lai sun garment (international) limited · hong kong auditors ernst & young certified public...

Contents

2 Corporate Profile

3 Corporate Information

4 Chairman's Statement

12 Report of the Directors

32 Report of the Auditors

34 Consolidated Profit and Loss Account

35 Consolidated Balance Sheet

36 Consolidated Cash Flow Statement

38 Company Balance Sheet

39 Notes to Financial Statements

104 Notice of Annual General Meeting

LAI SUN GARMENT ANNUAL REPORT 1998-99

Lai Sun Garment (International) Limited

11/F Lai Sun Commercial Centre

680 Cheung Sha Wan Road

Kowloon, Hong Kong

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

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

E-mail [email protected]

1

The Lai Sun Group was founded in 1947 as a garment manufacturer and obtained its

first listing on the Hong Kong stock exchange in 1972. The Group has since evolved

into a diversified conglomerate with seven business areas: garment manufacturing,

property development, property investment, China property, fashion retailing, hotels

and strategic investments. Lai Sun Garment (International) Limited is principally the

holding company of the Group and is listed on The Stock Exchange of Hong Kong

Limited.

LAI SUN GARMENT(INTERNATIONAL)

LIMITED*

LAI SUN DEVELOPMENTCOMPANY LIMITED*

HOTELS

LAI SUN HOTELSINTERNATIONAL LIMITED*

FURAMA HOTELENTERPRISES LIMITED

CROCODILE GARMENTSLIMITED*

PROPERTY

DEVELOPMENT PROPERTIES,HONG KONG

INVESTMENT PROPERTIES,HONG KONG

GARMENTMANUFACTURING

& OTHERS

STRATEGICINVESTMENTS

ASIA TELEVISIONLIMITED

SKY CONNECTION LIMITED(CHEK LAP KOK AIRPORT

FREE DUTY SHOP)

LAI FUNG HOLDINGSLIMITED*, CHINA

MANDARINCOMMUNICATIONS

LIMITED(PCS OPERATIONS)

* Listed Companies

LAI SUN GARMENT ANNUAL REPORT 1998±99

2

Corporate Profile

Place of Incorporation

Hong Kong

Directors

Lim Por Yen (Chairman & Managing Director)

Lam Kin Ngok, Peter (Deputy Chairman)

Lam Kin Ming (Deputy Chairman)

Chiu Wai

Shiu Kai Wah

Lee Po On, Mark

U Po Chu

Lai Yuen Fong

William Fung

Wong Kai Cho, Kenneth

Secretary and Registered Office

Yeung Kam Hoi

11th Floor

Lai Sun Commercial Centre

680 Cheung Sha Wan Road

Kowloon, Hong Kong

Share Registrars

Tengis Limited

1601 Hutchison House

10 Harcourt Road

Central

Hong Kong

Auditors

Ernst & Young

Certified Public Accountants

15th Floor, Hutchison House

10 Harcourt Road

Central

Hong Kong

Solicitors

Vincent T.K. Cheung, Yap & Co.

15th Floor, Alexandra House

16-20 Chater Road

Central

Hong Kong

Allen & Overy

9th Floor, Three Exchange Square

8 Connaught Place

Central

Hong Kong

Bankers

Citibank, N.A.

Dao Heng Bank Limited

Hang Seng Bank Limited

Standard Chartered Bank

The Hongkong and Shanghai Banking

Corporation Limited

The Bank of Tokyo-Mitsubishi, Limited


3

Corporate Information

Chairman’s Statement


4

Group Results

The Group reported a consolidated net loss attributable to

shareholders of approximately HK$3,635 million for the year

ended 31st July, 1999, a substantial deterioration compared with

the results for the previous year. Turnover for the year also

declined to HK$3,181 million from HK$5,100 million in the

previous year, reflecting the difficult market conditions

confronting various Group companies.

The bulk of the reported loss was derived from the loss recorded

by Lai Sun Development Company Limited, which announced a

loss attributable to shareholders for the year of HK$6,832

million. The final results had been further affected by losses

reported by Crocodile Garments.


For the year under review, the combined operating performance

of the manufacturing operation and export business of the

Company had seen a moderate improvement over the previous

year. The overall results of the Company had, however, been

affected by provisions made for bad and doubtful debts and an

adjustment for the values of investment in a subsidiary on a

conservative basis.

Chairman LIM Por Yen



5

The Company had undertaken two fund-raising exercises during

the year under review. On 4th January, 1999, the Company

allotted and issued 31,500,000 new shares of HK$0.50 each to

two independent third parties at the subscription price of

HK$1.25 per share, raising approximately HK$39 million for use

as general working capital.

On 28th January, 1999, the Company completed a 4-for-1 rights

issue at the subscription price of HK$0.50 per rights share.

Funds raised in the exercise amounting to approximately

HK$575 million were used to subscribe for the 1-for-1 rights

issue of Lai Sun Development Company Limited. The interest of

the Company in LSD has been maintained at 44.76 % of its

enlarged issued ordinary share capital.

Lai Sun Development Company Limited (“LSD”)

Lai Sun Development reported a consolidated net loss

attributable to shareholders of HK$6,832 million for the year

ended 31st July, 1999 and no final dividend was recommended by

the directors. The aforesaid loss included an operating loss before

exceptional items of HK$1,001 million and an exceptional loss of

HK$5,691 million. The exceptional loss represented provisions

for diminution in value of the LSD Group’s property development

landbank and loss on disposal of investments. This figure mainly

comprises provisions of HK$2,375 million in respect of the LSD

group’s investment in the Furama Hotel Hong Kong and Furama

Shenyang, HK855 million for the put options relating to the

disposal of the Majestic Hotel, HK$874 million for other

properties under development, HK$228 million for the loss in

relation to the LSD Group’s 50% interest in the “Free Duty”

operation at Chek Lap Kok Airport, and HK$729 million for its

long-term listed and unlisted investments.

LSD continued to implement an aggressive disposal programme

during the year and thus suffered from losses arising from

property sales and disposal of selective long-term investments. A

decline in recurrent rental income, higher interest charges,

together with the absence of contributions from both its hotel

and China property subsidiaries all adversely affected the

operating loss of LSD.



6

The LSD Group continued to place a strong emphasis on cash

generation in order to improve the overall debt position. Total

debt of the LSD Group, excluding Lai Sun Hotels and Lai Fung

Holdings, has fallen by almost 19% to HK$7.6 billion as of the

end of this financial period.

The 3.l million square feet investment property portfolio of LSD

generated gross rental and related income of HK$607 million for

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

Overall vacancy rates of commercial and office portfolio

continued to stay at single digit levels but industrial properties

registered further decline in rentals and occupancy.

With the absence of major property disposals during the year

under review, total sales turnover, including the attributable

share of that of associated companies, more than halved to

HK$1,265 million. Some of the key disposal items included,

amongst others, “The Panorama” in Tsuen Wan, “Tycoon Place”

in Tai Po, and various lots in Sai Kung and Yuen Long. The size

of the LSD Group’s landbank remained at around 1.6 million

sq.ft., made up of approximately 80% for residential use, and the

remainder for commercial and industrial projects.

Furama Hotel Hong Kong, wholly-owned by LSD Group,

continued to provide meaningful contribution to LSD although

average room rate had recorded a drop of around 25% . As

announced by LSD, it would redevelop Furama Hotel into a

composite office, retail and hotel complex and had agreed to

dispose of the retail and hotel portion of the redeveloped

complex to Lai Sun Hotels International Limited. The proposal

was approved by independent shareholders in March 1999.

The LSD Group’s investments in Asia Television Limited and

Mandarin Communications Limited, which operates under the

successful brandname “Sunday”, have further consolidated their

presence in their respective markets despite incurring minor

losses at the operating level.



8

Lai Fung Holdings Limited (“Lai Fung”)

Lai Fung Holdings reported a net profit attributable to

shareholders of HK$10.8 million for the year, compared with the

corresponding figure of HK$144 million for the preceding year.

In April 1999, LSD granted an option to Sun Chun Estate

Company, Limited, a wholly-owned property investment

company of the Bank of China, whereby Sun Chung has been

granted the right to purchase up to 230 million existing shares in

Lai Fung held by LSD at the price of HK$0.65 per share. In June

1999, Lai Fung completed a HK$600 million convertible note

issue to Sun Chung.

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

disposal of the Eastern Place Phase II and leasing of Hong Kong

Plaza. Construction works on the New Trend Plaza in

Guangzhou are progressing satisfactorily and management

expects the project to be substantially completed by early 2002.

Lai Sun Hotels International Limited (“LSHIL”)

The performance of Lai Sun Hotels, the 52.17% subsidiary of

LSD, was mixed during the period. Although occupancy rate at

the 65%-owned Ritz-Carlton Hong Kong improved to 63% during

the year, the average daily rate dropped by 14% to HK$1,375.

The performance of the 25%-owned Regent Beverly Wilshire

Hotel had been helped by the buoyant state of the hospitality

sector in the U.S.A.

In March 1999, LSHIL completed the disposal of the Four

Seasons Hotel, New York for US$265 million, in which LSHIL

had an attributable interest of 49.995%. The exceptional gain was

largely offset by the losses resulted from the disposal of “The

Lions” in Vancouver in May 1999, the Hong Kong Plaza service

apartments in June 1999, and the Delta Whistler Resort, Canada

in August 1999. However, these disposal activities have

generated substantial liquidity for LSHIL, thus allowing it to

focus on opportunities in Asia-Pacific where asset prices remain

attractive.



10

Crocodile Garments Limited (“Crocodile”)

The unfavourable market conditions in Hong Kong continued to

affect the performance of Crocodile during the year. Crocodile

reported an operating loss before exceptional items of HK$170

million and an exceptional loss of HK$25 million on a turnover

of HK$653 million, which represented a fall of 28% compared

with the figure for the previous year.

Crocodile continued to actively improve the cost structure of its

retail operation in Hong Kong through reduction in staff and

retail premises expenses. The popular “Croco Kids” brand in the

children’s wear sector will be promoted to increase its market

share in Hong Kong and the Mainland.

The operation in the Mainland recorded a small operating loss

due to provisions for obsolete stocks. Greater emphasis will be

placed on developing the retail network through franchising.

Operating results of the imported labels “LACOSTE” and

“SANRIO” had also been adversely affected by the sluggish local

economy and the decline in consumer spending. Plans were on

hand to increase the number of retail outlets for “SANRIO” by 6

or 7 in the coming year.

The garment export operation of Crocodile had reported a

noticeable decline in orders from North America. Management

will intensify its efforts to further reduce operating costs and to

develop other markets apart from Europe.

PROSPECTS

Lai Sun Development will devote its resources to conclude

satisfactory arrangements with all creditor groups. At the same

time, liquidity generation will be given priority by the company.

With the medium-term prospects of the local property market

becoming brighter, the capital value of the core property

portfolio of LSD should show reasonable appreciation.

With the local economy beginning to exhibit signs of a slow

recovery, consumer sentiments have gradually improved. This

should bode well for the local retail industry as a whole and in

particular the operations of Crocodile.



11

MANAGEMENT AND STAFF

The challenges and difficulties that the Group had to tackle and

overcome during the period had been highly demanding for both

Management and staff. I would like to record my appreciation of

the efforts put in by Management and all staff members of Group

companies and the support given by shareholders and business

associates during this period.

Lim Por Yen

Chairman

Hong Kong, 12th November, 1999

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

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

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

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

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

The Group's principal activities have not changed during the year and consisted of the manufacture and sale

of garments, property development for sale, property investment for rental purposes, investment in and

operations of hotels and restaurants and investment holding.

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

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

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

Turnover

Contribution/

(absorption)

HK$'000 HK$'000

By activity:

Manufacture and sale of garments 1,434,242 (350,688)

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

Property rentals 636,076 64,799

Long term investments Ð (729,364)

Hotel, restaurant and other operations 557,874 (538,655)

3,180,510 (7,043,732)

Deficits on revaluation of investment properties Ð (309,226)

3,180,510 (7,352,958)

By geographical area:

Hong Kong 2,577,330 (5,944,133)

People's Republic of China (`̀ PRC''), excluding Hong Kong 361,268 (449,222)

Canada 83,768 (404,876)

Others 158,144 (554,727)

3,180,510 (7,352,958)

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

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

as at that date are set out in the financial statements on pages 34 to 103.

The directors do not recommend the payment of a final dividend for the year end 31st July, 1999.

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


12

Report of the Directors

D I R E C T O R S

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

follows:

Lim Por Yen (Chairman and Managing Director)

Lam Kin Ngok, Peter (Deputy Chairman)

Lam Kin Ming (Deputy Chairman)

Chiu Wai

Shiu Kai Wah

Lee Po On, Mark

U Po Chu

Lai Yuen Fong

Lam Wai Shan, Vanessa

(alternate director to Madam Lai Yuen Fong)

(Appointed on 26th February, 1999 and resigned

on 27th April, 1999)

William Fung

Wong Kai Cho, Kenneth

In accordance with Article 102 of the Company's Articles of Association, Mr. Lam Kin Ming, Mr. Lee Po On,

Mark and Madam U Po Chu retire by rotation at the forthcoming Annual General Meeting and, being

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

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

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

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

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

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

Save as disclosed in notes 4 and 16 to the financial statements, no director had a beneficial interest in any

contract of significance to the business of the Group to which the Company or any of its subsidiaries was a

party during the year.

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

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

which are included in notes 15, 16, 36 and 38 to the financial statements. The Connected Transactions have

been approved by the Company's directors.

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

Group:

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

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


13


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

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

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

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

or from independent third parties; and

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

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

Directors

Executive Directors

Mr. Lim Por Yen, Chairman and Managing Director of the Company, aged 84, is the founder of the Lai Sun

Group. He has been an executive director of the Company since October 1987. He is also the chairman of

Lai Sun Development Company Limited and Crocodile Garments Limited, and an executive director of Lai

Sun Hotels International Limited. Mr. Lim first became involved in the property and investment business in

the mid-1950's and has over 59 years' experience in the garment business. He is an honorary citizen of the

city of Guangzhou, the city of Swatow, the city of Xiamen and the city of Zhong Shan. Mr. Lim was also one

of the Hong Kong Affairs Advisers to the People's Republic of China and is a founder member of The Better

Hong Kong Foundation.

Mr. Lam Kin Ngok, Peter, aged 42, is a Deputy Chairman of the Company. He has been an executive director

of the Company since October 1987. Mr. Lam is also the deputy chairman and president of Lai Sun

Development Company Limited, the chairman of both Lai Sun Hotels International Limited and Lai Fung

Holdings Limited, and an executive director of Crocodile Garments Limited. Mr. Lam has extensive

experience in the property and investment business. He is a director of the Real Estate Developers

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

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

Ming.

Mr. Lam Kin Ming, aged 62, is the Deputy Chairman of the Company. He has been a director of the

Company since October 1987 and has been involved in the day-to-day management of the garment business

since 1958. Mr. Lam is also the deputy chairman of Crocodile Garments Limited, a non-executive director of

both Lai Sun Development Company Limited and Lai Sun Hotels International Limited, and is an executive

director of Lai Fung Holdings Limited. Mr. Lam is a son of Mr. Lim Por Yen and is the elder brother of Mr.

Lam Kin Ngok, Peter.

Mr. Chiu Wai, aged 68, has been a director of the Company since October 1987. Mr. Chiu is also a non-

executive director of Lai Sun Development Company Limited, Lai Sun Hotels International Limited and

Crocodile Garments Limited. Mr. Chiu has over 40 years' experience in production management and is

responsible for the operation and administration of the garment business of the Company. He has been

working for the Lai Sun Group's garment business since 1955.


14



( c o n t i n u e d )

Directors (continued)

Executive Directors (continued)

Mr. Shiu Kai Wah, aged 67, has been a director of the Company since December 1990. He is also a non-

executive director of Lai Sun Development Company Limited, Lai Sun Hotels International Limited and

Crocodile Garments Limited. Mr. Shiu has over 28 years' experience in the management of the garment

business.

Mr. Lee Po On, Mark, aged 44, has been a director of the Company since June 1991. He is a Fellow of the

Association of Chartered Certified Accountants with over 21 years' financial and commercial experience. Mr.

Lee joined the Lai Sun Group in November 1987.

Non-Executive Directors

Madam U Po Chu, aged 74, has been a director of the Company since December 1990. She is also a non-

executive director of Lai Sun Development Company Limited, Crocodile Garments Limited and Lai Sun

Hotels International Limited. Madam U has over 50 years' experience in the garment manufacturing business

and had been involved in the printing business in the mid-1960's. In the early 1970's, she started to expand

the business to fabric bleaching and dyeing, and also became involved in property development and

investment in the late 1980's. Madam U is Mr. Lim Por Yen's wife.

Madam Lai Yuen Fong, aged 85, has been a director of the Company since May 1992. Madam Lai is Mr. Lim

Por Yen's wife.

Mr. William Fung, aged 75, is an independent non-executive director of the Company. Mr. Fung has more

than 34 years' experience in apparel merchandising and export sales business.

Mr. Wong Kai Cho, Kenneth, aged 74, is an independent non-executive director of the Company. Mr. Wong

was admitted and enrolled as a solicitor in England and Wales and in Hong Kong in 1960. He had been the

sole proprietor of Messrs. Kenneth K.C. Wong & Co., Solicitors, from January 1973 to 30th September,

1997 and is now a consultant to Messrs. Peter Mark & Co., Solicitors.

Senior Management

Mr. Lau Shu Yan, Julius, aged 43, joined the Lai Sun Group in July 1991 as an executive director of Lai Sun

Development Company Limited. Mr. Lau has over 10 years of experience of holding senior management

positions in the property and securities industries. He had been a director of Jones Lang Wootton Limited

and then Jardine Fleming Broking Limited prior to his current appointment. Mr. Lau is a director and a

member of the Executive Committee of Real Estate Developers Association of Hong Kong.


15




Senior Management (continued)

Dr. Tong Yuk Lun, Paul, aged 58, joined the Lai Sun Group in October 1997 as an executive director of Lai

Sun Development Company Limited. He was also appointed as the vice chairman of Lai Fung Holdings

Limited in June 1999. Prior to Dr. Tong's current appointments, he had been an executive director and the

chief executive officer of Pacific Century Regional Developments Ltd. for the period from January 1995 to

September 1997. From 1978 to 1994, Dr. Tong was employed by the New World Group. He had been an

executive director of Hip Hing Construction Co., Ltd. and the general manager of New World Development

Co., Ltd. Dr. Tong holds B.Sc., M.Sc. and Ph.D. degrees and has extensive experience in civil, structural and

geotechnical engineering. He is a member of Institution of Civil Engineers, London and Hong Kong

Institution of Engineers and has also worked with British and Hong Kong engineering consulting firms.

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

executive director of Lai Sun Development Company Limited on 1st January, 1998. He has over 12 years'

experience in investment research and asset management. Prior to his appointment with the Lai Sun Group

in 1997, Mr. Wu served as a director and head of Hong Kong/ China Research for Peregrine Brokerage

Limited. He holds a Bachelor in Science degree from the University of Toronto and a Master in Science

degree from Stanford University.

Mr. Liu Ngai Wing, aged 48, joined the Lai Sun Group in November 1998 as an executive director of Lai Sun

Hotels International Limited, and has been the chief executive officer thereof since 10th February, 1999. He

is also the chairman and a non-executive director of Yoshiya International Corporation, Limited, a listed

company in Hong Kong. Mr. Liu had held senior management positions with a number of listed companies

in Hong Kong before joining the Group in 1998. He is an Associate Member of both the Hong Kong Society

of Accountants and the Institute of Chartered Secretaries and Administrators, and is also a Fellow of the

Association of Chartered Certified Accountants.

Mr. Kam Kin Yat, aged 47, joined the Lai Sun Group in 1991 and has been a director of the Lai Fung

Holdings Limited since November 1993. He was appointed acting chief executive on 24th June, 1999. Mr.

Kam has over 20 years' experience of trading with China. Prior to joining the Group in 1991, he worked for

the People's Government of Jiangsu Province and was responsible for liaising with foreign investors. He was

also a director and deputy general manager of King Leader Development Company Limited, a subsidiary of

Fujian Enterprises Holdings Co. Limited, the official investment vehicle of the Fujian Province. Mr. Kam was

previously a director of Far East Development Company Limited, a listed company in Hong Kong.


