai Lam Non-executive Director Chan Bernard Charnwut Independent Non-executive Directors Dr. Lo Ka Shui Lee Jackson @ Li Chik Sin Teoh Teik Kee
Directors' fees HK$'000
Retirement scheme contributions HK$'000
total HK$'000
375 100 100 50
– – – 113
– – – –
375 100 100 163
194
–
–
194
100 194 288 1,401
– – – 113
– – – –
100 194 288 1,514
Annual Report 2010
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31 December 2010 8. DIReCtoRS’ ReMUNeRAtIoN (cont’d) Salaries, allowances and benefits in kind HK$'000
2009 executive Directors Kwek Leng Beng Kwek Leng Joo Gan Khai Choon Lawrence Yip Wai Lam vincent Yeo Wee Eng (Retired on 22 April 2009) Kwek Leng Peck (Resigned on 22 April 2009) Non-executive Directors Chan Bernard Charnwut Wong Hong Ren (Retired on 22 April 2009) Independent Non-executive Directors Dr. Lo Ka Shui Lee Jackson @ Li Chik Sin Teoh Teik Kee
Directors' fees HK$'000
Retirement scheme contributions HK$'000
total HK$'000
375 100 100 50 30 30
– – – 113 715 –
– – – – – –
375 100 100 163 745 30
194 30
– 99
– –
194 129
100 223 259 1,491
– – – 927
– – – –
100 223 259 2,418
9.
INDIVIDUALS WItH HIGHeSt eMoLUMeNtS Of the five individuals with the highest emoluments, two (2009: three) are directors whose emoluments are disclosed in note 8. The aggregate of the emoluments in respect of the other three (2009: two) individuals are as follows: the Group 2010 2009 HK$’000 HK$’000 Salaries and other emoluments Discretionary bonuses 3,472 2,106 5,578 2,631 937 3,568
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31 December 2010 9. INDIVIDUALS WItH HIGHeSt eMoLUMeNtS (cont’d) The emoluments of the three (2009: two) individuals with the highest emoluments are within the following band: 2010 Number of individuals HK$nil – HK$1,000,000 HK$1,000,001 – HK$2,000,000 HK$2,000,001 – HK$3,000,000 10. pRoFIt AttRIBUtABLe to eQUItY SHAReHoLDeRS oF tHe CoMpANY The consolidated profit attributable to equity shareholders of the Company includes a profit of HK$11,997,000 (2009: HK$43,322,000) which has been dealt with in the financial statements of the Company. 11. otHeR CoMpReHeNSIVe INCoMe Tax effects relating to each component of other comprehensive income the Group Net of tax amount HK$’000 Before tax amount HK$’000 1 1 1 2009 Number of individuals 1 – 1
Before tax amount HK$’000 Exchange differences on translation of financial statements of foreign operations Exchange differences on translation of monetary items forming part of net investment in a foreign operation Exchange differences realised on disposal of discontinued operations Exchange differences realised on disposal of an associate
2010 tax (expenses)/ benefit HK$’000
tax (expenses)/ benefit HK$’000
2009
Net of tax amount HK$’000
1,093
–
1,093
(155)
–
(155)
–
–
–
(11)
–
(11)
–
–
–
(273)
–
(273)
– 1,093
– –
– 1,093
895 456
– –
895 456
Annual Report 2010
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31 December 2010 12. eARNINGS peR SHARe (a) Basic earnings per share The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the Company of HK$8,994,000 (2009: HK$55,865,000) and on the weighted average of 382,449,524 ordinary shares (2009: 382,449,524 shares) in issue during the year, calculated as follows: the Group 2010 2009 ’000 ’000 Weighted average number of ordinary shares at 1 January and 31 December
382,450
382,450
For the year ended 31 December 2010, earnings per share for continuing and discontinued operations have been calculated using the profit relating to continuing operations of HK$3,517,000 (2009: HK$50,760,000) and the profit relating to discontinued operations of HK$5,477,000 (2009: HK$5,105,000). (b) Diluted earnings per share Diluted earnings per share is not applicable as there are no dilutive potential ordinary shares during the year. 13. SeGMeNt RepoRtING The Group manages its businesses by divisions, which are organised by products and services. on first-time adoption of HKFRS8, Operating Segments, and in a manner consistent with the way in which information is reported internally to the Group’s most senior executive management for the purposes of resource allocation and performance assessment, the Group has identified the following four reportable segments. Investment holding : This segment relates to investments in listed equity investments and unlisted marketable equitable equity mutual funds held as trading securities. Currently, the Group’s equity investment portfolio includes equity securities listed on the London Stock Exchange, NASDAQ Stock Market and The Philippines Stock Exchange, Inc. and investment portfolio in United States and Hong Kong. This segment primarily derives the revenue from the provision of hotel management, hotel reservation, and revenue management services, risk management services, procurement services to the hospitality industry as well as owning and managing a hotel. Currently, the Group’s activities in this regard are carried out in the United States.
-
Hospitality
:
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31 December 2010 13. SeGMeNt RepoRtING (cont’d) Property investment : This segment relates to investments in properties which are held with the intention of sale in the ordinary course of business. The properties are located entirely in Singapore. This segment derives revenue from the provision of education, childcare and learning related services. The activities were carried out mainly in Singapore and Hong Kong through a jointly controlled entity which was disposed of by the Group in March 2009.
