Annual Report 2006 - 嘉年華國際控股有限公司 Interim R… · Bank of China (Hong Kong) Limited Industrial and Commercial Bank of China (Asia) Limited Bank of Communication

CASH Retail Management Group Limited

Annual Report 2006

(Stock Code #996)

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2006CASH Retail Management Group Limited

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Contents

2 Corporate Information

3 Chairman’s Statement

5 Management Discussion and Analysis

10 Profiles of Directors and Senior Management

12 Corporate Governance Report

18 Directors’ Report

24 Independent Auditors’ Report

26 Consolidated Income Statement

27 Consolidated Balance Sheet

29 Consolidated Statement of Changes in Equity

31 Consolidated Cash Flow Statement

33 Notes to the Consolidated Financial Statements

86 Financial Summary

87 Notice of Annual General Meeting

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2006 CASH Retail Management Group Limited

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BOARD OF DIRECTORS

Executive directors:

Ms. Tin Yuen Sin Carol (Chairperson)

Mr. Choi Chiu Fai Stanley (Chief Executive Officer)

Mr. Chan Hon Ming Alan

Mr. Tse Pui To Dickson

Mr. Lam Yat Ming

Independent non-executive directors:

Mr. Ng Ka Chung Simon

Mr. Chan Wai Yip Freeman

Ms. Leung Po Ying Iris

AUDIT COMMITTEE

Mr. Chan Wai Yip Freeman (Chairman)



REMUNERATION COMMITTEE

Mr. Chan Wai Yip Freeman (Chairman)



Mr. Choi Chiu Fai Stanley

QUALIFIED ACCOUNTANT AND

COMPANY SECRETARY

Mr. Lee Cheuk Man

LEGAL ADVISORS

Fairbairn Catley Low & Kong

Kirkpatrick & Lockhart Preston Gates Ellis

AUDITORS

HLB Hodgson Impey Cheng

Chartered Accountants

Certified Public Accountants

REGISTERED OFFICE

Clarendon House, 2 Church Street,

Hamilton HM11 Bermuda

HEAD OFFICE AND PRINCIPAL PLACE OF

BUSINESS IN HONG KONG

Suite 3001, COSCO Tower

183 Queen’s Road Central, Hong Kong

REGISTRARS AND TRANSFER OFFICE

IN HONG KONG

Standard Registrars Limited

26/F Tesbury Centre

28 Queen’s Road East

Wanchai, Hong Kong

PRINCIPAL BANKERS

The Hongkong and Shanghai Banking Corporation Limited

Bank of China (Hong Kong) Limited

Industrial and Commercial Bank of China (Asia) Limited

Bank of Communication Co., Limited (Beijing Branch)

CONTACTS

Telephone : (852) 2877 7722

Facsimile : (852) 2877 5522

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Chairman’s Statement

The year 2006 was an important year to CASH Retail Management Group Limited (the “Company”) and its subsidiaries

(the “Group”). After the close of the offers on 30 November 2006, there was a change in control of the Company and a

change of its board composition in late October and November 2006.

For the financial year ended 31 December 2006, the Group recorded a consolidated net loss of approximately HK$95.4

million (2005: HK$76.6 million), representing an increase of approximately 24.5% over the corresponding period in 2005.

The increase in loss was mainly attributable to the impairment loss in respect of goodwill of approximately HK$144.9

million, which was non-recurrent in nature. The basic loss per share for the year was HK$0.09, which is similar to that of

last year.

During the year, the Group has changed its business development focus to the People’s Republic of China (the “PRC”)

market and implemented a significant corporate restructuring so as to align with the new business direction. In June 2006,

the Group disposed of its entire retail business in Hong Kong, including the retail chains of “Pricerite”, “LifeZtore” and

“3C Digital”, to its former substantial shareholder for a total consideration of approximately HK$130.6 million. The Group

recorded a disposal gain of approximately HK$61.7 million for such transaction.

After the disposal, the Group has ceased its retail business in Hong Kong completely and concentrated its resources on

developing the business of retail-related development planning advisory services, advertising and promotion advisory services

and operation of department store in the PRC. For the year ended 31 December 2006, the operations in the PRC have

contributed net profit of approximately HK$65.3 million to the Group.

The PRC has been experiencing a continuous and steady economic growth over the years and there is a rising trend in

personal income and spending power of the general public. The influx of foreign retailers and improving living standard of

the citizens have triggered great changes in the shopping behavior and purchase patterns of the consumers in the PRC and

created many prospective business opportunities in the retail industry. The management believes that the 2008 Olympics

will further boost the growth of the retail market in the PRC and thus the Group will accelerate its development of retail-

related business so as to ride the wave.

With the continuous favorable economic growth in the PRC, we also expect that the market fundamentals of the property

market in the PRC shall remain positive in the ensuing years. To tap into this lucrative market, the Group signed two sale

and purchase agreements on 14 April 2007 to acquire the entire equity interests in Fortune International Business Limited

and Sunny Sky Properties Limited, which hold two large-scaled commercial and residential complexes in Beijing, the PRC.

In the absence of any unforeseen adverse factors which will significant impact the property market in the PRC, we expect

that the properties to be acquired will contribute steady rental income as well as potential capital gain to the Group.

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As we move into 2007, we anticipate that the PRC market will be full of business opportunities. To further improve the

performance and profitability of the Group, we will continue to explore new investment opportunities which are expected to

provide significant growth in the future.

Tin Yuen Sin Carol

Chairperson

Hong Kong, 20 April 2007

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Management Discussion and Analysis

BUSINESS REVIEW

Development planning advisory service for shopping malls

The Group provides professional development planning advisory services to assist our clients in developing and managing

shopping malls. Advisory services offered include feasibility study, market research, market positioning, shopping mall

design and decoration, business canvass and image management. During the year, the Group signed advisory service contracts

with two shopping malls in Beijing, the PRC.

The rising prosperity in the PRC together with the policies for the relaxation of restrictions on foreign retailers entering the

PRC have caused great influx of foreign retailers in the prime cities of the PRC, especially in Beijing and Shanghai. The

competition from foreign retailers has posed great threat to the local retailers and consequently boosted the demand of

facilities development and management advisory services for the local shopping malls. Furthermore, as a consequence of

the increase in citizens’ disposable income and consumption power in the PRC, the consumers are not just looking for

stores with variety of quality merchandise, but also want to have enjoyable shopping experiences from the one-stop shopping

malls, which provide convenience and comfortable environment for them to shop, relax and gather with families and friends.

With the maturing of the retail market, it is expected that the demand for better managed retail space will further increase

and there will be an increasing needs of development planning advisory services for shopping malls to address the demand

from both tenants and end-users.

Advertising and promotion advisory services

The Group renders full advertising and promotion advisory services which include the provision of advices on marketing

strategies, brand management, commercials production and graphic designs. Moreover, the Group organizes seasonal

promotion activities to increase the customer traffic and stimulate consumer spending of the shopping malls. During the

year, successful campaigns such as co-organized with CCTV and The Beijing News,

co-organized with Mengniu Dairy, were launched with remarkable consumers’ participations.

Operation of department store

The operation of Oriental Kenzo (Beijing) Department Store ceased during the year owing to the early termination of the

tenancy agreement by the landlord. The Group was compensated by the landlord for early termination of the tenancy

agreement.

In order to capture the benefits of robust growth in the PRC’s retail industry and the business opportunities in association

with the 2008 Olympic Games in Beijing, the Group has identified several potential locations for the set up of new department

store so as to realize its advantages of having a full retail business licence which allows chain store operations throughout

the PRC.

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FINANCIAL REVIEW

Financial results

For the year ended 31 December 2006, the Group recorded a total revenue of approximately HK$552.2 million (2005:

HK$865.6 million), representing a decrease of approximately 36.2% as compared with last year. The net loss for the year

was approximately HK$95.4 million, representing an increase of approximately 24.5% as compared with the net loss of

approximately HK$76.6 million in last year.

Continuing Operations

The revenue from continuing operations for the year amounted to approximately HK$125.8 million, which accounted for

approximately 22.8% of the total revenue of the Group. The revenue from continuing operations for the year were mainly

derived from the provision of development planning advisory services for shopping malls, the provision of advertising and

promotion advisory services and the operation of department store in the PRC market. When compared with last year, the

revenue from continuing operations for the year ended 31 December 2006 has increased by approximately 100%.

The net loss from continuing operations for the year, including the impairment loss in respect of goodwill arose from the

acquisition of Oriental Kenzo of approximately HK$144.9 million, was approximately HK$116.2 million (2005:HK$3.4

million).

Discontinued Operation

The discontinued operation contributed a revenue of approximately HK$426.5 million (2005: HK$865.6 million) to the

Group for the year ended 31 December 2006, representing a decrease of approximately 50.7% when compared with last

year. On the other hand, the net loss from discontinued operation, excluding the gain on disposal of discontinued operations

amounting to approximately HK$61.7 million, has decreased by more than 44.1% from approximately HK$73.2 million in

2005 to approximately HK$40.9 million in 2006.

Capital structure, liquidity and financial resources

As at 31 December 2006, the current assets and current liabilities of the Group were approximately HK$532.4 million

(2005: HK$456.3 million) and HK$432.8 million (2005: HK$423.0 million) respectively. The liquidity ratio, which is

calculated as current assets over current liabilities, was approximately 1.2 times, which showed an improvement when

compared with that of 1.1 times at the previous year end. The Group’s total assets and total liabilities amounted to

approximately HK$612.1 million (2005: HK$931.5 million) and HK$432.8 million (2005: HK$690.7 million) respectively.

The debt ratio, which is calculated based on total liabilities over total assets, was 0.7 as at 31 December 2006, which was at

similar level of last year.

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The cash and cash equivalents as at 31 December 2006 was approximately HK$1.7 million (2005: HK$106.6 million). The

decrease was mainly attributable to the disposal of the cash rich retail business during the year.

The bank borrowings as at 31 December 2006 amounted to approximately HK$20.0 million (2005: HK$86.1 million),

representing a decrease of approximately 76.8%. The reduction was solely due to the disposal of retail businesses in Hong

Kong. All the outstanding borrowings are repayable within one year. As at 31 December 2006, the principal amount of

outstanding convertible loan notes amounted to approximately HK$273.2 million (2005: HK$257.2 million). The Group’s

gearing ratio, calculated as total interest bearing borrowings over total shareholders’ funds, was 163.5% as at 31 December

2006 as compared to 142.6% on 31 December 2005.

As at 31 December 2006, the authorized share capital of the Company was HK$60 million divided into 3,000,000,000

shares of HK$0.02 each and the issued share capital of the Company was approximately HK$21.9 million divided into

1,092,526,145 shares of HK$0.02 each.

On 9 February 2007, Fit Top Investments Limited (“Fit Top”), a substantial shareholder of the Company which is wholly-

owned by a Director of the Company, entered into a placing agreement and a top-up subscription agreement with a placing

agent and the Company respectively. Pursuant to the placing agreement, Fit Top placed through the placing agent an aggregate

of 100 million existing shares in the Company to the placees, who and whose ultimate beneficial owner(s) are independent

third parties of the Company and its connected persons, at a price of HK$0.28 per share. Pursuant to the top-up subscription

agreement, Fit Top subscribed for an aggregate of 100 million shares in the Company at a price of HK$0.28 per share.

FOREIGN EXCHANGE EXPOSURE

The Group’s transactions are mainly denominated in Hong Kong dollar and Renminbi (“RMB”). Therefore, the Group is

exposed to Renminbi exchange risk. The Group has not implemented any foreign currency hedging policy at the moment.

However, continuous monitoring on the foreign exchange exposure is carried out by the management and the management

will consider to hedge the foreign exchange exposure if it is significant to the Group.

CONTINGENT LIABILITIES AND CHARGES ON THE GROUP’S ASSETS

As at 31 December 2006, there were no material contingent liabilities or charges on the Group’s assets.

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EMPLOYEE INFORMATION

As at 31 December 2006, the Group had a total of 60 employees. The employees of the Group are remunerated in accordance

with their working experience and performance, and their salaries and benefits are kept at market level. For the year ended

31 December 2006, the total staff costs of the Group was approximately HK$62.7 million (2005: HK$98.6 million),

representing a decrease of approximately 36.4% over the previous year. The decrease in staff costs was mainly attributable

to the disposal of retail businesses in Hong Kong.

Apart from the basic salaries and employer’s contribution to Mandatory Provident Fund scheme, staff benefits also include

discretionary performance-based bonus, medical schemes, share options and sales commission.

MATERIAL ACQUISITIONS OR DISPOSALS OF SUBSIDIARIES

On 20 February 2006, the Group entered into an agreement to dispose of its entire equity interest in CASH Retail Management

(HK) Limited, whose subsidiaries are engaged in retail business in Hong Kong with brand names of Pricerite, 3C Digital

and LifeZtore, to a wholly-owned subsidiary of Celestial Asia Securities Holdings Limited, the Company’s former holding

company at a consideration of approximately HK$130.6 million. The disposal was completed on 30 June 2006.

Save for the aforementioned, no significant investments and material acquisitions or disposals of subsidiaries or affiliated

companies which had material impact on the financial results of the Group were made during the year ended 31 December

2006.

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

On 14 April 2007, two wholly-owned subsidiaries of the Company entered into two respective sale and purchase agreements

with an independent third party to acquire the entire equity interest in each of Fortune International Business Limited and

Sunny Sky Properties Limited and their respective shareholder’s loans at a total consideration of HK$1.6 billion, which

shall be satisfied by cash consideration of HK$1.456 billion and the issue of 400,000,000 new shares of the Company at an

issue price of HK$0.36 each. This constituted a very substantial acquisition under the Rules Governing the Listing of

Securities on the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) (the “Listing Rules”).

Fortune International Business Limited and Sunny Sky Properties Limited are investment holding companies and their

respective subsidiaries are principally engaged in property investment and development and real estate management. Major

assets owned by the acquired groups of Fortune International Business Limited and Sunny Sky Properties Limited include

two commercial and residential complexes, namely Oriental Kenzo Plaza ( ) and Shilibao ( ), in Beijing,

the PRC. The proposed acquisition is subject to shareholders’ approval at the forthcoming special general meeting and the

fulfillment or waive of the conditions precedent.

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PROSPECTS

The Directors consider that the strong growth and structural changes underway throughout the economy as well as the

expectation of the further RMB appreciation will fuel investment interest for quality properties in the PRC and keep the

medium-term to long-term prospects of the property market in the PRC remain positive. Therefore, for the year ahead, the

Group will expand its business scope to property investment and real estate management while continuing its efforts on

further developing retail business in the PRC. Given the promising market potential in the PRC property market, the Directors

expect that the commercial and residential complexes to be acquired in Beijing will contribute steady rental income as well

as upside potential gain for asset appreciation to the Group in the future.

The Board anticipates that the 2008 Olympics and the 2010 World Expo shall underpin the strong growth in the PRC retail

market in the coming years. Therefore, the Group will take active pursuit in building its department store operations and

related advisory services for retail business in the PRC. Meanwhile, the Group will also seek for new business opportunities

that may increase the Group’s profitability and shareholders’ value.

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EXECUTIVE DIRECTORS

Ms. Tin Yuen Sin Carol, aged 41, joined the Board on 1 September 2005 and has been the Chairperson of the Company

since 16 November 2006. Ms. Tin has extensive experience in Hong Kong — China trading business. She is responsible for

the overall strategic planning and policy making for the Company as well as to develop cordial relationship with business

associates in the commercial sector.

Mr. Choi Chiu Fai Stanley, aged 38, was appointed as the Chief Executive Officer of the Company and an executive

director with effect from 26 October 2006. He is responsible for the Company’s business management and operation, as

well as corporate development. Mr. Choi possesses extensive experience in business management, marketing promotion,

Hong Kong — China commercial operation and financial services including securities investment. Before joining the

Company, he worked for different sizable financial groups and corporations in Hong Kong with senior executive positions

such as managing director of Head & Shoulder Securities Limited and director of Tung Tai Securities Company Limited.

