Annual Report 2000 Change Capitalizing on · over sixteen years’ experience in corporate...

C a p i t a l i z i n g o n Change

Annual Repor t 2000Celestial Asia Securities Holdings Limited

Celestial Asia Securities Holdings Limited

22/F The Center 99 Queen’s Road Central Hong Kong

www.cash.com.hk

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Celestial Asia Securities Holdings Limited (“CASH”

or “Company”, together with its subsidiaries, “Group”)

is one of Hong Kong’s premier financial services

companies and is listed on the main board of The

Stock Exchange of Hong Kong Limited (“Stock

Exchange”). It also controls the leading electronic

financial services firm CASH on-line Limited (“COL”),

which is listed on the Growth Enterprise Market

(“GEM”) of the Stock Exchange.

From its strong position in financial services, CASH is

using its competitive advantages of a strong balance

sheet, professional management and an advanced

technology infrastructure to evolve into a cross-sector

services conglomerate covering a range of service

industries in the region. Our mission is to become

one of the top 100 companies in Asia specializing in

providing high quality services and products to cater for

the personal needs of financing, investment, lifestyle

and household, renowned for our high level of

customer service.

Contents2

contents

Corporate Information 3

Directors and Advisors 4

Milestones 9

Chairman’s Statement 10

Operations Review and Preview 20

Chairman Interview 34

Our People and the Community 38

Notice of Annual General Meet ing 39

Report of the Directors 43

Report of the Auditors 57

Financial Statements

Consolidated Income Statement 58

Consolidated Balance Sheet 59

Balance Sheet 61

Consolidated Cash Flow Statement 62

Notes to Financial Statements 64

Five Year Financial Summary 103

A new type of conglomerate that creates

synergies and economies of scale in services

3Corporate Information

corporate information

Bo ard of Directors

Executive:

KWAN Pak Hoo Bankee

(Chairman & CEO)

KHO O Ken Wee

LI Yuen Cheuk Thomas

LAW Ping Wah Bernard

LAW Ka Kin Eugene

KWOK Oi Kuen Joan Elmond

Independe nt Non-executive:

WONG Chuk Yan

CHAN Hak Sin

LEUNG Ka Kui Johnny

Principal Bankers

Wing Hang Bank, Limited

The Hongkong and Shanghai

Banking Corporation Limited

Industrial and Commercial Bank

of China (Asia) Limited

Standard Chartered Bank

Bank of America (Asia) Limited

The Sanwa Bank Limited

Solicitors

Richards Butler

Audito rs

Deloitt e Touche Tohmatsu

Certified Public Accountants

Company Secr etary

KWOK Oi Kuen Joan Elmond

ACIS

Audit Committee

CHAN Hak Sin

LEUNG Ka Kui Johnny

Registered Office

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

Head Offic e and Principal

Place of Business

22/F The Center

99 Queen’s Ro ad Central

Hong Kong

Registrars and Transf er Office

in Hong Kong

Standard Registrars Limited

5/F Wing On Centre

111 Connaug ht Road Central

Hong Kong

Contacts

Telephone:(852) 2287 8888

Facsimile : (852) 2287 8000

Website : www.cash.com.hk

4Directors and Advisors

directors and advisors

“We are ready to capitalize on the

rapid change in the market.

My colleagues are true assetof the Company. I believe their

pool of wisdom will create

substantial value for shareholders.”

Bankee Kwan

(left to right)

Top row Mr Bemard Law, Dr Bob ChanMiddle row Mr Bankee Kwan, Mr Thomas Li, Mr Ken KhooBottom row Ms Joan Kwok, Mr Eugene Law


Executive Directors Mr KWAN Pak Hoo Bankee, aged 41, has been the Chairman and Chief Executive

Officer of the Group since 9 Marc h 1998. He is also the chairman of COL and

Pricerite Group Limited (“Pricerite”), subsidiaries of the Company and are listed

on GEM and the main bo ard of the Stock Exchange respect ively. Mr Kwan has

over sixteen years’ experience in corporate management, st rategic planning,

marketing management and financial advisory. Prior to his appointment to the

Group, he held senior executive positions in other listed companies and se veral

leading international banks in Hong Kong. He is a John Harvard fe llow of

Harvard University, USA, a member of the Harvard Asia Center Advisory

Committee and an honorary memb er of the Bo ard of Trustees of Nanjing

University, PRC. He is also a fellow o f Institute of Financial Accountants, an

associate of Hong Kong Young Industrialists Council, a member of Hong Kong

Securities Institute and a full member of Hong Kong Institute of Marke ting. Mr

Kwan holds a Master degree in Business Administration from Murdoch

University of Perth, Australia, and a Bachelor degree in Business Administration

from The Chinese University of Hong Kong. He is the advisory professor o f

Nanjing University and an honorary advisor of Academy of Oriental Studies of

Beijing University, PRC and Li Ka Shing Institute of Professional and Continuing

Education. Mr Kwan is a substantial shareholder of the Company.

Mr KHOO Ken Wee, aged 36, has been the Managing Director of the Group since

9 Marc h 1998. He is also an executive direc tor and chie f executive officer o f COL.

Mr Khoo has extensive experience in corporate finance and investment banking.

Prior to joining the Group, Mr Khoo was the regional head of the investment

banking division of a prominent financial house in Hong Kong. Mr Khoo

graduated from The California State University at San Jose with a Master degree

in Economics and from University of Oregon with a Bachelor degree in

Economics. He is also a member of Hong Kong Securities Inst itute. Mr Khoo is a

substantial shareholder of the Company.

“Know yourself and the market.This allows you to formulate

strategies and forge alliances

that will help you capitalize on market

opportunities and weaknesses .”

Ken Khoo


Mr LI Yuen Cheuk Thomas, aged 39, the Deputy Managing Director of the

Group. He joined the Group as an Executive Director on 6 May 1998. Mr Li has

over fifteen years’ experience in marke ting, credit control and management in the

banking and financial industry. Prior to jo ining the Group, Mr Li was the head of

marketing and credit control o f several leading international banks in Ho ng

Kong, responsible for mar ke ting, credit functions and business development. He

holds a Master and Bachelor degrees in Business Administration both obtained

from The Chinese University of Hong Kong and is a full memb er of Hong Kong

Securities Institute.

Mr LAW Ping Wah Bernard, aged 42, has been the Finance Director of the Group

since 9 March 1998. He is also the finance direc tor of COL. Mr Law has over

twenty years’ extensive working experience in accounting and finance field.

Previously, he had served several Hong Kong listed companies as finance director

and group financial controller. Mr Law holds a Master degree in Business

Administration fro m the University of War wick, UK. He is a fe llow member o f

both the Hong Kong Society of Accountants and the Association of Chartered

Certified Accountants and a member of Ho ng Kong Secur ities Institute.

Mr LAW Ka Kin Eugene , aged 40, has been an Executive Directo r of the Group

since 12 June 2000. He is the Chie f Operations Officer of the Group and joined

the Group on 17 Dec ember 1998. He is also an executive director and chief

operations officer of COL. Mr Law has over fifteen years’ experience in the

financial indust ry. Prior to joining the Group, he held senior management

positions in a number of regional stockbroking firms in the area of research,

investment advisory, strategic planning and business management. Mr Law holds

a Bachelor of Arts (Hons) degree in Economics from City of London Polytechnic

and is a full member of Ho ng Kong Secur ities Institute.

Ms KWOK Oi Kuen Joan Elmond, aged 32, has been an Executive Director of the

Company since 3 October 2000 and joined the Group o n 20 March 1998. She is

also the Company Secretary of the Co mpany, COL and Pricerite and an executive

director of Pricerite. Ms Kwok has several years’ experience in the company

secre tarial field, corporate finance and corporate development. She holds a

Master degree in Business Administration, Bachelor of Arts (Hons) degree in

Accountancy and a Professional Diploma in company secretaryship and

administration from The City University of Hong Kong , and is an associate of

both The Institut e of Chartered Secretar ies and Administrators and The Hong

Kong Institute of Companies Secre taries.

“If you can’t measure your business, you can’t

manage it. Our commitment to

enhance our already strong financial reporting

system, to measure and report quickly and

accurately both externally and internally,

enables us to compete effectively even at times of

economic uncertainty and changes.”

Bernard Law

“Management is about knowing people,

being able to motivate them, and simply

being there for people. Set targets but give

people the freedom to reach them. Get rid

of the politics. Focus on performance.”

Eugene Law

“To capitalize on an ever-changing market,

a structured but flexible management

with a dedicated and selflessculture are vital if even the most intelligentmanagement team is to outperform

its peers in the long run.”

Joan Kwok

“Business growth hinges on

changes. We must see changes as a

fact of life and recognize that all

changes bring with them an opportunityto discover new values.”

Thomas Li


Mr WONG Chuk Yan , aged 39, an Independent Non-executive Direct or of the

Company since 3 June 1998. Mr Wong has extensive financial experience in the

global financial markets. He is now a port folio manager of a large renowned

investment counsel in Toronto, Cana da and is responsible for the Company’s

equity investments in the Asia Pacific region. Mr Wong holds a Master of Science

degree in Business Administration from the University of British Columbia,

Canada and is a Chartered Financial Analyst and a Certified General Accountant.

Mr LEUNG Ka Kui Johnny, 43, an Independent Non-executive Directo r of the

Company since 25 October 2000. Mr Leung is a practicing solicitor qualified to

pract ise in Hong Kong, the United Kingdom and Singapore. He has over fifteen

years’ experience in the legal fie ld and is the managing part ner of the legal firm

of Messrs Johnny K K Leung & Co, Hong Kong. Mr Leung holds a Bac helor of

Laws fro m The University of London.

Dr CHAN Hak Sin, 39, an Independent Non-executive Directo r of the Company

since 25 October 2000. Dr Chan is currently a faculty member in the Department

of Marketing at The Chinese University of Hong Kong. Prior to jo ining The

Chinese University of Hong Kong, he had extensive experience in the USA as

professor, researc her and consultant in the fields of corporate finance and

international marke ting. Dr Chan holds a Bachelor degree of Business

Administration from The Chinese University of Ho ng Kong, a Master of Business

Administration fro m The University of Wisconsin-Madison and a Doctor of

Philosophy in Business from The University of Wisconsin-Madison.

CASH Advisory Board Dr CHAN Yau Ching Bob, 38, an Honorar y Advisor to the Group. He is currently

act ively involved in several investment projects of the Group. Dr Chan is an

act ive researcher and consultant in corporate finance, capital markets, and

financial institutions. His academic training includes undergraduate studies at

The Chinese University of Hong Kong, and graduate studies at Uni versity of

Wisconsin-Madison and Purdue University, USA. Prior to joining the Group, he

had years of experience in the banking and the pe troleum indust ries and as a

professor in Hong Ko ng. Dr Chan is a Chartered Financial Analyst and a member

of a number of academic and professional bodies in finance.

Independent

Non-executive Directors


Professor CHIANG Chiu Ping Raymond, 50, an Honorary Advisor to the Group.

He is currently the chair professor o f Financial Management and the dean of the

Faculty of Business and Information System of The Hong Kong Polytechnic

University. Professor Chiang has over twenty years’ academic experience in

finance field. He is also an act ive publisher of various leading economic and

finance journals. His researc h and consulting interests enco mpass securities

investment and finance and capital marke ts. Professor Chiang holds a PhD

degree in Finance from Wharton School, University of Pennsylvania in 1979. He

is a directo r of the Hong Kong Securities Institute and a member of the

Academic Advisory Co mmittee of the Securities and Futures Commission

(“SFC”), and is a non-execut ive director o f Concord Land Development

Company Limited, a listed co mpany on the Stock Exchange.

Professor JIANG Shu Sheng, 61, an Ho norary Advisor to the Group. He is

currently the president of Nanjing Uni versity, PRC and a memb er of The

Standing Committee of National People’s Co ngress. Professor Jiang is the

recipient of many research awards and honors with concentration in science and

technology. He had received First Class Prize in Science and Tec hnology of

Jiangsu Province in both 1994 and 1997. Professor Jiang’s main research interests

include X-ray diffraction and topography and dynamical theory of diffr action

and he has published book on X-ray diffraction topography. He also has

approximately 200 art icles that have been published, of which 120 have been

included in the Science Citation Index (SCI).

Professor SIU Kai Yeung Sunny, 34, the Chief Technology Advisor of the Group.

Professor Siu is on leave from the Massachusetts Institute of Tec hnology (MIT),

where he is an Associate professor and recipient of the d’Arbeloff Career

Development Chair. He is also the founder and research director of the MIT

Auto-ID Center, an industry-funded center which develops next-generation

aut omatic identification systems with e-commerce applicat ions. Professor Siu is

the recipient of many prestigious research awards fo r his work on Next

Generation Internet and broadband technologies. He has le d two major research

projects at MIT: Optical WDM Broadband regional Access Networks (joint

project with AT&T, Nort el, and JDS Uniphase) and Fourth Generation Wire less

Multimedia Systems (joint project with NTT DoCoMo, Japan). He has also

served as a consultant to major internet and telecommunications equipment

vendors and service providers, including Cisco Systems, Lucent Tec hnologies,

NEC, Sprint, and NTT. Professor Siu received his doctoral degree in elect rical

engineering from Stanford University, California, USA in 1991.

9Milestones

March/2000

Launch of

Hong Ko ng’s first

Windows 2000 internet

t rading platform.

June/2000

Joint venture with Hip

Shing Hong Group to

establish opt ical fiber

manufact ure plant, the

first of its type in Hong

Kong.

September/2000

Launch of Easy

Transfer service, highly

convenient and

efficient way for fund

transfer for client

brokerage ac counts via

HSBC ATMs, te ller

counters, phone

banking and internet.

December/2 000

COL listed on

GEM of the

Stoc k Exchange,

by way of introduction

under the stock code of

8122.

February/2001

Introduce online T+2

settlement. A value-

added service enables

users to pla ce orders with

only partial deposit

payment in secur ities

trading accounts, while

settling remaining

balance in two trading

days.

November/2000

Launch o f Broker

Supply System (“BSS”)

to provide multi-function

and multi-market t rading

services.

March/2001

Acquired 69.21%

equity interest

in Pricerite,

a Hong Kong listed

company and

one of the city’s

biggest household

retailing groups.

Jan/2000

Strategic alliance with

China Academy for Science

and Technology

Development (“CASTD”)

that will help source

funding and identify listing

opportunities for potential

projects to facilitate their

development.

milestones

10Chairman’s Statement

chairman’s statement


The year 2000 heralded the start of a new

millennium and signaled the start of a new era

for CASH. The year was one in which our rapidly

evolving Group demonstrated its ability to

succeed in an era of unprecedented changes.

We achieved solid results despite volatile market

conditions and an economic slowdown,

strengthening our position relative to our peers.

We also made the first step towards our long

term goal of leveraging our existing strength to

transform into a new conglomerate, operating a

range of cross-sector service businesses in the

Greater China region. This will enable us to

achieve substantial growth in shareholder value

that lies at the heart of our mission as a

company.

We acheived solid results despite a volatile market, strengthening our position relative to our peer group


Group’s turnover for the year

rose 93% to HK$473 million

Results

The Group’s tur nover for the year rose

93% to HK$473 mil lion. Althoug h a

satisfactory result, this was below our

expec tations and reflec ts a difficult second

half, as the sudden bursting of the

internet bubble in global stock marke ts led

to a lackluster trading environment in

Hong Kong.

Profits grew 9% to HK$102 million. The

modest profits performance resulted from

our continued investment in tec hnology

and branding mainly for building the

foundation of COL. These cost co mponents

will decline substant ially in 2001 as we

have successfully established our

technology infrastructure and brand name

in Hong Kong.

We are not recommending dividend,

in order to reserve the surplus so as to

strengthen our financial resources.


Operations

Our goal dur ing 2000 was to strengthen the

foundation fo r our continued success in

financial services in Ho ng Kong, in-depth

migration into different business levels and

our future expansion b eyond Hong Kong

and into other se rvices sec tors. We

achieved this through:

• D eepening our management talent

• Investing in our technology platform

• Listing our electronic financial

services arm COL

Human capital

We understand that the most valuable

resource a c ompany possesses in an era of

rapid change is people who are dynamic,

experienced and professional.

Much of our effort in the year has b een

devoted to recruiting and deve loping

talented individuals who wil l be able not

just to manage successfully our current

core businesses, but to expand into new

areas. We now have a depth of experience

at all le vels, which is be ing augmented by

increasing training. New team-based

management structures and regular

interaction with senior management have

created a common understanding of the

goals and values of the Group, contribut ing

greatly to control and efficiency.


During 2000, Mr Eugene Law and Ms Joan

Kwok have been appointed to the Broad as

Executive Directors in recognition of their

exce llent contribution to the Group. Eugene

is the Group’s Chief Operations Officer and

has won praise for revamping our operating

system and building up our AMS/3

platform. Jo an is our Company Secretar y

and Head of Corporate Planning &

Deve lopment. She contributed exceptionally

to the Group’s merger and acquisition

exercises. They, as well as other key

management, are the true assets of the

Group.

The Group also puts a strong emphasis on

attracting, retaining and developing

employees of the highest quality, in order

to maintain our lead in technology and

customer service. Training is a particular

feature of the Group and its subsidiaries.

This year, our employees recorded a total

of over 6,500 hours of training, both in-

house and external, in s ubjects r anging

from customer services, regulatory

compliance to self advancement.

This eff ort is now beginning to show

rewards, as we move into our next phase of

development.

Information technology

CASH was one of the first companies in

Hong Kong to understand the t ransforming

role technology would play in the financial

services industry. We envisaged there would

be a fundamental change to the market-

place and an increasing need for tighter

regulation resulting from the rapid change

in technology in the financial services

industry. We were decisive in investing

heavily to build up our IT infrastructure,

which has allowed us to claim “firsts” in

many areas of financial services in Hong

Kong in the past two years.

