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PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED ANNUAL REPORT 2003/042

3PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED ANNUAL REPORT 2003/04

On May 10, 2004, property interests held by the PCCW Infrastructure division of

PCCW Limited (“PCCW”, SEHK: 0008) were transferred to Dong Fang Gas Holdings

Limited, an investment holding company listed on The Stock Exchange of Hong Kong

Limited. The company was subsequently renamed Pacific Century Premium

Developments Limited (“PCPD”, SEHK: 0432).

PCPD is now principally engaged in the development and management of property and

infrastructure and owns an investment portfolio of premium-grade buildings including

PCCW Tower in Hong Kong and Pacific Century Place in Beijing.

Majority-owned by PCCW, PCPD Group holds the development rights for the

Cyberport project, which is owned by the Government of the Hong Kong Special

Administrative Region and includes the Bel-Air complex of prestige accommodation.

PCPD also holds certain rights to join with PCCW to redevelop telephone exchange

buildings belonging to PCCW Group. These properties are currently being considered as

a source of residential and commercial re-development projects.

In addition, PCPD contains a division specializing in property management, facilities

management, asset management and corporate services in Hong Kong and beyond.

Subsidiaries in the PCPD Group hold interests in a building materials business and

natural gas projects, which were the main businesses of the Company prior to the

acquisition of property interests from PCCW.

CORPORATE PROFILE

Collections of Bel-Air clubhouse:

Diamond Cut Crystal Vase

by M.Benito


CHAIRMAN’S

STATEMENT

Transferring PCCW ’s property and

infrastructure interests into a separately-

listed entity created the Group’s property

flagship, which is now ready to seize full

advantage of current positive conditions,

whilst permitting PCCW to focus on its core

telecommunications and related businesses .


Dear Fellow Shareholders

Hong Kong’s property market has been

refreshed by a new air of confidence, which

is attracting the attention of investors on an

international scale.

The major economies of the world appear

to have entered an inflationary period, with

many Asian nations at a turning point in

their fortunes. Particularly important for

Hong Kong is the successful way mainland

China seems to be managing a ‘soft landing’

for an economy that was feared to be rising

out of control.

Improved market sentiment, an economy

forecast to grow at 6 percent and a

continued influx of funds sets the scene for

Pacific Century Premium Developments to

make its mark in the property industry.

Transferring PCCW’s property and

infrastructure interests into a separately-

listed entity created the Group’s property

flagship, which is now ready to seize full

advantage of current positive conditions in

the property market, whilst permitting

PCCW to focus on its core

telecommunications and related businesses.

In Hong Kong, the limited supply of high-

end residential property bodes well for

PCPD, as our sales professionals apply their

premium-development approach to

transforming luxury apartments at Bel-Air

and other new projects into revenues and to

unlocking potential value via the

redevelopment of PCCW’s telephone

exchanges. In addition, our investment

portfolio of premium-grade properties and

facilities management expertise is expected

to benefit from the improving economy and

will continue to provide a stable source of

income.

Lastly, as Chairman of the new Company,

I am focused on the Group’s continuing

strategy of managing our businesses to

produce significant and positive impact on

shareholder value.

Sincerely,

Richard Li

Chairman

July 22, 2004


STATEMENT from THE

chief e xecutive officer

We were able to celebrate PCPD’s birth at an

auspicious time – a time of economic upswing

and rene wed confidence in Hong Kong’s

property market.


Results for PCPD for the year ended

March 31, 2004 reflect the financial

performance of Dong Fang Gas Holdings

Limited prior to the acquisition of PCCW’s

property interests which was completed on

May 10, 2004.

Dong Fang Gas Holdings Limited was

subsequently renamed Pacific Century

Premium Developments Limited, which is

majority-owned by PCCW Limited.

Consolidated turnover for the year relating

to the Group’s businesses in building

materials, securities trading and gas

operations was approximately HK$149.2

million compared with HK$136.2 million

for the previous year.

Net loss for the year was approximately

HK$142.4 million compared with the

previous year’s net loss of HK$113.2

million, while loss per share was HK$0.12

compared with HK$0.18 the year before.

The current management team is critically

reviewing the strategic roles played by these

businesses as the Company changes its focus

following the acquisition of PCCW’s

property interests.

PCPD is now principally engaged in the

development and management of property

and infrastructure and owns an investment

portfolio that includes premium-grade

buildings in Hong Kong and Beijing.

In our home market, we hold the

development rights for the Cyberport

project, which is owned by the Government

of the Hong Kong Special Administrative

Region and includes the Bel-Air complex of

luxury apartments and houses.

Our Bel-Air development will be the main

source of revenue for PCPD stretching into

2008, as successive phases of this deluxe,

residential complex are launched. The sales

performance at Bel-Air, prior to the transfer

of PCCW’s property interests, is illustrative

of the proven capability that now forms a

foundation on which to build this new

company. For example, the Bel-Air team

had sold all apartments in the first two


S TAT E M E N T f r om t h e c h i e f e x e c u t i v e of f ic e r

phases amounting to more than 1.9 million

square feet of real estate by early 2004,

despite very difficult market conditions.

Proceeds from the sale of 1,204 units in the

first two phases, launched in 2003, have

enabled the entire project to become self-

funding, with no additional cash injections

needed. To date, we have sold more than

1,460 Bel-Air apartments, generating some

HK$14 billion (approximately US$1.8

billion) in revenue.

With this successful track record, PCPD was

formed at an auspicious time - a time of

general economic upswing and heightened

investor interest in a market buoyed by high

liquidity and a marked rise in prices in the

prestige accommodation sector.

A limited supply of premium residential real

estate coupled with renewed investor

confidence sets the scene for a period of

solid growth in the property market.

With PCCW’s property interests channelled

into a separately-listed company, PCPD is

able to focus sharply on the property

industry, leaving PCCW to concentrate on

Information Technology (IT) and

telecommunications.

Our move provides the investment

community, analysts and rating agencies

with enhanced clarity and transparency of

performance, while attracting greater

interest from investors concerned more with

property than telecoms.


the people of PCPD hold the right mix of

skills , talent and experience to ensure our

new company takes full advantage of a

revitalized property market in the region,

especially in Hong Kong.

Turning to our plans for the future, PCPD

is actively considering proposals to

redevelop a number of PCCW Group-

owned telephone exchange buildings which,

subject to government approvals being

obtained, will provide a potential source of

prime residential and commercial projects

over the coming years.

Meanwhile, our investment portfolio of

premium-grade properties enjoys occupancy

rates of well over 90 percent and is expected

to provide significant and regular income

into the future.

In addition, the division responsible for

PCPD’s provision of property management,

facilities management, corporate services

and asset management serves PCCW Group

and other commercial clients, and will be

managing luxury apartments and houses at

Bel-Air. The division also provides property

management and corporate services to

PCPD’s Pacific Century Place complex in

Beijing city center.

PCPD is led by a dedicated and experienced

management team, which will continue to

pursue premium property development and

management opportunities in Hong Kong

and beyond.

In conclusion, I believe the people of Pacific

Century Premium Developments hold the

right mix of skills, talent and experience to

ensure our new company takes full

advantage of a revitalized property market in

the region, especially in Hong Kong.

Robert Lee

Chief Executive Officer

July 22, 2004


Our New Business

The highest-profile part within the pcpd Group

is the cyberport project. Cyberport has been

developed by the e xpertise absorbed into our

new company and is now winning international

acclaim as hong kong’s It flagship and for

setting a new standard in prestige

accommodation.



The Kiss by Marie-Madeleine Gautier

O U R N E W b u s i n e s s

The highest-profile part of the PCCW

property interests transferred to Dong Fang

Gas Holdings Limited before it became

Pacific Century Premium Developments

Limited was the Cyberport project.

Comprising a million square feet of modern

“intelligent” office space, some 4.5 million

square feet of prime residential premises,

300,000 square feet of exciting retail

facilities and the 173-room Le Meridien

Hotel on the southern shores of Hong Kong

Island, Cyberport has been developed by the

expertise absorbed into our new company

and is now winning international acclaim as

Hong Kong’s IT flagship and for setting a

new standard in prestige accommodation.


The residential portion, known as Bel-Air,

will complete in phases between 2004-07.

The complete sell-out of 1,204 apartments

in the first two phases of Bel-Air in a matter

of months against the backdrop of a

subdued property market is strong

testimony to the quality of this

development.

That impressive sales performance also

means that all construction costs for

remaining phases of the Bel-Air

development will be met without the need

of additional funding from PCPD or the

Hong Kong SAR Government, which owns

the Cyberport.

Surplus proceeds from the sale of units at

Bel-Air will be shared between PCPD and

the Hong Kong SAR Government according

to their respective contributions to the

Cyberport Project. Sales proceeds from

future phases of Bel-Air will be the main

source of revenue for PCPD stretching into

2008, as successive phases of this deluxe,

residential enclave are launched.

The commercial Cyberport portion

was officially completed on June 28,

2004 and has already won a crop of

accolades.

The commercial Cyberport portion was

officially completed on June 28, 2004 and

has already won a crop of accolades. These

include a Merit Award of Excellence from

the American Institute of Architects, as well

as the internationally-acclaimed Intelligent

Building of the Year Award presented in

New York City by the Intelligent

Community Forum, which is part of the

World Teleport Association.


O U R N E W b u s i n e s s


Three Quarter Pot by Graham Ambrose

With the experience of developing

Cyberport and Bel-Air under its belt, PCPD

is poised to embark on a plan to redevelop a

number of telephone exchange buildings

jointly with PCCW, subject to government

approvals and satisfactory redevelopment

terms.

Rapid evolution of technology over recent

years means telecoms plant has shrunk in

size. Transforming such buildings into useful

residential, retail and office accommodation

would amount to better utilization of Hong

Kong’s property resource, as well as

economical stewardship of PCCW’s assets

and potential development opportunities for

PCPD.

Another major part of PCPD’s business is its

investment portfolio of premium-grade

buildings, such as the Pacific Century Place

city-center complex in Beijing and the 42-

storey PCCW Tower in Hong Kong. The

portfolio has been producing steady

earnings, with occupancy rates of over 90

percent, and faces the positive prospect of

growth in office accommodation rentals

over the next two years.

Pacific Century Place in Beijing comprises

approximately 2 million square feet of space

occupied by diplomatic, residential, retail

and office tenants, while PCCW Tower in

Hong Kong’s Quarry Bay covers

approximately 620,000 square feet. Both

properties house a number of multinational

corporations.

These buildings are two of a number of

premises handled by the PCPD division that

provides property management, facilities

management, corporate services and asset

management. A particular strength of this

part of our business is the facilities

management of mission-critical operations.

Clients currently include PCCW, the

REACH wholesale telecoms carrier and

Hong Kong CSL Limited.


Pacific Century Place in Beijing

comprises approximately 2 million square

feet of space occupied by diplomatic,

residential, retail and office tenants.

This PCPD division is currently preparing

to take on the management of the deluxe

apartments and houses at Bel-Air in phases

commencing September 2004. The move

will mean our sphere of experience in the

property and facilities management business

will include commercial, industrial and

residential properties in Hong Kong and

beyond.


A management’s discussion and analysis of

the financial results and operations relating

to the Group’s businesses of building

materials, securities trading and gas

operations for the year ended March 31,

2004 prior to completion of the transfer of

property interests from PCCW to the

Company on May 10, 2004 follows below:

Review of Financial

Results and Operations

The Group has a consolidated turnover of

approximately HK$149.2 million for the

year ended March 31, 2004, representing an

increase of 9.6 percent compared with a

consolidated turnover of approximately

HK$136.2 million for the year ended

March 31, 2003. The increment in the

Group’s consolidated turnover was mainly

due to the Group’s best and decent efforts in

monitoring the performance in the trading

of building materials business. Such business

in the United States continued to progress

well. Sales in the market in the United States

grew significantly by 17.2 percent from

approximately HK$49.9 million the

previous year to approximately HK$58.5

million for the current year. The Group has

also taken an active role in exploring new

markets. For the current year, the Group has

successfully expanded into the market in

Australia, which has contributed

approximately HK$2.5 million to the

Group’s total sales.

In order to capture opportunities emerging

from the energy-related sector in mainland

China, the Group entered into a conditional

acquisition agreement for certain interests in

Beijing Continental Gas Co. Ltd. (“Beijing

Continental Gas”). The transaction was

completed on July 30, 2003 and the details

of which are set out in the section headed

“Material Acquisitions and Disposal”.

During the year, the natural gas business has

made a contribution to the Group’s

consolidated turnover of approximately

HK$3.6 million.

The Group’s gross profit margin has shown

a significant improvement, which has

increased from 6.7 percent last year to 15.4

percent for the current year. This is a result

of the Group’s implementation of cost

control measures to enhance operational

efficiency so as to maintain its

competitiveness in the respective markets of

its various businesses.

The Group recorded a consolidated net loss

of approximately HK$142.4 million for the

year ended March 31, 2004, a deterioration

of 25.8 percent compared with the Group’s

consolidated net loss of approximately

HK$113.2 million for the year ended

March 31, 2003. The loss from operations

increased by approximately HK$51.5

million. This was mainly due to the loss of

approximately HK$45.8 million on the

trading of securities and financial

instruments, an increase in allowance for

bad and doubtful debts of approximately

HK$17.4 million and an allowance for

loans receivable of approximately HK$31.0

million. For the current year, the Group has

also written back the provision of HK$23.4

million made in prior year for an onerous

contract.

Capital Structure,

Liquidity and Financial

Resources

As at March 31, 2004, total borrowings of

the Group amounted to approximately

HK$237.1 million, representing an increase

of HK$10.8 million compared with total

borrowings of HK$226.3 million as at

March 31, 2003. All these borrowings are

repayable within one year of which

approximately HK$92.3 million carried a

fixed interest rate of 9.8 percent per annum

and approximately HK$144.8 million

carried floating interest rates.

Gearing ratio – which is expressed as a ratio

of total liabilities and minority interests to

shareholders’ funds – was approximately

11.2 as at March 31, 2004, representing an

increase of 348 percent compared with a

gearing ratio of 2.5 as at March 31, 2003.

Most of the Group’s business transactions,

assets and liabilities were denominated in

Hong Kong dollars and Renminbi.

MANAGEMENT ’S DISCUSSION

AND ANALYSIS


November 13, 2002 and December 4, 2002

respectively, China Crystal Investment Ltd.

(“China Crystal”), an indirect wholly-owned

subsidiary of the Company, entered into an

agreement (“Nanning Acquisition

Agreement”) on November 8, 2002 to

acquire 30.87 percent of attributable interest

in Nanning City Gas (“Nanning

Acquisition”).

The Company further announced on

January 2, 2003 that certain disputes have

existed between the vendor and China

Crystal relating to the satisfaction of the

conditions of the Nanning Acquisition

Agreement. Not all of the conditions were

satisfied and accordingly the Nanning

Acquisition has not taken place. Under the

terms of the Nanning Acquisition

Agreement, if any of the conditions are not

fulfilled (or waived by China Crystal) on or

before December 31, 2002, the rights and

obligations of the parties to the Nanning

Acquisition Agreement shall lapse and be of

no further effect.