Mr. Choi graduated Magna Cum Laude in Business Administration from the Wichita State University (USA) and received

a Master of Science degree from the University of Illinois (USA). Recently, he was awarded a graduation certificate for

successfully completing a Master degree in law from the Law School of the Chinese People’s University.

Mr. Chan Hon Ming Alan, aged 47, was appointed as an executive director with effect from 26 October 2006 and is

responsible for the Company’s business management and operation, investment strategies and investor relationship

coordination. Mr. Chan has a solid background of more than 20 years of working experience in the securities industry.

Before joining the Company, he worked for several international securities corporations at senior executive positions such

as managing director of Magnum International Securities Limited and deputy managing director of China Everbright Securities

Limited. Mr. Chan was an executive director of Magnum International Holdings Limited, a company whose shares are

listed on the Main Board of the Stock Exchange, from December 1999 to June 2006. Mr. Chan graduated with a BBA

degree from The University of Texas at Arlington (USA) and received a MBA degree from the University of North Texas

(USA). He has extensive experience in corporate governance, capital market, financial services including securities investment.

Mr. Tse Pui To Dickson, aged 41, was appointed as an executive director with effect from 26 October 2006. Mr. Tse

previously worked in the banking industry for a period of more than 10 years with different international banks, including

IBA Bank, Belgian Bank and Sanwa bank, as senior manager in the corporate banking department. He possesses extensive

banking experience particularly in the corporate lending business. Currently, he is General Manager of Hong Kong Finance

Company Limited, a finance company in Hong Kong.

Mr. Lam Yat Ming, aged 47, was appointed as an executive director with effect from 26 October 2006. Mr. Lam graduated

from the University of Newcastle Upon Tyne (UK). Before joining the Company, he worked for different financial investment

services corporations in Hong Kong, including Tung Tai Group of Companies, and was responsible for company administration

and management. He possesses over 15 years of experience in the financial services industry including securities investment

and also in the retail business.

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Profiles of Directors and Senior Management

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Ng Ka Chung Simon, aged 50, was appointed as an independent non-executive director on 28 February 2006. Mr. Ng

has extensive experience in the legal field and is currently a Barrister-At Law.

Mr. Chan Wai Yip Freeman, aged 44, was appointed as an independent non-executive director with effect from 26 October

2006. He is a Fellow member of the Association of Chartered Certified Accountants, a Fellow member of the Hong Kong

Institute of Certified Public Accountants and a Fellow member of the Taxation Institute of Hong Kong. He is a practicing

certified public accountant and possesses over 20 years of professional experience in auditing and tax consultancy services.

Ms. Leung Po Ying Iris, aged 37, was appointed as an independent non-executive director with effect from 26 October

2006. Ms. Leung graduated with a BBA degree from the University of Hong Kong and received a MBA degree from the

Hong Kong University of Science & Technology. She is a Fellow member of the Association of Chartered Certified

Accountants and an Associate member of the Hong Kong Institute of Certified Public Accountants. Ms. Leung is currently

General Manager of Growth-Link Trade Services Company Limited, a trade services company in Hong Kong, and possesses

over 14 years of professional and business experience in finance and investment services.

COMPANY SECRETARY AND QUALIFIED ACCOUNTANT

Mr. Lee Cheuk Man was appointed as the company secretary and qualified accountant of the Company with effect from 16

November 2006. Mr. Lee has extensive experience in auditing, financial management and accounting and has over 12 years

of experience with Hong Kong publicly listed companies. He is a member of the Hong Kong Institute of Certified Public

Accountants and a Fellow member of the Association of Chartered Certified Accountants.

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INTRODUCTION

The Company has all along committed to fulfill its responsibilities to its shareholders by ensuring that the proper processes

for supervision and management of the Group's businesses are duly operated and reviewed and that good corporate governance

practices and procedures, including but not limited to the Code on Corporate Governance Practices (“CG Code”) in Appendix

14 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”), are

established throughout the year ended 31 December 2006.

Throughout the year ended 31 December 2006, the Company meets all the code provisions as set out in the CG Code,

except for the only deviation from code provision A.2.1 of the CG Code for the period from 1 January 2006 to 25 October

2006 and the considered reasons are detailed in the Company's interim results 2006.

Save as disclosed in this report, the Company has complied with all the code provisions on CG Code.

BOARD OF DIRECTORS (THE “BOARD”) AND BOARD MEETING

Board Composition

The Board currently comprises five executive directors (“ED”), namely Ms. Tin Yuen Sin Carol (Chairperson), Mr. Choi

Chiu Fai Stanley (Chief Executive Officer), Mr. Chan Hon Ming Alan, Mr. Tse Pui To Dickson and Mr. Lam Yat Ming, and

three independent non-executive directors, namely Mr. Ng Ka Chung Simon, Mr. Chan Wai Yip Freeman and Ms. Leung Po

Ying Iris.

There is no service contract between the Company and each of the directors. Pursuant to the Bye-laws of the Company, each

of the directors will hold office and will be subject to retirement by rotation and re-election at the annual general meeting.

The Company complies with Rule 3.10 of the Listing Rules that there is sufficient number of independent non-executive

directors and each of them have appropriate professional qualifications. The Company has received from each of the

independent non-executive directors, an annual confirmation of his/her independence pursuant to Rule 3.13 of the Listing

Rules. The Company considers all of the independent non-executive directors are independent of the Company.

There is no financial, business, family or other material relationship between the Board members of the Company.

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Corporate Governance Report

Change of Board

There were the change of the Board composition in late October 2006 to November 2006 caused by the the mandatory

conditional cash offer for all the issued shares of the Company and the mandatory conditional cash offer for all outstanding

convertibles of the Company (the “Offers”) as follows:

On 11 August 2006 (as amended on 25 August 2006), Celestial Investment Group Limited entered into an agreement with

Fit Top Investments Limited (“Fit Top”) a company wholly and beneficially owned by Ms. Tin Yuen Sin Carol, to conditionally

dispose of (the “Disposal”) 294,965,087 shares of the Company to Fit Top at the consideration of HK$106,187,431.32.

Immediately prior to the said agreement, Ms. Tin Yuen Sin Carol was beneficially interested in 86,000,000 shares of the

Company, representing approximately 7.87% of the total issued shares of the Company. As all the conditions for completion

of the Disposal has been fulfilled and the completion of such Disposal took place on 19 October 2006, Fit Top and the

parties acting in concert with it owned 380,965,087 shares, representing approximately 34.87% of the total issued shares of

the Company at the date of the completion. Under the Hong Kong Code on Takeovers and Mergers, Fit Top is required to

make the Offers. The Offers became unconditional on 16 November 2006 and were closed on 30 November 2006. Reference

is made to the announcements dated 28 August 2006, 26 October 2006, 16 November 2006 and 30 November 2006 and the

above composite offer and response document dated 26 October 2006.

Rectification of deviation from the CG Code

On 26 October 2006, the Board appointed Mr. Choi Chiu Fai Stanley as the chief executive officer of the Company, since

then, the positions of the chairperson and chief executive officer are held separately by two executive directors to ensure

their respective independence, accountability and responsibility. Ms. Tin Yuen Sin Carol and Mr. Choi Chiu Fai Stanley are

the chairperson and chief executive officer of the Company respectively and each plays a distinctive role but complementing

each other. This rectifies the previous deviation from the code provision A.2.1 of the CG Code.

Operation of the Board

The Board is responsible for directing the Group's objectives and strategies, monitoring the implementation and managing

risks of the Group. Material matters are reserved for the Board's considerations. The Board has delegated the daily operational

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The Board held 26 meetings during the year ended 31 December 2006, of which 6 were full Board meetings and 20 were

ED meetings, and the respective attendance of each director at the board meetings are set out as follows:

Meetings Meetings

before the change after the change

of Board of Board

Attendance Attendance

No. of full Board No. of ED No. of ED

meetings: 6 meetings: 16 meetings: 4(Note 6)

Executive Directors:

Ms. Tin Yuen Sin Carol 3/6 5/16 3/4

Mr. Choi Chiu Fai Stanley (Note 1) N/A N/A 4/4

Mr. Chan Hon Ming Alan (Note 1) N/A N/A 4/4

Mr. Tse Pui To Dickson (Note 1) N/A N/A 3/4

Mr. Lam Yat Ming (Note 1) N/A N/A 4/4

Mr. Kwan Pak Hoo Bankee (Note 2) 6/6 7/16 N/A

Mr. Law Ping Wah Bernard (Note 2) 6/6 16/16 N/A

Ms. Kwok Lai Ling Elaine (Note 3) 3/3 1/3 N/A

Mr. Leung Siu Pong James (Note 2) 5/6 9/16 N/A

Mr. Li Yuen Cheuk Thomas (Note 2) 5/6 12/16 N/A

Independent Non-executive Directors:

Mr. Ng Ka Chung Simon (Note 4) 3/5 N/A N/A

Mr. Chan Wai Yip Freeman (Note 1) N/A N/A N/A

Ms. Leung Po Ying Iris (Note 1) N/A N/A N/A

Mr. Lo Ming Chi Charles (Note 2) 6/6 N/A N/A

Mr. Leung Ka Kui Johnny (Note 2) 6/6 N/A N/A

Dr. Hui Ka Wah Ronnie (Note 5) 1/1 N/A N/A

Notes:

(1) Appointed on 26 October 2006

(2) Resigned on 16 November 2006

(3) Resigned on 20 April 2006

(4) Appointed on 28 February 2006

(5) Resigned on 28 February 2006

(6) For the year ended 31 December 2006, there was no full board meetings held after the change of Board.

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AUDIT COMMITTEE

The audit committee of Company was established on 9 November 1999. The audit committee is chaired by Mr. Chan Wai

Yip Freeman and its members are Mr. Ng Ka Chung Simon and Ms. Leung Po Ying Iris, who are all independent non-

executive directors of the Company. The terms of reference of the audit committee had been complied since the establishment

of the audit committee and the primary role and function of the audit committee are (i) reviewing and supervising the

financial reporting system and internal control mechanism of the Company; (ii) monitoring the integrity of the financial

statements of the Group; (iii) reviewing the compliance issues with the Listing Rules and other compliance requirements;

and (iv) reviewing and consider the appointment of auditors and audit fee.

In 2006, the audit committee held 3 meetings and details of the attendance of each member of the committee are set out as

follows:

No. of meetings No. of meetings


of Board: 3 of Board: 0

Members: Attendance Attendance

Mr. Ng Ka Chung Simon (Note 1) 1/3 0/0

Mr. Chan Wai Yip Freeman (Note 2) N/A 0/0

Ms. Leung Po Ying Iris (Note 2) N/A 0/0

Mr. Lo Ming Chi Charles (Note 3) 3/3 N/A

Mr. Leung Ka Kui Johnny (Note 3) 3/3 N/A

Dr. Hui Ka Wah Ronnie (Note 4) 0/3 N/A

Notes:





During the year, the audit committee has reviewed and commented on each of the interim and annual financial reports of the

Group, reviewed the Company’s internal control, reviewed and approved the terms of engagement and remuneration of the

external auditors, discussed with external auditors on the financial matters of the Group that arose during the course of the

audit and made relevant recommendations to the management of the Company.


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REMUNERATION COMMITTEE

The Company has maintained a remuneration committee throughout the year. The remuneration committee is chaired by

Mr. Chan Wai Yip Freeman and its members are Mr. Ng Ka Chung Simon and Ms. Leung Po Ying Iris, all of the remuneration

committee members are independent non-executive directors of the Company. The role and function of the remuneration

committee are (i) making recommendations to the Board on the policies and structure for the remuneration of directors; (ii)

reviewing and approving the remuneration package of each director; (iii) reviewing and approving the performance-based

remuneration; and (iv) engaging external professional advisors to assist and/or advise the remuneration committee on its

duties when necessary and reasonable.

In 2006, 2 meetings of the remuneration committee were held and details of the attendance of each member of the committee

are set out as follows:

No. of meetings No. of meetings


of Board: 1 of Board: 1

Members: Attendance Attendance

Mr. Ng Ka Chung Simon (Note 1) 1/1 1/1

Mr. Chan Wai Yip Freeman (Note 2) N/A 1/1

Ms. Leung Po Ying Iris (Note 2) N/A 1/1

Mr. Lo Ming Chi Charles (Note 3) 1/1 N/A

Dr. Hui Ka Wah Ronnie (Note 4) 0/0 N/A

Mr. Kwan Pak Hoo Bankee (Note 3) 1/1 N/A

Notes:





During the year, the remuneration committee has reviewed the policy for the remuneration of directors and reviewed and

approved the remuneration package of each director, including benefits in kind, pension right, bonus payment and

compensation payment.

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NOMINATION OF DIRECTORS

No nomination committee was established by the Company, however, the Company has adopted a nomination policy for the

criteria, procedures and process of appointment and removal of directors. Criteria for the selection of director include

qualification, working experience and relevant provisions in the Listing Rules. Each of the directors shall possess high and

professional standard of a set of core criteria of competence.

At the meeting held by the Board, with the presence of Mr. Choi Chiu Fai Stanley, Mr. Chan Hon Ming Alan, Mr. Tse Pui

To Dickson, Mr. Lam Yat Ming, Mr. Chan Wai Yip Freeman and Ms. Leung Po Ying Iris, it was resolved that all the existing

directors shall be recommended to be retained by the Company. Moreover, with reference to the Bye-laws of the Company,

Mr. Choi Chiu Fai Stanley, Mr. Chan Hon Ming Alan, Mr. Tse Pui To Dickson, Mr. Lam Yat Ming, Mr. Ng Ka Chung

Simon, Mr. Chan Wai Yip Freeman and Ms. Leung Po Ying Iris shall retire, and being eligible, offer themselves for re-

election at the forthcoming annual general meeting of the Company.

AUDITORS’ REMUNERATION

Fee for audit services were HK$850,000 for the year ended 31 December 2006, which were charged to the Group’s income

statement. There was no non-audit services during the year.

INTERNAL CONTROL

The Board has conducted a review over the effectiveness of the Group’s internal control system, which covered the major

aspects of financial, operational, compliance and risk management to ensure that appropriate levels of protection are in

place. No significant areas of concern were identified. The Board was satisfied with the effectiveness of the Group’s internal

control procedures.

DIRECTORS' SECURITIES TRANSACTIONS

The Company has adopted a code of conduct regarding securities transactions of the directors on terms no less exacting

than the required standard set out in the Model Code for Securities Transactions by Directors of Listing Issuers (“Model

Code”) as set out in Appendix 10 to the Listing Rules. The Company have made specific enquiry of all directors and all

directors have confirmed, that they have complied with the required standard as set out in the Model Code regarding the

directors' securities transactions adopted by the Company during the year ended 31 December 2006.

FINANCIAL STATEMENTS

The directors acknowledge their responsibilities of the directors for preparing the accounts. The auditors’ reporting

responsibilities on the financial statements and other further details are set out in the auditors’ report contained in this

annual report.

Directors ’ ReportAnn

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18

The Directors are pleased to present their report and the audited consolidated financial statements of CASH Retail

Management Group Limited (the “Company”) and its subsidiaries (collectively, the “Group”) for the year ended 31 December

2006.

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. The principal activities and other particulars of its subsidiaries

are set out in Note 41 to the consolidated financial statements.

In prior years, the Group was also engaged in the retailing of furniture and household goods and trendy digital products in

Hong Kong. These operations were discontinued in the current year (see Note 10).

RESULTS

The results of the Group for the year ended 31 December 2006 are set out in the consolidated income statement.

PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTY

Details of the movements during the year in the property, plant and equipment and investment property of the Group are set

out in Notes 15 and 17 to the consolidated financial statements respectively.

SHARE CAPITAL

Details of the share capital of the Company are set out in Note 30 to the consolidated financial statements.

CONVERTIBLE LOAN NOTES

Details of the convertible loan notes of the Company are set out in Note 32 to the consolidated financial statements.