16


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

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

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

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

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

Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of

Listed Companies (the ``Model Code'') were as follows:

(1) The Company

Ordinary Shares

Number of Shares Held

Personal

Interests

Family

Interests

Corporate

Interests

Other

Interests Total

Lim Por Yen 420,381,750 Nil Nil Nil 420,381,750

Lam Kin Ngok, Peter 110,794,951 Nil Nil Nil 110,794,951

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

Chiu Wai 199,600 Nil Nil Nil 199,600

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

Lai Yuen Fong 4,451,790 Nil Nil Nil 4,451,790

(2) Associated Corporations

(a) Lai Sun Development Company Limited (`̀ LSD'')

Ordinary Shares (`̀ LSD Shares'')

Number of LSD Shares Held

Personal

Interests

Family

Interests

Corporate

Interests

Other

Interests Total



Chiu Wai 195,500 Nil Nil Nil 195,500

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

Note: The Company and its wholly-owned subsidiary beneficially owned 1,582,869,192 LSD Shares, representing approximately

44.76% of the issued ordinary share capital of LSD. Mr. Lim Por Yen (together with his spouses) held an interest of

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

Ming, Madam U Po Chu and Madam Lai Yuen Fong were directors of the Company and held an interest of approximately

42% in aggregate of the issued share capital of the Company, thus controlling collectively more than one-third of the voting

power at the Company's general meetings.


17


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

(2) Associated Corporations (continued)

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

Ordinary Shares (`̀ LSHIL Shares'')

Number of LSHIL Shares Held

Personal

Interests

Family

Interests

Corporate

Interests

Other

Interests Total



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

Note: LSD and its wholly-owned subsidiaries beneficially owned 951,709,306 LSHIL Shares. The Company together with its

wholly-owned subsidiary held an interest of approximately 44.76% of the issued ordinary share capital of LSD. Mr. Lim Por

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

Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin Ming, Madam U Po Chu and Madam Lai Yuen Fong were directors of the

Company and held an interest of approximately 42% in aggregate of the issued share capital of the Company, thus

controlling collectively more than one-third of the voting power at the Company's general meetings.

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

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

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

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

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

(i) Lai Fung

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

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

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

issued share capital of the Company. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin Ming,

Madam U Po Chu and Madam Lai Yuen Fong were directors of the Company and held an interest of

approximately 42% in aggregate of the issued share capital of the Company, thus controlling

collectively more than one-third of the voting power at the Company's general meetings.

(ii) Crocodile

The Company and its wholly-owned subsidiary beneficially owned 338,982,809 shares in Crocodile.

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

share capital of the Company. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin Ming, Madam

U Po Chu and Madam Lai Yuen Fong were directors of the Company and held an interest of

approximately 42% in aggregate of the issued share capital of the Company, thus controlling

collectively more than one-third of the voting power at the Company's general meetings.

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

subsidiaries of the Company as nominee shareholders, mainly for the purpose of complying with the

statutory requirement for a minimum number of shareholders for those subsidiaries.


18


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

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

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

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

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

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

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

therein.

At no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable a

director of the Company to acquire benefits by means of the acquisition of equity or debt securities of the

Company or any other body corporate.

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

As at 31st July, 1999, the following person was interested in 10% or more of the total issued share capital of

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

Name Number of Shares Held

Mr. Lim Por Yen 428,502,540

Note: Mr. Lim Por Yen's interest in the said 428,502,540 shares in the Company included 4,451,790 shares and 3,669,000 shares in the

Company respectively held by Madam Lai Yuen Fong and Madam U Po Chu, the spouses of Mr. Lim, who were also deemed under

the SDI Ordinance to have interest in those of Mr. Lim Por Yen in the share capital of the Company.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

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

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


19


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

The principal investment properties of the Group are as follows:

Location

Group

interest Tenure Use

1. Cheung Sha Wan Plaza,

833 Cheung Sha Wan Road,

Cheung Sha Wan, Kowloon,

Hong Kong (New Kowloon

Inland Lot No. 5955)

45% The property is held

for a term expiring

on 30th June, 2047

Office/

commercial/

carpark

2. Causeway Bay Plaza 1,

489 Hennessy Road,

Causeway Bay,

Hong Kong

(The remaining portion of

Subsection 10 of Section A of

Inland Lot No. 2836 and

Inland Lot Nos. 8659 and 8683)

45% Inland Lot No. 2836

is held for a term

of 99 years

commencing on

30th September, 1929

and renewable for a

further 99 years

Inland Lot Nos. 8659

and 8683 are held

for a term commencing

on 18th June, 1987 and expiring

on 30th June, 2047

Office/

commercial

3. Causeway Bay Plaza 2,

463±483 Lockhart Road,

Causeway Bay, Hong Kong

(Section J, and the remaining

portions of Sections D, E, G, H,

K, L, M and O, Subsection 4 of

Section H and the remaining

portion of Inland Lot No. 2833)

45% The property is

held for a term of

99 years commencing

on 15th April, 1929 and

renewable for a further

term of 99 years

Office/

commercial/

carpark

4. Lai Sun Commercial Centre,

680 Cheung Sha Wan Road,


Hong Kong (New Kowloon Inland

Lot No. 5984)

45% The property is

held for a term of

99 years less the

last 3 days thereof

from 1st July, 1898, and was

renewed for a term of

another 50 years

Office/

commercial/

carpark


20


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

Location

Group

interest Tenure Use

5. Crocodile House 1,

50 Connaught Road,

Central, Hong Kong

(Marine Lot Nos. 384±386)

45% Marine Lot No. 384

is held for a term

of 999 years from

7th December, 1903.

Marine Lot Nos. 385

and 386 are held for a

term of 999 years from

20th November, 1903

Office/

commercial

6. Crocodile House 2,

54±56 Connaught Road,

Central, Hong Kong

(Marine Lot Nos. 387, 388 and

the remaining portion of

Marine Lot No. 389)

45% Marine Lot No. 388

and the remaining

portion of Marine

Lot No. 389 are held

for a term of 999

years from 6th November,

1903. Marine Lot No. 387

is held for a term of 999 years

from 20th November, 1903

Office/

commercial

7. Lai Sun Yuen Long Centre,

27 Wang Yip Street East,

Yuen Long, New Territories,

Hong Kong (Yuen Long Town

Lot No. 362)

45% The property is held for

a term of 99 years less the

last 3 days thereof from

1st July, 1898, and was renewed

for a term of another 50 years

Industrial

8. Garment Centre,

576±586 Castle Peak Road,


Hong Kong (The remaining

portion of Section C

of New Kowloon Inland

Lot No. 1892)

45% The property is held for

a renewed term of 24 years

less the last 3 days thereof from

1st July, 1973, and was renewed

for a term of another 50 years

Industrial


21



Location

Group

interest Tenure Use

9. Commercial podium and

certain office and service

apartment units of

Hong Kong Plaza,

282 & 283 Huaihaizhong

Road, Luwan District,

Shanghai,

PRC


for a term of 50 years,

commencing on


and expiring on


Office/

commercial/

club/

service

apartments

10. 181 service apartment units of

Hong Kong Plaza,

North Tower,

282 & 283 Huaihaizhong Road,

Luwan District,

Shanghai,

PRC


for a term of 50 years,

commencing on


and expiring on


Service

apartments

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

long term leases.

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

Location

Group

interest

Stage of

construction

Expected

completion

date

Expected

use Gross floor area

1. 55±61 Carnarvon Road,

38±40 Kimberley

Street and 24 & 26

Kimberley Road,

Tsim Sha Tsui,

Kowloon,

Hong Kong

22% Demolition

completed

March

2002

Commercial/

service

apartments

The total site area is

960 sq.m. The total

gross floor area will

be 10,610 sq.m.

2. 789 Cheung Sha

Wan Road,

Cheung Sha Wan,

Kowloon,

Hong Kong

45% Foundation

work

completed

December

2000

Industrial/

office


1,224 sq.m.

The total gross

floor area will

be 14,693 sq.m.


22



Location

Group

interest

Stage of

construction

Expected

completion

date

Expected


3. 488 Jaffe Court,

486±488 Jaffe Road,

Causeway Bay,

Hong Kong

45% Foundation

work

completed

November

2000

Commercial/

residential


159 sq.m. The total

gross floor area will

be 1,506 sq.m.

4. The Waterfront

1 Austin Road West,

Tsim Sha Tsui,

Kowloon

Hong Kong

4.5% Superstructure

work in

progress

August

2000

Residential The total site area

is 16,815 sq.m.

The total gross

floor area will

be 147,562 sq.m.

5. Lot No. 2087 in

DD105, Ngau Tam Mei,

Yuen Long,

New Territories,

Hong Kong

22% Superstructure

work in

progress

December

1999

Residential The total site area is

5,400 sq.m. The

total gross floor area

will be 2,160 sq.m.

6. Eastern Place,

787 Dong Feng Road

East, Guangzhou,

Guangdong Province,

PRC

33% Phase II

interior

decoration

work in

progress

Phase II

residential

late 1999

Commercial/

residential/

office for the

whole

development

The total site area

for the development

is 52,073 sq.m.

The total gross

floor area for the

development will

be 261,945 sq.m.

7. New Trend Plaza

(previously known as

Rili Shangsha),

32±80

Zhongshanwu Road,

5±15 Guang Da Road

and 3±7 Guangzhou

Yixiang, Yue Xiu,

District,

Guangzhou,

Guangdong Province,

PRC

33% Basement

construction

work in

progress

Early 2002 Commercial/

office

The total site area

is 5,782 sq.m.

The total gross

floor area will

be 34,733 sq.m.


23



Location

Group

interest

Stage of

construction

Expected

completion

date

Expected


8. Guangli Building,

Chang Di Main Road,

Yue Xiu District,

Guangzhou,

Guangdong Province,

PRC

33% Resettlement

of original

inhabitants in

progress

2005 Commercial/

office

The total site area

is 8,427 sq.m.

The total gross

floor area will

be 104,500 sq.m.

9. Shanghai Baining

Baba Plaza,

Junction of

Anhua Road

and Kaixuan Road,

Changning District,

Shanghai,

PRC

32% Vacant site

and in

planning stage

2005 Residential/

commercial

The total site area

is 36,149 sq.m.

The total gross

floor area will

be 166,285 sq.m.

10. Zhong Yue Garden,

Xujiahui Road,

Luwan District,

Shanghai,

PRC

28% Phase I

foundation

work in

progress

Late 2000 Commercial/

residential

The total site area

for the whole

development is

21,289 sq.m. The


for the whole

development will be

106,445 sq.m.

11. Zhabei Plaza

(plot 130±3),

Zhabei,

Shanghai,

PRC

16% Interior

decoration

work in

progress

Late 1999 Commercial/

office


3,222 sq.m. The

total gross area will

be 17,609 sq.m.

12. A piece of land

at junction of Da Tong

Road and Zhi Jiang

Xi Road, Su Jia Xiang,

Zhabei, Shanghai, PRC

95% Resettlement

of original

inhabitants in

progress

2004 Commercial/

residential


41,800 sq.m. The


will be 194,000

sq.m.


24


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

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

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

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

Details of movements in the properties under development of the Group during the year are set out in note

15 to the financial statements.

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

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

financial statements.

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

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

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

B O R R O W I N G S

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

date are set out in notes 23 and 26 to the financial statements.

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

Details of bonds payable of the Group at the balance sheet date are set out in notes 23 and 27 to the financial

statements.

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

Details of movements in the share capital of the Company during the year are set out in note 29 to the

financial statements.

R E S E R V E S

Details of movements in the reserves of the Company and the Group during the year are set out in note 30 to

the financial statements.

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

At 31st July, 1999, the Company's reserves available for distribution, calculated in accordance with the

provisions of Section 79B of the Companies Ordinance, amounted to HK$952,825,000.

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

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

statements.

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

Details of the convertible note of the Group at the balance sheet date are set out in note 32 to the financial

statements.


25


D O N A T I O N S

During the year, the Group made charitable and other donations totalling HK$6,511,000.

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

Details of the post balance sheet events are set out in note 38 to the financial statements.

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

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

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

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

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

R E S U L T S

Year ended 31st July,

1999 1998 1997 1996 1995

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

TURNOVER 3,180,510 5,099,666 4,601,718 3,870,347 4,206,669

PROFIT/(LOSS) BEFORE

TAXATION (7,658,991) 385,429 1,053,318 939,715 994,867

Taxation (49,758) (143,515) (147,887) (155,063) (200,621)

PROFIT/(LOSS) BEFORE

MINORITY INTERESTS (7,708,749) 241,914 905,431 784,652 794,246

Minority interests 4,074,093 (175,400) (589,192) (386,168) (396,597)

NET PROFIT/(LOSS)

ATTRIBUTABLE TO

SHAREHOLDERS (3,634,656) 66,514 316,239 398,484 397,649


26


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

A S S E T S A N D L I A B I L I T I E S

As at 31st July,

1999 1998 1997 1996 1995

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

Fixed assets 2,414,824 2,832,790 2,330,504 2,304,472 2,255,965

Investment properties 10,034,000 13,348,900 13,890,622 10,400,300 10,210,817

Properties under development 7,982,105 11,111,712 5,356,895 3,813,605 2,394,661

Goodwill on consolidation of

subsidiaries 258,544 519,314 526,007 475,746 485,368

Deferred pre-operating

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

Associated companies 1,124,655 2,396,143 2,748,367 2,794,719 2,229,728

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

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

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

Current assets 2,613,982 2,984,506 4,781,788 3,504,035 2,944,867

TOTAL ASSETS 25,890,789 36,582,269 32,199,980 24,236,492 21,269,713

Current liabilities (5,133,268) (5,024,203) (3,438,342) (2,865,596) (2,157,207)

Long term rental deposits

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

Provision for premium on bond

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

Provision for premium on note

redemption (1,667) Ð Ð Ð Ð

Long term bank loans and other

borrowings (3,195,936) (5,479,975) (2,905,528) (2,241,455) (1,902,959)

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

Deferred taxation (188) (1,534) (34,805) (404) (404)

TOTAL LIABILITIES (9,574,498) (11,657,404) (8,329,416) (6,220,710) (4,207,345)

MINORITY INTERESTS (9,123,369) (13,713,106) (14,369,492) (8,574,556) (8,040,248)

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

CONVERTIBLE NOTE (600,000) Ð Ð Ð Ð

NET ASSETS 4,494,341 9,109,002 8,342,607 8,282,761 7,863,655

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

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

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

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

aggregate amounts of consolidated equity and retained profits.


27


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

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

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

Group's combined purchases.

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

The Group sustained a consolidated net loss attributable to shareholders of HK$3,635 million for the year

ended 31st July, 1999. As at that date, the Group had consolidated net current liabilities of HK$2,519

million, consolidated accumulated losses of HK$1,554 million and consolidated net assets of HK$4,494

million.

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

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

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

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

under bonds and a note, was HK$10,005 million. As a result of the LSD Group's losses and the deterioration

in the LSD Group's financial position, the LSD Group has not complied with certain financial covenants

given in relation to indebtedness amounting to HK$1,664 million. Further, the LSD Group has not

maintained financial covenants in relation to bonds with principal and redemption premium aggregating

HK$1,023 million. Accordingly, certain lending banks and bondholders have the right to require immediate

repayment. This, in turn, will give rise to rights under cross-default provisions exercisable by certain lending

banks and bondholders to serve notice requiring immediate repayment of further amounts aggregating

approximately HK$5,139 million.

On the basis of preliminary discussions, certain principal lending banks of the LSD Group have indicated

their support in principle to grant waivers in respect of the LSD Group's failure to maintain loan covenants

and, in addition, to defer repayment of amounts totalling approximately HK$3,545 million to 31st

December, 2002, subject to all other LSD Group's lending banks and bondholders also agreeing to a similar

repayment deferral.

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

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

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

deferred.

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

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

appropriate.

The business of LSD is carrying on normally and based on initial discussions with LSD's principal lending

banks, the directors of LSD are confident that satisfactory arrangements with all creditor groups will be

agreed.

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

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

medium term.


28


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

The Group employs a total of approximately 4,300 employees. Pay rates of employees are maintained at

competitive levels and salaries and bonuses are awarded on a performance related basis. Other staff benefits

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

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

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

The Group has been carrying on the implementation of the Year 2000 Compliance Programme of which the

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

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

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

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

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

incurred to date was approximately HK$2.8 million and no material further costs are expected. As the

amount involved is not material, the directors have not authorised any specific amounts in respect of the

Year 2000 modification costs.

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

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

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

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

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

for computers.

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

(1) Specific performance obligations on controlling shareholder

A bank loan facility of HK$200 million was granted to Lai Sun Development Company Limited

(`̀ LSD''), a subsidiary of the Company, for a term of two years (the `̀ Loan Agreement'') from 19th

February, 1999. The outstanding amount as at 31st July, 1999 was HK$183.9 million. According to

the Loan Agreement, Mr. Lim Por Yen and members of the Lim Family (as defined in the Loan

Agreement) should maintain control of the Company and the Company should maintain control of

LSD.


29


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

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

companies and jointly controlled entities)

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

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

aggregate, approximately 49.5% of the Group's net asset value. In compliance with Practice Note 19,

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

as follows:

HK$'000

Fixed assets 1,452,522

Investment properties 145,673

Properties under development 2,780,290

Goodwill 78,732

Deferred expenses 64,531

Associated companies 353,059

Net current liabilities (169,062)

Total assets less current liabilities 4,705,745

Long term borrowings (1,009,498)

Deferred income (87,080)

Amounts due to shareholders (3,323,895)

285,272

Capital and reserves

Share capital 897,113

Capital reserve 64,111

Investment property revaluation reserve 110,311

Exchange fluctuation reserve 8,879

Accumulated losses (775,095)

305,319

Minority interests (20,047)

285,272

(3) Breach of loan agreements

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

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

Group's borrowings.


30


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

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

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

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

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

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

A U D I T O R S

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

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

On Behalf of the Board

Lim Por Yen

Chairman

Hong Kong

12th November, 1999


31


To the members


(Incorporated in Hong Kong with limited liability)

We have audited the financial statements on pages 34 to 103 which have been prepared in accordance with

accounting principles generally accepted in Hong Kong.

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

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

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

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

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

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

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

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

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

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

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

consistently applied and adequately disclosed.

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

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

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

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

our audit provides a reasonable basis for our opinion.

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

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

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

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

possible outcome of the discussions of Lai Sun Development Company Limited together with its subsidiaries

(the ``LSD Group''), a publicly listed subsidiary of the Group, with the relevant lending banks in respect of

borrowings that amounted to HK$5,525 million at 31st July, 1999 (the `̀ Bank Discussions'') with a view to

obtaining waivers for the LSD Group's failure to maintain the relevant loan covenants ( the `̀ Waivers'') and/

or to concluding formal agreements with them in respect of a deferral of the principal repayments to 31st

December, 2002 (the `̀ Principal Repayment Deferral''); and (2) the possible outcome of the discussions of

the LSD Group with the bondholders in respect of bonds payable with an aggregate principal amount of

HK$2,052 million and an aggregate redemption premium of HK$249 million as at 31st July, 1999 (the

`̀ Bondholder Discussions''), with a view to obtaining the Waivers and/or to securing their agreement to the


32

Report of the Auditors

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

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

Principal Repayment Deferral. The financial statements have been prepared on a going concern basis, the

validity of which depends upon the successful outcome of the Bank Discussions and the Bondholder

Discussions. The financial statements do not include any adjustments that would result from the failure of

the Bank Discussions and the Bondholder Discussions. We consider that appropriate disclosures and

estimates have been made in the financial statements and our opinion is not qualified in this respect.

