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1 Annual Report 2000Li & Fung Limited

Contents

PAGES

CORPORATE INFORMATION 2

CORPORATE PROFILE 3

COORDINATED GLOBAL NETWORK 4

FINANCIAL HIGHLIGHTS 6

5–YEAR FINANCIAL SUMMARY 7

CHAIRMAN’S STATEMENT 9

MANAGING DIRECTOR’S REPORT 12

REPORT OF THE DIRECTORS 15

AUDITORS’ REPORT 30

CONSOLIDATED PROFIT AND LOSS ACCOUNT 31

CONSOLIDATED BALANCE SHEET 32

BALANCE SHEET 34

CONSOLIDATED CASH FLOW STATEMENT 35

CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES 37

NOTES TO THE ACCOUNTS 38

GROUP STRUCTURE 69

Corporate Information

Annual Report 2000Li & Fung Limited 2

DIRECTORS

Victor FUNG Kwok King, Chairman†

William FUNG Kwok Lun, Managing DirectorHenry CHANDanny LAU Sai WingAnnabella LEUNG Wai PingPaul Edward SELWAY-SWIFT*Allan WONG Chi Yun*Franklin Warren McFARLAN*LAU Butt Farn†

Leslie BOYD†

Steven Murray SMALL†

(alternate to Mr. Leslie BOYD)

COMPANY SECRETARY

Terry WAN Mei Chow

REGISTERED OFFICE

Cedar House, 41 Cedar AvenueHamilton HM12, Bermuda

PRINCIPAL PLACE OF BUSINESS

11th Floor, LiFung Tower888 Cheung Sha Wan Road, Kowloon, Hong Kong

LEGAL ADVISERS

Johnson Stokes & Master17th Floor, Prince’s Building, 10 Chater Road,Hong Kong

AUDITORS

PricewaterhouseCoopers22nd Floor, Prince’s Building, Central, Hong Kong

PRINCIPAL BANKERS

The Hongkong and Shanghai Banking Corporation Limited1 Queen’s Road Central, Hong Kong

Citibank, N.A.Citibank Tower, Citibank Plaza, 3 Garden Road,Central, Hong Kong

The Chase Manhattan Bank N.A.One Exchange Square, 40th Floor,Central, Hong Kong

PRINCIPAL REGISTRAR & TRANSFER OFFICE

The Bank of Bermuda Limited6 Front Street, Hamilton HM11, Bermuda

HONG KONG BRANCH REGISTRAR & TRANSFER OFFICE

Abacus Share Registrars Limited2401 Prince’s Building, Central, Hong Kong

* independent non-executive directors† non-executive directors

A Chinese version of this Annual Report is available from the Company upon request and can also be downloadedfrom our website www.lifung.com�� !"#$%&'()%*+,-./01%&'23 www.lifung.com ��


C o r p o r a t e P r o f i l e

Li & Fung Limited is today one of the premier global consumer products trading companiesmanaging the supply chain for high-volume, time-sensitive consumer goods. Garments make up alarge part of our business and we also source fashion accessories, toys and games, sporting goods,home furnishings, handicrafts, shoes, travel goods and tableware.

As a supply chain manager across many producers and countries, Li & Fung Limited providesthe convenience of a one-stop shop for customers through a Total Value-Added Package: from productdevelopment, through raw material sourcing, production planning and management, quality assuranceand export documentation to shipping consolidation.

Founded in Canton in 1906, Li & Fung Limited is today headquartered in Hong Kong fromwhere it co-ordinates the manufacture of goods through an extensive network of offices in 37 countries.Considerations of labour cost mean that most manufacturing has been concentrated in Asia. However,recent years have seen an expansion of our quick-response capabilities in areas like the Mediterranean,Eastern Europe and Central America closer to our customers in Europe and the US. Li & Fung Limiteddoes not itself own any production facilities but instead manages a large number of quality-conscious,cost-effective producers who can deliver to a deadline for its customers.

Li & Fung Limited is a member of the Li & Fung Group of companies which also includesprivately-held Retailing and Distribution businesses. With an annual turnover of US$3.2 billion, Li &Fung Limited employs over 4,600 people worldwide.

4,66

8

2,30

6

2,40

4

2,57

2

2,85

2

20001996 1997 1998 1999

Number of Staff

Coordinated Global Network

THE MEDITERRANEAN

• Cairo

• Denizli

• Istanbul

• Izmir

• Tunis

SOUTH ASIA

• Bahrain

• Bangalore

• Bombay

• Chittagong

• Colombo

• Dhaka

• Karachi

• Katmandu

• Lahore

• Madras

• New Delhi

• Sharjah

SOUTH AFRICA

• Durban

• Madagascar

• Mauritius

EUROPE

• Amsterdam

• Florence

• Manchester

• Oporto

• Spain

• Turin

THE AMERICAS

• Guadalajara

• Guatemala

• Honduras

• Los Angeles

• Mexico City

• Montreal

• New York

• Nicaragua

• Vancouver

NORTH ASIA

• Beijing

• Dalian

• Dongguan

• Guangzhou

• Hong Kong

• Huizhou

• Liuyang

• Macau

• Nanjing

• Ningbo

• Qingdao

• Seoul

• Shanghai

• Shantou

• Shenzhen

• Taipei

• Ulan Bator

• Zhanjiang

• Zhongshan

SOUTHEAST ASIA

• Bangkok

• Fiji

• Ho Chi Minh City

• Jakarta

• Johor Bahru

• Manila

• Phnom Penh

• Saipan

• Singapore

• Yangon


F inancial Highl ights

2000 1999 GrowthHK$’000 HK$’000

Turnover 24,993,018 16,297,501 53.4%

Operating profit 790,848 592,885 33.4%As percentage of turnover 3.16% 3.64%

Profit attributable to shareholders 870,388 574,638 51.5%As percentage of turnover 3.48% 3.53%As percentage of shareholders’ funds 30.8% 70.58%

Earnings per share 32.2 cents 22.4 cents 43.8%

Dividend per share 25.0 cents 17.0 cents 47.1%

Shareholders’ funds 2,826,113 814,111

Net assets per share 98.7 cents 31.4 cents

Asia Pacific 3.0%

Other countries 2.3%

USA 68.6%

EuropeanUnion 26.1%

Sales by Geographical Location for 2000

5-Year F inancial Summary


CONSOLIDATED PROFIT & LOSS ACCOUNT

2000 1999 1998 1997 1996HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 24,993,018 16,297,501 14,312,618 13,345,722 12,513,857

Operating profit 790,848 592,885 469,501 361,289 302,075Interest income 140,330 43,830 56,093 37,772 37,163Interest expenses (20,585) (32,243) (61,346) (6,270) (20,077)Share of profits less losses

of associated companies 13,677 9,389 6,850 6,666 (120)

Profit before taxation 924,270 613,861 471,098 399,457 319,041Taxation (64,178) (36,638) (16,425) (25,326) (22,096)

Profit after taxation 860,092 577,223 454,673 374,131 296,945Minority interests 10,296 (2,585) 495 974 3,157

Profit attributable to shareholders 870,388 574,638 455,168 375,105 300,102

Earnings per share 32.2 cents 22.4 cents 18.0 cents 15.0 cents 12.6 cents

Dividend per share– Interim 7.0 cents 4.5 cents 3.8 cents 3.3 cents 2.5 cents– Final 18.0 cents 12.5cents 10.5 cents 7.8 cents 6.5 cents

16,2

97,5

01

14,3

12,6

18

13,3

45,7

22

12,5

13,8

57

24,9

93,0

18

20001999199819971996

TurnoverHK$’000

574,

638

455,

168

375,

105

300,

102

870,

388

1999199819971996 2000

ProfitHK$’000

5 - Y e a r F i n a n c i a l S u m m a r y ( c o n t i n u e d )


CONSOLIDATED BALANCE SHEET

2000 1999 1998 1997 1996HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Fixed assets 1,361,435 1,161,808 1,145,056 1,113,430 898,652Associated companies 28,564 1,242 12,790 83,441 81,461Investments 53,807 86,484 51,389 16,748 16,748Current assets 5,853,106 2,961,634 2,234,490 1,971,270 1,895,508Current liabilities 4,306,080 2,976,829 1,976,958 1,814,465 1,713,810Net current assets/(liabilities) 1,547,026 (15,195) 257,532 156,805 181,698

2,990,832 1,234,339 1,466,767 1,370,424 1,178,559

Financed by:Share capital 71,605 64,765 63,761 62,759 62,163Reserves 2,754,508 749,346 1,030,295 926,343 849,475

Shareholders’ funds 2,826,113 814,111 1,094,056 989,102 911,638Minority interests 19,861 4,460 (24,595) (20,486) (18,531)Long term liabilities 137,642 414,868 397,058 400,000 283,431Deferred taxation 7,216 900 248 1,808 2,021

2,990,832 1,234,339 1,466,767 1,370,424 1,178,559

70.6

%

41.6

%

37.9

%

30.8

%

32.9

%

1999199819971996 2000

Return on equity

624,

841

618,

958

393,

039

364,

295

1,05

6,83

6

1999199819971996 2000

Operating cashflowHK$’000


Chairman’s Sta tement

Year 2000 was a year of outstanding performance for Li & Fung.

Group turnover was up a record 53% to HK$24,993 million. Profit attributable to shareholders

increased by 51% to HK$870 million.

Adjusted for a two-for-one share split in September 2000, earnings per share were 32.2 cents,

compared to 22.4 cents in 1999.

The growth and consistent performance of the Group were key to Li & Fung’s inclusion as a

component of the Morgan Stanley Country Index of Hong Kong from 17 May 2000, the Hong

Kong Hang Seng Index from 2 August 2000 and the FTSE World Index (Hong Kong Sub Index)

from 18 September 2000.

Victor FUNG Kwok King

C h a i r m a n ’ s S t a t e m e n t ( c o n t i n u e d )


REVIEW OF THE ENVIRONMENT

The market environment in our major markets — the United States and Western Europe —

remained basically favorable during the period under review.

The growth momentum of the US economy continued into the first and second quarters of

2000. Notwithstanding signs of a slowdown in the third and fourth quarters, the overall economic

performance of the economy was still quite strong as personal consumption expenditure continued to

grow in real terms.

In the European Union, a more stable euro was conducive to trading activities but competition

in the retail market remained stiff. Demand for efficient outsourcing and supply chain management

was strong as retailers were trying to reduce inventory and minimize cost. This has enabled us to

expand our service to larger customers in this market from our offices in the Mediterranean.

Our strong and expanding outsourcing network was the key factor that accounted for the

Group’s outstanding organic growth last year. At the same time, our strategy of growth by acquisition

has also worked out in accordance with our expectations. Swire & Maclaine and Camberley, which we

acquired in 1999, have broadened our customer base and upgraded our design capabilities considerably,

thus allowing us to serve a wider spectrum of customers in both the US and Europe. This expansion

strategy continued into 2000. In early November we successfully acquired another local sourcing

giant Colby Group Holdings Limited, thereby further strengthening the Group’s position as the premier

global company in consumer goods and supply chain management.

CHINA’S ENTRY TO THE WORLD TRADE ORGANIZATION

We believe China’s entry to the WTO — probably before the end of 2001 — will give rise to

greater opportunities for the Group. WTO membership would enable China’s exports, especially non-

garments, to become more competitive in the world market as discriminatory trade practices and

trade -barriers will largely be wiped out as China will have redress under WTO regulations.

To Li & Fung, this means the availability of more sourcing opportunities in the Mainland that

can further reinforce our position as a global leader in consumer goods sourcing with a well-established

global sourcing network that covers 37 countries.

C h a i r m a n ’ s S t a t e m e n t ( c o n t i n u e d )


OUR IT INITIATIVES

We are fully aware of the power of information technology, especially the Internet, in today’s

world economy that has become more integrated or globalized. We also understand the importance of

the synergy between supply chain management and the Internet that can give rise to greater

sophistication and higher value-added for our customers.

The Group has been actively pursuing the B2B application of the Internet for market

development. Last year we announced our plan to develop StudioDirect, a private label operation

targeting specialty retailers that are mainly small and medium-sized. The studiodirect.com website

was officially launched in the US in February 2001. Through this website, we now provide customized

service to individual small and medium-sized enterprises for building their own brands without the

need to place orders in large quantities. We are confident that demand will be built steadily by this

new operation and that our strengths in both the Old Economy and the New Economy will ensure our

leadership status in global trade.

PROSPECTS

Despite the possible slowdown of the US economy, the Group is well positioned to sustain

healthy growth, given its stronger and more diversified sourcing network.

Our internally generated growth in 2000, together with our acquisition of Colby at the end of

the year, will ensure top line growth in 2001.

The Group’s balance sheet is extremely strong and we enjoy a cash balance of over HK$2.7

billion that can be used to fund future expansion.

Our goal remains to double the profits of the Group over the three-year period from 1999-2001.

Our performance in the last two consecutive years is an excellent indicator that we are on track to

achieving this goal.

CONCLUSION

I wish to thank the board for their continued guidance and support and to express my

appreciation to the management and staff of the Group for the outstanding results achieved during

the year.

