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China Real Estate Opportunities Ltd26 March 2008 26 March 2008 CHINA REAL ESTATE OPPORTUNITIES LIMITED FINAL RESULTS FOR THE PERIOD 5 DECEMBER 2006 TO 31 DECEMBER 2007 China Real Estate Opportunities ("CREO" or the "Company"), an AIM-listed companyestablished to acquire both investment and development properties in China,today announces its final results for the period ended 31 December 2007. Highlights • Period end independent valuations show a total value for the portfolio in excess of £600 million (at the 31 December 2007 exchange rate), an increase of over 11 per cent over valuation at admission (at the then prevailing exchange rates) on a like for like basis • After adding back in the provision for deferred tax, adjusted net asset value of £8.23 per share at 31 December 2007 (flotation: £7.68 per share) •Purchase of two further sites in Tangdao Bay after the period end adds an estimated 5.4 pence per share to the fully diluted net asset value, adjusted on a similar basis. Ray Horney, Chairman of CREO, commented: "CREO has made excellent progress since listing on AIM in July 2007. The Companyhas established a formidable presence in the Chinese property market as theowner of a diversified portfolio of investment and development properties. Moreimportantly, the Company has secured a market position distinct from themajority of its competitors with its focus on commercial rather than residentialreal estate." "In the short to medium term we are well positioned to capitalise on the rentalgrowth in the office and retail sectors which we expect to be driven by China'sstrong underlying economic growth and fast growing retail demand. LeveragingTreasury Holdings' experience as a high quality real estate developer andinvestor, CREO has established strong foundations." CREO Treasury Holdings ChinaRay Horney, Chairman Richard David, Managing DirectorTel: + 44 (0)1273 775 225 Tel: (+86) 21 6282 5000 Landsbanki Securities (UK) LimitedPaul Fincham, Jonathan Becher,Robert NaylorTel: + 44 (0)20 7426 9000 Bankside Consultants Murray ConsultantsTel: + 44 (0)20 7367 8888 Tel: + 353 1 498 0300Simon Rothschild, Oliver Winters Ed Micheau Chairman's statement I am pleased to report on the progress of your Company over the period from itsincorporation on 5 December 2006 to 31 December 2007. During the period underreview, the Company has established a formidable presence in the Chineseproperty market as the owner of a diversified portfolio of investment anddevelopment properties. More importantly, the Company has secured a marketposition distinct from the majority of its competitors with its focus oncommercial rather than residential real estate. In July 2007 the Company was admitted to AIM, successfully raising £260 millionby way of a placing of new ordinary shares. This has enabled the Company tocomplete the acquisition of the initial property portfolio comprising CityCentre, Central Plaza and the Treasury Building, all in Shanghai, Tangdao Bay inQingdao and Beijing Logistics Park. These properties have achieved an impressiveincrease in value over this short period of over 11 per cent. Subsequent to the year end, the Board announced the acquisition, with the Shanghai Industrial Investment Corporation, the real estate investment arm of the Shanghai municipal Government, of a further two sites in Tangdao Bay, adjoining the Company's existing development site. Increasingly, independent market commentators are providing positive reviews ofthose companies that have a significant component of their China focusedportfolio in income producing real estate to provide a buffer against theuncertainty of large-scale residential development, which for the past ten yearshas been the mainstay of the Chinese real estate market activity. The Company's robust share price performance in the fourth quarter of 2007 andpost year end is largely reflective of the market's appreciation of CREO'sstrategic focus, and more importantly its operation in a sector of the market inwhich CREO has forged and will retain a strong leadership position. In the short to medium term we are well positioned to capitalise on the rentalgrowth in the office and retail sectors, which we expect will be driven byChina's strong underlying economic growth and fast growing retail demand.Looking to the longer term, we have established an excellent platform for futureexpansion. Growth in net asset value Period end independent valuations of the Company's initial property portfolio, carried out by CB Richard Ellis show an aggregate gross value for the initial portfolio in excess of £600 million at the exchange rate prevailing on 31 December 2007. Under IFRS, there is a requirement for the Group to provide for deferred taxation on the fair value gains on investment and development properties and this provision is reflected in the consolidated balance sheet. In all cases the properties in question are held through subsidiaries incorporated outside China, principally in Jersey and the British Virgin Islands. As stated in the Company's July 2007 admission document, the disposal of equity interests of the Company's subsidiaries incorporated outside China would not give rise to any taxation in the Peoples' Republic of China (PRC). Were the consolidated balance sheet net asset value to be adjusted so as to eliminate the provision for deferred tax, this would result in an uplift of £92.8 million giving an adjusted net asset value per share at 31 December 2007 of £8.23 (flotation: £7.68) fully diluted for management options. The purchase of the two sites in Tangdao Bay after the period end will add an estimated additional 5.4 pence per share to the fully diluted net asset value, adjusted on a similar basis. The increase in net asset value during the period reflects the strong performance of the Chinese property portfolio, details of which are set out in the Investment Manager's Review. The Chinese property market 2007 saw a challenging environment in China, partly caused by regulatoryinitiatives from central government intended to ensure price stability in thehousing sector. This is an era of unprecedented urbanisation across China whichis projected to resettle fifteen million rural residents annually over the nextten years into urban environments. CREO has pursued a strategy of avoiding largescale residential development projects and the associated accumulation ofsubstantial land banks, and is focusing on opportunities within thenon-residential sector, which has been unaffected to any material extent by therecent wave of regulatory activity. The Company's initial concentration of retail and office assets in Shanghai,China's commercial centre, has proved successful. There are historically lowvacancy rates in the office sector underpinning strong rental growth, whilst thehigh level of wages in Shanghai relative to China as a whole has fuelled doubledigit annual retail sales growth over the past four years. Portfolio review CREO's development portfolio projects in Shanghai, Beijing and Qingdao continue to move forward in line with expectations. The acquisition, subsequent to the year end, of two additional development sites at Tangdao Bay in Qingdao adjoining the Company's initial site, has created the opportunity for a substantial mixed use development. These acquisitions will increase the gross floor area of the Qingdao development from approximately 180,000 square metres to some 430,000 square metres. The development is expected to include around 250,000 square metres of non-residential space comprising high quality retail, hotel and office facilities which will all benefit from Qingdao's role as host to the 2008 Olympics yachting events. This development should continue to profit from continuing interest from domestic, Korean and Japanese investors, attracted by the government's commitment to the construction of an 8km tunnel under Jiaozhou Bay, reducing the commuting time to the Qingdao city centre from over one hour to less than 20 minutes. Foreign exchange The Company's asset value in sterling terms, the currency in which its sharesare denominated, has benefited from exposure to the Chinese Renminbi which overthe second half of 2007 witnessed its strongest period of appreciation since theadjustment of the Chinese Renminbi-US dollar peg in July 2005. Currency futuresmarkets suggest strong appreciation into 2008 and beyond, which would havefurther positive impact for CREO given its Renminbi property assets and USdollar denominated debt. Infrastructure investment Looking to the future, the Company will maintain its focus on the commercialreal estate sector and will continue to acquire additional assets in Shanghaiand Beijing, whilst seeking value opportunities in the country's second tiercities as infrastructure build continues apace. The government's continuedcommitment to transport, telecommunications and social infrastructure has seenthe construction of 57,000 kilometres of international grade highways (secondonly to the United States) over the past ten years, expenditure of US$72 billionon the rail system over the last four years (US$42 billion projected for 2008)and approval to expand the national airport framework from 140 to approximately240 commercial airports by 2020 (Source: The Economist February 2008). Development properties will play an increasing role in the Company's activitiesover coming years, notwithstanding the fact that stable, income producing assetsare expected to continue to dominate the balance sheet for the foreseeablefuture. Outlook I am pleased to report that the Company's investment manager, Treasury HoldingsChina Limited, having now had a presence in China for over four years, hascontinued to prosper. Leveraging Treasury Holdings' experience as a high qualityreal estate developer and investor, CREO has established strong foundations forgrowth, both within the existing portfolio and through selective additions ofquality acquisitions. CREO will also seek acquisitions in a broader number ofChinese regional markets than hitherto, with the aim of providing significantupside through the inherent growth created by the government's overwhelmingcommitment to infrastructure. Treasury Holdings' headcount of over 60 staff in its Shanghai headquarters andin Beijing and Qingdao is testimony to the extent of its commitment to China andto CREO as well as the depth of its resources. Richard Barrett, a CREO nonexecutive Director and Treasury Holdings China Chairman, has now been afull-time resident in Shanghai for over two years and I have every confidence inthe team which he and his senior colleagues have built up there. I would like to take this opportunity to thank our local partners and advisers.In particular I would like to express the Board's gratitude to the ShanghaiIndustrial Investment Corporation, which continues to act as a strong ally tothe Company through providing excellent guidance in the navigation of theChinese regulatory and administrative landscape whilst being a valuable jointventure partner in our Qingdao project. Overall this has been an excellent start for the Company and I and the Boardremain optimistic about the Company's prospects. I look forward to updating youin due course regarding the Company's further progress in the vibrant Chineseproperty market. Ray Horney Chairman25th March 2008 Investment Adviser's Report As noted in the Chairman's statement, CREO was admitted to AIM in July 2007raising £260 million for its investment program. The Company harnesses theintimate, local market knowledge and key relationships that Treasury Holdingshas developed through its presence in China, whilst leveraging theirinternational real estate experience to create opportunities with significantupside value. Its aim is to invest in and to develop high-quality real estate in China, withan emphasis on income producing commercial properties in strong performinglocations and the development of commercial real estate in high growth cities. As at 31 December 2007, the Company had assembled a portfolio of assets in theChinese cities of Shanghai, Qingdao and Beijing with a value in excess of £600million, as valued by independent, international valuation firm CB RichardEllis. CREO continues to expand its profile and influence in the real estate market inthe People's Republic of China ("PRC") having identified commercial propertyinvestment and management as a segment of the market significantly underrepresented. This provided the opportunity to focus on the investment in, anddevelopment of high-quality real estate in China, with an emphasis on rentalincome producing commercial properties with development upside in high growthcities. The PRC residential real estate markets have been the focus of strong regulatoryactivity over the past 18 months, which has sought to stabilise housing pricesand to encourage developers to develop their land banks in an efficient andtimely manner. The commercial property sector is largely isolated from thisregulatory framework and as such CREO remains confident of its ability tocontinue to grow its asset base and provide value added management. China's economic base continues to provide strong support for CREO's ambitionsand in an era of unprecedented growth in disposable income, business activityand continued expansion of the country's infrastructure, the foundations arefirmly in place for strong returns from commercial real estate in the comingyears. Macro-Economic Environment China recorded GDP growth of 11.4 per cent for the year ended 31 December 2007and continues its seemingly inexorable progress towards becoming one of theworld's largest and most dynamic economies. Urbanisation and Infrastructure Urbanisation remains a significant policy in the Government's structural reformswith 15 million rural residents per annum expected to move to urban environmentsover the next decade. This program has been, and continues to be led by thegovernment's unwavering commitment to infrastructure which has been a majorcontributor to employment growth, substantial improvement in standard of livingand has underpinned the economic growth in more remote locations, as businessactivity has followed the infrastructure program across the country. Disposable incomes Nationally, China has experienced annual double digit wage growth for the pastfive years. The resultant increase in disposable incomes has providedsignificant benefit to the retail industry, which has been further promoted byan increasing number of international retailers providing a higher level ofproduct and service. Inflationary pressure China has entered an inflationary cycle over the past 12 months for the firsttime in nearly a decade with the Consumer Price Index rising by 7.1 per cent in2007. The major component within the inflation structure is food, with ConsumerPrice Index growth for food of nearly 20 % in 2007. Bad weather in early 2008will further reduce food output, placing greater strains on the government'sability to deal with inflation in the short term. The effect of high foodinflation is somewhat offset by the high growth in disposable incomes, and capson the prices of fundamental products such as fuel. Even so, inflation is notexpected to be reduced significantly in the short term. Portfolio review The retail sector has been a significant beneficiary of higher economic activityas evidenced by growth in retail sales averaging more than 13 per cent per annumacross