Annual Report 2003/04 Next Media Limited Annual Report

and straightforward

OPENNext Media Limited Annual Report 2003/04 Company Profile Next Media Limited (the “Company” or “Next Media”, together with its subsidiaries, the “Group”) is Hong Kong’s largest and most influential Chinese language print media conglomerate. Since the launch of Next Magazine in 1990, the Company has built up an enviable bond of trust with its readers as a result of its unwavering commitment to removing all fiction and artificiality from its editorial content. With one hugely popular daily newspaper and four widely read weekly magazines and its burgeoning Internet business, Next Media remains a Hong Kong market leader in terms of readership, circulation and sustainable advertising revenue. Always conscious of its pledge to add value for its shareholders, the Company will not rest on these impressive laurels. Building upon its achievements in Hong Kong, Next Media began to expand its operations into the lucrative Taiwan market in 2001. To ensure its long term success, the Company has allocated much resources into the construction of production facilities and the setting up of expert operation teams. The Group strongly believes that its titles cater to the needs and preferences of its Taiwanese readers, in terms of both information and entertainment value. The fruits of this groundwork was harvested when Taiwan Next Magazine broke even on schedule in mid-2003. Taking its successful Hong Kong sister publication as an example, and carefully tailoring its content to match the local mass market readership profile, the title is now a major force in the Taiwan weekly magazine market. Last year’s launch of Taiwan Apple Daily further underlined the Group’s confidence in, and commitment to, serving its growing readership in Taiwan. While Taiwan Apple Daily will not be immune from the inevitable obstacles and challenges that all successful publications have to face during their early stages, encouraging progress indicates that the paper has a very bright future indeed. For the six months ended December 2003, Taiwan Apple Daily had achieved an average daily circulation of about 406,599 copies. These are, by any standards, impressive achievements for a fledgling paper in the first eleven months of its life. Contents

Business Highlights Corporate Governance Auditors’ Report 01 33 57

Financial Highlights Frequently Asked Questions Consolidated Profit and 02 38 58 Loss Account

Share Information Directors and Senior Balance Sheets 04 39 Management 59

Letter to Shareholders Corporate Structure Consolidated Statement of 05 42 60 Changes in Equity

Management Discussion Corporate Information Consolidated Cash Flow 07 and Analysis 43 61 Statement Operational Review Notes to the Accounts Financial Review 62 Financial Reports

Commitments Directors’ Report Five Years Financial Summary 29 45 110 Business Highlights Financial Highlights Share Information

a hard look at the highlights 01

Business Highlights

Taiwan Next Magazine Achieved Break Even

With advertising revenue for the year ended 31 March 2004 showing a year-on- year increase of 84.6%, Taiwan Next Magazine broke even on schedule in May 2003. As a result, the title has contributed an encouraging segment profit of some HK$9.5 million for the year. With readership and advertising revenue growing steadily, year 2005 should see the publication continue to consolidate its position as the most widely read of all weekly magazines in Taiwan.

Taiwan Apple Daily : A Top Title In Taiwan

Since its launch on 2 May 2003, Taiwan Apple Daily has built up an average daily circulation of about 406,599 copies for the six months ended December 2003. The encouraging response Taiwan Apple Daily has received from readers during its first year has paved the way for increased advertising revenue and improved results for the coming year.

Ad Sales Experienced Strong Post-SARS Recovery

Despite a decline in advertising sales of around 20.1% monthly at the height of the Severe Acute Respiratory Syndrome (“SARS”) crisis in April and May 2003, Apple Daily recovered strongly after SARS subsided. The total turnover for the year of Apple Daily was just slightly lower than the previous year. Other magazines in Hong Kong published by the Group were not materially affected.

HK Weeklies Demonstrated Encouraging Circulation Increases

Easy Finder and Sudden Weekly and Eat & Travel Weekly bundle (the “Bundle”) recorded impressive 27.4% and 3.9% increases in circulation figures following their respective revamps. Figures for Easy Finder jumped from 89,219 during the six months ended December 2002 to 113,624 during the six months ended December 2003, while circulation for the Bundle grew from 189,216 to 196,539 during the same period. 02

Financial Highlights

Turnover EBITDA

HK$'000 HK$'000

2,500,000 2,437,109 800,000 2,150,072

2,000,000 635,626 600,000

1,500,000 400,000 1,120,876 1,000,000 220,999

200,000 167,742 500,000

0 0 02 03 04 02 03 04

Profit / (Loss) for the year Basic Earnings / (Loss) per share

HK$'000 HK$ Cents

400,000 40 341,546

300,000 30 28

200,000 20

100,000 10 3 26,549 -6 0 -89,920 0

-100,000 -10 02 03 04 02 03 04

Comparative figures for the years ended 31 March 2002 and 2003 have been restated. 03

Financial Highlights

Current Ratio Quick Ratio

% %

400 350 320.3 343.0 350 300

300 250 250 200 203.3 176.7 172.2 200 190.5 150 150 100 100

50 50

0 0 02 03 04 02 03 04

Gearing Ratio Debt To Equity Ratio Working Capital Turnover

% %

30 30 8

6

20 20 5.1

4 3.8 3.3

10 10 8.9 8.2 8.2 6.7 6.5

6.2 2

0 0 0 02 03 04 02 03 04 02 03 04 04

Share Information as at 31 March 2004

Shareholders for Ordinary Shares

– Mr. Jimmy Lai 66.18%

– Directors other than Mr. Jimmy Lai 1.15%

– Others 32.67%

Authorised Share Capital HK$4,600,000,000.00

– Ordinary Shares 2,570,000,000 Shares at HK$1.00 each

– 2% Convertible Non-voting Non-cumulative Preference Shares (non-listed) 1,160,000,000 Shares at HK$1.75 each

Issued Share Capital HK$3,088,634,576.00

– Ordinary Shares 1,478,634,576 Shares at HK$1.00 each

– 2% Convertible Non-voting Non-cumulative Preference Shares (non-listed) 920,000,000 Shares at HK$1.75 each

Share Options for Ordinary Shares granted and unexpired

– at exercise price of HK$1.67 each 17,716,800 Option Shares

– at exercise price of HK$1.00 each 81,505 Option Shares

Market Capitalization

– at HK$3.40 per ordinary share

(closing price on 31 March 2004) HK$5.03 billion

Stock Code

– The Stock Exchange of Hong Kong Limited

Main Board 282

Board Lot 2,000 Shares Letter to Shareholders

clearly taking a leadership position 05

Letter to Shareholders

I am 55 this year and in my 43 years in business, I would say that 2003 was probably both the saddest and happiest year in my working life. It was sad because the Hong Kong economy was dealt a fierce blow by the unprecedented SARS epidemic; happy because Next Media staged a most impressive performance in Taiwan during the year.

In Hong Kong, our advertising revenue was drastically reduced as a result of SARS. This was, however, a short-term adversity. We recovered almost instantly once SARS disappeared. Afterall, the cornerstone that we have painstakingly built would not be easily destroyed. We upheld our reporting style in the versatile environment and stood firm in the market, thanks to our fierce commitment to seeking the truth.

To any enterprise, customers are most important. The success of a company depends on whether it can produce popular products targeting customers’ needs. To Next Media, newspapers and magazines are our products, and readers are our customers. Only if we continuously strengthen our products, by providing readers with the information they want, can we satisfy their needs. Only when we have readers’ support can we win the trust from advertising clients. This is simple reasoning.

Nine years ago when I founded Apple Daily, I kept thinking to myself: What kind of newspaper do readers really want? During the second year of operations, Apply Daily made its first profitable month since inception. What does this demonstrate? That Apple Daily’s colourful page layout, vivid pictures, and its bold and robust reporting style are exactly what Hong Kong readers want. The emergence of Apple Daily has downright transformed the Hong Kong media culture and without doubt, established new standards for the Hong Kong media.

Taiwan Apple Daily made its debut in May last year. Patterned on Hong Kong’s Apple Daily, the Taiwan version is mainly stocked with local news and information. In less than a year, its daily circulation shot through 400,000 and was the champion in the whole of Taiwan in terms of newsstand circulation. What does this demonstrate? That despite discrepancies in language and culture between Hong Kong and Taiwan, our readers have similar demands in news reporting. I am confident that Taiwan Apple Daily will continue the legacy of Apple Daily and generate profits for the Group and our shareholders in the future.

Looking at the year ahead, we shall continue to uphold our dedication to cost control in both Hong Kong and Taiwan. However, we shall not in any way sacrifice our content for the sake of cost-cutting. A rich content is our trademark and a competitive edge we swear to protect. Our business in Hong Kong has benefited from our economy of scale and enormous distribution network. As the economy recovers, our profit outlook will be even more promising.

In the year to come, the Taiwan arm of Next Media will enter a period of consolidation. With an invigorating start, the advertising revenue of Taiwan Apple Daily will surely increase. Staying close to the market, daring to be innovative, and offering value to customers are constants in the formula of success. We shall continue to expand our island-wide subscription network so as to broaden our market share and to further develop the support from our advertising clients with a steady circulation volume and wide readership. 06

FinancialLetter to Shareholders Highlights

Next Media owes its success in both Hong Kong and Taiwan to the effort of our diligent staff. I strongly believe publishing is a people business, and people are Next Media’s most valuable asset. Without our quality staff, the Sudden Weekly and Eat & Travel Weekly bundle would not be able to maintain excellent performance amidst last year’s difficulty. Without them, Taiwan Next Magazine would not be able to occupy the seat of the most popular Taiwan weekly and bring profits to the Group in a span of less than three years. Without them, Taiwan Apple Daily would not be one of the most popular newspapers in the whole of Taiwan. During last year’s SARS outbreak in Taiwan, Taiwan Next Magazine’s reporters risked their lives reporting from within a quarantined hospital to seek the truth that would have otherwise been unknown. I salute our staff for their dedication and professionalism.

Openness and freedom have become worldwide standards in the 21st century. The media are not tools of the ruling powers but are the people’s servant. Next Media reports governmental malpractice solely because of our responsibility to our readers. We take exposing the truth and disseminating news that is closely related to our readers as our mission. Next Media is one of the few printing media groups that achieve success in two different geographical markets. The confidence I have with the Group should not be perceived as over-optimism — it is based on our brilliant track record.

I owe my most sincere thanks to our readers, advertising clients, and business partners, who have been standing by us throughout the years. I also owe my deepest gratitude to our staff, who have lived the spirit of Next Media to the fullest. I always say, there is no free lunch, and the courage to take on responsibility is the price to pay. I pledge to my fellow shareholders that the management and I will fight to maximize your returns and to be worthy of your continued trust.

Jimmy Lai

Chairman Management Discussion and Analysis

Operational Review Financial Review

knowledge is its own reward 07

Management Discussion and Analysis OPERATIONAL REVIEW

2003 will be remembered by everyone in Asia as the year that the SARS cast its ugly shadow across the region. The early stirrings of the SARS pandemic caused people to rethink almost every aspect of the way they lived their daily lives. Due to the quavering of the overall market sentiment and the limited knowledge of such pandemic, even tasks as routine as buying a morning paper or meeting friends for dinner were regarded as risks that many were unwilling to take. For Next Media and its employees and shareholders, the outbreak of SARS in March 2003 also affected the business to a certain extent, especially when millions of dollars were invested into facilities and manpower to ensure the successful launch of Taiwan Apple Daily. Fortunately, statistics proved that readers in Taiwan were highly receptive to the newspaper, just like the Hong Kong market when Apple Daily was launched nine years ago. Now that the SARS panic and pandemic have receded, with consumer confidence and market recovery back on it leap, it is time once again to take stock of achievements made and lessons learned during the year gone by.

Overview of Major Markets

Hong Kong

The Hong Kong newspaper and magazine market remains fiercely competitive. As of 31 March 2004, there were a total of 51 locally published newspapers and 866 locally published periodicals registered with the Television and Entertainment Licensing Authority.

The SARS crisis led to a dramatic decline in advertising spending across all industries and corporations in Asia. The end result was a serious fall off of advertising revenue that affected almost all publications, including the Group’s papers and magazines.

The 2003 ACNielsen Hong Kong Media Index Year-end Report (“ACNielsen 2003 Report”) shows that the top two newspapers continue to dominate the daily newspaper market. The two papers’ combined readership of around 3,563,000 translates into a market share of 57%.

The ACNielsen 2003 Report also indicates that the weekly magazine market remains every bit as competitive as its newspaper equivalent. The top three publications in this market, the Sudden Weekly and Eat & Travel Weekly bundle, Next Magazine and Easy Finder are all popular titles published by the Next Media publishing empire. 08

FinancialManagement HighlightsDiscussion and Analysis

OPERATIONAL REVIEW (continued)

With a combined readership of around 1,434,000, the three titles accounted for around 23% of the weekly magazine market during 2003, representing a 13.4% increase from the readership figure of approximately 1,264,000 in 2002.

, , Top Ten Newspapers Top Ten Chinese Weekly Magazines Readership in Hong Kong# Readership in Hong Kong# for the period from January 2003 - December 2003 for the period from January 2003 - December 2003 '000 '000

2,500 700 604 2,119 600

2,000 518 500 1,444 1,500 400 312 1,000 300 212 200 199 452 128 125 123 401 114 500 112 242

177 100 166 94 91 66 0 0 Yes Milk The Sun Sing Pao Ming Pao East Touch Easy Finder TVB Weekly New Monday Sing Tao Daily Sing Tao Express Weekly # Next Magazine

Source: 2003 ACNielsen Hong Kong Sudden Weekly/ Ming Pao Weekly Apple Daily News Oriental Daily News Media Index Year-end Report Weekly Eat & Travel Hong Kong Daily News Hong Kong Economic Times South China Morning Post Hong Kong Economic Journal

Taiwan

With a population of approximately 22 million, the Taiwan market is around three times the size of that in Hong Kong. According to information from ACNielsen (Taiwan) Ltd. (“ACNielsen Taiwan”), the country’s four leading daily papers enjoyed a combined readership of around 8,659,000 for the period of July to December 2003, or approximately 53.7% of the Taiwanese newspaper market. Despite facing keen competition in a crowded market, Taiwan Apple Daily has made an impressive debut. Since its launch in May 2003, the paper achieved an average circulation of approximately 406,599 copies for the six months ended December 2003.

According to ACNielsen Taiwan, Taiwan Next Magazine continues to maintain its status as the region’s most widely read weekly magazine among all readers aged 12 to 60. With an average readership of around 1,610,000 during the last six months of 2003, Taiwan Next Magazine enjoyed a 2.4% increase in readership as compared to the average readership of approximately 1,572,000 in the 09

corresponding period of the previous year. As a result, Taiwan Next Magazine is in the lead by approximately 730,000 and 1,121,000 readers from its two closest competitors in the Taiwan magazine market.

, , Top Five Newspapers Top Five Weekly Magazines Readership in Taiwan* Readership in Taiwan* for the period from July 2003 - December 2003 for the period from July 2003 - December 2003 '000 '000

3,500 2,000 3,068

3,000 1,610 2,500 1,500 2,144

2,000 1,834 1,613

1,000 880 1,500 489 1,000 481 500 337 500 410

0 0 TVBS Wkly Apple Daily China Times Scoop Wkly Business Wkly Next Magazine * Source: ACNielsen (Taiwan) Ltd. Min Sheng Daily The Liberty Times China Times Wkly China Times United Daily News

Business Performance

The Group’s total turnover reached approximately HK$2,437.1 million during the year under review, which is the second full year since Next Media’s acquisition of Database Gateway Limited and its subsidiaries in October 2001. This figure represents an increase of approximately 13.3% over the approximate HK$2,150.1 million in turnover recorded during the year ended 31 March 2003. As noted in the Financial Review section of this document, a large portion of this increase was generated by the May 2003 launch of Taiwan Apple Daily.

Apple Daily remains many of our readers’ favorite way to start the day. 10

FinancialManagement HighlightsDiscussion and Analysis

OPERATIONAL REVIEW (continued)

Readership Profile of Newspapers Publication and Printing Division Apple Daily# Sex Generating turnover of around HK$1,531.1 million, the Newspapers Publication and Printing Division continued to be the highest revenue generating division of the Group’s operations. The figures for the year ended 31 March 2004 represent a Male 49% 16.9% increase over the approximate HK$1,309.4 million turnover for the previous financial year. 51%

Apple Daily Female During the year under review, Apple Daily continued to consolidate its position as Hong Kong’s second most popular daily newspaper. This is a considerable achievement in a market as plagued with uncertainty as Hong Kong was during Age the SARS crisis. The newspaper remains a major contributor to the Group’s results Below 15 due to its mass middle market appeal. contributed to a turnover of 16% 5% Apple Daily 15 - 24 15% approximately HK$1,207.8 million, which represents a slight decline of 5.5% as

25 - 34 compared with the turnover of approximately HK$1,278.0 million figure for the 19% previous year. A reason for the decline in turnover is directly attributable to the 35 - 44 21% loss of advertising revenue the paper suffered when the SARS epidemic was at its 45 - 54 height in April and May of 2003. 24% 55+ ACNielsen 2003 Report shows that Apple Daily maintained an average readership of around 1,444,000 in 2003. This figure translates into an encouraging 2.5% Education increase from the approximate 1,409,000 figure achieved in 2002. The Hong Primary Kong Audit Bureau of Circulation (“HKABC”) figures for the six months ended or below 18% 23% December 2003 indicate that Apple Daily had an average circulation of 339,989 Form 1 - copies, a slight 1.1% decrease over the 343,660 figure for the corresponding Form 3 period in the previous year. 19% Form 4 - Form 5 Whilst obviously hampered by the SARS epidemic, Apple Daily’s figures for the

Post secondary/ 40% year ended 31 March 2004 underlined the newspaper’s pre-eminence in the University or above Hong Kong market. It is again evident that Apple Daily remains the first choice newspaper for a broad range of readers with higher education and above average Monthly Household Income (HK$) monthly household income levels, as well as its proven appeal for advertisers 3% Below marketing best-selling branded products and services. $15,000 5% $15,000 - 19,999 15% 31% Taiwan Apple Daily $20,000 - 29,999 Taiwan Apple Daily has been very well received by the Taiwanese market following $30,000 - 39,999 its launch on 2 May 2003. Despite the doubling of its special NT$5 introductory $40,000 - 25% 49,999 21% # Source: 2003 ACNielsen Hong Kong Media Index Year-end Report $50,000+ 11

Readership Profile of Taiwan Apple Daily# Sex

Male State-of-the-art production and printing facilities at Tseung Kwan O. 44.2% 55.8% cover price on 1 June 2003, the newspaper has continued to increase its Female popularity with readers from all walks of life. Total revenue generated by Taiwan Apple Daily for the year ended 31 March 2004 was approximately HK$287.6 million. Age 1.6% According to figures published by The Audit Bureau of Circulations, ROC 4.8% Below 15 (the “ROCABC”), Taiwan Apple Daily recorded a total circulation of 74,814,208 10.6% 15 - 24 copies during the period from 1 July to 31 December 2003, representing an average daily circulation of approximately 406,599 copies. 25 - 34 30.6% 26.5% 35 - 44 The Group believes that Taiwan Apple Daily has much room for future growth. This is especially true of the paper’s income from run-of-page advertising. The 45 - 55 paper’s 77:23 average editorial to advertising page ratio in March 2004 25.9% 56 - 60 represented a major increase over the corresponding 89:11 ratio achieved during the first five months of publication. The Group is confident that it can further Education increase Taiwan Apple Daily’s number of advertising pages and further increase 1.0% 4.3% Primary advertising revenue as a result. or below

High 19.3% Taiwan Apple Daily’s current list of advertising customers spans a wide range of School 34.3% industries that include property developers, banks, department stores, Senior High School entertainment businesses and automotive dealerships. Such a broad spectrum of College/ advertisers offers the Group enormous potential to further diversify and enhance University its customer base. Master/ 41.1% Doctor Apple Daily Printing Limited

Monthly Household Income (NT$) Apple Daily Printing Limited continues to provide the invaluable support services Below 1.1% for Apple Daily’s continued smooth and efficient day-to-day operation, as well as $40,000 2.1% 9.0% 13.8% $40,000 - printing services for a variety of external customers. During the year ended 31 79,999 March 2004, the revenue derived from these external printing services was $80,000 - 119,999 21.0% approximately HK$35.7 million, an increase of approximately HK$4.4 million or $120,000 - 149,999 14.1% from the figure generated during the year ended 31 March 2003.