-
Education
:
(a)
Segment results, assets and liabilities In accordance with HKFRS8, segment information disclosed in the financial statements has been prepared in a manner consistent with the information used by the Group’s most senior executive management for the purposes of assessing segment performance and allocating resources between segments. In this regard, the Group’s most senior executive management monitors the results, assets and liabilities attributable to each reportable segment on the following bases: Segment assets include all tangible, intangible assets, goodwill and current assets with the exception of interests in associates, deferred tax assets and current tax recoverable. Segment liabilities include bank borrowings, and trade and other payables. Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation or amortisation of assets attributable to those segments. Segment revenue and expenses include the Group’s share of revenue and expenses arising from the activities of the Group’s jointly controlled entity. The measure used for reporting segment profit is “profit from operations”. In addition to receiving segment information concerning profit from operations, management is provided with segment information concerning revenue, interest income, depreciation and amortisation, impairment losses, unrealised foreign exchange gain/loss, unrealised gain/loss on trading securities and additions to non-current segment assets used by the segments in their operations.
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31 December 2010 13. SeGMeNt RepoRtING (cont’d) (b) Information about reportable segments Information regarding the Group’s reportable segments as provided to the Group’s most senior executive management for the purposes of assessing segment performance and allocating resources between segment for the years ended 31 December 2010 and 2009 is set out below:
Investment Holding 2010 2009 HK$’000 HK$’000 Revenue from external customers Interest income Reportable segment revenue Reported segment profit/(loss) Depreciation and amortisation Unrealised losses/(gains) on trading securities Unrealised foreign exchange losses/ (gains) Additions to non-current assets Reportable segment assets Reportable segment liabilities 34,241 849 35,090 15,022 739 5,477 5,908 – 553,862 8,754 10,286 2,146 12,432 49,612 1,104 (30,549) (15,430) 12 529,570 6,423
Hospitality 2010 2009 HK$’000 HK$’000 48,404 187 48,591 (20,261) 2,591 (928) – 4,775 83,773 41,954 39,553 734 40,287 1,619 568 (1,771) – 140 77,205 13,644
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31 December 2010
property Investment 2010 2009 HK$’000 HK$’000 – 5 5 (28) – – – – 3,286 66 12,547 4 12,551 730 – – – – 3,104 60
total continuing operations 2010 2009 HK$’000 HK$’000 82,645 1,041 83,686 (5,267) 3,330 4,549 5,908 4,775 640,921 50,774 62,386 2,884 65,270 51,961 1,672 (32,320) (15,430) 152 609,879 20,127
education (Discontinued) 2010 2009 HK$’000 HK$’000 – – – – – – – – – – 7,837 5 7,842 (558) 604 – – 187 – –
2010 HK$’000 82,645 1,041 83,686 (5,267) 3,330 4,549 5,908 4,775 640,921 50,774
total
2009 HK$’000 70,223 2,889 73,112 51,403 2,276 (32,320) (15,430) 339 609,879 20,127
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31 December 2010 13. SeGMeNt RepoRtING (cont’d) (c) Reconciliations of reportable segment profit or loss, assets and liabilities 2010 HK$’000 Profit Reportable segment (loss)/profit Share of losses of an associate Elimination of discontinued operations (note 7) Consolidated (loss)/profit before taxation from continuing operations Assets Reportable segment assets Deferred tax assets Current tax recoverable Consolidated total assets Liabilities Reportable segment liabilities Provision for taxation Consolidated total liabilities (d) Geographical segments The Group’s investing activities are mainly carried out in Hong Kong. Hospitality activities are carried out by the subsidiaries based in United States. In presenting information on the basis of geographical segments, segment revenue in relation to investment holding is based on the geographical location of investments and segment revenue in relation to hospitality is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. (e) Geographical information 31 December 2010 Non-current assets HK$’000 70 41,691 729 42,490 2009 HK$’000
(5,267) – – (5,267)
51,403 (544) 558 51,417
640,921 20,337 299 661,557
609,879 12,814 395 623,088
50,774 97 50,871
20,127 880 21,007
Revenue HK$’000 Hong Kong United States Singapore 34,636 49,045 5 83,686
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31 December 2010 13. SeGMeNt RepoRtING (cont’d) (e) Geographical information (cont’d) 31 December 2009 Non-current assets HK$’000 195 722 1,658 – 2,575
Revenue HK$’000 Hong Kong United States Singapore Education (discontinued) (f) Major customer 11,738 41,511 19,863 (7,842) 65,270
Revenue from one customer of the Group’s hospitality segments represents approximately HK$3,447,000 (2009: HK$3,929,000) of the Group’s total revenue from continuing operations. 14. pRopeRtY, pLANt AND eQUIpMeNt plant, Machinery and Building equipment HK$’000 HK$’000
the Group Cost At 1 January 2009 Exchange adjustments Additions Disposals Disposal of interest in a jointly controlled entity At 31 December 2009 At 1 January 2010 Exchange adjustments Additions Additions through acquisition of interest in a jointly controlled entity Disposals At 31 December 2010
Freehold Land HK$’000
Motor Vehicles HK$’000
Capital Work in progress HK$’000
total HK$’000
– – – – – – – – –
– – – – – – – 2 –
16,671 (237) 181 (3,947) (6,213) 6,455 6,455 3 170
6,676 (1) – (1,361) – 5,314 5,314 – –
– – – – – – – – 4,605
23,347 (238) 181 (5,308) (6,213) 11,769 11,769 5 4,775
3,490 – 3,490
27,146 – 27,148
1,163 – 7,791
– (1,622) 3,692
– – 4,605
31,799 (1,622) 46,726
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31 December 2010 14. pRopeRtY, pLANt AND eQUIpMeNt (cont’d) plant, Machinery and Building equipment HK$’000 HK$’000
the Group Accumulated depreciation and impairment losses At 1 January 2009 Exchange adjustments Depreciation for the year Disposals Disposal of interest in a jointly controlled entity At 31 December 2009 At 1 January 2010 Exchange adjustments Depreciation for the year Disposals At 31 December 2010 Net book value At 31 December 2010 At 31 December 2009
Freehold Land HK$’000
Motor Vehicles HK$’000
Capital Work in progress HK$’000
total HK$’000
– – – – – – – – – – –
– – – – – – – – 397 – 397
12,483 (110) 887 (3,921) (3,527) 5,812 5,812 1 701 – 6,514
3,252 (1) 1,136 (902) – 3,485 3,485 – 725 (1,307) 2,903
– – – – – – – – – – –
15,735 (111) 2,023 (4,823) (3,527) 9,297 9,297 1 1,823 (1,307) 9,814
3,490 –
26,751 –
1,277 643
789 1,829
4,605 –
36,912 2,472
Freehold land acquired through acquisition of interest in a jointly controlled entity is situated outside Hong Kong and is being held for own use. At 31 December 2010, properties of the Group with a carrying amount of HK$30,241,000 (2009: HK$ nil) are pledged as security to secure bank loans (see note 25).