On January 19, 2004, China Crystal

entered into an agreement with an

independent third party (the “third party”)

whereby, with the consent of the vendor, the

third party agreed to acquire and China

Crystal agreed to transfer the right to claim

against the vendor for the refund of the

deposit of HK$10.0 million in full under

the terms of the Nanning Acquisition

Agreement at the consideration of HK$7.0

million. China Crystal has received HK$7.0

million from the third party and thereby

Borrowings were denominated mainly in

Renminbi, US dollars and Hong Kong

dollars. Cash and cash equivalents were held

mainly in Hong Kong dollars. Given the

exchange rates of these currencies were fairly

stable, the Group has not adopted any

material hedging measures because

exchange-rate fluctuations had no

significant impact on the Group during the

year under review.

Material Acquisitions and

Disposal

Acquisition of Beijing Continental Gas

As disclosed in the announcement and

circular dated June 5, 2003 and June 26,

2003 respectively, Dong Fang Gas (China)

Limited, an indirect wholly-owned

subsidiary of the Company, entered into a

conditional agreement dated June 1, 2003

for the acquisition of 73 percent of the

entire issued share capital of Top Power

Holdings Limited, which in turn, owns 70

percent equity interest in Beijing

Continental Gas, at a consideration of

HK$80.0 million. The transaction was

completed on July 30, 2003. The Group

holds 51.1 percent of attributable interest in

Beijing Continental Gas which has been

engaged in the business of natural gas

supply, storage and related services.

Acquisition of Nanning City Gas Co.

Ltd. (“Nanning City Gas”)

As disclosed in the Company’s

announcement and circular dated

could avoid all costs, expenses and

uncertainties to be incurred in any legal

proceedings against the vendor.

Disposal of Skynet (International

Group) Holdings Limited

As disclosed in the annual report of the

Company for the year ended March 31,

2003, BCD (Holdings) Limited (now

known as Mandarin Technology (Holdings)

Limited) (“Newco”), Skynet (International

Group) Holdings Limited (“Skynet”), in

which the Group currently holds about 22.6

percent, and Monetary Success Investments

Limited (“Subscriber”) entered into a

conditional subscription agreement dated

March 5, 2003 (“Subscription Agreement”)

whereby the parties thereto agreed to the

implementation of a scheme of arrangement

(“Scheme”), under section 99 of the

Companies Act 1981 of Bermuda, between

Skynet and its shareholders. The Subscriber

agreed, among other things, to subscribe for

and acquire a total of 4,000,000,000 shares

in the capital of Newco (“Newco Shares”) or

such number of Newco Shares as shall

represent not less than 97 percent of the

enlarged issued share capital of Newco (after

taking into account the number of Newco

Shares to be issued and allotted to

shareholders of Skynet pursuant to the

Scheme, and the Newco Shares to be issued

and allotted to the Subscriber pursuant to

the Subscription Agreement (but before

conversion of certain convertible loan notes

to be issued by Newco) upon completion of,

inter alia, the Scheme and the subscription).


m a n a g e m e n t ’s d i s c u s s io n a n d a n a ly s i s

Supplemental agreements were entered into

between parties involved in the Subscription

Agreement for extension of the long stop

date of the conditions of the Subscription

Agreement from June 30, 2003 to

September 22, 2003, then eventually to

December 31, 2003. The Subscription

Agreement has lapsed.

In the joint announcement (“Skynet

Announcement”) made by Skynet, Paul Y. -

ITC Construction Holdings Limited (“Paul

Y”) and ITC Corporation Limited dated

June 4, 2004, it was disclosed that Skynet

would be involved in a conditional

restructuring proposal (“Restructuring

Proposal”) involving a capital reorganization

(“Capital Reorganization”), an open offer

(“Open Offer”) of Skynet’s shares to its

qualifying shareholders (including the

Group), a conditional acquisition by Skynet

of certain companies to be satisfied by

Skynet issuing to Paul Y its new shares after

the Capital Reorganization becoming

effective (“Skynet Consolidated Shares”),

and the issue of a convertible note (“Note”)

by Skynet entitling the holder to convert the

principal amount into Skynet Consolidated

Shares. The Skynet Announcement also

stated that the Company’s shareholding

interest in Skynet will be approximately 0.7

percent upon completion of the

Restructuring Proposal (assuming the

Group does not take up its entitlement

under the Open Offer and no other changes

in the shareholding structure of Skynet since

the date of the Skynet Announcement), but

before the conversion of the Note.

Pledge of Assets

As at March 31, 2004, the Group had

pledged certain property, plant and

equipment with an aggregate carrying value

of approximately HK$83.2 million (March

31, 2003: HK$96.7 million) and bank

deposits of approximately HK$27.3 million

(March 31, 2003: HK$26.6 million) to

secure banking and other borrowing

facilities granted to the Group.

The Group also pledged certain trade

receivables with an aggregate carrying value

of approximately HK$13.3 million (March

31, 2003: HK$14.3 million) to secure

banking facilities granted to the Group.

Besides, certain investments in securities of

the Group with a market value of

approximately HK$10.2 million (March 31,

2003: HK$16.5 million) which were

pledged to secure margin loan payable

included in other payable and accruals were

used to set off the amount of margin loan

payable of approximately HK$15.9 million

(March 31, 2003: HK$21.5 million).

As at March 31, 2003, the Group also

pledged property held for sale with a carrying

value of HK$6.5 million to secure bank and

other banking facilities granted to the Group.

Contingent Liabilities

As at March 31, 2004, the Group had not

granted corporate guarantees to any parties. As

at March 31, 2003, the Group’s contingent

liabilities were approximately HK$10.3

million, representing a corporate guarantee

given to bankers in respect of banking facilities

utilized by an associate of the Group.

Employees and

Remuneration Policies

As at March 31, 2004, the Group employed

approximately 400 staff. The Group’s

remuneration policies are in line with

prevailing industry practices, are formulated

on the basis of performance and experience

and will be reviewed regularly. The Group

also provided employees with

comprehensive benefits including medical

insurance and training programs.

The share option scheme of the Company

adopted pursuant to a resolution passed on

October 13, 1998 and becoming effective on

December 24, 1999 was terminated on

March 17, 2003 and replaced by a new share

option scheme being approved and adopted

on the same date. The new share option

scheme is valid and effective for a period of

ten years from the date of adoption.


LI Tzar Kai, Richard

Chairman

BOARD OF DIRECTORS

YUEN Tin Fan, Francis

Deputy Chairman

LEE Chi Hong, Robert

Executive Director and

Chief Executive Officer

Alexander Anthony ARENA

Executive Director

Hubert CHAK

Executive Director


B OA R D OF DI R E C TORS

Executive Directors

LI Tzar Kai, Richard

Chairman

Aged 37, is chairman of Pacific Century

Premium Developments Limited (PCPD) and

chairman of PCPD’s Executive Committee. He is

also chairman of PCCW Limited, chairman and

chief executive of the Pacific Century Group and

chairman of Singapore-based Pacific Century

Regional Developments Limited.

Mr Li is a governor of the World Economic

Forum for Information Technologies and

Telecommunications, and a member of the

Center for Strategic and International Studies’

International Councillors’ Group in Washington,

DC.

In addition, Mr Li is also a member of the

United Nations Information and

Communication Technology Advisory Group.

YUEN Tin Fan, Francis

Deputy Chairman

Aged 51, is deputy chairman of PCPD and

deputy chairman of PCPD’s Executive

Committee. He joined the Pacific Century

Group in 1996 as deputy chairman and is

currently a deputy chairman of PCCW Limited.

He is also a member of PCCW’s Executive

Committee and chairman of Pacific Century

Insurance Holdings Limited.

From 1988 to 1991, Mr Yuen was chief executive

of The Stock Exchange of Hong Kong Limited.

He was also a founding director of Hong Kong

Securities Clearing Company Limited. He served

from 1992 to 1994 as a member of NASDAQ’s

International Markets Advisory Board in the

United States.

Mr Yuen served as managing director of Citicorp

Scrimgeour Vickers Hong Kong Limited in

October 1986 and was appointed to the firm’s

main board in London in 1987. He worked for

Wardley, a merchant bank, from 1977 to 1985.

Mr Yuen is chairman of the Board of Trustees of

the Hong Kong Centre for Economic Research, a

member of the Shanghai People’s Political

Consultative Committee and a member of the

Board of Trustees of Shanghai’s Fudan University.

He received a Bachelor of Arts degree in

economics at the University of Chicago and is

currently a member of its Board of Trustees.

LEE Chi Hong, Robert

Executive Director and Chief Executive Officer

Aged 53, is an executive director and chief

executive officer of PCPD and a member of

PCPD’s Executive Committee. He joined

PCCW Limited on August 19, 2002, and is an

executive director of PCCW and a member of

PCCW’s Executive Committee.

Mr Lee was previously an executive director of

Sino Land Company Limited, where his

responsibilities included sales, finance,

acquisitions, investor relations, marketing and

property management.

Prior to joining Sino Land, Mr Lee was a senior

partner at Deacons in Hong Kong, where he

specialized in banking, property development,

corporate finance and dispute resolution in Hong

Kong and mainland China. Before that, Mr Lee

was a solicitor with the London firm of Pritchard

Englefield & Tobin. He was enrolled as a solicitor

in the UK in 1979 and was admitted as a

solicitor in Hong Kong in 1980. Mr Lee became

a Notary Public in Hong Kong in 1991.

Mr Lee served as a member of the panel of

arbitrators at the China International Economic

and Trade Arbitration Commission of the China

Council for the Promotion of International Trade

in Beijing.

Mr Lee graduated from Cornell University in

1975 with a bachelor’s degree in Political Science.

Alexander Anthony ARENA

Executive Director

Aged 53, is an executive director of PCPD and a

member of PCPD’s Executive Committee. He is

also an executive director of PCCW Limited,

deputy chairman of PCCW’s Executive

Committee, group chief financial officer of

PCCW, a director of Pacific Century Regional

Developments Limited and a director of Pacific

Century Insurance Holdings Limited.


Prior to joining the Pacific Century Group in

1998, Mr Arena was a Special Policy Adviser to

the Government from 1997. From 1993 to 1997,

he was director-general of telecommunications at

the Office of the Telecommunications Authority

of Hong Kong, as well as a member of the

Broadcasting Authority.

Before becoming director-general, Mr Arena was

recruited to plan a reform program for the

liberalization of Hong Kong’s

telecommunications sector. Prior to his

appointment to the Government, he was an

inaugural member of the Australian

Telecommunications Authority, which he served

for four years.

Mr Arena has had an extensive career in public

administration, specializing in high technology

and infrastructure industries. From radio/

communications engineer to public policy maker,

his experience spans such diverse areas as the

commercialization of government-owned

business enterprises and deregulation in the

aviation, transport, telecommunications and

postal industries.

Mr Arena graduated at the University of New

South Wales, Australia, with a bachelor’s degree

in electrical engineering. His Master of Business

Administration degree was completed at

Australia’s Melbourne University and he is a

Fellow of the Hong Kong Institution of

Engineers.

Hubert CHAK

Executive Director

Aged 43, is an executive director of PCPD and a

member of PCPD’s Executive Committee.

He joined PCCW Limited in October 1999 and

is currently PCCW’s company secretary and

director of mergers and acquisitions. Mr Chak

has extensive experience in corporate finance

transactions and previously worked for a number

of international investment banks, as well as a

well-known CPA firm in Hong Kong.

Mr Chak graduated at Cardiff University in the

United Kingdom and holds a Master of Business

Administration degree and a Bachelor of Science

degree in Mechanical Engineering.

Non-Executive Directors

Ronald James BLAKE, O B E , J P , aged 70, is

an independent non-executive director of PCPD.

He was a senior director with the Kowloon-

Canton Railway Corporation (“KCRC”) until

January 2004, and was responsible for

supervising KCRC’s HK$75 billion railway

expansion programs.

Before joining KCRC in 1997, he was secretary

for works for the Hong Kong Government

between 1991 and 1995, overseeing the

implementation of the Airport Core Programme

and the harbor wing extension of the Hong Kong

Conference and Exhibition Centre. Before that,

he served with Paul Y. Construction Limited and

was engaged in civil engineering and building

contracting.

Mr Blake began his career in the United

Kingdom as a civil/structural engineer with

Boulton and Paul, and later joined Scott Wilson

Kirkpatrick & Partners in 1965.

Mr Blake qualified as a Chartered Engineer in

1960 and was awarded the Institution of Civil

Engineers Gold Medal in 1997. He was President

of the Hong Kong Institution of Engineers

between 1991 and 1992 and later became

President of the Federation of Engineering

Institutions of South East Asia and the Pacific

(FEISEAP), which he served as a member of the

Executive for three years.

TSANG Link Carl, Brian, aged 40, is an

independent non-executive director of PCPD.

He is a practising solicitor in Hong Kong and a

partner of the Hong Kong law firm of Iu, Lai &

Li. He graduated from King’s College, London

with a LLB degree in 1985. Mr Tsang has also

been admitted to practise law in England and

Wales, as well as in Singapore, New South Wales,

Queensland and the Australian Capital

Territories. He is a non-executive director of

several other companies listed on the Main

Board, and the GEM Board, of The Stock

Exchange of Hong Kong Limited.


Prof WONG Yue Chim Richard, S B S , J P ,

aged 52, is an independent non-executive

director of PCPD and chairman of the Audit

Committee of PCPD.

Prof Wong graduated from the University of

Chicago with Bachelor’s and Master’s Degrees

and a Doctorate in Economics. He is Dean of the

Faculty of Business and Economics, and Chair of

Economics, at The University of Hong Kong.

Prof Wong has been active in advancing

economic research on policy issues in Hong

Kong and other parts of China through his work

as founding Director of both the Hong Kong

Centre for Economic Research and the Hong

Kong Institute of Economics and Business

Strategy. He was awarded the Silver Bauhinia Star

in 1999 by the Government of the Hong Kong

Special Administrative Region for his

contribution to education, housing, industry and

technology development. He was appointed

Justice of the Peace in July 2000.

Prof Wong is an independent non-executive

director of Pacific Century Insurance Holdings

Limited and a member of the Managing Board of

the Kowloon-Canton Railway Corporation. He is

also an independent non-executive director of

Great Eagle Holdings Limited, Industrial and

Commercial Bank of China (Asia) Limited, CK

Life Sciences Int'l., (Holdings) Inc. and Orient

Overseas (International) Limited.

Dr Allan ZEMAN, G B S , J P , aged 56, is a

non-executive director of PCPD.

After spending more than 34 years in Hong

Kong, he has established business interests here

and overseas that include property development,

entertainment and public relations. This is in

addition to his interests in Li & Fung Limited, a

listed company in Hong Kong.

Dr Zeman is chairman of Ocean Park, a major

theme park in Hong Kong. He is also chairman

of Lan Kwai Fong Holdings Limited, the major

property owner and developer in Lan Kwai Fong,

which is one of Hong Kong’s most popular

tourist attractions.

Dr Zeman is a member of the Economic and

Employment Council in Hong Kong. He serves

as a board member on a number of public bodies

in Hong Kong, including the Tourism Strategy

Group for the Hong Kong Tourism Commission,

the Cultural and Heritage Commission and the

Urban Renewal Authority. He is currently a

director of Wynn Resorts, Limited, a listed

company in the United States; and a director of

Algo Group Inc., a listed company in Canada.

B OA R D OF DI R E C TORS


CORPORATE GOVERNANCE

The corporate governance practices of the

PCPD Group meet the standards set out by

The Stock Exchange of Hong Kong

Limited. The Board of Directors and

Committees overseeing and supervising the

management of the business and affairs of

the Group meet on a regular basis to ensure

that the interests of the Group, as well as its

stakeholders, are well protected.