$150,000+ 53.0% Refuse to # Source: ACNielsen (Taiwan) Ltd. answer/ don't know 12

FinancialManagement HighlightsDiscussion and Analysis

OPERATIONAL REVIEW (continued)

Readership Profile of Books and Magazines Publication Division Next Magazine# Next Media’s Books and Magazines Publication Division experienced an Sex encouraging increase of around 9.8% in turnover from approximately HK$715.6 million in the year ended 31 March 2003 to approximately HK$786.0 million Male during the year under review. This growth was largely attributable to the increase 47% in revenue generated by Taiwan Next Magazine, Sudden Weekly, and Eat & Travel 53% Weekly.

Female Next Magazine

ACNielsen 2003 Report shows that Next Magazine maintained its No. 2 position in the Hong Kong weekly magazine market with an average readership of Age approximately 518,000 during 2003. This figure represents a 13.3% increase over 3% Below 15 the approximate 457,000 average readership figure achieved in 2002. HKABC 13% 13% figures demonstrate that Next Magazine had an average weekly circulation of 15 - 24 approximately 147,237 copies during the six months ended December 2003, or a 25 - 34 17% decline of 4.1% over the around 153,459 figure for the corresponding period in 35 - 44 29% the previous year.

45 - 54 More importantly is the fact that Next Magazine continues to offer advertisers a 25% 55+ higher percentage of readers of both genders with post-secondary/tertiary education levels than any other weekly magazine. This fact alone ensures that the Education publication remains a “must-buy” for Hong Kong media professionals wishing to

Primary reach affluent, young executives and professionals. Given its strong profile and or below 12% 29% proven appeal for both readers and advertisers, Next Magazine suffered a lesser

Form 1 - blow than many of its competitors during the SARS crisis. As a result, the Form 3 18% publication generated approximately HK$288.3 million in revenue during the year Form 4 - ended 31 March 2004, which represented a mere 3.3% decrease over the Form 5 approximate HK$298.0 million figure for the previous year. Post secondary/ University 41% or above

Monthly Household Income (HK$)

Below $15,000 27% $15,000 - 25% 19,999

$20,000 - 24,999

$25,000 - 12% 17% 29,999

$30,000+ 19% # Source: 2003 ACNielsen Hong Kong Media Index Year-end Report 13

Readership Profile of Sudden Weekly and Eat & Travel Weekly# Sex

Male 28%

72%

Female

Age

Below 15 7% 5% 15 - 24 14% 17%

25 - 34

35 - 44 Next Media has assembled one of the most dedicated teams in the publishing industry. 29% 45 - 54 28% Sudden Weekly and Eat & Travel Weekly 55+ With an average readership of around 604,000 in 2003, the Bundle achieved a Education healthy growth of around 20.8% over its approximately 500,000 readership figure

Primary in 2002. The Bundle has now firmly established its position as the most widely or below 12% 22% read of all weekly magazines in Hong Kong. Audited circulation figures for the six

Form 1 - months ended December 2003 reached 196,539 for the Bundle, demonstrating Form 3 24% an encouraging improvement from around 189,216 during the corresponding Form 4 - period in 2002. Form 5 Approximately 72.0% of the Bundle’s readership are females, while around 74.0% Post secondary/ 42% University or above of all readers fall in the 15 to 44 age bracket. Such a proven breadth and depth of appeal further reinforces the success and effectiveness of the Bundle’s uniquely Monthly Household Income (HK$) up-to-the-minute image and clearly focused positioning and marketing.

Below $15,000 For the year ended 31 March 2004, revenue from the Bundle had grown to 20% $15,000 - 28% approximately HK$212.0 million, a 14.2% increase over the HK$185.7 million 19,999 recorded during the year ended 31 March 2003. Both Sudden Weekly’s and Eat & $20,000 - 24,999 10% Travel Weekly’s market position has been reinforced with the bundling effect and

$25,000 - made it the perfect choice for advertisers of various products in its respective 29,999 19% 23% market segment. $30,000+ # Source: 2003 ACNielsen Hong Kong Media Index Year-end Report 14

FinancialManagement HighlightsDiscussion and Analysis

OPERATIONAL REVIEW (continued)

Readership Profile of Easy Finder Easy Finder# Another Next Media publication, Easy Finder is ranked third in the Hong Kong

Sex weekly magazine market with an average readership of approximately 312,000 in 2003. This figure represents a slight 1.6% increase over last year’s average readership figure of approximately 307,000. As a result of its emphasis on fashion Male and trends, Easy Finder remains a hugely popular publication with younger, more 60% brand-conscious readers as evidenced by the fact that approximately 72.0% of 40% whom are in the 15 to 34 year old age bracket. As the perfect choice with advertisers in search of a young market, Easy Finder also remains a firm fixture on Female the space buying schedules of up-to-the minute brands. Coupled with the effect

Age Education Monthly Household Income (HK$) 2% 3% Below 15 Primary Below 5% $15,000 9% or below 19% 15 - 24 27% 15% $15,000 - 26% 14% Form 1 - 19,999 25 - 34 37% Form 3 $20,000 - 24,999 15% 35 - 44 Form 4 - Form 5 $25,000 - 45 - 54 29,999 18% 35% Post secondary/ 22% University 53% $30,000+ 55+ or above

# Source: 2003 ACNielsen Hong Kong Media Index Year-end Report 15

Readership Profile of Taiwan Next Magazine#

Sex Education Monthly Household Income (NT$) 2.1% 3.7% Primary Below or below $40,000 2.1% 11.4% 9.3% 13.1% 1.8% Male $40,000 - High 79,999 45.3% School 35.7% $80,000 - Senior 119,999 54.7% High School $120,000 - 149,999 43.5% College/ 31.9% Female University 45.4% $150,000+ Master/ Refuse to Doctor answer/ don't know

Age 0.7% 3.6% Below 15 7.0% of an additional young line section of Eat & Travel Weekly, the publication’s 15 - 24 revenue from circulation and advertising rose to approximately HK$107.5 million 20.1% 29.6% for the year ended 31 March 2004, a 7.6% increase over the approximate 25 - 34 HK$99.9 million recorded during the previous financial year. 35 - 44

45 - 55 Taiwan Next Magazine 39.0% 56 - 60 Upon first hitting the Taiwanese newsstands in May 2001, Taiwan Next Magazine quickly established an unrivalled reputation for its bold, truthful and # Source: ACNielsen (Taiwan) Ltd. uncompromising journalism. The intervening years have seen even larger numbers of both readers and advertisers adopt the publication as their weekly magazine of choice.

The year ended 31 March 2004 saw Taiwan Next Magazine continue to maintain its dominant position as the most widely read of all weekly magazines in Taiwan. Statistics from ACNielsen Taiwan indicate that the title achieved an average readership of approximately 1,610,000 during the six months ended 31 December 2003, representing an increase of 2.4% when measured against the figure of approximately 1,572,000 for the corresponding period in 2002. As audited by the ROCABC, Taiwan Next Magazine’s circulation for the six months to December 2003 was 3,524,055 copies. This figure represents a weekly circulation of around 135,541, or a slight decrease of 5.1% when compared against the corresponding figure of the equivalent period in 2002.

Next Media’s journalists and photographers leave no stone unturned in their search for the truth. 16

FinancialManagement HighlightsDiscussion and Analysis

OPERATIONAL REVIEW (continued)

Taiwan Next Magazine’s increase in advertising pages also brought forth a steady growth in the publication’s advertising revenue. Total advertising income for Taiwan Next Magazine during the year ended 31 March 2004 increased by 84.6% from the previous year. Such growth ensured that the publication was able to achieve its targeted break even in May 2003 and report a segment profit of approximately HK$9.5 million for the year ended 31 March 2004 as a whole.

The board of directors of the Company (the “Directors” or the “Board”) remains confident that Taiwan Next Magazine’s enduring appeal for readers will ensure the publication continues to be an essential media buy for advertisers.

Books and Magazines Printing Division

Next Media’s Books and Magazines Printing Division continued to play a vital role in complementing the Group’s publishing business during the year ended 31 March 2004. Before the elimination of intra-group segment transactions worth of approximately HK$156.7 million, turnover for the Books and Magazines Printing Division for the year ended 31 March 2004 totalled approximately HK$256.0 million. This figure represents an increase of around 5.7% on the approximate HK$242.1 million pre-elimination figure for the year ended 31 March 2003.

The Books and Magazines Printing Division continues to provide services to external customers from Hong Kong, Taiwan, North America, Europe and Australasia. During the year ended 31 March 2004, these customers contributed to a revenue of approximately HK$99.3 million, or a decrease of 10.3% on the approximate HK$110.7 million recorded for the previous financial year. Commercial printing continues to play Commercial printing is another area in which the Group is confident of receiving a a vital role in steady income stream. Next Media’s operations.

Internet Division

During the year under review, revenues from the Internet Division grew from approximately HK$14.4 million to approximately HK$20.9 million, representing a year-on-year increase of 45.1%. Segment profits for the year ended 31 March 2004 for this Division experienced a dramatic surge and increased from around HK$3.6 million in the year ended 31 March 2003 to approximately HK$9.5 million. 17

Revenues for the Internet Division are mainly derived from content licensing and subscription fees and advertising revenue. The Division’s impressive revenue growth during the year under review was largely attributable to an increase in advertising revenue and the growth of its overseas subscriber base.

Although it adversely affected the Group’s newspaper and magazine publications, the SARS crisis of 2003 had a positive effect on Internet usage. Reluctant to venture outdoors, an increasingly large number of Hong Kong residents relied on the Internet to obtain news, medical information and carry out banking transactions. Eager to find out what was happening “back home”, Hong Kong emigrants also logged onto the Internet in large numbers. At the peak of the SARS crisis, the Internet Division’s pageviews were receiving over 10 million hits daily. Advertisers were quick to exploit this change in people’s reading patterns and started to re-allocate certain portions of their marketing budgets to the Internet.

The Group remains optimistic that Internet advertising revenue will continue to grow as more and more advertisers consider adding the Internet to their Through the years, Next Media marketing initiatives. As a result, the Division will continue to seek opportunities to has invested heavily in new increase its revenue streams, while maintaining tight controls on costs. technologies in order to sharpen its competitive edge. 18

FinancialManagement HighlightsDiscussion and Analysis

OutstandingOPERATIONAL photographs REVIEW from Next (continued) Media publications in 2003/04

08.04.03

08.05.03

08.08.03 10.07.03

21.07.03

09.07.03

17.07.03

08.04.03 Family, friends and fans of Cantonese legend Leslie Cheung gather to pay 08.08.03 The August visit of Real Madrid provided Hong Kong with a much needed their last respects following the singer’s suicide. post-SARS treat. 08.05.03 2003 was the year that facemasks became Hong Kong and Taiwan’s most 21.07.03 Conservationists battle frantically to free a sperm whale which became unwelcome fashion accessory. beached at Tai Wan Beach, Sai Kung. 09.07.03 An estimated 50,000 protestors surround the Legco Building at night to 17.07.03 Former Hong Kong Government Financial Secretary, Anthony Leung faces protest against the Article 23 legislation. the press following his purchase of a Lexus car just weeks before 10.07.03 Rescue teams retrieve a bus which crashed through railing along the busy announcing a rise in luxury vehicle taxes in his 2003 budget. Tuen Mun highway, killing 21 and injuring 20 passengers. 19

04.10.03 13.11.03 29.01.04 20.03.04

30.10.03 01.07.03

27.03.04

03.11.03

04.10.03 Environmentalists unfurl a banner protesting the Hong Kong Government's 30.10.03 American Chamber of Commerce Chairman, Jim Thompson under fire plans to reclaim Victoria Harbour. amidst the events leading up to Hong Kong's controversial Harbour Fest. 13.11.03 Icon Anita Mui enchants her fans in a final concert series before cervical 01.07.03 July 2003 saw an estimated 500,000 Article 23 protestors take to the cancer claims her life. streets, making it Hong Kong’s biggest demonstration since the Handover. 29.01.04 No sooner had the spectre of SARS receded than Asia was shaken by the 03.11.03 The stray Yuen Long crocodile, shown basking in the sun, became an instant threat of avian flu. media celebrity while thwarting repeated capture attempts. 20.03.04 March 2004 saw Taiwan hold one of the most turbulent and controversial 27.03.04 Schoolchildren protest the Hong Kong Government's decision to close their elections in its history. schools because of falling attendance levels and budget difficulties. 20

FinancialManagement HighlightsDiscussion and Analysis

FINANCIAL REVIEW

Consolidated Financial Results

Turnover

During the year under review, total turnover for the Group grew from around HK$2,150.1 million to approximately HK$2,437.1 million. This figure represents a 13.3% increase over the year ended 31 March 2003. The improved turnover was largely due to the launch of Taiwan Apple Daily, which contributed approximately HK$287.6 million or 11.8% of the year ended 31 March 2004 total.

Broken down by principal markets, Hong Kong continued to be the largest revenue earner, contributing around HK$1,896.9 million worth of turnover. Much of the 1.7% decrease over the approximate HK$1,929.5 million corresponding figure for the year ended 31 March 2003 is directly attributed to losses in advertising revenue caused by the SARS epidemic during its April and May 2003 peak.

Taiwan remained the Group’s second largest source of revenue with a turnover of around HK$465.5 million representing a year on year increase of 257.5% over the approximate HK$130.2 million figure for the year ended 31 March 2003. This market also continued to maintain its encouraging upward trend; an increase of 84.6% in advertising revenue from Taiwan Next Magazine further enhancing the Group’s turnover during the year.

Viewed in terms of principal activities, newspapers publishing and printing Turnover continued to be Next Media’s largest source of revenue. During the year ended 2.0% 0.9% 0.2% North 31 March 2004, the Group’s Newspapers Publication and Printing Division America 19.1% contributed approximately HK$1,531.1 million or 62.8% of the total turnover. Europe These figures represent an approximate HK$221.7 million or 16.9% increase over the approximate HK$1,309.4 million, representing 60.9% of the total turnover in Hong Kong the year ended 31 March 2003.

Taiwan 77.8% Approximately HK$786.0 million or 32.3% worth of turnover was added by the Australasia Group’s Books and Magazines Publication Division. The Books and Magazines Printing Division generated around HK$99.3 million or approximately 4.1% of the Group’s total turnover after elimination of intra-group segment transactions. The Internet Division generated around HK$20.9 million or approximately 0.8% of the Group’s total turnover for the year ended 31 March 2004. The Books and Magazines Publication Division and the Internet Division showed respective increases of 9.8% and 45.1% over the corresponding figures of approximately HK$715.6 million and HK$14.4 million achieved during 2003. 21

Dividend

The Board does not recommend the payment of any dividend for the year ended 31 March 2004.

EBITDA and Net Profit

During the year ended 31 March 2004, Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) reached approximately HK$221.0 million, a decrease of 65.2% over the approximate HK$635.6 million recorded during the previous year.

The year ended 31 March 2004 saw the Group as a whole return a segment loss of just HK$35.0 million from HK$418.9 million segment profit (as restated) recorded in the year ended 31 March 2003. The segment loss for the Group’s Newspapers Publication and Printing Division was around HK$192.6 million, from HK$361.9 million profit (as restated) achieved for the year ended 31 March 2003. The deterioration in performance was primarily due to the segment loss of approximately HK$573.8 million sustained by Taiwan Apple Daily.

The year ended 31 March 2004 saw the Group’s Books and Magazines Publication Division generate a segment profit of approximately HK$103.9 million, an encouraging 304.3% increase over the approximate HK$25.7 million segment profit (as restated) recorded during the previous financial year. This increase is mainly due to the turnaround of Taiwan Next Magazine from a loss to a profit representing approximately HK$57.5 million increase in segment profit. The Group’s Books and Magazines Printing Division generated a segment profit of around HK$44.2 million during the same period. This figure represents an increase of 60.1% when measured against the Division’s approximate HK$27.6 million segment profit for the year ended 31 March 2003. The Internet Division was also profitable, recording a segment profit of around HK$9.5 million, a healthy increase of 163.9% over the approximate HK$3.6 million profit recorded in the previous year. 22

FinancialManagement HighlightsDiscussion and Analysis

FINANCIAL REVIEW (continued)

Operating Expenses

The year under review saw the Group’s total operating expenses reach approximately HK$2,453.0 million, a 42.6% increase over the approximate HK$1,720.5 million (as restated) figure recorded during the year ended 31 March 2003. Some 65.5% or around HK$1,605.7 million of this sum was made up of production costs, including direct production staff costs. Much of this increase is largely attributable to the Group’s expansion of its Taiwan activities, including the May 2003 launch of Taiwan Apple Daily. Personnel costs, excluding direct production staff costs, totalled around HK$319.2 million or 13.0% of the Group’s total operating costs during the year ended 31 March 2004. This figure represents a HK$22.4 million or 7.5% increase over the corresponding HK$296.8 million or 17.3% figures for 2003. Depreciation of fixed assets accounted for approximately HK$137.9 million or 5.6% of this total, measured against approximately HK$102.8 million or 6.0% in the year ended 31 March 2003.

Taxation

Taxes levied on the Group during the year just ended totalled some HK$74.1 million, a decrease of 15.8% over the approximate HK$88.0 million (as restated) figure for the year ended 31 March 2003. This fall was mainly the result of a drop in profits that the Group derived from its Hong Kong operations and recognition of certain deferred tax assets.