Victor FUNG Kwok King

Chairman

Hong Kong, 26 March 2001

Managing Direc tor ’s Report


Year 2000 was the second year of the Group’s 1999-2001 three-year plan. It turned out to be oneof the best years the Group has ever enjoyed with a dramatic increase in both turnover and profits.

TRADING

With a robust 32% increase in turnover from internal growth and a further 21% from acquiredcompanies, the Group grew at a total rate of 53% to reach almost HK$25 billion. Despite the fact thatthe recent acquisitions generally operated at lower margins than Li & Fung’s core business, profits forthe year increased commensurately by 51%.

These results were unprecedented for the Group, reflecting the strength of our deep customerbase and wide sourcing capabilities. The increase in business was not specific to one area butrepresented a broad increase in both apparel and hardgoods for the United States as well as Europe.The geographical breakdown of our markets remained unchanged from 1999, with the United Statesaccounting for 69% of our business. The product mix was slightly more skewed towards garmentexports, which accounted for 77%, whereas hardgoods accounted for the balance.

The Group, at this level of turnover, is well positioned to take advantage of operating leverageand economies of scale to become the lowest-cost provider of sourcing services compared to ourcompetitors and even when matched against the economics of large customers that operate their ownbuying offices. This, together with the unrivalled coverage of the world’s manufacturing markets byour network of sourcing offices, means we are in a stronger competitive position than ever before.

William FUNG Kwok Lun

M a n a g i n g D i r e c t o r ’ s R e p o r t ( c o n t i n u e d )


FINANCIAL POSITION

The Group’s financial position reflects the strength of its operating results. After raising aboutUS$250 million in March 2000 with the placement of 60 million new shares, the Group ended the yearwith a current ratio of 1.36 and a gearing (long term liabilities to equity) of less than 5%. Only theproperties of newly acquired Colby have a bank charge in order to secure credit facilities of HK$75million.

The Group now has a net cash balance of HK$2.7 billion from which it can draw for furtherexpansion should opportunities arise. Most of this cash is deposited in the leading banks of HongKong in either HK$ or US$.

The Group has no material contingent liabilities other than trade bills discounted in the ordinarycourse of business.

The Group continues to do most of its business in US$. Payment to factories are also in US$ orHK$. That, together with a policy of keeping the majority of our assets also in these currencies,ensures that our exposure to exchange rate fluctuations is minimal.

THE INTERNET

In 1999, the Company set out its objectives and initiatives with respect to the extensive use ofinternet-based information technology and its impact on our business.

Despite recent changes in the dot.com space, the Group’s view remains unchanged. We willcontinue to aggressively use internet-based communication as an integral part of our organization.Continuous improvements have been made to upgrade our sophisticated intranet that links up ourexpanding network of offices. Connectivity with large customers via dedicated extranet sites continuesto be a key element of our customer relationships.

Li & Fung’s position as a global supply chain integrator requires continual investment in anduse of information technology.

On the other hand, we will be conservative in our e-commerce activities.

Our e-commerce initiative in the U.S. via a 57% owned subsidiary StudioDirect is makingsteady headway. The business made a loss attributable to the Group of HK$23 million and is stillessentially in its beta stage. We are confident to be able to reach out to our target audience of smalland medium sized customers with our private label offering via the internet and will be graduallybringing these customers onto our internet system.

The Group’s attitude, with regard to investments in developing e-commerce, remains highlyprudent. Out of the US$250 million fund raised in March 2000 for the expansion of the Group’s e-commerce business, US$19 million has been used in StudioDirect as at the end of the year. WithStudioDirect, we are planning to cover operating losses with the interest income derived from thisfund which was about HK$70 million in 2000, more than offsetting the start-up costs of StudioDirectfor the year.

M a n a g i n g D i r e c t o r ’ s R e p o r t ( c o n t i n u e d )


INVESTMENTS

During the year, the Group continued to streamline its business and disposed of a distributioncentre in Panyu, China to its majority shareholder Li & Fung (1937) Limited at book value. Theremaining investment portfolio of the Group now relates only to venture capital type investments intrading-related companies mainly in the U.S. and Europe.

ACQUISITIONS

The acquisition of the Swire Pacific trading units: Swire & Maclaine and Camberley effective1 January 2000 contributed very satisfactorily to the Group’s business in 2000.

The acquisition of Colby announced in November 2000 contributed only to the Group’s resultsin the one month of December. At formal completion on 23 March 2001, both the guaranteed profitand net assets were met. Hence the balance of the cash consideration of HK$123,750,000 and theconsideration shares of 113,188,000 were paid and issued respectively on the same date.

STAFF

At the end of year 2000, and consequent to the Colby acquisition, the Group operated 64 officesin 37 countries with a staff of 4,668, of whom 1,704 were in Hong Kong and 2,964 overseas.

PROSPECTS

With such strong results in 2000, the Group is well positioned to achieve the current three-yearplan goal of doubling profits over the years 1999-2001.

There is some apprehension about a possible slowdown of the American economy in 2001.Management is monitoring the situation carefully but so far, there seems to be little impact on ourorder book.

The inclusion of the full year business of the Colby acquisition in 2001 will substantially benefitthe Group and cushion any deterioration in our main market of the U.S. However, management notesthat Colby’s business is heavily skewed towards the second half. This, coupled with the seasonalityfactor of other newly-acquired accounts, means that going forward the Group’s operating results willbe more biased towards the second half of the year.

Hence, barring unforeseen circumstances, the Group is well positioned to achieve our three-year plan goal.

William FUNG Kwok LunManaging Director



Report of the Direc tors

The directors submit their report together with the audited accounts for the year ended31 December 2000.

PRINCIPAL ACTIVITIES AND GEOGRAPHICAL ANALYSIS OF OPERATIONS

The principal activity of the Company is investment holding. The activities of its principalsubsidiaries are set out in the Group Structure on pages 69 to 76.

Details of the analysis of the Group’s turnover and contribution to operating profit for the yearby principal activities and geographical location is set out in note 2 to the accounts.

SHARE CAPITAL AND SHARE OPTIONS

At a special general meeting of the Company held on 18 September 2000, an ordinary resolutionwas duly passed under which each of the existing issued and unissued shares of HK$0.05 each in theshare capital of the Company as of that date was subdivided (the “Share Subdivision”) into twoshares of HK$0.025 each (the “Share”).

Details of the movements in share capital and share options of the Company are set out in note19 to the accounts.

RESULTS AND APPROPRIATIONS

The results for the year are set out in the consolidated profit and loss account on page 31.

The directors declared an interim dividend of HK$0.07 per Share, as adjusted for the effect ofthe Share Subdivision, totalling HK$192,318,000, which was paid on 11 September 2000.

The directors recommend the payment of a final dividend of HK$0.18 per Share, totallingHK$515,942,000.

RESERVES

Movements in the reserves of the Group and the Company during the year are set out in note 20to the accounts.

R e p o r t o f t h e D i r e c t o r s ( c o n t i n u e d )


DISTRIBUTABLE RESERVES

At 31 December 2000, the distributable reserves of the Company available for distribution asdividends amounted to HK$319,272,000, comprising retained earnings of HK$208,262,000 and thecontribution surplus arising from the exchange of shares for the acquisition of Li & Fung (B.V.I.)Limited, as set out in note 20(b)(i) to the accounts, amounting to HK$111,010,000. The contributedsurplus arising from the consideration shares to be issued for the acquisition of Colby Group HoldingsLimited as set out in note 20(b)(ii) to the accounts will become distributable upon the issue of theconsideration shares in March 2001.

Under the Companies Act 1981 of Bermuda (as amended), the contributed surplus shall not bedistributed to the shareholders if there are reasonable grounds for believing that:

(i) the Company is, or would after the payment be, unable to pay its liabilities as they becomedue; or

(ii) the realisable value of the Company’s assets would thereby be less than the aggregate of itsliabilities and its issued share capital and share premium account.

DONATIONS

Charitable and other donations made by the Group during the year amounted to HK$333,000.

FIXED ASSETS

Details of the movements in fixed assets of the Group are set out in note 10 to the accounts.

FIVE YEAR FINANCIAL SUMMARY

The following table summarises the results, assets and liabilities of the Group for the five yearsended 31 December 2000.

2000 1999 1998 1997 1996HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Profit attributable toshareholders 870,388 574,638 455,168 375,105 300,102

Total assets 7,296,912 4,211,168 3,443,725 3,184,889 2,892,369Total liabilities (4,450,938) (3,392,597) (2,374,264) (2,216,273) (1,999,262)Minority interests (19,861) (4,460) 24,595 20,486 18,531

Shareholders’ funds 2,826,113 814,111 1,094,056 989,102 911,638



PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company’s bye-laws though there areno restrictions against such rights under the laws of Bermuda.

PURCHASE, SALE AND REDEMPTION OF THE COMPANY’S LISTED SECURITIES

The Company has not redeemed any of its listed securities during the year. Neither the Companynor any of its subsidiaries has purchased or sold any of the Company’s listed securities during theyear.

SUBSIDIARIES

Details of the Company’s principal subsidiaries as at 31 December 2000 are set out in the GroupStructure on pages 69 to 76.

ASSOCIATED COMPANIES

Details of the Company’s principal associated companies as at 31 December 2000 are set out inthe Group Structure on pages 77 and 78.

MAJOR CUSTOMERS AND SUPPLIERS

During the year, the Group purchased less than 30% of its goods and services from its fivelargest suppliers and sold less than 30% of its goods and services to its five largest customers.

During 1999, the Group purchased less than 30% of its goods and services from its five largestsuppliers. The percentage of sales attributable to the Group’s largest customer and the five largestcustomers combined were 9.2% and 30.0% respectively. None of the directors, their associates or anyshareholders (which to the knowledge of the directors own more than 5% of the Company’s issuedshare capital) had an interest in the customers noted.

PENSION SCHEME ARRANGEMENTS

Prior to 1 December 2000, the Group operated a defined contribution provident scheme (the“Scheme”) for its employees in Hong Kong. Under the Scheme, the contribution to the definedcontribution provident funds was calculated at 5% of the employees’ basic salaries. The Scheme wasfunded by the Group and covers all permanent full-time employees of the Group in Hong Kong. TheScheme is administered by an independent trustee. No employee contributions were required underthe Scheme. Contributions forfeited by those employees who left the Scheme prior to completion often years of services were used by the Group to reduce the existing level of contributions. The Schemewas terminated and no contribution was made by the Group to the Scheme since 1 December 2000 asthe Group elected to contribute to the mandatory provident fund scheme (the “MPF Scheme”) asdetailed below.



PENSION SCHEME ARRANGEMENTS (CONT’D)With effect from 1 December 2000, the MPF Scheme was made compulsory as enforced by the

Mandatory Provident Fund Schemes Authority of Hong Kong. The MPF Scheme is a definedcontribution retirement benefit scheme administered by independent trustees. The employer and theemployee have to contribute in total an amount equal to 10% of the relevant income of the employeeto the MPF Scheme. Contributions from the employer are 100% vested in the employees as soon asthey are paid to the relevant MPF Scheme but all benefits derived from the mandatory contributionsmust be preserved until the employee reaches the retirement age of 65 subject to a few exceptions.

In Taiwan, the Group operated a defined contribution provident scheme for its employeessimilar to the Scheme with the contribution set at 6% of the employees’ basic salaries. In addition, theGroup also participated in a retirement benefit plan in accordance with local statutory requirements.Under this plan, the Group recognised pension cost monthly at 2% of the employees’ salaries, whichis contributed monthly to an independent fund. An employee earns two units for each year of serviceduring the first fifteen years and one unit for each year of service thereafter, up to a maximum of 45units. Employees retiring under compulsory retirement or due to job related mental or physicalimpairment are entitled to receive an additional 20% on benefits accrued. Upon retirement, an employeeis entitled to receive a lump sum payment based on the units earned.

In Korea, the Group and each of its employees are required to contribute 4.5% of the employee’smonthly salary to a government established pension corporation pursuant to the statutory requirement.Upon retirement, an employee is entitled to receive a lump sum payment.

The provident fund schemes for staff of the Group in other regions follow the local statutoryrequirements.

The Group’s pension scheme contributions charged to the consolidated profit and loss accountfor the year were as follows:

HK$’000

Contributions based on 5% of employees’ basic salaries under the Scheme 12,829Contributions forfeited by employees used to reduce the Group’s

existing level of contribution under the Scheme (1,774)Contributions to the MPF Scheme 1,692Contributions to the defined contribution provident scheme

and defined benefit plan in Taiwan 3,874Contributions pursuant to the statutory requirements in Korea 4,915Contributions pursuant to statutory requirements in other overseas regions 8,100

29,636



DIRECTORS

The directors during the year were:

Dr Victor FUNG Kwok King, Chairman +

Dr William FUNG Kwok Lun, Managing Director

Mr Henry CHAN

Mr Danny LAU Sai Wing

Ms Annabella LEUNG Wai Ping (appointed on 6 December 2000)

Mr Paul Edward SELWAY-SWIFT *

Mr Allan WONG Chi Yun *

Professor Franklin Warren McFARLAN *

Mr LAU Butt Farn +

Mr Leslie BOYD +

Mr Steven Murray SMALL + (alternate to Mr Leslie BOYD)

Mr Henry CHAN and Mr Danny LAU Sai Wing retire in accordance with bye-law 110 of theCompany’s bye-laws and, being eligible, offer themselves for re-election.