O P I N I O N

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

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

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

Ernst & Young

Certified Public Accountants

Hong Kong

12th November, 1999


33

Report of the Auditors

1999 1998

Notes HK$'000 HK$'000

TURNOVER 3 3,180,510 5,099,666

OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL ITEMS 5 (1,114,330) 368,816

Exceptional items 6 (6,238,628) Ð

OPERATING PROFIT/(LOSS) (7,352,958) 368,816

Share of results of associated companies (305,323) 16,613

Share of results of jointly controlled entities (710) Ð

PROFIT/(LOSS) BEFORE TAXATION (7,658,991) 385,429

Taxation 9 (49,758) (143,515)

PROFIT/(LOSS) BEFORE MINORITY INTERESTS (7,708,749) 241,914

Minority interests 4,074,093 (175,400)

NET PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS 10, 30 (3,634,656) 66,514

Dividend 11 Ð 20,483

EARNINGS/(LOSS) PER SHARE (HK$) 12

Basic (3.59) 0.12

Diluted N/A 0.11

For the year ended 31st July, 1999


34

Consolidated Profit and Loss Account

1999 1998Notes HK$'000 HK$'000

FIXED ASSETS 13 2,414,824 2,832,790

INVESTMENT PROPERTIES 14 10,034,000 13,348,900

PROPERTIES UNDER DEVELOPMENT 15 7,982,105 11,111,712

GOODWILL ON CONSOLIDATION OF SUBSIDIARIES 17 258,544 519,314

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

ASSOCIATED COMPANIES 19 1,124,655 2,396,143

JOINTLY CONTROLLED ENTITIES 20 188,572 183,219

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

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

NET CURRENT LIABILITIES 23 (2,519,286) (2,039,697)

TOTAL ASSETS LESS CURRENT LIABILITIES 20,757,521 31,558,066

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

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

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

LONG TERM BANK LOANS AND OTHER BORROWINGS 26 (3,195,936) (5,479,975)

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

DEFERRED TAXATION 28 (188) (1,534)

16,316,291 24,924,865

CAPITAL AND RESERVES

Share capital 29 718,855 128,021Reserves 30 3,775,486 8,980,981

4,494,341 9,109,002

MINORITY INTERESTS 9,123,369 13,713,106

13,617,710 22,822,108

CONVERTIBLE BONDS 31 2,098,581 2,102,757

CONVERTIBLE NOTE 32 600,000 Ð

16,316,291 24,924,865

Lim Por Yen

Director

Lam Kin Ngok, Peter

Director

31st July, 1999


35

Consolidated Balance Sheet

1999 1998Notes HK$'000 HK$'000

NET CASH INFLOW/(OUTFLOW) FROM OPERATING

ACTIVITIES 33(a) (304,445) 852,812

RETURNS ON INVESTMENTS AND SERVICING OF

FINANCEDividends received from associated companies 113,304 18,657Dividends received from listed and unlisted investments 4,456 10,707Dividends paid (53) (71,630)Dividends paid to minority interests Ð (131,860)Interest received 178,043 277,315Interest paid on bank loans, overdrafts and other borrowings (635,550) (843,817)Interest paid on bonds payable (88,582) (120,311)Interest paid on convertible bonds and note (80,759) (110,007)

Net cash outflow from returns on investments and

servicing of finance (509,141) (970,946)

TAXATIONHong Kong profits tax paid (69,995) (26,494)Taxes paid outside Hong Kong (19,314) (34,551)

Taxes paid (89,309) (61,045)

INVESTING ACTIVITIESProceeds from disposal of fixed assets 322,292 120,842Proceeds from disposal of investment properties 131,438 932,628Proceeds from disposal of partial interests in subsidiaries Ð 41,827Proceeds from disposal of associated companies 98,423 704,626Proceeds from disposal of long term investments 241,579 148,954Proceeds from disposal of properties under development 116,938 267,140Acquisition of subsidiaries 33(e) 272 (6,098,328)Proceeds from disposal of subsidiaries 33(f) 519,853 1,452,813Acquisition of additional interests in subsidiaries (169,104) (201,500)Acquisition of long term investments (31,059) (366,136)Acquisition of additional interests in associated companies (5,846) ÐCapital injection to a jointly controlled entity (5,153) (73,300)Additions to properties under development (183,272) (1,921,323)Additions to deferred pre-operating expenses (3,090) (1,686)Reorganisation expenses paid Ð (44,024)Additions to investment properties (2,979) (255,610)Purchases of fixed assets (103,213) (115,007)Acquisition of associated companies (42,043) (284,159)Advances from associated companies 263,129 90,349Advances to investee companies (75,730) (100,788)Advances from/(to) jointly controlled entities 1,298 (26,190)Return of capital from an associated company 114,926 46,422Subsidiary excluded from consolidation 33(g) Ð (20,633)

Net cash inflow/(outflow) from investing activities 1,188,659 (5,703,083)

NET CASH INFLOW/(OUTFLOW) BEFORE

FINANCING Ð page 37 285,764 (5,882,262)



36

Consolidated Cash Flow Statement

1999 1998


NET CASH INFLOW/(OUTFLOW) BEFORE

FINANCING Ð page 36 285,764 (5,882,262)

FINANCING

Proceeds from the issue of rights shares 33(b) 575,084 Ð

Proceeds from private placement of shares 33(b) 39,375 Ð

Share issue expenses 33(b) (7,260) Ð

Proceeds from the issue of rights issues by a subsidiary 488,270 292,138

Proceeds from private placement of shares by a subsidiary 152,950 Ð

Share issue expenses of a subsidiary (25,870) ÐProceeds from the issue of shares upon exercise of warrants by

a subsidiary 19 725

Proceeds from the issue of convertible bonds by a subsidiary 33(b) Ð 1,161,375

Proceeds from the issue of convertible note by a subsidiary 33(b) 600,000 Ð

Bond issue expenses incurred by a subsidiary Ð (51,423)

Note issue expenses incurred by a subsidiary (12,600) Ð

Repurchase of convertible bonds 33(b) (3,542) (69,415)

Redemption of bonds 33(b) (923,735) Ð

Repurchase of bonds 33(b) Ð (3,408)

Proceeds from new borrowings 33(b) 1,625,365 5,363,178

Release of bank deposits pledged 33(b) 2,214 3,348

Repayment of borrowings 33(b) (2,594,089) (2,458,590)

Advances from/(repayment to) minority interests 33(b) (19,313) 85,895

Capital injection by minority interests of subsidiaries 33(b) 810 790,707

Net cash inflow/(outflow) from financing (102,322) 5,114,530

INCREASE/(DECREASE) IN CASH AND CASH

EQUIVALENTS 183,442 (767,732)

Cash and cash equivalents at beginning of year 636,060 1,405,780

Exchange realignments (9,141) (1,988)

CASH AND CASH EQUIVALENTS AT END OF YEAR 810,361 636,060

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS

Cash and bank balances 832,278 702,696

Bank overdrafts (7,358) (7,105)Trust receipt loans with less than three months to maturity at

acquisition date (6,504) (12,061)

Bank deposits pledged Ð (2,214)

Restricted cash and bank balances (8,055) (45,256)

810,361 636,060



37

Consolidated Cash Flow Statement

1999 1998


FIXED ASSETS 13 40,767 48,617

INVESTMENT PROPERTIES 14 12,100 13,900

SUBSIDIARIES 16 2,854,532 2,455,164

ASSOCIATED COMPANIES 19 28 (1,481)

NET CURRENT LIABILITIES 23 (6,266) (167,272)

TOTAL ASSETS LESS CURRENT LIABILITIES 2,901,161 2,348,928

LONG TERM BANK LOANS AND OTHER BORROWINGS 26 (65,000) (150,353)

DEFERRED TAXATION 28 (1,063) (1,063)

2,835,098 2,197,512

CAPITAL AND RESERVES

Share capital 29 718,855 128,021

Reserves 30 2,116,243 2,069,491

2,835,098 2,197,512

Lim Por Yen

Director

Lam Kin Ngok, Peter

Director

31st July, 1999


38

Company Balance Sheet

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

The Group sustained a net loss attributable to shareholders of HK$3,635 million for the year ended 31st

July, 1999. As at that date, the Group had consolidated net current liabilities of HK$2,519 million,

consolidated accumulated losses of HK$1,554 million and consolidated net assets of HK$4,494 million.

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

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

market in Hong Kong.

The Group had consolidated bank and other borrowings of HK$6,415 million and bond and note payables,

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

Bonds (note 31), and the Convertible Note (note 32), of HK$3,590 million at 31st July, 1999.

Pursuant to the respective loan agreements and trust deeds, certain principal subsidiaries of the Group are

required to satisfy specific financial covenants. As a result of the losses and the deterioration in the financial

position of Lai Sun Development Company Limited (`̀ LSD''), a publicly listed subsidiary of the Group, LSD

together with its subsidiaries (the `̀ LSD Group'') failed to comply with certain financial covenants in the

respective loan agreements (the `̀ Loan Agreements''). The total outstanding loans affected in this regard

amounted to HK$1,664 million as at 31st July, 1999 (the `̀ Loans''). Further, certain covenants specified in

the trust deed governing the issue of the Exchangeable Bonds (the `̀ Exchangeable Trust Deed'') were not

maintained. The principal and redemption premium in respect of the Exchangeable Bonds outstanding as at

31st July, 1999 were HK$891 million and HK$132 million, respectively.

Loan agreements with respect to certain LSD Group's other bank loans amounting to HK$3,861 million as at

31st July, 1999 (the `̀ Other Loans'') and the trust deed governing the issue of the Convertible Bonds 2002

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

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

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

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

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

The remaining bank and other loans of HK$890 million, the Lai Fung Convertible Bonds of HK$938 million

and the Convertible Note of HK$600 million were obtained through the Company, and Crocodile Garments

Limited, Lai Fung Holdings Limited and Lai Sun Hotels International Limited, together the Other Principal

Subsidiaries of the Group. According to the respective loan agreements and trust deeds, the Company and

the Other Principal Subsidiaries are subject to different sets of covenants from those of the LSD Group. The

Company and the Other Principal Subsidiaries have maintained compliance with such covenants as at the

balance sheet date.

31st July, 1999


39

Notes to Financial Statements

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

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

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

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

Loans or the Exchangeable Bonds to be immediately due and repayable. However, unless and until such

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

remain repayable in accordance with their original stated maturity dates.

With respect to the Other Loans and the Convertible Bonds 2002, the respective lending banks or trustee

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

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

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

As at the current date, certain principal lending banks of the LSD Group of the Loans and the Other Loans

have indicated their support in principle to waive any breach of covenants and to defer the repayment of the

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

other relevant lending banks of the Loans and Other Loans and the bondholders of the Exchangeable Bonds

and the Convertible Bonds 2002 also agree to the same waivers and deferral terms. The amounts due to

these principal lending banks as at 31st July, 1999 amounted to HK$3,545 million in aggregate.

With regard the other lending banks of the Loans and Other Loans, the directors of LSD (the `̀ LSD

Directors'') are confident that waivers in respect of the LSD Group's breach of certain loan covenants (the

`̀ Waivers'') and/or the Principal Repayment Deferral can be arranged. Accordingly, the LSD Directors

consider it appropriate to continue classifying the Loans and Other Loans as current or long term liabilities

according to their original maturity terms under the respective loan agreements as at 31st July, 1999.

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

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

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

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

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

original maturity dates.

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

can be arranged and the Discussions are successful, the directors of the Company are satisfied that it is

appropriate to prepare the financial statements on a going concern basis.

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

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

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

31st July, 1999


40


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

Basis of consolidation

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

for the year ended 31st July, 1999, except for Lai Sun Hotels International Limited (`̀ LSHIL'') and Furama

Hotel Enterprises Limited (`̀ Furama''), which prepare statutory consolidated accounts based on the financial

years ended 31st December and 31st March, respectively, of which the management accounts for the year

ended 31st July, 1999, after making appropriate adjustments, were included. The results of subsidiaries

acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or

disposal, respectively. All significant intercompany transactions and balances within the Group are

eliminated on consolidation.

Subsidiaries

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

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

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

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

determined by the directors.

Associated companies

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

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

position to exercise significant influence.

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

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

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

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

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

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

has not already been written off or amortised.

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

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

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

written down to the directors' valuations.

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

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

31st July, 1999


41


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

Jointly controlled entities

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

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

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

control over the economic activities of the entity.

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

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

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

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

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

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

deemed necessary by the directors.

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

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

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

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

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

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

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

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

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

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

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

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

Goodwill

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

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

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

Goodwill arising on the acquisition of a subsidiary, Crocodile Garments Limited, is amortised over a period

of sixty years on the straight-line basis commencing 1988. Goodwill arising on the acquisition of the other

three subsidiaries, Chains International Hotels Management Limited, Century International Hotels Limited

and Delta Asia Limited, and of associated companies is amortised on the straight-line basis over a period of

forty years. Such goodwill is stated at amortised balance adjusted for any permanent impairment in value

considered necessary by the directors.

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

acquisition.

31st July, 1999


42



Capital reserve

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

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

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

associated companies.

Fixed assets and depreciation

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

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

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

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

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

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

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

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

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

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

Leasehold land Over the unexpired lease terms

Buildings 2% ± 5%

Leasehold improvements 2.5% ± 20%

Plant and machinery 10%

Furniture, fixtures and equipment 5% ± 20%

Motor vehicles 10% ± 25%

Computers 10% ± 25%

Motor vessels 25%

The transitional provision set out in paragraph 72 of Hong Kong Statement of Standard Accounting Practice

No. 17 `̀ Property, Plant and Equipment'' has been adopted for assets stated at valuation. As a result, those

assets stated at revalued amounts based on revaluations which were reflected in the financial statements in

periods ended before 30th September, 1995, have not been further revalued to fair value at subsequent

balance sheet dates. It is the directors' intention not to revalue these assets in the future.

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

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

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

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

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

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

are capitalised.

31st July, 1999


43



Fixed assets and depreciation (continued)

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

into use.

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

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

relevant asset. On disposal of a revalued asset, the relevant portion of the revaluation reserve realised in

respect of the previous valuations is transferred to retained profits as a movement in reserves.

Investment properties

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

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

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

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

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

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

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

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

previously charged.

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

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

Properties under development

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

on the basis of annual professional valuations.

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

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

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

and loss account.

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

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

valuations is released to the profit and loss account.

31st July, 1999


44



Properties under development (continued)

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

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

construction, financing and other related expenses.

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

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

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

of:

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

estimated construction costs to completion; and

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

Completed properties for sale

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

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

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

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

Deferred pre-operating expenses

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

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

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

subsidiaries.

Investments

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

values considered necessary by the directors.

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

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

diminutions in values considered necessary by the directors.

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

capitalised.

Stocks

Stocks comprise food, beverages and supplies for hotel and restaurant operations, and raw materials, work

in progress and finished goods for the manufacture and sale of garments. They are stated at the lower of cost

and net realisable value after making due allowance for obsolete or slow-moving items. Cost is determined

using the first-in, first-out method. In the case of work in progress and finished goods, cost includes direct

materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on the

estimated selling prices less any estimated costs to be incurred to completion and disposal.

31st July, 1999


45



Textile quota entitlements

The Group is entitled to certain textile quotas. Temporary textile quota entitlements purchased from outside

parties are written off to the profit and loss account at the time of utilisation, or in the absence of such

utilisation upon the expiry of the relevant utilisation period. The profit on the transfer of temporary textile

quota entitlements to a third party is recognised upon the execution of a legally binding, unconditional and

irrevocable transfer form.

Leased assets

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

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

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

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

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

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

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

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

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

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

Revenue recognition

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

revenue can be measured reliably, on the following bases:

(a) sale of goods and transfer of quotas, when the significant risks and rewards of ownership have been

transferred to the buyer, provided that the Group maintains neither managerial involvement to the

degree usually associated with ownership, nor effective control over the goods sold;

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

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

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

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

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

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

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

rewards of ownership have been transferred to the buyer;

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

the straight-line basis over the lease terms;

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

are rendered;

31st July, 1999


46



Revenue recognition (continued)

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

entered into;

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

effective interest rate applicable; and

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

Borrowing costs

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

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

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

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

are incurred.

Pension costs

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

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

funds.

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

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

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

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

the relevant amount of forfeited contributions.

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

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

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

using the aggregate method.

Foreign currencies

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

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

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

profit and loss account.

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

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

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

31st July, 1999


47



Deferred taxation

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

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

until its realisation is assured beyond reasonable doubt.

Related parties

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

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

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

influence.

Cash equivalents

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

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

repayable within three months from the date of the advance.

3. T U R N O V E R

Turnover comprises the net invoiced value of garments sold, commission and handling charges earned,

proceeds from the sales of quotas, proceeds from the sales of properties, rental income and income from

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

Group

1999 1998

HK$'000 HK$'000

Sales of garments and quotas 1,434,242 1,567,366

Sales of properties 552,318 2,042,298

Property rentals 636,076 753,756

Hotel, restaurant and other operations 557,874 736,246

3,180,510 5,099,666

31st July, 1999


48


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

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

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

Group

1999 1998


Sales of garments to a company in which certain directors of

the Company have beneficial interests (i) 1,138 20,161

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

Project management and consultancy fees received from

an associated company (iii) Ð 30,400

(i) The consideration for each transaction was determined through negotiations between respective

parties on a case by case basis.

(ii) Interest income received from associated companies arose from advances thereto. Interest is charged at

the prevailing market rates.

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

terms mutually agreed.

31st July, 1999


49


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

This is arrived at after charging/(crediting):

Group

1999 1998

HK$'000 HK$'000

Rental income (636,076) (753,756)

Less: Outgoings 93,311 85,667

Net rental income (542,765) (668,089)

Interest from bank deposits (54,421) (79,567)

Other interest income (103,589) (208,626)

Gain on disposal of investment properties Ð (452,458)

Gain on disposal of fixed assets Ð (29,399)

Gain on disposal of properties under development Ð (467)

Gain on disposal of subsidiaries (13,923) Ð

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

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

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

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

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

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

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

Interest on bank loans, overdrafts and other borrowings:

Wholly repayable within 5 years 640,236 814,982

Not wholly repayable within 5 years 255 16,853

640,491 831,835

Interest on bonds payable 102,670 128,421

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

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

Amounts capitalised in construction in progress Ð (1,245)Amounts capitalised in associated companies engaged

in property development (33,837) (48,229)Amounts capitalised in long term investments engaged

in property development Ð (21,543)

Amounts capitalised as acquisition cost of a subsidiary Ð (212,491)Amounts capitalised in jointly controlled entities engaged

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

225,905 171,648

31st July, 1999


50




Group

1999 1998

HK$'000 HK$'000

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

Provision for premium on note redemption 1,667 Ð

Amortisation of goodwill on acquisition of:

Subsidiaries 10,159 11,137

Associated companies 1,396 6,161

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

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

Auditors' remuneration 6,793 7,180

Depreciation:

Owned fixed assets 93,399 105,658

Leased fixed assets 495 540

Provisions for trade debtors 8,624 12,152

Provisions for diminutions in values of short term listed and unlisted

investments 2,514 3,391

Provisions for diminutions in values of properties under development to net

realisable value 9,527 155,874

Provisions for diminutions in values of completed properties for sale to net


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

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

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

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

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

Loss on disposal of fixed assets 162,113 Ð

Loss on disposal of properties under development 158,153 Ð

Loss on disposal of investment properties 153,940 Ð

Loss on disposal of subsidiaries Ð 131,339

Loss on dissolution of associated companies 1,808 Ð

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

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

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

Loss on disposal of long term unlisted investments 431 Ð

Operating lease rentals in respect of land and buildings 152,796 180,497

Foreign exchange losses, net 13,697 15,814

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

services provided for property rentals, hotel, restaurant and other operations of HK$2,394,318,000 (1998 :

HK$2,539,592,000 included in operating profit before exceptional items).

31st July, 1999


51




Such amount has not included provisions for diminutions in values of completed properties for sale to net

realisable value of HK$128,931,000 (1998 : HK$20,930,000) or the provisions for diminutions in values of

properties under development of HK$9,527,000 (1998 : HK$155,874,000).

6. E X C E P T I O N A L I T E M S

Group

1999 1998

HK$'000 HK$'000

Provisions for diminutions in values of properties under development 2,959,138 Ð

Provisions for diminutions in values of associated companies holding

properties under development 311,000 Ð

Provisions for deposits paid for acquisition of properties 452,500 Ð

Provision for contingent loss in respect of the Put Options (note 22) 855,000 Ð

Provisions for contingent losses in respect of profit guarantees (1) 178,200 Ð

Provision for contingent loss in respect of a guarantee given to a bank (2) 228,000 Ð

Loss on disposal of a long term listed investment 302,382 Ð

Provisions for diminutions in values of long term unlisted investments 426,982 Ð

Deficits on revaluation of investment properties 309,226 Ð

Adjustments for impairment in values of goodwill on consolidation of

subsidiaries 216,200 Ð

6,238,628 Ð

(1) These relate to certain guaranteed returns given to the respective independent third parties in connection with the disposal of

certain investment properties and a subsidiary in prior years.

