CONTENTS 02 Our Vision 04 Corporate Informatio. 05 Financial Highlight. 06 Corporate Profil. 07 Group Structure 08 Chairman's Statemen. 11 Business Highlight. 12 Management Discussio. an. Analysi. 27 Report of Director. 32 Biographical Detail. o. Director. an. Senio. Managemen. 34 Report of Auditor. 35 Consolidated Incom. Statemen. 36 Consolidated Balanc. Shee. 37 Balance Sheet 38 Consolidated Statemen. o. Change. i. ..uit. 39 Consolidated Cas. Flo. Statemen. 41 Notes to the Financia. Statement. 81 Five-year Financia. Summar. 83 Corporate Governanc. Repor. OUR VISION As an important industry player our vision is to advance the healthy development and raise the standards ofthe Macau gaming industry Through employing our three-pronged strategies and stipulating high level ofcorporate governance our ultimate goal is to create valuesfor our shareholders customers and staff CORPORATE INFORMATION Directors ExecutiveDirectors Mr. Yeung Hoi Sing, Sonny (Chairman) Mr. Chan William (Deputy Chairman) Mr. Lee Siu Cheung Non-executiveDirector Mr. Choi Kin Pui, Russelle Independent Non-executiveDirectors Mr. Luk KaYee, Patrick Mr. Yim Kai Pung Ms. Yeung Mo Sheung, Ann Company Secretary Ms. Chiu Nam Ying, Agnes Qualified Accountant Mr. Luk Sai Wai, Simon Authorised Representatives Mr. Lee Siu Cheung Ms. Chiu Nam Ying, Agnes AuditCommittee Mr. Yim Kai Pung (Chairman) Mr. Choi Kin Pui, Russelle Mr. Luk KaYee, Patrick Ms. Yeung Mo Sheung, Ann Remuneration Committee Mr. Chan William (Chairman) Mr. Choi Kin Pui, Russelle Mr. Luk KaYee, Patrick Mr. Yim Kai Pung Ms. Yeung Mo Sheung, Ann Auditors Messrs. CCIF CPA Limited Legal Advisors onHong Kong Law Messrs. Iu, Lai & Li, Solicitors Legal Advisors on Bermuda Law Messrs. Conyers Dill & Pearman Principal Bankers Asia Commercial Bank Limited Fubon Bank (Hong Kong) Limited (formerly known as International Bank of Asia Limited) Liu Chong Hing Bank Limited The Bank of East Asia, Limited The Hong Kong & Shanghai Banking Corporation Limited Principal Share Registrar And Transfer Agent In Bermuda Butterfield Fund Services (Bermuda) Limited 65 Front Street Hamilton Bermuda Branch Share RegistrarAn. Transfer Office In Hon. Kon. Tengis Limited 26th Floor Tesbury Centre 28 Queen's Road East Wanchai Hong Kong Registered Office Clarendon House 2 Church Street Hamilton HM 11 Bermuda Head Office And Principa. Plac. OfBusiness Units 1002-05A, 10th Floor West Tower, Shun Tak Centr. 200 Connaught Road Centra. Hong Kong Share Listing TheStockExchangeofHongKongLimite. Stock Code : 0487 Website www.macausuccess.com MACAU SUCCESS LIMITED ANNUAL REPORT 2005 FINANCIAL HIGHLIGHTS CORPORATE PROFILE Macau Success Limited("Macau Success"/ the "Company") is a listed company whose shares are listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") under the stock code "0487". The Company is young and energetic with a focus on gaming and entertainment-related business. Macau Success presently operates cruise as well as travel services businesses. Ponte 16 To realise our strategy to develop Macau's gaming and entertainment-related business, Macau Success has partnered with Sociedade de Jogos de Macau, S.A. ("SJM") to develop an integrated resort project in Macau -Ponte 16, in which Macau Success owns 36.75% and SJM owns 51% of the project. Ponte 16 is an integrated resort comprising a 5-star hotel, a casino (subject to the approval of Macau SAR Government), shopping arcades and a waterfront plaza featuring cultural and historical themes of the old Macau. Ponte 16 will be completed phase by phase with the casino expected to be completed and opened by the end of 2006 and the rest of the facilities by the end of 2007. King Seiner Loan Arrangement In March 2005, Macau Success entered into a loan agreement and an option deed through its subsidiary with King Seiner Palace Promotor De Jogos, Limitada ("King Seiner"), which operates gaming intermediaries business at King Seiner Palace VIP Hall ("King Seiner Palace") in Pharaoh Hotel, Macau. Under the loan agreement, Macau Success lent HK$50 million to King Seiner with areturn of 20% interest per annum or the amount equivalent to 18% of the net profit of King Seiner, whichever is the higher. Macau Success is also given the option to acquire 20% of the enlarged share capital of King Seiner during the 57 months from the date of the option deed at a price of 20% of not more than 4 times of the profit of King Seiner. This allows Macau Success to indirectly participate in the lucrative VIP market of the Macau gaming business. Cruise Macau Success owns a cruise, M.V. Macau Success, which is arecognised splendor on the sea with a world-class casino and various spectacular entertainment facilities, totaling 207 passenger rooms with a maximum holding capacity of 600 passengers. The cruise operates daily from Hong Kong to the international waters. Travel Services With Travel Success Limited and Travel Success (Macau) Limited in Hong Kong and Macau respectively, the company is able to offer a wide-range of one-stop travel services to customers. The travel agencies provide the company with a unique platform to serve the high-end customers and attract traffic to the company's cruise and other entertainment facilities. Macau Success has a clear vision and focused strategy to develop gaming and entertainment-related business. Altogether, our businesses create tremendous synergies and laid down a strong foundation for our continuous success. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 GROUP STRUCTURE Macau Success Limited Hong Kong Listed Company WithAFocus On Entertainmen. An. Tourists-Related Business CruiseBusiness Travel Business Othe. .evelopin. Businesse. M.V. Macau Success Travel Success Limited Travel Success (Macau)Limited Ponte...ntegrate. Entertainmen. Resor. CHAIRMAN'S STATEMENT Mr. Yeung Hoi Sing, Sonny Chairman To Our Shareholders: This past year was an important year for Macau Our key project -Ponte 16 Success Limited as we have laid down is now under aggressive a solid foundation for preparing the development and is ready to company for substantial upside and propel the Group to aphase of strong growth upon a promising future completion in the end of 2006. Alongside our steadily growing business, Ponte 16 will position our Group well to take advantage of the booming gaming and entertainment market to deliver long-term value for our shareholders. To realign our business and focus on the rapidly growing gaming and entertainment-related business, the Group has completed a reorganisation to streamline the Group structure in November 2004 (the "Group Reorganisation"). Following the reorganisation, our Group adopted a three-pronged strategy: firstly to develop the Macau gaming and entertainment related-business in full swing to maximise the growth potential. secondly to keep on operating the cruise business to generate steady recurring income; and thirdly, to maintain and expand the travel business to enhance services to customers and to generate traffic to our cruise and other entertainment facilities. These three business components complement each other well and are effective in generating high growth, securing solid income and creating strong synergies. Immediately after the reorganisation, and as part of the Group's continuing initiatives to further solidify our position in the gaming and entertainment-related industry, we had strategically increased our stake in our flagship project -Ponte 16 to 36.75% in July 2005, having increased it from 10% to 24.5% in November 2004. Ponte 16 is an integrated entertainment resort comprising a 5-star hotel, a casino (subject to the approval of Macau SAR Government), shopping arcades and a waterfront plaza featuring cultural and historical themes on the old Macau. Mr. Lee Siu Cheung, executive director of Macau Success and myself, were respectively appointed as the project director and CEO of Pier 16 -Property Development Limited ("Pier 16 -Property Development"), enabling Macau Success to have a key role to play in the development. To enhance our presence in Macau's gaming and entertainment-related business, we have, through an indirect wholly-owned subsidiary, Joyspirit Investments Limited ("Joyspirit"), entered into a loan agreement and an option deed with King Seiner on 7 March 2005 in provision of a loan facility of HK$50 million to King Seiner for the purpose of running its gaming intermediaries business at the King Seiner Palace. In return, the Group has a guaranteed and stable stream of interest revenue equal to the higher of 20% on the loan annually, or a maximum of 18% of the net profit of King Seiner. Since King Seiner Palace's grand opening on 12 September 2005, it has performed satisfactorily, returning healthy financial results. Due to the fact that King Seiner Palace had only operated for less than a month when the financial year ended; we would opt to receive the pro-rata loan interest as income this year but would expect abetter sharing of King Seiner's profit for the years ahead. Cruise Business Our cruise business remained as the principal income contributor of the year. Not only did it contribute a stable income to the Group but also provided tremendous synergy to our core business and is a key part of our strategy to develop the gaming and entertainment-related business. CHAIRMAN'S STATEMENT Travel Business The Group operates two travel services companies in Hong Kong and Macau. Although small in operation and still in the red, our professional services create valuable synergies with the gaming and entertainment-related services by creating a unique platform for us to serve our high-end customers and attract traffic to its cruise and entertainment facilities. Outlook In the year ahead, revenues from the cruise and travel businesses are expected to be stable with a steady growth. At the same time, we expect a higher income from King Seiner, either in the form of loan interests or profit sharing, as King Seiner Palace enters into full operation, which will contribute significantly to both the top line and bottom line of the Group. In the coming year, the construction of Ponte 16 will be in full swing. The Group has full confidence in the success of Ponte 16 due to the following unique comparative advantages: a strong partnership with SJM, substantial management experience in casino and VIP halls, strong support from Macau SAR Government, central location in Macau's historical heritage sites and proximity to Zhuhai as well as world-class design with unique historical and cultural theme. We are optimistic that upon its commencement of operation, Ponte 16 will significantly boost the Group's income and profit and offer us tremendous growth prospects. To realise our vision of becoming a successful player in the gaming and entertainment-related industry, we will continue to explore other opportunities in the region to extend our business scale and scope. Riding on our established businesses, strong foundation and focused approach, we strongly believe that we are on the right track to reach our goal and to create value to our shareholders, customers and staff members. Appreciation Finally, I would like to express my appreciation to our shareholders, partners and customers for their continued support and trust towards the Group. I would also like to extend my sincere gratitude to all our dedicated employees for their contribution and hard work. Yeung Hoi Sing, Sonny Chairman Hong Kong 10 January 2006 MACAU SUCCESS LIMITED ANNUAL REPORT 2005 BUSINESS HIGHLIGHTS During the year under review, the Group has successfully accomplished the following key milestones: ‧ Successfully placed 317 million new shares and raised approximately HK$370 million net proceeds via Deutsche Bank AG in November 2004 ‧ Completed the reorganisation to streamline the Group structure in November 2004 ‧ Acquired Travel Success (Macau) Limited in October 2004, a travel agency in Macau, to realise the Group's strategy to exploit the travel companies as a unique platform to serve the high-end customers and attract traffic to the Group's cruise and other enterainment facilities ‧ Increased its shareholdings in Pier 16 -Property Development from 10% to 24.5% in November 2004, affirming its commitment in the development of amega casino resort -Ponte 16 ‧ Further increased its shareholdings in Pier 16 -Property Development from 24.5% to 36.75% in July 2005, to further signify its determination to participate in Macau's gaming and entertainment-related industry ‧ Entered into aloan agreement and an option deed with King Seiner in March 2005 ‧ Participated major gaming conferences and roadshows to increase transparency and enhance investors relations throughout the year T he following discussion should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with the Hong Kong Financial Reporting Standards. The Group reports its results in . business segments namely Cruise and Travel Businesses MACAU SUCCESS LIMITED ANNUAL REPORT 2005 RESULTS The total turnover of the Group for the year ended 30 September 2005 was approximately HK$100.9 million (2004: approximately HK$192.0 million). The decrease in total turnover was mainly due to the disposal of certain non-core businesses in the construction and retail field in 2004 as part of the Group Reorganisation. Through this reorganisation, the Group is to focus on the expanding gaming and entertainment-related business in Hong Kong and Macau. The Group's dedication and efforts proved to be successful as our core business demonstrated strong and steady growth during the year under review. Turnover from our core business was approximately HK$100.9 million, representing a 63.8% increase from that of the last year (2004: approximately HK$61.6 million). Profit attributable to equity holders of the Company amounted to approximately HK$12.3 million, representing a decrease of 20.1% as compared to that of last year (2004: approximately HK$15.4 million). Profit after tax of last year included one-off gains, which included the waiver of loan and gains on disposal of discontinued operations amounted to approximately HK$6.3 million. Excluding these one-off gains recorded in last year, profit attributable to equity holders for this year would have been a remarkable increase of 35%. In addition, through our relentless efforts to enhance efficiencies across our operations, the Group has reported strong operating results. The Group's operating profit increased by 5.3% to approximately HK$31.9 million (2004: approximately HK$30.3 million). Operating profit margin achieved 31.6% for the year, an improvement of 100% compared to 15.8% in the last year, attributable to the effective cost optimisation measures and corporate restructuring during the year under review. After the streamlining of the operations, the Group's resources were more effectively utilised in developing the gaming and entertainment-related business. BUSINESS REVIEW Cruise Business During the year under review, the cruise business remained the principal revenue contributor for the Group and continued to generate a stable income stream with steady growth. The leasing and management of the cruise, M.V. Macau Success, accounted for 94.5% of our total turnover. Turnover from the cruise business increased by 65.1% to approximately HK$95.4 million (2004: approximately HK$57.8 million), primarily due to the booking of the full year charter fee and management fee income into the accounts this year. Segment profit from cruise business was approximately HK$43.4 million (2004: approximately HK$28.2 million). Not only did it contribute astable income to the Group but the cruise business also provided tremendous synergy to its business and is a key part of our strategy to develop the gaming ‧ Turnover from the cruise business increased and entertainment-related business. by 65.1% to approximately HK$95.4 million, primarily due to the booking of the full year charter fee and management fee income into the accounts this year. Travel Business The travel business recorded a turnover of approximately HK$5.5 million during the year under review, representing an increase of 44.7% (2004: approximately HK$3.8 million), and accounted for 5.5% of the total turnover. A net loss of approximately HK$0.8 million (2004: approximately HK$0.6 million) was recorded from this business as the Group hired more high caliber employees for business development and operation which led to a rise in operating cost. Though being asmaller piece of business within the Group, it is the Group's strategy of continuing development of travel business as a unique platform to provide professional travel services to high-end customers and attract traffic to M.V. Macau Success, the Company's flagship cruise. ‧ The travel business recorded a turnover of approximately HK$5.5 million during the year under review, representing an increase of 44.7%, and accounted for 5.5% of the total turnover. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 ‧ During the year under review, loan interest income generated from King Seiner was approximately HK$1.6 million. FINANCIAL REVIEW Pledge of Assets As at 30 September 2005, the Group had pledged time deposits of approximately HK$0.7 million (2004: approximately HK$0.2 million) to certain banks for issuance of several bank guarantees of approximately HK$0.7 million (2004: approximately HK$0.2 million) for operations of the Group. Contingent Liabilities As at 30 September 2005, the Group had no contingent liability (2004: HK$Nil). Liquidity, Financial Resources and Gearing As at 30 September 2005, the Group had net current assets of approximately HK$199.5 million (2004: approximately HK$28.9 million). In accordance with the new accounting standards adopted by the Group during the year, the Group had net assets of approximately HK$680.7 million (2004: approximately HK$97.9 million). As at 30 September 2005, the Group did not have any interest bearing borrowings (2004: approximately HK$1.7 million) and had no obligations under finance leases (2004: HK$Nil). As at 30 September 2005, there were loans from minority shareholders of approximately HK$26.2 million (2004: approximately HK$31.5 million), which is interest-free, unsecured and without fixed repayment term. As at 30 September 2005, the Group had no bank loan (2004: HK$Nil). Equity attributable to equity holders of the Company as at 30 September 2005 recorded a surplus of approximately HK$649.5 million (2004: approximately HK$86.2 million). Accordingly, the gearing ratio which is measured on the basis of the interest-bearing borrowings of the Group over equity attributable to equity holders of the Company was not applicable for this year (2004: approximately 1.9%). Capital Structure Placing of Existing Shares and Subscription of New Shares On 10 November 2004, Silver Rich Macau Development Limited ("Silver Rich"), a substantial shareholder of the Company, entered into a placing agreement (the "Placing Agreement") and a subscription agreement (the "Subscription Agreement") with Deutsche Bank AG (the "Placing Agent") and the Company respectively. Pursuant to the Placing Agreement, the Placing Agent agreed to place, on a fully underwritten basis, 317,000,000 shares of the Company (the "Shares") to not less than six independent placees at a price of HK$1.28 per Share (the "Placing"). Pursuant to the Subscription Agreement, Silver Rich conditionally agreed to subscribe for 317,000,000 new Shares at a price of HK$1.28 per Share (the "Subscription"). The Placing and the Subscription were completed on 12 November 2004 and 23 November 2004 respectively. Upon the completion of the Placing and the Subscription, percentage of the shareholding of Silver Rich was decreased from approximately 43.20% to approximately 36.01% and percentage of the shareholding of Spring Wise Investments Limited ("Spring Wise"), another MACAU SUCCESS LIMITED ANNUAL REPORT 2005 substantial shareholder of the Company, was decreased from approximately 18.51% to approximately 15.43%. The net proceeds derived from the Subscription amounted to approximately HK$370 million would be applied as planned approximately HK$167 million for the investment and development of Ponte 16, approximately HK$111 million for other possible investment opportunities in hotel and tourists-related projects, and approximately HK$92 million for general working capital for the Group. Material Acquisition On 18 November 2004, World Fortune Limited ("World Fortune"), an indirect wholly-owned subsidiary of the Company, increased its shareholding in Pier 16 -Property Development to 24.5% by further acquiring of 14.5% equity interest from SJM-Investimentos Limitada ("SJM-Investimentos") (the "Acquisition I"). After the completion of Acquisition I, Pier 16 -Property Development owned as to 51%, 24.5% and 24.5% by SJM-Investimentos, World Fortune and Joy Idea Investments Limited ("Joy Idea") respectively. On 11 May 2005, World Fortune, as purchaser, entered into a sale and purchase agreement with Joy Idea, as vendor, for the sale and purchase of 12.25% equity interest in Pier 16 -Property Development (the "Acquisition II"). The Acquisition II was completed on 5 July 2005 whereupon Pier 16 -Property Development was owned as to 51%, 36.75% and 12.25% by SJM-Investimentos, World Fortune and Joy Idea respectively. Staffing As at 30 September 2005, the Group had approximately 320 employees. Remuneration is determined by reference to qualifications, experiences, responsibility and performance of the staff concerned. Apart from the basic remuneration, staff benefits include medical insurance and retirement benefits under Mandatory Provident Fund Scheme. Share options might also be granted to eligible employees of the Group. PROSPECTS Ponte 16 As part of the Group's continuing initiatives to further solidify its position in hotel, casino and property-related businesses in Macau, the Group had strategically increased its stake in the flagship project -Ponte 16 to 36.75% in July 2005. Ponte 16 is a multi-functional, integrated resort consisting of hotel, retail, food and beverage, recreational facilities, and casino (subject to the approval of Macau SAR Government). The development is embedded in the historical heritage of Macau with its location being a historic site -Pier 16 that has commenced operation since the beginning of the last century. The focal point of Ponte 16 is the clock tower situated at the historic Pier 16. Pier 16 -Property Development has submitted the formal application to the Macau SAR Government for approval of increasing the gross floor area from 63,584 square metres to 120,300 square metres. The project will expand on both sides of the clock tower to include acasino (subject to the approval of Macau SAR Government), a five-star hotel and a shopping complex. On the right hand side of the clock tower will be a17-storey high hotel tower. On the left hand side of the clock tower will be ashopping complex where tourists can find a wide array of shops, restaurants and cinemas. A promenade will be built along the waterfront location to provide a venue for outdoor performances, such as fireworks and laser display, and other leisure activities. With the expanded gross floor area, the total investment of the project will be increased to approximately HK$2.4 billion. In October 2005, Pier 16 -Property Development has announced the preliminary design of Ponte 16, which reflects the architectural design of Macau at the turn of the 20th Century. It is to the management's belief that Ponte 16 would become a major tourist and cultural attraction in Macau. Renowned architects, The Jerde Partnership, Inc., whose works include the Bellagio in Las Vegas, Universal CityWalk in Los Angeles, Roppongi Hills in Tokyo and Langham Place in Hong Kong, will MACAU SUCCESS LIMITED ANNUAL REPORT 2005 ‧ Ponte 16 will be the Gem and New Landmark of Macau. handle the overall planning and design of the project. CAA City Planning and Engineering Consultants Limited will provide consulting services in structural design and local compliance. The project will be completed phase by phase with the casino targeting operation by the end of 2006 and the rest of facilities to be completed by the end of 2007 and the hotel will be managed by a world-class hotel management company. Challenges and Opportunities The Group has developed the strategies to expand the gaming and entertainment-related business in 2006 and beyond, capitalising on our shareholders' years of experience in Macau's gaming industry to maximise its growth potential. With a clear vision and business focus, the Group is poised to meet the challenges and capture the opportunities ahead. In the first 11 months of 2005, Macau tourist arrivals reached 17 million, which have already exceeded the total tourist arrival figure in 2004, and the total gaming revenues in Macau during 2005 is around US$5.6 billion, increased by 11% compared to that of 2004. Although the growth is slower than expected, the Group is confident that growth momentum will resume from mid-2006 with the opening of numerous tourist attractions and new casino complexes. While the tourism and gaming market is under steady growth, the Group is exposed to market risk from intense competition starting from 2007. By the end of 2007, Ponte 16 will be completed in whole. At the same time, other casino resort projects will be opened. By then, there will be around 4,000* gaming tables and 16,000* hotel rooms available in Macau. *Figures from Deutsche Bank AG MACAU SUCCESS LIMITED ANNUAL REPORT 2005 It is expected that the market will be highly competitive and net win per table will likely drop even with an increasing number of tourists going to Macau. In view of these challenges, the management identified four main strategies to solidify the Company's competitive advantages and achieve exponential growth for the Group in the coming years. The strategies are: Creating A Premium Brand The Group has established itself in the past year as one of the leading players in the gaming and entertainment-related industry, especially after the announcement of the Ponte 16 project. The Group believes that, through constant and effective marketing communications with the consumers, industry practitioners and analysts, the Macau Success brand will be identified as experienced, professional and quality which will help attract business, customers and partners. Providing Unique Products After the reorganisation of the Group, it now focuses on the gaming and entertainment-related industry. All services are highly synchronised to offer an one-stop solution to customers starting from travel arrangement to gaming. Despite the increasing competition, especially after the opening of other major casinos in Macau, Ponte 16 will remain as one of the most unique entertainment complexes in Macau due to its historic architectural design, superb location and the vast variety of services it provides. The management strongly believes that Ponte 16 will be the new gem of Macau and a new focal point in the old Macau after its full completion in 2007. Satisfying Customers' Needs Mainland Chinese visitors will continue to be the most important group of visitors to Macau both in terms of the total visitor number and average spending. The Group and the management have numerous years of experience in servicing Mainland Chinese and possess a thorough understanding of their needs and behavior, and are well-positioned to offer them services best tailored to their preferences. This will allow us to attract a high flow of high-spending customers to Ponte 16 and will help us receive steady income in the coming years. Leveraging Strong People's Network The management possesses many years of experience in the Macau market and has established a strong local network that will help propel the Group to a rapid growth path in the coming years. The management has very good working relationship with the Macau SAR Government, industry practitioners and other market players, vital to the success of the Group in the local market. In conclusion, the management is confident that the Group is on the right track of establishing itself as one of the successful players in the Macau's gaming and entertainment-related industry, capable of creating long-term values to our shareholders. There are challenges ahead but the Group possesses all the necessary qualities to overcome them and stay ahead of the competition, capitalising on the many opportunities Macau has to offer in gaming and entertainment and more. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 REPORT OF DIRECTORS The Directors present their annual report together with the audited financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 30 September 2005. 1. GROUP REORGANISATION Macau Success (Hong Kong) Limited (formerly known as Macau Success Limited) (“MSHK”) the former holding company of the Group which was formerly listed on the Stock Exchange put forward a group reorganisation (the “Group Reorganisation”), pursuant to which, a scheme of arrangement dated 27 August 2004 had been sanctioned by the Court of First Instance of the High Court, Hong Kong on 29 October 2004 and became effective on 8 November 2004. Upon the completion of the Group Reorganisation, the Company became the holding company of the Group. MSHK was then delisted from the Stock Exchange on 8 November 2004, and the Company was listed on the Stock Exchange on 9 November 2004 in its place by way of introduction. 2. PRINCIPAL ACTIVITIES The Company is an investment holding company. Its subsidiaries are principally engaged in the leasing and management of the 55% owned cruise and other tourists-related businesses. 3. RESULTS AND APPROPRIATIONS The results of the Group for the year are set out in the consolidated income statement on page 35. The directors do not recommend the payment of any dividends in respect of the year ended 30 September 2005. 4. SEGMENT INFORMATION An analysis of the Group’s performance for the year by business and geographical segments is set out in note 7 to the financial statements. 