Ms Annabella LEUNG Wai Ping retires in accordance with bye-law 101 of the Company’s bye-laws and, being eligible, offers herself for re-election.

Independent non-executive directors are subject to retirement by rotation in Annual GeneralMeetings in accordance with bye-law 110 of the Company’s bye-laws.

* independent non-executive directors+ non-executive directors



BIOGRAPHICAL DETAILS OF DIRECTORS

Victor FUNG Kwok KingVictor FUNG Kwok King, aged 55, brother of Dr William FUNG

Kwok Lun, is Group Chairman. He joined the Group in 1973 as Managerand became Managing Director of the Group’s export trading businessin 1977. He became Group Managing Director in 1981 and GroupChairman in 1989. He holds a Bachelor of Science and a Master of Sciencedegree in electrical engineering from the Massachusetts Institute ofTechnology and a doctorate from Harvard University. Dr Fung iscurrently Chairman of the Hong Kong Airport Authority. He is a pastChairman of the Hong Kong Trade Development Council. He is activeon a number of Government advisory boards including the JudicialOfficers Recommendation Commission. He is also Chairman ofPrudential Asia Investments Limited.

William FUNG Kwok LunWilliam FUNG Kwok Lun, OBE, JP, aged 52, brother of Dr

Victor FUNG Kwok King, is Group Managing Director. He joinedthe Group in 1972 and became a Director of the Group’s exporttrading business in 1976. He became Group Managing Directorin 1986. Dr Fung graduated from Princeton University with aBachelor of Science degree in engineering and holds an MBAdegree from the Harvard Graduate School of Business. He wasconferred the degree of Doctor of Business Administration, honoriscausa, by the Hong Kong University of Science & Technology. DrFung is a non-executive director of HSBC Holdings PLC andCLP Holdings Limited. He is a past Chairman of the Hong KongGeneral Chamber of Commerce and a past Chairman of the HongKong Exporters’ Association. He is Chairman of the Hong KongCommittee for Pacific Economic Cooperation and is a member ofthe Economic Advisory Committee to the Financial Secretary. DrFung is a Hong Kong Special Administrative Region delegate tothe Chinese People’s Political Consultative Conference.



BIOGRAPHICAL DETAILS OF DIRECTORS (CONT’D)

Henry CHANHenry CHAN, aged 51, is an Executive Director of the

Company and is in charge of the Hardgoods business stream.Mr Chan has been with the Group since 1972 and has over 24years of experience in the hardgoods area. He graduated fromthe University of Hong Kong with a Bachelor of Social Sciencedegree. He also holds an MBA degree from the ChineseUniversity of Hong Kong.

Danny LAU Sai WingDanny LAU Sai Wing, aged 49, is an Executive Director of the

Company and is in charge of the Textiles (U.S.A.) business stream. He hasbeen with the Group since 1981. Mr Lau has over 22 years of experiencein the supply chain management of exporting textiles and apparel to NorthAmerica. His current community work includes serving as Vice-Chairmanof the Hong Kong Exporters’ Association and a director of the Government-funded Clothing Technology Demonstration Centre Co., Ltd. He graduatedfrom the University of Kansas with a Bachelor of Science degree in businessand accounting.

Annabella LEUNG Wai PingAnnabella LEUNG Wai Ping, aged 48, is an Executive Director

of the Company and is in charge of the European Apparel businessstream. She has been with the Group since 1994. Ms Leung holds aMaster of Science degree in biology from Northeastern Universityand has over 13 years of experience in the textile industry. She is alsoinvolved in work of the Hong Kong Exporters’ Association and theClothing Industry Training Authority.




Paul Edward SELWAY-SWIFTPaul Edward SELWAY-SWIFT, aged 56, is an

independent non-Executive Director of the Company. Heis currently Chairman of SVB Holdings PLC, a specialistinsurance group, and Chivers Communications PLC. He isalso a director of several other companies including AlbaPLC and Singer & Friedlander Group PLC. Mr Selway Swiftwas formerly Deputy Chairman of HSBC Investment BankPLC and a director of The Hong Kong and ShanghaiBanking Corporation Limited.

Allan WONG Chi YunAllan WONG Chi Yun, MBE, aged 50, is an independent non-

Executive Director of the Company. He is currently Chairman and ChiefExecutive of VTech Holdings Limited. He co-founded VTech Group in1976. He holds a Bachelor of Science degree in electrical engineeringfrom the University of Hong Kong and a Master of Science degree inelectrical and computer engineering from the University of Wisconsin inthe U.S.A. Mr Wong serves on the Hong Kong Trade Development Counciland the Board of the Industrial Technology Centre Corporation. He isalso Chairman of Hong Kong Applied Science & Technology ResearchInstitute Company Limited, a council member of the University of HongKong and a director of both the Bank of East Asia Limited and China-Hong Kong Photo Products Holdings Limited.

Franklin Warren McFARLANFranklin Warren McFARLAN, aged 63, is an independent

non-Executive Director of the Company. Professor McFarlan isSenior Associate Dean, Director of Asia Pacific, of HarvardUniversity. He has been Professor of Business Administrationof Harvard University since 1973 and was Faculty Chairman ofAdvanced Management Program and Chairman of ExecutiveEducation Programs. Professor McFarlan graduated from theHarvard Business School with a doctorate. He is currently adirector of Computer Sciences Corporation and ProvidianFinancial Corporation.




LAU Butt FarnLAU Butt Farn, aged 53, is a non-Executive Director

of the Company. Mr Lau joined the Li & Fung Group in1981 as Financial Controller. Between 1985 and 1998, hewas Operations Director for Li & Fung (Retailing) Limited(the retailing arm of the private group) that operates inCircle K, Fotomax, Toys “R” Us and Fun Fun World. Hewas also responsible for the investments of the privategroup. Since 1999, Mr Lau has been Chief Financial Officerof Li & Fung (Distribution) Limited, the supply chainmanagement business of the private group. Mr Laugraduated from the University of London with a Bachelorof Science degree in physics and is a Fellow of the Instituteof Chartered Accountants in England and Wales.

Leslie BOYDLeslie BOYD, aged 64, is a non-Executive Director of the

Company. Mr Boyd was Works Manager in the British steel industrybefore moving to South Africa in 1970. Since then, he has dedicatedhis entire career in the steel, engineering and mining industries inSouth Africa and is highly involved in the business community there.Mr Boyd is a Chartered Engineer and a Fellow of the Institution ofMetallurgists UK. He is currently Executive Vice Chairman of AngloAmerican PLC and Deputy Chairman of Anglo American Corporationof South Africa Limited. He also holds chairmanships and directorshipsin a number of mining, industrial and financial companies.

Steven Murray SMALLSteven Murray SMALL, aged 45, is an alternate director to

Mr Leslie Boyd, non-Executive Director of the Company. Mr Smallis a director of Consolidated Resources Limited, a subsidiary ofAnglo American PLC which has an equity interest in Li & Fung.Mr Small graduated from the University of Durham with aBachelor of Arts degree in Economics and is a Fellow of theInstitute of Chartered Accountants in England and Wales. MrSmall also has a consultancy practice, Dimension S Capital, andmanages a private equity portfolio. He sits on the boards of anumber of Asian based companies.



DIRECTORS’ SERVICE CONTRACTS

Under a service contract dated 2 June 1992 between the Company and Dr William FUNG KwokLun and a service contract dated 2 June 1992 between Li & Fung (B.V.I.) Limited and Dr WilliamFUNG Kwok Lun, Dr William FUNG Kwok Lun has been appointed to act as Managing Director ofthe Company, Li & Fung (Trading) Limited, Li & Fung (Properties) Limited and Li & Fung (B.V.I.)Limited, in each case for an initial period of five years from 1 April 1992 and thereafter unlessterminated by not less than 12 calendar months’ notice in writing expiring at the end of such initialperiod or any subsequent month.

Apart from the above, none of the directors who are proposed for re-election at the forthcomingannual general meeting has a service contract with the Group which is not determinable within oneyear without payment of compensation other than statutory compensation.

DIRECTORS’ INTERESTS IN CONTRACTS AND CONNECTED TRANSACTIONS

On 27 March 2000, the Group entered into an agreement (the “Agreement”) to dispose of itsentire interest in a subsidiary, Neptune Pacific Limited (“Neptune”) to Li & Fung (1937) Limited, asubstantial shareholder of the Company, at a consideration of approximately HK$73.3 million. Neptuneowns 20% interest in the share capital of LF Distribution Centers Limited which in turn holds 70%equity interest in Lifung (Panyu) DistriCenter Company Limited. Lifung (Panyu) DistriCenter CompanyLimited owns a warehouse and logistic center located in the Guangdong Province of the People’sRepublic of China. The warehouse and logistic center comprises nine warehouse blocks and acommercial block with total floor area of approximately 101,000 square metres available for leasingpurposes. In light of the abundant supply of warehousing space in nearby areas which results in lowleasing activities in the warehouse and logistic center, the directors consider that the Group’s existingreturn from this non-trading related investment is low compared to its core activities and the disposalis in the interest of the Group.

As Dr Victor FUNG Kwok King and Dr William FUNG Kwok Lun, the directors of the Company,are the controlling shareholders of Li & Fung (1937) Limited, the above transaction constitutes aconnected transaction under Chapter 14 of the Rules Governing the Listing of Securities on The StockExchange of Hong Kong Limited (the “Listing Rules”).

The directors, including the independent non-executive directors, had reviewed the transactionby reference to a professional valuation of the warehouse and logistic center carried out by anindependent valuer and considered the terms of the Agreement to be fair and reasonable and in theinterest of the Group and its shareholders as a whole.

The Company had complied with relevant requirements under the Listing Rules. Pressannouncement was made and circulars were sent to the Company’s shareholders in connection withthis transaction.

The above connected transaction also constitutes a related party transaction and is disclosed innote 27 to the accounts.



DIRECTORS’ INTERESTS IN CONTRACTS AND CONNECTED TRANSACTIONS (CONT’D)Save as disclosed above, no other contracts of significance in relation to the Group’s business to

which the Company or its subsidiaries was a party and in which a director of the Company had amaterial interest, whether directly or indirectly, subsisted at the end of the year or at any time duringthe year.

DIRECTORS’ INTERESTS IN EQUITY OR DEBT SECURITIES

As at 31 December 2000, the directors, chief executives and their associates had the followinginterests in the share capital and share options of the Company and its associated corporations (withinthe meaning of the Securities (Disclosure of Interests) Ordinance (“SDI Ordinance”)) which requirenotification pursuant to Section 28 of the SDI Ordinance or the Model Code for Securities Transactionsby Directors of Listed Companies (“the Model Code”) or as recorded in the register maintainedpursuant to Section 29 of the SDI Ordinance:

(a) Shares of HK$0.025 each

Number of Shares

Personal Corporate Family Other Totalinterest interest interest interest interests

Dr Victor FUNG Kwok King — 1,180,500,000 — 50,750,000 1,231,250,000Note (1) Note (2)

Dr William FUNG Kwok Lun 68,502,300 1,180,500,000 8,000 — 1,249,010,300Note (1)

Mr Henry CHAN 1,720,000 — — — 1,720,000Mr Danny LAU Sai Wing 7,040,000 — — — 7,040,000Ms Annabella LEUNG Wai Ping 2,880,000 — — — 2,880,000Mr LAU Butt Farn 2,200,000 — — — 2,200,000Professor Franklin Warren

McFARLAN 52,000 — — — 52,000

Note:

(1) As at 31 December 2000,

(a) King Lun Holdings Limited (“King Lun”), a private company incorporated in the British VirginIslands, held 49,950,800 Shares.

(b) King Lun through its wholly-owned Hong Kong incorporated subsidiary, Li & Fung (1937) Limited,held 996,000,000 Shares.

(c) Li & Fung (1937) Limited, through Orient Ocean Holdings Limited (“Orient Ocean”), a privatecompany incorporated in the British Virgin Islands, held 134,549,200 Shares. Li & Fung (1937)Limited held 50% voting rights with no beneficial interest in Orient Ocean.



DIRECTORS’ INTERESTS IN EQUITY OR DEBT SECURITIES (CONT’D)

(a) Shares of HK$0.025 each (CONT’D)Dr Victor FUNG Kwok King and Dr William FUNG Kwok Lun are deemed to have interests in the1,180,500,000 Shares, i.e. the total number of Shares mentioned in notes (1)(a), (b) and (c) above, throughtheir personal or other interests in King Lun as set out below:

(i) 1,332,840 shares in King Lun, representing 50% of its issued share capital, are owned by ChaseBank & Trust Company (CI) Limited, the trustee of a trust established for the benefit of the familyof Dr Victor FUNG Kwok King.

(ii) 1,332,840 shares in King Lun, representing 50% of its issued share capital, are owned by Dr WilliamFUNG Kwok Lun.

