canon’s court, 22 victoria street hamilton hm12, bermuda · registered office canon’s court, 22...

Registered OfficeCanon’s Court, 22 Victoria StreetHamilton HM12, Bermuda

Head OfficeSuites 1203-04, 12/F., Li Po Chun Chambers189 Des Voeux Road Central, Hong Kong

Contents

1

CATHAY INTERNATIONAL HOLDINGS LIMITEDAnnual Report 2008


Directors and Advisers 2

Chairman’s Statement 3

Operation Review 8

Corporate Governance 14

Directors’ Remuneration Report 18

Directors 23

Directors’ Report 24

Statement of Directors’ Responsibilities 27

Report of the Independent Auditors 29

Group Income Statement 31

Group Balance Sheet 32

Company Balance Sheet 33

Group Statement of Changes in Equity 34

Group Cash Flow Statement 35

Notes to the Accounts 36

Notice of Annual General Meeting 74

Directors and Advisers

2



DIRECTORSJ.R.H. BuchananNon-executive Chairman

Wu Zhen TaoChief Executive

S.B. HuntDeputy Chairman

P. SungFinance Director

J.H. CossonNon-executive Director

SECRETARY

Linda Carter

AUDITORSGrant Thornton13th FloorGloucester TowerThe Landmark15 Queen’s Road CentralHong Kong

SOLICITORSSalans LLPMillennium Bridge House2 Lambeth HillLondon EC4V 4AJ

REGISTERED OFFICECanon’s Court22 Victoria StreetHamilton HM 12Bermuda

REGISTERED NUMBER29892 Bermuda

HEAD OFFICESuites 1203-4, 12/F.Li Po Chun Chambers189 Des Voeux Road CentralHong Kong

REGISTRARS AND TRANSFER OFFICE

Capita RegistrarsThe Registry34 Beckenham RoadBeckenhamKent BR3 4TU

Chairman’s Statement

3



On behalf of the Board of Directors, I would like to present the annual report of the Group for the fi nancial year ended 31

December 2008.

KEY PERFORMANCE INDICATORS

Group Turnover and Gross Profi t

Corporate Hotel Offi ce/ Pharmaceutical Operations Unallocated Total Production Research & marketing & (Stated in USD’000) development distribution

For the year ended 31 December 2008

Turnover – 55,963 9,090 – 65,053

Gross profi t – 28,433 184 – 28,617


Turnover – 26,684 7,495 – 34,179

Gross profi t/(loss) – 16,833 (769) – 16,064

Pharmaceutical

The turnover of our pharmaceutical business increased by 109.7% this year to USD55,963,000 (2007: USD26,684,000) and

gross profi t increased by 68.9% to USD28,433,000 (2007: USD16,833,000). The signifi cant improvements largely resulted from

the strong performance of Lansen Pharmaceutical Holdings Limited and its subsidiaries (the “Lansen Group”) acquired in August

2005. The profi t margin for the Lansen Group was 70.3% in 2008 (2007: 68.3%).


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We believe the excellent performance of the Lansen Group is due to a combination of factors:

• the Lansen Group specialises in drugs for rheumatic diseases in China. Rheumatology in China has started to develop only

in recent years and is expected to continue to offer higher growth potential than the pharmaceutical industry average in

China;

• prescription drugs for rheumatic diseases marketed and distributed by the Lansen Group, including Lansen’s own products,

have taken signifi cant market share; and the company has established an excellent reputation amongst rheumatology

specialists in both provincial and national hospitals in China;

• the Lansen Group has established an extensive distribution network, covering approximately 1000 hospitals in 28 provinces

and cities. It is a highly effi cient and effective distribution channel which continues to benefi t the Lansen Group in the

market development and launch of new drugs by signifi cantly reducing the time, resource and costs to develop a market

presence and reputation;

• drugs for specialised diseases have experienced faster growth than the market as a whole; and

• China has been and is expected to continue to be one of the fastest growing major economies in the world, and both public

and private investment in healthcare is growing strongly.

As you will be aware, the Group also has an investment in a pharmaceutical business operated by Xian Haotian Bio-Engineering

Technology Co. Ltd. and its group companies (the “Xian Haotian Group”). The Xian Haotian Group is engaged in the manufacture,

marketing and sale of plant extracts used as various active ingredients in pharmaceuticals, food, beverages, cosmetics, dietary

supplements and health products.

During the year, the Xian Haotian Group has been primarily focusing on the feasibility study of the inositol project. A number

of small-scale trial productions of inositol were also conducted. During the project development phase, all expenses related to

the inositol project were capitalised and any profi t generated from the sale of inositol under trial production was recorded as a

reduction of expenses so capitalised.

On 12 September 2008, the Company announced that the feasibility study relating to the inositol project had been delayed.

Accordingly, the Company and the senior management of the Xian Haotian Group agreed to extend the expiry date for the put

and call option arrangements relating to the Company’s investment in the Xian Haotian Group for a period of 10 months. As of

the year end date, the Xian Haotian Group has not yet achieved its target levels in production effi ciency, production cost control

and raw material supply strategy as required under the feasibility study of the inositol project.

Hotel Operations

Turnover of the hotel division increased to USD9,090,000 (2007: USD7,495,000) and the gross profi t of the hotel division was

USD184,000 (2007: gross loss of USD769,000).


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Despite the diffi cult operating environment in 2008 including the Sichuan earthquake in May, unexpected Chinese government

travel restrictions during the Olympics and an economic slowdown in the second half of the year, we are pleased to report that

the InterContinental Hotels Group (“IHG”), which has been managing Crowne Plaza Hotel & Suites Landmark Shenzhen (the

“hotel”) since 18 December 2007, has increased the average occupancy rate to 43.8% (2007: 37.7%) and the average room rate

to USD125 (2007: USD118) for 2008.

The occupancy level in the fi rst two months of 2009 has continued to improve to 51.9% (fi rst two months of 2008 of 40.2%). We

consider that the performance is encouraging as the fi rst two months of the year is an off-peak season and the market in 2009

has started with the adverse impact of the global fi nancial crisis. We believe the Company has made the right decision in engaging

IHG, and the hotel is expected to continue increasing its contribution to the Group.

The hotel has been revalued at 31 August 2008 by Colliers International, an independent fi rm of professional valuers, using

a discounted cash fl ow method at USD126,000,000 (2007: USD125,000,000). The equity investment cost of the hotel was

USD101,534,000 (2007: USD101,699,000).

Operating Results

Corporate Hotel Offi ce/ Pharmaceutical Operations Unallocated Total Production Research & marketing & (Stated in USD’000) development distribution


Profi t/(loss) from operations (1,231) 7,680 1,002 (2,595) 4,856

Finance costs – (1,770) (2,383) (2,766) (6,919)

Profi t/(loss) before income tax (1,231) 5,910 (1,381) (5,361) (2,063)

Income tax expense – (789) – (122) (911)

Profi t/(loss) before minority interests (1,231) 5,121 (1,381) (5,483) (2,974)


Profi t/(loss) from operations (1,211) 929 (670) (1,829) (2,781)

Share of loss of an associate – (21) – – (21)

Finance costs – (975) (1,634) (2,484) (5,093)

Loss before income tax (1,211) (67) (2,304) (4,313) (7,895)

Income tax expense – (370) – – (370)

Loss before minority interests (1,211) (437) (2,304) (4,313) (8,265)


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Pharmaceutical

As a result of the Lansen Group’s contribution, the operating profit from the pharmaceutical production, marketing and

distribution division increased 8 times to USD7,680,000 (2007: USD929,000). The Lansen Group’s contribution was

USD7,290,000 in 2008 (2007: USD964,000).

Hotel Division

The operating profi t of the hotel division was USD1,002,000 (2007: operating loss of USD670,000). We believe the hotel is

benefi ting from the management and global guest booking systems of the Crowne Plaza Hotel & Suites brand provided by IHG

and we expect it to continue contributing positively to Group profi ts.

Corporate Offi ce

The corporate offi ce expenses were similar to those incurred in 2007. The increase in corporate expenses was primarily due to

an increase in fi nance costs.

The Group loss before minority interests for 2008 was USD2,974,000 (2007: USD8,265,000), which was arrived at mainly after

deducting fi nance costs totaling USD6,919,000 (2007: USD5,093,000). As set out in the table above, the gross fi nance costs were

as follows:

• USD1,770,000 (2007: USD975,000) in the pharmaceutical production, marketing and distribution division;

• USD2,383,000 (2007: USD1,634,000) in the hotel division; and

• USD2,766,000 (2007: USD2,484,000) in the corporate offi ce.

The increase in fi nance costs in the hotel division was mainly due to the reallocation of corporate offi ce fi nance costs that were

related to the funding of hotel renovations. The increase in fi nance costs in the corporate offi ce was mainly owing to additional

loans to fi nance the working capital of the Group and the investment in the Xian Haotian Group, during the year.

In June 2008, the Group obtained a 3-5 year banking facility in the amount of USD22 million. This facility will be used to re-fi nance

existing loans and for corporate funding requirements.


7



Net Assets and Gearing

Net assets at the end of 2008 were USD72,208,000 (2007: USD75,846,000). The decrease was primarily owing to the loss during

the year. As a result, net assets per share at the end of 2008 were USD0.26 (2007: USD0.27).

Gearing increased to 140.1% (2007: 101.5%), primarily as a result of additional loans to fi nance the working capital of the Group

and the investment in the Xian Haotian Group.

CONCLUSION

We believe our pharmaceutical and related businesses will generate long-term organic growth and improved shareholder returns

in the future.

We will continue to monitor further potential business opportunities in the healthcare product market as a natural extension

to the pharmaceutical business. The intention is to build and strengthen our product pipeline and enable our healthcare and

pharmaceutical business to sustain long-term growth.

After many years of service as independent non-executive directors, John Cosson and I are retiring with effect from the end of this

year’s Annual General Meeting.

The Company’s direction and orientation to China are now clearly established and this would suggest that the appointment of

additional Asian-based directors would be advantageous. I am sure that you will agree that Mr Sum Soon Lim and Mr Toong

Kenneth Ken Kwok, Asian-based businessmen and bankers by background, are highly experienced replacements who are well

qualifi ed to serve the Company and its shareholders’ interests going forward. Brief biographical details of Mr Sum and Mr Toong

are set out on item 7 of the Directors’ Report on page 26. The resolutions to appoint Mr Sum and Mr Toong are set out at the

end of this document. A full announcement concerning their appointment in accordance with the Listing Rules will be made in

due course.

On behalf of the Board, I would also like to thank our staff for their continued dedication and commitment.

James Buchanan

Chairman

8

Operation Review

8



PHARMACEUTICAL BUSINESS

The Lansen Group

The Lansen Group has performed well in 2008 and is expected to generate high growth for the Group in the coming years due

to the combination of factors described below:

• the Lansen Group is engaged in the production, marketing and distribution of prescription drugs, primarily in the treatment

of rheumatic disease. Medical treatment in rheumatology in China has only started to develop in recent years and the

number of rheumatic disease specialists and patients has increased significantly in the last few years. The Lansen Group is

of the view that rheumatology will offer higher growth potential than the pharmaceutical industry average in China;

• the Lansen Group has expanded and strengthened its distribution network, which now comprises 19 marketing districts

operated by a team of 210 sales professionals. The network covers approximately 1000 hospitals in 28 provinces and cities

and is a highly efficient and effective distribution channel;

• the Lansen Group has benefited from its distribution network in the development and launch of new drugs by significantly

reducing time, resource and costs. In 2008, the Lansen Group was able to launch a new prescription drug for rheumatic

disease, reaching close to 300 hospitals within months of its release;

• Lansen’s own products and products under its agency distribution are achieving a significant market share amongst

prescription drugs for rheumatic disease and the Lansen Group has established a good reputation amongst rheumatology

specialists in both provincial and national hospitals in China;

• China has been and is expected to continue to be one of the fastest growing major economies. In the current global

financial crisis, the Chinese government is forecasting annual GDP growth of 8% for 2009. With its stimulus package,

China is attempting to transform its economy by reducing reliance on export and putting more emphasis on domestic

consumption including health care;

• the pharmaceutical industry has performed better than the all industries average in China, even when the global financial

crisis started to impact the Chinese economy; and

• demand for drugs applied in specialised diseases has experienced faster growth than demand for common drugs.

As a result of these factors, the Lansen Group has already formed an entry barrier which could not be easily overcome by

competitors.

The Lansen Group intends to build on its strengths, particularly its image and position in rheumatology and aims to achieve

consistent high profit growth. The Lansen Group is investing in research and development on new drugs and drug application,

and it is expected that a pipeline of new drugs will be developed in the next few years.

9

Operation Review

9



During the year, the Lansen Group installed the Enterprise Resource Planning system (“ERP”). This provides timely information in

relation to financial, cashflow and risk management issues and has improved the speed and quality of management decisions.

The Xian Haotian Group

During the year, the Xian Haotian Group has been primarily focusing on the feasibility study of inositol project. The study focused

on (i) refining the extraction technology and processes, (ii) increasing production efficiency; (iii) reducing production costs; and

(iv) implementing the strategic plan for the raw material supply for inositol (i.e. to secure a stable supply and minimize the effect

of raw material cost changes resulting from market fluctuation). These are the prime factors critical to the success of the inositol

project. A number of small-scale trial productions of inositol were also conducted. During the project development phase, all

expenses related to the inositol project were capitalised and any profit generated from the sale of inositol under trial production

was recorded as a reduction of expenses so capitalised.

On 12 September 2008, the Company announced that the feasibility study relating to the inositol project had been delayed.

Accordingly, the Company and the senior management of the Xian Haotian Group agreed to extend the expiry date for the put

and call option arrangements relating to the Company’s investment in the Xian Haotian Group for a period of 10 months. As of

the year end date, the Xian Haotian Group has not yet achieved its target levels in production efficiency, production cost control

and raw material supply strategy as required under the feasibility study of the inositol project.

HOTEL OPERATIONS

Year 2008 was the first full year when our 304-room 5-star hotel in the Lowu District of Shenzhen was rebranded as Crowne

Plaza Hotel & Suites Landmark Shenzhen (the “hotel”) and started to benefit from the experienced management, the global guest

booking network and the Priority Club Programmes of the Crowne Plaza Hotel & Suites brand provided by IHG.

The hotel is now one of the leading luxury class hotels in Shenzhen and in Southern China, converted from a configuration of

over 550 rooms to a configuration of 304 enlarged superior rooms and suites. The average room size is now 68 sq.m. It also

has enhanced banquet and meeting facilities, an executive lounge, an Italian restaurant, a coffee shop, a Chinese restaurant, a

wine and cigar lounge, a Spa & Fitness Centre managed by Lifestyles Health & Fitness Sdn.Bhd., and a unique butler service to all

hotel guests. The hotel is also well recommended by Tripadvisor. Tripadvisor is a US website which provides recommendations for

hotels, resorts, inns, vacations, travel packages, vacation packages, travel guides and etc. featuring advice from travellers covering

over 300,000 hotels and attractions.