Financial Position

Current Assets and Current Liabilities

As at 31 March 2004, the Group’s current assets stood at approximately HK$983.1 million, an increase of approximately 3.0% or HK$28.3 million as at 31 March 2003. The Group’s current liabilities dropped by around 3.6% to reach approximately HK$483.5 million as compared to approximately HK$501.3 million as at 31 March 2003. The primary causes of the decrease in liabilities are the decrease in taxation payable and the decrease in current portion of long-term liabilities. As at 31 March 2004, the Group had a total of approximately HK$373.6 million cash on hand. The current ratio as at 31 March 2004 was 203.3%, compared to a ratio of 190.5% at the previous financial year end. 23

Accounts Receivable

As at 31 March 2004, the Group’s accounts receivable stood at approximately HK$409.8 million representing a 40.1% increase from the approximate HK$292.5 million recorded at the previous year end. Such increase mainly comes from additional accounts receivable from the new Taiwan Apple Daily business. The average turnover for accounts receivable during the year under review was 52.7 days measured against 51.4 days in the year ended 31 March 2003.

Accounts Payable

As at 31 March 2004, the Group’s accounts payable dropped to approximately HK$97.4 million, a decrease of 4.5% over the approximate HK$102.0 million figure as at 31 March 2003. The same period saw a decrease in average accounts payable turnover from 56.0 days in last year to 40.9 days in this year as the consumption of paper nearly doubled after the launch of Taiwan Apple Daily.

Long-term and Short-term Liabilities

As at 31 March 2004, the Group’s long-term liabilities, including current portions, totalled around HK$296.4 million. This figure represents an increase of 7.4% over the approximate HK$275.9 million figure as at 31 March 2003. As at 31 March 2004, the current portion of the Group’s long-term liabilities stood at approximately HK$60.6 million, a 14.0% decrease over the figure of around HK$70.5 million as at the previous financial year end.

On 3 November 2003, Apple Daily Limited, a wholly owned subsidiary of the Company, was granted a HK$300.0 million Transferable Term Loan/Revolving Credit Facility (the “Syndicated Loan Facility”) from a syndicate of seven banks arranged by Sumitomo Mitsui Banking Corporation. The Syndicated Loan Facility is divided into two tranches, being Tranche A, a 5-year HK$200.0 million term loan facility, and Tranche B, a 3-year HK$100.0 million revolving credit facility. Apple Daily Limited used proceeds from Tranche A to refinance part of its then existing loans. If necessary, proceeds from Tranche B will be used to fund the Company’s future business expansion plans and capital expenditure requirements.

The Syndicated Loan Facility offers additional advantages in that it will enable the Group to lower its overall funding costs while broadening its base of lending banks. 24

FinancialManagement HighlightsDiscussion and Analysis

FINANCIAL REVIEW (continued)

Borrowing and Gearing

Next Media’s primary mean of financing its operations remains cash flow generated by its operating activities and, to a lesser extent, banking facilities provided by its principal bankers.

As at 31 March 2004, the Group’s available banking facilities totalled around HK$598.7 million, approximately HK$304.3 million of which had been utilised. There is no seasonality for the Group’s bank borrowing requirements and all monies borrowed bear interest at floating rates. During the year ended 31 March 2004, Hong Kong Dollars and New Taiwanese Dollars accounted for the bulk of the Group’s bank borrowings. As at 31 March 2004, the Group had cash on hand worth around HK$373.6 million. The Group’s gearing ratio as at 31 March 2004 was 6.7% compared against the 6.2% (as restated) figure recorded as at 31 March 2003. The Group’s gearing ratios are calculated by dividing long-term liabilities, including current portions, by total asset value.

Share Capital Structure

During the year under review, the Company issued 244,973,400 ordinary shares with a par value of HK$1.00. The major part of the new shares issue resulted from the conversion of 240,000,000 HK$1.75 convertible non-voting non-cumulative preference shares (“Preference shares”) held by Mr. Lai Chee Ying, Jimmy (“Mr. Lai”) at a conversion price of HK$1.75 per ordinary share. 4,973,400 ordinary shares with a par value of HK$1.00 were also issued as a result of the exercise of certain share options by option holders at an exercise price of HK$1.67 per share.

As at 31 March 2004, the Company’s total issued share capital was around HK$3,088.6 million. This figure is made up of 1,478,634,576 ordinary shares with a par value of HK$1.00 each and 920,000,000 Preference shares with a par value of HK$1.75 each. 25

Cash Flow

During the year just ended, the Group’s net cash outflow from operating activities reached around HK$20.6 million, a cash inflow of HK$650.5 million was generated from the Group’s operations during the year ended 31 March 2003.

The outflow of investment-related cash during the year ended 31 March 2004 totalled approximately HK$120.6 million. This figure represents a decrease of 83.6% over the outflow of around HK$735.0 million in the previous financial year.

Net cash inflow from financing activities during the year ended 31 March 2004 totalled around HK$16.6 million, compared against approximately HK$14.5 million in 2003. This figure was mainly made up of new bank loans worth approximately HK$231.3 million. The latter figure was partially offset by bank loan repayments of around HK$215.3 million.

Exchange Rate Exposure and Capital Expenditure

Group assets and liabilities are mainly denominated in either Hong Kong Dollars or New Taiwanese Dollars. As a result of its magazine and newspaper publishing business activities in Taiwan, the Group faces certain exchange rate exposure to New Taiwanese Dollars. It is the Group’s intention to reduce this exchange rate exposure by arranging bank loans in New Taiwanese Dollars whenever and wherever possible. The Group’s net currency exposure as at 31 March 2004 was approximately NT$4,127.2 million (approximately HK$974.1 million), a 34.6% increase over the approximate NT$3,067.4 million (approximately HK$687.8 million) figure as at 31 March 2003. The Group will continue to monitor its overall currency exposure very carefully, taking steps to hedge against such exposure when and where appropriate.

The Group’s capital expenditure for the year ended 31 March 2004 totalled approximately HK$142.3 million, some HK$114.7 million of which was for the Group’s operations in Taiwan. At the end of the year under review, the Group had committed further capital expenditure worth around HK$14.4 million for its operations. This figure included approximately HK$5.7 million for the Group’s operations in Taiwan. 26

FinancialManagement HighlightsDiscussion and Analysis

FINANCIAL REVIEW (continued)

Pledge of Assets

As at 31 March 2004, certain of the Group’s Hong Kong and Taiwanese property portfolio and printing equipment with an aggregate net book value of around HK$1,013.6 million were pledged to various banks as security for bank loans and general banking facilities granted to the Group.

Contingent Liabilities

As at 31 March 2004, the Group had contingent liabilities in respect of a number of litigation proceedings in Hong Kong and Taiwan. Such proceedings are a normal occurrence in the publishing business. The Group was also involved in a dispute with UDL Contracting Limited, the contractor responsible for the construction of the printing facility for the Company’s subsidiary, Apple Daily Printing Limited. The dispute, which concerns amounts payable for the construction of the facility, is currently under arbitration and the final outcome of the proceedings remains uncertain.

Following the acquisition of Database Gateway Limited in October 2001 (the “Acquisition”), Mr. Lai has undertaken to provide unlimited personal indemnities (the “Indemnity”) to the Group. The Indemnity will protect the Group against all payments, claims, suits, damages and settlement payments and associated costs and expenses in relation to certain legal proceedings, including the dispute with UDL Contracting Limited, involving the businesses acquired through the Acquisition.

Having taken into consideration the advice of the Group’s legal counsel and the Indemnity given by Mr. Lai, the Directors of the Company are of the opinion that any ultimate liability resulting from these proceedings will have no material impact on the Group’s financial position.

The Company also has contingent liabilities in relation to corporate guarantees it has provided to financial institutions for facilities utilised by certain subsidiaries of the Company. As at 31 March 2004, these contingent liabilities totalled approximately HK$224.9 million. 27

Prospects and Outlook

Moving Forward

Next Media remains Hong Kong’s largest Chinese-language print media group. Apple Daily, Next Magazine, Easy Finder, Sudden Weekly and Eat & Travel Weekly have all achieved solid market shares and will ensure the Group continues to enjoy a stable revenue stream. More encouragingly, the Board believes that each of these publications will generate additional advertising revenue as the Hong Kong economy continues to improve.

The financial year 2004/05 will see Next Media carry on its policy of consolidating its dominant position within the Hong Kong Chinese print media market. At the same time, the Group will make substantial efforts to cement its foothold within the Taiwan market. The Board is confident that Taiwan Next Magazine will continue to both build on its achievements and remain profitable. It should be noted, however, that the title is unlikely to make a major contribution to the Group’s result during the coming year.

Newsprint and paper costs account for a substantial portion of Next Media’s production costs in both Hong Kong and Taiwan. Prices on the world’s paper markets are expected to continue to rise throughout the year ending 31 March 2005. This upward trend will inevitably impact on the Group’s financial performance in the coming year.

It seems likely that the launch of Taiwan Apple Daily will continue to affect the Group’s financial performance and results for the year ending 31 March 2005. This may mean that the Group, in the coming year, will not return to the profit level for the year ended 31 March 2003. However, the Group’s management remains committed to doing everything possible to ensure that all costs incurred will help to pave way for Taiwan Apple Daily’s future success. 28

FinancialManagement HighlightsDiscussion and Analysis

FINANCIAL REVIEW (continued)

Encouragingly, the large scale investment involved in the launch of Taiwan Apple Daily has already started to bear fruit. For the six months ended 31 December 2003, Taiwan Apple Daily had an audited average daily circulation of approximately 406,599 copies.

Its impressive performance on Taiwanese newsstands is mirrored in its increased advertising revenue. For the year ended 31 March 2004, the paper had contributed approximately HK$287.6 million or 18.8% of the Newspapers Publication and Printing Division’s turnover for the year. The Board remains confident that as Taiwan Apple Daily consolidates and further strengthens its position in the market, these figures will continue to show steady growth.

Forward-looking Statements

This document contains certain statements that are “forward-looking” or which use certain forward-looking terminology. These statements are based on the current beliefs, assumptions, expectations and projections of the Directors of the Company regarding the industry and markets in which the Group operates. These statements are subject to risks, uncertainties and other factors beyond the control of the Group. Commitments

Corporate Governance Frequently Asked Questions

clarity in reporting about ourselves as well as reporting the news 29

Commitments

As Hong Kong’s premier Chinese language print media conglomerate, Next Media remains very conscious of its responsibilities to the communities which it serves. Publishing best selling newspapers and magazines is just one of many ways in which the Group ensures that its obligations in Hong Kong and Taiwan are met.

A Firm Believer In Transparent Investor Relations

As a listed company, Next Media is determined to nurture a close and open relationship with its investors and the financial communities in both Hong Kong and Taiwan. To this end, the Group is doing everything within its power to enhance transparency and maximize value for shareholders.

During the year under review, the Group delivered on this promise by actively involving its senior management in frequent meetings. This included briefings, meetings and the organization of site visits with interested parties, such as research analysts and institutional investors.

Next Media has, and will continue to, do everything within its capabilities to ensure that its investment information is available to anyone who requires it. The issuance of a Profit Warning announcement on 16 February 2004 was one example of this policy in action. This announcement, together with a full archive of interim and annual reports, public announcements and press releases, is all easily obtainable via the http://www.nextmedia.com website.

People Are Our Most Precious Asset

Publishing the public’s favourite daily newspapers or weekly magazines is a massive undertaking that requires the skill, sweat and dedication of thousands of people. For every front line journalist and photographer, there are literally dozens of backroom staff without whose efforts papers and magazines would never make it to the newsstands.

Next Media is an equal opportunity employer. We have a mutual respect for all employees and insist on high ethical and professional conduct at all times. Our employment policy is non-discriminatory and based purely on each applicant’s skill and experience. 30

FinancialCommitments Highlights

Next Media’s website makes the The Company is fully committed to the concept of open management. For this Group’s financial records easily reason, certain staff members from all business divisions and supporting accessible for all. departments are encouraged to attend a series of regular meetings at which they may address questions and bring issues directly to the attention of the Chairman, Mr. Jimmy Lai.

As at 31 March 2004, The Group employed a total of 3,193 employees in Hong Kong, Taiwan and Canada. Each and every one of our employees plays a vital role in bringing readers the eye-catching pictures and thought-provoking stories which are a cornerstone of the Group’s success.

Next Media values its team members very highly and regularly reviews its remuneration packages to attract and retain the best and brightest individuals in the publishing business. Specific benchmarks used during these reviews include individual contribution levels, business performance, market practice, internal relativities and competitive market pressures.

All members of the Next Media family are rewarded with a special year-end bonus and profit-sharing schemes on a performance-related basis. Team members who wish to obtain professional or career related qualifications are provided with subsidies to cover the cost of their studies, while newlyweds and new parents are given “red packets” to help them celebrate these landmark events in their lives.

The Company offers its employees other benefits including retirement and mandatory provident fund schemes, life insurance, medical coverage, and maternity and paternity leave for female and male staff respectively. The Group Chairman Jimmy Lai answers and certain of its subsidiaries also operate discretionary share option schemes questions from the floor during a to motivate employee performance in enhancing value for shareholders. meeting with staff. Total staff-related costs, including retirement benefits, for the year ended 31 March 2004 were approximately HK$907.1 million, a 24.3% increase over the approximate HK$729.6 million recorded during the previous financial year. 31

Number of Staff as at Next Media understands that a pleasant yet professional working environment 31 March 2004 means productive and profitable staff. The Company is a firm believer in “going Newspapers Publication and the extra mile” for its people and augments its basic facilities with a range of Printing Division 0.7% 14.6% Books and leisure amenities that are the envy of the publishing industry. The many “fringe Magazines Publication Division 6.4% benefits” staff enjoy as a result include a cafeteria, an open-air BBQ area and a Books and Magazines 56.0% superbly equipped fitness center with swimming pool and multi-function athletic Printing Division 22.3% court. Such a high level of care and attention have proved to be invaluable in both Internet Division fostering team spirit and building physical and mental health among staff Supporting Division members. & Others During the year, the Group had organized the following activities to help enhance its team members’ health awareness, social life and physical development:

• Free daily fruit for all employees

• Sales bazaars during festive seasons

• Health talks and cuisine classes

• Complimentary box of mooncakes for all staff during the Mid-Autumn Festival

• Family days at the swimming pool and top club every weekend during the summer holidays

• Community projects such as blood donations and Apple tours

• Health check programs such as cholesterol and body health tests

• Educational activities, including Putonghua courses and legal seminars

A Company That Contributes To The Communities It Serves

The core responsibility of any publisher is to inform, educate and entertain. Next Media has built its business as a result of its uncompromising insistence on uncovering truths that directly affect its readers’ daily lives. As a good corporate citizen, the Company is doing everything possible to try and make a significant and lasting contribution to the communities of which it is a part.

Apple Daily Limited rises to this challenge by offering administrative support and donating funds to Apple Daily Charitable Foundation (the “Foundation”). The Foundation, which was set up in 1995, has two committees, namely the Charitable Fund committee and the Educational Fund committee. 32

FinancialCommitments Highlights

The Apple Daily Charitable The primary objective of the Foundation is to help less privileged members of Foundation is one of the many ways society through either direct financial assistance or the sponsorship of various Next Media contributes to the community. much needed social services projects. The lengthy list of beneficiaries includes the elderly, single parent families and both the physically and mentally challenged. In the year ended 31 March 2004, the Foundation distributed around HK$20.5 million to numerous named recipients, social services programs and needy students.

In addition to running a regular editorial appeal donation column in Apple Daily, Apple Daily Limited donates fully 1% of its profits to the Foundation on a monthly basis. The newspaper also frequently devotes space on its pages to publicizing the community’s commitment to society by promoting the charitable activities organized by the Foundation.

Next Media is highly flexible and pro-active in its responses to crises. In April 2003, the Group donated HK$1 per copy sold for one issue of its newspaper and HK$0.5 per copy sold in two consecutive issues of its weekly magazines in Hong Kong to benefit those directly affected by the SARS pandemic. The sum raised by this initiative was further swollen by the addition of a 50% “top up” donation from the Foundation. In all, these efforts succeeded in raising some HK$1.2 million for SARS workers and sufferers.

Next Media’s concern for its readership and larger communities is a sincere and unstinting one. The years ahead will see the Group continue its tradition of doing all it can to support the less fortunate in both Hong Kong and Taiwan. 33

Corporate Governance

The Board has long been firmly committed to ensuring a high level of corporate governance standards and practices are adhered to at all times and in all areas of the Company’s operations.

The Board is aware of the huge responsibility it has been entrusted with when striving to identify and implement Next Media’s future business strategies. The Directors are conscious of the need to exercise due diligence and act in good faith in all activities they undertake on behalf of the Group.

Board of Directors

Board Structure

The Board comprises seven members, three of whom are Independent Non- executive Directors. The http://www.nextmedia.com website includes a list of the profiles of all seven individual Board members by role, function and status. Independent Non-executive Directors are appointed to the Company for a specific term and will be required to retire pursuant to the Articles of Association of the Company. Please refer to the “Directors and Senior Management” section in this Annual Report for the biographies of the Directors.

Board Membership & Independence

Individual Board members are seasoned and highly regarded professionals or businessmen who possess proven track records in disciplines such as entrepreneurship, investment, finance and publishing. Individual Directors are given full and timely access to all information relevant to Next Media’s operations. Should the situation demand it, the Board also solicits advice from suitably qualified independent external experts.

Each of the three Independent Non-executive Directors has submitted to The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and to Next Media a written confirmation in respect of the factors set out in Rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) concerning his independence. The Board considers each of the three Independent Non-executive Directors to be independent.

All of the Directors are subject to retirement by rotation pursuant to the Articles of Association of the Company. This policy means that one-third of the Directors (other than those appointed by the Board during the year) are required to retire at each annual general meeting. Directors appointed by the Board during the year may only hold office until the next annual general meeting at which point they become eligible to stand for re-election. 34

Corporate Governance

Board Activities

The Board holds regular meetings which are attended by both the executive Directors and the Independent Non-executive Directors of the Company. The Board also organizes carefully tailored formal inductions for newly appointed Directors. All Directors are encouraged to attend refresher seminars conducted by external legal advisers organized by the Company in order to ensure that their skill sets and knowledge remain up to date with all relevant legal requirements and regulatory developments.

With a view to ensuring a high level of corporate governance practice, the Board has established the following committees and sub-committee:

(i) a Committee to approve and monitor the issue and allotment of ordinary shares pursuant to the exercise of share options under the Company’s share option schemes (for details of the share option schemes, please refer to the section “Share Options” in the Directors’ Report);

(ii) an Audit Committee (for details, please refer to the sub-heading “Audit Committee” in this report); and

(iii) a sub-committee consisting of the finance heads of major operating subsidiaries, the Company Secretary, the Financial Controller and the Deputy Chief Financial Officer meet on an ad hoc basis to review all possible connected transactions to be undertaken by the Group. When a transaction under review is considered to constitute a connected transaction for the Group under the Listing Rules, the sub-committee is required to take steps to assist the Board in achieving full compliance with the appropriate Listing Rules requirements.