China over the past four years and over 11 per cent in Shanghai.Similarly the office real estate market in Shanghai has shown strong growth as aresult of new entrants to the market such as banks and associated service sectortenants, and a period of low net supply which is expected to continue in themedium term future. Currently the CREO portfolio consists largely of commercial income producingproperties in the Shanghai market and each of these properties has performedstrongly over the period to 31 December 2007. The opportunity for each of theseassets at acquisition was value added management, repositioning and the deliveryof significant reversionary rental income. In this respect considerable progresshas been made. Central Plaza Central Plaza is located in the heart of Shanghai's Central Business District("CBD") and has experienced strong rental growth combined with stable occupancyover the latter period of 2007. The planned refurbishment to create significantvalue within the retail podium is moving ahead in accordance with the approvedbudget and timeframe. It is expected that the bulk of the refurbishmentprogramme will be completed during 2008, facilitating the establishment of aquality retail offering within the property. This will significantly enhance therental profile and market positioning of the asset. City Centre City Centre is located in a major regional location on the western edge of theShanghai CBD. It has benefited from Treasury's proactive management of theretail and commercial tenancy base, which has ensured strong growth in rentalincome. The retail component, with Parkson Department Store as its anchortenant, continues to trade strongly with high visibility within its catchmentarea, known for its high level of disposable income. Likewise the twin toweroffice element has maintained strong occupancy levels, in excess of 95 per cent,whilst also achieving strong rent increases in tenant renewals. The Treasury Building The Treasury Building, also located within the Shanghai CBD, has maintained astrong profile in the market and as a new build, completed in early 2007,retains strong prospects of reversionary growth in rents as tenants move throughlease cycles over the next 24 months. Development assets The three development assets in the portfolio, Beijing Logistics Park, TangdaoBay in Qingdao and the extension to City Centre are proceeding in accordancewith the relevant approved development programmes. Of note after the period end,was the announcement by CREO of the acquisition of two additional sitesadjoining the Tangdao Bay development. As a consequence the floor area to beconstructed has increased from 180,000 square metres to approximately 430,000square metres and will include retail and hotel facilities in addition togaining exclusive access to the marina facilities previously developed by thegovernment. Outlook CREO has successfully secured for itself an attractive niche in the Chinaproperty market and is developing a strong reputation as a proactive andsuccessful manager of commercial, income producing real estate. The outlook remains favourable. From an economic perspective, China's domesticeconomy is growing in sophistication and maturity with strong upside built inthrough currency appreciation. The commercial real estate markets continue toprovide viable acquisition targets and CREO has a strong network of contacts toidentify and execute these transactions. Furthermore the existing developmentassets within the portfolio possess strong location characteristics, which willunderpin significant value appreciation over time. NOTE TO EDITORS Under IFRS, there is a requirement for the Group to provide for deferredtaxation on the fair value gains on investment and development properties andthis provision is reflected in the consolidated balance sheet. In all cases theproperties in question are held through subsidiaries incorporated outside China,principally in Jersey and the British Virgin Islands. As stated in the Company'sJuly 2007 admission document, this disposal of equity interests of the Company'ssubsidiaries incorporated outside China would not give rise to any PRC taxation. Were the consolidated balance sheet net asset value to be adjusted as shownbelow so as to eliminate the provision for deferred tax, this would result in anuplift of £92.8 million giving an adjusted net asset value per share at 31December 2007 of £8.23, fully diluted for management options. The completion ofthe purchase of the two sites in Tangdao Bay after the period end will add anestimated additional 5.4 pence per share to the fully diluted net asset value,adjusted on a similar basis. CREO NAV per share - consolidated adjusteddiluted 31 December 2007 £ million Consolidated net assets 331.3Exercise of options 7.9Add back deferred tax 92.8 -----------Adjusted consolidated diluted net assets 432.0 =========== Total shares in issue 50,676,185Total shares and options in issue 52,523,185 Adjusted consolidated diluted net assets pershare - At 31 December 2007 £8.23 (1) - At issue (pro forma) £7.68 (2) 1 The 31 December 2007 adjusted consolidated diluted NAV per share also equatesto the Company NAV per share where no provision is made for deferred tax. 2. The estimated initial diluted net asset value per share as set out in thePlacing Statistics to the Company's AIM admission document was £7.68. Consolidated and company balance sheetas at 31 December 2007 Notes Group Company £'000 £'000AssetsNon current assetsInvestment properties 8 497,133 -Properties under development 9 87,280 -Property, plant and equipment 10 567 -------------------------------- ------ -------- -------- 584,980 -Other non-current assetsInvestment in subsidiary undertakings 11 - 397,619Investment in joint venture 12 21,504 -Deferred tax assets 13 254 -------------------------------- ------ -------- -------- 606,738 397,619------------------------------- ------ -------- --------Current assetsFinancial assets available-for-sale 14 2,567 -Trade and other receivables 15 11,542 3,538Restricted cash 16 17,786 -Cash and cash equivalents 16 79,210 39,828------------------------------- ------ -------- -------- 111,105 43,366------------------------------- ------ -------- --------Total assets 717,843 440,985------------------------------- ------ -------- -------- LiabilitiesNon-current liabilitiesInterest-bearing loans and borrowings 20 (246,635) -Deferred tax liabilities 13 (92,835) -------------------------------- ------ -------- -------- (339,470) -------------------------------- ------ -------- --------Current liabilitiesLand Appreciation Tax payable 21 (9,192) -Income Tax payable 21 (308) -Trade and other payables 22 (37,564) (16,841)------------------------------- ------ -------- -------- (47,064) (16,841)------------------------------- ------ -------- --------Total liabilities (386,534) (16,841)------------------------------- ------ -------- --------Net assets 331,309 424,144------------------------------- ------ -------- --------EquityIssued capital - -Share premium 250,858 250,858Reserves 39,352 5,407Retained earnings 41,099 167,879------------------------------- ------ -------- --------Total equity attributable to shareholders 17 331,309 424,144of the Company ------ -------- --------------------------------------- Net assets value per share:Ordinary shares - basic 19 £6.54 £8.37Ordinary shares - diluted 19 £6.46 £8.23 These financial statements were approved by the board of directors on 25 March2008. Consolidated and company income statementsfor the period ended 31 December 2007 Notes Group Company £'000 £'000Gross rental and related income 2 9,210 ------------------------------- ------ -------- --------- Net rental and related income 2 8,745 - Valuation gains on investment properties 8 71,355 -Valuation gains on subsidiaries 11 - 180,910 Administrative expenses 4 (18,102) (15,664)Other income 38 ------------------------------ ------ -------- --------Net operating profit before net financing 62,036 165,246costs ------ -------- ------------------------------------- Financial income 5 13,518 2,804Financial expenses 5 (15,082) (171)----------------------------- ------ -------- --------Net financing (expenses)/income (1,564) 2,633Share of the loss of joint venture 12 (175) ------------------------------ ------ -------- --------Profit before tax 60,297 167,879 Income tax expense 6 (19,198) ------------------------------ ------ -------- --------Profit for the period 41,099 167,879----------------------------- ------ -------- -------- Attributable to:Equity holders of the parent 41,099 167,879----------------------------- ------ -------- --------Profit for the period 41,099 167,879----------------------------- ------ -------- -------- Earnings per share:Basic earnings per share 7 £1.30Diluted earnings per share 7 £1.27 Consolidated statement of cashflowsfor the period ended 31 December 2007 Notes Group £'000Operating activitiesProfit for the period 41,099Equity settled share based payment expense 17 6,767Depreciation of properties, plant and equipment 10 101Net financial expenses 5 1,564Change in fair value of investment properties 8 (71,355)Share of loss of joint venture 12 175Income tax expense 6 19,198----------------------------------- ------ --------Operating loss before changes in working capital (2,451) Income tax paid (689)Increase in trade and other receivables 4,018Decrease in trade and other payables (26,484)----------------------------------- ------ --------Cash generated from operations (25,606)----------------------------------- ------ -------- Investment activitiesAcquisition of subsidiaries net of cash acquired 11(b) (301,893)Investment in joint venture 12 (16,164)Acquisition of other investment 14 (2,567)Increase in restricted cash 16 (17,786)Addition to properties under development (2,605)Interest received 2,528----------------------------------- ------ --------Cash flows from investing activities (338,487)----------------------------------- ------ -------- Financing activitiesProceeds from bank borrowings 221,663Payment of transaction cost on loan issuance 20 (2,308)Proceeds from shares issuance 246,245Purchase of own shares 17 (15,255)Interest paid (7,042)----------------------------------- ------ --------Cash flows from financing activities 443,303----------------------------------- ------ --------Net increase in cash and cash equivalents 16 79,210Cash and cash equivalents at 31 December 16 79,210----------------------------------- ------ -------- Statement of recognised income and expensesfor the period ended 31 December 2007 Group Company Notes £'000 £'000 Currency translation differences 17 10,888 --------------------------------- ------ ------ --------Revaluation of property under development and 17 23,057 -property in joint venture net of tax-------------------------------- ------ ------ --------Net gain recognised directly in equity 33,945 -Profit for the period 17 41,099 167,879-------------------------------- ------ ------ --------Total recognised income and expenses for the 75,044 167,879period ------ ------ ---------------------------------------- Attribute to:Equity holders of the Company 75,044 167,879-------------------------------- ------ ------ --------Total recognised income and expenses for the 75,044 167,879period ------ ------ ---------------------------------------- Reconciliation of movements in shareholders' fundsfor the period ended 31 December 2007 Group Company Notes £'000 £'000Total recognised income and expenses for 75,044 167,879the periodTransactions with shareholders - Issue of new shares 17 264,583 264,583- Purchase of own shares 17 (15,255) (15,255)- Share options exercised 17 170 170- Share options granted 18 6,767 6,767------------------------------ ------ -------- --------Movement in shareholders' funds for the 331,309 424,144period Opening shareholders' funds - equity - ------------------------------- ------ -------- --------Closing shareholders' funds - equity 331,309 424,144------------------------------ ------ -------- -------- Notes to the consolidated financial statementsas at 31 December CREO ACCOUNTING POLICIES 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been applied consistently by China RealEstate Opportunities Limited ("the Company") and its subsidiaries ("the Group")in dealing with items which are considered material in relation to the Companyand Consolidated financial statements ("the financial statements"). (a) Statement of Compliance The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) and interpretations adoptedby the International Accounting Standards Board (IASB). (b) Basis of Preparation The consolidated financial statements are presented in pounds sterling, roundedto the nearest thousand. They are prepared on the historical cost basis exceptfor the following assets and liabilities which are stated at their fair value:investment in subsidiaries, derivative financial instruments, financial assetsavailable-for-sale, investment in joint ventures, investment properties and properties under development. The accounting policies have been consistently applied to the results, othergains and losses, assets, liabilities and cash flows of companies included inthe financial statements. The preparation of financial statements in conformity with IFRSs requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and the reported amounts of assets and liabilities,income and expenses. The estimates and associated assumptions are based onhistorical experience and various other factors that are believed to bereasonable under the circumstances, the results of which form the basis ofmaking the judgements about carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. Judgements made by management in the application of IFRSS that have asignificant effect on the consolidated financial statements and estimates with asignificant risk of material adjustment in the next year are discussed in Note28. (c) Basis of Consolidation (i) Subsidiaries Subsidiaries are those entities, controlled by the Company. Control exists whenthe Company has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. Inassessing control, potential voting rights that presently are exercisable aretaken into account. The financial statements of subsidiaries are included in theconsolidated financial statements from the date that control commences until thedate that control ceases. (ii) Joint Ventures Joint ventures are those entities over whose activities the Group has jointcontrol, established by contractual agreement. The consolidated financialstatements include the Group's share of the total recognised income and expensesof jointly controlled entities on an equity accounted basis. (iii) Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses arising fromintra-group transactions are eliminated in preparing the consolidated financialstatements. Unrealised losses are eliminated in the same way as unrealisedgains, but only to the extent that there is no evidence of impairment. (iv) Investments by the Company Investments in subsidiaries are carried at fair value in the financialstatements of the Company with any resultant gain or loss recognised in theincome statement of the Company. An external, independent valuation company,having an appropriate recognised professional qualification and recentexperience in the location and category of the Company's investments insubsidiaries being valued, values the subsidiaries every six months. The fairvalues are based on market