(2) 50,750,000 Shares in the Company are held by Chase Bank & Trust Company (CI) Limited, the trustee of atrust established for the benefit of the family of Dr Victor FUNG Kwok King.

(b) Shares options

On 2 June 1992, a share option scheme (the “Share Option Scheme”) was approved by theshareholders of the Company under which its directors may, at their discretion, invite directors andemployees of the Group to take up options (the “Share Options”) to subscribe for Shares in theCompany subject to the terms and conditions stipulated therein.

As a result of the Share Subdivision and in accordance with the terms of the Share OptionScheme, the number of Shares comprising the Share Options granted was increased by one Share forevery share of HK$0.05 each then held comprising such Share Options.

During the year, Share Options to subscribe for 1,200,000 and 8,096,000 Shares, as adjusted forthe effect of the Share Subdivision, were respectively granted to the directors of the Company andcertain employees including directors of the subsidiaries who are not directors of the Company.Details of the outstanding Share Options held by the directors of the Company as at 31 December 2000are as follows:

Number of Share Options outstanding

Name 25 July 16 July 7 July1998 1999 2000

(Note 2) (Note 3) (Note 4)

Dr William FUNG Kwok Lun — — 480,000Mr Henry CHAN 360,000 1,200,000 240,000Mr Danny LAU Sai Wing — 240,000 240,000Ms Annabella LEUNG Wai Ping — — 240,000

360,000 1,440,000 1,200,000



DIRECTORS’ INTERESTS IN EQUITY OR DEBT SECURITIES (CONT’D)

(b) Shares options (CONT’D)Note:

(1) As a result of the Share Subdivision and in accordance with the terms of the Share Option Scheme, thesubscription prices per Share mentioned in notes (2), (3) and (4) below were adjusted from HK$4.315 toHK$2.1575, HK$8.305 to HK$4.1525 and HK$30.52 to HK$15.26 respectively.

(2) The Share Options granted on 25 July 1998 are exercisable at HK$2.1575 per Share during the periodfrom 25 July 1999 to 24 July 2001.



During the year, a total of 2,080,000 Shares, 2,040,000 Shares and 4,560,000 Shares, as adjustedfor the effect of the Share Subdivision, were issued to certain directors of the Company pursuant tothe exercise of the Share Options granted on 24 June 1997, 25 July 1998 and 16 July 1999 respectively.

Save as disclosed above, at no time during the year, the directors and chief executives (includingtheir spouse and children under 18 years of age) had any interest in, or had been granted, or exercised,any rights to subscribe for shares (or warrants or debentures, if applicable) of the Company or itsassociated corporations required to be disclosed pursuant to the SDI Ordinance and the Model Code.

SUBSTANTIAL SHAREHOLDERS

At 31 December 2000, the register of substantial shareholders maintained under Section 16(1) ofthe SDI Ordinance shows that the Company had not been notified of any substantial shareholders’interests, being 10% or more of the Company’s issued share capital, other than those of Li & Fung(1937) Limited as disclosed above.

MANAGEMENT CONTRACTS

No contracts concerning the management and administration of the whole or any substantialpart of the business of the Company were entered into or existed during the year.

CORPORATE GOVERNANCE

The Board of Directors is committed to principles of corporate governance consistent withprudent enhancement and management of shareholder value. The accounting systems and internalcontrols of the Group are designed to provide reasonable assurance that assets are safeguarded againstunauthorized use or disposition, that transactions are executed in accordance with management’sauthorization and that the accounting records are reliable for preparing financial information usedwithin the business or for publication and maintaining accountability for assets and liabilities. Qualifiedpersonnel throughout the Group maintain and monitor these internal accounting controls on an ongoingbasis. The Group’s Corporate Governance Division, under the supervision of the Chief ComplianceOfficer, independently reviews these controls, evaluates their adequacy, effectiveness and complianceand reports to the Audit Committee.



AUDIT COMMITTEE

An Audit Committee has been established since 1998 to act in an advisory capacity and makerecommendations to the Board. Its members currently include five non-executive directors of whomthree are independent directors:

Dr Victor FUNG Kwok King - ChairmanMr Paul Edward SELWAY-SWIFTMr Allan WONG Chi YunProfessor Franklin Warren McFARLANMr Leslie BOYDMr James SIU Kai Lau (Chief Compliance Officer) - Secretary

During the last 12 months the Audit Committee met three times to review with seniormanagement and the Company’s internal and external auditors the accounting principles and practicesadopted by the Group and to discuss auditing, internal control and financial reporting matters(including the interim and annual financial statements before recommending them to the Board forapproval).

COMPENSATION COMMITTEE

A Compensation Committee has been formed since 1993 with responsibility for approving theremuneration policy for senior executives, including annual allocation of Share Options to employeesunder the Company’s Employee Share Option Scheme. The Committee meets on an annual basis andits current members include Mr Allan WONG Chi Yun, an independent non-executive Director, DrVictor FUNG Kwok King, the Group’s non-executive Chairman and Dr William FUNG Kwok Lun, theGroup’s Managing Director.

COMPLIANCE WITH THE CODE OF BEST PRACTICE OF THE LISTING RULES

The Company has complied with the Code of Best Practice as set out in Appendix 14 of theListing Rules throughout the year ended 31 December 2000.

INVESTOR COMMUNICATION AND RELATIONS

The Company has included in its current three-year plan (1999-2001) a proactive policy forpromoting investor communication and relations by maintaining regular meetings with institutionalshareholders and analysts. All shareholders have 21 days’ notice of the Annual General Meeting atwhich directors and Committee chairs are available to answer business-related questions. In order tofurther promote effective communication, the Company maintains a website (www.lifung.com) todisseminate shareholder information electronically.



CORPORATE SOCIAL RESPONSIBILITY

The Company has adopted and implemented a Code of Conduct program for suppliers withthe aim of adhering to the highest international ethical standards. Suppliers are subject to on-goingcompliance audits and evaluations conducted by the business units, and rigorous training initiativesare regularly undertaken to further reinforce compliance awareness amongst the staff. The Companyis currently a corporate member of Business for Social Responsibility (BSR), a US based organizationwhose purpose is to foster high working standards amongst suppliers.

AUDITORS

The accounts have been audited by PricewaterhouseCoopers who retire and, being eligible,offer themselves for re-appointment.

On behalf of the BoardVictor FUNG Kwok KingChairman


Auditors ’ Report


PricewaterhouseCoopers22nd Floor Prince's BuildingCentral, Hong KongTelephone (852) 2289 8888Facsimile (852) 2810 9888

AUDITORS’ REPORT TO THE SHAREHOLDERS OFLI & FUNG LIMITED(incorporated in Bermuda with limited liability)

We have audited the accounts on pages 31 to 78 which have been prepared in accordance withaccounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Company’s directors are responsible for the preparation of accounts which give a true andfair view. In preparing accounts which give a true and fair view it is fundamental that appropriateaccounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those accountsand to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by theHong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevantto the amounts and disclosures in the accounts. It also includes an assessment of the significantestimates and judgements made by the directors in the preparation of the accounts, and of whetherthe accounting policies are appropriate to the circumstances of the Company and the Group, consistentlyapplied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanationswhich we considered necessary in order to provide us with sufficient evidence to give reasonableassurance as to whether the accounts are free from material misstatement. In forming our opinion wealso evaluated the overall adequacy of the presentation of information in the accounts. We believethat our audit provides a reasonable basis for our opinion.

OPINION

In our opinion, the accounts give a true and fair view of the state of affairs of the Company andthe Group as at 31 December 2000 and of the profit and cash flows of the Group for the year thenended and have been properly prepared in accordance with the disclosure requirements of the HongKong Companies Ordinance.

PricewaterhouseCoopersCertified Public AccountantsHong Kong, 26 March 2001

Consol idated Prof i t and Loss AccountFor the Year ended 31 December 2000


Note 2000 1999HK$’000 HK$’000

Turnover 2 24,993,018 16,297,501

Cost of sales (22,559,654) (14,585,881)

Gross profit 2,433,364 1,711,620

Other revenues 2 75,154 55,006

Other income 50,150 48,225

Selling expenses (455,168) (354,124)

Merchandising expenses (1,090,867) (710,525)

Administrative expenses (221,785) (157,317)

Operating profit 3 790,848 592,885

Interest income 2 140,330 43,830

Interest expenses 4 (20,585) (32,243)

Share of profits less losses of associated companies 13,677 9,389

Profit before taxation 924,270 613,861

Taxation 5 (64,178) (36,638)

Profit after taxation 860,092 577,223

Minority interests 10,296 (2,585)

Profit attributable to shareholders 6 & 20 870,388 574,638

Basic earnings per share 8 32.2 cents 22.4 cents

Consol idated Balance SheetAs at 31 December 2000


Note 2000 1999HK$’000 HK$’000

Fixed assets 10 1,361,435 1,161,808Associated companies 12 28,564 1,242Investments 13 53,807 86,484

Current assets

Inventories 14 166,980 110,014Due from related companies 15 19,682 24,609Trade and bills receivable 16 2,429,659 1,488,780Other receivables, prepayments and deposits 412,389 308,858Cash and bank balances 2,824,396 1,029,373

5,853,106 2,961,634

Current liabilities

Due to related companies 17 103 100Trade and bills payable 18 2,808,662 1,617,587Balance of cash consideration payable

for acquisition of :Maclaine Limited and

Camberley Enterprises Limited — 300,000Colby Group Holdings Limited 19(h) 123,750 —

Accrued charges and sundry payables 622,355 480,393Taxation 77,005 60,819Current portion of long-term liabilities 21 30,613 79,663Bank loans and overdrafts

Secured 26 104,995 86,044Unsecured 22,655 27,573

Proposed dividend 515,942 324,650

4,306,080 2,976,829

Net current assets/(liabilities) 1,547,026 (15,195)

Total assets less current liabilities 2,990,832 1,234,339

C o n s o l i d a t e d B a l a n c e S h e e t ( c o n t i n u e d )


Note 2000 1999HK$’000 HK$’000

Financed by:

Share capital 19 71,605 64,765Reserves 20 2,754,508 749,346

Shareholders’ funds 2,826,113 814,111Minority interests 19,861 4,460Non-current liabilities

Long-term liabilities 21 137,642 414,868Deferred taxation 22 7,216 900

2,990,832 1,234,339

Victor FUNG Kwok King William FUNG Kwok LunDirector Director


Balance SheetAs at 31 December 2000

Note 2000 1999HK$’000 HK$’000

Subsidiaries 11 2,063,703 111,210

Current assets

Due from related companies 15 4,083,306 1,612,687Other receivables, prepayments and deposits 538 135Dividend receivable 720,018 440,011Cash and bank balances 107 71

4,803,969 2,052,904Current liabilities

Due to related companies 17 1,247,413 714,801Accrued charges and sundry payables 1,335 1,401Proposed dividend 515,942 324,650

1,764,690 1,040,852

Net current assets 3,039,279 1,012,052

Total assets less current liabilities 5,102,982 1,123,262

Financed by:

Share capital 19 71,605 64,765Reserves 20 5,031,377 1,058,497

5,102,982 1,123,262

Victor FUNG Kwok King William FUNG Kwok LunDirector Director


Consol idated Cash Flow StatementFor the Year ended 31 December 2000

Note 2000 1999HK$’000 HK$’000

Net cash inflow from operating activities 23(a) 1,056,836 624,841

Returns on investments and servicing of finance

Interest received 140,330 43,830Interest paid (20,585) (32,243)Dividends received from associated companies 675 576Dividends paid to minority shareholders (50) (113)Dividends paid (532,706) (385,146)

Net cash outflow from returns on investments andservicing of finance (412,336) (373,096)

Taxation

Hong Kong profits tax paid (27,959) (10,614)Overseas taxation paid (18,386) (10,220)

Total taxation paid (46,345) (20,834)

Investing activities

Purchase of fixed assets (193,646) (81,879)Sale of fixed assets 13,918 5,530Disposal of a subsidiary 23(b) 73,289 —Purchase of subsidiaries (net of cash

and cash equivalents) 23(c) (1,653) (93,420)Settlement of consideration payable for the

acquisition of Maclaine Limited andCamberley Enterprises Limited (300,000) —

Premium paid in respect of acquisition of businesses (378) (253)Repayment from an associated company — 872Investment in an associated company (17,678) —Purchase of investments (33,306) (229)Sale of investments 7,730 3,906Repayment from/(loan to) an investee company 122 (38,772)

Net cash outflow from investing activities (451,602) (204,245)

Net cash inflow before financing 146,553 26,666

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 )


Note 2000 1999HK$’000 HK$’000

Financing 23(d)

Net proceeds from issue of shares 2,035,496 79,058New bank loans — 250,000Capital contribution from a minority shareholder 23,249 232Repayment to minority shareholder 318 —Repayment of bank loans (430,492) (280,000)Repayment of obligations under finance leases (266) —Loans from minority shareholders 18,160 —Advances from holding company

and fellow subsidiaries — 768

Net cash inflow from financing 1,646,465 50,058

Increase in cash and cash equivalents 1,793,018 76,724Cash and cash equivalents at 1 January 915,756 837,917Effect of foreign exchange rate changes (12,028) 1,115

Cash and cash equivalents at 31 December 2,696,746 915,756

Analysis of the balances of cash and cash equivalentsCash and bank balances 2,824,396 1,029,373Short-term bank loans and overdrafts (127,650) (113,617)

2,696,746 915,756


Consolidated Statement of Recognised Gains and LossesFor the Year ended 31 December 2000

Note 2000 1999HK$’000 HK$’000

Exchange differences arising on translation ofthe accounts of overseas subsidiaries andassociated companies 20 (15,871) 1,919

Profit attributable to shareholders 870,388 574,638

Total recognised gains 854,517 576,557

Goodwill eliminated directly against reserves 20 (2,106,506) (493,788)

(1,251,989) 82,769


Notes to the Accounts31 December 2000

1 PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these accounts are set outbelow:

(a) Basis of preparation

The accounts have been prepared under the historical cost convention as modified by therevaluation of certain leasehold land and buildings, in accordance with accountingprinciples generally accepted in Hong Kong and comply with accounting standards issuedby the Hong Kong Society of Accountants (“HKSA”).