Service Contracts

No Director has been granted by the Company or any of its subsidiaries a service contract which is for a duration that exceeds three years or expressly requires a period of notice of more than one year or the payment of compensation or payments equivalent to more than one year’s emoluments on termination. 35

Financial Highlights

Audit Committee

Committee Structure & Membership

Current members of the Audit Committee are Mr. Yeh V-Nee, Mr. Fok Kwong Hang, Terry, and Dr. Kao Kuen, Charles, all being Independent Non-executive Directors of the Company. Mr. Yeh is the chairman of the Audit Committee. Any two members present at Audit Committee meeting shall form a quorum.

Committee Terms of Reference

The Audit Committee was established by the Board in March 1999. The terms of reference of the Audit Committee are based on the specimen terms of reference for an audit committee set out in A Guide for the Formation of an Audit Committee issued by the Hong Kong Society of Accountants in December 1997. The Audit Committee is responsible for providing an independent review of the financial reporting, internal controls and audits of the Company.

Committee Activities

During the year, the Audit Committee held two meetings with the external auditors to review the interim and annual financial statements of the Company before submission to the Board. The Deputy Chief Financial Officer and the Financial Controller of the Company were invited to attend these meetings. The Audit Committee has reviewed the audited financial results of the Group for the year ended 31 March 2004 and the accounting principles and practices adopted by the Group. With the assistance of the external auditors, the Audit Committee also reviewed the adequacy and effectiveness of the Company’s systems of internal control and made recommendations to the Board.

Relationship with External Auditors

The Audit Committee has reviewed the external auditors’ audit and review reports and has ensured a timely response is provided to the issues raised in the audit and review reports. In order to monitor the independence of the external auditors, the Audit Committee also reviews the provision of non-audit related services by the external auditors. During the year, the fees paid to the external auditors for non- audit related services amounted to approximately HK$640,000 including approximately HK$360,000 for taxation services, approximately HK$80,000 for audit of Hong Kong pension schemes, approximately HK$50,000 for review of internal control policies and procedures and approximately HK$150,000 for other miscellaneous services. 36

Corporate Governance

Enhancing Transparency

Disclosure and Dissemination of Information

Next Media goes to great lengths to ensure the dissemination of details of major activities, transactions and other price sensitive information is in compliance with the Listing Rules. To this end, the Company has implemented a set of procedures which must be used when communicating with analysts and the media. These measures were developed in line with the Stock Exchange’s guidelines regarding the disclosure of price-sensitive information. The Company has also designated certain of its officers to act as its representatives in liaising with analysts and the media. This communication policy has been continuously adhered to during the year.

Next Media is determined to further enhance transparency by making greater use of the most appropriate communications channels when disclosing information to third parties. During the year, specific activities undertaken in this area included the dissemination of news through press releases and formal announcements, and in the interim and annual reports. This information is also freely available on the Internet via the http://www.nextmedia.com website.

Directors’ Interests in Contracts

No contract of significance in relation to the Group’s businesses to which the Company, its subsidiaries or associated companies was a party and in which a Director of the Company had a material interest, whether directly or indirectly, subsisted during or at the end of the year or at any time during the year.

Directors’ Interests in Shares, Underlying Shares and Debentures

The Directors’ interests and short position in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) as recorded in the register required to be kept under Section 352 of the SFO are set out in the Directors’ Report on pages 45 to 56. 37

Financial Highlights

Codes of Conduct and Internal Control

Compliance with the Code of Best Practice of the Listing Rules

Throughout the year, the Company complied with the Code of Best Practice as set out in Appendix 14 of the Listing Rules.

Compliance with the Model Code on Directors’ Securities Transactions

The Company has adopted a code of conduct regarding Directors’ securities transactions on terms no less exacting than the Model Code outlined in Appendix 10 of the Listing Rules relating to regulation of securities transactions by directors of listed issuers. The Company, having made specific enquiries of the Directors, confirmed that all of the Directors had complied with the required standards set out in the Model Code and the Company’s abovementioned code for the financial year ended 31 March 2004.

Internal Codes of Conduct

In order to ensure and promote integrity and ethical behaviour in it business, the Group has put in place a series of codes of conduct, including codes governing potential conflicts of interests, declaration of interests, anti-corruption practices and data privacy. All employees and Directors of Next Media are required to comply with these codes of conduct at all times.

Internal Controls

Management meetings to review the Group’s financial performance and strategic planning are held on a monthly basis. These meetings are attended by certain members of the Board and senior officers/managers from the Marketing, Sales, Operations, Editorial and Finance Departments.

The Company has laid down stringent internal control policies and procedures with a view to preventing unauthorized use or misappropriation of assets. These measures ensure that those carrying out transactions may only do so by following the proper procedures and under instructions from the Company’s management. 38

Frequently Asked Questions

How does the Company The Company remains positive and with good reason. The year ended 31 March 2004 saw Sudden Weekly and Easy Finder both undergo major regard its prospects for design overhauls. The two newly revamped titles have subsequently the coming year? achieved significant circulation increases as a result. The Group believes that 1 advertising revenue will rise steadily as brand managers and media buyers become increasingly confident about each title’s ability to deliver readers in large numbers. Prospects in Taiwan are also looking bright. Taiwan Next Magazine has already turned a small profit while Taiwan Apple Daily is now circulating over 400,000 copies daily.

Does the Group foresee a With a population of over 22 million Chinese-speaking people, the size of Taiwan’s market is around three times that of Hong Kong’s. For this reason, day when its Taiwanese it remains a very central focus for the Group. Taiwanese readers have been stable of publications gratifyingly quick to embrace titles such as Taiwan Next Magazine and 2 Taiwan Apple Daily. Once these titles are established market leaders, there is equals or exceeds that of no reason why the Group would not consider expanding upon Taiwan’s its Hong Kong magazine lineup in the future. counterpart?

What will be the Taiwan will remain the Group’s primary focus on growth for the foreseeable future. Taiwan Next Magazine and Taiwan Apple Daily have both Company’s major growth made significant strides in this market in a very short period of time. All the drivers going forward? available evidence indicates that the Taiwan market offers the Group plenty 3 of scope for expansion in terms of increased sales and advertising and possibly even new titles. However, the Group intends to ensure the sustainable profitability of its two existing publications before launching any new titles in the Taiwan market.

What steps has the Next Media has always been committed to maintaining the very highest standard of corporate governance. Specific activities undertaken to ensure this Company taken to goal was met during the year ended 31 March 2004 included the improve corporate appointment of one additional Independent Non-executive director and the 4 organization of a series of seminars. Topics covered included corporate governance and investor governance, directors’ duties and disclosure of interest under the new relations during FY04? Securities and Futures Ordinance. Additional activities in this area during 2004 included the Group’s adoption of a model code for securities transactions by Directors and the issuance of a profit warning announcement.

Given the improved The Hong Kong economy has recovered from the SARS crisis remarkably well and is doing far better than most people would have thought possible economic climate in HK, is just one year ago. The Group remains cautiously optimistic that Hong Kong the Company anticipating will continue to perform well and that its advertising revenue will climb 5 steadily as a result. any increase in its advertising revenue during FY05? Directors and Senior Management Corporate Structure Corporate Information

all the information about who we are 39

Directors and Senior Management

Executive Directors

Mr. Lai Chee Ying, Jimmy, 55 Chairman

Mr. Lai has been a Director and Chairman of the Company since October 1999 and December 1999 respectively, and is responsible for formulating the Group’s corporate strategies. Before establishing Next Magazine in March 1990, Mr. Lai had a distinguished 30- year career in the local garment industry, setting up and running the hugely successful Giordano manufacturing and retail chain. In recent years, Mr. Lai has added several other popular titles to his stable of publications. They include Easy Finder (September 1991), Apple Daily (June 1995), Sudden Weekly (August 1995) and Eat & Travel Weekly (July 1997). In October 1997, Mr. Lai underlined his commitment to the newspaper printing business with the establishment of Apple Daily Printing Limited.

Mr. Ting Ka Yu, Stephen, 45

Mr. Ting joined Apple Daily Limited in December 1997 as Chief Financial Officer. A Director of the Company since October 1999, he oversees the Group’s finance, administration, human resources and various support departments. Mr. Ting is also in charge of the Printing Division in Hong Kong. During the course of his career, Mr. Ting has worked with a leading audit firm in both Hong Kong and Australia. He has also held senior financial and management positions with a variety of leading companies and listed groups. The holder of a B.A (Economics) degree from the Macquarie University in Sydney, Australia, Mr. Ting is a member of the Institute of Chartered Accountants in Australia.

Mr. Ip Yut Kin, 52

A Director of the Company since November 2001, Mr. Ip joined Apple Daily as Deputy Editor- in-Chief in 1995 and was promoted to Editor-in-Chief the following year. In February 2002, Mr. Ip was appointed Apple Daily Limited’s Chief Executive Officer. In October of that same year, he became Chief Executive Officer of Apple Daily Publication Development Limited where his responsibilities include overseeing the operation of Taiwan Apple Daily. A Bachelor of Social Sciences degree (Journalism) graduate of the National Chengchi University of Taiwan, Mr. Ip has worked with many leading Hong Kong newspapers over 22 years in his long journalistic career.

Mr. Tung Chuen Cheuk, 62

A Director of the Company since June 2003, Mr. Tung joined Apple Daily as Associate Publisher in January 1998 and was promoted to the position of Publisher in May 1999. In July 2002, Mr. Tung was appointed as Chairman of Apple Daily (Hong Kong and Taiwan). A graduate of Taiwan Provincial Cheng Kung University, Mr. Tung holds a Bachelor of Arts degree. His long and distinguished media career includes spells with BBC London, Reader’s Digest and Ming Pao. 40

Directors and FinancialSenior Management Highlights

Independent Non-executive Directors

Mr. Yeh V-nee, 45

A qualified US attorney-at-law, Mr. Yeh became a Director of the Company in January 2000. Following his graduation from Columbia University’s School of Law in the USA, Mr. Yeh was admitted as a member of the California Bar Association in 1984. Mr. Yeh is a co-founder of Value Partners Limited and VP Private Equity Limited and sits on a number of prominent committees. They include The Listing Committee of The Stock Exchange of Hong Kong Limited, The Takeovers & Mergers Panel and The Takeovers Appeals Committee of the Securities & Futures Commission. Mr. Yeh is also the Chairman of Hsin Chong Construction Group Limited and Chairman of Argyle Street Management Limited, a boutique distressed asset management firm which manages funds worth some US$150 million.

Mr. Fok Kwong Hang, Terry, 49

A Director of the Company since June 2000, Mr. Fok holds both M.Sc. and MBA degrees from the University of Wisconsin, USA. Mr. Fok has 20 years’ experience in the securities industry and is currently the owner of T & F Research Limited.

Dr. Kao Kuen, Charles, 70

Dr. Kao became a Director of the Company in November 2003. He is the Chairman and Chief Executive Officer of ITX Services Limited and sits on a number of advisory committees to the Government of the Hong Kong SAR. An early pioneer of optical fiber communications, Dr. Kao holds a Ph.D. from the University of London and served as Vice Chancellor of the Chinese University of Hong Kong between October 1987 and July 1996. Over the years, Dr. Kao has won many prestigious international honors and awards. They include the Stewart Ballantine Medal, Rank Prize, L.M. Ericsson International Prize, Alexander Graham Bell Medal, Marconi International Fellowship, Faraday Medal of IEE, the Japan Prize and the Charles Stark Draper Prize. 41

Senior Management

Mr. Cheung Kim Hung, 42

Mr. Cheung has been Chief Executive Officer of the Group’s Magazine Division since November 2001. He began his career with Next Magazine as Editor in 1991 and was promoted to Editor-in-Chief in 1994. A Journalism and Communications graduate of the Chinese University of Hong Kong, Mr. Cheung has had a 20-year journalistic career and was the Senior News Editor of a leading Hong Kong newspaper before joining Next Magazine.

Mr. Tu Nien Chung, James, 52

Taiwan Apple Daily’s Publisher since March 2003, Mr. Tu graduated from National Taiwan University with a Bachelor of Arts degree. He also holds a Master’s Degree in Political Science from Columbia University, USA. Mr. Tu has extensive experience in journalism both in the United States and Taiwan.

Mr. Chow Tat Kuen, Royston, 46

The Group’s Deputy Chief Financial Officer, Mr. Chow joined Next Media Magazines Limited in May 1993 as Financial Controller. Mr. Chow holds both Bachelor’s and Master’s degrees in Commerce from the University of New South Wales, Australia. He is also a member of CPA Australia and The Hong Kong Society of Accountants. Prior to joining Next Media Magazines Limited, Mr. Chow held senior management accounting positions with several leading financial institutions in Hong Kong and Australia.

Mr. Loo Cheung Ling, Alvis, 51

Mr. Loo joined Apple Daily Limited as Production Director in 1994. He was appointed as Chief Operating Officer of the Group’s printing operations in December 2003. Mr. Loo has over 30 years’ experience in prepress production and printing operations in the advertising and publishing industries. Many industry leaders who have benefited from Mr. Loo’s expertise over the years include South China Morning Post, Fortune (Far East) Limited and Emphasis (HK) Limited in Hong Kong and The Arts House Design and Printing Group in Canada.

Ms. Lee Yuen Mei, Janis, 39

Ms. Lee joined Next Media Magazines Limited as Corporate Affairs Manager in 1995 and was appointed Company Secretary of the Group in October 1999. Ms. Lee possesses extensive company secretarial experience with both listed and non-listed companies in Hong Kong and holds a Professional Diploma in Company Secretaryship & Administration from The Hong Kong Polytechnic University. She is also an associate member of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries. 42

Corporate Structure

Newspapers Publication and Books and Magazines Books and Magazines Printing Printing Business Publication Business Business

Apple Daily Next Magazine Magazine Printing

Taiwan Apple Daily Easy Finder Book, Calendar and Catalogue Printing

Newspaper Printing Sudden Weekly

Eat & Travel Weekly Internet Content Provision and Advertising Business Taiwan Next Magazine atNext Portal 43

Corporate Information

Directors Lai Chee Ying, Jimmy (Chairman) Ting Ka Yu, Stephen Ip Yut Kin Tung Chuen Cheuk Yeh V-nee* Fok Kwong Hang, Terry* Kao Kuen, Charles* * Independent Non-executive Directors

Authorised Representatives Ting Ka Yu, Stephen Tung Chuen Cheuk

Company Secretary Lee Yuen Mei, Janis

Auditors PricewaterhouseCoopers

Principal Bankers The Hongkong and Shanghai Banking Corporation Limited DBS Bank (Hong Kong) Limited Bank of America (Asia) Limited The Shanghai Commercial & Savings Bank Limited Sumitomo Mitsui Banking Corporation National Australia Bank Limited UFJ Bank Limited Belgian Bank Chang Hwa Commercial Bank Ltd. Hua Nan Commercial Bank Ltd. Taiwan Business Bank

Legal Advisors Simmons & Simmons

Registered Office 8 Chun Ying Street Tseung Kwan O Industrial Estate West Tseung Kwan O New Territories Hong Kong 44

Corporate Information

Share Registrars Computershare Hong Kong Investor Services Limited 17/F Hopewell Centre 183 Queen’s Road East Hong Kong

Shareholders’ Enquiries To request additional information, please write to our Company Secretary: Through mail: Next Media Limited 8 Chun Ying Street Tseung Kwan O Industrial Estate West Tseung Kwan O New Territories Hong Kong Through Fax: (852) 2247 4154 Through e-mail: [email protected]

Listing Information The Stock Exchange of Hong Kong Limited Main Board Stock Code: 282

Web Site http://www.nextmedia.com Financial Reports

the bottom line is easy to read 45

Directors’ Report

The directors of the Company (the “Directors” or the “Board”) submit their report together with the audited accounts for the year ended 31 March 2004 (the “Accounts”).

Principal Activities and Analysis of Operations

The principal activity of the Company is investment holding. The activities of the Company’s principal subsidiaries are set out in note 30 to the Accounts.

An analysis of the Group’s performance for the year by business and geographical segments is set out in note 4 to the Accounts. A discussion of the material factors underlying the Group’s performance and its financial position are provided in the Operational Review and Financial Review on pages 07 to 28 of this annual report.

Results and Appropriations

The results of the Group for the year are set out in the consolidated profit and loss account on page 58 of the annual report.

The Directors do not recommend the payment of any dividend.

Share Capital

Details of the movements in share capital of the Company during the year are set out in note 21 to the Accounts.

Purchase, Sale or Redemption of Listed Shares

The Company has not redeemed any of its listed shares during the year. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company’s listed shares during the year.

Reserves

Details of the movements in the reserves of the Group and of the Company during the year are set out in note 23 to the Accounts.

Distributable Reserves

As at 31 March 2004, distributable reserves of the Company, calculated under section 79B of the Hong Kong Companies Ordinance, amounted to HK$2,208,000 (2003 : HK$2,892,000).

Fixed Assets

Details of the movements in fixed assets of the Group and of the Company are set out in note 14 to the Accounts.

Five Years Financial Summary

A summary of the results and of the assets and liabilities of the Group for the last five financial years is set out on page 110. 46

Directors’ Report

Major Customers and Suppliers

The five largest customers of the Group accounted for approximately 41.2% of the Group’s turnover and the five largest suppliers of the Group accounted for approximately 38.6% of the Group’s total purchases for the year. The largest customer of the Group accounted for approximately 36.5% of the Group’s turnover and the largest supplier of the Group accounted for approximately 16.0% of the Group’s total purchases for the year.

None of the Directors, their associates or shareholders (which to the knowledge of the Directors own more than 5% of the Company’s share capital), had an interest in any of the above mentioned suppliers and customers.

Donations

Donations for charitable and other purposes made by the Group during the year amounted to approximately HK$4,166,000 (2003: approximately HK$7,170,000).

Share Options

(a) Share Option Schemes of the Company

The share option scheme adopted by the Company on 20 September 1993 (the “1993 Share Option Scheme”), which operation was terminated in 2000, expired on 20 September 2003. However, options granted under the 1993 Share Option Scheme which remained unexpired shall continue to be exercisable in accordance with their terms of issue.

The share option scheme adopted by the Company on 29 December 2000 (the “2000 Share Option Scheme”) was amended to comply with the requirements of Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) on 31 July 2002. The limit of number of ordinary shares of HK$1.00 each of the Company (the “Shares”) which may be issued upon exercise of all options to be granted was refreshed to 10% of the issued ordinary share capital of the Company as at 31 July 2002. Key terms of the 2000 Share Option Scheme are summarized below :

(i) The purpose of the 2000 Share Option Scheme is to provide participants with the opportunity to acquire proprietary interests in the Company and to encourage participants to work towards enhancing the value of the Company and its shares for the benefit of the Company and its shareholders as a whole.

(ii) The participants include any full-time employees and Directors (including non-executive Directors and independent non-executive Directors) of the Company or any of its subsidiaries.