We believe our trading platform is now

second-to-none and offers our customers

the highest leve l of execut ion and ease of

use. In November 2000, we received

recognition for our achievements through

the award of a Certificate of Merit in

Technological Achievement from the Hong

Kong Industrial Technology Center

Corpo ration (HKITCC). Desig ned to

recognize winners’ innovative approach to

technology and their co ntribution to Hong

Kong industry as a whole, the HKITCC

writes, “the Awards represe nt concret e

evidence of Hong Kong’s ability to succeed

in high-tech business.”

Reliable and secure systems are at the core

of our competitive advantages since they

bring our customers a wider range of value-

added services, as well as meet their

requirements for speed and secur ity. This

assists them to make the rapid ye t informed

investment and t rading decisions required

to grow wealth in today’s complex market

environment.


COL

The successful listing of our electronic

financial services arm COL in December

2000 was an important milestone for our

Group and demonst rates how our

c ombination o f technology and

professionalism can create substantial value

in a short time span.

COL was established in 1998 at a difficult

t ime fo r Hong Kong’s market, as Asia was

in the throes of the financial crisis.

Nevertheless, the e fficient information

arc hitecture and our st rong branding led to

a rapid increase in trading at COL, which

q uickly attrac ted strategic investors. It has

raised sufficient capital to fund its business

plan for the coming three years. With a

separate listing, COL now has a greater

degree of fo cus on its part icular market

niche. (For details of COL’s performance

and prospects, please refer to the separate

COL annual repo rt 2000.)

As technology transforms

economies and business practices,

there will be great opportunities


Outlook

We believe the challenges that lie ahead as

technology transforms economies and

business practices wil l provide great

opport unities for expansion to dynamic

and flexible co mpanies such as CASH. We

recognized the limitations on growth

potential in our do mestic markets and the

consequent need to develop a regional and

global business model to ensure continued

growth potential. Mult iple products and

quality services are the keys to success. The

Board resolved to t ransform CASH into a

new business entity that can cross-sell

multiple products and services to cater to

var ious personal needs. We wil l pursue our

vision of beco ming a cross-sector services

conglomerate, not just in Ho ng Kong but

in the Greater China region and in other

promising marke ts in Asia.

Greater China

We are encouraged by developments

outside Hong Kong. CASH already works

c losely with a number of impo rtant

mainland Chinese institut ions in Hong

Ko ng in area of stock broking. With the

mainland now the seco nd largest equity

mar ke t by capitalization in Asia and a

rising middle class there increasingly

involved in stock trading, the potential to

extend our service-oriented business mode l

into mainland China is clear and

c ompelling. With the country poised to

enter WTO, C hina represents one of the

most important market opportunities of

the coming decade in financial services.

We are also excited by the market China

represents for general retail services.

China’s increasingly affluent urban

c onsumers represent one of the largest

potential pools of consumer demand not

just in Asia but the wo rld. With our unique

vision, bac ked by our expertise developed

in Hong Ko ng, we believe that the

mainland retail market represents a marke t

o f tremendous opportunities in all areas

f or the Group.

Acquisitions

Recent struct ural changes in the market are

creating pressures within the financial

services arena towards consolidation and a

greater need for capital. At the same time,

they are breaking down the boundar ies

b etween business sec tors. CASH is taking


advantage of this to protect our position in

existing operations and enter with great

speed into new areas of business that offe r

synergies with them.

The downturn of the financial market

presents many opportunities to ac quire

businesses that are undervalued. As a

company with a strong financial position

and solid re lationships with companies in

different sect ors, CASH is well placed to

capitalize on this sit uation.

In 2001, we aim to build a portfolio of

businesses through acquisition and

leveraging their customer bases through

cross-marketing, thereby increasing our

economies of scale through the common

technology platfo rms and human capital to

enhance profitability. We wil l target

businesses with substant ial custo mer traffic

and solid pro duct ivity levels, subject ing

each to rigorous evaluation and due

diligence proc ess.

Investing in the future

Althoug h the global eco nomic downturn is

substantially delaying or jeopardizing the

development of various indust ries, CASH

will caut iously identify opportunities that

may ar ise. To ensure we maximize our

ability to take advantage of these

oppo rt unities, we wil l continue to invest in

peo ple and training, improve our

technology platform, business networking

and product offerings, building on our

brand and reputation for custo mer service.

With the bulk of our investment in the

technology platform and in the first phase

of our brand building now behind us, we

expect to reduce costs substantially in 2001.

Unless market conditions turn adverse

beyond expectations, this should lead to a

be tter overall financial performance.

Further ahead, we are moving towards

be ing a cross-sector services cong lomerate,

using a common platf orm to create

synergies across business secto rs and

generating robust cash flows that wil l

equate to consistent long-term growth in

shareholder value.

On behalf of the Board

Bankee P Kwan

Chairman & CEO

Hong Kong, 12 April 2001

20Operations Review and Preview

Corporate ActivityThe year 2000 saw substantial increases

in ac tivity at both the corporate leve l

and within our individual operations. To

respond to new market opportunities

and to address the need fo r a clearer

struct ure brought about by our rapid

growth, in the first quart er, the Group

was reorganized into four distinct

operations. Financial Services Group

(FSG) focuses on corporate finance and

brokerage services. CASH on-line (COL)

is primarily engaged in the provision and

the deve lopment of elec tro nic-based

personal financial services. Technology

Development Group (TD G) invests in

and develops technology-related

businesses with par ticular relevance to

Asia. Strategic Investments Group (SIG)

targets medium-term investment

projects to realize profit for

shareholders.

operations review and preview

We concentrated our efforts on

strengthening financial services and

expanding our brokerage business


The successful list ing via introduction to

GEM of the Stock Exchange of COL in

Dec ember 2000 marked the highlight of this

reorganizat ion. In early 2001, we made the

decision to structure CASH as a cross-

sector se rvices conglomerate, based initially

around these four entities.

During the year under review, the Group

was active in capital restructuring and

returning value to shareholders through a

variety of corporate ac tivities in the Hong

Kong stock marke ts. In July 2000, an issue

of subscribable warrants was met with a

good resp onse from investo rs, allowing us

to raise HK$60 million. The issue of new

CASH shares in Dec ember 2000, also well

received, raised a further HK$144 million.

Simultaneously with the issue of

subscribable warrants, CASH made a one-

for-ten bonus issue of warrants for

shareholders, and before the listing of COL,

CASH made a o ne-for-ten distribution of

COL shares to its shareholders.

Operational EfficiencyFSG and COL have taken every opportunity

to use the latest tec hnology to raise

operational efficiency through a much

strengthened IT infrastructure. The

improvements we carried out during the

year have resulted in a comprehensive,

reliable, efficient, flexible and secure

sy stem for the front and back-end

o perations of our brokerage business, as

well as for the Group’s internal control.

This is al lowing us to provide the best

q uality service to our clients and to lay the

basis for becoming a fully integrated

provider of brokerage and financial

services.

The improvements during the year covered

a large number of important areas. Our

ability to implement this co mplex

upgrading pro cess smoothly testifies to the

management strengths of FSG and COL

and the depth of expertise in its technical

t eams.

The key elements were:

• BSS. The Group was among the first

batch of brokerage houses in Ho ng

Kong approved by the Stoc k Exchange

to roll out BSS, which enables straight

through p rocessing of trades with the

Stock Exchange, thus increasing speed

and accuracy of execution. Developed

by the brokerage community, our BSS

system will al low the Group to add

other features in the fut ure, further

enhancing the quality o f the services

we provide to our clients.


• Payment gateway. Introduced in

September 2000, our Easy Transfer

service allows clients to transfer funds

to their CASH accounts via HSBC ATM

mac hines, teller counters, phone

banking, and internet banking. Funds

are credited for use within 30 minutes,

greatly improving the ability of our

customers to manage their finances

efficiently. We are now working with

other major banking g roups to expand

our coverage.

• Interact ive Voice Response System

(“IVRS”). To offer clients an efficient

and convenient voice access for

inquiries regarding their transac tions

and portfolio details, we are currently

developing an advanced IVRS to

complement our cal l centre. The system

is expec ted to be in place by the middle

of 2001.

FSG

Business Review

Dur ing the year under review, operating

revenue attributable to FSG increased by

81.8% to $391.1 mil lion over the previous

year. Secur ities brokerage remains the co re

operation of FSG and repo rt ed a 65%

increase in brokerage revenue to $236.3

million. Average daily turnover increased

86% and helped lift our average market

share by 84%, securing the Group’s

position as one of the leading local

brokerage houses. In line with the growth


of our securities dealing activities and

relying on the robust risk management

systems that are based on our versatile IT

infrastructure, FSG has within prudent

limits leveraged the Group’s st rong balance

shee t by building up its secur ities margin

lending portf olio. Interest revenue from

margin lending rose during the year by

177% to $42.5 Mil lion.

Revenues from FSG’s commodities

brokerage operation saw a decline of 38%

to $29.5 Million during the year mainly

due to the contraction in Hang Seng Index

Fut ures dealing ac tivities of trading clients

after migration of such trading to the

Aut omated Trading System (ATS) in June

2000. However, we have experienced very

encouraging results in the Mini-Hang Seng

Index Futures that were introduced to the

market in Oc tober 2000. FSG is also

exploring avenues to int roduce more

commodit ies products traded in overseas

markets to our clients.

To complete the service value chain, FSG

has strengthened its corpo rate finance

operation through more act ive

participation in both the primary and

secondary markets, as we ll as in corpo rate

advisory and structured financing

transactions. During the y ear under review,

revenue from corporate finance rose

significantly by 288% to $15 million and

the unit is expec ted to report even more

promising results in the coming year.

Business Development

Alongside the advance of technology, FSG

reco gnizes the impo rtanc e of delivering

mo re personalized services and diversified

products to CASH customers. Throughout

2000, FSG has wo rked to increase the level

o f service personalization, to provide

b etter overall service quality, and to target

mar ke t segments more effec tively in

pursuit of higher margin revenues.

To a ddress these issues, FSG during the

year has taken a number of initiatives,

ranging from the establishment of new

b usiness units and support teams to

integration of new tec hnologies.

• Corporate Sales Team. In December

2000, FSG established a team dedicated

specifically to the needs of corporate

and high net worth customers who are

particularly recept ive to higher levels of

custo mized and personalized financial

services. These customers are less price-

sensitive and their patronage is less

affected by the forthcoming

deregulation of brokerage

commissions. This team sp ecializes in

transact ion o rig ination and provides

proactive wealth management services

in ac cordance with clients’ individual

investment objec tives.


• Leveraging Research Capab ility. We

maintain an equit ies research team

comprising experienced investment

strategists, professional market

researchers and respected analysts. The

team is planning to interact more

closely with other business units to

offer all CASH c lients timely market

information and valuable commentaries

by way of multi-media platforms

throughout the trading sessions. We

wil l also consider the viability of

exchanging research materials with

other renowned p ortals as another

revenue generator for FSG.

• GEM Main Sponsorship Qualification.

In recognition of our expert ise and

experience in co-sponsoring and co-

managing primary issues, our corporate

finance arm Celestial Capital Limited

(“Celestial Capital”) was formal ly

granted permission by the Stock

Exchange in February 2001 to sponsor

GEM listings. This wil l greatly increase

the business scope of our corporate

finance operation, which is currently

also working towards sponsoring main

board listings and expanding its

placement and underwriting

capabilities through its equity capital

markets unit. Ce lestial Capital aims to

become an integrated financial services

provider and has, in co-operation with

other business units of FSG, pioneered

a unique Shareholders Value

Enhancement Pro gram. This highly

structured corporate finance service

aims to provide a one-stop integrated

solution to assist small to medium-sized

listed and private companies in

formulating corporate strategy and

maximizing shareholder value through

creative growth strategies, effective cost

control and capital allocation, as well as

successful use of corporate promotions.

• Reinforcing Service Standard. To ensure

delivery o f quality customer services to

our brokerage custo mers at retail

counters, we have established a

complete set of Service Codes and

committed ample resources to provide

on-going custo mer service and product

knowledge training for our frontline

staff. These initiat ives are reinforced by

periodic reviews designed to ensure

attainment of higher service standard

go als.

• Resources Rationalization. The financial

services market is becoming

increasingly competitive and demands

ever rising leve ls of specialization. FSG

there fore took the strategic decision to

discontin ue its foreign exchange and

bullion dealing operations in December

2000. As a result, FSG can now make

better use of human and capital

resources to focus on fur ther


substant iating its core competitive

strengths in brokerage and corpo rate

finance. Althoug h of relat ively minor

significance, foreign exchange and

bullion dealings were revenue

contributors and FSG will contin ue to

review market conditions to de termine

whether the likely re turns warrant their

being re-established in fut ure .

COL

The year 2000 saw COL fulfil the core

promise made to strategic shareholders by

listing its shares on GEM of the Stock

Exc hange in December 2000, after two

years of operations. This is a testament to

the Group’s successful investment in a

strong branding and IT infrastruct ure.

COL’s revenues for the year rose 107%

o ver 1999 to HK$44 mil lion, reflec ting an

enlarged customer base and a good

response from existing customers to the

introduct ion of new products. Net loss

nevertheless widened to HK$157 million.

This was expected and was a conseq uence

o f heavy investment in technology,

advertising and promotion f or its

establishment.

D uring the year, COL made substant ial

progress in all areas of operations.

Products and services

D uring the year, COL fo cused on

deve loping and broadening its sco pe of

activities from secur ities, futures and

c ommodities trading services. These wil l

enable customers to hedge their positions

in the mar ke t.


In addition, COL has worked with FSG to

cement al liances with other leading

providers of financial services to expand its

product offerings beyond the secur ities

markets, and to improve the ease and speed

of use of online trading accounts, such as

the Easy Transfer payment service.

In-Trade

COL’s internet-based secur ities and

commodities trading platform, In-Trade,

saw considerable improvement during the

year. The number of customer accounts

rose by a substantial 330%. This helped

contribute to a strong increase in revenues

from this part of our operations.

In March 2000, In-Trade was upgraded to a

Windows 2000 version. This provides the

security of 128 bit encryption as we ll as

higher scalability and improved load-

balancing capabilities, to meet increasing

trading volume.

Mar ke ting effo rts for In-Trade were helped

by the succ ess of iGame. This virtual

real-time investment game was introduced

with the aim of educat ing peo ple about

elect ronic t rading and to allowing the m to

beco me familiar with In-Trade. Four

rounds of iGame were held, with

part icipation from a number of technology

and channel partners, including Co mpaq,

Microsoft, stockhouse.com and MSN.com.

This is part of an innovative marke ting

strategy developed for In-Trade. In May

2000, we opened two cyber cafés in the

prime locations in Causeway Bay and Tsim

Sha Tsui to promote COL’s elec tro nic

financial services. This was followed in

October by the launching of CASH Points,

a loyalty program for In-Trade customers.

SmarTrade

Our SmarTrade mobile trading plat form

also saw strong growth. The number of

customers rose 280% over the previous

year.

In early 2000, SmarTrade was extended to

provide trading services in Hong Kong

co mmodities, thus enabling users of

SmarTrade to trade both secur ities and

commo dities products throug h their GSM

mob ile phones. In May 2000, SmarTrade

was further extended to PCS mobile

phones.

COL is currently working to ensure that

our plat form and its functionality

keep pace with developments in cellular

communicat ions.


Mi-Trade

In October 2000, COL introduced Mi-

Trade, its mobile trading technology,

through PDAs. PDA trading services enable

end-users to trade secur ities and

commodit ies on a PDA with a wire less

connec tion. Similar to In-Trade, users of

Mi-Trade can use their preferred ISP in

connec tion to the internet for mobile

trading activities. The full launch was held

in December 2000.

www.cashon-line.com

In September 2000, COL officially launched

www.cashon-line.com (www.cash.com.hk has

now become the corporate website of the

Group), an online financial services site

providing trading services, real-time stock

quotes, up-to-date mar ke t co mmentary and

recommendat ions on select ed global

markets and companies listed on the Stock

Exchange, as well as linkage to related

financial websites providing world financial

news. In co njunction with FSG, COL also

built a team of experienced financial

journalists to provide timely and insightful

commentary.

www.e-finance.com.hk

The creation of our personal financial

website www.e-finance.c om.hk was another

step in realizing the vision of COL and the

Group of becoming a one-stop-shop

services group. www.e-finance.com.hk offers

a ful l range of interactive financial and

investment services that facilitate the

understanding, planning and achievement

o f personal financial goals.

In January 2000, we launched a unique

service, e-finder, an online reverse auction

engine, on www.e-finance.com.hk. Potential

b uyers post their desired terms for

required financing s uch as tax loans and

mo rtgages through e-finder. The terms are

viewed and evaluated by participating

financial institut ions which in turn submit

their best offe r based on the user’s profile

and requirement. In October 2000, we

upgraded the site with a new design and

added a brand new lifestyle sec tion.

The portal now covers areas such as real-

t ime marke t information, financial

mo deling, marke t commentary, sto ck

portfolio screening , sports and leisure.


TDG, SIG and Other ActivitiesOur TDG and SIG divisions contin ued to

build their operations, taking advantage o f

the Group’s strong balance sheet to seek

oppo rt unities in a number of promising

areas. In addition, deve lopments since the

end of the financial year indicate

important new additions to the Group’s

portfolio of businesses.

• Transtech Services Group Limited

(“Transtech”). This project, to develop

the first opt ical fiber and

telecommunications manufac turing

facility in Hong Kong to capture the

huge growth in demand for high

bandwidth communications, continued

on schedule. We therefore confidently

expect to enter production by the end

of 2001. Mar ket response to the

pro gression of our initial phase has

been very positive.