(b) Consolidation

The consolidated accounts include the accounts of the Company and its subsidiariesmade up to 31 December. The results of subsidiaries acquired or disposed of during theyear are included in the consolidated profit and loss account from the effective date ofacquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminatedon consolidation.

The gain or loss on disposal of a subsidiary represents the difference between the proceedsof the sale and the Group’s share of its net assets together with any goodwill or capitalreserve which was not previously charged or recognised in the consolidated profit andloss account.

Minority interests represent the interests of outside shareholders in the operating resultsand net assets of subsidiaries.

In the Company’s balance sheet the investments in subsidiaries are stated at cost lessprovision, if necessary, for any permanent diminution in value other than temporary innature. The results of subsidiaries are accounted for by the Company on the basis ofdividends received and receivable.

(c) Associated companies

An associated company is a company, not being a subsidiary, in which an equity interestis held for the long-term and significant influence is exercised in its management.

The consolidated profit and loss account includes the Group’s share of the results ofassociated companies for the year, and the consolidated balance sheet includes the Group’sshare of the net assets of the associated companies.

N o t e s t o t h e A c c o u n t s ( c o n t i n u e d )


1 PRINCIPAL ACCOUNTING POLICIES (CONT’D)

(d) Goodwill

Goodwill represents the excess of purchase consideration over the fair values ascribed tothe net assets of subsidiaries and associated companies acquired and is taken to reservesin the year of acquisition.

(e) Property, plant and equipment

Freehold land is stated at cost.

Leasehold land and buildings are stated at cost or valuation less subsequent accumulateddepreciation. Effective from 1994, no further revaluation of the Group’s leasehold landand buildings in Hong Kong have been carried out. The Group places reliance onparagraph 72 of Statement of Standard Accounting Practice No.2.117 issued by the HKSAwhich provides exemption from the need to make regular revaluation for such assets.

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

Freehold land is not amortised. Leasehold land is depreciated over the period of thelease while other tangible fixed assets are depreciated at rates sufficient to write off theircost over their estimated useful lives on a straight-line basis. The principal annual ratesare as follows:

Buildings and leasehold improvements 12/3 % - 20%Furniture, fixtures, computer and other equipment 10% - 331/3 %Plant and machinery 10%Motor vehicles and company boats 15% - 20%

Major costs incurred in restoring fixed assets to their normal working condition arecharged to the profit and loss account. Improvements are capitalised and depreciatedover their expected useful lives to the Group.

The carrying amounts of fixed assets are reviewed regularly to assess whether theirrecoverable amounts have declined below carrying amounts. Expected future cash flowshave not been discounted in determining the recoverable amount.

The gain or loss on disposal of a fixed asset is the difference between the net salesproceeds and the carrying amount of the relevant asset, and is recognised in the profitand loss account. Any revaluation reserve balance remaining attributable to the relevantasset is transferred to retained earnings and is shown as a movement in reserves.




(f) Assets under leases

(i) Finance leases

Leases that substantially transfer to the Group all the risks and rewards ofownership of assets are accounted for as finance leases. Finance leases arecapitalised at the inception of the leases at the lower of the fair value of the leasedassets or the present value of the minimum lease payments. Each lease payment isallocated between the capital and finance charges so as to achieve a constant rateon the capital balances outstanding. The corresponding rental obligations, net offinance charges, are included in long-term liabilities. The finance charges arecharged to the profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimateduseful lives or the lease periods.

(ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remainwith the leasing company are accounted for as operating leases. Payments madeunder operating leases net of any incentives received from the leasing companyare charged to the profit and loss account on a straight-line basis over the leaseperiods.

(g) Investments

Investments are stated at cost less any provision for diminution in value.

The carrying amounts of individual investments are reviewed at each balance sheet dateto assess whether the fair values have declined below the carrying amounts. When adecline other than temporary has occurred, the carrying amount of such investmentswill be reduced to its fair value. The amount of the reduction is recognised as an expensein the profit and loss account.

(h) Inventories

Inventories comprise merchandise, raw materials and finished goods and are stated atthe lower of cost and net realisable value. Cost, calculated on the first-in first-out basis,comprises purchase prices of inventories including direct expenses. Net realisable valueis determined on the basis of anticipated sales proceeds less estimated selling expenses.




(i) Accounts receivable

Provision is made against accounts receivable to the extent which they are considered tobe doubtful. Accounts receivable in the balance sheet are stated net of such provision.

(j) Export quota entitlements

Purchased permanent export quota entitlements are charged to the profit and loss accountimmediately upon acquisition.

Export quota entitlements allocated by the authorities in Hong Kong are not capitalisedand are not included as assets in the balance sheet.

Temporary export quota entitlements acquired are charged to the profit and loss accountin the year in which such quota entitlements are utilised.

(k) Deferred taxation

Deferred taxation is accounted for at the current taxation rate in respect of timingdifferences between profit as computed for taxation purposes and profit as stated in theaccounts to the extent that a liability or an asset is expected to be payable or recoverablein the foreseeable future.

(l) Translation of foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transactiondates. Monetary assets and liabilities expressed in foreign currencies at the balance sheetdate are translated at rates of exchange ruling at the balance sheet date. Exchangedifferences arising in these cases are dealt with in the profit and loss account.

The accounts of subsidiaries and associated companies expressed in foreign currenciesare translated at the rates of exchange ruling at the balance sheet date. Exchangedifferences are dealt with as a movement in reserves.




(m) Revenue recognition

Revenue from the sale of goods at invoiced value is recognised on the transfer of risksand rewards of ownership, which generally coincides with the time when the goods aredelivered to customers and title has been passed.

Operating lease rental income is recognised on a straight-line basis.

Interest income is recognised on a time proportion basis, taking into account the principalamounts outstanding and the interest rates applicable.

Dividend income is recognised when the right to receive payment is established.

Commission and handling income are recognised when the services are rendered.

(n) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or productionof an asset that necessarily takes a substantial period of time to get ready for its intendeduse or sale are capitalised as part of the cost of that asset.

All other borrowing costs are charged to the profit and loss account in the year in whichthey are incurred.

(o) Comparatives

Where necessary, comparative figures have been adjusted to conform with changes inpresentation in the current year. In particular, comparatives have been extended in theconsolidated profit and loss account to disclose the merchandising and administrativeexpenses which were disclosed in aggregate in previous year. The directors are in theopinion that the nature of the expenses will be reflected more properly following theextension of comparatives.



2 REVENUES AND TURNOVER

The Group is principally engaged in the export trading of consumer products. Turnovercomprises sales at invoiced value to customers outside the Group less discounts and returns,and gross rental revenue derived from properties in and outside Hong Kong. Revenuesrecognised during the year are as follows:

2000 1999HK$’000 HK$’000

TurnoverSale at invoiced value 24,990,647 16,293,730Rental income 2,371 3,771

24,993,018 16,297,501

Other revenues

Handling income 70,509 37,448Commission income 4,645 17,558

75,154 55,006

Interest income 140,330 43,830

25,208,502 16,396,337

No analysis of the Group’s turnover and contribution to operating profit for the year by principalactivities is provided as over 90% of the Group’s turnover and contribution to operating profitare attributable to the export trading of consumer products.

An analysis of the Group’s turnover for the year by principal markets is as follows:

2000 1999HK$’000 HK$’000

USA 17,145,148 11,138,791European Union 6,519,108 4,500,327Asia Pacific 743,755 400,167Other countries 585,007 258,216

24,993,018 16,297,501

No analysis of contribution to operating profit by geographical location has been prepared asno contribution to operating profit from any of the above geographical locations is substantiallyout of line with the normal ratio of profit to turnover.



3 OPERATING PROFIT

Operating profit is stated after crediting and charging the following:

2000 1999HK$’000 HK$’000

Crediting

Profit on disposal of fixed assets 7,205 1,142Net exchange gains 11,805 8,308Net rental income from land and buildings 1,973 3,062

Charging

Auditors’ remuneration 4,447 2,758Depreciation:

Owned fixed assets 95,679 78,376Leased fixed assets 260 —

Operating leases in respect of land and buildings 53,043 29,220Provision for doubtful debts 16,618 12,523Provision for diminution in value of investments 5,790 —Staff costs, including directors’ emoluments 978,919 646,071

4 INTEREST EXPENSES

2000 1999HK$’000 HK$’000

Interest on bank loans and overdrafts 20,585 32,243



5 TAXATION

Hong Kong profits tax has been provided at the rate of 16% (1999: 16%) on the estimatedassessable profit for the year. Taxation on overseas profits has been calculated on the estimatedassessable profit for the year at the rates of taxation prevailing in the countries in whichsubsidiaries of the Group operate.

The amount of taxation charged to the consolidated profit and loss account represents:

2000 1999HK$’000 HK$’000

Hong Kong profits tax 41,813 22,299Overseas taxation 14,307 15,090Overprovision in prior years (1,177) (1,795)Deferred taxation (note 22) 5,853 189

60,796 35,783

Share of taxation attributable to associated companies

- Hong Kong 1,409 (197)- Overseas 1,973 1,052

3,382 855

64,178 36,638

Deferred taxation for the year has not been provided in respect of the following :

2000 1999HK$’000 HK$’000

Accelerated depreciation allowance — 4,500Tax losses (9,042) 34,859

(9,042) 39,359

At the date of approval of the accounts, certain subsidiaries of the Group have disputes withthe Hong Kong Inland Revenue involving tax of approximately HK$205 million on the non-taxable claim of certain non-Hong Kong sourced income and the deduction claim of marketingexpenses for the years of assessment from 1992/1993 to 1999/2000. Under professional advice,the subsidiaries are pursuing objection against the disputes and the directors believe that nomaterial tax liabilities will finally crystallize. Accordingly, the directors consider that sufficientprovision has been made.



6 PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The profit attributable to shareholders is dealt with in the accounts of the Company to theextent of HK$715,729,000 (1999: HK$436,986,000).

7 DIVIDENDS

Dividends declared and proposed for the year, as adjusted for the effect of the share subdivisionas explained in note 19(f) to the accounts (the “Share Subdivision”), under which each of theexisting issued and unissued shares of HK$0.050 each in the share capital of the Company wassubdivided into two shares of HK$0.025 each (the “Share”), are as follows:

2000 1999HK$’000 HK$’000

Interim, paid, of HK$0.07 (1999: HK$0.045) per Share 192,318 116,355

Final, proposed, of HK$0.18 (1999: HK$0.125) per Share 515,942 324,650

708,260 441,005

8 EARNINGS PER SHARE

(a) The calculation of basic earnings per Share is based on the Group’s profit attributable toshareholders of HK$870,388,000 (1999: HK$574,638,000) and on the weighted averagenumber of 2,706,660,000 (1999: 2,568,896,000) Shares in issue and to be issued during theyear, as adjusted for the effect of the Share Subdivision and including the weightedaverage number of shares to be issued as explained in note 19(h) below.

(b) In the event that Share Options outstanding at 31 December 2000 were exercised in full,the diluted earnings per Share would not be significantly different from the basic earningsper Share as disclosed in the consolidated profit and loss account.



9 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ remuneration

The aggregate amounts of the emoluments payable to directors of the Company duringthe year are as follows:

2000 1999HK$’000 HK$’000

Executive:

Fees 218 165Basic salaries, housing allowances,

other allowances and benefits in kind 8,285 5,259Discretionary bonuses 22,262 14,119Contributions to pension scheme 220 157

30,985 19,700

Non-executive:Fees 309 309

31,294 20,009

In addition to the directors’ remuneration disclosed above, certain directors of theCompany were granted options under the Share Option Scheme of the Company toacquire 1,200,000 (1999: 4,800,000) Shares of the Company at HK$15.26 (1999: HK$4.1525)per Share during the year, as adjusted for the effect of the Share Subdivision. The closingmarket price of the Shares as at 29 December 2000 was HK$14.2 per Share. The exercisableperiod of these options is from 7 July 2001 to 6 July 2003.

During the year, a total of 2,080,000 (1999: 320,000) Shares, 2,040,000 (1999: 2,400,000)Shares and 4,560,000 (1999: Nil) Shares were issued to certain directors of the Companyat an exercise price of HK$1.755, HK$2.1575 and HK$4.1525 respectively upon the exerciseof the options under the Share Option Scheme.