values, being the estimated amount for which theCompany's investments in subsidiaries could be exchanged on the date ofvaluation between a willing buyer and a willing seller in an arm's lengthtransaction. (d) Investment properties Investment properties are those which are held either to earn rental income orfor capital appreciation or for both. Investment properties are stated at fairvalue. An external, independent valuation company, having an appropriaterecognised professional qualification and recent experience in the location andcategory of the properties being valued, values the properties every six months.The fair values are based on market values, being the estimated amount for whicha property could be exchanged on the date of valuation between a willing buyerand a willing seller in an arm's length transaction after proper marketingwherein the parties had each acted knowledgeably, prudently and withoutcompulsion. The valuations are prepared by considering the aggregate of the net annual rentsreceivable from the properties and where relevant, associated costs. A yieldwhich reflects the risks inherent in the net cash flows is then applied to thenet annual rentals to arrive at the property valuation. Valuations reflect, where appropriate; the type of tenants actually inoccupation or responsible for meeting lease commitments or likely to be inoccupation after letting of vacant accommodation and the market's generalperception of their credit-worthiness; the allocation of maintenance andinsurance responsibilities between lessor and lessee; and the remaining economiclife of the property. It has been assumed that whenever rent reviews or leaserenewals are pending with anticipated reversionary increases, all notices andwhere appropriate counter notices have been served validly and within theappropriate time. Any gain or loss arising from a change in fair value is recognised in the incomestatement. Rental income from investment properties is accounted for asdescribed in accounting policy (n). When the Group begins to redevelop an existing investment property for continuedfuture use as investment property, the property remains an investment property,which is measured based on fair value model, and is not reclassified asproperty, plant and equipment during the redevelopment. When the Group begins to redevelop an existing investment property with a viewto resale, the property is transferred to trading properties and held as acurrent asset. The property is re-measured to fair value as at the date oftransfer with any gain or loss taken to profit or loss. The re-measured amountbecomes the deemed cost at which the property is then carried in tradingproperties. (e) Properties under development Property that is being constructed or developed for future use as investmentproperty is classified as property under development. This is recognisedinitially at cost but is subsequently re-measured to fair value at eachreporting date. Any gain or loss on re-measurement is taken direct to therevaluation reserve in equity unless any loss in the period exceeds any netcumulative gain previously recognised in equity. In the latter case the amountby which the loss in the period exceeds the net cumulative gain previouslyrecognised is taken to the income statement. On completion, the property istransferred to investment property with any final difference on re-measurementaccounted for in accordance with the foregoing policy on investment properties. All costs directly associated with the purchase and construction of a property,and all subsequent capital expenditures for the development qualifying asacquisition costs are capitalised. Borrowing costs are capitalised if they are directly attributable to theacquisition, construction or production of a qualifying asset. Capitalisation ofborrowing costs commences when the activities to prepare the asset are inprogress and expenditures and borrowing costs are being incurred. Capitalisationof borrowing costs may continue until the assets are substantially ready fortheir intended use. If the resulting carrying amount of the asset exceeds itsrecoverable amount, an impairment loss is recognised. The capitalisation rate isarrived at by reference to the actual rate payable on borrowings for developmentpurposes or, with regard to that part of the development cost financed out ofgeneral funds, to the average rate. (f) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulateddepreciation (see (iv) below) and impairment losses. Cost includes expenditure that is directly attributable to the acquisition ofthe asset. Where parts of an item of property, plant and equipment have different usefullives, they are accounted for as separate items of property, plant andequipment. Gains and losses on disposal of an item of property, plant and equipment aredetermined by comparing the proceeds from disposal with the carrying amount ofproperty, plant and equipment and are recognised net within "other income" inthe income statement. (ii) Reclassification to investment property When the use of a property changes from owner-occupied to investment property,the property is remeasured to fair value and reclassified as investmentproperty. Any gain arising on remeasurement is recognised directly in equity.Any loss is recognised immediately in the income statement. (iii) Subsequent expenditure The cost of replacing part an item of property, plant and equipment isrecognised in the carrying amount of the item if it is probable that the futureeconomic benefits embodied within the part will flow to the Group and its costcan be measured reliably. The costs of the day-to-day servicing of property,plant and equipment are recognised in the income statement as incurred. (iv) Depreciation Depreciation is recognised in the income statement on a straight-line basis overthe estimated useful lives of each part of an item of property, plant andequipment. Leased assets are depreciated over the shorter of the lease term andtheir useful lives. The estimated useful lives are as follows: Buildings situated on leasehold land 20 yearsFixtures, fittings and equipment 5 years Depreciation methods, useful lives and residual values are reviewed at eachreporting date. (g) Land use rights Land use rights represent lease prepayments for acquiring rights to use land inthe People's Republic of China (PRC) with a period of 50 years. Land use rightsgranted with consideration are recognised initially at acquisition cost. Landuse rights are classified and accounted for in accordance with the intended useof the properties erected on the related land. For investment properties and properties under development, the correspondingland use rights are classified and accounted for as part of the investmentproperties and properties under development respectively, which are carried atfair value as described in Notes 8 and 9. For properties that are developed for sale, the corresponding land use rightsare classified and accounted for as part of the properties. (h) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated into the respective functionalcurrencies of the Group entities at the spot foreign exchange rate ruling at thedate of the transaction. Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date are translated into the respectivefunctional currencies at the foreign exchange rate ruling at that date. Foreignexchange differences arising on translation are recognised in the incomestatement. Non-monetary assets and liabilities that are measured in terms of historicalcost in a foreign currency are translated using the exchange rate at the date ofthe transaction. Non-monetary assets and liabilities denominated in foreigncurrencies that are stated at fair value are translated into the functionalcurrency at foreign exchange rates ruling at the dates the fair value wasdetermined. (ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fairvalue adjustments arising on consolidation, are translated to pounds sterling atthe foreign exchange rates ruling at the balance sheet date. The income andexpenses of foreign operations are translated to pounds sterling at ratesapproximating to the foreign exchange rates ruling at the dates of thetransactions. Foreign exchange differences arising on retranslation arerecognised as a separate component of equity. (iii) Net investment in foreign operations Exchange differences arising from the translation of the net investment inforeign operations are taken to the translation reserve. They are released intothe income statement upon disposal. (i) Impairment (i) Financial assets All financial assets are assessed at each reporting date to determine whetherthere is any objective evidence of impairment. A financial asset is consideredto be impaired if objective evidence indicates that one or more events have hada negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost iscalculated as the difference between its carrying amount, and the present valueof the estimated future cash flows discounted at the original effective interestrate. Individually significant financial assets are tested for impairment on anindividual basis. The remaining financial assets are assessed collectively ingroups that share similar credit risk characteristics. All impairment losses are recognised in the income statement. An impairment loss is reversed if the reversal can be related objectively to anevent occurring after the impairment loss was recognised. (ii) Non-financial assets The carrying amounts of the Group's non-financial assets, other than investmentproperties, properties under development and deferred tax assets, are reviewedat each reporting date to determine whether there is any indication ofimpairment. If any such indication exists, then the asset's recoverable amountis estimated. The recoverable amount of an asset or cash-generating unit is the greater of itsvalue in use and its fair value less costs to sell. In assessing value in use,the estimated future cash flows are discounted to their present value using apre-tax discount rate that reflects current market assessments of the time valueof money and the risks specific to the asset. For the purpose of impairmenttesting, assets are grouped together into the smallest group of assets thatgenerates cash inflows from continuing use that are largely independent of thecash inflows of other assets or groups of assets (the "cash-generating unit"). An impairment loss is recognised if the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement. Impairment losses recognised in respect ofcash-generating units are allocated first to reduce the carrying amount of anygoodwill allocated to the units and then to reduce the carrying amount of theother assets in the unit (group of units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at each reportingdate for any indications that the loss has decreased or no longer exists. Animpairment loss on other assets is reversed if there has been a change in theestimates used to determine the recoverable amount. An impairment loss isreversed only to the extent that the asset's carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation oramortisation, if no impairment loss had been recognised. (j) Share capital (i) Ordinary share capital Ordinary shares are classified as equity. External costs directly attributableto the issue of new shares, other than on a business combination, are shown as adeduction, net of tax, in equity from the proceeds. Share issue costs incurreddirectly in connection with a business combination are included in the cost ofacquisition. (ii) Repurchase of share capital When share capital recognised as equity is repurchased, the amount of theconsideration paid, including directly attributable costs, is recognised as achange in equity. Repurchased shares are cancelled and the cost of repurchase isdeducted from share capital. (iii) Dividends Ordinary dividends are recognised as a liability in the period in which they aredeclared. (k) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value, lessattributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the income statement overthe period of the borrowings on an effective interest basis. (l) Share-based payments Equity-settled share-based payments are measured at fair value (excluding theeffect of non market-based vesting conditions) at the grant date. The fair valuedetermined at the grant date of the equity-settled share-based payments isexpensed on a straight-line basis over the vesting period, based on theCompany's estimate of the shares that will eventually vest and adjusted for theeffect of non market-based vesting conditions. Fair value is measured using the Binomial option pricing method. The expectedlife used has been adjusted, based on management's best estimate, for effects ofbehavioural considerations. Share-based payment transactions in which the Company grants share options tosubsidiaries' employees are accounted for as an increase in value of investmentin subsidiary in the Company's balance sheet which is eliminated onconsolidation. (m) Provisions and contingent liabilities (i) Provisions A provision is recognised if, as a result of a past event, the Group has presentlegal or constructive obligation that can be estimated reliably, and it isprobable that an outflow of economic benefits will be required to settle theobligation. Provisions are determined by discounting the expected future cashflows at a pre-tax rate that reflects current market assessments of the timevalue of money and the risks specific to the liability. (ii) Other provisions and contingent liabilities Where it is not probable that an outflow of economic benefits will be required,or the amount cannot be estimated reliably, the obligation is disclosed as acontingent liability, unless the probability of outflow of economic benefits isremote. Possible obligations, whose existence will only be confirmed by theoccurrence or non-occurrence of one or more future events, are also disclosed ascontingent liabilities unless the probability of an outflow of economic benefitsis remote. (n) Rental income from operating leases Rental income from investment property leased out under operating lease isrecognised in the income statement on a straight-line basis over the term of thelease. Lease incentives granted are recognised as an integral part of the totalrental income. (o) Interest income Interest income is recognised in the income statement as it accrues, taking intoaccount the effective yield on the asset. (p) Borrowing costs Borrowing costs are expensed in the income statement in the period in which theyare incurred, except to the extent that they are capitalised as being directlyattributable to the acquisition, construction or production of an asset whichnecessarily takes a substantial period of time to get ready for its intended useor sale. The capitalisation of borrowing costs as part of the cost of a qualifying assetcommences when expenditure for the asset is being incurred, borrowing costs arebeing incurred and activities that are necessary to prepare the asset for itsintended use or sale are in progress. Capitalisation of borrowing costs issuspended or ceases when substantially all the activities necessary to preparethe qualifying asset for its intended use or sale are interrupted or complete. (q) Taxation Income tax on the profit or loss for the year comprises current and deferredtax. Income tax is recognised in the income statement except to the extent