5. FIVE-YEAR FINANCIAL SUMMARY A financial summary of the Group for the past five financial years is set out on page 81. 6. SHARE CAPITAL Details of the Company’s share capital are set out in note 30 to the financial statements. 7. RESERVES Details of the movements in the reserves of the Group during the year are set out in the consolidated statement of changes in equity on page 38 of this report and other details of the reserves of the Group are set out in note 32 to the financial statements. 8. PROPERTY, PLANT AND EQUIPMENT Details of the movements in the property, plant and equipment of the Group during the year are set out in note 17 to the financial statements. 9. SUBSIDIARY COMPANIES As at 30 September 2005, particulars of the Company’s subsidiary companies are set out in note 19 to the financial statements. REPORT OF DIRECTORS 10. DIRECTORS The Directors who held office during the year and up to the date of this report were: Executive Directors: Mr. Yeung Hoi Sing, Sonny (Chairman) Mr. Chan William (Deputy Chairman) Mr. Lee Siu Cheung Non-executive Director: Mr. Choi Kin Pui, Russelle Independent Non-executive Directors: Mr. Luk Ka Yee, Patrick Mr. Yim Kai Pung Ms. Yeung Mo Sheung, Ann In accordance with bye-law no. 87 of the Bye-laws, Mr. Lee Siu Cheung and Mr. Choi Kin Pui, Russelle will retire by rotation and, being eligible, offer themselves for re-election at the forthcoming annual general meeting. 11. DIRECTORS’ SERVICE CONTRACTS The non-executive Director and independent non-executive Directors were appointed for a period of one year commencing on their respective appointment dates and subject to retirement by rotation according to the Bye-laws. Save as disclosed above, none of the directors has a service contract with the Company which is not determinable by the Company within one year without payment other than statutory compensation. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 12. DIRECTORS’ INTERESTS IN CONTRACTS Save as disclosed in “Connected Transaction” below, no contracts of significance to which the Company or any of its subsidiaries was a party and in which a director had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. 13. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS IN SECURITIES As at 30 September 2005, the Directors or chief executive of the Company and/or any of their respective associates had the following interests and short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571) of the Laws of Hong Kong (the “SFO”)) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange:– Approximate Long position/ Nature of Number of percentage of Name Short position interest Shares shareholding Mr. Yeung Hoi Sing, Sonny Long position Corporate 775,488,802 40.72 (Note 1) interest Mr. Chan William Long position Corporate 332,352,630 17.45 (Note 2) interest Notes: 1. Mr. Yeung Hoi Sing, Sonny is deemed to have corporate interest in 775,488,802 Shares by virtue of the interest of the Shares held by Silver Rich, which is wholly-owned by a discretionary trust, the beneficiaries of which are family members of Mr. Yeung Hoi Sing, Sonny. 2. Mr. Chan William is deemed to have corporate interest in 332,352,630 Shares by virtue of his interest in the issued share capital of Spring Wise. Save as disclosed above, as at 30 September 2005, none of the Directors or chief executive, or their associates, had any personal, family, corporate or other interests in the securities of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange. 14. SHARE OPTIONS SCHEME AND DIRECTORS’ AND CHIEF EXECUTIVES’ RIGHTS TO ACQUIRE SHARES OR DEBENTURES Details of the share option scheme are set out in note 31 to the financial statements. 15. SUBSTANTIAL SHAREHOLDERS As at 30 September 2005, so far as was known to the Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO: – Approximate Long position/ Nature of Number of percentage of Name Short position interest Shares held shareholding Silver Rich Long position Corporate 775,488,802 40.72 interest Spring Wise Long position Corporate 332,352,630 17.45 interest Mr. Chan Hon Keung Long position Corporate 332,352,630 17.45 (Note 1) interest Penta Investment Advisers Long position Corporate 135,444,000 7.11 Ltd (Note 2) interest Zwaanstra John (Note 2) Long position Corporate 135,444,000 7.11 interest Moore Michael William Long position Corporate 135,444,000 7.11 (Note 2) interest Note: (1) Mr. Chan Hon Keung is deemed to have corporate interest in 332,352,630 Shares by virtue of his interest in the issued share capital of Spring Wise. (2) Mr. Zwaanstra John and Mr. Moore Michael William are deemed to have corporate interest in 135,444,000 Shares by virtue of their interests in the issued share capital of Penta Investment Advisers Ltd. Save as disclosed above, as at 30 September 2005, so far as was known to the Directors, no other person had, or was deemed or taken to have an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO. REPORT OF DIRECTORS 16. CONNECTED TRANSACTION A loan agreement (the “Loan Agreement”) and an option deed (the “Option Deed”) both dated 7 March 2005 have been entered into between King Seiner (the “Borrower”), as borrower, and Joyspirit (the “Lender”), an indirect wholly-owned subsidiary of the Company, as lender, whereby the Lender will provide a loan facility of HK$50 million to the Borrower and the Borrower agreed to grant an option to the Lender upon the terms and conditions contained therein. The Borrower was owned as to 56% by Mr. Yeung Hoi Sing, Sonny (“Mr. Yeung”), 24% by Mr. Chan Hon Keung (“Mr. Chan”) and 20% by an independent third party. Both of Mr. Yeung, an executive director of the Company, and Mr. Chan were substantial shareholders of the Company under the definition of the Listing Rules. Therefore, the entering into the Loan Agreement and the Option Deed constituted connected transactions for the Company, details of which has been published in an announcement and a circular of the Company dated 10 March 2005 and 7 April 2005 respectively according to the disclosure requirements under the Listing Rules. 17. CONVERTIBLE SECURITIES, OPTIONS, WARRANTS OR SIMILAR RIGHTS The Company had no outstanding convertible securities, options, warrants or other similar rights as at 30 September 2005. 18. PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES During the year, there was no purchase, sale or redemption by the Company, or any of its subsidiaries of the listed securities of the Company. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 19. MAJOR SUPPLIERS AND CUSTOMERS During the year, the five largest customers of the continuing operations of the Group accounted for 95.7% of total turnover of the continuing operations of the Group of which the largest customer accounted for approximately 94.5% and the five largest suppliers of the continuing operations of the Group accounted for 56.7% of total purchases of the continuing operations of the Group, of which the largest supplier accounted for approximately 27.6%. None of the directors of the Company or any of their associates or any shareholders (which, to the best knowledge of the Directors, owns more than 5% of the Company’s issued share capital) had any beneficial interest in the above five largest customers or five largest suppliers, except that Mr. Yeung Hoi Sing, Sonny, executive Director, and Mr. Chan Hon Keung, substantial shareholder of the Company, are two of the Group’s five largest customers total accounted for approximately 0.4% of total turnover of the continuing operations of the Group. 20. CHARITABLE CONTRIBUTIONS During the year, no charitable contributions (2004: Nil) were made by the Group. 21. POST BALANCE SHEET EVENTS During the year, there is no significant event after the balance sheet date. 22. PRE-EMPTIVE RIGHTS There is no provision for pre-emptive rights under the Bye-laws of the Company which would oblige the Company to offer new Shares on a pro-rata basis to existing shareholders. 23. SUFFICIENCY OF PUBLIC FLOAT As at the date of this report, the Company has maintained the prescribed public float under the Listing Rules, based on the information that is publicly available to the Company and within the knowledge of the Directors. 24. CORPORATE GOVERNANCE The Company has published its Corporate Governance Report, details of which are set out on page 83 to 86 of this report. 25. AUDITORS On 23 May 2003, Messrs. John K. H. Lo & Co. tendered their resignation as auditors of the Company and Messrs. Deloitte Touche Tohmatsu were appointed as auditors of the Company to fill the vacancy created by the resignation of Messrs. John K. H. Lo & Co. On 17 September 2003, Messrs. Deloitte Touche Tohmatsu tendered their resignation as auditors of the Company and Messrs. CCIF CPA Limited were appointed as auditors of the Company to fill the vacancy left by the resignation of Messrs. Deloitte Touche Tohmatsu. A resolution to re-appoint the retiring auditors, Messrs. CCIF CPA Limited, will be put at the forthcoming AGM. On behalf of the board of Macau Success Limited Yeung Hoi Sing, Sonny Chairman Hong Kong, 10 January 2006 BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT EXECUTIVE DIRECTORS Mr. Yeung Hoi Sing, Sonny, aged 51, joined the Group in 2003 as executive director and chairman. He is responsible for the overall corporate planning and business development of the Group. Mr. Yeung has been the member of the Chinese People’s Political Consultative Conference, the PRC since 1993 and has over 22 years of experience in finance industry in Hong Kong. Prior to joining the Group, Mr. Yeung held managerial roles in several financial service sectors such as leveraged foreign exchange trading; and securities and futures brokerage. He is presently the sole beneficial owner of Young Champion Securities Limited, which is a licensed corporation under the SFO and is also a participant of the Stock Exchange, principally engaged in the provision of securities brokerage services. Mr. Yeung also has certain private investments in travel agency businesses in the US and Canada and property development businesses in Hong Kong and Canada. Mr. Chan William, aged 31, joined the Group in 2003 as executive director and has been the deputy chairman since June 2004. Mr. Chan is responsible for overseeing of the business operations of the Group. He obtained a Diploma in Legal Studies in June 1995 from The University of Hong Kong and a Master degree of Business Administration in March 2002 from The University of La Verne in the US. Mr. Chan was a director of Tung Wah Group of Hospitals (2003/2004), the Current Advisor of Yan Chai Hospital 36th Term Board of Directors, the Divisional Senior Vice President of Hong Kong St. John Ambulance Brigade Headquarters Command, a member of Sheung Wan and Sai Ying Pun Area Committee (2004/2006) and a member of Hong Kong Chiu Chow Chamber of Commerce. Before joining the Group, he was an accounts manager of Young Champion Securities Limited from 2001 to July 2003. Mr. Lee Siu Cheung, aged 41, joined the Group in 2003 as executive director. Mr. Lee is responsible for overseeing of the property and project development of the Group. He is a member of Hong Kong Institute of Architects and an Authorised Person (List of Architects). Mr. Lee has over 17 years of experience in the architectural industry and has worked for a number of architects companies in Hong Kong. Before joining the Group, he was a consultant of a real estate project management company responsible for project management. NON-EXECUTIVE DIRECTOR Mr. Choi Kin Pui, Russelle, aged 51, joined the Group in 2003 as independent non-executive director and has been re-designated as non-executive Director in March 2004. Mr. Choi graduated from St. Pius X High School in 1976. He has over 12 years of management experience in the telecommunication industry in Hong Kong and the US. Mr. Choi established Elephant Talk Limited in 1994, a wholly-owned subsidiary of Elephant Talk Communications Inc. (“ETCI”), a company incorporated in the US with limited liability and engages in the provision of telecommunications services in Hong Kong and in the US. Mr. Choi is responsible for the planning of overall strategy of ETCI, and is appointed as president and chief executive officer of ETCI. He also serves as chairman of ET Network Services Limited, a company incorporated in Hong Kong with limited liability and engages in the provision of internet access and outsourcing services in the PRC and Hong Kong. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 INDEPENDENT NON-EXECUTIVE DIRECTORS Mr. Luk Ka Yee, Patrick, aged 44, joined the Group in 2003 as independent non-executive director. Mr. Luk obtained his Law Degree in England in 1986. Throughout his tenure of career, Mr. Luk has been appointed to serve in various senior management positions which involved in corporate/legal and property development as well as property management aspects. He is at present being the consultant to Pacific Rich Management and Consultants Limited, a company providing property and facilities management in Hong Kong. Mr. Yim Kai Pung, aged 40, joined the Group in 2004 as independent non-executive director. Mr. Yim holds a Bachelor degree of Accountancy with honours from City University of Hong Kong in 1993 and is an associate member of Hong Kong Institute of Certified Public Accountants and a fellow member of The Association of Chartered Certified Accountants of the United Kingdom. He has over 16 years of experience in auditing, taxation and provision of finance consultancy services for companies in Hong Kong and the PRC. Mr. Yim is presently a sole proprietor of David Yim & Co., Certified Public Accountants. He is currently an independent non-executive director of Magician Industries (Holdings) Limited. Ms. Yeung Mo Sheung, Ann, aged 41, joined the Group in 2004 as independent non-executive director. Ms. Yeung holds a Bachelor degree of Retail Marketing with honours in United Kingdom and a Diploma in Marketing from The Chartered Institute of Marketing. She pursued her further study on legal course and has been awarded a Diploma in Legal Practice in United Kingdom in 1998 and is presently a solicitor of Messrs. Fung & Fung, Solicitors, a legal firm in Hong Kong. Ms. Yeung is currently a non-executive director of Zhong Hau International Holdings Limited. COMPANY SECRETARY Ms. Chiu Nam Ying, Agnes, aged 32, joined the Group in 2003 as company secretary and oversees all legal matters of the Group. She is a qualified solicitor and holds a Master degree of Laws from The University of Sheffield, United Kingdom in 1997. Before joining the Group, Ms. Chiu was a practicing solicitor in a local law firm and possessed solid experience in banking and finance as well as property related matters. QUALIFIED ACCOUNTANT Mr. Luk Sai Wai, Simon, aged 42, joined the Group in 2003 as financial controller. He is responsible for finance and accounting matters of the Group. Mr. Luk holds a Bachelor degree of Business Administration from Hong Kong Baptist University and a Master degree of Business Administration from University of Strathclyde, United Kingdom. He is also a fellow member of The Association of Chartered Certified Accountants of the United Kingdom and an associate member of Hong Kong Institute of Certified Public Accountants. Prior to joining the Group, Mr. Luk was the financial controller of the financial services stem of a listed group in Hong Kong and the group financial controller of another listed group in Hong Kong. He has extensive experience in auditing, trading, manufacturing and financial industries. REPORT OF AUDITORS AUDITORS’ REPORT TO THE SHAREHOLDERS OF MACAU SUCCESS LIMITED (INCORPORATED IN BERMUDA WITH LIMITED LIABILITY) We have audited the financial statements on pages 35 to 80 which have been prepared in accordance with accounting principles generally accepted in Hong Kong. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981 (as amended), and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. BASIS OF OPINION We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures MACAU SUCCESS LIMITED ANNUAL REPORT 2005 in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 30 September 2005 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. CCIF CPA Limited Certified Public Accountants Hong Kong, 10 January 2006 Chan Wai Dune, Charles Practising Certificate Number P00712 CONSOLIDATED INCOME STATEMENT YEAR ENDED 30 SEPTEMBER 2005 Notes Continuing operations 2005 2004 HK$’000 HK$’000 (Restated) Discontinued operations 2005 2004 HK$’000 HK$’000 (Restated) Consolidated 2005 2004 HK$’000 HK$’000 (Restated) Turnover Cost of sales 8 100,905 (6,520) 61,564 (4,541) – – 130,392 (63,548) 100,905 (6,520) 191,956 (68,089) Gross profit Other revenue 8 94,385 5,859 57,023 4,219 – – 66,844 440 94,385 5,859 123,867 4,659 Selling expenses Administrative expenses Other operating expenses, net Gain on disposal of subsidiaries Waiver of other loan Gain on disposal of discontinued operations 9 10 100,244 – (68,352) – – – – 61,242 – (41,067) (211) 10 4,036 – – – – – – – – 67,284 (55,315) (7,995) – – – 2,304 100,244 – (68,352) – – – – 128,526 (55,315) (49,062) (211) 10 4,036 2,304 Profit from operations Share of results of associates Finance costs 12 13 31,892 (12) (97) 24,010 – (299) – – – 6,278 – (23) 31,892 (12) (97) 30,288 – (322) Profit before taxation Taxation 14 31,783 – 23,711 – – – 6,255 (642) 31,783 – 29,966 (642) Profit for the year 31,783 23,711 – 5,613 31,783 29,324 Attributable to: Equity holders of the Company Minority interests 12,291 19,492 11,040 12,671 – – 4,402 1,211 12,291 19,492 15,442 13,882 31,783 23,711 – 5,613 31,783 29,324 Earnings per share – Basic 16 HK0.66 cents HK0.98 cents – Diluted N/A N/A The notes on pages 41 to 80 form an integral part of these financial statements. CONSOLIDATED BALANCE SHEET 30 SEPTEMBER 2005 Notes 2005 HK$’000 2004 HK$’000 (Restated) NON-CURRENT ASSETS Property, plant and equipment Goodwill Available-for-sale investment Investment securities Interest in associates Loan receivable 17 18 20 21 22 23 90,247 1,313 25,239 – 339,042 51,562 95,980 1,069 – 3,471 – – CURRENT ASSETS Inventory Trade receivables Deposits, prepayment and other receivables Pledged bank deposits Cash and bank balances 24 25 507,403 1,181 1,624 11,213 708 189,965 100,520 1,214 1,502 2,987 200 31,126 CURRENT LIABILITIES Trade payables Other payables and accruals Other borrowings 26 27 204,691 156 4,996 – 37,029 136 6,312 1,652 5,152 8,100 NET CURRENT ASSETS 199,539 28,929 TOTAL ASSETS LESS CURRENT LIABILITIES 706,942 129,449 NON-CURRENT LIABILITIES Loans from minority shareholders 28 26,208 31,536 NET ASSETS 680,734 97,913 CAPITAL AND RESERVES Issued capital Reserves 30 32 19,045 630,454 15,875 70,295 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Minority interests 32 649,499 31,235 86,170 11,743 TOTAL EQUITY 680,734 97,913 Approved and authorised for issue by the board of directors on 10 January 2006 On behalf of the board Yeung Hoi Sing, Sonny Director The notes on pages 41 to 80 form an integral part of these financial statements. Chan William Director MACAU SUCCESS LIMITED ANNUAL REPORT 2005 BALANCE SHEET 30 SEPTEMBER 2005 2005 2004 Notes HK$’000 HK$’000 NON-CURRENT ASSETS Interest in subsidiaries 19 300,110 – CURRENT ASSETS Deposits, prepayment and other receivables 195 428 Cash and bank balances 150,230 – 150,425 428 CURRENT LIABILITIES Other payables and accruals 601 – Amount due to a shareholder – 443 601 443 NET CURRENT ASSETS/(LIABILITIES) 149,824 (15) NET ASSETS/(LIABILITIES) 449,934 (15) CAPITAL AND RESERVES Issued capital 30 19,045 – Reserves 32 430,889 (15) 449,934 (15) Approved and authorised for issue by the board of directors on 10 January 2006 On behalf of the board Yeung Hoi Sing, Sonny Chan William Director Director The notes on pages 41 to 80 form an integral part of these financial statements. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 SEPTEMBER 2005 Attributable to equity holders of the Company Retained Capital Property profits/ Share Share Distributable redemption revaluation (accumulated Minority Total capital premium reserve reserve reserve losses) Total interests equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1 October 2003 – as previously reported 14,903 374,500 – 976 – (361,112) 29,267 1,118 30,385 – effect on adoption of revised SSAP 12 – – – – – 20 20 – 20 – as restated 14,903 374,500 – 976 – (361,092) 29,287 1,118 30,405 Placing of new shares 972 41,067 – – – – 42,039 – 42,039 Cancellation of the shares of MSHK (15,875) – – – – – (15,875) – (15,875) Shares issued to shareholders of MSHK as consideration for cancellation of shares of MSHK 15,875 – – – – – 15,875 – 15,875 Share issuance costs – (598) – – – – (598) – (598) Acquisition of a subsidiary – – – – – – – (928) (928) Disposal of subsidiaries – – – – – – – (2,329) (2,329) Transfer pursuant to the Group Reorganisation – (414,969) 54,450 – – 360,519 – – – Net profit for the year – – – – – 15,442 15,442 13,882 29,324 At 30 September 2004 15,875 – 54,450 976 – 14,869 86,170 11,743 97,913 At 1 October 2004 15,875 – 54,450 976 – 14,869 86,170 11,743 97,913 Placing of new shares 3,170 402,590 – – – – 405,760 – 405,760 Share issuance costs – (39,670) – – – – (39,670) – (39,670) Net profit for the year – – – – – 12,291 12,291 19,492 31,783 Redomicile costs – – (2,117) – – – (2,117) – (2,117) Surplus on revaluation – associates – – – – 187,065 – 187,065 – 187,065 At 30 September 2005 19,045 362,920 52,333 976 187,065 27,160 649,499 31,235 680,734 The notes on pages 41 to 80 form an integral part of these financial statements. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 30 SEPTEMBER 2005 2005 2004 Notes HK$’000 HK$’000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 31,783 29,966 Adjustments for: Interest income (4,420) (178) Interest expenses 97 322 Depreciation 6,474 5,348 Amortisation of goodwill – 211 Provision for other receivables – 335 Waiver of other loan – (4,036) Gain on disposal of subsidiaries and discontinued operations – (2,314) Share of results of associates 12 – Dividend from available-for-sale investment (1,133) – Written back of amortisation of goodwill (66) – Waiver of promissory note – (119) Written back of provision for litigation – (2,075) Written off of trade and other payables – (1,766) OPERATING PROFIT BEFORE CHANGES IN WORKING CAPITAL 32,747 25,694 Decrease/(increase) in inventory 33 (5,389) (Increase)/decrease in trade receivables (122) 17,998 Increase in deposits, prepayment and other receivables (8,226) (12,919) Decrease in amount due from customers for contract work – 3 Increase/(decrease) in trade payables 20 (16,173) (Decrease)/increase in other payables and accruals (1,316) 7,302 Decrease in amount due to customers for contract work – (7,637) CASH GENERATED FROM OPERATIONS 23,136 8,879 Tax paid – (14) NET CASH GENERATED FROM OPERATING ACTIVITIES 23,136 8,865 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (741) (96,550) Acquisition of associates (100,681) – Acquisition of available-for-sale investment (25,239) – Acquisition of investment securities – (971) Loans to associates (47,837) – Loan to investee company – (2,500) Loan receivable (50,000) – Acquisition of a subsidiary, net of cash acquired 33 (178) 2,313 Increase in pledged bank deposits (508) (200) Disposal of subsidiaries 34 – 160 Interest income 2,858 178 Dividend from available-for-sale investments 1,133 – NET CASH USED IN INVESTING ACTIVITIES (221,193) (97,570) CONSOLIDATED CASH FLOW STATEMENT 2005 2004 HK$’000 HK$’000 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 405,760 42,039 Cost on issue of new shares (39,670) (598) Redomicile costs (2,117) – Repayment of bank loans – (150) Loans (repayments to) / from minority shareholders (5,328) 31,536 Capital elements of finance lease payments – (32) Repayment of other borrowings (1,652) – Interest paid on bank loans and other borrowings (97) (322) NET CASH GENERATED FROM FINANCING ACTIVITIES 356,896 72,473 NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS 158,839 (16,232) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31,126 47,358 CASH AND CASH EQUIVALENTS AT END OF YEAR 189,965 31,126 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 189,965 31,126 The notes on pages 41 to 80 form an integral part of these financial statements. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 NOTES TO THE FINANCIAL STATEMENTS 1. ORGANISATION AND PRINCIPAL ACTIVITIES The Company was incorporated as an exempted company with limited liability in Bermuda on 27 May 2004 under the Companies Act (1981) of Bermuda and is listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The principal activity of the Company is investment holding. The principal activities of its subsidiaries are set out in note 19 to the financial statements. 2. GROUP REORGANISATION AND BASIS OF PRESENTATION Macau Success (Hong Kong) Limited (“MSHK”), the former holding company of the Group which was previously listed on the Stock Exchange, put forward a group reorganisation plan (the “Group Reorganisation”). Pursuant to the Group Reorganisation, a scheme of arrangement dated 27 August 2004, which was sanctioned by the Court of First Instance of the High Court, Hong Kong on 29 October 2004 and became effective on 8 November 2004, the following events took place: i) simultaneous with each other: – the entire issued share capital of MSHK was reduced by cancelling and extinguishing all the 1,587,464,233 shares in issue (the “Scheme Shares”); – MSHK applied part of the credit arising as a result of the capital reduction to pay up in full at par the 10,000,000 new shares allotted and issued, credited as fully paid, to the Company such that MSHK became a wholly-owned subsidiary of the Company and transferred the remaining credit to the distributable reserve account of MSHK; – the authorised share capital of MSHK was reduced to HK$100,000 divided into 10,000,000 shares held by the Company; ii) the share premium account of MSHK was reduced, cancelled and applied to set off against the accumulated losses of MSHK and the remaining credit thereof was transferred to the distributable reserve account; and iii) the shareholders of the 1,587,464,233 shares of MSHK received one share of the Company for every one share of MSHK in consideration for the cancellation of their Scheme Shares. Upon the completion of the Group Reorganisation, the Company became the holding company of MSHK and its subsidiaries. MSHK was then delisted from the Stock Exchange on 8 November 2004, and the Company was listed on the Stock Exchange on 9 November 2004 in its place by way of introduction. NOTES TO THE FINANCIAL STATEMENTS 2. GROUP REORGANISATION AND BASIS OF PRESENTATION (Continued) The Group Reorganisation involved companies under common control, and for accounting purposes, the Company and its acquired subsidiaries are regarded and accounted for as a continuing group. Accordingly, the consolidated financial statements have been prepared using the merger basis of accounting as if the Company had always been the holding company of the Group. On this basis, the Company has been treated as the holding company of its subsidiaries for the financial years presented or since their dates of incorporation if these are shorter periods, rather than from the subsequent date of acquisition of the subsidiaries. The consolidated results and cash flows of the Group for the years ended 30 September 2004 and 2005 include the results and cash flows of the Company and its subsidiaries with effect from 1 October 2003 or since their respective dates of incorporation, where these are shorter periods. The comparative consolidated balance sheet as at 30 September 2004 was prepared as if that the Group had been in existence at that date. In the opinion of the directors, the consolidated financial statements prepared on this basis present more fairly the comparative results, cash flows and financial position of the Group as a whole. 3. SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which also include all Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong, the disclosure requirements of the Hong Kong Companies Ordinance and The Rules Governing the Listing of Securities (the “Listing Rules”) on the Stock Exchange. They have been prepared under the historical cost convention, except for the revaluation of an associate’s property at fair value. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 The HKICPA has issued a number of new and revised HKFRSs that are effective or available for early adoption for accounting periods beginning on or after 1 January 2005. The Board of Directors has determined the accounting policies to be adopted, in the preparation of the Group’s annual financial statements for the year ended 30 September 2005, on the basis of HKFRSs currently in issue. A summary of the significant accounting policies adopted by the Group is set out below. a) Early adoption of HKFRSs The following new and revised HKFRSs are relevant to the Group’s financial statements and are adopted for the first time for the preparation of the current year’s financial statements. In accordance with the relevant requirements under these HKFRSs where permitted, comparative amounts of the financial statements for the year ended 30 September 2004 have been restated. HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after Balance Sheet Date HKAS 12 Income Taxes HKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment HKAS 17 Leases 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) The adoption of the above HKFRSs has the following impacts on the Group’s accounting policies: a) Early adoption of HKFRSs (Continued) HKAS 18 Revenue – HKAS 1 affects certain presentation and disclosure of the HKAS 19 Employee Benefits financial statements; HKAS 21 The Effects of Changes in Foreign Exchange Rates – HKAS 8, 27 and 33 affect certain disclosure of the financialHKAS 23 Borrowing Costs statements;HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements – HKASs 2, 7, 10, 12, 14, 16, 17, 18, 19, 21, 23, 24, 28, 32, HKAS 28 Investments in Associates 37, 38, 39, 40, HKFRS 2, 5, HKAS-Int 12, HKAS-Int 15 and HKAS 32 Financial Instruments: Disclosure and Presentation HKAS-Int 21 do not have any significant change in the HKAS 33 Earnings Per Share Group’s accounting policies; and HKAS 36 Impairment of Assets HKAS 37 Provisions, Contingent Liabilities and Contingent – the impact of the early adoption of other HKFRSs is set out Assets in note 4. HKAS 38 Intangible Assets b) Basis of consolidation HKAS 39 Financial Instruments: Recognition and The consolidated financial statements include the financial Measurement statements of the Company and its subsidiaries made up to 30 HKAS 40 Investment Property September. HKFRS 2 Share-based Payment HKFRS 3 Business Combinations The results of the subsidiary acquired or disposed of during theHKFRS 5 Non-Current Assets Held for Sale and year are included in the consolidated income statement from theDiscontinued Operations effective date of acquisition or up to the effective date of disposal,HKAS-Int 12 Scope of HKAS-Int 12 Consolidation – Special as appropriate. Purpose Entities HKAS-Int 15 Operating Leases – Incentives HKAS-Int 21 Income Taxes – Recovery of Revalued Non-Depreciable Assets NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) b) Basis of consolidation (Continued) Minority interests represent the interests of outside shareholders in the operating results and net assets of the Company’s subsidiaries and are presented separately in the consolidated income statements and within the equity in the consolidated balance sheet from the results/equity attributable to equity holders of the Company. c) Subsidiaries A subsidiary is a company in which the Group or the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors. Subsidiaries are considered to be controlled if the Group or the Company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from their activities. An investment in a subsidiary is consolidated into the consolidated financial statements, unless it is acquired and held exclusively with a view to subsequent disposal in the near future or operates under severe long-term restrictions which significantly impair its ability to transfer funds to the Group, in which case, it is stated in the consolidated balance sheet at fair value with changes in fair value recognised in the consolidated income statement as they arise. Intra-group balances and transactions, and any unrealised profits arising from intra-group transactions, are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains, but only to the extent there is no evidence of impairment. In the Company’s balance sheet, an investment in a subsidiary is stated at cost less any impairment losses, unless it is acquired and held exclusively with a view to subsequent disposal in the near future or operates under severe long-term restrictions which significantly impair its ability to transfer funds to the Company, in which case, it is stated at fair value with changes in fair value recognised in the income statement as they arise. d) Associates An associate is a company, not being a subsidiary, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. The Group’s share of the post-acquisition results and reserves of its associates are included in the consolidated income statement and consolidated reserves respectively. The Group’s interest in the associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting less any impairment losses. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) d) Associates (Continued) Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in the consolidated income statement. e) Goodwill Positive goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s share of fair value of the identifiable assets and liabilities acquired on acquisitions of subsidiaries and associates. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no longer amortised but is tested annually for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the interest in the associates. Negative goodwill arising on acquisitions of controlled subsidiaries and associates represents the excess of the Group’s share of the fair value of the identifiable assets and liabilities acquired over the cost of the acquisition. Negative goodwill is recognised immediately in the consolidated income statement as it arises. f) Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably on the following basis: i) cruise leasing income is recognised on an accrual basis in accordance with the terms of the leasing agreement. ii) cruise management fee income and revenue from travel agent services is recognised when the management fee services and trade agent services are rendered. iii) revenue from construction contracts is recognised using the percentage of completion method when the contracts have progressed to a stage where a profitable outcome can be prudently foreseen and is measured by reference to the production of costs incurred for work performed to the balance sheet date as compared to the estimated total costs to completion. Anticipated losses on contracts are fully provided when identified. iv) interest income on a time proportion basis, taking into account the principal outstanding and the effective interest rate applicable. g) Trade receivables Provision is made against trade receivables to the extent that they are considered to be doubtful. Trade receivables in the balance sheet are stated net of such provision. NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) h) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset. Overhauling expenses to extend the useful lives of old assets are, therefore, capitalised and depreciated over the period of the extended useful lives. Depreciation is provided to write off the cost of each asset over its estimated useful life on a straight-line basis at the following annual rates: Leasehold land and buildings Over lease terms Leasehold improvements Over lease terms Cruise 5% Plant and machinery 20% Furniture, fittings and office equipment 20% – 331/3% Motor vehicles 30% – 331/3% The gain or loss arising from the disposal or retirement of the asset is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognised in the income statement. i) Impairment of assets An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. i) Calculation of recoverable amount The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). MACAU SUCCESS LIMITED ANNUAL REPORT 2005 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) i) Impairment of assets (Continued) ii) Reversal of impairment losses In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment losses made against goodwill is not reversed. A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised. j) Investment and other financial assets Financial assets in the scope of HKAS 39 are classified into four categories including financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year end. All regular purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. i) Available-for-sale investments Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other three categories under the scope of HKAS 39. After initial recognition, available-for-sale investments are measured at fair value with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) j) Investment and other financial assets (Continued) i) Available-for-sale investments (Continued) The Group assesses at each balance sheet date whether there is any objective evidence that an available-for-sale investment is impaired as a result of one or more events that occurred after the initial recognition of the assets (“loss events”). Where the loss event has an impact on the estimated future cash flows that can be reliably estimated, they are stated at cost less any accumulated impairment losses. If an available-for-sale investment is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognised in profit and loss, is transferred from equity to the income statement. If the fair value of an available-for-sale debt investment increases in the subsequent period, and the increase can be objectively related to an event occurring after the loss was recognised in the income statement, the impairment loss should be reversed and recognised in the income statement. However, in case of equity investments, impairment cannot be reversed through the income statement. ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. k) Inventories Stocks are valued at the lower of cost and net realisable value. Cost include cost of purchase of materials computed using the first-in, first-out formula. Net realisable value is determined by reference to the sale proceeds of items sold in the ordinary course of business after the balance sheet date less the estimated costs of completion and the estimated costs necessary to make the sale. l) Cash equivalents Cash equivalents represent short-term highly liquid investments which are readily convertible into known amounts of cash and which were generally within three months of maturity when acquired. For the purpose of the consolidated cash flow statement, cash equivalents also include bank overdrafts and advances from banks repayable within three months from the date of the advance. For the purpose of balance sheet classification, cash equivalents represent assets similar in nature to cash, which are not restricted as to use. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) m) Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a different period, directly in equity. Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences except where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with interests in subsidiaries and associates, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary difference, and the carry forward of unused tax assets and unused tax losses can be utilised except where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary difference associated with interests in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) n) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. o) Foreign currencies These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statements. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The functional currencies of certain overseas subsidiaries are not Hong Kong dollars. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company (i.e., Hong Kong dollars) at the exchange rates ruling at the balance sheet date and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign entity is recognised in the income statement. For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries that arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) p) Employee benefits i) Retirement benefit scheme The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the Scheme. Contributions are made based on a percentage of the employee’s basic salaries and are charged to the income statement as they become payable in accordance with the rules of the Scheme. The assets of the Scheme are held separately from those of the Group in independently administrated funds. The Group’s employer contributions vest fully with the employees when contributed to the Scheme, except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the Scheme. ii) Share-based compensation The Group operates an equity-settled share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) q) Investment securities Investment securities are stated at cost less any provision for impairment losses. The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities will be reduced to its fair value. The impairment loss is recognised as an expenses in the income statement. The impairment loss is written back to income statement when the circumstances and events that led to the write-down or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future. r) Construction contracts Contract revenue comprises the agreed contract amount and appropriate amounts from variation orders, claims and incentive payments. Contract costs incurred comprise direct materials, the costs of subcontracting, direct labour and an appropriate proportion of variable and fixed construction overheads. Revenue from construction contracts is recognised on the percentage of completion method, measured by reference to the total cost of work certified to date to the estimated total contract cost for each contract. Provision is made for foreseeable losses as soon as they are anticipated by management. Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers. Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers. s) Provisions and contingent liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Company or the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation. 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 a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. t) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) t) Segment reporting (Continued) In accordance with the Group’s internal financial reporting, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format. Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between Group’s enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties. Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period. Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, corporate and financing expenses and minority interests. u) Operating lease charges Where the Group has the use of assets under operating leases, payments made under the leases are charged to the income statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. 