As at 31 December 2000, certain directors held options to acquire 360,000 (1999: 2,400,000)Shares, 1,440,000 (1999: 4,800,000) Shares and 1,200,000 (1999: Nil) Shares of the Companyat an exercise price HK$2.1575, HK$4.1525 and HK$15.26 per Share respectively.

Directors’ fees disclosed above include HK$150,000 (1999: HK$150,000) paid toindependent non-executive directors.

The number of directors whose emoluments fell within the following bands are set outas below. The emoluments represent the amount paid to or receivable by the directors ofthe Company in the respective financial year and exclude the benefits derived or to bederived from the Share Options granted under the Share Option Scheme.



9 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS (CONT’D)

(a) Directors’ remuneration (CONT’D)

Number of directors

Emolument bands 2000 1999

Nil - HK$1,000,000 6* 9*HK$4,500,001 - HK$5,000,000 — 1HK$5,500,001 - HK$6,000,000 1 —HK$7,000,001 - HK$7,500,000 1 1HK$7,500,001 - HK$8,000,000 — 1HK$8,500,001 - HK$9,000,000 1 —HK$9,000,001 - HK$9,500,000 1 —

* Represents non-executive directors.

No directors waived their emoluments in respect of the years ended 31 December 1999and 2000.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the yearinclude four (1999: three) directors whose emoluments are reflected in the analysispresented above. The emoluments payable to the remaining individual (1999: two) duringthe year are as follows:

2000 1999HK$’000 HK$’000

Basic salaries, housing allowances,other allowances and benefits in kind 908 4,664

Discretionary bonuses 3,779 4,372Contributions to pension scheme 26 105

4,713 9,141

The number of the remaining highest paid individual (1999: two) whose emoluments fellwithin the following bands are set out as below. The emoluments represent the amountpaid to or receivable by the individuals of the Company in the respective financial yearand exclude the benefits derived or to be derived from the Share Options granted underthe Share Option Scheme.

Number of individuals

Emolument bands 2000 1999

HK$3,500,001 - HK$4,000,000 — 1HK$4,500,001 - HK$5,000,000 1 —HK$5,000,001 - HK$5,500,000 — 1



10 FIXED ASSETS

The Group

Furniture, Motorfixtures, vehicles

computer andLand and Leasehold and other Plant and companybuildings improvements equipment machinery boats Total

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

Cost or valuationAt 1 January 2000 1,020,806 110,345 242,987 5,592 23,025 1,402,755Acquisition of subsidiaries 106,969 699 15,943 581 4,950 129,142Additions 5,377 33,280 139,524 4,305 11,160 193,646Disposals — (8,090) (36,564) (1) (5,053) (49,708)Exchange adjustment (2,109) (2,340) (5,953) (377) (761) (11,540)

At cost 785,631 133,894 355,937 10,100 33,321 1,318,883At directors’ 1994

valuation 345,412 — — — — 345,412

At 31 December 2000 1,131,043 133,894 355,937 10,100 33,321 1,664,295

Accumulated depreciationAt 1 January 2000 54,502 32,623 136,704 1,937 15,181 240,947Acquisition of subsidiaries 1,364 147 9,861 144 2,493 14,009Charge for the year 25,471 23,607 40,870 1,445 4,546 95,939Disposals — (6,857) (32,237) (1) (3,900) (42,995)Exchange adjustment (133) (1,990) (2,398) (112) (407) (5,040)

At 31 December 2000 81,204 47,530 152,800 3,413 17,913 302,860

Net book value

At 31 December 2000 1,049,839 86,364 203,137 6,687 15,408 1,361,435

At 31 December 1999 966,304 77,722 106,283 3,655 7,844 1,161,808



10 FIXED ASSETS (CONT’D)

The Group’s interests in land and buildings at their net book values are analysed as follows:

The Group

2000 1999HK$’000 HK$’000

In Hong Kong, held on:Leases over 50 years 108,346 9,031Leases of between 10 to 50 years 892,324 913,859

Outside Hong Kong, held on:Freehold 36,254 31,312Leases over 50 years 11,443 12,102Leases of between 10 to 50 years 1,472 —

1,049,839 966,304

The original cost and accumulated depreciation based on cost of leasehold land and buildingsin Hong Kong are as follows:

The Group

2000 1999HK$’000 HK$’000

Original cost 955,513 852,052Accumulated depreciation based on cost (67,534) (44,273)

887,979 807,779

At 31 December 2000, the aggregate cost and accumulated depreciation of the Group’s fixedassets held under finance leases amounted to HK$12,384,000 (1999: Nil) and HK$8,148,000(1999: Nil) respectively.

At 31 December 2000, the net book value of fixed assets pledged as security for the Group’slong-term loans amounted to HK$101,210,000 (1999: HK$913,858,000).



11 SUBSIDIARIES

The Company

2000 1999HK$’000 HK$’000

Unlisted shares, at cost 111,210 111,210Loan to a subsidiary 1,952,493 —

2,063,703 111,210

The loan to a subsidiary is interest free, unsecured and has no fixed terms of repayment.

Details of principal subsidiaries are set out on pages 69 to 76.

12 ASSOCIATED COMPANIES

The Group

2000 1999HK$’000 HK$’000

Share of net assets/(liabilities) other than goodwill 11,554 (15,768)Loan to an associated company 17,010 17,010

28,564 1,242

The loan to an associated company is interest free, unsecured and has no fixed terms ofrepayment.

Details of principal associated companies are set out on pages 77 and 78.

13 INVESTMENTS

The Group

2000 1999HK$’000 HK$’000

Unlisted shares, at cost 52,997 41,112Less: provision for diminution in value (5,790) —

47,207 41,112Loan to an investee company — 38,772

47,207 79,884Club debentures, at cost 6,600 6,600

53,807 86,484



14 INVENTORIES

The Group

2000 1999HK$’000 HK$’000

Merchandise 135,876 79,280Finished goods 2,081 1,985Raw materials 29,023 28,749

166,980 110,014

At 31 December 2000, the carrying amount of inventories that are carried at net realisable valueamounted to HK$1,152,000 (1999: HK$383,000).

At 31 December 2000, the carrying amount of inventories pledged as security for bank facilitiesamounted to HK$61,053,000 (1999: HK$37,279,000).

15 DUE FROM RELATED COMPANIES

The Group The Company

2000 1999 2000 1999HK$’000 HK$’000 HK$’000 HK$’000

Due from:Subsidiaries — — 4,083,306 1,612,687Associated companies 19,682 24,609 — —

19,682 24,609 4,083,306 1,612,687

The amounts are unsecured, interest free and repayable on demand.

16 TRADE AND BILLS RECEIVABLE

The majority of the Group’s turnover are on letter of credit (sight or usance) or documentsagainst payment. The remaining balances of turnover are on open account terms which aremostly covered by customers’ standby letters of credit or bank guarantees. The ageing analysisof trade and bills receivable are as follows:

The Group

2000 1999HK$’000 HK$’000

Current to 90 days 2,371,166 1,459,11391 to 180 days 46,861 18,053181 to 360 days 10,553 8,783Over 360 days 1,079 2,831

2,429,659 1,488,780



17 DUE TO RELATED COMPANIES


2000 1999 2000 1999HK$’000 HK$’000 HK$’000 HK$’000

Due to:Subsidiaries — — 1,247,413 714,801Associated companies 103 100 — —

103 100 1,247,413 714,801

The amounts are unsecured, interest free and repayable on demand.

18 TRADE AND BILLS PAYABLE

The ageing analysis of the trade and bills payable are as follows:

The Group

2000 1999HK$’000 HK$’000

Current to 90 days 2,678,522 1,563,05791 to 180 days 91,369 45,094181 to 360 days 18,497 8,995Over 360 days 20,274 441

2,808,662 1,617,587



19 SHARE CAPITAL

No. of Shares HK$’000

Authorised

At 31 December 1998, ordinary of HK0.10 each 800,000,000 80,000Subdivision of shares (note (b)) 800,000,000 —

At 31 December 1999, ordinary of HK$0.05 each 1,600,000,000 80,000Subdivision of shares (note (f)) 1,600,000,000 —

At 31 December 2000, ordinary of HK$0.025 each 3,200,000,000 80,000

Issued and fully paid

At 31 December 1998, ordinary of HK$0.10 each 637,610,000 63,761Exercise of share options before share subdivision (note (a)) 9,254,000 926Subdivision of shares (note (b)) 646,864,000 —Exercise of share options after share subdivision (note (c)) 1,568,000 78

At 31 December 1999, ordinary of HK$0.05 each 1,295,296,000 64,765Issue of shares upon a private placing (note (d)) 60,000,000 3,000Exercise of share options before share subdivision (note (e)) 18,750,000 938Subdivision of shares (note (f)) 1,374,046,000 —Exercise of share options after share subdivision (note (g)) 2,898,000 72

At 31 December 2000, ordinary of HK$0.025 each 2,750,990,000 68,775

Shares to be allotted and issued (note (h))At 31 December 2000, ordinary of HK$0.025 each 113,188,000 2,830

2,864,178,000 71,605

(a) During the period from 1 January 1999 to 12 October 1999, 972,000 shares, 3,046,000shares and 5,236,000 shares of HK$0.1 each were issued at a price of HK$5.99, HK$7.02and HK$8.63 per share respectively to the share option holders who exercised theirsubscription rights.

(b) At a special general meeting of the Company held on 12 October 1999, an ordinaryresolution was duly passed under which each of the existing issued and unissued sharesof HK$0.1 each in the share capital of the Company as of that date was subdivided intotwo shares of HK$0.05 each.



19 SHARE CAPITAL (CONT’D)

(c) During the period from 13 October 1999 to 31 December 1999, 124,000 shares and 1,444,000shares of HK$0.05 each were issued at a price of HK$3.51 and HK$4.315 per sharerespectively to the share option holders who exercised their subscription rights.

(d) Pursuant to a placing agreement dated 28 March 2000, Li & Fung (1937) Limited, asubstantial shareholder of the Company, placed 60,000,000 shares of HK$0.05 each in theshare capital of the Company to more than six independent institutional investors at aprice of HK$32.5 per share and to subscribe from the Company for the same number ofshares at the same price before taking into account the costs and expenses of the placingand interest received on the placing proceeds (the “Placing”). The net proceeds of thesubscription amounted to approximately HK$1,900 million was used for the expansionof the e-commerce business of the Group.

(e) During the period from 1 January 2000 to 18 September 2000, 1,728,000 shares, 6,768,000shares and 10,254,000 shares of HK$0.05 each were issued at a price of HK$3.51, HK$4.315and HK$8.305 per share respectively to the share option holders who exercised theirsubscription rights.

(f) At a special general meeting of the Company held on 18 September 2000, an ordinaryresolution was duly passed under which each of the existing issued and unissued sharesof HK$0.05 each in the share capital of the Company as of that date was subdivided intotwo shares of HK$0.025 each (the “Share”).

(g) During the period from 19 September 2000 to 31 December 2000, 60,000 Shares and2,838,000 Shares of HK$0.025 each were issued at a price of HK$2.1575 and HK$4.1525per Share respectively to the share option holders who exercised their subscription rights.

(h) On 8 November 2000, the Company entered into an agreement to acquire the entireinterest of Colby Group Holdings Limited and its subsidiaries (“Colby”) at a considerationof HK$2,199,993,000 (the “Acquisition”). The purchase consideration is to be satisfied bycash of HK$247,500,000 (the “Cash Consideration”) and the issuance of 113,188,000 newShares of the Company (the “Consideration Shares”) at an issue price of HK$17.25 perShare amounting to HK$1,952,493,000. Details of the Acquisition has been set out in thecircular issued by the Company on 15 November 2000. The Acquisition was approved bythe shareholders during a special general meeting held on 5 December 2000 and Colbyhas became a subsidiary of the Company since then.

As at 31 December 2000, half of the Cash Consideration amounted to HK$123,750,000was paid. The remaining balance of the Cash Consideration amounted to HK$123,750,000and the Consideration Shares were paid and issued respectively in March 2001.



19 SHARE CAPITAL (CONT’D)

(i) Details of Share Options granted by the Company pursuant to the Share Option Schemeand the Share Options outstanding at 31 December 2000, as adjusted for the effect ofShare Subdivision, are as follows:

Share Options Share Options Share Optionsexercised lapsed outstanding at

Subscription Exercisable during the during the 31 DecemberDate of grant price per Share period year year 2000

24 June 1997 HK$1.755 18 July 1998 - 3,456,000 — —17 July 2000

25 July 1998 HK$2.1575 25 July 1999 - 13,596,000 — 2,340,00024 July 2001

16 July 1999 HK$4.1525 16 July 2000 - 23,346,000 — 18,894,00015 July 2002

7 July 2000 HK$15.26 7 July 2001 - — 40,000 9,256,0006 July 2003

Subsequent to 31 December 2000, 2,168,000 Shares have been allotted and issued underthe Share Option Scheme for a total cash consideration of HK$8,743,270.