thatit relates to items recognised directly in equity, in which case it isrecognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences are not provided for differences relating toinvestments in subsidiaries to the extent that they will probably not reverse inthe foreseeable future. The amount of deferred tax provided is based on theexpected manner of realisation or settlement of the carrying amount of assetsand liabilities, using tax rates enacted or substantially enacted at the balancesheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. (r) Related parties For the purposes of these consolidated financial statements, parties areconsidered to be related to the Company and the Group if the Company and theGroup has the ability, directly or indirectly, to control the party or exercisesignificant influence over the party in making financial and operatingdecisions, or vice versa, or where the Group and the party are subject to commoncontrol or common significant influence. Related parties may be individuals(being members of key management personnel, significant shareholders and/ortheir close family members) or other entities and include entities which areunder the significant influence of related parties of the Group where thoseparties are individuals. (s) Segment reporting A segment is a distinguishable component of the Group that is engaged either inproviding products or services (business segment), or in providing products orservices within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments. (t) Non-derivative financial instruments Non-derivative financial instruments comprise investments in unlisted equitysecurities, trade and other receivables, cash and cash equivalents, loans andborrowings and trade and other payables. Non-derivative financial instruments are recognised initially at fair value.Subsequent to initial recognition non-derivative financial instruments aremeasured as described below. Available-for-sale financial assets The Group's investment in certain equity securities are classified asavailable-for-sale financial assets. Subsequent to initial recognition, they aremeasured at fair value and changes therein, other than impairment losses whichare recognised directly in equity. When an investment is derecognised, thecumulative gain or loss in equity is transferred to the income statement. Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits. Cashequivalents are short-term, highly liquid investments that are readilyconvertible to known amounts of cash and which are subject to an insignificantrisk of changes in value. Bank overdrafts that are repayable on demand and forman integral part of the Group's cash management are included as a component ofcash and cash equivalents for the purpose of the statement of cash flows. Other non-derivative financial instruments are measured at amortised cost usingthe effective interest method, less any impairment losses. (u) Derivative financial instruments Derivative financial instruments are recognised initially at fair value. At eachbalance sheet date the fair value is remeasured. The gain or loss onremeasurement to fair value is recognised immediately in the income statement. The fair value of interest rate swaps is the estimated amount that the Groupwould receive or pay to terminate the swap at the balance sheet date, takinginto account current interest rates and the current creditworthiness of the swapcounterparties. (v) Trade and other receivables Trade and other receivables are stated at their cost less impairment losses. (w) Operating leases Payments made under operating leases are recognised in the income statement on astraight-line basis over the term of the lease. Lease incentives received arerecognised in the income statement as an integral part of the total leaseexpense. 2. GROSS AND NET RENTAL INCOME Period ended 31 December 2007 £'000Rent receivable 9,210Gross rental and related income 9,210Business tax and surcharges (465)Net rental and related income 8,745 Rental income relates to property acquisitions during the period. If allacquisitions had occurred on 1 January 2007, the Group's total annual rentalincome of the properties acquired would have been £21.3m. 3. SEGMENT REPORTING Primary and secondary segments Since China is the sole location of the Group's property portfolio, thesefinancial statements and related notes represent the results and financialposition of the Group's primary business segment. The secondary reporting format by property use is shown below: Offices Retail Car Others Total parking £'000 £'000 £'000 £'000 £'000Group property 295,695 185,206 16,232 87,280 584,413assetsJoint venture net - - - 21,504 21,504property assetsTotal property 295,695 185,206 16,232 108,784 605,917assetsProperties acquired 245,489 153,760 13,477 61,078 473,804and capitalisedNet rental income 6,350 2,093 275 27 8,745 Properties acquired and capitalised represents acquisitions of investmentproperties and properties under development for a total amount of £460.7m, and acquisition of land use rights and capitalised additions in the period of £12.8m (Note 9) classified as properties under development. 4. ADMINISTRATION EXPENSES Period ended 31 December 2007 Group Company £'000 £'000Depreciation of property, plant and equipment (101)Management fee (7,006) (7,006)Auditors' remuneration- for audit services (120) (120)- for tax services (124) (124)- other services (87) (87)Share based payments expense (6,767) (6,767)Other administration expenses (3,897) (1,560)-------------------------------- -------- --------- (18,102) (15,664)-------------------------------- -------- -------- The management fee includes charges for various services provided by TreasuryHoldings China Limited (THCL), the nature of which are set out in Note 26'Related Parties'. In addition to the fees stated above the auditors charged £260,000 for non-auditdue diligence services which have been capitalised. The fees of the directors of the Company for the period were as follows: Non-executive Period ended 31 December 2007R Horney 37.5I Ling 22.5S Leckie 22.5R Pirouet 22.5--------------------- ------------------------ 105 --------------------------------------------- Annual directors' fees are an aggregate of £140,000 per annum. The fees aboverepresent fees charged for 9 months of the financial period. 5. NET FINANCING (EXPENSES) /INCOME Period ended 31 December 2007 Group Company £'000 £'000Interest income 2,608 2,041Net foreign exchange gain 10,705 558Fair value of foreign currency derivative 205 205-------------------------------- -------- ---------Financial income 13,518 2,804-------------------------------- -------- ---------Gross interest expense (8,950) (171)Fair value of interest rate derivatives (6,132) --------------------------------- -------- ---------Financial expenses (15,082) (171)-------------------------------- -------- ---------Net financing (expenses) /income (1,564) 2,633-------------------------------- --------- --------- The Group has not capitalised any interest in the period. 6. INCOME TAX EXPENSE (i) Income tax in the consolidated income statement represents: Current tax Current tax Group 2007 £'000Provision for PRC enterprise income tax for the period (1,139)Provision for withholding income tax for the period (189)---------------------------------------- -------- (1,328)Deferred taxBenefit of tax losses recognised (73)Fair value movement of financial derivatives 203Revaluation of investment properties (23,547)Net effect of change in enacted future tax rate 5,547---------------------------------------- -------- (17,870) ---------------------------------------- -------- Total (19,198) ---------------------------------------- -------- As a collective investment fund under the Collective Investment Funds (Jersey)Law 1988, the Company is entitled to exempt company status in Jersey under theprovisions of article 123(A) of the Income Tax (Jersey) Law, 1961 on payment ofan annual fee which is currently £600. As an exempt company, the income andcapital gains of the Company, other than Jersey source income (excluding bankdeposit interest), is exempt from taxation in Jersey. Pursuant to the PRC tax rules and regulations, the Group's PRC subsidiaries aresubject to PRC income tax at a rate of 33%. (ii) Reconciliation between tax expense and accounting profit at applicable taxrate: Group 2007 £'000Profit before taxation (60,297)Less: Land appreciation tax 261----------------------------------------- -------- (60,036)----------------------------------------- --------Notional tax on profit before tax, calculated atthe rates applicable to profits in the tax jurisdiction (19,812)concernedNon-deductible expenses net of non-taxable income 3Deferred tax assets not recognised (Note 13) (98)Effect of tax exemption (4,387)Net effect of change in future enacted tax rate 5,547----------------------------------------- -------- (18,747)Land appreciation tax (261)Withholding income tax (190)----------------------------------------- --------Income tax (19,198)----------------------------------------- -------- Profit before income tax of the Group for the year ended 31 December 2007 wasmainly generated by Shanghai Hua Tian Property Development Company Limited,Shanghai Central Land Estate Company Limited and Shanghai Vision Honest RealEstate Development Company Limited, which are subject to PRC income tax rates of33%. On 16 March 2007, the Fifth Plenary Session of the Tenth National People'sCongress passed the Corporate Income Tax Law of the PRC ("new tax law") whichwill take effect on 1 January 2008. As a result of the new tax law, it isexpected that the income tax rate applicable to the Group's subsidiaries in thePRC will be changed to 25% from 1 January 2008. The new income tax rates wereused to measure the Group's deferred tax assets and deferred tax liabilities asat the acquisition date of the Group's properties in 2007 and at 31 December2007. As a result, the Group's deferred tax assets and deferred tax liabilitiesas at 31 December 2007 have decreased by £81,325 and £29.7m respectively. Theenactment of the new tax law is not expected to have any financial effect on theamounts accrued in the balance sheet in respect of current tax payable. 7. EARNINGS PER SHARE The calculation of the Group basic earnings per share at 31 December 2007 wasbased on the profit attributable to ordinary shareholders of £41.1m and theweighted average number of ordinary shares outstanding during the period ended31 December 2007 of 31.7m. Diluted earnings per share is computed by dividingthe profit attributable to ordinary shareholders by the weighted average numberof ordinary shares outstanding and, when dilutive, adjusted for the effect ofall potentially dilutive share options. Period ended 31 December 2007 £'000Profit attributable to ordinary shareholders (Basic and 41,099Diluted) ------------------------------------------------(i) Basic earnings per shareWeighted average number of shares for the period (Basic) 31,683,368-------------------------------------- ----------Basic earnings per share £1.30-------------------------------------- ----------(ii) Diluted earnings per shareWeighted average number of ordinary shares (Basic) 31,683,368Effect of share options in issue 641,043-------------------------------------- ----------Weighted average number of ordinary shares (Diluted) 32,324,411-------------------------------------- ----------Diluted earnings per share £1.27-------------------------------------- ---------- 8. INVESTMENT PROPERTIES Total £'000GroupBalance at 5 December 2006 -Acquisitions through business combinations 412,400Additions 326Foreign currency adjustments 13,052Fair value adjustments 71,355-------------------------------------- ----------Balance at 31 December 2007 497,133-------------------------------------- ---------- Included in the fair value adjustments of £71.4m was a net gain of £49.9marising upon acquisition of certain properties (11 (b)). The revaluation gainsof £21.5m have been credited to the consolidated income statement for theperiod. At 31 December 2007, the investment properties and properties under development(Note 9) were revalued at fair value. The valuations were undertaken byindependent international valuation firm CB Richard Ellis and carried out incompliance with the Royal Institute of Chartered Surveyors Practice Standards.The fair values are based on market values, being the estimated amount for whicha property could be exchanged on the date of valuation between a willing buyerand a willing seller in an arm's length transaction after proper marketingwherein the parties had each acted knowledgeably, prudently and withoutcompulsion. The valuations are prepared by considering the aggregate of the netannual rents receivable from the properties and where relevant associated costs.The rental yields applied per the valuations for office and rental properties inChina were estimated to each be in the range of 5% -10% p.a. All the investment properties are leased to tenants under operating leases. As at 31 December 2007 investment properties with a total carrying value of£497m were pledged as collateral for the Group's borrowings. 9. PROPERTIES UNDER DEVELOPMENT 2007 £'000GroupBalance at 5 December 2006 -Acquisitions through business combinations 48,277Acquisition of land use right 6,294Additions 6,507Foreign currency adjustments 2,288Fair value adjustments 23,914---------------------------------------- ---------Balance at 31 December 2007 87,280---------------------------------------- --------- Included in the fair value adjustments of £23.9m was a gain of £8.5m arisingfrom acquisition of a property project under development (Note 11 (b)). Therevaluation gains of £15.4m have been credited directly to equity. At 31 December 2007 the properties under development were revalued at fairvalue. The valuations were undertaken by independent international valuationfirm CB Richard Ellis (Note 8). The Group has not capitalised any interest in the period. 