We are pleased to report that IHG improved the performance of the hotel – with average occupancy increasing to 43.8% (2007:

37.7%) and average room rate increasing to USD125 (2007: USD118) for 2008.

However, such improvement was lower than our target in 2008. This was due to a number of factors:

• our hotel management contract with IHG was signed in October 2007, and this was after the signing period for the majority

of corporate account business in 2008, which is normally completed in the fourth quarter of each year;

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Operation Review

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• the hotel industry in China was adversely affected by the Sichuan earthquake in May 2008 which reduced travel and

entertainment throughout China;

• the travel industry expected the number of foreign visitors to increase in the run up to and during the Olympic Games.

However, the Chinese government, in the interest of security for the Games, imposed stringent restrictions on the issuance

of foreign visas in the second quarter of 2008. This resulted in the cancellation of numerous business conferences and

seminars across China and sharply reduced the expected number of business travellers; and

• although the second half of the year is normally more robust, the worldwide financial crisis began to have a negative impact

on foreign travel into China and Shenzhen in the last quarter.

During the fourth quarter of 2008, IHG signed corporate account agreements covering 2009 with a number of key international

and Chinese clients for the hotel. We believe these agreements will help reduce the negative impact of the worldwide financial

crisis on the hotel and we expect the hotel to contribute positively to the Group in 2009.

The occupancy level in the first two months of 2009 improved to 51.9%, compared to 40.2% in the first two months of 2008.

Our hotel’s performance is encouraging particularly given that the first two months of any year are off-peak and the fact that the

market in 2009 is being adversely impacted by the global financial crisis. We believe the Company has made the right decision

in engaging IHG and the hotel is expected to continue increasing its contribution to the Group.

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors consider that the principal risks and uncertainties facing the business are:

• Reliance on the Chinese market

The Company’s businesses are primarily conducted in China. If there is a significant adverse change in the political,

economic or social conditions of the Chinese economy, foreign trade or monetary policies, or legal or regulatory

requirements or taxation in China, the Group’s profitability and prospects may be adversely and materially affected.

• Implementation of business plans and growth strategies

The Group’s success in the future will, besides maintaining its competitiveness in the market, depend on its ability to

implement its business plans. The successful implementation of such plans may be influenced by factors which may or

may not be within the Group’s control.

• Pharmaceutical product liability

Under the current PRC laws, manufacturers and vendors of defective products in China may incur liability for loss and

injury caused by such products. Pursuant to the General Principles of the Civil Law of the PRC (the “PRC Civil Law”), which

took effect in 1987, a defective product which causes property damage or physical injury to any person may expose the

manufacturer or vendor of such product to civil liability for such damage or injury.

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Operation Review

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In 1993, the PRC Civil Law was supplemented by the Product Quality Law of the People’s Republic of China (the “Product

Quality Law”), which was enacted to protect the legitimate rights and interests of the end-users and consumers and to

strengthen the supervision and control of the quality of products. Pursuant to the Product Quality Law, manufacturers who

produce defective products may be subject to criminal liability and have their business licenses revoked.

In 1993, the Law of the PRC on Protection of Consumers’ Rights and Interests (the “Consumers Protection Law”) was

promulgated which accords further protection to the legal rights and interests of consumers in connection with the

purchase or use of goods and services. At present, all business entities must observe and comply with the Consumers

Protection Law in providing goods and/or consumer services. Should any product liability claims made against the Group

be successful, there would be an adverse impact on their operations, their financial condition and their reputation. The

Group has not maintained any product liability insurance to cover any claim in this respect.

There is no assurance that the Group will not receive claims against their products, whether accidental or not. Any such

claim, regardless of its merits, could result in costly litigation fees and put a strain on their administrative resources. In

addition, such claims could damage their relationship with their customers and result in negative publicity.

• Renewal of permits and business licenses

As a pre-requisite for carrying on pharmaceutical, manufacturing and distribution business in China, all pharmaceutical

enterprises are required to obtain certain certificates, permits and business licenses from various regulatory authorities,

including a Pharmaceutical Manufacturing Enterprise Permit and/or a Pharmaceutical Distribution Enterprise Permit.

The Group has obtained all relevant requisite certificates, permits and business licenses from the relevant regulatory

authorities for the manufacture and/or distribution of its products.

However, these certificates, permits and business licenses are subject to periodic renewal, reassessment by the relevant

Chinese regulatory authorities and the standards of compliance required in relation thereto may from time to time be

subject to changes.

If such permits are not renewed, it will have a material adverse effect on the relevant operation of the Group. There may be

a possibility that the Group will not be able to carry on the business concerned without such permits and business licenses

being renewed. In addition, it may be costly for the Group to comply with any subsequent modification of, additions or new

restrictions to, these compliance standards. Should there be any subsequent modification of, addition or new restrictions

to the above compliance standards, it would impose an additional burden on the Group which will directly affect its

profitability.

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Operation Review

12



• Price control

The prices of certain pharmaceutical products in China are subject to control by the relevant state and provincial price

administration authorities. In practice, price control on most pharmaceutical products is to set a ceiling on the price of each

subject product. The actual price for any given price-controlled product set by manufacturers, wholesalers and retailers

cannot exceed the price ceiling imposed in accordance with the applicable government price control rules. Only those

pharmaceutical products which are included in the price control lists administered at the state or provincial level are subject

to price control.

In the event that the costs of sale of products of the Group, which are under the price control lists, increase and/or

applications for price increase are not approved by the Chinese regulatory authorities, the profitability of such products may

be adversely affected. There is no assurance that products which are currently not under the price control lists will not be

included in the price control lists in the future.

• Currency conversion in China and exchange rate risk

The Chinese government regulates the conversion between Renminbi and foreign currencies. Over the years, the

government has significantly reduced its control over routine foreign exchange transactions under current accounts,

including trade and service-related foreign exchange transactions and payment of dividends. However, foreign exchange

transactions under capital accounts continue to be subject to significant foreign exchange controls and require the approval

of, or registration with, the State Administration of Foreign Exchange or its branches (the “SAFE”).

Changes in the relevant regulations or shortages in foreign currency may restrict the ability of the Group’s subsidiaries in

China to remit sufficient foreign currency to pay dividends or other payments to the Group, or otherwise satisfy its foreign

currency-denominated obligations.

The value of Renminbi is subject to changes of the Chinese government’s policies and, to a large extent, depends on the

Chinese domestic and international economic and political developments, as well as supply and demand in the Chinese

market. Any fluctuation in the exchange rate of the Renminbi may affect the results of the Group’s operations or financial

performance.

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.

• Economic and legal considerations

The Chinese economy has been transitioning from a centrally planned economy to a more market-oriented economy.

For more than two decades, the Chinese government has implemented economic reform measures emphasising on the

utilisation of market forces in the development of the Chinese economy. The Group cannot predict whether these changes

in Chinese economic, political and social conditions, laws, regulations and policies will have any adverse effect on its

current or future business, financial condition or results of operations.

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Operation Review

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Future development

We believe our pharmaceutical and healthcare businesses will generate long-term organic growth and improved shareholder

returns in the future.

The Lansen Group believes that rheumatology is still at its early stage of development in China and should offer higher growth

potential than the pharmaceutical industry in general. The Lansen Group intends to build on its strength, particularly its image

and position in rheumatology and aims to achieve consistent high profit growth. The Lansen Group’s research and development

on new drugs and drug application are in progress and it is expected that a pipeline of new drugs would be developed for the

next few years.

We will continue to monitor further potential business opportunities in the healthcare product market as a natural extension

to the pharmaceutical business. The intention is to build and strengthen our product pipeline and enable our healthcare and

pharmaceutical business to sustain long-term growth.

We believe the hotel will continue to benefit from the management and global guest booking systems of the Crowne Plaza Hotel

& Suites brand provided by IHG and we expect it to continue contributing positively to Group profits.

Research and development

The Lansen Group has budgeted for investment in research and development of approximately USD2 million in 2009 on new

drugs and drug applications primarily for treatment of rheumatic disease. It is anticipated that the Lansen Group will continue

with a similar level of investment in research and development in the next few years.

Tianjin Longbai Biological Engineering and Technology Company Limited (“Longbai”) continues working with the Lansen Group

on the application for production licenses for drugs using its oral fast release method and will continue on the research and

development of other drug delivery methods.

Financial risks

The Group is exposed to a variety of financial risks which result from its operating and investing activities. The Group’s risk

management is coordinated at its headquarters in close cooperation with the Board of Directors and focuses on actively securing

the Group’s short to medium term cash flows. Details of the Group’s risk management on financial risks applicable to the Group

are described in note 33 to the accounts.

Corporate Governance

14



COMPLIANCE

Following a review of our procedures the Board concluded that, throughout the accounting period, the Group complied with the

Code provisions as set out in Section 1 of the revised Combined Code with exceptions relating to the composition of the Board

and its committees as set out below. Exceptions from compliance with the Code were that during the year, the Remuneration

Committee and the Audit Committee did not consist exclusively of independent non-executive Directors (provisions B.2.1 and

C.3.1 of the Code), and there is no separate nominations committee (provision A.4.1).

APPLICATION OF PRINCIPLES

Directors

Throughout the period under review the Board consisted of a non-executive Chairman, three executive directors and one other

non-executive director. The non-executive members of the Board are independent of management and any business or other

relationship which could interfere with the exercise of their independent judgement. J.R.H. Buchanan is both the non-executive

Chairman and the senior independent director. Three Board meetings were convened during the year which included reviews

of the fi nancial and business performance of the Group. Management supply the Board with appropriate and timely information

and the Directors are free to seek any further information they consider necessary. All Directors have access to advice from

the company secretary and independent professionals at the Group’s expense. The Board members and their experience are

described on page 23.

Relations with Shareholders

The Group values the views of its shareholders and recognises their interest in the Group’s strategy and performance, Board

membership and quality of management.

The Shareholder Information Sessions and the AGMs are used to communicate with shareholders and they are encouraged to

participate. Members of the Audit and Remuneration Committees are available to answer questions at those meetings. Separate

resolutions are proposed on each issue so that they can be given proper consideration and there is a resolution to approve the

annual report and fi nancial statements. The Group counts all proxy votes and will indicate the level of proxies lodged on each

resolution after it has been dealt with by a show of hands.

In addition, shareholders in the Company can gain access to information regarding the operations of the Crowne Plaza Hotel &

Suites Landmark Shenzhen through its website address at http://www.szlandmark.com.cn.


15



Accountability and Audit

The Audit Committee comprises both the non-executive Directors and Stephen Hunt, and is chaired by James Buchanan. The

Audit Committee is required by its terms of reference to meet not less than twice a year. Its principal function is to review the

Group’s interim and annual accounts before submission for approval by the Board and in addition it considers any matters raised

by the Group’s auditors, focusing particularly on:

(a) any changes in accounting policies and practices;

(b) major judgemental areas;

(c) the going concern assumption;

(d) consideration of and approval of related party transactions;

(e) compliance with accounting standards;

(f) compliance with Stock Exchange and legal requirements; and

(g) maintenance of relationships with external auditors and nature and extent of non-audit activity, which may affect their

independence.

The Group does not have an internal audit function at present as it is not considered economic at this stage of development.

GOING CONCERN

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in

operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the

accounts.

INTERNAL CONTROL

The Board is responsible for establishing and maintaining the Group’s system of internal control to safeguard shareholders’

investment and the Group’s assets. Internal control systems are designed to meet the particular needs of the Group and the risk

to which it is exposed, and by their nature can provide reasonable but not absolute assurance against material misstatement or

loss.


16



The Board has reviewed its risk management and identifi ed areas where procedures need to be managed or installed. An ongoing

process for identifying, evaluating and managing signifi cant risks faced by the Group was set up and is regularly reviewed by the

Board in accordance with Turnbull guidance.

The Directors confi rm that they have undertaken a full risk and control assessment and the process for identifying, evaluating and

managing signifi cant risks is in place. The Directors view this as an ongoing process.

The key procedures which the Directors have established with a view to providing effective internal control are as follows:

Management Structure

The Board has overall responsibility for the Group and there is a formal schedule of matters specifi cally reserved for the Board.

The executive Directors together with key senior executives constitute the management committee, which meets on a regular

basis to discuss operational matters of the Group.

The organisational structure, which is the framework through which business activities are controlled and monitored, has

specifi ed the key areas and limits of authority.

The Board identifi ed several business, fi nancial and operation risks that affect the Group’s business activities. Control policies

addressing these risks were in place throughout the period under review. Details of these policies are described below.

Responsibilities and accountabilities in each area are properly defi ned. A reporting system, including budgetary control and a

monthly fi nancial reporting system, gives the Board suffi cient, accurate and timely information to manage the business in pursuit

of its business objectives.

Quality and Integrity of Personnel

The Group has appointed, both by recruitment and promotion, a number of experienced and professional staff of the necessary

calibre to fulfi ll their allotted responsibilities. Through high recruitment standards and subsequent on-the-job training, the integrity

and competence of personnel is ensured.

Corporate Accounting and Procedures Manual

The Group’s policies and procedures have been established with procedures for reporting weaknesses and for monitoring

corrective action.

Moreover, responsibility levels are communicated throughout the Group in accordance with the corporate accounting and

procedures manual which sets out the general ethos of the Group, delegation of authority and authorisation levels, segregation

of duties and other control procedures. The manual is updated on a regular basis.


17



Budgetary Process

Each year the Board approves the annual budget and key risk areas are identifi ed. Performance is monitored and relevant action

is taken throughout the year through monthly reporting to the Board of the key variances from the budget.

Information Systems

In order to exercise effective control over the business and the risks the Group faces, the most up to date data and information

are always available for the Board to monitor the actual performance of the organisation against past and planned performance

and to identify changes, problems and opportunities. In addition, regular reports have been prepared and reviewed by the Board

on competitor hotel room rates and the daily occupancy levels of the Group’s hotel.

Investment Appraisal

Capital expenditure is regulated by the budgetary process and through setting authorisation limits within the Group hierarchy. For

expenditure beyond specifi c levels, detailed written proposals have to be submitted to the Board. Reviews are carried out after

the acquisition is completed, and for some projects, during the acquisition period, to monitor expenditure. Major overruns are

investigated.

Due diligence work is carried out if a business is to be acquired.

Internal Audit

The Group’s head offi ce fi nance department undertakes periodic examination of business processes and ensures divisional

management follow up on recommendations to improve controls.

Quality of Properties

In order to maintain the competitiveness of the hotel, the Group adopted a policy of regular maintenance and refurbishment for

the hotel property. Based on its condition, management prepares an annual maintenance and refurbishment programme for the

hotel. The progress of these programmes is closely monitored.

Government Policies

Changes in government policies, especially in developing economies, could have a signifi cant effect on the Group’s results.

The management maintains a close relationship with local government authorities to keep abreast of government policy

developments.

Directors’ Remuneration Report

18



The Board recognises that directors’ remuneration is of legitimate concern to the shareholders and is committed to following

current best practice.