(2) This relates to a guarantee given to provide counter-indemnity to a bank for facilities granted by it to an associated company

engaged in the operations of duty free merchandise.

7. D I R E C T O R S ' A N D E M P L O Y E E S ' E M O L U M E N T S

(a) Directors' emoluments

Group

1999 1998

HK$'000 HK$'000

Fees 492 532

Basic salaries, housing and other allowances and benefits in kind 28,951 33,373

Bonuses paid and payable 185 257

Pension scheme contributions 42 97

29,670 34,259

31st July, 1999


52


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

(a) Directors' emoluments (continued)

Directors' emoluments paid to independent non-executive directors during the year were HK$51,600

(1998 : HK$51,600).

The emoluments of the directors fell within the following bands.

Group

1999 1998

Number of

directors

Number of

directors

HK$Nil ± HK$1,000,000 7 6

HK$1,000,001 ± HK$1,500,000 Ð 1

HK$3,500,001 ± HK$4,000,000 2 2

HK$4,500,001 ± HK$5,000,000 1 1

HK$16,000,001 ± HK$16,500,000 1 Ð

HK$19,500,001 ± HK$20,000,000 Ð 1

11 11

There were no arrangements under which a director waived or agreed to waive any emoluments.

(b) Employees' emoluments

The five highest paid employees during the year included 1 (1998 : 1) director, details of whose emoluments

are set out above. The details of the emoluments of the remaining 4 (1998 : 4) non-director, highest paid

employees are set out below.

Group

1999 1998

HK$'000 HK$'000

Basic salaries, housing and other allowances and benefits in kind 33,485 19,785

Bonuses paid and payable Ð 4,500

Pension scheme contributions Ð 472

Inducement fee Ð 5,000

33,485 29,757

31st July, 1999


53


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

(b) Employees' emoluments (continued)

The emoluments of the non-director, highest paid employees fell within the following bands:

Group

1999 1998

Number of

individuals

Number of

individuals

HK$5,000,001 ± HK$5,500,000 1 Ð

HK$5,500,001 ± HK$6,000,000 1 1

HK$6,000,001 ± HK$6,500,000 1 Ð

HK$6,500,001 ± HK$7,000,000 Ð 1

HK$8,500,001 ± HK$9,000,000 Ð 2

HK$16,000,001 ± HK$16,500,000 1 Ð

4 4

8. P E N S I O N C O S T S

Group

1999 1998

HK$'000 HK$'000

Gross employer's contributions 8,053 14,561

Less: Forfeited contributions utilised to offset employer's

contributions for the year (1,858) (1,775)

6,195 12,786

At 31st July, 1999, there were forfeited contributions of HK$141,000 (1998 : HK$39,000) available to the

Group to reduce its contributions to the pension schemes in future years.

31st July, 1999


54


9. T A X A T I O N

Hong Kong profits tax has been provided at the rate of 16% (1998 : 16%) on the estimated assessable profits

arising in Hong Kong during the year.

Taxes on profits assessable elsewhere have been calculated at the rates of taxation prevailing in the places, in

which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Group

1999 1998

HK$'000 HK$'000

Provision for taxation for the year:

Hong Kong 35,894 90,333

Outside Hong Kong 12,475 87,144

Deferred Ð note 28 (5,403) (33,651)

42,966 143,826Prior year overprovision:

Hong Kong (2,282) (8,482)

40,684 135,344

Rebates received relating to prior year

provision in Hong Kong (9,983) Ð

30,701 135,344Associated companies:

Hong Kong 16,563 1,779


19,057 8,171

Taxation charge for the year 49,758 143,515

10. N E T P R O F I T / ( L O S S ) A T T R I B U T A B L E T O S H A R E H O L D E R S

Net profit attributable to shareholders dealt with in the financial statements of the Company is

HK$32,187,000 (1998 : net loss of HK$16,256,000).

The Group's share of aggregate profits less losses retained by the associated companies for the year

amounted to losses of HK$195,867,000 (1998 : HK$10,215,000).

31st July, 1999


55


11. D I V I D E N D

1999 1998

HK$'000 HK$'000

Interim dividend of HK$Nil (1998 : HK$0.08) Ð 20,483

12. E A R N I N G S / ( L O S S ) P E R S H A R E

The calculations of basic and diluted earnings/(loss) per share are based on:

1999 1998

HK$'000 HK$'000

Earnings/(loss)

Earnings/(loss) used in basic earnings/(loss) per share calculation (3,634,656) 66,514

Adjustment for the dilutive effect of Lai Fung Convertible Bonds N/A (5,289)

Earnings/(loss) used in diluted earnings/(loss) per share calculation (2) N/A 61,225

1999 1998

'000 '000

Number of shares

Weighted average number of ordinary shares in issue during the year used in

basic and diluted earnings/(loss) per share calculation (1) 1,012,918 560,991

(1) The weighted average number of ordinary shares of the Company in issue during the year is arrived at

by adjusting the number of ordinary shares in issue prior to the rights issue of 28th January, 1999 with

a factor of 2.191. The weighted average number of ordinary shares of the Company in issue during

1998 is arrived at by adjusting the number of ordinary shares in issue prior to the rights issue of 28th

January, 1999 with a factor of 2.191.

(2) Diluted loss per share for current year has not been shown as the warrants, convertible bonds and

convertible note of the Group outstanding during the year have an anti-dilutive effect on the basic loss

per share.

Diluted earnings per share for the year ended 31st July, 1998 has been restated in accordance with the

provisions of the Statement of Standard Accounting Practice No. 5 (Revised) issued by the HKSA in

May 1998.

31st July, 1999


56


13. F I X E D A S S E T S

Group

31st July,

1998 Additions

Transfer from

investment in

Whistler

Mountain Inn,

Limited

Partnership

(note 19) Disposals

Arising on

disposal of

subsidiaries

Exchange

realignments

31st July,

1999

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

Cost or valuation:

Hotel properties 1,940,297 43,270 Ð (253,272) Ð (2,455) 1,727,840

Freehold land and buildings 5,546 Ð Ð Ð Ð Ð 5,546

Leasehold land and buildings 589,364 403 Ð (107,715) (17,132) 49 464,969

Leasehold improvements 48,792 9,476 2,358 (19,188) (78) 66 41,426

Construction in progress 1,975 320 Ð (380) (1,915) Ð Ð

Plant and machinery 39,347 600 Ð (601) Ð Ð 39,346

Furniture, fixtures and

equipment 498,668 45,217 3,887 (39,486) (32,274) (610) 475,402

Motor vehicles 48,383 264 Ð (1,427) (315) 4 46,909

Computers 28,747 4,064 Ð (1,150) (606) (32) 31,023

Motor vessels 51,149 3 Ð Ð Ð Ð 51,152

3,252,268 103,617 6,245 (423,219) (52,320) (2,978) 2,883,613

Accumulated depreciation:

Freehold buildings 2,218 222 Ð Ð Ð Ð 2,440

Leasehold land and buildings 57,932 11,114 Ð (8,168) (1,821) 5 59,062

Leasehold improvements 31,478 3,630 Ð (2,610) (16) (1) 32,481

Plant and machinery 33,613 2,109 Ð (580) Ð Ð 35,142

Furniture, fixtures and

equipment 217,837 55,283 Ð (22,613) (6,295) (40) 244,172

Motor vehicles 30,114 5,882 Ð (1,062) (243) 10 34,701

Computers 19,245 3,612 Ð (869) (278) (2) 21,708

Motor vessels 27,041 12,042 Ð Ð Ð Ð 39,083

419,478 93,894 Ð (35,902) (8,653) (28) 468,789

Net book value 2,832,790 2,414,824

The net book value of assets held under finance leases included in the total amount of fixed assets at 31st

July, 1999 amounted to HK$1,002,000 (1998 : HK$1,439,000). The depreciation charge for the year in

respect of such assets amounted to HK$495,000 (1998 : HK$540,000).

Certain land and buildings were pledged to banks to secure banking facilities granted to the Group.

31st July, 1999


57


13. F I X E D A S S E T S ( c o n t i n u e d )

The Group's hotel properties and freehold and leasehold land and buildings at cost or valuation, included

above, are held under the following terms:

Hong Kong

Outside

Hong Kong Total

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

Freehold Ð 5,546 5,546

Long term 38,742 17,778 56,520

Medium term 1,479,718 656,571 2,136,289

1,518,460 679,895 2,198,355

Company

31st July,

1998 Additions Disposals

31st July,

1999

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

Cost or valuation:Medium term leasehold land and buildings

situated in Hong Kong 38,483 Ð Ð 38,483

Plant and machinery 9,632 Ð (115) 9,517

Furniture, fixtures and equipment 12,443 318 (8) 12,753

Motor vehicles 9,547 Ð Ð 9,547

Motor vessels 16,951 Ð Ð 16,951

87,056 318 (123) 87,251

Accumulated depreciation:Medium term leasehold land and buildings

situated in Hong Kong 5,644 1,147 Ð 6,791

Plant and machinery 8,054 485 (115) 8,424

Furniture, fixtures and equipment 8,185 1,457 Ð 9,642

Motor vehicles 7,464 1,142 Ð 8,606

Motor vessels 9,092 3,929 Ð 13,021

38,439 8,160 (115) 46,484

Net book value 48,617 40,767

31st July, 1999


58


13. F I X E D A S S E T S ( c o n t i n u e d )

Certain leasehold land and buildings held by the Group were revalued on 31st July, 1992 or on 31st July,

1994 by Chesterton Petty Limited, independent chartered surveyors, on an open market value basis.

The analysis of cost or valuation of the hotel properties, freehold and leasehold land and buildings is as

follows:

Group Company

Hotel

properties

Freehold

land and

buildings

Leasehold

land and

buildings

Leasehold

land and

buildings

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

At cost 1,727,840 5,546 84,947 3,583

At 1992 valuation Ð Ð 345,122 Ð

At 1994 valuation Ð Ð 34,900 34,900

1,727,840 5,546 464,969 38,483

If the carrying values of the revalued assets were reflected in these financial statements at cost less

accumulated depreciation, the following figures would have been shown:

Group Company

1999 1998 1999 1998

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

Hotel properties situated:

In Hong Kong 1,093,569 1,180,303 Ð Ð

Outside Hong Kong 634,271 846,728 Ð ÐFreehold land and buildings situated

outside Hong Kong 3,106 3,328 Ð Ð

Leasehold land and buildings situated:

In Hong Kong 59,970 91,159 3,465 3,724

Outside Hong Kong 30,921 47,755 Ð Ð

1,821,837 2,169,273 3,465 3,724

All other fixed assets are stated at cost.

31st July, 1999


59


14. I N V E S T M E N T P R O P E R T I E S

Group Company

1999 1998 1999 1998

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

At beginning of year, at valuation 13,348,900 13,890,622 13,900 23,200

Additions, at cost 2,979 313,154 Ð Ð

Disposals (198,430) (1,689,303) Ð (8,000)

Arising on acquisition of subsidiaries Ð 701,472 Ð Ð

Transfer from/(to) completed properties for sale (244,961) 665,005 Ð Ð

Transfer from properties under development Ð 1,943,241 Ð Ð

Deficits on revaluation (2,874,488) (1,975,198) (1,800) (1,300)

Arising on disposal of subsidiaries Ð (500,093) Ð Ð

At end of year, at valuation 10,034,000 13,348,900 12,100 13,900

The analysis by lease terms of the carrying values of the investment properties is as follows:

Group Company

1999 1998 1999 1998

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

Long term, situated in Hong Kong 2,113,300 3,159,900 Ð Ð

Medium term:

Situated in Hong Kong 4,964,700 6,952,000 12,100 13,900

Situated outside Hong Kong 2,956,000 3,237,000 Ð Ð

10,034,000 13,348,900 12,100 13,900

At 31st July, 1999, the investment properties were revalued by Chesterton Petty Limited, independent

chartered surveyors, on an open market value basis.

Certain investment properties were pledged to banks to secure banking facilities granted to the Group.

31st July, 1999


60


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

Group

1999 1998

HK$'000 HK$'000

Properties under development held for rental purposes, at cost/valuation:

At beginning of year 2,855,400 1,222,094

Interest capitalised, net 21,025 37,707

Other additions, at cost 94,445 427,608

Reclassified from properties under development held for purposes other

than rental, at cost Ð 863,430

Reclassified to properties under development held for purposes other than

rental, at cost Ð (14,995)

Transfer to investment properties Ð (1,679,335)

Surplus/(deficits) on revaluation (55,340) 1,997,221

Exchange relignments 5,924 1,670

At end of year 2,921,454 2,855,400

Properties under development held for purposes other than rental, at cost:

At beginning of year 8,256,312 4,134,801

Interest capitalised, net 568,456 573,716

Other additions, at cost 88,827 1,504,264

Arising on acquisition of subsidiaries 236,590 5,537,523

Transfer to completed properties for sale (160,059) (410,488)

Transfer to investment properties Ð (263,906)

Transfer of hotel properties to fixed assets Ð (367,918)

Disposals (275,091) (266,673)

Arising on disposal of subsidiaries (697,377) (1,161,159)

Reclassified from properties under development held for rental purposes,

at cost Ð 14,995

Reclassified to properties under development held for rental purposes,

at cost Ð (863,430)

Exchange realignments 11,658 (19,539)

8,029,316 8,412,186

Provisions for diminutions in values (2,968,665) (155,874)

At end of year 5,060,651 8,256,312

Total balance at end of year 7,982,105 11,111,712

31st July, 1999


61


15. P R O P E R T I E S U N D E R D E V E L O P M E N T ( c o n t i n u e d )

The analysis by lease terms of the carrying values of the properties under development held for rental

purposes and held for purposes other than rental is as follows:

Group

1999 1998

HK$'000 HK$'000

Properties under development held for rental purposes, at valuation:

Long term, situated outside Hong Kong 1,729,827 1,682,400

Medium term, situated outside Hong Kong 1,191,627 1,173,000

2,921,454 2,855,400

Properties under development held for purposes other than rental, at cost:Long term:

Situated in Hong Kong 3,620,791 5,581,159

Situated outside Hong Kong 799,568 809,992Medium term:

Situated in Hong Kong 527,381 1,108,775

Situated outside Hong Kong 112,911 756,386

5,060,651 8,256,312

7,982,105 11,111,712

At 31st July, 1999, properties under development held for rental purposes were revalued by Chesterton

Petty Limited, independent chartered surveyors, on an open market value basis.

Properties under development held for purposes other than rental which are carried at net realisable value

and included in the above balance amounted to HK$703,810,000 (1998 : HK$174,677,000).

Certain properties under development were pledged to banks to secure banking facilities granted to the

Group.

On 18th November, 1998, Winfield Properties Limited (`̀ Winfield'') and Faith Lot Limited (`̀ Faith Lot''),

both wholly-owned subsidiaries of LSD, entered into a provisional sales and purchase agreement (the

`̀ Agreement'') with Fine Smart Development Limited ('Fine Smart'), a wholly-owned subsidiary of Nan Fung

Textiles Consolidated Limited (`̀ Nan Fung''), pursuant to which Winfield and Faith Lot would sell to Fine

Smart two pieces of adjacent land located at Sections E, F, G, H, I, J, K and the Remaining Portion of New

Kowloon Inland Lot No. 2855 (the ``Properties'') for a total consideration of approximately HK$88.7 million.

The consideration was arrived at based on negotiations between LSD and Nan Fung. The book value of the

Properties was approximately HK$242 million. The disposal resulted in a loss of approximately HK$153

million. The transaction was completed during the year.

31st July, 1999


62


15. P R O P E R T I E S U N D E R D E V E L O P M E N T ( c o n t i n u e d )

The net proceeds from the disposal were used by LSD for repayment of bank borrowings and for its general

working capital purposes.

As at 18th November, 1998, Nan Fung owned approximately 18.18% of the issued share capital of LSD. By

virtue of the interest of Nan Fung in the Agreement and its shareholdings in LSD, the transaction constituted

a connected transaction for the Group as defined under the Rules Governing the Listing of Securities

(``Listing Rules'') on The Stock Exchange of Hong Kong Limited.

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

Company

1999 1998

HK$'000 HK$'000

Shares listed in Hong Kong, at cost 2,026,691 1,668,247

Warrants listed in Hong Kong, at cost Ð 42,183

2,026,691 1,710,430

Amounts due from subsidiaries 950,365 912,687

Amounts due to subsidiaries (122,524) (125,770)

827,841 786,917

2,854,532 2,497,347

Provisions for diminutions in values Ð (42,183)

2,854,532 2,455,164

Market value of listed shares at the balance sheet date 918,233 667,109

Balances with subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

31st July, 1999


63


16. S U B S I D I A R I E S ( c o n t i n u e d )

Details of the principal subsidiaries are as follows:

Name of company

Place of

incorporation or

registration/place

of operations

Issued/registered

capital

Class of

shares

held

Equity interest

attributable to the

Company

Principal activitiesDirect Indirect

(%) (%)

Centico Investment

Limited

Hong Kong HK$2 Ordinary Ð 44.76 Property investment

Chains Caravelle Hotel

Joint Venture

Company Limited

Vietnam US$16,326,000 * Ð 6.15 Hotel investment

Chains International

Hotels Management

Limited

Hong Kong HK$3,000,000 Ordinary Ð 23.35 Hotel management

Concrest Limited British Virgin

Islands

US$1 Ordinary Ð 44.76 Investment holding

Costroll Company

Limited

Hong Kong HK$20 Ordinary Ð 54.93 Property letting

Creative Fashions

Limited

Hong Kong HK$500,000 Ordinary 100.00 Ð Garment trading

Crocodile (China)

Limited

Hong Kong HK$4 Ordinary Ð 54.93 Garment trading

Crocodile Development

Limited

Hong Kong HK$9,996

HK$4

Ordinary

Deferred

Ð 44.76 Property investment

Crocodile Garments

Limited

Hong Kong HK$154,281,783 Ordinary 0.43 54.50 Garment

manufacturing

Crocodile Garments

(Zhong Shan) Limited

People's Republic of

China

HK$17,200,000 * Ð 49.44 Garment

manufacturing

and trading

Crocodile Investment

Limited

Hong Kong HK$20 Ordinary Ð 54.93 Investment holding

Crocodile Marketing

System Limited

Hong Kong HK$2 Ordinary Ð 54.93 Advertising agency

Dackart Trading

Company Limited

Hong Kong HK$20 Ordinary Ð 54.93 Property holding

Delta Asia Limited Cayman Islands

Limited

US$70 Class A Ð 23.35 Hotel management

Diamond String Limited Hong Kong HK$10,000 Ordinary Ð 15.18 Hotel investment

and restaurant

operations

31st July, 1999


64



Name of company

Place of

incorporation or

registration/place

of operations

Issued/registered

capital

Class of

shares

held

Equity interest

attributable to the

Company


(%) (%)

Euroscot Enterprises

Limited

British Virgin

Islands/Hong

Kong

US$10 Ordinary Ð 44.76 Property investment

Faith Lot Limited Hong Kong HK$2 Ordinary Ð 44.76 Property

development

Faithful Properties

Limited

Hong Kong HK$10,000 Ordinary Ð 44.76 Property investment

Fordspace

Development

Limited


Franklin Development

Limited


Furama Hotel

Enterprises Limited

Bermuda HK$102,880,454 Ordinary Ð 44.76 Hotel operation

Gilroy Company

Limited


Global Planner

Investment Limited


Gold Nation

Development

Limited


Good Strategy Limited British Virgin

Islands


Guangzhou Jieli Real

Estate Development

Company Limited


China

HK$168,000,000 * Ð 26.62** Property

development and

investment

Guangzhou Guong Bird

Property

Development

Limited


China

US$14,600,000 * Ð 33.43** Property

development and

investment

Guangzhou Grand

Wealth Properties

Limited


China

HK$128,000,000 * Ð 33.43** Property

development and

investment

Heathfield Limited British Virgin

Islands/Canada

US$100 Ordinary Ð 23.35 Hotel investment

Joy Mind Limited Hong Kong HK$2 Ordinary 100.00 Ð Investment holding

JSP Limited British Virgin

Islands


31st July, 1999


65



Name of company

Place of

incorporation or

registration/place

of operations

Issued/registered

capital

Class of

shares

held

Equity interest

attributable to the

Company


(%) (%)

Kenjacky Limited British Virgin

Islands


Kingscord Investment

Limited


Kingscord Real Estate

(Shanghai) Co. Ltd.