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31 December 2010 14. pRopeRtY, pLANt AND eQUIpMeNt (cont’d) plant, Machinery and equipment HK$’000
the Company Cost At 1 January 2009 Additions Disposals At 31 December 2009 At 1 January 2010 Disposals At 31 December 2010 Accumulated depreciation At 1 January 2009 Depreciation for the year Disposals At 31 December 2009 At 1 January 2010 Depreciation for the year Disposals At 31 December 2010 Net book value At 31 December 2010 At 31 December 2009
Motor Vehicles HK$’000
total HK$’000
2,972 11 (16) 2,967 2,967 – 2,967
6,426 – (1,112) 5,314 5,314 (1,622) 3,692
9,398 11 (1,128) 8,281 8,281 (1,622) 6,659
2,934 15 (6) 2,943 2,943 14 – 2,957
3,213 1,089 (817) 3,485 3,485 725 (1,307) 2,903
6,147 1,104 (823) 6,428 6,428 739 (1,307) 5,860
10 24
789 1,829
799 1,853
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31 December 2010 15. INtANGIBLe ASSetS Profit from advance bookings HK$’000
the Group Cost At 1 January 2009 Exchange adjustments Addition through internal development Disposal of interest in a jointly controlled entity At 31 December 2009 At 1 January 2010 Exchange adjustments Additions through acquisition of interest in a jointly controlled entity At 31 December 2010 Accumulated amortisation and impairment losses At 1 January 2009 Exchange adjustments Charge for the year Disposal of interest in a jointly controlled entity At 31 December 2009 At 1 January 2010 Exchange adjustments Charge for the year At 31 December 2010 Net book value At 31 December 2010 At 31 December 2009
tax benefits HK$’000
trade name HK$’000
trademarks HK$’000
Development costs HK$’000
total HK$’000
– – – – – – –
– – – – – – –
– – – – – – –
39,742 (1,765) – (36,922) 1,055 1,055 4
1,654 (77) 158 (1,735) – – –
41,396 (1,842) 158 (38,657) 1,055 1,055 4
780 780
4,153 4,153
423 423
– 1,059
– –
5,356 6,415
– – – – – – – 640 640
– – – – – – – 411 411
– – – – – – – 390 390
37,745 (1,672) 66 (35,187) 952 952 3 66 1,021
– (3) 187 (184) – – – – –
37,745 (1,675) 253 (35,371) 952 952 3 1,507 2,462
140 –
3,742 –
33 –
38 103
– –
3,953 103
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31 December 2010 15. INtANGIBLe ASSetS (cont’d) The amortisation charge for the Group’s trademark and the Group’s share of the jointly controlled entity’s profit from advance bookings, tax benefits, trade name and development costs are included in “administration expenses” and “profit from discontinued operations” in the consolidated financial statements. In March 2009, the intangible assets included the Group’s share of the jointly controlled entity’s trademarks and development costs amounting to HK$3,286,000 had been disposed off following to the disposal of said jointly controlled entity (see note 7). In July 2010, intangible assets with carrying amount of HK$5,356,000 had been recorded subsequent to the acquisition of a hotel by the Group’s jointly controlled entity (see note 18). The intangible assets include: HK$’000 Profit from advance bookings Tax benefits Trade name 780 4,153 423 5,356
The profit from advance bookings relates to the benefits from advance bookings, memberships, and agreements transferred with the purchase of a hotel property. The tax benefits relate to a grandfathered Qualified Empire Zone Enterprises property tax abatement. The trade name relates to the Marriottbranded Renaissance hotel being acquired. 16. GooDWILL In July 2010, goodwill with a carrying amount of HK$1,625,000 had been recorded subsequent to the acquisition of the Crowne Plaza Syracuse Hotel (formerly known as Renaissance Syracuse Hotel) by the Group’s jointly controlled entity (see note 18). Impairment testing for cash-generating unit containing goodwill For the purpose of impairment testing, goodwill is allocated to hotel operations of the Crowne Plaza Syracuse Hotel which is included in the hospitality segment. As at the reporting date, the Group has determined the recoverable amount of the hotel operations of the Crowne Plaza Syracuse Hotel based on fair value less cost to sell. The Group estimates that the fair value less cost to sell approximates the consideration paid to acquire the Crowne Plaza Syracuse Hotel as the recent acquisition was an arm’s length transaction, and there were no significant events that have occurred since acquisition date that could have an adverse effect on the fair value. Accordingly, no impairment loss was required for the year ended 31 December 2010.