• CASTD. Our co-operation with this

important state-owned institut ion,

which has access to and rights over

state-owned high-technology projects

continues to strengthen. Althoug h

ac tivity slowed down during 2000 as

global market sentiment towards the

technology sector declined, we expec t

more activities in 2001.

• Pricerite. The Group’s acquisition of

major Hong Kong retailer Pricerite was

announced in February 2001 and was

completed before the end of March

2001. Pricerite’s performance fo r the

financial year 2000 to 2001 showed a

much improved ret urn on equity, which

bodes well for the Group. Its extensive

retail outlets, bro ad customer base,

and “brick-and-mortar” B2C e-shop

will provide ideal oppo rt unities for

the Group to widen the spread of our

online and personalized financial

services.


Aggressively reinforcingservice standard, broadening our product range, aiming to provide value added services

Business Outlook

Althoug h market conditions may prove

difficult in some areas in 2001, our spread

of businesses, increased synergies between

them and continuing impro vements in

product offerings and service quality should

enable us to consolidate our position as a

cross-sector services conglomerate and

explore new avenues of growth. At the same

time, with a firm view on financial

perfo rmance, we will maintain our

stringent risk management and continue

our efforts to ensure cost efficiency.


FSG

FSG wil l continue to pursue the goal of full

automation, through which services ranging

from fund transfer, order placement and

trading will become fully automated. The

emphasis on service quality through

personalization of tec hnology channels and

increased training of people will co ntinue,

and help to increase customer lo yalty. FSG

will explore opportunities in corporate

finance, on b oth the main board and GEM,

where it is now licensed to sponsor listings.

As China contin ues to open, FSG wil l also

build relationships with mainland

corpo rations, with a view to expanding its

services into the mainland.

COL

COL should see a much improved bottom

line in 2001, as expenses fall sharply. COL’s

brand is now firmly established and this

will al low COL to reduce substant ially

spending on advertising and promotion

without negative impacts on mar ke t share.

By expanding the range of products, COL

aims to increase revenues from existing

customers, while simultaneously developing

new ac counts from its much-expanded

database and cross-selling within the

Group. Mi-Trade wil l review the range of

wireless internet technologies and devices

t o ensure COL can provide a more

c omprehensive multiple platf orm through

which to a ccess financial services.

Pricerit e

The integration of Pricerite as another

b usiness in our growing services

c onglomerate will provide significant

cross-selling opportunities to other

b usiness segments of the Group and

should c ontribute to profits in the 2001

financial year.

Other businesses

We expect production of opt ical fiber to

b egin at our Transtech joint venture by the

end of 2001. With the invest ment in this

high potential business beginning to see

rewards, the TDG division will thus begin

t o impact Group earnings more positive ly

from 2002 onwards. If market sentiment

improves, we also hope for more concre te

results from our exce llent relat ions with

CASTD, providing opportunities for

c orporate finance and investment in the

mainland China. Both TDG and SIG

divisions will contin ue to use the Group’s

extensive re lationships across Asia to

deve lop technology-related and other

b usinesses, where a fall in asset values has

created opportunities.


General Preview

In view of the unsettled conditions in the

leading US marke t, the global e conomy is

generally expec ted to slow. The

consequences of the b ursting of the

internet bubble in the second half of year

2000 and the current global financial

market conditions lead the Board to

forecast that the general investment

atmosphere wil l be cautious and that

market turnover for the brokerage and

financial sec tors for the year 2001 will

remain sluggish. Due to the weak

investment environment, the development

period for investment projec ts will also be

longer.

Locally, the fundamental changes stemming

from the forthcoming deregulation of

brokerage commissions and keen

competition in online broking from the

banking sector have triggered cut-throat

pricing among local brokerages. Under these

circumstances, the Board expec ts that the

Group will see a relative slowdown in the

expansion of its brokerage business in the

coming year and will strive instead to

achieve higher operating margins and

minimum operating costs.

To soften the cyclical impact of financial

services business, the Group has committed

to extend the business of the Group

horizontally. Our aim is to become a cross-

secto r services conglomerate. This w ill on

one hand stabilize our revenue streams, and

on the other hand, generate cross-sec tor

selling oppo rt unities that wil l in the long

run generate synergies within the Group.

In summary, the Board maintains a

conservative stance towards the Group’s

like ly business performance in 2001 since

the newly established businesses have yet to

begin to contribute to revenues and

investment projects have yet to materialize.

34Chairman Interview

chairman interview


New technologies have always created new business oppo rt unities and business models.

It is our be lief that one model suitable fo r Greater China wil l be a new type of

conglomerate that, using a common technology and brand platform, can create synergies

and economies of scale through bringing to gether businesses serving different

segments of the cons umer marke t. We intend select ively to invest in a range of such

businesses, investing capital in them and bringing to bear our managerial expertise,

to unlock their value and increase the value of the entire Group. We see this as the best

way of creating shareholder value in the long-term.

Our strong cash flow from operations and our successful capital-raising activities have

given us a balance sheet that for a company such as ours is except ionally strong. We have

HK$1.2 bil lion in eq uity capital, no net bank debt with cash on hand of HK$600 million.

In current market conditions this puts us in a very favorable position, given that many

companies face cash-flow difficulties. For this reason, we are well regarded by banks and

institutional investors. We are therefore confident we have significant scope to raise

further capital to finance ambitious acquisition programs.

Why do you think a

cross-sector servicesconglomerate is the way forward?

Just how well placed financiallyis CASH to expand?


It is all about long-term growth. We are building a dynamic, in-depth management team

to support our growth. Our business model relies on innovative services and products,

which in tur n require human talent to develop. Hence, we retain talent through o ffering a

good incentive scheme. The mistake is to see CASH as a brokerage house. This is what

we have been, not what we are already becoming. It is true that the amount we spent on

our people in 2000 is high when b enchmarked against the brokerage industry alone. But

this represents an investment in the people we need to expand successfully beyond Hong

Kong and beyond financial services. In a knowledge-based e conomy, peo ple are the most

important resource and we have put the development of human capital at the core of our

strategy. As our business model is scalable, this expense ratio will become more obviously

consistent with our operations.

Many parts of our business had perfo rmed well. Our retail securities brokerage managed in

a difficult market to increase commission revenue by 63%. Jo int marke ting with the retail

brokerage unit helped to raise revenues from our growing institutional sales operation by

45%. Corporate finance also had a go od year, underwriting more than $416 million of

capital-raising transac tions and increasing total turnover by 288%. Our margin financing

business tripled. Were it not for our heavy investment in other areas to prepare ourselves

for the next phase of deve lopment beyond our present boundar ies, profitability would have

risen more dur ing the year. These were our achievements in 2000. But I view success on a

longer te rm basis and from a broader perspective. In this sense, the sophisticated

tec hnology architecture and the brand presence we have built during the year, although at

a high cost, are in fact the most successful aspects of our performance.

The cost breakdown indicates that the

salary expense is a major component. Why is this so?

What were the most successful aspects of the business in 2000 ?


Pricerite completed a successful restructuring in 2000 and now has turned-around

performance, generating a solid cash flow. Its extensive retail outlets, broad customer base,

and “brick-and-mortar” B2C e-shop will provide ideal oppo rt unities for CASH to widen

the spread of our high quality online and personalized financial services. Pricerite wil l also

be useful as a channel for CASH to enter into China market, to tap into the enormous

oppo rt unities we foresee in the domestic retail industry after entry into WTO. We wil l

launch cross-marke ting campaigns between CASH and Pricerite in the near future.

I think most investors understand we are stil l at an investment stage and

wish to plough p rofits back into new growth, to ensure greater rewards in the

future. In addition, the distribution in 2000 to shareholders in the form of

COL shares of HK$87 million and bonus warrants of CASH already

represents a return of wealth to shareholders for the year.

Will CASH continue high spendingon technology and branding in 2001?

We have already achieved most of the objec tives we set ourselves in these particular areas.

Our technology platform is one of the most efficient and stable in Hong Kong. To give

just one example, our open gateway trading platform that settles trades directly with the

Stock Exchange, is undoubt edly one of the fastest, allowing us to clear hundreds of

overnight orders in the first 15 seconds of trading. Hence, for the foreseeable fut ure, our

technology platform now needs refinement, rather than renewal. Equal ly, our brand is

now well established and we have built a substantial and loyal customer base. We have also

developed a brand presence internationally, attracting prominent investors. Hence our

advert ising spending wil l for the present decline substantially, without loss of momentum

in our marketing.

Why did you choosenot to recommend a dividend?

What plans do you have for Pricerite ?

38Our People and the Community

We believe that a corporation’s wider

educational and social role exerts an

influence on its business success.

Throug hout the year, CASH has devoted

considerable effort to helping its own

employees and people in the wider

community ge t more from work and life.

Quality Training, Quality Service

Much investment has been made d uring

the year in our human infrastructure, since

we believe that quality services come only

when employees’ knowledge is

contin uously updated and the ir skills

improved. Regular pro grams and

workshops were held, especially desig ned

for people working in the finance industry.

These courses enhanced our employees’

knowledge of compliance issues, r isk

management and operations, gave them

insight into many important fields,

including the regulatory framework,

account-opening proc ess, and the role of

the customer service representative. These

issues were conveyed more widely via the

CASH staff newsletter.

Better Communication Channel,

Better Interaction

To be “customer-oriented” is one of the

core business values of the Group. To

enhance customer relations and loyalty, we

have created various co mmunication

channels. During the year, we began

publication o f quarterly client newsletters

and conducted client focus group surveys,

which provided construct ive suggestions

and ideas that have assisted management in

fut ure planning and improving further our

leve ls of customer service. One example of

our response to these insights is our plan to

provide timely marke t information and

valuable commentary delivered via

different mult i-media platforms

throughout the trading sessions.

Beyond Business

As a good co rporate citizen, CASH is aware

of the responsibilit ies of an educated and

committed member of socie ty. During the

year, we spo nsored and supported a var iety

of charitable causes such as the Helping

Hand cookie campaign and Wo rld Heart

Day to promote care for the elderly and

health consciousness. CASH also made

considerable eff orts in spreading the

message of environmental protect ion by

sponsoring the World Wide Fund For

Nature (Ho ng Kong) as a Corporate

Member (Diamond). Other major

sponsorships dur ing the year included

donations to the Community Chest.

our people and the community

39Notice of Annual General Meeting

notice of annual general meeting

NOTICE IS HEREBY GIVEN that the Annual General Meeting of Ce lestial Asia Secur ities

Holdings Limited (“Company”) will be held at Salon 4, Level III, JW Marriot Hote l, 88

Queensway, Hong Kong on 7 May 2001, Monday, at 10:30 a.m. for the following purposes:

1. To receive and consider the Financial Statements and the Reports of the Directors and the

Auditors for the year ended 31 December 2000.

2. To re-elect the ret iring Direc tors of the Company for the ensuing year and to authorize the

Direc tors to fix the Directo rs’ remuneration.

3. To ratify the appointment and re-appoint Messrs De loitte Touche Tohmatsu as auditors of

the Co mpany fo r the ensuing year and to authorize the Direc tors to fix their remuneration.

4. To co nsider and, if thought fit, to pass the following resolutions, with or w ithout

amendments, as ordinary resolutions:

A. THAT

(a) subjec t to paragraph A(c), the exercise by the Directors of the Company during the

Relevant Period (as hereinafter de fined) of all the powers of the Co mpany to allot,

issue and deal with additional shares in the capital of the Company and to make or

grant offers, agreements and options which might require the exercise of such

power be and is hereby generally and unconditionally approved;

(b) the approval in paragraph A(a) shall authorize the Directo rs of the Co mpany

during the Relevant Period (as defined hereinafter) to make or grant off ers,

agreements and options which might require the exercise of such p ower afte r the

end of the Relevant Period;

(c) the aggregate nominal amount of share capital allotted or agreed conditionally or

unconditionally to be allotted by the direc tors of the Company pursuant to the

approval in paragraph A(a), otherwise than pursuant to a Rights Issue (as

hereinafter defined) or any option scheme or similar arrangement for the time

being adopted for the grant or issue to employees of the Company and/or any of

its subsidiaries of shares or right to acquire shares in the Company shall not

exceed 20% of the aggregate nominal amount of the share capital of the Company

in issue as at the date of this resolution and the said approval shall be limited

acc ordingly; and


(d) for the pur poses of this resolut ion:

“Relevant Period” means the period from the passing of this resolution until

whichever is the earlier of:

1. the conclusion of the next annual general meeting of the Company;

2. the expiration of the period within which the next annual general meeting of

the Company is required by the articles o f association of the Company or any

applicable law to be held; and

3. the revocation or variat ion of this resolution by an ordinary resolution of the

shareholders of the Company in general meet ing; and

“Rights Issue” means an offer of shares open for a period fixed by the Direc tors of

the Company to holders of shares on the register of members of the Co mpany on a

fixed record date in proportion to their then holdings of such shares (subject to

such exclusion or other arrangements as the directors of the Company may deem

necessary or expedient in relation to fract ional entitlements or having regard to

any restrictions or obligations under the laws of, or the req uirements of any

recognized regulatory bo dy or any stock exc hange in any territo ry outside Hong

Kong).

B. THAT

(a) subjec t to paragraph B(b), the exercise by the Directors of the Company during the

Relevant Period (as hereinafter defined) of all powers of the Company to

repurchase issued shares in the capital of the Company on The Stoc k Exchange of

Hong Kong Limited (“Stock Exc hange”) or on any other stoc k exchange on which

the shares in the Company may be listed and recognized by the Secur ities and

Futures Commission of Hong Ko ng and the Stock Exchange fo r this purpose,

subject to and in accordance with all applicable laws and the requirements of the

Rules Governing the Listing of Secur ities on the Stoc k Exchange or on any other

stock exchange as amended fro m time to time be and is hereby generally and

unconditionally approved;


(b) the aggregate nominal amount of shares in the Company to be repurchased or

agreed conditionally or unconditionally to be repurchased by the Company

pursuant to the approval in paragraph B(a) during the Relevant Period shall not

exceed 10% of the aggregate nominal amount of the share capital of the Company

in issue as at the date of the passing of this resolution and the said approval be

limited accordingly; and

(c) for the pur poses of this resolut ion:

“Relevant Period” means the period from the passing of this resolution until

whichever is the earlier of:

1. the conclusion of the next annual general meeting of the Company;

2. the expiration of the period within which the next annual general meeting of

the Company is required by the bye-laws of the Company or any applicable

law to be held; and

3. the revocation or variat ion of this resolution by an ordinary resolution of the

shareholders of the Company in general meet ing.

C. THAT conditional upon resolutions nos.4A and 4B above being passed, the aggregate

nominal amount of the number of shares in the capital of the Company which are

repurc hased by the Company under the authority granted to the directors as mentioned

in resolution no.4B abo ve shall be added to the aggregate nominal amount o f share

capital that may be allotted or agreed conditionally or unconditionally to be allotted by

the directors of the Company pursuant to resolution no.4A above.


5. To co nsider and, if thought fit, to pass the following resolution, with or without

amendments, as ordinary resolution:

THAT the authorized share capital of the Company be increased from HK$800,000,000 to

HK$1,000,000,000 by the creation of an additional 2,000,000,000 ordinary shares of HK$0.10

each in the share capital of the Company.

By order of the Board

Joan Elmond O K KwokCompany Secretary

Hong Kong, 12 April 2001

Notes:

1. A member entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend andvote instead of him. A proxy need not be a member of the Company.

2. In order to be valid, the form of proxy must be deposited at the pr incipal place of business of theCompany in Hong Kong at 22/F The Center, 99 Queen’s Road Central, Hong Kong tog ether with apower o f attorney or other author ity, if any, under which it is signed or a notarially certified copy ofthat power or authority, not less than 48 hours before the time for holding the meeting or adjournedmeeting .

3. A form of proxy for use at the meeting is enclosed.

43Report of the Directors

report of the directors

The Directors are pleased to present their repo rt and the audited financial statements of the

Company and of the Group fo r the year ended 31 Decemb er 2000.

Principal Activities

The principal activity of the Company is investment holding. The principal ac tivities of the Group

consist of (a) investment holding, (b) financial services including brokerage and trading of

securities, futures, commodit ies and options, margin financing and corporate finance, and (c)

technology development pro jec t.

Reorganization and Spin-off of a Subsidiary on GEM of the Stock Exchange

In August 2000, the Group has undergone a group reorganization for the spin-off of the group of

subsidiaries for online business, being CASH on-line, Inc (the former holding company of the

subsidiaries of COL (“COL Group”)) and its subsidiaries, and prepared for the listing of COL on

GEM of the Stock Exchange. On 1 September 2000, the Company distributed 498,123,217 shares

in COL to the shareholders of the Company whose names appeared on the register of the

Company at the close of business on 25 August 2000, by way of distribut ion in specie, at a ratio of

one share in COL for every ten shares in the Company held by the Company’s shareholders. The

shares in COL have been listed on GEM of the Stock Exc hange since 15 Dec ember 2000.

Results and Dividends

The results of the Group’s for the year ended 31 Dec ember 2000 are set out in the co nsolidated

income statement on page 58.

The Directors do not recommend the payment of any dividend for the year.


Segmental Information

An analysis of the Group’s turnover and contribution to profit before taxation by principal

ac tivity and geographical market for the year ended 31 December 2000 are set out in note 3 to the

financial statements.

Five Year Financial Summary

A summary of the audited results and the assets and liabilities of the Group for the last five

financial years ended 31 Decemb er 2000 is set out on pages 103 and 104 of this annual report.

Property and Equipment

Details of movements during the year in the propert y and equipment of the Company and the

Group are set out in note 14 to the financial statements.

Subsidiaries

Part iculars of the Company’s principal subsidiaries are set out in note 15 to the financial

statements.