4. CHANGES IN ACCOUNTING POLICIES a) Amortisation of positive and negative goodwill (HKFRS 3 Business Combinations and HKAS 36 Impairment of Assets) In prior years: – positive or negative goodwill which arose prior to 1 January 2001 was taken directly to reserves at the time it arose, and was not recognised in the income statement until disposal or impairment of the acquired business; – positive goodwill which arose on or after 1 January 2001 was amortised on a straight line basis over its useful life of 10 years and was subject to impairment testing when there were indications of impairment; and – negative goodwill which arose on or after 1 January 2001 was amortised over the weighted average useful life of the depreciable/amortisable non-monetary assets acquired, except to the extent it related to identified expected future losses as at the date of acquisition. In such cases it was recognised in the income statement as those expected losses were incurred. With effect from 1 October 2004 in accordance with HKFRS 3 and HKAS 36, the Group no longer amortises positive goodwill. Such goodwill is tested annually for impairment, including in the year of its initial recognition, as well as when there are indications of impairment. Impairment losses are recognised when the carrying amount of the cash generating unit to which the goodwill has been allocated exceeds its recoverable amount. NOTES TO THE FINANCIAL STATEMENTS 4. CHANGES IN ACCOUNTING POLICIES (Continued) a) Amortisation of positive and negative goodwill (HKFRS 3 Business Combinations and HKAS 36 Impairment of Assets) (Continued) Also with effect from 1 October 2004 and in accordance with HKFRS 3, if the fair value of the net assets acquired in a business combination exceeds the consideration paid (i.e. an amount arises which would have been known as negative goodwill under the previous accounting policy), the excess is recognised immediately in the income statement as it arises. The new policy in respect of positive goodwill has been applied prospectively in accordance with the transitional arrangements under HKFRS 3. As a result, comparative amounts have not been restated, the cumulative amount of amortisation as at 1 October 2004 has been offset against the cost of the goodwill and no amortisation charge for goodwill has been recognised in the income statement for the year ended 30 September 2005. Also in accordance with the transitional arrangements under HKFRS 3, goodwill which had previously been taken directly to reserves (i.e goodwill which arose before 1 January 2001) will not be recognised in the income statement on disposal or impairment of the acquired business, or under any other circumstances. b) Minority interest (HKAS 1 Presentation of Financial Statements and HKAS 27 Consolidated and Separate Financial Statements) In prior years, minority interests at the balance sheet date were presented in the consolidated balance sheet separately from liabilities and as a deduction from net assets. Minority interests in the results of the Group for the year were also separately presented in the MACAU SUCCESS LIMITED ANNUAL REPORT 2005 consolidated income statement as a deduction before arriving at the profit attributable to shareholders. With effect from 1 October 2004, in order to comply with HKAS 1 and HKAS 27, minority interests at the balance sheet date are presented in the consolidated balance sheet within equity, separately from the equity attributable to the equity holders of the Company, and minority interests in the results of the Group for the year are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between the minority interests and the equity holders of the Company. The presentation of minority interests in the consolidated balance sheet, income statement and statement of changes in equity for the comparative year has been restated accordingly. 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. a) Property, plant and equipment and depreciation The Group assesses annually whether property, plant and equipment have any indication of impairment. The recoverable amounts of property, plant and equipment have been determined based on value-in-use calculations. These calculations require the use of judgements and estimates. 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) d) Liquidity risk b) Impairment of assets The Group’s objective is to maintain a balance between the continuity of funding and the flexibility through the use of bank overdrafts and The Group tests annually whether assets have suffered any bank loans. impairment. The recoverable amounts of cash-generating units have been determined on the value-in-use calculation. These calculations 7. SEGMENT INFORMATION require use of estimate. Segment information is presented by way of two segment formats: (i) on a 6. FINANCIAL RISK MANAGEMENT primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment. The Group’s activities are exposed to the following risks: The Group’s operating businesses are structured and management a) Interest rate risk separately, according to the nature of their operations and the products As the Group has no significant interest bearing liabilities, the Group’s and services provided. Each of the Group’s business segment represents a exposure to market risk for changes in interest rates relates primarily strategic business unit that offers: to the cash and bank balances and short term time deposits. Floating-rate interest income is charged to the income statement as a) cruise leasing and management business; incurred. b) travel business; b) Foreign currency risk c) construction services (discontinued); and Most of the Group’s monetary assets and liabilities are denominated in Hong Kong Dollars, and the Group conducted its business d) retail business (discontinued). transactions principally in Hong Kong Dollars. The exchange rate risk of the Group is not significant. c) Credit risk The Group has no significant concentrations of credit risk and trade debtors are managed in accordance with the credit policies. NOTES TO THE FINANCIAL STATEMENTS 7. SEGMENT INFORMATION (Continued) a) Business segments The following tables present revenue, results and certain assets, liabilities and expenditure information for the Group’s business segments. Group For the year ended 30 September 2005 Continuing operations Cruise leasing and management Travel Consolidated HK$’000 HK$’000 HK$’000 Revenue Turnover 95,382 5,523 100,905 Other revenue 12 42 54 Total revenue 95,394 5,565 100,959 Results Segment results 43,413 (789) 42,624 Unallocated corporate income 5,805 Unallocated corporate expenses (16,537) Profit from operations 31,892 Share of results of associates (12) Finance costs (97) Profit before taxation 31,783 Taxation – Profit for the year 31,783 Minority interests (19,492) Profit attributable to equity holders of the Company 12,291 Balance Sheet Assets Segment assets Unallocated assets Consolidated total assets Liabilities Segment liabilities Unallocated liabilities Consolidated total liabilities For the year ended 30 September 2005 Continuing operations Cruise leasing and management Travel Consolidated HK$’000 HK$’000 HK$’000 131,909 924 132,833 579,261 712,094 28,901 208 29,109 2,251 31,360 For the year ended 30 September 2005 Continuing operations Cruise leasing and management Travel Unallocated Consolidated HK$’000 HK$’000 HK$’000 HK$’000 Other information Depreciation Capital expenditure 5,781 397 21 6 672 338 6,474 741 MACAU SUCCESS LIMITED ANNUAL REPORT 2005 7. SEGMENT INFORMATION (Continued) a) Business segments (Continued) Group (Continued) Continuing operations Cruise leasing and management Travel HK$’000 HK$’000 For the year ended 30 September 2004 (Restated) Discontinued operations Construction Subtotal services Retail HK$’000 HK$’000 HK$’000 Subtotal HK$’000 Consolidated HK$’000 Revenue Turnover Other revenue 57,753 3 3,811 2 61,564 5 25,047 7 105,345 433 130,392 440 191,956 445 Total revenue 57,756 3,813 61,569 25,054 105,778 130,832 192,401 Results Segment results 28,158 (605) 27,553 85 6,194 6,279 33,832 Unallocated corporate income Unallocated corporate expenses Amortisation of goodwill 4,214 (7,547) (211) Profit from operations Finance costs 30,288 (322) Profit before taxation Taxation 29,966 (642) Profit for the year Minority interests 29,324 (13,882) Profit attributable to equity holders of the Company 15,442 Balance sheet Assets Segment assets Unallocated assets 100,469 1,007 101,476 36,073 – – – 101,476 36,073 Consolidated total assets 137,549 137,549 Liabilities Segment liabilities Unallocated liabilities 35,825 138 35,963 3,673 – – – 35,963 3,673 Consolidated total liabilities 39,636 39,636 NOTES TO THE FINANCIAL STATEMENTS 7. SEGMENT INFORMATION (Continued) a) Business segments (Continued) Group (Continued) For the year ended 30 September 2004 (Restated) Continuing operations Discontinued operations Cruise leasing and Construction management Travel Unallocated Subtotal services Retail Subtotal Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Other information Depreciation 4,088 14 605 4,707 198 443 641 5,348 Amortisation of goodwill 66 – – 66 – 145 145 211 Capital expenditure 96,062 99 303 96,464 86 – 86 96,550 b) Geographical segments The following tables present revenue, results and certain assets, liabilities and expenditure information for the Group’s geographical segments. For the year ended 30 September 2005 Continuing operations South China Sea, other than in Hong Kong Hong Kong Macau Consolidated HK$’000 HK$’000 HK$’000 HK$’000 Segment revenue: Turnover 95,382 5,523 – 100,905 Segment results 43,413 (732) (57) 42,624 Segment assets 184,491 188,044 339,559 712,094 Capital expenditure 397 344 – 741 MACAU SUCCESS LIMITED ANNUAL REPORT 2005 7. SEGMENT INFORMATION (Continued) b) Geographical segments (Continued) For the year ended 30 September 2004 (Restated) South China Sea, other than in Hong Kong HK$’000 Continuing operations Hong Kong HK$’000 Macau HK$’000 Subtotal HK$’000 Discontinuedoperations Hong Kong HK$’000 Consolidated HK$’000 Segment revenue: Turnover Segment results 57,753 28,158 3,811 (605) – – 61,564 27,553 130,392 6,279 191,956 33,832 Segment assets Capital expenditure 100,469 96,062 33,609 402 3,471 – 137,54996,464 – 86 137,549 96,550 8. TURNOVER AND OTHER REVENUE The analysis of the Group’s turnover and other revenue are as follows: Continuing operations Discontinued operations Consolidated 2005 HK$’000 2004 HK$’000 2005 HK$’000 2004 HK$’000 2005 HK$’000 2004 HK$’000 Turnover Cruise leasing and management fee income Travel agent service fee income Construction, equipment rental and services income Retail business 95,382 5,523 – – 57,753 3,811 – – – –– – – – 25,047 105,345 95,382 5,523 – – 57,753 3,811 25,047 105,345 100,905 61,564 – 130,392 100,905 191,956 Other revenue Commission income Dividend from available-for- sale investment Forfeiture of dividends Interest income Rental income Waiver of promissory note Written back of amortisation of goodwill Written back of provision for litigation Written off of trade and other payables Others 34 1,133 – 4,420 – – 66 – – 206 1 – 87 171 – 119 – 2,075 1,766 – – – – – – – – – – – – – – 7 82 – – – – 351 34 1,133 – 4,420 – – 66 – – 206 1 – 87 178 82 119 – 2,075 1,766 351 5,859 4,219 – 440 5,859 4,659 NOTES TO THE FINANCIAL STATEMENTS 9. WAIVER OF OTHER LOAN On 29 June 2004, MSHK entered into a deed of assignment with a creditor whereas the creditor agreed to accept as full settlement of the outstanding loan approximately HK$5,736,000 by accepting payment of HK$1,700,000 by the Group. As a result, the Group recorded a gain on waiver of the loan approximately HK$4,036,000. 10. GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS On 12 March 2004, Orient Prize Holding Inc. (“Orient Prize”), a wholly-owned subsidiary, entered into an agreement to dispose of a 60% owned subsidiary, namely Marcello (Tax Free) International Department Store Corporation Limited (“Marcello”) for a consideration of HK$8,200,000 (the “Marcello Disposal”). The consideration of HK$3,350,000 was settled in cash by the purchaser. The Group directed the purchaser to pay on behalf of the Group the balance of consideration of HK$4,850,000 to a promissory note holder as full and final settlement of the outstanding promissory note of approximately HK$4,896,000. The Marcello Disposal was completed on 29 June 2004. On 26 March 2004, Orient Prize entered into another agreement to dispose of a wholly-owned subsidiary, namely Fine Lord Construction Company Limited (“Fine Lord”) to Mr. Chan Chung Chiu, a director of Fine Lord, for a consideration of HK$5,800,000 (the “Fine Lord Disposal”). The consideration was settled by way of Mr. Chan Chung Chiu releasing a promissory note executed by Orient Prize and MSHK dated 25 June 2002 in favour of Mr. Chan Chung Chiu with outstanding principal and interest of approximately HK$5,873,000. The Fine Lord Disposal was completed on 26 March 2004. The Fine Lord Disposal constituted a connected transaction, the details of which were set out in the announcement issued by MSHK on 31 March 2004. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 The sales, results, cash flows and net assets of Fine Lord and Marcello were as follows: Marcello (Note) Fine Lord (Note) Nine months ended Period ended 30 June 2004 26 March 2004 HK$’000 HK$’000 Turnover Cost of sales Gross profit Other revenue Selling and distribution expenses Administrative expenses Profit from operations Finance costs Profit before taxation Taxation Profit after taxation Minority interests Net profit Net operating cash inflow/(outflow) Net investing cash outflow Net financing cash inflow/(outflow) Total net cash inflow/(outflow) Note: Not audited by CCIF CPA Limited 105,345 (40,225) 25,047 (23,322) 65,120 432 (55,315) (6,563) 1,725 7 – (1,432) 3,674 (3) 300 (20) 3,671 (642) 280 – 3,029 (1,211) 280 1 1,818 281 (4,027) – 2,057 698 (61) (1) (1,970) 636 10. GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS (Continued) Marcello (Note) Fine Lord (Note) At 30 June 2004 At 26 March 2004 HK$’000 HK$’000 Non-current assets 542 3,615 Current assets 13,489 12,434 Total assets 14,031 16,049 Total liabilities (8,207) (13,351) Net assets 5,824 2,698 Net assets sold (3,494) (2,698) Goodwill (2,171) (3,317) (5,665) (6,015) Disposal consideration 8,200 5,800 Disposal expenses (16) – Gain/(loss) on disposal of discontinued operations 2,519 (215) The net cash inflow on disposal is determined as follows: Cash proceeds from disposals 3,350 – Less: Cash and bank balances disposed of with the subsidiaries (474) (5,006) Bank overdraft disposed of with the subsidiaries 2,206 100 Net inflow/(outflow) of cash and cash equivalents in respect of the disposal of subsidiaries 5,082 (4,906) Note: Not audited by CCIF CPA Limited NOTES TO THE FINANCIAL STATEMENTS 11. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (Continued) b) Five highest paid employees The five highest paid employees during the year included one director (2004: one), details of whose remuneration are set out in note 11 (a). The details of the remaining four (2004: four) individual are disclosed as follows: 2005 2004 HK$’000 HK$’000 Salaries, allowances and benefits in kind 2,036 1,437 Retirement benefit scheme contributions 42 79 2,078 1,516 The remuneration falls within the following band: Number of individuals 2005 2004 HK$Nil – HK$1,000,000 4 4 12. PROFIT FROM OPERATIONS Profit from operations is arrived at after charging and (crediting) the following: Continuing operations Discontinued operations Consolidated 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Amortisation of goodwill – 66 – 145 – 211 Auditors’ remuneration 518 436 – 42 518 478 Depreciation: Owned fixed assets 6,474 4,707 – 641 6,474 5,348 Operating lease rentals: Land and buildings 1,385 813 – 850 1,385 1,663 Plant and machinery 12 – – 53 12 53 Provision for other receivables – – – 335 – 335 Exchange gain (15) (208) – – (15) (208) Staff costs (including contribution of retirement scheme of HK$408,000) (2004: HK$339,000) 27,384 16,321 – 2,429 27,384 18,750 NOTES TO THE FINANCIAL STATEMENTS 15. PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY The profit for the year attributable to equity holders of the Company for the year ended 30 September 2005 dealt with in the financial statements of the Company was approximately HK$67,984,000 (2004: loss of approximately HK$15,000). 16. EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit for the year attributable to equity holders of the Company of approximately HK$12,291,000 (2004: HK$15,442,000) and on the weighted average number of 1,869,724,000 (2004: 1,575,214,000) ordinary shares in issue during the year. There was no dilution effect on the basic earnings per share for the year ended 30 September 2005 and 30 September 2004 respectively as there were no dilutive instruments outstanding during both years. NOTES TO THE FINANCIAL STATEMENTS 17. PROPERTY, PLANT AND EQUIPMENT Group Leasehold land and buildings HK$’000 Cruise HK$’000 Leasehold improvements HK$’000 Plant and machinery HK$’000 Furniture fittings and office equipment HK$’000 Motor vehicles HK$’000 Total HK$’000 Cost At 1 October 2003 Acquisition of a subsidiary Additions Disposal of subsidiaries 2,327 – – (2,327) – – 93,600 – 1,991 472 145 (413) 1,207 829 1,279 (1,294) 1,795 1,296 1,296 (1,571) 664 – 230 (664) 7,984 2,597 96,550 (6,269) At 30 September 2004 and 1 October 2004 Additions – – 93,600 – 2,195 98 2,021 3 2,816 640 230 – 100,862 741 At 30 September 2005 – 93,600 2,293 2,024 3,456 230 101,603 Accumulated depreciation At 1 October 2003 Acquisition of a subsidiary Charge for the year Disposal of subsidiaries 60 – 26 (86) – – 3,510 – 98 10 600 (14) 457 25 373 (574) 771 45 693 (1,157) 252 – 146 (353) 1,638 80 5,348 (2,184) At 30 September 2004 and 1 October 2004 Charge for the year – – 3,510 4,680 694 672 281 404 352 642 45 76 4,882 6,474 At 30 September 2005 – 8,190 1,366 685 994 121 11,356 Net book value At 30 September 2005 – 85,410 927 1,339 2,462 109 90,247 At 30 September 2004 – 90,090 1,501 1,740 2,464 185 95,980 MACAU SUCCESS LIMITED ANNUAL REPORT 2005 18. GOODWILL Group HK$’000 Cost At 1 October 2003 Acquisition of a subsidiary Disposal of subsidiaries 7,041 1,135 (7,041) At 30 September 2004 and 1 October 2004 Acquisition of a subsidiary 1,135 178 At 30 September 2005 1,313 Accumulated amortisation At 1 October 2003 Charge for the year Disposal of subsidiaries 1,408 211 (1,553) At 30 September 2004 and 1 October 2004 Written back of amortisation 66 (66) At 30 September 2005 – Net book value At 30 September 2005 1,313 At 30 September 2004 1,069 19. INTEREST IN SUBSIDIARIES 2005 HK$’000 Company 2004 HK$’000 Unlisted shares, at cost Amounts due from subsidiaries 15,874 284,236 – – 300,110 – The amounts due from subsidiaries are unsecured, interest free and have no fixed terms of repayment. NOTES TO THE FINANCIAL STATEMENTS 19. INTEREST IN SUBSIDIARIES (Continued) Particulars of the principal subsidiaries are as follows: Name of company Attributable interest to the Company Direct Indirect % % Place of incorporation/ operations Nominal value of issued share capital Principal activities Macau Success (Hong Kong) Limited 100 – Hong Kong HK$100,000 Investment holding New Shepherd Assets Limited 100 – British Virgin Islands US$1 Investment holding Access Success Developments Limited – 100 British Virgin Islands US$1 Investment holding Ace Horizon Limited – 100 British Virgin Islands US$1 Investment holding Capture Success Limited* – 55 British Virgin Islands/ South China Sea, other than in Hong Kong US$100 Cruise leasing Golden Sun Profits Limited – 100 British Virgin Islands US$1 Investment holding Hover Management Limited* – 55 Hong Kong/ South China Sea, other than in Hong Kong HK$100 Provision of cruise management services Joyspirit Investments Limited – 100 British Virgin Islands US$1 Investment holding Macau Success Management Services Limited – 100 Hong Kong HK$100 Provision of administration services Precise Innovation Limited – 100 British Virgin Islands US$1 Investment holding Top Region Assets Limited – 100 British Virgin Islands US$1 Investment holding Travel Success Limited – 100 Hong Kong HK$500,000 Travel agency Travel Success (Macau) Limited – 100 Macau MOP1,500,000 Travel agency World Fortune Limited – 100 Hong Kong HK$100 Investment holding * Not audited by CCIF CPA Limited MACAU SUCCESS LIMITED ANNUAL REPORT 2005 20. AVAILABLE-FOR-SALE INVESTMENT Group 2005 2004 HK$’000 HK$’000 Unlisted shares, at cost 25,239 – On 13 July 2005, Top Region Assets Limited, a wholly-owned subsidiary, entered into an agreement with two independent third parties for the acquisition of 8.13% interest in the issued share capital of Triumph Up Investments Limited, a company incorporated in the British Virgin Islands, at a consideration of HK$22,800,000. Including the acquisition expenses, the total investment cost was approximately HK$25,239,000. 21. INVESTMENT SECURITIES 2005 HK$’000 Group 2004 HK$’000 Unlisted shares, at cost – 971 Due from the investee company – 2,500 – 3,471 The amount due from investee company was unsecured, interest free, and had no fixed terms of repayment. On 13 January 2004, World Fortune Limited (“World Fortune”), a wholly-owned subsidiary, subscribed 10% shares of Pier 16 – Property Development Limited (“Pier 16 – Property Development”), a company incorporated in Macau, for a consideration of MOP1,000,000 (equivalent to approximately HK$971,000). On 18 November 2004 and 5 July 2005, World Fortune further acquired 14.5% and 12.25% issued share capital of Pier 16 – Property Development for a consideration of MOP1,450,000 (equivalent to approximately HK$1,408,000) and HK$98,000,000 respectively. The interest in Pier 16 – Property Development increased to 36.75% and was classified as an associate of the Group during the year under review. 22. INTEREST IN ASSOCIATES Group 2005 2004 HK$’000 HK$’000 Share of net assets 284,124 – Goodwill 4,581 – Amounts due from associates 50,337 – 339,042 – The amounts due from associates are unsecured, interest free and have no fixed terms of repayment. NOTES TO THE FINANCIAL STATEMENTS 24. INVENTORY Group 2005 2004 HK$’000 HK$’000 Fuel oil 1,181 1,214 There is no inventory stated at net realisable value. 25. TRADE RECEIVABLES The Group normally allows a credit period of 30 days (2004: 30 days). An analysis of trade receivables is as follows: Group 2005 2004 HK$’000 HK$’000 Current to 30 days 1,584 1,454 31 to 60 days 11 45 61 to 90 days 13 2 Over 90 days 16 1 1,624 1,502 26. TRADE PAYABLES An aged analysis of trade payables is as follows: Group 2005 2004 HK$’000 HK$’000 Current to 30 days 137 136 31 – 60 days 5 – 61 – 90 days – – Over 90 days 14 – 156 136 27. OTHER BORROWINGS Group 2005 2004 HK$’000 HK$’000 Other loan Repayable within one year – 1,652 The other loan was unsecured, bearing interest at 2% per annum and was fully settled during the year under review. 28. LOANS FROM MINORITY SHAREHOLDERS The loans are unsecured, non-interest bearing and have no fixed repayment terms. In the opinion of the directors, the loans will not be repaid within the next twelve months. 29. DEFERRED TAX ASSETS/LIABILITIES (a) Recognised deferred tax (assets)/liabilities The movements of deferred tax (assets)/liabilities during the year are as follows: Group Accelerated depreciation 2005 2004 HK$’000 HK$’000 At 1 October – (32) Charged to the income statement – (39) Disposal of a subsidiary – 71 At 30 September – – (b) Unrecognised deferred tax assets Deferred income tax assets are recognised for tax loss carry forwards to the extent that the realisation of the related tax benefit through utilisation against future taxable profits is probable. At 30 September 2005, the Group had tax losses of approximately HK$60 million (2004: HK$46 million) that are available to carry forward indefinitely for offsetting against future taxable profits. NOTES TO THE FINANCIAL STATEMENTS 30. ISSUED CAPITAL 2005 2004 Notes Number of shares ‘000 Nominal value HK$’000 Number of shares ‘000 Nominal value HK$’000 Authorised: At 1 October Authorised shares on incorporation Increased on authorised shares (a) (b) 10,000 – 159,990,000 100 – 1,599,900 – 10,000 159,990,000 – 100 1,599,900 At 30 September 160,000,000 1,600,000 160,000,000 1,600,000 Issued and fully paid: At 1 October Shares placement Cancellation of the shares of MSHK Shares issued to shareholders of MSHK as consideration for cancellation of shares of MSHK Shares placement (c)(e) (c)(e) (d) – – – 1,587,464 317,000 – – – 15,875 3,170 1,490,264 97,200 (1,587,464) 1,587,464 – 14,903 972 (15,875) 15,875 – At 30 September 1,904,464 19,045 1,587,464 15,875 The change in the authorised and issued share capital of the Company which took place during the period from 27 May 2004 (date of incorporation) to 30 September 2005 was as follows: (a) On incorporation, the authorised share capital of the Company was HK$100,000 divided into 10,000,000 shares of HK$0.01 each, all of which were issued and allotted nil paid on 18 June 2004. (b) On 8 November 2004, the authorised share capital of the Company was increased from HK$100,000 to HK$1,600,000,000 by the creation of a further 159,990,000,000 shares of HK$0.01 each, ranking pari passu with the existing share capital of the Company. (c) On 8 November 2004, as part of the Group Reorganisation, the Company issued an aggregate of 1,577,464,233 shares of HK$0.01 each, credited as fully paid and transfer of 10,000,000 shares of HK$0.01 each, also credited as fully-paid by MSHK to the shareholders of MSHK in consideration for the cancellation of the shares of MSHK. (d) On 10 November 2004, the Company entered into a top-up subscription agreement (the “Subscription Agreement”) with its major shareholder. Pursuant to the Subscription Agreement, the major shareholder agreed to subscribe 317,000,000 new shares of the Company of HK$0.01 each at HK$1.28 per share. On 23 November 2004, the Company issued and allotted 317,000,000 new shares for a total consideration of HK$405,760,000 before expenses to the major shareholder. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 30. ISSUED CAPITAL (Continued) (e) For the purpose of preparing the financial statements of the Group as described in note 2 to the financial statements, an aggregate of 1,587,464,233 shares of HK$0.01 each issued to the shareholders of MSHK in consideration for the cancellation of the shares of MSHK pursuant to the Group Reorganisation were included in the comparative figures as if the current group structure has been in existence since that date. 31. SHARE OPTION SCHEME The Company operates a share option scheme (the “Option Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Option Scheme include the Company’s directors and other employees of the Group. The Option Scheme became effective on 8 November 2004 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. Under the Option Scheme, the directors of the Company are authorised at their absolute discretion, to invite any employee, executive or officer of any member of the Group or any entity in which the Group holds any equity interest (including the executive and non-executive directors) and any vendor, supplier, consultant, agent, adviser or customer who is eligible to participate in the Option Scheme, to take up options to subscribe for shares in the Company. The maximum number of shares which may be issued upon exercise of all options to be granted under the Option Scheme and any other share option schemes of the Company shall not in aggregate exceed 10 per cent. of the total number of shares in issue as at the date of adoption of the Option Scheme. The Company may seek approval of the shareholders in general meeting for refreshing the 10 per cent. limit under the Option Scheme save that the total number of shares which may be issued upon exercise of all options to be granted under the Option Scheme and any other share option schemes of the Company under the limit as “refreshed” shall not exceed 10 per cent. of the total number of shares in issue as at the date of approval of the limit. Options previously granted under the Option Scheme and any other share option schemes of the Company (including those outstanding, cancelled, lapsed in accordance with the other scheme(s) or exercised options) will not be counted for the purpose of calculating the limit as “refreshed”. Notwithstanding aforesaid in this paragraph, the maximum number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Option Scheme and any other share option schemes of the Company must not exceed 30 per cent. of the total number of shares in issue from time to time. The total number of shares issued and to be issued upon exercise of the options granted to each participant (including both exercised and outstanding options) in any 12-month period shall not exceed 1 per cent. of the total number of shares in issue. The exercise price in respect of any particular option shall be such price as determined by the board in its absolute discretion at the time of the making of the offer but in any case the exercise price shall not be less than the highest of (i) the official closing price of the shares as stated in the daily quotation sheets of the Stock Exchange on the offer date; (ii) the average of the official closing price of the shares as stated in the daily quotation sheets of the Stock Exchange for the five trading days immediately preceding the offer date; and (iii) the nominal value of a share. NOTES TO THE FINANCIAL STATEMENTS 31. SHARE OPTION SCHEME (Continued) The offer of a grant of share options must be accepted not later than 28 days after the date of the offer, upon payment of a considerations of HK$1 by the grantee. The exercise period of the share options granted is determined by the board of directors, save that such period shall not be more than a period of ten years from the date upon which the share options are granted or deemed to be granted and accepted. As at the balance sheet date, no share options have been granted under the Option Scheme since its adoption. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 32. RESERVES Group Attributable to equity holders of the Company Share premium HK$’000 Distributable reserve HK$’000 Capital redemption reserve HK$’000 Property revaluation reserve HK$’000 Retained profits/ (accumulated losses) HK$’000 Total HK$’000 Minority interests HK$’000 Total equity HK$’000 At 1 October 2003 – as previously reported – effect on adoption of revised SSAP 12 374,500 – – – 976 – – – (361,112) 20 14,364 20 1,118 – 15,482 20 – as restated 374,500 – 976 – (361,092) 14,384 1,118 15,502 Placing of new shares Share issuance costs Acquisition of a subsidiary Disposal of subsidiaries Transfer pursuant to the Group Reorganisation Net profit for the year 41,067 (598) – – (414,969) – – – – – 54,450 – – – – – – – – – – – – – – – – – 360,519 15,442 41,067 (598) – – – 15,442 – – (928) (2,329) – 13,882 41,067 (598) (928) (2,329) – 29,324 At 30 September 2004 – 54,450 976 – 14,869 70,295 11,743 82,038 At 1 October 2004 Placing of new shares Share issuance costs Net profit for the year Redomicile costs Surplus on revaluation – associates – 402,590 (39,670) – – – 54,450 – – – (2,117) – 976 – – – – – – – – – – 187,065 14,869 – – 12,291 – – 70,295 402,590 (39,670) 12,291 (2,117) 187,065 11,743 – – 19,492 – – 82,038 402,590 (39,670) 31,783 (2,117) 187,065 At 30 September 2005 362,920 52,333 976 187,065 27,160 630,454 31,235 661,689 Reserves retained by: Company and subsidiaries Associates – – 54,450 – 976 – – – 14,869 – 70,295 – 11,743 – 82,038 – At 30 September 2004 – 54,450 976 – 14,869 70,295 11,743 82,038 Company and subsidiaries Associates 362,920 – 52,333 – 976 – – 187,065 27,172 (12) 443,401 187,053 31,235 – 474,636 187,053 At 30 September 2005 362,920 52,333 976 187,065 27,160 630,454 31,235 661,689 NOTES TO THE FINANCIAL STATEMENTS 35. BUSINESS COMBINATIONS On 26 December 2004, the Group acquired 100% equity interest of Travel Success (Macau) Limited (“TSML”) for a total consideration of approximately HK$1,636,000. TSML incurred net loss of approximately HK$57,000 and did not contribute any revenue to the Group for the period since the date of acquisition. Details of net assets acquired and goodwill are as follows: 2005 HK$’000 – 11,670 Cost in relation to the disposals – 16 – 11,686 Gain on disposal of subsidiaries – 2,314 – 14,000 Satisfied by: Partial settlement of promissory note payable – 10,650 Cash consideration – 3,350 – 14,000 Analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiaries: Cash and bank balances disposed of with the subsidiaries – (5,480) Bank overdraft disposed of with the subsidiaries – 2,306 Cash consideration received – 3,350 Cost on disposal of subsidiaries – (16) Purchase consideration: Cash 555 Assumption of debts 1,081 Fair value of total purchase consideration 1,636 Fair value of net assets acquired 1,458 Excess of the cost of acquisition over the fair value of net assets acquired 178 The assets and liabilities arising from the acquisition are as follows: Acquiree’s Fair value carrying amount HK$’000 HK$’000 Net assets acquired: Amounts due from shareholders 1,081 1,081 Cash and bank balances 377 377 1,458 1,458 Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries – 160 The subsidiaries disposed of contributed approximately HK$130,392,000 to the Group’s turnover and approximately HK$4,983,000 to the Group’s profit for the year ended 30 September 2004. 34. DISPOSAL OF SUBSIDIARIES 2005 HK$’000 2004 HK$’000 Net assets/(liabilities) disposed of: Fixed assets – 4,085 Deferred tax assets – 71 Inventory and work in progress – 8,526 Debtors, deposits and prepayments – 11,917 Cash and bank balances – 5,480 Goodwill – 5,488 Creditors and accruals – (17,440) Bank overdraft – (2,306) Bank loan – (850) Minority interests – (2,329) Tax payable – (972) NOTES TO THE FINANCIAL STATEMENTS 37. RELATED PARTY TRANSACTIONS (a) On 7 March 2005, Joyspirit Investments Limited, a wholly-owned subsidiary, as lender (the “Lender”) entered into a loan agreement (the “Loan Agreement”) with King Seiner Palace Promotor De Jogos, Limitada (the “Borrower”), a company incorporated in Macau with limited liability and is owned as to 56% by Mr. Yeung Hoi Sing, Sonny (“Mr. Yeung”), 24% by Mr. Chan Hon Keung (“Mr. Chan”) and 20% by an independent third party, as borrower. As at 1 April 2005, Mr. Yeung, an executive director of the Company, is beneficially interested in approximately 37.94% of the issued share capital of the Company and Mr. Chan is beneficially interested in approximately 16.26% of the issued share capital of the Company. Pursuant to the Loan Agreement, the Lender provide a facility of HK$50 million to the Borrower (the “Loan Facility”) which was used as general working capital of Borrower for the purpose of running its gaming intermediaries business at King Seiner Palace in Macau. The interest payable on the loan is the higher of (i) 20% per annum; and (ii) the amount equivalent to 18% of the net profit of the Borrower before all interest payments on the loan for the latest financial year of the Borrower as shown in the audited financial statement of the Borrower. In consideration of the Lender agreeing to grant the Loan Facility to the Borrower, Mr. Yeung and Mr. Chan executed a guarantee in favour of the Lender as security for the Loan Facility whereby they jointly and severally guarantee, unconditionally and irrevocably, the due and punctual payment by the Borrower of the secured indebtedness and/or any part thereof which became due from time to time and the due and punctual performance and observance by the Borrower of all its obligations contained in the Loan Agreement. In addition, pursuant to an option deed dated 7 March 2005 entered into between the Borrower and the Lender (the “Option Deed”), the Borrower agreed to grant the option to the Lender which is exercisable at an option price calculated at price not exceeding 4 times of the profits at the time of the exercise of the option multiple by 20% at any time during 57 months from the date of the Option Deed. Upon exercise of the option, the Lender shall be entitled to 20% of the enlarged share capital of the Borrower as at the date of the completion of allotment and issue of shares under the option. In the opinion of the directors, these transactions were conducted in the normal course of business of the Group and after arm’s length negotiation between the Borrower and the Lender. Details of these major and connected transactions are set out in the Company’s circular dated 7 April 2005. During the year, the loan interest of approximately HK$1,562,000 was received/ receivable from the Borrower. (b) On 26 March 2004, Orient Prize Holdings Inc., a wholly-owned subsidiary, entered into an agreement to dispose of Fine Lord Construction Company Limited (“Fine Lord”), a wholly-owned subsidiary, at a consideration of HK$5,800,000. The purchaser, Mr. Chan Chung Chiu, is a director of Fine Lord. The transaction constituted a connected transaction. The consideration was arrived at after arm’s length negotiations between the Group and Mr. Chan Chung Chiu. The consideration was satisfied by the release of a promissory note with outstanding amount of approximately HK$5,873,000. Details of this connected transaction were set out in the Company’s circular dated 31 March 2004. NOTES TO THE FINANCIAL STATEMENTS FIVE-YEAR FINANCIAL SUMMARY A summary of the results and of the assets, liabilities and minority interests of the Group for the last five financial periods, as extracted from the audited financial statements and adjusted as appropriate, is set out below. RESULTS Period ended Year ended 30 September 30 September 2005 2004 2003 2002 2001 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Restated) (Restated) Turnover: Continuing operations 100,905 61,564 – 35,992 6,396 Discontinued operations – 130,392 116,838 266,271 435,431 100,905 191,956 116,838 302,263 441,827 Profit/(loss) before taxation 31,783 29,966 35,884 (115,715) (326,004) Taxation – (642) (167) 133 (3,548) Profit/(loss) for the year 31,783 29,324 35,717 (115,582) (329,552) Attributable to: Equity holders of the Company 12,291 15,442 35,710 (115,407) (329,251) Minority interests 19,492 13,882 7 (175) (301) 31,783 29,324 35,717 (115,582) (329,552) Earnings/(loss) per share – Basic HK0.66 cents HK0.98 cents HK9.0 cents HK(77.4) cents HK(31.7) cents – Diluted N/A N/A N/A N/A N/A FIVE-YEAR FINANCIAL SUMMARY CORPORATE GOVERNANCE REPORT The Company is committed to maintain good corporate governance standard and procedures to ensure the integrity, transparency and quality of disclosure in order to enhance the shareholders’ value. CORPORATE GOVERNANCE PRACTICE In the opinion of the Directors, the Company has complied throughout the year ended 30 September 2005 with the Code of Best Practice as set out by the Stock Exchange in Appendix 14 to the Listing Rules, which was in force prior to 1 January 2005. With effective on 1 January 2005, the Stock Exchange issued a new Code on Corporate Governance Practices (the “CG Code”) which has replaced the Code of Best Practice and was in force for the reporting financial year commencing after 1 January 2005. The Company has reviewed the CG Code and has adopted the same as its own code of corporate governance practices. The Company has also complied with most of the code provisions under the CG Code except for the deviations mentioned below:– Code Provision A4.2 stipulated that all directors appointed to fill a casual vacancy should be subject to election by shareholders at the first general meeting after their appointment and all directors should be subject to retirement by rotation at least once every three years. According to the Bye-laws of the Company (the “Bye-laws”), any director appointed by the Board to fill a casual vacancy shall hold office only until the next following annual general meeting and one-third of the Directors for the time being shall retire by rotation each year, the chairman of the Board shall not be subject to retirement by rotation or be taken into account in determining the number of Directors to retire. To align the Bye-laws with the latest amendments to the CG Code, the Company will propose to amend the Bye-laws in the forthcoming general meeting. Code Provision C.2 stipulated that the Board should review the effectiveness of the system of internal control and report in this Corporate Governance Report. The Board noted the changes and will apply them to the Company in order to ensure the strictly compliance with the CG Code. DIRECTORS’ SECURITIES TRANSACTIONS The Company has adopted a code of conduct (the “Code of Conduct”) regarding securities transactions by Directors on terms no less exacting than the required standard of the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) set out in Appendix 10 to Listing Rules during the year under review. Having made specific enquiry with all directors, each of whom has confirmed that he/she has complied with the required standard set out in the Code of Conduct and the Model Code for the year ended 30 September 2005. BOARD OF DIRECTORS Composition The Board, headed by Mr. Yeung Hoi Sing, Sonny, is responsible for supervision of the management of the business and affairs, approval of strategic plans and reviewing of financial performance. The Board is made up of seven Directors including three executive Directors, a non-executive Director and three independent non-executive Directors (the “INEDs”). The Directors are, collectively and individually, aware of their responsibilities to the shareholders. The Directors’ biographical information is set out on pages 32 to 33 under the heading “Biographical Details of Directors and Senior Management”. CORPORATE GOVERNANCE REPORT The Board members for the year ended 30 September 2005 were:– Executive Directors Mr. Yeung Hoi Sing, Sonny (Chairman) Mr. Chan William (Deputy Chairman) Mr. Lee Siu Cheung Non-executive Director Mr. Choi Kin Pui, Russelle Independent Non-executive Directors Mr. Luk Ka Yee, Patrick Mr. Yim Kai Pung Ms. Yeung Mo Sheung, Ann Role and Function The positions of the Chairman of the Board and the Chief Executive Officer (i.e. the Deputy Chairman) are held separately by two individuals to ensure their respective independence, accountability and responsibility. The Chairman is responsible for overseeing the function of the Board and formulating overall strategies and policies of the Company. The Deputy Chairman is responsible for managing the Group’s business and overall operations. The day-to-day running of the Company is delegated to the management with divisional heads responsible for different aspects of the business. To the best knowledge of the Company, there is no financial, business and family relationship among members of the Board and between the Chairman and the Deputy Chairman. All of them are free to exercise their independent judgment. Independent Non-executive Directors Pursuant to Rules 3.10(1) and 3.10(2) of the Listing Rules, the Company has appointed three INEDs, of whom Mr. Yim Kai Pung is an associate member of Hong Kong Institute of Certified Public Accountants and a fellow member of The Association of Chartered Certified Accountants of the United Kingdom. He has over 16 years of experience in auditing, taxation and provision of finance consultancy services for companies in Hong Kong and the PRC. The Company has received, from each of the INEDs, an annual confirmation of his/her independence pursuant to Rule 3.13 of the Listing Rules. The Company considers all of the INEDs are independent. All non-executive Director and INEDs have entered into service contracts with the Company for a term of one year. None of the INEDs has entered into any service contracts with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation. The Board conducts at least four regular Board meetings a year at approximately quarterly intervals in addition to other Board meetings that are required for significant and important issues, and for statutory purposes. Appropriate and sufficient information is provided to Board members in a timely manner to keep them abreast of the Group’s latest developments and thus can assist them in discharging their duties. BOARD COMMITTEES The Board has established Board Committees, namely Audit Committee and Remuneration Committee to oversee particular aspects of the Company’s affairs and to assist in the execution of the Board’s responsibilities. MACAU SUCCESS LIMITED ANNUAL REPORT 2005 AUDIT COMMITTEE Composition The Company formulated written terms of reference for the Audit Committee in accordance with the requirements of the Stock Exchange. The Audit Committee consists of the non-executive Director and all INEDs. The Audit Committee members for the year ended 30 September 2005 were:– Mr. Yim Kai Pung (Chairman) Mr. Choi Kin Pui, Russelle Mr. Luk Ka Yee, Patrick Ms. Yeung Mo Sheung, Ann Role and Function The primary duties of the Audit Committee are to ensure the objectivity and credibility of financial reporting and internal control procedures as well as to maintain an appropriate relationship with the external auditors of the Company. For the year ended 30 September 2005, the Audit Committee met twice during the year, in particular, to review and discuss (1) the auditing and financial reporting matters; (2) the appointment of external auditors; and (3) the establishment of internal control system with external auditors. The Audit Committee has also reviewed the interim results and the audited financial statements. Each member of the Audit Committee has unrestricted access to the Auditors and all senior staff of the Group. REMUNERATION COMMITTEE Composition The Company formulated written terms of reference for the Remuneration Committee in accordance with the requirements of the Stock Exchange. The Remuneration Committee consists of the Deputy Chairman, the non-executive Director and all INEDs with Mr. Chan William, acts as the Chairman of the Remuneration Committee. The Remuneration Committee members for the year ended 30 September 2005 were:– Mr. Chan William (Chairman) Mr. Choi Kin Pui, Russelle Mr. Luk Ka Yee, Patrick Mr. Yim Kai Pung Ms. Yeung Mo Sheung, Ann Role and Function The Remuneration Committee is responsible for ensuring formal and transparent procedures for developing remuneration policies and overseeing the remuneration packages of the executive Directors and senior management. It takes into consideration on factors such as salaries paid by comparable companies, time commitment and responsibilities of Directors and senior management. The Remuneration Committee meets at least once a year. The first Remuneration Committee meeting was held on 10 January 2006. CORPORATE GOVERNANCE REPORT