DISTRIBUTABLE RESERVES

At 31 December 2006, the Company’s reserves available for distribution to shareholders amounted to approximately HK$15

million, comprising contributed surplus of approximately HK$202 million less accumulated losses of approximately HK$187

million.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company’s Bye-laws or the laws of Bermuda which would oblige

the Company to offer new shares on a pro-rata basis to existing shareholders.

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Directors ’ Report

DIRECTORS

The directors of the Company during the year and up to the date of this annual report were as follows:

Executive directors:

Ms. Tin Yuen Sin Carol (Appointed on 1 September 2005 and

become the Chairperson since 16 November 2006)

Mr. Choi Chiu Fai Stanley (Appointed on 26 October 2006

as executive director and Chief Executive Officer)

Mr. Chan Hon Ming Alan (Appointed on 26 October 2006)

Mr. Tse Pui To Dickson (Appointed on 26 October 2006)

Mr. Lam Yat Ming (Appointed on 26 October 2006)

Mr. Kwan Pak Hoo Bankee (Resigned on 16 November 2006)

Mr. Law Ping Wah Bernard (Resigned on 16 November 2006)

Mr. Leung Siu Pong James (Resigned on 16 November 2006)

Mr. Li Yuen Cheuk Thomas (Resigned on 16 November 2006)

Ms. Kwok Lai Ling Elaine (Resigned on 20 April 2006)

Independent non-executive directors:

Mr. Ng Ka Chung Simon (Appointed on 28 February 2006)

Mr. Chan Wai Yip Freeman (Appointed on 26 October 2006)

Ms. Leung Po Ying Iris (Appointed on 26 October 2006)

Mr. Lo Ming Chi Charles (Resigned on 16 November 2006)

Mr. Leung Ka Kui Johnny (Resigned on 16 November 2006)

Dr. Hui Ka Wah Ronnie (Resigned on 28 February 2006)

The following directors shall retire and, being eligible, offer themselves for re-election at the forthcoming annual general

meeting of the Company:

(i) Mr. Choi Chiu Fai Stanley, Mr. Chan Hon Ming Alan, Mr. Tse Pui To Dickson and Mr. Lam Yat Ming shall retire at

the annual general meeting of the Company in accordance with Bye-law 115 of the Company’s Bye-laws; and

(ii) Mr. Ng Ka Chung Simon, Mr. Chan Wai Yip Freeman and Ms. Leung Po Ying Iris, being independent non-executive

directors, shall retire at the annual general meeting of the Company in each year in accordance with their terms of

office of directorship.

DIRECTORS’ SERVICE CONTRACTS

No director proposed for re-election at the forthcoming annual general meeting has a service contract which is not determinable

by the Company within one year without payment of compensation (other than statutory compensation).


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DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE

There was no contract of significance to which the Company or any of its subsidiaries was a party and in which a directorof the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time duringthe year.

CONFIRMATION OF INDEPENDENCE

The Company has received, from each of the independent non-executive directors, an annual confirmation of his/herindependence pursuant to Rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong KongLimited (the “Stock Exchange”) (the “Listing Rules”). The Company considers all of the independent non-executive directorsare independent of the Company.

EMOLUMENT POLICY

The emolument policy of the employees of the Group is set up by the Remuneration Committee on the basis of their merit,qualifications and competence. The emoluments of the directors of the Company are decided by the Remuneration Committee,having regard to the Company’s operating results, individual performance and comparable market statistics.

Details of the Company’s share option scheme are set out in Note 31 to the consolidated financial statements.

Details of the Group’s retirement benefits schemes are set out in Note 38 to the consolidated financial statements.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS IN SECURITIES

As at 31 December 2006, the interests or short positions of the directors and chief executive of the Company in the shares,underlying shares and debentures of the Company and its associated corporations, within the meaning of Part XV of theSecurities and Futures Ordinance (“SFO”), as recorded in the register maintained by the Company pursuant to Section 352of SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for SecuritiesTransactions by Directors of Listed Companies, were as follows:

Long positions — Ordinary shares of HK$0.02 each of the Company

Percentage ofNumber of the issued

ordinary share capitalName of director Capacity shares held of the Company

Ms. Tin Yuen Sin Carol Beneficial owner 86,000,000 7.88%Held by a controlled corporation (Note) 531,551,354 48.65%

617,551,354 56.53%

Note: At 31 December 2006, Ms. Tin Yuen Sin Carol (“Ms. Tin”) was deemed to be interested in 531,551,354 ordinary shares of the

Company through her 100% beneficial interest in Fit Top Investments Limited (“Fit Top”).

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Save as disclosed above, as at 31 December 2006, none of the directors, chief executive of the Company or their associates

had any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated

corporations.

ARRANGEMENTS TO PURCHASE SHARES OR DEBENTURES

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

SUBSTANTIAL SHAREHOLDERS

As at 31 December 2006, so far as is known to any director or chief executive of the Company, the persons, other than a

director or chief executive of the Company, who 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 were as follows:

Long positions — Ordinary shares of HK$0.02 each of the Company

Number of Number of Shareholding

Name Capacity shares underlying shares (%)

Fit Top (Note 1) Beneficial owner 531,551,354 — 48.65%

Jeffnet Inc (Note 2) Trustee of a 97,062,500 — 8.88%

discretionary trust

Cash Guardian Limited (Note 2) Interest in a controlled 97,062,500 — 8.88%

corporation

Celestial Asia Securities Interest in a controlled 94,062,500 — 8.61%

Holdings Limited (“CASH”) corporation

(Note 2)

Celestial Investment Group Beneficial owner 94,062,500 — 8.61%

Limited (“CIGL”) (Note 2)

Mr. Qian Song Wen (Note 3) Beneficial owner — 400,000,000 36.61%

Mr. Pun So (Note 4) Beneficial owner — 240,000,000 21.97%


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Notes:

1. At 31 December 2006, Fit Top was a company wholly owned by Ms. Tin. Pursuant to the SFO, Ms. Tin was deemed to be

interested in the shares held by Fit Top.

2. The shares were held as to 3,000,000 shares by Cash Guardian Limited and as to 94,062,500 shares by CIGL and its subsidiaries.

At 31 December 2006, CIGL was a wholly-owned subsidiary of CASH which was owned as to approximately 37.49% by Cash

Guardian Limited (which was 100% beneficially owned by Jeffnet Inc). Jeffnet Inc held these shares as trustee of The Jeffnet

Unit Trust, units of which were held by a discretionary trust established for the benefit of the family members of Mr. Kwan Pak

Hoo Bankee (“Mr. Kwan”). Pursuant to the SFO, Mr. Kwan, Jeffnet Inc and Cash Guardian Limited were deemed to be interested

in the shares held by CIGL through CASH.

3. This refers to the convertible loan note in the outstanding amount of HK$180,000,000 held by Mr. Qian Song Wen which is

convertible into a maximum number of 400,000,000 ordinary shares of the Company at the initial conversion price of HK$0.45

per share (subject to adjustment).

4. This refers to the convertible loan note in the outstanding amount of HK$108,000,000 held by Mr. Pun So which is convertible

into a maximum number of 240,000,000 ordinary shares of the Company at the initial conversion price of HK$0.45 per share

(subject to adjustment).

Save as disclosed above, the Company has not been notified of any substantial shareholder (other than a director or chiefexecutive of the Company) who had any other relevant interests or short positions in the shares or underlying shares of theCompany at 31 December 2006 within the meaning of Part XV of SFO.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

During the year ended 31 December 2006, neither the Company nor any of its subsidiaries purchased, sold or redeemed anyof the Company’s listed securities.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information publicly available to the Company and within the knowledge of the Directors as at the latestpracticable date prior to the issue of this annual report, the Company has maintained a sufficient public float throughout theyear ended 31 December 2006.

MAJOR CUSTOMERS AND SUPPLIERS

In the year under review, the Group’s purchases attributable to the five largest suppliers accounted for less than 30% of theGroup’s total purchases, and the Group’s sales attributable to the five largest customers accounted for less than 30% of theGroup’s total sales.

POST BALANCE SHEET EVENTS

Details of significant events occurring after the balance sheet date are set out in Note 40 to the consolidated financialstatements.

Ann

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AUDITORS

HLB Hodgson Impey Cheng were appointed as the Company’s auditors with effect from 11 January 2007 to fill the casual

vacancy following the resignation of Deloitte Touche Tohmatsu on 14 December 2006. There have been no other changes of

auditors for the past three financial years.

The consolidated financial statements of the Group for the year ended 31 December 2006 were audited by HLB Hodgson

Impey Cheng. A resolution will be submitted to the annual general meeting to re-appoint HLB Hodgson Impey Cheng as

auditors of the Company.

On behalf of the Board

Tin Yuen Sin Carol

Chairperson


Independent Auditors ’ ReportAnn

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24

To the shareholders of

CASH Retail Management Group Limited

(Incorporated in Bermuda with limited liability)

We have audited the consolidated financial statements of CASH Retail Management Group Limited (the “Company”) and

its subsidiaries (collectively referred to as the “Group”) set out on pages 26 to 85 which comprise the consolidated balance

sheet as at 31 December 2006, and the consolidated income statement, the consolidated statement of changes in equity and

the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other

explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated

financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of

Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility

includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation

of the consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting

and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit 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. We conducted

our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public

Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance as to whether the consolidated financial statements are free from material misstatement.

31/F, Gloucester Tower

The Landmark

11 Pedder Street Central

Hong Kong

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Independent Auditors ’ Report

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of

material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,

the auditors consider internal control relevant to the entity’s preparation and true and fair presentation of the consolidated

financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness

of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the

overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group as at 31

December 2006 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial

Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong

Companies Ordinance.

HLB Hodgson Impey Cheng

Chartered Accountants

Certified Public Accountants


Consol idated Income StatementFor the year ended 31 December 2006

Ann

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26

2006 2005

Notes HK$’000 HK$’000

(Restated)

Continuing operations

Revenue 6 125,759 —

Other income 47,804 99

Changes in inventories of finished goods (3,601) —

Employee benefits expense (12,205) —

Depreciation expense (20,552) —

Impairment loss in respect of goodwill 18 (144,881) —

Finance costs 8 (17,971) (2,165)

Other operating expenses (74,028) (1,344)

Loss before tax (99,675) (3,410)

Income tax expense 9 (16,514) —

Loss for the year from continuing operations (116,189) (3,410)

Discontinued operations

Profit/(Loss) for the year from discontinued operations 10 20,771 (73,181)

Loss for the year 11 (95,418) (76,591)

Loss per share

From continuing and discontinued operations

Basic and diluted (HK$ per share) 14 (0.09) (0.09)

From continuing operations

Basic and diluted (HK$ per share) 14 (0.11) (0.004)

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Consol idated Balance SheetAt 31 December 2006

2006 2005


(Restated)

Non-current assets

Property, plant and equipment 15 8,920 169,946

Prepaid lease payments 16 — 4,694

Investment property 17 — 5,000

Goodwill 18 70,800 215,681

Available-for-sale investments 19 — 1,760

Prepaid rental 20 — 38,462

Deposits paid for acquisition of leasehold improvements 20 — 23,702

Rental and utility deposits — 8,713

Deferred tax assets 21 — 7,254

79,720 475,212

Current assets

Inventories 22 — 51,464

Account receivables 23 79,787 2,132

Prepayments, deposits and other receivables 24 344,497 253,018

Amount due from Celestial Asia Securities Holdings Limited

(“CASH”) and its subsidiaries (“CASH Group”) 25 106,458 —

Listed investments held for trading 26 — 4,106

Pledged bank deposits 27 — 38,900

Bank balances and cash 27 1,671 106,645

532,413 456,265

Total assets 612,133 931,477

Current liabilities

Account payables 28 11,587 192,961

Accrued liabilities and other payables 28 108,967 139,860

Amount due to a director 28 1,237 —

Taxation payable 17,842 14,560

Bank borrowings, secured 29 20,000 75,580

Convertible loan notes — due within one year 32 273,192 —

432,825 422,961

Net current assets 99,588 33,304

Total assets less current liabilities 179,308 508,516

Consol idated Balance SheetAt 31 December 2006

Ann

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28

2006 2005


(Restated)

Capital and reserves

Share capital 30 21,851 21,851

Reserves 157,457 218,891

Total equity 179,308 240,742

Non-current liabilities

Bank borrowings, secured 29 — 10,555

Convertible loan notes — due after one year 32 — 257,219

— 267,774

179,308 508,516

The consolidated financial statements on pages 26 to 85 were approved and authorized for issue by the board of directors on

20 April 2007 and were signed on its behalf by:

Tin Yuen Sin Carol Choi Chiu Fai Stanley

Director Director

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Consolidated Statement of Changes in EquityFor the year ended 31 December 2006

ConvertibleBuilding loan PRC

Share Share Contributed Capital revaluation notes equity Translation statutory Accumulated Totalcapital premium surplus reserve reserve reserve reserve reserves losses Reserves equity

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

Note (a) Note (b) Note (c) Note (e)

At 1 January 2005 13,334 47,631 170,942 6,055 — — — — (94,170) 130,458 143,792

Gain on revaluation of buildings

and total income recognized

directly in equity — — — — 701 — — — — 701 701

Loss for the year — — — — — — — — (76,591) (76,591) (76,591)

Total recognized income and

expenses for the year — — — — 701 — — — (76,591) (75,890) (75,890)

Issue of new shares 8,120 127,020 — — — — — — — 127,020 135,140

Issue of new shares due to

exercise of share options 397 5,871 — — — — — — — 5,871 6,268

Share issue expenses — (1,514) — — — — — — — (1,514) (1,514)

Recognition of equity

component of convertible

loan notes — — — — — 32,946 — — — 32,946 32,946

At 31 December 2005 21,851 179,008 170,942 6,055 701 32,946 — — (170,761) 218,891 240,742

Loss for the year — — — — — — — — (95,418) (95,418) (95,418)

Exchange differences arising

on translation of foreign

operations and total income

recognized directly in equity — — — — — — 9,711 — — 9,711 9,711

Total recognized income and

expenses for the year — — — — — — 9,711 — (95,418) (85,707) (85,707)

Released on disposal of

the Retail Group — — 31,029 (6,055) (701) — — — — 24,273 24,273

Transfer — — — — — — — 15,071 (15,071) — —

At 31 December 2006 21,851 179,008 201,971 — — 32,946 9,711 15,071 (281,250) 157,457 179,308

Consolidated Statement of Changes in EquityFor the year ended 31 December 2006

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Notes:

(a) Under the Companies Act 1981 of Bermuda (as amended), the share premium of the Company can be used in paying up unissued

shares of the Company to be issued to members of the Company as fully paid bonus shares.

(b) The contributed surplus of the Group represents the net amount arising from the reduction of share premium account, capital

reduction and amounts transferred to write off the accumulated losses.

(c) The capital reserve of the Group represents the difference between the nominal value of the share capital of Pricerite BVI

Limited acquired pursuant to the Group reorganization and the nominal value of the issued share capital of the Company issued

in exchange thereof.

(d) Under the Companies Act 1981 of Bermuda (as amended), the contributed surplus of a company is available for distribution to

shareholders. However, a company cannot declare or pay a dividend, or make a distribution out of contributed surplus, if:

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

(ii) the realizable value of the company’s assets would thereby be less than the aggregate of its liabilities and its issued share

capital and share premium account.

(e) The People’s Republic of China (the “PRC”) statutory reserves consist of a reserve fund and an expansion fund provided in

accordance with the articles of association of the PRC subsidiaries. Laws and regulations in the PRC allow foreign investment

enterprises to appropriate from profit after taxation, prepared in accordance with the PRC rules and regulations, an annual

amount to the reserve fund and expansion fund according to the decision of the board or the articles of association.

The reserve fund is to be used to expand the working capital of the PRC subsidiaries. When the PRC subsidiaries suffer losses,

the reserve fund may be used to make up accumulated losses under special circumstances.

The expansion fund is to be used for business expansion and, if approved, can also be used to increase the capital of the PRC

subsidiaries.