10. PROPERTY, PLANT AND EQUIPMENT Buildings and Office and other Total properties equipment Cost £'000 £'000 £'000Balance at 5 December 2006 - - -Acquisitions through business 379 106 485combinationsAdditions 183 - 183-------------------------- --------- ----------- ------Balance at 31 December 2007 562 106 668 DepreciationBalance at 5 December 2006 - - -Additions (101) - (101)-------------------------- --------- ----------- ------Balance at 31 December 2007 (101) - (101)Net book valueBalance at 5 December 2006 - - --------------------------- --------- ----------- ------Balance at 31 December 2007 461 106 567-------------------------- --------- ----------- ------ 11. Investment in subsidiaries 11(a) INVESTMENT IN SUBSIDIARIES - COMPANY Company 2007 £'000Balance at 5 December 2006 -Loans to subsidiary undertakings 184,265Additions in the period 32,444Fair value adjustments 180,910----------------------------- ---------------------Balance at 31 December 2007 397,619----------------------------- --------------------- The Company has six main subsidiaries. A list of subsidiary undertakings is setout in Note 27. The directors of the Company have elected to account for theseinvestments at fair value under IAS 39 "Financial Instruments: Recognition andMeasurement". Fair value is based on market value, being the estimated amountfor which the subsidiaries could be exchanged on the date of valuation between awilling buyer and a willing seller in an arm's length transaction after propermarketing wherein the parties had each acted knowledgeably, prudently andwithout compulsions. The investments in the subsidiaries of the Company are stated at fair value bythe directors as at 31 December 2007. The estimate of fair value of suchinvestments was compiled by the directors who were assisted by Deloitte & Touchein this matter. The fair values of the equity in subsidiaries at 31 December 2007 are set outbelow: Ownership Company Interest Fair value 2007 2007 Country ofSubsidiaries incorporation % £'000 CREO (Shanghai City Centre) Jersey 100 144,399LimitedGrand Eastern Limited BVI 100 33,675CREO (Shanghai Central Plaza) Jersey 100 28,499LimitedCREO (Pudong) Limited Jersey 100 6,883Dream Land Properties Limited Jersey 100 34CREO (Qingdao) Warehousing Jersey 100 (136)Limited --------------- ------------ ------------------------------CREO Xidan (No.1) Limited Jersey 100 --------------------- --------------- ------------ ----------Fair value of subsidiaries as at 31 December 2007 213,354--------------------------------- -------------------- 11(b) INVESTMENT IN SUBSIDIARIES - GROUP On 26 July 2007, the Company acquired a portfolio of properties, financing thepurchase through the issue of ordinary shares and external debt. Details of theassets acquired are set out below: Fair value to group £'000Investment and development properties 460,677Property, plant and equipment 485Trade and other receivables 12,892Cash 50,441Trade and other payables (54,713)Land appreciation tax payable (8,861)Deferred tax liability (65,182)Bank loans (27,280)--------------------------------- -------------------- 368,459 --------------------------------- --------------------Consideration:Shares issued to REO for acquisition of GEL 16,125Cash 140,875Debt financing 205,610Payments in cash and other costs 5,849--------------------------------- -------------------- 368,459 --------------------------------- -------------------- Fair value accounting The Company commissioned independent appraisals of the following acquiredproperties in connection with the admission of the Company's shares to tradingon Alternative Investment Market (AIM). The aggregate fair value of theproperties was £519.1m as compared to an aggregate acquisition cost of £460.7m.For purposes of presenting the purchase accounting information the directorshave taken the acquisition cost of the properties of £460.7m as fair value atthe acquisition date rather than the appraised value. Valuation gains of £49.9mand £8.5m are included in valuation gains on investment properties andproperties under development and have been credited to theconsolidated income statement and reserve respectively in the consolidatedfinancial statements. City Central Treasury Centre Plaza Building Total £'000 £'000 £'000 £'000Acquisition price of investment 331,725 90,114 38,837 460,676properties andproperties under development at thedate of acquisitionValuation of investment properties andpropertiesunder development at the date of 385,527 96,958 36,591 519,076acquisition ---------- ------- -------- ---------------------------------Gain/(loss) 53,802 6,844 (2,246) 58,400--------------------------- ---------- ------- -------- ------ Details of acquisitions during the period 1. City Centre 1.1 Acquisition document City Centre Phases 1, 2 and 3 CREO (Shanghai City Centre) Limited (as purchaser) and the Company entered into a share purchase agreement with the City Centre vendors, effective as of 1 June2007, pursuant to which the City Centre vendors agreed to sell their respectiveshareholdings in Brightime Limited (BL) and State Properties Limited (SPL), bothregistered in Hong Kong (HK), to CREO (Shanghai City Centre) Limited. BL and SPLown 65% and 35% respectively of the entire issued share capital of Shanghai HuaTian Property Development Company Limited ("SHTP"), a company registered in thePeople's Republic of China (PRC), which in turn holds the relevant land userights and property in respect of Phases 1, 2 and 3 of the City Centredevelopment in Shanghai. The purchase price was £274,799,860. The retentions to the purchase price at closing were as follows: (i) £14,037,969 is payable only when the necessary consents have been obtainedfrom the relevant government entities and land bureau in respect of increasingthe total approved gross floor area of City Centre Phase 3 by 19,038 squaremetres and a land use right certificate has been issued to SHTP evidencing atotal land area of 9,538 square metres in respect of City Centre Phase 3 (Note24). (ii) an amount equal to five percent of the purchase price was placed in escrowfor a 12 month period to be used to settle claims under the agreement; and (iii) a "relocation retention" which was placed in escrow at closing as fewerthan 250 City Centre Phase 3 residential units had not been relocated byclosing. Such amount was to be paid out of escrow to the City Centre vendorswhen 250 units had been relocated. The agreement contained customary warranties and indemnities and the vendor gavespecific indemnities in respect of certain potential title defects. 1.2 Financing document City Centre Phases 1, 2 and 3 CREO (Shanghai City Centre) Limited and SHTP agreed financing arrangements withCredit Suisse International and Credit Suisse Shanghai Branch in respect of bothan offshore loan amount of up to US$220m (the "Offshore Loan") and an onshoreloan amount of up to CNY760m and US$24m to be funded onshore in US$, (the"Onshore Loans"). The interest rate in respect of the Offshore Loan is anadjusted quarterly rate equal to three months US$ LIBOR plus an interest spreadof 250 basis points. The interest rate for the Onshore Loan (CNY portion) is based on the applicablePeople's Bank of China rate, the 3- 5 year rate plus an interest spread of 140basis points. The interest rate for the Onshore Loan (US$ portion) is anadjusted quarterly rate equal to three months US$ LIBOR rate plus an interestspread of 140 basis points. Interest on both the Offshore Loan and Onshore Loansis payable quarterly in arrears. The term of both the Offshore Loan and the Onshore Loans is three years from thedate of funding with a 12 month extension provision. The agreements containcustomary events of default, covenants, representations and securityarrangements. 2. Central Plaza 2.1 Acquisition document CREO (Shanghai Central Plaza) Limited, a subsidiary of the Company entered into a share purchase agreement with the Central Plaza vendors, effective as of 1June 2007, pursuant to which the Central Plaza vendors agreed to sell their 100%shareholding in Central Land Estate Limited ("CLE"), a Hong Kong (HK)registered company, to CREO Central Plaza Limited. CLE holds the entire issuedshare capital of Shanghai Central Land Estate Limited ("SCLE"), registered inthe PRC, which in turn is the sole legal owner of the property known as CentralPlaza and the land use rights in respect thereof. The purchase price was £72,838,517, payable as to £3,544,483 by way of depositon 1 June 2007 and the balance payable at closing save for a five percentretention which was placed in escrow for 12 months and was to be used to settleany claims under the agreement. 2.2 Financing document CREO (Shanghai Central Plaza) Limited and Aareal Bank AG have entered into afacility agreement dated 18 May 2007 in respect of the provision of a securedacquisition loan facility of up to US$107m. The interest in respect of the loanis three month US$ LIBOR or four year SWAP rate or a combination of both plus amargin of 150 basis points per annum. The term of the loan is for an initialperiod of four years with a one year extension option. The loan amount is to berepaid in one single payment at the end of such term. The agreement containscustomary events of default, covenants, representations and securityarrangements. In addition, Shanghai Central Land Estate Limited, has enteredinto onshore financing arrangements of up to US$9.5m with NorddeutscheLandesbank Girozentrale, Shanghai Branch. The applicable interest is LIBOR plus75 basis points. The agreement contains customary events of default, covenants,representations and security arrangements. 3. The Treasury Building 3.1 Acquisition document The Company entered into a share purchase agreement with REO dated 6 July 2007for the purchase of the entire issued share capital of Grand Eastern Limited("GEL"), registered in the British Virgin Islands (BVI), from REO. GEL is thelegal and beneficial owner of the entire issued share capital of Shanghai VisionHonest Real Estate Development Company Limited ("SVH"). SVH is registered in thePRC and has the sole benefit of the land use rights in respect of the TreasuryBuilding. The consideration for the acquisition, after accounting for debt to beassumed of approximately £10.8m, is £16.1m. This was satisfied by the issue toREO of 2,132,941 shares in the Company. 3.2 Financing document SVH entered into an onshore loan agreement for CNY97m for a term of three yearswith Credit Suisse Shanghai Branch on 13 February 2007. SVH entered into amortgage agreement with Credit Suisse Shanghai Branch on 25 February 2007,pursuant to which a mortgage was created over the Treasury Building and theunderlying land use rights. This loan is also secured by, inter alia, acorporate guarantee given by the Company. GEL entered into an offshore loan agreement on 13 February 2007 for €18.8m forthree years with Credit Suisse International. This loan is secured by, interalia, (i) an equity pledge of GEL's 100% equity interest in SVH, (ii) acorporate guarantee given by the Company, (iii) a charge of the Company'sshareholding in GEL, (iv) a charge over GEL's London collection and disbursementaccounts, (v) subordination of the shareholder loan from GEL to the Company, and(vi) a collateral assignment of GEL's rights, benefits and interests under theshareholder loan from GEL to SVH. 4. Beijing Logistics Park (BLP) 4.1 Acquisition document Treasury Holdings and the Company entered into an agreement dated 6 July 2007pursuant to which THCL sold the entire issued share capital of Dream LandProperties Limited ("Dreamland") to the Company. By virtue of the level of debtin Dreamland, the consideration was £1. Dreamland entered into an agreement with Beijing Airport Logistic ParkDevelopment Centre ("BAL") dated 16 February 2007 pursuant to which BALtransferred the land and the land use rights in respect of Beijing LogisticsPark to Dreamland. 4.2 Financing document The Company and DBS Bank Limited, Shanghai Branch have entered into anindicative term sheet dated 26 May 2007 in respect of both an offshore loanamount of the US$ equivalent of CNY45m (the "Offshore Loan") and an onshore loanamount of CNY83m (the "Onshore Loan"), to be funded in CNY. The interest ratefor the Onshore Loan is based on the applicable People's Bank of China rate,contemplated to be the 1-3 year rate. The interest rate in respect of theOffshore Loan is three month US$ LIBOR plus a margin of 150 basis points perannum. Interest on both the Offshore Loan and Onshore Loan is payable quarterlyin arrears. The term of both the Offshore Loan and the Onshore Loan is twoyears. The loan amount is to be repaid in one single payment at the end of suchterm. On 8 June 2007, the Company advanced to Dreamland (as borrower) a loan ofapproximately US$12.2m (£6.2m) for the purpose of enabling Dreamland to completethe acquisition of Beijing Logistics Park. The loan is repayable one year fromthe date of drawdown. Interest is payable at a rate of three month LIBOR plustwo percent per annum. The loan remains outstanding following the acquisition ofDreamland by the Company. 12. INVESTMENT IN JOINT VENTURE The Group has the following joint venture investment: Country Ownership 2007Joint venture %Qingdao Shangshi CREO Real Estate People's Republic of 50Company Limited China The Group has a 50% interest in a joint venture Qingdao Shangshi CREO RealEstate Company Limited whose principal activity is real estate development. TheGroup entered into a joint venture agreement with SIIC Shanghai (Holdings)Company Limited ("SIIC") and Shanghai Shangshi City Development & InvestmentCompany Limited ("SSCD") dated 15 May 2007 to govern the relationship of theparties over their interests in Qingdao Shangshi CREO Real Estate CompanyLimited. Qingdao Shangshi CREO Real Estate Company Limited holds the land userights in respect of a development site at Tangdao Bay in the Province ofShandong. Included in the consolidated financial statements are the followingitems that represent the Group's interests in the assets and liabilities,revenues and expenditures of the joint venture: Summary financial information on joint venture - 50 per cent 2007Group £'000Non-current assets 26,615Current assets 5,237Non-current liabilities (1,543)Current liabilities (8,805)--------------------------- ---------------------Net assets 21,504--------------------------- ---------------------Income 9Expenses (184)--------------------------- ---------------------Net loss (175)--------------------------- --------------------- 2007Movement in investment in joint venture £'000Acquisition 16,164Share of revaluation of properties 4,924Share of loss of joint venture (175)Foreign currency gains 591--------------------------- --------------------- 21,504 --------------------------- --------------------- The property of the joint venture was revalued at fair value at 31 December2007. The valuations were undertaken by independent international valuation firmCB Richard Ellis. In addition to the property assets recognised in non-current assets above, theGroup's Joint Venture, Qingdao Shangshi CREO Real Estate Company Limited wassuccessful at auction for the purchase of two additional sites in November 2007.The Sales Purchase Agreement for the sites was signed in January 2008 and landuse right certificate will be obtained in 2008. An advance payment of £10.2m wasrecorded at cost in the balance sheet of Qingdao Shangshi CREO Real EstateCompany Limited at the period end. Qingdao Shangshi CREO Real Estate CompanyLimited is required to pay a further £8.6m to complete the transaction. Forinformational purposes these properties were valued by CB Richard Ellis at£24.6m at the period end. The Group's share of any consequential change betweencost and valuation would be 50%. 