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31 December 2010 17. INteReStS IN SUBSIDIARIeS the Company 2010 2009 HK$’000 HK$’000 Unlisted shares, at cost Less: Impairment loss 263,129 (42,270) 220,859 259,600 (38,741) 220,859
In 2010, additional investment amounting to HK$3,529,000 had been recorded following the waiver of amount owing to the Company as a result of the said subsidiary is in the midst of deregistering itself from the Company Registry of Hong Kong. Consequently, an additional impairment loss in which equal to additional cost of investment had been recorded. The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the Group. The class of shares held is ordinary unless otherwise stated. place of Incorporation and operation particulars of Issued and paid Up Capital Group’s effective Interest %
Company Name/ principal Activities
Held by Company %
Held by Subsidiary %
principal direct and indirect subsidiaries SWAn Holdings Limited (Investment holding) SWAn USA, Inc. (Holding company) Bermuda 33,345,333 shares of US$1 each 100 common stocks of US$0.01 each 100 common stocks of US$1,000.01 each 85 85 –
United States of America United States of America
85
–
100
Richfield Hospitality Inc. (Investment holding and provision of hospitality related services) Sceptre Hospitality Resources Inc. (Provision of reservation system services)
85
–
100
United States of America
100 common stocks of US$0.01 each
85
–
100
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31 December 2010 18. INteReSt IN A JoINtLY CoNtRoLLeD eNtItY on 7 May 2010, the Group, through SWAn USA, Inc. (“SWAn”), a direct wholly owned subsidiary of SWAn Holdings Limited and Shelbourne Falcon Investors, LP (“Shelbourne”) entered into a Joint venture agreement (“Jv”) for the formation and operation of RSF Syracuse Partners, LLC (“RSFP”) with SWAn and Shelbourne each having a 50% participating interest in RSFP. proportion of ownership Interest Group’s effective Interest %
Name of Jointly Controlled entity/principal Activities RSF Syracuse Partners, LLC (Provision of hospitality related services)
Form of Business Structure
place of Incorporation and operation
Issued and paid Up Capital (US$)
Held by Subsidiary %
Incorporated
USA
7,215,650
43
50
In July 2010, the Group, through its 50% jointly controlled entity, RSFP acquired the Crowne Plaza Syracuse Hotel (formerly known as Renaissance Syracuse Hotel) (“Hotel”) located in Syracuse, new York, USA. The purchase price of the Hotel is US$10 million (about HK$78 million), financed partially with an external bank loan of US$4.8 million (about HK$38 million). The effect of the acquisition is set out below: HK$’000 Freehold land Building Furniture, fixtures and equipment Intangible assets - Profit from advance bookings - Tax benefits - Trade name Total identifiable net assets – Group’s 50% share Consideration paid, satisfied in cash Goodwill 3,490 27,146 1,163 780 4,153 423 37,155 38,780 1,625
The goodwill is attributable mainly to the skills and technical talent of the Hotel’s assembled workforce. none of the goodwill is expected to be deductible for income tax purposes. The Group incurred acquisition-related costs of HK$6,876,000 related to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in administrative expenses in the Group’s consolidated income statements.
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31 December 2010 18. INteReSt IN A JoINtLY CoNtRoLLeD eNtItY (cont’d) Summary financial information on jointly controlled entity – the Group’s effective interest: the Group 2010 HK$'000 non-current assets Current assets non-current liabilities Current liabilities net assets Turnover Expenses Loss for the year 19. DeFeRReD tAX ASSetS (a) Deferred tax assets recognised: the Group The components of deferred tax assets recognised in the statement of financial position and the movements during the year are as follows: Deductible temporary differences HK$’000 41,242 3,405 (23,300) (2,624) 18,723 14,424 (22,311) (7,887)
tax losses HK$’000 Deferred tax arising from: At 1 January 2009 (Charged)/Credited to profit or loss Exchange adjustments At 31 December 2009 At 1 January 2010 Credited to profit or loss Exchange adjustments At 31 December 2010 10,940 (1,214) 3 9,729 9,729 3,537 5 13,271
total HK$’000
2,000 1,089 (4) 3,085 3,085 3,979 2 7,066
12,940 (125) (1) 12,814 12,814 7,516 7 20,337
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31 December 2010 19. DeFeRReD tAX ASSetS (cont’d) (b) Deferred tax assets not recognised: The following temporary differences have not been recognised: the Group 2010 2009 HK$’000 HK$’000 Tax losses 4,055 3,995
Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits will be available against which the Group can utilise the benefits. The tax losses do not expire under the respective countries’ tax legislations. 20. tRADING SeCURItIeS the Group 2010 2009 HK$'000 HK$'000 Equity securities (at market value) - Listed outside Hong Kong fellow subsidiaries non related company 81,080 20,081 52,402 – 81,080 20,081 52,402 – the Company 2010 2009 HK$'000 HK$'000
other securities (at market value) - Unlisted
18,453 119,614
42,938 95,340
12,078 113,239
36,738 89,140
Included in trading securities is an amount of HK$6,375,000 (2009: HK$6,200,000) relating to investment securities held in respect of the Group’s defined contribution plan (see note 29).
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31 December 2010 21. tRADe AND otHeR ReCeIVABLeS the Group 2010 2009 HK$'000 HK$'000 Trade receivables Less: Allowance for doubtful debts (note 21(b)) other receivables and deposits Amounts owing by subsidiaries Amounts owing by affiliated companies Loans and receivables Prepayments 6,387 (259) 6,128 6,065 – 830 13,023 5,356 18,379 7,380 (636) 6,744 12,292 – 1,177 20,213 2,532 22,745 the Company 2010 2009 HK$'000 HK$'000 – – – 1,875 218 – 2,093 286 2,379 – – – 9,646 81 898 10,625 297 10,922
All trade and other receivables are expected to be recovered within one year. The amounts owing by subsidiaries and affiliated companies are unsecured, interest-free and repayable on demand. Affiliated companies comprise subsidiaries of the holding company. (a) Ageing analysis The ageing analysis of trade receivables (net of impairment losses) is as follows: the Group 2010 2009 HK$'000 HK$'000 Current or less than 1 month overdue 1 to 3 months overdue 3 to 12 months overdue 4,603 616 909 6,128 4,907 1,576 261 6,744
The Group’s credit policy is set out in note 26. Trade receivables are due within 30 days from the date of billing. (b) Impairment of trade receivables Impairment losses in respect of trade receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly.