People's Republic

of China

US$1,500,000 * Ð 100.00 Investment holding

Kentpark Development

Limited


Kolot Property Services

Limited

Hong Kong HK$2 Ordinary Ð 44.76 Property

management

Lai Fung Holdings

Limited

Cayman Islands HK$104,447,379 Ordinary Ð 33.43 Investment holding

Lai Fung Overseas

Finance Limited

Cayman Islands HK$0.2 Ordinary Ð 33.43 Bond issue

Lai Sun Development

Company Limited***

Hong Kong HK$1,768,001,000 Ordinary 40.55 4.21 Property investment

Lai Sun Hotels

International Limited

Bermuda HK$182,413,136 Ordinary Ð 23.35 Investment holding

Lai Sun International

Finance Limited

Cayman Islands US$2 Ordinary Ð 44.76 Bond issue


Finance (Cayman

Islands) Limited



Finance (1997)

Limited


Lai Sun Real Estate

Agency Limited


management and

real estate agency

Lucky Strike Investment

Limited


Lycon Investment

Limited


Maxgear Investment

Limited


31st July, 1999


66



Name of company

Place of

incorporation or

registration/place

of operations

Issued/registered

capital

Class of

shares

held

Equity interest

attributable to the

Company


(%) (%)

Main Crown

Development Limited


Milirich Investment

Limited


New Page Limited British Virgin

Islands


Richman International

Limited

British Virgin

Islands


Real Genius Company

Limited

Hong Kong HK$10,000 Ordinary Ð 44.76 Property

development

Shanghai Hu Xin Real

Estate Development

Co. Ltd.


China

US$6,000,000 * Ð 95.00 Property

development and

investment

Shanghai Li Xing Real

Estate Development

Company Limited


China

US$36,000,000 * Ð 19.96 Property

development and

investment

Shanghai Wa Yee Real

Estate Development

Co., Ltd.


China

US$10,000,000 * Ð 31.76 Property

development and

investment

Shenton Investment

Limited


Sinoking Investment

Limited


Smart Leader Limited British Virgin

Islands


Sonics Development

Limited


development

Sunlite Investment

Limited


Surearn Profits Limited British Virgin

Islands


Target Power Limited Hong Kong HK$10,000 Ordinary Ð 44.76 Property investment

Tiger Hill Limited British Virgin

Islands

US$1 Ordinary Ð 44.76 Real estate agency

31st July, 1999


67



Name of company

Place of

incorporation or

registration/place

of operations

Issued/registered

capital

Class of

shares

held

Equity interest

attributable to the

Company


(%) (%)

The Palm Restaurant

Limited

Hong Kong HK$100 Ordinary Ð 54.93 Restaurant

operations

Top Town Enterprises

Limited


Transtrend Canada

Limited

Canada C$37,500,000 Ordinary Ð 23.35 Hotel investment

Village Gate Resorts

Limited

Canada C$100 Ordinary Ð 23.35 Investment holding

Winfield Properties

Limited


development

Winpet Investment

Limited


development

World Classic

Development Limited


World Trend

Development Limited


development

* These subsidiaries have registered rather than issued share capital.

** These subsidiaries are co-operative joint ventures of which the partners' profit sharing ratios and the distribution of net assets upon

the expiration of the joint venture periods are not in proportion to their equity ratios but are as defined in the joint venture

contracts.

*** Pursuant to a letter from Mr Lim Por Yen, Mr Lam Kin Ngok, Peter and Mr Lam Kin Ming and their respective associates (together,

the `̀ Lim Family''), who directly owned approximately 5.94% of the share capital of Lai Sun Development Company Limited (`̀ LSD'')

at 31st July, 1999, the Lim Family agreed to vote unconditionally in favour of the Group in all future shareholders' meetings of LSD

concerning the composition of the board of directors of LSD. Accordingly, LSD is treated as a subsidiary of the Group throughout

the year, and its results, assets and liabilities are consolidated into the Group's financial statements.

The above table lists the subsidiaries of the Group which, in the opinion of the directors, principally affected

the results of the year or formed a substantial portion of the net assets of the Group at the balance sheet date.

To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive

length.

The subsidiaries acquired and disposed of during the year did not have any material effect on the Group's

turnover or loss after taxation.

The shares of certain subsidiaries held by the Group have been pledged to banks to secure banking facilities

granted to the Group.

31st July, 1999


68



Certain of the Group's subsidiaries had the following transactions during the year and subsequent to the

year end date.

(1) On 11th February, 1999, LSD and its wholly-owned subsidiary, Furama, entered into an agreement

(the `̀ Furama Agreeement'') with LSHIL and its wholly-owned subsidiary, Golden Pool Enterprises

Limited (``GPEL''), with respect to the redevelopment of the Furama Hotel, which is a property situated

in Hong Kong. Pursuant to the Furama Agreement, the Furama Hotel will be redeveloped into a

composite retail, hotel and office building (the ``New Building'') which is expected to be completed in

or around May 2004.

Upon the completion of the redevelopment of the New Building, GPEL will purchase the hotel

portions (the `̀ Hotel Portions'') from Furama for a consideration of HK$1,900 million. The

consideration for the Hotel Portions was determined by reference to valuations carried out by

independent valuers. In addition, GPEL may request LSD to carry out the possible fitting out works for

the Hotel Portions for a consideration of HK$250 million, subject to LSD's agreeing to carry out such

works.

The Furama Agreement provided that upon the occurrence of certain events, if Furama notifies GPEL

in writing that it does not intend to carry out the redevelopment works or the progress of the

redevelopment is not in accordance with the timetable as stated in the Furama Agreement, at a

consideration of HK$10, Furama will grant to GPEL an option to purchase the Furama Hotel (the

`̀ Furama Option''). The Furama Option will only be valid for a period of six months commencing from

the date on which the relevant event occurs. The purchase price will equal to the open market value of

the Furama Hotel as at the date of exercise of the Furama Option, as determined by independent

valuers who will be appointed jointly by GPEL and Furama. The exercise of the Furama Option is

subject to the approval of the independent shareholders of the respective companies as required under

the Listing Rules.

The acquisition of the Hotel Portions by GPEL has been approved by the independent shareholders of

the Company, LSD and LSHIL in their respective special general meetings held on 22nd March, 1999.

The consideration for the Hotel Portions has been fully paid by GPEL to Furama in the form of a

deposit of approximately HK$965 million (the `̀ Deposit'') and a prepayment of approximately HK$935

million (the `̀ Prepayment'') as at the balance sheet date. According to the Furama Agreement, the

prepaid consideration is interest bearing with interest charged at the higher of 8% or LIBOR plus 2%

per annum for the Deposit, and at the three month deposit rate offered by LSHIL's principal bank plus

1% per annum for the Prepayment.

In the opinion of LSD's directors, the disposal of the Hotel Portions by Furama to LSHIL will create

synergy and efficiencies of scale upon the integration and joint operation of the Hotel Portions with the

Ritz-Carlton Hotel held by LSHIL. As such, the value of LSHIL's investments in the Hotel Portions and

the Ritz-Carlton Hotel will be enhanced, which will ultimately be beneficial to LSD as a major

shareholder of LSHIL. Part of the prepaid consideration was used by LSD to release its obligation to

reimburse LSHIL for the repayment of certain of LSHIL's bank loans which arose from the Group's

assets restructuring in 1997. The remaining balance of the prepaid consideration was used as general

working capital of LSD.

31st July, 1999


69



As at 3rd March, 1999, the Lim Family owned approximately 42.00% of the issued share capital of the

Company, the Company, in turn owned approximately 44.76% of the issued share capital of LSD, and

LSD owned approximately 52.17% of the issued share capital of LSHIL. The Lim Faimily also directly

owned approximately 5.94% of the issued share capital of LSD and approximately 0.95% of the issued

share capital of LSHIL. The transaction therefore constituted a connected transaction of the Company,

LSD and LSHIL as defined under the Listing Rules.

(2) On 7th April, 1999, LSD entered into an option agreement, supplemented on 12th April, 1999 by a

supplemental agreement (collectively the `̀ Option Agreement'') with Sun Chung Estate Company,

Limited (`̀ Sun Chung''), a wholly-owned subsidiary of the Bank of China. Pursuant to the Option

Agreement, LSD, at a consideration of HK$10, granted a right (the `̀ Option'') to Sun Chung to

purchase 230,000,000 shares (the ``Option Shares'') in Lai Fung held by LSD.

The Option is exerciseable in whole or in part, and from time to time, upon Sun Chung giving LSD at

least seven days' notice during the period commencing on 7th April, 1999 and ending on 7th October,

2002, at a price of HK$0.65 per Option Share, subject to adjustments in certain events as defined in

the Option Agreement.

(3) On 11th May, 1999, Goldthorpe Limited (``Goldthorpe''), a wholly-owned subsidiary of Lai Fung,

entered into a conditional sales and purchase agreement (the `̀ Acquisition Agreement'') with LSHIL

whereby Goldthorpe would acquire from LSHIL the entire interest in Good Strategy Limited, at a

consideration of HK$475 million. The principal assets held by Good Strategy Limited are the 181

service apartment units in the North Tower of Hong Kong Plaza in Shanghai, the People's Republic of

China. The consideration was determined by reference to the valuations of the said properties

performed by independent property valuers.

This transaction allowed Lai Fung to consolidate its interests in Hong Kong Plaza, thereby enhancing

its position in generating recurring rental income. In addition, LSHIL was able to realise its interest in

the Hong Kong Plaza units with the net proceeds used as its general working capital and as additional

funding to capture any potential investment opportunities.

As at 27th May, 1999, the Lim Family owned approximately 42.00% of the issued share capital of the

Company, the Company owned approximately 44.76% of the issued share capital of LSD, and LSD

owned approximately 52.17% of the issued share capital of LSHIL and approximately 74.67% of the

issued share capital of Lai Fung. The Lim Family also directly owned approximately 5.94% of the

issued share capital of LSD and 0.95% of the issued share capital of LSHIL. As such, this transaction

constituted a connected transaction of the Company, LSD, LSHIL and Lai Fung under the Listing

Rules. The transaction was approved by the independent shareholders of the Company, LSD, LSHIL

and Lai Fung at their respective extraordinary general meetings held on 22nd June, 1999 and was

completed on 2nd July, 1999.

31st July, 1999


70



(4) On 11th May, 1999, Lycon Investment Limited (`̀ LIL''), a wholly-owned subsidiary of LSD, entered

into a conditional agreement with Lai Fung Overseas Finance Limited (``LFO''), a wholly-owned

subsidiary of Lai Fung, whereby LIL would sell certain Lai Fung Convertible Bonds (as defined in note

31) with an aggregate principal amount of US$11,700,000 (approximately HK$90,675,000) to LFO at

a consideration of HK$50 million. The consideration represented a discount of approximately 45% on

the initial issue price of the bonds.

With the repurchase and cancellation of these bonds, the Group would have an annual saving of the

bond interest expense. In addition, LSD would cease to be liable to redeem or mandatorily convert the

bonds upon maturity.

As at 27th May, 1999, the Lim Family owned approximately 42.00% of the issued share capital of the

Company, the Company owned approximately 44.76% of the issued share capital of LSD, and LSD

owned approximately 74.67% of the issued share capital of Lai Fung. Accordingly, this transaction

constituted a connected transaction for the Company, LSD and Lai Fung under the Listing Rules. The

transaction was approved by the independent shareholders of the Company, LSD and Lai Fung at their

respective extraordinary general meetings held on 22nd June, 1999. The transaction was completed

during the year. The related bonds were cancelled upon repurchase, resulting in a profit before

minority interests of HK$17,718,000.

(5) On 8th June, 1999, LSD entered into another option agreement (the ``Second Option Agreement'') with

a third party (the ``Optionholder''). Pursuant to the Second Option Agreement, LSD, at a consideration

of HK$10, granted a right (the ``Second Option'') to the Optionholder to purchase 20,000,000 ordinary

shares in Lai Fung (the `̀ Second Option Shares'') held by LSD.

The Second Option is exercisable in whole or in part, and from time to time, upon the Optionholder

giving LSD at least seven days' notice during the period from 1st December, 2000 to 8th September,

2002, at a price of HK$0.63 per Second Option Share, subject to adjustments in the occurrence of

certain events as defined in the Second Option Agreement.

(6) In connection with the spin off of Lai Fung, LSD entered into an agreement with Lai Fung on 12th

November, 1997 which stated, inter alia, that for any of the Property Interests (as defined in note 28)

valued in the Valuation (as defined in note 28), if, within two years of Lai Fung's date of listing, (as

defined in note 28), the land use rights certificate of these Property Interests or the business licence

which is required to set up a company for the purposes of developing these Property Interests have not

been obtained, Lai Fung, within six months after the second anniversary of the date of Listing, is

entitled to require LSD to buy back all direct or indirect interests of Lai Fung in these Property

Interests. The buy back consideration would be in cash, equal to the net asset value of these Property

Interests based on the Valuation, discounted to the same extent as the discount applied to the net asset

value of Lai Fung under the initial public offer of its shares.

31st July, 1999


71



(7) During the year, the Group advanced approximately HK$130,137,000 (1998 : HK$210,435,000) to

Shanghai Li Xing Real Estate Development Company Limited (``Li Xing''), a subsidiary of the Group, as

working capital. The Group had not made any advances to other unrelated minority shareholders of Li

Xing during the year (1998 : HK$10,680,000). The above advances are unsecured, interest-bearing

with interest charged at various rates ranging from 10% to 14% per annum, and have no fixed terms of

repayment. Interest income received from the minority shareholders with respect to these advances

was HK$10,632,000 for the year (1998 : HK$9,651,000).

(8) Pursuant to an agreement dated 3rd September, 1997, LSD leased certain units of Lai Sun Commercial

Centre, a property situated in Hong Kong, to Lai Fung and its subsidiaries for a term of two years

which commenced on 11th March, 1997 and expired on 10th March, 1999. The lease agreement was

not renewed upon its expiry on 10th March, 1999.

Pursuant to a licence agreement dated 16th March, 1997, Crocodile Development Limited, a wholly-

owned subsidiary of LSD, leased certain units of Crocodile House 1, a property situated in Hong Kong,

to Lai Fung and its subsidiaries. The licence had no fixed terms and was terminated during the year.

The rentals in relation to these properties were calculated on the basis determined by reference to the

floor area of the properties. The aggregate rental and management charges from these properties

amounted to HK$1,249,000 for the year ended 31st July, 1999 (1998 : HK$1,259,000).

(9) On 27th August, 1999, Lai Fung and Li Xing entered into the following agreements (collectively the

`̀ Rental Agreements'') with the Bank of China (`̀ BOC'').

(i) BOC leases certain units of the Bank of China Tower, a property situated in Hong Kong, to Lai

Fung for a term of three years commencing on 1st September, 1999 and expiring on 31st August,

2002. The rental and service charges are approximately HK$177,000 per month.

(ii) BOC leases certain car parking spaces of the Bank of China Tower to Lai Fung on a month to

month basis commencing on 1st September, 1999. The license agreement can be terminated

upon one month's written notice by either party. The licence fee is HK$15,000 per month.

(iii) Li Xing leases certain units of the North Tower of Hong Kong Plaza, a property situated in

Shanghai, PRC, to BOC for a term of ten years commencing on 1st November, 1999 and expiring

on 31st October, 2009. The rental is US$19,503 per month and the service charge is initially

US$6,999 per month. The rental income will increase by 10% in the fourth year and again in the

seventh year of the tenancy or otherwise agreed between Li Xing and BOC.

31st July, 1999


72



The Rental Agreements were entered into based on negotiations between Lai Fung/Li Xing and BOC.

The leased properties are used by the respective parties as office premises or for business use.

In the opinion of the Company's directors, BOC is deemed to be a connected person of the Company,

LSD and Lai Fung under the Listing Rules. Accordingly, the above transactions constituted connected

transactions of the Company, LSD and Lai Fung under the Listing Rules.

17. G O O D W I L L O N C O N S O L I D A T I O N O F S U B S I D I A R I E S

Group

1999 1998

HK$'000 HK$'000

Cost:

At beginning of year 626,184 621,740

Additions during the year Ð 4,444

Adjustments for impairment (216,200) Ð

Release on disposal of a subsidiary (37,629) Ð

372,355 626,184

Accumulated amortisation:


Charge for the year 10,159 11,137

Release on disposal of a subsidiary (3,218) Ð

113,811 106,870


31st July, 1999


73


18. D E F E R R E D P R E - O P E R A T I N G E X P E N S E S

Group

1999 1998

HK$'000 HK$'000

Cost:


Arising on acquisition of subsidiaries Ð 36,889

Additions during the year 3,090 1,686

Written off during the year (18,974) Ð

Exchange realignments 49 2

51,743 67,578

Accumulated amortisation:


Arising on acquisition of subsidiaries Ð 3,846

Charge for the year 5,690 8,540

Exchange realignments 13 3

41,025 35,322


19. A S S O C I A T E D C O M P A N I E S

Group Company

1999 1998 1999 1998

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

Share of net assets other than goodwill 67,750 835,174 Ð Ð

Unamortised goodwill 25,650 37,602 Ð Ð

93,400 872,776 Ð Ð

Amounts due from associated companies 1,479,292 1,776,417 2,037 Ð

Amounts due to associated companies (104,814) (142,140) (2,009) (1,481)

1,467,878 2,507,053 28 (1,481)

Provisions for diminutions in values (343,223) (110,910) Ð Ð

1,124,655 2,396,143 28 (1,481)

31st July, 1999


74


19. A S S O C I A T E D C O M P A N I E S ( c o n t i n u e d )

The balances due are unsecured, interest-free and have no fixed terms of repayment, except for amounts

aggregating HK$377,168,000 (1998 : HK$1,135,800,000) due from associated companies which bear

interest at the prevailing market rates.

Details of the principal associated companies are as follows:

Name of company

Place of

incorporation/

registration

Class of

shares

held

Percentage

of capital

held Principal activities

B. W. Hotel Limited Liability

Company#

United States of

America

* 5.84 Investment in and

operation of hotel

Barnwood Limited British Virgin

Islands

Ordinary 22.38 Investment holding

Besto Investments Limited Hong Kong Ordinary 8.32 Investment holding

Bushell Limited Hong Kong Ordinary 22.38 Property investment

CPL Investments Limited# Hong Kong Ordinary 14.92 Property development

Eagle Capital Investment Limited# British Virgin

Islands


Easlin Corporation# British Virgin

Islands


Giant Riches Limited Hong Kong Ordinary 22.38 Property development

Hankey Development Limited Hong Kong Ordinary 16.64 Investment holding

Lai Sun Textiles Company

Limited

Hong Kong Ordinary 14.92 Property investment

Naples Investment Limited British Virgin

Islands


Omicron International Limited British Virgin

Islands


31st July, 1999


75



Name of company

Place of

incorporation/

registration

Class of

shares

held

Percentage

of capital

held Principal activities

P.S. Development Group of

Companies Limited

Thailand Ordinary 21.93 Investment in and

operation of hotel

Pengkalen Heights Sdn. Bhd.# Malaysia Ordinary 13.43 Hotel operations and

property investment

Philippine Dream Company, Inc Philippines Common 16.11 Hotel investment

Rich Vision Limited British Virgin

Islands


Sky Connection Ltd Hong Kong Ordinary 22.38 Retail

# Audited by public accountants other than Ernst & Young.

* This company has no issued share capital. The Group's capital contribution and profit sharing ratio is not in proportion to its

interest in this company but are as defined by mutual agreement among the owners.