Ann

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Consol idated Cash Flow StatementFor the year ended 31 December 2006

2006 2005


Operating activitiesLoss for the year (95,418) (76,591)Adjustments for:

Income tax expenses 16,514 —Interest income (7,127) (1,738)Interest expenses 20,131 5,806Gain on disposal of the Retail Group (61,695) —Release of attributable reserves on disposal

of the Retail Group 24,974 —Surplus on revaluation of buildings — (6,803)Increase in fair value of investment property — (454)Advertising and telecommunication services expenses 35 — 908Write-down of inventories 566 11,366Impairment loss in respect of account receivables 5,087 845Impairment loss in respect of other receivables — 1,488Depreciation of property, plant and equipment 33,682 25,125Amortization of prepaid lease payments 51 102Impairment loss in respect of goodwill 144,881 1,100Impairment loss (written back)/recognized in respect of

property, plant and equipment (344) 4,472(Gain)/Loss on disposal of property, plant and equipment (25,845) 1,947

Operating cash flows before movements in working capital 55,457 (32,427)Movements in working capital:

Prepaid rental 38,462 —Deposits paid for acquisition of leasehold improvements 23,702 —Rental and utility deposits (2,020) (1,695)Inventories (11,369) 687Account receivables (84,488) 4Prepayments, deposits and other receivables (133,181) (36,031)Listed investments held for trading 1,973 14,977Amounts due from fellow subsidiaries 63,003 6,920Account payables (34,835) (17,947)Accrued liabilities and other payables 6,825 16,259Amount due to a director 1,237 —

Cash used in operations (75,234) (49,253)PRC Enterprise Income Tax paid (5,778) —

Net cash used in operating activities (81,012) (49,253)

Consol idated Cash Flow StatementFor the year ended 31 December 2006

Ann

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32

2006 2005


Investing activities

Interest received 1,259 1,738

Proceeds from disposal of property, plant and equipment 96,106 —

Increase in pledged bank deposits (5,500) (2,898)

Purchases of property, plant and equipment (20,780) (22,155)

Acquisition of subsidiaries (net of cash and

cash equivalents acquired) 33 (75,000) (166,979)

Disposal of the Retail Group (net of cash and

cash equivalents disposed) 34 (20,355) —

Net cash used in investing activities (24,270) (190,294)

Financing activities

Decrease in bank overdrafts — (23)

Decrease in trust receipt loans — (11,025)

Proceeds on issue of a convertible loan note — 108,000

Interest paid (4,158) (3,641)

Repayment of obligations under finance leases — (30)

Proceeds on issue of shares — 96,408

Repayment of bank loans (2,128) (5,215)

Share issue expenses — (1,514)

Net cash (used in)/generated by financing activities (6,286) 182,960

Net decrease in cash and cash equivalents (111,568) (56,587)

Cash and cash equivalents at the beginning of the year 106,645 163,232

Effects of exchange rate changes 6,594 —

Cash and cash equivalents at the end of the year 1,671 106,645

Ann

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Notes to the Consolidated Financial StatementsFor the year ended 31 December 2006

1. GENERAL

CASH Retail Management Group Limited ( ) (the “Company”) was incorporated in Bermuda

as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended) and its

shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The

Company’s registered office is situated at Clarendon House, 2 Church Street, Hamilton HM11 Bermuda. The

Company’s principal place of business in Hong Kong is situated at Suite 3001, COSCO Tower, 183 Queen’s Road

Central, Hong Kong.

The consolidated financial statements are presented in Hong Kong dollars, which is the same as the functional

currency of the Company.

The Company and its subsidiaries (collectively, referred to as the “Group”) are principally engaged in the department

store business and the provision of retail management services such as development planning and marketing advisory

services.

At 31 December 2006, the Company was controlled by Fit Top Investments Limited, a company incorporated in the

British Virgin Islands with limited liability and wholly-owned by Ms. Tin Yuen Sin Carol, the chairperson and

executive director of the Company.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

(“HKFRSs”)

In the current year, the Group has applied, for the first time, a number of new standard, amendments and interpretations

(the “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are

either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of

these new HKFRSs has had no material impact on the amounts reported for the current or prior accounting years.

The Group has not early applied the following new standards, amendment or interpretations that have been issued

but are not yet effective. The Directors anticipate that the application of these new standards, amendment or

interpretations will have no material impact on the results and the financial position of the Group.

HKAS 1 (Amendment) Capital Disclosures 1

HKFRS 7 Financial Instruments: Disclosures 1

HKFRS 8 Operating segments 8

HK(IFRIC)-Int 7 Applying the Restatement Approach under

HKAS 29 Financial Reporting in Hyperinflationary Economies 2

HK(IFRIC)-Int 8 Scope of HKFRS 2 3

HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives 4

HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment 5

HK(IFRIC)-Int 11 HKFRS 2-Group and Treasury Share Transactions 6

HK(IFRIC)-Int 12 Service Concession Arrangements 7

Ann

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2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

(“HKFRSs”) (Continued)

1. Effective for annual periods beginning on or after 1 January 2007

2. Effective for annual periods beginning on or after 1 March 2006

3. Effective for annual periods beginning on or after 1 May 2006

4. Effective for annual periods beginning on or after 1 June 2006

5. Effective for annual periods beginning on or after 1 November 2006




3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost basis except for certain properties

and financial instruments, which are measured at revalued amounts or fair values, as explained in the accounting

policies set out below.

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting

Standards issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures

required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies

Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including

special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has

the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

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.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies

into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity

therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business

combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to

the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the

Group except to the extent that the minority has a binding obligation and is able to make an additional investment to

cover the losses.

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3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured

at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity

instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the

business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions

for recognition under HKFRS 3 Business Combinations are recognized at their fair values at the acquisition date,

except for non-current assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5

Non-current Assets Held for Sale and Discontinued Operations, which are recognized and measured at fair value

less costs to sell.

Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost

of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and

contingent liabilities recognized. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s

identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is

recognized immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair

value of the assets, liabilities and contingent liabilities recognized.

Goodwill

Goodwill arising on an acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s

interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the

date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalized goodwill arising on an acquisition of a subsidiary is presented separately in the consolidated balance

sheet.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant

cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the

acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and

whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial

year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that

financial year.

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Goodwill (Continued)

When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment

loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets

of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is

recognized directly in the consolidated income statement. An impairment loss for goodwill is not reversed in

subsequent periods.

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalized is included in the determination

of the amount of profit or loss on disposal.

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered

principally through a sale transaction rather than through continuing use. This condition is regarded as met only

when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present

condition.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ (disposal

groups’) previous carrying amount and fair value less costs to sell.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable

for goods provided in the normal course of business, net of discounts and sales related taxes.

(i) Sales of goods are recognized when goods are delivered and title has passed.

(ii) Income from provision of retail management services is recognized when services are provided.

(iii) Income from provision of retail premises is recognized in accordance with the terms of the relevant contracts.

(iv) Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding

and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash

receipts through the expected life of the financial asset to that asset’s net carrying amount.

(v) Dividend income from investments is recognized when the shareholders’ rights to receive payment have been

established.

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Property, plant and equipment

Property, plant and equipment are stated at cost or fair value less subsequent accumulated depreciation and accumulated

impairment losses.

Buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in

the consolidated balance sheet at their revalued amounts, being the fair value at the date of revaluation less any

subsequent accumulated depreciation and any subsequent accumulated impairment losses. Revaluations are performed

with sufficient regularity such that the carrying amount does not differ materially from that which would be determined

using fair values at the balance sheet date.

Any revaluation increase arising on revaluation of buildings is credited to the building revaluation reserve, except to

the extent that it reverses a revaluation decrease of the same asset previously recognized as an expense, in which

case the increase is credited to the consolidated income statement to the extent of the decrease previously charged.

A decrease in net carrying amount arising on revaluation of an asset is dealt with as an expense to the extent that it

exceeds the balance, if any, on the building revaluation reserve relating to a previous revaluation of that asset. On the

subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to retained profits.

Depreciation is provided to write off the cost or fair value of items of property, plant and equipment over their

estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets

or, where shorter, the term of the relevant lease.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are

expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated

as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated

income statement in the year in which the item is derecognized.

Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure.

Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses

arising from changes in the fair value of investment property are included in profit or loss for the period in which

they arise.

An investment property is derecognized upon disposal or when the investment property is permanently withdrawn

from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of

the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is

included in the consolidated income statement in the year in which the item is derecognized.

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Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards

of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognized in the consolidated income statement on a straight-line basis over

the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added

to the carrying amount of the leased asset and recognized as an expense on a straight-line basis over the lease term.

The Group as lessee

Assets held under finance leases are recognized as assets of the Group at their fair value at the inception of the lease

or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included

in the consolidated balance sheet as a finance lease obligation. Lease payments are apportioned between finance

charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of

the liability.

Finance charges are charged directly to profit or loss, unless they are directly attributable to qualifying assets, in

which case they are capitalized in accordance with the Group’s general policy on borrowing costs (see below).

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the

relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognized as a

reduction of rental expense over the lease term on a straight-line basis.

Leasehold land

Interest in leasehold land is amortized over the lease term on a straight-line basis.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional

currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the

primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the

transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the

rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign

currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary

items that are measured in terms of historical cost in a foreign currency are not retranslated.

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Foreign currencies (Continued)

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are

recognized in profit or loss in the period in which they arise, except for exchange differences arising on a monetary

item that forms part of the Company’s net investment in a foreign operation, in which case, such exchange differences

are recognized in equity in the consolidated financials statements. Exchange differences arising on the retranslation

of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising

on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in equity, in

which cases, the exchange differences are also recognized directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign

operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange

prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for

the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing

at the dates of transactions are used. Exchange differences arising, if any, are recognized as a separate component of

equity (the translation reserve). Such exchange differences are recognized in profit or loss in the period in which the

foreign operation is disposed of.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation

are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the

balance sheet date. Exchange differences arising are recognized in the translation reserve.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalized

as part of the cost of those assets. Capitalization of such borrowing costs ceases when the assets are substantially

ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings

pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

Retirement benefit costs

Payments to defined contribution retirement benefit plans are charged as an expense when employees have rendered

service entitling them to the contributions.

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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 profit as reported in the

consolidated 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 recognized on differences between the carrying amounts of assets and liabilities in the consolidated

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 recognized for all taxable temporary

differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available

against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the

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

other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries,

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 profits 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 realized. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited

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

Inventories

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

method.

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Financial instruments

Financial assets and financial liabilities are recognized on the consolidated balance sheet when a group entity becomes

a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured

at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial

liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or

deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through

profit or loss are recognized immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into one of the four categories, including financial assets at fair value

through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets.

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular

way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame

established by regulation or convention in the marketplace. The accounting policies adopted in respect of each

category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading

and those designated as at fair value through profit or loss on initial recognition.

A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss

upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would

otherwise arise; or

• the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed

and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk

management or investment strategy, and information about the grouping is provided internally on that basis;

or

• it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire

combined contract (asset or liability) to be designated as at fair value through profit or loss.

At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are

measured at fair value, with changes in fair value recognized directly in profit or loss in the period in which they

arise.

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Financial instruments (Continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in

an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including

account receivables, deposits and other receivables, amount due from the CASH Group, pledged bank deposits and

bank balances) are carried at amortized cost using the effective interest method, less any identified impairment

losses. An impairment loss is recognized in profit or loss when there is objective evidence that the asset is impaired,

and is measured as the difference between the asset’s carrying amount and the present value of the estimated future

cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods

when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment

was recognized, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed

does not exceed what the amortized cost would have been had the impairment not been recognized.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed

maturities that the Group’s management has the positive intention and ability to hold to maturity. At each balance

sheet date subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the

effective interest method, less any identified impairment losses. An impairment loss is recognized in profit or loss

when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s

carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed

on initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s

recoverable amount can be related objectively to an event occurring after the impairment was recognized, subject to

the restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the

amortized cost would have been had the impairment not been recognized.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets

at fair value through profit or loss, loans and receivables or held-to-maturity investments. At each balance sheet date

subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value

are recognized in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the

cumulative gain or loss previously recognized in equity is removed from equity and recognized in profit or loss. Any

impairment losses on available-for-sale financial assets are recognized in profit or loss. Impairment losses on available-

for-sale equity investments will not reverse in profit or loss in subsequent periods. For available-for-sale debt

investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be

objectively related to an event occurring after the recognition of the impairment loss.

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Available-for-sale financial assets (Continued)

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair

value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted

equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date

subsequent to initial recognition. An impairment loss is recognized in profit or loss when there is objective evidence

that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying

amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of

return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the

contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of

its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through

profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and

equity instruments are set out below.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss has two subcategories, including financial liabilities held for

trading and those designated as at fair value through profit or loss on initial recognition.

A financial liability other than a financial liability held for trading may be designated as at fair value through profit

or loss upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would

otherwise arise; or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed

and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk

management or investment strategy, and information about the grouping is provided internally on that basis;

or

• it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire

combined contract (asset or liability) to be designated as at fair value through profit or loss.

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Financial liabilities at fair value through profit or loss (Continued)

At each balance sheet date subsequent to initial recognition, financial liabilities at fair value through profit or loss

are measured at fair value, with changes in fair value recognized directly in profit or loss in the period in which they

arise.

Other financial liabilities

Other financial liabilities (including account payables, accrued liabilities and other payables and bank borrowings)

are subsequently measured at amortized cost, using the effective interest method.

Convertible loan notes

Convertible loan notes issued by the Company that contain both the liability and conversion option components are

classified separately into respective items on initial recognition. Conversion option will be settled by the exchange

of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is

an equity instrument.

On initial recognition, the fair value of the liability component is determined using the prevailing market interest

rate of similar non-convertible debts. The difference between the proceeds of the issue of the convertible loan notes

and the fair value assigned to the liability component, representing the conversion option for the holder to convert

the loan notes into equity, is included in equity (convertible loan notes equity reserve).

In subsequent periods, the liability component of the convertible loan notes is carried at amortized cost using the

effective interest method. The equity component, represented by the option to convert the liability component into

ordinary shares of the Company, will remain in convertible loan notes equity reserve until the conversion option is

exercised (in which case the balance stated in convertible loan notes equity reserve will be transferred to share

premium). Where the option remains unexercised at the expiry date, the balance stated in convertible loan notes

equity reserve will be released to the retained profits. No gain or loss is recognized in profit or loss upon conversion

or expiration of the option.

Transaction costs that relate to the issue of the convertible loan notes are allocated to the liability and equity components

in proportion to the allocation of the proceeds. Transaction costs relating to the equity component are charged

directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the

liability component and amortized over the period of the convertible loan notes using the effective interest method.

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Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Consideration paid to reacquire the Company’s own equity instruments are deducted from equity. No gain or loss is

recognized in profit or loss.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the

holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original

or modified terms of a debt instrument. A financial guarantee contract issued by the Group and not designed as at

fair value through profit or loss is recognized initially at its fair value less transaction costs that are directly attributable

to the issue of the financial guarantee contract. Subsequent to initial recognition, the Group measures the financial

guarantee contact at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent

Liabilities and Contingent Assets; and (ii) the amount initially recognized less, when appropriate, cumulative

amortization recognized in accordance with HKAS 18 Revenue.

Derecognition

Financial assets are derecognized when the rights to receive cash flows from the assets expire or, the financial assets

are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial

assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the

consideration received and receivable and the cumulative gain or loss that had been recognized directly in equity is

recognized in profit or loss.

Financial liabilities are derecognized when the obligation specified in the relevant contract is discharged, cancelled

or expires. The difference between the carrying amount of the financial liability derecognized and the consideration

paid is recognized in profit or loss.

Provisions

Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that

the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the

expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the

effect is material.

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Provisions (Continued)

Contingent liabilities acquired in a business combination

Contingent liabilities acquired in a business combination are initially measured at fair value at the date of acquisition.

At subsequent balance sheet date, such contingent liabilities are measured at the higher of the amount that would be

recognized in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount

initially recognized less cumulative amortization.