13. DEFERRED TAX ASSETS AND LIABILITIES Recognised deferred tax assets andliabilities Deferred tax assets and liabilities are attributable to the following items: Assets Liabilities 2007 2007Group £'000 £'000Fair value change in investment properties - (78,227)Fair value change in properties under development - (14,608)Fair value change in financial derivatives 153 -Deductible tax loss 101 ------------------------------------ ------- ---------Deferred tax assets/(liabilities) 254 (92,835)----------------------------------- ------- --------- The PRC income tax rate of 25% would be charged if the Group decided to realiseits investment and development properties at the year end valuations through thesale of the underlying assets after the year end. Apart from the deferred taxliability that arises on revaluation gains there are two deferred tax assetsthat relate to derivatives and losses carried forward within the individual PRCentities. Deferred tax liabilities The following deferred tax liabilities arose as a result of the revaluation ofinvestment properties and properties under development: Total £'000Balance at 5 December 2006 -Acquisition through business combinations (65,182)Recognition of deferred tax liabilities (23,817)Foreign currency movements (3,836)-------------------------------------- ----------Balance at 31 December 2007 (92,835)-------------------------------------- ---------- Deferred tax assets The following deferred tax assets were also acquired as part of the acquisitionof subsidiaries in July 2007: Recognition Recognition Total of tax losses of fair value movement of financial derivatives £'000 £'000 £'000Balance at 5 December 2006 - - -Acquisition through business 156 - 156combinationsRecognition of deferred tax - 153 153assetsRealisation for the period (55) - (55)--------------------------- --------- --------- ------Balance at 31 December 2007 101 153 254--------------------------- --------- --------- ------ Unrecognised deferred tax assets 2007Deferred tax assets have not been recognised in respect of the £'000following item:Tax losses 98------------------------------------------ ------ Deferred tax assets have not been recognised in respect of this item because itis not probable that future taxable profit will be available against which theGroup can utilise the benefits in the future. These tax losses were mainlyarising from the Company's subsidiaries in Hong Kong and the PRC. Movement in unrecognised deferred tax assets during the Tax lossesperiod £'000Balance at 5 December 2006 -Addition 98Recognition ----------------------------------------- --------Balance at 31 December 2007 98---------------------------------------- -------- Company There are no deferred tax assets or liabilities included in the Company'sbalance sheet at 31 December 2007. No deferred tax arises on the revaluation ofthe Company's investment in subsidiaries as the Company is tax exempt in Jersey. 14. FINANCIAL ASSETS AVAILABLE-FOR-SALE 2007 Group Company £'000 £'000Balance at 31 December 2007 2,567------------------------------ --------- ----------- At 31 December 2007 the Group holds a 9.75% equity interest in LuxChina PropertyDevelopment Company Limited, a property investment company located in the PRC.The value of the investment at 31 December 2007 is carried at fair value whichhas been assessed as the cost of the investment. LuxChina Property Development Company Limited successfully bid for City CentrePhase 5 in 2007 and a confirmation letter was signed with the relevantgovernment bureau. However at 31 December 2007, the land use right transfercontract had not been signed and the land use right certificate had not beenobtained. The investment of £2.57m represent's the Group's total capital contribution.City Centre Phase 5 was independently valued by CB Richard Ellis, professionalvaluers at 31 December 2007. Subsequent to finalisation of the City Centre Phase5 acquisition the Group's share of the net assets of LuxChina PropertyDevelopment Company Limited following the valuation uplift will be £5.7m. 15. TRADE AND OTHER RECEIVABLES 2007 Group CompanyDue within one year £'000 £'000Trade receivables due from third 511 -partiesOther receivables due from related 4,798 -partiesPrepayments 1,874 -Non-trade receivables 791 -Bank deposit interest receivable 80 50Derivative financial instruments 205 205Refundable deposit 3,283 3,283-------------------------- --------------- ------ ------- 11,542 3,538 --------------------------------------- ---------- Other receivables due from related parties include a land deposit paid by theGroup in relation to a project being undertaken by LuxChina Property DevelopmentCompany Limited (Note 14). The balance outstanding on this receivable at theperiod end was £4.7m. The derivative financial instrument is the fair value of a currency swap held bythe Company. The refundable deposit with interest accruing was repaid in full inFebruary 2008. 16. TOTAL CASH BALANCES 2007 Group Company £'000 £'000Bank balances 39,715 335Call deposits 39,495 39,493Cash and cash equivalents 79,210 39,828Restricted cash 17,786 -Total cash 96,996 39,828 The cash balance of £97m at 31 December 2007 includes restricted cash of £17.8m.The restricted cash relates to a deposit in an escrow account and fundsdeposited in interest reserve accounts to repay borrowing commitments as theybecome due. 17. CAPITAL AND RESERVES Reconciliation of movement in Group capital and reserves Share Share Premium Translation Revaluation Options Retained Account Reserve Reserve Reserve Earnings TotalGroup £'000 £'000 £'000 £'000 £'000 £'000Balance at 5 - - - - - -December 2006Profit for the - - - - 41,099 41,099periodRevaluation ofpropertiesunder development - Group - - 23,914 - - 23,914- Group deferred tax - - (5,781) - - (5,781)- Joint venture - - 4,924 - - 4,924Exchange differences - 10,888 - - - 10,888Issue of new shares 264,583 - - - - 264,583Purchase of own (15,255) - - - - (15,255)sharesShare options - - - 6,767 - 6,767grantedShare options 1,530 - - (1,360) - 170exercised ------- ------- ------- ------ -------- ----------------------- Balance as at 31 250,858 10,888 23,057 5,407 41,099 331,309December 2007 ----------------- ------- ------- ------- ------ -------- ------ Share capital and share premium reserve The authorised share capital of the Company is unlimited. The issued sharecapital of the Company is 50,676,185 ordinary shares of no par value. Ordinary share capital in thousands of shares 2007On issue before Initial Public Offer 18,400Issued for non cash consideration 2,133Issued through public offering 32,095Options exercised 200Share buyback (2,152)------------------------------ ------------------On issue at 31 December - fully paid 50,676------------------------------ ------------------ On 7 December 2006, two ordinary shares were issued by the Company as subscribershares at a price of €1.25 each (the "Subscriber Shares") to Ogier Nominees(Jersey) Limited and Reigo Nominees (Jersey) Limited. Immediately aftersubscription both shareholders transferred the Subscriber Share which they eachheld to CREO SA. Since the incorporation of the Company there have been thefollowing changes in the issued and fully paid share capital of the Company: (a) By a special resolution passed on 19 January 2007 the Company resolved toconvert the subscriber shares into 2 nil par value shares; (b) On 19 January 2007, CREO SA subscribed for and was allotted 18,399,998ordinary shares at nil par value for an aggregate price of £13m; (c) On 20 June 2007, the liquidator of CREO SA made an initial distribution ofthe 18,400,000 ordinary shares held by CREO SA to its own shareholders on a onefor one basis; (d) On 5 July 2007 in connection with the Company's Admission to the LondonAlternative Investment Market 32,094,866 ordinary shares were issued pursuant tothe Placing. The shares were issued to the market on 11 July 2007. The shareswere issued at a flotation price of £7.56. A further 2,132,941 new ordinaryshares were also issued to REO as consideration for the purchase of the GrandEastern Limited Group; (e) On 4 September 2007, the Company bought for cancellation 1,001,622 ordinaryshares in the market at a price of £7.09 per ordinary share. On 7 September2007, the Company bought for cancellation 1,150,000 ordinary shares in themarket at a price of £7.09 per ordinary share; (f) In November 2007 the Company announced that it received notice of exercisein respect of options over 200,000 new ordinary shares held by Robert Tincknell,a director of the Company. The board of the Company resolved to allow MrTincknell to exercise these options in advance of their stated first exercisedate of 1 February 2008. Following the exercise of these options, RobertTincknell's total holding in the Company is 521,171 ordinary shares. Translation reserve The translation reserve comprises all foreign exchange differences arising fromthe translation of the financial statements of foreign operations as well as thetranslation of the liabilities that hedge the Company's net investment in aforeign subsidiary. Revaluation Reserve The revaluation reserve relates to properties under development and aninvestment in a joint venture. Share option reserve See Note 18 for details of the share option reserve. Dividends Dividends have not been provided for and there are no income tax consequences. Reconciliation of the movement in Company capital and reserves Share Share Premium Options Retained Account Reserve Earnings TotalCompany £'000 £'000 £'000 £'000Balance at 5 December 2006 - - - -Profit for the period - - 167,879 167,879Issue of new shares 264,583 - - 264,583Purchase of own shares (15,255) - - (15,255)Share options granted - 6,767 - 6,767Share options exercised 1,530 (1,360) - 170-------------------- ----------- ------- -------- -------Balance as at 31 December 250,858 5,407 167,879 424,1442007 -------------------- ----------- ------- -------- ------- Capital management The Group's objectives when managing capital are: 1. to safeguard the entity's ability to continue as a going concern; 2. to grow the assets of the Group and create value for investors; 3. maintain significant financial resources to mitigate against financial riskand ensure any liquidity risk is minimised. The Group sets the amount of capital in proportion to risk. The Group managesthe capital structure and makes adjustments to it in the light of changes ineconomic conditions and the risk characteristics of the underlying assets. TheGroup's capital which it manages is made up of share capital, share premium andreserves as set out above along with the movements in the period. There are noexternally imposed capital requirements for the Group. The liquidity risk to theGroup is set out in Note 25(b). 18. SHARE OPTIONS Options in respect of 1,100,000 ordinary shares have been granted to certaindirectors and Treasury Holdings China Limited (THCL) management pursuant to theterms of the Share Option Scheme at an exercise price of 85p on 25 April 2007.These options are exercisable from 1 February 2008. Following the approval ofthe Board 200,000 of these options were exercised on 12 November 2007.Accordingly, 900,000 of these options remain unexercised at 31 December 2007. On 11 July 2007, options in respect of 985,000 ordinary shares were granted atan exercise price equal to the Placing Price of £7.56. These options areexercisable two years following the date of grant. During the period 38,000 ofthese options lapsed. The fair value of the options were calculated using the Binominal option pricingmodel. The inputs into the model were as follows: Options granted by strike price £0.85 £7.56Number of Options 1,100,000 985,000Expected volatility 22.02% 22.21%Expected life (years) 4.5 4.5Risk free rate 5.16% 5.50%---------------------------------- ------- ------- The share option reserve represents thedirectors' best estimate of the fair value ofthe share options conditionally granted at 31December 2007. The total share options outstanding at 31December 2007 are summarised as follows: No. of Options Exercise Price £Granted- 25 April 2007 1,100,000 0.85- 11 July 2007 985,000 7.56Exercised- 11 November 2007 (200,000) 0.85Lapsed during 2007 (38,000) 7.56---------------------------------- ------- -------Outstanding at 31 December 2007 1,847,000 0.85-7.56---------------------------------- ------- ------- During the period to 31 December 2007 the Company recognised compensationexpense of £6.7m relating to the equity settled share based awards. The fairvalue of share based payment awards is expensed over the requisite serviceperiod, together with a corresponding increase in equity. The estimated grant date fair value of the two tranches of options grantedduring the period was as follows: Number Estimated Grant Date Expensed of Options Fair Value in the Period Granted £'000 £'000 Options granted 25 April 1,100,000 7,480 6,2562007Options granted 11 July 985,000 2,160 5112007 -------- -------------- ----------------------------- 2,085,000 9,640 6,767 -------------------- -------- -------------- --------- In January 2008 a further 30,000 options were granted at an exercise price of£8.065. Details of the share option scheme The following is a summary of the rules of the share option scheme (the "Plan"): (i) Eligibility Any employee (including a non-executive director) of, or contractor employed,appointed or contracted by, the Company or any participating member of the Groupor who is otherwise so designated by the board and includes any trustee for thesame is eligible to participate in the Plan. The board may in its absolutediscretion grant options to eligible employees to acquire ordinary shares. (ii) Timing of and consideration for grant of options Options may be granted at any time at which the board determines that there arecircumstances which justify the grant of an option. No option may be granted atany time at which dealing would not be permitted under the Company's DealingCode for Securities Transactions by Directors or at any other time when dealingwould not be permitted under any other applicable code or statutory measure. Normay an option be granted later than ten years after the approval of the Plan bythe board. No payment is required for the grant of an option unless the board sodecides. (iii) Conditions on exercise The board may grant an option subject to such objective condition or conditionsas it in its discretion sees fit. A condition attached to an option shall not becapable of variation or waiver unless events happen which cause the board toconsider that such a condition shall have ceased to be appropriate whereupon theboard may vary or waive such condition so that any new condition imposed or anyvariation is in its opinion fair and reasonable. (iv) Exercise price The exercise price of an option shall be determined by the board not later thanthe date when the option is granted and may be such sum as the board may in itsdiscretion think fit. (v) Plan limits On any date, no option may be granted under the Plan if, as a result, theaggregate number of ordinary shares issued or committed to be issued pursuant togrants made under the Plan and during the previous ten years under all otheremployee share schemes established by the Company would exceed ten percent ofthe issued ordinary shares on that date. Ordinary shares which have been thesubject of options or rights granted under any share plan which have lapsedshall not be taken into account for the purposes of these limits. Treasuryshares transferred or committed to be transferred will count as new issue sharesfor the purposes of these limits. (vi) Exercise and lapse of options In normal circumstances, an option is capable of exercise at any time betweenthe second and tenth anniversaries of its date of grant provided that anycondition(s) to which it is subject have been fulfilled or waived. An optionlapses on the expiry of ten years from its date of grant. An option will becomeexercisable immediately (notwithstanding that any condition(s) have not beenmet) on the death of a participant or on his ceasing to hold office oremployment with the Group by reason of injury, disability or redundancy. Where aparticipant ceases to hold office or employment with the Group by reason ofretirement, or for any other reason at the discretion of the board, an optionwill also become exercisable subject to the fulfilment or waiver of anycondition(s) imposed on exercise. On cessation of employment for one of the reasons set out in the precedingparagraph an option is exercisable for a period of twelve months commencing onthe date of ceasing employment. An option will lapse on the expiry of