SECTION 1: INFORMATION NOT SUBJECT TO AUDIT

THE REMUNERATION COMMITTEE

The Remuneration Committee has responsibility for making recommendations to the Board on the Company’s general policy on

remuneration of senior management, including specifi c packages for individual directors. It carries out the policy on behalf of the

Board.

The membership of the Committee is as follows:

J.R.H. Buchanan Chairman

S.B. Hunt

J.H. Cosson

J.R.H. Buchanan and J.H. Cosson are independent non-executive Directors. Although both have served in excess of the term

recommended by the revised combined code, neither of them has any personal fi nancial interest in the matters to be decided

(other than as shareholders), potential confl icts of interest arising from cross-directorships or any day-to-day involvement in

running the business.

The Committee meets and consults regularly during the year. As well as considering conditions in the Group as a whole, it takes

into account the position of the Company relative to other companies and is aware of what these companies are paying, though

comparisons are treated with caution to avoid an upward ratchet in remuneration. The Committee consults the other executive

directors, has access to professional advice within the Company and, when appropriate, obtains its own independent professional

advice from outside the Company.

Policy on Executive Directors’ Remuneration

The policy of the Board is to provide executive remuneration packages designed to attract, motivate and retain directors of the

calibre necessary to maintain the Group’s position as an investor in China and to reward them for enhancing shareholder value. It

aims to provide suffi cient levels of remuneration to do this, but to avoid paying more than is necessary. The remuneration should

also refl ect the directors’ responsibilities to deliver the Company’s objectives.


19



Main Elements of Remuneration

The Directors’ current remuneration packages consist solely of a basic annual salary. Each executive Director’s basic salary is

reviewed annually by the Remuneration Committee. In deciding upon appropriate levels of remuneration the Remuneration

Committee believes that the Company should offer average levels of base pay refl ecting individual responsibilities compared to

similar jobs in comparable companies. There are no annual bonus, share option incentives, share scheme or long-term incentives

presently available to the Directors.

Service Contracts

There are no Director’s service contracts which are not terminable on one year’s notice or less.

Directors’ Pension Arrangements

The Company has no pension arrangement for Directors.

Non-executive Directors

The remuneration of the non-executive Directors is determined by the Board in accordance with the Company’s Bye-Laws.

The non-executive Directors are not involved in any decisions about their own remuneration.


20



PERFORMANCE GRAPHS

CATHAY INTERNATIONAL HOLDINGS LTD (CTI) VS FTSE ALL SHARE (ASX)

TSR Performance Graph

2004 2005 2006 2007 2008

70

80

90

100

110

120

130

140

150

160

170

180

FTSE ALL SHARE - TOT RETURN INDCATHAY INTL.HDG. - TOT RETURN IND

Source: Thomson Datastream

The above graph shows the Company’s Total Shareholder Return (TSR) performance compared to the TSR of the FTSE ALL SHARE

Index over the past fi ve years. TSR is defi ned as the percentage change over the period in market price assuming the re-investment

of income and funding of liabilities of the theoretical holding.

The Company is a constituent company of the FTSE ALL SHARE Index and the Directors do not believe that there is a more

appropriate comparator group upon which a broad equity market index is calculated. TSR has been calculated on a one month

averaging basis in order to reduce the volatility associated with spot prices.


21



INFORMATION ON SERVICE CONTRACTS

The following are particulars of the Directors’ existing service contracts:

(i) Wu Zhen Tao was appointed under a service contract with Cathay International Holdings Limited (a U.K. wholly-owned

subsidiary of the Company) dated 12 September 1994 and his employment may be terminated with one month’s notice.

(ii) Stephen Hunt was appointed under a service contract with Cathay International Services Limited (a wholly-owned

subsidiary of the Company) dated 1 April 2000 and his employment may be terminated with immediate effect by written

notice.

(iii) Patrick Sung was appointed under a service contract with Cathay International Services Limited dated 1 April 2000 and his

employment may be terminated with immediate effect by written notice.

(iv) James Buchanan does not have a service contract with the Company.

(v) John Cosson was appointed as a non-executive Director of the Company under a service contract dated 2 January 2002.

The service contract may be terminated with immediate effect by written notice.

(vi) The service contracts with all the Directors do not provide for any termination payment.

Directors are subject to election by shareholders at the fi rst opportunity after their appointment and to re-election at intervals

of no more than three years. A Director retiring by rotation is eligible for reappointment and acts as a Director throughout the

meeting at which he retires.


22



SECTION 2: INFORMATION SUBJECT TO AUDIT

DIRECTORS’ EMOLUMENTS AND COMPENSATION

Year ended Year ended

31 December 31 December

2008 2007

USD’000 USD’000

In respect of executive services 335 345

Directors’ fees 50 70

385 415

Highest paid Director 192 174

There are no arrangements in place to provide Directors with performance related pay or pension contributions. No Director has

any options over shares in the Company. There were no emoluments waived during the year.

The emoluments of the Directors are as follows:



2008 2007

USD’000 USD’000

J.R.H.Buchanan (£25,000 per annum) 36 50

Wu Zhen Tao (£50,000 per annum) 72 100

S.B. Hunt 71 71

J.H. Cosson (£10,000 per annum) 14 20

P. Sung 192 174

385 415

Other than the basic salary, no Director is entitled to any other benefi ts, performance-related payments, or share incentive

schemes.

ON BEHALF OF THE BOARD

James Buchanan

Director

6 April 2009

Directors

23



The current Directors and secretary of the Company are as follows:

*† J.R.H. Buchanan Chairman

Wu Zhen Tao Chief Executive

† S.B. Hunt Deputy Chairman

P. Sung Finance Director

*† J.H. Cosson

* Non-executive

† Member of Audit and Remuneration Committees

Linda Carter, Secretary

James R.H. Buchanan

Mr. Buchanan, 53, has been a non-executive Director with the Group since 1987 and he became Chairman of Cathay International

Holdings Limited in 1988. He has been involved in investments in Asia since 1982.

Wu Zhen Tao

Mr. Wu, 55, is Chief Executive of the Company. He was born and educated in Beijing and is a Science graduate of Beijing Industrial

University. He also has a degree in Business Administration. Following a period as a senior executive in government scientifi c

institutes, he held posts as Managing Director of two newly established state owned fi nancial institutions. Since 1988 Mr. Wu

has, through companies, invested in and developed the Landmark Hotel (now called Crowne Plaza Hotel & Suites Landmark

Shenzhen) in Shenzhen and established the Cathay International Water Limited group of companies.

Stephen B. Hunt

Mr. Hunt, 69, is Deputy Chairman of the Company. He was formerly Managing Director of Aliant Capital, a merchant bank in Hong

Kong. Mr. Hunt, a US citizen, spent 24 years with Bank of America in management and lending positions including posts in New

York, Singapore, London, Amsterdam and Taiwan. He was Senior Vice-President and Area General Manager for Bank of America

located in Hong Kong.

Patrick Sung

Mr. Patrick Sung, 48, is Finance Director of the Company. Mr. Sung has a degree in Business Administration from Simon Fraser

University in Canada. He is a member of the Institute of Chartered Accountants of British Columbia and a member of the Hong

Kong Institute of Certifi ed Public Accountants. Prior to joining the Group as Financial Controller in January 1994, he had over eight

years of experience with international accounting fi rms, PricewaterhouseCoopers and Ernst & Young, in Canada and Hong Kong.

John H. Cosson

Mr. Cosson, 69, has been a non-executive Director with the Group since 1989. He was UK Head of Corporate Banking of Standard

Chartered Bank and prior to that was Assistant General Manager of Midland and International Banks Limited.

Directors’ Report

24



The Directors present their Report together with the Accounts for the year ended 31 December 2008. So Far as the Directors are

aware there is no relevant audit information of which the Company’s auditors are unaware and they have taken all steps that

ought to have been taken as Directors to make themselves aware of any relevant audit information and to establish that the

Company’s auditors are aware of that information.

1. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW

A review of the Group’s principal activities and its business are contained in the Operation Review on pages 8 to 13.

2. RESULTS AND DIVIDENDS

The results are set out in the Group Income Statement on page 31.

No interim dividend has been paid and the Directors do not recommend payment of a fi nal dividend on the Common

Shares or the A Shares.

3 DIRECTORS AND THEIR INTERESTS

The Directors at 31 December 2008 and their interests and those of their families in the share capital of the Company as

shown in the Register of Directors’ interests as at the dates indicated below were as follows:

Common Shares of USD0.05 each A Shares of USD0.05 each

15.3.2009 31.12.2008 1.1.2008 15.3.2009 31.12.2008 1.1.2008

J.R.H.Buchanan 1,586,059 1,586,059 1,585,009 119,999 119,999 119,999

Wu Zhen Tao 172,376,874 172,376,874 172,376,874 8,249,276 8,249,276 8,249,276

S.B. Hunt – – – – – –

J.H. Cosson 8,629 8,629 8,629 726 726 726

P. Sung – – – – – –

No rights to subscribe for shares in or debentures of the Company or any subsidiary undertakings existed at 31 December

2008 nor were any granted in the year.

Directors are subject to election by shareholders at the fi rst opportunity after their appointment. Each Director (other than

the Chairman and the Chief Executive) is also subject to retirement by rotation and each Director is subject to re-election at

intervals of no more than three years. Biographical information on the Directors is included on page 23. A Director retiring

by rotation is eligible for reappointment and acts as a Director throughout the meeting at which he retires.

Directors’ Report

25



Non-executive Directors are appointed for specifi ed terms subject to re-election and to the provisions set out in the Bye-

laws of the Company relating to the removal of a Director. Their reappointment is not automatic.

There are no Directors’ service contracts which are not terminable on one year’s notice or less.

There are no signifi cant contracts between the Company and any of the Directors entered in the year.

4. PROPERTY, PLANT AND EQUIPMENT

Changes in property, plant and equipment together with details of revaluations of certain of these assets are shown in note

14 of the Financial Statements.

5. SIGNIFICANT SHAREHOLDINGS

At 15 March 2009, save as shown in the Directors’ shareholdings on page 24, there were the following interests in 3% or

more of the Company’s issued share capital.

Common Shares of % of issued A Shares of % of issued

USD0.05 Common Share USD0.05 A Share

each Capital each Capital

Simon Philips 22,250,465 8.43 257,075 2.18

New Capital Investment (Hong Kong) Limited 9,121,679 3.45 864,513 7.35

6. TERMS OF AGREEMENT WITH SUPPLIERS

The Group agrees payment terms and conditions with individual suppliers which vary according to the commercial

relationship and the terms of agreements reached. It is the policy of the Group that whenever possible payments to

suppliers are made in accordance with the terms agreed.

At 31 December 2008, the Group had an average of 83 days purchases outstanding in trade creditors (2007: 76 days).

Directors’ Report

26



7. ANNUAL GENERAL MEETING

This year’s Annual General Meeting will be held in London at 11:00 a.m. on 30 April 2009 at Private Suite 1, The May Fair

Hotel, Stratton Street, London W1J 8LT. Notice of the Annual General Meeting is set out at the end of this document.

The Directors continue to believe that it is advantageous for the Company to be able to buy its own Common Shares in

the market and accordingly resolution 7, which will be proposed at the Annual General Meeting, seeks a general authority

to do so. The Directors have no present intention of utilising this authority and will only make any such purchase if they

believe that doing so would be in the best interests of shareholders generally.

As set out in the Chairman’s statement, Mr James Buchanan and Mr John Cosson will be resigning with effect from the

end of the Annual General Meeting. Resolutions are therefore proposed in the Notice of the Annual General Meeting

for appointment of Mr Sum Soon Lim and Mr Toong Kenneth Ken Kwok to the Board of Directors. On passing of the

resolutions, Mr Sum would replace Mr Buchanan as non-executive chairman and chairman of the Audit and Remuneration

Committees and Mr Toong would replace Mr Cosson as an independent non-executive director and member of the Audit

and Remuneration Committees.

Mr Sum, age 66, brings to the Board his expertise in the fi nancial industry, having worked with the Singapore Economic

Development Board, DBS Bank, J.P. Morgan Inc., Overseas Union Bank and Nuri Holdings (S) Pte Ltd, a private equity

investment company, and had served as a corporate adviser to Temasek Holdings and Singapore Technologies. Currently

the Chairman and Director of Times Development, Mr Sum also sits on the boards of Singapore Press Holdings Limited,

Singapore Health Services Pte Ltd., and Singapore Technologies Telemedia Pte Ltd. He was a member of the Singapore

Securities Industry Council from 1998 to 2005. Mr Sum is also a director of Yantai Raffl es Shipyard Ltd which operations are

based in Yantai, and is the largest builder of semi-submersible drilling rigs in China. Mr Sum holds a Bachelor of Science

(Hons) in Production Engineering from the University of Nottingham in England. Mr Sum benefi cially owns 2,000,000

common shares in the Company.

Mr Toong, age 61, has over 30 years of experience in the banking industry. He recently retired from Deutsche Bank AG

where he held the position of Deputy Head of Asia and Head of North Asia, Private Wealth Management. Prior to joining

Deutsche Bank, Mr. Toong spent 22 years with J.P. Morgan with assignments in Singapore, New York, Toronto, Brussels

and Hong Kong. He worked in various businesses including corporate credit and lending, operational services, investment

banking and private banking. Mr Toong holds a BA degree in Microbiology and an MBA degree in Marketing and Finance

from Southern Illinois University. Mr Toong and his family benefi cially own 2,000,000 common shares in the Company.

By order of the Board

Linda Carter

Secretary

6 April 2009

Statement of Directors’ Responsibilities

27



The Directors are responsible for preparing the Annual Report and the fi nancial statements in accordance with applicable

Bermudan company law, the listing requirements of the London Stock Exchange and International Financial Reporting Standards

(International Generally Accepted Accounting Practice).

Bermudan company law requires the Directors to prepare fi nancial statements for each fi nancial year which give a true and fair

view of the state of affairs of the Company and the Group and of the profi t or loss of the Group for that period. In preparing these

fi nancial statements, the Directors are required to:

– select suitable accounting policies and then apply them consistently;

– make judgements and estimates that are reasonable and prudent;

– state whether applicable accounting standards have been followed, subject to any material departures disclosed and

explained in the fi nancial statements; and

– prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the Group will

continue in business.

In so far as the Directors are aware:

– there is no relevant audit information of which the Company’s auditors are unaware; and

– the Directors have taken all steps that they ought to have taken as Directors to make themselves aware of any relevant

audit information and to establish that the auditors are aware of that information.

The Directors are responsible for maintaining proper accounting records which disclose with reasonable accuracy at any time the

fi nancial position of the Group and enable them to ensure that the fi nancial statements comply with the Bermudan Companies

Act 1981. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and fi nancial information included on the

Company’s website. Legislation in Bermuda and the United Kingdom governing the preparation and dissemination of fi nancial

statements may differ from legislation in other jurisdictions.