Board of Directors

The Board is responsible for the

management of the Company. Key

responsibilities include formulation of the

PCPD Group’s overall strategies, the setting

of management targets and supervision of

management performance. The Board

confines itself to making broad policy

decisions, delegating responsibility for more

detailed considerations to the Executive

Committee under the leadership of the

Chairman.

All directors have full and timely access to

all relevant information, including regular

reports from each of the Board committees

and briefings on significant legal, regulatory

or accounting issues affecting the Group.

Biographies of all the directors are set out on

pages 19 to 22 of this annual report.

Executive Committee

The Executive Committee of the Board

meets regularly and operates as a general

management committee with overall

delegated authority from the Board. The

Executive Committee determines group

strategy, reviews trading performance,

ensures adequate funding, examines major

investments and monitors management

performance. The Executive Committee

reports through the Chairman to the Board.

Members of the Executive Committee are:

� Li Tzar Kai, Richard

(Chairman)

� Yuen Tin Fan, Francis

(Deputy Chairman)

� Lee Chi Hong, Robert

(Chief Executive Officer)

� Alexander Anthony Arena

� Hubert Chak

� Wayne Michael Verge

Audit Committee

Subsequent to May 10, 2004, new terms of

reference for the Audit Committee were

adopted and new members of the Audit

Committee appointed.

The Audit Committee of the Board is

responsible for ensuring objectivity and

credibility of financial reporting, and that

the directors have exercised the care,

diligence and skills prescribed by law when

presenting results to the shareholders. The

Audit Committee’s authority and duties are

set out in written terms of reference,

consistent with those recommended by the

Hong Kong Society of Accountants.

The Audit Committee meets regularly with

management and external auditors, and

reviews their reports.

Members of the Audit Committee are:

� Prof Wong Yue Chim, Richard

(Chairman)

� Ronald James Blake

� Tsang Link Carl, Brian

Each member of the Audit Committee is an

independent non-executive director.

The Audit Committee reviews our financial

statements and internal financial reporting,

plus compliance processes and internal

controls, as well as the work program and

activities of our Group Internal Audit unit.


Cor p or at e G ov e r n a n c e

Internal Controls

The directors are responsible for internal

control in PCPD and for reviewing its

effectiveness. Procedures have been designed

to safeguard assets against unauthorised use

or disposition, for maintaining proper

accounting records and ensuring the

reliability of financial information used

within the business or for publication. Such

procedures are designed to manage, rather

than eliminate, the risk of failure to achieve

business objectives. These procedures can

only provide reasonable, and not absolute,

assurance against material errors, losses or

fraud.

Group Internal Audit

Group Internal Audit was established to

provide independent assurance to the Board

and executive management on the adequacy

and effectiveness of internal controls for the

PCPD Group. The Group Internal Audit

reports directly to the Audit Committee, the

Chief Executive Officer and the Chief

Financial Officer.

Group Internal Audit adopts a risk and

control-based audit approach. The annual

work plan of Group Internal Audit covers

major activities and processes of the Group’s

business and service units. All audit reports

are communicated to the Audit Committee

and key members of executive and senior

management. Audit issues are tracked and

followed up for proper implementation,

with progress reported to the Audit

Committee on a quarterly basis.

Investor Relations

The Company encourages two-way

communication with both its institutional

and private investors. Extensive information

on the Group’s activities is provided in the

annual and interim reports, which are sent

to shareholders. Regular dialogue takes place

with institutional investors. Enquiries from

individuals on matters relating to their

shareholdings, and the business of the

Group, are welcomed and dealt with in an

informative and timely manner. Relevant

contact information is provided on page 96

of this report.

In order to promote effective

communication, financial and other

information relating to the Group and its

business activities is disclosed on the

Company’s website (www.pcpd.com).


CONSOLIDATED

Balance STATEMENTFINANCIAL

INFORMATION26 Report of the Directors

37 Auditors’ Report

38 Consolidated Income Statement

39 Consolidated Balance Sheet

41 Balance Sheet

42 Consolidated Statement of Changes in Equity

43 Consolidated Cash Flow Statement

45 Notes to the Financial Statements

94 Five Years Financial Summary



REPORT OF

THE DIRECTORS

The directors hereby present to the shareholders the annual report and the audited consolidated financial statements

of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”) for the year ended March 31,

2004.

Change of Company Name and Adoption of Chinese Name

A special resolution was passed by the shareholders of the Company at the special general meeting of the Company

held on April 28, 2004 to approve the change of the Company’s name from Dong Fang Gas Holdings Limited to

Pacific Century Premium Developments Limited, which took effect on May 10, 2004.

The Company has adopted “盈科大衍地產發展有限公司 ” as its Chinese name for the purpose of identification

with effect from May 24, 2004.

Principal Activities

The Company is an investment holding company. The activities of its principal subsidiaries and associates are set out

in notes 16 and 17 to the financial statements respectively.

Major Transactions

On March 5, 2004, PCCW Limited (“PCCW”, a Hong Kong company whose shares are listed on The Stock

Exchange of Hong Kong Limited (the “Stock Exchange”)) and the Company jointly announced that the Company

has conditionally agreed to purchase:

(i) the entire issued share capital of Ipswich Holdings Limited and its subsidiaries (the “Property Group”), being

the group of companies holding Pacific Century Place Beijing located in the People’s Republic of China (the

“PRC”), PCCW Tower located in Hong Kong, other investment properties and related property and facilities

management companies of PCCW and its subsidiaries (“PCCW Group”) and includes Cyber-Port Limited (the

developer of the Cyberport Project); and

(ii) the property situated at Ko Shing Street and Wo Fung Street, Western, Hong Kong and approximately

HK$3,529 million in aggregate of interest-bearing loans owing by the relevant members of the Property Group

to PCCW.


The aggregate consideration of approximately HK$6,557 million was satisfied:

(i) as to HK$2,967 million, by the allotment and issue of approximately 1,648 million new shares of par value of

HK$0.10 each by the Company, immediately following the capital reorganisation (including a 10:1 share

consolidation) becoming unconditional and effective, to PCCW (or as it may direct) credited as fully paid at an

issue price of HK$1.80 per new share; and

(ii) as to the remaining HK$3,590 million, by the issue of the convertible notes by the Company to PCCW (or as

it may direct).

The Company also carried out the following capital reorganisation:

(i) every issued share of HK$0.40 was reduced in value by cancelling HK$0.39 per share and the cancellation of

each unissued share (“Capital Reduction”);

(ii) every 10 shares of HK$0.01 each of the Company were consolidated into one share of HK$0.10 each;

(iii) an amount of approximately HK$47.14 million standing to the credit of the share premium account of the

Company was cancelled (“Share Premium Cancellation”);

(iv) the aggregate amount of the credit balance of the share premium account of the Company and the credit

arising from the Capital Reduction and the Share Premium Cancellation in the amount of approximately

HK$500.03 million, was transferred to the contributed surplus account of the Company. That credit was used

to set off against the accumulated losses of the Company; and

(v) increased the authorised share capital from HK$11,612,654 to HK$1,000,000,000 by the creation of an

additional 9,883,873,460 shares of HK$0.10 each.

The above purchase was completed on May 10, 2004. Details of these are set out in the Company’s circular dated

April 2, 2004.

Subsidiaries

During the year, Dong Fang Gas (China) Limited, an indirect wholly-owned subsidiary of the Company, entered

into an agreement for the acquisition of 73 percent equity interest in Top Power Holdings Limited (“Top Power”) at

a consideration of HK$80,000,000. Top Power is an investment holding company incorporated in the British Virgin

Islands and owns a 70 percent equity interest in Beijing Continental Gas Co. Ltd. (“Beijing Continental Gas”).

Beijing Continental Gas is a sino-foreign equity joint venture engaged in the business of natural gas supply, storage

and related services.


r e p ort of t h e di r e c tors

Results

The results of the Group for the year ended March 31, 2004 are set out in the accompanying consolidated income

statement on page 38.

The directors do not recommend the payment of a final dividend for the year.

Reserves

Movements during the year in the reserves of the Group and the Company are set out in the consolidated statement

of changes in equity on page 42 and note 33 to the financial statements respectively.

Financial Summary

A summary of the consolidated results and of the assets and liabilities of the Group for the last five financial years is

set out on page 94.

Property, Plant and Equipment

During the year, the Group incurred expenditures of approximately HK$1,988,000 on property, plant and

equipment. In addition, property, plant and equipment with an aggregate net book value of approximately

HK$5,216,000 were acquired as a result of acquisition of subsidiaries.

Details of movements in the property, plant and equipment of the Group during the year are set out in note 14 to the

financial statements.

Share Capital

There were no movements in the Company’s share capital during the year. Details of these are set out in note 31 to

the financial statements.

Major Customers and Suppliers

During the year, aggregate sales attributable to the Group’s five largest customers were approximately 70 percent of

the Group’s total sales, while sales attributable to the Group’s largest customer were approximately 39 percent of the

Group’s total sales. The aggregate purchase attributable to the Group’s five largest suppliers was approximately 51

percent of the Group’s total purchases, while the purchases attributable to the Group’s largest supplier were

approximately 41 percent of the Group’s total purchases.


At no time during the year have the directors, their associates or any shareholders, who, to the knowledge of the

directors, owned more than 5 percent of the Company’s issued share capital, had any interests in the Group’s five

largest customers or suppliers.

Directors

The directors who held office during the year, and up to the date of this report, were:

Executive Directors

Li Tzar Kai, Richard (Chairman) (appointed on May 10, 2004)

Yuen Tin Fan, Francis (Deputy Chairman) (appointed on May 10, 2004)

Lee Chi Hong, Robert (Chief Executive Officer) (appointed on May 10, 2004)

Alexander Anthony Arena (appointed on May 10, 2004)

Hubert Chak (appointed on May 10, 2004)

Dr Chan Kwok Keung, Charles (resigned on May 10, 2004)

Dr Yap, Allan (resigned on May 10, 2004)

Chan Kwok Hung (resigned on May 10, 2004)

Zhang Shi Chen (appointed on October 16, 2003 and resigned on May 10, 2004)

Non-Executive Director

Dr Allan Zeman, G B S , J P (appointed on June 7, 2004)

Independent Non-Executive Directors

Ronald James Blake, O B E , J P (appointed on May 10, 2004)

Tsang Link Carl, Brian

Prof Wong Yue Chim, Richard, S B S , J P (appointed on July 9, 2004)

Zhao Wenfu (appointed on October 15, 2003 and resigned on May 10, 2004)

Ng Wai Hung (resigned on October 15, 2003)

In accordance with Bye-law 86(2) of the Company’s Bye-laws, Yuen Tin Fan, Francis, Lee Chi Hong, Robert,

Alexander Anthony Arena, Hubert Chak, Ronald James Blake, Prof Wong Yue Chim, Richard and Dr Allan

Zeman, shall retire and, being eligible, offer themselves for re-election at the forthcoming annual general meeting.


Directors’ Service Contracts

Lee Chi Hong, Robert entered into a service contract with a wholly-owned subsidiary of the Company which may be

terminated, by either party, on six months’ notice.

The term of office for the non-executive directors is the period up to their retirement by rotation in accordance with

the Company’s Bye-laws.

Save as disclosed above, no director proposed for re-election at the forthcoming annual general meeting has an

unexpired service contract with the Group which is not determinable by the Group within one year without payment

of compensation (other than statutory compensation).

Directors’ Interests in Shares, Underlying Shares and Debentures

As at March 31, 2004, the directors of the Company and their associates had the following interests and short

positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the

meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) as recorded in the register required to be kept

under section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the

Model Code for Securities Transactions by Directors of Listed Companies (“Model Code”):


Long position/ Number of Approximate Percentage

Name of director short position Nature of Interest Shares Held (Note) of issued share capital

Dr Chan Kwok Keung, Charles Long position Personal interest 2,520,900 0.22%

NOTE: Shares of HK$0.40 each in the share capital of the Company.

Save as disclosed above, as at March 31, 2004, none of the directors or their associates had any interests or short

positions in any shares, underlying shares and debentures of the Company or any of its associated corporations

(within the meaning of Part XV of the SFO) as recorded in the register required to be kept under section 352 of the

SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

Share options and Directors’ Rights to Acquire Shares orDebentures

Particulars of the Company’s share option schemes are set out in note 32 to the financial statements. No share options

were outstanding as at March 31, 2004.


No options were granted to, or exercised by, the directors during the year, and no share options were held by the

directors as at March 31, 2004.

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

directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company

or any other body corporate.

Directors’ Interests in Contracts of Significance

No contracts of significance to which the Company or any of its subsidiaries was a party and in which a director of

the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time

during the year.

Directors’ Interests in Competing Business

The interests of the directors of the Company in competing business as at March 31, 2004 required to be disclosed

pursuant to Rule 8.10 of the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”) were

as follows:

Name of company/ Nature of

Name of director partnership/sole proprietorship competing business Nature of interest

Dr Chan Kwok Keung, Charles ITC Corporation Limited Trading of building materials Substantial shareholder and

(“ITC”) and its subsidiaries chairman of ITC

Hanny Holdings Limited (“Hanny”) Securities investment and trading Chairman of Hanny

Dr Yap, Allan Hanny Securities investment and trading Managing director of Hanny

Chan Kwok Hung ITC and its subsidiaries Trading of building materials Executive director of ITC

Hanny Securities investment and trading Executive director of Hanny

Other than as disclosed above, as at March 31, 2004, none of the directors is interested in any business apart from

the Group’s businesses, which competes or is likely to compete, either directly or indirectly, with the Group’s

businesses.


Interests and Short Positions of Substantial Shareholders

As at March 31, 2004, the following persons were substantial shareholders of the Company (as defined in the Listing

Rules) and had interests or short positions in the shares and underlying shares of the Company as recorded in the

register required to be kept under section 336 of the SFO:

Long Position/ Number of Approximate Percentage of

Name of shareholder short Position Capacity shares held issued share capital

China Strategic Holdings Limited

(“China Strategic”) Long position Held by controlled corporation* 500,000,000 43.06%

China Strategic (B.V.I.) Limited Long position Held by controlled corporation* 500,000,000 43.06%

Great Joint Profits Limited Long position Beneficial owner* 500,000,000 43.06%

r e p ort of t h e di r e c torsr e p ort of t h e di r e c tors

*Note: The shares were held by Great Joint Profits Limited, a wholly-owned subsidiary of China Strategic (B.V.I.) Limited, which in turn

is wholly-owned by China Strategic.

Save as disclosed above, the Company had not been notified of any other person (other than directors or the chief

executive of the Company) who had an interest or short position in the shares and underlying shares of the Company

as recorded in the register required to be kept by the Company under section 336 of the SFO.

Convertible Loan

As disclosed in the annual report of the Company for the year ended March 31, 2003 (“Annual Report 2003”), an

unsecured convertible loan of US$12 million (“Convertible Loan”) which is repayable on demand and carries interest at

the rate of 9.8 percent per annum compounded annually for a term of six years was advanced by Simonson International

Development Limited (“Simonson”), a wholly-owned subsidiary of ING Beijing Investment Company Limited (“ING”)

and an independent third party, to Companion-China Limited, a wholly-owned subsidiary of the Company, in 1997.

The Convertible Loan and the accrued interest thereon will, at the option of the convertible noteholder, be convertible

into fully paid ordinary shares of the Company at a conversion price calculated at 90 percent of the average closing price

of the shares of the Company quoted on the Stock Exchange for the 20 trading days immediately preceding the date of

the notice under the terms and conditions of the convertible loan deed, details of which are set out in the circulars to the

shareholders of the Company dated May 13, 1997 and December 20, 2000.