The above table lists the associated companies of the Group which, in the opinion of the directors,

principally affected the results of the year or formed a substantial portion of the net assets of the Group. To

give details of other associated companies would, in the opinion of the directors, result in particulars of

excessive length.

The shares of certain associated companies held by the Group have been pledged to banks to secure banking

facilities granted to the Group.

Included in the balance of `̀ Share of net assets other than goodwill'' is interest capitalised of approximately

HK$134,083,000 (1998 : HK$100,252,000) on loans borrowed for investments in associated companies

engaged in property development.

31st July, 1999


76



Pursuant to a judgement rendered by the Court of Appeal of British Columbia in November 1997, the court

allowed the meeting to vote on the dissolution of Whistler Mountain Inn Limited Partnership (the

`̀ Partnership'') of which Village Gate Resorts Limited, a subsidiary of the Group, is a general partner, to

proceed. On 14th November, 1997, the limited partners passed an extraordinary resolution to dissolve the

Partnership. The Partnership was put under receivership from 15th November, 1997. The Partnership was

effectively dissolved on 31st December, 1998. During the period of the receivership, the Group's investment

in the Partnership was accounted for using the equity method of accounting. Subsequent to the dissolution

on 31st December, 1998, the Group received its share of the Partnership's fixed assets of HK6,245,000 (note

13) and a distribution of the remaining other assets of HK$20,679,000 for the dissolution of the

Partnership.

20. J O I N T L Y C O N T R O L L E D E N T I T I E S

Group

1999 1998

HK$'000 HK$'000

Share of net assets 145,333 138,682

Amounts due from jointly controlled entities 44,276 44,537

Amount due to a jointly controlled entity (1,037) Ð

188,572 183,219

The balances with jointly controlled entities are unsecured, interest-free and have no fixed terms of

repayment.

Details of the jointly controlled entities are as follows:

Name of company

Business

structure

Place of

registration

Registered

capital

Equity

interest

shared by

the Group

Profit

sharing

ratio of the

Group

Principal

activities

Qingyuan Grace Snow Properties Ltd. Corporate PRC US$5,000,000 33.43% 24.07% Property

development

Shanghai Zhong Yue Real Estate

Development Co., Ltd

Corporate PRC US$8,000,000 28.41% 28.41% Property

development

Zhong Shan Li Shan Properties

Development Limited

Corporate PRC RMB75,000,000 16.71% 16.71% Property

development

Included in the balance of `̀ Share of net assets'' is interest capitalised of approximately HK$18,503,000

(1998 : HK$16,678,000) on borrowings for investments in jointly controlled entities engaged in property

development.

31st July, 1999


77


21. L O N G T E R M I N V E S T M E N T S

Group

1999 1998

HK$'000 HK$'000

Listed investments, at cost:

In Hong Kong Ð 461,473


Unlisted investments, at cost 333,411 568,657

Deposits paid Ð 325,000

Advances 679,978 713,299

1,018,389 2,073,429

Market value of listed investments at the balance sheet date 2,926 105,646

22. L O N G T E R M N O T E R E C E I V A B L E

On 18th December, 1997, a sales and purchase agreement (the `̀ Majestic Agreement'') was entered into

between Furama and independent third parties (the ``Majestic Purchasers'') pursuant to which Furama

agreed to sell the entire issued share capital of Fortune Sign Venture Inc (`̀ Fortune Sign''), a then wholly-

owned subsidiary of Furama, and to assign the shareholder's loan due from Fortune Sign of approximately

HK$82 million to the Majestic Purchasers at a total consideration of HK$2,030 million. The major assets

held by Fortune Sign are the properties, namely the Majestic Hotel and the Majestic Centre (the `̀ Majestic

Properties''), which are situated in Hong Kong. The transaction was satisfied by cash of HK$930 million and

a note of HK$1,100 million (the `̀ Note'').

In accordance with the terms of the Majestic Agreement, the Note is interest-free, repayable on the earlier of

31st March, 2001 or the lapse of the Put Options as detailed in note 35, and is secured by a charge over the

Majestic Properties.

In the opinion of the directors, due to the diminution in value of the Majestic Properties, the Majestic

Purchasers will probably exercise the Put Options. Accordingly, a provision for the contingent loss for the

Note receivable to its net realisable value of HK$855 million has been made.

31st July, 1999


78


23. N E T C U R R E N T L I A B I L I T I E S

Group Company

1999 1998 1999 1998

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

Current assets:

Cash and bank balances Ð note 37 832,278 702,696 24,461 30,714

Short term investments Ð note 24 43,587 34,306 Ð Ð

Debtors, bills receivable and deposits 1,297,405 1,762,758 133,265 92,781

Completed properties for sale* 218,145 95,647 Ð Ð

Stocks Ð note 25 222,567 389,099 21,587 37,041

Tax recoverable Ð Ð Ð 6,862

2,613,982 2,984,506 179,313 167,398

Current liabilities:Bank overdrafts:

Secured 2,502 42 Ð Ð

Unsecured 4,856 7,063 Ð 1,802Bank loans and other borrowings due within

one year Ð note 26 3,191,606 2,129,544 35,353 215,379

Bonds payable due within one year Ð note 27 Ð 923,735 Ð Ð

Trust receipt loans 19,737 32,147 Ð 1,171Creditors, deposits received, bills payable and

accruals 1,688,947 1,639,708 147,726 116,318

Taxation 225,620 291,964 2,500 Ð

5,133,268 5,024,203 185,579 334,670

NET CURRENT LIABILITIES (2,519,286) (2,039,697) (6,266) (167,272)

* Completed properties for sale which are carried at net realisable value and included in the above balance amounted to

HK$186,478,000 (1998 : HK$54,706,000).

Last year's debtors and deposits included balances of HK$471,401,000 due from associated companies

which arose from the ordinary course of business of the Group. Such balances were settled during the year.

31st July, 1999


79


24. S H O R T T E R M I N V E S T M E N T S

Group

1999 1998

HK$'000 HK$'000

Listed investments, at cost:

In Hong Kong 70,653 72,595


73,752 75,694

Less: Provisions for diminutions in values (39,999) (51,222)

33,753 24,472

Unlisted investments, at cost 26,102 32,102

Less: Provisions for diminutions in values (16,268) (22,268)

9,834 9,834

43,587 34,306

Market value of listed investments at the balance sheet date 34,646 31,283

25. S T O C K S

Group Company

1999 1998 1999 1998

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

Raw materials 29,722 44,275 7,890 10,581

Work in progress 24,944 33,604 13,697 26,460

Finished goods 167,758 310,890 Ð Ð

Goods in transit 143 330 Ð Ð

222,567 389,099 21,587 37,041

Stocks which are carried at net realisable value and included in the above balance amounted to

HK$28,261,000 (1998 : HK$3,722,000).

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26. B A N K L O A N S A N D O T H E R B O R R O W I N G S

Group Company

1999 1998 1999 1998

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

Bank loans:

Secured 6,380,128 7,312,882 100,000 150,000

Unsecured 4,688 293,891 Ð 215,000

6,384,816 7,606,773 100,000 365,000

Other loan:

Secured Ð 1,558 Ð Ð

Unsecured 1,875 Ð Ð Ð

6,386,691 7,608,331 100,000 365,000

Obligations under finance leases 851 1,188 353 732

6,387,542 7,609,519 100,353 365,732

Portion due within one year classified as current

liabilities Ð note 23 (3,191,606) (2,129,544) (35,353) (215,379)

Long term portion 3,195,936 5,479,975 65,000 150,353

The long term portion of bank loans and other

borrowings are repayable within periods of:

More than one year but not exceeding two years 1,168,651 2,594,870 65,000 10,353

More than two years but not exceeding five years 1,996,185 2,265,345 Ð 140,000

More than five years 31,100 619,760 Ð Ð

3,195,936 5,479,975 65,000 150,353

The secured bank loans are secured by fixed charges on certain properties and assets and floating charges on

certain assets held by the Group.

The unsecured other loan is interest bearing with interest charged at 7.67% per annum and is repayable

within one year.

Obligations under finance leases are repayable in various instalments up to the year 2002. Interest is

charged on the outstanding balances at rates ranging from 6.25% to 7.7% per annum.

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26. B A N K L O A N S A N D O T H E R B O R R O W I N G S ( c o n t i n u e d )

As more fully explained in note 1, at the balance sheet date, certain financial covenants given by the LSD

Group in the Loan Agreements in relation to the Loans have not been complied with. Pursuant to the Loan

Agreements, as confirmed by LSD's legal advisors, upon the breach of any covenants, the respective lending

banks may serve notice on the LSD Group to declare the Loans to be immediately due and repayable.

However, unless and until such notice is served by the respective lending banks, the Loans remain repayable

in accordance with their original stated maturity dates.

Loan agreements with respect to the Other Loans contain cross default clauses. As explained in note 1, if any

relevant borrowings, including the Loans and the Exchangeable Bonds, become due and repayable

prematurely because of an event of default, the Other Loans will, in turn, become immediately due and

repayable if the relevant lending banks serve notice to the LSD Group for immediate repayment. The

respective lending banks of the Other Loans have not to date declared an event of default in respect of any of

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

of the Other Loans.

For the reasons set out in note 1, the Loans and Other Loans have not become immediately due and

repayable. Accordingly, the Loans and the Other Loans have continued to be classified as current or long

term liabilities according to their original maturity dates under the respective loan agreements.

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

Group

1999 1998

HK$'000 HK$'000

1999 Bonds Ð 923,735

Exchangeable Bonds 891,250 891,250

891,250 1,814,985

Portion due within one year classified as current liabilities Ð note 23 Ð (923,735)

Long term portion 891,250 891,250

(1) US$120,000,000 guaranteed bonds (the ``1999 Bonds'') were issued on 10th April, 1996 by a wholly-

owned subsidiary of LSD, Lai Sun International Finance Limited. The 1999 Bonds were

unconditionally and irrevocably guaranteed by LSD.

In the prior year, part of the 1999 Bonds with a principal value of US$50,000 was repurchased and

cancelled. The remaining balance of the 1999 Bonds was fully redeemed on 10th April, 1999 at 100%

of the principal amount.

(2) US$115,000,000 exchangeable bonds (the ``Exchangeable Bonds'') were issued on 28th February,

1997 by a wholly-owned subsidiary of LSD, Lai Sun International Finance (Cayman Islands) Limited.

The Exchangeable Bonds are unconditionally and irrevocably guaranteed by LSD.

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27. B O N D S P A Y A B L E ( c o n t i n u e d )

The Exchangeable Bonds bear interest from 24th February, 1997 at the rate of 5% per annum. Interest

is payable semi-annually in arrears on 28th February and 28th August in each year.

Unless previously redeemed or purchased and cancelled, each Exchangeable Bond will, at the option

of the holder, be exchangeable for a pro rata share of the Exchange Property (as defined below) on or

after the date which falls 90 days after the IPO listing date of Asia Television Limited (`̀ ATV'') as

defined in the related bond document, up to and including 30th January, 2004 or, if the Exchangeable

Bonds have been called for redemption before then, up to the close of business on a date not later than

five business days prior to the date fixed for redemption thereof. Upon electing to exchange, each

bondholder shall have the right to require the redemption of all or any of its Exchangeable Bonds at

their Early Redemption Price as defined in the related bond document and have that amount applied

on its behalf in acquiring a pro rata share of such number of the equity shares in the capital of ATV as

represents one-sixth of the total shares outstanding as at the IPO listing date from time to time for

exchange (the `̀ Exchange Property'').

Unless previously redeemed, purchased and cancelled or exchanged, the Exchangeable Bonds will be

redeemed at 142.9171% of their principal amount on 28th February, 2004. The Exchangeable Bonds

may be redeemed at the option of the relevant holders on 8th June, 2001 at 120.6984% of the

principal amount in the event that either ATV's current licence to broadcast is not renewed or a

complying IPO as defined in the related bond document has not occurred on or before 1st June, 2001.

The Exchangeable Bonds may be redeemed at the option of the relevant holders on 28th February,

2002 at 125.4520% of their principal amount. The Exchangeable Bonds may also be redeemed at any

time during the period from 28th February, 1997 to 28th February, 2004 on the occurrence of any of

certain other events as defined in the related bond document at various pre-determined rates ranging

from 100% to 142.9171% of the principal amount.

The Exchangeable Trust Deed contains specific covenants that the LSD Group is to comply with. At the

balance sheet date, the LSD Group had not complied with certain of these covenants. As more fully

explained in note 1, the terms of the Exchangeable Trust Deed stipulate that upon the breach of any

covenants, the trustee may (the trustee must if so required by the bondholders) serve a notice to the

LSD Group to declare the bonds to be immediately due and repayable. However, unless and until such

notice is served by the trustee, the Exchangeable Bonds remain repayable in accordance with their

original stated maturity dates. For the reasons set out in note 1, the LSD Directors consider that it is

appropriate to continue classifying the Exchangeable Bonds as long term liabilities in accordance with

the original maturity terms under the Exchangeable Trust Deed.

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28. D E F E R R E D T A X A T I O N

Group Company

1999 1998 1999 1998

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

At beginning of year 1,534 34,805 1,063 1,063

Arising on acquisition of subsidiaries Ð 1,780 Ð Ð

Arising on disposal of subsidiaries 4,096 (1,400) Ð Ð

Taxation Ð note 9 (5,403) (33,651) Ð Ð

Exchange realignment (39) Ð Ð Ð

At end of year 188 1,534 1,063 1,063

The principal components of the deferred tax assets/(liabilities) are as follows:

Group

Provided Not provided

1999 1998 1999 1998

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

Accelerated capital allowances on fixed assets (1,534) (1,534) (7,300) (14,163)

Tax losses 1,346 Ð 83,764 119,184

Revaluation of investment properties in the PRC Ð Ð (255,410) (342,388)

Revaluation of properties under development in

the PRC Ð Ð (592,942) (1,073,240)

Other timing differences Ð Ð (952) (800)

(188) (1,534) (772,840) (1,311,407)

Company

Provided Not provided

1999 1998 1999 1998

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

Accelerated capital allowances on fixed assets (1,063) (1,063) 906 Ð

Tax losses Ð Ð 188 9,004

(1,063) (1,063) 1,094 9,004

The revaluation of the Group's investment properties in Hong Kong does not constitute a timing difference

and, consequently, the amount of potential deferred tax thereon has not been quantified.

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28. D E F E R R E D T A X A T I O N ( c o n t i n u e d )

The unprovided deferred tax liabilities at the balance sheet date which arise from the revaluation of the

Group's investment properties and properties under development in the PRC in respect of land appreciation

tax (`̀ LAT'') and income tax are set out above. In the opinion of the directors, the deferred tax liabilities are

not expected to crystallise in the foreseeable future since the Group has no intention to dispose of these

revalued properties.

Pursuant to the indemnity deeds dated 12th November, 1997 entered into between LSD and Lai Fung, LSD

has undertaken to indemnify Lai Fung in respect of certain potential PRC income taxes and LAT payable or

shared by Lai Fung in consequence of the disposal of any of the property interests attributable to Lai Fung

through its subsidiaries and its associated companies as at 31st October, 1997 (``Property Interests''). These

taxation indemnities given by LSD apply in so far as such taxation is applicable to the difference between (i)

the value of the Property Interests in the valuation thereon by Chesterton Petty Limited as at 31st October,

1997 (the ``Valuation''), and (ii) the aggregate costs of such Property Interests incurred up to 31st October,

1997 together with the amount of unpaid land costs, unpaid land premium and unpaid costs of

resettlement, demolition and public utilities and other deductible costs in respect of the Property Interests.

The indemnity deeds assume that the Property Interests are disposed of at the values attributed to them in

the Valuation, computed by reference to the rates and legislation governing PRC income tax and LAT

prevailing at the time of the Valuation.

The indemnities given by LSD do not cover (i) new properties acquired by Lai Fung subsequent to the listing

of the shares of Lai Fung on the Stock Exchange of Hong Kong Limited (the `̀ Listing''); (ii) any increase in

the relevant tax which arises due to an increase in tax rates or changes to the legislation prevailing at the

time of the Listing; and (iii) any claim to the extent that provision for deferred taxation on the revaluation

surplus has been made in the calculation of the adjusted net tangible asset value of Lai Fung as set out in Lai

Fung's prospectus dated 18th November, 1997.

Lai Fung had no LAT payable during the year. No income tax payable by Lai Fung was indemnifiable by LSD

during the year.

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

1999 1998

HK$'000 HK$'000

Authorised:

4,000,000,000 (1998 : 360,000,000) ordinary shares of HK$0.50 each 2,000,000 180,000

Issued and fully paid:

1,437,709,710 (1998 : 256,041,942) ordinary shares of HK$0.50 each 718,855 128,021

(1) During the year, the authorised ordinary share capital of the Company was increased from

360,000,000 shares to 4,000,000,000 shares by the creation of an additional 3,640,000,000 ordinary

shares of HK$0.50 each, ranking pari passu in all respects with the existing ordinary shares of the

Company.

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85


29. S H A R E C A P I T A L ( c o n t i n u e d )

(2) On 4th January, 1999, the Company allotted and issued 31,500,000 new ordinary shares of HK$0.50

each to Kingpower Far East Limited, a wholly-owned subsidiary of Yoshiya International Corporation

Limited and Singford Holdings Limited, a wholly-owned subsidiary of Far East Consortium

International Limited, at a subscription price of HK$1.25 per ordinary share. The net proceeds of

approximately HK$39 million were used as general working capital for the Group.

(3) On 28th January, 1999, the Company completed a rights issue of 1,150,167,768 ordinary shares

(`̀ Rights Shares'') of HK$0.50 each on the basis of four Rights Shares for every existing share of the

Company at the subscription price of HK$0.50 per Rights Share. The net proceeds of approximately

HK$575 million were used to subscribe for the rights shares of LSD and to repay the Group's

borrowings.