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31 December 2010 21. tRADe AND otHeR ReCeIVABLeS (cont’d) (b) Impairment of trade receivables (cont’d) The movement in the allowance for doubtful debts during the year is as follows: the Group 2010 2009 HK$'000 HK$'000 At 1 January Impairment loss recognised Allowance utilised Disposal of investment in a jointly controlled entity Exchange adjustments At 31 December (c) trade receivables that are not impaired The ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows: the Group 2010 2009 HK$'000 HK$'000 neither past due nor impaired Less than 1 month overdue 1 to 3 months overdue 3 to 12 months overdue 3,565 1,038 616 789 2,443 6,008 4,601 – 1,426 261 1,687 6,288 636 1,733 (2,114) – 4 259 335 364 – (62) (1) 636
Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default. Receivables that were past due but not impaired relate to customers having a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances.
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31 December 2010 22. CASH AND CASH eQUIVALeNtS the Group 2010 2009 HK$'000 HK$'000 Deposits with banks and other financial institutions Cash at bank and in hand the Company 2010 2009 HK$'000 HK$'000
392,801 67,637 460,438
331,749 157,470 489,219
218,526 49,348 267,874
127,852 135,165 263,017
The weighted average effective interest rates per annum relating to cash and cash equivalents at the end of the reporting period for the Group and the Company are 0.242% (2009: 0.293%) and 0.234% (2009: 0.215%) respectively. Interest rates re-priced within twelve months. 23. tRADe AND otHeR pAYABLeS the Group 2010 2009 HK$'000 HK$'000 Trade payables other payables and accrued charges Amounts owing to affiliated companies Amounts owing to subsidiary companies 291 26,446 179 – 26,916 189 19,659 279 – 20,127 the Company 2010 2009 HK$'000 HK$'000 – 8,420 179 10,425 19,024 – 6,341 279 4,321 10,941
All of the trade and other payables are expected to be settled within one year. The amounts owing to affiliated and subsidiary companies are unsecured, interest-free and repayable on demand. Included in trade and other payables are trade payables with the following ageing analysis as of the end of the reporting period: the Group 2010 2009 HK$'000 HK$'000 Due within 1 month or on demand Due 1 to 3 months Due 3 to 12 months 17,161 6,040 3,715 26,916 13,668 3,142 3,317 20,127 the Company 2010 2009 HK$'000 HK$'000 6,279 12,745 – 19,024 10,207 734 – 10,941
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31 December 2010 24. CApItAL AND ReSeRVeS (a) Movements in components of equity The reconciliation between the opening and closing balances of each component of the Group’s consolidated equity is set out in the consolidated statement of changes in equity. Details of the changes in the Company’s individual components of equity between the beginning and the end of the year are set out below: Capital Redemption Reserve HK$’000 676 – – 676 – – 676
the Company Balance at 1 January 2009 Changes in equity for 2009: Profit for the year Total comprehensive income for the year Balance at 31 December 2009 and 1 January 2010 Changes in equity for 2010: Profit for the year Total comprehensive income for the year Balance at 31 December 2010 (b) Share capital (i) Authorised and issued share capital
Share Capital HK$’000 382,450 – – 382,450 – – 382,450
Revenue Reserve HK$’000 147,584 43,322 43,322 190,906 11,997 11,997 202,903
total HK$’000 530,710 43,322 43,322 574,032 11,997 11,997 586,029
Authorised: ordinary shares of HK$1 each ordinary shares, issued and fully paid: At 1 January and 31 December
2010 No. of shares (’000)
the Company
HK$’000
2009 No. of shares (’000)
HK$’000
2,720,615
2,720,615
2,720,615
2,720,615
382,450
382,450
382,450
382,450
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.
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31 December 2010 24. CApItAL AND ReSeRVeS (cont’d) (b) Share capital (cont’d) (ii) Purchase of own shares neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year ended 31 December 2010. (iii) Share option scheme The Share option Scheme (the “2005 Scheme”) for eligible persons, including employees (including the executive directors) and non-executive directors of the Company and its associates, was adopted by the Company on 27 April 2005 (“Adoption Date”). Under the 2005 Scheme, the maximum number of shares that may be granted by the Directors shall not exceed 10% of the share capital of the Company in issue at the Adoption Date unless the Company obtains a fresh approval from its shareholders. The maximum number of shares which may be issued upon exercise of all outstanding options and yet to be exercised under the 2005 Scheme and any other option scheme(s) of the Company shall not in aggregate exceed 30% of the shares in issue from time to time. The subscription price of shares under the 2005 Scheme shall not be less than the highest of: (i) the official closing price of the shares as stated in daily quotations sheet of The Stock Exchange on the Offer Date; (ii) the average of the official closing price of the shares as stated in daily quotations sheets of The Stock Exchange for the 5 business days immediately preceding the Offer Date; and (iii) the nominal value of a share. Throughout the financial year, no share option was granted and outstanding. (c) Nature and purpose of reserves (i) Capital redemption reserve Capital redemption reserve represents the nominal value of the shares repurchased which has been paid out of the distributable reserves of the Company. (ii) Exchange reserve The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations and exchange differences on monetary items which form part of the Group’s net investment in foreign operations, provided certain conditions are met. The reserve is dealt with in accordance with the accounting policy set out in note 1(u). (d) Distributability of reserves At 31 December 2010, the aggregate amount of reserves available for distribution to equity shareholders of the Company was HK$202,903,000 (2009: HK$190,906,000).