Statement of Directors’ Responsibilities

28



Each of the directors confi rms that, to the best of his knowledge:

• the fi nancial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view

of the assets, liabilities, fi nancial position and profi t of the Company and Group; and

• the Chairman’s Statement on pages 3 to 7 and the Operation Review on pages 8 to 13 include a fair review of the

development and performance of this business and the position of the Company and Group, together with a description

of the principal risks and uncertainties that they face.

Report of the Independent Auditors to the Members of Cathay International Holdings Limited

29



REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying group fi nancial statements of Cathay International Holdings Limited as set out on pages 31 to

73, which comprise of the group and company balance sheets as at 31 December 2008, and the group income statement, group

statement of changes in equity and group cash fl ow statement for the year then ended, and a summary of signifi cant accounting

policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Directors of the Company are responsible for the preparation and the true and fair presentation of these fi nancial statements

in accordance with International Financial Reporting Standards and the Bermudan Companies Act 1981. This responsibility

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

of fi nancial 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 fi nancial statements based on our audit and to report our opinion solely to

you, as a body, in accordance with section 90(2) of the Bermudan Companies Act 1981, and for no other purpose. We do not

assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with

ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free

from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements.

The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of

the fi nancial 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 fi nancial 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 management, as well as evaluating the overall presentation of the fi nancial statements.

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

Report of the Independent Auditors to the Members of Cathay International Holdings Limited

30



OPINION

In our opinion, the group fi nancial statements give a true and fair view of the state of affairs of the group and the company as

of 31 December 2008, and of the group’s loss and group’s cash fl ows for the year then ended in accordance with International

Financial Reporting Standards and have been properly prepared in accordance with the provisions of the Bermudan Companies

Act 1981.

REPORT ON OTHER REGULATORY REQUIREMENTS

The listing rules of the Financial Services Authority in the United Kingdom (the “Listing Rules”) require certain disclosures

of directors’ remuneration to be included within the scope of this report. For those disclosures, we will report only if those

disclosures do not comply with the Listing Rules.

Grant Thornton

Certifi ed Public Accountants

13th Floor, Gloucester Tower, The Landmark

15 Queen’s Road Central

Hong Kong

6 April 2009

Group Income Statement

31





2008 2007

Note USD’000 USD’000

REVENUE 6 65,053 34,179

COST OF SALES (36,436) (18,115)

GROSS PROFIT 28,617 16,064

OTHER INCOME 7 2,287 1,962

SELLING AND DISTRIBUTION EXPENSES (15,353) (10,323)

ADMINISTRATIVE EXPENSES (10,695) (10,484)

PROFIT/(LOSS) FROM OPERATIONS 8 4,856 (2,781)

SHARE OF LOSS OF AN ASSOCIATE – (21)

FINANCE COSTS 9 (6,919) (5,093)

LOSS BEFORE INCOME TAX 6 (2,063) (7,895)

INCOME TAX EXPENSE 11 (911) (370)

LOSS FOR THE YEAR (2,974) (8,265)

ATTRIBUTABLE TO:

EQUITY SHAREHOLDERS OF THE PARENT (3,369) (8,026)

MINORITY INTERESTS 395 (239)

(2,974) (8,265)

LOSS PER SHARE ATTRIBUTABLE TO EQUITY SHAREHOLDERS

OF THE PARENT 13

BASIC (1.22 cents) (2.91 cents)

DILUTED N/A N/A

All operations arise from continuing activities.

The accompanying notes form an integral part of these fi nancial statements.

Group Balance Sheet

32



As at As at 31 December 31 December 2008 2007 Note USD’000 USD’000

ASSETS

NON-CURRENT ASSETSProperty, plant and equipment, comprise: 14 156,137 147,843 Hotel properties, at valuation (of which, equity investment cost was USD101,534,000 (2007: USD101,699,000)) 125,850 124,982 Other property, plant and equipment 30,287 22,861Land use rights 15 3,090 2,953Investment property 16 1,560 1,464Intangible assets 17 2,550 1,299Goodwill 18 10,012 8,702Interest in an associate 19 – 804Loans to minority shareholders 380 645 173,729 163,710CURRENT ASSETSInventories 20 8,997 8,559Trade and other receivables 21 35,600 24,421Investments 22 385 –Land use rights 15 68 63Pledged bank deposits 23 878 5,466Cash and cash equivalents 23 15,763 11,247 61,691 49,756TOTAL ASSETS 235,420 213,466

EQUITY AND LIABILITIES

CAPITAL AND RESERVESCalled up share capital 24 13,793 13,793Share premium 10,216 10,216Capital and special reserve 97,502 42,923Revaluation reserve 11,056 63,429Exchange equalisation reserve (25,047) (21,692)Statutory reserve 1,883 1,849Profi t and loss account (47,825) (44,456)EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 61,578 66,062MINORITY INTERESTS 10,630 9,784TOTAL EQUITY 72,208 75,846NON-CURRENT LIABILITIESBorrowings 25 69,030 41,410Deferred tax liabilities 26 20,399 16,992 89,429 58,402CURRENT LIABILITIESBorrowings 25 31,667 36,823Current tax liabilities 528 671Trade and other payables 27 41,588 41,724 73,783 79,218TOTAL LIABILITIES 163,212 137,620TOTAL EQUITY AND LIABILITIES 235,420 213,466

Approved by the Board on 6 April 2009

WU ZHEN TAO DirectorsSTEPHEN HUNT


Company Balance Sheet

33



As at As at


2008 2007

Note USD’000 USD’000

ASSETS

NON-CURRENT ASSETS

Investments in subsidiaries 28 17,595 17,595

17,595 17,595

CURRENT ASSETS

Trade and other receivables 21 11,304 10,667

Cash and cash equivalents 129 156

11,433 10,823

TOTAL ASSETS 29,028 28,418

EQUITY AND LIABILITIES

CAPITAL AND RESERVES

Called up share capital 24 13,793 13,793

Share premium 29 10,216 10,216

Capital and special reserve 29 (18,716) (18,716)

Profi t and loss account 29 1,621 3,576

SHAREHOLDERS’ FUNDS 6,914 8,869

CURRENT LIABILITIES

Trade and other payables 27 22,019 19,427

Borrowings – bank overdrafts 95 122

TOTAL LIABILITIES 22,114 19,549

TOTAL EQUITY AND LIABILITIES 29,028 28,418

Approved by the Board on 6 April 2009

WU ZHEN TAO

Directors

STEPHEN HUNT


Group Statement of Changes in Equity

34



Minority Total Attributable to equity holders of the parent Interests Equity Capital and Exchange Profi t Share Share Special Revaluation Equalisation Statutory and Loss Capital Premium Reserve Reserve Reserve Reserve Account Total USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Balance at 1 January 2007 13,793 10,216 42,923 64,176 (14,529) 1,143 (35,830) 81,892 7,789 89,681

Exchange differences arising on translation of foreign currency operations – – – 5,676 (7,163) 106 – (1,381) (16) (1,397)Defi cit on revaluation of hotel properties – – – (6,423) – – – (6,423) – (6,423)

Total income and expense for the year recognised directly in equity – – – (747) (7,163) 106 – (7,804) (16) (7,820)Loss for the year – – – – – – (8,026) (8,026) (239) (8,265)

Total recognised income and expense for the year – – – (747) (7,163) 106 (8,026) (15,830) (255) (16,085)

Acquisition of subsidiaries – – – – – – – – 2,882 2,882Deemed disposal of interest in subsidiaries – – – – – – – – 260 260Dividend payable to minority shareholders – – – – – – – – (104) (104)Buy back shares from minority interests – – – – – – – – (788) (788)Transfer to statutory reserve – – – – – 600 (600) – – –

Balance at 31 December 2007 13,793 10,216 42,923 63,429 (21,692) 1,849 (44,456) 66,062 9,784 75,846

Exchange differences arising on translation of foreign currency operations – – – 5,025 (3,355) 34 – 1,704 (84) 1,620Defi cit on revaluation of hotel properties – – – (3,471) – – – (3,471) – (3,471)

Total income and expense for the year recognised directly in equity – – – 1,554 (3,355) 34 – (1,767) (84) (1,851)(Loss)/profi t for the year – – – – – – (3,369) (3,369) 395 (2,974)

Total recognised income and expense for the year – – – 1,554 (3,355) 34 (3,369) (5,136) 311 (4,825)

Adjustment on goodwill – – – – – – – – (219) (219)Acquisition of subsidiaries – – – – – – – – 965 965Capital injection from minority interests – – 652 – – – – 652 206 858Dividend payable to minority shareholders – – – – – – – – (270) (270)Redeem shares from minority interests – – – – – – – – (147) (147)Transfer of reserve – – 53,927 (53,927) – – – – – –

Balance at 31 December 2008 13,793 10,216 97,502 11,056 (25,047) 1,883 (47,825) 61,578 10,630 72,208


Group Cash Flow Statement

35



Year ended Year ended 31 December 31 December 2008 2007 USD’000 USD’000

Cash fl ows from operating activitiesLoss before income tax (2,063) (7,895)Adjustments for: Finance costs recognised in the income statement 6,919 5,093 Interest income (746) (166) (Reversal of)/provision for trade receivables impairment (665) 2,256 Provision for other receivables impairment 6 407 Depreciation 1,937 1,052 Amortisation of land use rights 63 29 Write off intangible assets 16 42 Share of loss of an associate – 21 Loss on disposal of property plant and equipment 129 39 Loss on deemed disposal of subsidiaries – 260

Operating cash fl ows before movements in working capital 5,596 1,138Decrease/(increase) in inventories 521 (703)Increase in trade and other receivables (8,794) (8,934)(Decrease)/increase in trade and other payables (1,446) 5,287

Cash used in operations (4,123) (3,212)Interest paid (6,919) (5,093)Income tax paid (808) (155)

Net cash used in operating activities (11,850) (8,460)

Cash fl ows from investing activitiesPurchase of property, plant and equipment (7,417) (5,816)Purchase of land use rights – (716)Purchase of intangible assets (421) (495)Investment in an associate – (616)Acquisition of subsidiaries (1,355) (1,916)Payments for investments (385) –Interest received 746 166Decrease/(increase) in pledged bank deposits 4,876 (5,466)

Net cash used in investing activities (3,956) (14,859)

Cash fl ows from fi nancing activitiesCapital element of fi nance lease payment (12) (12)Proceeds from borrowings 40,545 33,384Repayment of borrowings (21,290) –Proceeds from loans to minority shareholders 286 –Loans to minority shareholders (23) (395)Dividends paid to minority interests (288) –Capital injection from minority interests 96 –Redeem shares from minority interests (147) –

Net cash generated from fi nancing activities 19,167 32,977

Net increase in cash and cash equivalents 3,361 9,658Cash and cash equivalents at beginning of year 11,125 1,723Effects of exchange rate changes 1,182 (256)

Cash and cash equivalents at end of year 15,668 11,125

Analysis of cash and cash equivalentsCash and bank balances 15,763 11,247Bank overdrafts (95) (122)

15,668 11,125


Notes to the Accounts

36



1. GENERAL INFORMATION

Cathay International Holdings Limited (the “Company”) is a limited company incorporated in Bermuda. The address of its

registered offi ce and principal place of business are disclosed in the section headed ‘Directors and Advisers’ of the annual

report. The Company and its subsidiaries (the “Group”) are principally engaged in pharmaceutical business and hotel

operations. Details of principal activities of the Company’s subsidiaries are described in note 28.

2. BASIS OF PREPARATION

These consolidated fi nancial statements of the Company have been prepared in accordance with International Financial

Reporting Standards (IFRS), including all new and revised standards effective for the period commencing 1 January 2008.

These consolidated fi nancial statements have been prepared under the historical cost convention as modifi ed by the

revaluation of hotel properties and investment property.

The preparation of fi nancial statements in accordance with IFRS requires the use of estimates and assumptions that affect

the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the fi nancial

statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates

are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those

estimates.

The fi nancial statements have been prepared on a going concern basis which assumes the realisation of assets and

satisfaction of liabilities in the ordinary course of business notwithstanding that the Group and the Company had net

current liabilities of approximately USD12,092,000 (2007: USD29,462,000) and USD10,681,000 (2007: USD8,726,000),

respectively, as at 31 December 2008. The Directors are of the opinion that the Group will have suffi cient cash resources

to satisfy its future working capital and other fi nancial requirements.

In addition, the intermediate holding company of the Company has undertaken to extend the repayment date of the

amount of USD21,855,000 due to it from the Group if it is not fi nancially viable to make the repayment on or before 31

December 2009. The Directors do not foresee that the banks will not continue to make available the loan facilities for the

Group. Accordingly, the Directors are satisfi ed that the Group will be able to meet in full its fi nancial obligations as and

when they fall due for the next twelve months from 31 December 2008 without signifi cant curtailment of operations and

are satisfi ed that it is appropriate to prepare the fi nancial statements on a going concern basis.

Should the Group be unable to continue in business as a going concern, adjustments would have to be made to restate the

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

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


37



3. ADOPTION OF NEW AND REVISED STANDARDS

The Group has adopted the following new and amended IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the fi nancial performance or position of the Group.

IAS 39 & IFRS 7 (Amendments) Reclassifi cation of Financial Assets IFRIC 11 IFRS 2-Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements IFRIC 14 IAS 19-The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their Interaction

At the date of authorisation of these fi nancial statements, the following Standards and Interpretations were in issue but not yet effective:

IAS 1 (Revised) Presentation of fi nancial statements IAS 23 (Revised) Borrowing Costs IAS 27 (Revised) Consolidated and Separate Financial Statements IAS 32 & IAS 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation IAS 39 (Amendment) Eligible Hedged Items IFRS 1 and IAS 27 (Amendments) Cost of an Investment in a Subsidiay, Jointly Controlled Entity or Associate IFRS 2 (Amendment) Vesting Conditions and Cancellations IFRS 3 (Revised) Business Combinations IFRS 7 (Amendment) Improving Disclosures about Financial Instruments IFRS 8 Operating Segments IFRIC 13 Customer Loyalty Programmes IFRIC 15 Agreements for the Construction of Real Estate IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 18 Transfers of Assets from Customers IFRIC 9 and IAS 39 (Amendments) Embedded Derivatives Various – Annual Improvements to IFRS 2008

The Group is in the process of making an assessment of the impact of these new and revised Standards and Interpretations

upon initial application. So far, it has concluded that while the adoption of IFRS 8 and IAS 1 (Revised) may result in new

or amended disclosures and the adoption of IFRS 3 (Revised) and IAS27 (Revised) may result in changes in accounting

policies, these new and revised Standards are unlikely to have a signifi cant impact on the Group’s results of operations and

fi nancial position.


38



4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The consolidated fi nancial statements incorporate the fi nancial statements of the Company and enterprises controlled by

the Company. Control is achieved where the Company has the power to govern the fi nancial and operating policies of an

enterprise so as to obtain benefi ts 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, being the date on which the Group obtains control, and continue to be consolidated until

the date that such control ceases.

Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring the accounting policies used

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

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

Minority interests in the net assets (excluding goodwill) of consolidated subsidiaries are identifi ed separately from the

Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business

combination (see below) 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.