By an assignment executed on February 18, 2002, Simonson has assigned to Perfect Master Limited (“PML”), a

wholly-owned subsidiary of ING and an independent third party, the Convertible Loan and all related rights and

interest. On the same date, the entire issued share capital of PML and the Convertible Loan were then sold to Galaxy

Time Limited, a company held by New World Enterprise Holdings Limited. Details are set out in the announcement

of the Company dated February 18, 2002.


As disclosed in the Annual Report 2003 and the interim report of the Company for the six months ended September

30, 2003, the Group failed to repay a certain part of the Convertible Loan, resulting in the whole outstanding

principal sum of US$11.9 million becoming repayable on demand. The conversion option to convert the

Convertible Loan and the accrued interest into fully paid ordinary shares of the Company lapsed on June 25, 2003

but all other rights attached to the Convertible Loan subsisted.

Management Contracts

No contract concerning the management and administration of the whole, or any substantial part of the business of

the Company, was entered into or existed during the year.

Retirement Benefits Schemes

Details of the Group’s retirement benefits schemes are set out in note 41 to the financial statements.

Code of Best Practice

The Company has complied with the Code of Best Practice as set out in Appendix 14 to the Listing Rules

throughout the year ended March 31, 2004, except that the non-executive directors are not appointed for a specific

term as they are subject to retirement by rotation and re-election at the annual general meeting in accordance with

the Bye-laws of the Company.

Purchase, Sale or Redemption of Listed Securities

During the year, there was no purchase, sale or redemption by the Company, or any of its subsidiaries, of the listed

securities of the Company.

Pre-emptive Rights

There are no provisions for pre-emptive rights under the Company’s Bye-laws, although no restrictions against such

rights exist under the laws in Bermuda.

Post Balance Sheet Events

Details of significant post-balance sheet events are set out in note 43 to the financial statements.


Connected Transactions

In the period since the publication of the Annual Report 2003, the following members of the Group (which became

members of the Group upon completion of the purchase mentioned in the paragraphs under the heading “Major

Transactions”) entered into (or continued to be party to) certain transactions which were “connected transactions” as defined

by the Listing Rules and which are subject to disclosure obligations under Chapter 14A of the Listing Rules. Details of such

transactions are as follow:

1. On November 29, 2002, PCCW-HKT Limited (“HKT”), a wholly-owned subsidiary of PCCW, entered into a

HKT General Shared Services (Variation) Agreement (“Shared Services Agreement”) with Reach Networks Hong

Kong Limited (“Reach”), a wholly-owned subsidiary of Reach Ltd., a 50:50 joint venture between PCCW and Telstra

Corporation Limited. HKT is an investment holding company, the principal activities of its subsidiaries are provision

of information technology solutions to business organisations. Reach is principally engaging in the provision of public

telecommunication services, including international public telephone services and leased circuits for international

telephone, telegraph data and facsimile services. Pursuant to the Shared Services Agreement, the parties agreed to

replace Schedule 14 of the HKT General Shared Services Agreement the parties entered into on October 13, 2000.

The terms upon which these services were to be rendered were due to expire on September 30, 2003. PCCW

confirmed that PCCW Facilities Management Limited (“PCCW FM”), a wholly-owned subsidiary of the Company

which was established for the purposes of providing facilities management, project management and other special

property/asset related services to which PCCW and its subsidiaries (“PCCW Group”) transferred its relevant

personnel, became fully operational in December, 2002. The building operations and maintenance and other support

services which had been provided by the PCCW Group to Reach since November 29, 2002 was also transferred to

PCCW FM pursuant to a verbal agreement between HKT and PCCW FM on that date. In anticipation of the

expiration of the Shared Services Agreement on September 30, 2003, Reach has indicated to HKT that it requires the

continuation of services. In view of the proposed renewal of services between HKT and Reach under the Shared

Services Agreement from October 1, 2003, HKT and PCCW FM verbally agreed on September 1, 2003 (the

“Subsidiary Services Agreement”) the basis upon which PCCW FM should on behalf of HKT provide a range of

services to Reach under the Shared Services Agreement (as amended from time to time). This Subsidiary Services

Agreement was for a term expiring on December 31, 2006, subject to termination by either party giving not less than

10 days’ written notice to the other. With effect from October 1, 2003, in addition to building operations and

maintenance and other support services originally provided, facilities management, project management and other

special services were also provided by PCCW FM to Reach under the Subsidiary Services Agreement. By March 4,

2004, HKT and Reach have finalised the terms of the services to be provided under Schedule 14 of the Shared

Services Agreement to be provided by HKT to Reach and entered into a verbal agreement (“Renewed Agreement”),

pursuant to which the services be provided for a term of 39 months commencing from October 1, 2003 and ending

on December 31, 2006. The terms of the Subsidiary Services Agreement are not affected by the Renewed Agreement.

The remainder of the term for which PCCW FM has to provide the services under the Subsidiary Services Agreement

will be less than three years.



Pursuant to the Renewed Agreement, the service fee payable by Reach to PCCW FM for the current periodfrom March 1, 2004 to December 31, 2004 is approximately HK$3.0 million; for the period from January 1,

2005 to December 31, 2005 is approximately HK$3.7 million and for the period from January 1, 2006 to

December 31, 2006 is approximately HK$3.9 million. PCCW confirmed that the yearly service fee is arrived atbased on the estimated staff cost to be incurred for the whole year plus a manager remuneration to PCCW FM,

which is determined after considering factors such as market rate for similar services, estimated overhead of

PCCW FM and market conditions. If any third party service provider costs are incurred, Reach would becharged without mark up. The service fee has to be settled by cash payment on a monthly pro-rata basis.

2. PCCW Properties (HK) Limited, a wholly-owned subsidiary of the Company, and PCCW FM (together

“Service Providers”) have been respectively providing asset, property and facilities management services to

PCCW Services Limited (“PCCW Services”), a wholly-owned subsidiary of PCCW and Gate Land Limited, an

associate of Li Tzar Kai, Richard, the controlling shareholder of PCCW pursuant to verbal agreements on

October 1, 2003 and October 1, 2002. PCCW confirmed that the service fees are charged on either time

apportionment basis or head count basis, which has to be settled by cash payment on a monthly pro-rata basis.

The service fees charged by the Service Providers for their provision of the above services for the 12 months

ending December 31, 2004 (being the expiry date of the services arrangements) would not exceed HK$50.7

million. PCCW Services is principally engaged in the provision of management services to the PCCW Group.

Gate Land Limited is a project company for property development.

3. Partner Link Investments Limited (“Partner Link”), a wholly-owned subsidiary of the Company, entered into a

verbal agreement with PCCW Services on January 1, 2003 (“Lease Arrangement”). Pursuant to the Lease

Arrangement, PCCW Services leases 10 whole floors and part of the 20th floor and the 32nd floor of PCCW

Tower of the total gross floor area of around 179,843 square feet for terms all commencing in 2003 and all

expiring on December 31, 2005 at an aggregate monthly rental of approximately HK$3,184,000 (exclusive of

Government rates, air-conditioning and management charges which are to be borne by the tenant). The

monthly rental, which reflects prevailing market rates as at the commencement date of the lease, has to be

settled in advance on the first day of each month by PCCW Services.

4. Pursuant to the agreement dated April 30, 2002, PCCW Services sub-license level 8 of Cyberport 2, Phase C1,

Telegraph Bay, Pokfulam, Hong Kong to PCCW Properties (HK) Limited for office use for the period from

April 2, 2002 to April 1, 2007. A supplemental agreement was entered into between the two parties on July 2,

2003 to sub-license additional area on certain units on level 7 of Cyberport 3, Phase C1, Telegraph Bay,

Pokfulam, Hong Kong to PCCW Properties (HK) Limited for term commencing September 2, 2003 to April

1, 2007. The aggregate monthly rental (inclusive of management fees and rates; direct reimbursable amounts

such as security, electricity, cleaning, repair and maintenance and other support services) for the total gross floor

area of around 21,402 square feet is approximately HK$0.5 million. The monthly rental which reflects

prevailing market rates as at the commencement date of the lease has to be paid by PCCW Properties (HK)

Limited in advance on the first day of each month.


Disclosure under Rule 13.21 of the Listing Rules

The Group is in breach of a covenant in respect of certain banking facilities and the amount of such banking facilities

utilised was approximately HK$103,330,000 as at March 31, 2004. As in the event of default repayment, certain

amount has become technically repayable on demand. The Group also failed to repay the Convertible Loan (as

defined in the paragraph under the heading “Convertible Loan”) with the outstanding principal sum of

approximately US$11.9 million and accordingly, the Convertible Loan has become technically repayable on demand.

Auditors

The financial statements for the year ended March 31, 2004 have been audited by Deloitte Touche Tohmatsu whowill retire upon conclusion of the forthcoming annual general meeting and will not offer themselves for re-appointment. A resolution will be submitted at the forthcoming annual general meeting to appointPricewaterhouseCoopers as the new auditors of the Company.

On behalf of the Board

YUEN Tin Fan, FrancisDeputy Chairman

Hong Kong, July 22, 2004



AUDITORS’ REPORT

TO THE MEMBERS OF PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED

(FORMERLY KNOWN AS DONG FANG GAS HOLDINGS LIMITED)

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 38 to 93 which have been prepared in accordance with accounting principles generally accepted in

Hong Kong.

Respective responsibilities of directors and auditors

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements

which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion solely to you, as a body, in

accordance with Section 90 of the Bermuda Companies Act, and for no other purpose. We do not assume responsibility towards or accept liability to

any other person for the contents of this report.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes

examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the

significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are

appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with

sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we

also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis

for our opinion.

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 March 2004 and of the

loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong

Kong Companies Ordinance.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

22 July 2004

38 PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED ANNUAL REPORT 2003/04

CONSOLIDATED

INCOME STATEMENT

Notes 2004 2003

For the year ended 31 March 2004 HK$’000 HK$’000

Turnover 4 149,242 136,196

Cost of sales (126,240) (127,105)

23,002 9,091

Other operating income 5 8,723 15,163

Distribution cost (14,439) (13,932)

Administrative expenses (41,020) (44,368)

Other operating expenses 6 (115,056) (53,206)

Loss from operations 7 (138,790) (87,252)

Finance cost 8 (24,906) (29,429)

Allowance for deposit paid for acquisition of an associate (3,000) —

Write back of provision for an onerous contract 9 23,400 —

Loss on disposal of subsidiaries — (6,554)

Loss on disposal of associates — (691)

Share of loss of associates — (2,129)

Loss before taxation (143,296) (126,055)

Taxation 12 (1,649) (161)

Loss before minority interests (144,945) (126,216)

Minority interests 2,544 13,002

Net loss for the year (142,401) (113,214)

Loss per share 13 (HK$0.12) (HK$0.18)


CONSOLIDATED

BALANCE SHEET

Notes 2004 2003

At 31 March 2004 HK$’000 HK$’000

Non-Current Assets

Property, plant and equipment 14 114,296 126,447

Goodwill 15 105,133 —

Interests in associates 17 — —

Deposit paid for acquisition of an associate 18 — 10,000

Investments in securities 19 467 467

219,896 136,914

Current Assets

Inventories 20 21,618 24,714

Properties held for sale 21 — 6,500

Trading securities 19 14 14

Trade receivables 22 46,330 49,142

Other receivables, deposits and prepayments 5,358 16,736

Loans receivable 23 — —

Amounts due from associates 24 — —

Amounts due from minority shareholders 25 — —

Amount due from a related company 26 137 —

Pledged bank deposits 27,329 26,593

Bank balances and cash 193,479 378,364

294,265 502,063


Consolidated Balance Sheet

Notes 2004 2003

At 31 March 2004 HK$’000 HK$’000

Current Liabilities

Trade payables 27 45,126 41,754

Bills payable and import loans 2,894 17,147

Other payables and accruals 155,332 112,570

Rentals and sales deposits received 10,000 10,000

Provision 9 — 23,400

Taxation payable 1,854 92

Amounts due to minority shareholders 25 6,199 6,599

Amounts due to related companies 28 550 1,065

Bank borrowings - due within one year 29 103,330 91,697

Other borrowings 30 133,816 134,629

459,101 438,953

Net Current (Liabilities) Assets (164,836) 63,110

55,060 200,024

Capital and Reserves

Share capital 31 464,506 464,506

Reserves (422,283) (279,863)

42,223 184,643

Minority Interests 12,837 15,381

55,060 200,024

The financial statements on pages 38 to 93 were approved and authorised for issue by the Board of Directors on 22 July 2004 and are signed on its

behalf by:

Yuen Tin Fan, Francis Lee Chi Hong, Robert

DIRECTOR DIRECTOR


BALANCE

SHEET

Notes 2004 2003

At 31 March 2004 HK$’000 HK$’000

Non-Current Assets

Property, plant and equipment 14 5 8

Investments in subsidiaries 16 — —

Amounts due from subsidiaries - due after one year 16 — 120,356

5 120,364

Current Assets

Amounts due from subsidiaries - due within one year 16 211,761 240,080

Deposits and prepayments 55 928

Bank balances 69,508 20,055

281,324 261,063

Current Liabilities

Payables and accruals 16,551 11,988

Provision 9 — 23,400

Amounts due to subsidiaries 16 7,466 246

24,017 35,634

Net Current Assets 257,307 225,429

257,312 345,793

Capital and Reserves

Share capital 31 464,506 464,506

Reserves 33 (207,194) (118,713)

257,312 345,793

Yuen Tin Fan, Francis Lee Chi Hong, Robert

DIRECTOR DIRECTOR


CONSOLIDATED STATEMENT

OF CHANGES IN EQUITY

Capital Capital Enterprises

Share reserve on Share Special redemption expansion Revenue Exchange Contributed Accumulated

capital consolidation premium reserve reserve reserve reserve reserves surplus losses Total

For the year ended 31 March 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 April 2002 14,506 27,382 47,140 694,583 572 199 199 (682) 130,555 (1,062,591) (148,137)

Exchange adjustment — — — — — — — (3,996) — — (3,996)

Realised on disposal of

interests in subsidiaries — (10) — — — — — — — — (10)

Loss not recognised in the

consolidated income statement — (10) — — — — — (3,996) — — (4,006)

Issue of shares 450,000 — — — — — — — — — 450,000

Net loss for the year — — — — — — — — — (113,214) (113,214)

At 31 March 2003 464,506 27,372 47,140 694,583 572 199 199 (4,678) 130,555 (1,175,805) 184,643

Exchange adjustment not

recognised in the consolidated

income statement — — — — — — — (19) — — (19)

Net loss for the year — — — — — — — — — (142,401) (142,401)

At 31 March 2004 464,506 27,372 47,140 694,583 572 199 199 (4,697) 130,555 (1,318,206) 42,223

Included in capital reserve on consolidation as at 31 March 2004 is negative goodwill of HK$31,587,000 (2003: HK$31,587,000) arising

from acquisition of subsidiaries.

Included in capital reserve on consolidation as at 31 March 2004 is goodwill of HK$4,215,000 (2003: HK$4,215,000) arising from

acquisition of subsidiaries.

The special reserve of the Group represents the difference between share capital, share premium and capital redemption reserve of

Companion Building Material (Holdings) Limited and the nominal amount of share capital issued by the Company pursuant to the

scheme of arrangement on 24 December 1999.