Borrowings

Details of borrowings of the Company and of the Group as at 31 December 2000 are set out in

notes 25 and 26 to the financial statements.

Share Capital, Warrants and Share Options

Details of movements in the Company’s share capital, warrants and share options during the year

are set out in note 27 to the financial stat ements.


Reserves

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

in note 28 to the financial statements.

Pre-emptive Rights

There are no provisions for pre-empt ive rights under the bye-laws of the Company or the Laws of

Bermuda which would oblige the Company to offer new shares on a pro rata basis to existing

shareholders.

Distributable Reserves

As at 31 December 2000, the Company’s reserves available for dist ribution to shareholders was

approximately HK$556,998,000, being the contributed surplus of approximately HK$580,593,000

less the accumulated loss of approximately HK$23,595,000. Under the Companies Act 1981 of

Bermuda, the Company’s share premium account with a balance of approximately

HK$194,183,000 may be distributed in the form of fully paid bonus shares.

Raise of Funds

During the year, the Company had raised funds of approximately HK$204 million by the

following corporate issues :

1. In July 2000, the Company raised approximate ly HK$60 million from the placing of

496,440,000 subscribable warrants of the Company at the placing price of HK$0.12 per

warrant.

2. In Dec ember 2000, the Co mpany raised approximately HK$144 mil lion from the placing of

479,000,000 new shares of HK$0.10 each in the Company at HK$0.30 per share to several

private investors.


Use of Proceeds

The funds raised dur ing the year were mainly used fo r financing high technology-related projec ts

of the Group and as general working capital for the usual and ordinary business of the Group.

Connected Transactions

The following connected transac tions of the Company were entered into during the year:

1. On 8 June 2000, Celestial Secur ities Limited (“CSL”), a wholly-owned subsidiary o f the

Company, entered into an agreement (“Securities Agreement”) with CASH E-Trade Secur ities

Limited (“ETS”), a wholly-owned subsidiary of COL Group, whereby CSL agreed to transfe r

a trading r ight of the Sto ck Exchange to ETS at a consideration o f HK$3,700,000 in cash.

Complet ion o f the Securities Agreement is conditional upon approval from the Stock

Exchange. However, in view of the current market situation and in order to maintain a more

flexible and cost-effective operation, CSL and ETS have resolved not to pro ceed with the

completion of the acquisition of the t rading right of the Stock Exchange at the moment and

the Securities Agreement has been temporarily suspended.

2. On 8 June 2000, Celestial Co mmodities Limited (“CCL”), a wholly-owned subsidiary o f the

Company, entered into an agreement (“Commodities Agreement”) with CASH E-Trade

Commodit ies Limited (“ETC”), a whol ly-owned subsidiar y of COL Group, whereby CCL

agreed to transfer a trading r ight of the Hong Kong Futures Exchange Limited (“Fut ures

Exchange”) to ETC at a consideration of HK$1,800,000 in cash. Complet ion o f the

Commodit ies Agreement is conditional upon approval from the Futures Exchange. However,

in view of the current marke t situation and in order to maintain a more flexible and cost-

effect ive operation, CCL and ETC have resolved not to pro ceed with the comple tion of

acquisition of the t rading right of the Futures Exchange at the moment and the Co mmodities

Agreement has been temporarily suspended.


3. On 4 September 2000, the Company has entered into an sale and purchase ag reement

(“Agreement”) for the purchase of 175 million shares of HK$0.10 each in COL (“Sale

Shares”) at a co nsideration of HK$277,888,050 fro m Cash Guardian Limited (“Cash

Guardian”), a company associated with Mr Kwan Pak Ho o Bankee and Mr Khoo Ken Wee,

being Direct ors and substantial shareholders of the Company. The consideration for the Sale

Shares was settled by the issue and allotment by the Co mpany of 463,146,750 new shares in

the Co mpany at an issue price of HK$0.60. Complet ion of the Agreement to ok place on 16

Octob er 2000.

Major Customers and Suppliers

In the year under review, the Group’s turnover att ributable to the five largest customers accounted

for approximately 6.7% of the Group’s total t urnover, and turnover of the Group’s largest

customer included therein amounted to 1.7%.

As far as the Directo rs are aware, neither the Directors, their associates, nor those shareholders,

which to the knowledge of the Directors owned more than 5% of the Company’s share capital had

any beneficial interests in the five largest customers and suppliers.


Directors

The Directors of the Company during the year and up to the date of this Annual Report were as

follows:

Executive Direct ors:

Kwan Pak Hoo Bankee

Khoo Ken Wee

Li Yuen Cheuk Thomas

Law Ping Wah Bernard

Law Ka Kin Eugene (appo inted on 12 June 2000)

Kwok Oi Kuen Joan Elmond (appo inted on 3 October 2000)

Independent Non-executive Directors:

Wong Chuk Yan

Leung Ka Kui Johnny (appo inted on 25 October 2000)

Chan Hak Sin (appo inted on 25 October 2000)

Lam Kin Chung (resigned on 21 September 2000)

Chan Yau Ching Bob (resigned on 25 October 2000)

In accordance with bye-law 86(2) of the Company’s bye-laws and as agreed among the Directors,

Mr Li Yuen Cheuk Thomas shall retire and, being elig ible, offe r himself for re-election.

In accordance with bye-law 87(2) of the Company’s bye-laws, Messrs Kwok Oi Kuen Joan Elmond,

Leung Ka Kui Johnny and Chan Hak Sin shall re tire by rotation and, being eligible, offer

themselves for re-elec tion.

Directors’ Service Contracts

None of the Directors proposed for re-elec tion at the forthcoming annual general meeting has a

service contract which is not determinable by the Co mpany within one year without payment of

compensation, other than statutory obligation.


Directors’ Interests in Contracts

No Director had a significant beneficial interest in any material contract to the business of the

Company to which the Company or any of its holding company, subsidiaries was a party during

the year.

Directors’ Remuneration

Details of the aggregate emolument paid to the Directors of the Company are set out in note 7 to

the financial statements.

Five Highest Paid Employees

Details of the aggregate emoluments paid to the five highest paid employees of the Group are set

out in note 8 to the financial statements.

Retirement Benefit Scheme

The Group has a defined contribution pension scheme (“Pension Scheme”) for its employees, the

assets of the Pension Scheme are held separately in an independently administrated fund.

Contributions to the Pension Scheme are made from both the employer and the eligible employee

based on 5% of eligible employees’ basic salar ies and wil l be charged to the income statement as

incurred. In respect of those employees who leave the Pension Scheme before the employer’s

contributions become fully vested, the relevant port ion o f the contributions forfeited will be

revert ed to the Group to offset future employer’s contributions.

On 10 July 2000, the Company separated the assets of the pension scheme for the employees of

COL Group under COL’s own name, the assets of which are held separately from those of COL

Group in an independently administrated fund. All the terms and conditions of pension scheme of

COL are the same as the Pension Scheme operated by the Company.

The Group operated a new pension scheme under rules and regulations of Mandatory Provident

Fund Scheme Ordinance (“MPF Scheme”) and terminated the Pension Scheme on 1 December

2000, after the implementation of MPF Scheme. All the assets of the Pension Scheme wil l be

transfe rred to the MPF Scheme in early 2001. The assets of the MPF Scheme are held separately in

an independently administrated fund. The Group has chosen to follow the minimum statutory

contribution requirement of 5% of elig ible employees’ relevant aggregate income. The relevant

aggregate income will be fur ther subject to the relevant monthly income cap imposed by the


Group according to the internal grades of the employees with the maxim um monthly income cap

set up by the Group. The contribut ions are charged to the income statement as incurred. In

respect of employees who leave the Pension Scheme before the employer’s voluntary contributions

(represents contributions in exc ess of the mandatory MPF requirements plus all the assets

transfe rred from the Pension Scheme) become fully vested, the relevant portion of the voluntary

contributions forfeited will be reverted to the Group to offset fut ure e mployer’s contributions.

Contribution to the Pension Scheme charged to inc ome statement, net of fo rfe ited contribut ions

of HK$1,079,000 amounted to HK$1,776,000 for the year ended 31 December 2000.

Directors’ Interests in Securities

As at 31 December 2000, the Directors’ inte rests in and rights to subscribe for the ordinary shares

of HK$0.10 each in the Company and shares in its associated corporations as recorded in the

register maintained by the Company pursuant to Section 29 of the Secur ities (Disclosure of

Interests) Ordinance (“SDI Ordinance”) were as follows:

1. Interests in shares or debentures

A. The Company

(a) Interests in ordinary shares

Numb er of shar es beneficial ly heldName Personal Corporate Othe r Interest S hareholding

(%)

Kwan Pak Hoo Bankee* – – 3,001,246,376 50.66

Khoo Ken Wee** 30,000,000 2,692,019,826 – 45.95

Li Yuen Cheuk Thomas 30,037,500 – – 0.51

Law Ping Wah Bernard 54,249,828 – – 0.92

Law Ka Kin Eugene 2,500,000 – – 0.04

Kwok Oi Kuen Joan

Elmond 4,000,000 – – 0.07

* The shares are held as to 2,692,019,826 shares by Cash Guardian and as to 309,226,550

shares by Suffold Resources Limit ed (“Suffold”). Mr Kwan is deemed t o be interest ed in all

these shares as a result of his interests in Cash Guardian and Suffold as disc losed in the

“Substantial shareholders” below.


** The shares are held as to 30,000,000 shares personal ly and as to 2,692,019,826 shares by Cash

Guardian. Mr K hoo is deemed to be int erested in the shares held b y Cash Guardian as a

result of his interests in Cash Guardian as disc losed in the “Substantial shareholders” below.

For avoidance of doubt, the above interests held by Mr Kwan and Mr Khoo have tak en into

account the 2,692,019,826 shares held b y Cash Guardian.

(b) Interests in warrants

Warrants carrying rights to subscr ibe fo r shares of HK$0.10 eac h in the Company

at a subscription price of HK$0.65 each (subject to adjustment) during the period

from 20 July 2000 to 31 July 2002 (both days inclusive)

Amount of warrants bene ficially heldName Personal Corporate Other Interest

(HK$) (HK$) (HK$)

Kwan Pak Hoo Bankee* – – 159,976,285.30

Khoo Ken Wee** 1,950,000.00 144,876,749.55 –

Li Yuen Cheuk Thomas 1,952,437.50 – –

Law Ping Wah Bernard 3,526,238.30 – –

Law Ka Kin Eugene 162,500.00 – –

Kwok Oi Kuen Joan Elmond 260,000.00 – –

* The amount of warrants are held as to HK$144,876,749.55 by Cash Guardian and as to

HK$15,099,535.75 by Suffold. Mr Kwan is deeme d to be interest ed in all these warrants as a

result of his interests in Cash Guardian and Suffold as disclose d in the “Substant ial

shareholders” below.

** The amount of warrants are held as to HK$1,950,000.00 per sonall y and as to

HK$144,876,749.55 by Cash Guardian. Mr Khoo is deeme d to be inter ested in the warr ants

held by Cash Guardian as a result of his interests in Cash Guardian as disc losed in the

“Substantial shareholders” below.

For avoidance of doubt, the above interests held by Mr Kwan and Mr Khoo have tak en into

account the HK$144,876,749.55 amount of warrants held by Cash Guar dian.


B. Associated corporation (within the meaning of SDI Ordinance)

Interests in ordinary shares in COL

Numb er of shar es beneficial ly heldName Personal Corporate Othe r Interest S hareholding

(%)

Kwan Pak Hoo Bankee* – – 1,107,619,945 54.96

Khoo Ken Wee** 3,000,000 1,078,152,090 – 53.65

Li Yuen Cheuk 3,003,750 – – 0.15

Law Ping Wah Ber nard 5,424,982 – – 0.27

Law Ka Kin Eugene 250,000 – – 0.01

Kwok Oi Kue n Joan Elmond 400,000 – – 0.02

* The shares are held as to 1,030,264,783 shares by Celest ial Investment G roup Limited (“CIGL”) (a

wholly-owned subsidiary of CASH), as to 47,887,307 shares by Cash Guardian and as to 29,467,855

shares by Suffold. Mr Kwan is deemed t o be interest ed in all these shares as a result of his interests

in CASH, Cash Guardian and Suffold as disc losed in the “Substant ial shareholders” below.

** The shares are held as to 3,000,000 shares personal ly, as to 1,030,264,783 shares by CIGL and as to

47,887,307 shares by Cash Guardian. Mr K hoo is deemed to be interested in all these shar es as a

result of his interests in CASH and Cash Guar dian as disclosed in the “Substantial sharehold ers”

below.

Fo r avo idance of doub t, the above interests held by Mr Kwan and Mr Khoo have taken int o account the

1,030,264,783 shares held by CIGL and 47,887,307 shares held by Cash Guardian.

Save as disclosed above, as at 31 December 2000, none of the Directors, chief executive or

their associates had any personal, family, corporate or other beneficial interests in the equity

or debt secur ities of the Company or any of its associated corporations as defined in the SDI

Ordinance.


2. Rights t o acquire shares or debentures

A. Right to acquire shares in the Company

The Company has a share option scheme approved by the shareholders under which the

direct ors may, at their discre tion, invite any employee or executive director of the

Group to take up options at a total consideration of HK$1 to subscr ibe fo r ordinary

shares in the Company. Further details of the share option scheme are set out in note 27

to the financial statements.

Details of movements in the share options granted to certain Directors and which

remained outstanding as at 31 December 2000 were as follows:

Number of Numbe roptions of options

outstanding outstandingDate of as at Numbe r of as at

option 1 January options 31 Dec embe r Exe rcise priceName grante d 2000 granted 2000 Exe rcise per iod per share

(HK$)

Kwan Pak Hoo Bank ee 4/10/1999 40,000,000 – 40,000,000 8/4/2000-7/4/2002 0.59

Khoo Ken Wee 4/10/1999 20,000,000 – 20,000,000 8/4/2000-7/4/2002 0.59

Li Yuen Cheuk Tho mas 4/10/1999 20,000,000 – 20,000,000 8/4/2000-7/4/2002 0.59

Law Ping Wah Bernard 4/10/1999 40,000,000 – 40,000,000 8/4/2000-7/4/2002 0.59

Law Ka Kin Eugene 13/5/1999 2,500,000 – 2,500,000 13/5/2000-12/11/2001 0.23

4/10/1999 3,000,000 – 3,000,000 8/4/2000-7/4/2002 0.59

1/6/2000 – 10,000,000 10,000,000 1/12/2000-30/11/2002 0.35

6/11/2000 – 10,000,000 10,000,000 16/5/2001-15/5/2003 0.27

Kwok Oi Kuen Joan 4/10/1999 5,750,000 – 5,750,000 8/4/2000-7/4/2002 0.59

Elmond 6/11/2000 – 15,000,000 15,000,000 16/5/2001-15/5/2003 0.27


B. Rights to acquire shares in COL

Pursuant to a share opt ion scheme of COL adopted on 20 Novemb er 2000 (“Scheme”),

COL may grant options to executive directors and full t ime employees of COL or its

subsidiaries to subscribe for shares in COL for a consideration of HK$1 for each lot of

share opt ions granted.

The Scheme is subject to the administration by a committee of the board of direct ors

including the independent non-executive directors of COL and, where applicable, the

Independent Non-executive Directors of the Company.

The subscription price for shares under the Scheme wil l be a price determined by the

Committee but may not be less than the higher of (i) the closing price of the shares as

stated in the Stock Exc hange’s daily quotations sheet on the date of offer of the option,

and (ii) the average of the closing prices of the shares as stated in the Sto ck Exchange’s

daily quotations sheets on the five business days immediately preceding the date of offe r

of the option on which there were dealings in the shares on GEM, and (iii) the nominal

value of the share.

Options granted are exercisab le at any time during the exercise period resolved by the

Board but in any case such exercise period shall not be less than three years and not

beyond 19 Novemb er 2010. The maximum number of shares in respect of which

options may be granted shall not exceed 30% of the issued share capital of COL in issue

from time to time, and the maximum number of shares in respec t of which options may

be granted to any one executive direc tor or employee is limited to 25% of the maximum

number of shares in respect of which options may be granted under the Scheme.

No opt ions were granted by COL since the Scheme was approved.

Save as disclosed above, at no t ime during the year was the Company, any of its holding

companies, subsidiaries or fellow subsidiaries, a par ty to any arrangement to enable the

directors or chief executive of the Co mpany or to the spouse or children under 18 years of

age of any such direct or or chief execut ive, to acquire benefits by means of the acquisition of

shares in, or debentures of, the Company or any other body corporate, or had e xercised any

such rights.


Substantial Shareholders

As at 31 December 2000, the following parties were interested in 10% or more of the issued share

capital of the Company as recorded in the registe r kept by the Company under S ection 16(1) of

the SDI Ordinance:

Name of shareholder Number of Shares Shareholding%

Jeffnet Inc (Note 1) 3,001,246,376 50.66

Kwan Pak Hoo Bankee (Note 1) 3,001,246,376 50.66

Khoo Ken Wee (Note 2) 2,722,019,826 45.95

Cash Guardian 2,692,019,826 45.44

Notes:

(1) The shares are held as to 2,692,019,826 shares by Cash Guardian (which is 60% beneficially owned by Jeffne t

Inc (“Jeffnet”)) and as to 309,226,550 shares by Suffold (which is 100% bene ficially o wned by Jeffne t). Jeffnet

held these shares as t rustee of T he Jeffnet Unit Trust, units of which are held by a discretionar y tr ust

established f or the benefit of the family members of Mr Kwan. Pursuant t o SDI Ordinance, Mr Kwan and

Jeffnet are deemed to be int erested in the aggregat e shares held b y Cash Guardian and Suffold.