Loans to holders of minority interests and other contractual obligations towards these holders are presented as fi nancial

assets in the consolidated balance sheet.

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group.

Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases

from minority interests result in goodwill, being the difference between any consideration paid and the relevant share of

the carrying value of net assets of the subsidiary being acquired.

BUSINESS COMBINATIONS

Acquisitions of subsidiaries and business are accounted for using the purchase method. The cost of the business

combination 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 identifi able assets, liabilities and contingent liabilities that meet

the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition

date.

Goodwill arising on acquisition is recognised 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 identifi able assets, liabilities and contingent

liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifi able assets,

liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in

profi t or loss.


39



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 recognised.

INVESTMENTS IN SUBSIDIARIES

In the Company’s balance sheet, investments in subsidiary undertakings are carried at cost, less impairment loss.

INVESTMENTS IN ASSOCIATE

An associate is an entity over which the Group has signifi cant infl uence and that is neither a subsidiary nor an interest in a

joint venture. Signifi cant infl uence is the power to participate in the fi nancial and operating policy decisions of the investee

but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these fi nancial statements using the equity method

of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost

as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the

value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes

any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to

the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifi able assets, liabilities and

contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is

included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any

excess of the Group’s share of the net fair value of the identifi able assets, liabilities and contingent liabilities over the cost

of acquisition, after reassessment, is recognised immediately in profi t or loss.

Where a group entity transacts with an associate of the Group, profi ts and losses are eliminated to the extent of the Group’s

interest in the relevant associate.

GOODWILL

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

value of the identifi able assets, liabilities and contingent liabilities of the acquirees recognised at the date of acquisition.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment

losses.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to

benefi t from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for

impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable

amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated fi rst to

reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the

basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a

subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profi t or loss on

disposal.


40



REVENUE RECOGNITION

Revenue consists of sale of goods, hotel and restaurant revenue net of sales tax.

Revenue from the sale of goods is recognised when all the following conditions are satisfi ed:

• the Group has transferred to the buyer the signifi cant risks and rewards of ownership of the goods;

• the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor

effective control over the goods sold;

• the amount of revenue can be measured reliably;

• it is probable that the economic benefi ts associated with the transaction will fl ow to the entity; and

• the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue from room rental, food and beverage sales and other ancillary services in the hotel are recognised when the

relevant services have been rendered.

Rental income from investment properties is recognised on a straight-line basis over the term of the relevant lease.

LEASES

Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of

ownership are classifi ed as being held under fi nance leases. Leases which do not transfer substantially all the risks and

rewards of ownership to the Group are classifi ed as operating leases.

Assets held under fi nance lease arrangements are included in property, plant and equipment and are depreciated in

accordance with the property, plant and equipment depreciation policy. Obligations under such agreements are included

in borrowings net of fi nance charges allocated to future periods. Finance charges are taken to the profi t and loss account

so that the annual rate of charge on the outstanding obligations at the end of each accounting period is approximately

constant.

Rental income from operating leases is recognised in the income statement on a straight-line basis over the term of the

relevant lease.

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

relevant lease.

RETIREMENT BENEFIT COSTS

Payments to defi ned contribution retirement benefi t plans are charged as an expense when employees have rendered

service entitling them to the contributions.


41



FOREIGN CURRENCIES

The individual financial statements of each Group entity are presented in the currency of the primary economic

environment in which the entity operates (its functional currency). For the purpose of the consolidated fi nancial statements,

the results and fi nancial position of each Group entity are expressed in United States Dollar, which is the functional currency

of the Company and the presentation currency for the consolidated fi nancial statements.

In preparing the fi nancial statements of the individual entities, transactions in currencies other than the entity’s functional

currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each

balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the

balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated

at the rates prevailing at 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.

Exchange differences are recognised in profi t or loss in the year in which they arise except for:

• exchange differences which relate to assets under construction for future productive use, which are included in the

cost of those assets where they are regarded as an adjustment to interest costs on foreign currency borrowings;

• exchange differences on monetary items receivable from or payable to a foreign operation for which settlement

is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are

recognised in the exchange equalisation reserve and recognised in profi t or loss on disposal of the net investment.

For the purpose of presenting consolidated fi nancial statements, the assets and liabilities of the Group’s foreign operations

are expressed in United States Dollar using exchange rates prevailing at the balance sheet date. Income and expense items

are translated at the average exchange rates for the period, unless exchange rates fl uctuated signifi cantly during that year,

in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classifi ed

as equity and transferred to the Group’s exchange equalisation reserve. Such exchange differences are recognised in profi t

or loss in the year in which the foreign operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of

the foreign operation and translated at the closing rate.

BORROWING COSTS

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

that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised to the cost of

those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned

on the temporary investment of specifi c borrowings pending their expenditure on qualifying assets is deducted from the

borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profi t or loss in the period in which they are incurred.


42



TAXATION

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

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

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

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

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

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the fi nancial statements

and the corresponding tax bases used in the computation of taxable profi t, and is accounted for using the balance sheet

liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax

assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profi ts

will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are

not recognised 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 tax profi t nor the accounting profi t.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and

associates, 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. Deferred tax assets arising from deductible temporary

differences associated with such investments and interests are only recognised to the extent that it is probable that there

will be suffi cient taxable profi ts against which to utilised the benefi ts of the temporary differences and they are expected

to 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 suffi cient taxable profi t will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability

is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the

balance sheet date. The measurement of deferred tax liabilities and assets refl ects the tax consequences that would follow

from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets

and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against

current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to

settle its current tax assets and liabilities on a net basis.

Current and deferred tax are recognised as an expense or income in profi t or loss, except when they relate to items credited

or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial

accounting for a business combination. In the case of a business combination, the tax effect is taken into account in

calculating goodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifi able

assets, liabilities and contingent liabilities over cost of the business combination.


43



PROPERTY, PLANT AND EQUIPMENT

Hotel properties

Hotel properties are stated at open market value based on annual professional valuations. Hotel valuations are inclusive

of all fi xtures and equipment, and thus the revaluation surplus/defi cit on hotel properties is shown after deducting the net

book value of separable and non-integrated fi xtures and equipment. Changes in the value of hotel properties are dealt

with as movements in the revaluation reserve. If the balance of this reserve is insuffi cient to cover a defi cit, on an individual

hotel basis, the excess of the defi cit is charged to the profi t and loss account.

It is the Group’s practice to maintain hotel properties and integral fi xed plant in a continual state of sound repair, such that

their value is not diminished by the passage of time. Accordingly, the Directors consider that the useful economic lives of

these assets are suffi ciently long and their residual values, based on prices prevailing at the time of valuation, are suffi ciently

high that their depreciation is insignifi cant. The cost of maintenance and repairs of the properties is charged to the group

income statement as incurred and the cost of signifi cant improvements is capitalised.

Other property, plant and equipment

Other property, plant and equipment are stated at cost less accumulated depreciation.

Depreciation is provided to write off the cost of property, plant and equipment less their residual values on a systematic

basis over their estimated useful lives. The major categories of property, plant and equipment are depreciated as follows:

Plant and equipment, fi xtures and fi ttings 3-40 years

Motor vehicles 5-12 years

Computer equipment 5 years

Properties and improvements Residual lease term

The assets’ residual values and estimated useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Assets in the course of construction for production, rental or administrative purposes, are carried at cost, less any recognised

impairment loss. Cost includes professional fees and for qualifying assets, borrowing cost capitalised in accordance with

the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when

the assets are ready for their intended use.

LAND USE RIGHTS

Land use rights represent up-front payments to acquire long term interest in the usage of land. The payments are stated at

cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated on a straight-line basis

over the lease terms.

INVESTMENT PROPERTY

Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at its fair value at the

balance sheet date. Gains or losses arising from changes in the fair value of investment property are included in profi t or

loss for the period in which they arise.


44



INTANGIBLE ASSETS (OTHER THAN GOODWILL) AND RESEARCH AND DEVELOPMENT ACTIVITIES

Intangible assets (other than goodwill)

Intangible assets acquired separately are recognised initially at cost. After initial recognition, intangible assets with fi nite

useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation for

intangible assets with fi nite useful lives is provided on straight-line basis over their estimated useful lives. Amortisation

commences when the intangible assets are available for use.

Intangible assets with indefi nite useful lives are carried at cost less any subsequent accumulated impairment losses.

Intangible assets are tested for impairment annually as described below.

Research and development costs

Costs associated with research activities are expensed in the income statement as they occur. An intangible asset arising

from development expenditure on an individual project is recognised provided they meet the following recognition

requirements:

(i) demonstration of technical feasibility of the prospective product for internal use or sale;

(ii) there is intention to complete the intangible asset and use or sell it;

(iii) the Group’s ability to use or sell the intangible asset is demonstrated;

(iv) the intangible asset will generate probable economic benefi ts through internal use or sale;

(v) suffi cient technical, fi nancial and other resources are available for completion; and

(vi) the expenditure attributable to the intangible asset can be reliably measured

Development expenditure which does not meet the above criteria is expensed when incurred.

Capitalised development costs that have a fi nite useful life are amortised from the commencement of the commercial

production of the product on a straight-line basis over the period of its expected benefi t. Capitalised development costs

with indefi nite useful lives are tested for impairment annually.

IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS EXCLUDING 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 any such indication exists, the

recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is

not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the

cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identifi ed,

corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group

of cash-generating units for which a reasonable and consistent allocation basis can be identifi ed.


45



The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the

estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market

assessments of the time value of money and the risk specifi c to the assets.

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 recognised immediately in profi t or loss, unless the relevant asset

is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

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, net of any depreciation or amortisation, had no impairment loss been recognised for the asset in prior

years. A reversal of an impairment loss is recognised immediately in profi t or loss, unless the relevant asset is carried at a

revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

INVENTORIES

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable,

direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and

condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price

less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

FINANCIAL INSTRUMENTS

Financial assets

Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a

contract whose terms require delivery of the investment within the timeframe established by the market concerned, and

are initially measured at fair value, plus transaction costs, except for those fi nancial assets classifi ed as at fair value through

profi t or loss, which are initially measured at fair value.

The Group’s fi nancial assets comprise available-for-sale fi nancial assets and loans and receivables. The classifi cation

depends on the nature and purpose of the fi nancial assets and is determined at the time of initial recognition.

Loans and receivables

Bills receivables, trade and other receivables and bank balances that have fi xed or determinable payments that are not

quoted in an active market are classifi ed as loans and receivables. Loans and receivables are initially recognised at fair value

and subsequently measured at amortised cost using the effective interest method, less any impairment. Interest income is

recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would

be immaterial.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a fi nancial asset and of allocating interest

income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts

(including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and

other premiums or discounts) through the expected life of the fi nancial asset, or, where appropriate, a shorter period.


46



Available-for-sale fi nancial assets

Investments are classified as available-for-sale financial assets. Available-for-sale financial assets are non-derivative

financial assets that are designated as available for sale or are not classified as loans and receivables. After initial

recognition, available-for-sale fi nancial assets are measured at fair value, with gains and losses recognized as a separate

component of equity until the investment is derecognized or until the investment is determined to be impaired, at which

time the cumulative gain or loss previously reported in equity is included in the income statement. Interest and dividends

earned, if any, are reported as interest income and dividend income respectively and are recognized in the income

statement as ‘Other income’. Losses arising from the impairment of such investments are recognised in the income

statement and transferred from available-for-sale investment revaluation reserve.

For available-for-sale investments in equity securities 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 identifi ed impairment losses at each balance sheet date subsequent

to initial recognition.

Impairment of fi nancial assets

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where

there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the fi nancial

asset, the estimated future cash fl ows of the fi nancial assets have been impacted. The amount of the impairment is the

difference between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the

fi nancial asset’s original effective interest rate.

For fi nancial assets, such as trade receivables, that are assessed not to be impaired individually are subsequently assessed

for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the

Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the

average credit period normally ranging from six months to one year, as well as observable changes in national or local

economic conditions that correlate with default on receivables.

The carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial assets with the

exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When

a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of

amounts previously charged to the allowance account are reversed against the allowance account. Changes in the carrying

amount of the allowance account are recognised in profi t or loss.

In a subsequent period, if the amount of the impairment loss decreases and the decrease can be related objectively to an

event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profi t

or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed

what the amortised cost would have been had the impairment not been recognised.

Derecognition of fi nancial assets

Financial assets are derecognised when the contractual rights to receive cash fl ows from the assets expire or, the fi nancial

assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the fi nancial

assets. On derecognition of a fi nancial 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 recognised directly in equity is

recognised in profi t or loss.


47



Financial liabilities and equity

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

contractual arrangements entered into and the defi nitions of a fi nancial 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. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Financial liabilities are obligations to pay cash or other fi nancial assets including borrowings, trade and other payables and

amounts due to related companies are recognised when the Group becomes party to the contractual obligations of the

instrument and are initially recorded at fair value, net of issue costs. They are subsequently measured at amortised cost,

using the effective interest method.

Derecognition of fi nancial liabilities

Financial liabilities are derecognised when the obligation specifi ed in the relevant contract is discharged, cancelled or

expires. The difference between the carrying amount of the fi nancial liability derecognised and the consideration paid and

payable is recognised in profi t or loss.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash fl ow statement, cash and

cash equivalents comprise cash on hand, deposits held on call with banks and bank overdrafts which are repayable on

demand and form an integral part of the Group’s cash management. Bank overdrafts are included within borrowings in

current liabilities on the balance sheet.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The estimates and underlying assumptions used in the preparation of these fi nancial statements are reviewed on an

ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision

affects only that period, or in the period of the revision and future periods if the revision affects both current and future

periods.

The following are the key sources of estimation uncertainty that have a signifi cant risk of causing a material adjustment to

the carrying amounts of assets and liabilities within the next fi nancial year.

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 fl ows expected

to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. As at 31 December

2008, the carrying amount of goodwill was USD10,012,000. Details of the assumptions and basis of the recoverable

amount calculation are set out in note 18.


48



HOTEL PROPERTIES

The hotel properties of the Group were stated at fair value in accordance with accounting policy. The fair value of the hotel

properties are determined by a fi rm of independently qualifi ed professional valuers and the fair value of hotel properties

as at respective year end are set out in note 14. Such valuations were based on certain assumptions, which are subject to

uncertainty and might materially differ from the actual results. The key assumptions for the value in calculations relate to the

estimation of cash infl ows/outfl ows which included budgeted room rate, occupancy rate and food and beverage revenue,

such estimation is based on the hotel’s past performance and the expectations for the market development.

In making the judgement, consideration has been given to assumptions that are mainly based on market conditions

existing at the balance sheet dates and appropriate capitalization rates. These estimates are regularly compared to actual

market data.

IMPAIRMENT OF TRADE RECEIVABLES

Impairment of trade receivables is made based on assessment of the recoverability of receivables from customers. The

identifi cation of the impairment requires management judgements and estimates where the actual outcome or expectation

in future is different from the original estimate, such differences will impact the carrying value of the receivables and

impairment losses/reversal of impairment losses in the period in which such estimate has been changed.