(iii) The total number of Shares issued and to be issued upon exercise of the options granted and to be granted to each participant (including both exercised and outstanding options) in any 12-month period shall not exceed 1% of the Shares in issue and any further grant of options in excess of such limit must be subject to separate shareholders’ approval in general meeting with such participant and his associates abstaining from voting.

(iv) The option period under which the option must be exercised shall be such period as the Board may in its absolute discretion determine at the time of grant, provided that such period shall not expire later than 10 years from the adoption date of the 2000 Share Option Scheme. 47

(v) The period for which an option must be held before it can be exercised shall be determined by the Board at the time of grant.

(vi) An offer of share options may be accepted within 14 days from the date of offer, upon payment of HK$10.00 by way of consideration.

(vii) The exercise price shall be no less than the highest of: (i) the closing price of the Shares as stated in the daily quotations sheets issued by The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on the date of grant; (ii) the average closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange of the five business days immediately preceding the date of grant; and (iii) the nominal value of the Shares of the Company on the date of grant.

(viii) On 31 July 2002, the number of the Shares which may be issued upon exercise of all options to be granted was refreshed to 10% of the issued ordinary share capital of the Company as at 31 July 2002. Details of the present outstanding options under the 2000 Share Option Scheme, which were all granted before 31 July 2002, are set out in the table below. The total number of the Shares which may be issued upon exercise of all further options to be granted is 123,366,117(10% of the issued ordinary share capital of the Company as at 31 July 2002) which represents approximately 8.3% of the issued ordinary share capital of the Company as at the date of this annual report.

(ix) The 2000 Share Option Scheme will expire on 29 December 2010.

The following share options were outstanding under the 1993 Share Option Scheme and the 2000 Share Option Scheme at the beginning and at the end of the financial year ended 31 March 2004:

1993 Share Option Scheme

Name or No. of options No. of options Outstanding category No. of options Exercise price Exercisable exercised during lapsed during as at of participant at 01/04/03 Date of grant per share period the year the year 31/03/04

An employee 71,136 11/01/1994 HK$4.21 21/01/1995- – 71,136 – 21/1/2004

81,505 10/06/1999 HK$1.00 15/01/2000- – – 81,505 15/06/2009

Total outstanding 81,505 48

Directors’ Report

2000 Share Option Scheme

Name or No. of options No. of options Outstanding category No. of options Exercise price Exercisable exercised during lapsed during as at of participant at 01/04/03 Date of grant per share period the year the year 31/03/04

Directors

Ting Ka Yu, 1,618,000 18/03/2002 HK$1.67 19/03/2003- – – 1,618,000 Stephen 28/12/2010

Tung Chuen 2,536,000 18/03/2002 HK$1.67 19/03/2003- – – 2,536,000 Cheuk (Note 1) 28/12/2010

Employees

In aggregate 19,556,000 18/03/2002 HK$1.67 19/03/2003- 4,973,400 1,019,800 13,562,800 28/12/2010 (Note 2)

Total outstanding 17,716,800

Note 1: Mr. Tung Chuen Cheuk was appointed as a director of the Company on 24 June 2003.

Note 2: The weighted average closing price immediately before the dates on which the options were exercised was HK$3.04

The options granted under the 2000 Share Option Scheme vest as follows:–

On 1st anniversary of the date of grant 30% vested

On 2nd anniversary of the date of grant further 30% vested

On 3rd anniversary of the date of grant remaining 40% vested

No options were granted or cancelled during the year. 49

(b) Share Option Scheme of subsidiaries

On 31 July 2002 (the “Adoption Date”), each of Apple Daily Publication Development Limited (“ADPDL”) and Next Media Publishing Limited (“NMPL”), both are wholly-owned subsidiaries of the Company (hereinafter referred to as the “Subsidiary”), adopted a share option scheme (together the “Subsidiary Share Option Schemes”), which complied with the requirements under Chapter 17 of the Listing Rules. The key terms of the Subsidiary Share Option Schemes are summarized herein below:-

(i) The purpose of the Subsidiary Share Option Schemes is to provide participants with the opportunity to acquire proprietary interests in the Subsidiary and to encourage participants to work towards enhancing the value of the Subsidiary and its shares for the benefit of the Subsidiary and its shareholders as a whole.

(ii) The participants of the Subsidiary Share Option Schemes include any full-time employees and directors of the Subsidiary or any of its subsidiaries.

(iii) The total number of shares issued and to be issued upon exercise of the options granted and to be granted to each participant (including both redeemed and outstanding options) in any 12-month period shall not exceed 1% of the shares in issue from time to time. Any further grant of options (including redeemed, cancelled and outstanding options) to a participant exceeding 1% of the shares in issue shall be subject to approval of the shareholders of the Subsidiary and for so long as the Subsidiary remains a subsidiary of the Company, the approval of the shareholders of the Company in advance with such participant and his associates abstaining from voting.

(iv) The option period under which the option must be exercised shall be such period as the board of directors of the Subsidiary may in its absolute discretion determine, provided that the expiry of such period shall not be later than the date falling one month prior to the lodgement of an application of listing of the Subsidiary or its intermediate holding company or such company holding the business conducted or to be conducted by the Subsidiary and its subsidiaries on an internationally recognized stock exchange whether in Hong Kong or elsewhere (the “Listing”) or the expiry of the ten-year period from the Adoption Date, whichever is earlier.

(v) The period for which an option must be held before it can be exercised shall be determined by the board of directors of the Subsidiary.

(vi) An offer of share options may be accepted within 14 days from the date of offer, upon payment of HK$10.00 by way of consideration.

(vii) The exercise price shall be the higher of (i) such amount representing not more than four times the “Latest Earnings Per Share” as defined in the Subsidiary Share Option Schemes and (ii) the nominal value of a share of the Subsidiary. For any option granted during the period commencing six months before the lodgement of an application with the relevant stock exchange for the Listing and at any time thereafter, the subscription price of a share shall not be less than the higher of (i) the issue price of a share at the Listing; (ii) such amount representing not more than four times the “Latest Earnings Per Share” as defined in the Subsidiary Share Option Schemes and (iii) the nominal value of a share of the Subsidiary. 50

Directors’ Report

(viii) The number of shares which may be issued upon exercise of all options to be granted is 10% of the issued share capital of the Subsidiary on the Adoption Date. As options lapsed in accordance with the terms of the Subsidiary Share Option Schemes have not been counted for the purpose of calculating the 10% limit, the total number of shares which may be issued upon exercise of all further options to be granted under the Subsidiary Share Option Schemes of ADPDL and NMPL are 170,000 and 575,000 respectively, representing 1.7% and 5.75% of the issued share capital of ADPDL and NMPL as at the date of this annual report. Please refer to below tables for details of options granted and lapsed during the year ended 31 March 2004.

(ix) The term of the Subsidiary Share Option Schemes will expire on the earlier of (a) the date of the Listing or (b) the tenth anniversary date of the Adoption Date, after which period no further options will be granted and no options shall be exercisable.

(x) In the event the relevant stock exchange prohibits the exercise of the option by the grantee at the exercise price set out above, or upon occurrence of certain circumstances as stipulated in the Subsidiary Share Option Schemes, before the Listing and subject to the participant having fulfilled the terms and conditions of the option, the Subsidiary shall redeem the option at a cash consideration being not more than five times the “Latest Earnings Per Share” as defined in the Subsidiary Share Option Schemes. 51

The following share options were outstanding under the Subsidiary Share Option Schemes as at 1 April 2003 and as at 31 March 2004:

Apple Daily Publication Development Limited

Name or No. of options No. of options Outstanding category No. of options granted during Date of Exercise price Exercisable lapsed during as at of participant at 01/04/03 the year grant per share period the year 31/3/04

Director

Ting Ka Yu, 50,000 – 22/01/03 Refer to Not yet – 50,000 Stephen above (b)(vii) determined

25,000 – 26/03/03 Refer to Not yet – 25,000 above (b)(vii) determined

Ip Yut Kin 100,000 – 22/01/03 Refer to Not yet – 100,000 above (b)(vii) determined

– 50,000 26/01/04 Refer to Not yet – 50,000 above (b)(vii) determined

Tung Chuen 50,000 – 26/03/03 Refer to Not yet – 50,000 Cheuk (Note 1) above (b)(vii) determined

Employees

In aggregate 435,000 – 08/01/03 Refer to Not yet 105,000 330,000 above (b)(vii) determined

45,000 – 22/01/03 Refer to Not yet – 45,000 above (b)(vii) determined

100,000 – 26/03/03 Refer to Not yet – 100,000 above (b)(vii) determined

– 50,000 23/04/03 Refer to Not yet – 50,000 above (b)(vii) determined

– 25,000 05/11/03 Refer to Not yet – 25,000 above (b)(vii) determined

In aggregate and 825,000 total outstanding 52

Directors’ Report

Next Media Publishing Limited

Name or No. of options No. of options Outstanding category No. of options granted during Date of Exercise price Exercisable lapsed during as at of participant at 01/04/03 the year Grant per share Period the year 31/3/04

Employees

In aggregate 275,000 – 08/01/03 Refer to Not yet – 275,000 above (b)(vii) determined

– 150,000 12/01/04 Refer to Not yet – 150,000 above (b)(vii) determined

In aggregate and 425,000 total outstanding

Note 1: Mr. Tung Chuen Cheuk was appointed as a director of the Company on 24 June 2003.

No options granted under the Subsidiary Share Option Schemes were exercised or cancelled during the year.

Details of the Company’s share option schemes and the Subsidiary Share Option Schemes are also set out in note 22 to the Accounts. 53

Directors

The Directors during the year and up to the date of this reports are

Executive Directors:

Mr. Lai Chee Ying, Jimmy (Chairman) (“Mr. Lai”)

Mr. Ting Ka Yu, Stephen

Mr. Ip Yut Kin

Mr. Tung Chuen Cheuk (appointed on 24 June 2003)

Mr. Kok Hon Kay, Peter (resigned on 30 April 2004)

Independent Non-executive Directors:

Mr. Yeh V-Nee

Mr. Fok Kwong Hang, Terry

Dr. Kao Kuen, Charles (appointed on 11 November 2003)

In accordance with Articles 84 and 85 of the Company’s Articles of Association, Mr. Lai will retire at the forthcoming annual general meeting of the Company and being eligible, offer himself for re-election. In accordance with Article 79, Mr. Tung Chuen Cheuk and Dr. Kao Kuen, Charles will retire at the forthcoming annual general meeting of the Company and being eligible, offer themselves for re-election.

Subject to the provision for retirement by rotation in Article 84 of the Company’s Articles of Association, each of the existing independent non-executive Directors has been appointed for a fixed term expiring on 31 March 2005.

The biographical details of the current Directors as at the date of this report are set out on pages 39 to 40 of this annual report. Details of directors’ remuneration are provided under note 12 to the Accounts.

Directors’ Service Contracts

None of the Directors who are proposed for re-election at the forthcoming annual general meeting has a service contract with the Company which is not determinable within one year without payment of compensation, other than statutory compensation. 54

Directors’ Report

Directors’ and Chief Executive’s Interests and Short Positions in Shares, Underlying Shares and Debentures

As at 31 March 2004, the Directors and chief executive of the Company and their associates had the following interests and short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (“Model Code”) in the Listing Rules were as follows:

(a) Interests in the Company

The table below sets out the long positions in the shares and underlying shares of each Director and the chief executive of the Company :

Number of shares Interests in underlying Percentage Name of director/ Personal Family Corporate Other shares/equity of issued chief executive interests interests interests interests derivatives Total shares share capital

1. Ordinary Shares

Mr. Lai 973,902,535 – 4,692,400 – 920,000,000 1,898,594,935 128.40 (Note 1)

Mr. Ting Ka Yu, 90,314 – – – 1,618,000 1,708,314 0.12 Stephen (Note 2)

Mr. Ip Yut Kin 11,182,377 2,540,000 – – – 13,722,377 0.93

Mr. Tung Chuen 1,736,800 30,000 – – 2,536,000 4,302,800 0.29 Cheuk (Note 2)

Mr. Yeh V-nee 300,000 – – – 26,000 326,000 0.02 (Note 3)

Mr. Fok Kwong Hang, 1,000,000 – – – – 1,000,000 0.07 Terry

2. Preference Shares

Mr. Lai 920,000,000 – – – – 920,000,000 100.00 (Note 1) 55

Notes :

(1) These interests represented the 2% convertible non-voting non-cumulative preference shares of HK$1.75 each held by Mr. Lai which are convertible into fully paid ordinary shares of HK$1.00 each at the conversion price of HK$1.75 per new share during a period of five years from 26 October 2001.

(2) These interests represented the share options granted by the Company to these Directors as beneficial owners, the details of which are set out in the section headed “Share Options”.

(3) These shares are held by VP Special Situations I Limited (“VPSS”) to which VP Private Equity Ltd. (“VPPE”) is the fund manager. Mr. Yeh V-nee is deemed to be interested in these shares by virtue of the fact that he has more than one third of the voting rights in VPPE and a 0.486% attributable interest in VPSS.

(b) Interests in Associated Corporations

The table below sets out the long positions in underlying shares of the Company’s associated corporations (within the meaning of Part XV of the SFO):

Apple Daily Publication Development Limited Number of shares Interests in underlying Percentage Name of director/ Personal Family Corporate Other shares/equity of issued chief executive interests interests interests interests derivatives Total shares share capital

Mr. Ting Ka Yu, Stephen – – – – 75,000 75,000 0.75 (Note 4)

Mr. Ip Yut Kin – – – – 150,000 150,000 1.50 (Note 4)

Mr. Tung Chuen Cheuk – – – – 50,000 50,000 0.50 (Note 4)

Note:

(4) These interests represented the share options granted by Apple Daily Publication Development Limited to these Directors as beneficial owners, the details of which are set out in the section headed “Share Options”.

Save as disclosed above and those as disclosed in the section headed “Discloseable Interests and Short Positions of Shareholders under the SFO” below, none of the Directors and chief executive of the Company or their associates had any interests or 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 SFO) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code as at 31 March 2004. 56

Directors’ Report

Discloseable Interests and Short Positions of Shareholders under the SFO

As at 31 March 2004, the following person (other than a person who is a Director or chief executive of the Company) had interests or short positions in the shares and underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO :

Number of shares/ Percentage of Name of shareholder underlying shares held issued share capital

Li Wan Kam, Teresa 1,898,594,935 (Note) 128.40

Note: These represent the same lot of shares held by Mr. Lai as disclosed in the section headed “Directors’ and Chief Executive’s Interests and Short Positions in Shares, Underlying Shares and Debentures”. Ms. Li Wan Kam, Teresa is the spouse of Mr. Lai and is deemed to be interested in these shares.

Save as disclosed above, the Company had not been notified of any other person (other than Directors or the chief executive of the Company) who had an interest or a short position in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO as at 31 March 2004.

Public Float

Based on information that is publicly available to the Company and within the knowledge of the Directors, the percentage of the Shares in public hands exceed 25% as at 31 May 2004, the latest practicable date to ascertain such information prior to the issue of this annual report.

Management Contracts

No contracts concerning the management and administration of the whole or any substantial part of the business of the Group were entered into or existed during the year.

Provident Fund Schemes

Details of the provident fund schemes of the Group are set out in note 25 to the Accounts.

Auditors

The Accounts have been audited by PricewaterhouseCoopers who retire and, being eligible, offer themselves for re- appointment at the forthcoming annual general meeting of the Company.

On behalf of the Board

Ting Ka Yu, Stephen Director

Hong Kong, 11 June 2004 57

Auditors’ Report

AUDITORS’ REPORT TO THE SHAREHOLDERS OF NEXT MEDIA LIMITED (incorporated in Hong Kong with limited liability)

We have audited the accounts set out on pages 58 to 109 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Hong Kong Companies Ordinance requires the directors to prepare accounts which give a true and fair view. In preparing accounts 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 accounts and to report our opinion solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, 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 Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain 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 accounts are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion the accounts give a true and fair view of the state of affairs of the Company and the Group as at 31 March 2004 and of the Group’s loss and cash flows for the year then ended and have been properly prepared in accordance with the Hong Kong Companies Ordinance.

PricewaterhouseCoopers Certified Public Accountants

Hong Kong, 11 June 2004 58

Consolidated Profit and Loss Account For the year ended 31 March 2004

Restated (Note 2(n)) 2004 2003 Note HK$’000 HK$’000

Turnover 3 2,437,109 2,150,072

Production costs (1,605,665) (1,069,470)

Gross profit 831,444 1,080,602

Other revenues 3 26,568 22,351

Personnel costs excluding direct production staff costs (319,218) (296,782)

Depreciation of fixed assets (137,856) (102,848)

Amortisation of intangible assets 13 (91,539) (91,538)

Other administrative expenses (313,755) (169,580)

Other expenses 5 (4,076) (988)

Operating (loss)/profit 6 (8,432) 441,217

Finance costs 7 (7,439) (11,645)

(Loss)/profit before taxation (15,871) 429,572

Taxation 8 (74,085) (88,049)

(Loss)/profit after taxation (89,956) 341,523

Minority interests 36 23

(Loss)/profit attributable to shareholders 9 (89,920) 341,546

Dividends – –

Basic (loss)/earnings per share 10 (6 cents) 28 cents

Fully diluted earnings per share 10 N/A 14 cents 59

Balance Sheets As at 31 March 2004

Group Company Restated (Note 2(n)) 2004 2003 2004 2003 Note HK$’000 HK$’000 HK$’000 HK$’000 Non-current assets Intangible assets 13 1,574,338 1,665,877 – – Fixed assets 14 1,856,620 1,844,258 190,525 194,783 Deferred taxation 26 9,481 – – – Investments in subsidiaries 15 – – 3,048,487 3,174,201 Investments in associated companies 16 (830) (830) 11 11 3,439,609 3,509,305 3,239,023 3,368,995 Current assets Inventories 17 128,977 91,741 – – Accounts receivable, deposits and prepayments 18 480,497 365,936 1,617 348 Bank balances and cash 19 373,623 497,167 79,537 6,602 983,097 954,844 81,154 6,950 Current liabilities Accounts payable and accrued charges 20 398,431 395,002 6,960 6,039 Current portion of long-term liabilities 24 60,636 70,548 – 18,840 Taxation payable 24,398 35,768 – – 483,465 501,318 6,960 24,879

Net current assets/(liabilities) 499,632 453,526 74,194 (17,929)

3,939,241 3,962,831 3,313,217 3,351,066 Financed by: Share capital 21 3,088,635 3,263,661 3,088,635 3,263,661 Reserves 23 236,366 100,415 222,450 39,802 Shareholders’ funds 3,325,001 3,364,076 3,311,085 3,303,463 Minority interests 2,000 2,325 – –

Non-current liabilities Long-term liabilities 24 235,758 205,381 – 47,100 Pensions obligations 25 13,935 6,747 – – Deferred taxation 26 362,547 384,302 2,132 503 3,939,241 3,962,831 3,313,217 3,351,066

Ting Ka Yu, Stephen Tung Chuen Cheuk Director Director 60

Consolidated Statement of Changes in Equity For the year ended 31 March 2004

Restated (Note 2(n)) 2004 2003 Note HK$’000 HK$’000

Total equity as at beginning of the year, as previously reported 3,390,082 3,028,336

Effect of change in accounting policy 2(n) (26,006) –

Total equity as at beginning of the year, as restated 3,364,076 3,028,336

Exchange differences arising on translation of the accounts of foreign subsidiaries 23 42,539 (5,806)

Net gains/(losses) not recognised in the consolidated profit and loss account 42,539 (5,806)

(Loss)/profit for the year, as restated 2(n) (89,920) 341,546

Exercise of share options 8,306 –

Total equity as at end of the year 3,325,001 3,364,076 61

Consolidated Cash Flow Statement For the year ended 31 March 2004

2004 2003 Note HK$’000 HK$’000

Net cash inflow generated from operations 27(a) 96,124 674,714

Hong Kong profits tax paid (116,702) (24,215)

Net cash (outflow)/inflow from operating activities (20,578) 650,499

Investing activities

Interest received 2,343 8,904

Sales of fixed assets 817 1,817

Purchase of fixed assets (123,769) (745,736)

Net cash outflow from investing activities (120,609) (735,015)

Financing activities 27(b)

Interest paid (7,439) (11,645)

New bank loans received 231,250 86,885

Repayment of bank loans (215,258) (60,736)

Repayment to minority shareholders of a subsidiary (289) –

Proceeds from exercise of share options 8,306 –

Net cash inflow from financing 16,570 14,504

Decrease in cash and cash equivalents (124,617) (70,012)

Cash and cash equivalents at beginning of the year 497,167 567,109

Effect of foreign exchange rate changes 1,073 70

Cash and cash equivalents at end of the year 373,623 497,167

Analysis of balances of cash and cash equivalents Bank balances and cash 373,623 497,167 62

Notes to the Accounts

1 Basis of preparation

The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Society of Accountants (“HKSA”). They have been prepared under historical cost convention except that, as disclosed in the accounting policies below, land and buildings are stated at fair value.