20 RESERVES

Share Capital Exchange Revaluation RetainedThe Group premium reserve reserve reserve earnings Total

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

At 1 January 1999 652,902 2,695 (40,809) 119,990 295,517 1,030,295Share premium

arising fromthe issue of sharespursuant to theexercise of shareoptions(notes 19(a) and (c)) 78,054 — — — — 78,054

Transfer from/toretained earnings — 2,264 1,371 — (3,635) —

Exchange adjustmenton translation ofthe accounts ofoverseassubsidiaries andassociatedcompanies — — 1,919 — — 1,919

Goodwill onacquisition ofsubsidiaries/businesseswritten off — — — (119,990) (373,798) (493,788)

Profit for the year — — — — 574,638 574,638Dividends (note 7) — — — — (441,005) (441,005)Additional final

dividend forprevious year — — — — (767) (767)

At 31 December 1999 730,956 4,959 (37,519) — 50,950 749,346

Company andsubsidiaries 730,956 4,959 (37,588) — 67,138 765,465

Associatedcompanies — — 69 — (16,188) (16,119)

At 31 December 1999 730,956 4,959 (37,519) — 50,950 749,346



20 RESERVES (CONT’D)

ContributedShare surplus Capital Exchange Retained

The Group premium account reserve reserve earnings TotalHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2000 730,956 — 4,959 (37,519) 50,950 749,346Share premium

arising from- the issue of shares

pursuant to theexercise of shareoptions(notes 19(e) and (g)) 131,333 — — — — 131,333

- the issue of sharespursuant to thePlacing, net ofissuing expenses(note 19(d)) 1,900,153 — — — — 1,900,153

Contributed surplusarising from theConsideration Sharesto be issued(note 19(h)) — 1,949,663 — — — 1,949,663

Exchange adjustmenton translation of theaccounts of overseassubsidiaries andassociated companies — — — (15,871) — (15,871)

Goodwill on acquisitionof subsidiaries/business written off — (1,949,663) — — (156,843) (2,106,506)

Profit for the year — — — — 870,388 870,388Dividends (note 7) — — — — (708,260) (708,260)Additional final

dividend forprevious year — — — — (15,738) (15,738)

At 31 December 2000 2,762,442 — 4,959 (53,390) 40,497 2,754,508

Company andsubsidiaries 2,762,442 — 4,959 (53,482) 46,390 2,760,309

Associated companies — — — 92 (5,893) (5,801)

At 31 December 2000 2,762,442 — 4,959 (53,390) 40,497 2,754,508




ContributedShare surplus Retained

The Company premium account earnings TotalHK$’000 HK$’000 HK$’000 HK$’000

At 1 January 1999 652,902 111,010 221,317 985,229Share premium arising from

the issue of sharespursuant to the exerciseof share options(notes 19(a) and (c)) 78,054 — — 78,054

Profit for the year — — 436,986 436,986Dividends (note 7) — — (441,005) (441,005)Additional final dividend for

previous year — — (767) (767)

At 31 December 1999 730,956 111,010 216,531 1,058,497

Share premium arising from- the issue of shares pursuant

to the exercise of shareoptions (notes 19(e) and (g)) 131,333 — — 131,333

- the issue of shares pursuantto the Placing, net of issuingexpenses (note 19(d)) 1,900,153 — — 1,900,153

Contributed surplus arisingfrom the Consideration Sharesto be issued (note 19(h)) — 1,949,663 — 1,949,663

Profit for the year — — 715,729 715,729Dividends (note 7) — — (708,260) (708,260)Additional final dividend for

previous year — — (15,738) (15,738)

At 31 December 2000 2,762,442 2,060,673 208,262 5,031,377

(a) Capital reserve represents amount set aside from the previous years’ profit of an overseassubsidiary of the Group in accordance with the local statutory requirement.




(b) The contributed surplus account of the Company represents:

(i) the difference between the nominal value of the Company’s shares issued inexchange for the issued ordinary shares of Li & Fung (B.V.I.) Limited and thevalue of net assets of the underlying subsidiaries acquired as at 2 June 1992amounting to HK$111,010,000. At Group level, the amount is reclassified into itscomponents of reserves of the underlying subsidiaries.

(ii) the difference between the issue price and the nominal value of the Company’sshares to be issued in connection with the acquisition of Colby as stated in note19(h) to the accounts amounting to HK$1,949,663,000. At Group level, the amountis set off against goodwill arising from the acquisition.

21 LONG-TERM LIABILITIES

The Group

2000 1999HK$’000 HK$’000

Long-term bank loans, secured (note 26) 101,404 458,651Other loans 61,656 35,880Obligations under finance leases 5,195 —

168,255 494,531Current portion of long-term liabilities (30,613) (79,663)

137,642 414,868

The analysis of the above is as follows:The Group

2000 1999HK$’000 HK$’000

Bank loansWholly repayable within five years 26,216 458,651Not wholly repayable within five years 75,188 —

101,404 458,651Other loans and obligations under finance leases

Wholly repayable within five years 41,075 35,880With no fixed repayment terms 25,776 —

168,255 494,531Current portion of long-term liabilities (30,613) (79,663)

137,642 414,868



21 LONG-TERM LIABILITIES (CONT’D)

At 31 December 2000, the Group’s bank loans, overdrafts and other borrowings were repayableas follows:

Short-term bank Long-term Total bank Obligations underloans and overdrafts bank loans loans and overdrafts Other loans finance leases

2000 1999 2000 1999 2000 1999 2000 1999 2000 1999HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Within one year 127,650 113,617 18,670 79,663 146,320 193,280 8,970 — 2,973 —In the second year — — 19,645 124,663 19,645 124,663 8,970 8,970 2,222 —In the third to fifth year — — 47,098 254,325 47,098 254,325 17,940 26,910 — —After the fifth year — — 15,991 — 15,991 — — — — —With no fixed

repayment terms — — — — — — 25,776 — — —

127,650 113,617 101,404 458,651 229,054 572,268 61,656 35,880 5,195 —

Other loans represent consideration payable in respect of the acquisition of a subsidiary andloans from minority shareholders of a subsidiary amounted to HK$35,880,000 (1999:HK$35,880,000) and HK$25,776,000 (1999: Nil) respectively. The loans are unsecured and interestfree and loans from minority shareholders have no fixed repayment terms and will not bedemanded for repayment within one year.

22 DEFERRED TAXATION - THE GROUP

2000 1999

Full Fullpotential potential

liabilities/ Provision liabilities/ Provision(assets) made (assets) made

HK$’000 HK$’000 HK$’000 HK$’000Accelerated depreciation

allowances 9,494 9,494 6,271 1,771Tax losses (32,094) (134) (24,770) (1,852)Other timing differences (2,144) (2,144) 981 981

(24,744) 7,216 (17,518) 900



22 DEFERRED TAXATION - THE GROUP (CONT’D)

Movements on the provision for deferred taxation are as follows:

2000 1999HK$’000 HK$’000

At 1 January 900 248Transferred to profit and loss account (note 5) 5,853 189Acquisition of subsidiaries 463 463

At 31 December 7,216 900

No provision has been made for deferred tax liability in respect of the timing differencesrelating to the revaluation of certain leasehold land and buildings of the Group. The revaluationdoes not constitute a timing difference for taxation purposes because the management of theGroup intend to operate these properties on a long-term basis.

23 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of profit before taxation to net cash inflow from operating activities

2000 1999HK$’000 HK$’000

Profit before taxation 924,270 613,861Interest income (140,330) (43,830)Interest expenses 20,585 32,243Share of profits less losses of associated companies (13,677) (9,389)Depreciation 95,939 78,376Provision for diminution in value of investments 5,790 —Profit on disposal of fixed assets (7,205) (1,142)Increase in inventories (51,529) (23,855)Increase in trade and bills receivable, other receivables,

prepayments and deposits including amountsdue from associated companies (708,861) (402,231)

Increase in trade and bills payable, accrued chargesand sundry payables including amounts due toassociated companies 931,854 380,808

Net cash inflow from operating activities 1,056,836 624,841



23 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONT’D)

(b) Disposal of a subsidiary

2000 1999HK$’000 HK$’000

Net assets disposed of:Investments 34,639 —Loan to an investee company 38,650 —

73,289 —

Satisfied by cash 73,289 —

Analysis of inflow of cash and cash equivalents in respect of disposal of a subsidiary:

2000 1999HK$’000 HK$’000

Cash consideration 73,289 —




(c) Purchase of subsidiaries

2000 1999HK$’000 HK$’000

Net assets acquired:Fixed assets 115,133 18,619Investments 20,950 —Inventories 5,437 13,892Trade and other receivables 350,222 163,163Cash and bank balances 230,968 105,711Trade and other payables (401,186) (208,067)Obligations under finance leases (5,461) —Bank loans and overdrafts — (13,451)Taxation payable (8,001) (6,074)Deferred taxation (463) (463)Minority interests (1,711) (26,391)Long-term bank loans (75,936) —Long-term loan from the Group (19,600) —Loans from minority shareholders of a subsidiary (7,616) —Exchange reserve — (182)

202,736 46,757

Goodwill on consolidation 2,106,128 477,579

2,308,864 524,336

Satisfied by:Cash consideration 321,314 488,350Interests in associated companies — 2,776Consideration shares (note 19(h)) 1,952,493 —Expenses incurred in respect of acquisition

of subsidiaries and the related restructuring costs 35,057 33,210

2,308,864 524,336




(c) Purchase of subsidiaries (CONT’D)

Analysis of the net outflow of cash and cash equivalents in respect of the acquisition ofsubsidiaries:

2000 1999HK$’000 HK$’000

Cash consideration 321,314 488,350Expenses incurred in respect of acquisition

of subsidiaries and the related restructuring costs 35,057 33,210Outstanding purchase consideration payable (123,750) (335,880)

Cash consideration paid 232,621 185,680Cash and cash equivalents acquired (230,968) (92,260)

Net outflow of cash and cash equivalents in respect ofacquisition of subsidiaries 1,653 93,420




(d) Analysis of changes in financing during the year

2000 1999

AmountsShare Share due from

capital Long- Obligations capital Long- holdingincluding term under Loans from including term company

share bank finance minority Minority share bank and fellow Minoritypremium loans leases shareholders interests premium loans subsidiaries interestsHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 795,721 458,651 — — 4,460 716,663 489,558 (768 ) (24,595 )

Non cash movementShare of

(losses)/profits — — — — (10,296 ) — — — 2,585Acquisition of

subsidiaries — 75,936 5,461 7,616 1,711 — — — 123Consideration Shares

to be issued(note 19(h)) 2,830 — — — — — — — —

Premium paid onacquisition ofsubsidiaries/business — — — — — — — — 26,262

Exchange adjustment — (2,691 ) — — 469 — (907 ) — (34 )

798,551 531,896 5,461 7,616 (3,656 ) 716,663 488,651 (768 ) 4,341

Proceeds from issueof shares 2,035,496 — — — — 79,058 — — —

Bank and otherloans raised — — — 18,160 — — 250,000 — —

Repayment ofbank loans — (430,492 ) — — — — (280,000 ) — —

Capital element offinance leasepayments — — (266 ) — — — — — —

Repayments fromholding companyand fellowsubsidiaries — — — — — — — 768 —

Dividends paid — — — — (50 ) — — — (113 )Repayment to a

minority shareholder — — — — 318 — — — —Capital contribution

from a minorityshareholder — — — — 23,249 — — — 232

At 31 December 2,834,047 101,404 5,195 25,776 19,861 795,721 458,651 — 4,460



24 CONTINGENT LIABILITIES


2000 1999 2000 1999HK$’000 HK$’000 HK$’000 HK$’000

Bills of exchange discountedwith recourse 916,857 469,931 — —

Guarantees in respect ofbanking facilities granted to:

Subsidiaries — — 7,700,655 6,441,380Associated companies 76,050 52,460 46,800 23,315

Other guarantees 9,600 11,000 — —

1,002,507 533,391 7,747,455 6,464,695

25 COMMITMENTS

(a) Operating lease commitments

At 31 December 2000, the Group had commitments to make payments in the next twelvemonths under operating leases which expire as follows:

The Group

2000 2000 1999 1999

Land and Land andbuildings Others buildings Others

HK$’000 HK$’000 HK$’000 HK$’000

Within one year 26,364 — 15,385 —In the second to

fifth year inclusive 36,607 572 22,064 —After the fifth year 4,475 — 147 —

67,446 572 37,596 —

(b) Capital commitments for property, plant and equipment

The Group

2000 1999HK$’000 HK$’000

Contracted but not provided for 5,992 3,185



26 CHARGE OF ASSETS

At 31 December 2000, there were charges on the assets and undertakings, of one (1999: two)overseas subsidiary and the Group’s land and buildings, with net book values amounting toHK$117,385,000 (1999: HK$213,588,000) and HK$101,210,000 (1999: HK$913,858,000) respectivelyin favour of banks to cover banking facilities granted to these subsidiaries.