theexercise period. Options may be satisfied by the issue of new ordinary shares orby the transfer of existing ordinary shares, either from treasury or otherwise. (vii)Alterations of share capital In the event of any variation in the share capital of the Company, adjustmentsto the number of ordinary shares subject to options and the exercise price maybe made by the board in such manner and with effect from such date as the boardmay determine to be appropriate. (viii) Takeovers and liquidations Rights to exercise options early for a limited period also arise if anothercompany acquires control of the Company as a result of a takeover or a scheme ofarrangement. An option may be exchanged for an option over shares in theacquiring company if the participant so wishes and the acquiring company agrees. If the Company passes a resolution for a voluntary winding-up, any subsistingoption must be exercised within six months of the passing of that resolution orit lapses. (ix) Voting, dividend and other rights Until options are exercised, option holders have no voting or other rights inrespect of the ordinary shares subject to their options. Ordinary shares issuedor transferred pursuant to the Plan shall rank pari passu in all respects withthe ordinary shares already in issue except that they will not rank for anydividend or other distribution paid or made by reference to a record datefalling prior to the date of exercise of the option. Options are not assignableor transferable. (x) Administration and amendment The Plan is administered by the board which may amend the Plan by resolutionprovided that (a) prior approval of the Company in general meeting will berequired for any amendment to the advantage of participants to those provisionsof the Plan relating to eligibility, the limitations on the number of ordinaryshares subject to the Plan, a participant's maximum entitlement or the basis fordetermining a participant's entitlement under the Plan and the adjustmentthereof in the event of a variation in capital, except in the case of minoramendments to benefit the administration of the Plan and amendments to takeaccount of changes in legislation or to obtain or maintain favourable tax,exchange control or regulatory treatment for participants or for any member ofthe Group (b) no amendment may be made which would alter to the disadvantage ofa participant any rights already acquired by him under the Plan without theprior approval of the majority of the affected participants. (xi) Termination The Plan may be terminated at any time by resolution of the board or of theCompany in general meeting and shall in any event terminate on the tenthanniversary of the date on which the Plan is approved by the board. Terminationwill not affect the outstanding rights of participants. 19. NET ASSET VALUE PER SHARE The net asset value ("NAV") per share, the net asset values attributable to eachclass of share at the year end and movements during the year were as follows: Company £'000 Net assets attributable to shareholders at 424,14431 December 2007 ------------------------------------------------Dilution effect on NAV of exercise of share 7,924options ------------------------------------------------Adjusted net assets 432,068---------------------------- --------------------Number of shares in issue: 2007Ordinary shares - basic 50,676,185Ordinary shares - diluted 52,523,185 The dilution effect above and the number of ordinary shares following dilutionassumes 900,000 options at the strike price of £0.85 and 947,000 options at astrike price of £7.56 are exercised. Net asset value per share:Ordinary shares- basic £8.37- diluted £8.23Group £'000Net assets attributable to shareholders at 331,30931 December 2007 ------------------------------------------------Dilution effect on NAV of exercise of share 7,924options ------------------------------------------------Adjusted net assets 339,233---------------------------- --------------------Number of shares in issue: 2007Ordinary shares - basic 50,676,185Ordinary shares - diluted 52,523,185---------------------------- -------------------- The dilution effect above and the number of ordinary shares following dilutionassumes 900,000 options at the strike price of £0.85 and 947,000 options at astrike price of £7.56 are exercised. Net asset value per share:Ordinary shares- basic £6.54- diluted £6.46 The directors of the Company have elected to account for investments insubsidiary undertakings at fair value under IAS 39 "Financial Instruments:Recognition and Measurement". Fair value is based on market value, being theestimated amount for which the subsidiaries could be exchanged on the date ofvaluation between a willing buyer and a willing seller in an arm's lengthtransaction after proper marketing wherein the parties had each knowledgeably,prudently and without compulsion. 20. INTEREST-BEARING LOANS AND BORROWINGS This note provides information about the contractual terms of the Group'sinterest-bearing loans and borrowings. For more information about the Group'sexposure to interest rate and currency risk, see Note 25. 2007Group £'000Bank borrowings - secured (Note 25b) (248,574)Less: Loan issue costs 1,939------------------------------------ ----------- (246,635)------------------------------------ -----------Long-term loansPrincipalBalance as at 5 December 2006 -Arising on acquisition (Note 11(b)) (27,280)Gross borrowings drawn down (221,294)------------------------------------ -----------Balance at 31 December 2007 (248,574)------------------------------------ ----------- Issue costsBalance as at 5 December 2006 -Additions 2,308Amortisation (Note 5) (369)------------------------------------ -----------Balance at 31 December 2007 1,939------------------------------------ ----------- The secured bank loans as at 31 December 2007 were secured by the Group'sinvestment properties with carrying amount of £497m. 21. TAX PAYABLE 2007 Group Company £'000 £'000Land appreciation tax payable (9,192) -Income tax payable (308) ------------------------------ --------- ----------- (9,500) ------------------------------ --------- ----------- PRC land appreciation tax (LAT) is levied at progressive rates ranging from 30%to 60% on the appreciation of land value, being the proceeds of sales ofproperties less deductible expenditures including land use right costs,borrowing costs and all property development expenditures. The LAT payablebalance includes a pre-acquisition liability acquired of £8.9m (Note 11(b)). Shanghai Hua Tian Property Development Company Limited, a 100% subsidiary of theGroup, engages in property development in the PRC and is therefore subject toland appreciation taxes. However, the Group has not finalised its landappreciation tax returns with the PRC tax authorities. Accordingly, significantjudgement is required in determining the amount of land appreciation and itsrelated taxes. The ultimate tax determination is uncertain during the ordinarycourse of business. The Group recognises these liabilities based on management'sbest estimates. Where the final tax outcome of these matters is different fromthe amounts that were initially recorded, such differences will impact theprovisions of land appreciation taxes in the period in which such determinationis made. 22. TRADE AND OTHER PAYABLES 2007 Group CompanyDue within one year £'000 £'000Payables due to related parties (3) -Trade payables (8,096) (70)Advance from customers (266) -Other taxes payable (1,855) -Non-trade payables (12,492) -Accrued expenses (8,720) (6,571)Derivative financial instruments (6,132)Due from subsidiary - (10,200)----------------------------- ---------- ---------- (37,564) (16,841)----------------------------- ---------- ---------- The derivative financial instruments relates to the fair value of floating tofixed rate swaps on onshore and offshore floating rate debts. The fair valuerepresents the net present value of the difference between the cash flows at thecontracted rates and the interest rates prevailing at the reporting date as at31 December 2007. 23. OPERATING LEASES - LEASES AS LESSOR The Group leases out its investment properties under operating leases. Thefuture minimum lease payments receivable under non-cancellable leases are asfollows: 2007 Group Company £'000 £'000Less than one year 12,762 -Between one and five years 11,933 -More than five years 1,506 ----------------------------- ---------- ----------- 26,201 ----------------------------- ---------- ----------- 24. CAPITAL COMMITMENTS 2007 Group Company £'000 £'000Contracted but not provided 1,688 -Authorised but not contracted 53,526 ------------------------------ --------- ----------- 55,214 ------------------------------ --------- ----------- The capital commitments consist of development costs for City Centre Phase 3where construction is due to start in 2008. Other material capital commitmentsinclude the payment for Tangdao Bay plot B and C. Deferred consideration for City Centre Phase 3 As part of the June 2007 share purchase agreement for the City Centre propertyacquired by Shanghai Hua Tian Property Development Company Limited, an amount of£14m less certain related costs incurred, is payable to the vendor upon theexecution of certain conditions and events. The liability becomes payable uponthe granting of various regulatory approvals required for the substantialexpansion of the floor area of one phase of the property acquired. Thisanticipated expansion of the floor area of the property has been valued by CBRichard Ellis at 31 December 2007 at £18 million. The Director's believe that itis probable necessary approval will be granted and the deferred considerationwill become payable (Note 11 (b)). 25. FINANCIAL INSTRUMENTS 25 (a) Credit risk Credit risk is the risk of financial loss to the Group if a customer, orcounterparty to a financial instrument, fails to meet its contractualobligations. This arises principally from the Group's invested cash and liquidresources. The Group limits its exposure to credit risk on its investments byonly investing surplus funds with approved financial institutions with creditratings of "A" or equivalent. No more than 15% of cash and liquid resources isinvested with any one counterparty bank. At 31 December 2007 no guarantees were outstanding. The majority of the Group's financial assets consists primarily of its cash andcash equivalents and trade and other receivables as follows: 2007 £'000Cash and cash equivalents 79,210Restricted cash 17,786Short term receivables 11,337----------------------------------- -----------Total financial assets 108,333----------------------------------- ------------ In respect of the above financial assets no impairment losses were recognised inthe period ended 31 December 2007. 25 (b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financialobligations as they fall due. The Group's approach is to ensure as far aspossible that it will always have sufficient liquidity (cash and liquidresources) to meet its liabilities. The Group maintained cash balances ofapproximately £97 million at the period end which were mainly held on short-termdeposits and which earned interest at the prevailing variable market rates. The liquidity risk is minimised as a majority of the Group's liabilitiescomprise bank debts maturing after 2009. Short term flexibility is achieved fromcash balances. Maturity profile of liabilities £'000In one year or less, or on demand -In more than one but not more than two years -In more than two but not more than five years 248,574In more than five years --------------------------------- ------------------- 248,574-------------------------------- ------------------- Debt repayment schedule as at 31 December 2007 2008 2009 2010 2011 2012 >5 Total Years £'000 £'000 £'000 £'000 £'000 £'000 £'000CNY loans effectively fixed - - 6,631 - - - 6,631at 7.5%USD bank loans effectivelyfixed at between 5.9% to - - 117,831 53,315 - - 171,1467.6%Euro loans with interestrate fixedswap at 6.6% - - 13,677 - - - 13,677CNY denominated bank - - 57,120 - - - 57,120borrowings ------------------------- ------ ----- ------ ------ ----- ----- ------ - - 195,259 53,315 - - 248,574 ------------------------- ------ ----- ------ ------ ----- ----- ------ The interest rate derivatives associated with the Group's variable rate longterm debts outstanding at 31 December 2007 were: Interest rate swaps 2008 2009 2010 2011 2012 >5 Total YearsVariable to fixed average - - 7.5% 6.6% - - 7.2%interest rate ------------------------- ------ ---- ------ ------ ----- ------ ----- 25 (c) Currency risk Currency translation exposure results when a Group translates a foreign currencysubsidiary financial data to its home currency for consolidated financialreporting. The Group has seven significant overseas subsidiaries and joint ventureundertakings in the PRC and four holding companies in Hong Kong (Note 27). Theassets, liabilities, revenues and expenses of the PRC subsidiaries aredenominated in Chinese yuan renminbi (CNY) and the Hong Kong subsidiaries inHong Kong Dollars. The investments in the PRC subsidiaries are financed,predominantly in US dollars (USD) and Euro as the CNY is a controlled currency.The Group's balance sheet can be significantly affected by movements in the CNY/US dollar exchange rate on the net assets of the PRC subsidiaries. The CNY is not an openly traded currency so much of the Group's cash exposure isto the USD. The Group have therefore entered into a USD call option/CNY putoption to hedge against a potential strengthening of the USD against the CNY. The Group is also exposed to movements in the CNY denominated foreign currencysubsidiary balances against the Pound Sterling (STG £). The below table sets out the group financial assets and liabilities denominatedin their respective currencies: Currency analysis Euro STG £ CNY USD Total31 December 2007 £'000 £'000 £'000 £'000 £'000AssetsTrade and other - 3,100 8,237 - 11,337receivablesRestricted cash 1,127 - 1,258 15,401 17,786Cash and cash 654 29,239 17,578 31,739 79,210equivalentsLiabilitiesBorrowings (13,677) - (63,751) (171,146) (248,574)------------------ ------- ------- ------- -------- --------Net Exposure (11,896) 32,339 (36,678) (124,006) (140,241)------------------ ------- ------- ------- -------- -------- The following significant exchange ratesapplied during the year: Reporting date Average rate mid spot 2007 2007CNY 14.89 14.66HKD 15.64 15.65USD 2.02 2.01-------------------------------- ----- ----------- Sensitivity analysis A 10% strengthening of the STG against the USD at 31 December 2007 would haveincreased (decreased) equity and the income statement by the amounts shownbelow. This analysis assumes other variables, in particular interest rates,remain constant. £'00010% strengthening 17,11510% weakening (17,115)-------------------------------- ------------ 25 (d) Interest risk The Group finances its operations through a mixture of retained earnings,interest bearing loans and borrowings and share capital. The Group borrows inthe desired currencies at both fixed and floating rates and uses interest rateinstruments to generate the desired interest rate profile and to manage theGroup's exposure to interest rate fluctuations. At the year end 77% of theGroup's financial liabilities were at effective fixed rates and the remainderwere at floating rates of interest. The Group's cash balances are primarily atfloating rates based on the appropriate Euro Interbank offered rates (EURIBOR)or London Interbank