In the current year, the Group adopted the revised Statement of Standard Accounting Practice (“SSAP”) No. 12 “Income taxes” issued by the HKSA which is effective for accounting periods commencing on or after 1 January 2003. Details of the revised accounting policy are set out in note 2(n) below.

2 Principal accounting policies

The principal accounting policies adopted in the preparation of these accounts are set out below:

(a) Consolidation

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 31 March.

Subsidiaries are those entities in which the Company, directly or indirectly, controls the composition of the board of directors, controls more than half of the voting power or holds more than half of the issued share capital.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the net proceeds of the sale and the Group’s share of its net assets or liabilities at the date of disposal together with any unamortised goodwill or negative goodwill or goodwill previously taken to reserves and not previously charged or recognised in the consolidated profit and loss account.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

In the Company’s balance sheet, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(b) Associated companies

An associated company is a company, not being a subsidiary or a joint venture, in which an equity interest is held for the long-term and significant influence is exercised in its management. 63

2 Principal accounting policies (continued)

(b) Associated companies (continued)

The consolidated profit and loss account includes the Group’s share of the results of associated companies for the year, and the consolidated balance sheet includes the Group’s share of the net assets or liabilities of the associated companies and also goodwill/negative goodwill (net of accumulated amortisation and accumulated impairment losses) arising on acquisition.

In the Company’s balance sheet, the investments in associated companies are stated at cost less provision for impairment losses. The results of associated companies are accounted for by the Company on the basis of dividends received and receivable.

(c) Revenue recognition

(i) Sales of magazines and newspapers are recognised on the date of publication, net of allowances for unsold copies.

(ii) Sales of books and other publications are recognised on the date of delivery to customers.

(iii) Books, magazines and newspapers advertising income is recognised upon the publication of the edition in which the advertisement is placed.

(iv) Revenue from the provision of printing and reprographic services is recognised upon the provision of the services.

(v) Internet advertising income is recognised on a straight-line basis over the period during which the advertisement is displayed.

(vi) Sales of waste materials are recognised on the date of delivery of the waste materials.

(vii) Interest income is recognised on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

(viii) Rental income is recognised on a straight-line basis over the term of the lease.

(d) Intangible assets

(i) Goodwill/negative goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary or associated company at the date of acquisition.

Goodwill on acquisitions that occurred prior to 1 January 2001 was eliminated against reserves. Goodwill on acquisitions occurring on or after 1 January 2001 is included in intangible assets and is amortised using the straight-line method over its estimated useful life. 64

Notes to the Accounts

2 Principal accounting policies (continued)

(d) Intangible assets (continued)

(i) Goodwill/negative goodwill (continued)

Any impairment arising on goodwill is accounted for in the consolidated profit and loss account.

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition.

For acquisitions on or after 1 January 2001, negative goodwill is presented in the same balance sheet classification as goodwill. Negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised in the consolidated profit and loss account over the remaining weighted average useful life of those assets of 20 years; negative goodwill in excess of the fair values of those non-monetary assets is recognised in the consolidated profit and loss account immediately.

For acquisitions prior to 1 January 2001, negative goodwill was taken directly to reserves on acquisition.

(ii) Masthead and publishing rights

Masthead and publishing rights of the Group’s newspaper and magazines are stated at cost less accumulated amortisation and accumulated impairment losses and are amortised on a straight-line basis over their estimated useful lives. In this regard, the directors believe that the useful lives of the Group’s masthead and publishing rights are 20 years from the date of acquisition.

(e) Fixed assets

(i) Construction in progress

Construction in progress mainly comprises plant and machinery on which construction work has not been completed and which, upon completion, management intends to hold for own use. Construction in progress is carried at cost which includes installation, development and construction expenditure incurred and interest and other costs directly attributable to the installation and development less any accumulated impairment losses. On completion, construction in progress is transferred to fixed assets at cost less accumulated impairment losses.

(ii) Other fixed assets

Other fixed assets, except land and buildings, are stated at cost less accumulated depreciation and accumulated impairment losses. 65

2 Principal accounting policies (continued)

(e) Fixed assets (continued)

(ii) Other fixed assets (continued)

Land and buildings are stated at valuation. Independent valuations are performed on land and buildings every three years. In the intervening years, the directors review the carrying values of the land and buildings and adjustment is made where, in their opinion, there has been a material change. Increases in valuation are credited to the property revaluation reserve. Decreases in valuation are first offset against increases from earlier valuations in respect of the same property and are thereafter debited to operating profit. Any subsequent increases are credited to operating profit up to any amount previously debited. Upon disposal of land and buildings, the relevant portion of the revaluation reserve realised in respect of previous valuations is transferred from the revaluation reserve to retained earnings and is shown as a movement in reserves.

Freehold land is not depreciated. Leasehold land is depreciated over the period of the lease, while other tangible fixed assets are depreciated at rates sufficient to write off their costs over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Buildings 2 – 4% Leasehold improvements Over the lease term or the estimated useful lives, whichever is shorter Plant and machinery 6.67 – 10% Furniture, fixtures and equipment 20 – 33.33% Motor vehicles 20%

Major costs incurred in restoring fixed assets to their normal working condition are charged to the consolidated profit and loss account.

Improvements are capitalised and depreciated over their expected useful lives to the Group.

The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the consolidated profit and loss account. Any remaining revaluation reserve balance attributable to the relevant asset is transferred to retained earnings and is shown as a movement in reserves. 66

Notes to the Accounts

2 Principal accounting policies (continued)

(f) Impairment of non-current assets

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that the carrying values of non-current assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the consolidated profit and loss account except where the asset is carried at valuation and there is a revaluation surplus for that same asset, in which case it is treated as a revaluation decrease to the extent of the surplus available.

(g) Assets held under leases

(i) Finance leases

Leases that substantially transfer to the Group all the risks and rewards of ownership of assets are accounted for as finance leases. Finance leases are capitalised at the inception of the leases at the lower of the fair value of the leased assets or the present value of the minimum lease payments. Each lease payment is allocated between the capital and finance charges so as to achieve a constant rate on the capital balances outstanding. The corresponding rental obligations, net of finance charges, are included in long-term liabilities. The finance charges are charged to the consolidated profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated useful lives and the lease periods.

(ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the consolidated profit and loss account on a straight-line basis over the lease periods.

(h) Inventories

Inventories comprise raw materials, work-in-progress and finished goods are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses. 67

2 Principal accounting policies (continued)

(i) Accounts receivable

Provision is made against accounts receivable to the extent that they are considered to be doubtful. Accounts receivable in the balance sheet are stated net of such provision.

(j) Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and bank overdrafts.

(k) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.

A contingent asset is not recognised but is disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(l) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity or paternity leave are not recognised until the time of leave. 68

Notes to the Accounts

2 Principal accounting policies (continued)

(l) Employee benefits (continued)

(ii) Profit sharing and bonus plans

The expected cost of profit sharing and bonus payments are recognised as a liability when the Group has a present legal or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made.

Liabilities for profit sharing and bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled.

(iii) Pension obligations

The Group operates two defined contribution retirement schemes and a mandatory provident fund scheme for its eligible employees in Hong Kong, and two defined benefits plans for its eligible employees in Taiwan, the assets of which are held in separate trustee-administered funds.

The Group’s contributions to the defined contribution retirement schemes and the mandatory provident fund scheme are expensed as incurred and, in respect of the non-mandatory provident fund schemes, such contributions are reduced by contributions forfeited by those employees who leave the schemes prior to vesting fully in the Group’s contributions.

For defined benefits plans, pension costs are assessed using the projected unit credit method, under which the cost of providing pensions is charged to the consolidated profit and loss account so as to spread the cost over the service lives of employees in accordance with the advice of the actuaries who carry out a full valuation of the plans annually. The pension obligation is measured as the present value of the estimated future cash outflows using average market yields for high quality corporate bonds and securities which have terms to maturity approximating the terms of the related liability. Actuarial gains and losses are recognised over the average remaining service lives of employees. Past service costs are recognised as an expense on a straight-line basis over the average period until the benefits become vested.

(iv) Equity compensation benefits

Share options are granted to full-time employees and directors at the Company’s discretion. No compensation cost is recognised in the consolidated profit and loss account when the options are granted. The amount of consideration received for the options granted is credited to the consolidated profit and loss account. When the options are exercised, the proceeds received net of any transaction costs are credited to share capital (nominal value) and share premium. 69

2 Principal accounting policies (continued)

(m) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(n) Deferred taxation

In accordance with the revised SSAP 12, except for deferred tax assets as explained below, deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted at the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries and associated companies, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

In prior years, deferred taxation was accounted for at the expected future taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset was expected to be payable or recoverable in the foreseeable future. The adoption of the revised SSAP12 represents a change in accounting policy, which has been applied retrospectively so that the comparatives presented have been restated to conform to the changed policy.

As a result of this change in accounting policy, deferred tax liabilities as at 31 March 2003 have been increased by HK$303,397,000 (2002: HK$293,065,000) with corresponding adjustments to:

(i) increase intangible assets as at 31 March 2003 by HK$277,391,000 (2002: HK$293,065,000), representing the effect on temporary differences arising from business combinations in prior years; and,

(ii) reduce profit for the year ended 31 March 2003 and retained earnings as at 31 March 2003 by HK$26,006,000 (2002: Nil), representing the increase in the above additional deferred tax liabilities as a result of the change in tax rate from 16% to 17.5% which should have been charged against the consolidated profit and loss account for the year ended 31 March 2003.

Both the amortisation charge for intangible assets and the credit to profit for deferred taxation for the year ended 31 March 2003 increased by HK$15,674,000 (2002: HK$7,698,000) with no net effect on the consolidated profit and loss account. 70

Notes to the Accounts

2 Principal accounting policies (continued)

(o) Translation of foreign currencies

Transactions in foreign currencies are recorded at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the consolidated profit and loss account.

The balance sheets of subsidiaries and associated companies expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss accounts are translated at an average rate. Exchange differences arising in these cases are dealt with as movements in reserves.

(p) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset.

All other borrowing costs are charged to the consolidated profit and loss account in the year in which they are incurred.

(q) Segment reporting

Consistent with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

Unallocated costs represent corporate expenses. Segment assets consist primarily of intangible assets, fixed assets, inventories, receivables and operating cash and exclude items such as deferred tax assets. Segment liabilities comprise operating liabilities and exclude items such as taxation, deferred taxation and bank borrowings. Capital expenditure represents additions to intangible assets and fixed assets, including additions resulting from acquisitions through purchase of subsidiaries.

In respect of geographical segment reporting, sales are based on the country in which the customer is located. Total assets and capital expenditure are based on where the assets are located. 71

3 Turnover and revenues

The Group is engaged in the publication of newspapers, books and magazines, the sales of advertising space in newspapers, books and magazines, the provision of printing and reprographic services, the delivery of Internet content and the sales of advertising space on websites. Revenues recognised during the year are as follows:

2004 2003 HK$’000 HK$’000

Turnover Sales of newspapers 565,382 462,883 Sales of books and magazines 317,868 294,130 Newspapers advertising income 929,004 815,277 Books and magazines advertising income 468,063 421,491 Printing and reprographic services income 135,923 141,958 Internet content provision and advertising income 20,869 14,333

2,437,109 2,150,072

Other revenues Sales of waste materials 17,693 6,428 Sales of other publications – 765 Interest income on bank deposits 2,343 8,904 Rental income 2,063 2,013 Others 4,469 4,241

26,568 22,351

Total revenues 2,463,677 2,172,423

4 Segmental information

The Group’s major business segments and their corresponding regions of operations are summarised below:

Business segments Regions of operations

Newspapers publication and printing Hong Kong and Taiwan

Books and magazines publication Hong Kong and Taiwan

Books and magazines printing Hong Kong, Taiwan, North America, Europe and Australasia

Internet content provision and advertising Hong Kong

All transactions between the different business segments are charged at market rate. 72

Notes to the Accounts

4 Segmental information (continued) Analysis of business segment results for the year ended 31 March 2004

Internet Newspapers Books and Books and content Elimination publication magazines magazines provision and of segment and printing publication printing advertising transactions Group HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 1,531,052 785,952 255,968 20,926 (156,789) 2,437,109 Segment results (192,629) 103,932 44,163 9,534 – (35,000) Other revenues 26,568

Operating loss (8,432) Finance costs (7,439)

Loss before taxation (15,871)

Taxation (74,085)

Loss after taxation (89,956) Minority interests 36

Loss attributable to shareholders (89,920)

Segment assets 3,214,850 794,918 427,705 3,199 (26,617) 4,414,055 Investments in associated companies (830) Unallocated assets 9,481

Total assets 4,422,706

Segment liabilities (267,447) (118,881) (43,010) (7,025) 26,617 (409,746) Unallocated liabilities (687,959)

Total liabilities (1,097,705)

Capital expenditure (116,457) (10,276) (15,066) (508) – (142,307) Depreciation of fixed assets (105,083) (13,953) (18,613) (207) – (137,856) Amortisation (61,991) (29,548) – – – (91,539) Revaluation deficit of fixed assets (3,839) – – – – (3,839) Other non-cash expenses (5,225) (1,165) (1,141) (179) – (7,710) 73

4 Segmental information (continued)

Analysis of business segment results for the year ended 31 March 2003 (Restated – Note 2(n))

Internet Newspapers Books and Books and content Elimination publication magazines magazines provision and of segment and printing publication printing advertising transactions Group HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 1,309,411 715,642 242,080 14,383 (131,444) 2,150,072 Segment results 361,918 25,746 27,567 3,635 – 418,866 Other revenues 22,351

Operating profit 441,217 Finance costs (11,645)

Profit before taxation 429,572 Taxation (88,049)

Profit after taxation 341,523 Minority interests 23

Profit attributable to shareholders 341,546

Segment assets 3,215,849 894,022 380,010 2,319 (27,221) 4,464,979 Investments in associated companies (830)

Total assets 4,464,149

Segment liabilities (267,219) (115,260) (38,327) (5,545) 27,221 (399,130) Unallocated liabilities (700,943)

Total liabilities (1,100,073)

Capital expenditure (711,566) (102,875) (1,277) (15) – (815,733) Depreciation of fixed assets (64,270) (19,335) (18,073) (1,170) – (102,848) Amortisation (61,991) (29,547) – – – (91,538) Other non-cash expenses 477 (2,971) (570) 1,595 – (1,469) 74

Notes to the Accounts

4 Segmental information (continued)

Secondary reporting format – geographical segments

2004 2003 Restated (Note 2(n)) Segment Segment Turnover result Turnover result HK$’000 HK$’000 HK$’000 HK$’000

Hong Kong 1,896,885 498,047 1,929,475 513,189

Taiwan 465,500 (563,839) 130,207 (116,798)

North America 48,176 17,054 64,961 15,665

Europe 20,999 10,808 20,600 5,453

Australasia 5,549 2,930 4,829 1,357

2,437,109 (35,000) 2,150,072 418,866

Other revenues 26,568 22,351

Operating (loss)/profit (8,432) 441,217

2004 2003 Restated (Note 2(n)) Capital Capital Total assets expenditure Total assets expenditure HK$’000 HK$’000 HK$’000 HK$’000

Hong Kong 3,222,836 27,572 3,501,115 9,646

Taiwan 1,182,462 114,708 958,035 806,063

North America 8,757 27 5,829 24

4,414,055 142,307 4,464,979 815,733

Investments in associated companies (830) (830)

Unallocated assets 9,481 –

Total assets 4,422,706 4,464,149 75

5 Other expenses 2004 2003 HK$’000 HK$’000

Revaluation deficit of fixed assets 3,839 –

Loss on disposal of fixed assets 237 988

4,076 988

6 Operating (loss)/profit

Operating (loss)/profit is stated after charging the following: 2004 2003 HK$’000 HK$’000

Auditors’ remuneration 1,950 2,000

Exchange loss, net 659 1,330

Staff costs (Note 11) 907,136 729,603

Costs of raw materials consumed in production 891,350 527,743

Provisions for bad and doubtful debts 7,473 481

Operating lease expenses on:

Properties 6,797 7,061

Other assets 13,117 11,091

7 Finance costs 2004 2003 HK$’000 HK$’000

Interest expenses on:

– Bank borrowings 7,439 12,473

– Others – 8

Total borrowing costs incurred 7,439 12,481

Less: Interest capitalised in construction in progress – (836)

7,439 11,645 76

Notes to the Accounts

8 Taxation

Hong Kong profits tax has been provided at the rate of 17.5% (2003: 16%) on the estimated assessable profit for the year. In 2003, the Hong Kong government enacted a change in the profits tax rate from 16% to 17.5% for the fiscal year 2003/2004.

No overseas profits tax has been provided in the accounts since the subsidiaries operating in overseas regions have no assessable profit during the year.