27 RELATED PARTY TRANSACTION

On 27 March 2000, the Group entered into an agreement (the “Agreement”) to dispose of itsentire interest in a subsidiary, Neptune Pacific Limited (“Neptune”), to Li & Fung (1937) Limited,a substantial shareholder of the Company, at a consideration of approximately HK$73.3 million.Neptune owns 20% interest in the share capital of LF Distribution Centers Limited which inturn holds 70% equity interest in Lifung (Panyu) DistriCenter Company Limited. Lifung (Panyu)DistriCenter Company Limited owns a warehouse and logistic center located in the GuangdongProvince of the People’s Republic of China. Dr Victor FUNG Kwok King and Dr William FUNGKwok Lun, the directors of the Company, are the controlling shareholders of Li & Fung (1937)Limited.

28 APPROVAL OF ACCOUNTS

The accounts were approved by the Board of Directors on 26 March 2001.

Group Structure31 December 2000


Place of Percentage ofincorporation Issued and fully equity held by Principaland operation paid share capital the Company activities

Note Principal subsidiaries

Held directly(1) Li & Fung (B.V.I.) British Virgin Ordinary US$400,010 100 Marketing

Limited Islands services andinvestmentholding

Held indirectlyAlbinina Limited Hong Kong Ordinary HK$20 100 Property

investment

(2) Appleton Holdings British Virgin Ordinary US$1 100 InvestmentLtd. Islands holdings

Bacarolle Limited Hong Kong Ordinary HK$20 100 Propertyinvestment

Basic & More Hong Kong Ordinary HK$1,000,000 100 Export tradingFashion Limited(Formerly knownas Basic & MoreTrading Limited)

(2) Beldare Enterprises Inc. U.S.A. Common stock US$100 100 General trading

Beldare Enterprises Hong Kong Ordinary HK$1,000,000 100 General tradingLimited

(2) Black Cat Fireworks England Ordinary GBP1,200,000 100 WholesalingLimited

Camberley Enterprises Hong Kong Ordinary HK$250,000 100 ApparelLimited exporting

(2) Colby Group Holdings British Virgin Ordinary US$45,000 100 InvestmentLimited Islands holding(Formerly known asColbyNetInternational Limited)

G r o u p S t r u c t u r e ( c o n t i n u e d )




Colby International Hong Kong Ordinary HK$1,500,000 100 Exporting ofLimited garments

and sundrygoods

(2) Colby International Guatemala Ordinary GTQ$5,000 100 Provision of(Guatemala) Sociedad exportAnonima assistance

service

(2) Colby Property British Virgin Ordinary US$1 100 InvestmentHoldings Limited Islands holding

(2) and CS Asia Limited British Virgin Ordinary US$1 100 Provision of(3) Islands export

assistanceservice

CS International Hong Kong Ordinary HK$1,000,000 100 Provision ofLimited export

assistanceservice

CS International British Virgin Ordinary US$1 100 Provision of(Offshore) Limited Islands export

assistanceservice

Cuore Limited Hong Kong Ordinary HK$20 100 Propertyinvestment

Dodwell (Mauritius) Hong Kong Ordinary “A” 60 Export tradingLimited HK$300,000

Ordinary “B”HK$200,000

(2) and Eclat Properties Inc. British Virgin Ordinary US$100 100 Property(4) Islands investment





(2) Epiquest Limited England Ordinary GBP100 100 Investmentholding

(2) Golden Gate U.S.A. Common stock 100 CommissionFireworks Inc. US$600,000 agent and

investmentholding

Golden Horn (III) L. P. U.S.A. Contribution US$100 66 Investmentholding

Golden Horn British Virgin Ordinary US$100 75 InvestmentInvestments Islands management(Europe) Limited

Golden Horn Cayman Ordinary US$100 75 InvestmentInvestments Inc. Islands management

Golden Horn N.V. Netherlands US$6,100 100 InvestmentAntilles holding

Golden Horn Venture Hong Kong Ordinary HK$400,000 100 InvestmentCapital Limited holding

GSCM (HK) Limited Hong Kong Ordinary HK$140,000 100 Export trading(Formerly known asWorld-TradeMerchandise Limited)

G.S.C.M. (Marketing) England Ordinary GBP50,000 100 Supply chainLimited management

Hillung Enterprises Hong Kong Ordinary HK$300,000 100 Export tradingLimited

(2) International Sourcing U.S.A. Capital contribution 66.67 Trading of ladiesGroup, LLC US$300,000 apparel

Kwok Yue Limited Hong Kong Ordinary HK$10,000 100 Export trading





LF Capital (II) Limited British Virgin Class “A” US$185 75 InvestmentIslands Class “B” US$115 holding

(2) LF Capital Management British Virgin Ordinary US$1 100 InvestmentLimited Islands management

LF Corporate Capital (I) British Virgin Ordinary US$1 100 InvestmentLimited Islands holding

(2) LF Europe Limited British Virgin Ordinary US$1 100 InvestmentIslands management

LF Europe Sourcing Hong Kong Ordinary HK$100 60 Export tradingLimited

(2) LF Europe Sourcing Turkey TL50,000,000,000 60 Export tradingTekstil ve Dis TicaretLimited Sirketi

LF European Capital British Virgin Ordinary US$1 75 InvestmentLimited Islands holding

(2) LF International Inc. U.S.A. Common stock 100 InvestmentUS$30,002 management

(2) LF Maclaine (Thailand) Thailand Ordinary 100 Export tradingLimited (Formerly Baht 4,000,000known as Swire &Maclaine CompanyLimited)

LFCF Investment I British Virgin Ordinary US$1 100 Investment(Europe) Limited Islands management

LFCF Investment I British Virgin Ordinary US$1 100 Investment(USA) Limited Islands management

(2) Li & Fung Agencia Portugal Quotas 100 Export tradingDe Compras em PTE 20,000,000Portugal, Limitada

(2) Li & Fung England Ordinary GBP 100 100 Investment(Bangladesh) Limited holding





Li & Fung Hong Kong Ordinary HK$20 100 PropertyDevelopment Limited investment

(2) Li & Fung Enterprise The People’s HK$10,000,000 100 Provision ofDevelopment Republic of inspection(Shenzhen) Company China servicesLimited

Li & Fung (Exports) Hong Kong Ordinary HK$10,000 100 Export tradingLimited Non-voting deferred

HK$8,600,000

Li & Fung (Fashion Hong Kong Ordinary “A” 100 Export tradingAccessories) Limited HK$300,000

Ordinary “B”HK$300,000

(2) Li & Fung (Guatemala) Guatemala Common shares 100 Export tradingS.A. Q5,000

(2) Li & Fung (Honduras) Honduras Nominative common 100 Export tradingLimited shares Lps25,000

(2) Li & Fung (India) India Equity shares 100 Export tradingPrivate Limited Rupee 64,000,200

(2) Li & Fung (Italia) S.r.l. Italy Units Lire 90,000,000 100 Export trading

(2) Li & Fung (Korea) Korea Common stock 100 Export tradingLimited Won 200,000,000

(2) Li & Fung (Mauritius) Mauritius “A” Shares 60 Export tradingLimited Rupees 750,000

“B” SharesRupees 500,000

(2) Li & Fung Mumessillik, Turkey TL600,000,000 100 Export tradingPazarlama LimitedSirketi

(2) Li & Fung (Philippines) The Peso 500,000 100 Export tradingInc. Philippines





(2) Li & Fung (Portugal) England Ordinary GBP 100 100 InvestmentLimited holding

Li & Fung (Properties) Hong Kong Ordinary 100 PropertyLimited HK$1,000,000 investment

(2) Li & Fung (Singapore) Singapore Ordinary S$25,000 100 Export tradingPte Limited

(2) Li & Fung South Africa South Africa Ordinary Rand 100 100 Export trading(Proprietary) Limited

(2) Li & Fung Taiwan Taiwan NT$287,996,000 100 InvestmentHoldings Limited holding

Li & Fung Taiwan British Virgin Ordinary 100 InvestmentInvestments Limited Islands US$4,912,180 holding

(2) Li & Fung (Taiwan) Taiwan NT$40,000,000 100 Export tradingLimited

(2) Li & Fung (Thailand) Thailand Baht 6,000,000 100 Export tradingLimited

Li & Fung (Trading) Hong Kong Ordinary HK$200 100 Export tradingLimited Non-voting deferred and

HK$10,000,000 investmentholding

(2) Li & Fung (Zhanjiang) The People’s US$1,999,055 100 PackagingLimited Republic of

China

(2) Lifung.com, Inc. U.S.A. Common stock 57.4 E-commerceUS$3,400

Series A Preferredstock US$8,000,000

Series B Preferredstock US$14,148,954





Lifung Express Limited Hong Kong Ordinary “A” HK$10 100 Export tradingOrdinary “B” HK$10

Lifung Structure Hong Kong Ordinary HK$20 100 Export tradingLimited

Lloyd Textile Trading Hong Kong Ordinary 100 Export tradingLimited HK$1,000,000

Luma Trading Limited Hong Kong Ordinary HK$100 60 Export trading

Maclaine Limited Hong Kong Ordinary 100 Export trading(Formerly known as HK$5,570,150Swire & MaclaineLimited)

(2) Mercury (BVI) British Virgin Ordinary US$1 100 InvestmentHoldings Limited Islands holding

(2) Mighty Hurricane U.S.A. Common shares of 100 InvestmentHoldings Inc. US$100 holding

Preference sharesof US$100

(2) N.E.A.L. Incorporated Netherlands Ordinary B US$6,000 60 Export tradingN.V. Antilles

(2) Perfect Trading Inc. Egypt LE 250,000 60 Export trading

(2) P.T. Lifung Indonesia Indonesia US$250,000 100 Export trading

(2) Ratners Enterprises British Virgin Ordinary US$1 100 InvestmentLimited Islands holding

Shiu Fung Fireworks Hong Kong Ordinary “A” 100 Export tradingCompany Limited HK$1,100,000

Ordinary “B”HK$1,100,000

Studio LF, L. P. British Virgin Capital contribution 73 InvestmentIslands US$56,148,954 holding





Sky Million Hong Kong Ordinary HK$2 100 PropertyInternational Limited investment

Swift Return British Virgin Ordinary US$1 75 InvestmentInvestments Limited Islands holding

(2) Tantallon Enterprises British Virgin Ordinary US$1 100 InvestmentLimited Islands holding

(2) The Millwork Trading U.S.A. Common stock 100 Distribution andCo., Ltd. US$1,331,000 wholesaling

9.5% Preferred StockUS$0.17

Toy Island Hong Kong Ordinary 100 Design andManufacturing HK$62,000,000 marketingCompany Limited

Verity Enterprises Hong Kong Ordinary 100 Export tradingLimited HK$2,000,000

(1) Li & Fung (B.V.I.) Limited provides the subsidiaries with promotional and marketing activities outside Hong Kong.

(2) Subsidiaries not audited by PricewaterhouseCoopers, Hong Kong. The aggregate net assets of subsidiaries not auditedby PricewaterhouseCoopers, Hong Kong amounted to approximately 6% of the Group’s total net assets.

(3) CS Asia Limited operates in the Philippines.

(4) Eclat Properties Inc. operates in Thailand.

The above table lists out the principal subsidiaries of the Company as at 31 December 2000 which, inthe opinion of the directors, principally affected the results for the year or form a substantial portionof the net assets of the Group. To give details of other subsidiaries would, in the opinion of thedirectors, result in particulars of excessive length.



Percentage ofPlace of equity indirectlyincorporation Issued and fully held by Principaland operation paid share capital the Company activities

Principal associated companies

Blue Work Trading Hong Kong Ordinary 50 Export tradingCompany Limited HK$4,000,000

# EC Basic S.r.1. Italy Units 50 Export tradingLire20,000,000

# Eagleville Fireworks, U.S.A. Capital contribution 25 RetailingL.P. US$518,762

# Fireworks U.S.A. Common stock 25 InvestmentManagement, Inc. US$60,000 holding

# Gulf Coast U.S.A Capital contribution 25 FireworksFireworks Sales, US$1,156,392 distributionL.L.C.

# Harrisonville U.S.A. Capital contribution 25 RetailingFireworks, L.P. US$446,817

LF Basic Limited Hong Kong Ordinary 50 Export tradingHK$1,560,000

LF Capital Limited British Virgin Ordinary US$2 50 InvestmentIslands holding

# Lone Jack Fireworks, U.S.A. Capital contribution 25 RetailingL.L.C. US$334,772

# MBC Enterprises, Inc. U.S.A. Common stock 25 RetailingUS$1,500

# Winco Fireworks U.S.A. Capital contribution 25 WholesalingInternational, L.L.C. US$2,603,626

# Winco Fireworks U.S.A. Capital contribution 25 FireworksUtah, L.L.C. US$473,490 distribution

# Yetimo Limited Hong Kong Ordinary US$450,000 37.5 E-commerce

# Zenith Specialties, U.S.A. Capital contribution 25 FireworksL.P. US$297,970 manufacturing



# The associated companies are not audited by PricewaterhouseCoopers, Hong Kong.

The above table lists out the principal associated companies of the Company as at 31 December 2000which, in the opinion of the directors, principally affected the results for the year or form a substantialportion of the net assets of the Group. To give details of other associated companies would, in theopinion of the directors, result in particulars of excessive length.

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