Share-based payment transactions

Equity-settled share-based payment transactions

For share options granted to employees, the fair value of services received determined by reference to the fair value

of share options granted at the grant date is expensed on a straight-line basis over the vesting period, with a

corresponding increase in equity (share options reserve).

At each balance sheet date, the Group revises its estimates of the number of options that are expected to ultimately

vest. The effect of the change in estimate, if any, is recognized in profit or loss with a corresponding adjustment to

share options reserve.

At the time when the share options are exercised, the amount previously recognized in share options reserve will be

transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at

the expiry date, the amount previously recognized in share options reserve will be transferred to retained profits.

For share options granted to suppliers in exchange for goods or services, they are measured at the fair value of the

goods or services received. The fair values of the goods or services are recognized as expenses immediately, unless

the goods or services qualify for recognize as assets. Corresponding adjustments have been made to equity.

Cash-settled share-based payment transactions

For cash-settled share-based payments, the Group measures the goods or services acquired and the liability incurred

at the fair value of the liability. At each balance sheet date, the liability is remeasured at its fair value until the

liability is settled, with any changes in fair value recognized in profit or loss.

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Impairment losses (other than goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible 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. An impairment loss is recognized 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 so that the increased carrying amount does not exceed the carrying amount that would

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

loss is recognized as income immediately.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the

balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and

liabilities within the next financial year:

(a) Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating

units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the

future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to

calculate the present value. Details of the impairment loss calculation are disclosed in Note 18.

(b) Estimated useful lives of property, plant and equipment

Management determines the estimated useful lives and related depreciation charges for its property, plant

and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant

and equipment of similar nature and functions. It could change significantly as a result of technical innovations

and competitor actions in response to severe industry cycles. Management will increase the depreciation

charges where useful lives are less than previously estimated, or it will write-off or write-down technically

obsolete or non-strategic assets that have been abandoned or sold.

(c) Impairment loss of trade and other receivables

The Group’s policy for doubtful receivables is based on the on-going evaluation of the collectability and

aging analysis of the trade and other receivables and on management’s judgments. Considerable judgment is

required in assessing the ultimate realization of these receivables, including the current creditworthiness and

the past collection history of each debtor, and the present values of the estimated future cash flows discounted

at the effective interest rates. If the financial conditions of the Group’s debtors were to deteriorate, resulting

in an impairment of their ability to make payments, additional impairment loss of trade and other receivables

may be required.

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5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s major financial instruments include bank balances and borrowings, account receivables, deposits and

other receivables, amount due from the CASH Group, account payables, accrued liabilities and other payables and

convertible loan notes. Details of these financial instruments are disclosed in the respective notes. The risks associated

with these financial instruments and the policies on how to mitigate these risks are set out below. The management

manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective

manner.

Credit risk

As at 31 December 2006, the Group’s maximum exposure to credit risk which will cause a financial loss to the

Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the

respective recognized financial assets as stated in the consolidated balance sheet.

In order to minimize the credit risk, the management of the Group has delegated a team responsible for monitoring

procedures to ensure that follow up action is taken to recover overdue debts. In addition, the Group reviews the

recoverable amount of each individual trade debt and loan receivable at each balance sheet date to ensure that

adequate impairment losses are made for irrecoverable amounts. In this regard, the Directors consider that the Group’s

credit risk is significantly reduced.

Interest rate risk

The Group is exposed to both fair value interest rate risk and cash flows interest rate risk through the impact of the

rate changes on fixed interest rate borrowings and floating interest rate borrowings respectively. The Group currently

does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will

consider hedging significant interest rate exposure should the need arise.

Foreign currency risk

The majority of the Group’s transactions, trade and other receivables and payables are denominated in Renminbi

and the Group is therefore exposed to foreign currency risk. The Group currently does not have a foreign currency

hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant

foreign currency exposure should the need arise.

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents

deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in

cash flows. The management monitors the utilization of borrowings and ensures compliance with loan covenants.

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6. REVENUE

An analysis of the Group’s revenue for the year, for both continuing and discontinued operations, is as follows:

2006 2005

HK$’000 HK$’000

Continuing operations

Operation of department store 12,679 —

Provision of retail premises 64,320 —

Provision of retail management services 48,760 —

125,759 —

Discontinued operations

Sales of furniture and household goods and trendy

digital products, net of discounts and returns 426,452 865,647

Ann

ual

Rep

ort


50


7. BUSINESS AND GEOGRAPHICAL SEGMENTS

For the year ended 31 December 2005, the Group reported the geographical segments as its primary segment

information and the business segments as its secondary segment information. For the year ended 31 December 2006,

management of the Group considers it more appropriate to present the business segments as its primary segment

information and the geographical segments as its secondary segment information.

Primary segment information — Business segments

Year ended Continuing operations Discontinued operations

31 December 2006 Department store Retailing of furniture

business and and household

provision of retail goods and trendy

management services digital products Consolidated

HK$’000 HK$’000 HK$’000

REVENUE

External sales 125,759 426,452 552,211

RESULTS

Segment results 81,843 (40,924) 40,919

Interest expense on convertible loan notes (15,973)

Impairment loss in respect of goodwill (144,881)

Unallocated income 6,281

Unallocated corporate expenses (26,945)

Gain on disposal of discontinued operations 61,695

Loss before tax (78,904)

Income tax expense (16,514)

Loss for the year (95,418)

BALANCE SHEET

ASSETS

Segment assets 432,740 — 432,740

Unallocated corporate assets 179,393

Consolidated total assets 612,133

LIABILITIES

Segment liabilities 147,636 — 147,636

Unallocated corporate liabilities 285,189

Consolidated total liabilities 432,825

Ann

ual

Re p

ort


51


7. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)

Primary segment information — Business segments (Continued)






HK$’000 HK$’000 HK$’000

OTHER INFORMATION

Capital expenditure 8,424 12,356 20,780

Depreciation of property,

plant and equipment 20,552 13,130 33,682

Amortization of prepaid lease payments — 51 51

Impairment loss in respect of

account receivables 5,087 — 5,087

Write-down of inventories 46 520 566

(Gain)/Loss on disposal of property,

plant and equipment (26,098) 253 (25,845)

Ann

ual

Rep

ort


52



Primary segment information — Business segments (Continued)

Before the acquisition of Timecastle International Limited and its subsidiaries (the “Timecastle Group”) on 30

December 2005 which are engaged in the department store business and the provision of retail management services

in the PRC, the Group’s revenue was substantially derived from the retailing of furniture and household goods and

trendy digital products in Hong Kong. Accordingly, no analysis of the Group’s sales and results by business segment

is presented for the year ended 31 December 2005. Details of the acquisition of the Timecastle Group are set out in

Note 33.

The following is an analysis of assets and liabilities and other information by business segments for the year ended

31 December 2005:






HK$’000 HK$’000 HK$’000

BALANCE SHEET

ASSETS

Segment assets 391,981 539,496 931,477

LIABILITIES

Segment liabilities 182,356 508,379 690,735

OTHER INFORMATION


Depreciation of property,

plant and equipment — 25,125 25,125

Amortization of prepaid lease payments — 102 102

Impairment loss in respect of

account receivables — 845 845

Impairment loss in respect of other receivables — 1,488 1,488

Write-down of inventories — 11,366 11,366

Loss on disposal of property,

plant and equipment — 1,947 1,947

Ann

ual

Re p

ort


53



Secondary segment information — Geographical segments

Year ended 31 December 2006 PRC Hong Kong Total

HK$’000 HK$’000 HK$’000

Segment revenue 125,759 426,452 552,211

Segment assets 432,740 179,393 612,133


Year ended 31 December 2005 PRC Hong Kong Total

HK$’000 HK$’000 HK$’000

Segment revenue — 865,647 865,647

Segment assets 391,981 539,496 931,477


8. FINANCE COSTS

Continuing Discontinued

operations operations Consolidated

2006 2005 2006 2005 2006 2005

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

Interest on:

Bank borrowings wholly

repayable within five years 1,998 — 2,160 3,640 4,158 3,640

Finance leases — — — 1 — 1

Imputed interest expense

on convertible loan notes 15,973 2,165 — — 15,973 2,165

17,971 2,165 2,160 3,641 20,131 5,806

Ann

ual

Rep

ort


54


9. INCOME TAX EXPENSE

2006 2005

HK$’000 HK$’000

Current tax:

PRC Enterprise Income Tax 9,118 —

Deferred tax (Note 21) 7,396 —

Tax charge for the year 16,514 —

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

its subsidiaries had no assessable profits arising in Hong Kong for both years.

The provision for PRC Enterprise Income Tax is calculated based on the applicable income tax rates on the assessable

profit of each of the Group’s PRC subsidiaries as determined in accordance with the relevant income tax rules and

regulations in the PRC.

The tax charge for the year can be reconciled to the profit/(loss) before tax per the consolidated income statement as

follows:

2006 2005

HK$’000 HK$’000

Profit/(Loss) before tax

— Continuing operations (99,675) (3,410)

— Discontinued operations 20,771 (73,181)

(78,904) (76,591)

Taxation at applicable income tax rate of 33% (2005: 17.5%) (26,038) (13,403)

Tax effect of income not taxable for tax purpose (11,135) (1,537)

Tax effect of expenses not deductible for tax purpose 53,687 6,759

Tax effect of estimated tax loss not recognized — 8,181

Tax charge for the year 16,514 —

Details of the deferred tax assets are set out in Note 21.

The applicable income tax rate has been changed to 33% as the majority of the operating entities within the Group

are operating in the PRC.

Ann

ual

Re p

ort


55


10. DISCONTINUED OPERATIONS

On 20 February 2006, the Company entered into a sale and purchase agreement (the “VSD Agreement”) with Celestial

Investment Group Limited (“CIGL” — a wholly owned subsidiary of CASH). Pursuant to the VSD Agreement, the

Company disposed of its entire equity interest in CASH Retail Management (HK) Limited and its subsidiaries

(collectively, the “Retail Group”) including the entire loan due from the Retail Group to the Company, at an aggregate

consideration of HK$130,590,000. The Retail Group represented all retail businesses in Hong Kong previously

carried on by the Group.

The transaction was approved by an ordinary resolution passed by the shareholders at a special general meeting held

on 12 June 2006, and the disposal was completed on 30 June 2006 and the Group ceased to carry on any retail

business in Hong Kong. Accordingly, the results attributable to the Retail Group are presented as discontinued

operations for the year ended 31 December 2006, and the comparative figures for the year ended 31 December 2005

have been reclassified as discontinued operations. Details of the assets and liabilities disposed of are disclosed in

Note 34.

Profit/(Loss) for the year from discontinued operations 2006 2005HK$’000 HK$’000

Revenue 426,452 865,647Cost of sales (287,602) (595,179)Other income 2,963 8,268Selling and distribution costs (156,881) (288,417)Administrative expenses (24,040) (59,211)Other operating expenses — (2,333)Surplus on revaluation of buildings — 6,803Increase in fair value of investment property — 454Impairment loss written back/(recognized) in respect of property,

plant and equipment 344 (4,472)Impairment loss recognized in respect of goodwill — (1,100)Finance costs (2,160) (3,641)

Loss before and after tax (40,924) (73,181)Gain on disposal of discontinued operations 61,695 —

Profit/(Loss) for the year from discontinued operations 20,771 (73,181)

Cash flows from discontinued operations 2006 2005HK$’000 HK$’000

Net cash flows from operating activities 19,788 (48,643)Net cash flows from investing activities (67,265) (26,140)Net cash flows from financing activities 1,909 (19,934)

Net cash flows from discontinued operations (45,568) (94,717)

Ann

ual

Rep

ort


56


11. LOSS FOR THE YEAR

Loss for the year has been arrived at after charging/(crediting):



2006 2005 2006 2005 2006 2005

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

Surplus on revaluationof buildings — — — (6,803) — (6,803)

Increase in fair value ofinvestment property — — — (454) — (454)

Impairment loss (writtenback)/recognized inrespect of property,plant and equipment — — (344) 4,472 (344) 4,472

Impairment loss in respectof goodwill 144,881 — — 1,100 144,881 1,100

Impairment loss in respectof account receivables(included in otheroperating expenses) 5,087 — — 845 5,087 845

Impairment loss in respectof other receivables(included in otheroperating expenses) — — — 1,488 — 1,488

Write-down of inventories 46 — 520 11,366 566 11,366Auditors’ remuneration 850 — — 1,500 850 1,500Amortization of prepaid

lease payments — — 51 102 51 102Depreciation of property,

plant and equipment 20,552 — 13,130 25,125 33,682 25,125(Gain)/Loss on disposal

of property, plant andequipment (26,098) — 253 1,947 (25,845) 1,947

Operating lease rentalsin respect of premises— Minimum lease

payments 10,945 — 47,072 94,975 58,017 94,975— Contingent rentals — — 2,974 5,553 2,974 5,553

10,945 — 50,046 100,528 60,991 100,528

Ann

ual

Re p

ort


57


11. LOSS FOR THE YEAR (Continued)

Loss for the year has been arrived at after charging/(crediting): (Continued)



2006 2005 2006 2005 2006 2005

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

Employee benefits expense

(including directors’

remuneration)

— Wages and salaries 11,897 — 48,182 95,563 60,079 95,563

— Contributions to

retirement benefits

schemes 308 — 2,320 3,031 2,628 3,031

12,205 — 50,502 98,594 62,707 98,594

Net realized result on

disposal and change

in fair value of

investments held

for trading — — 70 (2,161) 70 (2,161)

Interest income (6,015) (99) (1,112) (1,639) (7,127) (1,738)

Net foreign exchange

(gain)/loss — — (16) 10 (16) 10

Ann

ual

Rep

ort


58


12. DIRECTORS’ REMUNERATION

The remuneration paid or payable to every director of the Company were as follows:

Other emoluments paid toFees paid to executive directorsindependent Salaries, Contributions to

For the year ended non-executive allowances and retirement31 December 2006 directors benefits in kind benefits schemes Total

HK$’000 HK$’000 HK$’000 HK$’000

Executive directorsTin Yuen Sin Carol — 307 7 314Choi Chiu Fai Stanley

(appointed on 26 October 2006) — 108 5 113Chan Hon Ming Alan

(appointed on 26 October 2006) — 87 2 89Tse Pui To Dickson

(appointed on 26 October 2006) — 18 — 18Lam Yat Ming

(appointed on 26 October 2006) — 141 4 145Kwan Pak Hoo Bankee

(resigned on 16 November 2006) — — — —Law Ping Wah Bernard

(resigned on 16 November 2006) — — — —Kwok Lai Ling Elaine

(resigned on 20 April 2006) — 759 13 772Leung Siu Pong James

(resigned on 16 November 2006) — 386 20 406Li Yuen Cheuk Thomas

(resigned on 16 November 2006) — — — —

Independent non-executive directorsNg Ka Chung Simon

(appointed on 28 February 2006) 84 — — 84Chan Wai Yip Freeman

(appointed on 26 October 2006) 18 — — 18Leung Po Ying Iris

(appointed on 26 October 2006) 18 — — 18Lo Ming Chi Charles

(resigned on 16 November 2006) — — — —Hui Ka Wah Ronnie

(resigned on 28 February 2006) — — — —Leung Ka Kui Johnny

(resigned on 16 November 2006) — — — —

120 1,806 51 1,977

Ann

ual

Re p

ort


59


12. DIRECTORS’ REMUNERATION (Continued)

Other emoluments paid toFees paid to executive directorsindependent Salaries, Contributions to

For the year ended non-executive allowances and retirement31 December 2005 directors benefits in kind benefits schemes Total

HK$’000 HK$’000 HK$’000 HK$’000

Executive directors

Kwan Pak Hoo Bankee — 600 12 612

Law Ping Wah Bernard — — — —

Kwok Lai Ling Elaine — 600 30 630

Leung Siu Pong James — 440 12 452

Li Yuen Cheuk Thomas — — — —

Tin Yuen Sin Carol

(appointed on 1 September 2005) — 40 2 42

Cheng Pui Lai Majone

(resigned on 31 March 2005) — 477 3 480

Independent non-executive directors

Lai Wai Kwong Daryl

(resigned on 8 June 2005) — — — —

Lo Ming Chi Charles 100 — — 100

Hui Ka Wah Ronnie 100 — — 100

Leung Ka Kui Johnny

(appointed on 8 June 2005) 50 — — 50

250 2,157 59 2,466

During both years, no remuneration was paid by the Group to the directors as an inducement to join or upon joining

the Group or as compensation for loss of office. None of the directors has waived any remuneration during both

years.