The amount of taxation charged to the consolidated profit and loss account comprises:

Restated (Note 2(n)) 2004 2003 HK$’000 HK$’000

Hong Kong profits tax 106,406 55,552

(Over)/under provision in prior years (1,074) 106

Deferred taxation relating to the origination and reversal of temporary differences

– as previously reported (31,247) 15,123

– effect of change in accounting policy (Note 2(n)) – (15,674)

Deferred taxation resulting from an increase in tax rate

– as previously reported – 6,936

– effect of change in accounting policy (Note 2(n)) – 26,006

74,085 88,049 77

8 Taxation (continued)

The taxation on the Group’s (loss)/profit before taxation differs from the theoretical amount that would arise using the taxation rate of the home country of the Company as follows:

2004 2003 HK$’000 HK$’000

(Loss)/profit before taxation (15,871) 429,572

Calculated at a taxation rate of 17.5% (2003: 16%) (2,777) 68,731

Effect of different taxation rates in other regions (39,502) (8,656)

Income not subject to taxation (1,045) (2,483)

Expenses not deductible for taxation purposes 5,822 1,193

(Over)/under provision in prior years (1,074) 106

Recognition of previously unrecognised deferred taxation (18,254) 3,957

Utilisation of previously unrecognised tax losses (4,987) (33,756)

Tax losses not recognised 126,316 23,755

Temporary differences not recognised 9,586 2,260

Increase in opening net deferred tax liabilities arising from increase in tax rate – 32,942

Taxation charge 74,085 88,049

9 (Loss)/profit attributable to shareholders

Included in the loss attributable to shareholders of HK$89,920,000 (2003: profit of HK$341,546,000, as restated) is a loss of HK$684,000 (2003: profit of HK$387,495,000) which has been dealt with in the accounts of the Company. 78

Notes to the Accounts

10 (Loss)/earnings per share

The calculation of the basic (loss)/earnings per share is based on the loss for the year of HK$89,920,000 (2003: profit of HK$341,546,000, as restated) and the weighted average of 1,410,756,130 ordinary shares (2003: 1,233,661,176 ordinary shares) in issue during the year.

No diluted loss per share for the year ended 31 March 2004 has been presented as the exercise of the conversion rights attached to the preference shares and the exercise of the share options would be anti-dilutive.

The calculation of fully diluted earnings per share for the year ended 31 March 2003 was based on the weighted average of 1,233,661,176 ordinary shares in issue during that year plus the weighted average of 1,162,227,807 ordinary shares deemed to have been issued at no consideration assuming all outstanding share options had been exercised and all the preference shares had been converted into ordinary shares of the Company.

11 Staff costs

2004 2003 HK$’000 HK$’000

Wages, salaries and benefits in kind 876,785 706,214

Pension costs – defined contribution plans, net of forfeited contributions (Note 25(a)) 21,592 17,114

Pension costs – defined benefits plans (Note 25(b)) 8,759 6,275

907,136 729,603

The staff costs for the year ended 31 March 2004 included directors’ emoluments of HK$15,384,000 (2003: HK$14,577,000) as set out in Note 12. 79

12 Directors’ and senior management’s emoluments

(a) Directors’ emoluments

The aggregate amounts of emoluments paid and payable to directors of the Company for the year are as follows:

2004 2003 HK$’000 HK$’000

Fees

Executive directors 954 400

Independent non-executive directors 478 200

Other emoluments – Executive directors

Salaries and benefits in kind 13,528 13,554

Pension costs – defined contribution plans 424 423

15,384 14,577

During the year, 50,000 (2003: 175,000) options were granted to a (2003: two) director of the Company under the Subsidiary Share Option Schemes and no (2003: no) options were granted to any directors of the Company under the 2000 Option Scheme (Note 22).

50,000 options under the Subsidiary Share Option Schemes and 2,536,000 options under the 2000 Option Scheme granted in prior years were held by a director newly appointed during the year.

The emoluments disclosed above include expenses of HK$2,210,000 (2003: HK$2,379,000) paid by the Group under two operating leases in respect of residential accommodation provided to an executive director in Hong Kong and Taiwan.

The emoluments of the directors fell within the following bands:

Emolument bands Number of directors 2004 2003

HK$Nil-HK$1,000,000 3 2

HK$2,000,001-HK$2,500,000 1 1

HK$2,500,001-HK$3,000,000 3 3

HK$3,500,001-HK$4,000,000 1 1 80

Notes to the Accounts

12 Directors’ and senior management’s emoluments (continued)

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include four (2003: three) directors, whose emoluments are included in the analysis presented above. The emoluments payable to the remaining one (2003: two) highest paid individual for the year are as follows:

2004 2003 HK$’000 HK$’000

Salaries and benefits in kind 3,396 6,114

Pension costs – defined contribution plans 138 228

3,534 6,342

The emoluments of these individuals fell within the following bands:

Emolument bands Number of individuals 2004 2003

HK$3,000,001-HK$3,500,000 – 2

HK$3,500,001-HK$4,000,000 1 –

(c) During the years ended 31 March 2004 and 2003, the Group did not pay any amounts to any of the directors or five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

(d) During the years ended 31 March 2004 and 2003, no director waived or agreed to waive any emoluments. 81

13 Intangible assets

Masthead and publishing rights HK$’000

Cost

At 1 April 2003, as previously reported 1,517,274

Effect of change in accounting policy (Note 2(n)) 303,656

At 1 April 2003, as restated, and 31 March 2004 1,820,930

Accumulated amortisation

At 1 April 2003, as previously reported 128,788

Effect of change in accounting policy (Note 2(n)) 26,265

At 1 April 2003, as restated 155,053

Amortisation 91,539

At 31 March 2004 246,592

Net book value

At 31 March 2004 1,574,338

At 31 March 2003, as restated 1,665,877 82

Notes to the Accounts

14 Fixed assets

Group Furniture, Construction Land and Leasehold Plant and fixtures and Motor in progress buildings improvements machinery equipment vehicles Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cost or valuation

At 1 April 2003 389,226 893,693 37,490 671,710 141,480 5,481 2,139,080

Currency realignment – 11,338 711 681 3,517 42 16,289

Additions – 11,982 7,012 62,796 59,598 919 142,307

Reclassification (389,226) – – 388,182 1,044 – –

Disposals – – (128) (1,329) (16,713) (381) (18,551)

Revaluation – (32,687) – – – – (32,687)

At 31 March 2004 – 884,326 45,085 1,122,040 188,926 6,061 2,246,438

Accumulated depreciation and impairment losses

At 1 April 2003 – 12,720 8,751 211,089 60,141 2,121 294,822

Currency realignment – 243 74 1,432 1,724 12 3,485

Charge for the year – 15,885 4,038 75,869 40,553 1,511 137,856

Disposals – – (96) (1,082) (16,015) (304) (17,497)

Revaluation – (28,848) – – – – (28,848)

At 31 March 2004 – – 12,767 287,308 86,403 3,340 389,818

Net book value

At 31 March 2004 – 884,326 32,318 834,732 102,523 2,721 1,856,620

At 31 March 2003 389,226 880,973 28,739 460,621 81,339 3,360 1,844,258 83

14 Fixed assets (continued)

The analysis of the cost or valuation at 31 March 2004 of the above assets is as follows:

Group Furniture, Construction Land and Leasehold Plant and fixtures and Motor in progress buildings improvements machinery equipment vehicles Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At cost – – 45,085 1,122,040 188,926 6,061 1,362,112

At valuation – 884,326 – – – – 884,326

– 884,326 45,085 1,122,040 188,926 6,061 2,246,438

The analysis of the cost or valuation at 31 March 2003 of the above assets is as follows:

Group Furniture, Construction Land and Leasehold Plant and fixtures and Motor in progress buildings improvements machinery equipment vehicles Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At cost 389,226 – 37,490 671,710 141,480 5,481 1,245,387

At valuation – 893,693 – – – – 893,693

389,226 893,693 37,490 671,710 141,480 5,481 2,139,080 84

Notes to the Accounts

14 Fixed assets (continued)

Company Land and Leasehold buildings improvements Total HK$’000 HK$’000 HK$’000

Cost or valuation

At 1 April 2003 188,257 12,047 200,304

Additions – 169 169

Revaluation (8,366) – (8,366)

At 31 March 2004 179,891 12,216 192,107

Accumulated depreciation

At 1 April 2003 4,183 1,338 5,521

Charge for the year 4,183 244 4,427

Revaluation (8,366) – (8,366)

At 31 March 2004 – 1,582 1,582

Net book value

At 31 March 2004 179,891 10,634 190,525

At 31 March 2003 184,074 10,709 194,783

The analysis of the cost or valuation at 31 March 2004 of the above assets is follows:

Company Land and Leasehold buildings improvements Total HK$’000 HK$’000 HK$’000

At cost – 12,216 12,216

At valuation 179,891 – 179,891

179,891 12,216 192,107 85

14 Fixed assets (continued)

The analysis of the cost or valuation at 31 March 2003 of the above assets is follows:

Company Land and Leasehold buildings improvements Total HK$’000 HK$’000 HK$’000

At cost – 12,047 12,047

At valuation 188,257 – 188,257

188,257 12,047 200,304

Except for the overseas freehold land and buildings with a total net book value of HK$368,198,000 (2003: HK$352,905,000) held by certain subsidiaries of the Company, all remaining land and buildings of the Group are situated in Hong Kong and are held on leases of between 10 to 50 years.

As at 31 March 2004, the Group’s and the Company’s land and buildings were valued as follows:

Group Company HK$’000 HK$’000

Leasehold land and buildings situated in Hong Kong valued on a depreciated replacement cost basis (Note a), less depreciation 516,128 179,891

Freehold land and buildings situated outside Hong Kong valued on an open market basis (Note b) 368,198 –

884,326 179,891

Note:

(a) The leasehold land and buildings situated in Hong Kong are held by the Group under lease agreements dated 25 May 1999 and 22 December 1999 with Hong Kong Science and Technology Parks Corporation (“HKSTP”) (formerly known as “The Hong Kong Industrial Estates Corporation”) which restrict the usage of the premises to the publishing and printing of magazines, directories and books. The Group’s interests in the properties are transferable subject to the right of first refusal to purchase by HKSTP. Accordingly, the properties were valued on a depreciated replacement cost basis which is the aggregate of the land value in its existing use and the estimated replacement costs of the buildings. The latest valuation performed on these properties was carried out by Chesterton Petty Limited, an independent valuer, at 26 April 2004. 86

Notes to the Accounts

14 Fixed assets (continued)

(b) As at 31 March 2004, freehold land and buildings situated outside Hong Kong included land and buildings with an aggregate carrying value of HK$366,997,000 (2003: HK$351,875,000) situated in Taiwan which were valued on an open market basis and the latest valuation performed on these properties was carried out by Colliers International Limited, Taiwan Branch, an independent valuer, at 31 March 2004.

(c) The carrying amount of land and buildings held by the Group and the Company would have been HK$908,426,000 (2003: HK$916,267,000) and HK$202,863,000 (2003: HK$207,274,000) respectively had they been stated at cost less accumulated depreciation and accumulated impairment losses.

(d) At 31 March 2004, certain of the Group’s land and buildings with a total net book value of HK$695,784,000 (2003: HK$698,998,000) and certain plant and machinery with an aggregate net book value of HK$317,811,000 (2003: HK$84,399,000) were pledged as securities for the Group’s banking facilities (Note 24).

15 Investments in subsidiaries

Company 2004 2003 HK$’000 HK$’000

Unlisted shares, at cost less provision 2,620,000 2,620,000

Amounts due from subsidiaries, net of provision 2,192,042 1,510,722

Amounts due to subsidiaries (1,763,555) (956,521)

3,048,487 3,174,201

As at 31 March 2004 and 2003, all balances with subsidiaries are unsecured and interest free, and have no fixed terms of repayment.

Particulars of the principal subsidiaries of the Group at 31 March 2004 are set out in note 30. 87

16 Investments in associated companies

Group Company 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000

Share of net liabilities (5,758) (5,758) – –

Amounts due from associated companies 4,928 4,928 11 11

(830) (830) 11 11

Unlisted shares, at cost 1,000 1,000 – –

Details of the principal associated company at 31 March 2004 are as follows:

Place of Interest incorporation/ Principal Particulars of held Name operation activity issued shares held indirectly

China Capital Hong Kong Inactive 1,000,000 ordinary 50% Communications shares of HK$1 each Corporation Limited

17 Inventories

Group 2004 2003 HK$’000 HK$’000

Raw materials 126,634 89,370

Work-in-progress 2,096 2,156

Finished goods 247 215

128,977 91,741

As at 31 March 2004 and 2003, all inventories were stated at cost. 88

Notes to the Accounts

18 Accounts receivable, deposits and prepayments

Group Company 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000

Accounts receivable, net 409,809 292,536 – –

Prepayments 55,738 45,223 – –

Deposits for acquisition of fixed assets 3,626 22,164 – –

Rental and other deposits 2,791 3,039 – –

Others 8,533 2,974 1,617 348

480,497 365,936 1,617 348

The Group’s sales are made on credit terms of 7 to 120 days.

As at 31 March 2004 and 2003, an analysis of the accounts receivable of the Group by age was as follows:

2004 2003 HK$’000 HK$’000

0 -1 month 159,145 109,805

1 -3 month 170,838 139,772

Over 3 months 112,470 74,609

442,453 324,186

Less: Provisions for bad and doubtful debts (32,644) (31,650)

409,809 292,536

19 Bank balances and cash

As at 31 March 2004, included in the bank balances and cash was an amount of HK$6,420,000 (2003: HK$6,420,000) which was restricted for the use of settling certain debts and claims as stipulated as part of a capital reduction exercise carried out in the year ended 31 March 2003. 89

20 Accounts payable and accrued charges

Group Company 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000

Accounts payable 97,405 102,006 – –

Accrued charges 301,026 292,996 6,960 6,039

398,431 395,002 6,960 6,039

As at 31 March 2004 and 2003, an analysis of accounts payable of the Group by age was as follows:

2004 2003 HK$’000 HK$’000

0 -1 month 58,825 65,840

1 -3 month 26,754 23,358

Over 3 months 11,826 12,808

97,405 102,006

21 Share capital

Authorised 2% convertible non-voting, non-cumulative, preference shares (“Preference shares”) Ordinary shares No. of shares HK$’000 No. of shares HK$’000

At 1 April 2002 and 2003, and 31 March 2004, Preference shares of HK$1.75 each and ordinary shares of HK$1.00 each 1,160,000,000 2,030,000 2,570,000,000 2,570,000 90

Notes to the Accounts

21 Share capital (continued)

Issued and fully paid Preference shares Ordinary shares No. of shares HK$’000 No. of shares HK$’000

At 1 April 2002 and 2003, Preferences shares of HK$1.75 each and ordinary shares of HK$1.00 each 1,160,000,000 2,030,000 1,233,661,176 1,233,661 Exercise of share options – – 4,973,400 4,974 Conversion of Preference shares (240,000,000) (420,000) 240,000,000 240,000

At 31 March 2004, Preference shares of HK$1.75 each and ordinary shares of HK$1.00 each 920,000,000 1,610,000 1,478,634,576 1,478,635

31 March 31 March 2004 2003 HK$’000 HK$’000

Total issued and fully paid share capital

Ordinary shares of HK$1.00 each 1,478,635 1,233,661

Preference shares of HK$1.75 each 1,610,000 2,030,000

3,088,635 3,263,661 91

22 Share option schemes

(a) Share Option Schemes adopted by the Company

(i) 1993 Option Scheme

Pursuant to a share option scheme adopted by the Company on 20 September 1993 (the “1993 Option Scheme”), the following options have been granted to an employee of the Group to subscribe for ordinary shares in the Company in accordance with the terms thereof. The options are exercisable within ten years from the respective dates of grant.

Details of the terms and movements of the share options under the 1993 Option Scheme are as follows:

Number of options lapsed Category of Exercise price Exercisable as at during as at grantee Date of grant per share period 1/4/2003 the year 31/3/2004

An employee 11/01/1994 HK$4.21 21/01/1995 – 71,136 (71,136) – 21/01/2004

10/06/1999 HK$1.00 15/01/2000 – 81,505 – 81,505 15/06/2009

152,641 (71,136) 81,505

The 1993 Option Scheme expired on 19 September 2003 and therefore no further options were granted under this scheme. The exercise of any outstanding options granted under the 1993 Option Scheme shall continue to be governed by the terms of the 1993 Option Scheme and other specific terms and conditions in relation to the grant. 92

Notes to the Accounts

22 Share option schemes (continued)

(a) Share Option Schemes adopted by the Company (continued)

(ii) 2000 Option Scheme

Another share option scheme was adopted by the Company on 29 December 2000 (the “2000 Option Scheme”) under which the Company may grant options to any of the Company’s full time employees and directors or employees and directors of any of its subsidiaries. A nominal consideration of HK$10 is paid by the grantees for each lot of share options granted.

Details of the terms and movements of the share options granted pursuant to the 2000 Option Scheme are as follows:

Number of options held by a Exercise newly exercised lapsed Category of Date of price per Exercisable as at appointed during the during the as at grantee grant share period 1/4/2003 director year year 31/3/2004

Directors 18/03/2002 HK$1.67 19/03/2003 – 1,618,000 2,536,000 – – 4,154,000 28/12/2010

Employees 18/03/2002 HK$1.67 19/03/2003 – 22,092,000 (2,536,000) (4,973,400) (1,019,800) 13,562,800 28/12/2010

23,710,000 – (4,973,400) (1,019,800) 17,716,800

The options granted under the 2000 Option Scheme vest as follows:

On 1st anniversary of the date of grant 30% vested

On 2nd anniversary of the date of grant Further 30% vested

On 3rd anniversary of the date of grant Remaining 40% vested

The vested share options are exercisable within 10 years after the adoption date of the 2000 Option Scheme. 93

22 Share option schemes (continued)

(b) Share option schemes adopted by certain subsidiaries

Each of Apple Daily Publication Development Limited (“ADPDL”) and Next Media Publishing Limited (“NMPL”) (collectively the “Subsidiaries”), wholly-owned subsidiaries of the Company, adopted a share option scheme (the “Subsidiary Share Option Schemes”) on 31 July 2002. Under the Subsidiary Share Option Schemes, the Subsidiaries may grant to any of their full-time employees and directors or employees and directors of any of their subsidiaries options to subscribe for the respective ordinary shares of ADPDL and NMPL. The number of shares which may be issued upon exercise of all outstanding options granted under the Subsidiary Share Option Schemes and any other share option scheme of the Subsidiaries is limited to 30% of the Subsidiaries’ shares in issue from time to time.