CONSOLIDATED CASH

FLOW STATEMENT

2004 2003


Operating Activities

Loss from operations (138,790) (87,252)

Adjustments for:

Allowance for bad and doubtful debts 40,568 23,179

Allowance for inventories 46 3,550

Allowance for loans receivable 31,047 —

Amortisation of goodwill arising from acquisition of subsidiaries 3,588 —

Allowance for amounts due from associates written (back) made (6,260) 28,363

Allowance for amount due from a minority shareholder 278 1,664

Depreciation 18,105 23,866

Gain on disposal of other securities — (50)

Gain on disposal of property, plant and equipment — (3,807)

Interest income (5,198) (7,091)

Write back of other borrowings (1,696) —

Write back of unclaimed dividend — (273)

Operating cash outflows before movements in working capital (58,312) (17,851)

Decrease in inventories 3,050 13,455

Increase in trading securities — (7)

Increase in trade and other receivables, deposits and prepayments (18,733) (44,344)

Decrease in loans receivable — 222

Decrease in bills payable and import loans (14,253) (9,232)

Increase in rental and sales deposits received — 88

Increase in trade payables and other payables and accruals 12,804 10,610

Increase in amount due from a related company (137) —

Net cash used in operations (75,581) (47,059)

Hong Kong Profits Tax refunded 113 131

Net Cash used in Operating Activities (75,468) (46,928)


Consolidated cash flow Statement

Notes 2004 2003


Investing activitiesProceeds from disposal of subsidiaries

(net of cash and cash equivalents disposed of ) 34 — 28,184Purchase of subsidiaries (net of cash and cash equivalents acquired) 35 (78,517) —Purchase of property, plant and equipment (1,988) (3,187)Increase in pledged bank deposits (736) (26,593)(Increase) decrease in amounts due from minority shareholders (278) 260Refund of deposit paid for acquisition of an associate 7,000 —Decrease (increase) in amounts due from associates 6,260 (15,587)Interest received 564 7,091Advances of loans receivable (288,814) —Repayments from loans receivable 262,401 —Purchase of other securities — (30,000)Deposit paid for acquisition of an associate — (10,000)Proceeds from disposal of property, plant and equipment — 22,287Proceeds from disposal of associates — 1,100Proceeds from disposal of other securities — 30,050

Net cash (used in) from investing activities (94,108) 3,605

Financing activitiesRepayment of bank loans (60,188) (62,459)Repayment of amounts due to related companies (30,307) —Repayment of other borrowings (3,146) (65,509)Interest paid (2,222) (1,048)Repayment of amounts due to minority shareholders (400) —New bank loans raised 35,735 72,921Advances from related companies 29,792 1,065New other borrowings raised 4,029 751Issue of shares — 450,000Advances from minority shareholders — 964

Net cash (used in) from financing activities (26,707) 396,685

Net (decrease) increase in cash and cash equivalents (196,283) 353,362Cash and cash equivalents at beginning of the year 369,198 15,072Effect of foreign exchange rate changes 1,231 764

Cash and cash equivalents at end of the year 174,146 369,198

Analysis of the balances of cash and cash equivalentsBank balances and cash 193,479 378,364Bank overdrafts (19,333) (9,166)

174,146 369,198


NOTES TO the

financial statementsFor the year ended 31 March 2004

1. GENERAL AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The Company is incorporated in Bermuda as an exempted company with limited liability and its securities are listed on

The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company is an investment holding company. The activities of its principal subsidiaries and associates as at 31 March

2004 are set out in notes 16 and 17 respectively.

In March 2004, the Company entered into a conditional agreement with PCCW Limited (“PCCW”, a company

incorporated in Hong Kong with its shares listed on the Stock Exchange), among others, to acquire various property

interests of PCCW and to propose a capital reorganisation. On 10 May 2004, the Company completed the acquisition of

the property interests and the capital reorganisation. Details of these are set out in note 43.

As a result of the above transactions, PCCW became the Company’s controlled shareholder and ultimate holding company.

The financial statements have been prepared on a going concern basis because the Company’s immediate holding company,

which is a subsidiary of PCCW, has agreed to provide adequate funds to the Group to enable it to meet in full its financial

obligations as they fall due for the foreseeable future.

2. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has adopted for the first time, Statement of Standard Accounting Practice (“SSAP”) 12

(Revised) “Income Taxes” issued by the Hong Kong Society of Accountants (“HKSA”). The principal effect of the

implementation of SSAP 12 (Revised) is in relation to deferred tax. SSAP 12 (Revised) requires the adoption of a balance

sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying

amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of

taxable profit, with limited exceptions. The adoption of these standards had no significant effect on the results for the

current or prior accounting periods. Accordingly, no prior period adjustment was required.


Notes to the financial statements

For the year ended 31 March 2004

3. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of

investments in securities, and in accordance with accounting principles generally accepted in Hong Kong. The principal

accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to

31 March each year.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from

the effective date of acquisition or up to the effective date of disposal, as appropriate.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value

of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition.

Goodwill arising on acquisition prior to 1 April 2001 continues to be held in reserves, and will be charged to the income

statement at the time of disposal of the relevant subsidiary or associate or at such time as the goodwill is determined to be

impaired.

Goodwill arising on acquisition since 1 April 2001 is capitalised and amortised on a straight-line basis over its useful

economic life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate.

Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.

On disposal of a subsidiary or an associate, the attributable amount of unamortised goodwill or goodwill previously

eliminated against reserves is included in the determination of the profit or loss on disposal.

Negative goodwill

Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a

subsidiary or an associate at the date of acquisition over the cost of acquisition.

Negative goodwill arising on acquisition prior to 1 April 2001 continues to be held in reserves and will be credited to

income at the time of disposal of the relevant subsidiary or associate.

Negative goodwill arising on acquisition since 1 April 2001 is presented as a deduction from assets and will be released to

income based on an analysis of the circumstances from which the balance resulted.




3. SIGNIFICANT ACCOUNTING POLICIES - continued

Negative goodwill - continued

To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is

released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as

income on a straight-line basis over the remaining average useful life of the identifiable acquired depreciable assets. To the

extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is

recognised in income immediately.

Negative goodwill arising on the acquisition of an associate is deducted from the carrying value of that associate. Negative

goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets.

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss.

Interests in associates

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year. In

the consolidated balance sheet, interest in associates is stated at the Group’s share of the net assets of the associates less any

identified impairment loss.

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Sale proceeds on dealing of listed trading securities are recognised on trade date.

Rental income under operating leases is recognised on a straight-line basis over the term of the relevant lease.

Revenue from household gas connection contract is recognised upon completion of contract.

Sales of gas appliances are recognised when goods are delivered and title has passed.

Service income is recognised at the time when services are rendered.





Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and any accumulated impairment losses.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives and after

taking into account their estimated residual values, using the straight-line method, at the following rates per annum:

Land Over the remainder of lease terms

Buildings

- Long lease in Hong Kong and the

People’s Republic of China (the “PRC”) 2%

- Medium-term lease in the PRC 4.5%

Plant and machinery 9% - 15%

Leasehold improvements

- Owned premises 15%

- Leased premises Over the unexpired term of the lease

Furniture, fixtures and equipment 15% - 20%

Motor vehicles 18% - 30%

Computer software 15% - 33.33%

The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sale proceeds and

the carrying amount of the asset and is recognised in the income statement.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any

indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less

than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is

recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its

recoverable amount, but such that the increased carrying amount does not exceed the carrying amount that would have

been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is

recognised as income immediately.





Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

At subsequent reporting dates, investments in securities are measured at fair value. Where securities are held for trading

purposes, unrealised gains and losses are included in net profit or loss for the period. For other securities, unrealised gains

and losses are dealt with in equity, until the security is disposed of or is determined to be impaired, at which time the

cumulative gain or loss is included in net profit or loss for the period.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Net realisable value is calculated at the actual

or estimated selling price less related costs of marketing and selling.

Convertible loans

Convertible loans are separately disclosed and regarded as liabilities until conversion actually occurs. The finance cost,

including the premium payable upon the final redemption of the convertible loans, recognised in the income statement in

respect of the convertible loans is calculated so as to produce a constant periodic rate of charge on the remaining balances of

the convertible loans for each accounting period.

Operating leases

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the

relevant lease.

Retirement benefit schemes

The retirement benefit costs charged in the income statement represent the contributions payable in respect of the current

year to the Group’s defined contribution schemes or Mandatory Provident Fund Scheme in Hong Kong and the Central

Pension Scheme in the PRC.





Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the

income statement because it excludes items of income or expense that are taxable or deductible in other years and it further

excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that

have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and

liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is

accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable

temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be

available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the

temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business

combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates,

and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is

probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no

longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is

realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited

directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

Transactions in foreign currencies are translated at the rates ruling on the dates of the transactions. Monetary assets and

liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Profits and losses

arising on exchange are dealt with in the income statement.

On consolidation, the assets and liabilities of the Group’s operation outside Hong Kong are translated at the exchange rates

prevailing on the balance sheet date. Income and expense items are translated at the average exchange rate for the year.

Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such

translation differences are recognised as income or expenses in the year in which the operation is disposed of.




4. TURNOVER AND SEGMENT INFORMATION

Turnover represents the net amounts received and receivable for building materials and gas appliances sold by the Group

less discounts allowed and goods returned, gas connection, supply and storage and sale proceeds of marketable securities

during the year.

2004 2003

HK$’000 HK$’000

Trading of building materials 138,574 134,400

Trading of marketable securities 7,076 1,796

Natural gas connection, supply, storage and sales of gas appliances 3,592 —

149,242 136,196

Business segments

For management purposes, the Group is organised into the following three major operating divisions. These divisions are

the basis on which the Group reports its primary segment information.

Building materials – Manufacturing and trading of building materials

Securities trading – Trading of marketable securities and financial instruments

Gas operations – Natural gas connection, supply, storage and sale of gas appliances




4. TURNOVER AND SEGMENT INFORMATION - continued

Business segments - continued


Building Securities Gas

materials trading operations Consolidated

HK$’000 HK$’000 HK$’000 HK$’000

(Note)

Turnover

External sales 138,574 7,076 3,592 149,242

Result

Segment results (40,276) (47,477) (11,903) (99,656)

Other operating income 8,723

Allowance for loans receivable (31,047)

Unallocated corporate expenses (16,810)

Loss from operations (138,790)

Finance cost (24,906)

Write back of provision for an onerous contract 23,400

Allowance for deposit paid for acquisition of an associate (3,000)

Loss before taxation (143,296)

Taxation (1,649)

Loss before minority interests (144,945)

Minority interests 2,544

Net loss for the year (142,401)






Balance sheet as at 31 March 2004


materials trading operations Consolidated

HK$’000 HK$’000 HK$’000 HK$’000

Assets

Segment assets 318,761 481 18,159 337,401

Unallocated corporate assets 176,760

Consolidated total assets 514,161

Liabilities

Segment liabilities 125,493 — 20,142 145,635

Unallocated corporate liabilities 313,466

Consolidated total liabilities 459,101






Other information for the year ended 31 March 2004


materials trading operations Others Consolidated

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

Additions of property, plant and equipment 1,773 — 215 — 1,988

Additions of property, plant and equipment arising from

acquisition of subsidiaries — — 5,216 — 5,216

Depreciation of property, plant and equipment 17,595 — 510 — 18,105

Allowance for bad and doubtful debts 40,568 — — — 40,568

Allowance for loans receivables — — — 31,047 31,047

Allowance for deposit paid for acquisition of an associate — — — 3,000 3,000

Allowance for amount due from a minority shareholder 278 — — — 278

Allowance for inventories 46 — — — 46

Note:

During the year, the Group acquired a 51.1% effective equity interest in Beijing Continental Gas Co. Ltd. (“Beijing Continental Gas”),

which is engaged in the business of gas operations and regarded as a new business segment for the year ended 31 March 2004.







Building Securities

materials trading Consolidated

HK$’000 HK$’000 HK$’000

TURNOVER

External sales 134,400 1,796 136,196

RESULT

Segment results (96,040) (6) (96,046)

Other operating income 15,163

Unallocated corporate expenses (6,369)

Loss from operations (87,252)

Finance costs (29,429)

Loss on disposal of subsidiaries (6,554) — (6,554)

Loss on disposal of associates (691) — (691)

Share of loss of associates (2,129) — (2,129)

Loss before taxation (126,055)

Taxation (161)

Loss before minority interests (126,216)

Minority interests 13,002

Net loss for the year (113,214)






Balance sheet as at 31 March 2003

Building Securities


HK$’000 HK$’000 HK$’000

Assets

Segment assets 115,674 481 116,155

Unallocated corporate assets 522,822

Consolidated total assets 638,977

Liabilities

Segment liabilities 163,633 — 163,633

Unallocated corporate liabilities 275,320

Consolidated total liabilities 438,953

Other information for the year ended 31 March 2003

Building Securities


HK$’000 HK$’000 HK$’000

Additions of property, plant and equipment 1,137 2,050 3,187

Depreciation of property, plant and equipment 23,649 217 23,866

Allowance for bad and doubtful debts 23,179 — 23,179

Allowance for amounts due from associates 28,363 — 28,363

Allowance for amounts due from a minority shareholder 1,664 — 1,664

Allowance for inventories 3,550 — 3,550





Geographical segments

The following table provides an analysis of the Group’s sales by geographic markets, irrespective of the origin of the goods/

services:

Turnover

2004 2003

HK$’000 HK$’000

Hong Kong 14,333 4,977

Other regions of the PRC 74,006 81,361

USA 58,450 49,858

Australia 2,453 —

149,242 136,196

The following is an analysis of the carrying amount of segment assets and additions to property, plant and equipment and

goodwill analysed by the geographical area in which the assets are located:

Additions to property, plant

Carrying amount and equipment and goodwill

of segment assets At 31 March For the year ended 31 March

2004 2003 2004 2003

HK$’000 HK$’000 HK$’000 HK$’000

Hong Kong 319,471 299,609 78 10

Other regions of the PRC 194,690 339,368 115,847 3,177

514,161 638,977 115,925 3,187




5. OTHER OPERATING INCOME

2004 2003

HK$’000 HK$’000

Interest income 5,198 7,091

Write back of other borrowings 1,696 —

Gain on disposal of property, plant and equipment — 3,807

Rental income — 380

Write back of unclaimed dividends — 273

Gain on disposal of other securities — 50

Sundry income 1,829 3,562

8,723 15,163

6. OTHER OPERATING EXPENSES

2004 2003

HK$’000 HK$’000

Allowance for bad and doubtful debts (40,568) (23,179)

Allowance for loans receivable (31,047) —

Allowance for amounts due from associates written back (made) 6,260 (28,363)

Allowance for amount due from a minority shareholder (278) (1,664)

Amortisation of goodwill arising on acquisition of subsidiaries (3,588) —

Loss on securities trading and financial instruments (45,835) —

(115,056) (53,206)




7. LOSS FROM OPERATIONS

2004 2003

HK$’000 HK$’000

Loss from operations has been arrived at after charging:

Staff costs

- Directors’ fee (note 10) — —

- Directors’ other emoluments (note 10) 137 370

- Retirement benefits schemes contribution, net of

forfeiture of HK$191,000 (2003: HK$73,000) 121 589

- Others 8,279 12,929

8,537 13,888

Allowance for inventories 46 3,550

Auditors’ remuneration:

Current year 755 794

Underprovision in prior years — 180

Depreciation 18,105 23,866

Net foreign exchange loss 1,285 1,412

and after crediting:

Rental income, net of outgoings of HK$Nil (2003: HK$2,000) — 378




8. FINANCE COST

2004 2003

HK$’000 HK$’000

Interest on:

Bank and other borrowings wholly repayable within five years 9,586 14,150

Convertible loan 15,320 15,279

24,906 29,429

9. WRITE BACK OF PROVISION FOR AN ONEROUS CONTRACT

The Company entered into an agreement dated 20 April 2000 with a third party (“Purchaser”) pursuant to which the

Company granted to the Purchaser an option to require the Company to purchase certain shares of Skynet Limited

(“Shares of Skynet”) for a consideration of US$3,000,000 during the period from 15 May 2000 to 15 May 2003.