(2) The shares are held as to 30,000,000 shares personal ly by Khoo Ken Wee and as to 2,692,019,826 shares by Cash

Guardian (whic h is 40% beneficially owned by Khoo Ken Wee). Mr Khoo is deemed t o be interest ed in all the

shares held by Cash Guardian pursuant t o the SDI Ordinance.

(3) For avoidance of doubt, the shares in notes (1) and (2) have taken int o account the 2,692,019,826 shares held

by Cash Guardian.

Save as disclosed above, at 31 December 2000, no other parties were recorded in the registe r

required by the SDI Ordinance to be kept as having an interest of 10% or more of the issued share

capital of the Company.


Purchase, Redemption or Sale of Listed Securities

During the year ended 31 December 2000, ne ither the Co mpany nor any of its subsidiaries

purchased, redeemed or sold any of the Company’s listed securities during the year.

Post Balance Sheet Events

Details of the significant post balance sheet events of the Group are set out in note 39 to the

financial statements.

Compliance with the Code of Best Practice

In the opinion of the Direc tors, the Company has complied with the Co de of Best Practice as set

out in Appendix 14 of the Listing Rules throughout the accounting period covered by this Annual

Report save for the I ndependent Non-executive Directors of the Company are not appointed for

specific terms, but are subject to ret irement by rotation at the annual general meeting in

acc ordance with the Company’s bye-laws.

Audit Committee

The Company has established an audit committee in acc ordance with parag raph 14 of the Code of

Best Practice on 28 June 1999. The audit committ ee comprises members of Messrs Leung Ka Kui

Johnny and Chan Hak Sin, both being Independent Non-executive Directors and were appointed

during the year in pla ce of the former independent non-executive directors.

Auditors

There has been a change in auditors of the Company during the year. Messrs Deloitte Touche

Tohmatsu have been appointed as auditors of the Company in place of Messr s Ernst & Young on 9

August 2000.

The financial statement for the year have been audited by Messrs Deloitte Touche Tohmatsu. A

resolut ion wil l be submitted to the forthcoming annual general meet ing of the Company to re-

appoint Messr s Deloitte Touche Tohmatsu as auditors of the Company.

On behalf of the Board

Bankee P Kwan

Chairman & CEO

Hong Kong, 16 March 2001

57Report of the Auditors

report of the auditors

TO THE SHAREHOLDERS OF CELESTIAL ASIA SECURITIES HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 58 to 102 which have been prepared in

acc ordance with acc ounting principles generally accepted in Hong Kong.

Respective responsibilities of direc tors and auditors

The Company’s directo rs are responsible for the preparation of financial statements which

give a true and fair view. In preparing financial statements which give a t rue and fair v iew

it is fundamental that appropriate acc ounting policies are selected and applied consistently.

It is our responsibility to fo rm an independent opinion, based on our audit, on those

statements and to report our opinion to you.

Basis of opinion

We conduct ed our audit in ac cordance with Statements of Auditing Standards issued by

the Hong Ko ng Societ y of Accountants. An audit includes examination, on a test basis, of

evidence relevant to the amounts and disclosures in the financial statements. It also

includes an assessment of the sig nificant estimates and judgments made by the directors in

the preparation of the financial statements, and of whether the accounting policies are

appropriate to the circumstances of the Company and the Group, consistently applied and

adequately disclosed.

We planned and performed our audit so as to obtain al l the info rmation and explanations

which we considered necessary in order to provide us with sufficient evidence to g ive

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

misstatement. In forming our opinion we also evaluated the overall adequacy of the

presentation of information in the financial statements. We believe that our audit provides

a reasonable basis for our opinion.

Opinion

In our opinion the financial statements give a true and fair v iew of the state of affairs of

the Company and of the Group as at 31 December 2000 and of the profit and cash flows of

the Group for the year then ended and have been properly prepared in accordance with the

disclosure requirements of the Hong Ko ng Companies Ordinance.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong, 16 March 2001

58Financial Statements

consolidated income statementFor the year ended 31 December 2000

2000 1999Notes HK$’000 HK$’000

Turnover 3 472,836 245,321

Other revenue 4 195,224 118,608

Salaries, allowances and commission 5 (206,127) (151,992)

Depreciation and amortization (20,596) (9,631)

Other operating and administrative expenses (309,567) (94,545)

Finance costs 6 (13,102) (18,091)

Share of losses of associates (57,994) –

Profit before taxation 9 60,674 89,670

Taxation credit 10 1,428 1,711

Profit before minority interests 62,102 91,381

Minority interests 39,665 1,567

Net profit attributable to shareholders 11 101,767 92,948

Distribution 12 87,042 –

Earnings per share 13

Basic 2.00 cents 3.30 cents

Diluted 1.99 cents 2.90 cents

There were no reco gnized gains or losses other than the net profit for the year.

59

consolidated balance sheetAs at 31 December 2000


2000 1999Notes HK$’000 HK$’000

Non-current assets

Property and equipment 14 119,613 58,249

Interests in associates 16 61,155 –

Investments in securities 17 175,900 14,845

Intangible assets 18 16,412 –

Other assets 19 51,457 36,574

Loans receivable 20 114,252 –

538,789 109,668

Current assets

Accounts rece ivable 21 318,630 549,912

Loans receivable 20 72,000 15,948

Prepayments, deposits and

other receivables 35,701 38,266

Investments in securities 17 30,245 816

Taxation recoverable 2,538 3,238

Pledged bank deposits 22 28,137 30,000

Bank balances and cash 23 892,378 1,035,238

1,379,629 1,673,418

Current liabilit ies

Accounts payable 24 374,716 401,548

Accrued liabilities and other payables 103,221 47,088

Taxation 2,164 2,196

Obligations under finance leases –

amount due within one year 25 2,146 1,467

Bank borrowings 26 121,362 107,236

603,609 559,535

Net current assets 776,020 1,113,883

1,314,809 1,223,551

60

consolidated balance sheet (continued)As at 31 December 2000


2000 1999

Notes HK$’000 HK$’000

Capital and reserves

Share capital 27 592,390 496,067

Reserves 28 600,850 669,259

1,193,240 1,165,326

Minority interests 119,942 54,375

Non-current liabilit ies

Obligations under finance leases

– amount due after one year 25 1,627 2,570

Deferred taxation 29 – 1,280

1,627 3,850

1,314,809 1,223,551

The financial statements on pages 58 to 102 were approved by the Board of Directors on 16

March 2001 and are signed on its behalf by:

KWAN PAK HOO BANKEE LAW PING WAH BERNARD

DIRECTOR DIRECTOR

61

balance sheetAs at 31 December 2000


2000 1999Notes HK$’000 HK$’000

Non-current assets

Property and equipment 14 16,083 23,192

Investment in a subsidiary 15 – –

Other assets 19 39,000 17,569

55,083 40,761

Current assets

Prepayments, deposits and other receivables 7,440 26,208

Amounts due from subsidiaries 1,347,479 971,043

Bank balances and cash 23 2,598 5,115

1,357,517 1,002,366

Current liabilit ies

Accrued liabilities and other payables 7,663 6,675

Taxation 1,793 1,793

9,456 8,468

Net current assets 1,348,061 993,898

1,403,144 1,034,659

Capital and reserves

Share capital 27 592,390 496,067

Reserves 28 810,754 537,392

1,403,144 1,033,459

Deferred taxation 29 – 1,200

1,403,144 1,034,659

KWAN PAK HOO BANKEE LAW PING WAH BERNARD

DIRECTOR DIRECTOR


2000 1999Notes HK$’000 HK$’000

Net cash outflow from operating act ivities 30 (22,811) (379,521)

Returns on investments and servicing of finance

Interest paid on bank borrowings (12,633) (39,324)

Interest paid on obligations under

finance leases (469) (219)

Net cash outflow from returns on investments

and servicing of finance (13,102) (39,543)

Taxation

Hong Kong Profits Tax refunded/(paid) 816 (2,685)

Investing activities

Purchase of property and equipment (48,150) (26,146 )

Purchase of investments in securities (225,529) –

Purchase of trading rights in exchange (11,061) –

Purchase of club memberships (3,598) –

Decrease /(increase) in statutory and

other deposits 4,465 (14,806)

Proceeds fro m disposal of investments

in securities 87,500 –

Proceeds fro m deemed disposal of interests

in subsidiaries 219,425 197,071

Proceeds fro m disposal of property and

equipment – 426

Distribution of shares in CASH on-line

Limited 31 (336,253) –

Acquisition of associates (53,285) –

Acquisition of subsidiaries 32 42,819 –

Loan to an associate (45,648) –

Net cash (out flow)/inflow from investing

act ivities (369,315) 156,545

Net cash outflow before financing (404,412) (265,204)

consolidated cash flow statementFor the year ended 31 December 2000


2000 1999

Notes HK$’000 HK$’000

Financing 33

Loans fro m former ultimate holding company – 2,000

Repayment of loans from former ultimate

holding company – (57,000)

Decrease/(increase) in pledged bank deposits 1,863 (30,000)

Proceeds from issue of convertible note – 100,000

Proceeds from issue of convertible bonds – 85,000

Proceeds from issue of new shares 143,700 825,920

Proceeds from issue of warrants 59,573 –

Share issue expenses (6,367) (43,912)

Share options exercised 5,213 19,108

Warrants exercised 315 –

Repayments of obligations under finance leases (1,926) (614)

Net cash inflow from financing 202,371 900,502

(Decrease)/increase in cash and

cash equivalents (202,041) 635,298

Cash and cash equivalents at beginning of year 678,601 43,303

Cash and cash equivalents at end of year 476,560 678,601

Analysis of balances of cash and cash equi valents

Bank balances and cash 892,378 1,035,238

Bank borrowings, repayable within three months

from date of the advances (121,362) (107,236)

771,016 928,002

Less: Bank trust and segregated accounts (294,456) (249,401)

476,560 678,601

In 1999, bank borrowings repayable w ithin three months from the date of the advances were classified

as financing. Such amounts were classifie d as cash and cash equivalents in current year and thus,

comparative figures were reclassified to conform with current year’s presentation.

consolidated cash flow statement (continued)For the year ended 31 December 2000

64Notes to Financial Statements

1. General

The Company is incorporated in Bermuda as an exempted company with limited liability

and its shares are listed on the Stock Exchange.

The Company is an investment holding c ompany. The principal activities of its

subsidiaries are set out in note 15 to the financial statements.

2. Significant Accounting Policies

The financial statements have been prepared under the historical cost convention, as

modified for the revaluation of investment in securities and in ac cordance with

accounting principles generally accepted in Hong Kong. The principal acc ounting policies

adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the

Company and its subsidiaries made up to 31 December each year.

The results of subsidiaries acquired or disposed of during the year are included in the

consolidated income statement from the e ffective dates of acquisition or up to the

effect ive date of disposal, as appropriate.

All significant inter-company transactions and balances between group companies are

eliminated on consolidation.

Goodwill

Goodwill represents the excess of the purchase co nsideration over the fair value ascribed

to the Group’s share of the separable net assets at the date of acquisition of a subsidiary

and is written off to reserves immediate ly on acquisition. Negative goodwil l, which

represents the excess o f the fair value ascribed to the Group’s share of the separable net

assets at the date of acquisition o f a subsidiary over the purchase consideration is

credited to rese rves.

Any premium or discount arising on the acquisition of an interest in an associate,

representing the excess or shortfall respectively of the purchase consideration over the

fair value ascribed to the Group’s share of the separable ne t assets of the associate at the

date of acquisition, is dealt with in the same manner as that described above for

goodwil l.

On disposal of an investment in a subsidiar y or an associate, the attributable amount of

goodwil l previously eliminated against or credited to reserves is included in the

determination of the profit or loss on disposal.

notes to financial statementsFor the year ended 31 December 2000


2. Significant Accounting Policies (continued)

Subsidiaries

A subsidiary is an enterprise in which the Company, directly or indirectly, holds more

than half of the issued share capital, or controls more than half of the voting power, or

where the Company controls the composition of its bo ard of direc tors or equivalent

governing body.

Investments in subsidiaries are included in the Co mpany’s balance sheet at cost, as

reduced by any decline in the value of the subsidiar y that is other than temporary. The

results of subsidiaries are accounted for by the Company on the basis of dividends

rece ived and rece ivable during the year.

Associates

An associate is an enterprise over which the Group is in a position to exercise significant

influence, including participation in the financial and operating policy decisions.

The consolidated inco me statement includes the Group’s share of the post-acq uisition

results of its associates for the year. In the consolidated balance sheet, interests in

associates are stated at the Group’s share of the net assets of the associates.

When the Group transacts with its associates, unrealized profits and losses are e liminated

to the extent of the Group’s interest in relevant associates, except where unrealized losses

provide evidence of an impairment of the asset transferred.

The results of associates are accounted for by the Company on the basis of dividends

rece ived and rece ivable during the year. In the Company’s balance sheet, investments in

associates are stated at cost, as reduced by any decline in the value of the associate that is

other than temporary.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. The cost of an

asset comprises its purchase price and any directly attributable costs of bringing the asset

to its working condition and location for its intended use. Expenditure incurred afte r the

asset has been put into operation, such as repairs and maintenance and overhaul costs, is

charged to the income statement in the period in which it is incurred. In situations where

it can be clearly demonstrated that the expenditure has resulted in an increase in the

future economic benefits expected to be obtained from the use of the asset, the

expenditure is capitalized as an additional cost of the asset.

Where the rec overable amount of an asset has declined below its carrying amount, the

carrying amount is reduced to reflec t the decline in v alue. In determining the recoverable

amount of assets, expected fut ure cash flows are not discounted to their present values.



Property and equipment (continued)

The gain or loss arising from disposal or retirement of an asset is determined as the

difference be tween the sales proceeds and the carrying amount of the asset and is

recognized in the income statement.

Depreciation is provided to write off the cost of propert y and equipment over their

estimated useful lives after taking into account their est imated residual value, using the

straight-line method as follows:

Land and buildings Over the lease te rms

Leasehold improvements The shorter of the lease terms and 5 years

Furniture, fixtures and equipment 3 to 5 years

Motor vehic les 3 years

Assets held under finance leases are depreciated over their expect ed useful lives on the

same basis as owned assets or, where shorter, the term of the re levant lease.

Leased assets

Leases are classified as finance leases when the te rms of the lease transfe r substantially al l

the risks and rewards of ownership of the assets concerned to the Group. Assets held

under finance leases are capitalized at their fair values at the date of acquisition. The

corresponding liability to the lessor, net of interest charges, is included in the balance

sheet as a finance lease ob ligation. Finance costs, which represent the diffe rence between

the total leasing co mmitments and the fair value of the assets acq uired, are charged to the

income statement over the te rm of the relevant lease so as to produce a constant periodic

rate of charge on the remaining balance of the obligations for each accounting period.

All other leases are classified as operating leases and the annual rental are charged to

income statement on a straight-line basis over the term of the relevant lease.

Investments in securities

Investments in secur ities are recognized on a t rade-date basis and are init ially measured

at cost.

Investments other than held-to-maturity deb t secur ities are classified as investment

securities and other invest ments.

Investment securities, which are securities held for an identified long-term strategic

purpose, are measured at subsequent reporting dates at cost, as reduced by any

impairment loss that is other than temporar y.



Investments in securities (continued)

Other investments are measured at fair value, with unrealiz ed gains and losses included

in net pro fit or loss fo r the period.

Intangible assets

Intangible assets represent trading rights in the exc hanges in Hong Kong . They are

initially measured at cost and amort ized on a straight line basis over 10 years.

Revenue recognition

Fee and commission income is rec ognized on a trade date basis when the services are

rendered.

Realized profits and losses arising from trading of financial products are accounted for in

the period in which the contracts/positions are closed as the difference between the net

sales proc eeds and the carrying amount of the financial products. Open contracts/

positions are valued at market rate with unrealized pro fits and losses included in the

income statement.

Information technology advisory income is recognized when the services are rendered.

Interest income is ac crued on a time proport ion basis, by reference to the principal

outstanding and at the interest rate applicable.

Taxation

The charge fo r taxation is based on the results for the year as adjusted for items which are

non-assessable or disallowed. Timing differences arise from the recognition f or tax

purposes of ce rtain items of income and expense in a different acc ounting period from

that in which they are reco gnized in the financial statements. The tax e ffect of timing

diffe rences, comput ed using the liability method, are recognized as defe rred taxation in

the financial statements to the extent that it is probable that a liability or an asset will

cr ystallize in the f oreseeable future.

Fore ign currencies

Transactions in currencies other than Hong Kong dollars are initially rec orded at

exchange rates ruling on the dates of the transactions. Mo netary assets and liabilities

denominated in such currencies are translated at the rates ruling on the balance sheet

date. Profits and losses arising on exchange are dealt with in the income statement.



Foreign currencies (continued)

On consolidation, the financial statements of subsidiaries which are denominated in

currencies other than the Hong Kong dollars are translated at the rates ruling on the

balance sheet date. All exc hange differences arising on co nsolidation are dealt with in

reserves.

Cash equivalents

Cash equivalents represent short-term, highly liquid investments which are readily

convertible into known amounts of cash and which were within three months of maturit y

when acquired; less advances from banks repayable with three months from the date of

the advances.