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31 December 2010 24. CApItAL AND ReSeRVeS (cont’d) (e) Capital management The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. The Group monitors its capital structure on the basis of net debt-to-adjusted capital ratio. It is the Group’s strategy to keep the net debt-to-adjusted capital ratio as low as feasible. In order to maintain or adjust the ratio, the Group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders, raise new debt financing or sell assets to reduce debt. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements. 25. INteReSt-BeARING LoANS the Group 2010 2009 HK$'000 HK$'000 Bank loans - secured Within 1 year After 1 year but within 5 years 23,858 558 23,300 23,858 – – – –
The Group’s banking facilities are subject to the fulfilment of covenants relating to certain of the Group’s financial ratios, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants, the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. Further details of the Group’s management of liquidity risk are set out in note 26(c). As at 31 December 2010, none of the covenants relating to drawn down facilities had been breached. Security The bank loans of the Group are secured over the freehold land and building with a carrying amount of HK$30,241,000 (see note 14).
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31 December 2010 25. INteReSt-BeARING LoANS (cont’d) term and repayment schedule The bank loans are repayable by August 2015. The bank loans bear interests fixed at 7.50% during the tenure of the loans. 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. The Group is also exposed to equity price risk arising from its equity investments in other entities and movements in its own equity share price. The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below. (a) Credit risk The Group’s credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within 1 month from the date of billing. Debtors with balances that are more than 3 months past due are requested to settle all outstanding balances before any further credit is granted. normally, the Group does not obtain collateral from customers. Investments are normally only in liquid securities and with counterparties that have a credit rating equal to or better than the Group. Transactions involving derivative financial instruments are with counterparties with sound credit ratings and with whom the Group has a signed netting agreement. Given their high credit ratings, management does not expect any investment counterparty to fail to meet its obligations. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of the industry and country in which customers operate also has an influence on credit risk but to a lesser extent. At the end of the reporting period, 0% (2009: 2%) and 27% (2009: 6%) of the total trade receivables was due from the Group’s largest customer and the five largest customers respectively within the hospitality business segment. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the statement of financial position after deducting any impairment allowance. Further quantitative disclosure in respect of the Group’s exposure to credit risk arising from trade receivables are set out in note 21.
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (b) Equity price risk The Group is exposed to equity price changes arising from equity investments classified as trading securities (see note 20). The Group’s listed equity investments are listed on the London Stock Exchange, NASDAQ stock market and The Philippines Stock Exchange, Inc.. Decisions to buy or sell trading securities are based on daily monitoring of the performance of individual securities compared to other industry indicators, as well as the Group’s liquidity needs. At 31 December 2010, a 5% increase in the underlying equity prices of the equity investments listed on the London Stock Exchange at the end of the reporting period would increase the Group’s and the Company’s profit after tax and increase the Group’s and the Company’s revenue reserve by approximately HK$4,004,000. At 31 December 2009, a 5% increase in the underlying equity prices of the equity investments listed on the London Stock Exchange at the reporting date would increase the Group’s and the Company’s profit after tax and increase the Group’s and the Company’s revenue reserve by approximately HK$2,545,000. There is no impact on the other components of consolidated equity for both years. The analysis assumes that all other variables remain constant. A 5% decrease in the underlying equity prices of the equity investments listed on the London Stock Exchange at the end of the reporting period, with all other variables held constant, would have an equal but opposite effect on the Group’s and the Company’s profit after tax and revenue reserve. At 31 December 2010, a 5% increase in the underlying equity prices of the equity investments listed on the NASDAQ stock market at the end of the reporting period would increase the Group’s and the Company’s profit after tax and increase the Group’s and the Company’s revenue reserve by approximately HK$1,004,000. A 5% decrease in the underlying equity prices of the equity investments listed on the NASDAQ stock market at the end of the reporting period, with all other variables held constant, would have an equal but opposite effect on the Group’s and the Company’s profit after tax and revenue reserve. In respect of the Group’s equity investment listed on The Philippines Stock Exchange, Inc., based on the historical trend analysis, management does not expect significant equity price movements on this investment and hence, any significant impact on the Group’s and the Company’s profit after tax, revenue reserve and other components of consolidated equity, assuming that all other variables remain constant.
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (b) Equity price risk (cont’d) The Group also holds investments in unlisted marketable equity mutual funds. Included in such investments is an amount of HK$6,375,000 (2009: HK$6,200,000) relating to investments held in respect of the Group’s defined contribution plan. Any movement in the equity price would not have any impact on the Group’s profit after tax as there would be an equal and opposite change in the staff costs (note 5) in response to the changes in the equity price. At 31 December 2010, a 5% increase in the net asset value of the remaining balance of the investments in unlisted marketable equity mutual funds at the end of the reporting period would increase the Group’s and the Company’s profit after tax and increase the Group’s and the Company’s revenue reserve by approximately HK$604,000. At 31 December 2009, a 5% increase in the net asset value of the remaining balance of the investments in unlisted marketable equity mutual funds at the end of the reporting period would increase the Group’s and the Company’s profit after tax and increase the Group’s and the Company’s revenue reserve by approximately HK$1,837,000. There is no impact on the other components of consolidated equity for both years. The analysis assumes that all other variables remain constant. A 5% (2009: 5%) decrease in the net asset value of the remaining balance in unlisted marketable equity mutual funds at the end of the reporting period, with all other variables held constant, would have had the equal but opposite effect on the Group’s and the Company’s profit after tax and revenue reserve. The sensitivity analysis has been determined assuming that the reasonably possible changes in stock prices, net asset values or other risk variables had occurred at the end of the reporting period and had been applied to the exposure to equity price risk in existence at that date. The stated changes represent management’s assessment of reasonably possible changes in the relevant stock price, net asset value or the relevant risk variables over the period until the next annual end of the reporting period. The analysis is performed on the same basis for 2009. (c) Liquidity risk Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surpluses. The Group’s policy is to regularly monitor its liquidity requirements, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities to meet its liquidity requirements in the short and longer term. Except for the long-term bank loans, the total contractual undiscounted cash flows of the Group’s and the Company’s non-derivative financial liabilities are the same as their carrying amounts as their remaining contractual maturities are within one year.