49



6. SEGMENTAL INFORMATION

6.1 Revenue

An analysis of the Group’s revenue for the year is as follows:



2008 2007

USD’000 USD’000

Revenue from sale of goods 55,963 26,684

Revenue from rendering of services 9,090 7,495

65,053 34,179

6.2 Business Segments

For management purposes the Group is currently organised into business segments as reported below:

Corporate Hotel Offi ce/ Pharmaceutical Operations Unallocated Total Production, Research & Marketing & Development Distribution USD’000 USD’000 USD’000 USD’000 USD’000

For the year ended 31 December 2008 Revenue – 55,963 9,090 – 65,053 Profi t/(loss) from operations (1,231) 7,680 1,002 (2,595) 4,856 Finance cost – (1,770) (2,383) (2,766) (6,919)

Profi t/(loss) before income tax (1,231) 5,910 (1,381) (5,361) (2,063)

Segment assets 3,588 84,052 145,778 2,002 235,420 Segment liabilities 157 42,904 19,991 100,160 163,212 Capital expenditures 17 7,162 1,284 136 8,599 Depreciation 297 1,416 201 23 1,937 Amortisation 6 57 – – 63 Non-cash expenses – 6 – – 6

For the year ended 31 December 2007 Revenue – 26,684 7,495 – 34,179

Profi t/(loss) from operations (1,211) 929 (670) (1,829) (2,781) Share of loss of an associate – (21) – – (21) Finance cost – (975) (1,634) (2,484) (5,093)

Loss before income tax (1,211) (67) (2,304) (4,313) (7,895)

Segment assets 3,872 68,423 139,832 1,339 213,466 Segment liabilities 150 32,823 40,571 64,076 137,620 Capital expenditures 92 5,610 1,319 6 7,027 Depreciation 340 508 189 15 1,052 Amortisation 6 23 – – 29 Non-cash expenses – 2,663 – – 2,663


50



6.3 Geographical Segments

Asia Europe America Total

USD’000 USD’000 USD’000 USD’000


Revenue 59,388 2,338 3,327 65,053

Segment assets 234,292 132 996 235,420

Capital expenditures 8,599 – – 8,599


Revenue 34,050 13 116 34,179

Segment assets 211,414 142 1,910 213,466

Capital expenditures 7,027 – – 7,027

7. OTHER INCOME



2008 2007

USD’000 USD’000

Interest income from:

Bank deposits 317 166

Loans and receivables 429 –

Exchange gain 685 1,505

Other miscellaneous income 856 291

2,287 1,962


51



8. PROFIT/(LOSS) FROM OPERATIONS

The Group’s profi t/(loss) from operations has been arrived at after charging/(crediting):



2008 2007

USD’000 USD’000

Auditors’ remuneration

– audit services 347 221

– non audit services 68 165

Depreciation of property, plant and equipment 1,937 1,052

Amortisation of land use rights 63 29

(Reversal of)/provision for trade receivables impairment (665) 2,256

Provision for other receivables impairment 6 407

Research and development expenditure 103 298

Cost of inventories recognised as expense 27,530 9,851

Rental income (541) (415)

Operating expenses from property rental 306 320

Operating expenses from property not generating rental income 756 632

Write off of intangible assets 16 42

Loss on disposal of property, plant and equipment 129 39

Loss on deemed disposal of subsidiaries – 260

Non-audit services include UK taxation compliance services and corporate fi nance advice in respect of the Company’s UK

listing which the Directors consider it is cost effective for the auditors to provide.

9. FINANCE COSTS



2008 2007

USD’000 USD’000

Interest on bank loans and overdrafts 5,734 3,199

Finance charges payable under fi nance lease 1 1

Interest payable to an intermediate parent undertaking 1,184 1,893

6,919 5,093


52



10. PARTICULARS OF EMPLOYEES

The average number of persons (including Directors) employed by the Group during the year was:



2008 2007

Number Number

Hotel operations 441 466

Pharmaceutical 1,087 843

Corporate offi ce 23 23

1,551 1,332

The aggregate cost of employing those detailed above (excluding Directors) was:



2008 2007

USD’000 USD’000

Wages and salaries 9,965 8,479

Payroll taxes 32 49

Pension contributions 64 59

10,061 8,587

11. INCOME TAX EXPENSE



2008 2007

USD’000 USD’000

Current tax

– PRC Enterprise Income Tax 789 370

Deferred tax

– PRC withholding tax (Note 26) 122 –

911 370

Tax on assessable profi ts arising in the PRC has been calculated at the applicable rates of tax prevailing in the tax jurisdiction

in which the Group operates.

Pursuant to the tax law passed by the Tenth National People’s Congress on 16 March 2007, the new PRC Enterprise Income

Tax (“EIT”) rates for domestic and foreign enterprises in China which are currently charging at an EIT rate of 33% are unifi ed

at 25% with effect from 1 January 2008; the EIT rate for domestic and foreign enterprises in China which are currently

charging at preferential rates will increase gradually to 25% in 5 years with effect from 1 January 2008. The effect of the

change in EIT has been refl ected in the calculation of deferred income tax as of 31 December 2008.


53



Certain subsidiaries of the Group are wholly-owned foreign enterprises in accordance with the Income Tax Law of the PRC

for Enterprise with Foreign Investment and Foreign Enterprises and are entitled to full exemption from EIT for two years

and a 50% reduction in the following three years thereafter starting from the fi rst profi t making year after offsetting prior

years’ tax losses.

Reconciliation between tax expense and accounting loss is as follows:



2008 2007

USD’000 USD’000

Loss before income tax (2,063) (7,895)

Loss arising in non-taxable environment (6,874) (5,796)

4,811 (2,099)

Tax on profi t/(loss) at the rates applicable to the jurisdictions concerned 940 (412)

Tax effect of:

Tax loss credited to equity (2,191) (600)

Tax effect on non-deductible expenses – 374

Tax effect on non-taxable income (97) (11)

Unrecognised tax losses 2,627 1,204

Tax exempt (490) (185)

Effect of withholding tax on the distributable profi ts

of the Group’s PRC subsidiaries 122 –

Income tax expense for the year 911 370

The Group has tax losses of approximately USD4.1 million (2007: USD5.6 million) available to carry forward against certain

taxable profi ts made in the UK in future years. These losses, which are not provided in these fi nancial statements, are not

available to the Group to relieve against profi ts earned in the PRC. All other operations take place in companies not subject

to taxation. No deferred tax asset has been taken up for these tax losses.

12. PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE PARENT COMPANY

The profi t and loss account of the parent company is not presented as part of these fi nancial statements.

During the year, the loss of the parent company was USD1,955,000 (2007: loss of USD2,559,000).

13. LOSS PER SHARE ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE PARENT

Basic loss per share is based upon the loss after tax attributable to equity holders of the parent of USD3,369,000 (2007:

loss of USD8,026,000) and the weighted average number of A Shares and Common Shares in issue during the year of

11,797,446 and 264,062,658 respectively (2007: A Shares, Common Shares: 11,813,634 and 264,046,471).

No diluted earnings per share is presented, as the Company did not have any potential ordinary shares outstanding.


54



14. PROPERTY, PLANT AND EQUIPMENT

Group

Leasehold

properties Plant and

Hotel Construction and Other

properties in progress improvements equipment Total

USD’000 USD’000 USD’000 USD’000 USD’000

COST OR VALUATION

At 1 January 2007 130,725 3,818 4,042 11,946 150,531

Exchange adjustment – 320 295 897 1,512

Additions 1,318 4,021 – 477 5,816

Acquired on acquisition of subsidiaries – 1,752 – 1,836 3,588

Disposal – – – (67) (67)

Transfer from construction in progress – (5,623) – 5,623 –

Defi cit on revaluation debited to

revaluation reserve (6,251) – – – (6,251)

At 1 January 2008 125,792 4,288 4,337 20,712 155,129

Exchange adjustment – 280 282 1,388 1,950

Additions 1,119 3,502 – 2,796 7,417

Acquired on acquisiton of subsidiary – 4 – 1,600 1,604

Disposal (1) – – (521) (522)

Transfer from construction in progress – (7,613) – 7,613 –

Defi cit on revaluation debited to

revaluation reserve (186) – – – (186)

At 31 December 2008 126,724 461 4,619 33,588 165,392

DEPRECIATION

At 1 January 2007 (745) – (792) (4,295) (5,832)

Exchange adjustment (54) – (58) (318) (430)

Charge for the year (11) – (106) (935) (1,052)

Eliminated on disposals – – – 28 28

At 1 January 2008 (810) – (956) (5,520) (7,286)

Exchange adjustment (52) – (61) (312) (425)

Charge for the year (12) – (112) (1,813) (1,937)

Eliminated on disposals – – – 393 393

At 31 December 2008 (874) – (1,129) (7,252) (9,255)

NET BOOK VALUE

At 31 December 2008 125,850 461 3,490 26,336 156,137

At 31 December 2007 124,982 4,288 3,381 15,192 147,843


55



The net book value of the hotel properties:


2008 2007

USD’000 USD’000

At valuation:

Hotel properties in the PRC with lease term expiring in 2033 125,850 124,982

The hotel situated in Shenzhen, China was valued at 31 August 2008 (2007: 31 December 2007) by Colliers International,

an independent firm of professional valuers, using a discounted cash flow method at USD126,000,000 (2007:

USD125,000,000). Key assumptions used are budgeted room rate, occupancy rate and food and beverage revenue

estimated based on hotel’s past performance and the expectations for market development and a discount rate of 10.5%.

The equity investment cost of the hotel property situated in Shenzhen, China to the Group was USD101,534,000 (2007:

USD101,699,000).

The Group has the option to continue to lease the land under normal circumstances under the current PRC legislation. The

Group intends to exercise the option during the renewal of the lease.

15. LAND USE RIGHTS

Group


2008 2007

USD’000 USD’000

COSTS

At 1 January 3,093 1,429

Exchange adjustment 212 123

Addition – 716

Acquired on acquisition of subsidiaries – 825

At 31 December 3,305 3,093

ACCUMULATED AMORTISATION

At 1 January (77) (44)

Exchange adjustment (7) (4)

Charge for the year (63) (29)

At 31 December (147) (77)

Represented by:

Non-current portion 3,090 2,953

Current portion 68 63

Total 3,158 3,016


56



16. INVESTMENT PROPERTY

Group


2008 2007

USD’000 USD’000

At 1 January 1,464 1,365


At 31 December 1,560 1,464

The property rental income earned by the Group from its investment property, all of which is leased out under operating

leases, amounted to USD98,000 (2007: USD95,000).

The Directors performed the fair value assessment of the investment property at 31 December 2008 by the reference to

market evidence of transaction for similar properties.

17. INTANGIBLE ASSETS

Group


2008 2007

USD’000 USD’000

COSTS

At 1 January 1,411 776


Addition 1,182 495


Write off (16) (198)

At 31 December 2,668 1,411

AMORTISATION

At 1 January (112) (255)

Exchange adjustment (6) (13)

Charge for the year – –

Write off – 156

At 31 December (118) (112)

CARRYING AMOUNT


At 31 December 2,550 1,299


57



Intangible assets represent intellectual property rights (“IPR”) acquired for the development of pharmaceutical technology.

The Directors believe that there is no foreseeable limit on the period of time over which the IPR in pharmaceutical industry is

expected to provide cash fl ows. These IPR can be renewable in a period of time at minimal cost and the products are continuing

sale in the market. These IPR will generate cash fl ows for an indefi nite period of time. If a IPR becomes impaired, the asset

should be written down or written off immediately to expense. IPR with indefi nite useful lives is not amortised and are tested

for impairment annually. As at 31 December 2008, IPR with indefi nite useful lives were tested for impairment using the method

set out for goodwill in note 18. No impairment was identifi ed.

18. GOODWILL

Group


2008 2007

USD’000 USD’000

COST AND CARRYING AMOUNT

At 1 January 8,702 7,781

Addition 229 –

Arising on additional investment in a subsidiary 860 –

Arising on acquisition of subsidiaries (note 30) 221 921

At 31 December 10,012 8,702

The initial accounting for the business combination last year was determined provisionally by the end of last year, as a

result of completing the initial accounting, the fair value of trade receivables at the acquisition date has been decreased

by USD448,000 with a corresponding decrease in minority interests of USD219,000 and an increase in goodwill of

USD229,000.

On 8 October 2008, the Group acquired an additional 15.73% of the voting shares of Yangling Haotian Bio-Engineering

Technology Co. Limited (“Yangling Haotian”) from Xian Haotian Bio-Engineering Technology Co. Limited in which the

Group had 51% interest, taking its ownership to 100%. Cash consideration of USD1,464,000 was paid. The book value of

the net assets of Yangling Haotian at this date was USD3,839,000 and the book value of the additional interest acquired

was USD604,000. The difference of USD860,000 between the consideration and the book value of the interest acquired,

has been recognised as goodwill.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be

impaired.

For the purpose of impairment testing, goodwill and intangible with indefi nite useful lives have been allocated to two

individual cash-generating units (CGUs) as follows:


2008 2007

Intangible Intangible

assets Goodwill assets Goodwill

USD’000 USD’000 USD’000 USD’000

Pharmaceutical-Production, marketing

and distribution 2,347 9,587 1,109 8,277

Pharmaceutical-Research and development 203 425 190 425

2,550 10,012 1,299 8,702


58



The carrying amount of goodwill allocated to the pharmaceutical-production, marketing and distribution CGU is signifi cant

in comparison with the total carrying amount of goodwill.

The recoverable amount of the pharmaceutical-production, marketing and distribution unit is determined based on a value in

use calculation which uses cash fl ow projections based on fi nancial budgets approved by management covering a fi ve-year

period. The pre-tax discount rate applied to cash fl ow projections is 10.5% which refl ects specifi c risks relating to the CGU.

The growth rate of 10% is based on pharmaceutical industry growth forecast. Other key assumptions for the value in use

calculations relate to the estimation of cash infl ows/outfl ows which include budgeted sales and gross margin, such estimation

is based on the unit’s past performance and management’s expectations for the market development. Management believe

that any reasonably possible change in key assumptions on which recoverable amount is based would not cause the

pharmaceutical-production, marketing and distribution carrying amount to exceed its recoverable amount.

19. INTEREST IN AN ASSOCIATE

Group


2008 2007

USD’000 USD’000

At 1 January 804 –


Addition capital contributions – 616

Share of loss of an associate – (21)

Exchange adjustment – 4

Interest in an associate at the date it became a subsidiary (804) –

At 31 December – 804

Particulars of the associate are as follows:

Place of

incorporation Indirect ownership

Name of associate Principal activity and operations interest %

2008 2007

Jilin Haotian Bio-Engineering Pharmaceutical business PRC – 22.8

Technology Company Limited


59



20. INVENTORIES

Group


2008 2007

USD’000 USD’000

Raw materials 2,727 2,222

Work-in-progress 3,293 3,478

Finished goods 2,765 2,621

Hotel inventories 104 134

Food and beverage supplies 108 104

8,997 8,559

All inventories are stated at cost.