30. R E S E R V E S

Group

Sharepremium

account

Fixed assetrevaluation

reserve

Investmentproperty

revaluationreserve

Revaluationreserve for

properties underdevelopment

held for rentalpurposes

Capitalreserve

Generalreserve

Exchangefluctuation

reserve

Retainedprofits/

(accumulatedlosses) Total

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

At beginning of year 1,103,373 136,677 997,935 718,386 4,013,887 201 (473) 2,010,995 8,980,981Arising on issue of shares 23,625 Ð Ð Ð Ð Ð Ð Ð 23,625Share issue expenses (7,260) Ð Ð Ð Ð Ð Ð Ð (7,260)Share issue expenses incurred by a

subsidiary Ð Ð Ð Ð (10,964) Ð Ð Ð (10,964)Deficits on revaluations Ð Ð (909,541) (18,414) Ð Ð Ð Ð (927,955)Share of reserves in associated

companies Ð Ð Ð Ð Ð (144) Ð Ð (144)Share of revaluation deficits of

associated companies Ð Ð (6,487) (11,710) Ð Ð Ð Ð (18,197)Release upon disposal of fixed

assets Ð (49,380) Ð Ð Ð Ð 22,671 49,380 22,671Release upon disposal of investment

properties Ð Ð 38,918 Ð Ð Ð Ð Ð 38,918Release upon disposal of

subsidiaries Ð Ð Ð Ð 4,367 Ð 6,334 Ð 10,701Release upon transfer of investment

properties to completedproperties for sale Ð Ð 23,583 Ð Ð Ð Ð Ð 23,583

Release upon deemed disposal ofinterests in subsidiaries Ð Ð (100,846) (65,493) (534,653) Ð 434 Ð (700,558)

Release upon cancellation of LaiFung Convertible Bonds Ð Ð Ð Ð (7,647) Ð Ð Ð (7,647)

Release upon expiry of warrantsissued by a subsidiary Ð Ð Ð Ð (11,375) Ð Ð 19,975 8,600

Exchange realignments:Subsidiaries Ð Ð Ð Ð Ð Ð 2,673 Ð 2,673Associated companies Ð Ð Ð Ð Ð Ð 1,104 Ð 1,104Jointly controlled entities Ð Ð Ð Ð Ð Ð 128 Ð 128

Goodwill arising on acquisition ofassociated companies Ð Ð Ð Ð (12,533) Ð Ð Ð (12,533)

Goodwill arising on acquisition ofadditional interests insubsidiaries Ð Ð Ð Ð (17,584) Ð Ð Ð (17,584)

Net loss for the year Ð Ð Ð Ð Ð Ð Ð (3,634,656) (3,634,656)

At end of year 1,119,738 87,297 43,562 622,769 3,423,498 57 32,871 (1,554,306) 3,775,486

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30. R E S E R V E S ( c o n t i n u e d )

Reserves retained by:

Company and

subsidiaries

Associated

companies

Jointly

controlled

entities Total

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

Share premium account 1,119,738 Ð Ð 1,119,738

Fixed asset revaluation reserve 87,297 Ð Ð 87,297

Investment property revaluation reserve Ð 43,562 Ð 43,562

Revaluation reserve for properties under

development held for rental purposes 622,769 Ð Ð 622,769

Capital reserve 3,423,498 Ð Ð 3,423,498

General reserve 57 Ð Ð 57

Exchange fluctuation reserve 33,169 475 (773) 32,871

Accumulated losses (1,414,989) (139,081) (236) (1,554,306)

3,871,539 (95,044) (1,009) 3,775,486

Company

Share

premium

account

Fixed asset

revaluation

reserve

Investment

property

revaluation

reserve

Retained

profits Total

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

At beginning of year 1,103,373 32,145 13,335 920,638 2,069,491

Arising on issue of shares 23,625 Ð Ð Ð 23,625

Share issue expenses (7,260) Ð Ð Ð (7,260)

Deficits on revaluation of

investment properties Ð Ð (1,800) Ð (1,800)

Net profit for the year Ð Ð Ð 32,187 32,187

At end of year 1,119,738 32,145 11,535 952,825 2,116,243

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

Group

1999 1998


Lai Fung Convertible Bonds: (1)

At beginning of year 941,382 1,158,465

Converted during the year Ð (130,584)

Repurchased during the year (4,176) (86,499)

937,206 941,382

Convertible Bonds 2002 : (2)

At beginning of year 1,161,375 Ð

Issued during the year Ð 1,161,375

1,161,375 1,161,375

At end of year 2,098,581 2,102,757

(1) Lai Fung Convertible Bonds

On 5th January, 1994, a subsidiary of the Group, LFO issued US$150,000,000 (HK$1,158,465,000)

of convertible guaranteed bonds (``Lai Fung Convertible Bonds''). The Lai Fung Convertible Bonds

were unconditionally guaranteed by LSD up to 28th November, 1997, the date of the Listing, and

thereafter by Lai Fung.

The Lai Fung Convertible Bonds bear interest at the rate of 5.25% per annum payable in arrears on 5th

January, 1995, 5.5% per annum payable in arrears on 5th January, 1996 and 5.75% per annum

payable in arrears on 5th January, 1997, and each 5th January, thereafter.

Unless previously redeemed or purchased and cancelled, the Lai Fung Convertible Bonds are

convertible into fully paid ordinary shares of Lai Fung at the option of the holders on or after the date

falling three calendar months after the date of Listing up to the close of business on the date seven days

prior to the third anniversary of the date of Listing. Upon conversion, the Lai Fung Convertible Bonds

will be converted into a number of shares determined by dividing the principal amount of such Bonds

by HK$2.94, being 105% of the initial public offer price of the shares of Lai Fung.

On the third anniversary of the date of Listing, LFO may elect to redeem the outstanding Lai Fung

Convertible Bonds in cash at their principal amount, or to mandatorily convert the outstanding Bonds

into shares of Lai Fung at a conversion price that is equal to the average closing price of the shares over

a period of thirty consecutive dealing days prior to such date.

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31. C O N V E R T I B L E B O N D S ( c o n t i n u e d )

(1) Lai Fung Convertible Bonds (continued)

Subsequent to the date of Listing, the Lai Fung Convertible Bonds may also be redeemed at their

principal amount at any time on the occurrence of any of the events of default as defined in the related

bond document. LFO may also elect to redeem the outstanding Lai Fung Convertible Bonds at any

time in whole, but not in part, in the event of certain changes relating to the Cayman Islands or Hong

Kong taxation, at their principal amount multiplied by 103%.

Subsequent to the balance sheet date, 2,639,795 ordinary shares of HK$0.10 each in the share capital

of Lai Fung were issued upon the conversion of the Lai Fung Convertible Bonds with a principal value

of US$1,000,000 (approximately HK$7,748,000) by certain bondholders at a conversion rate of

HK$2.94 per share.

(2) Convertible Bonds 2002

US$150,000,000 4% convertible guaranteed bonds due in 2002 (the `̀ Convertible Bonds 2002'') were

issued on 4th August, 1997 by Lai Sun International Finance (1997) Limited (`̀ LSIF 1997''), a wholly-

owned subsidiary of LSD. The Convertible Bonds 2002 are unconditional and irrevocably guaranteed

by LSD.

The Convertible Bonds 2002 were issued at 100% of their principal amount and bear interest at a rate

of 4% per annum payable annually in arrears on 4th August of each year.

Unless previously redeemed, purchased and cancelled, or converted, the Convertible Bonds 2002 are

convertible into fully paid ordinary shares of HK$0.50 each of LSD at the option of the holder at a

conversion price of, initially, HK$11.50 per share at a fixed rate of exchange on conversion of

HK$7.751 = US$1.00, at any time from 4th September, 1997 to 24th June, 2002, both dates inclusive.

In the event that the average of the closing price of the ordinary shares of LSD for the 30 dealing days

ending on the dealing day prior to 4th August, 1998 or the dealing day immediately preceeding the

day falling 30 days prior to 4th August, 2000 is less than the conversion price, then in effect the

conversion price will be reduced, with effect from 4th August, 1998 or 4th August, 2000, as the case

may be, to such average price, or if higher, a price equal to 90% of the then conversion price.

The conversion price will be subject to adjustment upon the occurrence of certain events as defined in

the document pertaining to the issue of the Convertible Bonds 2002.

As a result of the rights issue completed on 27th July, 1998, the conversion price was adjusted from

HK$11.50 to HK$10.64 per share with effect from 27th July, 1998.

Pursuant to the terms of the related bond document, the conversion price was reset from HK$10.64

per share to HK$9.50 per share with effect from 4th August, 1998.

As a result of the rights issue completed on 3rd February, 1999, the conversion price was adjusted

from HK$9.50 per share to HK$6.70 per share with effect from 3rd February, 1999.

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89


31. C O N V E R T I B L E B O N D S ( c o n t i n u e d )

(2) Convertible Bonds 2002 (continued)

Unless previously redeemed, purchased and cancelled, or converted, LSIF 1997, under certain

conditions as defined in the related documents, may redeem all or some of the Convertible Bonds

2002 on or at any time after 4th August, 1999 at their Early Redemption Price together with accrued

interest, with the calculation based on a formula as defined in the related bond document.

Unless previously redeemed, purchased and cancelled, or converted, the Convertible Bonds 2002 may

be redeemed at the option of the holders on 4th August, 2000 at 115.2249% of their principal amount

plus accrued interest.

Unless previously redeemed, purchased and cancelled, or converted, the Convertible Bonds 2002 will

be redeemed at their principal amount plus accrued interest on 4th August, 2002. The Convertible

Bonds 2002 may also be redeemed at any time upon the occurrence of any of the events as defined in

the document pertaining to the issue of the bonds, at their Early Redemption Price plus accrued

interest.

As stated in notes 26 and 27, at the balance sheet date, the LSD Group had not complied with certain

loan covenants in respect of the Loans and the Exchangeable Bonds. As more fully explained in note 1,

the Convertible Trust Deed contains a cross default clause to the effect that if any relevant borrowings,

including the Loans and the Exchangeable Bonds, become due and repayable prematurely by reason of

an event of default, the Convertible Bonds 2002, in turn, will become immediately due and repayable

if the trustee serves notice to the LSD Group for immediate repayment. The trustee (the trustee must if

so required by the bondholders) has not to date declared an event of default in respect of any of the

LSD Group's borrowings by virtue of the cross default provisions contained in the Convertible Trust

Deed. For reasons set out in note 1, the Convertible Bonds 2002 have not become immediately due

and repayable and have continued to be classified as long term liabilities according to their original

maturity terms.

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

On 11th May, 1999, Lai Fung entered into a conditional subscription agreement (the `̀ Note Agreement'')

with Sunny Group Investment Limited (``Sunny Group''), a wholly-owned subsidiary of Sun Chung which in

turn is wholly owned by the Bank of China, whereby Lai Fung would issue a HK$600 million convertible

note (the `̀ Convertible Note'') to the Sunny Group. The transaction was approved by the shareholders of the

Company, LSD and Lai Fung at their respective extraordinary general meeting on 22nd June, 1999. The

Convertible Note was issued on 2nd July, 1999.

The Convertible Note was issued at 100% of its principal amount and bears interest at the rate of 5% per

annum payable quarterly in arrears on 2nd January, 2nd April, 2nd July and 2nd October of each year.

Pursuant to the Note Agreement, unless previously redeemed, the Convertible Note is convertible at 105%

of the principal amount, in whole or in part, into fully paid ordinary shares of HK$0.10 each of Lai Fung at a

conversion price of HK$0.65 per share (the `̀ Conversion Price''), at any time from 1st December, 2000 to

2nd July, 2002, being the third anniversary of the date of the issue of the Convertible Note. The Conversion

Price is subject to certain adjustments as defined in the Note Agreement.

31st July, 1999


90


32. C O N V E R T I B L E N O T E ( c o n t i n u e d )

Unless previously redeemed or converted, the Convertible Note will be redeemed at 110% of the principal

amount plus accrued interest on 2nd July, 2002. The Convertible Note may also be redeemed at any time

upon the occurrence of any of the events as defined in the Note Agreement at 110% of the principal amount

plus accrued interest up to and including the date of repayment.

33. N O T E S T O T H E C O N S O L I D A T E D C A S H F L O W S T A T E M E N T

(a) Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities

1999 1998

HK$'000 HK$'000

Operating profit/(loss) (7,352,958) 368,816

Interest expense 225,905 171,648

Interest income (158,010) (288,193)

Bond issue expenses incurred by a subsidiary Ð 51,423

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

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

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

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

Depreciation 93,894 106,198

Amortisation of goodwill on acquisition of subsidiaries and associated

companies 11,555 17,298

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

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

Deficits on revaluation of investment properties 309,226 Ð

Provisions for diminutions in values of long term unlisted investments 426,982 Ð

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

Loss/(gain) on disposal of long term investments 302,813 (10,019)

Loss on dissolution of associated companies 1,808 Ð

Loss/(gain) on disposal of fixed assets 162,113 (29,399)

Loss/(gain) on disposal of subsidiaries (13,923) 131,339

Loss/(gain) on disposal of properties under development 158,153 (467)

Loss/(gain) on disposal of investment properties 153,940 (452,458)

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

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

Provisions for trade debtors 8,624 12,152

Provisions for diminutions in values of properties under development 2,968,665 155,874

Provisions for diminutions in values of completed properties for sale to net


Provisions for deposits paid for acquisition of properties 452,500 91,913

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

Discount on repurchase of bonds Ð (457)

Provisions for contingent losses in respect of profit guarantees 178,200 Ð

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33. N O T E S T O T H E C O N S O L I D A T E D C A S H F L O W S T A T E M E N T ( c o n t i n u e d )

(a) Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities

(continued)

1999 1998

HK$'000 HK$'000

Provision for potential loss arising from exercise of Put Options 855,000 Ð

Provisions for contingent loss in respect of a guarantee given to a bank 228,000 Ð

Provisions for diminutions in values of associated companies holding

properties under development 311,000 Ð

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

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

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

and investee companies engaged in hotel operations 42,487 Ð

Provision for premium on note redemption 1,667 Ð

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

Adjustments for impairment in values of goodwill 216,200 Ð

Decrease/(increase) in restricted cash and bank balances 37,201 (45,256)

Decrease/(increase) in short term investments (9,281) 385,606

Decrease/(increase) in stocks 160,337 (36,086)

Decrease in completed properties for sale 206,279 471,023

Decrease/(increase) in debtors, bills receivable and deposits 5,468 (375,649)

Increase/(decrease) in creditors, deposits received, bills payable and accruals (400,449) 199,789

Increase/(decrease) in trust receipt loans with greater than three months to

maturity at acquisition date (6,853) 20,086

Net cash inflow/(outflow) from operating activities (304,445) 852,812

31st July, 1999


92



(b) Analysis of changes in financing during the year

Share

capital

and

premium

Bank loans,

other

borrowings

and deposits

pledged

Convertible

bonds

Convertible

note

Bonds

payable

Minority

interests

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

Balance at 1st August, 1997 1,231,394 4,823,847 1,158,465 Ð 1,818,850 14,369,492

Net cash inflow/(outflow) from financing Ð 2,907,936 1,091,960 Ð (3,408) 876,602

Share of net profit for the year Ð Ð Ð Ð Ð 175,400

Dividends paid to minority interests Ð Ð Ð Ð Ð (131,860)

Share of deficits on revaluation of investment

properties Ð Ð Ð Ð Ð (674,981)

Share of surplus on revaluation of properties under

development held for rental purposes Ð Ð Ð Ð Ð 1,292,379

Share of surplus on revaluation of properties under

development of associated companies Ð Ð Ð Ð Ð 19,144

Share of capital reserve Ð Ð Ð Ð Ð 14,441

Purchases of fixed assets under finance leases Ð 481 Ð Ð Ð Ð

Arising on acquisition of subsidiaries Ð 295,401 Ð Ð Ð 186,408

Arising on acquisition of additional interests in

subsidiaries Ð Ð Ð Ð Ð (1,995,652)

Disposal of partial interests in subsidiaries Ð Ð Ð Ð Ð 44,579

Arising on deemed disposal of a subsidiary Ð Ð Ð Ð Ð (100,174)

Disposal of subsidiaries Ð (409,552) Ð Ð Ð Ð

Subsidiary excluded from consolidation Ð Ð Ð Ð Ð (10,101)

Conversion of convertible bonds Ð Ð (130,584) Ð Ð 130,584

Discount on repurchase of convertible bonds Ð Ð (17,084) Ð Ð Ð

Discount on repurchase of bonds Ð Ð Ð Ð (457) Ð

Arising on issue of rights shares of a subsidiary Ð Ð Ð Ð Ð 179,537

Arising on exercise of warrants of a subsidiary by

minority interests Ð Ð Ð Ð Ð 725

Share of general reserve Ð Ð Ð Ð Ð (187)

Share of exchange fluctuation reserve Ð Ð Ð Ð Ð (9,332)

Release of investment property revaluation reserve

upon disposal of investment properties Ð Ð Ð Ð Ð (620,343)


upon disposal of a subsidiary Ð Ð Ð Ð Ð (15,431)

Exchange realignments Ð (10,808) Ð Ð Ð (18,124)

Balance at 31st July, 1998 Ð page 94 1,231,394 7,607,305 2,102,757 Ð 1,814,985 13,713,106

31st July, 1999


93



(b) Analysis of changes in financing during the year (continued)

Share

capital

and

premium

Bank loan,

other

borrowings

and deposits

pledged

Convertible

bonds

Convertible

note

Bonds

payable

Minority

interests

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

Balance at 1st August, 1998 Ð page 93 1,231,394 7,607,305 2,102,757 Ð 1,814,985 13,713,106

Net cash inflow/(outflow) from financing 607,199 (966,510) (3,542) 600,000 (923,735) (18,503)

Share of net loss for the year Ð Ð Ð Ð Ð (4,074,093)

Share of deficits on revaluation of investment

properties Ð Ð Ð Ð Ð (1,663,727)

Share of deficits on revaluation of properties under

development held for rental purposes Ð Ð Ð Ð Ð (60,408)

Share of reserves in associated companies Ð Ð Ð Ð Ð (454)

Arising on acquisition of additional interests in

subsidiaries Ð Ð Ð Ð Ð (151,520)

Disposal of subsidiaries Ð (258,007) Ð Ð Ð (37,405)

Share of capital reserve arising on acquisition of

associated companies Ð Ð Ð Ð Ð (48,313)

Share of exchange fluctuation reserve on disposal of

fixed assets Ð Ð Ð Ð Ð 74,417

Discount on repurchase of convertible bonds Ð Ð (634) Ð Ð Ð


upon disposal of investment properties Ð Ð Ð Ð Ð 48,030

Inception of finance lease contracts Ð 404 Ð Ð Ð Ð

Arising on issue of rights shares of a subsidiary Ð Ð Ð Ð Ð 474,737

Release of investment properties reserve upon

transfer of investment properties to completed

properties for sale Ð Ð Ð Ð Ð 29,105

Share of exchange fluctuation reserve Ð Ð Ð Ð Ð 4,917

Release upon cancellation of convertible bonds Ð Ð Ð Ð Ð (9,437)

Release upon expiry of warrants issued by a

subsidiary Ð Ð Ð Ð Ð (8,600)

Arising on deemed disposal of a subsidiary Ð Ð Ð Ð Ð 852,150

Exchange realignments Ð 4,350 Ð Ð Ð (633)

Balance at 31st July, 1999 1,838,593 6,387,542 2,098,581 600,000 891,250 9,123,369

(c) Major non-cash transactions

During the year, the Group entered into finance lease arrangements in respect of assets with a total capital

value at the inception of the leases of HK$404,000. In addition, part of the considerations for the disposal of

subsidiaries during the year with an amount of HK$165,208,000 was satisfied by receivables.

(d) Exceptional items

The exceptional items for the year resulted in a cash inflow from investing activities of HK$159,091,000

(1998 : Nil).

31st July, 1999


94



(e) Acquisition of subsidiaries

1999 1998

HK$'000 HK$'000

Net assets acquired:

Fixed assets Ð 1,811,887

Investment properties Ð 701,472

Properties under development 236,590 5,537,523

Deferred pre-operating expenses Ð 33,043

Associated companies Ð 21,223

Long term investments Ð 3,413

Cash and bank balances 272 190,961

Short term investments Ð 11,502

Debtors and deposits 105 85,252

Completed properties for sale Ð 4,908

Stocks Ð 9,568

Bank loans and other borrowings Ð (295,401)

Creditors, deposits received and accruals (123,787) (412,693)

Taxation Ð (32,956)

Deferred taxation Ð (1,780)

Minority interests Ð (186,408)

113,180 7,481,514

Goodwill Ð 709

113,180 7,482,223

Carrying value of interests in subsidiaries acquired originally held by

the Group as:

Interests in associated companies (113,180) (167,209)

Interests in long term investments Ð (813,234)

Ð 6,501,780

Satisfied by:

Cash Ð 6,501,780

The subsidiaries acquired during the year utilised HK$1,223,000 (1998 : HK$14,211,000) of the Group's

net operating cash flows, paid HK$5,825,000 (1998 : HK$31,358,000) in respect of the net returns on

investments and servicing of finance, nil amount paid in respect of taxation (1998 : HK$33,692,000),

contributed HK$88,700,000 (1998 : HK$852,799,000) for investing activities and utilised HK$81,926,000

(1998 : HK$193,780,000) for financing activities.