Ann

ual

Rep

ort


60


13. EMPLOYEES’ EMOLUMENTS

Of the five individuals with the highest emoluments in the Group, two (2005: three) were directors of the Company

whose emoluments are disclosed in Note 12 above. The emoluments of the remaining three (2005: two) individuals

are as follows:

2006 2005

HK$’000 HK$’000

Salaries, allowances and benefits in kind 1,188 1,434

Contributions to retirement benefits schemes — 21

1,188 1,455

Their emoluments were all within HK$1,000,000.

14. LOSS PER SHARE

The calculation of basic and diluted loss per share is based on the following data:

From continuing and discontinued operations

2006 2005

HK$’000 HK$’000

Loss for the purpose of calculating basic and diluted loss per share

— Loss for the year (95,418) (76,591)

From continuing operations

2006 2005

HK$’000 HK$’000

Loss for the purpose of calculating basic and diluted

loss per share from continuing operations

— Loss for the year from continuing operations (116,189) (3,410)

Ann

ual

Re p

ort


61


14. LOSS PER SHARE (Continued)

Number of shares

2006 2005

Weighted average number of ordinary shares for

the purpose of calculating basic and diluted loss per share 1,092,526,145 879,443,040

The computation of diluted loss per share did not assume the exercise of the Company’s outstanding share options

and convertible loan notes existed during the years ended 31 December 2005 and 2006 since their exercise would

result in a decrease in loss per share.

15. PROPERTY, PLANT AND EQUIPMENT

Furniture,

Leasehold Plant and fixtures and Motor

Buildings improvements machinery equipment vehicles Total

Cost or valuation HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2005 31,856 76,394 — 141,045 3,331 252,626

Surplus on revaluation 3,744 — — — — 3,744

Additions — 18,850 — 3,305 — 22,155

Through acquisition of subsidiaries — 36,391 49,337 2,959 — 88,687

Transferred to investment property (4,600) — — — — (4,600)

Disposals — (11,254) — (8,860) — (20,114)

At 31 December 2005 31,000 120,381 49,337 138,449 3,331 342,498

Additions — 18,875 — 1,905 — 20,780

Through disposal of the Retail Group (31,000) (93,235) — (137,439) (3,331) (265,005)

Other disposals — (39,078) (50,772) (116) — (89,966)

Exchange adjustments — 1,455 1,973 100 — 3,528

At 31 December 2006, at cost — 8,398 538 2,899 — 11,835

Analysis of cost or valuation

At cost — 120,381 49,337 138,449 3,331 311,498

At valuation 31,000 — — — — 31,000

At 31 December 2005 31,000 120,381 49,337 138,449 3,331 342,498

Ann

ual

Rep

ort


62


15. PROPERTY, PLANT AND EQUIPMENT (Continued)

Furniture,

Leasehold Plant and fixtures and Motor

Accumulated depreciation Buildings improvements machinery equipment vehicles Total

and impairment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2005 1,556 59,147 — 101,822 2,411 164,936

Provided during the year 2,258 9,841 — 12,614 412 25,125

Eliminated on revaluation (3,760) — — — — (3,760)

Impairment loss recognized in the

income statement — 1,236 — 3,236 — 4,472

Eliminated on transfer to

investment property (54) — — — — (54)

Eliminated on disposals — (10,124) — (8,043) — (18,167)

At 31 December 2005 — 60,100 — 109,629 2,823 172,552

Provided during the year — 20,816 5,881 6,754 231 33,682

Impairment loss written back — (344) — — — (344)

Eliminated through disposal

of the Retail Group — (65,764) — (114,863) (3,054) (183,681)

Eliminated on other disposals — (14,076) (5,629) — — (19,705)

Exchange adjustments — 271 125 15 — 411

At 31 December 2006 — 1,003 377 1,535 — 2,915

Carrying amounts

At 31 December 2006 — 7,395 161 1,364 — 8,920

At 31 December 2005 31,000 60,281 49,337 28,820 508 169,946

Ann

ual

Re p

ort


63


15. PROPERTY, PLANT AND EQUIPMENT (Continued)

The above items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful

lives as follows:

Buildings 20 years

Leasehold improvements The shorter of the lease terms and 5 years

Plant and machinery 7 to 10 years

Furniture, fixtures and equipment 4 to 7 years

Motor vehicles 5 years

At 31 December 2005, the Group’s buildings were situated in Hong Kong and held under medium-term leases,

which were pledged to secure general banking facilities granted to the Group.

The Group’s buildings were revalued on 31 December 2005 at HK$31,000,000 by Knight Frank Hong Kong Limited,

independent qualified professional valuers not connected with the Group. Knight Frank Hong Kong Limited had

appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The

valuation, which conformed to Hong Kong Institute of Surveyors Valuation Standards on Properties, was arrived at

by reference to comparable market transactions. The resulting surplus of approximately HK$7,504,000 arising from

the revaluation was credited to the building revaluation reserve as to approximately HK$701,000 and to the

consolidated income statement as to approximately HK$6,803,000 for the year ended 31 December 2005.

Had the Group’s buildings been measured on a historical cost basis, their carrying amount would have been

approximately HK$32,952,000 at 31 December 2005.

During the year ended 31 December 2005, the Directors reassessed the recoverable amount of the property, plant

and equipment of those shops of which their tenancy agreements either would be terminated in the year ended 31

December 2006 and would not be renewed. Accordingly, an impairment loss of approximately HK$4,472,000 was

recognized for the year ended 31 December 2005.

During the year ended 31 December 2006, the Group disposed of certain property, plant and equipment through

disposal of the Retail Group, further details of which are disclosed in Note 34.

16. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments at 31 December 2005 represented leasehold land in Hong Kong held under

medium-term leases. The leasehold land was amortized on a straight-line basis over the remaining term of leases.

During the year ended 31 December 2006, the Group disposed of its prepaid lease payments through disposal of the

Retail Group, further details of which are disclosed in Note 34.

Ann

ual

Rep

ort


64


17. INVESTMENT PROPERTY

HK$’000

Fair value

At 1 January 2005 —

Transferred from property, plant and equipment 4,546

Increase in fair value during the year 454

At 31 December 2005 5,000

Disposed of through disposal of the Retail Group (5,000)

At 31 December 2006 —

All of the Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes

are measured using the fair value model and are classified and accounted for as investment property.

The fair value of the Group’s investment property at 31 December 2005 was arrived at on the basis of a valuation

carried out on that date by Knight Frank Hong Kong Limited, independent qualified professional valuers not connected

with the Group. Knight Frank Hong Kong Limited had appropriate qualifications and recent experiences in the

valuation of similar properties in the relevant locations. The valuation, which conformed to Hong Kong Institute of

Surveyors Valuation Standards on Properties, was arrived at by reference to comparable market transactions and

rental yield for similar properties.

At 31 December 2005, the Group’s investment property was located in Hong Kong and held under medium-term

lease.

During the year ended 31 December 2006, the Group disposed of its investment property through disposal of the

Retail Group, further details of which are disclosed in Note 34.

Ann

ual

Re p

ort


65


18. GOODWILL

Continuingoperations

Operation ofDiscontinued operations department

Wholesale and Retailing of store andretailing furniture, provision of

of branded household retailhousehold and personal management

products care products servicesCash generating units (Unit A) (Unit B) (Unit C) Total

HK$’000 HK$’000 HK$’000 HK$’000

CostAt 1 January 2005 1,863 — — 1,863Arising on acquisition of the

Wealthy View Group (Note 33(ii)) — 1,100 — 1,100Arising on acquisition of the

Timecastle Group (Note 33(i))— as determined provisionally — — 2,375 2,375— as adjusted as a result of completing

the initial accounting — — 213,306 213,306

At 31 December 2005 (as restated) 1,863 1,100 215,681 218,644Eliminated on disposal

of the Retail Group (1,863) (1,100) — (2,963)

At 31 December 2006 — — 215,681 215,681

Accumulated impairmentAt 1 January 2005 1,863 — — 1,863Impairment loss recognized

in the income statement — 1,100 — 1,100

At 31 December 2005 1,863 1,100 — 2,963Eliminated on disposal of

the Retail Group (1,863) (1,100) — (2,963)Impairment loss recognized

in the income statement — — 144,881 144,881

At 31 December 2006 — — 144,881 144,881

Carrying amountsAt 31 December 2006 — — 70,800 70,800

At 31 December 2005 (as restated) — — 215,681 215,681

Ann

ual

Rep

ort


66


18. GOODWILL (Continued)

For the purposes of impairment testing, goodwill has been allocated to three individual cash generating units (“CGUs”).

The basis of the recoverable amounts of the CGUs and their major underlying assumptions are summarized below:

Unit A and Unit B

Due to the continuous losses incurred by the subsidiaries comprising Unit A and Unit B, the Directors reassessed the

recoverable amount of goodwill arising on the acquisition of these subsidiaries and recognized an impairment loss

of approximately HK$1,100,000 in the year ended 31 December 2005 and approximately HK$1,863,000 in the year

ended 31 December 2004 for Unit B and Unit A respectively.

Unit C

The recoverable amount of Unit C is determined from a value in use calculation. The key assumptions for the value

in use calculation are those regarding the discount rates, growth rates and expected changes on selling prices and

direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market

assessments of the time value of money and the risks specific to Unit C. The growth rates are made with reference to

industry growth forecast together with management’s estimation. Changes in selling prices and direct costs are

based on past practices and expectations of future changes in the market.

The Group prepares cash flow forecast based on financial budget approved by management for the next two years

and extrapolates cash flows for the following three years based on an estimated constant growth rate of 5%. This rate

does not exceed the long-term growth rate for the relevant markets. The rate used to discount the forecast cash flows

is 13.5%.

At 31 December 2005, before impairment testing, goodwill of approximately HK$215,681,000 was allocated to

Unit C. After the acquisition, the Group reassessed the relevant business markets and revised its cash flow forecast

for this CGU. The carrying amount of goodwill arising on the acquisition of the subsidiaries was reassessed by the

Group and an impairment loss of approximately HK$144,881,000 was recognized for the year ended 31 December

2006 for Unit C.

19. AVAILABLE-FOR-SALE INVESTMENTS

The Group’s available-for-sale investments at 31 December 2005 were stated at fair value, which were determined

by reference to bid price quoted in the secondary market.

During the year ended 31 December 2006, the Group disposed of its available-for-sale investments through disposal

of the Retail Group, further details of which are disclosed in Note 34.

Ann

ual

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ort


67


20. PREPAID RENTAL/DEPOSITS PAID FOR ACQUISITION OF LEASEHOLD IMPROVEMENTS

Prepaid rental represents prepayments for leasing a new department store (the “New Department Store”) in the PRC

in accordance with a memorandum signed on 10 May 2004 (the “Memorandum”).

Deposits paid for acquisition of leasehold improvements represent deposits paid for acquisition of leasehold

improvements in accordance with the terms of the Memorandum, further details of which are disclosed in Note 37.

21. DEFERRED TAX ASSETS

The following is the major deferred tax balances recognized and the movements thereon during the current and prior

years:

Accelerated Depreciation

tax over tax Estimated

depreciation allowance tax losses Total

HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2005 (2,537) — 2,537 —

Credited/(Charged) to income statement (1,104) — 1,104 —

Acquisition of subsidiaries (Note 33) — 7,254 — 7,254

At 31 December 2005 (3,641) 7,254 3,641 7,254

Exchange adjustment — 142 — 142

Credited/(Charged) to income statement 3,641 (7,396) (3,641) (7,396)

At 31 December 2006 — — — —

22. INVENTORIES

2006 2005

HK$’000 HK$’000

Finished goods held for sale — 47,863

Merchandise held for resale — 3,601

— 51,464

Ann

ual

Rep

ort


68


23. ACCOUNT RECEIVABLES

The Group allows an average credit period of 30 to 90 days to its trade customers. The following is an aged analysis

of account receivables net of impairment losses at the balance sheet date:

2006 2005

HK$’000 HK$’000

0 — 30 days 912 1,875

31 — 60 days — 27

61 — 90 days 16,813 29

Over 90 days 62,062 201

79,787 2,132

During the year ended 31 December 2006, the Group recognized impairment losses in respect of account receivables

from third party customers amounting to approximately HK$5,087,000 (2005: HK$845,000).

The Directors consider that the carrying amounts of the Group’s account receivables approximate their fair values.

24. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

The Directors consider that the carrying amounts of the Group’s prepayments, deposits and other receivables

approximate their fair values.

25. AMOUNT DUE FROM THE CASH GROUP

As disclosed in Notes 10 and 34, during the year ended 31 December 2006, the Company disposed of its entire

equity interest in the Retail Group at an aggregate consideration of HK$130,590,000 pursuant to the VSD Agreement

entered into between the Company and CIGL (a wholly-owned subsidiary of CASH). At 31 December 2006, the

remaining balance of the consideration of HK$100,590,000 was due from the CASH Group to the Company.

The balance of unsettled consideration bears interest at the annual rate of 2% above the prime lending rate, and the

accrued interest amounted to approximately HK$5,868,000 at 31 December 2006.

The amount due from the CASH Group was fully settled subsequent to the balance sheet date.

The Directors consider that the carrying amount of the amount due from the CASH Group approximates its fair

value.

Ann

ual

Re p

ort


69


26. LISTED INVESTMENTS HELD FOR TRADING

2006 2005

HK$’000 HK$’000

Listed investment held for trading

Equity securities listed on the Stock Exchange — 4,106

The fair values of the Group’s listed investments held for trading at 31 December 2005 were determined based on

quoted market bid place available on the Stock Exchange.

During the year ended 31 December 2006, the Group disposed of its listed investments held for trading through

disposal of the Retail Group, further details of which are disclosed in Note 34.

27. PLEDGED BANK DEPOSITS AND BANK BALANCES AND CASH

The pledged bank deposits at 31 December 2005 were denominated in Hong Kong dollars and carried interest at

prevailing market rate.

The Directors consider that the carrying amounts of pledged bank deposits and bank balances and cash approximate

their fair values.

28. OTHER CURRENT LIABILITIES

Account payables, accrued liabilities and other payables principally comprise amounts outstanding for trade purposes

and ongoing costs.

The average credit period taken for trade purchases is 30 to 90 days. The following is an aged analysis of account

payables at the balance sheet date:

2006 2005

HK$’000 HK$’000

0 — 30 days 2,892 121,526

31 — 60 days 850 29,749

61 — 90 days 2,425 18,784

Over 90 days 5,420 22,902

11,587 192,961

Ann

ual

Rep

ort


70


28. OTHER CURRENT LIABILITIES (Continued)

The amount due to a director was unsecured, interest-free and had no fixed terms of repayment.

The Directors consider that the carrying amounts of the other current liabilities noted above approximate their fair

values.

29. BANK BORROWINGS, SECURED

2006 2005

HK$’000 HK$’000

Trust receipt loans — 46,175

Bank loans 20,000 39,960

20,000 86,135

2006 2005

HK$’000 HK$’000

Denominated in:

Hong Kong dollars — 62,097

Renminbi 20,000 24,038

20,000 86,135

2006 2005

HK$’000 HK$’000

Carrying amount repayable:

On demand or within one year 20,000 75,580

More than one year, but not exceeding two years — 5,640

More than two years, but not exceeding five years — 4,915

20,000 86,135

Less: Amount due within one year shown under current liabilities (20,000) (75,580)

— 10,555

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29. BANK BORROWINGS, SECURED (Continued)

At 31 December 2006, the effective interest rate on the bank loan is 7.7% per annum and the bank loan is secured by

a corporate guarantee given by a third party.