21. TRADE AND OTHER RECEIVABLES


2008 2007

USD’000 USD’000

Group

Trade receivables 15,512 13,834

Less: provision for impairment of trade receivables (3,034) (3,055)

12,478 10,779

Bills receivables 3,304 1,638

Prepayments and other receivables 6,689 12,004

Loan receivable 13,129 –

35,600 24,421

Company

Amounts due from subsidiaries undertakings 11,267 10,634

Prepayments and other receivables 37 33

11,304 10,667

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

The Group has a policy of allowing an average credit period of 90 days to its customers. As of 31 December 2008,

trade receivables of USD1,136,000 (2007: USD1,643,000) were past due but not impaired. These relate to a number

of independent customers of whom there is no recent history of default. Based on past experience, the Directors of the

Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not

been a signifi cant change in credit quality and the balances are still considered fully recoverable. The Group does not hold

any collateral over these balances. The aging of these receivables is as follows:


60



The ageing of past due but not impaired:


2008 2007

USD’000 USD’000

Past due over 1-90 days 747 799

Past due over 91-275 days 216 323

Past due over 276 days 173 521

1,136 1,643

The movements on the provision for impairment of trade receivables are as follows:


2008 2007

USD’000 USD’000



(Reversal of)/provision for trade receivables impairment against

income statement (665) 2,256

Provision for trade receivables impairment charged to goodwill and

minority interests (note 18) 448 –

Amounts written off as uncollectible – (199)

3,034 3,055

The above provision for impairment of trade receivable is a provision for individually impaired trade receivables. The

individually impaired receivables mainly relate to customers that were in fi nancial diffi culties and only a portion of the

receivables is expected to be recovered. The Group does not hold any collateral over these balances.

As of 31 December 2008, a provision for impairment of other receivable of USD1,332,000 (2007: USD1,277,000) was

recognised for certain long term outstanding receivables and only a portion of the receivables is expected to be recovered.

The Group does not hold any collateral over these balances.

Certain loans and receivables carry an interest rate of 7 per cent per annum.

22. INVESTMENTS

Group


2008 2007

USD’000 USD’000

Unlisted equity investments, at cost:

Intelligent Sensor Systems Limited 385 –

Intelligent Sensor Systems Limited (“ISS”) is headquartered in the UK and has development centre at Kent University, UK.

ISS sells fi bre optic sensor systems and monitoring services principally to the energy, mining and medical industries.


61



In the opinion of the directors, the fair value of these unlisted equity investments cannot be reliably measured because (a)

these investments do not have quoted market prices in an active market; (b) the range of reasonable fair value estimates

is signifi cant for these investments; and (c) the probabilities of the various estimates cannot be reasonably assessed and

used in estimating fair value. As such, all these unlisted equity investments are stated at cost less any impairment losses.

23. CASH AND CASH EQUIVALENTS


2008 2007

USD’000 USD’000

Group

Cash and bank balance 16,641 16,713

Less: Pledged bank deposits (878) (5,466)

Cash and cash equivalents 15,763 11,247

Pledged bank deposits represent the Group’s bank deposits pledged to bank to secure certain bills facilities granted to the

Group by the bank.

24. SHARE CAPITAL


2008 2007

USD’000 USD’000

Authorised

397,884,923 Common Shares of USD0.05 each 19,894 19,894

14,042,105 A Shares of USD0.05 each 702 702

20,596 20,596

Alloted, called up and fully paid

264,067,030 (2007: 264,058,563) Common Shares of USD0.05 each 13,203 13,203

11,793,074 (2007: 11,801,541) A Shares of USD0.05 each 590 590

13,793 13,793

The A Shares and the Common Shares rank equally in all respects save that each A Share carries 20 votes and each

Common Share carries one vote. A Shares are convertible into Common Shares on a one for one basis by application

in accordance with the Bye-Laws of the Company. During the year, 8,467 A Shares were converted into 8,467 Common

Shares by the application of holders of A Shares.


62



The summary of the transactions during the year with reference to the above movements in the issued share capital is as

follows:

Number of

Number of Common Shares

A Shares in issue in issue Share capital

USD’000

At 1 January 2007 11,843,876 264,016,228 13,793

Conversion of A Shares (42,335) 42,335 –

At 1 January 2008 11,801,541 264,058,563 13,793

Conversion of A Shares (8,467) 8,467 –

At 31 December 2008 11,793,074 264,067,030 13,793

25. BORROWINGS

Group


2008 2007

USD’000 USD’000

Bank overdrafts 95 122

Obligation under fi nance lease (note 31) 6 17

Other borrowings due within one year 66 3,180

Bank loans:

Repayable within one year 31,500 33,510

Repayable between one and two years 3,044 1,341

Repayable between two and fi ve years 65,986 40,063

100,697 78,233

Less amount due for settlement within one year:

Obligations under fi nance lease (note 31) 6 11

Other borrowings 66 3,180

Bank loans and overdrafts 31,595 33,632

31,667 36,823

Amount due for settlement after one year 69,030 41,410


63



The Group borrowings included:

(i) bank loan of USD17,790,000 (2007: USD21,737,000) secured by a fi rst priority legal charge over the hotel property of the Group situated in Shenzhen, China. The loan will mature in 2009 and is repayable in RMB and carries interest at a fi xed rate of 9.18% per annum;

(ii) bank loan of USD220,000 (2007: USD6,871,000) secured by a fi rst priority legal charge over the land and building of the Group situated in China. The loan will mature in 2009 and is repayable in RMB and carries interest at RMB borrowing rate as declared by the People’s Bank of China;

(iii) bank loan of USD2,049,000 (2007: USD2,199,000) guaranteed by a subsidiary of the Group and secured by a fi rst priority legal charge over the equipment, land and building of the Group situated in China. The loan is repayable in annual installments and is repayable in RMB and carries interest at RMB borrowing rate as declared by the People’s Bank of China;

(iv) bank loan of USD49,260,000 (2007: USD39,480,000) secured by a fi rst priority legal charge over the shareholdings of Crowne Plaza Hotel & Suites Landmark Shenzhen and guaranteed by subsidiaries of the Group. The loan is repayable in USD and HKD and carries interest at 1.10 percent above the London Interbank Offered Rate and Hong Kong Interbank Offered Rate respectively. USD29,260,000 will mature in 2012 and USD20,000,000 is repayable in semi-annual installments commencing in 2009;

(v) bank loan of USD8,300,000 (2007: nil) secured by a fi rst priority legal charge over the shareholdings of Crowne Plaza Hotel & Suites Landmark Shenzhen and guaranteed by subsidiaries of the Group. The loan will mature in 2009 and is repayable in USD and carries interest at 1.25 percent above the London Interbank Offered Rate;

(vi) bank loan of USD19,545,000 (2007: nil) secured by all fi xed and fl oating charges overall assets and undertakings of subsidiaries of the Group, and guaranteed by subsidiaries of the Group. The loan is repayable in USD and HKD and carries interest at 2 percent above the London Interbank Offered Rate and Hong Kong Interbank Offered Rate respectively. USD5,609,000 will mature in 2011 and USD13,936,000 is repayable in annual installment commencing in 2010;

(vii) other borrowings of USD66,000 (2007: USD174,000) are unsecured, interest bearing at fi xed interest rate at 20% p.a. The loan will mature in 2009;

(viii) bank loan of USD732,000 (2007: nil) secured by a fi rst priority legal charge over the land and building of the Group situated in China and guaranteed by a subsidiary of the Group. The loan will mature in 2009 and is repayable in RMB and carries interest at 13.34% p.a.; and

(ix) bank loan of USD2,634,000 (2007: USD3,967,000) guaranteed by minority shareholder and secured by a fi rst priority legal charge over the land and building of the Group situated in China. The loan will mature in 2009 and is repayable in RMB and carries interest at range from 7.92% to 8.217% p.a.

The Directors consider the carrying amount of the bank loans approximates their fair value. At the year end, the Group had USD4,967,000 (2007: USD8,781,000) of undrawn borrowing facilities available to use.


64



26. DEFERRED TAX

Group

Distributable

Revaluation profi ts of the

of hotel Tax Group’s PRC

properties losses subsidiaries Total

USD’000 USD’000 USD’000 USD’000

At 1 January 2007 (18,400) 1,580 – (16,820)

Increase in tax rate (2,154) 363 – (1,791)

Credit to equity 1,382 237 – 1,619

At 1 January 2008 (19,172) 2,180 – (16,992)

Increase in tax rate (5,138) 1,224 – (3,914)

(Charge)/credit to equity (338) 967 – 629

Charge to income statement – – (122) (122)

At 31 December 2008 (24,648) 4,371 (122) (20,399)

The tax losses arise from the hotel operations in PRC, and can be carried forward for offset against profi ts arising from the

business for a maximum period of fi ve years. The tax asset continues to be recognised as it is anticipated this will be used

against future profi ts generated by the hotel operation.

Under the new PRC tax law, 5% to 10% withholding tax is levied on the foreign investor in respect of dividend distributions

arising from a foreign investment enterprise’s profi t earned after 1 January 2008. Pursuant to the grandfathering treatments

of the new PRC tax law, dividends receivable by the Group from its PRC subsidiaries in respect of its undistributed retained

earnings prior to 31 December 2007 are exempted from the withholding tax.

27. TRADE AND OTHER PAYABLES


2008 2007

USD’000 USD’000

Group

Amount due to an intermediate parent undertaking 21,855 19,007

Amount due to an associate undertaking – 214

Trade and bills payables 7,237 12,256

Accruals 11,878 9,801

Dividend payables to minority shareholders 86 104

Other payables 532 342

41,588 41,724

Company

Amount due to an intermediate parent undertaking 21,855 19,007

Accruals 164 420

22,019 19,427


65



The bills payable of USD1,025,000 (2007: USD5,466,000) are secured by the pledge of deposits.

The amount due to the intermediate parent company is unsecured, bears interest at 3.5 per cent (2007: 2.125 per cent)

plus London Interbank Offered Rate and is repayable on demand.

The Directors consider that the carrying amount of trade payables approximates to their fair value.

28. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS

Cost

USD’000

At 1 January 2007 and 2008 and 31 December 2008 17,595

Principal subsidiary undertakings are as follows:

Proportion of ownership Principal countryName of subsidiary Place of registration interest % Nature of trade of operation 2008 2007

Cathay International Holdings Limited* England and Wales 100 100 Investment holding U.K.Cathay International Landmark Holdings Limited* British Virgin Islands 100 100 Investment holding British Virgin IslandsKoon Hay Investment Limited* British Virgin Islands 100 100 Investment holding British Virgin IslandsCathay International Biotech Company Limited* British Virgin Islands 100 100 Investment holding British Virgin IslandsCathay International Management Services Limited Cook Islands 100 100 Investment holding Cook IslandsBon House Development Limited Hong Kong 100 100 Investment holding Hong KongCalfi n Holdings Limited British Virgin Islands 100 100 Investment holding British Virgin IslandsStatelink Investment Limited Hong Kong 100 100 Investment holding Hong KongFuyuan Landmark (Shenzhen) Limited People’s Republic of China 100 100 Hotel ownership People’s Republic of ChinaSharp Asset Development Limited Hong Kong 100 100 Property ownership Hong KongCathay International Changchun Biotechnology and Pharmaceutical Limited British Virgin Islands 94 94 Pharmaceutical investments British Virgin IslandsChangchun Botai Medicine and Biological Technology Company Limited People’s Republic of China 91 92 Pharmaceutical business People’s Republic of ChinaTianjin Longbai Biological Engineering and Technology Company Limited People’s Republic of China 61 61 Pharmaceutical business People’s Republic of ChinaLansen Pharmaceutical Holdings Limited British Virgin Islands 89 88 Pharmaceutical investments British Virgin IslandsLansen Medicine (Shenzhen) Company Limited People’s Republic of China 89 88 Pharmaceutical business People’s Republic of ChinaNingbo Liwah Pharmaceutical Company Limited People’s Republic of China 89 88 Pharmaceutical business People’s Republic of ChinaNingbo Liwah Plant Extraction Technology Limited People’s Republic of China 89 88 Pharmaceutical business People’s Republic of ChinaNingbo Lansen Pharmaceutical Technology Limited People’s Republic of China 89 88 Pharmaceutical business People’s Republic of ChinaDragon Diligent Holdings Limited British Virgin Islands 100 100 Pharmaceutical investments British Virgin IslandsXian Haotian Bio-Engineering Technology Co. Limited People’s Republic of China 51 51 Pharmaceutical business People’s Republic of ChinaYangling Haotian Bio-Engineering Technology Co. Limited People’s Republic of China 100 84 Pharmaceutical business People’s Republic of ChinaBaoji Haotian Bio-Engineering Technology Co. Limited People’s Republic of China 51 51 Pharmaceutical business People’s Republic of ChinaShenyang Haotian-Wanjia Medical Technology Co. Limited People’s Republic of China 26** 35 Pharmaceutical business People’s Republic of ChinaJilin Haotian Bio-Engineering Technology Co. Limited People’s Republic of China 94 – Pharmaceutical business People’s Republic of ChinaGongzhuling Huatian Bio-Engineering Technology Co. Limited People’s Republic of China 94 – Pharmaceutical business People’s Republic of China

* Investments held directly by the Company

** Although the Company does not own more than half of the equity shares of Shenyang Haotian-Wanjia Medical Technology Company

Limited, and consequently it does not control more than half of the voting power of those shares, it has the power to appoint and

remove the majority of board of directors and control of the entity is by the board. Consequently, Shenyang Haotian-Wanjia Medical

Technology Co. Limited is controlled by the Company and is consolidated in these fi nancial statements.


66



29. RESERVES

Group

The share premium represents the excess over the nominal value for shares allotted.

The capital and special reserve represents the difference between the nominal value of shares issued and the nominal

value of shares received in exchange during the Group reorganisation, and the gain on the purchase of preference shares

of a subsidiary.

The revaluation reserve represents the net revaluation surplus on hotel properties arising from annual professional

valuations.

The exchange equalisation reserve represents exchange differences arising from the re-translation of the net investment

in subsidiaries and the net difference of translation of foreign currency borrowings raised to acquire foreign assets and

translation of such assets.

The statutory reserve represents appropriation of profi ts of the PRC subsidiaries to a non-distributable reserve fund account

as required by the relevant PRC statute.

Company

Capital and Profi t and

Share Special Loss

Premium Reserve Account Total

USD’000 USD’000 USD’000 USD’000

At 1 January 2007 10,216 (18,716) 6,135 (2,365)

Loss for the year – – (2,559) (2,559)

At1 January 2008 10,216 (18,716) 3,576 (4,924)

Loss for the year – – (1,955) (1,955)

At 31 December 2008 10,216 (18,716) 1,621 (6,879)


67



30. ACQUISITION OF SUBSIDIARIES

On 21 January 2008, the Group made further investment in Jilin Haotian Bio-Engineering Technology Co. Limited

(“Jilin Haotian”) and owns 94.15% of Jilin Haotian. This transaction has been accounted for by the purchase method of

accounting. The fi gures given below are both the acquiree carrying amounts and the fair values assessed by the Directors.