3. Turnover

THE GROUP

2000 1999

HK$’000 HK$’000

Fee and co mmission income 326,483 209,804

Interest income 85,074 34,054

Gain on trading of securities, bullion, options,

futures and foreign exchange contracts 60,148 1,463

Info rmation technology advisory income 1,131 –

472,836 245,321


3. Turnover (continued)

The Group’s turnover and co ntribution to profit before taxation for the year ended 31

December 2000, analysed by principal activity and geo graphical marke t, were as follows:

Contr ibution to profitTurnover b efor e taxation

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

By principal activity:

Securities broking and trading 284,117 143,202 40,898 7,181

Commodities and

options broking and trading 60,652 47,572 10,742 1,893

Broking and trading

of leveraged foreign exchange 7,520 8,160 5,027 (777)

Bullion broking 1,200 1,637 950 (190)

Securities margin financing 42,526 15,306 34,278 20,029

Corporate finance advisory ser vices 14,900 3,842 2,421 984

Online financial services 31,245 23,202 (115,344) (15,868)

Informat ion technology

advisory services 1,310 – (26,551) –

Other revenue – – 195,224 118,608

Others 29,366 2,400 (28,977) (42,190)

Contribution from associates – – (57,994) –

472,836 245,321 60,674 89,670

By g eographical market:

Hong Kong 471,526 245,321 114,743 89,670

United States of America 1,310 – (54,069) –

472,836 245,321 60,674 89,670


4. Other Revenue

THE GROUP2000 1999

HK$’000 HK$’000

Gain on deemed disposal of interests in

COL and its subsidiaries 157,724 118,608

Gain on disposal of unlisted invest ment securities 37,500 –

195,224 118,608

5. Salaries, Allowances and Commission

THE GROUP2000 1999

HK$’000 HK$’000

Directo rs’ remuneration (note 7) 9,720 2,975

Salaries, allowances and commission 196,407 149,017

206,127 151,992

6. Finance Costs

THE GROUP2000 1999

HK$’000 HK$’000

Interest on:

Bank overdrafts and loans wholly repayable

within five years 12,633 12,559

Finance leases 469 219

Convertible bonds – 371

Convertible note – 1,008

Loans from former ultimate holding company – 3,934

13,102 18,091


7. Directors’ Remuneration

THE GROUP2000 1999

HK$’000 HK$’000

Fees:

Executive directors – –

Independent non-executive direct ors – –

Other emoluments paid to executive directors:

Salaries and other benefits 9,645 2,939

Contributions to retirement benefits schemes 75 36

Total remuneration 9,720 2,975

At the balance sheet date, outstanding share options to subscribe for 166,250,000 (1999:

120,000,000) ordinary shares of the Company were granted to certain direc tors of the

Company. In de termining the aggregate remuneration paid to the directors, the share

options granted for the subscription of the ordinary shares of the Company have b een

excluded as, in the absence of a readily available market value for options on the ordinary

shares of the Company, the directors are unable to arrive at an accurate assessment of the

value of these options. Details of the options granted to the directors during the year are

set out in the section “Directors’ Interests in Securities” in the direc tors’ report on page

53.

The remuneration of the direct ors fell within the following bands:

THE GROUP2000 1999

Nil – HK$1,000,000 7 8

HK$1,500,001 – HK$2,000,000 2 –

HK$2,000,001 – HK$2,500,000 1 –

HK$2,500,001 – HK$3,000,000 1 –

11 8


7. Directors’ Remuneration (continued)

Dur ing the year, no emoluments were paid by the Group to the directo rs as a

discretionary bonus or an inducement to join or upo n joining the Group or as

compensation for loss of office. None of the directors has waived any emoluments during

the year.

8. Employees’ Emoluments

The five highest paid employees included three (1999: one) director(s) of the Company,

details of whose remuneration are included in the above disclosures. The details of the

remuneration o f the two (1999: four) remaining individuals were as follows:

THE GROUP2000 1999

HK$’000 HK$’000

Salaries, allowances and benefits in kind 4,095 6,335

Contributions to retirement benefit schemes 85 230

4,180 6,565

At the balance sheet date, outstanding share options to subscribe for 11,000,000 (1999:

10,000,000) ordinary shares of the Company were granted to these employees dur ing the

year. In determining the aggregate remuneration paid to these individuals, the share

options granted for the subscr iption of the ordinary shares of the Company have been

excluded as, in the absence of a readily available market value for the options on the

ordinary shares of the Company, the direc tors are unable to arrive at an accurate

assessment of the value of these options.


8. Employees’ Emoluments (continued)

The remuneration of the two (1999: four) remaining highest paid individuals fell within

the following bands:

THE GROUP2000 1999

Number of Number ofemployees employees

Nil – HK$1,000,000 – 1

HK$1,000,001 – HK$1,500,000 – 2

HK$2,000,001 – HK$2,500,000 2 –

HK$2,500,001 – HK$3,000,000 – 1

2 4

9. Profit before Taxation

THE GROUP2000 1999

HK$’000 HK$’000

Profit before taxation has been arrived at

after charging/(crediting):

Auditors’ remuneration 1,300 1,100

Advertising and promotion expenses 98,492 17,989

Amort isation of intangible assets 1,823 –

D epreciation:

Owned assets 17,665 9,216

Leased assets 1,108 415

Operating lease rentals in respec t of

land and buildings 17,175 15,556

Net foreign exchange losses 32 749

Impairment loss arising on investment secur ities 15,600 –

Write-off of deposit for the development of

foreign exchange internet platform 1,950 –

Loss on disposals of property and equipment 250 3,809

Provision for bad and doubtful debts 30,900 –

Bad and d oubtful deb ts recovered – (9,393)


10. Taxation Credit

THE GROUP2000 1999

HK$’000 HK$’000

Hong Kong Profits Tax

Tax for the year – (108)

Overprovision in prior years 148 –

Refund of 1997/98 final tax – 1,819

148 1,711

Deferred taxation (note 29) 1,280 –

Taxation attributable to the Company and

its subsidiaries 1,428 1,711

Share of taxation attributable to associates – –

1,428 1,711

No tax is payable on the profit for the year ar ising in Hong Kong since there is no

estimated assessable profits.

Hong Kong Profits Tax was calculated at 16% on the Group’s estimated assessable profits

ar ising in Ho ng Kong in last year.

11. Net Profit Attributable to Shareholders

Of the Group’s net pro fit for the year o f HK$101,767,000 (1999: HK$92,948,000), a loss

of HK$23,595,000 (1999: HK$14,360,000) has been dealt with in the financial statements

of the Company.

12. Distribution

It refe rs to the distribution of 498,123,217 shares in COL by the Company to

shareholders during the year. Par ticulars of the distribution in specie of shares in COL

were set out in the Company’s circular dated 2 August 2000.


13. Earnings per Share

The calculation of basic earnings per share of HK$0.10 each is based on the earnings

attributable to shareholders for the year o f HK$101,767,000 (1999: HK$92,948,000) and

the weighted average number of 5,085,761,055 (1999: 2,818,785,065) ordinary shar es in

issue during the year.

The calculations of dilut ed earnings per share for the year ended 31 Decemb er 2000

toge ther w ith the comparative figures for 1999 are calculated as follows:

2000 1999HK$’000 HK$’000

Earnings

Net profit attr ibutable to shareholders, used in basic

earnings per share calculat ion 101,767 92,948

Interest related to convertible note during the year – 1,008

Interest related to convertible b onds during the year – 371

Net profit attr ibutable to shareholders, used

in diluted earnings per shar e calculation 101,767 94,327

Number of shares

Weighted average number of ordinary shares

in issue during the year used in basic

earnings per share calculat ion 5,085,761,055 2,818,785,065

Weighted average number of ordinary shares:

Assumed issued on deemed conversion of all

convertible note outstanding during the year – 252,054,795

Assumed issued on deemed conversion of all

convertible bonds outstanding during the year – 46,342,466

Assumed issued at no consideration on d eemed

exercise of all shares options outstanding

during the year 19,639,458 110,663,985

Assumed issued upon satisfaction of contingent

conditions – 24,623,162

Weighted average number of ordinary shares

used in diluted earnings per shar e calculation 5,105,400,513 3,252,469,473


13. Earnings per Share (continued)

The computation of diluted earnings per share does not assume the following:

(i) the exercise of the Company’s outstanding warrants because the exercise price of

those warrants was higher than the average market price for shares fo r the yearended 31 December 2000;

(ii) the exercise of the Company’s conversion options granted to Fortune International

Limited and Cyb erWorks Ventures Limited as the e xercise prices of those conversionopt ions were higher than the average market price for shares for the year ended 31

December 2000.

14. Property and Equipment

Leasehold Leasehold Furniture,

land and improve- fixtures and Motorbuildings me nts equipment vehicles Total

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

THE GROUP

COST

At 1 Januar y 2000 14,000 27,688 27,418 2,152 71,258Ac quired on acquisit ion

of subsidiar ies – 7,934 49,539 – 57,473Addit ions – 17,370 30,161 2,281 49,812

Disposals – – (371) – (371)Eliminated on disposal of

subsidiaries – (1,840) (18,527) – (20,367)

At 31 December 2000 14,000 51,152 88,220 4,433 157,805

ACCUMULATED DEPRECIATION

At 1 Januar y 2000 986 5,449 6,382 192 13,009

Ac quired on acquisit ionof subsidiar ies – 599 8,550 – 9,149

Provided for the year 280 6,353 11,282 858 18,773Eliminated on disposals – – (121) – (121)

Eliminated on disposalof subsidiar ies – (194) (2,424) – (2,618)

At 31 December 2000 1,266 12,207 23,669 1,050 38,192

NET BOOK VALUES

At 31 December 2000 12,734 38,945 64,551 3,383 119,613

At 31 December 1999 13,014 22,239 21,036 1,960 58,249


14. Property and Equipment (continued)

The Group’s leasehold land and buildings are situated in Hong Kong under medium-term

lease.

The net bo ok value of furniture, fixtures and equipment of HK$64,551,000 includes an

amount of HK$1,706,000 (1999: HK$2,187,000) in respect of assets held under finance

leases.

The net bo ok value of motor vehicles of HK$3,383,000 includes an amount of

HK$3,086,000 (1999: HK$1,961,000) in respect of assets held under finance leases.

Furniture,

Lease hold fixtures andimproveme nts equipment Total

HK$’000 HK$’000 HK$’000

THE COMPANY

COST

At 1 January 2000 and

31 December 2000 19,682 11,130 30,812

ACCUMULATED DEPRECIATION

At 1 January 2000 4,768 2,852 7,620

Provided for the year 2,619 4,490 7,109

At 31 December 2000 7,387 7,342 14,729

NET BOOK VALUES

At 31 December 2000 12,295 3,788 16,083

At 31 December 1999 14,914 8,278 23,192


15. Investments in Subsidiaries

THE GROUP2000 1999

HK$’000 HK$’000

Unlisted shares, at cost 60,793 80,793

Impairment loss recognized (60,793) (80,793)

– –

The following table lists subsidiaries of the Company which, in the opinion of the

direct ors, principally affected the results or assets of the Group. To give de tails of other

subsidiaries would, in the opinion of the direct ors, result in par ticulars of excessive

length.

Pro po rtio n ofCountry/ Paid up nominal value ofplace of issued issued share capital

Name inco rporatio n share capital held by the Company Principal activities%

COL Bermuda HK$201,520,000 51.12 In vestment holding

Ordinar y

CASH on-line, Inc Br itish Virgin US$1,007,600 51.12 In vestment holding

(“COL B VI”) Islands Ordinar y

CASH E-Trade Hong Kong HK$4,000,000 51.12 Provision of

Limited Ordinar y e lec tro nic

(formerly known trading platform

as CASH on-line for trading

Limited) financial prod ucts,

p rovision of

e lec tro nic

financial ser vices

and investment

holding

Ce lestial Assets Hong Kong HK$4,000,000 100 Asset management

Management Ordinar y and investment

Limited holding

Ce lestial Bullion Hong Kong HK$6,000,000 100 Bul lion broking

Limited Ordinar y and t rading

Ce lestial Capital Hong Kong HK$17,000,000 100 Provision of

Limited Ordinar y c orporate finance

se rvices


15. Investments in Subsidiaries (continued)

Pro po rtion ofC ountry/ Paid up nominal value of

pla ce o f issued issue d share capitalName inc orpo rat ion share capital he ld by the Company Principal activit ies

%

Celestial Hong Kong HK$10,000,000 100 Futures and options

C ommodities Ordinar y broking and trading

Limited

Celestial Finance Hong Kong HK$20,000,002 100 Provision of

Limited Ordinar y share marg in

HK$10,000,000 financing

Non-voting

deferred*

Celestial Forex Limited Hong Kong HK$80,000,000 100 Leveraged fore ign

Ordinar y exchange broking

and trading

Celestial Hong Kong HK$2 100 Investment holding

(Inter national) Ordinar y and money

Securities & HK$10,000,000 lending

Investment Non-voting

Limited deferred*

Celestial Investment British Virgin US$10,000 100 Investment holding

Group Limited Islands Ordinar y

Celestial (Nominees) Hong Kong HK$2 100 Provision of

Limited Ordinar y nomine e services

Celestial Researc h Hong Kong HK$2 100 Provision of

Limited Ordinar y investment

research services

Celestial Hong Kong HK$50,000,000 100 Securities and

Securities Limited Ordinar y equity o ptio ns

broking and

trading

Celestial Strategic British Virgin US$1 100 Investment holding

Investments Limited Islands Ordinar y


15. Investments in Subsidiaries (continued)

Pro po rtio n ofCountry/ Paid up nominal value of

place of issued issued share capitalName inco rporatio n share capital held by the Company Principal activities

%

e-finance.com.hk Hong Kong HK$26,000,000 51.12 Operatio n of a

Limited Ordinar y financial

inf ormatio n

w ebsite

iLux Corp oration United States US$11,151,118 82.11 Provision of

of America Ordinar y inf ormatio n

tec hnology

advisory services

* The non-voting d eferr ed shares carry no r ights to dividends, no r ights to vote at general meetings

and no rights to receive any surplus in a return of capital in a winding-up or othe rwise.

Other than iLux C orporation, the principal place of operation of the subsidiaries is Hong

Kong . The principal place of operation of iLux Corporation is United States of America.

The Company directly holds the interest in Celestial Invest ment Group Limited. All other

subsidiaries are indirectly held by the Co mpany.

16. Interests in Associates

THE GROUP2000 1999

HK$’000 HK$’000

Share of net assets 15,507 –

Loan to an associate 45,648 –

61,155 –


16. Interests in Associates (contineud)

The loan to an associate is unsecured, non-interest bearing and has no fixed terms of

repayment. In the opinion o f directors, the loan to the associate will not be repaid in the

next twelve months.

The following table lists the associates of the Group which, in the opinion o f the

directors, principally affect ed the results or assets of the Group. To give details of other

associates would, in the opinion of the direc tors, result in par ticulars of excessive length.

Pro po rtion ofC ountry/ nominal value of

pla ce o f Fo rm of issue d share capitalName inc orpo rat ion b usiness structur e he ld by the Company Principal activit ies

%

Transtec h Services Hong Kong Inco rporated 46.25 Investment holding

Group Limited

Transtec h Photonics Hong Kong Inco rporated 46.25 Producing photonics

Limited products and

system

Edgemont Asia British Virgin Inco rporated 25 Investment holding

Limited Islands

Edge Sol ution Hong Kong Inco rporated 25 Software application

(Inter national) services

Limited

Transtech Photonics Limited is the wholly-owned subsidiary o f Transtech Services Group

Limited. Edge Solution (International) Limited is the wholly-owned subsidiary of

Edgemont Asia Limited. The principal place of operation of these companies is in Hong

Kong.


17. Investments in Securities

Investment securit ies Other investments Total2000 1999 2000 1999 2000 1999

HK’000 HK’000 HK’000 HK’000 HK’000 HK’000

Equity securities:

Non-current

Unlisted, at cost 191,500 14,845 – – 191,500 14,845

Impairment loss

rec ognized (15,600) – – – (15,600) –

175,900 14,845 – – 175,900 14,845

Cur rent

Listed in Hong

Kong, at

market value – – 30,245 816 30,245 816

175,900 14,845 30,245 816 206,145 15,661

Unlisted investment se curities as at 31 December 1999 represented the Group’s

investment costs in shares in the Stock Exchange and the Hong Kong Fut ures Exchange

Limited. In previous year, such amounts were classified as other non-current asse ts.

18. Intangible Assets

THE GROUP2000 1999

HK$’000 HK$’000

Trading rights in exchanges in Hong Kong, at cost 18,235 –

Amortised d uring the year (1,823) –

16,412 –


19. Other Assets

THE GROUP THE COMPANY2000 1999 2000 1999

HK$’000 HK$’000 HK$’000 HK$’000

Statut ory and other deposits 7,529 11,994 – 4,569

Club memberships 4,928 1,330 – –

Deposits for lo ng term

investments/projec ts 39,000 23,250 39,000 13,000

51,457 36,574 39,000 17,569

20. Loans Receivable

The matur ity of the loans receivable arising from the o rdinary course of business of the

Group is as follows:

THE GROUP

2000 1999HK$’000 HK$’000

Matured between six months to twelve months 72,000 15,948

Matured over one year 114,252 –

186,252 15,948


21. Accounts Receivable

THE GROUP

2000 1999

HK$’000 HK$’000

Acc ounts receivable arising from the ordinary

course of business of dealing in securities

and equity options:

Clearing houses, brokers and dealers 5,036 3,335

Cash c lients 11,789 246,638

Margin clients 257,637 274,227

Acc ounts receivable arising from the ordinary

course of business of dealing in futures

and options contracts:

Clearing houses, brokers and dealers 44,168 25,712

318,630 549,912

The settlement terms of accounts rece ivable arising from the ordinary course of business

of dealing in securities and equity options are two days after trade date, and accounts

rece ivable arising fro m the ordinary course of business of dealing in futures and opt ions

contrac ts are one day afte r trade date.

Except for the loans to share margin clients as mentioned b elow, all the above balances

aged within 30 days.