During the year ended 31 March 2002, a provision of HK$23,400,000, representing the full amount of the exercise price

was made for the put option granted to the Purchaser in 2000 to require the Company to purchase the Shares of Skynet.

The put option was not exercised during the year ended 31 March 2004 and lapsed on 15 May 2003. The provision of

HK$23,400,000 was written back during the year upon the lapse of the option.




10. DIRECTORS’ EMOLUMENTS

2004 2003

HK$’000 HK$’000

Directors’ fees:

Executive — —

Independent non-executive — —

— —

Other emoluments - Executive:

Salaries and other benefits 110 354

Retirement benefits scheme contribution 27 16

137 370

During the year, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the

Group. None of the directors has waived any emoluments during the year.




11. EMPLOYEES’ EMOLUMENTS

Of the five individuals with the highest emoluments in the Group, none of the Company’s directors (2003: one) whose

emoluments are included in the disclosures in note 10 above. The emoluments of the five (2003: remaining four)

individuals were as follows:

2004 2003

HK$’000 HK$’000

Salaries and other benefits 2,290 2,134

Retirement benefits scheme contributions 111 108

2,401 2,242

Their emoluments were within the following bands:

2004 2003

Number Number

of employees of employees

HK$Nil to HK$1,000,000 5 4




12. TAXATION

2004 2003

HK$’000 HK$’000

The charge comprises:

Taxation in other jurisdictions

Current year (1,630) (161)

Hong Kong Profits Tax

Underprovision in prior years (19) —

Taxation attributable to the Company and its subsidiaries (1,649) (161)

No provision for Hong Kong Profits Tax has been made in the financial statements as the Company and its subsidiaries had

no assessable profit in either year. Taxation in other jurisdictions is calculated at the rates prevailing in the respective

jurisdictions.

Hong Kong Profits Tax is calculated at 17.5% (2003: 16%) of the estimated assessable profit for the year. Hong Kong

Profits Tax rate was changed from 16% to 17.5% with effect from the 2003/2004 year of assessment.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions. Pursuant to the

relevant laws and regulations in the PRC, certain PRC subsidiaries of the Company are eligible for certain tax holidays and

concessions and the income tax for the PRC subsidiaries were calculated on the basis of concessionary rate.




12. TAXATION - continued

The tax charge for the year can be reconciled to the loss before taxation as per the consolidated income statement as follows:

2004 2003

HK$’000 HK$’000

Loss before taxation (143,296) (126,055)

Taxation at Hong Kong Profits Tax Rate of 17.5% (2003: 16%) (25,077) (20,169)

Tax effect of income not taxable in determining taxable profit (2,925) (8,802)

Tax effect of expenses not deductible for tax purpose 25,118 24,433

Underprovision in respect of prior year 19 —

Tax effect of tax losses not recognised 7,830 9,754

Effect of tax on concessionary rate (1,629) (145)

Effect of different tax rates of subsidiaries operating in other

jurisdictions (1,687) (4,900)

Others — (10)

Tax expense for the year 1,649 161

As at 31 March 2004, the Group had unused tax losses of approximately HK$309,084,000 (2003: HK$264,342,000)

available for offset against future profits. No deferred tax asset has been recognised in respect of unused tax losses due to the

unpredictability of future profits streams. Included in unrecognised tax losses is HK$19,828,000 (2003: HK$9,338,000)

that will be expired in the five years.

At the balance sheet date, the Group and the Company had no other significant unrecognised deferred taxation.

13. LOSS PER SHARE

The calculation of the basic loss per share is based on the net loss for the year of HK$142,401,000 (2003:

HK$113,214,000) and on the 1,161,265,406 (2003: adjusted weighted average of 631,128,400) ordinary shares in issue

during the year.

No diluted loss per share for the year ended 31 March 2004 was presented because the Company had no dilutive potential

ordinary share outstanding at 31 March 2004. No diluted loss per share for the year ended 31 March 2003 was presented as

the exercise of the potential ordinary shares under the convertible loan would result in a reduction in loss per share.




14. PROPERTY, PLANT AND EQUIPMENT

Furniture,Land and Plant and Leasehold fixtures and Motor Computerbuildings machinery improvements equipment vehicles software TotalHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

THE GROUPCOSTAt 1 April 2003 52,565 184,097 1,167 8,829 6,044 46 252,748Additions 423 509 109 379 520 48 1,988Acquired on acquisition

of subsidiaries — 5,135 — 42 39 — 5,216Exchange adjustment — (962 ) — — — — (962)

At 31 March 2004 52,988 188,779 1,276 9,250 6,603 94 258,990

DEPRECIATION ANDIMPAIRMENT

At 1 April 2003 16,449 95,763 96 8,267 5,720 6 126,301Provided for the year 2,419 14,672 260 457 272 25 18,105Exchange adjustment — 288 — — — — 288

At 31 March 2004 18,868 110,723 356 8,724 5,992 31 144,694

NET BOOK VALUEAt 31 March 2004 34,120 78,056 920 526 611 63 114,296

At 31 March 2003 36,116 88,334 1,071 562 324 40 126,447

THE COMPANYCOSTAt 1 April 2003 and

31 March 2004 — — — — — 10 10

DEPRECIATIONAt 1 April 2003 — — — — — 2 2Provided for the year — — — — — 3 3

At 31 March 2004 — — — — — 5 5

NET BOOK VALUEAt 31 March 2004 — — — — — 5 5

At 31 March 2003 — — — — — 8 8




14. PROPERTY, PLANT AND EQUIPMENT - continued

The net book value of properties shown above comprises:

THE GROUP

2004 2003

HK$’000 HK$’000

Land in PRC:

Long lease 2,901 2,658

Medium-term lease 31,219 33,458

34,120 36,116

15. GOODWILL

THE GROUP

HK’000

COST

Arising on acquisition of subsidiaries and at 31 March 2004 108,721

AMORTISATION

Provided for the period and at 31 March 2004 3,588

CARRYING AMOUNT

At 31 March 2004 105,133

The amount represented the goodwill arising on acquisition of a 51.1% effective equity interest in Beijing Continental Gas

during the year. It is amortised over 20 years.

Beijing Continental Gas is a sino-foreign equity joint venture engaged in the business of natural gas supply, storage and

related services. Beijing Continental Gas’ ongoing operations in 液化氣供氣站 (Liquefied Petroleum Gas Supply Station)

projects in 北京門頭溝濱河小區 (Beijing Mentougou Binhe Xiaoqu) and 北京順義區半南壁店小區 (Beijing Shunyiqu

Nanbanbidian Xiaoqu) have been approved by 北京市發展計劃委員會 (Beijing City Development Planning Committee)

with a business scope to engage in natural gas business.




16. INVESTMENTS IN SUBSIDIARIES

THE COMPANY

2004 & 2003

HK$’000

Investments in subsidiaries

Unlisted shares, at cost 286,876

Impairment loss recognised (286,876)

—

Amounts due from subsidiaries - due after one year

The amounts were unsecured, non-interest bearing and had no fixed terms of repayment. The amounts were unlikely to be

repaid within one year from the balance sheet date and were therefore shown as non-current.

Amounts due from (to) subsidiaries - due within one year

The amounts are unsecured, non-interest bearing and repayable on demand.




16. INVESTMENTS IN SUBSIDIARIES - continued

Details of the principal subsidiaries of the Company as at 31 March 2004 are as follows:

Proportion of

Place/ Paid up issued/ nominal value of

country of registered issued capital/

incorporation/ Class of ordinary registered capital

Name of subsidiary registration shares held share capital by the Company Principal activities

Directly Indirectly

% %

Operate in Hong Kong:

Apex Landmark Limited British Virgin Ordinary US$1 — 100 Investment holding

Islands (“BVI”)

Companion Building Material Hong Kong Ordinary HK$490,385,924 — 100 Investment holding

(Holdings) Limited

友聯建築材料(集團)有限公司

Companion-China Limited Hong Kong Ordinary HK$137,839,000 — 100 Investment holding and

友聯中國有限公司 trading of ceramic tiles

Companion-China (Supplies) Hong Kong Ordinary HK$2 — 100 Investment holding

Limited

友聯中國(建材供應)有限公司

Dong Fang Gas Limited Hong Kong Ordinary HK$2 — 100 Investment holding

東方燃氣有限公司

Dong Fang Gas (B.V.I.) Limited BVI Ordinary US$1 100 — Investment holding

Dong Fang Gas Hong Kong Ordinary HK$2 — 100 Investment holding and

Management Limited provision of management

東方燃氣管理有限公司 services to group

companies

Easy Reach Investments Limited BVI Ordinary US$1 — 100 Trading of securities and

financial instruments

King Unity Investments Limited Hong Kong Ordinary HK$20,000 — 80 Investment holding

興盟投資有限公司





Proportion of

Place/ Paid up issued/ nominal value of

country of registered issued capital/

incorporation/ Class of ordinary registered capital

Name of subsidiary registration shares held share capital by the Company Principal activities

Directly Indirectly

% %

Saint Galerie Tiles Limited Hong Kong Ordinary HK$13,750,000 — 100 Manufacturing and trading

新嘉利瓷磚有限公司 of ceramic tiles

Operate in the PRC:

Beijing Continental Gas Co. Ltd. PRC Registered RMB10,000,000 — 51.1 Natural gas connection,

北京大陸燃氣有限公司 capital (Note b) supply, storage and sales

of gas appliances

Chongqing Golden Unity PRC Registered RMB46,750,000 — 56 Manufacturing and

Ceramics Co., Ltd. capital (Notes a trading of ceramic tiles

(“Golden Unity”) and b)

重慶金聯陶瓷有限公司

Wenzhou Xishan United PRC Registered RMB46,360,148 — 73.5 Manufacturing and trading

Ceramics Company Limited capital (Note b) of ceramic tiles

溫州西山聯合陶瓷有限公司

江門市新會友聯專業 PRC Registered RMB14,280,640 — 100 Polishing of ceramic tiles

陶瓷有限公司 capital (Note c)

Notes:

(a) The subsidiary was an equity joint venture company established by the Group and an independent third party in the PRC. Under

the management agreements with the Chinese party, the Group is responsible for all of the assets and liabilities of the equity joint

venture company and is entitled to all of the net profits or losses of the operation (after payment of fixed amount as management

fee to the Chinese party) each year during the term of the management agreement.

(b) This is a PRC sino-foreign equity joint venture.

(c) This is a PRC subsidiary established as wholly foreign owned enterprise.





The above table lists the subsidiaries of the Company at 31 March 2004 which, in the opinion of the directors, principally

affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result

in particulars of excessive length.

None of the subsidiaries had any debt securities outstanding during the year and at the end of the year.

17. INTERESTS IN ASSOCIATES

THE GROUP

2004 & 2003

HK$’000

Share of net assets —

Details of the principal associates of the Group as at 31 March 2004 are as follows:

Proportion of

nominal value of

Form of Place/ Principal issued capital/

business country of place of Class of registered capital

Name of associate structure registration operation shares held by the Company Nature of business

Directly Indirectly

% %

Asean Fortune Corporation Incorporated BVI Hong Kong Ordinary — 50 Investment holding

Yixing United Ceramics Incorporated PRC PRC Capital — 47.56 Manufacturing of

Co., Ltd. ceramic tiles

宜興聯合陶瓷有限公司

The above table lists the associates of the Group at 31 March 2004 which, in the opinion of the directors, principally

affected the results or assets of the Group. To give details of other associates would in the opinion of directors, result in

particulars of excessive length.




18. DEPOSIT PAID FOR ACQUISITION OF AN ASSOCIATE

During the year ended 31 March 2003, China Crystal Investment Limited (“China Crystal”), an indirect wholly-owned

subsidiary of the Company, entered into an agreement (“Acquisition Agreement”) with a third party (“Vendor”) to acquire

63% of the entire issued share capital of WIT International Group Limited (“WIT”) at a consideration of

HK$120,000,000. WIT shall hold a 49% equity interest in Nanning City Gas Co. Ltd., which is mainly engaged in the

business of the construction and operation of the gas pipelines in Nanning, the PRC, and the provision of the related

equipment, apparatus and other ancillary services. Deposit of HK$10,000,000 (“Deposit”) was made by the Group in

connection with the Acquisition Agreement.

On 2 January 2003, the Company announced that there had been certain disputes between the Vendor and China Crystal

relating to the satisfaction of the conditions of the Acquisition Agreement and the Company received a notice dated 20

December 2002 from the solicitors acting for the Vendor purporting to rescind the Acquisition Agreement and forfeit the

Deposit paid by the Group upon signing of the Acquisition Agreement on 8 November 2002. China Crystal, through its

solicitors, issued a written reply denying any breach of the Acquisition Agreement on the part of China Crystal and

reiterated the right of China Crystal to receive the refund of the Deposit in full under the terms of the Acquisition

Agreement. Details of these are set out in the Company’s announcement dated on 2 January 2003.

During the year ended 31 March 2004, the Group entered into a settlement agreement with the Vendor and assigned all

the rights and obligations including the claims of the Deposit to an independent third party for a consideration of

HK$7,000,000 to resolve the disputes and therefore the remaining balance of HK$3,000,000 was fully written off during

the year .

19. INVESTMENTS IN SECURITIES

THE GROUP

2004 2003

HK$’000 HK$’000

Trading securities:

Equity securities listed in Hong Kong, at market price 14 14

Club debenture 467 467




20. INVENTORIES

THE GROUP

2004 2003

HK$’000 HK$’000

Raw materials 9,443 10,154

Work in progress 278 240

Finished goods 11,897 14,320

21,618 24,714

Included above are finished goods of HK$10,636,000 (2003: HK$14,137,000) which were carried at net realisable value.

21. PROPERTIES HELD FOR SALE

THE GROUP

2004 2003

HK$’000 HK$’000

At 1 April 6,500 6,500

Disposal (6,500) —

At 31 March — 6,500

As at 31 March 2003, the properties held for sale were situated in Hong Kong under medium-term leases.




22. TRADE RECEIVABLES

The Group does not have a fixed credit policy.

The following is an aged analysis of trade receivables at the balance sheet date:

THE GROUP

2004 2003

HK$’000 HK$’000

Within 60 days 14,073 15,469

61 - 90 days 4,913 8,179

Over 90 days 27,344 25,494

46,330 49,142

23. LOANS RECEIVABLE

THE GROUP

2004 2003

HK$’000 HK$’000

Unsecured 31,047 —

Less: Allowance (31,047) —

— —

Loans receivable bear interest at prevailing market rate and are repayable on demand.




24. AMOUNTS DUE FROM ASSOCIATES

THE GROUP

2004 2003

HK$’000 HK$’000

Amounts due from associates 82,103 88,363

Less: Allowance (82,103) (88,363)

— —

The amounts are unsecured, non-interest bearing and are repayable on demand.