At 31 December 2005, the effective interest rates on the trust receipt loans and the bank loans were 5.7% per annum

and 5.5% per annum respectively. At 31 December 2005, the Group’s bank borrowings and other banking facilities

were secured by:

(i) pledge of the Group’s certain buildings and prepaid lease payments;

(ii) pledged bank deposits of approximately HK$38,900,000;

(iii) corporate guarantees given by the Company; and

(iv) corporate guarantee given by a third party.

The Directors consider that the carrying amounts of the bank borrowings approximate their fair values.

30. SHARE CAPITAL

Ordinary

shares of

HK$0.02 each Amount

Notes HK$’000

Authorized:

At 1 January 2005 750,000,000 15,000

Increase on 13 May 2005 (a)(i) 750,000,000 15,000

Increase on 18 July 2005 (a)(ii) 1,500,000,000 30,000

At 31 December 2005 and 2006 3,000,000,000 60,000

Issued and fully paid:

At 1 January 2005 666,692,812 13,334

Issue of subscription shares (b) 83,000,000 1,660

Issue of placing shares pursuant to the placing

agreement dated 4 April 2005 (c)(i) 223,000,000 4,460

Issue of placing shares pursuant to the placing

agreement dated 24 August 2005 (c)(ii) 100,000,000 2,000

Exercise of share options (d) 19,833,333 397

At 31 December 2005 and 2006 1,092,526,145 21,851

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30. SHARE CAPITAL (Continued)

Notes:

(a) Increases in authorized share capital

(i) Pursuant to an ordinary resolution passed by the Company’s shareholders on 13 May 2005, the authorized share

capital of the Company was increased from HK$15,000,000 to HK$30,000,000 by the creation of an additional

750,000,000 shares of HK$0.02 each.

(ii) Pursuant to an ordinary resolution passed by the Company’s shareholders on 18 July 2005, the authorized share

capital of the Company was increased from HK$30,000,000 to HK$60,000,000 by the creation of an additional

1,500,000,000 shares of HK$0.02 each.

(b) Issue of subscription shares

Pursuant to two subscription agreements dated 23 March 2005, a total of 83,000,000 ordinary shares of HK$0.02 each

were issued to two subscribers at the subscription price of HK$0.28 per share on 6 April 2005. The gross proceeds of

HK$23,240,000 were used for general working capital of the Group.

(c) Issue of placing shares

(i) Pursuant to a placing agreement dated 4 April 2005, a total of 223,000,000 ordinary shares of HK$0.02 each

were issued to placees at the placing price of HK$0.30 per share on 19 May 2005, giving rise to gross proceeds

of HK$66,900,000. The fund had been applied as the first deposit under the Timecastle S&P Agreement for the

acquisition of the Timecastle Group.

(ii) Pursuant to a placing agreement dated 24 August 2005, a total of 100,000,000 ordinary shares of HK$0.02 each

were issued to placees at the placing price of HK$0.45 per share on 30 December 2005. The gross proceeds of

HK$45,000,000 were used for settlement of part of the consideration for the acquisition of the Timecastle Group

under the Timecastle S&P Agreement.

(d) Exercise of share options during the year ended 31 December 2005

In May 2005, 19,833,333 share options were exercised at the exercise price of HK$0.316 per share, resulting in the issue

of 19,833,333 ordinary shares of HK$0.02 each for a total consideration (before expenses) of approximately HK$6,268,000

on 23 May 2005.

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31. SHARE OPTION SCHEME

Pursuant to an ordinary resolution passed at the special general meeting of the Company held on 19 February 2002,

the Company adopted the share option scheme (“New Option Scheme”) to replace the share option scheme adopted

on 21 January 1994 (“Old Option Scheme”). All the options granted under the Old Option Scheme shall remain

valid and unchanged and shall be treated in accordance with the terms under the Old Option Scheme. The major

terms of the New Option Scheme are summarized as follows:

(a) The purpose was to provide incentives to:

(i) award and retain the participants who have made contributions to the Group; or

(ii) attract potential candidates to serve the Group for the benefit of the development of the Group.

(b) The participants included any employee, director, consultant, adviser or agent of any member of the Group.

(c) The maximum number of shares in respect of which options might be granted under the New Option Scheme

must not exceed 10% of the issued share capital of the Company as at the date of approval of the New Option

Scheme and such limit might be refreshed by shareholders in general meeting. The maximum number of

shares was 109,252,614 shares, representing 10% of the issued share capital of the Company, as at the date of

approval of these consolidated financial statements. However, the total maximum number of shares which

might be issued upon exercise of all outstanding options granted and yet to be exercised under the New

Option Scheme and any other share option scheme must not exceed 30% of the shares in issue from time to

time.

(d) The maximum number of shares in respect of which options might be granted to a participant, when aggregated

with shares issued and issuable (including exercised and outstanding options and the options cancelled)

under any option granted to the same participant under the New Option Scheme or any other share option

scheme within any 12 month period, must not exceed 1% of the shares in issue from time to time.

(e) There was no requirement for a grantee to hold the option for a certain period before exercising the option

save as determined by the board of Directors and provided in the offer of grant of option.

(f) The exercise period should be any period fixed by the board of Directors upon grant of the option but in any

event the option period should not go beyond 10 years from the date of offer for grant.

(g) The acceptance of an option, if accepted, must be made within 28 days from the date of grant with a non-

refundable payment of HK$1.00 from the grantee to the Company.

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31. SHARE OPTION SCHEME (Continued)

(h) The exercise price of an option must be the highest of:

(i) the closing price of the shares on the date of grant which day must be a trading day;

(ii) the average closing price of the shares for the 5 trading days immediately preceding the date of grant;

and

(iii) the nominal value of the share.

(i) The life of the New Option Scheme is effective for 10 years from the date of adoption until 18 February 2012.

There were no outstanding share options at 31 December 2005 and 2006. No share options were granted, exercised

or cancelled during the year ended 31 December 2006.

32. CONVERTIBLE LOAN NOTES

First Convertible Loan Note

On 15 August 2005, the Company issued a convertible loan note (the “First Convertible Loan Note”) with a principal

amount of HK$108,000,000 to AustChina Information Technology Pyt Limited. The First Convertible Loan Note

was subsequently transferred to Mr. Pun So on 10 February 2006. The First Convertible Loan Note bears zero

coupon rate. The maturity date is 31 August 2007 or any other date mutually agreed between the Company and the

noteholder. The First Convertible Loan Note shall be repaid on the maturity date if no conversion is noted. The

conversion price of the First Convertible Loan Note is HK$0.45 per share (subject to adjustment) and the conversion

right attached to the First Convertible Loan Note can be exercised at any time after the expiry of 6 months from the

issue date of the First Convertible Loan Note and ending on the maturity date.

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32. CONVERTIBLE LOAN NOTES (Continued)

Second Convertible Loan Note

On 30 December 2005, the Company issued another convertible loan note with a principal amount of HK$180,000,000

(the “Second Convertible Loan Note”) to Mr. Qian Song Wen (the “Timecastle Vendor”) for settlement of part of the

consideration for the acquisition of the Timecastle Group under the Timecastle S&P Agreement (Note 33(i)). The

Second Convertible Loan Note bears zero coupon rate. The maturity date is 31 December 2007 or any other date

mutually agreed between the Company and the Timecastle Vendor, on which all outstanding principal amount of the

Second Convertible Loan Note shall be fully repaid. The Company has the repayment right at any time during the

conversion period. The conversion price of the Second Convertible Loan Note is HK$0.45 per share (subject to

adjustment). Pursuant to the Timecastle Supplemental Agreement (Note 33(i)), the terms of the Second Convertible

Loan Note were changed as follows: (i) the Timecastle Vendor undertook to the Group that he shall not exercise any

conversion right attached to the Second Convertible Loan Note (with principal amount as adjusted by the Group, if

any) at any time before the 7th business day after the issue of the audited accounts of the Timecastle Group for the

year ending 31 December 2006, or the date on which the Reorganization becomes effective, whichever is the later;

and (ii) the principal amount of the Second Convertible Loan Note shall be reduced by an amount of approximately

HK$1,694,000 which is equal to the Reduction Amount less the Balance, which has been included in “Prepayments,

deposits and other receivables” on the consolidated balance sheet.

The convertible loan notes contain two components, liability and equity elements. The equity element is presented

in equity heading “Convertible loan notes equity reserve”. The effective interest rate of the liability component is

6.26%.

The movement of the liability component of the convertible loan notes for the year is set out below:

First Second

Convertible Convertible

Loan Note Loan Note Total

HK$’000 HK$’000 HK$’000

Principal amount 108,000 180,000 288,000

Equity component (11,898) (21,048) (32,946)

Liability component at date of issue 96,102 158,952 255,054

Imputed interest charged 2,165 — 2,165

Liability component at 31 December 2005 98,267 158,952 257,219

Imputed interest charged 5,776 10,197 15,973

Liability component at 31 December 2006 104,043 169,149 273,192

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33. ACQUISITION OF SUBSIDIARIES

(i) Acquisition of the Timecastle Group

Pursuant to the share purchase agreement dated 24 August 2005 (the “Timecastle S&P Agreement”) entered

into between Sundynasty International Limited (a wholly-owned subsidiary of the Company) and Mr. Qian

Song Wen (the “Timecastle Vendor”), the Group agreed to acquire the entire equity interest of the Timecastle

Group at a consideration of HK$500 million (subject to adjustments) to be satisfied by cash and by issue of

the Second Convertible Loan Note. Pursuant to the Timecastle S&P Agreement, the completion of the

acquisition of the Timecastle Group was subject to, inter alia, the completion of reorganization to convert

( ) , a PRC incorporated company, into a wholly foreign owned enterprise in

accordance with the PRC laws and the transfer of the entire interest of ( ) to the

wholly-owned subsidiary of Timecastle International Limited (the “Reorganization”). As the Reorganization

had not been completed by the fulfillment date of 30 November 2005, the Group entered into a series of

contractual arrangements to the effect that the Group would be able to enjoy all economic interests attributed

to the entire equity interests in ( ) and control the operations and financial policies

of the Timecastle Group. Accordingly, the Timecastle Group was consolidated by the Group with effect from

30 December 2005, and the acquisition was accounted for using the purchase method.

The Timecastle S&P Agreement allowed for adjustments to the consideration that were contingent on a profit

guarantee for the Timecastle Group for the year ended 31 December 2005. After further negotiation, the

Timecastle Vendor and the Group entered into a supplemental agreement dated 26 April 2006 (the “Timecastle

Supplemental Agreement”) to amend the terms of the Timecastle S&P Agreement, pursuant to which (i) the

Timecastle Vendor undertook to the Group that he shall not exercise any conversion right attached to the

Second Convertible Loan Note (with principal amount as adjusted by the Group, if any) at any time before

the 7th business day after the issue of the audited accounts of the Timecastle Group for the year ending 31

December 2006, or the date on which the Reorganization becomes effective, whichever is the later; and (ii) a

profit guarantee for the Timecastle Group for the year ending 31 December 2006 should be given so that the

profit guarantee was given for the year in which the Reorganization was completed instead of 2005. If the

audited net profit after tax of the Timecastle Group for the year ending 31 December 2006 prepared in

accordance with HKFRSs is less than RMB80 million (the “Profit Guarantee”), the consideration shall be

adjusted downwards by an amount equal to the shortfall of the Profit Guarantee multiplied by 6.5 (the

“Reduction Amount”). If the Reduction Amount exceeds the balance of the consideration due to the Timecastle

Vendor (the “Balance”), the Group shall not be liable to pay the Balance and the principal amount of the

Second Convertible Loan Note shall be reduced by an amount equal to the Reduction Amount less the Balance.

Accordingly, the initial accounting for the acquisition of the Timecastle Group could be determined only

provisionally by 31 December 2005 as the final consideration for the acquisition was subject to adjustment

with reference to the audited results of the Timecastle Group for the year ending 31 December 2006.

Ann

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33. ACQUISITION OF SUBSIDIARIES (Continued)

(i) Acquisition of the Timecastle Group (Continued)

In accordance with the Timecastle S&P Agreement as amended by the Timecastle Supplemental Agreement,

the final consideration was determined to be approximately HK$425,306,000 (including costs directly

attributable to the acquisition of approximately HK$12,000,000).

The net assets acquired and the goodwill arising were as follows:

Acquiree’scarrying amount

before combinationand fair value

HK$’000

Property, plant and equipment 88,231Prepaid rental 38,462Deposits paid for acquisition of leasehold improvements 23,702Deferred tax assets 7,254Inventories 3,601Account receivables 894Prepayments, deposits and other receivables 147,090Bank balances and cash 7,747Account payables (41,537)Accrued liabilities and other payables (27,366)Bank borrowings (24,038)Taxation payable (14,415)

Net assets acquired 209,625Goodwill (Note 18)— as determined provisionally 2,375— as adjusted as a result of completing the initial accounting 213,306

Total consideration 425,306

Satisfied by:Cash 247,000Second Convertible Loan Note (Note 32) 180,000Reduction of principal amount of the Second Convertible Loan Note

by an amount equal to the Reduction Amount less the Balance(included in “Prepayments, deposits and other receivables”) (1,694)

425,306

Ann

ual

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(i) Acquisition of the Timecastle Group (Continued)

Net cash outflow arising on acquisition of the Timecastle Group:

2006 2005

HK$’000 HK$’000

Cash consideration paid (75,000) (172,000)

Bank balances and cash acquired — 7,747

(75,000) (164,253)

(ii) Acquisition of the Wealthy View Group

On 19 April 2005, the Group acquired the entire equity interest of Wealthy View Investment Limited and its

subsidiaries (the “Wealthy View Group”) from an independent third party for a cash consideration of

HK$4,000,000. This acquisition was accounted for using the purchase method. The goodwill arising on

acquisition of the Wealthy View Group amounted to approximately HK$1,100,000 which was attributable to

the anticipated profitability of the Wealthy View Group.

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(ii) Acquisition of the Wealthy View Group (Continued)

The net assets acquired and the goodwill arising were as follows:

Acquiree’s

carrying amount

before combination

and fair value

HK$’000

Property, plant and equipment 456

Inventories 903

Account receivables 231

Prepayments, deposits and other receivables 1,556

Bank balances and cash 1,274

Account payables (1,287)

Accrued liabilities and other payables (233)

2,900

Goodwill (Note 18) 1,100


Satisfied by:

Cash consideration 4,000

Net cash outflow arising on acquisition of the Wealthy View Group:

Cash consideration paid (4,000)

Bank balances and cash acquired 1,274

(2,726)

The Wealthy View Group was engaged in retailing business in the PRC. However, after the acquisition, the

Group reassessed the business market of the Wealthy View Group and considered that the business principally

engaged by the Wealthy View Group was unprofitable. As a result, carrying amount of the goodwill arising

on acquisition of the Wealthy View Group was reassessed by the Directors and an impairment loss of

approximately HK$1,100,000 was recognized in the year ended 31 December 2005 upon cessation in operating

of the Wealthy View Group.

Ann

ual

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34. DISPOSAL OF THE RETAIL GROUP

As disclosed in Note 10, the Group discontinued its retail businesses in Hong Kong at the time of disposal of its

entire equity interest in the Retail Group at an aggregate consideration of HK$130,590,000. The transaction was

completed on 30 June 2006. Details of the assets and liabilities disposed of are as follows:

HK$’000

Property, plant and equipment 81,324Prepaid lease payments 4,643Investment property 5,000Available-for-sale investments 1,760Rental and utility deposits 10,733Inventories 62,267Account receivables 1,746Prepayments, deposits and other receivables 41,702Amount due from CASH 11,997Listed investments held for trading 2,133Pledged bank deposits 44,400Bank balances and cash 50,355Account payables (146,539)Accrued liabilities and other payables (37,718)Taxation payable (200)Bank borrowings, secured (64,007)

69,596Release of building revaluation reserve (701)Gain on disposal of the Retail Group 61,695


Satisfied by:Cash consideration 30,000Amount due from the CASH Group (Note 25) 100,590

130,590

Net cash outflow arising on disposal of the Retail Group:Cash consideration received 30,000Bank balances and cash disposed of (50,355)

(20,355)

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ual

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35. MAJOR NON-CASH TRANSACTIONS

The Group had the following major non-cash transactions during the year ended 31 December 2005:

(i) Pursuant to the agreement entered into between CASH and a third party in 2002, the third party agreed to

procure its group companies to provide advertising and telecommunication services to CASH and its

subsidiaries, including the Group. The fee for these services would be used to offset the prepayment for

advertising and telecommunication services which the Group paid. During the year ended 31 December

2005, the Group utilized advertising and telecommunication services amounting to approximately HK$908,000.