Loans to share margin clients are secured by clients’ pledged securities, repayable on

demand and bear interest at commercial rates. Included in ac counts receivable from

margin clients arising from the o rdinary course of business of dealing in securities is an

amount o f approximately HK$18,695,000 (1999: nil) due from Suffold Resources Limited,

in which Kwan Pak Hoo Bankee has a beneficial interest and is a direc tor. The amount is

secured by pledged securities and repayable on demand, and bears interest at normal

commercial rates which are the same as the rates offered to other marg in clients. The

maximum amount outstanding dur ing the year is HK$36,143,000. No aged analysis is

disclosed as in the opinion of directors, the aged analysis does not give additional value

in view of the nature of business of share margin financing.

22. Pledged Bank Deposits

The Group’s bank deposits of HK$27,260,000 (1999: nil) were pledged to a bank to secure

the general banking facilities granted to an associate. In addition, the Group’s bank

deposit of HK$877,000 (1999: nil) was pledged to secure a bank guarantee of

HK$877,000 (1999: nil) given to one of the Group’s landlords.


22. Pledged Bank Deposits (continued)

In 1999, the Group’s bank deposits of HK$30,000,000 were pledged to banks to secure

general banking facilities granted to the Group.

23. Bank Balances and Cash


HK$’000 HK$’000 HK$’000 HK$’000

Bank balances:

General accounts 597,887 785,825 2,598 5,115

Trust and segregated accounts 294,456 249,401 – –

Cash on hand 35 12 – –

892,378 1,035,238 2,598 5,115

24. Accounts Payable

THE GROUP

2000 1999HK$’000 HK$’000

Accounts payable arising from the ordinary

course of business of dealing in securities

and equity opt ions:

Clearing houses, brokers and dealers 8,331 74

Cash clients 233,357 319,435

Margin clients 32,386 34,024

Accounts payable arising from

the ordinary course of business of

dealing in futures and options contracts 100,642 48,015

374,716 401,548

The settlement terms of acc ounts payable arising fro m the ordinary course of business of

dealing in secur ities are two days after trade date. The age of these balances is w ithin 30

days.


24. Accounts Payable (continued)

Acc ounts payable to clients arising from the ordinary course of business of dealing in

futures and opt ions contracts are margin deposits received from clients for their trading

of futures and opt ions contrac ts. The excesses of the outstanding amounts over the

required margin deposits stipulated are repayable to clients on demand. No aged analysis

is disclosed as in the opinion of directo rs, the aged analysis does not give additional value

in view of the nature of business of fut ures and options contracts dealing.

Amounts due to share margin clients are repayable on demand. No aged analysis is

disclosed as in the opinion of directors, the aged analysis does not give additional value

in view of the nature of business of share margin financing.

25. Obligations under Finance Leases

The maturity o f obligations under finance leases is as follows:

THE GROUP2000 1999

HK$’000 HK$’000

Within one year 2,146 1,467

More than one year but not exceeding two years 1,553 2,146

More than two years but not exceeding five years 74 424

3,773 4,037

Less: Amount due within one year shown under

current liabilities (2,146) (1,467)

1,627 2,570

Included in the amount of HK$3,773,000, an amount of HK$1,478,000 (1999:

HK$3,021,000) is secured by a guarantee given by the Company.


26. Bank Borrowings

THE GROUP2000 1999

HK$’000 HK$’000

Bank overdrafts 36,362 72,236

Bank lo ans 85,000 35,000

121,362 107,236

Unsecured 5,771 –

Secured 115,591 107,236

121,362 107,236

The bank bo rrowings are repayable on demand or within one year.

At 31 Decemb er 2000, the Group’s bank borrowings of HK$115,591,000 (1999:

HK$107,236,000) were secured by:

(a) corporate guarantees from the Company; and

(b) mar ketable securities of the Group’s clients (with clients’ consent).

In 1999, the Group’s borrowings were also secured by pledged bank deposits of

HK$30,000,000. The facilities secured by these pledged bank deposits were not utilized as

at the balance shee t date.

27. Share Capital

THE COMPANY

Number ofordinar y shares

of HK$0.10 each Amount(in thousands) HK$’000

Authorized:

At 1 January 1999 5,000,000 500,000

Increase in 1999 3,000,000 300,000

At 31 December 1999 and 31 Dec ember 2000 8,000,000 800,000


27. Share Capital (continued)

THE COMPANYNumber of

o rdinary shares ofHK$0.10 each Amount

Notes (in thousands) HK$’000

Issued and fully paid:

At 1 January 1999 2,140,167 214,017

Conversion of convertible note (a) 1,000,000 100,000

Conversion of convertible bo nds (b) 425,000 42,500

Placement of shares 1,218,000 121,800

Exercise of share options 177,500 17,750

At 31 December 1999 and 1 January 2000 4,960,667 496,067

Issued as consideration to acquire 8.7%

of the iss ued share capital of COL (c) 463,147 46,315

Placement of shares (d) 479,000 47,900

Exercise of warrants (e) 486 48

Exercise of share options (f ) 20,598 2,060

At 31 December 2000 5,923,898 592,390

Notes:

(a) Co nversion of convertible note

On 9 June 1999, a convertible note of HK$100,000,000, bearing interest at 4% per annum, was issue d

to Cash Guardian. Under the subscr iption agreement, the principal amount of the convertible note

could be c onver ted into shares at an initial co nversion price of HK$0.10 per share at any time fro m 9

September 1999 to 9 June 2001. The convertible note was conver ted into 1,000,000,000 shares o n 9

September 1999.

(b) Co nversion of convertible bo nds

On 26 July 1999, eight convertible bonds of aggregating HK$85,000,000, bearing interest at 4% per

annum, were issued t o eight independent institutional invest ors. The principal amount of the

co nver tible bonds could be co nverted at an initial conversion price of HK$0.20 per share at any time

after the expiry of one month from the date of issuance of the co nvertible bonds up to 31 December

1999. HK$51,000,000 and HK$34,000,000 of the co nver tible bonds were converted into a total of

425,000,000 shares on 26 August 1999 and 17 September 1999 respectively.



(c) Acquisition of 8.7% of the issue d share capital of COL

Pursuant t o an agreeme nt dated 4 September 2000, the Company purchased 175,000,000 ordinary

shares o f HK$0.10 each of COL from Cash Guardian at a consid erat ion of approximately

HK$277,888,000. T he consid erat ion was satisfied by the issue and allotme nt of 463,146,750 ordinar y

shares o f HK$0.10 each of the Company to Cash Guardian at HK$0.60 per share.

(d) Placement of shares

Pursuant t o a pr ivate placing agreeme nt dated 8 December 2000, Cash Guardian sold a total of

479,000,000 ordinar y shares of HK$0.10 each of the Company to cer tain independent third parties

at HK$0.30 per share and the Co mpany in turn allotted and issued 479,000,000 ordinary shares o f

HK$0.10 ea ch of the Co mpany to Cash Guardian at HK$0.30 p er share.

The proceeds of the placing, before exp enses, totalled approximately HK$143,700,000. The proceeds

were used to pro vide additional wo rking capital for the Group. T hese shares ranked pari passu with

all other shares in issue in all respect.

(e) Warr ants

On 14 July 2000, the Compan y issued 497,591,725 bonus iss ue of warrants (“Bonus Warrants”) to

the shareholders of the Company, whose a ddresses were in Hong Kong as shown in the register of

me mbers of the Company at the close of business on 7 July 2000 at a distr ibution ratio o f one

warrant for every ten shares of HK$0.10 each in the C ompany. Each unit of the Bonus Warrants wil l

gi ve the holder the right to subscr ibe in cash for one ordinary shar e of HK$0.10 of the Co mpany at a

subscr iption price of HK$0.65 per share at any time fro m 20 July 2000 to and including 31 July

2002.

On 14 July 2000, the Compan y issued 496,440,000 warrants (“Placing Warrants”) to independent

investors at a pr ice o f HK$0.12 per Placing Warrant. Each unit of the Placing Warr ants wil l gi ve the

holder the r ight to subscr ibe in cash for one or dinary share of HK$0.10 in the Company at a

subscr iption price of HK$0.60 per share at any time fro m 20 July 2000 to and including 31 January

2002.

During the year, the register ed holders of 486,060 Bonus Warrants exercised the ir rights to subscr ibe

for 486,060 ordinar y shares in the Company. At the balance sheet date, the Co mpany had

497,105,665 Bonus Warrants and 496,440,000 Placing Warrants outstanding. Exercise in ful l of such

warrants (if the s ubscription pr ices are not to be adjusted) would result in the issue of 993,545,665

additional shares of HK$0.10 each.



(f ) Share options

Pursuant to a share option scheme of the Company approved by shareholders and established on 29

March 1994, the bo ard of Directo rs of the Company may grant options to elig ible executive directors

and employees of the Co mpany and its subsidiaries to subscr ibe f or shares in the C ompany for a

co nsideration of HK$1 fo r each lot of share options granted. The subscr iption price is required to be

the higher of the nominal value of the shares or 80% of the average of closing share prices for the

five trading days immediat ely preceding the date of grant of the option. The maximum nominal

amount of shares in respect of which options may be granted under the share option sc heme is

limited to 10% of the share capital of the Compan y in issue from time to t ime, and the maximum

number of shares in respect of whic h options may b e gr anted to any one executive director or

employee is limited t o 25% of the maximum number of shares in respect of which options may be

granted under the share option scheme.

Details of movements in the share options during the year and share options remaining outstanding

as at 31 December 2000 are as f ollows:

Number of shares op tions (in thousands)

At Grant ed Exercise d Cancelled At 31

Exercise E xercise Date of share 1 Jan uary d uring during during Decemb er

pr ice per share p er iod op tions gr anted 2000 the year the year the year 2000

HK$0.103 11/6/1999 – 10/6/2001 4/12/1998 10,000 – (10,000) – –

HK$0.23 13/5/2000 – 12/11/2001 13/5/1999 6,500 – (4,000) – 2,500

HK$0.23 13/5/2000 – 12/5/2002 13/5/1999 1,250 – (1,250) – –

HK$0.23 13/11/2000 – 12/5/2002 13/5/1999 1,250 – (500) – 750

HK$0.59 8/4/2000 – 7/4/2002 4/10/1999 132,415 – (4,848) (1,893 ) 125,674

HK$0.59 8/10/2000 – 7/4/2002 4/10/1999 12,415 – – (1,893 ) 10,522

HK$0.59 8/4/2001 – 7/4/2002 4/10/1999 12,415 – – (1,893 ) 10,522

HK$0.59 8/10/2001 – 7/4/2002 4/10/1999 12,415 – – (1,893 ) 10,522

HK$0.61 1/11/2000 – 31/10/2002 15/11/1999 5,000 – – – 5,000

HK$0.61 1/11/2001 – 31/10/2002 15/11/1999 5,000 – – – 5,000

HK$0.80 10/1/2001 – 9/1/2003 10/1/2000 – 10,000 – – 10,000

HK$0.80 11/7/2000 – 10/7/2002 10/1/2000 – 125 – – 125

HK$0.80 11/1/2001 – 10/7/2002 10/1/2000 – 125 – – 125

HK$0.80 11/7/2001 – 10/7/2002 10/1/2000 – 125 – – 125

HK$0.80 11/1/2002 – 10/7/2002 10/1/2000 – 125 – – 125

HK$0.47 1/3/2001 – 28/2/2003 12/4/2000 – 2,000 – (2,000 ) –

HK$0.47 1/3/2002 – 28/2/2003 12/4/2000 – 2,000 – (2,000 ) –

HK$0.35 1/12/2000 – 30/11/2002 1/6/2000 – 27,500 – – 27,500

HK$0.35 1/6/2001 – 30/11/2002 1/6/2000 – 27,500 – – 27,500

HK$0.49 1/2/2001 – 31/1/2003 28/7/2000 – 2,750 – – 2,750

HK$0.49 1/8/2001 – 31/1/2003 28/7/2000 – 2,750 – – 2,750

HK$0.49 1/2/2002 – 31/1/2003 28/7/2000 – 2,750 – – 2,750

HK$0.49 1/8/2002 – 31/1/2003 28/7/2000 – 2,750 – – 2,750

HK$0.27 16/5/2001 – 15/5/2003 6/11/2000 – 26,625 – – 26,625

HK$0.27 16/11/2001 – 15/5/2003 6/11/2000 – 26,625 – – 26,625

HK$0.27 16/5/2002 – 15/5/2003 6/11/2000 – 1,625 – – 1,625

HK$0.27 16/11/2002 – 15/5/2003 6/11/2000 – 1,625 – – 1,625

Total 198,660 137,000 (20,598) (11,572 ) 303,490



(f) Share options (cont inued)

During the year, an aggregate of 20,598,000 share options were exercised to subscr ibe for 10,000,000,

5,750,000 and 4,848,000 ordinary shares of the Co mpany at subscr iption prices of HK$0.103,

HK$0.23 and HK$0.59 per share respecti vely. T he total cash proceeds received by the Co mpany,

b efore exp enses, was appro ximatel y HK$5,213,000.

The exercise in full of the outstanding 303,490,000 share options at 31 December 2000 would, under

the p resent capital structure of the Co mpany, result in the issue of 303,490,000 additional shares for

a total cash co nsider ation, before exp enses, of ap proximately HK$147,914,000.

(g) Conversion options

(1) On 6 September 1999, a conditional agreement (“Fortune Agreement”) was entered intobetween For tune International Limited (“Fo rtune”), a co mpany incor porat ed in Taiwan, COL

BVI and the Co mpany in co nnection w ith Fo rtune’s subscr iption of shares in COL BVI.

Pursuant to the Fortune Agreement, Fortune subscribed f or 43,000 shares in COL BVI for acash co nsider ation of US$4,500,000 (approximately eq uivalent to HK$35,000,000). T he shares

in COL BVI were issued to Fortune on 15 Octo ber 1999. In addition, Fortune was granted an

option (“Fortune Option”) to subscribe fo r an additional 43,000 shares in COL BVI at an

option price of US$4,500,000 (appro ximatel y equivalent to HK$35,000,000). The Fortune

Option would lapse if it was not exer cised within three months from completion of the

subscr iption. If the Fo rtune Option was exercised, Fo rtune would be entitled to a conversion

option (“Fortune Conversion Option”) to convert all or part of the aggregate US$9,000,000

subscr iption mone y into not more than 7% of the then total issue d share capital of the

Co mpany as at the date of the co nversion notice given to the Co mpany. The Fortune

Co nversion Option would lapse if it was not exercised within three months from the date of

exercise of the Fortune Option.

The Fo rtune Option expired without being exercised by 15 Januar y 2000. However, on 18

January 2000, the Company granted Fo rtune an extensio n of the exercise p eriod of the

For tune Option fo r another six months from 15 January 2000 to 14 July 2000. T he grant of

and the right to the Fortune Conversion Option and the co nversion period w ere also extended

accordingly.

On 15 March 2000, Fo rtune confirmed in wr iting to waive its rig ht to the For tune Co nversion

Option.

(2) On 14 October 1999, a conditional agreement (“Cyb erWo rks Agreement”) was ent ered into

between CyberWorks Vent ures Limited (“CyberWorks”), a company inco rpor ated in Bermuda,

COL BVI and the Co mpany in co nnection w ith Cyb erWor ks’ s ubscription of shares in COL

BVI.

Pursuant to the CyberWorks Agreeme nt, CyberWorks subscribed f or 44,000 shares of COL BVI

for a cash co nsideration of HK$39,000,000. The shares in COL BVI were issued to CyberWorks

on 22 November 1999. I n addition, CyberWorks was granted an option to subscribe fo r

additional 44,000 shares in COL BVI at an option price of HK$39,000,000 (“Cyberworks

Option”) at any time p rior to the listing of shares of COL B VI, or COL BVI’s immediate

holding company, or a wholly-owned subsidiary o f COL BVI, on any stock exchanges or public

quotation system approved by the bo ard of directors of the relevant issuers, or the expiry oftwo year s from the completion of s ubscription, whichever is the earlier. If the listing o f shares

in COL BVI, or COL BVI’s immediate holding compan y, or a wholly-owned subsidiary of COL

BVI was not procured within two years fro m the completion of subscr iption, CyberWorks was

entitled to a conversion option (“CyberWo rks Conver sion Option”) to convert all or part of

the subscription price of HK$39,000,000 into shares in the Co mpany at a price not less than

HK$0.60 per share. The Cyb erWo rks Co nversion Option would lapse if it was not exercised

within one month fro m the seco nd anniversary o f the completion of s ubscription.



(g) Co nversion options (continued)

On 24 August 2000, CyberWo rks, COL, COL BVI and the Company entered into an agreeme nt,under which the Cyb erworks Option and CyberWorks Conversion Option w ere cancelled andCyberWo rks was granted another option to subscr ibe for 88,000,000 shares in COL at anoption price of HK$39,000,000. Pursuant to the agr eement, the option should be e xercised byseven business days prior to the date of the prospectus fo r the listing of COL or, on or before22 November 2001, whichever is the ear lier.

The option granted to CyberWorks was lapsed as CyberWo rks did not exercise the optionseven business days prior to 13 December 2000, the date of the pr ospectus fo r the listing o fCOL’s shares on the GEM of the Sto ck Exchange.