31st July, 1999


95



(e) Acquisition of subsidiaries (continued)

Analysis of net outflow/(inflow) of cash and cash equivalents in respect of the acquisition of subsidiaries:

1999 1998

HK$'000 HK$'000

Cash consideration Ð 6,501,780

Cash and bank balances acquired (272) (190,961)

Interest capitalised as acquisition costs of a subsidiary Ð (212,491)

Net outflow/(inflow) of cash and cash equivalents in respect of the acquisition

of subsidiaries (272) 6,098,328

(f) Disposal of subsidiaries

1999 1998

HK$'000 HK$'000

Net assets disposed of:

Fixed assets 43,667 1,563,699

Investment properties Ð 500,093

Properties under development 697,377 1,161,159

Goodwill 34,411 Ð

Interests in associated companies 311,735 Ð

Long term investments Ð 140,081

Cash and bank balances 9,349 839

Debtors and deposits 27,055 17,283

Stocks 5,702 1,658

Bank loans and other borrowings (258,007) (409,552)

Creditors, deposits received and accruals (157,356) (51,249)

Taxation (10,838) (7,930)

Deferred taxation 4,096 (1,400)

Minority interests (72,530) Ð

Release of investment property revaluation reserve Ð (25,234)

Release of exchange reserve 27,126 Ð

Release of capital reserve 18,700 Ð

680,487 2,889,447

Profit/(loss) on disposal 13,923 (131,339)

694,410 2,758,108

31st July, 1999


96



(f) Disposal of subsidiaries (continued)

1999 1998

HK$'000 HK$'000

Net assets disposed of 694,410 2,758,108

Reclassification of carrying value of interests in subsidiaries disposed of as

interests in associated companies Ð (204,456)

694,410 2,553,652

Satisfied by:

Cash 529,202 1,453,652

Promissory note Ð 1,100,000

Receivables 165,208 Ð

694,410 2,553,652

The subsidiaries disposed of during the year utilised HK$13,346,000 (1998 : contributed HK$10,017,000)

of the Group's net operating cash flows, paid HK$1,537,000 (1998 : HK$28,234,000) in respect of returns

on investment and servicing of finance, paid HK$13,640,000 (1998 : HK$1,115,000) in respect of taxation,

utilised HK$28,924,000 (1998 : HK$54,466,000) for investing activities and utilised HK$9,207,000 (1998 :

contributed HK$396,075,000) for financing activities.

Analysis of net inflow of cash and cash equivalents in respect of the disposal of subsidiaries:

1999 1998

HK$'000 HK$'000

Cash consideration received 529,202 1,453,652

Cash and bank balances disposed of (9,349) (839)

Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries 519,853 1,452,813

31st July, 1999


97



(g) Subsidiary excluded from consolidation

1999 1998

HK$'000 HK$'000

Net assets excluded from consolidation:

Fixed assets Ð 7,923

Cash Ð 20,633

Debtors and deposits Ð 4,553

Stocks Ð 2,924

Creditors, deposits received and accruals Ð (6,021)

Minority interests Ð (10,101)

Ð 19,911

Satisfied by:

Reclassification to interests in associated companies Ð 19,911

Analysis of net outflow of cash and cash equivalents in respect of the exclusion

of the subsidiary from consolidation:

1999 1998

HK$'000 HK$'000

Cash balances being excluded from consolidation and the net outflow of cash

and cash equivalents in respect of the exclusion of the subsidiary from

consolidation Ð 20,633

34. L I T I G A T I O N

(a) Litigation related to the Four Seasons Hotel, New York

An action was commenced in December 1998 against certain Group companies and the other shareholders

of Hotel 57 LLC (the `̀ Shareholders'') by Art 57 Properties, Inc. (the `̀ Plaintiff'') in the Supreme Court of the

state of New York (the `̀ New York Court''), alleging breach of contract, fraud and promissory estoppel. The

Plaintiff's case was based on a claim that it had made a down payment of US$2 million and signed a letter of

intent to purchase the Four Seasons Hotel, New York (`̀ FSNY''). By way of relief, the Plaintiff sought specific

performance requiring the sale of shares (the `̀ FSNY Shares'') in the ownership entities, the effect of which

would convey beneficial ownership of the FSNY to the Plaintiff or, in the alternative, damages in an amount

of not less than US$80 million. Simultaneously, the Plaintiff filed a motion for a preliminary injunction

seeking to prevent the sale of the FSNY Shares, or to attach the proceeds from any sale of the FSNY Shares

pending final disposition of the case.

In early 1999, the Plaintiff applied to discontinue the New York proceedings and commenced a separate suit

in the United States District Court in Texas (the `̀ Texas Court'') against Milewood International Inc.

(``Milewood''), a subsidiary of the Group, the other shareholders of FSNY and 57 BB Property, LLC, the

purchaser of FSNY, for similar claims as above.

31st July, 1999


98


34. L I T I G A T I O N ( c o n t i n u e d )

(a) Litigation related to the Four Seasons Hotel, New York (continued)

In February 1999, the New York Court denied the motion to discontinue the New York proceedings and

dismissed all claims against the companies of the Group, except for Milewood and certain shareholders of

FSNY. In March 1999, the Texas Court dismissed all claims against all defendants. An appeal has been filed

by the Plaintiff.

In March 1999, the Group's interest in FSNY was disposed of to 57 BB Property, LLC.

Having regard to the advice from legal counsel, the directors consider that the Group has substantive

defences to the current litigation such that they consider the remaining claims should be dismissed and that

the litigation should have no material adverse effect on the Group.

(b) Litigation related to La Chemise Lacoste S.A.

Crocodile Garments Limited (`̀ Crocodile'') is involved in a legal dispute with a supplier, La Chemise Lacoste

S.A., who alleges that Crocodile has infringed its trademark in the People's Republic of China and is seeking

a court order for an unspecified amount of compensation and to prohibit Crocodile from registering certain

trademarks in the People's Republic of China.

In the opinion of the directors, having taken legal advice, the action against Crocodile is unlikely to be

successful and, therefore, no provision has been made in the financial statements of the Group.

35. C O M M I T M E N T S

Commitments not provided for in the financial statements at the balance sheet date were as follows:

(a)

Group Company

1999 1998 1999 1998

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

Authorised capital expenditure:Contracted, but not provided for

Subsidiaries 852,605 1,167,226 Ð Ð

Jointly controlled entities 141,816 151,381 Ð Ð

994,421 1,318,607 Ð Ð

Not contracted for

Subsidiaries 234,920 46,729 Ð Ð

1,229,341 1,365,336 Ð Ð

Annual commitments payable in the following year

under non-cancellable operating leases in

respect of land and buildings expiring:

Within one year 40,013 30,334 648 1,010

Within two to five years 64,133 83,495 Ð Ð

After five years 1,587 1,588 Ð Ð

105,733 115,417 648 1,010

31st July, 1999


99


35. C O M M I T M E N T S ( c o n t i n u e d )

(b) Pension commitments

The Group operates defined benefit retirement schemes for the eligible employees of Crocodile and Furama

which are non-contributory. The assets of the schemes are held separately from those of the Group in

independently administered funds.

The contributions to the schemes are determined with the advice of independent, qualified actuaries on the

basis of triennial valuations, being the minimum requirement under the Occupational Retirement Schemes

Ordinance, using the aggregate method. Based on the most recent valuation carried out on 1st August, 1997

by The Prudential Assurance Company Limited, qualified consulting actuaries, the level of funding for the

Crocodile scheme is 7% of employee costs with no material surplus or deficiency. Based on the most recent

valuation carried out on 30th September, 1998 by Watson Wyatt Hong Kong Limited, qualified consulting

actuaries, the level of funding of the Furama scheme ranged from 0% to 8.3% of employee costs with no

material surplus or deficiency.

The principal assumption used by the actuaries of Crocodile was that the long-term average return on

investments would be equal to the average increase in salary. The principal assumption used by the actuaries

of Furama was that the average salary inflation and the average return on investments would be 8% and 9%

per annum, respectively.

The differences between the market value of the schemes' assets and the present value of the past service

liabilities on an on-going basis at the date of the actuarial valuations, are taken into consideration when

determining future funding rates in order to ensure that the schemes will be able to meet these liabilities as

they become due. The current funding rates are those recommended by the actuaries to ensure that the

schemes will be able to meet their future liabilities.

(c) Grant of put options

Upon the completion of the sales and purchase agreement of Fortune Sign (the `̀ Completion'') as further

detailed in note 22, Furama entered into an option deed (the ``Option Deed'') with the Majestic Purchasers,

pursuant to which Furama granted a share put option and a loan put option (together the ``Put Options'') to

the Majestic Purchasers to require Furama to acquire the entire issued share capital of Fortune Sign and the

related shareholder's loan owing from Fortune Sign, respectively, at a total consideration of approximately

HK$1,930 million. The Put Options cannot be exercised by the Majestic Purchasers unless they are

exercised simultaneously.

The Put Options are each for a term of approximately 3 years commencing from the date of the Completion

and expiring on 28th February, 2001 (both dates inclusive) (the ``Option Period'') and may be exercised at

any time and from time to time, during the period from 1st February, 2001 to 28th February, 2001 (both

dates inclusive) (the `̀ Exercise Period''), by the Majestic Purchasers giving notice in writing to Furama of

their intention to do so.

31st July, 1999


100


35. C O M M I T M E N T S ( c o n t i n u e d )

(c) Grant of put options (continued)

At any time before the Exercise Period, upon the occurrence of certain events specified in the Option Deed,

inter alia, the Lim Family ceases to beneficially own, whether directly or indirectly, at least 35% of the issued

share capital of the Company from time to time or the Company, together with the Lim Family, cease to

beneficially own, whether directly or indirectly, at least 35% of the issued share capital of LSD from time to

time, the Majestic Purchasers shall be entitled to exercise the Put Options by giving notice in writing to

Furama of their intention to do so within one month after the occurrence of such events.

The Put Options will lapse automatically and will not be exercisable upon the earlier of the expiry of the

Option Period, or the occurrence of certain events specified in the Option Deed.

Furama will be entitled to set off the outstanding principal amount of the Note against the total

consideration payable to the Majestic Purchasers upon exercise of the Put Options.

36. C O N T I N G E N T L I A B I L I T I E S

Contingent liabilities not provided for in the financial statements at the balance sheet date were as follows:

Group Company

1999 1998 1999 1998

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

Guarantees given to banks in connection with

facilities granted to:

Associated companies 297,935 633,600 2,000 2,000

Investee companies 278,613 307,900 Ð Ð

576,548 941,500 2,000 2,000

Bills discounted with recourse Ð 11,519 Ð 11,519

576,548 953,019 2,000 13,519

In addition to the above, as at 31st July, 1999, the Group has the following contingent liabilities:

(1) A guarantee of HK$771,000 (1998 : HK$1,531,000) has been given to third parties in connection with

the Group's restaurant operations.

(2) A guarantee of interest payment has been given to banks on attributable share of bank loans in the

amount of US$25,662,000 (1998 : US$76,900,000) in an associated company.

(3) Guaranteed rental returns (`̀ Rental Guarantees'') of 13% per annum, calculated based on the sale

consideration, have been given to certain purchasers of the Hong Kong Plaza office and serviced

apartment units. The Rental Guarantees are effective for two years commencing in the fourth month

after the month in which the notice of occupation of the Hong Kong Plaza is issued.

31st July, 1999


101


36. C O N T I N G E N T L I A B I L I T I E S ( c o n t i n u e d )

(4) Under a mortgage loan facility provided by a bank to the end-buyers of the office and apartment units

of the Hong Kong Plaza, Lai Fung had agreed to guarantee up to 95% of the liabilities of Li Xing for the

due performance of its undertaking to buy back the relevant properties in case of default by the

borrowers.

(5) Under a mortgage loan facility provided by another bank to the end-buyers of Eastern Place Phase I

and Phase II, the Group has agreed to provide guarantees to the bank to buy back the relevant

properties in case of default by the borrowers.

37. R E S T R I C T E D C A S H A N D B A N K B A L A N C E S

As at 31st July, 1999, approximately HK$8,055,000 (1998 : HK$45,256,000) included in the Group's cash

and bank balances were pledged to banks to secure mortgage loans granted by banks to certain end buyers

of the Group's completed properties for sale. The pledge of such balances will be released upon the

completion of the relevant mortgage arrangements.

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

On 14th October, 1999, Lai Fung announced the following matters which constitute connected transactions

and required the approval of the independent shareholders.

(1) Li Xing entered into a conditional loan agreement (``Loan Arrangement'') with BOC on 30th September,

1999, whereby BOC agreed to extend a loan in an amount of RMB80,000,000 to Li Xing for its

repayment of bank borrowings and settlement of construction costs. The Loan Arrangement is secured

by the first four floors of the North Tower of Hong Kong Plaza, which is valued at approximately

RMB407,000,000.

Such security is provided with the intention that a new bank loan of approximately RMB150,000,000

will be granted by BOC in replacement of the said loan of RMB80,000,000 in the near future.

(2) BOC, being one of the principal banks of Lai Fung, is expected to continue to provide secured loan

financing (the `̀ Financing Transactions'') and other financial and banking services (the `̀ Other

Transactions'') to Lai Fung. Such transactions, if entered into, may constitute connected transactions

for Lai Fung in accordance with the Listing Rules (by reasons detailed below), and may need full

disclosure and/or prior approval of the shareholders of the Company, LSD and Lai Fung.

On this basis, it is proposed that Lai Fung's entering into any future Financing Transactions or Other

Transactions with BOC, which are expected to be entered into in the ordinary course of business of Lai

Fung and on normal commercial terms, to be subject to the following maximum limits:

i. the aggregate amount of all loans outstanding under any Financing Transactions not to exceed

70% of the consolidated net tangible assets of Lai Fung as published in its latest audited

accounts; and

31st July, 1999


102


38. P O S T B A L A N C E S H E E T E V E N T S ( c o n t i n u e d )

ii. the aggregate amount of all fees payable by Lai Fung in respect of any Other Transactions in any

financial year of Lai Fung not to exceed 3% of the consolidated net tangible assets of Lai Fung as

published in its latest audited accounts.

On 7th April, 1999, LSD entered into an option agreement with Sun Chung, a wholly-owned

subsidiary of BOC which was supplemented by a supplemental agreement dated 12th April, 1999 (the

`̀ Option Agreement''). Pursuant to the Option Agreement, LSD granted the right (the ``Option'') to Sun

Chung to purchase 230,000,000 shares in Lai Fung held by LSD.

As detailed in note 32, Lai Fung issued the Convertible Note to the Sunny Group. Upon exercise in

full, the Convertible Note is convertible into approximately 969,000,000 shares in Lai Fung. As Sun

Chung and Sunny Group are both wholly-owned subsidiaries of BOC, in the opinion of the directors,

the BOC Group is deemed to be a connected person of the Company, LSD and Lai Fung. Accordingly,

the above transactions constitute connected transactions for the Company, LSD and Lai Fung pursuant

to the Listing Rules.

The above two matters were approved by independent shareholders in the respective extraordinary

meetings of the Company, LSD and Lai Fung on 30th October, 1999.

39. C O M P A R A T I V E A M O U N T S

Certain comparative amounts have been reclassified to conform with the current year's presentation, In

particular, as detailed in note 2 under `̀ Jointly controlled entities'', the jointly controlled entities were

accounted for as subsidiaries or associated companies in previous year.

40. A P P R O V A L O F T H E F I N A N C I A L S T A T E M E N T S

The financial statements were approved by the board of directors on 12th November, 1999.

31st July, 1999


103


NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Members of the Company will be held

at Victoriana Room, 4th Floor, Furama Hotel, Hong Kong, 1 Connaught Road Central, Hong Kong on

Thursday, 23rd December, 1999 at 11 : 45 a.m for the following purposes:

1. To receive and consider the audited Financial Statements and the Reports of the Directors and of the

Auditors for the year ended 31st July, 1999;

2. To re-elect retiring Directors and to fix Directors' remuneration;

3. To appoint Auditors and to authorise the Directors to fix their remuneration; and

4. As special business, to consider and, if thought fit, pass with or without amendments, the following

resolutions as Ordinary Resolutions:

(A) ``THAT:

(a) subject to paragraph (b) of this Resolution, the exercise by the Directors during the

Relevant Period (as hereinafter defined) of all the powers of the Company to purchase

shares of HK$0.50 each in the share capital of the Company on The Stock Exchange of

Hong Kong Limited (`̀ the Stock Exchange'') or on any other stock exchange on which the

shares of the Company may be listed and recognised by the Securities and Futures

Commission and the Stock Exchange for this purpose, subject to and in accordance with all

applicable laws and the requirements of the Rules Governing the Listing of Securities on

the Stock Exchange or any other stock exchange as amended from time to time, be and is

hereby generally and unconditionally approved;

(b) the aggregate nominal amount of the shares to be purchased pursuant to the approval in

paragraph (a) of this Resolution shall not exceed 10% of the aggregate nominal amount of

the share capital of the Company in issue as at the date of this Resolution, and the said

approval shall be limited accordingly; and

(c) for the purposes of this Resolution, `̀ Relevant Period'' means the period from the passing of

this Resolution until whichever is the earlier of:

(i) the conclusion of the next Annual General Meeting of the Company;

(ii) the revocation or variation of the authority given under this Resolution by an

ordinary resolution of the shareholders of the Company in general meeting; or

(iii) the expiration of the period within which the next Annual General Meeting of the

Company is required by law to be held.''


104

Notice of Annual General Meeting

(B) ``THAT:

(a) subject to paragraph (c) of this Resolution, the exercise by the Directors during the

Relevant Period (as hereinafter defined) of all the powers of the Company to issue, allot

and deal with additional shares in the Company, and to make or grant offers, agreements

and options (including warrants, bonds, debentures, notes and any securities which carry

rights to subscribe for or are convertible into shares in the Company) which would or

might require the exercise of such power be and is hereby generally and unconditionally

approved;

(b) the approval in paragraph (a) of this Resolution shall authorise the Directors during the

Relevant Period to make or grant offers, agreements and options (including warrants,

bonds, debentures, notes and any securities which carry rights to subscribe for or are

convertible into shares of the Company) which would or might require the exercise of such

power after the end of the Relevant Period;

(c) the aggregate nominal amount of share capital allotted or agreed conditionally or

unconditionally to be allotted (whether pursuant to an option or otherwise) and issued by

the Directors pursuant to the approval in paragraph (a) of this Resolution, otherwise than

pursuant to (i) a Rights Issue (as hereinafter defined); or (ii) an issue of shares in the

Company upon the exercise of rights of subscription or conversion under the terms of any

of the warrants or securities which are convertible into shares of the Company; or (iii) an

issue of shares in the Company as scrip dividends pursuant to the Articles of Association of

the Company from time to time; or (iv) an issue of shares in the Company under any

option scheme or similar arrangement for the grant or issue to employees of the Company

and/or any of its subsidiaries of shares in the Company or rights to acquire shares in the

Company, shall not exceed 20% of the aggregate nominal amount of the issued share

capital of the Company as at the date of this Resolution, and the said approval shall be

limited accordingly; and

(d) for the purposes of this Resolution:

``Relevant Period'' shall have the same meaning as those ascribed to it under paragraph (c)

of the Ordinary Resolution No.4 (A) in the Notice convening this Meeting; and

``Rights Issue'' means an offer of shares in the Company, open for a period fixed by the

directors to the holders of shares, whose names appear on the Register of Members of the

Company on a fixed record date in proportion to their then holdings of such shares as at

that date (subject to such exclusions or other arrangements as the directors may deem

necessary or expedient in relation to fractional entitlements or having regard to any

restrictions or obligations under the laws of, or the requirements of any recognised

regulatory body or any stock exchange in, any territory applicable to the Company).''


105


(C) ``THAT subject to the passing of the Ordinary Resolutions Nos.4(A) and 4(B) in the Notice

convening this Meeting, the general mandate granted to the Directors and for the time being in

force to exercise the powers of the Company to allot shares and to make or grant offers,

agreements and options which might require the exercise of such powers be and is hereby

extended by addition thereto of an amount representing the aggregate nominal amount of shares

in the share capital of the Company which has been purchased by the Company since the

granting of such general mandate pursuant to the exercise by the Directors of the powers of the

Company to purchase such shares, provided that such amount shall not exceed 10% of the

aggregate nominal amount of the share capital of the Company in issue as at the date of this

Resolution.''

By Order of the Board

Yeung Kam Hoi

Company Secretary

Hong Kong, 12th November, 1999

Notes:

1. A Member entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more

proxies to attend and, on a poll, vote on his behalf. A proxy need not be a Member of the Company.

2. To be valid, a form of proxy, together with the power of attorney or other authority (if any) under

which it is signed, or a notarially certified copy of such power or authority, must be lodged with the

Company's Registrars, Tengis Limited, at 1601 Hutchison House, 10 Harcourt Road, Central, Hong

Kong, not less than 48 hours before the time appointed for holding the Annual General Meeting or

adjourned meeting (as the case may be). Completion and return of the form of proxy shall not

preclude members from attending and voting in person at the Annual General Meeting or at any

adjourned meeting should they so wish.

3. A circular containing details regarding Ordinary Resolutions Nos.4(A) to 4(C) above will be sent to

shareholders together with the 1998/1999 Annual Report.


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