Offered rates (LIBOR). Non interest Floating rate Fixed rate Non interest Total bearing £'000 £'000 £'000 £'000Interest rate profile as at31 December 2007AssetsCash and liquid assets 79,210 - - 79,210Restricted cash 17,786 - - 17,786Short term receivables - - 11,337 11,337---------------------------- ------- ------ ------- ------ 96,996 - 11,337 108,333 LiabilitiesCNY denominated bank (57,120) - - (57,120)borrowingsCNY loans effectively fixed - (6,631) - (6,631)at 7.5%USD bank loans effectively - (171,146) - (171,146)fixed at between 5.9% to 7.6%Euro loans with interest rate - (13,677) - (13,677)fixed swap at 6.6% ------- ------- ------- ----------------------------------- (57,120) (191,454) - (248,574) ---------------------------- ------- ------- ------- ------- Net assets/(liabilities) 39,876 (191,454) 11,337 (140,241)Weighted average interest 7.2%rate of the fixed rate ------- ------- ------- -------financial liabilities----------------------------Weighted average period for which interest rates on thefixed financial liabilities arefixed (years) 3---------------------------- ---------------------- 25 (e) Fair value of financial instruments Set out below is a comparison by category of book values and fair values of theGroup's financial assets and liabilities: 2007 Carrying Fair value amount £'000 £'000Primary financial instruments held or issuedto finance the Group's operationFixed rate debts (6,631) (6,631)Variable rate debts (57,120) (57,120)Variable rate debts fixed with interest rate swaps (171,146) (177,073)Cash and cash equivalents 79,210 79,210Short term receivables 11,337 11,337Financial instruments held to manage interest rateprofileInterest rate derivative contracts (5,927) (5,927)------------------------------------ -------- -------- (150,277) (156,204) ------------------------------------ -------- -------- Cash and liquid resources and other financial assets have fair values thatapproximate to their carrying amounts because of their short term nature. Thefair values of bank and other loans are based on the net present value of theanticipated future cash flows associated with these instruments. Fair value Fair value estimates are made at a specific point in time and based on relevantmarket information and information about the financial instrument. Theseestimates are subjective in nature and involve uncertainties and matters ofsignificant judgment and therefore cannot be determined with precision. Changesin assumptions could significantly affect the estimates. The following methods and assumptions were used to estimate the fair value foreach class of financial instruments: (i) Cash and cash equivalents, trade and other receivables and trade and otherpayables The carrying values approximate to their fair values because of theshort maturities of these instruments. (ii) Interest-bearing loans The carrying amount of bank loans approximate to their fair value based on theborrowing rate currently available for bank loans with similar terms andmaturity. (iii) Financial derivatives The Group selects appropriate valuation methods and makes assumptions withreference to market conditions existing at each balance sheet date, to determinethe fair value of those financial derivatives. 26. RELATED PARTIES From the date of incorporation to 31 December 2007, the Company has entered intothe following related party transactions, details of which are set out in Note11(b) to these financial statements: (a) a sale and purchase agreement in respect of the Treasury Building with REOdated 6 July 2007 (Note 11(b) 3.1). (b) a sale and purchase agreement in respect of Beijing Logistics Park withTreasury Holdings dated 6 July 2007 (Note 11(b) 4.1). In addition, the Company has entered into the following related partytransactions: During the period, the Company received a loan of US$35 million from REO. On 18July 2007 the Company repaid this loan. Interest was payable on the loan atLIBOR plus 2%. During the period, the Company granted a loan of £2,243,000 to Dream LandProperties Limited whilst it was a subsidiary of Treasury Holdings. The Company and THCL entered into an investment advisory agreement dated 25 June2007 pursuant to which THCL is responsible for the provision of investmentadvisory services for the Company's property assets and, at the discretion ofthe Company, development management and project management services. Theagreement is for an initial period of three years from admission to AIM and willcontinue thereafter until terminated by the Company on 12 months' written noticeprovided that the agreement may be terminated by either party on shorter noticein the event of, inter alia, breach of contract or insolvency. Under theagreement, THCL is entitled to receive: (i) an advisory fee equal to one percent per annum of the value of the Group'sproperty portfolio (which shall include assets where the Group has entered intoforward purchase agreements but not completed the acquisition where THCL isoverseeing the development of such asset save to the extent it is being paid adevelopment management fee for so doing) less the fee payable under the PropertyManagement Agreement (or any replacement agreement); (ii) if the Company elects to use THCL's development management services, adevelopment management fee of 1.5% based on the completed value of the relevantdevelopment; (iii) if the Company elects to use THCL's project management services, a projectmanagement fee of 1.5% of the increase in value of the relevant property (orrelevant part thereof) in respect of which THCL provides project managementservices; and (iv) a performance fee payable if, in the relevant calculation period, the netasset value per ordinary share (in each case calculated by the Company'sauditors) increases by more than 8% per annum. The performance fee will be: an amount equal to the weighted average number of ordinary shares for the periodin question multiplied by 20% of such increase in net asset value between 8% perannum and 20% annum; plus an amount equal to the weighted average number of ordinary shares for the periodin question multiplied by 25% of such increase in net asset value over 20% perannum. A performance fee will be payable only if and to the extent that the netasset value per ordinary share (in each case calculated by the Company'sauditors) exceeds both the net asset value per ordinary share at thecommencement of the relevant calculation period and the highest net asset valueper ordinary share by reference to which a performance fee has previously beenpaid. The performance fee will be paid either in cash or by the issue of ordinaryshares at an issue price equivalent to the net asset value per share at the endof the last business day of the relevant calculation period. Half of theperformance fee (or such greater proportion as THCL may elect) will be payableby the issue of ordinary shares provided that ordinary shares will not be issued(and the balance of the performance fee shall be payable in cash) to the extentthat the issue of ordinary shares would oblige THCL (either alone or with itsconcert parties) to make a mandatory offer for the Company. THCL has the rightto require the performance fee to be satisfied by the issue of ordinary sharesnotwithstanding that any such issue of ordinary shares may require such amandatory offer to be made. Although THCL may perform similar services to one or more third parties, it isobliged to give the Company a right of first refusal in respect of all realestate investment opportunities that meet the Company's investment objectivesand strategy. Pursuant to the agreements the fee for investment management services anddevelopment services was £2.39m and £1.03m respectively for the period. Theperformance fee accrued for the period was £3.59m. Property management agreement The Company has entered into a property management agreement with Treasury(Shanghai) Real Estate Consulting Co. Limited ("TSREC") dated 25 June 2007pursuant to which TSREC has been appointed to be responsible for the provisionof property management services for the Company's property assets. The agreementis for an initial period of three years and automatically renewable for periodsof 12 months unless the Company terminates on six months' notice. Each party mayterminate earlier in the event of, inter alia, breach of contract or insolvency.TSREC is entitled to receive a property management fee equal to 110% per annumof the expenses it incurs in providing the property management services duringeach period of 12 months in respect of which the fee is paid including inparticular but without limitation: (a) staff costs; (b) rents and other property costs for its offices; (c) payments to third party suppliers; (d) payments for supply of goods and services; subject to the fee not exceeding one percent per annum of the value of theGroup's property portfolio including assets which the Group has contracted toacquire where TSREC is overseeing the development of such assets prior tocompletion. TSREC may also recover reasonable fees and expenses payable toprofessional advisers and other third parties including sub-contractors providedthat there is no double counting. An indemnity is also given by the Company infavour of TSREC in respect of costs incurred in relation to any legal actionconducted on behalf of the Company. Accounting services agreement The Company, THCL and Treasury Holdings have entered into an accounting servicesagreement dated 25 June 2007 pursuant to which Treasury Holdings has agreed toprovide certain accounting and administrative services to the Group. Under theagreement Treasury Holdings is entitled to receive a fee of £150,000 per annum(plus any value added tax). The agreement is for an indefinite term and willcontinue unless and until terminated by either of the parties. Treasury Holdingsmay terminate the agreement by giving not less than six months' notice (suchnotice not to expire earlier than the first anniversary of the date of theagreement), forthwith upon the insolvency of the Company or by giving not lessthan 30 days' notice if the Company commits a material breach and (if suchbreach is capable of remedy) fails to make good such breach within 30 days ofreceipt of notice requiring it to do so. The Company may terminate the agreement by giving not less than six months'notice, such notice not to expire earlier than 30 June 2008, upon the insolvencyof Treasury Holdings or if Treasury Holdings commits a material breach and (ifsuch breach is capable of remedy) fails to make good such breach within 30 daysof receipt of notice requiring it to do so. The Company has agreed to indemnifyTreasury Holdings in respect of any loss suffered in connection with theperformance of the services and to reimburse Treasury Holdings for thereasonable costs of any professional advisers. The Company has also agreed toreimburse Treasury Holdings and its permitted delegates (which include THCL) forall reasonable out of pocket expenses properly incurred in connection with theperformance of the services. Under the agreement, there was £62,500 accrued in 2007 representing 5 monthsservice provided. Xidan assignment The Company entered into an agreement dated 20 June 2007 with CREO SA wherebythe rights of CREO SA under the Xidan Transaction Agreements and relatedobligations were assigned to the Company and pursuant to an agreement dated 20June 2007 with Treasury (Xidan) Limited, a subsidiary of Treasury Holdings, therights of the Company under the Xidan Transaction Agreements and relatedobligations were assigned to Treasury (Xidan) Limited. Liquidation indemnity The Company entered into an agreement dated 19 January 2007 with CREO SA wherebythe Company agreed to indemnify CREO SA from and against inter alia all lossessuffered by CREO SA. 27. GROUP ENTITIES A listing of all group entities is set out below: Ownership Interest 2007 Significant Country of Direct IndirectSubsidiaries, Joint incorporation % %Ventures and Associates Grand Eastern Limited British Virgin Islands 100Loyal Ally Investment British Virgin Islands 10Limited (BVI)CREO (Shanghai Central Jersey 100Plaza) LimitedCREO (Shanghai City Jersey 100Centre) LimitedCREO (Pudong) Limited Jersey 100Dream Land Properties Jersey 100LimitedCREO (Qingdao) Jersey 100Warehousing LimitedCREO XIDAN (NO.1) Jersey 100LimitedCentral Land Estate Hong Kong 100LimitedBrightime Limited Hong Kong 100State Properties Hong Kong 100LimitedOakman Dean Limited Hong Kong 100Shanghai Vision Honest People's Republic of China 100Real EstateDevelopment CompanyLimitedShanghai Central Land People's Republic of China 100Estate Company LimitedShanghai Hua Tian People's Republic of China 100Property DevelopmentCompany LimitedQingdao CREO Logistics People's Republic of China 100Park Company LimitedQingdao Shangshi CREO People's Republic of China 50Real Estate CompanyLimitedBeijing Dream Land People's Republic of China 100Industrial DevelopmentCompany LimitedBeijing Treasury People's Republic of China 100Industrial DevelopmentCompany LimitedShanghold Investment People's Republic of China 5limitedLuxChina Property People's Republic of China 9.75Development CompanyLimited 28. ACCOUNTING ESTIMATES AND JUDGEMENTS The critical accounting judgements in applying the Company's accounting policiesare described below: Property valuations Management have had to make certain assumptions and estimates in relation torental yields applicable to valuations for office and rental properties in Chinabased on their experience of the Chinese property market over many years (Notes1(a), 8 and 9). Share based payments As the Company was admitted to trading on AIM in July 2007, it was not possibleto ascertain the volatility of the Company shares in order to fair value theshare based payments granted to employees. Management therefore used a basket ofpeer companies with a similar asset and investor base in order to estimate thevolatility of the CREO share price for use in the binomial option pricing model(Note 18). Subsidiary valuations Management have made certain assumptions and estimates in assessing the fairvalue of the subsidiary undertakings. Fair value is based on market value, beingthe estimated amount for which the subsidiaries could be exchanged on the dateof valuation between a willing buyer and a willing seller in an arm's lengthtransaction after proper marketing wherein the parties had each actedknowledgeably, prudently and without compulsions. Having just acquired themajority of these subsidiaries in July, management are well positioned to makesuch assumptions. 29. POST BALANCE SHEET EVENTS In January 2008, the Company acquired a 50% interest in two sites in TangdaoBay, Qingdao adjoining the Company's existing development site, acquired as partof the initial development portfolio. In January 2008, the Company awarded options over 30,000 shares in the Companyto Richard David, Managing Director of Treasury Holdings China Limited. 30. APPROVAL OF FINANCIAL STATEMENTS These financial statements were approved by the directors on 25 March 2008. 31. The Report and Accounts in respect of the period will be distributed toshareholders in due course. This information is provided by RNS The company news service from the London Stock Exchange
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Share Price:
34.75
Bid:
34.50
Ask:
35.00
Change:
0.00 (0.00%)
Spread:
0.50 (1.449%)
Open:
34.75
High:
34.75
Low:
34.75
Prev. Close:
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