Movements in the number of share options granted pursuant to the Subsidiary Share Option Schemes during the year are as follows:

Number of options ADPDL NMPL

At 1 April 2003 805,000 275,000

Granted 125,000 150,000

Lapsed (105,000) –

At 31 March 2004 825,000 425,000

Included in the above analysis were 275,000 options granted to the directors of the Company to subscribe for the shares of ADPDL. 94

Notes to the Accounts

23 Reserves

Group Retained Property profits/ Share revaluation Translation Goodwill (accumulated premium reserve reserve reserve losses) Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 April 2002 865,083 1,161 (630) (15,559) (1,085,380) (235,325)

Currency realignment – – (5,806) – – (5,806)

Capital reduction (828,937) – – – 828,937 –

Profit for the year, as restated (Note 2(n)) – – – – 341,546 341,546

At 31 March 2003, as restated 36,146 1,161 (6,436) (15,559) 85,103 100,415

Company and subsidiaries 36,146 1,161 (6,436) (15,559) 91,861 107,173

An associated company – – – – (6,758) (6,758)

At 31 March 2003, as restated 36,146 1,161 (6,436) (15,559) 85,103 100,415

At 1 April 2003, as previously reported 36,146 1,161 (6,436) (15,559) 111,109 126,421

Effect of change in accounting policy (Note 2(n)) – – – – (26,006) (26,006)

At 1 April 2003, as restated 36,146 1,161 (6,436) (15,559) 85,103 100,415

Exercise of share options 3,332 – – – – 3,332

Conversion of Preference shares 180,000 – – – – 180,000

Currency realignment – – 42,539 – – 42,539

Loss for the year – – – – (89,920) (89,920)

At 31 March 2004 219,478 1,161 36,103 (15,559) (4,817) 236,366

Company and subsidiaries 219,478 1,161 36,103 (15,559) 1,941 243,124

An associated company – – – – (6,758) (6,758)

At 31 March 2004 219,478 1,161 36,103 (15,559) (4,817) 236,366 95

23 Reserves (continued)

Company Retained Property profits/ Share revaluation (accumulated premium reserve losses) Total HK$’000 HK$’000 HK$’000 HK$’000

At 1 April 2002 865,083 764 (1,213,540) (347,693)

Capital reduction (828,937) – 828,937 –

Profit for the year – – 387,495 387,495

At 31 March 2003 36,146 764 2,892 39,802

At 1 April 2003 36,146 764 2,892 39,802

Exercise of share options 3,332 – – 3,332

Conversion of Preference shares 180,000 – – 180,000

Loss for the year – – (684) (684)

At 31 March 2004 219,478 764 2,208 222,450 96

Notes to the Accounts

24 Long-term liabilities

Group Company 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000

Secured bank loans (Note) 296,394 275,929 – 65,940

Current portion of long-term liabilities (60,636) (70,548) – (18,840)

235,758 205,381 – 47,100

An analysis of the above is as follows:

Bank loans, repayable

– within one year 60,636 70,548 – 18,840

– in the second year 61,095 70,986 – 18,840

– in the third to fifth years, inclusive 166,444 112,489 – 28,260

– after the fifth year 8,219 21,906 – –

296,394 275,929 – 65,940

Less: current portion (60,636) (70,548) – (18,840)

Amount due after one year 235,758 205,381 – 47,100

Note:

As at 31 March 2004, the Group’s banking facilities are secured by the following:

– Certain of the Group’s land and buildings with an aggregate net book value of HK$695,784,000; and

– Certain of the Group’s plant and machinery with an aggregate net book value of HK$317,811,000. 97

25 Retirement benefit costs

2004 2003 HK$’000 HK$’000

Obligations on:

Pensions – defined contribution plans (Note (a)) 945 247

Pensions – defined benefit plans (Note (b)) 13,935 6,747

14,880 6,994

(a) The Group operates two defined contribution retirement schemes (the “HK Schemes”) and a mandatory provident fund scheme (the “MPF Scheme”) for eligible employees in Hong Kong.

The Group’s and the employees’ contributions to the HK Schemes are each set at 5% of the employees’ salaries including basic salaries, commission and certain bonuses.

The Group’s and the employees’ contributions to the MPF Scheme are each set at 5% of the employees’ salaries up to a maximum of HK$1,000 per employee per month. The Group’s contributions to the MPF Scheme are fully and immediately vested in the employees once they are paid.

The HK Schemes and the MPF Scheme were established under trust with the assets of the funds held separately from those of the Group by independent trustees.

Forfeited contributions totalling HK$1,293,000 (2003: HK$4,179,000) were utilised during the year. At 31 March 2004, HK$22,000 (2003: HK$305,000) was available to reduce future contributions in respect of the HK Schemes.

As at 31 March 2004, the Group had contributions payable under the HK Schemes and the MPF Scheme totalling HK$945,000 (2003: HK$247,000) which amount is included in accounts payable and accrued charges under current liabilities in the consolidated balance sheet.

(b) The Group also operates two defined benefit retirement schemes for its eligible employees in Taiwan (the “Taiwan Schemes”). According to the Labor Standards Law of Taiwan, the Group’s contributions to the Taiwan Schemes should not be less than 2% of the employees’ salaries. The assets of the Taiwan Schemes are held under a government-run trust separate from those of the Group. As at 31 March 2004, the Taiwan Schemes were valued by a qualified actuary, KPMG Advisory Services Co., Ltd., using the projected unit credit method. 98

Notes to the Accounts

25 Retirement benefit costs (continued)

The amounts recognised in the consolidated balance sheet are determined as follows:

2004 2003 HK$’000 HK$’000

Present value of funded obligations 16,690 7,585

Fair value of plan assets (3,118) (800)

13,572 6,785

Unrecognised actuarial gains/(losses) 363 (38)

Liability in the balance sheet 13,935 6,747

The amounts recognised in the consolidated profit and loss account were as follows:

2004 2003 HK$’000 HK$’000

Current service cost 8,512 6,165

Expected return on plan assets (22) –

Interest cost 269 110

Total, included in staff costs (Note 11) 8,759 6,275

Of the total charge, HK$8,759,000 (2003: HK$6,275,000) was included in personnel costs.

The actual return on plan assets recognised as an asset was approximately HK$15,000 (2003: HK$3,000). 99

25 Retirement benefit costs (continued)

Movement in the liability recognised in the consolidated balance sheet:

2004 2003 HK$’000 HK$’000

At beginning of the year 6,747 1,251

Exchange difference 689 18

Total expense – as shown above 8,759 6,275

Contributions paid (2,260) (797)

At end of the year 13,935 6,747

The principal actuarial assumptions used were as follows:

2004 2003 % %

Discount rate 3.50 3.50

Expected rate of return on plan assets 3.50 2.75

Expected rate of future salary increases 3.00 3.00

26 Deferred taxation

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2003: 17.5%). 100

Notes to the Accounts

26 Deferred taxation (continued)

The movement on the deferred tax liabilities/(assets) account is as follows:

Group Company 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000

At beginning of the year, as previously reported 80,905 58,846 503 304

Effect of change in accounting policy (Note 2(n)) 303,397 293,065 – –

At beginning of the year, as restated 384,302 351,911 503 304 Exchange differences 11 – – – Deferred taxation relating to the origination and reversal of temporary differences – as previously reported (31,247) 15,123 – –

– effect of change in accounting policy (Note 2(n)) – (15,674) – – Deferred taxation resulting from an increase in tax rate – as previously reported – 6,936 1,629 199

– effect of change in accounting policy (Note 2(n)) – 26,006 – –

At end of the year 353,066 384,302 2,132 503

As at 31 March 2004, the Group has unrecognised tax losses of HK$1,152,356,000 (2003: HK$780,216,000) to carry forward against future taxable income; the expiry dates of these tax losses are as follows:

2004 2003 HK$’000 HK$’000

With no expiry date 430,201 582,391 With expiry in: 2006 – 7,395 2007 96,809 95,391 2008 100,041 95,039 2009 525,305 –

1,152,356 780,216 101

26 Deferred taxation (continued)

The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same taxation jurisdiction) during the year is as follows:

Group

Accelerated tax Deferred tax liabilities depreciation Others Total 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At beginning of the year, as previously reported 89,972 86,507 – – 89,972 86,507

Effect of change in accounting policy (Note 2(n)) – – 303,397 293,065 303,397 293,065

At beginning of the year, as restated 89,972 86,507 303,397 293,065 393,369 379,572

Exchange differences 11 – – – 11 –

Charged/(credited) to profit and loss account 6,301 3,465 (17,144) 10,332 (10,843) 13,797

At end of the year 96,284 89,972 286,253 303,397 382,537 393,369

Deferred tax assets Tax losses Others Total 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At beginning of the year (8,593) (26,552) (474) (1,109) (9,067) (27,661)

(Credited)/charged to profit and loss account (16,869) 17,959 (3,535) 635 (20,404) 18,594

At end of the year (25,462) (8,593) (4,009) (474) (29,471) (9,067) 102

Notes to the Accounts

26 Deferred taxation (continued)

Company

Accelerated tax Deferred tax liabilities depreciation 2004 2003 HK$’000 HK$’000

At beginning of the year 8,287 6,999

Charged to profit and loss account 2,248 1,288

At end of the year 10,535 8,287

Deferred tax assets Tax losses Others Total 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At beginning of the year (7,750) (6,665) (34) (30) (7,784) (6,695)

Credited to profit and loss account (619) (1,085) – (4) (619) (1,089)

At end of the year (8,369) (7,750) (34) (34) (8,403) (7,784) 103

27 Notes to the consolidated cash flow statement

(a) Reconciliation of operating (loss)/profit to net cash inflow generated from operations

2004 2003 HK$’000 HK$’000

Operating (loss)/profit (8,432) 441,217

Interest income (2,343) (8,904)

Depreciation of fixed assets 137,856 102,848

Amortisation of intangible assets 91,539 91,538

Loss on disposal of fixed assets 237 988

Revaluation deficit of fixed assets 3,839 –

Operating profit before working capital changes 222,696 627,687

Increase in inventories (37,236) (27,844)

Increase in accounts receivable, deposits and prepayments (133,099) (31,647)

Increase in accounts payable and accrued charges 3,429 106,707

Increase in pensions obligations 6,499 5,496

Effect on foreign exchange rate changes 33,835 (5,685)

Net cash inflow generated from operations 96,124 674,714 104

Notes to the Accounts

27 Notes to the consolidated cash flow statement (continued)

(b) Analysis of changes in financing

Share Share Minority Bank capital premium interests loans HK$’000 HK$’000 HK$’000 HK$’000

At 1 April 2002 3,263,661 865,083 2,348 249,780

Capital reduction # – (828,937) – –

New bank loans – – – 86,885

Repayment of bank loans – – – (60,736)

Minority share of loss for the year # – – (23) –

At 31 March 2003 3,263,661 36,146 2,325 275,929

At 1 April 2003 3,263,661 36,146 2,325 275,929

Exercise of share options 4,974 3,332 – –

Conversion of preference shares # (180,000) 180,000 – –

New bank loans – – – 231,250

Repayment of bank loans – – – (215,258)

Repayment to minority shareholders – – (289) –

Minority share of loss for the year # – – (36) –

Exchange realignment # – – – 4,473

At 31 March 2004 3,088,635 219,478 2,000 296,394

# representing non-cash transactions 105

28 Contingent liabilities

(a) Pending litigations

As at 31 March 2004, the Group had contingent liabilities in respect of a number of legal proceedings in Hong Kong and Taiwan arising in the normal course of its publishing business. In addition, the Group had a dispute with UDL Contracting Limited (“UDL”) as contractor for the construction of a printing facility of a subsidiary, namely Apple Daily Printing Limited, over amounts payable in respect of the construction of the facility, which is currently under arbitration. The final outcome of these proceedings is uncertain.

In connection with the acquisition of Database Gateway Limited (“DGL”) and its subsidiaries on 26 October 2001, Mr. Lai Chee Ying, Jimmy (“Mr. Lai”), chairman and a major shareholder of the Company, has undertaken to provide unlimited personal indemnities to the Company and DGL and its subsidiaries (the “Acquired Group”) against all payments, claims, suits, damages and settlement payments and any associated costs and expenses arising, made or incurred after 26 October 2001 arising out of or connected with (1) any third party claims made against the Acquired Group on and before 26 October 2001, (2) defamation claims, claims for infringement of intellectual property rights and other proceedings and claims which may in the future arise from the content of the newspaper and magazines published by the Acquired Group on and at any time before 26 October 2001 and (3) the dispute with UDL (the “Indemnity”). In relation to the Indemnity, Mr. Lai also procured a bank guarantee of HK$60,000,000 for a term of three years from 26 October 2001 in favour of the Company and the Acquired Group in respect of his obligations under the Indemnity.

The Directors of the Company, having taken into consideration advice from the Group’s legal counsels and the Indemnity given by Mr. Lai, are of the opinion that any ultimate liability under these proceedings would not have a material impact on the financial position of the Group.

(b) Guarantees

Company 2004 2003 HK$’000 HK$’000

Guarantees given to financial institutions in respect of credit facilities utilised by subsidiaries 224,918 184,700 106

Notes to the Accounts

29 Commitments

(a) Capital commitments in respect of acquisition of fixed assets

Group Company 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000

Authorised but not contracted for 6,367 – – –

Contracted but not provided for 7,990 21,986 6 –

14,357 21,986 6 –

(b) Commitments under operating leases

At 31 March 2004, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Land and Other buildings assets Total HK$’000 HK$’000 HK$’000

At 31 March 2004

Not later than one year 5,029 8,498 13,527

Later than one year but not later than five years 1,433 5,615 7,048

6,462 14,113 20,575

At 31 March 2003

Not later than one year 3,925 12,293 16,218

Later than one year but not later than five years 1,305 2,704 4,009

5,230 14,997 20,227 107

30 Particulars of principal subsidiaries

Particulars of principal subsidiaries of the Group at 31 March 2004 are as follows:

Place of Particulars of Interest incorporation/ issued and paid up held Name operation Principal activities share capital (%) Note

Apple Daily I. P. Limited British Virgin Holding of masthead 1 ordinary share 100 Islands/ and publishing rights of US$1 Hong Kong of newspaper

Apple Daily Limited Hong Kong Publication and selling 200,000,000 ordinary 100 of newspaper and selling shares of of newspaper advertising HK$0.01 each space

Apple Daily Printing Limited Hong Kong Printing of newspaper 100,000,000 ordinary 100 shares of HK$1 each

Apple Daily Publication Hong Kong/ Publication and selling 10,000,000 ordinary 100 Development Limited Taiwan of newspaper and selling shares of of newspaper advertising HK$0.01 each space

Book Art Inc. Canada Printing agency 100 common shares 70 (b) of C$1 each

Cameron Printing Company Hong Kong Hire of plant and machinery 5,000,000 ordinary 100 (a) Limited shares of HK$1 each

Database Gateway Limited British Virgin Investment holding 739,001,531 ordinary 100 (a) Islands shares of HK$1 each

Easy Finder Limited Hong Kong Publication and selling 10,000 ordinary 100 of magazines shares of HK$1 each

Easy Finder Marketing Limited Hong Kong Selling of magazine 20,000,000 ordinary 99.67 advertising space shares of HK$1 each and 855,000,000 ordinary shares of HK$0.01 each 108

Notes to the Accounts

30 Particulars of principal subsidiaries (continued)

Place of Particulars of Interest incorporation/ issued and paid up held Name operation Principal activities share capital (%) Note

Easy Media Limited British Virgin Holding of masthead and 11,000 ordinary shares 100 Islands/ publishing rights of of US$1 each Hong Kong magazines

Eat and Travel Weekly Hong Kong Publication and selling of 2 ordinary shares of 100 Company Limited magazines and selling of HK$1 each magazines advertising space

Job Finder Limited Hong Kong Selling of magazine 10,000 ordinary 100 advertising space shares HK$1 each

Next Magazine Advertising Limited Hong Kong Selling of magazine 1,000 ordinary 100 advertising space shares of HK$1 each

Next Magazine Publishing Limited Hong Kong Publication and selling 1,000 ordinary shares 100 of magazines of HK$1 each

Next Media I. P. Limited British Virgin Holding of masthead and 1,000 ordinary shares 100 Islands/ publishing rights of of HK$1 each Hong Kong magazines

Next Media Interactive Limited British Virgin Provision of internet 10,001 ordinary shares 100 Islands/ contents and selling of of US$1 each Hong Kong advertising space

Next Media Management Hong Kong Provision of management 2 ordinary shares of 100 Services Limited services HK$1 each

Next Media Publishing Limited Hong Kong/Taiwan Publication and selling 10,000,000 ordinary 100 of magazines and selling shares of HK$0.01 each of magazines advertising space

Paramount Printing Hong Kong Provision of printing services 15,000 ordinary shares 100 (a) Company Limited of HK$100 each 109

30 Particulars of principal subsidiaries (continued)

Place of Particulars of Interest incorporation/ issued and paid up held Name operation Principal activities share capital (%) Note

Paramount Printing (USA) Inc. USA Printing agency 100 common shares 100 (b) of US$0.01 each

Rainbow Digicolor Inc. Canada Provision of 100 common shares 70 (b) reprographic services of C$0.1 each

Rainbow Graphic & Printing Hong Kong Provision of printing 600,000 ordinary 100 Company Limited and reprographic services shares of HK$1 each

Sudden Weekly Limited Hong Kong Publication and selling of 2 ordinary shares of 100 magazines and selling of HK$1 each magazines advertising space

The above table includes the subsidiaries of the Company which, in the opinion of the directors, principally affected the results of the year or formed a substantial portion of the net assets of the Group.

Notes:

(a) These subsidiaries were directly held by the Company.

(b) The accounts of these subsidiaries have not been audited by PricewaterhouseCoopers. The aggregate net liabilities and profit for the year of these subsidiaries attributable to the Group amounted to approximately HK$13,274,000 (2003: HK$14,025,000) and HK$716,000 (2003: HK$3,446,000) respectively.

31 Approval of accounts

The accounts were approved by the board of directors on 11 June 2004. 110

Five Years Financial Summary For the year ended 31 March 2004

Year ended 31 March 2000 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

RESULTS

Turnover 217,171 350,436 1,120,876 2,150,072 2,437,109

Operating profit/(loss) (42,038) (104,522) 63,560 456,891 (8,432)

Finance costs (34,523) (27,506) (9,659) (11,645) (7,439)

(76,561) (132,028) 53,901 445,246 (15,871)

Share of results of associated companies (113) (6,987) – – –

Profit/(loss) before taxation (76,674) (139,015) 53,901 445,246 (15,871)

Taxation (1,836) (6,758) (27,085) (77,717) (74,085)

Profit/(loss) before minority interests (78,510) (145,773) 26,816 367,529 (89,956)

Minority interests 40 (25) (267) 23 36

Profit/(loss) attributable to shareholders (78,470) (145,798) 26,549 367,552 (89,920)

As at 31 March 2000 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

ASSETS AND LIABILITIES

Total assets 636,447 658,688 3,563,184 4,186,758 4,422,706

Total liabilities and minority interests (401,198) (416,596) (515,397) (796,676) (1,097,705)

Shareholders’ funds 235,249 242,092 3,047,787 3,390,082 3,325,001

Note:

The financial information of the preceding financial years have not been adjusted for the effect arising from changes in accounting policies resulted from the adoption of the revised SSAP 12 which is effective in the year ended 31 March 2004. Inside Front Cover-English (file from Equity)

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