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (c) Liquidity risk (cont’d) The following table shows the remaining contractual maturities at the end of the reporting period of the Group’s long-term non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay: Contractual undiscounted cash outflow More than 1 year but Within less than 1year or 5 years total on demand HK$’000 HK$’000 HK$’000 Carrying amount at 31 December HK$’000
the Group Non-derivative contractual liabilities 2010 Interest-bearing long-term loans (d) Interest rate risk
(865)
(31,892)
(32,757)
(23,858)
The Group’s interest rate risk arises primarily from long-term borrowings. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The weighted average effective interest rates per annum relating to the borrowings at the end of the reporting period is 7.5% (2009: nil%). The weighted average effective interest rates per annum relating to cash and cash equivalents at the end of the reporting period is set out in note 22. (e) Currency risk The Group is exposed to foreign currency risk through deposits and withdrawals of fixed deposits and borrowings, sales and purchases of the trading securities that are denominated in a currency other than the functional currency of the operations to which they relate. The currencies giving rise to these risks are Sterling Pound, Singapore Dollar, US Dollar and Philippine Peso. When necessary, the Group uses forward exchange contracts to hedge its specific currency risks. However, forward exchange contracts that do not qualify for hedge accounting are accounted for as trading instruments. As at the reporting date, the Group had no outstanding forward exchange contracts. (i) Recognised assets and liabilities In respect of trade receivables and payables held in currencies other than the functional currency of the operations to which they relate, the Group ensures that the net exposure is kept to an acceptable level.
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (e) Currency risk (cont’d) (ii) Exposure to foreign currency risk The following table details the Group’s and the Company’s exposure at the end of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate to. 2010 2009
the Group Trading securities 6,699 Trade and other receivables – Cash and cash equivalents 10,375 Trade and other payables – overall exposure arising from recognised assets and liabilities 17,074 the Company Trading securities 6,699 Trade and other receivables – Cash and cash equivalents 10,375 Trade and other – payables overall exposure arising from recognised assets and liabilities 17,074
Sterling Singapore philippine US Sterling Singapore philippine US pound Dollar peso Dollar pound Dollar peso Dollar ’000 ’000 ’000 ’000 ’000 ’000 ’000 ’000 – 11 3,671 (233) 5,549 2,589 – – 4,114 – 10,345 – – 28 16,496 (136) 9,032 – – – – – – –
– 14,630 – (12)
3,449
5,549 17,207
14,459
16,388
9,032
–
– 11 3,671 (233)
5,549 2,589 – –
4,114 – 10,345 –
– 28 3,577 (136)
9,032 – – –
– – – –
– 14,630 – (12)
3,449
5,549 17,207
14,459
3,469
9,032
–
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (e) Currency risk (cont’d) (iii) Sensitivity analysis The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the end of the reporting period and had been applied to the Group’s and the Company’s exposure to currency risk for financial instruments in existence at that date. A 10% strengthening of the following foreign currencies against the functional currency of each of the Group’s entities at the end of the reporting period would impact the Group’s and the Company’s profit after tax and revenue reserve by the amounts shown below. There is no impact on the other components of consolidated equity. The analysis assumes that all other variables, in particular, interest rates, remain constant. Increase in profit after tax and revenue reserve 2010 2009 HK$’000 HK$’000
the Group Sterling Pound Singapore Dollar Philippine Peso US Dollar the Company Sterling Pound Singapore Dollar Philippine Peso US Dollar
20,413 2,069 99 13,347
17,885 9,029 151 –
20,413 2,069 99 13,347
17,885 1,911 151 –
A 10% weakening of the above currencies against the functional currency of each of the Group’s entities at the end of the reporting period would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables, in particular, interest rates, remain constant. The stated changes represent management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual end of the reporting period. In this respect, it is assumed that the pegged rate between the Hong Kong dollar and the US dollar would be materially unaffected by any changes in movement in value of the US dollar against other currencies. Results of the analysis as presented in the above table represent the effect of the Group’s and the Company’s profit after tax and revenue reserve measured in the respective foreign currencies, translated into Hong Kong dollar at the exchange rate ruling at the end of the reporting period for presentation purposes. The analysis is performed on the same basis for 2009.