28. Reserves

(Accumulatedlosses)/

Share Cont rib uted Gener al Other Capital retainedpremium surplus reser ve reser ve reserve profits TotalHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

THE GROUPAt 1 January 1999 66,311 19,800 1,160 – – (237,547) (150,276)Conversion of convertible

bonds 42,500 – – – – – 42,500Issue of shares 704,120 – – – – – 704,120Share issue expenses (43,912) – – – – – (43,912)Exercise of share opt ions 1,358 – – – – – 1,358Arising from d eemed

disposal of subsidiaries – – – – 22,521 – 22,521Net profit for the year – – – – – 92,948 92,948

At 31 Dece mbe r 1999 and1 January 2000 770,377 19,800 1,160 – 22,521 (144,599) 669,259

Reduct ion of sharepremium t ransf erre dto contribut ed surplus (398,582) 398,582 – – – – –

Amount transfer t o writeoff against the accumulatedlosses and for distributionof shares in COL – (398,582) – – – 398,582 –

Issue of shares 327,373 – – – – – 327,373Share issue expenses (6,367 ) – – – – – (6,367 )Issue of warrants – – – 59,573 – – 59,573Exercise of share opt ions 3,153 – – – – – 3,153Exercise of war rants 267 – – – – – 267Reduct ion of share premium

transferred to contribut edsurplus (500,000) 500,000 – – – – –

Realisation on complet ion ofthe dee med disposal ofsubsidiaries – – – – (22,521) – (22,521)

Goodwill on acquisition ofsubsidiaries and associates – (456,926) – – – – (456,926)

Net profit for the year – – – – – 101,767 101,767Arising on dist ribution – – – 12,314 – – 12,314D istribution – – – – – (87,042) (87,042)

At 31 Dece mber 2000 196,221 62,874 1,160 71,887 – 268,708 600,850

Attributable to:Company and subsidiaries 196,221 62,874 1,160 71,887 – 326,702 658,844Associates – – – – – (57,994) (57,994)

196,221 62,874 1,160 71,887 – 268,708 600,850


28. Reserves (continued)

(Accumulatedlosses)/

Share Contr ibuted Other retainedpremium surplus r eserve profits Total

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

THE COMPANY

At 1 January 1999 66,311 80,593 – (297,180) (150,276)

Conversion o f conver tible

bonds 42,500 – – – 42,500

Iss ue of shares 704,120 – – – 704,120

Share issue expenses (45,950) – – – (45,950)

Exercise of share options 1,358 – – – 1,358

Net loss for the year – – – (14,360) (14,360)

At 31 December 1999 and

1 January 2000 768,339 80,593 – (311,540) 537,392

Reduction o f share premi um

transfer red to contributed

surplus (398,582) 398,582 – – –

Amount transfer to write

off against the accumulated

losses and for distr ibution

of shares in COL – (398,582) – 398,582 –

Reduction o f share premi um

transfer red to contributed

surplus (500,000) 500,000 – – –

Iss ue of shares 327,373 – – – 327,373

Share issue expenses (6,367) – – – (6,367)

Iss ue of warr ants – – 59,573 – 59,573

Exercise of share options 3,153 – – – 3,153

Exercise of warrants 267 – – – 267

Net loss for the year – – – (23,595) (23,595)

Distribution – – – (87,042) (87,042)

At 31 December 2000 194,183 580,593 59,573 (23,595) 810,754


28. Reserves (continued)

The contributed surplus of the Group arose as a result of the group reorganization in

1994 and represents the difference be tween the nominal value of the share capital of the

subsidiaries acquired pursuant to the group reorganization and the nominal value of the

share capital of the Co mpany iss ued in exc hange there fore.

The contributed surplus of the Company arose as a result of the group reorganization in

1994 and represents the exc ess of the then combined net assets of the subsidiaries

acquired, over the nominal value of the share capital of the Company issued in exchange

therefore.

The capital reserve of the Group as at 31 December 1999 represented gain ar ising from

the deemed disposal of interests in subsidiaries in which the disposal had not yet been

comple ted at the year ended 31 Dec ember 1999. During the year, the amount was

t ransferred to the income statement on comple tion of the disposal of subsidiaries.

Pursuant to the special resolutions passed at the special general meet ings of the Company

held on 1 September 2000 and 22 Dec ember 2000, the share premium account of the

Company was reduced by approximately HK$398,582,000 and HK$500,000,000

respec tively. The amount of HK$398,582,000 ar ising from the reduction of the share

premium account was credited to the contribut ed surplus account. An amount of

HK$398,582,000 of the co ntributed surplus was written off against the accumulated

losses of the Company as at 1 September 2000 and for the distribution of shares in COL

as special dividend in specie to the shareholders of the Company. Par ticulars of the

reduction were set out in the Company’s circular dated 2 August 2000 and were approved

by the shareholders on 1 September 2000. The amount of HK$500,000,000 ar ising from

the reduct ion o f the share premium account was credited to the contributed surplus

account. Part iculars of the reduction were set out in the Company’s circular dated 27

November 2000 and were approved by the shareholders on 22 December 2000.

In the opinion o f directors, the Company’s reserves available for distribut ion to

shareholders as at 31 Dec ember 2000 were as follows.

HK$’000

Contributed sur plus 580,593

Accumulated losses (23,595)

556,998

Moreover, pursuant to the Companies Ac t 1981 of Bermuda, the Company’s share

premium account of HK$194,183,000 may be distribut ed in the form of fully paid bonus

shares.


29. Deferred Taxation


HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 1,280 1,280 1,200 1,200

Written back during

the year (note 10) (1,280) – (1,200) –

At 31 December – 1,280 – 1,200

At the balance sheet date, the components of deferred taxation assets/(liabilities),

provided and unprovided, were as follows:

THE GROUP THE COMPANY

Pr ovided Unpro vided Provided U nprovided2000 1999 2000 1999 2000 1999 2000 1999

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

Tax e ffec t of t iming

differe nce because of:

Estimated taxation losses – – 75,284 27,773 – – – 443

(Excess)/deficit of tax

allowances over depreciation – (1,280) (7,368 ) (191) – (1,200) 107 –

– (1,280) 67,916 27,582 – (1,200) 107 443

The amount of unprovided deferred taxation credit/(charge) for the year, provided and

unprovided, were as follows:

THE GROUP THE COMPANY

Pr ovided Unpro vided Provided U nprovided2000 1999 2000 1999 2000 1999 2000 1999

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

Tax e ffec t of t iming

differe nce because of:

Tax losses arising – – 47,511 5,838 – – (443) 443

(Excess)/deficit of tax

allowances over depreciation – – (7,177 ) 122 – – 107 –

– – 40,334 5,960 – – (336) 443


30. Reconciliation of Profit before Taxation to Net Cash Outflow from Operating Activities

THE GROUP2000 1999

HK$’000 HK$’000

Profit befo re taxation 60,674 89,670

Share of losses of associates 57,994 –

Gain on deemed disposal of interests in COL

and its subsidiaries (157,724) (118,608)

Gain on disposal of invest ment securities (37,500) –

Interest on bank bo rrowings 13,102 18,091

Amortisation of intangible assets 1,823 –

Depreciation 18,773 9,631

Impairment loss arising on investment securities 15,600 –

Write off of deposit for the development

of foreign exchange internet platform 1,950 –

Provision fo r bad and doubtful debts 30,900 –

Loss on disposal of property and equipment 250 3,809

Unrealized loss on other investments 6,874 –

Increase in other invest ments (36,303) (389)

Increase in bank trust and segregated accounts (45,055) (144,690)

Increase in loans receivable (200,304) –

Decrease/(increase) in accounts receivable 230,382 (425,394)

Increase in prepayments, deposits and

other rece ivables (22,117) (47,509)

(Decrease)/increase in accounts payable (26,832) 212,423

Increase in accrued liabilities and other payables 18,852 23,445

Increase in amount due to an affiliated company 45,850 –

Net cash outflow from operating ac tivities (22,811) (379,521)


31. Distribution of Shares in COL

On 1 September 2000, the Company dist ributed 498,123,127 shares of COL to the

shareholders of the Company thereby reducing the Company’s interest in COL fro m

65.80% to 41.08%. The net assets disposed of were as follows:

2000 1999HK$’000 HK$’000

NET ASSETS DISPOSED OF

Property and eq uipment 17,749 –

Prepayments, deposits and other receivables 15,244 –

Bank balances 336,253 –

Accrued liabilit ies and other payables (21,073) –

Amount due to an affiliated company (45,850) –

302,323 –

Less: Minority interests (103,395) –

198,928 –

Distribut ion in specie 87,042 –

Other reserve arising from distribution (12,314) –

Interest in COL 124,200 –

198,928 –

NET CASH OUTFLOW ARISING ON DISPOSAL

Bank balances disposed of (336,253) –

The subsidiar y disposed of during the year utilized approximate ly HK$71 million (1999:

nil) of the Group’s net operating cash flows, co ntributed approximately HK$219 million

(1999: nil) in resp ect of financing activities and utilized approximately HK$26 million

(1999: nil) for investing activities. The results of COL attributable to the Group have

been disclosed in the consolidated income statement.


32. Acquisition of Subsidiaries

2000 1999HK$’000 HK$’000

NET ASSETS ACQUIRED

Property and equipment 48,324 –

Prepayments, deposits and other rece ivables 16,562 –

Bank balances and cash 265,255 –

Accr ued liabilities and other payables (58,354) –

Minority interests (124,405) –

147,382 –

Interests in associates (70,760) –

Goo dwil l on consolidation 423,702 –

500,324 –

SATISFIED BY

Shares allotted 277,888 –

Cash 222,436 –

500,324 –

NET CASH INFLOW/(OUTFLOW) ARISING ON

ACQUISITION

Cash consideration (222,436) –

Bank balances and cash acquired 265,255 –

42,819 –

Dur ing the period since acquisitions, the subsidiar ies acquired have ut ilized

approximately HK$28 million to the Group’s net operating cash flows, utilized

approximately HK$9 million in respect of financing activities and utilized approximately

HK$26 mil lion fo r investing act ivities.


33. Analysis of Changes in Financing during the Years

Loansfrom forme r Conve rtible Obligat ions

Share capital ultimate note and unde r Pledge dand share holding c onve rtible O ther financ e Minority bank

pr emium co mpany bonds r eserve leases inter ests de positsHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 Januar y 1999 280,328 55,000 – – – – –

Net cash inflow/(ou tflow) fro m financing 801,116 (55,000) 185,000 – (614 ) – –

Increase in minor ity inter ests upo n deemed

partial disposal of inter ests in cer tain

s ubsidiaries – – – – – 55,942 –

Conversion of co nver tible note and

conver tible b onds 185,000 – (185,000 ) – – – –

Share of net loss – – – – – (1,567 ) –

Incep tion of finance lease – – – – 4,651 – –

Bank d ep osits pledged dur ing the year – – – – – – (30,000)

At 1 Januar y 2000 1,266,444 – – – 4,037 54,375 (30,000)

Net cash inflow/(ou tflow) fro m financing 142,861 – – – (1,926 ) – –

Issue of shares for a cquisition of

additional interest in a subsidiary 277,888 – – – – – –

Red uctio n of share pr emium

tr ansfer red to distr ibuted sur plus (398,582 ) – – – – – –

Red uctio n of share pr emium

tr ansfer red to accumulated losses (500,000 ) – – – – – –

Issue of warr ants – – – 59,573 – – –

Arising o n distr ibut ion – – – 12,314 – – –

Increase in minor ity inter ests

upo n deemed par tial disposal of

inter ests in certain subsidiaries – – – – – 84,222 –

Increase in minor ity inter ests

upo n acquisition of subsidiaries – – – – – 124,405 –

Decrease in minor ity interests

upo n distrib utio n of shares in COL – – – – – (103,395 ) –

Share of net loss – – – – – (39,665 ) –

Incep tion of finance lease contr acts – – – – 1,662 – –

Pr oceeds r eceived from

uplifting of pledged bank d ep osits – – – – – – 30,000

Bank d ep osits pledged dur ing the year – – – – – – (28,137)

At 31 December 2000 788,611 – – 71,887 3,773 119,942 (28,137)


34. Major Non-cash Transactions

Dur ing the year, the Company acquired a 8.7% interest in COL at a consideration o f

approximately HK$277,888,000. The consideration was satisfied by the issue and

allotment of 463,146,750 shares of the Company.

Dur ing the year, the Company distributed 498,123,127 shares of COL to the shareholders

of the Company by way of distribut ion in specie, effec t of which are set out in note 31 to

the financial statements.

35. Contingent Liabilities

At 31 December 2000, the Group had no significant contingent liabilities.

The Company has given guarantees to banks in respec t of general facilities granted to its

subsidiaries. The extent of such facilities utilised by the subsidiaries at 31 December 2000

amounted to approximately HK$121,362,000 (1999: HK$109,851,000).

36. Lease Commitments

At the balance sheet date, the Group and the Company had outstanding commitments

payable in the following year under non-cancellable operating leases in respect of land

and buildings as follows:


HK$’000 HK$’000 HK$’000 HK$’000

Operating leases which expire:

Within one year 5,942 3,283 5,480 –

In the second to fifth year

inclusive 23,747 15,310 13,163 11,230

29,689 18,593 18,643 11,230


37. Other Commitments

At the balance sheet date, the Group and the Company had the following other

commitments:


HK$’000 HK$’000 HK$’000 HK$’000

Undrawn loan commitment

to a b orrower 8,000 – – –

Contracted commitment

in respect o f advertising

expenditure 3,220 3,776 – –

Contracted commitment in

respect of licence rights for

using a browser-accessible

foreign exchange internet

platform – 2,334 – –

Contracted commitments in

respect of long term

investments/projec ts – 57,600 – –

Commitment authorized but

not contracted for in respect

of the subscription of

400 million shares of

King Pacific International

Holding Limited – 100,000 – 100,000

11,220 163,710 – 100,000


38. Related Party Transactions

Dur ing the year, the Group had the following significant related par ty t ransact ions:

(a) Pursuant to the placing agreement entered into between the Company and Cash

Guardian, the Company iss ued a total of 479 million (1999: 428 million) of shares at

a total consideration of approximately HK$144 mil lion (1999: HK$210 million) to

Cash Guardian. Details of the placement of the Company’s shares are set out in note

27(d) to the financial statements.

(b) During the year, the Group acquired a 8.7% interest in COL from Cash Guardian at

a consideration of approximately HK$277,888,000. The consideration was satisfied

by the issue and allot ment of 463,146,750 shares in the Company.

(c) During the year, the Group pledged bank deposits of HK$27,260,000 (1999: nil) to

secure general banking facilities granted to an associate by a bank. At the balance

sheet date, the associate had not yet ut ilized these banking facilities.

(d) In 1999, the Group paid interest of HK$1,008,000 in respect of the convertible note

of HK$100 million, which bore interest at the rate of 4% per annum, to Cash

Guardian. The entire convertible note was co nverted into shares in the C ompany by

Cash Guardian in 1999. Thus, no similar interest was paid by the Group during the

year.

(e) In 1999, the Group paid interest of HK$3,934,000 to CCT Telecom Holdings Limited

(“CCT”), the fo rmer ultimate holding company. The interest was calculated at the

rates ranging from 10% to 12% per annum on the outstanding amounts due to CCT.

The amount due to CCT was fully repaid in 1999. Thus, no similar interest was paid

by the Group during the year.

39. Post Balance Sheet Event

On 9 February 2001, the Company entered into agreements with Miliway Resources

Limited (“Miliway”) and Joyplace Inc (“Joyplace”), pursuant to which the Company

agreed t o purchase or procure the purchase of 320,000,000 and 115,132,000 shares of

HK$0.10 each in Pricerite respect ively fro m Miliway and Joyplace at considerations of

HK$112,000,000 and HK$40,296,200 respec tively. The considerations will be settled by

the issue and allotment of 373,333,333 and 134,320,667 shares of HK$0.10 each in the

Company. Upon completion of the agreement with Miliway, the Company wil l made

unconditional general offers for al l the then issued shares in Pricerite and the outstanding

options which entitle the holders to subscribe for the shares in Pricerite other than those

already owned or agreed to be acquired by the Company or parties act ing in concert with

the Company. The consideration for the unco nditional general offer of the shares in

Pricerite will be settled at the discretion of the offerees either by cash or by se ven shares

in the Company for every six shares in Pricerite. The total consideration for the

acquisition o f the entire issued shares in and options of Pricerite is approximately

HK$220,037,000.

103Five Year Financial Summary

The following is a s ummary of the consolidated results and assets and liabilities of the Group

for the last five financial years, as extrac ted fro m the audited financial statements.

RESULTS

Year ended 31 December1996 1997 1998 1999 2000

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

Turnover

Continuing operat ions 197,323 627,685 158,729 245,321 472,836

Discontinued operations 226,893 90,187 29,359 – –

424,216 717,872 188,088 245,321 472,836

Profit/(loss) before taxation

Continuing operat ions 30,408 (70,702) (140,906) 89,670 60,674

Discontinued operations 9,669 (22,948) (28,727) – –

40,077 (93,650) (169,633) 89,670 60,674

Taxation (charge)/credit (8,056) (16,500) 142 1,711 1,428

Profit/(loss) after taxation 32,021 (110,150) (169,491) 91,381 62,102

Minority interests (1,876) 612 – 1,567 39,665

Net profit/(loss) for the year 30,145 (109,538) (169,491) 92,948 101,767

five year financial summary

104Five Year Financial Summary

ASSETS AND LIABILITIES

A s at 31 December

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

Property and equipment 101,605 102,660 41,318 58,249 119,613

Goodwil l 13,507 – – – –

Investments in associates – – – – 61,155

Investments in securities – – – – 175,900

Intangible assets – – – – 16,412

Other non-current assets 13,269 21,115 17,436 51,419 165,709

Current assets 1,236,189 990,273 357,363 1,673,418 1,379,629

Total asse ts 1,364,570 1,114,048 416,117 1,783,086 1,918,418

Current liabilities 1,227,317 1,104,974 351,096 559,535 603,609

Long term borrowings – – – 2,570 1,627

Deferred taxat ion 240 240 1,280 1,280 –

Minority interests 2,412 – – 54,375 119,942

Total liabilities and minority

interests 1,229,969 1,105,214 352,376 617,760 725,178

Net assets 134,601 8,834 63,741 1,165,326 1,193,240

Annual Report 2000 Change Capitalizing on · over sixteen years’ experience in corporate...

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Transcript of Annual Report 2000 Change Capitalizing on · over sixteen years’ experience in corporate...