25. AMOUNTS DUE FROM (TO) MINORITY SHAREHOLDERS

THE GROUP

2004 2003

HK$’000 HK$’000

Amounts due from minority shareholders 1,942 1,664

Less: Allowance (1,942) (1,664)

— —

Amounts due to minority shareholders (6,199) (6,599)

The amounts are unsecured, non-interest bearing and repayable on demand.

26. AMOUNT DUE FROM A RELATED COMPANY

The amount represents trading balance with Hong Kong Wing On Travel Services Limited, with credit terms of 30 days,

which is a wholly-owned subsidiary of an associate of China Strategic Holdings Limited (“CSH”), which is listed on the

Stock Exchange and was a substantial shareholder of the Company as at 31 March 2004.




27. TRADE PAYABLES

The following is an aged analysis of trade payables at the balance sheet date:

THE GROUP

2004 2003

HK$’000 HK$’000

Within 60 days 5,646 4,433

61 - 90 days 828 1,280

Over 90 days 38,652 36,041

45,126 41,754

28. AMOUNTS DUE TO RELATED COMPANIES

Details of the amounts due to related companies are as follows:

THE GROUP

2004 2003

Notes HK$’000 HK$’000

北京市液化石油氣公司（「北京市液化」） (i) 377 —

Cycle Company Limited and Gunnell Properties Limited (ii) 173 —

Hanny Magnetics Limited (ii) — 244

Paul Y. - Building Management Limited (ii) — 18

Paul Y. - ITC Management Limited (ii) — 1

Hong Kong Wing On Travel Services Limited (iii) — 36

Mass Success International Limited (“Mass Success”) (iv) — 766

550 1,065

All amounts are unsecured, non-interest bearing and are repayable on demand.




28. AMOUNTS DUE TO RELATED COMPANIES - continued

Notes:

(i) 北京市液化 is the shareholder of a subsidiary’s minority shareholder.

(ii) The companies are wholly-owned subsidiaries of a substantial shareholder of CSH as at 31 March 2004.

(iii) The company is a wholly-owned subsidiary of an associate of CSH as at 31 March 2004.

(iv) As at 31 March 2004, a director of the Company was also a director of Mass Success.

29. BANK BORROWINGS

THE GROUP

2004 2003

HK$’000 HK$’000

Bank overdrafts 19,333 9,166

Bank loans 83,997 82,531

103,330 91,697

Secured 92,315 74,417

Unsecured 11,015 17,280

103,330 91,697

The Group was in breach of a covenant in respect of the banking facilities. As events of defaults had arisen under the loan

agreements, certain amounts of the loans became repayable on demand and are classified under current liabilities.




30. OTHER BORROWINGS

THE GROUP

2004 2003


Convertible loan - unsecured (i) 92,302 92,302

Loan from a financial institution in the PRC (ii) 29,889 34,729

Loans from employees (iii) 7,097 3,738

Other short-term loans (iv) 4,528 3,860

133,816 134,629

Secured 29,889 34,729

Unsecured 103,927 99,900

133,816 134,629

All amounts are repayable within one year or repayable on demand.

Notes:

(i) In 1997, an unsecured convertible loan of US$12,000,000 (“Loan”) which carries interest at the rate of 9.8% per annum

compounded annually for a term of six years was advanced by Simonson International Development Limited (“Simonson”), a

wholly-owned subsidiary of ING Beijing Investment Company Limited (“ING”), an independent third party, to Companion-

China Limited, a wholly-owned subsidiary of the Company. The Loan and the accrued interest thereon will, at the option of the

convertible noteholder, be convertible into fully paid ordinary shares of the Company at a conversion price calculated at 90% of

the average closing price of the shares of the Company quoted on the Stock Exchange for the twenty trading days immediately

preceding the date of the notice under the terms and conditions of the convertible loan deed, details of which are set out in the

circulars dated 13 May 1997 and 20 December 2000 to the shareholders of the Company.

By an assignment executed on 18 February 2002, Simonson assigned to Perfect Master Limited (“PML”), a wholly-owned

subsidiary of ING, the Loan and all related rights and interest. On the same date, the entire issued share capital of PML and the

Loan were sold to Galaxy Time Limited, a company held by New World Enterprise Holdings Limited. Details of these are set out

in the announcement of the Company dated 18 February 2002.

The Loan bears interest at 9.8% per annum. The Group failed to repay certain part of the Loan and the accrued interest thereon,

resulting in whole outstanding principal sum of US$11.9 million and accrued interest being technically repayable on demand. The

conversion option to convert the Loan and the accrued interest into fully paid ordinary shares of the Company lapsed on 25 June

2003 but all other rights attaching to the Loan continue to subsist.




30. OTHER BORROWINGS - continued

(ii) The amounts are secured, interest bearing at 10.8% per annum and repayable on demand.

(iii) The amounts are unsecured, interest bearing at 0.8% per month and repayable on demand.

(iv) The amounts are unsecured, interest bearing at 2% plus prime rate per annum and repayable on demand.

31. SHARE CAPITAL

Number

of shares Value

HK$’000

Authorised:

Ordinary shares of HK$0.01 each at 1 April 2002 30,000,000,000 300,000

Additions 30,000,000,000 300,000

Share consolidation (58,500,000,000) —

Ordinary shares of HK$0.40 each at 31 March 2003 and

31 March 2004 1,500,000,000 600,000

Issued and fully paid:

Ordinary shares of HK$0.01 each at 1 April 2002 1,450,612,577 14,506

Issue of shares 45,000,000,000 450,000

Exercise of warrants 3,658 —

Exercise of share options 5 —

Share consolidation (45,289,350,834) —

Ordinary shares of HK$0.40 each at 31 March 2003 and

31 March 2004 1,161,265,406 464,506




32. SHARE OPTIONS

1998 Scheme

The Company’s share option scheme (“1998 Scheme”) was adopted pursuant to a resolution passed on 13 October 1998

and became effective on 24 December 1999 for the primary purpose of providing incentives to directors and eligible

employees, and shall expire on 27 August 2003. The 1998 Scheme was terminated on 17 March 2003. Under the 1998

Scheme, the board of directors of the Company may grant options to eligible employees, including directors of the

Company and its subsidiaries, to subscribe for shares in the Company.

The total number of shares of the Company in respect of which options may be granted under the 1998 Scheme is not

permitted to exceed 10% in nominal amount of the issued share capital of the Company from time to time less: (i) the

aggregate number of shares of the Company which have been duly allotted and issued pursuant to the 1998 Scheme; (ii)

the number of shares of the Company which would be issued on the exercise in full of the options granted but not exercised

on that date pursuant to the 1998 Scheme; and (iii) the number of shares of Companion Building Material (Holdings)

Limited (“CBM”) which have been duly allotted and issued pursuant to the share option scheme of CBM. The shares of

CBM were previously listed on the Stock Exchange. Pursuant to a scheme of arrangement between CBM and its

shareholders, CBM became an indirectly wholly owned subsidiary of the Company and its shares were withdrawn from

listing on the Stock Exchange and the shares of the Company are listed on the Stock Exchange with effect from 24

December 1999. The number of shares of the Company in respect of which options may be granted under the 1998

Scheme to any eligible employee (together with (i) the number of shares of the Company issued in respect of options of the

Company which have been exercised by that eligible employee; (ii) any shares of the Company which would be issued upon

the exercise of outstanding options of the Company granted to that eligible employee; and (iii) the number of shares of

CBM issued in respect of options of CBM which have been exercised by that eligible employee), is not permitted to exceed

25% of the maximum aggregate number of shares of the Company subject to the 1998 Scheme at the time it is proposed to

grant the relevant option to such eligible employee.

Consideration to be paid on each grant of option is HK$10 and an offer for an option must be accepted by the eligible

employee not later than 28 days after the offer date of option. Options granted may be exercised at any time from the date

of grant of the share option to the third anniversary of the date of grant. The exercise price is determined by the directors of

the Company, and shall not be less than the greater of (i) 80% of the average closing price of the Company’s shares for the

five trading days immediately preceding the offer date of the option; and (ii) the nominal value of the Company’s share.

No options were granted under 1998 Scheme during the year and no options were outstanding as at 31 March 2004 and

31 March 2003.

No options under 1998 Scheme were outstanding as at 31 March 2004 and 31 March 2003.




32. SHARE OPTIONS - continued

1998 Scheme - continued

A summary of movement of share options under the 1998 Scheme for the year ended 31 March 2003 was as follows:

Employees Number of share under option

Exercise price* Outstanding at Granted Exercised Outstanding at

Date of grant Exercisable period HK$ 1.4.2002 during the year during the year 31.3.2003

14.2.2003 14.2.2003 - 13.8.2003 0.012 — 5 (5) —

The closing price of the shares of the Company on 13 February 2003 immediately before the date on which the options

were granted was HK$0.01. The closing price of the shares of the Company on the date of exercise was HK$0.01.

Total consideration received during the year ended 31 March 2003 from the employee for taking up the options granted

was HK$10. No charge is recognised in the income statement in respect of the value of options granted during the year

ended 31 March 2003.

* As the options were granted and exercised before the share consolidation of the Company becoming effective during the year ended

31 March 2003, no adjustment were required to be made on the exercise price.

2003 Scheme

A new share option scheme (“2003 Scheme”) was approved and adopted on 17 March 2003. The 2003 Scheme is valid and

effective for a period of 10 years after the date of adoption.

The purpose of the 2003 Scheme is to enable the Company to grant options to any directors (including executive directors,

non-executive directors and independent non-executive directors) of the Group and full-time or part-time employees

(including executives or officers) of the Group and any advisors and consultants providing advisory, consultancy or other

services to the Group, distributors, contractors, suppliers, agents, customers, business partners, joint venture business

partners, promoters, service providers of any member of the Group and those staff under secondment to the Group who

the Board considers, in its sole discretion, have contributed or will contribute to the Group (“Participant”) as incentives or

rewards for their contribution to the Group and to encourage Participants to work towards enhancing the value of the

Company and its shares for the benefit of the Company and its shareholders as a whole.




32. SHARE OPTIONS - continued

2003 Scheme - continued

The maximum number of shares of the Company in respect of which options may be granted under the 2003 Scheme and

other share option schemes of the Company is not permitted to exceed 30% in nominal amount of the issued share capital

of the Company from time to time. The maximum number of shares in respect of which options may be granted to a

specifically identified single grantee under the 2003 Scheme shall not (when aggregated with any shares subject to any other

share option scheme(s) of the Company) in any 12 month period exceed 1 per cent. of the shares in issue.

Where any grant of options to a substantial shareholder or an independent non-executive director of the Company, or any

of their respective associates, would result in the shares issued and to be issued upon exercise of all options already granted

and to be granted (including options exercised, cancelled or outstanding) to such person in the 12 month period up to and

including the date of grant:

(i) representing in aggregate over 0.1 per cent. of the shares in issued; and

(ii) having an aggregate value, based on the closing price of the shares as stated in the daily quotations sheets issued by

the Stock Exchange on the date of grant, in excess of HK$5 million,

such grant of options shall be subject to prior approval by resolution of the shareholders who are not connected persons of

the Company pursuant to the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”).

Consideration to be paid on each grant of option is HK$1 and an offer remains open for acceptance by Participant

concerned for a period of 28 days from date of grant or otherwise stated in the offer letter. The option period is a period to

be notified by the Board to each grantee at the time of making an offer which shall not expire later than ten years from the

date of grant. The exercise price is determined by the directors of the Company, and shall not be less than the greatest of (i)

the closing price of the shares as stated in the daily quotations sheets issued by the Stock Exchange on the date of grant; (ii)

the average closing price of the shares of Company for the five business days immediately preceding the date of grant; and

(iii) the nominal value of the share of Company.

No share options were granted or exercised pursuant to the 2003 Scheme since its adoption.




33. RESERVES

Capital

Share redemption Contributed Accumulated

premium reserve surplus losses Total

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

THE COMPANY

At 1 April 2002 47,140 572 392,912 (480,692) (40,068)

Net loss for the year — — — (78,645) (78,645)

At 31 March 2003 47,140 572 392,912 (559,337) (118,713)

Net loss for the year — — — (88,481) (88,481)

At 31 March 2004 47,140 572 392,912 (647,818) (207,194)

The contributed surplus of the Company represents the difference between the fair value of the share capital of Companion

Building Material (Holdings) Limited whose shares were exchanged for the Company’s shares and the nominal amount of

the share capital issued by the Company pursuant to the scheme of arrangement on 24 December 1999.

Under the Bermuda Companies Act, the contributed surplus account of the Company is available for distribution.

However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if:

(a) it is, or would after the payment be, unable to pay its liabilities as they become due; or

(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital

and share premium accounts.

At the balance sheet, the Company had no reserves available for distribution to shareholders.




34. DISPOSAL OF SUBSIDIARIES

2004 2003

HK$’000 HK$’000

Net assets disposed of:

Property, plant and equipment — 3,109

Properties under development held for sale — 13,380

Trade receivables, other receivables, deposits and prepayments — 22,467

Amounts due from customers for contract work — 246

Bank balances and cash — 256

Rental deposits received — (580)

Trade payables, other payables and accruals — (2,549)

Amounts due to customers for contract work — (562)

Taxation payable — (20)

Bank borrowings — (740)

Deferred taxation — (3)

— 35,004

Loss on disposal — (6,554)

Release of capital reserve on consolidation — (10)

— 28,440

Satisfied by:

Cash — 28,440




34. DISPOSAL OF SUBSIDIARIES - continued

Net cash inflow arising on disposal of subsidiaries:

2004 2003HK$’000 HK$’000

Cash consideration — 28,440

Bank balances and cash disposed of — (256)

— 28,184

The subsidiaries disposed of did not make a significant contribution to the net cash flows or the results of the Group for theyear ended 31 March 2003.

35. PURCHASE OF SUBSIDIARIES

During the year, the Group acquired 73% equity interest in Top Power Holdings Limited, which holds 70% equity interestin Beijing Continental Gas, for a consideration of HK$80,000,000. The acquisition has been accounted for by theacquisition method of accounting.

2004 2003

HK$’000 HK$’000

Net assets acquired:Property, plant and equipment 5,216 —Other receivables, deposits and prepayments 1,145 —Bank balances and cash 1,483 —Trade payables (2,543) —Other payables and accruals (8,103) —Bank borrowings (25,919) —

(28,721) —Goodwill arising on acquisition 108,721 —

80,000 —

Satisfied by:

Cash 80,000 —




35. PURCHASE OF SUBSIDIARIES - continued

An analysis of the net outflow of cash and cash equivalents in connection with the purchase of subsidiaries is as follows:

2004 2003

HK$’000 HK$’000

Cash consideration paid (80,000) —

Bank balances and cash acquired 1,483 —

(78,517) —

The subsidiaries acquired during the year contributed approximately HK$3,592,000 to the Group’s turnover and

HK$11,903,000 to the Group’s loss from operations.

36. MAJOR NON-CASH TRANSACTION

At 31 March 2004, the proceeds of HK$6,500,000 on disposal of properties held for sale during the year was not received

by the Company and had been included in other receivables.