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (f) Fair values (i) Financial instruments carried at fair value The following table presents the carrying value of financial instruments measured at fair value at the end of the reporting period across the three levels of the fair value hierarchy defined in HKFRS 7, Financial Instruments: Disclosures, with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows: • Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data Level 1 HK$’000 Level 2 HK$’000 Level 3 HK$’000 total HK$’000
•
•
the Group 2010 Assets Equity securities held for trading: - Listed - Unlisted
101,161 6,375 107,536
– – –
– 12,078 12,078
101,161 18,453 119,614
2009 Assets Equity securities held for trading: - Listed - Unlisted
52,402 6,200 58,602
– – –
– 36,738 36,738
52,402 42,938 95,340
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (f) Fair values (cont’d) (i) Financial instruments carried at fair value (cont’d) Level 1 HK$’000 the Company 2010 Assets Equity securities held for trading: - Listed - Unlisted Level 2 HK$’000 Level 3 HK$’000 total HK$’000
101,161 – 101,161
– – –
– 12,078 12,078
101,161 12,078 113,239
2009 Assets Equity securities held for trading: - Listed - Unlisted
52,402 – 52,402
– – –
– 36,738 36,738
52,402 36,738 89,140
During the year, there were no transfers between financial instruments in Level 1 and Level 2. The movement in the Level 3 financial instruments measured at fair value is as follows: the Group and the Company Fair value through profit or loss equity securities 2010 2009 HK$’000 HK$’000 At 1 January Net unrealised (losses)/gains in profit or loss At 31 December 36,738 (24,660) 12,078 25,632 11,106 36,738
The gains or losses for the period recognised in profit or loss of the unlisted equity securities is presented in “other net (losses)/income” in the consolidated income statement.
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (f) Fair values (cont’d) (i) Financial instruments carried at fair value (cont’d) The following table shows the sensitivity of the fair value of equity securities to reasonably possible alternative assumptions: effect on fair value Favourable Unfavourable changes changes HK$’000 HK$’000
Fair value HK$’000 Financial assets at fair value through profit or loss Equity securities (ii) 12,078
138
(138)
Fair values of financial instruments carried at other than fair value The carrying amounts of the Group’s and the Company’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2010 and 2009.
(g)
Estimation of fair values The following summarises the major methods and assumptions used in estimating the fair values of financial instruments. (i) Securities Fair value is based on quoted market prices at the end of the reporting period without any deduction for transaction costs. Fair values for the unquoted equity investments are estimated using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions. Instead, they are based on unobservable inputs reflecting assumptions about the way assets would be priced. (ii) Other financial assets and liabilities The carrying amounts of financial assets and liabilities with maturity of less than one year (including trade and other receivables, cash and cash equivalents, and trade and other payables) are assumed to approximate their fair values.
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31 December 2010 26. FINANCIAL RISK MANAGeMeNt AND FAIR VALUeS (cont’d) (g) Estimation of fair values (cont’d) (iii) Interest-bearing loans The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments. The interest rate used is as follows: the Group 2010 2009 Interest-bearing loans 27. MAteRIAL ReLAteD pARtY tRANSACtIoNS During the year, there were the following material related party transactions: the Group 2010 2009 HK$'000 HK$'000 Dividend income received from related companies Income received from provision of hospitality and other related services to related companies Proceed received from transfer of motor vehicle to a related company Rental received from a related company Accounting fee paid to a related company Expenses paid to a related company Key management personnel remuneration Remuneration for key management personnel of the Group, including amounts paid to the Company’s directors as disclosed in note 8 and certain of the highest paid employees as disclosed in note 9, is as follows: the Group 2010 2009 HK$'000 HK$'000 Short-term employee benefits Total remuneration is included in “staff costs” (see note 5). 5,027 4,495 887 2,273 – 141 (158) (352) 836 2,249 501 287 (132) – 7.5% –
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31 December 2010 28. CoMMItMeNtS (a) Capital commitments outstanding at 31 December 2010 not provided for in the financial statements were as follows: the Group 2010 2009 HK$’000 HK$’000 Contracted for (b) 14,342 –
At 31 December 2010, the total future minimum lease payments under non-cancellable operating leases payable as follows: the Group 2010 2009 HK$’000 HK$’000 Within 1 year After 1 year but within 5 years 1,594 9,497 11,091 1,101 233 1,334
The Group’s other leases run for a period of between one to three years. one of the leases includes an option to renew the lease on expiry. The leases do not include any contingent rental. 29. eMpLoYee RetIReMeNt BeNeFItS In United States, the Group operates a defined contribution plan (the “Plan”). Under the Plan, employees may elect to contribute a percentage of their regular compensation to the Plan and to direct the distribution of these amounts among the Plan’s investment options. The Group matches 50% of each employee’s contributions up to a maximum of 3% of the employee’s annual base compensation. At the end of the reporting period, approximately HK$6,375,000 (2009: HK$6,200,000) has been included in trading securities (see note 20). 30. IMMeDIAte AND ULtIMAte HoLDING CoMpANIeS The immediate holding company at 31 December 2010 is City Developments Limited. The Directors consider the ultimate holding company at 31 December 2010 to be Hong Leong Investment Holdings Pte. Ltd.. Both companies are incorporated in the Republic of Singapore. The immediate holding company produces financial statements available for public use. 31. ACCoUNtING eStIMAteS AND JUDGeMeNtS notes 14, 15, 16 and 17 contain information about the assumptions and the risk factors relating to impairment of property, plant and equipment, intangible assets and interests in subsidiaries.
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31 December 2010 32. poSSIBLe IMpACt oF AMeNDMeNtS, NeW StANDARDS AND INteRpRetAtIoNS ISSUeD BUt Not Yet eFFeCtIVe FoR tHe YeAR eNDeD 31 DeCeMBeR 2010 Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments and Interpretations and one new standard which are not yet effective for the year ended 31 December 2010 and which have not been adopted in these financial statements. These include the following which may be relevant to the group. effective for accounting periods beginning on or after Revised HKAS 24 - Related party disclosures HKFRS 9 - Financial Instruments Improvements to HKFRSs 2010 Amendments to HKAS 12 - Income taxes 1 January 2011 1 January 2013 1 July 2010 or 1 January 2011 1 January 2012
The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position.
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