USD’000

Net assets:

Property, plant and equipment 1,604

Inventories 393

Trade and other receivables 680

Cash and cash equivalents 32

Borrowings (687)

Trade and other payables (226)

Minority interests (160)

1,636

Percentage of interest acquired 71.30%

Total net assets acquired 1,166

Goodwill 221

Total consideration, cash 1,387

Goodwill arose in the business combination because the cost of the combination included a control premium paid to

acquire Jilin Haotian. In addition, the consideration paid for the combination effectively included amounts in relation to the

benefi t of expected synergy, revenue growth, future market development and the assembled workforce of Jilin Haotian.

These benefi ts are not recognised separately from goodwill as the future economic benefi ts arising from them cannot be

reliably measured.

Net cash outfl ow on acquisition:

Cash consideration (1,387)

Less: Cash and cash equivalents balances acquired 32

(1,355)

For the period between the date of acquisition and the balance sheet date:

Revenue 196

Profi t before taxation 35


68



31. FINANCIAL COMMITMENTS

Operating lease – the group as lessee


2008 2007

USD’000 USD’000

Payments recognised as an expense:

Minimum lease payments 1,062 952

Sub-lease payments received (443) (320)

619 632

Future minimum rentals payable under non-cancellable operating leases

are as follows:

Within one year 702 800

Between two and fi ve years 636 731

1,338 1,531

The Group leases certain of properties under operating leases. The leases run for an initial period of one to three years, with

options to renew the lease terms at the expiry dates or at days as mutually agreed between the Group and the respective

landlords. None of these leases includes any contingent rentals.

Operating lease – the group as lessor


2008 2007

USD’000 USD’000

Future minimum rentals receivable under non-cancellable operating leases

are as follows:

Within one year 238 419

Between two and fi ve years 119 493

357 912

The Group leases certain of properties under operating leases. The leases run for an initial period of three years, with

options to renew the lease terms at the expiry dates or at days as mutually agreed between the Group and the respective

tenants. None of these leases includes any contingent rentals.


69



Finance lease – the group as lessee

Future minimum lease payments under fi nance lease together with the present value of the net minimum lease payments

are as follows:

2008 2007

Present Present

Minimum value of Minimum value of

payments payments payments payments

USD’000 USD’000 USD’000 USD’000

Within one year 6 6 12 11

Between two and fi ve years – – 6 6

Total minimum lease payments 6 6 18 17

Less future fi nance charges – – (1) –

Present value of minimum lease payments 6 6 17 17


2008 2007

USD’000 USD’000

Capital commitments authorised and contracted for:

Constructions and equipment 215 471

32. RETIREMENT BENEFIT PLANS

Defi ned Contribution Plans

The Group operates defi ned contribution retirement benefi t plans for all qualifying employees in Hong Kong. The assets of

the plans are held separately from those of the Group in funds under the control of trustees.

The total cost charged to income of USD64,000 (2007: USD59,000) represents contributions payable to these plans by the

Group at rates specifi ed in the rules of the plans.

33. RISK MANAGEMENT

The Group is exposed to a variety of fi nancial risks which result from its operating and investing activities. The Group’s risk

management is coordinated at its headquarters in close cooperation with the Board of Directors and focuses on actively

securing the Group’s short to medium term cash fl ows.

The Directors consider the book value of all instruments to be their fair value.

Credit Risk

The Group’s principal fi nancial assets are bank balances and cash, trade and other receivables, which represent the Group’s

maximum exposure to credit risk in relation to fi nancial assets. The Group’s credit risk is primarily attributable to its trade

receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the

Group’s management based on prior experience and their assessment of the current economic environment.


70



In other to minimize the credit risk, the management of the Group has formulated a defi ned fi xed credit policy and

delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure

that follow-up action is taken to recover overdue debts.

The credit risk on liquid funds is limited because the counterparties are reputable international banks.

The Group has no signifi cant concentration of credit risk, with exposure spread over a large number of counterparties and

customers.

Liquidity Risk

The directors of the Company have built an appropriate liquidity risk management framework for the management of the

Group’s short, medium and long-term funding and liquidity management requirements. The Group, which relies partially

on fi nancial support from its parents and ultimate controlling shareholder, manages liquidity risk by maintaining adequate

reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash fl ows and

matching the maturity profi les of fi nancial assets and liabilities. The Group had USD4,967,000 undrawn borrowing facilities

that the Group has at its disposal to further reduce liquidity risk.

The following tables detail the Group’s remaining contractual maturity for its non-derivative fi nancial liabilities. The tables

have been drawn up based on the undiscounted cash fl ows of fi nancial liabilities based on the earliest date on which the

Group can be required to pay. The table includes both interest and principal cash fl ows.

Group

2008

Within Between one Between two

one year and two years and fi ve years Total

USD’000 USD’000 USD’000 USD’000

Interest-bearing bank and other borrowings 34,304 5,024 68,769 108,097

Trade and bills payables 7,237 – – 7,237

Other payables and accruals 12,410 – – 12,410

Amount due to an intermediate

parent undertaking 23,276 – – 23,276

Finance lease obligation 6 – – 6

77,233 5,024 68,769 151,026

2007



USD’000 USD’000 USD’000 USD’000

Interest-bearing bank and other borrowings 39,351 3,420 43,938 86,709

Trade and bills payables 12,256 – – 12,256

Other payables and accruals 10,143 – – 10,143



Finance lease obligation 12 6 – 18

82,156 3,426 43,938 129,520


71



Company

2008



USD’000 USD’000 USD’000 USD’000

Bank overdrafts 101 – – 101

Accruals 164 – – 164



23,541 – – 23,541

2007



USD’000 USD’000 USD’000 USD’000

Bank overdrafts 131 – – 131

Accruals 420 – – 420



20,945 – – 20,945

Foreign Currency Risk

As a result of signifi cant investment operations in China, the Group’s balance sheet can be affected signifi cantly by

movements in the USD/RMB exchange rates. The Group has minimal transactional currency exposure to foreign currency

risk as most of the fi nancial assets and liabilities held by the Group’s overseas subsidiaries (except for the Group’s treasury

investments which are mainly denominated in United Stated Dollars) are denominated in the respective functional

currency of such subsidiaries.

The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign

exchange exposure and will consider hedging signifi cant foreign currency exposure should the need arise.

Interest Rate Risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations with

fl oating interest rates. The interest rate and terms of repayment of bank borrowings of the Group are disclosed in note 25.

The Group currently does not have an interest rate hedging policy.

The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and

non-derivative instruments at the balance sheet date. For fl oating rate liabilities, the analysis is prepared assuming the

amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 50 basis point increase or

decrease is used when reporting interest rate risk internally to key management personnel and represents management’s

assessment of the reasonably possible change in interest rates.


72



If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s:

• loss for the year ended 31 December 2008 would increase/decrease by USD502,000 (2007: increase/decrease by

USD363,000). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings;

and

• the Group’s equity as at 31 December 2008 would decrease/increase by USD502,000 (2007: decrease/increase by

USD363,000).

The Group’s sensitivity to interest rates has increased during the current period mainly due to the increase in variable rate

borrowings.

Capital management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while

maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy

remains unchanged from 2007.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 25, cash and cash

equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained

earnings.

The Group’s risk management reviews the capital structure on a semi-annual basis. As part of this review, the committee

considers the cost of capital and the risks associated with each class of capital.

The Group sets the amount of capital in proportion to its overall fi nancing structure. The Group manages the capital

structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the

underlying assets. In other to maintain or adjust the capital structure, the Group may adjust the amount of dividend paid

to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

The gearing ratio at the year end was as follows:


2008 2007

USD’000 USD’000

Borrowings 100,697 78,233

Amount due to an intermediate parent undertaking

(exclude interest payable) 17,134 15,470

Cash and bank balance (note 23) (16,641) (16,713)

Net debt 101,190 76,990

Equity 72,208 75,846

Net debt to equity ratio 140.1% 101.5%


73



34. RELATED PARTY TRANSACTIONS

At 31 December 2008, a loan from Cathay International EW No.43 Limited, the immediate parent undertaking of Cathay

International Enterprises Limited, which is itself the immediate parent undertaking of the Company, amounted to

USD17,134,000 (2007: USD15,470,000) and interest payable of USD4,721,000 (2007: USD3,537,000) were outstanding.

The amount is payable on demand and bears interest at 3.5 per cent (2007: 2.125 per cent) plus London Interbank

Offered Rate. During the year, interest charged on the loan payable to the intermediate parent undertaking amounted to

USD1,184,000 (2007: USD1,893,000).

Remuneration for key personnel of the Group, including amounts paid to the Company’s Directors, are disclosed in

Directors’ Remuneration Report.

35. CONTROLLING RELATED PARTIES

In the Directors’ opinion, the Company’s immediate parent undertaking is Cathay International Enterprises Limited, a

company incorporated in Bermuda, whose accounts are not a matter of public record.

Mr. Wu Zhen Tao is the Company’s controlling related party by virtue of his controlling benefi cial interest in the shares of

the Company.

36. COMPARATIVE FIGURES

The Group previously disclosed bank interest income netted with fi nance cost and other income netted with administrative

expenses. Management believe that the disclosure of other income as a separate income statement item is a fairer

presentation of the Group activities. As a result, certain comparative fi gures have been restated to conform with current

year’s presentation.

Notice of Annual General Meeting

74



NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at 11:00 a.m. on 30 April 2009 at Private

Suite 1, The May Fair Hotel, Stratton Street, London W1J 8LT for the following purposes:

ORDINARY BUSINESS

1 To receive the Directors’ Report, Statement of Accounts, Directors’ Remuneration Report and Auditors‘ Report in respect of

the year ended 31 December 2008.

2. To appoint as a Director and Chairman Mr Sum Soon Lim.

3. To appoint as a Director Mr Toong Kenneth Ken Kwok.

4. To re-appoint Grant Thornton Hong Kong as the Company’s Auditors, to hold offi ce until the conclusion of the next general

meeting at which accounts are laid before the Company and to authorise the Directors to fi x their remuneration.

SPECIAL BUSINESS

To consider and, if thought fi t, to pass the following resolution as an Ordinary Resolution:

5. THAT the authority of the Directors to exercise the power of the Company to allot unissued shares comprised in the

authorised share capital of the Company, grant options over or otherwise dispose of the same, as contained in Bye-Law 7

of the Bye-Laws of the Company be and is hereby renewed, provided that this authority shall (unless previously revoked

or varied by the Company in general meeting) be limited to the allotment of shares representing in aggregate not more

than one third in nominal value of the shares of the Company in issue on the date of the passing of this resolution and

shall expire fi fteen months after the date of the passing of this resolution or, if earlier, at the conclusion of the next Annual

General Meeting of the Company (“the period of the authority”) save that the Company may before the expiry date of the

period of the authority make an offer or agreement which would or might require shares to be allotted after such expiry

and the Directors may allot shares in pursuance of any such offer or agreement as if the authority conferred hereby had

not expired.

To consider and, if thought fi t, to pass the following resolution as a Special Resolution:

6. THAT the Directors be and are hereby empowered to allot shares for cash as if Bye-Law 8 of the Bye-Laws of the Company

did not apply to any such allotment and so that the power conferred by this resolution shall enable the Company to make

any offer or agreement before the expiry of the period of the authority (as defi ned in the resolution numbered 5 in the

notice of this meeting) which would or might require shares to be allotted after the expiry of such period and so that

notwithstanding such expiry the Directors may allot shares pursuant to any such offer or agreement previously made by

the Company as if the power conferred hereby had not expired.


75



PROVIDED however that the power conferred hereby shall:

(a) be limited:

(i) to the allotment of shares in connection with or pursuant to any arrangement whereby the holders of shares

at a record date or dates adopted for the purposes of the arrangement are entitled to acquire any shares of

the Company issued for cash pursuant to such arrangement, in the proportion (as nearly as may be) to such

holders’ holdings of shares (or, as appropriate, to the numbers of such shares which such holders are for the

purpose deemed to hold) subject to such exclusions or other arrangements as the Directors may consider

necessary or expedient to deal with shares representing fractional entitlements or the issue and/or transfer

and/or holding of any securities in uncertifi cated form or legal or practical problems under or resulting from

the apparent application of the laws of any territory or the requirements of any recognised regulatory body or

stock exchange in any territory; and

(ii) to the allotment (otherwise than pursuant to sub-paragraph (i) above) of shares having an aggregate nominal

value or, in the case of other equity securities, giving the right to subscribe for or convert into shares having an

aggregate nominal value not exceeding USD689,650; and

(b) expire at the conclusion of the period of authority (as defi ned above) except to the extent that the same is renewed

or extended prior thereto.

To consider and, if thought fi t, to pass the following resolution as an Ordinary Resolution:

7. THAT the Company be and is hereby unconditionally and generally authorised to make market purchases (as defi ned in

Section 693(4) of the Companies Act 2006 of Great Britain) of common shares of USD0.05 in the capital of the Company

provided that:

(a) the maximum number of shares hereby authorised to be acquired is 27,586,000;

(b) the minimum price which may be paid for such shares is USD0.05 per share;

(c) the maximum price which may be paid for such shares is, in respect of a share contracted to be purchased on any

day, an amount equal to 105 per cent of the average of the middle market quotations for such shares shown in the

Daily Offi cial List of London Stock Exchange plc for the fi ve business days in respect of which such Daily Offi cial List is

published immediately preceding the day on which the share is contracted to be purchased (in each case excluding

expenses);


76



(d) the authority hereby conferred shall expire fi fteen months after the date of the passing of this resolution or, if earlier,

at the conclusion of the next Annual General Meeting of the Company;

(e) the Company may make a contract to purchase its own shares under the authority hereby conferred prior to the

expiry of such authority which will or may be executed wholly or partly after the expiry of such authority, and may

make a purchase of its own shares in pursuance of any such contract.

Registered Offi ce:

By order of the Board Canon’s Court

Linda Carter 22 Victoria Street

Secretary Hamilton HM 12

Bermuda

6 April 2009

Notes:

A member of the Company who is entitled to attend and vote at the Meeting may appoint a proxy to attend and, upon a poll,

vote instead of him. A proxy need not be a member of the Company. To be valid, a form of proxy and any power of attorney or

other authority under which it is signed must be lodged at the registrar’s offi ce not less than 48 hours before the time appointed

for the meeting. Completion and return of a form of proxy will not prevent a member from attending and voting at the meeting

should she/he so wish.

Registered OfficeCanon’s Court, 22 Victoria StreetHamilton HM12, Bermuda

Head OfficeSuites 1203-04, 12/F., Li Po Chun Chambers189 Des Voeux Road Central, Hong Kong

canon’s court, 22 victoria street hamilton hm12, bermuda · registered office canon’s court, 22...

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