37. RELATED PARTY TRANSACTIONS

During the year, the Group had transactions with the related parties as follows:

Company Nature of transactions Notes 2004 2003

HK$’000 HK$’000

Yixing United Ceramics Co., Ltd. Sale of ceramic tiles by the Group (i) 235 4,332

Disposal of plant and machinery by the Group (i) — 6,552

Purchase of ceramic tiles by the Group (i) 53,805 41,582

Cycle Company Limited and Rent deposits paid by the Group (ii) 247 247

Gunnell Properties Limited Rent expenses paid by the Group (ii) 751 288

Management fee paid by the Group (ii) 271 106

Hong Kong Wing On Travel Air ticket and travel service expenses (iii) 163 51

Service Limited paid by the Group

Paul Y. - ITC Management Limited Sundry expenses paid by the Group (ii) 6 5

Paul Y. - Building Management Renovation work for fire service (ii) — 18

Limited system paid by the Group

Paul Y. - ITC General Sale of ceramics by the Group (ii) — 259

Contractors Limited

Hanny Magnetics Limited Loan interest income received by the Group (ii) — 201

中國重慶第六棉紡織廠 Management fee paid and payable (iv) — 2,367

by the Group

Rent expenses paid and payable by the Group (iv) 113 113

Mass Success Consultancy fee paid by the Group (v) 3,187 961

Management fee paid by the Group (v) 2,400 —

Great Joint Profits Limited Interest expense paid by the Group (vi) 608 —




37. RELATED PARTY TRANSACTIONS - continued

Notes:

(i) Yixing United Ceramics Co., Ltd. is an associate of the Group.

(ii) Paul Y. - ITC Management Limited, Paul Y. - Building Management Limited, Paul Y. - ITC General Contractors Limited, Hanny

Magnetics Limited, Cycle Company Limited and Gunnell Properties Limited are wholly-owned subsidiaries of the substantial

shareholders of CSH, during the year.

(iii) Hong Kong Wing On Travel Service Limited is a wholly-owned subsidiary of an associate of CSH, during the year.

(iv) 中國重慶第六棉紡織廠 is a minority shareholder of the Chongqing Golden Unity Ceramics Co., Ltd., a non wholly-owned

subsidiary of the Company.

(v) A director of the Company was also a director of Mass Success during the year.

(vi) Great Joint Profits Limited is a wholly-owned subsidiary of CSH.

During the year, CSH advanced approximately HK$25,693,000 to the Group. The amount was unsecured, interest bearing

at prevailing market rate and fully settled during the year.

In the opinion of the directors, the above transactions were undertaken at the terms mutually agreed between the Group

and the related parties with reference to the market price.

Details of balances with related parties at the balance sheet date are set out in notes 24, 25, 26 and 28.

38. CONTINGENT LIABILITIES

At balance sheet date, the contingent liabilities of the Group and the Company not provided for in the financial statements

are set out as follows:

THE GROUP THE COMPANY

2004 2003 2004 2003

HK$’000 HK$’000 HK$’000 HK$’000

Corporate guarantee given to bankers in

respect of banking facilities utilised by

- an associate — 10,268 — —

- subsidiaries — — 92,302 92,302




39. COMMITMENTS

(i) Lease commitments

The Group as lessee

The Group made approximately HK$1,422,000 (2003: HK$2,115,000) minimum lease payments under operating lease

during the year in respect of premises and warehouse.

At balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating

leases in respect of rented premises which fall due as follows:

THE GROUP

2004 2003

HK$’000 HK$’000

Within one year 1,891 1,551

In the second to fifth year 1,527 646

3,418 2,197

Operating lease payments represent rentals payable by the Group for its office premises and warehouse. Leases are mainly

negotiated for an average term of three years and rentals are fixed for an average term of three years.

The Group as lessor

No property rental income was earned during the year (2003: HK$380,000). The properties had no committed tenants.




39. COMMITMENTS - continued

(ii) Capital commitments

THE GROUP

2004 2003

HK$’000 HK$’000

Capital expenditure contracted for but not provided

in the financial statements relating to the acquisition

of property, plant and equipment 85 —

The Company had no capital commitment at the balance sheet date.

40. PLEDGE OF ASSETS

At the balance sheet date, the Group had pledged the following assets to secure bank and other borrowings facilities granted

to the Group:

2004 2003


Properties held for sale (i) — 6,500

Property, plant and equipment (i) 83,262 96,744

Trade receivables (ii) 13,329 14,292

Bank deposits (ii) 27,329 26,593

123,920 144,129

Notes:

(i) The assets were pledged to secure the banking facilities and other borrowings of the Group.

(ii) The trade receivables and bank deposits were pledged to a bank to secure the banking facilities granted to the Group.

(iii) The investment in securities with market value of HK$10,188,000 (2003: HK$16,457,000) which were pledged to secure margin

loan payable included in other payable and accruals were used to set off the amount of margin loan payables of HK$15,875,000

(2003: HK$21,482,000).




41. RETIREMENT BENEFITS SCHEMES

(a) The Group has two defined contribution provident fund schemes for its Hong Kong employees. The scheme assets of

the one scheme are being held under a provident fund operated by The Prudential Assurance Company Limited with

BOCI-Prudential Trustee Limited as Trustees (the “Old ORSO Scheme”). The other one is operated by CMG Asia

Pensions and Retirement Limited with Butterfield Trust (Hong Kong) Limited as Trustees (the “New ORSO

Scheme”).

The Group is required to make contributions to the above schemes calculated at 5% of the employees’ basic salaries

and commissions on a monthly basis. The Old ORSO Scheme was granted an exemption from the Mandatory

Provident Fund Schemes Authority on 20 July 2000. Under the Old ORSO Scheme, the employees are entitled to

100% of the employers’ contributions and the accrued interest after 12 years of completed service, or at a vesting

scale of between 30% and 100% after completion of 5 to 12 years’ service. With effect from 1 October 2000, the

Group participates in the New ORSO Scheme, which was granted an exemption from the Mandatory Provident

Fund Schemes Authority on 22 June 2001. Under the New ORSO Scheme, the employees are entitled to 100% of

the employers’ contributions and the accrued interest after 10 years of completed service, or at a vesting scale of

between 30% to 100% after completion of 3 to 10 years’ service. The forfeited contributions and related accrued

interest can be used to reduce the employers’ contributions. The principal deed and the rules of the above provident

fund schemes were amended accordingly to comply with the rules of the Mandatory Provident Fund Schemes

Ordinance.

The employees entitled to the defined contribution provident fund schemes before 1 December 2000 were allowed

an option between joining the mandatory provident fund or continuing to making contributions to the New ORSO

Scheme. All newly employed employees are required to join the mandatory provident fund scheme or the New

ORSO Scheme. The Group is required to make contributions to either of the two schemes according to the

employees’ options.

With effect from 1 December 2000, the Group also participates in a mandatory provident fund scheme. The scheme

assets are held under a mandatory provident fund operated by CMG Asia Pensions and Retirement Limited. Under

the scheme, the Group is required to make contributions to the scheme calculated at 5% of the employees’ relevant

income (as defined in the Mandatory Provident Fund Schemes Ordinance) on a monthly basis.

Certain employees in Hong Kong joined another mandatory provident fund scheme, in which the assets of the MPF

Scheme are held separately from those of the Group, with funds under the control of trustees. The Group contributes

5% of relevant payroll costs to the scheme, which contribution is matched by employees.




41. RETIREMENT BENEFITS SCHEMES - continued

At both balance sheet dates, there were no forfeited contributions available to offset future employers’ contributions

to the schemes.

(b) Employees in subsidiaries in the PRC are members of the Central Pension Scheme operated by the PRC government.

These subsidiaries are required to contribute a certain percentage of their payroll to the Central Pension Scheme to

fund the benefits. The only obligation of the Group with respect to the Central Pension Scheme is the required

contribution under the Central Pension Scheme.

42. LITIGATION

(a) Companion-China Limited (“Companion-China”), a wholly-owned subsidiary of the Company, entered into a

supply contract with a raw tiles manufacturer in Shenzhen on 17 May 1997. The contract was finally terminated due

to the sub-standard raw tiles. On 2 June 1999, legal action was instituted by the manufacturers in the High Court of

Hong Kong against Companion-China demanding the payment of outstanding contract sum of HK$2,349,000. On

7 August 1999, Companion-China made a counterclaim against the manufacturer for loss and damages as a result of

the sub-standard raw tiles.

On 20 December 1999, summary judgment was entered against Companion-China for the payment of outstanding

contract sum of approximately HK$1,860,000 and interests thereon. Companion-China lodged an appeal against

such summary judgment and an unconditional leave was granted to Companion-China on 3 March 2000 to defend

the action. If final judgment is entered against Companion-China, Companion-China may be obliged to pay the

manufacturer a sum of approximately HK$1,860,000 plus interests and costs. At the date of this report, there has

been no further progress in respect of such action. As the outstanding contract sum of approximately HK$1,860,000

was provided for in prior year, the directors are of the opinion that there is unlikely to be any material adverse

financial impact on the Group in the event that the final judgement is not in favour of Companion-China.

(b) On 22 January 2002, Companion Finance Limited (“Companion Finance”), a wholly-owned subsidiary of the

Company, issued a writ against Pang Siu Chung (“Mr. Pang”) and Kwok Mun Nei, Candy and Leung Wai Hon (as

guarantors) claiming payment of a sum of HK$322,097 and further interest on the sum of HK$300,000 at the daily

rate of HK$78 from 29 November 2001 to the date of payment, being the unpaid amount due from Mr. Pang to

Companion Finance pursuant to a loan agreement dated 16 February 2001 made between Companion Finance and

Mr. Pang, plus cost. At the date of this report, there has been no further progress in respect of such action. As the

total amount including interest due from Mr. Pang has already been written off, the directors are of the opinion that

there is unlikely to be any material adverse financial impact on the Group in the event that the final judgment is not

in favour of Companion Finance.




42. LITIGATION - continued

(c) On 3 June 2002, a legal action was instituted against Wenzhou Xishan United Ceramics Company Limited（溫州

西山聯合陶瓷有限公司）(“Wenzhou Xishan”) and Chongqing Golden Unity Ceramics Co., Ltd.（重慶金聯陶

瓷有限公司）(“Chongqing Golden”) as guarantor (both are subsidiaries of the Company) by China Huarong Asset

Management Corporation, Hangzhou Office（中國華融資產管理公司杭州辦事處）(“China Huarong”)

claiming payment of a sum of RMB12,049,781, being the outstanding principal sum and interest of a loan due from

Wenzhou Xishan to Industrial and Commercial Bank of China, Wenzhou Branch, Lucheng Sub-branch（中國工商

銀行溫州市分行鹿城支行）, who assigned the said loan to China Huarong. On 8 August 2002, the Intermediate

People’s Court in the Wenzhou Municipality (“the Court”) ruled against Wenzhou Xishan and Chongqing Golden

under which a sum of RMB5,000,000 plus interests and costs shall be paid to China Huarong. On 5 December

2002, the Court gave a final judgement against Wenzhou Xishan and Chongqing Golden under which a sum of

RMB5,000,000 plus interests and costs of RMB1,581,311 shall be paid to China Huarong. At the date of this

report, such amounts had not been paid and no demand for payment had been received by the Group so far. A

provision of RMB6,581,311 (approximately HK$6,234,000) has been included in the Group’s financial statements

in respect of the sums claimed. The directors are of the opinion that there will not be any additional material adverse

financial impact on the Group.

43. POST BALANCE SHEET EVENTS

On 5 March 2004, PCCW and the Company jointly announced that the Company has conditionally agreed, among

others, to purchase:

(i) the entire issued share capital of Ipswich Holdings Limited and its subsidiaries (the “Property Group”), being the

group of companies holding Pacific Century Place Beijing located in the PRC, PCCW Tower located in Hong Kong,

other investment properties and related property and facilities management companies of PCCW and its subsidiaries

(“PCCW Group”) and includes Cyber-Port Limited (the developer of the Cyberport Project in Hong Kong);

(ii) the property situated at Ko Shing Street and Wo Fung Street, Western, Hong Kong and the approximately

HK$3,529 million in aggregate of interest-bearing loans owing by the relevant members of the Property Group to

PCCW.




43. POST BALANCE SHEET EVENTS - continued

The aggregate consideration was approximately HK$6,557 million which was satisfied:

(i) as to HK$2,967 million, by the allotment and issue of approximately 1,648 million new shares of par value of

HK$0.10 each by the Company, immediately following the capital reorganisation (including a 10:1 share

consolidation) becoming unconditional and effective, to PCCW (or as it may direct) credited as fully paid at an issue

price of HK$1.80 per new share; and

(ii) as to the remaining HK$3,590 million, by the issue of the convertible notes by the Company to PCCW (or as it may

direct).

The Company also carried out the following capital reorganisation:

(i) every issued share of HK$0.40 was reduced in value by cancelling HK$0.39 per share and the cancellation of each

unissued share (“Capital Reduction”);

(ii) every 10 shares of HK$0.01 each of the Company were consolidated into one share of HK$0.10 each;

(iii) an amount of approximately HK$47.14 million standing to the credit of the share premium account of the

Company was cancelled (“Share Premium Cancellation”);

(iv) the aggregate amount of the credit balance of the share premium account of the Company and the credit arising from

the Capital Reduction and the Share Premium Cancellation, in the amount of approximately HK$500.03 million,

will be transferred to the contributed surplus account of the Company. That credit was be used to set off against the

accumulated losses of the Company; and

(v) increased the authorised share capital from HK$11,612,654 to HK$1,000,000,000 by the creation of an additional

9,883,873,460 shares of HK$0.10 each.

The above purchase completed on 10 May 2004. Further details of these are set out in the Company’s circular dated 2 April

2004.


F ive years

financial summary

1. RESULTS

For the year ended 31 March

2000 2001 2002 2003 2004

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

Turnover 838,971 524,334 258,265 136,196 149,242

(Loss) profit before taxation 16,380 (757,826) (489,311) (126,055) (143,296)

Taxation (charge) (8,935) (5,036) 9,854 (161) (1,649)

(Loss) profit before minority interests 7,445 (762,862) (479,457) (126,216) (144,945)

Minority interests (6,815) (3,142) 20,463 13,002 2,544

(Loss) profit attributable to shareholders 630 (766,004) (458,994) (113,214) (142,401)

2. ASSETS AND LIABILITIES

As at 31 March

2000 2001 2002 2003 2004

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

Total assets 1,445,486 811,699 341,222 638,977 514,161

Total liabilities and minority interests 499,934 493,997 489,359 454,334 471,938

(Deficiency) balance of shareholders’ funds 945,552 317,702 (148,137) 184,643 42,223


INVESTOR RELATIONS

Listing

The Company’s ordinary shares are listed on the Main Board of The Stock Exchange

of Hong Kong Limited and the stock code is 0432.

Any enquiries regarding the Company should be addressed to Investor Relations at

the address provided on the next page.

Company Secretary

Chu Mee Lai, Helen

Registered Office

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

Principal Place of Business in Hong Kong

Units 701-705, Level 7

Cyberport 3

100 Cyberport Road

Hong Kong

Telephone: 2514 3990 Fax: 2514 3945

Principal Share Registrar and Transfer Agent

Butterfield Fund Services (Bermuda) Limited

Rosebank Centre

11 Bermudiana Road

Pembroke HM08

Bermuda


Hong Kong Branch Share Registrar and Transfer Office

Computershare Hong Kong Investor Services Limited

Rooms 1901-5, 19th Floor

Hopewell Centre

183 Queen’s Road East

Wanchai

Hong Kong

Telephone: 2862 8628 Fax: 2529 6087

Email: [email protected]

Investor Relations

Ernest Chan

Pacific Century Premium Developments Limited

8th Floor

Cyberport 2

100 Cyberport Road

Hong Kong

Telephone: 2514 3910 Fax: 2514 3945

Email: [email protected]

Website

www.pcpd.com

I n v e s tor R e l at ion s

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