(ii) On 30 December 2005, the consideration for the acquisition of the Timecastle Group was partially settled by

issue of the Second Convertible Loan Note. Details of the Second Convertible Loan Note and the acquisition

of the Timecastle Group are set out in Notes 32 and 33 respectively.

(iii) The proceeds receivable from the placing shares issued on 30 December 2005 amounting to HK$45,000,000

were included in the Group’s prepayments, deposits and other receivables at 31 December 2005.

(iv) Property, plant and equipment amounting to approximately HK$4,546,000 was transferred to investment

property during the year ended 31 December 2005.

36. OPERATING LEASE COMMITMENTS

The Group as lessee

At 31 December 2006, the Group had commitments for future minimum lease payments under non-cancellable

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

2006 2005

HK$’000 HK$’000

Within one year 41,931 128,388

In the second to fifth years inclusive 602,091 206,676

Over five years 1,232,804 —

1,876,826 335,064

Ann

ual

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36. OPERATING LEASE COMMITMENTS (Continued)

The Group as lessor

At 31 December 2006, the Group had contracted with tenants for retail premises in the PRC for the following future

minimum lease payments:

2006 2005

HK$’000 HK$’000

Within one year 53,675 347

In the second to fifth years inclusive 52,459 —

Over five years 53,410 —

159,544 347

37. CAPITAL COMMITMENTS

2006 2005

HK$’000 HK$’000

Capital expenditure in respect of acquisition of leasehold

improvements authorized but not contracted for — 120,529

On 10 May 2004, the Timecastle Group signed the Memorandum for leasing the New Department Store in the PRC.

Pursuant to the terms of the Memorandum, the landlord was responsible for the leasehold improvements of the New

Department Store on behalf of the Timecastle Group and the total cost of leasehold improvements to be incurred

should not exceed RMB150,000,000. The terms of the Memorandum relating to the responsibility for the leasehold

improvements were terminated during the year ended 31 December 2006.

38. RETIREMENT BENEFITS SCHEMES

The Group operates a Mandatory Provident Fund Scheme (the “MPF Scheme”) under rules and regulations of

Mandatory Provident Fund Schemes Ordinance for all its employees in Hong Kong. All the employees of the Group

in Hong Kong are required to join the MPF Scheme. Contributions are made based on a percentage of the employees’

salaries and are charged to the consolidated income statement as they become payable in accordance with the rules

of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently

administered fund. The Group’s employer contributions vest fully with the employees when contributed into the

MPF Scheme. The employee’s contribution to the retirement benefits scheme charged to the consolidated income

statement amounted to approximately HK$2,628,000 (2005: HK$3,031,000) for the year ended 31 December 2006.

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ual

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38. RETIREMENT BENEFITS SCHEMES (Continued)

The Group’s PRC subsidiaries in compliance with the applicable regulations of the PRC, participate in various state-

managed retirement benefit schemes operated by the relevant municipal and provincial governments. The Group’s

PRC subsidiaries are required to contribute a specific percentage of its payroll costs to the retirement benefits

schemes to fund the benefits. The Group’s PRC subsidiaries have no other material obligation for the payment of its

staff’s retirement and other post-retirement benefits other than the contributions described above.

39. SIGNIFICANT RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in these consolidated financial statements, the Group entered into the following significant

related party transactions for the year ended 31 December 2006:

2006 2005

HK$’000 HK$’000

CASH Group

Consideration for disposal of the Retail Group (Note 10) 130,590 —

Interest income on balance of unsettled consideration (Note 25) 5,868 —

Rental expenses 3,718 3,600

Underwriting commission paid — 1,312

Compensation to key management personnel of the Group

Short-term employee benefits 1,926 3,591

Post-employment benefits 51 80

1,977 3,671

Ann

ual

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40. POST BALANCE SHEET EVENTS

(a) Placing of existing shares and top-up subscription of new shares

On 12 February 2007, the Company announced that Fit Top Investments Limited (the “Vendor”) entered into

the Placing Agreement and the Top-up Subscription Agreement both dated 9 February 2007 with China

Everbright Securities (HK) Limited (the “Placing Agent”) and the Company respectively. Pursuant to the

Placing Agreement, the Vendor agreed to place, through the Placing Agent, an aggregate of 100,000,000

existing ordinary shares of HK$0.02 in the share capital of the Company (the “Placing Shares”), on a best

effort basis, to not less than six individual, corporate and/or institutional investors, at a price of HK$0.28 per

Placing Share. Pursuant to the Top-up Subscription Agreement, the Vendor conditionally agreed to subscribe

for the Top-up Subscription Shares at a price of HK$0.28 per Top-up Subscription Share. The number of Top-

up Subscription Shares was equivalent to the number of Placing Shares actually placed by the Placing Agent

under the Placing Agreement, being not more than 100,000,000. The Top-up Subscription Shares will be

issued under the general mandate to allot, issue and deal with shares granted to the Directors by resolution of

the shareholders passed at the annual general meeting of the Company held on 29 May 2006. The Placing

Price or the Top-up Subscription Price of HK$0.28 represented (i) a discount of approximately 6.7% to the

closing price of HK$0.300 per share as quoted on the Stock Exchange on 8 February 2007 (the “Last Trading

Day”, being the last full trading day for the shares before the date of signing of the Placing Agreement and

the Top-up Subscription Agreement); (ii) a discount of approximately 9.7% to the average closing price per

share of HK$0.310 as quoted on the Stock Exchange for the last five trading days up to and including the Last

Trading Day; and (iii) a discount of approximately 9.4% to the average closing price per share of HK$0.309

as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day.

Assuming all the Placing Shares are fully placed and the Top-up Subscription Shares are fully subscribed, the

net proceeds receivable by the Company, after deducting the placing commission and all costs, fees and

expenses to be borne by the Company, are estimated to be approximately HK$27.5 million. The Directors

presently intend to use the net proceeds for the purpose of general working capital of the Group.

(b) Proposed very substantial acquisition

On 19 April 2007, the Company announced that Winner Grace International Limited and Firm Top Investments

Limited (both of which are wholly-owned subsidiaries of the Company) entered into the respective agreements

dated 14 April 2007 with an independent third party to acquire the entire equity interests in each of Fortune

International Business Limited (“FIB”) and Sunny Sky Properties Limited (“SSP”) and their respective

shareholders' loans for a total consideration of HK$1.6 billion. The principal assets of FIB and SSP and their

respective subsidiaries are two commercial and residential complexes in Beijing, the PRC. The acquisition

constitutes a very substantial acquisition for the Company under the Listing Rules and thus it is subject to the

Company's shareholders approval at a special general meeting. Further details of the acquisition are set out in

the Company's announcement dated 19 April 2007.

Ann

ual

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41. PARTICULARS OF SUBSIDIARIES AS AT 31 DECEMBER 2006

Place of Issued share Proportion of

incorporation/ capital/paid up ownership interests

Name of subsidiary establishment capital held by the Company Principal activities

Sundynasty International Limited British Virgin Islands Ordinary US$1 100% (Direct) Investment holding

Timecastle International Limited British Virgin Islands Ordinary US$1 100% (Indirect) Investment holding

Master Empire Development Limited Hong Kong Ordinary HK$1 100% (Indirect) Investment holding

( ) PRC Registered capital 100% (Indirect) Operation of department

(Note (i)) RMB45,000,000 store in the PRC

PRC Registered capital 100% (Indirect) Provision of retail

(Note (ii)) RMB500,000 management services in

the PRC

PRC Registered capital 100% (Indirect) Provision of advertising

(Note (iii)) RMB29,000,000 services in the PRC

Notes:

(i) ( ) is a wholly foreign owned enterprise established in the PRC.

(ii) is a limited liability company established in the PRC.

(iii) is a limited liability company established in the PRC.

Financia l SummaryAnn

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

from the audited financial statements and restated as appropriate, is set out below:

RESULTS

Year ended 31 December 2006 2005 2004 2003 2002

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

(Restated) (Restated) (Restated)

Revenue

From continuing operations 125,759 — — — —

From discontinued operations 426,452 865,647 876,896 836,006 889,918

552,211 865,647 876,896 836,006 889,918

Loss before tax (78,904) (76,591) (85,413) (33,627) (96,856)

Income tax expenses (16,514) — (6) — —

Loss for the year (95,418) (76,591) (85,419) (33,627) (96,856)

ASSETS AND LIABILITIES

At 31 December 2006 2005 2004 2003 2002

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

(Restated) (Restated) (Restated)

Assets 612,133 931,477 411,413 463,259 460,175

Liabilities 432,825 690,735 267,621 284,629 247,918

Net assets 179,308 240,742 143,792 178,630 212,257

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Notice of Annual General Meet ing

NOTICE IS HEREBY GIVEN that the Annual General Meeting (“AGM”) of CASH Retail Management Group Limited

("Company") will be held at Level III, JW Marriot Hotel, 88 Queensway, Hong Kong on 1 June 2007, Friday, at 9:45 am for

the following purposes:

1. To receive and consider the audited Financial Statements and the Reports of the Directors and the Auditors for the

year ended 31 December 2006.

2. To re-elect the retiring Directors of the Company for the ensuing year, to determine 20 as the maximum number of

Directors, to authorise the Directors to appoint additional Directors up to the maximum number and to fix the

Directors' remuneration.

3. To re-appoint Messrs HLB Hodgson Impey Cheng as auditors of the Company for the ensuing year and to authorise

the Directors to fix their remuneration.

4. To consider and, if thought fit, to pass the following resolutions, with or without amendments, as ordinary resolutions:

A. THAT

(a) subject to paragraph A(c), the exercise by the Directors of the Company during the Relevant Period

(as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional

shares in the capital of the Company and to make or grant offers, agreements and options which might

require the exercise of such power be and is hereby generally and unconditionally approved;

(b) the approval in paragraph A(a) shall authorise the Directors of the Company during the Relevant

Period (as defined hereinafter) to make or grant offers, agreements and options which might require

the exercise of such power after the end of the Relevant Period;

(c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to

be allotted by the Directors of the Company pursuant to the approval in paragraph A(a), otherwise

than pursuant to a Rights Issue (as hereinafter defined) or any option scheme or similar arrangement

for the time being adopted for the grant or issue to participants of the Company and its subsidiaries of

shares or right to acquire shares in the Company shall not exceed 20% of the aggregate nominal

amount of the share capital of the Company in issue as at the date of this resolution and the said

approval shall be limited accordingly; and

Notice of Annual General Meet ingAnn

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(d) for the purposes of this resolution:

"Relevant Period" means the period from the passing of this resolution until whichever is the earlier

of:

1. the conclusion of the next annual general meeting of the Company;

2. the expiration of the period within which the next annual general meeting of the Company is

required by the Bye-laws of the Company or any applicable law to be held; and

3. the revocation or variation of this resolution by an ordinary resolution of the shareholders of

the Company in general meeting.

"Rights Issue" means an offer of shares open for a period fixed by the Directors of the Company to

holders of shares on the register of members of the Company on a fixed record date in proportion to

their then holdings of such shares (subject to such exclusion or other arrangements as the Directors of

the Company may deem necessary or expedient in relation to fractional entitlements or having regard

to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory

body or any stock exchange in any territory outside Hong Kong).

B. THAT

(a) subject to paragraph B(b), the exercise by the Directors of the Company during the Relevant Period

(as hereinafter defined) of all powers of the Company to repurchase issued shares in the capital of the

Company on the Stock Exchange or on any other stock exchange on which the shares in the Company

may be listed and recognised by the Securities and Futures Commission of Hong Kong and the Stock

Exchange for this purpose, subject to and in accordance with all applicable laws and the requirements

of The Rules Governing the Listing of Securities on the Stock Exchange or on any other stock exchange

as amended from time to time be and is hereby generally and unconditionally approved;

(b) the aggregate nominal amount of shares in the Company to be repurchased or agreed conditionally or

unconditionally to be repurchased by the Company pursuant to the approval in paragraph B(a) during

the Relevant Period shall not exceed 10% of the aggregate nominal amount of the share capital of the

Company in issue as at the date of the passing of this resolution and the said approval be limited

accordingly; and

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Notice of Annual General Meet ing

(c) for the purposes of this resolution:

"Relevant Period" means the period from the passing of this resolution until whichever is the earlier

of:

1. the conclusion of the next annual general meeting of the Company;

2. the expiration of the period within which the next annual general meeting of the Company is

required by the Bye-laws of the Company or any applicable law to be held; and

3. the revocation or variation of this resolution by an ordinary resolution of the shareholders of

the Company in general meeting.

C. THAT conditional upon resolutions nos.4A and 4B above being passed, the aggregate nominal amount of the

number of shares in the capital of the Company which are repurchased by the Company under the authority

granted to the Directors as mentioned in resolution no.4B above be added to the aggregate nominal amount

of share capital that may be allotted or agreed conditionally or unconditionally to be allotted by the Directors

of the Company pursuant to resolution no.4A above.

5. To consider and, if thought fit, to pass the following resolution, with or without amendments, as ordinary resolution:

THAT conditional on the Listing Committee of the Stock Exchange granting the listing of and permission to deal in

the shares in the Company to be issued pursuant to the exercise of any options ("Options") to be granted under the

existing share option scheme and any other share option scheme(s) of the Company, the Directors be and are hereby

authorised, at their absolute discretion, to grant Options to the extent that the shares in the Company issuable upon

the full exercise of all Options shall not be more than 10% of the issued share capital of the Company as at the date

of this resolution.

By order of the Board

Tin Yuen Sin Carol

Chairperson


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Notes:

1. A shareholder of the Company entitled to attend and vote at the above meeting is entitled to appoint up to two proxies to attend

and, in the event of a poll, vote instead of him/her. A proxy need not be a shareholder of the Company.

2. In order to be valid, the form of proxy must be deposited at the principal place of business of the Company in Hong Kong at Suite

3001, COSCO Tower, 183 Queen's Road Central, Hong Kong together with a power of attorney or other authority, if any, under

which it is signed or a notarially certified copy of that power or authority, not less than 48 hours before the time for holding the

meeting or adjourned meeting.

3. The retiring directors are as follows:

The executive directors, Mr. Choi Chiu Fai Stanley, Mr. Chan Hon Ming Alan, Mr. Tse Pui To Dickson and Mr. Lam Yat Ming,

shall retire and, being eligible, offer themselves for re-election at the AGM in accordance with the Bye-law 115 of the Company's

Bye laws.

Mr. Ng Ka Chung Simon, the independent non-executive director, shall retire, and, being eligible, offer himself for re-election at

the AGM in each year in accordance with his terms of appointment. Mr. Chan Wai Yip Freeman and Ms. Leung Po Ying Iris, the

independent non-executive directors, shall retire, and, being eligible, offer themselves for re-election at the AGM in each year in

accordance with their terms of appointment and in accordance with the Bye-law 115 of the Company's Bye laws.

The biographical details of the retiring directors, being the directors proposed to be re-elected at the forthcoming annual general

meeting, are provided in the circular of the Company, "General Mandate to Repurchase Shares, Refreshment of the Scheme

Mandate Limited and the Re-election of the Retiring Directors" to be dispatched to the shareholders in due course.

4. A form of proxy for use at the meeting is enclosed.

Documents

Annual Report 2006 - 嘉年華國際控股有限公司 Interim R… · Bank of China (Hong Kong) Limited Industrial and Commercial Bank of China (Asia) Limited Bank of Communication